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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13E-3
(AMENDMENT NO. 1)
RULE 13E-3 TRANSACTION STATEMENT
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
CONTEL CELLULAR INC.
(Name of Issuer)
GTE CORPORATION
CONTEL CORPORATION
CONTEL CELLULAR ACQUISITION CORPORATION
CONTEL CELLULAR INC.
(Name of Person(s) Filing Statement)
CLASS A COMMON STOCK, $1.00 PAR VALUE
(Title of Class of Securities)
------------------------
210904108
(CUSIP Number of Class of Securities)
<TABLE>
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MARIANNE DROST, ESQ. LAURA E. BINION, ESQ.
GTE CORPORATION CONTEL CELLULAR INC.
ONE STAMFORD FORUM 245 PERIMETER CENTER PARKWAY
STAMFORD, CONNECTICUT 06904 ATLANTA, GEORGIA 30346
(203) 965-2000 (404) 804-3400
</TABLE>
(Name, Address and Telephone Number of Persons Authorized to Receive Notices
and Communications on Behalf of Person(s) Filing Statement)
Copies to:
JEFFREY J. ROSEN, ESQ.
O'MELVENY & MYERS
555 13TH STREET, N.W., SUITE 500 WEST
WASHINGTON, D.C. 20004-1109
(202) 383-5300
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This Amendment No. 1 amends the Rule 13e-3 Transaction Statement (the
"Statement") filed jointly on January 30, 1995 by GTE Corporation, a New York
corporation ("GTE"), Contel Corporation, a Delaware corporation that has adopted
a plan of liquidation and is a wholly owned subsidiary of GTE ("Contel"), Contel
Cellular Acquisition Corporation, a Delaware corporation and a wholly owned
subsidiary of Contel ("CCI Acquisition"), and Contel Cellular Inc., a Delaware
corporation (the "Company"), which relates to the proposed merger (the "Merger")
of CCI Acquisition with and into the Company. In the Merger, (i) each
outstanding share of Class A Common Stock, par value $1.00 per share, of the
Company (each a "Class A Share") (other than Class A Shares as to which
appraisal rights have been properly exercised under the General Corporation Law
of the State of Delaware) will be converted into the right to receive $25.50 in
cash, without interest, subject to applicable back-up withholding taxes, (ii)
each Class A Share held by the Company and each outstanding share of the common
stock of CCI Acquisition will be cancelled, and no payment will be made with
respect thereto and (iii) each outstanding share of Class B Common Stock, par
value $1.00 per share, of the Company will remain outstanding. Capitalized terms
not otherwise defined herein shall have the meanings set forth in the Statement.
Information contained in the Statement is hereby amended and supplemented
by the filing of a revised preliminary Information Statement on Schedule 14C as
a new Exhibit (d)(4) to the Statement ("Revised Information Statement"). The
following items in the Statement are amended through additions and deletions to
the original preliminary Information Statement on Schedule 14C (Exhibit (d)(1)
to the Statement).
1. Item 1 is hereby amended to add the following information:
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(b)-(c) The information added in the Revised Information Statement in
"MARKET PRICES OF AND DIVIDENDS ON THE COMMON STOCK OF THE COMPANY".
2. Item 2 is hereby amended to delete the following information:
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(g) The information relating to Terry S. Parker and Jeffrey S.
Rubin deleted from Exhibit E to the Revised Information Statement of the
Company.
3. Item 3 is hereby amended to add the following information:
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)(2) The additional information set forth in the Revised Information
Statement in "BUSINESS OF THE COMPANY -- The Company's Cellular
Operations -- Cellular Exchange Transaction" and "RELATED PARTY
TRANSACTIONS -- Arrangements and Transactions with Contel and GTE --
Cellular Exchange Transaction".
4. Item 5 is hereby amended to add the following information:
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a) The additional information set forth in the Revised Information
Statement in "SPECIAL FACTORS -- Background of the Merger" and "-- Plans
for the Company; Certain Effects of the Merger".
(e) The additional information set forth in the Revised Information
Statement in "SPECIAL FACTORS -- Background of the Merger" and "-- Plans
for the Company; Certain Effects of the Merger".
5. Item 6 is hereby amended to add the following information:
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(c) The additional information set forth in the Revised Information
Statement in "SPECIAL FACTORS -- Merger Consideration".
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6. Item 7 is hereby amended to add the following information:
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a) The additional information set forth in the Revised Information
Statement in "SPECIAL FACTORS -- Background of the Merger" and "-- Plans
for the Company; Certain Effects of the Merger".
(b) The additional information set forth in the Revised Information
Statement in "SPECIAL FACTORS -- Background of the Merger".
(c) The additional information set forth in the Revised Information
Statement in "SPECIAL FACTORS -- Background of the Merger".
(d) The additional information set forth in the Revised Information
Statement in "SPECIAL FACTORS -- Plans for the Company; Certain Effects of
the Merger" and "-- Certain Federal Income Tax Consequences of the Merger".
7. Item 8 is hereby amended to add the following information:
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a) The additional information set forth in the Revised Information
Statement in "SPECIAL FACTORS -- Determination of the Fairness of the
Merger by GTE, Contel and CCI Acquisition" and "-- Determination of the
Special Committee and the Board; Fairness of the Merger".
(b) The additional information set forth in the Revised Information
Statement in "SPECIAL FACTORS -- Determination of the Fairness of the
Merger by GTE, Contel and CCI Acquisition," "-- Determination of the
Special Committee and the Board; Fairness of the Merger" and "-- Opinion of
Financial Advisor to the Special Committee".
(c) The additional information set forth in the Revised Information
Statement in "SPECIAL FACTORS -- Determination of the Special Committee and
the Board; Fairness of the Merger".
8. Item 9 is hereby amended to add the following information:
ITEM 9. REPORTS OPINION, APPRAISALS AND CERTAIN NEGOTIATIONS.
(b) The additional information set forth in the Revised Information
Statement in "SPECIAL FACTORS -- Opinion of Financial Advisor to the
Special Committee" and "-- Opinions of Financial Advisors to GTE".
9. Item 9 is hereby amended to delete the following information:
ITEM 9. REPORTS OPINION, APPRAISALS AND CERTAIN NEGOTIATIONS.
(b) The information relating to Richard W. Jones deleted from the
Revised Information Statement in "SPECIAL FACTORS -- Opinions of Financial
Advisors to GTE".
10. Item 10 is hereby amended to add the following information:
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The additional information set forth in the Revised Information
Statement in "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT".
11. Item 10 is hereby amended to delete the following information:
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The information relating to Terry S. Parker deleted from the
Revised Information Statement in "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT -- Directors and Executive Officers of the Company".
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12. Item 12 is hereby amended to add the following information:
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH
REGARD TO THE TRANSACTION.
(b) The additional information set forth in the Revised Information
Statement in "SPECIAL FACTORS -- Determination of the Special Committee and
the Board; Fairness of the Merger".
13. Item 14 is hereby amended to add the following information:
ITEM 14. FINANCIAL INFORMATION.
(a) The additional information set forth in the Revised Information
Statement in "SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY" and in
the financial statements included in the Revised Information Statement.
14. Item 17 is hereby amended to add the following exhibit:
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(d)(4) Revised Preliminary Information Statement on Schedule 14C.
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SIGNATURE
After due inquiry and to the best of the knowledge and belief of the
undersigned, the undersigned certify that the information set forth in this
statement is true, complete and correct.
Date: March 15, 1995 GTE CORPORATION
By: /s/ MARIANNE DROST
Title: Secretary
CONTEL CORPORATION
By: /s/ MARIANNE DROST
Title: Secretary
CONTEL CELLULAR ACQUISITION
CORPORATION
By: /s/ MARIANNE DROST
Title: Secretary
CONTEL CELLULAR INC.
By: /s/ THEODORE J. CARRIER
Title: Treasurer and Chief Financial
Officer
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
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<S> <C> <C>
(d)(4) -- Revised Preliminary Information Statement on Schedule 14C relating to
the merger of Contel Cellular Acquisition Corporation with and into
Contel Cellular Inc.
</TABLE>
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INFORMATION STATEMENT
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CONCERNING THE MERGER OF
CONTEL CELLULAR ACQUISITION CORPORATION,
A SUBSIDIARY OF CONTEL CORPORATION,
WITH AND INTO
CONTEL CELLULAR INC.,
AT A PRICE OF $25.50 PER CLASS A SHARE
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WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
------------------------
This Information Statement is being furnished to the holders of outstanding
shares of the Class A Common Stock (the "Class A Stockholders") of Contel
Cellular Inc., a Delaware corporation (the "Company"), as of the Record Date (as
defined below) in connection with the proposed merger (the "Merger") of Contel
Cellular Acquisition Corporation, a Delaware corporation ("CCI Acquisition"),
with and into the Company. The Company will be the corporation that survives the
Merger (the "Surviving Corporation"). The Merger will be effected pursuant to an
Agreement and Plan of Merger dated as of December 27, 1994, as amended (the
"Merger Agreement"), among the Company, GTE Corporation, a New York corporation
("GTE"), Contel Corporation, a Delaware corporation in liquidation and a wholly
owned subsidiary of GTE ("Contel"), and CCI Acquisition, which is a wholly owned
subsidiary of Contel. In the Merger, (i) each outstanding share of the Class A
Common Stock, par value $1.00 per share, of the Company (a "Class A Share")
(other than Class A Shares as to which appraisal rights have been properly
exercised under the General Corporation Law of the State of Delaware (the
"DGCL")) will be converted into the right to receive $25.50 in cash, without
interest, subject to applicable back-up withholding taxes (the "Merger
Consideration"), (ii) each Class A Share held by the Company and each
outstanding share of the common stock of CCI Acquisition will be cancelled, and
no payment will be made with respect thereto and (iii) each outstanding share of
the Class B Common Stock, par value $1.00 per share, of the Company (a "Class B
Share") will continue to be outstanding. After the effective date of the Merger,
the Class A Shares will cease to be quoted on the Nasdaq National Market.
YOU ARE URGED TO REVIEW THIS INFORMATION STATEMENT CAREFULLY TO DECIDE
WHETHER TO ACCEPT THE MERGER CONSIDERATION OR TO EXERCISE APPRAISAL RIGHTS
PURSUANT TO THE DGCL. IF YOU WISH TO ACCEPT THE MERGER CONSIDERATION, PLEASE
COMPLETE, EXECUTE AND SEND THE ENCLOSED LETTER OF TRANSMITTAL, TOGETHER WITH
CERTIFICATES REPRESENTING YOUR CLASS A SHARES, TO CHEMICAL BANK, AS DISBURSING
AGENT FOR THE MERGER (THE "DISBURSING AGENT"), IN ACCORDANCE WITH THE
INSTRUCTIONS SET FORTH IN THE LETTER OF TRANSMITTAL. IF YOU WISH TO EXERCISE
APPRAISAL RIGHTS PURSUANT TO THE DGCL, YOU MUST, WITHIN 20 DAYS OF THE DATE OF
THE MAILING OF THIS INFORMATION STATEMENT, DELIVER TO THE COMPANY A WRITTEN
DEMAND FOR A JUDICIAL APPRAISAL OF THE FAIR VALUE OF YOUR CLASS A SHARES AND
OTHERWISE COMPLY WITH THE APPLICABLE PROVISIONS OF THE DGCL. SEE "DISSENTERS'
RIGHTS OF APPRAISAL" AND THE TEXT OF SECTION 262 OF THE DGCL ATTACHED AS EXHIBIT
D TO THIS INFORMATION STATEMENT.
The record date for stockholders entitled to notice of or entitled to give
consent to the Merger was March 16, 1995 (the "Record Date"). As of the Record
Date there were issued and outstanding 9,970,953 Class A Shares and 90,000,000
Class B Shares. Each Class A Share is entitled to one vote per share and each
Class B Share is entitled to five votes per share. On the Record Date, Contel
owned 90,000,000 Class B Shares, which accounted for approximately 98% of the
combined voting power of the outstanding Class A Shares and Class B Shares.
Pursuant to the DGCL, Contel, as the owner of more than 50% of the combined
voting power of the Class A Shares and Class B Shares, approved the Merger by
written consent on March , 1995. Other than such written consent, no further
action by the stockholders of the Company is necessary to approve or consummate
the Merger and no such approval will be sought. The Company will not hold a
meeting of the stockholders of the Company in connection with the Merger. The
Merger will be consummated on April , 1995.
This Information Statement is being mailed on March , 1995 to Class A
Stockholders of record on the Record Date, and constitutes the notice of
appraisal rights required by Section 262 of the DGCL and the notice of corporate
action without meeting required by Section 228(d) of the DGCL.
The principal executive offices of the Company are located at 245 Perimeter
Center Parkway, Atlanta, Georgia 30346 and its telephone number is (404)
804-3400.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS INFORMATION STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE DISBURSING AGENT FOR THE MERGER IS:
CHEMICAL BANK
The date of this Information Statement is March , 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
SUMMARY.............................................................................. 4
SPECIAL FACTORS...................................................................... 9
Introduction; The Merger........................................................... 9
Background of the Merger........................................................... 9
Determination of the Special Committee and the Board; Fairness of the Merger....... 11
Opinion of Financial Advisor to the Special Committee.............................. 13
Determination of the Fairness of the Merger by GTE, Contel and CCI Acquisition..... 17
Opinions of Financial Advisors to GTE.............................................. 18
Certain Litigation................................................................. 24
Written Consent.................................................................... 24
Merger Consideration............................................................... 24
Accounting Treatment of the Merger................................................. 25
Certain Federal Income Tax Consequences of the Merger.............................. 25
Plans for the Company; Certain Effects of the Merger............................... 26
THE MERGER AGREEMENT................................................................. 27
General............................................................................ 27
Designation of Directors; Certificate of Incorporation and By-laws................. 27
Representations and Warranties..................................................... 27
Indemnification and Other Covenants................................................ 27
Conditions to the Merger........................................................... 28
Termination........................................................................ 28
Amendment.......................................................................... 28
Extension; Waiver.................................................................. 28
PAYMENT OF THE MERGER CONSIDERATION.................................................. 29
DISSENTERS' RIGHTS OF APPRAISAL...................................................... 30
MARKET PRICES AND DIVIDENDS ON THE COMMON STOCK
OF THE COMPANY..................................................................... 32
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY.................................. 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS......................................................................... 34
Background......................................................................... 34
Acquisitions and Dispositions of Interests in Cellular Systems..................... 34
Results of Operations.............................................................. 35
Financial Condition................................................................ 37
PROJECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY................................. 39
BUSINESS OF THE COMPANY.............................................................. 41
Overview........................................................................... 41
Cellular Interests................................................................. 41
The Cellular Telephone Industry.................................................... 44
The Company's Cellular Operations.................................................. 45
Non-Controlled Systems............................................................. 49
International Interests............................................................ 49
Competition........................................................................ 49
Regulation......................................................................... 50
RELATED PARTY TRANSACTIONS........................................................... 51
Arrangements and Transactions with Contel and GTE.................................. 51
Payments to Optionholders.......................................................... 53
Transition Arrangements............................................................ 53
</TABLE>
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<TABLE>
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PAGE
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT......................................................................... 54
Certain Beneficial Owners.......................................................... 54
Directors and Executive Officers of the Company.................................... 54
Directors and Executive Officers of GTE, Contel and CCI Acquisition................ 55
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................................... 56
INDEX TO FINANCIAL STATEMENTS........................................................ F-1
EXHIBIT A -- AGREEMENT AND PLAN OF MERGER, AS AMENDED............................... A-1
EXHIBIT B -- OPINION OF LAZARD FRERES & CO.......................................... B-1
EXHIBIT C-1 -- OPINION OF MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED...................................................... C-1-1
EXHIBIT C-2 -- OPINION OF PAINEWEBBER INCORPORATED................................... C-2-1
EXHIBIT D -- DELAWARE GENERAL CORPORATION LAW SECTION 262........................... D-1
EXHIBIT E -- DIRECTORS AND EXECUTIVE OFFICERS OF GTE CORPORATION, CONTEL
CORPORATION, CONTEL CELLULAR ACQUISITION CORPORATION AND CONTEL
CELLULAR INC........................................................... E-1
</TABLE>
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Information Statement. This Summary does not purport to be complete and is
qualified in its entirety by the more detailed information contained elsewhere
in this Information Statement and the Exhibits hereto. Unless defined in this
Summary, capitalized terms used herein have the meanings ascribed to them
elsewhere in this Information Statement. STOCKHOLDERS ARE URGED TO READ THIS
INFORMATION STATEMENT AND THE EXHIBITS HERETO IN THEIR ENTIRETY IN ORDER TO
DECIDE WHETHER TO ACCEPT THE MERGER CONSIDERATION OR TO EXERCISE APPRAISAL
RIGHTS PURSUANT TO THE DGCL. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY.
SPECIAL FACTORS
Introduction; The Merger. This Information Statement is being furnished to
the holders of outstanding shares of the Class A Common Stock (the "Class A
Stockholders") of Contel Cellular Inc., a Delaware corporation (the "Company"),
in connection with the proposed merger (the "Merger") of Contel Cellular
Acquisition Corporation, a Delaware corporation ("CCI Acquisition"), with and
into the Company. The Company will be the corporation that survives the Merger
(the "Surviving Corporation"). The Merger will be effected pursuant to an
Agreement and Plan of Merger dated as of December 27, 1994, as amended (the
"Merger Agreement"), among the Company, GTE Corporation, a New York corporation
("GTE"), Contel Corporation, a Delaware corporation in liquidation and a wholly
owned subsidiary of GTE ("Contel"), and CCI Acquisition, which is a wholly owned
subsidiary of Contel. Certain additional information relating to GTE, Contel,
CCI Acquisition and the Company and each of their respective directors and
executive officers is included in Exhibit E to this Information Statement.
In the Merger, (i) each outstanding share of the Class A Common Stock of
the Company, par value $1.00 per share (each a "Class A Share") (other than
Class A Shares as to which appraisal rights have been properly exercised under
the DGCL), will be converted into the right to receive $25.50 in cash, without
interest, subject to back-up withholding taxes (the "Merger Consideration"),
(ii) each Class A Share held by the Company and each outstanding share of the
common stock of CCI Acquisition will be cancelled, and no payment will be made
with respect thereto and (iii) each outstanding share of the Class B Common
Stock of the Company, par value $1.00 per share (each a "Class B Share"), will
continue to be outstanding.
The Merger is subject to the satisfaction of certain conditions. See "THE
MERGER AGREEMENT -- Conditions to the Merger". Assuming the satisfaction of such
conditions, the Merger will be consummated on April , 1995.
Background of the Merger. GTE, through its wholly-owned subsidiary Contel,
owns all of the outstanding Class B Shares of the Company, which constitute 90%
of the Company's outstanding common stock and approximately 98% of the combined
voting power of the capital stock of the Company. The outstanding Class A
Shares, which constitute 10% of the Company's outstanding common stock and
approximately 2% of the combined voting power of the capital stock of the
Company, are held by the public. GTE believes that the cellular communications
businesses conducted by the Company and another wholly owned subsidiary of GTE,
GTE Mobilnet Incorporated ("GTE Mobilnet"), can be conducted more effectively by
acquiring the outstanding minority interest in the Company and consolidating
GTE's cellular operations. GTE's decision is based on its belief that such
consolidation will permit GTE to implement a unified marketing strategy for its
cellular operations, provide increased flexibility in pursuing future
opportunities, generate efficiencies in the combined cellular communications
business and eliminate the complexities of operating two cellular businesses
with overlapping but not identical ownership. For a discussion of GTE's reasons
for acquiring the minority interest see "SPECIAL FACTORS -- Background of the
Merger" and "SPECIAL FACTORS -- Plans for the Company; Certain Effects of the
Merger". GTE believes that the most efficient way to effect the acquisition of
the shares held by the public and to provide Class A Stockholders with cash for
their Class A Shares is through the merger of a wholly-owned subsidiary of
Contel into the Company. At the time the Company received GTE's initial proposal
to acquire the Class A Shares, nine of the Company's twelve directors were
executive officers or directors of GTE or the Company. Accordingly, the Board of
Directors of the Company (the "Board") appointed a special committee of the
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three independent directors (the "Special Committee") to negotiate the Merger on
behalf of Class A Stockholders and make a recommendation to the Board of
Directors in connection with the transaction.
Record Date; No Action Required by Class A Stockholders to Consummate the
Merger. The Record Date for stockholders entitled to notice of or entitled to
give consent to the Merger was March 16, 1995. As of the Record Date, there were
issued and outstanding 9,970,953 Class A Shares, each of which has one vote per
share, and 90,000,000 Class B Shares, each of which has five votes per share. On
the Record Date, Contel owned 90,000,000 Class B Shares, which accounted for
approximately 98% of the combined voting power of the outstanding Class A Shares
and Class B Shares. Pursuant to the DGCL, Contel, as holder of record of more
than 50% of the combined voting power of the Class A Shares and Class B Shares,
approved the Merger by written consent on March , 1995. Under the DGCL, no
action on the part of any other stockholder of the Company is necessary to
authorize or to consummate the Merger. The Company will not hold a meeting of
stockholders in connection with the Merger.
Determination of the Special Committee and the Board; Fairness of the
Merger. On December 27, 1994, the Special Committee concluded that the
acquisition of Class A Shares pursuant to the Merger was substantively and
procedurally fair to the holders of the outstanding Class A Shares, including
from a financial point of view, and unanimously recommended that the Board of
Directors approve the Merger Agreement and approve the Merger at a price of
$25.50 per Class A Share. Based on the recommendation of the Special Committee,
the Board unanimously approved the Merger and the Merger Agreement. For a
discussion of the factors the Special Committee considered in reaching its
decision, see "SPECIAL FACTORS -- Determination of the Special Committee;
Fairness of the Merger".
Opinion of Financial Advisor to the Special Committee. At a meeting on
December 22, 1994 (the "December 22 Special Committee Meeting"), Lazard Freres &
Co. ("Lazard Freres"), financial advisor to the Special Committee, informed the
Special Committee that it would be prepared to deliver a written opinion to the
effect that the proposed price of $25.50 per Class A Share to be received by the
Class A Stockholders in the Merger would be fair to such holders from a
financial point of view. Subsequently, on December 30, 1994, Lazard Freres
delivered its written opinion to the Special Committee that, as of such date,
the consideration to be received by the holders of the Class A Shares in the
Merger (other than GTE, Contel or any of their affiliates) is fair to such
holders from a financial point of view. A copy of such written opinion, setting
forth the assumptions made, matters considered and the review undertaken, is
attached to this Information Statement as Exhibit B. Class A Stockholders are
urged to read this opinion in its entirety. No limitations were imposed by the
Special Committee upon Lazard Freres with respect to the investigation made or
the procedures followed by Lazard Freres in rendering its opinion. For a
discussion of the matters Lazard Freres considered in reaching its opinion, see
"SPECIAL FACTORS -- Opinion of Financial Advisor to the Special Committee".
Determination of Fairness of the Merger by GTE, Contel and CCI
Acquisition. GTE, Contel and CCI Acquisition believe that the transaction is
fair to the Class A Stockholders. GTE, Contel and CCI Acquisition did not retain
financial advisors to evaluate the fairness of the transaction to the Class A
Stockholders. See "SPECIAL FACTORS -- Determination of the Fairness of the
Merger by GTE, Contel and CCI Acquisition".
Plans for the Company; Certain Effects of the Merger. As a result of the
transaction, the Class A Stockholders will no longer have an equity interest in
the Company and, accordingly, will not continue to participate in the results of
the Company as an equity holder. However, they will receive cash for their
interest. The receipt of cash for the Class A Shares is a taxable transaction
under federal and certain state laws. Generally, each Class A Stockholder will
be required to recognize a gain or loss equal to the difference between the
stockholder's basis in the Class A Shares and the amount of cash received
pursuant to the Merger. See "SPECIAL FACTORS -- Certain Federal Income Tax
Consequences of the Merger"; "SPECIAL FACTORS -- Plans for the Company; Certain
Effects of the Merger". Also, as a result of the transaction the Class A Shares
will cease to be registered under the federal securities laws and cease to be
publicly traded.
It is expected that the operations of the Company and GTE's other cellular
subsidiary will be consolidated over time into a single business unit. For a
discussion of the effects of the Merger on GTE,
5
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Contel and the Company see "SPECIAL FACTORS -- Certain Federal Income Tax
Consequences of the Merger"and "SPECIAL FACTORS -- Plans for the Company;
Certain Effects of the Merger".
Opinions of Financial Advisors to GTE. GTE retained Merrill Lynch, Pierce,
Fenner & Smith Incorporated and PaineWebber Incorporated (the "GTE Financial
Advisors") in connection with the transaction. The GTE Financial Advisors
assisted GTE in its negotiations with the Special Committee and Lazard Freres.
In connection with the transaction, the GTE Financial Advisors rendered opinions
to GTE to the effect that the price to be paid for the Class A Shares in the
Merger is fair to GTE from a financial point of view. A copy of the fairness
opinions of the GTE Financial Advisors setting forth the assumptions made,
matters considered and review undertaken, are attached to this information
statement as Exhibits C-1 and C-2 and incorporated herein by reference. For a
discussion of the matters the GTE Financial Advisors considered in reaching
their respective opinions, see "SPECIAL FACTORS -- Opinions of Financial
Advisors to GTE".
PAYMENT OF THE MERGER CONSIDERATION
CCI Acquisition will make available to Chemical Bank, as disbursing agent
in connection with the Merger (the "Disbursing Agent"), the aggregate amount of
cash to be paid in respect of the Class A Shares pursuant to the Merger. In
order to receive the Merger Consideration, Class A Stockholders must send their
certificates representing Class A Shares to the Disbursing Agent along with a
Letter of Transmittal. All certificates so surrendered will be cancelled. A
Letter of Transmittal setting forth the procedures for surrendering to the
Disbursing Agent certificates representing Class A Shares in exchange for cash
is enclosed with this Information Statement.
Upon surrender of a certificate representing Class A Shares together with a
duly executed Letter of Transmittal, the Class A Stockholder will receive in
exchange for each Class A Share $25.50 in cash, without interest, subject to
applicable back-up withholding taxes. Any cash held by the Disbursing Agent that
remains unclaimed by stockholders for 180 days after the effective time of the
Merger will be returned to the Surviving Corporation. After that time, Class A
Stockholders may look only to the Surviving Corporation for payment of the
Merger Consideration without interest and subject to applicable abandoned
property, escheat and other similar laws.
ALL QUESTIONS AND REQUESTS FOR INFORMATION RELATING TO THE PROCEDURE FOR
PAYMENT OF THE MERGER CONSIDERATION FOR THE CLASS A SHARES SHOULD BE DIRECTED TO
THE DISBURSING AGENT. SEE "PAYMENT OF THE MERGER CONSIDERATION".
DISSENTERS' RIGHTS OF APPRAISAL
By following the procedures prescribed by the DGCL, Class A Stockholders
have the right to dissent from the Merger and to receive cash equal to the fair
value of their Class A Shares as determined pursuant to appraisal proceedings in
the Delaware courts. A WRITTEN DEMAND FOR APPRAISAL OF CLASS A SHARES MUST BE
DELIVERED TO THE GENERAL COUNSEL OF THE COMPANY WITHIN 20 DAYS AFTER THE DATE OF
THE MAILING OF THIS INFORMATION STATEMENT. Because of the complexity of the
procedures for exercising the right to dissent, the Company believes that Class
A Stockholders who consider exercising such right should seek the advice of
counsel. Failure to take any step in connection with the exercise of dissenters'
right of appraisal may result in the termination or waiver of such rights. See
"DISSENTERS' RIGHTS OF APPRAISAL" and Exhibit D.
MARKET PRICES AND DIVIDENDS ON THE COMMON STOCK OF THE COMPANY
The Class A Shares are publicly traded in the over the counter market and
quoted on the Nasdaq National Market under the symbol "CCXLA". There is no
established trading market for the Class B Shares. The Company has not paid any
dividends on its Class A Shares or Class B Shares and does not anticipate that
it will do so in the foreseeable future.
6
<PAGE> 7
The following table indicates the high and low sales prices for the Class A
Shares during the designated periods:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1994
High.......................... $ 18.75 $ 17.25 $ 24.00 $ 25.25
Low........................... 14.00 13.00 16.00 23.50
1993
High.......................... $ 18.63 $ 16.25 $ 18.75 $ 22.00
Low........................... 13.25 13.50 15.50 15.00
1992
High.......................... $ 23.25 $ 18.50 $ 16.50 $ 19.00
Low........................... 17.25 13.00 13.50 13.25
</TABLE>
On September 7, 1994, the last full day of trading prior to the
announcement of GTE's intention to acquire the Class A Shares, the high, low and
closing sales prices per Class A Share quoted on the Nasdaq National Market were
$18.25, $17.75 and $17.75, respectively.
For the period from January 1, 1995 through March 14, 1995, the high and
low sales prices per Class A Share quoted on the Nasdaq National Market were
$25.375 and $24.875, respectively.
BUSINESS OF THE COMPANY
The Company, through its subsidiaries and through partnerships, provides or
participates in the provision of cellular telephone service in various
metropolitan statistical areas ("MSAs") and rural service areas ("RSAs")
throughout the United States. As of December 31, 1994, the Company had interests
in cellular telephone systems in the United States representing approximately
23.9 million "POPs". ("POPs" refer to the population of a market area multiplied
by the Company's percentage ownership in the cellular system serving that
market).
The Company's 23.9 million POPs include cellular systems which the Company
controls or manages and cellular systems operated by partnerships in which the
Company is not the controlling partner. As of December 31, 1994, approximately
19.5 million of the Company's 23.9 million POPs were located in 59 MSAs. The
Company owned a controlling interest in and/or managed cellular systems
servicing 32 of these 59 MSAs (representing approximately 69% of the Company's
MSA POPs). The Company owned a non-controlling interest in cellular systems
servicing the remaining 27 MSAs.
The remaining 4.4 million of the Company's 23.9 million POPs were located
in 52 RSAs. As of December 31, 1994, the Company owned controlling interests in
entities licensed to provide cellular service in 24 RSAs, owned non-controlling
interests in and managed 10 RSA markets and held non-controlling interests in 18
RSAs. Most of the Company's RSA POPs are in areas adjacent to MSAs currently
served by the Company. See "BUSINESS OF THE COMPANY".
RELATED PARTY TRANSACTIONS
The Company, Contel and GTE have a number of financial, operating and other
arrangements believed to be of mutual benefit. Those arrangements include,
without limitation, a Third Restated Competition Agreement dated March 14, 1991
among Contel, GTE and the Company (the "Competition Agreement") which, among
other things, allocates cellular business opportunities among GTE's cellular
businesses and a Services Agreement dated May 1, 1991, as amended, between GTE
Mobile Communications Service Corporation ("GTE Mobile") and the Company (the
"Services Agreement"). The terms of these arrangements have been established by
Contel and GTE in consultation with the Company but are not the result of
arms-length negotiations. See "RELATED PARTY TRANSACTIONS -- Arrangements and
Transactions with Contel and GTE".
7
<PAGE> 8
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1990 1991 1992 1993 1994
---------- ---------- ---------- ---------- ----------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues and sales................................. $ 167,178 $ 235,107 $ 286,999 $ 374,014 $ 562,955
Operating income (loss)(1)......................... (38,143) (68,577) (50,113) (28,305) 41,011
Loss from consolidated operations.................. (158,865) (223,726) (196,347) (188,011) (143,332)
Equity in earnings of unconsolidated
partnerships..................................... 19,069 15,687 29,027 37,351 62,792
Gains on sales of partnership interests............ -- 18,387 60,806 48,023 96,607
Net income (loss) before cumulative effect of
change in accounting principles.................. (102,794) (118,900) (73,061) (74,918) 1,871
Cumulative effect of change in accounting
principles(2).................................... -- -- (2,080) (241) --
Net income (loss).................................. (102,794) (118,900) (75,141) (75,159) 1,871
Net income (loss) per share before cumulative
effect of change in accounting principles........ (1.03) (1.19) (0.73) (0.75) 0.02
Net income (loss) per share........................ (1.03) (1.19) (0.75) (0.75) 0.02
Weighted average shares outstanding (in
thousands)....................................... 99,931 99,942 99,943 99,948 99,953
OTHER OPERATING DATA:
Capital expenditures............................... 70,841 107,792 183,504 130,042 255,174
Ending subscribers................................. 155,285 236,282 327,645 521,226 789,580
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------------------
1990 1991 1992 1993 1994
---------- ---------- ---------- ---------- ----------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets....................................... $1,665,395 $1,870,669 $1,930,469 $2,052,984 $2,346,466
Long-term obligations:
Notes payable -- affiliates...................... 1,540,000 1,735,034 1,814,327 1,901,726 2,136,263
Other............................................ 14,280 42,280 36,280 36,792 30,792
Stockholders' equity (deficit)..................... 27,525 (91,085) (166,084) (241,221) (238,920)
Book value per share............................... 0.28 (0.91) (1.66) (2.41) (2.39)
</TABLE>
- ---------------
(1) The operating loss in 1991 includes approximately $12 million of integration
costs associated with the merger of Contel with a wholly owned subsidiary of
GTE.
(2) In 1993, the Company adopted Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits." In 1992, the
Company adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" and
No. 109, "Accounting for Income Taxes."
Earnings were not adequate to cover fixed charges in 1992, 1993 or 1994.
The amount of such deficiency was $128 million, $129 million and $19 million for
the years ended December 31, 1992, 1993 and 1994, respectively.
PROJECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The Company does not, as a matter of course, publicly disclose projections
as to future revenues or earnings. As part of its normal planning process, the
Company has prepared certain five year projected financial data for internal
purposes. Additionally, the Company prepared ten year projected financial data
which was based on an earlier version of the five year projected financial data.
Differences between the ten and the five year projected data are attributable to
the inclusion or exclusion of certain acquisitions which occurred subsequent to
the preparation of the ten year projected data. These five year and ten year
financial projections have been included in this Information Statement because
such projections were made available to the Special Committee's financial
advisor, GTE and the GTE Financial Advisors. See "PROJECTED CONSOLIDATED
FINANCIAL DATA OF THE COMPANY". There can be no assurance that the projections
will be realized and actual results may vary materially from the projections.
8
<PAGE> 9
SPECIAL FACTORS
INTRODUCTION; THE MERGER
This Information Statement is being furnished to the holders of outstanding
shares of the Class A Common Stock (the "Class A Stockholders") of Contel
Cellular Inc., a Delaware corporation (the "Company"), in connection with the
proposed merger (the "Merger") of Contel Cellular Acquisition Corporation, a
Delaware corporation ("CCI Acquisition"), with and into the Company. The Company
will be the corporation that survives the Merger (the "Surviving Corporation").
The Merger will be effected pursuant to an Agreement and Plan of Merger dated as
of December 27, 1994, as amended (the "Merger Agreement"), among the Company,
GTE Corporation, a New York corporation ("GTE"), Contel Corporation, a Delaware
corporation in liquidation and a wholly owned subsidiary of GTE ("Contel"), and
CCI Acquisition, which is a wholly owned subsidiary of Contel. Certain
additional information relating to GTE, Contel, CCI Acquisition and the Company
and each of their respective directors and executive officers is included in
Exhibit E to this Information Statement.
In the Merger, (i) each outstanding Class A Share (other than Class A
Shares as to which appraisal rights have been properly exercised under the DGCL)
will be converted into the right to receive $25.50 in cash, without interest,
subject to backup withholding of taxes (the "Merger Consideration"), (ii) each
Class A Share held by the Company and each outstanding share of the common stock
of CCI Acquisition will be cancelled, and no payment will be made with respect
thereto and (iii) each outstanding Class B Share will continue to be
outstanding.
The Merger is subject to the satisfaction of certain conditions. See "THE
MERGER AGREEMENT -- Conditions to the Merger". The Merger will require notice
filings in a number of states, but the approval of regulatory authorities will
not be required in any jurisdiction. Assuming the satisfaction of such
conditions, the Merger will be consummated on April , 1995. For a discussion
of the effects of the Merger on each of the Class A Stockholders, the Company,
GTE, Contel and CCI Acquisition, see "-- Certain Federal Income Tax Consequences
of the Merger" and "-- Plans for the Company; Certain Effects of the Merger"
below.
BACKGROUND OF THE MERGER
Existing Ownership. The outstanding stock of the Company consists of
9,970,953 Class A Shares, which represent approximately 2% of the voting power
of the combined capital stock of the Company, and 90,000,000 Class B Shares,
which represent approximately 98% of the voting power of the combined capital
stock of the Company. GTE, through its wholly owned subsidiary Contel, owns all
of the outstanding Class B Shares. The outstanding Class A Shares are held by
the public and trade in the over the counter market with prices quoted on the
Nasdaq National Market under the symbol "CCXLA".
The Company was originally formed as a wholly owned subsidiary of Contel.
In April 1988, a portion of the Company's stock was sold to the public in a
public offering. In March 1991, a wholly owned subsidiary of GTE merged into
Contel and Contel became a wholly owned subsidiary of GTE (the "GTE/Contel
Merger"). As a result of this merger, the Company became an indirectly held
subsidiary of GTE. GTE also provided and continues to provide cellular mobile
services through another wholly owned subsidiary, GTE Mobilnet.
GTE/Contel Merger; California Proceeding. At the time of the GTE/Contel
Merger, both GTE and Contel had telephone and cellular operations in California
subject to the jurisdiction of the California Public Utilities Commission (the
"CPUC"). The CPUC asserted jurisdiction over the GTE/Contel Merger. Under
California law, the CPUC is required to approve the merger of the California
telephone operations of GTE and Contel (the "California Proceeding"). In order
to complete the GTE/Contel Merger in jurisdictions other than California, the
companies entered into a stipulation that was approved by the CPUC (the
"Stipulation"). The Stipulation resulted in the approval of the GTE/Contel
Merger on an interim basis.
The Stipulation provided that the GTE and Contel telephone and cellular
companies located in California would be operated as separate entities until the
CPUC could conduct a detailed review of the GTE/Contel Merger under the
provisions of California law. As of this date, the GTE/Contel Merger and the
merger of the GTE and Contel regulated operations in California have not yet
received final approval.
9
<PAGE> 10
In April 1994, GTE received a proposed final decision with respect to the
California Proceeding. As a result of concerns with certain provisions in the
order with respect to the distribution of the GTE/Contel Merger benefits, GTE
requested that the evidentiary record be reopened. That request was granted. The
CPUC, however, has not yet acted based upon the additional evidence that has
been submitted.
GTE's Determination to Proceed and Discussions Regarding Structure. Since
the date of the GTE/Contel Merger, GTE's management has, from time to time,
discussed the concept of acquiring the publicly held shares of the Company. The
discussions were held among GTE's management on a limited and confidential basis
and no decision was made to proceed. In early 1994, GTE began to seriously
consider acquiring the publicly held shares of the Company. As a result of the
continuing delays in the CPUC proceedings, GTE's management concluded in early
August 1994 that it would be advisable to proceed to acquire the publicly held
shares of the Company.
GTE management met with its legal and financial advisors to discuss
structuring the transaction and decided that the most efficient way to effect
the acquisition of the public minority would be through a merger of a wholly
owned subsidiary of Contel into the Company. This structure would ensure that
GTE acquired all of the Class A Shares in a single step. GTE's management
considered using GTE Common Stock to effect the Merger. However, GTE's
management believed that its Common Stock was undervalued and elected to use
cash. GTE's management further considered two alternatives: whether the Company
should merge with and into a subsidiary of Contel that would be created to
accomplish the merger (the "New Subsidiary"), with the New Subsidiary being the
survivor of the merger; or whether the New Subsidiary should merge with the
Company, with the Company being the survivor of the merger.
GTE's management elected to structure the transaction so that the Company
would be the survivor of the Merger. The Company holds licenses to operate
cellular systems in its name and, under applicable rules and regulations of the
Federal Communications Commission (the "FCC"), if the Company was not the
surviving company in the merger, the merger would be considered to be a transfer
of the licenses. The Company would be required to obtain FCC approval for the
transfer of the licenses before effecting such merger. The approval process
could take up to six months and could delay the completion of the Merger and the
payment of Merger Consideration to the Class A Stockholders. The tax
consequences and other effects of a merger would be the same to the Class A
Stockholders regardless of whether the Company or the New Subsidiary was the
survivor of a merger.
Approval by GTE Board. On September 8, 1994, the Board of Directors of GTE
approved a proposal to acquire the Class A Shares for $22.50 per share and also
authorized negotiations with the Company. On the same date, GTE notified the
Board of Directors of the Company of its proposal to acquire the Class A Shares
for $22.50 per Class A Share, or approximately $224 million.
Purpose of the Merger. At the present time, the Company is operated
separately from GTE's other cellular interests. The Company has retained its own
name and own brand identity. Decisions regarding opportunities for the Company
and the decisions on various actions to be taken by the Company have been made
by its Board of Directors based upon the best interests of the Company, not the
best interests of GTE's combined operations. The Merger will permit GTE to
operate its cellular operations as a single unit; enable GTE to implement a
unified marketing strategy for its cellular operations; provide increased
flexibility to pursue joint ventures and other combinations and new business
opportunities; generate efficiencies and reduce overhead in the combined
cellular communications business; and eliminate the complexities raised by
operating two cellular businesses under overlapping but not identical ownership.
After the Merger, GTE plans to operate its combined cellular operations as a
single business unit and to maximize the use of the GTE brand name for all of
its cellular operations. These actions will expand the area covered by service
that can be readily identified as being provided by GTE and increase recognition
of the GTE brand name among consumers that are served by GTE's cellular
operations.
GTE acquired its majority equity position in the Company as part of the
GTE/Contel Merger. From time to time, GTE has attempted to align its legal
entities and simplify its corporate structure. In January 1993, Contel adopted a
plan of liquidation to facilitate the realignment of GTE and Contel entities and
is in the process of distributing its assets to GTE. Contel will continue to
wind up its affairs and to distribute its assets
10
<PAGE> 11
to GTE. When the distributions have been completed, Contel will be completely
liquidated. Contel is the parent of the Company and, accordingly, is a party to
the Merger. Contel is a wholly owned subsidiary of GTE and is not engaged in
operations or making business determinations that are separate from GTE. The
Merger and the consolidation of the cellular operations of the Company and GTE's
other cellular subsidiary are a part of this process.
Special Committee; Negotiations with GTE Financial Advisors. At the time
GTE informed the Company of its offer to acquire the publicly held Class A
Shares, nine of the Company's twelve directors were executive officers or
directors of GTE or the Company. Accordingly, the Board of Directors of the
Company at a meeting on September 9, 1994 appointed the three independent
directors, Messrs. Irwin Schneiderman, Leo Jaffe and Robert LaBlanc, to a
special committee (the "Special Committee") to review the fairness of and
negotiate the material terms of the proposed Merger on behalf of the Class A
Stockholders. Members of the Special Committee each received a fee of $35,000
and the Chairman of the Special Committee received a fee of $45,000. As part of
the Stipulation entered into in the California Proceeding, at least three of the
Company's directors are required to be independent directors who are not
otherwise officers, directors or employees of GTE until the CPUC approval has
been received. GTE has not at this time determined whether or not Messrs.
Schneiderman, Jaffe and LaBlanc will remain as independent directors after the
Merger.
The Special Committee met for the first time on September 17, 1994 and
authorized the retention of Cahill Gordon & Reindel ("Cahill") as legal counsel
to the Special Committee. On September 17 and September 22, 1994, the Special
Committee interviewed seven investment banking firms for possible engagement as
a financial advisor to the Special Committee in its evaluation of the proposed
Merger. On September 22, 1994, the Special Committee retained Lazard Freres &
Co. ("Lazard Freres") as its financial advisor. Lazard Freres has not had any
material relationship with GTE or any of its subsidiaries including the Company.
Between September 28 and December 22, 1994, the Special Committee and
Lazard Freres held thirteen meetings either in person or by telephone conference
call to discuss the proposed Merger. During each of such meetings, members of
the Special Committee asked questions of the representatives of Lazard Freres
regarding numerous topics, including the experience of Lazard Freres in
transactions of this type, the experience of Lazard Freres in transactions in
this industry, and the methodology that Lazard Freres intended to use in valuing
the Class A Shares from a financial point of view. The methodology Lazard Freres
used and the various details of their analyses are set forth below under
"-- Opinion of Financial Advisor to the Special Committee". Beginning on October
17, 1994, the Special Committee (acting through Lazard Freres) entered into
negotiations with GTE's financial advisors, Merrill Lynch, Pierce, Fenner &
Smith Incorporated and PaineWebber Incorporated (individually, "Merrill Lynch"
and "PaineWebber", respectively, and, collectively, the "GTE Financial
Advisors") relating to the proposed price to be paid in the Merger, which
process continued for several weeks. During the course of such negotiations in
October 1994, the GTE Financial Advisors furnished to GTE's management a
preliminary draft of their background analysis and furnished to Lazard Freres a
portion of such preliminary draft. A final version of such preliminary draft
background analysis was never furnished to GTE or Lazard Freres by the GTE
Financial Advisors. The GTE Financial Advisors based their fairness opinions to
GTE on the analyses described below in "-- Opinions of Financial Advisors to
GTE".
In November 1994, GTE indicated that it might be willing to increase its
offer to $25.00 per Class A Share. As a result of continued negotiations between
Lazard Freres and the GTE Financial Advisors, and negotiations with counsel for
certain stockholders who brought suit against the Company and certain of its
affiliates in connection with the proposed transaction described below under
"-- Certain Litigation", the price per Class A Share proposed to be given in the
Merger was increased by GTE to $25.50.
DETERMINATION OF THE SPECIAL COMMITTEE AND THE BOARD; FAIRNESS OF THE MERGER
At a meeting on December 22, 1994 (the "December 22 Special Committee
Meeting"), Lazard Freres informed the Special Committee that it would be
prepared to deliver a written opinion to the effect that the proposed price of
$25.50 per Class A Share to be received by the holders of the Class A Shares
(other than
11
<PAGE> 12
GTE, Contel or any of their affiliates) in the Merger would be fair to such
holders from a financial point of view. Subsequently, on December 30, 1994,
Lazard Freres delivered its written opinion to the Special Committee that, as of
such date, the consideration to be received by the holders of the Class A Shares
(other than GTE, Contel or any of their affiliates) in the Merger is fair to
such holders from a financial point of view. On December 22, 1994 the Special
Committee reviewed a draft of the Merger Agreement, pursuant to which (i) each
outstanding Class A Share (other than Class A Shares as to which appraisal
rights have been properly exercised under the DGCL) would be converted into the
right to receive the Merger Consideration, (ii) each Class A Share held by the
Company and each outstanding share of the common stock of CCI Acquisition would
be cancelled, and no payment would be made with respect thereto and (iii) each
outstanding Class B Share would continue to be outstanding. At a meeting held on
December 27, 1994, the Special Committee unanimously decided that the
acquisition of Class A Shares pursuant to the Merger was substantively and
procedurally fair to the holders of the outstanding Class A Shares, including
from a financial point of view, and, therefore, unanimously recommended to the
Board of Directors of the Company that it approve the Merger at a price of
$25.50 per Class A Share. Based on the recommendation of the Special Committee,
the Company's Board of Directors unanimously found that the Merger was
substantively and procedurally fair to the Class A Stockholders, including from
a financial point of view and approved the Merger Agreement and approved the
Merger at a price of $25.50 per Class A Share. In finding that the Merger was
substantively and procedurally fair to the Class A Stockholders, the Board of
the Company relied on the factors relied on by the Special Committee and the
determinations of the Special Committee.
In determining to recommend to the Board of Directors of the Company that
it approve the Merger and the Merger Agreement, the Special Committee considered
a number of factors. The material factors considered by the Special Committee
were:
(a) the Special Committee's evaluation of the Company's business,
properties and future prospects (which evaluation was substantially the
same as the evaluation by Lazard Freres summarized hereinafter under the
caption "-- Opinion of Financial Advisor to the Special Committee");
(b) that the price of $25.50 per Class A Share represents (i) a
premium of 43.7% over the closing sales price of the Class A Shares on the
Nasdaq National Market on September 7, 1994, the last trading day prior to
the public announcement of the proposed Merger, (ii) a premium of 37.8%
over the closing sales price of the Class A Shares on the Nasdaq National
Market one week prior to September 8, 1994, and (iii) a premium of 39.7%
over the closing sales price of the Class A Shares on the Nasdaq National
Market one month prior to September 8, 1994;
(c) that the sales price of the Class A Shares on the Nasdaq National
Market had not exceeded the price of $25.50 per Class A Share since October
10, 1989;
(d) presentations by Lazard Freres regarding the financial condition,
results of operations, business and prospects of the Company, including the
possible dislocation and competitive uncertainty that could result from
major changes in the cellular communication industry;
(e) presentations by Lazard Freres regarding the industry in which the
Company operates and the financial, operating and stock price history of
the Company in comparison to certain companies operating in the Company's
industry, including the Company's competitors as summarized below in
"-- Opinion of Financial Advisor to the Special Committee";
(f) statements by Lazard Freres at the December 22 Special Committee
Meeting that it would be prepared to deliver to the Special Committee a
written opinion to the effect that the price of $25.50 per Class A Share
was fair to the Class A Stockholders (other than GTE, Contel or any of
their affiliates) from a financial point of view, which written opinion
dated December 30, 1994 was in fact delivered to the Special Committee by
Lazard Freres; and
(g) the Special Committee's belief that GTE would not increase the
price above $25.50 per Class A Share.
12
<PAGE> 13
In view of the variety and nature of the factors considered by the Special
Committee, the Special Committee did not attempt to assign relative weights to
the specific factors considered in reaching its determination, except that the
Special Committee placed particular emphasis on the opinion of Lazard Freres and
the fact that the price of $25.50 per Class A Share represented a substantial
premium over the price at which the Class A Shares had recently and historically
traded. The Special Committee did not consider book value to be a material
factor as it believed that the financial analysis by Lazard Freres provided more
accurate implied values of the Class A Shares. The Special Committee did not
consider liquidation value as the holders of Class A Shares do not have the
power to liquidate the Company. GTE had not purchased any Class A Shares and
there were no firm offers of which the Special Committee was aware made by any
unaffiliated person, so the Special Committee did not consider such factors.
Moreover, the quantifiable per share value of the factors considered did
not exceed the price being offered except to the extent that Lazard Freres
financial analyses produced ranges of values that in some cases partially
exceeded or exceeded $25.50. The Special Committee determined that the Merger is
fair despite such higher values for two reasons: (1) Lazard Freres advised the
Special Committee that, in acquisition transactions where an acquiror already
owned a controlling position in the company to be acquired (as in the case of
GTE's existing ownership of the Company), the public stockholders would not
obtain the full private market valuation as a result of such acquisitions, and
(2) the price of $25.50 exceeded the mid-point and approached the high end of
those other ranges that included a higher value.
The approval of the Merger by a majority of the Class A Stockholders is not
required and is not being sought. Notwithstanding this fact, the Special
Committee believed that the acquisition of Class A Shares pursuant to the Merger
is substantively and procedurally fair to the holders of Class A Shares because
the Special Committee of independent directors of the Company was established to
evaluate the transaction and because GTE and its financial advisors negotiated
in good faith with the Special Committee and its financial advisor. Moreover,
the Special Committee, unanimously approved the Merger.
With the exception of the members of the Special Committee and the Board of
Directors of the Company, no director, executive officer or affiliate of the
Company, GTE, Contel or CCI Acquisition has made a recommendation in support of
or opposed to the Merger.
OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
General. Lazard Freres delivered its written opinion to the Special
Committee that, as of December 30, 1994, the consideration to be received by the
holders of the Class A Shares (other than GTE, Contel or any of their
affiliates) in the Merger is fair to such holders from a financial point of
view.
The full text of the written opinion of Lazard Freres, dated December 30,
1994, which sets forth the assumptions made, matters considered and the review
undertaken with regard to such opinion, is attached to this Information
Statement as Exhibit B. Lazard Freres' opinion was delivered for the benefit of
the Special Committee and is not on behalf of, and is not intended to confer
rights or remedies upon any stockholders of the Company, GTE, or any other
person. The summary of the opinion of Lazard Freres set forth below is qualified
in its entirety by reference to the full text of the opinion. Class A
Stockholders are urged to read this opinion in its entirety. Additional copies
of such opinion are available for inspection and copying at the principal
executive offices of GTE during regular business hours and are also available
upon request directed to GTE Corporation, One Stamford Forum, Stamford, CT
06904, Attention: Ronald J. Tuccillo, Assistant Secretary.
In rendering its opinion on December 30, 1994, Lazard Freres, among other
things, (i) reviewed the terms and conditions of a December 29, 1994 draft of
the Merger Agreement (the "Draft Merger Agreement"); (ii) analyzed certain
historical business and financial information relating to the Company, including
the Annual Report to Stockholders and Annual Reports on Form 10-K of the Company
for each of the fiscal years ended December 31, 1991 through 1993, and Quarterly
Reports on Form 10-Q of the Company for the quarters ended March 31, June 30 and
September 30, 1994; (iii) reviewed certain financial forecasts and other data
provided by the Company relating to the Company; (iv) held discussions with
members of the senior managements of the Company and GTE with respect to the
businesses and prospects of
13
<PAGE> 14
the Company and its strategic objectives; (v) reviewed public information with
respect to certain other companies in lines of business Lazard Freres believes
to be generally comparable to the businesses of the Company; (vi) reviewed the
financial terms of certain recent business combinations involving companies in
lines of businesses Lazard Freres believes to be generally comparable to those
of the Company, and in other industries generally; (vii) reviewed the financial
terms of certain recent business combinations Lazard Freres believes to be
comparable in certain respects to the proposed Merger; (viii) reviewed the
historical stock prices and trading volumes of the Class A Shares; and (ix)
conducted such other financial studies, analyses and investigations as Lazard
Freres deemed appropriate.
In arriving at its opinion and making its presentation to the Special
Committee at the December 22 Special Committee Meeting, Lazard Freres was
advised that the Company and an affiliate of GTE propose to exchange certain
cellular assets owned by each of them for certain cellular assets owned by a
publicly-held company (the "Cellular Exchange"). Lazard Freres received a copy
of a letter dated December 19, 1994 from GTE's Senior Vice President - Finance
addressed to the GTE Financial Advisors regarding the Cellular Exchange to the
effect that it is an exchange of equivalent assets and, accordingly, is value
neutral to the Company. Lazard Freres has neither received nor reviewed any
other information regarding the Cellular Exchange, including any financial
projections or any other non-public financial information prepared by GTE or the
Company. With the consent of the Special Committee, Lazard Freres has assumed
that the Cellular Exchange involves the exchange of assets with substantially
equivalent value and, accordingly, would have an immaterial effect, if any, on
the Company. For a discussion of the agreement entered into in February 1995 by
the Company and certain affiliates of GTE relating to the Cellular Exchange, see
"BUSINESS OF THE COMPANY -- The Company's Cellular Operations -- Cellular
Exchange Transaction".
For purposes of its opinion, Lazard Freres, with the Special Committee's
concurrence, has ascribed no value to the Company's rights under either (i) the
Competition Agreement or (ii) the Services Agreement.
In rendering its opinion, Lazard Freres did not review this Information
Statement or any similar document that may be prepared for use in connection
with the proposed Merger. In addition, Lazard Freres was not asked by the
Special Committee to solicit third party indications of interest in acquiring
all or any part of the Company, nor did Lazard Freres seek any such offers.
In connection with its review, Lazard Freres relied upon the accuracy and
completeness of the financial and other information concerning the Company
received by Lazard Freres and did not assume any responsibility for any
independent verification of such information or any independent valuation or
appraisal of any of the assets of the Company. With respect to the financial
forecasts provided to it by the Company, Lazard Freres assumed that such
financial forecasts were reasonably prepared on bases reflecting the best
currently available estimates and judgments of management of the Company as to
the future financial performance of the Company. Lazard Freres assumed no
responsibility for and expressed no view as to such forecasts or the assumptions
upon which they were based. Lazard Freres' opinion was based on economic,
monetary, market and other conditions as in effect on, and information made
available to it as of, the date of the opinion.
In rendering its opinion, Lazard Freres assumed that the Merger Agreement
entered into among the parties thereto would be identical in all material
respects to the Draft Merger Agreement, and that the Merger would be consummated
on the terms described in the Draft Merger Agreement, without any waiver of any
material terms or conditions by the Company. Lazard Freres also assumed that
obtaining any necessary regulatory approvals for the Merger would not have an
adverse effect on the Company. Lazard Freres has since advised the Special
Committee that the changes included in the Merger Agreement from the Draft
Merger Agreement on which its opinion was based would not have effected Lazard
Freres ability to deliver its opinion set forth therein.
In arriving at its opinion and making its presentation at the December 22
Special Committee Meeting, Lazard Freres considered and discussed certain
financial analyses and other factors. In connection with its presentation,
Lazard Freres presented the Special Committee with a summary of its analyses
(the "Lazard
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Freres Report"), which had been discussed in preliminary form at prior meetings
of the Special Commitee. The following is a brief summary of the analyses
performed by Lazard Freres in connection with rendering its opinion and
discussed with the Special Committee at the December 22 Special Committee
Meeting.
In reviewing the background of GTE's initial offer to acquire the Class A
Shares at $22.50 per share (the "GTE Initial Offer") and GTE's revised offer of
$25.50 per share (the "GTE Revised Offer"), Lazard Freres noted the GTE Initial
Offer implied a value for the Company's approximately 23.9 million POPs of
approximately $194 of market capitalization (defined as the total market value
of the Company's equity plus its net debt) per net POP, $181 of cellular asset
value per net POP (which excludes from market capitalization the value of the
Company's non-cellular assets), and $156 of cellular license value per net POP
(which excludes from cellular asset value the value of the Company's
non-cellular assets and the value of the Company's net cellular property, plant
and equipment). Lazard Freres explained that the GTE Initial Offer also
represented a 26.8% premium over the closing price per share of the Class A
Shares on September 7, 1994, one day prior to GTE's announcement of the GTE
Initial Offer, on which date the closing price per share of the Class A Shares
was $17.75. In addition, Lazard Freres noted that the Revised GTE Offer
recommended by the Special Committee implied a value of approximately $207 of
market capitalization per net POP, $193 of cellular asset value per net POP, and
$169 of cellular license value per net POP; the GTE Revised Offer also
represented a 43.7% premium over the closing price per share of the Class A
Shares one day prior to GTE's announcement of the GTE Initial Offer, and a 13.3%
increase over the GTE Initial Offer.
Lazard Freres explained that in arriving at its opinion, Lazard Freres
performed a number of financial analyses, including: (i) a private market
transaction analysis, in which Lazard Freres reviewed publicly available
information on twenty-six private market sale transactions announced since July
1993, involving cellular operations in MSAs; (ii) a comparable public company
analysis, in which Lazard Freres reviewed certain financial, operating, and
stock market trading information of selected publicly traded companies engaged
primarily in the cellular business; and (iii) a discounted cash flow analysis,
in which Lazard Freres estimated the present value of the future cash flows that
the management of the Company expects its businesses to generate.
The material portions of the foregoing analyses (which are all of the
material valuation methodologies performed by Lazard Freres) are summarized
below.
Private Market Transaction Analysis. Lazard Freres reviewed publicly
available information on twenty-six private market sale transactions that were
announced and consummated since July 1993, involving cellular operations in MSAs
(the "Comparable Transactions"). Using regression analysis, private market value
for cellular properties in the Comparable Transactions were estimated as a
function of MSA ranking (e.g., New York City, as the largest MSA, ranked number
1). These results were then applied to the Company's MSA net POPs, with
adjustments made to the resulting valuations depending upon (i) how expected
population growth in each such MSA compared to the average population growth
expected for the United States, as a whole; (ii) how median household income in
each such MSA compared to median household income for the United States, as a
whole; (iii) how average commuting time for each such MSA compared to average
commuting time for the United States, as a whole; and (iv) whether each such MSA
was contiguous to other MSAs or RSAs serviced by the Company. Such adjustments
were calculated by applying to the valuation of each of the Company's MSA
markets a 5% premium for each of the foregoing criterion which applied to such
MSA market, and a 5% discount for each of the foregoing criterion which did not
apply to such MSA market. Utilizing this methodology, the implied values of the
Company's controlled MSA net POPs and non-controlled MSA net POPs were estimated
at $211 per POP and $280 per POP, respectively.
In view of the Company's substantial holdings of non-controlled MSA net
POPs in large MSA markets, including non-controlling interests in four of the
country's ten largest MSA markets (Los Angeles, San Francisco, Washington, D.C.
and Houston), implied private market values for the Company's non-controlled MSA
net POPs were also estimated utilizing a cash flow based comparable public
company analysis to estimate the value of such non-controlled MSA net POPs as if
such interests were held by a stand-alone company. In this analysis, which
Lazard Freres analyzed for selected publicly traded companies in the cellular
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<PAGE> 16
communications business (the "Comparable Companies") the stock prices, market
capitalizations, cellular asset values and publicly available estimates of
projected operating cash flows for 1994 through 1996. This analysis showed an
average ratio of market capitalization to projected cash flow in 1994 for the
Comparable Companies of 23.9. Applying this multiple to the projected 1994
operating cash flow of the Company's non-controlled MSA net POPs provided by
management, the implied value of such non-controlled MSA net POPs was estimated
at $341 per POP. The Comparable Companies reviewed by Lazard Freres in this
analysis included AirTouch Communications Inc., BCE Mobile Communications, Inc.,
Centennial Cellular Corp., Rogers Cantel Mobile Communications, Inc., United
States Cellular Corporation, and Vanguard Cellular Systems, Inc.
Implied private market valuations for the Company's net MSA POPs were then
calculated for the Company's approximately 12.9 million controlled MSA net POPs
(estimated at $211 per MSA net POP utilizing the regression analysis referred to
above) and the Company's approximately 5.9 million non-controlled MSA net POPs
(estimated ranging from $280 per MSA net POP utilizing the regression analysis
referred to above to $341 per MSA net POP utilizing the comparable public
company analysis referred to above). After adding (i) an assumed value of $130
per net POP for each of the Company's approximately 3.3 million controlled and
clustered RSA net POPs (where "clustered RSA net POPs" refers to the POPs
serviced by the Company in RSAs that are contiguous to other MSAs or RSAs
serviced by the Company), (ii) an assumed value of $105 per net POP for each of
the Company's approximately 0.5 million controlled and non-clustered RSA net
POPs (where "non-clustered RSA net POPs" refers to the POPs that are not
clustered RSA net POPs), (iii) an assumed value of $77 per net POP for each of
the Company's approximately 1.2 million non-controlled RSA net POPs, (iv) an
implied value of $300 million for the Company's wireless data business,
estimated utilizing a discounted cash flow analysis described below, and (v) an
assumed value of $30 million for the Company's international assets, and
subtracting net debt, Lazard Freres arrived at estimated ranges of value for the
common equity of the Company, including the Class A Shares. The assumed values
referred to in clauses (i), (ii), (iii) and (v) above were derived based on
consultations with management of the Company and Lazard Freres' experience with
similar properties in other transactions. Utilizing this methodology, the
implied full private market valuation of the Class A Shares was estimated at
between $32.36 and $36.00 per share. While the estimated range of implied full
private market valuations of the Class A Shares utilizing this methodology was
higher than the GTE Revised Offer, the Lazard Freres Report noted that in
acquisition transactions where an acquiror already owned a controlling position
in the company to be acquired (as in the case of GTE's existing equity ownership
of the Company), public stockholders would not obtain full private market
valuation as a result of such acquisitions.
Comparable Public Company Analysis. Lazard Freres compared certain
publicly available financial data of selected publicly traded companies in the
cellular communications business with the historical financial performance of
the Company. Lazard Freres analyzed on a per net POP basis for each of the
Company and such selected publicly traded companies, among other things, the
market values (defined as the total market value of a company's equity), market
capitalizations, cellular asset values and cellular license values. This
analysis showed that the cellular asset values per net POP for such publicly
traded companies ranged from an estimated low of $117 to an estimated high of
$194, which compared to an implied value in the GTE Revised Offer of
approximately $193 of cellular asset value per net POP. The publicly traded
companies reviewed by Lazard Freres in this analysis included the Comparable
Companies, Commnet Cellular, Inc. and PriCellular Corp. Utilizing this
methodology, the implied value of the Class A Shares was estimated at between
$23.29 and $25.68 per share, compared to $25.50 in the GTE Revised Offer.
Discounted Cash Flow Analysis. Lazard Freres performed a discounted cash
flow analysis of the Company based upon estimates of financial performance of
the Company provided by management. Utilizing these projections, Lazard Freres
discounted to the present (i) the projected stream of the Company's unlevered
cash flows for its cellular business through the year 2004, and (ii) the
projected terminal value of the Company's cellular business at such year based
upon a range of multiples of cash flow in year 2004. Lazard applied several
discount rates (ranging from 11% to 13%) and multiples of cash flow in year 2004
(ranging from 12.0 to 14.0). Similarly, for the Company's wireless data
business, Lazard Freres discounted to the present projected streams of the
Company's cash flows for its wireless data business and arrived at an
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<PAGE> 17
estimated valuation by applying several discount rates (ranging from 12.0% to
16.0%) and multiples of cash flow in year 2004 (ranging from 13.5 to 15.5).
After adding an assumed value of $30 million for the Company's
international assets and subtracting net debt, Lazard Freres arrived at
estimated ranges of value for the common equity of the Company, including the
Class A Shares. Utilizing this methodology, the implied value of the Class A
Shares was estimated at between $19.99 and $28.60 per share, compared to $25.50
in the GTE Revised Offer.
In arriving at its written opinion and in presenting the Lazard Freres
Report to the Special Committee, Lazard Freres performed various financial
analyses, portions of which are summarized above. The summary set forth above
does not purport to be a complete description of Lazard Freres' analyses. Lazard
Freres believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering all such analyses, could
create an incomplete view of the process underlying its analyses set forth in
the opinion and the Lazard Freres Report. The preparation of a fairness opinion
is a complex process and is not necessarily susceptible to partial analysis or
summary description. However, the Lazard Freres Report noted that the GTE
Revised Offer fell within the range of implied values of the Class A Shares for
each of the analyses performed and described above other than the private market
transaction analysis, for which the Lazard Freres Report noted that since GTE
already held a controlling position in the Company through its existing equity
ownership, the Company's public stockholders would not obtain full private
market valuation for the Class A Shares. With regard to the private market
transaction analysis and the comparable public company analyses summarized
above, Lazard Freres selected comparable public companies on the basis of
various factors, including the size of the public company and similarity of the
line of business; however, no public company utilized as a comparison is
identical to the Company. Accordingly, an analysis of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the acquisition or
public trading value of the comparable companies to which the Company is being
compared. In performing its analyses, Lazard Freres made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of the Company.
The analyses performed by Lazard Freres are not necessarily indicative of
actual past or future results or values, which may be significantly more or less
than such estimates. Additionally, analyses relating to the values of businesses
do not purport to be appraisals or to reflect the price at which such companies
may actually be sold, and such estimates are inherently subject to uncertainty.
Lazard Freres regularly engages in the valuation of businesses and their
securities in connection with mergers and acquisitions and for other purposes.
The Special Committee selected Lazard Freres to act as its financial advisor on
the basis of Lazard Freres' qualifications, expertise and reputation in
investment banking, in general, and mergers and acquisitions, specifically.
The Company has paid Lazard Freres a retainer fee of $250,000 and an
additional fee of $500,000 upon delivery of its written opinion. The Company has
also agreed to reimburse Lazard Freres for its out-of-pocket expenses, including
reasonable fees and disbursements of counsel, and to indemnify Lazard Freres and
its partners, employees, agents, affiliates and controlling persons against
certain liabilities under the federal securities laws, relating to or arising
out of its engagement.
DETERMINATION OF THE FAIRNESS OF THE MERGER BY GTE, CONTEL AND CCI ACQUISITION
GTE, Contel and CCI Acquisition reasonably believe that the Merger is fair
to the Class A Stockholders. GTE, Contel and CCI Acquisition have concluded that
the price to be paid to the Class A Stockholders is fair based solely on the
previously described determinations of the Special Committee and Lazard Freres.
The material factors considered in making such a determination are those that
were considered by the Special Committee. See " -- Determination of the Special
Committee and the Board; Fairness of the Merger". GTE, Contel and CCI
Acquisition also believe that the Merger is procedurally fair because, in
addition to the appraisal rights granted to the Class A Stockholders under the
DGCL described below in "DISSENTERS' RIGHTS OF APPRAISAL", the final price and
terms were negotiated in good faith by GTE and its financial
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advisors and the Special Committee and the Merger was unanimously approved by
the Company's Board including the independent directors of the Company. GTE
retained its financial advisors to assist in the negotiation and determine
whether the transaction was fair to GTE's shareholders.
OPINIONS OF FINANCIAL ADVISORS TO GTE
GTE was assisted in its negotiations with the Special Committee and Lazard
Freres by its financial advisors, Merrill Lynch and PaineWebber. Merrill Lynch
and PaineWebber regularly value businesses and their securities and provide
advice in connection with merger and acquisition transactions. Merrill Lynch and
PaineWebber previously served as financial advisors to GTE in connection with
the merger of a wholly-owned subsidiary of GTE with and into Contel. As part of
the agreements with Merrill Lynch and PaineWebber with respect to that
transaction, GTE agreed to retain Merrill Lynch and PaineWebber as financial
advisors in connection with any related restructuring. Based upon that agreement
and the expertise of both Merrill Lynch and PaineWebber in evaluating
transactions similar to the Merger, GTE decided to retain Merrill Lynch and
PaineWebber as its financial advisors in connection with the Merger.
PaineWebber has provided investment banking and other services to GTE from
time to time, including serving as underwriter in connection with the issuance
of GTE's debt and equity financings. During the last two years, PaineWebber has
earned compensation with respect to all such services, other than fees in
connection with the Merger, of approximately $5.0 million. In the future, GTE
may retain PaineWebber from time to time for similar services. In the ordinary
course of its business, PaineWebber actively trades debt and equity securities
of GTE for its own account and the accounts of its customers, and PaineWebber
therefore may, from time to time, hold a long or short position in such
securities.
Merrill Lynch has also provided investment banking and other services to
GTE from time to time, including serving as a dealer in connection with the
issuance of GTE's commercial paper and as an underwriter in connection with its
issuance of its debt and equity financings. During the last two years, Merrill
Lynch has earned compensation with respect to all such services, other than fees
in connection with the Merger, of approximately $7.4 million. Merrill Lynch is
presently providing GTE with financial and strategic advice in connection with a
matter other than the Merger, for which it is receiving a fee of $150,000 per
month which commenced in August 1994 and will continue until such matter is
completed. In the future, GTE may retain Merrill Lynch from time to time for
similar services. In the ordinary course of its business, Merrill Lynch actively
trades debt and equity securities of GTE for its own account and the accounts of
its customers, and Merrill Lynch therefore may, from time to time, hold a long
or short position in such securities.
In connection with the transaction, the GTE Financial Advisors rendered
opinions to GTE to the effect that the price to be paid for the Class A Shares
in the Merger is fair to GTE from a financial point of view. A copy of the
fairness opinions of the GTE Financial Advisors are attached to this Information
Statement as Exhibits C-1 and C-2. Additional copies of such opinions are
available for inspection and copying at the principal executive offices of GTE
during regular business hours and are also available upon request directed to
GTE, One Stamford Forum, Stamford, CT 06904, Attention: Ronald J. Tuccillo,
Assistant Secretary.
Shareholders are cautioned that the opinions of the GTE Financial Advisors
were prepared solely for the benefit of GTE, to provide GTE advice regarding the
fairness of the price of $25.50 per Class A Share to GTE from a financial point
of view. The GTE Financial Advisors were not engaged to evaluate the fairness of
the transaction or the price to Class A Stockholders.
The GTE Financial Advisors believe that their analyses must be considered
as a whole and that selecting portions of their analyses and of the factors
considered by them without considering all factors and analyses, could create an
incomplete view of the processes underlying their analyses and opinion. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analyses or summary descriptions.
In rendering their opinions, the GTE Financial Advisors did not make or
seek to obtain appraisals of the Company's assets in connection with their
analyses of the valuation of the Company and did not determine the amount of
consideration to be paid in the Merger. In addition, the GTE Financial Advisors
were not requested to and did not solicit third parties who might be interested
in acquiring all or any part of the Company. In their
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respective analyses, the GTE Financial Advisors made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the Company's control. Any estimates of
value contained therein are not necessarily indicative of actual values, which
may be significantly more or less favorable than as set forth therein. Estimates
of values of companies do not purport to be appraisals or necessarily reflect
the prices at which companies may actually be sold. Because such estimates are
inherently subject to uncertainty, none of the Company, GTE or the GTE Financial
Advisors or any other person assumes responsibility for their accuracy.
In arriving at their opinions, the GTE Financial Advisors (a) reviewed the
Company's Annual Reports, Forms 10-K and related financial information for the
five fiscal years ended December 31, 1993 and the Company's Forms 10-Q and the
related unaudited financial information for the quarterly periods ending March
31, June 30, and September 30, 1994; (b) reviewed certain information, including
financial forecasts, relating to the business, earnings, cash flow, assets and
prospects of the Company, furnished to them by the Company; (c) conducted
discussions with members of senior management of the Company concerning its
businesses and prospects; (d) reviewed the historical market prices and trading
activity for the Class A Shares and compared them with that of certain publicly
traded companies which they deemed to be reasonably similar to the Company; (e)
compared the results of operations of the Company with that of certain companies
which they deemed to be reasonably similar to the Company; (f) compared the
proposed financial terms of the transactions contemplated by the Merger
Agreement with the financial terms of certain other mergers and acquisitions
which they deemed to be relevant; (g) considered the pro forma effect of the
Merger on GTE's capitalization ratios, earnings and cash flow; (h) considered a
discounted cash flow analysis on future cash flows that management of the
Company expects the Company to generate; (i) reviewed a draft of the Merger
Agreement; and (j) reviewed such other financial studies and analyses and
performed such other investigations and took into account such other matters as
they deemed necessary, including their assessments of general economic, market
and monetary conditions.
The GTE Financial Advisors will each receive an aggregate fee of $500,000
in connection with the transaction. A retention fee of $50,000 each was paid at
the time the GTE Financial Advisors were retained and a fee of $450,000 each
will be paid at the time of the Merger. In addition, GTE has agreed to reimburse
the GTE Financial Advisors for all of their reasonable out-of-pocket expenses,
including but not limited to, legal fees and travel expenses. GTE also agreed to
indemnify and hold harmless the GTE Financial Advisors against certain
liabilities, including liabilities under the federal securities laws or arising
out of or in connection with their rendering of services.
In preparing their opinions, the GTE Financial Advisors relied on the
accuracy and completeness of all information supplied or otherwise made
available to them by the Company, and the GTE Financial Advisors have not
assumed any responsibility to independently verify such information. With
respect to the financial forecasts furnished by the Company, the GTE Financial
Advisors assumed that they have been reasonably prepared and reflect the best
currently available estimates and judgment of the Company's management as to the
expected future performance of the Company. The opinions of the GTE Financial
Advisors do not address the relative merits of the Merger and any other
transactions or business strategies which may have been discussed by the Board
of Directors of GTE as alternatives to the Merger or the decision of the Board
of Directors of GTE to proceed with the Merger. In rendering their opinions, the
GTE Financial Advisors were not engaged to act as an agent or fiduciary of GTE's
equity holders or any other third party.
Summary of PaineWebber's Opinion to the Board of GTE Corporation
The following paragraphs summarize the material financial and comparative
analyses performed by PaineWebber in arriving at the PaineWebber opinion. The
following does not purport to be a complete description of the analyses
performed, or the matters considered by PaineWebber in arriving at the
PaineWebber opinion.
PaineWebber delivered its December 1994 Opinion Letter (the "PaineWebber
Opinion Letter") to the Board of Directors of GTE at a meeting held on December
27, 1994. The PaineWebber Opinion Letter relied on the valuation methods
described below to determine a range of values for the Company.
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Discounted Cash Flow Analysis. PaineWebber prepared and reviewed the
results of an unlevered discounted cash flow analysis of the Company based on
certain operating and financial assumptions. The assumptions were based on two
sets of financial projections provided to PaineWebber by the management of the
Company: a five year strategic plan and a ten year projection. For a discussion
of these projections, see "PROJECTED CONSOLIDATED FINANCIAL DATA OF THE
COMPANY".
The purpose of the discounted cash flow analysis was to determine the
present value of each of the Company's unlevered after-tax free cash flows over
the projected periods. To calculate the value of a business using a discounted
cash flow analysis, the projected cash flows for each year together with the
estimated value of the business in the final year of the projected period
("Terminal Value") are discounted to the present using various assumed discount
rates. PaineWebber estimated the Terminal Value for the Company in two
components. First, PaineWebber applied an earnings before interest, taxes,
depreciation and amortization ("EBITDA") multiple to the Company's EBITDA,
before minority interest and equity in unconsolidated affiliates, in the final
year of the projected period. PaineWebber then applied a price/earnings multiple
("P/E multiple") to the net tax-affected amount of minority interests and equity
in earnings of unconsolidated affiliates (discounted by 30% to reflect a
minority interest). After discounting the projected cash flows and the Terminal
Value, PaineWebber added the value of the Company's 10% interest in licenses in
the states of Sonora and Sinaloa, Mexico, calculated as $48 per POP for the
Company's approximately 0.4 million POPs. The sum of these components derived
the implied total market capitalization of the Company at December 31, 1994.
PaineWebber then subtracted the Company's estimated net debt at December 31,
1994 of $2,114.5 million and divided by the number of shares outstanding at
December 31, 1994 of 100.0 million to determine the implied equity value per
Class A Share.
PaineWebber considered exit EBITDA multiples ranging from 10.5x to 12.5x
for both sets of projections and exit P/E multiples ranging from 18.0x to 22.0x
for the five year projections and 16.0x to 20.0x for the ten year projections.
For the purposes of determining the appropriate discount rate to be applied in
the discounted cash flow analyses, PaineWebber considered weighted average costs
of capital ranging from 13.0% to 15.0% to discount all values from December 31,
1999 to January 1, 1995 and 10.0% to 12.0% to discount all values from December
31, 2004 to January 1, 2000.
This analysis resulted in a range of equity values per share for the Class
A Shares of between $19.56 to $30.46 using the five year projections and $13.57
to $24.31 using the ten year projections. PaineWebber noted that the per share
price of $25.50 fell within the range implied by the five year projections. Due
to the inherently less certain nature of the ten year projections, and the fact
that the Company had advised PaineWebber that it had not prepared the ten year
projections as part of its normal planning process, PaineWebber relied more
heavily on the analysis derived from the five year projections.
Comparable Transaction Analysis. PaineWebber reviewed several publicly
announced merger and acquisition transactions in the cellular communications
industry, together with information regarding certain transactions that GTE
furnished to PaineWebber. The publicly announced transactions examined by
PaineWebber included the following: McCaw Cellular Communications Inc.'s private
market value guarantee of LIN Broadcasting Corp.; AirTouch Communications Inc.'s
private market value guarantee of Cellular Communications Inc., Compagnie
Generale des Eaux's indirect acquisition of cellular properties from SBC
Communications Inc.; Independent Cellular Network, Inc.'s acquisition of
cellular properties from C-TEC Corp.; Southwestern Bell Corp.'s acquisition of
Associated Communications Corp.; Southwestern Bell Corp.'s acquisition of
cellular properties from GTE Mobilnet; Century Telephone Enterprises Inc.'s
acquisition of Celutel Inc.; AT&T Corp.'s then pending acquisition of McCaw
Cellular Communications Inc.; InterCel Inc.'s acquisition of cellular properties
from Unity Cellular Systems, Inc.; ALLTEL Corp.'s acquisition of cellular
properties from Contel Cellular Inc.; Associated Communications Corp.'s
acquisition of cellular properties from McCaw Cellular Communications Inc.;
ALLTEL Corp.'s acquisition of cellular properties from SLT Communications Inc.;
Sprint Corp.'s acquisition of cellular properties from Centel Corp.; Bell
Atlantic Corp.'s acquisition of cellular properties from Metro Mobile CTS Inc.;
McCaw Cellular Communications Inc.'s acquisition of cellular properties from
Crowley Cellular Telecommunications Inc.; Ameritech Corp.'s acquisition of
cellular properties from Cybertel Financial and Cybertel RSA Cellular L.P.;
Comcast Corporation's acquisition of cellular properties from Metromedia Inc.;
BellSouth Corp.'s acquisition of cellular
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properties from McCaw Cellular Communications Inc.; and US WEST, Inc.'s
acquisition of the minority interest in US WEST NewVector.
Using information regarding the MSA market rank of the target's POPs in the
comparable transactions, PaineWebber developed ranges of assumed private market
values for the various categories of MSA market rank. These value ranges were:
MSA markets ranked 1 to 25: $250 per POP to $350 per POP; MSA markets ranked 26
to 75: $175 per POP to $250 per POP; MSA markets ranked 76 to 125: $150 per POP
to $200 per POP; MSA markets ranked 126 to 175: $125 per POP to $175 per POP;
MSA markets ranked 176 to 275: $125 per POP to $150 per POP; and MSA markets
ranked 276 and above: $75 per POP to $125 per POP. Based on the RSA transactions
examined, PaineWebber developed a valuation assumption for RSA POPs of $90 per
POP. PaineWebber then applied these per POP valuation ranges to the Company's
POPs. PaineWebber applied a range of discounts between 0% and 30% to the
Company's non-controlled POPs. PaineWebber selected this range of discounts
based on its experience with similar transactions and its analysis of publicly
disclosed information regarding other transactions. This methodology resulted in
a range of values per Class A Share of $12.75 to $30.30. PaineWebber noted that
the per share price of $25.50 fell within this range.
Comparable Public Companies Analysis. PaineWebber compared selected
historical stock and earnings data and financial ratios for the Company to the
corresponding data and ratios of certain publicly-traded companies which
PaineWebber deemed to be comparable to the Company. For the purposes of the
PaineWebber Opinion Letter, the set of companies which PaineWebber deemed
comparable to the Company was comprised of AirTouch Communications Inc.,
Cellular Communications, Inc., Cellular Communications of Puerto Rico, Inc.,
Centennial Cellular Corporation, Commnet Cellular, Inc., InterCel Inc., LIN
Broadcasting Corporation, United States Cellular Corporation and Vanguard
Cellular Systems, Inc. (the "Comparable Group").
This analysis resulted in a range of market capitalization of cellular
assets (defined as total market capitalization, less minority interests, less
estimated public market value of non-cellular assets) per POP of $330 to $111
with a median of $170 and a range of market capitalization of MSA cellular
assets (defined as market capitalization of cellular assets less the value of
RSA cellular assets at $90 per RSA POP) per POP from $451 to $133 with a median
of $212. PaineWebber noted that the proposed price of $25.50 implied a market
capitalization of cellular assets per POP for the Company of $198 and a market
capitalization of MSA cellular assets per POP of $224.
Minority Buy Out Analysis. PaineWebber examined the seventy-seven minority
buy out transactions since January 1, 1988 for which PaineWebber was able to
find adequate public information. Due to the limited information available
regarding minority buy out transactions in the cellular communications industry,
the analysis of transactions was not limited to those in the cellular
communications industry. PaineWebber examined the transactions on the basis of
percentage change from initial offer price to final offer price and percentage
premium of the offer price to the trading price per share at six months prior to
announcement, one month prior to announcement, one day prior to announcement,
one day after announcement, the latest twelve months ("LTM") high and the LTM
low. This analysis resulted in average premiums of 11.7% (percent change from
initial offer price to final offer price) and 39.8%, 43.3%, 31.5%, 10.9%, 1.8%
and 85.4%, respectively and resulted in median premiums of 4.6% (percent change
from initial offer price to final offer price) and 33.3%, 33.3%, 20.4%, 7.4%,
2.2% and 58.9%, respectively. PaineWebber examined the premiums paid in the only
recent minority buy out in the cellular communications industry, US WEST, Inc.'s
purchase of US WEST NewVector Group, Inc. on November 12, 1990, which resulted
in premiums of 22.2% (percent change from initial offer price to final offer
price) and 47.9%, 74.3%, 44.3%, 28.0%, 2.9% and 122.8%, respectively.
PaineWebber noted that the per share price of $25.50 implied premiums to the
trading price per share of the Class A Shares of 13.3% (percent change from
initial offer price to final offer price) and 56.9%, 39.7%, 43.7%, 10.3%, 6.3%
and 96.2%, respectively. PaineWebber noted that these implied premiums were
within the range of transactions examined.
Historical Market Valuation and Ownership Analysis. PaineWebber reviewed
the daily performance of the intra-day and closing market prices per share and
trading volumes of the Class A Shares from April 21,
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1988 to December 2, 1994. This analysis was utilized to provide historical
background for the manner in which the public trading market had valued the
Class A Shares since their initial public offering. PaineWebber also reviewed
the volume of the Class A Shares which traded and the prices at which the Class
A Shares traded for the period January 1, 1994 to December 5, 1994 and since the
announcement of the Merger on September 8, 1994 to December 5, 1994. The implied
premiums to the market price of the Class A Shares at specified intervals is set
forth above in "SPECIAL FACTORS -- Opinions of Financial Advisors to
GTE -- Summary of PaineWebber's Opinion to the Board of GTE
Corporation -- Minority Buy Out Analysis".
Summary of Merrill Lynch's Opinion to the Board of GTE Corporation
The following paragraphs summarize the material financial and comparative
analyses performed by Merrill Lynch in arriving at the Merrill Lynch Opinion.
The following does not purport to be a complete description of the analyses
performed, or the matters considered by Merrill Lynch in arriving at the Merrill
Lynch Opinion.
Merrill Lynch delivered its December 1994 Opinion Letter (the "Merrill
Opinion Letter") to the Board of Directors of GTE at a meeting held on December
27, 1994. The Merrill Opinion Letter relied primarily upon two valuation methods
to determine a range of values for the Company: a discounted cash flow analysis
and a private market transaction analysis. In addition, the Merrill Opinion
Letter relied upon analysis of comparable public companies, premiums paid in
similar transactions, pro forma merger consequences, and historical market
valuation and ownership.
Discounted Cash Flow Analysis. Merrill Lynch performed a discounted cash
flow analysis based upon forecasts provided by the Company's management. The
Company's management provided Merrill Lynch with two sets of financial
forecasts: a five year strategic plan projection and a ten year projection. For
a discussion of these projections, see "PROJECTED CONSOLIDATED FINANCIAL DATA OF
THE COMPANY". Due to the inherently less certain nature of the 10-year
projections, and the fact that the Company had advised Merrill Lynch that it had
not prepared the 10-year projections as part of its normal planning process,
Merrill Lynch relied more heavily on the analysis derived from the five year
projections. The following assumptions were made in the discounted cash flow
analysis: (1) a range of discount rates from 12.0% to 14.0% was used to discount
all values from December 31, 1999 to January 1, 1995 and in the case of the
10-year discounted cash flow analysis, a range of discounted rates from 10.0% to
12.0% was used to discount all values from December 31, 2004 to January 1, 2000;
and (2) a range of EBITDA exit multiples from 10.0x to 12.0x was used to
determine the terminal value using the EBITDA exit methodology. Merrill Lynch
discounted to present value the projected five year and ten year streams of free
cash flow, the year 1999 terminal value and the year 2004 terminal value based
upon the ranges of discount rates and EBITDA multiples described above. Total
enterprise value was adjusted for the Company's minority interest obligations
and unconsolidated equity investments. Based on the exit multiple methodology, a
P/E multiple of 16.0x to 20.0x was applied to the net amount of the minority
interest obligations and the tax-affected equity income in unconsolidated
subsidiaries (discounted 30% for the minority position) in the terminal year.
Total enterprise value was also adjusted upward by the value of the Company's
10% interest in licenses in the states of Sonora and Sinaloa, Mexico, calculated
as $48 per POP for the Company's approximately 0.4 million POPs.
Utilizing the 5-year projections Merrill Lynch arrived at a range of values
per Class A Share of approximately $19.63-$30.90 per share, and utilizing the
10-year projections Merrill Lynch arrived at a range of values per Class A Share
of approximately $14.93-$25.97 per share.
Comparable Transaction Analysis. Merrill Lynch reviewed several publicly
announced merger and acquisition transactions in the cellular communications
industry, together with information regarding certain transactions that GTE
furnished to Merrill Lynch. The publicly announced transactions examined by
Merrill Lynch included the following: McCaw Cellular Communications Inc.'s
private market value guarantee of LIN Broadcasting Corp.; AirTouch
Communications Inc.'s private market value guarantee of Cellular Communications
Inc.; Compagnie Generale des Eaux's indirect acquisition of cellular properties
from SBC Communications Inc.; Independent Cellular Network, Inc.'s acquisition
of cellular properties from C-TEC Corp.; Southwestern Bell Corp.'s acquisition
of Associated Communications Corp.; Southwestern Bell Corp.'s acquisition of
cellular properties from GTE Mobilnet; Century Telephone Enterprises Inc.'s
acquisition of
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Celutel Inc.; AT&T Corp.'s then pending acquisition of McCaw Cellular
Communications Inc.; InterCel Inc.'s acquisition of cellular properties from
Unity Cellular Systems, Inc.; ALLTEL Corp.'s acquisition of cellular properties
from Contel Cellular Inc.; Associated Communications Corp.'s acquisition of
cellular properties from McCaw Cellular Communications Inc.; ALLTEL Corp.'s
acquisition of cellular properties from SLT Communications Inc.; Sprint Corp.'s
acquisition of cellular properties from Centel Corp.; Bell Atlantic Corp.'s
acquisition of cellular properties from Metro Mobile CTS Inc.; McCaw Cellular
Communications Inc.'s acquisition of cellular properties from Crowley Cellular
Telecommunications Inc.; Ameritech Corp.'s acquisition of cellular properties
from Cybertel Financial and Cybertel RSA Cellular L.P.; Comcast Corporation's
acquisition of cellular properties from Metromedia Inc.; BellSouth Corp.'s
acquisition of cellular properties from McCaw Cellular Communications Inc.; and
US WEST, Inc.'s acquisition of the minority interest in US WEST NewVector.
Using information regarding the MSA market rank of the target's POPs in the
comparable transactions, Merrill Lynch developed ranges of assumed private
market values for the various categories of MSA market rank. These value ranges
were: MSA markets ranked 1 to 25: $250 per POP to $350 per POP; MSA markets
ranked 26 to 75: $175 per POP to $250 per POP; MSA markets ranked 76 to 125:
$150 per POP to $200 per POP; MSA markets ranked 126 to 175: $125 per POP to
$175 per POP; MSA markets ranked 176 to 275: $125 per POP to $150 per POP; and
MSA markets ranked 276 and above: $75 per POP to $125 per POP. Based on the RSA
transactions examined, Merrill Lynch developed a valuation assumption for RSA
POPs of $90 per POP. Merrill Lynch applied a range of discounts between 0% and
30% to the Company's non-controlled POPs to reflect reduced value based on
absence of control. Merrill Lynch selected this range of discounts based on its
experience with similar transactions and its analysis of publicly-disclosed
information regarding other transactions. This methodology resulted in a range
of values per Class A Share of $12.76 to $30.31 per share.
Comparable Public Companies Analysis. Merrill Lynch compared selected
historical stock and earnings data and financial ratios for the Company to the
corresponding data and ratios of certain publicly-traded companies which Merrill
Lynch deemed to be comparable to the Company. For the purposes of the Merrill
Opinion Letter, the set of companies which Merrill Lynch deemed comparable to
the Company was the Comparable Group.
This analysis resulted in a range of market capitalization of cellular
assets (defined as total market capitalization, less minority interests, less
estimated public market value of non-cellular assets) per POP of $331 to $115
with a median of $169 and a range of market capitalization of MSA cellular
assets (defined as market capitalization of cellular assets, less value of RSA
assets at $90 per POP) per POP from $343 to $133 with a median of $215. Merrill
Lynch noted that the price of $25.50 per Class A Share implied a market
capitalization of cellular assets per POP for the Company of $198 and a market
capitalization of MSA cellular assets per POP of $224.
Premiums Paid in Selected Minority Buy Outs; Minority Buy Out
Analysis. Merrill Lynch examined the seventy-seven minority buy out
transactions since January 1, 1988 for which Merrill Lynch was able to find
adequate public information. Due to lack of available information regarding
minority buy out transactions in the cellular communications industry, these
transactions were not limited to the cellular communications industry. Merrill
Lynch examined these transactions on the basis of percentage change from initial
offer price to the final offer price and percentage premium of the offer price
to the trading price per share at six months prior to announcement, one month
prior to announcement, one day prior to announcement, one day after
announcement, the LTM high and the LTM low. This analysis resulted in average
premiums of 11.7% (% change from initial offer price to final offer price) and
39.8%, 43.3%, 31.5%, 10.9%, 1.8% and 85.4%, respectively, and resulted in median
premiums of 4.6% (percent change from initial offer price to final offer price)
and 33.3%, 33.3%, 20.4%, 7.4%, 2.2%, and 58.9%, respectively. Merrill Lynch
examined the premiums paid in the only recent minority buy out in the cellular
communications industry examined by Merrill Lynch, US WEST, Inc's purchase of US
WEST NewVector Group, Inc. on November 12, 1990, which resulted in premiums of
22.2% (percent change from initial offer price to final offer price) and 47.9%,
74.3%, 44.3%, 28.0%, 2.9% and 122.8%, respectively. Merrill Lynch noted that the
price of $25.50 per Class A Share implied premiums to the trading price per
share of the Class A Shares of 13.3% (percent change from initial offer
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price to final offer price) and 56.9%, 39.7%, 43.7%, 10.3%, 6.3% and 96.2%,
respectively. Merrill Lynch noted that these implied premiums were within the
range of transactions examined.
Pro Forma Merger Consequences. Merrill Lynch examined the potential impact
of the Merger on the financial results and capitalization of GTE and found it to
be immaterial.
Historical Market Valuation and Ownership Analysis. Merrill Lynch reviewed
the daily performance of the intra-day and closing market prices per share and
trading volumes of the Class A Shares from April 21, 1988 to December 2, 1994.
This analysis was utilized to provide historical background for the manner in
which the public trading market had valued the Class A Shares since their
initial public offering. Merrill Lynch also reviewed the volume of the Class A
Shares which traded and the prices at which the Class A Shares traded for the
period January 1, 1994 to December 5, 1994 and since the announcement of the
Merger on September 8, 1994 to December 5, 1994. The implied premiums to the
market price of the Class A Shares at specified intervals is set forth above in
"-- Opinions of Financial Advisors to GTE -- Summary of Merrill Lynch's Opinion
to the Board of GTE Corporation -- Premiums Paid in Selected Minority Buy Outs;
Minority Buy Out Analysis".
CERTAIN LITIGATION
Following the public announcement of the proposed Merger on September 8,
1994, four class action lawsuits were brought on behalf of the Class A
Stockholders of the Company alleging that the announced purchase price of $22.50
per Class A Share was inadequate. On November 29, 1994 counsel for GTE, Contel
and CCI Acquisition began discussions with plaintiffs' counsel regarding the
lawsuits. At a subsequent meeting, counsel for GTE, Contel and CCI Acquisition
suggested that plaintiffs' counsel meet with counsel for the Special Committee
and discuss the status and substance of negotiations between GTE and the Special
Committee. Plaintiffs' counsel subsequently met with counsel for the Special
Committee, reviewed certain financial information and met with and asked
questions of the Special Committee and its financial advisors.
On December 23, 1994 a tentative settlement agreement was reached with
plaintiffs, subject to confirmatory discovery. The tentative settlement approves
an increased price of $25.50 per Class A Share and the payment of $525,000 in
plaintiffs' counsel fees and expenses. The tentative settlement agreement does
not include provisions permitting Class A Stockholders to opt out of the
settlement agreement. The confirmatory discovery was subsequently completed by
plaintiffs' counsel and all documentation necessary to effect the settlement was
approved by the parties to the lawsuits and their counsel. Such documentation is
in the process of being submitted to the Delaware Court of Chancery. Following
submission, a date will be set for a final hearing to approve the settlement.
WRITTEN CONSENT
The Record Date for stockholders entitled to notice of or entitled to give
consent to the Merger was March 16, 1995. As of the Record Date there were
issued and outstanding 9,970,953 Class A Shares and 90,000,000 Class B Shares.
Each Class A Share is entitled to one vote per share and each Class B Share is
entitled to five votes per share. On the Record Date, Contel owned 90,000,000
Class B Shares, which accounted for approximately 98% of the combined voting
power of the outstanding Class A Shares and Class B Shares. Pursuant to the
DGCL, Contel, as holder of record of more than 50% of the combined voting power
of the Class A Shares and Class B Shares, approved the Merger by written consent
on March , 1995. Consequently, no action on the part of any other stockholder
of the Company is necessary to authorize or to consummate the Merger and no
meeting of stockholders of the Company will be held in connection with the
Merger.
MERGER CONSIDERATION
The aggregate consideration to be paid to Class A Stockholders in
connection with the Merger is approximately $254 million. The acquisition of the
minority interest in the Company will be financed through equity contributions
from GTE. GTE will make an equity contribution to Contel and Contel will in turn
make an equity contribution to CCI Acquisition. GTE will finance such equity
contributions through cash, the
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issuance of short term debt or a combination of cash and short term debt. Any
short term debt required to fund the transaction is expected to be issued prior
to the Effective Time with terms comparable to those pursuant to which GTE
periodically issues short term debt in the ordinary course of its business.
GTE plans to issue commercial paper to the extent any short term debt is
required to fund the payment of the Merger Consideration. No specific plans have
been made to refinance or repay the short term debt. Such short term debt will
be either retired through internally generated funds or will remain outstanding
until such time as GTE's total short term debt balance is replaced with long
term funding in accordance with GTE's internal policies.
ACCOUNTING TREATMENT OF THE MERGER
The purchase method of accounting will be used to account for the Merger.
After the Merger, GTE, through its ownership of Contel, will increase its
interest in the Company from 90% to 100%. Because the Company's accumulated
losses exceed the amount attributable to the 10% minority ownership interest,
GTE currently is required to record 100% of the net book value and net income or
net loss of the Company in its financial statements. Accordingly, the Merger
will not alter GTE's present interest in such net book value or net income or
loss of the Company.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The receipt of cash for Class A Shares purchased pursuant to the Merger
will be a taxable transaction for federal income tax purposes under the Internal
Revenue Code of 1986, as amended (the "Code"), and may also be a taxable
transaction under applicable state, local, foreign or other tax laws.
Generally, a Class A Stockholder will recognize a gain or loss equal to the
difference between such holder's basis in the Class A Shares held by such holder
and the amount of cash received in exchange therefor pursuant to the Merger.
The gain or loss will be treated as a capital gain or loss if the Class A
Shares are held as capital assets. The gain or loss will be considered to be a
long-term capital gain or loss if, on the date the stockholder receives cash for
the Class A Shares, those shares have been held by such stockholder for more
than one year. For 1995, the maximum federal income tax rate for individuals on
net long-term capital gains is 28%, and the maximum individual marginal tax rate
on net short-term capital gains and on ordinary income is 39.6%. The maximum
federal income tax rate for corporations is 35% on all capital gains and
ordinary income. If a Class A Stockholder recognizes a capital loss as a result
of receiving cash for the Class A Shares pursuant to the Merger, such loss will
only be deductible to the extent of other capital gains, plus, in the case of an
individual Class A Stockholder, $3,000 per year.
The federal income tax consequences described in the preceding paragraph
may not apply to (i) Class A Shares acquired upon exercise of incentive stock
options, non-qualified stock options, or otherwise as compensation, (ii) certain
tax-exempt stockholders, (iii) stockholders that are subject to special tax
provisions, such as banks and insurance companies and (iv) certain nonresident
aliens and foreign corporations.
THE DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS FOR
GENERAL INFORMATION ONLY AND IS BASED ON EXISTING LAW AS OF THE DATE OF THIS
INFORMATION STATEMENT. EACH CLASS A STOCKHOLDER IS URGED TO CONSULT HIS OR HER
TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE
MERGER (INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS).
The Merger will not cause additional federal tax liability for the Company,
GTE, Contel or CCI Acquisition.
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PLANS FOR THE COMPANY; CERTAIN EFFECTS OF THE MERGER
Plans for the Company. Over time GTE intends to combine the operations of
the Company and its other cellular subsidiary, GTE Mobilnet. A merger transition
team has been formed to develop plans for the consolidation. The merger
transition team has recommended that certain functions be centralized in Atlanta
and that area operations focus on tactical operational issues, network planning,
construction/maintenance, revenue goals and sales activities. The merger
transition team is continuing to examine both the nature of GTE's cellular
communications business and the structure of the cellular communications market.
As part of the consolidation process most of the intercompany arrangements
between GTE, Contel and the Company will be restructured or eliminated. For a
description of the material intercompany arrangements see "RELATED PARTY
TRANSACTIONS". It is expected that the Competition Agreement will be terminated
immediately. The details of how other intercompany arrangements will be treated
in the consolidation have not been determined at this time.
Terry S. Parker who served as Chairman of the Company as well as Senior
Vice President of GTE and President of Personal Communications Services -- GTE
Service Corporation, will retire from GTE and resigned from those offices
effective March 1, 1995. GTE plans to consolidate its cellular businesses under
Personal Communications Services -- GTE Service Corporation. Mark S. Feighner
has been named President of Personal Communications Services -- GTE Service
Corporation.
Certain Effects of the Merger on the Class A Stockholders. As a result of
the transaction, the Class A Stockholders will no longer have an equity interest
in the Company and, accordingly, will not continue to participate in the results
of the Company as an equity holder. However, they will receive cash for their
interest. For a discussion of the tax consequences of the Merger on the Class A
Stockholders see "-- Certain Federal Income Tax Consequences of the Merger".
Certain Effects of the Merger on GTE, Contel and the Company. As a result
of the Merger, CCI Acquisition will merge into the Company and cease to exist
and the Company will become wholly owned by Contel. The Merger will permit GTE
to consolidate and realign its cellular businesses over time as described above
under "-- Plans for the Company". The Company's Class A Shares will be
deregistered and delisted as described below. The Merger will permit GTE and
Contel to obtain certain operating efficiencies but will otherwise have no
material effect on the operations of GTE, Contel or the Company.
Deregistration and Delisting. The Company is currently subject to the
informational filing requirements of the Securities Exchange Act of 1934 (the
"Exchange Act"), and is required to file reports and other information with the
Securities and Exchange Commission (the "Commission") relating to its business,
financial statements and other matters. As a result of the Merger, there will
cease to be any public market for the Class A Shares, and after the Effective
Time (as defined below), the Class A Shares will cease to be quoted on the
Nasdaq National Market. When the Merger occurs, the Surviving Corporation is
expected to file with the Commission a Certification and Notice of Termination
of Registration of the Class A Shares under the Exchange Act (the
"Certification"). Upon filing of the Certification, the Surviving Corporation
will no longer be required to file reports and other information under the
Exchange Act. Once the Certification has been filed, the Exchange Act (including
the proxy solicitation provisions of Section 14(a), the periodic reporting
requirements of Section 13 and the short swing trading provisions of Section
16(b)) will no longer apply to the Surviving Corporation. Additionally, upon the
termination of the registration of the Class A Shares, the shares will no longer
constitute "margin securities" under the regulations of the Board of Governors
of the Federal Reserve System.
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THE MERGER AGREEMENT
The following summary of the Merger Agreement is qualified in its entirety
by reference to the provisions of the Merger Agreement, the full text of which
is attached hereto as Exhibit A and incorporated by reference herein.
GENERAL
CCI Acquisition is a wholly-owned subsidiary of Contel formed for the
purpose of the Merger. Contel, a wholly owned subsidiary of GTE, has adopted a
plan of liquidation. The Merger Agreement provides, upon the terms and subject
to the conditions set forth therein, that CCI Acquisition will be merged with
and into the Company and that the Company will be the Surviving Corporation.
Pursuant to the Merger, (i) each Class A Share outstanding immediately prior to
the time of the filing of a certificate of merger with the Secretary of State of
the State of Delaware (the "Effective Time"), other than any Class A Shares as
to which appraisal rights have been properly exercised under the DGCL, will be
converted into the right to receive the Merger Consideration, (ii) each Class A
Share held by the Company and each share of common stock of CCI Acquisition
outstanding immediately prior to the Effective Time will be cancelled, and no
payment will be made with respect thereto and (iii) each outstanding Class B
Share will continue to be outstanding.
DESIGNATION OF DIRECTORS; CERTIFICATE OF INCORPORATION AND BY-LAWS
The Merger Agreement provides that the directors of the Company at the
Effective Time will be the directors of the Surviving Corporation and will hold
office from the Effective Time until their respective successors are duly
elected or appointed and qualified in the manner provided in the certificate of
incorporation and by-laws of the Surviving Corporation. The certificate of
incorporation and by-laws of the Company shall be the certificate of
incorporation and by-laws of the Surviving Corporation.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains standard representations and warranties on
the part of GTE, Contel, CCI Acquisition and the Company relating to, among
other things, due organization and qualification and authority to enter into and
perform the respective obligations of the parties under the Merger Agreement. In
addition, CCI Acquisition represents in the Merger Agreement that it has not
engaged in any business activities other than those related to the acquisition
of the Company.
INDEMNIFICATION AND OTHER COVENANTS
Pursuant to the Merger Agreement, the Company has agreed that it will
indemnify and hold harmless, and, after the Effective Time, the Surviving
Corporation and GTE will indemnify and hold harmless, each present and former
director and officer of the Company (each an "Indemnified Party") against any
losses, claims, damages, liabilities, costs, expenses, judgments and amounts
paid in settlement arising out of or pertaining to any action or omission
occurring prior to the Effective Time (including without limitation, any actions
or omissions which arise out of or relate to the transactions contemplated by
the Merger Agreement) to the full extent permitted under the DGCL, provided that
any determination required to be made with respect to whether an Indemnified
Party's conduct complied with the standards set forth in the DGCL shall be made
in accordance with the DGCL. GTE has agreed to maintain in place the current
policy of insurance covering officers and directors of the Company (or an
equivalent policy) for a period of three years after the Effective Time.
The Company also covenants that, from the date of the Merger Agreement to
the Effective Time, the Company will conduct its business in the ordinary
course.
The Company and CCI Acquisition each covenant that, promptly after the
execution of the Merger Agreement, they will cooperate in the preparation of all
materials necessary to be filed with the Commission in connection with the
Merger. Additionally, each of the parties to the Merger Agreement agrees to use
its commercially reasonable efforts to take all action and to do all things
necessary to consummate the
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transactions contemplated by the Merger Agreement, including using commercially
reasonable efforts to (i) obtain all necessary contractual waivers and consents,
(ii) obtain all necessary consents and authorizations as are required to be
obtained under any federal, state or foreign law or regulations, (iii) defend
all lawsuits or other legal proceedings challenging the Merger Agreement or the
consummation of the transactions contemplated thereby, (iv) lift or rescind any
injunction or restraining order or other order adversely affecting the ability
of the parties to consummate the transactions contemplated by the Merger
Agreement and (v) effect all registrations and filings necessary to consummate
the transactions contemplated by the Merger Agreement.
Pursuant to the Merger Agreement, Contel agreed to execute a written
consent as majority stockholder of the Company approving the Merger and the
Merger Agreement.
CONDITIONS TO THE MERGER
The respective obligations of CCI Acquisition, the Company, Contel and GTE
to effect the Merger are subject to the satisfaction at or prior to the
Effective Time of the following conditions: (i) the Merger Agreement and the
transactions contemplated by the Merger Agreement shall have been approved by
any necessary vote of the stockholders of the Company and CCI Acquisition in
accordance with applicable law and the terms of the Merger Agreement; (ii) no
statute, rule, regulation, executive order, decree or injunction (preliminary or
permanent) shall have been enacted, entered, promulgated or enforced by any
federal or state court of competent jurisdiction in the United States or other
governmental authority which prohibits the consummation of the Merger remains in
effect after GTE, CCI Acquisition and the Company shall have used all
commercially reasonable efforts to lift any injunction; (iii) no consents of or
filings with any governmental entity shall be required for consummation of the
Merger which have not been obtained or filed and (iv) the Special Committee
shall not have modified or rescinded its recommendation with respect to the
Merger.
TERMINATION
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time, notwithstanding approval thereof by the
stockholders of the Company: (i) by mutual written consent of each of the
Company and CCI Acquisition, (ii) by the Company or CCI Acquisition if any court
of competent jurisdiction in the United States or other United States
governmental body has issued an order, decree or ruling or taken any other
action permanently restraining, enjoining or otherwise prohibiting the Merger
and such order, decree, judgment, injunction, ruling or other action has become
final and nonappealable or (iii) by the Company or CCI Acquisition if the Merger
does not occur within 120 days of the date of the Merger Agreement unless such
delay is caused by regulatory review of required filings.
AMENDMENT
The Merger Agreement provides that any provision of the Merger Agreement
may be amended by action taken by the Company and CCI Acquisition at any time
prior to the Effective Time, provided that following approval of the Merger
Agreement by the stockholders of the Company or CCI Acquisition any amendment of
the Merger Agreement will be subject to compliance with Section 251(d) of the
DGCL. The prior approval of a majority of the members of the Special Committee
shall also be required in connection with any amendment or modification of the
Merger Agreement by or on behalf of the Company. The Merger Agreement may not be
amended, modified or supplemented except by an instrument in writing signed on
behalf of the party against whom enforcement is sought.
EXTENSION; WAIVER
The Merger Agreement provides that at any time prior to the Effective Time,
the Company, CCI Acquisition, GTE and Contel may (i) extend the time for the
performance of any of the obligations or other acts of the other parties, (ii)
waive any inaccuracies in the representations and warranties of the other
parties contained therein or in any document, certificate or writing delivered
pursuant to the Merger Agreement or (iii) waive compliance by the other parties
with any of the agreements or conditions contained in the Merger Agreement other
than those relating to indemnification. Any agreement on the part of any party
to any such
28
<PAGE> 29
extension or waiver shall be valid only if set forth in writing and signed on
behalf of such party, and, in the case of an extension or waiver by the Company,
if such extension or waiver has been approved by a majority of the members of
the Special Committee.
PAYMENT OF THE MERGER CONSIDERATION
In order to receive $25.50 per Class A Share (less any applicable
withholding taxes) (the "Merger Consideration"), Class A Stockholders must
complete and return certificates representing their Class A Shares with the
Letter of Transmittal that is being mailed to the Class A Stockholders with this
Information Statement. These documents are being mailed to the Class A
Stockholders with the Information Statement on March , 1995. After the Merger
has been consummated, the Disbursing Agent will issue payment of the Merger
Consideration when it receives a holder's Class A Shares and a validly completed
Letter of Transmittal for those shares. Class A Stockholders should not send
their Class A Shares without a completed Letter of Transmittal. Class A
Stockholders who wish to exercise appraisal rights must not surrender their
certificates representing Class A Shares pursuant to the Letter of Transmittal
and must comply with the provisions of Section 262 of the DGCL. See "DISSENTERS'
RIGHTS OF APPRAISAL".
When a Class A Stockholder properly surrenders certificates for Class A
Shares to the Disbursing Agent, those shares will be canceled and the Class A
Stockholder will receive the Merger Consideration. No interest will be paid with
respect to the Merger Consideration. Class A Stockholders who wish to receive
the Merger Consideration promptly after the Merger should send their Class A
Shares along with a properly completed and executed Letter of Transmittal to the
Disbursing Agent as soon as possible.
If the Merger is not consummated within 120 days of the date of this
Information Statement, the Disbursing Agent will return all certificates
representing Class A Shares to the Class A Stockholders.
Any Class A Stockholder who has lost certificates representing their Class
A Shares should make arrangements (which may include the posting of a bond or
other satisfactory indemnification) to replace lost certificates. These
arrangements should be made with the Disbursing Agent, which is also the
transfer agent for the Class A Shares.
The method of delivery of all required documents is at the option and risk
of the Class A Stockholder. If a Class A Stockholder elects to mail certificates
representing Class A Shares, the Company recommends properly insuring such
certificates and sending them by registered mail with return receipt requested.
Under Federal Income Tax Backup and Withholding Rules, unless an exception
applies under applicable laws and regulations, the Disbursing Agent will be
required to withhold and remit to the United States Treasury 31% of the cash
payment for Class A Shares made to a stockholder, a dissenting stockholder or
any other payee pursuant to the Merger, unless such stockholder or other payee
provides his taxpayer identification number (employer identification number or
social security number) and certifies that such number is correct. THEREFORE,
EACH CLASS A STOCKHOLDER SHOULD COMPLETE AND SIGN THE MAIN SIGNATURE FORM, AND
IF APPLICABLE, EACH PAYEE SHOULD COMPLETE AND SIGN THE SUBSTITUTE FORM W-9
INCLUDED AS PART OF THE LETTER OF TRANSMITTAL, IN ORDER TO PROVIDE THE
INFORMATION AND CERTIFICATION NECESSARY TO AVOID BACKUP WITHHOLDING. FOREIGN
STOCKHOLDERS MAY BE REQUIRED TO SUBMIT A FORM W-8 AND A FURTHER CERTIFICATION IN
ORDER TO AVOID BACKUP WITHHOLDING.
All questions as to the form of all documents and the validity, form and
acceptance of any certificates representing Class A Shares for payment will be
determined by the Disbursing Agent and the Company, whose determination will be
final and binding.
ALL QUESTIONS AND REQUESTS FOR INFORMATION RELATING TO THE PROCEDURE FOR
PAYMENT OF THE MERGER CONSIDERATION FOR THE CLASS A SHARES SHOULD BE DIRECTED TO
THE DISBURSING AGENT -- CHEMICAL BANK, REORGANIZATION DEPARTMENT, P.O. BOX 396,
BOWLING GREEN STATION, NEW YORK, NY 10274.
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<PAGE> 30
DISSENTERS' RIGHTS OF APPRAISAL
Under Section 262 of the DGCL ("Section 262"), Class A Stockholders who do
not wish to accept the Merger Consideration have the right to seek appraisal of
the fair value of their Class A Shares in the Delaware Court of Chancery.
Section 262 is set forth in its entirely as Exhibit D to this Information
Statement and incorporated by reference herein. The following discussion is not
a complete statement of the law relating to appraisal rights and is qualified in
its entirety by reference to Exhibit D. This discussion and Exhibit D should be
reviewed carefully by any holder who wishes to exercise statutory appraisal
rights or who wishes to preserve the right to do so, as failure to comply with
the procedures set forth therein will result in the loss of appraisal rights.
Moreover, because of the complexity of the procedures for exercising the right
to dissent and seek appraisal rights, the Company believes that Class A
Stockholders who consider exercising such rights should seek the advice of
counsel. CLASS A STOCKHOLDERS WHO DESIRE TO EXERCISE THEIR APPRAISAL RIGHTS MUST
NOT SURRENDER THEIR CERTIFICATES REPRESENTING CLASS A SHARES PURSUANT TO THE
LETTER OF TRANSMITTAL AND MUST SATISFY ALL THE CONDITIONS SET FORTH IN THE
FOLLOWING PARAGRAPHS.
In order to exercise appraisal rights, a holder must deliver a written
demand for appraisal of Class A Shares to the General Counsel of the Company
within 20 days after the date of the mailing of this Information Statement. This
Information Statement is being mailed on March , 1995. The address of the
General Counsel of the Company is Contel Cellular Inc., 245 Perimeter Center
Parkway, Atlanta, Georgia 30346, Attention: General Counsel. The telephone
number of the General Counsel is (404) 804-3400.
A demand for appraisal must be executed by or for the Class A Stockholder
of record, fully and correctly, as such Class A Stockholder's name appears on
the certificate or certificates evidencing such stockholder's Class A Shares. If
the Class A Shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, such demand must be executed by the fiduciary.
If the Class A Shares are owned of record by more than one person, as in a joint
tenancy or tenancy in common, such demand must be executed by all record owners.
An authorized agent, including an agent for two or more record owners, may
execute the demand for appraisal for a Class A Stockholder of record; however,
the agent must identify the record owner and expressly disclose the fact that,
in exercising the demand, such person is acting as agent for the owner.
A record owner, such as a broker, who holds Class A Shares as a nominee for
others, may exercise appraisal rights with respect to the Class A Shares held
for all or less than all beneficial owners of Class A Shares as to which such
person is the record owner. In such case the written demand must set forth the
number of Class A Shares covered by such demand. Where the number of Class A
Shares is not expressly stated, the demand will be presumed to cover all Class A
Shares outstanding in the name of such record owner. Beneficial owners who are
not record owners and who intend to exercise appraisal rights should instruct
their record owners to comply strictly with the statutory requirements with
respect to the exercise of appraisal rights.
The Effective Time of the Merger shall be April , 1995. From and after
the Effective Time, dissenters may not vote their Class A Shares or receive
distributions on such Class A Shares declared after the Effective Time.
Within 120 days after the Effective Time, but not thereafter, either the
Surviving Corporation or any Class A Stockholder entitled to appraisal rights
under Section 262 (who has notified the Company as described above within 20
days after the date of the mailing of this Information Statement) may file a
petition in the Delaware Court of Chancery demanding a determination of the
value of the Class A Shares of all Class A Stockholders entitled to appraisal,
provided that during the first 60 days after the Effective Time any Class A
Stockholder has the right to withdraw his demand for appraisal and accept the
cash payment of the Merger Consideration provided for in the Merger Agreement.
Within such 120 day period, any dissenting shareholder who has perfected his or
her rights may, by written request to the Surviving Corporation, obtain a list
of the aggregate number of holders of Class A Shares for which appraisal demands
have been received. Such list must be delivered by the Surviving Corporation to
the requesting Stockholder within 10 days of the date on which the request is
received by the Surviving Corporation or the expiration of the period for
delivery of demands under Section 262(d) of the DGCL, whichever is later.
30
<PAGE> 31
Within 20 days after the service upon the Surviving Corporation of a copy
of a petition filed in the Delaware Court of Chancery demanding an appraisal,
the Surviving Corporation is obligated to file in the office of the Register in
Chancery a verified list of all Class A Stockholders who have demanded appraisal
and have not reached agreement as to the value of their Class A Shares with the
Surviving Corporation or withdrawn the demand for appraisal of their Class A
Shares. After notice to such Class A Stockholders, the Court of Chancery is
empowered to conduct a hearing upon the petition of any such Class A
Stockholder. The court shall then determine those Class A Stockholders entitled
to appraisal and appraise the fair value of the Class A Shares held by them,
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest to be paid, if any, upon
the amount determined to be the fair value. In determining fair value, the Court
of Chancery is to take into account all relevant factors. In Weinberger v. UOP
Inc., et al., decided February 1, 1983, the Delaware Supreme Court discussed the
considerations that could be considered in determining fair value in an
appraisal proceeding, stating the "proof of value by any techniques or methods
which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered and that "fair price
obviously requires consideration of all relevant factors involving the value of
a company". The Delaware Supreme Court stated that in making this determination
of fair value the court must consider market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts which could
be ascertained as of the date of the merger which throw any light on future
prospects of the corporation. Section 262 provides that fair value is to be
"exclusive of any element of value arising from the accomplishment or
expectation of the merger". In Weinberger, the Delaware Supreme Court construed
Section 262 to mean that "elements of future value, including the nature of the
enterprise, which are known or susceptible of proof as of the date of the merger
and not the product of speculation, may be considered".
Class A Stockholders considering seeking appraisal should bear in mind that
the fair value of their Class A Shares determined under Section 262 could be
more than, the same as or less than the consideration they are to receive
pursuant to the Merger Agreement if they do not seek appraisal of their Class A
Shares, and that an opinion of an investment banking firm as to fairness is not
an opinion as to fair value under Section 262. Costs of the appraisal proceeding
may be taxed upon the parties thereto by the court as the court deems equitable
in the circumstances. Upon application of a dissenting stockholder, the Delaware
Court of Chancery may order that all or a portion of the expenses incurred by
any dissenting Class A Stockholder in connection with the appraisal proceeding,
including without limitation reasonable attorney's fees and the fees and
expenses of experts, be charged pro rata against the value of all Class A Shares
entitled to appraisal.
If a Class A Stockholder does not file a petition for an appraisal within
120 days after the Effective Time, then the right of such Class A Stockholder to
an appraisal shall cease. In addition, if any Class A Stockholder shall deliver
to the Surviving Corporation a written withdrawal of such holder's demand for an
appraisal and an acceptance of the Merger Consideration, either within 60 days
after the Effective Time or thereafter with the written approval of the
Surviving Corporation, then the right of such Class A Stockholder to an
appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in
the Delaware Court of Chancery shall be dismissed as to any Class A Stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
The class action suits brought on behalf of the Class A Stockholders
described in "SPECIAL FACTORS -- Certain Litigation" do not affect the appraisal
rights summarized above.
31
<PAGE> 32
MARKET PRICES AND DIVIDENDS
ON THE COMMON STOCK OF THE COMPANY
The Class A Shares are publicly traded in the over the counter market and
quoted on the Nasdaq National Market under the symbol "CCXLA". There is no
established trading market for the Class B Shares. As of March 14, 1995, the
Company had 378 Class A Stockholders of record. The Company has not paid any
cash dividends on the Class A Shares or Class B Shares, and it is not
anticipated that the Company will pay any cash dividends in the foreseeable
future.
The following table indicates the high and low sales prices for the Class A
Shares during the designated periods:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------ --------
<S> <C> <C> <C> <C>
1994
High.............................. $ 18.75 $ 17.25 $24.00 $ 25.25
Low............................... 14.00 13.00 16.00 23.50
1993
High.............................. $ 18.63 $ 16.25 $18.75 $ 22.00
Low............................... 13.25 13.50 15.50 15.00
1992
High.............................. $ 23.25 $ 18.50 $16.50 $ 19.00
Low............................... 17.25 13.00 13.50 13.25
</TABLE>
On September 7, 1994, the last full day of trading prior to the
announcement of GTE's intention to acquire the Class A Shares, the high, low and
closing sales prices per Class A Share on the Nasdaq National Market were
$18.25, $17.75 and $17.75, respectively.
For the period from January 1, 1995 through March 14, 1995, the high and
low sales prices per Class A Share quoted on the Nasdaq National Market were
$25.375 and $24.875, respectively.
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<PAGE> 33
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The selected consolidated financial data presented below as of December 31,
1990-1994 and for each of the years then ended have been derived from the
audited consolidated financial statements of the Company. The consolidated
financial statements as of December 31, 1994 and 1993, and for each of the years
in the three-year period ended December 31, 1994, have been included in this
Information Statement on pages F-3 to F-24. This financial information should be
read in conjunction with such financial statements and notes thereto.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1990 1991 1992 1993 1994
---------- ---------- ---------- ---------- ----------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues and sales................................. $ 167,178 $ 235,107 $ 286,999 $ 374,014 $ 562,955
Operating income (loss)(1)......................... (38,143) (68,577) (50,113) (28,305) 41,011
Loss from consolidated operations.................. (158,865) (223,726) (196,347) (188,011) (143,332)
Equity in earnings of unconsolidated
partnerships..................................... 19,069 15,687 29,027 37,351 62,792
Gains on sales of partnership interests............ -- 18,387 60,806 48,023 96,607
Net income (loss) before cumulative effect of
change in accounting principles.................. (102,794) (118,900) (73,061) (74,918) 1,871
Cumulative effect of change in accounting
principles(2).................................... -- -- (2,080) (241) --
Net income (loss).................................. (102,794) (118,900) (75,141) (75,159) 1,871
Net income (loss) per share before cumulative
effect of change in accounting principles........ (1.03) (1.19) (0.73) (0.75) 0.02
Net income (loss) per share........................ (1.03) (1.19) (0.75) (0.75) 0.02
Weighted average shares outstanding (in
thousands)....................................... 99,931 99,942 99,943 99,948 99,953
OTHER OPERATING DATA:
Capital expenditures............................... 70,841 107,792 183,504 130,042 255,174
Ending subscribers................................. 155,285 236,282 327,645 521,226 789,580
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------------------
1990 1991 1992 1993 1994
---------- ---------- ---------- ---------- ----------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets....................................... $1,665,395 $1,870,669 $1,930,469 $2,052,984 $2,346,466
Long-term obligations
Notes payable -- affiliates...................... 1,540,000 1,735,034 1,814,327 1,901,726 2,136,263
Other............................................ 14,280 42,280 36,280 36,792 30,792
Stockholders' equity (deficit)..................... 27,525 (91,085) (166,084) (241,221) (238,920)
Book value per share............................... 0.28 (0.91) (1.66) (2.41) (2.39)
</TABLE>
- ---------------
(1) The operating loss in 1991 includes approximately $12 million of integration
costs associated with the merger of Contel with a wholly owned subsidiary of
GTE.
(2) In 1993, the Company adopted Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits." In 1992, the
Company adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" and
No. 109, "Accounting for Income Taxes."
Earnings were not adequate to cover fixed charges in 1992, 1993 or 1994.
The amount of such deficiency was $128 million, $129 million and $19 million for
the years ended December 31, 1992, 1993 and 1994, respectively.
33
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company, through its subsidiaries or through partnerships, provides
cellular telephone services in MSAs and RSAs throughout the United States. As of
March 3, 1995, the Company owned controlling interests in and managed cellular
systems in 32 MSAs and owned non-controlling interests in cellular systems
serving 27 other MSAs. In addition, the Company held controlling interests in
cellular systems in 24 RSAs, held non-controlling interests in and managed
cellular systems in 10 RSAs, and held non-controlling interests in cellular
systems in 18 other RSAs and one cellular system in Mexico. All of the Company's
systems were operational at March 3, 1995. Included in the consolidated
statements of operations are all revenues and expenses of the MSA and RSA
systems in which the Company holds a controlling interest. The Company's pro
rata share of the net income or losses of the MSA and RSA systems in which the
Company holds a non-controlling interest, regardless of whether the Company
manages the system, is included in "Equity in earnings of unconsolidated
partnerships" in the consolidated statements of operations.
BACKGROUND
In March 1991, Contel merged with a subsidiary of GTE in a tax-free
exchange. The Company is a 90% owned subsidiary of Contel, which became a wholly
owned subsidiary of GTE. During 1991, many of the staff and support functions
previously performed separately by the Company were consolidated under GTE
Mobile and allocated to the Company under a cost allocation methodology.
In January 1993, a new management structure was announced. Certain
functions previously provided by GTE Mobile are now provided by GTE Personal
Communications Services, a division of GTE. Certain other functions, such as
marketing and engineering, are performed directly by the Company. Refer to Note
10 of the "Notes to Consolidated Financial Statements" for additional
information regarding related party transactions.
A merger agreement was executed between the Company and GTE after the
Company's Board of Directors voted to accept GTE's proposal to acquire the
remaining 10% ownership of the Company. Under the terms of the agreement, a GTE
subsidiary will merge into the Company and the Company will survive the merger.
The holders of the approximately 10 million Class A Shares will receive $25.50
per share in cash. The Company's Class B Shares owned by GTE will remain
outstanding. See "THE MERGER AGREEMENT".
ACQUISITIONS AND DISPOSITIONS OF INTERESTS IN CELLULAR SYSTEMS
The Company regularly evaluates its properties to assess their strategic
attributes in terms of meeting its financial goals and objectives. The Company
will purchase properties where the demographics and business climate are
favorable to the development of core and contiguous cellular systems and will
pursue the sale of properties which are deemed to be non-strategic.
On February 3, 1995, the Company signed a definitive agreement relating to
the Cellular Exchange. The agreement provides that the Company will exchange its
cellular assets in the Minneapolis, Minnesota MSA and the Albuquerque, New
Mexico MSA for a portion of US WEST NewVector Group, Inc.'s cellular assets in
the San Diego, California MSA ("San Diego MSA"). The Exchange will give the
Company a 28 percent interest in the assets of the cellular system serving the
San Diego MSA. The Exchange will reduce the Company's POPs by approximately
290,000. The transaction is subject to regulatory approvals and is expected to
close during 1995. See "BUSINESS OF THE COMPANY -- The Company's Cellular
Operations, Cellular Exchange Transaction".
In 1994, the Company purchased 100% of the cellular system serving
Tennessee RSA 2, the remaining 51% interest in the cellular system serving
Tennessee RSA 3, and 100% of the cellular systems serving the Huntsville,
Alabama MSA and Alabama RSA 2, representing an aggregate increase of
approximately 831,000 POPs. Through the purchase of the Huntsville, Alabama MSA,
the Company gained an 80% interest in the partnership that currently operates
the cellular system in Alabama RSA 1A pursuant to an interim operating license.
Additionally, the Company increased its ownership interests in the cellular
systems serving the
34
<PAGE> 35
Tuscaloosa, Alabama MSA, Indiana RSAs 7, 8 and 9, and Alabama RSA 1B,
representing an aggregate increase of approximately 33,000 POPs.
Also during 1994, the Company sold its interest in several northeastern
cellular properties (the "Northeast Properties"), pursuant to the agreement
signed in December 1993 with NYNEX Mobile Communications Company ("NYNEX"),
including the cellular systems serving Manchester, New Hampshire and Burlington,
Vermont MSAs; New Hampshire RSA 2, Vermont RSAs 1 and 2A, and New York RSA 2.
The Company recognized a pretax gain of approximately $80.0 million, on the sale
of these Northeast Properties representing approximately 734,000 POPs.
Additional sales completed during 1994 include the Company's interest in Iowa
RSAs 1, 8 and 14, Oregon RSA 5, South Dakota RSAs 5B1 and 6B1, North Carolina
RSA 1, Kentucky RSA 11, California RSA 7 and Alabama RSA 1B. The Company
recognized an aggregated pretax gain of approximately $14.3 million with respect
to these additional sales, representing approximately 711,000 POPs.
Additionally, as part of the agreement, NYNEX will purchase the Company's
interests in the Binghamton and Elmira, New York MSAs, Pennsylvania RSAs 3A and
4A, and New York RSA 3 pending certain regulatory approvals, which are expected
to be completed in 1995.
After the acquisitions and dispositions described above, the Company will
provide or participate in the provision of cellular services in 56 MSA markets
and 49 RSA markets with total combined POPs of approximately 23.3 million.
During 1993, the Company purchased 100% of the cellular systems serving
Tennessee RSAs 6 and 9, representing approximately 202,000 POPs. In addition,
the Company increased its ownership interests in the cellular systems serving
the Tuscaloosa, Alabama MSA, the San Francisco, San Jose, Vallejo, Santa Rosa,
Santa Cruz, and Salinas, California MSAs and New York RSA 3, representing an
aggregate increase of approximately 21,000 POPs.
Also during 1993, the Company sold its interests in a number of
non-strategic RSAs, primarily in Arizona, Minnesota and Washington, as well as
its interests in the cellular systems serving the Rapid City, South Dakota MSA,
and the Orange County and Poughkeepsie, New York MSAs. The pretax gain on the
sale of these cellular interests was approximately $48.0 million and represented
approximately 686,000 POPs.
On December 31, 1992, the Company sold its stock in Contel Cellular of
Arkansas, Inc. to Alltel Mobile Communications, Inc. Included in the sale were
the Company's interests in the MSAs serving Fort Smith and Fayetteville,
Arkansas RSAs 1 and 8, and Oklahoma RSA 4, resulting in a pretax gain of $60.8
million.
Refer to Note 5 of the "Notes to Consolidated Financial Statements" for
additional information regarding the acquisitions and dispositions of cellular
interests.
RESULTS OF OPERATIONS
Service revenues, which include airtime, access, roaming, long-distance and
other service revenues, increased $178.3 million in 1994 and $84.0 million in
1993. These increases are primarily attributable to revenues generated from
subscriber gains and roaming revenues. The Company's subscriber base, net of the
subscribers sold, increased from 521,200 as of December 31, 1993 to 789,600 as
of December 31, 1994, an annual growth rate of 51% in 1994 compared to 59% in
1993 and 39% in 1992. Rates for airtime and access remained relatively unchanged
from 1992 to 1994. Partially offsetting the increases in revenues resulting from
subscriber growth were declines in average usage per subscriber. The declines in
usage per subscriber are attributable to the increased number of casual users in
the subscriber base, and are consistent with the industry. Average revenue per
subscriber per month for 1994, 1993 and 1992 was $70, $73 and $78, respectively.
Cost of services, which includes network expenses, facilities and
maintenance, and the cost of long-distance, increased $37.2 million in 1994 and
$6.3 million in 1993. The 1994 and 1993 increases are primarily the result of
increased usage, cell sites and cost of toll, as well as increased salaries and
other employee-related costs to support the increased network investment.
Increased salaries, other employee costs and cost of toll
35
<PAGE> 36
represented approximately $14.9 million of the 1994 increase. Additionally,
roaming related expenses increased from $1.9 million in 1993 to $9.8 million in
1994 primarily due to increased roaming usage and additional charges associated
with offering subscribers lower roaming rates in other carriers' markets. Cost
of services as a percent of service revenues was between 14 percent and 16
percent for each of the past three years.
Negative equipment margins of 106%, 79%, and 54% for the years ended
December 31, 1994, 1993 and 1992, respectively, continue to reflect the
intensely competitive market environment and the fact that equipment promotions
are frequently used to attract new subscribers. Equipment unit sales for 1994,
1993 and 1992 were approximately 292,000, 165,000 and 99,000 which represent an
annual increase for 1994 and 1993 of 77% and 67%, respectively.
Selling, general and administrative expenses increased $46.1 million and
$34.6 million in 1994 and 1993, respectively. Employee commissions, related
compensation benefits and agent commissions associated with the acquisition of
new subscribers and higher marketing and promotional fees related to expanding
the type and number of distribution channels accounted for $23.5 million and
$25.5 million of the increase in 1994 and 1993, respectively. These increases
are directly related to the increase in customer additions during 1994 and 1993.
The 1994 increase also includes an additional $8.4 million of bad debt expenses
primarily attributable to increased sales and $3.7 million of relocation
expenses associated with implementing a new organization structure that involved
relocating and adding resources to eight new strategic market areas (Kentucky,
Midwest, Tennessee, Virginia, California, Alabama, Gulf Coast and Southwest).
Depreciation expense increased $11.3 million in 1994 compared to an
increase of $12.2 million in 1993. These increases were primarily due to higher
property and equipment balances resulting from enhancements to and expansion of
existing cellular systems required to support the growth in the number of
subscribers and quality of service expectations.
Interest expense increased $16.3 million in 1994 and $14.8 million in 1993.
The 1994 increase is primarily attributable to higher effective interest rates
in 1994 of approximately 9.3% versus 8.8% in 1993 and increased variable-rate,
affiliated debt. The rates of interest on both the variable-rate and the
fixed-rate debt approximate the rate that the Company could obtain in the
marketplace from non-affiliated lenders. The 1993 increase is primarily due to
higher effective interest rates in 1993 of approximately 8.8% versus 8.1% in
1992 and a result of the refinancing through GTE of variable-rate debt to
fixed-rate debt at higher market-based rates. Refer to Note 10 of the "Notes to
Consolidated Financial Statements" for further information related to cash
management and financing.
Equity in earnings of unconsolidated partnerships increased $25.4 million
in 1994 and $8.3 million in 1993. These increases are a result of improved
operating results primarily in unconsolidated partnerships such as the Los
Angeles SMSA Limited Partnership and the Washington D.C. SMSA Limited
Partnership (the "Washington D.C. Partnership"). The increase in the 1993
earnings was partially offset by reduced equity in earnings in the Washington
D.C. Partnership of $3.8 million resulting from a legal settlement against the
Washington D.C. Partnership, subsequently reduced to $1.9 million during 1994.
Refer to Note 4 of the "Notes to Consolidated Financial Statements" for further
information relating to unconsolidated partnerships.
The Company recognized combined federal and state income tax expense of
$14.2 million for 1994 compared with income tax benefits recognized during 1993
and 1992 of $27.7 million and $33.5 million, respectively. The 1994 effective
tax rate was impacted by $4.9 million of state income taxes related to the gains
on sales of cellular interests and the amortization of goodwill. The reduced
benefit rate in 1993 is primarily due to the change in the federal income tax
rate from 34% to 35% subsequent to the enactment of the Omnibus Budget
Reconciliation Act of 1993. Refer to Note 6 of the "Notes to Consolidated
Financial Statements" for further information relating to federal and state
income taxes expense.
During the fourth quarter of 1993, the Company adopted Statement of
Financial Accounting Standards ("FAS") 112, "Employers' Accounting for
Postemployment Benefits". As a result of the adoption of FAS 112, a one-time,
non-cash charge of $241 thousand was recorded to give effect to past service
costs. During the fourth quarter of 1992, the Company adopted FAS 106,
"Employers' Accounting for Postretire-
36
<PAGE> 37
ment Benefits Other than Pensions" and FAS 109, "Accounting for Income Taxes,"
retroactive to January 1, 1992. As a result of the adoption of FAS 106, a
one-time, non-cash charge of $2.1 million was recorded to give effect to past
service costs. The adoption of FAS 109 had no impact on the financial statements
in 1992. Refer to Note 3 of the "Notes to Consolidated Financial Statements" for
additional information.
The Company has experienced losses prior to the year ended December 31,
1994. The Company's results are highly affected by (a) interest expense and
amortization of carrying costs associated with past acquisitions, (b) the cost
of constructing the Company's network, and (c) the cost of acquiring new
subscribers. The Company expects to continue to aggressively acquire new
subscribers. As the subscriber base continues to grow, the Company believes that
the higher level of revenues generated coupled with the operating efficiencies
achieved will ultimately lead to more profitable results. The Company has
achieved an average subscriber growth rate of approximately 50% for the past
three years, while the industry has experienced a growth rate of approximately
43%. Additionally, management has taken steps to reduce its acquisition costs
per subscriber through the introduction of innovative distribution channels and
methods. This year's improved performance is reflected in the Company's
operating income which increased $69.3 million, from an operating loss of $28.3
million in 1993 to operating income of $41.0 million in 1994.
FINANCIAL CONDITION
The Company requires capital to construct and enhance its cellular systems,
make periodic interest payments on outstanding debt, fund operating costs for
systems which the Company manages and to fund acquisitions and investments in
unconsolidated partnerships.
Cash provided from operating activities in 1994 was $21.8 million, an
increase of $17.2 million from the prior year. This increase was primarily
attributable to the increase in revenues, partially offset by additional cost of
services and selling, general and administrative expenses. Cash provided from
operating activities in 1993 was $4.6 million, a decrease of $33.6 million from
the prior year. This decrease was primarily due to increased interest payments
on outstanding debt as well as reduced income tax benefits, partially offset by
improved cash flow margins resulting from higher revenues.
Capital expenditures were $255.2 million, $130.0 million and $183.5 million
in 1994, 1993 and 1992, respectively. Capital expenditures are primarily for
network expansion and enhancements to maintain system capacity, quality and
coverage as the customer base increases and demands greater service performance.
Total capital expenditures for consolidated and unconsolidated markets for 1995
are estimated to be approximately $314 million. As the Company positions itself
for the future, additional capital is required to expand network capacity,
provide portable grade coverage in all core markets, enhance system quality and
coverage, and position the network for digital technology in order to provide
high value wireless communications services. It is currently estimated that
these capital expenditures will be funded by additional borrowings from GTE,
contributions from minority partners and cash provided from operations.
The Company is required to fund its proportionate share of the construction
and working capital requirements in unconsolidated partnerships. Funds
contributed to unconsolidated partnerships for the year ended December 31, 1994,
were $15.1 million compared to $13.8 million and $12.6 million for 1993 and
1992, respectively. The increase in funds used is primarily attributable to
increased construction requirements for unconsolidated partnerships.
In certain unconsolidated partnerships where the Company is managing
partner, funds required for construction and working capital may be advanced by
the Company and subsequently reimbursed from the limited partners or from
operating results. Alternatively, the Company may request that capital
contributions be made to the partnerships in advance of expenditures. Funds
provided by changes in advances to unconsolidated partnerships for the year
ended December 31, 1994, were $12.4 million compared to $6.9 million for 1993
and funds used of $0.6 million for 1992, respectively. The improvement in 1994
and 1993 is primarily the result of improved timing of the collection of
advances from unconsolidated partnerships in managed RSAs.
37
<PAGE> 38
In order to minimize the volatility associated with interest rate
fluctuations, the Company's Board of Directors adopted a policy of maintaining
variable-rate debt within a target range of 5% to 20% of total debt. In
September 1992, the Company converted $300 million of variable-rate debt to $150
million of fixed-rate debt with a five-year maturity, and $150 million of
fixed-rate debt with a seven-year maturity. In December 1992, the Company
converted an additional $400 million of variable-rate debt to $200 million of
fixed-rate debt with a three-year maturity and $200 million of fixed-rate debt
with a four-year maturity. In August 1994, the Company converted $75 million of
variable-rate debt to $75 million fixed-rate debt with a six-year maturity.
Terms, interest rates and other information regarding affiliated debt are
included in Note 10 of the "Notes to Consolidated Financial Statements."
In addition to fixed-rate debt, the Company maintains a line of credit
arrangement with GTE. Effective January 1, 1993, GTE adopted a policy wherein
rates charged for variable-rate debt changed from GTE's cost of borrowing such
debt plus 1.5% per annum, to the prime rate quoted in The Wall Street Journal
plus 0.75% per annum. This change increased the Company's cost of borrowing
variable-rate debt by 1.5% effective January 1, 1993.
During 1994, the Company borrowed an additional $159.6 million under its
line of credit arrangement primarily to fund network capital requirements and
the Huntsville acquisition. At December 31, 1994, the Company had borrowed
approximately $511.3 million through its intercompany borrowing arrangements at
variable rates. Total borrowings are expected to increase in 1995 and for
several years in the future, as the Company borrows to fund interest payments on
its debt and fund network capital requirements due to growth and development of
its operations.
In Company controlled and managed markets, the Company maintains adequate
financing through the line of credit arrangement with GTE to ensure proper
management of the operations. A portion of this financing is reimbursed through
contributions from minority partners. During 1994, the Company received $6.4
million from minority partners for collection of capital calls. The Company
expects to continue making capital contributions to the unconsolidated
partnerships and receiving capital contributions from minority partners. The
timing and amounts of such contributions and advances are subject to future
construction and working capital requirements of these partnerships as
determined by the managing partner.
Over the past three years, the capital required to enhance the existing
cellular network and to finance the carrying costs of acquisitions and new
investments has been substantially provided from operations, sales of
non-strategic properties, and GTE or the Company's minority partners. Although
net income before depreciation and amortization has increased over the past
three years, additional financing will be required to fund the Company's growth
and its debt service for the foreseeable future. These requirements are expected
to be funded largely by GTE as a 90% owner of the Company and a major investor
and operator of cellular networks nationwide and the Company's minority
partners. Additionally, in January 1995, GTE provided the Company with a letter
stating that GTE had no plans or intentions to discontinue providing financial
support to the Company through intercompany credit facilities to meet ongoing
operating and capital requirements, and that GTE would not demand payment under
intercompany credit facilities before June 30, 1996.
Refer to Notes 4 and 8 of the "Notes to Consolidated Financial Statements"
for information regarding legal and regulatory matters affecting the Company and
its unconsolidated partnerships.
38
<PAGE> 39
PROJECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY(1)
The Company does not, as a matter of course, publicly disclose projections
as to future revenues or earnings. The following five year projections for the
period 1995-1999 were prepared by management for GTE and internal planning
purposes. These five year projections are included in this Information Statement
because such projections were made available to the Special Committee's
financial advisor and the GTE Financial Advisors. These projections, while
presented with numerical specificity, are based upon a variety of estimates and
assumptions. Such estimates and assumptions, some of which are described below,
involve judgments with respect to, among other things, future economic and
competitive conditions, the ability of the Company to continue operations, and
future business decisions. These judgments, though considered reasonable by the
Company at the time, may not be realized, and are inherently subject to
significant business, economic and competitive uncertainties, many of which are
beyond the control of the Company.
There can be no assurance that the results of operations set forth in such
projections will be realized. Actual results may vary materially from those
shown. In light of the uncertainties inherent in projections of any kind, the
inclusion of projections herein should not be regarded as a representation by
the Company or any other person that the projections will be achieved. The
Company's independent auditors have not examined or compiled the projections
presented herein and accordingly, assume no responsibility for them. Class A
Stockholders are cautioned not to place undue reliance on these projections.
Management has not and does not intend to update or otherwise revise the
projections to reflect changing circumstances existing after the preparation of
the projections included herein or to reflect the occurrence of unanticipated
events that may have occurred.
The significant assumptions underlying these projections are described in
the footnotes following the projections. The projections provided to the Special
Committee's financial advisor and the GTE Financial Advisors were based on
forecasted results for 1994 since actual 1994 results were not available at the
time.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,(1)
------------------------------------------
1995 1996 1997 1998 1999
------ ------ ------ ------ ------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Service revenues(2)................................... $ 679 $ 831 $ 984 $1,140 $1,282
Depreciation and amortization(3)(4)................... 152 181 201 215 228
Operating income...................................... 116 186 263 325 431
Net income (loss)(5).................................. (36) (1) 40 81 153
OTHER OPERATING DATA:
Capital expenditures(3)............................... 298 220 158 135 145
Operating cash flow................................... 268 367 464 540 659
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,(1)
------------------------------------------
1995 1996 1997 1998 1999
------ ------ ------ ------ ------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.......................................... $2,541 $2,614 $2,602 $2,548 $2,488
Long-term liabilities(6).............................. 2,135 2,183 2,233 2,185 1,983
Stockholders' deficit(7).............................. (289) (290) (250) (169) (16)
</TABLE>
- ---------------
(1) Basis of presentation: The five year projections do not include the effect
of the proposed Merger. The five year projections include the effect of the
1994 acquisitions of 100% of the cellular system serving the Huntsville,
Alabama MSA and Alabama RSA 2, a controlling interest in a company with
interim operating authority to provide cellular service in Alabama RSA 1 and
the acquisition of a controlling interest in California RSA 4. Prior to
completion of these five year projections, ten year projections were
prepared that did not include the effects of the acquisitions referred to
above. These ten year projections were prepared outside of the Company's
normal planning process and therefore, in addition to being inherently less
certain, they received less management review than the five year
projections. The ten year
39
<PAGE> 40
projections, as presented below, were made available to the Special
Committee's financial advisor, GTE and the GTE Financial Advisors. Both the
ten year and five year projections include the effect of the proposed sales
in 1994 of certain properties to NYNEX Mobile Communications Company,
including the Company's cellular interests in the MSAs of Binghamton and
Elmira, New York, and New York RSA 3. These sales are expected to close
sometime in 1995. Additionally, the California RSA 4 acquisition is not
expected to close until sometime in 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Service revenues......... $ 656 $ 799 $ 945 $1,092 $1,228 $1,270 $1,287 $1,285 $1,315 $1,347
Depreciation and
amortization........... 148 176 196 210 223 233 248 270 294 315
Operating income......... 103 182 257 316 421 432 425 411 408 404
Net income (loss)........ (37) 4 43 83 154 181 198 216 239 266
OTHER OPERATING DATA:
Capital expenditures..... 298 214 156 134 143 123 135 127 126 100
Operating cash flow...... 251 358 453 526 644 665 673 681 702 719
</TABLE>
(2) Service revenues: Service revenues include airtime, access, roaming,
long-distance and other service revenues, but do not include revenues for
the sale or rental of cellular equipment. The projections generally assume
that service revenues will increase over prior years due to increasing
volumes; however, revenue per subscriber will continue to decline as an
increasing number of casual users are added to the base and as new entrants
in the wireless communication market compete for subscribers.
(3) Capital expenditures/depreciation: The projections assume that increased
capital will be required to provide high quality, portable network coverage,
to accommodate volume and provide for economies of scale.
(4) Amortization: The five year projections include the amortization of
intangibles related to the acquisitions described in Note 1 above.
(5) Net income: The projections assume a federal income tax rate of 35% for all
periods presented.
(6) Long term liabilities: The projections assume increases in long-term debt
between 1995 and 1997 reflecting the expected increase in required capital
as described in Note 3. Thereafter, the projections assume that operating
cash flow will be sufficient to satisfy operating requirements and capital
expenditures and enable the Company to gradually repay outstanding debt.
(7) Stockholders' deficit: Stockholders' deficit includes the par value of the
Class A Shares and Class B Shares, additional paid-in capital, the cost of
the Class A treasury stock and the accumulated deficit all as of December
31, 1993, adjusted for the projected net results for the year ended December
31, 1994 and for each of the years included in the above projections.
40
<PAGE> 41
BUSINESS OF THE COMPANY
OVERVIEW
The Company, through its subsidiaries and through partnerships, provides or
participates in the provision of cellular telephone service in various MSAs and
RSAs throughout the United States. As of December 31, 1994, the Company had
interests in cellular telephone systems in the United States representing
approximately 23.9 million "POPs". ("POPs" refer to the population of a market
area multiplied by the Company's percentage ownership in the cellular system
serving that market).
The Company's 23.9 million POPs include cellular systems which the Company
controls or manages and cellular systems operated by partnerships in which the
Company is not the controlling partner. As of December 31, 1994, approximately
19.5 million of the Company's 23.9 million POPs were located in 59 MSAs. The
Company owned a controlling interest in and managed cellular systems servicing
32 of these 59 MSAs (representing approximately 69% of the Company's MSA POPs).
The Company owned a non-controlling interest in cellular systems servicing the
remaining 27 MSAs.
The remaining 4.4 million of the Company's 23.9 million POPs were located
in 52 RSAs. As of December 31, 1994, the Company owned controlling interests in
entities licensed to provide cellular service in 24 RSAs, owned non-controlling
interests in and managed 10 RSA markets and held non-controlling interests in 18
RSAs. Most of the Company's RSA POPs are in areas adjacent to MSAs currently
served by the Company.
CELLULAR INTERESTS
The Company's controlled MSA interests, non-controlled MSA interests,
controlled RSA interests, managed RSA interests and non-controlled RSA
interests, are set forth below.
<TABLE>
<CAPTION>
COMPANY COMPANY
PERCENTAGE 1994 ESTIMATED POPULATION
MARKET MSA RANK OWNERSHIP POPULATION(1) EQUIVALENTS
- ------------------------------------------- -------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
CONTROLLED MSA INTERESTS
Memphis, TN................................ 36 100.00% 1,030,496 1,030,496
Louisville, KY............................. 37 100.00% 931,413 931,413
Birmingham, AL............................. 41 100.00% 904,436 904,436
Norfolk, VA................................ 43 95.01% 1,020,794 969,856
Nashville, TN.............................. 46 100.00% 1,051,872 1,051,872
Richmond, VA............................... 59 95.01% 797,942 758,125
Fresno, CA................................. 74 92.00% 735,494 676,654
Knoxville, TN.............................. 79 94.12% 544,045 512,055
El Paso, TX................................ 81 100.00% 652,655 652,655
Mobile, AL................................. 83 100.00% 510,599 510,599
Johnson City, TN........................... 85 100.00% 452,809 452,809
Chattanooga, TN............................ 88 100.00% 451,120 451,120
Bakersfield, CA............................ 97 92.00% 618,209 568,752
Davenport, IA.............................. 98 100.00% 362,249 362,249
Newport News, VA........................... 104 95.01% 474,518 450,840
Huntsville, AL............................. 115 100.00% 393,160 393,160
Lexington, KY.............................. 116 100.00% 367,623 367,623
Evansville, IN............................. 119 88.87% 318,396 282,959
Binghamton, NY............................. 122 41.00% 309,418 126,861
Pensacola, FL.............................. 127 100.00% 374,969 374,969
Rockford, IL............................... 131 59.00% 301,026 177,605
Visalia, CA................................ 150 92.00% 347,899 320,067
Roanoke, VA................................ 157 40.00% 239,829 95,932
Clarksville, TN............................ 209 100.00% 172,410 172,410
</TABLE>
41
<PAGE> 42
<TABLE>
<CAPTION>
COMPANY COMPANY
PERCENTAGE 1994 ESTIMATED POPULATION
MARKET MSA RANK OWNERSHIP POPULATION(1) EQUIVALENTS
- ------------------------------------------- -------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Tuscaloosa, AL............................. 222 80.40% 161,333 129,705
Florence, AL............................... 226 91.09% 138,073 125,771
Petersburg, VA............................. 235 95.01% 130,585 124,069
Anniston, AL............................... 249 100.00% 116,063 116,063
Gadsden, AL................................ 272 90.00% 101,153 91,038
Elmira, NY................................. 284 100.00% 95,612 95,612
Las Cruces, NM............................. 285 100.00% 153,838 153,838
Owensboro, KY.............................. 293 88.87% 89,993 79,977
-------------- -----------
32 TOTAL CONTROLLED MSAs.................................. 14,350,031 13,511,590
=========== =========
NON-CONTROLLED MSA INTERESTS
Los Angeles, CA............................ 2 11.20% 14,718,542 1,648,477
San Francisco, CA.......................... 7 11.25% 3,832,050 431,106
Washington, DC............................. 8 35.27% 3,783,479 1,334,433
Houston, TX................................ 10 4.40% 3,897,637 171,496
Minneapolis, MN............................ 15 30.00% 2,569,391 770,817
San Jose, CA............................... 27 11.25% 1,541,573 173,427
San Antonio, TX............................ 33 30.00% 1,382,982 414,895
Sacramento, CA............................. 35 0.98% 1,479,697 14,501
Jacksonville, FL........................... 51 14.24% 1,003,832 142,946
Greenville, SC............................. 67 10.83% 667,011 72,237
Oxnard, CA................................. 73 11.20% 697,369 78,105
Austin, TX................................. 75 3.00% 874,277 26,228
Albuquerque, NM............................ 86 49.00% 590,335 289,264
Beaumont, TX............................... 101 4.40% 384,136 16,902
Stockton, CA............................... 107 0.98% 517,135 5,068
Vallejo, CA................................ 111 11.25% 489,096 55,023
Santa Rosa, CA............................. 123 11.25% 411,058 46,244
Santa Barbara, CA.......................... 124 39.00% 378,431 147,588
Salinas, CA................................ 126 11.25% 372,027 41,853
Modesto, CA................................ 142 0.98% 415,482 4,072
Galveston, TX.............................. 170 4.40% 237,243 10,439
Reno, NV................................... 171 0.98% 279,735 2,741
Santa Cruz, CA............................. 174 11.25% 230,417 25,922
Chico, CA.................................. 215 0.98% 197,623 1,937
Anderson, SC............................... 227 10.83% 146,845 15,903
Redding, CA................................ 254 0.98% 167,321 1,640
Yuba City, CA.............................. 274 0.98% 135,636 1,329
-------------- -----------
27 TOTAL NON-CONTROLLED MSAs.............................. 41,400,360 5,944,593
=========== =========
59 TOTAL MSAs............................................. 55,750,391 19,456,183
=========== =========
</TABLE>
42
<PAGE> 43
<TABLE>
<CAPTION>
COMPANY COMPANY
PERCENTAGE 1994 ESTIMATED POPULATION
MARKET OWNERSHIP POPULATION(1) EQUIVALENTS
- ------------------------------------------------------- ---------- -------------- -----------
<S> <C> <C> <C>
CONTROLLED RSA INTERESTS
Alabama 2.............................................. 100.00% 127,611 127,611
California 6........................................... 100.00% 28,183 28,183
California 9........................................... 100.00% 140,612 140,612
Kentucky 2............................................. 100.00% 127,813 127,813
Kentucky 7............................................. 100.00% 166,424 166,424
Tennessee 1............................................ 100.00% 297,449 297,449
Tennessee 2............................................ 100.00% 159,071 159,071
Tennessee 3............................................ 100.00% 329,746 329,746
Tennessee 5............................................ 100.00% 336,480 336,480
Tennessee 6............................................ 100.00% 156,906 156,906
Tennessee 7............................................ 100.00% 248,005 248,005
Tennessee 9............................................ 100.00% 67,581 67,581
Virginia 7............................................. 100.00% 38,853 38,853
Virginia 8............................................. 95.01% 84,513 80,296
Virginia 9............................................. 95.01% 87,028 82,685
Virginia 11............................................ 95.01% 111,650 106,079
Virginia 12............................................ 95.01% 33,536 31,863
California 12.......................................... 92.00% 110,515 101,674
Illinois 1............................................. 91.50% 316,168 289,294
Virginia 5............................................. 77.00% 63,347 48,777
Texas 10............................................... 75.00% 29,489 22,117
New Mexico 6-I......................................... 71.43% 60,988 43,564
Virginia 3............................................. 51.00% 183,153 93,408
Virginia 4............................................. 51.00% 66,772 34,054
-------------- -----------
24 TOTAL CONTROLLED RSAs................................. 3,371,893 3,158,545
=========== =========
MANAGED, NON-CONTROLLED RSA INTERESTS
Kentucky 1............................................. 50.00% 187,079 93,540
New Mexico 3........................................... 50.00% 78,980 39,490
New Mexico 5........................................... 43.00% 56,850 24,446
Iowa 4................................................. 38.10% 155,924 59,407
Indiana 7.............................................. 38.09% 220,819 84,119
Indiana 8.............................................. 38.09% 252,283 96,105
Indiana 9.............................................. 38.09% 142,859 54,421
New York 3............................................. 22.50% 492,406 110,791
California 4........................................... 20.83% 338,983 70,610
Iowa 5................................................. 14.29% 108,063 15,442
-------------- -----------
10 TOTAL MANAGED RSAs.................................... 2,034,246 648,371
=========== =========
</TABLE>
43
<PAGE> 44
<TABLE>
<CAPTION>
COMPANY COMPANY
PERCENTAGE 1994 ESTIMATED POPULATION
MARKET OWNERSHIP POPULATION(1) EQUIVALENTS
- ------------------------------------------------------- ---------- -------------- -----------
<S> <C> <C> <C>
NON-CONTROLLED RSA INTERESTS
New Mexico 1........................................... 44.44% 251,919 111,953
Illinois 8............................................. 41.13% 331,629 136,399
Illinois 9............................................. 41.13% 152,791 62,843
Illinois 2............................................. 40.00% 145,844 58,338
California 5........................................... 39.00% 218,249 85,117
California 3........................................... 27.73% 143,187 39,706
California 1........................................... 16.67% 212,401 35,407
New Mexico 6-II........................................ 12.50% 123,267 15,408
Illinois 3............................................. 11.77% 204,375 24,055
Virginia 6............................................. 10.00% 213,307 21,331
Minnesota 1............................................ 6.60% 51,014 3,367
Minnesota 2............................................ 6.60% 62,994 4,158
Minnesota 3............................................ 6.60% 57,315 3,783
Minnesota 5............................................ 6.60% 203,906 13,458
Minnesota 6............................................ 6.60% 244,817 16,158
Virginia 10............................................ 1.00% 231,404 2,314
Pennsylvania 3......................................... 0.10% 95,755 96
Pennsylvania 4......................................... 0.10% 97,172 97
-------------- -----------
18 TOTAL NON-CONTROLLED RSAs............................. 3,041,346 633,988
=========== =========
52 TOTAL RSAs............................................ 8,447,485 4,440,904
=========== =========
111 TOTAL MSAs and RSAs.................................. 64,197,876 23,897,087
=========== =========
</TABLE>
- ---------------
(1) Population figures are derived from the 1994 Donnelly marketing population
estimates for counties comprising FCC defined MSAs and RSAs. POP figures
discussed in "SPECIAL FACTORS -- Opinion of Financial Advisor to the Special
Committee" and "SPECIAL FACTORS -- Opinions of Financial Advisors to GTE"
are based on 1993 population estimates which differ, although not materially
in the aggregate, from the figures set forth in the table above.
THE CELLULAR TELEPHONE INDUSTRY
Background. In 1983, the FCC issued the first license to provide cellular
telephone service in the United States. Since that time, cellular telephone
service has become available to all 305 MSAs and 428 RSAs and is available to
most of the population of the United States.
Cellular telephone service was developed as a response to the shortcomings
of conventional mobile telephone systems. By providing high quality, high
capacity communication to and from vehicle-mounted telephones ("mobiles") and
hand-held radio telephones ("portables"), the cellular telephone industry has
grown at a very rapid pace and, as of year-end 1994, exceeded 22 million
subscribers. In 1994, the cellular telephone industry recorded an overall growth
rate of approximately 37%.
Technology. Cellular telephone service achieves its high quality and
capacity capability by dividing the radio spectrum allocated to it by the FCC
into smaller groups or "sets" of frequencies and re-using those frequencies many
times in geographically distant parts of the network. Each set of frequencies is
allocated to a specific geographic area called a "cell." Adjacent cells must use
a different set of frequencies to avoid cell-to-cell frequency interference.
Cells which are sufficiently distant from one another may use the same
frequencies because the radio signals naturally decay over distance until they
reach a low enough level that does not cause interference. Therefore, by use of
frequency planning techniques, the radio spectrum allocated to a cellular
44
<PAGE> 45
provider can be re-used many times in various parts of the system to achieve
high overall call capacities and very low call interference rates.
The cells in a system are connected to a computer-controlled switch called
a mobile telephone switching office ("MTSO"). The MTSO monitors all calls to all
cell sites within the system and routes them to their intended destinations.
Once a call request is received, it is directed to the cell site where the
signal strength is greatest, and is then continuously monitored for quality
signal strength. If the signal strength begins to decline as a vehicle travels
through the radio coverage area of one cell, the MTSO recognizes the cell which
is getting weaker in signal strength and which is the next cell in the path of
the vehicle where signal strength is increasing. At the appropriate point in
time, the MTSO instructs the new cell to take over the call and the original
cell to release the call. This allows an in-process call to achieve a
cell-to-cell handoff with no interruption in the conversation. The MTSO is
capable of achieving this handoff as many times as necessary for each call.
Today's cellular systems utilize digital switching equipment, digital
connections between the switch and the cells, and analog radio frequency ("RF")
technology between the cells and the mobile units. The analog RF technology is
limited because a finite number of channels can be used at any one cell within a
system without causing system problems. The capacity of the system can be
increased in areas with heavy call traffic by either cell splitting or cell
sectoring. Cell splitting involves constructing numerous cells to serve the
coverage area of the original cell. If a large cell is split into four smaller
cells, the total channels available within the original coverage area is
increased up to four times. Cell sectoring is accomplished by replacing a cell's
omni-directional antennas with either three or six directional antennas. This
allows for different sets of channels to be used in each sector. The advantage
of this method is that capacity can be increased in the cell without increasing
system interference and that the same frequency sets can be reused at closer
spacing.
The cellular telephone industry is moving toward implementing digital RF
technology in existing cellular systems. Two technologies are currently under
consideration by major cellular providers -- Time Division Multiple Access
("TDMA") and Code Division Multiple Access ("CDMA"). Either technology will
offer a considerable capacity increase over today's technology.
Market Structure. Historically, FCC regulations provided that licenses
would be granted to two cellular service providers in each MSA and RSA; a
wireline licensee and a non-wireline licensee. Each of the two licensees has 25
MHz of radio spectrum allocated to it, and each further subdivides this spectrum
into 415 two-way channels. Each license is granted for a period of ten years and
is subject to renewal at the end of that period. FCC rules require all cellular
system operators to provide, on a nondiscriminatory basis, cellular service to
resellers who may purchase blocks of numbers at a wholesale rate and resell such
service to the public.
The FCC is in the process of auctioning additional licenses for the
provision of personal communications services in the 1.8 GHz to 1.99 GHz
frequency band. These auctions will not be completed until later this year and
will result in new licensees in each of the Company's service areas. The first
part of the auction was completed on March 13 and resulted in the purchase of 99
licenses by 18 entities. A GTE subsidiary, GTE Macro Communications Corporation,
purchased four licenses (Atlanta, Seattle, Cincinnati and Denver).
THE COMPANY'S CELLULAR OPERATIONS
General. The Company, or partnerships which the Company controls or
manages, provides cellular service in 32 MSAs and 34 RSAs ("Company Controlled
Systems" or "Company Controlled Markets"). Company Controlled Systems represent
approximately 72% of the Company's total POPs. The information provided below
with respect to the Company's cellular operations applies only to the Company
Controlled Systems because these are the only systems whose operations the
Company controls. The Company's non-controlled cellular interests are described
below in "BUSINESS OF THE COMPANY -- Non-Controlled Systems".
The Company obtained the right to provide cellular service in the Company
Controlled Markets either (i) as the result of the FCC's licensing process, or
(ii) through an acquisition program. Since the Company
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was an affiliate of a wireline telephone company, it had the right to apply for
the wireline cellular license in any area served by its landline affiliate. As a
result of this licensing process, the Company is the wireline licensee in 43
Company Controlled Markets (approximately 8.7 million POPs). As a result of its
acquisition program, the Company is the non-wireline licensee in 23 Company
Controlled Markets (approximately 8.6 million POPs).
In acquiring and developing these cellular telephone systems, the Company
has utilized a strategy of focusing on coastal and sun belt areas where the
Company believes the demographics and business climate are favorable to the
development of cellular systems. In addition, the Company has attempted to
develop cellular systems in regional clusters of significant size.
The cellular telephone systems originally licensed to the Company as part
of the FCC licensing process for MSAs and RSAs are generally located in 5
geographic areas: Virginia, California, the Midwest, Texas/New Mexico, and the
Gulf of Mexico. The cellular telephone systems acquired by the Company are
located in Tennessee, Alabama and Kentucky.
Acquisitions and Divestitures. To further its strategy of acquiring and
developing large regional clusters in economically strong areas, the Company has
developed and followed a program of selling certain properties which are not
strategically located and purchasing certain other properties which are
strategic. For a description of certain acquisitions and divestitures by the
Company in 1994 see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Acquisitions and Dispositions of Interests in
Cellular Systems." After such acquisitions and dispositions described above, the
Company will provide or participate in the provision of cellular services in 56
MSA markets and 49 RSA markets with total combined POPS of approximately 23.3
million.
Cellular Exchange Transaction. The Company, GTE Mobilnet Incorporated, GTE
Mobilnet of Oregon Limited Partnership, GTE Mobilnet of Northwest Oregon Limited
Partnership and GTE Mobile Communications Service Corporation (the "GTE
Parties") have entered into an Asset Exchange Agreement dated February 3, 1995
(the "Asset Exchange Agreement") with US WEST NewVector Group, Inc.
("NewVector"). Pursuant to the Asset Exchange Agreement, the GTE Parties will
exchange certain cellular assets currently owned by them for 100% of the assets,
including the non-wireline cellular license, currently owned by NewVector in San
Diego, California. The Company's assets included in the exchange are its 49%
interest in the cellular assets, including the wireline cellular license, in
Albuquerque, New Mexico, and its 30% interest in the cellular assets, including
the wireline cellular license, in Minneapolis, Minnesota. The assets of the
other GTE Parties consist of (i) 91.4% of the assets of the cellular system
serving the MSAs of Portland and Salem, Oregon, (ii) 100% of the assets of the
cellular system serving Oregon RSA 1, and (iii) either a 10% partnership
interest in the partnership providing cellular service in Seattle, Bremerton and
Tacoma, Washington or a 10% interest in the assets of that system. The Company
will acquire a 28% interest, as a tenant-in-common, in the San Diego assets
received from NewVector, representing the equivalent market value of assets
exchanged, and will operate the system pursuant to a management agreement with
the other GTE Parties.
Operations
Partnerships. A substantial number of the Company's cellular systems in
MSAs are owned by limited partnerships in which the Company is a general partner
("MSA Partnerships"). Most of these partnerships are governed by partnership
agreements with similar terms, including, among other things, customary
provisions concerning capital contributions, sharing of profits and losses, and
dissolution and termination of the partnership. Most of these partnership
agreements vest complete operational control of the partnership with the general
partner. The general partner typically has the power to manage, supervise and
conduct the affairs of the partnership, make all decisions appropriate in
connection with the business purposes of the partnership, and incur obligations
and execute agreements on behalf of the partnership. The general partner also
may make decisions regarding the timing and amount of cash contributions and
distributions, and the nature, timing and extent of construction, without the
consent of the other partners. The Company owns more than fifty percent (50%) of
almost all of the MSA Partnerships.
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A substantial number of the Company's cellular systems in RSAs are also
owned by limited or general partnerships in which the Company is either the
general or managing partner (the "RSA Partnerships"). These partnerships are
governed by partnership agreements with varying terms and provisions. In many of
these partnerships, the noncontrolling partners have the right to vote on major
issues such as the annual budget and system design. In addition, in certain of
these partnerships, the partners have the right to build, under certain
circumstances, independent cells in areas of the RSA not served by the
partnership. Finally, in a few of these partnerships, the Company's management
position is for a limited term (similar to a management contract) and the other
partners in the partnership have the right to change managers, with or without
cause. The Company owns less than fifty percent (50%) of many of the RSA
Partnerships.
The partnership agreements for both the MSA Partnerships and RSA
Partnerships generally contain provisions granting all partners a right of first
refusal in the event a partner desires to transfer a partnership interest. This
restriction on transfer can make these partnership interests difficult to sell
to a third party.
Provision of Services by GTE Personal Communications Services. During
1993, the Company maintained a headquarters staff and two regional staffs which
provided strategic as well as day-to-day operational support to the Company's
operations in its 66 Company Controlled Markets. In 1994, the Company
implemented a new organizational structure pursuant to which the two regional
staffs were replaced with eight area staffs which are located in the Company's
eight clusters of MSAs and RSAs. These eight areas are Virginia, Tennessee,
Kentucky, Alabama, the Midwest, Texas/New Mexico, the Gulf of Mexico and
California. The purpose of this reorganization was to move essential, customer
impacting resources closer to the marketplace to enhance the Company's
competitive advantage and position the Company for future growth.
The Company also receives general and administrative as well as functional
support from GTE Personal Communications Services ("GTE PCS"), a division of
GTE. Pursuant to the Services Agreement, GTE PCS provides finance, accounting,
tax, human resources, legal, regulatory and information management services to
the Company. The Services Agreement provides that the Company is allocated a
portion of GTE PCS expenses based on a two-step process. The first step is the
designation of GTE PCS expenses as cellular or non-cellular. The second step is
the allocation of cellular expenses between the Company and GTE Mobilnet (a GTE
subsidiary also engaged in the cellular communications business) based on a
cost-causative allocation methodology. Under this methodology, pools of costs
are allocated to operating units based on one of several factors. The factors
were developed and applied to cost categories in an effort to allocate the cost
to areas in proportion to the use and benefit of the cost. Under this Services
Agreement, the Company was allocated approximately 34% of GTE PCS's cellular
expenses for the twelve months ended December 31, 1994. See "RELATED PARTY
TRANSACTIONS -- Arrangements and Transactions with Contel and GTE".
Construction and Maintenance. The construction and maintenance of cellular
systems is capital intensive. Although all of the Company's MSA and RSA systems
were operational in 1994, the Company continually adds cells to increase
coverage, provide additional capacity and improve the quality of these systems.
In 1994, the Company completed construction of 153 new cells in Company
Controlled Systems. In addition the Company completed a replacement program for
most of its older technology cell site equipment. The newer technology equipment
provides higher quality and increased flexibility in providing analog services,
as well as positions a platform that supports deployment of future digital
technologies. Total capital expenditures related to Company Controlled Systems
were approximately $253 million in 1994 and are anticipated to be approximately
$315 million in 1995.
Marketing
General. The Company markets its cellular telephone services through
several distribution channels, including independent agents, its direct sales
force and retail outlets. Agents are independent contractors who solicit
customers on a commission basis exclusively for the Company. The Company's
agents are diverse in size and type of business. Most are agents for the Company
within a limited geographic area, while a few agents sell the Company's cellular
service regionally or nationally. Some of the Company's agents sell cellular
products and services exclusively, while others sell a variety of products (such
as radio and electronics
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equipment). Finally, some of the Company's agents are small shops, while others
are large retail stores. The Company's agents generally receive a commission
payment for each cellular subscriber they add to the Company's systems.
The Company's direct sales force is made up of sales people who are
employees of the Company and are compensated on an incentive basis. These
employees earn a portion of their compensation as a guaranteed salary and
receive additional payments for each subscriber added. These employees are
required to meet certain quotas set by the Company. Another distribution channel
utilized by the Company is retail outlets, including kiosks and retail stores.
The retail outlets are staffed by salaried employees, part-time employees and
temporary employees who receive a base salary and incentive compensation for
each unit sold. Finally, the Company is constantly attempting to develop new
distribution channels, including telemarketing, co-promotions with various other
industry leaders and door-to-door sales.
National Industry Alliance. During the past several years, cellular
providers have been forming industry alliances to market cellular service
nationwide. Many cellular providers holding non-wireline licenses have become
Cellular One(R) franchisees. Many cellular providers holding wireline licenses
have joined a consortium to market under the brand name, MobiLink(R), a
registered mark of B-Side Carriers L.P. Because the Company holds both wireline
and non-wireline licenses, it participates in both of these alliances. GTE
Mobile is an equity owner in B-Side Carriers L.P. See "RELATED PARTY
TRANSACTIONS".
Subscribers
Total Number. The Company had 789,580 subscribers at December 31, 1994, an
increase of 51.5% over its subscribers at December 31, 1993. The Company's
subscribers at December 31, 1994 were distributed as follows: 33% in Tennessee,
21% in Virginia and 46% in all other markets combined.
Cost of Acquisition. The sales and marketing costs of obtaining new
subscribers are substantial. The Company not only has to pay for advertising,
but also incurs a direct expense for most new subscribers, either in the form of
a commission payment to an agent or a salary/incentive payment to a direct sales
person. In addition, the Company periodically runs promotions which discount the
cost of cellular telephone equipment, or provide some amount of initial access
or airtime free to new subscribers. Each of these promotions results in costs to
the Company. Although the Company has continued to lower the cost of acquisition
per subscriber, it remains one of the Company's single largest expenses.
Churn. A factor common throughout the cellular industry is that many
subscribers either completely discontinue cellular service or switch from one
cellular provider to another. In 1994, this monthly turnover or "churn" in the
Company's subscribers averaged 2.7% of all subscribers per month.
Subscriber Revenue. The Company charges its subscribers for access to its
systems, for minutes of use and for enhanced services, such as voice mail and
Mr. RescueSM. A subscriber may purchase each of these services separately for a
set price or may purchase any number of rate plans which bundle these services
in different ways. For example, a high usage subscriber may purchase a
pre-determined number of minutes of use per month for a set fee rather than pay
a fixed amount per minute. Similarly, a user who purchases cellular service for
security reasons may choose a plan with a low monthly access fee but higher per
minute usage fees. Rates charged by the Company and the number and type of rate
plans vary from market to market.
The average monthly revenue the Company receives per subscriber has been
declining over the last several years. The Company believes that this industry
trend is caused in part by an increase in the number of casual and security
cellular users. The Company expects this trend to continue in 1995 and future
years.
Roaming
Roamers. The Company also provides cellular service to cellular users who
are customers of other carriers but who are visiting and wish to use their
cellular phone in the Company's service area ("roamers"). When roamers enter the
Company's service area and attempt to use their cellular phones, the Company,
through participation in an industry clearinghouse, establishes the identity and
validity of the roamer and
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provides cellular service. The Company then bills the roamer's home cellular
carrier for the service. Likewise, subscribers of the Company use their cellular
phones in areas outside the Company's service areas.
Roaming Revenue. The charges applicable to roamers are determined by
agreements between the Company and other carriers in the industry and vary among
markets and carriers. Roaming revenue has increased over the last several years
and for the year ending December 31, 1994 represented approximately 18.6% of the
Company's total service revenues. This increase is a result of the higher number
of cellular subscribers nationwide and the Company's larger service areas due to
an increasing number of cell sites. The Company believes that roaming will
become more frequent in future years due to advances in intelligent networking
which will simplify roaming procedures and make roaming transparent to the
roamer.
Roamer Fraud. Roamer fraud remains a cellular industry problem. Roamer
fraud occurs when cellular telephone equipment is programmed to conceal the true
identity and location of the user. While the Company and the industry have
implemented an extensive fraud control process, they have not been able to
eliminate fraud altogether.
Employees
At December 31, 1994, the Company had 2,387 employees. Of these, 230 were
employed in the Company's headquarters offices in Atlanta and the remaining
2,157 were employed throughout the Company's Controlled Markets.
NON-CONTROLLED SYSTEMS
The Company participates as a non-controlling general or limited partner in
27 MSAs and 18 RSAs. These interests represent approximately 28% of the
Company's total POPs and are typically limited partnership interests in
partnerships providing cellular service to the larger MSAs, such as Los Angeles,
San Francisco, Washington D.C., Minneapolis and Houston. The partnership
agreements which govern these partnerships are similar to those described under
the heading, "BUSINESS OF THE COMPANY -- Operations -- Partnerships". Since
these partnership agreements vest the power to manage, supervise and conduct the
affairs of the partnership with someone other than the Company, there can be no
assurance that decisions made by these partnerships would be the same as those
made by the Company under similar circumstances.
INTERNATIONAL INTERESTS
The Company owns a 10% interest in a corporation which provides cellular
service in the Sonora and Sinaloa regions of Mexico. The Company currently
receives services related to international ventures from GTE PCS.
COMPETITION
The cellular telephone industry is part of the much broader
telecommunications industry. Direct competition is in the form of the other
cellular licensee in any given market. Competition between the two cellular
licensees is principally on the basis of service quality, price and coverage
area. In addition to the direct cellular competitor in each market, there will
also be competition from newly emerging Enhanced Specialized Mobile Radio
("ESMR") operators who generally provide dispatch and other private radio
systems. With new digital technology it may be possible for ESMR operators to
provide services in the future that may be difficult to distinguish from
traditional cellular service.
In 1993 the FCC announced that it would license additional frequencies in
the 1.8 GHz to 1.99 GHz frequency band to enable up to six additional wireless
competitors to enter each market. These new licenses consist of two licenses in
each of 51 large, often multi-state, geographical areas known as Major Trading
Areas ("MTAs") and four licenses in each of 492 smaller geographical areas known
as Basic Trading Areas ("BTAs"). Auctions for such licenses began in 1994 and
will continue in 1995. The first part of the auction was completed on March 13
and resulted in the purchase of 99 licenses by 18 entities. A GTE subsidiary,
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GTE Macro Communications Corporation, purchased four licenses (Atlanta, Seattle,
Cincinnati and Denver).
REGULATION
General. The FCC regulates the licensing, construction, operation, sale
and acquisition of cellular carriers as well as interconnection arrangements
between cellular carriers. In addition, certain aspects of cellular system
operation, also may be subject to public utility regulation in the state in
which service is provided. Changes in federal or state regulation of the
Company's and its competitors' activities, such as increased rate regulation or
deregulation of interconnection arrangements, could adversely affect the
Company's results. A brief summary of federal and applicable state regulation of
cellular service is set forth below.
Federal Regulation. The FCC initially authorized cellular telephone
service in 1981 by allocating 40 MHz of spectrum for two competing cellular
systems in each market. A 20 MHz block of spectrum was given to each carrier.
Due to cellular's rapid growth, the FCC allocated to each carrier an additional
5 MHz of spectrum in 1986.
The initial cellular licenses granted by the FCC expire ten years from
their date of issuance and are renewable upon application to, and approval by,
the FCC. The FCC has established the criteria under which existing licensees may
have their cellular licenses renewed. Basically, a comparative preference will
be given to any current cellular licensee who can prove that it substantially
used its spectrum for its intended purpose, complied with applicable FCC rules,
and did not engage in substantial relevant misconduct. This preference will be
the most important factor to be considered by the FCC during its hearing on each
license renewal request in comparing the current licensee's application with any
competing applications. Failure to comply with FCC rules can be raised as an
issue during the license renewal proceedings and could result in termination of
the license.
The first of the Company's cellular licenses came up for renewal in October
1994. The Company filed renewal applications for its licenses in Mobile,
Alabama, El Paso, Texas and Richmond and Norfork, Virginia in August 1994. No
entity filed competing applications or oppositions to any of those renewal
applications. The remainder of the Company's licenses will expire over the next
several years, including two which expire in 1995, seven which expire in 1996
and eleven which expire in 1997. All of the licenses expiring between 1995 and
1997 are MSA licenses. The Company expects to file renewal applications for such
licenses upon their expiration.
The FCC is currently in the process of auctioning additional licenses in
the 1.8 GHz to 1.99 GHz range for the provision of personal communications
services. Existing cellular companies are eligible to bid at auction for new
licenses. Existing cellular companies may bid for an MTA license where they have
no current substantial cellular holdings and one BTA license in all BTA's,
including areas where they are currently the cellular provider. The first part
of the auction was completed on March 13 and resulted in the purchase of 99
licenses by 18 entities. A GTE subsidiary, GTE Macro Communications Corporation,
purchased four licenses (Atlanta, Seattle, Cincinnati and Denver).
In addition to regulating cellular service, the FCC also regulates
point-to-point microwave facilities which are often utilized by cellular
providers to link base stations to each other and to the MTSO. The Company holds
certain microwave licenses for these purposes. Such licenses, which are issued
for a ten year period, were all renewed by the Company in 1991 for an additional
ten year period. The FCC has issued regulations pursuant to which a significant
portion of the Company's microwave licenses may have to be relocated to a higher
spectrum at the request of a party receiving a license to use such spectrum for
a new technology. The regulations currently provide that incumbent microwave
licensees will be reimbursed for expenses associated with this relocation by the
new licensee.
State Regulation. In 1981, the FCC preempted the states from exercising
jurisdiction in the areas of cellular technical standards and market structure.
Under the Communications Act of 1934, as amended, however, certain aspects of
the economic regulation of common carriers were reserved to the states. The
states
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had exclusive jurisdiction with respect to charges, classifications, practices
and service or facilities for or in connection with intrastate communications.
Although many states have deregulated cellular service, some still require the
filing of tariffs and operational reports pursuant to statutes governing public
utilities.
In August 1994, certain provisions of the Omnibus Budget Reconciliation Act
of 1993 (the "Omnibus Act") became effective. These provisions prohibited the
states from continuing to exercise jurisdiction over rates and entry into the
wireless telecommunications business. The Omnibus Act did, however, provide that
states could file a petition with the FCC to continue rate jurisdiction. Only
two states in which the Company provides service, California and New York, filed
to continue such regulation. All states may continue to regulate other aspects
of cellular service not preempted by federal law, although it is unclear at this
time the extent to which the other states will continue to do so.
RELATED PARTY TRANSACTIONS
ARRANGEMENTS AND TRANSACTIONS WITH CONTEL AND GTE
The Company, Contel and GTE have a number of financial, operating and other
arrangements and have engaged in certain transactions believed to be of mutual
benefit. The terms of these arrangements have been established by Contel and GTE
in consultation with the Company but are not the result of arms-length
negotiations. The following is a summary of the principal arrangements and
transactions among the Company, Contel and GTE.
Taxes. The Company and GTE have a tax sharing arrangement under which the
Company and its subsidiaries are included in the consolidated federal income tax
returns and in certain state income and franchise tax returns of GTE. Tax
payments, if applicable, are made by the Company to GTE on a quarterly basis
using methods prescribed by GTE. When the Company and its subsidiaries generate
a federal tax loss or excess credits (credits exceeding tax liability), the
Company is reimbursed by GTE on a quarterly basis based on the actual loss or
credit which may be utilized in the consolidated GTE federal tax returns.
With respect to states permitting unitary or combined tax filings, GTE
includes the Company and its subsidiaries in its unitary or combined tax filing.
The Company pays to GTE an amount equal to the state income or franchise tax
that would have been payable by the Company or its subsidiaries if a separate
tax return had been filed.
Financing and Cash Management. During 1994, the Company relied on GTE for
its short term and long term cash needs. The Company's long term cash needs are
mainly the result of its acquisition in February 1990 of the cellular telephone
properties previously owned by McCaw Cellular Communications, Inc. in Kentucky,
Alabama and Tennessee (the "Southeast Properties") for approximately $1.3
billion and subsequent borrowings to pay interest on such amount. The $1.3
billion was originally funded by a loan from Contel Capital Corporation, which
at that time was a wholly owned subsidiary of Contel, which became due in July
1991. This original loan was replaced in 1991 with (i) a $700 million loan from
GTE to the Company bearing interest at 10.47% and maturing on March 1, 1998,
(ii) a $150 million loan from GTE Finance Corporation ("GTE Finance"), a wholly
owned subsidiary of GTE, bearing interest at 9.22% and maturing on February 15,
1993 (subsequently refinanced as set forth below), and (iii) a variable rate
note from GTE bearing interest at one and one-half percentage points above GTE's
external cost of borrowing these funds. The interest rate on the notes described
in (i) and (ii) above include an additional one and one-half percentage point of
interest in excess of the interest paid by GTE for these funds.
During 1992, the Company began a program of converting a portion of its
variable rate debt, including a portion of the debt incurred in connection with
the acquisition of the Southeast Properties, to fixed rate debt. As a result of
this program, the Company entered into the following loans in 1992, 1993 and
1994: (i) a $150 million loan from GTE Finance to the Company bearing interest
at 8.38% and maturing on September 25, 1997, (ii) a $150 million loan from GTE
Finance to the Company bearing interest at 8.97% and maturing on September 27,
1999, (iii) a $200 million loan from GTE to the Company bearing interest at
8.56% and maturing on December 31, 1996, (iv) a $200 million loan from GTE to
the Company bearing interest at
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8.08% and maturing on December 31, 1995, (v) a $150 million loan from GTE
Finance to the Company bearing interest at 7.71% and maturing on February 25,
1997 and (vi) a $75 million loan from GTE Finance to the Company bearing
interest at 9.90% and maturing on August 17, 2000. The interest rates on these
loans were comparable to rates for United States Treasury securities of similar
maturity plus 3% per annum at the time such loans were entered into and are the
rates which GTE believes approximate the interest rates the Company could have
obtained in the marketplace from nonaffiliated lenders. These rates exceed the
interest paid by GTE for these funds. As of December 31, 1994, the Company has
borrowed approximately $1.63 billion from GTE and GTE Finance in fixed rate
debt.
The Company fulfills its immediate cash needs with an intercompany note
from GTE (the "ICN"). The amount borrowed and the rate of interest on the ICN
fluctuate daily. As of December 31, 1994 the amount of the ICN was approximately
$495 million. During 1994, the interest rate on the ICN was the daily Prime Rate
quoted in The Wall Street Journal plus .75%, which is the interest rate which
GTE believes approximates the interest rate the Company could have obtained in
the marketplace from nonaffiliated lenders and exceeds the interest paid by GTE
for these funds.
During 1994, the Company also received cash management services from GTE.
Trademark License Agreement. The Company and Contel have entered into an
agreement under which the Company has been granted a non-exclusive,
non-transferrable license and right to use the trademark, service mark and
design "CONTEL CELLULAR". This grant may be terminated at the sole discretion of
Contel and will automatically terminate if Contel no longer owns a majority of
the outstanding common stock of the Company.
General Services. During 1994, the Company received numerous services,
both primary and supplemental, from GTE PCS pursuant to the Services Agreement
between the Company and GTE Mobile. These services were also provided to GTE's
wholly owned cellular subsidiary, GTE Mobilnet, and included accounting,
finance, marketing, human resources, legal, regulatory, governmental relations,
international, engineering, network design and maintenance services. In exchange
for these services, the Company reimbursed GTE PCS for its expenses in
accordance with a cost causative allocation formula which allocated pools of
costs to operating units based on one of several factors. These factors were
developed and applied to cost categories in an effort to allocate expenses to
operating units in proportion to the use and benefit of the underlying cost.
Under this Services Agreement, the Company paid GTE PCS approximately $49.8
million in 1994, which was approximately 34% of all of the expenses of GTE PCS.
Insurance. The Company and its officers, directors and employees are
insured under a master contract negotiated by GTE with a private insurance
carrier. The premium due the insurance carrier under this master policy is
allocated among all GTE subsidiaries based on the loss history, total payroll
and total number of vehicles owned by each subsidiary. The premium is paid
directly to the private insurance carrier by each subsidiary.
Competition. The Company, Contel and GTE have entered into the Competition
Agreement pursuant to which Contel and GTE have agreed that they will not engage
in the cellular business except in accordance with the terms of the Competition
Agreement. Under the Competition Agreement, GTE Mobilnet may continue to engage
in the cellular business. However, the Company has a right of first refusal with
respect to future acquisitions by GTE of cellular businesses except for (i)
acquisitions of minority interests in cellular properties held by GTE Mobilnet
and (ii) acquisitions contemplated at the time of the Contel Merger which were
specifically listed in the Competition Agreement. After the Merger is effective,
the Competition Agreement will be terminated.
Equity Ownership in B-Side Carriers L.P. GTE Mobile, an affiliate of GTE,
is an equity owner in B-Side Carriers L.P., a consortium of cellular providers
who market under the brand name MobiLink(R). The Company has an agreement with
B-Side Carriers L.P. to market its wireline properties as MobiLink providers.
See "BUSINESS OF THE COMPANY -- The Company's Cellular Operations -- Marketing".
Government Systems Contract. In 1994 the Company entered into an agreement
with GTE Government Systems Corporation ("GTE Systems") pursuant to which GTE
Systems will construct not less than 40
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cell sites for the Company in 1994 and 50 cell sites in 1995. The cost to be
charged the Company in 1994 will consist of (i) an administrative fixed fee of
$3.1 million, (ii) reimbursement of materials and equipment estimated to be $7.8
million and (iii) reimbursement of external labor costs estimated to be $3.0
million. Contract pricing in 1995 will be agreed upon by the parties.
Cellular Exchange Transaction. The Company and the GTE Parties entered
into an Asset Exchange Agreement dated February 3, 1995. Under the terms of the
Asset Exchange Agreement the Company will receive a 28% interest in the San
Diego MSA in exchange for certain cellular assets in Albuquerque, New Mexico and
Minneapolis, Minnesota. The Company will operate the San Diego system pursuant
to a management agreement with the other GTE Parties. See "BUSINESS OF THE
COMPANY -- The Company's Cellular Operations".
PAYMENTS TO OPTIONHOLDERS
Certain officers and employees of the Company are participants under the
1987 Key Employee Stock Plan of the Company (the "Option Plan"). Options were
granted under the Option Plan at prices ranging from $15.00 to $22.81. In
connection with the Merger, the Company has offered to make cash payments to
those holders of options to purchase Class A Shares issued pursuant to the
Option Plan who agree to surrender all of their options. Each optionholder who
agrees to surrender all of his or her options will receive a cash payment for
each option cancelled, whether or not currently vested (so long as the exercise
period has not lapsed), equal to $25.50 multiplied by the number of Class A
Shares subject to such options, less the exercise price for such option. If the
vesting of the options is accelerated and if all of the options are surrendered
as described above, the largest payment any single optionholder will receive is
$168,388.
TRANSITION ARRANGEMENTS
In order to provide a degree of continuity during the merger transition
process GTE has entered into a Transition Bonus Agreement with two executives,
Dennis L. Whipple, President and Chief Executive Officer of the Company, and
Theodore J. Carrier, Treasurer and Chief Financial Officer of the Company. If
Mr. Whipple agrees to remain with GTE from the date of the Merger until December
31, 1995 or such earlier date as the parties may determine, he will be eligible
for a transition bonus equal to 100% of the sum of his final GTE annual base
rate of pay and the average of his GTE Executive Incentive Plan ("EIP") awards
for the 1993 and 1994 plan years. If Mr. Carrier agrees to remain with GTE
through December 31, 1995, he will be eligible for a transition bonus equal to
100% of the sum of his final GTE annual base rate of pay and the average of his
EIP awards for the 1992, 1993, and 1994 plan years. In addition, Mr. Whipple
will receive an initial bonus of $20,000. In 1995, Mr. Whipple will participate
in the 1994-1995 and 1994-1996 GTE Long-Term Incentive Plan performance bonus
award cycles and the 1995-1997 cycle. If Mr. Whipple remains on the payroll to
the end of the agreed upon period then, in lieu of an award for the 1995-1997
bonus award cycle, he will receive an equivalent bonus award prorated to
December 31, 1995.
Any executive officer whose employment is involuntarily terminated will
receive an enhanced retirement benefit paid out of GTE's qualified pension
assets pursuant to the terms of the GTE's Involuntary Separation Plan ("ISEP").
ISEP provides for a benefit based on length of service and/or grade level and
the benefit will not exceed 120% of one year's salary. Mr. Whipple's and Mr.
Carrier's ISEP benefits also include a non-qualified benefit attributable to
their EIP award for the three previous years.
53
<PAGE> 54
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
CERTAIN BENEFICIAL OWNERS
The following table contains certain information regarding the only persons
known to the Company as of the date of this Information Statement to be
beneficial owners of more than 5% of any class of the Company's voting
securities:
<TABLE>
<CAPTION>
AMOUNT OF
NAME AND ADDRESS OF BENEFICIAL PERCENTAGE
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS
----------------------------- ----------------------------- ---------- ----------
<S> <C> <C> <C>
Class A Common Stock......... CS First Boston, Inc. 551,480(2) 5.54%
Park Avenue Plaza
55 East 52nd Street
New York, NY 10055(1)
Class B Common Stock......... GTE Corporation 90,000,000(4) 100%
One Stamford Forum
Stamford, CT 06904(3)
</TABLE>
- ---------------
(1) This information was obtained from a Schedule 13G filed with the SEC on
February 13, 1995 by CS First Boston, Inc.
(2) The Schedule 13G filed by CS First Boston, Inc. discloses that CS First
Boston, Inc. exercises sole voting power and sole dispositive power over
these shares.
(3) GTE acquired beneficial ownership of these shares as a result of the merger
of a subsidiary of GTE into Contel. Contel remains the holder of record of
these shares. The address of Contel is One Stamford Forum, Stamford,
Connecticut 06904.
(4) GTE, through Contel, exercises sole voting power and sole dispositive power
over these shares.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The number of Class A Shares and shares of GTE Common Stock owned by each
director and executive officer of the Company as of January 31, 1995 is set
forth in the table below. Unless otherwise indicated, all persons shown in the
table have sole voting and investment power with respect to the shares shown.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF CLASS A COMMON
STOCK NUMBER OF SHARES OF
BENEFICIALLY GTE COMMON STOCK
NAME OF DIRECTOR OWNED(1) BENEFICIALLY OWNED(2)
------------------------------------------------ ----------------- ---------------------
<S> <C> <C>
Leo Jaffe....................................... 2,000 0
James L. Johnson................................ 0 722,085(3)(4)
Robert E. LaBlanc............................... 4,000 0
Charles R. Lee.................................. 0 634,148(3)(4)
Michael T. Masin................................ 0 75,291(3)(5)
Russell E. Palmer............................... 0 2,000(6)
Irwin Schneiderman.............................. 0 0
Nicholas L. Trivisonno.......................... 0 181,956(3)(4)
James W. Walter................................. 0 12,000(7)
Dennis L. Whipple............................... 18,650(8) 9,724(3)(4)
Charles Wohlstetter............................. 0 232,655
</TABLE>
54
<PAGE> 55
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
CLASS A COMMON STOCK NUMBER OF SHARES OF
BENEFICIALLY GTE COMMON STOCK
NAME OF EXECUTIVE OFFICER OWNED(1) BENEFICIALLY OWNED(2)
---------------------------------------------- -------------------- ---------------------
<S> <C> <C>
Dennis L. Whipple............................. 18,650(8) 9,724(3)(4)
Randall L. Crouse............................. 3,100(8) 5,505(4)
Pamela F. Lopez............................... 1,700(8) 2,585(4)
Laura E. Binion............................... 1,700(8) 1,905(3)(4)
Theodore J. Carrier........................... 15,000(8) 216(4)
John P.Z. Kent................................ 0 22,610(3)
Jay M. Rosen.................................. 0 47,995(3)
All directors and officers as a group (the
"Executive Group").......................... 46,150 1,950,675(3)(4)
</TABLE>
- ---------------
(1) Each of these amounts, and all of them in the aggregate, represented less
than 1% of the outstanding Class A Shares as of January 31, 1995. Each
director and executive officer is expected to accept the Merger
Consideration and not exercise appraisal rights.
(2) Each of these amounts, and all of them in the aggregate, represented less
than 1% of the outstanding shares of GTE Common Stock as of January 31,
1995.
(3) Included in the number of shares beneficially owned by Messrs. Johnson, Lee,
Masin, Trivisonno, Whipple, Kent and Rosen and Ms. Binion and the Executive
Group are: 633,300; 553,399; 72,599; 170,233; 5,300; 18,099; 25,632; 816;
and 1,479,378 shares, respectively, which such persons have the right to
acquire within 60 days pursuant to stock options.
(4) This amount includes shares acquired through participation in GTE's
Consolidated Employee Stock Ownership Plan and/or Savings Plan.
(5) In addition to the shares of GTE Common Stock shown above, Mr. Masin owns
10,088 GTE Common Stock Units, which are payable in cash under the Deferred
Compensation Plan and Phantom Stock Plan for Nonemployee Members of the
Board of Directors of GTE Corporation (the "Deferred Compensation Plan").
Mr. Masin was a non-employee director of GTE prior to joining GTE as Vice
Chairman in 1993.
(6) In addition to the shares of GTE Common Stock shown above, Mr. Palmer owns
1,294 GTE Common Stock Units, which are payable in cash under the Deferred
Compensation Plan.
(7) In addition to the shares of GTE Common Stock shown above, Mr. Walter owns
121,116 GTE Common Stock Units, which are payable in cash under the Deferred
Compensation Plan.
(8) Included in the number of shares beneficially owned by Messrs. Whipple,
Crouse and Carrier and Ms. Lopez and Ms. Binion and the Executive Group are
18,650, 3,100, 15,000, 1,700, 1,700 and 40,150 shares, respectively, which
such persons have the right to acquire upon the exercise of certain stock
options. Pursuant to an offer made by the Company in connection with the
Merger, such options, whether or not currently vested, may be surrendered
for a cash payment equal to $25.50 times the number of shares issuable upon
exercise thereof, less the exercise price applicable thereto. See "RELATED
PARTY TRANSACTIONS -- Payments to Optionholders". If Messrs. Whipple, Crouse
and Carrier and Ms. Lopez and Ms. Binion and the Executive Group agree to
surrender the options they hold, the maximum amount payable to those
individuals and the Executive Group is $168,388, $30,425, $59,760, $15,725,
$16,600 and $290,898, respectively.
DIRECTORS AND EXECUTIVE OFFICERS OF GTE, CONTEL AND CCI ACQUISITION
As set forth in Exhibit E, certain directors and executive officers of the
Company are also directors or executive officers of GTE, Contel or CCI
Acquisition. With the exception of the ownership of Class A Shares by certain of
such persons set forth in "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT -- Directors and Executive Officers of the Company", no director or
executive officer of GTE, Contel or CCI Acquisition owns any Class A Shares.
55
<PAGE> 56
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed by the Company with the
Securities and Exchange Commission, as noted below, are incorporated by
reference into this Information Statement: (a) Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 (as amended by Form 10-K/A-1 filed
January 25, 1995 and Form 10-K/A-2 filed March , 1995) and (b) Proxy Statement
dated April 29, 1994. The File Number for all of the above referenced documents
is Commission File No. 0-16714. All documents subsequently filed by the Company
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, and prior to the date the written consent is used to effect the Merger,
shall be deemed to be incorporated by reference into this Information Statement.
Any statement contained herein or in any document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for the purposes of this Information Statement to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed to
constitute a part of this Information Statement, except as so modified or
superseded.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Information Statement is delivered,
upon written or oral request of such person and by first class mail or other
equally prompt means within one business day of receipt of such request, a copy
of any and all of the information that has been incorporated by reference in
this Information Statement (not including exhibits to such information unless
such exhibits are specifically incorporated by reference into such information),
including information contained in documents filed subsequent to March , 1995.
Such requests for information should be directed to Contel Cellular Inc., 245
Perimeter Parkway, Atlanta, Georgia 30346, Attention: General Counsel. The
telephone number of the General Counsel is (404) 804-3400.
By Order of the Board of Directors
/s/ JAY M. ROSEN
Secretary
Atlanta, Georgia
March , 1995
56
<PAGE> 57
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants -- Consolidated Financial
Statements................................................................... F-2
Consolidated Statements of Operations.......................................... F-3
Consolidated Statements of Cash Flows.......................................... F-4
Consolidated Balance Sheets.................................................... F-5
Consolidated Statements of Changes in Stockholders' Deficit.................... F-7
Notes to Consolidated Financial Statements..................................... F-8
Schedule II -- Valuation and Qualifying Accounts............................... F-25
Report of Independent Public Accountants -- Compilation of Combined Financial
Statements................................................................... F-26
Combined Statements of Operations.............................................. F-27
Combined Statements of Cash Flows.............................................. F-28
Combined Balance Sheets........................................................ F-29
Combined Statements of Changes in Partners' Capital............................ F-30
Notes to Combined Financial Statements......................................... F-31
Report of Independent Accountants -- Los Angeles SMSA Limited Partnership...... F-36
Report of Independent Accountants -- Washington D.C. SMSA Limited
Partnership.................................................................. F-37
Report of Independent Public Accountants -- GTE Mobilnet of California Ltd.
Partnership.................................................................. F-38
Report of Independent Public Accountants -- GTE Mobilnet of South Texas Ltd.
Partnership.................................................................. F-39
Report of Independent Auditors -- San Antonio SMSA Limited Partnership......... F-40
Report of Independent Public Accountants -- Albucell Limited Partnership....... F-41
</TABLE>
F-1
<PAGE> 58
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of
Contel Cellular Inc.:
We have audited the consolidated balance sheets of CONTEL CELLULAR INC. (a
Delaware corporation and majority owned subsidiary of GTE Corporation) AND
SUBSIDIARIES as of December 31, 1994 and 1993 and the related consolidated
statements of operations, changes in stockholders' deficit, and cash flows for
each of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of certain unconsolidated
partnerships as described in Note 4 to the financial statements. The investment
in these partnerships is reflected in the accompanying balance sheets using the
equity method of accounting and represented $102,618,000 and $82,140,000 (or 4%)
of total consolidated assets at December 31, 1994 and 1993, respectively. The
equity in their earnings is included in the statements of operations and
represented $39,806,000, $28,024,000, and $20,070,000 for the years ended
December 31, 1994, 1993, and 1992, respectively. The summarized financial
information contained in Note 4 to the consolidated financial statements
includes financial information for the aforementioned partnerships. The
financial statements of these unconsolidated partnerships were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar as it
relates to the amounts included for these unconsolidated partnerships, is based
solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
the financial statements (pages F-3 to F-24) referred to above present fairly,
in all material respects, the financial position of Contel Cellular Inc., and
subsidiaries as of December 31, 1994 and 1993 and the 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.
A report of other auditors referred to above indicates that the Los Angeles
SMSA Limited Partnership is involved in litigation with several agents as
discussed in Note 4 and with cellular subscribers as discussed in Notes 4 and 8,
the outcome of which cannot presently be determined. Accordingly, no provision
for any liability that may result upon adjudication has been made in the
accompanying financial statements.
As discussed in Note 4, the cellular partnership in San Francisco,
California, of which the Company holds a non-controlling interest, is involved
in litigation with a class of cellular subscribers, the outcome of which cannot
presently be determined. Accordingly, no provision for any liability that may
result upon adjudication has been made in the accompanying financial statements.
As discussed in Note 3 to the financial statements, effective January 1,
1992, the Company changed its method of accounting for postretirement benefits
other than pensions.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 13, 1995
F-2
<PAGE> 59
CONTEL CELLULAR INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
REVENUES AND SALES:
Service revenues...................................... $ 524,772 $ 346,460 $ 262,479
Equipment sales....................................... 38,183 27,554 24,520
--------- --------- ---------
562,955 374,014 286,999
--------- --------- ---------
COSTS AND EXPENSES:
Cost of services...................................... 85,095 47,942 41,686
Cost of equipment sales............................... 78,634 49,449 37,678
Selling, general and administrative................... 242,840 196,738 162,093
Depreciation.......................................... 77,865 66,573 54,401
Amortization of FCC licenses, goodwill and other
intangibles........................................ 37,510 41,617 41,254
--------- --------- ---------
521,944 402,319 337,112
--------- --------- ---------
OPERATING INCOME (LOSS)................................. 41,011 (28,305) (50,113)
Interest expense, net................................... 179,183 162,907 148,092
Other expense (income), net............................. 840 (2,360) 516
--------- --------- ---------
LOSS BEFORE MINORITY INTERESTS.......................... (139,012) (188,852) (198,721)
Minority interests...................................... (4,320) 841 2,374
--------- --------- ---------
LOSS FROM CONSOLIDATED OPERATIONS....................... (143,332) (188,011) (196,347)
Equity in earnings of unconsolidated partnerships....... 62,792 37,351 29,027
Gains on sales of cellular interests.................... 96,607 48,023 60,806
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES....................... 16,067 (102,637) (106,514)
Provision for (Benefit from) income taxes............... 14,196 (27,719) (33,453)
--------- --------- ---------
NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLES................................. 1,871 (74,918) (73,061)
Cumulative Effect of Change in Accounting Principles.... -- (241) (2,080)
--------- --------- ---------
NET INCOME (LOSS)....................................... $ 1,871 $ (75,159) $ (75,141)
========= ========= =========
NET INCOME (LOSS) PER SHARE BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLES....................... $ 0.02 $ (0.75) $ (0.73)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES PER
SHARE................................................. -- -- (0.02)
--------- --------- ---------
NET INCOME (LOSS) PER SHARE............................. $ 0.02 $ (0.75) $ (0.75)
========= ========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.............. 99,953 99,948 99,943
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 60
CONTEL CELLULAR INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 1,871 $ (75,159) $ (75,141)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities --
Depreciation........................................... 77,865 66,573 54,401
Amortization of FCC licenses, goodwill and other
intangibles.......................................... 37,510 41,617 41,254
Gains on sales of cellular interests................... (96,607) (48,023) (60,806)
Deferred income tax provision.......................... 38,313 37,397 39,523
Provision for losses on accounts receivable............ 14,704 6,298 7,528
Undistributed earnings of unconsolidated
partnerships......................................... (35,309) (17,548) (12,258)
Other, net............................................. 618 (12,198) (1,174)
Changes in current assets and current liabilities
excluding the effects of acquisitions and
dispositions
Increase in accounts receivable...................... (35,890) (24,318) (2,275)
Change in taxes receivable/payable -- affiliates..... (19,635) 9,774 36,936
Increase in other current assets..................... (5,594) (5,559) (134)
Increase (Decrease) in accrued
interest -- affiliates............................ 21,380 (2,392) 6,245
Increase in other current liabilities................ 22,553 28,154 4,108
--------- --------- ---------
Net Cash Provided...................................... 21,779 4,616 38,207
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (255,174) (130,042) (183,504)
Acquisitions, net of cash acquired........................ (112,793) (25,887) --
Proceeds from sales of cellular interests................. 113,682 60,795 71,252
Change in advances to unconsolidated partnerships, net.... 12,352 6,866 (609)
Contributions to unconsolidated partnerships.............. (15,082) (13,831) (12,631)
Other, net................................................ 4,763 71 (659)
--------- --------- ---------
Net Cash Used.......................................... (252,252) (102,028) (126,151)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable -- affiliates, net............ 234,912 85,468 79,293
Proceeds from other long-term obligations................. -- 6,512 --
Payment of other long-term obligations.................... (6,000) (6,000) --
Contributions from minority partners...................... 6,372 10,047 1,731
Other, net................................................ 431 22 142
--------- --------- ---------
Net Cash Provided...................................... 235,715 96,049 81,166
--------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents........ 5,242 (1,363) (6,778)
Cash and Cash Equivalents at Beginning of Period............ 278 1,641 8,419
--------- --------- ---------
Cash and Cash Equivalents at End of Period.................. $ 5,520 $ 278 $ 1,641
========= ========= =========
SUPPLEMENTAL DISCLOSURES:
Income tax benefits received.............................. $ (5,500) $ (70,960) $(108,966)
========= ========= =========
Interest paid............................................. $ 162,485 $ 168,977 $ 143,791
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 61
CONTEL CELLULAR INC.
CONSOLIDATED BALANCE SHEETS
(THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 5,520 $ 278
Accounts receivable -- trade, net of allowance for doubtful
accounts of $8,556 and $4,674.................................... 77,816 53,673
Advances to unconsolidated partnerships............................. -- 8,039
Inventories......................................................... 6,012 6,765
Other............................................................... 13,605 4,616
---------- ----------
102,953 73,371
---------- ----------
INVESTMENTS AND OTHER ASSETS:
FCC licenses, goodwill and other intangibles, net of
accumulated amortization of $195,316 and $157,806................ 1,354,677 1,287,437
Investments in and advances to unconsolidated partnerships.......... 204,771 163,755
Long-term notes receivable.......................................... 21,430 3,565
Deferred charges and other.......................................... 913 2,065
---------- ----------
1,581,791 1,456,822
---------- ----------
PROPERTY AND EQUIPMENT, AT COST:
Land................................................................ 22,388 20,001
Buildings and towers................................................ 154,828 121,993
Equipment........................................................... 618,157 477,589
Furniture and fixtures.............................................. 4,881 4,299
Assets under construction........................................... 95,212 82,660
---------- ----------
895,466 706,542
Accumulated depreciation............................................ (233,744) (183,751)
---------- ----------
661,722 522,791
---------- ----------
$2,346,466 $2,052,984
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 62
CONTEL CELLULAR INC.
CONSOLIDATED BALANCE SHEETS
(THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of other long-term obligations.................... $ 6,000 $ 6,000
Accounts payable -- construction and trade........................ 53,548 60,407
Accounts payable -- affiliates.................................... 4,728 23,552
Advance billings and customer deposits............................ 4,015 3,638
Accrued interest -- affiliates.................................... 58,971 37,591
Accrued taxes -- other............................................ 23,702 18,536
Accrued expenses and other current liabilities.................... 30,960 25,054
---------- ----------
181,924 174,778
---------- ----------
LONG-TERM OBLIGATIONS:
Notes payable -- affiliates....................................... 2,136,263 1,901,726
Other............................................................. 30,792 36,792
---------- ----------
2,167,055 1,938,518
---------- ----------
DEFERRED INCOME TAXES............................................... 191,694 151,881
OTHER DEFERRED CREDITS.............................................. 26,102 14,333
MINORITY INTERESTS.................................................. 18,611 14,695
STOCKHOLDERS' DEFICIT:
Class A common stock, $1 par value; authorized 100,000,000 shares,
issued 10,000,000 shares....................................... 10,000 10,000
Class B common stock, $1 par value; authorized 100,000,000 shares,
issued 90,000,000 shares....................................... 90,000 90,000
Paid-in capital................................................... 33,331 33,358
Accumulated deficit............................................... (371,434) (373,305)
Cost of 33,047 and 51,347 shares of Class A common stock in
treasury....................................................... (817) (1,274)
---------- ----------
(238,920) (241,221)
---------- ----------
$2,346,466 $2,052,984
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 63
CONTEL CELLULAR INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON COMMON TOTAL
STOCK, STOCK, PAID-IN ACCUMULATED TREASURY STOCKHOLDERS'
$1 PAR VALUE $1 PAR VALUE CAPITAL DEFICIT STOCK DEFICIT
------------- ------------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1991........... $10,000 $90,000 $33,424 $(223,005) $(1,504 ) $ (91,085)
Net Loss............. -- -- -- (75,141) -- (75,141)
Issuance of
restricted stock
and stock under
employee stock
option plans....... -- -- (57 ) -- 199 142
------------- ------------- -------- ----------- -------- -----------
Balance at December
31, 1992........... 10,000 90,000 33,367 (298,146) (1,305 ) (166,084)
Net Loss............. -- -- -- (75,159) -- (75,159)
Issuance of
restricted stock
and stock under
employee stock
option plans....... -- -- (9 ) -- 31 22
------------- ------------- -------- ----------- -------- -----------
Balance at December
31, 1993........... 10,000 90,000 33,358 (373,305) (1,274 ) (241,221)
Net Income........... -- -- -- 1,871 -- 1,871
Issuance of
restricted stock
and stock under
employee stock
option plans....... -- -- (27 ) -- 457 430
------------- ------------- -------- ----------- -------- -----------
Balance at December
31, 1994........... $10,000 $90,000 $33,331 $(371,434) $ (817 ) $(238,920)
============ ============ ======= ============ ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 64
CONTEL CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
The Company, a 90-percent-owned subsidiary of Contel, was incorporated in
Delaware on September 24, 1980. Contel is a wholly owned subsidiary of GTE. The
Company, through its subsidiaries or through partnerships, provides or
participates in providing cellular telephone services in various metropolitan
statistical areas ("MSAs") and rural service areas ("RSAs") throughout the
United States. Refer to the "Interests in MSAs and RSAs" following the Notes to
Consolidated Financial Statements for additional information.
A definitive agreement dated as of December 27, 1994 was executed between
the Company and GTE based on the approval by the Company's Board of Directors to
accept the proposal by GTE to acquire the remaining 10 percent ownership of the
Company. Under the terms of the agreement, a GTE subsidiary will merge into the
Company and the holders of the approximately 10 million Class A common shares
will receive $25.50 per share in cash. The Company's Class B common shares owned
by GTE will be converted into shares of the merged entity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include all wholly owned subsidiaries
and partnerships in which the Company holds a controlling interest. Investments
in partnerships in which the Company does not hold a controlling interest are
accounted for using the equity method of accounting. Significant intercompany
transactions are eliminated in consolidation.
REVENUE RECOGNITION
The Company earns service revenues by providing access to its cellular
systems ("access revenue") and usage of its cellular systems ("airtime
revenue"). Access and airtime revenue, including roaming and long-distance, is
recognized when the service is rendered. Other service revenues are recognized
after services are performed and include connection and installation revenues.
Equipment sales are recognized upon delivery of the equipment to the customer.
PROPERTY, EQUIPMENT AND DEPRECIATION
The Company records depreciation using the straight-line method over the
estimated useful life of the asset, which is 20 years for buildings, 15 years
for towers, 7 to 10 years for cell and switching equipment, and 3 to 5 years for
furniture and fixtures. The Company removes the cost and accumulated
depreciation of retirements from the accounts and recognizes the related gain or
loss upon the disposition or disposal of assets.
INTEREST EXPENSE
Interest expense related to construction activity is capitalized as a cost
of construction. Interest capitalized amounted to $4.1 million, $2.5 million and
$2.6 million for 1994, 1993 and 1992, respectively.
INCOME TAXES
Income tax expense (benefit) is based on reported income (loss) before
income taxes. Deferred taxes reflect the impact of temporary differences between
the amount of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for tax purposes. In 1992, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("FAS 109"). In accordance with FAS 109, deferred income taxes
have been established for all temporary differences between the book and tax
basis of assets and liabilities, including those which had not been
F-8
<PAGE> 65
CONTEL CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
previously recognized. In addition, deferred tax balances are adjusted to
reflect tax rates, based on currently enacted tax laws, that will be in effect
in the years in which the temporary differences are expected to reverse.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share for all years presented was computed using the
weighted average number of Class A and Class B Common Stock outstanding in
accordance with Accounting Principles Board Opinion No. 15.
CASH EQUIVALENTS
The Company considers all highly liquid unrestricted cash investments with
an original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories include cellular telephone equipment held for sale and are
valued at the lower of cost or market. Cost is determined using the specific
identification method. Accessories are expensed when purchased and are not
material in amount.
LONG-TERM NOTES RECEIVABLE
Long-term notes receivable consist primarily of amounts and accrued
interest due from partnerships disposed of between 1992 and 1994. The notes bear
interest at rates ranging from a fixed-rate of 8% to a variable-rate of prime
plus 3% (the prime rate at December 31, 1994 was 8.5%) and mature in varying
amounts between the years 1997 and 2002.
FCC LICENSES, GOODWILL AND OTHER INTANGIBLES
Costs incurred in connection with the acquisition of partnership interests
in excess of the net tangible assets acquired are capitalized as Federal
Communications Commission ("FCC") license costs, customer base or goodwill and
are amortized on a straight-line basis. FCC license costs and goodwill are
amortized over 40 years based on the high probability that the licenses will be
renewed upon expiration of their initial terms. Customer base is amortized over
4 years.
ASSETS UNDER CONSTRUCTION
The Company's network construction expenditures are recorded as assets
under construction until the system or assets are placed in service. When the
assets are placed in service, they are transferred to the appropriate property
and equipment category and depreciation begins. The Company's construction
employees' salaries, benefits and travel expenses, as well as other related
departmental expenses, are capitalized to assets under construction during the
construction period.
FINANCIAL INSTRUMENTS
The fair values of financial instruments, other than long-term obligations,
closely approximate their carrying value. The estimated market value of
long-term obligations, based on either reference to quoted market prices or an
option pricing model, was approximately $54 million below the carrying value at
December 31, 1994, and exceeded the carrying value by approximately $74 million
at December 31, 1993. The change in the market value between years was caused by
rising interest rates during 1994.
F-9
<PAGE> 66
CONTEL CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
PRESENTATION
Certain prior year amounts have been reclassified to conform to the current
year presentation.
3. ACCOUNTING CHANGES
During the fourth quarter of 1993, the Company adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("FAS 112"). FAS 112 requires the expected cost of
postemployment benefits to be recognized during the years that employees render
service. Prior to adoption, the cost of these benefits was charged to expense on
a pay-as-you-go basis. As a result of adoption, a one-time, non-cash charge of
$241 thousand (net of deferred tax benefits) was recorded to recognize the
annual effect of this change in accounting principle.
During the fourth quarter of 1992, the Company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("FAS 106") and FAS 109,
retroactive to January 1, 1992.
FAS 106 requires the expected cost of postretirement health care and life
insurance benefits to be recognized during the years that employees render
service. Prior to adoption, the cost of these benefits was charged to expense on
a pay-as-you-go basis. The Company elected to adopt FAS 106 on the immediate
recognition basis. As a result, a one-time, non-cash charge of $2.1 million (net
of deferred tax benefits of $1.1 million), or $.02 per share, was recorded to
give effect to past service costs.
4. INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED PARTNERSHIPS
The Company holds non-controlling interests in various MSA and RSA
partnerships (referred to as "Unconsolidated Partnerships") which were formed to
provide cellular telephone services. Unconsolidated Partnerships are accounted
for using the equity method of accounting. Refer to Note 5 for information
regarding acquisitions and dispositions of cellular interests.
Combined condensed results of operations and net assets of the Company's
Unconsolidated Partnerships are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1994 1993 1992
----------- ---------- ---------
(THOUSANDS)
<S> <C> <C> <C>
Results of Operations:
Revenues............................................ $ 1,594,349 $1,201,815 $ 949,903
Costs and Expenses.................................. (1,141,987) (866,504) (694,139)
Other Income (Expense).............................. 1,764 (12,698) 11,546
----------- ---------- ---------
Net Income............................................ 454,126 322,613 267,310
Other Partners' Share of MSA Net Income............... 394,528 283,494 234,921
----------- ---------- ---------
Company's Share of MSA Net Income..................... 59,598 39,119 32,389
Company's Share of RSA Net Income (Loss).............. 3,194 (1,768) (3,362)
----------- ---------- ---------
$ 62,792 $ 37,351 $ 29,027
========== ========= =========
</TABLE>
F-10
<PAGE> 67
CONTEL CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1993
---------- ----------
(THOUSANDS)
<S> <C> <C>
Net Assets:
Current Assets.................................................... $ 336,564 $ 265,060
Noncurrent Assets................................................. 1,203,044 977,475
Current Liabilities............................................... (274,255) (184,265)
Noncurrent Liabilities............................................ (12,134) (12,278)
---------- ----------
Net Assets.......................................................... 1,253,219 1,045,992
Other Partners' Share of MSA Net Assets............................. 1,068,991 898,967
---------- ----------
Company's Share of MSA Net Assets................................... 184,228 147,025
Company's Share of RSA Net Assets................................... 20,543 16,730
---------- ----------
$ 204,771 $ 163,755
========= =========
</TABLE>
The managing partner of each of the Unconsolidated Partnerships generally
has the authority to manage, supervise and conduct the affairs of the
partnership, make all decisions appropriate in connection with the business
purposes of the partnership and incur obligations and execute agreements on
behalf of the partnership. Under the terms of the partnership agreements, the
Company is entitled to review and audit the records of the partnership in those
Unconsolidated Partnerships it does not manage.
In certain of the Unconsolidated RSA Partnerships, the Company serves as
the managing partner. In such cases, the Company retains all other rights and
responsibilities of a non-controlling partner. As managing partner, the Company
may provide the initial capital, through cash advances, required to meet the
financial obligations of the partnerships. Alternatively, the Company may
request capital contributions to be invested by the partnerships in advance of
expenditures. At December 31, 1994, the Company had a payable to limited
partners of approximately $1.5 million, of which approximately $0.7 million
represents the Company's proportionate share. The remainder represents a current
payable to other partners and is included in Accounts payable -- affiliates in
the accompanying consolidated balance sheets. At December 31, 1993, the Company
had provided cash advances of $12.7 million, of which approximately $4.7
million, represents the Company's proportionate share. The remainder represents
a current receivable from the other partners or the partnerships and is included
in Advances to unconsolidated partnerships in the accompanying consolidated
balance sheets.
The amount of undistributed earnings of Unconsolidated Partnerships
included in Accumulated deficit in the accompanying consolidated statements of
changes in stockholders' deficit was approximately $84.1 million, $48.7 million
and $31.2 million at December 31, 1994, 1993 and 1992, respectively. There were
no restricted earnings of Unconsolidated Partnerships at December 31, 1994, 1993
or 1992.
In January 1992, the California Public Utilities Commission ("CPUC")
commenced an investigation of all cellular companies operating in the state of
California to determine their compliance with General Order number 159 ("G.O.
159"). The investigation will address whether cellular utilities have complied
with local, state or federal regulations governing the approval and construction
of cellular sites in the state. The CPUC may advise other agencies of violations
in their jurisdictions. Presently, the Los Angeles SMSA Limited Partnership (the
"L.A. Partnership") and the GTE Mobilnet of California Limited Partnership (the
"California Partnership") have prepared and filed the information requested by
the CPUC. The CPUC will review the information and, if violations of G.O. 159
are found, it may assess penalties against these partnerships.
On October 7, 1993, and February 15, 1994, two agents of the competing
carrier have named the L.A. Partnership in several complaints against the
carrier. The general allegations include violations of California Unfair
Practices Act and price fixing.
F-11
<PAGE> 68
CONTEL CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
On November 24, 1993, October 17, 1994 and November 30, 1994, three
separate class action (not yet certified) suits were filed against the L.A.
Partnership alleging conspiracy with a competing carrier to fix the price of
cellular service in violation of state and federal antitrust laws. The
plaintiffs are seeking injunctive relief and substantial monetary damages in
excess of $100 million before trebling.
In May 1994, several former and current agents of the competing carrier
have named the L.A. Partnership in only one cause of action. This cause of
action alleges a conspiracy with the competing carrier to fix the prices of
cellular service in violation of state antitrust laws. The plaintiffs are
seeking damages in excess of $100,000 for each of the plaintiff agents.
On July 18, 1994, AirTouch Cellular was served with a class action (not yet
certified) suit on behalf of the L.A. Partnership's authorized agents. The
complaint alleges "predatory practices" and seeks damages in excess of $1.6
million per agent, plus statutory treble damages.
On October 10, 1994, the California Partnership in which the Company holds
an 11.3% limited interest was served a complaint on behalf of users of cellular
service in the San Francisco, California area. The Complaint alleges that the
California Partnership has violated the California Business and Profession Code
by taking various actions to restrain trade, prevent competition and fix prices.
The Company's potential financial liability in connection with all of the
lawsuits discussed above is uncertain at this time because the Company is
involved in these lawsuits only as a limited partner. As a limited partner, the
Company is not involved in the strategic analysis of these cases with litigation
counsel and does not direct the litigation decisions made by these partnerships.
In addition, it is unclear whether any portion of an adverse judgment would be
passed to the Company, as a limited partner. For these reasons, no provision for
any liability that may result has been made in the accompanying financial
statements.
5. ACQUISITIONS AND DISPOSITIONS OF CELLULAR INTERESTS
The Company regularly evaluates its properties to assess their strategic
attributes in terms of meeting its financial goals and objectives. The Company
will purchase properties where the demographics and business climates are
favorable to the development of core and contiguous cellular systems and will
pursue the sale of properties deemed to be non-strategic.
On February 3, 1995, the Company signed a definitive agreement to exchange
its cellular assets (the "Exchange") in the Minneapolis, Minnesota MSA and the
Albuquerque, New Mexico MSA for a portion of US WEST NewVector Group, Inc.'s
cellular assets in the San Diego, California MSA ("San Diego MSA"). The Exchange
will give the Company a 28 percent interest, as a tenant-in-common, in the
assets of the cellular system serving the San Diego MSA. The Exchange will
reduce the Company's POPs by approximately 290,000. The transaction is subject
to regulatory approvals and is expected to close during 1995.
In December 1993, the Company signed a definitive agreement whereby NYNEX
Mobile Communications Company ("NYNEX") agreed to purchase the Company's
interest in the MSA systems serving Orange County, Poughkeepsie, Binghamton and
Elmira, New York; Manchester, New Hampshire; and Burlington, Vermont. Also
included are New Hampshire RSA 2; Vermont RSAs 1 and 2A; New York RSAs 2 and 3;
and Pennsylvania RSAs 3A and 4A. The Orange County and Poughkeepsie MSAs were
sold in 1993. During 1994, the Company sold its interests in the Manchester, New
Hampshire and Burlington, Vermont MSAs, New Hampshire RSA 2 , Vermont RSAs 1 and
2A and New York RSA 2. Additionally, as part of the agreement, NYNEX will
purchase the Company's interest in the Binghamton and Elmira, New York MSAs,
Pennsylvania RSAs 3A and 4A, and New York RSA 3 pending the receipt of certain
regulatory approvals.
In addition to the acquisitions and dispositions that occurred between 1992
and 1994, the Company purchased 13 MSAs located in Tennessee, Kentucky and
Alabama (the "Southeast Properties") from McCaw Cellular Communications Inc.
("McCaw") for approximately $1.32 billion during 1990. The
F-12
<PAGE> 69
CONTEL CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
acquisition was financed through an interim intercompany loan from Contel
Capital Corporation ("Contel Capital"), a wholly owned subsidiary of Contel.
Refer to Note 10 for additional information regarding this loan.
Acquisition and disposition transactions completed as of December 31, 1994,
by the Company are included in the table below.
<TABLE>
<CAPTION>
MSA RSA
PERCENTAGE COMPANY COMPANY
ESTIMATED PURCHASED/ POPULATION POPULATION
1994 MARKET POPULATION(1) SOLD EQUIVALENTS EQUIVALENTS
- --------------------- --------------------- ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Acquisitions: Tennessee 2 155.8 100.00% 155.8
Tennessee 3 323.0 51.00% 164.8
Indiana 7,8,9 608.9 3.09% 18.8
Alabama 1B 164.7 8.33% 13.7
Alabama 2 125.8 100.00% 125.8
Huntsville, AL 384.9 100.00% 384.9
Tuscaloosa, AL 158.0 .35% .6
----------- -----------
Total Acquisitions.......................................................... 385.5 478.9
======== ========
Dispositions: Manchester, NH 336.3 60.00% 201.8
Oregon 5 247.1 100.00% 247.1
Iowa 8 54.6 16.67% 9.1
Iowa 14 108.4 5.56% 6.0
South Dakota 5 B1 12.9 33.33% 4.3
North Carolina 1 174.1 50.00% 87.0
South Dakota 6 B1 35.5 14.29% 5.1
New Hampshire 2 205.8 36.59% 75.3
Burlington, VT 139.9 100.00% 139.9
Vermont 1 & 2A 310.0 83.27% 258.2
Kentucky 11 168.6 100.00% 168.6
California 7 124.2 100.00% 124.2
New York 2 234.3 25.00% 58.6
Alabama 1B 164.7 33.33% 54.9
Iowa 1 61.6 7.07% 4.4
----------- -----------
Total Dispositions.......................................................... 341.7 1,102.8
======== ========
</TABLE>
Total Company Population Equivalents at December 31, 1994...... 23,897.1
Total Gains on Sales of Cellular Interests for the year ended December
31, 1994 ...............................................................$ 96,607
- ---------------
(1) Population figures are reported by the Donnelly marketing population
estimates each year for counties comprising FCC defined MSAs and RSAs.
Note: Population figures and dollar amounts are in thousands.
F-13
<PAGE> 70
CONTEL CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
MSA RSA
PERCENTAGE COMPANY COMPANY
ESTIMATED PURCHASED/ POPULATION POPULATION
MARKET POPULATION(1) SOLD EQUIVALENTS EQUIVALENTS
------------------------------ ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1993
Acquisitions: San Francisco, San Jose,
Vallejo, Santa Rosa, Salinas &
Santa Cruz, CA 6,800.2 0.06% 4.3
Tuscaloosa, AL 154.7 2.80% 4.3
New York 3 476.4 2.50%
11.9
Tennessee 6 & 9 202.4 100.00%
202.4
----------- -----------
Total Acquisitions......................................................... 8.6 214.3
======== ========
Dispositions: Orange County & Poughkeepsie,
NY 581.5 25.00% 145.4
Rapid City, SD 106.6 100.00% 106.6
Marion & Winston Co. - AL 1 52.1 100.00%
52.1
Arizona 2, 3, 4 & 6 649.4 Various
191.1
Idaho 2 & 3 75.8 Various
17.0
Iowa 2, 7 10 286.3 Various
29.8
Minnesota 4, 7, 8, 9, 10 & 11 803.9 Various
61.5
North Dakota 3 92.0 7.69%
7.1
South Dakota 5-B2 & 6-B2 15.4 Various
4.5
Washington 1, 2, 3 & 4 505.5 Various
122.8
----------- -----------
Total Dispositions......................................................... 252.0 485.9
======== ========
</TABLE>
Total Company Population Equivalents at December 31, 1993 ......24,089.0
Total Gains on Sales of Cellular Interests for the year ended December
31, 1993 ...............................................................$ 48,023
<TABLE>
<S> <C> <C> <C> <C> <C>
1992
Acquisitions: Arkansas 1 & 8 94.4 6.22%
5.9
Idaho 2 59.9 3.04%
1.8
Minnesota 11 200.8 0.20%
0.4
----------- -----------
Total Acquisitions......................................................... 0.0 8.1
======== ========
Dispositions: Fayetteville & Fort Smith, AR 431.9 Various 322.3
Arkansas 1 & 8 94.4 57.22%
54.0
Idaho 4 & 5 266.1 Various
51.0
Oklahoma 4 183.5 66.67%
122.3
----------- -----------
Total Dispositions......................................................... 322.3 227.3
======== ========
</TABLE>
Total Company Population Equivalents at December 31, 1992 ......24,181.8
Total Gains on Sales of Cellular Interests for the year ended December
31, 1992 ...............................................................$ 60,806
- ---------------
(1) Population figures are reported by the Donnelly marketing population
estimates each year for counties comprising FCC defined MSAs and RSAs.
Note: Population figures and dollar amounts are in thousands.
6. INCOME TAXES
In 1994, 1993 and 1992, the Company was included in the consolidated
federal income tax return of GTE. In accordance with GTE's tax sharing policy,
the Company computes its federal income taxes on a
F-14
<PAGE> 71
CONTEL CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
separate company return basis without regard to separate company utilization of
operating losses. GTE reimburses its subsidiaries for utilization of taxable
losses on a quarterly basis. Refer to Note 10 for further information regarding
income taxes payable to affiliates.
The net expense (benefit) from income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1994 1993 1992
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Current:
Federal...................... $(33,093) $(65,823) $(74,176)
State........................ 8,976 707 1,200
-------- -------- --------
(24,117) (65,116) (72,976)
Deferred:
Federal...................... 39,092 36,228 39,499
State........................ (779) 1,169 24
-------- -------- --------
38,313 37,397 39,523
-------- -------- --------
$ 14,196 $(27,719) $(33,453)
======== ======== ========
</TABLE>
The following is a summary of the items which caused recorded income taxes
to differ from taxes computed using the statutory federal income tax rate:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992
------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Income tax expense (benefit) at statutory rate.......... $ 5,623 $(35,923) $(36,215)
Increase in tax expense/decrease in tax benefit
resulting from:
State income taxes, net of federal tax benefit........ 5,327 1,219 808
Amortization of goodwill.............................. 2,695 1,755 1,462
Retroactive impact of change in statutory federal tax
rate............................................... -- 3,329 --
Other, net............................................ 551 1,901 492
------- -------- --------
Actual income tax expense (benefit)..................... $14,196 $(27,719) $(33,453)
======= ======== ========
</TABLE>
The Omnibus Budget Reconciliation Act of 1993 was enacted on August 10,
1993 and includes a provision for an increase in the corporate federal income
tax rate by 1% to 35%, retroactive to January 1, 1993. As a result, $3.3 million
of additional deferred tax expense was recorded in September, 1993. Gains on
sales of cellular interests during 1994 attributed approximately $4.9 million of
state income taxes, net of federal tax benefit.
A summary of the components of the deferred income tax provision is as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1994 1993 1992
------- ------- -------
(THOUSANDS)
<S> <C> <C> <C>
Depreciation and amortization................................. $43,344 $37,902 $36,671
Limited partnership losses.................................... (1,817) 1,990 3,380
Merger integration costs...................................... -- -- 2,408
Other, net.................................................... (3,214) (2,495) (2,936)
------- ------- -------
$38,313 $37,397 $39,523
======= ======= =======
</TABLE>
F-15
<PAGE> 72
CONTEL CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1993
-------- --------
(THOUSANDS)
<S> <C> <C>
Deferred Tax Liabilities:
Depreciation and amortization........................................ $188,035 $144,691
Limited partnership losses........................................... 8,995 10,812
Other, net........................................................... 1,596 1,998
-------- --------
Total Deferred Tax Liabilities.................................... 198,626 157,501
-------- --------
Deferred Tax Assets:
Gains on sale of partnership interests............................... 3,425 2,439
Other postretirement benefits........................................ 2,163 2,704
Self-constructed assets.............................................. 1,248 792
Bad debt reserve..................................................... 2,550 1,339
Other, net........................................................... 797 --
-------- --------
Total Deferred Tax Assets......................................... 10,183 7,274
-------- --------
Net Deferred Taxes..................................................... 188,443 150,227
Total Net Deferred Tax Asset (classified as other current assets)...... 3,251 1,654
-------- --------
Total Net Deferred Tax Liability..................................... $191,694 $151,881
======== ========
</TABLE>
7. EMPLOYEE BENEFIT PLANS
RETIREMENT PLANS
As of January 1, 1992, all of the Company's employees began participating
in GTE Service Corporation's defined benefit pension plan. The benefits to be
paid under this plan are generally based on years of credited service and
average final earnings. GTE's funding policy, subject to the minimum funding
requirements of employee benefit and tax laws, is to contribute such amounts as
are determined on an actuarial basis to provide the plan with assets sufficient
to meet the benefit obligations of the plan. The assets of the plan consist
primarily of corporate equities, government securities and corporate debt
securities.
The net pension cost included in consolidated operations for the years
ended December 31, 1994, 1993 and 1992 included the following components:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(THOUSANDS)
<S> <C> <C> <C>
Benefits earned during the period................................ $2,111 $1,509 $1,618
Interest cost on projected benefit obligations................... 620 254 15
Actual return on plan assets..................................... 53 (11) (8)
Other, net....................................................... (372) (53) (9)
------ ------ ------
Net pension cost................................................. $2,412 $1,699 $1,616
====== ====== ======
</TABLE>
The expected long-term rate of return on plan assets was 8.5% for 1994 and
8.25% for each of 1993 and 1992.
F-16
<PAGE> 73
CONTEL CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The funded status of the plan at December 31, 1994 and 1993 was as follows:
<TABLE>
<CAPTION>
1994 1993
------- -------
(THOUSANDS)
<S> <C> <C>
Plan assets at fair value................................................ $ 3,742 $ 912
Projected benefit obligation............................................. (9,621) (4,860)
------- -------
Excess of projected obligation over assets............................... (5,879) (3,948)
Other, net............................................................... 147 628
------- -------
Accrued pension cost..................................................... $(5,732) $(3,320)
======= =======
</TABLE>
The projected benefit obligations at December 31, 1994 and 1993 include
accumulated benefit obligations of $4.7 million and $2.1 million, respectively
and vested benefit obligations of $2.5 million and $0.8 million, respectively.
Assumptions used to develop the projected benefit obligations for 1994 and
1993 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1993
----- -----
<S> <C> <C>
Discount rate....................................... 8.25% 7.50%
Rate of salary progression.......................... 5.50% 5.25%
</TABLE>
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Substantially all of the Company's employees are covered under
postretirement health care and life insurance benefit plans. The health care
benefits paid under the Company plans are generally based on comprehensive
hospital, medical and surgical benefit provisions.
The postretirement benefit cost for the years ended December 31, 1994, 1993
and 1992 included the following components:
<TABLE>
<CAPTION>
1994 1993 1992
----- ---- ------
(THOUSANDS)
<S> <C> <C> <C>
Benefits earned during the year.................................. $ 256 $693 $ 781
Interest on accumulated postretirement benefit obligations....... 155 291 315
Other, net....................................................... (153) (36) --
----- ---- ------
Postretirement benefit cost...................................... $ 258 $948 $1,096
===== ==== ======
</TABLE>
The following table sets forth the funded status and accrued obligation as
of December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
------- ------
(THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligations attributable to:
Retirees................................................................ $ 482 $ 182
Fully eligible plan participants........................................ 12 --
Other active plan participants.......................................... 1,594 1,814
------- ------
Total accumulated postretirement benefit obligation....................... 2,088 1,996
Unrecognized prior service benefit........................................ 4,286 2,547
Unrecognized net gain (loss).............................................. (1,170) 415
------- ------
Accrued postretirement benefit obligation................................. $ 5,204 $4,958
======= ======
</TABLE>
F-17
<PAGE> 74
CONTEL CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The assumed discount rates used to measure the accumulated postretirement
benefit obligation were 8.25% and 7.5% at December 31, 1994 and 1993,
respectively. The assumed health care cost trend rates in 1994 and 1993 were 12%
and 13%, respectively for pre-65 participants and 9.0% and 9.5%, respectively
for post-65 retirees, each rate declining on a graduated basis to an ultimate
rate in the year 2004 of 6%. A one-percentage point increase in the assumed
health care cost trend rates for each future year would have increased 1994
postretirement benefit cost by approximately $7 thousand and the accumulated
postretirement benefit obligation as of December 31, 1994 by approximately $47
thousand.
During 1993, the Company made certain changes to its postretirement health
care and life insurance benefits for non-union employees retiring on or after
January 1, 1995. These changes include, among others, newly established limits
to the Company's annual contribution to postretirement medical costs and a
revised sharing schedule based on a retiree's years of service. The net effect
of these changes reduced the accumulated benefit obligation at December 31, 1993
by $3.9 million. The resulting unrecognized prior year service benefit is being
amortized over the average remaining lives of the employees.
8. COMMITMENTS AND CONTINGENCIES
LEASES
Lease expense relates to the lease of office space, tower facilities, real
estate, office equipment and vehicles. Rents charged to expense were $11.9
million, $8.8 million and $6.9 million for 1994, 1993 and 1992, respectively.
At December 31, 1994, future minimum lease payments under noncancelable
operating leases are as follows (thousands):
<TABLE>
<S> <C>
1995...................................................... $11,196
1996...................................................... 9,517
1997...................................................... 6,398
1998...................................................... 3,722
1999...................................................... 1,880
Subsequent Years.......................................... 3,605
--------
$36,318
========
</TABLE>
CONSTRUCTION AND CAPITAL COMMITMENTS
Capital expenditures for markets controlled and managed by the Company are
expected to be funded with additional borrowings from affiliates, internally
generated funds, contributions from minority partners and net distributions from
Unconsolidated Partnerships.
The Company also intends to fund its share of future capital requirements
of the Unconsolidated Partnerships. The timing and amounts of such contributions
are subject to the future capital requirements as determined by the managing
partner, and therefore cannot be accurately estimated by the Company.
LEGAL AND REGULATORY MATTERS
On November 24, 1993, Arthur Garabedian d.b.a. Western Mobile Telephone
Company brought a class action lawsuit on behalf of himself and on behalf of all
persons or entities who have subscribed to cellular radio service in the Los
Angeles area against the L.A. Partnership, Pacific Telesis Group, Pactel
Cellular, Pactel Corporation, GTE Mobilnet Incorporated, Contel Cellular Inc.
and U.S. Cellular Corporation. The complaint alleges retail and wholesale price
fixing of cellular radio service. The plaintiff is seeking in excess of $100
million in damages. The ultimate outcome of this suit is unclear at this time
because no class has been
F-18
<PAGE> 75
CONTEL CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
certified and discovery has not been completed. In addition, it is unclear
whether the Company will remain as a named party in this lawsuit or will be
involved only because of its limited ownership in the L.A. Partnership.
The Company is subject to legal and regulatory matters in the normal course
of business. No provision for any liability that may result has been made in the
accompanying financial statements.
LINE OF CREDIT
Refer to Note 10 for information regarding the Company's line of credit
arrangements with GTE.
9. OTHER LONG-TERM OBLIGATIONS
Other long-term obligations are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
------- -------
(THOUSANDS)
<S> <C> <C>
9% Promissory Notes due January 1999..................................... $ 6,512 $ 6,512
8% Promissory Notes payable in annual installments through 1996.......... 16,000 22,000
Industrial Development Revenue Bonds:
Due 2004, interest rate of 5.6% at December 31, 1994................... 8,400 8,400
Due 2005, interest rate of 5.6% at December 31, 1994................... 2,000 2,000
Due 2006, interest rate of 6.1% at December 31, 1994................... 3,880 3,880
------- -------
Total Other Long-Term Obligations........................................ $36,792 $42,792
------- -------
Less Current Portion of Other Long-Term Obligations.................... (6,000) (6,000)
------- -------
$30,792 $36,792
======= =======
</TABLE>
On December 28, 1993, the Company issued long-term promissory notes in the
amount of approximately $6.5 million at a fixed interest rate of 9% in
connection with the acquisition of 100% interest in Tennessee RSA 9. Accrued
interest on the outstanding principal amount of this note shall be paid
quarterly on the first day of January, April, July and October of each year.
In July 1991, the Company issued $28.0 million of 8% long-term promissory
notes in connection with the acquisition of 100% interests in Tennessee RSAs 5
and 7. The notes are guaranteed by GTE and include various covenants, none of
which are expected to restrict future operations. Aggregate annual repayments of
this debt are $6.0 million in 1995 and $10.0 million in 1996.
The Industrial Development Revenue Bonds are floating/fixed-rate bonds
secured by irrevocable letters of credit issued by the Bank of Nova Scotia which
begin to expire December 1, 1996, unless otherwise extended. The letters of
credit carry a commitment fee of 1/2 of 1% per annum. The Company may, upon
written notice to the bond trustee, convert the interest rate to a fixed market
rate. Until converted to a fixed rate, the bonds bear interest, payable
quarterly, at a rate equal to a variable percentage (ranging from 65% to 71% at
December 31, 1994) of the Trust Company Bank of Atlanta's prime interest rate.
Refer to Note 10 for information regarding the Notes Payable to Affiliates.
F-19
<PAGE> 76
CONTEL CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
10. RELATED PARTY TRANSACTIONS
GENERAL SERVICES
Prior to the 1991 merger of GTE and Contel, the Company operated under a
general services agreement with Contel. Subsequent to the merger, a new
management structure was put in place. The Company's field operations,
properties and corporate officers continue to remain separate from those of GTE
Mobilnet Incorporated ("Mobilnet"), GTE's wholly owned cellular subsidiary. GTE
Mobile Communications Service Corporation ("GTEMC") consolidated many of the
staff and support functions previously performed separately by the Company and
Mobilnet. On May 1, 1991, the Company entered into a services agreement with
GTEMC whereby support for major functions such as accounting, information
management, human resources, legal, marketing, network and technology planning
were provided to the Company.
A new management structure was implemented in January 1993, under which the
GTEMC headquarters structure was functionally eliminated. Marketing and network
functions, previously provided by GTEMC, are now provided directly by the
Company, while the remaining functions are provided by GTE Personal
Communication Services ("GTE PCS"), a division of GTE. During 1994 and 1993,
costs for these services were allocated from GTE PCS to the Company. The costs
allocated under the 1994 and 1993 structure do not differ significantly from the
costs allocated to the Company under the 1992 methodology.
Amounts expensed by the Company for these services were approximately $50
million, $45 million and $44 million for the years 1994, 1993 and 1992,
respectively. In management's opinion, the cost allocation methodology for all
periods is reasonable.
CASH MANAGEMENT AND FINANCING
The following table summarizes the Company's Notes Payable -- Affiliates:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1993
-------- --------
(IN MILLIONS)
<S> <C> <C>
Line of Credit with GTE......................................... $ 511.3 $ 351.7
Note Payable at 9.90% interest; due 8/17/00..................... 75.0 --
Note Payable at 10.47% interest; due 3/01/98.................... 700.0 700.0
Note Payable at 7.71% interest; due 2/25/97..................... 150.0 150.0
Note Payable at 8.97% interest; due 9/27/99..................... 150.0 150.0
Note Payable at 8.38% interest; due 9/25/97..................... 150.0 150.0
Note Payable at 8.08% interest; due 12/31/95.................... 200.0 200.0
Note Payable at 8.56% interest; due 12/31/96.................... 200.0 200.0
-------- --------
Total Notes Payable -- Affiliates............................... $2,136.3 $1,901.7
======= =======
</TABLE>
As of January 1, 1992, the Company began using cash management services
provided by GTE. The notes payable to GTE are due on demand. The line of credit
with GTE may be renegotiated at any time based on the Company's working capital
and construction requirements. Based on the expressed intent and ability of GTE
to make funds available to the Company on a long-term basis, the accompanying
consolidated balance sheets reflect the Notes payable-affiliates as long-term
obligations. As of December 31, 1994, outstanding borrowings from GTE under this
line of credit were $511.3 million. The interest rate on the borrowings was
approximately 9.25% on December 31, 1994. This rate represents the prime rate at
December 31, 1994, as quoted in the Wall Street Journal, plus a .75% per annum
fee on the outstanding balance. Prior to January 1993, the rate was calculated
based on GTE's cost of borrowing the funds, plus 1.5% per annum. Interest
expense relating to the line of credit, which is payable monthly in arrears, was
$30.8 million, $19.4 million and $23.5 million for the years 1994, 1993 and
1992, respectively.
F-20
<PAGE> 77
CONTEL CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
During 1991, the Company's $1.3 billion loan previously provided by Contel
Capital was replaced with a combination of fixed- and variable-rate intercompany
notes as follows: (i) $700 million at 10.47% payable to GTE, due March 1, 1998;
(ii) $150 million at 9.22% payable to GTE Finance Corporation, a wholly owned
subsidiary of GTE, due February 25, 1997; and (iii) $450 million due to GTE
under the same terms and provisions as borrowings under GTE's line of credit
facility. Included in the interest rates above was an additional 1.5% per annum,
which the Company agreed to pay GTE and GTE Finance Corporation, for GTE's
agreement to become obligated under these financings.
On September 25, 1992, the Company refinanced $300 million variable-rate
debt with two $150 million fixed-rate notes, at 8.97% and 8.38% payable to GTE
Finance Corporation, due on September 27, 1999 and September 25, 1997,
respectively. Additionally, on December 31, 1992, the Company refinanced the
variable-rate $450 million note mentioned in (iii) above with a $200 million
fixed-rate note at 8.08% payable to GTE, due December 31, 1995 (as evidenced by
a letter dated January 25, 1995, GTE intends to refinance this note at
maturity), and a $200 million fixed-rate note at 8.56% payable to GTE, due
December 31, 1996. The remaining $50 million is included in the line of credit
facility previously discussed.
On February 25, 1993, the Company refinanced the $150 million fixed-rate
note mentioned in (ii) above with a $150 million fixed-rate note bearing
interest at 7.71% payable to GTE Finance Corporation, due on February 25, 1997.
On August 17, 1994, the Company refinanced $75 million of variable-rate debt
with a $75 million fixed-rate note bearing interest at 9.90% payable to GTE
Finance Corporation, due on August 17, 2000.
Effective June 1992, the Company is charged the comparable Treasury Rate
plus 3.0% per annum upon conversion of variable-rate debt to fixed-rate debt.
This rate closely approximates rates that would be charged by non-affiliated
commercial lenders to corporations of similar credit quality for fixed-rate
debt.
Interest expense for these notes payable to affiliates is payable to GTE
semi-annually and amounted to $148.0 million, $145.4 million, and $121.0 million
in 1994, 1993 and 1992, respectively. The effective interest rate under these
borrowings was approximately 9.3% for the year ended December 31, 1994.
PURCHASES
The Company purchased cellular telephone equipment and accessories during
1994 and 1993 from GTE PCS, and during 1992 from GTEMC, totaling $56.9 million,
$45.7 million and $29.6 million, respectively, which approximates cost.
TRANSFER OF INTERESTS IN RSA MARKETS
During 1988 and 1989, the Company participated in the FCC's license award
process to provide cellular service in 428 RSAs throughout the country. At that
time, the Company and Contel entered into an agreement whereby other
subsidiaries of Contel were given the right to control or hold interests in RSA
markets where the Company chose not to participate. In 1990, Contel decided to
maintain all cellular interests within one company. Accordingly, in the third
quarter of 1990, Contel transferred, at book value, its interests in 49 RSAs to
the Company. None of the RSAs were operational. The Company agreed that if any
of these RSA interests were sold within a three-year period expiring August 1,
1993, the Company would remit the proceeds of such sales, net of the Company's
investment, to Contel. Accordingly, no gain or loss would be recognized by the
Company in connection with the sale of any such interest. The Company did not
sell any interests in the transferred RSA markets from January 1, 1993 to August
1, 1993. In 1992, the Company sold interests in two such RSA markets and
remitted to Contel $2.5 million in net proceeds in 1993.
F-21
<PAGE> 78
CONTEL CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
ACCOUNTS PAYABLE -- AFFILIATES
In addition to the affiliated financing agreements disclosed above, the
Company has affiliated accounts payable of $3.9 million for accrued income taxes
and $0.8 million for accounts payable to limited partners at December 31, 1994,
and $23.6 million for accrued income taxes at December 31, 1993.
11. COMMON STOCK
The Company's Class A and Class B Common Stock are identical in all
respects except for the following: 1) The Class A common stockholders are
entitled to one vote per share and the Class B common stockholders are entitled
to five votes per share; 2) the holders of each class of stock will be entitled
to receive stock dividends only of the same class of stock; and, 3) shares of
Class B Common Stock are convertible into Class A Common Stock at the option of
the holder at any time.
Both classes of the common stock have non-cumulative voting rights.
Dividends may be declared and paid to one class only if an equal per share
dividend is declared and paid to the other class. Both classes share equally on
a pro rata basis in the event of liquidation or dissolution. GTE, through
Contel, owns all shares of Class B Common Stock, or 90% of the total number of
shares outstanding and approximately 98% of the combined voting power of both
classes of stock.
The Company also has 3 million authorized shares of preferred stock (the
"Preferred Stock") which may be issued in one or more series at the discretion
of the Board of Directors. The Board of Directors is authorized to determine the
terms, rights, privileges, preferences and restrictions of any unissued series
of Preferred Stock prior to issuance. The Company presently has no plans to
issue any shares of Preferred Stock.
12. STOCK OPTIONS AND RESTRICTED STOCK UNITS
In accordance with the 1987 Key Employee Stock Plan (the "Stock Plan"), the
Company may grant stock options, stock appreciation rights and restricted stock
units related to Class A Common Stock to key employees. The maximum number of
shares of Class A Common Stock reserved for issuance under the Stock Plan is
1,000,000 of which 916,900 shares were available for future grants as of
December 31, 1994.
F-22
<PAGE> 79
CONTEL CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following schedule summarizes stock option transactions under the Stock
Plan:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------- ------------
<S> <C> <C>
Outstanding at January 1, 1992............................... 97,700 15.31-22.81
(20,465 exercisable)
Granted................................................. 8,250 17.25
Exercised............................................... (8,000) 15.31
Forfeited............................................... (5,100) 15.31-22.81
---------
Outstanding at December 31, 1992............................. 92,850 15.31-22.81
(53,700 exercisable)
Granted................................................. 11,400 15.00
Exercised............................................... (1,000) 15.31
Forfeited............................................... (23,900) 15.31-22.81
---------
Outstanding at December 31, 1993............................. 79,350 15.00-22.81
(56,550 exercisable)
Granted................................................. 34,300 16.25
Exercised............................................... (18,300) 15.31-22.81
Forfeited............................................... (12,250) 15.31-22.81
---------
Outstanding at December 31, 1994............................. 83,100 15.00-22.81
========
</TABLE>
Of the 83,100 stock options outstanding at December 31, 1994, 43,850 were
exercisable. Included in the total number of options outstanding at December 31,
1994, are 51,950 shares which include 2/3 tandem stock appreciation rights.
Stock appreciation rights provide the right to surrender all or a portion of a
stock option for cash or additional shares of stock equal to the excess of fair
market value on the date of exercise over the option price. The 2/3 tandem
provision requires that for every two shares of stock surrendered for the
appreciation right attached, one share of stock be purchased at the option
price.
F-23
<PAGE> 80
CONTEL CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
13. QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1994 QUARTERS
-----------------------------------------------
FOURTH THIRD SECOND FIRST
-------- -------- -------- --------
(THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues and Sales.............................. $157,886 $149,373 $136,479 $119,217
Operating Income (Loss)......................... 5,749 25,903 11,841 (2,482)
Loss from Consolidated Operations............... (41,538) (21,960) (32,615) (47,219)
Equity in Earnings of Unconsolidated
Partnerships.................................. 14,282 21,682 16,405 10,423
Gains on Sales of Cellular Interests............ 20,259 43,220 3,941 29,187
Net Income (Loss)............................... (4,489) 24,438 (9,475) (8,603)
Net Income (Loss) Per Share..................... (0.04) 0.24 (0.09) (0.09)
Common Stock Market Price:
High....................................... $ 25.25 $ 24.00 $ 17.25 $ 18.75
Low........................................ 23.50 16.00 13.00 14.00
Close...................................... 24.94 23.63 16.50 14.25
</TABLE>
<TABLE>
<CAPTION>
1993 QUARTERS
-----------------------------------------------
FOURTH THIRD SECOND FIRST
-------- -------- -------- --------
(THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues and Sales.............................. $108,752 $ 98,176 $ 89,390 $ 77,696
Operating Loss.................................. (15,769) (1,018) (1,966) (9,552)
Loss from Consolidated Operations............... (51,758) (43,459) (40,524) (52,270)
Equity in Earnings of Unconsolidated
Partnerships.................................. 9,487 12,236 11,153 4,475
Gains on Sales of Cellular Interests............ 39,697 8,326 -- --
Net Loss Before Cumulative Effect of Change in
Accounting Principle.......................... (4,536) (17,061) (19,834) (33,487)
Cumulative Effect of Change in Accounting
Principle..................................... (241) -- -- --
Net Loss........................................ (4,777) (17,061) (19,834) (33,487)
Net Loss Per Share.............................. (0.05) (0.17) (0.20) (0.33)
Common Stock Market Price:
High....................................... $ 22.00 $ 18.75 $ 16.25 $ 18.63
Low........................................ 15.00 15.50 13.50 13.25
Close...................................... 16.38 17.00 15.50 14.75
</TABLE>
F-24
<PAGE> 81
CONTEL CELLULAR INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN B COLUMN C COLUMN D COLUMN E
------------ ---------- ----------- ----------
COLUMN A BALANCE AT ADDITIONS WRITE-OFFS, BALANCE AT
- ---------------------------------------------- BEGINNING OF CHARGED TO NET OF END OF
CLASSIFICATION PERIOD INCOME RECOVERIES PERIOD
- ---------------------------------------------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1994
Allowance for Doubtful Accounts............. $4,674 $ 14,704 $ (10,822) $8,556
========= ======== ======== ========
FOR THE YEAR ENDED DECEMBER 31, 1993
Allowance for Doubtful Accounts............. $4,356 $ 6,298 $ (5,980) $4,674
========= ======== ======== ========
FOR THE YEAR ENDED DECEMBER 31, 1992
Allowance for Doubtful Accounts............. $4,306 $ 7,528 $ (7,478) $4,356
========= ======== ======== ========
</TABLE>
F-25
<PAGE> 82
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON COMPILATION OF COMBINED FINANCIAL STATEMENTS
To the Board of Directors
and Stockholders of
Contel Cellular Inc.:
The accompanying combined financial statements as of December 31, 1994 and
1993, and for each of the three years in the period ended December 31, 1994,
have been prepared from the separate financial statements of the Los Angeles
SMSA Limited Partnership, the Washington D.C. SMSA Limited Partnership, the GTE
Mobilnet of California Limited Partnership, the GTE Mobilnet of South Texas
Limited Partnership, the San Antonio SMSA Limited Partnership, and the Albucell
Limited Partnership as described in Note 1 to the combined financial statements.
We have audited the financial statements (not presented separately herein) of
the GTE Mobilnet of California Limited Partnership, the GTE Mobilnet of South
Texas Limited Partnership, and the Albucell Limited Partnership as of December
31, 1994 and 1993, and for the years then ended, as set forth in our reports
included elsewhere in this document. Our report on the financial statements of
the GTE Mobilnet of California Limited Partnership contains an explanatory
paragraph with respect to the matter discussed in Note 8 to the combined
financial statements. We did not audit the financial statements (also not
presented separately herein) of the Los Angeles SMSA Limited Partnership, the
Washington D.C. SMSA Limited Partnership, and the San Antonio SMSA Limited
Partnership as of December 31, 1994 and 1993 and for the years then ended, which
statements reflect assets and revenues of 55% and 63%, respectively, of the
related combined 1994 totals. These statements were audited by other auditors,
as set forth in their reports also included elsewhere in this document. The
report of other auditors of the Los Angeles SMSA Limited Partnership contains an
explanatory paragraph with respect to the matters discussed in Note 8 to the
accompanying combined financial statements.
Because of the significance of the amounts of the combined assets and
revenues that have been audited by other auditors, we are unable to express, and
we do not express, any opinion with respect to the fairness of the presentation
of the accompanying combined financial statements. However, we have checked, for
compilation only, the accompanying combined financial statements and, in our
opinion, those statements have been properly compiled from the separate
financial statements of the Los Angeles SMSA Limited Partnership, the Washington
D.C. SMSA Limited Partnership, the GTE Mobilnet of California Limited
Partnership, the GTE Mobilnet of South Texas Limited Partnership, the San
Antonio SMSA Limited Partnership, and the Albucell Limited Partnership on the
basis described in Note 1 to the combined financial statements.
/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
Atlanta, Georgia
March 13, 1995
F-26
<PAGE> 83
LOS ANGELES SMSA LIMITED PARTNERSHIP
WASHINGTON D.C. SMSA LIMITED PARTNERSHIP
GTE MOBILNET OF CALIFORNIA LIMITED PARTNERSHIP
GTE MOBILNET OF SOUTH TEXAS LIMITED PARTNERSHIP
SAN ANTONIO SMSA LIMITED PARTNERSHIP
ALBUCELL LIMITED PARTNERSHIP
COMBINED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------------
1994 1993 1992
---------- -------- --------
<S> <C> <C> <C>
Service and Sales Revenues................................ $1,296,208 $987,371 $783,009
Costs and Expenses:
Cost of services and sales........................... 343,993 250,947 192,250
Selling, general and administrative.................. 413,301 335,686 265,863
Depreciation and amortization........................ 126,941 97,507 85,339
---------- -------- --------
Operating Income.......................................... 411,973 303,231 239,557
Interest Income, net...................................... 378 779 263
Other Income, net......................................... 923 2,966 13,943
---------- -------- --------
Net Income................................................ $ 413,274 $306,976 $253,763
========= ======== ========
</TABLE>
The accompanying notes to the combined financial statements
are an integral part of these statements.
F-27
<PAGE> 84
LOS ANGELES SMSA LIMITED PARTNERSHIP
WASHINGTON D.C. SMSA LIMITED PARTNERSHIP
GTE MOBILNET OF CALIFORNIA LIMITED PARTNERSHIP
GTE MOBILNET OF SOUTH TEXAS LIMITED PARTNERSHIP
SAN ANTONIO SMSA LIMITED PARTNERSHIP
ALBUCELL LIMITED PARTNERSHIP
COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income................................................ $ 413,274 $ 306,976 $ 253,763
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.......................... 126,941 97,507 85,339
Provision for losses on accounts receivable............ 19,987 15,221 9,839
Other, net............................................. 4,703 6,369 8,353
Changes in current assets and liabilities:
Increase in receivables.............................. (57,928) (72,067) (26,328)
Increase in other current assets..................... (15,011) (2,287) (3,602)
Increase in current liabilities...................... 65,273 20,960 40,851
--------- --------- ---------
Net cash provided by operating activities......... 557,239 372,679 368,215
Cash Flows from Investing Activities:
Capital expenditures...................................... (315,604) (205,919) (205,802)
Other, net................................................ 668 1,861 84
--------- --------- ---------
Net cash used in investing activities............. (314,936) (204,058) (205,718)
Cash Flows from Financing Activities:
Contributions from partners............................... 2,103 10,868 3,513
Distributions to partners................................. (239,922) (178,659) (164,031)
Other, net................................................ (800) (612) (442)
--------- --------- ---------
Net cash used in financing activities............. (238,619) (168,403) (160,960)
--------- --------- ---------
Increase in Cash and Cash Equivalents....................... 3,684 218 1,537
Beginning Cash and Cash Equivalents......................... 1,988 1,770 233
--------- --------- ---------
Ending Cash and Cash Equivalents............................ $ 5,672 $ 1,988 $ 1,770
========= ========= =========
</TABLE>
The accompanying notes to the combined financial statements
are an integral part of these statements.
F-28
<PAGE> 85
LOS ANGELES SMSA LIMITED PARTNERSHIP
WASHINGTON D.C. SMSA LIMITED PARTNERSHIP
GTE MOBILNET OF CALIFORNIA LIMITED PARTNERSHIP
GTE MOBILNET OF SOUTH TEXAS LIMITED PARTNERSHIP
SAN ANTONIO SMSA LIMITED PARTNERSHIP
ALBUCELL LIMITED PARTNERSHIP
COMBINED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................ $ 5,672 $ 1,988
Accounts receivable, net of allowance for doubtful accounts
of $14,041 in 1994 and $11,069 in 1993........................ 189,649 147,643
Due from general partners........................................ 56,998 61,063
Other current assets............................................. 31,064 16,053
---------- ----------
Total current assets..................................... 283,383 226,747
Other Assets, net of accumulated amortization of $6,121 in 1994
and $5,177 in 1993............................................... 2,236 2,797
Property, Plant and Equipment, at cost............................. 1,354,968 1,047,515
Less accumulated depreciation.................................... (411,949 ) (296,641 )
---------- ----------
943,019 750,874
---------- ----------
Total assets............................................. $1,228,638 $ 980,418
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable-trade........................................... $ 100,226 $ 69,458
Accounts payable-affiliates...................................... 23,173 11,191
Advance billings and customer deposits........................... 18,642 17,000
Accrued expenses and other current liabilities................... 75,192 47,286
---------- ----------
Total current liabilities................................ 217,233 144,935
Other Noncurrent Liabilities....................................... 9,709 9,242
Partners' Capital:
Contel Cellular Inc.............................................. 147,376 116,832
Other partners................................................... 854,320 709,409
---------- ----------
Total partners' capital.................................. 1,001,696 826,241
---------- ----------
Total liabilities and partners' capital.................. $1,228,638 $ 980,418
========== ==========
</TABLE>
The accompanying notes to the combined financial statements
are an integral part of these statements.
F-29
<PAGE> 86
LOS ANGELES SMSA LIMITED PARTNERSHIP
WASHINGTON D.C. SMSA LIMITED PARTNERSHIP
GTE MOBILNET OF CALIFORNIA LIMITED PARTNERSHIP
GTE MOBILNET OF SOUTH TEXAS LIMITED PARTNERSHIP
SAN ANTONIO SMSA LIMITED PARTNERSHIP
ALBUCELL LIMITED PARTNERSHIP
COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(AMOUNTS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
OTHER
GENERAL CONTEL LIMITED
PARTNER CELLULAR INC. PARTNERS TOTAL
-------- ------------- -------- ----------
<S> <C> <C> <C> <C>
Balance at January 1, 1992................... $476,776 $ 77,851 $ 39,184 $593,811
1992 Net income............................ 204,401 29,933 19,429 253,763
Contributions.............................. 2,459 1,054 0 3,513
Distributions.............................. (133,915) (16,012) (14,104) (164,031)
-------- ------------- -------- ----------
Balance at December 31, 1992................. 549,721 92,826 44,509 687,056
1993 Net income............................ 245,413 38,920 22,643 306,976
Sale of partnership interest............... 869 114 (983) 0
Contributions.............................. 7,608 3,260 0 10,868
Distributions.............................. (147,445) (18,288) (12,926) (178,659)
-------- ------------- -------- ----------
Balance at December 31, 1993................. 656,166 116,832 53,243 826,241
1994 Net income............................ 327,427 55,143 30,704 413,274
Contributions.............................. 1,640 163 300 2,103
Distributions.............................. (194,580) (24,762) (20,580) (239,922)
-------- ------------- -------- ----------
Balance at December 31, 1994................. $790,653 $ 147,376 $ 63,667 $1,001,696
======== ========= ======== =========
</TABLE>
The accompanying notes to the combined financial statements
are an integral part of these statements.
F-30
<PAGE> 87
LOS ANGELES SMSA LIMITED PARTNERSHIP
WASHINGTON D.C. SMSA LIMITED PARTNERSHIP
GTE MOBILNET OF CALIFORNIA LIMITED PARTNERSHIP
GTE MOBILNET OF SOUTH TEXAS LIMITED PARTNERSHIP
SAN ANTONIO SMSA LIMITED PARTNERSHIP
ALBUCELL LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND BASIS OF COMBINATION
The accompanying combined financial statements represent a combination of
the financial statements of the Los Angeles SMSA Limited Partnership (the "Los
Angeles Partnership"), the Washington D.C. SMSA Limited Partnership (the
"Washington D.C. Partnership"), the GTE Mobilnet of California Limited
Partnership (the "California Partnership"), the GTE Mobilnet of South Texas
Limited Partnership (the "South Texas Partnership"), the San Antonio SMSA
Limited Partnership (the "San Antonio Partnership") and the Albucell Limited
Partnership (the "Albucell Partnership") collectively referred to as the
"Partnerships" and individually as a "Partnership." Contel Cellular Inc. (the
"Company") is a minority limited partner in each of the Partnerships, and
accounts for its investment in the Partnerships using the equity method of
accounting. These combined financial statements have been prepared to present
the combined financial position, results of operations and cash flows of the
Partnerships and the Company's interest in the Partnerships to comply with
certain disclosure requirements of the Securities and Exchange Commission (the
"SEC"). Under these SEC rules, each Partnership qualified as a significant
equity investee of the Company in 1994.
Each Partnership was formed to provide cellular telephone service in its
respective standard metropolitan statistical area ("MSA"). The California, South
Texas and Albucell Partnerships provide cellular service in the San Francisco,
Houston and Albuquerque MSAs, respectively.
The partners' ownership interests in the Partnerships are as follows (the
general partners' interests include the limited partnership interests if the
general partner also participates as a limited partner):
<TABLE>
<CAPTION>
LOS ANGELES WASHINGTON D.C. CALIFORNIA SOUTH TEXAS SAN ANTONIO ALBUCELL
----------- --------------- ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
General Partners.............. 82% 65% 86% 79% 70% 51%
Limited Partners:
Contel Cellular Inc...... 11 35 11 4 30 49
Other Partners........... 7 -- 3 17 -- --
--- --- --- --- --- ---
100% 100% 100% 100% 100% 100%
</TABLE>
The general partners in the Los Angeles, Washington D.C., California, South
Texas, San Antonio and Albucell Partnerships are AirTouch Cellular (formerly
Pactel Cellular), Bell Atlantic Mobile Systems of Washington, Inc. ("BAMS"), GTE
Mobilnet Incorporated, GTE Mobilnet of Houston Inc., Southwestern Bell Mobile
Systems, Inc. and US WEST NewVector Group, Inc., respectively.
Profits, losses, contributions and distributable cash are allocated to the
individual partners based on the respective partnership interests of each of the
partners. The Los Angeles Partnership represents the most significant portion of
combined total assets and net income for the years presented.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Generally the Partnerships earn service revenues by providing access to
their cellular network ("access revenue") and for usage of their cellular
network ("airtime revenue"). Access revenue is billed one month in
F-31
<PAGE> 88
LOS ANGELES SMSA LIMITED PARTNERSHIP
WASHINGTON D.C. SMSA LIMITED PARTNERSHIP
GTE MOBILNET OF CALIFORNIA LIMITED PARTNERSHIP
GTE MOBILNET OF SOUTH TEXAS LIMITED PARTNERSHIP
SAN ANTONIO SMSA LIMITED PARTNERSHIP
ALBUCELL LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
advance and recognized when earned. Airtime (including roaming) revenue is
recognized when the service is rendered. Equipment sales are recognized upon
delivery of the equipment to the customer.
Income Taxes
Under the provisions of the Internal Revenue Code and related state
statutes, the Partnerships are not taxable entities for income tax purposes. The
individual partners include their share of Partnership income or loss in their
respective income tax returns. Accordingly, no provision for income taxes has
been made in the accompanying combined financial statements.
Depreciation and Amortization
Depreciation and amortization are calculated using the straight-line method
over the estimated useful lives of related assets. Upon sale or retirement of
property, plant and equipment, the cost of such assets and related accumulated
depreciation or amortization are eliminated from the accounts and any related
gain or loss is reflected in the combined statements of operations.
Cash Equivalents
Cash equivalents include amounts which are readily convertible into cash
and which are not subject to significant risk from fluctuations in interest
rates.
Reclassifications
Certain accounts of the Partnerships have been reclassified to conform to a
consistent presentation.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Land and improvements...................................... $ 13,448 $ 8,442
Buildings.................................................. 205,805 160,835
Equipment.................................................. 950,712 765,606
Furniture and fixtures..................................... 50,434 33,043
Assets under construction.................................. 134,569 79,589
---------- ----------
1,354,968 1,047,515
Less -- Accumulated depreciation........................... (411,949) (296,641)
---------- ----------
$ 943,019 $ 750,874
========== ==========
</TABLE>
F-32
<PAGE> 89
LOS ANGELES SMSA LIMITED PARTNERSHIP
WASHINGTON D.C. SMSA LIMITED PARTNERSHIP
GTE MOBILNET OF CALIFORNIA LIMITED PARTNERSHIP
GTE MOBILNET OF SOUTH TEXAS LIMITED PARTNERSHIP
SAN ANTONIO SMSA LIMITED PARTNERSHIP
ALBUCELL LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
4. LEASE COMMITMENTS
Future minimum rental payments required under operating leases (primarily
for real estate) with initial or remaining noncancelable lease terms in excess
of one year as of December 31, 1994, are as follows (in thousands):
<TABLE>
<S> <C>
1995.............................................. $ 24,181
1996.............................................. 22,724
1997.............................................. 20,632
1998.............................................. 19,146
1999.............................................. 15,874
Thereafter........................................ 45,896
--------
Total $148,453
========
</TABLE>
Rent expense was approximately $27.4 million, $29.0 million and $17.3
million for the years ended December 31, 1994, 1993 and 1992, respectively.
5. RELATED PARTY TRANSACTIONS
In accordance with the Partnership agreements, the general partners are
reimbursed by the Partnerships for costs incurred by the general partners on
behalf of the Partnerships. These costs are expensed in the accompanying
combined statements of operations and include accounting, information systems,
cash management, human resources, legal, operations, marketing and other
administrative services. Total charges billed by the general partners to the
Partnerships were $149.4 million, $115.7 million and $106.4 million included in
the accompanying combined statements of operations as selling, general and
administrative expenses, and $66.6 million, $44.3 million and $34.6 million
included in the accompanying combined statements of operations as cost of
services and sales for the years ended December 31, 1994, 1993 and 1992,
respectively.
Certain general partners advance funds to the Partnerships as necessary to
finance operations. Interest expense is charged to the Partnerships on these
advances at rates consistent with the general partners' average borrowing rates.
6. MAJOR CUSTOMERS AND SUPPLIERS
The Los Angeles Partnership purchases substantially all its equipment from
one supplier.
7. REGULATORY INVESTIGATIONS
Los Angeles Partnership
On December 21, 1993, the California Public Utilities Commission ("CPUC")
adopted a new Order into the regulation of mobile telephone service and wireless
communications, Order Number I.93-12-007. The investigation proposes a
regulatory program which would encompass all forms of mobile telephone service.
On August 22, 1994, the CPUC issued an interim Decision that imposes a
methodology in which existing cellular carriers be subject to rate cap
regulation and other regulations, and requiring carriers, upon request, to
permit resellers to operate reseller switches interconnected to the cellular
carrier's facilities, to unbundle cellular access charges to resellers on a
market basis and to subsidize resellers' roaming revenues. The
F-33
<PAGE> 90
LOS ANGELES SMSA LIMITED PARTNERSHIP
WASHINGTON D.C. SMSA LIMITED PARTNERSHIP
GTE MOBILNET OF CALIFORNIA LIMITED PARTNERSHIP
GTE MOBILNET OF SOUTH TEXAS LIMITED PARTNERSHIP
SAN ANTONIO SMSA LIMITED PARTNERSHIP
ALBUCELL LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
Decision further authorized the CPUC to file a petition with the Federal
Communications Commission to extend the CPUC's jurisdiction over cellular
carriers for at least 18 months. Application for Rehearing and Suspension has
been filed by various carriers and is pending with the CPUC. Currently, the Los
Angeles Partnership is unable to quantify the precise impact of this Order on
its future operations, but that impact may be material to the Los Angeles
Partnership under certain circumstances.
In January 1992, the CPUC commenced a separate investigation of all
cellular companies operating in California to determine their compliance with
General Order number 159 ("G.O. 159"). The investigation will address whether
cellular utilities have complied with local, state or federal regulations
governing the approval and construction of cellular sites in California. The
CPUC may advise other agencies of violations in their jurisdictions.
The Los Angeles Partnership has prepared and filed the information
requested by the CPUC. The CPUC will review the information provided by the Los
Angeles Partnership and, if violations of G.O. 159 are found, it may assess
penalties against the Los Angeles Partnership. The outcome of this investigation
is uncertain and, accordingly, no accrual for this matter has been made.
California Partnership
The California Partnership has also submitted information requested by the
CPUC regarding compliance with G.O. 159. The CPUC will review the information
provided by the California Partnership, and if violations of G.O. 159 are found,
it may assess penalties against the California Partnership. The final outcome of
this matter cannot now be determined; however, in management's opinion, the
final outcome will not have a material adverse effect on the California
Partnership's financial statements.
8. CONTINGENCIES
Los Angeles Partnership
Two agents of the competing carrier have named the Los Angeles Partnership
in several complaints against the carrier. The general allegations include
violations of California Unfair Practices Act and price fixing. At a recent
mandatory settlement conference, plaintiffs asked for $6 million from all
defendants to settle the above claims ($2.5 million from AirTouch Cellular,
including the Los Angeles Partnership). The proposed settlement offer has not
been accepted.
On November 24, 1993, October 17, 1994 and November 30, 1994, three
separate class action (not yet certified) suits were filed against the Los
Angeles Partnership alleging conspiracy with a competing carrier to fix the
price of cellular service in violation of state and federal antitrust laws. The
plaintiffs are seeking injunctive relief and substantial monetary damages in
excess of $100 million before trebling.
In May 1994, several former and current agents of the competing carrier
have named the Los Angeles Partnership in only one cause of action. This cause
of action alleges a conspiracy with the competing carrier to fix the prices of
cellular service in violation of state antitrust laws. The plaintiffs are
seeking damages in excess of $100,000 for each of the plaintiff agents.
On July 18, 1994, AirTouch Cellular was served with a class action (not yet
certified) suit on behalf of the Los Angeles Partnership's authorized agents.
The complaint alleges "predatory practices" and seeks damages in excess of $1.6
million per agent, plus statutory treble damages.
F-34
<PAGE> 91
LOS ANGELES SMSA LIMITED PARTNERSHIP
WASHINGTON D.C. SMSA LIMITED PARTNERSHIP
GTE MOBILNET OF CALIFORNIA LIMITED PARTNERSHIP
GTE MOBILNET OF SOUTH TEXAS LIMITED PARTNERSHIP
SAN ANTONIO SMSA LIMITED PARTNERSHIP
ALBUCELL LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
Washington D.C. Partnership
During 1992 and 1993, BAMS was involved in litigation with a former sales
agent in the Superior Court of Washington D.C. In December 1993, BAMS entered
into a settlement agreement with the plaintiff for $11.4 million. As a result of
this agreement, the Washington D.C. Partnership was allocated $10.4 million and
$0.4 million (included in selling, general and administrative expenses) for
their portion of the settlement and interest expense, respectively.
Subsequently, in 1994 a dispute arose between BAMS and the Company because of
the portion allocated to the Washington D.C. Partnership. On December 30, 1994,
BAMS and the Company entered into a settlement agreement wherein BAMS agreed to
reduce the allocated settlement of $10.8 million and associated legal fees by
fifty percent. This resulted in a reduction to the general and administrative
expenses in 1994 of $5.8 million.
South Texas Partnership
An agent of the South Texas Partnership brought suit against the South
Texas Partnership alleging that the South Texas Partnership is in violation of
its agency contract. The agent alleges that the South Texas Partnership failed
to comply with a provision contained in the agent contract which allegedly
requires the South Texas Partnership to offer to the plaintiff commission
payments offered to any other South Texas Partnership agents which are
substantially and materially better than the commission payments set forth in
the plaintiff's contract.
In early 1994, a jury trial returned a verdict in favor of the plaintiff in
an amount which is to be determined in the judgment. The exposure may be up to
$7 million. The general partner believes that the trial court committed several
reversible errors which may result on appeal in either a reversal or a new
trial. The ultimate outcome of this litigation is unknown at the present time;
however, in management's opinion, the final outcome will not have a material
adverse effect on the South Texas Partnership's financial statements.
California Partnership
On October 10, 1994 a class action suit was filed on behalf of the cellular
users in the San Francisco market against the two cellular carriers serving the
area. The plaintiffs allege unlawful combination and collusion by the carriers
resulting in a lack of rate reduction for cellular users which has led to
excessive profits for the carriers. The complaint seeks a restraining order
concerning basic rates for cellular service, treble damages, plus interest and
attorney's fees. At this time the general partner has not discovered any fact
which supports the plaintiffs' claims and believes that any prediction of the
outcome would be premature. Accordingly, no provision for any liability that
might result has been made in the California Partnership's financial statements.
F-35
<PAGE> 92
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Los Angeles SMSA Limited Partnership
We have audited the balance sheets of Los Angeles SMSA Limited Partnership
as of December 31, 1994 and 1993, and the related statements of operations,
partners' capital and cash flows for each of the three years in the period ended
December 31, 1994. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Los Angeles SMSA Limited
Partnership as of December 31, 1994 and 1993, and results of its operations and
its cash flows for each of the three years in the period ended December 31,
1994, in conformity with generally accepted accounting principles.
As discussed in Note 9 to the financial statements, the Partnership has
been named in two separate actions, now consolidated, and a separate complaint
served by cellular agents. The outcome of these matters is uncertain and,
accordingly, no accrual for these matters has been made in the financial
statements.
In addition, as discussed in Note 9, four class action suits were filed
against the Partnership alleging violations of state and federal antitrust laws.
The outcome of these matters is uncertain and, accordingly, no accrual for these
matters has been made in the financial statements.
/s/ COOPERS AND LYBRAND LLP
Coopers and Lybrand LLP
Newport Beach, California
February 17, 1995
F-36
<PAGE> 93
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of the
Washington D.C. SMSA Limited Partnership
We have audited the balance sheets of the Washington D.C. SMSA Limited
Partnership (the Partnership) as of December 31, 1994 and 1993, and the related
statements of income, changes in partners' capital, and cash flows for the years
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As further discussed in Note #6, during 1994 a settlement agreement was
entered into amongst the partners of the Partnership. This agreement resulted in
a reduction of litigation costs previously charged to the Partnership.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Washington D.C. SMSA
Limited Partnership as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ COOPERS AND LYBRAND LLP
Coopers and Lybrand LLP
New York, New York
February 6, 1995
F-37
<PAGE> 94
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
GTE Mobilnet of California Limited Partnership
We have audited the balance sheets of GTE Mobilnet of California Limited
Partnership (a California limited partnership) as of December 31, 1994 and 1993
and the related statements of operations, changes in partners' capital, and cash
flows for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GTE Mobilnet of California
Limited Partnership as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As more fully discussed in Note 3 to the financial statements, an
uncertainty exists with respect to a lawsuit filed against the Partnership. The
outcome of this litigation cannot be determined at this time. Accordingly, no
provision for any liability that may result upon adjudication has been made in
the financial statements.
/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
Atlanta, Georgia
February 13, 1995
F-38
<PAGE> 95
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
GTE Mobilnet of South Texas Limited Partnership
We have audited the balance sheets of GTE Mobilnet of South Texas Limited
Partnership (a Delaware limited partnership) as of December 31, 1994 and 1993
and the related statements of operations, changes in partners' capital, and cash
flows for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GTE Mobilnet of South Texas
Limited Partnership as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
Atlanta, Georgia
February 13, 1995
F-39
<PAGE> 96
REPORT OF INDEPENDENT AUDITORS
The Partners
San Antonio SMSA Limited Partnership
We have audited the balance sheets of San Antonio SMSA Limited Partnership
as of December 31, 1994 and 1993, and the related statements of income, changes
in partners' capital, and cash flows for the years then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of San Antonio SMSA Limited
Partnership at December 31, 1994 and 1993, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ ERNST AND YOUNG LLP
Ernst and Young LLP
Dallas, Texas
February 10, 1995
F-40
<PAGE> 97
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Albucell Limited Partnership
We have audited the balance sheets of Albucell Limited Partnership (a
Delaware limited partnership) as of December 31, 1994 and 1993, and the related
statements of operations, changes in partners' capital and cash flows for each
of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Albucell Limited Partnership
as of December 31, 1994 and 1993, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
As explained in Note 4 to the Partnership financial statements, effective
January 1, 1992, the Partnership changed its method of accounting for
postretirement benefits other than pensions and postemployment benefits.
/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
Denver, Colorado
February 13, 1995
F-41
<PAGE> 98
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ---------------- ------------------------------------------------------------------ ------------
<S> <C> <C>
EXHIBIT A -- AGREEMENT AND PLAN OF MERGER, AS AMENDED.......................... A-1
EXHIBIT B -- OPINION OF LAZARD FRERES & CO..................................... B-1
EXHIBIT C-1 -- OPINION OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED..... C-1-1
EXHIBIT C-2 -- OPINION OF PAINEWEBBER INCORPORATED............................... C-2-1
EXHIBIT D -- DELAWARE GENERAL CORPORATION LAW SECTION 262...................... D-1
EXHIBIT E -- DIRECTORS AND EXECUTIVE OFFICERS OF GTE
CORPORATION, CONTEL CORPORATION, CONTEL CELLULAR
ACQUISITION CORPORATION AND CONTEL
CELLULAR INC...................................................... E-1
</TABLE>
<PAGE> 99
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of December 27, 1994 (the
"Agreement") among GTE Corporation, a New York corporation ("GTE"), Contel
Corporation, a Delaware corporation and a wholly-owned subsidiary of GTE
("Contel"), Contel Cellular Acquisition Corporation, a Delaware corporation
("Purchaser") and a wholly-owned subsidiary of Contel, and Contel Cellular Inc.,
a Delaware corporation (the "Company").
R E C I T A L S
WHEREAS, Contel has adopted a plan of liquidation;
WHEREAS, GTE, through its wholly-owned subsidiary, Contel, is presently the
beneficial owner of all of the outstanding shares of Class B Common Stock of the
Company (as defined below);
WHEREAS, Contel desires to acquire beneficial ownership of the remaining
equity interest in the Company (the "Acquisition"), and has caused Purchaser to
be formed to accomplish such purpose;
WHEREAS, Contel and Purchaser intend to accomplish the Acquisition through
a merger of Purchaser with and into the Company (the "Merger"), upon the terms
and subject to the conditions set forth herein; and
WHEREAS, the respective Boards of Directors of Purchaser and the Company
and the Special Committee appointed by the Board of Directors of the Company to
consider the Acquisition have approved the Merger upon the terms and subject to
the conditions set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINED TERMS
The following terms used in this Agreement shall have the following
meanings:
"Acquisition" has the meaning set forth in the recitals hereto.
"Actions" has the meaning set forth in Section 6.2 hereof.
"Certificates" has the meaning set forth in Section 3.2(b) hereof.
"Class A Common Stock" means the Class A Common Stock of the Company, par
value $1.00 per share.
"Class B Common Stock" means the Class B Common Stock of the Company, par
value $1.00 per share.
"Commission" means the Securities and Exchange Commission and/or any other
governmental entity which administers either the Securities Act or the Exchange
Act.
"Common Stock" means the Class A Common Stock and Class B Common Stock.
"Company" has the meaning set forth in the preamble hereto.
"Constituent Corporations" has the meaning set forth in Section 2.1 hereof.
"Contel" has the meaning set forth in the preamble hereto.
"Depositary" has the meaning set forth in Section 3.2 hereof.
"DGCL" means the Delaware General Corporation Law.
"Dissenting Shares" has the meaning set forth in Section 3.1 hereof.
"Effective Time" has the meaning set forth in Section 2.2 hereof.
A-1
<PAGE> 100
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"GTE" has the meaning set forth in the preamble hereto.
"Indemnified Parties" has the meaning set forth in Section 6.2 hereof.
"Indemnitor" has the meaning set forth in Section 6.2 hereof.
"Information Statement" means the information statement on Form 14C
relating to the Merger, as amended or supplemented, to be prepared and
circulated as contemplated by Section 6.3 hereof.
"Merger" has the meaning set forth in the recitals hereto.
"Merger Consideration" has the meaning set forth in Section 2.4 hereof.
"Permitted Investments" has the meaning set forth in Section 3.2 hereof.
"Purchaser" has the meaning set forth in the preamble hereto.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Stockholder Materials" has the meaning set forth in Section 6.3 hereof.
"Surviving Corporation" has the meaning set forth in Section 2.1 hereof.
"Transaction Statement" means the transaction statement on Form 13e-3
relating to the Merger, as amended or supplemented, to be prepared and
circulated as provided in Section 6.3 hereof.
ARTICLE II
THE MERGER
SECTION 2.1 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the applicable provisions of the DGCL, Purchaser
shall be merged with and into the Company. The Company shall continue as the
surviving corporation (the "Surviving Corporation") in the Merger and the
separate corporate existence of Purchaser shall cease (Purchaser and the Company
are sometimes referred to herein as the "Constituent Corporations"). From and
after the Effective Time, the Surviving Corporation shall possess all of the
rights, privileges, immunities and franchises, and shall be responsible and
liable for all of the liabilities and obligations, of each of the Constituent
Corporations, all as set forth in Section 259 of the DGCL.
SECTION 2.2 Effective Time. The Merger shall be consummated by filing with
the Secretary of State of Delaware a Certificate of Merger executed in
accordance with the relevant provisions of the DGCL. The Merger shall become
effective at the time of filing with the Secretary of State of Delaware of a
Certificate of Merger. The date and time when the Merger shall become effective
is herein referred to as the "Effective Time."
SECTION 2.3 Closing. Upon the terms and subject to the conditions hereof,
as soon as practicable after the execution of the written consents of
shareholders contemplated by Sections 6.3(b) and (c) hereof, the Company and
Purchaser shall file the Certificate of Merger in accordance with Section 2.2
hereof, and the Company and Purchaser shall take all such other and further
actions as may be required by law to make the Merger effective.
SECTION 2.4 Conversion of Shares of Common Stock. (a) Each share of Class
A Common Stock issued and outstanding immediately prior to the Effective Time
(other than Dissenting Shares, if any, and shares of Class A Common Stock held
by the Company, Purchaser, Contel or GTE) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be cancelled and shall
cease to exist and shall be converted into the right to receive cash in the
amount of $25.50 in accordance with Section 3.2 hereof. The
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consideration to be paid in respect of each share of Class A Common Stock in
accordance with the foregoing is hereinafter referred to as the "Merger
Consideration."
(b) Each share of Class A Common Stock held by the Company, Purchaser,
Contel or GTE immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, be cancelled
and cease to exist, without any conversion thereof and without any Merger
Consideration being paid with respect thereto.
(c) Each share of Class B Common Stock issued and outstanding immediately
prior to the Effective Time shall by virtue of the Merger, and without any
action on the part of the holder thereof, be converted into one newly issued
share of the Class B Common Stock of the Surviving Corporation.
SECTION 2.5 Cancellation of Purchaser Capital Stock. Each share of common
stock of Purchaser issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger, and without any action on the part of the
holder thereof, be cancelled and cease to exist, without any conversion thereof
and without any Merger Consideration being paid with respect thereto.
SECTION 2.6 Certificate of Incorporation. The Certificate of Incorporation
of the Company, as in effect immediately prior to the Effective Time, shall be
the Certificate of Incorporation of the Surviving Corporation, until thereafter
amended.
SECTION 2.7 By-Laws. The By-Laws of the Company, as in effect immediately
prior to the Effective Time, shall be the By-Laws of the Surviving Corporation,
until thereafter amended.
SECTION 2.8 Directors. The directors of the Company at the Effective Time
shall be the directors of the Surviving Corporation and shall hold office from
the Effective Time until their respective successors are duly elected or
appointed and qualified in the manner provided in the Certificate of
Incorporation and By-Laws of the Surviving Corporation, or as otherwise provided
by law.
SECTION 2.9 Officers. The officers of the Company at the Effective Time
shall be the initial officers of the Surviving Corporation, all such officers to
hold office from the Effective Time until their respective successors are duly
elected or appointed and qualified in the manner provided in the Certificate of
Incorporation and By-Laws of the Surviving Corporation, or as otherwise provided
by law.
SECTION 2.10 Further Assistance. If at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or thing are necessary,
desirable or proper (i) to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation, its right, title or interest in, to or under any of
the rights, properties or assets of the Constituent Corporations acquired or to
be acquired as a result of the Merger, or (ii) otherwise to carry out the
purposes of this Agreement, the Surviving Corporation and its proper officers
and directors or their designees shall be authorized to execute and deliver, in
the name and on behalf of the Constituent Corporations, all such deeds, bills of
sale, assignments and assurances and do, in the name and on behalf of the
Constituent Corporations, all such other acts and things necessary, desirable or
proper to vest, perfect or confirm its right, title or interest in, to or under
any of the rights, properties or assets of the Constituent Corporations acquired
or to be acquired as a result of the Merger and otherwise to carry out the
purposes of this Agreement.
ARTICLE III
DISSENTING SHARES; EXCHANGE AND PAYMENT FOR SHARES
SECTION 3.1 Dissenting Shares. Notwithstanding anything in this Agreement
to the contrary, shares of Class A Common Stock that are issued and outstanding
immediately prior to the Effective Time and that are held by a stockholder who
has the right (to the extent such right is available by law) to demand and
receive payment of the fair value of such holder's stock pursuant to Section 262
of the DGCL (the "Dissenting Shares") shall not be converted into the right to
receive the Merger Consideration provided for in Section 2.4(a) of this
Agreement (unless and until such holder shall have failed to perfect or shall
have effectively withdrawn or lost such right under the DGCL, as the case may
be), but the holder thereof shall
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only be entitled to such rights as are granted by Delaware law. If such holder
shall have so failed to perfect or shall have effectively withdrawn or lost such
right, such holder's shares of Class A Common Stock shall thereupon be deemed to
have been converted at the Effective Time into the right to receive the Merger
Consideration without any interest thereon. If the holder of any shares of Class
A Common Stock shall become entitled to receive payment for such shares pursuant
to Section 262 of the DGCL, such payment shall be made by the Surviving
Corporation.
SECTION 3.2 Payment for Shares. Prior to the Effective Time, Purchaser
shall or, in the event Purchaser shall fail to do so, GTE shall:
(a) designate a bank or trust company to act as Depositary in the Merger
(the "Depositary") and Purchaser or GTE shall enter into a mutually acceptable
agreement with the Depositary pursuant to which, after the Effective Time, the
Depositary will distribute the Merger Consideration on a timely basis and (b)
according to the terms of the agreement with Depositary, deposit or cause to be
deposited with the Depositary cash in the aggregate amount required with respect
to the conversion of shares of Class A Common Stock at the Effective Time
pursuant to Section 2.4(a) hereof. Pending distribution of the cash deposited
with the Depositary, Purchaser may from time to time direct the Depositary to
invest such cash, provided that such investments (i) shall be (A) obligations of
(or guaranteed by) the United States of America or its agencies or
instrumentalities, (B) commercial paper obligations receiving the highest rating
from either Moody's Investors Services, Inc. or Standard & Poor's Corporation,
(C) certificates of deposit, bank repurchase agreements or bankers acceptances
on interest bearing accounts of commercial banks with capital exceeding $250
million (collectively, "Permitted Investments") or (D) money market funds that
are required by their most current prospectus to have at least 80% of their
assets invested in Permitted Investments and (ii) shall have maturities that
will not prevent or delay payments to be made pursuant to this section.
(b) As soon as practicable after the Effective Time, the Depositary shall
be instructed to mail to each record holder (other than any holder of Dissenting
Shares, the Company, Purchaser, Contel and GTE) of a certificate or certificates
that immediately prior to the Effective Time represented shares of Class A
Common Stock (the "Certificates") a form of letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss shall pass, only upon
proper delivery of the Certificates to the Depositary) and instructions for use
in effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender to the Depositary of a Certificate, together with
such letter of transmittal duly executed and completed in accordance with the
instructions thereon, the holder of such Certificate shall be entitled to
receive in exchange therefor consideration equal to the number of shares of
Class A Common Stock represented by such Certificate multiplied by the Merger
Consideration and such Certificate shall forthwith be cancelled. No interest
will be paid or accrued on the Merger Consideration. All distributions to
holders of Certificates shall be subject to any applicable income tax
withholding. If the Merger Consideration is to be distributed to a person other
than the person in whose name the Certificate surrendered is registered, it
shall be a condition of such distribution that the Certificate so surrendered
shall be properly endorsed or otherwise in proper form for transfer (including
signature guarantees if required by Purchaser) and that the person requesting
such distribution shall pay any transfer or other taxes required by reason of
such distribution to a person other than the registered holder of the
Certificate surrendered or, in the alternative, establish to the satisfaction of
the Surviving Corporation that such tax has been paid or is not applicable.
After one hundred and eighty (180) days following the Effective Time, the
Surviving Corporation shall be entitled to require the Depositary to deliver to
it any cash (including any interest received with respect thereto) that it has
made available to the Depositary and that has not been disbursed to holders of
Certificates, and thereafter such holders shall be entitled to look to the
Surviving Corporation only as general creditors thereof with respect to the cash
payable upon due surrender of their Certificates. The Surviving Corporation
shall pay all charges and expenses, including those of the Depositary, in
connection with the distribution of the Merger Consideration for shares of Class
A Common Stock. Until surrendered in accordance with the provisions of this
Section 3.2, each Certificate (other than Certificates representing Dissenting
Shares or shares of Class A Stock held by the Company, Purchaser, Contel or GTE)
shall represent for all purposes the right to receive consideration equal to the
Merger Consideration multiplied by the number of shares of Class A Common Stock
evidenced by such
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Certificate. From and after the Effective Time, holders of Certificates
immediately prior to the Merger shall have no right to vote or to receive any
dividends or other distributions with respect to any shares of Class A Common
Stock that were theretofore represented by such Certificates, other than any
dividends or other distributions payable to holders of record as of a date prior
to the Effective Time, and shall have no other rights in respect thereof other
than as provided herein or by law.
(c) From and after the Effective Time, there shall be no transfers on the
stock transfer books of the Surviving Corporation of the shares of Class A
Common Stock that were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation, other than Certificates in respect of Dissenting Shares, the rights
to which have been perfected or not withdrawn or lost under the DGCL, they shall
be cancelled and exchanged for Merger Consideration as provided in this Article
III.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser, Contel and GTE as
follows:
SECTION 4.1 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of Delaware
and has the requisite corporate power to carry on its business as now conducted.
SECTION 4.2 Authority Relative to this Agreement. The Company has the
requisite corporate power and authority to enter into this Agreement and to
perform its obligations hereunder. The execution and delivery of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by the Board of Directors of the
Company, and no other corporate proceeding on the part of the Company is
necessary to authorize the execution, delivery and performance of this Agreement
and the transactions contemplated hereby (other than the approval of
stockholders of the Company required to consummate the Merger). This Agreement
has been duly executed and delivered by the Company and constitutes its valid
and binding obligation, enforceable against it in accordance with its terms,
except to the extent that enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other laws affecting the enforcement
of creditors' rights generally or by general equitable principles.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CONTEL, GTE AND PURCHASER
SECTION 5.1 Representations and Warranties of Purchaser
Purchaser represents and warrants to the Company as follows:
(a) Organization and Qualification. It is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has the requisite corporate power to carry
on its business as now conducted.
(b) Authority Relative to this Agreement. It has the requisite
corporate power and authority to enter into this Agreement and to perform
its obligations hereunder. The execution and delivery of this Agreement by
it and the consummation by it of the transactions contemplated hereby have
been duly authorized by its Board of Directors, and no other corporate
proceeding on its part is necessary to authorize the execution, delivery
and performance of this Agreement and the transactions contemplated hereby
(other than the approval of its stockholders required to consummate the
Merger). This Agreement has been duly executed and delivered by it and
constitutes its valid and binding obligation, enforceable against it in
accordance with its terms, except to the extent that enforceability may be
limited by applicable bankruptcy, insolvency, reorganization or other laws
affecting the enforcement of creditors' rights generally or by general
equitable principles.
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(c) No Prior Activities. It has not incurred, nor will it incur,
directly or through any subsidiary, any liabilities or obligations, except
those incurred in connection with its organization or with the negotiation
of this Agreement and the consummation of the transactions contemplated
hereby, including the Merger. Except as set forth in the previous sentence,
it has not engaged, directly or through any subsidiary, in any business
activities of any type or kind whatsoever, or entered into any agreements
or arrangements with any person or entity.
SECTION 5.2 Representations and Warranties of GTE and Contel.
Contel and GTE each represents and warrants to the Company as follows:
(a) Organization and Qualification. It is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has the requisite corporate power to carry
on its business as now conducted.
(b) Authority Relative to this Agreement. It has the requisite
corporate power and authority to enter into this Agreement and to perform
its obligations hereunder. The execution and delivery of this Agreement by
it and the consummation by it of the transactions contemplated hereby have
been duly authorized by its Board of Directors, and no other corporate
proceeding on its part is necessary to authorize the execution, delivery
and performance of this Agreement and the transactions contemplated hereby.
This Agreement has been duly executed and delivered by it and constitutes
its valid and binding obligation, enforceable against it in accordance with
its terms, except to the extent that enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other laws affecting
the enforcement of creditors' rights generally or by general equitable
principles.
ARTICLE VI
COVENANTS
SECTION 6.1 Conduct of Business of the Company. Except as otherwise
expressly provided in this Agreement, from the date of this Agreement to the
Effective Time, the Company will conduct its business in the ordinary course.
SECTION 6.2 Indemnification, Etc. The Company shall indemnify and hold
harmless, and, after the Effective Time, the Surviving Corporation and GTE (the
Company, the Surviving Corporation and GTE, for the purpose of this Section 6.2
being the "Indemnitor") will indemnify and hold harmless, each present and
former director and officer of the Company (the "Indemnified Parties") against
any losses, claims, damages, liabilities, costs, expenses, judgments and amounts
paid in settlement in connection with any claim, action, suit, proceeding or
investigation (collectively, "Actions") arising out of or pertaining to any
action or omission occurring prior to the Effective Time (including without
limitation, any Actions which arise out of or relate to the transactions
contemplated by this Agreement) to the full extent permitted under the DGCL (and
the Indemnitor will advance reasonable expenses to each such person to the full
extent so permitted); provided, however, that any determination required to be
made with respect to whether an Indemnified Party's conduct complied with the
standards set forth in the DGCL shall be made in accordance with the DGCL, and
the Indemnitor shall pay the reasonable fees and expenses incurred in connection
with such determination. If any such Action is brought against any Indemnified
Party (whether arising before or after the Effective Time), (a) the Indemnified
Parties may retain counsel reasonably satisfactory to them and the Indemnitor,
(b) the Indemnitor shall pay all reasonable fees and expenses of such counsel
for the Indemnified Parties promptly as statements therefor are received, and
(c) the Indemnitor and the Indemnified Parties will cooperate in the vigorous
defense of any such matter, provided, that the Indemnitor shall not be liable
for any such settlement effected without its written consent, which consent,
however, shall not be unreasonably withheld. Any Indemnified Party wishing to
claim indemnification under this Section 6.2, upon learning of any such Action
shall notify the Indemnitor thereof and shall deliver to the Indemnitor an
undertaking to repay any amounts advanced pursuant hereto when and if a court of
competent jurisdiction shall ultimately determine, after exhaustion of all
avenues of appeal, that such Indemnified Party was not entitled to
indemnification under this Section. The Indemnified Parties as a group may
retain only one law firm in each jurisdiction to represent
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them with respect to any such matter unless there is, under applicable standards
of professional conduct, a conflict on any significant issue between the
positions of any two or more Indemnified Parties. GTE and Purchaser agree to
cause to be maintained in effect the present policy of directors' and officers'
liability insurance (or an equivalent policy) covering those persons who are
currently covered by such policy for three years from the Effective Time. This
Section 6.2 shall survive consummation of the Merger.
SECTION 6.3 Stockholders' Approval; SEC Filings.
(a) Subject to the terms and conditions contained herein, this
Agreement and the transactions contemplated hereby shall be submitted by
the Company and Purchaser to their respective stockholders for approval.
Promptly after the execution of this Agreement, the Company and Purchaser
shall together, or pursuant to an allocation of responsibility to be agreed
upon between them, (i) use their best efforts to obtain all information
required to be included in the Information Statement, the Transaction
Statement and related materials (the "Stockholder Materials"), (ii) prepare
and file with the Commission the Stockholder Materials, (iii) use all
reasonable efforts to have the Stockholder Materials cleared by the
Commission as promptly as practicable, and (iv) promptly following
clearance by the Commission, mail the Stockholders Materials to
shareholders of the Company. Purchaser and the Company also shall take any
action required to be taken under state blue sky or securities laws or the
rules and regulations of any securities exchanges or markets on which their
securities are listed for trading in connection with transactions
contemplated hereby including the Merger. The Information Statement and the
Transaction Statement shall, when first mailed to the stockholders of the
Company and as amended or supplemented thereafter, comply as to form in all
material respects with all applicable requirements of federal securities
laws. Purchaser and the Company shall each furnish to the other and their
counsel all such information as may be required to prepare the Stockholders
Materials. All such information provided and to be provided by Purchaser
and the Company respectively, for use in the Stockholder Materials shall,
on the date the Information Statement or Transaction Statement is first
mailed to the Company's stockholders and as amended or supplemented
thereafter, be true and correct in all material respects and shall not omit
to state any material fact necessary in order to make such information in
light of the circumstances in which it was given not misleading, and the
Company and the Purchaser each agree to correct any information provided by
it for use in the Information Statement or Transaction Statement which
shall have become false or misleading in any material respect.
(b) Subject to the terms and conditions set forth in the next
sentence, GTE, the Company and Contel agree that Contel shall execute a
written consent as majority shareholder of the Company approving this
Agreement and the Merger. Such consent shall be executed by Contel only
after the passage of any waiting periods, following the mailing of the
Stockholders' Materials to the stockholders of the Company, required for
compliance with the Securities Act, the Exchange Act, the DGCL and any
other laws, rules or regulations applicable to Company.
(c) Contel shall also execute a written consent as majority
shareholder of Purchaser approving this Agreement and the Merger. Such
consent shall be executed concurrently with the execution of the consent
referred to in paragraph (b).
Section 6.4 Consents. Subject to the terms and conditions herein provided,
each of the parties hereto agrees to use its commercially reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement, and to
cooperate with each other in connection with the foregoing, including using
commercially reasonable efforts to (i) obtain all necessary waivers, consents
and approvals from other parties to loan agreements, leases and other contracts,
(ii) obtain all necessary consents, approvals and authorizations as are required
to be obtained under any federal, state or foreign law or regulations, (iii)
defend all lawsuits or other legal proceedings challenging this Agreement or the
consummation of the transactions contemplated hereby, (iv) lift or rescind any
injunction or restraining order or other order adversely affecting the ability
of the parties to consummate the transactions contemplated hereby, and (v)
effect all registrations and filings necessary to consummate the transactions
contemplated hereby.
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ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of each party to effect the Merger are subject
to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) This Agreement and the transactions contemplated hereby shall have
been approved by any necessary vote of the stockholders of the Company and
Purchaser in accordance with applicable law and Sections 6.3(b) and (c);
(b) No statute, rule, regulation, executive order, decree or
injunction (preliminary or permanent) shall have been enacted, entered,
promulgated or enforced by any federal or state court of competent
jurisdiction in the United States or other governmental authority which
prohibits the consummation of the Merger and remains in effect after GTE,
the Company and Purchaser shall have used all commercially reasonable
efforts to lift any injunction;
(c) No consents of or filings with any governmental entity shall be
required for consummation of the Merger which have not been obtained or
filed; and
(d) The Special Committee of the Board of Directors of the Company
shall not have modified or rescinded its recommendation with respect to the
Merger.
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
SECTION 8.1 Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time notwithstanding approval
thereof by the stockholders of the Company, but prior to the Effective Time:
(a) by mutual written consent of each of Purchaser and the Company; or
(b) by Purchaser or the Company if any court of competent jurisdiction
in the United States or other United States governmental body shall have
issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Merger and such order, decree,
ruling or other action shall have become final and non-appealable; or
(c) by Purchaser or the Company if the Merger does not occur within
120 days of the date of this Agreement unless the Merger shall not have
occurred primarily as the result of a delay occasioned by review of filings
by regulatory agencies.
SECTION 8.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 8.1, this Agreement shall
forthwith become void and have no effect, without liability on the part of any
party or its directors, officers, stockholders or partners.
SECTION 8.3 Amendment. This Agreement may be amended by action taken by
Purchaser and the Company at any time, provided that following approval of this
agreement by the shareholders of Company or Purchaser any amendment of this
Agreement shall be subject to compliance with Section 251(d) of the DGCL. The
prior approval of a majority of the members of the Special Committee shall be
required in connection with any amendment or modification by or on behalf of the
Company. This Agreement may not be amended, modified or supplemented except by
an instrument in writing signed on behalf of the party against whom enforcement
is sought.
SECTION 8.4 Extension; Waiver. At any time prior to the Effective Time,
the parties may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document, certificate or writing delivered pursuant hereto or (iii) waive
compliance with any of the agreements or conditions contained herein, except as
otherwise provided by law and except that the provisions of Section 6.2 hereof
shall not be waived.
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Any agreement on the part of any party to any such extension or waiver shall be
valid only if set forth in an instrument in writing on behalf of such party,
and, in the case of an extension or waiver by the Company, if such extension or
waiver has been approved by a majority of the members of the Special Committee.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements made herein shall not survive beyond
the Effective Time, except for the agreements set forth in Sections 2.10, 3.1,
3.2 and 6.2.
SECTION 9.2 Entire Agreement; Assignment. This Agreement (a) constitutes
the entire agreement between the parties with respect to the subject matter
hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties or any of them with respect to the subject
matter hereof, and (b) shall not be assigned by operation of law or otherwise;
provided that Purchaser may assign its rights and obligations to any wholly
owned, direct or indirect subsidiary, but no such assignment shall relieve
Purchaser of its obligations hereunder if such assignor does not perform such
obligations.
SECTION 9.3 Validity. The validity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
SECTION 9.4 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by cable, telegram or telex, or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties at the following addresses or at such other addresses as
shall be specified by the parties by like notice.
(i) if to the Purchaser, to:
Marianne Drost, Secretary
CCI Acquisition Corporation
One Stamford Forum
Stamford, CT 06904
with a copy to:
Jeffrey Rosen
O'Melveny & Myers
555 Thirteenth Street, N.W.
Suite 500 West
Washington, DC 20004
(ii) if to the Company, to:
Marianne Drost
Contel Cellular Inc.
c/o GTE Corporation
One Stamford Forum
Stamford, CT 06904
with a copy to:
W. Leslie Duffy
Cahill Gordon & Reindel
80 Pine Street
New York, NY 10005
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(iii) if to Contel, to:
Marianne Drost, Secretary
Contel Corporation
One Stamford Forum
Stamford, CT 06904
(iv) if to GTE, to:
Marianne Drost, Secretary
GTE Corporation
One Stamford Forum
Stamford, CT 06904
SECTION 9.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of Delaware, regardless of the
laws that might otherwise govern under applicable principles of conflict of laws
thereof.
SECTION 9.6 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 9.7 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of the parties hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights, benefits or remedies of any nature whatsoever under or by reason of this
Agreement, except as expressly provided in Section 6.2 (which is intended to be
for the benefit of the persons referred to therein and may be enforced by such
persons).
SECTION 9.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 9.9 Expenses. All costs and expenses incurred in connection with
the transactions contemplated by this Agreement shall be paid by the party
incurring such expenses.
SECTION 9.10 Specific Performance. The parties hereto agree that if for
any reason any party hereto shall have failed to perform its obligations under
this Agreement, then any other party hereto seeking to enforce this Agreement
against such non-performing party shall be entitled to specific performance and
injunctive and other equitable relief, and the parties hereto further agree to
waive any requirement for the securing or posting of any bond in connection with
the obtaining of any such injunctive or other equitable relief. This provision
is without prejudice to any other rights that any party hereto may have against
any other party hereto for any failure to perform its obligations under this
Agreement.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
day and year first above written.
CONTEL CELLULAR INC.
By: /s/ DENNIS WHIPPLE
--------------------------------------
Title: President
CONTEL CELLULAR ACQUISITION
CORPORATION
By: /s/ MARIANNE DROST
--------------------------------------
Title: Secretary
CONTEL CORPORATION
By: /s/ MARIANNE DROST
--------------------------------------
Title: Secretary
GTE CORPORATION
By: /s/ JAMES MURPHY
--------------------------------------
Title: Vice President and Treasurer
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FIRST AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER
First Amendment to the Agreement and Plan of Merger dated as of January 27,
1995 (the "First Amendment") among GTE Corporation, a New York corporation
("GTE"), Contel Corporation, a Delaware corporation and a wholly-owned
subsidiary of GTE ("Contel"), Contel Cellular Acquisition Corporation, a
Delaware corporation ("Purchaser") and a wholly-owned subsidiary of Contel, and
Contel Cellular Inc., a Delaware corporation (the "Company").
RECITALS
WHEREAS, GTE, Contel, Purchaser and the Company have entered into an
Agreement and Plan of Merger dated as of December 27, 1994 (the "Agreement");
WHEREAS, GTE, Contel, Purchaser and the Company desire to amend the
Agreement as set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Definitions. All capitalized terms used herein shall have
the meaning ascribed to them in the Agreement.
Section 2. Amendment of Section 2.3. Section 2.3 of the Agreement is
hereby amended in its entirety to read as follows:
Upon the terms and subject to the conditions hereof, as soon as
practicable after the execution of the written consents of shareholders
contemplated by Sections 6.3(b) and (c) hereof and after the passage of
waiting periods required for compliance with the Securities Act, the
Exchange Act, the DGCL and any other rules or regulations applicable to
the Company, the Company and Purchaser shall file the Certificate of
Merger in accordance with Section 2.2 hereof, and the Company and
Purchaser shall take all such other and further actions as may be
required by law to make the Merger effective.
Section 3. Amendment of Section 6.3(b). Section 6.3(b) of the
Agreement is hereby amended in its entirety to read as follows:
(b) GTE, the Company and Contel agree that Contel shall execute a
written consent as majority shareholder of the Company approving this
Agreement and the Merger as soon as practicable after the execution of
this Agreement.
The Agreement, as amended hereby, shall remain in full force and effect and
shall constitute the agreement of the parties.
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IN WITNESS WHEREOF, each of the parties has caused this First Amendment to
be executed on its behalf by its officers thereunto duly authorized, all as of
the day and year first above written.
CONTEL CELLULAR INC.
By: /s/ DENNIS WHIPPLE
--------------------------------------
Title: President
CONTEL CELLULAR ACQUISITION
CORPORATION
By: /s/ MARIANNE DROST
--------------------------------------
Title: Secretary
CONTEL CORPORATION
By: /s/ MARIANNE DROST
--------------------------------------
Title: Secretary
GTE CORPORATION
By: /s/ JAMES MURPHY
--------------------------------------
Title: Vice President and
Treasurer
By: /s/ MARIANNE DROST
--------------------------------------
Title: Secretary
A-13
<PAGE> 112
SECOND AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER
Second Amendment to the Agreement and Plan of Merger dated as of March 10,
1995 (the "Second Amendment") among GTE Corporation, a New York corporation
("GTE"), Contel Corporation, a Delaware Corporation and a wholly-owned
subsidiary of GTE ("Contel"), Contel Cellular Acquisition Corporation, a
Delaware Corporation ("Purchaser") and a wholly-owned subsidiary of Contel, and
Contel Cellular Inc., a Delaware Corporation (the "Company").
RECITALS
WHEREAS, GTE, Contel, Purchaser and the Company have entered into an
Agreement and Plan of Merger dated as of December 27, 1994, which Agreement was
amended pursuant to the First Amendment to the Agreement and Plan of Merger
dated as of January 27, 1995 (as amended, the "Agreement"); and
WHEREAS, GTE, Contel, Purchaser and the Company desire further to amend the
Agreement as set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Definitions. All capitalized terms used herein shall have
the meanings ascribed to them in the Agreement.
Section 2. Amendment of Section 2.4. Section 2.4 of the Agreement is
hereby amended in its entirety to read as follows:
SECTION 2.4 CONVERSION OF SHARES OF COMMON STOCK. (a) Each share
of Class A common Stock issued and outstanding immediately prior to the
Effective Time (other than Dissenting Shares, if any, and shares of
Class A Common Stock held by the company, Purchaser, Contel or GTE)
shall, by virtue of the Merger and without any action on the part of the
holder thereof, be cancelled and retired and shall cease to exist as
issued and outstanding shares and shall be converted into the right to
receive cash in the amount of $25.50 in accordance with Section 3.2
hereof. The consideration to be paid in respect of each share of Class A
Common Stock in accordance with the foregoing is hereinafter referred to
as the "Merger Consideration."
(b) Each share of Class A Common Stock held by the Company,
Purchaser, Contel or GTE immediately prior to the Effective Time shall,
by virtue of the Merger and without any action on the part of the holder
thereof, be cancelled and retired and cease to exist as an issued and
outstanding share, without any conversion thereof and without any Merger
Consideration being paid with respect thereto.
(c) The shares of Class B Common Stock shall not be changed or
converted in the Merger, and each share of Class B Common Stock issued
and outstanding immediately prior to the Effective Time shall continue
to be outstanding subsequent to the Effective Time as one share of Class
B Common Stock of the Surviving Corporation.
The Agreement, as amended hereby, shall remain in full force and effect and
shall constitute the agreement of the parties.
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<PAGE> 113
IN WITNESS WHEREOF, each of the parties has caused this Second Amendment to
be executed on its behalf by its officers therunto duly authorized, all as of
the day and year first above written.
CONTEL CELLULAR INC.
By: /s/ DENNIS WHIPPLE
--------------------------------------
Title: President
CONTEL CELLULAR ACQUISITION
CORPORATION
By: /s/ MARIANNE DROST
--------------------------------------
Title: Secretary
CONTEL CORPORATION
By: /s/ MARIANNE DROST
--------------------------------------
Title: Secretary
GTE CORPORATION
By: /s/ JAMES MURPHY
--------------------------------------
Title: Vice President and
Treasurer
By: /s/ MARIANNE DROST
--------------------------------------
Title: Secretary
A-15
<PAGE> 114
EXHIBIT B
OPINION OF LAZARD FRERES & CO.
[LAZARD FRERES & CO. LETTERHEAD]
December 30, 1994
Special Committee of the
Board of Directors
Contel Cellular Inc.
c/o Contel Corporation
375 Park Avenue, 24th Floor
New York, NY 10152
Dear Members of the Special Committee:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of the Class A Common Stock, par value $1.00 per share
(the "Common Stock") of Contel Cellular Inc. ("CCI"), other than GTE Corporation
("GTE"), Contel Corporation ("Contel") and their affiliates, of the
consideration to be received by such holders in the proposed merger (the
"Merger") of CCI and a subsidiary of Contel.
We understand that the Merger is to be effected pursuant to an Agreement
and Plan of Merger, to be entered into among GTE, Contel, a subsidiary of
Contel, and CCI, a draft of which, dated December 29, 1994, has been furnished
to us (the "Merger Agreement"). The terms of the Merger Agreement provide, among
other things, that each share of Common Stock (other than any shares of Common
Stock held by stockholders who properly exercise and perfect stockholder
appraisal rights, if any, under the General Corporation Law of the State of
Delaware, and any shares held by CCI, GTE, Contel or such subsidiary of Contel
all of which shall be canceled), will be converted into the right to receive
cash in the amount of $25.50. We understand that GTE beneficially owns all of
the issued and outstanding shares of Class B Common Stock, par value $1.00 per
share, of CCI, which represents approximately ninety percent (90%) of the issued
and outstanding equity of CCI.
In connection with this opinion, we have, among other things:
(i) reviewed the terms and conditions of the Merger Agreement;
(ii) analyzed certain historical business and financial information
relating to CCI, including the Annual Reports to Stockholders
and Annual Reports on Form 10-K of CCI for each of the fiscal
years ended December 31, 1991 through 1993, and Quarterly
Reports on Form 10-Q of CCI for the quarters ended March 31,
June 30, and September 30, 1994;
(iii) reviewed certain financial forecasts and other data provided to
us by CCI relating to CCI;
(iv) held discussions with members of the senior managements of CCI
and GTE with respect to the businesses and prospects of CCI and
its strategic objectives;
(v) reviewed public information with respect to certain other
companies in lines of businesses we believe to be generally
comparable to the businesses of CCI;
(vi) reviewed the financial terms of certain recent business
combinations involving companies in lines of businesses we
believe to be generally comparable to CCI, and in other
industries generally;
(vii) reviewed the financial terms of certain recent business
combinations we believe to be comparable in certain respects to
the proposed Merger;
(viii) reviewed the historical stock prices and trading volumes of the
Common Stock; and
(ix) conducted such other financial studies, analyses and
investigations as we deemed appropriate.
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<PAGE> 115
We understand that CCI and an affiliate of GTE propose to exchange certain
cellular assets owned by each of them for certain cellular assets owned by a
publicly-held company (the "Cellular Exchange"). We have received a copy of a
letter dated December 19, 1994 from GTE's Senior Vice President -- Finance
addressed to GTE's financial advisors, Merrill Lynch & Co. and PaineWebber
Incorporated, regarding the Cellular Exchange to the effect that it is an
exchange of equivalent assets and, accordingly, is value neutral to CCI. We have
neither received nor reviewed any other information regarding the Cellular
Exchange, including any financial projections or any other non-public financial
information prepared by GTE or CCI. With your consent, we have assumed that the
Cellular Exchange involves the exchange of assets with substantially equivalent
value and, accordingly, will have an immaterial effect, if any, on CCI.
For purposes of this opinion, with your concurrence, we have ascribed no
value to CCI's rights under either (i) that certain Third Restated Competition
Agreement dated March 14, 1991, among Contel, GTE and CCI, or (ii) that certain
Services Agreement dated May 1, 1991, as amended, by and between GTE Mobile
Communications Service Corporation and CCI.
We have not reviewed any proxy or information statement or similar document
that may be prepared for use in connection with the proposed Merger. In
addition, we were not asked by the Special Committee (the "Special Committee")
of the Board of Directors of CCI to solicit third party indications of interest
in acquiring all or any part of CCI, nor did we seek any such offers.
We have relied upon the accuracy and completeness of the foregoing
financial and other information and have not assumed any responsibility for any
independent verification of such information or any independent valuation or
appraisal of any of the assets of CCI. With respect to financial forecasts, we
have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of management of CCI as to the
future financial performance of CCI. We assume no responsibility and express no
view as to such forecasts or the assumptions on which they are based.
Further, our opinion is necessarily based on economic, monetary, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof.
In rendering our opinion, we have assumed that the actual Agreement and
Plan of Merger entered into among the parties thereto will be identical in all
material respects to the Merger Agreement, that the Merger will be consummated
on the terms described in the Merger Agreement, without any waiver of any
material terms or conditions by CCI and that obtaining the necessary regulatory
approvals for the Merger will not have an adverse effect on CCI.
Lazard Freres & Co. has acted as financial advisor to the Special Committee
in connection with the proposed Merger and will receive a fee for our services,
a substantial portion of which is payable upon rendering this opinion.
Our engagement and the opinion expressed herein is solely for the benefit
of the Special Committee and is not on behalf of, and is not intended to confer
rights or remedies upon, GTE, any stockholders of CCI or GTE, or any other
person. It is understood that this letter may not be disclosed or otherwise
referred to without our prior consent, except as may otherwise be required by
law or a court of competent jurisdiction.
Based on and subject to the foregoing, we are of the opinion that the
consideration to be received by the holders of the Common Stock (other than GTE,
Contel or any of their affiliates) is fair to such holders from a financial
point of view.
Very truly yours,
LAZARD FRERES & CO.
B-2
<PAGE> 116
EXHIBIT C-1
OPINION OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
[MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED LETTERHEAD]
December 27, 1994
Board of Directors
GTE Corporation
One Stamford Forum
Stamford, CT 06904
Attention: J. Michael Kelly
Gentlemen:
Contel Corporation, a Delaware corporation ("Contel") and a wholly-owned
subsidiary of GTE Corporation (the "Company"), CCI Acquisition Company, a
Delaware corporation (the "Purchaser") and a wholly-owned subsidiary of Contel,
and Contel Cellular Inc., a Delaware corporation (the "Subject Company"),
propose to enter into an Agreement and Plan of Merger (the "Agreement") pursuant
to which the Purchaser will be merged into the Subject Company in a transaction
(the "Merger") in which each share of the Subject Company's Class A Common
Stock, par value $1.00 per share (the "Shares"), will be converted into the
right to receive $25.50 in cash per Share.
You have asked us whether, in our opinion, the proposed cash consideration
to be paid for the Shares pursuant to the Merger is fair to the Company from a
financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Subject Company's Annual Reports, Forms 10-K and
related financial information for the five fiscal years ended December 31,
1993 and the Subject Company's Forms 10-Q and the related unaudited
financial information for the quarterly periods ending March 31, 1994, June
30, 1994 and September 30, 1994;
(2) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and prospects of the
Subject Company, furnished to us by the Subject Company;
(3) Conducted discussions with members of senior management of the
Subject Company concerning its businesses and prospects;
(4) Reviewed the historical market prices and trading activity for the
Shares and compared them with that of certain publicly traded companies
which we deemed to be reasonably similar to the Subject Company;
(5) Compared the results of operations of the Subject Company with
that of certain companies which we deemed to be reasonably similar to the
Subject Company;
(6) Compared the proposed financial terms of the transactions
contemplated by the Agreement with the financial terms of certain other
mergers and acquisitions which we deemed to be relevant;
(7) Considered the pro forma effect of the Merger on the Company's
capitalization ratios, earnings and cash flow;
(8) Considered a discounted cash flow analysis based on future cash
flows that management of the Subject Company expects the Subject Company to
generate;
(9) Reviewed a draft of the Agreement dated December 20, 1994; and
C-1-1
<PAGE> 117
(10) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market and
monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Subject
Company, and we have not assumed any responsibility to independently verify such
information or undertaken an independent appraisal of the assets of the Subject
Company. With respect to the financial forecasts furnished by the Subject
Company, we have assumed that they have been reasonably prepared and reflect the
best currently available estimates and judgment of the Subject Company's
management as to the expected future financial performance of the Subject
Company. This opinion does not address the relative merits of the Merger and any
other transactions or business strategies discussed by the Board of Directors of
the Company as alternatives to the Merger or the decision of the Board of
Directors of the Company to proceed with the Merger.
In rendering this opinion, we have not been engaged to act as an agent or
fiduciary of the Company's equity holders or any other third party.
We have, in the past, provided financial advisory services to the Subject
Company and have received fees for the meeting of such services.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed cash consideration to be paid pursuant to the Merger is fair to the
Company from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ ALAIN LEBEC
Managing Director
Investment Banking Group
C-1-2
<PAGE> 118
EXHIBIT C-2
OPINION OF PAINEWEBBER INCORPORATED
[PAINEWEBBER LETTERHEAD]
December 27, 1994 [PAINEWEBBER LOGO]
Board of Directors
GTE Corporation
One Stamford Forum
Stamford, CT 06904
Attention: J. Michael Kelly
Gentlemen:
Contel Corporation, a Delaware corporation ("Contel") and a wholly-owned
subsidiary of GTE Corporation (the "Company"), CCI Acquisition Company, a
Delaware corporation (the "Purchaser") and a wholly-owned subsidiary of Contel,
and Contel Cellular Inc,. a Delaware corporation (the "Subject Company"),
propose to enter into an Agreement and Plan of Merger (the "Agreement") pursuant
to which the Purchaser will be merged into the Subject Company in a transaction
(the "Merger") in which each share of the Subject Company's Class A Common
Stock, par value $1.00 per share (the "Shares"), will be converted into the
right to receive $25.50 in cash per Share.
You have asked us whether, in our opinion, the proposed cash consideration
to be paid for the Shares pursuant to the Merger is fair to the Company from a
financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Subject Company's Annual Reports, Forms 10-K and
related financial information for the five fiscal years ended December 31,
1993 and the Subject Company's Forms 10-Q and the related unaudited
financial information for the quarterly periods ending March 31, 1994, June
30, 1994, and September 30, 1994;
(2) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and prospects of the
Subject Company;
(3) Conducted discussions with members of senior management of the
Subject Company concerning its businesses and prospects;
(4) Reviewed the historical market prices and trading activity for the
Shares and compared them with that of certain publicly traded companies
which we deemed to be reasonably similar to the Subject Company;
(5) Compared the results of operations of the Subject Company with
that of certain companies which we deemed to be reasonably similar to the
Subject Company;
(6) Compared the proposed financial terms of the transactions
contemplated by the Agreement with the financial terms of certain other
mergers and acquisitions which we deemed to be relevant;
(7) Considered the pro forma effect of the Merger on the Company's
capitalization ratios, earnings and cash flow;
(8) Considered a discounted cash flow analysis based on future cash
flows that management of the Subject Company expects the Subject Company to
generate;
(9) Reviewed a draft of the Agreement dated December 20, 1994; and
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<PAGE> 119
(10) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market and
monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Subject
Company, and we have not assumed any responsibility to independently verify such
information or undertaken an independent appraisal of the assets of the Subject
Company. With respect to the financial forecasts furnished by the Subject
Company, we have assumed that they have been reasonably prepared and reflect the
best currently available estimates and judgment of the Subject Company's
management as to the expected future performance of the Subject Company. This
opinion does not address the relative merits of the Merger and any other
transactions or business strategies discussed by the Board of Directors of the
Company as alternatives to the Merger or the decision of the Board of Directors
of the Company to proceed with the Merger.
In rendering this opinion, we have not been engaged to act as an agent or
fiduciary of the Company's equity holders or any other third party.
We have, in the past, provided financial advisory services to the Company
and have received fees for the rendering of such services.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed cash consideration to be paid pursuant to the Merger is fair to the
Company from a financial point of view.
Very truly yours,
PAINEWEBBER INCORPORATED
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<PAGE> 120
EXHIBIT D
DELAWARE GENERAL CORPORATION LAW SECTION 262
SEC. 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec.228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.251, 252, 254, 257, 258 or 263 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except: a. shares of stock of the corporation surviving
or resulting from such merger or consolidation, or depository receipts in
respect thereof; b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository receipts
at the effective date of the merger or consolidation will be either listed
on a national securities exchange or designated as a National Market System
security on an inter-dealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 holders; c.
Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or d.
Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in
the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section shall apply as nearly as is practicable.
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<PAGE> 121
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his share. Such
demand will be sufficient if it reasonably informs the corporations of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec.228 or
253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by
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<PAGE> 122
publications shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing of such petition, the Court shall determine the
stockholders how have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such directions, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders, entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of the
shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of the
Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
D-3
<PAGE> 123
EXHIBIT E
DIRECTORS AND EXECUTIVE OFFICERS OF GTE CORPORATION,
CONTEL CORPORATION, CONTEL CELLULAR ACQUISITION
CORPORATION AND CONTEL CELLULAR INC.
1. Directors and Executive Officers of GTE Corporation. The following
table sets forth the name, business address, present principal occupation and
the other material occupations, positions, offices or employments for the past
five years (if applicable) of each director and executive officer of GTE
Corporation, a New York corporation ("GTE"). Each director and executive officer
of GTE is a citizen of the United States. GTE, through its subsidiaries,
provides local telephone service, cellular mobile telephone service,
directories, and other telecommunications related products and services. GTE
also has subsidiaries which offer financial and related services primarily to
GTE operating companies. The address of GTE's principal executive offices is One
Stamford Forum, Stamford, Connecticut 06904.
<TABLE>
<CAPTION>
PREVIOUS MATERIAL
NAME AND BUSINESS ADDRESS PRESENT PRINCIPAL OCCUPATION OCCUPATIONS
- ----------------------------------- ------------------------------ -------------------------
<S> <C> <C>
GTE -- DIRECTORS
Edwin L. Artzt..................... Chairman of the Board and Not applicable
The Procter & Gamble Company Chief Executive Officer of The
One Procter & Gamble Plaza Procter & Gamble Company
Cincinnati, OH 45202-3315
</TABLE>
<TABLE>
<S> <C> <C>
James R. Barker.................... Chairman of the Interlake Not applicable
Mormac Marine Group, Inc. Steamship Co.; Vice Chairman
Three Landmark Square of Mormac Marine Group, Inc.;
Stamford, CT 06901 Vice Chairman of Moran Towing
Company
Edward H. Budd..................... Chairman of the Board of the Chairman of Travelers
The Travelers Insurance Companies Executive Committee and Insurance Group, Inc.
One Tower Square Director of The Travelers from January 1994 to
Hartford, CT 06138-1100 Insurance Group, Inc. September 1994. Chairman
of The Travelers, Inc.
since 1982
Kent B. Foster..................... Vice Chairman of GTE and Not applicable
GTE President of GTE Telephone
600 Hidden Ridge, HQE04J17 Operations Group
Irving, TX 75308
James L. Johnson................... Chairman Emeritus of GTE since Chairman and Chief
600 Hidden Ridge 1992 Executive of GTE since
Irving, TX 75038 1988
Richard W. Jones................... Business Consultant, Not applicable
Business Consultant PaineWebber Incorporated
PaineWebber Incorporated
725 S. Figueroa Street
Suite 4100
Los Angeles, CA 90017
James L. Ketelsen.................. Retired Chairman of Tenneco Chairman and Chief
Tenneco Inc. Inc. since 1992 Executive Officer of
Tenneco Building Tenneco Inc. since 1978
1010 Milam Street
Houston, TX 77002
Charles R. Lee..................... Chairman and Chief Executive President and Chief
GTE Officer of GTE since 1992 Operating Officer of GTE
One Stamford Forum since 1989
Stamford, CT 06904
</TABLE>
E-1
<PAGE> 124
<TABLE>
<CAPTION>
PREVIOUS MATERIAL
NAME AND BUSINESS ADDRESS PRESENT PRINCIPAL OCCUPATION OCCUPATIONS
- ----------------------------------- ------------------------------ -------------------------
<S> <C> <C>
Michael T. Masin................... Vice Chairman of GTE since Managing Partner of the
GTE 1993 New York office of the
One Stamford Forum law firm of O'Melveny &
Stamford, CT 06904 Myers and a partner with
that firm since 1977
</TABLE>
<TABLE>
<S> <C> <C>
Sandra O. Moose.................... Senior Vice President and Not applicable
The Boston Consulting Group, Inc. Chair of the East Coast as
135 E. 57th Street well as New York Office
New York, NY 10022 Administrator and Director of
The Boston Consulting Group,
Inc.
Russell E. Palmer.................. Chairman and Chief Executive Dean, The Wharton School,
The Palmer Group Officer of The Palmer Group University of
3600 Market Street since 1990 Pennsylvania from 1983
Philadelphia, PA 19104 until 1990
Howard Sloan....................... Private Investor Not applicable
375 Park Avenue
New York, NY 10152
Robert D. Storey................... Partner with the Cleveland law Partner with the
Thompson, Hine & Flory firm of Thompson, Hine & Flory Cleveland law firm of
1100 National City Bank Bldg. since 1993 McDonald, Hopkins, Burke
629 Euclid Avenue & Haber Co., L.P.A. since
Cleveland, OH 44114 1971
James W. Walter.................... Chairman of Walter Industries, Not applicable
Walter Industries, Inc. Inc.
1500 N. Dale Mabry Highway
Tampa, FL 33607
Charles Wohlstetter................ Vice Chairman of GTE since Chairman of the Board of
375 Park Avenue 1991 Contel Corporation since
New York, NY 10152 1960
</TABLE>
GTE -- EXECUTIVE OFFICERS
<TABLE>
<S> <C> <C>
Charles R. Lee..................... See prior entry See prior entry
GTE
One Stamford Forum
Stanford, CT 06904
Charles Wohlstetter................ See prior entry See prior entry
GTE
375 Park Avenue
New York, NY 10152
Kent B. Foster..................... See prior entry See prior entry
GTE
600 Hidden Ridge
Irving, TX 75308
Michael T. Masin................... See prior entry See prior entry
GTE
One Stamford Forum
Stanford, CT 06904
Nicholas L. Trivisonno............. Executive Vice President - Senior Vice President -
GTE Strategic Planning and Group Finance since 1989
One Stamford Forum President of GTE since 1993
Stamford, CT 06904
</TABLE>
E-2
<PAGE> 125
<TABLE>
<CAPTION>
PREVIOUS MATERIAL
NAME AND BUSINESS ADDRESS PRESENT PRINCIPAL OCCUPATION OCCUPATIONS
- ----------------------------------- ------------------------------ -------------------------
<S> <C> <C>
William P. Barr.................... Senior Vice President and Partner in the Washington
GTE General Counsel of GTE since D.C. office of the law
One Stamford Forum 1994 firm of Shaw, Pittman,
Stamford, CT 06904 Potts & Trowbridge since
1993; Attorney General of
the United States from
1991 to 1993; previously
Deputy Attorney General
of the United States
</TABLE>
<TABLE>
<S> <C> <C>
Bruce Carswell..................... Senior Vice President - Human Not applicable
GTE Resources and Administration
One Stamford Forum of GTE
Stamford, CT 06904
J. Michael Kelly................... Senior Vice Vice President and
GTE President - Finance of GTE Controller of GTE since
One Stamford Forum since 1994 December 1991; Vice
Stamford, CT 06904 President - Finance and
Business Development for
GTE Telecommunications
Products and Services
Group since 1991; Vice
President and Controller
for Contel Corporation
since 1990
John P.Z. Kent..................... Vice President - Taxes of GTE Not applicable
GTE
One Stamford Forum
Stamford, CT 06904
James Murphy....................... Vice President and Treasurer Not applicable
GTE of GTE
One Stamford Forum
Stamford, CT 06904
G. Bruce Redditt................... Vice President - Public Vice President - Public
GTE Affairs and Communications of Affairs for the Telephone
One Stamford Forum GTE since 1994 Operations Group of GTE
Stamford, CT 06904 Service Corporation since
1991, previously Vice
President - Corporate
Communications for Contel
Corporation
Samuel F. Shawhan, Jr.............. Vice President - Government Not applicable
GTE Affairs of GTE
1850 M Street, N.W.
Washington, D.C. 20036
William D. Wilson.................. Vice President and Controller Area Vice President -
GTE of GTE since 1994 General Manager for the
One Stamford Forum East Area of the
Stamford, CT 06904 Telephone Operations
Group of GTE Service
Corporation since 1993;
previously Vice
President - Business
Planning for the
Telephone Operations
Group of GTE Service
Corporation
Marianne Drost..................... Secretary of GTE Not applicable
GTE
One Stamford Forum
Stamford, CT 06904
</TABLE>
E-3
<PAGE> 126
2. Directors and Executive Officers of Contel Corporation. The following
table sets forth the name, business address, present principal occupation and
the other material occupations, positions, offices or employments for the past
five years (if applicable) of each director and executive officer of Contel
Corporation, a Delaware corporation ("Contel"). Each director and executive
officer of Contel is a citizen of the United States. Contel, through its
subsidiaries, provides telecommunications products and services. The address of
Contel's principal executive offices is One Stamford Forum, Stamford,
Connecticut 06904.
CONTEL CORPORATION -- DIRECTORS
<TABLE>
<S> <C> <C>
Bruce Carswell..................... See prior entry See prior entry
Contel Corporation
One Stamford Forum
Stamford, CT 06904
Charles R. Lee..................... See prior entry See prior entry
Contel Corporation
One Stamford Forum
Stamford, CT 06904
Nicholas L. Trivisonno............. See prior entry See prior entry
Contel Corporation
One Stamford Forum
Stamford, CT 06904
</TABLE>
CONTEL CORPORATION -- EXECUTIVE OFFICERS
<TABLE>
<S> <C> <C>
J. Michael Kelly................... See prior entry See prior entry
President
Contel Corporation
One Stamford Forum
Stamford, CT 06904
James Murphy....................... See prior entry See prior entry
Vice President and Treasurer
Contel Corporation
One Stamford Forum
Stamford, CT 06904
Marianne Drost..................... See prior entry See prior entry
Secretary
Contel Corporation
One Stamford Forum
Stamford, CT 06904
</TABLE>
3. Directors and Executive Officers of Contel Cellular Acquisition
Corporation. The following table sets forth the name, business address, present
principal occupation and the other material occupations, positions, offices or
employments for the past five years (if applicable) of each director and
executive officer of Contel Cellular Acquisition Corporation, a Delaware
corporation ("CCI Acquisition"). Each director and executive officer is a
citizen of the United States. CCI Acquisition was incorporated in December 1994
for the purpose of acquiring the Company and has not engaged in any business
activities other than those relating to the Merger. The address of CCI
Acquisition's principal executive office is One Stamford Forum, Stamford,
Connecticut 06904.
<TABLE>
<CAPTION>
PREVIOUS MATERIAL
NAME AND BUSINESS ADDRESS PRESENT PRINCIPAL OCCUPATION OCCUPATIONS
- ----------------------------------- ------------------------------ -------------------------
<S> <C> <C>
CCI ACQUISITION -- DIRECTORS
J. Michael Kelly................... See prior entry See prior entry
CCI Acquisition
One Stamford Forum
Stamford, CT 06904
</TABLE>
E-4
<PAGE> 127
<TABLE>
<CAPTION>
PREVIOUS MATERIAL
NAME AND BUSINESS ADDRESS PRESENT PRINCIPAL OCCUPATION OCCUPATIONS
- ----------------------------------- ------------------------------ -------------------------
<S> <C> <C>
James Murphy....................... See prior entry See prior entry
CCI Acquisition
One Stamford Forum
Stamford, CT 06904
Marianne Drost..................... See prior entry See prior entry
CCI Acquisition
One Stamford Forum
Stamford, CT 06904
</TABLE>
CCI ACQUISITION -- EXECUTIVE OFFICERS
<TABLE>
<S> <C> <C>
J. Michael Kelly................... See prior entry See prior entry
President
CCI Acquisition
One Stamford Forum
Stamford, CT 06904
James Murphy....................... See prior entry See prior entry
Vice President and Treasurer
CCI Acquisition
One Stamford Forum
Stamford, CT 06904
Marianne Drost..................... See prior entry See prior entry
Secretary
CCI Acquisition
One Stamford Forum
Stamford, CT 06904
</TABLE>
4. Directors and Executive Officers of Contel Cellular Inc. The following
table sets forth the name, business address, present principal occupation and
the other material occupations, positions, offices or employments (if
applicable) for the past five years of each director and executive officer of
Contel Cellular Inc., a Delaware corporation (the "Company"). Each director and
executive officer of the Company is a citizen of the United States. The Company,
through its subsidiaries and through partnerships, provides or participates in
the provision of cellular telephone service in various areas throughout the
United States. The address of the Company's principal executive offices is 245
Perimeter Center Parkway, Atlanta, Georgia 30346.
COMPANY -- DIRECTORS
<TABLE>
<CAPTION>
PREVIOUS MATERIAL
NAME AND BUSINESS ADDRESS PRESENT PRINCIPAL OCCUPATION OCCUPATIONS
- ----------------------------------- ------------------------------ -------------------------
<S> <C> <C>
Leo Jaffe.......................... Chairman Emeritus of Columbia Not applicable
425 East 58th Street Pictures, Inc.
New York, NY 10022
</TABLE>
<TABLE>
<S> <C> <C>
James L. Johnson................... See prior entry See prior entry
600 Hidden Ridge
Irving, TX 75038
Robert LaBlanc..................... President of Robert E. LaBlanc Not applicable
323 Highland Avenue Associates, Inc.
Ridgewood, NJ 07450
Charles R. Lee..................... See prior entry See prior entry
GTE
One Stamford Forum
Stamford, CT 06904
Michael T. Masin................... See prior entry See prior entry
GTE
One Stamford Forum
Stamford, CT 06904
</TABLE>
E-5
<PAGE> 128
<TABLE>
<CAPTION>
PREVIOUS MATERIAL
NAME AND BUSINESS ADDRESS PRESENT PRINCIPAL OCCUPATION OCCUPATIONS
- ----------------------------------- ------------------------------ -------------------------
<S> <C> <C>
Russell E. Palmer.................. See prior entry See prior entry
The Palmer Group
3600 Market Street
Philadelphia, PA 19104
Irwin Schneiderman................. Senior Counsel of the law firm Not applicable
Cahill Gordon & Reindel of Cahill Gordon & Reindel
80 Pine Street
New York, NY 10005
Nicholas L. Trivisonno............. See prior entry See prior entry
GTE
One Stamford Forum
Stamford, CT 06904
James W. Walter.................... See prior entry See prior entry
Walter Industries Inc.
1500 N. Dale Mabry Highway
Tampa, FL 33607
Dennis L. Whipple.................. President and Chief Executive Vice
Contel Cellular Inc. Officer of the Company since President - Marketing and
245 Perimeter Center Parkway 1991 Business Planning for GTE
Atlanta, GA 30346 Mobile from April 1990 to
March 1991; previously
General Manager - Florida
of GTE Mobilnet
Charles Wohlstetter................ See prior entry See prior entry
375 Park Avenue
New York, NY 10152-0192
COMPANY -- EXECUTIVE OFFICERS
Dennis L. Whipple.................. See prior entry See prior entry
President and Chief Executive
Officer
Contel Cellular Inc.
245 Perimeter Center Parkway
Atlanta, GA 30346
Theodore J. Carrier................ Treasurer and Chief Financial Controller of the Company
Treasurer and Chief Financial Officer of the Company since
Officer 1991
Contel Cellular Inc.
245 Perimeter Center Parkway
Atlanta, GA 30346
Pamela F. Lopez.................... Vice President - Marketing of Marketing and
Vice President - Marketing the Company since 1993 Distribution Manager of
Contel Cellular Inc. the Company's National
245 Perimeter Center Parkway Region since 1991;
Atlanta, GA 30346 previously Regional Agent
Manager in the Company's
Virginia operation
Randall L. Crouse.................. Vice President - Network Director - Technology
Vice President - Network Operations Operations of the Company Projects for GTE Mobile
Contel Cellular Inc. since 1993 from 1991 to 1993;
245 Perimeter Center Parkway previously Director -
Atlanta, GA 30346 Advanced Technology
Planning for GTE Mobile
</TABLE>
E-6
<PAGE> 129
<TABLE>
<CAPTION>
PREVIOUS MATERIAL
NAME AND BUSINESS ADDRESS PRESENT PRINCIPAL OCCUPATION OCCUPATIONS
- ----------------------------------- ------------------------------ -------------------------
<S> <C> <C>
John P.Z. Kent..................... See prior entry See prior entry
Vice President - Taxes
Contel Cellular Inc.
One Stamford Forum
Stamford, CT 06904
Jay M. Rosen....................... Vice President, Government Vice President and
Secretary Affairs and General Counsel, Associate General
Contel Cellular Inc. Telecommunications Products Counsel - GTE Electrical
One Stamford Forum and Services Group of GTE Products and Governmental
Stamford, CT 06904 Service Corporation since 1991 Systems Group
Laura E. Binion.................... General Counsel and Assistant Corporate Counsel of
General Counsel and Assistant Secretary of the Company since Contel
Secretary 1991
Contel Cellular Inc.
245 Perimeter Center Parkway
Atlanta, GA 30346
</TABLE>
E-7
