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00-13 (3) , . ~,: i; ~I;. . . ~. i, .' '. : i{~1 ','.' '. , : .~ ',' ' ,. " ,~ :. ' .. ~~ ~ . '. i~ ~I," . :(~L "[ '., ~'" '.' T.' ,"',',Ic. " .' ., ~~t' ;'".1' d .. "< ~)./, '. \ 'i . '.' ' ~ \ c ~. . f . '.. "., .' ',/ .~' .> ,"'.j:. ". '. ~,~. I c, .' ~.- . ... " I... ~ . . {Y'.',';";"'; , fi' .~. ~ ., ~ h '. ~~t'.> ., '{';<.', :. ::"..... " .:'.'. . .: r;' ., .~, ~:. t' , . .:'~ . t; 'I', ~;l.~ , i'J . . ' . " . '. \, '. " . . . ~ ~,' , ., ' '~';.', ' , . ...' I ~ :~ ~ . . ~ . .; ~ ~ ~. . j", ~'I-~~~.~.,' .; . ".Ic' ., ~:.' ". . , ~ t' c'. .' ',1. .' I.: ".\ ~ d' ,. ';; " '1; 0",' .~ . , , , ,; :'\",> " .'. '( ,.J, .~, ' .1 1 .:;., '!' . ,~, ','l. ,I >':" ,'. # I . ,1', ')"' \!/ " " ., ,> . ,. , ,~, ' , ~', '.' ,:'. '. , , , ~/ I;, cli. .,;..1, " ~ t ; " .' ' " \ '. . :. , ''I '~; . l . 01' 'I .. " " ~ ,I. ,~. \. ,', . " '. ','.' , ., Jl. ~: ., ,'. ., '.'?, .f , ' : , " ~ ~ , .'. .r" :/ . . 'i' > I~. .. 'I .'.' ,.\. -- ,.\,.;c;<? 'f> "I'~i r.l! ':j . , . ., , ': ~ <,:'1' .', "', , I '~ . -.: ; ~\:... , . '~ ,"f. . '1, , . )r\' . . ~ . . "; I' ':.,; ~, ,.' " ;,,' :,' , .' ,i'... ~ .~~..: \~~I!-c~,'"~.''.4~''''' c< ~>"l~~'~~~:l.~ ".' ~E: ,.,.,:: .......- ,.,::., .It,.....~ ;: ";~.'\ I; '. ("; RESOLUTIONS . . ,:1 ,,' i. 1.;- .,' 00 (" . , 15 -- .. ., , , I i. I. i. , " t" i 'I', r i , " 1 'I I i 1 .1 ! I '1 , ! I , , , I .:~:..;;:; ,:.,': .,..' "':. 'I' :,..,:';.;~;.~:~~:--c;-.~.~~,~,.n!::~~._.,-- ;,...:-.. . .', :- ' ,"'" . ....' " .\. ~'l'. '. , ,~j,". ~l.~' , '. . ,,~<:.;~:; :" .' >. ' . ,',." . '", ."..' "". . , I , . , ' ~. ' ,\ , '. ' " .;,..: >,'1<,: . .....c' .1. " "'. , . >:1 ~:~ 'rl:;:'~',r'.:"::':';,;'ii;:~,.:\':.'.J': .." )<~i};~'.~J",:~r~';'~ .'{::~::';_~~jU.,Jl!;,/~>.;..~;.::,.: . ". ~lt.'.~J:'~':~,:i;" .:: ~ ,~,:,I:\::,~>: ,-::,l,:, .'~~~:'\': :>(: ,,1.(,~~~i,<'~'~>1 ;;;!./" ,... .'-c,: ~ ~' ! '...' r, RESOLUTION NO. OO~13 A RESOLUTION OF THE CITY OF CLEARWATER, FLORIDA,' APPROVING THE PROPOSED GTE CORPORATION-BELL ATLANTIC CORPORATION MERGER; PROVIDING AN EFFECTIVE DATE. /.r) WHEREAS, pursuant to Ordinance 6046-96 adopted June 20, 1996, the City of Clearwater has' a cable' franchise with GTE Media Ventures Incorporated, which is a wholly owned subsidiary of GTE Corporation; and WHEREAS. on December 13. 1999, GTE Corporation submitted documents to the City. of Clearwater requesting approval of its proposed merger with Bell Atlantic . Corporation; and WHEREAS, in accordance with Section 14(b) of the cable franchise ordinance, GTE Corporation is requesting approval of the change or transfer in control of the company; nowl therefore, BE IT RESOLVED BY THE CITY COMMISSION OF THE CITY OF CLEARWATER, FLORIDA: ."" ~l}''\oi , ' ) ,~ Section 1. Pursuant to Section 14(b) of Cable Franchise Ordinance 6046.96 with GTE Media Ventures Incorporated. the City of Clearwater hereby approves the proposed merger of GTE Corporation and Bell Atlantic Corporation. The merger approval. request and applicable Federal Communications Commission application documentation is attached to this resolutiorl as Exhibit A and is available for inspection upon request in the City Clerk Department. This approval is conditioned upon the waiver by GTE Media Ventures, Inc., for itself and its transferees/assigns1 of the provisions of Section 14(A) and (B) of Ordinance 6046-96. Section 2. This' resolution shall take effect immediately upon adoption. PASSED AND ADOPTED this 6th day of April ,2000. V'CCmItYO~ J,6, JohnSOt1 u Approved as to form: -tb Pamela K. Akin, City Attorney Attest: ~', ~ _ JL J)~_ . 'a E. Goudeau, City Clerl< ---c ResolutIon No, 00-13 , . \;f!?~,!';~~ ~~y[:tYi~ri';~:," ".;'; .:i'......':. !ti.,.jt,~;,::).:-:,:..'.;::~,;~?', i::.,:. ":".~:; ': 'j,';': ..... . . . . '..'. , ~. ~, c ~. . . .' '" . ~ , !}:'::,j':;r,;,~;".'iiS'+'<':~.:','..:'~:, ',. .. i :. . ~.(ft\""J.:'/.~.:.> .~..f~'+,/l" ll"'~"T;f..,).}r.~~.(k.~. ... " 'f/,LJ.~ ',~ . . '. ' ~.' f .1 , ' , /" :/ " ,. '.. >'.,.. ..' . ~ ..,... d.> ;1 , .. " , ;'I~ " ".'\~~' To the Commission of the City or.CI~rwater, Florida: ,. , ,I' . 'As you kDow, on December 13, 1999, GTE Media Ventures Incorporated filed an Application' .' seeking consent for the change of control arising from the merger between its parent, GTE Corporation 'and the Bell Atlantic Corporation. As a result of discussions between , "representatives 9'fthe City and GTE ~ledil1 Ventures pertwning to'the Application, it' has become apparent that the City has. a concern' that any possible future transfer or assignment of the GTE . Media Ventures Franchise Agreement to an affiliate may negatively impact the continued openltion of the franchise. This concern is heightened because Sections 14(A) and (B) of Ordinance No. 6046-96 do not require GTE Media Ventures to acquire prior consent from the City if the franchise or control is'transferred to Bfl1liates,whoUy owned by GTE Corporation. In . view cifthat'concelll, the representatives have reached the following agreement, namely, in consideration for adoption by the Commission of the City of Clearwater, Florida, of Resolution # 00':'13 GTE Media Ventures Incorporated agrees to waive for itself and its transferees/assigns) the provisions of Sections' 14(A) and (8) of Ordinance No. 6046-96. '/,' , .' ) " " " , ~~ . ,', ',' . . '" . GTE MEDIA VENTURES TI\lCORPORATED .\ "'I . r....~ :.....:~J '~ . tz.1.c.l (M.4r.J -A na'Marie Moran ce President/General Manager Video Services " '-??1~ :z. 0 ~ () ()o Date / w ~~ h.'" . '. '. , ' " . . " -- "~' :',.K -.: "i.~': . . 1. " . . 'I " , . t < " : . , . 1, . , , . , , I I' I, L Ii I, \1 '! (' .1 II " :1 /1 II ~ I I i :1 '1 I, I .1:, .... ,,'"\-<, ", , , ~ "" 'f. ':' . '. I ,.' =, ' ' d C '.' ' , . .' , I ., , . .., . , .' . , . , I' ' '., < , . .' ' .' '.: I....:...,~..':'...: :,.,:,,:,"'.. ' .' , . . ... _, .. ,I' . I ... ' ~'~, , f \.,: ? ~ iF' 1 RESOLUTION ,v . t}.t (" ('....fll) 6 \ --' II'"~ . ~';' .:_:~:, 4# Q 0 .,pi I 3 A1TAC,!I /}/F(). 1# /lJH 177 I3INPE~ -rlttE>> .1 . FC,C FO~/YI 314 FIt/Ales. . (0/$ -- ~el-t-RTtIlAlr/~ -JlYJet6 e/{' BF.~I/(& ~ I"-In INt:, - D 11( I /It A& JHIS 1k-J1k w ~ ., . ..; ~.', ;:~ ~l':,:': .c: H'I,', " . I ' : ~ <' ,: , .' I'; .<~,';'~;, r:.; ),'f I .,.',. ,,'.',:1 " '. , ,.+ . \. " :.' ',' '<<l " . :' . j ~ I . , , I ~ , ., ~I.."' ~..' c . ' , ' " , '. " :".1 " ~, ,'. : ..' .,. ';1 " , , . , I.,' . " . , > . , . ", " , ..., '. , r+ ,".'.1, , , , I " . '. " .\ ":',' I'. , ',> , .J .", , . . : ~ , I:,! I , ~ )" ,'.;.c , :1" " > " " \"' , . '. , . . ' " ! '. t ;t;~Ww".:,.iJ.~'ijtW>1';\oit~',f~~' 1~',L~'I!"'" ~,...: .: .Ji. ..... " ~ '. . ,'. .' " .: . .J. ~~ t;~::.'~<lt;" .(",~!r..r;....."\\.~A:~'Il".';/i~,'~n.':,.?-~'~.::.... _,.., .--:'.' ..~; ..:.-...'....d~~...TV~........ c........~~! ~rf.~~~'H..V~" /.,,\;.., ..~~I__,.. . ;. ,~l ~~". ,._ ".' ~ : , ." '-c" 1C _'......4. ~..."P;. ~~."\~:,...Id ... 'T.~T" '..j_'-../f ....,:'.T ':' ..' If,.' '.. -tam--- ,'.1' . ,. I...., ,! I,":'()" Robert J. Hayes Municipal Affairs Manager, '>, ai.i3' : GTE Service ' , Corporation .} I, 600 Hidden Ridge, HQE01 H15-lrvlng. Irving, TX75038 ' . (972).718M6648 Fax: (972)M719-1592 !, .1 '. " ,'. January 20; 2000 ,.'" c , . Mr. Michael J. Roberto ,Cily'Manager City of CI~arwater 112 So' Osceola Avenue Clearwater, FL 33756 . !. <, , ~ . , ./\.:, . ! .. Subject: . GTE/Bell Atlantic Merger Approval Application Dear Mr. Roberto, Due to' a clerical oversight, Pinellas County was inadvertently mentioned in the /"';:"'" cover letter accompanying the City of Clearwater FCC Form 394 filing. Therefore, ....,,) please replace the previous cover letter with the attached correction. I sincerely apologize for any inconvenience or confusion this may have caused. Please call me at 972.718-6648 so we may discuss this application in greater detail and I will be glad to respond to any questions or concerns. \ . . Sincerely; WI/. M- Robert J. Hayes v . ~. "," >' " ' -.' ..: l ~ :W..: .:\./, ,~v.'J \\:J;';,;" ~ !. . ;',. 't'.' , : , . , I > ~ l' , .') ., \. 'I '1 c" ' : ~ '~,....., < c; .;;;>'T' ::' . ~ 'i' , 'I, . 'f ..' . 0, ,.. I' . " , >\.. tl ;., J~< " I ' .'.'.' ,.' , , ~ . '. , ~ .. j . . . , . ~ . . I .~;\!~~~.fi:...~j ~':~:~ \\ ~;c {.;r~.: .'T;,',: ~ ::~~ ~~ \:t~j,~( ~,~ ~~~+:.~ , ~", ~. I ,',' . , :", , ',. I .' < ~ f , ,i~ f ' ", Robert J. Hayes , Municipal Affairs Manager Cfil3 GTE Service Corporatron II, j 600 Hidden Ridge, HQE01 H15- Irv'ing, Irving, TX 75038 (972)-718-6648 Fax: (972)-719-1592 ), December 13, 1999 " Mr. Michael J. Roberto City Manager City of Clearwater 112 S. Osceola Avenue Clearwater, FL 33756 Subject: GTE/Bell Atlantic Merger Approval Application Dear Mr. Roberto, r.") f' , ...0+..,...,..,:)01' As you are likely' aware, GTE Corporation is in the process of merging with Bell Atlantic Corporation. GTE Media Ventures Incorporated ("GTEMV" or the "Company") is a wholly owned subsidiary of GTE Corporation. Under Section 14(b) of the existing Franchise Agreement, GTEMV must seek consent of the City for a change or transfer in control of the Company. For the reasons set forth below and to the extent required, GTEMV and Bell Atlantic Corporation hereby request the City of Clearwater's consent for the transfer of control of GTE Media Ventures Incorporated's City of Clealwater cable television franchise to Bell Atlantic Corporation. Bell Atlantic Corporation and GTE Corporation signed an Agreement and Plan of Merger dated July 27, 1998. Although the corporate structure of this merger will result in GTE Corporation becoming a subsidiary of Bell Atlantic Corporation, this is a "merger of equals" through which the two corporations will jointly share management of the companies and their subsidiaries. When the merger is completed, GTE Media Ventures Incorporated will remain as a wholly owned subsidiary of GTE Corporation and will continue to hold the cable franchise. Thus, there will be no assignment of the franchise as a result of the merger. Rather, Bell Atlantic, as the parent of GTE Corporation, will have indirectly acquired control of GTE Corporation's subsidiaries, including GTE Media Ventures Incorporated. GTEMV offers this explanation to clarify the designation of GTEMV as "transferor/assignor" and Bell Atlantic as Utransferee/assignee" in this application. \.J Enclosed are an original and two copies of Federal Communications Commission ("FCC") Form 394, IlApplication for Franchise Authority 'Consent to Assignment or r~::'~t)'fr":';'j i:'::;,\ ')',r~~r'J. '::; ,', '", .' I,..~, '. ~':' '.~' " c , :.<:~(!,:'.:~~,: . :'. ' ".. .' ,. ,l " '. . . .. '" .s- , F 'f (. , ~} I ' ".~'~,f:~. '~~L: ,(;':" ~.: :.! ~ , . '. .:. l ,;.'.' '<' . '/ , ' ~' ..0, ~ :...< . )>;.,,: ;:." . '.. "'" 1: . > l,.' . '.< , " > ,~' ..,., ,\ :. . ~ " ,., ;'.') , '. ' , " , ,t" C.',. . ~:' c '~I'{ :.-, .:,,~: ~', ,+ ': ;,\'1 '~, : <', . ., .,', ' . , . , .' " . ~. t ' . . ' ... '~'~':\;;~,; >"\;"'i\pf.::%f('~~r~::::!'?:;~)~;i'~\~ ~:":,/.." . " ' ... ,I:~".;.:...,.. , 'l I , .,.., . ~ " "" I . f t\ ~" . " ,~'< , . ,'I ,. . ': ~ <. :) . , . . ~ "'w;.I' December 13, 1999 . Page 2 Transfer of Control of Cable Television Franchise''. which. consists of the following sections:. '. . ~:;' ,~ I. General Information: Transferor/Assignor {Part I}; Transferee/Assignee (Part II) . II. Transferee's/Asslgnee's Legal Qualifications' III. Transferee's/Assignee's Financial Qualifications , IV. Transferee's/Assignee's Technical Qualifications V. C.ertification: Transferor/Assignor (Part I); Transferee/Assignee (Part II) GTEMV sl:lbmits that the information contained within the Form 394 establishes. that Bell Atlantic Corporation, as the transferee/assignee, satisfies the requisite legal, . ,technical and financial qualifications. Accordingly, GTEMV believes that to the extent consent is required, it should be granted. I' " . l I i ! ;'''1) ........ We recognize that under Section 617(e} of the Cable Television Consumer Protection . and Competition Act of 1992 (47 U.S.C.A. 9537), the franchise authority shall have up to 120 days from the date of filing of this form, complete with all exhibits and any < information required by the franchise agreement or applicable state or local law , to act upon such. request. If the franchise authority fails to render a final decision on such request within 120 days, such request shall be deemed granted unless the requesting party and the franchise authority agree to an extension of time. However, the merger is expected to close by the end of JanuaryJ 2000. subject to approval by the Federal Communications Commission. Accordingly, we would appreciate prompt approval of the enclosed. Should the merger be delayed, we will promptly so notify you. GTE Media Ventures Incorporated and 8ell Atlantic Corporation look forward to working with you in the future to answer any questions you may have related to this . application or the proposed merger. Please call me at 972-718-6648 so we may discuss this application In greater detail and I will be glad to respond to any questions or concerns. S;iM. Robert J. Hayes o , ' ?, ,C ,"," . l (:':~; !:,.<: "'r~: "~':~::~,,::,::.: ,:;.", . :<1' ,: ",' .: Jt J'c ", . :~;_t" .~'I, ~ .' . ~.. ....~ + " ' :' ~;/,:: . ~...: . . -1. ~d'. .I ~ ...1 ~ ' , . 1" ,. ,..> . ..~ ,,' / ':',." ';. ! .'. " " , ,\. Ii:. ;,. ~ ' '/. . ..1 !. "i ,t, ~ . ' ". " \. ': :.; ~ . . , I...... :, ' :'.: <.";. ,> ~..;~ ' "'J . , '" " ....:; '., I' I,' .~; " . " ,,' . " .', :J' , , . 1~', " .j . c ',I l. , '; .l.'. , " . ::., '... ~ . ., I. , I . ....1\:, . . '<~:,,:,;.': ...').. .,..' "" .- "., ,': I ~,. , .' .. \ \ ,','. '. . ,', :' +l'! ' ~ , . ,. < , :~"<':1<.r, ~i,: !.:~ '1:,L{~'~I.'~~';~ :"~~:::i;:! i n~: 'f. ~;.;~ 'l:~ ._ .u~.:~.:. ." ,n,' . ~ ~ ;'. , .~. ~~ ' .:_.... , .~~: .,..~ ,'}, ..~ )..' ~~ 4:. ~ ~ ..~ ~. . Q,tl . ,'\'f.::r "'r"" , i I . I ......'l')"L-",!I. (.' , . "<lxtftl . . l '~-I ". . ',~ , , (.C1D GTE Service Corporation . December 13, 1999 Reply To 600 HIdden Ridge MC: HQE01 H15 ' Irving, TX 75038-3811 . Mr~ Michael J. Roberto City Manager" . City of Clearwater 112, S. Osceola Avenue Clearwater, FL 33756 SUbject:. GTE/Bell Atlantic Merger Approval Application Dear Mr. Roberto: As you are likely aware, GTE Corporation is in tile pro:ess of merging with Bell Atlantic Corporation. GTE Media Ventures Incorporated C'GTEMVIl or the "Company") is a wholly owned subsidiary of GTE Corporation. Under Sectlon 14(b) of the existing Francl,lse Agreement, . GTEMV must seek consent of the County for a change or transfer in contml of the Company. For the reasons set forth below and to the extent required, GTEMV and Bell Atlantic Corporation hereby request Plnellas County's consent for the transfer of control of GTE Media Ventures Incorporated's Pinellas County cable television franchise to 8ell Atlantic Corporation. Bell Atlantic Corporation and GTE Corporation slg~ed an Agreement and Plan of Merger dated July 27, 1998. Although the corporate structure of this merger will result in GTE Corporation becoming a subsidiary of Bell Atlantic Corporation, this is a "merger of equalsn through which the two corporations will jointly share management of the companies and their subsidiaries. When the merger is completed, GTE Media Ventures incorporated will remain as a wholly owned subsidiary of GTE Corporation and will continue to hold the cable franchise. Thus, there will be no assignment of the franchise .as a result of the merger. Rather, Bell Atlantic, as the parent of GTE Corporation, will have indirectly acquired control of GTE Corporation's subsidiaries, including GTE Media Ventures Incorporated. GTEMV offers this explanation to clarify the designation of GTEMV as "transferor/assignorll and 8ell Atlantic as "transferee/assignee" in this application. Enclosed are an original and two copies of Federal Communications Commission ("FCC") Form 394, "Application for Franchise Authority Consent to Assignment or Transfer of Control of Cable Television Franchise", which consists of the following' sections: , I. General Information: Transferor/Assignor (Part I); Transferee/AssIgnee (Part II) . JI,Transferee's/Assignee's Legal Qualifications }~;~;'f:j{tir:,?~?': :'::";:-;;:. . , .. :.' ~. ... i." . r! '1", ,t': ~ " . 'I , .. " . J ~.';~~,~/<~~ :'~ '." ': /. ' , .: < ,.' . " c ~' . ~ .:,,:.. ~},; ~.: < . '. , " i-:., 'c :" ,,' ,:.cl :'. . . . :...,~/~:. "..1 ". '. ;1;. ',. .1 c >. \ ~,'. . ! I "., . J c c. , _ I " ' {I; " ;.' '.,' '" ,'," '. ~ :. '.., , ,. . '1'_' " . Ie. ..~ ;r;~~ll~~:<" :.~:'..~'~ " ..... > '., ',' .:;>'(~. .:;;":'.....~:.':.': <,,' ",' :', ,.'!" .', .; " ",', . j "11 , . " " . . ., '.' . ":~(':if;;~'I,;~'i:.i,'"i.i,:.:+.:~:;::; c.~.;: ... .:M"..:'....:,.. . .,;... i.' ." , . oj' l ~ ' . 1,. . ': ',1' ". to":"" :1 ~.~ . ' I ,:'~ .. ....,./,.. '" : Mr. MIchael J. Roberto . D~cember 13. .1999 Page Two , , , 1.', , ,', ,III. Transferee's1Asslgnee's Financial Qualifications · IV. Transferee'slAsslgnee's Technical Qualifications V. ,Certification: Transferor/Assignor (Part I); Transferee/Assignee (Part II) GTEMV submits that the Infonnation'contalned within the Form 394 establishes that Bell Atlantic Corporation. as the transferee/assignee, satisfies the requisite legal, technical and financial qualifications. Accordingly, GTEMV believes that to the extent consent Is required. it should be granted. We recognize that under Section 617(e) of the Cable Television Consumer Protection and Competition Act of 1992 (47 U.S.C.A. 9537), the franchise authority shall have up to 120 days from the date of filing of this fonn. complete with all exhibits and any Infonnatlon required by the franchise agreement or applicable state or local law, to act upon such request. if the franchise authority falls to render a final decision on such . request within 120 days, such request shall be deemed granted unless the requestlng party and the franchise authority agree to an extension of time. However, the merger .is expected to close by the end of January, 2000, subject to approval by the Federal Communications Commission. Accordingly, we would appreciate prompt approval of the enclosed. Should the merger be delayed, we will promptly so notify you. GTE Media Ventures Incorporated and Bell Atlantic Corporation look forward to . working with you in the future to answer any questions you may have related to this application or the proposed merger. , . <',~ : ' ,t. -I' ,j ./~' ~'9 . Please call me at 972/718-6648 so we may discuss this application In greater detail and I will be glad to respond to any questions or concerns. . Sincerely, (l..jJ4~ Robert J. Hayes Municipal Affairs Manager Attachments l' ,'..Jj ~ ~.~',J . .' \. :. ., .,,!~ \ t : ~ , :! ! , ;. . \, ", '. , .,. \' ) j, :..... j " .~ .~, .1."1," c ~: ' '. '" . / ....,' ';f:/":c.-f,~ :..~ ,: .~:~ :'~J!' , '. ~fY :.:1 ...~t~T' (";W.f> v ., '. , ':.. ,.\ < ------- ,,'/. " " , ~, > I . ,/ ~ ' " , . I.. ' c' ~ ' ".. . . :':~S~~;:~ ;," :(,'~~~J '; .. ~ ;:_ ~ ~" ~' Federal CommunIcation. Commllllon Wuhlngton. DC 20554 FCC 394 APPLICATION FOR FRANCHISE AUTHORITY CONSENT TO ASSIGNMENT OR TRANSFER OF CONTROL OF CABLE TELEVISION FRANCHISE Exhlb 2 .; , .. " \ , , , I by OMB 60-0573 2 I tNo. it No, No i U Approvod 30 , SECTION I. GENERAL INFORMATION FOR FRANCHISE AUTHORITY USE ONLY CATE 12/13/99 1. Community Unit Identification Number: 2. Application for: o AsSignment of Frnnchlso [!9 Transfer of Control 3. Ftanchisl~g Authority; City of Clearwater. Florida 4. Identify community where the aystenVfranchlse that 15 the subject of the assignment or transfer of contrails located: City of Clearwater, Florida 5, Date syslem was B<:4uired or (for system's constructed by the transferor/assIgnor) the date on which service was provided to the fil'$t subscriber In the franchise area: 6. Proposed effective date of closing of the transaction assigning or transferring ownership of the system fo transferee/assignee: FL119 04/02/96 01/31/00 Contlngenl on FCC approva 7, Attach as an Exhibit a schedule of any and all addit/onallnfolTl1alion or malerial filed with Ihls application that Is identified In the franchise as required 10 be provided to the franchising authority when, requestlng its approval of the type of transaction that Is the subject of this applJcallon. PART I - TRANSFEROR/ASSIGNOR 1. Indicate the name, mailing address, and telephone number of the transferor/assignor. Legal name of TransferorfAsslgnor (if individual, list last name first) GTE Media Ventures Incorporated (a subsidiary of GTE Corporation) Assumed name used for doing business (If any) GTE Media Ventures Incorporated Mailing street address or P.O. 80l( 100 East Royal Lane, Suite 300, Mailcode HQJ03C95 City State ZIP Code Irving TX 75039 Telephone No. (Includo area code) 972-465-5310 2,(a) Attach as an Exhibit a copy of the contract or agreement that provides for the assignment or transfer or control (lncluulng any exhibits or schedules therelo necessary In order 10 understand the terms thereof). If there is only an oral agreement, reduce the terms to writing and attach, (Confidential trade, business, pricIng or marketing lnformallon, or other lnformalfon not otherwlse publicly available, may be redacted), (b) Does the contract submitted in response to (a) above embody the full and complete agroement between. the transferor/assIgnor and the transferee/assignee? If No, explain In an Exhibit. FCC 394 (Page 1) September 1996 --~..............._------.~- -.--- ExhibJ 1 IKl Ves D Exhib t 0 N/A .._~____J %~~i;,l~,{;;:t':.. ~;,~l!,r::,!,:; ".:,' .',: I' c ~; ., ','.' ~':" '11 :::;;/:;:,: ...,:',: :':, .,:.. .:~.:.';, 'n'!:,; ,f .., ';:,:)'.: ...... ... .:.:. ..: ~ 't, . :,' . C ":.:'.~~ :',;:. ' ,-,.".: ~.'.' ':.' '.;t ~ ~ <'f ~ :':'L:.. "c.1':'~'. :..;:~'~. ~'.' tx.}'/.';:;":;,;." ':'C' :..' ';',." , "'" , " , .~. .1' ' . , . , . : ..!! . ,', .,' , ' "" " ~ I , . "'" . :1 ,+ .' ' . . C '" . , 'l. ., ~ ~ . ~ ' . .~-;,t"'~~(~t!,.~;.1(r~::~~~~}~~~::';~},~5?-~kV~11~1<A~~~~; ~<1 .::' ,_ - , ;... . - .' ,:1" . t < ~ ',~ " . ,j, I , PART II. TRANSFEREE/ASSIGNEE !,::). 1.(8) Iru'lcate tho name, mailing address. and telephone number oftMe t'1Jnsfereelasslgnele. Legal nama of TransforeelAulgnee (If IndiVidual, list last name first) , , l,c," .r '--" '". ) . I' '.:'~ (~ ....., ,1. Bell Atlantic CO" oration , Assumed nama used for doing business (If any) Bell Atlantic Cor oration , Mailing ,treet addresD or P.O. Bole' .1095 Avenue of the Americas Ci~ New York State NY ZIP Code 10036 Telephono No, (Include area code) , 212-395.2121 (b) Indicate the name, mailfng address, and telephono number of person to contact, If other than transferee/assignee. Name of contact person (list last name first) Robert'J. Ha as Finn or company name (if any) GTE Service Corporation . Ma11lng Gtro8t address or P.O. Box 600 Hidden Rid e Mailcode HQE01 HiS City State Irvin . TX ZIP Codo 75038 Telephone No. (include area code) 972.718.6648 (c) Attach as an Exhibit the name. mailing address,. and telephone number of each additional person who . should be contacted, jf any. (d) Indicate tho address where the system's records will be maintained, Street address 3001 Gandy Boulevard City Pinellas Park State FL ZIP Code 33782 . 2. Indicate on an attached exhibit any plans to change tho current terms and conditions of service and operations of the system as 8 consequence of the transaction for which approval Is sought. FCC 39<4 (Page 2) . . September 1996 ~: /~.~~.:,'~~~~~~ , , 1 " L t. Exhibit No, 3 Exhibit No. 4 J 'timi;;/::' ~". '~):;:~0 '.' .~\:~ i ~"/' '" .' ,,:' J ~... u> ,:<:. c~>' I ' - \, " , . I.' 'I.'" , ,.' ~ " ; I . /\:.,~ ~\:' . " , l, i:~' , " " , , .. .{ " " . I" \,.,.~, " , , ~ . , .... '.j I , ,. }.". ' '!,< .', ""1' ..'. . '....,..; .,.",;,.:.\' :~ . :"1. '. "i ). '( \/::J: . .' I.t, I'. :~: I , , , , . , ;. . \'. .. I' ,,<' ~ t' , ' , '. ~ . ',' . J '",C , I ~~~Ii' ::'.C/f:i,..;:~.I.':':~': ~::H~/':.'7'\\~~.~.: '.\~~ ~t':~}:"~i ,. ~~_'~, ..~ " . f< ... _ ~'. M r.... ,~ SECTION fl. TRANSFEREE'S/ASSIGNEE'S LEGAL QUALIFICATIONS 1. Transfel'l!e/Asslgnee Is: [K] . Corporation a. Jurlsdlc.1ion or Incorporation: d. Name and address of registered agent In State of Delaware jurisdiction: b. Date of Incorporation: Corporatlon Trust Company 10/07/83 1209 Orange Street c. For profit or not-fot.profit: Wilmington, DE 19809 Profit o limIted Partnership a. Jurisdiction In which formed: c. Name and address of registered agent In MIA. Jurisdiction: b, Date of formation: N/A N/A o General Partnership a. Jurisdiction whose laws govem formation: N/A b. Date of formation: N/A D Individual D Other. Describe In an exhibit. Exhibit No. N/A <:~~) 2. List the transferee/assignee, and, If the transferee/assignee is not a natural person, each of its officers, directors, stockholders beneficlally holding more than 5% of the outstanding voting shares, general partners. and limited partners holding an equity interest of more than 5%. Use only ono column far each IndivIdual or entity. Attach additional pages if necessary. (Read carefully - the lettered items below refer to correspandlngllnes In the following table.) (a) Name. residence, occupation or principal bu&lness, and principal place of business. (If other than an Individual, also show name, address and citizenship of natural person aulhorized to vote the vollng securities of the applicant that il holds,) L1stthe applicant first, officers. next, then directors and, thereafter, remainIng stockholders and/or partners. (b) Citizenship. (c) Relatronshlp to the transferee/assignee (e.g., officer, director, elc.). (d) Number of shares or nature of partnerelhp interest. (e) Number of votes. (f ) Percentage of votes. Exhibit No. S ~ I....:-i (a) 8ell Atlantic Corporation See Exhibit 5 See Exhibit 5 (b) USA See Exhibit 5 See Exhibit 5 (c) Transferee See Exhibit 5 See Exhibit 5 NlA N/A N/A (d) N/A N/A N/A (e) N/A N/A N/A (f ) FCC 30. (PeDe 3) September 1996 <;..', r ;1;.;~. .', ,... ". . . < . ;, . i i 1 .; ',: .;.\'. '. :;" ~~: I', p.. ':' . .' , .. ,. " ,'( " ... " ,'\" .1 '. , _~r.~' ..... :.~ ~ t -1>", <:J'~J.l,=.~>'~~.j~Jr..~~.:.;. 'loiN......, ,~..... ,.. ~~ ',>. <+" , ..... .'f'l'~;. ., ~ . .i-;'"J:~\- ( ,~ '11..t,llJ 7. 5. Has an adverse finding been made or an adverse final action been taken by any court or adminIstrative body with respect to tho transferee/assignee in a civil. criminall)r administrative proceeding, brought under the provisions of any law or regulatJon related to the following: any felony; revocation, suspension or Involuntary transfer of any authorization (Including cable franchIses) to provIde video programming servlce$; mass media related antitrusl or unfair competillon; fraudulent stalements 10 another govemmenl unit; or employment discrimination? If the answer is Yos, attach as an exhibit a full description 01 the persons and matter(s) Involved, including an Identifieallon of any court or administrative body and any proceeding (by dales and file numbers, if applicable). and the dlspositlon of such proceeding. Arc lhere any documenls, Instruments, contrac~ or understandings relating to ownership or future 0 'Yes ill No ownership rights with respect to any attributable interest as described In Question 2 (Incruding, but not limited to, non-voting stock Interests, benoficial stock ownership Interesls, oplions, warrants, debentures)? Fed,...1 Communlc;aUont Commlttlon Approved By OMB Wuhln;tcm, DC 205M 3000-0573 3. If the applicant !s a corporation or a limited partnership. is the transferee/assIgnee 'onned under lhe laws of, or duly qualified to transad business In, the state or other Jurisdiction In which the system operates? If the answer Is No, o):plaln In an exhibit. 4. Has the tran3fereeJasslgnee had Qny Interost In or In connection with an applicant which has been dismissed or denied by' any franchise authority? If th<<! answer is Yes, describe circumstances In an exhibit. 6. , , 0 Yes 0 No j. [ : l Exhibit No. S I' 0 Yes [!] No [~ Exhibit No. N/A DYes rKJ No [ Exhibit No. NIA If Yes, provide particulars in an Exhibit. 00 documents, Instruments, agreements or understandings for 1I1e pledge of stock of the 0 Yes I!J No transferee/assignee, as security for loans or contractual performance, provide that (a) voting rights will remain wilh Ihe applicant. even in the event of de tau It on the obligal/on; (b) in Ihe evenl of default. there will be either a private or public sale of the stock: and (e) prior to the exercise of any ownership rights by a purChaser at a sale described In (b), any prior consent of the FCC and/or of the franchIsing authority, if required pursuant to federal, state or local law or pursuant to Ihe terms of the franchise agreement will be obtained? If No, attach as an Exhib[t a full explanation, SECTION III. TRANSFEREE'SfASSIGNEE'S FINANCIAL QUALIFICATIONS 1. The transferee/assignee certifies that it has sufficient net liquid assets on hand or available from committed resources 10 constJmmate the transaction and operate Ihe faemUes for three months. Attach as an Exhibit tho most recent financial statements, prepared in accordance with generally accepted accounting princlpalG, Including a. balance sheet and Income statement for at least one full year, for the transferee/assignee or parcnt entity that has been prepared In the ordinary course of busIness, if any such financial statements are routinely prepared. Such statements, if not othclWise publicly available. may be marked CONFIDENTIAL and will be maintained as confidential by the franchise authority and [ts agents to the extent permiSSible under local law, 2. SECTION IV. TRANSFEREE'S/ASSIGNEE'S TECHNICAL QUALIFICATIONS Set forth in an Exhibit a narrative account of the transferee's/asslgnee's technical qualifications. experience .:~, and expertise regarding cable television systems,'lncludlng, but nolllmilecl to, summary inlonnullon about \..:J appropriate management personnel that will be Involved In the system's management and operations. The transferee/assIgnee may, but need not, list a representative sample of cable systems currently or formerly owned or operated. FCC 394 (Page 4) September 1996 L Exhibit No. 7 [K] Yes 0 No Exhibit No. B Exhibit No, 9 ~:~/~~':~ ~~ . -i~'f~:.~:~,?,.;~:,::,:~;."",: [~~~::~< '::~,V.~ '," .. ~'.":'.<:/:"':'::'; .. ~\:;i.L',' . ~'. 1,.4';, . . :' c : ... I : 'I .' . ~ ~ .: { " '. " r ./f }' ., .. 1::.;\,.:. j , '. . . . .~~ .~: .' II" , : l, '. . I : :~/t~:)i .;..... c ..I- .'_ I. , . < ,',', ":1 .'~. :~i.~:: ,." .l' ". .. , "'c. :":" ' " . . . . "' . . ~....~:,.,:!.',~i'::'/Fi~;.~;:":\1!!~>:\;:;'~;'~n;~;;;" ~:.,::!.':, ' ;.' ",.: :{ ,.. . '. All tha statements madQ In the applfcatlon and attSchl3d .ellhiblto are considered material representations, and all the exhibits are a material part hereof and are Incorporated herein as If set out In fun In the application. " I CERTIFY that tha 5tataments In' this application are true, complete and correct to the best of my knowledge and belief and are made In good faIth. Slgn8lunl 0.1. WILLFUL FALSE STATEMENTS MADE ON THIS FORM ARE 12110/99 PUNISHABLE BY FINE AND/OR IMPRISONMENT, U.S. CODE, Prill! f\Jl1 namo TITLE 18, SECTION 1001. Pamela S. Jacobson - President GTE Media Venlures Incol'1Jorated Ch'Sck appropriate c1uslfication: o Individual 0 o o Corporato Officer (Indlcato Title) General Partnllr Othor. Explain: Part II - Transferee/Assignee .~ r~..l~:~ All (ho statements made In the application and altached Exhibits are considered material representations, and all the Exhibits lVfl;..-r",Y are a malerial part hereof and are incorporated herein as if set out in full in the application. The transferee/assignee certifies that he/she: a) Has a current copy of the FCC's Rules govemlng cable tetevl9ion systems, (b' Has a current cap>, of the franchise that Js the subject of this application, and of any applicable slate laws or local ordinances and related regulations. c) Win use Its best efforts to comply with the terms of the franchise and applicable stale laws or local ordinances and refated egulalions, and to effect changes, as promptly as practicable, in the operation system, If any changes are necessary to cure any violations thereof Qr defaults thereunder presently in effect or ongoing. Signature I CERTIFY that the statements in this application are true, complete and correct to the best of my knowledge and bellet and - are,made In good failh. 0.111 WILLFUL FALSE STATEMENTS MADE ON THIS FORM ARE 12/09/99 PUNISHABLE BY FINE AND/OR IMPRISONMENT. U.S. CODE, Print full nllTllI TITLE 16. SECTION 1001, P. Alan Bulliner Associate General Counsel and Corporate Sec'y .(~ Check appropriate classificalion: o Individual .0 GJ Corporate Officer 0 Other. ExplaIn: (Indicate Tille) Goneral Partner FCC 394 (Page 5) Soptember 1996 . ; : I ~ , . .,~ :.\ . ~: f~: t , " . I , i I , \ ; I : , I f I I I I I I ! ; , I , : I , , , I , , , : . .. ~;~Jt::~~\.:,.::;.,:,:,,:, ;,:~;: .", I". c_C.,.". , " --~~~-- . ". ,', I .; 1'"1 : ~ ~ ' .. i . . " /, ... .' " \" ~'. . ". ". : ~;:... . I ~ . I, : ' < . ~ . . c,.', q' . .". ." . ~ . : ' ' c ~ ., " ,Ie ~ r : ~ ' : . < ~ :' . " . ,1' '. '.r +' , . " . ~c. . 1 c I . . '.I" ~ <' }. . ,>" ;c' .. . ,e . . "d ItN...~~J I~' I~::~ ~.I~..~; ~ ~:<~~~:,: ;~.i~it;~~~~!':~t~l:c "(.r.:::~'~".-.. .~..__ . '. ";, ...- ," SECTION V. CERTIFICATIONS t:)' ' , , 'nj;;j' Part I - Transferor/Assignor All tho statements made In the application and attached exhibits are ~nsldered material representations, and all the Exhlblts . are a material part hereof and are Incorporated herein as if set out In full in the appllcatJon. I CERTIFY that the statement3 In this application are true, complete and correct lo the best of my knowledge and belief and are mllde in good faith.' , SllInature Id~ ,I. 01111 WILLFUL FALSe STATEMENTS MADE ON THIS FORM ARE 12110199 PUNISHABLE BY FINE ANDIOR IMPRISONMENT. U.S, CODE, PrlnUull name '.TITLE 18, SeCTION 1001, Pamela S, Jacobson - President GTE Media Ventures Incorporated , Check appropriate classification: . 0 I'ndlvidual '0 o o Corporate Officor (Indicate Title) General Partner Olher, Explain: Part II -'Transferee/AssIgnee ,.c~""l AlIlhe statements made in the application and aUached Exhibits are considered material representations, and all the Exhibits r ~.bro a malerlal part hereof and are incorporaled herein as If set out in fullln the application. 'l>:.i'lIif'" The transferee/assignee certifies thai he/she: (a) Has a current copy of the FCC's Rules governing cable television syslems. (b) Has a current copy of the franchise that is the subject of thIs application, and of any applicable state laws or local ordinances and related regulations. (c) Will use lis best efforts to comply with the terms of the franchise and applicable state laws or local ordinances and related regulations. and to effect changes, as promptly as practicable, in the operation system, if any changes are necessary to cure any violations thereof or defaults Ihereunder presently in effect or ongoing. Slgnaturo I CERTIFY that the statements In this application are true, complete and correct to the best of my knowledge and belief and are made in good faith. 08111 WILLFUL FALSE STATEMENTS MADE ON THIS FORM ARE 12/09/99 PUNISHABLE BY FINE AND/OR IMPRISONMENT. U.S. CODE, Prlnllull nllmo TITLE 18, SECTION 1001. P. Alan Sulliner Associate General Counsel and Corporate Sec'y } Check appropriate classification: o lr:dlvldual 0 Olher, Explain: GJ o \ , Corporate Officer (Indicate Tille) General Partner FCC 394 (Page 5) , $eplember 1996 tI , .' .' , " , , , .. " . e' .. ',. .. I I , , , . '- ~~~,. ~'r,':(,;1;::EAMH";>Y.r'~~f.'i)I~~;I'i:;;'\''j:~1i;'';f,',"~,::'jlt,:.,; <~, ,--:..' /'/;~',o '.' .",:,':.;~' ',:;,' ;', ' .,. ..." 'i' ,'I ~ '." '.., , . tn~"~( .o.t~iY.':1~""Ji-:' !~....J<t ':1- " ...,,' -, jl~~ 'f J ~I''; '..,A;'~'-~' ~. ,l . ~ I r:.~, ~~ . \ L "}~ < ~~. . .. '." ~. ~ ~ . ::-.~~,.r:' .1~i".t:'"'''':i~'''''''' ~'~J""'~"'\~~ll.- ""ft'~(~+~"""".'I,.lr .,.,-" .~.'.I. ""'L'~.' ~{l' . ~f~:ff;j';;;:Fr/~::,,',':.;;/::l~';~~'};:;,;,:""":' ',:'. :.,. ., ..... . . .Rli~"",. ,'" , .',. .', '. '. . " 1 . .1 ',. , , " 'J , I , . , . ~ . . I ,. '-- l J I ' I ~ " .,,<.^~l.~(;,:.. ",':' "" ,,- ,',\;,\,.,.....,.." I':'" ", ,. .,l .,'.'1.. .1" '. " ,',. :l'~(li:lV.,':...,..;~.i~. ~.f' "~'::!l~J<"i n- ...n, ''''''/,h.,f.l, ," t. ....j ", ., I .~; '..': . ":", " - ,". " . .', " '., . ',:r"':"i:1.W;', :;\,,~::'~~~;lIii:~!(~i ;;::;':~',(;'i~, ;:;t;;i,/: ,,;" · .'.': .;,: ....'. ,'. .. " ,,"f' "f!..r~}h I NI~l'lr-~ll.ii,(~~~'\\&l"'1' ,._" I. '.' '" '-, " ". .. " . " ~~...'%/...~".o;~:~: ,.~. tJ~.r..fT.B;~..t \"~) ..t!:t..;f;~.p; ~~~ ...:.... ~ ~!of f' . > : l-llt....;-. n. ~"':"""1 ~. ~"'""'''''rh'''..,fI...P-., t'1r..~"" T'" ._....fl ~ _ I"" < . " --------~~----..-------.- ,',~.~ ,t...' :',.::' ..:~':.~\".~~ .:.", I<j.,. :.....~ ,~...:.' : ,:, "(' .\' .' ,\.,',':I.-Vi, .: .: "~ ., .-: y) -';, t.~ , ~ ': ~ , .. I , " " ',. .' , " 'c ". . c-!..,.. " ,"' , ... ". . . + ~. ~~ , 'I ". .1 t' . ',' ,I' :. . . ; ~ ~1 . ~ " .. \', ," lj ';; , : , , " , , .';1 ,,' , , .;,,{ , , I. ~ ~: ",' .') l J,. , ' ; .", . ';1:' ' . : ; ~ 'e . . . . , , . . '.;! '\1 . "" ';1 "., , ,; I .:.-',1 I j ." '1, ' .'. I . '.".' ,"~I " ,f . ' , , ,.w.... " . .....; .... I';';'.", .. ," .", . " I" '. . . .' l .1' FCC 394 . . APPLICATION FOR FRANCHISE AUTHORITY " ' CONSENT TO ASSIGNMENT OR TRANSFER OF CONTROL '. ..' " OF CABLE TELEVISION FRANCHISE :".:o"e-,~.",.... . .' . " > . ,'" ll~) , ' , . I., " , " ;,' Appiication b'y GTE Media Ventures Incorporated and Bell Atlantic Corporation , " . 'DeCember 13, 1999 ' , I , ~ ~" ;,. ..' I ;. I , . ~ .,.... , EXHmIT 1. (Section 1, Q. 7) .~ 0,' .... " ,. , , [Attach as an EX1ubit a schedule of any and all additional information or material filed ! with ibis application that is identi fled in the franchise as 'required to be provided to the' franchising'authority wheri requesting its approval of the type of transaction that is the" 'subject ofthis application.] . ," , ". '.' .' ~ ': I : >.' . ." ',:.; . . ,Any specific infonnation required by the franchise for the type oftninsaction tl~at, is the 8ubjec't ofth~s application has been set forth in the specific answers required by this Fonn 394. ',.'.. .-, I '"' '.(~ . , ~~.pI oj '. . ",' " .;:;) 1'}': ... '{'j '. : '. ..: (..,', , \: ~!!.~:~~~;;;}~~PW;!fF';:\ ....'. .. ': ," ..... . .;. ," . . . ~ . " Q",. , ".'t, , ........ .,.. A I, ! "/. : ,:'\.1 ,\" ' " ,p' 1..\ l' . r ,.,' /.. . . -, . I' " , ; ~. f . ,4-,M_, . ~\1"'.,ty. -\.~ '~'t.ltJ :'\I~ - -----------~----~~._-- , e ..... I , , .' ~. "'- " ' . I . ~. .: " '. ' , I ~ '., '( ~"!' ~ ',. '. '.' I' j: . . . ~: . , , . '. I . . ~ ',' . , . ..r ' . I : .,' 0' r' " ". .,' . ' I , . , ( . I ..' '. I : . ~ . ..... .. .'~. ,.... ~ .. .'......, . FCC 394 APPLICATION FOR FRANCHISE AUTHORITY , CONSENT TO ASSIGNMENT OR TRANSFER OF CONTROL . OF CABLE TELEVISION FRANCHISE Application by GTE Media Ventures Incorporated and Bell Atlantic Corporation , December 13, 1999 EXHIBIT 2 (part I, Q. 2a) [Attach as an Exhibit a copy of the contract or agreement that provides for the assigtiment or trarisfer of control (including any exhibits or schedules thereto necessary in order to wlderstand the terms thereof). If there is only an oral agreement, reduce the term's to , ?niting arid attach. '(Confidential trade, business, pricing or marketing information, or , other information not otherwise publicly available, may be redacted).] In this applicationJ Bell Atlantic Corporation is the transferee I assignee'and GTE Media , Ventures Incorporated, a subsidiary ofOTE Corporation, is the transferor I assignor. Bell Atlantic Corporation and GTE Corporation signed an Agreement and Plan of Merger " dated'July 27, 1998 (a copy of which is included in the attached GTE-Bell Atlantic Joint Proxy Statement for 1999 Annual Meetings of Shareholders and Prospectus,). Although, the corporate structure of this merger will result in GTE Corporation becoming a subsidiciry of Bell Atlantic Corporation, this is a "merger of e,qualsll through which the two corporations will jointly share management of the companies and their subsidiaries. When the merger is completed, GTE Media Ventures Incorporated will remain as a subsidiary of GTE Corporation. Bell Atlantic, as the parent of GTE Corporation, will . have indirectly acquired control of GTE Corporation's subsidiaries, including GTE Media Ventures Incorporated. The cable franchises held by GTE Media Ventures Incorporated will continue to be held by it following the merger, and the merger witl not change the management or operations of the franchise. j': \~ ,\ : I e ,> 'it , } , , " . .~ , ) ',' C , t. , " , . . I I I , , \ , , I , I ! I " 'e' (ffi3 tiPJI " . JOINT PROXY STATEMENT for 1999 ANNUAL MEETINGS OF SHAREHOLDERS and PROSPECTUS ^' r!' \'~ f.~ !~ f 0, r" If '. !; .. !': (; " ~:. Vote NOW " " '. '" ~ r; "kl~7~ .~.~~ ,i < , ....~. , ~l...~ ~2~"';~,.J:'\."'.~'!!1"."L,;:"~.:r~~t:! -_~.<Y;;;; i':rf\r.:!:. (I~lr'i".-1!;'f.";t~". 't'r;.cIo\~~~;.i. 'I'!~. 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"'i~,/:}:~":,:,<:::,,::~,~^~q..,, :',.: , ,', .;. t , .., c ~' ,i,' 1\ . '.'...'.51 .( , ~:; ,:.'/ :" ~ :t ~~~ . , ',' ,,', "l . " .,' '.i' :,i. . ,:' ''',' ~ ~ ., I >',:.," .' ' " . " . ~ l.~~:\:~~": ," ~.. -.; ~ : b, ~., I"'. .' ~ c ~~:":',:,\: , f,~ .. '., ' , .." .. '. . . ~~i} ':";"; ':' !irl~:\'."<" '.;>',;~t',;-<,: ,:', ~~;'Br,,?i,:i;;;::,: t'l ~. '....,. ;"r:.~,.': ,-. :. '. I' . _ '. .~:. ; , ': I ;. " ,. , ~/" .' . . I' .~,'(" :,. '.:,-: ; t< .. t;~~~ ~~ . .,'. ". ~l',;,,".';)I,':,~,:;.;;i, ' i ,." ",';:,~ "",.;. I.... l I ., ~ :' I I :1 " ,'.' ",' " ',.,:' ell': c' , ' .: .\ 't .' c, ~~.., ij'~ \', ".' :1. ~ : ., ,1 ,', >" I ,;' ',' ":', ,l,. " I. , .' '" "" , : 1 : ~ I " J I;', " l:, . . " "' :-' ,I,. :1 " 0.,'1 ~ ". .' ~ I . " "~ " " .1 j\ "'1'. " 1l'ULL DOCUMENT , .', ~, , ~ r, ' \, ' \: '~' f"',"". r ' .11 . " < I:' " ~',':' :.~. ~ ' ' ;c' ~" "I !,:' I l ~, '. ." :.. \. .. ., :~.,.;~<t.:' \, ...... ~i: ;tW:/",{": ,;' j,t ,',': , \~' . , " , ' " ' ': ' , , I" 'ON MICROFILM 'j, ~ "'. . " , " I 'j l I i I 'I, /, j':, I: , ~ \ ' ,; 'F,',e .'. ".' ~ ~; ~ " l "~':-',,o: " . .' t .. f.~ ;"3 ". . ":1 ", >lc" '.' " " , .' "e -i..c I" j ~ . , . >,.1 .'., '.' . ~ '. "" ., 'e , l . ~ '. ~ . l>: ~ I,:' V" ,; \' ,. ~l>.\;' :;\'::i:;:)}i!:'.i('.~ :'~:{: ~:<::"': ~., ',.' "l;' '.'.: ' \: ~' I. .' , , ." ..' f,,'; .~. f J (' I ' , " , , ,I"~. ,,: . ~ . ; , 1\. c ....', ~ \. .\;- "i. ;, I , , ..(.,"~'.I :t;"t:' ,:<1 t ~ . :" I'" ,;, . d " . 1 I " . " . < c, ~ .r 0'1' ., , J'.: .." .~~,:' . l . .. "1 ~~ . f~.... '.1 . '. ..i'~' f~.trr~~~ :,. .~" , . , J ' ( " 'e J I....' Cffi3 ~ ~~ JOINT PROXY STATEMENT for 1999 ANNUAL MEETINGS OF SHAREHOLDERS and PROSPECTUS Vote NOW II ,;, 1\ ~. . ~ .. .' I.' .'. ,< :.1~~:./~~ "' , t. ',. ..' ',e 'f ,. , , ' :. .' , .. . .' ' . . J '. e . . \ . ~ . " '. , ,1\ i. " I: ..' }', " . , .: :;;, ~~': ~',:' :'\:"1,', ':;:!~;>~;.~,'~;\\i:~~;!.~~~~~,.,'..~.::, , .' ''- . nt.!,.~ , 'f ~!,~~ '., ~~ . :~~.~~ 'J' " ~ ' .' , \ .~1t. '~ ", . .......... 'f '; ;" , I t ,} ;'at........ , ~ , ,I ,,' " e! meeting is contained in this joint proxy statement and prospectus. We urge you to reud this muterial, including the section describing risk factors relating to the merger that begins on page 1.15. am. ~ , , YOUR VOTE ON OUR PROPOSED MERGER IS VERY IMIJORTANTt Vcry truly yours, ~:~n~~ Chairman (Jnd Chit'J EXt!cl/li\'t~ Officer To the Shareholders of GTE and Bell Atlantic: GTE and Bell Atlnmic have agreed to combine in tl merger of equals. This merger will create a , strong competitor in the rapidly changing telecommunications industry. In order to completc the merger, we mllst obtain the approval of our shareholders. We believe that this merger will , benefit the shareholders of both companies and we a<;k for your support in voting for the merger ' proposals at our annual meetings. GTE's :md Bell Atlantic's assets, markets, operntion~ llnd strengths are highly COml)lementary. By combining, we will create u competitive national communications provider with a full product line that can meet changing customer requirements for additional capacity (0 access (he Internet and other datu services. greater mobility and national or even global reach. The combined company will be tlblc 10 grow more quickly and achic\'c ,greater success than either of us could on our own. When the merier is completeu, GTE shareholders will receive 1.22 shures of common' stock uf the combined company lor each GTE share they own, We anticipate t111lt approximately 1.3 billion shares will be issued 10 GTE lIhurcholders in or as a result of the merger, representing approximately 43% of the outstanding shares of the combined company. Bell Atlantic shareholders will own the same number of shares that they now hold and those shares will rcprcsent shares of stock of the combined company. Bell Atlantic shares are listed on the New York Stock Exchange under the symbol "BEL" . Infofll1l1tion about the merger llnd thc other items to be votcd on at your company's unnual ~ 1<. ct~ Charles R. Lee Clwirmcm clIld Chief EXl!cutil'e o.Oicer GTE CORI'OHATION The boards of directors of both GTE und Bell Atlantic have approved the merger and recommend that their respective shareholders vote FOR the Inerger proposal as described in the auached materials. GTE shareholders will vote a( GTE's annllul meeting on May 18. 1999, at 10:30 a.In.. EDT, at the Crownc Ph-tza Raviniu. in Atlanla. Georgia. Bell AllanticshnrcnoJders will vote at Bell Atlantic's annual meeting on May 19, 1999. at 10:30 a.m" EDT, at the Crownc Plaza Ravinia, in Atlanta, Georgia. Your vote is important. rcgardlcs!. of the number of shares you own. Please vote us soon as possible to make sure that your shares are represented at the meeting. To grant your proxy to vote your shares, you may complete nnd return the enclosed proxy card or grant your proxy h.)' telephone or the Internet. You may also cast your vote in person at the annuul meeting. If you do nol VOle, it will have the same effect. in most cases, as voting againsllhc merger. As a shareholder in the combined company, you will own a Slake in the future of tcleeornmuniclllions and the exciting growth opportunities it presents. We thank you for your support and imcrclIt. BEll. Al1-,\NTIC ConpoR,\TION' Neither the Securitll's and Exchange Commission nor any state securities commission hns llllproved the common, stock to he issued under this praspl'ctus or determined if this prospeCtus is uccurate or l:omplcte. Any rcprcsentntion to the contrury is a criminal offense. This joil1l pro:~y slUlcmenl and prospectus is datcd April 13, 1999, and is lirsl being mailed to shareholders on or ubnut April 14. 1999. ;>::/:,:-,,+:,);:' < ;~;':; :: ~ ',' :~I,.' I . ,".,/? i:f;i;::', . . + \,.,. :: I ~:~, -;,. . " . . J~, . . " ..; . .' ,', . .. ~ I .... . , ....." ~ I.' L _/ t. ...; ;..;..:. <. ,::: t :';~j ~ . '" , ~ ..' '. , / ',~ 'I' " , ~ .' . . 'II " " . 'J ; \' . . '., , . , ,.. " ,~ .,' ~, . ,,' 'l 'I' , , ."0,. '" , . ~ ..; 'I C, . ~."\' " ~'. .. ,', ,J .." . ~ i-", I . ... .'~. (~'~i/.'L~ ,,:~:-;:~,,;~:';1il..~~;tci:,:,,:, ;'\~:.~~'>'..~:':~~~~\.?:'~~'~,' ~;~,; ~ ~~,,~:~": " I " ,'/ ' .. , ., " . ~ ,. .} . i\ ;.1(..,...1., ,'" )' 'I:,. ," ; ;A.,jIc:. , .' ':.. \\ ..,;/ I ~ ~ . ," ,-1;"','" " C!iD 1255 CORPORATE CRIVE, IRVING. TEXAS 7S038 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS ,MA Y 18, 1999 Irving, Texas April 13, 1999 The 1999 GTE annual meeting is being held at the Crowne Plaza Ravinin. 4355 Ashford-Dunwoody Road, AtlanUl, Georgia, on May 18,' 1999, at 10:30 a.m., EDT: l. to Clecl four Class I dirc~tors to the Board of Directors; 2. to consider and vote on a proposal to udopt the Agreement and Plan of Merger, dated as of July 27, , 1998, among GTE Corporation. Bell Atlantic Corporation and a wholly-owned subsidiary of Bell 'Atlantic that was created to cUlllplcte the Illerger. and to approve the merger and other transactions described in the merger agreement: 3. to mtify the appointment of auditors: 4. to consider and :lct upol1thc sharcholdcr proposal which secks to establish a policy of reporting on GTE's foreign military sales: ' 5. 10 consider and act upon the shJrchulder proposal which seeks 10 require shareholder approval of bonuses to executive officers and limit bonuses to 10fil. of the annual salaries of the executive officers: and 6. to IIct upon any other mauers properly coming before the annual meeting and any adjournmclll or postponement of the meeting. Only shareholder,; of record ulthe close of business on March 29. 1991J will be entitled 10 vote at the aJlIlual mcccing. To gmnl your proxy to vote your sJUlrcS. Y(.u may complete and rctunl the enclosed pmxy card or grunt your proxy hy telephone or thc Intcnlet. You may also cast your vole in pcrson at the annual meeting. Plcase vote promptly whether or not you expect 10 attend the llnnualmecting. You will need a ticket if you plan to attend the annual meeling. If your shares urc rcgis[e~d in your name and lwt in the name of a bunk, broker or other third party, you will receive a ticket uuached to your l'lrOX)' card. Please detach and save the ticket. You will need tll present it. in order to be admitted to the annual meeting. If your shares are not registered in your own nume, please advise the bank. broker or (lther institution lhat holds your shares Ihllt you plan to attcnd the annual meeting. That firm must provide you with documentation showing that you owned your GTE shares as of the record date, March 29. 1999, This documentation may be either n copy of un account stmemem thaI shows you owned GTE common stock on the record dute or u letter from the tirm that conf1mls you owned GTE common stock on that date, Plcm;e hring that documentation to the' annualmceting in order to receivc un admission ticket. By order of Ihe BounJ of Directors. Mt\HI,\NNE DlWST Sl'cretary PLEASE VOl'l~ YOlln. SHARES PROMP1'L Y. yOU CAN FIND INSTRUCTIO~S FOR VOTING ON THE ENCLOSED PROXY CARD. , "' I' J ! ,- , " " ~~~~~;~:;:!'!:i~, ':f':;",H/;, ? :' ;":'i ',::" " ., " ..,. .,:;C,- ,. 't':i\.>~~"',,~,," . . " . I.' i,.. ~. . '. J ~ . . . . ; \' '. < . ~!:l~!\':t~/:,'~,'\::,;'i).;' ..: '::,;"';. ":, ;'.' . , ',' '. . !-":~ ;;:;,':;,' :, ::':;':l,:'i;';:~JY~!'!;:' ,':," '; '.' ,:,> ;; " . 1 . : .' . . f . . ,,', ',' ~_", . . . ,'. + " . ~";' .', :;." . ;: '.. .. . . l "':',',;,~,;;.", l':"":."'\"':~': ,,~'., \.'1)'"." ',:,e,'." :':', '.';'.,.",:".' e,' ":--' " ; ';';':1"t,;\k':,.lI!"it'cffff~I'Y~\~'.I\",'Y,'L'~ ",C"" <, '';'. l' 'I,', " " :;' ,,' . , .' , " , .~W... j ~'. > '~.~V:~i ~;..:~'.-...,\il.;.~ a.l,\~'lJ"i."'~A:-..... '~,,',"'l' . ,;-~./~':"~j.,..--";t""';""""'I"'''~''~'''''>;-''';".. :;<H .,.1 ":~~'.;.I~"l~: ~.it' . . < J" . ~. ", . , ~ . ;. , " " , ~ ." 'I ~. . ..... .',".. (' , I. I,. '. .' ~ ~ j " . i.eO" ' , . .,' . I ,I' M ~ ';" ~\ - . ::~~~~t: " , I ' ,. .,''1. J I , .i>t'''~' ;~~: ,_ ~1.~' ~ , " NOTICE OF ANNUAL MEETING OF SHARf;HOLDERS .: . Date: .' Time: Place: May 19. 1999 10:30 n.m., EDT Crowne Plaza Rl.lvinia 4355 Ashrord.Duriwoody Road Athintn. qeorgln I. April 13, 1999 ~, ;..... '" t ' .., ~ \ :~.:' ''''....1 151l' ~ ~".,'. ) ",,p.' / , ' TIle purp!>scs of the Bell AlIantie annual meeting are: 1. To elect directors: .. 2. To ,vote upon a proposal to approve the issuance of Bell Atlantic shares under an Agreement and Plan of Merger, dated 'as of July 27, 1998, with GTE Corporation, and rcllued transactions, including the a~encJrnent and restatement of Bell ,Atlantic,'s certificate of incorpol1ltion; 3. To ralify the appointment of independent accountants; 4. To vote upon an amendment to. the Bell Atlantic Incentive Stock Option Plan; and . 5. ,To act upon such o~her matters. including five shareholder proposals. as may prop!:rly come before the meeting. ' By Order cif the Board of Directors, P. ALAN BULLlNER Associate General COWISe{ and Corporate Secretary Adinittllnce to the Bell Atlantic annual meeting will be limited to shareholders eligible to vote and authorized representatives. An admission ticket is attached 10 the proxy card for this purPose. Beneficial owners holding shares through an intemlediary, such as a bank or broker, will he admitted upon proof of ownership. The Crownc Plaza Ravinia is accessible to all shareholders. A 'sign language interpreter will be provided if requested: requests should be directed to the Corporate Secretary. Bell Atlantic Corporation, 1095 Avenue of the Americas, 38th Floor, New York, NY 10036, and received 110 later than May 3. 1999. '. .~ I, '.' "1 ~ r'" . ~ " 1:' ..,' " ." . d. . H .' 'P' :~.: r~-..: " ',r , .j , I ,\ \ , ' .., .' !. j i I , ! I ,., I "e i f , : ) , ; , i :'~~t:~;..~. ."~' . " ~) C, .. J ~ "c "r .. . ~; .' ~ \ . ~ .:.':~;:.V~~~\,> l:, :'.: I ; '. ~.' ., >' ~~I ' ..:: j" , I. .. "/' .", I . ' ~ , . ,~..: l~. ~, . , t !'.:: ~': "l( '.:' ~I' "1')-"00.:,'. .. '.. ~. ",\':(':::,',:, '/; ; . ~. ," . ~. " ~ " . '~i+ . ~ ,,"'"! ," '. ~." ' \.'. ~ :,....,1 . , . .~: .'.'''; I , ~: 'j :. .,1 e " ': ':', . . '. ':, f ~l . , !' " II.", ' H'>,:" ~ I' 'I': < ;;'li),C ;':,'c ,: : /.. '", , :;~ . ,. ..,I. :; !,' : <'I: : ,c ! f .: '., ,I"' >., I \". , " . "I) .' t'. ,', . .., .I, , , 'i. ' .' ,'" .' , ,l<~,~'<',:!:i'-"~'I,,:,~,".~... ," ,. ."~;".: ."t.~.(, .''::.' ~ .~.' },:,{,'I-l"" V. '~.l."~.".\l ,~ " " '.J-I., 'J ~" , ' ~",;, j ',~" ~ ~,l."; ~...' ::1.:A....~~)---''''"'.~~.nl.'q f{'. r' ,l I':~~ l"'~ , ~> .~ },".,\~/1 ..'. ." ' I I, .... i '., ' , ~~ < . '" '~-... ,'., ,) jr^ ,! ;>~.' , ~2) "\<.:~ .'~.~'":,,....~.,...,,",..v o";C'. '.:".. ~ ' ~.>. ." .. ',' . TABLE OF CONTENTS J ' INTRODUCTION " CHAPTER I-"THE MERGER ' , QUESTI~NS AND ,ANSWERS ABOUT THE MERdER .. .,..".. ~'" ",', ..'... '...:.:, .'..,. , MERGER INFORMATrON SUMMARy......".,...,.... '" _... .,....... :', ~'.;..... '.... " , ' < , : The Companies;, . I' . 1 ;, 1 . . . . , a . , . . . . " , . ~ . . . . , .. ~,. .". /, I I .. . . I .. . . . t . , . . '.'. .', . . . . ~ ~ . , " Vote Required to Approve the Merger, . . . . . , . , . : . , . , . . : ' . , , , . :', " , . . _ . , . . ',' , ..,. , , . , , " I' The Mcrg~t... . . . . . . . " . .. . . . . ~ . . . . . . .. . . .. . . . .. ,. . . . .. . . . '.;. . ~ . . . . :'to .. . .. .. '. ... . '. .. .... ~ .. t : 1 .. ~ , Our RCaSons for the ~'Iergcr . . , . . , , . . . . . , , , , , . . . , . . , . . . , . , , , , .', ,", , , , , .. . , . , . ,', . , , . " Our Recommendations to Shareholders "..,.,..,.,..,..."...... '. . , , . ; . . . . , , ~ , , , . , . Opinio'ns of Financial Advisors, . . . . , . . . . . . . , . . . , : .., .,' . ,'_ , . , , ,'. . , , . . . . , , . . . . . . , . . . . Ownc11'hip Qf the Combined Company Following th~ Merger . . . . . ; . . ~ . . . . , . . . , . . , , , , ,'. .', Board of Directors 'an'd Management Following the Merger. . . . _ ., , ,', , . , , , . , . . . '. . . . . . . , ; . , Additional Compensation for ExecutiveOtlicers as n Result of the Merger ...'"".,...,...,. 'Conditions to lhe Merger. . . . , , , , . . . '. , . . . . . '. , . . . . . , , , . . . . . , . . . . . . . . . . . . , , . . . . . , . , Restrictions on Alternative Transactions. , , , , , , , . , , , , , . , , , , . , , ~', , ,'. , , . . . , , , ',' , ; , , . , , Tennination of the Mergcr Agrcement . . . . , . . , , . . , , . . . , , . . . . . , . . ; . . . . . . . . . . , . . . , . . , , Termination Fees "...........,.....,."",..."",....."...,.",..". '. . , , , . , 'ReCiprocal Stock Option Agreements Belween Ihc Companics ,....."".,..,.,."",.,;" . Reg'ulatory Approvals _.. , . . . . . . .' . . . . . . . . . . . . . . , . , . , , ;'. . . . . . . . , . . , ~ . , , . .'. . '. . . . . Expected Accounting Treatment, , , . , , . . . . . . . , , . , . , , . . , , . , . , , , , , , . , , , . .. . , , . , , . ; " , , . ' GTE Shaieholder'l.nwsuits Challenging the Merger ....,.,...,. _ . . '. . . . . . , . , . , , , . . . . , . . , Comparative Per Shure Market Price Infomlution . , . . . , . . . . . . . . . , , . . . . . . . , , ~ . . . . , , , , . - , , Listing of Common Stock on the New York Stock Exchange ,.,....,........,...."..... Amcndments to CCI1i1icute of Incorporalion and Bylaws to Increase Authorizcd Capital Slack and Provide for Governance Arnmgements ',' . . , . . , . . . , . . . , . . . . . . . , . . . . . . . , . . , , . , ; . , . . Summary of Selected Historical nnd Unaudited Pro Forma Combined Condensed Financial Information. , , . _ .', , . , . . , , . , . . . , . , . . , . . . . . . . , . . . , , , , . , . . . . . . . . . . , , , . . , , , , , , Unaudited Pro Fonna Combincd Condensed Financial Information . , . ,', . . . , , , , , , , . . , . . . . . . Comp:.mllive PCI' Share Infurmalion , , , . , , , , . . , , . , , , . . . , , , , , , , , , , , , . . , , . . , , , , , , , , , . RISK FACTORS RELATING TO THE MERGER ",'.,..",...",.........., . , , . ; . . , , , , Slulreholdcrs Will Not Know the Market Price of thc Stock They Will Rcceive in the Mcrger \Vhen ThCy,Vole on thc Merger, . . . . . . , . . . . . . , . . . . . . . . , , , . . . . , . . . , . . . . , . . . . . , . . Regulatory Agencies Must Approve the Merger and Could Delay or Refuse to Approve thc Merger or Impose Conditions that Could Adversely Affect Our Business or Financial Condition. . . , , , , Terminution Fees and Rcciprocal Stock Option Agreements Could Make an Alternative Tmnsaclion Marc Ditlicult or Expensive. . . . , . . . . . : . . ,. . , , . . , , . , , , . . . . , . . . . . . . . . . . CAUTIONARY STATEMENT CONCERNING rORWARD.LOOKING STATEMENTS.. -....... THE MERGER TRANSACTION. . . . . . . . . , . , , , . , . , . , , , , . . , . . . . . , ; , . , , , , , , , , . , . , , , , , , The Conlpanies , , , , . . . . . . , . . . , , , . . , , , , . , , . . , , , . . . . . . , , , . . , . , . . , , . . . , , . . . . . , , . Background of the Merger ',' . , , . , . , , . . . . . , , . , , . . , , . , , . . . , , , . . , . , , , . . , . . , , , , , , , , . Reasons for the Merger; Recommendations of the Boards. , . , . , , . , , , , ~ . , , , , , , . , . , , , , , , , , Opinions of GTE's Financial Advisors. . . . . . . , . . . , . , . . . , . . . . . . . , , . . . . . . . . . . , . . " . . . Opinions of Bcll Atlantic'" Financial Advisors. , , , , . , . . . . , . . , , . , , , , , . . , , , . , . , . . , . , , , . Accounting Treatlnenl , . . . . . . . . , . . , , . . . . . , , . . . , . , , . , . . . . , . , . . . , , . . , . , . , , . , , . , , , Material Federallncoll\c Tux Consequcnccs , . . . . . . . . . '. , . . . . . . . . . , . . . . . . , . . , . ; . , . . . . , Regulutory Approvuls , . , , , . . . , . , . . . , . . , , , , , , , , , , , , . . . . . . . . , . . , . , . . , . , , . . . , , , . . Conflicts Crcated by Overlaps of Domcstic: Wireless Properties; Potential Sohtliolls . . . . _ , . . . . , . No Appraisal Rights , , . , , . , , , . . , , , , , . , , ! . , '. , . . , , , , . . . . . . . . . . . . . , . , . , , , , , , . , , . , GTE Shareholder Lawsuits Challcnging lhe Merger """"". . . . . , . . . . . ,. , , . . . . , . . ... , COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORr\,1A TION ""."...,.. UNAUDlTED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS. . ,.",.." i ' . ; .' . " .., ..' . . c '. ~ I-I ,1-3 1-3 IA 1-4 l-4 1-5 1-5 1-5 , 1-5 1-5 , 1-6 1-6 1-6 1-7 1-7 ].7 1-8 , r-8 1-8 1-9 1-9 1-10 1-12 I 1.14 ! 'i 1-15 1-15 I- IS 1.16 1-17 I-I H 1-18 1-19 1-23 1-29 1.45 I-52 I-53 I-54 I-56 I-58 1.58 I-59 I.(){) W!~~:;i;?:W',(::>::~':Y;;.', :,,: ':::,~f: - . " ..' .1' . f I ~ : t . '. : .' l , 'I, t~;~.:(~~... . '". . '. .':~':~ :~.>-...;~ ~. '. I' . "I.~:' . : ~ ~.' . 'I~ . I I: ' . ~ .:. .. , " , , , ~ .)'. : 1'"1:,' ..j',. '.. :". "". . . ~ ~ ., ~.'., ~.\...: ..~l"~ ('.". '. ('. '> I".;~':':' .::-' ,;..,~'" , ' ;)^' :: r":~'::',:',, 'j,', :- ' ' .t', , .' , e' ~ : 'i . ~ " .. ". ,t, : . ~ . . '.~' I I ., . , :." .' , " , 'r: c..." AI" ".: .T, . , " , ~ . '. . . ':',," '0' \" , , " ~ . ~ . .' I ;..;.; I.~ II ~ . '. . ~ . /: ." . , I . " . .... , . ~~ ~. .'~ <; ~.,:, . . . ,., '. "/ ".: .," >. l " . , . , , . . " . . ,;",' ~ } , . " l 'I ' t .' .",',' ",,",/ . ..' ~ l'. . '.~H~f,::;' ':1: '1,":::::':~::,:7(,;k:~;;i~~tf~d:;.,;:,,~~:~'~ l::"'~:'" , ., ',' . ' ~ . ','. , ""'t ':, ~ . I .' - ..~.L""'I~"'~."'.""~ I""'~'" II c." . , '~....,.. l " ;." . /' 'j ", f: , , 'ADDlTIONAL COMPENSATrON FOR EXECUTIVE OFFICERS AS A RESULT OF THE MERGER .. ~ . . I f .f . . . .. f . .. f .. f ~ .. . .. f .. ... ... ... . .. ... ~ f ...'. . . , . . . ... f . .' f . . _ 4 . . 4 f . f . . .. . . . ~ . . . ~ .. . GTE ErnpJoyment Agreements. . . . .. . . . . . . . . , , '. . . . . . '. . . . . . '. , . . . . '. . . . . . . . . '. . . . . . '. . . GTU Implemcntation and Retention Bonus Plun . . . . . . . . . . . 1 . . . . . . . . . . . . . . . . . . . . . . . ... . GTE E"ccutivc Scvcnlncc Agreements. . . . . . . . . . '. . . . . . . . . . . . . . .'. . ;.; ; . . . . .. . . . '. .'. ';.. . GTE Long.Tc:ml rnccnlivc Plun .......,.......';...:.. '. . . . . . . . '. .'. . ~ . . . . . . . . . ~ . . . . . . . GTE Equity PanicipationProgram .... '. . . . . . . '. ... . . . . . . , . . . . . . .. , . . . . . . . . , . . . . '. . . . . .. ... Bell Atlantic Employment Agrccn'cnt~ . I ~ _ . .. .. . . i . _._ . 1 .. I .' ~ ....,... t . .. ,', . .." . .. . .. .. . . .. . .. . Other, Bell-Atlantic Agrcements ..,...,.......................'.;,..........,...... , , SUMMARY OF THE MERGER AGREEMENT ......,...... . . . . . . . . .. .. . . . . . . . . . . . . . .'. . ,,. .,\ . , ,I '" -), ' < .., Fonn ot~ Merger.. . .. .. .. ,. ,. ... " .<.,. -to : ,. , + .. .. . . . . . .. . . . .. .. . . . .. ... ... .. ;. ,". : ... ... .. II' .. .. .. t f .". . ft" f f f . f . :. ,Conroideration to be Rcccivedin the Merger. . . . . . .'. . '. . . . . . ',' . . . . . . . . , . . . . . , . . . .'. . .. . . Exchange of Sllarcs +.. . . .. .. , .. .. .. .. I . . . . .. .. . .. .. .. .. .. , ... . .. . . . . , .. .. ... .. .. .. .. _ . .. t.. . . f . . . . . . . . . . ,. Treatmcnt of GTE Stock Options and Stock Appreciation Rights . 0' 0 . . . . . '. . . . . . . . . . . . . . . '. . . ". The Combined Company Following .the Merger. ". ... ... . . . .. . . ~ ... t .. .. . ... .. . .. ~ .. . . . . . . ,'. . . * .' .. .. . . . Represcntatiofls and ~armllties in the Mergcr Agreement ;.. 0 . . 0 . . . . ; . . . . . . . . . . . , . . . . . " . Condi.ti.olls in th~ Merger Agr~emcnt . . , . , . . . . : . . , . , . . . . . . , . , . , ,. . . , 0 0 . . . . ., .. .; . . . . . , Transltlon Planning ....... 0 . . . . . . . . . . . . . . . . . . . . . , . . . . . . , . . , . . . . . ; . . . , . . . . . . . . . Covenants in the Merger Agr~ement . . . . . . . . , . , .'. . ,'. . . ..'. . . . . . . . ; .. . . . ~ ' . , . . . ; . . . . . . No Solicitation of Tnms:lcliol1s . . . . . . . . ... . . . . . . . . ',' , . . . . .. . . . . . . . . . ~ ; . 0 0 . . . . . . . , . . . Bcnefits Matters. . . . . , . . , . : . . . . . . . . . . ; , . . , . . . , . . . , , . . ,;' . . . . . : . . . : . . . . . . , . . 0 . . . . Indclllllificntion and rnsurancc. . . . . . " . . . . . . . . . . . . . . . . . , . . . . .', . , . '. . , . , . . . . . . . . , . . . . ; 'TemlinalioIl . . . . 0 . . , . . . . . . 0 . . . , . . . . . , . . . . . . , . . . . . . . , . . . . 0 . , 0 . . . . , . . . . . . . . .' ~ ..' Temlination Fees,. . . . . . . . . . . , , . . . . . . . . . . . . . . . . . . . . . , . . . , . . . , . . . . . . . ',' . . . . . . . . . /; " . Ex. pcn scs ;, f _ . . f .. .~ , ;. . . f * ~ t ;, f '" . .. .. I . _ . . * ~ . .. f .. . . . If. .. t . .. . .. ~. . . . . ;, . .. .. . .. ;, t t t ; . .. t * ... ... f 1-68 !.68 1-71 J-72 '1-73 1-75 1-76 ]-77 1.78 ].78 1.78 1-78 ' 1-79 ]-79 1.80 ]-80 1-81 1-82 ' ].84 1-84 I-SS 1-85 1-86 1-86 .,'. .... " {. " ,: '\ ", . .."..:'..... "-'" I i , J j ),1 J; ./ ; { i 1 > SUMMARY OF STOCK OPTION AGREEMENTS. ",' . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , . . . ,. 1-87 DIRECTORS AND MANAGEMENT FOLLOWING THE MERGER........,...,.... ,'. 0.: '.... 1-89 Directors . . . . , . . . . . . . . . . . . .'. . . . . . . . , . . . . . . . . . . . . . . . , . . . . . . . . , . . . . . . . . . : . . . .. 1-89 Committees o(the Board of Director.; . . . . . . , . . . , . . . . . . . . , . . . . . . . . 0 . . ... . . . . .. . .'. . . .. I-R9 COJllpcnsution of Directors : . . , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , , , . . , . . . 0 . , . . . . 0 . ,. 1-89 Co. Chief Execulive Ofliccrs , . . . . . ," ; , , . . , . . . , . , . , . . . . . , . . . , . . . 0 . . . . . 0 . . . . : . . . . .. 1-89 DESCRIPTION OF THE COMBINED COMPANY'S CAPITAL STOCK FOLLOWING THE "",., lvlERGER .. 0 . . . . . , . . . . . . . . . . . . . . . . . . . . . . . . . , . . . . . , . , , . . . . . . 0 . . . 0 : . . , . . , . . . . .. 1-90 AUlhorized Capiwl Stock ........ . , . . . . . . 0 . . . . , , , . . . . . , , . . . . . . . . . . . . . . . . . . . . . . .. )-90 Common Stock . '. . . . , . , . . , , , . . . , , , . . . , . . . . . . . . . . , . . . . . , . . . 0 0 . . , . . 0 , . . . . . ; , . .. 1-90 Series Preferred SUlek ..................,...........,..,.,.......",......,.... 1-90 PrcenlPth'c Righls ......'".........,..",..",..,..........,.,......,......... 1-9\ ,Transfer Agcnt and Registrar .,.......... 0 . . , . . . . . . . . . . . : ' , . , . . . . . . , , 0 0 . 0 . . , , , . .. )-91 COMPARISON OF SHAREHOLDERS' RIGHTS. . , . . ., . . .. .. .. . , . 0 . . . . . . .;. , , . . .. . . : . . 0 1-92 , Comp.lrison of Specified Sharcho]dcrs' Rights Among GTE, Bell Atlantic and the Comb.incd . Conlpuny . . . . . . . . . . . . . . , . . . . , , . , . . , . . , . . , . . . . . . . . . . . . . . . . . , . . . . . . . . . . . . . .. 1-92 Comparison or Other Shareholders' Rights Between GTE and Ihe Combincd Company, . . . . . . , .. )-93 STOCK EXCHANGE LISTING; DELlSTlNG AND DEREGISTRA nON OF GTE COMMON STOCK. . . . . . . . . . . . . , , . . . . . , . . . . . . . . , 0 . . . . . . . . , . 0 . , . , . . , , . . . . . . , . . . . . 0 . , . . , .' 1-98 FEDERAL SECURITIES LAWS CONSEQUENCES; STOCK TRANSFER RESTRICTION AGREEMENTS. . . . . . , 0 . . , . , , , , . . , . , . . , , . . , . . .' . . . . . . . 0 . 0 , . . . . . . 0 . . . . . . , . . , , . . .. 1-98 EXPERTS. . . . . . 0 0 . . 0 . , . 0 0 . . . . . . . . . . . . . . . . . 0 . . . . . . . . . . . . . . , , . . . . . . . , 0 0 . . . 0 . . . . .. 1-98 LEGAL t\1A TIERS. . . . . . . . . . . . . . . . . . . . . . . . , . , . , . , . . . , , . . . . . . 0 , . 0 , , 0 , . . , . . . . . . . . .. ].91{ , CHAPTER 1I-1NFORl\'IATION ABOUT THE ANNUAL MEET]NGS ANI> VOT]NG THE GTE ANNUAL MEETING , , . . , . , . . , . . , , . , , , . . 0 . . 0 . , . . 0 , , . . . , . . . , , , . . , , . . , . , . . , II-I Whcn and Whcrc the GTE Annual Mceting Will be Held. . . , . . . . . . . 0 0 , , . . . . , . . . . . . . . . . . . 11-1 How to Attend and Participate in the GTE Annunl Meeting . . . . , . . . . . . . . . , . 0 . . 0 , ~ ' . . . . . . . II-I \Vhlll Will be VotcJ Upon ................,..,.',..,..,.,.....,................. \1-1 Only GTE Slmrchuldcrs of Record as of Murch 29, 1999 Arc Entitled lo Vote ....,........... rt~2 Majority of OUlstanding Shares Must bc Represented For a Vote to hc Taken. . . . . . . , . . , . . . . . , U-2 ii '<'w"o$ i~:,'1,,:!t!r~:J'>i:;' ; :' '. ,:. ," .', . . .' ".a,'/:/ / . ; ,~ ":',' .' ,~j. .:' .,< ~ '. \ >," ',<", ;. , ':1: ": ',' o>:,,~..,:.,;''::',':'<--:',: ,',': J '." , I' I. ., . .'. '. ~;~ '. c ", ',', t ,l.r.",',' ....; ..'-';~' ,I ..:.'. :'~ '., .: ";: .,'-,; _:.,',.. . -, \ ' 'i/~~:..t.:f'(':.t~;;'\;'.::~~~r:~~.~;~';J;,r{ti~~~f';\M.t / c:~' ~. .',', "~:i"; ,.. ':' ~(... v',. J" ,',:t ~.<.~:,t. .''3'~(''';''''''''.t.'t''".t.)....~...... .' .",~:,_~.._~..*,..~~t:l,~-"h.....~.:,~d'-"~ '}" ".'1\1" ....~ c. ~ t. .' :~', ~ f:;.:'?F"" ',:, .". ,'.,... ,I" ~ c "r. {' ',. I, ji .~ >. .!. ....: I.~ :' :. ," "d', ,,, '/ " 'h'('>1' ~..'~ , , , ' ,', , . ..:I""-'~ i~i . ; ~ .,.,*,," , , .. , ""'" , '..J '.. " .' ,':' t, .. l'~ ..' ~ . :, 'I' .> ,It , ':,1 . .' ~ t I . . (. . I' .:. ~ . . . ",': , . ~ . I ~. ': I'" . ,-;i..,> \'. '. '; , " I '. ~ . I \ 1 , '! :,~:<<,:\":'. ",,"/,.;',' .. . . '. '. .!' ~ . j' . ' < " : '.: '.':. : .~I<.. ,". :~\ > . .t,.'. ". 1 "I *. -l'c.< " 1 ~ '. 1-'" < " I : ,,' " V ole. Rcqlli red . ',' . . . . t . t .. . . . . a a . . . . . . ;. . . . . .: .;.< . .', . . '. + . + , . . I . ~.... .. ~ . .'. . + .> ; . . . . .. . 'Votjng Your Shares nnd,Changing Your Vote.. ;'........ .'..... .'.. .",..., ',' .'.. .,., ',' .'.. ,1 How Proxies Arc Counted + 4 . .. .. ... . ... ~ . ~ . . ;,& : . . . .. . . . . . a . a . . .. " . ~.' . + .. . _ '. I . It. ."4 . . 1 . .. . Ctlnndentiul Voting .. ~ ~ . ... t . ... . t . ~ . a . . . . . t . . t Ca & . . . t . . . . + .. . ~ .. ~ :-,. a . . . . . ... . .. . .' 1 4' .. ... . . Cor.t of Solicitation .. 4 . f . . , . : . , . . .' . ... . ; ;. a . . .. . . . . t . . . " . . 4 . " ". . .~ .. . .. . . . . ~ i .. . , I " , ". ... Proxy Sla~enlent Proposals. . . . . . . . . . ..,. . . ... '. . . . . . . . . . . . . . . . . . . . . '. ',' . . . . . . . . . . . . . THE DELL ATLANTIC ANNUAL MEETING. .. . . .' . . . . . . , . . . . . . . . . . . . . . . . . . . . . . . . . , , . When and Where the Bell Atlantic Animal Meeting Will be Held ......,.........:.... . . . . How to Attend and Participate in the BeH Atluntlc Annunl Meeting. . . . . . . . , . . , . . , , . . , . . , , What Will be Voted lJpon . . . . . . . . . . . . ~ . . ~ . ; . . . . . . . . . . . . . . . ' . . . . . , . . ... . '. . . . . . ~ . Only Bell Atlantic S,hnreholdcrs of ReenrolL" of April 2, 1999 Arc Enlillcd to Vote. . . . . . .. . . . Majority of Outstanding Shares Must be Rcpres~nled For II Vote to be, Taken ........,...... Vote Required . . . . . . .., . ... .. . . ~ + + . ~ . . . ~ . . .. ... t 4 + . t . . ~ + + . ; . . . . . . . . "". .. I . ~ . I 4 .' I ;. . . . . a Voting Your Shnres nnd Changing Your Vote. . . . . . . . . . . . . . . . . . . . . . . '. , . . . ~ . . . . . . . . . , : How Proxies Arc Counted, . . . . . . . . . . . . . . ~ . . . . . . . . . , . . . . . . . . . . . . . . . . . . . . . . . , . . . Confidcntial Voting . . . , . . . . . . . . . . . '. . . . . . . . . .'. . . . . . . . , . . . . . . . . . . . . . , ; . . '.'. . . . , , ' Cost of Solicitation ....,.',.............. '. . . . . . . . . . . . . . . . , . . . . .'. . . . . . . . , . , .' . . e. . ,CHAIl'fEll IlI-OTHER GTE ANNUAL MEETING PROPOSALS ITEM I-ELECTION OF GTE DIRECTORS . . . . . . . . . . . . . . . . , . . , . . . . . . . . , . . . . . . . , . . . . . 'GTE Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , , . . , . . , , . . . . . . . . . , . , . Commitlcl.:s of the GTE Board of Directors. . . , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ': , GTE Directors' Compensation. . . . . . . . . . . . . . . . . . . , . . . , . . , , . . . . . . . . . . . . . , . . . . . . . . Charitable' A wards Progrnnl " . . . . . . . . . . . . . . . ,'. . . . . . , , '. . . . , . . . . . . . . . . . . . . , . . . . . . . GTE Executive Compensation Committee Report. . . . . . . . . . . . . . . . . . . . . . . . . . , . . . . . . . . . GTE Executive Compensution Tables. . . . . . . . . . , . . . . . ... . . . . . , . , , . . . , , . . . . . , , . . , . , . GTE Performance Graph ... . . . . . . . . . ',' . . . . . .'. . , . . . . . . . . . . , . . . . . . . . . . . . . . , , . . , . , GTE Rctirclllcl1t Prognlnls . . . . . . . . . . . . . . . . . . . . . . . . , . . , . . . . . . . . . . . . '. . . . . . . . " . .. . . Certain Trunsuctions ....:........................'......................,....., Ownership of Stock by GTE Directors. Nominees for Directors and Execlltive Omccrs ,..,.... Erection of GTE Directors. , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , . . , . . . . . . , Biogmphical Information of GTE Ditcctors. . . . , . . . . . . . . . . . . . . . . . . . . . . . . . , . , . . . . . . . . ITEM 2-GTE MERGER PROPOSAL ~ . . . . . . . . . . . . . . . . . . , . , . . . . . . . . . . . . . . . . . . . , . . , . . , , ,ITEM 3-RATIFICA TION or APPOINTMENT OF AUDITORS. . . , . . . . . . . . . . . .', . . . . . . . . . '. ITEM 4-SHAREHOLDER PROPOSAL ON FOREIGN MILITARY SALES....... ,..,... , , .. ITEM S-SHAREHOLDER PROPOSAL ON EXECUTIVE BONUSES. , . . . , . , . . . . . , . . , . , , . . . OTHER MA TIERS "., , , . . . . . . . . . . . . . . . . . . , . . . . . . . . . . . , . . . . , . . . . . . . . . , . . . . . . . , . CHAPTER IV-OTHER BELL ATLANTIC ANNUAL MEETING PROPOSAl.S ITEM l-ELECTlON OF BELL ATLANTIC DIRECTORS .....,......................... Corporutc GovcnHlllcc . . . . . . . , . . , , . . . , . , , , . , . . . . . . , . . . . . . . . . . . . . . . , . . . , , . . . . , . Election of Bell Atluntic Directors ,....,.,..... . . . . . . . . . . . . , . . . . . . . . . . , , . . . . . . . . , Report of the Bell Allmllic Humun Resources Commiuee on Executive Compensation , , , , . , . , . Compensation Committee Interlocks and Insider Participation . . . . . . , . . . , , , . . . . . . . . , . . . . . Bell Atluntic Executive Compensation Tubles . . . . , . . . . . . . . . . , . . . . , . . , . . . . . . . . . . ., . . . Security Ownership of Bell Atlumic Directors and Named Executive Officers. . . . , . . . . , . . . . , . Section 16(a) Bencliciul Ownership Reporting Compliance. . . , . . . . . , , , . . , . . , . , . . . . . , . . , Bell Atlantic Retirement Plans . , . '. . . . . . , . . . . . . . . . . . . . . . . . . . . . . . , . . . . . , . . . . , . . . . . Bell Atlantic Employment Agreements. . . . . . . , . . . . , . . ' . . . . , . . , . . , , . . . , . , . , . . . . , , . . ITEM 2-BELL ATLANTIC MERGER PROPOSAL.... ..... ....,. ......, , . ............ , , ITEM 3-I~ATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS.,.. .,... lTEM 4-AMENDMENT TO BELL-ATLANTIC INCENTIVE STOCK OPTlON PLAN, . . . . , ,. . . Stock Oplion Plan Adminh,tl'lltinn nnll Pllrticipmion. . , . , . . . . . . , , . . . . . . , . . . . . : . , . , . . . . . Tux Consequences .' . . . . . . . . . . . , , . . , . . . . . . . . . . . , . , . . . . . . . . . , . , . . . , . . . . . . . , . , . . Anlcnlltucnt. . . . . . , . . . . . , ; , . . '. . . . , . , . . . . . . . . . . . . . . . , , , . . , , . . , . ; . , . . . . . , . , . . , 1998 Grants und Stock. Price Informntiun ,...... , . . . . . . . . . . . . . . . . . . . . . . . , . . . . . . . , . , Hi ::: l' '.: ~ ~ '" .' " ~; , t .tP .,1[-2 U.2 11.3 II-3 11-3 11-4 , 11-5 11-5 ',11-5 11-5 Il-S 11-6 11-6 1l~6 II-? 11-7 Il~8 IH-l Ill-I lll-I 1IJ-2, 1J1-3 1Il-3 , 1lI-8 111-12 lll-l3 1II-14 lIl-IS 1Il- J 7 1Il-J7 1Il-22 IIJ-22 1\1-22 lll-24 11I-25 IV-I IV.J IV-2 IV-H lV-II IV-Il IV-IS rV-16 IV-16 IV-J7 IV-19 IV-19 IV-19 IV-19' IV-19 IV-::?O IV-20 I~H..,V:t'-;:"\'-7~~,~,~-:-' .' 'V\' "" < 1" -~--~.. {.~"l'.pr..,\.-\)~.,.J,."-.il~(.~~r-'l.~,i.:.~r"'X"'1 I;.....'. ," '~r"":/'I.~l' !::';-"'~. .:.' .~: '.;:r> :,~~),i)?)~:~:T:~::~::'t(S~':':::,i:~;:::' /2 i.'f:',:,:":, "~"~'.. ':,:.'.' ,'. :.- ',', "'s'W"C"l!';", ','; :', ' ." " .'..' "," ~!~i}~<:::.'.; ':,,:,:';.,.,' ':,;,',:i~':::; ',:,::',,':.',:-: ,:;,'~;- .,," ,r...~\t.,}\..' I..'., fe". ,." .,;i:',',.':,::',",:',' " e,:)",.(:,<::: .'l\;,':~. !f~'f5;:1,:L.;t?~;t~:<f.~,,~. .. /"'l. .~ .", . .."')\ ~!(. ~,',;~',. l . of r.'J. 'J 'j; ",;., -', . . '\ ...,. './ ,f j ~ '," ~ . I ;~;~,::~:::~:,,:;;"'::;, ;;':" ,:~,:}:".:.~',:/; (;'; '< (~ ,:,; '\ '::( \"'t~~'lHk.~.. I .~...~..I".r'rt~l~l'., /,.. ",,/.' f. ',., , I." " >1 ",J , ",'". .~. ",; '. .:.1 J. . 'I,' ',' '. ..~:,:./~~,":':'~~":. ;: ,::~. t >,'.' :;,1" '.' " .,.,',",',",': r . .~ ."\ '. ~': i '~ '~',~ . ~ ' :'; l ' ;! ' h" , : ~ . "':',..., , ,'. l ~. . " ,.' ,:.: ' "l' ~\\.: ~, ."'. ,:\~ : ,/ '~/'.:.,.t:;i,~,',' . .:: :: ~ . ~:', . , ~: '.' . ~ ~) . ~ 1 . ':' t ,..i :(1:t,rl~ I.. >" ./ ...,.:f~Jte.."fi'~... _ c~l. ,r, '.. '......J.t..........~..._..........It..-..,......'~~", .. ~ . .;L; J~ " -, " , " , IJ, " ',' " ,.' "0",,. " ' j:.:',;> ", ,~ . .." ,', ,\ " e" '! d, ,! .:. " . . , ~, " , '>' c ,,' " I' ~.... ........... ~ ,ITEMS 5 THROUGH 9-SHAREHOLDER PROPOSALS........ .................. T/ .' " . SVBMISSIONOF SHAREHOLDER PROPOSALS AND, DIRECTOR NOMrNATIONS '...'. ',' ~ : :;'., .:"">~.,I,/H I \ ~. .. . c, ~ 1 ..... '. ~r '.. oj<. '"~... ~.. I... . , I ~ " , " ': ~: . . . ." " . .t'!IO~ER BUSINESS Ii'''''' "..~... "+"'~' Ii . 11-.... ...... .:.... . ',. ........ . ..... . " . :'CHAPTER V..;..WHERE YOU CANFlND MORE INFORMATION ! J.r... ,'. I,:.' I' : APPENDICES 'Appendix A: ' 'Appendix ~: Appendix C: Appendix 0: I ' , J ,\ , Appeudix E:' , , I , Appendix F: '.Appendix' G: Appendix H: Appendix 'Ii , ': , ". '~' o. , ~ . ,/ ' , 0 ~', < .t ;:! . ~ : : ~ . 0,' '" " , ...._.~".~ "':',' i.~,i."" !~.l:'~'I' , , ',' J' ,', ,,; '.' " iv . Ii III" , . . . .' . ',~' .. 1 'f. a " " , " , " , , ," .., .' ';',,' , .',1 , . ~ .. I : " '>1,:' , : ~ ,.;.. , 'I' jl " ~~ .,' ,.;' " .,. .'..1 ,.. ,.t~;. ' \~l/\~{:~', , " , < . ,:. l , ~~, I . >(.' ::1 'i: I': '. ~~' , ',! ,"1- .. I, ',\' ~ .' ~ ' , c"" ',' , .' ::'1',: " c..: ~ " ", .. .' ,i i' ~ ,\ . " , '...r.<'P"Y'" fc.'.}JJV'~ ~ ''"":':r~f ~.l~,>'! ~ .; ..". '" t: ~ . _':,.,., ~ cO,, .:i,i<' '. JV-20 ..,IV-27 ',:lV~27 Agrcc'ment and Plan of Merger, datcd as of July 27,' 1998 Stock Option Agrcement Granted by Bell Atlantic Corporation St~ck Option Agreement Grantcd by GTE Corporation ...,~ '. . . . " Form of'Amendment to Restatcd Certilkate of-Incorporation of Bcll Atlantic " Corporation '; . . . '. ; '. ; . . . . .. .'. ' Fonn of-Amendment to Restated Bylaws of Bell Atlantic Corpomtion , Opinion of Goldman, Sachs & Co. .. . Opinion of Salomon Smith Barney, . .,'. Op~niori of Bear, Stearns'&' Co, Jne.' . . , , Opinion of Merrill Lynch; Pierce! Fenner & Smith !ncorporuted. " . ':" '" , :,' ,I' . 1,1,' . " . . . , . II- ~ ,\' ,', , " 'n-I , b-I c-) ... 0 .~ .'. .. . I,; ',' . . ..... I, ," 'I;. :.. .\ d.) e-) f-I g~1 h-I i. t , , , i~J ,: t ~ . I ,. , " " 'I~ . ~ : ".-.., :. ' ) ~,..., fr' . , \ ;lj .- i .\ , t . . i, .. :, i . ' '. ..) , \ ' , I ~, t t; ./,e ,::' 411.\ VI' (",.. A \!~"~f... ~ 'Oll.o,EQL ,t'r; . I.- .' \,' , ; ~ " ,.J"" , (~'l~~J ~~~~v~~~::;r;!!f.~:j::~j~ >\\:> }(,:':~:,:':::,~',;:~ ,\:" ':,:~~ ~';~ ': j : , .j, ' " ,',:::t~'::'f'.! . .. ~ ;-:.:, . " ~ I >.. ' . .,~.:' \ .' F 'd ',', "I:" . I 'J. ,! ': ':. ,\0' <~:(,:..;. '/' ?,. {;~~~'i:~;: ~ ,:,:,/" <:,: ; , . "y' to l i ,J,. . I ' i; '.\ , , . 'of: ' . J. .', . ~ " ',' '/ . '~,3:"':.'~.~~': " ,", \. i' I J .\ ", .1 ~ ~: .:' ,,1' " "j :'1,." ::'. t ....:1 ,", -'., . ~ " ~';lHS ~~""~ :.,~ '1~lh.....;...~~f1iI~~lJt~~1' '~:'i". 01:' ,':, .' . ,: .~~,.. ," . . I c. ~. '. f" ~l).~'~'r~1ti,J:''''':: "-,;.,t. .;rJP.\~'.?j~~J..~l,.~~~~IN!L"~.>''''~'' , <':.. . ~.~.;'..':"""'i~':""~iI~'~~":""~"'.hl"'.~""'" ',.. ..; .... .~.' , " , .r' , ~ j ..' , " , ,', :~ ,,; " t <,1,,;- . ;:,i..' , " 'i. , . .... ., ,<:."..,' , lo . :: . 'I " ~'... I: : / " ' , '. 'e .... i ,. <. .<' I , .. i...... " j, ....1 .', i,' ,i' " .n. , ..! "'. .,' , ( " ',' .' '" .1'" /.~ I . .~. . ~':'.; ".t." . , .' ~"..'~4, 1~'1I."",~ '";., ,~it. . ~ . t " ~~~' " . ~ .',' ,. , , ,.1._ / . J ~ . " ',i ' ~ : ''(!~~"11 INTRODUCTION This joint' proxy statement and prospectus is being mailcd to shareholders of GTE Corporation and Bell , Atlantic Corpomtion in conneclion with euch company's annual meeting uf sharcholdcrs. The docul1lc'nt is org~nizcd into five chapters. ' , ,...". . .', Chapter I-liThe Mergcr" provides summary and detailed in[onnation about GTE's and Bell AlIallt,ic~s proposed merger of,equals on which the'shareholdeTS of each company ,will vote at their annual ,mectings. '( , , Chapter I1-"lnformalion About the Annual Meetings and Voting" provides information about GTE's and Bell Atlantic's annual meetings; how shareholders may ,vote or grant u prolty and the vote required to adopt each pro~sa1. ' " , ' , Chapter 1II-"0ther GTE Annual Meeting Proposals" provides information about the other mUllers that GTE shiucholders will vote on at the GTE ,annual meeting, including election of directors, ratification of : . 'auditors nnd two shareholder proposals. Bell Atlantic shareholders will not vote on these matters. ., Chapte'r IY"':-,"Other Bell Atlamic Annuul'Meeting Proposals" provides iniomllltion about the other matters that Bell Atlantic's shareholders will vote on at the Bell Atlantic annual meeting, including election of directors, ratification of independent accountants, amending the Bell Atlantic Incentive Stock Option Plnn and five shareholder proposnJs. GTE shareholders will not vote on these muners. . Chapter V-"Where You Can Find More lnfonnation" explains where shareholders of GTEand Bell Atlantic can find tl}ore inronnntion about each of the companies. You shOUld rend this joint proxy statement and pro~pcctus carefully before you vote your shares, (, " I ! ! . : ~ I " ,'.,,0:,'~.... .' ~ ': I "," '" 'k: . 'i'~ ~ . '. , , , ~ , } -../ , I v \ i I I ~ I . ~~~l::<'i ;~::'::} ,:,' ~,':,\;:: ,:' '~: :+,:" ...{, " \. ..' . . n 1 ,'. >. J . fj ~ ". . .. " ~:~< : .~. c o. . ~ ~. '. :,/. ,"1<;' , ,- .~::I>':>.l:;:' .'.' ' . ..~. .~ . , " T:: ~~. . > i , , ~ ~ ". ,,'.\ ./ c, " . I.,'..',' . " . ': \.' . .. ~ ~ , '.! .,1. , e, . . ., ~ ',.. \~: ;'.1 ,. ~! I.' '. , <- 'I' r .. . C I.' ~; .' 'I .. :' ,~;~,';,','~ I _ ;':,:,H,"""~~'<:"lJJ;.,\~""":'_,"';',':',' ~,( ,'~(,;,;,'''t'.e,.',:,_.,,' ,', I,.'., ~ ' "7 -. .'.<'.....r......'j;r":"...Ir.ff.'l.. f ...e~~..I'1 ....,.~. :) " ,}, , .',. <\ ,~ ' ,~ ~\ r;, :~ ,",i' ,;), ,'~;i~ Oh '. ,.+'). {~ "'" ~.ti1 '1~ : li~ ')'" :''1l '~c..t .~~ '.:1 T.1 ~'i' ~il t.;,;" ''J' \~i .~> iJ,~i ~,l , '(, '~, ' ~~ Wi :~ " :q ti.~ ~t\~1 t(" ~t1, ' t" '~h ~:r""~ : .. '. .'l'j ~ t . ~!~J..~ .',,,,,fI'~' , :~I' .,N ' , , i 1 , \ L , { , ) '. , " , i \ :', ') t~ .~, ~ i / II ,/;1 p. l' 'I ", ..' I' ,\ .." . . '.. " f CHAPTER I-THE MERGER QUESTIONS AND ANS~ERS ABOUT THE M~RGER ' Q. Why are the companies proposing the number of shares in the combined cOll1pany. merger'? However, they will represent a smaller , .. proportion of the outstanding shares of the A. The telecommunications mdustry continues 10 b' d ' , I 'd J ,com me company. change drat~atlf:aJly as a resu I ot eve opments in technology, regulation, consumer needs and, , ,the range of product offerings made possible by , these changes. In this new environment, a select group of national and international companies that offer a fun ronge of local and long distance, voice and data services will be the most effecli ve competitors in the telecommunications induslI)'. We believe our proposed merger will, create a powerful competitor in this dynamic, emerging market Wilen the merger is completed, yeu wiII have .\ stake in a company that will be one of, ' America's most competitive communications providers-:..one of the largest local exchange calTiers and wireless providers, us well as an extreme!y well-positioned long distan~e provider. Q.' What' will n sharehulder receive when the merger occurs? A. GTE Shareholders A GTE shareholder will receive 1,22 shares of combined company common stock in cxchange for each share of GTE common stock owned, He or she will receive cash instead of any resulting fraction of a share, in an amount reflecting the markct value of the fraction of a share. However, if a GTE shareholder participates in the GTE Shareholder Systematic l11V~S\mcnl Plan and is entitled to receive a fraction of u share. that fraction of a ...hare will be creditcd to his or her plan account. Example: If (I GTE .slwrt'llOl(la cllrrelllly OII'Il.s JO slum'S of GTE commoll stock. after, tile mager he or she will be ('lIlillcd to rcc.t!ivc 12 shares of cO;lIbi"ed compan)' common srock (ltul a check for tile mark!'1 mille of 11I'0-1('11111,\' of a share. , Bell A.rlantic Shareholders Aflcr the mergcr. a Bell Atlarllic shareholder will continue 10 hold the shares he or she now owns. Those shares will repr~sclll the same Q. What will the dividend be on the combined company common stock? A. Bcll Atlantic currenlly pays dividends at l\ rate, of $1.54 per share eaeh year, and GTE currently pays dividends at .1 rate of $1.88 per share each year. .The combined company board of directors will detennine the dividend policy following the mcr~er, We expect that the initial annualized dividend rate will be alleast $1.54 pcr share, Given Ihe exchange ratio of 1.22 shares of combined company common slack for each share of GTE common stock, the combined company's dividend is expected to be ncarly identical to the dividend that GTE shareholders now receive. Q. Whlit Brc the federal hicome ru~ consequences of the merger? In general, GTE shareholders will not be required to pay uny federal income tax as a result of the merger, except for taxes on cash they receive instead of fractions of a share. The' merger will be lax.frec to GTE. Bell Atlantic and Bell Atlantic I'harcholdcrs for federul income tax purposes. A., , I, Q. no shareholders have appraisal right..'? A. No, Under applicable law, neither GTE shareholders nor Bell Atlantic shareholders have lite right to receive un appraisal of the value of their shares in connection with the merger. Q. What do I need to do now'! A. ))Iellse \'Ote )'our shllrcs as soon as possihle so that ~'our shurcs will he represented at the :1Onu111 mecting. You may gnlJH your proxy by signing. your proKY curd am! nmiling il in the endosed return envelope, by telephone or by the Internet, or you may vote in perlion ltlthe sharcholdcr Uleeting. Q. Should I send in my stock ccrtiliclltcs nuw'! A. No. Soon after the merger is cDlnplcled, we will mail GTE slmreholders writtcn instructions 1.1 - ~'Ri;~~N,I~1~~~~'D~f.f.\~1q;'lf:{'t,r:"~f,~lT':7N~~-IF/:t!i~:~:',\:~;i' ': ':<l'/f":'/." ":~i':i:i.!\"~;;/~':,:~ ':~'..~:;,;,~,;:, :<,;':,,",,~"';';,;, :,r>: ,': <:.;,:':-,~:' ";"";",:: ': ":",.' ';~~;:-~/;\,'(L :,. ." '(,; ~%~;~~;;\\(ir~1;1;~~~:r:'.n~f::~;::~:;;i~!{,)'":\:~"'~:' "::;<,",:!~ ,,' ',', ; .' 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I " ,I' 1.,:' " ,I" ~" , }; 'Q '~ ., L' r. ~' ; ,:....~ . /..' . ... >'1' J ," J " I " '~ , " ....\ , :1 explaining how'to exchange .their GTE ..~ ' !' , ccrtificntes. Bell AtlUlitic shareholders wilt, not. bc'icquircd to exchange their:' slock :c~rtificntcs. ,~ . . ,~.l.! ~ 'Q.', Whom,should;l coli Jr I have,lIUe!iUons?; '. .... " ',' ' . ',','. .' , ' , A.. - GTE shareholders who have questions about ,. I 'I . , ,'lhc,mcrger,or the GTE merger pruposalmay ".:,:~f.,~~.;~~~f~8~~~8~O~.'.,~"., "c ," " ' . ,.... . ; :, ,', '. , B~ll At/antic.sharehold~rs,who hav~que~t1ons , ' abQudhe:tllerger,:or the' Bell At~nntic' merger, ,,~:'prop09arniay call, (800)'64SM~380.i.,'" ' ....I':. / I~;'::~' :~ .;(t<.t ': >~ 1,1" " ~ .' ,I. ":, +1, ,.' ~, '" " :/'L~"';:"';' ,1 .' :)' " ,'I. '"", :l :' ~ <) . . ~ 1 '. . I , . " '~~ "f', ,l) ... J;, 'q' ;l, , , ,\ " ,:/ .1' ,): \,i' ," I ~ ,I .. " ~, t. , 'L ,'. '" e J J I,'"l,' , . . . ,; ~ J ~: f q '.. '. ~ I,;" '.', t ~ :"L ,; .'0. . ;. \' l '. ( . ; ." \. 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I ,; '/ ,'1: " ; , , ., , 'i':';' ';;':',:' " " .,.,,', " !:!1 (, .: ~;. " ...~ : " ':~ .. " '., .~ . . q. , t , " ~~'<'" .. .' .', -h-. '" . t >' "': ',J~':: ; 'I'~ .~ ." '" 0..1-'" ~ :'. " ,':'.....F' !,.' ~ '.: ' ji.. f ;:1, ,I t',"J,. ' ',e ~-" "n. .' '~'ri.~<~ ;, " , " ~, , ,. >' ~ . " , ( . j " . . ~ ~ ;, " "i.' J' .' 'j,:, , ~ 11 ::' ~ .. I " .; :.; " " .i' ~:: .," . >; " ':i I, ,', i. \ ' " , " ,e I~'. , "'~ . ~l', '\ "- (.2 '. '. ~;17:'J",:,:';;:,,: >:~, ">:':",...,~:.-,:' ~." "T.. .A:~~-.>~:, .~~ f.~ : . ; . . ..... . ~,':~' ~ i; :. ~ . . , " '/ ., ,. '::'; ",' ";:'::"'/'I,~"~):rj"~:,,,..., ,..;'" r . ~" ~, ' ",~ I, . " P. . t'4:~ -- ;,1 \1 MERGER INFORMATION SUMMARY Thi,r .fcc/ioft .mmmari..es ,fclected in!onlUl!iQn 'o/}Oll1 the merger from this joilll pro:ry .rlat~mell~ cmt! prospectus. To, ulIderst,,,,d the merger fully, we stro"81)' encourage )'CJI' to recld carefully Illi.r elllire joint pro.;T)' stalemC7ll cwd pro.rpectlls cmd the documents which we hal'e filed willt tlte Securities alld Erduwge, Commi.uicm. We Iwve illcluded a copy of Ihe merger agreemenl in lhis joi"t proxy slCllemellt ami prospectus as Appendix A. For injonlwtf011 nnllolV to obtaitl IllI! documents tllat we "qve ,tiled with the 5t'i.'uritie.f/md Exc:lumgc Commis.rioll. see "Where You Carl Filld Mort.: b~f(mnCllioll" ill Chapter V: ' rhraugholfll1li.r joint proxy sIatcmelll and prospectlts wilen we refer to the "merger." we meall tile merger 'of a wholl>"oWIl(!d sub.ridicl/")' of Bell At/amic Corporatioll with and illto GTE Corporatioll a.\' described in Ihe merger agremu'II/. W/lt'n we refe~ 10 tile "combined wml'CUl)', .. we mean tll" complUl)' in wlrich you will O\VII sllCJre.~ [cJ((owing tile 'comht'natioll of GTE aud Rdl At/alllie. The Companle... ,(Sce Page 1-18) , ' GTE Corporation 1255 Carpor.He Drive Irving, Texas 75038 . (972) 507-5000 GTE is a lending tclecommunications provider with une of the industry's broadest arrays of products and services, It is one of the world's l.1rgest lelecommunicutions companies, with 1998 revenues of more than $25 billion. GTE's domestic and intcrnational opcr,uians serve upproximutcly 30 million telephone access lines through subsidiaries in the United States, Canada and the Dominican Republic, and an affiliate in Venezuela. GTE is a leading wireless operator in the United States, with more Ihan 4.8 million wireless customers and the opportunity to serve 61.4 million potential wircles~ cuslOiners. When we refer to "potenliul wireless cuslmners" in this joint proxy statcment and prospectus. we me:m the number of people living in the relevant urca served by our wireless operations, adjusted (0 reflect our ownership interests in those wireless operations. On April 5. 1999. GTE announced an agrcement to buy cellular properties from Amcritech Corporation for S3.27 billion. The properties, locuted in Chicago, 51. Louis and ccntmllllinois, currently serve approximately 1.7 million subscribers. GTE will have II 93% equity inlcrest in these properties and Georgetown Partners, a private investment firm, will hold Ihe remaining i%. These properties will provide GTE with more than I I million additional potential wireless cuSlom~rs. Under the tcnns of the definitive agreemenl, GTE expects to finalizc the acquisition when Amcrilcch and SBC Corporation complele their merger later ;11 1999. OUlside the United States. GTE opemtes wireless networks serving approximately 2.8 million customers with 23.4 million potential wireless customers through subsidiaries in Canada, Ihe Dominican Republic and Argentina, and affiliates in Venezuela and Taiwan, GTE also participates in a venture which operates a paging network in China. GTE provides data services, including dial-up [nlernel access for residential and small business consumers, and Web-based applications for fortune 500 companies. GTE is also 11 lcader in govenrment and defense communications syslems and equipment, directories and telecommunications- based informati?n services and systems. For addilional information about GTE and its business, see "The Companies-GTE Corporation" in this Chapter I and "Where You Can Find More Information" in Chapter V. Bell Atlantic Corporation J095 Avenue of the Americas New York, New York 10036 (212) 395~212J Bell Atlantic, with 1998 revenues of more than $31 billion. is at the forefront of the new communications and information industry. Wilh more than 42 million telephone acc.:es!> lines, 7.9 million wireless customers and the opportunity to serve I RO million potential wireless customers worldwide, Dell Allantic companies arc premier providers of auvanced wirclinc voice and data services, markc( leaders in wirclcf,s services and lhe 1-3 - ':\>.:'~'i""'; I'., ' .'., ~ ,', ". '. . ,T',~:" ~ . "'l:: ,.," . '.' " , , , il ., , , ; 0' , , ."~ ,. " ;': "...,' .j . .... ..---.- I " ", ' J". I '! :," , ; , . ..,' ,! . ' ,. I I, <.. , , " , ..,1' ,', , ;'+;:~'!:'. '.,;;i~:,y::~', "';>";"';" ' i, " . .~h ..........'""". ~ I . -- ....--... " ' .;!/ :1 ~' . worJd.s largest publishers of directory infonuution. Bell Atlantic companies arc also among the wor1d~$ largest investors In high-g:,owth global ' coirimunicalions illarkeL'i. wilh'opcratiol1~ and investment" i1l'23 countries. ' For tiddiiiunal information about Bell Allantic and its business, see · 'The Comp~nic!j-Bell ' Atlantk Corporation" in this Chapter) and "Where You Can Fi,nd More Infonnntion'. in Chapter V. Vote Required to Approve the Merger (See Pages B-2 und 11-6) GTE SlwrellOlclers GTE sharch~lders \~ill v~le on a prop~salto adopt the merger agreement and nppl'O\'c the merger and other lransac,ions described in the merger agrecment. We refer '0 this proposal as the .IGTE merger proposal." Approval of the GTE mcrger proposal requires the affinnutive vote of at least two.thirds of thc shares of GTE common Slack that :lfC outstanding and entitled to vote ilt the GTE annual meeting. GTE directors and c:<ecutive umcers us a group own less than one-half of I % of the outstanding shares. In most ca'ies, If a GTE shareholder does 'not vote at thl' GTE annual meeting, either in person or by proxy, it wlll have the saint: effect us a vote against the GTE merger proposal. Bell AI/wm'c S/mrelwlders Dell Atlantic shareholdcrs will vutc on a , proposal to approve the issuance of shares of Bell Atlantic common stock in the merger and related, transactions, including the amcndment and restatement of Bell Atlantic's cerlificulC of incorporation. We refer to this proposal as the "Bcll Ad:uuk merger proposul." Appro\'al of the Bell Atlantic merger proposal requires the affirmativc mte of a majority of the outstanding shares of Bell Atlantic common Slack entitled to vote at the Bcll Atlnntic unlluul meeting. Bell Atlantic directors and executive officers as a group own less thun ) % of the outstanding shares. In most cases. if a Bell Atlantic shnrcholdc[' docs not votc at the Hell Atlnntic annual meeting, either in person or by , , proxy, It ,wJJl have the same effect I1S n vote agn!nst the Bell Atluntic mcrger proposal. ~1:... ( ) ~, I The Merger (See Page 1-19) The mCI'ger agreement provides for the combinalion of GTE and Bell Atlantic in u mergcr of equals. As U Icsuh of the merger. each share of GTE co:mmon slack will bc con\'t~rtcd into the right to receive 1.22 shares of combincd com puny common stock. We refer to this ratio liS the "exchange ratio." GTE will merge with a subsidiary of Bcll Atlantic and become a subsidiary of the combined company. We suggest that you read the merger agreement carefully because it is the legal document thut govcrns thc merger. 6 ,> We are working diligenlly III ctlmpltle the , merger by the end of 1999. However, we must obrain the approval of a variety of Slale :md fcderal regulatory agencies and. accordingly, the merger may close in thc first half of 2000. Our Reasons for the Merger (See Page ).23) :~ '. /. ~:, We belic\'c [hut combining our resources will cnable us to be a stronger compelitor in the rupidly consolidating Iclecommunicatiuns industry, This combination will create signilicunt opponunitic:. to enhance shareholder value. We belicve the mcrger will: I ' · provide us with the scale and scopc to compete as one of the indu!otry's top-tier companies. ronning Amcrica's largcst local exc.;hange carrier and one of the world's prcmier'wirelcss communications companies: · bring together a complementary blend of assets nnd capabilities and enhance our presencc in growth IImrkcls. including high-spced data. Internet access llnd long dh.lance; und · genemte signiticanl rC\'l~nuc, cxpcnse and cnpilal synergies. When we use the term "synergies," We mean the ren-nue increases and thc reductions in c.xpenses aud capital spending thut we expect to achic\'e us a result of 1111: merger. 1-4 .... ..] '~'"'.:~ i, ~t ,.: :~\~:.~: :" .: . ':::. ~: ..:~/':.~i".: . ',\, . ~ ' , I' , I" ' " , " , ; " .>' :! )' ." I > ~",,?,:,: ~,' ;':;",~'i~"':~,I/r::~i:'.'(,i:>I,\Y,';, "'0 e" ~'. " ,~'l : . ~:' ,'/ /1J.l;':" f i t!.~~'t:'~ ,r I A 1 f~<.#i ...~ ,. .. .' . . .~..~, . .. Our Recommendations to SharehoJders (See Pages 1-25 and 1-27) , To GTE Sltarelmfder.f The GTE Board of Directors believes that the GTE merger proposal is in your best interest and, unanimously recommends that you vote FOR ihc GTE merger proposal. ' To Bell AJlmitic Slturellf!lclers The BeB Atlantic Boar~ of Directors bclievcs lhalthe Bell AlIantic merger proposal is in your best intcrest and unanimously rccommcnds thal you votc FOR the Bell Atlantic merger proposal. OpinIons of HnnncJaJ Advisors (See Pages 1-29 and 145) In deciding lo approve 'the merger, each of our boards of directors considered opinions from our respective finand~ advisors. GTE reccived sepamtc opinions frum each of its financial advisor.;, Goldman. Sachs & Co. and Salomon Smith Darney, to the effect that. as of the dute of such opinions, the exchange ratio was fair to holders of GTE common Slock from a financial point of view. We have included the:o.e opinions in this joint proxy statement and prospectus as Appendices F and G. GTE urges its shareholders to rend the opinions of Goldman Sachs and SuJomon SrnJth Harne,)' in their entirely. Bell Atla'ltic received separate opinions front each of its Unancial advhor!'o, Bcar. Steams & Co. Inc. and Merrill LYllch, Pierce, Fenner & Smith lncorporatcd. to the effeCl that, <IS of the date of such opinions. the exchange mtio was fair from a linancial point of view (0 Bell Atlantic and, accordingly. 10 the holders (olh~r than GTE and ils afliliatc!t) of Bell Atlantic common stock. We have included these opinions in this joint proxy statement and prospectus as Appendices Hand l. Bell Atlantic urges its shareholders to reud the opinions of lJear Stearn"i nnd Merrill Lynch in their entirety. Ownership of the Combined Company Following the Merger (See Page 1-(0) We anticipate that thc combined company will issuc upproximalcly J.3 billiqn shares of common stock to GTE shareholders in or as u rcsult of the mcrger. We estimlltc that thesc shures will rcpresent approximately 43% of the outstanding common stock of the combined company. The aggregate market value of these shares is approximlllcly $71 billion. based upon the closing price of Bell Atlanlic common <;tock on April 9. 1999. Board of DircctQrs and Mllnu~cJ1lent Following the Merger (See Page 1.89) Wc have agreed Ihat, iniLially, half of the directors of the combined company will be !tcclected by Bell' Atlantic and half will be selecled by GTE. The combined company bylaws will contain provisions maimaining equal membership until July 1. 2002. When the rncrgl'r is compJeted, Churles R. Lec, the Chairman and Chief Executive OfHcer of GTE. and Ivan G. Seidenberg, the Chairman and Chief Ex:ecUlivc Officer of Bell AllulIlic. wiIJ shurc responsibility for the management of the combined company. Mr. Lee will serve as Chaimlan and Cn. Chief Executive Officcr and Mr. Scidcnherg will serve as President and Co.Chicf Executive Of(icer. Buth Mr. Lee and Mr. Seidenberg will be memhers of the combined company board or directors. On JUl1e 30, 2002, MI'. Scidenhcrg will bccome the sole Chief Execlltivc OUkcr and Mr. Lee will n:lirc. Mr. Lee will conlinue as Chairman ullliI June 30, 2004, when he will be succeeded by Mr. Seidenberg. Additional Compensation for Executh'c Oftircrs us a Result of tllc Merger (See Page 1.(8) A numbcr of execulive ollicers of GTE and Bell Atlantic. including somc executive officers who arc also directors. are cntitled to henelils as a result of the merger. Thesc benefils rlre paynbl~ under employment agreements. relcmion incl"llives or their cmnpnny's employee benefit plans. bu:h of these executive oflicers will receivc signilicanl compcnsntion if the merger is complelcd. In addition. Mr. Lee and Mr. Seidenberg have each emered inlll cmplo)'nicm agreemcnts in conneclion 1-5 - - \- " ~,:::i ,'.' '. '\ ~ ...~",~, , ,I, ". ." :-,:'., . : ~,' . , < ,", ,'c , ." .c "'c.;'<'l':,'. ~~.;~. ;~"7'~:';:".....lu.,.: " with the merger. Because lhese c;llecutivc officers will be entitled to financial benefits if the merger is completed, their interests in the merger may be ' different fmm yours. The tolnl value of additional compensation which will be received by GTE cxecuth'c officers as n resull of the merger is cUlTelnly estimated to be approximately $31.2 million. GTE officers will also reeehe other compensation earlier than it was 'orig;nally flchcduled to be paid when GTE shareholders approve the GTE merger proposal. Any GTE executive offlc'cr whose employment is terminated following completion of the merger could receive u substantial sevcronce pa~ment. ,The tOln] value of additional compensation which wi\! be received by Bell Atlantic ex.ecutive officers as a result of completion of the merger is cuncntly estimated to be approximately $16.7 million. In addition, any Bell Atlantic executive officer whose employment is tenninateu following completion of the merger could receive a substantial temlination payment. Conditions ti) the Merger (See Page 1-80) Completion of the merger requirer.: · upproval of the GTE merger proposal by GTE shureholders: · ~lpproval of the Bell Atlantic merger proposal by Bell Atlantic shareholders; · abscnce ~f uny law or injunction preventing the merger or causing a Material Ad\'crse Effect on either company or the ~ombineu company; · approvals from govemment regulators without requiremcnts which have a Material Adverse Effect on either of us or the combincd compuny; · receipt of lettcrs from each of our independent accountants stating that the merger will qualify for "pooling of interests" nccounting trcmmelll. unless steps \VI: take to resolvc conl1icls crealed by overlaps of uur wireless operations would prc\'cnt such treatment; · receipt of legal opinions from counsel stating that the mcrger will quulify as a tax.frec n:orgllnillllion; and · absence of events which have or arc reasonably likely to have a Malerial Adverse Effect on either company. Other than the conditions pertaining to !>hareholder npprovnls ami the legality of the transnction. either of us could elect to waive conditions to our own perfonnunce and complete the merger. However. we will not waive the receipt of the tax opinions from counsel. If we waive any other condition, we may be required to request ncw shareholder approvals. When we refer to "Material Adverse Effect," we mean any effect on the business that is muteri:lIly adverse to the business, operations, propcrties, condition, assets, liabilities or regulatory staws of the company. The tenn. however, docs not include changes that are generally applicable in the telecommunications indu~try, or the United States economy or securities markets, if the effect on GTE or Bell Atlantic is not muteriulJy disproportionate relative to the effect on the other. Restrictions on Alternative Transuctlons (See Page 1-83) The merger agreement gencrally limit'> the ability of each of our boards of directors to solicit or participate in discussion~ with any third party about transaclions alternative to the merger. III addition. the mcrger agreement requires each compt\ny to seek the shareholder approvals required to complete the merger even if its board of directors were to change its recommendation of the merger. Termination of the Merger A~recment (See Page 1-85) We may agree to terminate the merger agreement at any time. in addition, cidter contp:my ma)' lemlinatc the merger agreement if !>pecilicd events do or do not occur. The~c include: · if the merger is nul compleled by July 26, 1999. This deadline will be cxtendedto March 31. 2000, and may be extcnded to June 30. 2000. if the completion lIf the merger is delayed only becuuse une or more expected go"errllnetlwl approvals have not yct been received; 1-6 -- -- ~ \ 11 ,,< "'t \ 't~"") \ .... ~ p , ,~~, f .. ,':~ . 'r " ,< ... '" " . ~ :,/: I,: 1\.. __~__r___~""__.. , . , , .' " , ,( ,~;'" ':':',?'," 'f';-.;>:.'~"'~'" ~t>:~,,' ::,: ':'\ ~:.: ';.', ~ t, (~ ". \ l f \ l l t \ ) / W~~ ,r4~~~\~,. I " ,~.,,~, , 'j , . ,~.1l..;,~Jo'" ~n' , 'I , \._,,/ I I . \ ~.. ' ,.. I. . " \1 '\ " I ,I · if n court 'x government regulatur permanently prohibits the merger; · . if the other company docs not comply in any material respect with nny of ils representalions, warranties or obligations under the m(!~ger agreement: · if a condition to u company's obligation t~ consummate the merger cannot be satisfied; · if the board of directors, of the olher company withdraws or adversely changes its approval or recommendation in favor of the merger. or if that board of directors recommends un alternative transaction with B third party: or · if the required shareholder approvals arc not obtained. ' , Termination F~s (See Puge 1-86) The merger agreement requires Bell Atlnntie or GTE to pay to the other a termination fee of $ 1.8 billion if the mergC'r agreement terminates and specified evenl'i occur. For example, this fee is payable by a company if: · it materially breaches specified significant obligations: · its board of directors withdruws its appm\'al of this transaction; or · (I) it receives an offer to enter into an alternative tmnsaction with a third party> (2) the merger ugreemenl is lcnninuted because its sharchoklers do not approve the GTE merger proposnl or the Bell Atlantic merger pro'posal, as applicable. und (3) within 12 months after the tcnninution of the mcrger agreement, it agrees to enter into an altemutivc transaction with a thirJ party. Reciprocal Stock Option Agreements Between the Compunlcs (See Page 1-87) Wc have entered into reciprocal stock option ngn:ements. GTE has an oplion to purchase from Bell Atlanlic up to lOlli:, of the outstanding shares of Bell Atlmuic common stock at a price of S4S,OO per shurt\ Bell Atlantic has an option to purcha!.c from GTE up to 10% of the outstanding sharcs of GTE common stock at u price of $55.75 per share. Each company may exercise its stock option agreement if the other company completes un altemativl.~ transaction before the stock option agreement is terminated. The exercise prices arc equulto the, respective closing prices of shares of GTE common stock and Ben Athmtic common Slack, m; reporterl on the New York Stock Exchimgc Composite ' Transactions Tape on the dutc the merger agreement and Ihe stot:k option agreements were signed. TIlcSC agreements limit the total amount of profit either, company may receive from pa)'ment of the terminlltion fee and from exercise of rights under the stock option agreements to $2.2 billion. We have included copies of the stock oplion agreemcnts in this join!' proxy statement and prospectus as Appendix B and Appendix C. The stock option agreements rencet our mutual' commitment to complete the merger and would provide compensation in the event one of us enters into un alternative transaction. These agreements could also make it more difficull 01' expensive for either of us to enter into an ulternativc trunsaction. Regulatory Appruvals (See Page I-54) Under the Hart-ScOll-Rodino Autitrusl Improvements Act of 1976, as antended, we cannot complele the merger until we have fumished certain information and materials 10 Ihl.! Antitrust Division of the Department of Justice and the Fcd~ral Trade Commission and a required waiting period has ended. In December 1998. we sUbsla11lially complied wilh a rcque~1 by the Department of Juslice fnr additional information, and in January 1999, the w~liting period ended. The Department of JUMicc il> continuing to evaluate the merger. As with any merger in Ihe Uniled Sli1tes, the Department of Justice has the authority 10, ehallcng,c the merger on antitrust grounds before or aftcr the mergcr is compleh:d. Some of Ihe states wherc wc provide tclcphonl: <;cn ice lllay aho seek lu revicw Ihe lllerger under !.Wlc antitrusl law, We ha\'e jointly liIell applications with the Federal Communications Commission for lIpprovul lo tran...fcr cOlHrol of spccilicllliccnscs ami lluthoriwtiullS. Approval dCp'.:lllh on lhe Pederal 1-7 \, ,'. ',' .' . ':; .!~. ~.. " '. .' j " " ," ",' . . , ( ~:. ".,!,' . . ., ~ J ~,.... \~L;".,~.....~ .'. ',i' ,I !' Communications Commission's evaluation as to whether Bell Atlantic is qualitied to control the licenses and authorizations and whether the transfer is consistent with the public interest, convcnience and necessity. W,? strongly believe that the mcrger complics with lhis standard. The Telecommunications Act of 1996 currently Iimil~ Bdl Atlantic's abiJily to provide long distance services originating in its telephone company jurisdictions. GTE, which is not subject 10 the long distance provisions of the Telecommunications Act of 1996, currently provides long distance services throughout the United States, including long, disL1ncc:.;ervices that originate in Bell Atlantic's telephoile'company jurisdictions. Upon completion of the merger,' GTE will be considered nn affiliate of Bell Atlantic. Accordingly. we cannot complete the merge:- until we recl~ivc the appropriate Federal Communications Commission approvals or waivcrs, unless we arc able to design a satisfactory interim structure consistent with Federal Communications Commission requirements or obtain other relief. We cannot be certain whether the Federal Communications Commission will grant any approval or wai\'cr. We have made joint regulatory filings seeking approval from state public utilities commissions, primarily in those states whcre GTE provides local telephone service. The commissions will generally consider whethcr the mergcr will be in the puhlic interest and may look at the impact of the merger on competition and on the customcrs and employees of the local tcJephone comp:mics. We have also made infonnationallilings with the public utilities commissions in all other states. In addition, we have successfully comple/ed the appropriate regulatory procc:;SeS in Polund and Canada. In March 1999 we nmde a ming with thc Fedef'o.11 Competition Commission in Mexico, and we expect that it will approve the merger. We helievc that no other inlcrnational approvals arc required. It is possible that some of these govcrnmental authorities may impose condititms for granting approval. We cunnot be certain that we will obtain required regulatory approvuls. or obtain them within tlte time frmne contemplated in the merger ,;....a'~\ ~ ,'I agreement. A delay in obtaining the required regulatory approvals will delay the completion of the merger. We cannot complcte the merger until we rcceive the appropriate approvals or waivers. unless we are able to design a satisfactory interim structure consislent with the applicablc requircments or obtain other rclief. Expected AccountIng Treatment (Sec Page 1.52) We expect the merger to qualify for pooling. of interests accounting treatment. This menns that, for accounting and financial reporting purposes. we will treat our companies as if they had always bcen combincd, GTE Shareholder Lawsuits Challenging the Merger (See Page 1~58) Plaintiffs have filed fourteen law~uits in New York state court on behalf of GTE shareholders. The lawsuits havc been consolidated into a single class action which alleges [hat GTE and thc GTE Board of Directors breachcd their fiducial)' duties to GTE shareholdcrs in approving the merger. ami that GTE shareholders willnnt receive adequate compensation for thcir shares of GTE common stock pursuant to the merger agreement. PlaintilTs seck 10 enjoin or rescind the merger. or to recover compensatory damages if thc merger is closed ami not rescinded. The consolidated complaint names Bell Atlantic as a defendant arid allcges that Bell Atlantic aided and abetted the alleged breaches of fiduciary duties hy GTE and the GTE Boafu of Dirt'clors. We have filed a motion to dismiss the complaint hased on our position thai the complaint docs not state a legal claim and GTE's position thai Ihe actions taken by GTE's Board of Directors in connection with the merger did not hreach any fiduciury duty owcd to GTE's shareholders. We intcnd to defend the lawsuit vigorously. \ , ' { . e Comparative Pcr Shure Markel Pricc Information (See P~lgc 1-59) GTE comlllon stock is listed on the New YOlk Stock Exchange under Ihe symhol "GTE". Bell Atlantic common stock is lisled on the New York 1-8 \7,,:\',1 \~ .... " :,~~~f:,:~!,',l' :'~':'~ :"'~"">~';~ ~ ~;<;~':.L . '-~7~:~--;-.:-----~- ;..' -::. /.'~ ~:' ~. . ~ '";'; . . \ ~ H" : ,', :I~".. , ~~ t:: '.'; ..:t . .:: /.~' "-:":'.'., . ',' . '.,1 .. I >' . .. . ~. . '.,:.'. I,. . ", ,'. : <\';':. . ,,",.i', " '", " , ~:' . , ..1 , , .' ;. 1- .j' . ,\ ' ," :1 ~. ':,. . ~, ," . I.. ", ,\' . ,\ ' . '. .... ~ . . . . I. : ~ ~ I .'. :. " .1 .. " . :. >.". / l ,.; ~ ~ ~. . ". . . '; I ~: ' .,~ ' t', I .::", t . .:.~' " , ....,. i,~':}'-:::,;;i::,'::l~%t;~fi\~' :,;;.",'".:., ", " , " ,^ ",}il//, ,~~ " '.tlt."'" , ,~,~~';J.M ,', ,,':{9'}'}I,:t'i': 1(; ~:}'~\~,{f' :":' r,i: ~f1" .....1 "') ':' ,;~" iVt" ;" '1.',. 'Jhl-, '.:J~, . ..;. ~r . .....I.J~. J' .~. _. 'l': ,;. ,~ :1- , ~:? ~\\ : 's \-. :{- , :'1 t. ,(i '.l ~ , 'I , ~ . ~l ! 6 ,:.' j ..' i '. ' i . ~ . ,~ , ' , :, ,: ~ " :\ .. , ~ }\\ , ,1 ;~ ,'i,;\~.," -, ,., . ~t'" /"- ( ,j , ~ I, " I \_/ " " ~ .. I . ........."... ." ~ . ~. , \' , 'E . "-! , StOCk Exchtulge under the symbol "BEL". OnJuly 27, 1998, the last futl trading day on the New York Stock Exchange before the public nnnouncemcnt of ,: the proposed merger, the closing price of GTE common stock was SSS.7S per share and the closing price of Bell Atlantic common srock was $45.00 pel' share. Based on the ellchange rotio, the pro fomut equivalent per share value of GTE, common stock on July 27. 1998 was equal to approllimntely $54.90 Per share. ' , On April 9, 1999, the closing price of GTE common stock; was $64.31 'per share nnd the closing , price' of Bell Atlantic common slock was $55.88 per share. All prices are as reported on the New York Stock Exchange Composite Transaclions Tape. LIsting of Common Stock on the New York Stock Exchnnge '" , (See Page {.98) , We have agreed that the combined company . (,~ommon stock will be listed on the New York Stock Exchange. AmendmenCs to CCl'tiflcnCe of Incorporation and Bylaws' Co Increase Authorized Capital Stock und Provide for Governance Arrangements (See Page 1.90) As pan of the merger agreement, Bell Atlantic agreed to amend and reslate the Bell 'Atlantic . .'certifieate of incorporation and bylaws to, among " other things: · .increase its authorized capital stock; and · provide for the governance arrangements concerning composition of the board of directors and management succession us discussed under "Directors and Management Following the Merger" in this Chapter I. The amended Bell Atlantic cenilicute of incorporation and the amended Bell Atlantic bylaws will be the combined company certificate of incorporation and bylaws, respectively. We have included the form of the proposed changes in this joint proxy slntemlmt iUllJ prospectus as Appendices o and E. ' A Bell Atlantic shareholdel' who voles in favor of the Bell Atlantic merger proposal is also voting to approve the proposed changes to the Bell Atlantic cenificate of incorporation increasing the number of , authorized shares. Bell Atlantic cun-enlly does not have enough unissued shures to complete the merger. The Bell Atlantic Board of Direclors has adopted Ihe proposed changes to the Bell Atlantic' bylaws. subject to completion of the merger. The changes to the Dell Atlantic certilicutc of ,incorporation and bylaws will not be effective unless the merger is completed. 1~9 ' :l~~~~c::~~;;\,::< ::-\..-;-.~'~:~:~:.' .: "c~' .' . ~, ~ . . 't .' .~> .' . . . T ~ . I ~. ; , I' " i~ .1 "; :1 " , " .H .'. ~'. . . ~ , , . . , .T'< . .:~ .~l/:;;.: '. ,} .,' I " , e, . < : j ~ ':: ~. '. ,,1,..,:..:1 " ,', , . '. " , , ~ .' '.c ~ . \ ' '.. , " '1.' .. .. ~, " ',I ;, ': <,.} 1. ~I ,', . '" ~. .., , ,. : ~ , , . ,~. . '.' .. I , , ~ '. > .', L ". . I . c~ J.._ >' . ".. . . ., ~ t: ~.: . , ' . I, \., ~ ..;_~,~::,rt"r,','"",'~,~:~': ,<t!;~;.L~,~/~(~;' . ~. c , . ....'~. .......". ~ i ' , . ...., h . . '~,.., . . . " \ ~ I, f, 1 \" ,... I . ).\ .\ , .' ',,) . '~: ,'~:: ',' . ~ummnry of Selected Historlcnland Unaudited Pro Forma Combined Condensed Flnnncilll Information '< We are providing the following selected historical financial infonnation to aid you in your analysis of the financial aspects of the merger: This infonnlltion i& only u summary and you should read it ill conjunction with GTE's and Bell Atlantic's historical financial statement!> (and related flotes) contained in the r~ports that have been filed with the Sccurities and Exchnnge Commission. See "Where You Can Find More Information" in Chapter V. GTE's financial illfonll.ltion was derived from ;tudited financial statements. <., Bell Atln'mic's financial i11fonnation reflects the restatemcnt of its historical results for the merger of Bell Atlantic and NYNEX completed on August 14, 1997, which was accounted for as a pooling of interests. Bell , Atlantic's financial infonnation was derived from audited income stntements for the years cnded December 31, 1995; 1996, 1997l1nd 1998 and audited balance sheets at December 31, 1996,'1997 and 1998. All other Dell , Atlantic finanCial information wus derived from unuudited financial statements. GTE-Selectcd Historical Flnanc1nllnformntion Operating revenues. . ; .. . . . . . . . . . . . . . . . . . . . . Income from continuing operations ... . , . . . . . . . . , Income from continuing operations per common share -Basic. . . , . . . . . . . . '. . . . . . . . . . . . . . . . . . . . -Diluted ...........,.................. Cash dividends declared per common share, . . . . . . Book value per common shure. . . . . . . . . . , . . . . . . Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . , . Long-tenn debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . Shareowners' investment. . . . , . . . . . . . . . . . , . . . . Al or rtlr the Yearn Enlll>d Dei:~mher 31, 1998 1997 1996 1995 1994 (Dolllln; In Millions, EllCl!lll for 1>~r Slmre Amounts) 525,473 $23,260 S21,339 S19,957 $19.528 2,492 2,794 2,798 2,538 2,441 2.59 2.92 2.89 2.62 2.55 2.57 2.90 2.88 2.61 2.54 1.88 1.88 1.88 1.88 1.88 9.06 ,8.39 7.62 7.05 10.85 43,615 42,142 38,422 37.019 42,:500 15.418, 14,494 13.210 12,744 12,163 8,766 8,038 7,336 6,871 10,483 Significant events affecting GTE's historical cumings trcnds included the following: · In re:-.ponse io legislation and the incrcasingly cOlnpclitivc environment. GTE discontinued the use of Statement of Fin:lOcial Accounting Standards No. 71, "Accounting for the Effects of Certain Types uf Rcgulutiml" in it:-. domestic lelephone subsidiaries in 1995 ami in i1s Canadiun telephone operations in 199ft As u result. non-cash. after-tux extraordinary charges of $4.6 billion and 5300 million were rccorded in 1995 and 1998, respectivcly. · Income from continuing operations and per share amounts for 1998 include charges' of apprmdrnalely $482 million after-tax, or $.50 per diluled share, in conneclion with asset impuinnenls and other special items arising during the year. \ ~:,:"/ 1-10 r.'i " , ,e , " <'0 c .~ ... "r: ,1"-..\ , ,;/, ,. 'f~"" <,'> ) '- J ..../ ),;~,: :N;';';';~~.'>,-=C', . ~-----'~l~-:--:-;-'-----:---. "\ . ,~. :;*;;~tJ::\f,.9~i;:;~?~:~2,,:j~~'~,wL, ,;"., "' ~,,:L, :~"',,:,",.; "", ',.. ),i,;;,,:\, .. , ',' . . .: ~ ~. " 'I < "j. . 'I f" , " ". I I. '. . ~ I ,. \ ~ ~. e , '. ., .' ,.' ; ~ T' , '. C,t , . " ~ ~ .. I : . . ,~I' . , ':.', l'f ',,' ,,' " . , < . :' : ~ I " . 1 .: , , '. " '. . ' J ~ " l, .. ~ l Bell Atlantfc-';"-Sclectcd Historicul,Flnandal Information . ~ . . Operating revenues. ... . . '. . . .'. . . . . . . . . . . . ~ . . . Income from continuing operations ............. Income from continuing operutions per co'tnmon share ' -Basic. ~ . ., .... .. . '" Jo ..': . , ~ . . . of . ... . . ,'. ~ . . . . . .. ~ -Diluted. _ . . . . f'''''' '" .. ..... I' .. .. ... .'+ _ . . . . I , . It . . At or rm' the "ear! Ended l>ectmbl't 31, 1998 1!J97 1996 '1995 199~ /DDlIuts In MllJlons, Except for l'cr Shan! Amount,) $31.566 . $30,194 $29.155 $21.921' $21,098 '2.991 '1,455 3.129 2,826 2,225 1.90 I.S~ 2.02, 1.85 1.47 \.81 ' 1.56 2.00 1.84 1.46 1:54 1.51 1.44 1.40 1.38 8.39 8.23 8.36 ,7.28 8.58 55,144 53.964 53,361 50.623 54,020 J7.646 , 13,265 15,286 15~744 14.590 13.025 12,789 12,976 ' ] 1.214 13,064 Cash dividelios declared per common share , , . . . . . Book 'value per common share. . . . . . . , . . . . . . . . . Totw nssels. ot'. ... I... . .. t,. + . .. . . . ~ . ... .. . .. 1" . . . . . . . . Long-tenn d~bt . . . . . . . . . . , ~ . . . . . . . . . . . . . . . . Sharcowncrs' investment. . . . . . . . . . . . , . , . . . . . . Significant ~venLS affecting Bell At1o~lic's historical earnings lreml~ included the fOliowing: · ,Income from continuing, operotions and per share amount.'l for 1998 include charges of approximately $1.4 billion' after-tux, or $'.86 per dilutc~ share; ,in connection with the completion of n retirement incentive progrom,'thc write-down of certain international investments, Bell AtlllnliclNYNEX merger-reInted costs and ottier spccinJ items arising during the year. · Income from continuing operations and per share amounts for 1997 include Bell AtlanticlNYNEX merger- related costs of approxinUllcly $381 miJ1ion after-tax, or $.24 per, diluted share, and costs of approximately $686 million after-tar., or 5.44 per diluted shure, in connection with con!\olidaung operations and combining organizations and for other special items arising during the year. · After-tux cllurges assuciated with a retirement inccntl\'c program were upproximUlely $325 million ($.21 per diJulcd'sharc) in 1997,5147 million ($.09 per diluted shure) in 1996. $327 million ($.21 pcr diluled share) in 1995, unJ S453 million (S.30 per diluted share) in \ 994. , . · Bell Atlantic's pcr share amounts have been adjusted to reneet a two-far-one stock split on,1unc ,I, 1998. 1-11 ~: i, , r " ,.\.L ., . '1l1,:"':.' ~ " . , ",' , e', " " " ~ : :': < ," '., " ~I, '., '. . ~ . .~., . I' . ~ ~ . . '. ~. " , ' . ,~ . , ' , ; , . . " . . ' .,C,. '. :,.i",";,!::' ',~, ~,}:. (:'i,jo.'~"":''';'''~..~'. .. \,- , '.>1, Unaudited p~,u Fonnn Combined Condensed Financial Information We have presented the following unaudited pro forma combined condensed linandal infonnation for the combin~d cumpuny that rel1ccts the pooling of interCsL'i method of uccounling and is intcndcd to give YOll U beller picture of what our, businesses might have looked like had they always been combined. We preparcd the pro fonl1<l income statements nnd balance sheet by allding or combining the historical amounts of cach company. We then ndjmted the combined umounts for significant differences in uccoullting methods used by the companies. We anticipate that the combined company will record a charge of approximately $375 million , for direct incremental mergcNclaled cost'! in the quarter in which the merger is completed. The direct incremental mergeNelated costs have been rel1ected as an il1crease to other CUITCnt liabilitics and the after-lax cost of this anticipated 'charge (appro~irnately $3 JO millionJ has been renected as a reduction in reinvested earnings in the unaudited pro fanna combined condensed balance sheet as of December 31, 1998. Transition costs of $1.2 billion to S 1.6 billion to be incurred in connection with integrating the opcrations of GTE und Bell Atlantic over the three years following the completion of the merger arc nol I'cllcclCd ill Ihc unaudited pro forma financial information. The unaudited pro forma linanciul data also docs not include: (n) any of the anticipated revenue increases, or cxpcnse or cupital savings resulting from the integration of the operations of GTE alld Bell Atlantic; (b) any costs incum:d, consideration received, or dispositions made in connection with actions that may be taken regarding certain overlapping wireless properties as a result of regulatory or contractual issues associated with the merger; or (c) any dispositions required as a resuh of regulatory or contr~ctuall'equirements. On January 31, 1999, BC TELECOM 111C., a majority-owned subsidiary of GTE, merged with TELUS Corporation to crcate a growth-orientcd telecommunications company. The merged company is called BCT.TELUS Communications Inc. Under the terms of the merger agreement, GTE'l\ owncrship interest in the merged company' b llpproximatcly 27%. Accordingly, during the first quarter of 1999, GTE willlleconsolidnte Be TELECOM and account for its investment in BCT.TELUS under the equity method of accounting. The pro forma financial infomlation thm follows hus nol been udjustcd to reflect this lransaction. which would not have n material effect on the net income of the combined company. As a result of the transuctilll1, GTE expects to record a one-lime. after-lax gain of upproximately $300 million during the tirsl quarlcr of 1999. This gtlin will be partially on:<;ct by charges relaled to cost-cutting initiatives within GTE's nmional operations unrelated to the merger und the early retirement of long-term debt. GTE expecls thaI [hese charges :IS currcntly eSlillli/tcd will be approximately S 150 million to $225 million afler-ta\ and will include $100 million 10 $150 million after-lax reluted to the separation of 2,500 to 3.500 GTE employees ami ussur.:iateu facilities em-;(s, The cosIoI' Ihese actions is not inclulled in Ihe transition cosls described above. Additionally, during 1998 GTE committed to a plan to sell some of its busincss operations, including GTE Government Systems, a supplier of govcrnment and defense communicutions sy:-.tems; GTE Airfollc, a provider of uircraft-passenger telecommunicutions; and approximately 1.6 million non-strategic telcphone access lines in thirteen SlUtes. In 1998, GTE Go\'ellllncnt Systems and GTE Ail'fone generated revenucs' of upprnximatcly $1.6 billion and operuting incomc of approximmcly S 160 million. Due to the centralizcd IlUlIlIWr ill which GTE's locullclcphonc compunics arc munagell allll the fact thut the Hnes to be sold represent porlions of SlUtCl- rJlher Ihan entire operating companies, rcvel1ues.and opcratingillcome applicable tllthe lines tn be sold arc not readily detenninable. The 1.6 million tl'lephonc :iccc:-.s Iincs held for sale represent approximately 7% of lhe average domestic linc~ Ihat GTE had in service during 1~98, GTE's goal is 10 complete these asset sale:-. during 1999 and 2000. The pro forma Iinancial informlllion that follows has nut becn adjusted tll reflect these po[cntiul transactions. On April 5, 1999, GTE announced llwl it woulll ~lcLluirc AIlll'rilcch's wireless prupertics in Chicugo, St. Louis and central Illinois. GTE will pay $3,27 hillion in cash fur the properties, which include 1.7 million subscribers and more than I J million pOlenlial wireless cusWmers. "'hc,~c pf{lpcrlic,~ will be l)3~f.' owned by 1- 1.2 \ ....'\ft"'\ 1 " ,~t~ h'v~' ~",7 t{;'l.\t."t';,~;" '" ft<i',',:: : :'-',IJ ,;;-- ":-- :', '.; " " ' "","J"'-'t;:,r/~{~f:'.' ;. ." ;t,- '.....l ..,I "'. ,I & ..1"... ~ ~.v.h' ,\:,,;:'\..~':',::":,~,">:' -.<:: " j: l' 1,",:"., "",' ':' ;t,ft,.~,~,:,;,~:;,,{',..,,::\. :,;.,,', ,',,~'i,'" ..,,;..'~..':.". - . L ,~. :" ;. I ~.,.' .' .'. 'j . . i:- 0 I '. 'e' .QI:: .",~,':~..,' ':;) . .'. .;:;'," ','. " " ,.,':::,:'(:\,::,:~,~,'/~",','",,':":';, \ :': -.<., '. {,:\':~~'>,:!,:;~",::,~:, " . - " 'I; ," , ,:"'>':,'.':' " : "F.?>,:.:<:'\)::",:', .' .,.. .0 < ,. " ;. ",' .", . \:..', , ';,'~:,~, ,',~: "':;, >:'::',:.:.. ". '~;l' "",,:Y':, ';,: ", 't' ,.:: ' i," c. t,',.'~ '.~ . '. '.~.. .t I.~..' ~ c! ", ~~.. ":'", ;i;';l;"~;"~;7<';::'\:' j:i~; :,' ,", '. ,.'.,. ': ,'...., . . '. ' ~~;1f.~?.(tJ~:; .'.': t;f: t~~: ':'1;:J.:;.r-1~,!:e;illh~'v.h,~~..r.~, tn.~/'': t.~l;~f.-'"i~:"'!~~ .~~;~~\r~':I\~/::"~'~~~'.t..~ . . - -~._-'_._--.-..-~~~~.---......- , ::" (t.,:, ,I::,;":':' : I' . ~ ., . "j .' "'" '..',~\, "'/, , " , j '} '. , , .. , " - '11 ! ' ,I: t, ': ,t " ' '. ....., ''":.('.'' ~r'~ '~J'~,> ..~I"""': "",:. . """ . ,. ...., ",I '. '., ....~ '..'..c.... ,,'...... f ' ~ ' J ~ '" ' " ~ ~, I~' ';N~, GTE nnd 7% owned by Davenport Cellular Com~unications LLC, a company.wholly-owned by Georgetown , Partners. This lnmsaclion is'expected to be slightly dilutive to GTE's earnings per share in the first year nnd the d.ilution for the combined company on n' pro fonna basis would be insignificant. On a pro furma basis; 'the annual'revenues and operating in~ome for the properties to be acquired rcprcsent'npproximntely J% nnd 2% of J998 consolidated revenues nnd opernting income for GTE and the combined company, respccliv~]y. The pro " forma infornultion that follows has nOI been adjusled 10 renecl this Inlnsaction. This purchase will inilially be financed with debl, bUI GTE plans to pay down this debt with, the more than $3 billion that GTE expects to ge,nc'!lle from the previously announced sale of non-strategic assets. I 1 , I.. . ~ ' . , You should not rely on the pro fonna financial information as indicating the historical results that we would have'achieved or predicting the future resuhs that we will experience after the merger. See "Unaudited Pro Forma Combined Condensed Financial Statements" in this Chapter I."" , " ' Operating revenues , . . . . . . . . . . . . , . . . . . . . . . . . . . . . . . . . . . , . . . Income front continuing opcrutions' . . . . . . . . . . , . . . . . . . . . . . . . . , , Income from continuing operations ~r common share ' At nr for the Ycurs Ended December 3t, 1998 1997 ; 1996 (Uollllrsln MUllons, E:u:ept for Per Shure Amount.~) $57,039 . $53,454 $50,494 5,354 5,180 5,936 . :-Basic.....,........................ ~ of" + + . ~ . ~ . . . . 01 . . . . . . . ...\..~ ,~~ ) ~~.~~ -Diluted. . . . . . . . . . , , . , . . . . . . . . . . . . . . . . . . . , . . . . e. . . . . . Cash divillends dcciUred per common share. . , . . . . . . . . . . . . . . . . . . Book vulue per common share. . . . , . . . . . . . . . . . . . , .. , . . . . . . . . . Total assets. . . . . . . . . . . . . . . . ... . . . , . , . . . . . . . . . . . . . . . . . . . , . Long-Icrnl debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . : . Sharcowners' investment. . .,' . . . . . . . . . . . : . . . . . . . . . . . . . . . . . . . 1.95 1.93 1.54 7.81 98,622 . 33,064 21,356 1.90 1.89 1.51 2.18 2.16 1.44 The unauditcd pro forma combincd cash dividcnds declared pcr share of combined company common stock urc assumed 10 bc the same as cush dividends declared by Bell Atlantic on a historical basis as udjusted to reflect ntwo.for-otle stock split 011 Junc I, 1998. '-.J 1-13 \ .~"~0;;~j\;'~~:l:'J,~~?~J~~~" ~... :.,:..},~, ,{' ~J.(~>\.(.\ ,..~.:. ,. "'1 ~.~ .' ~A:,::;,;,~,t?;~y:::'",::,,)!:,,': ," " " '~~~;(,'::::".. ,i::' . '~:l,.r:'.:(~;~:{ <','- .Ij c. .:; .<~'.~I'> ",/ . t.',)' , t, . ,J. 1'(1;":+'~<:, . .< . <,,). ~', . J " t ..'~'.' " ;:,"::,'. >,,;.' ~, ~ '.' , , ,~., .' :'~, I, '. . .. ~' , ,I . , . , ' ~ I, ,-. ' . . \ ". I I ~. ~ J C . c,. . I, .. !.'. . /'.; ~r(; !;~~ ':,:: :':, "', " . ". I : 'j~', ./' ," , ' ,\ , " .'!." . . .' , ,', > ,'" , ., : ~ :, + '.. '.J,' ',";' :' "', ' " .' ,,' " ., , .~ ':','.'::,: i<\.'1'>',,',<; ,', " : ,I I , T _ .: , ~.. :. ,. "0', .,c', ,. ,'.'," ".. " ,',',: ,'I :;., ,,;;':,::\:',:',';:'< ::i; '::,1"" < ' I I ~ :' ~ , , ","';"'/.'" ' ':o;i ~"';:.' ;\::" ,<,,' ",' J' ,',' '" :'~,',r.'\::~:',;:,'~~. ,::~:~~:~::r!,:,'~;;{:jt,;:~~i:,',::'..:"Y:,'.'!:,",::>,,',:' , ,', '",:,,' ,', ."'JW.II_ -.. . C'~~""'''''.~''''''''.--''' ....,..l...... " I '," " ' :",'1.; " ii, '.' ': ," j.: . .....,. ',' "'c ~: I .- , ! ,11 Comparative Per,Share Information ,;~ " w~ have summarized below the pcrshare information for. our respective companie:; on uhistoricul, pro fomlli'combined and equivalent basis. Bell Atlantic's historical per shure amounts at or for the years ended December Jli 1997 nnd,I996 have been adjusted to reflectn two-for-one stock split on June I, 1998. The GTE per share equiVnlc!lts UTe 'cnlcul;ued by, multiplying the unaudited pro fonna comhined per share amounls by the exchange ratio of- 1.22. ' ,..' " :' . ~ : , '. . ' < " I, " ,', ~ .., ~, 'I: , , . ' +, C ,UNAUDITED PRO FORMA COMBINEp Income from continuing opCrUlio?s per coulman share, , -Basic>.. ~,... '. .," .:... 'lot ., . . . t'~" t It a . . . . . . . . . . . . . ;. . iI . . . . ... I . . . . t . , . ""f f . ~Dilute~ ~.~' ~:. .. -II ~ tit. 'III It.f I . . . .. . I . . . ... , t , .,'" . . It . . . . . 4 ... ... . . . I ""f t . . ... 4 Cash dividendsdechucd per common share . . . . . . . . . . . . . . . . ,. . . . . . . . , . . . BoO~,vaJue pcr common shure ........... '. .'. , , . : . . , . . . . . . . . . . . . . . . ~ . ;: GTE PER SHARE EQUIVALENTS, Income from continuing operations per common share , -Basic: . '. . . . . . . . . . . . . . . . . . . . .. '............... . . . . . . . . . . . . -Diluted '.. .......... . . . . . . . . . . . . . .. ... ... .', . : . . ... , .. . . . , . C'ash dividends declared per common share. . . .. . , . . . , , , . . . . . . .'. . . . . . .'. . Book value per common share ,.......,.............................. , BELL ATLANTIC-HISTORICAL Income from continuing operations per common share -Basic. . .. t .. It ... ... . t + . . . .. .. .. . . .. . ~ t . ~ . . t I . . . . t . . . . . . . . . . . . . * ; . . . -Diluted :. . . . . . . . . . . . . . . . . . . . . . . .. . . ; . . . . . . . . : . . . ',' . . . . . . . . Cash dividends declared per common share. , . . . , . . . . , , . . . . . . . . . . , . . . . . . Book value per common share ..........,.......,.........,.......... GTE-HISTORICAL Income from continuing operalions per common share -Basic.. ... . .. ~ ~ .. 4- of. ~ . + .. 4- + t 4- . I t t + . ... t t t . . . . t . . . . . . . . . t . . . . . . . . , , -Diluted ...... . . . . . . . . . . . . . . . . . . . . . . . . , , . . . . . , . . . , . , . . . , . ; Cash dividends declared per common share . . . , , . . , . . . . . . . . . . . . . . . . . . . . . Book value per common share .....,. " . , , . . . . . . . . . . . . . . , . . . . . , . . . . . , ...... I \ At or for tJlI~ Yeurs F.ndcd Dccemher 31. 1998 1997 1996 $1~95 1.93 1.54 7,81 $ 1.90 l,89 1.51 't~ $2.r8 2.16 '1.44 $2.38 $2.32 $2.66, :U 5 2.31 2.64- ' , 1.88 1.84 ' 1.76 9,53 ; , ' 51.90 S 1.58 $2.02 '\ 1.87 1.56 2.00 1.54 1.51 1.44 IU9 S.2~ '8.36 $2.89 2.88 1.88 7.62 " 1- 14 , \ ~'U!;..,yl 52.59 2.57 1.88 9.06 52.92 2.90 1.88 8.39 '" '1. ~ c. "'j", "'., ,:'<'~'~ ~',.,':>'~ .;..: .~J~. ,:~.'..'~<i\':.',,;:',:, .'" c',: ':' '" . -FOc ' ':';'; I'., , ,'. . . , . . ,',;:',r:.'~1 ~': " ~ ~'. " ",: .'/ ,~. . .'" l ,<. '0 e, }/ .' "1 ' .j I .. ').. . , " " ,,' \ , . < ...! ;. f '. , .~ ',' . , d ",' ,'" .,' '. ,,' I . ~, . ~f~:!:"t~~:~:I~.Jf..'::~:f.',~,'/(~(~~,::~f;l,).:,J".','fl..,.;,.... ..e.','. ,.,..'!. ," t... ..~. c .... ....... c . " '.. . f ... ~~.' ,. .. ~ r .f~" .'1 . , ~ 0( ,~ "' \..i....:' . ~ ~.". '0, . , ...,f..~'*.....!. 'I" , .,.~ -F \ '.?' t......"".I / ) , -.... . ! " RISK FACTORS RELATING TO THE MERGER, ,Sh~rchol~ers .will Not Know the i\tarket Price of the St~ck They Will Recc(vc in the Merger When They Vote on,thc Merger As n result of the merger, each sharc of GTE common stock will be converted into the right to receive 1.22 shurcil of combined company common slock. The exchange r:lIio of 1.22 is fixed. 11lc number of combined compllny shures GTE shareholders wilt receive in the merger will not change, even if the market price of Bell Atlantic com mOIl stock changes. GTE docs tlot'h:tvc n risht to temlinUIe the merger agrce~enl ba'icd upon a significant decline in Bell Atlantic's stock price. From January I. 1998 through April 9. 1999. the New Yor~ Stock Exch:ingc market price per share of Bell Atlantic common stock, adjusted to fenCe! " two-for- one stOCk split on June I, 1998, ranged frornS40.44 to $61.19 and closed at $55,88 on April 9, 1999. The merger wm 'lIot be completed for some thne after the shareholder mceting~. Accordingly. when you vote on the' merger, yuu will not know what the markc'l price of the combined company common stock will be when the merger is com'plcted. Regulatory Agencies Must Approve tbe Mergl~r and Could Delay ur Refuse to Approve the Merger or Impose Co~ditions that Could Adversely Affect Our Business or Finand:d Condition 'To complete the merger, we musl obtain approvals or consents from various state regulatory cOlllllli<.siom and other domestic and foreign govctnmcnt agendes. ' ~hc Federal Communicalions Commission must approve the lransfer of control to'Bell Atlantic of GTE's subsidiuries holding vurious Federal Communications Commh;sion licenses. .111 addition. the Telecommunications Act of 1996 currently limits Bell Atlantic's ability tu provide long distance serviCes originating in ils tclephone company jurisdictions. GTE. which is not suhject to that limitation. provides long distance services throughout lhe United Stales. including long diStancc services that originatc in Bell Atlantic's telcphone compuny jurisdictions. Upon completion or thc mcrger, GTE will be considereu an affiliate of Bell Atlantic. Accordingly, we cannot complcte the merger unlil wc receive Ihe appropriate Fcdcml Communications Commission approvals or wuivcrs under the Telecommunications Act of 1996. unless we arc able 10 design a satisfuctory interim structure consistent with Ihe applicable requircmcnts or obtain other relief. . California and Illinois Jaws require thai the regulatory commissions in those 1>tatcs determinc whethcr a pOltion of the net savings resulting from the merger should he passed lhrough to customers. CuHromia law require::; that California customl'rs receivc at least half of the merger's forecaster.! nel ~avings relating to services in California. The California Public Utilities COlllmission can requirc substantial rcfunds or talC w.1justmcnts, or it can rely on competition 10 assure thaI lhe nct s:wings lIow 10 COO1>umers. The Illinois Commerce Commission must decide whelher a portion of the net savings rcsulling from the merger should be puss~d through to customers in Illinois. Until those cummissions make a Iinal decision. we do not know the amount of any savings that might be passed through 10 customcrs or how any nllocation would be madc. ' Regulatory ugencics may seck to impose condilion," on us pc fore giving Iheir approval or consent. and those conditions could havc an adverse effect on our husiness or fimmcial condilion. If those regulalory cOlldition~ would cause a Mmeriul Advcrse Effect. either of liS could chuose to terminate the merger agreement. (n addition. :t delay in oblainin~ Ihe requisile rcgulalory appro\'~IJ:.; will delay Ihe compleliol1 of the merger. We cannot be ccnain that we will oblain required regulatury approvals. or o~t:lin them within the time frame contemplated in the merger agrecment. For additional informalion on the rC4uin:d rcgulatory approvals. see "The Merger Transaclion-Regulatory Approvals" in this Chapler 1. 1-15 .il;, ~i':: " ,..' ~; ::~, 'f I~;~'" ) :.: \'\J: <.t. ;f~'I;, . i.;~r~. L i ."~: I , I',:, ;1, ' :;:f.>," ;~ ~ ; ..' ". 1="'. \," '. p.' ~.:: . ~::' . ':+. ~. . . '\:" '.. 'I.', I ~'. .! , , .. ," .. ,I.,. , ' " . . : ~, .:.. :11, ~~, '.:":' i L"' .' ~" (, " , i '.: l . .of : , .' ..' ,. " I' I ~ I . ,~ I'. I>. '1 . ,r" . " ~ ,',; I ", ,': .' "'-1....~ cj . . . . . +. ,. ~'''..,..' \" ~ ~........ .... <<<'I-" . , ' , : l'ermhlatlon' Fees nnd' ReciprOcal Stock Option Agreements Could Make an Alternatlve Transaction ~ore Difficult or E~perlslve' , , . ".' , ,', ' " " , , ,,' ", '" ;;'Bct1At)anti~ or GTE must p~y to lhe 'othern lcmlin'ation 'fee ',of $1.8 billion if themergcr'rigreement " tcn:nilmtes under ~pcdfied circlfmstances. For example, Bell Atlantic or GTE must pay the tcnninnlion fee if its board o( direc~ors withdraws, I;?r 'ad,vcrsely modifies, it'i appro~nl or the, ~erg'er, or approves nn ttllcrnat~ve' " > trimsac~on,with ano~hcr eompany~,]n nddition, Bell, AlI~lic or GTE ~u,s~,pay the tcrmi~ation fee if its ' ' , shareholders do not approve the transaction; and within 12, months it enters into an alternative transaction, but onIYli,f,anoth~r ,company had 'proPl?scd an alternative u--'.msaction prior to its shareholder meeting. We 'I~!lve also e~t.e~dioto, reciproc.aJ, st()(;~ option ugrccmcnL.. which provide each of us with the right to acquire up to 10% of the. other's outstanding common stock under specified condilions. The termination fees and the stock option agrceme~ts cqul~ deter cither'of us from. entering into nn alternative ,trtuisaction by making' it more difficult or exPensive., For a further discussion of these mallers, see "Summary of the Merger Agrecmcnt-Tennination ~ees"~,~d "Surmtuiry of Stock Optio~ Agreement'!;' i~ this Chnpt~r,1. ' ' , I' " ' . " '. 1,. " '" '. " ','.1. . '". ,'."\: ., ,,' .. " .', , , ~ ::.'. ,'> .' ' ~ . ,'i '. J I ' , ' e. ;' ., " 1~16 , ('" '.' ,', , - . ::'. ~;T~. :,~~.tJ , " ; , " .t: , , } " ....; I.~ '"' " , . c .~ f. '. " , " ~.~ : : .. .~\._~, ~ < > ,. "." ;,< , --.... , r .. , " , .. I 1 ( . ., , , r '. t ! ' ., I, j i' .1 ' I' .. f"' ' \ .) ~ ~ i ,j ,I, , '~1'j.r..... . \ ! ",':~;;\},;i . :' i, ~ ,. \:I;${'~ i~;;;~ /'(~, ;;':',;: ; , ' '" " "~1 fj,". ..i~;1. . '" . ::~. {;\ }:,;:, . ,. . ,~~~~; ;,; , '" . ~ . . '. .l~ I I :; i 'I:' ; ;:'~" I' ('. ~ \: ;.. 1(~::I'" '11'...,11 I . , .~It..... \ t q, l' " . ' :. .~;{V '.. '.....;.) <J \' , -~---. " ~Ioo.--_ . ~'. . , ' :' > ~ !, , " t . i;J' i" 'l~ ':. " ,1 ~. . t II ; < " , , " j :',' , \~ c. p"; " , , ' "i} .'.. , ' , , ' , :1",;,:~:,:::rF~,<~\<~i~If~}~.~;ti; :~?,;,;:.,;'~., " '-f..r",", 'J"tf. I,.',"', ':' . I~! . " CAUTIONARY STATEMENT CONCERNING FORWARD-I.OOKING STATEMENTS In this joint proxy statement and prospectus (and in documents that are incorporated by reference), we have made forward. looking statements, These statement'> arc based on our estimates and assumptions and are subject to n numbcr or risks and unccruiinties. Forwrird.looking: statements include the information concerning possible or ussumed future rcsults of operations of cach of our companies and the combined compan)' (see Ihe following captions: "Merger Information Summary," "The Merger Transaction-Reasons for the Merger; Recommendations of the Boards," "Opinions of GTE's Financial Advisors" and "Opinions of Bell Atlantic's Financial Advisors" in this Chapler I). Forward-looking statements also include those preceded or followed by the.words "anticipates:' "believcs," "cstimatcs," "cxpects," "hopes," "targets" 'or similar expressions, For each of these statements, wc claim the protection of the safe harbor for forward-looking statemcnts contained in the Private Securities Litigation Reform Act of 1995, . , The future rcsults of the combined company, GTE and Bett Atlantic could bc affected by subsequent cvenls .ind could differ materially from thosc expressed in the forward-looking statements. If further cvents and aClUal perfoffilllncc differ from our assumptions, our actual results could vary signilicnntly from the perfonnnnce projected in the forward-looking statements. The following important factors, along with those discussed elscwhere in this joint proxy statcment and prospectus and in the documents which we inc'orporate by reference, could affect the future results of lhe combined company, OTE and Bell Atlanlic, and could cause those rcsult'i to differ materially from those exprcssed in the fOlWard.looking stulemenrs: · materially adverse ,changes in economic conditions in the markels scrved by our companies or by companies in which we have substantial invcstments~ ' '. material changes in available technology; · the final'resolution of Icdemr, state and local rcgulatory iniliatives and proceedings, including arbitralion proceedings, and judicial rcview of lhose initiatives and proceedings, pertaining to, among olher maUers, the tcrm,> of interconnection, access chargcs. universal servicc, tlnd unbundled network clements and resale rales; · the extent, timing, success and overall effects of competition from others in the local tclephonc and loll service markets; · the success and expense of ollr remediation effons and those of our suppliers. customcrs, joint ventures, non-controlled investments and imerconnccting carriers in achieving year 2000 compliance; nnd · (he liming of, and regulatory and other conditions associutcd with, the completion of the merg..::r and the ability of the combined company 10 combine npemtions and obtain revenue enhancements and cost savings following the mergcr. The timing ~ll1d prolilabilily of Bell Atl:mlic's entry into the long distance market also could affect the future resulls of Bell Atlantic: and the combined company and could cause those result!; to differ materially from those cxpressed in the (orv;,urd.looking Slalemcllls. GTE has embarked on a major initimivc 10 expund its service capability in the data communication, long distance .\Od enhanced services segmenls of the lelecommunications marketplace and to provide a bundle of products and services both in anti outside of its traditional servkc territories. Whether GTE realizes the benefits of these initiatives depends lll1 GTE's ability to successfully de\'clop the network facililies and systems required to provide these enhunced services, the success of its marketing initiatives, the levels of demand Ihat are created for these services, al1llthe level of competition GTE faces as it seeks to penelmlC new markels llnd emerging murkets for new products and services. While GTE's management, believes that GTE will be successful in implementing these new initiutives, there urc uncertainties ~lssociated with its ability to increase revenuc and incomc growth rutes lu the levels turg.eled through these initiatives and its ability to do so within thc pluuncd timclhUlles or invcstment levcls. 1.17 t ,.. ,<., " " < , ~ . . . ,. ,....' ~ oj I,.;,~~:::~ '~,:>... '; .~' ';, ", ~",>,,: .; i'~" :. . . . . - . , , ' " ~ (, J-', " ~', >.:::.~" , .~ .'1'0' .' " , I.;; 'to...;' , " :, , " . ;. , . ~. " . . " '.' , .' ....... . .{; : ': ~ . , ,...I I ,. ~ . I " , ~. {c' ,~:;. ~ I ' 'J, " > . . ,I. I,' 1'". + /' " , , ".." . 'iii . j' : . " ~. t. .' . j ". I' 'l,\..~'.;;,t/...~>:,,,.;,:~,;,,!; 'l,:,",~,:' ',',':.::,: ";:."": ~,~. ~.: I.. ."~..~ ?..:;;~ I" . ..I~;:,:.J :..;'i\~u'f-i'r1,,",",t.' .. , " " .... ~,~.~l~_...~, ....."'~ THE MERGER TRANSACTION' The, Comp~r,ies GTE c",.pora!ioi, , , GTE i,s II leading telecommunications provtdcr with one of the broadest arrays of products nnd services i,n, ,thc induslry. It ison~ of the world's largest telecommunications companies, \yith 1998 revcnucs of Inorc thun ~25 billion. GTE's domestic and international wireline operations serve approximately 30 million telephone, ' access lines thr~)Ugh subsidiaries in the United Slates, Canada and the Dominican Republic, amI an affiliate in, Venezuela. GTE is u lending wireless opernlor in the United States. Wireless services include traditionul cellular servIces provided nt 800 megahertz and personal communication:; services provided 'nt 1.8 giguhr.rt7.. GTE has more than 4.8 million wireless customers und the opporlunity to serve. 6 1.4 million potential wireless customers. " " ' On AprilS. 1999. GTE announced nn agreement 10 buy cellular pr~pcrti~s from Am~ritcch Corporation for $3.27 billion. l1tc properties, located ill Chicago. St. Louis and ccntrall11inciis. currenlly serve approximately I.} million subscribcrs. GTE will have a 937c equity iI1lcrest in these properties and Georgetowll Partners.' a,private investment finn, will hold the remaining 7%. Thcse properties will provide GTE wilh ml,rc than II million additional potential \vireless customers. Under the tcnns of the definilive agreement. GTE ,expects to finalize the acquisition when Ameritcch and SBe Corporation complete their merger laler in 1999. This tmnsaction i!> cKpected 10 result in dilution of less than I % for the combined company in the year 2000. Aftcr the lirst two years, the acquisition should add'lo the combined company's enming~. Outside the, United States, GTE operates wirelcss nctworks'serving approximatdy 2,8 million customers , with 23.4 milliOli potclitial wireless l.:ustomcrs lhrcugh subsidiaries ill Canada, the Dominican Republic and Argenlina, and affiliales in Vcncluclu and Tuiwan. GTE also pm1iciputes in a velllure which operates a paging network in China. GTE provides uata services, including dial-up Internet nccess for residential and :'imall business consumers, nnd Web.based applications for Fortune 500 companies. GTE is also u leader in government and defense communications syslems and equipment"directorics and telecomn1l1I1il.:ations.based information scrvices and systems. GTE has its principal exccutivc oflices at 1255 Corporate Drive, Irving. Texas 75038 (telephone number (972) 507-5000).' , For additional information about GTE and its busjne~s. see the documents idcntified in "Where Vou Can Find More Informalion" in Chapler V. Bell Atlantic Corporation Bell Atlantic is a leader in Ihe domestic climmunicalions and infonnalion induslry as well as one of the world's largest inv'cstors in high-growth global communicatiom markels. Bell Atlantic was one of the seven original Regional Bell Holding Companies formed in connection with the courl-approved divestiture in 1984 of specified UM,ets of American Telephone and Telegraph Company. In August 1997, Bell Atlantic's husiness was combined with that of NYNEX Corporation. unother original Regional Bell Holding Company. Bell Atlantic has four business segments. Bell AIlantic's Domeslie Telecom Group provides domcstic telccommunictltions services principally through ninc operating telephone companies huving approximately 41.3 million telephone access lines in a densely populaled region strelching ft'llllt Maine to Virginia, which is home 10 lhc headquarlers of 1-18 (~\ " j' . , , , 1 , { ':. ',' ,;I ~ It . 1 ~ ..'\-~~~._-- -;-;-- f;'j.::~~i,~ :." '..', ' " " "";'" , Ir~' . ., :~.~" . , .. "i , l ~: : t -- , ) , , '1"" I, '. , ,/ ',., . .J .,' }~ .. . II" " . ~ . I :,,':;:J,'~,l~"::;"":...',.l~~I'~l",l"~~,'~:. ,~;_.~~"'>. ; . ,; ". <.. i " .i t"'!;" I~r.:~;>~ :~~'.:'\" I' t~ ",;/7 /'t'''''''''' " I \ ' '\......./ " , '-.......1 , :f' ~. .".~'I 1......~'.:t"j'~~. ~." ;. ,'~~: : . , appro:dmll.tely one-third or the Fortune 500 companh:s and the federal government. These services consist princip~l1y of ndvanced wircline voice and dat.1 services. Bell Atlantic is also pursuing new opportunities within its region i~cluding long distance, data connectivity nnd'lntemet access services. ' ." . , Bell Atlantie's Global Wireless Group is a market leader in wireless services (including cellulllrand personal communications services) covering 180 million worldwide putential wireless customers,in 25 slates in the United Stlltes llnd. via invcstrncnls, in seven countries in Latin America. Europe and the Pacifie Rim, wilh n totul subscriber base of 7.9 million. Bell Atlantic's Directory Services Group is 'the world's largest' pub'lisher 'of directory informatiun in buth domestic and ill[Cmutionnl markets. Directory S~rvjceS produces more than 600 domestic and international directories annually and distributes nearly 80 million copies worldwide each year. It serves advertisers, primarily'small.to-mcdiurn sized businesses looking for effective locul and regional advertising and marketing services, and consumers who use the directories for either listing information or as u cumprehensivc and casy- to-use purchasing guide. Bel! AtlanLi~'s Other Business Group prinCipally holds a multi-billion dollar investment portfolio in win:1i'J1c partnerships un~l joint ventures in Europe and Asia. including substantial interests ill Telecom , Corporaliun of New Zealand Limited. Cable and Wireless Communications in the United Kingdom und FLAG (Fiberoptie Link Around the Globe). These investments represent a mix of muture and start-up busincsses ' where, in conjunction with local partners and managemcnt, Bell Atlnntic seeks to leverage its corc competencies and to enhance shareholder returns. , . Belt Atlantic has its principal executive offices at 1095 Avcnuc of the Americas, New York. New York 10036 (telephone numbcr (212) 395-2121). For tuJdilional infOlmation about'Bell Atlantic and its business, sec the documents identified in "Where You Call Find More Information" in Chapter V. Bela Gamma Corporation-Bell Atlalltic's Merger Subsidiary Beta Gamma Corporation is a direct, wholly.owned subsidiary of Bdl Atlantic which was incorpomted in New York for the sole purpose of effecting the merger by merging with nnd into GTE. It engages in no other business. Its principal executive offices arc at 1095 Avenue of the Americas, New York, Ncw York 10036 ,(telephone number (212) 39S.:n 21). Background of tbe Merger GTE In recent ,years, GTE has focused its bu:-.iness and strategy on telccommunicmions servicc!>. GTE's goal has been 10 concentrate on profitable growlh opportunities in this sector. while repositioning assets that did not meet GTE's growth objectives or that were not related to telecommunications. After the passage of the Telecommunications Act of 1996, GTE intensified its consideration of strutcgic ulternatives. The fClecommunications industry has experienced a signilicant increase in consolidations and acquisitions. inclUding consolidations among the Regional Bell Holding Companies and acquisitions of and by start-up companies and companies wilb ~m~rging tcchnologies. These transactions lIppear to conlirm that Ihe most etTeclive compelitors in telecommunicalions will be those 'companies offering the must complete pa(~kuge of products and services on a broad scalc. In the lasl seventl years, GTE's m:inogcmtlnt hus considered allcmulivc slrntcgie,~, including Ihose based upon remaining indcpendenl and dcveloping new busincss uppurtunities utilizing GTE's exi!>ling resources amI assets. liS well us a\te~atives based upon u comhination with one or more lelecommunicalions or data 1-19 , ~ <~ " i .' , ! < ,. ~ I .:' Il' Ii , I , ! " ,,' .'.. " , .' ", ~ ~. e, ," ," . ',' , " e! ,: ':, ~"'f"'<i'::?':(::";':::;'~"':<''I!r',''','h'" ,:::,..,," ,,:'" .~ ..~~ ...., O~,.~ .: , , companies. In evaluuting potential btisiness combinations and acquisitions. GTE considered its strategic lit with potcmialtargels nnd purtners ,based on 'their lines of business, their management and employee culturcs, their ' arcus of oper.uion, the breadth of their businesses un'" .the regulatory approval proce::;s. Thesc alternalives were periodically discussed with rhe GTE Board of Dircctors, and werc the subject of discussions III lhe Ilnnual two. day stratcgic planning revir.w held for the, GTE Board of Directors each March. to (-:~l , , In the' fall of 1997, GTE pursued the acquisition of MCT Communications Corporation. Thc GTE Board of . Directors determined 11lallhe proposed transaction would acceJcrJtc GTE'sabHity to nchicve ils strntegic objectives. GTE.'s Board of Directors and managemcnt ultimately decided to abandon their efforts toacqu'ire MCI when they determim:d that the likely acquisition price was higher than GTE considered appropriate. Since that time. GTE has held exploratory discussions with other potential partners, but it elected not to pursue any of those discussions further due 'to strategic. finuncial, and/or regulatory considerations. Bell Atlantic Since the completion aflhe Bell Atluntic-NYNEX merger in 1997, Raymond W. Smith, the fanner Chairman and Cllicf Executive Oflicer of Bell Atlantic; Ivun G. Seidenberg, the current Chairman and Chief Executive' Officer of Bell Atlantic; nnd the Bell Atlantic Board 'of Directors have considered various strategic opportunities io sustain the momentum of that merger and increase Belt Atlantic's growth rate, which has ': continued tn be adversely affected by competition, regulation and the lower demographic growth within it!; region ,.el~lljvc to oiner regions in tin' United St:JlCS. During that time, Bell Atlantic explored v:Jrious , alternatives. and engaged in preliminary discussions with several tc1ecoinmunicntions companies. Tile 'l'rallsot.t;01l On June 8. 1998. Charlcs R. Lee. Chaimlan and Chief Executive Officcr of GTE. and Mr. Smith met and discussed indur.try-rclatcd matters. At that time, Mr. Lce indicnted thai he would like to call Mr. Scidcnb~rg. Bell Atlul1lic's new Chief Executive anker, to discuss the companies' perspeclivcs on de\ll.'lopmcnts ill the telccommunications industry, and Mr. Smith encouragcd him to do so, t""l' ~ At a mecting or the Bell Atlantic Board of Directors on June 23, 1998. Mr. Seidenhcrg di!.cussed Wilh the Bell Atlantic Board of Directors stratcgic options and possiblc combination!. that Bell Atlantic's management was exploring in order to improve the company's fUlure earnings pOlentiul. In materials provided to the Bell Athllltic Board of Directors, GTE was identified as one or a number of aHrncti\;e potenlial '\tralegic business partners. On June 30. 1998, Mr. Lee lInd Mr. Seidenberg mel and discusscd the rapid pace of industry dcvelopmcnts, the potential effccts on their lwo companies, and their long-tcrm strategic objectives. By thc conclusion of that mecting. they decided 10 explore Ihe possibility or a bll~incss combination betwcen GTE und Bell AtllulIic. After lite meeting, Mr. Lee rcviewed his discussion with Mr. Seidcnberg with a limited number of the most senior officers of GTE. A special Bell Atluntic Board or Director:-. meeting was held on July I, 1998. 10 continue Ihe stralegic discussion froln the previous meeting. The Bell Atlantic Board of Director!. discussed transactions thaI might be availahle and the status of managemcnt's investigation of those possibilities. Over the next seveml weeks. t-.k Lee and other senior GTE oiliccrs continucd the discussions with Mr. Seiucnb~rg and (l(her senior orJiccrs of Bell AlIumic. GTE OlInl Bell Atlulllic senior llHlIJugClHl.'1II each independently began their inlCntal analyses of thc potcIltialtmnsllclion. including an analysis of the synergies crcmed by the combirmtion anu the impact or lhe potenlial tmnsuclion on lheir linunciul results. as well il,S their shareholders. employccs, customcrs and other constituencies, 1-20 '\"I~:') ~, .,:, r' .t..; ~I\_.~ ".H", ,J.' 'I, ", , :~ t'~'\ '," / .'..,~1 l \...~.j ~ ". ~" :,,0 '. ., .< , , .:..C\'< ", . >:.< 1+ 'I :' .' ------,--------:-'7---.--..------ -, ---...........-.~ -'-----.,----~- ._-, ,. .. --=---_.------~------- 'I " .J /, ;, " " ,,' .;t "F I! '. , J : ' , ~ ~ . ,,-, .. , ': ~'i{~'Y;::,>~>;,:'::',~,V';'~;i:f::"" ,,~, ,:,'~.....".,y,/ '", .' , ......1 t' ..' 1- ~ ". ..... On July 10,'1998, Mr. Lee and Mr. Seidenberg met and further discussed a possible combination, noting , the complementary strengths of the businesses of the [~vo companies llnd developing trends in the Iclccommunicntiom: i~duslIy. Each emphasized that the company he represented was not for sale. They agreed that. in light of the comparable size and compatible strengths of the companies, any combination should appropriately be a mcrger of equals in which they would shure the management of the combined company us co-chicf executive officcrs. TIley also discussed possibl~ mtios for an exchange of stock. They ugreed to meet. , again nnd continue their discussions. . . , ' On July 14, 1998, Mr.,Lce and Mr. Seidenber~ met to discuss the prop{)~ed transaction'und key elements of a Inerger. On July 16, t998, Mr. Lee and Michael T. Ma<;in, Vice Chairman ami President-International of GTE. met with Mr. Seidenberg and Frederic V. Salerno. Senior Executive Vicc Presiuent and Chief Financial , OmccrlStratl~gy and Busin~ss Development of Bell Atlantic. Following n seric1t of discussions, Ihe parties reacbed tin agreement in principle Ihnt day on many of lhe fundamental terms: a merger of equals: lhe ' mClhodology for determining the exchange ratio and a narrow eXl:hange nilio range based on the lrudin'g liisiory of. eachconlpany) stock with 11 final fixed ratio yelto be determined; equal Board representalion: managemcnt succession, induding ii' co-CEO leu~ership strul:IUre until June 30, 2002; helltlquar1ers iu New York; and 11 , corporai'e riame to be agrced upon by the closing of Ihe merger. Thcy also confirmed tlUlt a premium would not be appropriate in a merger of equnls mmsaction, so that neither company's shareholders would receivc an , additional financial benelil. They agreed lhat ~hcir intemallinancial staffs and lheir financial advisors would rc~iew the exchange ratio mClhodology and range. On July 19. '1998. GTE representali...cs, including Mr. Masin; James A. Attwood. Ellccutive Vice Presidcnt-Slfategic Development nnd Planning; William P. Burr. Ex.ccutive Vice Pre~ident-Govcmll1cnt and Regulutory Advocacy and General Counsel; und Danid P. 0' Brien, E1\CcUlive Vice President and Chief Finuncilll Ofiicer; mel with representutives of Bell Atlantic. including Mr. SalcnJo; Alexunder H. Good, Executive Vice Prcsident.:-Strlllegy IInd Corporate Dcvc!opmcnl; Morrison DcS. Wehb, Ellecutive Vicc Presidenl-External Affairs and Corporate Communications: IInd Jalnc!o R. Young. Executive Vice Presidenl- General Counsel. Thl~Y discllssed vlIrious management and Icgul aspects of lhe proposed combination, execuled a nondisclosure agreement. and established working groups to conduct due diligence and final negotiations. During the following week GTE and Bell Atlunlic represenlatives and their OlliS ide <Idvisors melon a generally continuous basis. cixchanging timmcial and legal due diligence malerials. conducling further due diligence and negotiating definitive docurnentmkm. During. that week. the parties' also delemlined lhat the transaction would be structured so'lhat a whotly-owned subsidiary of Bell Atlantic would merge with anll into GTE, thaI GTE would become a wholly-owned subsidiary uf the combined company and that GTE shareholders would become shareholders of the combined company at the complelioll of the merger. On July 21. 1998. GTE mailed selected public information to the GTE Board of Direclllrs describing Bell Atlantic's business and management. On Jul)' 23, GTE mailed addilional materials tu ils Jircccnfs including materials prepnred by its fin uncial advisllr.., 11 drafl of lhe mcrger ugrcemelll nnd :J summnry of lhe kcy lerms of Ihut agrecment. At II July 22, 199H, meeting of the Hell Atlantic Buaru of DircclOrs. Mr. Seidenherg reponed Ilwt Ihe proposed merger of cquais wilh GTE was Bcll Allantic Ilmnllgemcn!'s preferred strategic option. He advised lhe BeJJ Allanlie Hoard of Dircctors that there was UII agreelllent with GTE managcmcnt on mujor clements of the proposed combimUion. Mr. Seidenberg and other members of scnior management reviewed the proposed transaction in detail. There was exten!o.lve discussion concerning. various mutters induding management succession, structure of the board of direclors, rcgulLllory and operational issues. o\'erlap.~ hetween the Iwo companies' wireless busincsses, lIccollllling Ircallncnt and Icrmilllllioll fees. Pelcr A. Atkins of Skadden, Arps, Slnle, Meagher & Flam LLP. special counsel to Bell Atlantic. also attcnded and participated in the mceting, On July 26, 1998. the GTE Board of Dil'cCIOI'S mel lU discuss thc tmnsaclioJl. Al the mceling. GTE's senior 1I111l111gcI11cnt reviewed Ihc discussions with Bell Atlantic and the propuscd stnlcture of the lransaction, In 1-21 ----~-~--~------- ~--- - j'.'e' ,; ',:" , .\' ,:, ~~: ~.~, ~t': c\:.~.:;.. "". . ."' . ""'. '1 addition to the dircctondincluding Mr. Lee; Kent B. Foster, President of GTE; and Mr. Masin), severnl officers of GTE who were directing GTE's merger negoliation and evaluation teams were present at the meeting. These individullls included Mr. O'Brien, Mr. Burr, Mr. Attwood and J. Rundall MacDonald, Executive Vice President-Humnn Rcsoun:es and Administration. Representatives of GTE's financial advisors, including , Robert Hurst, Joseph Zimmel and Cody Smith of Goldman, Sachs & Co. and Eduardo Mestre and Thomas King of Snlomon Brothers Inc and Smith Ramey Inc.; (collectively doing business as Salomon Smith Barney, the predecessor to Salomon Smith Barney Inc.). also 11llcnded a portion of the meeting. Goldman Sachs and Salomon Smith Barney are togethcr refcrred 10 in this joint proxy statement and prospectus as tl11: "GTE financial advisors." In addition, Jeffrey 1. Rosen of O'Melveny & Myers LLP, special counsel to GTE, attended n portion of the meeling. ' . Mr. Lee reviewed GTE's strategic plans and alternatives and summarized other discussions with poiential partners over the course of the last few years. Following additional remarks by Messrs. Lee, Foster lmd Masin, Mr. Altwood described the transaction and discussed the benefits of the transaction to GTE. He discussed the increasing consolidution in lhe telecommunications industry and its impact on GTE. He reviewed potential strategic p~rtners and likely combinations in the industry. He also discussed GTE's ability to meet its strategic , goais with and wi thou I the transaction. Mr. O'Brien discussed the historical and projecled financial performance of GTE nnd the historical and projected performance of Bell Atlantic. He also discussed the' projected financial results of the proposed transaction, including the putcntinl pro forma impacl of the merger (tnking into account possible expense savings and operating efficiencies that might be generated by such u transaction) and the anticipated impact of the transuclion on the shareholders of both companies, GTE' 5 m'ana8e~lentlllso reviewed the proposed governance arrangements for the combined compuny through shared management and the proposed equal representation of both companies an the combined company board of directon-. In addition, Mr. Burr and M1.'. Rosen discussed the terms of the proposed transaction, including the provisions of the merger agreement lsnd the stock option agreements relating to potcntialthird party efforts 10 intervene in the tnmsaclion. Mr. Barr Dlso discussed regulalory requirements, the anticipated time fmme for obtaining regulatory approvals and the possible conditions that regulatory agencies could seek to impose in granting the rcquish~ approvals. Mr. Barr and Mr. Rosen also discussed the fiduciary obligations of directors in evaluating and entering into a mcrger of equals. Mr. MacDonald reviewed human resources considcrJ.tions in connection with the proposed combination. The GTE {inuncial advisors each reviewed their anrdysis of the proposed ra.nge of the exchange rutio nnd indicated that, assuming a final exchange ralio within the proposed range. Ibey each would be prcpared to deliver au opinion lhat Ihe tinal exchange ratio was fuir to GTE's shareholders from a financial point of view. After an exlensive discussion, the GTE Board of Directors indicllted strong preliminary support for the Iransaction. The directors indicated that they would continue 10 evaluate the tmnsaction prior 10 considering the matter utthe GTE Board of Directors meeting scheduled for the next day, 'DIe BeU Atlantic Board of Directors also met on July 26, 1998, and management provided an updutc on the progress of discussions with GTE, Due 10 growing markct rumors about a possible transaction involving the parties and an amicipalcd newspaper repon the fotlowing dny. the Bell Atlantic Board of Directors decided to advance its regularly scheduled meeting by one day to lhe following day. In the morning or July 27, 1998, rcpresentalives of the parties met to finalize the principal terms of the merger agreement. including the cXclmngc mtio. The partics reviewed the reluli\'c performance or thc two ' stocks over muhiple lime fmllles to llrrivc althe exchange ralio. GTE shares tfUlIed at closing prices that rang~d between 1.16 ;lnd 1.28 times those of Bell AIlllntic during the period beginning on the date of the JUlle 8, 1998 meeting between Mr. lee and Mr. Smith to the last trading day prior to the July 27 meeling of lh~ parties. During the preceding 12-month period which cnded July 24. 1998, thc nllio avemged 1.19, For the 30 trading days which cnd~d July 24, 1998, lhe ratio averaged 1.22. This wus Ihe exchange ratio agreed to by the GTE Board of Directors und the Bell Atlantic Board of Directors, Lutcr that day, the GTE BOllnJ of Directors held a telephonic meeting at which 1111 directors were present. ,In uddilion, several cl(ccutives of GTE were present ut the meeting, including Messrs. Attwood, Barr, 1-22 -...., \ '......... L::', ' '.'" },\> , ,'," : p ~ \.' , , . .~. I. I.' (~.:., . > , , ' ., ' ".' ~ f') .1 ::-~ I'~: ' . , , I- . , , " ~,J >. i ~ " ':.'7 . , .. '. , ,; >" ~ :. .... " , " " .l' ";E "'I" '" "1, , , t.' : ;";',', ':': ''':,: ":,,,,/::tf~:~f~'.:;::):"i/<:'i,,': '.;,::i':;'l'~':~'" .;.~':'....: ,~, i'~'::' , ~ .r",- .4".,"" ~..... ~ r: ' '\;~........ . , \._./ ..!'.....if;'.' " ~. f", . MacDonald and O'Brien. Mr. Rosen:of O'Mclveny &.Mycrs LLP, Mr. King of Salomon Smith Btirlley nnd Messrs., ZiI~lmcl and Smith of Goldman S~chs were also present. During the meeting, 'Mr. Lc~ again reviewed the tr~nsllction with the directurs. Mr. Attwood and Mr. Barr alsl) discussed certuin keYllspects o(the ' ',tnmsnc'iion: Mr; King and Mr. Zimmcl indicated thatlhey were each delivcring thc opinion of their respective finns thulthe finnl exchange rntio was fair to GTE's shareholders froltl a financial poinl of view, which opinions were subsequently confinned by delivery, of separate written opinions dated liS of July 27, 1998. The directors asked n number of qucslions and further discussed the transaction. Altl1e conclusion of the meeting. the GTE Board of DireclorS'ullanimously detcnnined that the proposed merger and related trnnsnetions wcre in the best in~c'resls of. and fair to, GTE's shareholders, and voted ununiinously to approve the tmns'action and 10 recommend to GTE shareholdcrs that they vole to approve the GTE merger proposal: .'(I!" . , ''AI tile Bell Atlantic Bourdof Directors ineeling held the same day, Mr. Seidcliberg'reviewed Ihe slralegic rationale for the proposed merger, and members of senior management presented further details, Mr. Young reviewed the principal provisions of the mergerugreement. a draft and summary of which had becn pro\'ided to the, ~irectors pri~r 'to the meeting along with a legal memorandum on directors' dUlies and considerations. Mr. Good presented lhe estimated pro forma financial resulls and revenue, expense and capital!>ynergies. The Bell 'Atlantic, Board of Di~ectors considered in further detail the possible scenarios for res~lving the overlaps in wireless operations, Howard Weiser of PricewaterhouseCoopcrs LLP, independent accountums, and Mr. Atkins of Skuddcn. Arps, Slate, Meagher & Flam LLP also attcndcd and participated in lhe meeting. Representalives of Bell Atlantic's financial advisors, including Alan D. Schwurtz, H. Andrew Decker and James A.Ferellcy of Bear. Steums & Co. Inc. and Thomas Middleton U!1t1 Kurt Simon of Mcrrill Lynch, Piercc, Fenner & Smith Incorporated, reviewed wilh the Bell Atlantic Board of Dircctors various financiul and vahmlion annlyses relnting to the proposed merger. Merrill Lynch and Bear Steams arc together referred to in this joint proxy stalement and prospectus as the "Bell Atlantic financial advisors." Bear Steums and Merrill Lynch euch 'delivered its ornI opinion (subseqliently conlinned in wriUen opinions datcd as of July 27. 1998) to the effect that the exchange ratio wus fair, from a finullcial point of view, to Bell Atlantic and. nccordingly, to Ihe holders (other than GTE nnd its uffiliales) of Bell Atlanlic common slock. The non-employee directors mCt in an excculive session ,to discuss the proposed merger. The full Bell Atlanlic Bonn.! of Direclors then rcconvellcd and unanimouf>ly votcd to approve the merger agreemcnt and recommend to Bell Atlantic sharcholder!' thai they approve the Bell AtlulItic merger proposal. . Following approval of the merger agreement by the respective boards of directors, thc parties executed the , merger agreement in New York City on July 27, 1998, and announced the merger on July 28. 1998. Reasons for the Merger; Recommendations of the Hoards An entirely new telceomlllunications environment is emerging as n rc~ult o(signilicanl competitive. regulatory llnd technological changes over the last few years. Strong nalional and inlematiOllul playcrs, formed through alliances and mergers, are h~llding the induslry. Thcse companies are competinp. for cuslomers who increasingly are looking for one-stop shopping for telecommunications services. We each have bcgun implementing Mnltcgics to enhance our competitive positions in UIl expanding global marketplace. By combining. we will be ~\ble to share resources tlnd capitulize on synergies that will speed our ability to compete effeclively at the top tier of the industry. The merger will cnable liS to achicvc our goals marc quickly than either company could have achieved separately. ' . We believe that the merger will crcale u stronger competitor and will provide signilicunt value for thc shareholders of GTE and Bell Atluntic. 'I 1-23 :'. .(:C . ..~ e, \ ~ . ~ , ':.' 1'-. . , I' -----------._--~--- _._-~~- , :, .' " ,. ,,> I " , " . :~. ~:' . ;.Tr>;\::,:' ~.'t" . ., 1. The merger will give us the scale and scope to compete as one of the industry's top.tler companies. e ' . , . . The combined company wjll hDve the scnle, scope ~nd skills to bring data services directly to business clIstomers arid nn expand~d prt;)duct line to all consumers. Our complementary, diversified portfolio of assets , will give us scale and ~co.PC in four key, areas: . ' , · ,Domestic Telecommunications. We will be the largest local telephone provider in the country. Combined, we have currently more lhan 60 million telephone access lines across 39 stutes and the Dis~rict of Columbia. These assets represent a mix of urban, suburban, and ruml markets and currently serve 76 ,of the top 100 murkets in the United Slates. In nddilion, we are positioned to rapidly expand GTE's existing long di!itance business as Bell Atlanlic gains regulatory approval to offer such services in its territory. The combined company will,be uble to better serve its customers, by using'that size, and scope to reduce costs and accelerute the introduction of new services nnd will provide the crucial link between miJIions of homes and businesses nnd the globallelecommunicntions network. '. Domestic Wireless. The combined company will be one of the n~tjon's Inrgest and most ad\'anced wireless companies. Together, GTE and 'Ben Atlantic currently have 1104 million domestic subscribers, with the opportunity to serve more than 130 million potential wireless customers in the' United States and a presence in 'nine of the top ten markets. Both companies arc migrating to state-of- , the-art digital technology thot is fully compatible, and allows cust~mers to roam senmlessly between euch company's network. Over the last several years, both companies have demonstrated the ability to successfully integrate wirelessoperntions and to u'sc scale and scope to drive efficiency and' profitability. GTE and Bell Atlanlic arc each considering a number of opportunities that would expand the wireless footprinc of the combined company when the merger is completed, How;::ver, we do not expect thut uny transaction or transactions, if they occur, would materially affect the earnings, anhe combined company. See "Conflicls Created by Overlaps of Domestic Wireless Properties: POlential Solutions" in this Chapter I for a discussion of other likely changes in the combined . cqmpany's wireless properties. [menloriona/. With a presence in more than 30 countries, the combined compnny will be focused on some of the world's most promising wirelinc and wireless opportunifies. Our curren! inlernational portfolios arc highly complementary and will give the combined company signWcanl global reach, ex.tending from Canada to Argentina und from Europe to Asia. More lhan 35% of imemationllltraffic from'lhe United Stutes originates in our domestic service territories. which represents a significant opportunity for the combined company when regulatory approvals arc secured. The combined . company's inlcrntJlional wireless ponfolio has the opportunity 10 serve more lhan 118 million potential wireless CllStOmers in 10 counlries in lhe Americas, Europe and Asia. · DireClories. The combined company will be the world's largest provider of directories, and will publish directories in 15 countries outside the United Slates. -'\ , \ 2. The merger brings together n complementary hlend of assct~ and capnbllltics and Aives us a significant prcsencl!- In new growth mnrket~, ' The merger enables both companies to accelerate execution of their strategies and promote vigorous competition in the traditional and emerging telecommunications murkcls. The combined company will bc a major provider of advanced data and Internct services with access 10 CllslOmers in some of the mosl infonnmion~inlcnsivc markels in lhe world. GTE has national coverage, advanced data communications capabilitil.!s and long distance experience. rn addition, GTE is assembling a state-of-the-art. 17,000 mile. fJational high-speed dm:r nclwork which is partilllly operational and cxpccrcd to be compleled later this year. GTE also has malic a major in\'cstmem in Hber-optic long distance capacity. These assets will provide GTE with cap;\hilities signiliclIIHly exceeding lhe expcl:lcd demand of GTE's current customer base, Bell Atlantic serves million.. of lhe world's most information- intensive residential and business customers, illcluding the headquarters of one~lhird of the Fortune 500 1-24 '-,'J> .. 'Yir</'''' , \'. '. "'L . t.~ ,: ~ '. ; '. ~ ," j....,:. I I' '. ~ , -l' I , . " ; , , c . ::t ..~: r"l: .. '. ,. " '." " i , > \' . \1 ',' . :>1:_. , .,. ,', ~ . c ,l' I',. c. " , " , , i: .... ~ J I . '. ' " .:: ," !} , ; '~(:..;'t?,'::, ," :..':i",.'f,;";"", ,,"';~dl~("T"""~" ~"" .' """_,,, , ~ ~~.;,'r~ ". ..':- .~ ".':"~", ( , j ~',.....-t';'/ J ..~ l" .......u ~~...: .,.. + >"1 '" '. ~ ' companies, a sUbstnntilllnumbcr of othcr multinational companies, the nalion's medin, government and. financial centers nnd residential customers whose income and personal computer usage exceeds the nalional ' ' average. The combined compan)' will be able to provide long distance nnd data services nationwide as part of (l full packnge of other communications services. I, \ ' . The merger ~lso mitigates the risks. capital outlaysnnd deployment times that would be required for GTE nnd Bell Atlantic to develop these complementary assets und capabililic~ independently. ' 3. . The merger ls expected to generate ~J~nif\cunt rev~nue, expense and capital synergies. The ma~agement and directors of each of our companies believe that the merger will result in significant oppo~\lnilies for~cost, savings, revenue growth, technological dcvelopmenlund olher bcnefits. The,combincd company will' achieve synergies through economies of scope and scale, the climination of duplic:llive expenditures ana 'the consislent use of the best pr.lcticcs of GTE, Bell Atlantic and the industry in cost control and product offerings. ' , , , Based on anticipated revenue and expense synergies. we expect that the merger will improve earnings per share, exc'Juding' merger.related chllrges~ in the first year following completion. We estimate that the merger ' willnlso generate significant capital synergies. producing higher cupilal efficiency and higher cllsh flow and ' . margin groWf~, By the third year after completion of the merger, we expect: ' · annual revenue synergies of approximately $2 billion, primarily from improved market penelration' for value-added services (e,g.. call waiting and calJer 1.0.) and faster development of our data and long distance businesses. which, at un estimateu operating margin of 25%, wi1\ produce $500 million in increm,entlll operating income; , · annual expense synergies of approxinmtely $2 billion, with savings generated from operating and procurement synergies, reduced corporate o\'erheads, the migration of long distance lraffic onto GTE's network. and greater efficiency in wirc]ess operations; and · 'annual capital synergies of approximately $500 million Ihrough volume purchasing nud the elimination of certain capilUl costs associated with building a dala nClwork in Bell Atlantic's current territory. . We arc largeting revcnue growth of 8-10% and earnings per share growlh of 13~ 15% (excluding: mergcr- related charges) in each of the first two years following the completion of lhe merger. By the thin) year afler the completion of the merger, we arc targeting rc\'cmll.~ growth in excess of 10% and earnings per share growth in excess of 15% (e:tc1uding merger-reluted charges). In addition to direct incremenlal merger-related costs of approximately 5375 million, we expect IfUnsition and integration charges to aggregate approximately $1.2 billion to $1.6 billion over the threc years following completion of the merger. For additionul infonnalion on direct increlllcOIal merger-relaled costs and lransition amI imegrution charges pertaining to lhe merger, see the "Unaudited Pro Forma Combined Condensed Financial Statements" in Ihis Chapler 1. Both GTE and Bell Atlamic havc provcn lrack records in successfully and quickly integrating business operations. GTE today thrives as a highly focused, integrated company after a series of major acquisitions over the pust decade. including the acquisitions of Contel Corporatiun in 1991 and BBN Corporation in ]997. Bell Atlantic amI NYNEX fomled u wireless joint venture in 1994. By 1996, the wireless joint venture achieved a market leadership position with innovative products, fuster customer growth and shurply improvcd profitability. which were further enhanced when the IwO companies mcrged in 1997. The integration of Bell Atlanlic and, NYNEX is now largely complete, and the forecltst eniciencies arc being achieved successfully. orE Board of Directors' Consideratioll alld Apprm'al (Jf tire Merger At meetings of the GTE Board 'of Direclors held on July 26 and Ju]y 27. 1998, members of GTE's mUnl\gement and representatives of GTE's financial udvisors mudc presentations concerning the business llnd 1-25 ':!.X.:':;. '.,; I ~. , f' .. , , ; , .' (.>' ,: ~\ . / ~.. . , '. '. '.. ........ j'\ '. I. '.r'.' , :', .,"'1'lt.~;t~ 4~r","/d" ~ ~ >>,~'.~':.. .'~ ~'~, :. .~ <' 'IY " " ~ ~ ..., , ' " ::-. '.' , " :' I., .I .. i . ~. . , " , e, ',A ~,. . , , ' " . i. . /+' . >." ~ :. . I ' ~ : : ' '. . , I . . . ~.' \~/~ . I ,I" ' ;- , .F~'::':f ;~!~~'>l:4~ttn.....~'i;~;":": .l -.: " '>. < prospects of GTE and the potential combination of GTE and Bell Atlanticl The GTE Board of Directors ulso' ,received presenrations concerning. and revieweu the tenns of. the merger agrcemenlnnd the stock option, 'agreements with' me'mbers of- GTE's management and its legal counsel nnd financial advisors. At the July 27 . meeting. the GTE Board of Directors unanimously determined that the terms of the merger were fair to. and in the best interests of. GTE shareholders. Accdrdingly. the GTE Board of DireclOrs unanimously approved the , mcrgcr:agrccment, the'stock option agreements and 'the related tnmsnctions, llnd recommends that GTE .: shareholders approve the GTE merger proposal. () InformatitJII D1Id Facl~Ts Co.n'si~eTed,bj lite GTE IJoard oj Directors , , In'oedding whether to approve the merger, th~ merger ugrcement and the ~toek' option agreements, the GTE Board of Directors considered a number of fuctl,>rs in uddilion to thosc cxpla~ned in thc'section discussing the,rcasons for the'mcrger. The following summarizes the other material infomlution and factors that the GTE Board of Directors considered: ' 1. The unprecedenlcd regulatory and technological changes that arc driving consolidation within the tclccormilUnkntlons industry and underscoring the need toincreil!.c scale and scope in order to ' cm'crgc a'~. a top tier coml~titor~ ' . , 2. GTE'," 5tmtcgy for maintaining its cxistence as an independent compnny, including the benefits of. , aod variou~ ,ahenJntives to that strategy, and the anticipated effect of that strategy on GTE's con~imjcd ability to compete; , 3. Irriportnnt considerations uhout GTE, Bell Atlantic and the proposed comhined compaliy including: , , · the financiul,condition, results of operations. cash nows tlnd prospects of GTE, Bell Atlantic and the combined company; .. the cxpectillion thatthc combined company will produce greater shareholdcr returns than either GTE or Bell Atlantic could produce on its own; , · the belief that thc combined company will produce e~lmings growth at or above the high cnd of GTE's current projected range, and will increase the ability to sustain these earning!> by producing signilicant synergies und improving GTE's access to the data-intensive customer base of Bell Atlantic; , · the strategic fit of GTE nnd Bcll Atlantic. including the potential synergies :tnd the impact of those . synergies on the ability of the combined company ~o compete in thc industry: and · the Iikeliho'od tllUllhc transaction would receive the necessary regulntory approvals and the unticipated timing of and possi~le conditions that may be imposed with rcSpCI;( to those approvals; 4, The proposed stmcture of the transaction, the provisions of the mergcr agreemcnt that ensure that this would be a merger of equals, and the other tenns of the merger agrecmcnt including the following' (see "Summary of the Merger Agreement" in this ChOlplcr l): ' · the representatiuns and warranties of the parties; · the covenants of the parties and the effect of those provisions on the operations of GTE and Bell Atbmt;c prior to the merger; , · the provisions of the merger agreemcnt that limit bOlh GTE's and Bell Atlanlic's ability to solicit other offers for their company while permiUing each board of directors, to fullill its fiduciary duty to its shareholders in thc cvent of an unsolicitcl\ orfer; and · the requirement that GTE Hllll Bell Atlantic must pay the olher u termination fee of $1.8 billion if the merger agreement is tenninatcd afler lhe bomd of directors changes its recommendation und the sh.m'holders of that company fail to approve the merger; 5. The linallcial presentations and the analysis or each of Goldman Sachs and Salomon Smith Barney prescnlcd in conncction with delivery of their rcspecth'c opinions to the GTE Board of Directors to . ~ .,i:"" 1-26 I ""',1.,,/ \,',<;/~';"~;"")';' '. ~. ", , ' , .,'. .1" . .~ l : ,.'" . ," ~ ' L . . l' 'e /; ',": ': r.f ," ~.{. ~ : 1'.' '~ . . t , , . 'j! t > ~ ';'J'<.7 ~l',J"'~" I, } ~;,~........j . r. ~ -, . '. ' , , .<l.C " .i , , ' , , :' :,' ~, ~ : I ., ,~:,~'!~1: ';,\.,::,~':,l;..~~~lP'U:~.' ..... r.....4l.'.'" ~ , the effect lhat. as of the datc of their opinions nnd based upon and subject to ccrtain mUlIcrs, stated in th~se opinions, lhe exchange mtia was fair, from a Iin:mcinl point of view. to holrJers of GTE common stock (see "Opinions of GTE's Financial Advisors" in this Chapter I); unu , .' ,'.'. . of 6.. The impact of the merger on GTE's shareholdcr~. employees and customers. . ., . In addition to these factors, the GTE Board of Directors also considered the potential adverse impact of other facto~s on the proposed merger. These included: .' the challenges in combining the assets and workforces of two companic'l of this I'izc, particularly ut a time when the teleco'mmunications industry continued to undergo dramatic changes: ,. the nbility of GTE'~ management to continue to focus on strategic goals while working to implement the merger; . · the ability of the combined company to properly and cfficienlly use or r~alize economic benefits from all of its asscts, including assets that may no longer be required ro,operutc the business of the ),'., " . combined comp'any'duc to overlaps llnd duplications; ~ the ch~lieng~s in obtaining regulatory approval in a reasonable time frame and upl;n terms and condilions that would not unduly hurden the combined company; and · the risk that the proposed merger would not be consummated. , ' The GTE Board of Directors did not assign particular weight Or ranking to Uny or the factors it considered in approving the merger. Also, in making their determination, it is' possible that individulll directors may have assigned a different leve,l of importance to each factor. . The GTE Board of Directors unanimousl)' recommends thut GTE shnrcholdcrs vote FOR the GTE merger proposal, which Is Item 2 on the GTE proxy curd, - Herl Atlantic Board of Directors' COllsideration and ApprrH'nl of the Merger , At meetings of, tbe Bell Atlantic Board of Directors lIelli 011 July 22. 26 and 27,1998, members of Bell Atlantic's management made presentations concerning the business nnd prospeCL"i of GTE and lhe polential combination of GTE and Bell Atlantic. At the July "2.7 meeting. representatives of Bell Atlantic's financial advisors made presentations concerning the fairness of the exchange ralio to Bell Allantic's shareholders from (\ financial point of view. TIle Bcll Atlantic Board of Direclors also received presentations concerning, und reviewed the terms of, the merger agreemcnt and the stock option agreementI' with mcmbers of Bell Atlantic's management and its Icgal counsel. At the July 27 meeting, the Bell Atlantic Board of Directors unanimously detemlined that the Bell Allantic merger proposal; the merger agreement, the stock option agreements and the related transactions were fair to, and in the best interests of, Bell Atlantic shareholders. Accordingly, the Bell Atlantic Board of Directors unanimously approved the Bell Atlantic merger proposal. the merger agreement, the stock option agreements and the related transactions, nnll recommends that Bell Atlantic shareholders approve the Bell Atlunlic merger proposal at the Bell AtlmHic lInnual meeting, In reaching its determinution to approve the Bell Atlantic merger proposal. the merger agreement. tlte stock option agreements and the relateu transactions. the Bcll Alluntic Board of Directors considered a number of factors in addition 10 those set forth above. The following summarizes the material factors that the Bell Atlantic Board of Directors consiuered: I. the current conditions and trenus in lhe telecommunications industry. including increases in compctition in Bell Atlantic's main businesses and the likelihood that (mure mergers and acquisitions would increase the size ~tnd strength of competitors; 2. the importance of timmcial size and strenglh. tlnd geogruphiclll scopc of business operalions, to Bell Atlantic's continuing ability to competc in its main businesses; 3. the impact of new and evolving technologies on Bell Atlantic's business. and the need for signilicunt capital resources to implcment these tcchnologies; 4. the consistency of the strat~gics thlll the two companies were pursuing; , 1.27 ~~;~-,f~:",':C:T:'i':) .;.;~.' >~ l~!," '.~, 'r~. ;: '~\<~.- , 'J-"'. , " - " , I :~ \., . . " \ "'" ( ",.' c/ " ~.~ ,~!~ '." , " , . ", ~ , , . . r.. , " .~ " " " .1' . ,e " '.":.' " , , . ," .'" I~ ~ . .' .:..' . " ' ....c t" " , ' : t.~~:: .... ,.'~~~';.i..~~f.,:':~~..!~~':~ f ~~{): ~~'. '.:~~. '. : , . . . ~>.u--.' '".. j.. ."'.' ...... . ~. . " ., i I .' :.1: , ,,' 5. th: doJlIll' amount of synergies which the combined company.should be 'able to realize, and the risks thut'thc synergies would not all be realized; " : , , ':' 'j , .. " , ' , , 6. the impact that the transaction would he expected to have on the combined company's balance sheet, earnings and cash flow: " , , 7. Mr. Young's view, as gcnemJ counsel of Dell Atlantic, that Bell Atlantic ami GTE would'bc able to obtain the necessary'rcgulatory approvals to complete the merger, and the likelihood thot regulatory , , authorities would insist on conditions to those approvals which could substantially reduce the benefits of the merger; 8. the nee'd to obtain regulatory approvals for long distance service or complete other satisfactory llfTWlgements to permit the timely completion of the merger; , ....-, ; . \ j', I':',' . ~ . >. , . 9. the, need to re~olvc leg~\l and contractual issues that arise because of overlaps in the territOlies where Bell AlIantic, GTE, a partnership in which' Bell Atlantic has an interest, and the other partner in that partnership provide wireless services: the actions available to Beil Atlatllic ond GTE to resolve those. issues; the difficulty of achieving acceptable resolutions; ond possible adverse business and' accounting consequences that could result from steps taken to achieve resolution: 11. " ,j ]0, the de~irability of accounting for the transaction as a pooling of interests. the risks thot pooling of , 'interests accounting might 'ultimately prove [0 be unavailable. and the possible consequences if lhe transaction had to be accounted for as a purchase: ' the impact of the lmnslIction on the combined company's ability 10 maintain ond enhance its 'reputation for delivering highquaJity serviCes to 'customers: . 12. the impact of the transaction on the combined company's nbility to maintain a high-quality, highly. motivated work force; '13. the advantages ond potential disad\'untages of the merger of equals structure, including the sharing of board of director seuts and senior management positions in the combined company between people from the two companies and the use of a co-CEO struclUre: 14. the other potential major transactions which might be available to Bell Atlantic either in addition 10, or us alternatives to, the m~rgcr, and the effect of the merger in making it easier or harder for Bell Atlulltic to pursue those transactions: 15. the tcmlination fee provisions and Slack option ugrccmcnts applicable to each company, nnd the effect that these provisions would have on each company's ability to pursue or complete alternative transactions; T'''' ~ . 'I , , ......Il ,.... J 6. the difficulty of inlegrating the businesses of Bell Atlantic and GTE. and the possible adverse effects that could result from the need for senior management to focus significant time and effort on completing the merger and integrating the businesses: and 17. the opinions of each of Bell Atlantic's financial advisors that the exchange ratio was fair, from a linancial point of view. to shareholders of Bell Atlantic. The Bell Atlantic Board of Directors did not reach collective decisions on the individual issues listed above in reaching its overall conclusion that the merger is in the best interests of Bell Atlantic shareholders. In addition, the Bell Atlanlic Board of Directors did not attempt to quantify or rank the importance of the faclors it considered. The Bell Atlantic Board of Directors ummimously authorized 11lld llpproved the merger agreemenl. Ihe stock option agreements and the Bell Atlantic merger proposal; including lhe issunncc of shares of Bell AlIantic common stock and the amendmenl und restatement of lhe Bell Atlumic certificate of incorporalion. 1-2R ...",..~~.' '~l)'~ ~.rl': . ::c ..'..... " . ,... ii, ' , .;. " ~ . : '. . ~ .' ';'L.',," " " , , , .: . l.:l' . l ~ r ~ .,~ " " ,,' " ,,' I ~ Ie ,', " " l " . e, , . ;\... ::~:..;,.~,I:. ~ I,' :,';,~~);,;';L~<;.~: .i."\<~'~~~'hc"',': '"?} ~ . , c '" -" ~. ..fM....."'. l"",,-_,.t .. ~ ~' ' .....,..I I " ,; . ~'fr'" : II. The Bell Atlantic Board of Directors unanimously recommends that Ben Atlantic's shareholdeNl , vote EQ! approval of the Dell Atlantic merger proposal, which Is Item 2 on the Den Atlantic prtt....' eMit.. . ~. . ~ > . Opinions of GTE's Financial Advisors , GTE financlal advl!iOr Goldman Sachs Salomon Smith Barney Location of theh- fuf1 opinion Appendix F ,Appendix G GTE retained Goldman Sachs and Salomon Smith Bamey as fimmcial advisors l.>nsedupon thcir qualifications. IDipertisc and reputntions as wen as upon their priQr investment banking relationships with GTE. ,GTE relained Salomon Smith Barney, pursuant to a Ictter agreement dated July 21. 1998, to render lin'ancial advisory .md inveslment hanking services 10 GTE in conneclion with a proposed combination with Dell Atlantic. GTE retained Goldman Sachs, pursuant to n leller agreement dated July 22, 1998, to act as financial , advisor 10 assisl GTE in its analysis and consideration orn possible merger or olhcr business combination with, ucquisition of, acquisition by, or other transaction with or involving Bcll Atlantic. .: ,+ . ,On July 27. 1998, GTE's financial advisors each rcndered a separate oral opinion to the GTE Board of Directors to the cm~ct that, based upon and subject tu the considerations set forth in each such opini~n, respcctively, us of such datc, the ex.change ratio was fair to the holders of GTE common stock from it financiill point of view. Each of Goldman Sachs and Salomon Smith Barney sub5cqucnlly con finned (llcir respective, opinions by delivery of separatc written opinions dated July 27. 1998. , , GTE shareholders should consider the f()lI~wing whcn'reading the discussion of the opinions of GTE's IinancinI advisors in this joint proxy statcment and' pro!.pcctus: · We urge you to rcad carefully the enlire opinions of the financial advisors, which afe conlained in Ihe appen'dices of this joint proxy statemcnt and prospectus and arc incorporated by reference. · Thc following descriptions of the finnncial advhiors' opinions arc qualified by rcference to the full opinions located in Appcndices F and G to this joint proxy sllltcmcntuud prospectus. ' . The linunciul :Jdvisurs' adVisory serviccs und opinions were provided 10 the GTE Board of Directors for its information in its consideration of the merger and were directed only to the fairness of the exchange ratio from :J linancial poinl of view. ' · 'nlC Ilnancial advisors' opinions do nUl address the merits uf GTE's undcrlying business decision to engage in the merger. The financial advisors' opinions do not address the price or range of prices at which shares of GTE common slock may trade beforc the mcrger or al which the Bell Atlantic common stock may trade beforc or after Ihe merger. · The financial advisors' opinions were ncccssnrily based upon conditions as they exisled and could be c,'uluatcd on July 27. 1998 and lhe financial udvisors assumcd no responsibility to updalc or rcvise their opinions based upon circumstances or events occurring afler such date. The opinions did not constitute a recoll1l11cmlation to the GTE Board of Directors in connection with the merger, and do not COl1stitUlc n rccOllllncndution tu any holder of GTE common stock as 10 how to \'o,te on the nlergcr or allY rclalcd muller. Although GTE's financial advisors each evalualed the fllimcss, from a financial point of view, of the exchange ratio to lhe holders of GTE common litock, the exchangc ratio itself WlIS dClennined by GTE and Hell Atluntic through arm's-Icngth negotimions. GTE did not providc specific instructions to, or place lIny limitations on, its linancinl udvisors with respect to thc procedures to be followed or factors to be considered by these udvisors in performing their analyses or providing their opinions. 1.29 .:~: ~. . , " I' . ~ I . , " , ' i i: \e , ~' ~ .. !' ',' I~ !' \11'. .11; " , " '.' _.~- -~--------------.-.-- --.. " ' ;ji '. :' ~ , . ", . "< ',' Ij , '\ . . I ~ I , .." , " I -:~ '~>~"';7.<; ,., J."~:'~'IJ.'. . '~, . , . . :. .,~ ~ I \ H .~I " . ,~. . , Opinion and Analysis of Gn/dman SadfS . ' ,'. I" (. ' .' . I .;. ~ . '1- . .' In con~cction with"iis opiniol1, 'Goldman Sachs rc...icwcd. arnorig'othcr'thlngs, the foll~wil1g: ,~ , \ . , the mcr~cr ugrccm(:nt; the annual reports ro shareholders and Annual Reports on Fonn J O-K of GTE and Bell Atlantic for each of the tive years ended December 3 \, 1997~ interim reports to shareholders and Quarterly Reports On Form IO-Q of GTE and BeJ1'Atlantic; and ":intcmal financial analyses and forecasts for GTE and Belt Atlantic prepared by their respective " mllnngcmcnts; induding projected cos' savings and revenue synergies expected 10 be achieved pur.;uunt to the'merger. ' ' . . " , ;l.' , ":' .' " Goldman Sachs also held discu'ssions with members of the senior management of GTE and Bell Atlantic reganling the strategic rationale for, and the potential benefits of, the merger and the past und curren't business operation!j, financial condition and future prospects of their respective companies and Ihe combined cmnp:my. hi addition, Goldman Sachs reviewed the reported price and trading activity for GTE common stock and Ben Atlantic com'mon Slock. compared certain financial and stock markct infonnation for GTE and Bdl Atlantic wilh similar information for certain other companies the securities of which urc publicly trouet!. reviewed Ihe nnancinltcnns of certain recent business combinations in the Ielecommunications industry specifically and in' other-industries generally, and performed such other studies Ilnd analyses us it consid~rcd appropriate. Goldman Sachs relied upon the accuracy and completeness of all of the linancial nnd other information reviewed by it and assumed such accuracy ami completeness fOl' purposes of rendering its opinion. In thm regard, Goldman Sachs lIssumed thutthc tinancial forecasts provided to it. including,'withutH IirnilUljon. Ihe projected r.:ost savings and rc\'cnuc synergies expected to be (jchievcd pursuant 10 the merger, were rcnsunllbly prcparedon n busis Ihllt retlcctcd the bcst thcn-available judgmcnts and estimates of GTE and Ben Atlantic and that such forecasts would be achieved in the amounts and at thc times contemplated thereby.' Goldman Sachs did not make un independcntevahiation or approisal of the asseL~ and lillbilities of GTE or Bell Atlantic or any of their respective subsidiaries und Goldman Sachs wns nol furnished with any such evaluation or appraisal, In rendering its opinion. Goldman Sachs look inlo account GTE's expcclation regarding the l\ccountinglreUllllcnl of Ihe transaction. In mldilion. Goldman Sachs assumed lhllt obtaining uny regulalory or third p~lrty approval!> lor the merger would nol huve [1 muteriully adversc effect on GTE or Bell Atluntic or the anlicipated bcnclits of the merger. Goldman Sachs was not asked to. and did not, solicit other proposals to acquirc or merge with GTE. I .- Goldman Sachs, as part of its invCSlInent banking business. is continually engaged in the v.lluation of businesses and their sccurities in connection with mergers Hnd acquisitions, negotiuted underwriting!>, competitive biddings, secondary distributions of IiStl:u and unlisted securities, private placements and valuations for cslHte, corporate und other purpOl'es, Goldman Sachs is fU111i1iar wilh GTE, having provided certain investment banking and Iinaucial advisory scrviccs to GTE from time to time and for which Goldm:m Sachs received customary compensation, including having acted us linanckll advisor to GTE in connection with its acquisition of BBN Corporation in 1997; having acted as tinanciul advisor 10 GTE in connection with its a!tempted acquisition of Mel in 1997; huYing actcd us managing underwriter of u public offering of $2.1 bilHon of debenturcs issued by GTE on April 22, 1998; and having acted as linancial advisor to GTE in connection with the merger agreemcnt. Goldman Sachs has also provided cCltain invcstmcnt banking services to Bcll Atluntie from tilt1c to lime, :mtl rnu)' pro\'idc inVcSl/llCnl banking services 10 Bell' At]unlic in the future. Goldman Snchs is a full service securities firm and, in the coursc of ils normal trading activities, may frum time to,time clTeet transactions nnd hold positions in thc securitics of Bell Athmtic or GTE for its own account or the accounts uf customers. 1. .. The following is n summary of the nWlcrial tillltlldallllwlyscs used by GDldnwn Snchs in rcuching its opinion and dOL'S nul purpllrt to he a cmnplele description of the- analyses perfurmed hy Goldmnn Suchs. The 1.30 ~""'...... .' ;~;?/;~:y,/:~ "-",1 J' ", i, !"J t": ;,~, :.' , " , ' '. : J , , ,', l' " .'.' ~ .. " ~ ). . .' ~ . . " 'j 1 .' . . ~ : ' T .~ ~ < ; ".: t. :,' c:' " , ',.'.' I.' " ,. I .... '. '..:-' ., - ~. '< IT' i \'. :.~: . , , Hj . , 1.", (: . ','.", ,"J. " :.:: ~/ .' ..... . ~.. ,of:: " . " . , ~. ;:~ ~:t:!).. ~~ A~ f:~V:~ ,- :~4, '\ )"":c_.~,,/ u , . j. ~ i " : : " : u::::: ;:",:,~ ',', .,-' . I ~; I , , ~ '. . . ". . ~ . .. . . '. -: '.L ',: '. .1. , , , . . ~ .' '. . . . ,I .:' 1 .~ ", '~ ' 'i~ :\ . ' '!"l. . T . I ':. ~:.::' .. . . r" ,'1,'. . I. . I ~,' " ":";:>:~";::f,,~I',;;~~; .l'~;<<: t .'; :' " "", ': .' ,'. .~. ""I't ~J')'J.-t\'\~""~!~_I'.""~"".I.'~~~I~,..,,,.'1~IJ'>~''':~~~'''''''''..: " . .'11...,:1...... .... ' ;.~ . c. ~'.. ~ . l. '. ".,-!>. ".'\ .,; ......, , , following quantitative infonnation, to the cxtent it is bosed on market data, is based on market data as it existcd at or about July 24, 1998 and is not necessarily indicative of current market conditions. Renders should ' understand thut the order of analyses and'the 'results deri'ved from theseanalysc!- described beluw do not represent rclatiYc importnnce 01' weight given to these analyses.by Goldman Sachs. The s~immary of the finanCial cnalyscs includes i~fonnation presentcd in tabular format. In ol'dcr'to understand fully the financial nnalyses used by Goldman Sachs, these tables lOUst be read together with the text 'of each sumnmry. The tables alone do not describe completely the finandal analyses.' . .' . . Comr;!Jut;oll AlIalysi,t. Goldman Sachs reviewed the relative conlributions of each of GTE and Ben Atlantic to the combined company on n pro fonna basis in tcnns of actual 1997 and estimated 1998, 1999 and ,2000 revenues. comings before interest and taxes ("EBIT"), net income, levered market capitulbmtion (calculated as c,quity market capitalizalion plus net debl) and equity ml1rket capitalization (in each case, before tnking into account any of the expected revenues, expense amI capital e:"tpenditurc synergies beli~ved by GTE and Bell Atlantic to be achievable following the consummation of the merger). Goldman Sachs perfonned this analysis using two different sets of estimates for 1998, 1999 and 2000 revenues. EBIT and net income. In the first case, Goldman 'Sachs used estimates 'of managemeIllsof GTE and Bell Atlantic, respectively. In the second case, Goldman Sachs used median estimates of various Wall Street research analysts. The following table 'compares the pro fomm ownership of GTE shareholders in the combined company with GTE's contribution to each element of this analysis, Pro FomlD Ownerlihlp of GTE Sharrh oldl!rlIln the Combined Com pliny 42.9% GTE Contribution to Combined Compoll)' (Mllnl.l~cml!nl E.~t1mule.~) GTE Contrihutlon 10 Comhlned Company ( Re~l!art.b F.511mlllc5) 43.3% 44,5% 45.4% 45.9% 43.4% 42.5% 43.6% 45!5thl 42. I CJr, 40,8% 41.6% 43,S% 45,3% 44,2% 1997 revenues 1998 estimated revcnues 1999 estirnated,rcvenucs 2000 estimated revenues 1997 EBIT 1998 estimaled EBIT 1999 estimated EBIT 2000 estimated EBlT 1997 net income 1998 estimated net income 1999 cstimnted nct income 2000 cstimated net income Levered mnrkct capitalization Equity markcl capitalization 43.3% 45.2% 46.0% 47.4% 43.4% 43.4% 44.6% 45.7% 42.1% 41.3% 43.2% 43.6% 45.3% 44,2% The following table presents the rangc of implied exchange ralios indicated by this analysis. compared to the exchange rUlio in the merger. RllII~e !If Implied Exchange ltullo5 (l\Iunnltl!lIIent E.5tlmuh:s) Run!:e of Imlllla'd Exchull!:c Rullos (Reseurch J-:~tll1lul~sl Mer~cr Enhunl:e Hulin L14x - 1.43x 1.10". 1.33x 1.22x , ' Public Market Analysis, Goldman Suchs reviewed certain publicly a\'uiluble linancial"opcraling and stock Illnrket infonnution rclming to 'GTE und Bell Atluntic and four other puhlicly-lruded rcgionul , tdcconuuunicutions companies: Ameritech Corporation, BcllSoulh Corporation, SHC ComlllU1licutillllS Inc. und 1-31 , ',:,(,:,f"f~;/;-,:'T ;~~:~~::-;-,c:-. , ' " }~;~!ri" ',", ""', " ", ' " ',',:> ':i," ";: .," . :" ,\~ 'r~ . . .: ~/ . : ~ . ~~"J:' , . .' . ~ ~ . . -. . :. ' . '. ' , !~';\t,:I,':<,..:,',)t'I',,:"'\'<~': ,," '" r "': ", ' \t '~'::/~' .. ,'. ! .: ,I I i" . .'Y:"',:i.;:;;,:'/,}, ,;,~::'!~,:,>:::..~:.':,,"':.' ':,':'1;' ,':,,",":'" ~"':'\"'" ' " t I " , . :,;.' .;,:;r,'~:;,::",:.!" ' " ":"l'~i, " t;:~:;:., : ';', "':,' ~:::'::' ',:, " ' " ,"', '~'" p'. ': ,'.', ' " ',l'~" ..",'.'!~f'_' ."< ". ',::",'}. /" ;~.:.~,..'.' "j", " >/l":, ~ .'\ 'J' <..~~~. !..~:L {: '; {:.."j d\ ;i".,\;; :"~"::::'''';;'' , ' ' .. ," ,,',',' V....)~~>9.~"u;.~,. .j:,':E" ~"'~\"~"~~~}Al~:}"'~\'~ . ': ;. /. ~ '; I' ,;, ~ . J-. ,~: . . tt-\~'.;t.:~' ".' : ,~)' "";.l'.~r::~L~':!.~~1Lij~-,:.i:'-:""':':I~~.~:~~1 . ......;..J.......,.....:~~'.::...,.~....... ,\,~.., ". .. ' I J.'~ ". ; : t' ~ . .' " " \,j I ' ", I . I' . ~ ): ,,' :, " , " ", ., ~ ..~, ~ ."",, '''. .'" >.l .. ~ .....", ~. _ ....-/1"1.... .. .." . " " , ' ; II,: .' 'I' . .",. "" : f": ~; , " . , " ,US~We~IInc.'Y'c, will refer to lhcsccompanics, cotleclive~y; us Ule "Regional Bell HqldingCompanics:' 'The following ta~le presents the ranges',llnd m~dians indiCated for the Rcgionlll,Bell:Holding C~mpani~'1 of: ' ' (t)' ,~~l\iples ?f stock I;ricc' as of juiy' 24, 1998,.t~ e~ch oftatest i.\v~~~C ~o:nths 'earnings per sh~rc, nnd !; ; :,,' ;.'; ,~sti~n,t~d J ~,~8, an( 1999 eumings per share (s,uch niul,tiples of sl~c~ prices to, carnings per shure ., ,,' ..', amountS, "PriccJEamings Multiples"); , ' , ,,' ( , " " ." '. .," l <. , ; . I, ~:" ': ' c' , I : ~ T '. ' . , . . . ~',. ~ '. . , . . . . , , (2) "rriuJtip'les of levered value (calcululCd us ~uiW market capitalization 'plus net dcbt) 10 each of latcst " twelve months revenues, latest twelve mOnlhs earnings before intcre~t, taxes, depreciation and :, wnortization ("EBITON') and latest twelve months EBIT; , ,i', , ' , I ~ ~ . .i:,> ,. :. ~., . :r;:~: , ./.... ~'!. "~ ',' , '. " '.~. ~ , (3) , dividend yield; " . t'.. . ", ,(4) dividend paY9ut; ". , , " '(5) , 'projected" five )'C:ir earnings per share compound annual growth rate (based on IIBIEIS International," Ine: ("lBES") estiOlllles); and' .. , ' " I' J' .J l . " ((;) "the rati~ C?fthe,J998 PncC!Euffiings Multiplc,to live year earnings per shrn:c growth. "( , It~gloilDl Bell ' ,HoldIng Companies . " lieU Range ' 'Median Atlanlk GTE 21,2:t-23.7x 22Ax, 17.7x 20.2x 18.9x-21.8x 21.0x 16.6:t 18,9x 17.3x-19.9x 18.9x 15.1x 16.7x J.OK:- 4.1 X 3.7x :l.Ox 3.2x 6.8x-1 0.1 X 8.4x 7,Ox 8.0x 12.4x..16.6x 14Ax 12.3x 13.5x. 2.1 %. 4.00/(.' 2.3% 3.4% 3.2% 46.0%-84.8% 51.2% 60.4% 65.4% 6'()%-10.0% 9.0%, 8.0% 9.0% 2.0x- 3.2x 2.4x 2,lx 2.lx '" . ", . , Multiples ()f Slock Price as of July 24, 1998 10: Latest twelve months earnings per share' '. . . . . . . . . . . . , Estimated 1998 earnings per shar~' . . . . . : .',... . . . . . . . . 'Estimated J 999 enrnings per shnre ...............'.. .\lultiples of Levered, Vallie ~. of July' 24, J 998 to: Latest twelve lTlonths revenues. . . . . . . . . . ..... . . . . : '. . Latest twelvemonths EBITDA . . . . . . . . . . . . .'. . . . . . . Latest twelve months EBIT ...................... 'r'- Dividend yield ..........'......................... Dividend payout . . . . . . . . . . . . '. . . . . . . . . . . . , . . . . , . . . . Projec(ed five.year earnings per share compound annual growth rate ..:,......... Ratio of 1998 PricclE:irnings Multiple 10 five-year earnings per share growth , . . . . . . . . . . . ... . . . . , . . . . . . . . . . . . . . . . Projected earnings per shore nnd compound unnunl growth rate were based on IBES estimates, Projected revenues, EBITDA und EBIT were based on median estimates of various Wall Street research nnalysts. ' 1-32 c '" r\~ .~", . ~ .' .;: " . ~ 'f'" ~'I~ ", i~ " , '; , , ,j, ,':. . , I ,c,", ,\ .~< . ,'. ~'. -'j fi ,I ! , f I I' ')" ,( , , 'f f' J'~ ., , \ i> " , (,:,J ". ., . '3'~1~~;:::::: 'r" ::j;::',': ;,',; .' ,;, :':' .,'. ,::" '. i!~/iiij",'?\,.' ' ..'. ';; ,'.; " 'd,: ..', . . " '.', ",,'; '.'.',,',".:;,... ..," ,.:~J"~~' :\~{C:':~,";: ,i,' :;..'~:::~;,',:,:, ',':, .' . :;'>(~'.l, \"i" _ .':. . . .' , . :.~ I" . '. , ,e, " ': ~ . . . "', ::1 j' r~ ~ .. .. _'l/~,'~, .'I'.~I' . I .~ . '!...\ ,':':',~;: ",: >" . r.... ..... ,i ~. !.\' ( i ; . " ~. . . > :' " ". "I' ,',. .' i.. I" "d?,~.~ ....", .'..~fjt~,~~~:O\~\1~1,~I.abA'".r,' "" -:' ", ~. , " . 1,.\ t"'" t'~. "n '>l ~J.....$~I'~\I"'r......; ~::': f~;(14....:~k.''''...-c....'. i."..... .,'" .~..: . I' I . . i.J.'~ !;L ,,,", '!,' ..~.l::.l"'~4.f)~r~~,5..~+/"t}. ..:.~fU~J~...~~(;.lt...:h~!!'j"'t~,.!,~~)~..:J'(O~.:r~."1t~...!i'~.'~~~t:.;'{'/:v.~. .:>~(. ti/.>I ~.....:',. . .' i' j '" I. . ~ >. , .;;..} > , . ~-. . '/. ,,~'; l" ,j t~. \:. . . l" ., ... ~, " .", " ~. . ; " , " " , , " I " 'I i' , : , ' , " . } . ~h I . . ~.. ' . r'i': , r" ',; , ' ,',~ 't~~1fl~ ,I' Tc/c~ : "Strip "'Analysis.: Based on publicly available infomlation, Goldman Sachs cnlcuhlted thi: levered vulue' (calculated as market equity value plus nct debt) for the, telecommimicutions segments of Bell Atlantic,.,: GTE and each,'ofthe Regional 'Bell Holding Coinp:mies by subtrncting from the levered value (based on stock', prices as of July '24, 1998) ,or each of such companies the levered vulue of their respective domesti~ wircles~1 intenlutional, directory/cubic and other operations. Goldman Sachs'then perfonned various analyses bused on 'such levered values und other publicly available infonnation. The following table presents the levered values calcuJalcd for the 1~lccommunic:llions segments of Bel) Atlantic and GTE and the range of such levered vnlues : , for tbe Regional Bell, Holding Companies together with the runges Ilnd medians of the multiple's of such levered value to each of lutest. twelve month.. revenues, lalesltwc1ve montlm EBITDA, latest twelve months EBIT and number of ahcess lines. ' , / ' , e " , , . l.c~ered' vulue of telecommunicutions segme~l (hi bHlions) . . . . . . , Multiples of levered value of telecommunicalions segment to: 'Lalcstt\velvc months revenues. . : , . . . . .. . . . : . . . . . . , . . . . Latest lwei ve months EBlTDA . . . . .. .'. . . . : . ; . . . . . , . . , . Estimated 1998 BBIT. . ; . . . . . . . . . , '. . . . . . . . . . . . . . . . . Number of access lines .'.....'...,...............;.. RrGlonid Dell Holdln~ Compnnh.'S , Uell Range Median A UnnUe GTE , $31.7-$62.8 $56.2 ' $45;6 3.0x-3.7x 3.3x 2.3x 3.7x , ! 6.8x-8.5x ' 7,2x 5.4x 8.0x 12:lx-14.2x l2.6x. 10.1."( 12.8x SI,868-$2,185 $2,()O6 $1,441 $2,079 :.:,~-t,"'_''''\ ~4.~' . , . \.., c. Historical exClumge Ratio Analysis, Goldman 511Chs ulso reviewed the relationship betwcen'the daily closing prices of Bell Atlantic common stock und GTE common stock during the period from July 24, 1997 through July 24. 1998 and the implied historicnl exchange ratios detennined by 'dividing the price per share of GTE conlmon stock by the price per si. "re of Bell Atlantic common stock over such period. , \, The following table cqmpares the exchange ratio with the high, low and average of such historical exchange ratios, , , , " HIgh Hlstorlcnl Low IlIslorlcul 'A nruRc Historical Merger , E~rhan~t RatJo ' EXt'bun~e Rull" Exchun.lle RnlJo E.uhanllc Rullll 1.335x 1.053x 1.189x 1.220x Selected TrmlSClct;ollS Analysis. Goldman Sachs ulso analyzed certain publicly availnble financial. operaling nnd stock market infonnnlion for the merger and far three selected merger or acquisition lransu.;:tions in the telecommunications industry (Bell AtlunticfNYNEX. SBCfPacific Telesis Group nnd SBCfAmcrilcch). 'I , , \..) 1.33 .:'. t" " -------------------- :}'.r :.~. .~.. . ; '; :.". :.~ "i ....:~.:'.~<::,:.. I - .~. , .. , . . ,I ~. \, .!~. " lc" < ..,. , ',' ~ I. . . . .0 . . I ',' ,~ ~ I 1 .: '. ~. ,. "I, >. >"': .',... II ,. . " : ~ ':} . ~ ,'I'. I ,;' . ~ " , , " ' " "I I. " '.1 ~ '. ,> ,', .1, :"V:"~~ ':: w: \. ~. y.:, .~; (:~' ; ~ ;~~.;~' (:' '~J'l~ 'C~~.'~~j i~~':" i.,," ~. '.: In cach'case, the stockholders of the second-named company received stock of the tirst.namcd company in the relcvwlt transaction. TIlC following table compares information derived by Goldrnun Sachs ,with respect 10 the mergcr and each of these seleCted transactions. . '--... \ SUCI lIell Atlanllc:J Pllclllc snCl Dell ^ thmtlr/ , . NYNEX Tch.'!iL9 Amcrllcch GTE . PricclEamings Multiple of second co~npany on date hnrnediately , , prior to nnnoun~cment of the trans'action. . . . . . . . : . . . . . . . . 14.9x MlIltipleof implied purchase price to earning.s per share' at time of announcement of the,tr.1nsaction .................... 14.0;<. I 1.1 x 18.9x 18,9x 15.4;<. 24.3x 18.0x ; j' I' I. PricelEarni~gs Multiple of first company at time of announcement ofthe~nsaction,. . . '. . . . . . . . . . . . . . . . . . . . Premium (discount) of multiple of the implied purchase price to eamings per,share at the time of announcement to first' company's, PriceJEnmings Multiple ...........:........ Percentage of current year net income contributed by second " company to the combined company . . . . . . . . . . . . . . . . . . . . pro'fonnn ow~e'fship of shareholders of sccond company in , combined c~mpany . . . . .. " . . . . . . . . .'. . . . . . . . . . . . . . . . . Predicted exchange ratio based on contribution of second , company to,lBES estimates of full year net inc(.Jme of cOlnbined com~any . . . '. .. .,..........,............. Premium (discount) of nctual exchange ralio to predicted cxctmnge ratio based on contribution to net income. . . . . . . . . 15.5x 15.3x 20.9x 16,6x (9.4)% 0,5% 15.9% 8.4% " 45.4 % 33.9% 40.5% 42.6% 43.1 %, 34.()% 44.1 % 42.9% 0.845 0,731 1.136 1.203 (9.1)% 0.3% 15.8% 1.4% Goldman'Sl1chs also aml;lyzed certain publicly available finuncial, operating and slock market information for the following twelve selected merger or acquisition transactions in the local telecommunications industry since 1993: SBC/Ameritech, SaC/SoUlhern New England Telecommunications Corporation, Century Telephone Enterprises, Inc./Pacitic Telecom. Inc., McLeodUSA Incorporated/Consolidated Communications. Inc., Dell AtlanticlNYNEX, SBC/PucTel. Citizens Utilities Compllny/ALL TEL Corporation (telephone operations), PacifiCorplPncific Telecom, Inc., PacifiCorplUS West Communicalions, Inc. (1994), PacifiCorp/US West Communications, Inc. (1993), Citizens Utilities Company/GTE (telephone operations) and ALL TEL Corporation/GTE (G~orgia telephone properties). ' . . . , , "; .'J.I The following table presents the ranges, means and medians indicUlcd for these transactions. RanJ:c :'th'lIl1 i\lcdian Ratio of levered value to latest twelve months revenues ..........,.. , , ,Rutio of levered value to latest twdve months EBlTDA . . . . , . . , , , . , , . . I,7x-4.3x 5.7x-9,9x 2.8x 7.9x 2.8x 7.6x Pro Furma Allalysis. Assuming a June 1999 closing and 10lal pre-lax s)'nergies of $641 million and $ 1.2 billion in years 2000 and 2001, respectively, ~lS estimated by GTE and Bell, Atlantic management, Goldman Sachs analyzed the effect of the merger on earnings per :;hal'e from the perspective of both GTE and Bell Atlnntic sharcholdeTli under different sets of assumptions. Assuming that lhe merger qualilics for pooling of interests accounting trealIllenl, and based on Illanugement cumings per shure projections for each of GTE and Bell Atlantic, respectively, Goldman Sachs cstimated that the mcrger would be (u) dilutive to carnings per share for GTE shareholders by 0.4% in :moo and accretive by 3.7% in 200 I llnd (b) accretive to earnings pcr shute for Bell Atlantic shareholdcrs by 8.1 % uml 9.7% in 2000 and 200 I, respecth'ely. Assuming thut the merger qualifies for pooling of intcrests accounting treatment, and buscd on median earnings per shure estimates of various Wall Street research analysts for each of GTE and Bell Atlantic. Goldmun Sachs cSlilllatcd 1-34 \"",-;..;,' \. '~ .. . .j~',:.~:. ~~.. . .. ,J .: \ '! ~.'. '.'~ ~.. ,J " ,,' "'l ; , . j j' I < c" i ~ , I ~, . ! ".! <' .; '" ;J. .... '. . c ,,' , , " , ,I, ~ I " I ."" '> .. .>. ,'., '" . . 1 , .' \~..c " , 'f, ' ~~ .~~~,,:\~,-.: ''',:,',< :, .."L!...~ :,/:,f'; ~,)r~'i,,~:, f,,~,~'~~~ '. ~~.., ~.~r", I,h,',' .J ;~:.J, . , ~ _ T"~,:::~::", ly..-~\"rj.~f',~<~~ 'I""~'.'" '/.' ~ :~,. '.: i";.' . ~ I' ',0 t;~IJ'. , ~ .. '~tt") ',(' , ~\~"JI , "~( that Ule merger would be (a) nccrelive to camings per share for GTE shareholdcrs by 2.3% nnd 1.2% in 2000 and 2001. respectively and (b) accrctive to earnings per share for Bell Atlantic shareholders by 6.1 % and 13.0%'1n 2000 nnd,2001, tcsl'ccti~cly. ,', , , '" " ' ' " 'Anllly~i:t of Present Value of FUltl"~ Slock Price. Assuming lhe mcrg~r qualifies for pooling o~ intc'rc..is nccounting ticut~ent rind is consummatcd in June of'1999, Goldman Sachs compared. ut discount rutes of ' 9.0%, 10.0% and t LO%: ' , , ' , . ", ' ':, ' (n) the present value (liS of June 30. 1998) of a share of GTE common stuck based on: " , : ',.' " (I) hypothetical future stock prices as of Dec~rnber 31. 200 I; calculated by multiplying either (x) 'estimated earnings, per share in 2002 by assumed one-year forward Price/Earnings Multiples of 15.0x, , 17.0x and 19.0x or (y) estimated EBITDA in 2002 by asslImed onc-year forward ~BITDA multiples , of 6.5x; 7.51. and 8.5x and (2) the.illletvening quarterly dividends from the, third quarter of 1998 to the fourth quarter of 200 I (assuming no dividend growth). with (b) the present value (as of June 30. 1998) to GTE shareholder,;, adjusted to reflect the exchungc mtio nnd to n'ccount for the assumed closing date, of a share of stock in the combined company (both with and without expectcd revenue, expense and capital expenditure synergies believed by GTE and Bell Atlanlic'lo,be achi~vable following consummation of the merger) based on: (I) hypothetical future stock price!; as of December 31, 2001. citlculatcd,by multiplying either (x) estimated earnings per shure in 2002 by assumed onc-year forward PricelEamhlgs Multiples of 15.0x. 17.0x and 19.0x or (y) estimated EBITDA in 2002 by assllmed one-year forward EBlTDA multiples of 6.5x, 7.5x and 8.5x and ,", ' (2) the intervening quarterly dividends from the third quarter of 1998 to the fourth quarter of 200 I (assuming annual dividend growth of 3.0% from Bell Atlantic's mo!.t recent quarterly di,vidcnd und adjustcd to reflect the exchange rcttio and to t1ccount for the assumed closing dmc), The' foIlowing table presents the ranges of prescnl ~t1lues for the GTE comlnon stock and stock in the combined company (both with and .withoul synergies) derived by Goldman Sachs based 01\ describ'cd ' assumptions. As.~umptlonS , Managcment )'t:ar 2002 c3mings per share estimates Median Wall Streel year 2002 carnings per share estimates. . Management'year 2002 EBITDA muhiples .......,..... Median Walt Street year 2002 EBITDA multiples ...,..., nlln~c ur V IdUl'!i CUnlhln~d ComlJan)' Stock GTE Wlthuut With Commun Stui:k S)'nCrAlcs' S)'nl:r~lcs $61.88-$81.74 $53.70-$70.70 $62.72-$89.50 556.02-580.0 I 567! 18.$88.89 $58.70-577.45 566.55-$94.83 SS9.63-$85.()4 $63,22-$83.61 $58.38-$77.08 567.29-$96.78 $56.26-$80.9H A'U11ysis (/f Various Price,\'. Bused upon lhe exchange ratio and using a range of market prices per share for Bell Atlantic common stock from $43.0010 $48.00. Goldman Sadls deri\'cd the ranges pre~ented in the' following table and compared slIch ranges with the implied values for GTE in the merger based all thc $45.19 closing price per share of Bell Atlantic common stock on July 2.~, 1998. Runl~e As~umlll~ Hell ,\ttunl!l: PriCl':. rrntn S43.01l.S4H.OO Implied Vulue Ul\.~rd till S4S.19 licit ;\Iluntlc Gus/n!! (>rlre Implied purchase price per GTE share . . . . . . . . . . . . . . . . . , . , . .'. , Implied equity vulue of GTE on July 24. 1998 . . . . . . . . . . . . . . . . . 'Implied dollar value of celllit)' premium (discount) of ilggrcgale mergcr considemtioll based Oil implied equity value . . . . . . . . . , . Implied percentage-equity prclllium (discuunt) b~'sed on GTE closing price of $57.94 on July 24,1998 ...............,...,...,. 552.46.$58.56 $55.13, , $51.1-$57.1 billion $53.7 billion $(5.3)-$0.6 billion $(2.7) billion (9,5 )%-1.1 % (4.8)% 1-35 \ It .' <~, ! ' ~,{, .i, '.~. C ,. '; I' IC,. ;' ',' '-.. .' " ': I I.., ,. " ,I '. . . , ' . . I ~ : , , .:",,'. f,. , II-~.;,' , ~ ,~1.-::, ,..............: ,. Analysis at Various Pricl!s-Multil'le Comparison. 'Based on the exchange ratio nod using n range of ': markct'prices per share for Bell Atlantic .common stock from $43.00 to $48.00. Goldman Sachs derived ranges of multiples of the implied value of the merger considemtion to actual 1997 GTE revenues, EBll'DA. EBlT and cstimtl'tcdl998 nnd 1999 GTE revenues. EBITDA. EBIT and net income. In each case, projcctcd'rcvcnues, EBITDA, EBIT'and nctincoinc were ba~ed on median estimates of various Wall Street research analysts: 111e folloWing table compares su'ch ranges with the indiCated multiples b~sed on the $45.19 per share closing p'rice ~f Bell Atlantic common stock on July 24, 1998. " Multiple of Implied Value of Merger COllsideralioll 10: . '1997 actual GTE revenues ...'. '. . . . .'.'. . . . . . . . . . . . . . . . . . . . . . . 1998 estimated GTE revenues. . . . . . . . . . . . . . . . . . . : .. . . . . . . . . . .' 1 ~99 estimated GTE revenues " !,' . . '. . . . . . . . . . . . . . . . . . . . . . . . . . 1997 actual GTE EanOA.. . . ',' . . . . .. .. . . . ..... ','" .. . . .. . 1998 estimated GTE EBITDA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .'. 1999 cstim~Ued GTE EBITDA. . . . . . . .. . . . . . . . . . . . . . . . . . . . . , . 1997 actual GTE EB IT . '. . . . . . . . . . . . . .. . . . . . . . . . . . . . . . , . . . . 199~ esriniatedGTE EBIT . . . . . . . . . . .,.': . . . . . . . . . . . . . . . . . .'.'. 1999 estimated GTE EB IT . . . . . . . . . . . . . . . . . . . . : . . . . . . . . . . . . '1997 actual GTE riet income. . . . . . .'. '. . . . . . . .. . '. . . . . . . . . . . . . . 1998 estimated GTE net income . . . . . , . . . . . . . . . . . . . . . . . . . . . . . 1999 estimated GTE nct income. . . . . .; . . . . . , . . . . . . . . . . . . . . . . ,....~J Range Assl1mlng Dell, Atlanllc Prices fro," $43.00 .$48.00 ' Implied Value BlIsed on $45.t9 Brll Atlnntlr. Closlnl{ Price 3.0x- 3.3x 2,8x- 3.0x 2.6x- 2.8x 7.4x- 8.lx' 7.2x- 7.8x 6.5x- 7.1x 12.6x-13.6x J2.0x-13.1x 10.7x~1 t.6x IS.3x-20.4x . 17 .3x~ 19.3x 1 5.3x- t 7.0x " C.! 3. Ix 2.9x 2.7x 7.7x 7.4x 6.8x 13.0x 12.5x ll.lx 19.1x IB.2x 16.0x GTE Segment Allalysis. Using Goldman Sachs research estimates of 1998 EfJITDA and rouges of multiples for each of GTE's various business segmcnls (domestic telecommunications operalions. domeslic cellular, directory/publishing and Canadian telecommunications operations), and after subtracting net debl, Goldman Sachs calculated a range of implied equity value for GTE of S5~.2 billion to $64.8 billion (or $55.58 to $66.45 per share of GTE common stock based on the approximately 975 million diluted shares outstanding as of July 24. 1998). Goldman Sachs noted that this range represented a discount of 4.1 % to a premium of 14.7% to the closing price of GTE common stock on July 24, 1998. ,Bell Arlcmtic Segment Analysis. Using Goldman Sachs r~search estimates of 1998 EBlTOA and ranges of J11ul1iples for Bell Atlantic's telecommunications operations and non-telecommunications operations segmcnts. and after subtructing net debt. Goldman Sachs calculated a range of implied equity value for Belt Atlantic of $85.5 billion to S99,3 billion (or $54. J 8 to $62.90 pcr shan.~ of Bell Allantic common slock based on the approximately 1,578 million diluted shares outstanding as of July 24, 1998). Goldman Sachs noted that this r:mgc represented a prcmium of 25.4% to 45.7% 10 Ihe closing price of Bell Atlantic common stock on July 24, 1998. The preparation of a fairness opinion is a complex process involving various delerminalions as to the mosl approprhue and relevant methods of tinandal analysis and Ihe application of these method.Ii to the particular circumstances and. therefore, is nOI necessarily susceplible 10 partial analy!ois or summary descriplion. Selecting portions of the analyses or of the summary sel forth above, wilhou! considering the analyses as a whole, could create an incomplete view of the piocesscs underlying Goldman Sachs' opinion. In arriving at its fairness dctcmlination, Goldman Sachs considered the resules of all such U1mlyses and did not attribute nny particular weight to any factor or analysis considered by it; rathcr, Goldman Sal'hs !nade its determination as to fairness on the basis of its cxperience and professional judgment after considering the results of all such analyses, In addition; in performing its analyses. Goldman Sachs made numerous tlssumptions with rcspcclto industry perfomlanc.:e. general business, economic. market and financial conditions nnd other maners. No company Of transaction used in the above analyses as u comparison is directly comparable to Belt Atlantic or GTE or the 1~36 i ~_ ~,;I(S" -- -~ . _~t . :.~ i ~:' f..~,'.' c c ',' . ~ . ; .;', ;", )' . ,,-:.. " .\ . '!. , '\ .", . ~' I ;, "\ , , : \". 'i. I, , ; >.:',"",:::" , '/'/::~-~Y;;}:~~i~$r.~'~(::;;;'\,;',:,~:"-\",, ",j',:r,U::'.. ,,;,..- ,,:;,~ ", l. (~ :,.~~) \-....) .' <,." . . contemplated transaction. The analyses were prepared solely for purposes of Goldman Sach~ providing its' opinion to.the GTE Board of Directors as to the fairness of the exchange ratio and do not purport to be apprnisuls or necessarily reflect the' prices Ilt which businesses or, securities actually may be sold. Analyses bused upon forecasL') of future results are not necessarily indicative of actual future results, which may be significantly more.or less favorable than suggested by such analyses, Because such unalyses arc inherently subject, to uncertainty. bein8 based upon numerous factors or events bt:yond the control of the parties or their respective advisors, none of GTE, Bell Atlantic, Goldman Sachs or !lny other person assumes responsibility if future results are materially different from those forecast. As described. above, thc opinion of Goldman Sachs to , the GTE Board of Directors was among many factors taken into consideration by thc GTE Board of Directors in making its detemtination to approve the rnt.!rger agreement. Opinion and Analjsi~ olSa/oman Smitll Bflrney In connection with rendering its opinion. Salomon Smith Burney reviewed and anaIY7.cd, among other things, the following: , · n draft of the inerger agrcement~ · certain publicly available infommlion with respect to GTE and Bell Atlantic; and ~ t. .., " . . · ccrtninother financinl,infonnation with respect to GTE nnd Bell Atlantic, including financial forecasts (including both companies' estimates of thc synergies expected to be derived from thc proposed business combination), that were provided to Salomon Smith Bamey by GTE and Bell Atlantic, respectively. ' , ' Salomon Smith Barney also met with certain officers and employees of GTE and Bcll Atlantic to discuss the past and current business operations and financial condition of GTE and Bell Atlantic,' includin'g malters relating to'the regulatory approvals required to complete the mergcr. Salomon Smith Barney also considered such other infonnation, financial studies, analyses, investig'ntions and financial. economic and market criteria that it deemed rd...vant. In its review and analysis and in arriving tit its opinion, Salomon Smith Bamcy assumed and relied upon the accumcy and completeness of all of the financial and other information (including infomlUtion rclating to tIle regulatory approvals required to complete the merger) providcd to it or publicly available and did not assume any responsibility for independent verification of any of such infonnation. With respect to thc financial forecasts of GTE and Bell Atlantic (including both companies' estimales of the syncrgies expected 10 be derived from the proposed business combination), Salomon Smith Barney as!'umed that they had been reasonably pr~pared on bases reflecting the best then-available estimatcs and judgmcnls of rhe rcspeclive mmwgements of GTE and Bell Atlantic as to the fUlUre financial performance of GTE and Bell Atlantic (including'such synergies). respectively, Salomon Smith Barney expres!.cd no view with reSpe(~tlO such forecasts or the assumptions on which lhey were based, Salomon Smith Barney further assumed that the mcrger agreement, when executed and delivcred. would not contain any terms or conditions that differed materially from the draft which Salomon Smith Barney rcviewed, that the mergcr would bc completed in accordance with the tenns of the merger agreement and that obtaining the necessary regulatory approvals for thc merger would not have u material adverse effect on GTE or Bcll Atlantic or on the anticipated benefits of the proposed busincss combination, Salomon Smith Bainey did not assum~ uny responsibility for making any independent cvaluatiolls or appraisals of any of thc assets (including properties ami facilities) or liabilities of GTE or Bell Atlantic. Salomon Smith Barney was not asketlto, and did not. solicit other proposals to acquire or merge with GTE. Salomon Smirh Barney assumed lhal lhe.' merger would qWllif)' as tI "IlIX frec" reurganization fnr federal income tax purposcs. Salomon Smith Barney is an intemalionally recognizcu investment banking firm that provides Iinancial scrvices in connection with a wide range of busincfis transactions. As part of ils business. Salomon Smilh Burney regularly engagcs in the valuation of companies and their securities in connection with mergers and 1-37 - - , ..:. -. . . ~. . ~! . ", :,1 " . " ," '/ ,I , ' iF' .' './ ~~'~"~f.. ,.r. ," ...:: ~,.....,.... 1.t',;,~"':;i$~:~\,,.. ,acquisitions, negotiated undcrwrilings, competitive biddings. secondary distributions of listed llod unliMed securities, and private placements and for other purposes. In the past, Sill oman Smith Burney has rendered certain invclitment banking and financial advisory 1>crvices to each of GTE and Bell Atlantic for which Salumon Smith Barney received cu!;tomary compensation. In addition, in the ordinary course of its business, Salomon Smith Barney and its current and future affiliates (including Citigroup Inc.) may actively trade the scr.urities of GTE and Bell Atlantic for its ow'n account and the accounts of its customers and, accordingly, may at any time hold (\ long or short positions in such securities. Salomon Smith Barney and its current and future affiliates (including Citigroup Inc.) may have Olher business relationships with GTE, Bell Atlantic and their respective affiliates. -----, The following is a summary of the material financial ;lI\alys'es us~d by Salomon Smith Ibrney in arriving at its opinion llnd docs not purport to be It complete description of the analyses performcd by Salomon Smilh Bumcy. The following quantitative information. (0 thc extentlt is bnsed on market data, is based on market ' data as it exis~cd lit or about 'July 24. 1998 and is not necessarily indicative of current market conditio'ns. Renders should understand thalthe order of analyses, and the results derived from thcse analyses described below do not represent relative importance or weight given to these analyses by Salomon Smith Barney. The summary of the financial analyses includes infonnation presented in tubular fonnut. In order to understand fully the "Olindal nnalyses'used hy Salomon Smith Bamey, these tubles must be read together \dth the text of each summary. The tahles alone do not describe completely the financial anlllyscs. Historical Exc/umgl.' RlItio AtwlYJi,f. Salomon Smith Barney also reviewed the relationship between the daily dosing prices of GTE common stock ~md Bell Atlantic common stock during the period from July 24, 1997 through July 24. 1998 .\Od the implied historical exchange ratios dctennincd by dividing the price per share of GTE common stock by the price per share of Bell Atlantic common stock over ~uch period. The following tuble compares ~hc mergcr exchange r.t{io with lhe high, low and average of such historical exchange rmios. , .". Historical Stock Price Peiformalll:e. Salomon Smith Barney reviewed the relationship between movements in the closing prices of GTE common stock and Bell Atlantic common slack with un index of the Regional Bell Holding Companies and the Standard & Poor's 400 Composite Index for the period from Jnnuary 2. 1997 through July 24. 1998, the trading volume and price history of GTE common stock for the period from January 2, 1997 through July 24, 1998 and the trading volume and price history of Bell Atlantic common stock for the period from January 2, 1997 through July 24, 1998. Ull:h H1sto rkld 1.(1\4' 1ll5Iorl,'ul ,\\'t'rllgc Hbtorkul :\1 I:'ruer ' F.Xcllllnl:C Rutlo Exchan\p'c Rullo E).chllnlle RAllo Exdulni:c Rallo 1.335x 1.053x 1.189x 1.220x , Ccmtribtttiofl AnaIYl';s. Salomon Smith Barney reviewed lhe relative contributions of each of GTE and Bell Alhmlic 10 the combined company. The following Ulblc displays GTE's relative contribution to the combined company's m:tual 1997 and estimated 2000 revenues, EBITDA, and net income as well as lhc combined company's mark!;!t equity valuc (using treasury method accounting and stock prices as of July 24, 1998) and the exchange ratio implied by such relative contributions. Projecled revenues, EBITDA nnd net income were derived from Sulomon Smith Barne)' cquil)' research. Rcvenues . , . . , . . . . . . . . . , , , . , . . , . . , . . . . , . . . . . . , , . . GTE Contribution tu Combined Compuny 21KIO t 997 I' tuJcetl~d ' 43.3% 45.1 % 42.4% 43.7% 42,1 % 44.8% , 44.2% Implied Exchnnll.t Rutin ZOOO 1997 I'rojl:'ctcd 1.15x 1.27x 1.1 Ox 1.18x' 1.181. 1.32 X 1.2Sx EBITDA ...,..,.......,...,.............,....... Net incollle. . , . , , , . . . . . . , , . . . . . . . . . . . . , . . . , . , , . . . . Market equity vulue at July 24, 1998 . , . . . . . . . , . . , . . . . , . . ).38 ,~ .', . \ ' . '. .' ,', .. ," ~ ',: ~." . ',' I . , ,.' .' c'l. , P'I " ! i, , , , " " , . .'1. ' , " , " ,I.> " ~. . 'I .J,'; , ' '.' I .'.' . ~ , "'\,: >,.~},,~~,:{ .'}~l: :~';-" ~ .~1~~'.J,~.{:~..J.::.':... " '." , ' ~ ' ~ ;} I" ~ F ~v I' .. ...... '",J-."...', The following table cmnparcs the range nnd median of implied exchange' mlios based on this contribution unulysis with the exchange ratio in'the merger. ' , Range Dr Implied ExchanRe Rntlos Bawd on Contribution Analyp.t! l.08x - 1.32:0. :\ft-dllln Implied Exchange Rotlo .n~~ Oil Coutribulhm ,\ulllysl, 1.l7x Merger Ellchrllllll! Rollo 1.22x , Comporative PremiunI Analysis. Salomon Smith Barney n()lcd th~[, if the merg.er had closed on July 24, 1998, utilizing the Bell Atlantic closing stock price on July 24, 1998, and assuming the exchange mtio of 1.22, GTE shareholders would have received Bell Atlantic common stock having a market value representing n discount of 4.8% to the GTE common stock July 24, 1998 closing price. Salomon Smith Burney compared this implied discount to the implied premiums/discounts for similar periods prior to public announcement in the following comparublc '.merger of equals" transactions: Narwest COl'porationlWells Fargo & Co., American Home Products COfporutionIMonsanto Company, NlllionsBank Corporation/BankAmcrica Corponltion. Bane One Corporntion/First Chicago NDD Corporation, Travelers Group Inc.lCiticorp, cue International Inc.n-IFS Incorpomted, CSX Corporation/Conmit Inc. nnd Bc.lI,AtlanticlNYNEX (in each transaction, the shareholders of the secolld.named comp'any were to receive shares of the first-named company). Salomon Smith Barney considered these merger of equals transactions to be rca:ionahly similar [0 the merger, but none of Ihese precedents is identical to the merger. TIle following IItblc presents the premiums (discounts) contemplated in the merger and these other Imnsaclions(from the perspective of the shareholders of the second-named company) comparell wilh the previous tniding day Closing price per share. Precedent .'Mtruer lie [lllIl\t5" Trl\n...actllln~ Rnnl!C IIf Premium Mcnn Itremlllm Mcdllln Premium (Dbcountl tll Prior III Prior III Prior Da)' Cll)!;lng PrlCl: Doy Closlnl: Price- Ouy CIII~[l1l!.ltrlce Impllt'd Pfl'mlu nl (Olscounll of Mcrjtcr Consitlcrllllon 10 Closing Price of GTE Common Stock (5.8 )%-29 .4t}'p 6.2% (4,8)% 6.1% Bell Atlalllic St/gmentetl Public Market Analysis. Salomon Smith Barney arrived at a filngc of values for Bell Atlantic by separately ,valuing its local exchung" business segment, domestic cellular segment, domestic pes busines!i segment, and ilS other business segments, including its directory/publishing business nnd international telecommunications investmcnts and aggregating the \'alues dclermined for the various bu!>incss segmcnts. Salomon Smith Barney Ulilizcd a public markel analysis in villuing these busincss segmenls. Public market analysis assesses a segmcnt's operating pcrfonnancc and oullook relative to a group of publicly [radcd peer companies to detennine an implied unaffecled markct trading. valuc. No company uscd in the public market analyses described below is identical to the comparable business segment of Bell Atlantic. Accordingly, an examination of the results of analyses described bclow necessarily involvcs complex conllidcratiuns and judgmenls concerning diffcrences in financial and operating characteristics of the business scgmcnts and other fucts thaI could affect the public lnlding value of the companies 10 which they arc being compared. I. Bell Atlalllic I...lJccll E.rclumge Bllsiw!ss Salomon Smith Barney compared certain finllnciul information of Bell Atlantic's Incal exchangc business wilh two groups of companies [hat Salomon Smith Barney believed [0 be appropriale for comparison. The first group, which Sulomon'Smilh Barney believed \Va!> more closely compumblc to Bell Atlantic'!> local exchange business. was the Rcgional Bell Holding Companies, The second group. which Salomon Smith Barney believed was somewlull It:ss comparublc to Bell Atlantic's local exchange busincss, includcd [he following independent telephone companies: Aliant Communications Inc., ALL TEL Corp., Century Telephonc Emcrprises, Inc" Cincinnati Bell Inc. and Southern New England Telecommunications Corporation. The financial and ,'a/uation dattl for the comparable camp"lllies were adjus\cd by Salomon Smith Burney to estimate the linanchll and valumion characteristics of pure "stripped wireline" IclecO/1lIllUnications companies. Salomon Smith Burney 1-39 ~::~:\::"\ ",: ~/\.~( '\'.:' ..' .... . .. . . L ," I. . , I .' .1", 'r:".'-,"I; ". ;, <'. 1" 'y ". ~ . ":" " , \ . , ., " . .'.< , , /, , , , , , ' ,.' " . ' . !".\ <', I .. , " \'. . !rj:~:; :':.!J:~,; ',', : Oi,":;~::';~,\ib::~i~'*:::;';~'h""~~' ~.,. ~.~... 'I>';' ~ , , " i, reviewed the multiples of firm value to latest twelve months EBlTDA represented by the tntding'prices of Bell Atlanlic, aTE and the Regional Bell Holding Companies as of July 24. 1998, and the comparable multiples for the above-mentioned independent telephone companies. The following table presenls rungcs, mean and median multiples of firm vulue io lalest twelve months EBITDA for a group comprised of GTE, Bell Atlantic and the Regional Ben Holding Companies and for the independent telephone companies. "~"""'l, / 1 Rallo"r Hnn Value to Lat~51 Twrhe :\Iolllhs EUlTDA Adjusted GTE, Dell Atlantic and, Adjluled Independenl Regional Bell Holding Compllnh:s Tt'lephone CompllnlCll Range' MUll Median Rallge MClIn MI.'t!hm 5.4x-B.Sx 7.2x 7.2x 6Ax-9.0x 7.6x. 7.9x , ~ '. Using this information and othe~ factors relevant, in the valuatil)n of Bell Atlantic's local exchange busine!.s; Salomon Smith Barney dctcmtined a valuation range for Bell Atlantic's local exchange business of npproxim~lely $69.6 billion to $74.9 billion. ' 2. Bell At/antic Cel/ular Salomon Smith Barney compared certain financial information of Bell Atlantic's, domestic cellula~ segment with the following group of cellular communications companies that Salomon Smith Ba111cy believed to be appropriate for comparison: AirTouch Communications Inc" Centennial Cellular Corp., UniIcd Slates Cellular Corp., Western Wireless Corporation and Vnnguard Cellular Systems Inc. Salomon Smith Barney reviewed the multiples of firm value 10 actual 1997 EBITDA and estimated 1998 EBITDA (based on selected investment banks' equity research) represented by the lrading prices of these cellular communications' companies. The following table presents -ranges .of mulliplcs of firm value to actual 1997 and estimated 1998 EBITDA for these cellular communications ~ompanies. ltullo ur f'lnn Vulue to Actuaal 1997 EHITllA for Cellulllr Commu\1lrntlolUi Companies Hllllo or Firm Vlllul! to E.~t1muttd t9911 EU1TDA ror Cellul:lr Communlcntlons Compllnies lO.h-14.8x 8:Sx-12.3x Using this infonnation and other factors relevant in the valuation of Bell Atlantic's domestic cellular segment,' such as the relative penetration levels, margins and growlh rules of Bell Atlantic's domestic cellular segment, Salomon Smith Barney dctcnnincd a valuation range for Bell Atlantic's domestic cellular segment of approximately $10,6 billion to $11.7 billion. 3. Bell AI/llfltic PersVllCIl COIIIl/lul/icmiol/s SCIi'ices Salomon Smith Barney compared ccrtain financial infonnation of Bell Atlantic's domc!\tic pcrsonal communications services business (which renccts Bell Atlantic's owncrl>hip slake in PrimeCo), including certain opemting and financial data renecting the relative stage of de\'clopmenl of Bell Atlantic's domestic personal communications services business, with the following group of personal communications scrviccs companies that Salolllon Smith Barney belicvcd to be appropriate for comparison: Aerial Communicatiuns lnc.. Omnipoint Corp.. Powertel Inc., Western Wireless Corpuration and Nextcl Communications Inc. The following table presents the range. mean and median multiples of linn value per potential wircless cUlltomcr for the selected personal communiclllions !\crvices companies. ' Muttlple IIf Firm YlIlUt I'er Pllltnlllll Wlreltss Cu.~lllmtr fur SI'II'Ct~d 11crslInul Cllmll1unlclltlllll~ Stnlcl'S COIIIJlunlcs ~1l'lIn Mtdlull RUIlIlI' (ucludlllll NtJlttll tu:dudlnll NI'Xlcl) $43,8-$70.4 S4H.2 $48.0 1.40 \,<,,;.'1 .. ~~ I . ~ . ,e ,~'.c~~"_" ~,~ "'~ '. " .; .H,;~".,-:~ '~~":'>", \' ~ . I , r , ' ,. , / .~: ' . . :, \'''~l , : I <h~; . ~~'I),:,-, , :?..-{ " \,' 11,/,:" :i~.~,~A. ", I '., " ...' ";:' I C ,'~ . J ."! " ,,, " ,{ :.' ",,. .~:.... . ,- ,II ...-', 1'\., "~", ' ,/);>..! ~{i ....: "J:~, . '.','" C " \ , " I' ) , \ ,~~ " . ':.' , ;;,: 'Y,'/' ':" ~~;""':~;'~~\l:;:f>;'?~\i/i':\!:~::'1'~:':H >, .:;",.,. , r .'. ~ 3""T .... '.t~ l,r.t' T ~ '....... ., i . } .. .,.'7,C; .' ...., "~, . '( ~'J ~ ~. , <':l!}J , Using this information nnd other factors relevant in the valuation of Bell Atlantic's domestic personnl communications services business; such as t~e relative amount of Dell Allnntic personnl communicntions , services spectmm, Salomon Smith Burney detennincd a valUnlion rJngc of Bell AtJantic"s domestic personal comtJ1Uniclllionsscrvices business of approxin1Utely $1.4 billion to $1.7 billion. ' $56.50-$66.50 $53.50-$63.00 Closing "rice or Dell Atlonlh: Common Stock on July 24, 1998 $45,19 , ' , ," 4. Bell Atlantic Other Assets , Salomon Smith Barney compared ~ertain financial infunnation with respect to Dell Atlantic's other businesses .with groups of companle'i that Salomon Smith Barney believed were appropriate for comparison. In addition, Slllomon Smith Barney \'alued certain domeslic and intern:ltional minority investments based on the current trading prices for publicly held securities, and multiples ot' book vulue, invested capital or potential wireless customers for other entities, in each case adjusted 10 relleel Bell Atlantic's percentage ownership. ' , These analyses resulted in n vniuuHon range for Bell Atlantic's other businesses of approximately $19.5 biJIion to $22.1 billion. ' , :'".' '/ " > , ,. ; ,~ ,I U e, ',' " i: i ..~" :; ,~ ';:1 5. Total Bell Atlall/Ie Public Market Va/um/on By combining the stand.alone valuations for Bell Atlantic's lo.::al exchange, domestic cellular, domestic ' persoilul conununications services and other bu'sinesses described above und making certain adjuslments for debt,' preferred securities, cash and cash equivalenl"~ investments (other than those included in Dell Atlantic's other businesses) and option proceeds, Salomon Smith Bnmey derived u reference range for Bell Atlantic's aggreg.lle equity value of approximately $83.0 billion to $92.5 billion, or approximalely $51.00 to $56.50 per share baSed 'on the number of fully diluted 'shUres of Bell Atlantic c?mmon slock:The foregoing analysis docs not reflect the revenue, expense nnd capital expenditure synergies believed by GTE and Bell Atlantic to be achievable following consummation of the merger, which synergies have been analyzed as described below. '.' '::~. < , '1' ~ ' ~:,(, ~~:,-/ ',{oI ~~?f ?;~t ~~~~ 't t"...:~: ' ff:l.~ ......\- ~.;.:, :,f~~~;- ~..-;....;~\' 1ft"~ . ~} . I \1..{ ~.~ :.... '.=t.,' , '1" ~l . F'/r". '~b; \:::':::,- "';"1..;' :~ . i., ~~~~~' . :'.~ ,'., .,,-~c,\: ~ ~" ~ ~f ,i~\:~~\ I ~";", ,. ';i:',~~. ,,;"'\-I ,I "t"- h:;-.~J . '~-, :1 :;:"?" (.,'J' . :!~ ,t","': , .. , " .....; \",,' ,". , ,~ . ~'i ; r-'" D/scouflJed CaJ'h Flow AJJalysis-Bell Atlantic. Salomon Smith Burney perfonued a five year discounted cash flow analysis, based on financial projections prcJvided by the mnnagcmcnt of Bell Atlantic, on the stand- alone unlevered free cash flows of Bell Atlantic to establish l\ range of equity val~es per share for the Bell ' Atluntic common ,~toek. The discounted cash flow was calculated for Bell Atlantic assuming, solely for purposes of this analysis, disCQunt rates ranging from 9.0% 10 I J .0%. Salomon Smith Barney calculated terminal values by applying u range of estimated EBITDA multiples of 6.25x to 8.25x to the projecled EBITDA of Bell Atlanlic in fiscal year 2002. ' , :......._....t :' The following table compares the closing stock price for the Bell Atlantic common stock on July 24, 1998 with the, reference ranges of implied equity value per share of Bell Atlantic common slOck derived by Salomon Smith Banley using both (Junndal projections provided by Bell Atlantic manllgement and median estimates provided by cerUlin investment banks' equity research. Runge of Eqult)' Value Per Hett Atlantic ShUN: DIlSCd on Manngem\:nl ProJ~lIun<l Rlln~c 0' Eqully Value Pel" lIell Allullllr Shure )JBst'fl Equll}' RC'lfOrl'h Estlmnlcs . " 'I"~ . I :,' \~ [-41 , , I I' ,>.;~I' '.'~ " '. ~" ,'10:' " :~. '~ >. ~ " , - , ,"( " ,. .,: " L. , " ",' : , " ,/ ," " , ~I '~" . ~~: .,," , . "" ' .' ~ ~<,:r"",~Jfi"~'L~:~ ""1. ',.<T _ . "'1'1.i;...)>~...!:"......,... '. ~ '. ~ ~ :. . , ' ,:1 , 'Cmi.mliJall!d Public Markel Comparison. Salomon Smith Burney compared the nmgcs and medians of various financial multiples ond statistic:; for the Regional Bell Holding Companies with comparable statistics for Bell Atlantic and GTE. The following table presents the ranges and medians indicatcd' for.thc Regional Bcll Holding Companies of muhiples of stock price as' of July 24, ,1998 to lutest twelve months (as of-March 31', 1998) earnings per shareond estimatcd 1998 and 1999 earnings per sharc (based on First Cull Corporation estimates us of July 20~ 1995) compared with the multiples indicated for Bell Atlantic and GTE. .- , ') Regional lIell , IInldlnl: Companies )Jcll Alhmlic J.rcmlIlDl (DL'iCounl) Valllc to !\led hm GTE Premium (Discount) Vulue to Mcdhm Rangc Mcdlnn Multil'l,e of stoc~ price to: Latcst twelve months camings per share 1998 estimated cumings per share. . .. . . . . 1999 estimated earnings per share. , . . . . . . , 2J.2x-23.7x 18.9x.-21.8x 17.3x.-19.9x 22.4x ' 17.7x 21.0x 16,6x 18.9x 15, Ix (20.8%), 20.2:'( (20.8%) 18.9x (20.1%) 16.7x (9.9%) , (9.9%) (11.8%) " GTE Segmellted Pu~lic: Mmkef Alltlly.ds. Salomon Smith Barney anived at a range of values for <;irE by separatel)' valuing its local exchange busincss segment"domestic cellular scgmcnt. long distance telephone opcratiqns segment, and its other busincss segments, including directory/publishing, datu initiatives, government systems, personal commll~ications services amI international ,investments and aggregating the values detcnnined for the various b!-,siness scgmcnts,Salomol1 Smith Barncy utilized a public marke't analysis in , ,'aluing th~e business segments. No company used in the public market analyses dcscribed below is identical to the compirruble business segment of GTE. Accordingly, an examination of the results of analyses described below necessarily illvolves complex considerations und judgments concerning differe~ces in IinanCial und operating charactcristics of the business segments and other facts that could affect the public trading value of the companies to, which they arc being compared. , ' I. GTE, Local ExclwlIgc ni,sille.\'s Salomon Smith Barney compared certain financial information of GTE's loc.lt exchange business with two groups of companies that Salomon Smith Barney believed to be appropriate for comparison. The lirst group. which Salomon Smith Barney believed was mOTe closely comparable to GTE's locul exchange business was the Rcgional Bell Holding Companies. The second group. which Salomon Smith Barney believed was somewhat less comparable to GTE's local exchange business was the same group of independent telephone companies used with respect to the valuation of Bell Atlantic'!, local exchange business, The financial and valuation data of the comparable companies were adjusted by Salomon Smith Barney 10 estimate the Iinancial and v.lIuution dmrm:leristics of pure "stripped wireline" telecommunications cOlilpanies. Salomon Smith Barney reviewed the multiples of linn vallie to lalest Iwelve months EBITDA represented by the trading price~ , of Bell Atlantic, GTE and the Rcgionlll Bell Holding Companies us of July 24, 1998 und the comparable multiples for the ahnve~melllioned indepcndcnt telephone companies. The following table prescnls ranges, mean and median multiples of firm value to lalest twel\'e months EBITDA for a group comprised of GTE, Bell Atluntic and the Regional Bell Holding Companies and for the independent telephone companies. Kallllllf firm "utuc In l.atcst Twch'c Munths EUlTl>A Adjusled GTE. Hcll Atlantic and Adjustcd Indcllcmlcnl Ih'glonalllclllloldhll: Cumlluulcs TdcJlhullc Cmnpunic!o Ruu!:c MClin ~tedlall Ranjtc ~Ican ~Iclliall 5.4x - 8.5x 7.2x 7.2x 6.4x - 9.0x 7.6x 7.9x Using this infonnation and olher factors relevant in the valuation of GTE':\ Im:al exchange bu:\iness. Salomon Smith Burney determined a valulltion range for GTE's local exchange busiliess of approximlltely $37.3 billion to $43.0 billion. 1-42 , \-'Ie ,'~ ", f<' ~ . /'~;'1~' :~~:....., ~l: ., ,,;<"\1 > ,~ ' . ,. ~ ~ }.'" .' i . I ~. . '! ~ ' ~. .',' .. j, " ' ", " , /' .r'. , , ,',' .1 , I'>' , , " ' .:;~ :~". "I..'l~ II,' .I'::~ . ~~'J w~.\')~ , ' , ' (~ t, r "".1.,.0- ~ ; \ ) ~"'''H'''''''' ~ I, """") ~' , I, ""'....' "...'....~..~...j~~, \+~.. -...... ,: ,~......~"' .^'...'.... . ,~ I~ ~ 2. GTE Cel/lIlar Salomon Smith Bnmey compared certain linandul information of GTE's domestic cellular segment with the same group of cellular communications companies used with respect to the valuation of Bell Atlantic's domestkcellulur segment. Salomon Smith Barney reviewed Ihe muhiples of firm value to actual 1997 EBITDA and estimated 1998 EBITDA (based on selected investment banks' equity research) representcd by the trading prices, of these celhilar comlTl;unications companies. The following table presents ranges of multiples of firm value to actual 1997 and estimated 1998 EBITDA for these cellular r.;ommunicntions companies. Ratio of Finn Value to Actual 1997 EDITDA for Cellular Communications Companl~ Rallo.,f Flml Value to Estimated 19118 EDlTOA fot Cellullll" Communlcllllons Complmlcs 8.5x - 12,3x to.lx - 14.8x Using tillS information and ollier factors relevant in the valuation of GTE's domestic cellular segment, SlJch as the relative penetration levets, margins and growth roUes of GTE's domestic cellular segment, Salomon , SmiUt Bamey detennined,n valuation range for GTE's domestic cellular licgmcnt of approximutcly $8.9 billion, to $9.8 billion., 3. GTE LOllg Distance Salomon Smith Barney compared certain financial information of GTE's long distance operations segmcnt with two groups 'of companics that Salomon Smith Barney believed to be appropriate for comparison. The lirst group. which Salomon Smith Barney believed was more dosely comparable to GTE's long distance operations segment, included AT&T. MC! and Sprint Corporation. The second group. which Salomon Smith Barney , believed was somewhat less comparoble to GTE's 'long distance operatio~s segment, included Frontier Corporation, Qwesl Communications International, Inc. and Tel-Save Holdings Inc. The financial und valuation data for these groups of companies were adjusted by Salomon Smith Barney lo estimate the financial and valuation characteristics of pUle "stripped long distanc:e" telecommunicalions companies. Salomon Smith Barney reviewed the multiples of firm value to latest twelve months EBlTDA represented by the trading prices of the first group of companies as of July 24, 1998, with the compar.lble multiples of the second group of companies. The follo'wing table presents ranges, mean and median mulliples of Iirm value to latcstlwel\'c months EBITDA for both of these groups of companies, Rollo of Firm Value to tatesl T"'eh'c Months EIUTDA AT&T. Mer and Sprint Olher Lnn~ Dlstunce CompnnlCli Ran~e Menn Medlnn RnnAt' Menn Medlnn 6.8x - II Ax 8.4x 6.9x 21.6x . 24.4x 23.{)x 23.0x Using this information and othcr faclors relevant in the valuation of GTE's long distance operations scgment, Salomon Smith Bamey delemlined a valuation range for GTE's long distance operations segment of approximatcly $727.4 million to $969.9 million. 4. GTE Orher Assets Salomon Smith Burney compared certain financial information of certain GTE business segments in North America, including, without limitation, its directory/publishing, data initialives, go\'cmmenl syslems and supply segments and personal communications services operations, with groups of companies that Salomon Smith Burney believed were appropriate for comparison. In addition, Salomon Smilh Barney valued certain dumestic and internalional investments, including, without limitation, investments in CODETEL (Dominican Republic), CANTV (Venezuela), en (Argentina), BC TELECOM, Inc and Lc Groupe QuebecTel and othcr international local exchange, cellular and paging assets, based on other valuation methodologies ulld adjusted to rcllect GTE's percentage ownership. These analyses resulied in a valuation of GTE's othcr ussets ranging from approximately $18.7 billion to $21.4 billion. 1.43 >;- .': , " " .1; I' : I ; ~ . " ~ ~'. ,,' ~~ .... ~ J, ~ . t.' c;l; ': ,~ , . ,. , '\ ,', "~(:';:.\,.t~: I "~ \~.~,.,..'...~..., ... ,".\ 5. r.,tell GTE Pllb{ic Market V"/uat;oll '--. By combining the stand-alone valuations f(lr GTE's local e:\change business, llomestic cellular segment, \ long distance segment and otlier assets llcscrihcd above uml making certain adjustmel1ls for debt. prcfclTcd " securities, cash nnd cash cquivulents, invcstments (other than those included in GTE's othcr assets) and optioll proccells, thi!i analysis resulted in n valuation r'Jnge for GTE's aggregate equity of approximately $47.9 billion to $57.6 bill,ion, or approximately $47.50 to $57.50 per share of GTE common stock based on the number of fully diJulCd shures of GTE common stock. The foregoing nrialysis does not .reflect the revenue, expense nnd capital expenditure synergies l1elievcd by GTE and Bell Atlantic to be achievable following consummation of the mcrger, which synergies have been analyzcd a~ described below. ' '. .., Di.fCOllllled Cash Flow Anal)'sis-GTE. Salomon Smith Barney petfonllcd a five year discounted cash now analysis. based on finanei~t projections provided by the management of GTE, on the stand-alone , unlcvercd f~ec cash nows of GTE to cSlablir.h a range 'of equity value per share of GTE common stock. The discounted cash now was calculated for GTE u!'isuming, solely for purposes of this analysis. discount rates ranging' from 9.0% to I i .0%. Salomon Smith 'Barney calculated terminal values by applying a range of cstimated EBITDA multiples of 6.75x tu 8.75x 10 the projected EBlTDA of GTE in Iisenl YCllr 2002. The following table compares the closing stock price for the GTE common stock on July 24. 1998 with the reFerence mngcs of implied cquiry vulllc p~r !ihure of GTE common slock derived by Salomon Smith Bnmey using ~orh linandal projections provided by GTE management and median estimates provided by certain investment bank's equity. research, Range of Equrty Value I'er GTE Sha~ Blt.<;ed on Manol:ementl'ruJ\octJons Rnn!:e or Eltuity \'itlut' Per GTE Shure nll.~t'd Eqult,. R\'St'urch E,<;lImutes S60.50-$72.50 CtoslnJ: l'rlce or GTE Comm,!" Stuck on Jul)' 24. 1998 $57.94 $63.50-$76,00 . , SYller~ie.\". Salomon Smith Dame); reviewed the synergy estimates provided by the management of GTE prepared after the mun,lgclllent of GTE held discussions and exchanged infonnalion with the management of ' Bell Atlantic. GTE's synergy estimates reflect only the incremental henelits cxpecled by the management of GTE to result from the merger compared to GTE on a stand-alonc basis and include rcvenue, expense and capital expenditure synergies. UTE's synergy cstimates assumed full polential synergies would nol be achieved ul1lil 2003. Salolllon Smith Barney then estimated the present value of the future streams of after-tax cash flows g~ncrntcd by lhose syncrgies, neL of implcmenlalioll costs. by applying discount rules rcflecting, liolely for purposcs of this analysis, a weighted aVCnlgc cost of capilal ranging from 9.0%; 10 tl.Olh> 10 such cush nows through 2004 and by adlling a tenninal value dctennined by projecting a range of nominal perpctual synergy growth rates ranging from I.no/r to 3.0'.1>. This al1alysis resulted in a net present value for the syncrgies of approximately SI 7.7 billion to $:23.1 billion (assuming 100% of th~ synergies ur~ realized). Pro FormCl ElJmillgs Pl'l' Share Impoc/ to /Jell Atlantic. Salnmon Smith Barile)' rcviewed ccnain pro forma linand,,1 effccts of lhc mCQ!.cl' on the estimated earnings per share of Bcll Atlantic, Using both mean First Call cstimates as of July 20, 1999 and munagement earnings per share estimatcs, Salolllon Smith Bamcy compared the earnings per share of Bell Atlantic, on a sland-alone basis assuming the merger was not ' consummatcd, to the estimated earnings per share of Bell Atlantic following consummalion of the merger on a pro fomla basis. Salomon Smith !Jarney's amtlysis gave effect Lo the issuance of shares of Bell Atlnnlic comlllon stock at the exchange ratio and gave effect to revcnue. expense and capital expcnditure synergies but excluded certain costs nccessary to .ichieve Ihosc syncrgies rcferred to above. Based on such analY!iis and assuming the mcrgcr will be uccountcd for under the pooling of interests uccounting method, Salomon Smith Darney detcrmined thatlhe merger would be: (n) accretive to thc earnings per share of Ucll Allantic on a pro forma basis by approximmcly 6.2% in 20{)O and approximately 13.21:;' in 200 I using First Cull earnings pcr share estimales and (b) accretive to the carnings pcr share of Bell Atlantic on a pro forma hasis hy upproximately 8.1 Cia in 2000 unll approximately 9.8% in 200 I using m~nagcment carnings pCI' share estimates. , 1-44 \.'" ,~ .' '1;,-:1 ....110..;.-. ,~~~:' i>:::\. \~ " ; '"; J' '" '.. . ", . ~ '" .( " )" . " .+ " , I > ' " , '" ,', J Jd '-I: " .t > , . ., I ' , " , , " , ",J"" ,',' ;.11 ' , ,," ,>,.., ,,( ""'(jl /~ :.~ "; '1: 't' :"'(;<,}{:'~~,.,.~::'i~'~:';";':~~...~:""!;~;'-~.':'I' '<\L'+~ .~.': ~ ,0 . > ~.. . "I"" ~ I~'. . ".,,:, , .. ~ The preparation of a fairness opinion is a complex. process involYing various dercnnioalions as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances nnd. therefore. is not necessarily susceptible to partial analysis or summary description. Selecting portion:; of. the analyses or of the summa.ry set forth above, 'without considering the Wlalyses as a whole, could create an incomplete view of the processes underlying Salomon Smith Barney's opinion. In arriving at its fairness determination. Salomon Smith Barney considered the resull't of all such analyses and did not atuibUle any particular weight to II:ny factor or analysis considered by it;' rather, SUllJlUOn Smith Barney mnde its, ' detennination' as to fairness on the basis of its experience and professional judgment after considering the results of aU such analyses. In addition. in pcrfonning its analyses, Salomon Smith Bamey made numerous assumptions wiLtj respect to industry perfonnance, general business, economic, market nnd financial conditions . and other matters. No company or transaction used in the above analyses as a comparison is direclly compamble 10 Bell At}:mtjc or GTE or the contemplated transaction. The analyses were prepared solely for purposes of Salomon Smith Barney providing its opinion to the GTE BoanI of Directors as to the fairness of the exchange ratio and do not purport to he appr.1isals or necessarily reflect the prices at which businesses or securities actually may be sold. Analyses ba'icd upon forecasts of future results arc not rlecessnriJy indicative of actual future results,'which may be significantly more or less favorable than suggested by ~uch analyses. Becaus'c such analyses arc inherently subject to uncertainty. being based upon numerous factors or events beyond the control of the parties or their rcspectivc'advisors, none of GTE, Bell Atlantic, Salomon Smith, Barney or any other person assumes responsibility'if future results arc materially different from those forecast. As described above. the opinion of Salomon Smith Barney to the GTE Board of Directors was among mimy (actors taken into consideration by the GTE Board of Directors in making ils dctcnnination to approve the merger, agreement. Fee Arrangements Goldman Sachs. Pursuant In Goldman Sach.... engagement letter. GTE has agreed to pay Goldman Sachs ,> ~~ a fee 10 be mutually agreed upon by GTE nnd Goldman Sachs. but in 110 event less than $7.5 million. in connection with the delivery of Goldman Suchs' opinion to the GTE Board of Directors. Pursuant to Goldman, Sachs' cngagementlcllcr, following the rendering of its opinion. Goldman Sachs shall continue to provide such financial advisory and investment banking services in connection with Ihe merger as GTE and Goldman Sachs shall agree. GTE hus also agreed 10 reimburse Goldman Sachs for its reusonable out.or-pocket expenses, including allorncys' fees. and to indemnify Goldman Sachs against certain liabilities. including certain liabilities under the fcdeml securities laws. ) 1 i -..../ ~~ , Salomon Smith Dame)'. Pursuant to Salomon Smith Barney's eng:lgcmenl leller, GTE has agreed 10 pay Salomon Smith Burney <l fce to be mutullJJy agreed upon by GTE and Salomon Smith Barney. but in' no event less than S7 :Smillion. in connection with the delivery of Salomon Smith Barney's opinion to the GTE BUllrd of Directors. Pursuant to Salomon Smith Barney's engagement letter. following the rendering of its opinion, Salomon Smith Barne)' shall continue 10 pro\'ide such financial advisory and investment banking services ill connection with the merger as GTE and Salomon Smilh Bumey shall asrcc. GTE has also agreed to reimburse Salomon Smith Barney for its reasonable travel and other out-of-pocket cxpenses incurred in connection with its engagement (including the reasonable fees and disbursements of its counsel) and to indemnify Salomon Smith Barney against certain liabilities under the federal securities laws. Michael T. Masin. the Vice Chairman and Presidenl.lnternarional rmd a director of GTE, is a member of the bOilId of directors of Citigroup Inc., the corporate parent of Sulmuon Smith Barney. Opinions of Ben Atlantic's Financial Advisors Bell AtJuntic timmdulud,'isor Bear Steums , Merrill Lynch Locution of their full cminion Appendix H Appendix 1 1-45 ~ ': Ie! .l; '.' ~ c'. ., ,'~ c . ~ : 1 , " , , _.l . , , " . L ':'.>~ ~ l ~ . '~/..\.>~~~:'i ;;.":,>.,.;.. :.'.J,....!" 'Cl,,;~<o: .. .: . Bell Atlantic engnged Bear Steams and Merrill Lynch as its 'financial advisors bused on Bear Steams' and McnillLynch's experience and expcnisc. Bear Steams and Merriil Lynch arc internationally recognized :' investment banking finns thnt have substantial experience in trnnsactions similar to the merger. 1,"he Bell Atlantic financial advisors, a'i pUrt of their investment banking businesses. arc continuously engaged in the valuation of businesses and securities in connection with mergers and Requisitions, negotiated underwritings, competitive biddings, secoJ:1dW"J distributions of listed and unlisted securities, private placements and valuations for corpomlennd other purposes. .'--' 'I , At thc)uly 27, 1998 meeting of the Bell Atlantic Board of Director!., Bear Steams and Merrill Lynch jointly, delivered their ond opinion (subsequently conlimled separately by each in writing) to the effect thnt,'us of the date th~reof. and subject to the assumptions. qualifications and limitations set forth therein, the exchange ,ratio was fair. from a financial point of view, LO Bell AtJlllIti~ and. aCtordingJy, to the holders (other than GTE and its affiliales) of Bell Atlnritic common stock. ,The full tClt~S ,of these opinions. which set forth thenssumptions nlade, matters considered and' qualifications and limitations on the review undertaken by the Bell AUantic financial advisors, are incorporillcd herein by reference. The summmy of the Bell AtJaIltic financial advisors' opinions sct forth bclow is qualified , in its entirety by reference to the full text of these opinions. Bell Atlnntic shareholders arc urged to read carefully the Bear Steams opinion nnd the Merrill Lynch opinion in their entirety. In reading the discussion o( the fairness opinions set forth below. Belt Atlantic shareholders should be aware thut the Bell Atlantic financial advisors' opinions: · were provided to the Bell Atlantic Board of Directors for its information und ure directed only to the fairness. from a financial point of view. of the e1\changc ratio to Bell Atlantic, and accordingly, to the holders (other than GTE and its affiliates) of Bell Atlantic common stock; · did not constitute a recommendation to the Bell Atlantic Board of Directors in connection with the , merger; · 'do not address the merits of the underlying decision by Bell Atlantic 10 engage in the merger or the price or range of prices at,which shares of Bell Atlantic common stock may trade sub~cquent to the announcement or consummation of the merger; and · do not constitute a recommendation to nny holder of Bell Atlantic common slock as to how such shareholder should vote on the Bell Atlantic merger proposal. ur any mailer related thereto. Allhough the Bell Al\antic financial advisors each evaluated the fairness, from a financial point of view. of the exchange ratio to Bell Atlantic and. accordingly, to the holders (other than GTE and its affiliates) of Bell Atlantic common slack, lhl.! exchange ratio itself was delcnnincd by GTE and Bell Atlantic through ann's- length negotiations. The Bell Atlantic finnncial advisors provided advice to Bell Allanlic during the course of such negotiations. Bell Atlantic did nol provide specific instructions to. or place uny limitations on, the Bell A~lantic l1nancial advisors with respect to the procedures to be followed or factors to be considered by them in pcrfonning their analyses or providing their opinions. Bear Steams Opinion In arriving at its opinion, Bear Steams. among other lhings: reviewed the merger agrc~ment~ revil.!wcd each of Bell Allantic's and GTE's Annual Repons on Form IO~K for the ycurs ended December 3\, 1995 lhrough 1997, and their respective Quarterly RepOlts on Form IO-Q for the period ended March 31. 1998; · reviewed selecled operating and financial informalion, including financial forecasts, relating to the busincss. carnings, cash \low. assets. liabilities and prospects of Bell Atlanlic and GTE. provided by IA6 . t '+!'l.-z..;."J1 ""'e. f;' :~'...: ': j :,.:':: ;1\' ,. ,.t, ,,' ' ,',>;1>: < ~ ~~ ~ r,.~:':ll' ;..}/.".;l..... t: ) \' / -\','~r.vlo' ,.-.J " . ,\ , " -w ~~ , ' .\ ,; I I '~' />!::,;~:'?:X(;'/~;/"j::;{ :. l- e'-".~ "','..,'1: ,.,.'t~'/~~, "<~' ti the senior managements of Bell Atlantic and GTE, respectively (collectively, the "Projectiuns") and ,certain other.'forw1l.rd~looking infonnation; , · reviewed ~lected infQllnation regarding the amount and timing of anticipated revenUe enhancemclHs,' cust savings and related c'Ipcnses and synergic!. expected to rcsult from the merger (the "Expected Combim:l;on Bcnefit.;"),joinrly preparcd and provided by thc senior manugcments'of Bell Atlantic and GTE; , met scpara~cly and/or jointly with selected members of the senior managements uf Bell Atlantic and GTE to discuss Ca) the current telecommunications landscapc and compctitivc'dynumics related thereto, (b) each company's operations, historical financial statements, future prospects and financial condition, (c) their views of the strategic, business. operational and financial rationale for, and , expected strategic bene'fits and other implicalions of, the merger, and (d) the Projectiuns and thc : '" ,;,.Expectcd Combination Benefits; , '. "reviewed the historical prices, inlding activity and valuation parumetcrs of Bell Atlantic common stOCk and' GTE common stock; , ". , ' · ' reviewed and anrilyze~ the pro for;mu financial impacts of the merger on Bell Atlar.~ic; ~~ic~ved th~' tenns, to the extent publicly available, of recenl mergers and acqUisitions which it deeme~ gen~ral1Y comparable to the O1~rger or l'thc~isc relevant to its inquiry: , .' reviewed publicly ayailable ilnancial data. stock market perfonnance data and valuation paramcters of companies which it deemed generally comparable to Bell Atlantic and GTE or otherwise relevant to its inquiries: and' ' ' conducted such other studies, analyses, inquiries and investigations as it dee~ed appropriate. , . . . In preparing ils opinion, Bear Steams relied upon and assumed, without independent verilication, the accuracy and completeness of all financial and other infornlation, includirlg the Projections and the Ex.pected Combination Benefits, prOVided to it by GTE nnd Bell Atlantic. With respect to the Projections and lhe Expected Combination Benefil.., Bear Steams assumed that they havc been reasonably prepared on bases reflecting the best currently available estimates and judgments of the managements of GTE and Bell Atlantic as to the anlicipated fUlure perforn1allce of their respective companil~s and as to the anticipated combination benefits achievable within the time frames forecast therein. Benr Steams also assumcd with the consent of Bell Atlantic that the merger would (I) qualify as tl tax-free "reorganization" for federal income tax purposes, and (2) otherwise be consummated in accordancc with the tenns described in the merger agreement, without' the ' waiver of any material condition and with all necessary material 'consents <1l1d approvals h,!\'ing been obtained without any limitations, reslrictions, conditions, amendments or modifications that collectively would have a material cffec't on Bell Atlantic, GTE or the expected benefits of the merger to Bell Atlantic. ' , In rendering its opinion, Bear Steams analyzed the merger as a "merger of equuls" between Bell AlIaqtic anl! GTE. and Bear Stearns did not solicit. and was not authorized to solicit. third party acquisition interest in Bell Atlantic, As described in "The Mcrger Transaction-Background of the Merger" in this Chapter J, Bell Atlanlic nnd GTE stntcturcd the combination of the companies as a merger of equals. By its nature, a "mcrger of equals" typically refers to the merger of two comparably sized companies in the same industry where there is 110 dear acquirer or target company. Such transactions in essence constitute a uniting of the busines!o intcrests of the cOlllbining companies and gencrally involve the creation of a bonnl of directors that reflects equal rtlpresentntilln from each of lhe combining companies and the crealion of a senior management team that generally rellecls the best managers from each of lhe combining companies. Accordingly, Bear Stearns only reviewed selected precedent merger of cquals transactions, and did not review and analyze any ncquisiliol1 transactions. or the acquisition multiples and purchase price premiums related to such aC{luisition transllctinns. In arriving at its opinion, Bear Stearns did nol perform any independenl appraisal or the assets or liahilities of Bell Atlantic or GTE, nor was it furnished with <lny such appraisals. The Bear Sh:llrns opinion is necessarily 1-47 . ....~ a,! t. " ';.. ~I '.~.". . ~ ,.... t .. ~ ~. . ,. ~ ~ ': I, I' I' I' . , :~ ~:" ;> ::: . ..:./~~'~I:{~'.J<~:'~.'.'~,: ,:f~L,,\{,t...'+:. ~ .. . h ,_> ...~. ." - ." I ~: I'; based on economic, market and olhcr conditions, and the infonnation made available to Benr Stearns, ns of the date of its opinion, and Bear Stearns undertook no obligation to update its opinion to rellect any developml'nts occurring after thnt date. " ...............~ \ / Menilll..yncll Opinion In arriving at its opinion, Merrill Lynch, nmong other things: · reviewed selected publicly available business and financial information relaling to Bell Atlantic and GTE which Merrill Lynch deemed to be relevant; · reviewed selected infonnation, including the 'Projections and the Expected Combination Benefits; · ,conducted discussions with members of senior manugemcnt and representatives of Bell Atlantic and GTE concerning the infonnation described above as well as the companies' respective businesses and prosPects before an,d after giving cffect to the merger nnd the Expected Combination Benefits; ., reviewed'lhc market pric~s and valuation multiples for Bell Atlantic common stock and GTE common stock and compared them with those of selected publicly traded companies which Merrill . Lynch deemed to be relevant; , · reviewed'the results of operations of Bell Atlantic and GTE and compared Ihem with those of selected publicly traded companies which Merrill Lynch deemed to' be relcvant; · participated in selected discussions and negotiations among represenlatives of Bell Atlantic and GTE and their financial and legal advisers; · reviewed the potential pro fomm impact of the merger; . TCviewed the merger agreement; and · 'reviewed such other financial studies and analyses and took ioto account such other matters us Merrill Lynch deemed necessary, including Merrill Lynch's assessment of general economic; market and monetary conditilJns. , ' In preparing its opinion, Merrill Lynch assumed and relied on the accuracy and completeness of all infonnation supplied or othenvise made available to it, discussed with or reviewed by or for it, or publicly available, and Merrill Lynch did not assume any responsibility for independentl)' verifying such infonnation and has not undertaken an independent evaluation or appraisal of any of the asseL~ or liabilities of Bett Atlantic or GTE or been furnished with any such evaluation or appraisal. In addition, Merrill Lynch did not assume any obligation to conduct any physical inspection of the propenies or facilities of Bell Atlantic or GTE. With respect to the Projections Hnd the Expected Combination Benefits. and any other financial forecast information furnished to or discussed with Merrill Lynch by Bell Atlantic or GTE, Merrill Lynch assumed that they have been ,reasonably prepared a.1d ret1ecl the best currently available estimates and judgment of Bell Atlantic's or GTE's management us to the expected future financial perfonnance of Bell Atlantic or GTE, as the case may be, and the Expecled Combination Benefits. Merrill Lynch further assumed that the merger witt Cjualify as a tax-free reorganization for United Stutes federal income tax purposes. The Merrill Lynch opinion is necessarily based upon market. economic and other conditions as they existed on, nnd could be evaluated as of, the date of its opinion. Mcnill Lynch assumed that in the course of obtaining the necessary regulatory or other consents or approvals (contractual or otherwise)for the merger, no restrictions, including any divestiture requirements or amendments or modifications. will be imposed that will have a material adverse effect on the contemplaled benefits of the merger. In conneclion with the preparation of its opinion, Merrill Lynch was nol aUlhorizcd by Bell Atlantic or the Bell Atlantic Board of Directors to solicit, nor did Memll Lynch solicit. third-purty indications of interest for the acquis.ilion of all or any part of Bell Atlantic. 1-48 \~'''''';.'./ "::':,:/:,' )":' '," " 1 I'" " , :. \.' . , ' , ' ," '. ," , " ,', , i ,'I, ". p~.>:) .J~: .. ..~:..' 'r::;::.;':;':':~: ~ [0 I ~,' , ..... --...... I " ~ ' .~.~.. -.' . . e " ,.;.: ..J:.~:._.....:....... .,.. ,;.,.~'.... ~,~ ~;.i)..--,."'.. ~:"}.i 1. . ,. 'I ,~ . 'Financial Analysis of Bell Atlanlic ' Financial Advisors ' , ) 11le' {ollowing is a 'bri,ef s'umm,arr of the' malennl valuation, financial and compflrative analyses presented by !.he Bcll 'Atlantic financial advisors to the Bell Atlantic Board of Directors in connec'tion with the rendeting , of the Bell Atlantic financial advisors' opinions. Such summary does not purport to be a complete description of the analyses underlying the Bell Atlantic financial advisors' opinions and is' qualified in its entirely by reference to the full text of the Bell Atlantic financial advisors" "pinions. In pcrfonning their annlyses, the Bell Atlantic financial advisors made numerous ao;sumptions with respect to industry perfonnance, gtneral business, economic, market and tinancial conditions and olher matters, many of which are" beyond the conlrol of the Bell Atlantic financial advisors, GTE and Bell Adantic. Any estinuites cOlitainedin the unalyses pCrfomied by the Bell Atlantic financial advisors are not ncces!;arily indicative of aclual'vllhies .or fu'ture results, which may be significantly more .or less favorable than suggested by such analyses. Additionally, estimates of the value of businesses or securities do not purpOrlto be ,appraisals or to reflect'the prices' 011 which such businesses or securities I~ight aclually be sold. Accordingly, such amtlyses and estimates are inherently subject 'to substantial uncertainty. In addition. as dcscribed above, the Bell Atlantic ' financlaladvisors~ opinions were illllQng sever.!1 factors, taken into con'sideration by the Bel~ Atlantic B.oard .of Directors. in making its delcmlinat:on to approve tRc merger agreement and [he merger. ':Jmp/ied Exchange Ratio Analyses. The Bell Atlantic financial ndvisors perfonned a summary comparison between the exchange mtio for the merger and the ranges of exchange ratios implied by several vnlulltion metllodologies: (<I) stock price lrading history, (b) contribution of net income, (c) contribution of EBlTDA. (d) discounted cash flow and (e) selected Wall Street equity research analysts' stock price targets for GTE and Bell Atlantic. ;me exchange ratio ranges implied by these methodologies wcre c.ompllfed to the f1cgo'tiated exchllnge ratio for the merger of 1.22. The implied exchange ratios derived from these' methodologies are included in th~ following lable. This table should be'read together with the more detailed descriptions b'elow. 111ese methodologies and the implied exchange ratios derived from them must bc considercd as a whole and in the context of the narralive desc~ptil)n of, th~ financial analyses, including the assumptions underlying these analyses. Valuation Mrthodology , Stock price trnding history fmpUrd E:'Ichllnl~ Rallo RllIlltr L05-1.55 . Description or VlllunUon MrthodololO' Analysis of the relative daily historical dosing prices of each c.ompany over sekcted time periods Measures relative contribution of each company 10 the combined company [otal for net income Measurcs relativc contribution of each company 10 the ~.ombined company tolal for EBlTDA Net present valuation of managemenl projections of after-lUX cash Hows for e:ll:h company Compares analysts' price targcts for each company immediatcly prior (0 (he merger Stock Price Trading History--Bascd on che historical closing srock prices of Dell AI/antic common stock and GTE common slock over the period from January 2, 1996 through July 24, 1998. the Bcll Atlantic financial advisors calculated that the implied market exchange rutio determined by dividing the price per share of GTE common slock by thc price per share of Bell Atlmllic common stock ranged from 1.05 to 1.55 over this period. The Bell Atlantic financial advisoni noted Ihat Ihe prices of Bell Allantic common slock and GTE common stock closed at $45.19 and $57.94. respeclivel>'. on July 24.1998 (the lust trading day before the day (he merger agrecmcnl was executed), and lhac such closing stock rrice.~ resulled in ,Ill implied market cxchange ratio of 1.28. Contribution of net inc.ome 1.14- 1.25 COl1lribution of EBITDA 1.15-1.22 Discounted cash flow 0.83-1.35 Analysts' stock price targels 1.05-1.40 1-49 " .; . ,. "., ' . . ~ " .' :' ,I" ;. ..~. .. " , " ,,' ',- f" . ". ; .: ~'.~: ~.\<.~.~.~ ");, 1'~J~~;~~~.~:. ." ,I.,. '" , L Contribution of Net Income-Using the GTE and BelJ Atlantic. net income figures bused 00 the Projections for the ycars 1998 to 2003, the Bell Atlantic financial udvisors calculated the range of , exchange ratios implied by the, relative' contributions of GTE and Bell Atlantic to the combined , ,company's nct income to be 1.14 to 1.25. ," · 'Contributio" of EB/TJ)A-Usiog the GTE and Bcll Atlantic EBITDA figures based on the Projections for t1le years 1998 to 2003, the Bell,AtJantic financial advisors calculaled the range of, ' exchang~ mlios implied by the relative contributions of GTE and Bell Atlantic to the combined , company's EBITDA to be 1.15 [0 1.22. ,',.. l '. .' Discounted.Cash Flow-Based on the GTE and Bell Atlantic after-tax, u'nlevered free cash now figures based on the Projections for the years 1999 through 2003, the Bell Atlantic financial advisors calculatcd a range of implied values per share of Bell Atlantic common stock and GTE common, " stOCk. The discounted cash flow analysis assumed, solely for purposes of this analysis, ll,range of ,. ..: 2003 EB1TDA exit multiples from 6.0x to 7.0x and n range of discount rates from' 8.5% to 10.5%, and made ndjustments to renect the value of certain unconsolidated subsidiaries of each of GTE and ~ell Atlantic at market vahies, where appropriate. Based on such implied per share value ranges', the, Bell Atlantic financial advisors calculated the range of exchange ratios implied by the discounted cash flow analysis to be 0.83 to 1.35. · Analysts' Srock Price Targets-The Bell Atlantic tinancial advisors also noted that thc most recently. available (as of July 24, 1998) stock price targets for Bell Atlantic common stock and GTE common stock as published by various Wall Str~et equity research analysts resulted in a range of implied " exchange ratios of 1.05 to 1.40. ' . Illustrative Valuatioll Al1aly,ri.f of Expected Coirtbillation Benefits. The Bell Atlantic financial advisors pcrfonned nn illustrative valuation of the Expectcd Combination Benefits by calculating the hypothetical net present value of expected incremental free cash flows based on the Expected Combination Benefits and the midpoi'nls of ranges of ac;sumed 2003 EBITDA exit multiples of 7.0x. to 8.0x; and assumed discount' rates, soleJy for purp~ses of this analysis, of 7.5% to 11.5%. ' Using such assumptions; the Bell Atlantic financial advisors calcul~tcd that the' aggrcgalc hypothetical after-tax net present value of the Expected Combination Benefits, excluding the after-tax effects of potential applicable restructuring ami trnnsactioll costs and other one-time items, was approximately $13.8 billion, based on a 2003 EBITDA exil multiple of 7.5x and a discount rate of 9.5%. which represented the midpoints of ranges for such factors, Such amount was reduced by the after-tax effects of potential applicable direct incremental merger-related costs and .other one-time items of approximatcly $0.3 billion, resulting in a net after-tax value of approximatdy $13.5 billion. The Bell Atlantic financial advisors calculated that these figures, whcn divided by the expected pro fonna shares outstllnding of the combined company, indicated thai the per share after-tax net present value of the Expectcd Combination Benefits was approximately $4.98 per share of the combined company on an aggregate basis, Of, after giving cffect to direct incremental merger-related costs, of approximately $0.10 per share, approximately $4.88 per share of the combined company on a net basis. , EllP~C(ed TrHn.~actlon Net E"peded CIJmblnlltlon Benefits Costs Comblnlltlon neneflt.~ Aggrcgate Per shure $ f 3.g biltion $ 4.98 $0.3 billion $0.10 S 13.5 billion $ 4.88 Pro Forma Merger Analysis. The Bell Atlantic fimmcial advisors reviewed and analYled certain pro fomlu financial impacts of the merger on holders of BeB Atlanlic common stock bused on the following: · lhe c.~change wtio: · the Projections nnd the Expected Combination Benefits: · un ,assumption for analytical purposes thut the merger would be consummated on December 31. 1999: pooling of interests accounting trcallllcnt fur the merger: and 1.50 ,'--~e ! , ' . ( .~ ',I..~.;.J ," .' ," ' ",>.\: ~ .! , , '" " [', ;i " , " , e ,',r ,\ ~~\:,",'~, ~ .,' ~;- - . ' ,".' , . ~ N '~r" > "rt ... "' '~~ I ~'. ~ " ~ I (..)........\r., !' ) ".J....'n,.. fY I ~ · one of two alternative sets of assumptions ("Scenario I" and "Scenario II") rcflecting GTE und'Bell Atlnntic:managementc;' expectations regarding the financial cffects of possible steps that might bc taken in ordcr to resolve potential overlaps in the wirelcss operations of the combined company. Scenario I assumed the disposition of overlapping properties involving a relatively small number of , potential wireless customers. while Scenario II assumed the disposition of overlapping properties involving n larger number of potential wireless customcrs. Based on the cxpectations of the managements of GTE and Bell Atlantic, the analysis assumcd that the phase-in of the Expected Combination Benefits commences in the year 2000. lJ1e rcr.ult~ of this .nn111ysis indicated that, after factoring in the Expected Combination Benefits, the merger would result in moderate accretion to the projected earnings per share of Bell Atlantic common stock in each of 2000,2001 and 2002 under Scenario I. Under the more conservative Scenario II. this analysis showed thnt, . after factoring in the Expected ,Combination Benefits, the merger would result in somewhat lower accretion to Bell Atlantic's projected earnings per share for each of the three yean; analyzed. [n addition. the Bell Atlantic financial advisors analyzed the pro forma financial impact of the merger on holders of Bell Atlantic common stock under Scenario II case assumptions and cxctuding the effects of the Expected Combination Benefits; under these assumptions the merger would result in moderate dilution to Bell Atlanlic's projected earnings per share for each of the three years analyzed. lI1ustrativc Bell Atlalltic S/wreholdcr Value Analysis. The Bell Atlantic financial advisors analyzed various possible illustrative pro forma impacts of the merger on the value of a shure of Bell Atlantic common stock. This analysis applied a range of illustrative price/eurnings multiples to the pro fonna 1999 earnings per share of the combined company based on the Projections nnd assuming various levels of pre-,tax synergies. The illustrative pricc/earnings multiples, calculated using the Projections and closing stock prices as of July 24. 1998. ronged from 15.lx, the market multiple for Bell Atlantic's stand-alone 1999 earnings per share. to 16,6x, the market multiple for GTE's stand-alone 1999 earnings per share. Based on these assumptions. the Bell Atlantic financial advisors calculated that the illustrative pro forma vnlue of a share of Bell Atlantic common stock ranged from u low of $44.30 (assuming Bell Atlantic's stand-alone price/earnings multiple of 15.lx and no sy'nergies) to a high of $56.32 (assuming GTE's price/cnmings multiple of 16,6x and $2.0 billion of pre-tax synergies). The Bell Atlantic financial advisors notcd thntthe blended price/earnings multiple of GTE und Bell . Atlantic (cnlculaled as the income-weighied avcrage of the respective stand-alone price/camings multiples of GTE and Bell Atlantic) of 15.8x and a range of assumed synergies from zero to $2,0 billion resulted in a range of illustrative stock prices of the combined company from $46.18 to $53.29, as shown below: Exprch:d Sym:r~ll'S: E:'lIlccted Syncr~les: $0 $2 blllloll 15.1 x price/earnings multiple IS.8x price/carnings multiple $44.30 $46.18 15,8x price/earnings multiple , 16,6x price/earnings multiple $53.29 $56,32 l1te Bell Atlantic financial advisors also noted that the illustrative stock prices of the combined company of $44,30. $56,32, $46.18 and $53.29 would rcspectively represent increases (decreases) of (2.0%). 24.6%. 2.2% and 17.9% from the July 24, 1998 closing price of $45.19 for Bell Atlantic common stock. In performing their analyse:;. the Bell Atlantic financial advisors did nol express any opinion as to the price or range of prices at which Bell Atlantic common stock may trade subsequent to the consummation of the merger. The prices at which Bell Atlamic common stock uHimmely trades in the stock market will be detcnnined by u variety of quantitative and qualitative factors (for examplc, the price/earnings multiple at which Bell Atlantic common stock is actually vulucd by potential investors, which may be significantly more or less favomble than the illustrative ranges of price/earnings multiples used by the Bell Atlantic financial advisors for their analytical purposes and the Icvel of synergies ultimately anticipated by the stock market), none of which CUll be predicted. ' Total Retun! Analysis. The Bell Atlantic linancial advisors also compared GTE and Bell Atlantic managements' estimates of dividends per shure and projected earnings per share compound annual growth rates I-51 " . "'. \. : i .:' '.. ",-;\,". ,":' /':':':'(:';;!!J"j',"'~;::,:, , , .. . 4.<'~ ,,~ . ,,' for GTE and Bell AlIomic from 1999 through 2003 to fiuch managements' estimates of pro forma dividends pcr share and projected camings per share compound annual growth rates of the combined company from 1999 through 2003.,Bu.'Icd on the foregoing, 'and using the assumptions of Sc~nurio II, 'the Bell Atlantic finnncinl udvisors'calculnted that the total return (calculated as the sum of the projected five-year comings per share compound annuni growth rates plus dividend yield) of the combined company for pre-merger holders of Bell , Atlantic common stock would be 18.2% after. factoring in the Ex.pected Combination Bcnelits, compured with 0 16.8% estimated loud retllrn for holders of BcIJ Atla..1lic common stock on a sumd-a]one bas;s. ' The preparntion of a fairness opinion is a complex pruces~ and involves various judgments and , detcrminatiolilias to the most appropriate and relevant assumptions and Jinancial analyses and the application or Ihese methods to the particular circurmlllnc.cs involved. Such an opinion is therefore nol readily susceptible hl partilll'unatysis or summary description, and taking portions of the anal)'scs set out above, wilhout considering the analysis as II whole, would, in the view of..(ltc Bell'Atlantic financial advisors, create an incomplete and misleading picture of the processes underlying the unalyscs considered in rendering the Bell Atlantic financial advisors' opinions. The Bell Atlantic financial advisors did not form an opinion as (0 whether any individual analysis or factor (positive or negative), considered in isolation, supported or failed to support the,Bell Atlantic financial advisors' opinions. In arriving ut,their respective opinions, the Bell Allantic fimll1ciul advisors each considered lhe result!> of their sepurale analyses and did not attribute particular weight to anyone analysis or factor considered by such firm. The analyses performed by the Bell Atlantic financial advisors, particularly those based on estimates ':md projections, arc not necessarily indicative of actuo] values or uctual future results, which may be significantly more or less favorable thun suggested by such analyses. Such analyses Were ' prepared solely as jmn of the Bell Atlantic financial advisors' analyses of the fnilness. front n tinuncial point of view, of the exchange ratio 10 Bell Atlanlic and, accordingly. to the holders (other than GTE and its affiliales) of Bell Atlantic common stock. ~"ee, Arrang'em~~ts . ' PursumH to the lerms of iLs engagement letters with Bear Steams and Merrill Lynch, Bell Atlantic has agreed to pay $7.5 miJIiolllo each of Bear Steums und Merrill Lynch in connection wilh the delivery of the Bell Atlantic financial auvisors' opinions. In addition, Dell Atlantic has ~IBrccLllO reimburse the Bell AtJanrk financial advisors for aU' reasonable ollt"of-p(~cket expenses incurred by them in conneclion with the merger, including reasunable fees and disbursements of their respective lega] coulIsds, Bell Alllllllic has also agreed to indemnify the Bcll Alla11lic financial advisors against certain liabilities in conneclion with their respective engagements, including certain liabilities under the federal secllrities laws, 'Both Bear Steams lInd Merrill Lynch have previously rcndered cerlair! investmc/Il banking and financial advisory services to both GTE amI Dell Atlantic. Merrill Lynch served as Bell Atlantic's financial advisor amI Bear Steams served ;lS NYNEX's financial advisor in connection with the Bell Atlalltic.NYNEX merger. fur which they received customary cmnpcnsalion. In addition, Bear Stearns served as financial advisor to GTE when GTE pursued the acquisition uf Mel, for which it received customary compensalion. The Senior Executive Vice President and Chief rinancial Officer of Bell Atlantic is a member of the board of directors of The Bear Steams Companies Inc.. Beur Stearns' parent company, In thc' ordinary course of their businesses, BI~ar Steams and 'Merrill Lynch may lIctively trade the securities of Bell Atlantic and/or GTE lor their own accllullls and for accounts of their cllstomclS and, accordingly, either or both firms may lit any time hold a long or shon posiliun in such securities. Onc or both of the Bell Allantic financial advisors muy provide nnanciul advisory and financing services to the combined company andlor its aniliutcs and I1U1Y rcceive fees for the rendering of .'iuch !1ervices. ' Accountin~ Trcutmcnt GTE and Bell Allunlic inlend thul the merger will be accounted for in accordance wilh the poolin,!,! of interests method of accounting under Opinion No. 16. Business Combinations. of the Accounting Principles Buard of the Amcrkan Institlllc of Ccnilicd Public AccoUnlant~'. Under this accounling melhod, the lIsscl,~ and I-52 /.....;,;\11'-, \ ,I \, e, f ..~~);'. . <. .' >1 ,". ~ " ,t, .- , , ~ . I -\ :~~ ,.......c..., f ~\ 'l,,~,./ , t~ '. '" I.' . . .( " , \.,.. ., .' ._~"'.'.?:,I"'~,(,I,~':"" ~ . t . . . : l I~'I/... ~ liabilities of GTE and Bell Allantic will be carried fon...ar~ to the combined comp;lny at their historical , recorded base.~. Rcsults of operations of the combined company will includc the results of both GTE and Bell Atlantic for the, entire fiscal year in which the merger oCturs. The reponed balance sheet amounts and results of operntioOli of,the separute companies for prior periods will be combined. reclassificd and confonncd, as, ' appropriate, to reflect the combined financial position nnd results of operations for thlnombined company; Approvals by federnl and state regulatory agencies are required before we cun complete the merger. While the,. pooling of i11tcrests method 'of accounting nonnally requires a merger to be completed within one year of the datc of initiation of the transaction; we expect that this condition wiU still be considered to be met since any delay will be beyond our control due to proceedings of a governmentnl authority. For a further discussion of the individual regulatory approvnls required to complete the merger, see "The Merger Transaction-Regulatory Appro.vals" in this Chapter I. , Materl~l Federal Income TalC Consequences . Th~ following gc~cr~l discussion constitules the opinions of Skriddl'n, Arps, Slale. Meagher & Flom LLP. counsel to Belt Atlantic, and O'Melvcny & Myers LLP; counsclloGTE. subjl'CllO the' qualifications set fonh below and contained herein. as to material federal income tax consequences of the merger. This discussion is based on the Internal Revenue Code of 1936. as amended, the regulations promulgated thereunder. existing, admin~slrativc' ~nterprelations u~d court decisions, all of which are 'subject to change. possibly, with rClrollclive effect. and assumes thal'the merger wilt be consummated in the manner described in this joint proxy statement and prospectus and in accordance with the merger agreemcnt (without amendment). This discussion does not addrcss all aspects of fedcral income taxation that may be imponant to a shareholder in light of the shareholdcr's particular circumstances. It also does not apply to those shareholders subjcclto special rules, ~uch as shareholders who arc not citizcns or residents of the United States, financial institutions, tax.exempl organizations, insurance companies. dealers in sccurities, shureholders who acquired their GTE common stock- pursuant to the exercise of options or similar derivmive securities or otherwise as compensmion or shareholders who hold their GTE shures as part of a straddle or conversion trnnsuctioll, This discus~ion tlssumes that GTE shareholders' hold their, respective sharcs of stock us ~apital a<;selS within the meaning of Section 1221 of thl', Internal Revenue Code. The obligations of G:rE and Bcll Atlantic to complete the merger arc conditioned on the dclivcry or opinions dated the dnte or completion of the merger: (1) to Bell At]untic from Skaddcn, Arps. Slate, Mcaghcr & Flom LLP reissuing the opinion of Skadden, Arps, Slate, Meagher & Flom LLP stated in this discus!>ion and (2) to GTE from O'Melveny & Myers LLP rei~suing the opinion of O'J\.Ielvcn}' & Myers LLP stated in this discussion. The opinions of counsel contained ill this discuilsiol1 and to be deli\'ered at the completion of the mcrger assume the absence of changes in existing fncts and ttlay rely on assumpliolls. rcpresentations and covenants including those contained in certificates of officers or Bell Atlantic, GTE and others, These opinions neither bind thc Inlernal Revenue Service nOT preclude it from adopting a contrary position. and no assunlllce can be given that contrary positions will not be successfully as~crted by the llllcrna] Rcvenuc Service or adopted by a court if the issues are litigated. Subject to the qualifications set forth hercin, in thc opinions of Skuddcn, Arps, Slate, Meagher & Plom LLP, counsel to Bell Atlantic, and O'Mclvcny & Myers LLP, counsel to GTE, thc merger will constitute a reorganization within the meaning of Section 368(a) of lhe Internal Revcnuc Code. Accordingly: Tax ImplicatiolJs to lIell ..ttlam;c Share/uildcrs Current holdcrs of Bell Atlantic cpmmOI1 stock will nol recognize any gain or loss for federal incOlm~ lux purposes us it result of the mcrger OJ' the Bcll Atlantic merger proposal. Tax Implications to GTE Shareholders Exccpt as discusscd below, (I) no gain or loss will be rccognized for federal incomc tax purposes by holders of GTE common stock whose GTE common stock is converted into combincd company common stock in the merger except to the extent thcy receive cash inslcad of a fraction of a shure and (2) the uggregutc tux 1.53 T ~', '.' . I, ..... L <. ,', .. I ,. "c I, ,,i ~ " ~ ~ . , ,f " , " ' ,', t: C ',I , , , '~/ ~ I .',. .,,' ~';,i't:'f!~t~~~'~:~;';:~."~~:'.~' . , -: .'.' . :- . . ~. 'l" bnsis of combined company common stock received as n result of the merger wilt be the same as the shareholder's aggregate lax basis in the GTE common slock converted jn the merger (reduced by MY tax basis allocable to cash received instead of a fraction of a share). The holding period of the combined company common stock th~t a fomler GTE shareholder receives as a result of the conversion \\li!1 include the period during which 'the sh,lI'choldcr held the GTE common stock. If a GTE shareholder receives cush 'instead of a fraction of a share of the combined company common mock. the shareholder will recognize gain or 10!1-s for federnllncome tnx pUrpOliCS, measured by the difference between the amount of cash received and Ihe portion of the tax basis of the share of GTE common stock allocable to the fr.lction of a share interest. This gain 01' toss will be capital gain or loss and will be a long-tenn capitll! gnin,or loss if the shnre of GTE common stock has, been held for more than (me year at the time the merger is effective. , , Pursuantto'the merger agreement. GTE will pay any transfer taxes incurred us a result (If a change in ownership of GTE, including transfer taxes that under applicable law may, be the primary liability of GTE , shnreholdcrs. Although the mutler is not free .from doubt, the payment by GTE of trunsfcr taxe~ for which GTE sh:u-eholders nrC prinmrHy liable, if any, may be treated for fcderul income tax purposes tis a deemed distribution by, GTE Co GTE shareholders, whkh would bC'taxableas u dividend. Tax implieattom to Bell Atlantic, GTE and Beta Gamma "No gain 'o~ loss will 'be recognized fM federal income tax purposes by Bell Atlantic, GTE or Beta Gamma us 'a result of the merger or the Bcll Atlantic merger proposal. , " This discussion is not intended to be a complete analysis or de~cription of all potential federal income tux consequences of the, merger. In nddition. Ihis discllssion does not address tax consequences which may vary with, or are contingent on. individual circumstances. Moreover, except for the: discussion of transfer tuxcs above, this discussion does not address any non.incOlnc tUll or any forcign, state or local ta:( consequences of the merger or the Bell Atlamic merger proposal. This discussion docs not address the tax consequences of any , ' transaction other th:in the mcrger, and the Bell Atlamic merger proposal. Accordingly. you ~lre strongly urged to consult with your lax advisor to dctermine your particular federal, state. local or foreign income ur other lax consequences resulting from thc merger and the Bell Allanlic merger proposal. ReguJatory ApprOl'als Defore the merger can be completed, we must receive the approvals of govcmmcnllll agencies. It is possible dUlt the uUlhoritics mny seek vulious concessions ,Il; conditions for granting approval. However, we arc not required to tuke any steps in connection with obtaining these :lpprovals Ihat would rcnsonahly be expecled to hnvc u Materiul Adverse Effect on either of us or the combined company. We 111tIY choose to complele Ihe merger without some upprov:t1s or consents which would not have a Material Adverse Effccl on either of us ur the combined company jf they were not received, Ullder particulaT circumstances, the termination dale witt be extended if the merger cannot he completed hccausc required consents have nOI been obtained. See .. Summary of the Merger Agreemcnt-Condhions inlhe Merger Agreement" and' 'Tcnnination" in this Chapler f for a discussion of those circumstances. We cannOI be certain Ihat we will oblain lhe required regulatory approvals within the time frume contemplated by the merger agreement or on teom; that are satisfnctor)' 10 us. Antitrllst Under the Hart-Scoll-Rodino Antitrust improvements Act or 1976, as amended, and the related rules of the Federal Trude Commission, we c:mllol complete Ihe merger until nolilkalions ha\ie been given and certain information has been t'umishcd to the Federal Trade Commission and the Antitrusl Division of the U.S. Dcparllllcnr of Juslice and spccilletl w~liting period requirements havc been satisfied. We filed noti/kaljolt llnd , report forms under the Hart-S.:ott-Rodino Act wilh Ihe Federal Trade Commission and the Antitru!'it Division in August 1998. In Sertcmhcr 1998, we received requests from the Antitrusl Division for nddilional information rcluting to the merger. In December 1998, we certified substantial compliance with tbe Antitrust Division's request for mlditionul infonl1atjon and in Janu.lry j999, the wailing period ended. The Department of Justice is continuing to evaluute the merger. As with any merger, the Amiu'Ust Di\rision has Ihe uuthority to challenge the I-54 , 'i ., ' ~I . .. ~ "-'-'~'\, '.T'." \.,./..;...J ~" J ' ... ~~t. ""1 I ~:1~,,";',' :' ", ,.'1 , " , , , , I . J": ".~" , , ~. ~. + , '\+ ,,' . :1 :i. " :.....\ . " .' ,':, ',:. ,. ,," " \ " ,',' .;, i- , 4 . '. >,' .:,': ." I' '. .... :', ') :t,' . I'>. '1 }' , ',' . .., :.'.'.':,.', '\, .'> ..< . ~ ~ " , ., '" " , , " ' , .'~, .' ~. ,.' ~ I W;~i\,t!;!('~'Hj1;:h,):i1:~ r,'iYI:!,"",,', , : ,; ,:, , '. ! ' l I i ' , .,('\...-.... . I . { ....~ \ I~~'t) ;, 'I .l "'.. . J \~ ':.' I,.. merger, on antitrust grounds before or after the merger is completcd. The mcrger is also subjecl to antitrust review un,dcr,sullc law in some of the states in which we provide telephone scrvice. At any lime b~fore or after the merger'is completed. the Fede.ral Trade Commission, the Department of Justice or others could take action , under \he antitrUst laws with rcspcdio the merger, including secking to enjoin the completion of the merger, to rescind the merger .or to 'requi're 'divestiture of substantial asscts of GTE or Dell Alluntic. FCC Apprm'als The'Fed'eral Communications'Commission mu!.t approve ~hc transfer of conlrolto Bell Allanlic of GTE's subsidiaries holding Federal Communications Commission licenses and authorizalions. The Federal Communications Commission must decide whelher Bt!lt Atlantic is qualified to controllhesc licenses and uUlhonzutions, llnd whether the transfer is con!;islcnt with the public interest. convenience and I\cccssi\y. The Federal Communications Commission ,will examine, among olher lhings, the ~,)mpctilive effects of the merger and other, publi~ interest benefits and alteged harm~. We believc that the applications that we have filed \yith the Fcder-..ll COInmunicalions Commission demonslnlte that the proposed tmn!;uclion satisfies these slandards. Bell i\tlantic'~ability 10 provide long distance service is prescntly limited by thc lcons of the Tclecomrimilications Act of 1996, Under the Telecommunications ACl of 19%, each of Dell Atlantic's telephone compaflics must demonstrate [0 thc Fcdeml Communications Commbsion that it has salisfied sp~cilic requirements before Bell Atlantic witt be permitted to offer tong diswnce services originating within that ' telephbl,lc company's jurisdiction. The telephone company must comply with a 14-point "competitive, checklist,'"'which inCludcs steps to help competitors ofTer local services. whether through resale 'of the telephone 'company's service, purchase of networK clements from the telephone company, or use of the competitors' own networks. Bell Atluntic must also demonstrate to the Federal Communications Commission' that its entry inlo the long distance murkel would be in the public interest. " Be'U Atlantic expects to file in the. second quarter of 1999 an npplicalion with the Federal Communications Commission for pcnnission to olTer long distance service originating in New York State; Belt Atlantic hope!; lo begin offering this service in the third quarter of 1999. Following Bell Atlantic's application for New York.. Bell Atlantic expecls ncxt to file applications with the Federal Comrnunicatinns Commission for Pennsylvania, Massachusetts, New Jersey. Virginia and Maryland and, sub~equt:n[ly. for its remaining states. The'liming uf Bell Atlantic's long distance entry in each of its 14 telephone company jurisdictiolls depends on the receipt of Fcderul Communications Commis~ion approval. The U.S. Supremc Court has recently upheld the Federal Communicalion:> COlllmission's authority hI. establish mlcs implementing key provisions of the Tclecolllll1unkalions ACl of 1996. In particular, the Supreme Court held lhatthe federal Communicntions COllllnission may rcquire incumbcllllocal exchange carrierll, slIch us Bell Atlantic and GTE. to pruvide l'ompetitors u pre-assembled nelwork plalform al sUblltanlially reduced prices or 10 cmnhine nClwork clcmcnts for competitors. However. the court directed the Federal Communications Commission to detenninc. consistent with the requircmcnts of lhc Telecommunications Act of 1996, which nelwurk clemcnts musl bc mude available. In addition. the U,S, Courl of Appeals will now consider our challenge of the Federul Communicalions Commission's rules for pricing of network clcmems and interconneclion, Bell Atlantic expects, but cannol ussurc. thut the timing of ilS long distance applicalions will not be uffected by fUl1111:r proccedings pending bcfore the Federal COllllllunications Commission nnd the Court of Appeals. GTE, which is nol subjecl to lhe long distancc provisions of the Telccomll1uniclllions Act of 1996, currenlly provides long distance services throughout the United Slates, including Inng distance service!. that originate in Bell Atlantic's telephone company jurisdiclions. Upon complction of lhc merger, GTE will he considered un aflllinle of Bell Allunlic. Accordingly, we cannOl complete the merger unril we receive the uppropritlle Fcderal Conununicmions Coltlmission upprovals or waivers, unless wc arc ahle to design a satisfactory interim structure consistenl with Federal C~mt1lunications Commission requiremcnls or obtain other relicf. We canllol be certuin whether the Federal Communicalions Commission will grunt any appl'Ovul or wuiver. I-55 ' I ' ,'J .: 1 >", I . ~ .' . . r . ~ . >, . . ';. , " \ , ' It.> ,\ ._-~----------~----- --, . . .- , 0', I ~ It! .. e; I I ' ': : ., .1= . .' . ',:' . " . " " <:', ',,0. e, ' I....;.,:'~+ ..~"I.o.!~;~.t'J, II'~, .: ~ ,,~...~,,~.t'l"~l.~~'1'J:o:~"-...;. . I ,e , , ..........f :.' .f. ..'4., State Regulatory Apprm'als , , We have made' rcgul~lory filings wil~ the ,mbtic utility comm'issions iil e~ch of the 50 states' and the District of Columbia. We believe that pre.merger approvals are not required in some of the staies where GTE or Bell Allnntj~ have operations, bUI these states c'ould aUempt to assCl1 jurisdiction, 'Where we have llpplied rOJ: . approval, lhe governing legal standard '1aries' from stille to state, but generally requires a showing that the ' mcrgtr is consistent with. the punliC interest. As parl of that standard, these slate regulatory commissions ml.lY . look at the impa~t of the merger on c,.,mpetition and on the customers and employees of the locul telephone company. ('~i;~ , ' California and Illinois state laws r(:quire proceedings to detel1nine whether a portion of the net snvings , resulting from u merger of a public utility in those states must he allocated to customers. GTE has operntions in those sla~es, umlthe rilerger inubject to those proceedings. Thc California Public Ulilitics Code requires that ' the California Public Utilities Commission allocatc equitably the l'hort. and long-tern1 forecasted nctl;avings of the merger between shareholders and clIstomers, with customers receiving not less than 50% of any net savings. before it authorizes a change of conlrol us contemplated by the merger. The Califomia Public Utilities Commission' s' delcnninution of forccasted net s~vings is limiled to services over which it exercises rnlemaking, uU1J10ril)'. Th~ Cnlifornin Public Utilities Commission is nol required to Use any particular method for a!isu'ring that'customers receive any forecasted net savings undo in markets whcre comretition exists, lhe California Public Utilities C01mnission can rely on competition to llssure that the net savings flow to consumers. Illinois. law plUvid.:s that the lIIiliois Commercc Commission cannot approve a reorganization of the lype contemplated b)' the merger with()Ul mHog' em lhe allocation of fl';t savings resulling from it. :md on whether the rcorg.mizing. companies should be allowed to rcco..'cr the costs of s~ch reorganization. More than onc-half of the state comnlissions have upproved i)r declined to review the merger, O'n March 31, 1999. the Slate Corporation COlllmission of Virginia disapproved and dismissed, without prejudice, our joint petition for approval of the merger. Muting that it expects us to fefile our appliciltion and specifying additional information which we must ~\lbmit 10 ~cmonstrale that servicc to thc public at just and reasonable rates will not be .icopardilc,~ as a result of the mcrgcr. We will make the necessary liIing in a timely manner. I"tcruatim;al RegulatiolJ In Octoher 1998. Poland's Onkc For Comrctition and Consumers Pmtection issued it statement of no objection to the m~rger. and the Cnnadian Government issued a ruling indicating insuflicienl groullds 10 challcnge the merger. In March 1999 \ve madc a filing with the Feder..1 Competition Commission in Mexico. and we expeclthat it will approve the merger. We believe (hal no other il1lemational arprovals are required. "';'~~ Conflicts Created hy Overlaps of Dumestic Wireless Properties; Potential Solutions GTE's domestic wireless opcmrions cowr approximately 62 millioll pOlenriul cellular and pcrsollJlJ communications scrvices customers. The operations of Bell At1:mtic's cellular suhsidiary cover more than 56 . million potential wireless customers. pril11eCo Personal Communications, L.P., in which Bell Atlnnlic has n one-half interest, has personal communications services operations covering more than 56 million additional potential wireless customcrs. GTE and Bcll Atlantic cellular operalions cUI1'ently compete with each other in sevcral markets covering a IOtul uf approximately one million potentilll wireless customers, Feueralla\\' currently docs not permit one company to control two cellular licensees serving the same cellular geographic ~en'ice arca. Accordingly, wc cxpeclthat on or aftcr the date the merger hecomes effectivc, we will dispose of one of the cellular properties unu licenses in each of these markets. GTE OWIlS cellulur operalions in a Ilumber of markets where Pril11l'.co operates. covering a t01a1 of approximntcly 15 million potential wireless clIstomers. Fcderul Communicalions COl11mission regulations currently limit the ",nount of licensed "spcctrul11"-thc clcctmmagnclk frequencies used for \\'ircle~s .' 1.56 .' . . \...':'~ ., " e : .~. ,'. . l' .' , " . . ~ ~ , '. ~:, :, \:.. \ -.-.------~______._r~__ ',' .. ~' .' --.------------.. ", . ,e , '. i , ..: ,,\".' , ' ',,'" , I I I. .: ~ ", I, .., I " \< 1:<;'1 ;~',...:.;::~,.~ ~~:~{~;~?~:::~~~~:~:;':,,:::i~~~f;N:,;,t.~.,:~:.i(~.:.::: .~.:.;,; .J;;.~~:: ':':" ',',} ..." ,'; .' .', ' '. .1 ...-.~ .... , -.' ~~J . i. " '"'..1 :',.' . ~. I comm~nicntions-.thnt a comparw may control in one market. Following the mcrger. the combined company's spectrum ownership in those markets would exceed the currenl Fedcr111 Communications Commission spectrum limits. In November 1998, the Fcdernl Communications Commission issued 11 NOlkc' of Propused Rulcmaking , to review 'its spectrUm litnits, stating thut it is COilsidcring several options, including U lI1odilicatioll or ' . elimination of these limit!i. We do not yet know whether, or to whutcxtcnt, the combined company will have to dispose of wirelcss propc'nies that overbp with PrimeCo properties in ot{l~r to reduce its spcclmm ownership. III 1994, Bell Atlantic and AirTt'uch Communications. Inc., the other owner of pdmeCo, clltcrcu. in'to agreements to fonn PrimcCo and another partnership to coordinate their wireless operations. Those ugrccments cont~in certain so.called "non-compete" provisions thm by their tenns would prohibit either partner from ucquiring wireless properties in wirc1css markets in which the other has an interest or in which PrimeCo has an interest. ,GTE.owns celluJar licenses in a number of markets, covering n total of approximately 22 million pofellti~1 .wirele,~s' customers, ~hcrc AirTouch has wireless operations. Bell Atlantic con-;idcrs the "non- ,compete',' provh:ions unenforcenble fo the extent Uiat they prohibit competition outside the tcrritllrics 'where, PrimeCo operates, In JUlIUary 1999, Bell Atluntic und GTE filed suit against AirTouch in federal cOllrt seeking injunctive relief, as welJ as nn order decJaring,l.he "non-compete" provisions voidlL~ invalid restrainlS on trade in violation of federal and state law insofar as,lhcy prohibit competition outside Ihe territories where PrimeCo ,1)~rates.,In February 1999, AirToul.:h filed counterclaims seeking damagc~ and enforcement of the provisions. . (Although counsel, Kellogg, Huber, Hansell, Todd & avons, P.LLC., have nol expressed a view concerning the likely outcome of the litigation, they' have advised Dell Atlantk and'GTE lhal, hi lheir view, based on the facts as set !orth in Bell Atlantic's and GTE's complaint, the "non-co~pctc" provisiuns, insofar:to; they purport 10 prohibit competition out!'ide the ,territories where PrimeCo operates. constitule involiu amI UlIclIforccllble I'estruints of trade under federal antitrust laws. Accordingly, we do not currently expect that \Vc wi:llwvc to dispose of any GTE cellular properties outside the territories where PrimcCo operates, except those GTE cellular properties that compete with ~ell Atlantic cellular properties. However, in the unlikely cvent that AirTouch were able to enforce thc "non-compete" provisions to prohibit compelilion uulside Ihe tenitorics \vherc PrimeCo uperates, we would have 10 dispose of SOllie GTE cellular properties uUl.side the territOlies where PrimcCo opemtes. and the dispusitiuns eould impair our tlbility to nccounl for the merger w; a pooling of interests. Under the merger agreement, we have agreed that, ir. tIS a result of those dispo:-;itions, it is determined that Ihc mcrgcr could nol he accounted ror as a puoting uf interests, we would still be obligated to complete the merger. In thut case, \w would l'>cek our shareholders' approval with a new joint proxy statement and prospectus, describing lhe merger accounted for >IS a purchase rather than u pooling, III such nn event, the complelion of the merger L:ould b~ delayed or pr~velltcd. Upon the completion of AirTollch's merger with Vodafonc Group PLC. Hell AII:mtk inle/luS lU cxcrci.,>c its uption to dissolve PrimcCo and divide PrimeCo's personal communicatiuns ser\'icc~ propcnics wilh AitTouch following procedures contained in the PrimeCo partnership agreement. Depending Olt Ihe timing (If lhat dissolutiun, the "llOn-compctc" provisions descrihed above. insnfur ~lS they prohibit competition hctwcclI Dell Allantic und PrimeCo properties, may require the combined company to di!'tposc of GTE cellular plllpenies am.! licenses in markets in which PrimeCo uperalcu. The Prill/ceo partnership lIgrcemcm also generally requires each PrimcCo llwnCr to !in-a offer PrimcCo 1I1ly personal cnmll1unk..tiuns services property that the owner wishes to acquire. GTE uwns personal cOllununications scr\'kcs licenses in a number of marketl'>, covering a total of llPPlllximalcly H.6 million potenth\1 wireless customers, Wl~ are exploring a lIumber of ultemutivcs for resolving or climinilling rcgulalory llr lither collllicls rdating to our wireless operations. These alternnti\'cs include, ill auJilinn to the AirTow.:h Iitjg~ltjun llnd dissolulion of PrimeCo following the AirTow.:h-Vndaful1c Illerger, ~aks or wireless properties. exchanges with third parties for other wireless properties which would not raise cunnicl issue!-, re-Ilcgot;ulioll of applicuble contractual provision~, rcuuction of spectrum ownllr~hip anJ l)th~r tra\lsUL:tiol1s. ' 1-57 ,; ,'., .' , '.( . .'. : ~ ~ , , ~ 1,1 , . ,- If":. ' .'>') : ~./::" : r . : I ~' '.. \- '.' 11'\ ~.J' ..' .. ~ ~ ': r; .... }., : ~ ;,' (, ('I":;' \~, ;, . ...,,; ,,":(( ,~ . . ' ~ : ~~": ~ ~ i ".;. ~ ~~-:f 1 <. c ,,",- " " ,;, :f '~ !' ,,' ~ L' '~: ~, i f.s :'j' ',1 , .,;: ;"-( ',," , \".\1:, ,;~l~ ,rJ... ,1" ~):~~~, ~~;!, :,~ t..o;: ,~~;~, .t. ~. ~l~~ ~.;J i.~. ~~~. ; ((~{ ~~~{'l' ,Jor "'i 'J..!l.~ )!~i~' ~:.j!';l "r;''''l.c ';i.~~:.: ,I~~; '/;.f:;:i) h~); ,joel'" 'Xu .~ ~f:~ 1 ~I"i ., /,~,\, .~~I ~;. .:!/l,;. ''i i ;"'-:~{jl.1' .J ~ I:'''' .~:i,', 1m '~A\ :"~.::~ :~'r' ~, . ::-:. ~ ._ ~ I I .?'! ,I i~ ~ ~ . r '~ 1; .;. ,~ /1''': ,.y, , " t~~~j::t:,~r::,;:,::) 'j :';:<':'~.', ',,:; :;~;:: :::', '.,.::'~' ' , ':,\~',?' '" ',,:: . 0" I . . f' . , .. . ~ . '\ . ... ~. ..~ ' . ", ;" . . ,~... . ;.; . ~ ' .... f.. .,. . I" I' ; . , . ~ " , ,", \. . .; .'." I ( . " . I~: , I .) I ',' , , . '. ~:', :,) " u: I, ,,' .:',.' .' . - "., . _ . ,"'J . . I. ,: ~ . , ~, .. . ";',. . . '. . ;; ~, :,' . ::. .- ' !. : , . '.c i'. . . : .~ N '" . -' >. ..' I .. . ; ";j', :. 'l',>.';<,.~.--:'l L:~...,~c :t." (0. J.. ..... . ~. '1;"",~,:~.~:~'''1:. ..,. ,'., , ,':~"?!;)'i>,'~i,:..:,,:F, ?:,::t'.,;,:":;,;,.:.",, ".,' < . '.:. :, ~.:. ... : 0 . ~ ~. : 'l i . . , ,;;~"""~,(,'",,'_,,}'1',:,:,,, :,>,_:i.H"";:1"7"""'~"1:"':';:'.'(""";""~:"it..)~.:,;'.'",:'. '",',',i). ':"'. ':'" "H ,: " , 'J<<. "~. ~ ' ..1 "o;.ul .. v~~___ ......._ ~~ ~ ~:..~:,~l;""~'~')";cJI ~'''''''':'''T'''''''~.Tb'''''.:''''""", d':oi'~~1:1 J; ~t...... ....... .,.'.,..._. .....+J',..,...... '1..~:~..,.J /.....d~.~):c f , , . ... 1 ~ I ,..,. ,-' ,:' ,: , I, , '. ; . ~ ~ '.' " " .' ' , l.c'+" " ,< ,\!' ;" " ~ ~': 'I);:'.. ,;,';':; :: ;;~ ~,..' '. J~' . ,.' -.'~. 'I ' ~ ~. ~l " . .,l No Appralsallllghts " ,," " , "', , ,"Undcr' t1ie I~\v of N~w York. ~vhe~~ GTE is incoi-poial~d; holdcrs 'of GTE corilmo~ stock ~re n~l entillcll to uppl:aisal rights'in' <;otuiection 'whh !he merger because 'GTE, ~onunori stOck 'is listed orl n nlltionlll securities' ' ~~changc,','., "~:'''''",:',.' "", . ,,' I ,,'.': ,',:'" '., ,.' ,", , ':,.',',,: " , .' , Under the low of D~laware, '~herc' Bell Atlantic is in'corporalcd, Bell Atlantic sharehold~rs are noi entitled , 10 apprnisal rightS hi connection with the merger or the related transactions because they witl continue to hold { 'th~~r sliMes ~Iftcrthc merger.' , . >: , , " ' '. ." JfPJ1+. .~: '.,~;i .' , j" .' , ., 'f '. . . GTE Shareholder, La~~u~ts<;halJ~ngjng the Merger . . , . , ' ,De(weet.(Juiy 28;' '1998, and A'ugusr' IS, 1998, plaintiffs uJJegij)g themsc.lvesto be GTE shareholders filed " fourtcclllawsuils hi rhe Supreme Court ofthe:Stlne of New York,.New'York County againsl GTE'nnd the' : membCrs of the GTE Bo:ird of DircdorS.:Thcse lawsuits' have been'consolidaicd into a !lingle class action in'the Supreme Court or the' State of New York. The consolidated complaint alleges that GTE and the GTE Board of " Directors breached 'their fiduciary duties to GTE shareholders in approving the merger. The complaint alleges that GTE shu'reholders will not receive udequ'ate compensation for t1\cir shares of GTE common stock pursuant t~ the merger Dgree~nent. TIle complaint seeks one or more of the following. remedies: ' I' 'e ~i , , :', ',~ ,,' to Pre~imin~ly an~ pcnnancnlJy,cnjoin complclio,ri of the merger; " .., '(0 rescind the Itlerg~r jf jt is completed; or " .. , .'. ' . , (0 recover co~pcnsatory damages if Ihe merger: is completed and not rescinded:, '. . . . ~ ' , > . . c , ~ .' The complaint mimcs Bell Atlantic us a aefcndant and ullegcs thut Bell Atlanlic, aided alll! abetted the' purported bl'l'uches of lilll/dury dulies, We have fileu a motion to uismiss the complaint based on ourpositinu' thnt the complaint docs nol state a legal claim and GTE's pos~tioll that the actions taken by GTE's Doard of Directors in connection with the merger <lid not breach any fiduciary dmy owed to, GTE's shareholders. We intend'to,delend the laWSUit \'igorously., ',.,' "," " , " , \ . j ., +>) ~.. ",' " " 1~58 . \~:;;i;~': l',,'" " :, ;'.~.~r'.>,':. '. ~~:~..:' .- '1"1'.. , ,. . > .', .~. . '" '.1 ....". . L " ", '. . . . ,- ~ . .. ," .' :p...... . > .f,'" !'. , ir t ". .' . :, \'. " , " " , '"C " , ',( :',/' <,~'.J . ~ : ',~.' . ~ ,: ,;:, "J " 'i "'~1 1 ,. , .t, ", ,'J ..-' · ,:) "': ',', j ",", ,( . <. ~ . \ , I ,[ ;: ~ I . t \,: t " , 1 ", j ':/: j I';' " ; i'>, I :l I ,~. : ; ,"I " J ,.:j ',! , j . ........ 'l. '<1 f ) I ...._.... , , ,~ . .._._--~~--------_.--~--------- ::<~f}.,:,~ <::":":,:~",,,,.. "',',' '~" .- " , " ;. ~ " , " \' " c ",,' . "1 . '" \ ~. . , " , l . ,.' . 'I, ., , ',~ .....;, ('. ,'? .. . I I. , " . ,', J' . ' ~; ., . ~ - .' ....10. "; ", ( :' " ' '. ,I' . I,. ,".. I,; ~ ,. t , " , . , , ":': ,\' <.,. ", ' . C( ,,: . e, . ,: " ,..' ,'~ . .... . 'I'~ ,.' :~; . . . . I' .' I,C. : '. : . :. I:, I;,' . l., ,:1, I' " : " ' "::", :.-:;. ", ,'!: I . ~ . . I \,'..' ,!, . .. ~ I . '. . " ;. I . .', ' -. ,".'1".' c .. '.' . ~ :.': ;\E?i;\J;:'if~;;';r::?~,~i~~~'~i:..'..~~'.'" " " , ". c < .. .~~:""f"\;"" .I.....~~...........~.-. , ',.. '.. .r~ " COMPARATIVE PER SHARE MARKET' PRICE, AND DIVIDEND INFORMATION . , I:' . , We nrcproviding'you wilh the rcported,high and low sale prices of-GTE common Mock and Bell Atlantic, common stock as reported onlhc New York Stock Exchange's Composile Tmnsactions Tape for each calendar qu'artcr during the last three years. ' GTE common stock and Bell Atlantic common stock iJrc listed on t1~~ New York Stock Exchange. the Chicugo Stock. Exchange. Ihe Pacific Stock Exchange and various foreign exchanges. Bell Atlantic common' . stock is 'also listed on, thc Philadelphia Stock Exchange and the Boston Stock Exchange. The GTE ticker ' . symbol on the New York Stock Exchange is "GTE". TIle,Bell Atlantic ticker symbol on the New Vork Stock Excl,lunge is "BEL". ' GTE Commun Stock ellsh Mllrkct Prlre 'Dividends' 'HIUb " Low ',Declll....,'(!. Bell i\llllllllc Common Slock. Cosh Mllrket Price 'D1vldtlld~ ~ Low Dfdareu '1997 First Qliuricr ."...................,.... Second Q~arter ." '. . . . '. . . . . .': . '. . . . . . . . . . , Third Quarter. . . . . . . ';: . , . . .'.'. ; : : . . ~ . . : . Fourth Quarter '. ;'. . . ; . '. .', . . . . . . .. . . '. . . . . .- 1998 ' First QUw1er ...... '. , , . . . . . . , . . . . '. . , . . . Second Quarter ...............'..,....... Th~rd Quarter. . . . . . . . . . . . . . . . . . . , . . . . . , FOllrth Quan'cr '. . . . .. . . . . . . . . : ,'- . . , . . . . . , 1999, ' First Quarter .............,.. . . . . . . . .: . . Second Quarter (through April 9, 1999) ...... 529.63 18.38 34.00 37.38 ' $.37 , .37 .385 ,385 $.47' .47 .47 , .47 $35.69 , 39.13 40.81 45.88 $49.38 47.50' 48.38 , 52.25 $43.13 41.13 42.88 40.50 $42,38 44.69 40,44 47.75 $.385 .385 , .385 385 '$.47. .47 .47 .47 553,00 51.63 50,44 . 61.19 $60.50 64.38 58.69 71,81 $47.94 , 55.25' 46.56 53.94 $69.75 $57.00 'S65.00 SS9.50 $.47 S60.44 $50.63 $55.94 $50.94 $.385 * Adjusted to reflect n two-for-olle stock split on June I. 1998. On July 27. 199B. the las\ fun trading day prior to the public announccment of the proposed merger. the closing prices on the New York Stock Exchange Compositc Transactions Tapc were $55.75 pcr shure of GTE common slock tlnd $45.00 per share of Bell Atlanlic common stock. On April 9. 1999. the closing price on the New York Stock Exchange Cumposite Transactions Tupe was $64.31 per share of GTE common stock and $55.88 per share of Ben Atlantic common stock, We urge you to obtain cu'rrentlllurket quotations beforc voting your shares. Because the exchange ratio is fixed in the merger agrcement. the market vullle of the shares of Bell Atlantic common stock thai holders of GTE common stock will have Ihe right to lIcquire on the date Ihe merger bccomes t:ffl:ctivc may vary signifkuntly from the market vHlue of thc shares of Bell Atlantic common stock thilt holders of GTE common stock would rcceive if the merger was completed on the dute of Ihis joint proxy statement and prospectus. Similarly, the 'aggregate markct vulue of the sharcs of GTE common stock that Bell Atlantic will acquire on the dale the merger is elTective may Val)' significantly from the aggregalc market valuc of the shares.of GTE common stock on the date of this joim proxy statement and prospectus. , Bell Atlanlic curre'ntly pays dividends at a rute of $1.54 per share each year. and GTE currently pays dividends at a rale of $1,88 pcr shure each year, The dividend policy uf the combined compuny will be determined by its board of directors following the merger. We expect \he initial unnm\li1,cd di'o'idcnd rate 10 be at IClIst $1.54 pel' shurc cllch year. Since GTE shareholders will reccive 1.22 shares of cumbined company common slock in the mcrger for ellch share of GTE comnlon stock they OW1I. this dividcnd would be nearly identical to the dividend that GTE shareholders now re<:ei\;c, I-59 I. ., , , 'll/ '" ~ ::: . t " ;./ '. . '/" . ) ~ .~~ :.'. .", "0" ".'1 . .~ ~ ;'...:' ", , ' .>,~ I: I d " , " ,"\. !.\: ,', 'f 'I: ; I ::';'.J '>)' '~.f t '~.'r ,:,", / ::,::< r" /. I ~ '4' /,~ ~ >' : ," ~{: '. . ", ," . ,"~ .. 1 ,< (. " .~ " " ....~ ',I , . , V t\ ~;'c ... '~J :{ ~~i ~\; I~~ ,: ~ ' . ~ \J' :+~'J ~': ':~). I\:~:' rt'l ,'j.; !:::: ',,- :~!~ ~';.j r\. ~...;.: {.\'l., ~r" ~l~~~ t;1f ,,' ~ . ....:'til~ ~:~~ '. . :.1/';, I,.' ....t. . '0, " ~.{{. ;.~~~; ;9; t' , $.'{.4 " ;, . , " , . ;.' . . I " , " I', . . .': ~ . " . , . , , <..1;.\' "I '! . . . ,d t . . . ~ ',I " " , . d. . " " . . '~ , .' . . " "I " '.", . .i" I . .< " " , , " , , ') , ~ .~ '1 :', ,', :. I' . .' ~ ,> : . [ ,,> . j ~ I: , . ~ . '. . . I' ..... ~, . ...~ :' :.... :;l~,~.'~'llIf;...Ld< . '~ .' , , , ",~.......hr~.,,~t~~~'!'I""", ~ '; .....IJ. J < 1 . 'UNAUDITED PRO FORl\L\ COMBINED CONDENSEl> FINANCIAL STATEMENTS 1 " . . '.'" ~ ,,' . . 'The following unauditcd proJorm'~ combined condensed financial statements orc presented assuming that , !.he mcrgcr,wHl be accounted for 11.'1 a pooling of interests. Under this method of accounting, the companie!t arc , treated as if they bud alwllYs been combined for accounting and, financial reporting purposes. These unaudited pro fonna financial statements have been prepared from, and should be read in conjunction with, the historical consolidat,ed fimmcinl statements and accompanying notes ~f GTE and Bell Atlantic, which have b~en incorpOrated by reference into this joint proxy statement and pros~ctus. The unaudited pro forma fin:mcinl infonmltion is presented for ilhistrnliQn purposes only and is not necessarily indicntiveof the opcnlting results or finandal position that would have occurred if the merger hud becn completed at the dates indicated. The infomlution'dOes not necessarily indicate the future operating results or financial position of the combined company. :We prcp~ed the l~ri~i.1ditcd pro l~onnn Iimincint'data by adding or combining the historical amounts of each company ar;td adjusting the.combined amounts for significant differences in accounting methods u!>cd by each company. The~e adjl1~tmeltts are described in the, acco~lpanying notes to the financial statement!!. We prepared t'IC, 'unaudited pro fqrmn combined condensed balance sheet by combining the balance sheets of GTE and Dell Ariantic at December 31, J 998, giving etTccl to the merger as if it had OCCUlTed on December 31. 1998. The unaudited pro forma combined condenscd statements of income give cfrce~ to the merger as if it had occurred at the beginning of the eartiest period presented. cOJT1bining the resulls of GTE and Bell Atlantic for each ycar in the thrce~year period endcd December 3 J ~ 1998. TI!c tem1S of the mergcl' specify that each shure of GTE common stock will be converted inca the right to receive 1.22 sharcs of combined company common stock. 'This exchange rolio was useu in computing certain of the pro forma adjusllncnts and in computing share and pt:r shure amounts in the accompanying unaudited pro fonna financial inrormution. As a result of the merger, the combined cumpany will incur direct incrcmcnlUl and tmnsilion costs" cum~ntly estirnult'd at $1.6 billiofl to $2.0 billion, in conncclion with completing the transaction (lnd intcgrating theopCr-..ltions of GTE and Bell Atlantic. These costs consist principally of systems modification costs, costs assoCiated with the elimination and consolidation or duplicate facilities~ employee Severance and relocation resulting from the mergcr, branding, compensalion arrangements, ami professional and registration fees, While the exact timing, nature and amollnt of thesc costs is subject to change.. we, anticiplIle tlulllhe combined company will record a chnrgc of approximately $375 miUion for direct incremental costs in the quartcr in which the merger is ~ompletcd, This estimated charge is comprised of the following nmounts; , l>lrect Incrementnl CO!ils Compensuticm arr.mgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Professional services ,..,....,.............,..,......... , Shareowner~related costs ..,................,.........,.. Registration and other regulatory costs ......... '. . . . . . . . . . . . . . Other costs .,.,.......,....,...,.,....,............". ([)1I11111'i'i In mlmlln.~) S 206 85 32 27 25 $ 375 Tolal ,'.........."..,..;,..... .'.,........,.:..,. The direct incremental m~rgcr.relalcd costs havc been rc'l1ecled us an increase to other currelltliubilitics and the after-tax cosIOI' this :mlicipateu charge (approximlllcJy $310 million) has hecn ref1ccted as a reduction in reinvested earning~ in lhe unaudited pro forma combined condensed baluncc sheel <11> of December 31, 1998. 1-60 \:Il.:r) ,':, .."'.~~.', :,',.,"" :, ' , ~. c '. ~ ., ,:\ '.': ':" : ,~ '. " , .C't .'1' . ...,,~, :'. . I,". . ...', "~-" . . , ': ,'. nO,: ;. , " ~. ~I . . ~ . t\ ., ! . ' ~. " 'l j. ",' ;,." I f .' :',',' ,"I , 1. ' . ~ ~ ,~ '1 'f , ".l ) . . " " , " ; i ~ , ! ~ f I ~ I ,. , ( . ! " ',I " ,: ,--J j '. > "i' , " .::' " j " , ;:" \ ~", \ ' , . 'l.,; ~ t I.; I"" ,'. , ,") 'I ..;~..;,J " y : "} :'.c )/".: ~, ' " , ,. , " , '! " . I ~ , . . . J \ ,~ ; c : j' ~ ~ . : . : ":: " '. .' , '.. , . l . . ~ . ,. ... . . .,. \"." '"..; '" ': ... I ' ~ '" ,. '.,' t.' >:~.;:-I' " .,' .("e6-" " " . d' ,'. :. , -' '- . ~, . . 1 . ~. '.' , ," . :. ~ . " 'i. ' " . :', " ' , . '.' .',,1. ". , :' : ~ I .' " . ~ . , , ~ , :':" i , ....:.. . ". .: ,,:' ~ I~' , . . . .' . . . ~. I ~ . . >.i;~t.'r~t!...;~ ~:!t..~{" 'c '~.,~'...:t. :,' .':t : '~"". ". '.. ~ f .fl..~~....~>j,.d_r!itt:-h..~..'-~.........~ H.t._,,,_~'.,....v:.t-!-"~ ~'/!~~:\'.r/'-'.t, .~' , ' , ~ . . . . :'1,c " ' Transition costs of $1.2 billion to $1.6 billion, to be incurred over Ihe thre~ years following the completion 'of the merger. arc not reflected in the unauditt:d pro' forma financinl infonnlllioll, The trullsition costs are comprised of the 'following estimuted amount!;:', ' . : I C p, (Dollars tn millions) " ,; I., . ,Tnin..~tlo'n Costs Cost Ran~(! Low 1'11,,11 ' $ 650 525 200, 125 125 , '.' Severance and relocation ....".,..,'.....,......,:...,'...... '. . . '. , . . ~ .' . . . . .. , . . . , '.' .:, $ 560 375 150 , 75 65 $1.225 Systems inlegr.llion . . e', . ~ . . .. . . . . . . , , . '.... . . . ,'. . . ',', . . , . . ': , . . .', , . , , , .e. , , . , , " . . Brandjng . . . .. . . f . . . . . >. . I .. . . t, . .. . ... : . .. . . . . . . . .. :.. . . ~ . . . ~ + I I ~ . .. I . I t ~ + f + . . I ... I . Real eSlnle consolidation ,.".... '. , . , . . . . .'. . . , . . , . . . . . . . , . . . . . , . , . . . . , . . , ~ ; . Slaff intcgrution and Leai'ning ....... ',' . . . ~ , . . . . . . . . . . , . . . . . . , ',' . , . . . . ; . . , . . . , , S 1.625 Total .. 01 . . .. . . . .. t- _ . .. . '" ... . ;I ... ... ... l' + ... ... ,. 'l> ~ . . + .. . t . . . t t . . .. . . . t I . t .. . . ;. . t t . . . ;. . Although the precise timing of the transition costs is uncertain, we expect that approximately onc-half of these costs will be incurred in the firsl 12 months following the c1o<;ing of the merger, onc-lhin! will be incurrcd in , the second succeeding 12-month period llnd the rcmainder will be incurred in lhe third ~uccceding 12-rnonth pcriCld following the closing of the merger. Tlte unaudited pro forma financial data also docs not include: (u) an)' of the anticipated revenue increases. or expense or capitnl savings resuhing from the integration of thc opcrntions of GTE and Bel1 Atlantic: (b) any costs incurred, consideration received, or dispositions made in conncction with actions thatll1uy be taken regarding certain overlapping wireless properties as u resull of regulatory or contractual issues lls!>ociated with the merger; or (c) .my dispositions required us a result of rcgulalory or eontmclual requircmcnts. On January 31, 1999. BC TELECOM Inc., a majority-owned subsidiary of UTE, mcrgcd with TELUS Corporation to create 11 growth-oricnted telecommunications company. The mcrged company is call cd BCT.TELUS Communications hie, Undcr the tenns of the mergcr agrccmerll. GTE's owncrship interest in lhe merged company is approximately 27%. Accordingly, during thc first quarter of 1999, GTE will deconsolidate Be TELECOM and account for its inveslmerJl in BCT.TELUS unLler the cquity mcthod of ac!:uunting. The pro lanna financial infonnntion that follows has nol bcen adjustcd 10 reflect this lransaction, which would nor have a mllteriul effect on the net incn'me of the combined company. As a rcsult of the tr:lIIsactiun, GTE expects 10 record a one-time, after-tax gain of uppro,ximulely $300 million during the lirst quarter of 1999. This gain will be partially. offsct b)' charges related to cost-cutting initiativc!l within GTE's llutiC)llal operations unrclated 10 lhe merger and lhe early retircment of long-tenn debt. GTE cxpects thaI Ihcsc charges as ClllTclltly estimated will be approximately $150 million 10 $:225 million after-tax and will include $ too million to S 150 million after. lux related to the liepnralion of 2.500 to 3,500 GTE employees and associated fucililics costs. The eusl of thesc actions is not included in the transition costs described uho\'c. Additionally, during J 998 GTE committed to a plan 10 sell some of its busincss uJlcratiolJs, including GTE Govcnunem Systems, II supplier of gll\'emment and defense communications systeJ1l!>; GTE Airfolle, a provider of aircraft-passenger telecommuniclltions; llnd approximately 1.6 million nOlH.trtllcgic lelephone act:css line!> in thirteen states. III 1998. GTE Government S)'slcms and GTE Airfone gcneratcd revenues or approximately $1,6 billion and operating income ot' approximmcly $.160 milliun, Due 10 the \:cntrali1.cu Illtllmer in which GTE's local t~lcphone companies arc mannged and the faclthat the lines to bc sold reprcsent purlions of stales rather than cntire operating companies, revenues and operating income applicable to the lines tll be sold are not readily delerminable. The 1,6 million telephone ucc~ss lines held for sale reprcselll approximately 7% of the uverugc domestic lines that GTE h;ld in sC'rvkc during 1998. GTE's goal is to complcte these Ol!>sct sales during 1999 and 2000. The pro form~\ lionncial infOlmmion lhat lallows has not bcen :sJjustcd III rcllcclthcsc Plllcntiul tr'.insllctions. On AprilS, IQ99, GTE mmnunccd that it would ucquirc Amcritcch's wireless properties in Chicago, 31. Louis and centnllll1inoi~. GTE will pay $.127 hil1ion in cash for thc propcrties, which include 1.7 million 1-61 , I " , f-m';~~:\):J.1'';'/:''.~''''''':r~...\~ll.;t\.\'I''(~I':'\.\':'i!....{...I.,.'''id;...~.ri;.:~ '<}.\\ " '", .,,' . ,.,...... _,~;...,T .r: :.....jrl~~'t1...~;...1t:(<....-:1"-.if4.: I. ':I'~,-"~, ;.'/ "..~.'" I, . '.' ,\,.:;, .i:r;,.~.I..':,' . .11'1 ., ~''''~ '1 J'~rw"" "'..\"'" ',,'.. ,',.'1,.."',..,, ': ' ',', " "i: ,:::;:;}\i..'\;,<; , !~1t~:?s~~~;}~~kit,:},?;:::'::>!',"l~~~,' :,:;';,~,,:,' ',' '.. .' ,,'. 'iW'''''t\",..,.".l", ". ..,'.".." ',," ", ,..,. "s .,'" , :My}~~;.~.!~~':':'.::\..:;'. ';." ::, .',{;'/(~','.';>/' ;' :';".<,:.-, . ';, C:,>:~ ..'i ,!'~':': ~':',; '.' '. .fi'J[t~~!\-./' , ~~' \'> "'.. I" ~.J~....~ \.r~,.t'. ~' .," .' \..,...... I .' ' "'. t~~~t~~~\],:\{;i;;~t~;;;,~~\~~fi~~ib}; ,/,t '.,,;,:::; :~\,:;; .';,: .", ,,', "..,.: ., :,.,'.:'. :,' \,:,.. ,....:. ~~~~~~c:,~:~fJ;ff~"'~"'fl.",\",,;/,.,l:;"'"~F"""~ltit..~~ r', '.~j.f~I\\'Jq~l,.. -.,.......' 'IV !,,~\ .,'. .,' ,.. i1~}Jt::;i'. t,~;'}:,.;(\~,?~;i~\~7:tW~f,,;?;;~'?,';. \i,:':: ;::"" :" ,:;, '. .,.',;. ,i", .,', ..0,... d' ) \' ,. .. (,..,~"',,)r "',,"1' \" ..~ .~'~.. ,;.. I ,~.t .. " . 2;:~d~~:: : ~ ,,':,:';~:/"J',i;/:,'~ (,>'::);!t~J~;~~t;,~':,\;~h'/~tf;/t~{;;~~f~ \,<: ~,::<.:;. ~::,~ :'\:":',: '.: ~t ~.~: ,,,::..':;,. "..~~}. \ "t,'_~ l~j ~~.. ;it'~~:).1:\p\"-:'(,j~;i~vr"'~l~~~;';I..... .:.-'U;.i\ .",. !'...- i.' ~ . J ;, I.L:~. ',,;, ~:' :JY'~~",~}1..".~ . :P\ot.' ~.'..' ~'lt. -..:~., ~ \, 'J\ '.. ;'" \ ' ... ....:,.,.t....' ...,..;..I.p.~.r~..... ;..~r~.t'....l\}..'~..I'...i~..-<.....~'..:1 .'~ ',~ '., \ ." ..~." :.ll}'~l~,'t~":.:t~:'r*~:?~~~;,tr~r:::~.J~~~t~~.i:a~.:;....t.~~~:t"'l~~~....~~r',~t: ./,~,.~,.:.;. .r <,:,' I ..J.o' . .:',: ~~~ .:...:;...M...1.'{~\1)~..\~. ..~I.Fil ~f....Jj;"...~P.~~~~J~\,.~....:~I' t......./..,;l.:/J ...~~;...~'I\HI.'~~J~l....k.~~. ....;.... .......;v.~'t""'... H' ......,.... ,. C?1:.: . >) . . t to. . ''n,' ); " ' ~: : : ..~t~. . .,~~"/'I ,'/:":"':'/:':':" .,' ;11 I.' . ", , . I' '. {,~I > . , " ". f: $.' '.:" ,>.' t' t" .(:'c' t .i~~-: : ~ " ' , '. j .' , ..../ , \, .'. . :I~ ",..:.' . ~. - ~ ,,' tr' ";,(,, > ,t ,'. '. ,'; :' i \'. , , I'c,: '.. ',: ~, .' '. II' i.~ ! . '1< " " . I'. . ., ',' . ;. ~. " , " . ~ ~ ,,,. , "I \ <' " ' , ~ ;,. f:' \' " , ". j.. I: /, ' ." ,. " ," :L~ :~ ,"" If1"";' " )J, . '.'! t' Jt aL':',: \~{-/ " !:" f. '1 i~< ,~ . " I , i 1. ~ " ' . . " .!. ,~~ '. =:. . , SUbscribers and more thalli I, million Pote'ntial wireless customets;'These properties will be 93% owned by " 'G.TE and f7% ~wlled by' DavenpOrt Cellular CORunllnications LtC,' n company wholly-owned by Georgetown" ' Partners; 'Dtis'tfansnction is expected to be sli8htly. dilutive'to' GTE's cwnings pcr,s~are, in the first,year and the All1;l,l~pr for"the, co~bined company on a pro forma basis' wouJd be insignificant. 'Th~' pro fonna'infonnation that folJows has not been adjuste.d to reflect this transaction. On Il pro fonna basis. the annual revenues and oPem~iig income for the properties to be acquired represent approximately 3% nnd 2% of 1998 consolidated 'r~v.eritiesan~:operaling 'income for GTE and the combined company, respectively. This purchase wilrinitinlly , ' be,finW1ced with debt. but OTE plans to pay'do''''l this debt with the more thun $3 billion that,OTE expects' to "g'~nerate 'fl'9m the p'reviously announced sale of non-strategic assets.'" ' ;, ..' ,:'~ . '.: ,. . t . . .,J. '~~'.. ~ " ,>) . . \;/:.:.} :;} . . ~ ' , . ~:: ~: r~ 'i~;:' :. ;.~', 1. " ~~ \ :: '1,' .... '.1 ~ . " '. ~ .. \ " " ", f,.',' 1':. j~.:~..! . ~:. '. ;. ,~. ::. \' J . .' . ~ ..\ .y' ,1 ,I . <~.: .' ,;. .'e " " . ;,:.~. " J~:~': 1:',1 ", ':.':: :~,~ ':1 ""i::'" "'U(.C~'.~ ,~~j : :-,'\ " .",' . \ " '.', . " ,i. . . .:." ." I ; ~ : ;.! . } ; t ," J 1,.. 'I I ~ . . ..": '.'/ ~. -: ,,' . . " .' .' 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" :\.~,:,;~" /~;};~;~ik~];;;ii;:;:~;:~k.}~~:~,,:.',':;: <':~,. ~:;Li:<;~~':;.,~":',~,~'~~~,~:,'~:,,:\ ":,"1 ,,. ,':, ,,/ , .j , " '.J ~, :'1' . , , " " , , ,1 ;~' ':"~ .' q' ,':":'1 '.;~ ~ ~ a.... , ,.J . .r' . ;,",1 x': i :,:,1 ':';f : '~ {:'$ . :.': { . ,; ,j , " .:. . ~ " ,> I:'~'::-/. :: <. : -:. I~. . I'" ~:~' ! ',Ie I ;,j , f , L,. , r',-~: ' 1 ."'1 i , J , J .. J i t 1 r v I ' ",. ." '.\ ~ . -I; - i ~ ~', ,; , " '/', ',', . c ~. . , '.< C\' r. ." , , .' .\ ..\' . '" \ .,':< , I, ':.:,., "~I ; ~ :', . "I " , ^ ' .. ,,', :;..:;..;'",/":~':" ,;' .!,.,."" ,. " ,",!">';'..+ : I"". "\ . , ;':,(/' " 1 ' : ' 't" .,' ,... I "':> . ' ;\ . , ',' " ,,. ',' / ~. ': ',' 'I ~ - I, , , " I " ',"\ ,'<' ; " , .. ", . ", ! .' , , ' ., COMBINED COMPANY. , . , '; 1 ! '; PRO. FORMA COMBINED COND~NSED BALANCE SHEET ,..'" 'DeCember 31, 1998" (Unaudited) ~ ~ ~ .: . c'; " ~. . . " ,~ I ~ '1: i . '" 'J' It,; ! " " ,~.. i. . " "I H" ::: c', ;' \. Assets> . I ";, . CUll-ent assets ,'" , : , :. Cash nnd temporary cash investments. . . . .' ~ . . . , l . Receivables. net. . . . . . . . , . . . ~ . . . . . . . . . . . " OUter current nssctc; . ; . .'. :; . . . . . . . . . . . . . . Toml current asseL" . '; ; . . . .'. . . . . . . . : . . , PrOperty. plnnt.and equipment-net. . . . . . : . . ... . . Investments in unconsolidated busincsscs. . . .. . . . , , OUler assets ...............,............... Total nssc[s. . . . . . . . . . . . . . . , . . . . . . . . . . . . . . . LtabUitlcs 'and Shl.lreowners' Im'cstment Cumml JiabHHies Debt maturing within one year. . . . . . . . . . . , . Accounts payable and accrued Iiubilities . . , . . . , Other current liabilities .,.....,..,..,.... Total current 1iabilitfes . . . . . . . . . . . . . . . Long-ternl debt. . . . . . . . : . . . . . . . , .. . . . . . . . , . . Employee berielH obligations. . , . . , . . .. . . . . . . . . . Deferred credits and other liabilities. . . , . . . . . . . . . Shareowhcrs' investment Common stock (2.757.203,141 shares). . . . . , . Contributed capital, . . . . . , . . . . . . . . . . .'. . . . ' Reinvested earnings. . . . . . . , . . . . . , . . , . . , . Accumulated other comprehensive loss. . . . . . . Less common stor.k in treasury. at cost, . . , . . . Less deferred compensatinn--employee stock ownership plans. . . . . . . . , . . . . . . .. . . , . , Total shareowners' investment . , . . . . , . . Totulliabilitics and sharcowners' investment . . . . . . HMarlenl , BeU Atlantic HIstorical Pnl Fonnu ' Pro (o'orma GTE Adjustmenl1 ' Combined (Dollars In Millions) $ 657 $ $ 1.680 4.785 J , .345 1.339 65 J(e) . 2.903 6.781 6S 15,928 -- 24,866 (202}3(d) . 61,480 2.210 6.486 9.758 14.728 $43.615 ' $ (137) . $98.622 -- -- $ 1.023 6,560 J ,499 9,082 36.816 4.276 4,970 $55.144 $2.988 ,$ 4,148 6.105 5,209 1,438 998 --' 10,531 10.355 17.646 15.418 10.384 4,404 -- 3.558 4.672 158 50 13,368 7.884 1.371 2.740 (714) (375)' 14.183 10,299 593 '1,024 565 509 13,025 8,766 -- $55.144 $43,615 s $ 7.136 11.314 2,811 21.261 33,064 14.788 8,153 375 3(b) 315 (77) 3ic:) 68 3(a) 216 (1,092J 3(tt} 20,160 (310) 31b) ( 125) 3(d) 3.676 -- (I,OH9) ( 1,459) 23,023 (1,024) 3(n) 593, 1,074 (435) 2J,356 -- S (137) ,$98,622 ---- See accompanying NOles to Unaudited Pro Forma C;ombined Condensed Financial SWlcmenls. -- -----~_..!.._.. 1-63 . ,.' ". ~ ,f .. . , '. ~ "... ~ , t' ;, .. I . ..~ . . '. , ", 'I . '; :: " , I,' " \ . .,",. n I ... . ~ ,..' + '. .l. .. 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" I, " , >/ .,' " ~ .,' .: <., . j 'C. ',' . ' ..,; . 'COMnINED COMPANY . " ., , I PRO.'FORMA COMBINED CONDENSED STATEMENT'OF INCOME .'1, , , For the yeare'nded December 31, 1998 (Unaudited)' .. \ :"" " ' " , , ~ ~ I I. .', .f " , ". . , 1, , , . ~ r, . ,,l , " : ~'P ~; " " , ~ I ' 1-' . 'I . ,I .. " . ~. . t ,': ',",i. ."". ",:: ....;, ... ~' j:~" .... . '.J ,', I '. c' , ,I; . I . r ~ . . ~ . :.1.:', lIlJ1torfc:al lIlstorlcnl Pro Fonnn Pro Forntll Dell Atlllntic ' GTE . Adjuslmenl'l: CombIned (Dollan In Millions, Exupt for Per Sbore Amounts) , ".f I 1; : :~ ~.... . , " , Operating revenues . . . . . . . . .'. . . .'. . . . . . . '. . . ; . Opcra~i,ng exPenses . . . ; . . . . . ~ . . .. " . . . . ~ . . . . . ~ ' , - c .'; ~. ,} -.t ' " " ", . ~. -r: ,'. t' Operilting inconJe, . '. . . . . . . " .'.~. . .'. . . . . . . . . . .. . Illcbm~ . (lCISS) fro~ uncons~lidnlcd' busin'es'ics'. ."; . . , ( . ~ . . c. j. ' . Other,incomc'nnd (expense), net... . . .. . . ;,. . ; . . . I~!e~.s~< expense I ~ ~ . + '. . ~ . . ~ ~. '" '" . .' ~ '" . . ... . . .:: ~ '" Ii ... +, In~~~~ ~3x~ ~. ". ... 4- ',' " ... .~ ... .. ... ~ .:c. '" . .. . ... .. .. .. . ... ..' ~ ,. ... Income from continuing oPcriltions . . ,', . , . :'." ..,. Rcdcniplion of minorily illlerest '",........' '; . . .': " Red,e'nlPlion of invcStce preferred sU~ck , . , , " . ',' " . ' rn~orne available lo~oll1mon shurcowners . . . . . '. . . \ ' ., ./ "./. . ~'\.' , r " I' .' ~: . ',' ,," ~ " "~ , ,$31,566 . '24,939 6,621 (415) 122' , 1,335 2.008 2,991', (30) (2) $ 2,959 $25,473 20,137 5,336 240 (161 ) 1.370 ' . 1,553 " '2,492 ' i. . $ 2,492 $ 208 3(11) (208)' '~ ' , ~) 3(el (129) $( 129) '=== ; $57,039 45,284 1 ~.7S5 , '(175) . .. I (39) ,2,705 , 3,482 ,5i354 , ,,' ',,(30) , (2) $, 5,322 See accompanying Notes 10 Unaudited Pro Fonna,Combined Condc:nscd Financial Statcmenls. " ~:!",,:_, ;t~';c Igi. ~ ~" :'. ,I .' 1-64 " ........ . .~- .~:Ol ,." " , " , .. ," : '1 ,', . i . ~ '~ 'l ,',' , ,/ -.' \ , \ .'1." I , ~"r''')' \.~) .~~i.~11:~::~\l~!(,,';;,:!:i)!"~~;/ir"~~"~~~1'~'~' ~':;' :;:', ~./ . '~.:<. ~.:{.. .:' ~.~:~. -~ ~;_n ,""~ I. . . 'A\1.t~~{t;,;\;'i""~"'-"j~' ~~,~.H..th"~'", -~/'.' ~ ".' ,'., ,..' ,."". '.~"',: /' '. . . ~J~I .", . c l . ',' ", ' '" . 'l~ . '.' ...>. . f . . . .~: tl". '. ~., . .".. : I:"~ .... . '. . ,C~) .' . 1"',,,", :,',!: ',~..,:,~ ~! .' " . 1 .. : ..,'; I.' ~ ~ .: : . d ~ l :. : :......,~ > ... .. + >, . '., , .. l ~ ; . , , ',',', ( ).", , .. ',.l i ~. . ; ,.1 ;1':' . . 'c ~'. .. . j . \ . . ", j. .i. ! ~ : J"' . . . .. w,.. . . " ~ . . I ~. . " T: :'1 . ,',/' .' .oj. ~;I.:". '\:' .' I ". ,; j ,: .".! ~ ,1\'", ,~':, ':; ':,':, " :' ., .' ..,~..!J#t/.l.i~".~f!!:\U ;ttJ.m\'l.l"_ ,~,~~~"..r:,~;~Jt\V~~'ff)rI,~, '\"',1"'1.;';:,,+. "',,' ". ""'" """ '. ,',...~, , ,. ''" ,<'~'>':;:'/'; i .0' ,:':~::~~~'. ' :;:;~t.:;j!i,:)l. , , .. .to'" ,I i~..}:~;;;'rf-, . / ~.'~, . ~' ,<~ ' ,;' ,. ,> I,' ~ !.' ~ ~ ~. ,.;tl ,.,', i1, ~ ',:":' ,I ,~,':'., ,,';,!i ':~!:J?:' , >1" .' , i..: : ,'. ' .~ \; .:. ,~+ '. .," . ;:':': ..,.f}:< :' \ ':' " " . >;'. ,',:'"} ';l! . y; ,,' ';~' ,~,< :':'<1'" '},,", I'. '~'. ':/~ f: : " ' f' I' ,'.. , hr;'S~.:i ~~:.I.< :_: ' :i!:'{,::') ,'~::':i ~";;i':",~ ' .<11:: J , >: i "j>:-:~ ' . :".r~""') """"'L" , ,...... ,I , ~ . ;~l . .r , '. "~ ',J "'t;'. 'II" . . ~ ! } .1 ~ , '/ ',)' , , 'I .. ,'~ f ,~ ( j s J t ,~ ~ II " ~' \~~ l ~ , " ,.' ' . ~ ~. .' ,1' \. t" "l '. :J> "." : , , ., [ : '.. ~ f .' ),". t . . "1- 1:1 . . , , ,.\ , " 'fl. , ' . ~ I .. " ' ,. .. " r : :, , COMBINED COMPANY. , ' .',' PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME . , For,the'year ended December 31,1997 (Unaudited) " ' "." o . > I ~ . . J. ~ . :1:" j: . ~;. l. . . '. ~. ., . ~. . <: . I'.." .:.~ " ~;;. J~l'd(~ . i ", ~. _' ~. . : l: . Opcmtingrcvenues. ....... .':~:...... .,...;. .'.. . Open1tingex.penses"........... ....1............... ".'. ~ ~ +... ." ,:'. > . ..... . .., , Operating income I ~ , . I -t . ~ . . '...;-.' .. . . . . . . .'. . r.... ot- .. . Iit~ome (loss) from unconsolidated businesses', . . ~ . . Other income and (exp\'!nse), net;.. . . . . ~ . ; .'. . . . . .. Interest eXPen~e .....'.....' '. : '. ~ . . . '. . : . . . :. .'. . . ~comc:, taxes .. '. .. . . ; . . , . .;. . . ; . . . .' . . . ... . . . . Income from continuing operations . . . . . . . ... , . .. . C._wi ',..., . , .. Basic earnings per common share" Income from continuing operations per common share .......,..,........ ... , . , .. .. , ... .'. ..' . ... t .. t 1 "\yeighted average shares outstanding (in millions) Diluted earnings per common shure Income from continuing operations per common : share .................. ~ . ., .. . . .. .. . , , .. ..... . , ... . 'Weighted avemgeshares-dilutcd (in millions) ..,.. HWoricat Historical Pro Fonnlol Pro Form'n ' Rfll AIlJUltlc GTE Adjll,bnenls Combined (DolI,llts In Millions, EJ.:cept ror Per Share Amount!) $30,194 . $23.260 $ 'I '/. $53As4:' 24,853 17,649 111 3(d) , 42,6131, -- 5,341 5,611 (111)," 10,841 (124) ,217 ,,931 , .(3) (175),' , ' '.j', (178) 1,230 1,235, 2,465 1,529, 1.624 ~)3{e),' 3.111' $ 2.455 $ 2,794 $ (69) , $5,180 ,: $ 1.58 1;551.8, $2,92, ' 957.6 ' $' 1.90 .2,720.1 210.7 3(c) $ 1.56 1,571.1. '$ 2.90 961.9 $ 1.89 2,744.6, 211.6 3(c) See accompanying Noles to Unnudi'ted Pro Forma Combined Condensed Financial Statements. ',' ......--- t,' 1-65 " ,. ", " r . \~ . , ~ H.~ ;1;'.,\ , ; ~, '~ "i ":. . 1 " :'. f .,:: ~ .'.:. . I ~) . " I, . i~_ " . :....,c..,: . . , , I" ' <~~t.J?~:i.~~~r\1);:..1~~,.,v}~?\..'.~,~'t<I:<:,~.:r.'~:'1'TT'~'I':: ~.lt; . ';.~.':~:.:.~ ,~,..:::.{,:","" . ~.;!:: " . ?-;,r")~/l'l""',tL", ,,; ',' ''''- ,..',' " " ", '" " ~~J~r(;r'}"~:~!i;'\;\' \:::,.',i, .' ,', ,',. ,':;' ~~'" .' ." L :'f~ r' r~' _.. ....t . I , ". l . .' '!I {I i: \~, ':<t:.. ,-" I . .. ,.' . . , < '~ '.. \ 1.,'o11t,>:.irr' ~",'I~"".'\t';:li.i{{.J~i:;,"'t,r,:.",:" , '" . ' , " ,""; ...' ' N.~._.~tr~l~t: t;iljl~ijq ~~~~l;~.:..:~: >J:: ':)~.' ;~ ' '.~ ~~\;~,:;~'~~~ir~~~:~~~~t~'~.f.ln"~~"""'''i ",P. _... ~ ~ ~~. ", ," ~1.,. e . ':j " ~. ':.\~.:. . :~t~;: -_ I )i.. ~. ~ . . ~ '. " r:... . "'.,~ >;':" : . ~ I . ... ~ ',' " ~: ,/1.,/ . ~ " " " , '!' :' I, ) 1~', " ;y,'; .0:". . .' J f> 1" '. " , .' \' .' ~ I ..... ~. . ": . . :::1 ;::' .. ,I,': >' . ~ ,\' ",.. , ! , , ....\., ;:: , ! ,oJ P : t', . . I ~ c :,"( j:' t, ".' J , " , ' ! . /' ,I ','.- " - , , " I, ,,' I . ~.I .-, ~'< .-'~:' " , " ' " " .' ' " '~,' . : I . ~ . ~ , " , ,. . >" : . ~ . I . ~ . t " " , < ~ ' J , . .. . j ~. . . ' ."," I':. .....1> '. .... . .Ii t;' of ~ :i ',i, ~~ . " I ~f ~', " ", ~ , , , " ~ ., " ~ " , ; . '\. , ' \. t ',', . 'c". , I , , . ," , 't" > I. ,', '1~ ',', '..;. ,I, 'I, 1{:' .' A~~' j' " I' ',., . I. .. r. :':+ .. " " COl.\.mINED COMPANY,' , PRO IFORMA 'COMBINED CONDENSED STATEMENT, OF INCOME l', '. . . .., /, .,' . For ,the 'year ended December 31, 1996 (Unaudited) . 'l: ~ . " :;1~ ~ ,';. . \ ~.: ./I":~; , ': 1 ,"."f' c 'c.'" , ! I':. r' , ~... ,'" I ~ . \ - ',- :TO; ~:~~: ~.~ l .~,' ~ j ~ ::.!i ,.< :.~ . , : \~ti'j: ~'''.' '~j'ft ~;; ::: . . .,' ",. ", . '. : Operating'revenues .'i,' . . . . ... '. ..'.. .'. '. . . . . ;'! .:J .. , 0 "~-a '. , " pero.ting expenses'. . . . . . . ... : '. . . . .. . . . . . . .'. . . . .:"t > . .. ',' I' . ~. .' '. '" . 1. . Operating Income'.:.. . " . .. ~ . . .'. '. '-',' . . .'. . .' . . ... . . .. Income fmin unconsolidated businesses. . . . : : I'. . : , Other income and (expense), net. . . . . . . . . .. . . . , . lriterestexpense'.'...;...; .':... .'..... ;-.: .i... Income laXCS' J\ C~::.. ~', . , ~C~ . . . iI ~.. ... . . '. . . ~ ..J.. . . . .. .""...,. '., ":>'0,'. /. " , , :~. I 'I , . :'\"' ., ~~,..~ , I~\ .t: : f\',:,.::" ~:.;.... ' '.: '.'1. l ' ~~;: '.~. C,.' ,\, '. ":,' >:~ ,: ,.;: ...., +" " ;,. , Income'from ,continuing operations... .., . . ;~; . . . . , .}.. T' . . '. . , ~ <" . ':" ':, :~,i Basic eamings per' common share Income from continuin~ operations per common : share < ". + . .'. . '. .. .. . . ; II .. iI . ; '. .. . . iI . . . . . ";., '. . . .. !.: ~ ' ~eight~d average shares OUlslll!lding (in millions) . . :1" ", ,,' Diluted earnings per common share Income from continuing 'operations per common !, , , . .' sllare'" .. .. ... , .. .. . + . _ .. .. . . . .. :'. '. .. . 4 .. .. . ... ~ ; . + . .. . .~ . 'Ydg~ted average shares-diluled (in millions) ,... Hbtorkal HblotlCIIl Pro }o'onna' Pro J"orma Bell AUantIc' GTE" Adjustments Combined (Dollnrs In Millions, Excepl for Per Share Alliounts) $29.155 ,'$21,339" $ , ,,$50,494: 23,076 15.851 ,(14),3(d).'38,913, 6,079 5.488, 14 .H,581: ,14 ,.' I" 201', .' '~,',215, (100) , (l92) ,. ,'~ ' (292) 1,082 ,1,085 , , ' :2.167 'l,782 1,614 .5 3 (e)", '3,401: $ 3,129 $ 2,798,; $ 9 '$ 5,936; ~ '., t . ~ >' ~, ::. 'c . ~ .. ~ ~ " I '. .I,. . :' . ~ $ 2.02 1.546.6 $ 2.89 968.9 - $ 2.18 213,1 3(c) , ,2,728.6 ", " !~./ : ~. ,1_ I '" II $ 2.00 1,560.2 $' 2.88 -- 972.2" $ ,~2.16 213.9 3(c) '2,746;3' ,See uccompanyin'g Noles to'Unaudited Pro Fonna Combined Condensed Financial Stalements. 1~66' " d.,~> I \(r~.v ' ~~) l;~:}it;:: .:'. """;;:< ',' ::'r' ,'" " ,1 ,l, . ~ r .' .,' (,,' 1- . : . ~. ..- ~ ~''': I ~: ~ :-. c .;~ ':~H' '1 j r ",.., . / ';.:<~t;" <:<':-" > ~:.:';'.~::i;,i,: :,';'~' ti ,;:',' \' ,.', '::,": ':,';" ,', ; . ~'.:. ,;," ..; ii . I L .\ ,~ .', Ii'. ',\,' . '> ", . < " : ' ,': 'I, ,; ,"'. . < l . <' . ' ; . r ..', .: .~. .'~:",! I' ~ ~ . . '. J.,. " .... c. . +.. ' . . .. > ," ,"", '.' ;~ . <. J.: .1.'. \ ~ <: ...:.;;. ".',<.' . \'.1 l ., i:<',:~,:!,I'>',:' (e "',,' I 'I" ,'I " , ~'!,~:, ,L ',: " ::\ :,,:Y\~;:~;;\j~:\'.,,~ ':' . ,': I '" . :} ,-'::':');' .;,/,,' '.. ,"/0 ,: ' .:. . '. .1 ~ ;.. I ' . . . I :. : : " '. ,. '11 :' ;. ..." . . ~". . :. ';:". ,; "'i';';~/{:(.:,,:;<' ':;,' ....: ';'. ~,>: , :;:, ':" "~;:'- ,~" ',' .<" '. ',...', i :,.t'~';lt.',/f);\,l'{,,'}! ',', " ',',. ':.. ,.',..', ,.' , -: '.... ~ '.\r}, :'11\ ,~}l~"t. ~.""";~,,,;"~,...;~;..,i... ' ...~.:.":'>......................-..,....~.~.~~~-"'.hJ;"'J"""" " ':' . , ., ,. " ': . ~ J . '; . ".r . " U;' ... I cf, ...,< .. ,. < . ~... "~.:. ~'n .', ,:,~ .. , 'i. ., - ;. ':. . .,'. . '. : :," .. ~ , ... "\.1 .;, , , , " , ' 'Note$ to Unaudited Pro Forma,Comblned Condensed Fin'nitcial Stntements, , ," ,'I ",::,':: ',' ~ .: " I ~ , .. J :,' , j . J .. j 1, '.":', ,: ,j , ,: ',: { :':;:,: ':'11 ' ,: I . ,y 1 ",:,:,."( ) 'e";;! : I' , . ~... ',' ," ) ,:::'1. Not~ l-Rec~assiftcatJons ',' ';, ',' ," '.. <c . I'! . < . ,. ReclassificationS 'have been inade to'the historical financial statements to conform to'the presentation eltpect~(fto be use~fby the, co'mbine((co~pany. ' , ',," " Note ~Exchange Ratio . ;. ../ . ,.: " .~. . . The tenus of the merger agreement specify that each outstanding share of GTE common stock will be : converted into' '1.22' shares of combined company common stock. 'This exchange ratio was used in computing share .nnd per share amounts in the accompanying pro forma financial'infonnation. , :' . '> ., Note' J.,:-Pro Fomul Adjustments , " " .\.~, .:.: . '. : ~ <'~ . ! IU" ::'1 ,', '.'1'......, , . , ,'~'.:;j \ 1 (e) Pro fonna adjustments have been made for the estimated tax effects of the udjustments discussed i~ (b) and (d) above. , to 1l1cre are no significant intercompany transaction~ between GTE and Bell Atlantic. I i ! i , { i " ,/ --...- 1-67 ... : \ .. '. ,'. . ~ ~:; ~ 1.. , ' , j " , . I I r' , . ~ i: ~. '. , , I ! '. ,j. ~ :. , >: ~t '" ", ~~. .' , .~ "c " I ') ,. ,~ .. , -~------------------ ': .1 ..". .~.> i ,. ,". . --- " -- ......... , I ' , 'I . . \. .t I. '. , ), . q , " " ( .: j " . > ~ ,,> , " , ':::" ',T ::.:/~'\~~I~;;"" ': ,;'; ,',.".. .,.,;, :... _~',.: ,". ,','i " '.' 'J . ",I' ," ' 'I . .....q.. , p ADDITIONAL-COMPENSATION FOR EXECUTIVE O.~FICERS AS A RESULT OF THE MERGER A number of executive officers of GTE and Bell Atlantic,' including some officers who are also directors, have employment agrcclllcnts or rClcnti,on incentives or are entitled to benel1ts under employee benefit plnns as n result of the merger. Each of the cmp\oyee~dircctors of GTE and Bell Atlatllic could rcceive significant ' ,compensation if the merger is completed. Accordingly, the interests of these people in'the merger may be different from, or, greater than your interests, When the GTE Board of Dircctors approved the merger, lhrce cx.ecutive officers of GTE were members of GTE's 12-pcrson Board of Directors: Kent B. Fosler, President: Charles R. Lee, Chairman and Chief Executive Officer; nnd Michael T. Masin. Vice Chaimmn and President-International. When the Bell Allantic Board of Directors approved the mcrf.cr, six executive otliccrs'of Bell Atlantic were members of the 22-person Board of Directors: Lawrence T. Bnbbio, Jr., President and Chief Executive Officer-Network Group, and Chninnan- ' Global Wireless Group: James G. Cullen, President and Chief Executive Officer-Telecom Group~ f~ederic V~. Salerno, Senior Executive Vice President and Chief Financial Officer/Strategy and Business Development: IVlln G. Seidenberg, Vice Chairmar., President and Chief Executive Officer; Raymond W. Smith, Cha;mwn; llnd Momson'DeS. Webb, Executh'e Vice President-External Affairs and Corporate Communications. (Effective December 1. 1998, Mr. Bubbio was electcd President and Chief Operating Officer of Bell Atlantic, and Mr. Cullen was elected President and Chief Operating Officer of Bell Atlanlic. Effective' December 31, 1998,' Mr. Scidenbergwns elected Chairman of Bell Atlantic. and Mr. Smith retired.) , GTE Employment Agreements, , In recognition of the highly competilive environment in the telecommunications industry, the GTE Executive Compensation and Orgnnizational Structure Commillee of the Board of Direclors recognizcs lhat, from time to time. it is appropriate to cntcr inlo agreements with key members ot management in order to ensure that GTE continues to retain the services of these individuals. Messrs, Lee; Foster: Masin; Willium P. Burr, Executive Vice Presidcnt-.:oovemmcnt and Regulalory Advocacy and General Counsel; :lnd J. Randall MacDonald. Executive Vice President-Humun Resources and Administration. will receive compensalion and benefits defined below for the lcnn, of their agreements. If the executive's employment is terminated for reasons other funn cause or he resigns for good reason. as dclincd in the employment agreement, he generally will receive the compensation and benefits provided for umIer the lIgreement as if he had not been terminated. Messrs. Lee. Foster, Masin and MacDonald have agrced 110t to engage in competitive activities fOf a specified period of time. There will be no duplication between those benefils providcd for by these agrecments and those provided by the executive severance agreements described below. \';-'.t.... Charles R. Lee GTE has cmered into an employmcnI agrcemCnI with Mr. Lee. effeclive January 1, 1999, that generally provides that, assuming the merger is completed, he will conlinue to be employed lhrough June 30, 2002, with , a two-year consulting period to follow. He will become Co-Chief Execulive Officer of the combined company on the date the merger becomes effeclive. He will also serve as Chairman of the Bonrd of the combined company until June 30, 2004. If the merger docs nol occur before June 30, 2004. however. he will remain employed as Cllainnan llnd Chief ExeCUlive Officer of GTE through thal dale. and he and GTE will negotiute u mutually agreeable extension. Mr. Lee's employmenl agreement generally provides for: · un annual base suJary of at leasl $1,250.000; short aud long-lenn bonus opporlunilics lhut lIre, in lotal, tll least at the same level as the lolal bonus opportunities available to him immediately before he entered inlo the agreemenl: a specinllong~tenn performance incenlive in a targel amount of $10,000,000. udjusted upward or downward based on the investment performance and growlh in GTE's average enmings per share and subject to a vesting schedule over the lerm of the agreement; and 1-68 \:;.,~......,-.I -...... . --- rr)::,:::","",,<,,;';;' I ~,. . l " ' '.1' I; ~'. .... , . . I ~ . " . ...u; ~ '", . ' .' h ,j ";..' .' .f : ~ < . ,~ . J', ; ," " - . ~ , ' " :.' 1 '.r ",'" " " ,"': '. I" .>. . 'I},'". ,; I I , . ;1 , , , " f/\'!?C': ::<' ',: '~:>', },:;:.':~\~,:~:;':'t:';"~}J:~~';~,,~',; . Ii;, , , 't ~' 'f:' .~:~ ~ :\\, ;1If' "e:i~" {"'f,,. ~!<' .~~::~:...:i,l ",'j :"'t f .:.t ,/, ~ ;:'fe I ~ ~ ~ . . .",~ " """; , '. ~ '" , , ,;' 1 . ~ . ,.- " . ~.~ 1. ",,>: ,). Il; , 1, , t , 1 , I I ! \ ' 1 ; ::1 ::~ 1 ~ \ :, I' i , ~ ....'....~."J+o.'\ I,'i,., : ! '............ t I t ~ , i ) 1 , i , I r I , I : 1 , u " , , "h"""". ::q,......./{:I..I~..\..\.......::.,.. ~ .~";..~ t: l ',.". 1\. ". . 'an cxtra'ycar of-seryicc for, each year during the tenn of th~ agreement for purposes of detemlining pension and certnin other post-retirement benefits.' '.' . I In the event of a qualifying termination, as described 'under' "GTE Executive Severance Agreements" in this Chnpter I, Mr. lee will rc~eive benefits ,under his executive severance agrcem~nt and:' " · ' the long-tenn perfortl,lance incentive; , , ~ ...., . . . .: . . .. . his pensionable compensation will be bao;ed on his base amount (as defined in his execulive severance agreement) if that increases the amount of his pe115ion~ nnd ' . I ~ . . ; . . . : . . I instead of the extra service credit provided for by hjs executive ,t;cverunce agreement, two-for-one , service credit as if he had been employed lhrough June 30. 2004. . . If Mr. Lee is tenninated for'cnuse or resigns wilhout good reason: · all ~alnry un,d benefits ~vill cca~e; · he will forfeit"nll un vested compensalion;' and , ' , · he will not receive a consulting fee. , If Mr. Lee's employment is terminated due to death or disability: · his salary' and ot1lcr compensation and benefits \yiII cease; · ' he will receive two-far-one pension credit only for those years he actually worked during the lenn' of the employment 'ugr,cement; and , , · the long-tcnn pcrfomltlllCe incentive will become payable in full immediately, Duri'~g'the consuhi~g period deScribed ~bove~Mr, Lee Iwill be an independent cunlractor and will]\u , longer be entitled to the benefits generally pro\'idcd to GTE employees. He will be paid a consulting j'ee of $250,000 per month and will be provided oflice space and support at GTE's expense, Ke1lt B. Foster and Michael T. Masin GTE entered inlo employment agreements with Mr. Foster and Mr. Masin, effective October I. 1998 through September 30. :W02. Each empJo)'l11ent agreemcnt generully provides for: · a guamnteed minimum base !>alary of nol less than SR99,OOO for Mr. Foster and $756.000 for Mr. Masin: . Sh0l1 nnd long-lcnn bonlls opportunities and Slock options which are generully provided to other executives at the same salary level: a special long-term retention incentive of $4,500,000 for Mr. Foster and S3.5UO,000 for Mr. Musin. adjusted upward or downward based on investmcnl performance. with 60% vesting after three years and the remainder vesling after four years~ and ~ . .. , credit for an extra year of service for cnch year during the term of the employment agrcement for purposes of determining pension and other posHetircmelH benefits. . . In the event of a qualifying terminalion. llS described under "GTE Executive Severance Agreements" in this Chapter l. Mr, Foster and Mr. Masin will each receive benefits under his executive severance agrccl11unt and: . the long-term relention incentive; and, jnslead of the LWo years of additional credit provided by his executivc sc\'crunce agreemcnt, special pension and benefit credit provided for by his employment agreemenl. . I~69 -- , ., ~: I I ':1 'I' . , " , ' , :',:',:ji~;:':~'i.' ~~; ,',,"- ,'" "~ "< .." -J" ~'.. t.' '. .,J . ~ ~ . . ". ",:..' . .,1":;":'1,1" ~ . I.,t " ,.. I.... .', ~ ,.' ;' .~! ~.~..-.'t~ ,.. ," , , ." , .. ',,> . \;, :.' , .' , , . '. , ~ :.., ~ ;, , .', , . > . I . 'e' 'I'" .' I' , , '" " , .. ", ,""-. ,; . .'~';"\ ,h...i' :,....I',i~ i:i,......~...... &-. I I' If Mr. Fos'ter or Mr. Musin is tenninated for cause or resigns without good reason, nil salary and benefits will ceasc,:and hc will forfeit all unvested compensation. ,', U,Mr. Fost~r's or Mr. Mnsints employment is tenninaled due t~ death or disability: · his salary, and othereompcnsation and benefitS wiII ceasc; , · two-far-one pension credit will only apply to those years actually worked during the term of tile ,employment ugTecme,nt; and · the long-tenn retention incentive will become payable in full immediately. Ii~~ :1: ~ I t .] , In addition. Mr. Masin will be considered to be fully 'eligible for post retirement benefits if he remains , employed until September 30. 2002. Mr. Foster is already fully retirement eligible. When GTE initially employed Mr. Masin, it agreed to preserve the pensionbenefiL'i he would have ' received had he remained with his fonner employer. Upon retiring. he will receive a singl,c life annuity of $200,000 per year. If Mr. Masin dies. his surviving spouse will be entitled to receive lhe same benefit he was receiving. This annuity will be provided in addition to the pension and other post-retirement benefits dcscribed above. ! I. I; " ;\ The agreements wilh Mr. Foster and Mr. Masin further provide that each will continue as a member of the GTE Board of Directors during the term of his agreement. While Mr. Seidenberg and Mr. Lee will serve on the board of directors of the combined company. we have not detennined whether any other employees of the combined company will servc on that board of directors. Moreover. the board of directors of the combined company. in accordance with its certificate of incorporation, will detennine the individuals to be nominated for election as directors. See "Directors and Management Following the Merger-Directors" in this Chapter I for additional information about the combined company board of directors. William P. BaIT ,i.. -: I ~!,I '! ,:t;;1 GTE entered into an employment agreement with Mr. Barr. effective December I, 1997 through November ,30, 2002. His agreement generally provides for: · a guaranteed minimum base sallll)' of not less than $465.000; .' short and long-term honus opportunities and stock options which are generally provided to other e:\ccutives at the same salary level; · a one-time grant of an option to purchase 228,000 shares of GTE common stock that vests one-third per year over three years: · a one-time grant of 34,564 restricted stock units thuI vests over a period of five years; and credit for an ex.tra year of servicc for each ycnr .,1' employment with GTE and retirement eligibility for purposes of determining pension nnd oth..:r po,u-retirement benefits. If Mr. Barr dies or leavc!; GTE because he hecomes disabled, or enters imo service with the federal govcmment or IUl educational organjzution approved by the GTE Board of Directors; · he will be entitled only to the pension service credit described above; and · he will also be entitled to certain othcr reduced benefits as described in his employment agrcement, including immediate vesting of a ponion or his unvested equity-bused awards (such, as stock options, restricted stock units and performance-bonus awards) and certuin lump sum puyments of b~tse salul)' and incentive compensation under the Executive Incentive Plun and the Long-Term Incentive Plan. (-70 ., ." \.-f.\~.~fJl ~~W~',,}'::r''';''. , O' I: 'l. ,", I ,I.':' , <, , ~ ." ", .~ , : ~ .. '. ~ : .:',"/.' :', ." . . ;. {,,~'.oJ' .::' ..-, '!::~~,::''-..,:'\,' , , ,r "'.1; .. , " ,I' , ~,' '" "" e " " "I '<;"1" . "" , " , , \'; ,', <" \ .-' ': .:..., j. .,'"< - ~ ' " ',' 'I', :' , , :. ',', . ~ " I,', . >', . ~ ' . ~;: 'i'" . ~ ';:. ,~ ",,:-;, 1 , . .: ~ .' t, .,} ". ....~ '.'.. ~::<< ~ .' .' ,..... ,i> .,.. f . " .' ,. I', ,'.' . '. . . '., '''.> . ." ,~ :. " !.' .' " !..'. .".' . ~::' ~ 1 ",: . ." ~ ' .:. . ,~ <' ': .,' . .. 'q ,. '. ~. '.<: I ~..", , . ' \ I ~:" ; I,;' .,:' ;;'\;:'.'~;d:;;'\~i!~i~~,,~,~:,:, ,.~,,,::::~, p ...,; 0'''' ...: , I,'. <...... ," '. . .' . <' ~ -," j. '! \, " " , ,(: , ~ : :)', "~ ~ ::' t~r:1~ ' . i ~ ". J., !landaU MacDonald' ' , , . . . . . GTE cnlered into an employmenl agreement with Mr.' MucDonald, effective JUlic 4, 1998 through Junc 3, 200 I. His agrecment,' which will automatically renew for two additional years unless he is notified of non. renewal by GTE, generally prov~des for; , , · n' guaranteed minir~1Urri base salary; " , , , " , , shon and long-ternl bonus,opportunities and stock options which arc generally provided to othcr c:\ccutives at the 'same salary level; · . a o'newtime gml1t.o.f 93.000 options to purchase shares of. GTE common slOck, subject to vesting , , based on either, stock ~rice performance or se~ice; , n onc:tirnl: grant of I ~~687 rcs'trict~d ~tock units, subjbct 10 the sa~c vesting schedu,le; llnd credit for an cxlra year of scrvke for each year during the term of the employment agreement for , purpc:>se~ of determining his pc~sion and othcr po~t.retiremenl bencfits. J . . . I'. . " , , If Mr. MucDonidd incurs a qualifying termination under his executive severance ugre-ement, as described , under ,",GTE Executive Severllncc Agreements" in this Chapter I. he will receive ~enelits under that exccutive se,:em~ce agrec,ment l\~~: the restrictcd stock units and stock options provided for under his emph.>ymcnt agreemcnt will immcdiately vestllnd bec~me exen.:isable; ami '. he will receive the speciul pension credit providcd for above. If Mr. MllcDonald is terminated for cause or resigns without good reason. all salary and benefits will cease, and he will forfeit nil unvested compensation. If Mr. MilcDonald's employment is terminated due to death or disability. his salary nnd olhcr compensation and benelils' will cease, and he wilhcccive specinl pension credit for the )'e:lrs he actually' worked under his agreement. ,; -,l , ' .' ..1.-...... t f" '..J GTE Implementation and Retention Bonus I)hm , , On November 3, 1998, the GTE Executivc Cumpensation and OrganizatiQnal Structure COlllminee of the Board of Directors approved the lmplcmcntUlion nnd Relenlinn Bonus Plan. This plan provides incentivcs to cmployees who arc critical to completing the merger or neccssaf'j to ensu,re the continuity and effectiveness of GTE's businesses. nnd who arc likely largets for compelitive offers from other companies. As described below, the Bell Atlantic Board of Directors has upproved a' similar plan. GTE has entered into agreements under the plan with each of its executive officcrs, Messrs. Lee: Foster: Masin; Thomns W. White, Senior Executivc Vice President-Markel Oreralions; Barr: and MacDonald will receive estimated cash p'lYl11enls equal 10 the following: Nnmc hnJllcnlcntnlflln lIod RclclIl[OII lIunll~ Charles R. Lee, , . , . , . . . . , . . . , . . . . . . . . , . . . . . . , , . . . , , . . Kent B. Foster, , . . . . . . , . . . . . . . . . , . . . . . . . . , , . . . , , . , , . . Michael T. tylnsin. . . . . . . . . . . . , , . . . . . . . . . . . . , . , . , . . . . . . Tholnas \V. \Vhite ..,. , , . . . . . , . . . , . . . . . , . . . , . , , , . . , . , . Willialtl P. BatT. . , . . . . . . . . . . . . , . , . . . . , . . . . . . . , , . . . , . . J. Raildull MacDonald .."......,.",.".,..',.......,.. Five other executive omccn; ranging' from. . . . . . . . . . . . ., . . , . , S4,027.000 S2,805.000 $2.359.000 S 1,556.000 S 1,385.000 ~ 1.12 I,OOe} $350.000-$ 1.039.000 Paymellt will be mude in a lump-sum amOll111 when the merger becomes effective. If the merger is nol completed. some of GTE's eKcculive ofliccrs will receive 25% or their Hnticiputed payment under the plan. ~~ 1.71 L , . , \~ '; <oi , I' , ( , ! i ;~~~t,),:;.., "., t," ".'" 1. .j.. . ',.+~ ~ ~~ . ~: . . i . I, . , ' , " , "f;c,:::<.;;" "~d ~ -tl~ " . . ~ ~ .... ; " -;,1:' j ~\.I.:, '. I . . .4. . ',J... ; , ',. ~ i ~ " , .:.... k>, el'" ..~.!~.:.~\~i. ~ ';1 .1 .'; '~~------------;-:-~._-_.. .: ....'. ~. ,:I "'J, .', .' .' . .; C ",: " .. .... r . ~. ,i" ~ " ", . ,'J " :-. :.;., I, . ,I .'1 '. ',~ , ,> 1 ~,' .~. , . " .,'., .. . I>' , ", ..:;:.;. ":J,I : ", ....' " ,(e ' , " '. ' . it :.1' " ': " " '..Y'; ~';:~: ~ {.'~.> :;,}";:/(i\\I'~Y:t~,!}.I"rr>'.i;.l;.'f~"'~~,_'''~' .L.,..I__....~~~...., I.~'...l ...~. __. ,I ,/ I \ . '. , '(," ,I ;\. .. Messri. Lee. Foster, Masin. White, Barr'and MacDonald will only rcceive paymeitts under thc'plnn if'the merge~ is completed. ' , I As tI result llf'the planned divestiture of GTE Government Systems Corporation, GTE hml' entered into a retention agreement with 'Annen Ocr Mnrderosinn, Executive Vice President-Technology and Systems und Prcsident-Governmcnt Systems Corporation. Under this agreement, be will rcceiv'e u'trnnsuction completion bonu... based 'on the financi1l1 success of the transaction.' .' . -.... . \ GTE Executive Severance Agreements , . In i~s desire to retain key executives.' GTE previously entered into executive severance ngi'cements with' eleven individuals wh~ have served as GTE executive officers at any time' since January I. 199B/These individuals include Messrs. Lee, Foster, Masin, White, Barr, MacDonald and five other executive officers. . ., .. I . These agreements provide benefits to be paid in the event of Ii qualifying tennination fonowing a change in control of GTE. 'A c~llnge in' control will occur if: . · any person or group of persons acquires, other than from GTE or as described below, 20% (or under limited circumstances, a lower percentage, notles!> thlln IO%J of GTE's voting power; .' \. ' . c . · ' three or 'niorc directors are elected in any twelve.monlh period without the approval of n majority of the me~bers of GTE's Incumbent Board (us defined in the agreements) then serving us members of , the GTE Board of Directors: · the members of the Incumbent Goard no longer constitute It majority of the GTE' Board of Directors, or ., GTE's shareholders lipprovc: a merger, con!'olidution or r~organi7.ation involving GTE; a complete liquidation or dissolution of GTE; or , an agreement for the sale or other disposition of all or substantially all of the assets of GTE to any person other than a subsidiary of GTE. An individual who initially became U, director under un agreement to avoid or selllc a proxy or other election contest is not considered a member of the Incumbent Board. In addition, a director who is electcd under this type of a settlement agreement is not'COllsidered a director who is elected or nominated by the Incumbent Board for purposes of determining whether n change in control has occurred. A change in control will not' occur in: · merger transactions in which there is ut least 50% GTE shareholder continuity in the surviving corporation. at least a majority of the members of the board of dircclOrs of the surviving corporlllion consist of members of the GTE Board uf Directors and no pcrson owns more than 20% (or under limited circumstances, a low~r percentage, nOllcss than 10%) of the voting power of the surviving corporation folluwing the transaction: and · transactions in which GTE's securities arc acquired directly front GTE, A change in control of OTE will occur upon approval of the GTE 11l~rger proposal b}' GTE shareholders. Any cxecutive who is tcrminatt:d for rcusons other thun cause or who resigns for good rcason, both or which IIfC dclincd under the executive scvernncc ngrcClllCJllS. will gencmlly receive: · pnyment of two times the sunt of the executive's ba~ie salary and unnuul bonus; · eligibilhy for early rclirement bcnetits; · pCllsiotl credits' for the periud ,covered by th~' severance payment: i r " I ' tl...,r"'! 1.72 ...,........,1 r~tC:"j,::;,:~:, ';':::-~,~:~' 'j';: r" " 'I" " ,:" : . .., ;..' ~ ~ . .{ ,>~ !' .c;- . . ~ I : I . ( ,. !., ; F \. " ~ ...-.",,:.,. c"',rl-:( .' ., '. ", .1', L~, . '," f'l ~. II~ ,(~,,) " . , ' .' . ~~ < .r.............. l' \ / '-"' ~~'j/ . . >~ '. i'.' . '. -- , .' t'" , , , ',' " , . " ,.' ",' .. .. '.. /. , .'.. i ., , " .. " q .. L '" ,) . . ~:,.I r"", ~.' :: "; .}'..~'j :' ~ '~.', t '. ;-: ~r::.~t-'.:i":~lt]l.:,......, .; I, , ..._.+~.._ .."...-.... \.,.... .1' .~.'....! mediclllllnd life insurance coverage for up 10 two years:, ' GTE:retirec medical ~md Jjf~ insurance; and " " I, financi~l und o~tplacem'ent counseling, The executive severance agreements provide that there will be no duplication of benefits with the employment agreements described abo,ve. Some of the executive severance agreements (including the executive severunce agreements with Messrs. Lee, Poster, Masin, Barr and MacDonald) also pro\'ide for an additional payment to compensate the c;\ecutive for any excise ta;1; that may be imposed by the Internal Revenue Service. . . ' . , When the GTE shareholdcrs approve the GTE merger proposal, the e"ecutive severa,nce agreemcnts will continue in effect, un,til GTE or n successor company has satisfied its obligations under those agreements. Ifan executive were severed from GTE through a. qualifying tcrmination on December 31, 1999, the table below, shows amountsty1essrs. Lee, Fosler, Masiti, White, Barr, MacDonald and the five other executive omcers would IikCly receive. Name Speclut BlIs~ Slllnry Annllllt Uonu~ F.nhllnctd , Benefits Be nelits Pendon lJrncftts 52,500.000 $3.523,000 $5.181,000 I $1.906.000 $2,384.000 $3,156,000 $1,603,000 $2.005,000 $3,723,000 $1,145.000 $1.198.000 $ 945,000 $1,548,000 $ I ,620,000 $2,719,000 $ 829.000 $ 848.000 $2,769,000 $ 446.000- $ 385,000- $ 585.000- S 827,000 $ 707,000 $ ( ,770,000 Charles R. Lee . .'. , . . , , . . . . , . , , . , . , , .' . . . . . . , , , , . . . . . . . Kent B. Foster e, . . . .'. . . , , . . . . . , , . . . , , . , . . , . . . . . . , . ,'. . . Michael T. Masin" , . . . . . . , , . . . . . . , , ", . . , . . . . , . . " . . . . . . Thomas W. White " , ,', ': . . , , , , . . . , . . . . . . , . , . . , . . . , . , . . . William p, Burr . . , . , , . , , , , . . , . , . . . , . . . '. , , . . , . . . . , , ,', . ). Randall MacDonald .,.... , , , . , , , . , , . . , , . , , . . , , . . . , , , Five other executive offi,cers ranging i~ value from ".'., , , , , . . . The column "Special Enhanced Pension BeneHts" lists the dollar valuc of incrcmental pension benelits each excclllive orticcr would receive if his employmenl were tcrminated for reasons other than cause or if he resigns for good reason, The value of the exccutive's benefits already accrued through GTE's qualified pcnsion , plan is e"c1udcd, ' If Messrs. Lee, Foster, or Masin arc terminated for reasons other than cause or resign for good reason, the executive will receive his full spcciallong-tenn perfomlunce or retention incentives (described under "GTE Employment Agreements" in this Chapter l). These amounts arc not included in this tahlc, Also, the special enhanced pension benelil for Mr. Mt\sin docs ,not include the singlc life annuity of S20U,000 per year described previously in the"GTE Employmcnt Agreemcnts;' section in this Chapter 1. Undc-r his employmenl.agreemcnt, Mr. Darr will receive base pay and bonus for 2.92 years. This value is incorporated in the figures shown for Mr. Barr. In addition to the amounls shown for Mr. Burr in the table, he will receive foregone options (estimated to be valued at approximately $1,330,000) and a payment under the remaining long term incelltive plan cycles for the term of his employmenl ugrccment (estimated to be valued lit approximately $1,179,()QO). GTE Long-Term Inccntl~.c Plan GTE executive officers are eligible to participate in Ihe GTE Long.Tcrm Incentive Plan, The primary purpose of this plan is to motivate executives to achicvc supcrior long-lerm financial and opcTilting perfonnance. Under the provisioJls of this long-tcrm plan. two lypes uf grunts are currently used: performance bonuses' and stock options, Performance Bonuses Executive officers of GTE ure eligiblc 10 rc('ci\'c UlUluul grunts o/' pcrfvrnlllncc units. Ihe vuluc of which arc dctermincd o\'er U cycle thut is typically IhrL:c ycars in durution, Awurds for the 1997-1999 und 1998-2000 1-73 "-- J - ~~~\~)>/;~;;}':';;'~<;',:~).; ';.~~>:'~"" " :1,\" ,. 'J' o l.;, ,e " ' " ..:..' c, >/~ 'r ., . . ",,/.~; ~ ~ ",' ;\>\{.~ ':,. ~;'.! ~. ... , ~ c,. ~: ' ',".' ,I: , , .' . . ~ ~!", ;:', .r. 1 ''-i, '/. . Yr: : - ,. t,'..", ,:,' ",I, '.....' " " I~ ,: \!: I f . ,Ie' , . : . " r ~.,. "'".1 I ' I I., ,,' , . ~ \ .' ...c ~~. . I' ," , , , ' ,., '. ' " ' ,> ." , , 'j ',.' ,) l) ".: t .: " -. ~' . d". ,.. ", , . I ," '. . . \' . '1' , I , " , " cycles ore mcasured against targeted performance levels on kcy,measures of financial performance. In csinbiishing the, targeted performance levels, the GTE ExecUlive Compensation and Organizational Structure ,Committee of the Board of Directors considers GTE's past perfornlance, the performance of its principal competitors, il~ s~rulegic goals' find its plans for implementing those gonls, Ovcr the period of the' cycle, the ~rfonnancc units' occrue dividends in an amounl equal to the dividend paid on the equivalent number of ~hares of GTE common stt)ck. T11e value pf the unhs is increased or ' . decreased bil.~ed on the 'market price of GTE common stock nnd is adjusted by'o perfonnance percentage based on the financial measures noted above:', ", ' , ' Under'the award agreements, when GTE shareholders approve the GTE merger proposal, awards for the , 1997~ 1999 Dnd I 99!l-2000 cycles become immediately non-forfeitable and payable. Each payment. for an . " :' outstanding cycle will' equallhe average of the perfonnimcc percentage for the three award cycles that were 'complefed before the dale the GTE merger proposal is approved. Projected dividend.s,lhrough Ihe end oflhe nward cycle are also included. ' !' c Messrs. Lec, Foster, Masin. White. Barr. MacDonald and six olher GTE executive officers will receive perfonnnncc bonuses under this plttli as shown below. > ", I , , . "', (, , , ' ,. , I '" .,' ' " e', '.. ': :, ",'.<~ :,',~(:';';.. ", ' " ' .~. , ',:;,:' '.~ ",' I ~ ( .. c '.r . , " ~ . I . I " /,,1.' . , ' , ' 'I > ~ . ' . . . . . .,'.... I . > ~ ; . ~", ,: >~ .' .:~. .' . ~. ',' " ~'. . , . . ' -',' '. " ' . ~ .. ' . . . ~ ',. I .'...'";., . , ",' ; ',:',;" .L, "'1 ., " , : .;. ,~ . ~. '" Name Charles R. Lee . . . . . .: . . . . . ~ . : . . . . . . . . . .' . . . . . " , . . . . .', . . . Keot B. FOsler . . . . . . . . .'. . . . . . . , . . , . , . . .'. . . ; . , . . . . . . . . . lv1ichacl T. lvtasio . . . . . . . . . . . . . , . . . . . . . . . . . . . . . . . . . . . . . . , Thomus \V. While . , . . . . . . . . . . , . . . . , , . . . . . . . . . . . . .:. . . . . ,Willillm P. Brn,. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , . . J. Rundall ^-1acDonald ... . . . . . . . . , . . . . . . . . . . . . . . . . . ,', . . . Six olher executive officers ranging from ....,............... Long Term P~rrormDnc~ , Bonu.~ $6.689,000 $4.396.000 ' $3,707,000 $2,276,000 $1,895,000 $1.513,000 $3 17,000 - $1.2R4,000 , ' The payments shown in lhe tuble above are eSlimates. In developing these estimales. we hav~ assumed a hYPolhetical price for GTE common slock of $65:00 per share on the dale GTE shureholders approve the GTE merger proposaL ' " Stock Options and Stock AppreciatiolJ Rights of GTE When GTE shareholders approve lhe aTE merger proposal. all oUlstllnding oplions nnd reluted slock appreciution righls awnrdcd prior 10 Ihe ltnnouncCl1lenl of Ihe proposed merger, whether or nOl fully vested, will become fully exercisable, Any oplion or slock appreCiation right Ihut is not exercised before the dule lhc merger becomes effective will be convened into an immediutely e~crcisable option 10 purchase combined , company common slock 01' slock appreciation righcs on the terms descrihed below. (I) The number of shures of combined company common stock to be subject 10 the new opcion will be cquullo the product of (x) the number of shares of GTE common slock subject 10 lhe original option 'and (y) 1.22; and (2) The exercise price per share of' combined company common stocK under the new option will he equal to (xl the exercise price per share of che GTE common stock under lhe original option divided by (y) 1.22. c ' 1-74 .~~ d.._ -~ --- -- ~ ~ i " 'f' 'I . I , : I I ~ \ --') ,; , . \ \ ',,' i ',:;,1' : -~,~ ;':"'} ,,(, ?:'1 '\,~ ; :", ,. . ~ '. I :; ',. J ~ ~, . . ;/;:'\;/;~': ;'~~.. ,", l ' " ,\.", ".,. " "," ...'KV: ';,";:jr~~~;,i'i'l:";'&6,~C,,:;:~,..:,.. .,. ; . :-...~,'. '.,. . .. ~ " . . . to. r ; \ . ~. ..\ . . ~. ,"' .,'.... .. . ;i,- ,::':. ", .', i~ ~ . -:". ":' , , ~ .;.,. > " . . ~'. ~: " 1.: './ t .'~'. , . ,~ ~, I, I" . o:t~":'''~ l.' .) ".....,.. ~ J\.':, ,',: '. ~.~~ " , I ~i T ":J' ",< 'i . ,i. ,,' I.' , . . "", I ~ , . ~ . ; . ;~ ~ . ". . \. .~: ~,'. . " ,>"" " . > '., :':",', .' ,:;'.'':'' ;, i " . " < .: i ( I\~ ,'. ~ ..~.. I, .... :.~, ;i ,d" I . 'I ~.:' :,,1 ", I . >: . ~ '.' , ~ . ' . . ~ ~ ' I , ' " L ,. ' " If , " ( , ~ ' ' I: .~ '", . r:l, . . I ; ~ .' ~ . ~;,' . . ',. " ...~..~: 'w ~~. . . _ .' .d' . "~.' , _, ~ " ',"'. . I.. f. '. The, following table shows the estimated value of unvested oplions tbat will become exercisable following, GTE, shareholder approval of,t.he GTE merger proposal. ' ,'II .. " Nam~ Charles R. Lee , ' . . . . . It .. . ..... .. ~ 01 + + . + .. It'. I t t . t + + t + .. . .. . + + + t , . Kent B. Foster. .. .. . . .. . . .. . .. I . ~ .' + , I , . . ~ I . .. . It . . + . . . .. ~ . . . + , . ~1ichael T, Masin, . . .'.,:,. . ...,.. ~.. . . ,.:. 'c" .,.. ..... ... ;. ' , Thomas W. White.. ...:. . .... . ...... . .. . . . .... . . . . . . .. . .': ,William P; Barr '. . . . . . . . .. . .. . .. ; It It It t ... It It It .. .. . 01 ~ . It 01 . ~ .. . . . .. . 01 . J. Randall MacDonald:. . . . . .. ,; . . . . . . . . . . . . . . . . . . . . . . . . . .'. . All otber executive officers as a group. . . . . . , . . . . . . . . . . .'. . . , . Number or Unvtsted GTE Option! 230,267 ~48.201 124.667 137.768, 260.401 182,40 I 421,673 Agltrtlt1l.1e Value or Unvesled 0 pllons $2.923,000 $1.925,000 $1.622,000 $2.331,000, $4,232,000 $2.145,000 $5.205,000 Amounts shown in the lubl{are e~ti~ates 'and a~su~e u hypothetical price for GTE common stock of $65.00 per shore. GTE Equity Participation Program '1 Under tbc GTE Equity P~rticipation Program. ex.ecutives are required to defer up to 25% of their annual , bonus and long-teon performance bonus in restricted slock units, i.e., phantom shores of GTE common stock priced at fair market value. These restricted stock unit deferrals are non-forfeitable. GTE grants executives matching restricted stock units on u basis of one stock'unit for every four stock units deferred, 111C matching' restricted unit'i are forfeitable aud,vesl nfter three years. The matching stock units were designed to increase , GTE executives' motivation to focus on shareholder value and to compensate the executive for agreeing not to realize tbe economic value associated with defcrred bonus amounls. ~ ~ , Participants receivc,addilional restricted slock units on each GTE dividcnd payment dute based upon thc amount of the dividend paid. , , :Under lhe tenus of the deferral regulations. all matching restricted stock units grunted under the program and tbe arl;ditional matching units attributable 10 dividend equivalents will become fully vested whcn GTE's shareholders approve the GTE merger proposal. The following table shows the eSlinmted value of the matching units which will become vested following GTE shareholder approval of ,the GTE merger proposal. Name " Charles R. Lee Kent B. Foster ....,........,.. . . . '. . , . . . . . . " , . . . . . . ,'. , Michael T. l\.lasill . . . . . . . . . . . . , . . . , . . . . , . , , . . , . . , . . . . . l'\1omas W. While. . . . . , . , . . . , , . . . , . , . . . , , . . . . . . . . , . , . Willianl P. Burr .,......,...,..........,..,."..,.,... J. Randan MacDonald. , . . . . , . . . , . . . . , . . , . . . . , , . . . .'. . . . , ,All other executive officers us a group. .. . . . . . . . . . . . . . . . , . , Number or E((uhy lil1rllcipll.t1on Program Mutchlng RSUs . 19.310 12,464 11.151 6.530 36,079 15.834 28,822 E.~t1mated Value $1,255,000 $ 810,000 $ 725,000 $ 424,000 $2.345.000 S 1.029,000 $1.873.000 Amounts shown in lhe table arc estimates and assume a hypothetical GTE common slOck price of $65.00 per share. The estimated values for Messrs, BUlT and MacDonald include restricted slock units awarded under the special grunts described in their employment agreements. I~75 , " \1 , I ! , I , " t\;!J:':~ .. .':", ..., '. , ' .,': i ;0 c,' ~''"', I. . '" c. ....,; "" '. ' . ~ . \", . I"'. " , , , , ' ,'..,,>:': ":, ); ,,'" ',:'/:i!'~~;:~~C-; ,.,:":' ~,.....~~~~ ~~~Pl' ~--;f !....:\t~l;'\,"jt;M.~!~,~I7i-f~~:m"~d~. ~.~ c !i~t:~ ;-~;:::,j, ': ' .:I,j"". '. , ~". . :; . :, ~. . > :~ '4 ~~. \~: ',1\1:. "" , I J";'r' , j, r;;'. . . CC \'. . .'.' , I", '; ";1 . j.' . ~ ~ I,', '. ~! : L' " . .. ~'. .. .I :,1" I ~'~ " " , " ,',.:. "'."~ ! j . ',' ell' ,', '. . J " , .. ',<.,1 '. . ~ ' . . . '. '. ~ : ~" c, . . , ~ ' '. ~ : '<' ' , . . "."". '?~'~';~':' :.. J " 1,;" , . '.1 <' .... ..~ . I . .... ""..' ..... ., .' , .'e 1..;. ... ' I :" . ~.' " ' "I :.:\.,' ',. "":',',:,/, .':.. I. I ,:. . . . . /': l:'!' I . , . . : I' ", ~.. ...' . ':/ /:::' " " , " , ,'" !, \ ~. . ~'"r, ; '< .!;. < 1" n' . . r .c, " " . 'Ie C. ," .: " . ".' >'",.~. . ... , ,.' . > .... " . ," . , '. . . .~.. ;"-"".""""" 'i~"''''. :''] .<"", _'~' ,.....: /... t " .. '.",' .' Ben Atlantic Employment ~greements , '" . Bell Atlantic hus entered into a five~ycar employment ngrccm'ent with Mr. Seidenberg, effective January I, ,1999. The agreement will be amended, to the extent necessary, at the time 'the 'merger is completed to reflect ' . Mr. ,Seidenberg:s nuthonty', duti~s and responsibilities in the comlJincd company. ' . . . . I . . . "Durin'g 1998, Bell 'AlIa~tic also entered into employment agreements with Mes:;rs. Babbio; Cullcn: Good; , Salerno; Webb; Young; and Donald J. Sacco, Executive Vice President-Human Resources. TIle agreements arc for a period of three years. except for Mr. Babbio's. which is for five yeurs, and Mr. Sacco: s, which is for tW? Y~llrs. , The employment agreements of Mr. Seidenberg and the olher executives generally provide for: " · an annual base salary; · an annual bonus under the Bell Atlantic Sh,ort Tcnn Incentive PJn,n; . " > f . an annual gmnt of stock options; · participation in the Bell Atlantic Income Deferral Plan; · n special implementation incentive relating to the merger; and .' a retention incentive payable if Ihe. executive remains employed through the 'lCnn of his , .;, l " agreement or for other specified periods. ' , . , , , , " , ' ~ , . The, ~oUowing table shows the 'annual sulary, muximum nnnuli) barlUs, value. of the annual stock option gran!. and other ~nnuaJ compensuti9n payable to each executive ~nder these agreements. , , Name ~fll:dmum Annmll Bonus Stock ' Other Annual Opllon Grun! , Compensallol) BlISe Salllry Lawrence T. Bubbio. : . . . . . . . . . . . . . . . . . . . . . . . . James G. Cullen ,...,....................... Alexander H. Good . . . . , . . . . . . .' . . . . . . .', . . . . . . Donald J. Sacco. . . . . . . . . . . . . . . . . . '. , . . . . . . . . . Frederic V. Salerno . . . . . . . . . . . . . . . . . . . . . . . . . . Ivan G. Seidenberg. .,...... ',~"""""""" Morrison DeS. Webb. . . . . . . . .'. . . . . . . . . . . . . . . . JOInes R. Young ..........................,. $ 750,000. $ 750.000 $ 377,000 $ 430,000 $ 750,000 $1,200,000 $ 430,000 $ 475,000 S 1,125,000 51,125,000 $ 452,000 S 516,000 $1,125.000 $2,700,000 $ 516,000 S 570.000 $1,200,000. $ 684,000 $1,200,000 S 684,000 , $, 452,000 $ 289,000 $ 5J6,OOO $ 334,000 $1,200,000 $ 684,000 $3,000,000 $1.439,000 H$ 516,000. S 334,000 $ 570,000 $ 370,000 At the end of the tern! of their employment agreements, each or Messrs. Cullen, Good. Salerno. Webb and Young is cnlitled to receive a rctenrion incentive payment. Relention incentives arc also payable to each of' Messrs. Babbio !lnd Seklcnberg at the end of the third, fourth and fifth years of their employment agreements. The amount of these retention incentives will \'ury, depending (in the case of Messrs, DlIhbio, Cullen, Sall:mo, Webb and Young) on the price of Bell Atlantic common stock, ur (in the case ,of Mr. Seidenberg) on the earnings perfonmmce of Bell Allantic, or (in the case ot Mr. Good) on lhe performance of the global balanced fund under the Ucll Atlantic Income Defemtl Plan. The following table shows the value of each retention, incentive (including the total value of the inccmives payable tn Mes!irs. Babbio and Seidenberg) as of March 3 I, I 999. Nnllll' Retcntlun Incentive Lawrence T. Gubbio, . . , . . , . . . , , . . . , . . , , . . , , . . J~UtlCS G. CuI/ell. . . . . . . . . . . . . , . . . . . . . . . , . . . . . Ale:\under H. Good .......,..........'",...'" Frederic V, Salerno ...............,.......... Ivan G. Seidenberg, . . . . . . , . . . . . . . , . , ; . , . . . . . . . l\.1orrison DeS. Webb. . . . . . . . , . . . . . . . . . . , . . . , . JUlncs R. Young. . " . . . . . . . . . . . . '. . . . . . . . . . ... . . S 7,397,000 S 3.170,000 $ I ,097 ,000 $ .1.170,000 S 10,040,OUO $ 1,057,000 $ 1,057,000 1-76 .....:::1:::........... - - .. ~, '. ~. ~ , . . c , t. i ;. .' .' ).". " -~l , , j.1 ~,q;'1 __1L ~ {~:~,~~,,:;:;I~: c", i:~ ~;:', ,'. ',' ,.,' , " . . ,c :.~., :1", .. -," . .,. " . . 1. ~ ~ . < I!' ~ T ;. . i .~,' f .,1," .. , '; I . . ~ . I . . ,I ,', \' !' ,I,", . I t ~ . , ,c! . j. " ~" ". . , ' '1'..' "'. ", , "'. <"" . ". " J.t ','," .t: : ~ ' '.' ~ . . I >, . r ", . . ,"~I '. . '"', ", , , ': ," t':. of >,i:~. :,~f< ~ ":> :~" \:: : ~::'~l~r~:'~~(~: ...(~,~\:.~. :'~"~~ ...,. ~ . ~~ :';~I: "(;'!'.l() , f ~ , '\"..1:" \~..; , ' .. . ,,,..............:_.-,J.. Each employment agreement provides that if, during the pe'riod of the agreement, Bell Atl~tntic tenninates the executi\'cts employmenl, without couse, or theeltccutivc tenninatcs his employmclll on grounds or "constructive discharge," the executive is cntitled to receive specil1ed payments ami benefits that arc, ' substantially equiv'ulent 10 the remnirling payments and benefilS he would have received hud he remained employed thro,ugh the,leon of his agreement, Undcr each agreement, except for Mr..Seide~berg's, the executive will be entitled to terminate his employment on grounds of constructive discharge following Mr, Lee's election as Chairman of the Board ot' the combh,l~d company. " Upon completion of the merger, each ell.ccutive win becomc entitled to receive an implcmentation incentive projected to be equal to ,the following amounts. Nllm!! Implelhentatlon In('cntlve , , ! , I Law'rcnee T. Bnbbio, Jr. .................,.... James G. Cullen, . . . . . . . . . . . . . . . . . . . . . . . . . . . Alexander H. Good. . . . . . . . . . . . . . . , . . . . . . . , . . Donald J. Sacco . . . . . . . '. . . . . .'. . . . . . ". . . . . . . . Frederic V. Salerno. . . . . . . . . . . . . . . . . . . . . . . . . . [van G.,Seidenbcrg.. .',...................... , Morrison DeS. Webb. . . . ' . . . , : . . . '.'. . . . . . . . ',' J~mcs R. Young . . . . . . . . . . . . , , . . . . . . . . . . . . . . $1.969.000 $1.969.000 $ 905.000 $1.032,000 $1.969,000 $3.825.000 '$1,032,000 $1 t 140,000 The agreements wilh MessrS; Bubbio, Cullen. Salerno and Seidenberg further provide thut each shall be nomimlied for election to the Bell Atlantic Board of Directors at each annual meeting of shareholders during. the \crnt' of his ngrcemen\. Mr. Seidenberg's ugreenlcn\ also provides that he shall serve as Chainnan of the- ' Board until complelion of the merger. White Mr. Seidenberg and Mr. Lee will serve on the board of directors of the combined compuny, we have not delennined whether any other cmployecs of the combined company will serve on that board of directors. Moreover, the board of directors of rhe combined company, in accordance with it~ certificate of incorporation, will detemline the individuals to be llominalcd for eJection as directors. See "Directors and Management Following the Merger - Directors" in this Chaptcr I for udditional information about the combined company board of directors, Other Bell Athmtic Agreements [n addition to providing for merger implementution in~cntives under the employment agreements liS described ubove, Bell Atlanlic has entered into merger implementation nnd separation agreements with its other executive onicers in ordcr to provide incentives relatcd to the completion of Ihe mergcr amllhe integration of the compullies. For some executives, the mergcr implementation incentive is equal to 1.5 multiplicd by the sum of (I) thc exccutive's annual rate of base sulary and (2) 50% of the executivc's maximum bonus-under Ihe Bell Atlantic Shortl'elll1 Incentive Plan. For other executives. the implcmenlation incentive is equal to the sum or (I) the executive's annual rate or base salary and (2) 50% of the executive's maximum bonus under the Dell Atlantic Short Term Inccntive Plan, For the remaining e.xecutives, the implementHtion incentive is equal 10 the executive's unnual rate of buse salary. Thc projectcd amuunt of the merger implcmentation incentivc payable to these executive officers as n group is $2,849,000. If the merger is not completed, cach of Ihese; executives will be entitled to a payment equal to 25% of the umount he or she would have received if the merger had occurred. Undcr the sCPllr..tion agreements, if the cmployment of an executive is lerminnled Withollt cause within two years aftcr the mcrger is completed, the executivc will bl~ entitled to a pOsl.scpamlion paymcn!. Somc executives arc entitled to a post-separution payment equal to tw<? times "pay," and the remaining cxecutives an; entitleu to u post-separation payment equal to "pay," For this purpose. "pay" means the sum of (1) the executive's unnulll rate of base salary and (2) 50% of the executivc's maximum bonus under the Bell Atlantic Short Tenn Incentive Plan, 1-77 H~?:;': '\"::~ '," :,/~ " .'. 'c' . . r':. ~ i . . ; < . I' . ~'. ':: ~ '. ',! ,,,. " '.' . ", '.,.,;-' -' :.:;.:::,:f:/.,'" " ". . 'Y'\~.1. ol' {~~; ~ '1 ,~. ~."ri'~~l.(..;,)):1..~~....t-r~r'''''~'1. ". I .. ..:. :, . ~'.'~ J\ :"~,' ~ . ~,>~"! ... ,!,... > .1.:... L' .,' . ~ I ~ > ....., , ~, .. , I, \{:; :. H", . ',,: , ' ,e, .... ,," ." :',' \ " ( " , ' e '. '\. " :' "r + ... c'- -, J.', '.: '" ,,' " I;, ," 1,' ," i , I, .I. ... ~ ,.; I .. " ". >. .,."' "I .~ ...............~\....,.....~............':l:~1~1,..,,~;....~. - 'I. ~ I SUMMARY 01: THE MERGER AGREEMENT , We belif!l'clh,is SllmmaT)' uescrib,es all ,,/mer/af terms of the mergt'r agreement. H(j~\'f!w!r lI'e recommelld that ymi rcelll carefully 'the complete text of the merger agreement for tll~ I'feci.\e legfl' terms oJ tile "ierger agreement CltUJ otlter ;nlon1latioll tllar may be important 10 YOII. TIll! mergf'r ag"'('l~meC/f ;s included /11, ,his jO;1II pril.'Q' stcUelliem m'-c1/}riJ,fiJeC!lIs as Appendix A:' Form of rtf~rgcr ' If aJltJlc conditions 10 the merger nrc s~llisficd or wahcd' in nccordance with Ihe merger agreement. a direct. wholly-owned subsidiary of Bcll Atlantic will mcrge wilh and into GTE. Bell Atlantic's corponlle existence will not be affccted by the merger. Afrer the merger, GTE win be a wholly-owned subsidilll)' of-lhe combined company. Considt!l"Ution to be' Received in the Merger , . On the date ,the mergc~ becumes effective, each issued and outslanding shure of GTE common slock and all rights in respect of those shares will be converted illlo 1.22 shares of combined company common stock. We cannot predict thc market price of the Bell Atlantic common stOl:k otlthe date thc merger becomes effective. Because the exchange 111liQ is fixed in lhe merger agreement, lhe market vulue of the shures of combined 'company common stock Ihat holders of GTE 'common stock will have lhe right to acquire on thc date the mergcr becomes elTectivc may vary significantly from the market value of the shares of Bell Atlantic common stock that holders of GTE common slock would receive if the merger was completed on the dllte of this document Similarly, the aggregate markelc value of the shares of GTE common stock thaI Bell Atlantic will acquire on the (jate the merg~r becomes effective may vary significantly from the aggregale market vulue of the shares of GTE common slock on the dale of this joint proxy slatemcnt and prospcctus. Exchange of Shares Prior to the completilln of the merger, we willuppoint un cxchange ugent. On the datc the merger becomes cfft'Clive, the combined company will deposit with the exchange agcm certificates rcpreseI1ling sh:lrcs'of combined company (;ommon stock that will be issued in exchange for ccrtificates representing shares of GTE common stock. Soon after the completion of the mcrger. lhe combined company will send II lelter 10 ellch ,person who was n GTE sharchoh.ler on the dale the merger becomes effective. The leUer will contain instructions on how to sUITender GTE stock certificales 10 the exchange agent and receivc ccrtilicatcs for shares , of the combined cOlllpany. The combined company willl10t issue any fructlons of II share resulting from thc convcrsion, excepl for shares held in the GTE Shareholder Systcmalil.: lnveslmelll Plan. Inslead. GTE shareholders will receivc in cash the \'alue of llny fraClions of a share 10 which they woultJ ulherwise have been cntilled 10 receive due 10 Ihe merger, This cash paYlnent will be ba:;ed on lhe closing price for n share of combincd company common stock on thc New York Stock Exc1U1nge Composite Transuetiolls Tape on Ihe 'ir.~1 busincss day immcdialt'ly following the completion or Ihe merger. GTE. shareholders will not be cntitled to receive uny dividends or ulher dislributions pUYllble by the combine(j company until they exchange their GTE stuck cerlilicales for ccrti!iclltes represcnting shures of combincd company cmnmon stock. Once they deliver their GTE slock ccrtif\cUlc!l to the 'cxchllngc agent, Ih~ GTE shareholders will, subjcclto applicable luws. receive any llccumululcd dividends and distributitlll!l. withoul inhncsl. '.78 d'" ,/ ..-...~. ..' ',,~ ",d,f '....~~, ~r ;;l.:,:... ':,<~ 'r Y:"~' '. : ., .....'J. " < " . ." '. ~ j CC :'" ,': ... 'l " .l I" " . .._._---~~---.----- " . , ,'l \ , , , :' " ' '. Ii , , >ft: "" , ~ ~ , ' I ';, .... , <. . C I' , . ~, ." ' . ~. " l . , , , "',C.r . . I' '. '. ~. ill" . .' I , " " " 'J .. ,j" ~ : , . " '\' : . '. ,.' . I ~, , ' " "I , ,- ,~ ~ " . ~>';": :.',:~:i:1'!~,',";',;, ~:~!<!",::~~::;~i,,:~~:,:'::. . ' I ~ .., 'I { I '10 I ! \ 1,'~ ,I, ,~ ' I , :' . r ~. 1 J { f 1 ' . I t. I \' ~oI';.:;') \"-'li\'t" 11:' :J .. I:": I ~". .', ~ Ie.'" . ."1,. ...... 1 ," .', I , Trcatmcllt of GTE St~k Options and Slock Appreciation RiRhts On the ,date the merger becomes clTective, each outstanding and unexercised option to purchase shares of " GTE common stOck n11d cach stock appreciation right with respect to GTE common stock will be assumed by the combirlcd company und converted, as the case may he, into an option to purchase sharcs of comhined company common stock or a stock appreciation riglll wilh respect to combined company common stock. The number of shurcs of combined company common stock that a holdcr will be entjtlcd 10 purchase upon excrcise of such new option ur stock appreciation right will be dctcnnincd by multiplying the number of ShllTCS of GTE common stock subject to the original option or stock appreciation right by the exchangc mtio. The exercise price for,such opti~,n or stock appreciation right will equal the exercise price under the originllloption or stock appreciation right divided by the exchange ratio. The new option or stock appreciation right will otherwise have the'slime tenns and conditions in effcct immediately prior to the dUle the mergl.!r becomes effective cxcepUo the extcnt that such ternlS ,or conditions change in uccordance with their tenns as u resuU uf thc transactions relnting to the merger. For a further discussion of the treatment of GTE stock options and other employee benefit plans under the mergcr agreement. scc'''Bcnefits Matters" and "Additional Compensation for Executive Officers us n Result of the Merger',' in this Chapter 1. The Combined Company Folloning the Merger After the merger, the combined company will have iL<; headquarters in New York, New York. GTP.. and Bell Athultic arc 'in the process uf determining the name of the combined company. Since the name of a corporation i!l specified in the certificate of incorporation, changing the name will also require the approval of shnreholders. Buard of Directors From the completion of the merger until July 1, 2002, there wiH be an equal number of GTE Directors und Bell Atluntic Directors (each as defined below) on the combincd company board of directors and on each committee of the combined company board of directors. Subject to the fiducinry duties of thc directors, the combined l:ompany board of directors will nominate for elcction at each sharcholders meeting at which directors are e1ccted. an cqual number of GTE Directors and Bell Atlantic Directors. Each director of thc combined company will havc a fiduciary duty to all shareholders of the combincd company. regardless of whcther that director is n GTE Director or 11 Bcll Atlantic Dircclor. If the numbcr of GTE Directors nnd Bell Atlantic Directors is not equal. then the combined company board of directors will appoint people requested by the remaining members of the group that has fewer membcrs to ensure that there will be an cqual numbcr of GTE Directors and Bell Atlantic Directors. "GTE Director" means tiny person serving as a director of GTE on July 27, 1998 who becomes tl director of the combined company on thc date the merger becomcs effective lInd any replacement dcsigt\t\tcd by thc GTE Direclors. .. BeH Atlantic Director" means any person serving ~,tS a director of Bcll Atluntic on July 27. 1998 who continues us a director of the comhincd company on the date the merger becomes effcctive and uny replacement designllled by the Ben Atlantic Directors, The combined company' bylaws will contain specific provisions to ensure thm this equal representation is mainlaincd, nnd nny amendment will require the nffinnative vote of three-quarters of the enlire board of directors of thc combined company. As used in the combined company bylaws, the tenn "entire board of directors" meUllS lhe totnlllllmbcr of dircclors which lhc combined company would have if there wcre no \'<\cllncics. Successioll The mergcr agn:clnent provides that. froJ1llhe datc thc mcrger becomes effective until June 30. 2002. Charles R. Lee. currently Chainnan and Chief Execllli\'c Officcr of GTE. will ~c the Chainnan and Co-Chief Executivc Ofticcr of the combined company and Ivan G. Seidenberg, cun'cnlly Chninnan and Chief Executive Ofliccr or Bell Atlantic. wj!J be Ihe President and Co-Chief Executive Offker of the combincd company. Mr. Lee and Mr. Seidenberg tuIVc each 'clllered into an employmellt agreement. Such agreemcnts und the combined company byluws set forth the tenns of succession. See "Directors and Management following the Merger" in this Chapter 1. [-79 , ' --------------~------ --------~- - - --- ~:}f;: ::.~.': .. " :'.:, ., . '::, \ '~:I: IJ::, ',.. d, , ,~,' ., < c :. ~ '~ . < ',;.:{'.Y:"',:,,: " ,. .' ". '. ':t,' ,'. r.. , , .. ~ .' '.' ,.;',', . ~: ' " . ~, ; '" :. . .; ~ c.~.: , " ~~ ' " , " '~ '~ .;-:-;.. ., " ' ". J <. ;..... . I; .. :. ' l . ,f. " " ' r, , , , i , I " .': I, , i '. I' " " .' < U, .', ~ " : \: :~: ~.'~, , ;: ~.' .<, . ',' ~.' ! I..' , < ,c..c. _ l ',' , , "', I. '" ". . '\. , " ./- ';!: , ~.: ,. cO '.', ~': .. ~ , . F, . . I ~ "~ ;" ;;"~'>; ",:, "(''; ;"((~;:!:t::'(i~:;:'i ;";:1<~,.':,~;':~. ':.: ~:'I <', .: . , ' .;.-.... ""' <.w:,..... ~T. ., ~...., . . ;r. . I' , , Rep~entallons and Warranties In ~he Merger Agreement, . Tn'the merger agreement. we make 'rCp~~scntatlons and warrJntics 10 eaclt'other ahout our companies with respect to. 'among' other things: .,,'" , ' , .' .. due':orgilnizlItion nnd goOd standing; · capitalization. ownership 'of 'subsidiaries and other invcstments: ' '. ' ' corporate po\vcr; . ,I :. . , . I,. absence of 'nriy breach of (lrgnnizGtionaJ documents or material' agrcclnetns as 11 result of the . contemplated transDl.:tions: ' · act:umcy 'of our tilings with the Securities'imd Exchange Commission and our financial statements; · 'nbscncc of speCified changes;' " ',' '" litigation 'nnd violations of law: ' , · : infonnatloil supplied for use in this joint proxy statement and prospectus~ '. , .' 'employee mntters; labor rellltioml, environmental matters 'umi tax millters~ and' ' · required board of directors and shareholder approvals' with respect to the contemplated tmnsactions; -') , Conditions in the Merger Agreement ., ' The ;ncrger 'agreement contains conditions to our obligation to complete the merger. We will not be obligated to comple~c the merger unless: , , ',:,' . Shareholder Approml. The shareholders 'of GTE and Bcll Atlantic have approved their I'cspel.:tive ' merger proposals, as describcd in this joint pro:\y statement and prospectlls; , u'gality. No federal, state or foreign statute. rule, regulation, executive order, decree, injunction or administrative order prohibits consummation of thl.! merger or creates a Material Adverse Effel.:t on GTE. Bell Atlantic, or the combin'ed company: ' Hart-Scott-Rodino Act; Califomhl PubUc Utilities Commis.\';ml. Any waiting period under Ihe Hart- Scott-Rodino Act has expired or been temlinated and the decision and oruer of the Cnlifomia Public Utilities Commission authorizing the m~rgcr and making any required detemlinations is linal: ..._~......' . '. . . . ' . Re8ulcllory Matters. We have obtained all approvals necessary to complete the merger ,which, if not obtained, would have a Material Adverse Effecl on GTE. Bell Atlantic or the combined company. We will not consider that an approval has been obtained, if there is an)' condition related to such IIpprov~11 thut would reasonably be expected to have u Material Adverse Effect on GTE, Uell Atlantic or the combincd company: Registratiofl StcHt'IIU't1t. The registration slatemenl relating to this joint proxy statement and prospectus is effective, and no stop order suspending effectiveness is in effect; ., ,Bll/(' Sky: Any stute securities or "bluc sky" approvals required in connectiun wilh the merger have been ~ccived; . · NYSE Listing. The shares of cumbined company cOlllmon stock issuable in the merger have been tlpproved for listing on thl~ New York Stock Exchange: Poolinf.:. We t!ach have received a Ictter from our respective accountants 10 Ihe dTect that the merger will 'quality for pooling oj' interests IIccounting Ireatment. unless steps we huve taken to rcsolve'conllkts creatcu hy overlaps of our wireless operalions would prevent such treatment; and ,.. COIISt.'IIIS. We etlch have obluined any required third party consents or appro\'als nccessary to complete the mergcr which, if not ohlllined. would have II Mllteriul Adverse Effect on GTE, Bell Atl~llltic or the combined company. I.HO ~ \';t-,~.;J .........~P '~"i~~:' ~ ''''. " ~i~.:-;-~-.---:--~7.~~-" If " -;, ,.. '" I ,I)\:':~":',;.' ' "~",:. " .}, \ :. f " (., . .', I " , -I' . f I ,.:1',' . ,. 'l.~ . ! ,I' r"".L',;", ' " .,> I . :.":, " " ~.: .' " 1-:) , t" . \.~I.~/ , .t:,.... \; I " " \, ...: " ,~ , ~,t"H:--:\ I., 'J '\ol".J" v " ,. ~ " . ' " ' ", 0, ", '.J.", " :' ~" . . 'j" .'.. ". ~ . ~ ,\'" ;. Ie. .:~. , ~ .. ~/~:~'" , ' ~. """' ....'.t ..... ....... ..;.. ~~ . ~",. 4'..", . GTE;will nm be required to complete the'mcrger unleSs: " ;', · i~epresc~;llti~ns Clml W(Jrr~mtie.f. The' reprcsel\fations and viarranlies made by. Dell AtJa~ti~ in the merger agreement rirc rrucand correcl on the date that lhe merger is completed, unless the failure to be tnl;c and correct docs not, or would not reasonably be expected to, result in a Material Adverse Effect on Bert Atlantic or the combined compun)'; , . . F .' ,Agret'menl.r aild C()~'en{1111s. Bell Atlantic and Bcta Gamma have complied with atl agreements' and covenants required by the merger' agreement, unless the failure to comply docs not; or would not reasonably be cxpcclciw, result in a M<llcrial Adverse Effect on Bell Atlunlic or the combined company; Tax Opinion. . GTE has received an opinion of O'Mc1vcny & Myers Lq' to the effect that the merger constitutes a tax-free reorganization under Section 368 of the Internal Revenue Code~ . ' · Affiliaie l.l!ttcr.~. GTE has, received the lellers requircu to be dt!liverel! by the people who arc considered "affiliates" of Bell Atlantic. The tenns of these lettcrs gcnerally limit affiliates from transferring shares of Bell Atlantic common stock for a periol! of time berore und after the merger, l1\ese restrictions arc required because of Ihe possible adverse effect thc transfers would have on the 'accountmg treutment of the mcrger: and .. 'B)'law.~,' Board oj Directors. The combined company bylaws reflect the umendments required by the merger agreement and the composition of the combined company board of directors complies wilh the provi~ions described above. I Bcll ^,tJnntic will not be required to complele the merger unless: ", . · Repl'cselltCltiom mlfl Warrmllies. ,The reprcsentations and warranties made by GTE in the merger , agreemenl arc true and correct On the dllte that mergcr is completed. unless the failure to be tme and comct docs not, or would not reasonahly be expecteu to. result in 0 Materiul Adverse Effect on GTE or the combined company: Agreeme/lts cmd COI'C/lllllts, GTE has complied with all agreements and covenants required by the ,merger agreement, unless the r"i1ure to comply docs nOl, or would not reasonably be cxpectcd to, rcsult in a Muterial Adverse Effect C?n GTE: · GTE Rig/Its (\grcel1lcnt., The rights issued pursuant to the GTE Rights Agreement (as described belo~v) have not be!.'n ,triggered and will not be triggered by the merger; · Tax Opinion. Bell Atlantic has n~ccivcd an opinion of Skaddcn. Arps, Slate. Meagher & Flom LLP to the effect that the mergcr constilutes u tax-free reorganization under Section 36H of the Internal Revenue Code: and . · Affiliate Lettt',..~. Bell Atluntic has received the Icttcrs required to be delivercd by the people who arc "affiliates" of GTE. which arc similar to the letters to be delivered hy "afliliatcs" of Bell Atlantic described [\h~vc. , Under the merger ug.reement., "Materinl Adverse Effcct" Bencrally means any change in or effect on the business of the, applicable company that is or will he materiully auverse to the bu!-oincss, opcrations, properties, condition, assets, liabilities or regulatory status of thut company and its subsidiaries taken as a whole, hut does not include, the cff\!cts of changes thal arc gcnerall}' upplicable in the tclccommunicutillns industry, the Uniled Stales economy or Ihe United States securities markets if lhe \'ffeet on GTE or Bell Atlantic is not l\1atcrially disproportionate relative to the effect on the other. Trllnsition PI~~nlng Mr. Lee, as Chuinnan and Chief Executive Ofliccr of GTE, nnd Mr, Seidenberg, liS Chairman and Chief Executive Oftker of lleU Allanlic, arc responsible f{lf coordinaling all aspects of trumilion planning llnd 1~81 '1 ~'~o'~ :. ::'~': ~. :' ~. , ' .,' ; ~ .' '~I' " ~ ". . , . '" '< '-f , . " , " {; \' \. ",1',' . t.., " "\1 , ; " " ! ' i' . I I I > ,. . ~ . " , " ',': . ,\' ' .",1 , ' " 'c 1 ,.~ ., Jl :,'1 , , " . ':',.. . ';~.~':j~/ t/:)....'l. ~:J. t ~~ :'~;, _ ~.... ~, :.. " " ~ ~ ......... ,d ,,' roo-' . .. I , d;.. 'co I i!1lplerne'ntntion relating to the merger. Mr. Seidenberg and Mr. Lee will examine various uhenlUtlvcs regarding the manner in which to best organize and manage our businesses after the ml'rger.und coordinate policies and str..l~e~i~s with respe~( to reg,iJluto,?, authorities and bod!es. in all c~ses subject 10 npp~icable Inw. / , " I " , Covenants in the Merger Agl'eement 111c merger agreement provides thaI. until the merg~r has been completed. we will condu~t our respcclivl~ businesses, in the ordinary couri;e and consistent with past practice. We ha\'c agreed 10 lIse our commcrciulJy rensonable efforts to; . prescrve our r~spcctive business organizations: retain the services of those employees and c'onsultnnts whose scrvices nre integrnl to the operation of the business as presently conducted; and preserve our respective e:dsting relationships with ~ignificant clIstomers and suppliers. I :< .. ~, \', ~ . During this 'interim period. we have agreed that neither of us willtnke ccrtain actions without the consenl of the other party. Morc specifically. we have agreed: .. IssuLlnce oj SJock. In gcneral. we each will preserve our existing capitalization. However. both of liS' are pennitted to issue or grant stock under our dividcnd reinvestment pJims and employee and , director plans in the ordinary course of business provided that any issuanccs or grunts arc in an amount and in a manner consistent with past practice, · Acquisitions. Neither of us will acquire any business organization or make any investmcnt in any entity other thana wholly-owned subsidiary in excess of $500 million in lhe aggregate for any 12 inonth p'criod. This restriction 'also applics to investments in joint vcnture's and pal1nerships, .. "Dispositio1ls. Each of us has agreed not to divest. sell or pledge asscts in transactions that exceed $500 million in the aggregate for any 12 month period, However. unless the parties mutually agrec , that pooling of interests accounting is not available for the merger. no party may dispose of assets in excess of an aggregatc of $100 million unless such party and its independent account an IS have dctcnnined that any disposition would nol be considcred. individually or in the aggregate, a material disposition for purpose of determining whether pooling is available. · IlIcurring II/debtedn/!ss. Neither of us may incur additional indcbtcdness if it would cause our respective senior indcbtedness to be rated by Standard & Poor's Rati:.g Services lower than "A -.. for GTE or lower than "A" for Bell Atlanlic. ..-..."...- · Leven/ged Dail'olive Cmltral'ts. Neither of us may enter into leveraged derivative contracts or other derivative contruets e.'(ccpt for the purpose of hedging known inlc:resl rale ;lnd foreign exchange exposure or otherwise reducing financing costs. · SeW!ratlce, Retemion ami blccmi\'c Arrangl'/llellls. Neither of us may pUI in place any new or increused licvcrancc or retention programs ol',ammgcmcnls. This restriction docs not apply to arrangemenls that are nol related to Ihe mergcr and consistenl with past praclice or rcquired by law. · Increased Compemalioll tn' Paymellls Under P/cms. Neither of us will incrcase compcnsation, make payments under or amend any bene lit plan or el1ler into or amend any employment or consulting agreemclit; However. we may take actions of this type if the actions arc nol related to the mcrger and arc consistent with past practice, · Equily Based Rig/liS. Olhcr lllUn consistcntly with past pmclice, neither of liS will isslIe stock appreciation rights, performance shares, rcstricted stock or other equity based righls. Other than consislently with past practicc or as required by law. ncither of us will materially modify cost methods or r\ssLlmptions used in detcllnining benetit obligations except us requircd by generally accepted accounting principles, materially modify the invcstment philosophy of the benefit trusts, ]-82 , "'.-:;,;;1 ~;;,;i~,:~},:"~":'.\"'i! ::::',:~r~";' :,,;' ",-,;' :,:-: :" o " .' :",'i' '"1 t'. . , . ~! . ~. c., :'.~;./:,:.; \ . ", I ',::'\>:;;:'f" ~':' '.. I. . i. e" ..---~--------- , I" \ -~~~- ~ . . ; " > "I I, f ; C I 'I \1 I .... < '.,' . . , . ~ t .' \,~,:: :,,' ,,' . 1""1 ',\ , '~J"l .', '.' .." " 1 ! .~' , ... ,J ., .'.>. .'. . n.( T'- .' "" ,:', , >r . ,'" . I.',. ~. '. . I", . I . ,\ ~'I' ..... ;' I ',';' : "" ; ':,':~; 1 \ : .' \' '.' . " ,. ,~\ < ":' 'I' . Il" ,. .. < ". ' J ,;,' "'~'/('l ::~ ;' /:> ~\(~':/\:,~'f~G:~;~:'~:;?~'i.i~, ~I'~",~:.^:.. V ~ ;".". ,~~'" "':"~'~~l:: ,~~ .~""'~. -" -......" OJ.'- ,;,' 1 ' ~'.:, . ; " , '0" offer u retirement incentive, "window," increase pensions, establish or fund any rnbbi trustdldoptll ; eOfpornteowned'lifcinsurancc program or adopt a split dollnr insurance program., '. ''-',:t', " ,..'"' ,~~ '-, "'t;'; /...- " . , , ACco'lfllr~~lg 'P~licIes. Neith~r' of us may. change its accounting policies or procedures in any material respect, except as required by gcncmlly accepted nccounllns' principles. , , ;" . , GOllemmenl Apprm:(Jls, , , Neither of us may tuke any nction that it believes could auversely affect or delay obtaining t~e required govemment' approvals. ,e, I" . , . Stock Exchange Listillg. stock exchange. ,., f . . Neither of us 'will Ci1US~ 'ils commorl stock 10 cease to,bc quoted on'any, ;'J r~:' .. . Breach' of Repre,r;ntaijim; ~ml Warranties. 'Ncilher of us n'laY take any action that would cause our respective representations and warranties made in Ihe merger agreement to become innccumte in 'any mntcria~ respt..>ct. ' , , . " , ' , ,. : ShnreJwldl!TS' Meeti"gs " . ',' ~.. .., . j . I ',VVc have agreed to hold meetings of our shareholders tu Vole on the mcrgcr, proposals promptly after the Securities and El'chn;lgc,Commission declares this joint proxy statement amI prospectus effective. The GTE Board of DircClors has,unanimously recoinmcndcd approval of the GTE merger proposal. and the Bell AlI:mlic , Board of Directors has unanimously recommended approval of the Bell Atlanlic mcrger proposal. We have" agreed that ellch of Olir boards of directors \vilt not: · except as discussed below, withdraw or modify in a manner adverse to the uther party. its recommendation of approval;" ' ('.")' . ~~jllt.. . . recommend any "Alternative Transaction" (as described below); or caUSe either of us to enter int? any agreement related lO any Allernative Transaction. ' . Howe\'cl', if a board of directors receives a "Superior Proposal" (a!; described below) and determine,.; in good faith. that the failure to do so would result in a reasonable possibility that the board of directors would breach its fiduciary 'duties 10 its shareholders. the board of directors may infoml shareholders lhm it no longer recommends approval (a "Subsequent Detennination"). This Subsequent Detenllim\lion may only occur at a time that is after the fifth busincss day following notice 10 the olhcr patty, and giving a reasonable opportunity to the other party to make adjustments in the terms and conditions of the merger agreement. Whether or not , either of our boards of directors changes its recommcndalion. we have agreed 10 submit our respectivc merger related proposals to our'respectivc shareholders. An "Alternative Transllction" means a proposal. inlcnJed propos:l\. !oigncd ~lgrcelllcnt or complctcd aClion for any of: · a tran~action or series of transactions pursuunt to which any third party acquircs or would acquire bcneficial ownership of more than 20% of Ihe outstauding shares of GTE or Bell Atlantic; uny acquisition or pr9posed acquisition of. or business combinaljon with, GTE, Bell Atlantic. or ~my , of their significant subsidiarie's; or . any other transaction pursuant to which auy third party acquires or would acquire conlrol of assels of GTE, Bell Atlalllic or any of thl'ir subsidiaries, for consideration of 20% or more of the f:lir market value of Ihe outstanding shares of GTE common Slack or the outstanding shures of !lell Atlantic common stock, as Ihe case may be; , I "oJ' I-M3 I I I I _ n_n j ~ . ,....~. ,":1 . ..." :.'l. \ ' : - ,).'~ ; T t' . ~. . I : '. , , " ' " ,. , .' .: .' . ~ " . ~ ,/~~ ': I" . i;" " ;; ~( " ' , '\1," , /,t- I ./'. '.!".. . , " ~ . .. :J 'J'l I, :""., ';;;.'1"";' ,,,,"." ',~:'f"'~';""': ,','; >',:,: ' ~ .'l'f.t> i , '.. ~. . 1~.:..,riJ)$f\4;r~..,- ..' .:. Or, y ... ~ _,....;... "',, L '~." . A' "Superior ProposaP' mcarul any propo~al made by a third pany to entcr into an Alternutive Transaction which the board of directorS detcnninc!i in ,its good faith judgment (bused on, among other things, the advice of a financial advisor of nationally .rec~gnized reputation) to be more favorable to it.. shareholders than the merger, tnking into"nccount all relevant factors. . Pooling , 'We'ha\'e agreed to lIse our,besl effort5 to (n) cause the merger and the other transactions contemplated by the merger agreementto be accounted for as a pooling of interests in accordance with generally accepted accounting principles. and cause this accounting treatment to be accepted by GTE's and Bell Atlantic\ independent certified public accountants. by the New York Siock Exchange and by theSecurilies and Exchange Commission. respectively, and (b) not take any action which could reasonably be expected to cause this accounting treatment not to be obt.1incd. Howcver, these obligations will not apply to any conduct or the effect of any' cpnduct to obt'ain 311 necessary ,:"uivers. npj)l'ovals und, Conscnlfi,' and to avoid any contractual. legal. regulatory or other issut:s, impedimell(s or delays, to consummale (he transactions contemplated by the merger . agreement a~d the stock option agreements. Other The merger agreement contains other covenants relating to preparation nnd di!;(ribution of this joint proxy statcrllenl nnd prospectus, public announcements, mutual notification of certain matters, access to information. and cooperation regarding certain filings with governmental and other agencies and organizations. In addition, the merger agreement contains a general covcnunt,requiring euch of us to use commercially reasonable efforts to close the mergcr~ including obti\ining required regulatory approvals. No Solicitation of Trnnsactions We have ugrced thal neither we nor our employees. subsidi.lries or advisors wiU, directly or indirectly through another person: · solicit, initiate or encourage, or knowingly take any othcr action designed to facilitate, any Alternative Tmnsaction; or · participale in nny discussions regarding any Ahcma\ivc Transaction. ,However, this prohibition will not apply if at any time prior to receiving the respective shareholder approval, the GTE Board of Directors or the BclJ Atlantic Board of Director~;. delennines in good faith thaL the failure to provide infonnation or partidpate in negotiations or discussions would result in a reasonable possibility that thl~ board of di'rcctors would breach its li.duciary duties to shareholders. In that case, a party may, in response to a Superior Proposal. furnish infonnatioll with respect 10 it and its subsidiaries 10 any person pursuant to 11 cllstomary confidentiality ugreemcnt and participnte in negotiations regarding the proposal. Each party will promptly notify the other party orally and in writing of any request for infonnation or of any proposal in connection with an Alternative Transaction, its material tenns and conditions and the idenLity of the person making the request or proposal and will keep the other party rcasonably informed of thc status and dctails of thc request or proposal on a current basis. The merger agreement docs no\ prohihitus from (I) taking and disclosing to our respective shurcholders u position with respect to a tender offer required by law or (2) making uny disclosure to our respective shareholders if, in rhe good faith judgment of the bourd of direclOrs, after receipt of advicc from outside cOllnsel, failure to disclose would result in a reasonable pussibility Ihat the board of directors would breach its liduciary duties to its shareholders under applicable law. ' Benefits Matters We have agreed that our bencfit plans \hat were in effect when Ihe merger agreement was signed will remain in effect until the merger is completed unless we agrec other.....isc, ' We will consult willi each other to dctennine whal bencHls will be offered 10 the employees of the combined company after the: merger. We will ensure lhat the benefits offered to employees are atlenst as 1-84 , Ii .J 1 ,-. , \ " , '.,.., ,.,.i ., ' ..... l>'" .>J." (. 0, .l' .... d.:" . ~ " " '.'. " ',,' :.' . ,I" .' ">'j .l\., ,>1"::;, . < , " . ~ " '" " . ~ " .,....L . t <,' .i, '.'. " f~ , . ,'l:! ~ .., . , , \ ~ ' '" . ;~, '" ,ftt>,t'~.... I 1 , 4 -""11I'" 1,_) " '," ..: \ " . ~\ , " ',' " {I, " . . :' :' I',' .' . . ~ I \" , ' , , .', " ' " ,I "~; ~j :~. < :<;~I.'~:: ~:~~t: ~. ~'I.: '-.~e..~, f~.'! "'~~:. , ' . "~;. ~ .... ~..~ ,r' ,'."'. i 'to. 'Vallll\b~e' OS the benefit.'! they had before the merger unleSs the benefit'! nee replaced by other, equally vllluable benefits or those benefits are eliminated for similarly situated employees. For one year after the merger is completed" the combined compnny will not discontinuc or change the eligibility provisions or level of benefits under severance plans or policies in which thc'employees participated prior to the date the merger becomes effC;Cti,ye. For 18 months after the merger is completed, we will maintain the relocation bcnefi~s progrum that was ili'cffect' for ~TE's management employees who were tr.m'sferred to Texas as the result of the relocation of GTE's world heiuJquarters. . ' " ' When the merger is completed. all employees not covered by collective bargaining agreements will receive full credit for their credited service: with either company in detennining the umount of, eligibility for, and vestinl(of, certain benefits. Represented' employees wilt continue to be covered by their collective bargaining agreements. , ' After the:merger,any stock. based compensation or incentive payments that arc based on GTE common stock will be based upon the combined company common stock in accordance with the'exehange ratio. Some GTE beneHt plnns hn\'centitJc:ment or vesting tenlls that are based upon the price of GTE eomlllon stock; after th~ merger, the market p~ce. or value per share wilt be adjusted by dividing it by the exchange TIItio. >' q . IndemnJftcation and In.~urnnce . For a period of six years after the merger is completed, the combined company will keep in effect the current policies of directors' and officers' liability insurance and fiduciary liability insurance we each maintain with respect to all possible'claims arising from facts or events which occurred on or before completion of the merger. However~ the combined company may substitute policies of at least the same covemge and amounts .' containing tenus and conditions which are, in the 'aggregate. no less ndvantageous to the insured in any material respect. The combined company ~ill maintain in effect (I) the current provisions regarding indemnification of officers and directors contained in the charter and bylaws of GTE and each of its subsidiaries until the statutes of limitations for all possible claims have run~ provided that the combined company need not maintain in effect indemnification provisions contained in the charler and bylaws of GTE's .~tJbsidiaries if ulId to the eXlenllhal it a'i5UmeS such indemni~y obligations; and (2) any directors'. officers' or employees' indemnilication agreements of GrE and its subsidiarie~. The combined company will indemnify our respeclive directors and officers 10 lhe fullest extent to which we arc pennitted to indemnify these officers and directors under our respective charters a~d bylaws and applicable law. The combined company will unconditionully and irrevocably guaran((.'e, for Ihe benefit of directors. oflicersnnd employees, the obligations of GTE under its indemnification arrangements. Termination 'l.' I., . The merg~r agreement may be tcmlhmted at any time before the dute the merger becomes effective in any of the following circumstances: · ' , by our mutual written consent; if Ihe m~rger is nut completed by July 26. 1999. However, the lcmlination dale will be extended to MurCh 31, '2000, and may be extended to June 30, 2000, if requisitc regulatory approvals have not been received or a lawsuit prohibits thc merger. ll1is termination righl is 1I0t available to any party whose failure to fulfill any obligation has been the calise of, or resulted in, 'the failure of any condition to he satisfied: by either party if u court or governmelltal entity has issucd an order, decree or ruling ur taken any olher aClion pennanenlly reslraining, enjoining or olherwise prohibiling lhc mcrger, and Ihe order, decrl~e. ruling or other nction has become final and nonappealable; by either party (1) if the other party breaches any' of its representations, warranties. obligations or agreements eOI1l11incd in the merger agreemcnt, and that breach is incapable of being cured or renders a condition incapable of being satisfied prior 10 the applicable tenninatiun date or (2) if a condition to thut party's obligations to consummate the merger cannol be Iiutislied; . . '~R5 : ~ .~.'I : /. .. '\'-, 'i~ ,\:"r .:'" ,. \~ ,'.' " "., " ':",;. ~: ,~. J,'. t , , '. ,\~ >,'~ ~ ~. '4 :.; I '1" ..-: .' U':' ',' .1.... '. " ,~ ~ ' '. . , ':.;~,~ '~~: .:~ ~' J (.; t'.;",' :!' ;) l;{ It, .~. :', ';:~)'~'~:::,~,., , 1; " : c"...~;, ;1~ ~'~ ~ ",. ::. . ' .t::~( I': ' . .: . ( ~.' " ~ .~{ " . .. ~ I: (', , . !~ , -i \.' t. :, ~;. "\, ' '~ " '~'r,~~ ~~ {~~ ~; l(' .'." ~'. ' , , ' ..' , .' ~,,". ~,i: ' I:' , ," ..1' : . , "S, " ." ", ~" I ' " ' " , , , I ,~ c c. . i : . ,! ',' ?.", c'c, , ' . ,', < ' '. , " I I, " " c ..' , " " , ' ",' ; ;.'; ..' .,'\ " ,:' , , '! ' . ~. ~ ,I t . . ~p " 'j , ~ c " ' .,; . , " , ,'c ,... , " " ' '.'. ". ",' . ,.<' c. <~'. c, :' _.' j . ~,',~<"i:~"<i . ,:;'...'.":'i:~:;,~:,'~';}i;:.~~~,~.t:_~: ..' ,,'~,',.. ...__..,...._.._ . : by either party if the board of directors' of [he 'other' party (I) withdraws. materillUy modifies or' fails, ' 'to reaffirm its approval,of the merger. (2)rccommends 'any Alternative Transaction with a third party' " or (3) resolves to; take any su~h actions \any of which Is referred ro liS a "Withdrawal or'ApprovaIH); . or: ,,','..' , ' '. I'.."',. , " , , ' "" ", by either party if any' of the TCquired approvals of the shareholders of GTE'or of BeJl Atlantic are not , . obtained at a shareholdcrS meeting of eith'er company, hlCluding any adjournments thereof. . Tenninntion Fees , { /' . , '. Ben Atlimt,ic is obligated to pay to GTE 11, termination fee of Sl.8 billion if the merger agrce~ent: · is temlinllled by GTE as a result of a Withdrawal of Approval of the merger by Bell Atlantic; . . could haye been (but was not) terminaled by GTE as a result of [l Withdrawal of Approvul of lhe merger by Bell Atlantic and is subsequently tenninated by Bell-Atlnntic or GTE because of the failure to obtain Belt Atlantic shareholder appro"'ul; . ' (I) could not have been tenninated by GTE as a result of n Withdmwal of Approvnl of the merger by Bell Athmtic but is subsequently terminated by Bell Atlantic or GTE because of the failure to,obtnin Bell Atlantic shareholder approval. (2) prior to the Bell Atlnntic annual meeting, another party' " . , proposes an Alternative Tnmsactlon (except that for such purposes, the applicable percentage in the 'definition of "Alternative Tnmsaclion" is deemed ,fifty percent (50%)) involving Bell Atlantic or any of Its subsidiaries, and (3) within 12 months after the tennination of the merger agreement; Bell "I ' A\lantic enters into n definitive agreement with any third party ,with respect to an Alternative Tr..msaciion: or ' . . is tcrn\lnaled'by GTE as a result of Bell Atlantic's mnterial breach of its obligations to prepare and mail a joint prox.y stlUement and' prospectus relming to the merger. convene the Bell Atlantic annual meeting, or reeommcnd the Bell At1an~ic merger proposal 10 its shareholders. : 1. . G,TE is obligated to'pay to Bell Atlantic a tcnnination fee of $1.8 billion if the m~rger agrecment: . is tenninnted by Bell Atlantic as a result of a Withdrawal of Approval of tile merger by GTE; · could have been (but was not) tcnninalcd by Bell Atlantic as a result of a Withdrawal of Approval of , rhe merger by GTE and is subsequently terminated by GTE or Bell Atlantic because of the failure to obtain GTE shareholder approval: · (I) could not have been terminlllcd by Bell Atlantic as ~ result of a Wilhdrawal of Approval of'the merger by GTE but is subsequently tenninatcd by GTE or Bell Atlanlic beenuse of the fllilure to obtain GTE shareholder UpprovllJ, (2) prior to the GTE annual mccling anolher party proposes :10 Alternative Transaction (except that for such purposes, the applicable percentuge of such definition shall be fifty percent (50%)) involving GTE or nn)' of its subsidiaries, and (3) within 12 months after the tennination of the merger agreement, GTE enlcrs into a definitive agreement with any third party wHh respect to an ~ltenH~tivc Transaction; or · istcrminUlcd by Bell Atlantie as a resull of GTE's material breach of its obligutiolls to prepare and mail a joint proxy statement and prospectus relating to the merger, convene the GTE annual meeling. or recommend the GTE merger proposal to its shareholders. Expenses We will each pay our own cosls and expenses incurred in connection with the merger agreement und the reluted tmnsnclions. However, we will shure equally the expenses incurred in conlleclioJl with the printing of this joint proxy stalement and prospectus, the relaled filing fees and any filing fee required in connection with the filing of premcrgcr nolificutions under the Hnrt.Scott~Rodino Acl. 1.86 ---------- ~- " I ~'----------:---_ , ' .,,-... . I , ' ~~JI,-tI-/ rC ~.':>: t. ~. .1.;'...... , . { " ~ ~ . ~. . . "... :' ". . . . ',: "(" ' ":' :'C. s' -----_____~__ _ u , ., ..'...' ,"t ..?" --- . .:. I '. 'f' . --p--~--------- , . '. '.: . ,~ .. ." , " ~. " l.,',; \.(C, ,. t, ~,' .,1 ;! ',1 :. .. I "', '. , ' " , , . !J ./. ,I ~ , . , , (, , ..' ~ 0, ;.. \, ' ~ \' ; ! '~:~ ' " . : I : ~. . t.: " , '1:/" ' ~ \ ' . . , , '\ :' . > ' :'. ' ~,. :.,. , , .. 'i' " . "j ,~~ C>:.t: \ '. ~ '" .' I ,;:;'i.. ; " :. " C . ,~', ~ ~~I '~ , . > L . 'i " , ; . .,~; '~;,.:'< i:,:,: ~;;" f>I/~t'~j~~i::,:.~~t'~::ry,', ::,'~;.:>,:~~;, ;.; " 1:1 L'J':'. ~ " t" '.:,>~ '. ",.~_t~~J I ~, ,~ .... :.\ ,~ .' \' < ~ . ~ : . ~', 2'....,.~. l.,' '.i '. ................ <~ \' , ...,1~~,..,.~~I,.~".,.\\.,.Jf' ' (to- ,I',,;~ . , H , '..-.., ,- . T ,,' ,... "0., ..,. I I. I, , SUMMARY OF STOCK OPTION'AGREEMENTS , C f , . . , c.. We be/ie~'e /I~is summary de.fcribes all !1~aterialle;"1IS of the stock option agreements Oim 'GTE 'a~d Bell Atlantic entered into'in connecliolllvitil tile 11It!'rg~r'ln order 10 ;.einforce tlleir mutual commitment to llle ' " ,I" , merger. 1!owevl!'" we recommend Ihat you read carefully lite cO;flp/ele text of lite .flock option agreements for tll!!ir precise 'legal tenns and oiher in/annation that may be importall/ 10 You. The stock options agreements are included In this joint pro;lY s't~t~,neilt (lIld pro~pecl1ls as Appendices lJ ,'f"d c. " :: .. " ' , On JuJy 27. J 998, Bell Atlantic entered into a stock option agreement granting GTE an option to a'cquire up to ,155,347.371: shares of Bell Atlantic common stock, at a price of $45.00 per' share, and GTE entered into a strick optioti'agrecmcn't granting Bell .Atluntic atl 'option to acquire up to 96,324, i24 shares or'GTE common' stock; lit n pnce of $55.7:5 per share, incach case exercisablc only upon the occurrence of particular cvcnts. The option prices wcre detemlined based upC?n the respective closing prices on the New York Stock Exchange on July,27, 1998. The number of shares subject to ,the stock option agreements wus'calculated.to be 10% of the' oULStanding shares of'GTE and Bell Atlantic. respectivdy, on July 21, 1998. Generally, that number is subject to adjustmcnt'so that it is equal to 10% of the outstanding sh~res' of the ~espectivc companies on the exercise date. The lcmaining tenDS of the stock option agreements are, subslantially identical, as summarized below. A part)' may exercise its ~ption only if the other party consummates an Alternalive Trnnsnc(jon (ns described previously) prior to one of the following evcnts: ., consummation of the merger, · termination 'of the merger agreement prior to the OCCUTTCncc of one of [he triggering events uClicribed below. or · ' passage or two yeaTS (subject to certuin extensions) after lemtination of the merger agreemcnt if such tennination follows the occurrence' of one of lhe triggering evel1ls. , , " ~ ! " ~ ~ '.Triggering Events": · thc other party agrees to engage in or recommends to its shareholders un Alternative Transaction. · the other party proposes to engage in an Altenuuive Transaction. or il" board of directors publicly withdrows or modifies, its recommendation of approval to ils shareholders, · , any third party acquires beneficial ownership of 10% or mor~ of the outstanding shares of the other party's common stock, ' · any third party makes 11 public proposal to engage in ~1I1 Ahcmativc Transaction with the other party, after an overture is madc by a third part)' to engage in an Allemalive Tran!iaelion. the olher party breaches any obligatio'n contained ill the merger agreemenl which would enlitlc a pnrl)' to terminate the merger agreement, or · un)'third party has filed an application with any federal or state regulatory aUlhoril)' for approval to engage in an Alternative Transaction with the other party. Repurchase Obligation. In conneclion with the eon!lununation of any Altemative Transaction by one party, the other party may J'equire: (0) the repurchase of il... option at a prict~ cqllnl to the llmOUnI by which (1) lhe markctloffcr price (as deseIibed below) exceeds (2) the exercise price of the option, multiplied by the number of shares fol' whieh lhe option may then be exercised or (b) the repurchase of the shares acquired by virtue of exercise or'the option at a price equallo the nmrketloffer price multiplied by the numher of designaled shares. "Market/offer price" means the highest of: · the price per share of u party's common stock at which a tender offer or exchange offer for lhose shm'es has been mUl.le~ I , I i 1-87 ',~r:f1:.{t.tr:~~\t:.;.:J:~:'~"~1~~T::~~0"~ t. ~i,'I'~: ~ ;,'~'~ ":f,/, ,,;~~~~ '. "'l,~J';l.. ~ J: , r)~~~1f'.s:,.Il"it",l\\,.I,+"".~,:f;.~i~t8.'l-.'o.f/.,.~.~...,~ . ,,'. } '1 ,..t, 'l',.'},i ' r~:I;({~:{I;:';~~;r':: '~'..:':' '. .'::\:,. .' ;.':.'. ";;',!i',',':' .,' . ..' ,~".'.; ....... . 1t,,?<~'~~~~j'l\" '~~"'\~L(~H<c,..,'" ,\:,~: ~"~'~"""~.;). . t tf.:ft1', '" '"I' '~l."", j, ",. .",. I .' I' .. , ' , . >;.~' , I '''',':' ", . i' , . " .~ ;. j L I . ~ ' f c " " \ < .;LJ " . 'c, ~, " " "'.'; " , : ',") ;~, ' ,::} I ~ " . j. '. .+ .. ~.- :r'" ,..., '. ',:" I , ' , " ~ ii, ~ ,:, ~ ~...' , : f + ~ .;! ,; " ,\.'i:f;;'J.t'r~;;.tJtW~'t+)~~ ""/' !"~\'\"" 4/i',} ~ '~~l" ",.' " ."~ ir. o\lJ-~m{ \L.-!:~<t..~ ., ~t~Ji~J-*r1Q~a~.;~'"*.. \1: :': 1\~' . _._.: .;,::_~...,;''''';~~:.~,':'W.~j..c''''l:\h'#.:T ~ ....,.~....~ ;,.. +,.. ....-r , I .. :... ~:;~! ", " "1;!~' ':, ' ~', ' ~ '1- "... ." , ,,' . ~' c' , , ~ ( \\1.'\ .::.. i.. >, ':/ ' \",. , ,j:'. .., . ~ I r', I' " " . ',"1 . ' . ' ~. .f ,; "... " ' " , ~ :" I,',., " .. i ~f, : ,:' ': t . ~ ' i' " " '.::.::' ': ,I '". ..,\ . " ,":') " , " . ..\' , ", '/ "I !' ,~{:, :.t. let: : ~,. r! /...~ , !{j,' 't "~" ~f 1": c '1'::',:' " :, , " I; " .'f .. j '.' the price per ~harc'~f a party'scommomst~k to'OO paid by any, third party under an agreement with, thnt.piirty; ."" ", '",' ",".., " , " . I . ',\,: :'tl1e.'highest c1osi'ng price ref s~are ,of u'"party's'common 'stock within'thc silt-month' period pr~ceding .. notice ,of the required repurchase: or '.. ",',' ," ',,' " ",' " '. "',,' ,,:" , ,'" .' In thl; event of a sale of all Of a substantial'poition of ti' party's nsset~, the sum of die 'price p~idfOf thosc:nSsets nnd die market,vnlue 'of its 'remainiilg a'ssets divided by the 'nmnber of shares 'of thai "party's CO~~O~ siock out'itand~lig;' <,'" \ ',' ',,':' '". ,; . ' , ' ":' ' :", I~ ',..' , ,'.. . . - . , ~ . I ; . : : '\ . \ '-' . " \. " . , '. ( ~ . t : . ' """ ,< . .. - . . . '$ubstituie Option. ' Ir'apnny agrees to be acquired through consolidation~ merger or sale of all or , .' ., J. " ' , ;. E I' ,- I '.. " ... . " ..' : > , .. ' . ' < , ' " {' I , ~ subst~~tial1y all of it.., ~setS,the":the agreement g(),vc!11illS thap~ansaction sh~lprovide that the oth~r.purty'~' , optio~',s'hall. upon,lhe cori,sUlnination of any such trimsal;:tjo~. b~ 'converted il1t~ an option to acquire"securlties ' of,the'p.cquiror. :' :,.. '..,' '.':,,'. ' .."", ' """ " :",," ~. ' ',' '. :. ~.: ~,' . I, . " , ,;" " " \ \., ,; , I ': ".,o. ,..'. (' J , c, , ".' , . ',. ., ' '. ~ Ie' , . ' , . . '. , ~ i ~. , " . Total Profit Limitalloll. In no c~ent shalln,purty's total profit with respect to ltli optlun and any , tennin'ation fees exceed' $2.2:biUion;' See "Summary oflhe Merger Agrecment- Tehnination Pees" in this' "". ChaplcrJ;" " ;,',','j",.. /1'" ',I, ".' .;, ,..' . : \ ~ ,', >.. ~ ~ 'I ,~, . .' " ~ i,~{'" ' t", ~l. (t,', }~\, .. '>~,,,, \, ' f\' 11.:, ir.?' , :~'t' . ' ~ / ' ' ! . " :t, ", ,'".l,,(:, .'1 ':, '. ;":". ,,' ~t . '. '1 \" l ' ',. i , ~ i . ~ ; \f',;. ~;,.. ..' , t ':'. '.~. < ,', " in' ~,~ ::.., )~J':}i'.;:. ~ .'j 8- d:<', ';\ " I ,': ,\ l..! '" ~.~';. t, ",'\ , '1,', i, ',l,! <,I,. '~, i , (, " ~ ' ,:1' ), ,c :1' , ~ ~ ',. " , ~ {I I ",1 ! ~ ~: I \ , " 'e,f .'. , , 'II., '~ ., ,. 'j'> ',', , ' ," l,,".' I ,',. !, , ~ - ~ , . '. 'i .;, , , ~ ,\'f' ',' '-88 " '" '" " " '. :i', ,>:\:;-':"..; " <'i, ~~ , ;, ~. " ; ,J , ,,. .,. :. " ' "',; ,'j' '! ., i' f, ( " \.... It' : " .,..'... ..." t ~'1. ~ , ,I ",":'0. , ) " :, ! I' I '0; ! I I , i I ." . (, t , J .' \ ! , ! ,', , , .'~""'""""" ~ ) "W:.>'- <..~ , J~' , ,+,; . ' >' . ~, ' . .. ~ ~ .... ).: " '~, I, . I " " ' , .'~ ! ; !, ~ l I Ii, ; J,. /:, 'i,' ., ,:'. c" .,' >):' , ~\, ': , ", l~'. ':;l:, ", (~ t,"~'"')' " ........ ~ ' "'-'" ',I . >~.' ,', , , , I .1 I I' Ii' ,/ , "I . .,' , "I 'I L; , '" , . I ;' ., " ',';':,',',~;H~''':.;';('.':,<)~~',~,'~:, : ' l I .' ..:,. ...;'.1- \ .^:;- . ,:,,/,; 'I " "., ," DIRECTORS AND MANAGEMENT FOLLOWING THE MERGER Directors ' The merger agreement provide~ that, immediately following the completion of the merger, ~~e.halr'of the combi~ed,company board,of directors will be designated by Bell Atlantic and one~half will be designatcd by GTR The combincd company bylaws will provide that until July I, 2002, the combined company boned, of directors ~ilI,consist of llI1 equal number of 'GTE Directors and Bell Atlantic Directors; Subject to the fiduciary duties ~f the dircCtors, th~ eombincd company board of directors will nominate for election at each shaicholdcrs meeting af which directors are electcd an equal number of GTE Directors and Bcll Atlantic Directors; [f. at any lime prior to July 1, 2002, the number of GTE Direclors and Bell Allantic Djrcctor.~ would not be equid, then. subjcct to the fiduciary duties of the directors, the combined company board of directors will appoint directors to ensure that there will be an equal number of GTE Directors and Bell Atlantic Directors. Any amendment to these provisions of the combined company bylaws requires the approval of three.quarters of ,the entire board of directors of the combined company. As used in the combined company bylaws, the tcnn "entire board of directors',' means the total number of directors which me combined company, would have if therc were no vucancies., See Appendix E. ' " The cOlTlpanies expect that Messrs. Lee and Seidenberg will serve as directors of the combined company. The olher directors will be 'selected prior to the date the merger becomes effective. Committees of the Board of Directors There will initially be nn equal number,of the dircctors designated by GTE and Bell Atlantic on each conunittce of thc combincd company board of directors. The combined company board of directors will determine commiltec sUllcture D:nd membership ut or shortly nftcr Ihe complctj{lfJ of the merger. Compensation or Directors Direc(ors who arc employees of the combined company wHl not receive nny compensation for service on the combined company board of directors. The specific terms of the compcnsation to he paid to non-employee directors of the combined company have not yet bcen detennined. In order to more closely align the interests of directors IInd shareholders. it is expected that a significant ponion of tOlal compensation to be paid to directors of the combincd company will be based in Slock. The combined company is not ~xpccled to compensate non- employee directors through a pension plan. Co. Chief Ex....culh'e Oflicers The merger Dgrcementllnd the employmcnt agreements provide that, from the dute the merger becomes en'ective until June 3D, 2002, Charles R. Lee. currenll>' Chairman Dnd Chkf Executive Officer of GTE, will be the Chairman lInd Co-Chief Execurivc Officer of rhe combined company and Ivan G. Seidenberg, currently Chuinnan and Chief ExeCUlive Officer of Bell Atlantic, will be the Prc!.ident and Co-Chief Executive Officcr of the combined company. Under the ugreements and the combined company bylaws. on June 3D, 2002, Mr. Seidenberg will become the sole Chief Executive Officer of thc combined company and Mr. Lce will remain Ihe Chainnun of the combined company. On June 30. 2004, Mr. Lee will ceuse 10 be the Choiffi1on of the combined company and thul position will be assumed by Mr. Seidenberg. If eithcr Mr. Lec or Mr. Seidenberg is unable or unwilling to hold these offices as set forth above, his successor will be selected by the combined company board of direclors in accordance with the combined company bylaws. The combined company bylaws provide that, until July It 2002 (I) the election of any other person to such positions, or (2) the removal or replacemcnt of Mr. Lee or Mr. Seidenberg from those positions, will require the npprovul of three-quarters of the entire board of dircctors of lhl.: cumbined company. Any llrncllllmcnt to or modificalion of ehher of their respective employment ugrcemcnts rclating to these mutters willllll;o require the approval of three-quaners .}f lhe entire b{)ard of directors of the combined company. 1-89 'j~~'.,~j:J~j ~ , ',:', '. ~:/, , ' , ..', . ~; ~ I + ~' ',r 1 '( , '." ,\-' , " " ': .J...' ': ~ . '; , ~.:) I ,,> ""J . ',_ t' t' .1'" " ".1 " ' , , I \~ ^,' ."<1 < . . ' I"; .. .,1' I' ,. , , ;,' : -,' : j };h ~, I;,. . < '., '. ':' j' : " -,',.. . i ..".~ ' '."l I' , . i . .. " 'I . I :.~ .. ,I <, ". j" ,,\, .. '" '" I, " '.", 'I,' , ~.\', '," , . , ,/< , ..', ,^' , ,', j; '., '. . " ~t./l:?:'~'~,: ,;' :f/":"~) ~~~l~/{:(~:~\:~r;~{',.:~ ~::u',';, :'.' '\ ~ ~ l L ; 'i 1 1 j 'c ,I ,,' ", " \ " .~ _ ...o...~.....I"~'~""',"".T DESCRIPTION OF THE COMBINED COMPANY'S CAPITAL STOCK' FOLLOWING THE MERGER , Bell Atlantic's corpora Ie existence will not be affected by the merger. FolJowingthe merger. the certHicate, at' incorpumtion and 'bylaws of the comb'ined company will be substantially identical to the Bcll Atlantic ccrtificate"ofincorporntion and the Bell AlIanlic,bylaws. resPectively, c~ccpt for provisfons to take effect on thc datc the merger ~ecomes effective, which are included in this joint'proxy ~tatement ami prospectus us ' Appendices 0 und E. The Bell Atlantk certificate of incorporation and bylaws. as they shall be aniended anti restated olllhe date the merger hecoil\cs effective, arc ret'cn'cd to herein us the "combined company certificate of incorporation" and "combined company, bylaws," respectively. Copies of the Bell Atlantic certificate of , incorporation 'and thebylnws will be sent to holders of shares of aTE common stock or Bell Atlantic common' stock ,ul'on request. See "Where You Can Find More Information" in Chapter V. . , Authorized, Capital Stoc1t ., The ,combined company certificate of incorporation provides authority to issue up to 4.500.000.000 shares of stock of all classes., of which 4.250.000.000 arc shures of combined company common stock and 250,000.000 arc shares of series prcrerrcd stock. Common Stock Subject 10 uny preferential rights or the series prefclTctl stock. holders of shares of common stock \Vo~ld be entitled 10 receive dividends on that stock out of assets legally available for distribution when. a~ and if authorized and declared by thc,combined company board of directors and to share ratably in the llSSCls of the, combined company legally available for distribUlion to its shareholders in the event of its liquidation. , dissolution or winding-up. The combined compuny would not be able to pay any dividend or make any distribution of assets on shares of common stock until cumululivcdividenus on shares of sL'ries preferred stuck then oUI!.~mtding. if any. having dividend or distribution rights senior to the common stock ,I,lave been paid. Holders of common stock would be entitled to one vote per share un all matters voted on generally by the shareholders, including the election of directors. In addition. the haltlcrs of common stock would possess llll . voting pQ\\'cr except us otht:rwise required by law or except as provided with respect [0 any series of series' prefened Mock. The combined company ceniticalc of incorporalion docs nol provide for cumulative vuting for the election of directors. , The shares of common stock, whcn issued to holders of outstanding shares of GTE common stock in connection with the merger, will be validly issued. fully paid and non-ussessable, Series llrefcrrcd Stock The combined company board of directors will be authnrizell at any time to provide for the issuance of all or any' shares Qf the series preferred Mock in one or more classes or series, and to lix for each class or series \'oting powers, full or limited, or no vllling powers, and distinctive designations. preferences and relative. panicipating, optional or other special rights and any qualilicutions, lilllitt\tion~ or restrictions that arc pcrmitted by Delawure luw. This authority includes, but is not limitL'd to, Ihe authority to provide that any class or series be: · subject to redemption at a specilied time or limes and at a specified price or prices; · 'entitled to receive dh'idenL1s (which may he cumulative or lIon-cumulati\'e) at rutes. on such, conditions, and Ilt times, llnd paYlIblc in preferem:c to, or in relation Ill, the di\'idends payahle on any other class or classes or any other series; > entitled to rights Upolt the lIissolution of. or upon any distribution lIf the <IS sets of. the combined company; 01' P)() ", ' .-........ ,I ~" .~~ ~.....~ro'"' ~~\~f~~~~~i}:~i~1'.o~~/'tt',' '. ..~"~ ;"> ,I'\"'J tttiJ~::;: ;~::,:\i:,::',:":':'~::' . '?';' f,. i ',,, . ' ,;i~~~;~'~i'i{'''~,':' n,';":": ".. <, ~, ,~ (","":3HI{Lr:..:f 'I. w~ .'. ", 'c l , ".' r_.\! . _. ~ '~ .: " I , ,~~,.,,~,:'~,~'::.:\\. ;, I ,; " ~"'~~',',,\',", "~,., " .' l ,~., .' j'c ~ ,,' ,. ' ~ , ' \1 ;;<' . ,,' j , , ,....1 :,'; 1;. > , ,\, . " ,..' ~ f' ,." ~ l :'. . ' ; , .' ( .,L . 'I 1 ",' " . " ; ~'~pf,::;!~,:I;~(~~$~)l.r'llili~j\rjX;Il;.,.t' '" ,,' ;.' :, ;::',;f>,I:~. '!-;' , ":' :.-- ',' " " '. ,: ' , .' '. ' :, f'>" ~ ... ...~ ~"". ~ T", , ~, ,~? r~;,! ~./ .,. J It 1~......~ ..J,M.:.....,.... ~ .~... .~ .....:..i:L...."'*-~ ~~.-.J,",--../~,. .: N'.~ ~ J....'~ ".~.I' j;.....tt i.....',-t..-,., "rot.' ,..!'f~ I: "._.... ~ ..... ..~~. _ . , H" ~~! >.' . t! ~:. . ~..::r' ' M~". ~ j, .'; " ~." ' r~\~ ~':': ,~j:;~: '~ f;1.o' .I '. '"-. , ...--.._, "."'l,:,<:'~'::'>/~,C,<'\':,:~:/ ': .,:> 'c ~.. .," e, tl ',,' , , " i' . ). ," " ., ~~. ,';\ .'.. , , ' :,;. ,', f ,I' ,': ;, ,c. I' , $ ~. . , : \'~' , " l~ ", : J '. . ',' . ,. 'I"~ . I, " . . '. ',' , I, . \' '; , " .' .,1," .' '. . " , I, ' , " .) ,I! , . ~ " ;, ", ',I , . , · converdble'jnto, or ~xi::han8eable for, shnres"of any class or,c1asses of stock, or oih~r'sccurjtics 01' . P,rope~, of the combined compilOY nt' ~ specified piice or prices or at specifie4 rates of exchwlgc and , ,:. ... '\ with 'any adjustmentS(all ds 'the combined company' board of directors detemunes by'resolution. '. -i; ~'.~: 1+:, :.... lt~ ;"':" t,".:~. . '.J ~'~ ",.', , " ~ . .'j.". '., ,~" ': ,'!:""'" " , ~ ' ., " :'''!;~s 'c)f the dht~'ortbis johltproxy siai'ement nnd prospectus~'no shares of preferred stock'arc outstanding. , ,'.. 'r. '., ~:,~~"'.~~ ,',. ~~,...' . , I:. , ." i.," ,I \ . . ", < .. ~ .;, t ' P~~p'~1.ve~~,ts:; .. ,.'\!> . '. ...,., ," No holder-of ~y shares'of any class of st~ckof combined company would,have uny:preemptivc or preferentinlri.ghi to,acquire ~r' subscribe for any.unissued shares of any class of stock or any authorized " s~u~ti~~:,~o,l)~ert!bld~to ~r carry~ng any ri~t. optio~' or W~l to subscribe for ~r' acquip~, ,shares' of any',' class orst~.k.", :' ,: , , " , ' " .,~ ': ," " ~~.J .', ,: ,~ ,t'l: . c" j,l..":' . ...'!L. .' . '~ <, -.:.1," l.' ," Tr:wSfer .Ag~nt nnd Regist~r '., " . . ',' '" " ' , :! :The 'priricipal tionsfer ag~nt~d'regi'stJ1u. for ~oinbined c~inpany 'common st~ck after the me.rger wilibe ' ,) desiglla~d by, GTE and Bell At~anlic prior to the comptetionof the merger.," , ' .. ",-, ',)' i. , , < .! < ~ '.: f" ~ ; 1.' :.." . }.: : t.; -, '" I : ! . . ;:1. .' , ,I . . ,.~~.' \' \ ~. ' ~ , ' ' ':. , ~ <'. ~'tl(J~' ,!, 't,;.. , ,~~ c I ~ ~ , ~ I;, ~, ' ',!' ., '1',::( , ! " I,:c. " ',,' , . , , \ , " .I .......;.r 1-91 , ' -~----------....._~---------~------------ -~~---~-~-~~- ~~. '~~\ ,; ~'~ ~, <, . ' , ~;, ~ " -:::~----------_.-----;-~ ..' '. " " ,. , ; "'I,,'t .' r,.' , --" . t.. .' ~: ' , , " .l,' .' ".1.' , ., ',' ",', " .'. '.; I', , " ',. , ' "~I':"~ ' " , ,> ",', I " e ,"" ,I, " ' , ' :'r/ " 'L . . , ' ,~~,,~ :F~~J':( ;,:h' :~:':: ~: ~\ .~'~;;.:Ct~~l~.).t~,:::~J~~,: ., , n " ,',1 .' I ',' :. 'e . . , ," , : ' " ( ". ' , t C. "~,,, ;---"..)'''~.,,~.r '..." ........1 ~ ,r ~ , 1,<.< '. " '" ','....: ,COMPARISON OF SHAREHOLDERS' RIGHTS t e:" " . >, . 1. . ,GTE is incorporated u'ndcr the laws' of the Stale of New York. The right:; of GTE shareholders lire currently govemcd by the New Yor~ Business Corporation Law,aml the certificate of incorporation and bylaws of GTE. Bcll Atlanticis. and lhe combined company is cxpected to continue to be, incorporated under the laws of the 'State of Delaware. In accordance with the merger agreement, at'the date thc 1I1crger bec~mcs effective, , GTE shareholders will become combined company shareholders. The rights of the combined company shareholders would be governed by the Delaware General Corporalion Law. the comhincd company certific'ate of incorporation nnd the combined company bylaws... , ' The following summ31y'is not intended to be complcte and is qualified by reference to the Delaware I : 1 , General COrpOriiHon La\v. the Bell Atlantic certificate of incorporation. the Bell Atlantic byl~~s, the 'New York Business Corporation Law, the GTE certificate of incorporution, the GTE bylaws, the combined company , certificate of incorporation and the combined company bylaws. See "Where You Clm"Find More lnfonnation" in Chapter V. The proposed form of lhe provisions of the combined company certificate bfincorporntion and the ~omb\ned, company bylaws to he j~corporaled at lhe dale lhe merger becomes effc~tivc, ar~ included in this joint proxy'statemcnt and prospectus as Appendices D and E.'" . Comparison of Specified Shareholders' Rights Among GTE, Bell Atlantic and the Combined Compllny Except as described below. Bell Atlantic shareholders will hayc substanlially the same righls under the combined company ccrtilicnte of incorporation and combined company hylaws as they have under the Bcll Atlantic certificate of incorporation and the Bell Atlantic bylnws. AUlllorized Capital The total number of authorized shaTCs of capilUl stock arc as follows: GTE . UtI! .\thmt/(o rur Valuc Shares I'ur Value Sharts --.. "~I Comhlnt-d Cornpun,r Par \'uluc Sharc!i " Common stock ... > . . . . . . $ .05 2,000.0011,000 S ,10 Preferred slock .......... $50.00 9.217,764 No par preferred stock, . . . . I 1,727,502 Series preferred stock . . ~ t t $ .10 Total. . . . . ; . , . . . , . . 2.()20,945,266 2.250.000.000 $ .10 4,250,000,000 '....-l.,,#' , 250,000.000' $ .10 2.500.000,000 250,000,000 4,500.000,000 Shareholders can find additional informution uhuut the combined compuny's capital stock undcr "Dcscription of the Combined Company's Capital Stock Following lhe Merger-Authorized Capital Stock" in this Chapter 1. Composi/totl of Board of Directors The GTE certilicate of incollloration provides that there will be not less thun 9 or more than 21 directors. The exact number of directors will be detemlincd by vote of a Iluuority of the entire GTE Board of Directors. Currelllly, the GTE Board of Directors consists of ] 3 mcmbcrs. The Bcll Atlantic certificate of incorporation provides lhal the Bell Atlantic Board of Directors will consist of 22 mcmhers. You can tind additional int'onnation about the composition of the combined company hoard or directors under "Directors and Managcmcnl Following the Mcr~er" in Ihis Chaplt'r I. Electloll of Officers , The GTE bylaws gencrally provide thal the election of Chaimlan, ViL:e-Chairmun, President. Secretary, Trcllsllrcr llod COlluollcr requires Ihe llftinllalh c vote 1)1' CI IIwjoril}' of Ihe GTE Board of Directors members present al u meeting of the GTE Board of Directors, provided a quorum is present, Any other officer may be elccted in the same llIanner or appointed direclly by the Chief ExeclIlive anicer. The Bell Atlalltic bylaws provide that thl: oflicers of Bell Atlantic. olher than those clcctt.'d hy delegated authority. arc to be elccted annually by the aflirmalive vole of .\ majorilY of the Bell Allanlic Board (If Direclors mcmbers preseUl ill .1 meeling of the Bell Atl:lntic Board of Directors, provided a quorum is present. 1-92 \, ~"...-"i,l - ~~ ~--=-"~- ....- "'~-.-.....J c '~~'{'," ~ ':" , ~. " '~~ii:t, ;,t >, ;, .; ~ , , ~ p. ":. ~ , " , " , " , ~.... , .,> ", . t', ' "<J.', ,,' , , , ~, , . ~ '. ':'. ] "'",i . / 1 " , , ,l ~ , . " " ", 1, , , , , j " '. -: . . . " '.,l '.. . " ,,'. ...l,' ~~.f ';;J ~ ,.: ',':.~'.:!~'::~,f'b;~,\i.:t', :I'I,'~'L ,:," ". l _ ..' ~ I, ~;.... ., ..... ... . .... " \1 '., >~........ ,~. ~'n' .~;r' 'n h ""~ ' i . ,t,t'" I ~.:/' , The combined company bytnwR generally provide that the officers of the combined company, other than those elected by delegated authority, are to be elected annually by the aftinnative 'vote of a majority of the combined company board members present at a meeting of the combined company board of directors. The ' ,combined company bylaws al!\o provide thllt, until July 1,2002. the eleclion' of any person to the positions of , Chairman, Prcsidcntor Co-Chief Executive ,Officer other than as contemplnted by Mr. Seidenberg's and Mr. Lee's employment agreements, or the removal of Mr. Seidenbcrg or Mr. Lee from nny of such positions which they then hold in accordance with those employmcnt agreements, requires the affinnadve vote of three~quarters of the entire combined company board of direclOrs, For additional information concerning the managemcnl of the combined company. sce "Di!cctors and Management Following the Merger" in this Chapter I. , ~~. "-o.<,~~ , . '....~,.,p/'./ Classified board of direclors .....................,..........;............... Shareholder removal ,of directors, , -Removal for cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -Rcnloval without cause. . . . . . . . . . . . . . . . . . . . . . . . . , . . . . . . . . . . . , . . . . . . . . . Rights plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , . . .., . . . . . . . . . . . . . . . . . . . , Supennajority vote requirements for lrunsactions ................................. Prohibition on p.lymcnt of grecnmail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Combined GTE Company - Yes No Yes Yes No Yes Yes No Yes No Yes No ',' CompnriSOD of Other Shareholders' RighLli Between GTE and the Combined Company The remainder of this summary highlights material differenccs betwecn the rights of GTE shareholders and combined company shareholders, based upon current circumstances. The summary of these material' ' differenc~s. includes'infoml:Jtion presented in tabular fomlat. In order to understand fuUy the material' differences between' the' rights of GTE shareholders llnd combined compan)' shtlreholders. these tables must be rend together 'with' the text of each summary. The tables alone do not describe eOlriplelc1y the material difference~: ' Cla.~sijicati(ln of Board of Directors The GTE cenificate of incorporation provides for the c1assific:uiot1 of the GTE Board of Directors such that the whole GTE Board of Direclors is divided into three c1~sses, wilh each director elected for a term expiring at the third !'ucceeding annual meeting of shareholders after his or her election. The combined company certificate of incorporation does not prO\'ide for a cJas~;ificd board of directors. As 11 rcsult, each director would servc uIllil his or her successor is elected al the next annual meeling of shareholders. Removal of Directors Unuer the New York Business Corporation Law, directors may he remo\'ed for cause by vote of the shareholders. The certificate of incorporation or bylaws ma)' grant the board of directors the power to remove 11 director tor cause, unless Ihe direclor 10 be removed was elecled by (1) cumulative voting, (2) the holders of any class or series or (3) the holders of bonds voting as a class, A director may generally be removed without cause by vote of the shareholders if the certificate of incorporation or bylaws so provide, Under the GTE certificate of incorporation and GTE bylaws. any or all directors may be remO\'ed by the shareholders only for cause by affimmtive vote of the holders of at least u majority of the voting power of nil outstanding voling slock. The combined company certificate of incorporation and the comhined company bylaws do not contain any provisions with respect 10 the removal of directors. Therefore, removiiJ of directors is govcnlcd by Ihe Delaware General Corpontlion Law, which provides that direclors may b~ removed, with or without cause~ by the aflinnative vote of the holders of a majority of the shares entitled to vote in an election of direclors. If holders of any class or lieries of slock are entitled to elect one or more directors under the certificute of incorporation. then the majurity vote of the holders of that class or series is required 10 remove such director without cuuse. ,\.-1 1~93 -Ii:'; ;~:'~t:.;'" ~<:'. }"j:'" ' " ',1 " " I " .' f , , " ;; :' ",; ~ ;~; 'j: :. , ,',.. "", , " , I ',' " , "~!I- " . ' .' ,(, , ' . ," ,'. " ...., " " 'J J'" I' , " . , ,;;;~.t,~!,;,<:r,; ~ ;'(:,:II:\~\'~~':~!iiY' ,";.~';':,l:~::~;'~'';''>>h;~'" _,' .,.., ^"~'" "i,..". ,,' ," .. :\ FQr,additional infonnation about the modifications of the c:ombined company bylaws governing representation on the combined company board of directors, see "Directors and Management Following the Mergertt in this Chapter 1. ' , Absence of Rights pian' " " In 1989; GTE entered into the GTE Rights Agreement. Rights issued under the GTE Rights Agreement expire by their terms on December 7~ ,1999. unless the GTE Rights Agreement is renewed or extcnded. GTE' hos, under the (ermf; of the merger agreement, represented and warranred thai. as of immediately prior to the' date the merger becomes effective, (I) neither GTE nor the combined company would have any obligatiol1s under the GTE rights or the GTE Rights Agreement and (2) no GTE rights holders would have ony rights under the GTE rights or the GTE Rights Agreement. Bell Atlantic does not have a rights plan. Superm~jorilY Vole Requirement ~ ' The GTE certificatc of incorporation requires,that certain transactions with 11 person who holds more than 10% of GTE's outstanding voting stock must be approved by the vole of at least 80% of the outslanding voting stock of GTE. unless such transactions are approved by directors representing a majority of the GTE Board of Directors who are members of the GTE Board of' Directors immediately prior to when the ten percent holder became a tcn'perccnt holder, and who arc also not a ten percent holder or affiliated with a ten percent holder. These transactions include any: · merger or consolidation with a ten percent holder; · sale, lease or other transfer or disposition of assets with n fair market vulue of $50,000,000 or more to a ten percent holder; · issuance or transfer of any securities to a Icn percent holder; · adoption of any plan or proposal with or by a ten percent holder for the liquidation or dissolution of GTE; , . reclassification. recapitalizatiolJ, consolidation or any other transaction which has the direct or indirect effect of increasing the voting power of a ten perccnt holder in any dass or series of capital stock of GTE'or any of HI> subsidiaries; or · agreement with u ten percent holder pwviding directly or indirectly for uny of the Foregoing. The combined company certificate of incorporation and combined company bylaws do not contain any sllch supermujority approval requirements, Prohibition on Payment of Greenmail The GTE cerlificate of incorpOnllion contains u provision requiring GTE to obtain shareholder approval before purchasing any GTE equity securities traded on a national securities exchange or on NASDAQ from a person who beneficially owns five percent or more of GTE's voting SlOck :md who has owned thal stock for less than 2 years. The purchase must be approved by un affirmative majority of GTE's outstanding voting stock. Shareholder approval is not required if such purchase is approved by a majority of Ihe direclors of the GJ'E Board of Directors, who are members of the GTE Board of Directors immediately prior to when the five percent beneficial owner beClIme an owner of five percent of GTE's outstanding voting stock, and who Drc also not five percent beneficial owners or afliliated wilh a live percent beneficial owner. The combined compuny ce11ificate of incorporation and combined company bylaws do not contain any similar provision. , --..,,\ , , j . ' ! " i , ',l .' . , Amendmenllo Certificate of Incorporation Under bOlh the New York Business Corporation Law and the Delaware Gcnet'Jt Corporation Law, unless u higher vote is required in the cenificale of incorporation, un amendment to a corporution's certificate of incorporation may be approved by a majorilY of Ihe outslanding shares entitled to vote all the proposed amendment. 1.94 ~, ' \ ~ . ' " ~ ' . ;.\' ., , 'f :: ',~ ,.:., .: '. .; . \ '" ' , . i \ I ~ > ;'il.",<'::,":" : r ~ ~ :,,(~ " ,.j 1(;,1 c". ~ I ~ .. .... I ...."~...... II. " . '_.~ 'J ,~.-::~~~~~~- --- , " , I' , I I'" , , , 'f, " " \ " ' , I ! ~.,' , 'I ' , ,'.. .It '. " ", '" " " , '. , ' ,', ~:'.';/~;l;~ ::t;:{>'~:~:<:I:~'~~~',;:~~,:"",;~,: L;,:~',',:,,:",~::: !~: ,,~ ",...; \,' ~ '~ . The GTE certificate of incorporation provides that the anhmnti~e vote of at lellst 80% of the 'voting power of nll olltstunding voting stock is required 10 amend or rcpclll provisions of the GTE certifkale of incorporation relating to the classification of the GTE Board of Directors. Under the combined company ccnificate ,of incorporJtion and the Dclaware General Corporation Law, the combined company ccrtilh:ate of incorporation may be a'mended by an nffirmative Vole of n majority of the outstanding shares entitled 10 voic on the proposed amendment. ' Amendment /0 Bylaws' . l' , . . . Under lhe Nc\v York Business Corporation Law. a corporation's bylaws may be amemlcd by a majority of the Voles of shares then entitled to vote in the election of dir~ctors OJ', when so provided in the corporution'!o. certificate of incorporation or bylaws, by the board of directors. Under lite GTE certificate of incorporation !lnd the GTE bylaws,n bylaw may be amended only by the affirmative vole of either (I) not less 'than a majority of the dirc~tors then in office ut uny regular or special meethig of directors or (2) the holders of at least 80% of the voting power of all outstanding \'oring stock at any annual meeting or any special mceting called for that purpose. .' " , ' Under the Delaware General Corporation Law, the power 10 aincnu the bylaws 1'[ a corporation is vesled in the shareholders. but ;\ corporation in its certilicate of incorporation may also confer such power on the hoard,of directors. Under the combincd company certifictlte of incorporation tlie combined company board of directors would be allowed to amend the combined com puny bylaws. The combined company bylaws provide that a bylaw may be amended by either ( I) Ihc vote of thc shareholders at a July, orgnnizcd 31lnual or s{>(lcial meeting or (2) by vole of a majority of the enlire combined company bourd of directors Hl uny regular or special mecting. However. certain provisions of the combined company bylaws relating to the governance of the combined company may only be lImended by a thrce.quUl1crs vote of the entire board of directors of the combined company. Sec ..'Directors and Management Following the Merger" in this Chapler I. Slrarelwlder Lists alld IlISpectioIJ Rights , The New York Business Corporation Law provides that a shareholder of record has a right to inspect GTE's shareholder minutes and record of shareholders. during usual business hours. on alleast IIvc days' written demand. The examination of thc shareholder minutes and record of shareholders ,"ust be for a purpose re~lsonnbly rdated (0 the shareholder.s inlerest ns if shareholder. Under the Delaware General Curporation Law and Ihe combined company bylaws, :\IIY shareholder Jt1:JY inspect the combincd company's slock ledger, a list of il~ shareholders and ill' olner hook, and records for llllY proper purpose reasonably rela'lcd 10 suchperson's,intcrest as a shareholder. A lisl of shareholders is to be open to the examinalion of any shareholder, for any purposc germane to a mecting of shareholders. during ordinary business hours. for a periOlI {If at Icust 10 days prior 10 such mccting. The lisl is also to be produced .md kept (It the pla~c of the meeting during the entire meeting. and may be inspected by any shareholder who is present. Corporation's Best I"terests Under the New York Business Corporation Law, a director of a' New York corporation, in laking action, including any nCliun which may involve a change in control of the corporation. is cnlil\cl.llo consider both thc long-lcnn und short-IeI'm interests of the corporation and ils shareholdcrs .\IId (he effects (hill lhe corporal inn , ~ actions may have in the shorHerm or long-lcnn upon :II1Y of lht. following: the prospects of growth anu developmenl of lhe corporation. the corporntion's currenl employees, lhe ~'orporation's relired employees und olhers recei\'ing retiremenl, welfare or similar benelits from or pursunnlto any plan ~ponsored. or agreemenls entcred into. by the corporation. Ihe corporation' s CUM~. :leI'S and creditors, and the ability of Ihe corporal ion to provide, as a l,!.lling concern. goods. services. empluyment opportunities und employmcnt benclits amI otherwise cuntribute 10 the cummunities in which it docs business. ).95 '.' ,~ ., ,:,.1 " ,,',', n. '''." '. '\:"1/1 ,; , .' ,I " ", d.' . '. ~. ~ . . t, . " ' ( ;'1, , l. , . ,,' : , \" , I ~ t' ,.' '~t I , , . ~.:,J'",' 1;..j;...."+/~...t, )'.}:":,...'~~;..., .,. ~. " " ',;1 , .. , ' t. ,'.'" :/ ." . ~"... . ~/\ . ., \., ,"" . , , Th~ GTE certifjCo.lC of.incorporation provides that the GTE Board of Directors, when evaluating nny offer of another party to: ' '.. · .innk~ n lender or cllchnnge olTer for any equity security of GTE, , . " . · , merge or consolidate GTE with anolher corporation, or , · purchase or otherwise ncquire all or substantially all d the asscts of GTE, may, in ,connection with the exercise of its judgment in detcnnining whal is in the best intercsL'i of GTE and its sharcholtlers, give duc consideration to (0.) all relevant factors. including without limiuition the social, legal, eiwironment:lI and' economic effccts on the' empioyecs, customers, suppliers and olher uffecled persons, linns and corporations and on the communities and geographiC<11 an~as in which GTE and its subsidiaries operate and on unyof the businesses and properties of GTE or any of its subsidiarics, as well as such othcr factors :is the GTE Board of Directors deems relevant, and (b) not only the consideration being offered in rclation to the then cummt rnarket price for GTE's oUlstanding r.hares of capital stock, but also in relation to the then current value of GTE in a freely negotiatcd tran~uction and in rclatitln (0 the GTE Board of Direclors estimate of the future value of GTE llS an independcnt going concern. Whlle the Delaware Gencmi Corporation Law does nol include n comparable provision, the combi'ned company certificate of incorporution conrains a provision which is substantially simBar to the provision contained ,in the GTE ccrtiliclllC of incorporation, ' AuthoriZation of Certain Actions "Under the New York Business Corporation Law, the consummation of a merger, consolidation, dissolution or disposition o(substanlially all of the assels of a New Yark corporation (such as Gl E) requires the ilpproval of such corporation's boanl of directors and two-thirds of ,III outstanding shares of Ihe corporation entitled to vote thereon and, in certain situations, the affirmative vote hy the holders of a majority of all outstanding shares of each class or scries of shares. The Dclawnrc Gcncr-,d Corporation Law requires the upprovalof the board of directors of a Dcluwllre corpornlion Dnd of nt leasl a majority of such corporation's outstunding shares entitled to vole thereon to authorize n merger or consolidation, excepl in ccrtain cases where such corporation is the surviving corporation and its securities bdng issued in the merger do not exceed 20% of the shares of common stock of such corporation outstunding immediately prior to the effective date of the merger. A sale nf all or substantially all of' a Delaware corpurmiun's assels or a \'olunlary dissolution of 1I Delaware corporation rccjuire.'i the affimlulivc vole of n nlnjorilY of Ihe board of directors and at least a majority of such corporation's outstilndillg shares entitled to vote thereon. ltrdenmificatioll and Limitation of Liability of IJireclors al1d Officers . The New York Business Corporation Law and thc Delaware Gcnerul Corporation Law generally have similar pro\'jsions with respect 10 a corpormioll's indemnification of ils, officers and direclors. Both statutory schemes gcnemlly provide that a corporation may indemnify un ofliccr or director made u pany or threatencd lO be nuide a party to any typc of proceeding (other than one by or in the right of the corporation) against expen!-es (including allomey fees), judgments, fincs llnd amounts paid in scttlement actually and reasonahly incurred in connection with such proceedings: (I) if he or she acted in goud faith and'in a manncr he or she reasonably believed to be ill or nol opposed to Ihe hest inlerests of the corporation or (2) in the case of a criminal proceeding, if he or she had reasonable CllUSC to believc that his or her condUl:t was lnwrul. The Delaware Genenli Corporation Law ulso govcrns corporate personnel olber than officers and dircclors, such liS employees Ilnd :lgents of the corporntion, The Nc\\' York Business CorpoTllliun Luw governs only officers and direclors. but it permits imlemnillcatiull by contruct of eorponlte personnel other than officers and directors. Each of the GTE bylaws and the cmnhined company certificate of incorponltion gencrally provide that its respective ofliccrs and directors shull be indemniticd to Ihe full extent authorized by law. Howcver, the GTE bylaws limit indemnification to officers and dircclOrs unless the GTE Board of DircctOJ's determines th1l1 1.96 .' , -:-''i , . , ' i " I "",/1 ,: . , , .~, ,,. '(, .: ' " .,' , :.,' :" I ' ", " , :': , I,; \', I " " '.. .' " ,l .' l. , ~ J " ". , , " .' ,I , ' .' , n' ,I. '. ',I , , , , ,~ " . ," '+' !', .:. '"'F 1 ~ ,: .~. ~ , ,'x '..':::;':{~?I:'::.:,i.;??, ~\' < "~: '.:'" ' , :..1- " '" ~_'''''''~''''''"I: n ,.' ,.;. ',,~. f~ . ',,1-:' ,f ....~'~\L\ F ~',...~,...I ~ I ! t j i "'In#" I I ~ ~. . I "I ~f indemnification of an'cmpluyec or agent of the corporation is proper. The combined compllny certificate of incorporation permits employees and agents of the combincd company who arc designated as authorized rcprcse,ntatives by the combined company board of directors to be indemnified in uppropritue circumstanccs. . ~ j ", i , . c, ' . , ' Dividtnds The New York Business Corporation Law generally provides,that n corporation, subject to llny rcstricti'ons containcd in its certificatc of incorporation. may declare and pay dividends on its outstanding sharcs. except when thc corporation is insolvent or would thereby be made insolven't. Dividends may he declared or paid out of surplus only, so that net assets of the corporation after such declaration or payment shall at leust equal the amount of its stated capital. The ' GTE ccrtificate of incorporation contains additional restrictions on the declaration and paymem of dividends. , The Delaware General Corporation Law gcnerally provides that a corporation, subject to any restrictions contained in its'ecrtificate of incorporation, 'may declarc and pay, dividends out of surplus or, when no surplus exists, out of net profits for the fiscal year in which the dividend is dcc1nred and/or the preceding fiscal y~ar. Dividends 'moy not be paid out of net profits if the capital of th~ corporation is Icss than the amount of capitul represented by the issued and outstanding stock of all classes having a preference under the dbtrihulion of assets. The combined compa~y certificate of incorporation does not contain any additional restrictions on the dec1amtion and payment of dividends.:Thc combined company board of directors will detcrmine the timing and amounts of any dividends after the dute the merger becomes effectivc. See "Comparative Per Share Markct, Price and Dividend Information" in this Chapter J. Business Combinations The New York Business Corporation Law prohibits certain business combinations between u New York cOIpOrlltion and an "interested shareholder" for live ycars after the date thaI the inlerested shareholder becomcs an interested shareholder unless, prior to that date, the board of directors of thc curpnration upproved the business combi'nation or the transaction that resulted in the interested shareholder becoming an interested shareholder. Aftt.'r five years, such business combination is permitted only if (I) it is approvcd by a mujority of the shares not owncd by the interested shareholder or (2) certain statutory fair price requircments un: me!. An "interested shareholder" is any person who beneticially owns. directly or indirectly. 20ljf. or more of the outstanding voting shares of the corporation. In general, the Delaware General Corporalion Law prohibits an interested shareholder of a Delaware corporation (generally defined us a person who owns 15% or more of a corporation's,ol\tsHmding voting stock) from engaging in a busincss combinmion whh thut corporation for three years following the date such person oecame an iuterested shareholder. The three-year moratorium is not applicable when; · pri~r to the date the shareholder became an interestcd shareholder. the board of directors of the corporation approved either the business combination or the transaction that resulted in the shareholder becoming an interested shareholder. ' upon consummation of the transaction which resulted in the shareholder becoming an interested sharcholder. such interested shareholder owncd at least 85% of the outslHnding vOling stock of the corporation (excluding shares owned by dircl:toTs who arc also onicers of the corpor:Ltion and by certain employee stock plans), or · on or subsequent to the dute that the shareholder becomes un interested shareholder. the husiness combination is approved by the board of directors of the corporation and by the afllrrnative vote tit a meeting of shareholders of at least two-thirds of the outstanding voting slock entitled to vote Ihereon. excluding shares owned by the interested shareholder. These resU'ictions of the Delaware Gcneml Corporation LlIW generally dn not upply to husines!'o combinations with lln interested shareholder thai ure proposed subsequent to the public announcement of, lInd prior to the consummation Of abandonment lJf, certllin mergers. sales 1.11' 50c,;i, or more of 1I corporation'!. asset!. or tendl'r ofTers for 50% or more of a corporation's voting stock, 1-97 . .....}, ". ' ----~-~~--.-_.- '.', ", ' : ,> "" i ' , " "t', , :' ," I " :1, [. , , : ' l I ~, " , " " ~ I I' I' '. , > , I ,........., 'I,,'. ',", I , , ',. 1_ , ,'I ':: /t/.!!~'~,~ f:h;:;;'~J' 1__,,' .. STOCK EXCHANGE LISTING; DELIS'fING AND DEREGISTRATION OF GTE COMMON STOCK ' It is a condition 'to the merger that the shares of combined company common stock to be issued in tho merger be approved for listing on t~c New York Stock Exchange. Once the'merger is completed, GTE common stock will no longer be listed on any exchanges. , " FEDERAl. SECURITIES LAWS CONSEQUENCES; STOCK TRANSFER RESTRICTION AGltEEMENTS This joint proxy stalement and prospectus does not cover any resales of shnrcs of the combined company common stock received by GTE sh.1Ccholdcrs, and no person is authorized to use this joint proxy statement and prospectu~ in connection with any such resale. All shares of the combined company common stock received by GTE shareholders in the .merger will be freely transferable, except that., shares of the combined company common stock received by pcople who arc ,considered to be "affiliates" (as that tenn is defined under the Securities Act of 1933) of GTE prior to the merger may be resold by them only in transactions pennitted by the resale provisions of Rule 144 or ]45 , promulgated under the Securities Act of 1933 or as otherwise pemlitled under the Securities Act of J 933. Generally, people who may be deemed to be affiliates of GTE include individuals or entitics Ihat control. arc 'controlled by. or arc under common control with, aTE and may include officers, directors and principal shareholders of GTE. The merger agreement requires GTE to use reasonable efforts to cau~e its affiliates, to execute n written agreement to the effect Ihat sllch people will not offer or sell or otherwise dispose of any of the shares of the combined company common stock issued to such people in the merger in violation of the Securities Act of 1933 or the rules and regulations of the Securitic~ and Exchange Commission. [n addition, we hu\'c agreed to use all reasonable efforts to cause our respective affiliates to cxecutl~ written agreements prohibiting affiliates from transferring their GTE common stoek or Bell Atlantic common stock during the period commencing 30 days prior to the date the merger becomes effective lind cnding when fi~anciul results covering at least 30 days of the combined company's operations have been published. Some' exceptions to this limilation a~ permitted by the releases of the Securities and Exchange Commission, EXPERTS The consolidated finuncial statements included in GTE's Annual Report on Fonn lOoK for the year ended December 31, 1998 have becn auditcd by Arthur Andersen LLP, indepcndent accountants, as set forth in their report thereon dated .January 28, 1999 and are incorporated in this joint proxy statement and prospectus by reference. The consolidmed financial statements included in Bell Atlantic's Anllual Report on Forn} IO-K for the year ended December'31. 1998 have bcen audited by PricewaterhouseCoopers LLP, independent Hccountants, ns set forth in their report thereon dated February 9, 1999 and are incorporated in this joint proxy statement and prospcctus by reference. The consolidated linancial statemcnts of GTE and Dell Atlantic are incorporuted herein by reference in reliance on the reports of these Iirms, given on thc authority of Ihese firms us experts in accounting and auditing. LEGAL MATTERS The \'alidity of the combined company common stock to be iSl'ucd in connection with the mcrger will be passcd upon by James R. Young, Esq.. Executive Vice President-General Counscl of Bell Atlanlic. On Fcbruary 28, 1999, Mr. Young owncd bencficially 6,257 shares and 794,305 options to purchase shares of Bell Atlantic common stock. On February 28, 1999. he had approximately 3.670 shares credited to his account undcr the Bell Atlantic Savings Plan for Salaried Employees und had approximutely 54 shares credited to his account under the Bell Atlantic Employee Slack Ownership Plan. ]n addition. on February 28, 1999, Mr. Young had deferred the receipl of approximatcly 20,421 shares of the Bell Atlantic common stock under the Bell Atlantic Income Deferral Plan. See" Additional Compensation for Executive Officers .15 u Result of the Merger" in this Chapter I for more infornmtion about Mr. Young's i~tcresls in the merger. 1-98 / I~'~';'.'" ~~~~~"""'){'~~f~JFS.4<"...~':~~'~~~flt~:r~II~:--:Il~ ,~)T'fi,--:;::-:-fif.~: I ~,;:.{, ',: ~~~,""(L' ;;~..t:.,t:;,~;.~.t . t, ,,: '., '", ~- '. : , . . 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'. ; f' ~, . t ":;P,':\.i ~r~"jlf,~ ':~dJ ,\!~,,' .'1.:.;';;,":::;, ,:,.,~~\~::"::~: j :'..',:<. :.,',..' '," , ':? ' 1...~:.4\..~.~.;i '~;\I.;." " I) ..<~ .~I~'; 1.~~lit>'::t! I", 4 ) , j'-I' I,' ! ' J ':' ,..'.~':. '"..'~J~':'!~~" 'r <~ ." .,..! ~~l':lld\" .. \: 'j',. '" '1'\ 'r;. '! f"'., : ,~ ,'.:.',~l , ','1 , " ~ ' ". I.>.: ; , .;~" ,,>, .; ; ; (~I:', > ~ \ " t' " , \ ,. Il " ' '."..' .. "'1 , ~,." " i., . ~, J , ..:.:.. , :/ (, ,. '. " ,,' ,'ie',' "'.' , , ; ,li. ' ,', ,;"',, , . . ~ ,. ,I', " .1: ; :, I ~ '.".' ~'., I ;, :", I '1 . i' , , . , J, ',> f':: t}:'i':'" '" \'. !.' t~?::,\' :,.';', ,~ '; \ " .' ,: ! "," ,. ~'~;:: {, " ,", ; .' ,:1; I' " , , ' .J I~, . I ..,. ':~, , , ~ : .. ' ", , , .' ' .', I",', \, ,:,.' \," : . ". i ,i , , ~, " ",," I ~ e: '. " . '1: " , ~, . " ':.'..' ";~, :}~ " ,</ ~ ' . t ,~ [TillS' pAGE INTENTIONA.LL Y LEFT BLANK] . ,~ ' < ' , ' (.~'I1....;> \'i../ \ 1 , " :.7'Ti ~. . l' j" t' .;, , .i, ' ~ . , " ,', 'I ,! .....;./ ,I " " >, , ' , " ' ~'\:; ~ ~I u.'...~'~ , ~I . '~ ~. ~ I 1,' " ~' ~.' i ,.' ~ ::~,'~,!\I.<:,<:" :>:'..;. ,U ----;~--_-,~c-n , ' . , ;' , f' , : ... . ~ ,~,':' ~ j . , , ; . . ',,>-'. ' . " (, ,l : . '1 " , " , ~! : ': :.:' I .: , ' . ,.. . .'. ..., , ", , .; / l . ~ .' , I,'"" , ' ~" . ,~':{,,': ,;::, "" ~:,,:'.'>~~:\:i\~{:!,i..~,:;j.:~~~'l~~::~'~:"~'~"" ~:~: .' ,I' . ...~~~ ~."." .,. "h..1., ,','<1: ! ,~ ~~ ;' I I ' ,CHAPTER II-INli'ORMATlON ABOUT THE ANNUAL ' MEETINGS AND VOTING 'I~' :, ,( " ~.""l rL:S' , .'~.' '~{l ,', THE, GTE ANNUAL MEETING " . J ~ , , 'Ibis joimproxy stateinent and prospectus is being funlished in connection with the solicitntion of proxies from' the holders of GTE common stock by the GTE Board of Directors relating to the election of directors, the GTE merger proposal and other n~alters to be voted upon at the GTE annual meeting and at any adjournment or postponement of the meeting: This joint proxy statement :lnd prospectus is' also a prospectus fOl' the shares of Bell Atlantic common stock to be issued in the merger. GTE mailed this joint prox.y ,statement und prospectus to shareholders begitming April 14, 1999. You should rend this joint proxy stalemem ~nd prospectus carcfuJly before voting your ..~harcs. ' , '\ .'. "lI1':n nnd '\Vherp,thc GTE Annual Meeting Will be Held '\ ' The GTE dnnu,a1 meeting will be held at the Crowne Plaza Ruvinia, 4355 Ashford.DllTlwoody Road, Atlanta, Georgia, un M~y 18, 1999. starting at 10:30 a.m. and ending no later than 12:30 p.m., EDT. ' ',- How. to Attend and Participate in the GTE Annual Meeting Only shareholders of GTE may uttend the GTE annual meeting. Directions to the GTE annual meeting may be Cound on the last printed page of this document and on the admission ticket. f ", ~/ , ' , If your stock is registered in your name' and not in the name of a bank. broker or other third party, you will receive an admission ticket attached to your proxy card. This ticket must be presented Cor,udmission to the GTE annual meeting. However, if your stock is nol registered in your name, you must advise the linn that holds your stock (bank, broker or other institution that is the holder of record) that you wish to attend the GTE annual meeting. Thut linn must provide you with documentation showing that you own shares of GTE common stock as of March 29, 1999 (the record date). You must bring that documentation to the GTE annual meeting in order to attend. ' GTE will establish reasonable roles and procedures for the conduct of the GTE annual meeting to ensure that there is sufficient time to ~Iddress ull of the items on the agenda and to facilitah: an orderly meeling. These rules will be distributcd at the GTE annual meeting and will include an agenda for the GTE annual meeting. procedures for maitllaining order and the surely of those present. and limilations on the time alloltcd for questions or commcnls by shareholders. .,.,..........., What Will be Voted Upon At the GTE annuul meeting, you will be asked 10 consider and vote upon the following proposals: · to elect four Class I directors; to adopl the merger agreement relating to the Illerger of GTE and a wholly-owned subsidiary of Bell Atlantic Corpomrion and to appro....e the merger and the olher transactions de.~clibed in the merger agreement; · to nuify the appointntcnl of auditors; to consider and act upon lhe shareholder proposal which seeks to establish a policy of reporting on GTE's foreign military sales; · to consider ami act upon the shareholder proposal which seeks to require shareholder approval ot' bonuses to executive officers and limit bonuses to 10 percent of the annual salaries of !he cxecUlive officers; and · to act upon any other matters properly coming before the l1nnual meeting and nny adjollmmenl or postponement of the meeting:. ,_) 11-1 \' ., .}:{~~,;,:'''': .'~'::,>. , . " ' I' " " >, ~~/ ::~-. , , " ,'\ l " :1. ..: ,i , ' ! ' " ,. .~ .! ..' , " ;{. I l " " , : ~ ." . ;- , ~.,' , , 'J c'., ",' . , ~. - .'.' . " r,~' ',' ;',> .' , : 'i' , ", ',} , l,' ~ '; , ," " " ' . . .,.. ,~', " 1, , , . C , .: ...: i;~ i~~''',~,! :-,~: <~1:~i.b.~'~:?'...ti'>,. . ~ "',', c Only GTE Shareholders or Record ay' of Ma'rch 29; 1999 Are EntitJed to Vote GTE shareholders who hold thcir shares of record as of the close. of business on March 29. J 999, arc entitled to receive notic:c' of and vote- at the GTE annual meeting. On the record lIale, there were approximately 970 million ~hnres of GTE common ~tOck oUlr;tanding and cnlillcd'to vote at the GTE annual meeting, Majority ~rOutstnndlng Share~ ~l~st be Reprcscritcd'Fo~ a Vote to be 'Taken , 111 order 10 havc'il'qttorutn. a majority of the shares of GTE conlmon stoekthnt arc uutstanding and entitled to vote nl the GTE'nnnual meeting must be reprcsented in person or by proxy. If a quorum is not present. n majority of ~hares that are represented maY,adjourn or postpone thc aTE annual meeting. Vote Required , , A nomin~c for director must receive 'a phl~d1ity of the VOles cast to be elecled. Th~ GTE merger proiJOsal must be approved by tlic affirmative vote of at least two-thirds of the shares of GTE common stock 'that are ' outstanding and entitled it? \,ote at the GTE annual meeting, The proposal to ratify the appointment of auditors and to approve the two shareholder proposals must receive an aftiml1ltive vote of u majority 'of votes 'cast. Each share of GTE common stock is entitled to one Vole. VoUng Your Shares nnd Chllnging Your Vote "l'onng Your Shares . ./ ~ ~ l 11le GTE Board of Directors is soliciting proxies from GTE shareholders. This will give you the, opportunity to vote at the GTE annual mecling. When YOll deliver a valid proxy. the shares represented by that proxy will be vOled in nccord:mce with your instructions. If you do not vote by pmxy or ~Jl(end lhe GTE annual meeting and "ore in person. it will have lhe same efJ,cct. in most cases. us voting ll!luillst the GTE merger proposal. You may gmnt a proxy by: (1) signing and mailing your proxy card, (2) caUing a toll.free number and following the recorded instructions, or (3) going to n wchsjte on the hllemct and following the instructions provided. GTE mUy,uIso request thm sharehoJders return the;r proxy cards by fux. New York law pennits a shnreholder to grant a proxy in cHch of these WHYS. Howcver, if your shares arc not registered in your own name, the bank, bl'Okcl' or other institution holding your shares may nOl offer tclephone or Inlernet proxy voting. If your proxy card docs nol include telephone or Internel voting instructions, plcase complete and rcrurn your proxy card by mail. You may also cast your vote in person ill the meeting, M"il. To grant your proxy by mail, please complete your proxy card. sign. date and return it ill the l.."nclosed envelope. To be vulid, a returncd proxy card must be signed and dated. Tdeplwlle. You may u.~c die wllwfrce numher lisled on your proxy card to grant your proxy. You must h;m: your proxy carJ reud)'. Call the toll-frec number and: I, Entcr your Control Number located on your proxy curd, 2. '~"'l!ow thr. recorded instructions. ' 11If('met. ,You may "Iso lIse the Inlernctto grant your proxy. You 'must havc your proxy card rc;ldy ;tnd: 1. Go to the wcbsitc shown on your proxy card Hnd follow thc instructions provided. :!. Enter your COlllml Number located on 'your pruxy curd, 111 Per.wn. If you nucnd the GTE annual meeling in person. you may vote your shures by completing a bllnot ut the meeting, , B-2 ...-....., '.., 'I- \t,;;"F''" ,~:,1',. ! ~ . ' '. . :~~:..~,,~;.~., ", s. ~ , ';\l' " . " . . " " 'I, '.. , , ' , , , , , ;, . .1' J' ," . 1-". ,'le ,.e ", , .i' '.' , '" " '" . { ..: , : , " ,. ,.: ,I ' . ,.' " , ' , ,:~ ':' ,'f .Z~ > ,,' :i.~ f ~ .~~; ~:: i>:~~~\::,'r' l~~:.. T!,::(~;~ !~_ ,~ , ~.. ,. (~ I: : I~' · " . ,J('f"""",. (c ' ; '-' I ,-~ e ^'...', '. '4 'e;. . ..,...,' ..... I e\, , CI"mging .Your Vole by Rel'okiug rOllr Proxy ", , You may revoke your prox.y at any time bcfore the polls 'close at the GTE annual meeting. You ntllY /'C'iokc your proxy by deliveritig notice in writing to the Seeret3.r)' of GTE, granting a later-dated proxy or uppearing in person and voting at the GTE annual m~eting, You will not revokc your proxy by simply , attcnding thc GTE annual mecting unless you complete a ballot. How Proxies Are Counted .', ~ , If you rcturn a signed and dated proxy card but do not indicotc how the shnres arc to be voted, those . shares represented by your proxy card will be voted as recommended by the GTE Board of Directors. A valid proxy also gives the individuals named as proxies authority to votc in their discretion when voting the shares on any othcr mailers thut UTC properly presented for action at the GTE unnual meeting. A propcrly executed proxy card marked "abstain" will not be voted. However, it may be counted to detenninc whethcr there is a quorum present. Accordingly, since theaflinnative vote of two-thinls of the shares outstanding and entitled to vote at the GTE annual meeting is required to approve the GTE mcrger proposal, a proxy marked "abstain" will have the effect of a votc against the GTE merger proposal. Abstentions arc not counted in detcnnining thc number of shares voted for Of against any nominee for director, thL~ ratification of auditors or any shareholder ' proposal. ,.\ I Share,S represented by "broker non~voles" (i.e., shares held by brokers or nominecs which arc represented at a meeting bUl withn~spect to which the brok.er or nominee is not empowered to vote on a particular, , proposal) will be counted as present for purposes of detennining whcther there is a quorum m the GTE annual meeting. The New York Stock Exchange rules provide that brokers muJ nominees cannot vote the shares that they hold 011 beha!" of o~her peopl~ either for or against the GTE merger proposal or any shareholdcr proposal without specific inslrUctions'from the person who beneficiully owns those shares. Therefore, if your shares are held by n broker or other nominee and you do not give them instructions on how to vote your shares on the' GTE merger proposal, this will have the same cffect ns voting against this proposal. Broker non~votes arc not counted in delcnnining the number of shares vOled for or against any shareholder proposal. If )'"ou :ire a GTE shareholder who participates in thc GTE Shareholder Systematic Investment Plan, your proxy card represents both the number of shares rcgistered in your name ami the numher of full shares credited to your plan account. If you arc u GTE cmployee who participates in the GTE Savings Plan or the GTE Hourly Savings Plan and who also holds shares of GTE common stock other than in those pluns, you will receive onc proxy card for all of your shares that are registered in u similar nmnner. Accordingly, your proxy will also instruct the trustee of the plans how to vote your shares hclJ in those plans. If your accounts arc not registered in a similar manner. you will receive a separate proxy card for your individual accounts and for your plan holdings. If the trustee of the plans has not received voting instructions for all uf the shares allocated to participants' accollnts, the tJlIstec will vote the shares for which the 1111stce has !lot received voting instructions in the slime proportion as shares for which the llUstee has received voting instructiuns, subject to the trustee's fiduciary duties. Similurly, the trustee will vote shares held in the plans which huve lIot yet been allocated to any participant's account in thc same proportion as shares for which thc trustee has recei \led vOling instructions, subject to the trustee's fidudary duties. ~ ' Confidentinl Voting It is GTE's policy that all proxies, bullots and tabulations that idenlify thc vute of individual shareholders arc kcpt confidential: These hems arc not seen by nor rep0l1ed 10 GTE. excepl as necessary to meet legal requiremcnts, in ~l COlllcstcu proxy solicitation or where shnreholders suhmit comments with their proxy. Cost or SolicUutlon GTE will pay the ec)st of soliciting GTE proxies, Howevcr. GTE ami Bell Allanlic will share equally the cost of printing this joint proxy statement and prospectus. In addilion to snliciludon by Illail, Iclephonc, Ihe lJ.3 -i"., '. .. '." . ;;: ;',' ~:;" :,' ,(,::.; ';':;~::j~~::oig~;;/~I;~ ~};~..::~,:, :~~: '::', " : i,. ' ;', , .:' :J ; ': ;:~ : ' '" , '. ,~,~;. : i c" ;. , ; . , " . " , ~ , . . . , " ,I.. ~,! " ' '\i'. , ., j' ~. . ',' I c\ . .~.~ . ;. ,>, ':,.:/;,:;,:,~-:--~-----_.~~~~__m-- - . I , '. '~',. ~ j, ~ oj " ,,' " ,q . I '1', . 1-- .I'~. , , ", ',' , j :. ' . .,... % ',~.' ,,' . c , ' . , ,:' " ' ,.' I ; ~ . I /, . J'I , ' "'.: < ..',' ~:,:.:::.' <' .' , I,' ,c , ',':.,..~' ~ " ,'I :" ~ ,~,' .., ' . . " j~ , ~ . ~ ' Internet or olher means. GTE will make utTangements with brokerage houses and other cUlitodians, nominees nnd fiduciaries to send proxy material to bencficial owners. GTE will, upon request, reimburse these institutions for reasonable expenses. GTE ha.~ retained D.F. King & Co., Inc. to aid ,in the soli~itation of proxies and to verify certain records related to Ihe ,~olici!alion at u fee t?f $650,000 plus expcnses. Proxy Statement Pr~posnls Atnn .anminl meeting. the GTE Board of DireCtors will submillo you ils nominees for eleclion as directon;. YOll will also vUle 10 ratify or reject the auditors selected by the Audit Committee and approved by lhe GTE Board of Directors.' In addition, the GTE Board of Directors may submit other mntters to you for action at that annual meeting. Eochyear, a shareholder may submit proposals to be included in the proxy materials. These proposals . must meet the shareholder eligibility and other requirements of the Securities and Exchange'Commission. In order to be inc1Lldl,'d in the 2000 annual meeting proll:Y materials, your proposal must be rcceived no latcr than' December 14,1999 at GTE's Corporate Headquarters. 1255 Corporate Drive, SVC06C20. Irving:Texas 75038, Attention: Secretary. ' , " In addition, GTE's bylaws provide that in order for business to be brought before the unnual meeting, you must dc1i~er written notict;': to the Secretary nolless than 90 nor more than 120 days prior to the date of the annual a.nccti':!g. ,1f'GTE gives you less than 100 days' notice of the meeting, you will have 10 days from the' , earlier:of the time we mail YOll the notice or the date the meeting is publicly disclosed to submit a proposal to be included in the pr(lxy materials, 11le notice nlust state your name, address and number of shares of GTE. corilirion stock you hold, rind briefly describe the business to be brought before the annual meeting, the reasons' for cond~~ting such business al the annulll meeting nnd any malerial imcrc,>sl you have' in the proposal. 'The bylaws also provide thllt if you inlend to nominnte a cnndidale for election as a director, you must deliver written notice of your intention to the Secretary, The notice must' be delivered not less than 90 nor more ttwn 120 days, before the dale of ~ meeling of shareholder.~, The nDlice must conlain the following infonnmion: the name'and' address of and number of shares of GTE common stock owned by you (ond that of any other shareholders known to be supporting the nominee you have selected) and the nominee for election ~s a dircclor; the uge of the nominee; the nominee's business address andexpericnce during the past five years; any other directorships hefd by the nominee,; the nominee's involvemcnl in cenain legal proceedings during the past five yearS: and such other information conceming the nominee as would be required to be included in a proxy statement soliciting proxies for the election of the nominee. In addition, the notice must include the nominee's consent to serve us a director of GTE if elected, GTE shareholders'shouJd not selld in their stock certUicates with their proxy card. Soon ufter the merger is completed, you will receive written instructions on how tn exchange )'our GTE stock certificates for shim$ of tlic combined company. 11-4 I, , .' , T-......~ .. >"-.", -.;.,....'" I \'I.~" \~,~ ..'.. '.' ,:..: ~ , ' : ...... I ' T ,;' ~ '; . ':L. , ':. ',\. . . , .,1, , ; ~ '1.: I', " , ""., I'.. ':'.: : . ~ :,.' ,'~.' I" '/' ., ,C L " . ~.: , , . ~ ~ . " ',' , ,i " .... ,> ..-r____------- , ."J . ~. :,', ,', '. l' t ~ , ~, "c ',' ,I' " , /, " , " , " c.; . , " \'. ,', , , .' I : '~ '"'-',', , , " , , ':,'; , ' ~i : ~ ,. ji' " " p., ;, \- " ~ ... ~ ~ , "'I. " ., . ., '. , ': J., ' , ". I ' '>:,'j.1 c . '~' . -.., . , , , ~l ~ .,' ...~,'. \ ". , .. . "~ :~~ :.' 1~1 .' .>..1, "":',' ,. ',i :";(~~~Ff~;":':~:~t,~~;~L;:~..' '. '." . .. . ..' I :' , l " \- , 'i ,! I , I " ( . . " ,I i A .. " ", :.l ,:. "t, ':' ,/ :.. (~'" ' ~ .;. c . ',. ~ . , , . :' \, i . r ," j. 1. t~ ~ . ',.'\ ': I , " '\ ~, '.. 1 ',.' j ,+ ~ ',' ',1 " ~ '" : I: ~ f :l : t :/t1:'""I~ }, j ; ~~ r#'. ''j 1 . ( I . , .. I J !; , ~< "~ ' . r ' I' <.:: ., ,.;..M~.t-.,,~"'clb'. .t'."" .' It' THE BELL ATLANTiC ANNUAL MEETING 'Ii 'j i , I This 'document is being furnished in co~ncction with the solicitation of proxies from the holders of Bell Atlantic common stock by the Ben Atlantic Board of Directors relnting to the ,election of directors, the Bell , " Atlantic merger proposal and other maucrs to be voted upon at the Bell Atlantic annual meeting and at any , 'adjournment or postponcm~nt of the Bell' Atlantic annual mceting. Bcl1 Atlantic mailed this doeumentlo shareholders beginning April 14, :1999: Yon should read this document carcfully before voting your !>hnrcs.' When nnd Where the Bell Atlantic Annual Meeting Will be Held The Bell Atl'antic annual meeting will be held at the Cmwne Plaza Ravi~ia. 4355 'Ashfonl-Oul1woody Rond, Atlanta, Georgia on Muy 19, 1999, starting at 10:30 a.m" EDT. How to Attend and Participate in the Bell Atlantic Annual Meeting, Only sharchoidcrs' of Bell Atlantic may attend tJle ~cll Atlantic annual meeting. Direction:; to the Dell. AtlantiC annual meeting ma~.be found on the last printed page of this document anti on the admission ticket. , If your stock is registered in your name mid not in the name of a bank, broker or other third party, yuu will receive an admission'tickct uttached to your proxy card. This tickelmust be presented for adtltission to the Bell Atlm~tie annual meeting. " , However, if your stock is nl)t registered in your name, you must advise the finn that holds your stock , , (bank, broker or olher institution thut is the holder of record) thm you wish to attend the Bell Atlantic ilnnual meeting. TIlllt firm must provide you with documenlntion showing that YOll owned slmrcs of Bell Atlimlic common stock on April 2, 1999. the rccord dale. You mllsl bring lhllt documentation 10 the Bell Atlantic annuul meeting in order to attend. Bell Atlantic will establish reasonable rules and procedures lor the conduct of the UeU ~.llllntic annual , meeting to enslire' that there is sufficient time to address all of the items on the agenda, procedures fur maintuining order and the safety of these present, and IimitrHions on the time allotted for questions or comments by shareholders. What Will be Voted Upon At the Bell Athmtic annual meeting, yuu will be askcd to consider and vote upon the fullowing mailers: to ciCCI directors; . 10 vote upon u proposal to approve the issuance of Bcll Atlantic shares under an Agrecmcnt and Plan of Merger, dated us of July 27, 1995, wilh GTE Corporation, aud related transaclions, including the amendmcnt and resllltcll1Cl11 of Bell Atlill1tic's cerlificalc of incorporalion; to ratify the, appointment of indcpendent accountal1lS; to vote upon an amendment to the Bell Allllntic Incentive Stock Option Plan: and to act upon such other mllttcr~. including live slmrchoh1cr proposals. as may pmperly come before thc mecting. . . Only Dell Atlantic Shareholders of Record us of April 2, 1999 Are Entitled to Vote Bell Atlantic shareholders who hold lheir sht\rcs of record us of \he cluse of business un April 2, 1999 are entitled to rcceive notice of and vote at the Bell Atlantic unrwa! l11~cting. On the record dme. \hcrc were lIppmxllllutcly 1.55 billion shun~s of Bell Atlanlic COllllllon stock outstUluJing llnd cntitled to VOlC at the Beli 11-5 Y"}'/"f"'" '." , . ~-~- , ,..~~' J~', r.J '~'I""'>" I" :~~}<:;';,:\/;'~~' '/";';',':'; ,;' , :: ': ;: ~ ~', :' -' " , ,l~, ~ ' .. '...: . ~'.,:'-:' ;", " ('l~~\~.": :~\ : ~. . " , . ,.",' " ~. ," > " , :p' t ,'., /..- :X::?:')" ' 1, "'c' .: '~~ r' <... ~ I , , , ',::i"~'l.' '. '. ':, '. ,~ ' ,! " ,', , '~ 1 ~ : , ,'; , ~ !, :'> ' " 'i, !'~"'> . , ~. " , ., .', L ,,' ~ 'I ,I , ': ~ . I ,,' ,/, "" , :;'1: >,1,'< .' , , .J ;, .:, I " " .. 'I ~' I c, Ie A ":It: " ,~ : I ; , " , " I H,," ". '" I' ,:, :": ':;,:,:).:/~, ,~i}i.\:'~~~';';}:;:~~~~:'::' "'i.'J:;'; i:".. ~:' :_';',' " 'i:: .' , . ",t, , ' 11',\\ ,,' '~I~ I ' ", , :c .' !/. " " " i, ,I , " -.\ rot , ~ Cl '1' ,. " ' , ',:c '/ 'J ~ . ,,~. '~'.--'''''~'''l'r''' Atlantic, annual meeting.. A list ~{stockholders 'eligible to vote will be available at the ofticcs of The COrPortlriol1 Trust Company, J201 Peachtree Street NE, Atlllnrll, GA 30301. beginning on May 7, 19lJ9. Shareholders may e~amine this list during normal ,business hours for any purpo~e rcluting. to the Bell Atlantic anmial'lnccting.' ',.,'," " " " ',' " , ' Mojorit)',of Ou~tandlng"Sh~~ M~st be R~prescn'led For n Vote to be Token In order hi have a quorum, a majority of the shares of Bell AtlantiC common stock tlmt arc outstanding wld entitled to vote ut the Bell Atluntic annual meeting must be present in person or by proxy. If a quorum is not present, n majority uf shares that nre represented may adjourn or pOSlpO~C the Bell Atlantic annual m~eting. ,.J Vote Required A nominee for director must receive a plurality of the VOles, cast to be elected. The Bell Atlantic merger ' proposal must be ~pproved by the affirmative votc, in person or by proxy, of holders of a majority of (he shares. of Bcll Atlantic common srock tha( are outstanding and entitJed to vore'utthe Bcll Atlantic annual meeting. The plOposnllo riUify the appointment of independent UCclmntunts and to approve each of the liv6 shareholder proposals must receive all afrinnative vote of a majority of votcs cast. Each share of Bell Atluntic common' stOCk is entitled to one vote. As of !he record date, Bell Atlantic's directors and execulive ufficers beneficially own less than I % 'of Bell Atlantic common stock. Voting Your Shares nnd C~wJgfng Your Vote Voting, Your, Shorts , The Bell Atlantic Board of Directors is soliciting your proxy to gi've you the opportunity to vote at the Bell Atlantic annual meeting. When you deliver a valid proxy, the shares represented by that proxy ,,;'i11 be votcd in accordance with YOllr instructions, If you &, not vote by proxy or attcnd the Bell Atlantic annllal meeting and vote in person, it will have the same effect. in most cases. liS voting against the Bell Atlunlic merger proposal. ' You may grant a proxy by (1) signing and mailing your proxy card. (2) culling a toll-free telephone number and following the rccordcd instruction!. or (3) going to a wcbsicc on the Internet mHl following the instructions provided. Delaware law pennits u shareholder to grunt a proxy in cuch of these ways. However. if your shares arc not registcred in your own name. your bank, brokcr or othcr institutions holding yuur shares may not offer lelephone or Intentel proxy voting. If your proxy curd docs not includc telcphone ol'Intcrnct voting instructions, plcase complete and return your proxy card by mail. You may also casl your vote in pcrson at the meeting. ,MClil. To gram your proxy by mail, pleu!lc complete your proxy curd, und sign. date and return it in the enclosed envelope. To be valid, a returned proxy card must be signed and dated. Telephone. You may use a toll-fwe telephone number listed on your proxy curd 10 granl your proxy. You must have your proxy card ready. Dial thl: toll.frec number lInd: J. Enter the Control Number locutcd on your proxy card. 2. FoJJow the recorded instructions. Internet. , You may also use the Intel1lct to vote your proxy. YUlI must huve your proxy card ready and: 1. Go to thc websilc shown on your prox)' card. 2. Enter the Contrul ~llmbcr located on your proxy card. 3. Follow lhe simple instructions. 11-6 i. ..... , ; " -" I ~c'~ '. '. ." '......... \ 1 ~t~:t...t.~ :;~,:'i~"'l- '~rl~ '.I,~ ~"c:.'''':'~'' ," '.'t. ' ~ : J, ! ~ ' " . '1' ; , ' I:;,... ,~.1} . ~ ':~~.'~~~.'~' ~:~, I" -,1..:, " .:, , \ t\ ' , ," , ',:~~,..' ',;; .,',';', , . ' ., .\ . ~ l "~. , ::, c. ' ,,' ; .1. .r ' ~ , ", ,I I.t, , ,', ". , : , . " ~ II '. ;'. :.< . '..,~,'~., \' ~ .. "~ ~ ': 'l . . , ' " ;, \ ,~... ,',' :'''-;,,-:i;: ...'::".,r.c~,','.,'., :',:l ,,;', ~ ... ,~' : . ~:: \,"'. ~.~ '.' !' I ,~, , .: '. .' , t " .', ;'". ~.l 'I', " .' , ~. > ..' :' c', , ,I " " " , ~ u' , ' 'r .l'...,:: " , , ", " I ~'I ~p I> :'(. '" " .1,... \ ' '. ;:. ,~~......~~(:t',.i;;!tt,~:,.l~..:~: ;~:,;, \ ."~~:.". "~. ,\I ~i~ t::~}!" \~ ~ ' -: tc; <' ~(~/.: ~ ~~\~,~(.~.~. ~~t'!~hJr~,".,,~. .. ~t. . '" . " .. . .,~I~ ....., ';"(" ~. > ',t" J' - ~ i . ' !~ ~~. 'I. " t(~'f l" \, :"4~"#f11 ,.....) '-t ~ H ..,.~, ',>'.' ..I', ...~ : d . . " 111 Per,wn. If you attend the Bell Atlantic annual meeting in person, you may vote your shares by ballot al' th~ 'meeting'. . , , ' , d 'I Changing Your l',?le by Rel:oking' YQIlI~ Proxy ",:You may revoke your proxy III any time prior to the closing of the polls at, the Bell Atlnnlic annual meeting by delivering lo the Secrelary of Bell Atlanlic ;l signed notice of revocation or u Inter.daled signed, proxy or by unending the Bell Atlantic unnual meeting and voting in person. Attendance at the Bell Allantie ann,ual meeting w~ll not in, itself ,constitute the revlXation of :1 proxy. ' . ,'j How Proxies Arc Counted' , , ) If you 'return a signed and dated proxy card but do nol indicate how the shares arc to be, vOled, those shares represented by your proxy card will be'voled as recommended by the Dell Atlanlic BUlIrd of Directors, A valid proxy also gives the individuals named as proxies authority to use their discretion when voting the shares on uny other malters that are proPerly pr~sentcd for action at the Bell Allantic annual meeting. Slmres of Dell Atlantic common stock which urc pres~nt at lhe Bell Atlantic annual meeling but not vOled, either by abstention or non-vote (including "broker non-VOles"), will be counted ns,prcsent for purposes of determining whether there is a quorum, which consists of a majorily'of lhe outstanding shares of common stock entilled to vote, but will not be counted lo delermine whether the Bell Atluntie merger proposal is appro,,'cd. Broker non- ,votes occur when nominees, such as brokers. holding shares on behalf of beneficial owners. do nOl receive votin'g inslructiuns from the beneficial owners by ten days before lhe annuul meeting. In this event, the nominees may vote those shares only. on matters deemed routine by lhe New York Slack Exchangc, such us the election of direclor.; and the rutification of lhe appoinlment of independent aecountimts. On non-rouline muners, such as the Bell Atlantic merger proposal, if the nominee docs not receive specific instruclions from the beneficial owner of the shures which the nomince holds. the nominee cannot vole those shar~s and lhere is a so~called "broker non-votc" on that maUer. Generally, proposals must be approved by u majority of the votes cast. Accordingly. broker non-votes ami abstentions will have no effect on the outcome of lhose proposals, However, since direclors urc elected by a plurality of the votes cast, votcs withhcld from nominces for director could havc un elTecl on lhe outcomc of the election. In thc Cllse of the Bell Allunlic merger proposal, which requires the approval of a lll11jority of all outslanding shares, broker non-voles und abstentions will have the same effect as a vole against the proposal. If a shareholder is a pUl1icipam in Bell Atlantic's Direcllnvesl Plan. [he proxy card represents the number of full shares in such participant's plan account and will :-.c)'vc as voting instructions for such shares. If a shareholder is a participunl in Bcll Atlanlic's 1976 Employee Slack Ownership PI~IO, Savings Plan for Salaried Employecs or lhe Savings and Security Plan (Non-Salaried Employees). the proxy card will similarly serve us voling instructions for the truslecs of those plans. if accounls ure regislered in the same name. Shares in the Bell Atlantic Direct Invesl Plan cannot be vOled unless the proxy curd is signcd ami returned. If proxy cards rcpn~senling shares in [he Bell Atlanlic Savings Plan for Salaried Employees, lhe Bell Atl.mtic Savings and Securily Plan (Non-Saluried Employees) or the Bell Atlantic 1976 Employee Stock OWIlership Plan arc not executed und returned, those shares will be vOled by the U1Islec ill the ~amc proportion as the shares for which executed proxy cards are returned by other participulllS in lhos~ plans, Contidenlinl Voting , ' It is the policy of Bell Atlantic 10 keep conlhJel11i~11 proxy curtis, hallnls ano vOling wbulations lhat idel1tilY , individual slmrcholders, except where disclosure is lllllnUmcU by law and in other limiled cirClII1lSWIlCeS, 11-7 :!;, " .1- , l' , ',' - ,ii!i!f;(/:,;!~'~";:""~;'r"C',)~;;i;~':;'~::.C::,::' :"";, ',', ;'': . :..~.~ ~-~., , .~:Jr;g;~':~;':'>:~~"::'\~~'J ", '~,~;~' '" I..., " c' :i;,:- " 'I'~ ,.:'1 ,';" ;;:' j, :'i,,::,;:,/':~,::"~/:,i,\;: ':'!"", " :',: ' " .'.. ,', \ '. ~', I.' ''. < " . . I,.c< 'c 'r" .":. ,; , .,d({&?:,.',',',~" M;:~l"'t#.Ijf~~.,<;,:t'iil~..k;.,d~ " ""'; .' 'f!, " . "7f .' ,',J".., I~ : --~~- \' ,:. ,,?:.,',';.:," T . '".. '" l ' '~ ,/",.}:,,:">~': '}.' ;,~ ':",:/:;;:, ,: '" }, "":~':" , ..: ',' 'I, ", "L ~,~. ~ >. } .' '-,< ~ , '. , , ':,' . ; ~ ',' '::; I ,ld' " , ". .\T .'~ '.' ", 'J ,', ,I " ' .. .J'" I.., , i, ,,' 1 'I ,J' " >c" '~ .. ... ,t ~, '\:,. ; ; " :. ~ ,', 'I. ,'.., , I. <' " .'" ',',d . ,. ~ I' .' "; ,. , ,~ \; ; <, ", (.'> .." .; l' ~", , , , " ,I " If .. ~':,t: .'. ,. , .~i"'. \~~oi"..r'"''' oi.,,~ ..... .',. ,,'~ \" ., . >.. - I' ..1-..1''-. ~,_~n+"... ".._.H'~ ~ ~. ..f (,Ie' , .1'" j ',t \i,I "1 '!'<, , " Ir.':" " ;'i " ,"j .' ;1; j . '" .',', :1' :~,1 '(~ :'! Cost Or Solicitation, ' , c I '.', t " ' . ,.,. I. ' " '" Bell Athuldcw'i11 pay the cost of soliCiting Bell Atlan'lic proxi~s. However, aTE and Bell Atlantl~ ~vi'll sharc,equnllythe cost of printing this document. In addition to solicitation by mail, telephone, the Internet Of other ineans. Bell Atlantic wjJI make arrangements with brokerage houses and, other custodians, nominees and ,fiduc,iarics to' send proxy material (0 beneficial owners, and Dell 'Atlantic. upon request; '";iJi reimburse ttiem for .their reasonable expenses:' Bell 'Atlantic iillS retained Georgeson' &' Co. to, aid in the solicitation of prox,ies,' and to verify certain records related to the solicitution for a fee of $22,500 plu!'i expenses. Bell Atlantic may request thc'retum of proxy cards by ielephon~ to the extent necessary 'in order to ensure sufficient representation at the, ,Bell Atlantic allnual meeting. The extent to which this wilt be necessary depends entirclyupon how promptly' proxy cards l!fC returned. B~ll Atlantic urg~s its shareholders to send in their proxies without delay., ' , ,j. , " , " <' '~ " ," ;';. ,.il , ~ '1" ,'. :(~ " 'i', I):;',:, " \\: . Dell Atlanli~ sharehold~rs should not seud In stock certincat~s with their proxy cards. <0, ' :. " , ' ,'~'-... '. :, " ,,(.. (. .~~ :c~ < ',;. I 1 ,'-\ ,'" ../ ~. ;,\ :J.( l" , ' .i \ ,,' :':, t:' 1/' .' I:' , ,'\ :!' : ~ I . . ,: '1:"/ '~1 - ...' ), ':', ". t: :.~. : > }~:~~':'I . ~: ' l' 1, J}".:: 2,', " ' .'.. :: '\ '; ~,. ~ ,~ ; r I ~.' ,t . ~ ~ :,: 1: ....1. ,~ .,;" ' . . .. " ~. ,..: . ,'c ": ! , \ ~ ." " . \;'. .' " ',I , , : ,', ': , ,:.... .' . ' . , . : ~ ,d. . t. , ' ;, ":\l' t.:" ., .' ,/' ',J; i.,' ~ '1".1' " ' : '~ ' . ."" +, ;:{ .'1' , I: ' '... .~, I. , ',01., ,'\! ,d I'~ r , ~. .' ~ I ,'. " ~. ' 'I, "/,,' . '" ',;{ . I ~,..J,' '.i,'/",.i:. ,-c-/'d. <<.,.~:L,~:'~,/,~ t' , " " I,' c " " 'I ,I, /,. :,1' , ! " ../,. 'l' , ~., \-. : l' .',,' " ':"1', ' 1;,,,-:,, ...",'<1 " ,~' .:.1, I,' , , >'., " \ ; ,'... ,', . ~ I, " >.i i ! Ii '" r /; ~ , ' !': ' 'j" , . " , '. , " i I.: ,,-; \ '," ,!' 1 ",j,'l' ,. /, ,. 1,' " ,,', ;. ~'> .' ~' '; 'I " " : " :, . ',',' " " ,,' " f, (J.8 .i!'1... t L' ~... " (,. " " . '.' 1\ , , } ,\ c I; ~ c" .,., 'IJ, ;, :' . J" " " , ,) I, .~, '-"'-).' i': i ~ r , " " -.... " , l , . i ,. " , ~ j ..~ I I , i { , ! , l. 4 i' , 'I ~( i ;; , l f i I, , " <~-ltu... , < (...,.,,/ ;, . .1 '--~ ";\.':l, ", ~ ~ I: .: ~<", ; , :;"1'< t. ..: .,(' ': :', c \~'i' ". : I , .... ,.', .,~:' , I' ':" .. , > Te '., , ,I ! '" 'I 01 .' ',' , , : " I ,:~'. ' " r , >, " ,-,: . . ' >' ~ , " .' " " , , , <, .. ( ,; Ie, I' ,," :'~ ~;~f.,<: :',.':"',;; :'/~'\:' ~-"::; \'~"'''?'!<':;<'': ~''''/ : , ,l"() , .-, .', " ... ~.~;;. ...-...'.... I ,', F '';'~-'"'''' " / ". . ,', I '~', CHAPTER III-OTHER GTE ANNUAL MEETING PROPOSALS ITEl\cI'l-ELECTJON OF G'I'E DIRECTORS GTE Board or DirectorS . The GTE Bourd of Directors manages GTE's business. It estublishes the overall policies and standards for , GTE und reviews management's performance. TIle directors are kept informcd of GTE's operations at meetings of the GTE Bonrd of Directors and committees of the GTE Board of Directors and through reports and analyses nnd discussions with managcmcnt. ' " , nle GTE Board of Directors meets on a regularly scheduled basis and IIlso holds special meetings. Dllring 1998, they met on foulleen occasions. Significant communications betwcen the directors LInd the corporation also occur npart from regularly scheduled meetings of the GTE Board of Directors nnd the board committees. Accordingly. ffiamigcment does not regard attendance at meetings to be the primary criterion in evaluating the contributions a' director makes to GTE. For the GTE Board of Directors dS a whole, aVerage attendance at meed~gs'o(the GTE Board of Directors and the board committees during ]998 WllS approximately 95%. Dl,Jring !998, none of the incumbent directors attended less than 75% of the aggregate of thc total number of . GTE Board of Directors meetings and board committee meetings on which he or she served. Commhtees of the GTE Board of Directors The G1E Board of Directors established six. standing committees and assigned cel1ain responsibilities to each of those committees. Audit Committee The t\uditS~punitlee had five mectings in 1998. One of the functions of the Audit COll1mittee includes recommending the appointment of independent auditors for GTE. It also reviews the scope of audits proposed , by the aud~tors, reviews 'internal audit 'rcp~rts on various aspects of corporate opcnuions llud periodically consults with the audirors On'rnllUerS relating 10 infernal financial controls and proceuures. Executi.'e Compensation O1ld Organizational Structure Committee The Exee'utive Compensation ~nd Organizational Structure Commiuee hnd len meetings during 1998. The functions of this board commiUcc include the review and approval of compensation of employees above a " certain salary level, the review of management recommendations relating to execUlive inccntive compensation plans, the admit1istT'~tion of GTE's executivc incentive compensation plans, thc review of and recommendations cllnceming directors' compensation, anll consultation on scnior execulive continuity alld mailers of organizational structure. Nominating Commi/tee The Nominating Comminee had three meetings during 1998. Its rcspollsibiliiies include consideration of the size and composition of the GTE Board of Directors. review and recommendation of individuals for election as directors or oflicers of GTE, review of crileria for selecting directors, evaluation of directors as appropriate and consideration of policies and pmetices with respect to the functioning of the GTE Board of Directors. In carrying out its responsibilities for recommending candidates to till vacancies on the GTE Board of Directors and in recommending a slatc of directors for election by the sharchoJder.~ at the unnual meeting, this board committee will consider candidales suggested by other directors, employees l1nd shareholders. lndividuals suggested as candidates should have high level management experience in a large, rclatively complex. orguni7.ution or have experience dealing with complex problems. A candidate ulso must indicate a willingness to nttcnd scheduled meetings of the GTE Board of Directors and its committees. lll-l I " , '" , " , ~.< '1'\; +'" ), "--~~~~---_..,-- , , '. , I ~ '. , .! . ",; \' , , , II :' l'IC " ' , , ...' " " , ' .:!' . ,. ~ 0/ .. " ,/1' . .+ ", '; , " , , ,~ ."'< ,I ,[ I", ' 'c ,\ >,' r ~ ,..... ~. , '.. J,. / :{', J'~':~~~~>~l;:~~h~~~; .' ',' < ,...~H ..i.', .~ ..' Pension Trust Coordinating Committee., , , ',I TIle Pension Trust Coordinating Committee is responsible for reviewing the performance of the portfolios of ~tnd investment advisors to GTE's pension plans, 'approving overall in'vestment policy relnthlg to the assets of ~c pcnsion plans and monitoring the actuarial soundness of thosc plans. This committee had three mectings during 1998. ' , -- Public Policy Committee " , ' TI\C Public Poli~}; Committee, which had two ine~tings during 1998, reviews GTE's policies and practices regarding corporate contributions, employee safety and health and other matters llnd assumes other dUlics IlS directed by ~e GTE Board of Di~ecton;. ( St~ategi~ Issues, Planning and Technology Committee' ','" The Stra~~gic. Issues: Planning and Technology Committee reviews the long.term strategic objectivcs and goals of GTE and, the cxternal and internal issues related to thosc goals unt;lto technology. This committee had tw~ meetings during' J998. ' ", " '. ' , " GTE Dlrectorst Compensation Annual Compensation During 1998. each non-employee GTE director participated in a compensution program that has both stock~ba'ied and c.tsh-based components. By using stock.based compensation, the financial interests of GTE's non-employee directors arc aligned with its shareholders. Employee directors of GTE arc not paid for serving on the GTE Board of Directors or any of the board committees. ' During 1998, the GTE Board of Directors grantcd each non-employee director 1,000 hypothetical shares of GTE common Slack. which GTE refers to ~\S defcrred stock units, under the Deferred Stock Unit PI un for ' " .,' Non-Employee Members of Ihe Board of Directors of GTE Corporation. The plan permits a non-employee director to receive distributions in shares of GTE common stock. as wcll as cash, as soon as the non-employee dircctor ceases to be un officer or director of GTE, There arc no voting rights attached to deferred stock units. The deferred stock units are held in an account for the non-employee director, Deferred stock units increase or decrease in valUl~ based on the market value of un equivalent number of shares of GTE common slock. Each time n dividend is paid on GTE common slock, an equivalent amollnt is converted to deferred stock units and credjted to the non-employee director's individual account based on Ihe number of deferred, stock units held as of the dividend datc. These awards are not payable until the non-employee director tenllinates service as' a director or officer of GTE. With respect to the cash-llUsed component, each non-employec GTE director also recei\'ed un annual retainer in the amount of 560.000, tlOd euch non-employee director who chaired a GTE board committee received an additional :mllunl retainer of $2,500. Deferred Compellsatioll Under Ihe Deferred Compensation Plun for Non-Employec Members of lhe Board of Directors of GTE, any non-employee GTE director may elect annually to defer all or any part of the cash portion of the compensation and rcceive payments in lite future. The plnn permits a non-employee director to hold the deferred tlmount in defcrred stock units or in un intcrest~benril1g cash account, or both. The numbcr of deferred stock units is dctennincd by dividing the amount dcferred for the calcndar quarter by the average closing price of GTE common slock, us reported on the New York Slock Exchangc Composite Transactions Tape. for the most recent 20 business-day period ending on or before the last day of the quarter. Deferred stock units change lll.2 ir. ~ I,. - ~ ~ r .:."(,:' ."" " , ",~' - ' :,c\~~; T;:" ','\' f .',1 " . '.,~ > " ., ',l" ; ~----...............~~~~---'-~'~-- , > . " , , ' , . , ;' ;': I, , . "(,' , ,,', '11- ,', , '>1 t , ", t ," ,./ , ' .. . ~.'. " ,.' ;11 " I.' ,I " " ,.' p~, ' : I ',~' . :".~,:<;';."~~'~~/;-::r~: '~'l '.' ': '.:\t .l....' ~ ~', I~(~~ ~'" ~< ~ 110......... r' " '-........-~I \ j '-' ." " > ~....jo '*....' ..' ' , ~,' ,~ .I p <", in value bascd 'on the value of an equivalent number of shar~s of GTE common stock. Each time n dividend Is paid on GTI: common stock, no equivalent amount is convcrtcd into defcrred stuck units am! creditcd to the nOll-employee director~s uccount based on the number of deferred stock units held as of Ihe dividend dale. , , After the non-employce GTE director's service tcnninntes, hc or she may elect to receive the mnounts deferred and hclll in deferred stock units under this plan in cash or shares of GTE eom'mon stock: (1' the amount deferred is held in a cash account, payments wiJI be made in cash, and the non-employee director muy elect, to reccive payments either beforo or after his or her service ends. Aftel' he or she knvcs thc GTE Board of Directors, a non-employee director rnny also elect to invcst the balance of his or her plan account in a varielY of investment options. ' Charitable A wards Progrnm No~.e'mploy'ee directors and designated senior exccutives of GTE, including the individuals named in the "GTE-Ex.ecutive Compcnsation Tables-Summnry Comp~nsation Table" in this Chapter 111, participate in a ch~tab1enwards program. Under this program, GTE will donale an aggregate of $1,000,000 \0 as many us , four tnx.exempt educational institutions or public charities designatcd by the pllrticipant. The domuions will be made in five equal unnual installments after a participant's deat~. (ienerally, the donations will be made only if: (1) the participant dies, while a director or a designated senior officer; or (2) the participant was either (n)'a director who separated fnlm service with GTE after completing five or more years of service us a director, or (b) a designated senior officer who separated from service after reaching age 65 and complcting live or more years of service as an employee of GTE and who was not involuntarily separated from service for cause; or (3) a change in control occurs while the participant is a director or designated senior executive of GTE. The progrnm is fin:uieed through the purchase of life insurance by GTE. Participants do nol receive individual financial benefits from this program since all charitable deductions accrue solely to GTE. GTE Executive Compensation Committee Report The GTE Executive Cornp~nsalion and Organizutional Structure Commiuee reviews :md approvcs annual salary r.mge adjustments for GTE's executive employce group and administcrs GTE's executive short- and long~tenn incentive plans, including the approval of grant and payout targets and awards under those plans. The committee also cvaluates the perfonnance of senior managemcnt, including the chief execulive officer, und approves changes to the base salaric!> of scnior munagement of GTE and its relatcd companies, This commillee annually reports to the GTE Board of Directors on its activities. CompensatitJlI Philosophy The cornmluee' is responsible for CiTE's executive compensation philosophy ami policies. which I'onn thc basis for the commincc's decisions. GTE's cxcc\lthc compensation philosophy relutcs the Icvcl of compensation to GTE's success in meeting its annual and long-term perfonnance goals and uchieving long. t~nn retums for sharcholders, rewards indh'idual achievement, and sceks to auract and retain executives of the, highesl caliber. GTE's philosophy is to pay average compensation (including hase, bonus nnd long-tenn incentives) for average results and above average compensation for outstanding results. GTE benchmarks its compensation (including salary and incentive .pa)') by comparing its practices with those of a selcct group of companies. GTE's comparison group for benchmarking competitiveness includes othcr major companies, both in telecommunications and general industry. During 1998, GTE rc-evaluated the companies included in its , comparison group and made chunges to reflect busincss combinations and the unnounced growlh strutegy of GTE's businesses, to accurately reflect the competition for executivc talent. These changes morc c10scly align GTE with its peer companies in the high-technology, consumer products and telccommunicutions industries. TIlC companies thaI urc cUlTcnlly included in lhe comparison group ht\\'c II repuH\lioll for excellence and arc comparable to GTE in tenns oj' such ljuantitative measures as revenues, net incollle, assels und market value. Moreover, they arc viewed as competitors for ~xeelltive talent in the o\'crnll hlbor murkcl. Compensation dllln for the comparison companies ure obtaincd from benchmarking surveys conducted by nationally recogni7.cd 1ll.3 ", \.1 !, i ~ , , H' .." [ . " . , I , , , , " :+\ , i". ::' C I , ' ",:- ~ I ~ ' , '" " ,P~ :' 't '~ . . c' ,-I .. , > \.;, '~,.:':;'!" ;', ',':;.', .t'>>::,1t:~""."'>:'J.~';;,,-,, " ~ , ' ., . ~.. . ~ ' ,'+,'. ." < indepcndent compensution consultalUs. In re,..iewing survey data, GTE takes into account how its compensation policies and ovc~ull perfonl1anee compare to those,of' the comparison group. These surveys encompass, companies that are nol included in the GTE Performance Graph. ,GTE has compared its ralio of base salary'to total executive compensation to the practices of the comparison companies. Under GTE's compcn~ution philoso'phy, bnse salary is intended to reprcsentless than 40% of compensation for top executives. The remaining eompc'nsation is paid under incentive plans. Paymcnts under these incentive plans are ba!iedupon the achievement of annual and long-term performance gonls and are at risk. E.-rccutive (.'ompemaiion " . , ,In keeping willi GTE's .'ilUled compensation philosophy, the commillee compares thc total compensation of GTE's executives to lhat of its compnri,son group. The committee determines whether it is advisablc to approve adjustments in salary raiJgcs and incentives. ,In doing 'so, the commhtt'e evaluates each executive's u pcrfonuilllce; the perfonnunce of the operations directed by thut executive, and the ranking of the executive's compensation in relation to (he established salary rnnge for thut position. In evaluating whether an executh~e's' total compensation plIckage' (base slIlUI)' plus incentive compensation) should be adjusted, the committee also takes into account changes in Ihe exccu,live's responsibilitics andGTE'!i compensation philosophy. During 1998, the cOlllmittee reviewed the current posilion of GTE's largeted buse salary and the annual 'and long-tcnu incentive,') and compared the leve,l and 'mix of pay opportunities to similar categories for the comparison group. BU!ied on this re\'kw, the committec adjusted GTE's base salary and annual incentives for 1998. On uverage, total annual compensation opportunities were increased 4.4% in order to maintnin GTE's cOlnpclilive positiun. GTE's long~tenn perfonnance-based award schedules. including stock options lJlld pcrfonllance bonus units. were adjustcd downward by 8% and 13%, respeclivdy, as a result of the increase in GTE's stock vlllue. This reprcsents the Iir...t change to GTE's stock option and perfonnance bonus grunt schedules in two years. After c,,'a}unling Mr. Lec's r;crformuncc and comparing his perfurnmnce and s"lury 10 thosci of chief executive ufficers of the comparison group, thc commiuee in early 1998 delcnnined that Mr. Lee's base salary' should be increaseu by 5.B%- to remain III ;l competitive level. Mr. Lee's base compensation i~ wilhin the snlary runge previously approved by the committee for the position of chief execUlive anker. Incentive Compensatioll , Certain GTE employees arc eligible to receive awards under two incentive plans in addition 10 their basc salary.. ' , Under the GTE EXcculive Incentive Plan, a participating employee is eligible 10 receive an award based 011 GTE's pcrfonmlllce during the prior fiscal year, the performance of the individual's business unit and his or her achievell1ent of previously established individual objcctives, Al the conclusion of cach plo:m )'car, the committee compares GTE's performance and that of its husiness units to estnblishcd objectivcs, The committee then uni\'cs at an overall rating of GTE and the business units to dctennine lhe percentage payout of incentive awards for each unit and the individual awards for certain senior cxecutives. Mr. Lee's GTE Exccutive Incentive Plan award for 1998 is based upon GTE's overall performllnce nnd MI'. Lec's individual performance with respect to critical qualilative and quantitative objectives approved by lhe committee. Allhough GTE doc", not fomlully weight the factors comprising the pcrformnncc meusures, lhe committec considered GTE's linancilll and opcmtional performance in 199M and Mr. Lee's achicvementof quulilativc objectives. Spccilicully, Mr. L.ce's 1998 objectives inc1udt'd qUllntitutivc goals rclaled to: revenues: openning and net income: earnings per shure: earnings before int1,'rest, tuxes, depreciation, and amortization ("EBITDA"); rcluru on cquily: return un investment: ;md operuting cll,>h flow. ' 1II-4 ." I' ~-"....., \'. "~f"r'. ~l"i~;:',,~ ',.' ~ < "~',~' ", I,' l': ','. . " .' ~ ~ '~ . " '. I ~. ,', ,'t1. ,:1, ' " , " I, , " " ,I.' . ' I.,~ '" : !,J: "~I . " f,' " ' ;, , 0... I " I " , ,: ' I:'>':;'" ;: . \., >')::i.~,~;(.:, ":\'~"'<;^1 I."" , "() In lIddition to these quantitative goals. Mr. Lee's gouls included significant quuliflllive objcclivcs such us: , ' · ,continuing 10 trllnsilion G~ into n growth cornpllny while still muintaining u: high level of earn,ings~ , · continuing to strutegicnlly posilion GTE for the future through alliances with other major telecommuJJica~ions provid~r!o, both' domestically und intcnlutionully: · optimizing GTE's competitive position and image as a qualily provider of service: · . continuing to shape the regulatory hmdscape al both tne federal and sIDle Ic\'~ls, ensuring thut un equitllbtc environment has been created to achieve maximum OexibiJily nnd business, potcntinl; and · continuing to renew und develop GTE's workforce. 111.5 ~. ,..~.. .. i ; , ' '.,...-' ln the committee's assessment, Mr. Lee performed well with respect to GTE's perfOnll:tnce and his objectives nnd the committee npproved his GTE E:v;ecutivc Incentive Plan award. 111e GTE Executive lneenliv~ Plan awards paid to the five most highly compensated cfllployccs of GTE are included in the "Bonus" column of the Summary Compensation Table, See "GTE Executive Compensation Tables-Summary Compensation Table" in lhis Chapter ..[(. ,Selected GTE employees also huve an oppurtunity to cum incentive payments under the GTE Long-Term Incentive Plnn. TIle primary purpose of the aTE Long-Term Incentive Plan is to help assure superior long-tenil financial and operating performance by offering participants an incelilive for achieving those results. The GTE Long-Tenn Incentive Plan provides for two types of granls-perfornlunce bonuses and stock options. In approving the grants awarded under the GTE Long-Term Incenlive Plan. the commillee compures GTE's grant levels 10 competitive practices in the comparison group. GTE's objcclive is to link an increasing amount of compensalionlo long-term performance. GTE's philosophy is to be at the 60th percenlile of ihe market of the compurison group of companies in fhis area. , Senior exccutives of GTE. including the !lve e:v;ecutives numed in the Summary Compensation Table. arc eligible to n:ccivc annulll grants of performance bonuses under the GTE Long-Tenn Incenti\'e Plilll. These grants are earned'during a performance cycle that is typically three years in duration. Awards for the three-year perfomumce cycle ending in 1998 were based on GTE's actual financial performance during the 1996.1998 cycle. GTE's actual tinanciul pcrfommncc is compured to pre-estublished targcl levels for the following key measures: revenucs growth, earnings pcr share growlh, EBJTDA growth, rclalivc lotal shareholder return, untl return on investment. In eSlablishing the turgcled pertonnuncc IC\'cls for the five key mCllSUres. the committee considered GTE's pasl performance, the performance of its principal comp~lirors, ils stratcgic goals. and ils plans for implementing those goals, The targets eSlablished by Ihe commillcc wilh rcspcclln these key measures lire designed to facilitate implementing GTE's stnllegic plans and to improve GTE's performance rclmivc 10 ils peers. At the time the turgeted perfonnance bonus levels l{)r each cycle under the GTE Long-Tclm Incentive Plan were established, a common stock equivalent unit nccount was set up for each participulll. EDell equivalenl unil account represenls an initial dollar amount (or cuch lIceuunt. which is referred 10 liS n lLlrgcl award, based on the competiti\'e pcrfonuance bonus grulll practices of lhe market ('ompnrison group. The wduc of the account was increased or decreased based on the market price of GTE common stock. Each lime 11 dividend was paid on GTE common sl()ck. an umount equal to Ihe dividend puid on an cqui\'ulent number of shares of GTE common stock was mldcd to the account, This amoUlll Was lhcn converted into a number of ctjui\lulent units, obtained by dividing the mnoUlll of the dividend by lhe uvcmge of the high and low prices or GTE common stock on lhe New York Stock Exchange Composite Trans'lClions Tape 011 lhe dividend payment date. The resulting uumber of equivalent unils Wl\S then credited 10 lhe ~lcCOUnt. Under the performance crileria approvcd for lhe 1996-1998 and 1997-1999 and 1998-2000 cycles, the committee cstnblished the minimum level of pcrfonllunce, or t1m:shold, for cHeh of the key measures. rf this .. ,. --~- .....--.--- , , I, , . ." f' . .. I" " c '.'," '.' " " '~... , " ~ ;."1 . . '" ,\ " ...';. J 'Ij, ,', , " " '\ . ~~,:..';~,H' '. " ~ .. ;, \~~', :~:? '1"'~'~:~;:'."lf"~ ':'ff: ,:~'" ,.:: ',' . ,~'/ . L,....:..,c'tt., . ....' '.j..'" . " ' '. , tlncshold ill not met for a particular key m~a!\urc. no award is paid fol' that key mcasure. If perfonnlln~e for a key mcasure is at the threshold, participanls rcceive u paymcnl of 20% of the target award for thaI key , , measure. Howevcr, ir GTE's performance for the total shareholder return key meusure is nt the:thrcshold, 11 payment of 50% of'the award is made. Th~ committee dclcrinim:d tlHlllhis key measure wits crilkul to GTE',~ , success and set un exceptionally demanding goul for total shareholder return. Accordingly, they determined that if the threshold wcre met, a 50% paymcnt would be made with respect to total shareholder retnrn. If GTE's perfomlance meets the target for the key mea:.ure. participants will reccive the full value associated with achieving that key measure. If GTE's pcrfonnl1nce cxc~eds the target, Ihe award for that key 'measure will cxcecd 100% of the target award, based upon the fonnula cxplained lindeI' the table cntitled "Long.Tcnn Incentive ~Iun-Awurds in Last Fiscal Year" in this Chapter 111. The fommla is upplicd scpl1Tntcly for each key mCilSU(C, The committee auticipates that perflmnancc bonus nwanls will be bused in equal proportion on the attainment ,of the target established for each of the fivc key measures. The cumulutivc uttainment level is culled the "Gu~dclinc PCrfonnance Percentagc," Th~ value or the cquivalent unit :lccount is then adjustcd by the Guidelinc Perfonnance Percentage. To sec the grunts for the 1998-2000 cycle sce '''GTE Executive Compensation Tables-Long. Teml Incentive Plun":"Awurds in Last Fiscal Year" in Ihis Chllpler m. , The committee nonnally approve!. grants of stock oplions under the GTE Long-Term lnccntive Plan. ' Th~se options llrc granted 10 the five executives named in the Summary Compensution Table and to a ' substantially, larger group uf executives than those who ure eligible to receive perfofmance bonuses under the GTE Long~Term Incentive Plan. 'r ' The committec did not ttlke into account the number of optiom;' currently held by any individuul participant in determining j'ndividual grants for 1998. Mr. Lee and the other rour most highly compematcd , oflicers n~ccivcd the grants shown in [he Summary Compensation Tuhle. To see the grants awurded, see . 'GTE Executive Compensation Tables-Summary Compensation Table': in this Chaptcr 111. Mr. Lee's grnnt level was tied to compctitivt! long-tefm compcn!oution practices for compunies in GTE's comparison group. In uddition, GTE hus established slock ownership guidelines for ull executives who are eligible to receive GTE Long.Tenn Incentive Plan performunce bonuses, Under the guidelines, the chief c,xeculive officeI' is encourug.ed to have un owncr!ohip interest in GTE common stock with a value at least six times his annual base sainI)'. Other executives identified by the cOlllmittce arc encouraged to maintain stock holdings with a value ranging from onc to four limes Ihcir annual base salaries, CompliaOl:c with the slOck ownership guidelines is monitored unnuaIly. Overall.' ownership by Ihe executive population significantly exceeded lhcsc guidelines. ,GTE executivcs also participute in the GTE Equity Panicipation Program, Under this program, u portion of ccrtuin cxccUlives' ca!'>h bonuses under lhe Executive Incellliw Plan and Long-Term Incentive PI un must be deferred und hl~ld in restricted stock ullits for a r\linimum uf Ihree years. after which they will be payable in , GTE common stock. Panicipanls Inuy ulso irrevocubly clect to defer an additional perccllt.lge of their GTE Executive Incentive Plan and GTE Long- TCl'11I1ncentive Plan cash bonuses into restriclt.!d stock units, provided thut their nmndatory and voluntary def(~mils do f10t exceed 25% of tht~ combined GTE Exceulive lnccmlivc PIlln and GTE Long-Term Inccntive Plan awurds. GTE will provide u'm,llching contribution in restricted stock units illthl~ mnollnt of onc unit for every four units deferred by the parlicipanl. Th~se matching reslricted stock IInits wcre designed as an inducement to encouragc full participution in the progrum ami to compensate the executivcs for their ugrecment not [0 realize the cconomic value 'associatcd with Ihc reMricled stock units for II minimum or threc years. IIltel'llal Re~'elllle Sen'ice Rtlle~' Relating tv J)C(/IlClibility of Compcmmliou In late Dcccmber 1995, thc Internal RevellUC Servh:e issued liUlll rcgulutions thut apply to Section 162(m) of Ihe Internal Revenue Code of 1986, us amended. limiling the lax deduction a publicly held corporulion l11UY 11I-6 " , ,I .........'\ \, , ,,' }......t,j. ......1..,..j't}c.f J ~}.~"'~Y:, ::'~~ Ie "; :~ ;J: I, L,. 't? .', ----~~~~~~-_. - , " ,,',, ; ',.;':." . :~ .,:.." ',~: ' . ,I ,';i. eer ; .. l,' ",' " ' " , . , ' , , , . ",c'::, " , I, '" ~I ,.r " ,~, . , " ~ , " ~ / ," , . >.1 e' " .'" . , .:. "., ',' ,. " ,.",::!'j,;:;;: >' ,',:." , '. ,~I ). . 01 ' ,~ '. . ~ , ;, ~, . ", , , .', ',' , I' , j, " . " . ',' 1 '~"l ".~~~. .....'f r~~'; It/I,'" , .(~'-:.,p' ',~j' r.t,/r,~1' '\~,I!,~ \, .~~,t".J.';""{\.;.. ~~ ~ ~'..'~', '," .' 'i ,. l~ .. ' ',' Ii f, L'.' ' I, I ~ I ~. () I I , f I t r . 'I~ \!....; '" ;' ... to...... ~t ,: .~. ..,.., i ' ,. , take for compeusation paid to thc executivcs listed on the Summary Compctlsluion Tablc. ,111e Internal Revcnue Service regulnl.ion!J limit the annuul amount that GTE may deduct for euch of these executivcs tu $ 1,000,000 unlcss the com~mation is performance-based. ' ! I' I Both the GTE Executivc Incentive Plan and GTE Long-Tenn Incenlive Plan include provisions to provide,' for the deductibility' of futiJre amounts received tinder these pluns; The provisions include, but are notlimilcd to, limiting positive discretion, estublishing the maximum aggregate awards payable, limiting the number 'of stock options that may be granted to nny one individual, and limiting thc maximum individual awards that may be paid to'thcse executive:-. 'nosed on It,~ds~ requircntcnts, the Executive Incentive Plan provides lhat if GTE's return on equity exceeds S%. then an amount equal to 5% of GTE's consolidntcd net income is aVllilllbl~ for awanls to particlp~nts. In calculating consolidatcd net income under the terms of the Exceutive Incentive Plan. the committec excludes losses from unusual or extraordinary items such as 'thcimpnct of accounting changes or unusual chargcs related to business combiimtions or discontiriued operations. In addition, the committee established individualllwurd ,limits with respect to the Executive Incentive PIon awards. Each individual award limit is a percentage of thc ' , totnlavailnble amount, The applicable percentage depends on the individual's base salary at thc end of the calendar year and, in all C;lses, may not exceed 3.5%. GTE's 1998 rcturn on equity excceded 8%, and awards under the Executive Ineenti~e Plan were paid for 1998. I ' , e~ , , ' . Based on these requirements, the Long-Term Incentive Plan provides that if for eaeh 3-year performance cycle GTE's cumulative consolidatcd nct income exceeds $5 billion, awards can be made. In calculating cumulative consolidatcd net incomc under the tcrms of lhe Long-Term Inct:ntive Plan. the committee excludes losses from unusual or extraordinary items such as the impact of accounting changcs' or unusual charges . relating to business combinations or discontinucd opemtions. If cumulative consolidated net income exceeds $5 ' billio:1, then an amount equal to 3% of cumulUlive consolidated net income is avnilablc for awards to ' participants. Amounts of cumulative consolidated net income in excess of $15 billion arc not counted in dctermining the size of the total available amount. In addition, the committee eSlablishcd individual award limits with respect to the award of the performance bonus. The individual award limit is n percentage of the total available amount. The applicable percentage depends on the individual's base salary at the cnd of the cycle and, in all cases, may not exceed 3.5%. '! Other Compensation Plans GTE nlso hasvurious broad-based employee bcncfit plans. Executives participate in these plans on the same tenns as eligible, non-executivd employees, subject to any legal limits on lhc amounts thai may be contributed or paid lo excclIlives under t~e plans. The GTE Savings Plan and the GTE Hourly Savings Plan. pursuant to the provisions of Section 401(k) of thc lnternnl Revenue Codc, permit employces lO inveSl in a vnriety of funds on a pre-lax or after-ta", basis. Matching contributions under those plans arc made in aTE common stock. GTE also maintains pension, insurance and other benefit plans for it1;cmployces. Russell E. Palmer, CIUlinl1ol1 James R. Barker Edward H. Budd Jamc.f L Ketelsell April 13, 1999 111-7 ' .)';>: :..' :, ' ' ,.,' " - ,. , , ::. '": ,\: J~ , :'.' ,.n, ' .:' .....1 , ,">i. ;:i ~ ' ~ ~ >; ( . '. : . ~ c'::.~ ~ 'jr ' 'h , ' ~.":-' I' , 'L' " " . I' , . , . ! {, " o ( l: " ' < ',' , , , , ,'\ " 'I ," 0' . , " , , ,. I . ~ , . '~ .. , ~ I" ':': :.cj' ,'(.:t.~:::.....; ,.' ~> e, ,. .~> '" "" 't ' .,'.. .; " .. ' , ' . \ 'I < _ C , . GTE Execut~ve Compensation Tables . ", ' ~ ~ ~ Summary Compensation Table '" Th~ f~lIowing tab1t? sets forth inforinalion nOOnt the compcnsution of the chicf exccutive ofliccr and each <;If'the other four mo'st highly e'ompcnsated executive officers of OTE for'services' in all capacities to GTE and its sub!Jidinries. ' , 1'\1 , " Long Ternl Compi!nsalllln , ,. Annunl Compe/l.'ll\lIun Award, Payouts Securities Restrldrd Underlying LTIP AU Other I, , ' 'Name and Prlnclpat ' Salary Othrr Annunl StOl:k Opllonsf Fllllouts Com~nsallon , Poslllon(1), " , V~r (S)(Z) Uonus($)l3) Compclllllltton($) Awards($)(4) , SARs(') ( )(31 ($)(5) Charlel R. Lee... .... .,... 199a 1.098,846 1,424.300 2.202 169,1U3" 221,100 1,292,700 49.448 ' CluUl1lUIn '" Chief 1997 I ,039.SlXI 1,508,800 60,095 246,156 2411,600 . M29,7oo, 11,320 Exei:otlve Offi(;cr 1996 975.000 1.553.100 16 252.210 248.600 2.481.800 10,613 '. " Kenl D. foster. . . .. . . . . . 1998 897,9"2 ' 9{i3.IWO 23.278 119.519 I JO.9VO 9411,500 40r407 Pn:5Idenl(6), 1997 1I43.538 1.011.500 ' 58,084 172,781 182.800 1.753,000 ' 11.320 1996 784,000 1.041.300 679 176,2"3 182.800 1,778,800 10,613 Michael T. Masin. . , . . . . . 19911 7113.135 918.900 3.403 107,894 109.300 1107.400 33,981 Vice ehn/mum amI 1997 742.39/ &43,200 61.841 144,936 135.400 1.47(),IOU 7,200 Pre~idenl-::-ll1lcnlatlonal(7) 1996 679.466 1l61l.1100 147.952 155,400 1.499,200 1),490 Thoma. W. While ...",. ,,1998 517.231 500.700 80 61,350 69,100 4 BO.900 23.275 Senior Execul/vc 1997 503.591 533.700 84,756 91. 700 1122,4{)() 11,320 Vice Pres;dclIl-MlUkel : 1996 463,115 533.700 81.511 183:400 770,000 10,613 Opel1llions. OTE Service , , CotpOmtlon(8) Will/lUll P. Barr ......... 1998 478.462 <420.800 ' 64 .46.9118 61,200 JJ I.noo 21.53) EJltCutive Vice Presldcnl- 1997 445.442 394.500 1.936.588 304.000 SIO.9OC1 11,320 Governmcnllll1d Regulator)' 1996 407,500 343,200 26.349 101,600 499.H{)() 10,613 AdvO(:IlCY lI11d General . Coun~el(9) , (1) All persons named in the table arc officers of GTE. except as otherwise noted. (2) The datu in thc salary column of the table include fees that certain executives receive for serving as directors of Be TELECOM Inc., a Canadiun company in which GTE owned a 50.8% interest during 1998. Mr. Masin's salary'for 1998,1997, and 1996 includes fees of $28,000, $17.182, and $18,466, respectively. Mr. White's salary for 1997 and 1996 includes fees ofS7,280 and $15.692. During 1997, Mr. Masin and Mr. White also received Be TELECOM Inc. deferred stuck units then valued at $14,593 and $10.695; respectively, which orc included in this column. (3) The datu in these columns represcntthe amounts received in 1998 by each of the five most highly compensated executive officers under GTE's Executive Incentive Plan and Long-Term Incentive Plan (which is referred to in the table as L TIP). In connection with GTE's Equity Participation Program, a portion of this amount has been defen'ed inlo restricted stock units payable at maturity (genemlly, n minimum of three years) in GTE common stock. The number of restricwd' stock units received Was calculated by dividing the amount of the annual bonus deferred by the average closing price of GTE common stock on the Ncw York Stock Exchange Composite Transactions Tape for the 20 consecutive tru.ding days following the release to the public of GTE's financial results for the fiscal year in which the bonus was earned. Additional reMrieted stock units are received on each dividend payment date based upon the amount of the dividend paid and the closing price of GTE common stock on the New York Stock Exchange Composile Transactions Tape on lhe dividend declarntion date. '(4) The datu in this column represent the dollar value of the matching restricted stock units based lIpon lhe uvemge c1using price described in foutnote :I above. Matching restricted stock units are received on the basis of one additional restricted stock unit for every four restricted stock units deferred through Ihe bonus llI-8 o \...~;....l:) ,., ,-------~ ,~,~,:,i.~~,~,(,(,:...;.,l,::;;;.;.'..':..;~:,?:~:t;.:i:;,:,,;~::'?;'<l~/:::.:~-.~/',':<':,:, ".' <' , " _ ,'~ ~ c " . ' ." , " I! '.: ~ " i, ' ~ . I' , " }: ; ': I," ~', . :~I:;r~~',:-:,> y ,'~,' " ~ .. ' .' C t " 'j, .;.~ ': '1< . . , ::. d < , . , "'.' .,':', ' , " , , . ~.. ",' ,~, , \ '. '" I, ",' ; .' ' ,~, '. ': ' .' ' d, ' " ,1'.: , , ' T, :' ..:",~':. ~ f~;' ' ".~' ,.'. , l , .' " .' i . "'\ . I ~ . '. " " , '~, 'e ' ~ .:. .: ' "I; , ' ,~. J;: i I \. '. 1<', . " '~:" , . , : " :,.... ~ I' V;",;.{ " j .. "', o."r,3JA.;,.",,-r/I'''' ,-'I"-u.. '" ..,. ",' ".. '. , ". , , '1';: ! ~;.I~: :, ,l'~, ,':\'1. / u~ "'. ' ~~' . ~4, !/{;~,':'(: ~<;:< f," ;(~'"I'''''l;i. l. ~ f" ~ ~l....y..t~""'iI..."".I''''~'''.''f 7i..o~...,",: H " "l~.; .t.~.' ,'; :: -,' .' :,~.. ~, '" '.,." .' . I' " i J ' ' 11,Q I'(.~... . I ,: " :, " < l' . . .' " . ..~.--'\ " [:,) .",' .' "'- I ! v I" .':t., . . . " " . , , : ,+; ~ for"" c . ' ." . ~ ~ "I: I' ,,' -...; " ~ > ..,'" " "c"; " '~, , ~.!. , . ~, .'H i. " . ,:, , i' ,', '" , " , , , " ~'. ' . " " , , ; .' .....~ ,q .', t, ,',. ,....', .. .. ~. ,j;\.,. ..... "j '....' ;, , defermls dcsclibcd in footnote 3 above. GTE grants executives matching restricled stock lInilr. on the busis of one stock unit for every four slock: 'unils deferred. The matching stock units were designed to increase > ,.foc,US on sh~holdcr value anrlto ~ompcl1!ilitc the, exccUlive for agreeing not to realize thc'ccono~ic value ., assCkinlc'd with'deteri'cd bonus amounts. Additionul restricted slock lmlts nrc receiv~d on each 'dividend payment dale bns~d upon the amount of the di'vidcnd paid and the closing price of GTE common stock on' ' the New York S~Ock Exchange' Composite Transactions Tape 01\ tbe dividend dccturt\tion date. Mes:;rs. ' ~ ' , ' " ' Lee, Fost~r, Masin, White' nnd Burr each, hoid a total of 64A93, 45,209, 38,S 17. 21',823 lint! 40,222 restricled slock units, respectively; which hud a dollar value of $4, 192,045, $2,938,585, $2,503.605, $1.,418,495 and $2,614.406, respectively, based solely upon the c10singprice of GTe common'stock. on , December 3' ,1998. ' . (5):, The column "All Olhcr Cornpcnsution" includes, for 1998; contributions. by GTE:,~nd its subsidiaries to, ,t~e GTE Savings Plan of $7,200 for each of Messrs. Lee" Foster. Masin, White and Barr, and contributions , by GTE and its subsidiaries to the GTE'Exccutivc Salary De~crml Plan of $42.248, $33.207. $26,781, ,,$16,07SMd S 14,331 for each of Messrs. Lee, Foster, Masin, White ,and Barr. ., .' ,. . (6) Mr; Foster ,wns elected President in'Junc 1995. He served as Vice Chliinnnn and President-GTE Tclephonc 'Operalions Group from October 1993 until June 1995. He had been President.GTE Telephonc Operations ,Group s,in~e 1989. C , . ",.' . , (7) ,Mr. Masin joined GTE us Vice Chuimmn effective Octo,~er 1993. He was itiso e1ecled President- 'International iirJune 1995. (8), Mr. White was elected Senior Executive Vice President~Market Ope'rations of GTE Service Corporution in June 1997. He ,served ns President-GTE Telephone OpcTlltions Group from July 1995 until June 1997, and before,that us an Executive Vice Prcsident'ofGTE'Telcphone Operations Group from 1991. ' (9) Mr. Barr was dected Executive Vice. President-Government and Regulatory Advocacy 1;Ind General ,Counsel in' June 1997 and before lhat served us Senior Vice President und,General Counsel frOln .July . : 1994. Prior to joining GTE. he was a pu~ner in the Washington, D.C. office (If the law firm of Shaw, " Piuman. Polls & Trowbridge since 1993. He served as AtlomeyGeneral of the Unjled Stales froi~ 1991 to , 1993~ ' " , , , " '( ',I' , , 11I-9 ' ~ ~'. ~ t ,~,".. \; ",t t " ' .~~. \J ,. . , ~. ~..' /: ,~ " ~ , '. ..' ...,'. ~'.. 'I" " , j',:" " ~ \ " ' )'. "J .," -i, 'i, , ,U "'>1 ,~!oJ-... ,.- " ' .1, ...., ,'( : ' . " ',; " ' . ,', '. .' ' , ;'1/.: ' .. ~I .. : .I.>: , , " ' . .', '. .' ' " ',' ' , <, . ',' ,. , ",\<;I..,'i _'+ ~.....~~\~~~~: ':Vt1~1~~~:~~'~'~. , \, .. ..H"""~' ~'>}j l,."", ",., -.....~....... --'---------........--~----------- , i ! Option/SAlt Granl'i in Last FlsclJI Year /-" , , . I , ,'" The followingtnblc shows nil granls ,of options 10 the fivc, most highly' compcnslitcd executive omccr~ of G~ in 1998: Thc, options were granted under GTE's Long-Tenn Inccntive Plan. In addition, these stuck option ,,~ ~, grunts included n replacement slock option feature. The replaecmcnt stock option feature providcs thai, if un , exectitivc exercises a stock option granted in 1998 by delivering previously owned shares that llrc sufficient to pay the exercisc price plus applicable tax. \vithholdings. the c;(ccutivc will receive a one-time additional stock option grant. The number of shares represcnted by that option will be equal to the i\Umber of previously owncd -shares surrendered in this transaction. ,This replucement stock option will be granteu ,with un eltcrcisc. price equal to fair market value on the datc of grunt. No stock appreciation rights were grunted to the live most' highly compensated executive officers of GTE in 1998. Each option granted may he exercised with respect to one-third of the aggregate number of shures subject to the' grunt cueh year, commencing one year aftcr the dutc . of.grallt~ Pursuant to Securitics and Excllnnge Commission niles, the table also shows the, value of the' opUbns granted atthc~ cnd of the option terms (ten years) if the stock price were to appreciate annually by 5% und 10%, respectively. There is no assurance that the slock price will appreciate at the rates shown in thc table. TIle tahle also indicates thul if the stock price docs riot appreciate, the potential realizable valuc of Ihe option:; granlcd will be zero. ' NlIme, Number or SccuriUes Undcrlylnlt Optlons/SAll~ Grunf\.-d rndhlduol Grunt,; 'it of Tutul OplllJns/SAJb Gmnted 10 Emptoyecs In FIscal Year Charles R. Lee. . . . . . , . . . . . Kent B. Foster . . , . . . . . . . . . Michael T. Masin. . . . . . . . . . 1110mas W, White ..,.. . . . . William P. Burr . . . . . , . . . . . 221,100 130,900 109,300 69,100 61,200 1.58(,:(, .94% .78% .49% .44% Jtotentlal Uelllllllble Vuluc lit As..~umed Annunl Rutc.~ or Stock Price AflPrloclulllm fllr 0/11100 Term Exercise or Ullse Itrlce ($ISh) EXJllrutlon J)ule Olk 50;;;, Illo;r SO $7,560.724 $19,160,440 () 4A76.249 , 11,343.743 () :1.737,617 9.471,890 0 2.362.940 5,988, 175 () 2,09:2,792 5.303,568 . ~ " 54.375 2/17/08 54.375 21\7108 54.375 2/17/08 54.375 2/17/08 54.375 :U17/08 If the price of GTE common stock apprecitues, the aggrcgale market vulue of GTE common stock held by the shareholders will also incrcusc. For example, the aggregulc market value of GTE COI11l11on stock nn February 18, 1998 was upprmdmately $52.33 billion based upon the market price on that date. If lhe share price of GTE common stock Increases hy 5% pcr )'car, Ihe aggregtlle market "ulue on February 18. 2008 or the same number of shures would be approximatdy $85.24 billion, If lhe price or GTE common stock increases by 10% per year. the aggregate market value on Fehruary IR, 2008 would be approximately 5135.72 billion. Aggregated Optlon/SAR Excrcisl!s in Lust Fiscal Year and FY -End OlllionlSAR Values Tht.: following tablc provides informtltiol1 as to options and stock apprecialion righls cxerciscJ by each or the live most highly compensaled executive officers of GTE during. 199H. The lahle sels forth the vallie of options and stock appreciation rights held by sllch ofliccrs at year cnd I11ca,;ured in terms of lhe clo!>ing price of GTE conlmon Mock 011 December 31, 1998. Nume Shures ACllutreu 11I1 "uluc EU!rd~e(#) Rcullzl.'dl$) Charlc!i R. Lee, . . . . . . . . . , . . Kenf Fl. Foster. . . . . . . . . . . . . Michael T. Mtlsin "....., t . . TholllUS W. White. . . , . , . . . , William P. Barr. , . . , , . .. . . , 31 ,000 o 200,000 190.999 57,600 1,078,495 o 5,115.4R8 4,263, 198 1.540,390 -~~-~~ -- , Numher flf SCCUl'illl.'s lJlldcrlyln\.: Unl.'serclsed Ollllnns/SARs III F\'.Endrll) Ihl!rclsnhll! lJncxcrclsuhle \'ul\ll.' ur Unexcrclscd 1l\.Thc.~lunc)' Ol'lIllll'i/Sr\1to; ,\( F\'.Eml($) E,,"erclsuhle Unl.'),ercislIhte 1,128,199 733,699 336,300 65,1l67 152,132 35,565.985, 22,508,557 8,890,293 I.X26,58X 3.042,616 7,704,694 5,269,420 4.454,825 4. J 42,(l35 5.675.569 469,701 313,701 264, iO!) 2:! 1,934 314,668 111.10 \. !...-:..~.,.i - f,fW p':':: ,':' ': ':' >:'~", i}.~~'~~(\'I:! ::~,~~~', ":~.::";~.; " . ;;' '/ , .J, ~','. ~7~-~~" .. ,r , I, 'i " . t, ~, ' t':;;/~j:~~::~',:\~:')'>: ~: . c," ~.:' :':':::\ . '~ ,u, \ ,> < ~ ,.,', .,' ....::1. '., ( , . :.' \: " 'e "I:~.":/: ,: ~--~',( '1' q '1. ,'\ : " " 'I;", " ',':' :"-f, ."11:-, ,'\.'.. I..', :':J '/: :,,\,~:' '/:.:, '." ,'. " -' ., , ~ ' f'... ,:: ~:' !.\:f ,':."~, .' . .t ',' '. ,,::'~'.~r~ :~,. J,,'. :', .~~ Ie, ' C'j . ,,' , . ~ ~ . >, ~. > I '" " ," 'I ~ , , > , , '"I : .' , ~o' I' c . ';, . 'I" " ',. : > ,I: ':: ' ,.-, , , .' , ~ :!J' 'c ;":.. ,"t:'., . , , ';,...' ...; , :. :'~ ~, i " , " , " 1":, .t '-,( :+:; \,4 .o'... ',' >;"1;lh~i1:;i~~it:f:i,;~';.~~~~,~",',:, , ' ,; ~l , ' " .~ ' I !' " " :~,~ ;. :~~4~~ q,.. I' (c 11,' , : ~. f ' 'c" 'J. ~I{f.t-<;":III"~ l. ; ...~~~.. o ".' , ,; .. ,.......~, :<+.-..~; i. '" "'...'\'"l .. ., 't,\ ... .~.~ '> ~ '.+, " I' >,',;, , " ' , ,. , I '~ ;, .'. I ~ fc"" . l...ong.T~rm Incentive Plan -'Awards In La'it'F~~lll Year , , 111e GTE Long-Term Incentive Plnn provides for awards to partiCipating employees, including stock optiOl\s,' stock uppreciation rights, perfonnunce bonuses and Olher sHick-based 'awards. To see the stock 'options awarded tinder the plnn to the fh'e mo,~t higliJy compensated c~ccudvc officcrs in 1998, see "Summary, ' Compensation Table" in this Chapter Ill. See "GTE Executivc Compensation Committee Report-":"'lnccntivc Compensation" in this Chapter m for a description of the operalion of the GTE Long~ Tenn Incenlive PJ~n. , I Na.me , Number ur Shllres, Unit~ Dr Othn RJ~hts(#) 34.800 20.600 17,200 10,900 9,690 Charle.."i'R.,~el~'t." ;....'. ~ ,'......... II............ Ke,n(a.. Foster. . . . ':-. . : . . . . . . . . . . . . . . . . . Mich~elT; Masin. . . . . ~. . . . . ',' . . . . . . . . . Thomas' W. White . . . . . . . . . . . . . . . . . . '. . . . William P. Barr . . . . . . . . . . . . . . . . . . . . . . . . PfrrDrmlln~e or Other Periad Vnlll Maturation or Payout 3 Years 3 Y cur... 3 Years 3 Y caTS 3 Years Estlmllted Future Puyouts Under Non.Stock Prlce.nlL~ed Illun TUl"J.:et (# IIr UnIt,) Mllxlmum Thre.hold (II or Units) , 9,865 5,802 '4,876 3,090 2,721 37,941 22,3J5 18,753 11,884 10,467 GTE cnnnot predict future dividends. Accordingly; estimuted equivalent unit accruals 'in the ubove lablc are c~lculated for illustrativc purposes o'nly and are based vpon the dividend rale lJnd price of aTE common stock at the close of business on December 31. 1998. 'nle target award is the dollar umount derived by multiplying 'the equivalent unit balance credited to the participant at the end of the award cycle by Ihe u\'cT<lgc closing price'of GTE common stock, as reported on the New York Stock Exchange Composile Transaclions Tape, during the last 20 business days of the uward cycle. ' The column headed "Maximum" has inlentionally been lef( blank because it is not possible 10 delCnnine the maximum number of equivalent units until the award cycle has been completed. Subject to Ihe award limit discussed above. the maximum amount of the award is Jimilcd by the cxlel!t to which GTE's aClual rcsullsfor the five key measurt::s exceed the target levels. If GTE's actual results during the cycle for the livc key measures exceed thc,rcspcclive target levels, additional uwurds may be paid. based on a linear interpolation. For example, for reVenue growlh, the schedule is, us follows: ' Perfnrnmnt'e lllcrt'nlent Above Revenue l'crrornumce Tnr~r.t Added P~rccnhl1.\e 111 Combined AWllrds Each 0.1 % improvement in cumululi\'c rcvenue growth ........... +2% Thus. for example. if lhe revenue growth key measure exceeds its larget level by .5t;~ whilc the remuining four key measures arc precisely at their respeclive target lcvels, then the performance bonus will equal 110% or the combined target award. , ni-II 'J' ,I' !', " . a: 'j; I, ,'~ I ~ I '. .., ' ' " " :::~~)"'>\:>,\T 't. :y:y", :~. ~~~',~: ;,;~~-, - ~;' \',0'.':.:' ,1 , , :~tflJ;{:'i~:'.";: ,'. ", ,,'" ..' , I ~" , i' ~:' ": :;:,j;r;f::.<;,:',:,,;'.';;:'~:, ! ' ; ,;:, ~, ..,',' ;':: :;;:'~);,',,~':,:,':\)V: '~,::::,~" " ',:: ", . >' : , ':: Ii <:: ' .;, < .'" '/ . ~ I , " ' I, ./,~ + i" Cj' , ~ -t. I, .' . .~ ,I .. '. ,l, . '.: " : ,', ~ : ~ :': . ~ :' . 't ..' ,.. , ; l' , , ,;>,'1 . t' f ~, , ~, ~ / i , c ': " , " '. "';, '. ,..> ':!::/.', i'. '..,~~'.::'.' /',\~' .,i:" "........-41 ,,1,..\, .1. ..,>t".i.~ I' i.I~t':(l':h,",'~~.;"..",.' :'\.'..,' ,~~""~~'-:"~;"'1.;;t"'11'.lL~',,-,,,f'''''''''' I'. ----~------.._~-- " , . '. >.: . '" " 'j - ' ---:--------;------:-----~ ,( , ~,I 'I " :,\ " . ~ I ", '.,,' ....> ;1 " ; <'i" '~ ' ' , " " ' -' ' '~ <r ,., t '\- <, ':.'." ~ > ,+ ......:;-, ; ~ '. ~ .' c ~ .', ".', " , ~y ,,< '1'" ".........n., .. ..,..., .4'; , '..., '" Ii::: of , , ", -':: ,:. " . , qTE Performance Graph" ':,' i ' ,", ;, "', , , , ' , The follo~ing lnbl~ ,shows n comparison ~r five year cumulative total return to shareholders fo~ GTE ' common slock, Standard & Poor's 500 Iridex, 'ttnd Standard &. Poor;s'Telephone Index; It nssuincs that $100 wnsinvcst~d' on DcCcrnber, 31.-1993. The S&P Telephone Ind~x is,compriscd of the R~giolJnl BdfHolding, Companies plus'GTE, ALLTELCorporation tmd17ronlier CorporntiQn., ' , , ", . '. c., ' " , --..., \ . I, ~ .~ t ,.'T'. ~l ~~,. . IC'; >c , , , , ~~O. $280' " (" ',' " " $2~0" $220 f ' $190 .!2 15 $160 Q , i t i, l ..... . $130 , " ..; ~ ' ,-, , '~:.: , ~i: ' " ,:", ,$100 ,,' $70', , ,) . , ' .' ~ .' ,1'" ' , 12131/93 ,12130/~4 . , 12/29/95 ,12/31/96 12/31/97 12i31/98 12131193 12/30/94 1~J29195 12131/96 12/31/97 12131/98 GTE COMMON STOCK $100 $92 $140 "$151 $182, ' $234 S&P 500 INDEX " , ' $100 $101 $139 $171 $229 $294 S&P TELEPHONE INDEX 5100 ' 596 $144 $146 $204 5300 \ I ~, ~...Jt.) I, -0- GTE COMMON STOCK -t:- sap 500 INDEX -o-S&PTELEPHONEINDEX 111- t 2 , .f '\.~; " ~.:. I ~~'.11 '.,./ ':~'.1 I ,~, .J": " r, , " , I ~. '. " \, . , . , " :' . .' ' , , " . '" , " :;.,~'t..' ;:~,~::}::'~:.{~)~~~:~~\>:/ ,/';T,>~",.-.' \......":' .. ' I~ ' ; , ~. 'I:'~' J, GTE Retirement Programs Pension Plans ' .TIle r.()lIo~ing tllbl~ iIIustr.ttes the estimated annual benefits payable under GTE's defined benefit pension plans. The table. assumes normal retirement at age 65 and is calculated on a single life annulty'basis, based upon final average earnings (integrated with sOCial s~eurity as described below) and years of service: , , Pension Plan Table ',1.' , Final A vrnlRe Years uf Servlcr F.AmblWl 15 20 2S 30 35 $ 300,000 63,851 85,134 106,418 127,701 148,985 400,000 85,60 I 114,134 142,668 171,201 199,735 'j, 500,000 107,351 143.134 178,918 214,701 250,485 ,Ie' 600.000 .129.101 172,134 215,168 258.201 301,235 700,000 150.851 201, 1 34 251,418 ' 301,701 35 t .985 800,000' 172,601 230,134 287,668 345,201 402,735 900,000 194,351 259,134 323,9 I 8 388.701 453,485 1,000,000 , ~16,101 288.134 , 360,168 432,201 504.235 , 1,200,000 , 259.60 I 346.134 432,668 519,201 60S,735 1,500,000 324,851 433,134 541 ,4 I 8 649,701 757,985 2,000,000 433,601 578,134 722,668 867,201 1 ,01 I ,735 2,500,000 542,351 . 723,134 903,918 '1,084,70 I 1,265.485 2,750,000 596.726 795,634 994,543 1,193,451 1,392,360 (,q) 3,000.000 65 I ,101 868,134 1,085,168 1,302,201 1,5J9,235 3.500,000 759,851 1.013,134 1,266,418 1,519,701 1.772.985 , ........,; All executive officers of GTE arc employees of GTE Service Corporation. a wholly.owned subsidiary, which maintains the GTE Service Corporation Plan for Employees' Pensions. The GTE Service Corporation plun is a noncontributory pension plan for the benefit of all employees of GTE Service Corporation and participating affiliates who nre not covered hy collective bargaining agreements. It providc~ a benefit bused on a participant's years of service and earnings. Pension benefits provided by GTE Service Corporation und contributions to the GTE Service Corporation plan are related to basic salary and incentive payments. exclusive of overtime, differentials, cerlain incentive compensation aJld other similar types of payments. Under the GTE Service Corporation piau. pensions arc computed on a two-rate fonnula basis of 1.15% and 1.45% for each year of service, with the 1.15% service credit being applied to that p'ortion of the average annual salary for the tjve highest consecutive years that does not exceed $31,100. which is the portion of salary subject to the Fcdcml Social Security Act. and the 1.45% service credit being upplicd to that portion of the t1vcrage annual salary for the five highest consecutive years that exceeds this level up to the Sltllutory limit on compensation, As of February 26. 1999. the credited years of service under the GTE Service Corporation plan for Messrs. Lce, Foster, Masin, White and Barr are 15. 28, 5, 30, and 4, rcspectively. Under federal law, an cmployee's benefits unoer a qualilied pension plan. such as the GTE Service Corporation plan, are limiled to certain maximum amOUnls. GTE maintains the Excess Pension Plan, which ~upplements the bcnelits of any participant in lhe GTE Service Corporation plan in an amount hy which any participant's benelits under the GTE Service Corporation plan arc limited by law. In uddition. the Supplement Executive Retirement Plan provides additional retirement benefits delermined in a similar manner as under the GTE Service ,Corporation pi un on compcnsation llccrued under cenain management incentive plans liS determined by the ExcclIlive Compensation und Orgonizutional Structure Committec, The Supplemental Executivc Retirement Plan and the GTE Excess Pension Plan beneHIS arc payable in a lump sum or an annuity. ,,-) 111-13 ';;~<"it.',:~'~:;::::::,>i~',~?" ':' ,... ' , , " ,! '. . .:d~ '.' . , ,,' .' 1~ , II ' , ! .I ,... l'r . ' ~: .~' :,', c , \)':':~l, '>.?,:: ' < >: !/::'~"', ~:: : :>.' ~'1~' / ' :'-'; ,.If '.. ~ , .. , . . l.';&'~ .~,. c' ".' c I"~':I,'>:~' .'., ~~ .' :,','" ,,/"-:: ;.';' ,,'i ' ',' ;:' ..,. ;;> :' ,<'" ~~. :. '., : r<:-','" , , '! " ',,' '!' '-', :, ,"0', :,;' ' , ' ,',.. :",' , l" I '. '. ...\ ' _:lO,\;" l.f.." '+ . , '..' >, ~ ' , > : . '. ~~(..I:'~ ;'.' I "/ ' , , ! - , . I< " 1-' It' ,~< . I ~ ~ ,; , ' I ,. I) >1, "" .'".,,1: ", ," ,',t' " " : ,.'~l . ; .!,','<:'"',:<,;.,:,,>,..,:',,, ' , '.' ~ ~ I " ' "J if'. > .; " ~ ~ I: " , " ". I ;" . ',: ,I , , , .. ~ c I ' ", ~ , ,'.. .:. ':', I' ,. ,i . "'j "', .' cO::':. ,: l .'1 lee ~ ,>. " . I I' C 'I,' , t;~f~l~~,{::~ ~~~~,::~,::::({~,;!.t~~'l :):~{ ~~;'~~~'~i~~';'~'~')~ !~: '~,~:~iLh' ~ ~"'~'~~'~"':'~i'~'r",:,', ',' ~ !~.! ',~ l ,... ','.' '.' I ' ",'''' . Executive Retired l..ile. Insurance Plan GTE's Ex.eClltive Retircd Life Insurance Plan providcs Mess'rs. Lec, Foster, Masin, White and Burr n , postretirement life insurance bcnefit of three times final base salnry.Upon retirement, the Ex.ecut!ve Retired, Life Insurance Plan benefits 'may be paid'as lifl,dmlUrarice or, nltcmnlivcly, an equivalent amount equnlto the presentvaiue'of the life insurance nmount (based on nctuarial factors Dnd the inlerest rute then in et'fect),' may be paid as Ii luin'p sum payment, 'as an annuity or in installment paymcnlS.' I.. I Certain Transactions I, , ' I ", The investment banking finn of PnineWebber Inco'rpornted received lInderwriling commissions and fees , fran:' GTE and it~ subsidiaries on the sale of securities during 1998. It is possible that PaineWebber , . I'nc'ciiporaied may have received additional brokerage commissions 'from trustees of the various pcnsion, ~~~irefnent, savings or, similar- plans of G~wi,d its si.tbsidiari~s. However, the conimissions would not have been, as a rc."iult of direction by GTE or its subsidiaries with regard to such orders. Mr. Richard W. Jones, a director of GTE until April 15, 1998, is a business consultant for'PnincWebber Incorporated. · ' ' ", j. , I,. , ,During 1998, G!E paid approximaleJy, $~98,OOO to subsidiaries of Citigroup Inc. and its predecessor corporations for commerciitl banking services. Mr. Masin, Vice Chairman and Prcsideritwlntemational'and a dire~tof of GTE. is a: rr:'cmber of lhe board of directors of Citigroup Inc. ' 111e Boston Consulting Group, Inc. received fees from GTE's subsidiaries of approx.imatcly $292,000 for consu1ling services during 1998. Dr. Sandra 0: Moose Is a director of GTE and a director of The Boston CO,ns;ul,ting Group, I~c., ' , Du'ring 1998, GTE's subsidiarics paid approximately $135,000 for various fecs to CSX C,orporation. Dr. John W. Snow is a director of GTE and the Chairman. President and Chief Executive Officer of CSX Corporation. ' GTE's subsidiaries utili7.cd the scrvices of Thompson, Hine & Flory LLP during 1998. Mr. Hohert D. Storey is a director of GTE, and a partner in that law Oml. 111-14 , ~~ " . ,'j " . --"'. 1 ; 1 I , l ! ,! ~ j ~~,\,,~/~ , \''i'~r:...:.,l,i' 1" ,:,~ ~',:' . ~ ! y : ,l ~y:,~~,~, '1;~' }..~(,.~~::~~ '-,-~-:-'~-:-i;;-'..- -: 1." . " " ' . .~ .. i ~ '. i ' ' , . ,,;,~. 1 ::. ~". '... .', . '.'.)~':'>;'~'" ~. . !~ :~:t . ,... >'.J' :' .:. ~ ~'~': c ,'. " ", j. , 'i < . .~. ',' "\' ',I, ' .' " ',. , , , " ; ~t.': , . c '~:' '" '. , . ' " ., Ott : " ,', , . l'~. \~ T ~~. " l<: t , ''(' . ~l .,.. i , ~ f,~ ~:'~: ';;';<'i~/~:;( :" / ',;: !!,:71f;';~!,'~;:',: ~,-.:,.,' ;, ::': ,- . /- ~ I , " " . ',' , :()'" ' " ~ "..c t,....:, '" , ' " ' ~,. ' " ,;,'. . ~, , ',' " ~, ' :.' "(~\) ~ ~.ut , "---) -" ,~. 1 .. Ownership ()r,St~k by GTI.: DirectOl'S, Numinees for Dil'ectors and Executive Officers . , " V~ti~g,S'~C~ "~d,siock.B(JSed liold;"gs , , TIle table below Sels forth (a) the shares of GTE coml~on stock benefi~ially owned by each director, nominee for director, 'the"chicf executive officer and the other four most highly', compcnsuted executive officers, an,d by all directors and executive ofti'cers as a group; and (b) the tOUll GTE stock-bused holdings of the named iridividuals:and the group. No director, nominee for director or executive officer owns as'much os one-fifth of one percent of the total outstanding shares of GTE common stock, and all directors and executive officers:as a group own less than one-half of one percent of the total outstanding shares of GTE common slock. Unless otherwise indicated, uU persons named in the table huve sole voting and investment power with respect to the , shares shown in the table. , ,., ' I The 1aS~ column of the table combines beneficial ownership of.shares oraTE common stock (including sh~s which !Uay Ix: acquired within 6Q, days pursuant to the exerci,se 'of stock options) with holdings of (i) deferred,stoek units ,by' non-employee directors (which are payable in cash or shares of GTE common' .stock, nt. : the eJection of the directort and are accrued under the Deferred Stock Unit Plan and under the Deferred Compcnsati9n Plan) and by executive officers (which are payable jn cash pursuant to, deferrals ,under the GTE . Executive Salary Deferral Plun, the Executive Incentive Plan and the Long~Tem\ Incentive Plan); nnd (ii) restricled stock unils.by executivcofficei's (which are payable in shares of GTE common stock under the , Equity Participation Program). TIlis column indicates the alignment of the named individuals and the group , with the inr~rests of GTE) 'shareholders ~ecause the value of their total holdings will increase or decrease in line Wilh the 'price of GTE common stock. ' " > ,,' I,., ,. Name of GTE Dlrmor or Nomlnre Edwin L. Artlt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . James R. Barker. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Edward H. Budd. . . . . . . . . . . '. . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . Robert F. Daniell ...........:.'. , . . . . . . . . . . . , . . . . ',' . . , , , , , , , , Kent B. :Foster(l) ... . . . . . . . . . , . . . . . . . . . . . . . <. . . . . . . . . . . . . . . . . James L. Johnson. . . : . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , . Jarnes L. Ketelsen. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chari es R. Lee{ I) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Michael T. MasinO )(2) . . . . . . . . . . . . . . . . . . . - . . . , , . . . , . . , , . . . . . . SandI'll O. Moose ......................... , . .' . . . . . . . . . , . . . ' : Russell E. Palmer . . . . . . . . . , . . . . . . . . . . . . . . , . . . . . . . . . . . . . . . . . . John W. Snow ..., . . . . . . . . . . . . . . . . . . . . . . , , , . . . . , . . . . . . . . . . . Robert D. Storey. . . . . . . . . . . . . . . , . . . . . , . . . . . . , . . . . . . . . . . . . . . . on: Eucuthe onkerstl) Charles R. Lee . . . . . . . , , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , . . . Kent B. FOsler ...... , . . . . . . . . . . . . . . . . , . . . . . . . . . . . . . , . . . . . . . Michael T. Mtlsin(2) . . . . . . . . . . , . '. , . . . . . , . . . . , . . . . . . . . , . . . . . . . 'nlOlnU!i \\'. \\'hite. . . . , . . . . . . . . . . , . . . . . . , . . . . . . . . '. . . . . . . . . . , . Willianl p, Burr .".,.,........... . . . . . . . . . . . . . . . . . . . . . . . . . . All directors IInd c;'{ccu(ivc onken; as U groupO) . . . . . . . . . . . . . . ; . .'. . . fJI- J 5 GTE Sbl1l't'lI Ueneficlally Owned n.~ of February 26,1999 2,785 4,200 4,969 2.970 955,108 59,143 1,800 I ,461,690 480,992, 1.800 2,:!OO 2.100 700 2,980,457 l.4b 1.690 955,108 480.992 163.565 209.700 -- 3,271,055 3,841,349 GTE Slock.Dl1$oo Holdlnn,'11l5 of February 26, 1m 15,49B 97,011 29,443 10,618 1,042,985 68,942 13,572 1,602,189 535,280 10,338 10,223 4,100 10,835 3,451,034 1,602,189 1,042,985 535,280 186,007 254,00 I 3,620,462 4,479,837 ,) ...---- , , " . ~; '\ .:. ;~l,'?:t:;:,:<;,; ,:"",;:~ ':' ,1\ ':. '.,',' c',' u,' . ~ . j' ~: ~;Jt0>::' . 'H ' , '~.,;~. " " " . I ~' :,~ '! j , , '<. : ~.. c :' I .":, . , . ., , " 'c.' ! . I .' t' ,,). , ~ ' " . .. '1'.1, , ( :, _ I / ' } I : ;',,' : ':"i:;:i>:,_,:::', , :;;., ." ., . ,I ' 'f " ,,", ~~, ,c, ""j~. :'~':_":,':':;, '.," .~, ,! " " ' , .", ,;. , , ~t . '-).: . >,,' !';: . ~ ; , '.f " , ' "" , '~ ~ 1 \', ; ~., , r .' .- , , " ---~.~ . ,I'" J; I. :", ',. ,,',';1 ,\ i ' " " " .t. , ' ': ~. , '.:/; ~ ' , ~1. ,'1 , " ,:' , '" " .,.,., . ~ " , , , .' . ,J' ;'...,...'" +It~...:.,~~", t~..... 't,.,- .~ , q" ..... L''''~, .,.. t>. , ' ,(1) Includes shares acquired through participation in the GTE Savings Plan.. Also.inc1uded in the number of shares beneficially owned by M~ssrs. Lee. Foster, Masin, Whilennd Barr nnd all directors 'and exc;cutive officers :is'i1 group arc J.307,033:899,199; 4'76.333; 150,034; 206,399 and3.479.693, respectively. which , such p~rsons have the rl8hllo~,cquire, within 60 days pursuant .lO the exercise of stock options. ,,', \. (2), Mr. Masin pllrUcipnted in the Deferred ComjJcnsation Plan while he was a non-employee director of GTE. "In October 1993. Mr. .Masin became an employee of GTE and since that date he has not been eligible to ',' receive or defer additional compensation ,under the Deferred Compensation Plan or to receive new grants , under any plans for non-empJoyee directors uf GTE. '--' . + ~ ' , ': , I CANTV Stock Thcfollowing table indicates the nUI11;bc,r of ChillS 0 Common Shares of Compania Anollima Nacional Telefciiios de Venezuela, ("CANTY") beneficia~ly owned by each GTE director or nominee; the chief ' , executive officer and ench'of the ,other four most highly compensated executive officers who beneficially own' such shares~and by al1'dircctors and'executive offieers of GTE as a group as of February 26, 1999. A' subsidiarY of'.GTE owns approximately 85% of the Class D Coin~on Shares of CANrV and the remaining Class D 'Common' SJjllre.~ of CANTV are owned by the pUblic. GTE also indirectly owns 57.8% of the Cll1ss A Common Shares of CANTY through a consortiu'm. :Uld the other consortium partners indirectly own the remaining Class A Common S~arcs' of CANTY. Only directors of GTE who own CIll:';s D Commo'n Shares of CANTY are named in the table. Each of these amounts shown in the following table. and all of them in the aggregate. represented hiss than I % of the outstnnding Class 0 Common Shares of CANTV os of Fcbru:lTY 26, 1999. All of the folJowing Class D Common Shares of CANTY arc owncd in the fonn of American Depositary : Shures, each represcnting seven Class D Common Shares of CANTV. .t"; Name CANTV Class D Common Shorts Ilcneflclully Owiud 7,000 77 ,000 30,450 14.000 -- 128,450 >~.~...~ . Kent B. Foster. . . . ~ . . . . . .'. .. . . . . -to ~ ~ . . . . . I . . . . * . . . . ~ . . ~ . ... ... '"' ... .- .;- oi' . ;. ;.", ;. . .. ,. . . ,. Charles R. Lee. . . ., . . . . ~ . . . . . .. . ~ . . . .. .. . . . -to .. . . . . . . . . . . . . . . . . . . . , . . . . . . . . . . . Michael T. Masin' Russell E. Palmer .. .',............................ .................... .... .... " , ' AU GTE directors and executive ufficers as a group " 135.450 , 1Il-16 , I \h,4.q;.I"~ ~'~">:~:~;'< < " , Ic." '. ' 'I,'. '... <' ," , " '\c :'" '}, \ ' ,.. . .,',:", , '," . jI '~" : 'I,' 'Jr.;' , " " " , Ii, , ' , , " " , .' ~ ,. >,. ,...t ~ ., < , I " , i'\ .I' , . ~ ..~' '\ ,.' , , , " 'I , , ,,' " ~ " , " ,",# t' ) " ' , . . ':. , lo, I , l' ;~},;: ',::. .\ ,\",\~.!.i<:'j;:;':: :\;/,;", '~"'~"~'~"'~~:"""'~"'1 ;'J:"" ~ '~['l"'I'\ll.:l..~, , . ~...,-,...... r, 1 ;...~../ ''"-'' .. . ,"+':' I' Election of GTE Directors The GTE Board of Directors is divided into 'three classes. Each class of directors is eleered f"r llthrec- year tenn. Messrs. Budd. Kelclsen, Lee and Snow W'c nominated for,ch:ction by GTE's shareholders us Class I dircl~lors. The Class ( directors elected in 1999 will serve for a term of three years which expires at (he GTE unnuul meeting in 2002 or when thcir sueccssors arc elccted and qualified. All nominees for Class I directors ~e currently directors and. olher lhan Dr. Snow. were previously elected by the shareholders. Each nominee is al pres~nt available' for election.' , ,'1 . , "Mr. James,L. Johnson, a Class I director, hus reached the, mandatory rctircm~nt age. Accordingly, he will retire from tile, GTE Boord Qf Directorr. at the conclusion of the, GTE annual meeting. ,; . J'I ' ~ ~, If nil \he nOfllineC5 for directors are elected by GTE'!: shareholders at the GTE annual meeting,' the GTE Board of Dircc~orS will c(!nsist of twe~\fC directors-nine directors whose principal occupations nee outside'. GTE and three directors who are pres~ntly employees of GTE. The GTE BOOl'd of Directors' recommends ~ vote FOR nil nominees. Biographical Infori1lllUon of GTE Directors " Th~, fo.iloy.'ing ptovides infomwtion abo~t the nominees for directors. NDmlnee, Age Slid \'~al" Eltcled II DIn'Ctor .. , EOW ARD H. BUDD 65 1985 Principal Occupation und Olhel" InrormuU,," Nomlne~ for Class 1 Directors Term Expirine. at 2002 GTE Annual Mcetinl! Retired Chairman of thc Board of The Travelers CorporJlion. From January 1994 10 Seplernber 1994, Mr. Budd was ChairnlUn of Travelers Insurance Group, Inc.' :\ofr. Budd was elected President und Chief Operating Officer of The Traych.'rs ' Corporation in 1976. Chief Executive OrHcel' in 1981 and Chainnun in 1982. ~c is a Director of Delta Ail' Lines, Inc. and a member of The Business Council. He is Chairman of the Audit Committee ami a memher of the Nominating Commillee and the Exeeulive Compensation and Organizational Struclure Commiucc of GTE. JAMES L. KETEI.SEN 68 1986 RClircd Chairman of Tenneco Inc. Mr. Ketelsen retired as Chairman of Tenneco Inc. in 1992. He was cJcclCLI Executive Vice President.Financc of Tenneco Inc. in 1972 and was appointed Chairman and ChicI' Executive Ofticer in 1978. He is a Director of J.P. Morgan & Co. Incorporated and ils principal subsidiury, Morgan Guaranly Trusl Company of New York. and of Sara Lee Corporation and a Trustee of Nmthwcstern University. Mr. Ketelsen is Chairman of the Pension Trust Coordinating Committce and u member of the Execulive Compensation :md Organizational Slructure CommiUee and lhe Public Policy Committee of GTE, ~::~:;;)];~Y;f,,:'~!:::;~~1~/ii'i , 'I. ,'>' .\~ .~, :;;:S'lI ,:,.. i~ :~~~.i/;,:;; :'f~~::'~,;"t: .''> "...,..'.,~ J;~,/, J>t ;:~~t~,~':~~di;~~; '. c :\~~~. \ .;, .',..: J:'~~~~ ~~)~.~~ " " , .~ ", ,,!(, . /...~, ;~~,~",~ ~~"~t.; , .t '~~~'I~~:, ,...\.. .k/~" i-f\:) )~., ;\/~:::~~; 1lI-17 ~ ~,':" ~1~ 'to:}; J ~ I / (,l :;',F '~J~~(,. '.) ~/;:~ ~':-~ :}}; i ,\'" '\i~' ~"t, ',' "~I " l'1:';\')~ ( II " .~ .', 'i \i"<',l ~ Tr".' /:~~~~.~ ~ / ~ ;, L,c",E : :,' i ~' ~ ' .' .:,' ~~I ,I: >' I. ' :Ji, 'l', . ~: ' " :r. ;~'\~i ":',,;,::, ',;.' ,:,:/~~,',"!;:~. '-::-:-,-':;::-~ :,-~; ,-' .;~~."~' 'H.::, .. ~ '. ' " ~. , ~ ,I ., ,.). J ' ,,' ,;.,.-"i.;, ~".' / ~ .. ) '1, '. :' , '~, l." \ ,\'" " . '. ',~,~ ~ ':-,'1{.',:,' ~;' .;', ~, ' , , , ~ ,', ~>r :';,~~~, 1'1', I "1' ~~.\()~' : I, .:,,',lJ' "I,.":,;, ,'" It'C .. ~~; ~ 1,/ , +J1J '....", j' . , " ,~{ ,. :. , '1" , , (. ' I,'. ~ ", .. , , " , ."' I ' . :+. , : ~':" :'~ t: , .:~. '. ',,"r' " ~:' '/:': " \ ,. ", . , :.,)(,:'<::<,' .. . .'1' " . . I' , ~ . ol'.' . , .~ :,1 "'1 ~ ..,.! " . . , I , /.. ?::~;~1'~~'~~:;':~::~~1~''':>':~";' ~ ',~:"': NUITdn'ee. '\Jl,t I1nd Yair t:)ed'td II nimtor . l '. I CHARI..ES R. LEE 59 1989 JOHN W. SNOW 59 1998 ": <'.J.":~: 1 r "I ::.. 1 .. ! .'htT.'l'\'~'t' I! .h. ...:..... ~', ) ::;~~;;::>:!!~;~,Y);ef;: ~;'~~ ,'..1,.>1 '..:' tt~~ "'1J ;:!j1h0~~;~?j ",'..... :<:t:;';M~- (.~,.i' .~. ?1':" It'.....-t,.,c .'t.<":>';~ ....l~t"'o{ 'f~ 1.~~ r I.,.. ,.'. Pif,:...J::<,;A# ,:'.'",>}, "L,' -\t' '-'I'~';' \' \' ., ;~~:S:2.,:"~,~~ y~,{,:::}; :....).~.t',!t~ I,> ' ,..~ .'"f t. " \~, ,. ~,,, ... (J,J':'-:' 1 .' !,., .....~ 1\:~~:J:t~'\~ l" ..' ' " , ,,i , ' .f' , . , ; ; . ~ '..: ;:' t~ :., :, , . '" . " , , 1:<" "\ . ~ . '~' . , " 'I p. ",~",r..,. , h' .. ." ,. .... Ie" 'J_ ~. ,. ,I, Principal Occupation Ilnd Otltf1r In(ormatlon , . GTE Chllinnlln nnd Chief Executive Officer, Mr. Lee joined GTE in 1983"n5 Senior Vice President-Finance and in 1986 he was numed Senior Vice President- Finance and PJanning. He was elected President and Chief Operating Officer, ' effective JanuarY 1, 1989, and became Chainnan and Chief Ex.ecutivc Offieer in [992. Prior to joining GTE; he held various 'financial and munngeincnt positions in Ihe sled. tmm;portation and en~ertninment industries. Mr. Lee is a Director of United Technologies 'Corporation,' USX Corporal ion and The Procter & Gamble Company. He is n member of Ihe Business Round Table. a Trustee of the Board of Trustees of Cornell University, a member of the New American Realities Committee of the, National Planning Association, n member of The Conference Bourd, and Ii Direclor of the Stamford Hospital Foundation. Mr. Lee is u Personal Trustee of the GTE f"oun'dation and :i member of tht: Sl.fategic Issues, Planning and Technology CommiUee of GTE. Chairman. President and Chief Executive Officer. of CSX Corporation. A Director of CSX Corpol'lltion since \985, Dr. Snow has held the title q~ President and CEO of this global transportation company since April 1989 and became Chainnan in February 1991. He also serves as n Director of Circuit City Stores, Inc.; Johnson & Johnson~'and USX Corp. He i$ n member of the Business Council nnd the Business Round Table policy commitiee and serves on the Board of Trustees of Johns Hopkins University. and 'l11e Durden Business School :lIthe University of Virginia. Dr. Snow is a gmduatc of the George Washington University Law schdolund the University 01' Virginia with a Ph.D. in Economic~. IJJ-I H , ." , , ~ , " " ! ......-...... , ! ' ...........- i \,....,.... z~~ ,'. '; ,~. r . .' " <i-l' , . " " ., ,," c' , ;:,c' T , " . I .1 ~ . I' 'c ,I,. ',', I '.l.,' '. :'.5: ' H ;I',! ; ~, I ., , " , . , " I' ',.. ,l/./:.L :1' , ~ ~ ~, ' ." ,~,:"~', ;,>,~';l:i:,<;::t~,;'\ \:~ ';'::t'~';"f't:'>J:;" ~:;,~,. ",' ,,~.."' ,,;,:. ,,.;,,:, c:,;...,;..., ." " off~, H ," I ';~I"..;j~' c r, .~.~~.1? ..t'r'~'+r, , . I, ~ '!.,'~~;' \..._) , , TIlc following provides lnfonnation abnut the members of the GTE Board of Directors who are continuing 'in office. ns well as Mr. Johnson; who will retire from the GTE Board of Directors at the conc1usionof thc GTE annu~1 meeting. " Dln:ctor, A~c Il"d Yrllr 1\IKltd II D1r<<tor ,.TAMF..8 L. JOHNSON ,72 1985 i" ~ I ,~".: T,} ,t...: i.;M,I(;' :'{\'~))\",~h\' ~ ':(': " '~'.":,,;"",; '?~':,;~~. '\ ;":/':'/Yfl: "\'\ '\"'\ ",-'. "''0/1,.< '",'I,;~" ;\,'~, l"I!.' ! " ':~, ,ii.'lllI' "~;"1 '~:?[.ff~ i ,:,;';~ ~,,~:Ja~~J ,', ';!~ I ;, dt, ',: 1.;:, '" .~ ,J' (\ ~!i'':'.'r ~:,l ~"".f'\. r:'.~','r ~ ::,';}:' 'i,l~. ~:U{ .~::{. tl ~L, "i( /\~, ;1~)iV.\~: "{f,~: \1' ,,;~ ;", .~.~,'~~:~,o:;, ~ : f\'~' ,:( ,:' "'~"'~'')'' )'1 ;;~i);~;~j.?}! ~'~~~\~';i,~, Uirccllll" A~e and Year Elcrh-d II nJrector JAl\lES R. BARKER 63 1976 f}'...' '.. ".",', I < ''- -l ../:, ~ ' . ,'"' .. ,I"....~ ,I 1 ~ , .. ~,: . ~..'~ ",I: ~I~,;I'~~ ";'1. ..' __} . .;., "r.~' *:'. '+t"~.Jl'~f~k,1~...:.;j ~:. ~;\\~; .')",}! i(; ~"\.'~Ul '. ~t. i~"t. ',' .". ."..", .,,.'_. ,. 'I! 'tJ;.f.l:"~'.i i'V "'~"':i" ...,"\ .~ ;,t ,~.:~..i."'~(~'''~ \~:"'i "f / ~~\,:'.. "/1 ~. .. ../. ...(, ~ \r~"':...'. ., '...' '-Jo.i -:\. ( "l"}':1'':-'1;'''~.':."W ":' " It::;,::. \~~ i~'~.:" (<~ t.:~r~;h', ::t~~.,:~r:;~r~', ,~.::...~ ',~;,y;I.:,; .7.;"''"1'" ~ r.\ i, ~~}},~~:~;~t~n~~?!:!~;;1 :1""., "'\('1' J" ,.~ ':<'?:~?':::,~;:.~,: ::':~F,~'~ Principal OCcupllUon and Other Inronnollon Class I Director Term Exulrine at 1999 GTE Annual Meetin!! Retired GTE Chainnan and Chief Executive Officer. Mr. Johnson, who retired in 1992, has been designated ChaimuUl Emeritus by the Board. He joined GTE in 1949 and hcld a variety of managcment positions within the Telephone' , Op~rations Group. He was e1ectcd President of the GTE Telephone Operatjons Group in 1981, Scnior Vice President of GTE and President llnd Chief .operating, Officcr of its Telephone Operations Group in Deecmber t 983, President and Chief Operating Officer of GTE in March 1986 and became Chairman and Chief Executive Officer in May 1988. Mr. Johnson is a Director of MONY (TIle Mutual Life Insurunce Company of New York), Valero Energy Corporation, Harte-Hanks Communications, Inc., The Finover Group, Waltcr Industrics. Inc. an'd CellStar Corporation. He is also a T~stce of the Joint Council on Economic Education. Mr. Johnson is a member of the Audit Committee, the Pension Trust Coordinating Committee and the Strategic Issues, Planning and Technology Committee of GTE. I'rlnclplll occupllllon und Other In(onnatlon Class II Directors Term ExpirhH! at 2000 GTE Annual Mcetlnl! Chairman of The Interlake Steamship Co. and Vice Chairman of Mormac Marine GIllUp, Inc. and the MOl1ln Towing Company. Mr, Barker is also a Director und a 'principal owner of Meridian Aggregates. Inc., a producer of aggregate products for the conslruction llnd milroml industries. Mr. Barker wus formerly Chainnun nf the Banrd of Mool,"e McConllack Resources, Inc. lmd Chainnan of that company's operating subsidiaries since April 1971. He was also Chief Executive Oflieer of Moore McCormack Resources, Inc. from 1971 to JUlluury 19H7. In 1969, Mr. Burkel' co-founded 11 Illanugcment consulting finn, Temple, Barker & Sloane, fnc., lllld served in the cllpacity of Executive Vice Presidenl. He is Non-Executivc Chairman ami u Dirc.:tor of The Pittslon Company, u Director of Easlem Enlerprises, Chaimmn of the Board of Trustces of Stumford Hospital, and President of the Committee of SKULO (an Oslo, Norwu)' based mmine insuranc~ company), Mr. Barker is Chainnan of Ihe Nominating Commillce and n member of the ExeclItive Compenslltion and Organizational Slructure Committee and the Stralt'gic Issues. Planning ;md Technology Commiuce of GTE. 1Il-19 , ~:,", ...' , ,> '. . " ' .,.,;' H. , ,l; . Tj", , ' , , ~.', 1 ;, I,:" ." 'I. .<~ I I .' j' .,. 'r. , , . '<, .. ' , ' , ( , ' , , .~ " : .'! " .. ,q,: t : ~ 't . ~', I '1' , c' " , , ;. I,) '..: \'.'. , . " , ::': ><!" :,:'/ t:~:"i::;;;I:"';~;.~~~~.:" Dlrfdor, A~e and YesI' Eledl'd a Director , ROBERT F. DANIEll. ' 6S ", 1996 ". ,',,' '''\'''( ",' '\"\""'~r'~h , .....//";. )\ /, L\' 'c ~ ;:.:-:', ,\-' Py}, ''.'', , :\,\'<:' .~ ,;" I /, "\, (\. .J ,...(.;-.;~.:~' : i .f,~ if.::4;~1.\';.' . :~~'/'~ :', '," ",...',}'I, ',/;" ".t ~~:,:' '..~~~\~:}.~<:, I . f~~':~!~.r "oJ,";~,~." ':'_lcJ;~xt'\~<~i :M\'.\'.4".l-~'~'f :..'\ ", "\ ~ l' . .r: ~' ~ 'l ~ -... . HI1,)l"n,(~s .~ ;,'~.,X' ,TJ . " ;.'. t \V'\o ,; J/",.." ~,' i : "'.,~" "'t ",~.- .:'~': \'.'. ~~; ~ :;/1....~~.. ~~...' ..~'..., \. ~ I' 4. ' :\~1. ,I,J,.lo', " '~;-I:.~J~~ r.: !,:- " !,.'~(:~} ~,~I~ '.. '~"\'\' "11,, \ "r' ,..\, '{i.~~.:~>..t. ;'; ~("!:~,;-.-?J.r'L>i) MICHAEL T. MASIN 54 ' ,1989 ROBERT D. STOREY 62 1985 " " " ,,' " , .1,' :i'i < . . ~ :,~ --l.. . ...., .--.,.' ,... .. 1" . ' , . '1, , " ')rlnc:lplll Orc'uplltlon and Olhrr Infllrmllllon Retired Chairman~ United Technologies Corporation. Mr, Daniell was elected Chairman, United Techno!ogies Corporation, effcctive Junuary t. 1987 and relired iti April 1997. He relin<luished the offices of Presidcilt and Chief Opcmting Ollicer in February 1992 and the office of Chicf Exccutive Officer in April 1994. Mr. Daniell \lias elected President and Chief Operating Officer in 1984 alld named 10 the additional post of Chief Executive Officer, effective Junuary I, 1986. He was eleeled Senior Vice President-Defense Systems in 1983 uno had ...ervcd liS Vice President of Uniled Technologies from 1982 to 1983 and President of , Sikorsky Aircraft from 1981 to 1983. He is a Direclor of Shell Oil Co. Mr. Daniell is a member of the Audit Commiuee. the Pension Trust Coordinating Committee and the Public Policy Committee of GTE. ' GTE Vice Chairman of the Board nnd President-International. Mr. Masin was elected Vice Chairman in October 1993 and President-International in June 1995.' Prior to that, he wnsManaging Panner ofthc New York office of the hiw firm.of O'Mclvcny & Myers and Co-chair of the finn's International Practice Group. Mr. Masin join cd the firm in 1969 and became :\ partner in 1977. He is n Director ()fl Citigroup, BCT.Telus Communications Inc.. Compania Anonima Nllcional Telefonos de Venezuela (CANTV) and VenWorJd. Mr. Masin is a mcmber of Ihe Board of Trustees WId Executive Committee of Carnegie Hall. the Board of Directors and Executive Committec of the W. M. Kcck Foundation. the Board of Directors of the China Americtl Society, thc Dean's Advisory Council of, Dartmouth College, lhe Busincss Committee or the Bonruof Trustees or lhe Museum of Modern' Art, the Council on Foreign Rcllllions. and a Personal Trustet~ of the GTE Foundation. Pnl1ncr with Ihe, Clevclund law lirm of Thompson. Hille & Flor}' LLP. Mr. Slorc}' prc\'iously Was a partner Wilh thc Cleveland law linn of McDonald, Hopkins, Burke & Haber Co,. L.P.A. Mr. Storey joined its predecessor linn in 1967 and becamc a partner in 1971. In 1964 he began his curcer as an attorney with 'l11c East Ohio Gas Company and in 1966 he became Assistmu DircclUr of TIlc Legal Aid Society of Cleveland. He if.. tl Dircctor of Thc Procter & Gmnblc Company and The May DepUl11l1cnt Storc') Company. Mr. Storc)' ii'o a Trustee of Case ' Westen! Reservc Univcrsit)', Spelman College, the Kresge Foundation and the George Gum! Foundalion anll a formcr Trustee of Phillips Exetcr Academy, Cleveland Stale University and Overseer of Harvard University. He is a member of the Audit Committee, the Nominating Committee and Ihe Public Policy Committee of GTE, ' JIf-20 ,--....., --.r- . i , ' o'c,'(t:."J" \ ~, l..I~: "',', .": " ',' ,I >', j " .1 ,,-t.,' j, c '~'..:~"" " " ,1 " ..,' ,'! " ,'. , " , c ~. 1;~ ' nr. .: .(, >., , :' I ~ :' , .,.,. . 1. i-. ~ , . ~ ~ ~, , c~' 'i. .',: '.r. ' " , . ' , ,\ 'i .'. ." t. < . ~:" . " ' ,- ! " :"'h'):~(-}~\ ':;';:<\;:,:';P'\'X,~;:;':1-'!:j:;~i~:I.~ ~;,:~",'-.<,.V.",. "", ~:,.,;" 0:", ~',.,.. ,'\,( ;, ".....'\--..'1"\, ; c I "'..._,,/ \J " ,. ,:! '" , '. l< ..' . . ~ . \ L ~ :.~ , . , ' '. '.... l " ' : ~ . , ~, ,.>' , , :' < ' ; ~ 1>Il'e("vr, ,\ gc >>nd Year F.lec:ted a D1f\'t:'or EDWIN L~ ARTZT' 68 ".,' 1984 '/' " ", "')'1 ~"L; I ; ''1''.,' ',; },:. 'I ',~! '.~\ . ,1, I >...'l!I\........ '\-"... )f.....t't'- ,.1...' ~ ' i',.':,;,: ,>{ ~I\:'-/X? .' ~~, (...' ~ ~ ~ ~. .' \ ~, .l'...'.." ~/,J ,..,( ~. :;;;/;/:l,71l,,?i':(': .\~,~:: " '.' '" J"~~" \...1,:.. "j ~~lff;l~ff1ilji , ' ' KENT B. FOSTER 55 ' 1992 L I,'p ;.. .r....,:!~I'...~:.;;,;"'.f~: '~'''' '\'\""":I,~".tl<,~ 'J,''' J, i.." I, <"'!:J': >;'\~., 'I h "~'I" '.'..i'F:I.h< ;~~;;ii~;'~~l:/~~, ~ ...~~J 'h;,' '~':':-~~\"i!.\'.. .;JOi: l'f~. '{' "'"\,"'1 .... 4- .....;..1\-~:\ } ~ .... ..~( \ ~i~ "-~"'-;'~':'~:h', \'t ',tA! ,.JI_n \~~ ft...\.,}.,... s-~ Lj. (!::'>;;"1Y'i\i~V~~ ;~~~, ,'_,f~ "\\.>;:~t '~';'';~l';,\\'i "(....,,;:' '~-T:'~i\ .;....J..~,~~ ~fi: ,JI '\ "~"'" r" l\,,\ .1....' ;;l/.\:,\:i";~/" ;':;Q~~5!t: .;\~. ,', IX "'1"\"/" ~::;':}~: 'Ii:, ~:~;'"::: >:" . SANDRA O. MOOSE 57 ' 1978 ;'~,:~,:,;,>::i: ~;'~L;::,~i~H' ~"I,,~:w, "<'! "'~" 'ft' /i ;~, w;y",'..,.;_',~:,,'I.'~~~ .,ft~~*'lr.'J r ~r.., ~ t~~" :.I.~""" ~fu'~J.;):I':~:i;... ';~,~ ~~T 1'/,\/" 'ij'ii":'ii.l" '..., . . .f '" ' ,.," , ... ';~'';' ',~;. ,~; '~.-\t ~.. "~', !lf~j'{\ :, .~/: '1 ""I' j ~1 ~;"!'v""'~;~ ~ .,..t~t.f:,~y~!~;t~_:,!;':\;(~,_ ".,.:.l/' ;kr"":'t::.(i\'~ (,' -"" J t . ~. ... \, \..\ " .. .,'.t. ~ ''';/''I:lj!!~;~'~'{:7f,(,I\~, q , ", >0 .' ., " PrlnclPll1 Ol;cuplltlnn nnd Oth~r InromlUtlon, Class HI Directors , Term E:ltplrln.e. ut 2001 GTE Annual Meedn!! I Chairman of the Executive Committee and Oireclor of The Procler &. Gamble': Company. Mr. Amt wa.. Chairman of the Board (lnd Chief Executive Officer ..' from January 1990 until Jul)' 1995. Mr. Artzt hud scrv>eu as Vice Chairman of Ule Board of The Proct~r & Gamble' Compnny and President of Procter & Gamble " Imernationlll since 1984. Prior to that. he was Executive Vice President since' > 1980 and hnd served .15 Group Vice President for Europcllo operations. Mr. Artzt,: is Chainnan of the Board of Spalding Holdings Corporation and ri Director or ' Delta Air Lines, lnc:. Americnn Express Company and Evenf10 Company, Inc. He , is also tl memb~r of the Busine~s Council. Mr. Artzt is Chuirman of the Strategic Issues. Planning and Technology Committee and a member of the Nominating <;ommiucc and the Pension Trust Coordinuling Committee ot' GTE. GTE President. Mr. Fosler served (IS Vice Chairman of the Boart! of Dirccwrs from qctuber 1993 until June 1995 and President of GTE Telephone Operations Group from I;muary 1989 until June 1995. Since joining GTE in 1970, Mr. Foster served in u number of positions of increasing responsibility throughout the GTE system. Mr. Foster serves on Ihe Board of Directors of Campbell Soup Cmnpany. New York Life Insurance Company and J.C. Penney Company, Inc. He is u , member of the Board of Governors of the Dallas Symphony Association nnd a ' ,member oLThc Dallas Opera Execulive Board. Mr. Foster is also a Personal Trulolce of th~ Gl;E Foundation, Senior Vice President and Director of The Boston Consulting Group, Inc. Dr. Moose is a Director of Roh11land Haas Compuny and 27 investment companies sponsored by The New England Funds, all Overseer of Ihe Beth Israel Deaconess Medical Center, a Tmstee of the Boston Public Library Foundation. an Oversee!' of the Museum of Fine Arts, a member of Visiting Committee of the Hllrvard School of , Publje Health and a Direclor of the Harvurd University Gradul\Ic School Alulllni Association. She is Chairperson of lhe Public Policy Committee unu 1I member of the Audit Committee and the StrJtcgic Issues, Planning llnd Technology COllllnillce of GTE. 1JI~21 ..' '. . ".' ~ ~ I <" , ',I :. , " , , '. ',. ," ," I,' I :.1 ,. .'. ~ '..~,: ,! ,,~ ' . . , ;,< , '.". , ' " ' " /, ' ) '. ~'. . ~, ):f/~':':, ,,'::!';Y,!)I"~~r~.....t~.I... > ..... Dl~tllr, ^~ and Year F.lerltd a l>lrector' 'RUSSELL E.'PALMER 64 1984 ' : ::., ::; /f.'.:~~~f~~, .'~~.'~~':~ ,~ ':!~~:'I~i,t,,>:,}.::.: 'tl.. .f,..' ,~: .:i.f\:,q,"7,\ ,~;". ~ ~"'>'l'l '~".'~'''' .-....: t" ~"...~~ \.'Y~"t~.'.I"I' if~ ': \';" ,\~~, "'t'.. ' \ ~'I"~ .; ,1,/, "/~'i r ~'~ ....4I:;..-t '~'1\ .~~ )., :"1': ''''',''{'~'I''', \.1;(, ,..., \: ~ 10..'/4".. ","(j. . "..L..~t: ,~...",:, , " y'l ~ '.' .'''' ~\.:'I ,~\~; ,.. J.l....: ~,.. l.':.~f?t~\ ...'J:f..'.\! ,,(\ (~" ' ,\ ',: ;"',' ~ :' ,.t". ,., ,'I 'j , (P~P:~"''';\''.:~:,h\> :i\ f~'/' ~ ;>...:::'.10;' l !'t !....../. ... . , , " , " ) ... . '.~ .......' ',' JI ~., i . .. ~ PrincipIII Occu(lllllon Dlld Olher InCormutlun Chairman and Chief Executive Officer, The Palmer Group. Mr. Palmer WllS fonncrly Dean, The Wharton School. University of Pcnnsylvania from t 983 until June 1990. Prior to that, he wus Managing Director and Chief Executive Officer of Touche Ross International {now Deloiue and Touche), It worldwide llccounting ,finn. Mr. Palmer joined Touche Ross in 1956 and was elected Managing Director of Touche Ross International in 1914. Mr. Palmer is a Director of Bankers Tmsl New York Corporation und its, subsidiary, Bunkers Trust Company; The May Department Sl9res Company, Allied-Signal, Inc., Safeguard Scicntific!i, Inc. and Federal Home Lonn Mortgage Corporation. He has b\~cn President of the Fimmcial Accounting Foundation and a member of the Board of Directors of the American Institute of Certified Public Accoumunts. Mr. Palmer is n former member of the Presidential Commission on Munagcmcmlmprovement and serves on the boards of a number of, charitable and civic organizutions. He is Chui'mlan of the Executive Compensation and Organizational Structure Commiuee .mda member of the Nominating Committee and the Strategic Issues, Phnlning allll Technology Committee of GTE, For summary and detailed information regarding the GTE merger proposal. !iee Ch,lptcr I-"The Merger." ITEM 2 - GTE MERGER PROPOSAL ITEM 3- RATIFICATION OF APPOINTMENT 01<' AUDITORS The following rc:..olution will be offered by the GTE Board of Directors ~l the GTE :llInual meeting: , RESOLVED: That the appointment of Arlhul' And~rscn LLP'by lhe GTE Board {If Directors to conduct the annual audit of the financial statements of GTE Corporation and its subsidiary companies fOf Ihe year ending December 3 (, 1999 is ratified, confirmcd and approved. The GTE Board of Directors recommends a \'ote FOR the (orc~oin~ proposul f(lr the following rensons~ 111e GTE Board of Directors first appointed Arthur Andersen LLP, an ilu.lcpcnucnt public accounting linn, us GTE's auditors in 1935. After a diligclIl review. the GTE Board of Directors has rcappointed the firm as auditors each succeeding year. Arthur Andersen has a good repulation in Ihe lJuJiling. lield and knows GTE's opermions. The GTE Board of Directors is convinced that the I\rm has the Ilcccs:;,ary personnel. professional qualificalions and independence to act as GTE's :lUuitors. Accordingly. the GTE Board of DireclOrs has ngain ~dected Arthur Andersen us GTE's auditors for the year 1999 and recommcnds that YOll approve the selection. Arthur Andersen's fecs for recurring auditing and f':L\ servicc!'. [1.)1' GTE and all of its subsidiaries for the year ended Deccmbcr 31, 1 99lfarc estimated at $10.1 million. .,., if this resolution docs not recei\'e thc neccssary roles for adoption, or if Arthur AlIJerscn ccases to tlct us auditors for GTE, the GTE Board of Directors will appoinl other independellt puhlic m:cmmtunts us auditors. Represcntativcs of Arthur Andersen will allcnu the unnual meeting and have the opportunity In make a statemcnt as well as be avuilable to respond to your questions m Ihe GTE annual JIlectin~, ITEM .$ - SHAREHOLDER PROPOSAL ON FOREIGN MII.lTARY SALES GTE has been nolified by the Sisters of Clmrity of St Vincent DePaul. HalifHx. J 50 UcJford Highway. Halif:\x, Nova Scotia, Canuda. sta1in~ that it is the owner of 6,000 sharcs of GTE common Slock; the Congrcg:llion of the Sisters of CharilY of the Iucarnatc Word. Huuston. 6510 L~lw\lualc, Houston. Tcxa:-; 77223- lJI-22 , l ", .,.J -j~ '.~'I~ " .' y. , ,.~::':;':," .. j:', '~. j ,", " ' " . ~ ',' ::<' ... ' ,,' " ;,", , " , '. . ~. . .; , " l' , ~ .', " '{ ~ c , I " I. 't" :1 ' , ,'1 , " 'I ~ " " ;; ~ " .. I, '/ / " t~ .,..~:,f' " : 'l , . ~. ~ .'_ ::':\',~i:.~~:~t ~';i~;~:~' , :, I~~ i~ ,~: ,~~'",~,', .< ,,' !~ (t. J~<J > .. ~}," '.;"k\ i' " ":~111. I,......) , ,.r, . ...~,Jr,"'" A-' '<, ., "',' ~" . , . , 0969. stilting that it is'the owner of 1.400 sharc~ of GTE common stock; lhe Sisters of St. Francis '01' Philadelphia Religious Charitable Trusts, 609 South Convent Road. Ashton, Pennsylvnniu 19014-1207, staling that it is the owner of utlcast S2,OOO of GTE common stock; MitlerlHoward lnvestmcnts, Inc., 14'1 Upper, Byrdcliffc Road, Woodstock, New York 1::!498. stating that it is the owner of 5,000 shnrcs of GTE common stock~ Delcy L. Steffy, 54 Plochman Lune, Wood'stock, New .York 12498. stating lhat she is the owner of 25 shares of GTE common stock; and that they intend to propose the following resolution at the GTE annual, mce,ting. Tht: proposed resolution and supporting stalement, for whiclrthc GTE Board of Directors and GTE accept no respOnsibility, are as follows: , "WHEREAS, in fiscal year 1997. the United States supplied $8.4 billion worth of weapons llnd technology in actual delivery of amls sales abroad. ' , 'WHEREAS, the last three times the U.S. scnt troops into combat in signiricant numbcrs (Panama; Iraq, and Somalia), they faced adversaries rhllt recdvcd U.S. weapons or military technology in thc period leading to the conflict.' , , , ' , WHEREAS. U.S. weapons supplied to anti-Communist rebels in Angola and Afghanistan under the Reagnll,Doctrine have bcen used in de\'astating civil wars: in the Afghan case, U.S...supplied Stinger missiles turned up on the international black market as prized items sought by all manncr of rebel groups and terrorist organizations. 'U.S. Weapons at War: Unitcd Stutes Anns Deliveries to Rcgions in Conflict' (World Policy Institute, 1995) shows,that the U.S. was a major amlS supplier in one-third of the 50 cthnic and territorial conflicts currently raging. The study says that some 45 parties involved in lhe conflicts purchased over $42 billion in U.S. arms sales in the previous ten years. WHEREAS, our company runked eleventh among Department of Defense-leading corporations with contracts of almost $1 billion. This unlount includes $142.1 million in foreign military sales. ' WHEREAS. this resolution recei\'ed 2 J % of.the shareholder vote last year. RESOLVED, lhat shareholders request the Bourd of Directors to provide a comprehensive report on GTE's foreign military sales. The report. prepared at reasonablc cost, should be available to all shareholders by December 1999, and lUay omit classified ami pmpriclary infomlation." The following is the statement submilt~d in support of Ihis proposal: "Global security is security of people. The cold-war nO/ion of using arm~ and technology sules to maintain balanccs of power or to support allies has hcen discreditcd by 1990's experience. when :llIiancefo. g()vcmml~nts and boundaries in large parts of lhe world are in nux. We arc disturhcd by the industry"s claims and lohbying efforts asserting Ihur the only way 10 kecp jobs is to promote fordgll military sales. We helieve Such'slatcments arc inconsistent with co-production agreements and transfers of technology to foreign companies. Offsel armngements on major sales oneil give bu'siness to overseas suppliers. Such ~ontracts with foreign companies/governments have harsh repercussions on U.S. workers during Ihis lime of aCCclerJled downsizing of our workforce. Thereforc, il is reasonahle for shareholders 10 ask: I. Criteria llscUIO promocc foreign military stiles. 2. Proeedurcs used 10 negotiate sales, direclly with foreign governmcnts or through the U.S. governmcnt. For example. what dell.mnines which wcapons arc direct commercial arms sales and whUI must he negotiated through the Penlagon'! Whal percentage is commerciul military sales? 3. Cuteguries of military cquipmenl exported for thc past thrce years. with as much statistical inl'ommlion as is permissible; contracts for servicing/maintaining equipmcnt: offsel agreemcnts: and licensing undJor co-production with forcign governmcnts. ' 111-23 '" ," " .-.........- a ,'_, .l; .!.< " E,I, . ,~..+ : .' 'Tc '. ." . ~';rOI'; ',: ./ . ., ' , ' , r :, . ; '.\', ',~ . ~ i J { 1 ; + ',,' " ' ~ ~::" ~.'>~\.I:~l";';:~'~~'~:~~/,>'~' , '. . ........,...; 'w' ~,',.~~ c'~I'~ ) ." ..., "', " r~'.' '" 4. Analysis of legislation establishing a code for U.S. arms transfers (e.g., no sales to governmcnt.. that viol ute humnn rights of their own citizens, engage in aggression against neighbors, come to power through undcmoc;rntie mcans or ignore international arms-control ugreements)." -- , The GTE Board of Directors recommends n ,'ote AGAINST the foregoing proposal for the following ,reasons:, ' GTE is a telecommunications company that offers a wide variety of products llnd services including local and long distance telephone service. wireless communicutions scrvice and telecommunications systems and design services. GTE doe.'> not mimufncture or sell wcnpons to uny government in thc United Slutes or ahroad. nle sales of telecommunication product'i and service to the U.S. Government is currently ~nly u vcry small part of GTE's business. The '..ast mlljon'ty of GTE's sulcs to the U.S. Govcrnment ure through ils Governmenl Systems Corporation suhsidiary: On January 25, 1999. GTE announced its pluns to ,~eJJ this subsidiarya'i purl of an effort to further sharpen GTE's overall stnltegic focus. ,As of December 31, 1998; GTE's totalassets were approximately $44 billion, its total revenues and sales' were more than $25 billion and ils net income wus approximately $2,2 billion. For the 1998 calendar year, GTE's sales of products ami services that GTE believes could possibly be characterized as foreign military, sales within the scope of this proposal amounted to considerably Icss than one.ltulf of one percent of each of ; GTE's fotnl asset,> nod total revenues and sales, and approximately 5% of it!. net income. Again, none of those salcs involved wcupons. ' GTE acts as a socially responsiblc and ethical corporatc citizen not only in its military contracting but in all its business activities. GTE has in place <1 comprehcm;ive ethics program which requires cumpli,lIlcc with nil. npplic3ble laws. These laws include stringcnt fedcral regulations governing contrncts with foreign governmenlal and military entities, as well us laws of any foreign country wilh which it docs or proposes to do business, GTE also conducts ongoing training programs to cnsure that its cmployees understand and are uware of the ",' ,'- requirements under this program. GTE believcs lhatlhe defense needs and foreign policy of the United SCates are properly the responsibility of our govcrnmellt und our duly electcd public oflicials, As a responsible corporate citizen, howcvcr. GTE is proud to hc able to suppl)' communications and cle'::lronic systems which help to protect the Unitcd Slates, its militury forces and our allies and expects to continuc to support thc U.S, Govcrnment und to offer its products and services in defense of the Unitcd Slutes. the American pcople and their intl:resls. For the reasons dIed above. GTE does not hcliev,~ chaclhe kind of reponing proposed i.o; wnrmntcd. or lhat it would provide significant, rclcvant information to shareholders in any case. Accordingly. the GTE Board of Directors recllnullcnds you vote aguinst this proposal. ITEM 5 - SHAREHOLDER PROPOSAL ON EXI':CUTIVE nONUSI':S GTE has been noti/icd by Fred Wilson and Mazie M. Wilsnn. 3011 Miles Drive. Edmond, Oklahoma 73034-4112, represenling 200 shares or GTE common stock, thulthcy intend Cu propose the followillg resolucion at the GTE annual meeting. The proposed resolution und supporting statcmelll, for which the Board of Directors and GTE accept no responsibility, are as follows: "RESOLVED: That all bonuses be voted on by the ~hareholdcrs and limited to 10% of the annuli I saluries of the exccutive onker's compensation. The cxecutive nfliccrs are idelltillcd as those tilling the pllsicillns as follows: 1) Chairmun and Chief E.\CClIlIVC Oflleer; 2) Presidcnt: 3) Vice Chuinllan and President;,4) Senior E.~ccllti"c Vice President-Markcl Opcrations, GTE Service Corpuralion;' and 5) Execulive Vice Presitlcnt- GO\'cmment and Regulatury Advocuc)' und General Counsel." 111-24 J ''t1~fi~'1j ,)y ;(::.~ ~\{:? "':,' 1', ',,~~ ~;":,,:': " -> , '! .' ,. ',~~' "', ..... , , t ;' ~ ., .' , . , '.. .' ~ '. , ' >- '!' .' . ,', :~;:.;c:;,: :1:' '....., , '" " ' . '.' ,.' T.1. " , ..:c,' i ., . " ;~~:!~;,::{):?::".:' ,,</, ~" ',I' , , , , \'[(:tj<., "';",.,i,":, ~:,'~,~..,"',..",/',I'::,:,': ' .: J '\' ~* ':,. ., .: " ' ~ ;> ?, ' ~ > ~'. ~.': " " : .. ., c'.' ~" .. ~" .' '~ ." .: ' ,', 11 j,;t"1 1:. , , .~" ,\:'" ,:,::'.-: ': :...,' ,'~,:'~ ~;, '.-' ,', :. i' ,f , ' . " ,; . ,; , :< , " ,~ t', '.. ~ ,;.~.,' .. . " ~ ! . \'. .~, " ~'':. ." \.' 'J. , " , ~ i . r! '.. "', " '. I ... .' . ~ . ~ , ! . " . .( . ~ ,: ,:',' -,",,' (,'i}.:"'..::::::':.:},;:".,,;<.'\':;:'::;/~l:;~':.',~ '.,..,;;;:',. ," j~t:~,4!.y'~.".~~.l:l!~r~~t:{~Ir~:t';f~~I~L' .'j; '.'~" . 1,/' .,' , ' J.., 1/.:-~'\.., : ""\\.'. \\Jl . ;.I!f~~_..-M.-."'.~~' ........~ ..J.->8".U'l'-t","'''l::,'r'''F~''''\'}~'''~ , " ' " I. , " . I' """.."> '" " d" .~.. ,'~ '. , ' C! . " The following is the stUlcment submillcd in support of this resolution: " Hlt is my opinion th~u the executive officers arc grossly, overpaid. 1 beli~vc that any man can live very comfortably on a lot less than what thc executive officers are currently being paid. I am currently , retired and on a. fixed income with little or no incentive income prospects. These executives are not unique;'ns they all have great staffs and/or assistants at their disposal to udvisc them in all their decision lllaking. It is therefore my 'opinion that the execlItives an~ t10tjustified in receiving the unusually large bonuses which arc apparcnlJy , spontaneously awarded by the Board' of Directors. It seems that the fine salaries should be sufficient justification and incentive for d~ing a good job." ',: \ '-J 111-25 <:', , ' , The GTE Board of Directors recommends a vote AGAINST the foregoing proposal for the following reasons: :r: :,~ The Executive Compensation nnd Orgnnizational Stnlcturc Committee of the GTE Board of Directors has 'adopted 'a compensation philosophy thut relates thc level of executive compensation to GTE's 'success in meeting annual ?lid long-term goals, rewards individual achievement and is competitive with other major companies in the telecommunications field. as well as other industries. In determining the compensation of , GTE's five most highly compensuted executive officers, the Committee reviews and relies heavily on competitive data on executive compensation and then carefully' assesses both GTE's overall perfommnce and the individual achievement of each executive. The objectives of (his compensation philosophy arc accomplished through an llppropriatc mix of base salary, annual bonus und long-term compensation. The resulting mix phices npproximately 80%' of these officers' target compensation at risk. loe at-risk p0l1ion fluctuates based on GTE's performance Dnd can significantly affect cash compensation. I ';,C:< I ~ " ' ! ' ',' €'~-o}.li.~ " ~.f:ti GTE lInd the committee bclievelhalthis philosophy and mix of compensation enable GTE to appropriately reward superior performance and facilitate GTE's ability to attract und retain the most quaJi1ied individuals to lead ils business undertakings. Reducing executive compensation and not maintaining competitiv,e pay practices may resulr in a short-term savings for GTE. However, over the long-tenn. GTE would experiencc an erosion of management talent as other companies continue to pay competitively and attmcl our highest caliber executives. GTE recognizes that in a rapidly changing industry like telecommunications. this c~umol be pennillcd 10 happen. i-., OTHER MATTERS The GTE Board of Directors docs not intend to bring any matters before the GTE annual meeting other than those listed in the nodce of the anilllal meeting and docs not know of any other mUliers tll be brought before thc GTE annual meeting by others. If any other matters properly come before the GTE annual meeting, the persons named in the accompanying proxy card will vote :my proxies GTE receives as recommended by the GTE Board of Directors. 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II'~ ~ ;' ~ -: t (l./ ; j'l . .,/: , " ~I , ". r . t!, , - ~ ,. , . ~, " , ~ d :' I' : ~ ,r , " ~ ~ J " .} ,.. ~ t, l' . ... . { , ".l, \,' , ' , " : " " ,I 'r,' i, > ,I c' ~ " ,I ' , ,',.j :' " I I" :. ; ~ , " , ' , :', ! ; . ,'. ,', '. . 'L ~ ' :. :'1' I . ,_ r /1. >;\ ~,~' ~ '~ ~~,; ~':~>~~:: :;< ,~::.',~:.; ~ '~:~', ~::~:d\!~~~~'~':' .: . 1 ' I ' , I I f' (;) ! , .....'.,.... i j .~ ""l:~\~ '. y \ , , " , .-;. ,'..~ ~p,,~..,~........b'. .. '. '., ~ I ." ..~ ,>.' ~ l;...~ . ~ ..-~ ' , CHAPTER IV-OTHER BELL ATLANTIC ANNUAL MEETING PROPOSALS ITEM I-ELECTION OF BELL ATLANTIC DIRECfORS Corp~ratc Governance In accordance with the Delaware General Corporation Lnw and the Bell Atlantic certificate of ' incorpomtion and bylaws, Bell Atlantic's business, property and affairs are managed under the direction of the Bell Atlantic Board of Directors. Although directors arc not involved in Bell Atlantic's day~topday operations. they are regularly kept infOlmcd of Bell Atlantic's business through written reports and document.., as well as , operating, financialand other reports presented by the Chairman and othcr officers of Bcll Atlantic at meetings of the Bell Atlantic Board of Direclors and its committees. Meetings of the Board The Bell Atlantic Board of Directors held 16 meetings in 1998. Each of the incumbcnt directors attended at least 75% 'of the Bell Atlantic Board of Directors and committee meetings 10 which the director was assigned, wilh the exception of Mr. Pfeiffer, who attended 68%. The incumbent directors in the aggregate attended 94% of the Bell Atlantic Board of Directors meetings, including the meetings of the various comrniUees on which those directors sit. '; , Committees of tlte Board EITective January 1, 1999, the Bell Atlantic Board of Directors restructured its committees, The fornler Governance and Board AITairs Committee was merged with the Public Responsibility Committee and rcnumcd the Policy aiuJ Organizntion Committce. TIle Finance Committee was dissolved and its responsibilities were assumed by the full Bell Atlantic Bo~rd of Directors. The following is n dcscription of the four stnnding commiuees of the Bell Atlantic Board of Directors: Executive Committee The Executive Committee may exercise the full power and authority of the Bell Atlantic Board of Directors to the extent permiUed by Dclaware luw. This committee generally meets if action is necessary between scheduled board mectings when time is limitcd and a quorum of the full Bell Atlantic Board of Directors is not readily available. This committee held no meelings in 1998, Audil Committee The Audit Committee monitors the auditing, accounting and financial reporting of Bell Allantic and oversees Bell Atlantic's Sccurity Organization and Office of Ethics and Corporale Compliance. Thc commiUee makes recommendations to the Bell Atlantic Board of Directors concerning the accounting firnl If.) be employed as independent accountants and consults wilh these accountants rcgarding Ihe adequacy of inlernal controls and, the scopc and results of their audits. In addition, thc committee reviews Bell Atlantic's proccsses for monitoring its minority investments, j\)illt venlures and financial risk. Thc Audit Committee mel five timcs in 1998. Hllmall Resollrces Committee The Human Resources Committee is responsiblc for oversccing lhe management of the human rcsource activities of Bell Atlantic, including employee benefit plnns und divcrsity progrnms. The committee reviews and approves senior manngemcnt development and SlJccession plans, oversees senior management performnnce and the sl.lnior managemcnt salary, inccnlive and stock award plans. Thc Human Resources Committee mel six times \n 1998. Policy and Organization Committe!! Thc Policy and Organizuti~n Committee is rcsponsible for revicwing und rccommending thc org~\nization, Slructure, size and composition of the Bell Atlantic Board of Directors and its committees, as well us the IV.I ~.,::/(:;," "'f' ," , ~:\.:.P:: : -"~ ~. . ' , "1 I' ; , .,.r: . .~ .' ,,'" 'l, , '. ,l", ' """:' " .., " ij" ' ...~' . ,,' 1,' 'i ':1 , .. , I' ", , , , ,1' ' .. ,i, ," co,,' " ' ~~' c'. ',1 " " , .'" , ,,> , , Ie. ; , .' ~ I. .,', '.' , , . .', :.. .: 1IJ, L , ,',t :,' " J' I .' ~, " . " , . ,'~, " ~I'c< , ; '>, :J" '" " .' ," , " , ,.' " d .'C'.'I '..... .' \ ' ;, ",:,'" .: ~'\ c , t'V,f::~'}:,i~;, :i'I"~ ~ il.'~~tr\~~;~~'~'~~::4.~'~' ,:,1 , . , ,.....I!... ,,~ '",:",:.:,' (,.f; -/.,.,. '.1 ,'." compensation, benefits and stock, ownership requirements for non-employee directors. The committee reviews the qualifications of candidates for board membership, considers nominees recommended by shareholders and, , management and recommends director no'minations. In addition, the Policy and Organization Committee provides oversight and guidance to the Bell Atlantic Board of Directors on public and social policy issues and. trends and reviews Bell Atlantic's charitable policies and practices. The predecessor committees me~ llll , aggregate of five times in 1998. ' pire~t~r CdmjJen.'iation' Non.employee director compensation is divided into cash und stock component';. The cash component consists of an' annual retainer of $30,000 and a fee of S 1 ,500 for each Bell Atlantic Board of Directors or committee meeting attended. CommiHee chairpersons each receive an additional annual retainer of $5,000. ' 'Directors may defer the receipt of all or part of these retainers and fees into cash or share equivalents. TIle stock comPonent of non-employee director compensation provides for an annual option grant to purchase 2,000 ' shares of Bell Atlantic common stock and the choice of an additional option grant to purchase 3,000 shares or a grant of shares equivalent in y~lue to the 3,000 oplions: The Bell Atlantic Retirement Plan for Outside Directors provides rClirement benefits for some non- employee directors. The normal benefit is an annulIlllmount equal to ten percent of the annual Bell Atlanlic Board of Directors relainer payable to a participating director at the dale of retirement, mulliplied by the , , director's aggregate years of service as a non-employee director up tu 3 maximum of ten years. A participating director is eligible to recei\;e a fCtirement benefit at the later of age 65 or the date of retircment. Bencfits beginning before age 65, or deferred to agc 70, are actuarially adjusted. In November 1995, the Bell Atlantic Board of Directors vo'tcd to discontinue this u:lircment plan, effcctive for non-employce directors initially eleetcd'to the Bell Atlantic Board of Directors 'after January I, 1996. In January 1996, each non-employee director who was a participant in the retirement plan was givcn a one-time election to forfeit all henefits accrued under the retirement plan in exchangc f~r: additional stock options. Outside directors are provided business-related travcl accident insurance covcmge and may elect life insurance coverage. The total premiums paid by the company for this insurance coverage for all panicipating non-employee directors in 1998 were $3.042. ... ',. iF" Bell Atlantic direclOrs clectcd before t 992 partidputc in a charitablc giving program for which Bell Atluntic is obligated to contribute, UpOIl the director's death, nn aggregate of one-half million dollars to one or more qualifying charitable or educlltionul organizations designuted by each eligible director. Directors who fonnerly served as directors of NYNEX Corporation participate in a similar program for which the aggregatc contribution is one million dollars, payable on the direclOr's retirement or death. Both of these ehuritable programs arc closed to future participants. Employee dircctors receive 110 compensation for their Bell Atlantic Board of Directors service. Other Mailers The Bell Atlantic bylaws establish 70 ycars as the mandator)' rctirement ugc. A director who reaches retirl'ment nge must fCtire at or prior to the nex.t annual meeting, The luw lirm of Skaddcn, Arps, Slate, Meagher & Flom LLP is providing ongoing legal services to Bell Atlantic in connection with vurious matters. Helene L. Kaplan, u director of Bell Atlantic, is of counscl to that finn, Election 01" Bell Atluntlc Llirectors The twenty onc nominecs named on the following pages have been recommended to the Bell Atlantic Bonn.! of Directors by thc Policy and Organization CommiUee and nominated by the Bell Atlantic Board of IV-2 , " I ....:;,~t:!... ......,----....---- ','7~,;~~:~,?,;:;~ '?";/~W}~'" :':.)'y~.'~~" fT~T~,:'~:i-:'~'Y "";:~'~",~',-~7::;~, <~. I .' > :'1t'. " ,I,f,'. . : ' " ,f I" . ' " :' . I, . , . .( . I',:: ,c >' c 1 :,:',',cI,::;'!','/::', .....,:',0;,,/.' , ," "', , I " ' , , ". ~ ',; , . ~ " ,I I '. j , I ',.:...."- ',+ " . l ~f~',:t. ',~',,~,~',',,:;",...',~ ',~' . >,'>;',.:" ':":. . ,':",'" _ ~~.,":.I ~',!~ .>_ . ' :',.,T "," "'~~ ,',' 1 ", ", :", . " I . , '.' .,' " , ",', . ~"'.. , I.',,"> !. C L ., '"1.,(.: I, . . . ,. ' {~ ;,:' l. '., . ~, .. . " . , " ' ,~ , .., ' ii' 1: :' . ' "L ;, . . I ' ! I .. .~, 'L'," ., . f .f ( ,~' , '~-, ., ",", '~~,;,::,.~,,:;.,: ,~, "\~:;';"d:, ::i,~ f::":,;::;'~r',s~,~~,':,~:t~~;C~>,.-,:.~rr-1,~~"~~':':' ,~.~, ,:' ~" :.,':::..,~:L,:"c,~ ('";"~:":"i:, " ' , I "', +':::;\\;'<...\.Y' , , , ' ~~I~ '~'l c1 _.....,<,:!eI I."i'tf'..... :": 'hi' ,', r. , , Ie I'.. i" ('. " l~"".' r. 't ..",,;/ , ! .........,,~ ,. ' , " " , . ~", ,', , ',' ;,' I" . ; . , < i ~ . ' ,~ , ':,.:, :. . '.. '",: .' " , , , ~I .': ~ ~,' - . ',' < Directors to serve as dircctOTli until the, nex.t' Bell Atlantic annual meeting or until their SUCCC!;flOrS huve heen ,el~cted arid qunlified. The'Proxy Committee intends to vote for these' nominees unless Olh~T\visc Instnlclcd. ' Shareholders who do not wish their shares to be voi.ed for'u particulnr nominee may so lmllclIte in the "puce provided on the prnxy carel. Elich 'nominee ~as consented to stand for election and the Bell Atlnnllc Dourd of, , Direclors does not anticipate' that :my nominee will be unavailable to serve. In the event that one or more of the ,nominees should become unavailable to serve at the time of the Bell Atlantic annuul mecling, the shares ' represented by proxy will be voted for the remaining nominces and any substitute lIominee(s) desigOlilcd by the Bell Atlantic Board of Directors.. If no substitute nomince(s) arc designated, the size of thc Bell 'Atlantic Bonrd , of Directors \'IiJI be reduced. Di,rector elections arc determined by :i plurality of the voles CIJst. , TIle ronowing biogrnphies provide a brief ~e~cription of each nominee's principal occupation and businclls, experienc~, age and ,directorships held in other' p,ublic corporations (all as 9f April 9, 1999). c ' . ~ " . ' 'The Ben AtJanth: Board of Directors recommends Q vote FOR each of the listed nominees. LA WRENCE T. BABBlOJ JR. President and Chief Operating Officer, Bell Atlantic Corpormion, since, December 1998: President and Chief Executive Officer-Network Group uno Chainnan-Global Wireless Group (1997-1998); Vice Chairman (1995- 1997)~ Executive Vice President and Chief Operating Officer (1994-1995); , ' Chaimmn. Chief Executive Officer and President, Bel1 Atllll1tic Entcrprises [ntemational, Inc. (1991- I994). Director of Compaq Computer Corporlllion: Grupe lusaccU, S.A. Je C.V. Director of Bell Allantic since 1995. Agc 54. Chainnun. President and Chief Executive Onker. Popular, Inc. '(bank holding company), since 1990; Chain'nan, President and Chief Executive Officer, Bunco Popular de Puerto Rico. since 1993. Dircctor of the Federal . Reserve Bank of New York. Direclor of Bell Athmtic since 1997 (Direclor of NYNEX Corporation 1995~ 1997): member of Human Resources' Committee, Age 46. ' JAMES G. CUI.LEN Prcsidel\l and Chief Operaling anker, Flcll Atlantic Corporation, since December 1998; President and Chi~r Executive Oflicer- Telecom Group (1997-1998); Vice Chainnan (1995-1997): President ( I 993-1995). Director of Johnson & Johnson; Prmlcutial Life Insurance Company. Director of Hell Atlantic since 1995. Age 56. IV~3 i~~t~;{;~"';'f,",:' ,\ ,", ,,', ", ';(;!;i><,"" " :,~..\~,:,:'.~'r ' ' L . !~ ... .'"'' ~, .i ;~. :{\:'> ' '. ,1' . : , I ';' ~ ,,' , ' : ,';, ',' I. ~,. " , .'.: .1, '" :.; :\r,l~ ':, " . '.:, ~ " <.1 , 0 . " ~ J' ~, ~ ,...-L. ":' , ".: '1 : I'~ : , " ' ,I, , , ',( ,.\ ~ I ,.'. c . ~. l';f,. "t '~ ~' ':~'~~"~~":;~~~>.. ~ c ~ ",', './ ~ "'," ,', I"'~""'"' :' ;"""" .,. :';' ,"~,; I ',.. :'~,,'~..:~'::,:~':~ '><:" ~' c1 '\. "::, . .., t', ' ':' ".., ~ !. ' , , , '1", :;....' r. , ' '. :l,> I ' .!.... " 'I:," :," , ',' " i;;. F : ~ , ~" , . I . , ' ,'" t " ~:' " " : !' ' , " ','. . > :<,' , .' ,."':, .~~' I>'~.,"l\'::.' . I' " ." c .H ,'.T c:. ,~~:.: ~~-..::"':"_.....~.....: .i,".....,.'.. " , , ;1 , :.~ '~", I, Lo'i>~WiJK J,R. DE' VlNK ", 'I": " " ' \'~ I ~" :c t'. " ~~1,:,.: 'f", i; ~">, ':~'/'I c .J., ; ,JAMES H,'GILLlAM, JR~ ~~ '.' . , f.' 1-',' , .\ , ~ \ \ , ! ' c', HELENE L. KAPLAN '! .c. . .~ ~ ; :' " , " '. l . I.,: .J...'+':. ,,' 'I' > I: . .''1 ,,-', 0' '1'~ T. ",': ~ <, President and Chief Operating Officer, Wilmer-Lumbert Comp~ny ',(phannaceuticals), liince 1991 (elected Chainnun and Chie.! Exccutive Officer, effective MIlY I, 1999). Director of Warner-Lambcrt Company; ,member.Supcrvisory ,Board of Royal Ahold. Director of Bell Atlantic since 1997 (Director of NYNEX Corporation 1995-1997);: member of Policy and Orgtlni7~ntion Committee. Age 54. , ( (:--., , I"' Attorney and Consultant. Executive Vice President and General Counsel; , Benelicial Corporation (financial services, (1994-1998). Director or' " Household International" Inc. Trustee of Howard Hughes Medical Institute. , Director of Bell Atlantic since 1989'; member of Audit Committee: Age 53. Chairman of the Board, CVS Corporation (drugstore chain), since 1987; Chief Executive Omt~er (I987~1998). Director of Footstar, Inc.: Linens 'N Things. Inc. Director of Bell Atlantic since 1997 (Director of NYNEX " Corpomtion 1990-1997); member of Audit Committee. Age'64. " ' ~...... """' ,or COllnsel to the law fino of Skadden, Arps, Slate, Meagher & Floro LLP, since 1990. Director of The Chase MllnhaUlln Corporation; TIle May Dcpunmcnt Stores Company; Metropolitan Life Insunince Company; Mobil Corporation. Director of Bell Atlantic ~incc 1997 (Director of NYNEX Corporation 1990.1997): Chair of Policy ant.! Organization Commillce und member of Executive Cornmiltcc. Age' 65. IV-4 \-'!'.i:t~..,.,"" ~,t,r~:,~:''.''~':.:':'::(:'~?:i:,''.':~;T:}-';''~,':-', ~-,:', "/\\,.:,,~:, t, " , ; '" ~ , . ," ,t',' . , ~ ' ~. ,. .,.~,' 'v<' " . ~~~l;~"i\', ::',." ....,.",:,:" :< " .. . '," .,' ". : ;;:,t';:;:,),::,;-:y,:, " ':' \ ,: " ,'. ;~ I, " .". ~ 'T' .' 'J ' . ,~r~ ,. ;:,:, ,','::: :,:' ':\':;''-: :.<:~~; ~,;, ~: ,~,: /l:\))'~:~':;'; /~:,:'~ ~~'r' ;'~,,' ~ ~;: '~:',:':; _,,"~...~t~.f'!""\1tI.V'~' 'lr.~'; ~:,"Y, ; }\",,~,r,~~:~ll~~)~--:1.'l("..L!'" .:.:~:!"" . [''', " ' . ",' '" ~" '. . , ' , ~ ,~~... &:' .,. ,t~....._ c . _ ,,___~....t ~""J"'~"'~l,./'f,',Ir" ~ .....",,} I~~.. ~ 'f ; j ,,~ . ' i ~~; , ~', 1<' " .' }~\; F'" ~;', '/''''' ' {~ ~~ ~~~~1 ' ~ ';01>.1 " ): ,. , , , .;,' " " (', " , , ' " , ',l' . !. ~ , I , ,...).....~ r ' '.. ' (,;; , , ;, ..i'" . ~. '.' , . ~ ".,'. ' , .f' , , ' , ~ .: THOMAS 11. ~{EAN, JOHN F. MAYPOLE, JOSEPH NEUBAUER '.,l' , , ~ I .,1,. .':. , ' , 'J "'" I, , ( , ,,' ,/ I. , {:' ,oO'" , " ,', " .. , ,! " .. ,,! ,',','" ..Il'f,' " ',', , I ". J 'I ,', ,lJ'; :: '. :' .p L, \' " , , ,; t, , ,; Presidcnt; Drew University; since 1990. Governor. State of New Jersey' , ,(t982~1990)::Dircctor of Amcruda Hess Corporation; ARAMARK ,,' Corpomtioll; fiduciary Trost Company Intcrnational;' United Hculthcnre', Corporation. Chairman Qf Carnegic Corporation. Director of ~e~J '~Haridc since 1990; membcr of Human Resources Committee: Age 6~.' ,',.' . ' ~ + , ' , President Emeritus, Mount Holyoke Collegc. since 1995; President (1978-,' , 1995). Dire~tor of K<lntucky Home MUlunl LIfe InsumnccCompany; , " KCl)tucky, Home Capital Company; Northeast Utilities: Pulnam Funds; Inc.; , ' The Tulhots, Inc. Director of Bell Atluntic since 1997 (Director of NYNEX Corporation /984-,1997); member of Human Resources Committee. Age 61. Managing Partner, Peach Slate Real Eslalc Holding Compnny: Curporulc, Direclor tlad Consuhmlt, since 1984. Directorof Church & Dwighl Co., Inc.; Dnn River, Inc.; Massnchusctts Mutual Life Insurance Company. Director of Bell Atlantic since 1983; Chair of Audit Committee and member of ~xeeutive Ccimmittec~ Age 59. Clmirmlln nnli Chief Executive Officer. ARAMARK Corporation (managed services), since 1984; President (1983-1997). Director of CIGNA Corponltjon; Fcderatcd Department Stores; First Union Corpomtion. Director of BellAtlunlic since 1995; member of Audit Committee. Age 57. IV-5 ',' .~~--- , ~~~: ,\, r c:."~ .~.r", .,. , , ':'r,..l " "~I .. :'/ I I " " , ' ! \ ,I , , " :;':','i,,:: :",' /::'" :, "~('~:;J.:", "<,'~, , . . . " . , :<f:.~,;.... " ' ,~ : '5t }' ;;~" ,: . ,1'.1......,.. :; "~',~~\: ;;~ ~.' ",1, . p,.J; ," '... ~ ,/ ~> : ., " , .: ~ ; .~~! . .' , ,'" , . ~,'. " .' , .." > \: ,~ ~' , . 1.1' ,t + .,.:.' " h . '::. c ~',.>t~:;l;;-:.; : ":'l' ;"; ~ \'(';~t;;;i~~~i-i\L,:',:"..': :J, " . M': . ~.' ., ,." .., ... "j ,,'{, ..:',< 'I', { \ ' , , , . ' , " 'i' [':, :, 'i ,':" ", ,.' ~ II -", " ','<.' .1.l'..'..,. . ':' .'." ..,', .' " 'I I ,. . ',' ',> ".: I I ',",' '.' c,', ECRHARD PFEIFFER HUGH B. PRICE \~~?~~.., .'''~(~~~,~ ; ::: t.;;!~ t: \ '+\~':t } 1"" ,'~ J' ~ ;i:> ~?,: f~.I:~.' , ~r;;I' 1 t ~~ c ROZANNE L. RIDGWAY .FREDERIC V. SALEUNO I' " . ,. ~ " I " , , " , \ ~ ~ , " I' ~ , f ~ "1-' , . ~ . ' " Chainnan and Chief Executive Ofliccr, PNC Bunk Corp'j since 1988;, President (1988-1991). Director of Hilb, Rogal and Hamilton Company. , , Direelor of Bell Atlantic since 1987; Chair of Human Resources Committce and mcmber of Ex.ecutive Committee. Age fl2. , , President and Chief Executive Officer, Compaq Computer Co..pomlion, since j 991. Director of Compaq Computer Corporation; Deutsche Bank Advisory Board; General Mutors Corporalion; Hughes Electronics " Corporation. Director of Bell Atlantic since 1996: member of Policy and Organill'ition Committee~ Age 57. . ~ Presidcnt and Chief Executive Officcr, National Urban League, since 1994. Vke Prcsidcnl of Rockefeller Foundation (1988-1994). Director of Metropolitan Life Insurance Company; Scars. Roebuck and Co. Director of Dell Atlantic sincc 1997 {Director of NYNEX 1995- J 997); member of Policy amI Orgnnitation Committce. Age 57. Former Assistant Secretary of State for Europe and Canada (1985-1989). Co-Chair. The Atlantic Council of Thc United Stales (private foreign policy instilutc) (t 993- I 996). Director of The Boeing Company: Emerson Electric Company; Minnesow Mining and Manufacturing Company; IUR Nabisco Holdings Corp.; Sara Lee Corporation: Union C~lrbjde Corporation. Director of Bell Atlanlic since 1990; mcmbcr of Audit Committee. Age 63. Senior Executive Vice Prcsidcnl and Chief Financial OmccrJSlnllegy and Busincss Development. Bell Allantic Corporalion, since 1997; NYNEX Corpormion Vice ChairmHn-Hnance and Busine!os Dewlopmcnl (1994- 1997) and President-Worldwide Services Group. Inc. (1991-1994). ' Director of Avncl Inc.; The Bear Stcams Companies, Inc.; The Hanford Financial Services Group, lnc; Ke)'span Energy Corp.; Viacolll, Inc. Director oj' Bell Allanlh: sincc 1997 (Director of NYNEX 1991-1997), Age :is. IV-6 ,~ '.y\,~....'#'" t:<t. i:,,;:,:' ~,::<~-:" ' ~<: : ',' ~ (';"1 I ," i~.~~~:';:' {', I': " , 'of.,p{.", .~~~'~. , ~ ..... " ,". ",L /' '~. ./ , J . ~ . ': , l t' ~, . '.' ,I .' ,~ , :,,~l " " .., , , , " "", " ; , , . \ . " '" 't "J c 1 ~ c, \:, ";,' "', ,. ':' ',,;. , ,l.'" /, ,I., " <oj ", < , ;", I", I .c. ' ~ . . , ,i " '., '~ ' I ~' ' , , , , , " " I. :,:", , "~ '. ' W "".',-:.'" :"j ':::'~";,':';'~~"(if'3i"'~;~',~:,,~~:,..,::.~';, ", \' I' I," \ J ;,,~... ~ 'T },.....I<,J ~ Y 'j,.. I' . _,c " t /:'".\\ " 'c<.?1 \,,';; IV A~ G. SEIDENBERG e'~"~ f\'v ~f. "~' ~'r '\':) , ,n'( .;~,. ~,\::.I J (J,i, 'J~~ t/ JOHN R. STAFFORD (" ''';i' """'- '';.( )""0 ' 'I;:,~/;N' , , "~,,<11 {J t'" . J., ~~~:. ':' ' 1.;.): ~'" i~r~ f.., , ,t~~~), ~:J MORRISON DES. WEBB SHIRLEY YOUNG -----..- , ' , " ~ , , t , i ", , ',Ii .\ . , .. " '0:' iIoo. ,".; ~ , ~ II, ".ET~' \ ';.'." , ., ~< " ,'''' , ." .' ~ " , Chairman of the Board. Bell Atlantic Corpomtion, since December 31. 1998 , and Chief Executive Officer, since June 1. 1998; Vice Chllinnnn. Presidenl ' und' Chief Oper:lling Officer 0 ~97~ 1998)~ NYNEX CorpoTlltion Chainnnn and Chicf Executive Orckcr(J9959J997). President llnd Chief Executive - Officer (January-March, 1995). Chief Operating Officer (Mnrch9December, 1994) and Vice CIUlinnan (1991-1995). Director of AfliedSignnl Inc.; American Home Product'i Corporalion; Boston Properties. Inc.; CVS Corpomtion: Vineom, Inc. Director of Bell Atlantic since 1997 (Director of NYNEX Corpomtion 1991~1997); member of Executive Commin~e. Age 52. Chainnan and Chief E~ecutive Officer. The Chase Manhattan Corporation. 1983~ J 992 and J 994 10 Ihe prcscni. Director of Champion lntcrnational Corporation; Exxon Corporation. Director or Bell Atlantic since 1997 (Director of NYNEX Corpof'lltion 1983-1997); ,member of Human, Resources Comminee. Age 63. i, ,I Choirmun, Presidcnt and Chief Exccutive Officer, American Home ProduclS Corporation (hcahhcarc and agriculture products), since 1986 (did not hold the titlc uf Pr~sidcnt tor the period 1990-1993). Director of AllicdSigmll Inc.; The Chasc Manhattan Corporution; Deerc & Company. Director of Bell Atlantic since, 1997. Director of Bell Atlantic since 1997 (Director of, NYNEX Corporation 1989-1997); Chair of Executivc Committee. Age 61. Executive Vice Presidenl-External Affairs and Corporate ComlUunicmions, Bell Atlantic Corporalion, since 1997; NYNEX Corporalion Executive Vice President. General Counsel and Secrctary (1995-1997). Vicc Prc,sident~- Law (1994~ 1995) and Vice Prcsidclll-Gcncral Counsel-New England Telephone and telegraph Company (1991-1994). Director of !leU At1anlic since 1997. Age 51. Vice President. Chinn Strategic Development. Gencral Motors Corponllion, since 1996; Vice President. Consumcr Market Devclopmenl (1988-1996). Director of BaukAmerica Corporation. Director of Bell Alluntic since 19R6~ mcmber of Executiye Committee and Policy tmd Organizalinn Committee. Age 63. IV-7 ,'!>," c' ';'!'~'~ . _ __T~_T~~~_~~__ , , .,' '1, ,',' ". .;. ;i l .' Ii , ": f, +' " :""t'J '" " ; ~,. :.: .' , '" ., " . r I r ': ~ ~ ~ , ',' 'c " " " : ~ '1- ' ,~I=..Io:~ ~',>~; " .: ',< , '~:\'~'~;"(;t~~'~~ ..;,~'..' .' Report of the Bell Atlnntlc Human Resources Committee on Executive Compensation , ,This report is made by the Human Resources Committee of the Bell Atlantic Board of Directors; which,is the committee charged with establishing and administering the policies and plans which govern 'compensatio'n for the executive officers listed in the compensation tables in this joint proxy. statement und prospectus. For these named cxecutiv~ officers who arc also members ,of the Bell Atlantic Board of Directors. the committee makes compensation recommendations that arc subject to approval by the non-employee members of the. board. " ;,' Philosophy, Compensalion for the named executive officers of Bell Atlantic is set at levels thal arc imended to be sufficientlY,compctitive with similarly-sized companies operating in similar markets to pennit Bell Atlantic to . attract and retain the best possible individun1s. When considering Bell Atlantic's compcnsation program, the , commiUee maintains a "total compensation" perlipective that tnkes into account vllrious (:omponents, including ,:ash and equity-based compensation, deferred compensation and retirement programs. health and welfare benefits, and perquisites. The committee periodically engages independent consultants to review total compensation and co'mponent pay levels at comparable companies. Belt Atlantic's compcnsation program is designed to be consistent with median pay le,vels or the four "peer group" companies identified in the Stock Perfonnance Graph in this Chapter IV, as well as other companies considered by independent consultanls to be appropriate for comparison after adjusting the compensation paid at the smallest of these compani~.' to take into account the.ir smaller size, The compensation of each of the named exccutive officers is ba~..d upon both individual and company performnnce, nnd the prognun emphasizes n pay~ror-perfonnancc philosoph)'. The compcnsation plans have been structured to provide incentives for executive officer perfonnance that will result in continuing improvements in Bell Atlantic's financial results, customer satisfaction, and stock price over both the short term and the long tern1. The plans have also been designed to emphasize the creation of shm'cholder value, by providing for paymcnt of a significant portion of incentivc compensation in the form of stock options. Thus, the value gcnemted for Bell Atlantic's sharcholders is a key factor in determining the value ultimatcly realized by the named executive officers under the compemi<ltion plans. '~ ~'.' ' Compensation Structure The compensation slOlcturc for the named executive officers has three principal components: · salary, · a short term perfornmnce-based incentive paid in cash, and · u long term incentive in the form of stock options. Two of the three pIincipal components of the compensation program arc perfonnance-based and at risk, meaning that the ultimate value of the total compensation depends on factors such as company Iinanciul perfomlance, customer satisfaction, individual p~rformance, and stock price, The long term incentive component, in the form of stock options, is entirely tied to the performance of Bell Atlantic common stock. The short tenn incenlive component, which consists of a cash bonus pail! under Bell Atlantic's Short Tcnn Incentive Plan, is performance-based and tied to the achievement of bu~iness. financial and customer satisfaction objectives. as well as individual performance. The salary component, once established, is not subject to contingency and is paid in cash. The committee regularly reviews each of these I:omponents of exccuth'e compensation. The committee's Jecisions affecting compensation of the named executive ofticer<; for 1998 were based on nn extensive market study which had been conducted by the committee's independent consultants in 1995 and IV-S ~ \~,~,~..:/ ;\!?'i'~::Y/": ,:, ," ',' , ~'.', ',',:.':"::.'.,< , . ~ " II " \1 " ' . ~ " : I : C 'I " ',' I', , " ,J 'j, ' .; I ,,,'[ ),:" :''}' .:,..' " ~. ' ;' "; . .,' ~;':, :,;:~" ~:, :'i!::,~~'r';:"~ ~~,,.>,;~ :~: 1:j,;",;;:,: :j'. L " ;:~ , ,4 '~1 :~~:..,:!J , I' (' J........) I ' , , ' '. ~....A "-" ,'j ;',A ~,' ~' ~~.,' ,'~ ,~' '~, ' 'l-,~ ., :1' J' brought up to date for purposes of determining whether there should be any change in the J 998 'compensation structure'. The commiuee decided not to change theovernll compensation structure for 1998 from thc'strocture in etTect during 1997.', , Bell Atlantic's compensation structure provides for a set of four broad, mnrket.based compensation bands for exe~'utive offtcers;ptus (Wo categories above the four bands (or the Chainnan and Chief Executive Officer and for the Vice Chairman, President and Chier'Opernting Officer. For each of the named executive officers and for other elteeutive officers in the two highest bands, the committee approved an unnual salary rate , effective January l. 1998. For executive officers in the two lower bands, the committee aUlhorized the " Executive Vice Presidcnt.-Human Resources to approve an annual salary rate effective January I, 1998. For each of the tour broad bands and two categories, the committee approved a short term incenlive percentage and a long term incentive percentage for 1998. For each e:ltceutive officer, the applicable short lenn percentage, multiplied by the individual's actual annual salary rate, determined the maximum short term incentive award for the performance year. Likewise, the long tcnn percentage, multiplied by the individual's actual salary, fonned the base vDJue for the aggregate number of stock options granted in 1998. Under the short term and , long term incentive programs, however, the committee reserves llle discretion to increase or decrease !hc short term award or the number of options based on individual performance. It is expected that the commiuee will continue to review annually, with the advice of independent consultants, whot adjustments to make in the existing salary structure for the executive officer group. CompO'lfmts of Compensation Sa/ar)'. 'Salaries shown in column (c) of the Summary Compensation T;lblc represent the non-contingent portion of cash compensation for the named executive officers for 1998. Changcs in salary depend upon such, factors us individual performance, the period of time the executive officer has been in his current position, ' mllrket changes in the value of that position, and the economic and business conditions affecting rhe Company ut the lime. Short Tenn incelltive. The amount'> shown under "Bonus" in column (d) of Ihe Summary Compcnsation Table in this Chapter IV represent the amounl of the short tcnn incentive awarded to each of the named executive officers forthe 1998 performance period. The amount of the short term incentive awarded 10 cnch named executive officer depends in part on growth ill earnings per share WId in pun on customer satisfaction indicators over the applicublc performance period. Furthermore. for a named executive officer who has management rcsponsibililies for a particul.lr linc of business or business sector, the short lerm inccntive also depends on certain addilional financial results and stratcgic accomplishments of that line of business or business sector. During the year, Ihe committee may decidc to exclude from the dctcnnination of earnings per share growth the effects of challges in accounting methods or other items considered extraordinary, unusual, or infrcquently occurring. The committce reviews the earnings per share growth and potential udjustmcllts at cach of ilS mcetings and reports regularly to the Bell Atlantic Board of Directors on any adjustments. For the Chief Executive Officer and most olher executive officers, thc slIcc;ess of BeH Atlantic and its subsidiaries in achieving customer satisfaction had a 25% wcighting when detcnllining an indiviuual's short tcnn incentive award for 1998, while financial and other strategic objectives gencrally had a 750/,-.. weighting. Stock Optiom... The long term incentive component of compensalion con!lists sulely of !Iluck options granted under Bell Atlantic's Incentive SlOck Opfion Plnn. For 1998, the committec gencrul,ly set the number of options to be granted based,on the recipicnt's aclual base salary multiplied by a long term incentive percentagc IV~9 :~?~~~~,>':":','/:>,.:r ..' <. I' c. '. f \,' . ': " ;1 . , '.'.' ~..,l. ; ~ ' ,', l' "0< " ~ :, ~ 'j . I : ~ . t .1 , , ' , ~': \' '" ~ , .' "f, .+' ~, ! ',!'cC ,~ ',' I " ,::,':"::i':"'" .', . ~ ,. .;.> , , :j , , , ,I' " :,: , 1_/' , ' " " " , . , , , , ,t\ }', './. j I} . " . , i ~ :c.' ~ : ,) /' , ;.' ./, , " . . , ,. ':,~~~, ,":;~( ../ '.~. t,~. f:. ~~' ~.f':{ r~ ~l< t.;, '~lllk~::' ~<:. , ,~" \ "., I " '~. . '. ' .- , '! I: ~'. ' ' c'l ,.:; , ' > ~, ., , ,. ~"..u..~ ' I-i>.... +" .' ~ ....... w " j" applicable tn,the recipient's compcnsati~n band. In certain cases, the committec thcn increased or decreased the' , size of the giant as it deemed uppropriate. ' : .-.......... All stOCk options are granted with exercise prices equal to the fair market value of the stock on the date of gmnt nnd, thereforc, llny value which ultimately accrues to executive officers is based entirely on Bell ",Atlantic's stock pcrfonnllnce und bears a direct relationship to ,value realized by Dell Atlnntic's shareholders.., : 1998 (:ompensation for the Chief Executive Officer,f The plans und policies discussed above were the basis for the compensation of Bell Atlantic's Chief Executive Officcrs during 1998. Raymond W: Smith served as Chairman und Chief Exccutive Officer of Bell Atlantic through May 31, J 998. On that date. he rcsigned as Chief Executive Officer. but continucd 10 serve as Chairman through the cnd of the year. On June I, 1998, Ivan G. Seidcnberg became Chief Exccutive Officer. On December 31,' J998, Mr. Smith resigned as Chainnan'und retired from Bell Atlantic, und Mr. Seidenberg, becnme Chairman of. Bell Atlantic. . , The annual salaries shown for both Mr. Smith and Mr. Seidenberg in column (c) of the Summary' Compensation Ttlble were in cffccllhroughout J998. Mr. Smith and Mr. Seidenberg were nJso awarded short term incentive awards shown under "Bonus" in column (d) of this table. Mr. Smith's award for 1998 was $1,800,000 out'of a possible range of zero to $1 ,8,00,Ooo,eslllblishcd for him. Mr. Seidenberg'li short term, incentive award for 1998 was $1,210.400 out of a possible range of zero to $1,360.000 eSlablisheJ for him. In dctermining each award, the committee (a) detcrmincd Bell Atlantic's eW11ing~ per share growth from J 997 to 1998, after eliminating the finuncial consequences of several extraordinary, unusual or infrequent events, and (b) reviewcd performance against customer satisfaction benchmarks. These criteria resulted in preliminary awards' of $1 ,602,000 for Mr. Smith and $1,210,400 for Mr. Seidenberg. The committce then increased Mr. Smith's award to $1.800,000 for his indi\'idual performance. During 1998, the committee granted a tOlal of 590,046 stock options to Mr. Smith and 333.340 stock options to Mr. Seidenberg. ' ; .~, ..,J# , /'tpplicabfc Tax Code Prtn'is"on , The committee has reviewed the pOlentiul consequences for Bell Atlantic of Section 162(01) of the Inlemal Revenue Code. which imposes 'a limit on tax deductions for unnual compensution in CJ>cess of one million dollars paid to any of lhe live most highly compensated cxct.'ulive officers. In 1994. shareholders approved an amclldmenl to the Stuck Option Plan to qualify compensation pro\'ided undcr Ihat plan llS "perfOml3.nCe- nased" compensation which is excluded for purposes of the one million dollar limit. In the committee's opinion, the modifications to the short term inccntive plan which would be necessary to similarly qualify payments under thut plan would not be in Bell Atlantic's best intereSf. In 1998. rite Hmitaliol1 under Seclion 162(01) had a net tax effect on Bell Atlantic of approximately $1.1 million, which the committce docs not consider to be material to Bell Atlantic's llveralllinancial slutus. Section 162(m) is not expected tu have a material effect on Bell Atlantic in 1999. Respeclfully submined, HUlJ)un Resources Committee Tlw/1/e/J H. O'Brie", ClwirllulI/ Richard L Carrioll Thomas H. KcclII EIi:abt'lIl T. KemuUl We/Iter V. Shipley IV-to , \>~v::') ) ,,' j' '~'" \'.~" " ,< " . ',' "'": ;': ~:/~!,;'?; :. <:(:,':, ~;\', ,;; :';, ,I '.' ~ C, ,I :~\';'<;~'::;~ :', ..:' , : ~~~': ..' ~ ( , <, f,i,t,: : :!c:~. :~ '~:I.' / .: I,: '.' ~~ ~ ' ':t;:\: , \ , , c, .. , , , , " " ' :,1 'i+ " ' " I. > l' ..' , , " ' " .' I', I 't' , '. '" I ~ ., ' " ' '1, ' , >' , ' " ~ ,': , .' 'j ~ ,', " '" !' .' ,'; ,1 ~ ~ ' ',' , ' ,If, ',I. >. j '. \ , " '" ',I,' .... I " 'I',' ' " , , , ll~: i . , "AI '::'CI">~~~i.I~:'j..!1~~"~'I' "'~.'hr.'~'. ,. ,;. '. ..~~"""".t . . ~\ J\I'1. t'>v~;l..,,1>$'~"IO '\.... " ,':"'.t,~~', 'It' /, ~~ I.~'.~~~";,.~~~" '1:~~4.1 ?'i(w.-jlCr"i~ . . ~, ' l ! I. l~ /' t : i 'f I !. II \" t L t I , " '~--""I I ,\ '" .J ~"",a;~'" , \.._.1 IJ " " -.----- Compensa'tlon Committee Interlocks, Rnd Insider Participation . Mr. Seidenberg. Chairman and Chicf Executive Officer ~f Be,ll Atlantic, is ~ direcior of CVS Corporation and serYcd n~ n mcmber of its Compcnsotio1\ Committee unlit May 13, 1998, Mr. Goldslein, Chairman of the Board llnd former Chief E~CCUlivc Officer of CVS Corporation, serves on Bell Atlantic's Board of Directors but does "C?'l serVc 'on Bell Atlantic's Human Rcsources Committee. ' Bell Atlantic .Executive CompensnUon ,Tables 111C following tables contain compensation data for both of the individuuls who held the position of Cllief E:\ccutive Officer of Bell Atlnntic during 1998 nnd the four other mOSI highly compcnsated executive officers , of Bell Atlantic;' compensation paid prior to August 14. 1997 by NYNEX Corporation 10 Messrs. Seidenberg , and Salerno is included in the Summary Compensation Tablc. Summary Compensation Tflble (Dollars In Thousand:l) ! . j Lonn Tenn Comp~n:lallon Annual CompelL~utllln A ward~ PIl)'(lUl~ (a) (b) (e) (d) , (e) !!!! (hI III - Securities Nattle and, Underlying Olher AUllu1I1 Opllllnsl LTIP All Other PrJnc:lpat POlIiUon YelIr Salary(SI Uonw(S) Compensullnn($) SAR~(1/)(3) Payouts(S} Compcnsallon($) Raymond W, Smith :'..,..,..., 199!! 1.000.0 1.1l()(),Q 759.4(2) 590,046 t) 12 .4(5) Chairman llnd Chief 1997 940.8 1,5(!(i,1 146,1 4lJI.622 4,00ELll Executive OUicer( I) 1996 905.4 1,200.0 460.3!1H 7,5 , Ivan Q, Seid.::nberg ........, ' . 1998 850,0 1.210.4 ]01.7(2) 333.J40 965.5(5) Chalnnan llnd Chief 1997 71lT,5 1,799.3 lH4.6 322.052141 MH.9 .~,4HO,2 Ex.:cutivc Officer( I) 1996 695.0 1.60.1.4 40.9 IIJI.99R(4) 3J2.H 446.3 Fre'deric V. Salerno . . . , , . , , . , . 1998 7lt1.1l 962.4 103.3121 ][)(), 129 5.473.7(51 Senit.r [h:ecutivc Vice 1997 593.7 I.O(J 1.1 111.5 1 77.114!!(4) ("ICl.9 1.370,7 President and Chief 1996 530,U 604.:1 41.7 134,39/1(4 J 339,9 2!l7.4 Financial Officer/Strategy & Bu~incss Developmenl James G. Cullen "..,...:,.... 1998 7IB,!! 962.4 160,1(21 3117.794 4.BOll,!!(5) Prc~ident and Chief 1997 632.7 9ll3.6 .130./126 1.510.5 OperJring Officer 1996 555.4 802,5 30!l.630 7,5 Lawrence T. Rahbio. Jr.. . . . . . . , Iwa 7 nUl 962,4 133.6\2} 305.304 4,lH 1.5(5) Presidenl and Chief 1997 626,9 903,6 300,1l70 1;510.5 Opcruling Officer 1996 531.5 H02,5 .lOlI,41S 7.5 Jamc~ R, Young .." . . , , . . , . , 191)8 443.!! 0165.5 112.6114 5012 .lIt 51 Executive Vice President and 1997 364.0 420.4 97.132 General Counsel 1996 305,{) 297.2 cJ4.:!32 (I) Mr. Smith resigned as Chief Exccutive Delker on May 31. IlJ98 ami rctircd from Bell Allantic on December 31, 1998. Mr. Seidenberg became Chief Executive Officer un June I, 1998 and Chairman on December 31, 1998. These amounlS include: relocalion services for Mr. Smith in the amount of S392,502; incremental costs for personal use of Bcll AtlaJ1lic aircraft by Messrs, Smith, Seidcnberg, Salerno, Cullen und Babbio in the amounts of $263.611, $61,150, $50.958, $68,388 and $36, 766, respectivcty~ reimbursement of tuxes relaled to the conversion to the Senior Management Income Deferral Plan for Messrs. Smith, Salerno, Cullen and Bubbio in the amounts of 556,790, $23.010, $64.459 HIll! $61.067, respectively; monthly flexible spending allowanccs for Messrs. Smith, Scidenberg, Salerno, Cullen and Bubbio in the amounls of $18,000, $\9,500, $16,250, $15,000 ami $l5,OOO. respeclivcly: reimbursement of linancial counseling costs for Messrs. Smith, Scidenberg, Salerno, Cullen and Babhio: wireless serviccs for Mr. Cullen; and costs for personal use of Bell Allanlic autos for Messrs. Smilh, Scidenberg. Salerno, Cullen und Babbin. AU numhers of options have been adjustcd to reflect lhe IWo.ror-one stock split 011 June I, 199M, (2) (3) IV-II '~:::yvt":~' (':' .\~~;;";.:::.-,,,::. "u"'. . .. , .~--- , " .., I, , ~: I " ~ .~.I , , ,i, " ~~, '-.. Yf;:,~:\:.~ c ..~ ~ ; i!' . ,>; , ': " . . , ,I'."' I ~ f .: ,(/" , ,: .:" ~'c" ~! '" ,~, " ~ ' '. " ~ :. ' " ~ . . : . , ~, i . .~ ..,' , ' " o' F' ':",:" " I',' ," . ,'.' .:' . " '. '. ~ c ! " ~ . +1 , > . .~ ,'t . , .., l~ " , " ,/ , ' , , . . 'I, . ~) t{~/~,;,:, ,~:'~, ".,<~ ,~i;~~?,::~ (. ~ ~ ' }~'}')~..~' t', ~.t ;,;.~ ...~, _... ~ '.- , .' , , , , , > . . .'.., ~~' c ...:. '- .' '.\ J~"."", ~ ,<, . c.... " "'I ". ..... .,., ...., ;{, ,~.., ',' 'I:" .. , ,. , '(4) Numbcrs l'Cnect the conv'ersilln of an NYNEX stock options to Bell Atlantic stock options at the rutio or ' '.768 Bell Atlantic option for each NYNEX option. . , (5) )11e5c amo'unts include,: company 'cont~butions to qualified'pkuls for ~cssrs. Smith. S~idenberg; Salerno. Cullen, Bab~io nndYoung In the amounts of $17,744, $19,200, $19.761. $18,634, $18,695 and $17,600, ,~j;pectivcly. and to the non-qualified Bell AtJnnt.ic Income Defennl Plnn in lhe amounts of $892.007,' , $921,884, $577,391. $690.344, 5702.934 and $313,554, respectively; the ,'ulue'ofpremiumspnid for executive life insurance covcruge for Mcssrs. Smi1h. Seidcnberg, Salcrno, CuUen, Babbio and Young in the, llrilOunts of $2.633, $24.457, $25.653, SI.159. $742 and $261; respeelively: stayincenti'vc bonus payments " reccivc~ by Messrs. Cullen and Babbio. cach in the amount of $3,207.200, pursuant to employment , , agreemcnts: special company contributions to lhcir accounts under the Bell Atlantic Income Deferral Plan for Messrs. Cullen, Babbio und Young pursuant to employment agreements valued at $891,512, $881 ~906 and $211,397. respectively: and speciul company comributions to Mr. Salcrno's account under the Bell Atlantic Income Deferral Plan in the amount of $4,850,838 pursuanl to his employment agreement. '- \ .I?~ '" . {,~ c OPt~i)ll/SAR Grunts in Last Fiscal Ycnr Individual Gront'! . . % of Totu! Number of Secllrllil'., OpllonslSAR.'! Exercise I, UnderlylnR Grunted to or nu.\e Grant DlIte OptlonslSAR'l Emplo)'~ ill Price Explrlltlon Vulue(3) NAme Granled(#) Fl'lcut Yellt ($ISh) Dille ($000) Rllymond ,\\,. S.mith. . . '.' . , . . . . . . . . , . . " . , . . ' 58B ,240( I} 2,.W~ S46.OlXlO 112008 $4.MI.213.6 l.!l116(2) 0.01% SSS.343R 1/2{lO7 $ 14.249,3. Ivan G. Seidenberg. . , . '-. . . . , . , , . . . . . . . . . . 333.3401 I} 1.40,*, 546,0000 112008 $2,630,052.<, Fredcril: V. Salcrno. , . '. . , , , . , . , . .. . , , . , . . ::!91.fJIj()ll) 1,22% $46.0000 !llOOR $2.296,463.4 " 1.1l13(2) 0,01 ~ ~55 .093R 1/2000 S. 14.304,6 1,IU4(2) 0.01% S5~,(193R 11201ll S 14.312.5 1.lU312) , 0,01 'l: S5S.O<J38 312(KI! S [4.3114,6 I,R 14(2) 0,01 1ft. $55,09.18 1l2IX13 ~ 14,312,5 1.815(2) 0,01<;;-, S55.l)lJJ8 112(1).1 S 14,32U,4 Jall1cs G. Cullen. . . '. . , . . . . . . . , . . . , . . . . , . . ' 291.06(l( I) 1.22~ S46,()OOO I 12 Oil !I S2.29Mh3.4 IO.J72m O,~':j 547.5782 112001 S 8 \,1135,1 ,19,0:!Or21 O,()8'iC $47,5782 1/2005 ' $ 150.1l67.8 2.906(2) 0,01% S47 ,5782' 1/1999 S 22.928,:\ H20(2) O.flll% $52.3750 1f2001 $ 6,469.8 11,5.l5(2) 0,05% S52.J750 112003 S 91.090,1 21,182(2) O,()l)~ $52.3750- 6/20l)4 S 167.126.0 30.tlIl9(2) O.13'il- 552,3750 IWX14 S .143.714,2 Luw~ncc T. Babbill. Jr, ...............,.., 291.D60( I) 1.22 ~i' S46,OOOO 1/20<)ll 52.296,463.4 3;;0(2) n,oo~ $48,4375 1/2002 S 2.6113.7 1:'.914(2) O,or,r,oi- $411.4375 I/:!nns ~ IlllJ.7H 1.5 James R. Young .', ,.. ,.. ,... ,. ,," :.. .,.' 100,1)()(J(I) 1l.42',y. $46.0{)()() 1120UR S 7R9,()(){).O 11.77Url) 0,05," $52.3750 10I20()!l S 92.11653 834(2) (J.()()'J $5:'i,09JK 1/21KIl S 6.51W.3 Note: All numbers of shares and exercise priees huvc been adju,~lCd to rellcet the two-for-one slOck split on JUliC 1. 1998. (I) 33% excrcisable on tirst anniversary of grant dale; 33% exerdsablt: on second anniversary of grarit dale; remainder exercisable on third unniversnry of .grant date; eligible for reload options. (2) Reload options granted in eonneclion wilh a stock-far-s1ock exercise: exercisable six months from the date of grant; eligible for reload options. (3) Bluck~Scholes calcuh\tion making the following assumptions: 5~ycar historic dividend yield; 5-year historic 'volatilily; IO-yenr zero coupon bond rJlc as risk-free rule of rcturn; and 1111 options exercised ~II end of term. IV-12 "'-~~"" iy~:tv.:t~;~.~;lf~<'~:~~:,": ::. :;';,,::;':::':, .:~i.,; :~. r ",'.I:~;' ",,'~ '. ,:.'~::t',:,Y": '," r!},?f~~,',;':;' " , : ,~ " , , tf::;~:::?.:;;;';::';>;' ' ~J. '" ;'r :', ': ' ';\, ~I:, .. 'I' ",.' 'I"!:~~.~;,~',',,:~::, c'l..~ ~~< ' . ,'. :,.;r ,.1' .' , ""', ~'.' ' , t . :. ~ ' '~ ',' I .~ \ '. f l : ~' > " . ; :, . ',,. .. " l ' ," f):!,i~:;':/::, ';~),;,,?:\:' '. ?'""',, ,,' ' .~, ': ~~' ';' > ).:~C~~i.~C.\'C~':"':""('<;'~ ,',,',,~: '.I ,,' ~'.. ,::.: - '\ , ..~'.i". ,:,,:'., .:" :,", <', ~';'~~.' , ,:};~' ,- ~',~~. ._~,~,,"', j: , " 'I' : .:", ~'l.. ':' '. t:"!'.';, . '; ,'.' \' :: ':. . " ',' ." l~';;: ";:'\';::";;!~~;:),~f{L.::L~~,':': ;,;;, L,j::L, :,,:;;, ",,, i . " '" , \ ~~, ." ~It' , . '\ '. '">' ',' '" , " .,' : Ie, I . , , " ',.'.' . ,", , , '., ' Aggregated OptlonlSAR Exercises in Last F'lsculYCllf , Bnd FY.End OptlonlSARVnlues , ,I ..; l " ' '." ' , Name Shares Aequlml on Enrdw(N) , 3,044 192.918 157,842 44t,576 284.197 , 79,523 . ' Ruymond,Vv', Smith......,... .,..' , Ivan G: Seidenberg ............. Frederic V. Salerno . . . . . . . . . . . . . James G. 'Cullen. ... . . .. . . . . . . . . . .. Lawrence T. Bnbbio, Jr. . ~ . . . . . . . . Jnmes R. Yuung. ',' . . . . . . . . . . . . " NlImbfr of SecurillC$j Undnlyln~ Vnnerdsed Value OJ1tJonslSARs at FY.Endlll, ReaJlzedlS) . Eumu.blf Unellercbnblt 6H.S 3,618.458 3.726,4 49R,084 3,187.2 ,,287,242 10.523.7 986.912 7,U33,6' ':'1,163.971 2.244.6 ' " 60 t ,329 Vulue of Unexercl.~'{) , In-Ihe-Moncy Opllon'ilSARs lit FY -End($) Excrclsuhlc Uncxcrclsuhle ;\ 5,403,934 93,811.1 3,890.4 , 349,306 11 ,633.2 3,439.8 328.561 6.705.1 3.264.2 258,476' 21,406.2 2,036.7 194.040 27,076.4 1,837.3 81,206 15.372.6 702.3 Note: All numbers of shares' and ~ptio~'s h~~~ been adjust~d}~ reflect the two.for-onc stock split on June I. 1998., ' " , ~, '~', ': :' " '.. " ,; ":,' , , " ' , , . , ' , " . '" .,'.. '11, " Bell Atlantic Stock Performance Gfnph . ,!" '" I,.:,..... . CORlparison of Five-Year Ctim~lative Total Return Among Bell Atlnntit'., Peer. Group, nnd S&P 500 ,\ 500 4l'O '0 0 300 L L ,\ 200 R s. 100 I"'...."'" "., ~ , ,} "- ' J ~-.,., . o 1993 ]99-1 .-- .--- 1995 1997 199R 191)6 - Dell AIlamie - Peer Group --. S&P 500 Dala I'oml~ Al Vccemllc:r .11. in Dollars. ILJ93 ]9'J4 1995 1996 19'J7 ILJ9K Bcll Allanlie SIUU,lI 1l!!,3 124.(, 116,2 11l-l.1l 21(;,5 Pccr Groun S IlX),l} 911,1 154.11 15].4 21K.h 352.(-, S&P SOlI $lf"W 101.4 D9,4 171.4 22K,(; 2il3.K " A~sumcs $](l() ill\'CMcd on Deccmber 31. 1993 Bell Allantie's peer group is comprised of Amcrilcch Corporation, BcllSouth Corporation, SSC Communications Ine.. and U S WEST, Inc., Regional Bell Holding Companies which. like Bell Athmlic. commenced opcratio'ns on January 1; 1984, following n courl-approved divestiturc of ccnain assets of the Bell System. For.purposes of the lotal return calculation, data for U S WEST. Inc. common stock includes the perfomlance of its predccc!isor tracking stocks (U S WEST Communications Group common !ilock and U S WEST Media Group common slock). as well as of the common stock of McdiaOnc Group, Inc.. which resulted from a June 12, 1998'spin-off. \~~) .. "',,'. . ,'. J. . ~ , , . 1 IV-I3, ____'IT tl,:. .' " -, ~, ',i: " , . " . '.'K. "1 " 'I ,..I '" ;< , , . , ! I f f ( I ! I j ~~I'.~;H"''''f''!''' '...." ~.'~~-;:~--,--;-::-~T--_____.".. _ 1'~~~~~J..:.e~;J;~{ }l~{:~',~j~"j ~t~ '~\'~~f~f' {> ~ ..'".~/.;.\ti'; 'l~'. \'~Il': ;~c'J;" ~ ;I'''~ -:/.~..: : I'~I,. .;',.' ',' '."'I~': ii: ,,', ~ " . , :.' ~ \ 1 : ';',' . , , , , " ~ .. , . f '.. ' ,':', l,~: ~ . , .:.q., ,..~,' c,'( ,1. . '<.'.,) " 'c, . ~~. t. f j ~ '/' >; i;':,', ,~;:/'::,;i",.<\~,;:?~"~::;;, ,," ;,,:;' " ~:""'"':'~''''' '.'(, I "o'::~,:'~I' ".., ,:,' , ,,'c., . / ....l " . u" ~ ,.j'.' , ' '..::. f' '. ., J. t!. '-" :\: j} ) .. " , , '. .... ~,' , '.. . ~'xi;~(fii!if~,H ,r:,.,.1 ~ft:~}~~R~4\'~:1 ';,h: _,.l~,,,.: ~.. ':' ~,':',~'",'",'!/... ..:_~:~_~:~"":_':""""'_ .:_'_u ~~.' ',__ '. "'~.. ...... 't " ~, . ~ ~ 1 'c,~A 'I \t-:., ~'~"""",'I'{t;\-;"'J:.,I'" ~ll,'.....1~'., '.' ' _ ....- .,.~ ___~._~_ . _ _.~ ~___.+ _"' :{'~(~'" ' , 'I.' , .lJi ,. :~, ~, ".: ,.., '; I 'J J{;<"j ii, \'Jr ~, .:'~ '. ;.-:: '~.\ ' t'.~. il 'j.;. ~ :-" ." l i ~~;// ',,'IT TII. " ~\;,. "I d."i ,,' : ,; ~':.~. . 'V' , ;:t :.~ , tlr~j. :' '(~/'; : ~;!. :~' ' ~, . , i:.< ,I ~. ~'~ ,,'t" , ~;o' ~ ,.'. , ,. \' ( ,,,,,' . \ ' ~ ~ . >T.~: ~ ~ ,'/~'~ \}....':j i<. .... I ,.: ~I . ~,' ) . " , "J, l':~?:::": ,', .r'~~ 'I ~ ~', ,t , . ~ ' <+ . : , (" , ' , :i' ",.' , '-., " -: r -: ~ /,l' . ....'t. ':,' I. , '. .', , ,~Thc, rolh;~wing' supplemcntal:table presents, a COl:npanson ~r B~ll.,Atlantic's common'stock performance with that of the S&P, 500 since Be,1 Atlantic commenced operations; None of the, clements of executive . compensation reported above were dClennined 'an the basis of this 'comparison. . ' ~ , . . ..' , " " , , ' I , ~ .,~ < ,.' :,;, , ,..':1. J ~\,i: 'i I , , J ~~", t~:~i.y ".. I','~ .... ,'~f ~, J ,:.:} ~>.~. ~c ". ~' ';'J ; .~. .- . i. ~ . t" ':.,: ' " ,~, ',) ~ ~ ~, ~ .1'. ' " " , \:, ,1500 ,1' , , ", 'f'" ' ;, : ' J :!' . .I~250 P 1! ,1000 ,!l 'c 750 E N 500 T " ':'.:..," '.1" . >I,: ',.. j., .. " ': /,\/, ,J, " 250 \' ,,'< " ' it". ':' " , , '" j'" . I'" , ( 'I ,. . , ~ ,'"" I. " '-1-$" " . " I" . ~ ': ,;l , " .' , ',' ~ . :~. " ' , ~ '.'... { ',' ", . ' , ~ ': ~ " '. , I. ./' ~ . ,\/ " , , . " , ,! :'.c ;' " ..; , " ", .'\ '" /- \ ' . , :: ~( , .t\\,....... .Jlt'...... (: 'I ,>;';1 '<'.'. CompariJ'ion of ,Cumulative Totall,tcturn orUelt ~Uantic nndS&P SOO ,... From Dh'cstiture Through December 3J, 1998' , " o Ucl1 Atlantic s&l'son, , ~'" " , ' IV-14, '~ t '. ,! ,: : ':'(,-'. , , '., '\'(,' -- ; " ,,\1 ,"", i , ~ 1-, 'I,'! .".' " ~. . ~ / " 'i- t . :' >~ : '" " {- ; ~ . ^ ^; I ~ .. ,( 'i.. , , 'I ' ~ - l, ,;. " "~' . -......... l' , ,(, j " , j' (f', ; , ,-' ',-o.ft" !~ ~r'" '..' ">';;i:::>,:';~;-'--:C-~ uuc-ccc-,-- ':~~;/>' .' : ~.<::", '~C~I ','t . I.',:, ' , ," ;'f. ....} , ",1+ .. , . , . , " ~ . t I' .. ':. ;J:" ,.' ". .., " , ,~ ',' " .. .'t.' > " , " . " . ,', "." . '" ~ I . " I ".,' . ", T{ ":',' . ~",,:..: ,\ , " . ::':i'\"!<:~~,;') c"'~ ...,:;/:.1.;::;; ,." . '. ii '., '.1 ." j . " '. . ,. ~ , c j, I . " ',' \. :. "', ~ t l l,., ' :", 1 d, '" t... .. '~,'~' '::',",:\',\~ "'~,, '" .c' . !" .1 , . i,.,I , , , , , <J '",oJ-;' ~.' , ',> (I, .'. .. "',. , . . ". F ~:'" ;"': ,~,.,-',;~>.!t":,. .;,; >., ; .';:,', ' :~, ;::," ..,': .' I :,. .. <,; ",' , ',' " ,; ~"'I:if:~.., \ .~.l. ,)<:~,,:,,-,,",?,"~;'\ \.l'<lf. 'i' '"","",., , 'l.t.~ ~,l-f~';" ': ' ,', 1;'/:;, )....~;:i' ,...., :1 l;t,j,>~~Yi;:')t~~,) ~ 1;:J:i9;I~""" 'fI1~f. r.1V--~ 1'\~~'1 ~'l'.';~' ~ '~1':' .'f.f+ ~ .' ~ t ~ ' ,. ' .'. \.'." : , l' '1 :/, :;~ :'" t,r..:\, ' , , ~'Lj.:. Security'OwnerShip of Ben Atlnnth: Dire'ctors nnd Nllmed Executive Officcrs ' : ' Th~, Bell Atluntic Board of Directors has instituted stock ownership TCquiremcnts for all executive officers' and dircctors:'Undcrthese requirements, by the end of a five-year period' ench of tile Chninmin and any Vicc Chainnan ot' Bell .I\t1tllltic incquired to acquire and hold Bell Atlantic shares with a value of live times his , base 's0.1I1ry. then' incffcct; ,other executive officcrs. depending upon their position, lire 'rCl}4ired to acquircund " hold shares liavinga value of one' to four times salary. The Humun Resources Commiuce'of t'tc Bell Atlantic " , Board of Directors monitors compliance, with these stock ownership requirements on an annual basis, DireCtors 'of Bell Atlantic must hold a minimum of 5,000 shares, to be acquired over a period of not. longer than five years. On February 28, 1999, there were approximately 1.553,197,066 shares of Bell Atlantic common stock outstanding. The following tnble sets forth information as of February 28, 1999, regarding ownership of Bell Atlantie's common stock by the named executive officers and other directors, These shares represent, in the , aggregate, less than one percent of the outstanding shares of Bell Atlantic's common stock. Except us otherwise noted, each individual or his or her fnmilymember(s) have,soJc or shared voting and/or investment power with .' respect to the securities. ' " ,. , . , ' " I <, Shares Optioru; Hcld Sharr:!! Excrclsablc Under Bcnenrllllly wltbln 60 , Dcferml Name ' Owned .' Days I'lans(1) Tolul Named Executh'c Officers: Raymond W. Smith " ' , 170.240 3,982,924 2.678 4,155,842 .;.................... ill;'. Ivan G: Seidenberg*. ... . , . . . . . .'. . . . . , . . . . . . 98;394 609.196 3,862 711,452 Frederic V,Salcrno'" ..., 1-..... ..........., , 0... ' 55,132 384,262 67,099 506,493 James G. Cullen'" . . . , . . , . . ',' . . . . . . , . . . . . . . t 10,968 I ,051 ,348 2,471 1,164,787 Lawrence T. Babbio, Jr.... , . . . . . . . .. : . .'. . . . . . 83,100 1,095,726 47.730 1,226,556 . ,," ~ ..., Janlcs R. Young. . . . . . . . . . . . . . . . . . . . . . . . . . 9,982 601.329 20,421 631, 732 , Other Directors: Richard L Carrion . .. . . . . . . . . . . . " . . . . . . . . . \,692 ' 6,250 1,825 9,767 Lodewijk J.R, de Vink . . . , . . . . ... . . . . . . . . ; . . 1,950 6,250 1.792 ' 9,992 James' H. Gilliam, Jr. . . . . . . . . . . . . . . . . . . . . . . 529 11.000 9.918 21,447 Stanlcy P. Goldstcin . . . . . . . . . . . . . . . '. . . , . . . . 10,520 6,250 1.993 IH.763 Helene L. Kaplun . . , . . . , . . . . , . . . . . . '. . . .. . . 11.159 6,250 459 17.868 Thomas H. Kean ~ . . . . . . . ;. 0 . . . . . . . . . 0 ... . ... . . 43,388 11.000 6.064 60,452(2) Elizabelh T. Kennan. . . , . . . . . . . . . . . . . . . . . . . 9,068 6,250 15.31H John F. Maypole . ill' 0............. t ......... 4,788 12,000 23.164 39.952 Joseph Neubauer . . , . . . . . . . . . . . . . . . . . . . . . . 502 42,000 J7,141 59,643 ,Thomas H. O'Brien . III.............;... '.t. ........ 2,331 39,000 25,071 66,402 Eckhard Pfeiffer, . . . . . . . . , . . . . . . . . . , . . . , , , 6,000 15.000 4,009 25,009 Hugh B. Price ....,. I' ...... ill.. III ..... ... ill ..,. 1,239 6.250 752 8,241 Rozanne L Ridgway I . . . III . . ... ... III III ... . . . ~ ~ t t t . .. 1.951 35.000 /4.275 5/.226 Waller V. Shipley t".. t...... t t t t t I... . t t t t.. 12.454 6.250 18.704 John R. Stafford. . . . . . . . . . . . . . . . . . . . . . . . . , 12.902 6.250 1,9?2 21. 144 Morrison DeS, Webb. . . . . . : . . . . . . . . . . . . . . . 17.953 230,119 15,851 263,923 Shirley Young . . . . . . . . . . . . . . . , . . . . . . . , . . . 2.534 11.000 31.108 44,642 All of the above and other executive officers as a group (31 persons) ~ . . . + . . . .. . . . . . . .. , . . . . . 777,157 B,8SI,083 374,141 10.032.381 ("') Also serves as a director. (I) Thesc shares may nol be voted or transferred. (2) Includes 29,500 Bell Atlmllic shares held in family trusts with respecl to which Gov. Keun shares voting and investment power anll as to which Gov. Keun disclaims bcneliciul owncrship. \.I'''''~ lV-15 :" !' " . ',,': :',:! ,. ~ t .. ~ '\. Ie. " 1- " , .. ~ J. ---- -.. ,... .-----.- };~:'?~;,/.':i. ;: ">/~;~<:' " c, ,:",: , " ,. '.: ,) : :,,' " , , i .. ~ , \ '). , , . '!ft: .: '+ 'I .-1 '.', 4< ., ' " ~; . ' .~.. , ,'j' . i , : .. ,: " , '" .. I, " , ,:,,~~',:," ',>' >- I :, :(; ~,i,\::?(~:~~'.':.~i',~,..,~~:r~';~~M".'~"'/:. ~ ~ .' , '... '. ,.. ,r'" ... }.~ , '., -,.,...,.",. " , ' ., '" '"' ~ . '" :;' ~ , I ' Section' 16(1l) Beneflcllll Ownership Reporting Compliance Sccu'rhies nnd Exchange Cominission rules require Bell Atlantic to disclose latc filings of stock transaction repons,by it'" executh'e orticr~rs and directors. Dased solely on u review of reports filed by Bell Atlantic on these iilllividuuls' behalf and,wriden representa.tions from them that 'no other reports were required, ull Section 16(n) filing fCqlli~mcnls have been met during calendar year 1998, with the exception of one tote filing to reflect u single trnnsllction by a family trust in which Thomas H. Kean, a director of Bell Atlanth:, has an interest. ' ,-.... \ I' 'I " Bell Atlantic Retirement Plnn'i Bell Atla~tic 'Qualified Pension Plan " , Duri~g 1997, Messrs. Babbio, Cullen. Smith and Young participated in the Bell Atlantic Cash Balance Plnn, and Messrs. Salerno and Seidenberg participated in the NYNEX Management Pension Plnn. Effective January I, 1998. the NYNEX Management Pension Plan was amended to a cash balance design substantially identical to the Bell Atlantic Cash Balance Plan. Thus. during 1998, each named executive participated in one of two 'substantially identical cash balance pension plans. Effective December 31, 1998, the NYNEX plan was merged into the Bell Atlantic phm. This singlc pIon, in which each named executive officer now participates, is referred to in the following discussion as the qualifieu pension plan. The qualified pension plan is a noncontributory, qualified pension plan for salaried employees. Under this ,plan, a participant may commence benefits upon resigning or retiring if certain conditions are met. Pension benefits under the qualified pension plun are generally stated as a lump-sum amount, but may be distributed as , a lump-sum or as no annuity. Benefits are computed using a cash bnlance methodology, which provides for pay, credits equal to 4 percent to 7 percent (depending on age and service) of the first $160,000 worth of salary per annum, undmonttdy interest credits on the panicipnnt's account balance (based on prevailing market yields on certain U.S. Treasury obligations). Fc)r this and other record keeping purposes. a hypothetical account balanec is maintained for eadl panicipant. The account balance for each named executivc, tiS of Januury I. 1998, is shown in the following table. ' ..... " '!~ Exccutl\'(l Lawrence T. Dnbbio, Jr. . . . . . . . . . . . . . . . . . . . . lame G. Cullcn . . . . . . . . , . . . , , . . . . . . . . . . . . Frederic V. Salerno . : . . . . . . . . . . . , . . . . . . . . . Ivan G. Seidenberg .. . . . . . . . . . . . . . . . . . . . . . Raymond W. Smith. . .. , . . . . , . . . . . . , . . . . . . Jatnes R. Young. . , . . . . . . . . . . . . ..,. . , '. . . , , . Accounl Ualance $ 864.660 S I ,005,705 $ 918.937 S 903,174 S 1,391.198 S 160.384 Pension benefits under the qualilied pension plan arc not subject to reduclion for Social Security benefits or other offset ~11l10unts. Section 415 of the Internal Rcvenue Code places certuin limitations on pension benefits which muy. be paid from the lrusls of t<lx.qualitled plans such us the qualified pension plan. Pension amounts for certain cxccutive officcrs which exceed such Section 415 Iimitntions will be paid from Bell Atlantic asscts under the Bell Atlantic Senior Managemcnt Income Defcrml Plan &,cussed below. Bell At/alltic ["come Deferral Plan Duling 1997. Messrs. llabbio, Cullen, Smith and Young also participated in a nOllconlributory, nonqualilied pension plan for Dell Atlantic executives, and Messrs. Salerno and Seidenbcrg participatcd in a noncontributory, nonquulilied pension plan for former NYNEX executives. Effective Janutlry I, t 998, Bell , Atlnntic established a new, nonqualified retircll1CIll plan known us lhe llell Atlantic Scnillr Management Income Deferrul Plan. The uccoum balances of the named executives under the Bell AlJamie and NYNEX non-qulllHied pension plans were transferred to the income deferral plan, and each of these executives participated in the income deferral plan during 1998. [V-16 I 1.o,.-t;...".p.1 ::~~':'~~:?t': "~"'."'.'::;:~~:;\ "~'~::-~-~- -q, .~ ,J ' .' ~ '/. l~ .: ') , . >~' , . c' .'l. , . . . , " ..-- " Jl . . ~ I ' , I ,', \ ,~ , " , ' . '! ' .. , , , \ . , "1, ' l' ' ~ , ' '~ , ',' :' . ' ',' l ',,~ ': . , . ~,l .... ',; .~ . ~ ~ '1. .', ' ',' ,-; I . ",'- ; 'i~'i.'~~' i:'.~'~'/!)""~~~'~/~i~'~~l>:,t!~/..~.,)I' :'~>~~:.~~'1':;I:C':~"~ ~ ,-" ,,<~::, ,_,~ t'~.f,:~Jt. ~,: ~_ .' r,. '.,:' ~ ;. ,., ..' " i,:', I,:. 1:'\ " ::..~ ,:-.1 ,~ "', .", ~ .~t~1 ' ,*'~. . ~ :, 1; , ,....'.'........ , ' , I: I ~~,.~ , J '......,,~ , '~', " < ,'. . . ~.,' >.' . I, , The income deferr'<!,1 plan is a nonqualified. unfunded, supplc~enl.ul 'retirement and deferred compcnsation ' plan undcr,which an individual account is maintained for ench pllrticipant. The plan allows the named executive , officers lUtd othcr executive officers to defer voluntnrily the receipt of ce'rtain compensation, and also provides retirement imd other benefils to participant~ 'through Bell Atlantic credits to the participanfs nceount under the plan. Participants urc' aJJowed'1O defer up 10 J 00% of their eligible compensation. which consists of (i) a ' plirticipnnt's base saJary in excess of the Internal Rcvcnue Code limit on c~mpensalion for qual~fied retirement plill1s (currently $160,000), plus (ii) all of the participant's annuul incentive award under the Bell Atlantic short tenn inccnti~'c plan, plus (Hi) retention awards or other bonuses which the p1im administrator dClennincs nre eligibJe for deferrn!. If a participant defers income through the plan, Bell Atlanlicprovidcs a mutching contribution equal to the rate of match under the qualified ~a\'ings plan for management employees. In most cases. that rate is 83 ~ % of the first 6% of eligible compen~ation thut is deferred. In addition, Hell Atlantic automatically makes retirement contributions to a participant's account cqual to 32% of eligible compensation for the first 20 years of participation in the plan and 7% of cligible compcnsation thereafter. Bell Atlantic maintains an individual account for each participant in the income deferrul plan. The following table shows, for'each named executive officer, the pOI1i~n of the executive officer's account , attributable to Bell Atlantic contributions us of January, 1, 1998, including contributions made under the Bell Atlantic and NYNEX non-qualifieLi pension plans that were tr.msferred to the income deferral plan. D~II A t10ntlc Cunlrihutlons ' . EAuutJV&' LawrcnceT. Babbio.Jr. ............... .,.. James G. Cullen ........................ Frederic V. Salerno. . . .'. . . . . . . . . . . . . . . . . . Ivan ,G. Seidenberg ............ , . . . . . . . . . Raymond W. Smith. . . . . . . . . . . . . . . . . . . . . . Janles R. Young ................ ~ . . . . . . . $ 4.312,642 $ 5.444.399 S 3,279,474 S 2.731.276 $12,950,589 $ 384,649 Bell Atlantic Employment Ag,reements Mr. Smith retired from Bell Atlantic on December 31, 1998, During 1998, his emplllyment agreement provided for base salary. u bonus under Ihe Bell Allantic short tcnn incentive plan. and other c0l11pensation which is reported in the Summury Compensalion Table in this Chapter IV. With rcspect to the other namcd executive officers. Bell Atlantic has entered into new employment agreements which supersede Iheir prior ngrcemcl1Is. Each of thl.! new employmcnt agreements took effect during 1998, except for Mr. Seidenbcrg's which took effect un January 1. 1999. The employment agreements with Mr. Bllbbio and Mr. Seidenberg are for it pcriod of live years, and the agreements with Mr. Cullen, Mr. Salerno ami Mr. Young are for a period of three years. Each employment agreement provides for an annual base salary, an annual bonus under Ihe Bell Atlautic short tenn incentive plan, an annual grant of stock optiuns, participation in the Bell Atlantic income deferral plan. a rctention incentive payable if the executive remains employed through the tenn of his agreemenl or for Olher spccitied periods, and a special implementation incentive relating In the proposed merger of Bcll 1\llanlic and GTE. The following table shows the annual salary, maximum annual bonus. value of the annual stock option gmnl, and other annual compensation p"yable to each executivc under thc~c agrcements. E:\~.:utl~t' Lmvrcnce T. Babbio, Jr. . .. , . . . . . . . . . . . . Jamcs G. Cullen. . . . ',' , : . . . . . . . . . . . . . Frederic V. Salerno .....' '. . . . . . . . . '. . . h'an G. Seidenberg. . . . . . , . . . . . . . . . . . . James R. Young: . . . . . . . . . . . : . . . . . . . . Maximum ,\nnuat Unnu.~ Olht'r Annuat CompclLwtlun Stuck Option Granl < Hust' Salary S 750.000 S 750,000 $ 750,000 $1,200,000 $ 475,000 $1,200.000 $1,20D.aOO S I ,200,000 $3,000,000 S 570.00() S 684,000 $ 684,000 $ 684.000 S 1,439.000 $ 370.000 51,125.000 $1,125,000 $1,125.000 $2,700~OOO . $ 570,000 IY-17 :.~~~/t~t:~:,1h;{t~'> ;~]'''r..; ~'>) '" "I ::;\~~. i, .~ > ,of' .":. ~'~ ~...t'~~)~ ,..:'I'I_~,.., ),.' J~. ;,\ {...!'i\, . ~ '~l~~~)>!~',::/:~l;,;".~.,q.:< ~,'.,I.',: ',', ' ", ~', I' " ,/:.<:,:':;':: ~'.:i~~~'7;::,;, :,' "~',::~;:~ ~~, ;, ,~'" . ; c ~ ~ ' ,t, " ;' ~ ; ,~ .... ,'II (~. j. ~ ' ' .. '.' , , , '>{i'\< ' , j " ~:;..,~"... '. ,t '.:; ,:,;,. ',. . . , ; , . '.. l.',.c. ,~'" , :i~.~'. ,r."' , '~'.'.:\ +;': ,,' 1:',., .~, '. " :/ ' " . , , '. ' , '. ' " ,(:'" I ~ ~ " '/;, , ' " :", ,:< , ' . '." , '., ,> '.t; .0 ':,. !' ,', , ; .; " .'.' j ,\ , , " " 0 , ',' "O'(:~,>i' ,:>>;".' , ~. , , ), " ' , , ',.' " > . 1. . I ~ ,,' .,.' u .,J" ,,' .', " \ " , . '.. I,' , " . }., , ' ,I' j ." ,\ " , "'. .' ~. p , l'., . . ~ ' " " ' " . ,~ I :', . I ,~'" .., : . . I'" c.,' .. .,' ','1 ~ .. . I ' . ~ <' ~" t" . ',' " ,.1", .. ,>',i Ii' , , ,:;".:At the end 'of Ute tcr~l of their employment agreements. each of Messrs. Cullen, Salerno, und Young j's ' entitled 'to 'receive a: retention incentive payment. Retention incentives arc also p;iynhle to ctlch of Messrs. : Bobbie nnd Seidenberg 'at the end of the third, fourth, and fifth yenrs of their employmcnt agreements; The, amount of these retention incentives will vary, depending (in'the case of'Messrs. 'Bnbbio, Cullen, Salerno, and Young) on the price of Bell Atl~ntic common stock. or (ill the case of Mr. Seidenberg) on the carnings ,performnncc of Bcll:Atlantie. 111c following table shows the value of ench 'relent ion incentive (including the , total valuc:of the incentivespayablc to Mess~, Babbio wid Seidenberg) as of Murch 31. 1999. 'ElleCiiUve .', + '.;'" ::'f'. 'J' ,'.1< , ' ,"Lawrence T. Bubbio. Jr., ......... '.' . . . . . . . '1:' .,. c , James G. Cullen ........................ , ,"Frederic V. Salerno. . . . . . . . . . . . : . . . . '. . . . . , ;van G. Seidenberg . '. ~ . . . . . . ; , . . . . . . . . . . . " James R. Young. ; . . . . . . . .'. .'.. . . . . . . . . ; . kclcntlnn Intentive $ 7,397,000 " '$ 3,170,000 S 3.170.000 S I 0,040.000 $ '1,057,000.., I ' ", ~~ \ " .' , Each employment agreement providcs thl1t if, during the period of the a8r~CmeJll, Bell Atlanlic terminates the executive's emp1.oymcnt without cause; or' the ~xcculh:e terminates his employm,enl on grounds of " "eonstructh'e discharge," th~ executive is entitled to receive specified payments and benelits that are substantially equivalent to the remitining paymcnts and benclits he would have received had he remained employed through the term of his agrcement. Under,cach agreemcnt exccpt for Mr. Seidenberg's, the exccutive will be entitled to terminllle,his employment on grounds of constructivc discharge following Charles R. Lee's , election as Chaimmn of the Board. as provided in the merger agreement belween Bell Atlantic and GTE. Upon completion of the merger. each executive wiII become entitled to receive hn implcmentatioll incentive projected to be equal to the following amounts, Executive , Lawrence T. Babbio. Jr. .............,... Jamcs G. Cullcn. . . . . . . . . . . . . . . . . . . . . . . . Frederic V. Salerno .............. .'. . . ~ , . Ivan G. Seidenberg ..............,....... Juntcs R. Young. . . . . . . . . . . . . . . . . . . . . . . 0 Tmplemenfutlon Inccnth'c $1,969.000 $1,969.000 $1,969,000 o $3.825,000 $1,140.000 The agreements with MC'isrs. Bnbbio, Cullen, Salerno and Seidenberg further provide that each shall be nominated for election to the Bell Atlantic Board of Directors ut each Bell Atlantic annual me~ting of shareholders during the h:nn of his agreement. Mr. Seidenberg's agreement also provides that hc shull serve as Chairman of the Board until completion of the merger. While Mr. Seidenberg will serve on lhe board of directors of the combined company. it ha~ nut becn determined whether any other cmplo)'ces.of the combined compauy will serve on lhe board of directors. Moreover. the combined company bonrd or directors, in , ,accordance with its certificnte of ineorpomtion, will detenninc the individuul~ to bc nominalcd for election us directors.. ' , IV - J 8 :: JJ ,. . 'i~. y' OJ; " , , .. > , ,; " , , I:. . " "'" , , ..\ i' .,.... '>, ~ "...........,. J , t ........d ~~~~~"~.>: ~ l. .' " -~. . ~, " ;, ',~~:.' ~ ~: i' I, .:' ~' ~ ~ : '; ",< f ;), ~'~I :"'" :' 1<' . "i ~'I,'< " " " . r' ~ "..,.'. > .'.. :::~ ."',;: ,:, ,.}I, " ...,.'\' :, ?>'" ' e~.- , ',:'..t '\:11' , Ie .' .,."" ,.,.,...' ': ' .' ,~-:-'~ " . '" . ~ _________r~~~ , ,- . - \ ,/' , I; , . ,,' . , ~ I' : ," , r '1, " " , , i, :\" Ie,. [ ',0 , " ':!' ~, ' . , . " . ,\ . ,', , .', ~ .. . "'" ...,',;,~~(.,~~< 'r'~,J" e~:~".~:!",~,~,~""",,,,:,,~,,".', .,1"._",...". > . - e, ", .' ''''. . v.....'...l'"'_"\..b'll;l'~.....r'; ,',~..' .', '.. e l~ . \I~'" " q.::'l Jr"V'" .- ,) '1'_4~ f' \~-) "I I " , t' ,". ITEM z.-:-BELL ATLANTIC MERGER PROPOSAL. ,I , ", ' , " ' , For summitry and detailed infonl1ution regarding the Bell Atlantic mergcl' proposal. sec Chapler 1-"Thc Merger." ITEM J-:.RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS' , '., Suhject to,sharcholder ralification, the BeJl Atlantic Board of Directors, ucting upon the recommcndation ofthe Audit Committee, has reappoinled the fino of Pricewater~ouseCoopers LLP, ccrtified public accountants, as indepcndellt accountants to cxamine thc financial statemenlS of Bell Atlanlic for the fiscal year 1999. Ratification requires the affirmalive vote of a majority of eligible, shares present althe annual meeting, in person or by proxy, and voting on the 'matter of ratification. If this appointment is not ratified by shareholders, Ihe Audit Committee ma}' reconsider its rccoITuTIendation. One or more representatives of PricewalerhouseCoopers are expected to be aI the annual mt!eting. They will have an opportunity to make a statement amI will be available 10 respond to appropriate questions. The Bell Atlantic Board of Directors recommends Il vote FOR ratification. .; ,ITEM 4-AMENDMENT TO BELL ATLANTIC INCENTIVE STOCK OPTION PLAN At Bell Atlanlic's 1985 Annual Meeting, Bell Atlantic shareholders vOled 10 approve Ihe Dcll Atlantic 19R5 Incentive Stock Option Plan. At Bell Allanlic's 1994 Annual Meeting, Bcll Atlantic shareholders approved amendments to the Stnck'Option Pian which, among other things, increased from 14 million to 25 million the n'umbcr of shares of Bell Atlanlic common stock, par value $.10 per share. that are aUlhorized to be distributed under the Stock Option Plan. In accordance with the provisions of the SlOck Oplion Plan, this ' aggregale limit was adjusted to rcnectBell Atlantic's two.for-one tilock split effecled on June 29. 1998. Shareholders arc now bcing asked to approve an amendment to the Stock Option Plan whkh would increase to 100 million the aggregate number of shares of Bell Atlantic common stock that arc authorized 10 be distributed unuer thc SIUCK Option Plan. Stock Option Plan Administration nnd Pnrtidpation , Under the Stock Option Plan, approximately 261 senior managers and 1,510 middle managers were grantcd oplions lo purchase shares of Bell Atlantic common stock in 1998. Thc grunting of stock oplions is adminislcred by lhe Human Resources Commiuee of the Bell Atlantic Board of Directors. The comminee selects those Bell Atlantic employees to whom options arc gnimed, the timcs al which options me grantcd ilnd expire, and the number of ..hares which may bc purchased upon the exercise of oplions. The purchase price of stock subject to options is equal 10' the market value of the slock on the dale lhe option is granted. Options may be grantcd as incentive stock options. which are intended to qualify for favorable federal tax treatmcnt, or as nonqualilied oplions, Options may have a term of up tn len years as dctcnnincd by the ~ornmiuce. The cmllmillee. in ils discrelion. may permit the purchase price 10 be paid in cash. in shares of Bell Atlantic common stock 01' in a combination or cush and stock. The Stock Option Plan provides for "reloud" options to bc granled al the discrelion of the commiuec. If an eligible option holdcr lenders previously owned Bell Atlantic sharcs to exercise oplions which include the "reload" feulure. the individual will automatically be granted a number of l10nqualilied "reload" oplions equal 10 lhe number of shares tendered. "Reload" options havc un exercise prke equal to the fair market value on the dUle of the "reload" grant, and expire on lhe dale on which the oplions exercised would huve expired. Tux Consequences There are no tux consequences' to lhe option holder or Bell Alluntic upon the grant of a stock oplion under lhe Stock Option Plan. On exercising a nonqu'lllilied sluck option. the option holder realir.cs ordinary income to IV-19 - _,MrlI( .. . _.~ :...- --Ll>(l --~~.~~ -~. ,'..,' ';/ ,:';;':'\',')',;, ,~:\ :~\:,,::, . ~: '.."' , , -, \ " ';'. ' , ' ': <. . ~ .\~,\.., ,: 1./ : ;";'..;,' ',". . " . " ,..' I' I I" ,. , , "i", " " , L' ,', ( n' :- ",t': " . ~r_-...~_ 1 ~' , , , ~-l " , >, , ", I / . ': , , ,',\ ;cl . 1 , " . :;~ :'.: , '. ~ , \' . ,:'> ,\ ,: '" . c' ~ ' . , ,. , , ' " , I " F ,,'~ :~~,~c{~\~;\.'~'~~~:':~~>'\,;;c~"\~", "~"., , ..'r , . .l,.. ~'~ I.,. I,,' the ex.tent the markct "alue ,of the "tock ex-ceeth; lhe clterdse price. nndBcll Atlantic may clahn Illnx. dcd'uction of cqual amOUnt. On exercising an incentive stock option, the opt.ion holder realizes no o>rdinary income for tax , purposes. "nd Bcil Atlantic receives no tux'deduction: When incentive slock option shares arc soJd'rnorc than one year after the dute of e;wrcise and two years nfler the date' of gront, the differcnce betwecn the procceds of ,sale and the ex.ercise price is n longatcrm capital gain (or loss) for the option holdcr. Such a snle within 011C year of excreising, an incentive stock option (or two ycaTS of the grunt date), however, is a "disqualifying disposition" resulting in ordinary income for the option holder on the spread betwecn the exercise price llnd the , Icsser o.r the market vuluc 'on exercise date or the proceeds of the .sale. Iu that event. Bell Atlnntic mllY nlso clllhn tl deduction of equal am'ount. If the proceeds of sale from the disqualifying disposition cxceed the market , value on the date of e'xercise, the option holder realizes a short-term capital gain on that excess. but the excess is not deductible by Bell Atlantic. In the abscnce of a "disqualifying disposition," the spread hetween the , cxercise price of nn incentive stock option and the market vulue of the stock on the date of exercise is a'tax preference which. under certain circumstances, is subject to alternative minimum tax. .'....\. Amcndincnt " The Stock Option Plan may not be amended, without shareowner approval. to; (a) increase the aggregate number of shares of Bell Atlantic common stock available' for distribution under the Stm;k Option Plan or the number of oplions which may be granted to an individuul in a single calemlar year (except for ndjustments to rellect sto~k dividends. stock splits or other recapltalizatio,ns); (b) decrease the purchase price of option slock; or (c) extend the period during which options may be exercised. On March 23, 1999, the Board of Directors tlmended the Stock Option Plan,' subject to shareholder approval. to increase the number of shares of Bell Atlantic common stock authorized to be distribuled under the Stock Option Plan to 100 million. Shareholder approvul requires the affirmative vote of the majority of lhe eligible shares present ;It the annual mecling, in person or by pr~xy. 1998 Grnnts'nnd Stock Price InFormation '>.- .~ The number of options granted in 1998 to the six most highly compensatctl individuals is set forth in column (g) of the Summary Compensation Table in this Chapler IV. The following table sets forth the number of options granted in 1998 to Ihe following groups: All Executive Officers. . . . . . . , . . , . .. . . . . . .. > :2.695,716 All Other Employees. . . . . . . , . . . . . . . . . . ~ . .. 21.365,752 The closing price per share of Bell Atlantic common slock on April 9. 1999. as reported olllhe New York Stock Exchangc Composile Tape, was $55.88. Stock options constitute the sole long tcrm incentive component of executive officer compensation. The Bell Atlantic Board of Directors believes that this proposal. which is necessary for the continuation of the Stock Option Plan, is in the best interests of Bell AlIan!ic's shareholders and recommends ils approval. The BcU AtJunUc Board of Directors recommends l\ vote FOR this proposal. , - ,ITEMS 5 THROUGH 9-SHAREHOLDER IIROI'OSAI.S The shareholders named below have lOld us lhal they intend to have the following proposals presented 1II the Bell Atlantic annualmceting. Approval of II shardmldcr proposal rcquires the afOrmativc yule of a majority of eligible shares present .It the Bell AlIalllic unnuul tlIcelil1g, in person or hy proxy, and voting nn lhc matter. The Bell Atlantic Board of Directors has concluded that it cannot support lhesc proposals for the reasons given. IV-20 < i \........T". i' .,I;.~:i~i:J..~";:: :,..'" " I ~.. c: j '. I .', " ,\ : : .~ . ' . ",.., <,.,.,.~ ,~' ,~ I : ::l;!'.,f~:,~,: .' :;':' " ", I :.. " .. ~ J. ., ,.:1 .\,. : 1, ~~. " ;- ,,'jl, ' --~~-~---~- , ~ I '. ;: . < ~ . , :>' f, ;,'.. < ': " " , I,', , ',. ~ \.' ' , ,j' , , ,';> , " ,', , ' " " ,~ " I " ,. I "~I ',C l ~ ~..., l' '>'::"~':,)!::\ \, ::.;~;(::,:,I,F(;~,}';::::~l"':;~'l\~"..~, ",' .,.:,.:,:<....;, ,.)~,,1, :,," , '. ," , , d~,. I ~~, , .' I,'if :J ,I, ...,.......... (. ') ....,.,f..... I ! ' \ , ,--,"/ Item 5 on Proxy Curd: , MrS. Evelyn Y. Davis, Wll~crgate Office Building, Suite 215.2600 Virginia Avenue,NW~ Washington DC 20037, record owner of 424 shares of Bell Atlantic common stock, proposes the following: ' '"RESOLVED: That the shareholders recommend thut the Board take the n~'cessary step that Bell Atlantic specifically identify by name and corporate title in aU future proxy statements those executive officers, not otherwise so identified, who arc contractually entitled to ,receive in excess of $250.000 llnnunlly as u base saliny, 'together with whatever, other additional c~mpcn.,ation bonuses and other cash payments were due them. REASONS: I' " In support of ~uch proposed Resolution it is clear that the shareholders have a righuo comprehensively cvaluate the management in the manner in which the Corporation is being operated and its resources utilized. At prescnt only a few of the most senior executive officers are so'identified, and not the many other senior executive officers who should contribute to the ultimatc success of the Corporation. Through such additional identification the shnreholders will then be provided au opportunity' to better evaluatc the soundness and ' efficacy of the overall management. Last year the owners of 132,659,422 shares, representing llpproximately , 12.3% of shares voting. 'Voted FOR this proposal. If you AGREE, please mark your proxy FOR this proposal." BELL ATLANTIC BOARD OF DIRECTORS' POSITION: TIle BeB Atlantic Board of Directors docs not believe the adoption of this proposal would impart allY 'meaningful additional infonnation to shareholders. The Bell Atlantic Board of Directors believes that the disclosure requiremcnts of the Securities and Exchange Commission clIrrcntly provide shareholders with suflicient infonnation with respect to comp~nsation matters. In accordance with the Securities and Exchangc Commissioll's rules, Bell Atlantic already provides detailed information ill this joint proxy statement t1lld prospectus regarding the compensation of it'i most highly compensated executive officers. including the terms and conditions of any contructual agreements. The Bell Atlantic Ronrt! or Dlrechn'S recommends n vote AGAINST this propusnl. Item 6 on Proxy Cnrd: Mr. Robert S. Kopach, 4309 San Carlos Drive, Fairfax, V A 22030, who owns :WOO l\harcs of Bcll Atlal1lic common stock; proposes the following: "RESOLVED: I recommend that the current Short and Long Teml Incentive Awards for executive officers be abolished. The new Short Tenn Incentive Award, I propose, will be tied proportiOlwlly 10 the price of the stock at )'ear's end. For example if the stock price were up 20% al the end of the year then the incentive would be 20% of lhe executive officers' salaries. REASONS. I. MUI1t1gement is adequatcly compensated by the salmy alone as illustrated in the Summary Compcnsation table. As shareholders our money is at risk as arc the EXcl;utive Unicers' bonuses. Under my short term incentive plnn executive officers' salaries would be aligncd with shareholdcrs' returns. This would bc achieved by tying their bonuses to the stock price appreciation. 'nlis would be clear nnd fair. 2. There is no need for any Long Term Incentive Award. Under the current incentive packagc the officers arc getting rich at lhe expense of the customers, employees, and shareholdcrs. In 1997 the executive oflicers were compensaled from 140% to over 225%. These compensation plnns keep going up and up. It has gotten completely out of control. When und where will it end? My plan would pUl a necessary Umit on this abuse of these compensation puckages. We need to bring jUl\ticc and equily back IV.21 " " (, I , c.~ ' , ". , . 'r ~, :..; f ~ ~ , f ..'. I. , ( '. -. ,< '~." /' , I . {,l ~,:." ,,"1' t.' ( ~ , " ,,' ',.1 ,,' /, ,', " > . ~ r';' ~ ", ..,.' ! -I ". , " I . ",1>). ':' ~..':~~(,~ ~:}};...\':~.~'\~'.':::(('t~~'~~uu,:.i .J c. " > . r . '" . I'!,..,. , , ~ .' into the workplace. 1llerc is too big n gap between the pay of the average worker and the pay of the, ExccUlivc Officers. The salary an ExeclItive Officer makes in a few years far exceeds an nverage worker's . tifetimc earnings. Bell Atlantic ne'eds to set a,n ~xample by installing my proposal and becoming u leatler .in this rcrorm.' ' , 3. ~ The only reas~n management ge'ts away with this abuse of power is that most shareholders do, not take the time to read the proxies or vote. They are trusting management to do the right thing. The mediu llceds to do more to e'xposc their high salaries und excessive compensation packages. They should not fcar the loss of the corporate advertising dollar. They should fulfill their obligation to infonn and educatc t~e public. ' 4. Management needs to be held accountable. A vote for my proposal will scnd u clear message to management that they work for us, the shareholders. Let's make it right and make managemcnt wulk the , talk!!". . .... " BELL 'Al'LANllC BOARD Of' DmECTORSt POSITION: , ' ' As explained ill detail in the Report of the Human Resources Committee on Executive Compensation" compensatiott of executive officers is set at levels which arc intended to be sufficiently competitive with, 'compilllies of similar size and complexity to permit Bell Atlantic to attract and retain the bcst possible individllals. Bell Atlantic's compCI1S~ltion plans arc structured to provide incentives for executive omcer performance that results in continuing improvements in Bcll Atlantic's financial and operational results und total rctum to shareholders over both the short term and long tenn. Since a significant portion of incentivc compensation is in the form of Bell Atlantic stock options, the amount of value generated for Bell Atlantic's shareholders is a ke.y fuctor - but not the only factor - in determining the vnlue ultimately realized by executive officers under the plans. 'In addition to stock price, executive officer compcnsation is based on u number of other factors, including Bell Allnntie financial performance, customer satisfaction and individual perfomulnce. The Human Resources CommiUee believes tbnt this combination of incentives for executivc officer performance is in the best interest of shareholders. The Bell Atlantic Bourd of Directors recommends a yote AGAINST this proposal, ~"': ; ~ Item 7 on Prox~' Card: Edwin J. Ward, 32 Angela Lane, Bay Shore, New York 11706, owner of 3,442 shares of' Bell Atlantic common stock, and Robert A. Rchm, 5 Erie Court. Jericho, Ncw York 11753, owner of 3,575 shares of Bell Atluntic common stuck, propose the following: "RESOLVED: That the shareholders of Bell Atlantic urge their Board of' Directors to seek shareholder approval for all future or renewed severance agreements with the Compan{s cxecutive officers, including so- callcd "golden parachute" and "golden good-bye" sevcrance agreements, that provide more gencrous pay. outs than the Scnior Managemcnt Retirement Income Plan available to other senior managers. For the purposes of this resolution, "goldcn parachutes" are defined us severance agreements triggered wh~n executives arc terminated or resign after :l change ill corporate control: and "golden good-byes" arc defim~d as ~ever'Jncc p~ymcnts made to cxecutives who terminate their employment voluntarily. including early retirement, or who ure terminated without good cause. Supporting Statement: "Golden paruchute" and "golden good-byc" severance agreements arc among the most lucrmivc and anti-shareholder executive compensation benefits. The Company's principal executive omc~rs arc covered by multi-million dollar "goltlen good-bye" agreements triggered not just by u threatcned change in control, but by contingencies including the dcparture of CEO Ivan Seidenberg, or their own temlination for reasons nol rising to the level of "grossly incompetent performance," frautl or conviction. Without shareholder .:onscnt, such severance agreements create potential conflicts or interest and underminc shareholder confidence that executivc pay is properly aligned with the interests of shareholders, IV-22 , ' . ~,.~...,~~l ;~ i ~ ; }:: }~~~~.; >/ ;,,:,... ~ .... ,,:,t~': ; /},l,l:c...,~: ~', ',1 ;'. l\ :.:'<<:, I It, .. ,: ,\, ' t,:' " , , '.: ' l """ t. ~',~~ :',. t, .. ~ \:L~!;:Y \ . , .:;;~ \ j 'T...,,"~.; )! , j~ 't" " - -----~-......-------_. . . ---- --;-- j ii ,j , , " , " " ~ ' " 1',.\' ,~ :. < ". , ' ;. ,l,. . c,.~,," :'.: t:r J1>~;.:,k,~.:f:~ '/:,'J~t>.~:~... ~': :'. >. ", ..,.. . "Wo" , ~ ~. At last year's Annual Meeting, nearly 350 million shares (32.4 percent of the votes ens!) were voted in favor of this proposal. Resolutions requesting advance shareholder approval of golden parachute agreements have been approved by a majority of stockholders voting nt six public companies since 1990. , Requiring sl1archol~cr approval of golden severance agree men,s is popular for a very good reason. Directors, il1c1uding outside directors, typically 'owe their lucrative board appointments to incumbent management. Shareholder 'approval is even more crilical al Bell Atluntic becuu~e six directon. arc Company officers covered by golden severance agreements -. and only a minority of the board (9 of 22 directors) arc outside and independent directors free of financial conflicts with those officers~ In last year's proxy, management opposed this 'proposal, Slating that the Compuny entcred into "special, limited agreements with the six employee Directors relating to thdr possj~le departures following the Company's merger" with NYNEX. Yet subsequently. the Company's Form IO-Q filed last August 13 reveals new agreements with six top executives that arc more lucrativc and anti-shareholder than the 1997 agreements. For example, alth<lUgh management suggests the parachules were neccssitated by the NYNEX mergcr, the ncW agreements promisc three executives (Babbio, Cullen and Salerno) continued nomination t~ the Beard of' Directors during their Tenn of Employment. In addition', these officers (and three others) are promised millions of doltars,in liquidated damages if (nmong other contingencies) "Ivan Seidenberg is not elected Chairman of the Board by December 31, 199H, ods removed from or resigns from that position during the Tcnn of , Employment: . . or there has been a "change of control" of Hell Atlantic" (with · 'change of control" defined broadly to include any acquisition of 20 percent or more of the company's voting stock without Board approval). Apart frum the outrageous terms of these parnchlltcs, golden sevemnce agreements have proven to be extremely costly to sharehoJders. A J996 JRRC study of 55 recently merged companies that disclosed cash- only severance pay-outs triggered by a change in control, total payments by eac:h company ranged from $750,000 to $75.5 million - with a median pay-out of $11 million. For example, in 1995 Scoll Paper's board awarded CEO Albert Dunlap a golden good-bye se\'erance package valued at between $90 and $100 million. A 1990 study of t ,000 major U.S. linns by the United Shareholders Association found Ihat lhe averugc annualized two-year return was 20 percent higher for the 559 companies without executive golden parachutes. We urge ull shareholders to VOTE FOR Ulis proposal." BELL ATLANTIC BOARD OF DIRECTORS' POSITION: The Bell Atlantic Board of Directors cOlllinues to believe that a blanket prohibition on the use of employment and sevcmnce agreements with executive officers without prior shareowner approvul would unduly restrict the key Bell Atlantic Bourd of Dircctors' function of hiring. relaining and. whell nccessary, terminating executive officers of the company. Bell Atlantic docs not enter into such agrecments on a routine basis or with large numbers of executives. Agreements arc based on case-by-case assessments. by the Bell Atlantic Board of Directors' Human Resources Committee, of an executive's past and future value. eUITcnt business circumstances, und, other strategic considerations. As noted by the proponents, Bell Atlanlic has entered into employment ugreements with ils most senior execlltive oflicen. in conneclion wilh the pending merger wilh GTE, The Bell Atlantic Board of Directors believes thut these agreements arc reasonable and appropriate to ellSlIre complelion of the merger, an elTective integration process illld realization of the merger's benefits. The Bell Atlantic Board of Directors lirmly believes thulllgreements of this type, when used julliciously under appropriate circumstances, promote shareholders' interests by enabling the company tu recruil und retain the most qunlHicd executive officers to lend uur business, In many cases (e.g., mergers, unexpected executive departures. etc.), it ~vould simply not be feasible for Bell Atlantic to wait the sevcral months necessllry tu l'eek IY.23 ,4,. ~:' '. ~ . " ' " -- I " 'I, " ' ! .!, , ' .', . I., .' . ,.,c'~~':\;~~ ~. l . '. ,~ !, I' . " ': , ',' ',;, , " " ' , , 1 " " , .. ' J . ~.. ;- , " , l'< ',..,i:.~.~ ~'/~I.~;~;,:"I\.;..--i~';;'h~~~ :;. , ~hllTcholdcr approval before acting. Accordingly, the Bell Atlantic Bomd of Directors has concluded it should retain the nexibility to use,such agreements, where they are appropriate, without the requirement of shareholder approval:, ' The Bell Atlantic Board or Directors recommends a vote AGAINST this proposal. Item 8 on Proxy Cnr~: The Association of BellTel Retirees, 157 Main StreetIP,O. Box 33, Cold Spring Harbor, New York 11724, which owns 214 shares of BeU AlJantic's common stock, and John A. Parentc, 2805 Granville Avenue, Schenectady, New York 12306-2225, who owns 11,014 shares of Bell Atlantic's common stock, propose the following: " ,"Resolved: The shm:holders of Bell At/unlic urge the Company's Board of Directors 10 tuke the stcps necessary to amend the Company's By~Laws, after the .1999 annual meeting, to provid~ thut the Board of Directors shall consist of n majority of ;l/(lepP1ldellt directors and that no more Ihan two directors shall be eurr~nt or former senior executivc officers ("insiders"). ' , , ' For these purposes, the definition of independent director shall mean a director who: , has nol been employed by lhe Company or an,affiliate in the previous five years; isnoi a r'clative'of any member o'r the Company's manage'ment; provides no other'pcrsonal or professional services for pay 10 the Company: is not employed by a significanl supplier or provider of professional services to the Company; is not employed by a foundation, university or other nonprofit institution that has rcceived u grant or endowmenrfrom the Company within the last five yeurs; is not !In officer of a company on which any of the Company's lOp five execulive oftker,~ also serves us 11 board member. Supporting Statemenl: Only 9 of the Company's 22 direclors - 41 percenl - arc independent, making Bell Atlantic one of the least independent boards among Fortunc 500 companies. By comparison, an average 66 percent of thc dircctors of U.S. companies with market capitalizations over S 10 billion are independent, according to thc 1997 BOClrd Practic:e.f study by the impartial Investor Rcsponsibility Rcsearch Center. Of the 1,165 companies in that study, only 2 percent (27) had as many inside (employee) direclors as Bell Atlantic. According to lRRC's 1998 analysis of the Company's governance: "Bell Atlantic's board is unusually large, and it includes an unusually largc number of employee direclOrs for a large-cap company." To effectively pcrform their role as monitors of management performance, directors must nol be IIlunagcmcnt cmployees who report to the CEO and whose earcers arc at his mercy, in addition to the six employee directors, sevcn outside dircctors arc nonindepcndent due lo board interlocks, or because their own orguni7.ations receive substantial grants or fees from Bell Atlantic. Specifically. three outside directors (Stnffon!, Goldstcin and Pfciffer) hold intcrlocking directorships with comp"ny officers. IVllll Seidenberg, our Company's CEO, sils on the boards that employed and set salaries of board mcmbers Stafford and Goldstein. Three othcr outside directors (Price. Kcnnan and Kcan) hcad nonprolits that receive substrllltial grants from the Bell Atluntic Foundation, A seventh oUlside director (Klipllln) is Of Counsel 10 olle of the Company's primary law finns. And, although not technically wilhin the widely-accepted definition of board independence restated above, un eighth outside dircclOr (Shipley) could be inl1uenced 'by another nonilldepcndent direclor (Stafford) who sits on his company's hoard (Chase Manhattun Corporation). IV -24 ~, " -, { J . ",t I ',~, " " \~. '; '~.. :', ': ,n\:;'.,,;,"",.: , , ~ c ~ . '.' :{, '..',.11 <~:,~: :': :", ~':~' . c .'!J ", 'il,1', '\' ::"; ',.. J' :.'" .~ ~ , " .. I,. 'j '; " ~, " , : '~ :-/ , I ~ ., . I < t ., " " , \ I'.' . t" ,.< ). , ~ i :"', ;,:~: i:'f~>:::-': r:: :~'~~:"':,;", .; '0~'\~'" ~:,.~ < '.:',,, ..~: ,: ,;,.,<L: '.' ~"~: '\" H'., , " , (: " '. ) ~' '1 I", i t '"\~:':.~} , \ .J ~, ~ " ~ - + ,\ 1 L I r I ! , I. :, , . t ' i " ,'cj , , t ,:.""'.... \, 1 .. , , r~...1.tU~ ... ' j ~ ,,' There is n widc!opread consensus that u mujority of truly independent uirectors is crilicallo ensure investor cO,nfidcO\:c that top managemcnt is being held accountable to shareholders. Among the business and , shareholder groups that endorse i1 majority of independent directors ure the Business Roundtable, thc Nntionul Assodnlion of Corporate Directors (NACO)., the Council of Institutional Investors (ell), the Californin Public Employees Retirement System (CaIPERS), the lnvestor Rights Association of America (lRAA) and the Association of BeUTel Retirees. ' , , . , In November 1996, the NACD,published l1 Blue Ribbon Commission Report on Director Profes:fiolltllism that took 11 strong,stund' against board candidates who have business relationships or interlocking directorships , with Company officers. "Boards should ensure that any director candidutc under consideration; with the exccption of their own CEO or senior managers, is indcpendenl," thc NACD report stated. ., , Financial studies support the argument that independcnt directors can enhance share value. Companies with'indcpcndent boards rec~ivc higher initial tender offer premiums, conclmlcs a 1996 sludy by Professor James ~olter in the JOlln/af of Financial Ecollomics. Target company gains are "about 20 percentage points greater when the boa~d i~ independent," he found,",' c An amendment 10 the Company's by-laws is the only wuy to ensur~ that the Board wiJIat an times tcnd 10 opcrnte independent of management control. We urge )'ou (0 pietiSt' VOTE FOR t!lis propo.m/." DELL ATl.ANTIC BOARD 01<' DJRECTOnS' POSITION: The Bell Atlantic Board of Directors wholeheartedly agrees with the main premise of thili proposal - that the Bell Atlantic Dunrd of Directors should consist of a ,majority of independent directors. In fact, the Bell Atlantic Board of Djn~crors has consisted of a Illujorily of such independcnt directors, under any reasonable detinition of independence, at all times since the company was founded in 1983, The Bell Atluntie Board of Directors is confidcnt that the types of relutionships referred to by the proponents do not impair in any wny the independence of the individual directors named, nnd believes thm there is no basis for the proponent:,;' statement thutthe Bell Atlantic Board of Directors is "insufficielltly independenl of management". There is nt) need to include the Dell Atlantic Board of Direclors' estublished commitment to independence in the bylaws. Furthermore, the Bell Atlantic Board of Directors docs lIot believe that ~l commitment to an independcnt board leads 10 lhe conclusion thm the number of cnlploycc directors must be Iimilcd to all arbitrary number. In connection with Bcll Atliullic's 1997 merger of equals with NYNEX Corporation, the Dcll AtlantiC Board of Directors was restructured to include thrce employee Directors from each of the two companies. The management ilnd boards of bulh companies believed that it was important that thc new board have a maximum exposure to, and business informatiun from, thc most senior executive onicers of each compan)'. It is expect cd that bolh rhe size of the Bell Athu\lic BOilrd of Directors anu thc numbcr of cmployec directors will be reviewed at the time of completion of the GTE merg.er. Given the Bell Atlantic Bourd of Direclors' hislllry of indep,cndencc, and concerns thm uny bylaw llrbilrllrily limiting the number of employee directors would unnecessarily rcsllicl its flexibility to tnilur lhe number ~f employee JircclOrs (currenlly fivc) to changing business circumstances, the Bell Allunlic Doard or 'Directors has concluded thill it cunnot support this proposal. The Dell Atlantic 8Qtlrd of Directors recommends a vote AGAINS~ this proposal. IV-25 ' ?:?(;':,;:,\;,,:~,\:,~: ::>~ :::t>,,' ~;T-.':i~~, ", I, ; ;1; , " , ,,', " '.' ',: I ::. ":/. . :\," , / , I' . , , ,'~' ~' , . \ ,~ I"., \' ,,',' ,.., 'j' . 'I I..' :' I:. ." ,el, . , , " }' ", I ".~ , '. . j,' " " , I, '" , . ~ , " , ,"\1 , . :/ :', .' ~,~' :,,' , .,h .'c , " ,', i '.,1,. " r I ~ . , ,', !', " , . ,', " J' , ',' ,I' > ,. ~"I'IU';...~:/.' ,:-l'''I~\i(:~;~~,!i~I~:~~4! :~~::~.'l~:I"'h~::M , ,;," . " , ",>, .~,;. "~ ". , ~ . " ~, '. " > c ,I ..... ..._. t~, I "J, :,1. Ite,m 9 on Proxy Card: , ,Mr.!wniiulTI A. Cook. Jr., 3008 LoClon Rd. SW, Roanoke, VA 24018, record holder of 554 shures of Bell At1Wlt1C'S common Slock, proposes the following: ' I , ' " ,,.........,,,, \ J 'r,..," .', , "Request: That the Board of Direclors take the steps necessary to assure that no person shall serve on the Board of Directors unless such person owns directly at least Two Thousand (2,000) shurcs of the Company's common stock at all times while n mcmber of or nominee to thc Board of Directors. This owncrship requirement shall apply to the Board of Directors at mectings subsequcnl to the 1999 annual meeting. , J ," , Reasons: If a DireCtor docs not have cnough conlidence in and concern for the Company to invest a reasonable amounl of money in the Company's stock, he/she may not have the Company's shareholders' bcst interest foremost in hislher decisions, If u Director's investment is small. any loss dlle to U poor decision will also be small. The Proxy Statement for the 1998 Shareholders' Meeting showed the following beneficially owned shares: :~ Carrion. . . . . . . . . . . . . . . . . . . . . . . . " . . .. 819 de Vink, : , '. . . . ,'. .'. . . . .. . . . . . . . , , , .. . ., 943 Gillinnl . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 254 Ncubauer . . . . . . . . . ; . . . . . . . . . . . . . . . .. 241 O'Brien .'...,.... , . , . , . . . , . . . . . . . . .. 594 Price. . . . . . ~ . . . . . . . . . . . . . . . . . . . , . . .. 599 Ridgway. . . . . . . . . , . . . . . . . . . , . . . . . . .. 642 Young ..............,....,..... '. . .. 672 , " ; , Th~ value of their l';tock is h'~'.\' than what they receive each year us annual retainer, mecling fces and stock options. " ,'" '. " BELl. ATLANTIC BOARD OF DIRECTORS' POSITION: The Bell Atlantic Board of Directors agrees that it is desimble for its mcmbers,lo hold a significant equity interest in the company, and has in place a requiremellt thaI is morc slringcnllhan this proposllJ's larget. As stated in the s~ction entitled "Security Ownership of Directors and Officers" of this joint proxy statcmelll and prospectus, directors arc required to hold u minimulll of 5,000 shares of Bell Allantic common slock, 10 be acquired over a period of not longer than live years after cstablishment of the rcquircment or the director's first elecliot1 to the board. To ussist directol'li in meeting lhis requiremcnI, u portion of all directors' compensation is stock based and, in addili'on, directors may defer u11 or purt of their cash compensation in share equival,cms. 'The shlJrcholdcr proposal fails'to take into account thc substuntial investmcnt of director funds reprcsented by voluntary defclTuls into share equivalents, which carry the same economic risk us direct share holdings, and th/:reby significantly undcrslalc.~ the interesls which the named director!. have in Bell Atlantic. ' The proponent's suggestion to require director candidatcs 10 own 2,000 shares of Bell Atlantic common stock. [Jrior 10 their nomination could have the effect of reducing the pool of potential candid utes to those who could afford such a significunt immediatc purchase. The Bell Atlantic Board of Directors bclic\'Cs that limiting 11 pool of calldidulcs in such a manner would be inconsistent with the board's goal of maintaining a bOllrd of diverse, tulented individuals. The Bell Atlantic Board of Directors recommends a vote AGA INST this propusal. 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" , J ", ',I t,' l <,.' ,,' I . ~ ' " c, Ii: " " " " ' ':.~ '~l ":i: ~; L.... , C F,~' , ~':::\,: ' , , . . . , .' ~~ ' " ' :,'t: ~' .:: 'I. "f,j~'~;;'i ,';~, 1"/;.', ,-; ,.'" I"':' : . ~ . \:! 1 , ',' {.~' :, ' .'\'1:.' : \ ~~;~J( :.;,1 .' ~,\i . ';'J" ': '..';'l,:' <t, ", "l.l ' " I" :~,l "0:1, ~~~' ': ' ~.H~:. . '::1' ' /' , (: '.1 " ' SimMlSSION OF SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS , :', Sharchoi~ers.wishitig tohuve a t)roposill included in the BeU Atlantic, BOllrd of Directors' 2000 proxy, statement must ,submit the proposal so mat the Corporate Secretary receives h no later than December 14, 1999. 111e'Securities and Exchange Commission's rulcs set fOMh standards as to ~hich shareholder proposals arc required to be included in uproxy'stutement. Also, in the case of shareholder Ill'Oposals which are' not included in the proxy slat'emenl, the Securities and Exchange Commission's roles specify that certain requircment.. contained in the company's bylnws need to be followed. The bylaws rcquire any shareholder wishing to make n nomination for director. or wishing to introduceu proposal or other business, at the year 2000Betl Atluntic Animal Meeting of Shareholders to give the comrany advance written notice thereof no latcr than 90 days prior to the anniversary date or'the 1999 Ben Atlantic Annual Meeting of Shareholders, or February 19, 2000. Shareholders may request a copy of the bylaws from the Corporate Secretary, Bett Atlantic Corporation; 1095 Avenue of tl1e'AmericllS. 38th Aoo~, Ne\~ York,'New York 10036. OTHER BUSINESS Bell Atlantic is not nware'of any olher mallers that will be presented at the annuul mc'eting. If other matterS arc properly intrilduc.:cd, the pcn;ons numed in the i1ecompanying proxy will vote the shares they .' represent in accordance with thcir judgment. ,h.' I .. ; , ;t ' I,w,,,, <::) ~ . [V~27 I' ,", -"-4-1'-;- ", ',11 ,','c " ' " ,., ',1, , " , ,~' ;, ': ) ,I ",' '," '11 c' .,', J. \ 'J-", ' , . +' ,";. ! , " "":\ :' , ":, \ ~ '.t .' . " . ,'. /i I J " I' , '" .cl \ " j, I I , , r . i ! , ; I , l \ , ~ ~ ( r \ 1 ,\ \ "~~yr~,'(;~;1tt';}>rIY;',i>:'-i1(,j"":',l\I~'..+\I:'; 'ff.!'" '.~,. "\ ;'t ':1;,'" ',,'i"~":f' ~'\l" .:, "'c. '^ .' .. ." , '" " -~ : 'l ,~('~~1f~~ii~'~~hmyS:,';:~ :j':;;:~,1>i'~~:j~\,bi~~ ~:!j;';ih\";~~'.>r;i~ ':;>.:,~';": '1"',\ {?;::.?~:~~\ ;'\':~ :-..",,:1.;,:,.:,; :">":~~:~ :!.",';'~,:;;. :':,.;,';:::,(iF:::r;;':~\t:\ ':, :!.:;',( }\' ;.'t>\}i: (-.,;, :'r'.~,:','.::, /.\~~'j!i ,'0 ""I"f~',;~, ';,.'/{""'t!. ':~":<~;"("~"I,,,,I,,I"J; 'j\I', ,'. 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",<' '.loJ ' I . ~ ' , ~ ~ , . ~ q ./" , < . :;:", :'l. 1, ,':. ,l ,(";'", ' , . >.". ':, :1 j :~~'" ~ . \ ' J .' '~J '.. ~ ~.:'" . ','I , " , ' 1 ~ t : j : J ' ~ ,:' , , f,i.'~N' , 'i,'!' ~.', " ~ .; '1. ',' , , c' .' I, . ", ~ ~ '. " ,<,.:,'> . > ~ ~ c,' .' I . ' "': " "',~ 'J',~ . 'T' '" , , l , ',;'~ 'l . ~ ~ .': . . ": ' , . I' ':I\~l " ! I' :, t I i , , '. . ". . ..' .' ,', , . \.., ',: ~ ',~, , f~ , , .." " , I: E". " " ,,"; , [Tln~.'PAG~'INTENTIONALL Y LEFT ~LANK] , ' ~ , \' " .: . ~ i, ~. t " ,........;'..... \< .~ J \ "..~~ ! , .",~. " ., j,. :1 ' '" 'I '. ';L '. " .' " ',' " " ' , >~ . ; , , " " . ! ~ ". " ;, I, , : .. 1 r \' IJ , . , I', " '. w,';;:i:~'F'~;7~,5~,'I:"','~ ",,\(; ":.;. ,',; (' ~ ~. '. : .' ,:J ' ' 'I:>: : . \,' " .. ---......--...-- , , -.-..- ..... '" - ., I '.. " j' " , ' II . i( >1 :1 :'1' " "'.:T', I, ::"'t. ' j' ,~ I' . 1'1,.'; ',~~, ' ' :' . I I ','",. , ~'t .. .\ C , ." "J .. ~ . t ~ , " ::c " , .:' I . ~.. ~',' . , ' , ,.' , +.' " ,." ;.: " , , ". ')", "'. :", \ '. I , J .:<' .' ':. ',. . , , , , ' ',t. " ',,", ~ ','. J ',l', '" I ,', ,i, "I , , ,. ' if ' ' " ' :. ,~ .' , , , /; I.':;;" ~::', ,:,;~)~i~~(;~,~',~'.~~,\;?:-;:,;~;~.>. ' ,., ',,' '" ~ ,. .' ',' ,', "'f)' J-. r;, I' h , " I, 1,>: i '" Ft.....L,'l\ t "\ '....VI,.,... ~ .. " " , ' '. ~ c . < . g, "'<' ..___.. ..,~',r, :~"'~,. "., CHAPTER V~WHERE'YOU CAN FIND MORE INFORl\t1A TION " ' OTEilOd Bell Atlantic file nnould. quarterly an~ current reports, and proxy statements nnd oilier , infonnntion with the ~ccurities and E~change Commission. You may read and copy any of those mlltcrinls we file ut the Securities and Exchange Commission's public reference rooms in Washington, D.C.. New York, New York and C,hicago, flfinois', Please call the Securities and Exchange Commission at I-800-SEC-0330 for further infonnation on the pubHc reference rooms and their copy charges. The Securities and Exchwlge ' Commission filings of GTE and Bell Atlantic are a150 avnilablc to the public from commercial document retrieval services and over the Internet at the Securities and Exchange Commission's web site at IIttp:l/w\\'lv.ser..go v, , Bell Atlantic has filed a Registration Statement on,Form S4 to register with the Securities and Eltchange Commission the Bell Ath1l1tic common stock to be issued to OTE shareholder!>' in the mergel'. This document is 'a pan of tbat registration statement lmd 'constitutes a prospectus of Dell Atlantic in addition' to being part of the an'nunJ meeting' proxy stUtement 'of GTE and Bell Atlantic. As allowed by the nlles of the Securities and Exchange Commission, this joint proxy slatement and prospectus docs not contain all the information you can" find in the registration statement or Lhc exhibits to the rcgislrJtion statement. , , , The' Securities and Exchange Commission allows us to "incorporate by reference" information into this joint proxy stat~mcl1t and prospectus. This means that we'can disclose important infonnation to you b)' referring you to another document filed separately with the Securities and E:tchange Commission. The infomlution incorporated by reference is deemed to'OO part of this joint pm.~y statemem and prospectus, except for any infomullion superseded by infonnation in this joint proxy statement and prospectus. This joint proxy statement and prospectus incorporates by reference the documents set forth below thnt we have previously filed with the Securities and ,Ex.ehange Commission, These documents contain importunt information abuut our companies and their finances. GTE SEe Filing (File No. 1-2755) Annual Report on Form IO-K Current Reports on Form 8-K Period Year ended December 31. 1998 Filed on January 20, 1999. January 26, 1999 and April 5, 1999 Bell Atlantic SEe Filing (File No, 1-8606) Al1nual,Report on FalTn lO-K Current Reports on Form 8.K Period Year ended December 31, 1998 Filed on January 4. 1999, January 19, 1999 nnd January 28. 1999 We are also incorporating by reference additional documents that we file Wilh the Securities and Exchange Commission undcr the Securities Exchange Act of 1934 betw~cn the date of this joint proxy statemcnt and prospcctus and the datcs ot' the meetings of our shareholders. Bell Allulltic has supplied all infonnatioll contained or incorporatcd by reference in this joint proxy stntement and prosPC('tus reluting to Bell Atlantic and GTE has supplied all such information relating to GTE. If you arc a shareholder, we may have previously sent you some of the documcn\s that arc incorpornled by ,reference. You can obtain any of the incorporalcd documents by contacting us or the Sccurilics and Exchange Commission. lf you would like to request documents from us, incJudinB uny documents we muy subscquently file with the Securities and Exchange Commission prior to the annual meetings, please do sO as soon as possible so that you will receive chern before your meeting. We will send you Ihe documcnls incorporated by 'reference without charge, excluding exhibits, unless we have specifically incorpomlCd the exhibit by reference in this joint proxy statement and prospectus. ' V-I ---.-. - .....__........-.-.---,> I <,~..:. ,C:~l_:,~' J~ ':,"1' ~: 'i-:.~: 11':'~;:"-:-~;~~.' .1:.'.. .:';-.,. ,'. :.:" ';;' :t) ',~~~;'.~rc. .~:c', ,,:'.~ 1/' .~,~ .. it~Sd;'i!'f"t""\f)<~> "~'I' ":',,,:,.:,':' ,...",'., ,;> ,';', ..', ','" '" . \, ,: {' ',\\ ~ c, ~ .1.> . i I '~"')' ~', .' .' . ~ ' ,~'.. . 'd .~: ~. l : ~ r ~'",. ~, " < ' ' " .. , '. , . , '~~ ' , , I" " ' , , 'c . ',1., ' I ,-;, .'. . ,..,...'..,"/~,~(.."qi.!i~.".~"\W. ...f" ,',';' ! .:..'.. ..: " ~l.. .'~" ". ,jJ,. I.', . ....~.. 1-""\ ~"\~.. ');r.:;-,; ,...~. "')~~)"'III-.:u.-;.'. >}' ? ,j. : f', "L "....h....~, J:"'r~ ;"5.; '''':iI>' ~"~'.:""/;.~\ ~,' ,..,I~' /,1 'pf\:.~~1~ J"'/l. .,,~:. ~"';.,,,,,;, ~", :...~ "'1 ~: ' , " .1.. , ~! . , ,}' r ~ ' \ : J.' ,.' ,":,' " ' J . J: I ':~ ' ,I,.' , ~". I ..;. .' " " . :'~, ;":: ,', t ''': '" .' ~ , " ~ t It: \1. "f: 'I. ' ,:; .' , ' " " .I', , , , , . I ""'< ',' >, '.: , , I" ' , I: " , ~< ~ +' ,\, I, " '~: : i ~ '" , ," " . h ) J' '\ " ' " , I ~ ... \~ '~" . ~,.' ...,' ',',,:;,. ...ce",,",", ':",t. ';i' .~~..'''''', \",~ )1;': .,>:,..:~~?,\I:;::~'~ , Shnreboldcndlluy obtain {Jocumcnts incorPorated by're(erencc in this'joinl proxy'stalement and prospectus 'hy requesting them in \vriting or by, telephone from,the t1pproprit\le pany at the following nddresses:, " ' , .1", . ..' " , ,,' I' ./" . , Dell Atlantic Corporalion , , " 1095 Avenue of tile Americas .':t ' Ne~\' York, New York 10036 " Tel: (212) 395~1525 ' 1" \.. ~,' l . n; GTE Corporntion ',' , ~ ,'( '.. , 1255 Corpamlc Drive', .I" SVCQ4A52 ,.; , ,/:: Irving, Texas 15038 " , Tel: (972) 507-5250 '. ': ;~', " AUn: Director, Shareholder OPerations nnd Securities Service!'; , ' Alto: " Director, Shnreowner Services 36th floor , " ,;' .:V ou shouJ~. rdyooly on th<<; 'nfonnation conUllned or incol'porated by ret'~rencc bl this joint proxy ,statement and p~ospec.lus to V9te on the,proposals described in this, document: We havcnot a'uthorlzed anyone ,to l)fo~dc you with information that l~ diffcl:ent from what is contained in tJtis joint proxy " ' ,statement and prospectus. l'his Joint proxy statement and prospectus is dated April 13, 1999. You should . ' I ~ , " Ilot a'iSume that the informntl~n ccntnincd in thL'i Joint: prox.y stntement nnd prospectus, is 1Jccurat,c, us of nny dute other than tbat date, rmd neither the mailing of thJs j~int proxy statement and prospectus to , shareholders nor the issuance of Bell Atlantic common stock in the merger shall create any implication to the contrary.' ' ", ,; " , " 'B)' order uf the Board of Directors, , GTE Corponllion ! ' " Mariaune Drost Secretary , " , " " , Y.2 I' ',' I..,;' . :jl By order of the Board cir Directors, Bell' Atlantic Corporation P. Ahin'Bullincr 'AJ'.mcititc Gelieml COIl1l.\'l'/ .. alld Co'rpOrafL' Seerertlr)' --~- ~--~-----~----------~~----------.-....-..-- l~ I t ~ I, i.' I) I' I' r,) i' " j ", ~i ~ j, ;. 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". ,Appendb' A: :, Agreement and Plan 'of Merger, dat~ as of July 27, 1998 , ' " .,Appendix'B:,' St~k option'Agreement Granted by :sell Atlantic Corporation Appendix c: '."Stock Option Agreement Granted by GTE Corpomtion, :' " ," , Appendix 0:, ",Form of Amendment to Rcsuitcd Certificate of Incorpomtion of BelJ Atlnntic Corporation Appendix,E:\pcirin of ~mcndment to'Resmted Bylaws of Bell Atlnntic'Corporndon' ',' , . Appendix F: ' :' Opinjoni'~f ChlJdmnn. Sachs & Co., ' " ; Appendix G:", Opiniofl of Salomon Smith Barney ; Appendix H: :.. Opinion of Be.nr, Steams &' Co. Inc. , , 'AppendiX' ~:" ~inion,of~~nill Lynch. Pierce; Fenner & Smith Incorpornlcd ,.' , '<'r": " ~ ~ ,I:' ,; I': t " (. .' ' ~ " ,I:' ., /, ,', ,j". " I !' " . t ',' " " , '/ ~ ': t , i::' " I ! " ,: , " " , >I " , .' " ',' ., ~ ." , .\' " ' . ~ , , j ( r 1 ' ,< $. ! r " l :, " , ,'. " , , ,:1' " '.l- , i' :y . 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'.., ::,': ',,:' ,,"'i'..:'i', , ... f .. , " I ~ . ''',..). ','. ,','". " .::< '~;,: ,~!' " . , , ~ t ,.' ,i' fl.: '~:''"':>''/' ,'p':~. ',< .t 'I . " ":,' ,: , ' . ..:,"::"'.'Ji">:'? 1;""~:'>';:':\":~:~:::':';:'''':' ".',.",. .' " ,.' ~) jJ.l: "J. r;~.,;,~,I..~l/{:i";"h~~'~f1"..,\~ ;t.,' ,I \ ,:;t'! l' ' ': "; I ~1i!,~I~$~ , :~~' ,', 'd:1 ~ ~:--~ .'!r." :L.!{i'..,;Y:;:'fJ~r'f?it!~; k~"" ""'"'I'o'~t:~~.~' ,.. ".0-04, IY H.....' t'..~. , ,P,'-J ~'.~ .. :t,......... ,. F ..I,}.o\~ k~ ,," l\< " i ....t , , ~ '~ ' :'{- , f;~~~' " 't~ ' , I}.,O \1, ,. .,y, t '://",1 ',I': " ; , " , ,.' t: c \, -, ;;' . t;,:' , ":? 'I' ., '... ' r, " , (, ' '" ,~: ' , " ,( \ ~". ( , " " " " .....t.......1 I '-.../ .' ...... ~ t' .. " '< , ;'.1' " i :,) , J I, ~ " I' ;'1 ,,' , \'C .. ! ; , ,\ \ ( " ,,'" "", c, " Ie. ' ".'>', .'.,.. , , " .; I' , ~ ~ABLE OF CONTENTS , ~ ,. , ARTICLE I THE MERGER ,: . "\' I," I'.' ,/ e' , I. ' , SEcrl01N 1.1' The Merger' .. + , ; ...' . . , , . 4 . ,., 0 . . . . , ., , . . . . . '~'. . . 0 .. ~ .. ill 'iII" . ': iI ~ It . . . ~ . '. . , ... . .' . ,I, "~-l SEcrION 1,,2 e Effective Tim'e ........ .. It It It. iI . It iI ....... ~.. iI ... , '.' ..., ~., .. .. iI .. III , .. .. .. . + .. '. , .. .. . It It It , .. "lB:...I. SECTION L3 , Effect of the Merger. . . . . . . . . . . . . . . . . . . . . . . : . . ... . . . . . . . . . . '. . . , . : . . ,.'. . . '., a~2 SECTION-1.4 Subsequent Actions .. ~ . . '. . . . . . . . . . . . . . . . . . . . . . . . . ; . . . . . . . : ~ . . . . . . .'. . .. 'a-2 SECTION 1.5 Certificate of Incorporation; Bylaws; Direclors and Officers of Surviving Corporation. ," a-2 , SECTION 2.1 SECI10N 2.2 SEcnON 2.3 SECTION 2.4 SBCTION 2.5 SECTION 2.6 SEcrION 2.7 SECTION 2.8 SECfION 2.9 SECTION 2.10 [. ' , "",,'..' : , " , " t .., . ~ ,. 'e , ' " ARTICLE II , EFFECT ON'STOCK OF THE SURVIVING CORPORATION AND THE MERGED CORPORATION Conversion of Securhics . . '. . ... . . . . . . . . . , . . " . . , . . . . . . . '. . ... ',' . : . . . . ..'. . " . .' a-2 Conversion of Shares . . . . . . . , . . . . . . . . . . . . . . . , . . . . . .'. '. ~ . . . . . . . . .'. . . . . .. a-2 Cancellation of Treasury Shares and Bell Atlantie~owi1ed Shares .. " . . . ',' . . . . . . , . '. a-3 C(l!1~e?ion of Co~mon Stock of the, Merged Corporation into Common Stock of the SurviVing Corpor::l1oll. . . . . . , . . . . . . . . . . . ',' , . . . . . . ',' . '. . , . . . . . . . . . . . . ',' , . E;(('hnnge Procedures .................:.,......... ~ . . . . . . . . . , . . , . . . . '... . . TrUllsferBooks..........,' ~..............,..,.. ~ ~ ~..,.... ~.... +.... +.. ~........,.. +....,.,... .,..... No fmctionnl Share Certificates ........................,.....,....."... " .'., Options to Purchase GTE Common Stock . . . . . . . . . . . . . . . . . . . ',' . . . . . . . . . . . . . , Restricted SloCK .. .. .. . . .. . . .. .. . . 10 . .. . .. . . . .. iI .. .. .. . .. . ~ . . . . . . . 10 . .. . .. , .. .. .. .. . .. .. . .. . t Certain Adjustments '. . . . . . ~ . . . ~ . . . . . . . . . . . . . . :. . . . . . . . . . ~ . . . . . . . . . . . . . " ARTICLE III CERTAIN ADDITIONAL MATTERS a~3 a-3 a-4 a-4 n-5 11-6 a-6 SECTION 3.1 Certificale of IncorpoTUtion and Bylaws of Bell Atlantic. . . , . :. . . . . . .'. . . . ~ .'. . . . . . .' a-6 SEcrfON 3.2 Dividends ................. '. ; . . ; . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C (l-6 SECTION 3,3 Headquarters..;.......,.........,............................... ~ . .. a-6 SECTION 3.4 C;orpoTate Identity ........................,..,...,..................,. i-6 SECTION 4. t SECfION 4.2 SECTION 4.3 SECTION 4.4 SECTION 4.5 SECTION 4.6 SECTION 4.7 SECTION 4.8 SECTION 4.9 SECTION 4.10 SECTION 4.11 SECTION 4.12 SECTION 4.13 ~ ',' ARTICLE IV REPRESENTATIONS AND WARRANTIES OF GTE Organization and Qualification; Subsidiaries. . . . . . . . . . . . . . . . .. . . . , . . . . . . . . . . Certificate of Incorporation and Bylaws. . . . . . . . . . . . . . . . . . . . '. . . . . . . . . . . . . . . Capitalization . . , . . . . . , . . . . . . . . . . . . . . . . . . . . , . . ; . . . . , . . , . . . . . . . , . " . . . Authority Relative to this Agreement. . . . . . . . . .. . . . . . . . . . . . . . , . . . . . . . . . . , , No Confiict; Required Filings and Consents. . . . . . . . , . . . . . , . . . . . . . . . . . . . . . . . SEe Filings; Financial Statements. . . . . . . , . . . . . . . . . . , .'. '. ; . . . . . . . . . . . . . . , . Absence of Certain Changes or Events. . . . . . . . . . . . . . . . , , . . . . . . . . . . . , . . . , . . Litigation ~ f ... ~ ~ ~ ~ .. ~ ~ .. . , .. .,. jo ~ f ;. , , , ~ . . . , 4 . . . . . , . . .. . .. . . ;. . , , ~ . .. . .. ~ .. . . . , , Permits; No Violation of Law. . . . . . . . . .'. . . , . . . . . . . . . . . . , . . '. . . . . . , . . , . . . ' ,Joint Proxy Statement. . . . . . . . . . . . . . . . . . . . . . . . . , . . . . . . . . . . . . . , . . . . . . . , Employee Matters; ERISA ...........,...............,...........,...,.. Labor Matters .. + + "'" . .. ... . . .. t t . .. . . . .. . . . . . . .', . . iI .. .. , . 10" , iI . . .. .. .. .. .. .. .. + + t . .. . . . Environmental Matters .. . . .. .. ... , 4- . .. .. t . . . . . . . .. .. , . . . '. . "'" . . .. . .. .. , . . . . . .. , + , ~ .. + u-6 a-7 a-7 a~8 a-8 a-9 a-9 a.9 a-9 n-IO a-lO a-I I a.ll ~;~<:?~;\{}::;<i,:thj~"' ,,"-::"'\:::~:~"~~:'~,;"';:,' "',: . ,'::/!' .', 1" '/ ., .. " " , , ' :"LifJ~:",':' ,~' '>;;',:'.': ;"~:,,:''''', ' ", '. " .. . \ ...',\, " I: --- --_.~ , , ~ I . . , : I :' 1'", ~ , t" :~:~'~~ ; ',:" . :,I\}t,;::::,;';';,:~',i,. ';H;;~;~' ..:' .; ;i..: ,. ,'. < ' >, . I: ,: I :. E'~. ' . ,~" ..". . ',~,~<',,:':,l,':,;:',;::,.:,;,d,~,'.';,,'::':'.',.':H::;;_1"~'".,,;~, ',,>:,':.'::..,..1>..,;..: :",,>',;;'," ';' ....: I .0.', , .' , , . ,}' :>,~ ~." ':" '.; .,' !. . '-:0 ' , . , ,~ " ; ,;:':1. ,..e":, ,( ,.. ''>';,' .<< ",~'~'~;'?:,..':':.,;,:::.:.~.:(,..,,:;::\!.;~,:': ,:>"'::'- ..,..... " 't ' ~~I I ,~' ,.f ~J.\ ..~., ..' ,'~ ~ ':! :'~','",,:. ~>, :~' ~i/.::.. .::1,..:' :~/'~~:) i;::-'i"" ';.. ,;:',:' " . .'....:~1.'J,;~~tJ,1'J\~~~~4J~i~t\1'!}.t,Jl r' ~ u ';~' ,....., '~'f ,T. . ' . :h~i ill.. I ..."t~,...\1.~~.1, ~f,1'!I' ~....~ji!~t'v........,_.k..."., '. r' ,.,~.>">'.......":"~:1'~~,+:''':~..!+.'''lo.l.l>''"l.':...v":>''l.J'! \, t4"', ~'~:~... ';1 1 Ii: ' " . , , ", ? ',' -S, ,SECTION 4.14 SEC110N 4.15 " SECTION 4.16 SECTION 4.17, SECTION 4.18 SECTION 4.19 , SECTION 4.20 SECI10N 4.2J SECTION 4.22 'l. fJ . , . } ;:. " , , , It, ..' ~ .- <, SECTION 5.1 SECTION 5.2 SECTION' 5.3 , SECTION 5.4 . SECTION 5.5 SECfION 5.6 SECfION 5.7 SECI10N 5.8 SECfION 5.9 ' SECTION 5.10 SECTION 5.11 SECTION 5.12 SEcnON 5.13 SECTION 5.14 , SECTION 5.15 SECflON 5.16 SECTION 5.17 SECTION 5. J 8 SECfION 5.19 SECTION 5.20 SECTION 5.21 SECTION 5.22 .' ',t, c " , :~ ,. ( i: ~, ' 'of ' .... ,', j' ; SECTION 6.1 SECTION 6.2 SECTION 6,3 SECTION 6.4 SECTION 6.5 , ::1 " \ " \ " ~ ;' " , ',11':'\ '( ,'~ t ,f"T'" c" ... ...... ,~,~~.,~..,~ ii Ownership of Securities ...........................,..........'~..... " .. 0.-13 Certain Contracts .. It It , It . . , . . It ~ . It ~ . . It 0 It . . ~ , .. . . _ . , ,'_ . ,,; ~ .. .; " .. f ~ ' .. . f .. '.. : " : 3-14 ~ights Agreement. .'. . . . . ~ . . ! ; . ',' . . . :: . ,... . . . . . '. .. . . . . . : . . . . . .. . . . . . . . .. ' 0.-14 , t., ,.' ' c' ,', . . ,. , 0.-14 a-IS , 0.-15 a-16 0.-16 0.-16 a-17 ,0.-17 a.l? 0.-17 , a.J8 0.-18 0.-19 a-19 0.-19 0.-19 0.-20 a-20 a-21 0.-2] a-21 <1-22 [1-22 n-22 , a-25 a-27 a-27 SECTION 7.1 Joint Proxy Statement alld the Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . ' a-27 SECTION 7.2 Bell Atlamic and GTE Stockholders' Mcetings .............................. n-28 , ., . ..', ,t t.' '" ARTICLE V , REPRESENTATIONS AND'WARRANTlES OF BELL ATLANTIC :. . { , Organizotion and Qualification; Subsidiaries. . "" .. . . . : . . . . .; /.';'.'. . . . . . . . . . . . . . Certificate ofIncorporation and Bylaws. . .. . . . . . . . . . : . . . . '. . . . . >. . . . . . . . ! . . Capitaljzation . .. . . .. . .. . . . , ~ ~ .. , ,. ~ .. ... . . , t t . , .. t": " .. ">" . f ..'. +',~ ... f. , . ~ . .. .. f . ..... ., ~ .. , Authority Relative to this Agreement. . . . . ; . . . . '. . . " .. .'. ; . ~. . : ': . . .. . . . . ~, . . . . .' , No Conflict; Required Filings llIld Consents. . ; . : . '. . .. ; . .. ;'. . . , . . :. . . . . :. : . . SEe Filings; Financial Statements '. , , . . ~ ~ . . . . . . . . . . . . . . . : : . '. .. . . . . . . .'. . . . Absence of Certain'Changes or Evcms. . : . . . . . . . . . . '. . . . . . : . . . . . . . . . . . . . . .'. , Litigation . II . . ... , f . .. ~ f , . .. + t ... . .. . + . .. + t . . .. f of- ~ f + . + f f . . .. + .. . f f ~ . .. It .. ~ .. . . .. , , , Permits; No Violation of Law. . . . . . . . . . . . . .'. . . . . . . . ; . . . . . . : . . . . . . . . . ; . ; , Joint Proxy Statement. . . . . . . . . . " ' .'. . . . . . .'. ~'" . . . . . . .. . . . . " . . . . . . . . . . . . . Employee Mlluers~ ERISA ........... '. . '. :. . . . . . . . . . . . . . . .'. . .'. . . . . . . ~ . . ubor Malters , ~ . .~ . t ~ ~ .. .. . . .. . ~ . . t .. . ~ .. . . . . . .. . .. , . . f .. .. . . . . . ~ ... ... . . . .. ... .. t .'. . Environmental Mutters .... : . . . . . ; . . . . . . . . . . . . . . . . . . . . ',' . . . . . ; . . . . . . . . . Board Actiom Vote Required ............,......."....'................ Opi.lions of Financial Advisors . . . . , . . . ... . . . . . . . . . . . . . . . . , . . . . . . . . . . . . . . Brokers .......: '. . . . , . . . . , . . . . . . . .'. . . . . . '. . . . . . . . . . .'. . . . . . . . , .'. . . . . " , ~ ' Tux Matters .... . . . . , . . . . . . . . . . . . . . . . . . . . .'. . . , . . . . , . . . . . . . . . . . . . . . . 1 ntellcctua1 Property .. . . . . . . . . ; . . . . . . . . . . ',' . . . . . . . . . . ~ . . . . . . . . . . . . . . . Insurance f .. . . . .. . . . + + . . . + , . t . . 0 t . . . t " . . . . , . t ~ + . . t , . . . I . t It t t . . t t .. It t . Ownership of Sceuritics .....'"..,........................... '. . . , .'. . . Ccrtain Contnlcts ...."..,................'......................... Merger Subsidiary .....,......'..................................... ARTICLE VI , CONDUCT OF BUSINESSES PENDING THE MERGER Transition Planning. . . . . . . . . , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .'. . " Conduct of Business in the Ordillllry Course ..,. '. . . . . . . . . . . . . . . . . . . , . . . . . . . . No Solicitalion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , . . . . . . . Subsequent Financial Stalcmcnls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Control of Operations . . . . . . . . . . . . . . . . . . . . . : . . . . , . . . . . . . . . . . . . . . . . . . . . . ARTICLE VII ADDITIONAL AGREEMENTS - '. t\ " , " ~ , '; . ' ,.,' '" ~ ~5 ,...... ~. . , <!. " .: ".........., ;. , , ...1' ", ( , I ....~..l..-- I, Board Action; Vote Required; :Applicability of Section 912 .................... n-lJ Opinions of Financial Advisors. '.' . . " . :, .. . . . . . . . . . . . " . . . . . . . . . . . . . . . . :. a-12 Brokers f f + .. .. ... . , . . . , , . . " . , . ."\. . ,'.' . . . . f .. . . It It f . . . It i , f '" ... . .. '" , . . . , , . ... ~ ~ ~ ' 0-12 , Tax :rvlalters .... '" .. .. .II . t ...,. ... t t ~': ~ t , , " tit..'. . . . . . It I . . ~ .. , ... . It . , .. . , .. . ... , ;, ~ " '. . ~ 0-12 Intellectual Propcny; Year 2000 ...................................,..... a~ 13 Insurance . f ; . . . . " , .. . + + . It . It , t." . " t It It f . . fit, . . ... " , . . , " ... . . . ~ . , .':_ It . . . . 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' " (':":~), . c. ~ , ....-~~,. u " " . > '.. ; SECTION, 7.3 SECTION 1.4 SECTION 7.5 SECTION 1.6' SECTION 7.7 SECTION 7.8 SECI10N 7.9 'SEcTION 7 i 10 \ SECfION 7.1l "SECTION 7.12 'SECTION 7.13 SECflON 7.14 SECTION 7.15 SEcrION 7.16 SECTION 7.17, , , . ,SECTION 8.1 ,SECTION 8.2 SECTION 8.3 SECfION 9.1 SECTION 9.2 SECTION 9.3 SECTION 9.4 SECTION 10.1 SECTION 10.2 SECTION 10.3 SECTION 10.4 SECflON 10.5 SECTlON 10.6 SECTION J 0.7 , SECTION 10.8 ,SECTION 10.9 SECTION 10. to SECTION 10. J I . .~" .' , . , ,>, '":' 'I , ~ d, ~ ,c .' , " ' I'. " " , .... " ' ,c ,"\ , . I! . ~ ~ " " , ,,"'....... ..,1 '.. . .'. ~ . ~,. . > '~" ,HJ, I-/, ,.; .... _! ,h .",. ~ ~.., \-.,.. . Consummation of Merger: Additionul Agreements . . . . . . . . . . . . . . . . . . . . :. . . . . . 'Notification of Cc':1uin MUliers ,....,.,.,........ '. . . . . . I ; . . ;. . . . . . . ; . . . : . Access to InConnation ~ ... .. . .. : .. .. .. .. .. .. .. II .. II II 'I .. .. II . .. " .. .. .. .. . .. .. . .. f II .. .. . .. .. .. .. .. .. . f . . ' P,ubllc AnnounccmcnL'i' . . , , . .. . I. . . . . . . . . . : . . . ... . . . . . . . ~, . . . , . . . . . . , . . . . .' < Trotlsfcr St.atutes .. .. " .. .. .. .. .. .. .. jI .. : 'I : .. .. .. .. .. . .. .. .. .. .. .. f II .. . .. .. .. .. .. .. .. ".' '.. .. . f .. ;. .. , .. .. .. .. , Indemnification. Directors', and Officers' Insurance. . . : . . . . . '. . . .. . . . ... . . . . . . . . , Employee Benefit Plans .. '. . . . . . '. . . . . . " . .. . . . . . . . . . . . . . . . . . . . . . . . " . . . . " Succe.ssioll'.. .. ~ .. II .. .. .. .. 'I .. .. .. .. .. .. .. .. .. .. .. .. , .. .. .. .. .. .. .. .. ... .. .. f f .. .. .. .. .. .. .. .. .. .. .. .. .. .' ;. .. .. .. .. .. Stock Ex.change Listing. . . . . <. . . . . . . . . . . . . . . . . . . . . . . . . . , . . . . . . . . . . . '. . . . Post-Merger Belt Atlantic Board of Directors, . . . . . . . . . . . . . . '. . . . . .. . . . . . . . , . , , No Shelf Rcgistnttion .... , ; . . . . . . . . . . . . . . . . . . . . . . , . . . . . . . .'. . . . . . . . . . . Affi tiale.s .............. Ii .. ... ... .. .. ... 4 oil ... ... .. t ... ... ... ~ . t . . t . ... ... .. . .. .. .. .. : . .. . .. .. .. .. . t . .. . . . . . . .. , , .. . Blue Sky ..............;...;....... I tit.. . . t t t . .. .. . . .. . . . , ~ . . .. , . III III . . . . . .'. , .. . .. . . ..' Pooling of Interests. . , . ~ . , . . . . . . . . . . . . '. . . . . . . . . . . . . . . . 'i . . . ... . . . . . . . . . Tax-Free Reorganization.. . .', . . . . . , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .' . . . . . ,ARTICLE VUI CONDITIONS TO MERGER Condilions to Obligi:ltion.~ of EilCh Party to Effect the Merger. . . . . . . . . . . . . . '. . '. . ; :', Additional C{)ndili~lls to Obligations of GTE. . . , . . . . . , . . . . . . . . . . . . . . . . , . . . . . , 'Additional Conditions to ObHglltions of Dell Atlantic. . . . . . . .. , , , . . . , . : ' . . . . . , ~ . , ! I' " ARTICLE IX ,TERMINA nON, AME~DMENT< AND WAIVER .. ~ . "c ' . '..'.' Termination .. . . . . , . . . . . . . . . , . . . . . . . . . . . . . . . . . . . . . . . . . . . .,. '. . . . . . . . . . , Effect of Tcnnination . . . . . . . . . . , , . . . . , . . . . . . , . . . . . . . . . . . . . . . . . . . . . . . , . ..\ntendrl\ent '. . . . . . . . . . . . . . . . . , . . . . . . . ; . . , . . . . . . . . . . . . . . . . . . . . . . . . . .'. ,"'uiver. .. . . .. . . . .. . .. .. .. .. .. .. .. ~ It. . ," t . +,+ . . .. t . . t . . . . .. .. .. . . . .. .. . . ... .. 4 .. .. . .. ... ... .. ,. ," ARTICLE X GENERAL PROVISIONS Non-Survival uf Rcprcscnlmions, Wmnmtics and Agrecments . . . . . ; . . . . . . . . . . . . Notices.. . . . .. . .. .. . ,.. . .. _ . , It .. . . .. .. . It . . .. . .. .. . .. .. . .. .. . . .. .. . .. . _ .. . .. .. .. . .. It. . .. . . . Expc:nses ....................... ~ .. .. .. .. t I'~ , .. + . t . I .. , , .. . . . . . , I , '..c . . . .. . .. .., .. . .. .. .. .. . . , Certain Definitions .............. . . , , , . . . . . . , . . . , . . . . . . . i . . . . . . . . . . . Headings .......'.."."..".".......'...'...........'...:..'... Se,vcrubility .....,...,..,.""...,..,......,.....,................ Entire Agrcement; No Third-Pany BcncliciUlic!i . . . . . . , . . . . . . . . . . . . . . . , , . . . , Assignnlcnt . . . . . . . '. .'. . . . . , . . . . . . . . . . . . . . . . . . . . . . . . , . . : , . . . . . . . . . . . ' Go\'crning Law. . . . , . . , . . . . . . . . . . . . . . . . , . ',' . , ',' . . . . , . . . . . . , . '. . . . . . . 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':J,~"'" :.,. I" \ , ',' .... .'. -'. ',~'~~::;.~ '~:>~:~\;'i',: , '. - . l ~ . ' ... ,II , ' ''-',0 , ' 1(', '. t'" ; \- ' ":,-:~f, ;:'; . ."' . . \' '1.. ," > .:; ~ ,. F ,'.;, e,' " ',~ I < , . J \ I ~ . ~ ' )\ '. \' ".....: :\'... j' ,'. ~ ~.> "'''', It ' ': ." ~, --- , ;, ~l , ]t.)~, ~ :'>: I I, " p ~ ! .. , :'.; 1'< 1" , ,1,,' , ), e l; <'Ie ~ , ~ " ' , <' , " , .~ .. ',I ;;~}:,:!}/t';,~"f;::::,,,;~!:~,:,:;:.c, ::'; . .".....: ... I' ~':,~ I" ".., ' ":..:f,:, 'J. . , ~........t.... ,',' l \ \ ' , , ...",,'" -,./ " ; \ ~ t.: '.' ',1)! ! 1- .;.. ~ ,~ , .. ., ..... '" "+ ',: AGREEMENT AND PLAN OF MERGER - This AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated us of July 27,'1998 ("thc date hcreor'), is entered into by andumong Bell Atlantic Corporation, a Delaware corporation ("Bell Atlantic"), Beta Gamma Corporation, a New York corporation WId a wholly owncd subsidiary of Bell Atlantic ("Mcrger ~ubsidjnry");and GTE Corporation, a New ,York c01JXlration ("GTE"). WHEREAS, the Board of Director.; or each of Bcll Atlantic, Merger Subsidiary and GTe hns detcrmincd that it is.in the best inierests of its stockholders that Bell Atlantic and GTE enter into a business cumbination underwhich"ll subsidiary of BeH AtJantic will merge with and infO GTE pursuant to the Merger (as defined in Section 1.1 hereof) and Bell Atlantic llnd GTE desire to enter into the "merger of equals" transaction contemplated' hereby, and, in 'connection therewith, to make ccnain representations, warranties and agreements; WHEREAS, a~ a condition' to,' and immediately after, the execution oflhis Agreement. and as a condition to the execution or the Bell Atlantic Option Agreement (us defined below), GTE and Bell Atlantic are entering into n stock option agreement (the "GTE Option Agreemenl") in the form nttnchcd hereto us Exhibit A; , , < , WHEREAS, as a condition to, and immediately after, lhe ex.ecution of this Agreement, and as a condition to the execution of the GTE Option Agreement. GTE und Bell Atlantic arc enlering into a slock oplion agreement (the "Bell Atlantic Option Agreement", and together with the GTE Option Agreement. the "Option Agreerncnts"j in Ihe form attached herL'to as Exhibit B; WIIEREAS. the Board of Directors of each of Bell Atlantic, Merger Subsidiary and GTE h~\s dClermined that the 'Merger and the oilier transactions contemplated hereby are consistent Wilh, and in furtherance of. its business strategies and goals and has approved the Merger upon the tcnns and conditions set for1h bcrcill; WiiEREAS. for feuerJ.1 income tax purposes, it is intended lhal the Merger shall constitute a tax-free reorganizalion undcr Section 368 of the Internal Rcvenue Code of 1986. as amended (the "Codc"); and WHEREAS, for accounting purpol;es. it is intcnded that the Merger shall be accounted for as a pooling of interests under United States generally accepted accounting principles ("GAAP"); Now. THEREFORE, in consideration of thc foregoing and Ihe mutual covenanls ~md agreemenl!> hcrein containcd, and intending to be legally bound hereby, the parties herelo hereby agree as follows: ARTICLE I-THE MERGER SECTION I. I-Tire Merger. Atlhe Effective Timc (us defined in Section 1.2 hereof) and :mbjccl 10 and upon the tenns and conditions of this AgrcemeIll and the New York Business Corpomlilln Law ("NYBCL"), Merger Subsidiat)' will be merged with and into aTE (the "Merger"), whereby the separate corpomte existence of Merger Subsidiary shall cense and GTE shall continue as the !<urviving corporation which shall be a wholly-owned subsidiary of Bell Atlantic. GTE as lhe surviving corporation after the Merger is herein sometimes referred to as the "Surviving Corporation" und Merger Subsidiary as Ihe non-sur\'iving corporatioll after the Merger is hercin sometimes referred to as the "Merged Corporation," GTE, Bell Atlantic and Merger Subsidiary are herein referred to collectively as lhe "Parties" and each individually as a "Pat1y." SECTION 1.2-E.ffeclil't! Time. As promptly as pmclicable Ilfwr Ihe sarisflJcrion or waiver of Ihe conditions set forlh in Article VlH hereof and the consummation of lhe Closing rcferl'i:u to in Section 7.2(b) hercof,' the Parties shall cause lhe Merger 10 be consummated by liIing a Certificale of Merger with the Secretary of Stale of the Stale of New York with respeel to the Merger, in such form as required by, and executed in accordance Wilh, thc relevant provisions of the NYBCL ((he time of such liIing being the "EO.ective Time"). a.1 '; j}~,,'~',' -"" . C, ,>. . '. " ~!,:I" 'i:' < " " ------~---~.._-~_. " ' J I'.' :'1 ,I;, . " > ,': ~ ,. I (t I , ~',' ,',C j,' . / , , ' ,.,\ . " ':',;r, f,i ',' + . I ,', "' " ;1-". ",' . " ' ) . " , i,: ' , " '!.:.' " " ' ," ',' I "I ' i~~' < ';, ',;,< · .?<;\!?~c~~;!~::~~f.f>:l~i::;,:,..~"-;.,c.~ ~":~,. , . ,~" " '. . . '" "\' ' I , SECTION 1.3-EjJect of tlte Merger, Ai thc EO'cetive Time. the effect of the Mcrger shall be ns provided in the applieabte provisions of the NYBCL. Without limiting thc generality of the furcgoing. and subject "therelo, at the Effcctive'Time allthc property. righl". privileges, powers nnd franchise'.: ~f' GTE Dnd Mcrger Subsidiary shnll continue with, or vest in, as the case may he, GTE as the Surviving Corporntion. and all debts, Iiabilitics and dutics of GTE and Merger Subsidiary shall continue to be, or become. us the case may be, the debts, liabilities and duties of GTE as Ihe, Surviving Corporation. As or the Effective Time. the Surviving Corporntion shall be a direct wholly-owned subsidiary of Betl Atlantic. ", , SECTloNl.4-Subseqltellt Actiom. If at any time after the Ellecti\'e Time the Surviving Corporation shall consider or be advised that any decds, bills of sale. assignments. aSSUr.lnccs or tiny other actions or things arc necessary or desirable to continue in, vest, perfect or confinn of record or otherwise in the Surviving , Corporation its right, title or inlerest in, (0 or under any of the rights, properties, privileges, fmnchiscs or assets of either of its ,constituent corporations acquired or to be acquired by thc Surviving Corporation as a result of, or in connection, with, the Merger or otherwise to carry out this Agreement. the officers and direclors of the 'Surviving Corporntion shall be directcd and authorized to execute and deliver. in the nume and on behalf of either of such constituent corpomtions. nil such deeds, bills of sale, assignments and assurances and to take and do, in the name and on behalf of each of such corporations or otherwise, all such other actions and things as may be necessary or desimblc to vest, perfect or confirm any and all right. title and interest in, to and under' such rights. properties, priviJeg~s, fmnchises or assets in the Surviving Corporation or otherwise to carry out this Agreement SECTtON 1.5-Cerlijicntc of Im'orpomtiotl: Bylaws; Directors Will Qfficcrs of Sun'Mllg Corportltio/l. Unless otherwise agrt.'ed by GTE tint! Bell Atlantic before the Effective Time, :.it Ihe Effective Time: (a) the Certificate of Incorporation of GTE as the Surviving Corporation shalll",: the Ccrtificate of, Incorponuion of GTE as in cfl'ccl immediately prior to Ihe Effective Time, untillhcl'cafter amcnded U!o provided by law and such Ccnificatc of Incorporation; , (b) the Byluws of GTE us thc Surviving Corpomtion shull be the Oytaws or GTE immcdiately prior 10 the Effective Time. until thcreafter amended as provided by law und the Certilicatc of Incorporation and the Bylnws of such Surviving Corporution; nud (c) the directors nnd officers of GTE immediately prior lo the Effeclivc Timc shall continue to serve in their respective offices or the Surviving Corporation from nud after the Effcctive Time, in each case until their successors arc elecled or appointed and qualilied or unlil their resignalion or removal. If llt the Effective Time a vncancy shall exist on the Board of Directors or in any onice of Ihc Surviving Corporation. such ...acuney may thereafter be fitted in the manner provided by law and the Bylaws of lhc Surviving Corporation. ARTICLE II-EI;FECT ON STOCK OF THE SURVIVING CORPORATION AND Tlm MERGED CORPORATION SECTION 2.I-ColI\'ersio" of Securities. The manner and basis of convcrting the shares of cOlUmon stuck of the Surviving Corporation and or the Merged Corpormion ut the Effective Time, b)' virtue or the Merger nnd without any action on the part of any of thc Pnrties or the holder of any of such securitics, shall be as hereinafter set forth ill Ihis Article n. SECTION 2.2-:...Ct)II\'t'rsioll of Shares. (a) Suhject to Section 2.7. cach share of common stock, par value $0,05 per share, of GTE ("GTE Common Stock ") issued lInd outslllnding immediately before the Effective Time (excluding those c<lllcclIed pursulIntlCJ S(~t'lion 2.3) :Iud :Ill rights in rc.~pccllhl;'rcof, shall at Ihe Effeclive Time, without any action on thl: part of uny holder Ihereof, be convcrted into and become 1.22 shares of common slock. par value $0.10 per share, of Bell Atluntic (" Bell Attantic Common Stock' '). Such ratio of GTE Common Stock to Dell Atlantic Common Stock is herein rcfcrre~ to as the "Exchunge Ratio." a..2 ',-,/ .., ," ., ,... ~'~',..~/;/ :'::.\', ,I: ~'.,>:t "'"r" , . ~ , , ' ': . '. ~ '.; .,... " ,'" ,..... /;) I " , , c"". " ' " ' ,) , :.\..~., ':."..l ";.t) .,:\' ~ i\~,. ...,:';,(i~.~'i} ';':';~';' .""'" ", '~<" .:\ '""",.' ' , '; ,. ". ,~ .< 'I l~',iJ'.r-" ~ ' ~, ' ) , ~rI" . l " V " ~, . i" (b) ;.\1) of the Eff~ctivc Time, all shares of GTE Common Slock converted pursuant to Section 2.2(u) shull no longer be outstanding aniJ shall automatically be cancelled and retired and shall cease to ex.ist, nnd ench , holder of u cenificatc (cach,nn "Old Ccnificllte") representing any such shares of GTE Common Slock shull cease to have uny rights with respect thereto, except the righl. to receive shu~es of Bell Atlantic Common Stock. in accordance wilh Section 2.2(a), certain dividends or other distributions in accordance wilh Section 2.5(b) and uny cash in lieu of fruclionnl shares of Bell Atlantic Common Stock 10 be issued or paid in consideration therefor upon surrender of such certificate in a.~cordance with Section 2.5, without interest. (e) For all purpo~es of thif, Agreement, unless otherwise specified, each shan.~ of GTE Common Stock held by employee ~tock ownership plans of GTE 0) shall be deemed to be i!osued and outstanding, (in shall not be deemed to be held in the tre~l.'>ury of GTE nnd (iH) sht\ll be COf\\'crtcd into shares of Bcll Atlantic Common Stock in accordance with the E~change Ratio. ' SEcrtON 2.3-CclIIcd/alirJII of Treasury Shares and Bell Atlamie-owned Shares. At the Effective Time, each share of GTE Common Stock held in the treasury of GTE or owned by BcB Atlantic immediately prior to the Effective Time shull be cancelled and retired and no shares of stock or other securities of Belt Altu.ntic or the Surviving Corporation shall be issuable, and no payment or olher consideration shall be made, 'with respect thereto.' SECTION 2,4-:Cmn'ers~on of CommOlI Stock of the Merged CorporatitJll imo COlllmo'n Srock of tile , SZIn'i\;ing Corporation. At the Effective Time, each share of commun stock of Merger Subsidiary hsued and outstanding immediately prior to ,the Effective Time, and all rights in respcct thereof, shall, without any action on Ihe pari of Bell AIlantic, forthwith (.:case 10 exist and be convcrtcd into 1,000 valiuly issucd, fully paid and nomlssessablc shares of common stock, par vulue $0.05 per share. of the Surviving Corporation (the "Surviving Corporation Cominon Stock"). Immediately after the Effective Time and 'upon liurrendcr by Bell , Atlantic of the certificate representing the share~ of the common stock of Mergcr Subsidiary, GTE as the Surviving Corporation shall deliver to Bell Atlantic un :lppropriate certificate or certificales representing the SUT\'iving Corporation Common Slack crealed by conversion of the common stock of Merger Subsidiary owned by Bell Atlantic. SECTION 2.5-Exchallge Procedures. (a) SUbjl:ct 10 the leoos and condilions hcreof, at or prior 10 the , Erfecti\'c Timc Bell Atlantic und GTE shall joinlly uppoint an exchange agent (the "Exchange Agent") to cffcct the exchange of Old Cenilicates for Bell Atlantic Common Stock in accordance with the provisions 01' this Ankle II. At the Effective Time, Bell Atluntic shall deposit, or cause to he deposited. with the Exchange Agent certificates representing Bell Atlantic Common Srock for exchange for Old Certificates in accordance with the provisions of Section 2.2 hereof (such certificates, together with any uivitlends or distributions wilh respect thereto, being herein referred to as the "Exchange Fund"). Commencing immedialely after the Effectivc Time and until the appointment of the Exclumge Agent llhall be tcnninuted, each holder of an Old Cenificate roa)' surrender the sume to the Eltchungc Age.nt, um!. after the. appointment of the. Exchange Agent shall be terminated, :my such 1H1lder may sUrrcnd~r Uti)' sllch certificate to Bell Atlantic. Such holder shull be cnlitled upon such surrender to rcccive in exchange therefor a certificate or certificates representing the number of whole shares of Bell Allanlic Common Stock such holder has a righl 10 receive in accordance with Scction 2.2 hereof. certain dividcmh or other distributions in accordance with Section 2.5(b) hereof, und a cash payment in lieu of fractional shures, if any, in llcconluncc with Section 2,7 hereof, and such Old Certilic1\te shull forthwith be cancelled. The whole shares of Dell Atlantic Common Stock to be delivered to such holder shull be delivered in book entry form. unless !.ueh holder shall timely clecl in writing 10 receive the certificates representing slIch shares. Unless arid unlil OIlY such Diu Certificate is so surrendered. and except as may be delermined by Dell Atlantic for a perior.lnot to exceed six l1Ionths aftcr the Effective Time, no dividend or other distribution, if any, payable to the holders of n:cord of Bell Allamic Common Slack us orany dalc subsequent 10 thc Effective' Time shall be paid to the holder of such ccrtilkate in respect thereof. Except as olherwise provided in Section, 2.6 h~rcor. upon the surrender of uny such Old Certllic.\te, howe\'cr, the record holder of the certificate or a-3 c ::. ':,::_.' ~ ': : ,:' ,.I >", ,,' >. . -,'., ;': , ~ ' " ' 'I, .' .J, ,! . , , "{,, ' , " I~ : . ,'1,' '. ---- "---:--..-- -------- " , > ~ ~ . .. ", ',' ' , " " , ' , 'I, ';;':':;\'j'; ;r~:l":'/;);;l":'-;':", :.:,' certificates representing share'rof Bell Atlantic Common Stock issued in exchange therefor shalt receive from the Exchange Agent or from Belt Atlantic, as the case m~lY he, payment of the um'ount of dividends nud other , distributiotlS, if any. which us of any date subsequent to the Effective Time und until such surrender shall have become payable and were not paid with respect to such number of shares of Bell Atlantic Common Stock ("pre.Surrcndcr Dividends"). No interest shall be payable with re<;pect to the payment of Pre.Surrcnder , Dh'~dcnds upon the surrender of Old Certificates. After the appointment of the Exchange Agent shall have been, tcnninnted. any holders of Old Certificates which have not,received paymcnt of Prc~Surrender Dividends shall look only to Bcll Atlantic for payment thereof. Notwithstanding the foregoing provisions of this Section 2.5 (b), ne.ther,thc'E~changc Agent nor any Party shaH be Iiuble 10 a holder of:m Old Certificate for :my Bell Alhinric Common Stock. any dividends or distributions thereon or any cash payment for fractional shares as contemplated by SeCtion 2.7, driivcred to a public official pursuant to any applicable abandoncd propcrty, escheat or similar law or to a tmnsfcree pursuant to Section 2.6 hercof. . -, "(b), Notwithstanding anything herein to the contrary, certificates surrcndered for exchange by any '''affiliate'' of GTE shall not be exchanged until Bell Atlantic shall huve receivcd n signcd agreement from such "uffiliate" as' pro\'ided in Section 7.14 hereof. l,', SECTION 2.6-Transfer Books. The Slack tmnsfcr books of GTE shall he closed utthe Effeclive Time and no trUn,sfcr of any shares of GTE Common Stock will thereafter be recorded on any of such stock transfer, books. In the event of a transfer of ownership of GTE Common Stock that is not registcred in the stock transfer records 'of 'GTE at the Effective Time. (l ccrtilicate or certificates representing the number o( wholc shares of Bell' Atlantic Common Stock into which such shares of GTE Common Slock shall have been convened shall be ilisued 10 the transferee together with II cash payment in lieu of fr.letional shures, if any. in accordance with Section 2.7 hereof, and a cash payment in the amount or Pre-Surrender, Dividends, if any, in accordance with Section 2.5 (b) hereof, if the Old Certificate therefor is surrendercd as provided in Scction 2.5 hereof, accompanied by all documents required to evidence nnd effect such transfer :md by evidence of payment of nny npplidlble. stock tmnsfer tax. The whole shares of Bell Atlantic Common SlOck 10 be delivered to such holder shall be delivered in book entry form, unless :mch holder shull timely elect in writing tu receive Ihe certificates rcpresenling such shares. "c I' SECTtON 2.7-No Fractiona{ Share Ce,tificates. (a) No scrip or fractional share certificate for Bell Atlantic Common Stock will be issued in certificated or book cnlry fonn upon the surrcnder for exchange of Old Certificates, und an outstanding fractional share interest will not entitle the owner thereof to vole. to receive dividends or to any rights of a stockholder 'of Bell A\lal\tic or of the Surviving Corporation with respect to such fractional sharc interest. ' (b) As promptly us practicablc following the Effective Time, Ihe Exchangc Agent shall determine the excess of (i) the number of whole shures of Bell Atlantic Common Stock to be issued and delivered to the Exchange Agent pursuant to Section 2.5 hereof over (ii) the aggregate numbcr of whole sharcs of Bell Atlantic Common Stock to be distribuled to holders of GTE Common Slock pursuunt to Section 2.5 hereof (.~uch excess being herein called "Excess Shares"}. Following the Effcclh'e Time. lhe Exchange Agent, as agent for the hohlerI' of GTE Common Stock. shall sell the Excess Shares atlhen prevailing prices on the New York Stock Exchange (the "NYSE"), all in the manncr provided in subsection (c) of this Section 2.7. (c) The sale of the Excess Shures by the Exchange Agent shall be executed on the NYSE through one or more member firms of the NYSE and shull be executed in round lots tu the extent practicable. The Exchange Agcnt shall use all reasonable dfons to completc the sale of thc Excess Shares as promptly following the Effective Time as, in the Exchunge Agcnt's rcasonablc judgmcllt, is praclicublc com.istent with obtaining the bcst execution of such sales in light of prcvailing markct conditions. The Exchange Agent shall. OUI of the proceeds from the sale of lhe Exccss Shnrcs, pay all commissions. Ir:msfcr taxes and othcr out-or-pocket transaction costs, including the expcnses and compcnsation of the Exchange Agent, ineun'ed in connection with such sule of the Excess Shares, Until thc net procecds of such sale or sales have been distributed to the holders of GTE Common Stock. the Exchungc Agent will hold such proceeds in trust for the holders of GTE Common a-4 { '", \lfl~ d.l .\::~ ,", . .;' . 1'-:'"" . l' : .." ,:.1. ~,' \ . ~: : , 'I;" .'! :::',;/,"; " '., . '! -.... ~""""'v ~ '., ' ,'. " . '">;" ,. t'~ ,'/ , ; 'c''\ ','t " , ' . ' I ' l' , ," 'i,;.";i '.~' ,.,\,:';?:<::'t,~;,::f::. (~X,~'!'::l:;~'~'~;:,:,": .:'. ,. . ' . f:' ,: " ~' ~I~ . (~~.:';,:.1ri , 'I,...,~/~,;# '.' I' .;,p~'.",- -, ~,~ .,,/ \_.1 , I, , " ",. J,. .ll ~ '.-:; t"c )~.. " . .'" . ,.,..' t' "'" '..', Stock (the ,"Common Shares Trust"). The Exchange Agent shall determine the portion of the Common Shares T~st to which each holder of , GTE Common Stock shall be entitled, if any, by multiplying the nmount of the nggrcg:uc net proceeds comprising the Common Shares Trust by a fraction thenumerntor of which is the amount of fractional share interests to which such holder of GTE Common Stock is entitled (after taking into account all shares of GTE Common Stock held ut the Etfective Time by such holdcl') and the de,nominlltor of which is the aggregate amount of frnctional share interests to which all holders of GTE Common Stock arc entitled: ' . (d)' Notwithstanding the provisions of subsections (b) and (c) of this Section 2.7, GTE and Bell Atlantic may agree ut their option. exercised prior to the Effective Time. in lieu of the is~uance and sale of Excess , Shares and the making of the payments contempla(ed in such subsections, dwt Bell AI/antic shall pny to the Exc~angc Agcnt an amount sufficient for the E1I.change Agcnt to pay ellch holder of GTE Common Stock an amount in cash equal to the pmduct obtained by multiplyillg (0 the fractional share: interest to which such holder would othclwise be entilled (after taking into account all shares of GTE Common Stock held at'the ' Effective Timc by such holder) by (ii) the closing price for a share of Bell Atlantic Common Stock on the NYSE Composite Transaction Tape on the first business day immediately following the Effective Time. and, in , such case. all references herein to the cush prOCeeds of the sale of the Excess Shares llnd similar refcrenccs shalt be deemed 10 mean and refer to the payme,nts calculated as set forth in this subsection (d). rn such event, Excess Shares shall not be issued or othcrwi,>c transferred to the Exchange Agent pursuant to Section' 2.5 (a) hereof or, if previously, issued, shall be returned to Bell Atlantic for cancellation. (e) As soon as practicable ufter the delcrmimllion of Ihe umounts of cash. if any, to be paid to holders of GTE Common Stock with respect to any fmctional share interests. the Exchange Agent shalllllake available such amounts, net of any required withholding. to such holders of GTE' Common Stock, subject to and in accordance with the terms of Section 2.5 hereof, (0 Any portion of the Exchange Fund and the Common Shares Trust which remllins undistributed for six months after the Effective .Time shull be delivered to Bell Atlantic. upon demand, and !lilY holders of GTE Common Stock who have not theretofore complied with the, provisions of this Article II shull thereafter look only to Bell Atlantic fur satisfaction of tlwir claims for Bell Atlanlic Common Stork, any cash in lieu of fractional shares of Bell Allantic Common Stock and any Pre-Surrender Dividends. SncnON 2,8-0plio1/5 10 P14rchaJt' GTE Commoll Stock. (a) At the 'Effective Time. each option or warrant grantcd by GTE to purchasc shares of GTE Common Stock which is ou(standing and unexercised immediately prior to Ihe Effective Time shall be ussumed by BeJl Atlantic und converted into an option or w:mant to purchuse shares of Bell Atlantic CUlUmon Stock in such amounl and at such exercise price as pro~'jdcd below lInd otherwise huving the same terms and conditions as are in effect immediately prior to Ihe Effective Time (~xcept to Ihe extcnt that such ternlS. cOl1dition~ and restrictions may he altered in accordance with thdr terms as a result of the lransaclions contemplatcd herehy): (i) the number of shares of Bell Atlantic Common Stock 10 he suhject to the new option or warrant shall be equal to the product of (x) the numbcr of shllres of GTE Common Stock subject 10 the original option or warrant aud (y) the Exchuuge Ratio; (ij) the excrcbc price per share or Bell Atlanlic Common Stock under the new option or warrant shall bc equal to (x) the exercise pricc per share of thc GTE Common Stuck under the original option or warrant divided by (y) the Exchange Ralio: lInd (Hi) upon e~lch exercise of options or warrants by II holder thereof, Ihe aggregate number of shares of Bell Atlantic Common Stock deliverable upon such c~cn:ise shul! be rounded down. if necessary. to lhe nearest whole share and thc aggregate excn:isc price shall be roUllded up. if necessnry. to the nearest cent. The adjustments provided hercin with respect tll UIl)' optiOl~S which arc' 'incentive stock options" (as detined in Section 422 of the Cude) shull he effected in .l manncr consistent with Section 424(111 of the Code. 11-5 -.----- -- I,' ,...'...,, ; '.', '>, ~: ", ~.-~-----.-~--. --- " " I', .' 'I ~'>~ , " , " , " , ; . . I ! ,1, '- ' , , ';.. .. " >;' I' ." , ,I " -;. :1 . j' .~4-"*~"'Jo::\ ~, " "'~(.-',<;!f""'.'~~'~~~"~Jl~~~:l""~:'~.~'. , , , ..... . _'~ to. .tl,.~'" t, 1",', ~ .." " . I .""."0)' (b) At the Effective Time, each. stock appreciation right ("SAR") with respect to GTE Common Stock which is outo;tnnding and unexercised immediately before the Effective Time shall be converted into an SAR with respect to sb'nrcs of Bell Atlantic Common Stock on the same terms and conditions 'us are in effect immediuu:ly priorto the Effective Time, with the adjustments set forth in' subsection (a) of this Section 2.8. ~ , . ' SECTION 2.9~Restricted Stock. At the Effective Timc, any sharcs of GTE Common Stock awurded pursuant to any plan, arrangement or transaction, und outstanding immediately prior to the Effective Time shall be converted into shares of Bell Atlantic Common Stock in accordance with Scction 2.2 hereof. subject to the same terms, conditions and restrictions as in effect immediately prior to the Effective Time, except to the extenl that such terms, conditions arid restrictions may be altered in accordance with their temlS as a result of the tnmsllctions contemplated hereby. ' ' , SECTION 2.IO-Certain Adjw;tments. If between the dale hereof and the Effective Time, the outstanding shares of GTE Common Stock or of Bell Atluntic Common Slock shull be changed into a different number of shares by reason of any reclassification. recapitalilution, Splil-UP, combimltiol1 or exchange of shares. or any dividend payable iJ~ stock or other securities shall be declared thereon Wilh a record dat'~ wHhiil such period, the Exchange Ratio shall he adjusted accordingly to provide to the holders of GTE Common Stock ~nd Bell AtlaJltic Common Stock the smIle economic effect as contemplaled by this Agrecmcnt prior to such reclassification, recupitaHzntion. Splil-UP, combination. exchange or dividend, ARTICLE Ill-CERTAIN ADDITIONAL MATTERS. SECTlON 3;I-Certificate of lncorporatiorr ami By!aw.f of Bell Arhmlic:. At the Effective Time and subject to and upon tbe tcmlS and conditirms of this Agreement anu the General Corpomlion Law of the SllUC of De111warc ("DGCL"), Bell Atlantic shall enuse the Cerliliculc of Incorporation of Bell Atlanlic l1nd the, Bylaws of Bell Atlantic to be 3mendec.l 3nu reslatcd to incorporate the provisions sct forth in Apl1cndiccs I-A and loB hereto, respectively. Such amendment,and restatemcnt of the Bell Allanlic Cel1ificate of Incorporation and umendment and restatement of the Bell Atlantic Bylaws ure referred 10 herein as the "Certificate Amendment" and the "Bylaws Amendn~ent," rcspectively. SR"TION 3.2-DMdemls. Euch of GTE !ind Bell Atlantic shall coordinale with the olher the declaralion of, and the setting of record dates and payment dutes for, dividcmls on GTE Common Slock and Bcll Atlantic Common Stock so thllt holders of GTE Common Stock do not (i) receive dividends on both GTE Common Stock am.! Bell Atlantic Common Slock received in connection with the Merger in respect of any calendar quarter or (ii) fail to receive a dividend on eilllcr GTE Common Slack or Belt Atlantic Common Stock received in connection with the Merger in respect of any calendar quarter. SEcrlON 3.3-Ht!adquartel's. GTE and Bell Atlantic agree that immedialcly following the Effective Time the headquarters of Bell Atlantic shall be located in New York, New York. SECTION 3.4--CoqlOl'arl' Jdt'lltity. GTE and BeU Atlanlic agree that allhc Effcctivc Timc. the corporale name of Bell Atlantic shall be as shaH have been agreed by the Parties. ARTICLE IV-REPRESENTATIONS ANI> WARIL\NTlES OF GTE Except as c~pressly disclosed in (be GTB Filed SEC Reports (~\S delincd below) (including all exhibits referred to therein) or as set forth in the disclosure schedule delivered by GTE 10 Bell Atlantic on thc dlM hereof (the "GTE Disclosure Schedule") (each section of which qualilies the correspondingly numhcl'cd rcpresentation and warranty or covenant as spccificlllherein), GTE hereby rcpre!.cnts and warrants to Bell Athmtic as follows: SECTION 4.1-0rglmizClrioll {fill' Qlw(ifiC(ltiOH: Subsidiaric,\'. Such of GTE llnd cnch of its Significant Subsidiaries is a corpomlion duly orgllni7.cd, \'ulidly cxisting and in good stllOding under the l:\ws of its a-6 ~-- ~-----------....._-- ~ . , .' " "', ~ , ~-II . '\ j " :' L/I''''~ " ," ":i" . ',l.: ,', > 'y". T .,.,'. " .r' . 'c' : ~ ~\ . \' . ~\ ~ , < \ \, < :" Ie ."Ii - , , ,. , " " " ' l ' ~ ie' , ;1" , ' '.; " . I ~' . '... . , , ~' ^"? ;(:i<~ ";~,~;,:,~'~~rr:;~'{\:; '.<..;:~,-"",,,..: ,:.< " !, ' " ~ ~.' I",:~ "\, Fe ::,.;:~ ~~1 I, I ' ~ ,\ j' '_.,,\ (' . , ',...-/ , I '-..-I \ ~ ,.',~ ' .~,~,~ > , i I ~ .', ~ .J '. . jurisdic.tion of incorpor.1tion or organization, Each of the GTE Subsidiaries which is not a Signilicant ,Subsidiary is duly orgimizcd, validly existing and in good standing under the laws of i1s jurisdiction of incorporation or organization. except for such failure which, when tuken together with all other such failures, would 'not reasonably be c:<pecrcd to have lJ MnlerialAdvcrsc Effect on GTE. Each of GTE and its SubsidiUlics has the requisite corporate power 'and authority and any necessary governmental authority. fmnchise. license, certificate or pennit to own, operate or lease the properties that it purports to own, operate or lease llnd to carry on its business as it is now being conducted, and is duly qualilied as a foreign corporation to do business, and is in good standing, in each jurisdiction where the charat:[er of its propcrties owncd, operated or leased or the nature of its activities makes such qualification necessary, except for such failure which; when taken together with all other such failures. would not reasonably be expected 'to have a Malerial Adverse Effect on GTE, SECTION 4.2-Cerlijil..'are ollncurporaticm llf/C1IJylau,w.' GTE has heretofore fumished, or otherwise mudc available, to Bell Atlantic a complete and correct copy of the Certificate of Incorporation and the Bylaws, each as amended to the date hereof, of GTE. Such Certificate of Incorporation and Bylaws ure in full force and effect. Neither GTE nor any of its Significant Subsidiaries i!l in violation of any of the provisions of its respective Certificate of Incorporation 'or. in any muterial respect, it~ Bylaws. ' : SECTION 4.3--':CcJpita!i;:cu;oll. (n) The aUlhori1.cd capital stock of GTE consists of (i) 9,217,764 !ohares of preferred lilock, par value 550.00 pcr share. lIone of which ure oUlslanuing or reserved (or issuance, (ij) 11,727,502 shares of preferred stock, 110 par value per share, none of which arc outslanding and 700,000 of which have been reserved for issuance in accordllllCC with the Rights Agreemcnt (as defined below), and (iii) 2.000,OOO,O{}O shares of GTE Common Stock, of which, as of June 30. 1998. (A) 963,241,244 shllres were issued and oUIMunding, (B) 25.658,980 shares were held in the treasury of GTE. (C) not more than 50,000.000 shares were issuable upon the exercise of options outstanding under the GTE option plans, and (0) 31.603,945 shares were reserved for il;sunnce in connection with other GTE Plans (as defined in Section 4.11 (h) below). Ex.cepl for GTE Equity Rights issued to GTE employees in the ordinary eOllrse of business or, after lhe date hereof, liS permitted by Section 6,2 hereof or pursuant to the Bell Atlantic Option Agreement, (i) since June 30. 1998. no shares of GTE Common Stock have been isslIed, excepl upnn the exercisc of oplions described in the immediately preceding sentence, and (ii) there ure no outstanding GTE Equity Rights. For pUlposes of this Agreement. · 'GTE Equity Righls" shall mcan suhscdptions, options, Warrants. calls. cOJUmitments, agreements, conversion rights or other righL'i of any chanlctcr (contingent or otherwise) to purchase or otherwise acquire uny shares of the capital stock of GTE from GTE or any of GTE's Subsidiuries at uny lime. or upon the happening of any stnted event, eXeC})1 for rights grantcd under the Rights Agreement, dated us of December 7, 1989 (fhe "GTE Rights Agreemellt"), between GTE and [he Rig/liS Agent (01S dclincd lherein), and the Bell AlIuntic Option Agreement Section 4.3 of the GTE Disclosure Schedule sets forth a complete und accurale list of certain informal ion with respect to all outstanding GTE Equity Rights us of June 30, 1998. (b)' Except as set funh in Section 4,3 of the GTE Disclosure Schedule. pursuant to the Bell Atlantic Option Agrecment, or. uftcr the date hereof. as permitted by Scction 6.2 hereof, there are no outstanding obligmions of GTE or any of GTE's Subsidiaries to repurchase, redeem or otherwise acquire any shnres of capirul slack of GTE. (c) All of the issu~d and lllltslanding shures of GTE COlllmon Stock arc validly issued. fuBy paid and nonassessable. , (d) All of the outstanding callilal stock of each of GTE's Significant Subsidiaries, and all of the llutslanding capilnl stock of GTE's Subsidiaries <lwned directly or indirectly by GTE, is duly authorized, validly issued, fully paid und nonassessable. All of Ihe olltslanding capital ~Iock of each of GTE's Significant Subsidiaries is owned by, GTE free and clear of any liens, security inlerests, pledges, agreements, cJuims, chnrgcs or encumbmnces. All of the oUlslanding cllpital slock lIf GTE's Subsidiaries ownt~d directly or imlirectly by GTE is owned free and cleur of any liens. securily inlerests, pledges, agreements, claims, charges or encumbrances, except where su..:h liens, security interests, pledges, agreements, claims, charges or n-7 . :' ." " '" ,'^:~;~ :..~td< ,.., _ ':,',"",l,t, "\. \ '~:~" ::.(T " . , . ' ~ ~ ~. , " " ;, ~.' , . , ' :;,'/ ,t, :j: ."> , " ,I, " " . 'J,' " , ,:' ... "T .' , C. ~ ,,~,~":c~.;T!rtt;)I~/;~:'~':f.+t:''>:J .,;'~<~~~ tt' <.'" ,'- ,I. , " encumbrances would not. individually or in the aggregate, have a Material Adverse Effect on GTE. Except as hereafter issued or ,entered inlo in accordance with Section 6.2 hereof, there are no existing subscriplions, options. warrants, calls, commitments, agreements, conversion rights (lr other righlS of uny character (contingent or otherwi!oe) to purchase or otherwise acquire from GTE or any of GTE's Subsidiaries at any time, or upon the happcning of any stated event, III1Y shares of the capital slock of any GTE Subsidiary, whether or ' not presenlJy issued or outstn.nding (except for rights of first rcfusalto purchase interests in Subsidiaries which are not wholly owncd by GTE), or uny of GTE's direct or indirect interests in an)' Mutcriallnvestment, ond there arc no outstanding obligations of.GTE or any of GTE's Subsidiaries to repurchase, redeem or otherwise , acquire any shares of capital stock of any of GTE's Subsidiaries or securities related to any investments, other than such as would not, individually or in the aggregate, have n Material Adverse Effcct on GTE, S~CTION 4.4-Aurlwrity Reftlrh'c to dais Agrcl'1l1ent. GTE has the neccssary corporate power and authority to enter into this Agreement and. subject to obtaining the requisite approval of the Merger Agreement by GTE's stockholders required by the NYBCL (the "GTE Stockholder Approval"), to perfonn its obligalions hereunder. The execution and delivery of this Agreement by GTE, and the consummation by GTE of the trans::ctions contemplated hereby, have been duly authorized by all necessary corporate action on the part of GTE, subjecl to obtaining the GTE Stockholder Approval. This Agreement has been duly cxccu~cd and ,delivered by GTE and, assuming the due authorization, execution and delivery thereof by each of Bell Atltmlic Ilnd Merger Subsidiary, constitutes a legal, valid and binding ohligation of GTE, enforceahle against it in accordance with its tenus, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting the rights ond remcdics of crcditors gencrally and to general principles of equity (regardless of whether considered in a proceeding in equity or at law). " SECTION 4.5-No Conflict; Required Filings alld Consents. (u) Except as described in subsecth>n (b) below. the execution und ddivery of this Agreement by GTE do 1101, and the performance of this Agreement by GTE will not, (i) "iolate or contlict with the Certificale of Incorporation or Bylaws of GTE, (ii) connict with or violate any law, regulation, court order, judgment or decree applicable to GTE or any of its Subsidiaries or by which any of their respcctive properly or asselS (including investments) is bound or affected, (Hi) violate or contlict with the Certificatc of Incorporntion or Bylaws of any of GTE's Subsidiarics, (iv) rcsult in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a dcfauh) under. or give to others any rights of tcmlinulioll or canccllation of, or result in the creation of a Hell or encumbrance on any of the properties or ussets (including investments) or GTE or any of ils Suhsidiurics pursuant to, result in the loss of uny material bencfit under, or re!>uh in any modification or alteratiun of, or require the conscnt of any other part)' 10. any eontrncl, instrument, pcnnit, license or franchisc to which GTE or uny of ils Subsidiarics is a pUl1y or by which GTE. any of such Subsidiaries or any of their respcclivc propcrty or U!1scts (including investments) is bound 01' affcclcd, except, in the case of clauses (iU. Wi), :md 0") above. for cllnllicls, violations, breaches, defaulls, rcsulls or consenls which. individually or in the aggrcga\c. would not have u Malcrilll Adverse Effect on GTE. (b) E.'I(ccpt for applicable requirements. if any. of state or foreign public utility commissions or laws or similur local or slate or fureign regulatory bodies or laws. stale or foreign antitrust or foreign invcstmenl laws and cummissions, lhe Federal Communications Commi'ision, slock exchanges upon which securities of GTE arc listed, the Exchange, Act, the premcrger Ilolificution requirements of llle HSR Act. filing and recordation of uppropriate merger or olher documents us requircd by the NYBCL and any filings required pursulllll 10 ,lilY stale securities or "blue sky" laws or the rules of any applicable Slack exchanges, (i) neither GTE Ilor uny of its Signllicllll\ Subsidiaries is required to submit ullY notice, rcpoTl or, other Jiling wjth UllY redcml, stute, local or foreign government, :my court, ndministrative. regulnlory or uther guvernmental agency. commbsion or llulhorilY or uny non-go\'ernmcntal U.S. or fi:>reign self-regulatory agency, commission or authority, or llllY mbilral tribunal (each. n "Govemmcntal Enlit)''') in connection wilh the exccUlion, delivery or performance of this Agreement and (ij) no wniver, consent, approval or aUlhorizalion of any Govcnuncnlul Entity is rClluircd to be obtnincu by GTE or any of its Signilicant Subsidiaries in cOllnection with its execulion, delivery or performunce of this Agreement. u-8 ". . " " " .. \" ,.,) , J, ~" ,\" .' / .. ~ , . 'I ~ '.' ,.t. , , > .": ;' , ',I, I " , '!, " l' " . , .' ,::;(' ;- , ' , ,:"':',;'>,:<:-. :,,::'y'':'.\.',fj',\ s ',. ... _..,....,.~,.., ,'., .~',:,:, ... d'":,,, ' , \' ! " ", ,~ " -""'C;~ , '."..-r I r ' ~ ' I' ~ ' ,I' :-...." i T',~~/ '-...-..;/ SECTION 4.6-SEC Filing,o;: Financial Statemellts, (a) GTE has filed all forms, reports and documents required to be filed with the Securities and Exchange Commission ("SEC") since January 1, 1995, and has heretofore ~e1iveled or made available to Bell Atlantic, in the form filed with the SEC, together with llny amendments !hereto, it!'. (i) Annual Reports on Fonn JO-K for the fiscal years ended December 31, 1995, 1996 and 1997, (ii) all proxy statement'; relating to GTE.s meetings 'of stockholders (whether annunl or special) held since January 1; 1995. (Hi) Quarterly Report on Form 10-Q for the liscnl quarter ended March 31, 1998, and (iv) all other reports or registration statements' filed by GTE with the SEC since January I, 1995, including without limitation nil Annual Reports on Form 11-K filed with respect to the GTE P1uns (collectively, the "GTE SEC Reports", with such GTE SEC Reports filed with the SEe prior to the date hereof being referred to as "GTE Filed SEe Reports"). The GTE SEC Report'! (i) were prepwed substantially in accordance with , the requirem~nls of the 1933 Act or the Exchange Act (as defined in Section 10.4 hereoO. as the case may be, and the rules and regulations promulgated under ench of such respective acts, and (ii) did not at the time they wero l11ed conlllin any untrue stntement of a material fact or omit to statc a material fact required to be stated therein or necessary in order to make the sLatcments therein, in the light of the circumstances under which they were made, not misleading. , (b) The financial statements, including all related nOles and schedules. contained in the GTE SEe Reports (or incorporoted by reference therein) fairly present the consolidated financiul position of GTE and ils Subsidiaries as at the respective dates thereof and the consolidated results of operntiolls and cash flows of GTE and its Subsidiaries for the pel'iods indicated in accordance with GAAP applied on a consistent basis throughout the periods involved (except for changes in uecounting principles disclosed in the notes thereto) and subject in the case of interim financial statemento; to nonnal year-end adjustments. SECTION 4.7-Abse~ce of Certain Change,t or Events. Except as disclosed in the GTE Filed SEC Reports and in Section 4.7 of the GTE Disclosure Schedule, since December 31, 1997, and except as penniued by this Agreement or consented to hereunder. GTE and its Subsidiaries have not incurred any malcrialliability required (0 be disclosed on a balance sheet of GTE .md its Subsidiaries or the footnoles (hereto prepared in conformity with GAAP, except in the ordinary course of their busincssc!o cons!stent with their past practices, and there has not bcen any change, or any event involving a prospcctive change, in the business, financial condition or results of operations of GTE or any of its Subsidiaries which has had, or is reasonably likely lO have, a Material Adverse Effect on GTE, and GTE and its Subsidiaries have conductcd (heir respective businesses in the ordinary course consistcnt with their past practices, SECTION 4.8-Litigatiol/. There are no claims, actions, suits, proccedings or investigations pending or, to GTE's knowledge, threatened against GTE or an)' of its Subsidiaries, or any properties or rights of GTE or any . of its Subsidiaries, by or before any Govenllnentnl Entity, except for those that arc nOI, indi\'idually or in thc aggregate, reasonably likely to have a Material Advcrse Effect on GTE or prevem, materially delay or intentionally delay the ability of GTE to consummate transactions contemplated hereby, SECTION 4.9-PermitJ; No Vio/arion of LlIW, The businesses of GTE and its Subsidiaries me not being conducted in violation of any statute, law, ordinance, regulation, judgment, order or decree of any Governmental Entity (including any stock exchange or other self-regulatory body) ("Legal Requirements"), or in violation of any permits. franchises, licenses, authorizations, certificates, variances, exemptions, orders, registrations or consents that are granted by any Governmenlal Entity (including any stock exchange or other self-regulatory body) ("Permits"), except for possible violations none of which, individually or in the aggregule, may reasonably be cxpeclcd to have a Maleriol Adverse Effect on GTE. No investigation or rcvicw by uny Governmental Entity (including any stock exchange or mher self-regulatory body) with rcspecl to GTE or its Subsidiaries in relation to any alleged violation of law or regulation is pending or, to GTE's knowlcdge, threatened, nor has any Governmental Entity (including any stuck exchange or other self-rcgulatory body) indicated an intention to conduct thc samc, except for such investigations which, if they resulted in adverse findings, would not reasonably be expectcd 10 have, individually or in the aggregatc, a Mutcrial Adverse Effcct on GTE. Except as sel forth in Section 4.9 of the GTE Disclosure Schedule, ncither GTE nor any of its Subsi,diuries is subject to any cease and desist or other order, judgment, injunction or decree issued by, or is u a-9 . ",;: .r.. . ,I " 'i , '. " \,.,,'" ~ -"l.':'~\~~.:'''I\ii~"I-,:>,,'':. ;t~...:' party to tiny written Agreement, conscnt.Agrcemcnt or memorandum of understumling 'with, 'or is a pat1Y to uny eommiuncnt letter or similar undertaking t~), or is subject to any order or directive by, or has adopted any board resolutions aL the request <?f, any Govenlmental Entity that materially restricts the conduct of its business or which may reasonably, be expected to have a Material Adverse Effect on GTE, nor has GTE or' any of its Subsidiaries been advised that any Governmental Entity is considering issuing or requesting any of the ' foregoing. None orthc representations and warrnnlies made in this Section 4.9 arc being made,with respect to Environmenlal Laws.' 'SECTION 4.10-10;'" Proxy Starcmellt. Nunc of the infonnation supplicd or to be supplied by or on behidf ,of GTE for inclusion or incorpomtion by reference in the regislmtion: stnlement to be liled with rhe SEe by Bell Atlanlic in conneClion with thc issuance of shares of Bell Atlantic Common Stock in the Merger (the "Registration Statement") will, at the time the Registration Statemcnt becomes effective undcr the 1933 Act, conlninany untrue su\t~m~ntof a matcrial fact or omit to state any,nuuerial fact required to be stated thercin or neccssary to makc the stalements therein, in th~ light of the circumstances under which they were made, not, " misleading. None of the information supplied or to be supplied by or un bchalf of GTE for inclusilm or incorporation b)' reference in the joint proxy statement, in detinitivc fornl. relating to the meetings uf GTE and Bell Atlantic slockholders to he held in connection with the Merger, or in the relaled proxy and notice of , meeting, or soliciting matcrial-uscd in connection therewith (referred to herein collectively as the "Joint Proxy SlJilcment' ') will, at the dates mailed to stockholders and at the times of the GTE stuckholders' meeting and the Bell Atlantic stockholders' meeting, contnin any untrue statcment of a material fllct or omit to :.;t:He any lIlaterial fact required 10 be slaled Iherein 'or nccessury in order to make the .~Iatcmenls therein. in the lif!ht of the circumstances under which they were made. not misleading. Thc Registration Statement and the Joint' Proxy Statement (cKcept for infonnation relating solely to Bell Atlantic) will compl}' tIS 10 fonn in all ltllllerial respects with the proviSions of the 1933 Act and thc Exchimge Act and the lules and regulations promulgated thereunder. ' SEe-nON 4.11-Emplo)'ee Mcltters; ERISA.., (a) Except where the failul'e to be true would not, individually or in the aggregate. have a Material Adverse Effect 011 GTE, (i)cach GTE Plan has been operated and admhiistcred in uccordancc with applicable law, including but nol limited to the Employee Retirement ' Income Security Act of 1974, as umendcd ("ERISA"). und the Code, (ij) each GTE Plan intcndcd to be "qualified" within the meaning of Seetion 40 I (u) of the Code is so qualified. Wi) exccpl as required by COBRA, no GTE Plan provides denth or me'dicnl henclit!'. (whether or not in!>urcd). wilh respecl to current or former employees of GTE or of nny trm.lc or business, whelher or not incorporaled. which together wilh GTE would be deemed a "single employer" within the meaning of Seclion,4001 of ERISA \a "GTE ERISA, Affiliate"), beyond their retirement or other tcnnination of service, (i\') no liability under Title IV of ERISA has been illcum:d by GTE or any GTE ERISA Afliliule Ihal has not becn salisfied in full, and no condilion ex.ists thut prcsent!> a mUlerial risk to GTE or any GTE ERISA Affiliate of incurring any such liability (olher limn paGe premiums), (v) nil contributions or other amoUllts due from GTE or nny GTE ERISA Aflilinlc wilh respeCI to eaeh GTE Plan havc becn paid in full. (vi) neither GTE nur any GTE ERISA Aflilime has engaged in a trunsactiol1 in connection with which GTE or any of its Subsidiaries cHuld reasonably be expected to be subject to either a civil penally assessed pursuant to Section 409 or 502ti) of ERISA or a Inx imposed pursullnt to Section 4975 or 4976 of the Code. (vii) to the best knowledge of GTE there lIrc no pending, threatened or' , anticipated claims (other limn routine claims for benefits) by, on behalf of or against any GTE Plan or any trusts related thereto, and (viii) neither the execlllion and delivery of lhis Agrccmclll nor lhe consummation of the transactions contemplated hereby will (A) resull in any pa)'hlent (inl.'luding. Wilhoul Iimilation. severance. unemployment compensation. golden parachute or otherwise) becoming due 10 any dircclOr or ~I1lY employee of GTE or any of its Subsidiaries under uny GTE Plun or otherwise, (B) matcriully increase any benelits uthelwise payable under any GTE Plan or (e) result in any llccclcrnliun of the time of paymcnt or vcsling of uny such benefits. (b) For purposcs of Ihis Agrecmenl, "GTE P)llll" shalf mean cach ueferred compcnsuliol1, bOllus or Olher incentive compensation, stllck purchase, stock optiull or other cquity cmnpl:l1salion plun. program. ugrcemenl or a-IO 'I ;j , , \~{:~ :' 'I..".:"...: )'..'..: "c '\', ,: <I" j" ,'. \ '; )..', . , .," ,', C:' ',~ l r. . .,1 ' , " ' ." , \ ,<, J '/ ',' 'f! C '-: ' .. ' , , , ' , ,', , I, , " , ( ,'. : .,1. \ .' ' , , .., ""., '." ': ~~4 . ;", .. : :'~ -"1 ~'>l~j, < '\:""/:l~~Jr.~~, ',"I.~,:. /.,(~ , :;I,:',~''J ,.....-l"o.~ I , "-".1 \,....i1Ii . ,.' ~" ; F ( ..:. . ,~,. c', ~ . .' " , , " ammgcmcnt; each severance or terminalion p-ay. medical, surgical, hospitalization, life insurance or othcr "welfare" plan, fund or program (within the meaning of section 3(1) of ERISA); each prolit.sharing, stock bonus or other "pension" plan, fund or prognul1 (within the meaning of section 3(2) of ERISA); each ' employment, temlination or.sevemnce agreement; and each other employee benefit plan, fund, program, agreement or nrrnngemenl, in each case, that is sponsored, maintained or conlributed to or rcquired to be contributed lo:by GTE or by nnyGTE ERISA Affiliale or to which GTE or any GTE ERISA Affiliate is party. whelher written or oral, for the benefit of any employee or former employee of GTE or any GTE ERISA Affiliate. , SEct10N 4. 12-Labor Matters. Ncither GTE nor any of iL..' Subsidiaries i~ the subject of any material proceeding asserting that it or any of its Subsidiaries has committed an unfair Inbor practice- or is seeking 10 compel it to bargain with any labor union or labor organization nor is there pcnding or, to the actual knowledge of it<; executive officers, Ihrealened in writing, nor has there been for the past live years, any labor strike, dispute, walkoul~ work stoppagc, slow-down or lockout involving it or' any of its Subsidiaries, except in each case as is not, individually or in the aggregale. reasonably likely to have a Material Adverse Effect 00 GTE. , , SEmON 4. 1 3-Environmcnlal Matters.' , Except for such matters that, individually or in the aggregate, arc not fC'.asonably likely to have a Material Adverse Effect on GTE: (i) each of GTE and its Subsidiaries has complied with all applicable Environmental Laws (as defincd below); (il) the properties currently 'owned or opcmted by it or any of its Subsidiaries (including soils, groundwater, surface wuter. buildings or other ' . struct~res) nre not coutnminalcd with any Hazardous Substances (as defincd below); (Hi) the properties formerly owned or operated by it or nny of its Subsidiaries were notcontaminnted with Hazardous Substances , during the'pcriod of ownership or operation by it or any of its Suhsidiarics; (iv) ncither it nor imy of its Subsidiaries is subject to liability for nny Hazardous Substunce disposal or contamination on any third party property; (v) neither it nor any Subsidiary has been associatcd with any release or threat of release of any Hazardous Substance; (vi) neither it nor any Subsidiary has recei....ed any notice, demand, letter, claim or request for infonnation alleging thut it or any of its Subsidiaries may be in violation of or liable under any Environmenc.aJ Law (including any claims relating 10 electromagnetic fields or microwave ,transmissions); (vii) neither it nor any of its Subsidiaries is subject to any orders. decrees, injunc,lions or other nrrangemcms with any Governmental Entity or is subject to uny indemnity or other agreement with any third party relating CO liability under any Environmental Luw or relating to Hazardous Substanccs; and (viii) there arc not circumstances or conditions involving it or any of its Subsidiaries that could reasonably be expected to result in any claims, liability, invcstigalions, costs or restrictions on the ownership. use. or transfer of any of its properties pursuant to any Environmental Luw. As used herein and in Section 5.13. the tenn "EII\'iwnmental Law" means any law relating to: (A) the protection, invcstig.ltion or restoration of the environment. heallh, safety, or natural resources, (B) the handling, use, presence, disposal, release 01' threalened rclease of any Hazardous Substance or tel noise, odor, wellands. pollution, contamination or uny injury or threat of injury to persons or property in connection with an)' Hazardous Substance. As used herein and in Section 5.13. the tenn "Hazurdous Substance" means any substance that is: listcd, classified or reguluted pursuant to any Envirunmental Luw, including uny pctroleum product or by-product, asbestos-containing mnteriul, leau-containing paint or plumbing. polychlorinated biphenyls, radioaclive materials or rudon. SECTION 4. 14--Bvard At'tiol/; Vote Required; Applicability eif Sec:tiOlI 9/2. (u) The Board of Directors of GTE has unanimously detennined that the tmmactions eontemplaled by this Agreemenl and thc Option Agreements are in the best interests of GTE and irs stockholders ~md hilS resolved to recommend to such stockholders Ihal they vote in favor thereof. (b) The approval of the Merger Agreement by two.thirds of the voles of all olltstanding shures entitled to vole thereon by aU holders of aTE Common Stock is th..: only vole of the holuers of nny class or scries of the I' a.ll ~~::I:~,:.:I;;,>:'," t, ~ .',C.~ ,'-----.-~~..-~~~-----:- ~ ' .,' .~'. . . , .: ~ . l '.,IC,.' P' ,r ~ ~ .. ; ", , . t" ' ~ . , , ',:' . l '., .. , , , " I' . , , I'" " , ~ T , " ; " . ," I , ',;"'J,?:':" .:: :,,;.::) :.::. :\{,,:,:~~~:i, .::1:':;."1.~':.~~..: ~ ~ ",. ,. I:, :~~ capHal stock of GTE required to' approve this Agreement. the Merger and the other transactions contemplated hereby. The provisions of Section I LAof the Certificate of Incorporation of GTE will not apply to the transnctions conteml'lnted by this Agreement aud the Option Agreements. . (c) The provision., of Section 912 of the NYBCL. will not, assuming the accuracy of the representations contained in Section 5.20 hereof (without giving effect to the knowledge qualification therein), apply to this Agreement or.nnyof the transactions contemplated hereby. ".... " , .< SEC110N 4.15-0pinions of Financial Advisurs. GTE has received the opinions of Goldman, Sachs & Co; ("Goldman Snchs"). and Salomon Smith Barney Inc. ("Salomon Smith Barney"), each dated July 27. 1998, to the effect that. as of such date. the Exchange Ratio is fair from a financial point of view to the holders of GTE Common Stock. , i .' SEcnON 4. 16-Brokers. Except for Goldmun Sachs. Salomon Smith Barney and Chase Securities Inc., the arrangements with which have been disclosed to Dell Atlantic prior to. the date hereof, which have been engaged by GTE, no broker, finder or investment banker is entitled to' any brokerage, finder's. investment banking or other fee or commission in connection with the transactions contemplated by this Agreement and the Option Agreemenls based upon arrangements made by or on behalf of GTE or any of its Subsidiaries. . . SECn01'O 4, 17-Tat Matters. Except as set forth in Section 4.17 of the GTE Di!-.closure Schedule: (n) All material federal, state, local and foreign Tax Returns (ar. defined herein) required 10 have been filed by GTE or its Subsidiaries have been filed with the appropriate governmental authorities by Ihe due date thereof including extensions; . ' (b) The Tax Returns referred to in subpart (a) of this Section 4.17 correctly and completely reflect all malerial Tax liabilities of GTE l1nd its Subsidiaries required to be show~ thereon; te) All material Taxes (as defined herein) shown as due on those Ta.'t Returns referred to in subpart (a) of this Section 4.17 as well as any material foreign wilhholding Taxes imposed on or in respecI of any amounls paid to or by GTE or any of its Subsidiaries, whether or not such amounts or wilhholding Tuxes are referred 10 or shown on un>' Tax Returns referred to in Section 4. n (n) hereof. have been fully paid or adequately reflected as a liability on GTE's or its Subsidiaries' financial statement<; included in the GTE SEe Reports; (d) With respect to llny period for which Tax Retums have not yet becn filed, or for which Taxes are not ytt due or owing. GTE and it<; Subsidiaries have made due and sufficient accruals for such Tuxes in their respective books and records and financial statements; (()) Neither GTE nor any of its affiliates has taken, agrced to take or omitted 10 HIke any action Ihat would prevent or impede the Merger from qualifying us n tax-free reorganization under Section 368 of the Code; (t) No deficiencies for any Taxes have been proposed. asserted or asse~,sed against GTE or uny of its Subsidiaries that arc not adequately reserved for under GAAP, except for deficiencies that individually or ill the aggregate would not have a Material Adverse Effect on GTE; (g) GTE is not aware of any material liens for Taxes upon any assets of GTE or any of its Subsidiaries upart from liens for Tuxes not yet due and payable; and (11) As used in this Agreement, "TUXes" shall include alt (x) federal, state, local or foreign inl.:ol1le. property. sales, excise. use. occupation, service, transfer. payroll, franchise, wilhholding and other taxes or similar governmental charges. fees, levies or other assessments including uny interest, penalties or additions with respect thereto, (y) liability for the payment of any amounts of the type described in clause (x) as a result of being n member of nn affiliated, consolidated, combined or unitary group. and (7.) liability for lhe payment of any amounts as a result of being party to any tax sharing agreement or as a result of any express or implied u.12 .. , " Il.t,j,' ' f::~{l~; "'. .~ t' '!..>,e'j,... :. , "} ,,/....,: I " ,. .. ~ ; '. j :~ e' , f'1 , ~, I <" '{ . I .\', , . ',; ~',;: t, ^ \' ~{',;';'?:~~V:::i'j:{'f~:",;" ,I.' "', (~ :.'r,"':} <'~) ......,. ~ ~ , '. oIW',l.d,.. . . " , >~, ..... 'f~' r ~ ~ ' > < , ' " ,')" " ''I" obligation to indemnify any other person with respect to the payment of any amounts of the, type described in, clause (x) or (y). As used in this Agreement, "Tax Return" shall include any declaration, return, report. schedule, certificate, statement or other similar document (inciuding relating or supporting infonnntion) . ,required to be filed or, where none is required to be filed with a taxing authority, the statement or other document issued by n taxing authority in connection with any Tax. including any infonnation rctum. claim for refund, amended return or declaration of c!\timated Tax. . j. . . SEC110N 4.18-lntellutual Property; Year 2000. . (a) As uscd in this Agre~ment. "GTE Intellectual Property" means atl of thc fotl~wing which are necessary to conduct the business of GTE and its Subsidiaries as presently conductcd or as currently proposed to be' conducted: (i) trademarks, trade dress. servicc mark~, copyrights. 'logos, trade names. corporate names and aU registrations and applications to register the same; (ii) patents and pending patent applications; (Hi) all computer softw.nre programs, databases and compilations (collectively, "Computer'Software"); (iv) all technology, know-how and trade secfCts; and (v) uti material licenses and agreements to which GTE or any of it'i Subsidiaries is a party which relate to any of the foregoing. (b) GTE or iL'i Subsidiaries owns or has the right to use, sell or Iicen~e all GTE Intellectual Property, free and clear of allliclls or encumbrimces, and all registrations of GTE Intcllectual Property arc valid and enforcenbl~ and have been duly recorded and maintained. except, in each case. ns would not, individually or in the aggregate, have a Material Adverse Effect on GTE. (e) To the knowledge of GTE, lhe conduct of GTE's and its Subsidiaries' business and the use of the GTE IntelleClual Propmy does flat materially infringe, violate or misuse nnyinlcllcclUl1l property rights or any other proprietary right of any person or give rise to any obligations 10 any person as a rcsult of co-authorship, and neither GTE nor any of its Subsidiaries hus received any noticc. not satisfactorily resol\'cd, of any claims or threat'i that GTE's t'r its Subsidiaries' use of any of the GTE Intellectual Property materially infringcs, violates or misuses, or is otherwise in conflict with any intellectual property or proprietary rights of any third party.or that any of the GTE Intellectual Property is invalid or unenforceable that would, indi\'idually or in the aggregate. havc a Material Advcrse Effect on GTE. . (d) GTE and its Subsidiaries have used rcasonablc cfforts to maintain the confidentiality of their trude secrets and other confidential GTE Intellectual Property. (e) GTE has undertaken a concerted effort to ensurc that all of the Computer Software. computer firmware. computer hardware (whether general or special purpose), nnd other similar or related hems of uutomated, computerized, and/or software system(s) that arc to be used or relied on by GTE ur by ally uf it!> Subsidiaries in the conduct of their respective businesses will not malfunction, will not cease to function, will not generate incorrect datu, and will not provide incorrect results when processing, providing and/or receiving (i) dateMre1ated data into and between Ihe twentieth and twenty-first c'enturies and Oi) dute~related dala in connection with any valid llate in the twentieth and twenty-first centuries. GTE reasonably believcs thaI such effort will be successful. SECrlON 4.l9-ll/surlJ/lL't!. Except as set forth in Section 4.19 of the GTE Disclosure Schedule, each of GTE and each of its Significant Subsidiaries is, and hus been continuously since January I. 1987 (or such later dale as such Significant Subsidiary Was organizcd or acquired by GTE). insured with financially rcsponsible lllsurers in such amounts and against such risks llnd losses as arc customary for compunics conducting the business as conducted by GTE and its Subsidiaries during such time period. Except us set forth in Section 4.19 of the GTE Disclosure Schedule. since January I, 1995, neither GTE nor any of its Sub~idiaries has received notice of cancellation or termination with r~spcctto any matcrial insurance policy of GTE or its Subsidiuries. The insur~ncc p~licies of GTE and its Subsidiaries are valid and cnforceablc policfes. SEcrtoN 4.20-0wflers!lip of Securiries. As or the datc hereof, neither GTE nor. to GTE's knowledge. any of its uftHbtes 01' ussociates (ns sllch telms nre defincd undcr the Exchunge Act), (i) bcncficilllly owns, a. J 3 ':' ; ~. '. .; : 1 >~. " ',' c" c .f :' r ,~ ,1 <,' ,. " .. , " , ,; : 'I " , :: .. . :":_:. I ,. . '., . ,; ~ :. ,~: . '. ,c. ,:CI- . ." " ;' : 'J .' :" :' , , ,. ,." ~ >;..i(I.:'~;:> "', '1~\'\'\:Y<~'~i:::~~r.,~~p)7~..~:_""", /1, : i " '.' ~ ,. L' CC.......'~_.d,'~ ,.'.}~.Ul directly or indirectly. or (ii) is party to any agreement, arrangement or understanding for Ihe purpose of acquiring, holding, voting or disposing of, in each case, shares ofcapitnl stock of Bell Atlantic, which in the aggregate represent 10% or more of the outstanding shares of Bell Atlantic Common Stock (other Ihan shares held by GTE Plans and the Bell Atlantic Option Agreement). . SEeMON 4.21-.Certllifl Contrllcts. (a) All contracts described in Itcm 601(b)(1Q) of Regulation.S-K to which GTE or it!:i Subsidiaries is a party or may be bound ("GTE Contracts") have bccn filed as exhibits to, or incorporated by reference in, GTE's Annual Rcport on Form 1O.K for the year ended Dccember 31, 1997. All GTE Contracts arc valid and in full force ami effect on. the date hereof ellcept to the extent they have previously c:\pircd 'in accordance with their tenns or if the failure to be in full force. and effect, individually and in lhe aggregate, wouid not reusonably bc expectcd to havc a Material Adverse Effcct on GTE. Neither GTE nor nny of its Subsidiaries has violatcd any provision of,' or committed or failed to perform any act which with or without notice, lapse of time or bolh would constitute l\ dcfault under the provisions of, any GTE Contnict. except in each case for those GTE Contracts which, individuaHy and in thc aggregate, would not reasonably be expected to result in a Material Adverse Effcct on GTE. (b) Set forth in Section 4.2 t of the GTE Disclosure Schedule is a list of cach contract, agrecment or arrangement to which GTE or any of its Subsidiaries is u party or may be bound which is an arrangemcnt limiting or restraining Bell Atlantic, GTE, any Bell Atlantic or GTE Subsidiary or any successor thereto from cngaging or competing in any business which has, 'or could reasonably b~ expected 10 have j'lthc forcseeable future, a Material Adverse Effect on GTE, or to GTE's knowledgc, on Bell Atlantic. . SECTION 4.22-Righ/s Agreement. (a) Ncither Bell' Atlantic nor Mcrgcr Subsidiary shall be deemed to be an Acquiring Person (as such teml is defined in the Rights Agreemenl) uncllhe Disrrihulion Date (m defined in the Rights Agreemcnt) shall not be uccmcd to occur und thc Rights Willll0t separate from GTE Common Stock, us a result of cntcring into this Agreement or the Option Agrecments or consummating the Mcrger . and/or thc other transactions contcmplated hcreby or thereby. (b) GTE has taken all necessary action with respect to all of the outstanding Rights (as defined in the Righl" Agreement) so that. as of immediately prior to the Effective Time, as a rcsult of cntering into this Agreement or consummating thc Mergcr and/or thc othcr transactions contemphHed hy this Agreement and the Option Agreements. (i) neither GTE nor Bell Atlantic will havc any obligations under the Rights or the Rights Agreement nnd (ii) the holders of thc Rights will have no rights under the Rights or thc Rights Agreement. AlnlCLE V-ItEPnESENT A nONS AND W ARRANTlES OF nELL A TLANTlC Except as expressly disclosed in the Bell Atlantic filed SEe Reports (as dclincd below) (including nil exhibits referred to therein) or as sct forth in the disclosure schedule delivered by Bell Allnnlic to GTE Oil the dute hereof (the "Bell Atlantic Disclosure Schedule" and together with the GTE Dbclosure Schedule. the "Disclosure Sch~dules") (each section of which qualities the correspondingly numbered l'cprescnlatiotl and wnrnmty OJ' covenant as specil1eu thcrcin). Bell Atlantic hereby represenls ami warrants to GTE as follows: SECTION 5.I-Orgclllbllioll and Qualificlltion, SubsicJillrie.\'. Each uf Bell Atlantic and each of its Signilicullt Subsidiaries is a corpor:uioll duly orgunil.ed. validly existing and in good stunding unucr thc laws of its jurisdiction of incorporation or organizatiun. Each of thc Bell AtJuntic Subsidiarh:s "hid! is not a Signilicant Subsidiary is uuly organized, validly existing and in good standing under the luws uf its jurisdiction of incorporation or organization, cxeept for such failure which, whell tuken togcther with all othcr such failurcs. would not rcasonably be expected to have a Material Adverse Effcct on Bcll Atlantic. Each of Bell AtluJIlic and its Subsidiaries has the requisite corporate power and authOlity and an)' necessury govcrmncntul uuthority, franchise, license or permit to uwn, upemle or Icuse the propenie~ Ihut it purports to own. operate or lease and 10 carry on its business as it is now being conducted, and is duly qualified as a forcign curpomtion to do business, and is in good stunding., in each jurisuiction where the character of its propcrties uwncd. operuted or u-14 ...,..../ I '......,....1 :. 'I . / . ." H. '. .,: ~~ : , ' .: \" , ~ . ~ ,. , " , !:. '. . , . ,~ , . ..'> \. , "-I. r: ' ,. ," 1- .;:\ I > ,;'< ,:( '..' I , {I, ,i(' :', , . , c', ")' " ,~ ~ : '.' - .' , . . .. \ ~':.: +~'( ~ J:'~ t: ;J.:;~~ .'.~. ).~t t ,~U'04'~ ....~~,I. ~ ' , r''', I,:" ; ~, 'j;"~ .", I ' . ". "L'.!.~ ,. , .,jo''''~{. C \ \., ; ~.'4..TrJ''' '. ) '-" ,:.. .., "" ..... ... ", t ~,. I (. IV, tC, .' leased or the. nllturc of its activities liulkcs'such qunlification neccssary, except for such fnilure \vhich, when . taken together With aU other such failure~, would not reasonably be c:o.pected to have It Material Adverse Effect on Bell Atlantic. . . SEcnON 5.2-Ct'TtijiCtJIe oj Incorpormioll t1!uJ Bylaws. BcJt Atlnntic hus hcrctofo~ furnished, or , otherwise,mnde available.t~ GTE a complete and correct copy 'of Ihe Certificate of Incorporation and the' Bylaws, ench as amended to the dale hereof, of Dell A~Jantic. Such Certificllte of Incorporalion and Bylaws arc in full force and effect. Neither Bell Atlantic nor llny of its Significant Subsidiaries is in violalion of any of thc provisions of its respective Certificatc of Incorpomtion or, in any material respect, its Bylaws. , ' , . SficnON S.3-CapitClIi:.atic1tf. (3) The authorized capital stock of Bell Atlantic consi.m of (i) 250,000,000 shares of Series A Preferred Stock. par value S.IO per share, none of which arc outstanding ur reserveu for issuance, and {ii} 2,250,000,000 shares of Bell Atlantic Common Stock, of which, as of June 30, . 1998, (A) 1.553,473,710 shares were iS,sued and outstanding, (B) 22,722,614 shares wcre held in thc treasury of . Bclt Atl,antic amI (e) 80,392,512 shares were issuable upon the exercise of,options outstanding under the Ben Atlantic option phms listed in Section 5.3 of the Bett Atlantic Disclosure SchcJule. Exccpt for Bcll AUantic Equity Rights issued to Bell Athmtic employees in the ordinary course of business or, after the date hercof, as permitted by Section 6.2 hereof or pursuant to the Bell Atlantic Option Agreement, (i) since June 30, 1998. no shares'of Bell Allantic Common Stock havc been issued. cxcept upon the"excrcise of options llnd rights . described in the immediately preceding scntence, and (ii) thcre arc no outstanding Bell Atlantic Equity Rights, For purposes of. this Agrecmcnt, "Bell Atlantic Equity Rights" shalt mean subscriptions. options, w'arrllnts, calls. commitments, agreements, conversion rights or oilier rights of any charm:ter (contingcnt or otherwise) to purchase or ot~erwise acquirc. any' shares of the capital stock of Beli Atlantic from Dell Atlantic or any uf Bell Atlantic's Subsidiaries at an~,time.'or upon die h:lppclling of allY sUIted event, excluding the GTE-Stock Option. Section 5.3 of thc Bell Atlantic Disclosure Schedule sets forth a complete amI accurate list of certain infOrmation with respect to all oUL'itanding adl Atlantic Equity Rights as of iunc 30, 1998. (b) Except as set forth in Section 5.3 of the Bell Atlantic Disclosure Schedule, pursuant to the GTE Stock Option or, aftcr the date hereof, as pemliucd by Section 6.2 hereof. there are no outstanding obligations of Bell Atlantic or any of Bell Atlantic's Subsidiaries to repurchase, redeem or othenvise acquirc :lllY shafes of capital . stock of Bell Atlantic, (c) All of the issued and outstanding shares of Bett Atlantic Common Stock arc validly issued, fully paid and nonassessable. (d) All of the outstanding capilal stock of each of Bell Atluntic'~ Signilicant Subsidiaries, and all of the outstanding capital stock uf Bell AlIllnlic's Subsidiaries owned directly or indirectly by Bcll Atlantic, is duly authorized. validly issued, fully paid and nonassessable. All of the oUlstamling capital stock of each of Bell Atlantic's Significant Subsidiaries is owncd by Bell Atlantic free and clear of any liens, security interests, pledges. agreements. claims, churges or encumbrances. All of the outstanding capital stock of Bell Atluntic's Subsidiaries owned directly or indircctl)' by Bcll Atlantic is owned frce and clear of any liens, security interests. plcdges, agreements. c1uims, charge~ or encumbmnccs. except "..here such liens, security interests, pledges. :lgrccl1Icnts,duimll, charges or encumbrancc!. would not. individually or in the aggregate. have a Material Adverse Effect on Bcll Athmtic. Except us hereafter issued or entered into in accordance with Section' 6.2 hereof, Ihere IIrc no e:o;i.~ljng subscriplions. oplions, warrants, en lis. commitments, a,grcements, conversion rights or other rights or any chun\cter (contingent or otherwise) to purchase or otherwise acquire from Bell Atlantic or (Iny of Bell Atlantic's Subsidiaries ut any time, or upon Ihe happening of any Slated even!, any shares of the !:apitul stock of any Belt Atlantic Subsidiary. whethcr or not presently issued or outstanding (except for rights of firsl rerU:;UllO purchase intercsts in Subsidiarics which, ure not wholly owned by Bell Atlantic), or any of GTE's direct or indirect intcrests in any Material InveMment, and there are no outstanding obligations of Bell Atlantic or uny of Bell Atlantic's Subsidiaries to repurchase, redeem or otherwise acquire any shares or capital stock of any uf Bell Atlantic's Suhsidiarics or securities relutcd tu any investments. other than such tL'i w(luld not. iudividual1y or in the aggregate. havc a Material Advcr!.e Effect on GTE. a-IS .C', .;.'.- + ;!-~.' " , , , " . :' ~, . j' . r . ~ , \ . '.~~ ;\.L,' ,..: :..,..<i;:.;:.'J. 1:,'.:....~;c',.'~~~.~~,~J: ,". : " ,I --,,,., ~, ~" .' SECTION 5.4--Amhority Relative to this .4greemenJ. Bcll Atlantic has the necessary corporate power and uuthority to enter into this Agreement and, subjcct to obtaining the'requisite stockholder approval of the issuance (the "Stock [ssuance") of Bell Atlantic Common Stock pursuant to the Merger Agrcement nnd the Certificate Amendmcnt (collectively. the uDell Atlantic Stocl..tlolder Approval"), to perform its obligations hereundcr. The execution Bnd delivery of this Agreement by Bell Atlantic and the consummation by Bell Atlantic of the transactions contemplated hcreby have becn duly authorized by all necessary corporate action on thc pm of Bcll Atlantic, subject to obtaining thc Belt Atlantic Sto<:kholder Approval. TIlis Agreemcnt hall been duly c;(cculed lind delivered by Belt Atlantic and, assuming the due authorization, execution and delivery thcrcof by the other Purti~s. constitutes n legal, valid and binding obligation of Bcll Atlantic, enforceable against it in accordance with its tenns, subject to applicahle hanktllptcy. insolvency, reorgllnizlltion, moratorium or other laws reIating to or affecting the rights and remedies of creditors gencrally und to general principles of equity (~gardless of whether considered in a proceeding in equity or at law). . SEcrloN S.5-.:...No Conflict: Required Filings ami COllsents. (a) Except as de!>cribed in subsection (b) below, the execution and delivery of thj~ Agreement by Bell Atlantic uo nor. and the performance of this Agreement by Bell Athmtic wi11not. (i) violatc or conflict with the Certificate of Incorporation or Bylaws of 'Ben Atla'ntic. (ii) conftict with or'violate any law. regulation, coun order, judgment or decree. applicablc to Bell , Atlantic or uny of its Subsidiaries or by which any of their respeclive property or asscts (including investments) is bound ,or affected, (iii) violate or conflict with the Certificatc of lncorpor.ltion or Bylaws of any of Bell Atlantic's Subsidiaries, or (iv) result in any breach of or constitute a default (or an event whjch with notice or lapse of time or both would become a defauh) under. or give to others any rights of tennination or cancellation of. or 'result in the creation of a licn or encumbmncc on any of the properties or assets (including investments) , of Bell Atlantic or any of its Subsidiaries pursuant to, rcsult in the loss of any material benefit under. or result in any modil1cation or allerutioil of.' or rcquirc the consent of any other party to. any contract, instrument, permit. license or frnnchise to which Bell Atluntic or any of its Subsidiaries is a party or by which Bell Atlantic, any of such Subsidi;lIies or any of thcir rcspective property or assets (including investments) is bound or affected. except, in the case of clauses (ii), (Hi) and (iv) above. for conflicts. violations, breaches, defaults. results or consents which, individually 01' in the aggregate. would not havc a Material Advcrse Effect on Bell Atlantic. ' (b) E,'(cept for applicilblc rcquircmcnts, if any. of stute or forcign public utility commissions or laws or similar loc:\l or slate foreign rcgulatory bodics or laws, state or foreign antilnJ!olt or foreign investment laws and commissions, the Federal Communications Commission, stock exchanges upon which the securities of Bell Atluntic arc listcd, the Exchange Act, the prcmcrger notification requirements l){ tlte HSR Act, filing and recordation of appropriate ~llcrger or (llher documents tIS required by the NYBCL und any filings required pursuunI 10 nn)' state securities or "blue sky" laws or the rules of any applicablc Mock cxchanges, (I) neither Bell Atlantic nor any of its Significant Subsidiaries is r~quircd to submit any notice, rcpon or olher I1Ung with any Guvernmental Entity in connection with thc execution, delivery or perfonnance of Ihis Agreement and (ii) no wuiver. consent, appruval or uUlhOlization of any Governmental Entity is rcquired to be obtained by Bell Atlantic or any of its Signiticarn Subsidiaries in connection with ils execution. delivery or pcrf<?l1nnoce of Ihis Agreement. SECTION 5.6-SEC Filings; Fil/(l!lC:ial SICIlemeJlts. (a) Bell Atlantic has Iiled all forms, reports and documents required to be filcd with Ihe SEe since January 1, 1995, apd has herctofore delivered or made available to GTE, in rhl.' fonn tiled wHh the SEC, IOgcthcr with any amendments therew, its (i) Annuul Reports on Font) lO.K for the fiscal years cnded December 31, 1995, 1996 and 1997, (ii) uti proxy statements relating to Bell Atlnntic's meetings of stockholders (whelher unnual or special) held sincc JailUary I,' 1995, (iii) Quarterly Report on Form IO-Q for Ihe fiscal (luarter ended March 31, 1998. und (iv) all othcr reports or rcgistnltion st1ltell1Cllts tiled by Bell Atlantic with the SEe since January I, 1995, including without limitalion nil Annual Reports on Furm II-K tiled with respeCI to the Bcll Allumic Plans (collectively, the "Bell Atlantic SEe Reports". with such Bcll Atlanlic SEe Repuns iHed with the SEC prior 10 the dale hercof being referrcd to us "Bell Atlantic Filed SEC Reports"). The Bl:ll Atlantic SEC Reports (i) werc prepared substantially in u-J6 -.... .' ". ~ .,.J .........,'1-1'.. ;, '" >', ~~ , \.c ,,' .; " .' .'p. , ,. .~: ""! . ': .:'. I' ;1'.' 'f ',~ ' .' . ~ 't; ~ I. , i " ,> '1 I ~ . . . " " .. ,,'. " '~ ' . 'i ',' .,1 't " .,' , " . , ' .;<"1) /:: ',,:,::.~':;:l":':~~}(~:\';,';'J/~"':~:~I:i::"~': '!r'~" .;,;,>'L.:!~,,>, ..':;:~,.: ';'i . '. '" .1, I' ' J "1' ~t '.. .,~, ! ' ,,:'?~ , l,' '..;tI ,I, I';, , 'L I ~ ,,"'............ . {, ' :' l...~,,;<,1 'oJ ,."". accordance with the requircmenlc; of th~ 1933 Act or the Ex.change Act, as thc case may be, und thc rulcs and regulations promulgalcd under each of such respective acts, anu (ii) did nol at the time Ihey were filed contnin any untroc 'statement of a material fact or omit to state a material fact requircd to be stated thcrcin or necessary in order'to make the stntcmcnts therein, in the tight of the circumslances under which they were mude, nol ' misleading. " :' (b) Thc financial statements, including an relnted notes and schedules. contained in the Bcll Allantic SEe Reports (or ,incorporated by reference thcrein) fairly present tlie ,consolidaled tinancial position of Bell Atlantic ' and its Subsidiaries as at the respective dates thereof and the consolidatcd results of operations and cash flows ' of Bell Atlantic nnd its Subsidiaries for the periods indicated in accordance with GAAP llPplied on a consisteill basis throughout thc pcriods involved (except for changes in accounting principles disclosed in the notcs thereto) and subject in the case of interim financial statements to normal year~cnd adjustments. , ,SECTION 5.7-Absellce of Certain CllC1nges or Evellt:r. Except as disclosed in the Bcll Atlantic Filcd SEe ReportS. and in Section 5.7 of the Bell Atlunt!c Disclosure Schedule. 'since December 31. 1997. and except as permitted by this Agrt'cment or consented to hereunder. Bell Atlantic and ,its Subsidiaries have not incurred any materin11inbility' requircd to be disclosed on a balance shect of Bcll Atlantic und its Subsidiarics or the footnotes thereto prepared in confonnity with'GAAP, except in thc ordinary course of their businesses consistent with their past prncticcs, and there has not been any change, or any event involVing u prospective chWlge. in the business. financial condition or results of operations of Bett Atlantic or any of its Subsidiaries which has had. or is reasonably likely to have, a Malerial Adverse Effect on Bell Atlantic. and Bcll Atlantic and its Subsidinries have conducted their'respective businesses in the ordinary course consistent with their past practices. ' I' SECTtON 5.S-Litigatioll. There are no claim,~, actions, suits. proceedings or invcstigations pending or. 10 Bell Atlantic's knowledge, 'threatened ngllin'st Bell Atlantic or any of its Subsidiaries, oruny properties or rights , of Bell Atlantic or any of its Subsidiaries. by or before any Go'vemmental 'Entity, e:<cept for those thul arc nOl, individually or in the aggregate; reasonably likely to have a Material Adverse Effcct on Bell Atlan~ic or prevent, materially delay or intentionally delay the obility of GTE (0 consummate the transactions contcmplated hereby. ' . SECftON 5.9-Pemlits: No Violation of Law. Thc businesses of Bell Atlanlic and its Subsidiaries arc nut being conducted in violalion of any Legal Requirements or in violation of any Permits. except for pussible violations none of which, individually or in the aggregatc. may reasonably be expected to have a Material Adverse Effect un Bell Atlantic. No il1\'estigulion or review by any Governmental Entity <including any stock exchange or other self-regulatory body) wilh respcctltl Bell Allantic or ils Subsidiaries in relation 10 any alleged violation of law or rcgulalion is pending or, to Bell Atlantic's knowledge, thrt,"!utcncd. nor has any Governmental Entity (including any slock exchange or other self-regulatory body) indicated an intention tQ conduct the same, ex.cept for such investigations which. if they resulted in advcrse lindings. wuuld not reasonably be expected 10 have. individually or in the nggrcgatc, a Material Adverse Effeel on Bell Atlantic. Except as set forth in Section 5.9 of the Bell Atluntic Disclosure Schedule. neither Bell Athmtic nor :my of its Subsidiaries is subject to any cease llnd desist or other order, judgment. injunction or dccree issued by. or is :1 party to any wrinen Agreement. consent Agreement or memorandum of understanding with. or is a party to any commitment letter or similar undertak.ing to, or is subjccl W uny order or directive by. Of has mJopll.ld !lny bo:mJ resolutions at the request of, any Governmental Entity thlll materially restricts the conduct of its business or which may reasonably be expected to have a Material Adversc Effect on Bell Atlantic. nor has Bell Atlantic or any of its Subsidiaries been advised that uny Governmental Entity is considering issuing or requesting any of the foregoing. None of the represenlations and warranties made in this Section 5.9 arc being made with respect to Environmental Luws. SECfION 5.IO-Joillt Proxy Statement. None of the information supplied or to be supplied by or on behalf of Bell Atlantic for inclusion or incorporntioll by reference in the Registration Swtcment will, at the time the Registration Stalement becomes effective under the 1933 Act, contain allY untrue statement uf a muterial a-17 fact or omit to stllte any mutcrinl fact rcquired to be stated therein or necessary to make the statements therein, , . in the light of the circumstances undcr which they were made, not misleading. None of the information ' " , supplied or to be supplied by or on hchalf of Ben Atlanlic for inclusion or incorporation by retercnce in the Joint Proxy Statement will, althe datcs muiled to slockholders and At the times of the GTE stockholders' meeting llnd the Ben Atlantic stockholders' meeting. contain lIrJY untrue statement of a material fact or omit to state any material fact required to be stlltcd therein or necessary in order to make the statements therein, in the light of the clrcuinst:mccs under which thcy were made, not misleading. The Registration Statcment and the Joint Proxy Statement (t:xcept for information relating solely to GTE) will comply as to foml in nil material respects with,thc provisions of the 1933 Act nnd the Exchange Act nnd'the rules and regulations promulgated, ' thereunder. . ......'. "_I' ,. , cJ'1 '; 'I;. , I ! ' , " , '~ , :'-',:' , " '. . ,>~ '"l ". II-' I , !~ ' ' ',\ ~ ~'" ~ ~ . ......., ,'J , ~ I " !" , . ,.' , ....; , ~.' >, ~'~. +. ~~ Jt' ,> . , ' , '.~. ',~y ~ Ic ,...t"'.,.., '. d~,';' SECTION 5.lI-EmploJ'ee Matters: ERISA. (n) Except where the failure to be true would not. , individually ~lr in the nggrcgate.. have a Material Adverse Effect on Bell Atlantic, (0 each Bell Atlantic Plan has been operated 'and administered in ilccordance with applicable law, including but not limited to ERISA and the Code, (ii) each'Bell Atlantic Plan intended to he "qualified" within the meaning of Section 401(a) of the Code is so qualified, (iii) exccpl as required by COBRA, no Belt Atlantic Plan p~ovides death or medical benefits (whether or no't insured). with respect to current or Comler employees of Bdl Atlantic or of any trade or business. whether or not incorporated, which together with Bell Atlantic would be deemed a "single' cmployer'i within lite meaning of Section -lOOI of ERISA (a "Bell Atlantic ERISA Affiliate"), beyond their retirement or other termination of service, (Iv) no liability under Title IV 'of ERISA has been incurred by Bell Atlantic or any Bell Atlantic ERISA Aft1liatc that has not been satisfied in full, and no condition exists that presents a miucrial risk to Belt Atlantic or any Bell Atlantic ERISA Affiliate of incurring any such liubility (other than PBGe premiums). (v) all contributions or other amount'i duc from Bell Atlantic or any Bell Atlantic ERISA Affiliate with respect to each Bell Atluntic Plan have been paid in full. (vi) neither Bell Atlantic no~ any Bell Atluntic ERISA Affiliate has engaged in iI transaction in connection with which B~n Adantic or any of its Sub~idiarics could reasonably be expected to be s~bject to either a civil penalty assessed pursuant to Scction 409 or S02(i) of ERISA or a tux imposed pursuant to Section 4975 or 4976 of the Code, (vii) to the best IUlowlcdgc of Bell Atlamic then; arc no pending, threatened or anticipaled claims (other than routine claims for benefits) by. on behalf of or against any Bell Atlantic Plan or any tnlMs rclated thereto, and (viii) neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (A) result in any payment (including, without limitation. severance, uncmployment compensation, golden parachute or otherwise) becoming due to any dircctor or ailY employee of Bell Atlantic or allY of its Subsidiaries under llny Bell Atlantic Plan or otherwise, (B) materially increase any bencfits olherwise payable under nny Bell Allantic Plan G or (C) result in any acceleration of the time of pa)'lllent or vesting of any such benclits. (b) For purposes of this Agreement,"Bcll Atlantic Plan" shall mean each deferred compensation. bonus or other incentive compensation. stock purchus~. stock option or other equity compcns:ttilln plan. program, agreement or arr.lllgemellt; c;lch severance or temlination pay, medical. surgical, hospitalizution. life insurance or other "welfare" plan, fund or program (within the meaning of section 3( I) of ERJSA); each profit-sharing, stock bonus or other "pension" plan. fund or program (within the meaning of section 3(2) of ERISA); each employmelll, tcnninution or scvcnmcc agreement; and cach other employee benelit plan. fund, program, agreement or arrangement, in each case, that is sponsored, maintained or contributed to or required to be contribuled to by Bell Atlantic or by uny Bell Atlantic ERISA Affilia(e or to which Bell Atlantic or any Bell Atlantic ERISA Affiliate is pany, whether wrincn or oral, for the benelit of any employee or former employee of Bell Atlantic or any Bell Atlantic ERISA Af1Uiate. SEcnON 5.12-Labor MClucrs. Neither Bell Atlantic nor any of its Subsidiaries is the subject of uny material proceeding asserting thai it or UIlY of its Subsidiaries has committed an unfair Iubor practice or is seeking to compel it to bargain with any labor union or labor organization nor is there pending or, 10 the actual knowledge of its executive omccrs, threatcned in writing, nor has there been for the past fi ve years, any'labor strike, dispule. wulkout. work stoppage. slow-down or lockout involving it or any of its Subsidiaries, except a-IS ."".... , T ~,' : " " ,~ , ' ,. : I. . . .' ~ ~ ,'. , '; . , .. '...;..,.' ,.. ' ~ > ' ~ '~, " . :'! I' " I , , .,1 ,,' ' I';, , ' , , - ----- pC, -w J '. ,. " , , , 'l . ~ '.' '. , I [, .,' I I " ~ ., \ , , ' , ' , .. II,' 1'5' , . ~l::,!,,(~:::'i "::'/!\)g~;,:::~<;,!,:;;j{;::~t~,,;,~':,:~:~";,', ~ , I~' .. ':i~ , '""I.... .. , ..~...:"",,~) , .' '..,-' , \..~~ .: ,>' ....u~< ,~e,,~,~ ,~I"'I1' ." ; " in each case as is not. individually or in the aggregate, rcasonably likely 'to have u Material Advcrse Effect on Bell Atlantic; , SEcrJON 5.13-E"~'/rmmlClltal MatMr.f. Except for such matters that. individually or in thc aggrcgutc~ lire not reasonably likely to have a Material Adverse Effect on Bell' Atlantic: (i) each of Bell Atlantic and its Subsidiuries' has complied with ull applicable Environmental Laws (as defined bclow); (ii) the propenics currently, owned or opcrntcd by it or any of its Subsidiaries (including soils, groundwatcr. surface water, buildings or other,structurcs) arc not contaminnted with any Hazardous Substances Jas defined below); (Iii) the properties fonnerly owned or operated by it or any of its Subsidiarics werc' not contllminalcd with Hazarduus Substances during the period of ownership or operation by it or any of its Subsidiaries; 0\') neither it nor nny, of il<; Subsidiaries is subject to HabUily for any Hazardous Substance disposal or contaminalion on,uny 'third , party property; (v) neither it nor any Subsidiary has been associated with any relcase or threat of release of 'any Hazardous Substance; (vi) neither it nor any Subsidiary hasreccived any notice, demarld. leiter, c1uim or'. request for infcimiation nlteging that it ot' nny of its Subsidiaries may be in violation of or Huble under any EnVironmental Law (including any claims rcluting to 'electromagnetic fields or microwavc transmissions); (vii) neither it nor uny of its Subsidiaries is subject to any orders. decrees. injunctions or olher arrangemeUls with any Governmental E~tity or is subject to any indemnity or 'other agreemcnt with any thin.1 party relating to liability under any Environmental Law or relating to Hazardous Substanccs; and (viii) thcrc arc not circumstances or conditions involving it or any of ils Subsidiaries that could reasonably be expectcd to rcsult. ill any claims, liability, investigations. costs or restrictions on thc ownership. use, or trunsfer of any of its properties pursuant to any Environmental Law. 1, No representation is made by Bell Atlantic in this Section 5.13 for which ncithcr Bell AII~lIItic nllT, uny of its Subsidiaries is (or would be. if a claim were brought in a fOfllllll proceeding) a named ucfcndmll. but as 10 which Bell Atlantic or any of its Subsidiaries may be liable for an allocable share of any judgment rendered pursuant to the POR. No representation is made by Bdl Atlantic in subsection (i) of this Sct'lion 5.13 as to properties owned. leased or operatcd by AT&T or any of its Subsidiaries exccpt for such properties which arc. or at allY, time since November 1. 1983 were. owncd, leased or operated by Bell AlIuntic ur any of its Subsidiaries. SECTION 5. 14-/lourcl AClion: Vote Requirc(J. (a) The Board of Directors of Bell Atlanlic hus unanimously detennined that the transactions contemplated by this Agreement and the Option Agreements arc in lhe best interests or Bell Atlantic and its stockholders and has resolvcd 10 recommend \0 sllch stockholders that they \'ote in favor thereof. (b) The approval of the Certificute Amendmen't by a majority of thc voles clltilled to be cast by ull holders of BeJl Allanlic Common Stock and the npprovul of the Stock Issu:mcc pursu:m( Ihereto by a majorily of 'the votes cast thereon. provided that the totul votes cast thereon represents OVer 50% in interesl of all securities of Bell Atlantic cntitled 10 vote thereon, arc the only voles of lhe hoJdcr,~ of any chlss ur serk~ of the capiwl sind of Bell Atlantic required to approve this Agrecment, the Merger, the Certificate Amendment, the Stock Issuance llnd the othcl' tmnsactions contemplated hereby. SEC"'f!ON 5. 15-.Qpilliofls of Fitulllcial A (M.wrs. Bell Allantic has receiverJ thc opinions of Bear. Stearns & Co.-Inc. ("Bear Steams") and Merrill Lynch, Pierce, Pcnilcr & Smith Incorporated ("Merrill Lynch"), euch dated July 27. 1998, to thc erreclthat. as of such date. the Exchange Ratio is fair from u financial point of view to the holders of Bcll Atlantic Common Stock. ' SECTION 5.16-Brokas. Except for Bear Stearns. Merrill Lynch and MorgllJl Stanley Dean Witter. the arrangements with which have been disclosed to GTE prior HI Ihe datc hereof. which have been I:nguged by DeU Atlantic, no broker, finder or inwstmcnt banker is entitled lu any brokerage, Iindcr's, invcstment banking or other fee or commission in connection with the transaclions contcmplated by this Agreement and the Option Agreements based upon amlngemcnls made by or 011 behalf of Bell AtJal1lic or any of its Subsidiaries. a-/9 ,.'!I" : . " , ~ . " . ,: :', 1,'1 ~. , ': ,1 .;",.' , 1:' '~' 'i ..,J I"" , , , "\,' .', , , , ' ,'..' I"'" . .' , :,''t :'.., /1 . " ,,' ~ ,i,> I . '). ( . ", ' " ~ ~. I , I' . " " . , " . , }, : <\~ ", ::,". .,"c.'>11!} ,J.,,::~(:!-~\~" t:." 'i:,.!.~t;"',i.., '" '. ~ '. ' II ~ ~, , +1' . .. "',' >: SECTION 5.17-Tax'Mattcrs. Exceptlls liet forth in Section 5.17 of the Bcll Atlantic Disclosure Schedule: ....." (n) All matcrial fcderal. state, local nnd foreign Tax Returns required to have been filed by Bell Atlantic or its Subsidiaric.o; have becn filed with the appropriate governmental authorities by the due datc thereof including extcnsions; , . , I' (b) The Tax Returns referred to in subpart (0) of this Section 5.17 correctly and completely reflect att . mll[crial Tux liabilities of Bel! Atlanlic and its Subsidiaries required to be shown thereon; '(c) All m~terii Taxe,';shown as due on those Tax Returnsrcfencd to in subpart (a) of this Section 5.17. as w'ell as any material foreign withholding Taxes imposed on or ill respcct of any umounts paid to or by Bell Atlantic or any of its Subsidiurics, whdhcr or not such amounts or withholding Taxes nre referred to or shown on any; Tax Returns referred to. in Section 5.17 (a) hereof. have been fully paid or adequately reflected as a liability on Bell Atlantic's or its Subsidiaries' financial statements included in the Bell Atlantic SEe Reports; , I " (d) With respect to any prior period for which Tax Returns have not yet been filed. or for which Tuxes are , not yet due or owing. Bell Atlantic and its Subsidiaries have made ..Jue and sufficient accruals for such Taxes in their respective books and records and financial statements: , (e) Neither Belt Atlantic nor uny of its affiliates has taken. agreed to take or omitted to take any action that would prevent or impede the Merger from qualifying as a tax~free reorganization under Section 368 of the Code; (0 No deficiencies for uny Taxes have been proposed. asserted or assessed against BeH Atlantic or any of , its Subsidiaries that arc not adequately reserved for under GAAP, c:(ccpt for deficiencies that individually or in the aggregate would not havc a Muteriul Adverse E~cct on Bell Atlantic; and ' (g) Bell Atlantic is not aware of uny muterial licns for Taxes upon any assets of Bett Atlantic or any uf its Subsidiarics upurt from liens for Tuxes not yct due and payable. ' '.. ,-j' SEc.."TJON 5. 1 8-1n1el/t!clual Propaty. (a) As used in this Agreement. "Bell Atlantic Intellectual Property" means all of the following which ure necessary to conduct the business of Bell Atlnntic and its Subsidiaries as presently conducted or as currently proposed to be conducted: (i) trademarks, trade dress, servic~ murks, copyrights, logos, trade names, corporate numcs und all rcgislnttions and applications to register the same; (Ii) patents nnd pending patent applicalions; (iii) Computer Software; (iv) u11 technology. know-how and trnde secrets; und (v) all material licenses and agreements to which Belt Atlantic or any of its Subsidiaries is II party which relate to any of the foregoing. (b) Bett Atlantic or its Subsidiaries owns or hus the right to use, sell or Iiccnse all Bell Atlantic Intcllectual Property, free and clellr of nil liens or encumbrances, and all registrations of Bell Atlantic lntcllectlml Property ar~ valid and enforceable and have been duly recorded and maintained, except, in each case. lIS would nor, individu:lIly or in the aggregate, have a Materiul Adverse Effect on Bell Atlantic. (c) To the knowle..Jge of Bell Atlantic. the cunduct of Bcll Atlantic's and its Subsidiaries' business and the use of the Bell Atlantic Intellectual Property docs not muterially infringe. violate or misuse any intellectual properly rights or :my olher propriclllry right of any person or give risc 10 any obligations [0 any person as a result of co-authorship, and neither Bell Atlantic nor any of its Subsidiaries has received any notice, not sutisfactorily resolved, of any claims or threats that Bell Atlantic's or its Subsidiaries' use of any of thc Bell Atlantic Intellectual Propelty materially infringes, violates or misuses, or is otherwise in conflict with any intellectual property or proprictaf)' rights of any third party or thm any of the Bell Atlantic Intellectual Property is invalid or unenforceable that would, individually or in the aggregate, have a Material Adverse Effect on Bell Atlantic. u-20 t .: '.:"", , rt;~~:.';'/'<;',;;~.':i,~?~;1 ",' ,', ~(,< \ J;~'. .' , '.' c~:" i~.';:' \ ',' " ~ . I ~. . ~ . '. L J' f ,t' , ,,', ,',,' ';,:,' ,':,:'~,~,:~\',~!''''>!~'' , h' r":i'~""""-""':',~iI"I'i;"\";':;~~!,jl>'" ',.,'. ' : ' '. .~-;~",' t~~:fi~.,:,.,.':(! :~!':: ~,:,~~.I~',c~1{i': f':"\~f~f!J-A:".,,,';:':', ", :'..: j,~" ,;,"\", .. ,. j: I ! ; . ,,~ .~I:~' . : ;". " ~ <.. , " ~ I, I " , . ./ '," t'r',' ... . "0,, , ' . ~;l~,':',:':",:",: ' ;t ,', :,f: "~. I .',l'::, , ... ~ ";~, ,', ,I " .1 ~ ~ ~;',~ ~ ~ ~ ( ~ I, ,.' '. " '.. ,\', y 1" ' " '." , . , , " " '.' ' :\ J ..' ~ .- . , 'c', ' I. l' . '-.1 ~. :;.. , " ~ ,." , '" , '" , , ,-, , . " . .. .' I ~;' _ '., , . . ~ " ",' 1'); '. . :. ';. " I .... " ,I , ," , ;" . It , , l ~ ,,' " '~ l ,'" "...-.-.. , , (d) Bell Allantic and its Subsi'diaries havc used rensonable efforts to maintain the confidentiality of 'their trade secrets andolher confidential BeU Atlantic IntclleClwll Property. ' , ,,(e) Bell Atluntic has undertaken, Il concerted effurt to cnsurc lhat 011 of the Computer Softwurc, computcr firmware. computer hardware (whether general or special purpose). and othcr similar or related items of , automated, computerized, nnd/or softwllre syslem(s) that arc lO be used or relicd on by Bell Allantic or. by UIlY of its Subsidiaries inlhe conduct of their respective businessc:s will not malfunction. will not cense to function. will not generate incorrect datu. and will not provide incorrect results when processing, providing and/or receiving (i) date~relatcd datu into and between the twentieth amltwcnty-tirst centuries and (Ii) dute-related data in connection with any valid date in the twenlicth and twenty-first centuries. Bell At/anlic reasonably believes that such effort wil! be successful. , . , SECTION 5.19-1n.mrance. Exccpt us sct forth in Section 5.19 ofthe Bcll Atlantic Disclosure Schcdulc, .each of Bell Atlantic an.d each of its Significant Subsidiaries is, and has been continuously since January I" 1987 (or such later date a.<; such Significant Subsidiary, was organized or acquircd by Bell Atlanlic), insured with tinulH:ially responsible insurers in such nmounls and against such riskS nntllosscs us arc customary for companies conducting thc business as conducted by Bell Atlantic and its Subsidiorics during such time period. Except as sct forth in Section 5.19 of the Bell AlIuntic Disclosure Schedulc, since January I, 1995, ncither Bcll Atlantic nor uny of its Subsidiaries has received notice of canccllation or termination with respect to any material insurance policy of Bell Atlantic or its Subsidiaries. The insurance policies of Bell Atlantic und its Subsidiaries are valid nnd enforceable policies. SECTION 5.20-0wm.nilip of Securities., As of the date hercof, neithcr Bell Atlantic nor. to Bell Atlantic's knowledge. any of its affiliates ur associates (as such lcrrns arc dc/ined under the Exchange Act), (ll) (i) beneficially owns. directly or indircclly. or (ji) is purty 10 uny agreetnclll, arrangement or understanding for the purpo!\e of acquiring, holding, voting or disposing of, in each case, shares of capital stock of GTE. which in the aggregate represent 10% or morc of thc outstanding shares of GTE Common Stock (other than shilrcs held by Bell Atlantic Plans and the GTE Option Agreement), nor (b) is an "inlerested stockholder" of GTE within the meaning of Scction 912 of the NYBCL. Except (IS sct forth ill Section 5.20 of the Bell Allantic Djsclo,~urc Schedule, BeH Atlantic OWlIS no shures of GTE Common Stock described in the parenthetical clause of Seclion 2.2 (a) hereof which would bc canceled and retircd without consideralion pursuanlto Section 2.3 (a) hereof. SECTION 5.21-Cl!rfClfll COlltmcls. (a) All contracts described in Item 601 (b)(/ 0) uf Regulation S-K 10 which Bell Atlanric or its Subsidiaries is a party or may be bound ('. Bell Atlmnic Cnntmcts") have becn filed as exhibits to, or incorporated by reference in. Bell Atlantic's Annual Report on Form lO-K for the year endcd December 31, 1997. All Bell Atlantic Contracts arc valid and in full force and effect on lhe dale hcrcof excepl to the extent they have previously expired in accon.llll1Ce with their terms or if Ihc failure to be in full force and effect. individually and in the aggregate would not reasonably he expccled to have a Matcrial Advcrse Effect on Bell Atlantic. Neither Bell Atlantic nor lIny of its Suhsidillrics has violated >Inyprovision of. or commilled or faikd to pcrform any act which wilh or wilhout nOlice, lap~c of time or both would constitute a default under the provisions of, any Bell Atlantic Contract. except in cach case for thosc Bell Atlanlic: Contracls which, individually und in the aggregate, would not reasonably be expectcd tu result in a Maleriol Advcrse Effcct on Bell Atlantic. (b) Set forth in Section 5.21 of the Bell Atlantic Disclosure Schedule is a list of each contract. agrecment or arrangement to which Bell Atlantic or any of its Subsidiaries is a party or muy be bound which is an arrangement limiting or restruining Bell AlIantic, GTE. ally Bell Allantic (Ir GTE Subsidiary or any successor thercto from engaging or compcling in rillY busjn~ss which hus. or could reasonably be e:~pccled to have in the foreseeable future, a Materiul Adverse Effcclon Bell Atlllntic or, to Bell Atlantic's knowledge. on GTE. a.21 " '.e , ' ~ . i 'i ~ ~ /'~ ~ '.}~i;.~~;~~~~:: .:,'1' , SECfION 5.22-Merger SubsidilJry. Bell Atlaillic und Mcrger Subsidiary represent and wnrrant to G~'E as {ollows: ' , (ll) Organ/::eltiOll11ntl Corporate Pnw{'r. Mergcr Subsidiary is a corporation duly incorporatcd. validly 'existing and in'good standing under the laws of the State of New York. Merger Subsidiary is n direct. wholly owned suhsidinry of Bell Atluntic. (b) Corporate i\utltori~atiotl. Merger Subsidiary has all requisite corporatc power and authority to enter into this Agreement nndto consummate the transactions comernplttted hereby. The execution, delivery and performance by Mcrgcr'Subsidiary of this Agreement and thc consummation by,Mcrgcr Subsidiary of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Mergcr Subsidiary. This Agrecment has been duly executed and delivered by Merger Subsiuiary and constitutes u valid arid binding agrc~ment cif Merger Subsidiary. enforceable against it in accordance with its lenus, except as such enforceability may bc'limitcd,by bankruptcy. insolvency. reorganization. moratorium and olher similar laws relating to or affecting creditors gencn\lJy, by general equity principles (regardless of whether such, enforceability is considered in a proceeding in ~quity or at law) Or by an implied covenant of good faith and fair dealing.' (c) Non ContravcnJioll. The ex.ecution. delivery and perfonnance by Merger Subsidiary of this , Agreemcnt and the consummation' by Merger Subsidiary of the transactions contemplated hcreby do not 'and will not contravene or conflict with lhe certificate of incorporJlion or by~laws of Merger Subsidiary. (cl) No BUS;llc.l',r Activities. ,Merger Subsidiary has not conducted any activities other thun in connection with the organization of Merger Subsidiary. the ncgotiatiollllnd execution of this Agreement nnd the consummation of the transactions contemplated hereby, Merger Subsidiary has no Subsidiaries. ARTICLE VI-CONDUCT OF BUSINESSES })ENDING THE MERGER SECTION 6.I-TransiliuJI Pfmlllillg. Ivan G. Seidcnberg and Charles R. Lee. as Chief Executive Officers of Bell Atlantic and GTE, respectively, joinlly shall be responsible for coon.linating all aspects of transition , planning and implcmentation reluting to the Merger and thc othcr transactions contemplated hereby. If eithcr such person ccases to be Chief Executive Officcr of hi!. rcspective company for any reason. such person's successor as Chicf Ex.ecutive Of/ker shall assume his predccc!:sor's rcsponsibilities under thb Section 6.1. During the pcriod betwecn the date herc()f nnd the Effectivc Time. Mcssrs. Seidcnberg und Lee jointl); shun (i) cxamine various alternatives regarding thc manncr ill which to best organize and manage the businesses of Bell Atllllltic and GTE aftcr the Effective Time, llnd (ij) coordinUle policies ami strategies with respect to rcgulatory authorities and bodies. in all cases subject to applicable law. SI~CTION 6.2--COIuJw:t of Busillt'J'.~ ill the Ordinary Ceil/roSe, Each of GTE and Bell Atlantic covenants und agrees that. subjcclto the provisions of Sections 7.16 and 7.17 hereof. between the date hercof and the Effective Time, unlcs~ the other shall othcr\vise consclll in writing. and except us described in Section 6.2 of the Disclosure Sch~dulcs or as otherwise expressly contcmplmcd hereby, the bU'iincss of sm:h Party and its Subsidiaries shall be conductcd only in, and such entities shull not take :lI1Y action except in. the ordinary 'coursc of business uud in a mUllner l:onsistent \vith past prtlcticc; and each of GTE [lnd Bell Atluutic und their respcdivc.Subsidiarics will use their commcrcially reasonable efforts to preserve substantially infnct their business organizations, to keep available the services of those of their prcscnt oflicers, employees and COl1sultUnlS who arc inlCgrulto the operation or their businesses as presently conducted and to preserve their present relationships with significant customers and suppliers amI with othcr persons with whom Ihey have signilicanl business rclalions, By way or Hmpliticlllion and not Iimiwtion. e....ccpt i1S sel forth in Section 6.2 of the Disclosure Scbedules or as othcrwise expressly conlemplatcd by lhis AgrcclllcnI and the Option Agreements, and subjcclto the provisions or Sections 7,\6 uno 7.17, each or GTE and Bell Atlamic ngrecs 011' u-22 -.... "..._-, ; ~ \, ,.."jI '"'T......... ....,~ ' . t':!~~~tlf ti' ~ ,"', "":,.. ~I';"" " " , ,I " " , " ../ " 'd ,,- , " ,{',. t ' I' , ,.' '.' , ., ~ ,:"1, ' ' '"ll:~.';I'~,l~,."\~ J.,JC, I . ::~,~ .,t'::~5~~~:;~5:it!\Vl +~J~M';oI,.."_I..~""' :, '\ ~.~, ": """, J,~ '" '~"', ';" . J Y' '., : Ar~\ ,',. ( , ,,'HI' , . ' ~\ I !7' I, ' ._1....., " ,..~. I~ bchnlr of itself and its Suhsidiaricslhatthey will not, between the datc hereof and thc Effcctivc Time. directly or indirectly, do nny of the follQwing without Ihe prior writtcn conscnt of thc othcr: (1\) (i) except for (A) the issuancc of shurcs of GTE Common Stock and Bell Atlantic Common Stock in order to satisfy obligations under the GTE Plans and Bcll Atlantic Plans in effect on the dutc hercof :1I1d Bcn Atlantic Equity Rights or GTE Equity Rights issued thereunder nnd under existing dividend reinvcslnlcnt plans. which issuances shall be consistent with its cxisting policy and past pmctice~ (B) grants of stock options with respect to GTECClmmon Stock or Bell Atlantic Common Stock to employees'in thc ordinury course of business and in amounts and in a manner consistent with past practicc~ and (C) thc issuance of securities by t\ Suhsidiary to any pcrson' which is directly or indirectly wholly owned by GTE or Bell Atlantic (as the case may be): issue. selt. plcdge; dispose of. encumber. authorize. or propose the is:;unncc. sale, pledge, disposition, encumbrance or authorization of any shares of capital stock of any class, or any options. wurrants, convcrtible securities or other rights of any kind to acquire any shares of capital stock of. or any othcr ownership interest in, such Party or any of its Subsidiarh~s (excluding such us may arise upon thc exercise of existing rights); (ii) amend or propose to amend the Certificate of Incorporation or Bylaws of such Party (other thun by Bell Atlantic,as contemplated hereby) ornny of its Subsidiarics (other than wholly owned Sub~idiaries) or adopt, amend Of propose to amend any shareholdcr rights plan Of reluted rights agreement; (Hi) split, combine or reclussify Dny outstanding shares of GTE Common Stock and Bell Atlantic Common Stock, or declare, set' aside or puy allY dividend or distribution payable in cash; stock. property or otherwise with respect to sharcs of GTE Common Stock and Bell Atlantic Common Stock. exccpt for cash dividends to stockholders of GTE and Bell Atlantic declared in accordance with existing dividend policy payable to stockholders of record on the record dates consiste~tly used in prior periods: (iv) redeem. purchase or otherwise acquirc or offer to redeem. purchase or othcrwisc acquirc any shares of its capital stock, exccptlhm each of GTE and Bell Atlantic shull bc pemlilted to acquire shares of GTE Common Stock or BeB Atlantic Common Stock, as thc case may be, from time to time in open murket transactions. consistcnt with past practice and in compliance with applicnble law and the provi~ions of any applicable employee benefit plan. program or arrangemcnt, for issuunce upon the exercise of options and other rights grallled. and the lapsing of restrictions. under such Party's respective employee benetit plans. programs and arrangements and dividend reinwslment plans: or (V) lIuthorizc or propose or enter into any contract. agreement. commitment or armngement with respect to any of the malleI'S prohibited by this Section 6.2 (a): (b) (I) acquire (by merger, consolidalion. or acquisition or stock or assets) any corporation. partnership or other business organization or division thereof or make any invcstmcnt in anolher entity (other than an entity which is a wholly owned Subsidiary of such Part)' as of the date hereof and other than incorporalion of a wholly owned Subsidiary), exccpt for ucquisitions or investments which do not excced SSOO,OOO,OOO in thc aggregatc ror aU such acquisitions or investments in any 12-month period; (ii) exccpt in Ihe ordinary coursc of business and in a manncr consistcnt with past practice, scll, pledge. disposc of. or encumher or authorize or propose the salc. pledge. disposition or cncumbrance of any assets of such Purty or an)' of its Subsidiaries. except (or tmnsaclions whkh do nol excecd S500,nOD.ODD in the aggrcgllte in any 12-month pcriod and provided further thai, unlcss ami until it is mutually delermincd thm pooling of interesls accounting is not availllhle for thc Merger. I\U Party shall make any dispositions in excc!,s uf an aggregate of SIOO,OOO,OOO eXl.:cpt for those disposilions that the managcment of either P:lrty ha~ determined. with the concurrence of its independent accoun~ants. to he either in the ordinary course or business or nol in contemplalion uf lhe Mcrger. and thercforc not a disposition to be mcusured, individually and in the uggregate with olher uisposilions, for matcrial disposition of asset purposcs. as requircd hy Accounting Principals Bullelin No. 16 and the authoritative interpretations Ihcreto~ or Ciii) authorize, enter into or amend any contract. agrecment, commitment or arrangement with respect to any of the,mallers prohibited hy this Seclion 6.2(b); (c) incur imlebtcuness if, following the taking of sllch action. it is reasonably llnticipaled that such Party's olltstanuing senior indebtedness would be nlled by SWlldul'd & Poor's lit lowcr thim A-,'in the case of GTE. Ill' at loweI' than A. in the case of Uell Atlantic. a-23 , :~~'~\.>. ~:- t ; , '-Cc' ':1 I , " -'I ." " ", ~ ',i, . ~ I, ,". . t , I ~ c~' , 'I , .1- ;~, ' , . ~ ' , ,:,..... 'lI ' ',> ., ~,~" ,,; >, '. I' ; I ' . " " ~' , . .' , .'. ~ . , . .. " ' ," I." , 'f I.' , " , ' '. . ,','. 'J1~:' ~ c :.' : 1 . <,.'t\'l"'-;,q t:/..!,~:c,,;)1;\...~~111<...... .. ~,: ;.' :"', ,\\:, " . ~ ,,. ...... ". -, '.'.\ , " /, , " " (~i) 'enter into (i) ieverag'cd derivative contracts (defined as cOl1trnct~ f~!Ut use u factor to multiply thc underlying indcl\ c:,(pol'urc) or (ii) other derivative contracts except for the purpose of hedging known interest rate and forci~n exchange exposures or otherwise reducing suchPurty's cost of finuncing: ,._,,1, - ,(e), take any action with respect to the grant of any severance or terminution pay. stay bonus, or other incentive arrangemenL,; (otherwise than pursuant to any GTE Plan, Bell Atlantic Plan (collectively with ull GTE Pions, "BeneJit Plans") or any policies, arrangements .md agrecments of such Pnrty which ,were in effect Oil. or offered or approved to be offered by the board of directors or senior management of the respective Party prior to" thc date, hereof. or pursuant to any renewal or extension subsequent to the date hercof of the duration of the term of any such Benefit Plans, policies, arrangemcnts or agreements), or with respect to any 'increase in benefitS payable under its sevemncc or tcnnimnion pay policies, or Slay bonus or olher incentive arrangements in effect on the dale hereof; provided, however. that this subsection shall not prohibit GTE or Bell Atlantic or their respectivc subsidiuries from taking any actions whatsoever that arc described in this Section 6.2(e) if (i) such actions are not Merger-related and arc in amounts not matcrially grcnter than past practice or as otherwise required by Legal Requircments or applicable provisions of the plan, policy or urrnngcmcnt, and the Party taking such action consults with the other Party (where such consultation is reasonable ancl practicable) reasonably in advance of any such action, or (ii) such actions arc Merger-related. are taken to meet business needs, urc consistent with compctitive market pmctices of large dalU lransmission or telecommunicutions compnnies, nnd the other Purty gives its consent to such actions (such consent not to bc unreasonably withheld aner being , consulted by.the Party proposing such netion (where such consultation is rcasonable and practicable) rcasOllably in,udvllncc of any such action); provided, further, that on und after thc date hcreof, each of GTE and Bell Atlantic will use its best efforts in good faith to develop and uuopt within 60 days of the datc hereof, in concert with the other, a cOlllmon set of principles and guidelines for the design and implementation of merger-related retention incentives and sevcmnce benefits for the purpose of enabling the respectivc companies to implcment complementary pluns, progrums and armngcments, utilizing best competitive pructiccs which cach believes will facilitate the convergcnce of the bencfits and employmcnt practiccs and policics of the Parties and their respective subsidiaries during lhc period culminating in the Effective Time, and as soon as pra':licable after such adoption. each such Party shall comply, and cause their respcctive slIbsidiuries to comply, with such principles and guidelincs (and any .lmendments thcrcw which arc mutually agreed by the Parties thereafter); '(.' " It,"'/ (1) tukc uny action with respect to increases in employee compenl'ution, or make any paymcnts under any GTE Plan or Llny Bell Allamic Plan, as the case may be, to any dircctor or cmployee of. or independent cOlitrac\or nr cOl\sultantto, such Purty or any of its Subsidiaries, adopt or othcrwise materially H1ncnd (except for amendmcnts rcquired or made advisable by Legal Rcquircments) any GTE Plan or Bcll Atlantic Plan. as thc casc may bc, or cntcr into or amend uny employment or consulting agrccment. or grant or cstablish uny new awards under uny such existing GTE Plml or Bell Atlanlic Plan or ugreclIlent; provided. however. thut this subsection shall not prohibit GTE or Bell Atlantic or their respective subsidiaries frlllll tuking .my uctions wh:Usocver that arc dcscribed ill this Section 6.:UO if 0) sllch actions arc not Merger-relatcd and arc ill amounts not mutcrially grc:ltcr than past practice or as otherwise rcquircd by Legal Requircments or applicable provisions of the plan, policy or an"angcmcnt, and. except in the case of incrcases in employee compensation in the ordinary course or business consistenl with past practice, the Party, taking such action consults with thc other Purty (wherc such consultation is reasonablc and practicablc) reusonubty in advance of any such ucthll\, or (ii) such t~clions are taken lo meet business needs, me consistent with competitive markct practiccs of largc datu transmission or telecommunications companics, and the other Party gives its consent to such actions (such consent not to be unreasonubly withheld after bcing consulted by the Party proposing such action (where such consultation is reasonable and pmcticable) rcasonably in advance of uny such uction)~ a-24 ,-....,/ ,', I't:_,:: ' ~..q ." , . "') ..~' , 1 ',,~ ... ~ .. ..< , . '::\,. ' I , : ~ ! " '< '.'// .'......~. , ,'l': I' ~ , ., \ ,,' . " 1-' l; " d: } ~;:,:,~::/~::,', "::,'\~'::');i~~~\~,:'}~::;j "',>;,~~,,\~;': ;',. '," ~ ~ t"1} .... " r~ "1.-. ( :~ 100-....+.... \_) , " " L '".','., ,., (g) change, in any mtlt,crial,.respecl its accounting policies. methods or proceuurcs except us rcquired by GAAP; , , (h) take any action which it believes whcn taken, equid rcasonubly b~ expectcd to adversely affect or delay in any muterial respect the ability of nny of the Parties to obtain ;my approval of any Gove~mc1\tul Untity rcquircd,to consummate,the tmnslIctions conlemplated hereby; (i) othcr than pursuant to this Agrecment. t~kc uny action to cause the'sharcs of tl~eir r~spective Common Stock. to cease to be quoted on un~ of the stock exchanges on which such shares are now quoteu~ " : (j) (i) ,other than as consistent with past practice. issue SARS, new performance share's, restricted stock, or similar equity b!1Scd lights: (ii) materiully modify (with mate,riality to bc detelmined with respect to the Benefit Plan in question) an)' actuarial cost method. ussumption or practice used in determining benefit ob1ig~tions, annual expense and 'funding for imy Bcnefit Plan, cxceptlo the extent requircd by GAAP; (iii) materially " modify (with ~ateria1ity to be determined with respect to thc Benefit Plan trust in queslion) thc"invcSlIncnt philosophy of thc Benefit Plan truSIS or maintain an us~ct allocation' which is not consislenl with such ' philosophy, subject to any ERISA fiduciary obligation; (iv) subject to any ERISA fiduciary obligation, cntcr into imy'oulo;ouIdng agreement, or on>' o'thcr material contract rclating to the Benefit Plans or management of the Bcncfi.t pian trusts, provided that Bell Atlantic nnd GTE may entcr into any sueh contracts that mny be lcnnhlulcd within two years; (v) offer any new' or extend any existing retirement incentive, "window" or ' similar benefit program; (vi) grant any ad hoc pension increase; (vii) establish any ncw or fund any existing "rabbi" or similar trust (exccpt in accordancc with the currenttcrrns of such trust), or enlcr into any other arrangement. for the purpose of securing non.qualitied benelits or dcferrcd compensation; (viii) adopt any corporate owned tife insurance progrt\m~ or (ix) adopt or implement uny "split doll1\r" life insurance progrmn: , provided, however. that this subsection shull not prohibit GTE or Bcll Allantic or their respectivc subsidiaries from taking any actions whatsoever that are dcscl'ibed in this Section 6.20) (with the exception of clause (j)(i)} if such actions arc in amounts not Illnlcrially greater than past practice or llS otherwise rcquired by' Legal Requircmcnts or upplicablc provisions of the plnn. rolic~' or arrangemenl. and the Party taking such action consults with the other Party (where such consultation is reasonable and practicable) reasonably in advance of any such action'; or (k) take uny action which il believes whcn taken would cause its represenlalions nnd warranties contained herein to become inuecunlle in lIny malerial respect. GTE and Bell Atlantic :Igrec lhat uny wriuen approval oblllined undcr this Seclion 6.2 may ~e relicti upon by the other Purty if signcd by the Chief Executivc Officer or lIny other executive officer of tIle Puny providing such writtcn approval. SECTION 6.3-No Solicitation. (a) From and after the date hereof, Dell Atlantic shall not, nor shall it permit, any of Hs Subsidiaries to, nor shall it authorize or permit any of its officers. directors or employees or any investment,banker, financial udvisor, attorney. aCCllunta11lS or lIlher repn:sentati\'es rcwined by it or any of its Subsidiaries to, dircctly or indirectly through unuther person, (i) solicit. initiate or encourage (including hy wa>' of furnishing informalion), or knowingly l:lke any other action designed to facilitalc, any Alternalive Tmnsaetioll (us hereinafter defined) or (ii) participalC in uny discussions rcgarding uny Ailernati\'c Transaction; provided. however, that if, at any time prior to approval of the Stock Issuance und the Certificule Amendl1llmt by the hulders of Bell Atlantic Common Stock. \hc Board of Directors of Bell Atllll\\ic determines in gool! faith, nfter receipt of uu\'ice from oUlside counsel. that the failure to provide slLch information or participme in such negotiUlions or discussions would rcsult in a reasonablc possibility that the Board of Directors of Bell Allantic would breach their fiduciury duties 10 slockholders lLnder applicable luw, Bell Atlantic may, in response to any such pmposnlthat has been determined by it to be a Bcll Atlantic Superior Proposal (llS dclim:d in Section 7.2(b)), thut was not solicited by it nnd th:1l did not olhcrwise result from a brcllch of lhis Sectiun 6.3(n). llnd subje~t to Bell ;\tluntic yiving GTE al le:Jsttwn business days wriuen notice of its inlention to do u-25 , :/ . , " " \: '" :. ,t" , " ' I ;l"~ ':i~J', / .', ~'.':!.,,'.J....~ 50, (X) furnish information ~ith respect to Bell Atlamic nnd its Subsidiaries tu tiny person pursuunt to n customury confidentiality agrecmcnt containing terms no less rcstrictive than thc'temls or Ihe Nondisclosure Agreement dated July 19, 1998 entcred into betwcen Bell Atlantic and GTE (the "NondisclosufC Agrcement"). providcd that'u cupy of all such information is delivered simultaneously to GTE, and (y) participate ill negotiutions regarding such proposal. Bell Atlantic shall promptly notify,GTE orally and in writing of any request for information or of any proposal in connection with un Alternativc Tmnsaction. the muterialterms llnd conditions of such requc~l or proposal (including a copy thercof, if in writing, and al\ other documentation and tiny related correspondence) and the identity of the pc'rsori making such rcquest or proposal. Bell Atlamic will keep 'GTE reasonably informed of the ,slatus and detaih (including amcndmcnts or proposcd umcndmellts) of such rcqucst or proposal on a currcnt basis. Bell Atlantic shall immcdiutely ccase and lenninate any cxisting solicitatiun, iilitialiofl, ertcoumgcment, activity, discussion or negoliation wilh any persons COllduclcd heretofore by Bell A'Uantic,or its representatives wilh, respect to the foregoing. Bett Atlantic 0) agrecs not'to release any Third Party (as defined below) from, or waive any provision of, or failla cn'rorcc, any standstill agreement or similar agreements to which it is a party relatcd to. or which could affect. an Alternative Transaction and tlgrecs < that GTE shall he cntitled to enforce Bell Atlantic's rights and remedies under and in conncc,riun with such ' agreements and (ii) :\cknowledges that thc provisions of clause (i) are an important and integral part 01' this Agreement. Nothing contained in this Section 6.3(a) 01' Section 7.2 shull prohibit Bell Atlantic (i) froln taking , and disclosing lo its stockholdcrs a position contemplated by Rule 14c-9 or Rule 14c-2(a) promulgated undcr the Exchange Act or (ii) from making any disclosure to its stockholdcr<; if, in the good faith judgmcnt of the Board of Direclors of Bell Atlantic, aftcr receipt of advice from oUlside counscl, failure to disclose would rcsult ~n a reasonable possibility that thc Board of Directors of Bell Atlantic would brcach its fiduciary duties to Bell Atlnndc's stockholders under uppl!cable Itlw. (bJ From llnu uftCl' Ihe date hereof, GTE shall nOl, nor shull it permit <Iny of its Subsidiaries lO. nur shall it authorize or pcmlit any of its offic~r~. directors or employees or any invcstment banker, financial advisor, atlolne)'. accountants or other representatives retained by it or any of its Subsidiarics,lO, directly or indirectly through, anuthcr pcrson. (I) solicit. initiate or encourage (including by way of furnishing infonnation), or knowingly take any otheruction designcd to racilitale, any Alternative Transa\:[iol1 (as hereinafter deCined) or (Ii) participate in ~my discussions regarding any Alternative Transaction; provided. howevcr. that if, at any time prior [0 approval of this Agrccment by the holders of GTE Common Stock, the Board of.Dircclors of GTE ' dctcrmines in good faith. after receipt of advice from outside counsel. thutthc, failure to prn\'idc such infonnalion or participatc in such negotiations or discussions would rcsult in a rcasonablc possibility that the Board of Dircctors of GTE would breach their liduciary duties to stockholder:> under applicablc hiw. GTE may, in response to a proposal that has becn dctcnnincd by it to be a GTE Superior Proposal (as delined in Scction 7.:!(d)), thut was not soliciled by it and t1mf did not othclV,'ise rcsult from a breach of this Seclion 6.3(b), allll subject to GTE giving Bell Atlantic at least two business days writtcn nOlice of ils intcntion to do so, (x) furnish infonuiltion wilh respect to GTE lInd ils Suhsidiaries to any person pursuant to a customary cOlllidcntiality agrecmcnt containing tcnns 110 Icss restrictive than thc terms of the Nondisclosure Agrcemcnt, provided thaI l\ COP)' of :Ill such intcH1l1ution is delivcred simultaneously 10 Bell Allantic. and (y) participale in 'negotiations regarding such proposal. GTE shall promptly notify Dell Atlantic orally ami, in writing of any request tor information or of any proposal in connection with an Allcmulivc Tmnsaction. (he lIWlcrinJ terms and conditiolls of such r~qucst or proposal (including a copy thereof. if in wriling, and all othcr documcntation and any related correspondencc) and Ihe identity of the pcrson making such request or proposal. GTE will keep Dell Atlantic reasonubly infonncd of thc slatus and dctails (including amendments or proposed amendmcnts) of , such rcque~t or proposal on a currcllt basis. GTE shull immedialcly ceasc and Icrminate any exisling solicitation, iniliutioll. cncoumgernent. activity, discussioll or negotialion with any person~ cumluctcd heretofore by GTE or its represenlatives with respecl to the foregoing. GTE (i) agrces not to rclease ~lIlY Third Purty from, or waive any provision of, or fail to enfurcc, any standstill agrccment or similur agrecmcllb 10 which it is a pany relatcd to. or which could affect. an Altcrnative Tn\1ls;u;tion and agrees lhat Dell Atlantic shull he cntitled to enforce GTE's rights nud rcmedies under and in connection with such agrcements and Iii) ucknmvledgcs Ihat thc provision!> of clause (i) arc an important and integrul part of this Agrccment. Nothing containcd in this Section 6,3(b) or in Seclion 7.2 shull prohibit GTE (i) from taking and disclosing to its slockhnJder:i a position ;1-26 '" ~.. ....,.. ~.' I: .,' I' , /:'. . ''',1, , I ,'. I" " . " , ; " ' , '. '.'", . . , ~\ '~i: ;i,.,.:,;:/~I''.!tA:<:':\I~~:';r.\:;:';'::::,,:.<,~1.'~:':' ;r",; .,'-.' ',",,, 1,; :'(~!"" , ""f~~~~ ~ , :', ' (';:1,\ ~~J'-JI L........~cJ'~ ,> 'Ii ~, conte'rnplated by Rule 14c-9 or Rule 14c-2(a) promulgatcd under the Exchange Act or (ii) from making any disc1or.urC to it!! stbckholders if, in thc good faith judgmcnt or thc Board of Directors of GTE, aftcr receipt of advice from outsidc counsel, failure to disclose would result in a reasonable possibility that the Board of Directors of GTE w~'~ld breach iLo; fiduciary duties to GTE's stockholdcrs under applicable law. (c)' For purposcs'of this Agreement. "Alternativc Transaction" means. whether.in the fonll of a proposal or inte;uicd proposal, a signcd agreemcnt or completcd action, as the Case may be, any of 0) II transaction or series of trnnsactions pursuant to which any person (or group of persons) other than Bell Atlantic and its Subsidiaries and other than GTE and its Subsidiaries (n "Third Party") acquircs or would acquirc, dircctly or ir~directly. beilefichil ownership (as defined in Rulc 13d-3 under the Exchange Act) of more than 20% of the outstunding !ihares of Bcll Atlnntic or GTE. as the'Cll'lC may bc. whethcr from Bell Atlantic or GTE or pursuant [0 a tcndcr offer or exchlUlgc offer or otherwise, (if) any acquisition or proposed acquisition of, or business , combination with, Bell Atlantic or any of its Significant Subsidiaries or GTE or !lny of its Significant Subsidiurics.,as thc case: may be, by a merger or other business combination (including any so-culled "mcrgcr- of-equals" and whether or not Bell Atlantic or any of its Significant Subsidiaries or GTE or any of its Significant Subsidiaries, as the case may bc. is thc entity surviving any such merger 01' business combination) or (Hi) any other transaction pursuant to which any Third Party acquires or would acquire, direclly or indirectly, control of assets (including for this purposc the out~tal1ding equity securities of Subsidiaries of Bell Atlantic or GTE, as the case may be. und any cntity surviving any merger or business combination including any of them) of Bell Atlantic or any of its Subsidiaries or GTE or anY' of its Subsidiaries. as thc case may be, for cOllsidemtion equal io 20% or more 'of the fair market value of all of thc outstanding shares of Bell Atlantic Common Stock or uti of thc outstanding shares of GTE Common Stock, as the case may be. on the d~tc of this Agreement. ' SECTION 6.4-S/lbsefJllcnt FitWl/dcl/ Statements. Prior to the Effel~tive Timc, each of GTE and Bell Atlantic (3) will consult with thc other prior to making publicly availahlc its linancial rcsulls for any period amI (b) will consult with the olher prior to thc liling of. and will tim~ly tile with the SEC. each Annual Rl'port on Fornl IO-K. Qum1crly Report on Fonn IO-Q and Current Report on Form 8-K rcquired to be filcd by such Party undcr the Exchange Act and the rulc~ and regulations promulgatcd thercundcr and will promptly dcliver to the other copies of each such report filed with the SEC. As of their respective dates. none of such reports shall contuin any untrue' statement of a matcrial fact 01' omit to state a material fact rcquired 10 be staled lherein or neccssary to make the statements therein, in light of thc circumstances under which thcy were made. not misleading. The respective audited financial statemcnts and unaudited interim financial stalemcnts of each of GTE and Dell Atlantic, us the case may be, included in such reports will fairly present the consolidated financial position of such Party and its Subsidiaries as at the dates Ihereof and the results or their opcrations und cash Haws for the periods then cnded in accordance with GAAP applied on a consistent basis and, subject. in the ease of unaudited intcrim financial statcmcnts, to normal yeuN~ml adjustments, SECTION 6.S-':"Comrol of Opermioll.l'. Nothing contained in this Agreement shall gi\'e Bell Atlantic, directly or indirectly. the right to comml or direct GTE's opcrations prior to the Effective Time. NOlhing contained in this Agreement shull give GTE, directly or indirectly. the right to conlrol or dircct Bell Atlantic's operaliolls prior to Ihe Effective Time. Prior to the Effective Time. each of Bell Atlantic and GTE shall exercise, consistent with the terms and conditions of this Agr~ement, complete control and super\'ision ovcr its respective operations. ARTICLE VU-ADDITIONAL AGREEl\IEN1'S SECTION 7.I-Joim Proxy Statemem (111(/ tilt' ReJ./istrmioll Sraremem. (u) As promptly as practicable aftcr the cxecution and dclivery of this Agreement. thc Parties shall preparc and filc with the SEC. and shall usc nil reasonable cnorts to have c1eured by the SEe, and promplly thercafter shall rnaillo the holders of record of shares of Bell Atlantic Common SlOck and GTE Common Stock. the Joint Proxy Statement, providcd. however, that GTE and Bcll Atlantic shull not mail or othcrwise furnish thc Joint Proxy Statcment In their respective stockholders unless and until: ' a-27 i l, " , " .'~ , " " , ..' ,~:' , " I:,', . , I. . r ' ~ .----- h L '. , ,,' 'J:~: .>'''::'~',-\\:,"~, ~~~_~>~~'......,':~.~: . .~ ,~, ~ . "I ~ I ,": t t-: (i) they' have rcceived notice from the SEe that the Registration Stutement is cffective under the r,933 Act; (ii), GTE shall have 'rcceived a letter of PricewatcrhouscCoopcrs L.L.P.. datcd (l dalc within two businc!ls days prior 10 the dale of the first mailing of the Joint Prmy SIUlcmcnt, nnd addrcssed 10 GTE, in fonn nnd substunce rcas{)J~ably satisfaclory to GTE and customary ill scope and substanc~ for' 'cold comfort" letters delivercd by indepcndent public accountants in conncction with registration statements on Form' 5-4 wilh'n:spect to the financial stntcmcnlo; of Bell A\lantk included in the Joint Proxy Statement and the Registration Stntcme'nt; and (Hi) Bell Atlantic shall have f(~ccived u letter of Arthur Andersen LLP, dated a date within two bm;iness days prior to th~ dntc of the first mailing of the Joint Proxy Slatement. and addressed 10 Bell Atlantic. in fonn Ilnd .~ubstance reasonably satisfllctory to Bell Atlantic and customary in scope and . substance for "cold comfort" h;llcrs delivered by independent public accountants in connection with registration statements on Form S-4 with respect to the financial stalements' of GTE included in the Joint, Proxy Statement and the Registmtion Statement. ' ''''. ,', (b) ,TIle Parties will coopernte in lhe preparation of the Joint Proxy Statement and the Registration Statement and in having the Registr.l.tioll Statement declared effective us soon as practicable. SF.CTtON 7.2-Bcll Atlantic (lm/ GTt.. StockllVlcler,\" Meclillgs. (a) As pruniptly as pructicnblc after the Registrutiun Statement is declared effective under the Securities Act, Bell Atlantic shall duly give notice of. convene and hold a meeting of its slOckholdcrs (Ihe "Bell Atlanlic Slockholders' Meeting") in acconlancc with the DGCL for the purpose ,;r obtaining the Bell Atlantic' Stockholder Approval and shall, subjectlOthe provisions of Section 7,2(b) hercof,through its Board of Directors, recommend to its stockholders the appruval of the Stock Issuance and adoption of thc Ccrtilicnte Amellllmem. ' , (b) ,Neithcr tJ1C Bmml of Directors of Bell Atlantic nor uny committee thereof shall 0) except us expressly permitted by this Section 7.2(b). withdraw. qualify or mt'dify. or propuse publicly to withdraw, qualify or modify. in u manner adverse to GTE, the apPlllval or recdnllnendation of such Board of Directors or such cOlnmiltee of the Certificate Amendmcl\\ or the Stock Issuance, (ii) approvc or recommend. or propose publicly to approve or recommend, any Alternalive Transaction or Wi) cause Bell Allalllic 10 cnler into .my ICller of intent. agreement in principle, acquisition ugrecment or other similar agreement (each. a "Belt Atlantic Acquisition Agreement") rclated to any Ahcmative Trallsaction. Notwithslanding the foregoing. in the event that prior to the adoption of the Stock Issuance and the Certificate Amendment by the holdcrs of Bell Atlantic Common Stock thc Buard or Directors of Bell Atluntic dClcnninc!. in good faith. after it has rccciveuu Bell Atlantic Superior Proposal (.IS dc/incd below) and "flef reccipl of advice from outside counsel. Ihat thc fa'jlurc to do so would result in a reasonable possibility that the Board of Directors of Bell AlIantic would brelleh its liduciary duties to Bell Atlantic stockholders undcr applicllblc law, the Board of Directors of Bell Atlantic may , (subjc:ct to this and the following sentences) inrOml Bell Atluntic stockholders thaI ilnu longer believes that such aduption is advisable and no long~'r recommends approval (a . 'Bell Atlantic Subsequent Detemlinutiou"). hut only at a time that is afler the fifth business day following GTE's rcccipl of wriltcn nOlice advising GTE that the Board of Directors of Bell Atlantic has received II Bell Atlantic Superior Proposul specifying the materialtcnus and condilions 01' such Bell Atlantic Superior Proposal (and including a copy thereof with all accnlllpanying documentation, if in ';...riting), ideiltifying the person making such Bell Atlantic Superior Proposal and stating thm it intends to make a Bell Atlantic Subsequent Dctcrmimltion. Aller providing sllch nOlice. Bell Atlantic shull provide a reasonable opportunily 10 GTE In make such udjuslmCnls in the terms llnd conditions of Ihis Agreement as would enabh: Bell Atlantic to proceed with its recommeadation to its stockholders without a Bell AtI:mtic Subsequent Determination; providcd. however. that any such adjustment slHlll be ~\t the discretion of the Parties at thc time. For purposes of this Agreement, a "Bell Atlantic Superior Proposal" means any proposal (on its most recently amcnded or modHied terms. if amended or moditkd) nwde by :1 Third Purty In enter inlo all Alternalive TnUlsact;o/l which Ihe Board of Directors of Bell Atlanlic \ :1-28 '........~; -~-~- -~~ -~-~------~----- - ---~--------- " <', :i :":'1";. '-~',IJ." ," > J , . ----~---- " , .' I. !' , J " ' ". < , ',' ' ., ; I '.' I T1 ~ '. , . .' ;1;,:.;' ":;'J:J:::-::i-:';:(::'i>~i..:!:~!.\" '",:. _' , , ,0 d ~', . If:";" {.,,~~,/ , , ~J I' ,..r.r,....,.. dctcnnines in'lt'i good faith judgment (based on. among other things. the advice of a financial advisor of nationally recognized repul1ltion) to be more favorable to Bell Atlantic's stockholders than the Merger laking into accol.lnl"all relevant factors (including whether. in the good faith judgmcnt of the Board of Directors of Bcll Atlantic, after obtainirig the advice of a financial advisor of nationally recognized repUlntion, the Third Party is reasonably able 'to financc thc transaction, and any proposed changes to this Agreemcnllhat may bc proposed by arE in response to such Alternativc Tran,-;action). Notwithstanding any 'other provision of this Agreement, Bell Atlantic shall submit thc Stock Issuance and the Certificate Amendment to its stockholders whether or not the Board of Dircctors of Belt Atlantic m:lkes ,a Bell Allantic Subsequent Dctenninalion. (c) As promptly as practicable after the Registration Stntement is declarcd effcctive under the Securities Act. GTE shalt duly give notice 'of, convenc and hold a meeting of its stockholdcrs (the "GTE Stockholdcrs' Mceting".) in accordance with the NYBCL for the purpose of obtaining the GTE Stockholder Approval and sball, subject to the provisions of Section 7.2(d) hercof, through its Board of Directors, recommend to its stockholders the approval and mJoption of this Agre~ment and the Mergcr. (d) Ncilh~r the, Board of DireCIOrS of GTE nor any committee thereof shall (i) excepl as exp'ressly permitted by this Seclion 7.2(d), withdr.lw. qualify l1f modify, or propose publicly to withdraw, qualify or modify, in a manner adverse to BelllAtlantic, the approval or recommendution of such Board of Directors or such committee of the Merger or this Agreement. (ii) approve or recommend, or propose publicly to approve or recommcnd, any Alternative Transaction, or (Iii) caw;e GTE to cllter into any letter of intent, 'agreement in 'principle, acquisition agreement or other similar agrccment (each, a "GTE Acquisition Agrcemcnl") relaled to any Alternutive Transaction. Notwithstanding thc foregoing, in the event thM prior to the adoption of this . Agreement by the holders of GTE Common Stock thc Board of Direcl(1rs of GTE detcrmines in good ,faith. aftcr it has receivcd u GTE Supcrior Proposal (as dctincd below) and after receipt of mlvice from out!.ide counsel, that the failure [Q do so would result in a reasonable possibility that the Board of Dircctors of GTE, would breach its' fiduciary duties 10 GTE stockholdcrs undcr npplic~blc law, the Board of Dircctors of GTE may (subject to this and the following sentences) inform GTE stockholders thai it no longer believcs thut the Merger is advisable and no longcr recommcnds approval (a ','GTE Subscquent Determinalion"). but only at a lime that is after the fifth busincss ,day following Bclt Atlanlic's receipl of wrinen notice advising Bell Atlantic that the Board of Directors of GTE h.\s reccivcd a GTE Supcrinr Proposal specifying the rnaterialtenm and conditions of such GTE Supcrior Proposal (and including .1 copy thereof with all accumpanying documcntalion, if in wriling), identifying Ihe person making such aTE Superior Proposal ami !>laling lhm it intends to make a GTE Subsequent Dctcrminalioll. After providing sllch notice. GTE shall providc a n:t1sonablc opportunity 10 'Bell Atlantic to make such udjuslml.'JlI!J in the terms und conditions of this Agreement as would enable GTE to proceed with its recomrncndution to its stockholders withoul a GTE Subsequent Determinalinn: provided, however. lha't any such adjustmcnt shall bc utthe discretion of the PuTties at thc time, For purposcs of this Agreement, a "GTE Supcrior Proposal" means any proposallon its most rccently amendcd or modified terms, if amended or modi lied) made by a Third Pany 10 entcr into an Alternative Transaclion ,which the Board of Directors of GTE determines in ilS good faith judgmcnt (bascd on, among other thing!J, the advice of a financial advisor of nationally recognizcd reputation) to be more favorablc to GTE's stockholdcrs than the Mergcr taking into account all relc\'unt factors (including whethcr. in the good faith judgment of the Board of Directors of GTE, after obuiinillg the advice of a financial advisor of nationally recognizcd repulation. lhe Third Party is reasonably able to financc Ihc transaction, and any proposcd changes to Ihis Agreement thut may be proposed by Bell Atlanlic in responsc to such Altcrnative Transaction), NOlwithstanding any uthcr provision of this Agrecment, GTE shall suhmit this Agreement to its stockholl.kni whethcr or nOlthe Board of Directors of GTE makcs a GTE Subsequent Dctcmlinution. Sr:cnON 7.3-COII.\'lmrmmioll of Merxa: Additional '\~rl'L'f1It"II.\'. (a) Upon the terms and subject to the condiiions hereof and, us suon as practicablc afler the conditions set forth in Article VIll hcreof huve bcen fullilled or waived. ~~ach of the Parlies requircd 10 do so shall cxccutc in the manner required by the NYBCL ami delivcr to and file with the Secrclary of Stale ~f thc Slate of New York such instrumcnts and agrccmellls as may bc required by Ihe NYBCL and the Parties shalltuke all such a-29 ,q I,>' ",~~-::-:---~--"""'-:'"~ J, " ' 'I , H" .. ./1 I, ,~ : , , 'I ':f . /" I, \ , .:~' ~'.". 'I, , I , ~,! , , ' . ,~; .';~' ~ '. '.' ,'j;,~,~~"~~:':\~~'h':\'I:\1 ~,~: ,', H' . J,11\ w....o.l_..4'c.'. ,~, " , " ,,' ", I, other and further actions as may be requircd by law to makc the Mcrger effective, and Bell Atlantic shulltukc all such,other and further actions as may bi: required by law to make the Certificate Amendment and the Bylaws Amendment effcctive. Prior to thc filings referred to in this Section 7.3(a). a closing (the "Closing")' will be held nl'lhc offices of Belt Atlantic (or liuch other place us the Parties mny agree) for the purpose of confirmin'g alllhe foregoing. The' Closing willtakc place upon the fulfillment or waiver of ull of the conditions 10 closing !iet forth in Article vm of this Agreement. or as soon thereafter us practicable (thc date' of the Closing being herein rcferre~ to as the "Closing Date"). " " " I,:' ~' , '(b) Each of the Partics witl comply in all material respects with all applicablc laws and with all applicablc rules ano regulations of any Governmental Entity in connection with its exccution, delivery and perfomlllnce of this Agreement imd the transactions contemplatcd hereby. Each of the Parties agrces to use all commercially reasonable cfforts to obtain in a timcly manner all,ncces!lary waivers, consents and approvals nnd to effecl all necessary registrations and filings, and to use alt commercially reasonable cfforts to take, or cause to be taken, all other actions and to do. or causc to be done. all other thin)!,: n'ccessary, propcr or advisable to consummUle and make elTectjo,'e as promptly as practicable the transuctjr'l\S contemplated by this Agrcement and thc Option Agreements and to cffect all necessary filings under thc 1933 Act. the Exchange Act' and the HSR Act. Without limiting the gcnerulity of the foregoing, each of GTE and Bell Atlantic shall promptly prepare and file a . Premergcr Notification in'nccordance with the HSR Act. shall promptly comply with any rcquests for additional infomwdon, and shall use' its commercially reasonablc efforts to obtain tcnnination of the waiting period Ihereunder as promptly as practicable. (c) Each of Bell Atlantic and GTE shall. in connection with the efforts refercnced in Section 7.3(3) lInd (b).'m coopcrntc in all respects with each other in conriection with any tiling or submission :md in connection with any investigation or other inquiry. including' any proceeding initiatcd by a privllle party: (ii) promptly inform the other party of uny mat~rial communication received by such party from. or givcn by slIch party 10 any Governmental Entity and of any material communication received or givcn in connection with nny proceeding by a private party, ill each case regnrding any of the tmnsactions contemplated hereby and (iii) consult with each other in advance of .my meeting or conference wilh any such Govcmmental Entity or, in connection with any proceeding by a privute party, with any other person, and 10 the extcnt perinillcu oy the applicable Govcrnmental Entity or othcr person. give the other Party the opportunity to attend and participate in such me~titlgs and conferences. (d) In furtherance nnd not ill Iimitalion of the covenants of the parties contained in Scctions 7.3(a). (b) and (e). if any adminislr..ltivc or judicial action or proceeding, including any proceeding hy a privatc party. is instituled (or threatened to be instituted) challenging any transtlction contemplaled by this Agreement or thc Option Agreements us violutivc of uny applicable law. or if any SlaWle. nile. regulation. e;<ecutivc order, decree. injunction or administrative order is en:Jctcd, entered or promulgatcd or enforced hy a Governmenlnl Entity which would make the Merger or the other transactions contemplaled hereby or oy the Option Agreements illegal or otherwisc prohibit or matcriully impair or dclay consummation of the trans.lctions contemplaled hereby or thereby. each of Bell Atlantic and GTE shall cooperate in all respects with each other and use all commcrcially reasonable cfforts to contest and resist any stich action or proceeding, to have vacated, lined. reversed or overturned any decrec. judl,!ment. injunction or othcr order. whether lemponlry. preliminary or pennunent, that is in effect and dUlt prohibits. prevents or restricts consummation of the tmnsactions contemplated by this Agreement and to have i;uch st:Jtutc, rule, regulation. executive order, decree. injunction or administrative order repealed, rescinded or I\1ndc inapplicable. Notwithstanding the foregoing or ' any other provision of this AgrcemCI1l. nothing in this Section 7.3 shall Ii mil u pany's right to tenninate thi!> Agreement pursuant to Section 9. I so long us such Pm1y hus up to then complied in all respects with its obligations under this Section 7.3. ' (e) If any objections arc asserted with respect to the transactions contemplated hereby under tilt)' applicable law or if any suit is instituted hy allY Govcrnmental Entity 01' any privutc party dlllllcnging Iluy Df the trunsuctions contemplated hereby as violative of any applicable luw. each of Bell Atlantic and GTE shall a- 30 .. , ~~; 1j.(1 -: I' 1.(0'.;,' ,. ~. , , I , .,; I'(~ ,:,1: I"' .' ':1';,;:: ,', ,rl . ~ ' ',~ : ,< ~ .'. . . ", . " ,I" I...,' ,.1 """, ',: " ~ ' ~, . ~~'--'-17--0q7~ , ,'\" I,,' ." , " ~, ! '. ,( , ',I, '" .', I . " I, ' , , . , , oc' .~" ..:,:;t'\<\/~;:/~:f'/'<-'t'}">: ,,' ':.' ;1; :f~", ,~\.' '. '...'.':' ./~'I.,:~/p~"cc:... ,.." ~ I ..;.,.....C......... ,J,',.....' (~ ,; ~~ ~~} :,~ /, ('~r.\~~ , I ~;i.'-r;IA~ u ,', 'C.'. , , use its commercially rca''ionnble cfforts to resolve tiny such objcctions or chnllenge as such Govemmcnlnl ' Entity or privalc' party may have to such transaclions undcr such Inw so as to permit consummation of the t,~ansactions contemplated by lhis Agreement. ' SEcnoN 7.4-Nnlijicatitm of Cuta;" Malters. E:lch of G"fE and Bell Atlantic shall give prompt notice to the o~er of the following: (a) the occurrence or nonoccurrence of an)' event whose occurrencc or nonoccurrence wuuld be likely to' cause eitJter (i) any representation or warranty contained in this Agreemenl to be untrue or innccuratl\ in any matcrial rC:lpcct at any time from thc datc hereof to the Effective Time, or (ii) directly or indirectly, any, Material Adverse Effect on 3uch Party: ' " (b) U1lY ~aterial faitureof,such Party, or any officer, di,rector, employee or Agent oeany thereof, to cmnply with or salisfy any covenant, condition or rlgreemcnt to be complied with or sutisfied by it hereunder, and (c) any facts relating to such Party which would make it necessary or lldvisnble to amend the Joint Proxy SUHement or the RegisU'atlon Statement in order to make the statcments thcrcin not mislcndingnr, to' comply with applicabl~ Inw; providcd, howevcr, that the delivery of any notice pursuant to this Section 7.4 shall not Iirnit or otherwise affect the remedics available hereunder to the Party receiving such notice. , ' " SECnO:<l 7.5-Access to Information. (a) From the date hereof to the Effective Time, each of GTE and Dell Atlantic shall, mld shall cause its respective Subsidiaries, and hs and their officers, directors, employees, auditors. counsel nnd agents to afford the ofliccrs, employees. auditors. cOllnsel and agcnts of the other Purt)' , complcte accesS at atl reasonable times to such Party's and its Subsidiaries' officers, 'employees, lluditors. counsel agents, properties. offices nnd other facilities and to aU of their respective hooks amI records. and shall furnish the other with all fimmcial, opemting and other data and infonnatioll as such other Party may re:i'ionably request. including in connection with confirmatory duc diligence. (b) Each of GTE and Bell Atlaatic ugrees that an infommtion so received from the other Purty shall be deemed received pursuant to the Nondisclosure Agreement llnd such Party shall, and shall calise its Subsidiuries f and each of its and their respective officers. directors, employees, financial advisors and agents ("Party , Representatives"). 10 compl,y wilh the provisions of the Nondisclosure Agreemcnt with respect to such infomtation and the provisions of Ihe Nondisclosure Agreement are hereby incorporated herdn by reference with the same effect liS if fully set forth herein, provided that such infonmuion muy be used for any purpose corllemplated hereby. SECTION 7.6-Public: A,molltlremerItJ. GTE and Bell Atlantic shall usc all reasunable efforts to develop a joint communications plan and each Party shall use ull reasonable efforts 10 ensllre that all press releases and other public statemcnls with respect to the transactions contemplated hereby shall he consistcnt with such joint communications plan or, to the extent inconsistent therewith, shall have received the prior written approval of the other. SEcnON 7.7-Trallsfer Starme.r. Each of GTE and Bell Alluntic agrees 10 usc its commcrcially re~lsonable cfforts to comply promptly with all requirements of the New Jersey and Connecticut Property Tnmsfcr Statutes, to the extent applicable to the transactions contemplated hereby. and to tlIke alluclions nccessary to cause the transuctions contemplated hereby to be effected in compliancc with the New Jerscy und Connecticut Property Transfer Statutes. GTE and Bell Atlantic agree that they will consult with euch other to determinc whut, if any, actions must be taken prior 10 or ufter the Effcctive Time to ensurc compliance with such statutes. Each of GTE and, Bell Atllllllic agrees to provide the other with uny doculllcnts to be submitted to the relevant stale agencics prior to submission and agrees not to takc uny action to comply with the New Jersey and Connecticut Propeny Transfer Statutes without the other's prior conSClIt, which COl1sel1l slmllnot bc .- unreasonably withheld. Each Party shall bear il'i respective COi'ts and expenses incurred in connection with, a-31 1-', ' . :.~' ';~> t ' \' ',' /J . ~ ~ , " , ' " " . " '! "'.' ,: ' > ~ " ',';'1' 'C.:'!.':'~.~'~\.~~'''''~b , ~,.. ,'., ~~, ~ ~ I, '. . compliance with the New Jer;cy nntl Connccticut Property Transfer Statutes. For purposes of this section. the !'lew Jersey and Connecticut Property Transfer Statutes means the New Jersey Industrial Site ~t::covcry Act, 1993 N.J. Laws 139, an~ the Conneclicut Tran:-fer Act, Conn, Gen. Stat. Ann. ~ 2211. I 34(b). , SECTION 7,8'-lllcle~nnijkCltjon, Directors' llnd Officers' lnSUrlllll't!. For a period of six years after thc , Effective Time. Bell Atlantic shall cause GTE to, and Bcll Atlantic shall. maintain in effecllhe current policies of directors' and ofticcrs' liability insurance and liducillry liabmty imurnncc maintained by GTE and Bell Atlantic, respeclively (provided that Bell Atlantic may substitute therefor policies of alleustlhe same coverage and l1mounts'containing tennsand conditions which arc, in the aggregate, no less advantageous to the insured in any material respect) with respect to all possible c!:!ims arising froni facts or events which occurred on or before the Effective Time. Bcll Atlantic shall cause GTE to maintain in eflcct (a) the current provisions rcgarding indemnification of officers and dircctors conlained in the charter am.! bylaws of GTE and each of i1s Subsidiaries until the statutcs of limitations for' all possible claims have run; provided ihat l3ell Atlantic need not cause GTE to maintain in' effect indemnification provisions contained in the charlcr and l1ylaws of its Subsidiaries if and to the extcnt that Bell Atlantic assumes such indemnity obliglllions; and (b) any directors, officers o~ employees indemnification agreements of GTE and its respective Subsidiaries. Bell Atlantic shall cause GTE to. and 13eIlAtlan~ic shall. indemnify'the dircctors llnd officers 'of GTE ,and beiJ Atlantic~ respcctively, to the flllle.~t ex.tent to which GTE and Bell Atlantic arc pennittcd to indemnify such officers and directors under their respective charters and bylaws and applicable law.' As of the Effective Time. Bell Atlantic , shall ullconditionallyand irrevocably guarantce for the benefit of such directors. officers and ell1ployccs the ' obligations of GTE under the foregoing indemnification arrangements. . , ' --, SECTION 7.9-Employee Benefir P/,ms, (a) Except as othenvisc provided herein or set forth in Section 6,2 of 1I,lC Disclosure Schedules, GTE and Bcll Atlantic agree that, unless otherwisc mutually dctermined, the GTE Plans arid the Bell Atlantic Plans in effect at the datc hercof shall remain in effect after thc Effectivc Time with respect to classes ~f employees covered by such plans immediately prior to the EO'ectivc Time. ' From time to time from the date hereof to thc Effective Time. the management of Bell Atlanlic uml GTE shall consult with one anothcr for the purpose of reviewing such Benefit Plans for managemcnt (non- represented) employees of BellAtlulllic and GTE and their rcspectivc subsidiarics ("Munagcment Employees"), and detemlining whh:h of such Benelil Plans represent bcst competitive practices. which should be tcnnillutcd ut the Effective Time (or following a transition period thereafter), and which of sllch Benelil Plans sl1ould'be redesigned and/or c.ucndcd to olher employees at (or after) the Effective Time. Notwithstanding the foregoing or any other provision of this Agreement, ( I) after the Effective Time, Bell Atlantic shall eause thc compensation anti hencfits provided to similarly-situated Management Employees or each busincss unit to be at least us valuable as the aggregtllc compensation and bencHt package providcd to sllch employees of thai business unit immediately prior to the Effective Timc. exceptIo the extent (i) such hcnefits andlor compensation plans arc rcplaced l1y one or morc benefits and/or compensation plans at least as vllluable us those which arc provided to similarly situated employees of comparable husiness units of the other Purty or its subsidiaries. or (ij) corresponding benefits for similarly situn1ed employe!.!s of the olher Party or its subsidiaries arc eliminated, (2) from the Effcclive Time until the Iirst anniversary thereof, Bell Atlantic shalt not, and shull ensure that each of its Suhsidiaries ~hallllot. discontinue. or change cligihility provisions or Icvels of benefits under. scvcrancc plans. policies and arrangcments in which stich Management Empluyees participated immediately prior to lhe Effective Time. and, furlher agrees that any or sllch plans. policies or arrangetllclIls that expire during stich one-year period shull hc extended for the duration of such (l1lc-year period, and (3) for the 18-month period immediatcly following the Effective Time. with respect In lhose GTE Management Employces who were relocated as p"rt of the consolidmion of GTE's world headquurtcrs to Tex;ls, Bell Athllltic shall not. and shall ensure that each of ils Slth~iclim:ics shall 1101. discontinue. or dlllngc the relocation benelits program which was applicuble to such Management Employees as uf Ihe Effective Time. In , addition. with respect to nil Managemcnl Employees. lit and after the Effective Timc (i) eHch such employee shall rcceive full credit fur Iheir credited service with their respcctive employer prior to the Effective Time for all purposes, including eligibility (including eligibilily for carly retirement. disability and other l1cnefits), u-32 .... .; -.~+..; y '~i~'::;:( 'i/;:<',,: '\':<~f: ' ~ ' .. , ", ~ , .",' .:< . . "r , ". I , " " " , , " ' ~ , \. : , . ~ ~.:. , ,'.' , ' " , , , ~ , " ,{ '.. . , , .. ';:In ,,'" J',~~ >,~'::;;/{;~\~',>" '.';-',""1: ~,;. ,:" 1 I , \ l 1 I I ~~ L; ;'1' j " ... I J, } ~ I \ ' l i I I 1 ...~". ~:l- ~, '} ''';;~J~1 \ j "-, vesting, level of bcnefits and benerit accrual (except to the extent such benefit uccrual would be duplicutive); , (il) llny provisIons which rc.~lrict bcncfitc; by reason of pre-existing conditions, waiting periods or evidcnce of insurabilily shall be wllivcd und (iii) such cmployees shall receive credit undcr such plan for co-paymcnts and deductiblc during the, applicable plan year. " (b) Exccpt as othcrwise set forth in Sections 2.8 and 2.9 hercof, in the case of thc GTE Plans undcr which the employees' intercsts are bt1scd upon GTE Common Slack. or the rcspcctive market prices thercof (hut' which interests do not constitute stock options), GTE and Ben Atlantic agrce that such intcrests shull. from and aftcr'the Effective Time, be based on Bell Atlantic Common Stock in accordance with the Exchange Rntio. ' ' I, (c) With rcspect to all GTE Plnns which havc entitlement or vesting tcrms that arc bascd upon thc markct price or value per share of GTE Common Stock. GTE and Bell Atlantic agree that from and after the Effective Timc, such markct pricc or value per shnrc shall be adjustcd by multiplying it by the invcrse of the Exchangc Ratio. ' (d) With respect to any GTE Plans maintaincd or contributed to outside the United Stales for the bcnefit of l1on-Uuited States citizens or residents, the principles set forth in this Scction 7.9 and in Scction 6.2 'of the . , Disclosure Schedules shalt apply to the extent the application of slIch principles docs not violate npplicahle forcignlaw. ' (e) Withoutlirniting thc applicability of Sections 2.R and 2.9 hercof. each of lhe Prtrties shutltake all actions as are necessary to cnsure thoU GTE will not at the Effcctive Time be bOllnd by any slock options. SARS. warranLc; or othcr rights or agreements which would entitlc any person. other than Bdl Atlantic; to own any capital stock of the Surviving Corpuralion or to rcccive any payment in rcspect thereof. ami all GTE Plans conferring nn)' rights with rcspect to GTE Com,mon Siock or othcr cllpital stock of GTE shull be deemed hereby to bc amendcd to be in conformity Wilh this Section 7.9. , SECTION 7.IO-SUL'Ct'ssioll. (a) At the Effectivc Time, pursu'ant to the terms or thc EmploymeJ1l Agreements (us defined below) and subjcct to Section 5.11 of thc Bylaws of Bcll AlIantie rellccling Ihe Bylaws Amendment'(thc "Amendcd Bylaws") 0) Charles R. Lee shall hold the positions uf Chairman and Co-Chief . Exccuti\'c Officer of Bdl Atlantic and (it) Ivan G. Seidenhcrg shall hold lhe positions of Pn:sidcnt and Co. Chicf Executive Officer of Bell Atlantic. Pur~uant to the terms of the Employment Agrcemenls amI subjcct 10 Section 5.11 of the Amcnded Bylaws (A) on Junc 30. 2002, Mr. Seidenberg shall become lhc sole Chief Executive Officcr of.Bcll Atlantic and (B) on June 30, 2004. Mr. Lee shall cease to be Ch.tirman of Bell Atlantic and such position will be assumed by Mr. Seidenberg. If eithcr of sueh persons is unable or unwilling lO hold sllch offices as set forth ubo\'e. his successur shull be selecled by the Board of Directors of Bcll Atlantic: in accordance with the Amended Byluws. The ailthorilY, duties and responsibilities of the pusitions sct forth ubo\'c shall be set forth in the Employment Agreemcnts. which Employment Agreemcnl!> shall also set forth in their entirety the rights lInd remedies of Mr. Sciclenbcrg und Mr. Lee with respect 10 employmcnt hy Bcll Alhintie. Neither Mr. S~idcnberg nor Mr. Lcc shall huve llny right, rCl11cd)' or cause of action under this Scction 7.10. nor shall they bc third party beneliciaries of this Section 7.10. (b) As soon as practicable ufter the dale hereof. Bell Atlantic shall entcr inlo employment agrceJll(;'nts effective as of thc Effective Time (the "Employment Agreements") with Messrs. Lee und Seidenberg containing arrangements conceming management succession smisfuclOry 10 each PUrly. SECTION 7.1 I-Stock Exclulll~1! Lis/iI/g. Each uf the Pt1l1ics shull use itsbC'i1 efforts 10 obtain. prior to the Effective Time. the approval for listing on Ihe NYSE, effcctivc upon official nOlicc (11' issuance. of the shares of Bclt Atlantic Common Stock into which the GTE COllllllo'n Slock will be convl:rted pursuant to Articlc 11 hcreof llnd which will bc issuuble upon exercisc of options pursuunt to Section 2.8 hereof. SECTION 7.12-Posr~Mer~e,. &/1 A//antic Board oj Directors. (ll) At the Effectivc Time, 50% of the dircctors of Bell Atluntic shull be directors selecled by Bcll Atlanlic, to Ihe cxtcnl possible from current a.33 ~'. > ,I.' " ,l ~ ; '. I ': . I. ~ " . I' '" ,~ . .. , ,:' i ., . ;. 'I. . I \" r," ,'" .'! "'.' . ~', " .. '0 '.' :, , " " ' , . ' , " II. '" ('\~ , 1 ,'..Ii' : c,..,.;~, 'l:" ", :,JJ'''~....YlIf''''~ _, directors' of Bell Atlantic, and 50% shall be selected by GTE, to the extent possible from current directors of GTE. The persons 10 serve initially on the Board of Directors of Bell Atlantic at the Effective Time who arc GTE Directors (as dcnned below) shall be selcctcd solely by and at the absolute discrction of the Board of Directors of GTE prior to the EfTective Time: nnd thepcrsons to serve on the Board of Directors of Bell Atlantic at the Effective Tirnc who are Bell Atlantic Directors (a!t defincd below) shall be selected solely by and III the absolutc discrction of tht: Board of Directors of Bell Atlantic prior to the Effectivc Time. In the event that, prior to the Effectivc Time~ any person so selected to serve on the Board of Directors of Bcll Atlantic aftcr the Effective Time is unable or unwilling to scrve in such 'position, the Board of Dircctors which selccted such person shall designate another of its members to serve in such pcrsoll's stcad in accordance with the provisions of the immediately preceding sentence. ': " ' (b) From and after the Effective Time and until July I. 2002, thc Board of Dircctors uf Bcll Atlantic and each Committee of the Board of Directors of Bcll Atlantic as constituted' following each election of Dircctors , shalt consist of an cqual number of GTE Directors and Bell Atlantic Directors and subject to the lidudary duties of the Directo/"J, the Bourd of Directors shall nominate for election 111 cnch stockholdcrs meeting III which Directors arc elected. an equal number of GTE Directors and Bcll Atlantic Directors. If. at any time prior to July 1.2002, the number of GTE Directors and Bell Atlantic Dircctors serving, either as directors or as members of any Committec of the Board of Dircctors of Bell Atlalllic. would not bc equal, thcn, subject to the fiduciary duties of the direclors, the Board uf Directors shull appoint to fill any existing vacancy or vacancies. as ,appropriate. such person or persons as may be requcstcd by the remaining GTE Directors (if the number of' GTE Directors is, or would otherwise become. Icss than the number of Bell Atlantic Directors) or by the remaining Bell Atlantic Dircctors (if the number of Bell AtlulIlic Directors is, or would otherwise become. less than Ihe number of GTE Directors) to ensurc that there shall be un cqual numbcr of GTE Dircclors and Bell Atlantic Directors. The provisions of thc preccding two scnlcnc,cs shall nol apply in respect of any vacancy which occurs after July I, 1002. The tcnn . 'GTE Director" means 0) any pcrson scrving as a director of GTE on the date hereof who becomes II director of Bell Atlantic at the Effective Time and (ii) any person who subsequently becomes a director of Bell Atluntic and who is desigaated hy the GTE Directors pursuant to this parugraph: and thc tent\ "Bell Atluntic Director" means (i) any person serving as a director of Bcll Atlantic on the dale hereof \vho continucs as a director of Bcll Atlantic after the Effective Time and (ii) any person who becomes a director of Bell Atlantic cmu who is dc!'igtl'llcd by lhe Bell Atlami<.' Direclors pur.manl If) Ihi.~ paragraph. From thc Effective Timc through July 1, 2002, the Board of Directors shall consist of an even numbcr of Directors aw..! slIch numbcr of Directors shall not be amendcd unless. immediately following such amendn]cnt, the number of GTE Directors then in Oflil;C is equal to Ihe number of Bell Atlantic Direclors then in office. (c) Each of GTE and Bell Atlantic shall take such action <IS shall reasonably ne deemcd by either thereof to be advisablc to give en'cet to thc pflwisions sel f0l1h in this section. including nut not limited to incorporating such provisions in thc Bylaws of Bell Atlantic in effect tit thc Effectivc Timc. SECTION 7. 13--No S/relf R"gislralhm. Bcll Atlantic shall nol he rcquired to amend or maintain the effectiveness of the Rcgistration Statement for the purposc uf pcrmitting resale of the shares of Bell Atlantic Common Stock received pursuant hereto by thc persons will) may be decmeu to be "ufliliates" of GTE or Bell Atlantic within the meaning of Rule 145 promulguted under the 1933 Act The shares of Bell Atlantic COllllllon Stock issuable upon exercise of options pursuant 10 Section 2.M hereof shall be register~d undcr the ] 933 Act IIncl sUI:h registratioll shull be effective at the time of issuancc. S~CTtON 7.14-AjJi/icllt's. lU) Euch of GTE and I3ellt\tlantic 0) has disclosed to thc other in Scction 7.14 of the Disclosure Schcdules all pcr!>ons who nre, or may he. as of the date hereof its "aflililltcs" for purpose... of Rule 145 under Ihe Securilics Act or SEe Accountinn Series Re!l.'ase 135. and lii) shull use all reasonublc efforts 10 causc each pcrson who is identilled liS un "aflililllc" of it in Section 7.14 of the Disclosure Schedules to delivcr to the othcr as promptly as practicahlc but in no evcnt later than 31 duys prior, a-34 \,_:: :ri ~:~:~~.::~ ' .' , '.. , ',., t,,':' t ;~ > I ~ ,,', ',': " , ,. \, ' '. .' '. ' ;" I" ~o ' I j'c 4"'.., '" t.' >' ~, " " 'J '" , , i ,'. '.~ ,:' ~ 0 .:. ' ., .. , " .." , , , " , , , ~, ' {t",/:'~ <;;'.)'<t:/u ';'~J;::: ~;'(~:r: :~,(,\;,; -~' ~ ; ~,... ,( ..,:)~ .""1'\'''' :11113,.>. f" ~ ,) ! ...,I/ ,,-,,,) \. , , , . ~. 'i-~ ')..;7.....;;.":"'.:. \ ~i,~ ,."...-:\ ~'il": ,. 'l :'. ':0,. , ' to the Closing Date, a signed Agreement sUbsL1ntially in the fonn uttached hereto us Exhibit 7.14(0), in'the Cllse , of GTE. and 7.14(b), in thc case of Bell Atlantic. GTE and Bell Atlantic shull notify each other from time to time,of any ,other persons who then arc, or may be, such an "affiliatc" and usc aU rcasonablc efforts to cuuse cach additional person who is identified as an "affiliate" to'execute a signed Agrcemcntlls sct forth in this Section 7.14(a). ' " ' " : .; " I (b) If thc transactions contemplated by this Agreement and thc Option Agrecments would otherwisc qualify for pooling of interests accounting treatment, shares of GTE Common Stock and sharcs of Bcll Atlantic Common Stock held by such "affiliates" of GTE or Bell Atlantic, as thc case may be, shalluol bc transferable during the 30 duy period prior to the Effective Timc. and shares of Bell Atlantic Common Stock issued to, or as of the Effcctive Timc held by.'such "affiliates" of GTE and Bell Atlantic shall not be transferuble until such time as financial results Jcovering at least 30 days of combined operations of GTE and Bett Atlantic havc bcen published within the mcaning of Section 201.0] of thc SEe's Codification of Financial Reporting Policies. regardlcss of whether cach such "affiliate'" has provided the signed Agrecment referred to in Section 7.14 (a), except to the extcnt pcnniued by,'and in accordancc with, SEC Accounting Series Release 135 and SEC Staff Accounting Bulletins 65 and 76. Any Bell Atlantic Common Stock held by any such "affiliatc" shull not be transferable, regardless of whether such "affiliate" has provided lhe applicable signed Agreemcnt referred to in Section 7.14(a), if such tmnsfcr. eithcr alul1t~ or in the aggregate wilh othcr trunsfcrs hy "aniliates", would preclude the ability of the Parties to account for the transactions contemplatcd by Ihis Agrccment and the Option Agreements as a' pooling of interests. Bell Atl:lntic shall not registcr thc transfer of any shares of Bell Atluntic Common Stock unless such tmnsfcr is made in compliance wit~ the foregoing. SECTION 7.15-81ue Sky. GTE ami Bcll Atlnntic will use their bcst efforts to obtain prior to thc Effcctive . Time all nccessary blue sky permits and approvals required to pennit the distribution of lhe shares of Bell Atlantic Common Slock to be issucd in ucconJancc with the provisions of this Agreement. SECTION 7.l6-Poa/iIlK of III/ere."".!'. Each of the Parties will use its bcst effOl'S tu (u) causc the transactions contemplatcd by this Agreement to be accounted ('or as a pooling of inlerests in accordance wilh GAAP, and such accounting trcalmentto be accepted by Bell Atlantic's independent certified puhlic accountants. by thc NYSE and by the SEC. respectively, amI (b) not take any action which could reasonably be expecled to cause such accounting trcatmcnt not 10 be oblained; provided that the foregoing shall not apply 10 any conduct or the effect of uny conduct to obtain allncccssary wnivers. approvals and consents. and to avoid any contractual, legal, regulatory or other issues, impedimcnls or delays, to cOllsumm:Hc the transactions contempluted by this Agreement and the Option Agreements. Nothing in this Agreemcnt shall rcslricllhe rights uf lmy Party pursuant to the Option Agreements. SECTtON 7.17-Tax-Frce Rcorgcm;:,atioll. (a) Each of thc Parties will use its hesl efforts to CllUSC thc Merger to qualify as a lax-free rcorgunizution under Section 368 of the Code. (b) Bell Atlanlic will deliver un Onker's Ccrtificutc subslantially ill the form of Exhibit 7. J 7(b)(i) executed us of the Closing Datc and GTE will deliver an Officer's Certificatc subsluntiully in Ihe form of Exhibit 7 .17(h)(ii) executcLlas of the Closing Datc. ARTICLE VIII-CONDITIONS TO l\fERGER SECTION 8.1-Cmulitiol/.f to ObligatiollS of Eacll Party 10 EHret thl' Magn'. The respective obligations of each Party to cffect the Merger shall be subject to the following conditions: (II) Stock/wider Apprm'at. Each of lhc GTE Stockholder Approv~11 und thc Dell At]antic Stockholder Approval shull have been obtained: (b) ,uJg(//iiy. No federal. slate or foreign :-.talule, rule. regulation. executivc order, decree. injul\~.tion or lldministrmive ordcr shalt havc been cnacted. elltcred, promulgated or enforced by uny Governmental Entily which is in effect nnd has the effect of' (i) nUlking the Merger illegal ur otherwise pruhibiling the consummatioll a-35 " " " ' , . I I' , .I ~ . < . :' (. , ' < ~ ."1, , , , , "J' . j j' " , " '" , '." , : ~.:~ " . I ' :+ " ", :' ., ~ ' , c,,, " ,I. .' " ' , , . , I., ~ .:~.;<.. :,~, .. ' .. ~~ :. ',.i::":; ,~~\~;C~,~;,;l.:~ ~~~~:'.,;;, ':: ,1..,.,...._.. ~If" ',. ,r , "". '" >'u, . of th~ Merger or (ii) creating a Matcrial Advcrse Effect on GTE or Ben Atlantic. with or without including its owncrship of GTE and its Subsidiaries aftcr the Effective Time; (c) HSR Act; California PUC. Any waiting period nppJicablc to rhe con~ummntion of Ihe Mergcr under the HSR Act shall have expired 01' been terminated and thc decision and order of the California Public Utilities Commission ("CPUC") authorizing the Merger and making any required detcrminations under Section 854(u)6 (e) of the California Public Utilities Code. including its delermination'as to any required allocation of economic benefits, if any. of the Merger, between shareholders. and ratepayers, shaH have become final; , , (d) Regulatory Mmtcrs. All authorizations. consents, orders, permits 01' approvals of. or declarations or , filings with; nnd all expimtions of waiting periods imposcd by. any Governmental Entity (all of the foregoing, "Conscnts") which arc necessary flJr the consummation of the transactions contemplut~d hcreby. other than Consents which. if not oblnined, would not have u Material Adverse Effcct on Bell Atlantic, with or wilhoUl inclUding its ownership of GTE and its Subsidiaries after the Merger, or GTE. shalt have been filed, have occllrred or have been obtained (all slIch Consents being referred to as the "Requisite Regulatory Approvals") ,~and all such Requisite Regulatory Approvals shall bc ill full force and cffcct, provided. however. that a Requisite Regulatory Approval shat! not be dc~med to have b~en obtained if in connection with (he grant thereof there shall have been an imposition by any Governmental Entity of any condition, requirement. restriction 'or. change of regulatioll. or any other action directly or indirectly relnted to such grant taken by 'such Governmcntal Entity. which would rcasonably be cxpcctcd to have a Matcrial Adverse Effect on either of (A) GTE or. (B) Bell Atlantic (cithcr wilh or without including its ownership of GTE and it!; Subsidiaries aftcr the Mcrger); (e) Re8i.~trat;ulI Statcml'llt Effe('ti\'e. The Rcgistralion Statement shalt have become effective prior to the mailing by each of GTE ami Bell Atlantic of the Joint Proxy Statement to its respective stockholders. no stop' order suspending the effectiveness of the Regislrution S..\temcnt shalt then be in cffect. an~ no proceedings for that purpose shall then be thrcntened by thriSEC or !.hull have been iniliuted by the SEe and nol concluded or withdmwn; <0 B/IU' Sky. An state securities or blue sky permits or upprovuls required to carry out the tmnsactiom; contemplated hereby shutt havc been received: (g) Stock Exchange Listing. Thc shares of Bell Atlantic Common Stock i11lo which the GTE Common Stock will be convcrted pursuant to Article 11 hereof Hnu thc sharcs of Bell Atluntic Common Stock issuable upon the exercise of options pUrSUlll\I to Section 2.8 hercof sh;J1I havc been duly approved for listing on (he NYSE. subject 10 ortidallloticc of issuance; (11) Pooling. Unless ulluble 10 bl' delivcreu duc to uctiolls tllken by the Parties which constitute mutually agreed commercially reasonable efforts or commercially. reasonable efforts with respect to wireless operations, (i) Bell Atlantic shall have receivcd a letter from PriccwutcrhouseCoopers L.L.P.. daled as of thc Closing Dme, 10 the etTect that the transactions conlCl11plalcd hcreby will qualify for pooling of inlcrcsts accounting treatment; unu Oi) GTE shall huve received a leiteI' frolll Al1hur Allller~en LLP, dated a~ of the Closing Date, to the effect that the transactions contemplated hereby will qualify for pooling of interests accounting treatment; (i) COIISt'nts Under GTE Agre{'ltU'lI1s. GTE shall hu\'e ohluincd the CO/lsent or approval of any person whose conscnt or llppru\'ul shull be required under llny llgrcemcIH or instrument in ordcr to permit the cOllsulllmatioll of the trallsuctions contcmplaled hereby except those which the failure to obtain would nor, individuully or in the uggregule. hllve 11 Material Adverse Effect un Bell Atlantic, including its ownership of GTE llnd its Subsidiaries ufter the Merger: and (j) C01Js{'l1fS UIltJa /Jell At/milk Agr(,l!mel/ts. I3cll Atlllntic shuH huvc obtained the consent or approval of uny person whose consent or approv;11 shall be required under Ully ugreemcm or instrument in order to permit thc consummation of the tmllsactiollS contemplated hereby except thllsc which thc lililurc to obtain a-3b .' " ' I \," ,,,, ......'. " \, ~ . '. C . r ~ 1 '~.' , : I_ , .' > . " 'r ' ,>' " , "I . '>', ," , , , i , " " , ,,' , , .. , .. , ' " ,<' , .It : ( ,'",' I ,; ( , : I I ;, " ,<t:.' ' ~.;:'. ,:}:':/):<~')f~:i;./~?t,:., ,~,t,:,: : '. ,;";,>,, .' ')"; """; :';:""" ~~ ~..:;,:'~ ",: 6" I,~tl~\ ~, J .,..,' , ,_"f :' ~ ';, ',"." , would not, individually or in the aggregate. have a Matcrial Adverse Effect on B~II Atlantic, including its owncffihip of GTE am] its Subsidiaries after the Merger. ',' : S~crtON 8.i-:"Addiriotl~1 Conditions to Obligations (If GTE. . Thc obligations of GTE to effect thc Merger are also subjeclto,the, fulfillment of thc following conditions: , (n) Representations' and \Varra~Jtie.v. TIle rcprcsentations and warranties of Bell Atlantic contained in this Agreement shnli bc t~e and correct on the date hereof and (except to the extent such rcpresentations and 'warrantics sperik as of t\ date earlier than the date hereof) shall also bc true and corrcct on :lnd as of the Closing Date, exccpt for changes pcnnitted undcr Section 6.2 hereoF or othcrwise contemplatcd by this Agrcement and thc Option Agreements, wilh the same Forcc and effect as if made un ami as of the Closing Date, provided, however. that for purposes of this Section H.2(a) only. such representations'and warranties shall be dccmcd tu be true and correct unlcss thc failure or failures of such represcntations and warranties to b~ so lmc and correcl (wilhout,regard to materiality qualifiers contained t.herein). individually or in lhe aggregate, resulls or would rca<;onably be eltpeCled to result in a Material Adverse Effcct on Bell Atlumic. eilhcr with or without including its owncrship of GTE and its Subsidiaries after the Merger; (b) Agreements lInd C(lVella1lt,~. Bell Atlantic and Merger Subsidiary shall huve performed or compl~ed with all agreemcnls and covenants required by t.his Agrcement to be performed or complied with by thcm on or before the Effective Time, provided, however. that for purposes of this Section 8.2 (b) only, such agreemcnts and covcnants shall be deemed to huve been complicd with unless thc failure or failures uf such agrecments . and covenants to have becn complied wilh (without regard to materiality qualifiers conluined therdn). , individually or in the aggrcgate, rcsults or would reasonably be expect.ed to result in a Material Advcrse Effcct on Bell Atlantic. either with or without induding its ownership of GTE und its Subsidiaries after the Merger; (c) Cenificates. GTE shall have rcceived a certificate of an cxecutivc officer of Bell Atlantic to the effect set forth in paragraphs (a) nnd (b) above; (d) Tax Opinion. GTE shall have receivcd an opinion of O'McI\'cny & Mycn; LLP. special counscllo GTE, dated as (If the Closing Date, in fonn and substance rcmionably satisfaclory to GTE, substantinlly to Ihe effect that, on the basis of the facts, represcntations and assumplions set forth in such opinion, lhe Mcrger constitutes a tax-free reorganization under Section 368 of the Codc and t.herefore: (A) no gain or loss will be recognized for federal income tax purposes by Bell Atlantic, GTE or Mcrgcr Subsidiary as a rcsult of thc fonnation of Mcrgcr Subsidiary and the Mergcr; and (8) no gain or loss will he recognized for federal income lax purposcs by thc stockhulders of GTE upon their exchange of GTE Common Stock solely for Bell Atlanlic Common Stock pursuant to the Mcrgcr (except with respcct to cash receivcd in licu of a fractional shure intcrest in Bell Atlantic Common Stock). In rendering such opinion, O'Mclveny & Myers LLP may rcquire llnd rcly upon representations and covenants including reprcsentlltions and covenants subswntially in the form of those contained in the GTE ofllcer's certificate and the Bcll Atlulllic officer's ccrtificate attllchcd hereIn as Exhibit 7.17(b)(ii) and Exhibit 7.17(b)(i), respectivcly; (e) Affiliate Agreemcnts. GTE shall have rcccived thc agreemcnts required by Section 7.14 hereof to be delivered by the Bell Atlantic "affiliates," duly executed by cach "affiliate" of Bcll Atlunlic; and (t) Bylclw.\' Amem/mem. Board of Directors. Bell Atlantic shull havc taken all such actions as shull be nccessary so that (i) the Bylaws Amendmcnt shall become effectivc not latcr than the Effectivc Time; and (ii) ut the Effcctive Timc, the composition of Bell Atlantic's Board shall comply with Section 7.12 hereuf (assuming GTE has designatcd the GTE Directors as contcmplatcd by Seetiun 7.12 hereof). SECTION 8.'J-A,WliOlItlI Conditions ro Obligations of /Jell Atlmuk. The obliglltions of Dell Allantic to effect the Merger arc also subjcct to the fulfillment of the following conditions: (a) Represrtltations and Warrtlmies. Thc rcpresentations and warranties of GTE contained in this Agreement shall be truc and correct on the dutc hereoF and (cxc~pt to thc exlcnt such rcprescntatiuns and a.37 r.':~., : .< , " 1.1';':- ".' - /. t' C I, '." ~ ", ~ ' ' , j . ,~' . .1>"'q'~ . ~ '0 , :,' , , " " , ~ ' , " "r' " I ',I' " ;'. " .1,. , , \ , C ' " > ~ , , , ,~,,\:":I~;'.' 'to";' ./.~';.~:':'~'~':"\}':~~:::-"""~~I1.:..'..4"":>\. <:> warranties speak us of a date earlier than the date hereoO shall also he true and' correct on and as 'of the Closing Datc. cxcept for changl~s permitted under Section 6.2 hereof or otherwise contemplated by this Agreement and the Option Agreements, with the same (orce and effect as if made on and as of the Closing Date. provided, however. that for purposes of this Section 8.3 (a) only, such'represcntations and warr:mtics shall be deemed to be tOle nnd correct unless the, failure or failures of such reprcscntutions and wnITanties to be so true and correct (without rcgard to materiality qualifiers conlained therein), individually or in the aggregate. results or would rcaso~ably be expected io result in n Material Adverse Efrect on GTE or Bell Atlantic (only after including its, ownership of GTE and its Subsidiaries after the Merger); (b) Agreements and COI'el/O/lli GTE shall have performed or complied with all agreements and covellants required by this Agreement to be performed or complied with by them on or before the Effective Time, provided. however. that for purposes of this Section ~.3 (b) only. such agreements and covenants shall be deemed to have been complied with unless the failure or failurcs of such agrcements and covenants to have bccn,compJied with (without regard 10 materiality qualifiers contained therein), individually or jn the aggregate. results' or would rcasonably be expected to result in a,Mnterial Adverse Effcct on GTE; fe) Cl'rlijiCClI('.f. Bcll Atlantic sh~l1 have received a certificate of an executive officcr of GTE to the effect set forth in panigr.Jphs (a)and (b) above: , . , ,(d) GTE Rights Agreement. The rights issued pursuant to the GTE Rights Agreement shall not have become non~redeemaule. cxcrcisable. distributed or triggered pursuant to thc terms of such Agreemcnt and woul~ not become so upon consurnmation of the transactions contemplatcd hereby; (e) n,x Opinioll. Bcll Alhmticshall have rcceived un opinion of Skadden, Arrs, Slate, Meagher & FloIn LLP, special counsel to Bell Atlantic. dmed as of the Elfcctive Time. in fonn and substrmcc reasonably sutisfactory to Bell Atlantic. substalllially to thc effect that, on the basis of the facts, representation<; and assumptions set fonh ill such opinion, the Mcrgcr constitutes u tax-frec reorganization under Section 368 of the Code und 1I11~rcforc: (A) no gain or loss will be recognized for fedcral income tax purposes by Bell Atlantic. GTE or Merger Subsidiary as a result uf the fornlution of Merger Subsidiary and the Merger; and (B) no gain or loss will be rccognized for federal income tax purposes by the stockholders of [lell Atlantic as a result of the Mergcr. including the Ccnificate Amendment. In rendering such opinion, Skaddcn. Arps, Slate, Meagher & Flam LLP may rcquire llnd rely upon representations und covenants including representations and covcnanls subSlulItially in the /c.lrm or those conlUined in Ihe GTE officer's ccni1icalc ami the Bell A/Jantic officer's certilicate nunchcd hcrclo as Exhibits 7. 17(b)(ii) and 7. l7(b)(i) respectively. .",..'. (t) AjJi/iatL' AKrl.'t''''c'lIls. Bell Atlantic shall havc received the agreements rcquired by Section 7,14 hercuf tu be delivcred by the GTE "aftilinles:' duly cxecuted by each "affiliate" (Jf GTE. ARTICLE IX-TERl\llNATION, AMENDMENT AND WAIVER SECTI(}N 9.1--1'('/'111;1/(11;011. This Agr~cment muy be terminated at <lny lime before rhe Effective'Timc, in euch l.'USC liS llluhorizeJ hy the rC!lpective Board of Directors of GTE or Bell Atlantic: (a) By lUullInl written conscntllr each of GTE und Bell Atlunlic: (h) By elthcl' GTE ur Bell Allanlic if the Mcrgcr shall nut huve becn consummated on or before July 26, 1991J (Ihl~ "Initial Tcnninutlon Dale" nnl! llS such may be cxtended pursuant to this paragraph, the "TcrmillUlinll DUlc"). provided. huwcver. Ihat if on Ihe Termination Dllte the condilions to the Closing set funh in Sectinn~ K, l(h)(i), Ie) ur (d) shalllllltlui\'c heen fulfilled. b~ltllll other conditionli to the Closing shall be fullillcd lIr shull hI.' ellpllh1c of hcing fullillcd. then thl~ Termil111tion Date shall he extended 10 March 31, :WOO, (the" EXlemlcd 1'crl1lilllllillll Dalc"): and provided rurlher that if on the Extcnded Tennination Date the cundilions 10 the Closing 'il't furth in Section... S.l(b)li). (C) or (d) shull not have been fulfilled, but all other conditions to the Closing shull he rullillcd or shall he cnpable of being futlilled.. then the Termination Dute shalt a-38 '''''''''''1~''. ..,:,1 '. ';:.' \','.1," ;:-, I, ,;1' ' J.. '., , ",;., ~'; :. 'c"~' ' (~~~ ~,>::,\>~ c :,t1...."" t ,t ....r.ns".r#'~ :(8t I," .,<, . ' , " ,'F' ." , ", ., ~ , I' . '{::<:'''~;'\':\L' ~:":, ': " 1- ',.: ~~".IO:1' " . h, d . .h.....,., " . he extended to Junc 30; 2000 (the "Final Termination Datc"), unless within five 'days prior to the Extended TI.~mlinllljon Date any Party reasonably determines thul it is substantially unlikely that the conditions to the Closing set forth in Sections 8.1 (b)(i), (c) and (d) will be, fulfilled by the Final Tenpinution Date und delivers to , the othcr Panics a notice to such effect. The right to tenninate this Agreement under this Section 9.1 (b) shall not be llvuiloblc to any Party whose failure to fulfill any obligation under this Agreemcnt has been the cause of. or re~ullcd In, the failure of any condition to be satisfied: (c) By either GTE or Bell Atlantic if after the date hereof a court of compctent jurisdiction or Governmelllnl Entity shnll have issued an order. decree or ruling or taken any' olher aclion (which order. decree or nlling thc Parties shall use their commercially reasonable efforts to lift), in each case permanently restrnining. enjoining or othcrwise prohibiting the transactions contemplated by this Agreement and the Option Agreements, and such order, dec~e, ruling or other action shall have become final nnd nonappeulublc: (d) (i) by GTE.' (A) if Bell Atlantic shall have breached or failed to pcrfonn ill any malerial respect any of its reprcsentntions, wnrranties, covcnants or other agreements contained ill this Agreement. which breach or , failure to pc'rfo~ (l) is incapable of being cured by Bell Atlantic prior to the Tennination Dale und (2) renders Bny condition under Section 8. t or 8.2 incapable of b;::ing satisfied prior to the Tennination Dute, or (B) if a ." condition under Sections 8.1 or 8.2 to GTE's obligations hereunder cannot be satisfied prior to the Tenninution [}a\c~ ' (in by Dell Athmtic, (A) if GTE shall have breached or failed to penonn in any matcrial respecl any of ils rcpresclltntions, warrantie!t, covenants or other agreements contained in this Agreement, which breach or failure to perform 0) is incllpable ur being cured by GTE prior to the Tennination Dale and (2) renders any cundition undcr Sections 8.1 and 8.3 incapable of being satisfied prior to the Termination Datc, or (B) if n condition undcr Sections 8.1 or 8.3 to Bcll Atlantic's obligations hcreundcr'cmmol be satisfied prior 10 the Termination Date; (e) By eithcr GTE or Bell Atlnntic if the Board or Directors of the othcr or any committce of lhe Bourd of Directors uf the othcr (i) shall fuil to include in thc Joim Proxy Statement its rccommendation without modification or qualification that stockholdcrs approve this Agreement and the Merger, in the cal-iC of GTE. ur the Stock Issuunce and thc Certificate Amendmcnt, in the case of Bell Atlantic Stock, (ii) shall withdraw or modify in nny adverse munner its approval or recommcndation of thi!' Agreement or the Merger, in the cusc nf GTE. or the Certificate Amcndmellt or the Stock Issuance in the case of Bell Atlantic, (iii)shall fail to reartiml such llJ1provul or rccommcmlution upon such Party's request, (iv) shull approve or rccommend any Alternative Tnmsaction or (v) shall re~olvc to iake any of the actions specified in this Scction 9.I(c); or (t) By either GTE or Bell Atlantic if any of the required approvals of the stockholders of GTE or of Bell Athmtic slmll fuil \0 huvc becn llhtained at a duly held stockhohlers meeting of dlher of such companies. including uny adjounllllcnts thereof. SecTtON 9,'1-F:.'jfr!I'1 of 'f'am;'Ult;ol/. (a) In the event of termination of this Agrcemcnt as provided in , Scction 9.1 hercof. und ~ubject !lIthe provisions uf Scction 10.1 hereof, this Agreemcnt shall forthwith becmne void and thcrc shull be no liability nn the part of any or the Partics. except (i) LIS S~t forth in this Section 9.2 and ill Sections 4.10, 4.16. 5.10, 5.16 ilnd 10.3 hereof. uud (ii) nothing herein shall relieve an)' Party from liability for ILIIY willful hrcuch hereof. (b) If this Agrecmcnt (i) is lerminllled oy GTE Ihlrsuanttn Section 9. I (c) hereof, (Ii) could have becn (but was not) termimlled by GTE pursllant to Scclioll 9.1 (e) hercof and is subsequently lerminated by Bell Atluntk' OJ' GTE purSlIllllt to Section 9.1 (I") hC\.'llUSC of the fuilure to ohluin the Bell Atlunlic Stockholdcr Approval, (iii)lA) could nut have heen tennilllltcd by GTE pursuuntlo Seclion 9.1 (c) hereof but is subsequently terminuted by Uell AtI:uuh: or GTE pUrMIlUlt to Section 9.1(0 bccuusc of the failurc to obtain the Bell Atlantic Stockholder ApproVlll, (B) priur to lhe Bell Atlunlic Stockholders' Meeting there shalt have been an offer or proposul for, 1m LlI\l\OUnCel1\cnt nt' Imy inlention with rcspcclto (including the liUng of a statement of benetlcial a':W " 'OF'.< . , , ... I ..,.,. ~ C 'f,,' ~ ,";' " ,': .",.:. '. " \' ., , ,.,' " I' , , " , " ~ . . ,", , , I ,~ I " : {:<';:\~'/;I":;'~;:::'::~'~:"'~':'::, {":~:":I,'> __.. '.lr,,' " , ,<'. I , ,I,V ' q.~ t!,: '.1 J,' "\ l , 'I ' ~ ~ ~ ~ l f \ ownership on Schedule 13D discussing the possibility of or reserving the right to cngage in). or tmy ugrcement with'respcct to. a transaction that would constitute un Alternative Trunsaction (as defined in Section 6,3(c) hereof. except that for the purpos'cs of this Section 9.2(b). the appliCable percentage in clause (0 of such definition shull be fifty percent (50%)) involving Belt Atlantic or any of Bell Atlantic's Subsidiaries. and (C) within 12 months after the termination of this Agreement. Bell Atlantic: enters into u dcfinitive agreement with any Third Party wilh respect to an Alternativc Transaction. or (iv) is tennimUed by GTE us a result of Bell Atlantic's material breach of Scction 7.1, Section 7.2(a) or Section 7.2{b) hereof which, in the case of Scction 7.1 and Section 7.2(a) only. is not cured within 30 days after notice thereof to Bell Atlantic, Bell Atlantic shall pay to GTE u termination fec of one billion eight hundred million dollars ($1,800,000.000) (the "GTE ' Termination Fcc"), {c) If this Agreement (i) is tcnninatcd by Dell Atlantic pursu:Ull to Section 9.1(c) hereof, (ii) could have . been (but was not) t~rminatcd by Bell AtJantic pursuant to Section 9.I{c) hereof and is subsequently terminated by GTE or Belt Atlantic pursuant to Section ,9.1(t) because of the failure to obtain lhe GTE Stockholder Approval, (iii)(A) co~ld not have been. tenninated by Dell A~lantic pursunnl to See lion 9.1(e) hcreof but is , subsequcntly terminated by GTE or Bell AU:mtic pursuant to Section 9.1(t) because of the failure to obtain lhe GTE Stockholder Approval. (B) prior to the GTE Stockholders' Mecting there shall have been :In offer or proposal for. an annolJncemcnt of :lny intention with' respect to (including the tiling of:l statement of beneficial ownership on Schedule 13D discussing the possibility of or reserving the right to engage in), or any agreement with respect to, a ImnsaClion that would constitute an Alternative Transtlction (as defined in Section 6.3(c) hereof, except th:ll for the purposes of Ihis Section 9.2(c). the applicable pcrcentage in ctause (i) of such det1nition shaH be fifty percent (50%)) involving GTE or any of GTE's Subsidiaries. and (C) within 12 monlhs after the tcm,ination of this Agreement, GTE enters into u dcl1nitivc agreement with any Third Pnrty with respect to un Alternative Trurisaction, or (iv) is tenninated by Bt:1J Atlantic as a result of GTE's material bret\ch of Section 7.1. Seclion 7.2(c) or Section 7.2(d) hcrcuf which, in the case of Section 7.1 and Section 7.2(c) only. is not curcd within 30 daY5 after notice thereof to GTE. GTE shall pay to Bell AlI:lIltic n lemllnation fee of onc billion eight hundred million dollars (SI,800,OOO.OOO) (the "Bell AlIanlic Ternlination Fcc"). (d) Each tClU\inution fee payablc under Sections 9.2{b) and (c) abovc shall be payable in cash, payable no later than one business day following the delivery of notice of termination 10 the other Party. or, if such fee shall be payable pursuant to c1:luse (Hi) of either of Scction 9.2{b) or (e), such fec shull be payable no laler than one business day following the day such Part)' enters into the definilive agreement referenced in such clause (Hi). (c) GTE and Bell Athmtic agree that the agreements contained in Sections 9.2(b) and (c) above are an integml purt of the' trnnsactions cOnlcmplaled by this Agreemenl and the Option Agreemcnts and constitute Iiquidatcd damuges and not a penally. In the event of any dispute a!> to whethcr any fee due under such Sections 9.2(b) and (c) is due and payablc, the prevailing pany shull be enlitled 10 receive from the othcr Party thc costs and expenses (including Icgal fees und expenses) in conncction wilh any aClion, including the filing of any lawsuit or other legal action, relaling to such dispute. Interest shall be paid on the amount of any unpaid fee at the publicly announced plime Tnte of Chihank. N.A. from the dale such fee was required to be puid. SECTtoN 9.3-Amcndmellt. This Agreement may be umendcd by the Partics pursuant to a writing adopled by actiolllakcn by all of the Panies at any time before the Effeclive Time; provided, however. thaI, afll'r approval of the Merger Agreemcnt by thc slOckholders of GTE or Bell Allanlic. whichever shall occur firsl. no amendment may be made which would (a) alter or chunge the amount or kinds of consideration to be receivcd l1y the holders of GTE Cmnmoll Stock upon CUllsul1ut1ation o\' the Merger. (b) alter or change any tenn of the Certificate of Incorpomtiun of GTE or the Certificate of Incorporalion of Bcll Atlantic (except for the implcmentation :It lhe Effective Time of the Ccrtiltcate Amendment) or (c) alter or change any of the terms and conditions of this Agreement if sllch alteration or change would adversely affcct the holders ()f any class or series of securities of GTE or Bell Atlanlic. This Agreemenl may not be amended except by an instrumenl in writing signed by lhe Purtics. u-40 f;\l ~~1<~ ~ , ~ '~~fr;,t;","'': ,,: '- ,," ' i ~ : , '! ,I' , " ,," , I. ~ . , '" A i , /'~';~,;,:'!::\':': "::'~'~;'" " , . , " , . :. . { ~ ~ ' I.' ~ ' . ~ 'I " " .' t, c "I' ~ ", , , I, ..=~' .~~:(,<.: ~;:'i:~?!;/::',: ,,' .\(, l. ';':J.:'(",,: , ',' " " ~;, ..; . . '.' ."", "" -;.. " ~ :: :,' i; .'~ " , .. . i '~ , : ~ ,;.. , I . , , ': ,~~ ',,' '. ~ ~ . : > I. ' ! 1'1 .'.. ". ,. , "+. ~ ,'J, " , ' \ I . :::','~',.~,~:".' '~~I'J" ::: "','.'-:,~:~, , ',", ,: ....' .I ~ 'Ij, ' :' , ,',,::'/.:'," ~ ",t:" :"~":'I' :,'..: ',.,;,:" >','L' :',:' "':' : ....':' ," , . '.!' _ ' . ,', c '. '. .' , " I ' , . >: \ ., ~ \ ' , , ), . ,,', ',' , ( I .;, , .1.;, , . 1, "I' >" i., 'j. . 1 Jor~I~" ;-):.;~~:,;'.j"~,~.."~";,;;,:,:,:~,,~,,,,,~,,,~~~;,-~,:",' "",~'", .'>,',',:, ;~"J':~'("~'~""',~I::;~t~t.,'.~'~,i','::;' : \ L - ~,. '-, -~ , .,,' 1"", ,1'J.t v\f',',I~~;:~. ~~,' , ' , , I ,~. ," ~ ~ ,~t~;~~-, :-')-lh"....'i'o;..,~~i.~...,. >tAt-.....-" ~<, ,...,,~...... ,. , ., .... .', u ~ , ... _ ~ . ..." ~ ,.,> .,' .,' ~ '. . . . ~'. '. ,c . .. '>: ' :'" . d. " "'.~. I, t ,~ j,' ~ , ' "1\ :~ " , V:, I' ~c. '.; .', ~ ':; 1;' ,t,\ . SECTION 9.4-Waivf!;'. At any time ~fore the Effective Time. any purty may (a) extend the time for the perfonnancc of any of the obligations or olher acts of the other Parties, (b) waive any inaccuracies in the representations ,and warranties contained hercin or in any document delivered pursuant herclO and (c) waive compliance' with any of the agreemcnts Or conditions' c~mtained herein. Anyngreement on the part of n Party to any such extension or waiver shaJl be, valid only as against such Party and only if set forth in an instrument in writing signed by such Party: ' ., I', : .::l'~' ;, :"Il/,~':r~ t - ....' )1", , . , ,i ' ARTICLE X-GENERAL IJROVISIONS i, ~::; , , ' I <' , J '. ' SECTION '10.1~Non-Sunlh'al of Rcprest!ntcuiomi, Wtlrrcmties and Agref!lIIf!lIt.\'. The rcpresentalions,' . warranties and agreemerits in this Agreement shall terininute at the Effective Tim~ 'or upon the termination of ' tbis Agreement pursuant to Section 9.1 hereof, as, the case may b~. cxcept that (0) the agreements set forth in Article I and Scctions 2.2. 2.4. 2.5, 2.6, 2.7,2.8,2.9. 7.8, 7.9 and 7.12 hereof shall snrvive the Effectivc Time indefinitely, (b).the agreements and representations set forth in Sections 4.!O, 4.16,5.10,5.16,7.5 (b):,9.iand 10.3 hereof shall survive termination indefinitely and (c) nothing contained herein shatllimit nny covenant or Agreement of the Parties which by its ~crms contemplates performance after the Effective Time. , SECTION 1O.2-Notices; All notices and olher communicutions given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made as of the date of receipt and shull be, delivcred pers~na1ly or mailed by registered or c~~rtified mail (postage prepaid, return receipt requested). sent by overnight courier or sent by tclecopy. to the Panics at the following addresses or tclccopy numbers (or at such other ~ddress or teJecopy number for a P~y as shaJl be specified by like notice): ' (a) if to GTE: GTE Corporation One 'Stlmford Forum Stamford, .Connecticut 06904 Attention: William P. Barr Executive Vice Presidcnt-GownIll1cnt , and Regulatory and Gencml Counsel Telecopy No.: (203) 965-3464 ,I " ~ . ': '. . " ','1 " H' with a copy to: O'Mclveny & Mycrs LLP 153 East 53rd Street, 54th Floor New York, New York 10066 , Attention; Jeffrey J. Rosen. Esq. Telccopy No.: (2 12) 326-2061 (b) if to Bell Atlantic: Bell Atlantic Corporation 1095 Avenue of the Americas, 39th Floor New York, New York 10036 Attention: Vice President and General Counsel Telecopy No.: (212) 597-2587 with a copy to: Bell Atlantic Network Services, Inc. 1717 Arch Street, 32N Philadelphia, Pennsylvania 19103 Attention: Assistant Gcncml Counse1--Mergcrs and Acquisitions Telecopy No.: (2 J 5) 963-9195 " ~.,,~ W a-41 , ' ! '~ 'l ;1 ,~ ., " ,:. 'I. ' .l~'r"~.:..:~cco\j,.:"\\~ . I, , ,. ;., :------;-------~---------------------- , , ;. .c ,,> ~ ~ " l' "I:;'. :., " ,}. '" ',I 'j ", " . ' , , " . . ", j , '. ~ ,.',~~:~;; '~ . .', '1": ~: ','!':.o;t"1';\'fI~<)"'"';h_ " \' _ >. ,.,,,,~.'A..,r.,'"" ': " 0" , ~. 'and' Skaddcn, Arps. Slale, Meagher & Flom LLP , 9.19, Third' A ventlc, '. New York. New York 1002i~3897 Attention: Peter Allan Atkins, Esq. Telccopy No.: (2 t 2) 735.2000 SEcnON t O.3-Expe"ses. Except as otherwise provided in this Agreement, alt costs and expenses incurred in connection with this Agreement and the transactions contemplatcd hereby shatt be paid by the Party incurring such costsund expenses, except that those expenses incurred in connection with the printing of the . Joint Prqlty Srillemenl and the Registration Statement. as well <IS the filing fees rehlled thereto arid any filing fee required in connection with the filing of Premergcr NotificatiOlls under the HSR Act. shall be shared equally by GTE and Bell Atlantic. GTE.will pay any real properly rransfer or similar Taxes imposed on the stockholders of GTE i~ connection with this,Agreement and the tmnsactions contempluted hereby. SECTION lO.4--Certuill Definitions. For purposes of this Agreement. the following tenns shall have the following meunings: (n) "1933 Act" means the Securities Act of 1933. us the somc may be amended from time to time, and "Ex.chnngc Act" means the Securities Exchange Act of I 934, as the samc may be umended from time to time. , ' (b) "affiliate" of a person menns u person that directly or indirectly, through one or more intermediaries, , controls. is controlled by, or is under common control with, thc first mentioned person. - ~'I " '; i ~ , ~'\ f. : ~ 1."1- U . f ! '1' ,j c.......~....... l , ~~ I " \ . (e) "commercially reasonablc cfforts" shall mean those efforL<; necessary or advisable to nJvancc the interests of the Parties ill uchieving the purposes and specific requirements and satisfying the conditions 01' this Agreement, prO'o'ided that such efforts will not requirc or include either expense or conduct not ordinarily incurred or engaged in by Parties seeking to implement agrecmelUs of thh; typ'e unless part of a separate mutual .".' undersumding of the Parties not contained in this Agreement whether reached before or after the Agreement is executed. ' (d) "control" (including (he tcmlS "controlled by" and "under common control with") means the possession, direct or indirect. of thc power to direct or caus.e the direction of the management and policies of a person, whether through the ownership of stock, as trustee or executor, by conlract or credit armngemenl or otherwise. (e) "HSR Act" m~ans the Hart-Scou.Rodino Antitrust Improvements Act of 1976, as the same may be amended from time to time. (f) "knowledge" of any puny shall mean the actual knowledge of thc ex.ecutive ofl1cers of such Party. (g) "Mnteriul Advcrse Effect" means any change in or effect on the busincss 01' the referenced corpof'dtion or any of ilS Subsidiaries that is or will be materially ~Idvcrse to the businc'is, operations (including the income statement). properties (including imangiblc properties), condition (financial or otherwise), assels, liabiJitics or rcguhllory SWtllS of such referenced corporution and its Subsidiaries takcn as a whole, bUl shall not include (1) the cffects of changes thut urc generally applicable in (A) the telecommunications industry, (B) the United States economy or (C) rhe United Slales securilies murkel.. if. in any of (M, (B) or (C), the effect on GTE or Bell Atlantic, dctemlined without including its owncrship of GTE after the Mergcr, (us the case may be) and its respective Subsidiurie~, taken as a whole. is nOI marerially disproportionate relative to the effecr on the other and iLS Subsidiaries, taken as a whole. All references to Material Adverse Effcct on'BeU Atlantic or its Subsidiaries contained in Articlc IV, V or VI of this Agreement shall be d~emed (0 refer solely [0 Dell Atlantic and its Subsidiaries without including its ownership of GTE and its Subsidiaries after the Merger. a-42 _-'1"_ -....- &-.. ~j-~ --1:-- ~ ~._-~ - , . i'~.;.~ ;.i - ,.., +', ' ...,' {'; " ' ( ,. . ,;..~ \, hrr~ , ~ ,', '.......t , " . , \ , .~ ... '.<. \ .'\ ., ,:ly(f." ,. ,I \....~ ,I , ( I. ,< .' I. ' ..: : \ , ,:' if , : ~'::;'<':':."~~'.',:;i,:~ ':'.\''?'.',;,y,,; ~.... " (h) "Material Investment" means (a) as to GTE, any pcrson which GTE directly or indirectly holds the stock of, or other equity interest in. prov'ided the lesser of the fair market value or book value of such interest exceeds $100 million,excluding, however, any person which is a Subsidiary of GTE; and (b) as to Belt Atlantic, any person which Bell Atlantic directly or indirectly holds the stock of, or other equity interest in, provided the lesser of the fair market value or book value of such intercst exceeds $100 million, excluding, however. any Person which is a Subsidiary of Bell Atlantic. ' (i) "person" means an individual, corporation. partnership, association, trust. estate, limited liability company, labor' union, unincorporated organization, entity or group (as defined in the Exchange Act), (j) · 'POR" means the Plan of Reorganization approved by the United Sllltes Court for the District of Columbia on August 5. 1983 and the Agreement Concerning Contingent Liabilities, Tax Matters and Tcnnination of Certain Agreements dated 35 of November I, 1983, as amended and supplemented. ' (k)' "Signi6cllllt Subsidiary" with ~spect to GTE means any Subsidiary which on the date of dctcnninution isu "significant subsidiary" within the meaning of Rule 1-02(w) of Regulation S-X promulgated under the Exchange Act and, with respect to Bell Atlantic means any Subsidiary which on the date of ' , detenninlltion is a "significant subsidiary" within the mcaning of Rule 1-02(w) of Regulation s~x promulgated under the Exchange Act. , (I) "Subsid~ary". "GTE Subsidiary", or "Bell Atlantic Subsidiary" means uny corporJtion or other legul entity of which 'GTE or Bell Atlantic, ns the case may be (either alone or through or together with any other '\ Subsidiary or Subsidiaries). owns, directly or indirectly. morc than 50% of thc stock or other cquity intcrests 'l th,e holders of which arc generally entitled to vote for the election of the board of directors or othcr governing body, of such corporation or other legal entity. For purposes of this Agreemcnt, Grupo Jusacell S.A. de C. V. \ shall be deemed 10 be a Material Investment. and not a Subsidiary, of Bell Atlantic. ,~ : :;' ....""" " < SECTION 1O.5-Headings. The headings contained in this Agreement are for rcference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. SECTtON 1O.6--Sel'erability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this , Agreemcnt shall neverthcless remain in full force and effcct so long as the economic or legal substance of the transactions contemplated hercby is nol affected in any manner adverse to any Party. Upon such determination that any tcnn or othcr provision is invalid. illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agrcement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the tral1saclions conlemplated hereby are fulfilled to the maximum extent possible. St:(,'TIOI'I 1O.7-Emire Agreement,' No Tl1ird.Party Rellf'ficiaries. This Agreement, the Nondisclosure Agreement and the Stock Option Agreements constitutc thc entire agreement and. except as expressly set forth herein, supersedes any and all other prior agreements and undertakings. both wriucn and oral, among the Parties, or any of lhem, with respect to the subject maller hcreof nnd, except for Section 7.8 (Indemnification. DircClOrs' and Omcers' Insurance) and Section 7.17. (Post-Merger Bell Atlantic Board of Directors). is nol intcnded to confer upon any person other than GTE, Bell Atlantic. aud Merger Subsidiary and, after the Effective Time, thcir respective stockholders, any rights or remcdies hcreunder. SHerrON 1O.8-AssigllmclIl. This Agreement shall not be assigned by openition of law or otherwise. SECTION 1O.9-GOl'ernillg UIW. This Agrcemcnt shall be govcrned by, and construed in accordance with, the laws of the State of Delaware applicable to contracts executed in and to bc perfonned entirely within that State. without regard to the conflicts of laws provisions thereof; provided that the Merger shall be governed by the laws of the State of New York applicable to contracts executed in and to be performed entirely within that State, without regard to the conflicts of laws provision5 thereof. a-43 '~::">,.;,;~;~(.<>,:~~ ~,:~-~--~~~--.---""7---~--; '~.~'~'>:'I) .~c, ~ I, ',I ".. i : '., " .''''..,' ,;:,";'\ ,,':" ',L;:l. ',: .. , r,: " ..,~:~'~.,;,.\).:':': .., l- ~ ",:, .! 'I;, .. ';\\~:':'/ ',', " ' !(,' :~ ~ .;" "" ,. ~f ~.~ J ':' .}, \;' ;'" I.' ' 1'\';' , jl .,', ' . > :/ I' , ,'" i I " , " . l" , , ,'I . ,;, " :.' r: \ :-' .:; ':', . - '. , ',' :~:f j, ':c, .," , . c .. I -',' : ~., ',J .. :' ", '., c ",. I.' ' . ~ ., . , .' ' I,'. . "/ '~,' >,;" ,i, .. 1,::,'";'< ~" ::. ." " , ./ ': " ,/;>', ,.~! ,;' . , , , ~.~..,,~:::' ',~" :,;~,,",;-'~',~:~~'.~~.}'~;r;;~~;,~;:~i~~:.~',~:: ~::_:::'i:,~': " I' ", ~"., ~- .. J ... .. ~., , , SECTION lO.lo-Counterparts. ,111is Agreement may be executed in two or morc counterparts, and by the different Parties in separate counterpnrts, each of which when executed shall be decmed'to be an' original, but 1111 of which shall constitute one and the same Agreement. . 'SECnON 10.1 i~11J1erpretation. (n) Whenever the words "include", "includes" or "including" are used ill fhis Agreement they shall be deemed to, be followed by the words "withou[ limitation." " : ' I, .:: I (b) Words denoting any gender shall include all gerlders. Where a word or phrase is defined herein, each of its ot~er gmmmatical forms shall have a corresponding meaning. , (c) A reference ~o any pany to this Agreement or any other agreement or document shull include such party's successors and pennitted assigns. , ' (d) A reference [0 any legislation or. to any provision of any legislation shult include any modifiC''ltion or rc~ennctment thereof, any legislative provision substituled therefor and all regulations and statutory iristrumems i~sued thereu~der"~r pursuant thereto. " ' ,'" ' . ' ,(e) All references to "S" and dollars shall be deemed lo'rcfer to United States currency unless otherwise specifically provided. , ' IN WITNess WHEREOF, GTE, Bell Atlantic an'd Beta Gamma Corporation have caused this Agrccmeiu to be ex.ecuted ns of the dll:te first written nbove by their respective officers thereunto duly authorized. " GTE CORPORATION By: 151 CHARLES R. LEe Name: Charles R. Lee Title: Chairm:m and Chief E:<eculive Officer " , ~' ~ .' By: Isl MARt.^>NNE DROST Name: MariUllnc Drost Title: Secretary BELL ATLANTIC CORPORATION By: 151 Iv,\N SEIDENBERG Name: Ivan Seidenberg Tille:' Vice Chairman, President and Chief Executive Officer BETA GAMMA CORI'ORATION " By: Isl IVAN SEIDENBERG Name: ,Ivan Seidenberg Title: ,President and Chief Execulive Officer I a.44 ilf)" " ,', ~ I !' I, , -', , ,\,1. . /, '-,..: ~\ ~, I , ' l..,~_,1 ft;;i;;~;.f{,:"":~} ":" , 1\ c1 \ ~ ,; , )~(1.'e~;i; ,}. .', ",'j :".,~/:' ,~..r:~,: ,: " , " : . , /~: , I " ".i", \ " ',:,..j,:;,:""'~~::,'\.<,::,,.~.",:.':,':,",",:: ':',:, ~,> ~,:.," ~ ' , ",." .. I . " " ". " " '~:<:', ", ::,,;:?":" ' , ;r ":/ ' N.".1.11,.' !.~' <',.' f ~ ~, " . ,:' ',,' :,' >, ", :.'.'::J: : '.' ","',. ',~ ~.. " , "~:',~: ir~,c. .j : :1 ' ,'Y- . -I- ' ~ II ' ,J ....,,: ], /.. > I :, ': 'F I 'I ' , ~ '.. ,~. ' ,: " :,:::..,:;!'b,L.:' ~i,"~~\?i:,:,':(" '. >: " "', ' , : 1!"~')tll,~fJ,1 '!:'~~t'.Jr''';<~'~(,~ ~;,r,t -J};, ....;:.f:l:)1f~!r~'~~ ......:..-uPt h.'lt- "-~.II.f~~~,~",.""'_~~t.."'~"''''' ."--.15 "fT~,.L""'. " ,'.I... 1~.:, ,.... OJ,, _ ~;::. ' ; ~\ t,>:,; ~I ; ,~l' ~. ',' ~ ,. :.~ >' . . ~ l' tt}~'J' '~I'-' ; ~\~ ~:;~ 'Ct,,"31 ,,' ~:; " 'f;' , fit. ~: " '~ , ' '; ,) '; ~, I c 0." ! ~ ~I t,~,.": .,"'--> ;", + /!' .' I; " \" > , ,~..... .. , ',:, ) ,.',-' I': ,'" ,~ ,\: , ' ,; {,I;, " " .... ,1'1 " DdhX'd Term INDEX OF DEFINED TERMS S J933 Act. affiliate. . , , Agreement Alternative Transaction Amended Bylaws ',Bear Stcarns . . , , ' BetJ Atlantic : . , Bell Atlantic Disclosure Schedule Bell Atlnntic'Acquisition Agreement 'Bell Athmtic, Connuon Stock Bell Atlantic Contract'i Bel; Atlanii.c Director . Bell Atlantic Equity RighL'i Bell Atlantic ERlSA Affiliate. Bell Atlant~<:= Filed SEe Reports. . Bell Atlantic Intelfectual Property Bell Atlantic Option Agre~menl . . Bell Atlantic Plan ....... Bell Atlantic SEe Reports Bell Atlantic Stockholder Approval Bell Atlantic Stockholders' Meeting. Bell Atlantic Subsequent Determination Bell Atlantic Subsidiary. . . . . . Bell Atlantic Superior Proposal Bell Atlantic Tennination Fce Benefit Plans. . . . . . Bylaws Amendment Ccrtificate Amendment Closing. . . . . Closing Datc . Code...... . commercially reasonable cfforts Common Shures Trust Computer Software Consents. control CPUC. DGCL, Disclosure Sch~dules . Effective Time ..... Employment Agreements. Environmental Law ' ERISA . : . . . . . . . " Exccss Sharcs Exchange Act Exchange Agent Exchange Fund. Exchange Ratio. .,.., .. . . , , . . '. . . . .'. f"'... ,. .. . .' ',' 8-45 f...... .,. ,.'. .'. .' " . .. .'t .. " .. . . . . .' . -I" '" ..,.. .... It>" .'. . .' " , :,<~\~~...I'H.P'.L~~ " ~ '0:-44 'u42 3-42 a-I, a-27 a-33 0-19 n-I a..,14 a-28 a-2 a..21 3-3,4 a~J5 a-18 0-16 a-20 a-J a-18 3-16' a-J6 a-28 a-28 a-43 a-28 a-40 a-24 n-6 a-6 a-30 a-30 a-I 8-42 a-5 a-13 a..36 a-42 a-36 a-6 a-I,4 a-I n-33 a.. I J n-lO a-4 a-42 n-3 a-3 8..2 i: i. ':,\ '" : ..-------...... J1i:~')J:;~';::::';:!,;1~..,': ',', ,'i,:' ',; , . I ~ 1 ,,~"", i:_. I ;.:,~~~:;:~r<>.:" ,:., " . r ~ .. II' I, ' r ~ ..:;;,~<,' :l,,~, > \, ~tl, ,!,' ',:~,,:ti:(~',,:'\:,:. ,;,:,' , ,{ 'U', l :,~,,: ,.~:,.'\'.':.~, '.':/}.:,~::',~ ' ; ,,' : , _ ,~..,ll_:~' ~\. :.~ \ {,"",. :',' '-I' \;. -~~--------------...- . ~'l' I. ::,:, ,:: :.tl"~ ~! . "' ". r,' I . :: ~ 1 Ii, '.'i' '. 'j~ ;, ,', ...., t' ~:.' H', '::.1 '" ;, '. ".\',>..IC , . ~';:> I': '. . 'I, . ~ :' :,'," t:': " \ ';;,' ~ " " , . ' " I. ~ T ,.,., 't'! ',~ ....1 'j\~~ '. ',"/ ! " 'I' ,; , '(' , ~ ~ ....., i ,'. ": \', I :'\ , ',. .~,~~:I, :'. __ :; ,..\, ",lJI . "~I.~' .,' ',if :!i ,,'~!:\):;:l '~',: :,/::'.:~,~," ".:,",,1 " ',." ...., "}t...'..:. 'J~ 'i / ,":1" '. ~',. " '" ~ 1:=, . I .. , ' . J " C:~ .:'1" ~ a"..... "ll ; , I ..',..,.'.,..,;: ",:' ; ~~>,' ,~",: ':>::~:~F/,</>.:'::,~(..', ,':'.:" :"f::' i ' ',' ~1io,..' (~ li~ 'r .;~~,:..w(...e:"fjlr~'\:r~t"~:'l~!f~~~~:~: .~+,~;::o l,', '~ , "~ '" ~':~''''''':_''''':<t~~~.:'\';;':"",,~>.J.:r';:~'(: t.,,~;?';'(;.;,'(.~jt":'i .',. ".' :' " , (,tt': I , ! ' ~"" r r ~ " ,', f~~:'.' C/' l~: . .:~,/ ' :< Dcflnfll Term /i } ; ~ ~. ~ '. ... ' ~} I ' . ,'~ .( Extended Termination Date Final Temlinatlon Date GAAP': ,..:,~' .,.. '. '. Goldman Silchs . , . . Governmental Entity . . . . . , GTE . ': . .~ ~ : . ~ . . . C. . '. . ... . . .. .. . _'" r ~ .'. :- ~ ~ ..... . ." 'I I.': -/'-" '1 :- GTE Disclosure Schedule . GTE Acquis,ition . Agreement GTE Common Stock. . GTE Contracts GTE Director. GTE Equity Rights '. GTE ERISA Affiliate . GTE Filed SEe Reports GTE Intelleclu~1 Property .. GTE Option Agreement. . GrE Plan . . . . . . '. . . i GTE Rights Agreement GTE SEC Reports. . '. . GTE Stockholder Approval ,GTE Stockholders' 'Meeting.. GTE Subsequent Detenllination GTE Subsidiary.. . . .. . GTE Superior ProllOSU) GTE Termination Fcc '. HU7.ardous Substance. HSR Act. . . . . . . . .' . ihccn\ive stock options Initial Termination Date. interested stockholder Joint Proxy Stutement knowledge .....;. Legal Requirements. Management Employees Material Adverse Effect. Material Investment. Merged Corporation Merger. . . . .'. . . . Merger Subsidhuy . Merrill Lynch . . . . Nondisclosure Agreement NYBCL . 'NYSE. .. Old Certificate. Option Agreements Parties , . . . Party..... Party Representatives Pcmlils person. POR, . '. .. . .(: ~ : j' , r , I' ',' . . ~ .... . ~ } " :' i ~ ~ .. ,. -f., ~ ~ '.. . .. :;< . 'II ~, " ; "' . J;!. ':} ~! ':' ' L t'i, " ". . .. 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I " t .........".... d)~::{~\t:~'~~~~;{~;~'1;~:,,~"i~1~~',,~;ft;~~;:::,':':~',lY::""':)}" .:;,:;~:'; ),,:~: ::.':,':';,;'".V(::'''-:; .':, ,...;"." 'Ii:: ", ,.; <" ',' ",:'~ .'.',',/:. ;::",:': '>~,,:,\I,:,';\:,:."J,'{" " :.':':~':":" "~':\r~t.'}\",c:.~)}d~\"~:':'(,i"""""':"}"" :.'J ' ,', '!!,<:' <,; ;." " " ~~('t(i'~!""l''':?;.~'':'''' . :.....1" 'j' ~ I' .~.~t'r'\';.~' c+'. ~+'> .. ,. " '.1 :.~ ;1-'ifi:-"oi~ r\ifl,~t'~i\:"\ }~":~i\ 'j".~\: f~' :";;',-! '~'::,.~. ,', . ' . 'I "J" q,;I'." '.~( ') ~~I:i~~i(,:;,~:,;','" ,{~'~';;:;';,,:'i; ";,:.. :<:' ,,":' . ,,:' " .. :.', ' . . " ;';/ r,\hf""11i'..',",. 'r" :'2,.1:3./ "''',''<' "" 'I'" '. " ,'" ' :~. " ""':,,, Yrf~f1:{:i;l\,;>,~;>,;:~';:;~'~:1:<T,:~::;!,\,:(,.:. > ',;;.', ':" ,'.. . 'L , . .' .'. .; " . ,... ,I,' ,',' ., '.' 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( , : , " Appendix B , THE TRANSFER OF THIS AGREEMENT IS SUBJECT ' 'TO CERTAIN PROVISIONS CONTAINED IIEREIN AND TO IlESALE RESTRICTIONS UNDER THE SECURITIES ACT OF 1933. AS AMENDED STOCK OPTION AGREEMENT, dated July 27. 1998. between GTE Corporation, n New York , corpor..tion ("Issuer"). and Bell Atlantic Corporation. a Dclaware corpomtion ("Grantee"). WHEREAS, Grantee and hsuer have entered into nn Agrecment and Plnn of Merger of evcn date herewith (the "Merger Agreement"), which agreement haS becn executed by thc parties hereto immediatcly prior to this Stock Option Agrecmcnt (the "Agrcement"); and WHEREAS, as a condilion to Grantee's entering into the Mergcr Agreement and in consideration therefor and for the transactions contemplated thereby I~suer has agreed to grant Grantee the Option (as hereinafter defined); , ' , NOW, THEREFORE, in consideration of thc foregoing and the mutual coverlant<; and agreements set forth herein, and in the Mergcr Ag.reement. the parties hereto agrec as follows: I. (a) Issuer hercby gmnts to Grantec an uncondilional, irrevocable option (the "Option") to purchase, subject tn lhe terms hereof, up to 96,324,124 fully paid and nonassessable shares of Issuer's Common Stock, par value $0.05 per shure ("Common, Stock"). at a price of $553.4 per sharc (thc "Option Price"); provided. however, that in no event shall the number of sharcs of Common Stock for which this Option is exercisable exceed 10% of the Issuer's issued and outstanding shares of Common Stock after giving effect to any shares subject to or issued pursuant to the Option. TIle number of shares of Common Stock thut may be received upon , thc exercise of the Option and thc Option Price arc subject to adjustment as herein set forth, (b) In the e\'ent thm aoy additional shares of Common Stock arc either (i) issued or olherwise become outstanding after the date of this Agreemcnt (other than pursuant to this Agreement) or (ii) redeemed, repurchased. retired or otherwise cease to be outstanding after the date of thc Agreement. the number of shares of Common Stock subject to lhe Option shall be increased or decreased, as appropriate, so that, after such issuance, such number cquals 10% of the number of shares of Common Stock then issued and outstanding after giving cffcclto un)' shares subject or issued pursuanl to the Oplion or, if not a whole number of shares, rounded down to the next wholc number. Nothing contained in this Section 1 (b) or elsewhere in this Agrcemcnt shall be deemed tn authori7.c Issuer or Grantee to breach any provision of the Merger Agreement. 2. (n) The Holder (tiS hereinafter defined) may exercise the Option, in whole or part, and from time to time. if. but oilly if, a Subscquent Triggering Event (as hcreinafter defined) shall have occurred prior to the occurrence of an Exercise Terininution Evcnt (as hereinafter defined), provided thutthe Holder shull have sent , ' the written notice of such exercise (as provided in subsection (e) of this Section 2) within 90 days following su~h Subsequent Triggcring Event. Each of the following shull be an "Excrci!>e Termination EVl.!nt": (i) the Effectivl.! Time (as defined in the Merger Agrcemelll) of the Merger; (ii) tcrminntioll uf the Merger Agreemcnt in accordance wilh the provisions thereof if snch termination 'occurs prior 10 the occurrcnce of an Initial Triggering Event (as hereinafter defined), except u termination b)' Grantce pursuant to Section 9.t(d)(ii)(A) of the Merger Agreement (unless the hreach by Issuer giving risc to such right of termination is nun.volitiollal): or (iii), the passage of two years afler terminalion of the Merger Agreement jf snch termination follows thc occurrence of un Initial Triggering Event or is a ternlination by Grantee pursunnt to Section 9.1(d)(ii)(A) of the Merger Agrecment (unless the breach by Issuer giving rise to such right of temlination b.l <... :.': ./;::~ :' '. I':. , ., "~ c ~ I , , , ' '."l, "r, ,," ;' , 'I l ~ : c ~ ~ ' \,;\: . ,:1' .".: , " , I' , , ' , " , , " ,! " ' . " ; , "c: ~ ~ \,. I:' ;,;,i',~"..Y;,~t:!J ~:~i~, ~~'fIltli~..::"~." ~ll ~ " ..., " i ~ . ,. ..... ~ , . " tc :,i: is non-volitional) (providctJlhat if an Initial Tri!m~rjng Event conlinues or occurs beyond such terminalion and prior to the passagc or such two-ycar period, thc I~xercisc Termination Event shall be two years rrom the c~plmtion of the La!;l Triggering Even( hUI in no event more th;m two y/~urs und .~ix mondlli,llflcr ~uch , termination). The "1...15t Triggering Evcnt" shall mean thc lust Initial Triggcring Event to occur. Thc tcrm HHolder" shalf mean the holder or holders of (h~ Option. (b) The term "Initial Triggenng Event" lihallrnean any of the following evcnts or lransaction~ occurring after the dare hereof: , '(i) Issuer or any of its Subsidiaries (cnch an "Issuer Subsidiary"), without having received Grantee's prior written consent. shall have entered inlo an agrecmcntto engage in an AhemUlive , 'Transaction (as hereinafter defined) with an)' person (the term "person" for purposes of this Agreement " having the meaning assigned thereto in Sections 3(a)(9) and 13(d)(3) of the' Securities Exchange Act of ' 1934, as amended (the "1934 Act"), und the nlles and regulations thereunder) other than Grantee or any , of its Subsidiaries (each a "Grantee Subsidiary") or the Board of Directors of Issuer shall have recommended that the:stockholders of Issuer approve or accept nny Alternative Tmnsaction; \ ' (ii) Issuer or any Issuer Subsidiary. without having rcceived Grantee's prior written conscnt, shall have authorized, recommenc.kd, proposed or publicly announced its intention to authorize. recommend or propose, to cngage in an Alternative Tmnsaction with any persoll other than Grantee or a Grantee,Subsidiary, or the Board or Directors uf Issuer shalt have publicly withdrawn or modified, or publicly announced its intent to withdraw or modify. in any manner adverse to Grantee, ils , recommendation that the stockholders of Issuer approvc the transactions contcmplated by the Mergcr ,Agrcemcnt nfte~ disclosure of the existence of nn Ahernativc Transaction: , (Iii) An~ pcn;on other than Grantee, any Grantee Subsidiary or any Issuer Subsidiary acting in n fiduciary capacity in the ordinary course of its business ,shall have acquired bcneficial ownership or the ,:'nght to acquire beneficial ()wnership or 10% or more of the outstanding shares of Common Swck (lhc term "benefiCial ownership" for purPoses of this Agreement having the meaning assigned thereto in Section 13(d) of the 1934 Act. and the rules and regulations thereunder); (iv) Any person other than Grantce or uny Gmntee Subsidiary shull have made a bona fide proposal to Issuer or its stockholders by public announcement or written communication that is or , b~comes the subject of public disc1m:ure to erigage in an Altcrnative Transaction; (v) After an overlurc is made by a third party to Issuer or its stockholders to engage in un Alternative Transaction, Issuer shall have breached any covenant or obligation contained in rhe Merger Agreement and such breach (x) would entitle Grantee 10 terminate [he Merger Agreement and (y) shall not have becn cured prior to the Notice Date (~l'i defined below); or (vi) Any person other than Gmlllet.:' or any Granlee Subsiuiury, olhcr Ihan in connection with a transaction to which Gmntce has given its prior written consent. shall have Iiled an appliciltion or noticc with the Fcdcml Communicatiuns Commission, or olher federal or stnle regultllory nUlhorilY, which application or notice has becn accepted for processing. for approval to engage in an Alternative Transaction. (c) The tem} "Subsequent Triggering Ewnt" shalllllCal1 the consummation of an Alternative , Transaelion. 1be leon "Alternative Transaction" means an Alternative Transaction (as defined in the Merger Agreement) with 'respect to lhe Issuer. (d) Issuer shall notify Grantee promptly in writing of the occurrence of !lny Initial Triggering Event and/or Subsequent Triggering Event of which it has notice (together, [I "Triggering Evcnt"), it bcing understood that the giving of such notice by IsslIer shall not he u condition to the right of lhe Holder to exercise the Option, b.~ < ~~ . " \;~t{., 'I '. ,,' ~'; , "I, , , \,', :1 :0 __~r______~__ _.~-- i'C' , ; '. , " . ", ".' '\ " ,", :', ., ' l' .':I:'...'~,,:, "~',~" ~~Jl\'tll'.", i II' " " .i d ,:),:.\t~ +...,..~...:..:~-"~' ~i:~~\..')~I,~.h .. :0 'CJ 'J : ,.., " ' ,.,.. '" r': j eI. '.' d' ,~l ., , (e)., In the evcnt the Holder is cntitled to and wishes to exercise the Option, it shall send to Issuer a written notice (the date of which 'being hcrein refc'rrcd to as the "Notice Date") specifying (i) the total number of shares it wilt purchase pursuant to such exercise and (Ii) a place and datc not earlier than three business days nor later than 30 business days from the Notice Date for the closing of such purchase (the "Closing Date"); provided that if prior notification to or approval of the Federal Communications Commission or any other state or fedeml regulatory .agency is requircd in connection with such purchase, the Holder shaH promptly me the required notice or npplicution for approval and shall expeditiously process the same and the period of time thut otherwise would run pursunnt to this sentence shall run instead from the date on which any required notification periods'have expired or been terminated or such approvals have been obtained and nny requisite waiting period or periods shan have passed. Any exercise of the Option shall be decmed to occur on the Notice Date relating thereto. '. (I) At the closing referred to in subsection (e) of this Section 2. the Holder shall pay to Issuer the aggregate purchase price for the shares of Common Stock purchased pursuant to the exercise of the Option in immediately available funds by wire transfer to a bank account designated by Issuer. provided that failure or refusal of Issuer to designate such a bank account shaH nOI preclude the Holder from exercising the Option. " (g) At such closing, simultaneously with the delivery of immedjat~ly'avllilable fund') as provided in subsection (l) of this Section 2. Issuer shall deliver to the Holder a certificate or certificates representing the number of shares of Common Stock purcha~cd by lhc Holder and. if the Option should be exercised in part only. a new Option evidencing the rights of the Holder thereof to purchase the balance of the shares p~rchasable hereunder. and the Holder shall deliver to Issuer a copy of this Agreement and a letter agreeing that the Holder 'will n'ot offer to sell or otherwise dispose of such shares in violation of applicable law or the provisio~s. of this. Agreement. ' ' (h) Certificates for Common Stock delivered at a closing hereunder may be endorsed with a restrictive legend that shall read sub5tantially as follows: ' ' "The transfer of the shares rcpresented by this certificate is subject to certain provisions of un ngrccrnent between the registcred holder hereof and Issuer and to resale restrictions arising under the Securities Act of 1933; as amended. A copy of such agreement is on file at the principal office of Issuer and will be provided to the holder hereof wilhoul charge upon receipt by lssuer of a written request therefor. .. It is understood and ugreed that: 0) the reference to the resale restrictions of the Securities Act of 1933, as amended (the" 1933 Act"), in the above legend shall be r:emovcd by delivery, of substitute certificate(s) without such rcference if the Holder shall have delivered to Issuer a copy of a Ictter from the stall' of the SEC. or nn opinion of counsd, in form and substance rcasonably satisfactory to Issuer, to the effect that such legend is not requircd for purposes of the 1933 Act; (in the reference to the provisiuns of this Agreement in the above legend shall be removed by delivery or substitute certificate(s) without such reference if the shures have been sold or transferred in compliance with the provisions of this Agreement and undci circumstances thar do not require the retention of such reference; and (iii) the lcgend shall be removed in its entirety if the conditions in the preceding clauses (i) and (Ii) are both satisfied. [n additio,n. such certificates shall bear any other legcnd as may be required by law. (1) Upon the giving by the Holder to Issuer of the wrillen notice of exercise of the Option provided for under subsection (e) of this Section 2 ami the tender of the applicable purchase price in immediately available funds, the Holder shall be decmed, subject to the receipt of applicable regulatory approvals, to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of Issuer shllllthen be closed or thut cenificates representing such shares'of Common Stock shall not then be actually delivered to the Holder. lssuer shall pay all expenses, and any and all United States federal, b~3 ': I ,'. '., ", , : . '~, ~ I. "..,i.I..' " , " d, " / , 'I , , :,:..~:~~':".o: /,',:. -i::~1,~l!.~.I~.' '~"r" '<"d:"" ',i l , , , ...,...' ~" , '.' ' ,', state and local ta,;es and other charges lhat may be payable in connection with the preparation. issue and delivery of stockcertiticutcs under this Scction '2 in the name of the Holder or its assignee, transfcree or designee., . dilution. 4. This Agreement and the Oprion granted hereby arc exchangeable, without exp~nse, at the option of the Holder, upon presentation and sun'culler of this Agreement at the principal office of Issuer. for other Agreements providing for Options of different denominations entitling the holder thereof to purchase. on the same terms ands~bjcct to the'sume conditions as arc set forth herein, in the aggregate the same number of shares of Common Stock purchasable hereunder. The terms "Agreement" and "Option" uS used herein include any Stock Option Agreements and related Options for which this Agreement (and the Option granted hereby) may be e~changed. Upon receipt by Issuer of evidence reasonably satisfuctory to it of thc loss. theft. destrucriun or mutilation uf this Agreement, and (in the case of loss. Iheft or destruction) of reasonably satisfactory indemnification, und upon surrender and cancellation of this Agreement. if mutiluted, Issuer will execute and deliver a new Agreement of like tenor nnd date. Any such new Agreement executed and delivcred shull f;onstiiute nn ndditional contractuul obligation on the part of Issuer. whcther or nol the Agreement so lo~t. stolen. destroycd or mutilated shall at any time be enforceable by anyone. 5. In addition to the adjustment in the number of shares of Common Stock that are purchasable upon exercise or thc Option pursuant 10 Section I of this Agreement. the number of shares of Common Stock purchasable upon the exercise of the Option nnd Ihe Option Price shall be subject to adjustment from timc to lime as provided in this Section 5. In Ihe event of any change in. or distributions in respect of, the Common Stock by reason of slock dividends, split-ups, mergers. rcclIpitalizalions, combinations, subdjvi~ions. cOn\ersions, exchanges or shares, distributions on or in respect of the Common Stock. or the like, lhe type and number of shares of ComlJlon Stock purchasable upon exercise hereof and the Option Price shall be appropriately adjustcd in such manner as shill! fully preserve tlte economic benefils provided hcreun<ler ami proper provision shall be made in an)' agrccmcnt govcrning any such transaction to providc for such propcr adjustment and the full smisfaction of thc Issucr's obligations hereunder. 6. Upon Ihe occurrence of a Subsequent Triggering Evcnt that occurs prior to un Exercisc Termination E\'ent, Issuer shall, at the request of Grantce delivered within 90 days of such Subsequent Triggering Evcnt (whethcr on its own bchalf or on behalf of any subsequcnt holder of this Option (or part thcrcof) or any of the b.4 ......~ .. "10.-\>>,. , ,~ ". r ;:~: ; ::: ',~ :. I, ':' '~;.i.' " ", ,0 ", ~ +1 , - .,'1 I "-~..,,., , \~'\,l I, '., '/ , 'I " " I ',. :' , " , ' ',' ' '.: ,1 . ',', '\'~\';';~:('df;::::~';": ,.~..," ,c.' ."....'.c ,"\ I .,' , , shares of Common Stock issued pursuant hereto). promptly prepare, file and keep current a shelf registrati9n sllucment under the 1933 Act covering this Oplion and aity shares issued and issuable pursuant to this Oplion llnd shalt use its reasonable best effons to cause slIch registration stl1tcmentto becomc effective nnd remain current in order to pennit the'safe or othcr disposition of this Option and any shares of Common Stock issued upon total or partial exercise of this Option ("Option Shares") in ncconJancc with llny plan of dispositiOl\ requested by Gr.mle~. Issuer will use its rc..sonable best efforts to cause such registration statement first to become effective and then to remain effective for such period not in excess of 180 days from the day such " registration statement first becomes effective or such shorter time as may be reasonably necessary to effect such sales or other dispositions. Grantce :.;hal1 h.wc the right to demand two such registrations. The foregoing notwithstanding. if. at the time of any fC4uest by Grantee for registration of the Option or Option Shares as ' provided above. Issuer is in registration with respect to un underwritten public offcring of shares of Common Stock. and if in the good faith jUdgment of the managing underwriter or managing unMrwriters, or, if none, the sole underwriter or underwriters, of such offering the inclusion ~)f the Holder's Option or Option Shares would interfere with the successful marketing of lhe shares of Common Stock offered by Issucr, the number of Option Shares' otherwise to be covered 'in the registration statement cnntempJalcd hereby may be reduced; llnd provided, however. that after any such required reduction the number of Option Shares to be included ill such ofrering for the account of the Holder shall constitute at least 25% of the tolnl number of shures to be sold by thc Holder and Issuer in the aggregate; llnd provided furUlcr. however, that if such reduction occurs. then the Issuer shaH file a registration statement for the balance as promptly as practical and no rcducdon shaH thereafter occur. Each such Holder shall provide all infonnalion reasonably rcquestcd by Issuer for inclusion in any rcgistrution statcment to be filed hereunder. If rcquested by any such Holder in connection with such registmtion. Issucr shall become a party to any underwriling agreement relating to the sale of such shares. bUI only to the e:!(lent of obligating itself in respecl of representations. warranties. indemnities and other agreemcnts customarily included in secondary offering underwriting agreements for the Issuer. Upon receiving any requesl under this Section 6 from any Holder. Issuer agrees to scnd a copy thereof to any other person known to Issuer 10 be entitled to regislnltion righls under this Section 6, in each case by promptly mailing the same. postage prepaid. to the address of record of the persons entitled to receive such copies. Not\vilh~landjng anything to the contrary cOnlained herein, in no event shall Issuer be ob1igllled 10 effect more fhan fwo regislmtiolls pursualll to this Section 6 b)' reasun of the fact thai there shall be more than one Grantee as a result of any assignment or division of Ihis Agreement The obligmion of Issuer under Ihis Section 6 to liIe and maimain the effectiveness of a registration statement may be suspenlled for one or more periods not to exceed 60 days in the aggregate if it detennines in good faith that such tiling or conlinued effectivcness would require disclosure orono-public infonnation, the disclosure of which would materially and [Idverscly affect Issuer. 7. (a) Immediately prior to the occurrence of u Repurchase Event (as defined below) or thereafte\'. a~ directed by the Holder. (i) following a request of the Holder, dclivered prior to an Exercise Termination Evenl. Issuer (or any successor thereto) shall repurchase thc Option from lhe Holder .Lt a price (the "Option Repurchase Price") equal to the amount by which (A) the Market/Offer Price (as defincd helow) exceeds (8) the Oplion Price. multiplied by the number of shares for which thi<; Option may thcn bc exercised and (ii) at the request of the owner of Option Shares from time to lime (the "Owner"). delivered within 9() days of such OCl'urrence (or such laler period us provided in Seclion 10), Issuer shall repurchasc such number of the Option Shores from the Owncr as lhc Owner shall designate ut a price (the "Option Share Repurchase Price") equal to rhe Markel/Ofter Price mulliplicd by Ille number of Option Shares so dcsigmllcd. The term "MllrketJOtfer Price" shall mean the highest of (i) the price per share of Common Stuck ,It which a lcnder offer or exchange offer therefor has been made, (iiJ (he price per share of CommoIl Srock to he paid by any third party pursUllllt to an agreement with Issuer, (iii) the highest closing pdce for shares of Common Stock within the ~ix~month period immedialely preceding the dale the Holder gives notice of the required repurchase of Ihis Oplion or thc Owner gives notice of the rcquired repurchase of Option Shares. as lhc case may be. or (iv) in the event of a salc of nil or a substanlial portion of Issuer's assels. lhe sum ut the price paid in such sale lar such assets and the current markcl valuc of lhc rcmaining assets of Issucr a~ detcrmined by u nationally recognized investment banking firm selected by the Holder or lhl~ OWller. as lhe casc may be, and rcasonahly acceptable to the Issuer, divided by lhe number uf !ohares uf Common Slock of Issuer olltslanding at lhe lime of such sale. In b-5 . , " , ~r oj; . ~', i \" ,. II I .!, .. ... I 1 ., " . .--- ------ " t,.. P. I " \,.'.1,'::;. ...... I 'n ';.~V-",:;L~~""./l.~.~: " . .,' \t, L dctennining the Market/Offer Price, the value of cOlIsidcrlliion other than cilsh shall be detcnnincd by a nationally. recognized investment, banking firm selected by the Holder or Own~r, us the case may be, nnd reasonably acCeptable to the Is~ucr. (b), The Holder and the Owner. as the case may be. may exercise ils right 10 require Issuer to repurchase the Option and nuy Option Shares pursuant to this Section 7 by surrendering for such purpose to Issuer, at itl; , principal office, a copy of this Agreement or certificates for Option Shares, as applicablc, accompanicd by a wriuen notice or notices stating that the Holder or the Owner, as the case may be, elects to require Issuer to rcpurchase this Option and/or the Option Shares in accordance with the provisions of this Section 7. Within the latter to occur of (x) five busin~ss days nfter the surrender of the Option and/or ,ccrtificates reprcsenting Option Shares and the receipt of such notice or notices relating thereto and (y) the time thut is immediately prior to the occurrence of a Repurchase Event, and subject to the provisions of Section 15 hereof, Issuer shall deliver or cause to be delivcred to the Holder the Option Repurchase Price umllor to the Owner the Option Share Repurchase Price therefor or the portion thereof, if any, that Issuer is not then prohibited under applicable law and regulation from so delivering. (c) To the extent that Issuer is prohibited under applicable law or regulation from repurchasing the Option and/or the Option Shares in full, Issucr shull immediately so notify the Holder und/or the Owner and thereaftcr deliver or C:lUse to be delivered, from time to time, to the Holder and/or the Owner, as appropriate, the portion of the Option Repurchase Price and the Option Share Repurchase Price, respectively. that it is no longer prohibited from delivering, within five business days after the date on which Issuer is no longcr so prohibited; provided, however, that if Issuer at any time after delivcry of a notice of repurchasc.pursuantto paragraph (b) of this Section 7 is prohibited under applicable law or regulation from delivcring to thc Holdcr and/or the Owner. as appropriate. the Option Repurchase Pricc und thc Option Share Repurchase Price. respectively, in full (and Issuer hereby undertakcs to use its best effons to oblain all required regulatory and legal approvals and to file any required notices, in each case as promptly as pmcticable in order to accomplish such repurchase), the Holder or Owner may revoke its nutice of rcpurchasc of the Option or the Option Sharcs either in whole or to' the extent of the prohibition, whereupon, in the latter case, Issuer shall promptly (i) tlcliver to the Holder amVor the Owner, as appropriate, that portion of thc Option Rcpurchase Price or the Option Share Repurchase Price that Issuer is not prohibited from delivering; and (ii) delivcr, as appropriate, either (A) to the Holder, a new Stock Option Agreement evidencing the right of the Holder to purcha~e that number of shares of Common Stock. obtnined by muhiplying ule number of shares of Common Stock for which the surrendered Stock Option Agreement was exercisable al the time of delivery of the notice of rcpurchase by a fraclion, the numerator of which is the Option Repurchase Price less the portion thereof theretofore tlelivcrcd to the Holder and the denominator of which is the Option Repurchase Price, or (D) to Ihe Owner, a ccrtHicate fur the Option Shares it is then so prohibited from repurchasing. I (d) For purposes of this Section 7. a Repurchase Event shall be del'med to have occurred upon the consummution of any Alternative Transaction, provided that no such event shall comaitute a Repurchase Event unless u Subsequent Triggering Event shall have occurred plior to an Exercise Termination Event. The parties hereto agree that Issuer's obligations to repurchase the Option or Optioll ShaJe~ under this Section 7 shall not terminate upon the occurrence of un Exercise Termination Event unlc~s no Suhsequent Triggering Event shull have occurred prior to the occurrence of un Exercise Tcrmimltioll Even\. , 8. (a) In the event thut prior to un Exercise Termination Event, Issuer shall enter into an agreement (i) to consolidate with or mcrge into any person, other thun Grantee or one lIf its Subsidiaries. and shall not be the continuing or surviving corporation or such consolidation or merger, (ii) to permit any person, other than Grantee or one of its Subsidiaries, to merge inlo Issuer und lssucr ~hall be the continuing or survivinS, corpoflltion, but, in connection with such merger, the thcn olllslanding sharcs of Common Stock shall be changed into or exchanged for 'itock or other securities of ~my other person or cash or any olher propeny or the then outstanding shares of Common Stock shall after such merger represent less than 50% of the outstanding voting shares and voting share equivalents of the merged company, or (Hi) to sdl or otherwise transfer all or b.(i \~c'':'~'.~ l ~--- ,,', ~""',,'.I,' .' i- ': " .I., *,I:'.~ ,: },~ I . ,. I lc . ~ j 'r' " , " '"I ~ < ,.:" " ~, . . {,", i . ~ , < I, i '.' , I, I' , "I ,,"',: '; ,:'.:<;~' :'~~:';:\,;,"::';:':~.'~!~,};".,-<,>..",,::. :., :..' ", i"c. I; I:; ,,() .,' ..: , '.. ~ I , /'~":'~\ , , \,~"....~ <.....1 ...~ " 't' ,.,' \ , sU,bstantiatty utI of its assets to nny person. other than Grantee or one of its Subsidiaries, then. and in each such , case. the agrcem~nt governing such transaction shall mnkc proper provision so that the Option shull, upon Ute consummation of any such transaction and upon thc terms and conditions, set forth herein, be converted into, or ' cxchange~ for. un option (the "Substitute Option"). at the election of the Holder. of either (x) the Acquirin'g Corporation (us hereinafter defined) or (y) any person that controls the Acquiring Corporation. ,(b) The following tcrms have the meanings indicated: (A) "Acquiring Corporation" shall mean (i) the continuing or surviving corporation of a consolidation or merger with Issuer (if other than Issuer), (ii) Jssuer in 11 merger jn which Issuer is the ,continuing or !'.urviving person, and Oii) the transferee of all or substantially all (If Issuer's assets. '(B) "Substitute Common Stock" shall mean the common stock issued by the issuer of the Substitute Option upon exercise of the Substitutc Option. '(C)" "Assigned Value" shall menn the Market/Offer Price. as dclined in Section 7: , ' (D), "Averagc Price" shall mean the avcrage closing. price of a share of the Substitute Co~mo'n Stock for the one year immediately preceding the consolidation, merger or sale in question, but. in no event higher thilO the clOSing price of lhe ~harcs of Substitute Common Stock on lhe day preceding such consolidation, merger or sale: provided that if Issuer is the issuer of the Substitute Option, the Average Price shall be computed with respect to a share of common stock issued by the person,merging huo ]ssuer'()r by any company which 'controls or is controlled by such pers'on. as the Holder may elect. (c) Subject to parugmph (d) below. the Substitute Option shall have the same terms as the Option. pro';ided, that if the tenus of the Substitute Option cunnot, for legal rcasons. be the same us the Option, such tenus shall be us similar as possible and in no event Icss advantageous to the Holder. The h;sucr of the Substitute Option shall also enter into an ngreement with the then Holder or Holders of the Substitute Option in substantially thc'same fann as this Agreement. which shall be applicable to thc Substitute Option. (d) The'Substitute Option shall bc exercisable for such number of shares of Substitute Common Stock as is equal to the Assigned Value multiplied by the number of shares of Common Stock for which .he Option is then exercisable, divided by thc Average Price. The exercise price of the Substitute Option per share of Substitute Common Stock shull thcn be equal to the Option Pike multiplied by a fraction, the numerator of which sllllll be the number of shares of Common Stock for which thc Option is then exercisable nnd the denominator of which shall be the number of shares of Substitute Common Stock for which the Substitute Option is cJtercisable. It;') In no event. pursuant to any of the foregoing paragraphs, shall thc Substitute Option be excrcisable 1'l)r more than 10% of the shares of Suhstituti,l Common Stock olltstunding prior to exercise of the Substitute Optiun. In the event that the Substitutc Option would be cl'\crcisable for morc tlliln 10% of the sharcs of Substitute Common Stock outstanding prior to exercise but for this clause (e). the issuer of the Substitute ' Option (the "Substitute Option Issuer") shall make a cash payment to Holdcr equal 10 the excess of (j) the value of the Substitute Option without giving effect to thc limitation in this clause (e) over (ii) the value of thc Substitute Option after giving effect to the limitation in this clause (e), This difference in value shall be detemlincd by a nationally rccognized investment bunking firm selected by the Holder or the Owner. as the case may be. and reao;onubly acceptable to the Acquiring Corporation. (I) Issuer shall not cnter into :1I1Y trammctioll descrihed in subsection (a) of this Section R unless the Acquiring CorporJtion and any person thut controls the Acquiring Corporation assume in writing all the obligations of Issuer hereunder. 9. (~l) At the request of the holder of the Substitute Option (the "Substitute Option Holder"). thc Substitute Option Issuer shall repurchase thc Substitute Option from thc Substitute Option Holder at tI price (the "Substitute Option I~cpun:hase Pri~~e") equal to thc mlloullt by which (i) till' Highest Closing Price (as hcreinafter defincd) e.\ceclls (ii) the exercise price of thc Substitute Optiun. multiplied by the number of shares of Substitutc Common SlOck for which the Substitute Option ll1ay then be exercised. and Ul the rcquest of the b.7 ;rJ.~i.;:~r, ',.(, ~; '. " .',:':, ' . I" "l' ',' '" . , , , " , " I 'I , ... j . ,J <':;,\..' :; " '~:I: :lr~'c~. )':j"h, ~.:'.,~t, .:,;..\~ I~' ",... owner (the "Substitute Share Owner") of sharcs of Substitutc Common SlOck (th~ "Substitute SIUlI'CS"), the Substitute Option Issucr shall repurchase the Substitute Shares at a price (the "Substitutc Share Rcpurclmsc Price") equal to the Highest Closing Price multiplied by the number of Suhstitute Shares so designatcd. The tenn"Highesr Closing Price" shall mean the highest closing price for sha~s of Substiturc Common Stock within the !iix-month period immediately preceding the date the Substitutc Oplion Holdcr gives notice of thc rcquJred repurchase of thc Substitutc Option or Ihe Substitute Share Owner givcs notice of the rcquired repurchase of the Substitute Sharcs, as applicable. ."" ......, (b) 11~e Substitute Option Holder und the Substitute Share Owner. as the case may be, may exercise its' respective right to requirc the Substitute Option Issuer to repurchase the Substitutc Option and the Substitutc Shares pursuant to this Section 9 by surrendering for such purpose 10 the Substitute Oplion Issuer. at its principal office, the agreement for such Substitute Option (or. in the absence of such nn agreement. a copy of this Agrcement) and certificates for Substitute Shares accompanied by a wriUen notice or notices Slating that the Substitute Option Holder or the Substitute Share Owner. as the case may be, elccts to rcquire thc Substitute Option Issuer to repurchaSe the Substitute Option and/or the Substitute Shares in accordance witlt the provisions of t~js Section 9. As promptly as prnctic::tble, and in any evenl within five business days after the surrender of the Substitute Option and/or certificatcs representing Substitute Shares and the receipt of such , noti~c or nolicesrelaling thereto and subject to the provisions of Section 15 hereof, the Sl1bstit~le Option Issuer shall deliver or cause to be delivered to the Substitute Option Holder the Substitute Option Repurchase Price and/or to the Substitute Share Owner the Substitute Share Repurchase Price therefor or, in cither case, the portion thereof which the Substitute Option Issuer is not then prohibitcd under applicable law and regulation from so delivering. ' (c) To the extent that the Substitute Option Issuer is prohibitcd under applicable law or regulation from repurcluising the Substitute Option and/or the Substitute Shares in pan or in full. the Substitule Option Issuer following a request for repurchase pursuant to this Section 9 shall immediately so notify Ihe Substitute Option Holder and/or the Substitute Share Owner und thereafter deliver or cuusc to be delivcrcd, from time to lime. to the Substitute Option Holder and/or the Substitutc Share Owner. as appropriute. tlie portion of the Substitute Share Repurchase Price, respectively, which it is no longer prohibited from delivering, within live busincss days after the date on which the Substitutc Option Issuer is no longer so prohibited; provided, however, that if the Substitute Optionlssuer is at uny time after delivery of a notice of repurchase pursuunt to subseclion (b) of this Section 9 prohibited under applicable Jawor regulution from delivering to the Subslilute Oplion Holder and/or the Substitute Share Owner, as appropriale. the Substitute Oplion Repurchase Price and thc Substitutc Share Repurchase Price. rcspectively. in full (and the Substitutc Option Issuer shull use its best efforts to obtain all required regulatory and legal approvals, in each case as promptly as praclicable. in order to accomplish such repurchase), the Substitute Option Holder or Substitute Shure Owner may revoke'its notice of repurchase of the Substitute Option or the Substitute Shares either in whole or to the extent of the prohihition. whereupon, in the IUller case, the Substitute Option Issuer shull promptly (i) deliver to thc Substitule Option Holder or Substilutc Share Owner, us appropriule. that portion of the Substitutc Oplion Repurchase Price or Ihe Substitule Share Repurchase Price that the Substitute Option Issuer is not prohibited from delivering: ~ll1d (ii) deliver. us appropriate. either fA) to the Substilute Option Holder, u new Substitute Option evidcncing thc right of the Substitute Option Holder to purchase that number of shures of the Substitute Common Stock ohtained by multiplying the number of shures of the Substitute Common Stock for wbich the surrendered Suhstitute Option was exercisable at the time of dclivery of the notice of repurchase by a fraclion, the numerator of which is the Substitute Option Repurchas\! Price less the portion thereof theretofore delivered to the Suhstilule Or1ion Holder and the denominator of whieh is thc Substitutc Option Repurchase Price. or (B) to the Substitulc Share Owner, u certitkate for the Substilule Common Shures it is then so prohibited from repurchasing. 10. The 90~da>' or 6~molllh periods for e.'(ercise of certain rights under Sections 2. 6. 7 and 13 shall be extended: (i) to the extent necessary to obtuin all rcgulutory upprovals for the cxerdse of sllch rights. and, for thc expiration of all stututory waiting periods; b.8 <'tt~'f" f!~jtt:y;,::~ ;,>': , ;.'",1 \, < ~~ < I t\f' ,1-, " .....: ~ ',: ~ '.' , ~. ~l. ~, " " " I . ~ i! R: I ~ ~ , , " ' .; ~j , " I ' . ., i,' ~ " :, .';;t..' 1 ' " ccl, " 'i; " , '. ' 'l " '+ ;',' . ", ..' . ,,' ,A; -: !~~ , " ,,' ,I j ,r , '" ,'. ' "," , . " ',. ;' 1 ., , ,',"::;"':';: :';/YI)>:NY:-~;',-: !'"!"~~L" ;' .':. ;\ ,). ~""i'''' -I , .~~\~..il . , :" ~ , .' " :i ,(",~) '...~" l~ , (ii), to the exrent necessary to avoid liability under Section 16(b) of the 1934 Act by reason of stich exercise; and (iii) during any pcriod in which Grantee is precluded from excrCising such rights,due to an injunction or other legal rcstriction~ ' plus, in the case of clauses (I), (ii) and (Hi), for such additional period as is reasonably neccssary for the exercise of such righl'i promptly fottowing the obtaining of such approvals or the e:tpiration of such periods. , 1 I. Issuer hereby represcnts and warrants to Grantee as follows: (a) lssucr has full corporate power and authurity to exccute and deliver this Agreement and to consummate the transactions contcmplatcd hereby. Thc execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have becn duly and validly authorized by the Board of Director.:; of Issuer and no other corporate proceedings on the part of Issuer are neccssary to authorize this Agreemclit or to consummate the transactions so contemplated. This Agreement has been duly and validly executed and delivered by Issuer. , ' ,'(b) Issuer has taken nil ncccssulY corporate acti~n to authorize and reserve an~ to permit it to issue; and arall times from the date hercof through the tennination' of this Agrcement in accordance with its terms will have reserved for issuance upon the exercise of the Option, that number of shares of Common Stock equal to the maximum number of shares of Common Stock at any time and from time to time issuable hereunder. und all such shares. upon issuance pursuant hereto, will be duly authorized. validly issued, fully paid, 'nonassessable. and wilt' be delivc'red free and clear of all claims, liens, encumbrance and security interests and not subject to any preemptive rights. (c) Issuer has taken all action so that the entering into of this Option Agreement, the acquisition of shares of Common Stock hcreunder and the other transactions contemplated hcreby do not nnd wilt not result in the grant of any rights to any person under the Rights Agreement or enable or require the Rights to be exercised. distributed or triggered. 12. Grantee hereby rcpresents nnd warrunts 10 Issller that: (a) G.....ntee has all requisite corpomtc power and authority to entcr into this Agreement and, subject to any approvuls or conscnts referred to herein, to consummate the transactions contemplated hereby. The execution and delivcry of this Agreemcnt and the consummation of the transactions contemplated hereh)' have been duly authorized by all neccssury corporate action on thc part of Grantee. This Agreement has been duly executed. and delivercd by Grantee, ' (b) The Option is not being. and any shares of Common Stock or other sccurities acquired by Grantce upon exercise of the Option will not be, acquired with a view to the public distribution thcreof and will not be transfcrred or otherwise disposed of exccpt in a transaction registered or cxcmpt from regi!ilration under the Securities Act. 13. Neithcr of the partics hereto may assign any of its rights or obligations undcr this Option Agreement or the Option crcated hcrcunder to lIny other person, without the express written consent of the other party, except thut in thc event' u Subsequent Triggcring Event shall have occurred prior to an Exercise Tenninution Evcnt, Grantee, subject to the express provisions hereof. may assign in whole or in part its right'i and obligations hcreundcr within 90 days following such Subsequent Triggering Event (or such later period as provided in Section 10). 14. Ench of Grantec and Issuer will use its best efforts to makc all filings with, and to obtain consents of, all third parties and govemmenlal authorities nccessary to thc consummmion of the transactions contemplated by this Agreemenl, including without limitation making application to lislthc sharcs of Common Stock issuablc hereunder on the New York Stock Exchange upon official notice of issuance. b-9 .~, .~ ,/ , ' ; " \ ~>~. \ , > ;',\ T 'I ' " (, if ~ . " ::.~I;)'I, , q ': i l . ~ I ~' -"(", ,c 'I' > ~:~.~~::.t.. .." ~'J;, ~",":"',.:-- ?~, .: J, , ,)' ,,' i . ...' I!~., ;j1,,; ;, ' it' -;: ~,.o, .. , " ;,',1; "J., ~ ':. , . ~ . ,! ," I ,'I, I,', '. /~ ~,,' ~,:' '. ;.\' " ..." " ,/ ~)!. ';'~..." t1''1. " /, XI;!/ )('v' ~l:> 'I, \;'). ')J.,. '>' ';.,'. ' t , ,>"', .~ ,JI', ),( 1 '. ",., " . , - "I;::" ... . It;~ ' ;,' /(j\ '1,,1/ , ;~:,'IV\ \'.'1'\< , , ,"'( ": l ~ , ! , , I' i-. "'),. .)l'~ ~ " . > , . '<, J, ~(;':' " , ,.( ,'. " ' .. . i I ': :: ~ ~', " , J: ::~(.\ ,::,,:,:;';~I;'!',,'i:.\j~:<\i:;' ,;,',,':',~( '....:. J.... ' ,:' ,.1 . _. .,~........:~~..., <~,..,~ "', , ", , 15. (n) NOlwhhstnnding 1m)' other provision of this Agreement. in no event shall the Grantee's TOIllI Profit (as hereinafter defined) exceed $2,200,(){)().OOO.OO und. if it otherwise would exceed such umounl, the Grantee, 'at its sole election; shlllJ either (i) reduce thc number or shafCs of Common Stock subject to this, Option, (Ii) delivc'r to the Issuer' for cancellation Option Shares previously purchased by Gruntee (vulued, for , ' thc purposes of this Section IS(a) at the avcruge closing sales price pcr share of Common Stock (or if there is no sule on such tJalc then the nverngc between thc closing bid and ask prices ou any such day) us reported by the New:Vork Stock Exchange for the twenty consecutive trnding days preceding the day on which the Grantee's Total Profit exceeds S2.200,OOO.OOO.OO) om pay cash to the Issuer, or (iv) any comhimHion thereof, so that Grant~e's actually realized Totul Protit shnllnot exceed $2.200,000,000,00 liner Inking into uccount thc foregoing acti~ns; ;, ,~ \:~ \,1 ,.~ . " \, :. 1:1 \ " \'J il~'~' ;~r ~' ~~i< ;..~~/ '.'!,i (,'~ '~'I' .I I "i,i,: , I :~' ~r~ ?: :'1\,"" '1;':1 ~.: f;'!i.:, .);( ','. ~ ~'~;l:', i ':';'i~ ! :l.'~I~; ;:;~(Z:;: ';\';'~ ~, :"",1(" .. ',~ <':" ~" ,;... \/~' il"f; ~~; '; ".;i/, : ::~~a.... ;, ~i':: ~~! ~ ,"/ t .1,', .~~~/~ c. .J~ ~ il:l,\,r- :'f;~I. tl""i\- , '/1.\ /',\'ll { W~:;: .~i, :/:' '( :'/t \:0-:,1.(, :,<1'\' .",..,. ;t3 :h' f~,t:/~ "i;~t ,J t., ".1.,., ,\I\..i' :; (1 ,,' ~ " (b). A'1o used herein, the't~rm "Total Profit" shall metln the amount 'I before taxcf;) of the following: (n) II 1- < " c, , ' the aggregate amount of (i)(X) the net cash llmounts received by Grantee nnd its affiliates pursuant to fhe sale of Option Shares (or any securities imo which such Option Shares arc converted or cxchllngcd) to any unaffiliated' , party or t'o IS,filler pursuanfto this Agreement. less (y) the Grantee's purchase price' of such Optiun Shares, '(ii) any amounts received by Grantee and its aflHiates on the transfer of the Option (or any portion thereof) 10 nny' unaffiliatcd party, if p~mlillcd hereunder or to Issuer pursuunt to Ihis Agreement, and (Hi) the amount received by Grantee pursUaDt lo Section 9.2 of the Merger Agreement; minus (b) thc amount of cash theretofore paid 10 ,~ I' . , .. . the, Issuer pursuari~ to this Section 15 plu!\ the value of the Option Shares theretofore delivered to Ihe Issller for. , cnnc'cltation pursuant fa this Section 15. '> " , " ~ ' , , ,(c) Notwithstan'ding any other provision of this Agrec~cnt. nothing in this Agreement shull affect the, ability or Grantee to receive nor relieve Issuer's obligation to pay u fee pursuant to Section 9.2 of the Merger Agrceil1enl; provided that if Total ProHt received by Gramee would exceed 52.200,000,000.00 following the receipt of such fec. Grantee shull be obligated to comply with tcoos of Section 15(a) within 5 days of the later of (0 ,the dale,of receipt of such fee and (ii) the datc of rcceipt of the net cash by Grantee pursuant 10 the salc of Option Shares (or. any other securities into which such Oplion Shares arc converted or exchanged) to uny unanmatcd party Of to Issuer pursuant 10 this A,greemenl. ....\{,' (d) Notwithstanding any olller provision of Ihi)> Agreement. the Option may not he cx~rciscd for n number of Option Shares that would. as of the Notice Datc. resull in a NOlional Tolal Pmlh (us defined below) of more than $2.200,000.000.00. '.'Nolional Tolal Profil" ~hall mean. with respect to any number of Option Shares .IS 10 which the Grantee may propose to exercise the Option, the Total Profit delermined as of the Notice Datc assuming that the Option was excrcised 011 slIch dllle for such Illlmb'cr of Option Shares ami assuming such Option Shares, together with all olher Option Shares held by the Gnllltec and its aflilimes liS of such dale, were sold for cash ut the closing sales price for Common Swck as of Ihe close of business on the preccding trading day. 16, The' panies hereto acknowledge tlmt damages would he IIn inadequate remedy for a brcuch of this Agreement by cithc:r party hereto llnd thm the obJigutilms ur thc panics hereto shall he enforccahlc hy either parly hcreto through injunctive or other equilable relief. "",: { ~ '.;\" :\; , >" 17. If :my .term. provision. covenant or restriction cOlllained in this Agreement is held by a court or u federal or state regulatory Llgcncy of competent jurisdiction to be invalid. void or ummforceable, lhc rcmainder of the tern\s, provisions und covenants :md restriclions contained in this Agreement shall remain in full force und effect, and shalt in no way be al'fected. impaired or invalidaled. If for llny reason such court or regulatory agcncy determines that the Holder is not permitted 10 ucquirc. or Issuer or Suhstitutc Option Issuer, us the case may be, is nol permillcJ to repurchase pursuaOlto Section 7 or Section Y. :IS the case umy be, the full numbcr of shares of Common Stock provided in Seclion I(u) hereof (as adjusted pursuant to Section 1(0) or 5 hereon, it is.the express intention of Issuer (which shull he binding on the Suhstitutc Oplion Issuer) to ulla", the Holder to acquire or to rcquire Issuer or Substitute Option Issuer to repurchase such lesser number of shares <IS may bc permissible, without mlY :ullenumCI1l or mmlilkalion hereof. A-. b.1O ,~ \.." ",/" I 't"~i..'l-~ ':ii:;D !\'f':! ' '!:t.~~\$" , :~( , t, ./ " t~.! :' 0 , ~,:';",,' " \"',, " I" i . I t'l' I , ~.": :' L ",\ . \/. ... j;, ' :~, ; , l'..., -, ~ '. ' ,., ' ~ \ ., [, :i '.\': ., !, " ! '., ~i : , .- ." ~~ ' I", .' ( '.l+,~ '> . , "'(1) , ~ ,: l' , :'~ """\ ,"J ~ H ... . ....'.,' -- .~' ,...~" :~f',~~~.~,.' ,><, f' ,. , , " --------- :~, i,; '. ~' , : I' " , , . ,~' "i .: ': :': __, 'c ' '<: ' .,' ',,: 'J,. , : ,I: \{ , ~ '< ... ... ". ,.A4fl~",:Lj,t,~J.fA~'r~H~j!fll'lj' ':,' '!:' r'i",' l>.,' " ;" , , 'I !-t~ ';!.V,t .1, t (: cl':~J;~.1~....~';r t...'..1.;:~ V~F Jo:'j.~":<".' ~(.r__.t~o;_ ~I\",,,,,,,,,,,,j....-:,,,';- ....'.....to'1.lJ rr.;.....;.;~~1.' r!\~~~~~.lr,!.;l~.~;,..f~ '1 !"'."'j..;} I lr,..', ' /:,~ I, " ~~'.; :',', ~i,~~ , ; ~':( , ,. .' ", ,. ~' , ": '\ ".,'.: : ,I . " , . ~, ...,'.J, , " . VI .'.': ,c ': !, ".Il, {\' ,:~ , " . \', 'll j . '/' ,~ c '.,. .f , , ',' , "i ' . " t'.: ~ '" l + c , . ~ ,"' .. .: ~ " . J f ~ .. , , . '.1, ,'\' ',t~ I " "',}, " .:' ..} , ! ,I. . , : ~, 'l I>' ': , I.~, " IiI , , I ,~ .' .., :" 1. .'t..... 1'~r.~-~:4....,;~.,Q> '"" i..,,'~ , , . , , ..-;' ~ ; ::I~r~" ,..."!!~l: ,!,":o~'''''~~,! .~~,: ,,,~"'~' . '- _;" .....' : , I, I', < 'I, . ' " . <' -J" "," : ,18. AU noticcs;'requcsts~:~laims. demund.9Dnd orhercommunicnlions hereunder shnli be deemed to have been duly given when delivered in pcrson.btcable. telegram, telescope or telex. or by registered of,ccrtlfied , : m~j,l (pdst~ge prepaid, return receipt requested) at the respective addresses of the parties set forth in the Merger Agreement."', ' ,,"::""" :",:', '. c ' , , : ' " ',19. This Agreement shall be governed by'und construed in accordance wilh the laws 01' the State of ',: '.' Dc1awnrct',regDt'dless of the laws that'might otherwise govern under applicable principles of conlllc.ts o(llIws thereof (excepi to th~ extent that mUlldntory provisions of federal law apply). '. '. I . ", ". ,,'c I.,', '. , '.., ' , 20. This Agreement mtlY he executed in two or mor~ counterparts, each of which shull be deemed to be un , original. but un of which shaH constitute one llnd the same ugrcement: . '., ... ,: '21. Except as otherwise expressly,provided hdrcin. each of ihe punks hereto shall bear and pay all costs and expenses incurred by ii ,or; on its behalf in coilO~ction with the transactions contemplated hereunder, ' lnctuding fe~snl1d eXPl?nses of its own financial consultants, investment bankers, accountants and counsel. , ,22~ Except as ,otherwi,se, ~xprcssly provided herein or in the Merger Agreement. lhis Agreement contains . . , ., . " ' . l ~ I . ' .. ~ . . , the entire ngreemcnt between the parl1Cs With respect to the transacttons cotHcmplnted hereunder and ' supersedes a11 prior arrangements or,understandings with respect thereof, written or oral. TIle leoos nnd '. conditio~s of this Agreement shall inurc to the benefit of and be binding upon the parties hereto and their respecti've suc~essors'nnd'permitted n..c;signs. Nothing in this Agreement, expressed or implied, is intended to confer up()n any party. other ~anthe parties hereto, and their respective successors except ns assigns. any ~ghlS, rdncdies. 'obligations or'liabilities under or by reason or this Agreement, except as expressly provided herein. ' ' , 23. Capitalized terms used in this Agrecment and not defined herein shalt have lhe mcaningH assigned therelO in the Merger Agreement. 'I " , , b-lI '... ,. 'I" /, ,,=,.. I, \'.:J , "t : , , , , :,J' .,' " : i' '!I rl I( :(. ,. , .' i I, I ! j: " " " ! ) \ '. , ( J .. J , " , I 1 'fjt(j.,,, ".o--,~,,--;;---______ ~t"'il~~;.~..~rt~~,rJ.~~~:;f~f~::"l~'. :H1)~~ ~t,~.:,/~~::'" .... , ~ > :'r, .';~(',\~r't~' ~ ?.:~:. \' > '. ~.r " c, ~ '" , <' '.: \ q. '.,", ., "j '.' , '.')'; ". ;11i~ytib&~}~ttJfLt~~h~~~~':: ~:'Z; i!~i~t "J:'.>: ,<.' ,.\', . .:~~'~:"';""l'>:lPl1';""! ,~~'<",.,.:," ,~::.,.' " !;.r. c ~ ' I ~'i it.~'. ;;.~:' '; tl(," ~.., ~: 1:!,:,. ~~')T ' "Jl..t"'-' 't'/': ,. '~i::::~;' ; }'f' '. ',,'< ,~,.~I", , i1.1t> , '/' , tj. ~ 'y.:<..~, , I;~ ., ~i,. I :.:' '~~ ~. ::' :("'" .. t,{:j;' " . ,~~;:';', .,':'i 'iI'(', ~~, ~:>,\ ';.-- . ,~t' I ~.~ " ~i{, : " ~~H'~ ' ~\,:, \'.v '. *:':.~. ,~i; ~;,;: :; ~1 ,', " ~'I;' " # ," :/i,:.: " b. " ~,' '/ /t., . J ,'. .'. i\\i:~: L, L :1 ~' " .. .~', ' , " ..-;:'~ 'd ::::>':?:.':i ", - I}\'" : > .': ,..,,- '.1" " ~....-..-- IT ~~. '. :~;,[.<~ .t:.,' '~"\i '", ( " ~ .t" ~ l ' ,. ,', -',', ,., .\ i,~ "' " u~{ ',1"'" , ,..'. , .",..., l f ~ > , , ; .> '. ,. ~', \ ",: '. , , ' .:'." '. ,,' ~ , , ~, ,. ,I ~. " ',',l, , ,. f .. ,I, ," I l;'}'{':"" , , ~: ,1 ~, ~.. " .I'r '., , ') I, . " , , ~. ; , .; I ~ , , ~ I ,', . ,~< ': " . ',. ., ,I,'. =c :,; ,. " . .J .U J: c .:1:' '. . ~,' . , ~ t . " " ,! " ~r I' . I , , .' " '; IN WITNESS WHE~OF. each of the panies has caused ~his Agreement to be,executed on, its behalf by , . i~ ,omc~rs,~'~~~~~o ,~uIY\,~utho~zedl aJfas ~.f the date fi~,~ ~bove' written., " : .,' " " " . 'GTE CORPORATION " , .f, .:1 , ;,~. ,', " ~, ' ." ; . J. D y: /5/ CHARLes R. LEE Name:" Charles R; Lee, I, Title:. Chainnan' nnd Chief Exec~tive Officer, .:;. .,'.1 ~': ;<. , , << " ~ ' ,~ ' ~ ,;: J " . :- [. ~ . ,~': . ,'-1-, . " 1-1 '." .' :. ~, l : ~ " , ~, '. ' , " " ., " ',iI',. " , .. >. ~ f ,'" :' ,,~ , ,,: \ . J., ~ I ( o,~. " : . ~ ' , " I,' ,.' ,)~Y:, /51 MARIANNE DROST "Name:' Marimme Drost, ~, Title:' Secret~ry 'I . ~'.:':i. ',f ...(~"=r;~O :';:.. '. + 'c. . .., ,. ': ':~~c[.I.~J,c:1.'.~/~:' !';:~. ,>!,"- ' .' ..: :r:, i" .. I' ":~." ! I :~ , ' " , . , . ".,. H'.... J. " ,r'<: (.';,:,l~:>..,..~ ".'1.. ~ ""." 't,. .i, ': :' :. ,.~.'! , , -I; ','.. ;(" " ," , . :,,: .: ,\;::,1 ~';:'.: ~tr:~ :..:' .' ! ..' : ,: ~' ,'. F"~t'~ ':::'. ;: ,I' ,I . -\' '. BELL ATLANTIC CORPORA nON' J,: ,', ". \ ., I .' ~~F'\ '" :'\~' ~~'j, ,/~'. I',' , \ .' :l ~~. .~I. I': ,;.;{:':~= ";'-", '0 .,:. ,By:, IsllvAN SmOENDERO : Nuinc: ,Title: ,\" . ..' , ,'r, . " ~:' ',., . ,...\ r, '. '.' Ivan Seidenberg , Prcsidcnl and C;:hicf Execuiivc ~ffice.r 'I,. :' ~ ~ \. ,': I ,> .\' '. .\ '!, .,c . , J,' I .' ~':, ". ' ~ , , >'" ~.}or.."r~'I'~:'I~' ,) ,:' , ~. ':; :. ~<' ,.' .. ; " . ~" , f ,. ' " .' \ ~..',:;-:" ~ j ~: " ,I v:' ,( . ' 'b.12, ," ~ ...' ,I >' c..~ < /(.," " " i, '. i' I" ,,)' ".' ", ~ ..-'c..'.+.. , I I l, \ ~ ,'I' , ' I' - "; ('-:; ':\,~::;i:l ~, , ' " '*,j " "',' , , " , " '1"". ':' " . '.: , , .'." ..;- , " . :' " (--..., , . ' i I ; ~ .', ' :' \. , i, ! , i 'i ( I I J ' '~~...... , .-... ~''': ~: ", < " ,\ .,,', , ,1M}':, . " -.1. " ., ,; <"'--'t, , ; '" , . . , ' " ::. :', ~ \ :~: '. .1' L .' ~ ' . , .I!' , ,I,. , , ~. ,~~ ~:' ~"~'<c_c~,~.>,.f!~',.,,',:,.~,.~.~.:,'.:t>'.\: " . .. " T, . "'i...')i, ~ ~ a, ,', , , " ~'" ..,. ... I. ~ 1"'<L'~"-~lt9 .,.....1"'..-:......>, ( , . ,J , ......"...... \....;./ Appendix C ,THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO CERTAIN PROVISIONS CONTAINED HEREIN AND TO RESALE RESTRICTIONS UNDER THE SECURITIES ACT OF 1933, AS AMENDED STOCK OPTION AGREEMENT, daled July 27. 1998, betwecn Bell Atlantic Corporation, a Deluware corporation ("lssucr"), nniGTE Corpuration. a New York corporation ("Gmntee"). I' WHEREAS, Grantee and Issuer have entcred into un Agreement and Plan of Merger of even date herewith (the "Merger Agreement"). which agreemcnt has becn cxecuted by thc parties hereto immediatcly prior to this Stock Option 'Agreement (the" Agreement"); and WHEREAS, as n condition to Grantce's entering into the Merger Agreement and in considemlion therefor and for the transactions contemplated thereby Issuer has agreed to grant Grantec the Option (as hereinafter defincd); NOW, THEREF,ORE, in consideration of the foregoing and the mutual covenants and agreements, set forth herein and in the lyIerger Agreement. the parties hereto ugree as follows: l. (a) Issucr hereby grants to Grantee an unconditional, irrevocable option (the "Option") to purchase, subject to the terms hereof. up to 155,347.371 fully paid and nonassessable shares of Issuer's Common Stock, par value $0.10 per share ("Common Stock"), at a price of $45 per share (the "Option Pl;ce"); provided. however, that in no event shalt the number of shares of Common Stock for which this Option is exercisable exce'ed 10% of the Issuer's issued and outstanding shares of Common Stock aftcr giving effect to any shares subject to or issued pursuant to the Option. The number of shares of Common Stock that may be received upon the exercise of the Option and the Option Price arc subject to adjustment as herein set forth. (b) In the event that any additional shares of Common Stock arc either (i) issued or otherwise become outstanding after the date of this Agreement (other than pursuant to this Agreemcnt) or (ii) redeemed, repurchased, retired or otherwise cease to be outstunding aner the date of the Agreement, the number of shares of Common Stock subject to the Option shall be increased or decreascd, as 3ppropriatc. so that. after such issuance, such number equals 10% of the number of shares of Common Stock then issued and outstanding nfter giving effect to any sharcs subject or issued pursuant to the' Option or, if not a whole numbcr of sharcs. rounded down to the next whole number. Nothing contained in this Section I (b) or clsewhcre in this Agreement shalt be deemcd to authorize Issuer or Grantec to breach any pnlvision of the Mcrger Agreement. 2. (a) The Holdcr (as hereinaftcr defined) may excrcise the Option, in whole or part, and from time to time. if, but only if, a Subsequcnt Triggering Event (as hcreinafter defined) shall have occurred prior to the, occurrence of an Exercise l'ennination Evclll (as hercinafter defined), provided that the Holdcr shall have scnt the writtcn notice of such e1.ercise. (l\S providcd in subsection (c) uf this Section 2) within 90 days following such Subsequcllt Triggering Event. Each of the fonawing shall be an "Exercise Termination Event": (i) thc Effective Time (as defined in the Merger Agreement) of thc Mcrger: (ii) tcrmination of the Merger Agrcement in accordance with the provi!>ions lhereof if such tennination occurs prior to the occurrence of an Initial Triggcring Evcnt (as hereinafter defined), except a termination by Grantce pursuant to Section 9. 1 (d)(i)(A) of thc Mcrger Agreement (unless the breach by Issuer giving rise to such right of temlin'ation is non-volitional); or (Hi) the passage of two years after tcnnination of the Mergcr Agrcemenl if such termination follows the OCCUITcnce of an Initial Triggering Evcnt or is n tcrmination by Grantee pursuullt to Section 9.1(d)(i)(A) of the Mergcr Agrcemelll (unlcss the brcach by Issuer giving risc to such right of tcnnination c.1 " ,\' ' \, ,J" ','c :' . ~. ~, .' " , '. , >:.t< ,,'~ .,: J:\<' <j , . " \:~ "'-"{:"~l~~>//',~;::, , . L , , ' f ~ . .~~+~... ..., ..... ~ ' , , is non-volitional) (provided that if an Initial Triggering Event continues or occurs beyond such termim~tion and prior io the 'pa'isage of such two-year period. the Exercise Termination Event shall be two years from the expiration of the Lust Triggering Event but in no event more than two years and six months aftcr such termination). The "Last Triggering Event" shall mean the last Initial Triggering Event to occur. The term "Halder" shaH mean the holder or holders of the Option. " '" I i I.'> :' (b) The term "Initial Triggering Event" shall mean any of the following events or transactions occurring after the date hereof: , , , , (i)' lssue'r or any of il'i Subsidiaries (each an "Issuer Subsidiary"), without having received ' Grantee's prior written consent, shall have entercd into an agrt:ernent to engage in an Altemutive ' Transaction (as hereinafter defined) with any person (the :crm "person" for purposes of this Agreement having the meaning assigned thereto in ~ections 3(a)(9) and 13(d)(3) of the Sccurities Exchange 'Act of 1934; as wnended (the ~'1934 Act"), and the rules and regulations thereunder) other than Grantee or any of it'i Subsidiaries (each a "Gnmtee Subsidiary") or the Board of Directors of Issuer shall have recommended that the stockholders of Issuer approve or accept any Alternative Transaction; (Ii) Issuer or any Issuer Subsidiary, without having received Grantee's prior written consent, shall have authorized, recommended, proposed or publicly announced its intention to authorizc, recommend or , propose, to engage in an Altemative Transa~.tion with any person othcr than Grantee or a Grantec' 'Subsidiary, or the Board of Directors of Issucr shall have publicly withdrawn or modificd, or publicly announced its intent to withdraw or modify, in any manner adverse to Grantee, its recommendation thai the stockholders of Issuer approve the transactions contemplated by the Merger Agreement aftcr disclosure of. the existence of an Altemative Transaction; , , . (Hi) Any person other than Grantee, any Grantce Subsidiary or any Issuer Subsidiary acting in a fiduciary capacity in the ordinary course of its business shalt have 'acquired beneficial ownership or the right to acquire beneficial ownership of 10% or more of the outstanding shares of Common ,Stock (the term "beneficial ownership'~ for purposes (If this Agreement' having the meaning assigned thcrcto in Section 13(d) of-the 1934 Act, and thc rules and regulations thereunder); (iv) , Any person other than Grantce or any Grantce Subsidiary shall have made n bona tide proposal to Issuer or its stockholders by public announccmcnt or written communication that is or becomcs Ihc , subjcct of public disclosure to engage in an Altcrnative Transaction; '(v) After an overture is made by a third party to Issuer or its stockholders to engage in an Alternative Transaction, Issuer shalt have breached any co\'enant or obligation contained in the Mergcr Agrecment and such breach (x) would entitle Grantee to terminate the Merger Agreemcnt and (y) shalt not have been cured prior to the Notice Date (as dcfined below); or (vi) Any person other than Grantec or any Grantcc Subsidiary, other than in connection with l\ trnnsaction to which Grantee has given its prior written consent. shall have filed an application or notice with the Federal Communications Commission, or other fedeml or statc regulatory authority, which application or notice has been accepted for processing, for nppro\'al to engage in an Alternative ~ransaction. (c) The teoo "Subsequent Triggering Event" shall mcan the consummation of an Alternative Tnmsaction. The teoo "Altemative Transaction" means an Alternative Transaction (as defined in the Mcrger Agreement) with respect to thc Issuer. (d) Issuer shall notify Grantee promptly in writing of the occurrence of any Initial Triggering Event and/or Subsequent Triggering Event of which it has notice (together, a "Triggering Event"), it being understood that the giving of such notice by Issuer shall not be a condition to the right of the Holder to c:w.crcise the Option. (e) In the event the Hulder is entitled to and wishes to exercise the Option, it shall send to Issuer u written notice (the dute of which being herein referred to as the "Notice Date") specifying (i) the total number c-2 '.___,F ;'1 ~':, ... . : . . <. , ',.:t1 I, ~"'::-i I ~ ~. , , , 'c,', ,. , , , , ! " , ,I , " " <1' .' ,,' ',' '.1 ' ~ ,: ,: ' ' I ~. ~ '. , ""'1., , , I.; , "I , 'I"~ ~\::/).':' ::"':'Ji:r\:/;::,::::,::<?Y:':/~:':' '1<:' '. ,;, ;,. ,.::;:.. " ,,/., ' ':':0 '" ,'. '\ ':~.. 'i';' \ ~,,. ., . " "....,.".ao-.... '/, ',~ ): "",..../ '......../ " , '.;' of shares it will purchase pursuant to such e~ercisc and (ii) a place and datc nol eur\icr than three business days nor latcr than 30 business days from the Notice Date for the closing of such purchase (the "Clo:;ing Date"); , provided 'that jf prior 'notification to or approval of the Federal Communications Commission or any other state or' federal regulatory agency is required in connection with slIch purchase, the Holder shall promptly, file the required notice or application for upprm:aJ and shall expeditiously process the same and the period of time that olbenvise woul~ run pursu~t 'to this scnlence shall run instead from the date 'on which any required notification {K~riods have expired or been ,terminated or such approvals have been obtained and any requisite wailing period 'or periods :;halt have'passcd. Any excrcisc of the Option shall be deemeJ to occur on thc Notice Date relating thereto. , (0 ,Al thc closing referred to in subsection (e) of this Section 2, the HolJcr shall pay to Issuer the, aggrcgute purchase price for the shares of Common Stock purchased pursuant to thc exercise of the Option in immcdiately available funds by wire transfer to a bank account designated by Issuer, provided thal failure or rc~usal of Issuer ~o designate s~ch a bank account shall. not preclude the Holder from ,cxercising the Option. , , ~ . ~ " " ' ". .. (g) . Ai such c,losing, simultaneously with the delivery of immediately available funds as provided in subsection (f) of this Section 2, Issuer shall deliver to the Holder a certificate or certificates reprcsenting the number of shares of Cammon Stock purchased by the Holder and, if the Option should be exercised in part only, anew Option evidendng the rights of the Holder thereof topurchnse thc balancc of the shares ' purchnsablchereundcr, and the Holdcr shalt deliver to Issucr a copy of this Agreement and n letter agreeing that Ihe Holder \vilt nol offer to sell or otherwise dispose of such shares in violnlion of applicable low or the provisi~ns of this Agreement: ' (h) Certificates fur Common Stock delivered at II cJo!ling hereunder may be enJorscd with a restrictivc ICBcnd that flhaU read substantially as follows: "The transfer of the shares reprcselHed by this certificate is subject to cel1uin provisions of an agreement bctwecn the regiStered holJcr hcreof and Issuer nnd to rc~alc restrictions arising under the Securitics Act of 1933. us amenJed. A copy of such agrcement is on file at the principal office of Issuer and "'ill be provided to thc holdcr hcreof without charge upon rcceipt by Issuer of a writtcn request thcrd or. ", It is undcrslooJ und agreed that: (0 the rcference to thc resale restrictions of the Sccurities Act of 1933, as nmcndcd (the "1933 Act"), in'thc above legend shall be rcmoved by delivcry of substitute certificate(s) without ~uch reference if the Holder shall havc delivered to Issucr 3 copy of a [eller from the stafr of the SEC, or nn opinion of counsel. ill form amI substance reasonably satisfactory 10 Issuer. to the elTc\:lthat slIch legend is not required for purposes of the 1933 Act; , (ii) the reference to the provisions of this Agreement in the above Icgend shall be rcmoved by delivery of substitutc ccrtificatc(s) without such refcrcnce if lhe shares have been sold or lransferred in compliance with lhe provisions uf thb Agr~emcnl and under circumstances thaI do nOI require Ihe retention of such referencc; ~U1d (Hi) the IcgcnJ shall be removcd in hs entirety if thc conditions in the preceding clauses (i) and (ii) arc both sntislicJ. In addition. such certilicntes shall bear any other IcgcnJ us may be required by law. (i) Upon the giving by the Holder to Is:;uer of .he wrillcn notice of exercise of the Option provided for undcr subsection (e) of this Scction 2 and the tendcr of the applicable purchase pricc in immcdiately available funds. lhe Holder shull be deemed, subject 10 the receipt of applicablc n'gulalory approvals, 10 be the holder of record of the shares of Common Stock issuable upon such exercise, notwilhstunding that the stock transfer' books of Issul.!r shall then be closed or that ccrtiticatcs rcprcscnling such shllrcs of Common Slock shall not then be actuully delivered to the Holder. Issuer shall pay all expenses, and any and all United Stalcs federal, statc and local tuxes and othcr charges lhat may be payable in conneclion with the preparation. issue and c.3 ~ ;':,"'/'"j '. ,', f .lr' 'l ' .~ , (. .~~U ~~; .::', :1 ~, '."1 \;~ I ~, ~ t ,Fl; " ...,.. .,'~ ,~ .;/ '..I' ; \. :~~:I ~ ~ I ~ r' " ;\ ",I" f" i I 'I , , I, " ~ ' ' I, .' \' ,. .~~t, '<',r t.: ~:",: : 1,<,', '/'.....a....: ~ " ,.., ~,~ I delivery or stOCk ccrtificatcs under this Section 2 in thc name of the Holder or its assignee, transferee or , ~e5ignec. , " ,3. Issucr agrees: !',;' ,(i) that it shatl'at an 'time's maititain, free from preemptive rights, sufficient authorized but u~issued or treasury shares of Common Slock so !hut Ihe Option muy be c;'{crcised without additional authorization of Co~mon Stock after giving effect to all other options, warrants, convertible securities and other rights to purchase Common Stock: (ii) that it will not. by'chaltcr amendment or through reorganizution. consolidation, merger. dissolution or sale of assets, or by any other voluntary act, avoid or seek to avoid the observance or perfonnance of any of the covenant';, 'stipu!ations or conditions to be obsen:cd or pcrfonned hcrcunder by Issuer; (Hi) promptly to take an action as may from lime to time bc required (including (x) complying with all prcmerger Ilotifi~ation. reporting and waiting period requirements spccified in the Hart-Scott-Rodino Anti~rusi Impi-oveinenl'i Act of 1976, a.~ amended. and the regulations promulgated thereunder and (y) in ~he c,vent that prior approval of or notice to the Federal Communications Commission or to any state regulillory authority is necessary betore the Option may be exercised, cooperating fully with the Holder in , prep3;ring such applications or notices and providing such information to the Federal Communications Commission or such state regulatory authority as they may require) in order to p~nnit the Holder to exerc,ise the Option and Issucr duly and effectively to issue shares of Common Stock pursuant hereto; and (i\') 'promptly to take all action providcd hercin to protcct the rights of the Holder against dilution. 4. This Agreement and the Option granted hereby arc cxclmngeablc. without expen'ic. at the option of the Holder. upon presentation uno surrender of this Agreemcnt nt the principal office of Issuer, for other Agrcemcms providing for Options uf different denominations entitling the holder thereof to purchase, on the same tenus llnd subjecl '0 the sume conditions as are set forth herein. in the aggrcgate the same number of , shat'es of Common Stock purchasable hereundcr. The temlS "Agreement" and "Option" as used herein include any Stock Option Agrccmcnl.~ and reluled Oplions for which this Agreement (and the Option granted hereby) may be cxchanged. Upon .receipt by Issucr of evidence reasonably satisfactory to it of the loss. theft, destruction or mutilation of this Agreemenl, uno (in the cnsc of loss, theft or deSll1lction) of reusonnbly satisfactory indenmification, and upon surrender and cancellation of this Agreement, if mutiluted, Issuer will exccutc,und deliver a new Agrecment of like tcnor and date. Any such new Agreement executed and delivered , shall constitute un additional contraclUul obligation on the part of Issuer. whether or not the Agreement so lost, stolen. destroyed ur mutilated shall at any time bc enforceable by anyone. 5. In addition to the adjustment in the number of sh,lres of Common Slock that are purchasable upon exercise of the Option pur!.uant to Section .1 of this Agrecment. the number of shares of Common Stock purchusable'upollthc exercise of the Option and the Option Price shall be subject to adjustment from time to time as provided in this Section 5. In the event of any change in. or di:o.tributions in respect of. the Common Stock by reuson of stock dividends, split-ups. mcrgers, recapitalizations, combinations, subdivisions, couversiolls, cxchang~s of .~}mrcs. disllibulions all or in respect of Ihe CommOll Stock, or the like. the type and number of shares of Commun Stock purchasable upon exercise hereof and the Option Price shall be approprintely adjusted in such munner as sh:ll! fully presel'\'e the economic b~nctjls provhled hereunder nnd propcr provhiion shull be made in any llgrecmcnt gllveming any such transaction to providc for such proper adjustment and the full satisfaction of the Issucr's ubligOlliuns hereunder. 6. Upo'n thc oCCUlTcnce of a Subsequcnt.Triggering EWllt that occurs prior to un Exercise Terminulion Evcnt, Issucr shall, lit the requcst of Grantec delivered within 90 duys of such Subsequent Triggering Evcnt (whethcr on its own behalf or on behalf of lIny subsequcllt holdcr of this Option (or pan the reo!) or any of the shan~s of Common Stock issueu pursuant heret'o), promptly prepare. liIe and keep current u shclf registration sla~emcnt under the 1933 Act covcring this Opliun llnd lI11y,shllresissucd and issuable pursuulllto this Option c-4 I ... .... ~.... ~ ,. ~{,!lP . i',.-.;t....'\ ".,....) '......../ '"' ". , " " .',- j( , , . .f '.' ' 1 ""., ~ :1 ",' .' i' .. '. f. , . < . ''., ;f r ,'~ .... '," ,."':1: :'~.: " ~, , ."1' "', and shall usc its reasonable best efforts to cause such registration statcmcnt to bccome effective and rcmain current in order to penuit the sale or other disposition of this Option and any shares of Common Stock issued upon total or partial Clltcrcise of this Option ("Option Shares") in accordance with any plan of disposition requcsted by Grantee. Issuer wiU uscit!; rcasonablc best efforts 10 cause such registration statement first to become effective and then 10 remain effective for such period not in excess of 180 days from the day such registration statement first becomes effective or such shortcr time as may be rcasonably necessary to effcct such sales or other dispositions. Grantee shall have the right to demand two such registrations. TIle foregoing notwithstanding, if. at the time of any rcquest by Grantec for registration of the Option or Option Sharcs llS provided above, Issuer is in registration with respect to an underwriltcn public offering of shares of Common, Stock, and if in the good faith judgment of the managing undcrwriter or managing underwriters, or, if none, the sole underwriter or undcrwriters, of such offering the inclusion of the Holder's Option or Option Shares would interfere with the successful marketing of the shares of Common Stock offcrcd by Issuer. the numbcr of Option Shares otJlcrwise to be covered in the registration statement contcmplured hereby may be reduced; nnd provided, however, that after nny such required reduction thc number of Option Share!; to be includcd in such offering for the account of t.'le Holder shall con!;titute atlcast 25% of thc total number of sha~s to be sold by the Holder and Issuer in the aggregate: and provided further, howcver, that if such reduction occurs, then the Issuer shall' file n registration statement for the balance as promplly as practical and no reduction shall thereafter <x:cur. Each !ouch Holder shall provide aU information reasonably rcqucf;(cd by Issuer for inclusion in any registration stmement to be tiled hereunder. If requested by any such Holder in connection with such registration, Issuer shall become a party to any underwriting agrecmenl relating to the sale of such shares. but only to the extent of obligating itself in rcspect of representations, warranties, indemnitics and other agrcements customarily included in secondary offering underwriting agrcemcnts for the Issllcr. Upon receiving lIny request under this Section 6 from any Holder, Issuer agrees to send 'u copy lhereof (0 any 01 her person known to Issuer to be emitlcd to fCgistration rights under lhis Section 6, in each case by promptly mailing the same, postage prepaid, to the address of record of thc persons cmitled to receive such copics. Notwithstanding anything to thc contmry contained herein. in no event shall Issuer he obligated to cffeCI more than two registrutions pursuant to this Section 6 by reason of the fact that there shall be more than one Grantce as a result of any a~sigllment or division of this Agrct:ment. The obligation of Issller under thi!i Section 6 (0 file Hnd mainwin Ihe cffectivencss of.3 registration st:lIcmcnt may be suspended for one 01' morc periods not to cxceed 60 day!. in the agg.regatc if it dctennines in good faith that such tHing or continued effectiveness would requirc disclosurc of non-public infonnmiC'n, the disclosure of which would materially and ndverscly affect Issuer. 7. (a) Immediately prior to the occurrence of II Repurchase Evenr (as defined below) or lhereufler, as directed by the Holder. (i) following ~I request of Ihe Holder, delivered prior to an Exercise TeOllination Event, Issuer (or uny !'uccessor thereto) shall repurchase the Option from the Hollier at a price (the "Option Repurchase Price") equal to the amount by which (A) the Market/Offer Price (as delincd below) exceeds lB) the Option Price, multiplied by the number of shares for which this Option nmy then hc cxcrci~d and (ii) ut the requcst of thc owner of Option Shan:s from time [0 lime (thc "Owner"). delivcred within 90 tlnys of sllch Dccurrence (or such Mer period us provided in Section 10). Issuer shall repurchase such number of the Option Shares from the Owner, us the Owner shall designate at u price (the "Option Share Repurchase Price") equal to the MarketlOffer Price multiplied by the number of Option Shares Sl) designatcd. TIle tenn "MarketlOffer Price" shall mean the highest of (i) the price per shure of Comlllon Stock at which a tendcr offer or exchange offer thcrefor has been made. (ii) the price per share of Common Stock to be paid hy any third p;.my pursmml 10 ml agreemenl with Issuer. (iii) the highesI closing price for shares of Common Slock within the six-month period immediately preccding the datc Ule Holder gives notice of thl: required repurchasc of this Option or the Owner gives nOlicc of the required repurchase or Option Shures, as the casc may be, or (iv) in lhe e\'ent of 11 sale of all or [l substantial ponion of Issuer's assets. the sum of the prk~ paid in such sale for such as~ets and the CU/TCnt market value of Ihc remaining assels of Issuer as delemlined by ~l nalionally recognized invcsllll~nt hanking !inn selected by the Holder or lhe Owner. as the case mny he. and rellsonnbly m:ceptuble to the Issuer. di\'ided hi' the number of shares ot' Common Stock of Issucr uutslanding at the time uf such sale. In detemlining the Market/Offcr Price. the \'uluC" of consideration other than cash shall be dctennined by a nutionnlly recognizcdiTl\'estment banking firm selected by the Hohler or O\vner, us the casc muy be. :tnd reasonably acceptable lu the Issuer. c-5 ',t, .,. ~,' ;.: ' , .'~. " , ,.i 1: " , , , Jo, of' , , , . ~ ~ . ' ',j>", ' " , " , or"; 1;-,;..... t ' ,~+,': .,~: :''';::,~.'[?',~~:, 1'.:-,. ~>. '............. ~ (b)' The Holder and the Owncr, ns thc cac;c niay be. may ex.ercise its right to require Issuer to repurchase the Option and any Option Shares pursuant to this Section 7 by sU!Tcndcring for such purpose to Issuer, at il'i principal officc, 11 copy of this Agreement or certificates for Option Shares, as applicable. accompanied by a written notice or notices staring that the Holder or the Owner. Q.'i Ihe case may be, elects to require Issuer to repurchase Ihis Option ' and/or the Option Shares in accordance with the provisions of this Section 7. Within the latter to occur of (x) five busincss'days aftcr thc slUTCnder of the Option and/or certificatcs represcnting Option Shares and Ihc receipt of such notice or notices relating Ihereto and (y) the time that is immediatcly prior tu the oCcuITCnce of a Repurchase Evcnt, and subjcct to Ihe provisions of Section 15 hereof, Issucr shall deliver or cause to be delivered to the Holder the Oplion Repurehase Price and/or to thc Owner thc Option Sharc Repurchase Price therefor or the portion thereof. if uny, that Issuer is not then prohibited under applicable law and regulation from so delivering. (e) To thc extent thllt Issuer is prohibited under applicable law or rcgulation from repurchasing the Option and/or the Option Shares in fult. Issuer shall immedialely so notify the Holder and/or the Owner and thereafter deliver or cause to be dclivered, from time to time, to lhe Holder and/or the Owner. as appropriate, the portion of the Option Repurchase Price nnd the Option Share Repurchase Price, respectively, thaUt is no longer prohibited from delivering. within five business days aftcr the date on which Issuer is no longer so prohibited; provided, however, that if Issuer at any time at'tcr delivery of a notice of repurchase pursUUnl to paragraph (b) of this Section 7 is prohibited undcr applicable law or regulation from delivering to the Holder and/or the Owner. as appropriate, the Option Repurchase Price and rbe Oplion Share Repurchase Price. respeetively. in full (and Issuer hereby undertakes to use i1s best efforts to oblain all required regulatory and legal approvals and to file any required notices. in each case as promptly as practicable in order to accomplish such repurchase), the Holder ur Owner rmlY rcvoke its notice of repurchase of the Option or the Option Shares eithcr in whole or to thc e"tent of the prohibition. whercupon, in the latter case, Issuer shall promptly (i) deliver to Ihe Holder and/or the Owner. as appruprime. thut portion of Ihe Option Repurchase,.Price or the Option Sharc Repurchase Price thutlssuer is not prohibited from delivering; and (ii) deliver. a!. appropri:Jte, either (A) to the Holder. a new Stock Option Agreement evidencing the right of the Holder to purchase lhllt number of shares of Common Stock obtllined by multiplying the number of shan:s of Common Stock for which the surrendered Stock Option Agreement was exercisable at the time of delivery of Ihe notice of repurchase by a frection. the numerntor'of which is the Option Repurchase Price IcJ.;s the ponion lhereof theretofore delivcrcd lO the Holder and the denominator of which is the Option Repurchase Price. or (B) to the Owncr, n certificate for thc Option Shares it is then so prohibitcd from repurchasing. .1 (d) For purposes of this Section 7, a Repurchase EVen! shall be deemed to have occurred upon the consummation of any Altcmative Transaclion. providcd that no such event shall constitute II Repurchase Event unless a Subsequent Triggering Event shall havc occurrcd prior to an Exercisc Tcrnlinatiun EVenl. The parties hcreto agree that Issuer's obligations to rcpurchu!.c the Option or Option Shares under this Seclion 7 shall not temlinatc upun the OCCUlTcnce of an Exercise Tcrmination Event unlcss no Subsequent Triggering Event shall have occurred prior to the occurrence of an Exercise Termination Event. 8. (a) In thc evcnt thut prior to an Exercise Tcrminalion Event, Issuer shall enter into an agreement (i) 10 consolidulC with or merge inlo .In)' person, other than Gnllllce or one of its Subsidiaries, and shall not be the continuing or surviving corporation of such cOllsolidalion or merger, (ii) to pemlit :Jny person, other than Grantee or one of its Subsidiaries. to merge into Issuer and Issuer shall be the continuing or surviving corpornlion, but. in connection wilh such merger. the then outstanding shares of Common Stock shall be changed into or exchanged for stock or other securities ot' mlY other person or cash or ~my other properl)' or lhc then outstanding shares of Common Stock shnll ancr such merger Tepresent less than 50% of the outstanding voting shares ami voting share equivulents of the merged company. or (Hi) to sell or otherwbe trunsfer all or substantially all of its assets to nny person, other lImn Gnmtee or one of its Subsidiaries, then. nml in each such case. the agrcemcnt governing sllch tnmsactio[\ shall mnke proper provision so thllt the Option shnH, upon the consummation of any such trunsaction lInd upon the terms IIIllI conditions set forth herein. be converted inlo. OT exchanged for. an option (the "Substitute Option"), lItthc election of the Hulder, or either (x) the Acquiring Corporation (as hereinafter defined) or (y) any person thm controls the Acquiring Corporation. c.6 T 'i-t,~ .~' , :' ~ ~,' ,,' .,,}'..~ ' .,', ;. , .. '.... c' i " , , '" , \; " ' ,,','\,' " .! , , (t ;. 'I .;.~ ~ ~ 'i:"" ,:: ~.I . " 'I . ., " , <, , , ............ , '~ \, ,)j ~"".' .. ~rJ I'. . ':'" , '" , , ' ~ ' I. ~ . , <, ':>' : I " ' ..: '. ,:'/J~ ;~(~ ~.~.::lr~.~'.i ~ ~~,~ :",:,~ :t\};~ ~~~ :.',t,~, ~ \,:. ~,~ p . M.' ,," ~ .. '. C' \ ~. ~ ~ :1'. ",' r ". (b) Thc'following terms have loC meanings, indicuted: (A) "Acquiring CorpOration" shall mean (i) the continuing or surviving corporution of n consolidation or merger with Issuer (if other than Issuer), (ii) Issuer in 11 mcrger in which, Issuer is the continlJi~g or surviving person, and (Hi) the transferee of aU or substantially aU of Issuer's assets. '(B') "Substitute Common Stock',' shall me~J1 thc common st~ck issued by thc issuer 'of the , Substitute Option upon ~xercisc of the Substitutc Option. ' (C) .. Assigned Value" shall mean the Market/Offer Price, ns defined in Section 7. (D), .'A~erage Price" shall mcan the average closing price of a sharc of the Substitute Common Stock for the one year im,mediatcly prcceding thc consolidation. merger or salc in qucstion, but in no event higher than the closing pricr. of the shares of Substitute Common Stock on the day preceding such , consolidation. merger or sale; provided that if Issuer is thc issucr of the Substitute Option, the Averagc Price shall be computed with respect to a share of common stock issued by the person mcrging into Issucr or by any company which controls or is controtled by such person. as thc Holdcr may c)cct~ " (c) Subject to pnragmph (d) below, the Substitute Option shall have the same terms as the Option, provided. that if the terms of the Substitutc Option cannot, for legal reasons, bc the same as the Option, such terms shalt be as similar as possible and in no cventless itdvanlngeous to the Holder. The issuer of the Substitute Option shaU also enter into an agreement with the then Holder or Holders of the Substitute Option in sub~tantially ~e sam,e form as this Agreement. which shall be applicable to thc Substitute' Option. ' (d) The Substitute Option shall be exercisable for such number of shares of Substitute Common Stock as is equal to the Assigned Value multiplied by the number of shares of Common Stock for which the Option is thcn ' exercisable, divided by the Average Price. The cxercise price of the Substitute Option pcr share of Substitute Common Stock shall then be equal to the Option Price multiplied by a frnction. thc numerator of which shall be ' the number of shares of Common Stock for which the Option is then exercisable und the denominator of which shall be the number of shares of Substitute Common Stock for' which thc Substitute Option is exercisablc. " , (e) In 110 cvent, pursuant to anyof the foregoing paragraphs. shall the Substitutc Option he excrcir.ahlc for mare than 10% of the shures of Substitute Common Stock outstanding prior to exercisc of the Substitutc Option. In the cvent that the Substitute Option would bc exercisable for more than 10% of the shares of Substitute Common Stock outstanding prior to exercise but for this c1l1use (e). the issuer of thc Substitute Option (the "Substitute Opdon Issucr") shalt make.. clIsh payment to Holder equal to thc cxccss of (i) the value of the Substitute Option without giving effect to thc'limitation in this c1au~c (c) o\'cr (il) thc \'alue of the Substitute Option after giving effcct to the limitation in this clause (e). This diffcrencc in value shall be dClennined by a nationally recognizcd invcstmcnt banking firm sclected by the Hllldcr or the Owner. as the cas~ may be, and reasonably acceptable to the Acquiring Corporntion. (0 Issuer shall not enter into uny lransaction dcscdbed in subsection (a) of thb Sectinn R unlcss the Acquiring Corpomtion and any person that controls thc Acquiring Corporation ussUnlC in writing ullthe obligations of Issuer hereunder. 9. (a) At thc request of the holder of the Substitutc Option (the "Substitute Option Holder"). the Substitute Option Issuer shall repurchase the Substitute Option from the Substitute Option Holdcr at a price (the "Substitute Option Repurchase Price") equal to the amount by which Ci) the Highest Closing Price (as hereinafter defined) exceeds (ii) the exercise price of the Substitute Option. multiplied by the number of shares of Substitute Common Stock for which the Substitute Option Illny then he exercised, and at the rcqucst of the owner (the "Substitute Shurc Owner") of shares of Substitute Common Stock (the "Substitutc Shares"). the Substitute Option Issuer shall repurchase the Substitute Shares at a price (the "Sub!'.titutc Share l~cpurchase Price") equal to the Highcst Closing Price multiplied by the number of Sull~titute Shures so dcsignated. Thc ternl "Highest Closing Price" shall mean the highest closing pric,~ for shares of Suhstitute Common Slock within the six-month period immediutcly preceding thc dale the Suhstitute Option Holder g,ives noticc of the c~7 ,I' ';'\" " ~----:--------------- ~ - lc'l . ,';'1' '\ " .,.J .,":"',< '~,i,~ ~.,;~:'\" :..'::~~~_.....".. required repurchase of the Substitutc Option or the Substitute Share Owner gives notice of the rcquircd rcputchu!lc.of the Subs~itu~~ Shares, ,as applicable. ' (b) The Substitute Optlon Holder and the Substitute Share Owner, as: thc case may be, may exercise its respective right to require the Substitule Option Issuer to repurchase the Substitute Option am} the Substitute Shares pursuant to this Section 9 by surrendering for such purpose to the Substitute Option Issuer, ut its principal office. the agreement for such Substitute Option (or, in the absence of such an agreement, a copy of this Agreement) and certificates for Substitute Shares accompanied by a wrillen notice or notices stating that the Substitute Option Holder or the Substitute Share Owner, as the case may be. elects to require the Substitutc Option Issuer'to repurchase the Substitute Option andlor the Substitutc S}wres in accoruance with the provisions of-this Section 9. As promptly as practicable, and in any event within live business days aftcr the sum:ndcr of the Substitute Option undJor certificates representing Substitute Sharcs and the rcceipt of such notice or notices reluthlg thereto and subject to the provisions of Section 15 hereof, the Substitute Option Issuer shall deliver or caUse to' be delivered to the Substitute Option Holder the Substitute Option Repurchuse Price and/or to the Substitute Share Owner the Sub,~titute Share Repurchnse Price thcrefor or. in either Cilse, the portion thereof which the Substitute Option Issuer is not then prohibitcd under applicable law and regulation from so delivering; " (c) , To the extent that thc Substitute Option Issuer is prohibHcd under applicable law or regulation from repurchasing the Substitute Option amVor the Substilute'Shares in purt'or in full, the Substitute Option Issuer follQwing a request for repurchase pursuant to this Section 9 shall immediately so notify the Substitute Option Holder,nndlor the Substitute Share Owner and thereaftcr deliver or cause to be delivered, froOl time to time, to , the Substitute Option Holder and/or the Substitute Share Owner. us appropriate, the portion of the Substilutc Share Repurchase Price, respectively. which it is no longer prohibited from delivering, within five business days af~~r the date on whicJI the Substitute Option Issuer is no longer so prohibited; provided, howev.cr, that if the Substitute Option Issuer is at any time aftcr delivery of a notice of repurchase pursuant to subsection (b) of this Section 9' prohibited under applicuble law or regulation from delivering to the Substitute Option Holder and/or the Substitute Share Owner. as appropriate, the Substitute Option Repurchase Price and the Substitute Share Rcpurchase Price. respectively, in full (and the SuhstiUuc Option Issuer shall use its bcst efforts 10 obtain all required regulatory and Icgal npprova}s, in ench case as promptly as practicable, in order to accomplish such repurchase), the Substitute Option Holder or Substitute Share Owner may revoke its notice of repurchase of the Substitute Option or the Substitute Shares either in, whole or to the extent of the prohibition. whercupon, in the lattcr case, the Substitute Option Issuer shall promptly (I) dclivcr 10 the Substitute Option Holder or Substitute Share Owner, as appropriate, that portion of the Substitute Option Repurchase Price or the SubstitUle Sharc Repurchase Price that the Substitute Option ]ssucr is not prohibited from delivering: and (ij) deliver, as appropriate, either (A) to the Substitute Option Holder, a new Substitute Option evidcncing the right of the Substitute Option Holder to purchase that number of shares uf the Substitute Common Stock ubtained by multiplying the numbcr of shares of the Substitute Common Stock for which thc surrendered Substitute Option was exercisable at the time of delivery of the notice of repurchase by a fraction, Ihe numeralor of whieh is the Substitute Oplion Repurchase Price less the portion thereof theretofore delivcred 10 the Substitute Option. Holder and the dcnominator of which is the Su~stitute Option Repurchase Price. or (B) to the Substitute Share Owner, a certilicate for the Substitutc Common Shares it is thcn so prohibilcd from repurcha!oing. 10. The 90-day or 6.rnontl1 periods for exercise of <;crlllin rights unucr Sections 2. 6, 7 ..nd 13 shall be c;(lellded: ' (i) to the extent necessary to obtain all rcgululory npprovllls for the exercise of such rights. and for the expiration of all statutory waiting periods; (ii), to the extent necessary io avoid liability under Section 16(b) of thc 1934 Act by reason of such excrcise; and (Iii) during any period in which Grantee is precluded from cxercising such rights due to un injunction or other legal rc:ariction; c-B -- -~--~--------~ - ,--- ~-~---------------------------- --'------.._--- ------ ~- -- ; , \, L',' f t ,I' ~l~~"' ,'," " , " . ' , , ," , , . l ~ ' " . : ., , " l.' '" .\ ..; ": '. , " " I> c.\ .' , :'), " 'I cO ,1 C .':' 11.1+ ~..:i!c~:r'..>>,~f',JI:, ~;c,"~.::I/':',~" -: ;~" <~'! ~" '.j' '1".1 ,(:) , ,I - :-",.,tr- . .il' ' " , plus" in the case of clauses (i), (ii) and (iii), for such ndditiunal period as is reasonably necessary for the exercise of such rights promptly following the obtaini~g of such approvals or the cxpiration of such periods. II. Issuer hereby represents ond warrants [0 Grantce a.'i follows: , (n)' Issuer has full corporate power and authority to exccutc and deliver this Agreement and to consummate the lransactions contemplated hereby: The execution and delivery of this Agreemcnt and the consummation of the transactions contcmplated hereby have been duly and validly authorized by the Board of Directors of Issuer and no other corporate proceedings on thc part of Issuer are necessary to authorize this Agreement or'to consummate the transactions so contcrnp\atcd. This Agreement hu.') been duly und validly e:tecuted and delivered by Issuer. ' , . '(b) Issuer has taken all necessary corporate action to authorizc I1nd rcserve and to permit it to issue. and at aU times from the date hereof through the termination of this Agreement in accordance with its tenns will have reserved for issuance upon the exercise of the Option. that number of shares of Common Stock equal to the maxinlUm number of shares of Common Stock at any 'time and from time to time issuable hereunder. and all such shares, upon issuance pursuant hereto, will be duly authorizcd, validly issued, fully paid. nonassessable, and will be delivered free and clear of all claims. liens. encumbrance and sccurity intercsts and not subject to any preemptive rights. > (c) Issuer has taken all action so that lhe entering into of this Option Agrecment, the acquisition of shares of,Common Stock hereunder and the other transactions contemplated hereby do not and will not result in the grant of any right') to any person under the Rights Agreement or enable or require the Rights to be exercised. distributed or triggered. 12. Grantee hereby represents and warrants to Issuer that: (0) Grantee has all requisite corporate power and authority to enter into this Agreement and. subjeclto any approvals or consents referred to herein. to consummate the transnctions contemplated hereby. The execution and delivery of this Agreement and tJ1C consummation of the transactions contemplated hcreby have been duly authorized by all necessary corporatc action on the part of Grantee. This Agreement has been duly executed and delivered by Grantee. (b) The Option is not being. and any shares of Common Stock or other securitics acquircd by Grantee upon exercise of the Option will not be, acquired with tl view to the public distribution thereof and will not be lmnsferred or othcrwise disposed of except in a transaction rcgistered or exempt from registration untlllf Ihc Securities Act. 13. Neither of the partics hereto may assign any of its rights ur obligatiuns under this Option Agreement or the Option created hereunder to uny other person, without the express wriuen consent of the othcr party. except that in the event a Subsequcnt Triggering Event shall have occurred prior to an Excrcise Termination Event, Grantee, subject to the express provisions hereof. may assign in wholc or in pan its rights and obligations hereundcr within 90 days following such Subsequent Triggering Event (or such later period as provided in Section 10).. 14. Each of Grantee and Issuer will use its best efforts to make all filings with, and to obtain consents of, all third parties and governmental authorities necessary to the consummation of the tmnsactions contcmplated by this Agreement, including without limitation making application to list thc shares of Common Stock issuable hereunder on the New YOI'k Slock E:lchangc upon official notice of issuancc. 15. (a) Notwithstanding any other provision of this Agrecmcnt, in no event shall the Grantec's Total Profit (us hereinufter defined) exceed $2,200,000,000.00 and, if it otherwhe would exceed such amount, thc Gmntee, at its sole election, shall eithcr (i) reduce the number of shares of Common Stock subject to this c-9 " " , " ,".:', ..I;,,:.l', <, I' ~ .! , I ' '-" , " , 1 , " ',!, " ':: ;,' :;':"~I' .\ /> :'r,~I>:" /'...").....\,:,:..,~ ~ , :'.1' " '.' .., ~ " ,,,1, .' ,,', .t " Option, (ii) deliver to the Issuer for cancctlationOption Shares previously purchased by Grantee (valued. for the purposes of this Section 15(n) at the avcrugc closing sales pricc per sharc of Common Stock (or if therc is no sule on such date then the avcrage b~,tween the closing bid and ask priccs on any such day) us reported by (he New York Stock Exchange for the (wcnty consecutive trading duyspreccding the duy em which the Grnntcc's Total Profit exceeds S2,200,OOO.OOO.OO) (iii) pay cash to the Issuer, or (iv) any combination thercof, so that Gmntec's actually rCllti'zed Total Prolit shall' not exceed $2,200,000,000.00 after taking into account the foregoing actions. ' " " , . 'I (b) As used herein, the tenn "Total Profit" shall mean the amount (before taxes) uf the following: (a) the aggregate amount of (i)(x) the net cash amounts received by Grantee and its nfliliates pursuant to ,the sale of Option Shares (or any securities into which such Option Shares arc convcrted or c"changcd) to any unaffiliated, party or to Issuer pursuant to this Agreement, less (y) the Grontec's purchasc price of sllch Option Shares, (ii) , any,amounts received by Gnll\tce and its affiliates on the transfer of the Option (or'uny ponioo thcreol)' to uny unaffiliated party, if penniued hercunder or to Issuer pursuant to this Agreement. and (ili) thc amount received , by Grantee pursuanllo Section 9.2 of the Merger Agreement; minus (b) the amount of cash theretofore paid to the Issuer pursuant'to this Seclio'n 15'plus the value of the Option Shares theretofore delivered to the Issuer for cancellation pursuant to this Section 15. (e) Nolwilhsranding any other provision of this Agreement, nothing in this Agreement shull affect the ability of Granlee to receive nor relieve Issuer's obligation' to pay a fee pursuant to SeCtion 9.2 of the Merger Agreement; provided that if Total Profit received by Gr.mtee would cxceed $2,200.000,000.00 following the receipt of such fce, Gmntce shall be .obligated to comply with terms of Section ,15(n) within 5 days of the later of (0 the date of receipt of such fee and (ii) (he date of receipt of the net cash by Granlee pursuant (0 the sale of Option Shares (or. any other securities into which such Option Shares arc convertcd or exchanged) to any , unaOiliatcd puny or to Issucr pursuant to this Agreement. (d) Notwithstanding an)' other provision of this Agreemenl, the Option may not be exercised for tl number of-Option Shares that would, as of the Noticc Date. result in a Notional Total Profit (as defincd below) of more than $2t~OO,OOO,OOO,OO. "Notional Total Profit" shall mean, with respect to any nllmber of Option Shares us to which the Gmntce may proposc to e"ercise the Option, the Total Profit determined as of the Notice Date assuming that the Option was exercised on such dale fur sllch number of Option Sharcs und assuming sllch Option Shares, together with all othcr Option Shares held by the Gruntee and its nfliliates as of sllch date, were sold for cash at the closing sales price for Common Stock as of the clllSC of business on the preceding trading day. ' 16. The parties hcreto acknowledge that damages would be an inadequate remedy for a breach of this Agreemcnt by cither party hcreto and that the obligations of the parties hereto shull be enfon:eablc hy either party hereto through injunctive or olher equitable rt'}jcf. 17. If any tenn. provision, covenant or restriction contained in this Agreemcnt is held by a court or a fedeml or shue regulalory agency of ~'or j1etent jurisdiction to be invalid, void or unenforceahle, the reinainder of the (emlS, provisions and covenants and restrictions contllincJ in this Agreement shall remain in full fort.:c and effect. and shall in no wuy be 'affected. impaired or invalidated. If for any reilson stich court or rcgulnlOry agency determines that the Holder is not permitted to llclluire. or Issuer or Substitute Option Issucr, LIS the calie may be. is not pennitted to rcpurchase pursuant to Section 7 or Section 9., as the case may be, thc hili number of shares of Common Stock provided in Scction I (a) hereof (as adjusted pursuant to Section I (b) or 5 hereof), it is the exprcss intention of Issuer (which shall be binding on the Substitllle Option Issuer) to lI11nw the Holder 10 ucquirc or to rcquire Issuer or Substitute Option Issuer to repurChtlsC such lesscr numbcr of shares as may be permissible. whhoutauy amcndmcnt or modification hereof. 18. All notices, requeSl'i. claims. demarllls and other communications hereunder shall be deemed to have hecn duly givcn when uclivered in person, by cablc, tclegmm. telescope or telex. or hy registered or certified mail (poslage prcpnid, return receipt re4uestcd) at the respective addresses of the parties set forth in the Merger Agreemcnt. c-IO ''"0;",..' '.....1...,. , :' > , , I .: ~ ~. ,: >, ,:' f .; \ I f ':' }I. " I. . '. , , ': ','.' " :, "'~ :~. .. ' ," '~.:~~,/~~:';:: ,', ~\.I'.' I 'f I. " ~. I" " J,' ',,: 'c':"'/'<" ".~,'.,:; . ~' ' ..,. r , .;; ,~ ! '.: ,. .-.. .. > ,',>1 ,~, " 1/ '">' Jl.;,~.,:,;,i,'~: .~.<,~ ~':. : '<.:1, ";,.~,;>.>':i' ,~"" :-:';,,~'~ ;, <).'~:"{,: .,': \; ....:,.,;,,:.:,', ',' I,., \1'111 L ""\!'I~,\",I"i!"I:."-;'{"4 ,', ,', ""'"'' ',' , ., " .r~~" :",'/;7 ~ :":; 1,1'~,;f~~:': ::':'J~:::;:::~,,~~,:~:tt ~i~i~~:T~~:/; :~: ~~~~~'~"'J' ~.'_. ,: ~~;; ,~,; ~~ II. ~': ,~\\:...-:. ! 1 ..:'. I.~ ; ,\' "r ' '. ' . . i' (, " ~:" , ".! ;., , 'Y'o:',,~ ' '., "'t' . I.. ,otI- ~ ,~;. ~;.j , ,! . ,\',. .' ,', ; : ~;~ti~~l , It., " ~:', , , ,.1., , ' ): .' ,c ~ 'jl ", II, ~. , ~: ~ h :,". ~, ( "~:' ," , ( .'. ..' ':; ,(-...., " \ ',' ," T , ~-;;/ ; " ,) .,..~ , I ,,' ,,'. :' >-,.- , c, ~,",,:,II'P"'" ,', -.....~ 'l.., ,', , tr' , ..,.,," " ,.', , " " ". l' : , ' ~ j " ' , , ,',' ',I "d 'I, . ,'F ,. ", C "< ' , .' . ,~: ," '"1", c'dc,' '~ ~" . , '.I~" ., '> I, , .. , + I. c~ _. to' _ ,.. , " :19. This Agreemef!\ shall he governed by and construed' in nccordnncc with the laws o( the Stntc of' , Delawnre.. fCgurdle~s of the inws that might otherwisc govcrn under applicable principles of c'onflicts of i~ws {. , . thereof (except to the extent that mandntory provisions of fcdernllaw apply). 20. ,This Agrccment may be executed in tW(l or more counterparts, 'each of-which shall be deemed to be an anginaJ, but aU of ",hleh shaJJ c~nslitut~ one and the snme' agreement. 21. Except ns otherwise expressly provided herein, each o(the parties hereto shall bear and paynll C()sts ,and c~penses incurred by it or on ,its behalf in connection wilh the transactions contemplated hereunder. . including fees and expenses of its own linllncinJ consutrllnts, investment bankers, llccountnnts and counsel. , 22. , Except 011 otherwise expressly provided herein or in the Mergcr Agreement, this Agreement contains,' the'clltire agreement between the parties with respect to the transactions contemplntedhercundcr and ' su'perSedes aU prior nerangemcnts or understandings with re,~pcct thereof, wriHen or,oml. The tenns lint.! .con'ditions of this Agrcement shall inure to the benclit of nnd be binding upon'the parties hereto and their , respective successors and penniued assigns. Nothing in this Agrecment, expressed or implied. is intended ro confer upon any party, other than the parties hereto. and their respective successors except ns assigns, any rights,'rcmedics. oblig~tions or liabilities under or by reason of Utis Agreement. except as expressly provided , herein. ' ' ' 23:, Capitalized terms used in this Agreement llnd not defined 'herein shnll have the meanings assigned thereto in th~ Merger Agreement. ' , . IN WITNESS WHEREOF. each of the panics hall caused this Agreement to bt: executed on its behalf by , its o~ficers 'thereunto duly authorized, all as of the dale first above written. GTE CORPORATION By: Isl CHARLES R. LUE Chnrlcs R. Lee Clwirmtlll and Chief Exec:util'c Officer By: Is/ MARt,\NNE DROST Marianne Drost Se('relllr)' Bal. ATl.ANTIC CORI'OR,\TION By: Is/ IVAN SEIDENUERG Ivan Seidenberg Preside'" clfId Chilf Executil'c Officer c-II . , , , ----~----------------~---~- . ", ~/, , i' . ::,:;:.1 , ,/; I" " " I' : i' j ! 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The lotal number {If shares of nUclasses of slock which the Corpo~~tion shall ,have lhc'uuthorlty to' issue is' 4,500,000,000 shares, of which 4.250.000,000 shares' are Common" ,~tock. $.10 pn,r value per shm:e, and 250,000,000 shares arc Series Preferred StOck; $.10 par value., . 'I" , , ' .' ~ ,\ " " " '{! ,; ''I; '-: 4. Capita.l Stock. .'c, ..~\,~+~ : .; : ,:; , . t "~, ' 0 " ' -:' "!. ,.:, , ~j:,~:.'::"'>:'" t{)',....., . i'....:... ,.' .{ ;: '\ . I " .' , ',,\ 't .I~I,: ,...::, ' ," .' 'I: , " ',"", , ~~'/'- r\', ' , ( "/ >1.' " '" :~ ',' , . " " , , '.'. :'L, " ,I, ' , ~ : ~ I ~ '" , ~! '. ", , .,' c. . 1 ~ ~ ,'r' , !:' , ~ \ F <' \~., , ~' " ' ;,' "'.,. .e'; , I~, I.f... ~r:~)' '~ ;,cl<. ',i ~ " , .' I,," ,', I > ~ J . ~ '. c I jl. , ' ." , ' "~ \" ) ,,--,,' \' d-I '" , ! .,!I' ,.\, , i , ~ ," , i ,', .' ! I c. " ", :'t :.'< " , , I ~, 'I,' ,., " " " , ..'+ '\,j 'f \ , ~ ~;c " 't'I' ;::/~, 'l.\ :1: ~f . . .J~ : .' ~' " . '. " ,,' " .. ' t ,~ ~ . .'. 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"~I' " , i ~, 'l " ". '~ . . \ " '; I ''1 :'''. I . , r ~ ~ " '.".,11 F " '..., .. '~ ~ ,~t ~ .;. " c'l" ,,' "" /, ' V/~;;;t,'':~>:,':::\::;; ,'~>:' ,:::,., ":\ ..~,' :. : " , . , ' " ' d ' ~ 'c 'd " " , ",t I " \ . ,~ ' , < . " I, ' '., , :;,. '.. ,~ i " . .- L I 1 , ,c1 I ,"! " , " d: i. \~,.' C r < . .' , I. , ' I, j~'>:;';:"):: ;';;:,::: ,~::';:,/:<!/ <i~:~:i. ,~,:':!'" ::"~"i :,~,.;,' .:' ,'~" ,: ,: " " , ,'I :':a ,;' , ' ; I ':"'1, ,,' , ' i", {' . 'I' ' '. '{'" ' "". ' ." ,- i", '" (:'') , : ,.... ,--,/ Appendix E , Bylaws Provi~lo~ proposed to be revised In connection with the 'Merger J, ,S~~tion 4.13 (b) would be restated substanlinlly us follows: SEcnON 4.13. Qualifications und,EtecliOll of Director.... (b) Nomination., of persons for election to the board of directors of the corporation mny be made at n meeting of stockholders by or at the direction of the board of directors, which shatt, prior to July I, 2002, f~llow the method for the selection of directors set forth in Section 4.16 of the Bylaws. Section 4.16 would be restated substantially as follows: , , SECTION 4.16. Representation on Board of Dirl!ctors.-From the datc hereof until July I. 2002. the board of directors and each committee of the board us constituted fotlov"ing each election of directors shall consist of wi equal number of GTE Dircctors and Bell Atlantic Directors (as ,>uch tcmlS are defined below), and subject to the fiduciary duties of the directors, the board of directors shatt nominate for election ut each stockholders meeting at which Dircctors are clected. an equal number of GTE nirectors and Bell Atlantic Directors. If, at any time prior to July 1.2002, the number of GTE Dircdors and Bell Athmtic Directors serving either as directors or as members of any committee of the board. would not be equal, then, subject 10 the fiduciary duties of directors; the ,board of directors shalt appoint to fill any existing vacancy or vacancies, as appropriate, such person or persons as may be requesfed by the remaining GTE Directors (if the number of GTE Directors is, or would othelwise become. less than the number of Bell Atlantic Directors) or by thc remaining Bell Atlantic Directors (if the number of Bell Atlantic Directors is, or would otherwise become, lcss than the number of GTE Directors) tlJ ensure that there shall be an equal number of GTE DireclOrs and Bcll Atlantic Directors. The provisions of the preceding two sentences shall not apply in respect of finy vllcancy which occurs after July 1, 2002. The tenn "GTE Director" means (I) any person serving as a director of GTE Corporation ("GTE") who becomes a director of the corporation at the effectivc timc of the mergcr of a wholly owned subsidiary of the corporation with and into GTE and (2) lln)' person who subsequently becomcs u director of BeU Atlantic and who is dC.'iignated by the GTE directors pursuanl to this paragraph; and the leml "Bett Atlantic Director" means (1) any person serving as a Dircctor of thc corporation who coatinues as a director of the corporution after the effective time of the merger rcferred to above and (2) any person who subsequently becomes a director of Bell Atlantic and who is designated by the Bell Atlantic Directors pursuant to this paragraph. From the effective time of the mcrger refcrred to above through July I. 20m. the board of directors shall consist of un even numbcr of directors ami such numbcr of directors shall not be amended unless, immediately following such amendment, the number of GTE Directors then in office is cqulllto thc , number of Bell Atlantic Directors then in office. Any umendmentto or modilication of this Section 4.16 or of any provision of these Bylaws which refcrs to this Scction 4.16 shall requirc a three-quarters vole of the entire board of directors. Section 5.11 would be restated substantially as follows: SECTION 5.11. Succession ArrulI/:cmCIlt.f.- (a) Except as to thc cleclion of the individuals to positions as spccilicully providcd for in the Employment Agreements betwccn the corporation and Charlcs R. Lec and the corporation and Ivan G. Seidenberg (each an "Employment Agreement" and collectivcly. the "Employment Agreements") which arc expressly contemplated by Section 7.10 of the Agrcemenl and Plan of Merger dated as of July 27, 1998, as amended and restated prior to the Effective Time under such Mcrgcr Agreemcnt. bctween the corporution and GTE COll'oration, until July 1.2002 (I) the election of any othcr person to such positions, or (2) the removal or replacemenl of Mr. Lee or Mr. Seidenberg from one or more of those positions. shalt require II thrce-quartcrs vote of the entire board of directors. Thereafter, such vote as isprovidcd by Section 4.10 of these Bylaws shall be required. c-l ~~J.if>f:1tq,}.?~;""."~F"< .HI' ''I. :')lh'-..1;~<~y,"h~' ;-(~.~tim-$? "ib".l'j' }~J ~l{:l~~'~1 io l~ ~~.~~,q~~~' : ~~~,. ,\ \". i \: " . ~ ~rri,'ir;J',;,f,,'l,(.,,<.,A ,I".!\,.'..,...,..:".)., !,+".,1," , ";"/1''' ')"1' to. "'" " to ,', '/" II (. ,,~, I '}"" c" ,.,' " . L ! "... ' . '., .~, '.: "j . 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I , " ~ {~ ',', T', ; 'I, , ~. ,> .., .'; (' ,) <. ,J; :>j';,,:.. '. >t,' u .' . ~.~... ..:,,;: :, :(::' ,; , , , , , : } , .: . . " .., c 1 ~. ' , ~ " c '~' "i ' , , .; , ;,{/ 0>) iAny ~me~ldment.to or ~Odificatjon of~ither of the EmployrUc,nt Ag~~ments by th~ corporatiQ'1 or of this Section S. t J' shan requir~ tl three-quarters vole of the entire board of directors.' As used in this 'Article V, and in these, ny:'Laws g~n'eniny:: the'term "entire' board' of directors" 'means lhe;total n'uinbcr of directors 'which the cOrpO~ation wouid have if there were no vacancies. ' ....~,'," c ~, ."... ,~l.: ~'. ~. , ! ,. .' , 1 (~ . , " '> ~' ,.,~' ; , , , ~ " '..' I ",'. l ~ " ~ ::;.~! ~I' ,: i', , , l .' I ~ :;: 1. ;5,11'/ j l' ;1:: : /:, " , 'II .,:.' J" .. , . . ~ > ; ': , , ~ < ' ,If, ,/,'.'. H, ... ' , I ~, "i :t:<~, ~\ ~~: " " , : i ~ " c . '. 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" !~, ~,~.,,- ,,' ~..'.~}, , ~. . , , ','t'i " : f, ~ ~' " " "!: :L .; ~ ..:. ! ,:1 : I ~ I' ',"(1, , , , , , ';]'", .: ., ~:' ~ ~ ,:... r , , " >/. " '1 .( , , i ~ :.. '. ,". . 'J , " ., '.'~ I ~ I , ." I'. I , ~ < t I .' ':,\ !!'. .,(, ') " ,', ,( . I ~ ,'.1: I , " , .' 'f; " ", 'I -.......- " - , " ,/.,r'l~..~~ " ( 'JJI'I'.:t' I "S~j>:~ . ,{ ,') " "I " , ," ,.,' ~ . '., ' .,t\;:,'T'I" .' , .. ,~' ,I c, , ~ t ~, ", , /1., . , I " .,' , , ' ".!-. ,.'c, > ' '-0;. I . I"> .,.........', ) , , ....' i , , , ' ~' '! , I , ' I, j. " I' ,"'" " ~f ' , .: ~ ! j !' I " \ I < ' \ 'f ~ : " , i I , .\ , I , < " : \---,,' - ..-. ~...~ ~. , ;. ~.. ~~i f(~?~~,~;:;~,~{ ;'~/ :-:;.F :, ':: , -:. '. . ,~,c 01". I" " t' "~ ",: I I ,~,.!/ " " " ~ : ,'y. " \:' . I ' ' . , i ' ;, I, , ". ~ , ';','~:;',,' ;'; :' ,.', I. ", ~ .", ~ ,. ,.' ,c,":,j' . ~ '" 1 " . ,j' " :., \< . .. , " ' . .'1 \, . 'c, ~. < > n" ',,:\ " I" ., ,~' I to,', " ' .~ r .: > ., , , -, ,.. ~ 'I. , " '.' ',' ~. <' .,., , " , , '" :' ~ ';< .;,' ,:,', ,,';:> '~'~: ;', , ;'.", ,t..: t'. ~.~': , ' , I' :. I. t",' ,';' 'I' '.' ',f ,1 u' . ~ . ~ I ;:' ~ . . ' " \ :':~k~i::::'::/::~'i{(::::;;i;},~;d~~~~:~:i:\~~\\,;:,;,~,.~:.,~,:.:".,~:' ':"""'{:~:":" i~' . ;"""~.' .:' 'i::;::' :t,::.:.,:" , ~, ~' q", \ .' . 1 ,I , ;1, " I " ' I "~"'" I ,'~ < ~ ' ,) ~ \\ ~ Appendix F Goldman. Sachs & CO, I 65 !Mad Stroot I New YOIII.. New YOfk 10004 Tel: 212.902.1000 ' .\ ' (iOldnulII S3t'lIS' . \1 I, " , '." ',,' 1 , :.. ' Pfi.RSONAkANQ CONFIOt;N1JA~. "J II: j l' I,': I' L , " t, :,': ': I .'" , , ,~ '~i : r: ~ " ; + ~'I,' ." "July 27. 1998 " ' 1~ ,; '1 ' H .,I : Board of Olrectors GTE Corporation , One, Stamford F.orum Stamford.,CT 06904 " ,. " ,,,} " ' . ,,,. Gentlemen ,and Madame: " , < ~,' I',. \' 'I,: "' ..'...i.... . ... { - .'1-.-",.J ,., You havo requested our opinion as to the fairness from a financial point of view to the holders of the outstanding shares of common'stack, par value $0.05 per share (the NShare~n ot GTE Corporation (NGTE" or tho NCompany") of the exchange rallo of 1.22 shares of common stock, par value $0.10 per .' . share ("Bell Atlantic Common Stock"), of Bell Atlantlc Corp9raUon (NBell Atlanllc") to be recelvod for each Share (tho NExchange Ratio") pursuant to the Agreement and Plan of Merger, dated as of July , . 27, 1998 between Bell Atlantic and 11',:1 Company (tha "Agreement"). Pursuanlto the terms of the , . Agreoment, a wholly.owned subsIdiary of Bell Atlantic will merge (the "Merger") with and Into the . . Company. .l " . Goldman, Sachs 8. Co." as part of Its Investment banking business, is continually engaged in the , '; valuation of businesses and theIr socurlllas In connection with mergers and acquIsitions, negotiated underwritings, competitive biddiClgS. secondary distributions of lIsted and unlisted securities. private , placements and valuations for estate, corporate and other, purposes. We are famUfar with the' , Company having provided cortaln Investment banking and financial advisory services to GTE from time to time, InclUding having aCled as financial advIsor to the Company In connectlon wllh the Company's acquisition of BBN Corporation In 1997; having acted as financial advisor to the Company In connection with the Company's attempted acquisition at MCI Communications Corporation in 1997; ,having acted as managing underwriter of a public offering of $2.1 bllllon of debentures Issued by tho Company on April 22, 1998; and having acted as financial advisor to tho Company In connectlon with the Agreement. We also have provided certaIn Investment banking services to Bell AUanlle from limo to tima, and may provide Investment bankIng services 10 Ball Atlantic in Ihe ruture. Goldman Sachs is a full service securities Urm and, in the course of its normal trading activities, may from time 10 time eHect transactions and hold positions In lhe securitIes of GTE or Bell Atlantic for Us own account or ,the accounts of customers. In conn9clion with this opInion, we have reviewed, among other things, tho Agreement; Annual Reports to Stockholders and Annual Reports on Form 10.t( of the Company and Bell Atlantfc for Ihe five years ended Oecember 31, 1997; certain Interim reports to stockholders and Quarterly Reports on Form 10-0 of the Company and Bell Atlantic; ond certall1lnternal financial analyses and forecasts for the Company ,and Bell Atlantic prepared by their respective managements, InclUdIng projocled I .' , ~ 'V Now YOlk I londOn I lol<.l'O Illo$tol' 1 CrlCll\lo I 08lltla I f'an~l\ I Goo'\)O lOAA I HOO\l KOIlg \ H1l\.\\loo Ilo' ~r.ge<c, I M(On~' s M,oIIl'; I M~an I MM'coll I Osaka I Fat,s I Ph~OUIph,a I San Ftaro;:.$CO I Sm\lIlPC<C I SYQ"'l)' I TooonlO I VancO<J<L' I Z~r~' f-1 Ii':' ": r " . .....;. :;"X></~i, ;,,:: :'~~':~:,:0,: i ,': ~ ~ :,-<" , \" ~ , .' " . , " \', , , A ~, . , r :,..', . ,j , . + t- ~ . .. ~ ~ ,.';1, .' t:,:\ . ~ ' " .' ..' f< ,'. :: :' , , t-. -,' I' . :l. ,.c. '>, ", .. 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" " .{ , , , " , ,>:(" , " " .,"t '1,/ ..I. 'I .', GTE CorporatJon July 27, 1998: , 'Page Two. ,............... '1 cost savIngs a~d revenue synorgles expected to be achieved pursuant to tho Mergor. We Dlso have, held, dIscussIons wllh membars of the senior management of the Company and Bell Atlantic , regardIng the strategIc ratlonalo tor, and the potential benefits ~f. the t,ransactlon contemplated by the, Agroement and the past and current business operations, financial condition and future proSpects of their respoC1lve companIes and the combined company pursuant to the Merger. In addition, we have reviewed the reported price and trading actMty for the Shares and Bell Atlantic Common'Stock, compared certain financial and stock market Information for the Company.and Bell Atlantic with similar Information for certain other companies tho securities of whleh are publicly traded, revIewed the financIal terms of certain recent business combinations In the telecommunlcaUons Industry speclflcally and In other Industries generally and performed such other studies and analyses as 'we considered appropriate. ' 'We have relied upon the acCuracy and completeness of all ot the financial and olher Irdomistlon reviewed by us and have assumed such accuracy and compl&teness for purposes of rondaring this opinion. In that regard, we havo assumed that the flrnmclal forecasts provided to us Including, without '/fmitation, the P,oJocted cost savings and revenue synerg1es expected to be achieved , pursuant to the Mergor, have been reasonably propared on a basis reflecting the best currenlly available Judgments and estimates of the Company and Bell Atlantic and that Guch forecasts will be achloy'ed In the amounts and at the Urnes contemplated thereby. In addition, we have not made an Independent evaluation or appraisal of the assets and liabilities of the Company or Boll Atlanllc or any of their subsidiaries and we' havB not baan furnlshod with any such evaluation or appraisal. We have , taken Into account the Company's expeclallon regarding the accounting treatment of the transactIon. In addition, we have assumed that obtaIning any regulatory or thIrd party approvals for the Mergor will not have a matorially adverse effect on the Company or Bell Atlantic or the anticIpated benefits of the Merger. We were not asked to, and did nOl, solicit other proposals to acquIre or merge wIth ths 'Company. Our opinion does not address the Company's underlying business doGlsfon to eHect the Merger. Our opinion Is necessarily based upon conditIons as they exIst and can be evalualed on tho date hersof. Our opInion as oxpressed below does not Imply any conclusIon as to the tradIng range 10r Boll Atlantic Common Stock foHowlng the announcement or consummation or the Merger. Our advisory seNlces and tho opinion expressed horeln are provided ror tho Inrormatlon Bnd assistance of the Board or DIrectors or the Company In connactionwl!h Its consIderation or the transaction 'cOntemplated by the Agroement and such opinion does not constitute a recommendation as to how any holder or Shares sh.ould vote with ,espect such transaction. l ' f~2 i~,.l~~ ~~~~-- ..._---~-~-~ ~~~~'~'~ {'!~~)l~rt....1';\J\JL '..t;~r-~-''': ,'-i1', ....1'" ;'1 "\~;I. ..;t:.,'.' \Y' . ~~t 1....,/..... :~/j.t.~1"",IJ \ ~: ,':\--..l! i ~::.:" :'~~., 11 ~-:i ' ....:-;;[..1 t-..-I~~~~-';>: t' I, ,~' ,<!, ,\ ' L;,' ,;.'-;, '! +~. ,'+ .. ~JJ, ~ ., I'- . ,~\t ,,\, ,r:.t'-J 1 ~:. .i..( '1 ~~\V,~} i\.., , (d(~ ~~~:~i9f,"Y~~"~::;:1'i "':'1\~' t ;~\:::;;'.; :,' ~ ,.~ ".:~\"~ r ~...~~,... ~ -:~..~~,.', ,< :<;~ l~: ~:-! ,; ',~\'j ,~': ~ (J ,r .. . ~: :~~): ~~t' ~.~ !",'.t/', ' -.. ,':,:, \', j.'.:' ,;' '.' " " \,': ~. ,~. 0,: ~ .\' u.~~'": ,'} .~' \ ,. iit"~N.'" ,,,;",.' '", ;," ';I, "lh"" . 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" c "I ; r c "C .,.,,/ ~,:;: ';, , ,,'. "'( r;f:::;:'<",:" "!,::?.';::' ~. \:;. , \. ':.. : It;' ':?,::~:.< .:,... ',. q , ~ *;~. , ..,'," ,,:" f~~"~lfifN ,i ',,:. ,",~ ,~. . , j C, ' ' 7:, ':r. ~ f~~~!:~::.~; .: l ,'..' + , ~ 'j , ' J,\ r . "'j ~.' . ',' " 'I" I, U "~ : " I ~ ~' '; '~: .:.'.. ,I 't I , ,I" ,'.: !~\: :: ,I" , r I' ~ , ,. .~ .' 1''- '; ,: ~ '( tt " , "". ", . /..., \' ~ 'I , ~, . 1 ,~, ,'I :~ ': , '~I ' "ir ", " , \ ,r., " , , ,j , /:';y " t (.. ,', , , ,\ " " ,I, " , ,I .'/ ' " .,' :C .~ GTE CorPoration July 27,:1996',', ',P~go T~rea '" I" :',r I , , ", , ' >. ~ ' ') , " ,'\ .... " ./'c " ,.+: ,,' i , ^, ' ,. r'!', " <'d '.: , '~ ". ,~ . ~. '.',:,' .' :;i;.: ~.,', ~' .'; To' itf:';'~,:.'. '.' ~?<,:. \.-l' ", ~ . , .:' I . 'i~' , " ) ',' '.,' '~,It~ ~ '. ~l ;:\': 'e, :", ~;,)" . '" t ," ,... I " " ~ ~ : ~, '. ,,~ ", ~ . .' I' . I . , ',Based upon ,and sUbJecUo, ,the foregoIng an~ based uPon such other ma~ters as' wE! consider ,I ,'.', relevant. It is our opinion that as ,of the date hereof the Exchango Rallo pursuant to the Agreement Is ": fair; from a: ,financial point of view to the holders of Shares. ' , ," .' I, . . ' i" . '\ ,.'rl I' ';'.,',. ~, . ,: 1 , 0(,..: :'<' " , ~,~ ,>-1-' , :,', "I,",'~~':~ ~~:"': '(Qoldm'an, Sachs & Co.)" '. ~ . . \,. I "', 'I, , ~.. " ,,', 1 " ' , \, ;, \, I,' ,i' I I ,I r, ! I , I I " I, 1. "[ , I I i.I, " .;" " ;' .,' ", " > ~ . .. ~' I: , . Very truly yours, 'I '0,' , "., , " , , ',: J," "" '" , t ,I, '" , . ;:1 ,\ ,~,l .; ~ .' ,f ., '. , " \1 'c ^' , ~ -' ' ; " t:, I' < .". ':,:,c , . .,' ;~~;,~~,,' : i~~,: , ' .. I' 'i(~D ' ,~ , ," , c, ,; ~,. '",,', ' ,,- " :i' ',\ :'~' " , , , " ". f>, . > 'I" ></:i/ :j.'L v : ~:~~~I,.<t ./ !' ,"~I J., '.\ : 'i ..'., ',,:;-: e', .i.c' ~, " '" t. 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':.i i i ,,' ~%~{",;:::: ';"::''-'" ':,',..' >ii:,::" . ,":: ",",,"" "" ," '," " "', " . I,' ,',i ;,~~~,,?;, ,,;i;'..:{i:';\~:X';,iii",::;"n\::~;:: '::;; ?'::'.:~',;,:":. ::;.: I :::::::. "';;',,', <: ,:,( ;,::';" :;'(" ", ."'1". '. ", . . . \ :", :;:: i~~,:'?\~,..",' '. I,...; .;:,': .,.' . ".;. '.' ,:; ..... ,.", ,:;':;.;? ,,'.' ' . ' . ,'; .;' "', ..,. . .... . :.'.".'.',: .:'~.' ..'..:" ;?":' ,..,:,;.:1:'" ..... :'.' '.;,Y,: ;\i',:, ,,' ":. ',': ,'. \".: ", ..::." \"';' .' .". ' "', ' " " , ',:''',,, . ' '.' ." ,. ." '. " ' " ,i '~t;l~'I:\<'::":~::::"'" T ~ ,.,'t,,' ..,,;,;' '''';. . . "I: '" ""'...,!'", ,,,J .. I '''!''~: ..-"'" ,." ., ..1,' ." ",'''..' " , ,. ' " ',,' ';;~" ;:~~":.~,,,,:., ..::.",' . '. ~;f:':>\:;:' .,,)",' ....., ",;, ":,,," 'j ~:!;i-;"",~". ,iii:,,'.',' .' ,',:':'" ,'~,".','"""I.,~,',;,,':: "~:,,.,';',,1' :,: ..,' :, "",:',f,. .::: .' .;;.~~.',': .,"," ':> . ':~: '::.';,'," ',' ",'''' ,I :;"',::>;:..".', .':. ::,.. ,;',':':')' .,.: . .. \. :\~~:'<"" :". ", " ...::' .,.. '. \ .', ",,'. , .' ,'." "i, " ' 7t?.}> '" ,'",:' '" .' '." ',: '.' I, ".. , ' ,,' . 'c;" , ' I' I"l ~ , '0">'" ", ,f I I ,i' " , T " " '..' : .... [TIDS PAGE INTENTIONALLY LEFT BLANK] ., ",i, -... .......' " ' 'I: ", I" ,\ I, : '. . ", "',' :\ , " , d ,'.', , " , ,': " :\' " , , I,: \' 'i ,I ",', 'Ii "i ,: ~ ~ i \ ' , .' , : , .. j" ,/""',\ ~ I ~ . " t, , ' ! ,I " . , , ;{K:!:>':,',:::," ,,:-.,\ ~ . I , ~ I , , I ' ~, ," \ '.~' >" ; i' , .. .'1/ ,. \' ,',' " " , " (ji. > ~ ,!' " .', ,), ' c ' ' ; l ,~ '. <,' I ',. , >,' c , ,. I ,', \ " ~ I ' ,', \',' , . ." i.' . \I ~ \ ~ \ '< , ! ' :c. '~ . ' " " ' f.' , ,.,' .,' ,~;': ,:' ~;!t<!~',;;,>.'::<';: ':!::,,:. ":~".,,,; ~... ';, Appendix G SALOMONS~1ITH BARNEY' 212.163.7000 !~ ,~,;;:,-) A MftlbtrtiTrawlurGrollp 'j' July 27, 1998 Board' of Directors GTE Corporation . One Stamford Forum Starriford, CT,06904 Members of the Board: YOl:! have requested our opinion as to the fairness, fro'm a financial point of view, to the holders of common stock, par value $0.05 per share ("Company Common Stock"), of GTE Corporation (the "Company") of the exchange ratio (the IIExchange Ratio") of 1.220 shares of common stock} par, value $0.10 per share ("Bell Atlantic Common Stock"), of Bell Atlanlic Corporation ("Bell Atlantic") to be received for each share of Company Common Stock in connection with the proposed business combination between the Company and Bell Atlantic pursuant to an Agreement and Plan of Merger (the II Agreement") to be ,entered into between the Company and Bell AUantic. Pursuant to the terms of the Agreement, a wholly owned subsidiary oE Dell Atlantic will merge (the "Merger") with (h')C\ and into the Company. . ' ':It;,~(,.1 In connection with rendering our opinion, we have reviewed (i) a draft of the proposed Agreement, (ii) certain publicly available information with respect to the Company and Bell Atlantic and (Hi) certain other financial information with respect to the Company and Bell Atlantic, including financial forecasts (including both companies' estimates of the synergies expected to be derived from the proposed business combination), that were provided to us by the Company and Bell AUantic.. respectively. '^Ie have discussed the past and current business operations and financial conditions of the Company and Bell Atlantic as well as other matters we believe relevant to our inquiry, including matters relating to the regulatory approvals required to consummnte the Merger, with, certain officers and employees of the Company and Bell Atlantic, respectively. We have also considered such other information, financial studies, analyses, investigations and financial, economic and market criteria that we deemed relevant. "J In our review and analysis and in arriving at our opinion, we have assumed and relied upon the accuracy and cumpleteness of the financial and other infmmation (including information relat:ing to the regulatory approvals required to consummate the Merger) reviewed by us, and we have not assumed any responsibility for independent verification of such information. With respect to the finandnl forecasts of the Company and Bell Atlantic (including both companies' estimates of the synergies expected to be derived from the proposed business combination).. we have assumed that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments of the respective managements of the Company or Bell Atlantic as to the future financial performance of the Company and Bell, Atlantic (including such synergies), respectively, and we express no view with re~pect to such forecasts or the assumptions on g-l SALOMON BROTHERS INC Sevon Worrel Trado Centor. Now Yerk, NY 10046 M:::.::<::~. :'-~::~?;'?~: "'~~' ' , ,~ '.'.: : '" ' >'. ' -- ,~ ,c ,. '" " " ,>', +; ~ c,l' ~ ~: 1 I' " ~.c,L\r;..~ j,.<,' '" .', " " , >,' ' , \ I '" " ':1'/ " ' .,.., T" < ~ . I 'I l.. > " '.' . <, , ," " , ' " I~ >1, ,~i.''' ,; , c I. I " . " I,l 'c!, . ' ,l It : ' , /",f. ',. "'< 'c, '" .' 'I': ., . .1 L , ' ',.1 , , ," , " ,I" c./,' ',' " ',' , . . I 1 : . ~ I,:.; , . '.'l I.,. ~ . '. j , , '. '.'.:', " " ~ ,,1, I ~ . .', I c ,; ,'1" /":":l,;~l~,..:,:,, ~J:{~i; .',: .', . ,".', ". I' '. " :~ :\....._I....P,;~I"i/'........;:'(.... ,/1 ,..'. 'l ,'", . ," , . \ ~' , 'I , I', ',' SALOMONSMITHBARNEY /--\ J. Memhtrtl(n-awlmGroup l' which they are based. We also have assumed that- the Agreement" when executed and delivered,' will not contain any terms or conditions th,at differ materially from the draft which we have rev~ewed, that the Merger will be consummated in accordance wi,th the terms of the Agreement without any waiver of any material term or condition'thei'eof.and that obtaining the necessary regulatory approvals for the Merger will not have a' material adverse effect on the Company or Bell Atlantic' or on the anticipated benefits of tl,e proposed business combination; We have not assumed any respol1sibilityfor any independent evaluations or appraisals of any of the assets (including properties and facilities) or liabilities of the Company or Bell Atlantic. We were not asked to, and did not, solicit other proposals to acquire or merge with the Company. We understand that the Merger is expected to qualify, for federal income tax purpQses~ as a reorganization under the provisions of.Sedion 368(a) of the Internal Revenue Code of 1986, as amended. , I ~ ' , , Our opinion is necessarily based upon conditions as they exist and can be evaluated on the date hereof.: Our opinion as expressed below does not imply any conclusion as to the ~ading range for Bell, Atlantic Common Stock following the announcement or 'consummation of the Merger. OUf opinion does not address the Company's underlying business decision to effect the Merger. Our opinion is directed only to the fairness, from a financial point of view, of the Exchange Ratio to the holders of Company Common Stock and does not constitute a recommendation concerning how holders of Company Common Stock should vote with respect to the Agreement or the Merger. .....,.... ,\, As you are aware, Salomon Brothers Inc and Smith Barney Inc., collectively doing business as Salomon Smith Barney e'Salomon Smith Barney") is acting as finnn~ial advisor to the Board of Directors of the Company in connection with the Merger and will receive a fee for its services. In the ordinary course of business, we (induding our current and future affiliates) ~ay actively trade the securities of the Company and Bell Atlantic and their affiliates for our own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities. Also, we and our affiliates have previously rendered investment banking and financial advisory services to the Company and Bell Atlantic and certain of their affiliates for which we have received customary compensation. We (including our current and future affiliates) may have other business relationships with the Company, Bell Atlantic and their respective affiliates. Based upon' and subject to the foregoing, it is our opinion that, as of the date hereof, the Exchange Ratio is fair to the holders of Company Common Stock from a financial point of v~w. ' Very tntly your~, s-\~~~ SALOMON SMITH BARNEY , , 'l-.t.h'-\," , g-2 SALOMON BROTHERS INC Seven World Trade CcnlOf, New '(ork. NY 10048 - r______ ,'.J ----~~_._-- j~....l-!~' ,~ I .', ~.\ "? ..CO I:,: ,c,.- ...... ,',d ~!\~.';'~...:~~,~{!,;.:, ~ \,~:l, ~',~c '.'r,,- :,', '.' ~!.'>_ '.~' ,t , " ~ J, , d. ...._--~-------~-- . j . ' ." '" ., ,'I ;, ", 'r ,: ~' ,,' ',: :,' '.,'... "I '\' , 't, ' ',' ~ :', :~ : L ," . -, ~. J ......., , , ',1\ ' ' . '~~:'~':.. , , "~,, ~ < II , ., 'I .; '" ~' '..' .' \ '~~t 'o~:",1 1,~ " ' .' , , , ., C\'. " , , ~-i' " i , , ~ '. LT .'. H " .. . "I ~:' , ' ,1': ' ,>il ~.. I , . ~ t , ,:. / " , , ..' , " . .',," . I"" ;:/"t \,(,\:~ ';:'i '~r i!\{~!./}\;;~~t:,."; .',', ',., . " -) ~!t~/:}'\1:~.N: ..~ ~:, ....:,,: ~d~>~"'--'-~:":c~~". ~'...,'-,:.\,~ I,c! I .~ ~,' " , ...'" . , . ~, l " I 1 '~ .' " '. Appendix H , . " BEAR . STEARNS BEAR, STEARNS Ie CO, INC. , ,~ ' ~. ~ ' ~ I , ' , 245 PARK AVENUE , NEW YORK, NEW YORK 10167 (21 ~I 272-2000 , , . " July,:~7,'1998 'I I" , All>>4rA" JOfTON C"IC'.CO" G\lW "lO!./J'IClLlS NlW ~0IlIC. JA/'lIAANCnCO t.~14rv,... H~.ONG LON~. fMlS . TOI(YO , i , Board of Dire~tors ',; . , Bell Atlaritic Corporation 1095 A ~enu~ of the Americas New York. NY 1~36', 'Ladie~ and Gcntlemen:' I '.' _ . I.., We understilnd that Belt Atl;mlic Corporation (",Bell Atlantic") and GTE Corporution ("GTE") arc cntering into nn Agreement rind Plan of Merger, dated as'of July 27, 1998 (the "Merger Agreement"), pursuant to which a newly-fonned s~bsidiary of Bell Atlanl~c will be nte~ged with amI into GTE (the "Merger"), and GTE will continue us the survhing corporation in ,the Merger as a ,wholly-owned subsidiary of Bell Atlantic. We further understand that, pursunntlO the, ' Merger, cach outstanding share of common stock, par value $0.05 per share ("GTE Common Stock"), (If GTE (other than treasury shares nnd shares held by Bell Atlantic) and all rights in respect thereof. will be exchanged ror 1.22 sharcs of common ,stock. par value $0.10 per share, of Bell Atlantic ("Betl Atlantic Common Stock."). Such rutio of GTE. Common Stock 10 Bcll Atlantic Common Stock is hereinafter referred to as the "Exchangc Ratio:' As morc specilicaUy set forth in the Merger Agreement, in the ~Iergcr cach outstanding GTE option or .waITa!!t to purch~lsc stock, stock appreciation right and rcstricte,d stock ;tward will be convcrted into u similar security or right of Bell Atlantic, adjusted to rel1cclthe ,~;~.\I" ' Exchange'Ratio. 'You have asked us .to render our opinion as \l} whether the Exchnnge Ratio is fair. from n linancial pl!int ''.,,~~,}l of view, to Bell AHantic'l~nd, accordingly, to the holders of Bell Alhmtic Common Stock. ,. , In the course of perfonning ou~ review and lUmlyses for rendering lhis opinion, we have: I: ,reviewed lhe Merger Agrcemel\t~ , , 2.' reviewed each of Bell Atlantic's and GTE's Annual Reports on Form lOoK for the ycar~ cnded December '31. 1995 through 1997, and their respective Quarterly RCp0l1S on Form IO-Q for the period ended March 31, 1998; , 3. reviewed ccnain opcnlling und linancial infonnntioll, including financial forecasls, relating 10 the husiness, eamings. cash flow, assets, liabilities and prospects of Bell Atlalllic and GTE, provided b)' the senior managements of Bell ~tlantic dnd GTE, respccth'cly (colleclively, the "Projl.lclions.') and ccnain olher forward-looking inf(lnllalion; 4. reviewed certain information regarding the amount and liming of anlicipated revenuc enhancements. cost sllvings ~md related expenses and synergies expected to result from'the Merger {the "Expected S)'ncrgies"). jointly prepared. and provided by Ihe senior managemenls of Bell Atlantic nnd GTE: 5. met sepnrutely and/or jointly with certain members of the senior manngemcnls of Bell Atlantic and GTE 10 discuss (a) the currcnlte!ecommunicalions landscape anti competiti\'c dynamics rclatcd lhereto. (b, each climpany's opcrations. histuricallinancial slatcments, future prospects and linunclal condition. (c) lheir \'iews of the ~tratcgic, . business, opcmtlol\ul and llmmdal rationale for, and c>\pecled strategic benelits ullll other implicllliolls of. lhe Merger, amI, (d) the Projections and the Expecled Syncrgies; 6. reviewed the historical prices. trading lIclivily and valuation paramelers of Uell Atlantic COlllmon Stock and GTE Common Stock: 7. reviewed a,nd analyzed the pro fonna limmcial impacts of Ihe Merger 011 Bell Atluntic; 8. reviewed the tcrnlS. 10 the extent publicly available, of recent mergers aJld lu:quisilion~ which we dcemcd gencl'lllly comparahle to the l\lcrger or otherwise relevant to. our inquiry: 9. reviewed publicly rl\'~ilablc linllncial datu. stock markel performance dala and valuation parameters uf compt\l\ies which we deemed generally comparahle to Bcll Atlanlic lUlU GTE or olherwise relevant tn our intJuil)'; und "'I .1 ','. ' ~) h.1 i~}/:~'";,J:':::,~"':::;:"'Y::.:-~~:~':; :', :-:, ", '> H , , " .:.,l . ".' I, . ~ , . ,.1 ~ i ,.... .1,' .I " , ~. ' " ,,' " I , ., I ' ," : l,,~: <" ~ .,/ ' :' ,'1 I ',\ , ~,.' , " ,,' " :, t ; :;-.',. . ~ ~ " >:,.1, ....,<'.f~r:\ ;"1 , '. ' I '::, ':':'~':'/;L:~ f{ ~,.t-~ ~~\':: ~,~'" i~h"""'l~.. ...':., , ';' ,!: ~ , :,1 , ' , ' ., ,. .~.. <." ~, , c.' ~~," ,,' . j ".' , , ' " . ,10. ' conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. ' In the,course of our review. we have relied upon and assumed, without indepcndent verification, the accuracy and cOlllpleteness of all financial and other information. including the Projections and the Expected Synergies. provided to us , by Bell Atlantic imd GTE. With respcct to the Projections and the Expected Synergies, wc have assumed that they have been reusonably preplired on bascs reflecting thc best currenlly available estimates and judgments of the n:aanagcments of Bell Atlantic and GTE as to the anticipated future performance of their respective companies and as to the anticipated , combination benefits achievable within LIte time fmmes forecusttherein. We have also assumed with your consent that the Merger will (i) qualify as Ii tax.frce reorganization for U.S. federal income tax purposes and (ii) otherwise be consummated in l1~cordance witti the terms described in the Mergcr Agrcement, without the waiver .of any material condition and with all necessary material consents and approvals having been obtained without nny limitations, restrictions. condilions, amendments or modifications that collcctively would have a material effect on Bell Atlantic. GTE or the expected benefits of the Mcrger to Belt Atlantic. ' ".-.... I' , . In arriving at our opinion, we have not performed any independent appraisal of the assets or liabilities of Bell Atluntic or GTE, nor have we becn furnished with any such appraisals. Tn rendering our opinion, we have analyzed the Mergcr as a merger of equals betweenBcll Atlantic and GTE. and we have not solicitcd. and have not been authorized to solicit, third , party ucquisition' interest in Bell Atlantic. In addition, we are not c:\piessing any opinion as to the price or range of prices at which Bcll Atlantic Comm'on Stock may trade subsequent to the announcement or consummation of the Merger. Our opinion is nccessarily baSed on economic. market and olher conditions. and the infonnntion made availablc to us, as of the dale hereof. and we undertake no obligation 10 update our opinion to reflect, any developments occurring after the date hereof. " . " , We have acted a'i financial advisor to Bclt Atlantic in connection with the Mergcr and will receive a fce for SHch servic'es. We have previously rendered certain investment banking and financial advisory services to both Bell Atlantic and GTE'for which we received customary compcnsulion. In addition, a Senior Executive Vice President of Bell Atlantic is a member of the Board of Directors of The Bear Steams Companies Inc., which is our parent company. In the ordinary course of our business. we may actively trade the securities of Bell Atlantic and/or GTE for our own account and for the accounts of customers and, accordingly, may al any time hold u long or short position in such securities. It is understood that this lettcr is intended for the benefit and use of the Board of Directors of Bell Atlantic, docs nol address Bell Atlantic's underlying business decision to effect the Merger nor constitutc a rccommendation to the Board of Directors of Bell Atlantic in connection with the Merger, and docs not constitute a recommendation to any holder of Bell Atlantic ConuDon Stock a'i to how to vote shares in connection with the Merger, the issuance of Bell Atlantic Common Stock to effect the Merger. or any charter amendment related to lhe Merger. This letter is not to be used for any other purpose, or reproduced, disseminated. quoted or referred 10 at any time, in whole or ill part, without our prior writtcn consent; provided, however. that this lelter may bc included in its entin:ly in any joint proxy stutemenllprospcctus to be dislributed tothc holders of Bell Atlantic Common Slack in connection Wilh the Merger. Based upon and subject 10 lhe foregoing, it is our .opinion thut, us of the date hereof, the Exchange Ratio is fair. from a financial point of view, to Bell Atlnnli~ and. accordingly. to thc holders of Bell Atlantic Common Stock. Vcry tn.ly yours, BEAR. STEARNS & Co. INC. By: Senior Managing Direclor h.2 ....,~~,I , ' , I ~!. , J' ~; ~~::',~, :~"!;~': :; ~_,.f, <.:>;::.. ,: ~:' ;~'.::, 'I;" t, ' 0, '. .,' : (",' ': l:.'r /' *,~1!i?\'~;.',?::i,\;:"\~~;~~,,,::: ~.'::', " ' , , I', F '~:, .' ' , r~,l , .:~ :-'fI~ .,. c " ,) c J ~~~) ,N1!.'.' J , .I . _..-" (: , ' ,~', ' 'I, , : ~ , 'I~ , :',0\ , '. " '.t , " . ,( / . ", ' .; ,i1 ", . " ./ - .. ,.,~, 0." . " I' .' ~ ~ I , . ~ , .' .' t\ppcndlx I Investment Banking Corporate and Instltullonal . Client Group World Financial Center North Tower , New York,' New York 1028t-1320 212449 1000 , ~M~rrill Lynch July 27. ]998 ' Board of Directors Bell Atlantic Corporation 1095 Avcnue,of the America.... New York, NY JOO36' , . , , Members of the Board of Directors:' Belt Atlimtic C~rp'or.ition ("Bell Atlantic"), GTE Corpo'ratian ("GTE") 'and a newly ramled, wholly, owned subsidiary of Bell Atlantic ("Acquisition Sub"), propose to enter into an Agreement and Plan or ,Merger (the "Agreement") pursuant to which Acquisition Sub will be merged with and into GTE in a transaction (the. "Merger") in 'which each out.<;~anding' share of GTE's common stock, par value, $0.05 per share (other than shares held in treasury or owned by Bell Atllintic) (the "GTE Shares"), will be convened into the right to receive 1.22 shares (the "E:<change RDtio") of the common stock of Bell Atlantic, par value $0.10 per share (theuBcll Atlantic Shares")., You have asked us whether. in our' opinion. the Exchange Ratio is fair from a financial point of view to Bell Atlantic and. accordingly, to the holden; of Belt Atlantic Shares (other than GTE and its affiliates). in arriving at the opinion set forth below. we have. among other things: :! (1) Reviewed certain publicly available business and financial information relaling to Belt Atlantic and GTE that we deemed to be relevant ' (2) Reviewed certain information, including financial forecasL'i. relating to the busim.:ss, earnings. cash flow, assets, liabilities and prospects of Bell Atlantic amI GTE, as well as the mnount and timing of the tcvenue enhancements. cost savings and related expenses and synergies expected to result from the 'Merger (the . 'Expected Synergies") furnished to us by Bell Atlantic and GTE. respectively; (3) Conducted discussions with members of senior management and representativcs of Bell Atlantic and GTE concerning the mallers described in clauses I and 2 above, as well as their respective businesses and prospcclS before and after giving effect to the Merger and the Eltpccted Synergies; (4) Reviewcd the markct prices and valuation multiples for the Bell Atlantic Shares and the GTE Shares and compared thcm with (hose of certain p~blicly traded companies that we deemed to be relevant; (5) ,Reviewed the result'i of apcf'Jtions of Bell Atlantic and GTE and compared them with those of cC11nin publicly traded companies that we deemed to be relevant; (6) Parlicipated in certain discussions and negotinlions among representatives of Bell Atlantic und GTE and their financial and legal ndvisors; (7) Reviewed the potential pro forma impact of the Merger; ~8) Rc~iewcd the Agreement; and (9) . Reviewed such other fillanchll studies and analyses and took into account such olher mailers as we deemed necessary. inclUding our assessment of general economic. market and monctllry conditiuns. j.1 .', ' , I, i "': /.~.l ',:, , "", . Ic , ," ~, ,I .',.."l:\c '. t' ~ ' ,-' / ',' ',.:-;r";,,:,:,, '... ~ ~ I,' " , ,,' J , " I' ,', .'.. I " , " I !, 'c ~, .. q j . ' , ,: " , 'l ,.', "I ;. , I ,;1. 'I" " , '}.t';;" ,.'.. ' " '.. . :~~~"~"'~~~~.'~t'r~~;,1~::~~'~M~~__I~.,~~ t, c ';L ~ J ...... .t" , , , . In preparing our opinion, we huve assu'med and relied on the accuracy nnd completeness of all infonnation supplied or otherWise made available to us, discussed wito or'reviewed by or [or us. or publicly available, and we have not assumed any responsibility for independently verifying such infonnation or undertaken an independent evaluation or appraisal of any of. the assets or liabilities of GTE or Dell Atlantic or been furnished with any such evaluation or appraisal. In addition, we havc not assumed any obligation to conduct. nor have we , conducted; any physical inspection of the propr.rties or facilitics of GTE or Bell Atlantic. With respect to the financial forei;:ust info'nnation and the Expected Syncrgies furnished to or discussed by GTE or Belt Atlantic, ' we have assumed Ulat,they imve been reasonably prepared and rcnect thc best currently available estimates and judgment of Ben AtJantic~s'or GTE's managemenl as to the expected future financial performance of'a'TE or Bell Atlantic, liS the casc may be, and the Expccted Synergies. We have further assumed that the Merger will qualify as a tax-free reorganizntion for U.S. federal income tax purposes. --" '\ Our opinion is necessarily based upon markel, economic and other conditions as ,they exist and can be evaluated on, and on the information made available to us as of, the date hereof. and we undertake no .obligation to update our opinion to reflect nny dcvelopments occurring after the dnte hereof. We have assumed that in the course of obtaining the necessary regulutory or other consents or ilpprovals (contractual or otherwise) for the Merger, no restrictions, including any divestiture requirements or amendments or modifications, will be imposed that will have a material adverse effect on the contemplated benefits of the Merger. We have also assumed that the Merger will be consummatcd in accordance wilh the temls of the Agreement without'waivcr of any material condition. ' In connection with 'the preparation of this opinion. wc have not becn authorized by Ben Atlantic or the Board of Directors to solicit. nor' have wc solicited, tllird.party indications of interest for the acquisition of all or ~ny part of Bell Atlantic. ' We are acting as financial advisor to Bell Atlantic in connection with the Merger and will rcceive a fee from Belt Atlantic for our scrvices. all of which is contingent upon the execution of the Agreement. In nddition. Bell Atlantic has agreed to indemnify us for cerlain liabilities arising out of our engagement. We have, in the past. provided certain Iinancial advisor)' and financing services to Bell Atlantic and GTE and/or their aflHiatcs and may continue 10 do so and have received. and may receive. fees for the rendering of such services. In addition, in the ordinary course of Our business, we may actively trade Bcll Atlantic Shares and other securities of Bell Atlantic. as well as GTE Shares and other securities of GTE, for our own account and for the accounts of customers and. accordingly. may at any time hold n long or short position in such securities. , This opinion is for the use nnd benefit of Ihe Board of Directors of Ben Atlantic. Our'opinion does not address the merits of the underlying decision by Bell Atlantic to engage in the Merger and does not constitute a recommendation to any sharelmlder of Bell Allantic as 10 how such shareholder should vote on the proposed Merger or any mutter related thereto. We are not c.'l.pressing any opinion herein as to Ihe prices at Which Bell Atlantic Shares or GTE Shares will trudc following the announcement or consummation of the Merger. On the basis uf and subjecI to the foregoing, we are of the opinion that, ns or the datc hereof. the Exchange Ratio is fair from a financial poiut of vicw to Bell Atluntic and, uccordingly, to the holders of Bell Atlantic Shares (other than GTE and its affiliates). Very t!llly yours, M~ ~~, 7~1l, f ~.:?~ r- r~ j.2 '::j'l ~rJ<:;~~~~~, ~'Xf"?}'~Wl'~'1f,,:'C~:j';\'i: '!]';'r,jlf;':!:~;i~\}r:;,,"I,:,::;.":'~(I,~:~~,;, Y''';N',~ ~" 3'\:',~'/ ciN';:~~ .!,:~:;:;'?',~'~ ~', ';;:;i!"li"'.i; ';i,", -: . ';;y ~';~' !, ::. ': ;, :~:;:til:: )}>i;:;J',;,; ':\:~( ';' .". ,;,;~(;~;~'::)!~:",:I\~ ~~V~;/f;:~~,~t;~!it1;;:-~~.(~~:> < ,/;!),!'~~)Yi::'i; 1~::~:: .' ': ~~ {', '}:<"'/: }',:: '~~;:',~; /J:\'",::::,>':- "~~/i', " ./::: ," ;:;.,:. > j~, ') '::;~~ '<':',,-'. ~ ': :, ,", '::;:"~~>>' ;",', ::~!:~,; : ~/I". r:,~, :. '-: ::, ~ >';,~', ):~ ":' "',:;~ 'J; Lt,~ ,..\ Vi ?I""" ;.",:. .',,. ','it- ':., ,/., "",' " ;" '."'.,' :.)..,. '." ".. .... ,: '.. ',,' . " ,. . 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" ' , ~, 'n',/ .,IC/"i,H"~)~'."'.I-l.("+.~"I' ,'1', ,::.:tl, ~ ..1 '~.".,': J':\'~'~_;'O~~''':\''J.~.'';,,;~ i,,~,~;' ~ ' ~, ;I ~"""'l" ~. .' I " " , '. ,',r ",~,...._.'t'''',cL.':',I,."... . " I I',.'.., '. ~ ~,' ' j ,: DRIVING DIRECTIONS TO 1999 ANNUAL MEETINl;S OF SHAREHOLDERS :,:,~.., " <] :'\ I. . Crownc Plaza Ravinia 4355 Ashford-Dunwoody ,Road Atlanta, 'Georgia' 30346 (770) 395.7700 @,I\l~1l u\(Ii1ntit: ~.'" , , , , ,\ Ciill Annual Meeting of Sharehofders Tuesday, May 18,1999 10:30 n.m. Annual Meeting of Shareholders , Wednesday, May 19, 1999, 10:30 a.m. {<'ROM HAR1'SF'IEI.V'ATLANTA INTERNATIONAL AIRPORT ...." l) , Take '-85 NORTH r!trough downtown Atlanta and exit <It GA 400 NORTH (Exit 29, Toll Rond). Then take 1-285 EAST to Ashford-Dunwoody Road (Exit 2 I). Turn LEFl', the Crowne Plazn Rllvinill is on your right. ,I', . FROM MAJOR ARTERIES Traveling SOUTH on ).75 Take Exit #109A (\-285 By-pass EAST). Proceed to E,.'(il 2) (Ashford-Dunwoody Road). Then turn LEFl' on Ashford-Dunwoody Road nnd cross the bridge. The Crownc Plaza Raviniu will be on your immediate right. \ .., " ".\l, i; " , , Traveling SOUTH on 1-85 Take 'Exit #358 (1~285 By-pass WEST). Proceed to Exit 21 (Ashford-Dunwoody Road). Then tum RIGHT on Ashford-Dunwoody Road. The Crowne Pla?,a Ruvinia will be on your imm~djarc righr. !.~' . )." .' .. I Traveling NORTH on 1-75 Take Exit RSIA (1-285 By-pass EAST).' Proceed to Exit 21 (Ashford-Dunwoody Road). ,Then tum LEFT on Ashford-Dunwoody Road. The Crowtic Plaza Ravinia will be on your immediate right. Traveling NORTH on I.tlS Take GA 400 NORTH (Exit 29. 1'011 Road). Then take 1-285 EAST lo Ashford-Dunwoody Rood (Exit 2 I). Turn LEFt', the Crowne Plaza Ravinia is on your right. A ,N YARrA :STATION _ 'J ,1 .\ :,' i, " ,I ;" . " 1 ~ :: ,', '" !' j., I' i...... " (~ ...., (, " , ;" ~L t ~ ' '\,' ~" '??(' '.' ~ .' , . ," ',I. I ~ ~ , , , ' , 'I , ",I. ',:, ..:: '.. ")'" "" 'I (~ c 1 , t f. ~<: i'" ,'t '. , . 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". ,,:,..I.'.r'~ I" ';I ,. . ,. "~I' I I..." )~( ~i (~;;f~,fr\~I'l~ifl:j':I:'~' ,'~)' >.i .~} ~:. >:.{,,~. ~~:> ~~ ~~'/tY;'~': \'~~{r/~"I,:I;\l~;I.~i,;; !,::''i ~'f~ \ ::,~ ~1~';, <;~~ '~:,', }:~~(! 1,~ ~t~~1:~ll~~~J;~:~'I: (.! ~ ~ll'j,\: !l,~:' ~\~ ~~,'.:'{L'~,t,:.(\,1,~~ ~,J ~ \t~.. ~.\~ >.i~ '~'~ I" ~ . ~-:t/~. ~'i~!~':'(l ,~I'~r~ )} " ", \'1:," .. + .. ~ ,'. "II ~ ,... .,..., , L ',.- ..; j f' .',' , . .' '. . ,_ . " ~~J.)} r..', j.f r :.'...,'..~..~, ~\'....Io.: ~ T'" ."il r J> ,~\l-tl-l,"\ ~i~.)~t~\I~~: ~.' _ "~'''\~.~~~~'~I:~~'~.~I~;~~:.,':,\.-'~...!~.:t:~I\,~ ,I .c ffi]3 ~ ~' ~~ .t.~ ' ~~ / The merger of GTE and Bell Atlantic, Vote NOW to own a stake in the future of telecommunications . \ I ~ I ' \Ii!(..~)'} ~ o I'" " ~f"::jH~1\~~~i:~' ..,'iji;(';t~h:!';":", ,:':,' i.;!'~J:'~<"':I.J:~;', ': ,;,; .. Y" .,"..., :,',) <~;i :'~ ::,;.":.. \"f'!' , \,"~r~,~!;l!:1~\1;}tI1,";i~1?:';':f,'::;:,':,'tJJ?"~~', . ::,. :,'i:, ,. I,'"~ :,:' " ':i'" 'it;ff,t41l) "",."... .,', ", '" " ,"',' ." 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';t .: .., Ii' , ,,' , , ,FCC 394 APPLXCATION,FOR FRANCHISE AUTHORITY" : CONSENT TO ASSIGNMENT OR TRANSFER OF CONTROL , ", . !' . OF CABLE TELEVISION FRANCHISE \ I ,I I " "1 i' f' 'I' " ", :,1,' ;'~'l :,,::'1.;:':# '1,. j I" " ~ I " I ~. , ~ ' ~. ' ., " Ap'p~ication by G-;rn Media Ventures lncorporatedand Bell Atlantic CorPoration :, ' Dec~ber.1~; 1999 ' \, ',,: , :, " I, . , ',' EXHIBIT 3 (part II,. Q, 2c) '," , [Attach as an Exhibit ~e name, mailing address, and telephone number qf ~ach addition~l persori'who should be coritacted,ifany,] , , ." ',,', , ' . . ., , 'I (,,' , " " ,,',' "",1, '. ' ,,' , " Bmce,Kazee ", ,"GTE Medfa Ventures, Inc',':, . '6665'NoI1h MacArthur Blvd. '. Irving,.tX 75039 : 972-465-531 0 " , , " " . J " , ~;. ,:, ' .. I~:: , ' .' ,) I, " ~:~. , , , "C~~,:, d, .J 1,-;' , ~. I ,. . , ;; ".:' , " I' .. , " ;: .' I,......~~i , . " ' " , " ,,' , , :. " .' , .. . . ;",' " , ~' ,~' . '...'. '~ ", .' ,. ~ ( ..~., . ).!-)...,'. ~1"1r<I.\.'. < " .,,:, I.' , +'.,', ".: '"'I c~~'~'" ',' ;,:,'.' r::'~':>iJ,':',"" '~c ~,'< '; c' :U ~::T1"'';:~':''~?'-~J;'t'C""'lJ' ~,~;;h,t'\~lir:.'j'''''~~:';~\~.!/'~';'(/:-'),:/> )t;'. H~'..-''' \I~~ ,-~ '- 1 , . <' . 'Ic .~',:I: '~.. . I, .,' t )~~;Vi'~(1~~l,~',~:/.//:j/jl.:r,~,~:,<\:~.',:,,~:" ~ :i:" ",-.fH" 1:,,', <' ;~-.;'" ,." ~' ": I ':. I . ." '~t',' c, . .'. c '/l~{~"'~' ~fl,l:~~ .,~._\\., ,~d-i. ~'I \J .'''' r" '... ': r;..,'.,.: j '1~ ~ '> ':;[.l '" >~,t['L: " ,'. ' I .' i ~!~r~Nk?;;;;((",.:;::.:;,":)i:; :,:(,." .'. .. ..' .,. .; .' ". ,i " '-=,1.~'" i~W':'~ .L.,.,q". '\,,1 ',~~ T \' 1 " ',""j , I).io., ,...' . :(c"l' '. ,{ . 'I ' ~'. I ' ' , < ~.;... . i: T I'. l ".~," . _ ' " I ' >' , . ',' : . , ' , ~ I ' 1 I '~. t t<,:~ It" ,> 'I, , l >. , e ~ . _ ", . .' t I j' " ," ,I' , Ld~J~i\l'"'l'~IN'fI.hHa~,t1l'A~~>A;. , , '.'.' ' .. " ,', . .,' '.. .' ,'""", "'", j, ' rtJ!:ll..../~t.>t 'Otll.;.;..~t_S:r.>i-r~'''J C:,'t,~.l L-l,'...~..iWt;.t...,.~....'H ,~ ,,: ... ,~~T~\.~,i~':,p-hftr, 't-t(...,... ....~~..,~.:t.... ~),i'.~.t"'Y~T""I.~ '\'P,' .~.",~" _.~ '" I ,,,,:,,, fl', :. ~,~ " ~.,. ~ ~_:''t 11\.....1... -""" . jo . CC~'~ ~.,~: ,', '~'...t::,~.'..}l~/;~~...~~: " .~. ',~ ...: . 1:1 ' , " ~ ".! t ,~ " ~, ' , ,,'~' , ,,' t ,\'" ,". I C ,J". I . l ' 1, \, } \' , , .:. ~. l , <' . < j , , " " ,':.' , , , , ,'" '\ .,' :1 '" ',/,' (t\ ,I, ''o.;~ ,I ; I, : ,\ ' , ) .. , ' ' FCC 394 , " APPLICATION FOR FRANCHISE AUTHORITY. " C<;lNSENT TO ASSIGN~NT OR TRANSFER OF CONTROL , '.'.,' OF CABLE TELEVISION FRAN~HISE , I ",' Application by GTE Media'Yenture's fucorporated and Beil Atiantic Corporati~n , Dec,em~er 13J 1999 , ' " EXHmIT 4 (part lit Q. 2) ,,' "[Indicate on ~ attached exhibit any plans to change the current tenns ~d conditions of . s~rvice and operations of the system as a consequence of the transaction for which : , 'approval is sought~]', " . , , " .' , As'stated in Exhibit '2t this is a merger of equals among Bell Atlanti,c Corporation and' GTE Corporation, the ultimate parent corporation of the franchise holder, GTE Media Y eutUres Incorporated~ :The merger will not result in the change of management or, ' operations ofthe franchise, and there are'noexisting 'plans to change the current temlS ' : an'd conditions of service and 'operations ofthe system 'as a consequence of the merger. If any such plans are developed in the future, the merged company will obtain any required " , authori:iatiori under federal, state or local law prior to their implementation. ' , ~ .' ,. >, '.' " , ", (f',:::""< ' .:.!>~!') I' ,< l;c , I ' ,I. ,', ~ I . " "'T" .\~ ;,r.-",~~ ),'011, ~\ . ~.< ~,~~' ~ c I " : ~ ~ , :. ~ . , , " I. '. " I ~ .c' c ",~' ..': .' . , ,', . ''/4 ' ':,' "',.l.~,",~';~' :-1:;,( ;~.,\~', ~.'~:',~:~.: ','~ <i":~ "_,.":,,,,.,/,,:,,,,~ '~:<:'~~.'i ',': 'c:' ., ",< R. \ t; ,,:~.>..::~jw;f~..;: HN~"~ : 3~ ~ '.' :.' '~ ' ." '].:If i ,... 'E 'i ~.L.~.:"~tVA-,. .,(: 1.;) fd." 'C q , }It. -'.}i I, .. ' , , "-1" '" I t.1f~\~~"';'~~'\"l''''.i;'t~~~\'j~t.J' L'>+.~~\ir" ~f",. ,~ " , ~ 1(,,,,( ..<,r-( .. I"l" ! " , / '~ I:' I ., ..t~\~,~~):\.'1'~"'~I't.)\',....:,;~~ ('VHI ~.~.~~' .~~ :"" ,'I, t,'. 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FCC 394 '", ',.: ,; ;',\~ 7'( ..'..,' '\':t,;::,~, ; " " APPLICATION FOR FRAl'lCHISE AUTHORITY ,L':.:(:<:'; CONSENT TO ASSIGNMENT OR TRANSFER OF'CONTROL V',';/: :~, "'@' ()F CABLE TELEVISION FRANCHISE' 'k(:.~{/', " ',' '. J, . .. ~ ,,:; ~~' : ~."" :{;'~'}:;<. " . ~ / " .J' " , , ' I', << , ' Application by GTE Media Ventures' Incorporated and Bell Atlantic Corporation " December 13', 1999 ' ' , , , 'i; :'), ,I' {;:": ",;'1"," ,..' ' '~, ~ ~' .. ' {-F: .~ '; , >' ,< ,,'.' I \" "J" ij/~.':,~'.'~', ' t~W,r' ..' " ~~Et':'il' ' , : '~;(;r(. ~:.:: " "'~1.! ,,': j: ' ' \' , ~~';:}',:'\ ' :::/.: ~ ~i . , -' '\ ~ \Y\t (-." " I .~' 1 ""'-.., ' " " , , " . , EXHmlT 5 '. ,'[Offi?crs and Directors of the Transferee / ,assignee, Bell Atlantic Corporation) For additional infonnation, please refer to page In-IS of The GTE-Bell Atlantic Joint Proxy Statement for 1999 Annual Meetings of Shareholders and Prospectus provided in Exhibit 2 in response to Part I, Q. 2a)., , " " ",,' ~ . I . , , (a) Bell Atlantic Corporation, ' Telecommunications "1095 Avenue of the Americas " New York, NY 10036 N/A Trans~eree I assignee ' (b) (c) (a) ," Lawrence T. Babbio, Jr. President and Chief Operating Officer . Bell Atlantic Corporation 109S Avenue of the Americas New York, NY 10036 U.S.A. Officer and Director .': , (b) (c) '.1" (a) P. Alan Bulliner Associate General Counsel and Corporate Secretary Bell Atlantic Corporation 1095 Avenue of the Americas New York, NY 10036 (b) U.S.A. (e) , Officer (a) James G. Cullen President and Chief Operating Officer Belt Atlantic Corporation ' 1320 North Courthouse Road Arlington, VA 22201 (b) U.S.A. ' (c) Officer and Director <) :~:\I!:"~'\\:~; \' ':.., l ,:I:l.l, II I It, -\I ~ .. \, '. ,,' i (. ..,"::,:<\,~ of''. '\ ..,'/ \' ,':' , j,,', 'f ,::'~','Il )),.','/ " . \ ',:tl,i',\ ~ ..} ~ r... " ',I ',--' ',\ ::'. i .) (, I':' r C I . f ' " '/" '1. ,', ' 1/ '\. /' L ....., '/ '\ ; ... { : "\': ./' ,. 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APPLICATION FOR FRANCHISE-AUTHORITY CO~SENT TO ASSIGNMENT OR TRANSFER OF CONTROL ", OF CABLE TELEVISION FRANCHISE ,I I "App]~cation by GTE, Medin Ventures IncorPorated and Be)) Atlantic Corporation , Decemb,er 13, 1999 ' (a) Jacquelyn' B. Gates , Vice President - Ethics and Corporate Co~pIiance Bell, Allantic' Corporation 1095 Avenue ,of the Americas . .NewYork, NY 10036 U.S.A." Officer .. (a)" William F. Heitmann Vic'e President - Treasurer (Acting)' , Bell Atlantic Corporation ,1095 Avenue of the Americas , 'New York, Ny 10036 (b), 'U.S.A;' ' (c), Officer (a) John F. Killian Vice President - Investor Relations Bell Atlantic Corporation 1095 Avenue of the Americas New York, NY ,10036 U.S.A. , Officer (b) (c) Patrick F. X. Mulhearn Vice President - Corporate Communications Bell Atlantic Corporation 1095 Avenue of the Americas New York, NY 10036 U.S.A. Officer (a) Donald J. Sacco Executive Vice President - HUman Resources Bell Atlantic Corporation 1095 Avenue ofthe Americas New York, NY, 10036 U.S.A. Officer (b) (c) , , , (',. / '. .. , I " 1 ':"0'" I...., I " ",.!L " ' :"""'iP" , ~ ~; , ", " , " ...', ", 'l '. '( .,' I"~ , : ~ ! , ~, ':~. ~ " " - > , > ," ~., ,. , " " (b) (c) ", , , ~, ' '-:"j , , .1. ',\ ! .:, , " :...,' (a) . :",,-.... '\2'" ')' j .: , '1< " " "~ , :~) , '. " "-, 1 ; 1-', c, ' \',":','. 'c', ,I .'. ,c /" " " j '( . ,:{, , .' , , '~J~Jf'I'\"'\" ~~', h.> ,'" .~t"\itJ!.:,~ " t~\ri :-:.~'-: ~'.< !{. 'J;-~.l:, ' ':1';'; : ;.::~: :..., '.~. , ,.' " ' .' :. ',. . d, ~~ ~ : ;,~'I ~'," .~.-.:r" ::' ,~' e;: ';.,"\:;",". ; I .: .' '., t' ~, ': ~':.~~'::,'t1...!,~tl/'~./.\""":"j;\dl-..., 'I".'l~~"./,.\~. 1 :,', I"...,,~., ' " . ':; " j', ~f~~!~~~~i~~/~~:/:"~:'>,:,:,"'il,,::!,:,,~,,,:,:~.',..,::<:,><;':',:::,:~,.'.,';.'."",:",:"" .;,',..., .,.' , 'J, ""<;,, t...I.~t.";i,..'.-r,i!.",,~,,'l.'~,.;.,,"', "". ,', '" .'1;:/I'ij',~tt.'~~.'''~. ~>. ,I' J\ ,; ,';' J ,:", ' ," .... "', 'l i'.' ' " ,j " ;.. " ' ' I:,; . j' ," ,t1io,~r.A\.f,){.jJ11.~lf;;,::r1)i,~li"~~JI!l~r-.M..""~':~"t'~~_ " 1 {I J. .'. i-:.~"'''''. ..,.~.~'!IoJ""~u1~ 'il;~..-:M':...t-'"".\:"^4~)t~~,~I' ~ 7-';1 ~ t II,t t,,, ',E '.. -... ~_', ..... I" ..... ('<'r .Ft'....r.JI,~t~ Hr'l.....- 11~ ,'!f,1i'.~" ...\.;-r.,,::f". ..:..."....."..... ",..........' ,--- '. ~ ,I > I ~ " ,; 'c " ,I , " ' '. " , . .. , , ' .' .' ' " ,,' r ",' ',' ,', , , i' ~;'" P.l,oc....."'"J..h~,'....'~r.~.o" FCC 394 ' , ApPLICATION :FOR FRANCHISE AUTHORITY , CONS~NT TO ASSIGNMENT OR ,TRANSFER OF CONTROL OF CABLE TELEVISION FRANCHISE ' (b) (c) , (a) Thomas J~ Tauke Senior, Vice President - Govenunent Relations' , Ben Atlantic Corporation 1710 H Street, N. W. WaShington, DC 20096 U.S.A. Officer , :' '~PP'1ication by GTE Media Ventures Incorporated and Bell Atlantic Corporation . ': ' , 'Dccember 13, 1999 , ''(a): ': Frederick V. Salerno , " " " , ' ': '; Senior Ex'ecullve Vice President &' Chief Financial Officer / "" ',', ' Strategy & Business Development ' . Bell Atlantic C~rporation ' ' 1095 Avenue ofthe Americas' New York, NY 10036 U.S.A. ,;, ' . Officer and Director' (a), Ivan G. Seidenberg' Chairman and Chief Executive Officer Bel~ Atl.antic Corporation' . '. 1095 Avenue of the Americas , New Yorkt,NY 10036 (b)', U.S,.A. ',' , (c) Officer and Director " (b) (c) Doreen A. Toben Vice President - Controller Bell Atlantic Corporation 1095 Avenue of the Americas New York, NY 10036 U.S.A. Officer (a) Chester N. Watson Vice President - Internal Auditing Bell Atlantic Corporation 1095 Avenue of the Americas New York, NY 10036 (b), U.S.A. (c) Officer " , I d' ;,!.lii!~~I;~,:~;~"',(',',?'?} ,::'~n":' \':~.:"::." ........ :' ...: i.... .,?..< ...... ,.,. - ' ,< . :. \ J " I ~ ~ . I: . ,,:": ',.: "I , ~'~ ~, .. /' I' " " , :~. ~" ,l ' ,,' c ~,: 'f, " ,', ,,' ' ".'1 ,.(.;iol.,,,,"'\~ll\~"I:,lt"h~,,,,,,,~~~,t?I~' " ,':.., ' ' .., ' r,., " " " .', . ,,', . ...t.' ~'fJ." -It... '" ,~;, ;o"f ," ~~ .,,\~~ ,lIp \~J~ >~ {,." j-'~:,~"=Jt""1 M" ~(! ~". .:. t~, '...' " '<~.'..~ ...,.. U W4-." ,. f':-'~I"Y'."'''''''~l.'1.l /lh. nl'U L*,'... ," >c,.~It,..~,....... . h' .~. . .' '. I" , ,"C)." .. i " , '. . \ ;... .; , , j '1.t!!f....T ,.' .'.., ,:'/-: ;,' ,', ' , , ~~...... : ( ') ,,'~ ;, .. ....~., --..;;r- ,'; , - ""If ., "..,' "i:',.~:""I':,'..).l,t"I"~N.:'.'" ':,+:,,~ " , l. '" , " I. " , , ' + '!, ,l', \' l' [T , ' . . " , f ~ , : " " ". ',r ; ~~, ~ I -I t ; i: ..,.; "; ;. .v.... ...},....... ',. ~ I..... "' "n: l,>" ' FCC 394 ' ,: ", > APPLICATION FOR FRANCHISE AUTHORITY " CONSE~ TO ASSIGNMENT OR TRANSFER OF 'C9NTROL , OF CABLE TELEVISION FRANCHISE' (b) (e) (a) James R. Young, ' Executive Vice President and General Counsel, , Bell Atlantic Corp~ration . ' , 1095 Avenue of the Americas' , New York, NY 10036 (b) U.S.A. (c) Officer and Director (a) LodewijkJ. R. de Vink Chainnan, President and Chief Executive Officer Warner-Lambert Company 201 Tabor Road, 56-2 Administration Morris Plains, NJ 07950 (b) ,U.S.A. ( c) Director (a) James H. Gilliam, Jr., Esq. Attorney I consultant Brandywine Plaza 105 Foulk Road, Suite 101 Wilmington, DE 19803 U.S.A. Director Application by <:iTE Media Ventures Incorporated and Bell Atlantic Corporation , December 13, 1999 (a) 'Morrison DeS, Webb , ' , Executive Vice President - External affairs and Corporate Communications Bell Atlantic Corporation ' ' '1 095 Avenue of the Americas New York, NY 10036 U.S.A. , ' Officer and Director (b) (c) (a) Stanley P. Goldstein Chainnan of the Board, CVS Corporation Goldstein Associates 244 Gano Street Providence,Rl 02906 U.S.A., Director (b) 'Cc) " , '.", ~ " " '.~;:' ~; j' ~,I " I', '~ :'.~ ," 1 , , , , .,< ;~ '; .. ' .: . , .' " , ,'~ -1 i [' , I,': i' " , , ~ I,,' . " ". " ":' :",' / {."..,..'. i~" '"f , , ", c r I :: :i; ';,,(" ::'~::>.; .; " ,of ' ", c ' .'." ,". ; ',/0.'.' I'. " ~ , ~ ,." ~ , , . , .' , , ' " ,~f. . " .,' , ~ > . ~ i " ~, '; ./, , .' ,', ,; " , ' , , , j' '1,01, " -, , '" ',l,'. " . " .. :<, ,,, '....:o:flv'l~'P.~..~ "r..tl~N9"'l.'I~""J:.,., '. ", :.., " I ,. ","''',' ,......$),i!:t.i' .tt',. t.~ " fr. :-.... ::J,~;t .r' J~1>~~L1";r,.Q.-)~h.-.u.l"."..,;_, ., ,~.....\1- ........: ..off'll( ;::t1'''1- ~.s'~.I-"o.l'I. L.'tt"L l.~,." -'1.-..... ,~>... ''''....'"~ .~, " ' ,~ ~'. .~ " ...~ '" \,':'>. .....~. !~... ~. , '., " . " , ',' .t . ,I <I .:1', 't'-' ...1, _, v'., ,.~ :..,\~~ FCC 394 , APPLICATION FOR FRANCHISE.AUTHORITY . CQNSENT TO ASSIGNMENT OR TRANSFER OF CONTROL' OF CABLE TELEVISION FRANCHIS~ , Application by GTE 'Media Ventures Incorporated and Bell At1a~tic Corporation , " December 13, 1999 ' " '(a)'" Helem~ L. Kaplan ',: OrCounsel: Skadden, Arps, Slate, Meagher &Flom LLP ':, ' " 919 ThirdAvenue~ Room 2972 New York, NY 10022 '(b) 'U.S.A. (c), Director: , . ; , " I -,',' " '. . , c ~, . " . ',\ , '. (a) Thomas H. Kean President, Drew University , 36 Madison Avenue, President's Office' , Madison, NJ 07940.4005 "U.S.A. " , " Director : \ , , , , (b) , (c) ",() (a), Elizabeth T. Kennan , President Emerit~s, Mount Holyoke College 197' County Road ' Ipswich, MA 01938 (b) U.S.A. (e) Director "f,'. (a)' John F. Maypole Managing Partner . Peach State Real Estate Holding Company 157 Lake Drive Mountain Lakes, NJ 07046 (b) U.S.A., (c) Director (a) Joseph Neubauer Chairman and Chief Executive Officer, , ARAMARK Corporation 11 01 Market Street, 315t Floor Philadelphia, P A 19107 (b) U.S.A, (e) Director , ' \ ~ ...,J : -0..; ~I ~ -1'1' .c:. ~ I . ' It"..~ . c' , , ! ' .",. 1'1 '., " / , t: , .' '. ',,' r " ,I,~',:, ',,',i,J'c > \~ , ,)~I,. , "~ , t' , r r '. " '~ ~', / : , c , !'c ":1 , ., '. 'I , , , " . ' I . j ;, \,' c, ..' .,'>1 ,-to'.""'.J' ~~~~~:;,:;,:~!.':,)'?~.'(:,:\' '.: .. .';;:,:i;::.: . ~l':\f':I, ':,' " ' " ' ,,' 1. : , '~:~;:,:', : ,::,' ,},::',;:':',:' .'~:~.,":,;!~":',<~;,,,' ".. ,. r " , ',', '. ,.'. :' ! I' : < ~ ,+' . ':- >"1 . , . ., , .' '."l ,. " " " ,. " -;;c "',,::~,:\," : " '," '. ,'" '. ~ ~ I:,: , . , c ~ I , \ c' ,"" I ~ " ,,' ,I, " ' , , < " " ,'~ ~ J ,~' ~ + " ", '. . :, .' . , , ~_', rLJ~t},'t,:,~~,:~.>>~~,~'\\t':::J~~!.~~\.~:!l.~'~~N. '+t =, ...;~"" :..._.."''',.-h'"'';'o..'.H.l!JW. .,;~'}c~.r,l\'~'i"/,.j.,t'~>......J. ....~.'~ -.,H ,', .. c ' , ::".'" ': <'\ " .:(~' , , :: " . ~ ,~ ' ~ ,\ ;1' , t ::~, .' . ~ .1 ';'l. , ~ I.: ' ".'. :'1'4 ",,:' ; , I' , " , " '. ,I,' . '! , , -' ,~...,....J'...,"O..~..,'~'t.,.., r' $'l,i~~.' .1...."..>", ~~ ,: > "(1/7)':' " , , , ,.I,t~;r.: ' , , FCC 394, , , APPLICATION FOR FRANCHISE AUTHORITY . . CONSENT TO ASSIGNMENT OR TRANSFER OF CONTROL OF CABLE TELEVISION FRANCHISE, " , Application by GTE Media Ventures Incorporated and Bell Atlantfc Corporation' " , December 13, 1999 . Thomas H. 'O~:Brien , Chairman and Chief Executive Officer~ PNC Bank corp. '249 5lhAvenue, 30th Floor ' ' Pittsburgh, PA 15222-2707 'U.S.A.' ' , Director Eckhard Pfeiffer , President and Chief Executive Officer, Compaq Computer Corporation , 7 Siiddlebrook Lane, Houston, TX' 77024 Genn~y Director 'Hugh'B. Price Preside'nt and Chief Executive Officer, National Urban League , '120 Wall Street~ 81h Floor New Yark, NY 10005 U.S.A. Director Rozanne L. Ridgway Co-Chair, The Atlantic Council of the United States 2695 Marcey Road Arlington, VA 22207 (b) U.S.A. (c) Director (a) Walter V. Shipley , Chainnan of the Board The Chase Manhattan Corporation 270 Park Avenue New York. NY 10011-2070 (b) U.S.A. (c) Director v I ,1' \", : ...'1 ,~:> ~.:,~<~;'.~: ~ ' , . .,1'," . , ;, :, . ,..' '~II ': ',', "'~;"'I\ "::'.';":<;<,;\:1 , " , i~ , " ~"i;'.'"t"L ~... "'''t.I'Il~ r-~ --=-_T~-:'-:;"" < "t ~ .'.~ .;. ~ ....,. ,...' ,. .' .,-.. '" ';--",'.'~ \,;."" 1",., ,~':~ I" ,', ~ :: - ',"-1 \, ~lf~~lJ)\~~..;.,~,~rt:'K.(Jfi,r~ 1"'l"',l""!:':'I:JIJr':'/':~!\i( ~':'-f'.'~.:'};'j'~o'-l'\jL 1,', ,V'I 1;rlitlr,:1}Yr.;i~~;;\:;;:;:,:{ ;/;. ,?(::<:; \~:\f;;'i';" " ;':;' :" ' " " ,1~i:,'l~'~}"~;'~r / ..:. 'ir", ,,' ,.... ,I., " ,r,j" ~ . 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' " . ,!.c :, ,:':: i', j..:;(~:\;:";,",i:':,\i':::""I"~" ~':,~" ,~. '. I CI.~': P. i, '. . ,'. , \~ ': c.~ , :' l'< ," cl" ~ ~, , I',..,..". l.r .' i Ii,. ". '~ .' -.. ,~' :. i,!; ,. ~ ~: '} ,:" ,',.-; ,t ~ ~ f ., T ",'I 'f ,";, ~~ ' " , : I,~. , ,', j. ." , " " !. j. .," . , , :,1':' :.' , , , . /, ,c.\ ~ ::' .; ":::,"".:i,;:';'i:'" ,..)., ." : :'. ~t~"" "'!l,l_ ,.'1, l'+ I ~ 'r , . ., ." ':., ';"t-: , ' ~ ,t < ~ oj: , '~ " ,. '. t ~ :' " ,,' " :;1 J' ~'::!: I "-( .; ,~\ I :. ,i.,' / '~f " , ,: . (1 ..-t 'L:~',".~:l',~.' "'. ,:l'l~'~\..~ '.,..>l'c:;I,\~:...~l.;:'.....-~~')-.,.....-;'C"io..;.,.. ..~ ;...~ no:. ~~ ,',1 t' ....1 ,",I', II ,I ;1 , (I :1 ,I ;1 ;\ " I I 1 ,>rc' > , , " ~: I . I' ,c ),;,' " ;\J, ',;, " , I~ ',' , ' ! I~, r' q> FCC' 394 APPLICATION FOR ,FRANCHISE AUTHORITY ,CONSENT TO ASSIGNMENT OR TRANSFER OF CONTROL OF CABLE TELEVISION FRANCHISE, [, )'""'0' I 'j ~ , ~ I c " ~ ... :,;,.' "...:~ " \" ,: " ,; ; " , '!..", '(a)' )' :'/ ;, '\'T ~ ~': ~ !') 1\ '~I . < ,~', , :~,i:' ~ ,: " , " I,' ' ',.;1'1 ", !: ,I 11 jl I, '\1 ~ j ,I I '. g: :,'; I (b) (c) " \! .; : ~ ;,\;' ", ",:. '. " ' " i '.. ' ;, ~ ~ ~~\.:,,' c " t" ,'i-, " , ~ T! ,,'I::' , . ~ j ;', I~~r 'I'~ ,~\ " :, , I I" ,', G . 'j .. T. ';. ..r " ':::. ..~ : ; i ' " . ,~> . " . , " !It .: ~" ~.; :, " ' , " C r.' " , ! ' 'L'. j' , ", '. ,':", , . "~I' I". ' ,.:. , " , I ' , , ~: ; " \",1, " '. ... . ,',' 'c.': ': ~ ,::,~' ,<:'< >,::,:,.,>..q :: "::" " . , ~ :" ' ,:>1 . '>', .' " j , , " , + ',' ,'; l I, ..., :1,; , , . ' C, " " ."., " . 'I, ' ~ : ~ ,~"J, t:, :'~ I \; " i ,I , '. , ~ " p ~"I ' I " , :.. ,>: . , , , ..' ~,..,"~" ~'j:t1~d~>.'I'I'l'\",~'."Ic.c,''''",r.~'''':r''''.,",,'~ '~.'."~ . . "\ :' ~,~~~.~>.n:J\ It: ,'h?;lt,~lf,~hft.~,l''t.;.";............, , 1 ,_lM"-''''~'''&''!''''!.' .I.'l',"..,.....~."~...".~ ,,~~ "" . ,', " . , ,'",' , ., .",' . , ., i; , !.~.. ~ " ,~ . , . 1"'0' - '! I " I' " ~~:. " , " .,l, '; '. ,/ '" -1;, ' / ',. '.' ~ l '~, ,',.., " ' , " c > r...~~ . \". 1 '....,.;/' \J .. '~l, rJ' ....." .~,<' ,...,.... , , " .' ~!, , , :1 . " " " FCC' 394, c , APPLICATION FOR FRANCHISE AUTHORITY 'CO~SE~T TO ASSIGNMENT OR TRANSFER OF CONTROL, ", , , OF CABLE TELEVISION FRANCHISE " '.. Application by GTE Media Ventures Incorporated and Bell Atl~tic Corporation , December 13. 1999 " EXHmlT 6 (Section lIt Q. 3) ,! " [If the ap'plicant'is a cOIporation or' a li~ited partnership. is the transferee/assignee .' . fonned, under the laws of, or duly qualified to transact business in, the State or other , 'jurisdiction in which the system operates?] , .,'.' . , II ' ~. :,;, . I ,(' \,' , , ~.... < ' , ,.,,' " .,,' , ,~ . ", < II> O.T.' ',1,<' '. , T;', ~ , , . , .. Bell Atlantic Corporation is not presently qualified to do business in the State of Florida and does nol intend to seek such qualification in conjunction with its merger of ' . equals with GTE Corporation. GTE Media Ventures. which is qualified to do business in' . Florida, wiUcontinue following the merger to operate the franchise in accord with aU legil,l requirements ~d obligations, and will remain responsible for doing so. , ,! " , . . I, : ~r . ~'~. ~ '< I : " ': , :i; " , 1: I,.r , , .,\ ,! ," I'...,. 't\ " '"y n r " " , ' ~,' .,' ~ ~ ., ," :, " :, ' "j~ I. :", ~ ' + ' " "c', ~ ~' ,i.':\ I : ~ -~~~- " I -'+ '. --- _._~--"------------- , '~': .: ',",::'; ''..' ~ ';,' ::':<:',~~/~:; ,:" r> , " '1.-. ' ,'," ) , ,t., d, .. d' , ' , , .,' .;;- " 1, ' '\. " , . ~ . ,','. /" , '. " ','i """\,z'::.q,:",, , < c ' ' '. '.' , ' . ~ \~; , , ~ ,I ,. ,.' ~, ," ' i. : ~ ; ,', " . ~ _, ~ I' , .' .' ~ I " I > , , '1:, ; " . " , ,. ~ , ' '" I ' ~ftL'ft't"" \~" ~H',"'" ".~, j.,,~,h\ ,lW~t :}~...~;Jtt"~l:ll. ~;. , . , .- c~...._..l:................~;y> .1-o'...)J.fVr;....' ..., ~~ ..- ,"- -, r c ,. " , ' " , , ,~ :...' ~.., .!! ,.., ~ ..,. J' "0 , ~ ' ~"' ~,. , " . . ,.' "!.r!,tf. ' I, .J , . ~ :':,' ':, ' ' : " .'1' I.', ",' . " " ,I ' ~ '; ,;., , '. I ~ . " " ~ "F ,', ' " , " .. ': < , " :. . '.. " ,', ~',,' , r,.,), " \;' ,'J -... , ".'..' " ,. . ~"', , I , ' '\, , ' FCC 394 , 'APPLICATION FOR FRANCHISE AUTHORITY CONSENT TO ASSiGNMENT OR TRANSFER OF CONTROL ' ',' OF CABLE TELEVISION FRANCHISE " ;' Application by GTE Media Ventures Incorporated and Bell Atlantic Corporation December 13. 1999 " ,EXHIBIT 7 (Section II, Q. 7) , , , [I?~ documents. instiuments, agreements or understandings for the pledge of stock of the transferee/assignee, as security for loans or contractual performance. provide that; (a) , voting rights 'will remain with the applicant, even in the event ofderault on the obligation; 0>) in the event of default. there will be either a private or public sale of the stock; arid (c) prior to the exercise of any oWnership rights by a purchaser at '4i sale ' , described in (b); any prior consent of the FCC and/or ofthe franchising authority, if required pursuant to federal, state or local law or pursuant to the terms 'ofthe franchise , , agrecm~t will be obtained?] , . There are no documents, instruments, agreements, or understandings for the pledge of stack of the transferee/assignee as security for loans or contractual , performance. , " , " -- --------~ - -- -- -- -- - ----- , ~.'" " t' ,C,' ': , . ~ . , " '~ ,I > , " .,' "\1 " , ). t' " , , , '1 ' ,', ,/ " I ',,' , ' .' J ~ \ ,,,,'. j,' 0 ~~~ \, I I 1 i I , I , r i l , I , , I r I ! i \ 1 ,I \ I -__-LI _~ -, 'I ' ".' I ...~ \ ~ , , . ~ ~~.':'. J ' '~J~!'1I:rt~ti;}!I.";"/:i<:;:':':~; ;:',:~- "t.' ;'. .."."', '.' " :: :.: ... ' :.' '.'. . .... ..' ...., .... .~,~'1" ,:,.t -'j 1:, ' " , " , , " ", , i~\(!l'~):'::,:,:";~;;;':,i:!:{l;:::'''/~:\:,':,,::i; ;:: .:. ::..,<~:. '.. .~'.;. :'.. ,,' :'i:.::. ,.,'" " . , " ,.~.l~ , 1'~J''j. ~ ' ~.ll, ...~...tt~. "';" ;-J". 1..,. l/, 'l . .~, I. ' ' ;;:!!t>,, i;",,()::~i/;!!,l :,";'!'{:i;i;\;:.'\'~',,i),,'.;;,/o; . . .....;.:'; t':: · '. : /, . ... ';. '..' '.' .':.....~t~r\~('u. -r\jJ(\'~t~.r:~-V?-'.l~~....~~r~~'~y;""~~,i\; . c, ,:::.: ,. :_ ,v~_.h~W""''''''''''~,=1.:1~' \. t:lflH.;....'.,..............'Ii;'ioJ; ~.n"''' "H'>--"'~"~,,,,,... , , ,ICI, ~.",y,::.':,'~ I ~~")' ", - , ,I.fl;;.." . , ' ! ~ :': ~. : I 1 .., "~, J. ' " , , . , "I' .l ' '" ~ "I .. " , ~ ,t~~'~ I~. -'/.>, . ' :~;.~::;,..~ ; "", "I ,.' I ,I '<, C ,~ ~ . I, , ' " : , , ~ ~ l,. . '~ .......: .' ......., ,,; T' ,.....: . -'. \' :'.?, ~ ......,' !:~.':' .; ~,~'..,'. .~, I~'" ,.;. , I " ,:;. ,,> C , I" I'C)' ~ . Jtt< 1 ' FCC 394 , APPLICATION FOR FRANCHISE AUTHORITY " CONSENT TO ASSIGNMENT' OR TRANSFER OF CONTROL ':-- ' OF CABLE TELEVISION FRANCHISE, ' , , " 'Ap~lication by GTE' Media Ventures IncorPorated and B~ll Atlantic Corporation '.. :' " , ,: " December 13~ 1999' ,', " , , ~ > " : " , , .\: r, l EXHIBIT 8 (Section III, Q. 2) '.: '" t ' ' - .. " " ' , ;' "', [Attach as an Exhibit the most recent financial statements, prepared in accordance with " generally accepted accounting principals, including a balance sheet and income statement ',' for at least one full year, for the transferee/assignee or parent entity that have'been " prepared 'in the ordinary course ofbusiness~ if any such financial statements ~e routinely prepared. Such statements, ifnot oth~lWise publicly available, may be marked" CONFIDENTIAL and will be maintained as confidential by the franchise authority and' its 'agents to the extent permissible under locallaw.] , , , j' ,', \" ,~ , , , r r.' C (", ' \ " I' :,\ " :- , . Attached are the F0l'lT110-K for 1998 and the Fo~ lO-Q for the third quarter 1999 filed with the Securities and Exchange Commission by Bell Atlantic Corpo,ration. ~ < . " '. , t' ........' "") \' ,; , " ',', ,\ o ,.'... I ,,.'" . '\' ," - , ~ ;'" , " , __ ___ r_____________~___ ~~--~----------~-----' '." ~ , h. . ~.< ..~l . ''I'' " '\ " . .( ': . , : '{ , , , I ,~, C ," " ". '.., 'c . . ~..~ .....~ , " ,I I'~ ' cr> "'":, ...,fl~,... (~) .~- -..~~'" <, ,'. J: ~'." ~'J\~.,;' :", .,...." !J ..,' 1.lrri.#d States > 5<<uririts and E:Wtmtgt Omrmissitm w4ShingtOt!. D.C 20549 (Mark one) (x) Annu.al Report Pwsu4nt, to Section 13 or 15(d) of the Securities Exchange Ita of 193~. For the fUa:I year tnthd D~btr 31, ,1998 " " or [ ] Transition ~ort Purniant to Section 13 or 15(d) of the Securities Exchange Aa of 1934 For the transition period from to Commission file number 1-8606 Wi~'~;,j :df ~ :,1, 'Ii.{<r ~;/ '~l\\:,,! ~ 'frl,f/\~. ';<':;;\" "<~:l,~ ..~~:'ti""::I'll;'I"I~:t'\\I.?!~'i"(t:"~":~':'C\ "11,""'; ,:I'!;;:"""t"c.:ifj! I";~ ;",:'.:~~/\\-::( ~~, \'i\" /1,</,~IJ'N)r;Jj\i;.~,1t)\. 1:J\ 1..~L;?i':l,;l." ': :,~I~ ., \ '.' "::' /~),1', .i.. y),{i.,I/ i'f!> }'Y-:J" <,,\1'\';') '\ .1:'De 1'1-\ an I f?';', or'PcQra ~~n V:~':f,H:J; ,::,~~,~~~~,'/,,':",L}':'l\"~ ~V"'IA' .~.,~\'~:~tl \~\ '(;.: ',~. ',\ 1, .:~,~, ~., '1.,:"'" : y. .\ .t~~,).~' J"~r'~ }5'.~<\i.~!fi, 't/.: !~J,.~''''!~;~ '~\'t",(.'t: ~ \ "tl.~,',..!...~ /. ,"'1. ~ 1 ,.{\; .'\:\ 'f, j \'l~',. ': '; b. ~~..'.o-~ 1;1I,}~~'~~!itfH\~[ ~\;j~.1~;, "'r-:\:{(.:,,' ;;} ,4~::I~ }~J~ d(~.;'''>;/. :I'..:f.. ~'I.,r;~ (Exact nam~ of registrant as spedJWl in its dllmer) Ddawue (SWf! of incorport%tion) 1095 AVl:l1ue of the Americas New York. New York (Address of principal txtalrM offias) 23-2259884 (1.&5. EmployQ- Idarrijiauion No.) Registrant's telephone number, inc:1uding area code: (212) 395-2121 10036 (Zip Cod~) Securities registered pursuant to Section 12(b) of the Act Title of each class Common Stock, S.10 par value Name of uu:h exchange on whi&h registered New York. Philadelphia, Boston, Chicago and Pacific Stoele Exchanges Securities registered pursuant to 5<<tion 12(g) of the Act: None -- Indicate by check mark whether the registrant (1) has filed aU reports required to be fi!ed by Seaion 13 or 15(d) of the Securities Exchange Act of 1934 during the p~ceding 12 months (or for such shorter period that the regisuant was required to me such reports), and (2) has been subjeCt to such filing requiremenu (or the past 90 days. Yes ~ No_ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 o( Regulation S-K is not contained herein. and wiU not be contained, to the best of registrant's knowledge. in definitive proxy or information statements incorporated by reference in Part II1 of this Form JO-K or any amendment to this Form] O-K._ At January 31, 1999, the aggregate market value of the registrantfs voting stock held by nonaffiliates .....as approximately 593.149,000,000. At Januuy 31.1999,1.553.258,804 shares of the registrant's Common Stock were outstanding. after deducting 22,987.521 shares held in treasury. Documents incorporated by reference: , Portions of the registrant's Proxy Statement prepared in connection with the 1999 Annual Meeting of Shareowners (Part III). I:;,''k-I''!t\t< I:,' :, '"'u 1" ~ t~, iJ.iF~-:}-.:I')' "~: '"\.ti].-f' ;'" , ('... :l t' ~. ~': ~ ~'. ~I l' ..' . " , . <' , \'~' . , H?(!~?~~.:'," . ';:" ' ~:~kj:;(, , ' " ~', i~:"'.:: \ I ',' I" ,~<' ~ '. , . J }i,~<:,::',~" , ""~~(~~:~F '.'!,i::f ,':'. ,I t,'~~, '" I ~ . f \ ." I I', I, j :. ' '. ' ,,~ ' . j} '> .t~ . " ',' I' , ~,., , , ,'::: { ,. ~ : , ~p :' f~ t:. . , I:t ,:' ,.. .,' , , ,I ~I ~ . '.' . ", " ' >.:.. It... '1 :: ~;, ~ I, .} 1 f.~::~l?" ':: " , I . .. d~~:. ~: 'I.',. ',';',:"::'~"';/\';'{:i""":':"""'~.:I"" .~.<,.\...., ,', I' t,..'~ ',!:",;~,;,< ,~,' ',...,:". . _ . . ~', '1 .~c > :..::':!'~' t,." ~ :<;'." . 'I ',~ ,,' "cl~"'> ' :~"{-'i::"~:~" .',.. I I , , ' I , I,' ~, .: ,", ~ ~ ;: . l., t \ . . p , \ J I j . ,;;~; ':;,:;:'.,:?i:,\>';' : 'i'" '''''\,,~,:, ~ S ;' ,..'}-A,:;~,~.tt;,)~)~Nr"'l~'...\...'~":'{, ' ' : .':: II,,' .~:;~:;L':,._~:'~ ,...,~.,,"'....:^',. ,'". ::. .."', ......... ,~. ...:. _' : ," , " , ! '" j , ' > , ' ,1,\ ", ....h_",t: "",:.." :' ...; ',I.".,ll' ,':-h,.~ n "..,. * ~ I ._ ).: " .., d ' '. , .~ : .' ",~"'.,..::> ~, I, '-..' ~ ....~flj " ' \', '! ',.: " . f, ~. ' . ' 0, .:, " . ' <'!, '.' ,I i " ;';,.' 't-"j, "~'I'J'~lt\."'~:.'~'I.r""""~rl""'~'-I..'.j'Y"'h ': ';':~'ll,;":/Tal'J,llf'(Wtorth;n.l$'l/::. :~<. 'I. .;'; .<11 ~, . ~. '~,;, .., ; ,'.... .,.1 , "~..!1 '"~~ ,. ~ \ ~ ", ~ ,". ~ t(I,.t.~ ( . :" ' , , " , .I to', ' ~_. ... ' ",""">,. , f" J ;""-J " PI\R1' I 1. Business 2. Propmi.es 3. Legd Proceedings 4. Submission of Matters to a Vote otSccur:ity Holden Executive Offian of the Registrant PAIQ'D , " 5. Maricet for the R.-gist:rant's CommOD Equity and Related Stockholdtf Mltters 6. Selected Fuunc:ial Data 7. Management's Discussion and AzW}'3is of Financial Condition and Results of Operations 1L Quanritatiw and Qualirative Disclosures About Market Risk 8. FinancW Statements and Supplementary Data 9. <;:baDges in and Disagreements with Accountants on ~Wlting and Financial Disclosure NIttI! 10. Direetors and Executive Officers of the Registrant 11. Execum-e Compensation 12. Security Own~p of Certain &neficial Owners :and Mina:g~ment 13:Cettain Relationships and Related Transactions ' ....- PMT IV 14. Exhibits. Financial Statement Schedules. and Reports on Fonn 8.K , Unless Otherwise indicated, aU information is as of March 29, 1999 .~-') .: 'c '. I ,;; " . ~ . L,.-,.'<' . " ,i;' ", l' "'" :l :vJ 11 11 11 12 12 12 12 ~ 12 22 12 12 12 ----..:.. 13 ',.;:' },': ,. ''-1 >, ,\' ~ , J '. 'j," " " 'l " /, I ...I.~ .......'h . ~:. ,:"t . > .' ...J1~' 'c't, .' \ I I '1d,U;V' ...~ " ......."I.~ ~ Bell Atlantic Corporation was incQrporated in 1983 under the laws of the State of Delaware Ind completed a merger with !>.l'NEX Corporation on August 14, 1997. Our principaJ elCC\.-utive offices arc locakd at 1095 Avenue of the Americas, New York. NeW York 10036 (telephone nWIlber 212-395-2121). Bell Atlantic is a telecommunications company tbilt operates in a region nretd1ing from Maine to Virginia. Our prindpal operating Jubsidiaries are: New York Telephone Company. Bell Atlantic - New Jersey, Inc., Bell Atlantic - Pennsylvania, Inc., New England Telephone and Telegraph Company, Bell Atlantic - Maryland. Inc.. Bell Atlantic - Virginia. Inc.. Bell Atlantic - West Virginia, Inc., Bell Atlantic - Delaware, Ine., Bell Atlantic - Wa.shington, D.C.~ Inc. and Bd.I ArLmtic Mobile. We have four repOrtable segments, which we operate and mmage as strategic bll.$iness units and ~ organize by products and services. , Our sq;ments and their principal activities consist of the following: Docneflic T.-om Domestic wire line telecommunications services - I)rimanly IXIr nine operatinC telephone lubsldl8r1es tnat provide local tllltllnone services 'rom Main!! to V1r&1nill. inCludi"ll Wice and data transport. ennatlCed and c:ustcm callin& feltUres. netwofk access. di~Oty uslsunc:e. I)rivate lines and public telepnones. Tl1is Mament also provides c;us~r premises CQulpment dl$trlbutlon. system!l Inle&nltlon. billing and collec. tions. and tnte/Tll!t acceu servi~s. GIotQJ ~ Wireless teleeommuniC.etions serlriC!!$ to C;U$tomers in 24 Slates In U\e United SUItes and foreign wireless InycstmentS ser.iein& c;ustOmers In Lntin Amenta, Europe and the Pacffie Rim. Dltectl:lfJ' Domestic IInc1lntemationlll publishing buslnessell. Including pnnt direetories and lntemet-base<l lhOppinc guides. as well IS wtbslte cmBtion anti hOsting and oUler electroniC tllmmeree services. this segment has operatIons pnnClpally Jrl tne United Stales and Centl1ll EuroQe. othef~ International wirelme telecommunlcallons Investmtnts primanly In Europe and tne PDCific Rim IlnCllesse frnanc:ina: aM otller businesses. You can find. financial information with respect to our segments in Note 17 to the con50lidated financial statements. PrOltoMd Bell A~ MNger Bell Atlantic: and GTE Corporation (GTE) have ar. proposed merger of equals under a definitive merger agft. as ofJul~' 27. 1998. Under the tenns of the agreement. Gr: ers will receive 1.22 shares of Bell Atlantic common Sll share of GTE cornman stock that they own. Bell Atlantic: will continue to own their existing shares after the merger. We expect the merger to qualify as a pooling of interests. , that for accounting and financial purposes. the compa . .treated a.s if they had alw3ys been combined. The comp! "merger is $l,lbject to a number of conditions. ine1uding c:t: tory approvals, receipt of opiniolU that the merger will and the approval o( the shareholders of both Bell Atlantic We believe that the merger will result in significant Of (or cost savings. revenue growth, technological dev:k other benefits. The combined company will achiev. through economies of scope and ~e, the elimination tive expenditures and the consistent use of the best praf; . Atlantic: and GTE in cost control and product offerings. Based on anticipated revenue and expense synergies. we the merger will improve earnings per share, excluding me c:holrges, in the first year following the completion. We e the merger wUl also generate significant capital synergies higher capital efficiency and higher casb Bow and margin the third yur following the completion of the merger, we annual revenue synergies of approximately 52 billior from improved market penem.tion for value-added s faster development of our data and long distance I which, at an estimated operating mugin of 25%, W 5500 million in incremental operating income; . annual expense savings of approximately $2 billion. \\ generated from operating and procurement synergi\ corporate oVttheads. the migration of long distance' GTE's network. and greate\ dUdenC)' in wireless opera I . annual capital synergiC$ of approximately S500 milti( volume purchasing and the elimination of certain c~ associated with building a data network in our current We are targeting revenue growth of 8-10~ earnini!-' growth of 13-15% (excluding merger-related charges) in, first two years following the f;ompletion of the merger. B year after the c:ompletiol' of the merger, we are targetil growth in excesS of 10% and earnings per share growth i 15% (excluding merger-related charges). As a result of the merger, the combined company wi1l ir incremental and transition coSts currently estimated at S to 52.0 billion (pre-tax) in connection with completing It: tion and integrating the operations of GTE and Bell Atlar caSU consist principaUy of systems modification costs. co ated with the elimination and consolidation of duplicate employee severance and relocation resulting from th, branding. compensation arrangemenu. and professional i tration fees. \Vhile the exaf;t timing. nature and amoun I ), ., '+ StS is subj~ct to change. we antiapale that the combined company 11 record a charge of approximately 5375 million (pre.tu) for rect iJ2Cl'emcbuJ Cosu in the qu~rter in which the merger is mpletecL Tr~hlo;:ion costs of approximately S1.2 billion to 51.6 llion (pre.t:ax' will be incurred over the three years following mpletion of the merger. .. DllllNUc Telclccm '1A4T10N' ur Domestic TelecOm segment, primarily comprised of our nine ,mting telephone subsidill1'ies. provided approximately 81% of '98 operating revenues. The oper-.I.ting telephone subsidiaries uently serve a tm'itory comisting of 31 LATAs., or local access and mspon areas. and provide mainJy two rypes of teJt:'ommunic~- lDS serviCC$: excIwlge telecommunications and exchange access. Exchange telecommuni,ations servic:e is the transmission of tdecommunicatiolU among ,ustomers located within a local call- ing area within a LATA. E:umples of exChange te1e,ommunica- tiom sel'Vic~ include swirch~d local residential and busintss services. low private line voice and data servkes, and Cenuex services. We also provide toU SttViccs within a LATA. including Wide Area Te1ecommuniatiom Service and inttaUTA toll (long distance) scnice. ' E:rclwJge access service liW a CUStomer's premises and the trans- mission f.1c:ilities of other telecommunications carriers. generally interLATA (long dist:l11ce) amm. Ex.tmpJes of exchange ac:ceJ.S services include switr;hed access and spedal ac;c:ess services. Ie have organized OUr Domestic Telecom segment into business nits operating aaos.s our telephone sulnidiarles. The business units ICUS on spedfic market segments. We are not dependent on any ogle cU$tomer. The telephone subsidiaries remain rC5pon.sible ithin their ~ stNi~ areas for the provision of telephone rnccs. finaIlcia.l per{omunce and regulatory matters. he Consumer unit mnrul5 communications services to residential ustomefS. as well as operator services, within OUr territory (22 timon bOlUehoJds and 6~ million people). 1998 revenues were pproximately $10 billion. representing appro:timately 39% of Iomestic Telecom's aggteg:l.te revenues. These revenues were derived rimuily from the provision of telephone services to residential ~rs. 'he Gfrnm21 Busintjj uwt markets communications and informa. on snvices to .smal1and medium-.siud businesses, as wdl as pay :Iephone services, within our territory. The General Business unit IS approximately 2.1 million customers in OUt territor}' and gener- ted approximately 55 billion in' revenues in 1998. representing pproximately 19% of Domestic TeJe,om's aggregate revenues. at Erzurprise Busirz~ss unit mll1'hts communiations and informa- ion technology and services to lal'ge bu.~inesses and to departments. gendes and offices of the executive. judicial and Jegislath'e branch- 5 of the federal and state government. These services include voice witching/processing services (e.g., dedicated private lines. custom :entrex, call manasement and voice messaging), end-user network- ng (e.g.. credit and debit card transactions. and personal computer- based conferendn8. induding data and video). internetworking (establishing links between the geographically disparate networks of two or more companies or within the same company). network optimllarion (disaster avoidance, 911 service, intelligent vehicle highway systems), \'ideo services (distance learning, telemedidne. video,onferendng) and interactive multimedia applications services. The Enterprises Business unit also includes the Data Solutions Group whi,h provides data transmission and network integration servia:s (integrating multiple geographkally disparate networks into one systtm), as well as IP based solution:; (communi. cations using internEt protol:ol and internet'servkes, including high-speed internet acceu and web hosting). Global Networks. a unit of Data Solutions Group. is building a next generatiun long distance network u.sing ArM (asynchronous transfer mode) tech- nology. 1998 revenues were approximately S5 billion, representing ~pproxima~ly 19% of Domestic Telecom's aggrepte revenues. The Ncrwark StTVias unit markets (i) switched and spedal access to the telephone subsidiaries' local exchange network$. and (ii) billing and collection suvkes, including recording. r:ating, bill processing and bill rendering. 1998 revenues Wtre approximately 56 billion, representing approximately 23% of Domestic Telecom's aggregate revenues. Approximately 75% of totaJ Network Services revenues were dedved from imerelCChange camers. Most of the remaining revenues.ame from business c:ustomers and government agencies with their own special a<:cess network connections, wire!l:$S compa- nies and other local exchange carriers which resell network connec- tions to their own CUStomen. ","\-~l... TnECOMMU"IClTIOJICS ACT elF 1996 The Tde<:oO'Ununic:atio1U Act of 1996 (the "1996 Ac() became: effec- tive on February 8, 1996, and replaced the Modification of Final Judgment (the "MFJ"), a consent decree that arose out of ;In antitrust action brought by the United States Departrn~t of Justic:e against AT&T. In general, the 1996 Act includes provisions that open local exchange markets to competition md permit Bell Operating Companies (BOC). including ours. to engage in tnarlufaetUring and to provide long distance seNi,e under certain conditions. First, the 1996 Act permitted us to apply immediately for state approval to offer long distance services originating outside of the states where our operating telephone subsidiaries operate as local exchange c:trriers. Our wireleS$ businesses also were permitt!2,!2 immediately offer long distan,e services without having to comply with th~ conditions imposed In waivers granted under the MF}. Se,ond, the 1996 Act permirs us to offer in-region long distance services (that is. services originating> in the states where our tele- phone subsidiaries operate as lotal exchange carriers), once we have demonstrated to the Federal Communications Commission ("FCC") that we have satisfied certain requirements. The requirements include a 14-point "competitive checklist" of steps which we must rake to help competitors offer local services through rtS1le, through pUT,hase of unbundled network elements, or through their own networks. We must also demonstrare ro the FCC that our entry into the in-region long distance market would be in the public interest. ') , ; jl; \"~--t;,~/" ,- ..- , --~ " The U.S. Coun of Appeals rejected a constitutional challenge to thest provisions, and the Suprttne Court recently declined to review that decision. During the period that the case was pending, we continued 10 work through the regulatory process at both the state and federal levels in order to be in a poshion to demonstrate compliance with the cha11mg,:d pro..isiom. The U. S. Supreme Coun tecently revemd a U.S. Coun of Appeals . deciJion that lud invaJicbred certain aspeas of the FCC rules impie,. menting provisions DC the 1996 Act. In particuJar. the Supreme Coun reinsbted the FCC's authority to adopt rules governing the methodology to ~ w~ by. !ute commissions in setting prices for local interconnection and reule arrangements. and reinsuted rules that ~ow competitors to choose individual terms out of negoti:ued interconnection agreements and that prohibit incumbent 10c.a1 tele- phone companies from sepanting network elements that alre;zdy are combined in the in~bent's O\vn nt:twork. The U. S. Supmne Court tho deaded that the FCC had applied the wrong $tand4td in determining what elements of their networks incumbent loea1 telephone companies are obligated to make avail- able to competitors on an unbund1<<l basis. Among other things, the FCC faUed to account for the raa that .some elements are available from other sources. As a result of the decision, the FCC must conduct a new proceeding to apply the correct standard. Pending th:at proceeding. we: haVl: inlonnaUy ~ to continue offering the fCC's previowly specified list of unbundled elements. In addition. a cballenge to the .substantive merits of the FCC's pricing rules mnains pending in the U.S. Court of Appeals. 10 Apri11998. our opm.ting tdephone subsidiary' in New York filed with the Nev.- York State Public Service Commission II statement setting forth additionlll commitments that we will make to the FCC in connection with our anticiplted application for permiJsion to enter the in-region long distance market in New York. Those commiune.llts include terms under which we wiu offer combina- tions of unbundled network elements and an unbundled nerwork element platform (UNE-P) to competitors wishing to provide basic local and ISDN.DRI ~a to business or r~idential customers. Wr: will offer UNE-P for basic local and ISDN-BRI service throughout our New York operating area. but UNE.P ",.m not be available to compttitors for other $ervicC$. or for service to business cUStomers in those parts of New York City where there is a defin~ level of loc.al competition from tWO or more competitive local exchange carriers. Our commitment to offer UNE-P will be for four years in New York City and other major urban areas and for six }'~rs in the rut of the fotate. We believe that the terms of these commitments generally are consistent with the recent Supreme Court dedsion. We expect to file in the second quarter of 1999 an application with the FCC for permission to enter the in-region long distance market in New York. We hope to begin offering this service in the third quarter of 1999. following our application for New York. we expect next to file: &pplications with the FCC for Pennsylvania, M.usachusetts. New Jersey. Virginia <lnd Maryland and, subsequent- I)'. for the remaining states in our territory. The timing of oUt long distance entry in each of our 14 jurisdictions depends on the receipt of FCC approval. > We are unable to predic:t definitively the impact that the 1996 Act wiU Llltimate:ly ha.ve on our busines.s. results of operations or finln. cial condition. The nnandal impact will depend on several (actors, including the timing. e:x.tent and succesS of comperition in our markets. the timing and outcome of various regulatory proceedings and any appem. and the timUlg, extent and success of our pursuit of new opportunities resulting from the 1996 Act. FCC nEQUu,tIOH AHI) INn:RSTATE RATES The operating telephone subsidiaries.ue subject to the: jurisdiction of the FCC wirh respect to intersbte services and certain related matters. 1n )'998, the FCC continued to implement reforms to the interstate ~ccess charge system and to implement the "universal service" and other requirements of the 1996 Act. ACCESS CI1ARG~5 Interstate Il:CCSS charges are the rates long distance amen pay for use and availability of our operating telephone subsidiaries' facilities for the origination and termination of lnterstate semce. The FCC . required il phased restructuring of a<:cess chuges, which began in January 1998, so WJt the lelephone subsidiaries' non\Uage-~nsitive costs will be recovered from long distance carriers ~nd cnd-users through flat rate charges. and usage-sensitive cosu will bt recovered from long distanu Clrriers through usage-basw. rates. In addition. the FCC lu.s required that d.iftCrent levels of wage-band charges for originating and for terminating interstate: traffic: ~e established. PRICE CAPS Under the FCC priCt up rules that apply to ititc:rstate access rate$. each year our price cap index is adjusted downward by a faxed percentage intended to refle<:1 inaeases in productivity (the produc- tivity hacr) and adjusted upw3d by an allowance for inflation (the GDP.Pl). The current productivity {;actor is 6.5 percent. These changes will be reflected in tariff changes that will be filed to take effect on July 1.1999. In October 1998. the FCC initi;ated a pro<:etding with respect to its price cap rules to determine whether a change in the current productivity factor is warranted. whether to continue iu "m:uke1 based" app:'oach of allowing marJcet forces (supplemented by hs price cap rules) to determine access charge levels, and whether to afford additiom! pricing flexibility for a~ss services. In addition, we bave petitioned the FCC to remoVe our special access services from price cap regulation on the grounds that customdt of these Rmces have competitive alternatives available, and a challenge to the FCC Qrder establishing the 6.5 percent productivity factor i$ pending in the U.S. Court of Appeals. We are unable to predict the r~sulu of these further proceedings. Ul'JIVERSAL SER\llCe The FCC has adopled rules implementing the "universal service" provision of the 1996 Act. As of January 1, 1999, the: rules require each of our operating relephone subsidiaries to contribute approximately 2% of its interstate retail revenues for high~cost and low.income subsidies. Each of our operating telephone subsidiaries are also required to contribute a portion of their total retail revenues for schools, libraries and not.for-profit health care. Our optrating tele- phone subsidiaries will recover th~ contributions through interstate , I ' , j 1'. ' .' '. ~ . + -:.,.' I. , , :..:!:, 'Y I j~ t. :1 ~ ' ~ " arges to long distance curim aDd end-users. Our domestic wirdes5 . ' mpany IS rtqui:red to contribute to these univmal SttVic:e programs Id will rea:rver the cost of its contributions from end-users. new fcdcnl high-cost universal servi'e support mechanism for )nrutal c:uriers ;and an increase in the funding level for schools Id libnrics arc txpcaed to become effective in 1999. The FCC lfTentJy is considering. in conjunction with a recommendation ,m a joint board of federal and $Ute regulators. a number of issues at couJd affKt the size of the univma! service fund (or high cost Cat and the amount of universal service cosu that are anessed ;alnst oW' operaring telephone subsidiaries and domestic cellular .bsidiary for reCO'1erY. ' . . rCIPROCAl COMPENSATION 'c luave been required by cmain state regulatory decisions to pay cciproaJ com~tioll" to competitive loal exchange and oth:r .rriers to terminate calls on their networks, including a large tlume o( one-way traffic from aur customers to internet service "Oviden that arc their customers. On ~bruary 26. 1999. the FCC Infirmed that such traffic: is interState and inttteXChange in nature ld Dot subject to the reciprocal compensation requirements of the )96 Ar.t. B<<ause the previOIU lUte regulatory decisions were based >OD a view that internet aCQtSS alJs are "local" rather than inter- ate lInd interexc:hange in nature. WI!' have asked those state .mmissioIl$ to revisit their prior interpretations. l1nlC$S state regu- tors follow the FCC's interpretation. these reciprocal compensa- ~n payments. which were approximately $175 million higher in )9~ are expected to grow to approximately $350 million in 1999. 'ATE RVClULATlOIt OF RATEn AND SEItVICU .ate public: utility commissions rtgWate our opu:ltmg telephone LhsidWies with respect to cerrain intrastate rates and services :and :ttaill other matters. In most jurisdictions the telephone lbsidiaries have been able to replace rate of mum regulation with ~ce reguation plans. ;W YORK TELEPHONE ~ YQrk he New York State Public Service Commission has regulated New uk Tdephone under the Performance Incentive Plan since 1995. be plan is perfOrmanc:e-b~, replacing r.1~ of return regulation ith a fonn of price regulation and incentives to improve service, - ld does not restrict New York Telephone's earnings. The plan caps prius af cunent rates {or "basic" services such lIS residence and business exchange access, re$idt:nce and business local calling and UfeUne ~nicei establishes price reduction commitments for a number of services, including toll and mtraU.TA carrier access services; adjusts prices annually based on certain costs associated with state commission mandat~ and other defined "exogenous" events: and establishes service quality targets with stringent rebate provisions if New York Telephone is unabk to m~r some or all of the tat(;cts. ----.._---~----..--...- CanDectic;:!Jt New York Telephone's operations are subject to rate of return regu- lation. but an incentive reguJation plan which would eliminate regu- lation of earnings hu b~n filed with the Connecticut. Department of Public UtiliI}' Control. ~,............, SElL ATlMmC:-NEw JERSEY Bell l\tlantic-N~ Jersey is regulated under a Plan for Alternative Form of Regulation, which expires on December 31, 1999. A peti- tion has been rued to extend the plan for another year. The plan divides Bell Atlamic - Ntw Jersey's servkes into Competitive Senices and Rale-Ret;llated Services. ' . The prices for Competitive Services may be changed without regulatory involvement. - Rate.Regulattd Services are grouped in two categories: . "Protected Services~: Basic residence and btl$iness service. Touch-Tone, ~cceS5 ~rviU$ and the ordering, inst1lJation and 'restoration of these services. . "Other Services": Custom Calling, Custom Local Area Signaling Services '''CLASS'' services which utilize Signaling System 7). operator services and 911 enhanced service. . There is a cap on basic residence service rates through 1999, but revenue-neutral rate resuucwring is permined. . There is no cap on earnings for Rate-Rtgul3ted Services, but Bell Atlantic-New Jersey mU$t share lllI earnings above a return on equity of 13.7% equally with customers. SEC.1. ATI.ANTIC-PENNSYI.VANIA The Pennsylv~nia Public Utility Commission r~guJales Bell Atlantic-Pennsylvania under an Ahernative Regulation Plan approved in 1994. The plan provides {or a pure price cap plan with no sharing of earnings with customers and replaces r2te base. rate of return regulation. . Competitive Services, including directory advertising, biUing services. Centrex service, p:aging, speed calling, repeat ca11ing, and HiCap are deregulated. . Al! Noncompetitive Services are price regulated. The plan: . permits annual price increues up to, but not nceedin~ GD.:.P1 minus 2.93%. . requires annual price decreases when the GDP-P! falls below 2.93Qil. . caps pricc:s for protected services. induding residential and business basic exchange senices, special access and switched access, through 1999. . permits revenue. neutral rate restructuring for noncompetitive services. The plan requires Bell Atlantic - Pennsylvania. to provide a Lifeline service for residential customers. The plan also requires deployment of a universal broadband network. whic:h must be completed in phas- es: 20% by 1998i 50% by 2004: and 100% by 2015. Deployment must be reasonably balanced among urban, suburban and rural areas. , t'dJ,,' ~ J -- .\ '~ /~ ,t, '., . , , ';'):=',' ~ r. . , '\...JI.l.t;! ,-1 '. , .'. \ " From September 1998 through February 1999. the commiSJloo 'p'onsored a multi-pany global telecommunications settlement p~g aimed at resolving iuue$ in a number of contentious telee;ommunlcations regulatory doc:kets at the c:ommission. The follJ1u negotiation period ended on Much 1, 1999, without a settle. ment amoog all the negotiation parties having been reached. Since the close of negotiations. two group of participants, one of which iududes us, two c:ompc:tidve local ex.:hange cmiers. and a number of mWlldephone companies, have proposed separate Donunani- mous settlements for consideration by the commission in resolving some or all of the telecommuniations dochts. The commission ha.s not decided wha.t proeeduRs. it will (oUaw in addres.dng the issues raised in th=e settlement proposals. ' NEW ENGtANO TEI.EPHONE ~ In 1995, the Main~ Public Utilitie$ Comm.issiOD adopted a 6ve-ye:u price cap plan for New England Telephone. with the provision for a five-year extension after review by the state commission. Ovr:rall average prices and specific n.u: e1emeDts for most services arc limit. ed by a pric:e cap formuia of in1Jation minus a productivity haor plus or minus urtain exogenow cost cb.mges. There is no restric. , tion on New England Telephone's eamlngs. The state co~ion also established a servi~ quality index with penalties in the fonn of customer rebates to apply if service quality categories an: missed. ~U9chu.sett\ In 1995, the Massachusetts Department of Public Utilities approved a price regu1ation plan (or New England Telephonc through August 2001, with DO R$tri~OD on earnings. Ce:rtUn residence e:xclwJge ntes are capped. Pricing rules limit New England Telephone's ability to increase prices for most services, induding a ceiling on the weighted a'ttnge pril:e of all tariffed SeMC:C:S based on a formula of in&tion minus a productivity &clor plus or nUnl1S certain exoge" DOUS ~ In additiOD, New Ecglmd Telephone's service qtW.iry performanct levels in any given month could result in an inaease in the produc:tivity offset by one-twd!th of one percent for purposes of ,the annual price cap filing. J'l~ H,mp$}lirc New England Tdephonc's operations arc mbjel:t to rate of return ugWabon. Rh.odtirJans! In 1996. the Rheae Islmd Public: Utilities Commission approVl!d an inl:tDtive regulation plan for New England Telephone. The plan has no stt term or expiration. although there arc opportunities for annual review by the state conunis1ion. and there is no earnings cap or shar. ing meclunism. Other featUres of the plan include; more stringent service quality requirements, including a financial penalty, and no inaease in residenc:c or business basic: exchange r.ate$ through 1999. ~t'(J'\Ont , New England Telephone's operations are subjcc:t to r:lte of return regulation, but an incentive plan hu b<<n filed with the Vermont Public Service: Board which would eliminate regulations of earnings. BELL ATLANTIC-MARYLANP In 1996, the Public: Serviee Commission of Maryland approved a price cap plan for regulating the intrastate services provided by Bell Atlantic-Maryland. Under the plan. services are divided into six categories: Access; Bask-Residential; Bask-Bwincss; Disc:retionarYi Competitive; and Miscellaneous. Rates for Access, Basic-Residential and Basic-Business are capped for a period of three years. After the cap period. ntes for services in these three cuegories can be inc:rcased or deaea.sed annually under a formula that is based upon changes in the GDP-PI minus a prodnctivity offset based upon cbanges in t~e rate of inflation (CP1). Rates for Discretionary services may be in'reased under the same formula. Rarcs for competitive "mee.s m4lY be increased without regulatory limits. Regulation of profits is eliminated. BELL ATLANTIC-VIRGINIA Effective in 1995. the Virginia State Corporation Commiuion approvcd an alternative regulatory plaD tbat regulates Bell Atlantic- Vuginia's noncompetitive services on a price c;p basis and d~ not regulate Bell AtJ.antic - VU'ginia's competitive servi,es. The plan includes a moratorium Oil tite increases for basic: local tele- phone service until 2001 and c1imin2tes regulation of profits. BELL ATl.ANnC-WEsr VIRGINIA In February 1998, the West Virginia Public Service Commission issued an order extending the Inc:entive Regulation Plan until D<<.ember 31, 2000. The Incentive Regulation Plan includes pricing flexibility for competitive services. BeU AtIantic- West Virginia is committed to invest at least $225 million in its network over the thtee-yur period from 1998 through 2000. BEC.L ATLANT/C-DELAWAIU: In 1994, Bell Atlantic-Delaware elected to be regulated under the altmutive regulation provisions of the Oda~ Teteoommuoications Technology Investment ^ct of 1993 (the "Delaware Te1ecoaununia- tions Act..). The Delaware Telecommunications Act provides we . the prices of "Ba.sic: Telephone Services" (e.g., dial-tone and loc.a1 usage) will renuin tegulnted and cannot cbange in anyone year by more than the rite of iafl.1tion (GDP-PI) less 3%; . the prkes of "Discretionary Services" (e.g., ldenta Rlng'" and Call Waiting) cannot increase more than 15% pet year pet "met; . the prkes of "Competitive Services" (c.C. voice n::eS5aBing and message toU service) are not subject to tariff or regulation; and - BeU Atlantic. Delaware will develop a technology deployment plan with a commitment to invcst a minimum of 5250 million in Delaware's teJecommunic:ations network during tbe first five years of the plan. The Delaware TelecommWlications Act also provides protections to ensure that competitors .....ill not be unfairly disadvantaged, includ- ing a prohibition on cross-subsidization, imputation rules, suvke unbundUng and resale service ava.ilability requirements, and a review by the Delaware Public &rvice Commis~jon during the fifth year of the plan. In March 1998, the state commission approved Bell Atlantic - Delaware's request to continue under the Delaware Telecommunications Act until March 2002. :1, .,," i c ~, ' ELI. ATLANTIC-WASHINGTON, D.C. 1 ,1996. the Distrkt of Coh:mbia Public Strvice Commission ?plO'Ied a pric.e cap pIau for intra. Wa.sbitlgtoll, D.C. service provid. :! by Bell Atlantic-Washington. D.C. Provisions of the plan include a tmnof~uryears. through Dcumber3l,l999i three smice categories: basic. discretionary. and competitive; caps on certain ba.sic residmtial rAtes for.the term of the plan. with other b1.\ic rates to cbange with the GDP.PI minus 3%; ~onarr service rate increues of up to 15% annually; elimination of price limits on com"Petitive service rates; and elimination of the reguJation of profits. OMnTlnGN ~tM: cbange$. including provbions of the 1996 Act discussed bove under .TeleQ)mmunications Aet of 1996," rqulatory changes nd new technology are continuing to t:xpand the types of available ommunieations services and equipment and the number of ompetitors offering such scrvi~ We anticipate that these industry b.anges. together with the rapid growth, enormous size and global ~ope of these markets. will attract new entrants and encourage xisting competitors to broaden their offerings, Current and poten- ial competitors in telecommuni,ation services include long istance c::ompames. other local telephone companies, able compa- ie~. wireless service providers. foreign telecommunic;ations rovlders. electric utilities, Internet service providers and other ompanies ~t offer network servius. Many of these companies ,lLVe a strong Illarket presence. brand recognition and existing ustomer relationships. :all of which contribute to intensifying ompc:tition and. may affect our future remtue growth. In addition. " nUIl1bc of major indWtTy participants have announced mergers. cquisitions and joint ventures which could substantially affect the ~opmeDt and nature of some or all of our markets. OCAL EXCHA.NG!: SERVICES 'be ability to offer local ~ange s~ccs has historically been ubject to regulation by state regulatory commissions. Applications rom com.pttitors to provide and resellloal adange services have ,een approved in every jurisdiction in our territory. The 1996 Act is xpected to significantly increase the level of competition in all of -:. .ur local exchange markets. )ne of the purposes of the 1996 Aa was to ensure. and accelerate. he :mersence of competition in local excl1ange markets. Toward his end, the 1996 Ar.t requires most existing I0C61 exchange carriers incumbent local exchange carriers. or "ILECs"), including our 'peraling telephone subsidiaries, [0 ~rmh potential competitors com~titive loc.al exchange carrien, or "CU.Cs") to: purcha.se service from the ILEC for reule to CLEC customers purchase unbundled network elements from the ILEC, and/or interconnect the CLEC network with the lUG's network. rhe 1996 Act provides for arbination by the state public utility :ornmission if an lLEC and a CLEe are unable to reach agreement m the terms of the arrangement sousht by the CL1~C. Negotiations between the operating telephone subsidiuics and vari- ous CLEC$"and arbitrations before state public utilit)' commissions, have continu~d. As of January .31, 1999, the operating telephone subsidiaries had entered into approximately 897 agreements with CLECs covering all of our territory, of which 664 have been , approved by state regulators. We exp<<t that these agreements. and the 1996 Act. will continue to lead to substantially increased competition in our local exchange markets in 1999 and subsequent years. We believc that this competi- tion will be both on a faciliti~ b.uis and in the form of resale by CLEes of our operatlng telephone subsidiaries' scrvice. Under the various agreements i1nd arbitrations discusscd above, our operating telephone subsidiaries arc generally required to sell their services to CLEes at discounts ranging frum approximately 15% to 29% from the prices our operating tdq3hone subsidiaries charge their retW cwtomers. ..-..... t"TRAUrA rott S€RVlr;CS IntraLATA toll calls origin:!te and terminate within the same LATA. but generally cover a greattr disunce than a local call. State regulato- ry commissions nther than federal authorities generally regulate th~ services. All of our state tcgUlatory commissions (except in the District of Columbia, where irItratATA toU s:ervir:e is Dot provided) permit ether amen to offer inrralATA toU services within the state, Until the implementation of "presubscription," intraLATA toll calls were compl~ed b)' our oper;ting telephone subsidiaries unless the customer dialed a code to access a competing .:artier. Presubscription changes this dia1iog method and enables customers to IIl3U these toU calls ush 'j another ~ without having to dW an access code. The 1996 Act generally prohibits, with 'ertam exceptions. a state from requiring presubscrlption until the earlier of such time as the BOe is authorized to provide long distance services origirutinc in the state or ~ years from me etiective date of the 1996 N:t. New York Telephone fully completed intraI.ATA pretubmiption implementation by September 1996. By December 1997. our operon- ing telephone subsidiaries io Delaware. Maine. New Hampshire, New Jersey. Pennsylvania. Rhod~ lsJ~d, Vermont and West VU'ginia had also implemented presubscription. WI: ex.pect to offer intraLATA presubscription in Musachusetts in April 1999. In Maryland and Virgu!ia. the state commissions have dedde4,J.hH intraLATA presubscription n~d not Occur on the third anniversary of the 1996 Act, but did not ~et dates for implementatior.. The recent Supreme Court dedsion reinstated the FCC's authority to adopt rules governing intraLATA presubscription, and the FCC has required that implementation be completed as early as May 1999. Implementation of presubscription for intraLATA toll servkes has had a material negative effect on intraLATA toU service rt:venues in those jurisdictions where, as noted above. presubscription has been implemented before .....e are permitted to offcr long distance services. Howtver, the negative effect is beginning to subside now that presubscription has been available in most of our states for more than one year. In addition, the adverse impact on intraLATA toll services revenues is being partially offset by an increase in intra LATA network access revenues. '., ,"} " (~> ~ \~l~~!'\ . "i~'''(P.j -~ I \ ,-,'/ ,; I ; I ,~' " .., ..', ~ - . ALTEIlNATJVE ACCESS A subsUlnd21 portion of our operating telephone subsidiaries' revmues from bwiness and gove.n:unent L"UStomers is deriVed from a relativdy smalJ numb.:r of luge, mwtipl~lin~ .subKribtts. We face competition from alternative' commWliadons systems, const:nJcted by large end-werst intm:XCh:mge arriers and a.1tema~ rive access.vendors. which are C\pable of originating and/or tenni~ . nating aIls without the we of our plml1be FCC'" orden requiring us to offer virtual caUoated interconnection for special and switched access servi~ have enhanced the abillry of such alternative access providers to compete "1.th us. Other potentW sources of competition include cable television systemS. shared tenant se:rvias and other noncarrier systems which are capable of bypassing OIU' operating wepbolle .subsidiaries' log) plant. either partially or completely, through substitution of special alXt:SS {or switched acces.sor through cooo:nC:r.ltion oftdecommuni. cations tnffic On fewer of our operating telephone subsidiaries' Un!$. WIRELESS SERVICES W'~ ~ also constitute poteIltiaJ sources of competition to our wircUne tl!lecommUllia.tions servil:es. espel:ially as wireless carriers continue to lower their prices to cnd users. Wireless portable telephone SeMC= employ analog and digital technology that allows customers to make and recdve telephone aUs from any location using small handsets. and CUI also be used for data tran.s~ mission. Our inYe$ttnent in wireless services is described below under -Global Wirdeu: PUBt.lC TELEPHONE SEkvIC!S We {ace inaeasiog competition Lo the provision of pay telephone services from other proYiders. In additioD, the growth of wireless communications decreases u.sage of public telephones. OPERArOR SERVICES Alternat.i\'e opc..'ator services providers have en~ into competi~ tiOD with our operator stMces product line. DlroctcMy 1brough Bcll Atlantic: Yellow Pages Company, Bell Atlantic Electronic Commerce ScrviI:l!:S. In" and other subsidiaries, v,-e publish printed and electronic direaorie$ and provide Internet-based electronic: shoppi..g guides, as well a.s web site cution and hosting llI1d other electronic. commerCe semces. Our directory publishing bUsiness produces over 600 domestic: and international Yellow Page directories with over 900,000 advertisers and dhtributes approximately 80 million copies anmwly in it5 regional markets. as well as in Pobnd, the Czel:h Republic, Slovakia, Greece, Gibraltar :tnd China. We provide Qn~1ine $hopping services with more than 10,000 advcrtisen a.nd nearly 23 million visiu per month. J998 revenues from the Directory segment were approximately $2.3 billion. Glo~ Wirol.us 1998 revenues from our Global Wire1CS$ segment were approximate- ly 53.8 billion. UfilTED STATES We provide wireless communiutions servkes in the United States principally through our sublidiary, Bell Atlantic Mobile ("DAM"). and PrimeCo Personal Communicnions, l.p. ("PrimcCo"), a Joint vennue. BAM providell wireless services to approximately 6.2 million customers in the Northwr, mid~Atlandc. Southeast and Southwest POrtioDs of the United SUtes. DAM competes with otber cellular C4UTiers and personal communications service (-PCS") providers licensed by the FCC. Competing providers offer competitive pricing plaz. digitaJ~cbnology. :l:nd enhanced calling featllre's. DAM has introduced new pricing plans designed to meet this Dew competi~ tion, and offet'$ digital service as well as enhanced calling features in its, markets. PrimeCo is a partnership between Bell Atlantic and AirTouI:h Communia:tions which provides pes services In over 30 major , cities aaoss the United States. At year~end PrimeCo had approxi~ mately 902,000 customers. Since 1994 we have invested approJ:i~ mately $1.6 billion in PrimeCo to fund its operations and the build.out ants PCS network. MCfCD 'We have a 47.2% economic interest in Gropo Iusacell, SA de C.V. ("Jwileell"). a tdecommuoi.:2dons company in Mexil:o whose primary business is the provision of wiRlcss telepbone service. The Pemta Group, the otber principal sbareholder of lusaceU. bolds approximately 43.6%, and the remaining 9.3% is held by public sh2reholdcrs. Since 1993, we have inV1:lted a:pproximaecly SI.2 billion in lwccell. In the first quarter of 1997, we CODS1.l.I11II12ted a restrUctUring of our investment in lusa<:eU to permit u.s to assume control of its board of directors and managt.'IDent. At year tnd,lusaccll had approximately 750,000 subsaibers. ITALY We have a 19.71% economic: intereSt in Omnitd Pronto ltaUl. S.pA. ("Omnitel"), lU1ltilian digital cellular telecommunications CQmpmy. Since 1994 we have inv=ted approximately S544 million in Omnitel. At ycar-cnd. Omnitel h2d approximately 6.2 million subscribers. GREECE We have a 20% economic inteltSt in STET Hellu TeleECmftDunic:a- tions S.A. ("STET HeUu"), which bolds one of three nationwide licenses for cellular services in Gte'CCe. At ycar-end. STET Hcllas had approximately 688,000 sub$Cribers. CZECH REPUBLIC AND SLOVAKIA We have an economic: interest of approximately 25% in EuroTe! Praha 5 r.o. and EUl'OTC! Br.awbva a.s.. which biVe ~ optrating cdJulM systems in the Cz<<h RepubUc and Slovakia. respectively. since 1991. INOONESfA We have an economic interest of approximately 23% in P.T. Excdcomindo Pratama. ("Excelc:omindo"), which holds a nation~ wide license to provide cellular service in Indonesia. ".0 f. '~.( . \ " " , ./ . I': . i," ..i' ,'" 1,:/, cl'u ~. ......:~ " - " J ~. C ," : :_ ' 1 the third quarter of 1998. we "corded a durge of $137 million to ijust the: carrying value CJf our investment in Exulcomindo to its rt.Imated fair value. We considered the following factors in deter- lining this charge: . The continued weakness of the Indonesian Currency as compared to historical exchange rates will create additional financial burdens on the company in servidng U.S. dollar-denominated deb'r. The eontinuing'poUticaJ unrest in Indone5ia hu contributed to the amency's instability. The economic innability and prospects for an extended recovery period have' resulted in weaker than expec:ted growth in . ExctlcotDindo's business. One significant factor has ~en inflexi- ble tariff regulation despite rising costs due to inflation. This and other factors have resulted in reduced. expecutions of future ca.sh flows a.nd. aC:C:Ordingly, a reduction in the value of our investm~t. Issues with cash Bow are requiring Exalcomindo'$ shareholder! ' to evaluate the future funding of the business. tu. ....aesaos 998 ~ues from our Other Businesses were approximately 5124 illlion. EW ZEAlAND tie have a 24.94% economic: interest in Telecom Corporation of New :eaIUld limited (-TCNZ",. TCNZ is the principal provider of =1ecommunicarlons seMa::s in New Zealand. offaing loea! SttVic:e. ational and httetn2.tion:allong distance service, cellular service and lltcrnet ac:a:ss.At Dec:ember 31,1998. TCNZ had approximately 1.85 1illion access lines. 565,000 ccUular connections and 160,000 mtemet ccess customers. TCNZ faces inc:reasing competition in most of itS larkelS. The New Zellland government retains a single shue in "CNZ, which gives the government the right to limit residential local ervice price increases to no more than the'rate of inflation and equires a fiat-rate local c:alling option for residential customeES. n February 1998, we monetized our investment in 'rCNZ and ssued approximately 52.5 billion in five year notes. whic:h are xclllngeabl~ into shares of TCNZ It the option of the holder after eptember 1, 1999. Upon exchange by the holders, we retain the 'ption to settle in cash or by delivery of sbares. ...~ tRf'Ar BRtfAtN Ve have' an 18.5% economic interest in Cable & Wireless :ommunic:ations. PLC ("CWC"), which was created in April 1997 hrough tbe merger of Mercury Communications, NYNEX :ableComms. and Bell Cablemedia, following the acquisition of lidcotron Holdings by Bell Cablemedia. ewe provides telecommu. 'lations and CATV services and at Oec:ember 31,1998 had approx- mately 1 million residential telephony lines llnd 837,000 CATV ,ubscribers. n AugUSt 1998 we monetized our investment in ewe and issued tpproximately 53.2 billion in notes which are exchangeable into .hares of ewc at the option of the holder after July 1,2002. Upon :xc:hange by the holders. we retain the option to settle in ,ash or by JeUverr of shares. THAILAND We have an economic: interest of 18.2% in TelecomAsia Corporation Public Company Limited ("TelecomAsia")~ whic:h operates a telecommunic:ations network and CATV system in metropolitan Bangkok. At yev-end. TeltconiAsia h"d approximately 1.3 milliun . telephony lines in service and 350,000 CATV subscribers. In the: third quarter of J ~8, we recorded a charge of $348 million to adjust the carrying v-.uue of OUr in\"eStment in Telecom Asia to its estimated fair value. We considered the following factors in deter. mining this charge: ~.; · The continued weakness of the Thai currency as c:ompared to histori<:al exc:hange rates will place :tdditional finandal burdens on the company in servicing U.S. dolLar-denominated debt. . . The economic: inuabUity and prospects for an extended recovery period have resulted in weaker than expected growth in TelecomAsia's business. This is indicated by slower than expected growth in totzl subscribers and usage. These factors resulted in reduced expcc:tations of future c:ash flows and, accordingly, a reduc:tion in the value of our investment. . The business plan for TdecomAsia wntemplated cash flows from ~era1lines of business. Given TelecomAsia's inclination to foc:us on its core wireline business, these other fines of business may nOl contribute future casb flows at prtVioU5lr expected levels. PHILIPPINES We have a 20% economic interest in BayanTel Te:)cc:ommunicatiom Holdings ColpOratioD C'BayanTel"), a local exchange provider. At Oeamber 31,1998, Ba)'i1lTel had approximately 250,000 access lines. FUG FLAG limited (FLAG) owns and operates an unde"ea fiberoptic cable system, providing digital communications links between Europe and Asia. FUG launched c:ommerci:U service in the fourth quarter of 1997. We hold approximately a 34% equity interest in the venture and b3'o"C invested 3pproximalely S227 million since 1994. We have approximately a 5% interest in the parent company of fUG. FUG Telecom Holding Limited (FUG Telecom). In the fim quarter of 1999, a. sub51diary of FLAG Telecom and Global TeleSystems Group,lnc., a C.S. telecommunic:ations company, agreed to establish a joint venture to build and operate a transoc:eanic: dual cable system to carry high-speed data and video traffic acrouthe Atlantic OCean. The camp.ll1ies expect to offer servic:e in 2000. EmployOtls As of Oec:ember 31, 1998, Bell Atlantic and its subsidiaries had approximately 140,000 employees. Unions represent approximately 69% of our employees. In 1998 we c.ucured new coHernve bugain. ing agreements with the unions. ..-, . ...... .\,) :~Pi~~~ t.;~~ !~1~J~: ~:;"f:t~':. ,t"~,~~;X~t~~~~lt~: :'.:.., ~l.:'/~,~, } ~r;' , ~' >. ~. ~'/~.J:~ ~.~~', ~ ~:... ;,.~~< l~:.' I~-~--~--'~--~J:'~-.~---,~~~~. ", ;."::':"'0~: .<< '~"~'~1",~t~.~.'f.<~ ~ ~i!i~{(,"'~'i)~,;;;~)._,,,~,,li,",......,,l'~l.:\,lr;\~,~"'.' \.~,l; ,\' '~'I.. .1'.' -~' , '~'\".' ' > .. \ : \~.',:",.:,,;. I' .' I" 'J .~ .-, . '<":1 . . "1 'I. ., "~! I' '. l~: . L, . '< '/', ,. I " ., 'I I . " ,l'.r . ~ , .~. ~, c . ~'\ ' i 0' . I ~": , . . . . <" .' . 'T~" \ I . ".. . I "I '. . ~ ~" . '~. " .'. It .. .. ~.: >C I " . . . . ~ ~ ,. ~. ,.: , 'j' I" , I . : I I ' _. ..' t, -<l J I j } '. ...;. ~'1,ji~"i~r":J" ,': ..F....~\.rJ,'1\. ';";. ~'> \.'~i,; I).... L n.'-:",. ,I,):., ,,1', ~ ....: ';1" ~ 'I, , ", . ;:~.<(:,~~: ~ ~)",::~:jt::'~~'.,:~j ~1..:;~.!~~~/~:;\~:~~;.::'~~:,.<~t,:~+I~;-~:>:,~:i:~, r€~ r~/~I~'<'.''': .~ ~ j, .:'~:. I':.~"" . ': ''/ ,J lit. ,.t~". . ~,. " "ll' 1.'\1'" t.. l~l' , . ." _ 'I' :'. ," , :.l~,:.~;.::.'.'. ;':"I'i"<;;;:"':':;"'}'.~,~>~,~'~;/.:"::r':..::." ':"',"\'.""... ..,::,.... ,-:. ~ .:':' ';',<,:..; '. ,,' .. ':"" \.,.. \oIY1'I'I\J;,\t'.!~~V\t*m"t:"""".71i,,''''\f . ~: (,. I ," '. ',,' :' .. . " ,.' '. .' I.. , . . : " Ir~. ~. ~ n ~ II- I.,. ~.l't;;~A o^ r,~4.1t'''.''''''1.l~r..'", I ~~ __ ~-1 ~..;j,~_ ....;.... ,.......~., ot!,t.".{~ t~"'J .... f".....\ ..... "it.... 1 'It~~,.......'l* if"'\o ~~t'.li'" ~....... "'l...: . ,..-....;, ~ \'.~ ~ 1" . 'b.. ",~.J ,..... ".~...... '.~ . " ":. r"... +.: ,.-,:~,,:..':.... I ~.: ' ' I . ',," /. d.". I. i' . t ..'.,: ',. I) "'0 I' . r '\ :,d.:. ..." \;';t . 'I ,~ " I, I'.. ,': .' .,. . , I,. , . '.','. '" -- " () 1:';1" " :!.~.."";; "" r ~'.;~::, " > :;;' :~.~~~; ,', ~, '~i ".:.J ~ . .. '-:: "1 \.' , . ,t' . i' \> ,/ , . ). . . ,'.' ~ ,.. .,. ., ' . " .J;' ., .. ~ '1 .' .: ,.}" " , " , . "..' . ~; :,,}: ,'j -n' ," ! '. '.. . .'.' : ~ . '.' " t;. ..' '.: ' .. , . . ", ..j ." I' w " .._I"u/o'r/. .1, /. " :', " ',' , .'. :1. CtIidIOa.; ...,....t ~ ......s..f.lloIdIC .~'.}:..,:'.. .'. ','" . In this ~UaJ RepOrt on Fonn lOoK. ~'e have made forwarcMooking'. ,'natemeiiu:'These ItatementS are bascd,on our.eitimates and . i W~p~ioD,'and 'ate lubject 'to' risb and unc:riuinties. foi-ward- . 1~lltar.anents indudt the .informati611 Concerninz oUr P<>".1ole : '. or Ulurate! future resulu 0(. operations. ForwUd-looldng state- . . menu A1aO include thOse pfeccded or followed by the wordS "antid. '. Pltes," ~eUeva: '''esiliData,-. .hopes" o~.Jim.ilaf expreuions. For. '. thOle 'Itauiri~u,'we cWm the protection of the safe barbor for . fo~d~lo~king .tatemenu contained in the Private Securities Utipt10n ~eforn1Aei of I ~l' '. ,.' . . . . ' .... I. "\ I' ., iTb~.' ~Uowin's uiJPC;~i &ao~&. along wirh those c&cuss~ ~. '. where in.this 'Anitual.Report,could .ffect future resultS and 'could . awe those IaultSt~ clliI'er materially &om those eXp~ in. the ,fo~-Io?ldng.statements: , . . . . . . '. . miterhny a~ clt~Ses iri economicmndition! in the markets. served by us or by companics in \\'hicb. we have substantial. investments; , .. ma~ '~~ in a~ie technoJogy; the final outcome of federal. lUte and Joa1 rcpzbtory initiatives " and proceedings. including Ubitration proceedings, and judicial . rcvieYI of those initiatives and proceedings. 'paUinmg to. among other mattCn. the temu of intcrcoDnection. a.ccess dwges.univer. lIal ~ and anbundJed network demen.ts and resale ~tes; . . the 'extmtotiming, su= ~d ovualI effreu of competition from , others in the local telephone and toll servicc marlt.ets; the timing and profitability of our entry into the in-region loog distance market; '1 " ,. H '" ,I' .'t ~ f, . .~. ., I ,. .': ~ ,'. ~ ., -I . ,. " ': ' " . I " . " . the ~ and apcnse of our remedunion efforts and dlOSC of our ,supp~ cwtClmers. joint ventures, Dona>ntrolled Investments and interccnne:cting cUrim in adUeving year 2000 compliance; and the timing of. and reswatory or other conditions woci.ated with, the completion of the merger with GTE and our ability to combine operations and obtain revenue enhanccment Ind cost savings following the merger. _:.- . : ~ I.' : I . , , ,.' '., V??iJ,i .:;.,.>:,:::..;.....,., ,:.'.".: ()):':.::;:>:':'" ' :,. .' , ." t ,. i '> '..:'t'.IC"" . I. } ,c ~ . .. 'I', ".I I" ,~ <, "". . "" ~," " . ..~ >~~>'~;.: < ~' , " "':'" <". , \ ,.;' . .. .. , , , "' " . 'I:'n '. ~ 1::. :.;<:I!~,:~J.~.~.::~, , " .' .\"" . ,"\ ~ 5~' ~ ,= ,.,' . :' ;- ~ , ,} . < " ~, :" ; . ~ : ~ c.,ll':' . . ,c,~ " /", . ~ ' .: /. , , ,-,. .:'":1'; :..". . l" I. . /i,":' H. .: ~ i' . .' .' i . ; .l. c '.' "'f " I. I ,." "j !: . .' c.' .> .<, " l~ .:i".. ..:Y'. :..' 1 .' , . ~. .- .' ;, :' ' c, '. . , I.". .' '. I "'. . I.. ~.. . . ~rtr;!,,'/:'H~t.. '''\'''(~'l~Hi''f'''.1\(I' \}.' '; <:.. .;; ~' if." . t:' ~ ~: + c I. ~ I~ ~ /:~'~:: "'u~ ,1, ~; I,: ;'1'.;: ~r!l::~' ;~L;ll" 1'~ - ~ ,I . ,0 c l'.' I, ~ ~ a. -...~_ --~: _ ~_ -- AI - ~ ~ convnunlca1lona pin Cenb'af offtco ~lpment , \..enIj 8lld bulJdqs . . Fumlwnt. 'o'I!tIJcIes and oUNr WOf1( equ~ Other 40.5% 37.9 8.5 " 40.9"- 37,7 8.1 9.5 3.6 100.0'3(, '9.4 3.3' 100.0% )ur properties are divided among our 'operating segments as ollows: ., \' " " ,',.' J j" " .... r " ,.< . : !. , '"' ;.> .'."1.....1n. capital ~ . We continue to make significant capital expenditures to mC'tt the demand (or communications servicl!:S atId to htrth~r improve such services. Capital expenditures for our Domestic: Telecom business were approximately S6.4 bilfion in 1998, $5.5 billion In 1997 an'd $4.9 billion in J 996. Capital expenditures for our Global Wireless, . Directory and Other Businesses were approximately $1.0 billion in 1998. $1.1 billion in 1997 and Sl.5 billion in 1996. Capital cxpemU. turesexc1ude additions under capitalleues. We expect c:apital expenditures in 1999 to total approximately S8.1 billion, including approximately $7.3 ~pJ.ion' to be invested in our Domestic: Telecom .buslness 10 facilir.ue'The introduction of neW producu and ~rvices. enhance responsiveness to compttitive challenges. and inc:rease the . operating dlic:icncy and productivity of the network. This C$timate inc:ludes approximately 5500 million nlated to the implementation of the new accounting standard on costs o( computers software, Statcment of Position (SOP) 98-1. "Accounting for the CostS of Computer' Software Devdoped Or Obtained (or Internal Use." .,--..... -- :IftO 1ft? Domestlc Telecom 92.3% 93,0% . GIobII v.'irWIS ,7,2 6.5 Dlfoctory .4 .4 0Itlei- Buslnesse& .1 .1 100.0% l00.em I I ! " '\'~...:>r,t" "Outside communications plant" consists primarily of .lImal cable. mderground cable, conduit and wirin'g, cellular plant. and tele- ,bone poles. "Central office equipment" consisu of switchlng equip- nent, transmission equipment and rela.ted facilities. "Land and )uildings" c:olUists of land and land improvements, and principally :.cntral office buildings. "Furniture, vchiclu and other work equip- :nent" consists of public: telephone instruments and telephone :quipment (including PBXs). furniture, office equipment, motor {chicles aDd other work equipment. "Other" pt'operty c:onsists ?rimarUy of plant under construction. capitalleues and leasr:hold improvemcnts. -:. The customers of our openting telephone subsidiaries are served by electronic switching systenU that provide & wide variety of $Crvlce:s. The operating telephone subsidiaries' network is in a transition from an analog 10 a digital netWork, whic:h provides the capabilitie$ to furnish adnm:ed data transmission and information manage. ment services. At December 31, 1998. approximately 97% of the access lines were served by digital capability. Substantially all of the assets of New York Telephone Company, totaling approximately $13.3 billion at December 31, 1998, arc subjeCt to the lien of New York Telephone Company's refunding mortgage bond indenture. "'l.,....... .n 5,~,~::,~!',;1;t:<;,;;t:,:'.':::<":',T7?>7":' 'I . .l".1' -- --~---- H. ., , ',' . l~ :r"r..;. " "', >. :',t . .:.,:~1;\,.) c<~~,: ~ .< ~:. I'~ ".:.... <,-, ,"~.. ~ ,. I c I., . '~?r'?'.;~. y,- :," .";0. .. ;' " .>>,.: :: '.: , IN' ~ ,. '. ,I i ';",' " :' ":,; , ':, ", ,,:,i: . " ." . ' . 'I~ ,. '{ , ~ 'h t .' , . t , .'::' ", .~. ~ oJ. . , . >., ::!;"iJ::~,;;, ,,:?';'t':'1r.\ '. " ..... . . "i <' ~ \ ,.'. I . \ ~. :. leI: "C , " ~i '",' I. .. I . I ~: ". -:.': . ;1' c i f~ ;'j .': '".:n .. !' . .,I.:(~ ,t t ... _. r:" ;t.' :.1' ',:',: ,,' ,~;,:~~.-': ,~' '.' ...:::,.,;.'>:',', " " i.,. " .} :,~:'P;";'i ."J~.,~ .''''t.I!.~J~'.~Jt~, .,~~)?~.,.~t~:rl$\'Y''';;\;Y,.,-,~,::'' . '. . ~u- :'.': ~'~'.~~.,...., ~ ...... .;LJ.... .~I~'~" ."1', +~~..:l i.....' ~ ..,.. . . ' ~l , I'. ' .' ~; .' I : j. ... < . .' .. ..; I ~ . J .. .. ." ~ ", ,', " '" i ~ . " , I "... " .' i:', .. . ~ I . >" /. " . I. _ ~ /' . ,\ " .; ~:., . j , ~ , ' , " I' ,', .;, t I..... a. ~ ~ce~ ~' A >- '/') :" '.;,.' ,". ': I' ......;~.Po 1'bm wm no proctedinp rePortable under Item 3., .' r, , " ~~=;:of_tG.~of :~ _ ......,"'......... '.' ..... - '/. . , ' ~ () , Not' Applicable. .' ",.. . ," f':, ~' ..' I ~', . \.', ~J~' r..I~.( r" .~~}.,\q ~.'\~l'~~""'}';'-,(.' 1j~' I"''''('\.~ .1'" ,~1.\.1 "f ,:l. :i E)t~cuJti"c ,offr~crs of.,thc',R~gis~rbnt"" t' ~S'" A'..;I,':f,J .': ~!( \ ':"I~' "/~ \. :.,.r.,...1'<~'~r..(;.: i'~~/.~'r'...~' j.,~.. :'; ,}.:;.. ~..r~ ).'" ~[I'__lt "'~ " . , Set fOrth belOw b ceruin information with tesp<<t to our executive ofiic:m. ;. l~:''"WI''~\ l ",) ~ Mold --. Ate 0fIIc. sa- - Iv8n G. ~re ., ' 52 Chairman and ChIef Ellec.utive Officer 1998 l8wfeOce r. Bab!Jlo, Jr. 54 PresJdent and ChIef Operating Officer 1998 JlSITleS G. CUllen 56 Prellident and Chief Operating OffiCflf 1998 JaCQ1.l&Iyn B. Gates 47 Vice Pres/dent-fthlcs lIrtd Corporate Compliance ' 1998 Aluander H. Good 49 executive Vice President-Strategy 1998 and Cof1)Orate Development Patric:k F.x. Mulheam 47 Vice Presldent-Corporate C<lmmunications 1997 Donald J. Sacco 57 Executive Vice Presldertt-Human Resources 1997 Frederic: V. salerno 55 Senior Executive Vice President and Chief Financial Officer/Strategy and Business Development 1997 'Thomas J. Tauke '48 senior Vice Presldent-Govemrnent Relations 1997 Donlon A.. Toben 49 Vice Presldent...controller 1998' Chester N, Watson 48 Vice Presldent-l~mal Auditing 1997 ,Morrison DeS. Webb 51 Exe<:utive Vice Presldem-Extemal Affairs and 1991, 'Corporate CommunIcations Ellen C. Wolf 45 Vice President-Treasurer 1997 James R. Young 41 Executive Vice Presldent-General Counsel 1997 Prior to serving as an encutive offictr. each of the above officers have held high level nunagerial p~$itions with the company or one or its subsidiaries {or at,least five years. Offic:ers are not electtd for a fixed term of office but Ue removable at the disc:retion of the Board of Directors. .... --:;:.. -= i .-' I " ,; . :,', , ., , ~ ' ~. f~, I' '; ) ~ R.aated stoddtoIthw M.atton he principal market for trading in the common stock of Bel1 .t1antic is the New Yorle Stock Ex.change. The common stock is also sted in the United States on the Boston, Chicago, Pacific,' and hiladeJpbia stock exchanges. As of December 31. 1998. there were .102.900 sbareowners of record. Ugh and low stock prices. as reported on tbe New York Stock xclunge composite tape of trans:1c:iions, and dividend data are as ,Dows: C~11 MIl1cct PnCft Diride"d Higll Low DeeI~rR 998 im Quarter $ 53 $ 42~ $ .385 ~nd Quarter 51~ 441lfi. .385 hlrcl Quarter 50 y,.. , 4Oy,.. .385 ourtn Quarter 61~. 47Y. .385 M7 ,irst QuZlrtl!r S SSo/Lt S 29Y. S .37 econd Quarter 39Y. 2S~ .37 hlrd Quarter 40~ 34 .385 tlurth Quartet 45". 37" .385 IIltcls 24Ot.1 StcC:k spIillSll:late-a II'IC l*cl in Ileana QllMtI' ol1991l unuaDt to the t.emu of an Agreement and Plan of Merger. dated eptember 23, 1997. relating to the merger of Blue Ridge Cellular etephone Company with one of our subsidiuio. we issued 21Z.171 tures of common stock in 1997 and 1,742 shares of common stock in 998, nODe of whic:h was registered under the Sec:uriti= Aa. of 1933. ,~ G. kloctod Flnaacia.' Data "hI! information required by this item is included on page F.Zl of his rl:port. <; ~~~o:.:=:;.==of I ~he inform:ltion required by this item is included on pages F.2 hrough F.20 of this report. '"jt';;; 7-. Quantitative Md Qualitative:Disc1o$UrBs I About Mantet Risk _ . - rhe information required by this item is included on pages F-D hrough F-15 0 f th is report. I-mm a. Fine_I._ Sbltements and SUppl.....nblly Data I /...._~ The infonnation required by this item !.\ included on pages F.22 through f.SI ofthis report. r;t;.n 9. CbaIIges In and DisagrMlHftts wW. J ~:::~fMIb ~ A~ntiag and Financial DlGcIowrtt Not Applicable. ~ For information with respec:t to our exec:utlve offic:crs. sec "Executive Officers of the Registrant" at the end of Part I of this Report. For information with respe~ to the Dim:tors and compli- ance with Section 16(a) of the Securities Exchange Act of 1934. see the Proxy Statement for our 1999 Annual Meeting of Shanowners to be filed pursuant to Regulation 14A. whkh is hlcorporated herein by reference. litem 1L EJtecut1ye ComP~on 1 For infonnation with respect to executive compensation. see the Proxy Statement for our 1999 Annual Meeting of Shareowners to be filed pursuant to Regulation 14A, which is inc:orporated herein by reference.. l=.:=.~--of--- J 1 For information with respect to the security ownership of the Direc:tors and Executive Officers. see the Proxy Statement for our 1999 Annual Meeting of Shareowners to be filed pursuant to Regulnion 14A. which is incorporated herein by reference. r~~n n"lati<M1s!1ips aDd Relat~ -l ~ For information with respect to c:cnain relationships and related transactions, see the Proxy Statement for our 1999 Annual Meeting of Sbareowners to be filed pursuant to Regulation 14A. which is incorporated herein by reference. . . . to, r J'~' ,,' . . /'~ I <l " I:', C '1.~I,:".\.'.~~ '. .,:: ,~'~;: . v. !~:) .40'+' ...~~ ( I \", ,...I -.. -,~/ I .~ <" ...h , ....It'c' ',' ~ ... hportG 011 For-. M . Ca) The following documents are filed as pan of this report (I.) Fim.ndal Statements See Index to Financiallnfonnation appearing on Page f-l. (2) FiriandaI Statement SclJeduJe See Index to Financial Information appearing on Page P-I. (3) Exhibits Exhibiu identified in parentheses below. on file with the Sec:urities and Exchange Commission (SEC) in File No. 1.8606 cxc.ept as other- wist noted. arc incorporated herein by reference as exhibits hereto. EXHIBIT JtU.BEK :2 Agr~ement and Plan of Merger by and among Bell Atlantic Corporation. Beta Gama Corporation and GTE Corporation, dated as of July 27. 1998. (Exhibit 2.01 to Form 8.K. date of report July 30. 1998.) 3a Reuated Certificate oE Incorpourion of Bell Atlantic: Corporation (-Bell Atlantic"). (Exhibit 3m to form 8~K, date o{reportAugwt 14. ~997.) 3b By-taws of Bell Atlantic. as amended and restated as of January 1; 1999. 4 No instrument which defincs the rights of holders o( long- tam debt of Ben Atlantic and itS consolidated subsidiaries is filed herewith pursuant to Regulation S-K, Item 6Ol(b)(4)(Hi)(A). Pursuant to this regulation. Bell Atlantic' hereby agr<<s to furnbh a copy of any such instrUment to the SEC upon request. lOa Bell Atlantic: Deferred Compensation Plan for Outside Directors, as amended and restated ... of Tan uary 1, 1998.. lOb Bell Atlantic: Insuranc:c Plan for Dircc:tors. (Exhibit 10bh to Registration Statement on fonn 5-1 No. 2-87642).. Uk Description of Bell Atlantic Plan for Non-Employee Directors' Travel Accident Insurance. (Exhibit lOB to Registration Stuement on form 5-1 No. 2-87B42.}" lad Dell Atlantic Retirement Plan for Outside Directors. as amend<<l and rnt6lted as of January 1. 1996. (Exhibit 10k to Fonn lO-K for the year ended December 31,1995.)" lOt BeU Atlantic Stock Compensation Plan for Outside Directors. as amended and 'restated as of January 1, 1998.. lOr Bell Atlantic Corporation Direc:tors' Charitable Giving Program. (Exhibit lOp to Form SE dated Mmh 29.1990.). 10fO) Resolutions amending and partially terminating the: Program. (Exhibit lOp to Form SE dated March 29. 1993.). 109 Description of Changes in Compensation for Outside Directors of Bell Atlantic, effec:tive August J4. 1997 (Exhibit IOy to Form 10-Q (or the qUutC'r ended Seprember 30,1997.). I . . ~. . I ~'., I I . \. " ". ~'. '- I ,~. . , . .'. 4 10h lieU Atlantic Senior Management Short Term Incentive Plan. as amended and restated effective as of Januuy 22 1996. (Exlu'blt lOa to Form 10-K for the yeu ended December 31.1996.). lahel} Dcscription of .A1nendment. effective August 14, 1997. , (Exhibit lOam to Form 10-Q for the quarter ended September 30. 1997.). lOi Bell Atlantic: Deferred Compensation Plan, as amended and rcstated as of January 1, 1997. (Exhibh 10i to Form 10~K for the yur ended D<<ember 31; 1996.). 10iW,Description of Amendments to BclJ Atlantic; Deferred "Compensation Plan (renamed the Bell Atlantic: Senior Management Inc:ome Deferral Plan). effective January 1. 1998. (Exhibit 10i(i) to Form 10.K for the year ended December 31,1997.). 10j BeU Atlantic 1985 Inc:cntive Stoc:k Option Plan, u amended and restated as of July 1, 1996. (Exhibit 10; to Form IO-K (or the year ended Decl!mber 31,1996.). 10j(i) Description of Amendment and Administrati"'e Change to Bell Atbntic: 1985 Incentive Stock Option Plan, effective August 14, 1997. (Exhibit 10a(i) to Form 10.Q for the quarter ended September 30, 1997.). lOk Sec:tion 6 (rom Bell Atlantic Cash Balance: Phm regardin~ limitations on payment of pension amounts whic:h exceed the limitations contained in tbe Employee Retirement Income Sec;urity M;t of 1974. (ErlUbit 109 to Form 10-K for the year ended December 31.19%.)" 101 Bell Atlantic Senior Management Long.Term Disability and Survivor Protection Plan, as amended. (Exhibit 10h to Form SE 61ed on March '27, 1986.)" 101(i) Resolutions amending the Pl:m, effeaive as of January 1. 1989. (Exhibit lad to form SE dated Much 29,1989.)" 101(ii) Description of Amendments. effeaive January 1. 1998. to Bell Atlantic: Senior Management Long Term Disability Plan (formerly known, as the Bell ^tl~tic Senior Management Long-TerM Disability and Survivor Protection Plan). (Exhibit 10b(ii) to Fonn 10. K forthe year ended December 31.199/.). 10m Bell Atlantic Salary Program for StEior Managcn. effeaiv, August 14. 1997. (Exhibit lax to Form 10.Q1l1ribe quartel ended September 30,1997.)- IOn Description of Bell Atlantic Senior Management Estate Management Plan.". 100 Description of Bell Atlantic Senior Management Death Benefit Plan, effective April 1. 1998. (Exhibit lOrno Fonn 10. K for year ended December 31.1997.). ' lOp Description of Bell Atlantic Senior Management ,Flexible Spending Perquisite Account, effective January 1; 1998. (Exhibit lass to Form lO-K (or year ended December 31. 1997.)- IOq NYNEX 1984 Stock Option Plan. as amended and restated. (Post-Effective Amendment No. 1 to NYNEX's Registration No. 2.97813, dated September 21.1987, FUe No. 1-8608.)" 11 :,(':,.::t.' "'. . -v " . " " .,-i c I, ~ " :'_; . < ~ ~ ~,": ',:, . :~,' (:',:,", ',',','. .. , . _. ':~ '.'~''i~'~'''J .....".~< ! ' NYNEX 1987 Restricted Stock Award PWl (Exhibit No. (28) (i) l to NYNEX's filing on form sri dated March 23, 1988. File No. 1-8608.)- . NYNEX 1990 Stock Option Plan as amended. (Exhibit No.2 to NYNEX's Proxy Statement dated March 20, 1995, File No. 1--3608.). , , NYNEX 1995 Stocl< Option Plan as amended. (Exhibit No.1 to NYNEX's Proxr Statement dated March 20.1995, File No. 1-8608.). NYNEX 1995 Long Term Incentive Program as amended. (Exhibit No.3 to NYNEX's Proxy Sutement cated March 20, 1995. File No. 1-8608.). '. , NYNEX Supplemental Ufe Insuranc:e Plan. (Exhibit No. to Hi 21 to NYNEX's Ql12rtcrly Report on Form lO-Q (or the peri. od ended lUbe 30,1996, Fi.1e No. 1-8608.)- NYNEX Executive Retention Agree,ment. (Exhibit No. 10 iii 35 to NYNEX's Qu.anerly Rtpon on Form 10.Q. tor the peri- od ended June 30,1996, File No."l-8608.)~ Employment Agreement, dated August 14. 1997, by and between Bell Atlantic and Raymond W. Smith (Exhibit 10aa , , to Form 10-Q tor the quutertnded September 30.1997.). lOx(i) Letter dated April 16. 1998, to Raymond W. Smith , concerning cmploymr.nt-rdated issues. (Exhibit IOv(i) to Form lo-Q (or the quamr ended June 30, t 998.)- lOx(U)Resolutions dated May I. 1998. approving amendments to Employment Agreement of Raymond W. Smith. (Exhibit lOveii) to Form 1O.Q for the quarter ended June 30, 1998.)- Employment Agreement, dated as of June 1. 1998. by and between Bell Atlantic: Corporation and Lawrence T. Babbio. Ir.. (Exhibit lOa to Form 100Q for the ql12rter ended June 30. 1998.'. Employment Agreement. dated as of lune 1. 1998, by and between Bell Atlantic Corporation and James G. CuJJen. (Exhibit lOb to Form 10-Q for the quarter ended June 30, 1998.)'" a Employment Agteement, dated as of June 1. 1998. by and between Bell Atlantic Corporation and Frederic: V. Salerno. (Exhibit 10c to Form 10-Q for the quarter ended June 30, 1998.'. .b Employment Agreement. dated as of rune J, 1998. by and between BeU Atlantic Corporation and Donald J. S.lICC:O. (Exhibit 10d to form 10-Q for the quaner ended June 30, 1998.)- c Employment Agreement. dated as of June 1, 1998. by and between BeU Atlantic Corporation and Morrison DeS, Webb. (Exhibit 10e to Form 10-Q for the quarter cnded June 30, 1998.)~ Id Employment Agreement, dated as of June 1. 1998. br and between Bell ^tl~ntic Corporation and James R. Young. (Exhibit 101 to Form 10-Q for the qU;lMer ended 'une 30, 1998.)" lOee form of Amendment. dated as of Oc:tober 2.7. 1998, to Employment Agreements with Lawrence T. Babbio. Jr.. Tames G. Cullen. fr~dcric: V. SIlJemo, Donald J. S~ccc. Morrison DeS. Webb and lamts R. Young.. IOff Emplormenr Agreement. dated as of January 1, 1999. by and between BeU Atlantic Corporation and Ivan G~ Seidenberg.- ] Ogg .Employment Agreement. dated a'i of October 27, 1998, by and between Bdl Atlantic Corporation and Alexander H. Good.- 10hh Resolution, dated January 24. 1994. granting Lawrence T. Babbio. Jr. c:ert~~n nonqualified stock options to purchase Americm Depo~itory Receipts representing Series L sharc$ of the apital stock of Grupo lusac:cll. S.A. de C. V. (Exhibit' 10s to form JO~K for the year ended December 31,1993.). IOii Form of stock oprlon grant EO Lawrence T. B.abbio. Jr., dated :February 18. '1997. contai1,ing terms and conditions of certain nonqu.tlified stock options to purchase American Depository Receipts repre;enting Series L shares of the capital stock of Grupo lusac:eJl.S.A. de C.V. (Exhibit fOq to Fonn IO-K (or the year coded December 31,1996.). 10jj Forms of Stay lneentiv!: Agreement and Separation and Non. Compete Agreement with Doreen A. Toben and Ellen C. Wolf with mp<<t to the Bell Atlantic-NYNEX merger. (Exhibit lO(fl to Registration Statement on Form 54 No. 333-1 1573.)- 10kk Form of Stay Incentive Agreement. datcdu of November 23. 1998, with Doreen A. Toben and Ellen C. Wolf with re3pect to the Bell Atlantic - GTE Merger.- lOll Form of Stay Incentive Agreement, dated as of November 23. 1998. with Patric:k F.X. Mulhearn and Thomas 1. TauU.- 10mmForm of Stay Incentive Agrcement, dated as of November 23, 1998. with Jacquelyn B. Goltes and Ch~ter N. \"l.auon.. 10nn Form o{ Merger Agreement, dated a~ of Janlury 29, 1999, with Dor~ll A. Toben .md Ellen C. Wolf.. 2000 Form of Merger Agreement. dated as of January 29, 1999. with Patriek F.x. Mulhearn and Thomas J. Tauke,. ~-"'''''. JOpp Form of Merger Agreemcnt. dated as of January 29, 1999, with lacqudyn B. Gates and Chester N. Watson.. Stoek Option Agreement. dOlted as of July 27. 1998. betwecn Bell Atlantic: Corporation and GTE Corporatton. (ExhijUt..... 10.01 to Form 8.K. date ofreport July 3D. 1998.} Stock Option Agrecment, dated as ofJuly 27. 1998. between GTE Corporation and Bell Atlantic Corporation. (Exhibit 10.02 co Form 8-K. date of report July .l0. J 998.' Computation of Ratio of Earnings to Fixed Chuges. Li~t of subsidiaries of Bell Atlantic. Consent of Independent Ac:c:ountanu. Powers of Attorney. Financial Data Schedule. Indicates management c:ontrac:t or compensatory plan or arrangement. " IOqq 10rr 12 21 .,. ~:J 24 27 .. ;,;, i'7rI:~~~:m~w.t;;;~~r;)\'~\;lit[~i';;~')g;:';j;",,;. ': !;; ':::":: '.:: :-!'~:"y,\;,1'~' )"" ii~';,"';': ; "','i';'I;\ ;ii:' : i" Si";~:,'~r: !\~'i}~:','\ i/ff,~;Vt,~~ ,~"\'''f~''':'~t: ~.~ ~.~{t.,.~.\,. i".Jo.1 <.'~~~ J,~~~/"~I."~'!)~', .1._ ":'<~ ,I"} '. ',. " ,i., '~.'" /J:' '. .. ,).', I ~ '~. ," ,~ rJ;..I,....l't"~'(., ~;,:..C ."(.~.:'t\'.,.~t~\.:" .'" ", ,Jr'; .," l.:.( 'j I ,'.I'".~ I" . .,< ,..;; ~iJ>'>\;~;; '~'':',l/;i;!'':'::('<'(.:''''''';'i'''\\~\';I~''f~'''~''''I:' ".".' <"/1.,1:: :'" : ,.,' ';,,; '1',' :'i: . . i :"., ;, <, '. 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'. i 'J,'. ~ ~~t("'''''''!l.H.I'''-~''''~~'''~'''''''~''':.''.l''''''.~''lV' '~~,1i> ,I, '" , " " ;',' l .' ,,' '.,' ': ' " I 'iL.,-..", '. / 11~. .~ l'~ .~ ':(. I,: . ,:!) I, . . I.. {;,'.'...~;':,-<.' ." ", ',' l ,,,:" " ,,',' i ,';i:::":':!'i: " . ;' ;, " '::: ,'/! . "', " ,,; . ,> i {~ ~ (b) ',;:., ~!l9~~rm8-l(m;d d;";', th,q~ ..de<!, "'" ",; "'''0, ,: ," ,"!, " i il{;,'l~' ,.'"',,, 'A'~~R.epononFOmi~K.'datedOc:tobcr13,1998tWas \\i::,,:" .'" ":, "I., .,::'.., I ~;,';~ :': '.". .. filed ugarcUng ,ce~n charges' taken in the third q'uaner of . ~, ' 'f,.'f, j ,,:. . . ',1998. ' , . ,. ' '.., ',.. " , , ~I \f~~...~I. ~ '. :t .' , ACur.:.mr RtPo~ oa:.Fo~'8~K, d~~ed OctobU :l1, J998, wis d' l ~:;~i~,,:;:'~l' ::;''j"' ~,U ~d...de'. thl~d q""" 1~98 a..~i1i1 \~ ,.. ~ ,. ~ t..." ., .'. ., " ~i~:.'~' I. ~~ .. . ~ " 0" .'1' ~I:;' . r~\'>~::' '. '_~ ~. ,'::, . , T ~;:~:',:;; ?,: ',':':;: r..' :~: fh:/:'\': ':;/", ~. ' .' . ~. '" 'I .( ~ ,': " :,','1:-- : ,I .. 1!~:~:.::.::"::"','", '~~;':/@' .-,' , ~:;" ;'':N,;~' /~~'H~ .. I ; : ~: .. ./\ ~ ~,~:: : ...... : ' \',l. " '-.~. " c ~. . I (,~ .' ..., .,..i. " I') . '--"" 'j, ~ " 'f: , .' , . , " , ,~ '. , , ': , " A Cumnr Ripoit, on' Form 8.1\. dated October 26. 1998., was filed 'on behiJ{ef'the Bell'AtJintic 'SavingS and Sec:urity Plun , (No~ S~arled .Empio~) .'regMdjus 'J chlnge in me Plan's. ,independeiu ,ac~Unta,n.u. . c, ' , ' . ,'. ..' . " . '> ., ,;'A Current Rtport on Form 8.K. dated October 26.1998. waS !. .' .<, , filed on behalf of the Bell Atlantic Savings ind Plan for Salaried > 1 ~. ,. Em~loyees. regarding a c:hang~ in the Pb.n's ind,ependent , a<<ountanu. " ,I'", I ,I ~ ;i ,.. '. , f ,/ I ',~ ' . , I j I ! I I I > 1 " :, /' . ~ . I ,: .' ~", ~ 0'_".'" , :.'....,.. ! ;" . , i ,', " " " ~ " I. .. '. ',. .... . . \ ~ ,.' J". <.... "1. 1.. \. '., .'. , . .,.." . . . l' 0 . .:^ Cumnt aepon on Form 8.l<, dated October 26. 1998~ was , " . flied on behalf of tbe NYNEX Corporation Savings and, '. '.SeCurity Plan (Non-Salaried Employt!es) regarding a change ~ the Plan's independent accountlnt5. , . , ., . ,,'A Curi'ent ~n on Form' 8-K, dated October 28, 1998, was c filed reauding cl:ertaiii .tate~eiltS made at t Bell, ^tla~tic 'ADaJyst Conference on October 28, 1998. , i . . ~ '." 'I' .oJ', '< '.,';.>) '.' ..~ ~ 'I ",. ,,:'\{' :.' ....- 'r .'.! .... . . ~. .! " ';'./ . \ ~. :/.. '. " ;.. :, .:' . ;. " ' . ' '. ,,' ~ . . " I . " 0 J t'.c . ~ .' '} ,i .. .(:' , , ' , . " . , : ' '.. " . ~ to ;; ,,' .1 , 'I " :'., , , ;~: " II:, . .: ( .:! '. " ' '. ~T. ., .,' I.: " " .',' " , : '. 'I' " ,. )'. , ~: , ' " '. ~ \, ~ : \ ;'. " ' , I --,- C" '" 'd, " .. " ! t i: , . '" I \, , ! , ; , . '..j . ' , " '.,~ ;;';,", t',. >:.' ' ::::,' ~::.~ " ~", , '<. ,": , " {" " \ . " t ;, '.. , . .,': '.'; " , " ....',. I .' ~ " I .', " p ., t: . .; 'J' ."'t. '.' ".\' I.. ..' .L' , I.. " '. , . '{: , , , ,: {~ /.' .,", , !~ ': 'i,' , , " , -\-' f ',.1 ~'. t , . , I.. '.. ,....,) ."1\': . ,.~ <" ,''''< ,; .. , ...)" ,,:",~ c' ~~ \..,~! ~}',.":",':-':'.".~ '~1- I'" "I. ~ "KL-. ~ ~~c , ~\ . I. ; .,'1' '1 ncipa1Ac:counring Officer. , rem A. Tobett o"",..,.r ,._0,,: . ' J" ;' c.'" .:~~.:. , . ~ . . ~:,. (.' : :;Y.'>' ",'" \', , .\' . ...,<1 t'l j' \1;V;'l(ll~~!"'l:)' ,;',,; !~~, {;\\\'I,'/,,: '\(, I .' \,,'. \,/ . ',' '~.J ~ ~.\,\~ r"\ \. I '~I . ~t, to the ttquir~entl ~f Secdon 13 or '15( d) of the Securities ExdJange Act of 1934. the r~isrrant has duly cawed this report to be- ,ned on i~ bth1If by the un~miincd. thereunto duly authorized; , , , " , " BeU Atfantfc Corporation , , " .. ~::', .. By Is! Doreen A. Toben Doreen A. Toben . Vic'e Pmident-CantraUer ,', 'r" ,(1'.' . I( '1: ;;><f.' ,.; ',~.. . :'.,i' '. ,~ ' - . ifch 29. 1999 , . , ' ':1" .', /' '~'I .~;:~ !);,.; . rJ, '. '1,1 . " , '~t 'to' the ~Uimnenu of the SecuritieS ~ge Act of 19)4. this tt:port has been signed bdow by Ule following persons on' behalf of : reghtral11:'and in the capacities and on the cbre indicated.. . . ' , . " . . '. ,". ';,' " "[')'1>.. ',,1 '" " , , ndp.11 ExecUtive Omar. nq.~' ChairmUl of the Board and OUcf ,,~e0f6c:r Senior Executive Vice Presidtnt and Ode! fina.nc:ial Officer/Strategy and Business Oevtlopment Vice Pr3ident-Controlltt " napal FUWlcial Officer. " cleric V. Salerno utQrs: , ~c:e T. Babbio. Jr. bard 1.. Carrion ,e:s G. Cullen Jewijk }.It d.e Vmk ',es H. Gilliam. Jr. aley P. Gold.stein. .em L.lCIplin )Dw H. Kw1 ~ T. Kemw1 n r. Maypole, :ph Neubauer '.. .,mas H. OtBrien :imtd pfeiffer gh B. Price ~e L Ridgway deric: V. Salerno n G. Seidmberg , Iter '\I, Shipley n R. Stafford .rrison DeS. Wdlb rlt:y Young By Is) Dorem A. Toben Dot'MJ A. Toben OndividtWly and JU attorney.in-fact) March 29. 1999 -.- I I' \~r~1 '[ I ! .' ...~"-'.......,~/"... h.~~~ "J ......lId. .... , , , .~~!-:-i~~,.~,~~ .> > c~ I '.'. I. " , ,I; t' '> I~ " ~ : ~~:';.:~ \LJ;/ '. l~ ./ ,~".,;:I,'., l'.~~'~".}. ~'.::r .~,' ~.:~l~'.:'. :,.-' " '.l. .'~ ' t . ',. d, ",,'i' ," . ~: . c < ~ . . 'I' '. I." :".\., . I' . .:' I',., >. J,' . '>):,. ~;",\,~/~'.:." , ::, ..~ ~ :~~'~/~,::>~~';~,:' J-.c ~ . 1 ;,,:'l~:-~~<,~~~r.' " r t~. .", >. '., '/~', !::4r2;:,,;;'~ :',',' "."T\:;~;{X::~<"",') i' . ", ..t~'f.I, ,e', , .. " .' ,I,,~, ""........1,'..., <:~:\,. ", '.JI" ~:~),!:;,~;';,\".::;::Y;';i~::-:".).:;),:i'U.!:i~:~:;;'r;. . . .... 'j,: ;..,',:~';:'~" " ':,;/ /:~;:::',' " (\~"", L;," ""\II,}.;d,l.",~I"" .J,f.. (, ":" "':,':,',,: " m;:'(l:/~:;{";{~:~:,?i:' ';"'?:'~;~?;i:;~~:':~;::~i:'/I:;:(,'..:;. ::;';;.' <." .'. . ..'. <: '., ,":.' , . ' " . _..~"."',,'4j~~'; ~~1jl1;.~~"!iAr.!:':';11'1:'d j.flf-dl.\o ijJ,.:-.' ,:;,\~': ~:':...:: /;: 4~h ,a'I,j'~'C~1~' N~~. ~tjt~1.~ft't-.+ II:'; ,,;...~ ....,:~ ,F. -'1,-'" ':,...' l ,,; . .; ~ .. ~ . ,c , 'I: I',' , ,'J . . ~. " .i -I. .. ~ .....-,...," 'Ir .T.. 'J ~~ ". " ~ " J:c - . + ~ i It. ~, > . . J". \ .1, '.' , . , H ;;t.::.' ;'" : ,.1.> .;'. , ("' :' ',< , " I." .. . '.. , (.~ ."I~",~;; " ,) , ,( ,. j Ie' . " . ) '~~. ,~ (: , ~ i' -. ~ ' , :I.' '/. 'f~ . . '" < .~. :-. 'i.. " ' , " , ,I I.J} . .' ~~ : ,Ti I,'\:T ~. :~ '\ : . '..,' ' .r, I .::," [,' .::< i ~ Ii .,. ' I :.If. , '. ... ~, r'. '. .. I. ',. '.t . t ~ , . \' . :0". \ .'. ~ c ~' ,', .. " :' ~ , '~,,'. ,; '/' ,:',: ! .,.: ; ; ~l ,~.. f ~< ,.' . ' " '~, . Ii.! Y:~ I, , "1 .;., , ' ,d " " 't.c, ' '. I,,' .' '. ...".1 :.. .1:. ./ ., p. '. ~. ' ' , :'/; ..) :.~;i~ld ~~ rr6-;fW\j'iJ't1 bl ..'j rif~~itili t;'ci ~ ~>:: .; \:'.'fll:~.'l' ~'. .~...\ I ., <,,~t~ l'.\!:\..:i"'/.~ ~,~.', " ') ,: " ' 1 . i, I Management's Discussion and Analysis of Results of Opention~ , and Financial Condition . , ....-. if', \ t ''''') .~,.... Selected Financial Data COnsolidated StatementS of Income For the Years ended December 31, 1998, 1997 and 1996 Consolidated BaWia: Sheets , December 31,1998 and 1997 Consolidated Statements of Changes in Shareawners' Investment ,For the years ended D~ber 31,1998.1997 and 1996 Consolidated Statements of Cash Flows for the years ended December 31. 1998, 1997 and 1996 Notes to Consolidated Financial Statements Report of Management Report ofIndependent A"ountants Schedule II-Valuation and Qualifying Accounts For the years ended Dec:ember 31" 1998.1997 and 1996 , , '( ; , ',I .i "',' ,,' .;.. ,,' '1, 'j" I" j " , ! .:.: '.,'J cU , ~ " " ~., . , ." " , .' '~""'.I'~~f~LI"":'~ " " ' , , , :' ~ . ~ ,\', ", c I,>: ~ i ~,'::.;.t:' ' ,. . ~ ~: c " ': , . ~ ~ > ( ",' " " " 'j'. (\" " /," t: t, ; ~ , ' ' ., h;~ " '. . ~ .J!~ . ~{,~ "~':' I ~ ,,'I H.t ~ ) :c'l'" ',! '.'4 , " ; ~ 1 .'~ " , . " :~ " :", ': ,,) ~, . ~ \'l..~ " . , , 0' ~: , " , " , "", ., " .: --- Fo:z 'F-21, f.22 F-23 ~24 F-2S F-2S Fo51 ~S1 -,-, ~52 Financial statement schedules other than that listed above have been omitted bec:awe such schedules are not required or appUcable. " '\ , \......I I ~ '~. ~ t ~. . " ','.', J - . ; . ' -,'. .' ' '. <I,... , l, '. 1: ~, ' . .,'j. '; .' ~ ..:~, . , ; ./' (" \ , I' . "I ',', b' ,,' , , H ,.'; ~ ., ,,' " . . ~,.. ;','~' 7 .: i :'!:'~"~t:;(::~(:-');J?!':\;,':t, ~<, ""H, '. ;. ' ." 'I ';o1i~rJ;"lc\j/;\I.'\r 'I ,'1 ;-1),)\ ,} - :"~, d '," \d',~1 \(H~ f~? "<0',l' ;:)\It,~, ',/, "'(,1'. ' ,.,'.11,'" .-'././1,(,...; ,f \' ""\ I ,;"':':v./,,, \, \'\: 1998 muked a year in which ''1: ac:hiewd very solid financial resulu Nhile continuing to Position ourselves for entry into new markets in :eJccommu.ni(:4tions~ Our l'esulu wert driven by strong mar1cet 1emand lor YOke- and data SQ"kes in oUr Domestic Tdecom bwmcss lDd robun operating pertomuncc by our Global \V"udess group. in 1998, 'We RpOtted net m(Ome o( 52.965 million, or $1.86 diluted . :arnilJgs per share. In 199', we reported net income of 52.455 nillion or $1.56 diluted earnings per'Share, and in 1996 we reponed , let inoome of 53.402 million or 52.18 diluted earnings per share. jur reported results for all three years were affected by sp~cial teDlS. AfteradjU$dng for sucl1 itenu. net income would have been , 504,323 million or 52.72 diluted earnings per shue in 1998.53.847 uilllon or 52.45 diluted earnings per share in 1997, and 53.474 nillion or 52.23 clliuted earnings ptt s~ in 1996: The table below nlInrnuius reported and adjusted result! of operations for 1998, l'J97 and 1996. lllOUNlS '" "'1~L1OOlS1 'UI:S .... ras:IIDIlI *' ~. UllG )petIting ~ S 31.566 $29.155 ~~ 24.939 23.076 Jpen:tinC income 6.627 6,079 bpottId tat IftcoQta 2.965 3.402 )peclaI1t!ImS- pre-tax Mtreer~ CO$tS 196 519 Retirement Incel'ltWe costs 1,021 513 236 Other ~ me! spedzlltems S89 1.041 315 , ,btaI IpeCbI Items- pre.tax 1.806 2.073 S51 Tax C!f1eet met other tal-l'elate<l itflmS (448} (681) (206) CuntutatiYe effect of chan&e In ~ prinelpte, net of tax 1273l "otDI ~ items-atLer.tzIX 1.358 1.392 12 WlaaUd Mtt Iftc:oate 5 4.323 S 3,847 S 3.474 )IutQd~"'~ $ 1,86 S 1.56 S 2.18 )Itutod E&n!:r&I p., ~ S 2.72 S 2.45 S 2.23 \ll prior year per share amounts have been adjusted to reflec:t a two- or-one common stock split on June 1. 1998. .I' The following table shows how spec:ial items are reflected, in our . .-." consolidated statcmcnu of inc:ome for each'of the thr<<' years: IDOLUII. I" I4ILLI1l~SJ ltAU _ IIUl':JQD 21 1SS8 ~7 19'6 0pmItIn& R....... R!iulator)' conl:J~~ S $ 179 $ 132 ~ Costs Retirement IncentiYe costs 1.021 513 236 P/4f1!l' direct lncn!me~ COStS 53 Metget GeWrMc:o costs 223 Mer&er tnInSltlon co~ 15 4 - Vldeo-related ctIsrges 12 Other spedalltems 30 41 DspndrJtlon and An.oo:tIDoticH\ Writt-down of assets 40 300 19 0tMf 0paatI/lC ExponHI MefIl!r direct incremental costs 147 Me~ertr3nS~onco~ 181 92 Videool!latsd Charges 15 69 Real estate c:onsoIidation 55 R~latDry, talt and legal tonti~nc:ies and other special items 9 347 171 1.311 1.815 467 (Inc:omt) Los.a From tIlx:atIoUdIIt8 BusIneuos Wrltc-do'M'1 of Asian investments 485 WrIte-down of videO lnwstments 8 162 EQuity share of ewe formation costs S9 Gains on sales of fmocstmems (142/ (eo} Othu lncomo IIfId Ea'peme. net Write-dOwTlofenset:S (45) 12 Intafest EllpcflM WritlHlO'tm of assetS 47 Total SfIDCbl ttoms-Pro-Tu 1.B06 2.073 551 PmtsIm for Jncomo T_ lax effect of s:peclaI items l!Ind othertax-nHated Items (448) (681J 1206} CumulatMl affect of change in aceounting llrinciplMITectory poJtllishing, net of tax - ~ - Total SpecIaIItwua-Attef.Tu $ 1.358 $ 1.392 S 72 '\ ~ '~-~':.1:/ " " . ~ ( l I',~~ '/ ,')' II' )'~ ;, ',;-/: ,\"i.) ~'( \', ilf c; ,,/1'" 'v:' ,\,\~', ,_afJ~ em,en 'f'.' ,'.SCUS~I~,,~~n, ,: ~a >':SI!;> , I f/; ',pi :,-;,\1'1 I,;" < F:I' \." _ ) /.,' ..",;1; ,~I/,t:\ I~l_~' " ~~.~. ~:'-""'''?~'''r\'''::\''' .\'" I,.. Ij'" \t/'. " \.. 'f.'! \.....\,.\..\..~.....~.I/ ;\~\I"\,"l.,/"\.r '. \,..)1....,.\:1,,,./.1 ~ JO,... ... ..t.~~' ""jj~\ , .I What foUows is a further explamtion of the nature and timing of these sp<<W items. I ~~"etM Costs _- -J \....,,....(" In coWlection with the Bell Atlantic.NYNEX merger. which was ' completed in August 1997, we reco'rded pre-tax coStS totaling 5196 million in 1998 and $519 million in 1991. In 1998. merger-Idated charges of $196 mmion were for transition and integration cosu.1n 1997~ merger-related charges consisted of 596 million for tranSition and integration costs. 5200 million for dinc:t incremental GOSU and S223 million for cmplopee nvem1ce costs. Transition and inttgration caSU represent cosu associated with inte- grating the operations of Bell AtlAntic-and NYNEX, such as systems modificnions Casts, advertising and branding COSts, and cosu asso- ciated with the elimination and consolidation of duplicate facilities, relocation and training. Transition and integration costs are c:xpmscd as iDc:urred. Direct incremental costs consist of expenses usociattd with 'Completing the merger rra.nuctiOD. sudJ. as profet- sional and regulatory fees. compensation arrangements arid shate. owner-rdaud cosu. Employee .everance costs, lIS recorded under SFAS No. 112, "Employers' Ac:counting for Postemployment Benefits." represetn benefit costs for the separation by the end of 1999 of a.pproximately 3,100 management employees who are entitled to btnefiu under pre-cxtstingsepantion pay plans. During 1997 and 1998.245 and 856 EllllDiIgaDCDt employees were scpanted with scyeranc:e benefits. Merger-related costs were comprised of the following amounts in 1998 and 1997: [DOl.L.US 1M "1~~I~M II 1UIS _ -=-x:a. . :1H8 19'!l1 TransItIoD and ~ CO:sts I SystemS mocIifieation$ $ 149 $ 36 AdII'eI'tislng 20 Brsndlng U 48- Relocation. trninin& and otner 16 12 Total Transttion Md IftttUratlon Costs 196 9G - -; Dnct ItICftaMlntlII Cuts ' Praf"ssional services 80 Compensation a~nlS 54 Shareowner-related 16 Registration and other regul3tcry is T~ llI'ld other 32 TobI D!Joct t1~ Costs 200 Emplo)'eo $eYerallee Costs 223 Tgtaj MefCGr-rclated Costs S 196 S 519 "'--- .. We expect to incur between $100 million lInd $200 million (pre.tax) in transition and integration costs over the next 12 to 18 months to complete our tr.aruition efforts. You can find additional information on merger-related C:05ts in Note 2 to the consolidated financial statements, 1 R~!IIMn!iQContiYf) Costa ,~I In 1993, we announced a rcsuucturlng plan which included aD accrual of approximately $1.1 billion (pre-tax) {or severance and posuetirement medial benefits under an involuntary force reduc. tion plan. Beginning in 1994, retirement incentives have been offered under a voluntary program as a means of implementing substantially all of the work forc:e reductions planned in 1993. Since the inciijition of the retirement inctntive program, we Te(Ord- ed additional costs totaling approximately $3.0 billion (pre-tax) through Oeeember 31, 1998. These additional cosu and the carre. sponding number of empJo~ .1ccepting the retirement }ncentivt offer for eadl year ended December 31 are as follows: I~Ll.U' 1" ",~uolIsl 'l'u.IlS ~ I!mllt~ 1994 S 694 7.209 1995 515 4.759 1596 236 2.996 1997 513 4.3U 1998 1.021 7.299 $ 2.979 26.574 The additional costs are comprised of special termination pension and postretirement benefit amounts, as well as emplo~ coSts Cor other items. These costs bave been reduc:ed by severance and postre- tirement medical benefit reserve$ establisbed in 1993 and trans. ferred to the pension aDd postretirement benefit liabilities as employees accepted the retirement incentive offer. Tbe remaining seven.nc:c and posuctirement medical reserve balanc:es totaled 593 million at December 31, 1997 and were fully utilized at December 31, 1998. The retirement inc:entive progra.'1l covering management employees en&<! on March 31,1997 and the program covering asso- eiite employees was I:ompleted in September 1998. You can find additional information on retirement inc:entive caSU in Note 15 to the c:onsolidatc:d financial statements. [~r Charges and SpeebJ ltanaa _c_ ,.J YEAR 15'98 During 1998, we recorded other charges and special items tCJuling 5589 million in connection with the write-down of Asian invest- ments and obsolete or impaired assets, and for other special items arising during the year. The remaining liability U$ociated with these charges was 58 million :at December 31, 1998. These cbarges ~re comprised of the following significant items. AS/AN rNVESTMENrs In the third quarter of 1998, we recorded pre-tax charges of $485 million to adjust the carrying values of two Asian investments - Telec:omAsia. a wireline invtsunent in Thailand, and Excelc:omindo, a wireless investment in Indonesia, We ac:c:ount for these invest- ments under the c:01t method. ", I' .' 'ri\.!; ;' "~,\j~:.'\Y:'1;) ~'..;:'-<;\) }.~ \. \: "/11 ~~~agam..tl'''lti.,Sl'Di.sc~sSjon,an,d/AnbIY~~~.", ,llt.,-,)',):.! ;1 'I'" ~':'AI \'1./' \,ill ;.., \(./' .., \- ~I\I;" .}',I " "'e(.., \ . '., t ~ ..J\ \,\! . ",\ ~'".I.,'.-.. ....\.. "~~';. \J.\/-..I .(I.l'..+~" \ I,'="~I\ \. ~'f it,\. r~ \1/\- r:'L l'/' ;,. "\. 1/1.^ , :( /. '1~4'''' \ !:\"":. \ t'~",'1 ~/~ ~ I'~ r,'\' I. .' ,}..(.} t.Jt /,~ I ['he charges were ne<<mry because we dtttrmined tlut the dedine fa the estimau:d fair values of each of these investDw1U W"U other :ban temporary. We dl:termined the lair values of these investments )}' dL~u.ndng estimated future cash flows. ' :n the case of TdecornAsia, we recorded a charge of $348 million to adjust the arrying value of the investment to its estimated &ir vaJue. He considmd the following betelS in determining this charge: . The continued weakness of the Thai eurreoc:y as comp;tfed to historical exclunSt roues will place .additioD21 finandal burdens on the company in scrricing U.s. <ioUar..denominated debt. , The e-conomic instability.and prospects for an extended reeovery period bave resulted in wuker tban expected growth in TdecomAsia's busineu. This is indiCltcd by slowe: than expected growth in total subsc:riben and usage. These hctors resulted in reduced expectl1tions of future cash flows and, accordingly, a reduction in th.e value of our investm~t. '. The business plaD for, TeJ:comAsia cobtemp!ated wh Bows from ~ lines ot business. Given Tel.ecozuAsit'J incliDation to focus on its core wireline business, these other lines of bwiness nuy not contribute future cuh Bows at previou.sly expected levd.s. In the cue of Excdcomindo, we recorded a chuge of $137 million to adjust the an:ying value of the invcmnent to its estimated fair otalue. We considered the following factors in determining this :b.'trgt: . The continued weakness of the Indonesian currency as c:ompued to historical exchange tate$ ....ill place additional financial burdens on the company in ~cing U.S. doUu-denominated debt. The continuing politic:al UnIe$t in Indonesia has c:ontributro to the currency's instability. . The tconomic instability and prospea.5 for an c:xtended recovery period have ruulted in weaker than expected growth in Excel- comindo's business. One sigl1ifiClll1t factor has been inflexible tariff regulation despite rising cosu due to inflation. This and other factors have resulted in reduced eq>ectations of future ash flows and. accordingly, 1I reduction in the value of our invt'StlDCDt. , Issues with cuh flow are requiring Excc1comindo's shareholders to eva1lUre the future funding of the business. We will continue to monitor the political, economic and finUlcial aspects of our remaining investments in Tha.ibnd and Indonesia, 3$ well as other investments. The book value of our remaining Asian investments W1.$ approximately $210 million at December 31,1998. Should we determine that any further decline in the fair values of these investments is other than temporary, the impact could be material to our results of operations. VIDEO-RElATED CHARGES In 1998, we recorded prc-tn: charges of $23 million pl'iJmrily relat- ed to wircline and other nonsatellite video initiatives. We made .a strategic dec:ision in 1998 to focus our video efforts on satellite servic:e being offered in c:onjunction with DirecTV and USSB. We communiClted the decision to stop providing wireline video services to subscribers and offered them the opportunity to subscribe to the satdlite.ba.sed video service that we introduced in 199B. In the third quatter of ! 998. We decided to dispose of these assets by nit or abandonment. and wt! conducted an impairment review' under till: requirements of SFAS No. 121."Accounting for the Impairment of Long-Lived Assets and for Long-Uved Asset! to Be Disposed 0(." We b.ued our estimate on aD estimate of the cash flows expected to result from the we of the assets prior to their disposal md the net proc:ceds (if any) expected to result from disposal. We are currently providing video servic:e exclwively in ~njunction with our arrange- ments with Direc:TV Ilnd U5SB. " WIiITE-DOWN OF ASSl!TS AND OTHER/TEMS Results for 1998 also inc:luded a pre-tax c:harge. net of minority interest, of $42 million for the write.down of fi.x.ed usets (primariJy buildings and wireless ~ommuniQtions equipment) lUld capitalized interest associated with our Mcxic:an wireless investment-Grupo I~c:cl1. S.A. de C.V. (Iusacell). These wets relate to lusaccll'$ trial of find wireless service provided over the 450 MHz frequency. While continuing this trial. Iusac:eU is considering whether or not to pursue: its rights to ac:quire 450 MHz licenses for orher nreas. IllSOIceJl bdieves 1Mt the capability of the COMA technology and the succc$s it has Iud with its deployment indiate that impairment exists with respect to assets related to the 450 MHz technology. IUSlceU is c:urrcntly providing service ovcr the 0450 MHz spectrum and has concluded that the carrying amount of these assetS ex.:eeas the sum of the estimated future cub flows associated with the usets. We recogniud an impairment 10$.5 under the provisions of SFAS No. 121. It is currently anticipated that the 450 assets will remain in service until at least the third quaner of 1999, at which point a deci- sion on overall strategy will be made. We account for our lusacell invesmzmt ;1$ 2 fully consolid2ted subsidiary. Other items arising in 1998 included charges totaling 539 million prim:ipallyauodatecl with the settlement of labor contracts in August 1998. YUR :1."7 During 1997. we recorded other charges and special items totaling S 1,041 million in connection with consolidating operations and combining organiutions. and for other special itmiS arising duriftg the }-eu. You can find additional detail about thc::sc accrued liabilities in No~ 2 to the consolidated financial statcrnents. VIDEO"RELATED CHARGES In 1997, We recognized tOtal pre-tax charges of 5243 million related to certain video investments and operations. We detennined that we would no longer pursue a multichannel, multipoint, distribution system (MMDS) as part of our video strategy. A!. a result, we recog- nized liabilities for purchase commitments associated with the MMDS technology and costs associated with dosing the opeTations of our Tele- TV partnership bec:ause this operation no longer supports our video strategy. We also wrote-down our remaining investment in CAt Wireless Systems, Inc. !' :>'::';\"~\ (\ .1'\'fv',( :'\,,' ....,/".yv \').",J"I~ ,~n~&emcn .5' J5ClJSSIO '~" naW515;'j!'(I'~'N~'<'"li"'\"~""\.\o"'..(/\I' 'f\',.'i',:':;''..h\"",.,,'I( \,> ,,~f...1 :\ ""to! I ~"1\ ).'";-1 ~ ,-.".. ), .I/~~' ~,i" .....I.~}/\~ln;/I(;~\I...III..I'<~..d.. :!~ ~:""'..,':-.I'lJr. .).'\\'1" ..\ 'I'I./~ ,\-1). ~'I'''''''''~...f\,'' \ -",' -:-~.~I():~'\Y\ .., I:, .1 .>'''' . ~. [. ........,.('~ -- j .,__1' WRITE-OO.'1N OF .4$$N'S AND REAl. ESTATE COhSOLJD,mOf; In the third quarter of 1997, we recorded pre-w: charges of 5355 million for the write-d~ of obsolete or impaired fixed assets and for the con of c.onsoUdating redunrhnt real esute properties. As patt of our merger inttgr.ltion planning. we reviewed the carrying v;alut;S of 10ng-Uved &SSdS. This review included estinuting remaining usefu!. lives and cub flows and identif)ing assets to be abandoned. In the case of impaired assets. we ana.lyzcd cash flows related to those assets to determine the amount of the impairment, A5 a result of these reviews, we recorded c:harges of $27.5 million for the write-off of some aJsets and S25 million for the impairment of other wcu. These assets prim.trily mduded computers and otha equipment wal to trampon cL,ta for internal purposes, copper wire used to provide teIecommuni- cati~ms aavice in New York. and duplicate vtlicemail platforms. None of these !Wets are being held for disposal. AI. D<<tmber 31, 1998, the impaired assets had no remaining carrying V3lue. In connection with our merger integration efforts. we consolidated real eSUte properties to ac:hieve a reduction in the total square footage of building space that we utilize. We sold praperries, subleased some of our leased facilities and termin;1ted other leases, Cor which we recorded a charge of $55 mUllon in the thud quarter of , 1997. Most of the c:1urge related to properties in Pemuylvania and New York, where corporate support functions were consolidated into fewr:r work loa.tioD$. REGUlATORY. TAX AN/;) LEGAL CONTINGE.NCIES AND OTHER SPE.CIAI. ITEMS In 1997, we also recorded reductions to operating revenues and dwgcs to operating expenses totaling 5526 million (pre-ux), ~hic:h consisted of the following items: . Revenue reductions consisted of $179 million for federal rcguJa- tory matters. These matters relate to specific: issues that are currently under investigation by federal regulatory tommissions. We believe that it is probable that the ultimate resolution of these pending matters "rill result in refunds to our customers. . Chllrges to operating expenses towed S347 million and consisted of 575 million for interest on federal md other taX contingencies; SSS million for other taX matters; and 552 million for leg&l contin- genc:ies and a state regulatory audit issue. These contingencies were accounted for under the rules of SFAS No.5, "Accounting for Contingencies." These charges also included 595 million related to costs inc:urred in standardizing and consolidating our direc:tory businmes and S70 million for other post-merger initiatives. Other charges arising in 1997 included S59 million for our equity share of fonnation costs previously announced by Cable & Wireless CommurUCltions. plc (CWe). We 0\\-'11 an 18.5% interest in ewe and account {or our investment under the equity method of accounting, In 1997, we recognized pre-tax gains of 5142 million on the So11e5 of our ownership interests of several nonstrategic businesses. These gains inc:luded $42 million on the sale of our interest in Sky Nerwork Television limited of New Zealand (SkylV); 554 million on the sale of our 33% stake in an Italian wiretine venture, lnfostracl2.; and 546 million on the sale of our two-sevenths inlerest in Bell Communications Research,lnc:. (Bellcore). YUR U!JB In 1996, we recorded other charges and special it!m5 totaling $315 million. consisting of 5334 mUlion in connection with regulatory and legal contingencies and for costs assodllted with asset and investment dispositions and 541 million (or ac:tuarially detennined costs of a benefit plan amendment. These charges Were partially offset by a net gain of S60 million on the sale of u nonstrategic investment. Effective January I, 1996. we changed our method of acc:ounting for directory p~blishin& revenues and expenses. We adopted the point-or-pUlJ.licatlon method. meaning that we now recognize direc- tory revenues and expenses upon publication rather than over the lives of the directories, We recorded an after-tax increase in income of $273, million. represe:ning the cumulative effect of this change in i.ccoundng principle. ':;;';', ',^ -.1h, \ 'i"i...,) ,'; "'.'" '\ "'\ ,"i'('~v'r'" ./-" i' ."v'Y'S{': ' , ",I' .A 11.[ ," ~: o:J'~gn1~, ~~)u!:$U'~~,,~~ ~p~~~t~~,ns1'.l5~' ,...~~.:~.~t:",.>'r'.\?,~ ,g~:;i,,''::- l' ."..:"" '~""f ~I.I,j(\/.\ -r,'\!i}.J'~I'\.(~\J:;' .T''',>~.....l~t''l'''~'',\t''i'~~~'..).,~....' [(~.: '" >..r, ~. .{4~' We have four reportable segments, which we operate and manage as strategic: bwiness units and we organiu by products and services. Our segments are Domestic: Telecom, Global Wirelo:ss, Directory and Other Businesses. You can find additional information about our segments in Note 17 to the consolidated financial statements. We measure and evaluate our repon.able segments based on adjust- ed net income, which exc:ludes undistributed corporate expenses and spccW items arising during each period. Special items are tr.Uls- actions that management has excluded from the business units' rtsults, but has included in reponed consolidated earnings. We previously described these special items in the Overview section. The effect of these special items on each of the segment's reponed net inc:ome is pro..ided in the following table: (~QnAJl$ ... "'~~ICIdI \'UIiS bDUI ~ U 19!8 3-"6 Domes& Telecom Reporte<' net income $ 2.383 S 2.41.3 Special Items 790 377 Acljusted net income S 3,173 S S 2.790 GJob:JI W1tdess Reported nellnCOf"le $ 50 S 113 s 73 Special items 178 (181-- 7 Adjusted net Income $ 228 S 9$ s 80 Dlreetofy Reported net inco~ S 662 S 564 S ass Speeial items 22 93 12701 Adjusted net income S 684 $ 657 S S85 - other Buslnesses Reporte<l net income S (231) $ 28 S 57 Special Items 366 20 (45) AdjUSted net Jnc:ome $ 135 S 48 S 12 Reeoncibq: Items Reported net Income $ 101 S (266) S 4 Special items 2 320 3 AdjUSted net Income S 103 S 54 S 7 Reconciling items consist of corporate oPfrauons and intl:1'stgmcnl eliminuion~ , ' .,,: . :, ,:r: ~n:~ !;~ i'~ \~ '(.'I::~~-' I,.f L i',: ;,.";)"<1\'1 i,t',,''',i:{Cm'cnti$~D S~v.s:S".~~'an ;, raa Y!J'S, j ''\' rJ~'_ n..~ ~}n\1 -\ 1'"t, '. I', V ~: ;,'1' ",I: .... '. ,,' ,,' .'..' , ' ,'\.'+ '. ..' )"':"'\' I~ I~'. ~lrJ,'<P'.I\..~l~\' t'1"....~~.I/~,.. ~~\~I~~~\,~."'r,\.~ ....~I.I/,u ~:-.t\II'I'./, I J.~;1. ".. \;.~I.),o{..I.:(."~~.'1\>;,r'\'f\.~\,.i.I\.... ~l-:-T~~ - -.- )ur Domestic Telecom segment consisu primarily of our nine opn-. , .ting tdt:pbolle sul:>sidiuies that providte loaJ tdtphone ~~ from .wXle to V'uginia including voice and data ~rt. enhanced and ustom alllng ~ netWOrk access. directory as$istance. private loes and public telephoD~ This segment also provides customer )remi.sc:s equipment distribution, systems inttgration, billing and ;oUecrions, and lnrtmrt tccess scmd$. Domestic Td~om leptc:RDt.5 be asgrcgation of our domestic wirdine business units (conswner, mterprise. general. and network serti~). wbic:h foc:us OD specific nuktu to inc:rea.se rt'IUlues and cwtomer satisfaction. trm DClCll__ 31 1iIrIIdtJ.. ~ Ma-tlM... '-'98 ~ Rawnuas ..cx:d lenkes $ 13.882 $ 12.621 ~ ac:oess: servioH 7,656 1.247 .DrC dlst2rce 5efW:e5 j,.929 2.374 \ncllllry sef1Iices 2.090 1.ass 25.557 24.136 ~~ ~ costs 1,29S 7.436 7.679 ~ llnd umortization 5.j,95 4,990 4.9U :>ther operating e.:penses 7.047 6.690 6.262 19.540 ,.9.122 18.852 ~ Inc:l:IIne S 6.017 S 5.687 S 5.284 I\"OO'lne (LmI) FrDtn ~~ S 27 S (14} S t12} ~ Hat InconIl S 3,113 $ 2.993 $ 2.790 fW......T...C UYElCua tOCAL SERVICES Lou) serviteS revenues are earned by our operating telephone subsidiuies from the provision of local exc:hange, local private line. public: telephone (pay phone) and value-added services. Value-added services are a family of services, which exp~nd tbe utilization of me network. These services include produc:ts such a.$ .. Caller 10, Call Waiting and R:tum Call. ....... 1.SS8 ~c. TelocCt'll H_lIe C4Mnp0nents ..-- loo:al ~~ Lan& D,SW\ce 8'0 o\nclll 8')(, NetwOrk ~ss 3~ I Growth in 10C31 services revenues of 5626 milJion or 4.7% in 1998 and 5629 million or 5.0% tn 1997 wu primarily due to higher usage of our network facilities, This growth was generated. in part, by an I increase in:1CCCSS Unes in service of 4.3% in 1998 and 3.7% in 1997. Access line growth primarily rdlec:tS higher demand {or Centrex servic:es .and an increlse in additional residential Jines. Higher revenues irom private line and switc:hed data services also contributed to the revenue growth in both years. Our Jow services ~nues were boosted in both 1998 and 1997 by - increased customer demand and usage of our value-added services and the implementation of new c.h~rges to c:arriers resulting from pay phone deregulation in Aprll1997. In 1998. revenue growth from these factors was pa rtially offset by pric:e reductions on certain local services and the elimination ofToudl.Tone service durges by several Cif our operating telephone subsidiaries. You can find additional information on the Telecommunications Act of 1996 (1996 Act) and its impact on the local exchange market under "Othet Pactors That May Affect Future Results." Acctm Uno3l b1 ~ Il~~ 6~ - ~-- Putll~ 1'" Bus~s ~ 41.8.... - .1.- -- NETWORK ACCESS SERVICES Network aC:l:ess services revenues arc earned from end-user subscribers and long distance and other competing carriers who use our local exchange facilities to provide usage services to their customers. Switched access revenues are derived from fiXed and uS3.ge-bascd clwges paid by camers for access to our local netwOrk. Special access revenues originate from couriers and end-men that buy dedicated local exchange capacity to support their private networks. End-user access revenues are earned from our customers and rescUen who purchase retail dial-tone services. - -- Our network ac:cess services revenues grew 5316 million or 4.3% in 1998 and 593 million or 1.3% in 1997. This grO\\1h....'a.S mainly amib. utable to higher customet demand. as reflected by gro\oJ1h in access minutes ofu.se of7.8% in 1998 and 7.3% in 1997. Volume growth also reflectS a continuing expansion of the business market. particularly for high-capacit}' services. In 1998, we saw an increasing demand for special access services as a result of a greater utlliz.ation of the network by Internet $tMc:e providers and other high-capa.city usets. Higher network usage by alternative providers of intralATA toll urvkes .nd higher end-user rcvCllUCS attributable to ~ jnc:reas.e in access lines in service also contributed to revenue growth in both years. Volume- related gro\'o111 was pa.rtially offset in both years by net price reduc- tions mandated by federal anel state price cap llnd incentive plans. ~ .. <.I ' - --_._----~...~. . . ", 11(' \ I I, ',' I'" "'-1 ,,,.. 1- '/ '\'{' \ \ ' \",'11 " "','" ,\ I' ' ,"', I \ "1/ t,' '\ \:' \':'\ ~\" I '.~ '~~j :;/V/I~II :~ ~ .1, '::~ -t:l:"., ~'~L,')"'; \:..\, j4, ',-;\...\,~;-' If:: ~\.f~( ; T \ I /(,II'~\',f I . I 'I"'. ,<: "-":',l>1./.~{:}~./.'r),:'l: ~'\:\' "'t ~ \; '. "'>~:~>"\\.~.."\"-::.\Y"""I-" ....~ /:",.? Ace... MInvtes of UN _ T ']" ]' 1~ 1~r 1". .~.H..':'I~ ~ . - "t:H"'~'..1 The Fcdtral Communications Commission (FCC) regulates the rates that we charge long distance canier.i and end-user subsrnbus for interstate access urvices. We are required to file new access rates with the FCC each ~ar. under the rules of the Price Cap Plan. We implemented price dcaeases for interstate acw..s strvices of approx- imately S63 nilllioD on an annual basis for the period July 1996 ' through June 1997 and approximately $430 million on an annual basis for the period July 1997 through June 1998. In July 1998. we implemented prio:: deaea.ses of approximately $175 million on an annual basis. The rates include amounts necessary to rtcOVl!r our operating telephone subsidiariC$' c:ontribution to the FCC's universal service fund. The FCC has created a multi.billion dollar interstate fund to link sc:hools and libraries to the Internet and to subsidize low~income consumers and rural healthcare providers. Under the FCC's rules. all providm of interstate telecom- muniatiolU servic:es must contribute to the fund. The subsidiarics' contributions to the universal service fund :arc included in Other Operating Expens.es. Beginning in the third quarter of 1998. access charges on inttast:l.te toU c:aUs in New 'it?rk were reduced by $94 million annuall)' due to a New York State Public: Servia Commission order. This reduction is, in put. an acceleration of ac:a:ss revenue reductions expected under the New York Perfonnmce Regulation Plan and. in addition, will be partWly offset by increued revenues from the federal universal servic:c fund. In January 1999, fates were further reductd by approxi- mately $18 million on an annual basis to reflect lower required contri. butions to the FCC's universal service fund. The fOItes included in our JWy 1998 and January 1999 filings will be in effect through June 1999. You Wi find additional infonnation on FCC rulemakings concerning pric:c caps. access charges and ur.i...crsal service under "Other Faaors That May Affect future Results-Recent Developments-FCc.- -:: '._J'" LOrlG O/STANCE SERVICES Long distance scrvic:es revenues are earned primarily from calls made outside a customer's local c:a1ling area, but within the same service area of our operating telephone subsidiaries (inmILATA toll). Other long distance services that we provide include 800 servi:es, Wide Area Telephone Service (WATS). corridor services and long distanc:e servic:es outside of our region. Declines in long distance mvices rev~nues of 5261 million or 11.9% in 1998 and 5184 million or 7.8% in 1997 were caused by two factors. First, we implemented presubscription for intraLATA toll services during 1997 in most states throughout the region. In these states, customers may now use an alternative provider of their choice for intraLATA toll caJIs without dialing a special access code , when placing a call. The relative effect of presubscription on long disunce revenues was lower in the sec:ond hnlf of 1998, as a result of prcsubscription being available in most of our states for more than one )"eaI'. The adverse impact on long distance services revenues as a result of prcsubscription was partially mitigated by increased netWork access services revenues for usage of our network by these alternative providers. Second, we implemented customer win~baclc and retcntion'initiatives that included toll c:alHng discount packages and product bundling offers. These revenue reductions were partial- ly o~t by higher calling volumes generated by an increase in ac:c~ lines in servic:e. Our operating telephone subsidiaries in Maryland and V'Jrginia. expea to offer prcsubsaiption no later than coincident with our offering of intcrLATA long distance servic:es in. those states, or earlier if so ordered b)' state or federal regulators. Our operating telephone subsidiary in M~chusetts expectS to offer presubsaiption in April 1999. We believe that competition for long distance services. including competitive pricing and customer selection of alternative providers of intraLATA and inter LATA toll services in the Sl&tes currently offering presubsc:ription. will continue to affect revenue trends. You can find additional infonnation on prcsubsaiption under ..Otha Factors That May Affect Fuwrc ResuJts-Competition-bnral.JJA Toll Services.." ANCILLARY SERVICES Our anciJhry services include suc:h services as bUUng and coUcctions for long distance carriers, systems integration, voice messaging, Internet aa:ess, customer premises equipment iUld wiring and main. tenanc:e semces. Revenues from ancillary services gJ't:W 567 million or 3.3% in 1998 and $135 million or i.2% in 1997 due principally to new contracts with business customers for systems integration liCrvi~ and higher demand for voice messaging, billing and collections and Internet access services. Revenues earned from our customer premises services declined in 1998. while in 1997 revenues from these services grew over the prior year. OPERATING EXPENSES EMPLOYEE COSTS __ =.- Employee costs, which consist of salaries. wages and oilier employee c:ompcrLAtion. employee benefits and pa)TOU taxes. declined in 1998 by $138 million or 1.9% and in 1997 by 5243 million or 3.2%. These reductions w.:re largely :mri~uuble to lower pension and benefit costs in both years. ^ number of fac:ton c:ontributed to these cost reductions, including favorable pension plan investment returns, lower than expected retiree medical claims, and plan amendments including the conversion of a pension plan to a a.sh balance plan. Effective January 1, 1998. we establisbed c:ommon pension and savings plan benefit provisions fo. all management tmployces. A5 a result, all former :-'~EX management employees receive the same benefit levels as previously given under Bell Atlantic management benefit plans. This change inc:luded the conversion of the l'o.'YNEX management pension plan to a c:ash balance plan. .... . . I , .' 1 ~ i ~ n '/':~ Other itenu contributing to the dt:aeuu. but to a le:sur ~Xtent. were- lower work (orce levels in 1998 and lower overtime pay (or repair and maintenance activity in 1997. - ~ 11M :l.d.OOO Aecu.. Una J' I 1llllt 1"7 24.' lPSl1l OTHER OPERATING EXPFNSES The ris~ in other operaling eXpen$t$ of 5351 million or 5.2% in 1998 and $434 million or 6.9% in 1991 was due to higher com at our operating telephone subsidiaries. These increuts were primarily attributable fa higher interconnection payments to competitive loea.l ' exChange and other carrie1's to terminat~ calls on their nerwcrks of approximately $175 miUion in 1998 and 555 million in 1997. and addition'] Yen 2000 readiness costs of approximately 570 million in 1998 and $20 milliotl in 1997. , The higher paymtuu for termination of c:a1ls to competitive carriers' netWorks were the result of state: regulatory decisions requiting us to pay "reciproca.l compensation" for the large volume of one-way ttaffic: from our c:unomets to c:ustomers of other carriers, primarily calls to Internet service providers. On February 26, 1999, tbe FCC confirmed that such tnffic is intel'$tate and intere~hange in nature and not subj~ to the reciprocal compensation requirements of the 1996 Act. Bec:ause previOU1 stare commission decisions wert based upon a view th,lIt Internet a~ calls are "tocal" rather than interstate and intcrex. change. we have asked the stare commissions to revisit their prior interpretations. Urucu state regulators foUow 'the FCC's decision. these rcciprotal compensation payments are expected to grow to approximately S350 milUon in 1999. We also recagniud additional costs in 1998 as a result of our contri- bution to the federal universal service fund. as de5aibed earlier in the discussion of "Nerwork At.cess Servi~ Revenues," Costs associ. ated with opening our network to competitors, including 10caJ ,number portability, declined by $85 million in 1998, compared to EU1 increase of $ 165 million in 199i. Other operating expenses were n1so affected in both yean. but to a Je.sser extent, by bigher material purd1a.tes to support the network. Higher marketing and advertising costs wo contributed to the expense increuc in 199;". The cost increase in 1998 was. partially offset by lower taXes other than income due to the eff~ of a cllange in New Jersey state tax law. This state tax law change. which became effcc:tive January 1.1998, repealed the gros.s receipts tax for our operating telephone subsidiary in New Jersey and replaced it with a net income.ba.sed taX. INCOM" (LOSS) nOM UKCO"sO~ID"TED BUSINESSES The change in income (loss) from unconsolidated busi~5!9 in both yeal"$ was primarily due to the effect of the disposition of our video operations in the third quarters of 1998 and 1997. ~ ,..,. ~ These cost reduc:tions ",ete partially offset by salary and wage increaJ.e$ in both years. In 1998. we executed nc:w contracts with unions ~ting associate employeu. The ne'N contracts provide {or wage and pension increases and other benefit lmprov~ments &$ d~bdow;,' . The wages,. pension and other benefits for our associa~ employees are negotiated with unions. During 1998, we entered into n~ 2- year conuaCU with the Communic.tions Worbn of Americ:a (CWA). ~dng more than 73,000 associate workers and with tbe Int~tiona1 Brotherhood of Elettrica.l Workers (IBEW), ~ting approxinlately 13,000 WoQ.1te workers in New York and the New EJ1gbnd states. These contrac:ts. which expire in August 2000. provide for wage increases of up to 3.8 pett.ent dfec- ~ August 1998. and up to 4- percent dfet:tiye August 1999. Over the course of this two-year contract period. pension increases will nos.e: from II percent to 20 percent. The contnas also include: asb payments, working condition improvements. and c:ontinuz- tiOD of certain employment security provisions. . We also entered into a two-year extension of contracts with the IBEW, rcpreseQung approximately 9.000 associate lnembers in New Jcney and Pennsylvania. ThC$t contrac:ts, whic:b expire in August 2002, provide for wage increases of 4.8 percent in April 1999.3 percent in May 2000, and 3 percent in May 200L Pensions will incruse by a total of 11 percent for the years 1999-2001, and there will be improvements in a variety of other benefits and working conditions. DEPIUCIATIOH AND AMORnZATION Depn:ciation and amortization expen$~ inacutd $205 million or 4.1% in 1998 and 579 million or 1.6% in 1997 principally due to growth in depn:ciable telephone plant and c:banges in the mix of plant asstts. Depreciable telephone plant inc:reasc:d in 1998 by 2.80/0., compared to l.S% in 1997 principally as a result of incrtased capital exp.enditures to support the expansion of our n~twork. These expense inaeases were partially offset by the effect of lower rates of depredation. ~'~ . I . ""...-------- " , " ' I' , 'Ww - It... " ~'; ~7."..i.I\','{.'.l.>~(i"'\.<{\'~.< ,Y1"'" \','/'1/ ,ana erne" ~" ISCU5510nan ' nayslsl'rr""~J\"" I./,n:,', A , ' , , , , , ',' t~ I,' 1,I,El' ~,.,\ ,\' "'.~1.I~)""'/:I(t II' f""~J..y~,:.,~'I' ....11/.1'\.1"" ~:~. 11"I,,\)il l\....I\...\\I";. \'~f\~;}'''\\r'I'{/,';'t~,~",\,:'.'r~'.~''\-'~J' .'I,....,\. , . . ~, . ':0 .' '",' ..' t .. Ir,. r . . ........, .I,..... ~ II, , , '. '..."; I .. " .' . ;J ler~\- ~ 1 Our Global Wareless segment cansisu of our wireless telel:ommuni- cations services to CUStomers in 24 states in the United States and, foreign wireless investments servicing customers in Latin America, Europe and the Pacific Rim. I"lAItS _ llt:DQ0I U C DOn.us ,~ WIWOIIJl bafts ell C>>tntIOIll--All;kDtltd lIab 15M 1!H '-.' ~- Operatftc lmenuos Wireless services revenues S 3,798 S 2.684 ~ Expenses Employee costs 548 490 395 Depreciation Md amortiZation 592 481 303 Other operating eq)Cln5e$ 1.942 1.742 1.465 3,082 2.713 2.163 ~ tticon.e $ 716 S 634- S 521 J.Dn.frcm ~ Ikn'~,", S (961 $ (196) S (1411 Ad,Jastod 'let klcome S 228 $ 95 S 80 .' ~ "'. In the tint quarter of 1997, we consummated.. restructuring of our ~ent in lusao:U, a Mexian witeless company, to permit us to assume control of tbe Board of Directors and management of Jusaoill. As a result of the restro~ng, W~ changed the accounting for our lusacdl investment from the equity method to full consoli- . dation in the first quarter of 1997. You an find more infonnation about Iusac:d1 in Note <1 to the c:onsolidated financial statemmu. i ; ... t ;.<j.f.J ~ O'ERATING R[Vt:NUES Revenues earned from our consolidated wireless businesses grew 5451 million or 13.5% in 1998 and 5663 million or 24.7% in 1997. This t~ue growth was largely attributable to our domestic l:eUu. Jar subsidiary, Bell Atlantic: Mobile. which l:ontributed $383 million to revenue growth in 1998 and $448 million to revenue growth in 1997. This growth was principally due to more c:ustomers and increased USl.ge of our domestic wireless services. Our domestic cellular customer base grew 15.8% in 199B and 21.4% in 1997. Volume-related revenue growth in both years was partially off~t by the effect of competitive pricing factors. Toul revenue per subscribu- by our domestic ccl1ular opentions WilS 550.84 in 199B, $53.15 in 1997 and $57.83 in 1996. BeU Atlalrtle Mobil. ~1ornef5 Ii" tl'1OusanCSl us(; '[ J .--~,'" Higher revenues of 563 million from Iwaccll also contributed to reVen.'e growth in 199B. The consolidation of lwacel1 contributed $228 tn~llion to wirclw services revenues in 1997. O,.ERAftHCl IXflEHSrs EMPLO'rEE COSTS Employee costs at our wireless subsidiuillS inc:rcased by 558 million or 11.8% in 1998 and S95 million or 24.1 % in 1997 principally as a result of higher work (oree levels. The number of employees at Bell Atlantic: Ma.~e grew by approximately 500 or 7.0 % in 1998 and by 760 or 11.7% in 1997. The effect of consolidating Iusacell abo contributed 539 million to the expense inc:rense in 1997. DEPREC/ATION AND oCMORTIZATIO,", Depreciation and amortization expense increased by $111 million or 23.1% in 1998 and 5178 million or 58.7% in 1997. These increases were mainly attributable to growth in dcprcc:iable domestic: cellular plant. The effect of l:onsolidating lus:l.cell also contributed 544 million to the expense increa.sein 1997. OTIIER OPERATING EXPENSES Other operating expeDses increased by $200 million or 11.5% in 1998 and 5277 million or 18.9% in 1997 princ:ipally due to increased service costs at Bell Atlantic Mobile, inc:luding higher roaming payments to wireless carriers and additional cost of equipment. Higher marketing and advertising c:osts also contributed to the rise in other operating expenses in both years. l~c:el1's operating costs increased br 558 million in 1998 as a result of higher service costs and the effect of consolidating Ju.sal:en added S180 million to other operating expenses in 1997. - Bell AU&nth: Mohlle Month" Cash ~ per Subscriber - _l::J..LI... U~ l J 19116 1\l1l7 12. I 1ll'ii1 - -~ LOSS FROM UNCONSOLIDATED BUSIHESSES _ ..-,- The c:hange in loss from unconsolidated businesses in -J998 of S100 million was princ:ipally due to improved operating results &om our investments in OmniteJ PrOnto Julin S.p.A. COrnnitel), an interna- tional .....ireless investment, 3.tld PrimeCo Personal Communicatioll$, L.P. (PrimeCo), ol penonal communications services (peS) joint venture. ...... In 1997. higher equity los~s from unconsolidated bUSinesses of $55 million were primarily attributable to our PrimeCo investment. In November 1996. PrimeCo launched commercial service in 16 major cities throughout the country, expanding its PCS service to ovcr 30 cities by the end of 1998. Results for 1997 were positively affected by the consolidation of IusaceU and improved operating results- from Omniu:1. _....--.------._~-,~- ../ ,I. -~- ~~.U$"'~ln~I~~ apiw expenditures continued to be our primary use of capital :sources. The majority of the capital expenditures were to support ur Domestic Telecom business in order to fac:Uitate the introduc- on of new products and service!. enhance responsiveness to ~mpetitive c:haJlenges, and increase the operating efficiency and roductivity ot the network. We invested approximateJy $6.4 billion 1 1993. $5.5 billion in 1997 and. 54.9 billion in 1996 in our Jomesdc Telecom business. We aha invested in our Wireless, Jirectory and Other Businesus approxlm2tcly S 1.0 billion in 1998, 1.1 billion in 1997 and Si.S billion in 1996. We expect capita! qJcnditures in 1999 to total .approximately 58.1 billion, including pproximately 57.3 billion to be invested in our Domestic Telecom 'usmcss. This estimate inclu.des apptoximately 5500 million related o the implementation of the ncw accounting standard on costs of 'omputer software. Statement of Position (SOP) No. 98-1, Accounting for the COsts of Computer Sohware DeveJop!:d or )btaineti for Internal Use." You can find additional information on tOP No. 98-1 under "Other Matters-Recent Accounting ~nouncements-Costs of Computer Software," r ~~e!I - $7." 8 - 16.68 t I 1996 :1.997 ::.9i8 . tlomn~c TelKOm ' Y{~, _ OInt. - sa... J ~ ..... We continue to make substantial investments in our unwnsoUdated businesses. During 1998, we invested S603 million. which included a cash p:ayment of S162 mUHor. to inc:rea.se our ownership interest in Omnitel from 11.45% to 19.71%. In 1998, we also invested S301 million in PrirncCo to fund me buUd-out :md operarions of its pes netWork and SJ40 million in our le:ase financing busine$ses.ln 199i, cash invtSting a<<ivities in unconsolidated businesses towed 5833 __ million and included 5426 million in PrimeCo, S 138 million in fLAG lnd 5269 million in leasing OUld other partnerships. During 1996, we invested $257 million in PrimeCo. $315 million in Omnitel. primuily to increase our ownership interest, 5224 million in other international telecommunications investments and 5275 miUion in leasing and other partnerships. Our short-term investments include principally c:ash equivalents held in trust ao:c:ounts for the payment of c:ertain employee benefiu. We invested 51,028 million in 1998,5844 million in 1997 and S418 million in 1996 principally to pre-fund vacation pay Ind aSSOt:i;tle health and welfue benefits. In 1998 and 1997, we inc:reasc:d our pre. funding to cover employees of the former NYNEX companies, Proceeds from the sales of all short-term investments were 5968 million in 1998. $427 million in 1997 and 5133 mUlion in 1996. ~ I In 1998, wr r~ccived ('~h proceeds of S637 million in connection with the disposition of Investments. These prot:eeds included S564 million associated with Vi~com's repurthase of one-half of our investment in Viacom Inc, (Viacom) and $73 million from the sales of our paging and other nonstrategic businesses. In 1997. we drsp'osee! of our real e$U1tt properties and our interests in Bellcore, lnfostrada, SkyTV and other joint ventures and received c.uh proceeds ~otaling 5547 million. In 1996, we received cash proceeds of approximately 5128 million from the sales of nonstrategic busi- nesseS. We investel'S62 million in each of 1998 and 1997 to purchase ~lhmr p~oprrti~s. During 1997, we received cash proceeds of SI33 million from the rCNZ :'ihare repurchase plan. which was completed in December 1997. J C~ F10wa~Hd In Financing ActiYitie~ - J As in prior years, dividend payments Were a signifil;ant use of capital resources. We determine the appropriateness of the level of our divi. dend payments en a periodiC basis by considering such factors as long-term growth opportunities, internal c.uh requirements, and the expectations of our shareowners. In September 1998. we announced a qtWterly cash dividend of 5.385 per share. Far 1998, cash dividends declared totaJed $1.54 per share. We dedared cuh dividends of S.37 per share in the fint and second quarters of 1997 and 5.385 per shan: in the second half of 1997. or S 1.51 per share for the year. In 1996, cash dividends were $.36 per share each quarter. or 51.44 per share for the year. Cash dividends declared in 1996 includ- ed a payment of S,0025 per share for redemption of all rights grant- ed under our Shareholder Rights Plan. We increased our total debt (including capital lease obligations) by 51.026 million from Dct:tmber 31, 1997 to fund the increase in our Domestic: Telecom capital investment program, for higher purchases of shares to fund employee stock option exercises, and for continued investments in PrimeCo and Omnitel. Our debt level also increased by 51.438 million from 1996 to 1997 principally due to an inc:rease in telephone plant construction. oC\'! investments in PrimeCo and other wireless subsidiaries. and the consolidation of our Iusacell investment. Additional pre-funding of employee trusts as a resnlt"(lf c:overing employees of the former NYNEX companies also contributed to the incrcase in the 1998 and 1997 debt levels. Dividends "I' I 1 1\1* ::'9\17 1998 ~ /\ ~o) -'4."'.'/ -- \~) In February 1998. our wholly owned subsidia.ry. Bell Allanlk Financ:ial Services, Inc. (I=SI), issued $2.455 million of 5.759b senior exchangeable nOlCS due on April I. 2003 t.bat are exchangeable into ordinary shares of TCNZ stoc:k that we OWn (TCNZ exchangeable notes). In August 1998. PSI also i$Sued $3.180 million of 4.25%' senior exchangeable notes due on Seplember 15, 2005 that are cxcbangeable Into ordinary shares of ewe stock that we own (ewe exchangeable Dotes). Proceeds of both offerings were used for the repayment of . portion of our shon-renn debt and other general corporale purposes. ]n addition. two of our openting telephone subsidiaries refinanced debentures totaling 5721 million and lusac:ell issued $100 million in debt. ~L"-" Debt Ratio - I '[ '[ 1HIl 1997 lit. LI.. -, M of Dtumber 31. 1998, we had in excess of 54.5 billion of un~d bank lines of credit and $299.5 million in bank borrowings outstand- ing. M of Decembtt 31. 1998, our operating telephone subsidiaries and financing subsidiaries had shelf registrations for the issu:lnce of up to 52.8 billion of unsecured debt securities. The debt securities of those subsidluies continue to be accorded high ratings by primary rating agencies. After the announcement of the Bell Atlantic-GTE fiterger, the rating agende$ plac:ed the ratings of certain of our subsidiaries under l-eview for potential downgrade. In a subsequent and unrelated event, Moody's Investor Services changed its method- ology for rating diversified U.S. TeleO)mmuni~tion.s Companies. As a result. the debt ratings of four of Our operating telephone subsidiaries were downgraded and one operating telephone subsidiary was upgraded to reflect this new rating methodology. In 1998, we established a 52.0 billion Euro Medium Term Note Program, under which we ma}' issue notes that att: not registered with the Securities and Exchange Commission. The notes will be issued from time to time from our subsidiary. Bell Athntic Global Funding. Ine. (BAG F), and will have the benetit of a support agree- ment between B^GF and Bell Atlantic. There have been no notes issued under this program. In December 1998. we accepted an offer from Viac:om to repurchase one.Julf of our investment in Viacorn, or 12 million shares of their preferred stock (with a book value of approximatc:1y S600 million), for approximately S564 million in cash. This transaction rC$uJtr.d in a small loss in the fourth quarter of 1998. The cash proceeds. together \o\Iith additional cash, were wed to purchase an outside party's interest in one of our fully consolidated subsidiaries, This transaction reduced Minority Interest by 5600 million and included certain stock apprec:i. ation rights and COSts totaling 532 million. Our remaining investment - in Viacom. 12 million sharcs of their prcferred stock (with a book v.tlue of approximately 5600 million), was repurchased by Viacom in a second transaction in January 1999 (or approximately 5612 millj.,n in ash. This transaction did nol have a material effec:t on our caMoli. dated results of operations. You can find addition.l! information on our Viacom investment in Notes 3 and 10 to the consolidated finan- cial statements. In December 1998, Bell Atlantic Mobile announced an agreement with Crown. Castle International Corporation to form a joint venture into which B~U Atlantic Mobile, tocether Wilh certain partnerships in which it is the managing partner (the managed entities), will contribute (assuming the participation of aU managed entities) appro:cimately 1.400 network cellular towers in exchange for approx- imau:ly $380 million in cash and ;In equity interest of approximately 37.7% in the joint venture. SAM and the managed entities will lease bad: a portion of the nerwork towers and the joint venture will lease the remaining: spal:t to third parti~. The joint venture also plans to build new towers. This financing trans;~on is expected to dosc in the first quarter of 1999, wuming the suisf.1c:tion of certain condi. tions of dosing. .A "\- ~."'~."'\ "'~"I'~ ~ IjJ..~..';h,:" ~ :J ~', ~.; :.~... ~ ~...t\: teL. "';':~'~ '1.. "P:~i~"r ,:~.))""H....!t \, ~I":) i., i ";~.~ l{\ " ~::tr~e~ 'R.sk~...;(o,/'" . ',.,,;:"'1' '. , \\ " ~\..', ' ..\ ,:', ", .'i'(f'l.')"'~; -, t':>.' , o J., ~).,..r.~\ I )./ ~\ 1( ..~:t..::- ft. \:\\.,~ i.b'4:' V\,4 ~vfl /"n n' "1:'4 !;.:~\I, \t t't" ~ ;t.~.... :{ 1";:..,,\\.1 . ;.~~:- .1,., We are exposed to various types of market risk in the normal course of OUr business, including thc impac:t of interest rate changes. foreign currency exchange ra.te fluctuations. changes in equitr investment prices and changes in corporate tax rates. We employ risk management strategies wing a V3riety of derivatives including interest rate swap agreements. interest rate caps and floors, foreign currency forwards and options and basis swap agreements. We do not hold derivatives (or trading purposes. It is our policy to enter into interest rate, foreign c:unency and other derivative transactions only to the extent necessary to achieve our desired objcctiVC$ in limiting our exposures to the 'V'arious market risks. Our objectives include maintaining a mix of fixed ,nd variable rate debt to lower borrowing costs within reasonable risk parame- ters, hedging the value of certain international investments, ;'Ind ' prOlecting against earnings and cash flow volatility resulting from chimges in foreign exchange ratC$. We do nat hedge WJ {D.arket risk exposure in a manner that would completely eliminate the effect of changes in interest rates, equity prices and foreign exchance rates on OUI earnings. While WI: do not I:xpecf thaf our liquidity and cash flows will be materially affected by these r15k managemenl strategies. our net income may be motterially affected by certain market risk associated with the TeNZ and ewe exchangeable notes. '! ; , , " , " I' 'y ~---..---~--"---- -~~----_... equired that implemenution be completed as nrly 1$ ,011 of presubsaiption for lntraLATA toU services b;u 11 ncgathre effect on intnLATA taU service revenues in :doDS where, as noted abO\'e, presubscription hu been I before we lU'e pmnitted to offer long distance services. Ie ne:gative effect is beginning to subside now tbat ion hu been availilble in most of our stata for mOn! ar. 1n addition, the advc1'$C impact" on intraLATA toll enues is being partially om,et by inmased intraLATA est revu1UC$. U1CC StftYICES n~ servic:c:s ha~ historially been subject to regulation ;Watory commissions. AppUcatiora !rom comp~to1'$ to j resell IDa! exchang~ services have been approved in all e jurisdictions. The 1996 N:t is expeCted to signifiantly : level of competition in all of our local exchange rn:atUts. ; January 1. 1999. eleven European countries are putici. a multi-step pro<<S$ to convert their existing sovereign s to the "Euro: The process includes a transition period of rs. during which time either the Emo or the pWcipating " own currencies will be acc:epted as payment. After the :t. pmod. the countries will issue Euro-denominated bills s and will withdJ:aw their own currencies from c:irculation than July 1, 2002. complcting the conversion process. We cstments in companies in Italy and the Netherlands. wbich .cipating in the Euro conversion. We do not believe that the :tvel'$ion will have a mattrbl effect on these investments. :' Acci-~ Pr~n~ __~:: - 1 ~ J )F COMPUTER SOFTWARE rch ] 998. tbe Americ:an lnstituu of Certifi ed Public ltants (AlCPA) issued SOP NCl. 98-1, "Ac:counting for the of Computer Software Developed or Obtained for lnternal ('his new accounting standa.rd provides, among other things, lce for determining wbcth~r computer software is for intcrnal ,d when the cost related to such 'software should be t'Xpenscd urred or capitali'ted and amortized. SOP No. 98-1 is requited .1pplied prospeaively. lopted SOP No. 98-1 effective January 1. 1999. We estimate that nplementauon of SOP No. 9B-1 will result in a net afteNaJC it of 5200 million to $250 million in 1999 results of operations :0 the prospective capitalization of costs which were previously nsed lIS incurred. Costs for maintenance and training, lIS well as :ost of software that does not add functionality to the existing 'm will continue to be expen$ed as incurred. -. cons OF 51lRT-tJP AC1IVJTlES In Aprill998. the AlCPA is$ued SOP No. 98.5. "Reponing on the Co$U of Start-Up Activities." This n(>w accoundng standard requires tbat com of start-up activities. including pre-operating, pre-open- ing and other organiutional costs. be exp\"nsed as incurred. In addi- tion, the unamortized balance of any previously deferred s~n-up costs existing at adoption must be t:tpensed. We adopted SOP No. 98-5 effective January I, 1999. Tbe adoption of SOP No. 98~S will not have a mSlerul effect on our resultS of opera- tiom or finoncia.l condition in 1999 bec3lUe our policy has been to gtllcrally expense all sr.art-up ac:tivities. DERIVATIVES AND HEDGING ACT'll/IllES In June 1998. the financW Accounting Standards Board issued SPAS .No. 133, "Ac:counting for Deriv;lti\le Instruments and Hedging Activiti~." This statcment tequir~ that all derivatives be measured at fair nlue and rec:ogniud as cither asstrs or liabilities in our balance shett. Ch3.Dges in the We values of the derivative lnstrument.s will be recognized in either earnings or comprehensive income, depending on the designated use and effectiveness of thc instruments. Bell At1lIldc must adopt SF.~ No. 133 no later than January 1. 2000. We are l:um:ntly evaluating the prOVisions of SFAS No. 133 and bave not yet detetmined what the impact of adopting this statement will be on our future results of opcntions or financial condition. l Yo;a1 ..~. U~luL -~~ _ ~: ~ -~:: J ,~ ~ .-...~ : r 5 I : ~ t ! e a s :1 It - - 0 ~ I~ k ic Ie Jt :0 C$ of ge in he Its We have a comprehel1$ive program to evaluate and address the impact of the Yeu 2000 date transition on our operations. This progrun includes steps to: . inventory and assess for Year :WOO compliance our equipment, Ulftware and systems; . determine whether to remediate. replace or retire lloncompliant items, and C$tablish a plan to accomplish these steps; . remediate. replace or retire tile items; . test the items. where required; and . provide management with reporting and issues management to support a seamless transition to the Year 2000. -:. I ... he STATE OF RtAOINE$S for our operating telephone subsidiaries. cemralized services entitie$ and general corporate operations, the program focUSts on the follow. ing project groups: Network Elements, Applications and Support Sruems, and Information Tec:hnology Infnstruc:tUte. At this time, we have virtually completed the in\'entol')', assessment and detailed plan- ning phases for these projects. Remediation/replacement/retirement and testing ac:tivities arc: well underway. We plan to fix. replace or retire those items that were not Year 2000 compliant and that require action to avoid service impact. Our goal for these operations is to have our network and other mission critical systems Year 2000 compliant (including te$ting) b)' June 30. 1999. We arc on schedule to achieve this goal for substantially all of our network and other mission critical systems. What follows is a more detailed breakdown , .&1:.--. .'" ,;~tl' in ter to Jew ing lof Act lan- ,ors, our jngs lit of "'1'(""'" ~"/';I,I,"~ .t...~,L l'\'\-\"".f.";"" I,I.~ I ,.'..fv.lr '/.'t l'I'~':'jl.... ,'-1'. .,:. ~JI~i,.. '''1'''0, ~.I,"j (It>1I.'I'" '1(',' I ,';'j :',,":/ ~',/:, -' ':i./!, (I')::,:">~ 1'-, J :'1 {-"r \,' ',.,Manag,cptc(1t.:o; D\is~l($:sJo'ri:;hI,fd,' A"aJY~H'.(:{h~ ; 1./> " ,;(:'; r :1,-) 1\'1t IlI!\ ~1;"'\'\{\~<,J ,'\:';";1'1 ~/l\l,.."l Y'.~~~'t.., ~,,,~,~\~\"J't'~~ l,..~.....\/...... .,-;.';1.''':,'''''.1/ "~~I,,,',."\I"r{",\~;J\'I;~....., ,/"..~\~\. ~.\ \':~',"':-\'f ,."~ ~l,'1lll'1\ tr....\.~V(,\. /,!"J-::,.,..0 .-. I ) -. I · NrTWORtc ELEMENTS Approximately 350 different types of network dements (such as central office switches) appear in ovet one hundred thousand instances. When combined in various ways. and wing network application systems, these elements arc the building blocks of customer services and networked information transmission of all' kinds. We origin~ assessed approximately 70% of these element types. representing over 90% of aU deployed network elements, as Year 2000 compliant. Late in 1998, through additional testing and vci.fi.c.ation, we detenn.in~ that urtain network e1emtnu. origi- ndIy represented as having DO Year 2000~related service impact, were likely to cause service i>>ues unles.s remediated. As. a result. we bad an increase in the overall number of nen-rork elemenu requiring repair;Notwithstanding the additional work effort, a.s of February 1999. we bve fepaired or replaced approximately 50% of the deployed network elements requiring remediation. and certification testing/evaluation is well underway. We also bave made substantial progress on the remaining network elementS. .JJtbough we are generally on track to achieve our June 30. 1999 goal for network elementS, it is possible that the timeframe {or compliance of a small number of netWOrk clements mar extend into July or August, without any impact on customer suvice or our open.tions. · APPLlC,mONS ANO SUPPORT SYSTEMS Approximately 1,200 application and $Y1tems support: (i) the administration and maintenance of our network and c:ustomer service functions (network information systems); (u) c:ustomer are and billing functions; lUld (ill) human resources. finance and general corporate func:tions. We originally assessed approxirmte1y 48% of these application system$ as either compliant or to bc retired. As of February 1999, we bave suc:c:essfully completed c:enifiation testing/evaluation of approxiJnarely 70% of all appli- cation systems. We also have made substantial progn:ss on the remaining application systems. Although we are generlll1y on trac:k to achieve our June 30, 1999 goal for applications and support systems. it is possible that the time!rarne for complianc:e of a small number of applications and support systems may extend into July or August, without any impact on customer servic:e or nur operations. .," ! '\ ....,..~,..~ -- l~~ . INFORMATION T!CHNOLOGY INfRASTRUCTURE , Approximately 40 mainframe, 1,000 mid-range, and 90,000 personal c:omputers, related net\'.'Ork components, and software producl:S comprise our information technology (IT) infrastruc:- ture. Of the approximately 1,350 unique types of elements in the in\'entory for the IT infrastructure, we originally assessed approx. imately 73% as compliant or to be retired_A!, of February 1999. we have: successfully completed certifiation testing/evaluation of ::lpproximately 90% of all element types. We have made substan- tial progress on the remaining hems and we are on trac:k to achieve our June 30. 1999 goal. For our other c:ontroUed or majority-owned subsidiaries. including Bell Atlantic Mobile and our directory companies. the inventory. assessment and planning efforts are substantially complete. 3nd remediation/replacement/retirement and testing activities ate in progress. Bell Atlantic: Mobile, our direc:tory companies and, in general. all of the other c:ontroUed or majority-owned subsidiaries are on trac:k to achieve our }une 30, 1999 goal for substantially all of their mission critical systems. Our Iusacell subsidiary has experi- enced some delays in implementation of its Year 2000 project plan. It is currently antic:ipated that required modification. replacement and retirement of substmtia1ly all of its nilision critical systems will be complet~~ by September 30, 1999. with testing continuing throughout 1999. Our Year 2000 program also includes a project to review and reme- diate affected systems (including those with embedded teclmology) within our buildings and other facilities, a projc:c:t to assure Year 2000 compliance across all of our internal bwiness processes, and other specific projects directed towards insuring we meet our Year 2000 objectives. TNIIID ~AItTY ISSUES · V~NDORS In general. our product vendors have made available either Year 2000Mcompliant versions of their offerings or new compliant products as replacements of discontinued offerings. In some c:ases, the c:ompJiance Wstatus" of the product in question is bued on vendor-provided information. which rmtains subject to our tcsting and verification activities. In several instances. \"endors bave not met orlpnal delivery schedules. resulting in delayed test. ing and deployment. At this time, we do not antidpate that such dehys will have a material impact on our abilit}' to ac:hitve Year 2000 compliance within our desired time:frames. We are continuing Year 2000.related diSCUS$ions with utilities and similar services providers. In general. information requests to such services providers have yielded less meaningful information than inquiries to our product vendors. and we do not yet have sufficient information to determine whether key utUities and similar service providers will successfully complete the Year 2000 transition. However. we are now beginning to engage in more produc:tive discussions with luge utilitics servicing our facilities and we are hopeful that these dUcwsions will provide us addi. tional assurance of Y~r 2000 compliance for those entiti~. At the prestnt time, we remain unable to determine the Y~'2000 Iudi- ness of most kq utilities and similar service providers or the like- lihood that those providers will suc:c~ssfuUy complete the Year 2000 transition. We intend to monitor critiCAl service provider activities. as appropriate, through the completion of their respec:. tive remediation projects. · CUSTOM~RS Our customers temain keenly interested in the progre~s of OUT Yeu 2000 effons. and we anticipate increased demand for infor- mation. including detailed testing data and c:ornpany.specific responses. We are providing limited warranties of Year 2000 compliance for c:tnain new telecommunications services and other offerings, but we do not expect any rcsulting warranty c:om to be malerial. We are also analyzing and addressing Year 2000 issues in customer premise equipment (CPE). including CPE that we have ',' 'I .' " ::~..r .~ . ..~ 1:. ~~'~:.~: sold or maintained. [n generd. the CUSfomer i5 responsible for CPE. However, customers could attribute a Year 2000 malfunction of their CPE, whether or noc sold or maintained by us. to ;a failure of our netWOrk servic:e. We Wo h:lVC' a separalt' effon to identify and address Year 2000 issues for CPE and other equipment that we maintain for Public Safety Answering Points (PSAPs) and are used in connection with the provision of E.91 1/9 11 and related services. We art prese:ndy ~iring and replacing f-9! U911-rdat- ed CP.E. as appropriate. that we maintain for various PS~.Ps. We have developed, where appropriate, contingency pb addressing delays in remediation activities. for example, deny In installation of a new Year 2000 compliant system could req' remediation of the existing system. We are also developing a COI rate Year 2000 contingency plan to ensure that core business fi lions and key support processes are in place for uninterru proccssing and ~rvice, in the event of eJ>temal (e.g. power, pI transportation, water). internal or supply chain failures (i.e. c:r deperNlencits on another entity for information. data or servi We anticipate that an initial draft of our corpotl:le contingency will be ready by the end of the first qumeroEl999. ?'~u'1~'Ji ~'lvS tc"';~riFc~"\~"ctniif .~~o ~~r"li:Milh{ 'f~.~",,..t.,rl,'J' ~'!''"'l'",/. "~~" '{~)~X"~ t( "l"rrll...,, ",t" .~ .... '.. .."'..... ::':'i... .~r ~ \\' ~:\. r.":.r '.;.; ~'U, v.\, .~\' ..,. J is' (~me,nts/: ~\k~'i~'I~'~ "J;;~"t ~1;~":: ::1,,' ",.~,. :~'I~':"<~\.:J.':;fV." ~,j;'",< "'..(;!~ ;r ,? ,1'1' ,~.(r..) . ~ {/~,....:~ . \):1. ' 'd' ,.4'~.I"""'c~ .:~ ('lr'~i I. ..:'V1;t 0.,; ,~..-:; r ~ ..' ~\ . ,,\ In this Management's Di.sc1Wion and Analysis, :wd elsewhere I Annual Report, we have made forward.looking statements. sratements are baJed on our estimatts and assumptions ar subject to risks and uncertainties. Forward-looking statet include the infortn:ltion conterning our possible or assumed results of operations. Forward-looking statements also includ~ preceded or followed by tbe words "antkipates." "believes: mates:"'hopcs" or similar expressions. For those SUltements, ....., the protection of the safe harbor {or forward-looking stiI,tt contained in me Private Securities Utigation Reform Act of 10" The following important bc:tors. along with those discus:. where in this Annual Report, could affect future results an~ QUSC those results to ditrl:r materially from those expressec forward-looking statements: materially adverse changes in economic conditions in the served by us or by companies in which we have sub. investments; · material changes in available technology; . the final outcome of feden!, state. and local regulatory iJ and procf'Cdings, including arbitration proceedings, an~ review of those initiatives and Pl'OCC(dlngs. peruining Ie other maners, the terms of intet~Qnnection, atceSs cltarge:. sa! service, lnd unbundled network demdlt ana resale rat . the extent. timing, success. and overall effects of COlT from others in the local telephone and toll service tni'.rkel . the timing and profitability of our entry into the in-ref distance market; . the success lnd expense of our remediation efforts anc our suppliers, customers, joint ventures, noncontrolh ments. and ioterc:onnecting carriers in achieving '1 c:ompliance: and . the timing of. and regulatory or other conditions ass. the completion of the merger with GTE and our.. " combine operations and obtain r~enUt enhanctmcntr savings following the merger. ".10,,- · INTERCONNECnNG CARRIERS Our network operations interconnect wirh domestic and interna- tional networks of other carriers. If one of these interconneaing c:aniers should fail or suffer adverse impact from a Year 2000 problem. our customers could experience impainnent of service. COSTS From the inception of our Year 2000 project through December 31, 1998, and based on the cost tracking methods we have historiaUy applied to this project, we have incurred total pre-tlx expenses of approximately S122 million (597 million of which W2$ incurred in 1998), and we have made capital C'Xpenditures of approximatel)' 580 million (all of which was made in 1998). For 1999, we expect to incur tow pre-taX expenses for our Yeu 2000 project of approximately S100 million to 5200 million and total capiral ccpcndiulles ofS12S million to 5175 nlillion. These cost e:;ti- mates have been included in our earnings urgcts. We have investments in various joint ventures and other interests. At this time, we do nOl andcipue that the impact of anr Yen 2000 remediation costs that they incur will be mareri3l to our results of operations. RISICS The failure to correa a material Year 2000 probltm could cause an interruption or (:allure: of ceruin of our normal bwiness func;tiolU or operations. which could ha.ve a material adverse effect on our reswts of operations. liquidity or financial condition; however, we consider such a likelihood remote. Due to the uncertainty inherent in other Year 2000 issues that are .ultimatel)" beyond our control. including. for exampie, the final Ye.ar 2000 readiness of our suppliers, customers, interconnecting c;aniers. and joint venture :md invest- ment interests, we are unable to detennine at this time the liktlihood of a material impact on our results of operations, liquidity or finan- cial condition. aue to such Year 2000 issues. However, we are tak.ing appropriare prudent measures to mitigate that risk. We anticipare rhat. in the event of any material interruptions or failures of our service resulting from actu:l o~ jerceh'ed Year :WOO problems within or beyond our control. we could be subject to third party daims. caHTINCl.EHC\' PLANS As a public telecommunications carrier, we have had considerable experience successfully dealing with natural disasters and other eventS requiring contingency planning and execution. As part of our efforts to develop lppropriate Year 2000 contingency plans, We are reviewing our existing Emergency Preparedness and Disuter Recovery plans for ilny nel:essary modificarions. -~~----~-----.--_._._,. " ." . /:' , :;; c"~ .: , ~ t. 'i~1 'I ~,' ~: .; , ~ >, ~ ,"'..' .- ,'c <'~:.:' .. j -:' . " ~.~,) :;-:' I ' " ... 1'",' .. i' c" ( .. " ~ , .,' t: c . "1 . '\, '.. ~ ' , ~ <, '.' .. , 'J l !~' '.'. . "'" I c I ' ", . . ~ " , '. ~~~ ',:<, ,~. '..','~ !:;~,: ~i I"~l/!. ";~;'\:"lt::..\~..~, . ,_.~....,~ ,I;' ."l~"'~h. , . ,...:,~ f, ~. ~>: '..' , c I.' "',< li'\'"'''' "I ,. "~'.;>';.\T" '," 1"1' ,j..'.I. '.'..1' eece InilnCILI' ail,.' I "",','",' '. ".',",' \')~ "',,, (' . !"..\.~I J\'\~I:'~';'~ I~t"./.\'~ -})',', \';',~,\:). /i,)"r".{ :..~}:'lt\i"'~~ll'\/'I'J':\-'\'~' ."I,,~ ~\'''~'''.'.i~",/.r,}\/\"\,'r.,J..'';,~I/,,.~:.i:--,,'~I,\,.\., ")"I;>I'\~~lj':'\r.\..,V.\\ '" "r. I ,~ ." " I ~ ". . I" ,~ , .....,... .' ~ J. ~,1 '. . ".... . '. 1 \tl , \., ,."- \ .. 7 ~ (DOUMI'" "'lUll"', U~~P1 '11 ......t oW_f" . ::.",;.h~. " :lM8 l5t7 19tG 1M5 1!54 ;;"ta of Opef.tIons Jlr.._ - I f$ 29~15:T $ Opef'lltJng revenues S 31,585.9 S 30,193.9 27.9.'26.8 $ 27,098.0 Oporatlng Income 6,627.2 5,341.6 6,078.6 5,417.4 4.522.4 Income before extraordinary Items Md cumulative i.sffect of chan&as In aecountlrll principles 2.990.8 2,454.9 3,128.9 2.826.1 2,224.9 ". Per common sharo-bas.lc 1.90 1.58 2.02 1.85 1.47 Per common share-dU~ 1.87 1.56 ..:-: 2.00 1.84 1.46 Net Irlcal'ne (lOSS) 2.965.3 2.454.9 3,402.0 (96.8) 68.2 ~r cDnunon share-baslc: 1.89 1.58 2.20 (.06) .05 Per common Share-dllutl!d 1.86 1.56 2.18 (.06) .04 Cadl dividends declared per common share 1.54 1.51 , , 1.44 1.40 1.38 . FIMnr:iDI PosItIon Total assets $ 55.143.9 $ 53.964.1 S 53,361.1 $ 50.623.1 $ 54.020.2 : LontUrm debt 17.646.4 13.265.2 15,286.0 15,744.1 14,590.2 Empl~ benefit obligations 10,384.2 10,004.4 9.588.0 9,388.4 8,980.2 , Minority lmerest. InCluding a portion subject to redemption requirements 329.7 911.2 2.014.2 1.221.1 648.0 Pfefcm!d stOCk of Subsidiary 200.5 200.5 145.0 145.0 85.0 Shareowners'lnvestmcnt 13,025.4 12,789.1 12,976.4 11.213.6 13.063.5 ";';A.U~" r I '~""\,,,J All pu share anounlS ~ been adju.ued to rdlect a tw~(or.oDe stOCk spUt on June 1, 1998. Sipific::.un ettrlD aifectiDa OW' b.istorial eaminp tmIds include the follcrwing: . 1995 and 1997 data include retirement incentive cow. mcrger.re1a~ com and OUlU special items (.see Notes 2 and 15 and ManagemC11t'S Discussion and Al:W)'$is). . 1996 data include retirement Incentive cons. othu special itemS (see Nott 15 and Management's Discussion and Analysis), and the adoption of. chinle in acc.ounrins for di.rtctory publishing (see NOlc 1). . 1995 and 1994lhu Include mirmlenr inantive ccsts (5a: Note 151.and an atr.ordinary charge for the discontinuation of~lOryao:ountinrprincipks. . Cash dividends declared in 1996 include I ~ent of $.0025 per common dare: for redemption of all rights granted under our Sh.ueholdtr Righu Pbn. ..- -=.c .... \...J ,>' I' ._-~--~---~._-~~-~ p?;{l:~t~':,.' "":'",' .' " : "J '. '.' , . ~ .'. ,. '. . __ _______up_,___ " , ----'--------c--;~-~--....- , i . .: ~ ". "f ~.~: ~ '.' , ~, . T i(~:- "/, . '"..1 . , "1 . , " . . ~ " !1' ' .' ". I' ~ I , . j . . , , . " ' .1 . t .::. ,\., J: \ ;". :'::' '.' ~': ,,' '., .'. <~~ h >.1 .:. " " \: .' . , " c. . ., :.. t . " ~ f . ~ j . . 1 " ~,; ~:r.l\< ~ ':"'<:\' r.~,;:S(:.~f~j>.:;;:;.^'; :~:< ,;". .~:" .:", '. ,.. ~ ,.." t ~. ~ ,...." . '.. ., "c.. I . I,y, "1" /" "'1 . \1,' I "'t a erne" S q nC}l~C2! ,( .\.,/ If I', \~lll\ ,(.; "'V" .~~ < ,'.: ' \" .. I' ': i : ',"',',' <'. .' '" I 'I, /,) I' ",/t" ~) ~\ ~:.~..j.\;'r.\,~ ':;'''f.,t./r~\" ....",. "';"""ll~' .t",,,.i,' I.., t'~ '/r.,'!"<' ,.,.\o.\.t r.;;\,~"".. l'f,\'~,Ii~'~~\\\/"I~I,"~<'~ /'~'''''"/l\~,I''';'I.'' '\--:1....,,\,.1... ' .., ., ~., .. . ,. ~ I ' ) I' r f, I I~J".,t. , '. ..' . " '''I .' . ~ r " . " , IDIl~l.U, 1M "'ll/(lH,. nel" 'II IH.II .-mJ " I' 'I'UIlI_ ~ as. UtI 1!97 1>>$ c 0pwmtInc Rft'OmIO'I S 31.565.9 , $ 30.193.9 I $ 29,155.2 Operatbtc Eapeases Emplo)ft costs, Including benefrts and taxes 9,265.8 9,047~2 8,703.9 " ' Oeproclation arid amortization '5.870.2 5,864.4 5,379.0 Other operating expenses 9.802.7 9.940.8 8.993.7 , . 24,938.7 24.852.4 23.076.6 Ope..ttrc l~ 6.627.2 .;.; 5.341.5, 6.078.6 'nCome (loss) from unconsolidated ~!-l~lneS${!s (414.6J (12~.1) 14.2 Other Inctnne and (expense), net ' 121.7 (3.3) (99.6) Interest e.tpense 1.335.4 1.230.0 1.082.0 Income before provision for Income taxes. extraordInary Item, and cumulative effect of change In accounting principle 4.998.9 3.984.1 4.911.2 Provision for IncOme taxes 2.008.1 1.529.2 1.782.3 tncome ~~ ttem and CUmc:.btlvCl Effect of ~ In AccauntInC Prindple 2.990.8 2,454.9 3,128.9 ExtraordInary item Early extinguishment of debt.. net 01 taX (25.5) - - umulative effect of change in accounting principle Olrectcuy publishing. net at talt - - 273.1 Inccme 2.965.3 2.454.9 3.402.0 edemptlon of minority Interest (29.8) - - ademption of Invest.ee preferred stock (2.5) - - t I~ AftUable to Common Sbefeownm. $ 2.933.0 $ 2.454.9 $ 3.402.0 EIIrnInCls Pcf Cammon ShalNI: Befoftl ~ ltmn and CVIDsltIlttYe Eftect 01 Cb.VI.ge In Ar.cot1nt1n4 ~ s 1.90 $ 1.SS $ 2.02 lnary item (.01) - - umulatl...e effect of Change In GCCOuntittg principle - - .18 f.nc:oIr.e 5 1.89 $ 1.58 S 2.20 elght:ed-average shares outstanding (In millions) 1.553.0 1.551..8 1.546.6 lbrt:td EaniaCs Per common SIulre: I1QXnCl Befmt ExtraorcI1nar)' ttaJn ~J CUmalatIvo Effect of CNnco In AccountII'JI PttncIpfe S 1.87 $ 1.56 $ 2.00 :xt.r&ordinary item (.01) - - ::umulative effect of Change in accounting principle - - .18 ....t Inconw S 1.86 S 1.56 S r.:r:s- Nel~e shares-diluted (In millions) 1.578.3 1.571.1 1.560.2 Net R R tn Balle InccHM Extroord C Hat W D I -=- ( I 'M'/ I I, ;, j , " - :;;;.:,~,': '>: ' 'H , . \. " , :. " i , 'i/' ~:: . , . '" ~ 1+ . " ~. .: '. " (': ~L, ~.r .; I .I. . ~ \ ~.. . I.' . ' :.." ,. ~ . . \ I :.~ '; I ",' ", 0.1, n~ ,.... " I :t"I,J".> '. ''; ." .. < 1" ." " ' . ; ~' , .t '; c , .' dl' . 1/ I:h"-:::~;".'~ ,~;...\~,J:',~~,~~,} ~r '...!l:t>~., , .. " .. c,. . ~; I ~: ,: :'. \ I . . . J' . . . ~ . ~, .' .. " ':' .,", 'l ":,:\'" '\,' : ';d' :~ (:'i, '~'\'( , ':; ('(~.Con~olidatcd 'Balanc~' Stll:cl$' ,I, , '; \\',],1,1' ;t'" .-1, ,\ 1'1, /,;:', 'I{ ,1,\ ',I) \ '\ '1'1,,'0' 11' ,'1 J/<:,' ,,;' , , ,I.!,""'::": \'" ,/'/",1 :',',,\,1,' 1/'/":'\'''':'/''1'\'''\'1) //.\'.',,1\1 ','1\\1','1",' ,.",'''',),1 '" 1,"\">l;~""""\'\"\'):'I\':\':"/')II/;>' JI(I"I~!"{I,, i<j'.,..,/(;./'/ I . \, , ~ ...... 1'~ ~.. , " I" ",' '\ . . '1"\ '", , . , -", \ I 'I . t ' ., ,-~.. , P" f <' (I ,I,} ()' '" ~IS. lDOl.UAS 111 101'\0011'. pct>> 'Ill IKAIII AIlOUTlU) 1.998 1!97 Assea Current assets CaSh and cash equivalents S 237.1 $ 322.8 , Short-term investmentS 785.8 74!0.6 Aecounts receivable, net of alloWances Of $593.3 and $611.9 6,559.9 6,340.8 InVentOries 566.0 550.3 Prepaid expenses ,~ 522.0 634.0 Other 411.5 432.3 9.082.3 9,000.8 Plant: pn)SMlrtY and equipment 83,064.1 77.437.2 Les.'; accumulated depreciation 46.248.6 42.397.8 36,815.5 35.039.4 Investments In unc:onsolidated businesses -4.276.0 5.144.2 Other assets ' 4.970.1 4.779.7 > Total assets S 55.143.9 S 53,964.1 ~ and Sbmtowners. Investment Current liabllitJes Debt maturing within one year $ 2,987.6 $ 6.342.8 AcCounts payable and accrued liabilities 6,105.0 5.966.4 Otner 1,438.6 1.355.0 ,(I~~/l\. 10,531.2 13.664.2 ( ,) Lone-term debt 17.646.4 13.265.2 "'....~\'1Vf Employee benefit obligations 10.384.2 10.004.4 Deferred creditS and other liabilities Defemtcl income taxes 2.253.8 2,108.2 Unamortized Investment tax credits 221.8 250.7 O1J1er 550.9 772.6 3,026.5 3.129.5 Minority Interest. Including a portion subject to redemption requirements 329.7 9U.2 Preferred stock of SUbsidiary 200.5 200.5 Commitments and contingencIes (Notes 2. 3.4.6 and 1) Sllareowners'lnvestment Series preferred stock ($.10 par value; none iSSUed) CornrnorI stoc:k (S.10 par value; 1.576.246.325 snares and 1.576.052.790sha:es Issued) 157.6 157.6 Cofltributetl C1I11ltal 13.368.0 13,176.8 Reinvested earnings 1.370.8 1.261.6 -.. Accumulated other c:omprehensive loss (714.2) ---(553.3) 14.182.2 14.042.7 Less common stock In treasury, at C()st 592.2 590.5 Less deferred eompensatlon-employee stock ownership plans 564.6 683.1 13.025.4 12.189.1 Total liabilities and shareowners' Investment S 55.143.9 S 53.964.1 ~) t,: , ,':, . "1 'c " . I. .: , , , I I , " '~:;, ,;--' ;,:' c;:,oj1~~-',i~~tlfd' $;t~tc~~nl5\~qrt:han~I!cs" in, S,~~feOW"~ts; 'n\lestm~rit 'I,:'y .', \'i; ")' ';> ,> :l"~ ;,; ~:( ;':;:,'\)1' li'ji' \' t ,I.<~:~: ':' '~', -, 1/.. . _, ~ 0 1 S. I " 1'" t' (. /'.1': Y,', J:i" j f \ J" ~~\ f;;:' d:; ~ \ .,1 .... "- I /. t ~ I( " 'I ....., '1.\ I'. - I "', " ~.\ /'1) ',. : \ .~ ... > IJ ,~).' ~ ~' \ \.1\ J . < .~ ..: _J1-1 \Ji\} llo !, l i\ 1~ - .\. : ~. >' . , , ~..i;1:/;':!);:,,": ,':, '!" .",';1-"'" '. .:, , -, ,- lD<lLLdJ ", "rUIO"', lief" ~r~ SM~~E l.lo40UlOts. ~IOO SHAlllllN 'HQUUHOSI ....1lIDIlD ~ u. 2.tH :t.99 7 9lHJ $NtH ^""'tJnt SIlInS Amount SIItteS AmoIInl ,...., Sac/c lIIance at bqlnllll1& of year 1.576.053 S 157.6 1.574.001 S 157.. 1.543.360 S 154,3 3~ lswed E/rJpIoyN plans 193 - 2.044 .2 9.084 .9 ~, pi"', - - 8 - 2.9G8 ,3 ~ SIWa lswecf to 1UbS.Idi&ry - - - - lB.796 1.9 ;hwu retlred - - - - 1:l07) - SIIIl'U lit end 01 )'Ut 1,516.246 '157.6 1.576.053' .. 157.6 :!..574.001 157,4 -- ~- . . CapItal aJance at beCJnnlr1& of )'elf 13,176,8 13,216.3 12.275.8 IsW!cI EmIlIOftlt pllIllS 178.4 (22.2) 283.1 Sh;nownet pi..,. - - 94,0 ~IUol1~ - 1..3) - - - (.21 ommon tn.wes iS$l.ltd tD IUbSldiary - - 489.0 of .meK by SllbJ;lHIWs 12.8 - - r - 111.0) (S,4) Ianc:e It .encl of}'e. 13.368.0 13.176.8 .13.216.3 ..... IIlIQ at beIlMinl of)"ll'" . 1.261.6 1,282.0 180.9 Income 2.955.3 2.454,9 3.402.0 dedanId IIICI ~n of ltCCk ri&tm ('1.504.11.51.11'I:I S1M pcr ...._1 (2.392.3~ 12.363,4) (2.295.71 ..$UOd ~ plans (443.31 (121.01 (lIl."j berw.'lt of dividenC$ ~ to ESOPs 11.8 12.9 14.8 ldamption or mlnority IrutllSl (29.81 - - gtion of illYlstn ~ s~k (2.51 - - - (3,8l 1.61 lit $illS of )'UI' 1.370.8 1.261.6 1.'282.0 ~ou.r~~Cl.oNl lit ~1Iin1 Of yelr 1553.31 1321,61 1537.Sl ClJf11!1ICy transla!iOlt ~tMf1l 1146.21 1234.0) 221.9 IIDd pins (Io$ses) Oil seeulllles 2.0 2.3 (5.91 iIlImum pell$lon UIlI:liIlty ad;ustmell\ 116,7) - - ~inCCmo, (loSS) 1160.91 f231.71 216.0 lit eIId oJ)eat (714.2] [553.31 (321.6) $l:IlCk at beJinll.nc of )"IIlr 22.952 590.5 22.540 589.3 3.762 97,9 ,~asetl 20.743 1.00.1.8 24.148 919.8 3.578 118.3 res aiSUibo. ~'!d (iU:6l EmI:llorM plW\S (20.779) 1998.Sl 123.2601 1899.0) 13,3861 SfllreotmlJ1' p{ells 1261 11.21 (52) 11.8] [21 1.11 AI:Q\I1$J\I0Il r.areemenu (3) (.11 (424) (17.8] - - mmon snltU ~Id b)' SUllstdlary - - - - 18.796 490.9 III'a ,.nm - - - - 120BI IG.ll lit end of year 22,887 592.2 22.952 590,5 22.540 589.3 ~t50Ps ance It bllIinlllllC 01 )'nr 663. "- 76B,4 861.9 rtltation 198.51 110S.Jl 193.5) .lIce It e~ Df )"1111 564,6 fl63,l 763.4 0bIl ~~. IlftCStnleftt S "-3,025.4 $12.789.1 S 12.976.4 ~"I- l income S 2.965.3 $ 2.4!>4,g S 3.402.0 r ;omprtihelllltve income (lOts] per IOOYol 1160,91 /231.71 216,0 S 2.804.4 $ 2.223,:;: S 3,618,0 ~ . UWU )Mdenlls ~ kIle II tobftNd .. Nt lMdends ;I\Vll5 . I It'dem >>tm ~ ~ ~ orwfCn lntt t /ltltr lMInce .,...". l8IInoe il\DteS iI\f :c on I&Itnee Mflnnd lal ll\Q III :c;.. Ie IUle -...... \ , """''''l~' . . ",' "".J, ,,: Cl , ...~, .:, ,'. i,,4"I"I.", " '" . i' :L~"!': ".. ',.:', I' Hol . .:~. I ;""p. ,c " ' ,.....'"'. ~ ~ , " '. "\/l<".;;\A. ~~J.~", ~.~.. ~ ii / 'jl/.' -: ',j \", ' . I,' lDOIUllI ", lI'1UOh11 j.t9G $ 3.402.0 5.379.0 - (273.1) (14.2) 19-4.8 (l00.S) 284.2 (57.3) 274.1 (184.0) (116.11 (244.8) I 382.6 206.5 ' (352.3) 8.780.8 (418.1) 132.5 (6.394.71 15.4 (201.3) 99.9 - 213.3 - (10.0) (1.071.2) 127.8 (67.61 (7.574.0) 109.4 ~75.8) - 77.1 (2.204,11 '328.3 (118.3) 687.8 - - 75.3 (1.420.3) (213.5) 462.9 S 249.4 - -, ;', c';; I';.. ,{,." )tl "/1'" .Cn.,' r-d t d 5t...tJ.. . !"' f C""h F' '~,. ", ".,. ," . ". " . . \" .~, "'\' ,\,'~': ,'" '..,', :--n..o I a e., ell, ~fUen 300, ',I"'''' . ~n$,;,' ;,'..',..<,;':,;<;'~.....f; ,.1',., ,\,I,'';I,~..., ,I} '.~' "',,.~.I" ~ r."q~.II'" \,'1..~ :;. ,<~~ .YI)" :1'1.'/",'/' ;:.\\V' /,\, / JI '.J.. ':,r' ;.',..,' .~"". f.,.. .11" .: :,':,L~{','~. ~,/I,I~J\~."'I". ." -.:.:.'., 1.1;', r'-.J , ,':1' -... -.:II:n. 1991 1997 - Is ClIIh Flows frvm OIMlr.rtinC AetIYtt* Net lnc:omo $ 2.965.3 2.454.9 Adjustments to reconcile net Income to net c:eh provided by Operatln& tc:thritl.. Depreciation Gnd amortization 5.870.2 5.864.4 Extn!otcIin.ory !lam. net of tax 25.5 CumulatlYe effect of c~e In ~untlnll ptinc:lple. net of tax Loss (Inc:ome) from unconsolidated busineliSltS 414.6. . 124.1 ~~ DMdend~ received from uncoosolJdated buslnU5e!S 169.4 192..1 Amortization of unearned ieitse incomo ' (120.2) (110.3) 0eferTed Income t8ll:lls. net 264.2 236.9 I~t UlX c:redits (28.9) (38,11 Ottler Items. net 225.5 88.2 Changes In certaIn assetS and lIabll/ties. net of effects from acQuisitlon/dispo:lttlon of buslnes.!M Accounts receivable (220.31 1139.5) Inventories (110.5) (73.81 Other a5MtS (10B.0) 65.2 Accounts payable and accrue<Ili8bUitles 376.4 (93.3) EmplQ!lee beMfrt obllllltJons 354.2 415.5 Olher liabilities (7.S) (127.6) Net caBh pnwi<H:d by operating activities 10.070.9 8.858.7 CesIt Rows fmas In~ AeUritfos Pun::ttasea af shOrt-term Investmerrts (1.027.81 (843.6) 01....... Proceeds from ~ at Short-term ilMtStments 96S,2 426.9 , t , I Additions to plllnt. property and equipment (7,446.51 (6.637.71 "W.;i""'''''''';- ~ from sail! of plant. proputy and equipment 11.9 5.5 II1'o'eStment in leaM<! ossots (269.0) (161.61 Proceeds 1rom Ieasjng activities 154.9 83.0 InVllStl1lent in notes receivable (7.2) Pmc:ee<ls from notes receivtble 21.1 63.1 Proceeds from Telecom Corporation 01 NC!W Zealand Umitcd shure repurchase plan 153.3 AcQuisttlon of businesses. less cm IlCquired (61.9) 161.B) Investm!ms In unconsolidated businesses. net (602.7) (833.0) Proceeds fnlm disposition 01 busllle'5$es 637.3 546.5 Other. net (63.2) f79.2) Net cash used In Investing activities (7.684.91 (7.338.6) Calli Rows trcm Flnancillft ActMt'-s Proc:eilds from borrowings 6.328.9 633.0 Principal repayments of borrowings 2nd capital lease obligations (651.4) (901.4) -- Early extJn;.ulshment of debt (790.0) Net d1an&e In short-term borrowinls with original maturities of three months or less (4,O38.4) 1.580.3 Dividends paid and redomption of stock rights (2.379.5) (2.340.4) Procte<ts from sale of common stock 559.0 710.7 Purchase of common stock for treasury (1.001.8) (919.8) Minority Interest . (631.9) (.1) Reduction in preferred stock of subsIdiary (10.0) Proceeds from sale of preferred stoCk by SUlls;~lary 65.5 Net changt: tn outstanding cnec:1ls drawn on controll(d disbul$ement accounts .133.4 (264.5) Net cash used in financin& activities (2.471.71 (1.446.7) / Increaso (decrease) In cash and cash equivalents (85.7) 73.4 '--' Cash and cash eQuivalents. beginnin& of year 322.8 249.4 Cash and cuh cquivalenu. end of year S 237.1 $ 322.8 i~.,' . ~, '. ", "\ ~ ',c , . ~~,:'(,:':t\:~< I .'!" ,,,,',:1 ::.1'1' 7,'~;\:::\ ':\: c1h~ s ,t<<;.~,~p'nsofi~ate(FFhlariciaj;St'atemeht$" \\,' '<":~';/I' '/\~':'I'/,\, I I~II", \;'(.',\ ,{,,'I\r:V..\;' ':, '''<'f~ ,~, ,\1' ',.,tt. , I,,', r,..""',"''\. \\,'/.,.,\', ",('/ "',"l""" "~I'"~ ~"I( ,\ \\,1,)'/' ~ ,', ,{,~.!i\ j':.~ ,!',I' ' '" ,,''','\( J \1'4"\/';\"("\\")";'\' .- 'I', , ""'I, .r ,I,..', ,~, I,' I I H, \"I~ ~.. J,','l."t" .~ . "f' ,., I),~ ') .,/11 r 1. ~ ::-aa:;=-oaarror I DUC..,TlOft OF aUiUNlU Bell Atlantic is an international tdecommuniQtions company th.at operates in four segments: Domestic: Telec:om. Global Wireless, Directory and Other Businesses. For further information concerning our business, see Note 17. The tclecommwlications industry i! undergoing substantial clunges as a result of the Telecammuni.:ations Ac:t of 1996. .,ther public: poU- cy cbanr-s and technological advances. These changes are bringing inacased. competitive preSsures, but will ;Usa open new ourlcets to w. such as long distance services in our geographic: region, l.tpon completion of certain requitemenu of the Telecommunications /v;t of 1996. COllS0UDAllOH The consolidated financial sutements include our controlled or ma;ority~WDed subsidiaries.lnvesuncl1ts in businesses whic:h we do not control, but have the ability to exercise significant influence over operating and financial policies, are Iccounted for using the cql.tity method. Investments in which ~ do nOt have the ability to exerc:ise ,ignificallt influence over operating and financial policies arc accounted for under the cost method. All significant intttrompany accounts and mnsactioru h.tve been dinUnated. GRUPO IUSACEU. $.A. t1~ C. v. In the first quarter of 1997. we c:oosummated a re:structUring of our investment in Grupo Iusaccll, S.A. de C.V. (Iusac:ell), a Mexican wireless company. to permit us to assume control of the Board of Directors Iud manago!ment of IWOl~ As a resulr of the ~struC1Ur. ing. we dunged the accounting for our lusac:ell invcstment from the equity method to full consolidation. You an find additional infor- mation about lusacell in Note 4. UNITED ImlGDOAf OPERATIONS In the S<<ODd quarter of 1997. we ~ our interests in c;3ble television and telecommuniations operations in the United Kingdom to Cable & WU'Cless CommlUliations pic (CWe) in exdwtge (or an 18.5% oWIlership interest in ewe. Prior to the transfer, v.-e incll.tded .,. the ac:counu of these operations in onr consolidated financial sute- ments. We now acxount for our investment in CVVC under the equity method. You am find additional inConnation about ewe in Note 3. COMMON STOCK SPUT On May 1.1998, the Board of Dirtctors declared a two-for-one split of Bell Atlantic: c:ommon Stoc:k. effec;ted in the {arm of a 100% stock dividend to shareholders of retord on June 1. 1998 and payable on June 29.1998. Shueholders of record received an additional share o( c:ommon stock fQr eac:h share of common stock held at the record date. We retained the par value of $.10 per share for all shares of cornman stack. The prior period financ:ia.1 information (including share and per share data) contained in this report has been adjusted to give retroactive recognition to this c:ommon stodt spUt. USE OF ESrlMATES We prepare our financial statements under generally accepted accounting principles which require management to make estimates and assumptions th~t affect the reponed amounts or certain disclo- sures. Actual results could differ from those estimatcs. REVENUE RECOCNITION Our operating telephone subsidiaries rec:ogniu revenues when services arc rendered based on w.age of our local exc:hange netWork and facilities, Our oiher subsidiaries recognize revenues when prod- ucts are delivered or servic:cs are rendered to customers. MAII4TEHAHCE AHD REPAIRS We charge the cost of maintenance and repairs. in?uding the cost of replacing minor items not constituting sl.tbstantial betterments, to Operating Expenses. EAnNINGS PER COMMOIC SHARE Basic: earnings per common share are based on the weighted-average number of shares outstanding during the year. Diluted earnings per c:ommon share include the dilutive effect of shares issuable under our stock-based compensation plans, which represent the only potential dilurive common shares. CASH AND CASH EQUIVALENTS We consider ail highly liqLlid investments with a maturity of 9() days or le--..s when purchased to be cuh equiV1.lents. except ash equiva- lent$. held as short-tenn investments. Cash equiVl1ents are stated at cost. whic:h approximates tnuket value. SHORT-TERM INVESTMEftTS Our short-term investments consist primarily of I;3Sh equivalents held in trust to pay for ceruin employee benefits. Short-term invest- ment$. are stated at cost, which approximates market v.a1ue. IN\'~NTORIES We include in invemory new and reusable materials of the operolUng telephone subsidiaries whic:h are stated principally at averige origi- nal cost, except that specific: c:o$tS are used in the c:ase of brge indi- vidual items. Inventories of our other subsidiaries are stated at the lower of c:ost (determined principally on either an average or first- in, first-out basis) or market. -- PLANT ANP DEPRECrArlOH We state plant, property and equipment at cost. Our operating tele- phone subsidiarics' depreciation expense is principally baud on the composite group remaining life method and straight-line c:omposite rates. This method provides for the recognition of the cost of the remaining net investment in telephone plant. less anticipated net salvage value, over the remaining asset lives. This method requires the periodic revision of depreciation rates. The asset lives used by our operating telephone subsidiaries are presented in the following table: I,~ lJYU 1110 n.&a$l - Buildings Central office eoulpment Outside communications plant Furniture. vehicles and other equipment 20-60 2-12 8-65 $-15 ~ ~. : . .' ~ I , I.. . ",","'\ ,,:,'"',:,." h "\,,'I>..j"<.'d~" 0 es 0, onso J ae I '"<JoeUl ~ emCl19'f'" ,\\,'1\11' ,'_~" \ "".'1' "U1"! "-1"",\ ~ ,,' ~ i ' I j ~ I ~' ....~. (-"( , \ J \\ 'P:~', 1\' ", ~ J,.,' , l ..:- ,~'\" : \. .J: ",~ "I i , \, ( ~,... ~ . "" --~ .... \. > \";' '. I I~" '}~;, :"\' \;r. i I'" :; ~ I' '-.. .... ~,: --: ~ ,~ "'\f :.~ Vr r, -... ~ . "l'Jr'\ j,';; 1 ~ ~~. :'(. ',( ~, ~ I /., I~ ,./) i I ~ .~, ..f" ..... ~ HrI ~ C~ Whm W~ replat~ or retire depreciable telephone plant, we deduct the carrying amount of such plant from the respective accounts and chuge .ccumuJ.ated depreciation. Gains or losJes on disposition are amortized with the remaining net investment in telephone pb:nt. Plant, propert)' and equipment of our other subsidiaries is depreci- ated on a Str.light.Unebam over the fonowing estimated useful Jives:' buildings, 20 to 40 years. and other equipment. I to 20 years. When the depreciable assets of our other subsidiuies are mired or otherwise disposed of. the related cost and ;c:cumulated deprecia- tion are dtduc:ted from the' plant accounts. and any gains or losses on di$position are recognized in income. COMPUTER SOFTWARE COSTS Our operating tetl:phone subsidiaries capitaliu initial right-to-use fed ror central office switdllng equipment, including initial operat- ing system and initial application software costs. For nonc:entral offiu equipment. only the initi.u operating $)'Stem sofn...-are is capi- taliud. Subsequent additioru. modifications. or upgrade5 of .initial software programs. whether operating or application pac:kages. are expen.sed as incurred. CAPlTAUZAT101C OF ,"ramE$T COSTS We apitalize interest associated with the ac:quisition or construction of plant assets. Capitaliud inttrest is reported as a cost of plant and a reduction in interest cost. l:OODWIU AlII) OTHER UfTANCtaW Goodwill is the cxces$ of the acquisition c:ost of busine$Se$ over the fair Vliue of the identifiable net wets acquired. We amortize good- will and other identifiable intangible$ on a straight-line basis over its estimated usdullife, not exoeed.ing 40 ~s. We assess the impair- ment of other identifiable intangibles and goodwill related to our consolidated subsidiaries u.uda Statement of Financial Accounting Standards (SFAS) No. 121. "Ac:counting (or the Impainnent or Long- Lived Assets and for Long~Livcd Assets to Be Disposed Of," and whenever ~ts or cha11ges in dn:umstances indicate that the carry- ing value may not be reQ)\-erabIe. A determin:ltion of imp1irment (if any) is nude based on estimates of future ash flows. In instances where goodwill has been rec:orded (or meu that are subject to an imp~TDlent lou, the carrying amount of the goodwill is eliminated before my reduction is made to the carrying amounts of impaired 10ng4lived ..s.scts and identifiable intangibles, FORrIG~ CU~RJiNC:Y TRANSLATION The func:rional currenq for nearly all of our fordgn operations is the local c:urrency. For these foreign entities, we translate income statement amounts at a.verage ~chanse rates for the period, and we translate assets and liabilities at end-of-period exc:hange rates. We record these translation adjustments in Accumulated Other Comprehensive Loss, a separate component of Shareowners' In\'eStment, in our consolidated balance sheel~. We report exchange gains and losses on intercompany foreign currency transac:tions of a long-term nature in Ac:cumulated Oth~r Comprehensive Loss. Other exchange gains and losses are reported in income. When a foreign entity operates in a highly inflationary economy, we use the U.S. dollar as the functional currency rather than the local currency. We translate nonmonetuy a$Sets and liabUities and related expenses into U.S. dollus at historical exchange r.&tes. We translate all other income statement amounts using average exchange r:ues for the period, Monetary assets and Jiabilitie$ are translated at end- of-period exchange rates, and ~y g:1ins or losses are reported in inc:ome. For the p~riod October 1, 1996, through December 31. 1998. we considered fwacell to operate in a highly inflationary econ. amy. &ginriittg January 1, 1999, we discontinued highly inflationary acc:ounting for lusaceU and resumed using the Mexican peso u its functional currency. DER1VAnVE INSTRUMENTS We have entered into derivative transactions to manag~ our expo. sure to fluctuations in foreign currency exchange rattS. interest rate5. and corporate tllX rate3. We employ risk management strate- gies using a variety of derivatives inc:luding foreign currency forwards and options, interest rate swap agreements. interest r~te caps and floors, and basis swap agreements. We do not hold deriva- tives for trading purposes. FAIR VALUE M(THOO We use the fair value method of accounting for our (oreign c:urrency derivatives, which requires us to record these derivatives at fair value in ourconllolidated balance shccts, and changes in wlue are record- ed in income or Shareowner.s' Inve5tment. Depending upon the nature of the derivative instruments, the &ir value of these instru- ments may be recorded in Current Assets, Other Assen, Current Liabilities. and Deferred Credits and Other l.W:IlliuC5 in our c:otlsoll. dated balance sheets. Gains and losses and related discounts or premi\1m$ arisi!lg from foreign currency derivatives (which hedge our net investments in consolidated foreign subsicliaries and inve;nuents in foreign entitit$ ac:counted (or under the equity method) are included in Ac:c:umulated Other Comprehen$ive Lo$S and reflected in inc:ome upon sale Dr subsuntia11iquidation of the investment. Certain of tiles: dmvatives also inc:lude an inttre'st element, which is recorded in Interest Expense over the lives of the contracts. Gains and losses from derival~ which hedge our shon.tenn tr.uuactions and cost in~tments are included in Other Income and Expense, Net, and dis4:ounts or-ptrniiums on thcse COntracts arc: included in income over the lives of the contracts. Gains and losses from derivatives hedging identifiable foreign curren- cy commitmelllS ue deferr~d and reflected "s adjwtments to the related transactions, If th~ foreign currency commiunent i1 no longer likely fO occur. the gain or loss 15 recognized immediately in income. Earnings generated from our leveraged lease portfolio mzy be "ffeet- ed by changes in corporate tax rates. In order to hedge :I portion of this risk, we use basis swap agreements. which we account for using the fair value method of accounting. Under this method. these agreements are carried at fair value and included in Other Assets or Deferred Cr~dits and Other Uabilities in our consolidated balance sheet. Changes in the unrealized gain at loss are included in Other Income and Expense, Net. '." '/ ,",' . . ", ."~" ..' . ..'.' \,' t. ,,,, "{Not \'t \c' . .. IJ~ I ' ,\',',' " ',;', ',:-..', /,i ;'...> "i <,~.~, \ ..~ f.~J"~' \.<?~~~lff1?~.d1 F!~~~~'~I'" ~~t,~~cn,t,~,~f \~ ;,:..1'1\' '/;'i.' .~\\;',:,I\'\~"I ?~\\ ,:,Iil,~ ,\tl,,/: \'~ ~\,<', \', ',; . l~, '-~ I'. ~ /. ,~\. ~....." I' '~I E'Ij ~"~ ',1~", /', ~. \,'. '1'~"'~f'\" J'~" t~\t.. .~, . IH1I S ~ ACCRUAL "'!THOO Interest rate swap ;agreements and Interest rate cap~ and floors that qualify as bedges are accounted for under the accrual method. An instrument qualifies as a hedge if it effectively modifies and/or hedges the interest rate characteristics of the underlying fixed or va.rU.ble interest rate debt. Under the accrual method, no amounts are recognized in our consolidated balance shee~ related to the principal balances. The interest differentUl to be paid or receiwd, which is ataUerl as interest ntes change, and prcmJums related to caps and floors, are recognized as adjwtments to Interest Expense over the lives of the agreements. These intert:sr accruals are ~corded in Current Assets and Current Liabilities in our consolidated balance sheets. If we terminate an agreement, the gain or loss is recorded 2$ an adjustment to the basis of the underlying liability and amortized over the remaining originaJ life of the agreement. If the underlying liability matures. or is extinguished and the related derivative is not terminated, that derivative would no longer qualify for accru.al ac:counting. In this situation, the derivative is accounted for at fair value. and changf:S in the value are recorded in inc:ome. SA1I OF STOCK ay SUBSIDIA~V We recognize in consolidation changes in our ownership percentage in a subsidiary caused by issuances of the subsidiary's stoc:k as adjUStmtllts to Contributed Capital. INCOME TAXES Bell Atlantic and its domestic subsidiaries file a consolidated federal income tax return. For periods prior to the merger (see Note 2), NYNEX filed its own consoUdated fedetl1l income tax rctUm. Our operating telephone subsidiaries use the deferral method of accounting for investment tax creditS earned prior to the repeal of investment tax credits by the Tax Reform Act of 1986. We also defer certain transitional credits earned after the repeal. We amortize these crediu over the estimated service: lives of the related II.Ssets as a rcdl.1roon to tbe Provision for Inc:ome Taxes. ADVrrnSINQ COSTS We expense advertising costs as they are incurred. - STOCK-aASED COMI'ENSATIOfC We ac:count for stock-based. employee compensation plans under Accounting Principles Board (APB) Opinion No. 25, "Accounting (or Stoc:k Issued to Employees," and related interpretations, and follow the disclosure-only provisions of SFAS No. 123, "Ac:counting {or Stod-Based Compensation." CHANGE IN AccoUNTmo PRIHCIPLE - DIRECTORY PUBLISHING Effective January 1. 1996, we changed our method of "counting for direc:tory publishing revenues and e;l;penses from the amortized method to the point-of-public:uion method. Under the point-of- publkation method, revenues and expenses are recognized when the directories are published rather than O\'ef the lives of the direaorics, as under the amortized method. We believe the point~of-public:ation method i~ preferable becawe it is the method generally followed by publishing companies. This accounting change resulted in a one-time, noncash increase in net income of 5273.1 million (net of income tax of $179.0 million), or $.18 per share on both 3 basic and diluted basis, ~_.....-..... which is reponed as a cumulative effect of a change in accounting principle at January 1, 1996. On an annwtl basis, the financial impact of applying this method in 1996 was not significant. AOOPTIOH OF NEW ACCOUNTING STAHOARDS In, 1998, we adopted SFAS No. 130, "Reporting Comprehensive Income" (see Note 20), SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" (see Note 17), and SFAS No. 132. "Employers' Disclosures about Pensions :md Otber Postretirement Bel,\l:fits" (see Note IS). Prior year amounts have been provided or restated a., required. These standards require: new disclosures only and do not impact our results of operations or financial position. RECENT ACCOUNTING PRONOUNCEMuns COSTS OF COMPUTER SOFTWARE In March 1998, the American Institute of Certified Public Acco~W1ts (AICPA) issued Statement of Position (SOP) No. 98-1. "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This new accounting standard provides, among other things, guidance for detennining whether computer softmre is for internaJ use and when the c:ost related to such soft~ ware should be expensed as incurred or capitaliud and amortized. SOP 98-1 is required to b'e applied prospectively. We adopted SOP No. 98-1 effective January I. 1999. We estimate that the implementation of SOP No. 98-1 will result in a net after-tax benefit of 5200 million to 5250 million in 1999 results of operations due to the prospective capitilization of costs which were previousl)' expensed as incurred. CostS (or maintenance and training, as well as the c:ost of software that does not add functioMlity to the existing system will continue to he expensed as inc:urTed. COSTS OF START-UP ACT/WriES In April 1998, the AICPA issued SOP No. 98-5. "Reponing on the Costs of Stan~Up Activities." This new accounting standard requires that cosu of surt~up activitics, including pre-operating, pre-open- ing and other organitational coStS, be expensed as inrorrcd.ln addi- tion, the unamortized balance of any previously deEmed stan-up costs existing at adoption must be expensed. We adopted SOP No. 98-5 effective January 1, 1999. The adoption of SOP No. 98-5 will not have II material effecl on our results ofopet'll- dons or financial condition in 1999 because our policy has been to generally expense all start-up activities. DERIVATIVES ANO HEOGING ACrIVIT/E.') In June 1998, the Financial Ac:couming Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative InStruments and Hedging Activities." This statement requires that all derivatives be measured ae fair vaJue and recognized as either assets or liabilities in our balance sheet. Changes in the fair values of the derivative instru- ments will be recognized in either earnings or comprehensive inc:orne, depending on the de$ignated use and effectiveness of the Instruments. Bell Atlantic must adopt SFAS No. 133 no later than January 1,2000. We are currently evaluating the provisions of SFAS No. 133 and have not yet determined what the impaa of adopting this statement will be on our future resulu of operations or financiaJ condition. .,..."'" .. . 0.....' :' ,) /2. "'1 A_ ~ NYNEX _or - On AUgust 1", 1997. Bell Atlantic Corporation and NYNEX Corporation completed a merger of etluals under a defmitive merger agreement entered into on April 21, 1996 and amended on July 2. 1996. Under the tmns of the amended agrmnc>nt, NYNEX btca.me a wholly owned subsidiary of Bell Atlantic. NYNEX stoc:kholders received 0.768 of a share of BeU Atlantic: common Slod: for ead1 mue of NYNEX common.~ that they owned. This resulted in the W1anu of 700.4 million shares of Bell Atlantic: common stock. The merger qualified as a tax-fue reorganization and bas been accounted for IS a pooling of interesu. Under this method of accounting. the tompanies are treaud as if they had always been combined for accounting and fin.ancill reporting purposes and. therefore, we te5tated our finnncial information for all dates and periods prior to the merger. The c:ombined results reflect ccrt2in uclusi6c:ations to conform to the presentation used by Bell Atlantic and c:ert:tin adjustments to conform accounting methodologies between Bell Atlantic and NYNEX. Results of operations for certain periods prior to the merg- er have been combined and conformed u follows: lCOUJollS .. MU.IClIC$J I - ~~ Sb. ~..-xI "-' -*d i .lwn :10. 2.M1 o.c...... 31. DH ......,!'". l~ operating re-Rf'lues Bell Atlantic $ 6,854.6 $ 13,081.4 NYNEX 6,615.1 13,453.8 ReeIa$stlications .1 .7 CeUUlnr t<<l$oUdation 1.454.5 2.619.3 Combined $ 15,124.3 $ 29.155.2 Net income Be" Atlantic S 1.014.5 S 1.881.5 NYNEX 540.1 1.477.0 Cellular =nsolidation 3.3 (7.6) SFAS No. 106 adjustment 39.1 62.4 Other adjustments (2.0) IU.3) C:-"Tlbined $ 1.595.0 $ 3.402.0 ... . RtclauifiariolU were m2de to conform to our post-merger pre$(nution. . Cellular COr1$OUd:ttion refers to an adj\l.Stltlent that was nude to conform accounting methodologies and to consolidate the accounts of cellular operations that ~ jointly conuolled by NYNEX and Bdl Atlantic prior to the merger and accounted for by both companies using the equity method. . . An adjustment for SfA5 No. 106, "Employers' Accounting for Pouretirement Benefiu Other Than Pensions." was made to reflect the adoption by NYNEX of the immediate recognition of the transition bene. fit obligation effective January 1.1993, to conform to the method used by Bell Albntic. '-_./ . Other adjustments wac made to conform the accounting policies of !he co mpanies. and to record the rebled tax effects of thC$C adju.nmcnu. ] MERGER-R1LATED COSTS In the third quarter of 1997 we recorded merger-related pre-tax COSts of approximately $200 million for direct incremental costs. and approximately $223 million for employee severance c:osu. Direct incremental costs COD$ist of expenses assoc;iated with ro'mplet- ing the mcrgcrr transac;tion. such as professional and regulatory fees. c:ompc:n.sation arrangements.rmd sltareowner.related costs. Employee severance costs, as recorded under SFAS No. 112. "Ernployer$~ Accounting for Postemployment Benefits," represent the benefit costs for the separation b)' the end of 1999 of approxi- mately 3,100 management employees who are entitled to benefits under pre-existing separation pay plms, During 1997 and 1998,245 and 856 management employees were separated with severance benefits. Accrued postemploymmt benefit liabilities are included in our consolidated balance sheets as a component of Employee Bcndit Obligations. OTHER INITIATIVES During 1997. we rec:orded other c:hargcs and special items totaling approximately 51.041 million (pre-tax) in connec;tion with c:ansoli- dating operations and combining organizations. and for other specW iteml arising during the year, VlDEO-RELATfD CHARGES In 1997. we recognized total pre-taX charges of approximately $243 million related to certain video investments and operations. We determined that we would no longer pursue a multichannel. multi- point, distribution system (MMDS) as part of our video strategy. As a result, we recognized liabilities for purchase commitments u.soci- llted with the MMDS technology and costs associated with closing the operations oE our Telc- TV pJrtnersbip because this oper.JUOll no longer supports our video strategy. We also wrote-down our um~ing investment in CAl Wireless Systems, Inc:. WRJ1t'DDIVN OF ASSETS ANO REAL ESTATE CONSOLIDATION In the third quarter of 1997, we recorded pre.tax charges of approxi- mately 5355 million for the write-down of obsolete or impaired fixed assets and for the COSt of consolidating redundant real ~tate properties. As pllrt of our merger integration planning. we reviewed the c:urying values of long-lived assets. This review included esti- mating remaining usefu1livC$ and cash flows, and idt'fttifying assets to be abandoned, In the ca.se of impaired assets. we analyzed ash flows related to those ass.~ts to determine the amount of the impair- ment. A5 a result of these reviews. we recorded c:harges of approxi. mately S275 million for the write-off of some assets and 525 million for the impairment of other assets, These asscts primarily included computers and other equipment used to transport data for internal purposes. c:opp~r wire used to provide telec:ommunications service in New York. and duplicate voice mail platforms. None of these assets afe being held {or disposal. At December J 1. 1998, the impaired assets had no remaining tarrying value. ': I;.'~ . .' '." ~~ " ~".:'.'c' I ~':'''' _... " .~ ~ .'j".",' n 't~ ,If ,\ ,::[".',"'''.. ' ,.,....':. 0 es 0 O"SQ ( a C loanera a c ert '~~". f;:' ",~ 'I'" ,./ ,'" ", '\'p"" ,\)/ I ,'/,.' , ~l\"!.~.1)f: ,.1 ,\. J\-'>'<,.i\'~\11\1 /'~\"',I';'" ,'I'\\J.~, ',~ ~.,'L)f-::' ...", r.'II'\r.~1,:,.\.." ~,~ +1", ,,'" ~"I\":"I~' ij_ /~\'.:,~. .JoI-.\ .:J,"lj"fl\",,\,:\,> :,'1" \1.:1..... , '-, ' ... . . ,\ . 01 I I ' ,'I . ,Y '. \ '\ ,~ ~, I. ('he following uble provides a reconciliation of the ~bilities assoc:iated with me1'ger~~lated costs and other charges and special items at :>tcembcr 31,1998 and 1997. loo~LAIls IN lIli~~lOIIsl 1997 1.tM Challtd to L\ttJMtn& Exgenu or EI\IJ 1)1 ErllIof of'l'l!ar R_nUll OeaUc:tIOM Ad,uSUMflts Year ~en~ AdJUStmetIU Wr ~ol!ltSC1 )jrect IncrC!mental C>..ists $ S :1.99.5 S (164.5)& S S 35,0 S (5.2)' S (25.5) $ >evorance obligation 110.9 222.7 123.61a 19.7 329,7 (60.6)' 46,7 315.8 )ther lnltbrthes IideOiel8ted costs 242.8 1225,S)!: 5.1 21,3 {3,Ola (12.8) 5.5 NrlttHtowo 0' rlXtd eS5ets and real estate conSOlidation 355.0 (311.6)tl 43.4 (17.6]D (2.5) 23.3 ~egullltory. tax and legal contineencles and other special i:ams 525.9 1144.3}D 381.6 1118,2Ic 114.41 249.0 S 110.9 S 1.545.9 S 1870.6J S 24.8 S 811.0 S 1204.61 S (8.5) $ 597.9 ^djustmcnts ma- to cl.cd.uctions to the liability that reduced expense. Of additions to the liability mal inCfuStQ expense resulling from clwlgC$ in circ:wnsunces or experience in implementing the planned activities. DeductiolU refer 10 the utiliUlion ofthe liability through paymcnt$. &Uel write-offs, or rdunds to customers. I-primarily compriud of ash payments b-primarily comprUed of &SStt write-ofts c- comprised of C&lh plflnenu oE $65.9 million, refunds to customers of SH ,8 million. and UlCt write.offs of $1 0.5 million Iln'I a C_J~ n connection with our merger inugration efforts. w~ consoJidJted 'w estate to achieve a reduction in the total square footage or build~ hg space that we utilize. We sold properties, subleased some of our eased fadUties and tent1iMted other leases, for which we recorded a :huge of approximatdy $55 million in the third quarter of 1997. "ost of the chuge rmted to properties in PennsyJVlll1ia ;md N~ fork, where corptltllte support functions were consolidated into ewer work loations. . 'EGULATORY, TAX AND LEGAL CONTINGENCIES ANO OTHER SPECIAL ITEMS n 1997. we atJo recorded reductions to operuing revenues and :huge; to operating expense5 totaling approximately $526 nilllion pre.tu:). which consisted of the {allowing: Revenue reductions consisted of approximately S 179 million for federal regulatory manm. These matters rcJzte to speQfic issues that are currendy under investigation by fedenl icgubtory commissions. We believe that it is prol>>bJ~ th;r the ultimate r=otution of these penclJng matters will result in refunds to our tuStomers. Cbarges tD operating expenses totaled approximuely $347 million and Consisted of S75 million for interest On federal and other tax contingencies; S5S million for other tax matters; and $52 million for legal contingencies and a state regulatory audit issue. These contingenCies were aa:ounted {or under the rules of SFAS No. 5t "Accounting (or Contingencies." These charges also included approximately 595 million related to com incum:d in standardizing and consolidating OUf director)" busine:.sts and $70 million for other post-merger initiatives. Other charges arising in 1997 inc:luded approximately SS9 million For our equity share of (ormation cosu previausty announced by ewe. We own an 10.5% interest in ewe aLld account for our investment under the equity method of accounting. In 1997. we rCCO$I1iud pre-tax gains or approximately $142 million an the sales of our ownership inte~ts of several nonstrategic bud- nesse$.'These gains induded approxim"cely $42 million on the.we of our intertst in Sky Network Tdevision Limited of New Zealand; $54 million on th~..sale of our 33% stake in an Italian wireHne venture. Infostrada; and 546 minion on the sale of our two.tevenths interest in Bell Communications Resea.rch,lnc. We expect that the remaining direct inc:rcmentalliabllitie$ will be fully utilized, through either parmenu or adjustmentS, by the end of 1999. The obligation for severance benefits. which hu been determined tmder SPAS No. 112. represenrs expected payments to employees who lea\'C the company with bc:nefits provided under pre.existing separa- tion pa)" plans. Thc severance obligation is adjusted through annual COStS, whic:h are aauuially determined based upon financial market interest rates. experience. and management's best estimate of future benefit payments. In 1997. the merger-related severance cosU increased OUr existing $/:Vennee obligation. When the merger-rdated separations are completed. we will continue to have an obligation ror ongoing separations. We expect to utilize the remaining video and rcal cstate liabilities in 1999, although some lease liabilities will extend through 2012. Liabilities for regulatory. taX and legal contingencies. and other special items will ~ utiliz.ed 3$ the respective matter is .settled. , I ..1~~..."'t:.,1 /~ ...f {3....._1a_.._ I Our iD\'eStm~u in unconsolidated bu.sines.ses are comprised of the following: 117 ~..u. (IlGUJ,lOS ,.. "1"-10"'1 1M8 :1997 OwoItrsnIll It1\Oer.ltllef\t ~ll lfflestment Equfty tmwt:... Pril'l"le'Co ~~J ~ CcrnmunIc.IrtIons. LP. SO.OO% S 1.011A 50.00" $ 919.9 Cable & Wlreless Commlllliallons plc 18.~O 675.4 18.50 665.8 Omnit!l Pronto lr.lliJ S.Il.A. 19.71- 520.6 17.45 313.2 Telecom COrl:IOration of New Zealatl4 Umitc<I 24.95 373.0 24.95 417.7 FlAG Ltd. 37.67 178,3 37.87 236.6 Other ~ 738.9 ~O\IS 714.7 TQlaI equity investHS 3.497.6 3.267.9 Cost Iltrfls.tHs ~ 778.4 'o'Ino\r.: 1.876.3 $ 4.276.0 $ 5.144.2 TotIII Dividends rec:eived from investees amounted to 5169.4 million in 1998, $192.1 million in 1991, and 5194.8 million in 1996. I," l' "~'''ICO ..ERSOI1AL COIUIVN1CATIONS. L.P. PrimeCo Personal Communications, L.P. (PrimeCo) i$ a pannership establisbed in 1994 between Bell Atlantic and AirTouch Communic:ations, which provides personal communications services (PCS) in over 30 major cities ac:toss the United States. PrimeCo begm offering services to customm in November 1996. \ .! i. ..r~ ~', , , Since 1994, we have invested approximately 51.6 billion in PrimeCo to fund iu operations and the build-out of its PCS network. Under the terms of the partnership agreement, PrimeCo entered into a leveraged lase fuw1c:ing arnngement for certain equipment whidt has been guaranteed by the partners in the joint venture. Our share of this guarantee is approximately 5139 million. ::; C".Ll 1& WlltlLESS COMJll:UHICAT10ttS pic In the second quarter of 1997, we transferred our interests in cable television and telecommunications operations in the United Kingdom to ewe in exchange for all 18.5% own~nhip interest in ewc. This tranSaction was ac:counced for as a nonmonetary exchange of similar produc:tive assets and, as a resuJt, no gain or loss W2.S recorded. We ac:count for our investment in ewe under the equity method bcc:awe we bave signific:ant influence over CWe's operating and Elnandal polic:ies. Prior to the transfer, we included the accounts of these oper. ations in our consolidated financial statements. In c:onnec:tion with our investment in CWC, in August 1998 we issued $3,180.0 million of 4.25% senior excl1angeable notes due on September 15.2005. The notcs are exc;bangeable into 277.6 million ordinu)' shares of CWC stock that we own at the CJption of the holder, ~gjnning on July I, 2002. You can find additional inform... tion on the CV.JC exchangeable notes in Note 8. I ...\....u-...' OMNITEL PRONTO ITALlA S.p,A. Omnitel Pronto ltalia S.p.A. (Omnitel) operates a ceUuJar mobile telephone network in Italy. We ac:c:ount for this investment under the equity method because we have significant influence over Omnitel's operating and financial policies. Since 1994, we h:lve invC$ted approximately $544 million in Omnitel. App;oximately 5162 million of this amount was invested in April 1998. which inc:reased our ownership interest from 17.45% to 19.71%. Goodwill related to this investment totals approximately $400 million, which is being amoitized on ;1 straight-line basis over a period of 25 years. TELECOM CORPOIUTlON OF tCl'W ZEALAND LI..ITED ' Telecom Corporation of New Ztaland Limited (TCNZ) is that coun- try's princ:ipal provider of te1ec:ommunications servic:cs. At the date of acquisition of our interest in 1990, goodwill was approximately 5285 million. We are amortizing this amount on a straight-line basis over a period of 40 years. During 1997, we sold portions of our stock investm~t to TCNZ in conneaion with its sbare repurchase plan, resulting in cash proceeds of approximately $153 million. These transactions ~ueed our invest- ment and increased our ownership interest in TCNZ. Our investment in TCNZ was also reduced by approximately $38 million as of December 31,1998, resulting from foreign currency translation losses. We recorded these losses as a component of Shareowners'lnvestment In connec:tion with our investment in TCNZ, in February 1998 we issued $2,455.0 million of 5.75% senior I:Xclw1geable notes due on April 1, 20030. The noteS are exchangeable into 437.1 million ordi. nary shares of TCNZ stock that we own at the option of the holder. beginning September 1. 1999. You can find additional information on the TCNZ exc:hange:able notes in Note 8. RAG Ltd. Fiberoptic link Around the Globe Ltd. (FLAG) OW1U and operates an undersea fibcroptic cable system, providing digital communications links between Europe: and Asia. FLAG launched commercial service in the fourth quarter of 1997. We: hold approximately a 34% equity interest in the venture and have invested approximately 5221 million in FLAG since 1994. We have approximately a 5% interest in the p:lrent c:ompany of FLAG, FLAG Telecom Holding.s Umited (FLAG Tdecona.iJfthe first quarter of 1999, a subsidiary of FLAG Telecom and Global TeleSyslems Group, Inc., a U.S. te1ecommunic:ations company, agreed to establish a joint venture to build and operate a t:ran5ocunic dua.! cable system to Qrry high-speed datil and video traffic: across the Atlantic Ocean. The companies expec:t to offer service in 2000. FLAG had outstanding borrowings of $615.1 million as of December 31, 1991 under a limited recourse debt facility, whic:h it refinanced in the first quarter of 1998 through a new S8oo.0 million credit fadlity. This refinancing resulted in an after-taX extraordinary c:harge of 514.1 million. The refinancing also released us from certain obligations under a c:ontingent sponsor support agreement signed in connection with the debt facUity outsWlding in 1997. ~'. '1', ',.'~,:-', l;':~: '\" ,,"';\;', ,:~>~': ij,,\ \, ': ,IiI :,('!,!\ ',,, ,l"'.'t\' ,,0 q '0\ ~n$o" OJ ~ ' Ina",;;la r, a cf.I1e ,S;',I" "'j";"! ;;".;..';-\.'. ':.-', 'r' .1 , . \' ~'.: . "/ '''!: : l\'i"~'I':,: i ~'.\.\" \..,1'\' .... .)\, ,.."-\:....\:" ''''',: 1,.,....;.( ).\~',:/I "'I":''''\,,,,.\.})\t,.,,...Jl\'..',_:'~.'\I:'? 1\'~~1"'\";~\'" .',.."I/'f\~llt': l'l,d/,.;.I.;....~,\.,{\ _11l.1~ OTHIIt ~QU1Tl" fNYU1EES We aho have global wireless investments in the Czech Republic, Slovakia. Greece. and Indonesia. These invesanenu arc in joint ventures to build and opetate cellular netWClrY.s in these countrics. We aha lwre an investment in a company in the Philippines which provides tdeaunmunications services in certain regioJU of that country. The fffl'\lIiIlif'lt; investments include rtal estate partnerships, publisbing joint ventures. and several other domestic and interna- tional joint ventures. SUMMAltlZID FfNANCIAL INFonMATIOH The following u,blcs display the summui1.ed unaudited financial information for our equity investees. These amounts are shown on a 100 percent basis. n:.wr _ __ 31. (llClIJ,.C*S . MU.t:lttS1 :l!m ResUlts of QllellltlOns ~ rM!flUeS Optm:nc IlIlCfI\e ttIccJme befon! ~l/la'y item Nct~ $ 8.832.3 1,474.3 577.2 520.2 Bell A~', equity sha'e of Incame $ 24.8 ., IC':lDIID ti. 2.$'H Fina"IciaI positbn Cl.lItent IS$etS ~ IISsetS Current IiablIltIes NoI'Icur'l'ent JLabiIIties MInotIty intarest ~'cqulty $ 4.679,6 113.9&1.1 4.830,0 10.027.2 155.0 8.653.5 Bell Allantie.s eQUity sJulte of in~s $ 3.497.6 COST fNlIE$TU$ OUr cost investments are carried at their original cost, except in C1SCS where we have determined that a decline in the estimattd fair value of an invesunent is other tmn temporary as desaibed below under "Other Cost Investments." VIACOU INt:. ~ Since 1993, we have held an inVC$tment in V"l.acom Inc. (Viac:om), an entertainment and publishing comp;;my. This in~lmellt consisted of 24 million shares ofV"tacom Series B Cumulative Preferred Stock thlt we purchased {or $1.2 billion. The preferred slock, which carried an annual dividend of 5%, was convertible into shares of Viacom Class a nonvoting c:ommon stock at a price of 570 per share. tn Oec:ember 1998, we accepted an offer from Viacom to repurc:hase one-half of our Viacom investment, or 12 million shares of the preferred stock (with a book value of approximately 5600 million), for approximately 5564 million in QSh. This transaction resulted in a sma1110ss, which was rec:orded in Income (Loss) from Unconsolidated Businesses in our consolidated statement of inc:cme in 1998. The remaining investment in Viacom. 12 million shares of preferred stock (with a book value of approximateir 5600 million), ....~.....~ was rtpurdwed by Viacom in a second transaction in January 1999 for approximately $612 million in ash. This transaction did not have I material effea on our consolidared results of operations, OTHER COST INVESTMENTS Other cost investments consist princ:ipally of our Asian inVestments- TdecomAsia, a wireline investment in Thailand, and ExceI.c:omindo, a wireless invcsunent in Indonesia. In the third quar- ter of J 998. we recorded pre-taX charges of 5485.1 million to Income (Loss) from Unco~1idatc:d Businesses in our consolidated na.te- ment of inc:ome to adjust the carrying values of TeJccomA$ia and Ex.c:dc:cmindo. The charges were necC$suy because we determined that the decline in the estimated {air values of each of these invest- ments were other than temporary. We determined the fair values of these investm~ts by discounting estimated future Q$h flows. In the case of TdecornAsia, we recorded a charge of $348.1 million to adjust the curying value of the investment to its estimated fair value. We considered the following factors in determining this charge: . The continued Wl:2kness of the Thai currency as compared to historical exchange rates will place additional financial burdens on the company in servicing U.S. dollar-denominated debt. . The economic imtability and prospec:u for an extended rerovery period have resulted in weaker than expected gro.....th ill TeJccomAsia's business. This is indicated by slower than expected growth in total subscribers and usage. These factors resulted in redu~ed exp<<tation.s of future cash flows and, accordingly. a reduc:tion in the value of our investment. . The businc:s.s plan for TelecomAsia contemplated ca.sh flows from sevenllines of business. Givtn TdecomAsia's inclination to flXUS on its c:cre wirdine bwinel$, these other lines of business may not ~ontribute furor/! cash Bows at previously c:xpet:ted levels. In the c:as.e of Excelc:omindo, we recordea a charge of $137.0 million to adjust the carrying value of the investment to its estimated fair y.uue. We considered the following factors in determining this chuge: . The continued weakness of the Indonesian currency a.s compared to historic:al. exchange ntes will place additional financia.! burdens on the cornpmy in servicing U.S. dollar-denominated debt. The continuing political unrest in Indonesia has contributed 16'nIc cu.m:ncy's instability. . The economic iustability and prospects for an extended recovery period have resulted in weaker than expected growth in Excelcomindo's business. One significant fac:tor has been inflexi- ble tariff regulation despite rising costs due to inflation. This and other factors have resulted in reduced expeC:Utions of future cash flows and, actOrdingly, a reduction in the value of our investment. . Issues with cash flow are requiring Excelcomindo's shareholders to evaluate the future funding of the business. 'J ~~ ._' " . . '1 ~'1'\ V<,,' ,.. I"h//" (, ., '.' \, ,'" l N t t' C.... ... I' .,,' h. '~ '\ 1-\. ')'1"\'''< .'" :"11', ", ':- \ ,~,> . !' '1,' /:~~~' \'/'~'~ ~\'S.;' 0, ,utbb 'Jla~el:J'f,'nfiric ,a,,\Sta,te~.,en~.s '<~t{,. \i{. ;/: ~:I:, ,\ :.." \, I ' ,\ ',. ~ ,.' ;\' 1:/ : ,"\;', ( \ ,'" ,..' i d ~{" .I ~" " \. .h 1./',\1 0'\ .,\1.\ \}.~, "''(l/- d ......~ ,~~. ,~(I t'.Lt ~. :I\/.'J;, r\ ,: ll. ::I;.~.i.., ~'o1'l1. .,~\J1.;.~IJ. ,..-..,) ,1." i l~"'~. ...... j ....-".1 [4. __.s.A.deC.V. Smce 1993. we have invested $1.2 billion in lw.accll, the second largest telec:ommuniatioas c:ompany in Mexic:o. Goodwill rdared to this investment towed appruximately $840 mUllon and is bein~ amortized on a straight.line basis over a period of 2S years. In the fim quarter of 1997, we c:onswnmated a restructuring of our invest- ment in Iusac:el1 to permit us to auume control of the B<lard of Directors and nwugement of Iusacdl. M a resuJt of the restru~. ing, we changed the Il(COUOting for our Iunccll investment from the equity method to full consoUdation. In 1998 and 1991, we enlered into several tnnsac:tions which haVt resulted in ch:mges to our economic ownership percentage. As part of the initial restrUcturing in the first quanu of 1997, we c:onvertt:d approxinutely $33 million of debt into Series A shares, thereby increasing our ownership perc:entage from 41.9% to 42.1%. We also agreed to provide lusacelJ up to $150.0 million unda a subordinat- ed convenible debr f;lcility(rhe Facility) as Ju.s.acdl may require from time to time. This obligation expires in June 1999. In the third quarter of 1998, Iusacel1 md its principal shareholders entered into another a~ent (the 1998 Resuucturing Agreement) to restructure ownmhip of the company. This restructUring, if completed. will result in the formation of a new holding company with two classes or shares. one of wbich will trade pubU-=1y. The nstructuring is intended to increase the liquidity oE lusaceU's publicly traded shares and to inc:rca.sc the availability of debt financ- ing to Iusac:el1. IURcell borrowed $101.5 million from us under the Facility during the Sl:cond half of 1998. We immediately converted the debt into 145.0 million additional Series A s.h:tre$ at a price of $.10 per share as contemplated by the 1998 Restructuring Agreement. However, under this same agreement, we sold 21.4 million of those shares to th~ Peralta Group, the other principal shareholder of lu.u.ull, for 5.70 per sha.re. A5 a result of this debt convenion and s.a.te of shares to the Peralta Group, our ownership perc:entag~ increased to 47.1% as of December 31,1998. The 1998 Restructuring Agreement also tontemplat= that the new IUS2~ll holding company will engage in a rights offering to existing shareholders, and that we and the Peralta Group. under certain circumstances, will engage in a secondary public offering of a portion, of our respective shares. These tranuctions would reduce our ownership ~rcentage to approximately 42%. We would, howev. er, continue to retain management control of lusac:eU through the completion of these: tranw;tions and, therefore, would continue to consolidate the company's results. The 1998 Restructuring Agreement also provides that any further borrowings by lusacell under the facility will be immediately converted into shares of lusacelJ at a conversion price of $.70 per share. It further provides that the Peralta Group will purchase from us one.half of any shues teceived from that debt conversion for $.70 per share. lusacell borrowed approximately 531 million under the Facility in the first quarter of 1999, which hiU been c:onverted to equity, inaeasing our ownership percentage to 47.2%. 1 ftur OPTIONS The Peralta Group can require us to purchase from it approximately 517 million Jusaccll shares for S.75 per share, or approximately 5388 miIlion in the aggregate. by giving notice of exercise between November 15 and Decem~r 15, 2001. (!;. ~~;.- _ Equi_ I The following table displays the details of plant, property and equip- ment, which is stated at cost: At CIl!I:OCMIt =. . lDOUNli Po "'luO~$1 1&97 1998 ..... Land BuIldings Central office equipment OUtside communications plant Furniture. vehicles and other worit equipment Other ConsttuctiorHfl-Qfl)gress $ 412.3 6.666.7 31.440.8 33.604.9 $ 408.5 6.323,4 29.167.2 , 31.669.7 7.810.0 1.3&6.6 1.712.8 83.064,1 (40.2-18.6) S 36.815.5 7,253.2 1.276.5 1.338.7 77.437.2 (42.397.8) S 35,039.4 Ac:eurrwlated depreciation Total Plant, property and equipment at December 31, 1998 and 1997 in-=1udes real estate propertY and equipment under operating leases (or held for lease) of 596.6 million and 552.8 million, and ac:cumu- lattd depredation of$21.9 million and $14.8 million. r6.~_uto .I!:I- -l - AS USSOR We ue the lC1sor in It'Veraged and direct financing lease agreements under whic:h commercial aircraft. rail equipment, industrial equip- ment. power generating facilities, real ~tate property~_telecom. mUJ1iations and other equipment are leased for remaining terms of 1 to 48 years. Minimum lease paymentS receivable represent unpaid rentals, 1es5 principal and interest on third-party nonrec:ourse debt relating to leveraged lease tnnsac:tiolU. Since we have no general liability for this debt, the related principal and interest have been offset against the minimum lease payments receivable. Minimum lease payments receivable are subordinate to the debt and the hold- ers of the debt have a sec:urit). interest in the lcued equipment. ../ ,. : . ~ ~ ....,' '....' .. . /: .J~ .~lll : : ~",": I;i ;';'),;'1./ ',\i 'I', :/';,,: ',~<' ;,' ":::.-:, ,NO'tes ,to"COtfsoJidi>tcd 'F.iptincial St3tc'mcnts'~ '1 ':( \)' ~\ ',' )!':'''A '~~I :S':,~,; \ ') /' iy;~ ' '\j: (\"/\' ,',';~,'~ . ....t"./~.I,:\.'./,\ . ;."..'rp.,....; :;' ,,~~~~. :'../ll_ +,.\~.~::~.'(~ '[',I.LP''':IJ'''\'f..''".;ii I';'\,C ~'!\ :: <V:"(.'~\(/I~/c;,"I' ;,j,'~I/~'(""f,Jt"""h"~~I"\'~ .... . ntmlftID Finance true receMble:s. which are includ<<l in Current Assets - Other and Noncurrent Assets - Other Assets In our consolidated b31ance .heets are comprised of the foUowing: lOOUAJl' tM IollulCMsl 19M 1597 Dw'Kt , Dil'OC!, ~tapd ~ ~ Fil\anc:e Le~ lA_ Total ~M<tS l.ul6 TaW $ 2.986.3 $ 189.9 $ 3.176.2 $ 2.674.6 $ 223.5 $2.898.1 2.186.8 36.1 2.222.9 .;.; 1.969.7 36.2 2.005.9 (2.131.9) (58.1) 12.190.0) (1.874.7) (10.7) (1.945.4) $ 3.041.2 $ 167.9 3.209.1 S 2.169.6 $ 189.0 2.958.6 - (37.3) (24.9) S 3.171.8 $2.933.1 S 37.2 $ 39.2 5: 3.134.6 $ 2,894.5 If ~:11. \flnlmum lease payments recetvable ;stlmated reslaual value Jneamed Income \Ilowance for doubtful accounts =inance I~ase receivables. net :urrent .'Ioneurront ~..:au:nulated dcfttred taxes arising from leveraged leases, which are included in Deferred Income Taxes, amounted to S2,445.2 million at Jecember 31; 1998 and $2.233.8 million at Dcctmber 31.1997. [be following table is a summary of the components of income Tom leveraged leases: Capital lease amounts included in plant. pro~rty and equipment are as foUows: lool.L.tlts IN ..'u.toNsl (lICIl.L.UtS fj -.utoG1 VoltS__~ 199ID :L9!IG n ___ 3:1. ~ U!t7 . ~ lease Income $ 99.2 S 87.S Capital leases $ 296.2 $ 307,2 ncome w 0lq)CnSe 41.2 22.1 AocumUlated amortization {169.G) {lEi3.S) ~ tax credits 5.3 3.5 Tatal $ 126.6 S 143.7 flti5 table dispLoyl the future minimum lease payments to be re=i~ rom Doncano::!able 1e2$C$, net of nonrecoUlle 10m payments related o leveraged and direct financing leases in ~XCCSJ of debt .service 'equiremcnts. (or tht periods shown at December J I, 1998: l~fj~1 CIpItal Ollel1lllillC JAIlS lear.n LeIl$K ~999 $ 85.7 $ 16.2 !OOO 64.9 6.1 H>Ol 65.3 .6 !002 94.5 .7 ~3 83.1 .2 'hereafter 2.782.8 'ctal $ 3.176.3 !i 23,8 \$ \.l5SEE Ne lease certain fatUities and equipment for use in our operations 1l1der both capital and operating leases. Total rent expense under ,perating leases amounted to 5555.7 mUlion in 1998. S572.6 mimon n 1997 and 5531.9 million in 1996. We incurred initial capita1lease )bllga~(lns of $2.1 million in 1998, 511.4 million in 1997. and S 16.4 niUion in 1996. This u.ble displays the aggregate minimum rental commitments under nonc::mcclable leases for the periods shown at December 31. 1998: C~ .. 1OlWQOcf) CaptaI o~ 'I'lAaS le_ Le'," 1999 $ 3Q.2 $ 253.1 2000 45.0 221.1 2001 31.7 174.5 2002 25,S 148.3 2003 16,S J%l'. Thereafter 477,0 762.3 Total minimum rental commitrrn:nts 632.2 $ 1.eSS.3 Less interest ana executory costs 480.4 Present value 01 minimum lease payments 151.8 Less cvrrent Installments 15.4 Long.term obJlgation at Decem~r 31.1998 S 136.4 As of Detember 31, 1998, the total minimum sublease rentals to be reteived in the future under noncancelable ope:r.lting subleases wu 5289.9 million. " ..."", .:. c' ~ I!" ',.1, , " ,. ., ~ j.. "I'"'' " "~"\'" Y" I' ,'} "f ' , \ I' Ij~"'l"~ I}," ""j' ..." .', I ....L .'~.-" I~,"'./ .'''':''\'_~7''\'~tl'~':,\I,~',~ '\'. . 11\...t......ll..I~ "\~~h\' /., .~\.},...V ,!'~ -:....\ Il,'.'I'" ~ ..~<:.,.t\..J...,. ,;N1V(,\i_\-,I,' 'I~~.''':''\.I r':\,'I,',"J.:' " . . , , > ' ~.' . I ~ . I. (, " . , 'J I , .. ." "~.\ .. .... 4" ~ ,'." "~ ( , ,.:' :i' 17._o..s~ J r8~Dobt :- - In connection with certain State regulatory incentive plan commit~ mmts, we have deferred revenues which will be recognized as the mmmitments are met or obligations are satisfied under the plaDs.ln addition. several'nate and federal regulatory proc~edings may require: our operating telephone subsidiaries to refund a portion of the revenues collected ~ the current and prior periods. There are alsO various JegalllctiODJ P.t;nding to which we are a party. We have established reserves for specific liabilities in Q)nnec:tion with regula- tory and legal matters which we c:urrcntly deem to be probable and estimable. We do Dot expect that the ultimate nsolution of pending regulatory and l!pl matters in future periods will have ;;a material effect on our financial c:ondition, but it c:ould have a material effcct on our results of operations. ' DEBT MATURING WITHIN ONE YEAH The following tablc displays the details of debt maturing within on year: 111 ~u. 1DCUM$ IN IIIWIl'I$J 19M 1997 S 1.383.7 $ 5.067.7 299.5 509.7 1.304.4 765.4 S 2.98; .6 $ 6,342.8 Notes plIyabl&' Commercial paper Bank loans Long.term debt maturing within one year Total debt matunni within one year WeightecHlverage Interest rates for notes payable outstanding at yenr-end 5.6% ,"~~ ., CapiaJ expenditurcs (primarily construction of telepbone plant) art partially 6.nanc:ed, pending long-term financing, through bank loans and the issuancc of commercial paper p~ble within 12 months. At Dt(:Cmber 31, 1998. we bad in excess of 54.5 billion of unuse bank lines of credit. The availability of these lines, for which ther are no formal compensating balanc:es, is at the di5aetion of C!:l.ch , bank. Certain of these lines of credit contain requinments for th payment of commitment fees. Subsuntiallyall of the assets of Jusacell, totaling approximately 5725 million at December 31.1998, are subject to Uen under i1 credit fllcil ity with ceruin bank lenden. r '. I '........." LONG'TERM DEDl This table shows ou: outstanding long-tenn debt obUgations: 11lQ~1.AR1 1ft MlWD>III 111 -=-- lI1. IntereSt Rr.es '" MmIntJe$ 1!198 1157 Telephone subsidiaries' debentures 4.375 - 7.00 1999-2033 S 4,572.0 $ 3,861.0 7.~5 - 7.75 2002-2033 2.465.0 ~705.0 -- 7.85 - 9.375 2010-2031 1.979.0 2.179.0 Unamortized discount, net of premium 156.0) (55.8) 8.960.0 8,695.2 Excha~eable notes, net of unamortiZed disl;ount of $243.8 4.25 - 5.75 2003-2005 5.645.6 Notes payable 5.30 - 12.42 1999-2012 3.036.0 3.515.8 Refunding mortgage bonds 4.25 - 7.375 2000-2011 635.5 986.1 Mortgage and Installment notes 10.50 - 11.00 1999-2005 17.2 22.5 Employee stoc:k ownership plan loans (Note 151 Bell Atlantic senior notes B.n 2000 199.8 313.4 NYNEX debentures 9,55 2010 304.9 327.3 Capital lease obligations-average rate 11.0% and 10.8% 151.8 170.3 ,_/ Total long.term debt. Including current maturities 18.950.8 14.030.6 Less maturing within one year 1.304.4 765.4 Totallang..term debt $ 17,646.4 $ 13.265.2 , I , . ' . , ';\ I e , d e I e - 5.~ , " p,'" \'''' "" VI '.. ' ~"" '. ,,,,,.' I" "'1,,,,,,,,,j\" 'f''!'"'' \" ", \ , I'l' ].'.\ ~ '.!~I ~ ~., ~'/.' 1\ ...r\~ ,1 X:- . . ;' ,,<., ')~,~ I~. \ '. \ ,">-..~' I ~I'. ~"'.;' I 1 ~. ~ ~, "',' i' I . ~ /.1 ~ :: I . ~'I' " . \ ,.1 ,~' < -..1 . < j: ,', '/ t 'J >: ' '~'4' ,~ " \1 i .~ '. ,~ ~ \ ~ r.'" ~I: 11\ ,~~ I ~ ..' .;.... '= '~. I, Y'j 1,' 'I + .~ fl~' .... :1"> \-)' ..,. . ....~ rr,EPHONC SUBS(OlARtCS' O(Br the telephone subsidiaries' debe:ntures outstanding at December 31, 1998 include 51.851.0 miIlion that are caUabIc. The caU prices range &om 101.98% to IOO.oem of face value, depending upon the remain- ing term to maturity of the issue. All of our refunding mortgage bonds are also eUl11ble as of December 31. 1998. In addition, our 10Dg-~ debt iDdud~ $735.0 million that will become redeemable rOT limited periods at the option of the holders. Of this amount, $385.0 million btcomes redetmable in 1999 and $175.0 million in 2002. One debenture tctiling 5175.0 million becomes redeemable in 2000 and again in 2002. The redemption pric:es will be 100.0% of fac:e value plus accrued interest. Sub.stantia11y all of the assets of New York Telephone Compilny. totaling approximately 513.3 billion at Oec:ember 31, 1998, are ~ubiect to lien lU.lder New York Telephone Company's refunding mortgage lxlnd indenture. tXCHANGEABI.! NorES tn February 1998, our wholly owned subsidiary Bell Atlantic Financial Services..lnc. (FSt) issued 52,455.0 million of 5.75% senior !xchangeable notes due on April }. 2003 (TCNZ exchangeable notes). The TCNZ exchangeable notes 3l'e exdungeable into 437.1 million ordinary dw-cs of TCNZ stock U!at we own OIt the option of :he holder. beginning on September 1, 1999. The exchange price was established at a 20% premium to the TCNZ share price ~t the pric- ing tbte of the offmng. Upon exchange by investors, we retain the )ption to settle in a..sh or by delivery of TCNZ shares. During the ;>eriod from April 1.2001 to MaKh 31, 2002, the TCNZ exchange- lble notes are callable at our option at 102.3% of tbe principal lmount ..nd. thereafter and. prior to maturity at 101.15%. ,The ?~ of the TCNZ exc:h3ngcable Dotes offering were used {or the repafmezlt of a portion of our short.tenn debt In August 1998, FSI issued 53,180.0 million of 4.25% senior :xchangeable notes due: on Septeml>u 15, 200S (ewe exchangeable notes). The ewc exchangeable notes were issued at a rllKount and It December 31, 1998 the notes bad a c:arrying vaiue of 53,190.6 31illion. The ewe exchangeable notes are excl1angeable into 277.6 :nillion ordinary shares of ewc stock that we own at the option of :he holder beginning on ]u1r 1,2002. The exchange pric~ was estab. ~ ,ished at a 28% premium to the ewe share price at the pricing date )fthe offering. Upon exclunge by investors, we rcttin the option to >enle in casb or b}' delivery of CoNC shares. The ewe exchangeable notcs are redeemable at our option, beginning September 15,2002, 11 esc:alating pric:es Crom 104.2% to 108.0% of the principal lD1ount. If the ewe exchangeable notes are not called or exchanged prior to maturity, they will be redeemable at 108.0% of the principal lITlount at that time. The proceeds of the ewc exchan[\eable notes :lffering Were used Cor the repa)"ment of a portion of our short-term debt and other general corporate purposes. rhe TeNZ and ewc exchangeable notes must be marked-to- market if the fair value of either the underlying TCNZ shares rises to a level greater than 120% of the share price at the pric:ing date of the offering, or the underlying ewe shares rises to a level greater than 128% of the $hire price at the pricing d2tt of the offering. Jf either event should occur, we are required to mark.to.market the applic:a- ble exchangeable note liability by the amount of tbe increase in , share price over the I:Xchange price. This mark-to.market rnn.sac. tion would reduce income by the amount of the increase in the acltangeable note liability. If the share price subsequently declines, the liability would be reduced (but not Jess than its amortiud carry. ing value) and inoome would be inaeased. At December 31, 1998, the f'air value of neither the underlying TCNZ shares, nor the under- lying ewc shares, eiceeded the recorded value of the debt liability and. therefore, no m:ark-t()-mar~t adjustments Were recorded to our fiamcial statements. SUPPORT ,4,GREEMcNTS The TCNZ exchangeable notes have the benefit of a Support Agreement dated February 1, 1998, md the ewe cxtbangeable notes have the benefit of a Support Agree:ment dated Augwt 26, 1998. both of which are betwten BelJ Atlantic and FSI. In the Support Agreements, Bell Atlantic: guarantees the payment of interest, premi- um (if my), principal, and the ca.sh wlue of exchange property relat. ed to these notes should FSI fail to pay. Another Support Agreement between Bell Atlantic and FSI dated October [, 1992, gllRranrees payment of interest. premium (if any), and principal on FSI's medi- um-term notes (aggregating 5244.7 million at December 31, 1998) should FS( fail to pay. The holders of F!iI's debt do not have rec:oUlSe to the stoc:k or assets of our operating telephone subsidiaries or TCNZ; however. they do have recourse to dividends paid to Bell Atlantic: by any of our consolidated subsidiaries as well as assets not covered by the exclwion. The carrying value of the anUable assets reflected in our c:onsolidat<<:l financial $taten'lcnts was approximately 514.1 bilLion at December 31.1998. In 1998, we established a $2.0 billion Euro Medium Term Note Program under which we may issue notes that are not registered with the Securities and Exchange Commission. The notes will be issued from time to time from our subsidiary, BeU Atlantic Global FUlIding, lnc. CBAGF), and will have the benefit of a support agree- ment between BAGF and Bell Atlantic. There have been no notes issued under this program. MATURITIES OF lONG-TERM OEST Maturities of long-lerm debt outstanding at Dec:ember 31,.l.99&; exclucling upitaJ lease obligations and unamortized discount and premium, are 51.289.0 million in 1999,5893.6 million in 2000, 5373.8 million in 2001. 5941.1 million in 2002.53,532.6 million in 2003, and S12,068.0 million thereafter. These amounts include the redeemable debt at the earliest possible redemption dates. EARLY EXT/NGlJl$I-IMENT OF DEBT We recorded extraordinary charges associated with the early extin- guishment of debentures and refunding mortgage bonds of the tele. phone subsidiaries and debt issued by FLAC. an investment accounted {or under the equity method. You can find oil description of our FLAG investment in Note 3. These charges reduced net income by 525.5 million (net of an income tax benefit of 514.3 million) in 1998. .. ... J ~t l. I.. ~ I " {/I.:t,=:\\\'~.:'/' .\J"'V'~)I' '/' {>"\: ':t':" ,I,~~;: ',. '; Nola \tol':oo?~.jiid;":~C'd\ F"''"'ancial'S' "I"'-.L.>. h ;"1:1'1 ').',J//, ',,~I-. ,':,::.!' ,.'~\,"'I.~",I .:."'X'\ ''J .;; 'y/; :,'/ :;~ \ . r . i'. ~ I .' , .. I ", &lI 11.... Q't'\: "",,n .~ ~, tf., . ~, " . .. I ~c ~ I /. ~ I . ( 1. ~ ',,!. "';..1': , "),;,,; \',~:. ,/\\ j',\ ,'),' ,.f.}h.:-: I'., '.I .', ,',\':''',1, ',. ,l,~ I','::,: ;,::;.\ \:,':" ""'?';///~'>:'I)::I '\, \'>'If",,>;"1 ;11/1,;\' I', ,~.I" :..,.1'\ .:\'\'.':1 """~ 1 .,' -/ -.. [9._R_~~ SllIAfVAnm We limit om use of derivatives to managing risk th.tt coLlld negativc. Iy impac:t our finmcing and operating flaibility, nWdng c:asb Oows more stable over the long run and ac:hieving savings ovcr other muns of ~cing. OW' risk managcment strategy b d~igned to protect :against adverse changes in interts1. rates, foreign currcncy exchangc rates, and corporllte tu rates, as well as facilitate our finanang strategies. We use sevet2l types of derivatives in managing these risles, including iuterest rate swap agreements, intcrest rate caps and Ooor$, fortign CWTC11l:}' forwards and options, and basis swap agrecments. Derivative agreements are linked to specific: li2bil~ ides or assets and hedge tbe related ecOllomic: exposures. We do not hold derivatives for trading purposes. We rec:ognjz.ed prt-tu inc:omc (expense) of $(3,6) million in 1998, 517.3 million in 1997. and $12.7 million in 1996 in our statcments of income related to our risk management activities involving deriwtivts. llfn:flEST RATE RISK MANACEMEIfT The table that follows provides additiorul information about our ~lltCr=t nte risk mmagemmt. The notional amoW1ts shown arc wed to calculate interest payments to be exchacged. These amounts art not actuaIly paid or rcceh'Cd. nor 2J'C they a measure of our poten tial gains or 10$SC$ from market risks. They do not represent our expo- $Urt in the event of nonperfonnacce by a COW1tcrparty or our futurt c:a.sh'requimnents. ow. financial instruments art grouped based On the nature of the hedging acthity. 1I1_:a.. NcbONl AmCu':t lCiClWllS .. ~) ~e~ NmlltiI:s nece_ Pwy IlItsrest Rate $wIp ~ foteen Clxrency/ll1tel'eSt Rate Swaps 1998 S 303.2 1999 - 2002 1991 $ 375,4 1998 - 2002 5,3% 4.5" G.O'll. 6,2% Ottler Interest Rate SwaDs Payfir.ed 1998 S :2lSO.0 ~999-2005 1991 $ 200.0 1999 ~ 2005 5.0% 5.7" 5,9% 5.9% .---~ Pay variaDle 1998 S 78.3,7 1999 ~ 2006 ~997 $ 783.7 1999 - 2006 Struc:tured Note Swgp ~ 1998 $ 60,0 1999 1997 $ 60.0 1999 In\Jml$t R;rte ~p/floOr ~nts 1998 S 297.0 1999 - 2002 1997 S 262.0 ~999 - 2001 'EbSIS Swap ~ 1998 S 1,001.0 2003 - 2004 1997 $ 1.001,0 2003 ~ 2004 5,3% 6.1% 6,6% 6.~ 1 We we foreign c:urrency/interest rate swap agreements to hedge the value of certain international investments. The :lgreements generally require us to ftcdve payments based on fixed interest rates and mnke payments bucd on variable interest rates. The structured note swap agreements Convert several structured medium-tmn notes to conventional fixed rate liabilities while reduc:- ing financing COSts. The effective fixed interest rate on these notes avenged 6.1% at Decembcr31. J998 and 1997. ,.: Othcr interest rate swap agreements, whi.:h sometimes inc:orporate options, and interest rate caps and t100rs are all wed to adjust the interest rat~ profile of our debt portfolio and allow us to achieve a targeted mix of fixed iJ1d variable rate debt. Earnings genenued from our leveraged lease portfolio may be affel:t- cd by changts in corporate rax rates. In order to hedge a ponion of tbis risk, we entered into several basis swap agreements which require us to receive payments bascd on a VOIdable intcrest rate (UBOR-based) and make payments based on a tax-exempt market index U.J.Kenney), We account for these basis swap agreements at fair value and recognized income (expense) of $(3.7) million in 1998.54,2 million in 1997, and $20.2 million in 1996 related to mark.to.market adjusunenu. FDREIGN EXCHAnGE IUlK MAHACEMENT Our forcign exchange risk management includes the use of foreign c;urrency forward contrac:ts, options and forcign c:urrcncy swaps, Forward contracts and options cal1 for the sale or purchue, or the option to sell or purc:hase, certain foreign cuncndes on a specified future date. These contrac:ts are typically used to hecJge short-term foreign ':LUJl:J)c:y transactions and commitments. The total notional amounts of our forcign currency forward contrac:u and option con~as were 52,4 million at Dcumber 31,1998 and $14.5 millIon at December 31,1997, aU ofwbit:b had maturities of six months or less. Certain of the interest rate swap agreements shown in the table contain both a foreign currency and an interest rate c:omponent. These agreemcnts require the exchange of payments based on' speci- fied interest ~res in addition to the exchange of c:unencies at the maturity of the contract. The requircd payments for both compo. nents arc hued on the notional amounts of the contracts. _ -:-- Our net equity position in unconsolidated foreipl businesses as reported in our consolidated balance shcets totaled 51,916,6 million at December 31.1998 and $1,784.2 million at December 31,1997, Our most significant investments at Dec:etnber 31. 1998 and 1997 had operations in the Unitcd Kingdom. It.1ly and New Zealand, We h;1ve not hedged our ac:counting translation exposurc to foreign currency fluctuations relative to these investments exc:ept for our United Kingdom investment which is partially hedged. Our equity income is subject to exchange rate fluctuations when our equity investce has balances denominatt:d in a currency other than the investees' functional currency. We recognized $10.5 million in 1998, $(30.1) million in 1997, and 56,8 million in 1996 rel.'ued ro such fluctuations in Income (Loss) From Unconsolidated Busine$se5. I' ~ J . ':;: ~ ~~ : .' ~, " 'J' , t ~. ~ l' ';. "...". ':\'~l~\~fi::':~\\\'~'''~l'~' /,\~r~,I~,\\ i:i':N1itJl;lto,\'C-O'hSOlidate'p:~i"~'nd'~1 ;Stat:c'm~ntS:;";;. z, '--"'f,;!"), \ 'I;; ~(" "lj /j;'<,~:"';~:< r~~~ "I;' ,;<> \I\;~:~;~, I, I ..:.,.t,:., ,; I ~(, > 'f ,<,\'; ~:)." ~ J(!J.,.:~:. .,:". <'./~ \1 :(/"\\",~j\ J.;-: .-4.t'}Y.I' -/ "~:\..\~.~<.\.. ' .,.<. ~\"":1':' :t"'i' t ',I 't'l: ",~. .1./ ... '/,\ J~,\ ,1'('''': ,.( ,:..,.... I\....,) ! iii "t. J\ \~YI,~I IIOtK . _IINJD- We continually n\onhor the relationship between gains and losses recognized on aU of our foreign C\tm11c:y contracts and on the under. lying tn.nsac:tions being hedged to mitigate market risle. C:OfCClHTJU.TlONS 0'" CREDrr RISK Finandal histrwnent5 that subject w to concentrations of crtdit rhk c:onsist primarily of temporary cash in~t:pcnt5, short-term invest- ments. trade rec.c:ivabl~ certain notes r~c:eivable, preferred stock, and derivative contrActs. Our policy is to place our temporary cash investments with P13jor financ:W in!ititutions. Counterparties to our derivative contracts arc also majo'r financial iDstitutions and or8a~ niud exchanges. The financial institutions have all been accorded high ratings by primary rating agenc:ies. We limit the dollar lmount of contracts entered into with any ODe financial institution and moniror oW' counterparries' cr~t ratings. We gerJer1JJy do not give or rccdvc collateral on swap agreements due to our credit rating and those of our counterparties. \\Ihile we may be expokd to credit loss- es due to the nonperformance of our countcrparries. we consider the risk rtmote and do not expect the settlement of thee transac. tions to bave a material effect on our results of operations or finan- c:W condition. FAIR VALUU OF FlHAHcrilL ,,lfsnrUMEHTS The ublC3 that follow provide additional information zoom our material. financial instnlmetns: Anllotdd hd:b~t ~ MaUJocl CIWI 8nd cash eQUivalents and $hOtt.(efm Investments snort . !WId Ione-term debt (eJ.dUding capital leases and eXCl\anCellble notes) bcIuI~eJtlle notes Cl!frylng amounts Market Quotes for similar urms an4 rrnnurlties or Muto C8Sh flOW5 diSl;Ounte<l !t current nltes MVkCt QU~s for similar InsuumenlS with bOth oeot and embeGded eQUity CQm~nents Future casn 1\OIYS distOunteCI at current mes, ma~ QlJotes for similar Instruments or othlr valuation mo<Iels Gains or losses to terminate a(lreomenlS or "llO\JTlts I)llid to telllic8te D&reements at currant rates Marl\et QUotes or gain:o or losses to terminatt' etreernents CQSt lllVestmeMS In unconsoli4BtN businesses and note'l receivaUle Inltnt5t nne 5''''.11) and other agreements Foreign t\lmtncy mrwarCl and optiOn contr~.. ,....--..~ I~ .. 1IooIW\lNS) """ 1&91 c.t)'IIlI f"r carry"', F.1r AT~:l:1. MIlKInt . VWt Alnount~ VaIUll Short. lII'Id' , /ont- term dtrJt S 14.$3S.6 S 15.928.3 S 19.437.7 S 19.9BS,9 Ext:hanpable not6S . 5.645.6 5,818,2 Coat i~ls In Ul)(On$Olidarrd J)usIne$$eS ~ n7.8 7&6,9 1.693.0 1,464,6 Notes receivllllle. net 18,4 lB.3 32.9 33.2 Interest I<Ite swap and otner alreements Auets 6.1 26.7 26,3 31.8 Uabilltles 25.5 39.7 24.8 31.8 Foreign CUfTency forward and option tontrnc:ts Assets ;" .2 Uat);litic~ .2 .2 · Thc carrying IItIOL:nU shown for deri~tives include d:fen'ed g~ns and losses. In January 1999, we accepted an offer from Viacom to repurchO)St: their preferred stock. from us. Our investment in Viacom i5 induded in the table under "Cost investments in unconsolidated businesses," We have wed the sate price as the {air va.lue of our Viac:om invest- ment at December 31, 1998. The fair value of our Viac:om inVC'St~ ' ment at December 31.1997 was ea1cu1atcd using certain theoretic:a1 convertible valuuion models sinc:e the preferred stock was not publicly traded. We were unable to determine the fair value of othl!r investments. with c:arrying values of $.6 million and 5183.3 million at Decembtt 31. 1998 and 1997. without jnc:urring excessive costs. 110alll_....~ . ~~=-~ I I~... .....I)O'<$} n ~;U.. .t99U 1.997 - . ..... - ---<1L .-.- Portion subject to .;:=..-- redemption reQuirements S 18.6 S 618.3 Portion non redeemable 311.1 292.9 S 329.7 S 911.2 VfACOM TRANSACTIONS In December 1998, we accepted an offer from Viacom to repurchase one.half of our investment in Viacom, or 12 million shares of their preferred stock (with a book value of approximately S600 million), for approximately SS64 million in cash. This preferred stock had been held by a fully con$olidated subsidiary, whic:h had been created as pan of a transaction to monetize a ponion of our Viacom invest- ment during 1995 and 1996. This monetiution transaction involved entering into nonrecourse contracts whereby we raised 5600.0 ....,~.,..... I, ' , ' , . 'j '. ! ,:';t;I \:\',r"r .),!'.I~/' \ \'/,'", ',' ,,";",' ',,~, I. e Ina~cra' a emCIl S "",' :', . ,\. ,,I', '." 1'1. ", \".'.,:-1 " /1'/, ,", ... I ~1"1,\.i.~,../ 1..../.. ,\? "/ .+.>.L,~""~l JI,"'~~ I~ .1" ',( ..',' 'I' 'Ill" ') .', /.1 '.,...1'+,...... )l~ .;.1. .,.1 '~-. "1' '.."""..., ,.'., ,j.. .~';- "I: .'f "p, ~ I" ~ ....~, ,...,', ... \.. ,',' ...,..' >- . \.." _I IH' ~ :. ,<~,.,....:- 'j" \"'/~,> ,~ .... ~tj rr...~\o-"i' \ ' '''';''41' ...~ l~ . h:>" ". ': ',~~ ~ ; .. "" MTI II e"'l~ million bued, lJJl.ong otb(%' things, on the value of our invmment in Viac:om. To aecomplish the monetiz..'\tion, two fully consolidated subsidiaries Wen! created to manage and protect ceruin assets {or distribution at a later date. In addition, an outside party contributcrl S~.O million in tuh in exclange for an interest in one of these subsidiaries, and we contributed a 5600.0 miJHon note th:1t was coUatcnHzed by certain r.nancial asseu. lnduc:ling the J 2 million sbares' of Viacom preferred stock and 22.4 million shares of our . c:ommon stock. The outside party's contribution was reflected in , Minority Interat, and the issuance of common stock W"l$ reflec:ted as Treuury Stock in our coniaUdated balance sheets and statements of shareowners' invernnent. The ash proceeds from the repurchue of the 12 million shll:rc.s of Vaacom preferred node. together with additional cash, was u.sed to repay the note that bad been contributed to one of the subsidiaries. The total. amount of ash was distributed to the outside party, under a prH:dsting agreement. to redeem most of that party's inlerdt iI..- the subsidiary. We then purchased the remaining portion of the outside party's interest.. The tnnsaction was acc:ounted for as a , charge to Rdnwsted Earnings and a reduction from Net Income in a1atb~g Net Income Available to Common Shareowners in the &mount of 529.8 million. AJ a result of our purcha$C of the outside party's interest, we reduced Minority InterC$t by $600.0 million in 1998. HoweVer. the subsidiaries continue to bold shares of our common stock. which mve been reported a.s Treasury Stock in our consolidated 1n1a.nce sheet at Dea:mbtt 31, 1998. The Iem2.ining 12 million shares of preferred stock were repurcba.sed by Vi1.com in a second ~on in January 1999 for approximately 5612 million in wh. You c:an find additional information on our Vlicom inve$tment in Note 3. OTHER "'NORm INTERESTS Minority inute$t in 1998 and 1997 aho included the minority inter- ests in cmain p3nnerships f;On$Olidated by Bell Atlantic: Mobile. The other shareowners' interest in lwaceU is also rcflec:ted as minority inttrest in 1998 and 1997 as a result of our change to full consolida- tion Cor our investment in tusacdl beginning in 1997. You can find a description of our lusacell invt:Suncnt in Note 4. @:1. ".:.: St_ of ~~~Wr I Our subsidiary Bell AtI.tntic New Zealand Holdings, Inc., (BANZHI) has the authority to issue 5,000,000 shafts of Serial Preferred Stock. BANZHI has issued three s~ries of preferred stock. BANZHJ owns a portion of our investment in Iwacell and, with another subsidiary, indirectly owns our invutment in TCNZ. In 1994, BANZHI issued 850,000 shares of Series A Preferred Stock at $100 per share with an annu~1 dividend rate of $7.08 per share. In 1995, 600,000 shares of Series B Preferred Stock were issued at S 1 00 per share with an annual dividend rate of 55.80 per share. At December 31. 1998 and 1997,95,000 shares (59.5 miUion) of Series B Preferred Stock were held by a wholly owned subsidiary. Both series are subject to mandatory redemption on May 1, 2004 at a redemption price per share of S 100, together with any accrued and unpaid dividends. In 1997. 650,000 shares of Series C Variable Term Preferred Stock were issued at S100 per shue. At December 31, 1998, these shares had an allnual dividend rate of 4.24%. r 12 B s............... in_lit 1 Our certificate of incorporation provides authority for the asu;anc:c of up to 250 million shares of Series Preferred Stock. $.1 0 par value, in one or more series, with such designations, preferences, rights, qualifications, limitations and restrictions as the Board of Directors may determine. We are authorized to issue up to 2.25 billion shares of common stock. On January 23. 1996, the Board of Directors adopted a resolution ordering the redemption of all rights granted under our Shareholder Rights Pian. approved by the Board in 1989. Shareholders of record as of April JO, 1996 were paid the redemption price of S.OI per Right ($.0025 pcr shue after adjusting for stock splits) on May J,I996. ----~ ..~. .: . ~ / '.' r .;, '."T' , 'r .. , ,~ ,f : ...... , . . I ~. -_._-----~_.----------------------------~ .I . , . . . .~. I ., ,~I ~ . ....! I , .- ~. . ~ . c . ,. . ~ :, ' '~ i.> " " , '!.:,o./tL '.. ," \,' " : ,..,. ~ : .. ;tl. ~ l' ' 'l'I';,~>i':;! ),.;,:y~.!t~~:(i,,~; :;;r~r;'~,~,!:,,<,,\, '" .,. .', , t' '. c.. I , ,1,\, I: ,I'I~ '.;"" ',"\1"'.\'....,( '1\,'\ Of!~ 0 onsol a~ lnan(aa a(~mcns,' ",""/,\'1'\'''\ ,,\"'J 1 ","/''''.' l' 1/-'.,..' "."'~:(/I/j:'r"."..-'lt~~.t~ "~~"\':.\, :'. ""~:\";l~'.'1J-.\'~'~,\,.~~,,~.~I'.' .!~J~..r.'},~~~'I(:\ I~),'~--; 'i~~\,'\o,,}i~I/I,11.}J\'I/.~'.1If{~,"}/j,\ l~j\';r'H/J.~fl \:/./~.,'\. ~3.~_;"_ .-....... . . J The following tablt is a reconciliation of the numerators and denominators uSed in computing eunlngs per share: ". , . . (II. ""LI..OfIl. UCI"T 'I~ IIlAAI u.GUOIn) WIllII ..... ___ Do UN S!lt7 1tH w Net Incom AnllIIbIe to CeMnan SUraowncrs Income bt1l:lte llxtTaOrCllnary Itom and cwnulative effect of chan&e In IICCOUfItlnt principle '. S 2.990.8 ~ S 2,454.9 $ 3,128.9 R<edtmptlon of minority Interest " (29.8) - - Redel'npdon of fnvtstee preferred stoek 12.5) - - Income evallable to common shareowMrs- 2.958.5 2,454.~ 3.128.9 Extmordinary Item , (25.S) - - CumUl1tMt efrect of change in accounting princfpfe - - 273.1 Ne1lncome'mllabJe to common shareOYmers- S 2.933.0 S 2.454.9 $ 3.402.0 Basic .Eamlap hr Common SlUt. Weigtrted-Mmae shares outstandIng 1.553.0 1.55:1..8 1.546.6 Income before extraordinary Item ond cumulrJve effect 01 change In accounting prindple S 1.90 $ 1.58 S 2.02 Extr30rdInary Item (.01) - - Cumulative effect of change In acc:ountlne; principle - - .18 Net Income $ 1.89 S :1..58 S 2.20 1..11 ~ - DDattd ~ Pot Common Share ~~ $haAls outstsndlng 2..553.0 1.551.8 1.546.6 Effect 01 dUutiYe GeCUritles 25.3 19.3 13.6 ~fllte thalllS - diluted 1.578.3 1.571.1 1.560.2 Income bC!fotO: extraordln itlml and cumulative effect Wet ary Of dJatlge in aceountJn& pinel,. ExtraordInnry Item CUmulatNe effect of change In eccounting principle Net Income $ 1.87 (.01) s 1.56 s 2.00 s 1.BS s 1.56 s .18 2.18 · lncomt Itld Net income lVUlabk to cammon sh&n:ownm is the JUne for purposes of cJculating basi, and diluted earnings per shut. Stock options to purchase.2 million,.J miIJion' and 29.9 million sh.ues of common stock were outstanding at Dec:ember 31,1998.1997. and 1996, which ~ not irJcluded in the computation of diluted earnings per share be<:aU$e the options' exercise price was greater than the: aver. age market pric:e of the common shares. ~ ~- ......~- ' -_._----~-~._---------------- J ,1:,/\ L'.., '11 \, (' . '. ,e/. ',J":, ,\' ..J'~, /..\' ~"''\I'' , I ~.I, '. 'I~,j \.1 ' \. ~ . 1 I ;~,.' ,""\ , , , '" '/fi'~\ ~''''', \.~, <<J,/')z,( ',1\ ,~~* ,,',,.',,,:',' ,.,::1,:" ~o,t,e~::(? ,,~O"~oltlJahfd\a=inahcial ~Stf.lte bnt~~'/ '(;J /,. i ">"',/.\"',. ,,/; ,r, (/ /,rr.l/':i (\o\;/)i' 1\ ,... ..... . 111. ,",~ III ~' ,;,">"/~. ,)"""';:"'II,I"'<tl~,~':>,',I,:-..'t'41",, ",\~,""}:':'\o-':~:\tIC. ....-..~I;"\O.~:.\ ~.)'t~'~U-rC'::....,~).\.'~~~,,:,' ~".i<4 ~,~~) 114~ Stoek -;. .1- _ ^: ~- - J We bavr: stock.based compensation plans that include fixed stod: option and performance-based share plms. We apply APB Opinion No. 2S and related interpretations in accounting for our plans. We have 2.dopted the disdosure-onJy provisions of SFAS No. 123. We rec:ognizc no compensation expense for our fixed stock option' plans. Compensation expense chuged to income (or our perfor. mlUl(t:-b~ share pb.ns was S 14.3 million in 1998,523.4 million in 1997, and $10.6 million in 1996. If we had elected to rccognize compensation expense based on the fair value at the grant cUtes for 1996 :lnd subsequent fixed and performanct:-based plan awards consistent with the prOvisions of SFAS :/'0;0. 123, net income and earnings per share would have been changed to the pro forma amQUDts indicated below: \'Pa__ss. I txlu.AJlS .. UIU'OIoS, [J~l" 'I~ SHoAl ."~\IIItSI 2.99a U!l6 Net Income .u ~ $2.965.3 Probma 2.917.9 S 3.402.0 3.355,8 .": \lh....:,JI'~ Bmlc eumi~ per sh.lIre AS ~ S 1.89 S 1.58 S 2.20 P'rQ tcnna 1.86 1.54 2,17 DiI~ eamlnes per $I'IlR .u rtpOtted S 1,86 $ 1.56 $ 2.18 Pro forma 1.83 1,52 2.15 These results may not be representztr.l: of the effects on pro forma net. income for future yr:ars. We detcrmined the pro forma amounU using the Black-Scholes option-pric:ing model based on the following weighted-average asswnptions: Dividend yield &pecte(l wlatillty RisIW9 interest rute E:a:pecteod li'wes (in )'earn) :l9'3S ~.59'16 18.63% 5.55% 5 4.72% 15.16% 5.42% 5 1!196 .... The weighted-average value of options granted was 56.47 per option during 1998, $4.30 per option during 1997 and 52.96 per option during 1996. The NYNEX stoc:k options outstanding and exercisable at the date of the merger were c:onvened to Bell Atlantic stock options. The NYNEX option activity and sh~re prices have been restated, for aU ycars presented, to Bell Atlantic shares using the exchange ratio of 0.768 per share of Bell Atlantic: c:ommon stock to one share of NYNEX common stock. Our stock incc:ntive plans are described below: "IXED STOCK OPTIOH PLANS We have fixed stock option plans for key m~agcmc:nt employees under whim options to purchase Bell Atlantic comman stock arc granted at a price equal to the market price of the stock at the date of grant. t ~~"J...I Under the 1985 Incentive Stock Option Plm (ISO Plan), key employ. c:es (including employees of the former NYNEX companies, after the merger) m.ty be granted incentive andJor nun qualified stock options to purchase shares of common stock and certain lcey employees may receive reload options upon tendering shares of common stock to c:xercise options. In 1994, we adopted the Options Plus Plan. Under this plan, we gr.tnted nonqualified stock options to approximately 800 managers below the officer level in place of a portion of each manager's annual c:ash bonus in 1994 and 1995. The Options Plus , , Plan was discontinued after the January 1995 grant. The Stock Compensation Plan for Outside DirectOu entitles each outSide direc. tor to receive up to 5,000 stock options per year. Options are exercis- able aftcr three years or less and the ma:cimwn tenn is ten years. Fixed stock option plans covering key management employees of the former NYNEX companies include the 1990 and the 1995 Stock Option Plans. The 1990 Stock Option Plan, which expircd on December 31, 1994, permitted th~ grant of options through DecembcT 1994 to purchase shares of common stock. In JanlW)' 1995, NYNEX established the 1995 Stock Option Plan. Options under the 1995 Stock Option Pian are exercisable after three rem or IC!\S and the maximum term is ten years. Since the merger with NYNEX. the new options granted under this plan are reload options. Both the 1990 and 1995 plans will continue to exist until the last outstanding option has been exercised or has expired. In 1992, 1994 and 19%. NYNEX established stock option plans {or associates and management emplo)'Ce$ other than those eligible to participate in thc other stock option plans. These employees were granted options (with the nwnber of optiOD5 granted varying accord- ing to employee level) to purchase a fw:d number of ::bares of common stock at the market price of the stock on the grant date. Options granted under these plans are exercisable after two years or less and the maximum term is ten years. This table is a summary of the status of the fixed stOck option pLuu: w.~ Stllek Oooons Eme:se P\"i!::e Outstanding, Deeember 31. 1995 68.nS.924 $ 24.93 Granted 31.866.368 33.28 ExerQsed (8,889.4061 24.65 -.--- Canceled/forfeited (1.099.888) 31.51 Outstanding. December 31. 1996 90.592.998 27.93 Granted 15.670.210 33.10 Exercised (26.238.090) 26.40 Canceled/forfeited (885.184) 29.39 Outstanding, Decem~r 31. 1997 79.139,934 29.28 Granted 24.061.468 46.40 Exercised (23,373.126) 29.01 Canceled/forfeited (1,744.531) 36.88 OlltStanding. December 31, 1998 78.083.745 34.87 OPtions exercisable. December 31. 1996 56.482.864 27.68 1997 63.650.570 28.27 1998 55.395.762 30.17 :'~<.'_:,<,~>~ I . . ". . /IY,'\(; /;1,' '\'J')( q'.),~ ;,1:.\_ '/ \,~I 1 .,' "". "." .'...', \" ,"" . .....", , ,'.'1...'... \' .'" '" . .~ ~?,' \'lr"~.:r.I\: ))/.:f. ,~~ '" ::, ..;\(;':\1,' ~"";~/~F.~:t~'i~o'~f:~."~~~~~ :',~.~r..~.~~~!I'~t~,,~?~~~.~~ "~I:\::,:~n,':-,\\; \: >~\':' ~;, 1\': <. ,1'<"{'~i\:'/"~':,J. ',i '~:d}'/S:r onu~. :'be foUow-ing table $ummarizes information about fixed stock options outsunding a.s ofOecember 31,1998: SWc:k OptIons lhItstIndIat Stodt ~ ExerdUllle Rqe~ ~ ~ ~"I'ra(It EaerczM PlIctt. Sham ~ LrIe Eam>se I>rJc;e SNm. $15.00 - 19.99 5,552 .1 yeats $ 18.00 5.552 ::l0.00 - 24.99 8,711.764 3.5 23.07 e.711.164 25.00 - 29.99 ~6.780,585 5.6 25.87 16.780.585 30.00 - 34.99 27,780.786 7.4 33.00 25.765.996 35.00 - 39.99 1.480.557 S,G 37.76:..; 796.719 40.00 - 44.99 361.306 9.1 43.39 318.057 45.00 - 49.99 21.661,784 9.1 47.56 2.720.337 50.00 - 54.99 1,087.712 9.6 52.13 295,852 55.00 - 59.99 21.3.699 9.9 56,44 900 Total 78.083.745 7.1 34.S7 55.395.762 - '1EItFOaMUCI-BASlD SHARE PLAMS )ur performmce.based share pllUls provided for the gr.tlJung of IWards to cmain key employees, including employees of the former -lYNEX companies in the form of :Bell Atlantic common stock. ~uthority to make new grants expired in December 1994. Final lwards wm: aedittd to pre-merger employees of Bell Atlantic: in mu.ary 1996 and to employees of the former Ni'NEX companies in ..larch 1994. .Effective January 1, 199~. the Income Deferral Plan eplaced the deferred compensation plans. including deferred ter{ormance shares. and expands the aWOlrd distribUtiOD options for hose employees. Employees who were active as ofJ3l11W')' 1, 1998 lad their performance sbare balances transfr:rred to the Income )derra1 Plan. Those employer:s who were inactive as of that date :ontinue to hold def.::rred share balances. Ne also lave deferred compensation plans that allow members of be Board of Dinctors to defer all or a portion of their c:ompcmsa- ion. Some of the$<<: plans provide for returns based on the perfor~ nance of, and e-.utual ~eme:nt in, Bell Atlantic common stock. :Ompen.sation expense fur all of these plans is recorded based on he &it market value of the shares as they are credited to partic:i. )lints' accounts. The Income Deferral Plan is accounted for with OUr tension plans. -_ rhe number of ~ outstanding in the performance share plans ...ere 393.491 at December 31. 1998, 1,099.690 at December 31, .997. and 1.252.286 at Dec(Q1ber 31,19%. \ to~ of 180.560,000 $hares may be distributed under the fixcd :toc:k option plans and the performanc:e.bascd share plans. As of )ecember 31, 1998 and 1997. a total of 56,578.766 and 69,615,880 :hares of common stoc:k were available for the granting of stock )ptions under the fLXed stock option pbns and {or distributions of :hares under the performanc:e-bilS(d share plans. n addition to plans dcsc:ribed above, lusac:dl maintains a separate ,tack option pla.n for its key employ~ in which it awards options to lc:quire lusa.cell common stock. The effect of this plan on our :onsoUdated results of operations was not signific.:mt. ~ ~e Pnce $ 18.00 23.07 25.87 33.01 37.71 43.36 46.46 51.84 57.78 30.17 11~. ~.k>Y__" -~ ] The FASB issued SFAS No. 132, "Employers' Disclosures about Pensions md Other Postretirement Benefits," in February 1998. This new standard does not change the measurement or recognition of costs for pensions or other postretiremenl plans. It stand:ndues disclosures and eliminates those that are no longer useful The infor. mation provided below {or 1998. 1997 and 1996 has been presented under the requirements of the new st:mdard. We maintain noncontributory defined benefit pension plans for substantially all management and associate employees. 15 well as postretirement healthcare and life insurance plans for our retirees and their dependents. We also sponsor savings plans to provide opportunities for eligible employees to save for retirement on a Ux- deferred basis and to encourage employees to ac:quin: and maintain an equity interest in our camp.lUY. In 1997, following the completion of the merger with NYNEX. the assets of the Bell Atlantic and r-.'YNEX pension and So1vings plans were commingled in a master trust, and effective January 1,1998 we established common pension and savings plan benefit provisions for all management employees. The disclosures provided for 199~nd 1996 were deu:rmined using weighted-avertge assumptions for the combined Bell Atlantic and NYNEX benefit plans. PENSION ANO OTHER POSTRETIREMENT BENEFITS At Oecember 31, 1998. shares of our common stock ac:c:ounted (or less than 1 % of the plan assets. Substantive commitments for future amendments are rellected in the pension costs and benefit obliga. tions. Pension and other postretirement benefits for our assoc:iate employees (approximately 69% of our work forc~) are subjec:t 10 collective bargaining agreements. Modifications in associate benefits have been bargained from time to time, and we may a150 periodical. ly amend the benefits in the management plans. The following tables summariz.e benefit costs, as well as the benefit obligations, plan assets. funded status and rate assumptions associ- ated with pension and postretirement healthcare and life insuranc:e benefit plans. :~:{,,:~:".,';, '.' . -'.! .. _;, ~l ,j , " " " " , , : , I' ;, , . " , , 'I ' , , L , " .;1.."1' :\'L~'''~~ ~.',I '~'i.:IS...~.,;.' 'n-'. .~~ ,.' . 0.1~ '1.'" ..... >.' " Io'\l) \..' " . I ,. '1'" 'J '\ '\"1 I,;\" ,," '" '(' ..,' 0""1 ( , 'V >', 'I" " 11'1 \' II)' '......I',f,. ."(1, r-,,~','\r~i \~~.././,~-,r~.:'\,I,~~,.,~,...!: :.l,:,'.\;~ ,~,,/,);,"'V1.,rV"""f'" ij-\~:~ '-')11...4':,', ."~I.\..I,>.\,)(.'/\'~\C\\~.>.1~\\,\,l:~I:"\1~11.1~~:'f~.\. AUUIlIPTIONS The ac:tua.rial auumptions wed are based on financial market inttrest rues, p:tSt aperien<:e, and management's best estimate of future benefit clw1ges and economic conditions. Changes in these lI.Ssumptions may impact future benefit costs and obligations. The weighted-average assumptions used in detenrrlning cxpm$e and benefit obligations are as follows: ~ ~MdUft z.9$8 1JS7 J.m ~ '-"7 ~ DiSCOUl'lt rate at end of yeo!r 7.00% 7.25" 7.75% 7.0001. 7.25~ 7.75% long-term rate of return on pI.3n assets for tne year a.90 8.90 8.60 8.90 8.70 8.35 ' Rate of future Incne$(lS In compensation et eM Of)1!N 4.00 4.00 4.40 4.00 4.00 4.40 Medal cost trend rate lit end of yellr 6.00 6.50 8.30 Ultimate (year 2001 for 1998 and 1997. year 2008 for 1996) 5.00 5.00 4.75 Dental cost trend rate at end of )1lar 3.50 3.50 -- -- -=- 3.75 ~~ Ultlmate (yeDr 2002) 3.00 3.00 3.50 The medic:! '~st trend rate significantly affects the reponed postretirement benefit costs and benefit obligations. A one-percentage-point change in the assumed healthcare ,ost trend rate would have the foUowing df'ec:ts: Effec:t on totel service ana Interest cost Effect on postretlrement benefrt ooliginlon S 57,' 631.2 lOOll..l.S ,.. "'llle..sl o-PetQentqo-PoII'It Deere.. S (40.5l (515.8) 0nH>&,~ InetU1C , j .,-.,.' .,..... " , " . . , . ~ , ~. " " , \.0 .:, "I \ c'i ; ." c . '~J , .. ': <~';;'" ,. II \- , ''''''- .. " , ' lf~U. 19M n!t' '-"8 U97 ~ ObUptbt 3e11nnlna of ye.r $ 26.732.0 $ 24,935.7 $ 8.852.2 $ 8,617.2 ServICe cost 388.6 355.8 101.1 98.4 ntefetlt cost ' , 1.S55.4 1.an.3 593.1 626.3 )Ian 'amendments 38.2 (97.0) 10.9 - ~ulll'lal (gaIn) 1055. net 349.9 1.173.4 (90.9) (59.8) ~MfIts paId (2.370.6) 12.041.5) 1549.7) (537.1) :urtallments (96.3) (159.4t.: ea.5 47.2 Jpeclal tcrmlnZltlon benefits .. 1.029.3 681.1 57.9 60.0 rransferlt 153.8 - - ' - - d ofycar 28.080.3 26.732.0 9.063.1 8.852.2 aJr V&loe of Phm A$SOb ginnllli of year 35.253.0 31.075.5 3.824.6 3.209.9 1 r.etum on plan ;ssets , 4.018.9 6.194.1 721.9 673.3 peny contribution 60.6 24.1 173.1 182.1 paid 12.370.6) (2.041.5) (257.0) (241.3) i'ansfer. 4.6 .8 - - of year 36.966.5 35.253.0 4.462.6 3.824.6 Status d of year 8,886.2 (1.521.0 (4.800.5) (5.027.6) Unrecognized Actuarial (gain). net 110.534.0) (9.521.4) (1.951.9) (1.512.1) PrIor servi~ COlt (1.316.7) (1.493.1) 143.2 192.3 TranfJtlon asset (357.11 1439.0) - - et amount reeaeniMd $ (3.321.61 $ 12.932.5) $ (6.409.2) $ (6.347.4) \aUntS recognized on the balance sheet EmplO)'Ce benefit obIi&atioOs $ (3.372.7) $ (2.974.7) S (6,409.2) S (6,347.4) Other assets 23.7 42..2 - - N:cumul8ted O1her comlll'OhenGiYe Iou 27.4 - - - et amount rccognizeO $ (3,321.Gl $ (2.932.51 $ (6.409.21 $ (6.347.41 Ie1'I h c..1......... :.n : ae \c:tua ::om 3eno1lts Ii :nd =umted ~ ... \II ... rhe c:hanges in benefit obligations from year to year were cawed by 1 nu:nber of factors, including changes in actUarial a.ssumptions (see .usumptions). plln amendments <lcd speda.l termination benefitS. ... U:r1RIl.....lltr IHcrH71VU In 1993, we announced a restruc:turing plan whic:h induded an lc:auaJ of approximately Sl.l billion (pre-tax) for severance and ?ostretiretnent mcdic:al benefitS under an involuntary force reduc- tion plan. Beginning in 1994, retirement incentives have been ,ffered under a voluntary program as a means of implementing iubstantiDJly all ofthc: work forc:e reductions planned in 1993. Sinc:e the inception of the retirement incentive program, we record- :d ~dditional ,=osts touling approximately $3.0 billion (pre-u.x) through December 31, 1998. Th~e additional c:oStS and the corre- .ponding number of employees ac:cepting the retirement inc:entive offer for eac:h year ended ~cember 31 are as (QUows: ...~ IOgLU~II" WILLIOM') ~ Met ut. (COu....s I" ..1l.LIOMSI - ~ ~ 1.209 4.75"9 2,900 4.311 7.293 26.574 1994 1995 1996 1997 19S8 $ f94.0 514.9 235.8 513.:1 ,1.021.:1 5 2.978.9 The retirement incentive costs are included in Employee Costs in our statements of income and the accrued liability is a. component of Employee Benefit Obligations reported in our consolidated balanc:e sheeu, The additional cosu ue comprised of special termi. nation pension and postretiremenr benefit amounts, as well as employee C:OSts for other items. These c:om have been reduced by severance and pometiremenr medic.al benefit reserves t:Stablished in 1993 and transferred to the pension and postretirement benefit liabilities IS employees accepted the retirement incentive offer. ~ ~ _",..I J " , , '. '.' -::1 ,~. .~~l, .\....-f.~~ " ,,)~ ,"'i, ,-,) \-:: f\: :1: ,H~~,,;,: ,i\:: J>'.'/' '1,1':N,otes' jto:C,ort\:.olidhtl-d':F.ji'r,al'lcla" Statcmc'nts-IJ ,,-J';',j', ;"1;' '~. ~,:;" ,: :~'~; \ <..... ~'i" ",'; A.'h; ':' " : .\> > : ,\./.'r...... :!l~'\,}... '...'~,. ~\(-\?,. !)>'~"'\."/"!\11,;Yt;"""'yr.. l~-,\...t) '~':""""~,}".l."\;\~\,l'{l'-jI""~'\'t'~\<'II.. :!.,;.'!/\".~ ..:..,, _f(......1 ...,.....:f\ ,'t ".'JI'~ !~\ I ;( I, (; ....,. U eM1WIID The retirement incentive program covering man.agement employees ended on March 31. 1997 and the program covering associate employees WlU completed in September 1998. The following ubiI!' provides the &mounU transferred !rom the 1993 reserve bllbnce to pension and postretirement benefits (OPES) . Liabilities: (IlOLiPllI' "'UJOiOS) - ""'-Ion 09m Teat 1994 $ 293.0 $ 179.0 I $ 472.0 .. 1995 81.6 72.0 1S3.6 1996 91.0 126.0 217.0 1997 81.6 88.4 170.0 1998 38,8 54.6 93.4 S 586,0 S 520.0 $ :1..106.0 Tbe remaining severance and postretirement medic:al reserVes balanca aSsociated with the 1993 restructuring plan were as follows -It DcumMr 31,1997 and 1998: (IlOWJlS .. IliLuo~sl 12191 1511' BegiMlng 01 year S 263.4 I $ 93.4 Utillmtlon (170.0) (93.4) End of~ S 93.4 $ - .' ... ". ~ .ill;~~'J_'/ SAVill" PlANS AND EMPLOYD noeK OWNERSHIP 'LAMS We maint&in three leveraged employee stock ownership plans (ESOPs). Under these plans, Wt' match a Cl:rtain percentage of eligi- ble employee contributions with shares of our common Stock.. In 1989, two leveraged ESOPs Were established by BeU Atlantic: to purd1.ase Bell Atlantic: common stock and fund matching contribu- tions. In 1990, NYNEX. established a leveraged ESOP to fund rnatc:h- ing c:ontributiol1S to ZIWlaBement tmployees and purdwcd .shares of NYNEX c:ommon stock. At the date of the merger, NYNEX c:ommOn nod:. outsUndtng was converted to BeU Atlantic; shares using an exc:hange ratio of 0.768 per share of Bell Atlantic common stock to one sbare of!lo"YNEXcommon stock.. The Bell Atlantic lever~ged ESOP trusts were funded by the issuance 01 5790.0 million in senior notes. The annual interest rate on the ~n.ior nO[-:$ is 8.17%. The Knior notes are parable in KIDUnnual insullmeot5, which began on January 1. 1990 and end in the year 2000. The NYNEX leveraged ESOP trUSt was established through a company loan lJf $450 million, the procec:ds of whic:h wert used to purchase common shares of NYNEX stock held in treasury. NYNEX issued and guaranteed 5450 million of 9.55% debentures, the proceeds of which were principally used to repurchase common shares in the open market. The debentures require annual payments of principal and arc due on May 1,2010. Interest payments are due semiannually. All of tbe leveraged ESOP trusts repay the debt, including interest, with funds from our contributions to the ESOP. rrustS. as well as dividends received on unallocated and allocated wares of c:ommon stock. ...~ '''--"' nie obligations of the leverllged ESOP trusts. which, we guarlU1tee, are recorded as Long-term Debt and the offsetting deferred c:ompenution is c:lassified OlS a reduction of Shareowners' Investment. As the ESOP trusts m~ principal payments. we reduce the long-term debt balance. Tbe deferred c:ompensation balance is reduced by the llD'lount of employee compensation recognized as the ESOP shares are allocated to panicipanu. Common stock is allocated !rom alllevmged ESOP trusts based on the proportion of principal and interest paid on ESOP debt in a year to the remainIng princ:ipal znd inter"t due over the term of the debt. At December 31, 1998. the number of unallocated and aUocated shares of common stock was 18.9 million and 32.4 million. Alllm:r- aged ESOP shares are included in earnings per share computations. We recogni%e leveraged ESOP cost based on the modified shares allocated method for the Bell Atlantic leveraged ESOP trWts which held securities before December 15, 1989 and the shares alloQted method for the NYNEX l~eraged ESOP trust which held $ecurities :afu:r Decembu 15,1989. ESOP cost and trust activity consist of the followin(r. lllOLWI IN "'IWOloll _1lIDP _)1. 1-'98 1997 199G Cornl:lenst4lon $ 98.4 I $ 105." I S 93.5 Interest IneutTed 48.6 57.0 69.4 0Mdends [34.01 (36,91 142.1) Otnertrust eamin&s ana eJ;lenSe$. net (.4) 1.5) (.2) Net ~ ESOP =st 1:1.2.6 125.0 120.6 AdcitlonaII~) ESOP cost (8.51 f2.31 14.6 Total ESOP eost S 104.1 S 122.7 S 135.2 0Mdtncl::i rectiYe1:l for debt service $ 65,6 $ 66.7 $ 6S,3 Total t:oIfWaIlY contnbutions to IeWr.Igf!d ESOP trusts $ 143,9 $ 136.5 $ 141.8 In addition to the ESOPs desc:ribed above. we maintain savings plans for associate employees of the former NYNEX companies. and ~mployee$ of Certain other subsidiaries. Compensation expense associated with these savings plans was 5BO.8 million i1n!198. $71.1 million in 1997, ;lad $69.1 million in 19%. <' ~.> " i, >' { . I.' :... .. ~~. I { t , , ~,~. H :' , ' . " " " ' " . , J,c '. . ,.,' , 'l . I . .' ~:.; .. '.: ~ .> ;....,1 S:~~lj .'.>t~:/~t \ ~t/ :'" r ,~"I~il "',, ',,~. c. }":(~~":':-,,~I,,.I,~ \," ',\ !'9 ;; ~f'I:~: >:~ N'~~c#, ~O~C 'm..Ol'idat~d'f.ihrin,c,i:d I$J.at'r.1monts~.':.<{: (:~: ~{:. '1,,\':,,~,""1 : \~~.,.'-'~.'!/ (:;'1 ,,~ . ! 'i:'/IV~\...j{:f:;;" '~\-' ~'.,~,\I~j. " ,.....It.. ~J . \ :'I'~" .\:-,.I'.{{- .\,,/4,~"'1.' \\),1. .,.,..:1\_. .~.;tl,IJ'-f.,l;I.'II.>o,/II,.tl.:/~"I:~}': '~l.~t'..\.'">'~~,.\1 '~)'/'.."'. [16. ~T';" - ~ ] Deferred taxes llrise becawe of differences in the book. and taX bases of certain assets and liabilities. Significant componenU of deferred tax liabilities (assets) are shown in the following table: The components of incoMe t:u: expense from continuing operations 100WllS IN ~l are pn:senwd in the following table: It/' IlICOIlat :11. :l9tI :1!t91 loou,...s "" "IUIO-sl Oefened tallliltbllitles --~u. ute '-"7 uti Depreciation $ 3.634.5 $ 3.564.5 - 's L 1:02 l.eYef2ge'd kl&RS 2.437.0 2,225.3 CUrrent PartnershIp lrne~,ntll 470.8 329.9 Fe<fclrl!l S 1.513.9 1..207.4 Qttcf 631.1 1.044.2 State tncllocal 368.3 222.2 195,4 7.173.4 7.163.9 1.882.2 1.429.6 1.645.6 Oefarml tax ASSetS Deferred EmPloyee benefits (4.122.8) (4.055.0) Foderof 178.4 279.2 235.9 IllVeStrnent tax credits (83.91 (94.3) State and local 85.8 (42.31 48.3 AllOwance for uncollectible 264.2 236.9 284.2 accounts receivable (94.1) (117.4) I~ tllX ctefJits (28.9) (38.1) (57.3) Other (985.61 (1.114.81 Other credits (109.4) (99.2) (902) (5,286.4) (5.391.5) TDtDI intome tax t;;q)enSe S 2.008.1 $ 1.529.2 S 1.782.3 Valuation 8110wance 317.2 79.4 Net deferred taX liability S 2.204.2 S 1.851.8 During 1997. two states in our operating region enacted significant ch&nle5 in their tax laws. 1n New Jersey. I. }I.W was enacted that rc:pealed the groSI receipts t3X applicable to telephone companies and extended the net-fnl:Ome-bued corporate business tax to include telephoDe (ompmie:s. 1'his multed in I. decrease in deferred SUte income tax exp~ of $75.4 million. In M.tryIand. a law was enzcted that changed the detmniitation of taxable income. This resulted in an inaeasc in deferred state income: tax e:xpcn5c: of $8.3 million. ~e following table shows the principal fe;.sons for the difference , between the effective income tax rate and the statutory fcderDl income tax rate: 'If.lIID _ DI:CaMCIl :11. 15. 2.e9G SWaJt',cfy felJetaIltlcome talIllIte 33.0% 35.~ lrwutment 1alI cre(lits (.4) (.8) sw. inoome tueS. net of 1edentI tax bene1lts 5.5 2,6 3.1 Write-OOwn of forelln InvestmentS 3.8 Other. net (3.7) 1.4 11.0) -~ Ef~tiw Income tlU rate 40.2% 38.4~ 36.~ Deferred tax assets include approximately $2.609 million at December 31,1998 and S3,126 million at December 31,1991 related to poltretirement benefit costs recognized under SFAS No. 106, -Employers' Accounting for Postretirement Btnefiu Other Than Pensions." This dtferred lax user will gradually be realized over the estimated lives of current retirees and employees. The valuation allowanc:e primarily represents the tax benefits of capitallos$d, certain state net operating loss carryforwuds, and other deferred tax assets whic:h m;ty expire widlout being utilized. During 1998, thr. valuation aUOWlIJ1CC inrn:ased $237.8 million. This. mo'eaSe primarily relates to state nef operating lossc.'S and the write- down of certain foreign inve!llmenU, for which tax benefits may never be realized. -- , ' \I\"~",,,,~ .\ ' , .' " . .'. ;. '<, . , J: .' .' [ . ~ I ", , '\, .' . ' 'J' , " . t~ ~I l I, ... ---~~--------- " ,t " ; . ~ ., '. " , " , I ,I .' I' r>'~:.,;..;.+,.:t./.""I ~~ "'~:"': ~)""/ti~-j- .!<4':.}. 11,- , ~ '1 . ".. I .. , ~ ' > \ L\ ~ J, ,I . . - .. 'l::!." ~ '-...11I, _ \1'. I r~" 1 ' ' \' " 11 ~, \'\ ~,/"~ 1~ \ I;, \',\'1, ; I, / '~' y ~" )" \y.l} <', ':.;' :,:- "( ~ ' '~, \t. :;/, , Motes,,; bl ~o"s6hdated" /"ar.c.:9~ \ l:at'c\ "H~~ts,\\. ',), \t "\',:.1 .,' ";', ~ ....' r ~U' h 1~ " ,I. .. ") .\'/~'~ /1\ /.,1--1.. ,'~I,.\\, '-.I,}'\ ~\.\,~./<:. \\\~.-':('r~..~d ;1'" '~.... J'\l,':t/) ~,"''''',ii~./\~i.' ,\~,~'). ')\ j ...I{',I. '-". ' ",1,'_ ' ,....)t..' ,~ , I~ ; ";~} ,.......-...;.. \ . ''''ri'./ .... ....._..,.i 117 ~~__ ~:'aaou l We hue adopted SFAS No. 131. "Disdomre$ about SegmentS of an Entc:rprlse and Related Information.~ SFAS No. 131 establishes sun-. dardc (or the way t:Ompanies must determine and report informa- tion about operating segm~ntS in their ~u.al,and interim reporu. , We have four rcporuble segm:ntS. which we operate and mmage as stn~gic bl15mcss unitS 'Ind, ~e organize by prOducts and services. We n1ea5UlC and tvaluate our reportable segments based on adjust- ed net income', which excludcs undistributed corporate expenses , an~ sped.a.l items arising during eac:h pmod. Sp~l items arc trans- .a1ons that management has excluded from the business units' .I resultS. but has included in reported consolidated earnings. We generaity'ac:oJunt for intcrsegml:nt sales of products and services and IS$et transfers at current marlcet prices. InktSegment rC\'CDues were not materW lh 1998,1997 and 1996. We are not d~t on any single customer. Our segrrients and their principal :activities consist of the (oUowin~ ~ ~ Domecdc tIIocom D<<nestic wimlne teIeCommUnlcatlons sarvloe-prtmari- ty lU nine operr.lnJ tcIe$lhonc SUbsldlarles that prcl'o'\de loeaj teItQhone seM:n from Moine to \lif&inia lnclUClq voIoIlII'od data ttanscon. enhanCe(! and custcm callirC f1tllt1nS. netwOrk IICCCU. dlrectDfy bSisUmCIe. privIte \lnes ...d ~ ~ lCS.'lhIs ser.ment 3Iso provides customer premises eilulpment distribution. syateml lmezration. billing WI COIleciions. and Internet ZlCCeIS sonlcu. Oc:lfneostle TeIt:com ~sents the aareption of our clomestJc: wil'1lllne buslnes!'> units (conlumer. ~. aeneraI. Itld netWOfk $MVIoes). 'NtIIe:h focu$ on SptClf'1C mllf1(eU to inereas.e revenues and customer sml$1action. GIDbIRl ~ W1rell!S5 teletornmunieatlonS services to custOmers In 24 stat" In the Unitt<! States and fore"n wire~s InYC$tmentll servicin, customers In latin ","erlca. Europe and the PlICific Rim. DIrtctI:lofJ Domestic .nd International publiShing businesses lnclLnlit\C print di~ anCl Internet4)l1sed slloppin& auldes. as well liS ~bslte creation and hosting and ctner electronic commerce services. This scgmtnt NS operations pnncipally In the United States and Central Europe. 0t!Mt~ IntemDllonal wlreline telecommunications Invrstmen~ In Europe I~ the Plcif:c Rim and lease finnncing an!! other businesses. arOQR.IIHIC AnUS Our foreign investments are located principally in Europe, Latin America and the PlIcific Rim. Dome,tic and foreign operating revenues are based on the location of customers. Long-lived assets co:uist of property, plant and equipment (net of accumulated depre- dation) and investments in unc:onsolidated businesses. The table below presentS financial inlonnation by major geographJc area: YUllS __'CDGDh.. :LMU Dornestk Operdting revenues $ 31.166.2 $ 28.817.7 long-lIved assets 38.527.8 36.929.7 ~ Operating revenues 397.7 433.7 331.5 Long-lived assets 2.563.7 2.752.1 4.127.3 ConsoUdated OJ)l!ratlng revenues 31.565.9 30,193.9 29.155.2 Long-lived assets 41.091.5 40.183.5 41.057.0 -- ,j , 'oJ- : ~ ~l reo,,:.: '>;"{:.:' '~:h'"",. .oj .,.<....,. '1\ 1,',',', I~'\'" 1 '/.7 j -'y~ .I,' t \'~t"" "b't"d~t U/J:" .C . I ''-l't .. 1.:.1. ~/. ''''\' ','. "I' 'I' ~",' '\" .' "\)1/',%:'\ I' ,I' v~ '.<',', ,.ni "'l,:,~o\~e ' ,0\ "O"t ' a ~Q "Hlt'lncla liS Ct;nCllts,{; ":J '\ t ", 1/ ",,"", '\ .of', :..", .'; ,.: ,F /, ~'ll ;1/' ,;. \. ~.'.l .?~/'I'~ Iv..,h\" i !',\'.' /\)-~:~ :. .../'. \},~ \ ;"l).....:(~~?~'>}.).I!';rl..;';~J.:..\ ,'-"'I...",:::...;..;.?.':~I',. ..o" "";'1 \;, .. "I.~~\~I,'.I'{\ ~\(.J'./,\.'~tj(....,.IJ ..,. I' ....,..... Oll'lunNQ SECI..on F1"AHCIAL '"1I0ll....TION RECONCILlAnON TO COHSOUClATlO FlrtAnCIAllHfflJRMATfDH . ,-.aM' '" M1wClllSI lOOUAAI '" lUWONI) DtI 1!11 UK 1SN :1!196 o.xa.uc TMean $ 25.557.51 $ 24,S09.2 C13S.2 ' Q~ ROY8IlUOS . Optqunc revenues Domestic Telecom S 25.557.5 $ 24.136.2 Dtpreelution and amortlmtkln 5,195.1 4.999.6 4.9u.5 Global Wireless 3.797.9 2,684.3 Income (loss) from D!reetory 2.263.6 2.159.3 unconsolidated busl~ 27.2 (13.7) (71.7) other BusInesses 123.9 455.8 Irrtetest Income 44.6 14.6 5.9 Total segments 31.742.9 29.435.6 Intarel:lt ~ ,972.1 906.4 840.2 Income tax ~ 1.9S8.3 1,.792.0 1.598.5 Reconciling item~ " (177.0) (210.6) Exlraofdinaty Item {10.8) Adjustments (69.8 Net Income 3.172.5 2.993.3 2.790.5 Total consolidated S 31.565.9 S 29.155.2 5egtnent assets 41.216.8 39.428.6 38.618.9 lnYe$tnwnts in \'ftt Income uncon:solldated businesses .2 3.9 151.9 Domestic Telecom S 3.172.5 $ 2,993.3 S 2.790.5 capital exJ)endlturas 6.409.4 5.485.9 4.913.8 Global Wireless 228.$ 95.0 79.6 Oirec1Ory 583.9 656.6 585.1 Global ~ other Businesses 135.3 48.4 11.8 Op0lJ1tlfllllM!l'lUeS S 3,797.9 $ 3.347.4 S 2.684.3 10taJ segments ,4.220.2 3.793.3 3.467.0 ~lltion and amortization 591.6 481.0 303.3 ReconclUng items 103.5 53.5 1.2 (Loss) from Adjustments (1.358.41 (1.391.9) (72.2) u,1COI\SOrldated businesses (96.2) (195.5) (141.1) Total consolidated S 2.005.3 S 2.454.9 $ 3.402.0 Interest Inc;ome 10.6 9.4 2.0 Interest ~ 275.4 267.2 140.8 SfJ&:m1Int Assetl Incomu W ~ 114.6 65.0 99.2 Net income 228.5 95.0 79,6 Domestic Telecom $ 41.216.8 S 39.428.6 $ 38.618.9 Segment assets 7.738.6 1.089.7 6.093.4 Global Wireless 7,738.6 7.089.7 6.093.4 InvestmOnb In Directory 1.741.0 1,474.5 906.2 un.:onsoIiclate<l busmtsses 1.767.7 1.570.6 1.706.5 other. Businesses 5.353.2 5.583.3 8.001.6 ~ltt1I exDendil1Jres 995.7 987.1 930.6 Tatal segments 56.049.6 53.576.1 53.700.1 RtcOncillng Items (905.71 368.0 (339.01 DInIctofy Total consolidated S 55.143.9 S 53.964.1 $ 53.361.1 Operating revenues $ 2,263.6 S 2.215.2 S 2.159.3 OePfe<;iation and amcnitatJoo 36.7 39.4 33.1 tncome (lOSs) from Reconciling i~s include undistributed ~rporate expenses, corpo' unconsolid~ businesses 28.6 22.7 {.5) rate asseU and intersegment eliminations. Corporate assets are tnte1t!!1 Jncome .8 1~ .7 comprised primarily of our investment in Vl:zrom, In December 1998. Interest expense 19.9 16.5 20.8 II'lCC)('M ~ ex;leI\SC 436.2 410.7 384.2 ant-half of our mvestmenl in V'ucom was repurchased (see Note 3). ~t Income 683.9 656.6 005.1 Segment assets 1.741.0 1.474.5 906.2 Inve$U'nents in unc:onsolidaUd businesses 14.5 22.1 8.4 CaCitnl expenditures 34.6 34.0 32.3 Otbet SusInesM:s Operatin& r~ues $ 123.9 $ 278.1 $ 455,8 -,- ..., DepceciBtion aid amortIZation 2.4 47.9 103.1 lnccme from unconsolidated businesses 85.9 77.7 106.8 Interest Income 23.7 13.0 44.7 Interest e~se 38.4 33.9 30.1 Income tal( benefit . (34.3> !40.7, (59.2, Extraordinary item (14.7) Net income 135.3 48.4 11.8 Segment assets 5.353.:2 5.583.3 8.081.6 Investments in unconsoHdllted businesses 1.867.6 ' 2.080.6 2.813.3 Capital e~ndilures 3.3 134.0 508,6 Ncncas1I financinClJnd inwstmg actM~s \.....\l,.........l Cornnbutions of net assets to unconsolidllted businesses 681.8 Contribtrtlons to partnerships 73.0 ~ZZ).l ,., ".' " " ..;. . ,..' f ,'~ > . ..' ~, . ., rs ~--;r._--- '. .- ~ I{.r...' l' r: \\\'1 ~ ) I 'r y, ,(.. ,'if 'Ci' I \<t. " J ormation '" lI1.llo"sl :&tts 1,499.9 1.124.1 ,128.5 357.5 98. 545.2 ur lease as Other ... IIOUIONS I US7 3.575.4 1.089.7 618.1 279.9 245.8 157.5 5,966.4 643.0 597.8 114.2 1.355.0 "I \l'\1IO"U .... :letS 1.667.9 1.162.5 - (';V'I \"v',.. \"" ", " ,I' ",,'1 ','f' ,', '~"'.,. """ ,,(, j' ,. '~' """" /' '\' \' , ~", ,,, 'Tr' 1" !j',~ V, .,:~ "~~;:~''-'\'>/\ ,'1 ~\;)A'~';';'I';:; :/\~,,\{;,/,'~?fc,,~,.t~:',~\ ~S\'?N,~~tC(:~,.'F:!~~~,C,' .,P)I\!fo,ta'I~~\~rC/'~Jts':~"!/'\'-;"~\'\}I;' ;/.' e>y(' :'>'{", l;!..~) , . , . "\ ~ , ~ ' . \' , \ I -\ -,f' "\ . ~ , -.... I.' ,~ I I 1 \ Q ..,.lY.-_ Adjwtments include spedal items and line itelD reclassific:ations. Special itmu included merger-related costs (lee Note 2), retirement incentives (see Note IS). and other charges. The effect o( these special items OD each of the segment's Det inc:ome is provided in the following tJb~e: ' . IOou,... ,.. IIIUIO"-') lUM _--.- U. 1191 1!96 2M? :~.r-""",\ i. / "'7'"".' Dc:m.1Iidic T.1IcGm 2,382.1 I s 2.016.51 s R\n)Orted net Income $ 2.413,4 Spedalltems " 790.4 976.8 377.1 Mjw;ted net lnc<lme $ 3.172.5 $ 2,993.3 S 2,790.5 GlkUI WiI'11ess Repomd net InCOlTM! $ 50.9 S 112.5 $ 72.9 ~al items 171.6 (17.6) 6.7 Adjusted net Income $ 228.5 S 94.9 $ 79.6 nctwy eported net inc:oma 5 . 661.6 S 563.7 $ 855.0 pcclalltems 22.3 92.9 (269.9) 'usted net Inecme S 683.9 S 656.6 $ 585.1 - BusIneucls eported net Income $ (230.2) $ 28.6 $ 56.9 pedal/tems 365.6 19.8 (45.1) !jUIted not income S 135.4 5 48.4 $ 11.8 Itocr.s J)Of'ted net incoIne S. 100.9 S (200.4) S 3.8 peei&l1terns ' 2.5 320.0 3.4 !iusted net Inccme S 103.4 $ 53.6 5 7.2 DI R S Adj 0I:ItIlr R S /v.j RococdbC Re 5 Adl ~8. "-" IIaII ~"'1Ic - GtE Merpr J -, Bell Atlantic: and GTE Corporation have announced a proposed merger of equals under a definitive merger agreanent dated as of July 27, 1998. Under the terms of the agreement, GTE shareholders will receive 1.22 shares of Bcl1 Atlantic c:ommon sto& for each share of GTE common stock that they own. Bell Atlantic; shareholders will c:ontinue to own their existing shares after the merger. We expec:t the merger to qualify as a pooling of interests. The c:ompletion of the merger is subject to a number of conditions. including certain regulatory approvals. receipt of opinions that the merger will be tax-free. and the approval of the sh.ueholders of both Bell Atlantic: and GTE. , : '..._.1 [19=~_~--'1- The tables that (oHow provide additional financ:ial int related to our consoUd:ued financia1natements: INCOME STATEME"T IfrlFORMATlON loolul. YUas _ DCCIM_:t1. 15'96 ~191 -. 17";,606.9 ..... Taxos other Ulan IncorM $ 1,465.9 S Interest eJ\pense Incurred. net of amounts capitalIZed 1.375.9 1.275.2 Capita/ilea Interest 90.4 81.0 AdvertisIng expense 453.2 397.0 Interest expense incurred includes $40.5 million in 19 million in 1997 and $42.1 million in 1996 related to 0 financing business. Suc:h interest expense is classified Operating Expenses. BALANCE SHEET INF.ORMATIOI( Itt_~ """ ~~ Ac:count5 Pa:rab'e and AccnI8d UabUlties AccountS payable ~ Accrued expenses Accrued vacation pay Acetued salaries and wages Interest payable Accrued taxe 5 3.401.1 1.271.5 634.3 231.9 329.0 237.2 6.105.0 s Otbet CUnent UablZltIcs IIdvance billings and CIJ!lt.DI'Iler deposits Dividend payable Other S 695.7 610.6 132.3 $ 1.438.6 CASH FLOW INFORMATION looLv.'" __~:u.. ~ :1.997 call Paid Income ~s. net of emount5 refunded S 1.369.3 $ 1,402.8 S Int~rllst. net of amounts c:apltalized 1.201.2 1.215.4 I_S $ s $ '\I ' ' .. .. .' .,1 . ./ . ~ . ' . . , ", ....~.\I,<.::~>':~.J;/.! :'f"J I/~ I '~..~t 1."1", !:' '. '''\l.I^X'/'I.~.;'l "'I"\!VI\I{\\\"I'L\;i.~F, )'~\1'11,,1.., "'..'(J~~.L...'.~. "",'..,'tJ'j.' """1' "~'i /y.,~f" /:, ."\\" I..' ,.', /.',\ ,v,;'" \ :', ,<, ,;'1 (.;;'~YI \,/ ()' '" ((1' '/~" leg ,tu ,$,otlspt.!.dateo/,r I nU!'l!;1i11 ~tatc~lIc~tsJY; ',' '.\i,\; ~,'.II>i! :~~ \~'i"I~~' :(.,,1,..: )')" ,i ., \j\':,>,\" <:': "/~ .~ 1\,~~I,1 ,I..{, ',(.~ '1'\ c\ ..~:...),( I"'.~/.{ I .\IJ~J1o( I,/\,.I~I'/'fl\ "., i~,~~'il.:'l".../~.~"'I,""4.,.(.'r).~/I'I,~'~I,\ ,If ft'~'I'~"~,"-;,,\,"..::I'"I~:J'_".'ir' ~. ~~ -~~- --~ ~.~] Effective January 1. 1998, we adopted SFAS No. 130, -kporting Comprehensive lnc:ome." The n"" rules establish standuds for the reporting of comprehenllivr: income and its 'components in (mandai statements. Comprehensive income c:onsisu of net Income and other galm and tosses affecting shareowners' equity tlu.t. pnder generally ac:cepted accounting principles. are exc.Juded from net income. The adoption of 5FAS No. 130 did DOl affect our statement of income, but did affect the })mentation of our 'tat~mtnt of changes in sha.reowners'investment and balance ~hCCL ' ~:\ . Changes in the components of other comprehensive inc:om~ (loss). net of income tax expense (benefit), are as (oUows: loaLl..lu ,H "lillI/H' I 1UIlI", ~as.. 1.991 1997 :af>96 r ...oI!!t.L Il<l ftn~CtmClncyT~~ I I Foreign currency translation acljustmOl1U;, taxes of $1.8. SI1.B) and $(4.7) S (146.4) S (234,0) S 221.8 Less: reclasslfieatJon 8djustn~ 1.:2\ (.11 Net foreign currerlC'J trans!ation adjustments (146.2) (234.0) 221.9 UnroarlzwcJ GIfM (f.naa~ Oft SecurttJe:J UnlllaJlzed holding pins flosses), la:<<t$ of $15.9, SO and Sll.3) 12.0 3.5 (5.8) Less: reclasSifICation adjustments fur e.a1ns realized in net income. taxes of $12.8. $.7 and $.1 10.0 1.2 .1 Net unreall%e1i pains (losses) on &eCUritles 2.0 2.3 ~5.9) tdIItkntIm Pen:stGn Uahlnty Atllllwnent. taxes of $(10.7) 116.7) otMr Compr8MMlYG Income (Loa) $ (160.9) S (231.7) $ 216.0 The components of accumulated other comprehensh"e inc:ome (loss) are 2.S folloW$: IIlOLl.1Jll toe "'1~OlSl Itf ___ 21. U!l8 1991 - -. AId ........-- Foreign curnncy tnlnslDticn edjustments S (699.6) S (553.4) Unreali%etl gains (losses) on f.ealrttJes 2.1 .1 MlnltlQ1\ pc!Mlon Uabillty adjustn~nt {16.7} Accumuleted other camprehensi\0'9 income (Iossl S (714.21 $ (553.31 [21. ~~~(u';-)] (OO~L.lJIS If' JiIl.L~"S, net,... ,rli .H.Ur UlCuHUI Ooetaun& 0gemanc. rnc_l~sl kfcft ~lttm rift QIIM11Jt - R ItYeI'\Ue$ II'lCOme NI1Out'II Per~ Pe1~luttll:l ItlCQIfIC (lJ)~'1 :L998 -=- March 33- $ 7,651.1 S 1.712.0 ~ 909.6 $ .58 S .57 S 89:M June 30 7.927.8 1,952.6 1.027.2 .66 .65 1.020.9 September SO" 7.909.9 1.130.l. (7.2) (.011 l.Ol) (8.11 December 31 8.077 .1 1.832.5 1.061.2 .66 .65 1.059.1 1997 March 31 $ 7.416.5 $1.458.5 S 698.2 S .45 !i .45 S 698.2 June 30 7.707.8 1.847.9 896.8 .58 .57 SSS.S september 30" 7.373.9 421.0 (80.1) (.051 (.05) (SO.l) December 31 7.695.7 1.614.1 940.0 .61 .60 940.0 .. Results of operations for the: third quanc:r of 1998 include approximately 51,100 mUlion lafter-uxl of cosU au<<iated with the completion of our retire. ment incentive program. as well as charges lO adjust the Qrrying values of two Aslan investments and to write.down ~ts. .. Resulu of operations for the third qu.tner of 1997 include approximatel)" 51.050 million (after-taxi of costs incurred in connection with consQlidating oper- ations and combining the organizations of Bell ^tlantie and NYNEX and for other special items arising during the quarter, as well 15 cmrges associated with the completion of the m<<gu and with our retircmr:nt incentive program. Jncome (lo>>) before extraordinary item per common share is tomputed independently for each quarter and the sum of the quartetS may not equal the annual amount. ......u.,.. ------~ ~-----~-- --~ , ' ," I ~i . + . ), i' .r) , , : I '~;. ~'l;v.'/\. '.", -, '".I~ : ~ \' f .; ,-"" - --'T~,:~~~___ ~ .. , " " : " ',I; , ,; , I "': I,' "< . I' ", ., 'c ~ . " ,.I , I ::' ,/ I ~ ,/. .' 1 . e'i I .. .":>' ~.1,,}<"'J :,' '(~.~. ... '. ,.. .,"'... . (\..' ". We, the m:UJ~gement of BeU Atlantic Corporation, are rcsponsible for the consoUdated financW sutements and the information and repreR11tatlons contained in this report. The financial statementS hive been prtpared in con{onnity with generally accepted a~ount- lng principles and include amounts baJcd on management's best esumatts and judgments. Finlnc:ial ;n{ormation elsewhere in this. : rtpOrt is eonsisunt with that in the financial statements. . Management bas t$tablUbed and maintained I system of internal , control which is designed to provide reasonable assurance that errors or lrreguluities that ~puld be material to the financial $tate- " ments an! prevented or would be dete~ed within a timely period. The syst~ of internal control includes widely commwtic.ated state- . menU of policies and busineu practices, which are dcsigned to require all employees to maintain high ethical Standards in the, conduct of our bwiness. The internaJ controls are augmented by otgani%ational arrangements that provide for appropriate delegation of 4uthority and diruion of responsibility and by a program of internal audits. , The financial statements h.m: been audi~ by Pric:eYntcrhoweCoopers UP, indtpcndent acwUlltaDU, nlm audit WJS Q)ndu~ in accor. d.a.nce with generally acc:epted auditing standards and included an evaluation of our internal conuol strUcture 2l1d ,e1eaive tests of tn.J1Uctions. The Report of Independent ACCOlUltants appears on ,this page. The Audit Committee of the Board o~ Directors, which is com~d solely of outside directors. meets pcriodic:aUy with the independent accountants, m.anagement and intem41 luditon to review 2CCOunting. auditing. intema1 controls. litigation and. financial reporting matters. Both die internal auditors and the independent accountmts have ~ aCCC$S to the Audit Committee without J11IJUgement present. \~"'- ~ Ivan G. Seiden~erg . \ Chairman of the Board and Chief Executive Offker -... ~~ r+~ Frederic: V. Salerno Senior Executive Vice President and Chief Financial Officerl Strategy and Business Devdopmenr J:bret/L Q. ~O~ I \.~..yiT Doreen A. Toben Vic:e President-Controller --,~... / i, ",' j>,." e.~or )'0 n cpcmcn: cc'quI1 ~'191'\\'\'(1''f. ,:.\;- ~/\/ :,. \:.1~:,11I,/.',.~\,./~ \-\,1,<1 r..~\,\ \,' ." ,IL,I.:", ~ ,?J;.JI'\J "~I; I TO THI 'OAItD 01' DIRlcrDRIi AND snAREOWNER! OF BELL ATlANTIC COIPORAnON: In our opinion, the consolld.tted financial statements lined in the .c:companying index present fairly, in all material respects, the financla.l position of Bell Adantic Corporation and its subsidiaries it December 31,1998 ancl1997, and the rt$wu o{their opentions and their cash flows for each o{ the three years in the period ended Dec:cmbcr 31, 1998, in conformity with generally accepted aCcount- ing prindples. In addition, in our opinion, the financial statement schedule liued in the accompanying Index presents fairly, in all material respec:u, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial st;nements and fimncial statement schedule are the responsibility of the Company's management: our responsibility is to txpn!ss an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits of these m,tements in accordance with generally accepted auditing standards which require that we plan and perform the: audit to obtain reasonable assuranc:c about whether the financial statements are Crte o{ mnterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the finlDdzl statmtcnts. assessing the accounting principl!':s used and significant ~timates made by management, and evaluating the over- all financial statement presentation. We believe that our audiu provide a reuonable basis for the opinion expressed above. As discussed in Note 1 to the consolidated finllnciaJ statements, in 1996. the Company changed iu method of accounting for directory publi$bing revenues and c:xptnse$, u/ New York, New York February 9,1999 --- I ,,:,~~::," '::\: ;,;: '. : 'I:~~:.' " .;,~ :"::.:! ~'> ' l.' . , ;. . ,.,. . . . ..~ I;~... I', " I \ . . . + :', ~ .' ': 1 :;~I:;\,,: ,:' , ,", ' , " 'il, II, . <.. ;,", l: , ; , .. , . .j. ;~ d '. ,},. .' ~.;:' ~I;' .. ,'I. '.'1' ',;, . " .] :'1. ,. " .. ;.1' ," " .~ c ~ ; I ' , 't,. .' , ~.;c:; '.~. . , .: \~ ! . ' .:, ". t, Ie. c , ' 'J..' " .:' ' , />.) .>"~ i -";', : i ' ~ .~ I , . J " \ ..' ',' ',!'" -::/';:',::;:\":~'::':" ,,,.:,:,'. , 't", q.. I . .. '.. l., ,t:. ': '., I. ',,",,: c ~ . " ' " ~i?/;,:'::,.':'.', . ~.. '~l , , . " ,.' . .' " . I' . '\ ,c.", . I , , " ' ;' .' j ~ " .,. > . . . .\' ~.\'JI'i.r."{r~"'~~~r~~~\'~\'~';L~Ji,il~;tl~;ri'" .....\~ , ,>:' <. <': :" ,', ijf ~d<\ ~i .l;r.c .'c!..\.........!./1.li ~\I./ "'\'.!i~.""~."'h'" ... ,I..~ ..' ~'i ,"'I.'j./....;,. .~.lfi'".~~~, .j.rr~Fl/'l.'~('('~(.~~~"~:~ , ; :.' .. ~; t. ~ c I . . .t .,"; 'I'... ,f ~ ~ )~I}!~ "" ,~' : "'~' C1C' U,C, - nUll Jonnn UOII YIIl 'ccout!!:f:.' !'",(.',", '~':I'''-,'':''',,\, "/,'II,':,.~" ,.,'\' '\, l.t !'_\~:-~., 't'~\\/~"I' J.\,-" ~(\I> \"./',_1 . j\ ,~< ....~l.. f.... : I'\~'", ,,\~~''';r\'\'''''~I'.\''',\ ....Itl/l.'; /...I..,\J......j. .I~t ~'" / ", \".~ ,....I.,'...~III"", ~ , , . . '" ',' 1 . ~ . . "I. .' r , ' . n- , " ........ . /. , '. ~ l.~ I ,o~ floIE 'lUll' I"OIllIlICl"U~ :11. 11n. 119' &"0 11M It<lLUU '" UJurOli$) ,"--\,. ~ , ....., at ChafCtd 10 Il~ CtlfIlW1t To 0tNf~ o.~ .".,. Irt . ~.... .. P*ItOd bpt.-s Hog (I) Nclt8 (b) End of PIrtod Al~ tor Urw:oIlctCtlbl~ Accounts RecelvaOlo: 'ibat1998 S 6U.9 S 460.5 S 577.9 $ 1,057.0 $ 593.3 Year 1997 566.7 ' 530.5 557.3 1.042.6 611.9 Year 1996 475.0 493.7 554.6, 956.6 566.7 ,,' ~U8tJOn Allowanco for Deferrod Tax Assets: Year 1998 $ ,79.4 $ 276.3 S '$ 38.5 $ 317.2' Year 1997 .. 44.8 64.7 .5 30.6 79.4 , Year 199$ 39.3 14.2 1.3 10.0 44.8 . ., . , ' RoStructuTing Reserves: Year 1998 $ 149.6 S $ :... $ 95.1 $ 54.5 " , Yeer 1997 .330.1 180.5 149.6 , Yew 1996 700~6 '370.5 330.1 \, ' . Allowance For Uncollectible f1nanl:e l.ea!e RecelveIJle: Year,199B $ 24.9 $ 5.0 $ 7.4 S $ 37.3 Year 1997. 23,8 12.9 11.8 24.9 Yeer 1996 24.3 .5 23.8 .,' I , ' '. (a) Allowance ror Ull.co1kcu"ble Accounts Receivabl: inc:tudu (1) mlottnts previously writtea off whkh wert aedlud dit<<tly to this aaoun! ....bm reeovered. ... .~. ' . and (1) ~ cb&rgtd 10 IC:COunU pJYable for anticipatl:d uncollectible charges Cln purdwes of atcounts rteeivab\e from othen ....hich were billed by us. , Allowance for Unc:.oUeaiblc Fina.na: Le.se ltea:ir.abl~ includes amounts tn.nsferred from other IIC(OUIl.ts., . (b) Amounts ~ttm off as uncollectible or nan.sferrcd to other ICCOunts or utilized (except fo~ the valuation :lUowanct for deferred taX usctSl. ..~ -.- .,......../. i~f-E!,:j >,\':;:,<.,:~ /J::\:r ,,';\:': C'; ~~~~-~--~-,~, \ . . c,"'. ' ; I ~.' , I > > ,;. ' . I , ! I ~ . ~ . .. A .' . ' . ,; ~ ~ ~ " ) , 'J :! . I . }.~.. ..+ I '>~;~\~~~'::.~'~: ..1':', ' . '.<.' '. ':~ '. ~ . ',' ~:i I..... ' . .'e 'j >' ,,: ,I' .' . I . ~ "', , \ ~ ; ,< '. , " " I.' .' , , I. . c.';{ " ..;". ~r;,~'..,.::'!',..::'.:,',:.'.:;,.'d,< : "'.u:/:,'.j' :;., '" ' . .-- . .\~:. ..~':, . -' ~</,:'" ,I :,. I' , ~ l .. .J ,,'\,'t".:. . I " : , " . ~ " c . . ~' . I':. ,'I! . ~",:, '!~ ,,;,:.: {.:~r'~"'!'~tl:'~<;";';::,~,~ ~,:), ; '~":'~'-="'1'.1' :~I.li'~: );~"'~.~,'j ..< - {'c:': \ . .\ :~f . " ~ ; I '. ~ Ie , ." . ~ (I , ...-. ' bit.... lZ ,,( ',) COOu.MS ... ",~uc..sl ~I...&:., .; . ,',. w..___a..' 1HG 1M?- 19M- 1ft!- ' :1994 - Income before '~~~n for Income ,taxl!s. " extDordlnary ltema,-anatumliiat/ve efftct of ,chqes In eccountina principles $ 4,998.9 . S 3.984.1 ,$ 4,911.2 ~ 4.535.0 $ 3,430.8 Minority Interest 32.3 45.6 .130.9, 130.2 ' 48.7 Loss (Income) 1ronl unc:ensolid8ted busmesses 414.6 124.1 (14.2) 22.1 (65.9) OMdenda from unconsolidated businesses 169.4 192.1 194.8 179.0, 168.4 Interest experl$e. 1~ludlrc interest related to " .. Ie.se financing actIvitIos 1.375.9 1.:275.2 1,124.1 1.305.0 1,298.4 f)ortjon of rent expense relriientln& Interest 185.2 190.9, 177.3 177.1 165.6 AmortlzatJon of capitalized Interest 21.7 16.4 10.0 5.4 3.1 Income, all cdjusted S 7.198.0 $ 5.828.4 S 6.534.1 S 6,353.8 $ 5.049.1 Fixed Charges: Interest expense. including Irrtarest rel~ to lease financilli activities S 1.375.9 $ 1.275.2 $ 1,124.1 S 1.305.0 $ 1.298.4 Portion of rent o.xpense representing Interest 185.2 190.9 177.3 177.1 165.6 Coplt8lil:ed interest 90.4 81.0 128.5 73.2 19.1 Priority distributions 18.8 58.5 47.1 .29.9 Preferred stock dividend requIrement 20.5 15.5 14.9 9.8 5.4 Aud Charges $ 1.672.0 $ 1.581.4 $ 1.503.3 $ 1.612.2 $ 1.518.4 1'........ ( \ Ratio of Earnings to Axed Char&es 4.31 3.69 4.35 3.94 3.33 ~."",) .. Remted as required by reyision of lkm S03(d) of Regulation Sol< --- ..~ '. t, j "-; 1.....1 ....-!Il....&.___ . ~ ":, l .>. < ~ , ...." '.. 'l' '."'. . ,.' ~o : ;fc' _I 1 ' . . ~\ ,1./ > I, ,,' , ' '.' ,t .t.' , i,l " , , " , " .' I . < ~ ;/' ' I . , c . .'j.l;{~~t'/ :'.:,r~'t J','."?-,;". .!"~',.~.~" I' ..r.:~. ~:'/ ~. ~ , >' . ..: ,p ..~. f;'.' .... . ,'. 1 .' . ~.. '. UnitrJ SWa ',..-'" Stanirit;, and &cJump'CAmm~ , " }:~ir ~ashingmn. D.C. 205f9 (Mark one) , 3rd Quarter (xl.Quanerly Repon Pursuant to Section 13 or lS(d) of the Securities Exthange Act or 1934 .. For the qlW'krly period aukd SqJttmbtr 30, iggg . -- -... or [ ] 'funmiOD Report Pursumt to Section 13 or IS(d) of the Seauities Extbange Act or 1934 For the rrlmmian period from to ' , CommlsslOn file number 1-8606 i ,.........~ I I' ' , '.........1 \'~~.:~,;;)~~ r{/\/.~~'~~I::~:t'.,~I,."'{ ~~,\~t' ~J~ 1~ ,~~:t'<'~'f'.:! 't/1:.'.:?,( '.t'\,,;JB;. 1~\'\III"'.~:-;':}~'\~1 t, 'Vq' I ~\.i~ \,!1\.{~t~)~:.'.~. \~I~'tl.' ."~ ."+ ~ ::t.'~:i:,'\ ~.}! \\iJ '/;'/ ~.~ ~'.:, ~;'..~\';;\ T.\~,\\' \\1 :l;\\Vj~'!'.':)hf.-':,~;' ., ~'i\;;l; "+~u :~?J")'~ i ~~f<~'<J )~I;\ () "'~'.,,,>:;,,; v~;,. ~~ <1'~'\/I.t., I~: e .'1-\' a _I.; Ct~vv, '~ ora ron l\i......~+.~l..L.~Vf. i'~.;I,;>.<.~~.;,\;~ >~;, ~.'};'i.~\\:~ ~. !~(.;/~. ~~1,'.J~\~.,'. \'~ ~,~;.~:~, L.,;{~~~~;\r.'?' ~ ~1"':"i~L' :.'? '/,i:>.t>, ~;;LJ; ',t !.~' ~~/':.' ',~t'; ;.: ~.r~ I" \"\:~ ~'~I j, J.:~ \{,L:. :~/~ '~~l) :1") ~~~ I..~' \.:~ ;~l"~-;:\ \{'!6 ;!"J0"'''~ ..\:-{ \ttsl ~/r~,.~f i ~ ~~ ?"~l~'i'~~~\Y'i:::~\~1 ~~t,(~I~~(? :':\\~':'t,^ (Ema namcl of regisrranr lU sp<<iJied in its charter) I>dJn.l-are (Sf4U of inaJrporation) 109S A>n:nue of the Americ:as New York. New York (Addn:ss of principal txmltM offias) 10036 (Zip Code) 23-2259884 (I.R.S. Emp~r ldentifianion No.) Registrant's telephone number, including area code: (212) 395-2121 - - , 00::. Indic.atc by check mark whether the registrant (1) has filed all reports required to be filed by Sec:tion 13 or 15(0) of the Sec:urities Exc:hange Act of 1934 during the preetding 12 months (or for such shorter period that the registrant wu required to file such reporu), and (2) has been subject to such filing requircm~ts for the past 90 days. Yes..ll!. No_ . At September 30, 1999, 1,552,785.938 shazes or the registrant's Common Stock were outstanding. after deducting 23.460.387 shares held in treasury. "-./ 1!-,~,'.:,:J,':,".;'.5,:'.,>),f ,j:':,~?(!;~~,::;:,'~~:~P,\,~':-.~-'::: ',. " :' .."', ' ... . i . .~.":'! ;. I " ~" ' ; :--;~. "',~:: ;.... " ~ . > . ,. . ~~ t.,,'.j;,<...~, ~ \ . .' .," L'L. .. . ,1 .'. ~..: '. .' ' . . H' . ::iT,S.:':,", '\:') ,"", " ~. ~~. : '.' ::"', ;,. - ...':<.., ,:::",( :, . ,,' ';\,:: ,'; ':,;' , , ' , ' ,.,' ,: ~,' " ;. I . , " :1: . . I ' .1 lJ .... 1.' . \ . . . , . .(\' . . ~ l . ", ~ . '. /. I,,'. . . C l, ~:~,:i-:,' 'd; '<:'\':';!~';;";:::'!"',,;" " '.' ',' ,,' :~;;;":l"j-ri/<\'flifi:~~'':.~;'~:,~;;,(;",~~,:)~~;~~ ;_ ',; ~,":::~::;~I.:~~'~~" ~.,\:, ~~;!.v",,,::,"': ~:',.,: ,,:: '.' ,. .,' 1 '.' t ~ ", ", .>! '. , (~~' ", 1 , ' , .' , i " .. , .L (. > , , : ~ ,." .,'..'1' .",' '." . .' ,i' \ ~ ~ ~'~ J, " , ,<.': ..... ~ . '.. .. ' '" /: .' , , ',:0, ',1 ;Yi;I(~(6h: 'n'h;Ms~\"); j":.., /- ',',I~' ;:, "I~?b .l\,/'\( :~ \\~,t, '. ,g j?',":';'~ ., T ...., ~"., \ , ... ... \.1 I} \". , ..,' 1.\., \ ~ .\ I, ~ \, , , Item No. Part I. FlRincfal fnfon113tion ,Page 1. financial Statements , " ~ ConmoIdated Statements of Income , "FOrthe thffHi and nine months ended September 30, 1999 and 19$8 , ',,' ' .,' .... " . . 2-3 405, .' 6 .7 8..16 17-37 37 ' Cctndensed .~ Batance sheets ' ~temb9r 30., 1999 and December 31, 1998 . ,~ Consolidated Statement of ChaJ1gaS in SharDO\Vners' Investment Forthe r'lne months ended September 30, 1999 ' : f ,'.' ". >.\ . ~: . \ . " COndensed COnsolidated Statements of Cash FlOws' , "For the nine months endod September 30, 1999 and 1998 , '. ~." . : ., ' .;' ." , Notes to Corlder1s1!d Conso6dated FinandaI StatementS' . ~ ;. " ,,'. 2. M~t's Ditcnsball and Analysis Of F'manciaI eondmon and . Results of Operations , ..~, (~' , , 3.' Quantitative and Qualitative Disclosur8s About Market Risk Palt II. Other Infonnation G. Exhibits and RepOrts on Fonn 8-K 31 - - "'" " "J ~'1 '. .,' . t: .. ----~-------~-------_....... "'-~~----:--------~~~--._-.-.--.. . ,.' .'. . . ~: ". ~ ' '" . ,,:' ."J...: :/ ' ,; t'~:! ',:. /,r:;":~ I,!.:; ...). . , , d..;, :1/;"'H\~I1- ("t' <1~,I" . ,.,.,:.11 P:l '. I' 'j,. >,. . ,'. . I ~ ',"P.a'~ 'f.;~: F)'~'~fl~Ci~\~I~if()rmatY "n/\(;);' "~II: ~"", \ \.:/ I :'~ \i'i, ',', ,-/';,', ,1/ .,", ~ " '\l','i' ...,~ \' , I I' ~ r,q " " . "1I' ,. r \ .\ ~.~ .". . ," \..... ~ ,. \\ . r- 1" '. ) '~','./ ttem 1. FInancial Statements . -.......-"',. Condensed ConsoUdated Statements of Income Bell AUantic Corporation and Subsidiaries ,~ ' 'n~in~,Excep!P!!L~!i!~~),~,__~.___'.._._,__. _. _. ,__,____ ~,~_E;!'!d~~3ii,~~ , ~ 1999 19!18 . ~~B!-~'~-.~~~._.~~~:~~~~"=~.~ '.-=-'-_'~~ "~~.'~~_. ." ' ."' ___......_.-=.=~_~8::~Q~._ ....,-.~f.9I( ,~~&- _En1plo~ cosls. including_benefits and taKes ~recialion and amortization Other operating e~nses -2:083-----2',792:- 1 .557 - 11~7-0~ 2,546 ; 2.518 . 6,186 6.780 ' 2.118 ' t~3~ 53 ~ __.. Jf~~t 12 ' 43 309 ' - "35'9~ \ , Operatklg Income , Jncome {loss) .from uncol!..s..olidated busine~ . Other Income and (expen~), net ;J.n...1!-rost expense _Income before provision for incqrne tax~~!ld extraordinary item Provision for income taxes 1,874 ' 700 355 "-362' 1,174 ' , m~ , Inccme (Lass) Befora Ext:raoninary Item "EXtraordinary Item ._ Eattv extinguishment of debt. net of tax Hat i~tl.O$S) - ..-- ~ .' - , ...-... -... - '..-, '""(it $1.174' $ .em, _ p. ._... .... +__ ......._.~.. '....'_ ..."._ ~...._._._ ...... .__.....__._.. ...... _......P_. .....1_... ...-...__.............._. ,~.~~jL~),~r9?rrr!!!~.S~~:, .." " . '.'_, _ ,._,____. - '..,..-" -..., ..- J!I.~ome (Iossl_before ~xtrap"~in.~J~~I!'_ ,_ ,,___ .. _ ___.___ __ ._, _.__ .__l.._=.?~_._..,-,_ ~,.<:9.1 >- ._Extraordinary item .___ ____ ___... _____ ~tlncome(~) ___-_____________.__ $ .76 S (.01) W.el.9ht~~.I!~!!ha~ .C?u~J!.Qdll')g Jl1l.rt!m!2.rr~L..___. '_'''__'___ ,1.553 -1.553 .... .. - ~~J:~:nit~.~)~~,m,':"~.S~L._. _,_____. 0, ____...._. ... _.. .._ _'_'. ,., . ,.' " ,It:l~rT1f!.(!I?~),~!ore_e~~'?_rEL~!Y.ltem_.. _.~___,__, ______.. _._..m _....__.__._ ~__..74 ___. __$4.01) ~~ord~n!!YJtem "'U_"__~__ _ ,..___..____._..__~.._,& .. ,_.. - --'lIot Income (Loss) $ .74 $ (.01) Wei9.!:!~'d-avera~ 's~res":' dUtiif!d. Q~ l!!fiIIQ~jj~,'=-==_==-= ~~',' _~ ,~~:'-----' --- "1:~:f85'-" .' .., "1- . 553 .!J.Jyide~ci~jie'9i~~. ~i' Common-share ~=--. .-.....-- -.-'$' .385 $ .385 . ~.........,. " See Notes to Condensed Consolidated Financial Statements. . ' , :'P . ,_' I, ' :',1 '. ~ , " ,,' :. ; ;';" . " . "c., c, ',' . '. ", ; ',' > 1".. :., ~ I ' , ' " , " . .i i: ~':/ " )"..t ."~ I :..~, ,".' ,~\ !T.,:}\:.~':~ ',\" . !. :~ i' i, c" /*) , . .,+.:.t.<, I~~""'" { 'j ""....;1 ~ ,I --- ~ \.\~ .~ .. , Condensed ConsoUdated Statements of Income Bell AtJentic Corporation and Subsidiaries Nn. Monms "'Eniitd~30.-"- 1999 19S8 f fDollarl ir'l Millions. &cept Per Shft AlMumslllJnauditedl L " , '. .....Qpeming RevenutlS $23.48~.; ,_._.__$~4r.~~!?,., ' -----:--- ..----.---.--..-, .-...-. " ,; Opcmti~ Expanses .__. ,I Employee costs, incfuding benf!fita~!l_t!~____ t Depreciation and amortization :'.~~""!"'X{Jen:ses ~_,---.: ,__.. _____._ _.__. .__.._.,_ ,'_._. : _Q~eratitI\JJ~ --:-- :::_-:_-~..~',:-'~~.- ~~-~:-~. . ~:..._., ~~'~~~~=-=-:~'''',' .. "'-':' _ _ ..... . Income (Iosst ~ unconsolidi!lt~ bu~!n..~~___ Other income and (oxpense).~n~L___.____.____~_ ; Interest!!e!!!!! -.-- .. _ '..' ... ,..- . ,.---.- 6.152 7,212 4.602 I .. --"4:'326~ 7.469 I 7,156 18.223 . 18,694 6.1~~._,., ._h. _4.7~5.,. 124 . .~-.!462) 35 99 939 1,032 .- "5:563'..... ......_.3;40Q~. 2.074 1,470 . Income befo~' ~r~'ViSion for'!!t.E=_~m'~.~a.~_and' C~~~rE!l}a~~~~m'" - -.. " _U' ___ _~~orinco~!!-_...,_,.,..__...__,_.,... ,......._._,.___.__.,.... .... 1.930 --.., - Income Before Exttaordlnasy Item 3,489 . , . ..... . 4_......__.___...__.____._.__. ... , ... _..___... .__..__. .._.______ _.. ___. _ .... c_ ____ Extraordinary item _____ Earlv extinll~shmem~~!t~lJ~____ ---...------... 46) . 124) ---'-3:483""'-;:906' . (2) $ 3.483 $ 1.904 . __+__.". ._. . '___c_"_'''_ .._.,. .... __. _._._._..._.__.___..___..________, Net Income .. Redemption of investee preferred sto~ ;".Net Income A~~le to Con:t~_ ~~~1Nners '.~ Earnings Per Common ShareL_.____, -=:===--==...-=-._._~__ Income available to common shareowners befo!!...!.~ordinary item '. Extraordina!y' kern _.__..__.__.._.___.___ " ._.__ , Net Income Avanabt\l to Common Shantowners ... _..___.._____t _ .. ........____......_..c.____..__..__ ~...I... $ 2.25 (.01) $ 2.24 _..L 1 .21_ (.01) $ 1.2~, , ~~,~~_aY~~a9t! ~t'!.IU'!!.9~~~n~1r'!g. !.!n.m~ljp.!!~L.., ... _ _"...__. ._.... _ 1.553 - 1.553 ' " Diluted Eamln9s Per Common Sh!!!:.-_____.,_ __.., _ Income avaj~l!I!!.~ to. ~'!!.!!~~a~~~D~':S ,l?ell?..r~u~ma..C!~di!lE!ryj~~_ ,_ _ _ .__ ____ ... Extraordi~aryJ.!~______ ._... _,.. ___ __.....__ . __ _ _.._. _.._, _ ., . ..____ Net Income AvaU~..9..C!!E.~~_s.~~~_':.'!~_., ____ ..__ _.._....._ .. . .--....-::::.-. ":- $ 2.21 (.01) $ 2.20 _~_..Y1.. , 1.01) $ 1.21 '..wstg-l)Jed-.'?~~iia!!~~~!!~S - dilut~d I!n ~JI!t9.~!!t ' . .. 1.583 ' 1.577 .. -..-..... ,. -... -- ,-.~ ...- " Di,!,iden<#s declared per common share . . _, ..._ ~_ ..._... __.......__.__T ,.___." _ .".., ,.. 01.155 $ 1.155 See Notes to Condensed Consolldatcd Financial Stilternems. "l ~~W:1}~/':?? ??;:::":,; /,{; ," I.~ ~. \'> '. l. ':'. .1'.:.... .. 'C C,' .,1< .~:,I: ", ,', ,........ , ',. ~ : I' '. ~ : J.,:' '( (;:::::r:';l':' :', ;'...c./ T: :': . ~ . . ; : " " ',<' .c' ; . "iI... I'. ~ .0 t I' . ..,. . . . <~.~_, I j, i,", >,'1 ' " '?:\.~'~':'C;I~,: I <' .. \ ~. ll':' . .~. :' ~':, I . :' . cl;:' , ,j {.J' ; .. ~ ....; .'< ."'.:' .:~ , ~' . ~ '. " ~ ... .,.. ".+ <l', ,<,' '"I. ., ::/ :,>,Y~:~"..~>: ,I' "i': '. .', i. .. J ':.:.:...". \ . C. T '", ~ l~,:, "" :; '. ,',; ~. . . .;',: , C,' . ',. 'i~,' '. . .~: 'l .:1 , :'1 .,' ;/- , ,," .' > ;' ~ " I 'I, , \'-';. I >, .," ,. . }.'~. >' ~I.; ',~ .::.::~~'I:>.. ./ , ,q.; I '\ '. . ::..,. ~< . / ~ ., ~ ",' '., ' ,. i' '. T< > , " , t' ;,' i~~f",;,,~:~:,\'!'~i>}t~~;~.t~n~:'.~~;~:'~;:' ~:/~~" ,::" ,"'" ',~~ "', .(-:4r ..,.......:. ., 4 .'J ,,~. :<1"1...+. " :~,!.,'h.~....~t{lrl.r.~"";;",.,,;...""':"'.~ I . I' '.,.,' " ',J . // ': , " . . c~ ~ '" '"1'" '. , ....'.',- .... .",J , ~ ~ '. "",. , . , , .. " .~ .. c I\,,' .... . ," ~, ~:', : l" \. Ii' CondenSed Consolidated Balance Sheets Bell Atfantlc Corporation and Subsidiaries t'~ ", '. , I [ AIMts J I' I' ',/ ., .\', .\ (~ In ~ons) l~tdl ~b!IrIbtlIf 30. I 1099 ~3J!_: . 1998 ' Sf/" ? " ~ CUrrent Aaeu , Can _ canh equivalents f'Short-term Investments .___ __.__~____,_ __3....., ; Accounts receiv4ble. net of allowances of $607 and $593 ; Inventories ! Prepaid expefISeS i Other !" --- (; 237; 35 7se -=:--~:929 ! --6,560'.': 624 ' 566 ...----... -+.- ... -,. "710:-"- --"-.522- 335 411 8.897 9.082 .~: ----- $ 264 :1. '" I:: '. , " " Aant. ~y and EQub:ament ! 'Leas accumulated depreciation , l,-If , I Investn'NNIt1S In Uncon5oGdated Businesses 0thIr Aucts Total Aseets . ____ 4.~ill, 4,970 $55,144 -.~-"-I 87,739 !, 49,380 : 38.359 ! , ! 5,919 ! 5.847 $59,022 83,064 46,248 36.816 \i e, $S = -:;. , , , I \(/l"''' See Notes to Condensed Consolidated Financial Statements. 4 1<<" tlj:-',', ':" '.' .', .+;.. . .. :' I J c.' !' ,.{ " , , ., I ,', ." ".1' ',,' i ~ / _, .'~ ~ l"('. : t ~:'.. .\.~':." ~,,:: :1. . ',t ' .~'T~~:, ..:,Y:.~oj""t,.~,. t r-::r , '~'~1t CondenHd Conso&dated Balance sIweU Bean Atfanttc Corporation end Subsidiaries ~.. 81d s~, 'nvestment SaI~ 30. I P-n- 31. 1999 t 1998 : - ,I ....--: $ 3 286 ' $ 2,988 " 6550 6.105 1.533 1.438 I 1 1 .369 ~ 10.531 !' Long-tenO Debt 17.463 I 17,646 I Employee BeMfit obligmtions 9.661 I 10.384 . 1 I ~ ~feznd Cl'&dts and Other Utbmties .... I 3.469 -l 2,254 I [Hferred income taXeS ' i Unamortized investment tax credits 203 ! 222 ! Other ' ' 697 551 ,--- 4,369 3.027 , ! . Minority Interut, IncIucIma a Ponion ~ to ~ ~~nts 450 330 i P\llfemad Stock of 201 201 . , ./..~-...... \1t...J ! Less common stock in trellSUry. at cost I Less deferred compensation - employee stock ownership plans 158 13.533 2,757 174 16,622 632 481 15.509 $59.022 158 13.368 1.371 C714J 14.18a 593 565 13.025 $55.144 I J~. , 1 : TouIlJabiitin and stwoowners' Investment ~ ... -::. " I _r' See Notes to Condensed Consolidated Financial Statements. 0: '~<,>'::;' :::~~ :' ';." , . , . .' 'Jo' . ',. fc ,. . . 1 ~ ... .' . . , , ,. ':," I ,". , . " ;i.. ._---~~~~--_.,. -.. #..r. . I , , ' ,: ~ I' ~ .,' ", . " ,;.. ':,~, . : ~. . " I '/ ,', . .> ~ t .'.> , . , ; ,'J ',' " , ' ...., ' . ' '" \ ' , ..".\ . 'I" <', ,j. '. " , , ',f:' .' ~~. ~'~~t!t;~.',~:~P~~~~',~:t~!~c:.:.<J11,:~:t:, ~.:~v..1.~'h'\:':-':"": I' I' .... Condensed Consolidated Statement of Changes in Shareowners# Investment, " Bell Atlantic Corporation and Subsidiaries .''''..............., , (00~l'S In MilUoMlnd Shal"llS in Thousrndsl (Unaudited) Nine ~&dtd ~,30.1999~ S"-s ' Amotm ' , Common Stock ~ lMfance at beginning end end of period 1.576.246 ' $ 158 j , Contributed Capitat Balance at beglnnfng~riod . Shares distributed: '. ,_.~'p'lo'l.~J?la,!!_ ..~..~ .. _ . ,.. H... . .. _ Sale of stock by subsidia!y __._____ ,_.__ __.____ :.~llI!.~~ en~LJ!~riocL.:H_._._.. _'__'_ __,_____... _ .... ,_____. ...~ __l?,.:t~.L ..; .. ,__,..'._. ,.__.1.?1._: 44 13,533 . ~ed Earnings Balance at beginnln~eriod , Net Income Dividends declared : Shares distributed: Employee plans , Tax beMfJt of dividends paid to ESOPs I &Iance at end of period _AccumuIatad Othet' ~ Income (~) , Balance at beginning of period '. .~OO currency. tnlnSlation ad~~nents. net of tax Urvealized gains on securities. net of tax . Balance at end of period ,_..1,371 3.483 Ji: 7~3)' {311 L: 7 2.757 , (7141 __'___'_'.. ,. J~4).. 952 174 TteasUr{ Stock , Balance at ~a&~.riod .____._. _ ~.~ __ 22,887 : 593 Shares purctu1sed 10,757 , 633 _5hares_ct~buted= ____.._,. __._ __,__._.._____ .. ., ____.___. ___ ____._,... '. ._, Emplovee plans "'___~_' (10.170) , (59~), :'.-!!!I!!!~J!!.'p'la.!!.L__.__.___._.______________.. ....__. ." (14t (1) Balance at end of period 23.460 " 632 ....- --.--..-....------.......- ..- .-... ... ....--...,. .-----.... ......-..~ . .._-.-_. , -_~_ __....._ ...__. ... .............__+t ____...._ _. ____.._____ _,________ _Deferred C~nsation - ~~p.!_,..._., _,.____________ _ . .. Ba~a~!.~ ~ginni!19.,!?Lp~r,ip~.__ __.. ,_ ._. _ ....__ ...._ "h_ ___ ' . Amortization . Balance at end of period ___________.____ ~~- --'."'-565' . ------ - ,-..- ., ....,..--..-., . ''""{81L ___ ~81 .--------.~$15~ifo9. , , Total Shareowners' InvestrniJnt \''''l;;:j,t."t See Notes to Condensed Consolidated Financial Statemems. ~ i; :~': ,,: ~, . :~. , > " ' ___~T_______.__ _____~____ I . ' ~ , , ',' : ,J ".,' i . I ", .... . '.'.1"...'. . . , , '" '/ ' , , 'J .," '. '1' , ." ~':I ? i;",' ~: \ ...:::1.;...... "",, h.';" , ... > T ~ ...' : r; . ~ .,1 '.' . :~ . >'. ...~~; Condensed Consolidated Statements of Cash Aow$ Bell Atlantic Corporation and Subsidiaries ~ 7DOia.1 ~ MiIlionll) CUnalJClUd) ----;'".... ----- Nine ~ Ended S4Ipt/!n'ICet 30. 1999 1998 . , , Cah Rows From Operating Activities Net income . Adjustments to reconcile net income to net cash provided by operating actMtios: Depreciation and amortization Extraordinary item. net of tax loIS (income. from unconsolidated businesses Dividends received from unconsolidated businesses Amortization of UfU!ll!med ,lea!~J!l..P_o!'?f!__ .____ Deferred incomo taxes. net Investment tax credits . -. otherftetn"D:n;t-'" ,-. -, ~-~,_.._- - --- . ... _.f!1!.~ ifl_E!~~_~~~ .!!.n.d J~~b.!!~~~~. rr~~!'~ e!1e~_ fraIT' :___._ __. BCQuisltion/dlsC!os!tion of businesses Net cash provided by~..l!!!a.!!~!!!~_W_"____ $3.483 . $1,906 4.602 : 4,326 , 6. 24 (124) I 462 : 84 ~ 129 . (1101' (87..; 632 ; (19) , (19) i [221.. 122 ; 232 ..__.......~_...... (1,271) : 399 7.405 7,360 : 742. 560 . (5.816) (5.421l. (872) , (529)' 612 ; 21 (128) (39)' (5,462) I (5,408) , --.... l' lrt" '":\ t I \........... Cash Rowa From Irrvating Activitie$ Net change in short-term investments Additions to plant. property and equipment Investments in unconsolidated bU!linesses. net , Proceeds from dbFposition of buslnessos . pther inves1in.R~vitie5, net _._. , ,~!l,eash.~~jn_lnv~_aE!iYi~tl!;! ,_._____.+__ ... "-------------.-- . Cash Rows From Rnancing Activities . J:.roceeds from bO!!Pwi.~s_.,____ ______ , Principel repayments of borro\Yi~ and cl1pitallease obligations Early extinguishment of debt Net change In $hort-tennJ~orrDwing$ with original maturities of three months or less -'~!~ceeds from financ1!!9 of cellular assets Dividends paid Proceeds from sale of common stock Purchase of common stock for treasury Ot:h.et ~~!1clng 8ctiviti~. ne~. ' .... _, ..._._.,,' " Net cash us~ in financing. activiti~ . _.___ 278 I 6,105 . ~._~(7'1G):--(5'06) . (257) , (650) 456 ' 380 ' 11.801 ) 283 ' (633) . 94 n,91 6)' (4,562) (1,784) 424 (784) 113 (1,644) -;. . Increase in cash and cash ~uiv~len~._ 9.!5h a.t}~. c_i!:!t:t _~g~iyalents! .begi':l.n.i~9 l?f periC?# ," . . ~~_!!!IcL;.!~ ~quiv8Ients. ,end ,of peri~d - ._, ."2'7--- .. "--'-2'98- 237 ' 323 $ 264' $ 6~ 1 "-) See Notes to Condensed Consolidated Financial Statemems. 7 r " , ...... .'\ , " .;~ . '; \ t f-' ~ < ~ ""'". '. ~, 'J' . . ~ . . " .J,."..,. Notes to Condensed Consolidated Financial Statements Bell Atlantic Corporation and Subsidiaries (Unaudited) 1. Bmiis of Presentation The aca:unpanying unaudited condensed consolidated financial statements have been prepared based upon Securities and Exchange Commission rules that permit reduced disclosure for interim periods. These financial st3tements reflect aU adjustments that are necessary for a fair presentation of results of operations and financial condition for the interim periods shown including nom\al reeuning accruals. The results for the interim periods are , not necessmty indicative of results for the fuJI year. For a more complete discussion of significant accounting poUcies and certain other infonnation, you should refer to the fmancial statements included in our Annual Report on Form It\.K for the year c:nded December 31,1998. " We have reclassified certain amountS from the prior year's data to conform 'to the 1999 presentation. 2. New Accounting Standards Costs of Computer Software Effective January I, 1999, we adopted Statement of Position (SOP) No. 98-1, "Accounting for the Costs of CompU1er Software Developed or Obtained for lntemaI Use!' Under SOP No. 98-1, we capitalize the cost of intemal-use software which has a useful life in excess of oae year. Subsequent additions, modifications or upgrades to intemal-use software are capitalized only to the extent that they allow the software to perform a task it previously did not perform. Software maintenance and training costs are expensed in the period in which they are incurred. Also, we capitalize interest associated with the development of internal-use software. The effect of adopting SOP No. 98-1 was an increase in net income ofapproximat-ely $175 million for the nine months ended September 30. '1999. Com a[Slart-Up Activities Effective January I, 1999. we adopted SOP No. 98-5, "Reporting on the Costs of Start-Up Activities." Under this accounting standard. we expense costs of start-up activities as incurred, including pre-operating. pre-opening and other orga"i~onal costs. The adoption of SOP No. 9g..S did not have a material effect on our results of operations or financial condition because our policy h:1s been generally to expense aU start-up activities. Duivatives and Hedging Activities In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires that all derivatives be measured at fair value and recognized as either assets or liabilities on our balance sheet Changes in the fair values of derivative instruments will be recognized in either earnings or comprehensive incomt::, depending on the designated use nnd effectiveness of the instruments. The F ASS amended this pronouncement in June 1999 to defer the effective date of SF AS No. 133 for one year. Under the amended pronouncement. BeU Atlantic must adopt SFAS No. 133 no later than January 1,2001. We are currently evaluating the provisions of SF AS No. ]33. The impaa of adoption win be detetTTlined by several factors. including the specific hedging instruments ill pl3ee and their relationships to hedged items, as well as market conditions at the dale of adoption. We have not estimated the effect of adoption as we believe that such a dctennination will not be meaningful until closer to the adoption date. __ -... 3. Commitments and Contingencies In connection with cert:ain state regulatory incentive plan commitments. we have deferred revenues, which will be recognized as the commitments are met or obligations are satisfied under me plans. In addition, several state and federal regulatory proceedings may require our operating telephone subsidiaries to refund a portion of the revenues collected in the cunent and prior periods. There are also various legal actions pending to which we are a party. We have established reserves for specific liabilities in connection with regulatory and legal maners that we currently deem to be probable and estimable. We do not expect that the ultimate resolution of pending regulatory and legal matters in future periods will have a material effect on our financial condition. but it could have a material effect on our results of operations. Po ,..-..... ';"'c"~ ;~ t ,," '\ '~.,-~J ;:: '...~",,,/ , ' J /, .,. , 4. Grupo lusaceU, B.A. de C.V. Grupo Iusacell, S.A. de C.V. (IusaceIJ), a Mexican wireless company that we control and consolidate, and its , principal shareholders entered into an agreement (the 1998 Restructuring Agreement) to reorganize ownership of the company. This rcorvn1r.:trion provided for the formation of a new holding company, Nuevo Grupo Iusacell, S.A. de C.V. (New lusacell), with two classes of shares, one of which would be traded pubticly. The intention of the reorganIzuiou was to raise capital, increase the availability of debt financing. and increase the liquidity of Iusacell's publicly traded shares. As contemplated in the reorga.nizarlon plan. during 1998 and 1999, IusaceIl borrowed $133 million from us. as a bridge 10m. under a S ISO mi)lion ~iubordinated convertible debt facility that expired in June 1999 (the Facility). In nccordance with the Facility and the 1998 RestructUring Agreement, we converted the debt into additional Series A shares at a price 0(S.70 per shm'e. We also sold a portion of those shares to the Peralta Group, the other principal shareholder ofIusacell, for $.70 per share and received proceeds ofapproxnnately SIS million in 1999. As a result of these interim steps of the reorganiza1ion plan. our ownership ofIusacell temporarily increased to 47.2%. ' On August 4, 1999, the reorganization plan was fmalizM when New Iusacell concluded an exchange and rights offering to existing IusaceIJ shareholders. These offerings permitted shareholders to exchange their shares in Iusacell for shares in New lusaccll and to subscribe to additional shares of New lusacelI based on their current ownership. In addition, New lu.sac:ell1aunc~ primary and secondary share offerings. We and the Peralta Group participated in the secondary shm'C offering. We ~ived approximately $73 million ofproeeeds from the secondary share offering and New lusaeell received approximately $31 million of proceeds wm the primary share and rights offerings. As a , result of the reorganization. we have reCorded an ad)usanent to increase our contributed capital by $43 million which recognizes the ultimate change in our ownership percentage resulting from these transactions. As of September 30. 1999, we own 40.?'/o of New Iusacell. and we continue to control and consolidate New lusacelI. We had previously announced that we are engaged in discussions regarding a possible combination or alliance encompassing the CUJTent properties of New lusaceU and cellular properties in Northern Mexico. This venture may result in a new prominent shareholder in the New lusaceU business. The Peralta Group can require us to purchase from it approximately 517 million New lusacell shares for $.75 per share. or approximately $388 million in the aggregate. by giving notice of exercise between November 15 and December 15,2001. 5. MarketaNe Securities We h3ve investments in mark.et1ble securities. primarily common stocks. which are considered "available.for~saJe" under SFAS No. lIS. "Acc:ounting for Certain Investments in Debt and Equity Securities." These investments have been included in our balance sheet in Investtnents in Unconsolidated Businesses and Short.term Investments. Under SF AS No. lIS. available-for-sale securities arc required to be carried at their f.Ur value, with unrealized gains and losses (net of income taXes) recorded in Accumulated Other Comprehensive Income (Loss) in our statement of changes in shareowners' invesonent The fair values of our investments in marketable setwities are determined based on market quotations. The table below shows certain summarized information related to these investments. Gros;- UnmaliZI<I Lossn '-"Gross UnruUUd ' Gain: Fair Valuft'" .,. COSt (OoIlalS in Milliol'ls) At ~lbcr 30,1999 Investments in unconsolidated businesses ~,__.==~,"----$i69----.~.-~1 ~469 Short-tarm investments - _..___ .._____ 36 $405 51.838 35 $1,873 ' $ - (1) S (1) $1.469 ' , AtDKembor31,1998 .____~_,__ u__ Inve~.tments in unconsolida~busjn~___ S 1 __~_. 6 $ - $ 7 ,.~I!.l?r.t:te"!'J!!'!!3stf!1en~,_._ ....' , _ _ ..'. . " __ . . ,... . 23 (1) 22 __ _, _~ ,____,___.._,. __,_ _". _,,0- ,. _ . __ S 24 S 6 S (1) S 29 Our investments in unconsolidated businesses increased from December 3 I, 1998 as a resuh of a change in the method of accounting for our Telecom Corporation of New Zealand Limited (TCNZ) investment, as described in Note 11. Certain other investments that we hold are not carried at their fair values because those values are not readily detenninable. We have. however. adjusted the carrying values of these securities in sintations where we believe declines in value below cost were other than temporary. The carrying values for these investments were $ 184 million at September 30. 1999 and $17 J million at December 31, 1998, The decrease from December 31. 1998 was principally due to the disposition of our remaining investment in Viacom Inc. in January 1999. 9 " , <, , , ''', ' ':""~. ',' I I . t. t~:I,n " I: :.c, .: : , I !: Debt E::tcJtangtDble NOles Our long-term debt includes two series of exchangeable notes that were issued in 1998 by our wholly owned subsidiary, &11 Atlantic Financial Services, Inc. (FSI). First, FSI issued $2,455 million of 5.15% senior exchangeable notes due on April 1,2003, which are exchangeable on or after September 1, 1999 at the option of the holder intO shares ofTeJec:om Corporation of New Zr:aIand Limited (TCNZ exchangeable noteS). Upon exchange by investors. we retain the option to settle in cash or by delivery of TCNZ shares. The exchange price was established at a 20% premium to the TCNZ share price at the pricing date of the offering. As of September 30, 1999. no nores have been deJiyered for exchange. . . Seeond, FSI issued 53.18'0 miUion of 4.25% senior exchangeable notes due on September 15. 200.5. which are , exchangeable on or amr JuJy I. 2002 at the option of the holder into shares of Cable &. Wireless Communications pic (CWC exchangeable notes). Upon exchange by investors, we rctailhlhe option to settle in cash or by delivery of ewe shares. The.ewe exchangeable notes were issued at a discount and at September 30, 1999 had a canying value of $3,214 million. The exchange price was established at a 28% premiwn (0 the ewe share price at the pricing date of the offering. The respective exchangeable notes must be marked to market if the {air value of the underlying TCNZ shares rises to a level greater than J 20%, of the share pri ce at the pricing date of the offering, or the fair value of the underlyiug ewe shares rises to a level greater than 128% afthe share price at the pricing date afthe offering. If either event should occur, we are required to increase the applicable exchangeable note liability by the amount of the increase in the share price over the exchange price. This mark-to-market transaction would reduce income by the amount of the increase in the exchangeable note liability. If the share price subsequently declines, the liability would be reduced (but not to less than its amortized canying value) and income would be increased. At September 30. 1999. the fair values of the underlying TCNZ shares and ewe shares did not exceed the recorded values of the debt liability and. therefore, no mark-to-market adjustments were recorded to our financial statements. A proposed restructuring of our investment in ewe, as discussed in Note II. would change the securities to be delivc:ed upon exchange for the ewe exchangeable notes. Under this restructuring, we would receive shares of two companies acquiring the businesses of ewe in exchange for oW' ewe shares. Support Agreements The TCNZ exchangeable notes have the ~nefit of a Support Agreement dated February I. 1998, and the ewe exchange31J!e note$ have the benefit ola Support Agreement dated August 26, 1998, both ofwbich are between Bell Atlantic and FSI. In each of the Suppon Agreements, Bell Atlantic guarantees the payment of interest, premium (if any). principal and cash value of exchange property related to the noteS should FSI fail to pay. Another Support Agreement between Bell Atlantic and FSI dated October [. 1992, guaranteeS payment of interest, premium (ifany) and principal on FSl"s medium-term Dotes (aggregating $192 million at September 30. 1999) should FSI fail to pay. The bolders ofFSI debt do not have recoUlSe to the stock or assets of our operating telephone subsidiaries or TCNZ; however. they do have recourse to dividends paid to Bell Atlantic by any of our consolidated subsidiaries as well as assets not covered by the exclusion. The carrying value of the available assets reflected in our condensed consolidated financial statements was approximately Sl6 billion at September 30. J999. ISS1Ulnce and Early Extinguishment afLong-Term Debt In April 1999. our operating telephone subsidiary New England Telephone and Telegraph Company issued $200 million of 5.875% notes due on April 15, 2009. The proceeds from the issuance were used to redeem $200 mj!lio.p of7.375% notes due on October IS, 2007. We recorded an extraordinary charge of $1 million (net of an income tax benefit of S I million) related to this redemption. . In the second quaner of 1999. we also recorded an extraordinary charge of SS million (net of an income taX benefit of S3 million) in connection with the repurchase of SS7 million in principal amount of debentures of certain of our operating telephone subsidiaries. 10 - --.., ~.~ ' ~..... ".. :. . ~I j. . .' . '. I .: :: I : ~'.::. '. : . !~ I' 11 7. earnings Per Share The fo1fowing table Is a reconciliation of the numerators and denominators used in computing eantings per shlUe. ~-.;d-Si"W8iii ~ -~p'<<'~~} ._~, - ~ llOniiiS eitrted Se~ 30; .,' -N1M.MOfiu;iEiidOd'~iMi;~J:':' 1~ 1'98 ' 1999 19911 Net Income (Loss) AvaUabIo to Common S~ _.lncOnte (lonfi)8fo~ extt;loidi~'ltem'-":'~~-:~ _ ~p-tlc'!(Lof In~.te!.p"reforre<:l_~C.!E:t.___~_.___ Income (loss) available to common shareowners before extraordinary Item e Extr;ordlnary Item Net Incomo (loss) avai!able to common shareowners e $17114 . .":'~_~':~-(ji>. _=-J1~1l ~=":':.~'~30"; (2) 1,114 _ .. .... (7) : (1) , $1.174 . $ (8) ..: 3,489 (6) , 53.483 .L ----L.928 ' (24) 51.904 Batie EwnJ~ (loss) Per Common Share _W~hted-aver!9! shams outstandinS__ _.'__ Income (Iou) avaUable to CQrnmon shareowners ,.~~'!~.L!~tf!.~~i~l~m_~___... ,_" ......___ 'h__..L~r6... ._.~J:~HL .._...~.~.~5._..._ ..S.~.24 Extra,D~J~rY..!t~.~. . .. _ _ . ' .. .... .. (.01) '.- (.01l ~Hn_~~ (f.9S$) ~Y!J~~1e to comryton s,~n:ownl!rs S .76 $ (.01) $ 2.24 S 1.23 , -DifutedC&mjng:s(L.os:s)iier-~shire- --.,-------... '-_....,-,_.._' ...u'_'" : Welght~y'!;ageShl1reS outs~!!.c!!I!S.~~=-=~,~:~~~ ~=-~-:- "('553~.~~~ ~~~ 1.~~t=:~~t.55~ - ~,'=-'1..55t. Effect of dUutive SCQIrities 32 30 24 ._W~hted-ave!!m!: 'ha~ - diluted ~____~~~ ~_ 1.585 ' 1.553 1.583 1.577 fnccme (loss) aval1.'\ble to common shareowners Imare txtraOrdlnary item ExuaardJnary item ~t !!l~. (l~).!Y2~J!J~~1!l~~ ~J!3~J!!I.~~__ 1.553 1.553 . 1.553 1.553 $ .74, S (.01)' S 2.21 . (.01) S 2.20 ' $ 1.22 (.01] S 1.21 $ .74, $ C.Ot) ....:-.. e,ncoma (loss) and Net mcome (loss) available to common shareowners is the same for purposes of calculating basic and diluted eammgs per share. , . , ...1.....0,.;.... Stock options for 83 million shares for the three months ended September 30, 1998 and 1 million shares for the nine months ended September 3D, 1998 were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares. For the three and nine month periods ended September 30, 1999 the number ofantidilutive shares was not material. ' -:; 8. Comprehensive Income Comprehensive income consists of net income and other gains and losses affecting sbareowners' equity tha4 under generally accepted accounting principles, are excluded from net income. For our company, such items consist primarily of foreign currency translation gains and losses and unrealized gains and losses on marketable equity investtnems. The components of total comprehensive income for interim periods are pres~nted in the following table: -~ -in~t==~-:~.=~-~:--:-~':'" ':' ..-.: ,- ~-'__':"','!J;fe!_~O~_ Enit<<l sePiim~r3~:~.:_~l~e,~~']1__ ~r.j!J~r.~;_ . 1999 1m 1999 1991 .~J~!J~~) ",' ,_,__ " .' ... ~.' $1.174 $(8) 53.483 $1.90e- '" QU)er ComJ?rchensive In~ (~. _ . _ _,,,,_, .'_ _,.________._ _ '" _ .fg!!Ig!L~rre!!9'..!~latio!u!.dj!!!.tmt;.'!.ts-!.~t9.f tax ,... ___~,_..., ,.. _ 70' ~~L___IErt J!n~~J;~!M..(I.~J.c?,'t~ritie~_.E.!!.. C?! t~! ,_..0 (12) 952 11 14 70 888 (166) ", Total CofE,P-rehe~lvv ~!!.c~.I.!!!.-.___~:"-__. $1.188 ' $62 $4.311 $1.740 The increase in unrealized gains on securities is principally due to the change in accounting for our investment in TCNZ from the equity method to the cost method. As a result of this change in method of accounting, we have adjusted our investment in TCNZ to its fair value at September 30. 1999 and recorded an unrealized holding gain of 5900 million (net of income taxes of $485 million). You can fmd additional information on the change in method of accounting for our TCNZ investment in Note 11. ,.,.....-1 1 1 , ' "" . I '. ~,:.,/."";:,I;:<'.:I' ~t ;.t', j~ .' ~., , . / ,o'" ;-". I, ,',' ".ol" , " 9. Proposed SeD AtlantJe ~ GTE Metger Bell Atlantic and GTE Corporation (GTE) hive ,announced a proposed merger ofequa]s'undcr a definitive merger agreement dazed as of July 27; J 998. Under the tenns of the agreemen~ OTE shareholders wm receive 1.22 shares of Bell Atlantic common stock for each shan' ofOTE common stock that they own. Bell Atlantic shareholders will conrlnue to own their existing shares after the merget. ' . We expect the merger to qualify as a pooling of iriterests, which means that for accounting and financial reponing ptU'pOSes the companies will be treated as if they had always been combined. At annual meetings held in May 1999, the shareholders of each company approved the mergef. The completion of the merger is subject to a number of conditions, including certain regulatory approvals and receipt of opinions that the merger wiJI be tax.frec. We are warking diligently to complete the merger and are targeting completion of the merger around the end of the first quarter of 2000. However, BeU Atlantic and GTE must obtain the, approval of a variety of state and federal regulatory agencies and, given the inherent uncertainties of the regulatory process, the closing of the merger may be delayed. " We have provided unaudited pro forma combined condensed statements of income for the years ended December 31, 1998, 1997 and 1996 and a pro forma combined condensed balance sheet at December 31, 1998 in a joint proxy statement and prospectus filed with Securities and Exchange Commission and dated April 13, 1999. We have provided an unaudited pro forma combined condensed statement of income for the six months ended June 30, 1999 and a pro forma combined condensed balance sheet at June 30. 1999 in a Current Report on Fonn 8.K filed with the Securities and Exchange Commission and dated August 26, 1999. In this interim repon, we present unaudited combined condensed pro forma financial statements far the nine-month period ended September 30. 1999. These financial statements are presented assuming that the merger will be accounted for as a pooling of interests, and include certain rechlssifications to conform tc the presentation that will be used by the combined company and cer1am pro forma adjustments that conform the companies' methods of accounting. This information is presented for illustration purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the merger had been completed at the period indicated. The information does not necessarily indicate the future operating results or financial position of the combined company. For a more complete discussion of pro fonna adjustments and other fmancial infonnation, you should refer to the pro forma financial information presented in the joint proxy statement and prospectUS and in the Current Report on Form 8-K dated August 26t 1999. ..~.. . fPro Forma Combined Condensed Statement of Income ~ I :~Ws In Millions, Except FIef Share Amounts) (Unaudited) I Operating revenues __ !._~~~nses i-~~ InC2~_.____ ~ Months Ended s.ptcmber 30.11190 : ____~__ "...!~~!1.~1..; 3 1.270 j .__I....~-. , l1Ml._ , :Tncom'e from uneonsclidated businesses' ! __0. '....-...435- : : '... ; o . ) ._ .__""_==---~.~.==:_~.--~,_:~ '--(j4r~ ~_., th!! "'lC9!!1~ .~nd {~,Xl?!~ !.!'~.._ , ":",.,~,_ _ ' )nte~t-ex~ns!. ---- .,--_...-.:=-=-~ - -"-=::"=".-':"-=-:. .' "-':'::':~_.:'~~=J.912', : ". . : Provblori1otfnc:ornetaxes -. ~-- .-.-----,-.". -..... OM -_...-.."-. .-----.. 3,e-38 ~ :Tncomefromcontiriuing'ope;iitions-"--- -.. - - -- '--' --..- .. . .. $ 6.562 :_~EaHl!.1QS Per Common Sh3.~____._...__ _____.__ .__ . __ _'.'. ...._ ~ Income froIlLcontlnuingJ!~!!ltj~_p':!!:r_~'!l-~3.~!I!.___._... _ ' '. .___ ;. W~htcd~averag!!l shares outstandJn~ (In millions) _....~ ..~.. . ._.,.... . n' . .. O' S 2.39 -----"-2.740- . cuUiedEamli.g;pe;:-commons'haie- .-.-.,---- ,-.-~,--..,-_.. ,-, -- . :,.~;9.~! frCji'~l!!j.':IJlm9~~~(!2~~,P.C'!r. ~f!lP~l!.s~2~_,..__ .____..., _ _ $ 2.36 ; ; We!ghled-average shares - diluted (in millions) ..... -- --.-----.. -'.'H'2.ii8~ 12 " < '..' '. J . . , . , ,H ~..;. .... . . ," "'f~ . j. .. '.. '. ...... ..,. ,." -I j. c. 'I, [~ro Forma Combined Condensed BalanCe Sheet :] ,/~ , .~\.c~1 J~iii'Mi~un.lUdits!d) AIIetI Current asseb _~~POr.lry cash investments Rec:eivabJes. nat ,'" -Nei-aa.ts llVlIiI2ble for sab :--01h.ir currant assets - Piailt:TroPttr:!Y.: end equJpment. net At Stptrmber 30.19119 Invastments In uncansolidaled businesses $ 3,871 11.682 1.752 2.978 20.283 60.404 9.799 Other assets: . ~~~lIl(aSSets----""'-- - ------.-----... -, ..-tt-.--- 16,486 $106.972 ~alxfs~r~bhent ....-----..~. - "'Curreni'li.ablli~--~--_. ------ , .~bebt,m8-tjjring Y'!ttili1~~~y:n_ar .________ .~..___ .__.:- ~=__=_===_..:.._ .,_._.~~~").Qt.391__: . .Accou!1ts pa)'41~~!~2~~~J!t~_.,.__.._ M'__ _._ ___ .'._ __ _.__.__._..,__u _ 1.2, 17? .. ,~rcurrent Uabllitie;s .... .__.... _._.._...u__.....__..__._. . _.. '2.638 25.201 31.741 13.978 10.038 , /',,'J..., i. "\ U.~:'i.../ '-.~n9:!'!.~.E!~!.. . .. _ ..., .._ .___._, ._.,.... _ _, .. ,.....____.____........_._.... ',~J!<<! benef!!. ~~!Ig,!i.!ions Oefened credits and ether liabilities -Sharoownors' Investment ~ _ 'cOOimon-stoCk.t2;7-67~3i1-:-285'$haresr-:-- .'_. '~-===-=-~'~.~:~'=-==--=-':=--~.-===--=.i7"'~ ; . _ .~VJ!ly~d cal'i.!a.L- _ .'._ ,_h~___"~',_ ,_ ~. 20~L . .. ~~.,!~m[{1g~. _. __.___,. _ ,_. ___,____ __.__.~.r3-'L: Ac:cun:'ula~ ot~er ~p..~~!.l!~.~_ ..'. .... ,..,_.,.._. "_' " ., -. (193) 27.594 632 948 26.014 $106.972 ~ ~commo'n stock in lreasu!y. .1t cost ~ deferred com~nsation - employee stock o,,'nershlp plan5 Totalliabllities and shareowners' investment -- 10. Proposed Domestic Wireless Transactions Yodafone AirTouch On September 21; 1999; we signed a definitive agreement with Vodafonc AirToucb pIc (Vodafone AirTouch) to create a national wireless business (Wireless Co.) composed of both companies' U.S. wireless assets. Assuming that nil of the assets are contributed as !JTOvided for in the agreement; Wireless Co. will be 55% owned by Bell Atlmtic and 45% owned by Vodnfone AirTouch. We will control the venture and; accordingly, consolidate the re:sults of Wireless Co. into our financial results. The transaction will be accoWlted for as a purchase method business combination. Wireless Co. will initially assume or incur up to $10 billion in existing and new debt. Vodllfone AirTouch has the - right to require that up to $20 billion wonh of its interest in Wireless Co. be purchased by Bell Atlantic and/or Wireless Co. between the third and seventh years following the closing of the transaction. The completion of this transaction is subject to a number of conditions; including certair, regulatory approvals llnd the approval ofthc-sharehoJders ofVodafone AirTouch. We expect the transaction to close in 6 to 12 months from the date we signed the agreement. Frontier Cellular On July 20. 1999, Bell Atlantic Mobile, our domestic cellular subsidiary. announced that it would purchase Frontier Corporation's (Frontier) interests in wireless properties doing business under the Frontier Cellular name. Bell Atlantic Mobile currently owns 50% of the Frontier Cellular business. The transaction is expected to close in the founh quartet of 1999. .........,..1 13 ___--I . ~ I . '1 < . ., ~ '.\ ! , l ':' .;.d , , I,;> .'. 11. Investments in Unconsol"dated Susine3ses' .Agrumenr 'With MtJromedia Fibu NtlWorJc. lnc. On October 7, 1999. we announced a strategic agreement with Metromedia Fiber Network. Inc. (MFN). a domestic and international provider of dedicated fiber optic networks in major metropolitan markets. Our agreement with MFN has two pans. First, we will acquire approximately $550 million of long.ferm capacity on MFN's fiber optic networks. Of the SSSO mil1io~ 10% is payable in November 1999 and 30% will be paid in each of the first three years of the contract. Second, we will invest up to approximately $700 millio'n to acquire up to 9.9% of the equity of MFN through the purchase of newly iSsued shares at $18 per share. We also will purchase up to approximately $975 million in debt securities convertible ax our option, upon receipt of neussmy government approvals. into cOmmon stock at a conversion price of $34 per share. increasing our potential equity iQvestment in MFN to about 19.9"10 of the company. Our ino,:C;Sunent in MFN will be accounted for under the cost method. Certain aspects of this agreement arc subjed to the approval of various regulatoty authorities. which we hope to obtain before the end of the year. Proposed Restructure ofPrimcCo Personal Commulucations, L.P. On August 3. 1999, we and Vodafone AirTouch ~ounced an agreement to restructUre our ownership interests in PrimeCo Personal Communications, L.P. (PrimeCo). a partnership that was fonned by us and Vodafone AirTouch in . 1994 and provides ~naI communications services in major cities across the United States. Under the tellllS of that agreement. we would assume full ownership of PrimeCo operations infive "major trading areas" (MTAs) - Richmond. VA, New Orleans, LA and the Florida ~As of JacksonviJh:, Tampa and Miami. Vodafone AirTouch would assume full ownership of the remaining five PrimeCo MT As - Chicago, IL, Milwaukee. WI and the Texas MTAs ofDalJas, San Antonio and HoustOn. , . Under the tcnns of the Wireless Co. agreement (see Note 10). Bell Atlantic and Vodafone AirTouch agreed to suspend the August 3. 1999 agreement to restrUcture PrimcCo ownership in!eresrs. with certain limited exceptions. As a ~ actions to alJocate most PrimeCo markets would not commence prior to Febnsary 2000 or may not occur at all based upon the timing of the completion of the proposed domestic wireless transaction with Vodafonc AirToueh. ...... ProposuJ RestrUCture of Cable & Wirel~s Communications pic On July 27. 1999, we announced an agreement with Cable & Wireless pic (Cable &. Wireless), NTL Incorporated (NTL) and Cable &. Wireless Communications pIc (CWe) for the proposed ~1IUctwing of ewe. We cwrently have an 18.6% ownership interest in ewc. Under the tcnns oCme agreement. ewe's consumer cable telephone, television and Internet operations would be separated from its corporate, business, Internet protoeol and wholesale operations. The consumer operations would be acquired by NTL and the other operations remain with Cable & Wireless. In exchange for our interest in ewC. we would receive 3harcs in the two acquiring companies. representing approximately 11.2% of NTL and approximately 4.7% of Cable &. Wireless. Upon completion of the restructuring, our previollSly issued $3,180 million in ewe exchangeable notes would be exchangeable on and after July 1.2002 for shares in NTI.. and Cable &. Wireless in proportion to the shares received in the restructuring. Upon exchange by investors, we retain the option to senle in cash or by delivery of the Cable & Wireless and NTL shares. We expect the resttuctwing to result in a material non-cash gain. The transaction also may cause the exchan~blc notes to be marked to market, resulting in a charge to income. See Note 6 for additional information about the ewe exdumgcable notes. The completion of the restructuring is subject to a number of conditions and, assuming satisfaction of those conditions, is expected to close in the first halfof2000. I, .~.~ ' 14 ,'..-..\ -I '. \p""J - .. . .. ....-..... AdditJoMl/nvt!$tment in Omnilel Promo ItalJa S.p.A. , In June 1999, we made an additional investment in Omnitel Pronto ltalia S.p.A. (Omnitel) of $635 million, which increased our ownership percentage from 19.71% to 23.1%. Approximately $606 mUlion of this additional inwstment represents goodwiUt which is being amortized on a svJight-line basis over a period of25 years. Dlsaffdiat/onfrom Telecom Corporation a/New Zealand LimiJed Effective May 31t 1999, we took steps to disaffiliate from TCNZ. As a resul~ we no longer have significant influence over TCNZts operating and financial policies and, therefore, have changed the accounting for our investment in TCNZ from the equity method to the cost method. The change in the method of accounting for this investment is not expected to have a material effect on our future results of operations. We currently hold a 24.94% interest in TCNZ. Coincident with our change to the cost method of accounting, our investment in TCNZ is now subject to the provisions of SFAS No. 115. Under these provisions, our TCNZ shmis are classified as "avai1able~for-sa1e" secwities and, accordulgly, our TCNZ investment has been adjusted from a carrying value of$363 million to its fair vaJl1C of$I,748 million at September 30, 1999. This increused valu~ of our invesanent is recorded in Investments in Unconsolidated Businesses in our balance !iheeL The unrealized holding gain of $900 million (net of income Wees of S48S million) has been recognized in Accumulated Other Comprehensive Income (Loss) in our statement of changes in shareowner.; t invesunenL 12. Segment Infonnation We havc four, reportable segments, which we operate and manage as strategic business wiits and organize by products and services. Our segments are a Domestic: Telecom group which provides domestic wireline telecommunications services; a Global Wireless group which provides domestic: wireless telecommunications services and includes foreign wixeless investments; a Directory group which is responsible for our domestic and inu:mational publishing businesses and electronic conunerce services; am~ an Other Businesses group which includes our international wireline telecommunications invcsnnents,lease financing and all other businesses. We measme and evaluate our reportable segments based on adjusted net income, which excludes undistributed corporate expenses and special items arising during each period. Special items are transactions that management has excluded from the business unitst results. but are included in reponed consolidated earnings. We generally account for iDtersegmcnt sales of products and services and asset transfer.; at CWTenc market prices. Special items in the three and nine-rnonth periods ended September 30t 1999 included costs associated with oW' 1997 merger with NYNEX Corporation. In 1998, special items included merger-related costs, retirement incentive costs and other charges related primarily to international investments and our video business. Special items affected our segments as follows: .---- ---:-n;iiiMOntt.o. EnGed sePtemllM30,---NiMMOiluts EndecfSoptembGf :Iii,-~ 1999 ' 19911 1m 19t1l 00rne:Stic TeIec(Jm v Reported net inccme $837 S 261 $2.585 Spedalltems 25 544 54 Adju~~.~tln_~me _. ____ _ __ . .__......._ 4 S862 S 805 $2.639 Wi~ '. .'..., ~~pnci~e:(!o.ss1 . _, . ... .. ,_.._._~.1Jf:~','": $ (97; .,."... :'~s:. ~~7 --....... - $- J?)~ ~ , SpIlcial items 178 171f" , Adjusted net Income 5133 S 81 $ 287 $ 176 Diroc:torY. ----- _~~ net~~!!!L __ _.____ ___..__._..____ 5146_ __.$..1.20 .__.-1..:4JL.:_____J,_~50 _ ~lte_m.!-_________ 2 14 5 14 ~~t~.!let in~~_ ._..... '_'"''__'_''' $148 ' $ 134 $ 504 . S 464 Other Businesses '_~~ n~[fuCo~]~)-=_ __._ _. ._~=_=~._~_24 -::JJ~~J)--S86---:-_.!.J~:~): _S~lJ~~~ _ ._____....._ ., ..__ ..... .. _ __. '" _ Adiusllt~ net i~.!!!.fl._..._____m_._..._u.._ __. S 24 S 35 S 86 S 81 "ReConclflnglte;ns-----' --. . ,.. .. -'.. - , -.... -. .'. -~. ....- ..--- .-- . - -. .-.,--, . '--"'" -- . RePOrieJ'iietlneome ,,--. . ... ' - '. ....5-34-..' S 37 ..-... . s" 26' --- - -'$' 44 Special items 2 Adjusted,net Ineomlt S 34 S 37 S 26 $ 46 '--cf>cIa,s in Malions} $1,697 744 S2.4'U ... .}. :' :. >, . ;:~;,:.' c l ~ . , ~ '''" "'. The following table provides operating financial infonnation for our four reportable segments and a reconciliation of .segment,results to consolidated results. (OCIats in MiIIonsJ ---------:--Th;ee .Jolonth. EiidiiirS;p;.rnbe~Q,_ N1ne~EndedSiptember3"d~ _".. 1999 1i!J1 1999 1998 Emtmal Operating Revenues Domestic teleeam $6.601 $6.427 $19.547 $19,025-- , Global wiroleu 1. 182 979 3.291 2.780 ; OirGctoty 500 485 1.665 1.618 Other buslne&~. 31 23 89 73 Total Hllmerrf!l - rll~ned 8.314 ?&1.4 24.592 23.496 Reconci!lng Items 1101 141 (26) (7) : Total cansolidltted - reponed $8.304 $7.910 $24.566 $23.489 1nte1HiJRlCini: Rovenl.K:S ~-.: , . Domestic talccam $, 42 $ 31 $ 110 -$-92-' Global wlrolftu 5 5 14 12 Directory 1 , 4 4 Other businesseD 3 5 11 15 Toul segments - reported 51 42 139 123 Reconciling items 15i!--- - 142i----....., , 11'391' .....-. _P_.. 11231 Tola! CONlOlidated - reported $ $ $ $ Tot'd Opentting Rovenues Domestic telocom $6.643 $6.458 $19.657 Global wftIess 1.187 984 3.305 , Dirnc:tofY 501 486 1.669 , Other businctsses 34 . 28 100 , Total segments - reported ___.!.365.. 7,9.~6 24.731 _~conci!il~ It~ ___., 1611 1461 11651 Total coMO!/dattld - reponed $8.304 $7.910 $24.566 "HifinCOiiNt ..,.--,-.- . -.-.- ..-. - - '. ~.. ,-.. ""... ."M__"'.___"_ .,_., ..-. .-" '-'-" ...' .'DonlestlctCi;;om--'-----'-"."' ..-.-.....-.. --'$"862"'-'-'-"$" a05 ..:.--- -$ 2.G39' - . . ""Gki'bal wireless .,-.--.--- .-.....--......-.-- 133-...--.... -.. .....-81 . --.. "'-..287 DirectorY 148 -]M_=:=:=_~_~:'::'~~:::-:._._ , Othef busines:ses 24 35 86 TotaJsogrnent5-adjusted 1,167 1.055 3,516 Reconclling items 34 37 26 Special Items 1271 (1, 1001 (59l Total consolidated - report1!Cl $1.174 $ 181 $ 3.483 $19.117 2,792 1 .622 88 23.619 "-'1130'" $23.489 $ ,?441 176 464:. . . 81 3,162 46 (1.3021 $ 1 .906 (OollIrIln Millicns) At September 30. At December 31. 1999 1995 -... SegrnttntAssets ___,_____,._. ~ornestict;ie"c';"~ ,_.__.____.., _ .__._._,_.._.__._ __.... ~.~tl?~~L~JeS!J _ ~H.._'_._. ___ _ _...., _.__ __. . '" ... _ ,_.. . o irtlctOfY Other businesses Total $eg~entS - reported Reconciling items Total consolidated - reported - ----- -.... .. . >....... $41.681 9,419 1.826 . '..----.--6:810-.-.' 59.736 ..-..----.----..,.. ".., '.-,-,_...'- '-ifi4i' -" .__.~- $59.022 '--"$4;.217'" 7.739 _._ ,1.?~_.. 5.353 , ... 5~~Q~.0-""", ..... 19061 $55.144 Reconciling items include undistributed corporate expen..~. corporate assets and intersegment eliminations. At December 31. 1998. corporate assets were comprised primarily of our investment in Viacom Inc. This investment was disposed of in December 1998 and January 1999. Assets for our Global Wireless segment increased primarily due to growth in the wireless network and additional investments in unconsolidated businesses, principally Omnitel and PrimeCo. Assets for our Other Businesses segment increased primarily due to the cha!1ge in method of accounting for our investment in TCNZ. as described in Note 11. I ' , i . ,~. T" . I : :: j I ~ " .? l~''''I~''\..f ~ ': .'tJt~1 :: "".....1 , , Item 2. Mautgement'. DlacuolJon and Anolv.la of Results of Operations and Financial Condition , ,.'. -' \ , , ,~ "f \"1" 1'/' f 'I'J \ /,'" . ' l '. \ ' , ,. I "\ 'I,'J \',.. i y<< ") r qvr.rv t\'~'\f'" '1-,' \ \ \ 'f"'" .",,".'I.~' I" ,I '~, '1 ,\~., I"" 'I \\I,~' , 10- ~ ~""I' .{~ ~ .,'/......( \ II~-...J.I..: ~,I.-c\..,..." "','j .1/.' I~' Our results for the first nine months of 1999 reflect strong growth in data and wirelc:;s services and sustained demand for bale teler.ommunlcatfons services. We reported net income of$I,174 million or $.74 diluted earnings per share for the three mondt period ended September 30. 1999, compared to a net loss or $8 miUiofl or S.OI diluted loss per sbare for the three month period ended September 30. 1998. Reported net Income for the fJl'St nine months of 1999 . was S3~483 mUUon or 52.20 dUuted eanlfngs per share. compared to net income of $1,906 million or $1.21 diluted eimings per share for the same.period in ]998. Our reported results for the three and nine month periods in each year were affected by special items., After adjustiltg for such item.... net income would have been $1,201 million or $.76 dUuted earnings per share for the third qtWter of 1999 and $1,092 million or S.69 diluted earnings per share for the third quarter of 1998. Adjusted net income for the fust nine months of the\year would have been $3~42 million or $2.24 diluted earning, per Mare in 1999 and $3,208 miUion or $1.03 diluted earnings per share in 1998. The table below summarizes reported and 3djustcd results of operations for each period. (tiorIas In MilliOOS, ~ Pcr~ ~)__~._--!!l"'.l~~"~"€!!!~r ~l-' NI,OO ~.!flCkld~~_~.L., 1"' 1911' 1999 1998 :..Q~erati!!; revenues :...Q~O'atlng .xpema ~~3 Income $2~!4B9 _ 18,694 4,795 . 1 ,906 107 1,021 ssa 1.716 .--, 414-- 1.302 $ 3,208 $8.304 $7.910 $24,566 6.186-'-''6.700 1S:223 2.118 n' _~, HfL_".---!~3 3.483 : Reported Hat Income (Lon) " Specb:llltems - pro.tax Merger tra~n costa _____ ; Retinlment incentiw costs . Other cha~1 and !P.8.?81l:tem!..... _. _. . _" _' '_'_ Total !tI!cJal items - ~!..~ _'_._'~'__ _ ___~_._ _, __..__.___~__,... Tax effect of spedDJ Items ~~her tax-r,Jated jt~. 18 ; Total s:pedalltnms - after.tax 27 : Adi~ Pftt Income .$1.201 1.174 45 52 "-'747 , SBB 1..3~1_._,_. "_" 287 1.100 $1.092 91 97 3B 59 $ 3.542 : Dilutlld Earnings (LoGS) P<lr Saw. - Reporl:ecl Diluted Eam~ Per Share - Adjusted $ (.01) $ 2.20 --0$-:69-:--. 2.24 $ 1.21 $ 2.03 $ .74 $ .76 The following table shows how special items are reflected in our condensed consolidated statements of income for each period '.JOolIars In IAiDionsl ThI'H tAontIIS Endtd SepttrT}bet' 30, ~M MonthS EndecI s.~ 30. ' ---'--'---'-'~---rm--' - ". '-1tti.-~-_,iit---.-'-1Diav~ ErnPIovH COS1S , : :- Retirement incamive eost$-". ,-.----,--- ----,-:.--.' -, . $"747' - - -$-=- -'''-$:;'021' ~'M!m!!J!:!~D.rJ.,~~~..~'::~==.=_~_~:.~-~:==::'l~ .="~' ,.': ','~-~;t:-:=--'----""32:':~':~ '.. ", -f ~ Other ~cial items 30 30 _ __ .. _.__c _____ _._a~_______~. Other Operating ~nses 'M~i~~r' n:a~~~~-=-~ _. ~~.~~...=.:._~ '.~_-:=-.._.::.:.~ .~~~-=:~~I .~. , VidecH'elated charges .. __ _ .... . _.;'. 'W;ito:do~n.9f ~~ets - - ',' .... --. - .... .. ,.. . ' .. 9~.t!J)e~iaJ)t~~__.. __. . '''_ __.... .....,. _. ...... _.._,::_... IncomeJLoss-From. ~!,~nso1!.~~ !3~i~.!~,'.-::_-::=":_:: =--::-='~-_n Write-down of Asian Investments .0. _n. .,.. -:, . Write.doWij 5'1 ~~~.if)Y'!~~!!~-" .--... .... n. . .. . ,-, 49 15 40 8 ~~ _ _...u .. ~-~ - .15, 4,9,.', ~ ~, . 485--.-..'-":-.---- '-48-5-- ,~_.-:~_ .,::': :..~~:"'::_ _,"-:'_.~'_=u" .~. ..'. '-Otherl~meand E.'cpense,-Het"-' ' - . ...----... .., ..- .-..-----.--..., "---"-'---' __ :#!!!~:.~o~!,_o! a~$~t~_._~.=-=--~~---_.._--~~...9~.~.~~=~~~_~-' ....~- "f~$1=~__~... _ _u' ~._~__.__ ,~)_. ",1._-+_' -....... .----........~. ~-.. '"Interest expeiiii---.' ---. ..... -, ...- ' ..-.... ---.. -- .--.. ..... ... c, 'Write-down of llSsets-----,.-'-~~_:_~...=:==:'-.--'----.-.-- '4r---'-'''- -'--_.-4""1'- TotaISpeclalltems-Pre-Tax 45 lo3S7 97 1.716 . Tax effec;t of sl)ecial items & other tax-reiiited ite~s ..,-a--------2B7--.-- 38' "'---'-~4--' Total Special Items - Aftor-Tax" -- $27 $1. 100 $ 59 $1.302 . ____.._.. _...-............~..__... .~-... _..~.._. .._c-~'..-7._.. " ,> -... " .,: I . I.. " ~.. ",....,:.:.: ,'~: ". ~~. ....~... What follows is a further explanation of the nature and riming of these special items. r Merger-reJated' Costs I In connection with the Bell At1antic.NYNEX merger, which was completed ill August 1997, we recorded p~taX transition and integration costs of$45 million in the third quarter of t 999 and $97 million in the first nine months of 1999. In 1998. pre-tax transition and integration COStS totaled SS2 million for the third quaner and $107 mUlion year.to-date. , " , Transition and integration costs represent costs ass~ialed with integrating the' operntions of Bell Atlantic and NYNEX. such as systems modifications COsts, advenising and branding costs, and costs associated with the elimination and consolidation of duplicate facilities. relocation and retraining. Transition and integration costs are , expensed as incurred. These merger-related costs were comprised of the following amourri.9 in the three and nine-month periods ended September 30, 1999 and ]998. , '~r.:!" ~@.-.':'::::'~~:-~ :..~:::.::.._~~ ~:~'.J!i~ ~.~ ~~~~'':~~', '. - ':'=.~f~~Mo~~~iifd ~~mhir ;jO,'_.~. " . 1999 . 199B 1999 1998 . Trarwltion and Intogration CO!its - SY$Ul'M modifi~ns-- -'-" -- --' --'-$43--- "'" -$'42' .----- -- Gas~' --'---$' '8<)"- "~r~~~~:':.~'~=:"': :. ~~ ~ ~':,:-.'" ~,:~-~:"~~~:':'--,..~:;....=~.: f~'=-~':':=-':-.-'i':':~.:-=::::-, ':)~. , RiiOCation:.~inin9-;ncrother-.-" -- '-i'u,~-", -, '2---~ ----.~-.,__'_. '-:r'" ",i~1 T!~~i'n-;~Jm~g~J'E.fi~~ ..:: $45 $52 $97 $107 I Ratirernent Incentives In the third quarter of 1998, we recorded retirement incentive costs of $747 million (pre-tax) as a result of 5,231 associate employees electing to leave the company under a volunwy retirement program. For the fIrSt nine months of 1998, retirement incentive costS totaled Silt021 million, representing 7;1,99 associate employees who elected to rct:irc under the program. The costs were comprised of special termination pension and postretirement benefit amounts, as well as employee costs for other items. These costs were reduced by severance and postretirement medical benefit reserves established in 1993 and transferred to the pension and postretirement benefit liabilities as employees accepted dle retirement incentive offer. The voluntary retirement program covering associate employees was completed in September 1998. The severance and postretirement medical reserve balances were fully utilized at ~bcr31, 1998. I Other Charges and Special Items - In the third quarter and nine month period ended September 30, 1998. we recorded other charges and special items totaling $588 million in connection with the write-down of Asian investments and obsolete or impaired assets and for other special items during the period. These charges are comprised of the following significant items.. Asian InvesrmenlS In the third quaner of 1998, we recorded p':"e.tax charges of $485 million to adjust the carrying value of two Asian investments - TelecomAsia, a wireline investment in Thailand. and Excelcomindo. a wireless invesunent in Indonesia. We aceount for these investtnents under the cost method. -- - The charges were necessary because we determined that the decline in the estimated fair values of each of these investments was other than tempor.uy. We detennined the fair values of these investments by discounting estimated future cub flows. Video-related Charges During 1998, we recorded pre-tax charges of $23 miUion related primarily to wircHne and other nonsatellite video initiatives. We made a strategic decision in 1998 to focus our video effortS on satellite service offered in conjunction with Dirc:cT\r" and U5SB. We communicated the decision to stop providing wireline video services to subscribers and offered them the opportUnity to subscribe to the satellite.based video service that we introduced in 1998. In the third quarter of 1998. we decided to dispose of these wireline video assets by sale or abandonment, and we conducted an impairment review under the requirements of SFAS No. 121. "Accounting for the Impainnent of Long-Li\led Assets and for Long-Lived Assets to Be Disposed OCt We based our estimate on an estimate of cash flows expected to result from the use of the assets prior to their disposal and the net proceeds (if any) expected to result from the disposal. lit' .. .' ' I~~ ',1" ) ,'~.:" J .... \ ' \ "",':IJ.) - '........l....../.J 'I '.f .~ ;." -j.: . I Other Chargos and S~ecial ftems . continued WrltNown a/Other Assetr and OtJu:, Items Results for the third quarter' and year.t~tc 1998 also included a pre-tax charge, net of minority interest, of $42 million for the Wfite..dO"'U of fIXed lWets (primarily buildings and wireless communications equipment) and capitaliud interest associated with our Mexican wireless invesnnent - Nuevo Grupo lusaceU, S.A. de C.V. (IusaceII), parent of Grupe Iusac:eJl. S.A. de C.V. We account for our lusaceU investment as a consolidated subsidiary. These assets relate to . IusaccU's trial of fixed wireless' service provided over the 450 MHz frequency. While , continuing this trial, lusacell has been considering whether or not to pursue its rights to acquire 450 MHz licenses for other are.u or to offer new services. IusaceU concluded that, in view of the capability of CDMA technology and the success it bad with its deployment, an impairment existed with ~ect to assets related to the 450 MHz technology since the ~g value of these assets exceeded the sum of the estimated future casb flows associated with the assets. lusa.cell is currently in discussions with the Mexican Federal Telecommunications Commissions (COFETEL) as to the status ofIusacell's 450 MHz frequency trial and the tenns under which lusacell could acquire certain 450 M:lh'licenses. lusacell anticip.ates a resolution with the COFETEL as to the statUS of their 450 MHz trial and license opportUn~es by the end of the first quarter of 2000. At that time, we hope to have available the full facts to decide IusaceUfs ove~l strategy concerning the 450 MHz licenses. Other items arising during the three and nine months periods ended September 30. 1998 included charges totaling $38 million principally associated with the sctt1~ent ofIabor contraCtS in August 1998. ,}cf.' ,( I):'::"" ,It' t~ JR' :,~".; i'l ':u:~, ;..,~ \..;' "'.t"- " 1.,', r' )~ i,) //1", ',',,:,\ ...., ;'.l'.,r :"':: ,(~' "~J' (<,'.'t., (.'IV\"I~' "]'/. 'iN,~g, ~I~I':I"P')~, -q~.u 1~ ,~~, .,:Jp,,,,ra .!q~::;, ~:' ~"', '\}::f.l, v::,~",',~~,".,h~ ~(.., ..1\ 110 ~.. ,) ,/~,,: We bave four reportable segments. which we operate and manage as strategic business units and organize by products and services. Our segments are Domestic Telecom, Global Wireless. Directory and Other Businesses. You can fmd additional information about our segments in Note 12 to the condensed consolidated financial statementS. We measure and evaluate our reportable segments based on adjusted net income, which excludes undistributed corporate o.-peu$eS and sp<<i41 items arising during each period. Special items are transactions that management has excluded from the business units' results, but are included in reponed consolidated earnings. We previously desaibed these special items in the Overview section. Special items affected our segments as follows: ThIN iIonttI. Ended september ~l?~ 1999 1"8 - __~IS In MilliMs) Domestic Telecom ~,parted net income Spec:ial items ,:-Adjust~ net income _ Nine Monttts Endrd Seopmnlle,. ~ 1999 1998 $837 25 $862 $2.585 54 $2.639 $1.697 744 $2.441 $ 261 544 $: 805 Wireie:5s -------'---. ..' . -. '. 'R~Pomd natincome(IO;;C--'--'~"'~---- ....~'$i33._--~=L(971. _,~-=._~.! -2~~i.~_=~ Special items 178 'Adj~e~-ne~l)~ome~'-=-~=-'~ ~=~~: ,'- ,- $133 $: 81 $: 287 $: (~L 17B $: 176 olieCtoij. ... Re~rted net inc'ome Specialiti:i~s ... . .-., -. :. AdJUit.ed ,ne!.ir:'~.~t!, ~-'.:,. .-":." $_l~ 2 $148 $: 499 5 $ 504 $'~ 450- ... , 14 ' $ 464 ~ 120 14 $ 134 -0IJ1e.r SooJne:ss.es -------.. ....... ....~- ...- -' --------.--.... ~ . Reponed neti'iicornellQ;si- . 'u" -" .. -, -- ... $,24' -- - ,'~-((3291 -SPeclal itoms - ---.. .. - - ".--.. - ,- -.... 364 -t;~jy~~~:'~i~i~~m~_-~-:~-':~..' -'~",~.,".... $ 24 $ 35 -Recorlcl1ing ttems--' ---,,-- --'~' -_. -. - --,-" ..----.-- -------- .-.. RePoned net lneoiii;'-"-"" - n___" -.. -' '- ., $ -34'--- -- -$---37 ,-~P..<<i..~~item!.... ..._,_,___ __------u---------- .... M~.!'!~t~l!.tjlll?9.~~ . .__ ' _ ____,_ _.,,_ $ 34 $ 37 --"$--86--- ----$(283) "., ..--- --..-'----.'364-" $ 86 $ a1 ----;-26---- '~"-$-44-- 2 $ 26, $ 46 '/ . . ( t. " ~ , .. i l. .'.' , {". ~,~ ~<....:: ~. . '..': I Domestic Telecom .1 Our ~estic Telecom segment consists primaritj of our nine operating telephone subsidiaries that pro~jde local telf:pbone services from Maine to Virginia. including voice and data transport, enhanced and custom call1ng f'eanJMs, network accesst directory assistancc, privale lines and public telephones. This segment also provides customer premises equipment distnoution. systems integratiOD. billing and collections, and Internet access services. ~estic Telecom repr:sents the aggregation of our domestic wire!ine business units (consumer. enterprise. general busmess, and network: services) that focus on specific markets to increase revenues and customer satisfaction. Thr'ev Moaths Ended SeptImber .30. 1"9 . 1$98 % chin~e Hint' MonthS-ElUted Septtmber 30, 1Mr- 1998 ~~ Change iDoIln in Millionl, , ResuJts of Operations - Adjusted Basis OperaUng R4wn~ - .:~ ---- .- _._..~. .....--..----,--.---.-- ~ services , $~64L.... $3..527 ~~~% _ ,.$10.752 $10,353 3.9% . L~ access servlce3 7" 1.973 1.893 4.2 5 905 5.743 : 2.8' -- _ ,._._...._ _" , . . . -.. _ ... _. '" . ._'0_...... . ...,. _ ,.1..... . _.. .....__..., .__" .. "_'"_''' . long distance services . 455 489 ' (7!OI.... ~,~1Q_. "_" V~~~_; _ (~.5t. .~ciIl4ty services _._~ ...,-.-..-.. 567".' 549 __ _.'~""~ 1.630 1.556 ' 4.8 6.643 6.458 .~._9 "" _ 19.657 19.117 ?.&-_ -Oporati~ Expettsct!J . Employee costs DepreCiation IInd amortit:ation , Other operating oxpsntes . QpoRting lncomo ~usCltd Net Income 1.388 1.792 5.026 ' $1.617 ....- $ 862. 1.313 . 1.788 4.907 $1.551 ,,- $ a05 S.L- .2 ~,:.4 4.3 1.1 .._.~.."~.L._~.~.L~_ __J~~L _. 4.087 3.862 5.0 5.152 5.150 ' 14.680 14,503 ; 1.2 $ 4.977 $ 4.614 . 7.9 $ 2.639 $ 2.441 B.1 "-J!-~_,.hE!9.L _.__ _~.2..___ ~ Operating Revenues Local Services Local seryiees revenuC$ arc earned by our operating telephone subsidiaries from the provision of local exchange, JoeaJ private line~ public telephone (pay phone) and value-added services. Value-added services are a family of servi~ that expand the Utilization of the network. These services include products such as Caller 10, Call Waiting and Return Call. Growth in JoeaJ services revenues of$121 million or 3.4% in the third quaner of 1999 and $399 million or 3.9% in the first nine months of 1999 was primarily due to higher usage of our network facilities. This growth was generated. in part, by an increase in access tines in service of 3.4%. We had 42.739,000 switched access lines in service at September 30. 1999 compared to 41.316,000 switched accesS lines in service at September 30, 1998 (1998 access lines have been restated from the previously disclosed amount). Access line growth primarily reflects higher demand for Centrex services and an increase in additional residential lines. Local services revenue growth in 1999 also reflects strong customer demand and usage Df our data transport and digital services such as Frame Relay, ISDN (Integrated Services Digital Network) and SMDS (Switched Multi~ megabit Data Service). Revenues from our value-added services were boosted in 1999 by marketing and promotional campaigns offering new service packages. .os;::- --=- Revenue growth from these factors was pmtially offset by a decline in revenues from our pay phone services due to the increasing popularity of wireless communications. In addition, the resale of access lines and the provision of unbundled network elements to competitive local exchange carrien reduced revenues in 1999. Both periods of 1999 also included an accrual for a required rebate to customers in Massachusetts under New England Telephone and Telegraph Company's pricc cap plan. Network Access Services Network access services revenues are earned from end-user subscribers and long distance and other competing carriers who use our Jocal exchange facilities to provide services to their customers. Switched access revenues are derived from faxed and usage-based charges paid by carriers for access to our local network. Special access revenues originate from carriers and end-users that buy dedicated local exchange capacity to support their private networks. End.user access revenues are earned from our customers and from reseUers who purchase dial-tone services. >. ,r' J , , f~' ..-' j,..Ir..", '{<""~1..,.1 - - ..-.I " > . ~ ':1 . '.: :".' c I Domestic Tefecom - continued Our network Beees5 services revenues grew $80 mUlion or 4.2% in the third quarter of 1999 and Sl62 million or 2.8% in the first nine months of 1999, as compared to the same Periods in 1998. This growth was mainly atlrlbutable to higher customer demand, as reflected by growth in access minutes of use of 4.2% from the third qunrter of 1998 and S,20..1J from the first nine months of ] 998. Volume growth also reflectS a continuing expansion of the business . market, particularly for high-capacity services. In 1999. demand for special access services increased, reflecting a sreater utilization of the netWork. Higher network usage by alternative providers of inttaLA T A toll services and higher end-user revenues attributable to an increase in access Jines in service further contributed to revenue growth ' this year. ' . . In addition. the three and nine month periods of 1999 included revenues rucived from customers for the recoveJ)' of local number portability (LNP) costs. LNP allows customers to change local exchange carriers while maintaining their existing telephone num~. In December 1998. the Federal Communications Cammission (FCC) issued an, order permitting us to recover costs incurred for LNP in the form of monthly emf-user charges for a five-year period beginning in Febmazy 1999. LNP charges contributed approximalely $28 million to network access services revenues in the third quarter of 1999 and approximately SS8 million for the nine.month period ended September 30, 1999. ' Volume-related growth was partially offset by net price reductions mandated by f.:deraJ and state price cap and incentive plans. State public utility commissions regulate our operating telephone subsidiaries with respect to certain intrastate rates and services and certain other matters. .Sttte rate reductions on access services included a NC\v YoIk State Public Service Commission (PSC) order that reduced revenues by $94 million :umually, beginning in the third quarter of 1998. The negative effect of state price reductions was lessened in the third quarter of 1999 as a l'eSUlt of me full-year recognition of these reductions in New York. The FCC regulates the rates that we charge long distance carriers and end-user subscribers for interstate access services. We are required to file new access rates with the FCC each year. In July 1999, we implemented mtem2te price decreases of approximately S23S million on an annual basis in connection with the FCC's Price Cap Plan. These rates will be in effect through June 2000. Interstate price decreases were $175 million on an lWlual basis for the period July 1998 through June 1999. The rates also include amounts necessary to recover our operating telephone subsidiaries' contribution to the FCCs WliversaJ setvice fund and are subject to change every quarter due to potential increases or decreases in our contribution to the universal service fund. The subsidiaries' contributions to the universal service fund are included in Other Operating Expenses. See "Recent Developments - FCC Regulation and Interstate Rates - Universal SClVicc" for additional information on universal service. Long Distance Services Long distance services revenues are earned primarily from caUs made to points outside a customer's local calling area, but within the same service area of our operating. telephone subsidiaries (intraLA T A toU). Other long distnncc services dw we provide include 800 services, Wide Area Telephone Service (W A TS), corridor services and long distance services originating outside of our region. The dceline in long distance services revenues of$34 million or 7.0% in the third quarter of 1999 and $95 million or 6.5% yw-to-datc was principally caused by the competitive effects ofpresubscriptioD for intraLATA toU services. Presubseription permits customers to use an alternative provider of their choice for intraLA T A toll calls without dialing a special access code when placing a call. Presubscription is now being offered in all states throughout our region. In response to presubscription, we have implemented customer win-back and retention initiatives that include toll calling discount packages and product bundling offers. These revenue reductions were partially'offset ~ 'So higher calling volumes. You can fmd additional infonnatioD on presubscription under "Recent Developments - Competition - lnn-4LATA Toll Services." ... " " " .', " . , - \Tt., I Domestic Telecom - cominued : 1 Ancillary Servkes Our anclllaJy 'set:vices include billing and collections for long distance carriers, collocation for compttitive local exchange carriers, systems integration. voice messaging. Internet access. customer premises equipment and wiring and maintenance services. In 1999, we recognized higher ancUlaty services revenues of SIB milHon or 3.3% in the third qUarter and $74 million or 4.8% year-to-date over the corresponding periods last year. Revenue growth in both periods was principally due 10 higher demand for such services as systems integration, billing and collections, voice messaging, and customer premises equipment and wiring and maintenance. We also received higher payments of revenue in 1999 from competitive local exchange cmriers for interconnection of their netWorks with our network. ' OpcrntiDg ErpellJeS .;; Employee Cos.ts '. Employee costS, which consist of salaries, wages and other employee compensation. employee benefits and payroll me$, increased by $40 million or 2.2% in the third quarter of 1999 as compared to the same period in 1998. Employee costs were higher in the quarterly period principally as a result of increased overtime pay for repair and mainleWmce activity due tp severe rainstorms experienced throughout the region and as a result of increased salary and wages for management and associate employees. Higher employee force levels during the third quarter period. relative to the same period last year, also contributed to expense growth. These C\Jst increases were partially otfs.et by lower pension and benefit costs. . The decline in pension and benefit costs in 1999 was due to a number of factors, principally lower pension costs, as ,a result of favorable pension plan investment returnS and changes in plan provisions and actUarial assumptions. These ~rs were partially offset by increased health care costs caused by inflation mtd benefit plan improvrmcnts provided for W1der new contr.1cts with associate employees. For the nine.month period ended September 30. 1999 employee costs declined by $50 million or 0.9% over the corresponding period last year. Employee costS were lower on a year-~date basis mainly as a result of reduced pension and benefits costs during the year. Increased salaries and wages for management and associate employees and increased overtime pay substmtiaUy offset pension and benefit reductions. Employee costs were also reduced in both periods of 1999 by the effect of capitalizing employee.rel2ted expenses associated with developing internal use software under the new accounting standard, Statement of Position (SOP) 98-1, wAccounrlng for the Costs of Computer Software Developed or Obtained for internal Use." For additional information on SOP No. 9&-1, see Note 2 to the condensed consolidated financial statements. Depreciation and Amortization Depl'tCiation and amorti%ation expense increased S75 million or 5.7% in the third quarter of 1999 and S22S million or 5.8% in the fir.3t nine months of 1999, principally due to groWth in depreciable telephone plant and changes in the mix of plant assets. The adoption of SOP No. 98.1 also contributed to the increase in depreciation expense in 1999, but to a Jesser extent. Under this new accounting standard, computer software developed or obtained for internal use is now capitalized and amortized. Previously. we expensed most of these software purchases in the period in which they were incum:d. These factors were partially offset in both periods by the effect of lower rates of depreciation. Other OpuaJlng Expenses Other operating expenses remained relatively unchanged in the three and nine-month periods ended September 30, 1999 as compared to the same periods last year. Major components of other operating expense in both the 1.999- periods included higher COstS associated with entering new businesses such as long distance and data services and higher in[el'Connection payments to competitive local exchange and other carriers to tenninate calls on their networks (reciprocal compensation). We also recognized higher materials costs in the quanerly period as a result of severe rninstonns. The nine.month period also included higher Year 2000 readiness costs. These expense increases were largely offset in both periods by the effect of SOP No. 98- J and by lower spending at our operating telephone subsidiaries for such expenditures as local number portability and rents. For additional information on reciprocal compensation refer to "Recent Developments - Telecommunications Act of 1996 - Reciprocal Compensation." -:;. .,., . .' ~'... I..n< . ,I) , ,If ..J ., '\ '.r. ~ll,.".si ..:. \.~) ..', ' , 0,1),. I,'. :.',,'. I Global Wirdesa Our Global Wireless segment provides wireless telecommunications services to customers in 24 states in the United States and includes foreign wireless investments servicing customers in Latin America, Europe and the Pacific Rim. . . n;;:e;-MCiiii1s Ended : '.~_iI!~)_...,._.__.__....."..":'... ._"~;so. . , 1m '1t91. L~of.~~~":.~~~~~_i___,__._.__ . , Nine MOI'Iths Ended ,___~er3~, ;:r.C-.;:=n.....-' % Change 1199' 1998; 7\1...!:. I _._-_-.-...._---~-_..._..- - , oPitrating Reye.we. ~~.Ie~, ".r0,ges" ..._,_......~-~---_._..,......._......,..'._. ....... _.~ ...~. $1.187 -$9644.----2if.6~~- "'..$3:305'.- $2.792 .".~.'. 1~:.4~. ~J;~~~._. '~~~-.-:::...... _ . .. _ _ _ __..__ EmploytfJ: costs ',46 - ',44 -1~4' "h -'-42if""--' 40S---'--if.7" , .. ,. . .. .... ,- '- , .D.!Jt)~cio1tiC!~ I?n5'-am~ion. 159 -'50'" -. ~i3:(:i" '-:-"483'-' - - 43,~--'-'f2.i" ... .Oj~t o~~!i~.~_~~~. .... _ _ .-....612 . 494"" ---'-23:-9-'- ,. --,-:762'-""',-;-39.r-"'''''26.4 .. 917 788 16.4 2,673 ' 2.230 19~9-- $ 270 $196 37.8 $. 632' $ 562 12.5 .---. ..+- .-... .. OpmrtJI:D{U~cO!M -=~::~~-:.~~- . Income (LoIs) From Unconsofidated ."~~_.. -'. ~ctd Net Income $ 38 $ 133 $ 47' $ 287 : $ {811. $ 176: $ (141 $ 81 - ...-.. .... 63.1 64.2 Operating ReveDues Revenues earned from our consolidated wireless businesses grew by $203 million or 20.6% in the third quarter of 1999 and $513 million or 18.4% in the first nine months of 1999. as compared to the same periods in 1998. This revenue growth was largely attributable to our domestic cellular subsidiary. Bell Atlantic Mobile, which contributed $166 million to revenue growth in the third qumter and $445 million in the frrst nine months of 1999. This growth was driven by custOmer additions and increased usage of our domestic wireless services. Our DigitalChoicc SingleRate" pricing plans fueled much afme growth. Our domestic cellular customer base grew 16.2% in the first nine months of 1999. over the same period last year. Total revenue per subscnber for our domestic cellular operations increased 2.3% for the third qU3fter of ]999 and 1.1% for the first nine months of 1999 over the coircsponding periods in 1998. Revenues from Iusacel~ our Mexican wireless investment, grew $043 million for the third qumter of 1999 and $85 million year-to-date 1999. principally as a result of subscriber growth and higher rates charged for semees. Revenue growth from our domestic and inttmational cellular businesses was slightly offset by the effect of the December 1998 sale of our paging business. Operating Expenses Employa Costs Employee costs ineicased by S2 million or 1.4% for the third qumter of 1999 and $13 million or S.7% for the first nine months of 1999. principally as a result of higher work force levels at Bell Atlantic Mobile. Employee costS at Iusm:eU wert lower in both the 1999 periods, principally due to a reduction in work force levels. Depreciation and Amortization Depreciation and amortization expense increased by $9 million or 6.0% for the third quarter of 1999 and $52 million ... or 12.1% for the first nine months of 1999. This increase was mainly attributable to growth in depreciable cellular plant at Bell Atlantic Mobile. Capital expenditures for our domestic cellular network have increased in 1999 to support gn:ater demand in all markets. Other Operaling Expenses For the third quaner of 1999. other operating expenses increased by $1]8 million or 23.9% and $368 million or 26.4% for the fust nine months of 1999, principally as a result of increased service costs at Bell Atlantic Mobile due to the growth in the subscriber base. including additional costs of equipment, higher roaming payments to wireless carriers, and higher sales commissions, Higher service costs at lusacell also contributed to expense growth in both periods of 1999, but to a le~r extent. These factors were slightly offset by the effect of the December 1998 sale of our paging business. " ~. . < ":. ;' ," , . .~ I I. . " , ,c, . :" ., .u' "j ,c, I, ' ';" , , .: , ' .. , ' ,\',' , . I " '," .' ',' 'i' :. , I ,; . ',/ " ~ ~ ' ' .' ." L' ~. : ,) ":', ,:~,?'/:(:~/,:!;f,;,:',~::.:,~:,~,~;~.,<,!".. ,.. , i ' t :i; I Global Wireless - continued .J , ' Income (Loss) From Unconsolidated Businesses The changcs in equity income (loss) from unconsolidated 'businesses for the three 'and nine month periods ended September 30, 1999 were principally due to improved results from our investments in Omnitel Pronto ItalJa S.p.A. (Omnitel), a wireless investment in Italy, and PrimeCo Personal Communications, L.P. (PrimeCo), a personal communications services (PeS) joint venture in the United States. Both OmnitePs and PrimcCo's operating results were fueled by strong subscriber growth. PrimeCo's results for the first nine months of 1999 also included a gain on the sale ,of o~ons in Hawaii. .....-... , ' ( 1__Directo", Our Directory segment consists of our domestic and international publisJling businesses, including print directories and Internet.based shopping guides as well as website creation and hosting and other electronic commerce services. This segment has openuions principally in the United States and Central Europe. , , __.____.._.c...._.___._.__._,_, ,-.- '~~"i;;ii;f , !Q~..~.ln Mi!l!~L___. _..__ ,,_ .. ,___, _s,~~ 30. _ .. '1999 ~998 % Change .~~ of Qe!!etions - AdjustR Basi...!__ .~~~-'!!...!!~~-==--=~~~- =--:::~--- . .Dite:ct~~~___._____ _.._ $501 $486 tl'.. Months Ended SepU:mber 30. 1999 1998 "'~ll 3.1% $1.669 $1.622, 2.9% ,; ,9.~~li!~_~.~~ '._-::-.~~'--,'" -,.. . ' ~~,-~~:-:===- 82 -----. '~$:d::~:~-;moni"tarT;n~ . .-. , - .'.. "'S. ...-._u9- 11(~:~t-....;- 2i~ -':'Qi~~ oi*atini!.~~s ~_~~_' ~:'.'. . _"u; 66-' -. '--;G4 -~.41'-:-S42 246 255 (3.51 BOO .$255 $231 10.4, $ 863 I $148 $134' 10.4 $ 504 251 26 548 825 $ 797 . $ 464 (5.51 fi- 11.11 (2.31 8.3 8.6 :-~ lncomf: .~ Net Inc<<ne OperatiDg ReveDues 'Operating revenues from our DirectoJy segment improved ,by Sl5 million or 3.1% in the third qua.'1er of 1999 and $47 million or 2.94'10 in the first nine months of 1999. as compared to the same periods in 1998. This revenue growth was principally due to increased prices for certain directory services. Higher business volumes including revenue from new Internet-based shopping directory and electronic commerce services also contributed to revenue growth in the both periods of J 999, but to a Jesser extent ' Operating Expenses Third quarter 1999 total o~ing expenses declined $9 million or 3.5% and nine month 1999 total operating expenses declined $19 million or 2.3% from the corresponding periods in 1998. These decreases were largely attributnble to lower work force levels. Lower spending for maintenance. repair and other costs of services also contributed to the decline in operating costS in 1999. - - .... , J "I;t~ r" ?4, -. , - . '". ,'\., ' " <}"~:'.'.: ~-f" ~,~. .1. \"\ ,..t.. . ,;"1 /~ 1( "' " '~"\ ........-....J ...... lIJ............j I Other Businesses Our Other Businesses segment includes 'international wireline telecommunications investments in Europe and the Pacific Rim, lease financing and all other businesses. ' " HiM Months Ended ~bet 3D, % 0;;;;;- -, ._,~ 1999 1998 % ~ T1ne MontN Ended ~IM 30. 1999 1998 ; fOci"" In MalIon1l ; RoIuIt:I of ep.rinns - ^~ Basls , Open1ing Revenues I Other services 21.4%-:- $100: tBB . 13.i%' $ 34 $ 28 ; ~..til,>> &J*1.U'_ ; Employee costs ~.--==.__ .f _._._2 f33:3f .... --.....'8-~ ,~.. ~ 1''--f27-:3j"'' . Depreefotionanchrnorilzation - 1 :' . .. ..3'-....-- -... ''3--- :..... :gtner oper~..!...~nnes --., -- .. -23 . ..-. ""24'----i4:21 '.... "0-' ~.' ,.'. . 82'-'~.I;A:Gi ~ 25 28 (10~.7i - 81 96 115.6) $ 9 $ - - $ 19 $ (8) , ~.til~ Ineomlt (Lossl i Income From Uncon:IoIidIItltd B~ . ~ "'et!nl:ame $. 59 $ 86 $ 53 $ 81 11.3 6.2 $ 16 ' $ 24 $ 26 $ 35 (36.51 (31A) Operating Results , Opcntting income results from our Other Businesses increased $9 million in the third quaner of 1999 and $27 million in the first nine months of 1999 over the same periods in 1998. This change was largely due to operating revenue growth and lower oper.mng expenses at our lease financing businesses. Income from unconsolidated bUsinesses decreased by SIO million in the third quarter of 1999 and increased $6 million in the fi:m nine months of 1999 over the saine periods in 1998. Results declined in ~e th ird quarter of 1999 principally as a result of higher equity losses from our investment in FLAG Ltd. (FLAG). which owns an undersea fiberoptic cable system, providing digital communications links between Europe and Asia. Results for the ni':1e- mODtb. period ended September 30. 1999 reflect lower equity losses of FLAG, principally due to the effect of one~ time charges recorded 1998. Our three and nine month results were also affected by lower equity income from our investment in Cable & Wireless Communications pic (eWC). an international cable television and telecommunications operation in the United Kingdom. Effective May 31, 1999. we took steps to dismliUate from Telecom Corporation of New Zealand Limited (fCNZ). As a result, we DO longer have significant influence over TOlZ's operating and financial policics and, tht:refo1'e. have changed the accounting for our investment in TCNZ from the equity method to the cost method. The change in the method of BCCQunting for this invesanent is not expected to have a material effect on our future results of opcnUions. We currently hold a 24.94% interest in TCNZ. Coincident with our change to the cost method of accounting, our investment in TCNZ is now subject to the provisions of SFAS No. 115. '"Accounting for Certain Investments in Debt and Equity Securities.1t Under these provisions. our TCNZ shares are classified as "available-for~sale" securities and. accordingly. our TCNZ investtnent has been adjusted from a carrying value of $363 million to its fair value ofSI.748 million at September 30, 1999. The increased value of our investment is recorded in Investments in Unconsolidated Businesses in our balance sheet. The unrealized holding gain of $900 million (net of income taxes of S48S million) has been rtcognizedJri - Actumulatcd Other Comprehensive Income (Loss) in our statement of changes in shareowners' investment. I . .' ,;. ;'. ~ r 1 ".= I.' l .' I ~. . 'NM6Vc(~'il'ng' ~ Itl"ms ';";".' /', :.',,1,,::, ^ \;-:-,(:!),:'.' "~,~',1 <I,: . 'I: \OJ/A '.Y .:,;\ II' "I' .!,~ ., ,P "~ ~ \ ~ \.. t . Il I I I I . i, 1 '. I Ii.. I...., I r I r - \ '1\''- 1""......;., ... The following discussion of nonoperating items is based on the amounts reported in our consolidated fmanciaJ statemenu. r.......~~.< -----. 1b,.. Jjonths EiiCiOd --. - -. NJne Months Ended . .~ f'lm!~).__. ~ ... -. .-- - -~. ,-. . -... . . _~r_30..!..1~%'Change _.._,_~~lHIrl!!~9j)8'~i;tiaii9.-,: Intarest Expense . , "-~-' -'" .-... ~ - ... .--............-.--.-....-. ~....._... -... ..-.- ..-.....---... ."- ~_.. ~-'-- , .TQt~I.~<<!~~, !I~.~;:!~f?~fle~ __. ._. _., ..$ _.~Q~. .....$__ ~~~L.._q ~.91% ._~~J~_Lho32 19.01C!f,. .S.~~f~I,~~.T -: ~,~~D:~QWf'!, ~f ~~ . . ...... ..::. .... --.._~.~L _'.. . " _.._.":___._ .....J1JL___.~_ Settlement of ux.mlat!d matters 1461 ' Imeno.st experus.e - fllCChJding special item 21r.d tal( settlement 309 ' C3pllaJJzed Inteiest costs -- 25 TOt8ilnt~CQ5to';'debt balances & 334 Ay~!~ge:.~ebti~~Mi.!l.9.,_~~='. .,..=.~~..~. ' $20.752 Effective lmerest rate 6.4% ....-.......---....... -....- .-.... -~"--~""-_..'-- 312' (1.01 i4--:~ ~:~2 $ 336 !,61 $19.874 4.5 6.8% .... '..' 939 ' 64 $ 1.003 $20,346 6.6% ' 939 . 67 . -'4.51 $ 1.006 (.3) ~- "'-. -,....._, $19,937 ..~~L . 6.7% The decline in interest expense in the three and nine months ended September 30, 1999, as compared to the same periods in 1998, was principaHy attributable to the effect of a special item recorded in 1998 related to the writ~ down of lusactWs fixed assetS, as described earJier in the Overview sectlon. Interest expense for the nine-month period was also affected by added interestS costs recorded in 1998 in connection with the settlement of tax-related matters. Excluding these items. we reduced our interest cOSt on debt balances in both periods of 1999 due to several refinancings to lower rates of interest, retirements of long-tetID debt by our operating telephone subsidiaries and an overall deaease in our effective interest rate. These decr~ were partiaJJy offset by higher average debt outstanding. _~ In t.m1ons) -.------'---'hIreoMonbEnded-..-" '--"-Nliii~Enl.Iect --_._~._. sepc.mMi' 30, Sflptesn~ 3D, 1m ,"a %cnangf ,m 19;e-%, c~-' -Olhor Income anci (Exptnso), Net }..~ Interest Incomo..!!?9?:!nsel. net . Fonl!p!!: CUtf1lncy ~l!ins. net IntUllst Income Gains on disposhion of 21ssetslbusiness. net Other. net ..TotaJ - ree?!!!.~ $ (331 (2) , 5 40 2 $ 12 5 -% $ (821 26 20 11 (54.5) 25 (1) 49 2 23 43 (72.11 $ 35 $ $ (561 41 75 25 14 $- 99 (46.41% (51.2)'- (65:7)- 96.0 64.3 (64.61 $ The change in other income and expense in the three and nine mond1s ended September 30t 1999, as compared to the same periods in 1998, was due to changes in reveraI component~ as shown in tiJe mble above. The change in minority interest was largely due to the recognition ofmmorlty interest expense in both the 1999 periods related to our investment in lusacell. In 1998, we recorded minority interest income for lusacel1., principally resulting from the write~own offlXed assets as described earlier. Funher contributing to the change. in 1999 we no longer record a minority interest expense related to the outside party's share of the subsidiary's earnings in connection with the , sale of our investment in Viacom Inc. (Viacom), Foreign exchange gains were affected in 1999 as a result of the discontinuation of highly inflationary accounting for our lusacell subsidiary, effective January 1. 1999. As a result of this change. lusacell now uses the Mexican peso as its functional currency and we expect that our earnings wi11 continue to be affected by any foreign currency gaiiiSor- losses associated with the U.S. dollar denominated debt issued by lusacell, Also, in 1998 we recognized higher foreign exchange gains associated with other international investments. Finally, in the third quarter of 1999, we recorded higher gains on the disposition of assets, primarily due to the sale of real estate in New York. In 1998, we recorded additional interest income in connection with the settlement of taX-related maners. '. .' ~Nl~M<irl!hs.~ded.~~~~~~. 1999 199! Effe~live Income Tax Rates '__~?'.~_~ ..__. _.. __, _~~.2% The effective income taX rate is the provision for income taxes as a percentage of income before the provision for income usxes. Our effective income tax rate for the nine-month period ended September 30, 1999 was lower than the corresponding period in 1998, prima.~i1y due to the write. down of certain international investments in the third quaner of 1998 for which no tax benefit was provided. This factor was partially offset by lower taX credits in 1999, as well as adjustments to deferred income taxes at c~rtajn subsidiaries in 1998. I~ln.~)..", ,,' .; l t' ',I"./-) /') <,.H'''j .... , ' .." ) ~.~'4,!'o. ::: , ",--"I I . ~ . ' I . ~ ,.:. ",: '; .,~, t!~ ,; ..<' . " , ,.Gon!.olj~tJ(6B",Fjb:~n'~.i~l\ch'r)~it~on~' ;;~;': .j,:,\~;I;. ). /.I)~ :'I;'}.',"'\: /.';;~ ~:;). ~\>.'~ y j \ -, ">Niiii~-'----'- ~tr3D, 1t99 ' '"8 n:hinge _(OOIIaIs In MiIlons) "_'___'_'_._ Cast. Flows FriinjUnd In) ...____.__._______ . Oper'8tfng actlvltln __ ...___, __....!..L405 In'lUtJ!!g: .c.1MtIe. __.__________.__ _ ___. _. . .._~.5U21 . Rnancln; ICtivitles 11.9161 _I~'fncaih!.~ ~E~.~~:. _, __ _ , ,~,~ :,' ._ =~=. ':..' $ 27 $ 55- (541 {272j-- $(2711 $ 7,350 (5,4081 : (1,6441 $ 298 . We use the net cash generated nom our operations and from external fmancing to fund capitaJ expenditures for netWork expansion and modernization, pay dividends, and invest in new businesses. While current liabilities ex~ current asse~ at September 30, 1999 and J998 and December 31, 1998, our sources of funds, primarily from operations and, to the extent necessary, from readily available external financing arrangements, are sufficient to meet ongoing operating and investing requirementS. We expect that presently foreseeable capital requirements will eontinue to be financed primarily through internally generated funds. Additional debt or equity financing may be needed to fund additional development activities or to maintain our capital strUcture to ensure our fmanciaf , flexibility. I Cash Rows F:rom Oporating Activities The increase in cash flows from operating activities in 1999 was due to growth in operating income, partially offset by change$ in working capital. The change in working capital Was caused primarily by the effect of our retirement incentive program which concluded in 1998. I Cash Flows Used In Investing _Activities .1 Capital expenditU.reS continued to be our primary use of capital resources. The majority of the capital expenditures was for our Domestic TeJecom business, to facilitate the inn-oduction of new products and services, enhanc: responsiveness to competitive challenges, and increase the operating efficiency and productivity of the network. We invested approximately $4.968 million in our Domestic: Telecom business in the first nine months of ] 999, compared to $4,766 million in the first nine months of 1998. We also invested approximately $848 million in our WII'C1ess, Directory and Other Businesses in the first nine months of 1999, comp;uoed to $655 million during the same period last year. In 1999, we expect total capital expenditures to be in the range of$8.3 billion to $8.5 bUlion. We invested $872 million in unconsolidated businesses during the first nine months of 1999 and S529 million during the same period in 1998. fn June J999, we invested S635 million in our Omnitcl investment. increasing our ownership percentage from 19.71% to 23.1%. In April 1998, we invested $162 million in Omnitel to increase our ownership interest from 17.45% [0 19.71%. We also invested $200 miJlion in me first nine months of 1999 and $270 milUon in the first nine months of 1998 in PrimeCo to fund the build-out and operations of its PCS network. Other cash investments of$37 milHon in 1999 and $97 million in 1998 were primarily in our leasing business. During the first nine months of 1999, we invested $43 mUlion in shol1-tenn investments, compared to 5294 million during the same period last year. In 1998, we pre-funded a vacation pay trust for the payment of certain employee benefItS. Beginning in 1999. we no Jonger pre-fund the vacation pay b'USt. Proceeds from the sales of all shon-tenn invesunents were $785 million in the first nine months of 1999. compared 10 $854 million in the corrcspondine- .. period of 1998. In the first nine months of 1999. we received cash proceeds of$612 million in connection with the disposition of our remaining invesnnent in Viacom. j c, ~ ",'c .~ - - l~ Flows Used I~ Financing Activities As in prior quaners. dividend paymcnts were a significant use of capital resources. We determine the appropriatene"'..s of the level of our dividend pa)7l1cnts on a periodic basis by considering such factors as long-term growth opportunities, Internal cash requirementS, and the expectations of our shareowncrs. In each of the first, second and third quartets of 1999, we announced a quarterly cash dividend of$.385 per share. In Marth 1999, we rcceived cash proceeds of S380 million from a financing transaction involving cellular assets between Bell AtJantic Mobile and Crown Castle International Corporation. A joint venture was fanned for the primary purpose of fmancing Bell Atlantic Mobile's investment in cellular towers. Bell Atlantic Mobile, together \\-ith ccnain partnerships in which it is the managing par1I\er (the "managed entities"), contributed to the joint venture approximately ).460 ceJJuJar towers in exchange for approximately S380 million il:1 cash and an equity interestofapproximmety 37.7% in thcjointventu.re. Bell Atlantic Mobile,.and the managed entities have leased back a portion of the towers. and the jDint venture wjJ! lease the remaining space to third panies. The joint venture also plans to build new to'wers. , We in~ our tow debt (including capitalleasc obligations) by $115 million from December 31, 1998, primarily to fund our capital program including investments in Omnite1 and PrimeCo, paniaUy offset by the use of cash proceeds received ftom the disposition of our remaining investment in Viacom. Our debt ratio was 57.2% as of September 30, ) 999~ compared to 615% as of September 30. 1998 and 61.3% as of December 31, 1998. The debt ratio a~ September 30, 1999 reflects the effect of recording an unrealized holding gain of S900 millioIly net ofraxes, related to our TCNZ investment, as described earlier under "Segmental Results of Operations-Other Businesses." By the end of 1999. we expect our total debt level to increase by approximately S2.0 billion to $2.5 billion from the balance at December 31. 1998. subject to any modification of our investment scrategy. A significant portion of the increase is being driven by our additional invcsanent in Omnitel~ the purchase of cellular properties, funding of employee benefit trusts, and ongoing investment in our wireline and wireJess networks. As of September 30, 1999, we had in excess of $4.4 billion of unused bank lines of credit and $96 million in bank borrowings outstanding. As of Sepwnber 30. 1999. our operating telephone subsidiaries and fmancing subsidiaries had shelfregistnltions for the issuam:e ofup to $2.9 billion ofunsecured debt securities. The debt securities of those subsidiaries continue to be accorded high ratings by primary taring agencies. After the announcement of the Bell Atlantic-GTB merger, the rating egencies placed the ratings of c~tain of aur subsidiaries under review for potential downgrad.c. We also have a $2.0 billion Euro Medium Tenn Note ~tW, under which we may i1sue notes that are not regL~ with the Seeurities and Exchange Commission. TIle notes may be issued from time to time by our subsidiary, Ben Atlantic Global Funding, Inc. (BAGF), and will have the benefit of a support agreement between BAGF and Bell Atlantic. There have been no notes issued under this progtam. In the seccnd quaner of 1999, our operating telephone subsidiary New England Telephone and Telegraph Company issued $200 mimon of 5.875% notes due on ApriJ IS, 2009. The proc~ds from the issuance were used to redeem $200 million of 7.375% notes due on October 15. 2007. We recorded an extraordinary charge of $1 mimoD (net of an income tax benefit of SI miUion) related to this redemption. We also recorded an exuaordinary charge of $S million (net of an income tax benefit of $3 million) in the second quarter of 1999 in conncetion with the repurchase of$57 million in principal amoWlt of debentures of certain of operating telephone subsidiaries. In 1998, our wholly owned subsidiary, Bell Atlantic Financial Services, lut. (FS1), issued exchangeable notes totaling SS.635 million. Proceeds of the offerings were used for repayment of a portion of our short-term debt and other general c:orpo.rale. purposes. You should read Note 6 to the condensed consolidated fmancial statements for additional infonnation on these exchangeable notes. In connection with our invesonenl in lusacelJ. as of September 30, 1999, we received cash proceeds totaling Sl19 million from the public offering of its shares. See Note 4 for additional information tln lusacell and these share offerings. :llitiiarke' t". R' ~'S' 'i:' /;;,('i:,t;,:.~, ;.~r :!(,',,, i"~ ,,<:1' ,.:,{',d .,;, "\<'1'1''-' ,;,I{ ,\\1 \'! ;A~;;,'I,7i0;:':)J'(,,0: "\1: 1\11" , " K- f { I~ ,,"I~~ ~~"i .". ',. \,It, 'I.\. .~, ,..,..... '.' ,.,:', \. .t'\.'".. ',. .1,' \., I' ,.. I.} , We are exposed to various types of market risk in the normal course of our business, including the impact of interest rate changes. foreign currency exchange rate rluctuations, changes in equity investment prices and changes in corpor.ue We ratcs. We employ risk management strategies using a variety of derivatives including interest rate swap agreements, interest rate caps and floors, foreign currency forwards and options and basis swap agreements. We do nDr hold derivatives for trarling purposes. "',\ ~ t~ r / '"!-..- '- I 'Il_."'. "c, 1', It Is our potlcy to enter into interest rate; foreign cl11Tency and other derivative transactions only to the extent necessary to achieve our desired objectives in limiting our exposures to the yarious market risks. Our objectives include maintaining a mix of fixed and variable rate debt to lower borrowing costs within reasonable risk parameters, hedging the value of certain international investments, and protecting against eamings and cash flow volatility resulting from changes in foreign exchange rates. We do not hedge our market risk exposure in a manner that would comprctely eliminate the effect of changes in interest rates, equiry prices and foreign exchange rates on our earnings. While we do not expect that our liquidity and cash flows will be materially affected by these ,risk management strategies, our net intome may be materiaHy affected by certain market risk associated with our exchangeable notes as discussed below. I Exchangeable Notes . 1n 1998. we issued exchangeable notes as describOO. in Note 6 to the cond~sed consolidated fmancial' statements. These financial instruments expose us to market risk, including foreign exchange rate risk, interest rate risk and equity price risk which' could affect the fair values of the noteS and our future earnings. , Matket risk that could affect the fair values of the cxchangeable notes includes: · Equity price movements, because the notes are exchangeable into shares that arc traded on the open market and routinely fluctuate in value. · . Foreign cxchange rate movements, because the notes are exchangeable into shares that are denominated in a foreign currency. The fair value of the TCNZ exchangeable notes is affected by changes in the U.S. dollarl New Zealand dollar exchange rate, and ~e fair value of the ewe exchangeable notes is affected by changes in the u.s. d~llarl British pound excbaugc rate. . Interest rate movements, because the notes can)' fIXed interest rates. Market risk that could affect our future earnings includes: . Equity price and/or foreign exchange rare movements, because these movements may result in our TCNZ shares rising to a level greater than 120010 of the share price at the pricing date of the offering. Similar movements may cause the price of our ewe sbares to ~ to a level greater than 128% of the share price at the pricing date of the offering. If either event should occur, we are required to increase the applicable cxchangeable note liability by the amount of the increase in share price over the exchange price. This mark.~market transaction would reduce income by the amount of the increase in the exchangeable note liability. If the share price subsequently declines. the liability would be reduced (but not to less than its amortized canying vaJue) and income would be increased. At September 30, 1999, the fair values of the underlying TCNZ shares or ewe shares did not exceed the recorded values of the debt liability and, therefore, no mark.to-market adjuSUTlents were recorded to our financial statements. Interest rate movC".ments will not impact earnings, because the exchangeable notes carT)' a fixed hltercst rate and there is no requirement to mark to market the notes based on changes in interest rates. The following sensitivity analysis measures the effect on earnings due to changes in the underlying share prices of the TCNZ and ewe stock. . At September 30, 1999, the exchange price for the TCNZ shares (expressed as American Depositary Receipts) was S44.93 and the exchange price for the ewc shares (expressed as American Depositary Shares) was $57.89. . For each $1.00 increase in value of the TCNZ shares or the ewe shares above the exchange price, our earnings would be reduced by approximately SSS million or $56 million. respectively. A subsequent decrease in valum - the TCNZ shares or the ewe shares would COlTeSpondingly increase earnings, but not to exceed the a.mount of any previous reduction in earnings. Our earnings are not affected so long as the TCNZ and ewe share prices remain at or below their excbange prices. . Our cash flows would not be affected by mark.tlrmarket activity relating to the exchangeable notes. . lfwe decide to deliver shares in exchange for the notes, the exchangeable note liability (including any mark.to- market adjustments) will be eliminated and the investment will be reduced by the book value of the related number of shares delivered. Upon settlement. the excess of the liability over the book value of me related shares delivered will be recorded as a gain. We also have the option to settle these liabilities with cash upon exchange, A proposed restrUcturing of our investment in cwe. as discussed in Note 11 to the condensed consolidated financial statements, would change the securities to be delivered upon exchange for the ewe exchangeable notes. Under this restrUcturing, we would receive shares of two companies acquiring the businesses of ewe in excnange for our ewe shares. 29 J ..... , . .' , , " -... , f, :, .. .~ I Equity Price Risk I We abo have' equity price risk associated with our investments. primarily in common stock, that are carried at their f~r value. These investments are subject to changes in the market prices of the securities. Investments recorded at tbeir fair value totaled $1.873 million at September 30. 1999 and $29 million at December 31, 1998. The increase from December 31. 1998 was primarily due to a mark-To-market adjusunent of $1~8S , million associated with a change in accounting for our TCNZ investment from the equity method to the cost method. Note I t of our condensed consolidated flJ1anciaJ statements provides additional information on our TCNZ inv~mt . A sensitivity analysis of our investments recorded at their fair value indicated that a J 0% increase or decrease in the fair value of these securities would result in as 187 million increase or decrease in the fair value of the investments. A change in fair value, net of income taxes. would be recognized in A!=cumulated Other Comprehensive Income (Loss) in our stntem~t of changes in sbareowners' investment " BeU Atlantic and GTE Corporation (GTE) have announced a proposed merger of equals under a definitive merger agreement dated as of July 27. 1998. Under the tenus of the agreement, GTE shareholders will receive 1.22 shares of Bell Atlantic common stock for each share of GTE common stock that they own. Bell Atlantic shareholders will continue to own their existing shares after the merger. ' We expect the merger to qualify as a pooling of interests. which ,means that for accounting and finailcial reporting purposes the companies will be treated as if they had always bun combined. At annual meetings held in May 1999. the shareholders of each company approved the merger. The completion of the merger is subject to a number of conditions. including certain ~u1atory approvals and receipt of opinions t~at the merger will be tax-free. We are working diligently to complete the merger and are targeting completion of the merger around the end of the first quaner of 2000. However. Bell Atlantic and GTE must obtain the approval of a variety of state and federal regulatory agencies and, given the inherent uncenainties of the regulatory process. the closing of the merger may be delayeCL . Future operating revenues, expenses and net income of tile combined company may not fo1Jow the same historical trends, or reflect the same dependence on ectInomic and competitive factors. as presented above in our discussion of our own historical results of operations and financial condition. You should refer to Note 9 to the condensed consolidated financial statements for pro fonna fmandal infonnation for the nine~month period ended September 30. 1999. ",.---.' I Recent D~ve1opments Proposed Doml:Stic: Wireless Transactions Vodtzfone AirTauch On September 21. 1999. we signed a definitive agreement with Vodafone AirTouch pic (Vodafone AirTouch) to create a national wireless business composed of both companies' U.S. wireless assets. The completion of this ttansac:tion is subject to a nwnber of conditions.. including certain regulatory ayprovals and the approval of the shareholders ofVodafoDc AirTouch. We expect the transaction lO close in 6 to 12 months from the date we si~c;i. the agreement 1n the flfSt year following the completion of the merger between Bell Atlantic and GTE. we estimate that the new wireless business will dilute the combined company's earnings per share (EPS) by 3% on a cash basis and 7% on a, generally accepted accounting principles (GAAP) basis. You should also read Note 10 to the condensed consolidated financial statements for additional infonnation about this proposed domestic wireless business. Frontier Cellular On July 20. 1999. Bell Atlantic Mobile announced that it would purchase Frontier Corporation's (Frontier) interests in wireless propenies doing business under the Frontier Cellular name. Bell Atlantic Mobile currently owns 50% of the Frontier Cellular business. The transaction is expected to close in the fOUM quaner of 1999. .,.... a. 30 '. '1-'" l"J , , I I ( j 1 I I ! I 1 I 'J 1 . :"'''''''l. I 'l. ' '~I""';" ...- \''--'':;.1 I' I. ....."'D. I Recent Developments - continued ] luvestmeotJ fa IJD~DSOJidftted BUSiDtsses Agreeme1lt wilh Mur"medkl Fiber Network, Inc. On October 7. 1999, we mnouneed a strategic agreement with Metromedia Fiber Network, Inc. (MFN), a domestic and intematioMl provider of dedicated fiber optic networks in major metropolitan markets. Our agreement with MFN has two pam. First. we will acquire approximately SSSO million of long-term capacity on MFN's fiber optic networks. Of the $550 million, [()l'/O is payable in November 1999 and 30% wilJ be paid in each of the first three years of the contract. Second, we will iilVest up 10 approximately $700 minion to acquire up to 9.~1o of the equity of MFN through the purchase ofncwly issued shares at $28 per share. We also will purchase up to approximately $975 million in debt securities convertible at our option, upon n.-eeipt of necessary goveml1)~nt approvals, into common stock at a conversion price of $34 per share. increasing our potential equity investment in MFN to, about 19.94/0 of the company. Our investment in MFN, will be account.ed for under the cost method. C~rtain aspects of this agreement are subject to the approval of various regulatory authorities. which we hope to obtain before the end of the ye-.ar. Proposed Ri:.s~lu1'e of PrimeCo Personal Communications, LP. On August 3, 1999. we and Vodafone AirTouch announced an agreement to restructure our ownership interests in PrimeCo Personal Communications, L.P. (PrimeCo), a partnership tJlat was fanned by us and Vodafone AirTouch in 1994 and provides personal eomuumications services in major cities across the United States. Under the terms of th8t agreement. we would assume full ownership of PrimeCo operations in five Umajor trading areas" (MT As) - Richmond, VA, New Orleans, LA and the Florida MTAs of Jacksonville, Tampa and Miami. Vodafone AirTouch , wouJ~ assume full ownership of the remaining five PrimeCo MTAs - Chicago, IL, Milwaukee, WI and the Texas MTAs of Dallas, San Antonio and HoustOn. Under the terms of the Wireless Co. agreement described earlier and in Note 10 to the conden~ed consolidated financial statements, Bell Atlantic and Vodafone AirTouch agreed to suspend the August 3, 1999 agreement to restrUcture PrimeCo ownership interests, with certain limited exceptions. As a result, actions to allocate most PrimeCo markets would not ~mmence prior to February 2000 or may not occur at all based upon the timing of the completion oftbe proposed domestic wireless trmsaction with Vodafone AirTouch. Proposed Rutructure of Cable & Wireless CommuniCDlions pic On July 27. 1999. we announced an agreement with Cable & Wireless pIc (Cable &. Wireless), NTL Incorporated (N11..) and Cable &: Wireless Communications pic (CWC) for the proposed restructuring of ewe. We currently have an 18.6% ownership interest in ewc. Under the terms of the agreement. ewC's consumer cable telephone, television and Internet operatious woutd be separated from its corporate, business, Internet protocol and wholesale operations. The consumer operations would be acquired by Nn. and the other operations remain with Cable &. Wireless. In exchange for our interest in cwe. we would rcc:eive shares in the two acquiring companies, representing approximately 112% of NTL and approximately 4.?01o of Cable &. Wireless. Upon completion of the restructuring. our previously issued S3.1S0 million in ewe exchangeable notes would be exchangeable on and after July I, 2002 for shares in NTL and Cable & Wireless in proportion to the shares received in the restructuring. Upon exchange by investors, we retain the option to settle in cash or by delivery of the Cable & Wireless and NTL shares. -- We expect the restrUcturing to result in a material non-cash gain. The transaction also may cause the exchangeable notes to be marked to mark~ resulting in a charge to income. See Note 6 to the condensed consolidated Cmancial statements for additional information about the ewc exchangeable notes. ' The completion of the restructuring is subject to a number of conditions and. assuming Sarlsflu:tion of those conditions, is expected to close in the fU'St half of2000. 11 " .1', 'f }", :~. ,. I Recent Devel~~men~ ... continued j FCC Regulation and IDterstate Rates ' Price Caps In May 1999, the U.S. Coun of Appeals reversed the FCC's establishment of a 6.5% productivity factor in calculating the aMual price cap index applied to our inremate access rates. The court directed the FCC to reconsider and explain the methods used in selecting the productivity factor. The court granred the FCC a stay of its order, however, until Aprill, 2000. As a result, our annual price cap filing effective July I. 1999 includes the effects of the FCC's 6.5% productivity faCtor (see Domestic Telecom - pPerating Revenues - Net\Vork Access Services). The FCC has adopted rules for special access services that provide for added pricing f1exibilit:)' and ultimately the removal of services from' price regulation when certain competitive thresholds are met. The order also aUows cenain services, including those included in the interexchange basket.. of services. to be removed from price regulation immediarely. 10 response. we have filed to remove services in"'the interexchange basket from regulation, effective October 22; 1999. This will remove services with approximately $90 million in annual revenues from price regulation and from the operation of the productivity offset which otherwise would require annual price reductions. J >..........~. Universal Service On July 30, 1999, the U.S. Coun of Appeals reversed certain aspects of the FCC's' universal service order. The univUsa1 service fund includes a multi-billion dollar interstate fund to link schools and libr.uies to the Internet and to subsidize low income consumers and rural heaJthcare providers. Previously, under the FCC's rules, aU providers of interstate telecommunications f.ervices bad to contribute to the schools and libraries fund based on their total intmnlte and intrastate retail revenues. The court reversed the decision to include intrastate revenues as pan of'the basis for assessing cooaibutions to that fund. As a result of this decision. our contributions to the universal service fund wiU be reduced by approximately S107 million annually beginning on November I, 1999, and our intem21e access rates will be reduced accordingly. State Regulation Pennsylvania On September 30. 1999, the Pennsylvania Public Utility Commission (PUC) issued a final decision in its "Global" proceeding on telecommunications competition matters. The decision proposes to require our opernting telephone subsidiary in Pennsylvania, Bell Atlantic - Pennsylvania. to split into stparaIC retail and wholesale corporations. It proposes'reductions in access d1arges applicable to services provided to interexchange carriers and in both unbundled network element rates and wholesale rates applicable to services and facilities provided to competitive local exchange carriers. It requires BeU Atlantic - Pennsylvania to provide combinations of unbundled network elements beyond those required by the FCC. ]t reclassifies certain business services as "competitive." but restricts the pricing freedom that that classification is supposed to give Bell Atlantic - Pennsylvania. It sets 11 s<:hedule of prerequisites for state endorsement ofa Bell Atlantic - Pennsylvania application to the FCC for permission to offer in-region long distance service under Section 271 of the Telecommunications Act of 1996 (1996 Act) that are Ulcely to delay that endorsement Bell Atlantic - Pennsylvania has challenged the lawfulness of this order in the Pennsylvania Supreme CO~ the Commonwealth Court of Pennsylvania and the Federal District Court. Telecommunications Act of 1996 In-Region Long Distance _ _ On September 29, 1999, we filed our application with the FCC for pennission to enter the in-region long distance market in New York. This filing foHowed nearly two years of proceedings before the New York PSC demonstrating that we have satisfied the 14-point "checklist" required under the 1996 Act for entry into the in-region long distance market. The filing also followed an extensive seven.month third-part)' test of our operations support systems (OSS) in New York conducted by KPMG Peat Marwick (KPMG) under the direction of the New York PSC. On October 19.1999. the Chainnan of the New York PSC filed a statement fully supporting our application. On November I, ]999. the Depanment of Justice filed its evaluation on Bell Atlantic - New York's application. The Department of Justice stated that Bell Atlantic - New York had completed most of the actions necessary to achieve long distance relief, but that it had two areas of concern which "can be solved in a short time." We expect the FCC to render a decision on our application before year.end. ~ > L I." ,.. ,J 32 " , i.... J ,-~ { , \ ,;.",.,.-,J - ,. ....~.I} " ,,' , r , ~ ': ' I' . I Recent DeVelopments - continued KPMG has been retained by the Massachusetts Depanment of Telecommunications and Energy to conduct a third- party ~ of our ass in Massachusetts. The Massachusetts test i!1 designed to build on the KPMG [cst of the similar systmlS in New York. . KPMG has also been retained by the Pennsylvania PUC to conduct a third-parry test of our ass in PeMSylvania. The New Jersey Board orPublic Utilities is expected to retain KPMG to conduct a test of the New Jersey OSS that builds on thc,concurre:nt testing of similar sy3tCU1S in Pennsylvania. The Virginia State Corporation Commission has also begun an assessment of whether it should retain K.P.MG for the same purpose., , Unbundling o/Network Eknienu , The FCC recently announced its decision setting fonh new unbundling requirements. The FCC had previously identified seven elements that had to be provided to competitors on an unblUldled basis. With respect to those seven clemen~ the FCC concluded that incwnbent local exchange carriers, such as our operating telephone subsidiaries, do not have to provide unbundled switching (or combinations of elements that include switching. such as the s~ calledunbundJed element "platfonn>>> under certain circumstances to business customers with four Ot more lines in certain offices in the top 50 MetropoJiwl Statistical Areas (MSAs). It also held thar incumbcnrs do nClt have [0 provide unbLDldled access to their directory assistance or operator services. The remaining elements on the FCC's originallist sri!! must be provided. ' With respect to new clements, the FCC concluded that Ilew equipment to provide advanced services such as Asymmetric Digital Subscriber Line (ADSL) does not have to be unbWldled. On the other hand, the FCC concluded that inctllD~ must provide dark fibu as an unbundled element, and that sub-loop unbundling should be provided. Finally, the FCC ruled that combinations of loops and transpol1, known as enhanced extended loops or "EELs", must be made available under certain circumstances, bur left to a titrther rulemaking c:rt.ain issues reJating to the use of EELs to substitute for special access services. Reciprocal ComJXWation Stzte regulatory'decisions have required us to pay ~iprocal compensation" under the 1996 Act for the increasing volume of one-way traffic' from our customers to customers of other carriers, primarily calls to Internet service providers. In February 1999; the FCC confumed that sucb traffic is largely interstate but concluded that it would not intcl f(!tC with St2lte regulatory decisions requbing payment of reciprocal compensation for such ttaffic and that caniers are bound by 'their existing intercOnnection agreements. The FCC tentatively concluded that future compensation arrangements for calls to Internet service providers should be negotiated by carriers and arbitrated, if neussary, before the state commissions wtder the terms of the 1996 Act. The FCC has initiated a proceeding to consider, alternatively, !be adoption of federal roles to govern future inter-carrier compensation arrangements for this traffic. We have asked the U.S. Court of Appeals to review the FCC's decision that state commissions may require payment of reciprocal compensation for this traffic:. We are also seeking review of prior stale regulatory commission decisions. The Massachusetts Department of Telecommunications and Energy modified its earlier decision, resulting in a reduction of our reciprocal compensation obligation. The New Jersey Board of Public Utilities and the West Virginia Public Service Commission have both issued favorable decisions on reciprocal compensation for Intemet~bound traffic. The New York PSC issued a decision deciding that high volume, convergent traffic (which includes Intemet-boWld traffic) has different cost chatacteristics and should be compensated at the lower end-office tate. The New York PSC determined that traffic in excess of a 3: 1 ratio is presumed to be high volume. convergent b'affic, although tRh .... pmnunption can be rebutted. Commissions in Delaware, Maryland, Pennsylvania, Rhode Island and Virginia have issued decisions requiring us to continue to pay reciprocal compensation on Internet-bound traffic. Vie currently , estimate that our reciprocal compensation payment obligations will be approximateJy $400 million to $430 million in 1999. ~:'l ~ '~ " ; I ' - - . , " -:.'" .. ( .~ '. , . :' ~ . '.' ~ ,~;. " < I Rece~t Developments - continued Competitioa Inrro1..A.TA. Toll Servicu lntraLATA to]) calls originate and terminate within the same LATA. but generally cover a greater distance than a local caU. These .services are regulaud by state regulatory commissions, except where they cross state lines. All of our stale regulatory commissions pennit other carrierS to offer intraLA T A toll services. Until the implementation of presubscription, intra.1.ATA toll calls were completed by our operating telephone companies unless the customer dialed a code to access a competing carrier. Presubscription changed this dialing method and enabled customers to make these toll calls using another carrier without having to dial an access code. AU of our operating tcl'q)hoDe compaDies have implemented presubsaiption. Implementation of presubscription for intraLA T A toll services has had a:-material negative effect on intraLA T A toll service revenues. which is being partially offset by an increase in intraLATA access revenues (Set Domestic Telecom - Operating Revenues - Long Di.~tance Services). 4'.........~. We are now in the final stages of our program to evaluate and address the impact of the Year 2000 date transition on aliI' operations. This program bas included steps to: . inventory and assess for Year 2000 compliance our equipment, software and systems; II determine whether to remedi~ replace or retire noncompliant items, and establish a plan to accomplish these ~~; , . remedia1e~ replace or retire the items; . test the items, where required; and . provide management with reporting and issues management to support a seamless transition to the Year 2000. State of Readiness For our operating telephone subsidiaries, centralized services entities and general corporate operations, the program has focused on the following project groups: Network Elements, Applications Dnd Suppan. Systcm.s, and Infmm.moD Technology Infrastrucwre. OUr goal for these operations was to have our network and other mission critical systems Year 2000 compliant (including testing) by June 30, 1999 and we substantially met this goal. What follows is a more detailed breakdown of our efforts to date. . Nerwo,k Elements Approximately 350 different types of network elements (such as central office switches) appear in over one hundred thousand instances. When combined in various ways and using network application systemS, these elements are the building blocks of customer services and networked infonnation transmission of all kinds. We originally assessed approximarcly 70% of these clement types, representing over 90010 of all deployed network elements. as Year 2000 compliant As of November I, 1999, we have completed the required tl.-pair/replacement of virtually all network elements requiring remediation. . Application and Support Systems ___ .- Approximately 1.200 application and systems suppon (i) the administration and maintenance of our network and customer service functions (network infonnation systems); (ii) customer care and billing functions; and (iii) human resources. fmance and general corporate functions. We originally assessed approximately 48% of these application and support systems as either compHant or to be retired. As of No.vember I. 1999, we have successfully completed the required repair/replacement of virtually all mission critical application and support systems. . Information Technology Infrastructure Approximately 40 mainframe, 1,000 mid-range. and 90,000 personal computers, related netWork components, and software products comprise our infDnnation [echnology (In infrastrUcture, Of the approximately 1,350 unique types of elements in the inventory for the IT infrastructure, we originally assessed approximately 73% as compliant or to be retired. As previously reported, we have successfully completed remediation/replacement of all mission critical clements earlier this year. I...... 34 J '1' ' " -':j .>), ,.' .': .... ,.,,,,,~/ (.~e2U' -2000" Updato - continued ' OUr project to remediatelreplace or retire mission critical systems supporting buildings and other facilities used by the operating telephone subsidiaries, such as HV AC, access control and alann systems, is now complete and our effort to remedJatelreplal:e or retire any other Bell Atlantic mission critical syo...1em used by those subsidiaries is virtually complete. 'Remediation/replacement or retirement of nonrnission critical systems, where applicable, and supplemental testing and verification/correction activities, for both mission critical and non mission criticaJ systems, are likely to continue throughout the balance of 1999. For oW' other CODttoUed or mlljority--owned subsidiaries, including Den Atlantic Mobile, our lusaceU subsidiary and , our directory compani~ the inventory, assessment and remediation/replacement efforts for mission critical systems is subslarrtiaUy complete, ,and testing ac:tivities continue. , Third Party Issues . Vendors In general. our product vendors have made available either Year 20O<kompliant versions of their offerings or new compliant products as replacements of discontinued offerings. The compliance status of a given product is typically detennined using multiple sources of information, including our own internal testing and analysis. However, in soine instances certification is based on detailed test results or similar infonnation provided by the product vendor and analysis by us or contractors specializing in this type of review. We arc also continUing Year 2000-relatcd discussions with utilities and similar scrvices providers. Although we have received assurances and Other infomlation suggesting that substantially all of our primary services providers have completed or are well along in their respective Year 2000 projects, we do not usually have sufficient access to or control over the providers' systems and equipment to undertake verification efforts as to such systems and equipment. and as a general matter, it would be impractical to do so. We also have participated in intcropc:rability testing of various mission critical network clements, purchased from a number of vendors, through the Telco Year 2000 Forum. an industry group comprised of leading local telecommunications services companies. We intend to monitor critical service provider activities, as appropriate, through the remainder of 1999. .;.; /~ " . Customers Our customers remain keenly interested in the progress of our Year 2000 effortS, and we anticipate increased demand for information, including deiailed testing data and company-specific responses. We are providing limited warranties of Year 2000 compliance for certain new telecommunications services and other offerings, but we do not expect any resulting warranty costs to be material. We are also analyzing and addressing Year 2000 issues in customer premise equipment (CPE), including CPE that we have sold or maintained. In general, Qe customer is responsible for CPE. However, customezs cculd attribute a Year 2000 malfunction of lhcir CPE, whether or not sold or maintained by us, to a failure of our network service. While network issues regarding E- 91 ]/911 are included in the "State of Readiness" discussion above, we also have a separate effort to identify and address Year 2000 issues for CPE and other equipment that we maintain for Public Safety Answering Points (psAPs) which is 'used in connection with the provision ofE-9111911 and related services. Our project to repair and replace E-9111911-relaled CPE that we maintain for various PSAPs to provide Year 2000 compliance of that CPE is virtually complete. . Interconnecting Carriers '=- -:. Our network operations interconnect with domestic and international networks of other carriers. If one of the5'e interconnecting camer networks should fajJ or suffer adverse impact from a Year 2000 problem, our customers could experienceimpainnent of service. We have participated in various intemetworking testing efforts. as a member of the Association for Telecommunications lndustry Solutions (A TIS). the Cellular Telecommunications Industry Association (CTIA) !l1ld the International Telecommunications Union (InJ). We intend to monitor the activities of the primary interconnecting carriers through the remainder of 1999, ~ I ~;r'''' . , .' " '. . .1'".,.,.",. ~ rYe.. -2Q.OO" Update - continued I, Costs From the mcepdon of oW' Ye:ar 2000 project through September 30, 1999, and based on the cost tracking methods we have historically applied to this project, we have inc:urM total pre.tax expenses ofapproximateJy $21 1 million. and we, have made capital expendimres ofapprnximately $153 mUlion. For 1999, we expect total pre-taX cxpen.~ for our Year 2000 project Dot to e~ Sl2S million (approximately $89 mUlion bas been incurred through September 30, 1999) and total capital expenditures not to exceed $100 million (approximately $73 million has been made through September 30, 1999). We anticipate that the balance of the costs incurred for 1999 will be primarily attributable to additional te$ting and verification/correction, rollover transition management, contingency planning and repairlrepJacement of non-mission critical systems. These cost estimates have been included in. our earnings targets, but should not be used as the sole gauge of progress on our Year 2000 project or as an indication of our Year 2000 readiness. .; We have investments'in various joint ventures and other interests; At this time, we do not anticipate thai the impact of any Vear 2000 remediation costs that they incur win be m3!erial to our results of operations. , , Rbks The failure to correct a material Year 2000 problem could cause an inteITUption or failure of certain of aur nomlal business functions or operations, which could have a material adverse effect on our results of operations, liquidity or financial condition; however, we consider such a development remote. Due to the uncertainty inherent in other Year 2000 issues that are ultimately beyond our control, mcluding, fot' example, the final Year 2000 readiness of our suppliers, customers, inte1'1:Onnecting carriers, and joint venture and investment interests, we are unable to determine at this time the likelihood of a material impact OD our results of operations. liquidity or financial condition due to such Year 2000 issues. However>> we an: taking approprinte prudent measures to mitigate that risk. We anticipate that, in the event of material intemlption or faUurc of our service resulting from an actUal or perceived Year 2000 problem within or beyond our contro~ we could be subject to third-party claims. Contingency PIau As a public ItlecommWliC3tions carrier, we have had considerable experience successfully dealing with natural diwtcrs and other events requiring contingency planning and execution. Our Year 2000 contingency plans are built upon our existing Emergency Preparedness and Disaster Recovery plans. We will continue to fine-tune and test our COtJ:ora!e Year 2000 contingency plans to help ensure tbBt core business functions and key support processes will continue to function without material disruption. in the event of external (c.g. power, public transportation, water). internal or supply chain failures (i.e. critical dependencies on another entity for infonnation, data or services). IDdMdual business unit contingency pbns for Year 2000 are being integrated and coordinated under an enterpris~wide command and contrOl structuIe. ( Recent Ac~unting Pronouncement Derivatives and Hedging Activilie$ In Junc 1998, the Financial ACCOW1ting Stnndards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instnnnents and Hedging Activities." This statement requires that all derivatives be measured at fair value and recognized as either assets or liabilities on our balance sheet. Changes in the fair values of derivative instruments wiU be recognized in either earnings or comprehensive income, depending on the designated use and effectiveness .- of the instnunents. The FASB amended this pronouncement in June 1999 to defer the effective. dale of SFAS 'fro. 133 for one year. Under the amended pronouncement, Bell Atlantic must adopt SFAS No. 133 no later than January 1,2001. We are currently evaluating the provisions of SFAS No. 133. The impact of adoption will be detennined by several factors, including the specific hedging instruments in place and their relationships. to hedged items, as well as market conditions at the d41te of adoption. We have not estimated the effeCt of adoption as we believe that such a dctennination will not be meaningful until closer to the adoption date. ,', <) (,"~')' ~~,. -=- i "-./ ., r'.,', . ~ - , . ' " " r , . :,. '. : <~.., ' t .. ~: I . ~< ~,' : >. ~.~. i" \ < '- ". I~.~~ ~ At a Ben AtWuic Analyst Conference on November 8. 1999. we nwJe !be foUowing statements: · We remain comfortable with c.um:nt earnings estinwes for 1999 of $2.99 to $3.03 per share" excluding trnnsition and ~on costs and other special items. · We are targeting consolidated revenue growth for the fourth quarter of 1999 of 6%, including the benefit of revenues from cellular properties, the purchase of which we expect to complete in the fow quarter. · ,We me targeting consoUd3tcd revenue grO\\rth on a stand alone basis (excluding the announced transactions with GTE and Vodafone AirTouch)of6% in 2000. · We ~re targeting 2000 earnings growth on a stand alone basis within ~e 10% to 12% range, excluding special items. . . -.; · We estimate tfw an a stand afone basis our capitaf spending wiU incrca.~ by $300 million to $500 miHioD in 2000 over 1999 spending. "~Cai.Jtjo .,......jJ$..'. fa .'..eHt'j't:ohc'6Vifi1~\F ~ tw '. ..~t;tJu (h'~l~:hat~" e6It~!;(, l' f " >, ;1''11. ~a, rt'\ ..1>"." ~!:1 9" "1./",9,'<,,, Em I~"r;" In this Management's DiscussiOD and Analysis, and elsewhere in ibis Quarterly Report, we have made forward- looking statements. These statements are based on our e!timales and assumptions and are subject to risks and unceminlies. Fonvm'd-JookiDg .statements include the ioformation coocemiug ow- possible or assumed future results of oper:mons. Forward-looking statement! also include those preceded or followed by the words "anticipates," "believes." "~" "hopes" or simiInr expressions. For those statementS, we claim the protection of the safe bubQr for forww-looldng statements ccntained in the Private Securities Litigation Reform Act of 1995. The following important factors, along with those discussed elsewhere in this Quarterly Report, cOuld affect future results and could cause those resu.Jts: to differ materially from those expressed in the forward-looking statements:: · materially adverse changes in cwnomic conditions in the markets served by us or by companies in which we have substantial investments; . material changes in available technology; · the final outcome of federal, state. and local regulatory initiatives and proceedings, including arbitration proceedings. and judicial review of tho~ initiatives and proceedings, penaining to, among other matters, the tmns of interconnedion, access charges. universal service, and unbundled network element and resalc ratesj 00 the cxtent. timing, success, and overall effects of competition from others in the locaf telephone and toU service markets; . the: timing and profitability of our entry into the in-region long distance market; . the succ::ess and expense of our remediation efforts and those of our suppliers. customers. joint VeDtlJl'CS, DCIDControlled investments, and interconne<:ting carriers in achie\ing Year 2000 compliance; · the timing of, and regulatory or other conditions associated with, the completion of the merger with OTE and our ability to combine operations and obtain revenue enhancements and eost savings following the merger; and · the timing of. and regulatory or other conditions associated with. the completion of the wireless transaction wi!!! . Vodafone AirToueh. and the abifity of the new wireless enterprise fa combine operations and obtain revenue enhancements and cost savings. Item 3. Quantitative and Qualitative Disclosures About Market Risk Information relating to market risk is included in Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, in the Financial Condition section under the caption "Market Risk." :w~;~r:~j?~:~ii;,,: ',' )?: ":}; .~:: >:':: ...'~,?: !~ ,':' " ". ..": ,II :./ . "/. . , ' T ~.'. I . . '~ I'. , ", .' c .". ..' I" ", d' . : I ~ . I , t'.. ~ .. ,::,.,1,:J,.:.':::,'" . ..' ',', ,,,.' .,:," · .",' "'", ,: :,~' , . l' . ~ . 'I ~ c . ~, .' .c:: . ~,':~~.",j.:?,:')::,:,::',.", :::~ '::. ':""" '~,.:,'. ':,;.",,:" .-:\r' .)' , ,:' ".~; \ ' ,"',~:' :( ~ ~'.,....;/..,.:...;'., ' , . I .'. , . . ' '~ ' I" , , ., , + I." >'.' . ", ) '"l' . '. . ' .' : I' I . I ~ ( ; I' I .'" , ~":f';tL~;'\.(-:{':~"::{" ~'...~'~~i~'~i:.-" '.'.>:.:'1", ':.'~" " 't,i"p!l>:,..~.k 1\.\/!1(.,t./.;:-:~t"(",I':'-~".""J ........e.. .., ..'.'. ~',,:,,_:....~~. ',~"I-.,' -"........(~~.~:'<{..::d............j.d:i.".:Ji....<!--',:"-:'.~Jr.'A.~.. . ._~.' ,c " .' . , , ,/~ i I" . J., \ .; ". '. i ; , ~ ",'. A . , ' \."}. I, . ,; ':,' <., .i' ': ~~ ~ .. r , ;'''Bart\j1'>;,6i'hc'r'litlfo ihatl'pn. ,'(',!:o;:.',;~~ ..::' :; ',,/~: I V/\ <, '~ ~~i,:\::J {\ I;"'\~;,'\. i:iil.:~ t .I ,..1. ~ '.' Item S. Exhibfts and Re~rts on Fonn 8-1< . . (a) E.'d1ibitS:' ' ~' " . ',\. , ' , E.xhIbit Number , i.~~ , U. s. Wrr.eless Alliance Agreeme~t. dated' September 21. 1999. among Ben Atlantic Corporation ,and Vodafone AirTouch ph:, including the forms of the Amended and Restated Partnership Agreement and the Invcsttnent Agreement. ' ' , . ~o ofEamings to Fixed Charges. Fbmneial Data Schedule. 10 , :( " 12 27 .\> " , . (b) Reports on Form ~K. filed dwing the quaner,endcd September 30,' 1999: ,A Current Report on Form 8-~ dated July 21, 1999, was filed regarding our second quarter 1999 financial ,~ts. ,.' . .' A CWrent Report ,on Form,g..~ dated August'26. 1999. was filed reporting unaudited pro forma combined COlJdens.ox1 financial statcmen1S for GTE Corporation and Bell Atlantic Cotpomtion for the six..month period ended June 30. 1999. . , ,. A Cua=li Rq)oIt on Form 8-K, dated September 12. 1999, was rUed .ding dJscussjoiJs with Vodafone '. AirTouch pIc relaJitig to the possibility ofa U.S. business relationship. ' . : .1 . '., c , A Current RepOrt on Fomi.s..K, da1ed,Septembcr 21. 1999. was filed reponing that we haYc'entcrcd into a definitive agrUment with Voc1afone AirTouch pic for the ereati.on ofa new wireless business composed of the , plnies' U.S. wireless assets and providing certain inform21ion with regard to the proposed new wireless business that was given at a meeting with analystS on September 21. 1999~ f .' " I, ' ... . -- 'UI .,..,: .' .; . 'j I : ,~ ,,;-....., ! ' ............ - 1~~:;.('~~~~~~;f,:;~,t);:;';'}::'{'(L,":':},',,".,' ",,"?}:. , ' " ':: ,,',,',',:,' ""',,", ... !'~ 'cr \ . I '1" ~. "'''1' 1 .,.,...' . ..- 1 l~. ','" . i., 'II \ ~ ' ,\ Ie .~!.j~~~l J;~~~i~,..~/;~ :r; ..', :..... 'J~': i ~:'. \ : ~~'r:~':Y:/'~:~!'I:~' ~ ~!;' <./.' . J . .~ ;.", . ,t \~{~tr'\"";-i...~'t ,\' -rl-'. "I ,I _ ~~ II . ~," I. ~ , {!...;r:l/;."l:.,...",::':: l '<~~\::lil":~": ,~~.:"","',i:''':1 ~,,' ~."'.CT1~(lr~;i ~'} .,.~, ~ '", .. II ',' .' \ (~. I." \{~t~'t(f~l;}\\':,,:,,:,'F ,;i;:~;~;y:t";(:,;,' "<', , ',:,: ,'", , ,;,", "'," ,:, ~~ 111~f'" ~J'~ 1~r~1 \.1' \~+.t'J..?-. (( .'l, ~,I"~ H'r' .I,'! ,~t. I '.! I 'r,. , ,~ '. '" . : , ...' '~i~;~;~;):~r:,;Y~,<',Y::::;:(;/~{:~;~~<~~;:-:t<':;':'~:;,~:<:',:?;,::,:,:,> -: '" <,,:.},'..r",".~.....~::~',:, <.;', .', :'>'::';>:, ". , >.-:",.. " ,,";';,'::"" .!F!!)" '...,.. : .' ....,,, .,' ," e/".,'! t';' ,.,...."~ '. .....,'/. '''' Ii' .,' ", ," ',: ,,', ",d I' "., :r.(~)~t~:~,;!:'.:~' ',:i< ~}~~.;;t~~'I,~:'J '\,:,:?;,:~:~;,~,~!'.'L~){ , :': ',(,). ",?,:: ~,::' .':-".' . ,,:,,;,:. .':'~" :~::\.'~,':>::' ".:",: ,: ',' ;,:' ,', ,', ;",,:'~~',.,:;.:;' f ~,,', .,:~ ',',: :", ,:" ' "'.:. !.,:,':' . ", fi!.~.Jfit m_~ ...f1.,\- ~ril~'~1"~~~t~~i"IiiI.;o.l. .....' ~~.." ~... ...." '.1" i J, _h~.IJ"".;:.o"\i!'tjr.~"\ ~ If/l" .....r~.I~I~:;...t.."",...t.i-.;, !t""'ll.:t~:.,.,;;""""", ...'"':....... ......"""'"~..."., ~ (:.1 fl':. I. . .' ,~l~..' ......t(',. J '.. ."".... ... ~.. ~.I ....~. , .. , ; ,1 ' " , . , \'" ,,' "I, , , . 'l ~' i' ),. r.: " j,,: =.1 < ',. I. ',s~ '~to ~ ~ o(rhe SecUrities Ex~ge Act of 1'934, the registrant has duly caused this repo'rt to be' signed or, iu bebalfby the undeisigncd thereunto duly authorized.. ,'.. " , , ' . ' , '. . I' .' I. , .. ;,,:~.., .' r .\"',\ I:; . ,~~'~W:" , . ~. . < " I., ~ . r '. " ~ .'.' ~'- ;.." ,. ':< ,( , ',J '. BELL ATLANTIC CORPORATION (': I, ,', :,>! , , , . Date: No~ber 10, ,1999 " , . By Is! Doreen A. Toben Doreen A. Toben Vic't!=President. Controller' (Principal Accounting Officer) . , ,< r, , i i '...,:'", '" ~' : '. :.c:' ,.. '. r: :. ~ ~ 4 . . , lIt" "'11 .' ,','l . ..',: :':' I '.l , ~\ . ~ . I: ' ". .' ,. " j';', 1" 'J ". '.\ ,', .'/' .l ~, c , .' ," " '. ., . , . ~ '" ~'J" ", ". " ,p t '" (..: 'j. ! ," ',' UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF NOY-eMBER S, ]999. . ,,: .' , , : <~ . . , . . ", , ~ '.... ,<:t '. ~.. f, :I'::~'L . " "-~~J . , , ~. ,:" ~ J ,',~~ I . " " , ' " 'I " ;i.' " , ' ~ . i, ,~ " .;,'" '\ ~~ " :;";"!:I ~.' '.~'. , ,.'C i: ': .j, + ~ ~ :,1 Lc .0:=- = , ~,I i.::.,';,~i.<~ . .~' "... '. ,~ :' ,;':] ',.:J I, ,'. 'i : .. \ " ; " .c', ~ '!; , 'L " [': " ; . I :;",'I;~..,t" .; ~r:\lJ;":\'::"~.~I~,!.~,):'~'Y:~~<.l 1.: ,.. f.'~:~. J i'.' I:~}-"f~ . 1 (i'. ~~~ I' i~ , ~. ' I. ~ (,~i;i':~:~'~;:'I:{~,,~;,:'.,:/i:\~',.:L:,::~~f~:i,> h '''::;':'!, ,'-,', .,r"'';'''\I',\''"':',', . :,' r:,:,' \: ,;,'\ ril~~t"":,(",,~,),,,,:::.: . .:~,"", :', .,:,,"": , \ . ~!. I~ ~ i . ~; . ~ . t ' ',r. , \ ' - .\:'"/..../T,{~,..~,.,. ....,,~: " ,," ~~; _p,;; rH" '. I ,0' ,..l 'I< " '. I': If f', ~." . I. . t \. . " '" '_ ",.. ',."\ '.' "' , '". I.... r ,~.\'. . -._ ,',' ,...t". .j l ~ , ",~ . r . ' u . , .' . . I ,c. . ",,' i ,. ... : ~, ',' f i? L' ;;1' fr'" :'r""~~"ifix;;'tj11i.~~l~';i~;;'{.~i~~' ~:~ ;\;i: \ ::.;' ,. ", , . ,', :' c ~ . ", "',' ! , .. ,. ,; .,' " .... " " ,! J:.. f~ I ' j' , I" ~i '1, '. >, ,t . ' . ~ . I '" '.:' . ,.1' '" , c ' :.' ~:. t,' . . . .~ " '. ~ " I " "'l ,. " .' '. :, " I .' .. :,1 , 1 . .:, j.'.! :. ; I . ,r C' "'. r ; I .1,:':..;'*..:;....,;: j'''f.:t~;:l~.:.1:'~: ,.",,"~~;,\.~ ~.;. ~~. ;..'; . g:J 1-" .. .... .J I, ~<.',I ~.~....~. ...~.-l:.I"..<. ~"<~r~ :f '.' il;.' '\ ' " .j ~ '{ .1 " , " " exhibit 12 ,) , 110,. "(" ':<;,~~\ I'; , ; , Computation of Ratio of Eamfngs to Fixed Charges , Bell AflanticCorporation and Subsirrrcuies ,.. ;;': " l' \.1" .. " " -~ J, ~~ In ......j Income beb'e ~ for income tales end extraordinary item Minorto/ Intentst:==~ . Income from Ui1CDn$OIidated bu$inesses Dlvktends receWei:t from 1JnCOC1!01id.11ed buslMsses Interest expanse, induding interest rdated to Jease financing activities . Portion ~expensB ~ interest ' I\moI1im.tion Of capitalized InteneSt . ~ Income, as adjusted I Nine IIoc1l:hs Ended ~r 3D, 19fil ~~- '. '.'" $5,563 83 (124) 84 956- 140 20' $S,722 AdJ~ " " I, f..1 ~:;~:.~ ! .!\ : . Fixed charges: ' . Interest-expense. induding interest mated to lease financing actiYities Portion 01 rent ~ repres.renting irterest ' Capitatized Interest ' ' Preferred Etoc:!c dMdend rcquirerner'It Fixed ch2rges $ 956 .- 140 64 14 $1.174 t, . ,.1 Ratio of Earnings to FDC8d Char1;es 5.73 f'~,,' t,.' .) t;.. ,..~ JI " \J . " , " I ~ '. ~ ',' , " - ..... tr " , I' '!, ""~~, , ..~ n ,J. . ':~ f 'r ~ '. .' ,'. ,. ...".\ I . (, I I i i , ! I I I I I 1 J I 1 I i I 1 I t I I I I 1 j J .' " , i , , '.'.:j' ~"" . ".i' , t. , ~.: ' . , I ,:\ , I .' " , .",1 , .. " f i . . j.. . )} ',to ,'~ ~ .\ . c ~ '. . , . ~ > " .' i " ....,{. I '~, I "'. .' . .' " . I . "", 1': \.' " .. , <.' .' , .l ~'~,~:.,..t c~: '".:/...;' .,,' " .' I , " , . , . . ,', I' '. . . ,...1 , " . ...'" ','.. -l ' ./ " .' . . ',' ""1 ,. " l 'I. !c .. ..' ": , I , . ' '. ' "1. . '. ,', ," . , . ~ I" '. ' . :' , ' I . ~ ';". ' c' :'. I l " , , tr;,. !..~r':'.1ff'\'.ff,Pl'f;."i.t'Vf:1't.' ir\~H " 'tj,~:~} ."'~ '\' I"" . . .... .", '~~J/ '. :> . ,..,::t.1 ":{" ,', ...Jrh.~. ..,,')J")i<~~\..t'tt.o\:t\;1.j,!.,. '" ~ ........,...jo-\\.....~fti...-...W'i.I..'.__.,.~INL......~~. ~.. ""i":"~''''~L''''''''~'_'.' ,,' " . _. . ,...f ~ " () , . .... " , "~~i' . . ~ ,I FCC 394 ,.APPLICA TION FOR FRANCHISE AUTHORITY CONSENT TO ASSIGNMENT OR TRANSFER OF CONTROL . ',OF CABLE TELEVISION FRANCHISE Applic:ation by GTE Media Ventures Incorporated and Bell Atlantic Corporation '. December 13 J 1999 ( I I ! I ,I EXHIBIT 9 (Section IV) ... ", , [Set foith in ~E*ibit a narrative accoUnt of the transferee'slassignee's technical . qualificat~ons; experience and expertise regarding cable television systems, inCluding, but '. not limited tb,summary infonnation about appropriate management personnel that will , be involved in the system's management and operations. The transferee/assignee may, "but need not, list a representative sample of cable systems currently or fonnerly owned or , operdted.] . "\ l , ',' ,,\1, . ',. ;with more than 43 million telephone access lines and more than 10 million wireless customers worldwide, Bell Atlantic Corporation (through its subsidiary companies) is a premier provider of advanced telecominunications voice and data services to a full range . of customers. Its financial capabilities are further described in the materials provided in Exhibit 8. To datet Bell Atlantic Corporation has riot owned or operated any cable television systems. As a result of the merger of equals with GTE Corporation; however, Bell Atlan'tic will be able to benefit from the expertise of GTE Media Ventures in its 'operation of cable franchises.' The technical qualificationst experience and expertise of GTE Media Ventures -- which will continue to operate the system following the merger- - have previously been considered and approved through grant of the existing franchise to it ' , .l. '.... ..' " ""o.e , ~. , . .... . , ~',:, . , . \~) .f ,.... . ' I', '