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Pacific Telesis Group – ‘DEF 14A’ for 12/31/94

As of: Monday, 3/13/95 · For: 12/31/94 · Accession #: 732716-95-12 · File #: 1-08609

  As Of                Filer                Filing    For·On·As Docs:Size

 3/13/95  Pacific Telesis Group             DEF 14A    12/31/94    3:377K

Definitive Proxy Solicitation Material — Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: DEF 14A     1995 Definitive Proxy Statement                      156    543K 
 2: EX-99.A     Proxy Card                                             5     13K 
 3: EX-99.B     Proxy Voting Instruction Card                          3      8K

DEF 14A — 1995 Definitive Proxy Statement
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) (a) Awards Of Units Accounting Under Regulation (a) Determination Of Units Earned And Criteria Annual Financial Review Article 11. Awards Under Other Plans Article 13. Limitation on Rights Article 14. Limitation on Payments Article 15. Withholding Taxes Article 17. Future of the Plan Article 18. Definitions Article 19. Execution Article 1. Introduction Article 2. Administration Article 3. Shares Available for Grants Article 4. Eligibility Article 5. Options Article 7. Stock Appreciation Rights Article 8. Restricted Shares and Stock Units Article 9. Voting and Dividend Rights Basis of Presentation (b) Award Performance Period (b) Limitation On Aggregate Units Earned Board of Directors Cash from Operating Activities (c) Cancellation Of Unearned Units Granted Change in Accounting for Postretirement and Postemployment Costs (c) Interim Awards Compensation and Personnel Committee Interlocks and Insider Participation CPUC Regulatory Framework Review Cumulative Effect of Prior Year Accounting Changes Defined Contribution Plans Developing New Markets Director Compensation and Related Transactions (d) Limitation On Aggregate Units Granted (d) Special Rule For Determination Of Units Earned For Certain Participants Employee Stock Ownership Trust (e) No Shareowner Rights Executive Compensation Income Taxes Investing in the Core Networks Liquidity and Financial Condition Local Services Competition Long-Distance Services Waiver Multiple Copies of Summary Annual Report to Shareowners Notes to Consolidated Financial Statements Off-Balance-Sheet Risk Other Matters to Come Before the Meeting Pension Plans Performance Graph Postretirement Benefits Other Than Pensions Proposals for the 1996 Annual Meeting Report of Independent Accountants Report of Management Report of the Compensation and Personnel Committee Revenues Subject to Refund Section 10. Definitions Section 11. Plan Administration Section 12. Claims and Appeals Section 14. Definitions Section 1. Purpose Section 2. Awards Section 2. Eligibility Section 3. Awards for Certain Employees Section 3. Units Granted Section 4. Adjustments Section 4. Units Earned Section 5. Distribution Rules Section 5. Eligibility Section 6. Dividend Equivalents Section 6. Other Conditions Section 7. Designation of Beneficiaries Section 7. Payments and Distributions by Participating Companies Section 8. Plan Administration Section 9. Modification or Termination of Plan Section 9. Other Conditions Solicitation of Proxies Status of Reserves Stock Ownership Stock Trading Activity and Dividends Paid Table of Contents Toll Services Competition Vesting Conditions Voting of Shares 10.1 Adjustments 10.2 Reorganizations 12.1 Effective Date 12.2 ELECTIONS TO RECEIVE NSOs OR STOCK UNITS 12.3 NUMBER AND TERMS OF NSOs 12.4 Number and Terms of Stock Units 13.1 Retention Rights 13.2 Shareholders' Rights 13.3 Regulatory Requirements 14.1 Basic Rule 14.2 Reduction of Payments 14.3 Overpayments and Underpayments 14.4 Related Corporations 15.1 General 15.2 Share Withholding 16.1 General 16.2 Trusts 17.1 Term of the Plan 17.2 Amendment or Termination 1994 2.1 Committee Composition 2.2 Committee Responsibilities 3.1 Basic Limitation 3.2 Additional Shares 3.3 Dividend Equivalents 4.1 General Rules 4.2 Outside Directors 4.3 Incentive Stock Options 5.1 Stock Option Agreement 5.2 Number of Shares 5.3 Exercise Price 5.4 Exercisability and Term 5.5 Effect of Change in Control 5.6 Modification or Assumption of Options 6.2 Surrender of Stock 6.3 Exercise/Sale 6.4 Exercise/Pledge 6.5 Promissory Note 6.6 Other Forms of Payment 7.1 Sar Agreement 7.2 Number of Shares 7.3 Exercise Price 7.4 Exercisability and Term 7.5 Effect of Change in Control 7.6 EXERCISE OF SARs 7.7 MODIFICATION OR ASSUMPTION OF SARs 8.1 Time, Amount and Form of Awards 8.2 Payment for Awards 8.4 Form and Time of Settlement of Stock Units 8.5 Death of Recipient 8.6 Creditors' Rights 9.1 Restricted Shares 9.2 Stock Units
1	1st Page - Filing Submission
"	1994
2	Table of Contents
4	Voting of Shares
5	Board of Directors
10	Director Compensation and Related Transactions
12	Stock Ownership
13	Report of the Compensation and Personnel Committee
16	Compensation and Personnel Committee Interlocks and Insider Participation
"	Executive Compensation
23	Performance Graph
"	Pension Plans
36	Vesting Conditions
41	Other Matters to Come Before the Meeting
"	Solicitation of Proxies
"	Proposals for the 1996 Annual Meeting
42	Multiple Copies of Summary Annual Report to Shareowners
44	Annual Financial Review
45	Investing in the Core Networks
46	Developing New Markets
49	Toll Services Competition
50	Local Services Competition
52	Long-Distance Services Waiver
53	CPUC Regulatory Framework Review
63	Income Taxes
"	Cumulative Effect of Prior Year Accounting Changes
64	Status of Reserves
67	Liquidity and Financial Condition
68	Cash from Operating Activities
71	Postretirement Benefits Other Than Pensions
75	Report of Management
77	Report of Independent Accountants
85	Notes to Consolidated Financial Statements
"	Basis of Presentation
86	Accounting Under Regulation
89	Change in Accounting for Postretirement and Postemployment Costs
97	Defined Contribution Plans
104	Off-Balance-Sheet Risk
106	Employee Stock Ownership Trust
108	Revenues Subject to Refund
114	Stock Trading Activity and Dividends Paid
118	Section 1. Purpose
"	Section 2. Eligibility
"	Section 3. Units Granted
"	(a) Awards Of Units
"	(b) Award Performance Period
119	(c) Interim Awards
"	(d) Limitation On Aggregate Units Granted
"	(e) No Shareowner Rights
"	Section 4. Units Earned
"	(a) Determination Of Units Earned And Criteria
120	(b) Limitation On Aggregate Units Earned
"	(c) Cancellation Of Unearned Units Granted
"	(d) Special Rule For Determination Of Units Earned For Certain Participants
"	Section 5. Distribution Rules
122	Section 6. Dividend Equivalents
"	Section 7. Payments and Distributions by Participating Companies
124	Section 9. Other Conditions
125	Section 11. Plan Administration
"	Section 12. Claims and Appeals
126	Section 14. Definitions
129	Section 2. Awards
130	Section 3. Awards for Certain Employees
"	Section 4. Adjustments
131	Section 5. Eligibility
132	Section 6. Other Conditions
133	Section 7. Designation of Beneficiaries
"	Section 8. Plan Administration
134	Section 9. Modification or Termination of Plan
"	Section 10. Definitions
140	Article 1. Introduction
"	Article 2. Administration
"	2.1 Committee Composition
"	2.2 Committee Responsibilities
"	Article 3. Shares Available for Grants
"	3.1 Basic Limitation
141	3.2 Additional Shares
"	3.3 Dividend Equivalents
"	Article 4. Eligibility
"	4.1 General Rules
"	4.2 Outside Directors
143	4.3 Incentive Stock Options
"	Article 5. Options
"	5.1 Stock Option Agreement
"	5.2 Number of Shares
"	5.3 Exercise Price
"	5.4 Exercisability and Term
144	5.5 Effect of Change in Control
"	5.6 Modification or Assumption of Options
"	6.2 Surrender of Stock
"	6.3 Exercise/Sale
"	6.4 Exercise/Pledge
145	6.5 Promissory Note
"	6.6 Other Forms of Payment
"	Article 7. Stock Appreciation Rights
"	7.1 Sar Agreement
"	7.2 Number of Shares
"	7.3 Exercise Price
"	7.4 Exercisability and Term
"	7.5 Effect of Change in Control
146	7.6 EXERCISE OF SARs
"	7.7 MODIFICATION OR ASSUMPTION OF SARs
"	Article 8. Restricted Shares and Stock Units
"	8.1 Time, Amount and Form of Awards
"	8.2 Payment for Awards
147	8.4 Form and Time of Settlement of Stock Units
"	8.5 Death of Recipient
"	8.6 Creditors' Rights
"	Article 9. Voting and Dividend Rights
"	9.1 Restricted Shares
148	9.2 Stock Units
"	10.1 Adjustments
"	10.2 Reorganizations
"	Article 11. Awards Under Other Plans
149	12.1 Effective Date
"	12.2 ELECTIONS TO RECEIVE NSOs OR STOCK UNITS
"	12.3 NUMBER AND TERMS OF NSOs
"	12.4 Number and Terms of Stock Units
"	Article 13. Limitation on Rights
"	13.1 Retention Rights
"	13.2 Shareholders' Rights
150	13.3 Regulatory Requirements
"	Article 14. Limitation on Payments
"	14.1 Basic Rule
"	14.2 Reduction of Payments
151	14.3 Overpayments and Underpayments
"	14.4 Related Corporations
"	Article 15. Withholding Taxes
"	15.1 General
"	15.2 Share Withholding
152	16.1 General
"	16.2 Trusts
"	Article 17. Future of the Plan
"	17.1 Term of the Plan
"	17.2 Amendment or Termination
"	Article 18. Definitions
156	Article 19. Execution

DEF 14A 1st Page of 156 TOC ↑Top Previous Next ↓Bottom Just 1st
PROXY
STATEMENT

1994
CONSOLIDATED
FINANCIAL
STATEMENTS

NOTICE OF ANNUAL MEETING

To The Shareowners Of Pacific Telesis Group:

The 1995 Annual Meeting of Shareowners of Pacific Telesis Group will be held
at the Masonic Auditorium, 1111 California Street, San Francisco, California,
on Wednesday, May 3, 1995 at 10:00 a.m., for the following purposes:

1. To elect the four directors constituting Class II of the Corporation's
Board of Directors to serve a three-year term.

2. To ratify the appointment of Coopers & Lybrand L.L.P. as the Corporation's
independent auditors for the year 1995.

3. To approve the amendment and restatement of the Corporation's Senior
Management Long Term Incentive Plan and Short Term Incentive Plan, and the
amendment of the Corporation's 1994 Stock Incentive Plan.

4. To act upon other matters that properly come before the meeting or any
adjournment thereof, such as voting on the shareowner proposals which
begin on page 36 of the proxy statement. (The directors oppose these
proposals.)

Shareowners of record at the close of business on March 4, 1995 will be
entitled to vote at the meeting or any adjournment of the meeting.

March 14, 1995 Richard W. Odgers
Secretary

PACIFIC*TELESIS
Group

DEF 14A 2nd Page of 156 TOC 1st Previous Next ↓Bottom Just 2nd
TABLE OF CONTENTS

Page
----
Proxy Statement

Voting of Shares................................................... 1

Board of Directors................................................. 2

Election of Directors
(Item A on Proxy Card)........................................ 3

Director Compensation and Related Transactions..................... 7

Stock Ownership.................................................... 9

Report of the Compensation and Personnel Committee................. 10

Compensation and Personnel Committee Interlocks
and Insider Participation..................................... 13

Executive Compensation............................................. 13

Ratification of Appointment of Auditors
(Item B on Proxy Card)........................................ 23

Directors' Proposals to:

Amend and Restate the Corporation's Senior Management
Long Term Incentive Plan (Item C on Proxy Card)............... 24

Amend and Restate the Corporation's Short Term Incentive
Plan (Item D on Proxy Card)................................... 27

Amend the Corporation's 1994 Stock Incentive Plan
(Item E on Proxy Card)........................................ 30

Shareowners' Proposals to:

Eliminate Pensions for New Nonemployee
Directors (Item F on Proxy Card).............................. 36

Compensate Directors Solely in Stock
(Item G on Proxy Card)........................................ 36

Other Matters to Come Before the Meeting........................... 38

Solicitation of Proxies............................................ 38

Proposals for the 1996 Annual Meeting.............................. 38

Multiple Copies of Summary Annual Report to Shareowners............ 39

DEF 14A 3rd Page of 156 TOC 1st Previous Next ↓Bottom Just 3rd
TABLE OF CONTENTS Cont'd

Page
----
Annual Financial Review

Management's Discussion and Analysis........................ F-1

Selected Financial and Operating Data....................... F-30

Report of Management........................................ F-32

Report of Independent Accountants........................... F-34

Consolidated Financial Statements........................... F-35

Notes to Consolidated Financial Statements.................. F-42

Stock Trading Activity and Dividends Paid................... F-71

DEF 14A 4th Page of 156 TOC 1st Previous Next ↓Bottom Just 4th
Pacific Telesis Group
130 Kearny Street
San Francisco, California 94l08

PROXY STATEMENT

This proxy statement and the accompanying proxy card are being mailed
beginning March 14, 1995 to shareowners of Pacific Telesis Group (the
"Corporation") in connection with the solicitation of proxies by the Board of
Directors (the "Board") for the Annual Meeting of Shareowners ("Annual
Meeting") to be held on May 3, 1995.

Proxies are solicited to give all shareowners of record on March 4, 1995 an
opportunity to vote on matters scheduled for the meeting and described in the
proxy materials. Shares can only be voted if the shareowner is present in
person or is represented by proxy. Any person giving a proxy may revoke it at
any time before the meeting by sending in a written revocation or a proxy
bearing a later date. Shareowners may also revoke their proxies by attending
the meeting in person and casting a ballot. If proxy cards are signed and
returned without specifying choices, the shares represented by the proxy card
will be voted as recommended by the Board.

The Corporation has adopted a policy that provides all shareowners (with some
modifications in policy for shareowners who are employee benefit plan
participants) the option to request that any proxy, ballot or voting
instruction be kept confidential, except as required by law or in the event of
a contested proxy solicitation, or to the extent confidentiality is expressly
waived in writing by the shareowner. The policy also provides for the
tabulation of the vote by employees of the Corporation's transfer agent or by
some other independent third party and for the certification of the vote by an
independent inspector of election. The Corporation may, however, be informed
if a particular shareowner has voted and may receive periodic status reports
on the aggregate vote. If you desire to keep your vote confidential, please
mark the designated box on your proxy card. Your written comments on proxies
or ballots may also be made available to the Corporation, but your name and
address will not be disclosed if you request confidentiality.

VOTING OF SHARES

Your vote is important. We urge you to return your marked proxy card
promptly. The holders of a majority of the shares of common stock issued and
outstanding and entitled to vote, whether present in person or represented by
proxy, constitutes a quorum. Abstentions will be counted towards the
tabulation of votes cast on matters presented to the shareowners and will have
the same effect as negative votes. Broker nonvotes occur when nominee
recordholders do not vote on specific issues because they did not receive
specific instructions on such matters from the beneficial owners of such
shares. Broker nonvotes are counted towards a quorum, but are not counted for
any purpose in determining whether a matter has been approved.

An affirmative vote of the holders of a plurality of the votes cast at the
meeting is required for the election of directors. An affirmative vote of the
holders of a majority of the shares present or represented at the meeting is
required for the approval of each of the other matters to be voted upon.
Highlights of the meeting will be included in the Second Quarter Report to
Shareowners which will be mailed in July.

DEF 14A 5th Page of 156 TOC 1st Previous Next ↓Bottom Just 5th
If a shareowner is a participant in the Pacific Telesis Group Shareowner
Dividend Reinvestment and Stock Purchase Plan, the proxy card represents the
number of full shares in the dividend reinvestment plan account on the record
date as well as shares registered in the participant's name. If a shareowner
is a participant in the Pacific Telesis Group Supplemental Retirement and
Savings Plan for Salaried Employees, the Pacific Telesis Group Supplemental
Retirement and Savings Plan for Nonsalaried Employees (collectively, the
"Savings Plans"), the Pacific Telesis Group Leveraged Employee Stock Ownership
Plan (the "LESOP"), or the Pacific Telesis Group Employee Stock Ownership
Plan (the "ESOP"), the proxy card will also serve as a voting instruction for
the trustees of those plans where all accounts are registered in the same
name. Shares in the ESOP cannot be voted unless the card is signed and
returned. If cards representing shares held in the Savings Plans and LESOP
are not returned, those shares will be voted by the trustees in the same
proportion as the shares for which signed cards are returned by other
participants.

Shareowners of record at the close of business on March 4, 1995 will be
entitled to vote at the meeting or any adjournment of the meeting. On
March 4, 1995, there were 424,065,165 shares of common stock ("Common Stock")
outstanding, each share being entitled to one vote.

The Corporation does not know of any shareowner who beneficially owns more
than five percent of the outstanding Common Stock.

BOARD OF DIRECTORS

Regular meetings of the Board of Directors are held ten times a year and
special meetings are scheduled when required. The Board held 12 meetings in
1994. No director attended fewer than 75 percent of the total aggregate
number of board and committee meetings on which he or she served, except for
Mr. Platt who, as a first-term director, had certain conflicting commitments
previously known to the Board. Directors meet their responsibilities not only
by attending board and committee meetings, but also through communication with
the Chairman of the Board and other members of management on matters affecting
the Corporation.

The Board has established a number of standing committees. Standing Board
Committees include the Audit, Compensation and Personnel ("C&P"), Nominating,
Corporate Public Policy, Executive, Finance, and Pension and Savings Plans
Committees. All committees, except the Executive Committee, have nonemployee
directors as chairpersons.

The Audit Committee, which consisted of five nonemployee directors in 1994,
meets with management to consider the adequacy of the internal controls of the
Corporation and the objectivity of its financial reporting. This Committee
also meets about these issues with the independent auditors, with financial
personnel of the Corporation and with internal auditors. The Audit Committee
recommends to the Board the appointment of the independent auditors, which
appointment may be ratified by the shareowners at the Annual Meeting. Both
the internal auditors and the independent auditors periodically meet alone
with the Audit Committee and always have unrestricted access to the Committee.
The Audit Committee met five times in 1994.

DEF 14A 6th Page of 156 TOC 1st Previous Next ↓Bottom Just 6th
The C&P Committee had four members during 1994, all of whom were nonemployee
directors. Other than the Chairman of the Board, whose compensation is
approved by the full Board, the C&P Committee approves the compensation of
officers within the authority delegated by the Board, administers all
executive benefit plans and provides oversight with respect to employee
benefit plans. The C&P Committee met eight times in 1994.

The Nominating Committee advises and makes recommendations to the Board on
matters concerning the selection of candidates as nominees for election as
directors. In recommending Board candidates, this Committee seeks individuals
of proven judgment and competence who are outstanding in their chosen fields.
It also considers factors such as education, geographic location, anticipated
participation in Board activities and special talents or personal attributes.
In 1994, five nonemployee directors were members of the Nominating Committee.
Shareowners who wish to suggest qualified candidates to the Nominating
Committee should write to Richard W. Odgers, Secretary of the Corporation, at
130 Kearny Street, Suite 3713, San Francisco, California 94108, stating in
detail the candidate's qualifications for consideration by the Committee. The
Nominating Committee met three times in 1994.

If a shareowner wishes to nominate a director other than a director nominated
by the Nominating Committee for that year, he or she must comply with certain
procedures set out in the Corporation's By-Laws. (See page 38, "Other Matters
to Come Before the Meeting.")

Directors will hold office until the end of their terms and until their
successors have been elected and qualified or until the retirement date
specified by the Board, whichever date shall first occur. Directors who are
also employees (other than retired Chief Executive Officers) will retire from
the Board when they retire from the Corporation. It is the Corporation's
policy that directors will retire not later than the end of the calendar year
in which they reach 70 years of age.

ELECTION OF DIRECTORS (ITEM A ON PROXY CARD - DIRECTORS RECOMMEND A VOTE
"FOR")

The Corporation's Articles of Incorporation divide the Board into three
approximately equal classes of directors serving staggered three-year terms,
with one class of directors to be elected at each Annual Meeting. The four
nominees in Class II, as described below, are nominated for election at this
year's Annual Meeting.

The proxy holders named on the proxy card, unless otherwise instructed on
proxy cards that have been signed and returned, will vote for the election of
the four nominees listed below. These nominees have been selected by the
Board on the recommendation of the Nominating Committee. If you do not wish
your shares to be voted for particular nominees, please identify the
exceptions on the proxy card.

If one or more of the nominees should become unavailable to serve at the time
of the meeting, the shares represented by proxy will be voted for the
remaining nominees and for any substitute nominees designated by the
Nominating Committee. If there are no substitute nominees, the size of the
Board will be reduced. Except as noted below, the Nominating Committee knows
of no reason why any of the nominees will be unavailable or unable to serve.

DEF 14A 7th Page of 156 TOC 1st Previous Next ↓Bottom Just 7th
The following is a brief description of the principal occupation for at least
the past five years, other major affiliations and the age of each director.

CLASS II - NOMINEES FOR ELECTION TO TERMS EXPIRING IN 1998:

WILLIAM P. CLARK, 63, Interim Chairman of the Board, Morrison Knudsen
(construction) since February 1995. Chief Executive Officer of the Clark
Companies (family-held corporations) since 1958.

Mr. Clark is a lawyer, rancher, retired California Supreme Court Justice and
former Secretary of the United States Department of Interior. He is a
director of Dulles Access Rapid Transit, Lawter International Inc. and
Morrison Knudsen. Mr. Clark has been a director of the Corporation since 1985
and is Chairman of the Pension and Savings Plans Committee; member of the
Corporate Public Policy and Nominating Committees.

IVAN J. HOUSTON, 69, Chairman of the Board, Golden State Mutual Life Insurance
Company since 1980.

Mr. Houston was Chief Executive Officer of Golden State Mutual Life Insurance
Company from 1970 through 1990. He is President and a director of the Golden
State Minority Foundation. Mr. Houston is a director of First Interstate Bank
of California, David Freeman Hospitals, Inc. and Golden State Mutual Life
Insurance Company. He has been a director of the Corporation since 1983 and
is Chairman of the Audit Committee; member of the Corporate Public Policy and
Nominating Committees. Mr. Houston will retire from the Board in December
1995.

MARY S. METZ, 57, Dean of University Extension, University of California at
Berkeley since 1991.

Dr. Metz is President Emerita of Mills College. She is a trustee of the
American Conservatory Theater. Dr. Metz is a director of the
Cowell Foundation, Longs Drugs Stores Corporation, Pacific Gas and
Electric Company and Union Bank. She has been a director of the Corporation
since 1986; member of the Audit, Finance, and Pension and Savings Plans
Committees.

RICHARD M. ROSENBERG, 64, Chairman of the Board, Chief Executive Officer and
President of the BankAmerica Corporation (banking) since 1990.

Mr. Rosenberg is a trustee of the University of Southern California and the
California Institute of Technology. He is a director of Airborne Express
Corporation, BankAmerica Corporation, Northrop Corporation and Potlatch
Corporation. Mr. Rosenberg has been a director of the Corporation since 1994;
member of the Executive, Finance and Pension and Savings Plans Committees.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH NOMINEE IN CLASS II ABOVE.

DEF 14A 8th Page of 156 TOC 1st Previous Next ↓Bottom Just 8th
CLASS III - TERM EXPIRES AT 1996 ANNUAL MEETING OF SHAREOWNERS:

DONALD E. GUINN, 62, Chairman Emeritus, Pacific Telesis Group since 1988.

Mr. Guinn served as Chairman of the Board and Chief Executive Officer of the
Corporation from 1987 through 1988; Chairman of the Board, President and
Chief Executive Officer from 1985 through 1987 and Chairman of the Board from
1984 through 1988. He is Chairman Emeritus of Pacific Bell and served as
Chairman of the Board from 1984 through 1988. Mr. Guinn is a director of
BankAmerica Corporation, Brunswick Corporation, The Dial Corp and Pacific
Mutual Life Insurance Company. Mr. Guinn has been a director of the
Corporation since 1983; member of the C&P, Executive, Finance and Nominating
Committees.

FRANK C. HERRINGER, 52, President and Chief Executive Officer, Transamerica
Corporation ("Transamerica") (insurance and financial services company) since
1991, President since 1986.

Mr. Herringer is a director of Transamerica and Unocal Corporation. He has
been a director of the Corporation since 1994 and is Chairman of the Finance
Committee; member of the C&P and Executive Committees.

LEWIS E. PLATT, 53, Chairman of the Board, President and Chief Executive
Officer, Hewlett-Packard Company ("H-P") (manufacturer of electronic
equipment) since 1993, President and Chief Executive Officer since 1992.

Mr. Platt was an Executive Vice President of H-P from 1987 through 1992. He
is a director of H-P and Molex Inc. He has been a director of the Corporation
since 1994; member of the C&P and Nominating Committees.

DEF 14A 9th Page of 156 TOC 1st Previous Next ↓Bottom Just 9th
CLASS I - TERM EXPIRES AT 1997 ANNUAL MEETING OF SHAREOWNERS:

HERMAN E. GALLEGOS, 64, U.S. Public Delegate to the 49th United Nations
General Assembly since 1994.

Mr. Gallegos was a director of Gallegos Institutional Investors Corporation
(investment brokerage firm) from 1990 through 1994. He is a director of
Transmetrics, Inc. and Union Bank. Mr. Gallegos has been a director of the
Corporation since 1983 and is Chairman of the Corporate Public Policy
Committee; member of the Audit and Pension and Savings Plans Committees.

PHILIP J. QUIGLEY, 52, Chairman of the Board and Chief Executive Officer,
Pacific Telesis Group since April 1994.

Mr. Quigley served as Group President of the Corporation from 1988 through
March 1994 and President and Chief Executive Officer of Pacific Bell from 1987
through March 1994. He is a director of Varian Associates, Wells Fargo & Co.
and Wells Fargo Bank, N.A. He has been a director of the Corporation since
1988 and is Chairman of the Executive Committee; member of the Finance
Committee.

TONI REMBE, 58, Partner, Pillsbury Madison & Sutro (law firm) since 1971.

Ms. Rembe is a trustee of the American Conservatory Theater, President of the
Van Loben Sels Foundation and a member of the Board of Governors of the
Commonwealth Club of California. She is a director of American President
Companies, Ltd., Potlatch Corporation and Transamerica. Ms. Rembe has been a
director of the Corporation since 1991 and is Chairwoman of the Nominating
Committee; member of the Audit and Corporate Public Policy Committees.

S. DONLEY RITCHEY, 61, Managing Partner, Alpine Partners (family investment
partnership). Retired Chairman of the Board and Chief Executive Officer,
Lucky Stores, Inc.

Mr. Ritchey is a trustee of the Rosenberg Foundation. He is a director of
De La Salle Institute, Hughes Markets, Inc., McClatchy Newspapers, Inc. and
Spreckels Industries, Inc. Mr. Ritchey has been a director of the Corporation
since 1984 and is Chairman of the C&P Committee; member of the Audit,
Executive and Finance Committees.

DEF 14A 10th Page of 156 TOC 1st Previous Next ↓Bottom Just 10th
DIRECTOR COMPENSATION AND RELATED TRANSACTIONS

For service on the Board of Directors during 1994, directors who are not
employees received an annual retainer of $25,000, a fee of $1,200 for each
board meeting attended and $600 for participating in board teleconferences, a
fee of $1,000 for each committee meeting attended and $500 for participation
in committee teleconferences. Chairmen of the Audit, C&P and Finance
Committees each received an additional retainer of $5,000. Other nonemployee
directors who chair committees received additional annual retainers of $4,000.
Nonemployee directors may elect to defer the receipt of all or a part of their
fees and retainers. These deferred amounts earn interest, compounded
annually, at a rate determined by the Board. The rate for 1994 was equal to
10 percent. A trust has been established and assets have been contributed by
the Corporation, consisting primarily of cash and other investments from which
benefits consisting of the deferrals and earnings on such deferrals described
above may be paid. Directors who are also employees of the Corporation
receive no additional remuneration for serving as directors or as members of
committees of the Board. Directors are entitled to reimbursement for
out-of-pocket expenses in connection with attendance at board and committee
meetings.

Nonemployee directors are reimbursed for certain telecommunications services
and equipment. The average cost per nonemployee director for
telecommunications services and equipment provided during 1994 was $3,849.
Employee directors receive similar services and equipment as part of their
compensation as officers.

The Corporation also provided nonemployee directors a travel accident
insurance policy while on Corporation business at an aggregate cost of $270 in
1994 and a personal umbrella liability insurance policy at an aggregate cost
of $663 in 1994.

Under the Nonemployee Director Stock Option Plan, on January 26, 1990, each
incumbent nonemployee director received non-statutory stock options ("NSOs")
to purchase 2,000 shares of Common Stock, which vested 50 percent in each of
1991 and 1992. Each incumbent nonemployee director was granted 2,000
additional NSOs on the date of the Corporation's 1992 Annual Meeting,
50 percent of which vested in each of 1993 and 1994. The exercise price of
all options granted under the plan originally was the fair market value of the
Common Stock on the date of grant. To reflect the spin-off of AirTouch
Communications, Inc. ("AirTouch") on April 1, 1994, the exercise price of all
outstanding options was adjusted and each outstanding option to purchase one
share of the Corporation's Common Stock was supplemented with an option to
purchase one share of AirTouch common stock. The spread between the exercise
price of the option and the market value of Common Stock that existed before
the spin-off was allocated between the Corporation option and the new AirTouch
option in the same ratio as the ratio between the market value of the
Corporation's Common Stock and the market value of AirTouch common stock prior
to the spin-off. Therefore, the intrinsic value of the sum of both resulting
options (the Corporation and AirTouch) remained the same. Options expire if
not exercised within ten years and earlier under certain circumstances. The
Nonemployee Director Stock Option Plan was terminated by the Board effective
December 31, 1993. Outstanding options will continue in effect under the
terms of the grant, except for the exercise price adjustment described above.

DEF 14A 11th Page of 156 TOC 1st Previous Next ↓Bottom Just 11th
Under the 1994 Stock Incentive Plan (the "Stock Plan"), which was approved by
the shareowners of the Corporation at the 1994 Annual Meeting, incumbent
nonemployee directors received a grant of 2,000 NSOs on April 29, 1994, and
will continue to receive an annual grant of 2,000 NSOs, subject to anti-
dilution adjustments, at the conclusion of each subsequent regular Annual
Meeting so long as they continue to serve on the Board. The exercise price
for this annual stock option grant is equal to the fair market value of Common
Stock on the date of grant. The NSOs become exercisable one year after the
grant, or earlier, in the event of the director's death or total and permanent
disability or in the event of a change in control of the Corporation. The
NSOs expire the earlier of (1) ten years after the date of grant,
(2) 36 months after the termination of the director's service due to
disability or due to retirement after serving at least three years,
(3) 12 months after the director's death, and (4) three months after the
termination of the director's service for any other reason. The Board has
approved an amendment to the Stock Plan that would change the above 36-month
period for termination due to retirement to a 60-month period, subject to
shareowner approval, for options granted in 1994 and for future option grants
to nonemployee directors under the Stock Plan. (See Item E on page 30.)

The Stock Plan also provides for three annual grants of 400 shares of Common
Stock, subject to anti-dilution adjustments, to nonemployee directors
appointed on or after January 1, 1994. The first such grant occurred on the
conclusion of the 1994 Annual Meeting. For nonemployee directors appointed
after the 1994 Annual Meeting, the first grant occurred or will occur upon
such director's first appointment or election to the Board. The second and
third such grants will occur at the conclusion of the Annual Meeting of the
shareowners of the Corporation in each of the two calendar years next
following the calendar year of the first such grant. Incumbent nonemployee
directors appointed on or after February 1, 1991, but before January 1, 1994,
received one grant of 400 shares of Common Stock on the conclusion of the 1994
Annual Meeting. All shares granted to nonemployee directors under the Stock
Plan are 100 percent vested on the date of grant.

Finally, the Corporation's Board may implement provisions of the Stock Plan
that permit a nonemployee director to elect to receive all or a portion of his
or her annual retainer and meeting fees in the form of NSOs or stock units to
be issued under the Stock Plan, provided the election is made at least six
months before such fees are payable.

Nonemployee directors serving as of the date of the 1990 reduction in
directors' mandatory retirement age will receive at retirement, a one-time
payment equal to $20,000 (which was the amount of the 1990 annual retainer).

Upon the latest to occur of (1) retirement, (2) attaining age 65 or
(3) disability, nonemployee directors who have served for at least three years
receive pensions for life equal to a percentage of the annual retainer in
effect at the time of retirement. This percentage is equal to 15 percent
multiplied by the director's years of service (not to exceed 100 percent).

In 1994, the Corporation and its subsidiaries obtained legal services from the
law firm of Pillsbury Madison & Sutro, of which Ms. Rembe is a member, on
terms which the Corporation believes were as favorable as would have been
obtained from unaffiliated parties.

DEF 14A 12th Page of 156 TOC 1st Previous Next ↓Bottom Just 12th
Members of Messrs. Gallegos' and Quigley's immediate families were employed by
Pacific Bell, a subsidiary of the Corporation, and were paid a total of
$158,849 in 1994. Amounts paid to these employees are comparable to
compensation paid to other employees performing similar job functions.

STOCK OWNERSHIP

The following table sets forth the beneficial ownership of Common Stock as of
February 28, 1995 by the directors, the Corporation's Chairman of the Board,
President and Chief Executive Officer, former Chairman of the Board and Chief
Executive Officer and four other most highly paid executive officers (the
"Named Executive Officers") and all directors and executive officers as a
group (including shares acquired under the Pacific Telesis Group Supplemental
Retirement and Savings Plan for Salaried Employees as of November 30, 1994),
and their exercisable options. The total number of shares of Common Stock
beneficially owned by the group is less than one percent of the class
outstanding.
Amount and Nature of Exercisable
Name of Beneficial Owner Beneficial Ownership Options*
----------------------------------------------------------------------------
W. P. Clark 2,883 (1) 6,000
D. W. Dorman 0 50,000
M. J. Fitzpatrick 75 50,000
H. E. Gallegos 2,406 6,000
S. Ginn 23,760 (1) 0
D. E. Guinn 40,820 (1) 6,000
F. C. Herringer 2,404 (2) 2,000
I. J. Houston 2,553 (1) 6,000
M. S. Metz 2,269 (1) 6,000
J. R. Moberg 684 35,000
R. W. Odgers 1,885 35,000
L. E. Platt 400 2,000
P. J. Quigley 7,042 (1) 162,000
T. Rembe 2,106 5,000
S. D. Ritchey 3,336 (1) 6,000
R. M. Rosenberg 1,400 0
All directors and executive officers
as a group (17 persons) 95,723 (3) 432,000
----------------------------------------------------------------------------
(1) Includes the following shares of the Corporation's Common Stock in which
the named persons share voting and investment power: Mr. Clark, 600
shares; Mr. Ginn, 2,580 shares; Mr. Guinn, 40,320 shares; Mr. Houston,
1,575 shares; Dr. Metz, 348 shares; Mr. Quigley, 3,520 shares and
Mr. Ritchey, 3,336 shares.

(2) Includes four shares beneficially owned by spouse, for which beneficial
ownership is disclaimed.

(3) Includes 560 shares beneficially owned by a spouse and acquired under the
Pacific Telesis Group Supplemental Retirement and Savings Plan for
Salaried Employees and the Pacific Telesis Group Employee Stock Ownership
Plan for which beneficial ownership is disclaimed. See Notes (1) and (2)
above.

* Includes options which are exercisable within 60 days after February 28,
1995.

DEF 14A 13th Page of 156 TOC 1st Previous Next ↓Bottom Just 13th
REPORT OF THE COMPENSATION AND PERSONNEL COMMITTEE

The Board of Directors has established the following ongoing principles and
objectives for the Corporation's executive compensation program.

o Provide compensation opportunities that will help attract, motivate
and retain highly qualified managers and executives.

o Link executives' total compensation to company performance and
individual job performance.

o Provide an appropriate balance between incentives focused on
achievement of annual business plans and longer term incentives linked
to increases in shareowner value.

The Corporation's executive compensation programs are approved and
administered by the C&P Committee. The programs are designed to provide
competitive compensation opportunities for all corporate officers and
managers.

The Corporation retains the services of an outside executive compensation
consulting firm to advise the C&P Committee on executive compensation matters.
The consultant reviews the appropriateness of the design of the Corporation's
various plans in meeting the objectives set forth above.

In addition, the consultant provides the C&P Committee with aggregate data on
compensation paid to executives in comparable positions in other companies
that are representative of the labor markets in which the Corporation competes
for executive talent. These are companies that are comparable in complexity
to the Corporation and are of similar size which, in 1994, was approximately
$10 billion in revenues. The Corporation sets total compensation targets for
good performance, including salary, Short Term Incentive Plan ("STIP"), Senior
Management Long Term Incentive Plan ("LTIP") and stock options, in the middle
of the range of rates paid by these companies.

Competitive data is derived from survey data bases maintained by various
consulting firms. These data bases may, but do not necessarily, include data
from the firms used in the peer group performance comparison shown at the end
of this section. The C&P Committee periodically reviews this competitive data
to ensure the Corporation's pay levels are in line with its competitive
targets.

Cash compensation of the Corporation's executive officers is highly related to
company performance. In 1994, the Corporation's STIP provided annual cash
awards contingent upon the degree to which the Corporation met or exceeded an
annual net income goal determined during the annual financial planning process
and approved by the C&P Committee. These criteria were used in determining
awards for substantially all other employees as well. Depending upon
performance, actual awards ranged from 0 to 150 percent of the annual target
award amount approved by the C&P Committee. In addition, the C&P Committee
could have granted from time to time special awards to recognize outstanding
contributions. The Corporation has adopted an amended and restated STIP
effective January 1, 1995, which includes provisions that permit the C&P

DEF 14A 14th Page of 156 TOC 1st Previous Next ↓Bottom Just 14th
Committee to adjust awards based on additional performance criteria, including
individual merit, and which are designed to ensure that compensation paid to
the Named Executive Officers under the STIP will be exempt from the limits on
deductible compensation imposed under Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"). (See Item D on page 27.)

The Corporation's LTIP provides awards contingent upon the achievement of
performance objectives over a three-year period that correlate strongly to
shareowner returns. Awards are denominated in shares of Common Stock and
dividend equivalents are paid during the performance period. At the end of
the period, awards are paid either in shares of Common Stock or in cash valued
at the average price of the Common Stock for a ten-day period in January.

The measures of performance under the LTIP for performance periods that
commenced before 1995 are:

o Cash Flow Return on Investment in the third year of the performance
period.

o Cumulative Net Cash Flow over the three-year period.

o Total Investor Return relative to the Total Investor Return of four
comparator groups. These comparator groups are the Regional Holding
Companies ("RHCs"), Independent Telecommunications Companies,
California Utilities and the Standard & Poor's 500 Index ("S&P 500
Index").

The performance targets have been set by the C&P Committee in consideration of
the performance levels projected in the Corporation's business plan and the
levels of return required to meet investor return expectations. Investor
return expectations are based on an analysis of stock market data by an
independent third party. The Corporation has adopted an amended and restated
LTIP effective January 1, 1995, which includes provisions that permit the C&P
Committee to adjust awards based on additional performance criteria, including
individual merit, and which are designed to ensure that compensation paid to
the Named Executive Officers under the LTIP will be exempt from the limits on
deductible compensation imposed under Code Section 162(m). (See Item C on
page 24.)

Compensation of the Chairman of the Board, President and Chief Executive
Officer ("CEO") is administered by the C&P Committee with concurrence of the
Board of Directors. The Corporation has adopted a philosophy of tying a large
fraction of the CEO's total compensation to performance. On April 1, 1994,
Mr. Ginn, then Chairman of the Board and CEO, left the Corporation and joined
AirTouch. On April 1, 1994, Mr. Quigley was named Chairman of the Board,
President and CEO of the Corporation and Chairman of the Board of
Pacific Bell. Mr. Quigley's compensation package (including salary, STIP,
LTIP and stock options) was established by the Board of Directors at a level
commensurate with the range of competitive rates for companies comparable in
size to the Corporation, without its former wireless operations. Consistent
with the Corporation's practice for other newly promoted executive and
management employees, Mr. Quigley's total compensation was set at the low end
of the competitive ranges. As warranted by future performance, it is expected

DEF 14A 15th Page of 156 TOC 1st Previous Next ↓Bottom Just 15th
that Mr. Quigley's compensation will increase at rates faster than general
movement in the labor market until his target total compensation package is in
the middle of the range of rates paid for comparable positions. As part of
Mr. Quigley's compensation package, on April 1, 1994, he was granted 210,000
NSOs at an exercise price of $32.00, which vest 50 percent in each of 1995 and
1996.

Mr. Quigley's actual total compensation increased in 1994 as compared with
1993 primarily as a result of the increases granted to him in base salary and
target incentive awards to reflect his new role as President and CEO. In
addition, actual variable compensation increased as a result of the
Corporation's strong performance in meeting financial targets for 1994 under
the STIP, its strong performance in meeting financial targets for the
1992-1994 performance period under the LTIP and high level of Total Investor
Return over the 1992-1994 performance period compared with its peer group
companies.

The Stock Plan contains provisions intended to permit option grants under such
plan to meet the performance-based exception from the provisions of
Code Section 162(m) that would otherwise apply to limit tax deductions for
certain compensation paid to executive officers. Based on currently proposed
regulations implementing Code Section 162(m), the Corporation believes that
grants currently outstanding under the Corporation's Stock Plan, 1984 Stock
Option and Stock Appreciation Rights Plan, and LTIP for the 1992-1994 and
1993-1995 performance periods are exempt from these limits. The Corporation
has amended its STIP and LTIP in consideration of Code Section 162(m) as
described below in the directors' proposals to approve amendments to the STIP
and LTIP (see Items C and D on pages 24 and 27). Payments of base salary and
awards under the STIP do not exceed $1 million for any Named Executive Officer
for 1994. The final regulations implementing Code Section 162(m) are expected
later this year and the Committee will review the Corporation's STIP and LTIP
and take further appropriate action at that time.

THE COMPENSATION AND PERSONNEL COMMITTEE

S. Donley Ritchey, Chairman Frank C. Herringer
Donald E. Guinn Lewis E. Platt

DEF 14A 16th Page of 156 TOC 1st Previous Next ↓Bottom Just 16th
COMPENSATION AND PERSONNEL COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the C&P Committee during 1994 were: Donald E. Guinn,
Frank C. Herringer, Lewis E. Platt and S. Donley Ritchey. No current officer
of the Corporation serves on the C&P Committee and there were no "interlocks"
as defined by the Securities and Exchange Commission (the "SEC") in 1994.
Mr. Guinn is the former Chairman of the Board and CEO of the Corporation.
Mr. Herringer is President and CEO of Transamerica. Mr. Platt is Chairman of
the Board, President and CEO of H-P.

The Corporation is a party to certain agreements with subsidiaries of
Transamerica whereby the Corporation or its subsidiaries have the option or
the obligation to purchase under specified conditions the equity interests
that the Transamerica subsidiaries have acquired in certain Chicago cable
television properties, at a price sufficient to cover the costs Transamerica
has incurred in connection with the acquisition. Two subsidiaries of
Transamerica borrowed $60 million from banks to cover the acquisition costs,
and the Corporation guaranteed the borrowings. Interest accruing on the
loans, which will be added to the loan amounts, may accrue to a maximum of
$136 million. The Transamerica subsidiaries will be paid a total of $400,000
per year for the option, plus certain transaction costs such as legal fees.
The Transamerica subsidiaries were paid $411,974 in 1994 in connection with
the transaction. Ms. Rembe is a director of Transamerica. Mr. Herringer is
President, CEO and a director of Transamerica.

Transactions between the Corporation and H-P for equipment repair and
maintenance, training and support amounted to $9,662,000 in 1994. In
September 1994, Pacific Telesis Video Services ("PTVS") a wholly-owned
subsidiary of the Corporation, and H-P entered into an agreement to work
together on an interactive video system to offer consumers video-on-demand
services by the end of the year. H-P will provide large video servers as the
central element of the PTVS system. This transaction is valued at
approximately $10 million. PTVS paid H-P approximately $300,000 in 1994 and
plans to spend $3 million in 1995. Mr. Platt is Chairman of the Board,
President and CEO of H-P.

EXECUTIVE COMPENSATION

The following table discloses compensation received by the Named Executive
Officers for the three fiscal years ended December 31, 1994.

DEF 14A 17th Page of 156 TOC 1st Previous Next ↓Bottom Just 17th
[Enlarge/Download Table]

SUMMARY COMPENSATION TABLE

Long Term Compensation
------------------------
Annual Compensation Awards Payouts
------------------------ ------------------------
(E) (F) (G) (H) (C+D+G)
(A) (B) (C) (D) Other Annual Options LTIP All Other Total Cash
Name & Position Year Salary ($) Bonus ($) Comp ($) (#)* Payouts ($) Comp ($)** Comp ($)***
----------------------------------------------------------------------------------------------------------------------------------

P. J. Quigley 1994 $541,458 $391,738 $77,546 210,000 $426,953 $74,925 $1,360,149
Chairman of the Board, 1993 458,417 291,200 46,499 0 320,432 50,101 1,070,049
President & CEO 1992 420,792 292,640 45,576 57,000 187,084 33,422 900,516
(Since 4/1/94)

S. L. Ginn 1994 217,292 139,438 2,135 0 0 441,287 356,730
Former Chairman of the Board 1993 743,542 793,200 92,819 0 591,548 118,398 2,128,290
& CEO 1992 709,167 581,000 85,769 90,000 337,885 101,612 1,628,052
(Resigned 4/1/94)

D. W. Dorman 1994 206,250 602,500 (1) 14,033 100,000 0 22,500 808,750
President & CEO - Pacific Bell
(Engaged 7/1/94)

M. J. Fitzpatrick 1994 366,875 239,800 (2) 13,425 70,000 0 61,647 606,675
President & CEO - 1993 105,000 50,000 0 15,000 0 0 155,000
Pacific Telesis Enterprises
(Engaged 8/30/93)

J. R. Moberg 1994 331,875 187,550 40,845 70,000 241,280 92,001 760,705
Executive Vice President, 1993 324,375 238,000 29,129 0 188,209 70,340 750,584
Human Resources 1992 309,125 168,740 28,090 25,000 110,833 53,267 588,698

R. W. Odgers 1994 331,875 187,550 39,166 70,000 241,280 59,153 760,705
Executive Vice President, 1993 324,458 268,000 28,764 0 188,209 43,688 780,667
General Counsel, 1992 311,708 168,740 27,818 25,000 110,833 34,012 591,281
External Affairs & Secretary

---------------------------------------------------------------------------------------------------------------------------------

DEF 14A 18th Page of 156 TOC 1st Previous Next ↓Bottom Just 18th
(1) In July 1994, the Corporation advanced $300,000 to Mr. Dorman at an interest rate of 5.63 percent per annum.
In January 1995, the principal amount of the loan was forgiven in payment of a special compensation payment
earned by Mr. Dorman in 1994.

(2) Includes a special compensation payment of $50,000 which was earned by Mr. Fitzpatrick in 1994 and was paid in
January 1995.

* To reflect the spin-off of AirTouch on April 1, 1994, the exercise price of all outstanding options was adjusted
and each outstanding option to purchase one share of the Corporation's Common Stock was supplemented with an option
to purchase one share of AirTouch common stock. The spread between the exercise price of the option and the market
value of Common Stock that existed before the spin-off was allocated between the Corporation option and the new
AirTouch option in the same ratio as the ratio between the market value of the Corporation's Common Stock and
the market value of AirTouch common stock prior to the spin-off. Therefore, the intrinsic value of the sum of both
resulting options (the Corporation and AirTouch) remained the same.

** Includes "above-market" interest on deferred compensation (1994 = $53,075, $119,849, $0, $1,347, $78,701 and
$45,853, respectively) and company contributions under the Pacific Telesis Group Supplemental Retirement and Savings
Plan for Salaried Employees, including a "make-up" match under the Executive Deferral Plan for amounts that were
deferred and therefore not eligible for matching contributions under the Pacific Telesis Group Supplemental Retirement
and Savings Plan for Salaried Employees (1994 = $21,850, $7,450, $0, $14,700, $13,300 and $13,300, respectively).
Also includes executive relocation payments to Messrs. Dorman and Fitzpatrick (1994 = $22,500 and
$45,600, respectively) and nonqualified pension payments totalling $313,988 to Mr. Ginn.

*** Includes Salary + Bonus + LTIP Payouts and does not include dividend equivalents which are included under Column E.

DEF 14A 19th Page of 156 TOC 1st Previous Next ↓Bottom Just 19th
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OPTION GRANTS IN LAST FISCAL YEAR (1)
Potential Realizable Value At
Assumed Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
------------------------------------------------------------------------------ ----------------------------------------------
(A) (B) (C) (D) (E) (F) (G)
% of Total
Options 5% ($)** 10% ($)**
Options Granted to Exercise or Projected PTG Projected PTG
Granted Employees in Base Price Expiration Price $52.12 Price $83.00
Name (#)* Fiscal Year ($/SH) Date ($50.09 Dorman Only) ($79.76 Dorman Only)
------------------------------------------------------------------------------ ----------------------------------------------

P. J. Quigley 210,000 2.96% $32.00 3/31/2004 $4,225,200 $10,710,000

D. W. Dorman 100,000 1.41 30.75 6/30/2004 1,934,000 4,901,000

M. J. Fitzpatrick 70,000 .99 32.00 3/31/2004 1,408,400 3,570,000

J. R. Moberg 70,000 .99 32.00 3/31/2004 1,408,400 3,570,000

R. W. Odgers 70,000 .99 32.00 3/31/2004 1,408,400 3,570,000

Gain to All
Shareowners N/A N/A N/A N/A 8,530,880,000 21,624,000,000

Named Executive
Officers' Gain as %
of Gain to All
Shareowners N/A N/A N/A N/A .12% .12%
-------------------------------------------------------------------------------------------------------------------------------
(1) Mr. Ginn resigned as Chairman of the Board and CEO on April 1, 1994 and did not receive a grant.

* All options except Mr. Dorman's were granted on April 1, 1994. 50 percent become exercisable on April 1, 1995, and
the remaining 50 percent become exercisable on April 1, 1996. Mr. Dorman's options were granted on July 1, 1994;
50 percent become exercisable on April 2, 1995, and the remaining 50 percent become exercisable on April 2, 1996.

** These are hypothetical values using assumed growth as prescribed by the SEC.

DEF 14A 20th Page of 156 TOC 1st Previous Next ↓Bottom Just 20th
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AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES (1) (2)

(A) (B) (C) (D) (E)
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable* Unexercisable**
-------------------------------------------------------------------------------------------

P. J. Quigley 52,400 $442,614 57,000 /210,000 $169,450/$0

D. W. Dorman No Exercises N/A 0 /100,000 0/ 0

M. J. Fitzpatrick No Exercises N/A 15,000 / 70,000 0/ 0

J. R. Moberg 39,600 229,922 0 / 70,000 0/ 0

R. W. Odgers 39,600 254,422 0 / 70,000 0/ 0
-------------------------------------------------------------------------------------------

(1) Mr. Ginn resigned as Chairman of the Board and CEO on April 1, 1994 and did not exercise any options, nor
does he hold any unexercised options.

(2) In 1994, no Named Executive Officer exercised any AirTouch option held by them. As of December 31, 1994,
the number of such options held by Messrs. Quigley, Dorman, Fitzpatrick, Moberg and Odgers was 109,400, 0,
15,000, 39,600 and 39,600, respectively. All of such AirTouch options were exercisable. The value of
such options (based on the closing price on the New York Stock Exchange - Composite Transactions on
December 30, 1994 of $29.125) was $1,359,211, $0, $111,546, $454,753, and $454,753, respectively.

* All unexercisable options as of December 31, 1994 (except Mr. Dorman's) reflect options
granted on April 1, 1994; 50 percent become exercisable on April 1, 1995, and the remaining
50 percent become exercisable on April 1, 1996. Mr. Dorman's options were granted on July 1, 1994;
50 percent become exercisable on April 2, 1995, and the remaining 50 percent become exercisable
on April 2, 1996.

DEF 14A 21st Page of 156 TOC 1st Previous Next ↓Bottom Just 21st
** Based on the closing price on the New York Stock Exchange - Composite Transactions
of the Corporation's Common Stock on December 30, 1994 of $28.50 minus the exercise price.

DEF 14A 22nd Page of 156 TOC 1st Previous Next ↓Bottom Just 22nd
[Enlarge/Download Table]

LONG TERM INCENTIVE PLANS* - AWARDS IN LAST FISCAL YEAR (1)

Estimated Future Payouts
Under Nonstock Price-Based Plans
-------------------------------------------
(A) (B) (C) (D) (E) (F)
Performance or
Number of Other Period Until Threshold Target Maximum
Name Units (#)** Maturation or Payout (# of Units) (# of Units) (# of Units)
-------------------------------------------------------------------------------------------------------------------

P. J. Quigley 15,695 Three Years 6,592 15,695 20,404

D. W. Dorman 8,375 Three Years 3,518 8,375 10,888

M. J. Fitzpatrick 6,467 Three Years 2,716 6,467 12,374

J. R. Moberg 4,800 Three Years 2,016 4,800 6,240

R. W. Odgers 4,800 Three Years 2,016 4,800 6,240
------------------------------------------------------------------------------------------------------------------

(1) Mr. Ginn resigned as Chairman of the Board and CEO on April 1, 1994 and did not receive a LTIP grant.

* The LTIP provides awards contingent upon the achievement of performance objectives set by the C&P Committee
over a three-year period. The above grants (Column B) are for the three-year performance period which will end
December 31, 1996. The measures of performance under the LTIP for this performance period are: (1) Cash Flow Return
on Investment in the third year of the performance period; (2) Cumulative Net Cash Flow over the three-year period
and (3) Total Investor Return relative to the Total Investor Return of four comparator groups. These comparator
groups are the RHCs, Independent Telecommunications Companies, California Utilities and the S&P 500 Index. The
performance targets are set by the C&P Committee in consideration of the performance levels projected in the
Corporation's business plan and the levels of return required to meet investor return expectations. Investor return
expectations are based on an analysis of stock market data by an independent third party.

Awards are denominated in shares of Common Stock and dividend equivalents are paid during the performance period.
At the end of the period, awards are paid either in shares of Common Stock or in cash (valued at the average price
of the Common Stock for a ten-day period in January).

** A unit is based on one share of Common Stock.

DEF 14A 23rd Page of 156 TOC 1st Previous Next ↓Bottom Just 23rd
PERFORMANCE GRAPH

The stock performance graph shown below is not necessarily indicative of
future price performance. (See Appendix for narrative description.)

Comparison of Five Year Cumulative
Total Return for Pacific Telesis Group, the
Six Other RHCs and the S&P 500 Index

G R A P H

----------------------------------------------------------------------------

PENSION PLANS

The Corporation has noncontributory pension plans (both qualified and
nonqualified) for salaried employees. These plans provide a monthly pension
for salaried employees including officers equal to 1.45 percent of
"Compensation" averaged over the last five years of service multiplied by
years of service. Compensation for purposes of determining officer pension
benefits includes base salary and the target award under the STIP. Effective
January 1995, the years of service for this purpose will not be more than the
greater of 30 or the actual years of service accrued as of December 31, 1994.
An employee is eligible for a pension at age 65 after completing five years of
service. Pensions may begin earlier with or without an early payment discount
depending upon age and length of service at retirement. Retirement is
mandatory at age 65 for officers and other senior managers, provided the
individuals fall within the provisions of Section 12(c)(1) of the Age
Discrimination in Employment Act of 1967, as amended from time to time.

The pension plans covering officers also provide that officers designated as
eligible to participate prior to January 25, 1992, will be eligible for a
minimum pension of 45 percent of average Compensation for the officer's last
five years of employment if the officer serves as an officer for ten years and
leaves the Corporation in good standing at age 55 or thereafter. This minimum
pension is increased by an additional 1.0 percent per year, up to a maximum
total pension of 50 percent, at 15 years or more of service as an officer.
The minimum pension benefit will be offset by benefits payable to the officer
under any other qualified or nonqualified pension plans of the Corporation.

Officers and senior managers who are hired at age 35 or over into a specified
level of management ("mid-career hires") and terminate after completing five
or more years of service at a specified level, receive additional pension
credits equal to the difference between 35 and their maximum possible years of
service attainable at age 65, not to exceed actual net credited service, at a
rate of 1.0 percent per year, with a higher rate of 1.45 percent per year for
those years served as an officer. The Board has authorized amendments to
these mid-career hire provisions as necessary or advisable to coordinate these
provisions with the 30-year limit on service for pensions described above.

DEF 14A 24th Page of 156 TOC 1st Previous Next ↓Bottom Just 24th
The following table shows the total annual straight life annuity pension
benefits that would be received by an executive officer of the Corporation
retiring today at age 65 under the qualified and nonqualified plans. It
assumes various specified levels of total years of service and of average
annual Compensation during the final five years of service. The benefits
shown in the table generally are not subject to offsets for Social Security
benefits or other payments.

Average Annual
Compensation
During Final Years of Service Prior to Retirement
Five Years -----------------------------------------------------------
of Service 15 20 25 30 35
----------------------------------------------------------------------------
$ 450,000 $ 97,875 $130,500 $163,125 $195,750 $228,375
500,000 108,750 145,000 181,250 217,500 253,750
650,000 141,375 188,500 235,625 282,750 329,875
700,000 152,250 203,000 253,750 304,500 355,250
800,000 174,000 232,000 290,000 348,000 406,000
900,000 195,750 261,000 326,250 391,500 456,750
1,000,000 217,500 290,000 362,500 435,000 507,500
1,150,000 250,125 333,500 416,875 500,250 583,625
----------------------------------------------------------------------------

Pensions under the plans may be paid as life annuities or joint and survivor
annuities or a lump sum payment at retirement. Pensions under the qualified
plan are not subject to offset or forfeiture. Pensions under the nonqualified
plans are subject to forfeiture or reduction in certain circumstances.

The 1994 Compensation of Messrs. Quigley, Dorman, Fitzpatrick, Moberg and
Odgers, covered by the qualified and nonqualified pension plans is
$870,000, $475,000, $522,500, $487,500 and $487,500, respectively. The
approximate estimated credited years of service that will be used in
calculating a pension benefit of Messrs. Quigley, Dorman, Fitzpatrick, Moberg
and Odgers, upon retirement at age 65 is 30, 25, 20, 34 and 14, respectively.
Messrs. Quigley and Moberg will have 15 or more years of service as an officer
at age 65, assuming they continue as officers during the intervening period,
and thus would be entitled to the greater of the amount determined under the
table above or a minimum pension benefit of 50 percent of the average annual
Compensation during their final five years of service. Mr. Odgers will have
14 years of service as an officer at age 65 assuming he continues as an
officer during the intervening period, and thus should be entitled to the
greater of the amount determined under the table above or a minimum pension
benefit equal to 49 percent of the average annual Compensation during his
final five years of service. The C&P Committee terminated the participation
of all participants under the Corporation's nonqualified pension plans who
were transferring employment to AirTouch in connection with the spin-off and
who were eligible either for nondiscounted service pensions or for officer
minimum pensions. In 1994, in accordance with the terms of the nonqualified
pension plans applicable to terminated participants, Mr. Ginn received
monthly nonqualified pension payments equal to a total of $313,988.
Mr. Ginn's benefits under the Corporation's qualified pension plan were
transferred to the AirTouch pension plan.

DEF 14A 25th Page of 156 TOC 1st Previous Next ↓Bottom Just 25th
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT OR CHANGE IN CONTROL
ARRANGEMENTS

The Corporation has entered into employment agreements with certain officers,
including Messrs. Quigley, Dorman, Fitzpatrick, Moberg and Odgers which
provide for payments in the event of an involuntary termination of employment.
Such agreements do not have a fixed term and may be terminated upon three
years notice. The agreements will automatically terminate upon the voluntary
resignation of the officer. The amount of the payments depends on whether the
involuntary termination occurs within three years after a "change in control."
If an officer's employment is involuntarily terminated for some reason other
than cause, death or disability, whether or not there has been a change in
control, the Corporation will make a cash payment of three times the officer's
base compensation then in effect, plus 100 percent of the target award under
the STIP applicable for that calendar year and, if all LTIP awards are
forfeited, an amount equal to the value of a share of Common Stock on the date
of employment termination multiplied by the number of LTIP awards granted for
the performance period that ends in that calendar year. In such event, the
Corporation will also compensate the officer for the termination of NSOs and
Stock Appreciation Rights ("SARs"), based on the difference between fair
market value of the Corporation's Common Stock at the effective date of
termination and the option price (in the case of SARs, the difference between
such fair market value and the option price at which the stock option related
to the SAR was granted).

Upon an involuntary termination (including a "constructive termination," which
is defined as a material reduction in responsibilities, a material reduction
in salary or benefits or a requirement to relocate) within three years after a
"change in control," the officer shall receive a severance payment, in
addition to the payments described in the preceding paragraph, when
applicable, equal to approximately 200 percent of the officer's STIP and LTIP
awards for one year. "Change in control" is defined generally as a party's
acquisition, direct or indirect, of 20 percent or more of the Corporation's
securities, a greater than one-third change in composition of the
Corporation's Board of Directors in 24 months that was not approved by the
majority of existing directors, or certain mergers, consolidations, sales or
liquidations of substantially all of the Corporation's assets. Without regard
to any other provision of the employment agreements, in the event that the
Corporation's auditors determine that any portion of the payment to be made
under the agreement is nondeductible by the Corporation because of
Code Section 280G, payments under the agreements will be reduced to the extent
of the nondeductible amount.

In addition to the provisions of the employment agreements described above,
the Corporation has also entered into a supplemental benefit agreement with
Mr. Odgers under which, if he voluntarily terminates his employment, he would
receive a pension (payable in any of the forms available under the
nonqualified pension plans) equal to a percentage (increasing ratably for each
month of employment, beginning with 35 percent and ending with 45 percent in
the event of termination in or after October 1997) of his average annual
compensation (including base salary and the target award under the STIP)
during the final five years of employment. The agreement further provides
that if Mr. Odgers is involuntarily terminated, or if his position or

DEF 14A 26th Page of 156 TOC 1st Previous Next ↓Bottom Just 26th
compensation is materially reduced, he would receive a pension equal to
45 percent of his average annual compensation during his final five years of
employment. Any payments to Mr. Odgers under this agreement would be offset
by benefits payable to him under the qualified and nonqualified pension plans
of the Corporation described under "Pension Plans" in the above discussion.
In addition to the provisions of the employment agreements described above,
the Corporation has agreed to provide certain supplemental pension benefits to
Mr. Dorman if he terminates employment after completing five years of service.
The Corporation has agreed that Mr. Dorman would receive a supplemental
pension benefit of 1.0 percent per year of service (in addition to the
1.45 percent credited to all salaried employees) of his average annual
compensation (including base salary and the target award under the STIP)
during the final five years of employment multiplied by his years of service.
Mr. Dorman's total pension would be limited to a maximum of 50 percent, would
be payable in any of the forms available under the nonqualified pension plans
and would not be discounted for early payment. Any payments to Mr. Dorman
under this agreement would be offset by benefits payable to him under the
qualified and nonqualified pension plans of the Corporation described under
"Pension Plans" in the above discussion.

The Corporation also has agreed to provide certain executive relocation
benefits to Messrs. Dorman and Fitzpatrick. These benefits include assistance
with the sale of their prior residences and the purchase of new residences in
the San Francisco area, payment of certain expenses associated in moving the
executives and their families to the San Francisco area, and payment of a
relocation allowance equal to a decreasing percentage of base salary for the
first three years of employment (ten percent, eight percent and six percent,
respectively).

The Corporation also has an Executive Deferral Plan pursuant to which officers
may elect to defer the receipt of all or a part of certain specified
compensation payments (including base salary, STIP, LTIP and bonus payments).
These deferred amounts earn interest compounded annually at a rate determined
by the Board. The rate for 1994 was equal to 10 percent. A trust has been
established and assets have been contributed by the Corporation, consisting of
cash and other investments, from which benefits for officers under the
Executive Deferral Plan may be paid. A similar trust (with the contribution
of assets in a similar manner) has also been established from which various
nonqualified executive retirement or pension benefits may be paid. These
trusts generally provide that the C&P Committee may issue instructions to the
trustee as to payment of benefits and that the Corporation will contribute
sufficient assets to the trust to fully fund benefit payments upon a change in
control.

RATIFICATION OF APPOINTMENT OF AUDITORS (ITEM B ON PROXY CARD - DIRECTORS
RECOMMEND A VOTE "FOR")

Subject to shareowner ratification, the Board of Directors, upon
recommendation of the Audit Committee, has reappointed the firm of Coopers &
Lybrand L.L.P., Certified Public Accountants, as independent accountants to
audit the financial statements of the Corporation for the year 1995. Coopers
& Lybrand L.L.P. has audited the Corporation's financial statements for many
years. The Board of Directors recommends that the shareowners vote "FOR" such
ratification. If the shareowners do not ratify this appointment, other
certified public accountants will be considered by the Board of Directors upon
recommendation of the Audit Committee.

DEF 14A 27th Page of 156 TOC 1st Previous Next ↓Bottom Just 27th
For the year 1994, Coopers & Lybrand L.L.P. audited the financial statements
of the Corporation and some of its subsidiaries, and provided other audit
services to the Corporation in connection with SEC filings, the review of
interim financial statements and audits of pension and other employee benefit
plans.

One or more members of the firm are expected to be present at the Annual
Meeting and will have the opportunity to make a statement if they desire to do
so and to respond to appropriate questions.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.

BOARD OF DIRECTORS PROPOSAL TO APPROVE THE CORPORATION'S SENIOR MANAGEMENT
LONG TERM INCENTIVE PLAN (ITEM C ON PROXY CARD - DIRECTORS RECOMMEND A VOTE
"FOR")

In December 1994 and effective as of January 1, 1995, contingent on shareowner
approval, the Board of Directors adopted an amendment and restatement of the
Pacific Telesis Group Senior Management Long Term Incentive Plan, as approved
and recommended by the C&P Committee. Accordingly, the following resolution
will be presented for a vote of the shareowners at the Annual Meeting and the
Board recommends that it be approved:

"RESOLVED that the adoption by the Board of Directors of the Pacific Telesis
Group Senior Management Long Term Incentive Plan (amended and restated
effective January 1, 1995) is hereby approved, ratified and confirmed."

The directors believe that the Corporation's LTIP provides a means of
attracting, retaining and motivating executives and senior management
employees. The LTIP is being submitted for shareowner approval to comply with
Sections 14(a) and 16(b) and Rule 16b-3 of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and to comply with Code Section 162(m).
If the LTIP, as amended and restated, is not approved by the shareowners, the
prior version of the LTIP will remain effective until further amended.

BACKGROUND. The 1995 amendment and restatement of the LTIP replaces the 1985
restatement of the LTIP, which was a continuation, with certain nonmaterial
modifications, of the LTIP adopted by the Corporation in 1983 that was similar
to the Bell System Long Term Incentive Plan for senior managers of AT&T and
other Bell System companies approved in 1982 by AT&T's shareowners. The LTIP
has no fixed expiration date.

SUMMARY OF THE 1995 LTIP. A summary of the essential features of the 1995
LTIP is provided below, but is qualified in its entirety by reference to the
full text of the LTIP which was filed electronically with this proxy statement
with the SEC. Such text is not included in this proxy statement.

Under the LTIP, the C&P Committee, or another committee designated by the
Board of Directors for administering the LTIP (the "LTIP Committee"), may
grant awards of "units" to certain senior managers of the Corporation or any
of its affiliates. As of January 1, 1995, approximately 30 employees of the
Corporation and its affiliates were eligible to participate in the LTIP.

DEF 14A 28th Page of 156 TOC 1st Previous Next ↓Bottom Just 28th
The LTIP Committee has discretion to select the senior managers who may
receive grants of units under the LTIP, to determine the amounts of such units
and the forms of any distribution, and to establish the performance period and
applicable performance criteria. The majority of the members of the LTIP
Committee are "disinterested persons" as defined in Rule 16b-3 of the Exchange
Act. A senior manager is not rendered ineligible to be a participant by
reason of being a member of the Board.

At the time the units are granted, the LTIP Committee shall establish a
performance period of two or more years, and the performance criteria for such
period. In the event of any stock split, recapitalization, merger,
consolidation, spin-off or other similar corporate change, or an extraordinary
change which significantly alters the basis upon which the performance levels
were established, the LTIP Committee may make such adjustments to the number
of units granted or the established performance levels, as applicable, that it
deems appropriate in order to preserve the incentive features of the LTIP.

At the conclusion of the performance period, the LTIP Committee determines the
percentage of the units granted that will be distributed, if any, based on the
degree to which the specified financial and other performance objectives are
met. The percentage of units that will be distributed to a participant may
vary from 0 to 200 percent of the units granted to such participant. The
aggregate number of units that may be granted to all participants in any year,
and the aggregate number of units that may be determined earned and
distributable in any year based on the degree to which performance criteria
are met, may not exceed 0.5 percent of the total number of shares of Common
Stock outstanding at the time the units are granted or become distributable,
whichever is applicable.

During the year in which units are granted and thereafter until distribution,
cash payments will be made to participants in an amount equivalent to the
dividends paid on a number of shares equal to the number of units granted.
These dividend equivalents will be paid on a current basis and will not depend
on the distribution that actually occurs at the end of the performance period.

Distributions of units determined earned based on the performance criteria
will be made in the form of a number of shares of Common Stock equal to the
number of such units or cash equal in amount to the then current value of such
number of shares, or partly in shares and partly in cash, as determined by the
LTIP Committee. Distribution will normally occur only at the end of the
applicable performance period. Distributions of units may occur earlier in
the case of death and in the case of certain terminations of service. The
LTIP Committee may direct distribution of an estimated number of units earned
immediately prior to the end of a performance period with the balance to be
distributed after the performance period at such time as a final determination
of the number of units earned is made. No distributions may be made to a
participant who is dismissed for cause. The LTIP Committee has discretion to
determine that no dividend equivalent payments shall be made and no
distributions shall be made if there exists any default in payment of
dividends on any outstanding capital stock of the Corporation or if the
estimated consolidated net income of the Corporation for the preceding twelve-
month period, excluding extraordinary charges, is less than amounts
distributable under the LTIP together with STIP awards plus all dividends paid
or payable for such period.

DEF 14A 29th Page of 156 TOC 1st Previous Next ↓Bottom Just 29th
The 1995 restatement of the LTIP includes certain provisions that are
applicable solely to Named Executive Officers to ensure that compensation paid
to such executives under the LTIP will be exempt from the limits on deductible
compensation imposed under Code Section 162(m). These provisions establish an
objective performance-based formula for determining the amount distributable
to Named Executive Officers at the end of a performance period. For these
executives, in lieu of a determination of a percentage of the units granted
during the performance period that shall be distributable, the number of units
granted for such performance period that shall become distributable at the end
of the performance period to each such executive shall equal a cash value
determined based on a formula specified in the LTIP. The formula for
determining such cash value is as follows: first, an aggregate cash value is
determined by dividing (1) the sum of 0.4 percent of "Cash from Operating
Activities" (as publicly disclosed in the Corporation's consolidated financial
statements) for each year included in the performance period, by (2) the
number of years in such performance period. Second, the aggregate cash value
is allocated among all such executives, pro rata based on each such
executive's base salary at the beginning of the performance period. In
addition, those members of the LTIP Committee who are outside directors within
the meaning of Code Section 162(m) have discretion to reduce the units
determined distributable to any such executive, based on financial performance
criteria, individual performance criteria or any other criteria such directors
deem appropriate.

The Board may modify the LTIP, provided that without the approval of the
shareowners no modification shall materially increase the benefits accruing to
employees, materially increase the number of shares which may be issued under
the LTIP (except for adjustments to reflect stock dividends, stock splits,
recapitalizations or other corporation reorganizations) or materially modify
the eligibility requirements for participation in the LTIP.

DEF 14A 30th Page of 156 TOC 1st Previous Next ↓Bottom Just 30th
The following table discloses the units to be granted to each of the Named
Executive Officers, all executive officers as a group and all senior managers,
excluding executive officers, as a group under the LTIP during the fiscal year
ending December 31, 1995.

SENIOR MANAGEMENT LONG TERM INCENTIVE PLAN

Grants for 1995-1997
Performance Period
Name and Position (# of units)*
---------------------------------------------------------------------------
P. J. Quigley
Chairman, President & CEO 21,800

D. W. Dorman 14,500
President & CEO - Pacific Bell

M. J. Fitzpatrick 8,300
President & CEO - Pacific Telesis Enterprises

J. R. Moberg 6,050
Executive Vice President, Human Resources

R. W. Odgers 6,050
Executive Vice President, General Counsel, External Affairs
& Secretary

All executive officers as a group (7 persons) 65,350

All senior managers (excluding executive officers) as a group 57,350
(23 persons)
----------------------------------------------------------------------------

* A unit is based on one share of Common Stock. Dividend equivalents will
be paid to participants in the amount equivalent to the dividends paid on
the number of shares of Common Stock equal to the number of units
granted.

For participants who are not Named Executive Officers at the end of the
1995-1997 performance period, the number of units actually distributed
may vary from 0 to 200 percent of the units granted. For participants
who are Named Executive Officers at the end of the 1995-1997 performance
period, units granted listed above will be replaced by the performance-
based formula described above, which is contingent upon the amount, if
any, of Cash from Operating Activities.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.

BOARD OF DIRECTORS PROPOSAL TO APPROVE THE CORPORATION'S SHORT TERM INCENTIVE
PLAN (ITEM D ON PROXY CARD - DIRECTORS RECOMMEND A VOTE "FOR")

DEF 14A 31st Page of 156 TOC 1st Previous Next ↓Bottom Just 31st
In December 1994 and effective as of January 1, 1995, contingent on shareowner
approval, the Board of Directors adopted an amendment and restatement of the
Pacific Telesis Group Short Term Incentive Plan, as approved and recommended
by the C&P Committee. Accordingly, the following resolution will be presented
for a vote of the shareowners at the Annual Meeting and the Board recommends
that it be approved:

"RESOLVED that the adoption by the Board of Directors of the Pacific Telesis
Group Short Term Incentive Plan (amended and restated effective
January 1, 1995) is hereby approved, ratified and confirmed."

The STIP provides managers of the Corporation and its affiliates with
incentive compensation based upon the level of achievement of financial and
other performance criteria. The directors believe that the Corporation's STIP
provides a means of attracting, retaining and motivating management employees.
The STIP is being submitted for shareowner approval to comply with
Code Section 162(m). If the STIP, as amended and restated, is not approved by
the shareowners, the prior version of the STIP will remain effective until
further amended.

SUMMARY OF THE 1995 STIP. A summary of the essential features of the STIP is
provided below, but is qualified in its entirety by reference to the full text
of the STIP which was filed electronically with this proxy statement with the
SEC. Such text is not included in this proxy statement.

The STIP is administered by the C&P Committee, or another committee designated
by the Board of Directors for administering the STIP (the "STIP Committee").
Employees of the Corporation or any of its affiliates in active service for at
least three months during a performance year (the year in which a STIP award
is earned) in a position determined by the STIP Committee to be in the
management compensation group are eligible to participate in the STIP. As of
January 1, 1995, approximately 14,000 employees of the Corporation and its
affiliates were eligible to participate in the STIP. The STIP Committee shall
approve a target award level for each level of management eligible for awards
under the STIP for each calendar year it intends to designate as a performance
year for purposes of the STIP and establish financial and other performance
criteria applicable to awards for the performance year. In the event of any
stock split, recapitalization, merger, consolidation, spin-off or other
similar corporate change, or an extraordinary change which significantly
alters the basis upon which the performance levels were established, the STIP
Committee may make such adjustments to the established performance levels that
it deems appropriate in order to preserve the incentive features of the STIP.

Awards are made each calendar year with respect to the immediately preceding
performance year, based upon the level of achievement of the established
performance criteria in addition to individual merit. Awards shall be
prorated for a particular performance year to account for entrance to or exit
during the performance year from the level of management eligible for awards,
changes in level, receipt of disability benefits for more than three months
during the performance year or certain terminations of service during the
performance year.

DEF 14A 32nd Page of 156 TOC 1st Previous Next ↓Bottom Just 32nd
Target awards serve as a guideline in making awards. Awards normally may vary
from 0 to 200 percent of the target award based upon the degree to which
specified financial objectives and other performance criteria are met, but may
also be further adjusted, in the case of each individual participant, to be
more (up to a maximum of 250 percent) or less, depending upon individual
performance.

No awards distribution may be made to a participant who is dismissed for
cause. The STIP Committee has discretion to determine that no awards shall be
made if there exists any default in payment of dividends on any outstanding
shares of capital stock of the Corporation, or if the estimated consolidated
net income of the Corporation for the preceding twelve-month period, excluding
extraordinary charges, is less than amounts distributable under the STIP
together with awards eligible for distribution under the LTIP plus all
dividends paid or payable for such period.

The 1995 amendment and restatement of the STIP includes certain provisions
that are applicable solely to Named Executive Officers to ensure that
compensation paid to such executives under the STIP will be exempt from the
limits on deductible compensation imposed under Code Section 162(m). These
provisions establish an objective performance-based formula for determining
the STIP award for the Named Executive Officers for a performance year. For
these executives, the award for a performance year is determined by allocating
among all such executives, pro rata based on each such executive's base salary
at the beginning of the performance year, a portion of an aggregate award for
all such executives equal to 0.4 percent of Cash from Operating Activities for
the performance year. In addition, those members of the STIP Committee who
are outside directors within the meaning of Code Section 162(m) have
discretion to reduce the award determined distributable to any such executive,
based on financial performance criteria, individual performance criteria or
any other criteria such directors deem appropriate.

DEF 14A 33rd Page of 156 TOC 1st Previous Next ↓Bottom Just 33rd
The following table discloses the target awards to be allocated to each of the
Named Executive Officers, all executive officers as a group and all employees,
excluding executive officers, as a group under the STIP during the fiscal year
ending December 31, 1995.

SHORT TERM INCENTIVE PLAN

Name and Position 1995 Target Awards ($)*
--------------------------------------------------------------------------
P. J. Quigley $440,000
Chairman, President & CEO

D. W. Dorman
President & CEO - Pacific Bell 270,000

M. J. Fitzpatrick 200,000
President & CEO - Pacific Telesis Enterprises

J. R. Moberg 175,000
Executive Vice President, Human Resources

R. W. Odgers 175,000
Executive Vice President, General Counsel,
External Affairs & Secretary

All executive officers as a group (7 persons) 1,545,000

All employees (excluding executive officers) as group 81,455,000
(approximately 14,000 persons)
---------------------------------------------------------------------------

* For participants who are not Named Executive Officers at the end of the
fiscal year, the actual award may vary from 0 to 250 percent of the target
award. For participants who are Named Executive Officers at the end of
the fiscal year, the awards listed above will be replaced by the
performance-based formula described above, which is contingent upon the
amount, if any, of Cash from Operating Activities.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.

BOARD OF DIRECTORS PROPOSAL TO AMEND THE 1994 STOCK INCENTIVE PLAN (ITEM E ON
PROXY CARD - DIRECTORS RECOMMEND A VOTE "FOR")

At the Corporation's 1994 Annual Meeting, shareowners of the Corporation voted
to approve the Pacific Telesis Group 1994 Stock Incentive Plan, which
prescribes certain grants of stock and stock options to outside directors
under specified terms and permits the C&P Committee of the Board to approve
grants of stock options, SARs, restricted stock and stock units to key
employees of the Corporation under terms determined by the C&P Committee in
its discretion.

One of the specified terms of the grants of stock options to nonemployee
directors is that upon the director's retirement the stock option terminates
36 months after the date of retirement, provided no earlier termination

DEF 14A 34th Page of 156 TOC 1st Previous Next ↓Bottom Just 34th
provision is otherwise applicable. Shareowners are being asked to approve an
amendment to the Stock Plan that would extend the post-retirement exercise
period to 60 months after the date of retirement, provided no earlier
termination provision is otherwise applicable, for (1) stock option grants
made to nonemployee directors pursuant to the Stock Plan upon the conclusion
of the 1994 Annual Meeting and (2) future stock option grants made to
nonemployee directors. The directors believe that this amendment will conform
the terms of stock options granted to nonemployee directors under the Stock
Plan to long-term growth objectives of the Corporation. This amendment is
being submitted for shareowner approval to comply with Sections 14(a) and
16(b) and Rule 16b-3 of the Exchange Act. There have been no previous
amendments to the provisions in the Stock Plan with respect to grants for
nonemployee directors.

Accordingly, the following resolution will be presented for a vote of the
shareowners at the Annual Meeting and the Board recommends that it be
approved:

"RESOLVED that the amendment by the Board of Directors of Section 4.2 of the
Pacific Telesis Group 1994 Stock Incentive Plan effective April 29, 1994, and
the conforming modification of the Nonemployee Director Nonstatutory Stock
Option Agreement for each nonemployee director granted options on
April 29, 1994 pursuant to Section 4.2, is hereby approved, ratified and
confirmed."

A summary of the essential features of the Stock Plan is provided below, but
is qualified in its entirety by reference to the full text of the Stock Plan
which was filed electronically with this proxy statement with the SEC. Such
text is not included in this proxy statement.

SHARES AVAILABLE FOR ISSUANCE. The Stock Plan provides for awards in the form
of restricted shares, stock units, options or SARs, or any combination
thereof. The total number of shares of Common Stock available for issuance
under the Stock Plan is 21,000,000, subject to anti-dilution provisions. If
any restricted shares, stock units, options or SARs granted under the Stock
Plan are forfeited, or if options or SARs terminate for any other reason prior
to exercise, then the underlying shares of Common Stock again become available
for awards.

ADMINISTRATION AND ELIGIBILITY. The Stock Plan is administered by the C&P
Committee. The C&P Committee selects the employees of the Corporation or any
affiliate who will receive awards, determines the size of the awards (limited
for options and SARs to awards covering not more than 500,000 shares of Common
Stock in any calendar year to a single employee) and establishes vesting or
other conditions. Employees, directors, consultants and advisers of the
Corporation (or any affiliate of the Corporation) are eligible to participate
in the Stock Plan, although incentive stock options ("ISOs") may be granted
only to employees of the Corporation or its subsidiaries. As of
January 1, 1995, approximately 51,600 employees of the Corporation and its
affiliates and ten nonemployee directors were eligible for selection to
receive awards under the Stock Plan. The number of eligible consultants and
advisers cannot be determined. The participation of nonemployee directors of
the Corporation is limited to certain automatic grants of NSOs and stock,
except to the extent the Corporation's Board of Directors implements
provisions that would permit a nonemployee director to convert the annual
retainer and meeting fees to stock options or stock units.

DEF 14A 35th Page of 156 TOC 1st Previous Next ↓Bottom Just 35th
PAYMENT. In general, no payment will be required upon receipt of an award.
The Stock Plan, however, permits the grant of awards in consideration of a
cash payment or a voluntary reduction in cash compensation.

RESTRICTED STOCK. Restricted shares are shares of Common Stock that are
subject to forfeiture in the event that any applicable vesting conditions are
not satisfied, and they are nontransferable prior to vesting (except for
certain transfers to a trustee). Restricted shares have the same voting and
dividend rights as other shares of Common Stock.

STOCK UNITS. A stock unit is an unfunded bookkeeping entry representing the
equivalent of one share of Common Stock, and it is nontransferable prior to
the holder's death (except for certain transfers to a trustee). A holder of
stock units has no voting rights or other privileges as a shareowner but may
be entitled to receive dividend equivalents equal to the amount of any
dividends paid on the same number of shares of Common Stock. Dividend
equivalents may be converted into additional stock units or settled in the
form of cash, Common Stock or a combination of both.

Stock units, when vested, may be settled by distributing shares of Common
Stock or by a cash payment corresponding to the fair market value of the
appropriate number of shares of Common Stock, or a combination of both. The
number of shares of Common Stock (or the corresponding amount of cash)
distributed in settlement of stock units may be greater or smaller than the
number of stock units, depending upon the attainment of performance
objectives. Vested stock units will be settled at the time determined by the
C&P Committee. If the time of settlement is deferred, interest or additional
dividend equivalents may be credited on the deferred payment. The recipient
of restricted shares or stock units may pay all projected withholding taxes
relating to the award with Common Stock rather than cash.

STOCK OPTIONS. Options may include NSOs as well as ISOs intended to qualify
for special tax treatment. The term of an ISO cannot exceed 10 years, and the
exercise price of an ISO must be equal to or greater than the fair market
value of the Common Stock on the effective date of grant. The Stock Plan
permits the grant of NSOs with an exercise price that varies according to a
predetermined formula.

The exercise price of an option may be paid in any lawful form permitted by
the C&P Committee, including (without limitation) the surrender of shares of
Common Stock or restricted shares already owned by the optionee. The Stock
Plan also allows the optionee to pay the exercise price of an option by giving
"exercise/sale" or "exercise/pledge" directions. If exercise/sale directions
are given, a number of option shares sufficient to pay the exercise price and
any withholding taxes is issued directly to a securities broker or other
lender selected by the Corporation. The broker or other lender will hold the
shares as security and will extend credit for up to 50 percent of their market
value. The loan proceeds will be paid to the Corporation to the extent
necessary to pay the exercise price and any withholding taxes. Any excess
loan proceeds may be paid to the optionee. If the loan proceeds are
insufficient to cover the exercise price and withholding taxes, the optionee
will be required to pay the deficiency to the Corporation at the time of
exercise or within a specified period thereafter. The C&P Committee may also
permit optionees to satisfy their withholding tax obligation upon exercise of
an NSO by surrendering a portion of their option shares to the Corporation.

DEF 14A 36th Page of 156 TOC 1st Previous Next ↓Bottom Just 36th
NSO grants are governed by Code Section 83. Generally, no federal income tax
is payable by a participant upon the grant of an NSO. Under current tax law,
if a participant exercises an NSO, he or she will be taxed on the difference
between the fair market value of the Common Stock on the exercise date and the
option exercise price. The Corporation will be entitled to a corresponding
deduction on its income tax return upon the exercise of an NSO.

ISO grants are governed by Code Section 422. Generally, no federal income tax
is payable by a participant upon the grant or upon the exercise of an ISO.
Under current tax law, the participant will be taxed upon disposition of the
stock on the difference between the exercise price and the amount received on
disposition of the stock. The length of time the participant holds the stock
after exercise of an ISO determines whether the income is taxed as capital
gains income or part compensation income and part capital gains income. The
Corporation will not be entitled to a corresponding deduction on its income
tax return except to the extent the participant recognizes compensation
income.

STOCK APPRECIATION RIGHTS. SARs permit the participant to elect to receive
any appreciation in the value of the underlying stock from the Corporation,
either in shares of Common Stock or in cash or a combination of the two, with
the C&P Committee having the discretion to determine the form in which such
payment will be made. The amount payable on exercise of a SAR is measured by
the difference between the fair market value of the underlying stock at
exercise and the exercise price. SARs may, but need not, be granted in
conjunction with options. Upon exercise of a SAR granted in tandem with an
option, the corresponding portion of the related option must be surrendered
and cannot thereafter be exercised. Conversely, upon exercise of an option to
which a SAR is attached, the SAR may no longer be exercised to the extent that
the corresponding option has been exercised. All options and SARs are
nontransferable prior to the optionee's death.

VESTING CONDITIONS. As noted above, the C&P Committee determines the number
of restricted shares, stock units, options or SARs to be included in the award
as well as the vesting and other conditions. The vesting conditions may be
based on the employee's service, his or her individual performance, the
Corporation's performance or other criteria. Vesting may be accelerated in
the event of the employee's death, disability or retirement, in the event of a
change in control with respect to the Corporation or upon other events.
Moreover, the C&P Committee may determine that outstanding options and SARs
will become fully vested if it has concluded that there is a reasonable
possibility that a change in control will occur within six months thereafter.

For purposes of the Stock Plan, the term "change in control" is defined as
(1) the acquisition, directly or indirectly, of at least 20 percent of the
outstanding securities of the Corporation by a person other than the
Corporation or an employee benefit plan of the Corporation, (2) a greater
than one-third change in the composition of the Board over a period of
24 months (if such change was not approved by a majority of the existing
directors), (3) certain mergers and consolidations involving the Corporation,
(4) a liquidation of the Corporation or (5) a sale of all or substantially all
of the Corporation's assets. The term "change in control" does not include a
reincorporation of the Corporation in a different state and certain other
transactions.

DEF 14A 37th Page of 156 TOC 1st Previous Next ↓Bottom Just 37th
LIMITATIONS UNDER TAX LAWS. Awards under the Stock Plan may provide that if
any payment (or transfer) by the Corporation to a recipient would be
nondeductible by the Corporation for federal income tax purposes pursuant to
Code Section 280G, then the aggregate present value of all such payments (or
transfers) will be reduced to an amount which maximizes such value without
causing any such payments (or transfers) to be nondeductible.

MODIFICATIONS. The C&P Committee is authorized, within the provisions of the
Stock Plan, to amend the terms of outstanding restricted shares or stock
units, to modify or extend outstanding options or SARs or to exchange new
options for outstanding options, including outstanding options with a higher
exercise price than the new options.

NONEMPLOYEE DIRECTORS. Members of the Corporation's Board of Directors who
are not employees of the Corporation or its affiliates will receive certain
benefits under the Stock Plan as described in "Director Compensation and
Related Transactions."

COMPLIANCE WITH SECTION 16 OF THE EXCHANGE ACT AND CODE SECTION 162(m). The
intent of the Stock Plan is to comply with any rule under Section 16 of the
Exchange Act including preservation of certain of the participants as
disinterested persons for purposes of the Corporation's employee plans.
Awards of stock options and SARs under the Stock Plan that the C&P Committee
determines shall be granted with an exercise price no less than fair market
value on the date of grant are intended to meet the exception from Code
Section 162(m) for performance-based compensation. The Board is empowered
under the Stock Plan to make any amendment it deems advisable (except for
certain restrictions on amendments to Section 4.2), without requiring further
shareowner approval (except to the extent required by applicable laws,
regulations or rules), including any amendments to comply with the rules under
Section 16 of the Exchange Act or Code Section 162(m).

As described above, the selection of the employees of the Corporation and its
affiliates who will receive awards under the Stock Plan and the size of the
awards are generally to be determined by the C&P Committee in its discretion.
Thus, it is generally not possible to predict the benefits or amounts that
will be received by or allocated to particular individuals or groups of
employees in 1995.

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The following table discloses the options and stock grants awarded to each of
the Named Executive Officers, all executive officers as a group, all directors
who are not executive officers as a group, and all employees, excluding
executive officers, as a group during the fiscal year ending
December 31, 1994.

AMENDED 1994 STOCK INCENTIVE PLAN

Stock Options Stock Grants Dollars
Name and Position No. of Shares (#)
No. of Shares (#) Values($)*
----------------------------------------------------------------------------
P. J. Quigley 210,000 0 0
Chairman, President & CEO

D. W. Dorman 100,000 0 0
President & CEO - Pacific Bell

M. J. Fitzpatrick 70,000 0 0
President & CEO -
Pacific Telesis Enterprises

J. R. Moberg 70,000 0 0
Executive Vice President,
Human Resources

R. W. Odgers 70,000 0 0
Executive Vice President,
General Counsel,
External Affairs & Secretary

All executive officers as a 630,000 0 0
group (7 persons)

All nonemployee directors as 18,000 1,600 $51,400
as a group (10 persons)

All employees (excluding 6,452,800 0 0
executive officers) as a group
(749 persons)
---------------------------------------------------------------------------

* Dollar value for stock options is based on the closing price on the
New York Stock Exchange - Composite Transactions of the Corporation's
Common Stock as of February 28, 1995 minus the exercise price. Dollar
value for stock grants is based on the closing price on the New York
Stock Exchange - Composite Transactions of the Corporation's Common Stock
on the date of grant.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.

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SHAREOWNER PROPOSALS

The Corporation received the following shareowner proposals on the subject of
director compensation. The Board of Directors recommends a vote "AGAINST"
each of the proposals for the reasons stated following both proposals and
supporting statements.

SHAREOWNER PROPOSAL TO ELIMINATE PENSIONS FOR NEW NONEMPLOYEE DIRECTORS
(ITEM F ON PROXY CARD - DIRECTORS RECOMMEND A VOTE "AGAINST")

Mr. Bertram Behrens, 17300 Bismark Road, White Lake, Wisconsin 54491, record
owner of 90 shares of Common Stock, has submitted the following proposal:

"My stockholders proposal is a very simple - but important - one. It is
this: That we the stockholders request that the Board of Directors that
beginning with the election (by the stockholders) of any new non-employee
directors to the Board of Directors no 'retirement pay' or 'pension' be
paid to them. This is not to apply to those presently on the Board or
presently receiving 'retirement pay' or 'pension', but it is to apply to
any new non-employee director."

In support of this proposal, Mr. Behrens has submitted the following
statement:

"This is how a director's 'retirement pay' or 'pension' is figured:

"Upon the latest to occur of (1) retirement, (2) attaining age 65, or
(3) disability, directors who are not employees and who have served for at
least three years receive pensions for life equal to a percentage of the
annual retainer in effect at the time of retirement. This percentage is
equal to 15 percent multiplied by the directors years of service (not to
exceed 100 percent).

"This means that all a director has to do is to be a director for three
years - and he receives 45% - for life - of what he made as a director!
Boy! Isn't that easy money!

"And usually a director is not only a director on one board; he's a
director on several boards. For example, in the 1994 Pacific Telesis
elections of directors the three non-employee directors were all on the
boards of other firms in addition to Pacific Telesis. They have it made,
don't they? Are we stockholders going to continue to put up with having
our money go 'down the tube' like this?

"Of course, the directors of Pacific Telesis are going to scream bloody
murder that we stockholders should vote 'no' against this proposal. It's
only natural that they should want to protect the interests of those who
follow them in the 'club'. Nevertheless, it does not make sense that the
directors - some of them serving on three or four or more boards - should
be receiving 'retirement pay' or 'pension'. We must protect our own
interests as stockholders; we must vote 'yes' and pass this proposal."

SHAREOWNER PROPOSAL TO COMPENSATE DIRECTORS SOLELY IN STOCK (ITEM G ON PROXY
CARD - DIRECTORS RECOMMEND A VOTE "AGAINST")

DEF 14A 40th Page of 156 TOC 1st Previous Next ↓Bottom Just 40th
Mr. Chris Rossi, P. O. Box 249, Boonville, California 95415, record owner of
1,000 shares of Common Stock, has submitted the following proposal:

"The Shareholders of Pacific Telesis request the Board of Directors take
the necessary steps to amend the company's governing instruments to adopt
the following: Beginning on the 1996 Pacific Telesis fiscal year all
members of the Board of Director's total compensation will be 1000 shares
of Pacific Telesis common stock each year. No other compensation of any
kind will be paid."

In support of this proposal, Mr. Rossi has submitted the following statement:

"For many years the Rossi family have been submitting for shareholder
vote, at this corporation as well as other corporations, proposals aimed
at putting management on the same playing field as the shareholders. This
proposal would do just that.

"A few corporations have seen the wisdom in paying directors solely in
stock. Most notably, Scott Paper and Travelers. Ownership in the company
is the American way. We feel that this method of compensation should be
welcomed by anyone who feels they have the ability to direct a major
corporation's fortunes.

"The directors would receive 1000 shares each year. If the corporation
does well, the directors will make more money in the value of the stock
they receive and the dividend that usually rise with more profits. If
things go bad, they will be much more inclined to correct things, because
it will be coming directly out of their pockets. Instead of the way it is
done now, where directors receive the same compensation for good or bad
performance."

The Board of Directors recommends a vote "AGAINST" these two proposals for the
following reasons:

The success of the Corporation is dependent upon not only its employees
but its outside directors and their talent and experience. To attract and
retain the best group of directors, our compensation package must be fully
competitive.

Directors' compensation is made up of four basic components: board and
chair retainers, board and committee meeting fees, stock grants and/or
options, and pension. A recent survey conducted by the Corporation's
Executive Compensation organization indicated that these components were
common in the directors' compensation packages for the seven RHCs and
twelve California corporations with multi-billion dollar revenue surveyed.
Moreover, the aggregate value of the compensation received by the
Corporation's nonemployee directors was within the range of the
compensation provided by the survey companies. Were we to limit
compensation to 1,000 shares per year, the fair market value of such a
grant (currently about $30,000) would be well below the average total
compensation package of the companies surveyed. Eliminating the value of
the directors' pension plan would also lower the value of our directors'
total compensation package. The result would likely be our inability to
attract and retain outside directors of our current high caliber.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" THESE TWO PROPOSALS.

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OTHER MATTERS TO COME BEFORE THE MEETING

The proxy card, in addition to voting choices specifically marked, and unless
otherwise indicated by the shareowner, confers discretionary authority on the
named proxy holders to vote on any matter that properly comes before the 1995
Annual Meeting which is not described in these proxy materials. At the time
this proxy statement went to press, the Corporation knew of no other matters
which might be presented for shareowner action at the Annual Meeting.

The federal proxy rules specify what constitutes timely submission for a
shareowner proposal to be included in the proxy statement. If a shareowner
desires to bring business before the meeting which is not the subject of a
proposal timely submitted for inclusion in the proxy statement, the shareowner
must follow procedures outlined in the Corporation's By-Laws. A copy of these
procedures is available upon request from the Secretary of the Corporation,
130 Kearny Street, Suite 3713, San Francisco, California 94108. One of the
procedural requirements in the By-Laws is timely notice in writing of the
business the shareowner proposes to bring before the meeting. Notice must be
received not less than 25 days nor more than 60 days prior to the meeting. It
should be noted that these By-Law procedures govern proper submission of
business to be put before a shareowner vote and do not preclude discussion by
any shareowner of any business properly brought before the Annual Meeting.

If a shareowner wants to nominate a person for election to the Board of
Directors other than a director nominated by the Nominating Committee, notice
of the proposed nomination must be delivered to or mailed and received by the
Secretary of the Corporation not less than 25 days prior to the meeting. A
copy of the By-Law provisions governing the requirements for notice is
available upon request from the Secretary of the Corporation.

SOLICITATION OF PROXIES

The Corporation will pay all costs of distribution and solicitation of
proxies. Brokers, nominees, fiduciaries and other custodians will be
reimbursed their reasonable fees and expenses incurred in forwarding proxy
materials to beneficial owners. Corporate Investor Communications, Inc. has
been retained at an estimated cost of $16,000, plus reasonable out-of-pocket
expenses, to assist in the solicitation of proxies. This solicitation will be
by mail, telephone and other means.

PROPOSALS FOR THE 1996 ANNUAL MEETING

Shareowner proposals intended for presentation at the Corporation's
1996 Annual Meeting must be received at the Corporation's principal executive
offices no later than November 21, 1995. Proposals must comply with
Rule 14a-8 promulgated by the SEC pursuant to the Exchange Act.

DEF 14A 42nd Page of 156 TOC 1st Previous Next ↓Bottom Just 42nd
MULTIPLE COPIES OF SUMMARY ANNUAL REPORT TO SHAREOWNERS

The Corporation's 1994 Summary Annual Report to Shareowners has been mailed to
shareowners. If more than one copy of the Summary Annual Report is sent to
your address, we will discontinue the mailing of reports on the accounts you
select if you mark the designated box on the appropriate proxy card(s).
Mailing of dividends, dividend reinvestment statements, proxy materials and
special notices will not be affected by your election to discontinue duplicate
mailings of the Summary Annual Report to Shareowners.

By Order of the Board of Directors,

Richard W. Odgers
Executive Vice President, General Counsel,
External Affairs & Secretary

Dated: March 14, 1995

DEF 14A 43rd Page of 156 TOC 1st Previous Next ↓Bottom Just 43rd
-----------------------------------------------------------------------------

In accordance with Rule 14a-3(c) under the Securities Exchange Act of 1934
(the "Exchange Act"), as adapted to the "Summary Annual Report" procedure,
the information contained in the following appendix (consisting of the
section entitled "Annual Financial Review") is provided solely for the
information of shareowners and of the Securities and Exchange Commission
(the "SEC"). Such information shall not be deemed to be "soliciting
material" or to be "filed" with the SEC or subject to Regulation 14A under
the Exchange Act (except as provided in Rule 14a-3) or to the liabilities
of Section 18 of the Exchange Act, unless, and only to the extent that, it
is expressly incorporated by reference into the Form 10-K of Pacific
Telesis Group for its fiscal year ending December 31, 1994.

----------------------------------------------------------------------------

DEF 14A 44th Page of 156 TOC 1st Previous Next ↓Bottom Just 44th
ANNUAL FINANCIAL REVIEW
----------------------------------------------------------------------------

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION

OVERVIEW

Pacific Telesis Group (the "Corporation") includes a holding company,
Pacific Telesis; its telephone subsidiaries: Pacific Bell (and its
subsidiaries, Pacific Bell Directory, Pacific Bell Information Services, and
Pacific Bell Mobile Services) and Nevada Bell (the "Telephone Companies");
and several other units. The Telephone Companies provide local exchange
service, network access, toll service, directory advertising, and selected
information services in California and Nevada. Pacific Bell Mobile Services
("PBMS") was established as a new subsidiary in 1994 to offer personal
communications and other mobile telecommunications services.

The Corporation's primary financial goal continues to be to build long-term
value for its shareowners. To build value for our shareowners, we have
focused our efforts on expanding the Corporation's core businesses,
investing in technology, reducing costs, developing new products and
services, and supporting changes in public policy and regulation.

Effective April 1, 1994, the Corporation spun off to shareowners its
domestic and international cellular, paging, and other wireless operations
in a one-for-one stock distribution of its 86 percent interest in AirTouch
Communications, Inc. ("AirTouch"). The stock distribution was recorded as a
stock dividend from paid-in capital at the carrying amount of the net assets
of spun-off operations. As a result, the Corporation's total assets and
shareowners' equity were each reduced by $2.9 billion in 1994. With the
spin-off, the Corporation's responsibilities terminated in connection with
any future obligations under AirTouch's joint venture agreement with
Cellular Communications, Inc., and under various financial instrument
contracts. (See Note B - "Spun-off Operations" on page F-46.)

The spin-off allows the Corporation to continue to invest in its core
businesses, grow and pursue new opportunities, and to compete without
restrictions for licenses in emerging personal communications services
("PCS") markets.

With increasing competition for existing services and the formal
introduction of toll services competition in California effective January
1995, the Telephone Companies face an increasingly competitive marketplace.
In response to the competitive challenge and to build value for its
shareowners, management is implementing strategic initiatives designed to
strengthen the Corporation's core businesses, develop new markets,
accelerate product development, and increase operational efficiencies.
These strategic initiatives and the competitive environment for each of the
Corporation's major service categories are discussed below. Also presented
are critical public policy issues affecting the telecommunications industry
and the Corporation's ability to compete with the same freedom as other
service providers.

F-1

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STRATEGIC INITIATIVES

To strengthen the Corporation's core businesses, management has formulated a
strategy for Pacific Bell known as "California First." This investment and
marketing strategy is predicated on the belief that the Corporation's
unparalleled commitment and presence in California provides a strong
competitive advantage. The Corporation's goal is to be the vendor of choice
for telecommunications and advanced data and video services in California
and Nevada and to retain and increase its customer base.

Investing in the Core Networks
------------------------------

In order to offer the products and services customers want, now and in the
future, the Telephone Companies continue to invest heavily in improvements
to their core telephone networks. The Telephone Companies spent a total of
$1.7 billion on the networks during 1994. The focus of these investments
has been in the advanced digital technologies discussed below:
December 31
-------------------------
Technology Deployment 1994 1993
----------------------------------------------------------------------------
Access lines served by digital switches............... 66% 52%
Access lines with SS-7 capability..................... 95% 79%
Access lines with ISDN capability..................... 79% 60%
Miles of installed optical fiber (thousands).......... 425 375
----------------------------------------------------------------------------

Digital switches and optical fiber, a technology using thin filaments of
glass or other transparent materials to transmit coded light pulses,
increase the capacity and reliability of transmitted data while reducing
maintenance costs. Signaling System 7 ("SS-7") permits faster call setup and
new custom calling features. Integrated Services Digital Network ("ISDN")
allows simultaneous transmission of voice, video, and data over a single
telephone line. Fueled by telecommuting, the need for branch offices to
access centralized computer networks, and increased access to the Internet,
Pacific Bell's ISDN sales increased substantially in 1994. The growth has
come primarily in single line applications.

In 1994, Pacific Bell launched a major program to upgrade its core network
infrastructure and began building California's "communications
superhighway." This broadband network will integrate telecommunications,
information, and entertainment technologies and provide advanced voice,
data, and video services. Using a combination of fiber optics and coaxial
cable, Pacific Bell expects to provide broadband services to several hundred
thousand homes by the end of 1995 and about 5.0 million homes by the end of
the decade. Because the network employs emerging technologies and is
subject to regulatory approvals, there can be no assurances that these
services will be offered on schedule.

F-2

DEF 14A 46th Page of 156 TOC 1st Previous Next ↓Bottom Just 46th
In addition to providing advanced telecommunications services, the new
network will serve as a platform for other information providers and will
offer customers alternatives to existing cable television providers. The
broadband network also is expected to spur the development of new
interactive consumer services in education, entertainment, financial
services, government, and healthcare, such as the Corporation's Education
First and Healthcare Information Network programs. It will promote capital
and operational cost savings, service quality improvements, and
opportunities to earn additional revenues from an array of new service
possibilities. Construction of the non-video components of the network
began in May 1994.

In October 1994, the Federal Communications Commission (the "FCC")
reaffirmed its rule that permits local exchange carriers ("LECs"), including
the Telephone Companies, to provide a tariffed platform ("video dialtone")
that will deliver video programming developed by others and provide certain
other services to customers. The FCC concluded that video dialtone should
be subject to existing price cap rules and treated as switched access
services. In December 1993, Pacific Bell filed an application with the FCC
seeking authority to offer video dialtone services in specific locations in
four of its service areas: the San Francisco Bay Area, Los Angeles, San
Diego, and Orange County. Pacific Bell has urged the FCC to quickly
encourage video competition in California by expediting its applications
review. Subject to regulatory approval, management expects to offer video
services by mid-1996. In July 1994, Pacific Bell signed a contract with the
first of many programmers expected to supply video content. Once FCC
approval is obtained, Pacific Bell will deploy the video components of the
advanced network.

Capital expenditures for the Telephone Companies in 1995 are forecast to be
$1.7 billion, excluding broadband and PCS costs. This amount includes
$1.2 billion for projects designed to generate revenues and the remainder
for projects designed to reduce costs or meet other requirements. Capital
expenditures in 1995 and subsequent years may increase materially if the
Corporation is successful in its efforts to obtain PCS licenses and offer
PCS services. Capital expenditures may also increase as much as
$2.0 billion in 1998 if the broadband network is purchased. (See "Liquidity
and Financial Condition" on page F-24.) As part of its current plan,
Pacific Bell has made purchase commitments of about $380 million in
accordance with its previously announced $1 billion program for deploying an
all-digital switching platform with ISDN and SS-7 capabilities.

Developing New Markets
----------------------

To develop new markets for mobile communications services, management is
aggressively pursuing licenses for PCS at FCC auctions that began on
December 5, 1994. PCS will be a digital wireless service offering mobility
for both voice and data communications. The Corporation's PCS network will
be designed to connect seamlessly to the wired network to provide an
integrated system. PCS technology should allow customers to be reachable,
wherever they are, with a single telephone number. If the Corporation is
successful in winning PCS licenses, management anticipates introducing PCS
services in early 1997.

F-3

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In December 1994, Pacific Bell contracted with a wireless system design
company to perform all the radio frequency design work for the Corporation's
PCS network. Although the Corporation anticipates significant competition in
PCS, management believes that Pacific Bell's reputation for superior service
will be a competitive advantage.

As of the end of 1994, the Corporation began bidding for PCS licenses
covering California and Nevada. Bidding will continue until no further bids
are received. Successful bidders must still apply to the FCC for authority
to offer PCS and will be required to meet certain network completion
schedules.

The Corporation is developing new markets for home entertainment,
information, and interactive services. To help facilitate entering these
new markets, two equally owned partnerships were established with Bell
Atlantic and NYNEX. A media company was formed to develop a portfolio of
branded programming and services. A technology company was formed to
provide the systems needed to drive the delivery of this programming over
the telephone companies' proposed video dialtone networks. The media
company formed a strategic relationship with Creative Artists Agency, Inc.
which will provide various advisory and consulting services. Upon FCC
approval, the media company anticipates delivering video services to
customers through retail affiliates over the video dialtone networks in
1996. The Corporation expects these activities to have start-up operating
losses through the end of the decade. The operating losses are not expected
to have a material effect on the Corporation's earnings.

To develop new markets in home shopping and information services, Pacific
Telesis Electronic Publishing Services, a wholly owned subsidiary of the
Corporation, and the Los Angeles Times, a division of Times Mirror
Corporation, formed an equally owned partnership. Services are expected to
be provided by mid-1995 to customers in the Los Angeles area. The partners
plan to combine business information, classified and display advertisements,
editorial and promotional material, and other information into a single
database. Initially, shopping assistants will provide facts about products
and services and recommendations about accessing the wide array of
information. In 1996, customers are expected to be able to obtain services
by accessing the database directly via computer. The Corporation expects
these activities to have start-up operating losses over the next few years
but anticipates profits starting in 1998. The operating losses are not
expected to have a material effect on the Corporation's earnings.

As an enhancement to the broadband network, the Corporation is exploring
wireless cable and video-distribution technologies. The Corporation's
subsidiary, Pacific Telesis Wireless Broadband Services ("PTWBS"), has filed
applications with the FCC which propose to provide wireless access to
certain schools in California. PTWBS, in conjunction with Telesis
Technologies Laboratory, another wholly owned subsidiary of the Corporation,
is currently conducting a technology test of wireless video-distribution
under an FCC experimental license in Riverside County, California. The
Corporation anticipates the trials to be completed by mid-1995.

F-4

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Developing New Products
-----------------------

The Corporation also is responding to competition by streamlining new
product development to shorten the time between product conception and
market rollout. In 1994, Pacific Bell introduced prepaid calling cards,
moving from inception to market in just six months. Pacific Bell also
introduced a credit card that accumulates credits towards the purchase of
Pacific Bell products and services. Other products in various stages of
development include custom calling features, which provide a distinctive
ring to alert customers to incoming toll calls, and do-not-disturb features.
Also under development are network management products that will allow
customers to set up their own internal telephone networks to streamline
internal communications. The Corporation also plans an array of new
products to take advantage of the increased capabilities of Pacific Bell's
broadband network.

Reengineering Core Processes
-----------------------------

To improve operational efficiencies, management continues to employ core
process reengineering ("CPR"). CPR is a method for achieving significant
increases in performance by fundamentally rethinking basic business
processes and systems. The Corporation's CPR projects will result in
better, faster customer service and will reduce costs as the Corporation
responds to competition. Some of the more significant projects are
summarized below.

To increase responsiveness and lower costs, Pacific Bell is establishing
new, integrated customer service centers. Pacific Bell consolidated 128
service centers into 15 centers in 1994. By 1997, these will be further
consolidated into five service centers. These new centers will reduce
customer hand-offs by employees due to the centralization of
responsibilities previously handled by several different organizations in
different locations. Customer-requested changes will be less expensive and
easier to accomplish with fewer facilities.

To create a more efficient and reliable network, Pacific Bell is reducing
the number of network operations centers from 25 to four state-of-the-art
facilities and streamlining network management processes. Each of the four
centers will be responsible for network surveillance and control, network
provisioning and maintenance, and network reliability and quality assurance.
The new centers will reduce cycle times because of fewer hand-offs and allow
greater concentration of technical expertise at each center. The
Corporation anticipates the consolidation of customer service centers will
be completed by the end of 1995.

To reduce overhead costs, Pacific Bell has initiated changes in the use of
its real estate. Expense savings will result from consolidating operations,
terminating leases, and selling surplus property. Telecommuting, virtual
offices, and shared offices will be encouraged.

To establish service more quickly, Pacific Bell's plant facilities will be
dedicated to a customer's telephone line. This new process is called "quick
dialtone." It will require less human intervention to initiate telephone

F-5

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service and will allow Pacific Bell to activate service within about two
hours. It will allow the customer to access certain repair, 911, and
business office numbers, even after service is disconnected. Quick dialtone
will make it easy for customers to choose Pacific Bell now, and after local
competition is authorized.

As a result of reengineering its processes and other restructuring,
Pacific Bell reduced its net force by about 3,800 employees during 1994.
The Telephone Companies' employees per ten thousand access lines decreased
10.5 percent, a further improvement from the 4.6 percent decrease in 1993.
Revenues per average employee increased 4.9 percent in 1994.

Management is confident that its strategic initiatives described above will
allow it to offer premier telecommunications services at competitive prices
and to remain the customer's first choice for telecommunications products
and services in California and Nevada.

COMPETITION

The Telephone Companies are facing increasing competition for existing and
new services. Currently, competitors primarily consist of interexchange
carriers, competitive access providers, and wireless companies. Soon the
Telephone Companies will also face competition from cable television
companies and others. Management supports the simultaneous entry of all
telecommunications competitors into each others' markets. The competitive
environments for the Telephone Companies' major service categories are
summarized below.

Toll Services Competition
-------------------------

In September 1994, the California Public Utilities Commission (the "CPUC")
issued a decision in the third phase of its investigation into alternative
regulatory frameworks. Effective January 1, 1995, the decision allowed
long-distance and other telecommunications companies to officially compete
with Pacific Bell and other local telephone companies in providing
intra-service area toll call services in California. Toll calls are calls
within a customer's service area but beyond the local calling area. The
decision also rebalanced prices for services in order to allow Pacific Bell
to be a more effective competitor. Rebalancing brings prices for certain
services closer to the costs of providing those services. The decision
lowered intra-service area toll prices an average of about 40 percent and
increased Pacific Bell's residential flat rate service from $8.35 to $11.25
per month. Pacific Bell's business basic prices increased from $8.35 to
$10.32 per month. In addition, charges for intrastate access were reduced
and other prices were changed.

The CPUC intends the decision to be revenue neutral; the effect of price
decreases would be offset by the effect of price increases. In January
1995, the CPUC ordered that the new rates are subject to adjustment,
including refunds and backcharges, pending its resolution of various
applications for rehearing. The CPUC has stated its intention to order such
adjustments if necessary to maintain revenue neutrality or remedy any harm.

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The Corporation believes the decision is based on an estimate of growth in
demand for services due to lower toll prices that may be too optimistic. If
actual demand falls short of estimates, toll service revenues would be
adversely affected. More importantly, as competition intensifies for
intra-service area toll calling, there is a risk that Pacific Bell's toll
revenues could be materially reduced. Several competitors have advertised
promotional prices that are lower than Pacific Bell's prices for certain
toll-calling patterns. However, a customer must currently dial a five-digit
access code to use a competitor's toll services. The Corporation is
aggressively marketing volume discount plans to its residential and business
customers.

The CPUC has stated that in May 1995 it will begin to consider whether
customers should be allowed to presubscribe to a specific carrier to handle
their intra-service area toll calls. Presubscription would allow a customer
to select a carrier without dialing the carrier's access code. As part of
the local services competition procedural plan (see "Local Services
Competition" below), the CPUC is encouraging interested parties to pursue
the development of a settlement agreement on presubscription by March 1995.

In Nevada, the Public Service Commission of Nevada ("PSCN") has adopted a
rule change permitting limited intra-service area competition. In September
1993, the PSCN ordered that interexchange carriers and resellers may offer
special access and certain specialized services such as 800/900 calling
within intra-service areas. The PSCN also authorized a one-year trial of
the opening of certain calls to competition, including those placed through
operator services. The PSCN will use the trial data to decide whether to
expand competition for other toll services. The decision is expected by
mid-1995.

Local Services Competition
--------------------------

In December 1994, the CPUC adopted a procedural plan to achieve the CPUC's
and California Legislature's goal of opening local exchange markets to
competition by January 1, 1997. Opening local markets to competition would
increase demand for, and stimulate private development of, new types of
telecommunications and video services, bringing innovative new products into
businesses, homes, and communities. The CPUC plans to issue interim rules
for local competition in June 1995. The CPUC is encouraging interested
parties to negotiate a settlement of issues related to opening local
telephone markets to competition as well as presubscription and regulatory
framework reform. The parties must issue a progress report by March 31,
1995. For issues remaining unresolved, the CPUC proposes to address local
competition in three related proceedings which are intended to remove
barriers to competition, resolve technical issues, and implement consumer
protection and regulatory streamlining.

In January 1995, the CPUC instituted a proceeding to reexamine the
definition, objectives, and subsidy support for universal service. The CPUC
will report its recommendations to the California Legislature by January 1,
1996.

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The CPUC proposes to adopt specific requirements for the unbundling and
nondiscriminatory provision of monopoly functions that allow the provision
of telecommunications services. These functions would be subject to open
access for all telecommunications providers. In response to the CPUC's
unbundling plan, the Corporation has proposed separation of the loop (the
telephone line between a customer's location and the telephone company's
central office) from the switch (the central office equipment that selects
the paths to be used for transmission of information). The CPUC is scheduled
to issue a decision in first quarter 1995 concerning expanded
interconnection and local transport restructuring. A later decision will
adopt a methodology to be used for cost studies and may also define the
network building blocks necessary for network unbundling.

Pacific Bell has been conducting tests and trials with a variety of
industry participants to test the feasibility of unbundling the loop from
the switch and of various points of interconnection. Successful trials will
allow competitors to connect to Pacific Bell's network to carry calls and
facilitate the CPUC's local competition goals.

The CPUC plans to establish minimum consumer protection requirements
applicable to all local service providers by January 1997. At the same
time, the CPUC will develop plans to streamline regulatory processes for
initiating service offerings or changing prices.

Interstate Access Services Competition
--------------------------------------

The FCC ordered large LECs, including the Telephone Companies, to offer
expanded network interconnection for interstate special access services
effective June 1993, and for the transport portion of interstate switched
access services effective February 1994. Upon appeal, the U.S. Court of
Appeals for the D.C. Circuit decided that the FCC lacks the authority to
require physical collocation and remanded to the FCC the issue of whether
the LECs should offer "virtual collocation" instead of physical collocation.
With virtual collocation, the LECs install and maintain the equipment
dedicated for use by the competitive access providers ("CAPs"), and charge
the CAPs for services. In July 1994, the FCC directed the LECs to provide
virtual collocation, but exempted LECs from this requirement at central
offices where they offer physical collocation. The Telephone Companies plan
to continue to offer physical collocation but have appealed certain
requirements of the FCC's order. The portion of interstate access revenues
subject to increased competition represents less than five percent of the
Telephone Companies' total revenues.

Intrastate Access Services Competition
--------------------------------------

In August 1993, the CPUC issued a proposal that would require Pacific Bell
to offer expanded network interconnection for intrastate special access
services and for the transport portion of intrastate switched access
services. The CPUC proposes to allow CAPs to locate transmission facilities
in Pacific Bell's central offices, adopt a new transport rate structure that

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includes pricing flexibility for dedicated traffic, and authorize
competition for switched transport services within the state. Intrastate
access revenues subject to increased competition represent less than four
percent of Pacific Bell's total revenues. A decision from the CPUC is
expected in first quarter 1995.

On January 1, 1995, Pacific Bell lowered the prices it charges interexchange
carriers for intrastate switched access in order to remain competitive with
CAPs. The new prices average 1.4 cents per minute-of-use compared to the
previous rate of about 2.8 cents per minute. The price decrease was
authorized by the CPUC in its September 1994 rate rebalancing decision.
Resulting decreases in access revenues are being offset by increases in
local service revenues. (See "Toll Services Competition" on page F-6.)

Although the Telephone Companies are facing increasing competition for all
of their services, management believes that a truly open, competitive
market, in which the Telephone Companies can compete without undue
restrictions, offers significant opportunities to grow the business.

PUBLIC POLICY

Telecommunications policy reform has been, and will continue to be, the
subject of much debate in Congress, the California Legislature, the courts,
the FCC, the CPUC, and the PSCN. The Corporation supports public policy
reforms that promote fair competition and ensure the responsibility for
universal service is shared by all who seek to provide telecommunications
services. The Corporation continues to believe it should be allowed the
opportunity to compete in other markets, such as long-distance, cable
television programming, and manufacturing. Competition could bring great
benefits to customers by giving them the opportunity to choose among service
providers, for everything from dialtone to long-distance.

Long-Distance Services Waiver
-----------------------------

In January 1995, the Corporation asked the U.S. Department of Justice to
support a waiver of the provisions of the 1982 Consent Decree which prohibit
the Corporation from providing long-distance services. Long-distance calls
are calls between service areas. This filing is consistent with the CPUC's
and California Legislature's goal of having full competition for
telecommunications services in California. The final decision to grant a
waiver must be made by the U.S. District Court for the District of Columbia
which has retained jurisdiction over the interpretation and enforcement of
the 1982 Consent Decree. The waiver process could take two or more years.

Court Decision on Video Programming
-----------------------------------

Under the 1984 Cable Act, the Corporation is currently prohibited from
providing video programming in its service areas. In November 1993, the

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Corporation filed suit in the U.S. District Court in San Jose challenging
the constitutionality of the 1984 Cable Act's provisions. In December 1994,
the U.S. Court of Appeals for the Ninth Circuit overturned these provisions.
The Appellate Court's decision, when issued, will return the case to the
lower court for further proceedings consistent with its decision. The
ruling is subject to appeal to the U.S. Supreme Court. The Corporation
still needs approval from the FCC before it can provide video services.
(See "Investing in the Core Networks" on page F-2.)

Telecommunications Legislation
------------------------------

In 1994, the U.S. House of Representatives approved two telecommunications
bills which would have eased certain restrictions imposed by the 1982
Consent Decree and the 1984 Cable Act. Similar legislation with less
favorable provisions was introduced in the U.S. Senate but was withdrawn.
Similar legislation was reintroduced in the House of Representatives in
January 1995. The Corporation expects telecommunications legislation will
also be introduced in the Senate in 1995.

In September 1994, Governor Wilson signed legislation directing the CPUC to
authorize fully open competition for intrastate long-distance services if
federal legislation or court action amends the 1982 Consent Decree. If not
amended by October 1995, the CPUC must order Pacific Bell to offer
intrastate long-distance services and to seek a waiver of the 1982 Consent
Decree. (See "Long-Distance Services Waiver" above.) The CPUC's order
would be subject to specific safeguards which would ensure that competitors
have fair, nondiscriminatory, and mutually open access to Pacific Bell's
exchanges and to interexchange facilities.

In September 1994, Governor Wilson signed legislation that will allow cable
television companies to offer local telephone services in areas of
California where local telephone companies are allowed to offer video
services.

CPUC Regulatory Framework Review
--------------------------------

Effective July 1994, the CPUC issued a decision in its scheduled review of
its incentive-based New Regulatory Framework ("NRF"). The decision reduced
Pacific Bell's benchmark rate of return from 13.0 percent to 11.5 percent.
Earnings of 11.5 percent to 15.0 percent will be shared equally with
customers. Earnings above 15.0 percent will be shared 30.0 percent with
customers. The decision also increased the productivity factor from
4.5 percent to 5.0 percent. A higher productivity factor reduces revenues.

Pacific Bell has recommended that the CPUC move toward pure price
regulation, without ceilings, floors, sharing, exogenous costs, or
productivity and inflation factors. The CPUC is scheduled to begin a review
of the NRF again in mid-1995 if parties do not settle these and other issues
involving local competition. (See "Local Services Competition" on page F-7.)

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PSCN Regulatory Framework Review
--------------------------------

The PSCN has opened a proceeding to consider revising existing regulations
for telecommunications providers. In April 1994, Nevada Bell joined an
industry group of interexchange carriers and local exchange carriers in
proposing to the PSCN fundamental changes in the nature of
telecommunications regulation. The proposal would permit competition where
it is in the public interest in exchange for substantial earnings
flexibility and would also establish guidelines by which all competitors
would be regulated. Both the PSCN and the Office of Consumer Affairs
protested the recommendations and submitted an alternative proposal. The
PSCN directed all parties to meet and submit a proposal that would promote
competition while ensuring universal service. The PSCN prepared a proposed
rule incorporating many industry suggestions and issued a "Notice of
Proposed Rulemaking" with hearings that began in January 1995. A final
decision is expected in March 1995.

FCC Regulatory Framework Review
-------------------------------

In 1994, the FCC began a comprehensive review of the Local Exchange Carrier
price cap framework. The Corporation proposed several specific changes to
the current plan including the elimination of the productivity factor,
sharing, and earnings caps. The Corporation also proposed increased pricing
flexibility for certain competitive services. Other parties have advocated
increasing the productivity factor, retaining the sharing and earnings caps,
and reducing the benchmark rate of return. The FCC is expected to issue an
order in March 1995. Any changes to the plan will most likely be
incorporated into the 1995 annual access tariff filings which are scheduled
to take effect on July 1, 1995.

Management believes that the public policies discussed above should ensure
that service providers get simultaneous and equal access to each others'
markets; anything less would not be fair. A competitive advantage accrues
to any company that can offer customers one-stop shopping for local, toll,
and long-distance services as a package. It is crucial for the Corporation
to be allowed to offer long-distance and video services when the local
market is opened to competition.

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RESULTS OF OPERATIONS

The following discussions and data compare the results of operations of the
Corporation for the periods 1994 vs. 1993, and 1993 vs. 1992. The
Corporation's previous interests in the operating results of wireless
operations, which were spun off to shareowners on April 1, 1994, are
classified separately as "spun-off operations" in the accompanying financial
statements. (See Note B - "Spun-off Operations" on page F-46.) The spun-
off operations are excluded from the reported amounts of the Corporation's
revenues and expenses. The Corporation's "continuing operations" include
the Telephone Companies, along with several other units.

% %
Operating Statistics 1994 Change 1993 Change 1992
---------------------------------------------------------------------------
Return on shareowners' equity (%). 22.0 -26.3 16.1
Operating ratio (%)............... 76.3 92.8 77.1
Revenues per average
employee ($ in thousands)....... 172 4.9 164 5.1 156
Telephone Companies' employees per
ten thousand access lines*...... 31.6 -10.5 35.3 -4.6 37.0
---------------------------------------------------------------------------
* excludes Pacific Bell Directory employees

The Corporation's 1994 earnings and earnings per share, excluding income
from spun-off operations, increased $2.7 billion and $6.38, respectively.
Results for 1994 include an after-tax charge of about $29 million at Pacific
Bell due to a CPUC order related to customer late payment charges. In 1993,
results were reduced by after-tax charges of about $2.7 billion for adopting
new accounting rules, restructuring charges, and other one-time items.
Without these 1993 charges and excluding one-time items in each year,
earnings from continuing operations for 1994 would have increased about 4.5
percent.

Looking ahead, management expects that the effects of toll-service
competition and a CPUC-ordered revenue reduction, coupled with dilution from
initial costs for wireless and interactive video services, will create some
pressure on the Corporation's current earnings level. In the long-term, the
core telephone business performance is expected to improve due to cost
reduction efforts, growth prospects, strategic initiatives, and continued
recovery of the California economy. These prospects should provide
opportunity for stronger earnings.

In 1993, the Corporation's reported earnings decreased $2.6 billion from
1992. Results applicable to continuing operations for 1993 included $1.7
billion, or $4.16 per share, in after-tax charges relating to the adoption
of new accounting rules for postretirement and postemployment benefits.
Results from continuing operations for 1993 also included a restructuring
charge relating to Pacific Bell's planned force reductions, and several
other restructuring charges. The restructuring charges reduced earnings by
$861 million, or $2.08 per share. In addition, 1992 earnings included about
$37 million in one-time items related to prior years. Without the 1993
charges and other one-time items in both years, 1993 earnings would have
decreased slightly.

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Volume Indicators
-----------------
% %
1994 Change 1993 Change 1992
---------------------------------------------------------------------------
Customer switched access lines
in service at December 31
(thousands)................. 15,298 2.9 14,873 2.2 14,551
Carrier access minutes-
of-use (millions)........... 53,486 7.7 49,674 6.1 46,800
- Interstate................ 31,604 8.0 29,265 6.8 27,403
- Intrastate................ 21,882 7.2 20,409 5.2 19,397
Toll messages (millions)...... 4,485 5.0 4,272 2.7 4,158
---------------------------------------------------------------------------

The Corporation is seeing continued improvement in volume indicators due to
economic recovery in California and record access line growth in Nevada.
The number of access lines in service increased 2.9 percent in 1994, an
improvement over the 2.2 percent increase in 1993. The 1994 increase was
primarily attributable to the economic recovery and Pacific Bell's
promotional efforts to increase the number of households with two lines.
The Telephone Companies' residential access line growth rate increased to
2.1 percent in 1994, up from 1.4 percent in 1993. The growth rate in
business access lines climbed to 4.3 percent in 1994, up from 3.6 percent in
1993. Pacific Bell's business Centrex lines grew 10.3 percent in 1994,
fueled by businesses focusing on networking multiple locations and disaster
preparedness.

Access minutes-of-use represent the volume of traffic carried by
interexchange carriers over the Telephone Companies' local networks. Total
access minutes-of-use increased by 7.7 percent in 1994, an improvement over
the 6.1 percent increase in 1993. The increase in access minutes-of-use was
attributable primarily to economic growth which increased network usage.

Toll messages include Message Telecommunications Services, Optional Calling
Plans, WATS, and terminating 800 messages. Toll messages increased by
5.0 percent in 1994 compared to an increase of 2.7 percent in 1993.
Unauthorized competition, particularly in WATS and 800 services, has
constrained the growth rate in Pacific Bell's toll messages compared to the
growth rate in intrastate carrier access minutes-of-use.

The CPUC formally authorized competition in the intra-service area toll
market effective January 1995. As a result, Pacific Bell lowered average
prices for intra-service area toll services approximately 40 percent. Toll
messages are expected to increase due to lower prices. However, the
increase is expected to be at least partially offset by the loss of some
toll business to competition. Although competition may reduce the number of
toll messages carried by Pacific Bell, it also has the effect of increasing
access minutes-of-use. (See "Toll Services Competition" on page F-6.)

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Operating Revenues
------------------

($ millions) 1994 Change 1993 Change 1992
---------------------------------------------------------------------------
Total operating revenues...... $9,235 -$9 $9,244 $136 $9,108
- 1.5%
---------------------------------------------------------------------------

In 1994, total operating revenues decreased reflecting revenue reductions
ordered by the CPUC and the FCC under price cap regulation. In addition,
revenues were reduced by accruals at the Telephone Companies for sharing
interstate earnings with customers. The FCC and state regulators require
the sharing of earnings above a threshold rate of return. Pacific Bell's
revenues also were reduced due to a CPUC refund order related to customer
late payment charges. Revenues were further reduced by a July 1994 CPUC
decision which increased the productivity factor of the price cap formula
from 4.5 percent to 5.0 percent. (See "CPUC Regulatory Framework Review" on
page F-10.) These and other miscellaneous reductions were partially offset
by revenue increases due to customer demand.

Factors affecting revenue changes are summarized below:

Total
Price Late Produc- Change
Cap Sharing Payment tivity Customer from
($ millions) Orders Accruals Refund Factor Other Demand 1993
----------------------------------------------------------------------------
Local service..... -$ 51 -$ 9 -$49 $ 87 -$22
Network access
Interstate...... -12 -$56 -5 63 -10
Intrastate...... -16 -3 -4 74 51
Toll service...... -40 -7 7 -12 -52
Other service
revenues........ -$27 -2 53 24
------ ------- ------- ------- ------ ------- --------
Total operating
revenues........ -$119 -$56 -$27 -$19 -$53 $265 -$ 9
----------------------------------------------------------------------------

Local service revenues include basic monthly service fees and usage charges.
Fees and charges for custom calling features, coin phones, installation, and
service connections are also included in this category. The 1994 increase
in local service revenues due to customer demand in the above table reflects
increased customer access lines.

Network access revenues reflect charges to interexchange carriers and to
business and residential customers for access to the Telephone Companies'
local networks. The 1994 increase in interstate network access revenues due
to customer demand reported above reflects increased carrier access

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minutes-of-use, as well as increased access lines. The increase in
intrastate network access revenues due to customer demand also reflects
growth in carrier access minutes-of-use.

Toll service revenues include charges for long-distance services within
service area boundaries. Unauthorized competition reduced toll service
revenues in 1994. However, this reduction was partially offset by increased
access charges paid by competitors to complete toll calls over the Telephone
Companies' local networks.

Other service revenues are generated from a variety of services including
directory advertising, information services, and billing and collection
services provided by the Telephone Companies. Other service revenues for
1994 include an increase in information service revenues of $28 million,
chiefly due to the success of Pacific Bell's business and residential voice
mail products. Customer voice processing units in service at Pacific Bell
increased 37 percent in 1994.

In 1993, total operating revenues increased reflecting net growth in
customer demand and a CPUC order granting partial recovery of Pacific Bell's
higher costs due to new accounting rules for postretirement benefits. Also
contributing to the year-over-year increase was a refund in 1992 ordered by
the CPUC related to the treatment of enhanced services development costs
which lowered Pacific Bell's comparative 1992 revenues. These increases
were partially offset by a $120 million rate reduction from the 1993 CPUC
price cap order.

Looking ahead, the CPUC ordered a $232 million revenue reduction for 1995 as
a result of Pacific Bell's annual price cap filing. The ordered reduction
includes a decrease of $161 million because the 5.0 percent productivity
factor of the price cap formula exceeded the growth in the Gross Domestic
Product Index by 2.4 percent. The order also included several other items
that will decrease revenues by an additional $71 million. In addition, the
CPUC ordered a rebalancing of prices effective January 1995. As a result,
1995 revenues will shift between service categories. (See "Toll Services
Competition" on page F-6.)

In June 1994, the FCC accepted the Telephone Companies' annual access tariff
filings under price cap regulation. As a result, the Telephone Companies'
interstate network access revenues will be reduced about $30 million
annually beginning July 1, 1994. Pacific Bell's decrease reflects the
application of the price cap formula, increased support payments to the
National Exchange Carrier Association, and an $8 million price reduction to
help it remain competitive with other access providers.

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Operating Expenses
------------------

($ millions) 1994 Change 1993 Change 1992
---------------------------------------------------------------------------
Total operating expenses...... $7,041 -$1,541 $8,582 $1,557 $7,025
-18.0% 22.2%
---------------------------------------------------------------------------

The decrease in total operating expenses for 1994 reflects the Corporation's
continuing cost reduction efforts and resulting expense savings, primarily
at Pacific Bell. Without restructuring charges of $1,431 million in 1993,
expenses for 1994 would have decreased 1.5 percent.

Pacific Bell Expenses Total
(excluding subsidiaries) PTG
------------------------ Other Change
Salaries Employee PTG from
($ millions) & Wages Benefits Other Entities 1993
----------------------------------------------------------------------------
Cost of products and
services............. -$56 -$24 $ 28 $ 23 -$ 29
Customer operations and
selling expenses..... -11 -1 51 21 60
General, administrative,
and other expenses... -10 -36 -154 8 -192
Restructuring charges.. - - -977 -454 -1,431
Depreciation and
amortization......... - - 48 3 51
-------- ------- ------- ------ ------
Total operating
expenses............. -$77 -$61 -$1,004 -$399 -$1,541
----------------------------------------------------------------------------

The 1994 Pacific Bell decreases in salary and wage expense and employee
benefits are primarily due to force reductions. Without Pacific Bell's 1993
restructuring charge, other expenses would have decreased $27 million. This
restructuring charge was recorded to recognize the incremental cost of force
reductions associated with restructuring Pacific Bell's internal business
processes through 1997. Pacific Bell's decrease in general and
administrative expense in its other expenses was primarily due to $73
million in regulatory and other adjustments in 1993, a $44 million decrease
in 1994 costs for contracted programmers and plant laborers, and a reclass
of certain vendor expenses. Pacific Bell hired fewer programmers in 1994
due to the completion of a billing system enhancement project in 1993 and
fewer contract plant laborers were utilized in 1994 due to more favorable
weather conditions. The decrease in the other PTG entities expense reflects
other 1993 restructuring charges. (See "Status of Reserves" on page F-21.)

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For 1993, the increase in total operating expenses reflects pre-tax
restructuring charges recorded by the Corporation totaling $1,431 million.
The largest of the restructuring charges was to recognize the incremental
cost of force reductions associated with Pacific Bell's restructuring its
internal business processes through 1997. (See "Status of Reserves" on page
F-21.) Without these charges and other one-time items, 1993 expenses would
have increased slightly compared to 1992.

Salary and Wage Expense

($ millions) 1994 Change 1993 Change 1992
--------------------------------------------------------------------------
Salary and wage expense........ $2,291 -$90 $2,381 $124 $2,257
-3.8% 5.5%
Employees-average during year.. 53,556 -4.8% 56,233 -3.8% 58,436
Employees-end of year.......... 51,590 -6.8% 55,355 -2.9% 57,023
--------------------------------------------------------------------------

Salary and wage expense is the largest component of total operating
expenses. At Pacific Bell, including subsidiaries, salary and wage expense
decreased $88 million in 1994, primarily as a result of a net workforce
reduction of about 3,800 employees. In addition, overtime decreased
$35 million primarily because of extensive storm repairs necessary in 1993.
The effect of Pacific Bell's declining workforce was partially offset by a
$12 million increase related to higher compensation rates. The Corporation
expects salary and wage expense to decline further in 1995 due to continued
force reduction programs. (See "Status of Reserves" on page F-21.) Future
salary and wage expense will be affected by the renegotiation of Pacific
Bell's union contracts which expire in August 1995.

In 1993, Pacific Bell's salary and wage expense increased $74 million. The
increase reflects higher compensation rates of $73 million primarily due to
a nonsalaried wage increase and a $38 million increase in overtime pay for
extended customer service hours, partially offset by a $55 million decrease
due to fewer employees.

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Depreciation and Amortization

($ millions) 1994 Change 1993 Change 1992
--------------------------------------------------------------------------
Depreciation and amortization.. $1,787 $51 $1,736 $26 $1,710
2.9% 1.5%
Depreciation as a percent of
average depreciable
plant (%).................... 7.0 6.9 6.9
--------------------------------------------------------------------------

Depreciation expense in 1994 increased due to higher telephone plant
balances, a change in the composition of the Corporation's plant, and
increased depreciation rates prescribed by regulators. Network
modernization programs have caused higher telephone plant balances resulting
in higher depreciation expense. Higher interstate depreciation rates
prescribed by the FCC increased the Telephone Companies' depreciation
expense by approximately $10 million annually. Under incentive-based
regulation, the Telephone Companies are not granted revenue recovery for
increased depreciation expense.

Looking ahead, new intrastate depreciation rates authorized by the CPUC in
December 1994 will increase Pacific Bell's depreciation expense by
approximately $30 million annually effective January 1, 1995. As a result
of the Corporation's strategic initiatives, projected capital investment is
expected to continue to increase telephone plant levels resulting in higher
depreciation expense in future years.

The increase in depreciation and amortization expense for 1993 reflects an
expanded plant base at the Telephone Companies resulting from accelerated
network modernization.

Other Employee-Related Expenses
% %
($ millions) 1994 Change 1993 Change 1992
--------------------------------------------------------------------------
Postretirement benefits........ $247 2.5 $241 127.4 $106
Healthcare and life
insurance benefits
of active employees.......... $226 -1.3 $229 -4.2 $239
Other benefits................. $ 62 -51.9 $129 -11.6 $146
Payroll taxes.................. $175 -2.8 $180 4.0 $173
Pensions....................... $ 26 85.7 $ 14 7.7 $ 13
---------------------------------------------------------------------------

Increases in the level of postretirement benefits expense in 1994 and 1993
over the level of 1992 reflect the Corporation's higher costs under new
accounting rules adopted in 1993. (See "Cumulative Effect of Prior Year
Accounting Changes" on page F-20.)

The decrease in other benefits expense for 1994 to $62 million is primarily
due to Pacific Bell's continued force reduction programs and miscellaneous
adjustments totaling $36 million to true-up certain benefit liabilities.

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Interest Expense
----------------
% %
($ millions) 1994 Change 1993 Change 1992
--------------------------------------------------------------------------
Interest expense:
Long-term debt...............
$423 -6.0 $450 -6.2 $480
Short-term debt............. 5 -72.2 18 -30.8 26
LESOP trust.................
19 -5.0 20 -25.9 27
Other obligations...........
8 -61.9 21 177.8 -27
---- ---- ----
Total......................... $455 -10.6 $509 0.6 $506
--------------------------------------------------------------------------

The decrease in interest expense for 1994 reflects reduced borrowings and
lower interest rates. Interest on long-term debt at Pacific Bell decreased
$29 million, including an $18 million reduction related to higher borrowing
levels in 1993 and $11 million in savings due to lower interest rates
resulting from refinancings. Long-term debt levels were temporarily higher
in 1993 due to time-lags between new debt issuances and the retirements of
refinanced amounts. The Corporation's interest on its short-term borrowings
also decreased, due to reduced borrowings in 1994. Interest expense on
other obligations in 1994 decreased in comparison to the 1993 amount which
had included interest from a CPUC-ordered refund of cellular pre-operational
and development expenses. This decrease was partially offset by interest
expense related to the CPUC's late payment charges decision in 1994.

Interest expense for 1993 reflects lower interest rates than in 1992 on
long- and short-term debt, along with a reduction in average short-term
borrowings and reduced principal associated with the Corporation's leveraged
employee stock ownership plan ("LESOP") trust. However, total interest
expense increased in comparison to 1992. Interest expense for 1992 was
reduced by a reversal of $30 million of interest accrued in prior years, for
which related contingencies were resolved.

Miscellaneous Income
--------------------

($ millions) 1994 Change 1993 Change 1992
--------------------------------------------------------------------------
Miscellaneous income.......... $55 $7 $48 -$154 $202
14.6% -76.2%
--------------------------------------------------------------------------

Net miscellaneous income in 1994 increased in comparison to the 1993 amount
which had included increased debt refinancing costs at Pacific Bell. The
increase in miscellaneous income was partially offset by reduced interest
income earned on intercompany advances to AirTouch which were repaid in
1993. (See Note J - "Related Party Transactions" on page F-62.)

F-19

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The decrease in miscellaneous income in 1993 reflects a $108 million
reduction in interest income. Interest income in 1992 included $70 million
of interest relating to a Summary Assessment refund received from the
Internal Revenue Service (the "IRS") that year. In addition, interest
income earned during 1993 on intercompany advances to AirTouch declined to
$20 million from $46 million in the prior year. Also contributing to the
decrease in net miscellaneous income was an increase of $23 million in
refinancing costs relating to the early retirement of long-term debt by
Pacific Bell.

Income Taxes
------------

($ millions) 1994 Change 1993 Change 1992
--------------------------------------------------------------------------
Income taxes.................. $658 $648 $10 -$596 $606
- -98.3%
Effective tax rate (%)........ 36.7 5.0 34.1
--------------------------------------------------------------------------

The increase in income taxes for 1994 reflects the Corporation's higher
pre-tax income.

The 1993 decrease in income taxes reflects the Corporation's lower pre-tax
income that year. The amount of investment tax credit amortization and
reversals of fixed asset related items in relation to the lower pre-tax
income for 1993 contributed to the reduced effective tax rate.

Cumulative Effect of Prior Year Accounting Changes
--------------------------------------------------

Effective January 1, 1993, the Corporation adopted Statement of Financial
Accounting Standards ("SFAS") No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions," and SFAS 112, "Employers'
Accounting for Postemployment Benefits." These new rules require a change
from the cash to the accrual method of accounting for these costs. The
cumulative effects of applying the new rules to prior years were recognized
during 1993 by one-time noncash charges applicable to continuing operations
totaling $1.724 billion. The charges are net of deferred income tax
benefits of $1.155 billion. The Corporation was unable to defer these
charges under the criteria for recognizing a regulatory asset under SFAS 71,
"Accounting for the Effects of Certain Types of Regulation." Pacific Bell's
higher costs under SFAS 106 have been partially recovered through increased
revenues of $100 and $108 million granted by regulators for 1994 and 1993,
respectively. Therefore, the Corporation's higher SFAS 106 costs have not
materially affected reported earnings. The annual periodic expense under
SFAS 112 does not differ materially from expense under the prior method.
(See "Postretirement Benefits Other Than Pensions" on page F-28.)

F-20

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Status of Reserves
------------------

In recent years, the Corporation has established a number of reserves to
record the effects of discontinuing or restructuring certain parts of its
business.

In 1990, a $100 million reserve was established to record expected losses on
the disposal of the Corporation's real estate subsidiary's assets. Due to
the effects of the prolonged recession in California on real estate values,
this reserve was increased by $347 million in 1993. In December 1994, the
Corporation's real estate subsidiary sold substantially all of its assets
for approximately $160 million. Charges to the reserve in 1994 totaled
$287 million, $248 million for losses on sale of its assets and $39 million
for operating losses. Management believes the remaining reserve balance of
$51 million is adequate to cover any contingent costs associated with the
sale.

In 1991, a $203 million reserve was established for the cost of management
force reduction programs through 1994. A balance of $77 million remained at
the end of 1993. An additional $1,020 million reserve was established in
December 1993 to record the incremental cost of force reductions associated
with restructuring Pacific Bell's business processes through 1997. This
restructuring will allow Pacific Bell to eliminate more than 14,000 employee
positions by the end of 1997. After considering new positions expected to
be created, a net reduction of approximately 10,000 positions is
anticipated. Pacific Bell also expects to relocate approximately
10,000 employees as it consolidates business offices, network facilities,
installation and collection centers, and other operations.

Under the restructuring plan, Pacific Bell, excluding subsidiaries, had
anticipated gross force reductions of approximately 2,700 employees in 1994.
However, Pacific Bell's actual 1994 gross force reduction was 5,852. The
excess primarily represents pension-eligible employees who took advantage
of favorable discount rates coupled with early retirement incentives to
leave the business in 1994. After new hires, the net reduction was 4,128.
Pacific Bell now expects gross force reductions in 1995 will be about
3,000 employees, rather than the 5,500 previously forecast. Gross force
reductions for the restructuring period are not expected to differ
materially from the original forecast, although the timing of the reductions
may vary depending on the outcome of labor contract negotiations and other
variables.

F-21

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Due to the higher force reductions, estimated 1994 expense savings from the
restructuring of $187 million exceeded the original estimate by about
$20 million. Charges to the reserve totaled $278 million, $52 million more
than the original estimate of $226 million. Of this amount, severance costs
of $170 million exceeded the original $120 million estimate by $50 million;
systems costs of $92 million were $2 million less than the original
$94 million estimate; and facilities consolidation costs of $16 million
exceeded the original $12 million estimate by $4 million. The overrun in
severance costs reflects the larger than expected force reductions.
Severance costs include $62 million of costs for enhanced retirement
benefits paid from pension fund assets which do not require current outlays
of the Corporation's funds. Pension plan gains offsetting the 1994 loss are
expected in 1995 through 1997 as more force reductions occur under
nonpension-related offerings.

Because of the acceleration of force reductions into 1994, charges to the
restructuring reserve in 1995 are expected to be approximately $50 million
less than the $436 million previously forecast. Also included in Pacific
Bell's reserve were estimated costs of $280 million in 1996 and $155 million
in 1997. Actual costs are not expected to differ materially from these
estimates.

Savings in 1995, primarily in labor costs from force reductions, are
expected to slightly exceed 1995 restructuring costs. Annual savings,
primarily in labor costs, are expected to reach approximately $1 billion
when the restructuring is completed.

Other reserves were recorded in 1993 and 1992 related to the spin-off of
AirTouch and the Corporation's withdrawal from, or restructuring of, its
cable and customer premises equipment businesses. The $68 million balance
in these reserves remaining at the end of 1994 is comprised primarily of
reserves for expected losses on the sale of cable interests.

F-22

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The table below sets forth the status and activity of these reserves.

($ millions) 1994 1993 1992
--------------------------------------------------------------------------
Reserve for discontinuing real
estate operations:
Balance - beginning of year.... $ 338 $ 33 $ 75
Additions...................... - 347 -
Charges: (cash outlays)........ (39) (42) (42)
(noncash)............. (248) - -
---------------------------------
Balance - end of year.......... $ 51 $ 338 $ 33
=================================
Reserve for force reductions and
restructuring:
Balance - beginning of year.... $1,097 $ 101 $ 165
Additions...................... - 1,020 -
Charges: (cash outlays)........ (216) (24) (64)
(noncash)............. (62) - -
---------------------------------
Balance - end of year.......... $ 819 $1,097 $ 101
=================================
Other reserves:
Balance - beginning of year.... $ 90 $ 27 $ 9
Additions...................... - 107 18
Charges (cash outlays)........ (22) (44) -
---------------------------------
Balance - end of year.......... $ 68 $ 90 $ 27
==========================================================================

F-23

DEF 14A 67th Page of 156 TOC 1st Previous Next ↓Bottom Just 67th
LIQUIDITY AND FINANCIAL CONDITION

The Corporation defines liquidity as its ability to generate resources to
finance business expansion, construct capital assets, pay its current
obligations, and pay dividends. The Corporation has been meeting most of
its financing needs from internally generated funds, but can also obtain
external financing through the issuance of common stock, and short- and
long-term debt, if needed. The Corporation expects to continue to meet most
of its long-term financing needs for its capital program from internally
generated funds.

With increasing competition in the coming years, Pacific Bell's internal
sources of cash could be reduced from historical levels. Any decision to
seek debt and equity in the capital markets would have to be balanced by the
Corporation's desire to maintain strong credit ratings as well as the
objective of minimizing dilution of the interests of existing shareowners.

In December 1994, Pacific Bell contracted for the purchase of up to
$2 billion of broadband network facilities which incorporate emerging
technologies. Pacific Bell has committed to purchase the facilities in 1998
if they meet certain quality and performance criteria. Under this
arrangement, the Corporation's capital expenditures for broadband deployment
and related long-term financing requirements are expected to be deferred
until 1998. The Corporation intends to lease certain operational portions
of the facilities prior to 1998 during the construction period.

The Corporation is an equal partner with Bell Atlantic and NYNEX in two new
companies formed to deliver nationally branded home entertainment,
information, and interactive services. To fund these ventures, the
Corporation will be required to contribute approximately $100 million in
cash over the next three years. (See "Developing New Markets" on page F-3.)

Short-term borrowings are available under a commercial paper program and
through unused lines of credit. These lines of credit are subject to
continuing review by the lending banks. At December 31, 1994, the unused
lines of credit available totaled approximately $2.2 billion.

For longer-term borrowings, Pacific Bell has remaining authority from the
CPUC to issue up to $1.25 billion of long- and intermediate-term debt. The
proceeds may be used only to redeem maturing debt and to refinance other
debt issues. Pacific Bell has remaining authority from the Securities and
Exchange Commission (the "SEC") to issue up to $650 million of long- and
intermediate-term debt through a shelf registration filed in April 1993. In
addition, PacTel Capital Resources ("PTCR") may issue up to $192 million of
medium-term notes through a shelf registration on file with the SEC.

The Corporation intends to use a combination of internally generated funds
and external financing to initially fund PCS licenses if it is a successful
bidder at the FCC auctions that began on December 5, 1994. The Corporation
cannot predict if it will be a successful bidder, and, if so, what the cost
of these licenses will be. (See "Developing New Markets" on page F-3.)

F-24

DEF 14A 68th Page of 156 TOC 1st Previous Next ↓Bottom Just 68th
The following are bond and commercial paper ratings for the Corporation and
its subsidiaries:
| Long- and
| Intermediate-Term
Commercial Paper | Debt
------------------------------------------------------|-------------------
Pacific |
Telesis Pacific | Pacific
Group PTCR Bell | PTCR Bell
------------------------------------------------------|-------------------
Moody's Investors |
Services, Inc.......... Prime-1 Prime-1 Prime-1 | A1 Aa3
Standard & Poor's |
Corporation............ A-1 A-1 A-1+ | A+ AA-
Duff and Phelps, Inc..... - - Duff 1+ | - AA
--------------------------------------------------------------------------

The above ratings reflect the views of the rating agencies and are subject
to change. The ratings should be evaluated independently and are not
recommendations to buy, sell, or hold the securities of the Corporation.

The Corporation holds an equity swap contract to hedge its exposure to the
risk of market changes related to its recorded liability for outstanding
employee stock options for AirTouch common stock and associated stock
appreciation rights. (See Note G - "Stock Options and Stock Appreciation
Rights" on page F-57.) Off-balance-sheet risk exists to the extent the
market price of AirTouch stock rises above the market price reflected in the
liability's current carrying value. The equity swap was entered to hedge
this exposure and minimize the impact of market fluctuations. The equity
swap itself involves certain off-balance-sheet risks. (See Note I -
"Financial Instruments" on page F-60.)

The Corporation's adoption of SFAS 106 and SFAS 112, effective
January 1, 1993, increased other noncurrent liabilities by $2.9 billion.
Deferred income tax liabilities were reduced by $1.2 billion due to the
related tax benefits, resulting in a net increase to liabilities of
$1.7 billion upon adopting these two new accounting standards.

Cash From Operating Activities
------------------------------

($ millions) 1994 Change 1993 Change 1992
---------------------------------------------------------------------------
Cash from operating activities
of continuing operations.... $2,947 $220 $2,727 -$80 $2,807
8.1% -2.9%
---------------------------------------------------------------------------

The increase in 1994 cash from operating activities is primarily due to
timing differences in the payment of accounts payable and other liabilities.
A $72 million reduction in the amount of interest paid in 1994 also
contributed to the increase.

F-25

DEF 14A 69th Page of 156 TOC 1st Previous Next ↓Bottom Just 69th
The decrease in 1993 cash from operating activities was primarily due to the
Corporation's receipt in the prior year of a one-time refund of $185 million
from the IRS. This refund recovered a 1987 Summary Assessment payment and
raised 1992 cash from operating activities in relation to 1993.

Cash Used For Investing Activities
----------------------------------

($ millions) 1994 Change 1993 Change 1992
---------------------------------------------------------------------------
Cash used by continuing
operations for investing
activities.................... $1,502 -$637 $2,139 -$56 $2,195
-29.8% -2.6%
---------------------------------------------------------------------------

The decrease in cash used by continuing operations for investing activities
during 1994 reflects the Corporation's net cash investment in spun-off
operations during 1993 of $356 million which raised the comparative 1993
amount in relation to 1994. (See Note J - "Related Party Transactions" on
page F-62.) The decrease was also due partially to delays in capital
expenditures and the receipt of $112 million in cash in connection with the
Corporation's selling substantially all of its assets in its real estate
subsidiary during December 1994. These decreases were partially offset
during 1994 by the payment of a $56 million refundable deposit for bidding
on PCS licenses.

In 1994, the Telephone Companies made capital expenditures of about
$1.7 billion. (See "Investing in the Core Networks" beginning on page F-2.)

During January 1994, the Corporation sold its remaining cable franchises in
the United Kingdom after selling four others in March 1993. Sales proceeds
of $30 and $49 million, respectively, in 1994 and 1993 are reflected in cash
provided from other investing activities.

The decrease in 1993 cash used for investing activities reflects a
$43 million reduction in net cash investments in spun-off operations in
relation to 1992. The decrease also reflects smaller additions to property,
plant, and equipment. Although 1993 capital expenditures by Pacific Bell
increased about $160 million, cash used for additions to property, plant,
and equipment decreased by $25 million in comparison to 1992. The 1992
additions increased by about $100 million due to the Corporation's
assumption of the remaining interest in a real estate partnership.

F-26

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Cash Used For Financing Activities
----------------------------------

($ millions) 1994 Change 1993 Change 1992
---------------------------------------------------------------------------
Cash used by continuing
operations for financing
activities................... $1,379 $786 $593 -$15 $608

132.5% -2.5%
---------------------------------------------------------------------------

The increase in cash used for financing activities during 1994 reflects a
reduction of $699 million in issuances of treasury stock in 1994 from
$728 million at cost in 1993. In 1993, these issuances primarily included
additional equity raised from discounted stock purchases offered under the
Corporation's dividend reinvestment and stock purchase plan. The additional
dividends reinvested under this offer also reduced the cash requirements for
dividend payments in 1993 in comparison to both 1994 and 1992. In addition,
the 1994 increase in cash used for financing activities reflects greater
repayments of short-term borrowings. During 1994 and 1993, respectively,
$588 and $473 million was used to pay down short-term borrowing levels.

In 1993, net cash used for financing activities decreased slightly. The
increased proceeds from treasury stock issuances discussed above, coupled
with the reduced cash requirements for 1993 dividend payments, more than
offset a $624 million comparative decrease in cash derived from short-term
borrowings.

Long-term borrowing activity, excluding spun-off operations, included the
following issuances and redemptions:

Interest Maturity Principal
($ millions) Rate Date Amount
-------------------------------------------------------------------------
Issuances:
1994............ 6.96% 2006 $ 10
1993............ 6.25% to 7.50% 2005 to 2043 $2,650
1992............ 7.00% to 7.75% 2002 to 2032 $ 929

Retirements:
1994............ 9.250% 2008 $ 12
1993............ 6.125% to 9.625% 1993 to 2030 $2,624
1992............ 5.125% to 9.875% 1993 to 2019 $ 973
-------------------------------------------------------------------------

The Corporation's debt ratio improved to 49.6 percent as of December 31,
1994, from 53.8 percent as of December 31, 1993, excluding spun-off
operations, reflecting the lower level of overall debt. Pre-tax interest
coverage was 4.9 times for 1994. In 1993, this indicator was negative due
to the Corporation's 1993 reported loss.

For 1994, the Board of Directors (the "Board") maintained the Corporation's
dividend at $2.18 per share, the same level as in 1993 and 1992.

F-27

DEF 14A 71st Page of 156 TOC 1st Previous Next ↓Bottom Just 71st
PENDING REGULATORY ISSUES

Postretirement Benefits Other Than Pensions
-------------------------------------------

In 1992, the CPUC issued a decision adopting, with modification, SFAS 106
for regulatory accounting purposes. The CPUC decision also granted Pacific
Bell revenue increases for recovery of contributions to tax-advantaged
funding vehicles for SFAS 106 costs. Annual price cap decisions by the CPUC
granted Pacific Bell $100 million in each of the years 1995 and 1994 for
partial recovery of higher costs under SFAS 106. However, the CPUC in
October 1994 reopened a proceeding to determine if Pacific Bell should
continue to recover these costs. The CPUC's order held that related revenues
collected after October 12, 1994 are subject to refund. The Corporation
believes these costs are appropriately included in Pacific Bell's price cap
filings, but is unable to predict the outcome.

Structural Separations Requirements
-----------------------------------

In October 1994, the U.S. Court of Appeals for the Ninth Circuit overturned
the FCC's removal of its structural separations requirements for the
offering of enhanced services by the former Bell Operating Companies
("BOCs") including the Telephone Companies.

In January 1995, the FCC granted a waiver allowing the Telephone Companies
and other BOCs to continue current enhanced service offerings, conduct
research and development, and seek FCC approval for new service offerings.
The reimposition of structural separations requirements would result in
increased costs and reduced revenues and would delay the introduction of new
products and services.

Information Services Subsidiary
-------------------------------

Effective January 1, 1993, Pacific Bell transferred its Information Services
Group to a wholly owned subsidiary, Pacific Bell Information Services
("PBIS"). PBIS provides business and residential voice mail and other
selected information services. In 1992, the CPUC issued a decision which
required Pacific Bell to reduce revenues by the difference between the
"going concern" value of PBIS and its adjusted net book value. In 1993,
Pacific Bell filed a Petition for Modification of the decision based on its
belief that the decision resulted in a double refund to customers. The CPUC
has taken no action on the petition. In May 1994, Pacific Bell began
refunding about $12.5 million over 12 months.

F-28

DEF 14A 72nd Page of 156 TOC 1st Previous Next ↓Bottom Just 72nd
APPLICABILITY OF REGULATORY ACCOUNTING

The Telephone Companies currently account for the economic effects of
regulation under SFAS 71. If it becomes no longer reasonable to assume the
Telephone Companies will recover their costs through rates charged to
customers, whether resulting from the effects of increased competition or
specific regulatory actions, SFAS 71 will no longer apply. The Corporation
monitors the effects of competition and changes in regulation to assess the
likelihood the Telephone Companies will continue to recover their costs.
Discontinuing the application of SFAS 71 would require the Telephone
Companies to eliminate their regulatory assets and liabilities and may
require a reduction of the carrying amount of their telephone plant. Three
other telephone regional holding companies ("RHCs") have discontinued the
application of SFAS 71 regulatory accounting and have reduced their
telephone plant balances. If Pacific Bell were to discontinue the
application of SFAS 71 and compute the effect on its telephone plant in a
manner similar to these other three RHCs, the reduction in carrying amount
of the Corporation's property, plant, and equipment would be between $3 and
$5 billion. (See "Accounting Under Regulation" in Note A on page F-43 for a
discussion of regulatory assets and liabilities included in the balance
sheets.)

F-29

DEF 14A 73rd Page of 156 TOC 1st Previous Next ↓Bottom Just 73rd
Pacific Telesis Group and Subsidiaries
Selected Financial and Operating Data
(Dollars in millions,
except per share amounts) 1994 1993 1992 1991 1990
----------------------------------------------------------------------------
RESULTS OF OPERATIONS
Operating revenues........... $ 9,235 $ 9,244 $ 9,108 $ 9,168 $ 9,052
Operating expenses........... 7,041 8,582 7,025 7,217 6,989
Operating income............. 2,194 662 2,083 1,951 2,063
Income from continuing
operations................. 1,136 191 1,173 931 981
Income (loss) from spun-off
operations................. 23 29 (31) 84 49
Cumulative effect of
accounting changes......... - (1,724) - - -
Net income (loss)............ $ 1,159 $(1,504) $ 1,142 $ 1,015 $ 1,030
----------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE
Income from continuing
operations................. $ 2.68 $ 0.46 $ 2.91 $ 2.37 $ 2.47
Income (loss) from spun-off
operations................. 0.05 0.07 (0.08) 0.21 0.12
Cumulative effect of
accounting changes......... - (4.16) - - -
Net income (loss)............ $ 2.73 $ (3.63) $ 2.83 $ 2.58 $ 2.59
----------------------------------------------------------------------------
OTHER FINANCIAL AND OPERATING DATA
Dividends per share.......... $ 2.18 $ 2.18 $ 2.18 $ 2.14 $ 2.02
Total assets*................ $20,139 $23,437 $21,849 $21,226 $21,051
Net assets of spun-off
operations................. - $ 2,874 $ 745 $ 663 $ 634
Shareowners' equity.......... $ 5,233 $ 7,786 $ 8,251 $ 7,729 $ 7,401

Continuing Operations**:
Book value per share......... $ 12.34 $ 11.61 $ 18.53 $ 17.62 $ 16.94
Return on equity (%)......... 22.0 -26.3 16.1 13.4 14.2
Return on capital (%)........ 14.3 -8.6 12.0 10.6 11.2
Debt maturing within one year. $ 246 $ 595 $ 1,158 $ 951 $ 810
Long-term obligations........ $ 4,897 $ 5,129 $ 5,207 $ 5,395 $ 5,496
Debt ratio (%)............... 49.6 53.8 45.9 47.3 48.2
Capital expenditures......... $ 1,684 $ 1,886 $ 1,852 $ 1,737 $ 1,760
Cash from operating
activities................. $ 2,947 $ 2,727 $ 2,807 $ 2,439 $ 2,542
Total employees at
December 31................ 51,590 55,355 57,023 59,037 62,979

Volume Indicators:
Toll messages (millions)***... 4,485 4,272 4,158 4,092 4,174
Carrier access minutes-
of-use (millions)........... 53,486 49,674 46,800 43,872 41,383
Customer switched access lines
in service at December 31
(thousands)................. 15,298 14,873 14,551 14,262 13,868
----------------------------------------------------------------------------
(Continued next page)

F-30

DEF 14A 74th Page of 156 TOC 1st Previous Next ↓Bottom Just 74th
Pacific Telesis Group and Subsidiaries
Selected Financial and Operating Data
(Continued)

Effective April 1, 1994, the Corporation spun off to its shareowners its
domestic and international cellular, paging, and other wireless
operations in a one-for-one stock distribution of its 86 percent
interest in these operations. As a result, the Corporation's total
assets and shareowners' equity were each reduced by $2.9 billion during
1994. The Corporation's previous interests in the operating results and
net assets of "spun-off operations" are classified separately and
excluded from the Corporation's revenues, expenses, and other amounts
presented for "continuing operations." (See Note A - "Basis of
Presentation" on page F-42.)

Results for 1993, 1991, and 1990 reflect restructuring charges which
reduced income from continuing operations by $861, $122, and $65 million
for each respective year, and related per share amounts by $2.08,
$.30, and $.16 for each respective year. Results for 1993 also reflect
the cumulative after-tax effects of applying new accounting rules for
postretirement and postemployment benefits to prior years.

* Includes net assets of spun-off operations.

** Excludes spun-off operations. Certain items have been restated to
conform to the current presentation.

*** Toll messages include Message Telecommunications Services, Optional
Calling Plans, WATS, and Terminating 800 messages. The expansion
of Pacific Bell's local calling areas effective June 1991 reduced
subsequent toll message volumes. As a result, comparisons of 1992
volumes with prior year volumes are not meaningful.

F-31

DEF 14A 75th Page of 156 TOC 1st Previous Next ↓Bottom Just 75th
REPORT OF MANAGEMENT

To the Shareowners of Pacific Telesis Group:

The management of Pacific Telesis Group is responsible for preparing the
accompanying financial statements and for their integrity and objectivity.
The statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis and are not misstated
due to material fraud or error. In instances where exact measurement is not
possible, the financial statements include amounts based on management's
best estimates and judgments. Management also prepared the other
information in this annual financial review and is responsible for its
accuracy and consistency with the financial statements.

The Corporation's financial statements have been audited by Coopers &
Lybrand L.L.P., independent accountants, whose appointment has been ratified
by the shareowners. Management has made available to Coopers & Lybrand
L.L.P. all the Corporation's financial records and related data, as well as
the minutes of shareowners' and directors' meetings. Furthermore, management
believes that all of its representations made to Coopers & Lybrand L.L.P.
during their audit are valid and appropriate.

Management has established and maintains a system of internal control that
provides reasonable assurance as to the integrity and reliability of the
financial statements, the protection of assets from unauthorized use or
disposition, and the prevention and detection of fraudulent financial
reporting. The system of internal control provides for appropriate division
of responsibility and is documented by written policies and procedures that
are communicated to employees with significant roles in the financial
reporting process and are updated as necessary. Management continually
monitors the system of internal control for compliance, and maintains a
strong internal auditing program that independently assesses the
effectiveness of the internal controls and recommends improvements when
necessary. In addition, as part of their audit of the Corporation's
financial statements, Coopers & Lybrand L.L.P. have obtained a sufficient
understanding of the internal control structure to determine the nature,
timing, and extent of audit tests to be performed. Management has
considered the internal auditors' and Coopers & Lybrand L.L.P.'s
recommendations concerning the Corporation's system of internal control and
has taken actions that it believes are cost-effective under the circum-
stances to respond appropriately to these recommendations. Management
believes that the Corporation's system of internal control is adequate to
accomplish the objectives discussed.

Management also recognizes its responsibility to foster a strong ethical
climate that enables the Corporation to conduct its affairs according to the
highest standards of personal and corporate conduct. This responsibility is
characterized and reflected in the Corporation's code of corporate conduct,
which is publicized throughout the Corporation. The code of conduct
addresses, among other things: potential conflicts of interest; compliance
with domestic laws, including those relating to foreign transactions and
financial disclosure; and the confidentiality of proprietary information.
The Corporation maintains a systematic program to assess compliance with
these policies.

F-32

DEF 14A 76th Page of 156 TOC 1st Previous Next ↓Bottom Just 76th
The Audit Committee of the Board of Directors is responsible for overseeing
the Corporation's financial reporting process on behalf of the Board. In
fulfilling its responsibility, the Committee recommends to the Board,
subject to shareowner ratification, the selection of the Corporation's
independent accountants. The Committee consists of five members of the
Board who are neither officers nor employees of the Corporation. It meets
regularly with representatives of management, internal audit, and the
independent accountants to review internal accounting controls and
accounting, auditing, and financial reporting matters. During 1994, the
Committee held five meetings. The Corporation's internal auditors and
independent accountants periodically meet alone with the Committee to
discuss the matters previously noted and have direct access to it for
private communication at any time.

Philip J. Quigley
Chairman, President, and
Chief Executive Officer

William E. Downing
Executive Vice President,
Chief Financial Officer,
and Treasurer

February 24, 1995

F-33

DEF 14A 77th Page of 156 TOC 1st Previous Next ↓Bottom Just 77th
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareowners
of Pacific Telesis Group:

We have audited the accompanying consolidated balance sheets of Pacific
Telesis Group and Subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, shareowners' equity, and cash
flows for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

As discussed in Note A to the Consolidated Financial Statements,
Pacific Telesis Group adopted new accounting rules for postretirement and
postemployment benefits during 1993.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and sig-
nificant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Pacific
Telesis Group and Subsidiaries as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.

Coopers & Lybrand L.L.P.

San Francisco, California
February 23, 1995

F-34

DEF 14A 78th Page of 156 TOC 1st Previous Next ↓Bottom Just 78th
Pacific Telesis Group and Subsidiaries
Consolidated Statements of Income

For the Year Ended December 31
(Dollars in millions, -------------------------------
except per share amounts) 1994 1993 1992
----------------------------------------------------------------------------
OPERATING REVENUES
Local service................................ $3,455 $ 3,477 $3,377
Network access - interstate.................. 1,612 1,622 1,584
Network access - intrastate.................. 734 683 665
Toll service................................. 2,006 2,058 2,103
Other service revenues....................... 1,428 1,404 1,379
-------------------------------
TOTAL OPERATING REVENUES..................... 9,235 9,244 9,108
----------------------------------------------------------------------------
OPERATING EXPENSES
Cost of products and services................ 1,903 1,932 1,915
Customer operations and selling expenses..... 1,848 1,788 1,543
General, administrative, and other expenses.. 1,503 1,695 1,857
Restructuring charges........................ - 1,431 -
Depreciation and amortization................ 1,787 1,736 1,710
-------------------------------
TOTAL OPERATING EXPENSES..................... 7,041 8,582 7,025
----------------------------------------------------------------------------
OPERATING INCOME............................. 2,194 662 2,083
Interest expense............................. 455 509 506
Miscellaneous income......................... 55 48 202
----------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES........................ 1,794 201 1,779
Income taxes................................. 658 10 606
----------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS............ 1,136 191 1,173
Income (loss) from spun-off operations,
net of income taxes of $29, $61,
and $11, respectively (Notes A and B).... 23 29 (31)
-------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES......................... 1,159 220 1,142
Cumulative effect of accounting changes
(Note A).................................. - (1,724) -
-------------------------------
NET INCOME (LOSS)............................ $1,159 $(1,504) $1,142
============================================================================

(Continued next page)

F-35

DEF 14A 79th Page of 156 TOC 1st Previous Next ↓Bottom Just 79th
Pacific Telesis Group and Subsidiaries
Consolidated Statements of Income
(Continued)

For the Year Ended December 31
(Dollars in millions, -------------------------------
except per share amounts) 1994 1993 1992
----------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE:
Income from continuing operations....... $ 2.68 $ 0.46 $ 2.91
Income (loss) from spun-off operations.. 0.05 0.07 (0.08)
-------------------------------
Income before cumulative effect of
accounting changes.................... 2.73 0.53 2.83
Cumulative effect of accounting
changes............................... - (4.16) -
-------------------------------
Net income (loss)....................... $ 2.73 $ (3.63) $ 2.83
============================================================================
Dividends per share....................... $ 2.18 $ 2.18 $ 2.18
Average shares outstanding (thousands).... 423,969 414,171 402,977
============================================================================

The accompanying Notes are an integral part of the Consolidated Financial
Statements.

F-36

DEF 14A 80th Page of 156 TOC 1st Previous Next ↓Bottom Just 80th
Pacific Telesis Group and Subsidiaries
Consolidated Balance Sheets
December 31
------------------------
(Dollars in millions, except per share amount) 1994 1993
----------------------------------------------------------------------------
ASSETS
Cash and cash equivalents.......................... $ 135 $ 69
Accounts receivable - net of allowances
for uncollectibles of $134 and $138.............. 1,557 1,548
Prepaid expenses and other current assets.......... 1,206 1,029
-------------------------
Total current assets............................... 2,898 2,646
-------------------------
Property, plant, and equipment..................... 26,565 26,607
Less: accumulated depreciation.................... (10,451) (9,961)
-------------------------
Property, plant, and equipment - net............... 16,114 16,646
-------------------------
Net assets of spun-off operations (Notes A and B).. - 2,874
-------------------------
Deferred charges and other noncurrent assets....... 1,127 1,271
-------------------------
TOTAL ASSETS....................................... $20,139 $23,437
============================================================================
LIABILITIES AND SHAREOWNERS' EQUITY
Accounts payable and accrued liabilities........... $ 1,907 $ 1,645
Debt maturing within one year...................... 246 595
Other current liabilities.......................... 1,330 1,168
-------------------------
Total current liabilities.......................... 3,483 3,408
-------------------------
Long-term obligations.............................. 4,897 5,129
-------------------------
Deferred income taxes.............................. 1,673 1,598
-------------------------
Other noncurrent liabilities and deferred credits.. 4,853 5,516
-------------------------
Commitments and contingencies (Notes I and L)

Common stock ($0.10 par value; 432,827,595 shares
issued; 424,065,165 and 423,059,043 shares
outstanding)..................................... 43 43
Additional paid-in capital......................... 3,493 6,372
Reinvested earnings................................ 2,257 2,040
Less: treasury stock, at cost (8,762,430 and
9,768,552 shares)......................... (254) (283)
deferred compensation - leveraged employee
stock ownership trust..................... (306) (386)
-------------------------
Total shareowners' equity.......................... 5,233 7,786
-------------------------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY.......... $20,139 $23,437
============================================================================
The accompanying Notes are an integral part of the Consolidated Financial
Statements.

F-37

DEF 14A 81st Page of 156 TOC 1st Previous Next ↓Bottom Just 81st
Pacific Telesis Group and Subsidiaries
Consolidated Statements of Shareowners' Equity

For the Year Ended December 31
-------------------------------
(Dollars in millions,
except per share amount) 1994 1993 1992
----------------------------------------------------------------------------
COMMON STOCK
Balance at beginning of year................ $ 43 $ 43 $ 43
-------------------------------
Balance at end of year...................... 43 43 43
----------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year................ 6,372 5,220 5,217
Spin-off stock distribution (Note B)........ (2,901) - -
Issuance of common stock of
spun-off operations (Note B).............. - 1,027 -
Issuance of shares.......................... 22 104 (8)
Other changes............................... - 21 11
-------------------------------
Balance at end of year...................... 3,493 6,372 5,220
----------------------------------------------------------------------------
REINVESTED EARNINGS
Balance at beginning of year................ 2,040 4,459 4,197
Net income (loss)........................... 1,159 (1,504) 1,142
Dividends declared ($2.18 per share
each year)................................ (924) (910) (880)
Other changes............................... (18) (5) -
-------------------------------
Balance at end of year...................... 2,257 2,040 4,459
----------------------------------------------------------------------------
TREASURY STOCK, AT COST
Balance at beginning of year................ (283) (1,011) (1,184)
Issuance of shares.......................... 29 728 173
-------------------------------
Balance at end of year...................... (254) (283) (1,011)
----------------------------------------------------------------------------
DEFERRED COMPENSATION
Balance at beginning of year................ (386) (460) (544)
Cost of LESOP trust shares allocated to
employee accounts (Note K)................ 80 74 84
-------------------------------
Balance at end of year...................... (306) (386) (460)
----------------------------------------------------------------------------
TOTAL SHAREOWNERS' EQUITY................... $5,233 $7,786 $8,251
============================================================================

(Continued next page)

F-38

DEF 14A 82nd Page of 156 TOC 1st Previous Next ↓Bottom Just 82nd
Pacific Telesis Group and Subsidiaries
Consolidated Statements of Shareowners' Equity
(Continued)

For the Year Ended December 31
------------------------------
1994 1993 1992
===========================================================================
COMMON SHARES AUTHORIZED AT
DECEMBER 31 (millions)................... 1,100 1,100 1,100
===========================================================================
COMMON SHARES OUTSTANDING (millions)
Balance at beginning of year............... 423 405 401
Treasury shares reissued................... 1 18 4
------------------------------
Balance at end of year..................... 424 423 405
===========================================================================
PREFERRED SHARES AUTHORIZED AT
DECEMBER 31 (millions)................... 50 50 50
===========================================================================

The accompanying Notes are an integral part of the Consolidated Financial
Statements.

F-39

DEF 14A 83rd Page of 156 TOC 1st Previous Next ↓Bottom Just 83rd
Pacific Telesis Group and Subsidiaries
Consolidated Statements of Cash Flows

For the Year Ended December 31
--------------------------------
(Dollars in millions) 1994 1993 1992
----------------------------------------------------------------------------
CASH FROM (USED FOR) OPERATING ACTIVITIES
Net income (loss)............................... $1,159 $(1,504) $1,142
Adjustments to reconcile net income (loss)
to cash from operating activities:
(Income) loss from spun-off operations...... (23) (29) 31
Cumulative effect of accounting changes..... - 1,724 -
Restructuring charges....................... - 1,431 -
Depreciation and amortization............... 1,787 1,736 1,710
Deferred income taxes....................... 44 (314) (665)
Unamortized investment tax credits.......... (63) (49) (62)
Changes in operating assets and liabilities:
Accounts receivable...................... (17) (74) 62
Prepaid expenses and other
current assets........................ (17) 1 97
Deferred charges and other
noncurrent assets..................... (4) 112 11
Accounts payable and accrued
liabilities........................... 195 85 (42)
Other current liabilities................ 1 17 103
Noncurrent liabilities and
deferred credits...................... (85) (394) 429
Other adjustments, net...................... (30) (15) (9)
--------------------------
Cash from continuing operations................. 2,947 2,727 2,807
Cash from spun-off operations................... 18 440 199
--------------------------

Cash from operating activities.................. 2,965 3,167 3,006
----------------------------------------------------------------------------

CASH FROM (USED FOR) INVESTING ACTIVITIES
Additions to property, plant, and equipment..... (1,631) (1,800) (1,825)
Proceeds from disposals of assets of
real estate subsidiary....................... 129 7 5
Net investment in spun-off operations (Note J).. 33 (356) (399)
Other investing activities, net................. (33) 10 24
--------------------------
Cash used by continuing operations.............. (1,502) (2,139) (2,195)
Cash used by spun-off operations................ (332) (1,441) (492)
--------------------------

Cash used for investing activities.............. (1,834) (3,580) (2,687)
----------------------------------------------------------------------------

(Continued next page)

F-40

DEF 14A 84th Page of 156 TOC 1st Previous Next ↓Bottom Just 84th
Pacific Telesis Group and Subsidiaries
Consolidated Statements of Cash Flows
(Continued)

For the Year Ended December 31
--------------------------------
(Dollars in millions) 1994 1993 1992
----------------------------------------------------------------------------
CASH FROM (USED FOR) FINANCING ACTIVITIES
Proceeds from issuance of common and
treasury shares............................ 140 800 184
Proceeds from issuance of long-term debt..... 10 2,590 909
Retirements of long-term debt................ (12) (2,624) (973)
Dividends paid............................... (907) (756) (803)
Increase (decrease) in short-term
borrowings, net............................ (588) (473) 151
Other financing activities, net.............. (22) (130) (76)
------------------------------
Cash used by continuing operations........... (1,379) (593) (608)
Cash from spun-off operations................ 39 1,631 293
------------------------------
Cash from (used for) financing activities.... (1,340) 1,038 (315)
----------------------------------------------------------------------------
Net cash from (used for) all activities...... (209) 625 4
Less spun-off operations..................... (275) 630 -
------------------------------
Increase (decrease) in cash and
cash equivalents........................... 66 (5) 4

Cash and cash equivalents at January 1....... 69 74 70
------------------------------
Cash and cash equivalents at December 31..... $ 135 $ 69 $ 74
============================================================================

The accompanying Notes are an integral part of the Consolidated Financial
Statements.

F-41

DEF 14A 85th Page of 156 TOC 1st Previous Next ↓Bottom Just 85th
Pacific Telesis Group
and Subsidiaries

Notes to Consolidated Financial Statements
----------------------------------------------------------------------------
A. Summary of Significant Accounting Policies

Basis of Presentation

The Consolidated Financial Statements include the accounts of
Pacific Telesis Group (the "Corporation") and its wholly and majority-
owned subsidiaries. The Corporation includes a holding company, Pacific
Telesis; its telephone subsidiaries: Pacific Bell (and its subsidiaries,
Pacific Bell Directory, Pacific Bell Information Services, and
Pacific Bell Mobile Services) and Nevada Bell (the "Telephone
Companies"); and several other units. The Telephone Companies provide
local exchange service, network access, toll service, directory
advertising, and selected information services in California and Nevada.
All significant intercompany balances and transactions have been
eliminated.

The Corporation's previous interests in the operating results and net
assets of wireless operations which were spun off effective April 1, 1994
are reported separately as "spun-off operations." (See Note B - "Spun-
off Operations" following.) These operations are excluded from amounts
reported for the Corporation's revenues, expenses, assets, and
liabilities which reflect "continuing operations." The Corporation's
prior year statements of cash flows have been reclassified to include
separately the cash flows of spun-off operations to conform to the
current presentation. Amounts presented for spun-off operations have
been prepared solely for the purpose of reporting Pacific Telesis Group
results.

F-42

DEF 14A 86th Page of 156 TOC 1st Previous Next ↓Bottom Just 86th
A. Summary of Significant Accounting Policies (Cont'd)

Accounting Under Regulation

The Telephone Companies account for the economic effects of regulation
under Statement of Financial Accounting Standards No. 71 ("SFAS 71"),
"Accounting for the Effects of Certain Types of Regulation." SFAS 71
requires the Telephone Companies to reflect the rate actions of
regulators in their financial statements when appropriate. Regulators
sometimes include costs in allowable costs for ratemaking in a period
other than the period in which those costs would be charged to expense by
an unregulated enterprise. These timing differences can create
"regulatory assets" or "regulatory liabilities" recorded by the Telephone
Companies. The regulatory assets and liabilities included in the
Corporation's consolidated balance sheets are listed and discussed below:

December 31
----------------------
1994 1993
-------------------------------------------------------------------------
(Dollars in millions)
Regulatory assets (liabilities) due to:
Deferred pension costs*.................. $ 407 $ 340
Unamortized debt redemption costs**...... 346 357
Deferred compensated absence costs*...... 213 227
Unamortized purchases of property, plant,
and equipment under $500............... 107 141
Deferred income taxes***.................. (193) (238)
Other..................................... 51 71
-----------------------
Total ...................................... $ 931 $ 898
=========================================================================
* Included primarily in "deferred charges and other noncurrent
assets" in the Corporation's balance sheets.
** Reflected as a reduction of "long-term obligations."
*** Included in "other current liabilities" and "other noncurrent
liabilities and deferred credits."

Deferred pension costs above reflect an order by the California Public
Utilities Commission (the "CPUC") requiring Pacific Bell to use the
"aggregate cost method" for its intrastate operations. These deferred
costs represent differences between Pacific Bell's intrastate pension
costs calculated using this actuarial method, subject to Internal
Revenue Service ("IRS") and other limitations, and costs determined
under the provisions of Statement of Financial Accounting Standards No.
87 ("SFAS 87"), "Employers' Accounting for Pensions," and ("SFAS 88"),
"Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits."

When debt is refinanced before maturity, Pacific Bell amortizes to
expense any difference between net book value and redemption price
evenly over the term of the replacing issue for its intrastate
operations, in accordance with the ratemaking treatment of such costs by
the CPUC. These costs are expensed as incurred for interstate
operations.

F-43

DEF 14A 87th Page of 156 TOC 1st Previous Next ↓Bottom Just 87th
A. Summary of Significant Accounting Policies (Cont'd)

In prior years, the CPUC and the Federal Communications Commission (the
"FCC") changed the required accounting for the costs of compensated
absences, such as vacation days, from a cash basis to an accrual basis.
A transition liability for earned, but unused, compensated absence days
is being amortized to expense over periods prescribed by each regulator.
However, the CPUC continues to require Pacific Bell to recognize certain
compensated absence costs on a cash basis for ratemaking. The above
regulatory asset for compensated absences reflects those costs which
have been deferred in accordance with ratemaking treatment.

In 1989 and 1990, respectively, the FCC and the CPUC increased the
threshold for directly expensing purchases of property, plant, and
equipment from $200 to $500. Purchases of less than $500 which were
previously capitalized are being amortized to expense over periods
prescribed by regulators.

Specific provisions of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes," require regulated companies to
record a regulatory asset or a regulatory liability when recognizing
deferred income taxes if it is probable that these deferred taxes will
be reflected in future rates.

In addition to the regulatory assets and liabilities described above,
the carrying amount of property, plant, and equipment is also affected
by the actions of regulators. Property, plant, and equipment is carried
at cost. The cost of self-constructed plant includes employee wages and
benefits, materials, and other costs. Regulators allow the Telephone
Companies to accrue an allowance for funds used during construction,
which includes both debt and equity components, as a cost of
constructing certain plant and as an item of miscellaneous income. This
income is not realized in cash currently, but is expected to be realized
over the service lives of the related plant. When retired, the original
cost of depreciable telephone plant is charged to accumulated
depreciation.

Expenditures in excess of $500 that increase the capacity, operating
efficiency, or useful life of an individual asset are capitalized.
Expenditures for maintenance and repairs are charged to expense. The
costs of computer software purchased or developed for internal use
generally are expensed as incurred. However, initial operating system
software costs are capitalized and amortized over the lives of the
associated hardware. Costs for subsequent additions or modifications to
operating system software are expensed as incurred.

F-44

DEF 14A 88th Page of 156 TOC 1st Previous Next ↓Bottom Just 88th
A. Summary of Significant Accounting Policies (Cont'd)

Depreciation of telephone plant is computed essentially by straight-line
depreciation using depreciable lives prescribed periodically by state
and federal regulators. Regulators currently have prescribed the
following depreciable lives for Pacific Bell's property, plant, and
equipment:

Depreciable Lives
------------------------------------------------------------------------
(in years)
Buildings.............................................. 30 to 57
Cable and conduit...................................... 10 to 30
Central office equipment............................... 9 to 16.5
Furniture, equipment, and other........................ 5.5 to 20
========================================================================

An unregulated enterprise may have selected shorter depreciable lives
for similar assets. At this time, the Corporation has not determined
what depreciable lives it might otherwise have selected or what the
cumulative effect on its financial statements would have been had
shorter lives been used. Three other telephone regional holding
companies ("RHCs") have discontinued the application of SFAS 71
regulatory accounting and have adopted shorter depreciable lives and
reduced their telephone plant balances. If Pacific Bell were to
discontinue the application of SFAS 71 and compute the effect on its
telephone plant in a manner similar to these other three RHCs, the
reduction in the carrying amount of the Corporation's property, plant,
and equipment would be between $3 and $5 billion.

Cash and Cash Equivalents

Cash equivalents include all highly liquid monetary instruments with
maturities of ninety days or less from the date of purchase. In its
cash management practices, the Corporation maintains zero-balance
disbursement accounts for which funds are made available as checks are
presented for clearance. Checks outstanding are included in accounts
payable.

Income Taxes

Deferred income taxes are provided to reflect the tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
tax purposes.

Investment tax credits earned prior to their repeal by the Tax Reform
Act of 1986 are amortized as reductions in tax expense over the lives of
the assets which gave rise to the credits.

Advertising Costs

Costs for advertising products and services or corporate image are
expensed as incurred.

F-45

DEF 14A 89th Page of 156 TOC 1st Previous Next ↓Bottom Just 89th
A. Summary of Significant Accounting Policies (Cont'd)

Earnings Per Share

Earnings (loss) per share calculations are based on the weighted average
number of common shares outstanding, including those shares held by a
leveraged employee stock ownership trust.

Change in Accounting for Postretirement and Postemployment Costs

Effective January 1, 1993, the Corporation adopted Statement of
Financial Accounting Standards No. 106 ("SFAS 106"), "Employers'
Accounting for Postretirement Benefits Other than Pensions," and
Statement of Financial Accounting Standards No. 112 ("SFAS 112"),
"Employers' Accounting for Postemployment Benefits." (See also Note F -
"Other Postretirement and Postemployment Benefits" on page F-54.) The
cumulative after-tax effects of applying the new rules to prior years
were recognized by one-time charges applicable to continuing operations
totaling $1.724 billion. The charges are net of deferred income tax
benefits of $1.155 billion and reduced earnings applicable to continuing
operations for 1993 by $4.16 per share.

The Corporation was unable to defer these charges under the criteria for
recognizing a regulatory asset under SFAS 71. The FCC did not provide
additional recovery for either new accounting standard. For California
operations, the CPUC did not provide Pacific Bell additional recovery
for SFAS 112 and only provided partial recovery of its higher costs
under SFAS 106. In addition, Pacific Bell is required to reapply for
this recovery each year. Therefore, the recovery period is uncertain
but exceeds the 20-year period required by accounting rules for deferral
of these costs.

Because the Telephone Companies' higher postretirement benefits costs
under SFAS 106 are being partially recovered in revenues, the
Corporation's higher costs have not materially affected reported
earnings. Annual price cap decisions by the CPUC granted Pacific Bell
$100 and $108 million in 1994 and 1993, respectively, for partial
recovery of its higher costs. However, the CPUC in October 1994
reopened a proceeding to determine if Pacific Bell should continue to
recover these costs. (See "Revenues Subject to Refund" in Note L on
page F-65.) The annual periodic expense under SFAS 112 does not differ
materially from expense under the prior method.

B. Spun-off Operations

Effective April 1, 1994, the Corporation spun off to shareowners its
domestic and international cellular, paging, and other wireless
operations in a one-for-one stock distribution of its 86 percent
interest in AirTouch Communications, Inc. ("AirTouch"). The stock
distribution was recorded as a stock dividend from paid-in capital at
the carrying amount of the net assets of spun-off operations. As a
result, the Corporation's total assets and shareowners' equity were each
reduced by $2.9 billion in 1994. The stock distribution itself is a
noncash transaction which did not affect the Corporation's cash flow
statement.

F-46

DEF 14A 90th Page of 156 TOC 1st Previous Next ↓Bottom Just 90th
B. Spun-off Operations (Cont'd)

Under a separation agreement, any unrecorded nontax contingent
liabilities that become certain after the spin-off date will be
allocated based on origin of the claim, and acts by, or benefits to, the
Corporation or AirTouch. In addition, the Corporation's
responsibilities terminate in connection with any future obligations
under AirTouch's joint venture agreement with Cellular Communications,
Inc., and under various financial instrument contracts. As of
December 31, 1993, these financial instruments included foreign currency
swap and forward contracts with face amounts totaling $291 million.

The Corporation's previous interests in the net revenues and expenses of
AirTouch's operations prior to April 1, 1994 are classified separately
as income (loss) from spun-off operations in the income statements. The
components of the income or loss are summarized below:

(Dollars in millions) 1994 1993 1992
------------------------------------------------------------------------
Operating revenues.......................... $259 $1,061 $879
Operating expenses.......................... 225 930 829
--------------------------
Operating income............................ 34 131 50
Other income (expense)...................... 22 (35) (70)
--------------------------
Income (loss) before income taxes........... 56 96 (20)
Income taxes................................ 29 61 11
--------------------------
Income (loss) before minority interest and
cumulative effect of accounting changes... 27 35 (31)
Minority interest of other shareowners...... (4) - -
Cumulative effect of accounting changes..... - (6) -
--------------------------
Income (loss) from spun-off operations*..... $ 23 $ 29 $(31)
========================================================================
* See Note A - "Basis of Presentation" on page F-42. The amounts for
1994 reflect operations through March 31, 1994.

The Corporation's previous interest in the net assets and liabilities of
AirTouch is classified separately as net assets of spun-off operations
in the Corporation's balance sheets. The components of these net assets
are summarized below:
December 31
------------------
(Dollars in millions) 1994 1993
------------------------------------------------------------------------
Current assets...................................... $ - $1,704
Noncurrent assets................................... - 2,359
Current liabilities................................. - (312)
Noncurrent liabilities.............................. - (413)
Minority interest of other shareowners.............. - (464)
-------------------
Net assets of spun-off operations*.................. $ - $2,874
========================================================================
* See Note A - "Basis of Presentation" on page F-42.

F-47

DEF 14A 91st Page of 156 TOC 1st Previous Next ↓Bottom Just 91st
B. Spun-off Operations (Cont'd)

The Corporation's cash flow statements include separately the cash flows
of spun-off operations. Cash proceeds of approximately $1.5 billion
received by AirTouch from an initial public offering of its stock in
December 1993 are reflected in cash from spun-off operations in the
Corporation's financing cash flows for 1993. The proceeds from the
initial public offering above the book value of the Corporation's
transferred ownership interest were credited to additional paid-in
capital in 1993 within the Corporation's shareowners' equity accounts.

C. Restructuring Charges

During 1993, the Corporation recorded pre-tax restructuring charges
totaling $1.431 billion which reduced earnings for 1993 by $861 million,
or $2.08 per share. These charges include a $977 million pre-tax charge
by Pacific Bell to recognize the incremental cost of force reductions
associated with restructuring its internal business processes through
1997. This charge is to cover the incremental severance costs
associated with terminating approximately 14,400 employees from 1994
through 1997. It is also to cover the incremental costs of
consolidating and streamlining operations and facilities to support this
downsizing initiative. After reductions for incremental force reduction
costs in 1994, the remaining balance of this reserve as of
December 31, 1994 was $819 million.

During 1993, the Corporation completed a reevaluation of investment
alternatives relating to its 1990 decision to dispose of its real estate
subsidiary's assets. Based on its reevaluation, the Corporation
recorded an additional pre-tax restructuring reserve of $347 million to
cover future losses on sales and estimated operating losses. In
December 1994, the Corporation's real estate subsidiary sold
substantially all of its assets for approximately $160 million. Charges
to the reserve in 1994 totaled $287 million, $248 million for losses on
sale of its assets and $39 million for operating losses. Management
believes the remaining reserve balance of $51 million as of December 31,
1994 is adequate to cover any contingent costs associated with the sale.

A $51 million pre-tax charge was recorded during 1993 relating to the
withdrawal from, or restructuring of, the Corporation's cable and
customer premises equipment businesses. The remaining $56 million of
1993 charges primarily relate to anticipated costs due to the spin-off
of AirTouch. As of December 31, 1994, the remaining reserve balance for
the Corporation's cable and customer premises equipment businesses and
costs associated with the spin-off totaled $68 million.

F-48

DEF 14A 92nd Page of 156 TOC 1st Previous Next ↓Bottom Just 92nd
D. Income Taxes

The components of income tax expense applicable to continuing operations
each year are as follows:

(Dollars in millions) 1994 1993 1992
-------------------------------------------------------------------------
Current:
Federal............................... $480 $526 $611
State and local income taxes.......... 142 148 155
---------------------------
Total current............................ 622 674 766

Deferred:
Federal............................... 77 (472) (87)
Change in federal enacted tax rate.... - (23) -
State and local income taxes.......... 22 (117) (11)
---------------------------
Total deferred........................... 99 (612) (98)

Amortization of investment
tax credits - net..................... (63) (52) (62)
---------------------------
Total income taxes....................... $658 $ 10 $606
=========================================================================

Significant components of the Corporation's deferred tax assets and
liabilities are as follows: December 31
------------------------
(Dollars in millions) 1994 1993
----------------------------------------------------------------------------
Deferred tax (assets)/liabilities - due to:
Depreciation and amortization............. $3,003 $3,239
Postretirement and postemployment
benefits................................ (1,072) (1,180)
Restructuring reserves.................... (413) (587)
Customer rate reductions.................. (150) (126)
Other, net................................ (170) (116)
------------------------
1,198 1,230
Less spun-off operations..................... - (177)
------------------------
Net deferred tax liabilities................. $1,198 $1,053
========================
Amounts recorded in the consolidated
balance sheets:
Deferred tax assets*...................... $ 483 $ 556
========================
Deferred tax liabilities*................. $1,681 $1,609
========================
=========================================================================
* Reflects reclassification of certain current and noncurrent amounts by
federal and state tax jurisdiction to a net presentation. Amounts
include both current and noncurrent portions. (See Note M -
"Additional Financial Information" on page F-66 for current portion of
deferred tax assets.)

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D. Income Taxes (Cont'd)

During August 1993, new tax provisions were enacted under the Omnibus
Budget Reconciliation Act of 1993 which included an increase in the
corporate tax rate from 34 percent to 35 percent retroactive to
January 1, 1993. The cumulative effect of the new tax provisions was
recognized during third quarter 1993 by a reduction to income tax expense
resulting from the adjustment of prior periods' deferred taxes. However,
this positive adjustment was partly offset by the effect of the tax rate
increase on current income. Overall, the new tax provisions did not
significantly affect the Corporation's tax expense for 1993.

The reasons for differences each year between the Corporation's effective
income tax rate and applying the statutory federal income tax rate to
income from continuing operations before income taxes are provided in the
following reconciliation:
1994 1993 1992
-------------------------------------------------------------------------
Statutory federal income tax rate (%)....... 35.0 35.0 34.0

Increase (decrease) in taxes resulting from:

Amortization of investment tax credits... (3.5) (26.0) (3.5)
Plant basis differences - net of
applicable depreciation................ 0.3 17.4 2.0
Construction interest.................... (0.6) (6.1) (0.6)
State income taxes - net of federal
income tax benefit..................... 5.9 9.7 5.3

Deferred tax impact due to rate change... - (26.9) (3.5)

Other.................................... (0.4) 1.9 0.4
----------------------------
Effective income tax rate (%)............... 36.7 5.0 34.1
=========================================================================

During 1992, the Corporation was refunded $115 million from the IRS under
a Summary Assessment relating to contested issues for pre-divestiture tax
years 1979 and 1980. As a result of the refund and $70 million of
related interest, 1992 net income increased $45 million, or $.11 per
share, and cash from operating activities for 1992 increased $185
million.

E. Employee Retirement Plans

Defined Benefit Plans

The Corporation provides pension, death, and survivor benefits under
defined benefit pension plans which cover substantially all employees.
Benefits of the Pacific Telesis Group Pension Plan (for nonsalaried
employees) are based on a flat dollar amount and vary according to job
classification, age, and years of service. Benefits of the
Pacific Telesis Group Pension Plan for Salaried Employees are based on a
percentage of final five-year average pay and vary according to age and
years of service.

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E. Employee Retirement Plans (Cont'd)

The Corporation is responsible for contributing enough to the pension
plans, while the employee still is working, to ensure that adequate funds
are available to provide the benefit payments upon the employee's
retirement. These contributions are made to an irrevocable trust fund in
amounts determined using the aggregate cost actuarial method, one of the
actuarial methods specified by the Employee Retirement Income Security
Act of 1974 ("ERISA"), subject to ERISA and Internal Revenue Code limita-
tions.

The Corporation reports pension costs and related obligations under the
provisions of SFAS 87 and SFAS 88. However, regulatory accounting under
SFAS 71 requires the Telephone Companies to recognize pension costs
consistent with its ratemaking treatment. Pension costs recognized
reflect a CPUC order requiring the continued use of the aggregate cost
method for intrastate operations and a FCC requirement to use SFAS 87 and
SFAS 88 for interstate operations.

During 1994, special pension benefits and cash incentives were offered in
connection with Pacific Bell's restructuring and related force reduction
program. On March 28, 1994, Pacific Bell offered a special pension
benefit which removed any age discount from pensions for management
employees who were eligible to retire with a service pension on that
date. Also during 1994, pension benefit increases were offered to
various groups of nonsalaried employees under 1992 plan amendments which
increase benefits for specified groups who elect early retirement under
incentive programs. Approximately 3,400 employees left Pacific Bell
during 1994 under early retirement or voluntary and involuntary severance
programs. In 1993, Nevada Bell offered an early retirement program under
which approximately 70 management employees elected early retirement.
During 1992, approximately 1,000 of the Corporation's nonsalaried
employees elected to retire early under an incentive program that year.
Annual pension cost in the following table excludes $62 million of
additional pension costs charged to Pacific Bell's restructuring reserve
in 1994 and excludes $7 and $5 million, respectively, of additional
pension expense for incentive programs in 1993 and 1992.

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E. Employee Retirement Plans (Cont'd)

Annual pension cost each year consisted of the following components:

(Dollars in millions) 1994 1993 1992
-------------------------------------------------------------------------
Service cost - benefits earned during year.. $ 198 $ 140 $ 163
Interest cost on projected
benefit obligations...................... 681 679 656
Actual return on assets..................... (173) (1,402) (386)
Net amortization and deferral of items
subject to delayed recognition*.......... (601) 640 (373)
----------------------------
Net periodic pension cost under SFAS 87..... 105 57 60
Adjustment to reflect differing regulatory
treatment**.............................. (79) (53) (54)
Less spun-off operations.................... - 3 2
----------------------------
Pension cost recognized..................... $ 26 $ 7 $ 8
=========================================================================

* Under SFAS 87, differences between actual returns and losses on assets
and assumed returns, which are based on an expected long-term rate of
return, are deferred and included with "unrecognized net gain" (see
table below). During 1994 and 1992, actual returns were less than
assumed returns by $551 and $317 million, respectively. During 1993,
actual returns exceeded assumed returns by $691 million.

** See Note A - "Accounting Under Regulation" on page F-43 for amounts of
regulatory assets associated with deferred pension costs.

The amounts shown above for annual pension cost recognized in 1994, 1993,
and 1992 reflect the effects of strong fund asset performance in prior
years and IRS funding limitations.

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E. Employee Retirement Plans (Cont'd)

The following table sets forth the status of the plans' assets and
obligations and the amounts recognized in the Corporation's consolidated
balance sheets:
December 31
------------------------
(Dollars in millions) 1994 1993
-------------------------------------------------------------------------
Plan assets at estimated fair value............ $10,372 $11,277
Actuarial present value of projected benefit
obligations.................................. 8,736 9,369
------------------------
Plan assets in excess of projected benefit
obligations.................................. 1,636 1,908
Less items subject to delayed recognition:
Unrecognized net gain*....................... (2,012) (1,989)
Unrecognized transition amount**............. (551) (651)
Unrecognized prior service cost.............. 48 52
Less spun-off operations....................... - (15)
------------------------
Accrued pension cost liability recognized in
the consolidated balance sheets.............. $ 879 $ 695
=========================================================================

* Gains or losses from actual returns on assets different than assumed
returns, as well as from demographic experience different than
assumed and the effects of changes in other assumptions, are
recognized through amortization, over time, when the cumulative gains
or losses exceed certain limits.

** A $1,078 million excess of the fair value of plan assets over
projected benefit obligations as of the January 1, 1987 adoption of
SFAS 87 is being recognized through amortization over approximately
eighteen years.

The assets of the plans are primarily composed of common stocks,
U.S. Government and corporate obligations, index funds, and real estate
investments. The plans' projected benefit obligations for employee
service to date reflect the Corporation's expectations of the effects of
future salary progression and benefit increases. As of December 31, 1994
and 1993, the actuarial present values of the plans' accumulated benefit
obligations, which do not anticipate future salary increases, were
$8,256 and $8,818 million, respectively. Of these amounts, $7,396 and
$7,924 million, respectively, were vested.

The assumptions used in computing the present values of benefit
obligations include a discount rate of 8.0 percent for 1994, 7.5 percent
for 1993 and 8.5 percent for 1992. An 8.0 percent long-term rate of
return on assets is assumed in calculating pension costs.

F-53

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E. Employee Retirement Plans (Cont'd)

A separation agreement for the AirTouch spin-off provided for the
transfer of a limited number of employees' and retirees' accounts between
the Corporation and AirTouch as well as related pension plan assets. The
actuarial present value of projected benefit obligations as of
December 31, 1993 in the above table includes $31 million of prior
obligations relating to spun-off operations.

Effective December 31, 1993, the salaried pension plan was amended to
permanently remove the age discount from pension benefits for employees
with 30 or more years of net credited service. Effective January 1,
1995, the salaried pension plan was also amended to cap net credited
service for pension benefits at 30 years or, if greater, the amount of
the employee's service on January 1, 1995. Upon adoption, these
amendments affected approximately 400 and 800 employees, respectively.

The Corporation has entered into labor negotiations with union-represent-
ed employees in the past and expects to do so in the future. Pension
benefits have been included in these negotiations, and improvements in
benefits have been made periodically. Additionally, the Corporation has
increased benefits to pensioners on an ad hoc basis. While no assurance
can be offered with respect to future increases, the Corporation's
expectations for future benefit increases have been reflected in
determining pension costs.

Defined Contribution Plans

The Corporation sponsors defined contribution retirement plans covering
substantially all employees. These plans include the Pacific Telesis
Group Supplemental Retirement and Savings Plan for Salaried Employees,
and the Pacific Telesis Group Supplemental Retirement and Savings Plan
for Nonsalaried Employees (collectively, the "Savings Plans").

The Corporation's contributions to the Savings Plans are based on
matching a portion of employee contributions. All matching employer
contributions to the Savings Plans are made through a LESOP trust (see
"Employee Stock Ownership Trust" in Note K on page F-63). Total
contributions to these plans, including contributions allocated to
participant accounts through the LESOP trust, were $66, $65, and $61
million in 1994, 1993, and 1992, respectively. These amounts exclude
costs applicable to spun-off operations.

F. Other Postretirement and Postemployment Benefits

Substantially all retirees and their dependents are covered under the
Corporation's plans for medical, dental, and life insurance benefits.
Approximately 41,000 retirees were eligible to receive benefits as of
January 1, 1994. Currently, the Corporation pays the full cost of
retiree health benefits. However, by 1999, all employees retiring after
1990 will pay a share of the costs of medical coverage that exceeds a
defined dollar medical cap. Such future cost sharing provisions have
been reflected in determining the Corporation's postretirement benefit
costs. The Corporation retains the right, subject to applicable legal
requirements, to amend or terminate these benefits.

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F. Other Postretirement and Postemployment Benefits (Cont'd)

Effective January 1, 1993, the Corporation adopted SFAS 106 on an
immediate-recognition basis. The standard requires that the cost of
retiree benefits be recognized in the financial statements from an
employee's date of hire until the employee becomes eligible for these
benefits. Previously, the Corporation expensed retiree benefits as they
were paid. Immediate recognition of the value of prior benefits earned,
the transition obligation, resulted in a one-time, noncash charge
applicable to continuing operations of $1.573 billion, or $3.80 per
share. The charge is net of a deferred income tax benefit of
$1.054 billion which will be recognized over the remaining lives of the
workforce.

The Corporation's periodic expense under SFAS 106 in 1994 and 1993, as
displayed in the table below, increased from a level of $106 million in
costs in 1992 under the prior method. Because the Telephone Companies'
higher costs are being partially recovered in revenues, the increased
costs have not materially affected reported earnings. (See "Change in
Accounting for Postretirement and Postemployment Costs" in Note A on
page F-46.)

The components of net periodic postretirement benefit cost are as
follows:

(Dollars in millions) 1994 1993
-------------------------------------------------------------------------
Service cost..................................... $ 58 $ 42
Interest cost on accumulated postretirement
benefit obligation............................. 258 249
Actual return on plan assets..................... (3) (80)
Net amortization and deferral.................... (66) 32
Less spun-off operations......................... - (2)
------------------
Net periodic postretirement benefit cost......... $247 $241
=========================================================================

Both Pacific Bell and Nevada Bell partially fund their obligations by
contributing to Voluntary Employee Benefit Association trusts. Plan
assets are invested primarily in domestic and international stocks and
domestic investment-grade bonds. An 8.5 percent long-term rate of
return on assets is assumed in calculating postretirement benefit costs.

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F. Other Postretirement and Postemployment Benefits (Cont'd)

The funded status of the plans follows: December 31
-------------------
(Dollars in millions) 1994 1993
------------------------------------------------------------------------
Accumulated postretirement benefit obligation*:
Retirees..................................... $2,308 $2,380
Eligible active employees.................... 270 213
Other active employees....................... 802 948
------- -------
Total accumulated postretirement benefit
obligation................................... 3,380 3,541
Less:
Fair value of plan assets*................... (880) (801)
Unrecognized net loss**...................... (178) (343)
Spun-off operations.......................... - (12)
------- -------
Accrued postretirement benefit obligation recognized
in the consolidated balance sheets........... $2,322 $2,385
========================================================================
* The measurement date for determining the accumulated postretirement
benefit obligation and fair value of plan assets was changed to
December 31 in 1994, from September 30 in 1993. The fair value of
plan assets as of December 31, 1993 includes contributions made
during fourth quarter 1993 after the measurement date that year.

** The unrecognized net loss is amortized over time and reflects
differences between actuarial assumptions and actual experience. It
also includes the impact of changes in actuarial assumptions.

The assumed discount rate used to measure the accumulated postretirement
benefit obligation was 8.0 percent for 1994 and 7.5 percent for 1993. An
annual increase in health care costs of 13 percent was assumed for 1995,
declining ultimately to an assumed rate of 6 percent by the year 2002.
Increasing the assumed health care cost trend rates by one percent each
year, would increase the December 31, 1994 accumulated postretirement
benefit obligation by $434 million and would increase the combined
service and interest cost components of net periodic postretirement
benefit cost for 1994 by $40 million.

Effective January 1, 1993, the Corporation adopted SFAS 112 for
accounting for postemployment benefits which requires a change from cash
to accrual accounting. Postemployment benefits offered by the
Corporation include workers compensation, disability benefits, medical
benefit continuation, and severance pay. These benefits are paid to
former or inactive employees who terminate without retiring. A one-time,
noncash charge representing prior benefits earned was recorded in 1993
which reduced earnings applicable to continuing operations by
$151 million, or $.36 per share. The charge was net of a deferred income
tax benefit of $101 million. The annual periodic expense under SFAS 112
does not differ materially from expense under the prior method.

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G. Stock Options and Stock Appreciation Rights

Key employees of the Corporation have outstanding options and stock
appreciation rights ("SARs") which were granted under the Pacific Telesis
Group 1994 Stock Incentive Plan (the "Stock Plan") and a previous plan
(collectively, the "Plans"). The Stock Plan was approved by shareowners
effective January 1, 1994. The previous plan expired December 31, 1993.
A total of 21,000,000 shares of the Corporation's common stock was
authorized by the Board of Directors (the "Board") for grants of options,
SARs, restricted stock, and stock units under the Stock Plan. As of
December 31, 1994, the remaining shares authorized were 13,963,200,
including 146,000 remaining shares separately authorized for grant to
nonemployee directors of the Board. As of the termination of the
previous plan on December 31, 1993, 8,275,019 authorized shares remained,
but were unused. The remaining shares authorized for future grants as of
December 31, 1992 were 8,342,767.

Options granted under the Plans were granted as nonqualified options or
as incentive stock options, and portions were granted in conjunction with
SARs. The original exercise price of each outstanding option and SAR was
equal to the fair market value of the Corporation's common stock on the
date of grant. The exercise prices of options and SARs outstanding at
the time of the AirTouch spin-off were adjusted as described below. The
exercise price of each option may be paid in cash or by surrendering
shares of common stock already owned by the holder, or with a combination
of cash and such shares. Options and associated SARs ordinarily become
exercisable at stated times beginning at least one year after the date of
grant. The term of any option or SAR cannot exceed ten years. As of
December 31, 1994, 3,541,608 options and SARs were exercisable at prices
ranging from $12.4297 to $31.6864, after exercise price adjustments
arising from the spin-off.

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G. Stock Options and Stock Appreciation Rights (Cont'd)

The following table summarizes option and SAR activity during 1994 and
1993:
Price Range Price Range
1994 Per Share* 1993 Per Share*
------------------------------------------------------------------------
Shares issuable under
outstanding options $ 8.7008 - $ 8.7008 -
and SARs at January 1 6,185,201 27.6050 8,317,162 27.3824

$30.7500 -
Options and SARs granted 7,215,800 32.1250 171,790 $27.6050

Options and SARs $ 8.7008 - $ 8.7008 -
exercised (1,255,080) 27.6050 (2,199,709) 27.6050

Options and SARs $ 8.7008 - $15.6577 -
canceled or forfeited (9,520) 27.6050 (104,042) 27.6050

Options and SARs replaced
for employees of spun-off $12.4297 -
operations (1,393,993) 27.6050 - -
----------- ----------
Shares issuable under
outstanding options $12.4297 - $ 8.7008 -
and SARs at December 31 10,742,408 32.1250 6,185,201 27.6050
========================================================================

* Exercise prices per share were adjusted to reflect the spin-off of
wireless operations on April 1, 1994.

In 1992, 670,791 options and SARs were exercised at adjusted prices
ranging from $8.7008 to $26.1951.

Options and SARs held by the continuing employees of the Corporation at
the time of the spin-off were supplemented with an equal number of
options and SARs for common shares of AirTouch. The exercise prices for
the Corporation's outstanding options and SARs were adjusted downward to
reflect the value of the supplemental AirTouch options and SARs. The
Corporation's balance sheet reflects a related liability equal to the
difference between the current market price of AirTouch stock and the
exercise prices of the supplemental options outstanding. (See "Off-
Balance-Sheet Risk" in Note I on page F-61.) As of December 31, 1994,
3,931,470 supplemental AirTouch options and SARs were outstanding.
Expiration dates for the supplemental options and SARs range from 1995 to
2003.

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G. Stock Options and Stock Appreciation Rights (Cont'd)

Outstanding options and SARs of the Corporation that were held by
employees of the wireless operations at the spin-off date were replaced
by options and SARs for common shares of AirTouch. AirTouch assumed
liability for these replacement options and SARs.

Certain information presented in this note is based on estimates which
are not expected to differ materially from actual amounts.

H. Debt and Lease Obligations

Long-term obligations as of December 31, 1994 and 1993 consist of
debentures of $4,047 million each year and corporate notes of $1,295 and
$1,603 million, respectively. Maturities and interest rates of long-term
obligations follow:
December 31
-----------------------
Maturities and Interest Rates 1994 1993
-------------------------------------------------------------------------
(Dollars in millions)

1995 8.710% to 9.320% $ - $ 239
1996 8.650% 15 15
1997 8.990% to 12.560% 71 71
1999 4.625% to 7.650% 100 158
2000-2043 4.625% to 9.500% 5,156 5,167
----------------------
5,342 5,650
Long-term capital lease obligations 16 21
Unamortized discount - net of premium (461) (475)
Less spun-off operations - (67)
----------------------
Total long-term obligations $4,897 $5,129
=========================================================================

Pacific Bell has remaining authority from the CPUC to issue up to
$1.25 billion of long- and intermediate-term debt. The proceeds may be
used only to redeem maturing debt and to refinance other debt issues.
Pacific Bell has remaining authority from the Securities and Exchange
Commission (the "SEC") to issue up to $650 million of long- and
intermediate-term debt through a shelf registration filed in April 1993.
In addition, PacTel Capital Resources ("PTCR"), a wholly owned subsidiary
of the Corporation, may issue up to $192 million of medium-term notes
through a shelf registration on file with the SEC.

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H. Debt and Lease Obligations (Cont'd)

Short-term borrowings have been substantially repaid as of
December 31, 1994. As of December 31, 1994 and 1993, the weighted
average interest rate on total short-term borrowings was 7.00 percent and
3.25 percent, respectively. Debt maturing within one year in the balance
sheets consists of short-term borrowings and the portion of long-term
obligations that matures within one year as follows:
December 31
-------------------
(Dollars in millions) 1994 1993
-----------------------------------------------------------------------
Commercial paper................................ $ - $587
Notes payable to banks.......................... 2 5
-------------------
Total short-term borrowings..................... 2 592
Current maturities of long-term obligations..... 244 15
-------------------
246 607
Less spun-off operations........................ - (12)
-------------------
Total debt maturing within one year............. $246 $595
=======================================================================

Lines of Credit

The Corporation has various lines of credit with certain banks. These
arrangements do not require compensating balances or commitment fees and,
accordingly, are subject to continued review by the lending institutions.
As of December 31, 1994 and 1993, the total unused lines of credit
available were approximately $2.2 and $1.7 billion, respectively.

I. Financial Instruments

The following table presents the estimated fair values of the
Corporation's financial instruments:
December 31, 1994 December 31, 1993
----------------- -----------------
Estimated Estimated
Carrying Fair Carrying Fair
(Dollars in millions) Amount Value Amount Value
------------------------------------------------------------------------
Cash and cash equivalents........ $ 135 $ 135 $ 69 $ 69
Debt maturing within one year.... 246 246 595 595
Deposit liabilities.............. 305 305 296 296
Long-term debt................... $4,881 $4,729 $5,108 $5,714
========================================================================

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I. Financial Instruments (Cont'd)

The following methods and assumptions were used to estimate the fair
values of each category of financial instrument:

The fair values of cash and cash equivalents, debt maturing within one
year, and deposit liabilities approximate their carrying amounts because
of the short-term maturities of these instruments.

The fair value of long-term debt issues as of December 31, 1994 was
estimated based on the net present value of future expected cash flows,
which were discounted using current interest rates. The fair value as of
December 31, 1993 was estimated using quotes on an exchange or interest
rates available to the Corporation under similar terms and maturities.
The carrying amounts reflect unamortized net discount.

Off-Balance-Sheet Risk

The Corporation holds an equity swap contract to hedge exposure to risk
of market changes related to its recorded liability for outstanding
employee stock options for AirTouch common stock and associated SARs.
(See Note G - "Stock Options and Stock Appreciation Rights" on
page F-57.) The Corporation plans to make open market purchases of
AirTouch stock to satisfy its obligation for options that are exercised.
Off-balance-sheet risk exists to the extent the market price of AirTouch
stock rises above the market price reflected in the liability's current
carrying value. The equity swap was entered to hedge this exposure and
minimize the impact of market fluctuations. The contract entitles the
Corporation to receive settlement payments to the extent the price of
AirTouch common stock rises above the notional value of $23.74 per share,
but imposes an obligation to make payments to the extent the price
declines below this level. The total notional amount of the contract,
$96 million as of December 31, 1994, covers the approximate number of
AirTouch options and SARs outstanding on that date. The Corporation
plans to periodically adjust downward the outstanding notional amount as
the options and SARs are exercised. The equity swap contract expires
March 1999.

Both the equity swap and the Corporation's liability for AirTouch stock
options and SARs are carried in the balance sheet at their market values,
which were immaterial as of December 31, 1994. Gains and losses from
quarterly market adjustments of the carrying amounts of both
substantially offset in results of operations. As of December 31, 1994,
the accounting loss which would be incurred from nonperformance by the
counterparty to the equity swap was $22 million. However, the
Corporation does not expect to realize any loss from counterparty
nonperformance.

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J. Related Party Transactions

During 1993 and 1992, the Corporation made net cash investments in spun-
off operations of $356 and $399 million, respectively. These investments
include capital contributions to AirTouch of $1,180 and $212 million,
respectively, in each year, and are reported net of intercompany
borrowings and repayments. The net investments also reflect dividends
received from AirTouch of $114 and $108 million, respectively, in 1993
and 1992. During 1993, AirTouch substantially repaid previous
intercompany borrowings from the Corporation which reduced a net balance
receivable from spun-off operations by $715 million that year. As of
December 31, 1992, this balance principally included $858 million of
borrowings by AirTouch from PTCR, less $115 million payable by the
Corporation to AirTouch for tax benefits. The 1993 repayment by AirTouch
was made primarily using proceeds of the Corporation's capital
contributions. A remaining net receivable balance of $33 million was
repaid in 1994.

Miscellaneous income of the Corporation for 1993 and 1992 reflects
interest income of $20 and $46 million, respectively, from the
intercompany borrowings by AirTouch. The borrowings from PTCR were
primarily in the form of promissory notes bearing interest at variable
rates which averaged 6.1 and 5.7 percent, respectively, during 1993 and
1992. In addition, Pacific Telesis provided certain administrative
services to AirTouch and charged for these services through 90 days
following the April 1, 1994 spin-off date.

A separation agreement for the spin-off provided for complete separation
of all AirTouch properties from the Corporation. The Corporation's
consolidated federal income tax return for 1994 will include AirTouch
through the spin-off date.

K. Capital Stock

Shareowners

As of January 31, 1995, the number of shareowners was 815,217.

Preferred Stock

The Corporation's Articles of Incorporation include a provision for the
issuance of up to 50,000,000 preferred shares (par value $0.10 per share)
in one or more series with full or limited voting powers or without
voting powers, and with such designations, preferences, and rights as the
Board may determine.

Treasury Stock

From time to time, the Corporation purchases shares of its common stock
and holds these shares as treasury stock. Separately, the Corporation
had purchased 46,312,982 of its shares through December 31, 1990 under
Board authorizations allowing the purchase of up to 55,000,000 shares.
Treasury stock that is held later may be reissued in connection with
acquisitions, the Corporation's shareowner dividend reinvestment and
stock purchase plan ("DRISPP"), and employee benefit plans.

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K. Capital Stock (Cont'd)

During 1994, 1993, and 1992, respectively, the Corporation reissued
1,006,122, 17,966,717, and 4,074,578 treasury shares in connection with
the DRISPP and employee benefit plans. The greater amount of reissuances
in 1993, $728 million (at cost), primarily reflects additional equity
raised that year from a discounted stock purchase offering under the
DRISPP. As of December 31, 1994, 8,762,430 shares remained held as
treasury stock pending their ultimate disposition.

Employee Stock Ownership Trust

All matching employer contributions to the Savings Plans are made through
a leveraged employee stock ownership plan ("LESOP") trust. (See "Defined
Contribution Plans" in Note E on page F-54.) During 1989, Bankers Trust
Company, as trustee of the Pacific Telesis Group Employee Stock Ownership
Plan Trust, purchased 13,900,000 of the Corporation's treasury shares at
a price of $691,052,400 in exchange for a promissory note from the trust
to the Corporation. The note payable by the trust is not reflected as a
liability of the Corporation and, in accordance with accepted accounting
treatment, the remaining cost of unallocated trust shares is carried as a
reduction of shareowners' equity (as "deferred compensation"). Principal
and interest on the note is paid from employer contributions and
dividends received by the trust.

The following table summarizes the Corporation's expense each year from
the allocation of shares held by the LESOP trust to the accounts of
employees participating in the Savings Plans:

(Dollars in millions) 1994 1993 1992
-------------------------------------------------------------------------
Total compensation and interest expense
recognized*............................... $60 $65 $81
Interest expense portion**.................. 19 20 27
Other information:
Employer contributions to trust........... 77 76 74
Dividends received by trust............... $35 $30 $30
=========================================================================
* Determined using the shares-allocated accounting method and after
being reduced by dividends paid on shares held by the trust.

** The Corporation's LESOP interest expense is matched by an equal
amount of interest income earned on the promissory note from the
trust and reflected in miscellaneous income.

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K. Capital Stock (Cont'd)

Shares held by the LESOP trust are released for allocation to the
accounts of employees as employer matching contributions are earned. The
following table summarizes the Corporation's shares held by the trust:

December 31
----------------------------
1994 1993
-------------------------------------------------------------------------
Shares allocated to employee accounts....... 9,142,067 5,521,697
Shares committed to be allocated*........... 167,641 94,822
Shares unallocated.......................... 11,420,334 7,755,455
----------------------------
Total shares held by trust.................. 20,730,042 13,371,974
=========================================================================
* Represents employer matching contributions earned by employees, but not
yet allocated to employee accounts.

Effective with the April 1, 1994 spin-off, the LESOP trust received one
share of AirTouch stock for each Pacific Telesis Group share held.
During 1994, the trust sold the AirTouch shares it received on
unallocated shares using the proceeds to purchase Pacific Telesis Group
shares. In addition, AirTouch shares received for allocated trust shares
were used to purchase Pacific Telesis Group shares except for employees
who elected to retain and transfer their AirTouch shares from their
savings match account to another investment fund. The number of trust
shares increased by 7,887,851 shares as a result of these transactions.

Statement of Position 93-6 ("SOP 93-6"), "Employers' Accounting for
Employee Stock Ownership Plans," issued by the American Institute of
Certified Public Accountants, establishes new accounting rules for new
LESOP shares. As allowed by specific provisions of SOP 93-6, the
Corporation continues to follow the prior rules in accounting for the
LESOP trust.

Shareowner Rights Plan

During 1989, the Board adopted a shareowner rights plan to enhance its
ability to protect the shareowners' interests if the Corporation is faced
with a hostile acquisition proposal. Under the terms of the plan,
shareowners of record as of October 10, 1989 received one right for each
share of the Corporation's common stock held on that date. Initially,
the rights are not exercisable and trade automatically with the Corpora-
tion's common stock. If a takeover attempt occurred that satisfied the
tests described in the plan, each right (except for rights held by the
person or group making that takeover attempt) would become the right to
purchase common stock at one-half its then market value (or, at the
Board's discretion, could be exchanged for an additional share of common
stock). The rights do not have any voting rights, may be redeemed under
certain circumstances at $0.01 per right, and expire on October 10, 1999.

F-64

DEF 14A 108th Page of 156 TOC 1st Previous Next ↓Bottom Just 108th
L. Commitments and Contingencies

Broadband Network

In December 1994, Pacific Bell contracted for the purchase of up to
$2 billion of broadband network facilities which will incorporate
emerging technologies. Pacific Bell is committed to purchase these
facilities in 1998 if they meet certain quality and performance criteria.

Revenues Subject to Refund

In 1992, the CPUC issued a decision adopting, with modification, SFAS 106
for regulatory accounting purposes. The CPUC decision also granted
Pacific Bell revenue increases for recovery of contributions to
tax-advantaged funding vehicles for SFAS 106 costs. Annual price cap
decisions by the CPUC granted Pacific Bell $100 million in each of the
years 1995 and 1994 for partial recovery of higher costs under SFAS 106.
However, the CPUC in October 1994 reopened the proceeding to determine if
Pacific Bell should continue to recover these costs. The CPUC's order
held that related revenues collected after October 12, 1994 are subject
to refund. The Corporation believes these costs are appropriately
included in Pacific Bell's price cap filings, but is unable to predict
the outcome.

Purchase Options

In June 1990, Prime Cable of Chicago, Inc. ("Prime Cable") acquired
certain Chicago cable television properties from Group W. The
Corporation, through its PacTel Cable subsidiary, holds options to
purchase a 75 percent interest in Prime Cable. TC Cable, Inc.
("TC Cable") now holds this interest. PacTel Capital Funding, a wholly
owned subsidiary of the Corporation, has guaranteed bank financing used
by TC Cable and its parent corporation to acquire this interest. The
guarantees cover initial loan amounts of $60 million as well as interest
accruing on the loans which will be added to the outstanding loan
balances up to an aggregate of $136 million. In the Corporation's
opinion, the likelihood that it will be required to pay principal or
interest on this debt under these guarantees is remote.

F-65

DEF 14A 109th Page of 156 TOC 1st Previous Next ↓Bottom Just 109th
M. Additional Financial Information
December 31
-----------------------
(Dollars in millions) 1994 1993
-------------------------------------------------------------------------
Prepaid expenses and other current assets:
Prepaid directory expenses................... $ 328 $ 341
Miscellaneous prepaid expenses............... 33 33
Notes and other receivables.................. 115 53
Inventory and supplies....................... 60 69
Current deferred tax benefits................ 458 462
Net receivable from spun-off operations...... - 33
PCS auction deposit.......................... 56 -
Deferred compensation trusts................. 124 -
Other........................................ 32 38
-----------------------
Total.......................................... $ 1,206 $ 1,029
=========================================================================
Property, plant, and equipment - net:
Land and buildings........................... $ 2,625 $ 2,980
Cable, conduit, and connections.............. 10,818 10,494
Central office equipment..................... 9,598 9,542
Furniture, equipment, and other.............. 2,948 3,005
Construction in progress..................... 576 586
-----------------------
26,565 26,607
Less: accumulated depreciation.............. (10,451) (9,961)
-----------------------
Total.......................................... $16,114 $16,646
=========================================================================

F-66

DEF 14A 110th Page of 156 TOC 1st Previous Next ↓Bottom Just 110th
M. Additional Financial Information (Cont'd)

December 31
-----------------------
(Dollars in millions) 1994 1993
-------------------------------------------------------------------------
Accounts payable and accrued liabilities:
Accounts payable:
Trade..................................... $ 720 $ 606
Payroll................................... 47 57
Checks outstanding........................ 336 192
Other:
Incentive awards payable................ 237 190
Other................................... 139 202
Interest accrued............................ 136 123
Advance billing and customers' deposits..... 292 275
-----------------------
Total......................................... $1,907 $1,645
=========================================================================
Other current liabilities:
Accrued vacation pay........................ $ 287 $ 290
Dividends payable........................... 231 231
Restructuring reserves...................... 554 480
Other....................................... 258 167
-----------------------
Total......................................... $1,330 $1,168
=========================================================================
Other noncurrent liabilities and deferred credits:
Unamortized investment tax credits.......... $ 473 $ 536
Accrued pension cost liability.............. 879 695
Restructuring reserves...................... 386 1,045
Accrued postretirement benefit obligation... 2,322 2,385
Other....................................... 793 855
-----------------------
Total......................................... $4,853 $5,516
=========================================================================

F-67

DEF 14A 111th Page of 156 TOC 1st Previous Next ↓Bottom Just 111th
M. Additional Financial Information (Cont'd)
For the Year Ended
December 31
------------------------------
(Dollars in millions) 1994 1993 1992
-------------------------------------------------------------------------
Other service revenues:
Directory advertising................. $1,003 $1,007 $1,020
Other................................. 425 397 359
------------------------------
Total................................... $1,428 $1,404 $1,379
=========================================================================
Miscellaneous income:
Interest income....................... $ 29 $ 27 $ 135
Other................................. 26 21 67
------------------------------
Total................................... $ 55 $ 48 $ 202
=========================================================================
Advertising expense..................... $ 68 $ 63 $ 80
=========================================================================
CASH PAYMENTS FOR:
Interest................................ $ 442 $ 514 $ 517
Income taxes............................ $ 737 $ 771 $ 788
=========================================================================
NONCASH TRANSACTIONS:
Treasury shares issued in lieu of
cash dividends under shareowner
dividend reinvestment plan............ $ 17 $ 143 $ 70
Spin-off stock distribution............. $2,901 - -
========================================================================

Major Customer

Nearly all of the Corporation's operating revenues were from
telecommunications and related services. Approximately 11 percent,
11 percent, and 12 percent of these revenues were earned in 1994, 1993,
and 1992, respectively, for services provided to AT&T Corp. No other
customer accounted for more than 10 percent of revenues.

F-68

DEF 14A 112th Page of 156 TOC 1st Previous Next ↓Bottom Just 112th
N. Quarterly Financial Data
(Unaudited)
(Dollars in millions, except per share amounts)
-----------------------------------------------
1994 First Second Third Fourth
-------------------------------------------------------------------------
Operating revenues........ $ 2,294 $ 2,256 $2,329 $ 2,356
Operating income.......... 548 547 603 496
Earnings:
Income from continuing
operations.............. 282 278 314 262
Income from spun-off
operations.............. 23 - - -
Net income................ $ 305 $ 278 $ 314 $ 262

Earnings per share:
Income from continuing
operations.............. $ 0.67 $ 0.65 $ 0.74 $ 0.62
Income from spun-off
operations.............. 0.05 - - -
Net income................ $ 0.72 $ 0.65 $ 0.74 $ 0.62
-------------------------------------------------------------------------
1993 First Second Third Fourth
-------------------------------------------------------------------------
Operating revenues........ $ 2,286 $ 2,317 $2,344 $2,297
Operating income (loss)... 125 549 571 (583)
Earnings (loss):
Income (loss) from
continuing operations... 6 283 307 (405)
Income (loss) from spun-off
operations.............. (9) 8 16 14
Cumulative effect of
accounting changes...... (1,724) - - -
Net income (loss)......... $(1,727) $ 291 $ 323 $ (391)

Earnings (loss) per share:
Income (loss) from continuing
operations.............. $ 0.01 $ 0.69 $ 0.73 $(0.96)
Income (loss) from spun-off
operations.............. (0.02) 0.02 0.04 0.04
Cumulative effect of
accounting changes...... (4.24) - - -
Net income (loss)......... $ (4.25) $ 0.71 $ 0.77 $(0.92)
=========================================================================

Operating revenues, operating income, and certain other data reflect the
effects of the spin-off by separately classifying the Corporation's
previous interests in the operating results of AirTouch from the
continuing operations of Pacific Telesis Group. (See Note A - "Basis of
Presentation" on page F-42.)

F-69

DEF 14A 113th Page of 156 TOC 1st Previous Next ↓Bottom Just 113th
N. Quarterly Financial Data (Continued)

Second quarter 1994 results reflect an after-tax charge of $29 million,
or $.07 per share, resulting from a CPUC order related to customer late
payment charges.

Fourth quarter 1993 results reflect after-tax restructuring charges of
$603 million, or $1.43 per share, to cover the cost of force reductions
and spin-off related costs. Other one-time items reduced earnings by
$67 million, or $.15 per share.

First quarter 1993 results reflect after-tax charges of $1.7 billion, or
$4.24 per share, relating to the Corporation's adoption of new accounting
standards for postretirement and postemployment benefits, and several
restructuring reserves which reduced first quarter 1993 earnings by
$258 million, or $.63 per share.

F-70

DEF 14A 114th Page of 156 TOC 1st Previous Next ↓Bottom Just 114th
Stock Trading Activity and Dividends Paid
Payment
1994 High Low Dividends Date
----------------------------------------------------------------------------

First Quarter........... $58.000 $51.000 $0.545 5/2/94
Second Quarter*......... $32.375 $29.875 $0.545 8/1/94
Third Quarter*.......... $33.500 $30.125 $0.545 11/1/94
Fourth Quarter*......... $32.125 $28.250 $0.545 2/1/95
----------------------------------------------------------------------------
Payment
1993 High Low Dividends Date
----------------------------------------------------------------------------

First Quarter........... $49.375 $43.250 $0.545 5/3/93
Second Quarter.......... $49.250 $45.000 $0.545 8/2/93
Third Quarter........... $56.500 $47.875 $0.545 11/1/93
Fourth Quarter.......... $59.125 $53.250 $0.545 2/1/94
============================================================================
(Stock trading activity: based on New York Stock Exchange - Composite
Transactions)

* Reflects market prices per share subsequent to the April 1, 1994
spin-off of AirTouch.

Dividends

The record date is set by the Pacific Telesis Group Board of Directors at
the time it declares a dividend. Based on the current schedule, record
dates are expected in April, July, October, and December, and dividends are
expected to be paid in May, August, November, and February. Quarterly
reports are mailed with dividend checks.

Stock Listing

New York, Pacific, Chicago exchanges PAC
London, Swiss exchanges Pacific Telesis
Newspaper stock tables Pac Telesis

Copies of the Pacific Telesis Group 1994 Form 10-K filed with the Securities
and Exchange Commission may be obtained by writing to:

Shareowner Relations
Pacific Telesis Group
130 Kearny Street, Suite 2907
San Francisco, California 94108

F-71

DEF 14A 115th Page of 156 TOC 1st Previous Next ↓Bottom Just 115th
APPENDIX
--------

GRAPHIC AND IMAGE MATERIAL

Following is a description of the stock performance chart under the heading
"Performance Graph" on page 20, entitled "Comparison of Five-Year Cumulative
Total Return for Pacific Telesis Group, the Six Other RHCs and the S&P 500
Index." This information is depicted in a line graph, and the left vertical
axis indicates the dollar range. The lowest value for this range is $50.00,
and it increases in $50 increments to the top listed value of $200.00. The
horizontal axis shows the time period beginning with the year 1989, followed
by five consecutive year intervals ending in 1994. Pacific Telesis Group,
represented by a solid bold line, reflects the following values: 1989 -
$100; 1990 - $94; 1991 - $97; 1992 - $102; 1993 - $130; and 1994 - $129.
The Six RHCs, represented by a short, bold dash, reflects the following
values: 1989 - $100, 1990 - $98; 1991 - $103; 1992 - $116; 1993 -$135; and
1994 - $131. The S&P 500 Index, represented by a long, thin dash, reflects
the following values: 1989 - $100; 1990 - $97; 1991 - $126; 1992 - $136;
1993 - $150; and 1994 - $158.

DEF 14A 116th Page of 156 TOC 1st Previous Next ↓Bottom Just 116th
ATTACHMENT
----------

PACIFIC TELESIS GROUP
SENIOR MANAGEMENT
LONG TERM INCENTIVE PLAN
(Restated Effective January 1, 1995)

DEF 14A 117th Page of 156 TOC 1st Previous Next ↓Bottom Just 117th
TABLE OF CONTENTS

PAGE
----

SECTION 1. PURPOSE..................................................... 1

SECTION 2. ELIGIBILITY................................................. 1

SECTION 3. UNITS GRANTED............................................... 1
(a) Awards Of Units........................................ 1
(b) Award Performance Period............................... 1
(c) Interim Awards......................................... 2
(d) Limitation On Aggregate Units Granted.................. 2
(e) No Shareowner Rights................................... 2

SECTION 4. UNITS EARNED................................................ 2
(a) Determination Of Units Earned And Criteria............. 2
(b) Limitation On Aggregate Units Earned................... 3
(c) Cancellation Of Unearned Units Granted................. 3
(d) Special Rule For Determination Of Units Earned
For Certain Participants............................. 3

SECTION 5. DISTRIBUTION RULES.......................................... 3

SECTION 6. DIVIDEND EQUIVALENTS........................................ 5

SECTION 7. PAYMENTS AND DISTRIBUTIONS BY PARTICIPATING COMPANIES....... 5

SECTION 8. ADJUSTMENTS................................................. 6

SECTION 9. OTHER CONDITIONS............................................ 7

SECTION 10. DESIGNATION OF BENEFICIARIES................................ 8

SECTION 11. PLAN ADMINISTRATION......................................... 8

SECTION 12. CLAIMS AND APPEALS.......................................... 8

SECTION 13. MODIFICATION OR TERMINATION OF PLAN......................... 9

SECTION 14. DEFINITIONS................................................. 9

DEF 14A 118th Page of 156 TOC 1st Previous Next ↓Bottom Just 118th
PACIFIC TELESIS GROUP
SENIOR MANAGEMENT
LONG TERM INCENTIVE PLAN
(Restated Effective January 1, 1995)

SECTION 1. PURPOSE. The purpose of the Pacific Telesis Group Senior
Management Long Term Incentive Plan (the "Plan") is to promote the interests
of Pacific Telesis Group (hereinafter "the Corporation") and its subsidiary
and associated companies which shall have elected to participate in the Plan
(the Corporation and such companies being called "Participating Companies")
and its stockholders by attracting, retaining, and stimulating the
performance of selected employees of the Corporation and the Participating
Companies, giving such employees an opportunity to acquire proprietary
interests in the Corporation, and creating an increased personal interest in
the continued success and progress of the Corporation and its subsidiaries.

SECTION 2. ELIGIBILITY. Employees of Participating Companies who at the
time awards are granted are in active service and are determined by the
board of directors or other governing body of their respective employer (or
in the case of employees of the Corporation by the Committee) to be in the
senior management compensation group are eligible for awards under the Plan.
Employees are not rendered ineligible by reason of being a member of the
board of directors or governing body of any Participating Company. Awards
may be granted to employees on leave of absence and to employees absent on
account of disability and receiving sickness or accident disability benefits
who at the time such leave of absence or disability commenced would have
been eligible, subject to such conditions, if any, as the granting body may
establish.

SECTION 3. UNITS GRANTED.

(a) AWARDS OF UNITS. The board of directors or other governing body
of each Participating Company and, in the case of the Corporation,
the Committee, may grant awards of units ("Units Granted") for each
year, in such amounts and to such of the eligible members of senior
management employed by such Participating Company as such body may
determine in its sole discretion (the "Participants"), subject, in
the case of grants by bodies other than the Committee, to the
concurrence of the Committee.

(b) AWARD PERFORMANCE PERIOD. Except as otherwise provided herein,
Units Granted shall become distributable to Participants in
accordance with Section 5 only after the end of a period of two or
more years, beginning with the year in which the awards are granted
(unless the granting body specifies that the applicable period will
commence in a later year ) (the "Performance Period"). The
Performance Period shall be set by the Committee for each year's
awards of Units Granted by all Participating Companies.

DEF 14A 119th Page of 156 TOC 1st Previous Next ↓Bottom Just 119th
(c) INTERIM AWARDS. The Committee, if it determines in its sole
discretion that it is necessary or advisable under the
circumstances, may adopt rules pursuant to which members of senior
management by virtue of hire, promotion or upgrade, or transfer
from another company in which the Corporation has or had a direct
or indirect ownership interest, or by virtue of special individual
circumstances, may be granted units in respect of one or more
Performance Periods that began in prior years and at the time of
the grant have not yet been completed.

(d) LIMITATION ON AGGREGATE UNITS GRANTED. The aggregate number of
Units Granted to all Participants in any year shall not exceed 0.5%
of the total number of Shares outstanding at the time the award is
granted under (a) or (c) above.

(e) NO SHAREOWNER RIGHTS. Units Granted shall not entitle a
Participant to any rights as a shareowner of the Corporation.

SECTION 4. UNITS EARNED.

(a) DETERMINATION OF UNITS EARNED AND CRITERIA. The number of the
Units Granted that will be distributed to a Participant at the end
of a Performance Period ("Units Earned") shall vary from 0 to 200
percent of the Units Granted to such Participant, determined as
soon as practicable after each Performance Period based upon the
level of achievement during the Performance Period of the following
criteria:

A. Financial performance of the Company and its consolidated
subsidiaries, based on criteria set by the Committee, or, if no
other criteria is set, then on the consolidated results of the
Corporation and its consolidated subsidiaries (prepared on the
same basis as the financial statements published for financial
reporting purposes and adjusted in accordance with Section 8);
provided that the Committee, if it determines in its sole
discretion that it is necessary or advisable under the
circumstances, may determine that the determination of Units
Earned for eligible members of senior management employed by
one or more of the Participating Companies shall be based on
financial performance criteria of one or more Participating
Companies, either in combination with or in lieu of measures
for the Corporation and its consolidated subsidiaries as a
whole.

B. Other predetermined performance criteria as determined by the
Committee, which may include individual performance criteria,
and which may differ as between Participants.

The Committee may establish threshold criteria which must be achieved for a
Performance Period in order for Units Granted to be determined to be Units
Earned. The performance levels achieved for each Performance Period and
percentage of Units to be distributed shall be conclusively determined by
the Committee. (1)

DEF 14A 120th Page of 156 TOC 1st Previous Next ↓Bottom Just 120th
(b) LIMITATION ON AGGREGATE UNITS EARNED. Notwithstanding the
foregoing,in no event may the Units Earned that become
distributable at the end of a single Performance Period (or at the
end of two or more Performance Periods related to Units Granted
made in a single year) exceed 0.5% of the total number of Shares
outstanding at the time such Units Earned become distributable.

(c) CANCELLATION OF UNEARNED UNITS GRANTED. The Units Granted under
Section 3 that are not subsequently determined under this Section 4
to be Units Earned shall be canceled.

(d) SPECIAL RULE FOR DETERMINATION OF UNITS EARNED FOR CERTAIN
PARTICIPANTS. Notwithstanding (a) above, the following provisions
shall apply to any Participant who, as of the end of a Performance
Period, is a "covered employee" within the meaning of section
162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"):

A. The aggregate cash value of Units Earned determined for all
such Participants shall be the sum of 0.4% of "Cash from
Operating Activities" (as publicly disclosed in the
Corporation's consolidated financial statements) for each year
included in the Performance Period, divided by the number of
years in such Performance Period.

B. The aggregate cash value of Units Earned determined under A
above shall be allocated among all such Participants pro-rata
based on each such Participant's base salary at the beginning
of the Performance Period.

C. Those members of the Committee who are outside directors'
(within the meaning of section 162(m) of the Code) shall have
discretion to reduce Units Earned determined for each such
Participant based on the criteria set forth in (a) above or any
other criteria such Committee members deem appropriate.

SECTION 5. DISTRIBUTION RULES.

(a) As soon as practicable after determination of the number of Units
Earned, such Units Earned shall be distributed in the form of an
equal number of the Corporation's common shares ("Shares"), cash
equal in value to such Shares, or a combination of Shares and
cash, as determined by the Committee. For the purpose of
distribution of Units Earned in cash, the value of a Unit shall be
determined based on an appropriate measurement of fair market
value selected by the Committee.

(b) Notwithstanding subsection (a), the Committee may direct that an
estimate of less than the total Units Earned (calculated in such a
manner as to be reasonably certain that the estimate will not
exceed the finally determined Units Earned) may be distributed
immediately prior to the end of a Performance Period, with the
balance to be distributed at such time as the final determination
of the number of Units Earned is made.

DEF 14A 121st Page of 156 TOC 1st Previous Next ↓Bottom Just 121st
(c) In case of the death of a Participant prior to the end of any
Performance Period, whether before or after any event set forth in
(d) below, the number of Units Granted to the Participant for such
Performance Period shall be reduced pro rata based on the number
of months remaining in the Performance Period after the month of
death. The remaining Units Granted, adjusted in the discretion of
the Committee to the percentage indicated by the levels of
performance achieved prior to the date of death, if any, shall be
distributed within a reasonable time after death. All other Units
Granted to the Participant for such Performance Period shall be
canceled.

(d) Termination of employment or absence of a Participant prior to the
end of any Performance Period under circumstances entitling the
Participant to any of the following pensions or benefits shall not
affect Units Granted previously to such Participant under the
Plan:

(i) Service Pension or Disability Pension under the Pacific
Telesis Group Pension Plan for Salaried Employees,

(ii) Sickness or Accident Disability Benefits under the
Participating Company's Sickness and Accident Disability
Benefit Plan,

(iii) Minimum Retirement Benefit or Disability Allowance under
the Participating Company's senior management Long Term
Disability and Survivor Protection Plan, or

(iv) Pensions or benefits of a similar type substituted under
any such plan or a plan substituted for, or supplementing,
any such plan, as determined by the Committee.

(e) In case of any other termination of employment, or any leave of
absence of a Participant, prior to the end of any Performance
Period, unless concurrently reemployed with another Participating
Company, all Units Granted to the Participant with respect to any
such Performance Period shall be immediately forfeited and
canceled; provided, however, that in the event of concurrent
reemployment with a nonparticipating company in which the
Corporation has or had a direct or indirect ownership interest,
the Committee may determine that a continuation, proration or
early distribution of units previously awarded, or a combination
thereof, should be made.

(f) In the case of withdrawal from the Plan of the Participating
Company, the Committee, if it determines in its sole discretion
that it is necessary to advisable under the circumstances, may
authorize the proration or early distribution, or a combination
thereof, of Units Granted previously awarded at any time under the
Plan to Participants employed by such withdrawing Participating
Company.

DEF 14A 122nd Page of 156 TOC 1st Previous Next ↓Bottom Just 122nd
(g) All Units Granted to a Participant and such Participant's Units
Earned not previously distributed shall be forfeited and canceled
if the Participant is discharged by a Participating Company for
cause or the Committee determines that the Participant engaged in
misconduct in connection with the Participant s employment with
the Participating Company.

(h) All Units Granted to a Participant and not previously distributed
shall be forfeited and canceled in their entirety if the
Participant, without the consent of the Participating Company
obligated under Section 7 for the distribution of the Units Earned
and while employed by such Participating Company or after
termination of such employment and prior to distribution of all
such Units, becomes associated with, employed by or renders
services to, or owns an interest in, any business (other than as a
shareholder with a nonsubstantial interest in such business) that
is competitive with any Participating Company or with any business
with which the Corporation has a substantial direct or indirect
interest, as determined by the Committee. The foregoing sentence
shall not apply to Units Earned the distribution of which has
previously been deferred by the Participant in accordance with the
provisions of the Pacific Telesis Group Executive Deferral Plan.
The provisions of this subsection (h) shall be effective with
respect to each Participant to the extent not prohibited by
applicable law.

(i) Not withstanding any other provision of the Plan, the Committee
(1) may reduce or eliminate Units Granted to a Participant who has
been demoted, and (2) where circumstances warrant, may permit
continued participation, proration or early distribution, or a
combination thereof, of Units Granted which would otherwise be
canceled.

SECTION 6. DIVIDEND EQUIVALENTS. A cash payment in an amount equal to the
dividend payable on one Share will be made to each Participant for each Unit
which, on the record date for the dividend, had been awarded to the
Participant and not distributed or canceled.

SECTION 7. PAYMENTS AND DISTRIBUTIONS BY PARTICIPATING COMPANIES. All
payments and distributions to a Participant under the Plan, including
dividend equivalent payments under Section 6, shall be the obligation of the
Participating Company employing the Participant during the applicable
Performance Period. In case of transfers of Participants among
Participating Companies, dividend equivalents shall be paid by the
Participating Company that at the time of payment employs or last employed
the Participant and the distribution of Units shall be paid by the
Participating Company that at the end of the Performance Period employs or
last employed the Participant; provided that the Committee, if it determines
in its sole discretion that it is necessary or advisable under the
circumstances, may provide for payment of dividend equivalents and
distributable Units Earned by the respective Participating Companies based
on relative periods of employment of the Participants by such companies.

DEF 14A 123rd Page of 156 TOC 1st Previous Next ↓Bottom Just 123rd
SECTION 8. ADJUSTMENTS.

(a) In the event of any stock dividend or split, recapitalization,
merger, consolidation, combination or exchange of shares,
distribution to shareholders, spin-off to shareholders,
significant disposition of assets or other similar corporate
change, the Committee shall be authorized to make such
adjustments, if any, that it deems appropriate in (1) the number
or kind of Units Granted then held in the Participants accounts,
(2) the kind of Units which may thereafter be granted, and (3) the
performance levels established under Section 4 for any Performance
Period not then completed. Any and all such adjustments shall be
conclusive and binding upon all parties concerned.

(b) If an extraordinary change occurs during a Performance Period
which significantly alters the basis upon which the performance
levels were established under Section 4 for that Period, to avoid
distortion in the operation of the Plan the Committee may make
adjustments whether before or after the end of the Performance
Period to the extent it deems appropriate in its sole discretion,
which shall be conclusive and binding upon all parties concerned,
in such performance levels to reflect such change in order to
preserve the incentive features of the Plan. Such changes may
include, without limitation, adoption of or changes in accounting
practices, tax, regulatory or other laws or regulations; economic
changes not in the ordinary course of business cycles; or
compliance with judicial decrees or other legal authorities.

(c) Transfer by a Participant from one Participating Company to
another Participating Company shall not affect Units Granted
previously awarded under the Plan or the related Performance
Periods and performance levels, except that for transfers to or
from nonconsolidated companies not wholly owned by the Corporation
(or to or from companies or entities whose performance categories
are determined other than by the measures used for the Corporation
and the other Participating Companies as a whole), the number of
Units may be adjusted by the Committee, in accordance with any
rules adopted by the Committee, to reflect the different
performance levels and relative time spent with each Participating
Company.

(d) Notwithstanding any other provision of the Plan, the Committee
shall have discretion to determine that no dividend equivalent
payments shall be made and no distributions of Units Earned shall
be made or deferred (other than Units Earned previously deferred
in accordance with the Pacific Telesis Group Executive Deferral
Plan) if at the time payment or distribution would otherwise have
been made:

(i) There exists any default in payment of dividends on any
outstanding common or preferred shares of the Corporation, or

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(ii) The estimated consolidated net income of the Corporation,
excluding extraordinary charges, for the twelve-month period
preceding the month the payment or distribution would
otherwise have been made is less than the sum of (1) the
amount of the payments and awards eligible for distribution
under the Plan and the amount of the awards to be made under
the Pacific Telesis Group Short Term Incentive Plan or any
similar plan of any other Participating Company (the "Short
Term Plans") in that month and (2) all dividends applicable to
such period on an accrual basis, either paid, declared or
accrued at the most recently paid rate, on all outstanding
preferred and common shares of the Corporation.

In the event net income available under clause (ii) above for payments and
awards eligible for distribution under the Plan and for awards under the
Short Term Plans is sufficient to cover part but not all of such amounts,
the following order shall be applied pro rata within each category:

(i) dividend equivalent payments,

(ii) Units Earned eligible for distribution under the Plan,

(iii) awards under the Short Term Plans.

SECTION 9. OTHER CONDITIONS.

(a) No person shall have any claim to be granted an award under the
Plan and there is no obligation for uniformity of treatment of
eligible employees or Participants under the Plan. Awards under
the Plan may not be assigned or alienated.

(b) Neither the Plan nor any action taken hereunder shall be construed
as giving to any employee the right to be retained in the employ
of any Participating Company.

(c) A Participating Company shall have the right to deduct from any
distribution or payment in cash under the Plan, and the
Participant or other person receiving Shares under the Plan shall
be required to pay to the Participating Company, any federal,
state or local taxes required by law to be withheld with respect
to such distribution or payment.

(d) Any distribution of Shares may be delayed until the requirements
of any applicable laws or regulations or any stock exchange
requirements are satisfied. The Shares distributed under the Plan
shall be subject to such restrictions and conditions on
disposition as counsel for the Corporation shall determine to be
desirable or necessary under applicable law.

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SECTION 10. DESIGNATION OF BENEFICIARIES. A Participant may designate a
beneficiary or beneficiaries to receive all or part of the amounts to be
distributed to the Participant under the Plan in case of death. A
designation of beneficiary may be replaced by a new designation or may be
revoked by the Participant at any time. A designation or revocation shall
be on a form to be provided for the purpose and shall be signed by the
Participant and delivered to the employing Participating Company prior to
the Participant's death. In case of the Participant's death, the amounts to
be distributed to the Participant under the Plan with respect to which
designation of beneficiary has been made (to the extent it is valid and
enforceable under applicable law) shall be distributed in accordance with
the Plan to the designated beneficiary or beneficiaries. The amount
distributable to a Participant upon death and not subject to such a
designation shall be distributed to the Participant's estate. If there
shall be any question as to the legal right of any beneficiary to receive a
distribution under the Plan, the amount in question may be paid to the
estate of the Participant, in which event the Participating Companies shall
have no further liability to anyone with respect to such amount.

SECTION 11. PLAN ADMINISTRATION.

(a) The Committee shall have full power to administer and interpret
the Plan and to establish rules for its administration. The
Committee in making any determinations under the Plan shall be
entitled to rely on opinions, reports or statements of officers or
employees of the Corporation and any other Participating Company
and of counsel, public accountants and other professional or
expert persons.

(b) The selection of Participants who are directors or officers of the
Corporation, the granting of awards to such persons, the
determination of the form of the distribution of such awards and
all other determinations or actions required or permitted to be
made by the Committee may be made by such Committee, provided that
the Committee is composed solely of three or more directors who
are "disinterested persons" as defined in Rule 16b-3 of the
Securities and Exchange Act of 1934, or by the Board, provided
that a majority of the Board and a majority of the directors
acting in the matter are such disinterested persons.

SECTION 12. CLAIMS AND APPEALS. Any claim under the Plan by a Participant
or anyone claiming through a Participant shall be presented to the
Committee. Any person whose claim under the Plan has been denied may,
within sixty (60) days after receipt of notice of denial, submit to the
Board a written request for review of the decision denying the claim. The
Board or the Committee shall determine conclusively for all parties all
questions arising in the administration of the Plan.

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SECTION 13. MODIFICATION OR TERMINATION OF PLAN. The Board may modify or
terminate the Plan and any Participating Company may withdraw from the Plan,
at any time, provided that (1) except as provided in Section 8, no
modification shall adversely affect the rights of Participants without their
written consent with respect to Units Granted previously awarded under the
Plan and, upon termination or withdrawal, the Plan shall continue to apply
with respect to Units Granted previously awarded and (2) without the
approval of the holders of the Corporation's common shares, no modification
shall materially increase the benefits accruing to Participants under the
Plan, materially increase the number of Shares which may be issued under the
Plan or materially modify the requirements for eligibility for participation
in the Plan. Any modification or termination of the Plan shall be effective
at such date as the Board may determine.

The Executive Vice President-Human Resources of the Corporation (or any
successor to that officer's responsibilities) with the approval of the
Executive Vice President and General Counsel of the Corporation (or any
successor to that officer's responsibilities) shall be authorized to make
minor or administrative changes to the Plan or changes required by or made
desirable by government regulations. A modification may affect Participants
in the Plan at the time as well as future Participants. Notwithstanding any
other provision in the Plan, the Committee, if it determines in its sole
discretion that it is necessary to advisable under the circumstances, may
authorize the proration or early distribution, or a combination thereof, of
Units Granted previously awarded at any time under the Plan to any
Participant in the case of termination of the Plan.

SECTION 14. DEFINITIONS.

The following words shall have the following meanings:

"Board" or "Board of Directors" means the Board of Directors of Pacific
Telesis Group.

"Committee" means the Compensation and Personnel Committee of the Board of
Directors, or such other committee as the Board may form for purposes of
administration of this Plan.

"Participating Company" means an affiliate of the Corporation whose
employees have been determined by the Board to be eligible to participate in
the Plan and which has by its board of directors or other governing body
determined to participate in the Plan. For purposes of the foregoing,
"affiliate" means a subsidiary or other entity that controls, is controlled
by, or is under common control with Pacific Telesis Group. As used herein,
"control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such entity,
whether through ownership of voting securities or other interests, by
contract or otherwise.

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PACIFIC TELESIS GROUP
SHORT TERM INCENTIVE PLAN
(Restated effective as of January 1, 1995)

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TABLE OF CONTENTS

PAGE
----

SECTION 1. PURPOSE...................................................... 1

SECTION 2. AWARDS....................................................... 1

SECTION 3. AWARDS FOR CERTAIN EMPLOYEES................................. 2

SECTION 4. ADJUSTMENTS.................................................. 2

SECTION 5. ELIGIBILITY.................................................. 3

SECTION 6. OTHER CONDITIONS............................................. 4

SECTION 7. DESIGNATION OF BENEFICIARIES................................. 5

SECTION 8. PLAN ADMINISTRATION.......................................... 5

SECTION 9. MODIFICATION OR TERMINATION OF PLAN.......................... 6

SECTION 10. DEFINITIONS.................................................. 6

(i)

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PACIFIC TELESIS GROUP
SHORT TERM INCENTIVE PLAN
(Restated effective as of January 1, 1995)

SECTION 1. PURPOSE. The purpose of the Pacific Telesis Group Short Term
Incentive Plan (the "Plan") is to provide management employees of Pacific
Telesis Group (the "Company") and such of its Affiliates that participate in
the Plan, with incentive compensation based upon the achievement of
financial and service performance levels and management effectiveness for
the Company and its Affiliates.

SECTION 2. AWARDS. The Committee may make incentive compensation awards
under this Plan with respect to services performed in the preceding year
("Performance Year"), in such amounts and to such of the eligible employees
as it may determine in its sole discretion subject to the limitations of the
Plan. Awards shall be paid in cash in the calendar year the awards are
made, except to the extent that an eligible employee has made an election to
defer the receipt of such award pursuant to the Pacific Telesis Group
Executive Deferral Plan, the Pacific Telesis Group Non-Qualified Savings
Plan, or any other similar plan that permits an employee eligible for an
award under this Plan to defer the receipt of such award. The Committee
shall approve a standard award level ("Standard Award") for each position
rate of management eligible for awards under the Plan for each calendar year
it intends to designate as a Performance Year for purposes of this Plan.
The awards granted under this Plan shall equal a percentage of the Standard
Awards for any Performance Year, varying from 0 percent to 200 percent,
determined based upon the levels of achievement during such Performance Year
of the criteria referred to in A through C below. The percentage of the
applicable Standard Awards referred to in the preceding sentence shall serve
as a guideline in making awards under the Plan, which awards, in the case of
each individual eligible employee, may be more or less (including no award)
than such percentage of the Standard Award depending upon individual merit
but in no event may exceed 250 percent of the applicable Standard Award.

The percentage of the Standard Awards referred to above shall be based upon
the level of achievement during the Performance Year with regard to:

A. Financial performance criteria determined by the Committee, of the
Company and its consolidated subsidiaries (prepared on the same
basis as the financial statements published for financial
reporting purposes) for employees of the Company, and similar
financial performance criteria of an Affiliate for employees of an
Affiliate not directly employed by the Company.

B. Other pre-determined performance criteria as determined by
the Committee, which may include individual performance
criteria, and which may differ as between eligible employees.

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C. Management effectiveness of the Company and its consolidated
subsidiaries, provided, that for employees of an Affiliate
not directly employed by the Company, the management
effectiveness level of such Affiliate shall apply.

The level of financial and other performance and management
effectiveness achieved for each Performance Year shall be
conclusively determined by the Committee.

SECTION 3. AWARDS FOR CERTAIN EMPLOYEES. Notwithstanding any other
provision of the Plan to the contrary, the following provisions shall apply
to any eligible employee who, as of the end of a Performance Year, is a
"covered employee" within the meaning of section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"):

(a) The aggregate awards payable to all such employees shall be the
sum of 0.4% of "Cash from Operating Activities" (as publicly
disclosed in the Corporation's consolidated financial statements
for the Performance Year) for the Performance Year.

(b) The aggregate determined under (a) above shall be allocated among
all such employees pro-rata based on each such employee's base
salary at the beginning of the Performance Year.

(c) Those Committee members who are "outside directors" (within the
meaning of section 162(m) of the Code) shall have discretion to
reduce the award for any such employee based on the criteria set
forth in Section 2 above or any other criteria such Committee
members deem appropriate.

SECTION 4. ADJUSTMENTS.

(a) In order to assure the incentive features of the Plan and to avoid
distortion in the operation of the Plan, the Committee may make
adjustments in the criteria established for any Performance Year
under Section 2 whether before or after the end of the Performance
Year to the extent it deems appropriate in its sole discretion,
which shall be conclusive and binding upon all parties concerned,
to compensate for or reflect any extraordinary changes which may
have occurred during the Performance Year which significantly
alter the basis upon which such performance levels were
determined. Such changes may include without limitation changes
in accounting practices, tax, regulatory or other laws or
regulations, or economic changes not in the ordinary course of
business cycles.

(b) In the event of any change in outstanding shares of the Company by
reason of any stock dividend or split, recapitalization, spinoff,
merger, consolidation, combination or exchange of shares or other
similar corporate change, the Committee shall make such
adjustments, if any, that it deems appropriate in the performance
levels established under Section 2 for any Performance Year not
then completed; any and all such adjustments to be conclusive and
binding upon all parties concerned.

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(c) Notwithstanding any other provision of the Plan, the Committee
shall have discretion to determine that no awards will be made if
at the time payment would have been made:

(i) there exists any default in payment of dividends on any
outstanding company common or preferred shares, or

(ii) the estimated consolidated net income of the Company,
excluding extraordinary charges, for the twelve-month period
preceding the month the awards would otherwise have been made
is less than the sum of (1) the amount of the awards to be
made under the Plan and the amount of payments and awards
eligible for distribution under the Pacific Telesis Group
Long Term Incentive Plan (the "Long Term Plan") in that month
and (2) all dividends applicable to such period on an accrual
basis, either paid, declared or accrued at the most recently
paid rate, on all outstanding Company preferred and common
shares.

In the event the net income under clause (ii) above available for awards
under the Plan and for payments and awards eligible for distribution under
the Long Term Plan is sufficient to cover part but not all of such amounts,
the Committee shall have discretion to determine that payment of awards
under the Long Term Plan and this Plan shall be made in the following order,
pro-rata within each category:

(i) dividend equivalent payments under the Long Term Plan,

(ii) Units eligible for distribution under the Long Term Plan,

(iii) awards under the Plan.

SECTION 5. ELIGIBILITY.

(a) Persons employed by the Company or a Participating Affiliate
during a Performance Year in active service in a salaried position
determined by the Committee to be in the manager compensation
group are eligible for awards under the Plan for such Performance
Year (whether or not so employed or living at the date an award is
granted); provided that the employee had at least three months of
active service during the Performance Year at such level with the
Company and/or any Participating Affiliate (excluding any time the
employee was absent on account of disability and receiving any
Sickness or Accident Disability Benefits under the Pacific Telesis
Group Sickness and Accident Disability Benefit Plan or similar
benefit plan sponsored by an Affiliate ("Disability Benefits")).
An employee is not rendered ineligible by reason of being a member
of the Board.

DEF 14A 132nd Page of 156 TOC 1st Previous Next ↓Bottom Just 132nd
(b) The Standard Award applicable to an employee otherwise eligible
for awards under the Plan for a Performance Year shall be prorated
over the Performance Year or the employee shall be ineligible for
an award, as follows:

------------------------------------------------------------------
(1) entrance to or exit from a | prorate from date of
level of management eligible | or exit to the nearest
for awards after the | half month
beginning of the Performance |
Year |
------------------------------------------------------------------
(2) changes in position date | prorate according to
| time of active service
| at each position rate
| to the nearest half
| month
------------------------------------------------------------------
(3) receipt of Disability Benefits | prorate to the day based
for more than three months in | on time of service while
a Performance Year under any | not receiving Disability
Company or Affiliate plan | Benefits
------------------------------------------------------------------
(4) receipt of Disability | no reduction in
Benefits for three months | applicable Standard
or less in a Performance | Award
Year under any Company |
or Affiliate plan |
------------------------------------------------------------------
(5) retirement or resignation | prorate to date of
(including resignation upon | retirement or resignation
transfer to another Affiliate) |
------------------------------------------------------------------
(6) leave of absence | prorate to date leave
| commences unless
| otherwise provided by
| the Committee
------------------------------------------------------------------
(7) death during a Performance Year | prorate to date of death
------------------------------------------------------------------
(8) dismissal during or after a | no award
Performance Year by the |
Company or any Affiliate |
------------------------------------------------------------------

SECTION 6. OTHER CONDITIONS.

(a) No person shall have any claim to be granted an award under the
Plan and there is no obligation for uniformity of treatment of
eligible employees under the Plan. Awards under the Plan may not
be assigned or alienated.

(b) Neither the Plan nor any action taken hereunder shall be construed
as giving to any employee the right to be retained in the employ
of the Company or any of its subsidiaries.

DEF 14A 133rd Page of 156 TOC 1st Previous Next ↓Bottom Just 133rd
(c) The Company shall have the right to deduct from any award to be
paid under the Plan any federal, state or local taxes required by
law to be withheld with respect to such payment.

(e) Unless otherwise provided by the Board, awards to Officers under
the Plan shall be excluded in determining benefits under any
pension, retirement, disability, death, savings or other benefit
plan of the Company except where required by law.

SECTION 7. DESIGNATION OF BENEFICIARIES. An eligible employee may
designate a beneficiary or beneficiaries to receive all or part of the
awards which may be payable to such employee under the Plan in case of
death. A designation of beneficiary may be replaced by a new designation or
may be revoked by an employee at any time. A designation or revocation
shall be on a form to be provided for the purpose and shall be signed by the
employee and delivered to the Company prior to the employee's death in
accordance with procedures established by the Committee. In case of the
employee s death, the amounts to be distributed to the employee under the
Plan with respect to which designation of beneficiary has been made (to the
extent it is valid and enforceable under applicable law) shall be
distributed in accordance with the Plan to the designated beneficiary or
beneficiaries. The amount distributable to an employee under the Plan upon
death and not subject to such a designation shall be distributed to the
employee s estate. If there shall be any question as to the legal right of
any beneficiary to receive an award under the Plan, the amount in question
may be paid to the estate of the employee, in which event the Company shall
have no further liability to anyone with respect to such amount.

SECTION 8. PLAN ADMINISTRATION.

(a) The Committee shall have full power to administer and interpret
the Plan and to establish rules for its administration. The
Committee in making any determinations under or referred to in the
Plan shall be entitled to rely on opinions, reports or statements
of officers or employees of the Company and its Affiliates and of
counsel, public accountants and other professional or expert
persons.

(b) Awards payable under the Plan shall be paid by the employee's
employer. For employees transferred between the Company and/or
one or more of its Affiliates during a Performance Year, the
employee's last employing employer during the Performance Year
shall determine and pay the short term award, if any, for that
Performance Year.

DEF 14A 134th Page of 156 TOC 1st Previous Next ↓Bottom Just 134th
The Executive Vice President-Human Resources of the Corporation (or any
successor to that officer's responsibilities) with the approval of the
Executive Vice President and General Counsel of the Corporation (or any
successor to that officer s responsibilities) shall be authorized to make
minor or administrative changes to the Plan or changes required by or made
desirable by government regulations. A modification may affect Participants
in the Plan at the time as well as future Participants. Notwithstanding any
other provision in the Plan, the Committee, if it determines in its sole
discretion that it is necessary to advisable under the circumstances, may
authorize the proration or early distribution, or a combination thereof, of
awards previously made at any time under the Plan to any Participant in the
case of termination of the Plan.

SECTION 9. MODIFICATION OR TERMINATION OF PLAN. The Board may modify or
terminate the Plan at anytime to be effective at such date as the Board may
determine. A modification may affect present and future eligible employees.

SECTION 10. DEFINITIONS. The following words shall have the following
meanings:

"Affiliates" means subsidiaries of or other entities that control, are
controlled by, or are under common control with Pacific Telesis Group. As
used herein, "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of
such entity, whether through ownership of voting securities or other
interests, by contract or otherwise.

"Performance Year" means the calendar year with respect to which a short
term incentive award is made under this Plan for services performed in such
year, and shall normally mean the calendar year preceding the year such
award shall be payable under the Plan.

"Board" or "Board of Directors" means the Board of Directors of Pacific
Telesis Group.

"Committee" means the Compensation and Personnel Committee of the Board of
Directors of the Company, or such other committee as the Board may form for
purposes of administration of this Plan.

"Company" means Pacific Telesis Group.

"Officer" means an officer of the Company or an Affiliate, as determined by
the Committee, but the term shall not include Assistant Secretary, Assistant
Treasurer, Assistant Comptroller or any other assistant officer.

"Participating Affiliate" means an Affiliate of the Company whose employees
have been determined by the Board to be eligible to participate in the Plan
and which has by its board of directors or other governing body determined
to participate in the Plan.

"Standard Award" means an approved award level for each position rate of
management eligible for awards under the Plan for a Performance Year.

DEF 14A 135th Page of 156 TOC 1st Previous Next ↓Bottom Just 135th
AMENDMENTS TO 1994 STOCK INCENTIVE PLAN

RESOLVED that this corporation hereby amends Section 4.2(e) of the Pacific
Telesis Group 1994 Stock Incentive Plan ("the 1994 Stock Plan"), subject to
the approval of the shareowners of the corporation, to read as follows:

(e) All NSOs granted to an Outside Director under this Section
4.2 shall terminate on the earliest of (i) the 10th anniversary of
the date of grant, (ii) the date three months after the
termination of such Outside Director's service for any reason
other than death, total and permanent disability or Retirement,
(iii) the date 12 months after the termination of such Outside
Director's service because of death, (iv) the date 36 months after
the termination of such Outside Director's service because of
total and permanent disability, or (v) the date 60 months after
termination of such Outside Director's service because of
Retirement.

and be it

FURTHER RESOLVED that, subject to the approval of the shareowners of the
corporation, the above amendment to Section 4.2 of the 1994 Stock Plan
shall be effective to apply to nonstatutory stock options granted as of
April 29, 1994; and be it

FURTHER RESOLVED that each Nonemployee Director Nonstatutory Stock Option
Agreement between the corporation and a nonemployee member of the Board
of Directors dated April 29, 1994 is modified, subject to the approval
of the shareowners of the corporation and subject to the consent of the
director affected by such modification, to provide as follows:

Retirement Status: If your service as a director of Pacific
Telesis Group ("PTG") terminates after you have served as a
director for three or more years, then your option will expire at
the close of business at PTG headquarters on the date 60 months
after the date your service terminates.

and be it

FURTHER RESOLVED that, at the Annual Meeting of the Shareowners of this
corporation to be held on May 3, 1995, this amendment to the 1994 Stock
Plan be submitted for approval by a vote of the shareowners through the
recommendation to the shareowners of the following resolution:

"RESOLVED that the amendment by the Board of Directors of
Section 4.2 of the Pacific Telesis Group 1994 Stock Incentive Plan
effective April 29, 1994, and the conforming modification of the
Nonemployee Director Nonstatutory Stock Option Agreement for each
nonemployee director granted options on April 29, 1994 pursuant to
Section 4.2, is hereby approved, ratified and confirmed.

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and be it

FURTHER RESOLVED that the officers of this corporation, and any one of them,
are authorized in the name of and on behalf of this corporation, to do
or cause to be done any and all other acts and things, and to execute
and deliver any and all other documents, that they deem necessary or
appropriate to carry out the purposes of the preceding resolutions.

Board of Directors
Pacific Telesis Group
January 27, 1995

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PACIFIC TELESIS GROUP

1994 STOCK INCENTIVE PLAN

DEF 14A 138th Page of 156 TOC 1st Previous Next ↓Bottom Just 138th
TABLE OF CONTENTS

PAGE
----

ARTICLE 1. INTRODUCTION................................................ 1

ARTICLE 2. ADMINISTRATION.............................................. 1
2.1 COMMITTEE COMPOSITION...................................... 1
2.2 COMMITTEE RESPONSIBILITIES................................. 1

ARTICLE 3. SHARES AVAILABLE FOR GRANTS.................................. 1
3.1 BASIC LIMITATION........................................... 1
3.2 ADDITIONAL SHARES.......................................... 2
3.3 DIVIDEND EQUIVALENTS....................................... 2

ARTICLE 4. ELIGIBILITY................................................. 2
4.1 GENERAL RULES ............................................ 2
4.2 OUTSIDE DIRECTORS......................................... 2
4.3 INCENTIVE STOCK OPTIONS................................... 4

ARTICLE 5. OPTIONS..................................................... 4
5.1 STOCK OPTION AGREEMENT.................................... 4
5.2 NUMBER OF SHARES.......................................... 4
5.3 EXERCISE PRICE............................................ 4
5.4 EXERCISABILITY AND TERM................................... 4
5.5 EFFECT OF CHANGE IN CONTROL............................... 5
5.6 MODIFICATION OR ASSUMPTION OF OPTIONS..................... 5

ARTICLE 6. PAYMENT FOR OPTION SHARES................................... 5
6.1 GENERAL RULE.............................................. 5
6.2 SURRENDER OF STOCK........................................ 5
6.3 EXERCISE/SALE............................................. 5
6.4 EXERCISE/PLEDGE........................................... 5
6.5 PROMISSORY NOTE........................................... 6
6.6 OTHER FORMS OF PAYMENT.................................... 6

ARTICLE 7. STOCK APPRECIATION RIGHTS................................... 6
7.1 SAR AGREEMENT............................................. 6
7.2 NUMBER OF SHARES.......................................... 6
7.3 EXERCISE PRICE............................................ 6
7.4 EXERCISABILITY AND TERM................................... 6
7.5 EFFECT OF CHANGE IN CONTROL............................... 6
7.6 EXERCISE OF SARs.......................................... 7
7.7 MODIFICATION OR ASSUMPTION OF SARs........................ 7

ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS........................... 7
8.1 TIME, AMOUNT AND FORM OF AWARDS........................... 7
8.2 PAYMENT FOR AWARDS........................................ 7
8.3 VESTING CONDITIONS........................................ 7
8.4 FORM AND TIME OF SETTLEMENT OF STOCK UNITS................ 8
8.5 DEATH OF RECIPIENT........................................ 8
8.6 CREDITORS' RIGHTS......................................... 8

ARTICLE 9. VOTING AND DIVIDEND RIGHTS................................ 8
9.1 RESTRICTED SHARES......................................... 8
9.2 STOCK UNITS............................................... 9

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TABLE OF CONTENTS
PAGE
----

ARTICLE 10. PROTECTION AGAINST DILUTION.............................. 9
10.1 ADJUSTMENTS............................................. 9
10.2 REORGANIZATIONS......................................... 9

ARTICLE 11. AWARDS UNDER OTHER PLANS................................. 9

ARTICLE 12. PAYMENT OF DIRECTOR'S FEES IN SECURITIES................. 10
12.1 EFFECTIVE DATE.......................................... 10
12.2 ELECTIONS TO RECEIVE NSOs OR STOCK UNITS................ 10
12.3 NUMBER AND TERMS OF NSOs................................ 10
12.4 NUMBER AND TERMS OF STOCK UNITS......................... 10

ARTICLE 13. LIMITATION ON RIGHTS..................................... 10
13.1 RETENTION RIGHTS........................................ 10
13.2 SHAREHOLDERS' RIGHTS.................................... 10
13.3 REGULATORY REQUIREMENTS................................. 11

ARTICLE 14. LIMITATION ON PAYMENTS................................... 11
14.1 BASIC RULE.............................................. 11
14.2 REDUCTION OF PAYMENTS................................... 11
14.3 OVERPAYMENTS AND UNDERPAYMENTS.......................... 12
14.4 RELATED CORPORATIONS.................................... 12

ARTICLE 15. WITHHOLDING TAXES........................................ 12
15.1 GENERAL................................................. 12
15.2 SHARE WITHHOLDING....................................... 12

ARTICLE 16. ASSIGNMENT OR TRANSFER OF AWARDS......................... 13
16.1 GENERAL................................................. 13
16.2 TRUSTS.................................................. 13

ARTICLE 17. FUTURE OF THE PLAN....................................... 13
17.1 TERM OF THE PLAN........................................ 13
17.2 AMENDMENT OR TERMINATION................................ 13

ARTICLE 18. DEFINITIONS.............................................. 13

ARTICLE 19. EXECUTION................................................ 17

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PACIFIC TELESIS GROUP

1994 STOCK INCENTIVE PLAN

ARTICLE 1. INTRODUCTION. The purpose of the Plan is to promote the long-
term success of the Company and the creation of shareowner value by
(a) encouraging Key Employees to focus on critical long-range objectives,
(b) encouraging the attraction and retention of Key Employees with
exceptional qualifications and (c) linking Key Employees directly to
shareowner interests through increased stock ownership. The Plan seeks to
achieve this purpose by providing for Awards in the form of Restricted
Shares, Stock Units, Options (which may constitute incentive stock options
or nonstatutory stock options) or stock appreciation rights.

The Plan shall be governed by, and construed in accordance with, the laws of
the State of California (except their choice-of-law provisions).

ARTICLE 2. ADMINISTRATION.

2.1 COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist of two or more disinterested
directors of the Company, who shall be appointed by the Board. A
member of the Board shall be deemed to be "disinterested" only if he or
she satisfies such requirements as the Securities and Exchange
Commission may establish for disinterested administrators acting under
plans intended to qualify for exemption under Rule 16b-3 (or its
successor) under the Exchange Act. An Outside Director shall not fail
to be "disinterested" solely because he or she receives the NSO grants
or the Restricted Share grants described in Section 4.2 or makes an
election under Article 12. The Board may also appoint one or more
separate committees of the Board, each composed of one or more
directors of the Company who need not be disinterested, who may
administer the Plan with respect to Key Employees who are not officers
or directors of the Company, may grant Awards under the Plan to such
Key Employees and may determine all terms of such Awards.

2.2 COMMITTEE RESPONSIBILITIES. The Committee shall (a) select the Key
Employees who are to receive Awards under the Plan, (b) determine the
type, number, vesting requirements and other features and conditions of
such Awards, (c) interpret the Plan and (d) make all other decisions
relating to the operation of the Plan. The Committee may adopt such
rules or guidelines as it deems appropriate to implement the Plan. The
Committee's determinations under the Plan shall be final and binding on
all persons.

ARTICLE 3. SHARES AVAILABLE FOR GRANTS.

3.1 BASIC LIMITATION. Common Shares issued pursuant to the Plan shall
be authorized but unissued shares or treasury shares. The aggregate
number of Restricted Shares, Stock Units, Options and SARs awarded
under the Plan shall not exceed 21,000,000. The limitation of this
Section 3.1 shall be subject to adjustment pursuant to Article 10.

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3.2 ADDITIONAL SHARES. If Stock Units, Options or SARs are forfeited
or if Options or SARs terminate for any other reason before being
exercised, then such Stock Units, Options or SARs shall again become
available for Awards under the Plan. If SARs are exercised, then only
the number of Common Shares (if any) actually issued in settlement of
such SARs shall reduce the number available under Section 3.1 and the
balance shall again become available for Awards under the Plan. If
Restricted Shares are forfeited before any dividends have been paid
with respect to such Restricted Shares, then such Restricted Shares
shall again become available for Awards under the Plan.

3.3 DIVIDEND EQUIVALENTS. Any dividend equivalents distributed under
the Plan shall not be applied against the number of Restricted Shares,
Stock Units, Options or SARs available for Awards, whether or not such
dividend equivalents are converted into Stock Units.

ARTICLE 4. ELIGIBILITY.

4.1 GENERAL RULES. Only Key Employees (including, without limitation,
independent contractors who are not members of the Board) shall be
eligible for designation as Participants by the Committee. Key
Employees who are Outside Directors shall only be eligible for the
grant of the NSOs and Restricted Shares described in Section 4.2 and
for making an election described in Article 12.

4.2 OUTSIDE DIRECTORS. Any other provision of the Plan
notwithstanding, the participation of Outside Directors in the Plan
shall be subject to the following restrictions:

(a) Outside Directors shall receive no Awards except as described in
this Section 4.2 and in Article 12.

(b) Upon the conclusion of each regular annual meeting of the
Company's shareowners, each Outside Director who will continue
serving as a member of the Board thereafter shall receive an NSO
covering 2,000 Common Shares if such meeting occurs after the
Distribution Date or 1,000 Common Shares if such meeting occurs
before the Distribution Date (subject to adjustment under Article
10). Such NSO shall become exercisable in full on the first
anniversary of the date of grant.

(c) All NSOs granted to an Outside Director under this Section 4.2
shall also become exercisable in full in the event of (i) the
termination of such Outside Director's service because of death or
total and permanent disability or (ii) a Change in Control with
respect to the Company.

(d) The Exercise Price under all NSOs granted to an Outside Director
under this Section 4.2 shall be equal to 100% of the Fair Market
Value of a Common Share on the date of grant, payable in one of
the forms described in Sections 6.1, 6.2, 6.3 and 6.4.

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(e) All NSOs granted to an Outside Director under this Section 4.2
shall terminate on the earliest of (i) the 10th anniversary of the
date of grant, (ii) the date three months after the termination of
such Outside Director's service for any reason other than death,
total and permanent disability or Retirement, (iii) the date 12
months after the termination of such Outside Director's service
because of death or (iv) the date 36 months after the termination
of such Outside Director's service because of total and permanent
disability or Retirement.

(f) Upon the conclusion of the annual meeting of the shareowners of
the Company to be held in 1994, each Outside Director who was
appointed or first elected to the Board on or after February 1,
1991, but before January 1, 1994, shall receive a grant of 400
Restricted Shares if such meeting occurs after the Distribution
Date or 250 Restricted Shares if such meeting occurs before the
Distribution Date (subject to adjustment under Article 10).
Restricted Shares granted in accordance with this Subsection (f)
shall be 100% vested on the date of grant.

(g) Upon the later to occur of the conclusion of the annual meeting of
the shareowners of the Company to be held in 1994 or his or her
appointment or first election to the Board, each Outside Director
who was appointed or first elected to the Board on or after
January 1, 1994, shall receive a grant of 400 Restricted Shares if
such event occurs after the Distribution Date or 250 Restricted
Shares if such event occurs before the Distribution Date (subject
to adjustment under Article 10). Restricted Shares granted in
accordance with this Subsection (g) shall be 100% vested on the
date of grant.

(h) Upon the conclusion of the first annual meeting of the Company's
shareowners after the calendar year in which the grant to an
Outside Director referred to in Subsection (g) above takes place,
such Outside Director shall receive an additional grant of 400
Restricted Shares if such meeting occurs after the Distribution
Date or 250 Restricted Shares if such meeting occurs before the
Distribution Date (subject to adjustment under Article 10).
Restricted Shares granted in accordance with this Subsection (h)
shall be 100% vested on the date of grant.

(i) Upon the conclusion of the second annual meeting of the Company's
shareowners after the calendar year in which the grant to on
Outside Director referred to in Subsection (g) above takes place,
such Outside Director shall receive a final grant of 400
Restricted Shares if such meeting occurs after the Distribution
Date or 250 Restricted Shares if such meeting occurs before the
Distribution Date (subject to adjustment under Article 10).
Restricted Shares granted in accordance with this Subsection (i)
shall be 100% vested on the date of grant.

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4.3 INCENTIVE STOCK OPTIONS. Only Key Employees who are common-law
employees of the Company, a Parent or a Subsidiary shall be eligible
for the grant of ISOs. In addition, a Key Employee who owns more than
10% of the total combined voting power of all classes of outstanding
stock of the Company or any of its Parents or Subsidiaries shall not be
eligible for the grant of an ISO unless the requirements set forth in
section 422(c)(6) of the Code are satisfied.

ARTICLE 5. OPTIONS.

5.1 STOCK OPTION AGREEMENT. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and
the Company. Such Option shall be subject to all applicable terms of
the Plan and may be subject to any other terms that are not
inconsistent with the Plan. The Stock Option Agreement shall specify
whether the Option is an ISO or an NSO. The provisions of the various
Stock Option Agreements entered into under the Plan need not be
identical. Options may be granted in consideration of a cash payment
or in consideration of a reduction in the Optionee's other
compensation. A Stock Option Agreement may provide that new Options
will be granted automatically to the Optionee when he or she exercises
the prior Options.

5.2 NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 10. Options
granted to any Optionee in a single calendar year shall in no event
cover more than 500,000 Common Shares, subject to adjustment in
accordance with Article 10.

5.3 EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price, provided that the Exercise Price under an ISO shall in
no event be less than 100% of the Fair Market Value of a Common Share
on the effective date of the grant (which may be later than the date
when the Committee resolves to make such grant). In the case of an
NSO, a Stock Option Agreement may specify an Exercise Price that varies
in accordance with a predetermined formula while the NSO is
outstanding.

5.4 EXERCISABILITY AND TERM. Each Stock Option Agreement shall
specify the date when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of
the Option; provided that the term of an ISO shall in no event exceed
10 years from the date of grant. A Stock Option Agreement may provide
for accelerated exercisability in the event of the Optionee's death,
disability or retirement or other events and may provide for expiration
prior to the end of its term in the event of the termination of the
Optionee's service. Options may be awarded in combination with SARs,
and such an Award may provide that the Options will not be exercisable
unless the related SARs are forfeited. NSOs may also be awarded in
combination with Restricted Shares or Stock Units, and such an Award
may provide that the NSOs will not be exercisable unless the related
Restricted Shares or Stock Units are forfeited.

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5.5 EFFECT OF CHANGE IN CONTROL. The Committee may determine, at the
time of granting an Option or thereafter, that such Option shall become
fully exercisable as to all Common Shares subject to such Option in the
event that a Change in Control occurs with respect to the Company. If
the Committee finds that there is a reasonable possibility that, within
the succeeding six months, a Change in Control will occur with respect
to the Company, then the Committee at its sole discretion may determine
that any or all outstanding Options shall become fully exercisable as
to all Common Shares subject to such Options.

5.6 MODIFICATION OR ASSUMPTION OF OPTIONS. Within the limitations of
the Plan, the Committee may modify, extend or assume outstanding
options or may accept the cancellation of outstanding options (whether
granted by the Company or by another issuer) in return for the grant of
new options for the same or a different number of shares and at the
same or a different exercise price. The foregoing notwithstanding, no
modification of an Option shall, without the consent of the Optionee,
alter or impair his or her rights or obligations under such Option.

ARTICLE 6. PAYMENT FOR OPTION SHARE.

6.1 GENERAL RULES. The entire Exercise Price of Common Shares issued
upon exercise of Options shall be payable in cash at the time when such
Common Shares are purchased, except as follows:

In the case of an ISO granted under the Plan, payment shall be
made only pursuant to the express provisions of the applicable
Stock Option Agreement. The Stock Option Agreement may specify
that payment may be made in any form(s) described in this Article
6.

In the case of an NSO, the Committee may at any time accept
payment in any form(s) described in this Article 6.

6.2 SURRENDER OF STOCK. To the extent that this Section 6.2 is
applicable, payment for all or any part of the Exercise Price may be
made with Common Shares which have already been owned by the Optionee
for more than six months. Such Common Shares shall be valued at their
Fair Market Value on the date when the new Common Shares are purchased
under the Plan.

6.3 EXERCISE/SALE. To the extent that this Section 6.3 is applicable,
payment may be made by the delivery (on a form prescribed by the
Company) of an irrevocable direction to a securities broker approved by
the Company to sell Common Shares and to deliver all or part of the
sales proceeds to the Company in payment of all or part of the Exercise
Price and any withholding taxes.

6.4 EXERCISE/PLEDGE. To the extent that this Section 6.4 is
applicable, payment may be made by the delivery (on a form prescribed
by the Company) of an irrevocable direction to pledge Common Shares to
a securities broker or lender approved by the Company, as security for
a loan, and to deliver all or part of the loan proceeds to the Company
in payment of all or part of the Exercise Price and any withholding
taxes.

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6.5 PROMISSORY NOTE. To the extent that this Section 6.5 is
applicable, payment for all or any part of the Exercise Price may be
made with a full-recourse promissory note.

6.6 OTHER FORMS OF PAYMENT. To the extent that this Section 6.6 is
applicable, payment may be made in any other form that is consistent
with applicable laws, regulations and rules.

ARTICLE 7. STOCK APPRECIATION RIGHTS.

7.1 SAR AGREEMENT. Each grant of an SAR under the Plan shall be
evidenced by an SAR Agreement between the Optionee and the Company.
Such SAR shall be subject to all applicable terms of the Plan and may
be subject to any other terms that are not inconsistent with the Plan.
The provisions of the various SAR Agreements entered into under the
Plan need not be identical. SARs may be granted in consideration of a
reduction in the Optionee's other compensation.

7.2 NUMBER OF SHARES. Each SAR Agreement shall specify the number of
Common Shares to which the SAR pertains and shall provide for the
adjustment of such number in accordance with Article 10. SARs granted
to any Optionee in a single calendar year shall in no event pertain to
more than 500,000 Common Shares, subject to adjustment in accordance
with Article 10.

7.3 EXERCISE PRICE. Each SAR Agreement shall specify the Exercise
Price. An SAR Agreement may specify an Exercise Price that varies in
accordance with a predetermined formula while the SAR is outstanding.

7.4 EXERCISABILITY AND TERM. Each SAR Agreement shall specify the
date when all or any installment of the SAR is to become exercisable.
The SAR Agreement shall also specify the term of the SAR. An SAR
Agreement may provide for accelerated exercisability in the event of
the Optionee's death, disability or retirement or other events and may
provide for expiration prior to the end of its term in the event of the
termination of the Optionee's service. SARs may also be awarded in
combination with Options, Restricted Shares or Stock Units, and such an
Award may provide that the SARs will not be exercisable unless the
related Options, Restricted Shares or Stock Units are forfeited. An
SAR may be included in an ISO only at the time of grant but may be
included in an NSO at the time of grant or at any subsequent time, but
not later than six months before the expiration of such NSO. An SAR
granted under the Plan may provide that it will be exercisable only in
the event of a Change in Control.

7.5 EFFECT OF CHANGE IN CONTROL. The Committee may determine, at the
time of granting an SAR or thereafter, that such SAR shall become fully
exercisable as to all Common Shares subject to such SAR in the event
that a Change in Control occurs with respect to the Company. If the
Committee finds that there is a reasonable possibility that, within the
succeeding six months, a Change in Control will occur with respect to
the Company, then the Committee at its sole discretion may determine
that any or all outstanding SARs shall become fully exercisable as to
all Common Shares subject to such SARs.

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7.6 EXERCISE OF SARs. The exercise of an SAR shall be subject to the
restrictions imposed by Rule 16b-3 (or its successor) under the
Exchange Act, if applicable. If, on the date when an SAR expires, the
Exercise Price under such SAR is less than the Fair Market Value on
such date but any portion of such SAR has not been exercised or
surrendered, then such SAR shall automatically be deemed to be
exercised as of such date with respect to such portion. Upon exercise
of an SAR, the Optionee (or any person having the right to exercise the
SAR after his or her death) shall receive from the Company (a) Common
Shares, (b) cash or (c) a combination of Common Shares and cash, as the
Committee shall determine. The amount of cash and/or the Fair Market
Value of Common Shares received upon exercise of SARs shall, in the
aggregate, be equal to the amount by which the Fair Market Value (on
the date of surrender) of the Common Shares subject to the SARs exceeds
the Exercise Price.

7.7 MODIFICATION OR ASSUMPTION OF SARs. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding SARs or
may accept the cancellation of outstanding SARs (whether granted by the
Company or by another issuer) in return for the grant of new SARs for
the same or a different number of shares and at the same or a different
exercise price. The foregoing notwithstanding, no modification of an
SAR shall, without the consent of the Optionee, alter or impair his or
her rights or obligations under such SAR.

ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS.

8.1 TIME, AMOUNT AND FORM OF AWARDS. Awards under the Plan may be
granted in the form of Restricted Shares, in the form of Stock Units,
or in any combination of both. Restricted Shares or Stock Units may
also be awarded in combination with NSOs or SARs, and such an Award may
provide that the Restricted Shares or Stock Units will be forfeited in
the event that the related NSOs or SARs are exercised.

8.2 PAYMENT FOR AWARDS. No cash consideration shall be required of
the recipients of Awards under this Article 8.

8.3 VESTING CONDITIONS Each Award of Restricted Shares or Stock Units
shall become vested, in full or in installments, upon satisfaction of
the conditions specified in the Stock Award Agreement. A Stock Award
Agreement may provide for accelerated vesting in the event of the
Participant's death, disability or retirement or other events. The
Committee may determine, at the time of making an Award or thereafter,
that such Award shall become fully vested in the event that a Change in
Control occurs with respect to the Company.

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8.4 FORM AND TIME OF SETTLEMENT OF STOCK UNITS. Settlement of vested
Stock Units may be made in the form of (a) cash, (b) Common Shares or
(c) any combination of both. The actual number of Stock Units eligible
for settlement may be larger or smaller than the number included in the
original Award, based on predetermined performance factors. Methods of
converting Stock Units into cash may include (without limitation) a
method based on the average Fair Market Value of Common Shares over a
series of trading days. Vested Stock Units may be settled in a lump
sum or in installments. The distribution may occur or commence when
all vesting conditions applicable to the Stock Units have been
satisfied or have lapsed, or it may be deferred to any later date. The
amount of a deferred distribution may be increased by an interest
factor or by dividend equivalents. Until an Award of Stock Units is
settled, the number of such Stock Units shall be subject to adjustment
pursuant to Article 10.

8.5 DEATH OF RECIPIENT. Any Stock Units Award that becomes payable
after the recipient's death shall be distributed to the recipient's
beneficiary or beneficiaries. Each recipient of a Stock Units Award
under the Plan shall designate one or more beneficiaries for this
purpose by filing the prescribed form with the Company. A beneficiary
designation may be changed by filing the prescribed form with the
Company at any time before the Award recipient's death. If no
beneficiary was designated or if no designated beneficiary survives the
Award recipient, then any Stock Units Award that becomes payable after
the recipient's death shall be distributed to the recipient's estate.

8.6 CREDITORS' RIGHTS. A holder of Stock Units shall have no rights
other than those of a general creditor of the Company. Stock Units
represent an unfunded and unsecured obligation of the Company, subject
to the terms and conditions of the applicable Stock Award Agreement.

ARTICLE 9. VOTING AND DIVIDEND RIGHTS.

9.1 RESTRICTED SHARES. The holders of Restricted Shares awarded under
the Plan shall have the same voting, dividend and other rights as the
Company's other shareowners. A Stock Award Agreement, however, may
require that the holders of Restricted Shares invest any cash dividends
received in additional Restricted Shares. Such additional Restricted
Shares shall be subject to the same conditions and restrictions as the
Award with respect to which the dividends were paid. Such additional
Restricted Shares shall not reduce the number of Common Shares
available under Article 3.

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9.2 STOCK UNITS. The holders of Stock Units shall have no voting
rights. Prior to settlement or forfeiture, any Stock Unit awarded
under the Plan may, at the Committee's discretion, carry with it a
right to dividend equivalents. Such right entitles the holder to be
credited with an amount equal to all cash dividends paid on one Common
Share while the Stock Unit is outstanding. Dividend equivalents may be
converted into additional Stock Units. Settlement of dividend
equivalents may be made in the form of cash, in the form of Common
Shares, or in a combination of both. Prior to distribution, any
dividend equivalents which are not paid shall be subject to the same
conditions and restrictions as the Stock Units to which they attach.

SECTION 10. PROTECTION AGAINST DILUTION.

10.1 ADJUSTMENTS. In the event of a subdivision of the outstanding
Common Shares, a declaration of a dividend payable in Common Shares, a
declaration of a dividend payable in a form other than Common Shares in
an amount that has a material effect on the price of Common Shares, a
combination or consolidation of the outstanding Common Shares (by
reclassification or otherwise) into a lesser number of Common Shares, a
recapitalization, a spinoff or a similar occurrence, the Committee
shall make such adjustments as it, in its sole discretion, deems
appropriate in one or more of (a) the number of Options, SARs,
Restricted Shares and Stock Units available for future Awards under
Article 3, (b) the limitations set forth in Sections 5.2 and 7.2, (c)
the number of NSOs and Restricted Shares to be granted to Outside
Directors under Section 4.2, (d) the number of Stock Units included in
any prior Award which has not yet been settled, (e) the number of
Common Shares covered by each outstanding Option and SAR, or (f) the
Exercise Price under each outstanding Option and SAR. Except as
provided in this Article 10, a Participant shall have no rights by
reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation
of shares of stock of any class, the payment of any stock dividend or
any other increase or decrease in the number of shares of stock of any
class.

10.2 REORGANIZATIONS. In the event that the Company is a party to a
merger or other reorganization, outstanding Options, SARs, Restricted
Shares and Stock Units shall be subject to the agreement of merger or
reorganization. Such agreement may provide, without limitation, for
the assumption of outstanding Awards by the surviving corporation or
its parent, for their continuation by the Company (if the Company is a
surviving corporation), for accelerated vesting and accelerated
expiration, or for settlement in cash.

ARTICLE 11. AWARDS UNDER OTHER PLANS.

The Company may grant awards under other plans or programs. Such
awards may be settled in the form of Common Shares issued under this
Plan. Such Common Shares shall be treated for all purposes under the
Plan like Common Shares issued in settlement of Stock Units and shall,
when issued, reduce the number of Common Shares available under Article
3.

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ARTICLE 12. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.

12.1 EFFECTIVE DATE. No provision of this Article 12 shall be
effective unless and until the Board has determined to implement such
provision.

12.2 ELECTIONS TO RECEIVE NSOs OR STOCK UNITS. An Outside Director
may elect to receive his or her annual retainer payments and meeting
fees from the Company in the form of cash, NSOs, Stock Units, or a
combination thereof. Such NSOs and Stock Units shall be issued under
the Plan. An election under this Article 12 shall be filed with the
Company on the prescribed form. The election shall apply only to
annual retainers and meeting fees payable at least six months after
such form has been received by the Company. The election may be
amended or canceled by filing a new form with the Company, but the new
form shall apply only to annual retainers payable and meeting fees at
least six months after it has been received by the Company.

12.3 NUMBER AND TERMS OF NSOs. The number of NSOs to be granted to
Outside Directors in lieu of annual retainers and meeting fees that
would otherwise be paid in cash shall be calculated in a manner
determined by the Board. The terms of such NSOs shall also be
determined by the Board.

12.4 NUMBER AND TERMS OF STOCK UNITS. The number of Stock Units to be
granted to outside Directors shall be calculated by dividing the amount
of the annual retainer or meeting fee that would otherwise be paid in
cash by the arithmetic mean of the Fair Market Values of a Common Share
on the 10 consecutive trading days ending with the date when such
retainer or meeting fee is payable. The terms of such Stock Units
shall be determined by the Board.

ARTICLE 13. LIMITATION ON RIGHTS

13.1 RETENTION RIGHTS. Neither the Plan nor any Award granted under
the Plan shall be deemed to give any individual a right to remain an
employee, consultant or director of the Company, a Parent, a Subsidiary
or an Affiliate. The Company and its Parents and Subsidiaries reserve
the right to terminate the service of any employee, consultant or
director at any time, with or without cause, subject to applicable
laws, the Company's certificate of incorporation and by-laws and a
written employment agreement (if any).

13.2 SHAREHOLDERS' RIGHTS. A Participant shall have no dividend
rights, voting rights or other rights as a shareholder with respect to
any Common Shares covered by his or her Award prior to the issuance of
a stock certificate for such Common Shares. No adjustment shall be
made for cash dividends or other rights for which the record date is
prior to the date when such certificate is issued, except as expressly
provided in Articles 8, 9 and 10.

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13.3 REGULATORY REQUIREMENTS. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares
under the Plan shall be subject to all applicable laws, rules and
regulations and such approval by any regulatory body as may be
required. The Company reserves the right to restrict, in whole or in
part, the delivery of Common Shares pursuant to any Award prior to the
satisfaction of all legal requirements relating to the issuance of such
Common Shares, to their registration, qualification or listing or to an
exemption from registration, qualification or listing.

ARTICLE 14. LIMITATION ON PAYMENTS.

14.1 BASIC RULE. Any provision of the Plan to the contrary
notwithstanding, in the event that the independent auditors most
recently selected by the Board (the "Auditors") determine that any
payment or transfer by the Company to or for the benefit of a
Participant, whether paid or payable (or transferred or transferable)
pursuant to the terms of this Plan or otherwise (a "Payment"), would be
nondeductible by the Company for federal income tax purposes because of
the provisions concerning "excess parachute payments" in section 280G
of the Code, then the aggregate present value of all Payments shall be
reduced (but not below zero) to the Reduced Amount; provided that the
Committee, at the time of making an Award under this Plan or at any
time thereafter, may specify in writing that such Award shall not be so
reduced and shall not be subject to this Article 14. For purposes of
this Article 14, the "Reduced Amount" shall be the amount, expressed as
a present value, which maximizes the aggregate present value of the
Payments without causing any Payment to be nondeductible by the Company
because of section 280G of the Code.

14.2 REDUCTION OF PAYMENTS. If the Auditors determine that any
Payment would be nondeductible by the Company because of section 280G
of the Code, then the Company shall promptly give the Participant
notice to that effect and a copy of the detailed calculation thereof
and of the Reduced Amount, and the Participant may then elect, in his
or her sole discretion, which and how much of the Payments shall be
eliminated or reduced (as long as after such election the aggregate
present value of the Payments equals the Reduced Amount) and shall
advise the Company in writing of his or her election within 10 days of
receipt of notice. If no such election is made by the Participant
within such 10-day period, then the Company may elect which and how
much of the Payments shall be eliminated or reduced (as long as after
such election the aggregate present value of the Payments equals the
Reduced Amount) and shall notify the Participant promptly of such
election. For purposes of this Article 14, present value shall be
determined in accordance with section 280G(d)(4) of the Code. All
determinations made by the Auditors under this Article 14 shall be
binding upon the Company and the Participant and shall be made within
60 days of the date when a payment becomes payable or transferable. As
promptly as practicable following such determination and the elections
hereunder, the Company shall pay or transfer to or for the benefit of
the Participant such amounts as are then due to him or her under the
Plan and shall promptly pay or transfer to or for the benefit of the
Participant in the future such amounts as become due to him or her
under the Plan.

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14.3 OVERPAYMENTS AND UNDERPAYMENTS. As a result of uncertainty in
the application of section 280G of the Code at the time of an initial
determination by the Auditors hereunder, it is possible that Payments
will have been made by the Company which should not have been made (an
"Overpayment") or that additional Payments which will not have been
made by the Company could have been made (an "Underpayment"),
consistent in each case with the calculation of the Reduced Amount
hereunder. In the event that the Auditors, based upon the assertion of
a deficiency by the Internal Revenue Service against the Company or the
Participant which the Auditors believe has a high probability of
success, determine that an Overpayment has been made, such Overpayment
shall be treated for all purposes as a loan to the Participant which he
or she shall repay to the Company, together with interest at the
applicable federal rate provided in section 7872(f)(2) of the Code;
provided, however, that no amount shall be payable by the Participant
to the Company if and to the extent that such payment would not reduce
the amount which is subject to taxation under section 4999 of the Code.
In the event that the Auditors determine that an Underpayment has
occurred, such Underpayment shall promptly be paid or transferred by
the Company to or for the benefit of the Participant, together with
interest at the applicable federal rate provided in section 7872(f)(2)
of the Code.

14.4 RELATED CORPORATIONS. For purposes of this Article 14, the term
"Company" shall include affiliated corporations to the extent
determined by the Auditors in accordance with section 280G(d)(5) of the
Code.

ARTICLE 15. WITHHOLDING TAXES.

15.1 GENERAL. To the extent required by applicable federal, state,
local or foreign law, a Participant or his or her successor shall make
arrangements satisfactory to the Company for the satisfaction of any
withholding tax obligations that arise in connection with the Plan.
The Company shall not be required to issue any Common Shares or make
any cash payment under the Plan until such obligations are satisfied.

15.2 SHARE WITHHOLDING. The Committee may permit a Participant to
satisfy all or part of his or her withholding or income tax obligations
by having the Company withhold all or a portion of any Common Shares
that otherwise would be issued to him or her or by surrendering all or
a portion of any Common Shares that he or she previously acquired.
Such Common Shares shall be valued at their Fair Market Value on the
date when taxes otherwise would be withheld in cash. Any payment of
taxes by assigning Common Shares to the Company may be subject to
restrictions, including any restrictions required by rules of the
Securities and Exchange Commission.

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ARTICLE 16. ASSIGNMENT OR TRANSFER OF AWARDS.

16.1 GENERAL. Except as provided in Article 15, an Award granted
under the Plan shall not be anticipated, assigned, attached, garnished,
optioned, transferred or made subject to any creditor's process,
whether voluntarily, involuntarily or by operation of law. An Option
or SAR may be exercised during the lifetime of the Optionee only by him
or her or by his or her guardian or legal representative. Any act in
violation of this Article 16 shall be void. However, this Article 16
shall not preclude a Participant from designating a beneficiary who
will receive any outstanding Awards in the event of the Participant's
death, nor shall it preclude a transfer of Awards by will or by the
laws of descent and distribution.

16.2 TRUSTS. Neither this Article 16 nor any other provision of the
Plan shall preclude a Participant from transferring or assigning
Restricted Shares to (a) the trustee of a trust that is revocable by
such Participant alone, both at the time of the transfer or assignment
and at all times thereafter prior to such Participant's death, or
(b)the trustee of any other trust to the extent approved in advance by
the Committee in writing. A transfer or assignment of Restricted
Shares from such trustee to any person other than such Participant
shall be permitted only to the extent approved in advance by the
Committee in writing, and Restricted Shares held by such trustee shall
be subject to all of the conditions and restrictions set forth in the
Plan and in the applicable Stock Award Agreement, as if such trustee
were a party to such Agreement.

ARTICLE 17. FUTURE OF THE PLAN.

17.1 TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on January 1, 1994; provided that all awards under the Plan
shall be contingent on shareholder approval of the Plan on or before
December 31, 1994 and absent such approval the Plan and all awards
granted thereunder shall be null and void. The Plan shall remain in
effect until it is terminated under Section 17.2, except that no ISOs
shall be granted after December 31, 2003.

17.2 AMENDMENT OR TERMINATION. The Board may, at any time and for any
reason, amend or terminate the Plan, except that the provisions of
Section 4.2 relating to the amount, price and timing of Option grants
to Outside Directors shall not be amended more than once in any six-
month period after the Plan becomes effective. An amendment of the
Plan shall be subject to the approval of the Company's shareholders
only to the extent required by applicable laws, regulations or rules.
No Awards shall be granted under the Plan after the termination
thereof. The termination of the Plan, or any amendment thereof, shall
not affect any Award previously granted under the Plan.

ARTICLE 18. DEFINITIONS.

"Affiliate" means any entity other than a Subsidiary, if the Company
and/or one or more Subsidiaries own not less than 50% of such entity.

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"Award" means any award of an Option, an SAR, a Restricted Share or a
Stock Unit under the Plan.

"Board" means the Company's Board of Directors, as constituted from
time to time.

"Change in Control" means the occurrence of any of the following
events:

Any "person" (as defined below) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 20% or
more of the total voting power represented by the Company's then
outstanding voting securities; or

A change in the composition of the Board occurs, as a result of
which fewer than two-thirds of the incumbent directors are
directors who either (i) had been directors of the Company on
the "look-back date" (as defined below) or (ii) were elected, or
nominated for election, to the Board with the affirmative votes
of at least a majority of the directors who had been directors
of the Company on the "look-back date" and who were still in
office at the time of the election or nomination; or

The shareowners of the Company approve a merger or consolidation
of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least 80% of
the total voting power represented by the voting securities of the
Company or such surviving entity outstanding immediately after
such merger or consolidation; or

The shareowners of the Company approve (i) a plan of complete
liquidation of the Company or (ii) an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.

For purposes of Subsection (a) above, the term "person" shall have
the same meaning as when used in sections 13(d) and 14(d) of the
Exchange Act, but shall exclude (i) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company
or of a Parent or Subsidiary, and (ii) a corporation owned
directly or indirectly by the shareowners of the Company in
substantially the same proportions as their ownership of the
common stock of the Company.

For purposes of Subsection (b) above, the term "look-back date"
shall mean the date 24 months prior to the change in the
composition of the Board.

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Any other provision of this Section 18.4 notwithstanding, the
term "Change in Control" shall not include either of the
following events, if undertaken at the election of the Company:

(i) A transaction, the sole purpose of which is to
change the state of the Company's incorporation;
or

(ii) A transaction, the result of which is to sell all
or substantially all of the assets of the Company
to another corporation (the "surviving
corporation"); provided that the surviving
corporation is owned directly or indirectly by the
shareowners of the Company immediately following
such transaction in substantially the same
proportions as their ownership of the Company's
common stock immediately preceding such
transaction; and provided, further, that the
surviving corporation expressly assumes this Plan
and all outstanding Awards.

"Code" means the Internal Revenue Code of 1986, as amended.

"Committee" means a committee of the Board, as described in Article 2.

"Common Share" means one share of the common stock of the Company.

"Company" means Pacific Telesis Group, a Nevada corporation.

"Distribution Date" means the record date for the distribution of the
common stock of PacTel Corporation to the Company's shareowners.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Exercise Price" in the case of an Option, means the amount for which
one Common Share may be purchased upon exercise of such Option, as
specified in the applicable Stock Option Agreement.

"Exercise Price," in the case of an SAR, means an amount, as specified
in the applicable SAR Agreement, which is subtracted from the Fair
Market Value of one Common Share in determining the amount payable upon
exercise of such SAR.

"Fair Market Value" means the market price of Common Shares, determined
by the Committee as follows:

If the Common Shares were traded over-the-counter on the date in
question but were not classified as a national market issue, then the
Fair Market Value shall be equal to the mean between the last reported
representative bid and asked prices quoted by the NASDAQ system for
such date;

If the Common Shares were traded over-the-counter on the date in
question and were classified as a national market issue, then the
Fair Market Value shall be equal to the last-transaction price quoted
by the NASDAQ system for such date;

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If the Common Shares were traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing
price reported by the applicable composite transactions report for
such date; and

If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith on
such basis as it deems appropriate.

Whenever possible, the determination of Fair Market Value by the
Committee shall be based on the prices reported in the Western
Edition of The Wall Street Journal. Such determination shall be
conclusive and binding on all persons.

"ISO" means an incentive stock option described in section 422(b) of
the Code.

"Key Employee" means (a) a common-law employee of the Company, a
Parent, a Subsidiary or an Affiliate, (b) an Outside Director and (c) a
consultant or adviser who provides services to the Company, a Parent, a
Subsidiary or an Affiliate as an independent contractor. Service as an
Outside Director or as an independent contractor shall be considered
employment for all purposes of the Plan, except as provided in Sections
4.2 and 4.3.

"NSO" means an employee stock option not described in sections 422 or
423 of the Code.

"Option" means an ISO or NSO granted under the Plan and entitling the
holder to purchase one Common Share.

"Optionee" means an individual or estate who holds an Option or SAR.

"Outside Director" shall mean a member of the Board who is not a
common-law employee of the Company, a Parent, a Subsidiary or an
Affiliate.

"Parent" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more
of the total combined voting power of all classes of stock in one of
the other corporations in such chain. A corporation that attains the
status of a Parent on a date after the adoption of the Plan shall be
considered a Parent commencing as of such date.

"Participant" means an individual or estate who holds an Award.

"Plan" means this Pacific Telesis Group Stock Incentive Plan, as it may
be amended from time to time.

"Restricted Share" means a Common Share awarded under the Plan.

DEF 14A Last Page of 156 TOC 1st Previous Next ↓Bottom Just 156th
"Retirement" means that an Outside Director's service terminates after
he or she has served for three or more years as a member of the Board.

"SAR" means a stock appreciation right granted under the Plan.

"SAR Agreement" means the agreement between the Company and an Optionee
which contains the terms, conditions and restrictions pertaining to his
or her SAR.

"Stock Award Agreement" means the agreement between the Company and the
recipient of a Restricted Share or Stock Unit which contains the terms,
conditions and restrictions pertaining to such Restricted Share or
Stock Unit.

"Stock Option Agreement" means the agreement between the Company and an
Optionee which contains the terms, conditions and restrictions
pertaining to his or her Option.

"Stock Unit" means a bookkeeping entry representing the equivalent of
one Common Share, as awarded under the Plan.

"Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of
the corporations other than the last corporation in the unbroken chain
owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain. A
corporation that attains the status of a Subsidiary on a date after the
adoption of the Plan shall be considered a Subsidiary commencing as of
such date.

ARTICLE 19. EXECUTION.

To record the adoption of the Plan by the Board effective January 1,
1994, the Company has caused its duly authorized officer to affix the
corporate name and seal hereto.

PACIFIC TELESIS GROUP

By _____________________________

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘DEF 14A’ Filing	Date	First	Last	Other Filings

	12/31/03	152
	10/10/99	107
	1/1/97	50
	12/31/96	22		10-K/A, 10-K405
	4/2/96	19	20	8-K
	4/1/96	19	20	8-K
	1/1/96	50
	12/31/95	30	33	10-K/A, 10-K405, 13F-E, DEF 14A
	11/21/95	41
	7/1/95	54
	5/3/95	1	135
	4/2/95	19	20
	4/1/95	19	20
	3/31/95	50		10-Q, 13F-E
	3/14/95	1	42
Filed on:	3/13/95
	3/4/95	1	5
	2/28/95	12	38
	2/24/95	76
	2/23/95	77
	1/31/95	105
	1/27/95	136
	1/1/95	13	129
For Period End:	12/31/94	16	152	10-K/A, 10-K405, 13F-E
	12/30/94	20	21
	12/5/94	46	67
	11/30/94	12
	10/12/94	71	108
	7/1/94	19	58	S-8
	4/29/94	11	135
	4/1/94	10	114	8-K
	3/31/94	90		10-Q, 13F-E
	3/28/94	94
	1/1/94	11	156
	12/31/93	10	104	10-K, 10-K/A, 13F-E, DEF 14A
	1/1/93	63	99
	12/31/92	100	105
	1/25/92	23
				List all Filings

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Filing Submission 0000732716-95-000012 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Pacific Telesis Group – ‘DEF 14A’ for 12/31/94

As of: Monday, 3/13/95 · For: 12/31/94 · Accession #: 732716-95-12 · File #: 1-08609

Previous ‘DEF 14A’: ‘DEF 14A’ on 3/11/94 for 12/31/93 · Next & Latest: ‘DEF 14A’ on 3/4/96 for 12/31/95

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DEF 14A — 1995 Definitive Proxy StatementDocument Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Definitive Proxy Solicitation Material — Schedule 14A
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DEF 14A — 1995 Definitive Proxy Statement
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