Rule 424(b)(3)
File Nos. 333-
01001
and 33-51541
[LOGO] GTE CALIFORNIA INCORPORATED
DEBENTURES
________________
GTE California Incorporated (the "Company") intends to offer
from time to time up to $500,000,000 aggregate principal amount
of its debentures (the "New Debentures") in one or more series at
prices and on terms to be determined at the time or times of
sale. The aggregate principal amount, rate and time of payment
of interest, maturity, initial public offering price, if any,
redemption provisions and other specific terms of each series of
New Debentures will be set forth in an accompanying prospectus
supplement ("Prospectus Supplement").
________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
________________
The Company may sell the New Debentures through underwriters
or agents, or directly to one or more institutional purchasers.
A Prospectus Supplement will set forth the names of underwriters,
if any, any applicable commissions or discounts, the price of the
New Debentures and the net proceeds to the Company from any such
sale or sales.
________________
The date of this Prospectus is April 23, 1996.
STATEMENT OF AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, files reports and other
information with the Securities and Exchange Commission (the
"SEC"). These reports and other information can be inspected and
copied at the public reference facilities maintained by the SEC
at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, as
well as at the following Regional Offices: Seven World Trade
Center, New York, New York 10048 and 500 West Madison Street,
Chicago, Illinois 60661. Copies of such material can be obtained
from the public reference section of the SEC at its prescribed
rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated herein by
reference:
1. The Annual Report on Form 10-K of the Company for
the year ended December 31, 1995;
2. The Annual Report on Form 10-K of Contel of
California, Inc. ("Contel California") for the year ended
December 31, 1995; and
3. The Current Report on Form 8-K of the Company dated
April 23, 1996.
All documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of
this Prospectus and prior to the termination of the offering of
the New Debentures hereunder shall be deemed to be incorporated
by reference in this Prospectus and to be part hereof from the
date of filing of such documents.
The Company hereby undertakes to provide without charge to
each person to whom a copy of this Prospectus has been delivered,
on the written or oral request of any such person, including any
beneficial owner, a copy of any or all of the documents referred
to above which have been or may be incorporated in this
Prospectus by reference, other than exhibits to such documents
unless such exhibits are specifically incorporated by reference
into the information that the Prospectus incorporates. Requests
for such copies should be directed to David S. Kauffman, Esq.,
Assistant Secretary of the Company, at One Stamford Forum,
Stamford, Connecticut 06904. Mr. Kauffman's telephone number is
(203) 965-2986.
THE COMPANY
The Company was incorporated under the laws of the state of
California in 1929 and provides telecommunications services in
southern and central California. All of the common stock of the
Company, constituting approximately 99.6% of the total voting
stock, is owned by GTE Corporation ("GTE"). The Company's
principal executive offices are located at 600 Hidden Ridge,
Irving, Texas 75038, telephone number (214) 718-5600.
The Company has a wholly-owned subsidiary, GTEL, which
markets telecommunications customer premise equipment and other
products and services.
THE MERGER
In March 1991, the merger of the Company's parent, GTE, and
Contel Corporation ("Contel") was consummated (the "Parent
Merger"). In an interim decision issued on March 13, 1991, the
California Public Utilities Commission
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(the "CPUC") approved a stipulation agreement which conditionally
approved the Parent Merger. The interim decision also
established a second phase of the proceeding in which GTE was
directed to file documentation showing that the Parent Merger
meets certain California statutory requirements. GTE was also
ordered by the CPUC to submit a plan for the merger of any of the
Contel and GTE regulated California subsidiaries. On September
14, 1992, the Company and Contel California joined with GTE and
Contel in filing a comprehensive plan with the CPUC to merge
Contel California into the Company with the Company to be the
surviving corporation in the merger (the "Merger"). The filing
also contained detailed information to demonstrate that the
Parent Merger should receive final approval.
On April 20, 1994, the CPUC issued a decision giving final
approval of the Parent Merger and approving the Merger. In its
decision, the CPUC, based on its interpretation of California
statutory requirements, determined that all of the estimated
savings of the Merger had to be returned to ratepayers. The
CPUC, however, provided GTE, Contel, the Company and Contel
California (the "Applicants") the opportunity to supplement the
evidentiary record to show why the estimated savings resulting
from the Merger should be apportioned between the ratepayers and
shareholders. The Applicants submitted the additional evidence
requested by the CPUC on April 29, 1994. By making this filing,
the effective date of the decision approving the Merger was
delayed.
While the CPUC was considering the new evidence, the
California legislature enacted legislation that amended the
Public Utilities Code to clearly authorize the CPUC to equitably
apportion savings resulting from the Merger between ratepayers
and shareholders; provided that at least 50 percent of those
savings are returned to ratepayers. The new law became effective
January 1, 1996. On April 10, 1996 the CPUC issued a decision
approving the Merger under the terms of the amended legislation
and apportioned the estimated savings resulting from the Merger
equally between ratepayers and shareholders.
Contel California provides telecommunications services in
the states of California, Nevada and Arizona. All of the common
stock of Contel California is owned by GTE. Contel California is
significantly smaller in terms of operating revenues, net income
and total assets than the Company. It is currently anticipated
that the Merger will be consummated in the second half of 1996.
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USE OF PROCEEDS
The net proceeds from the offering and sale of the New
Debentures, exclusive of accrued interest, will be applied (A)
toward the repayment of short-term borrowings incurred (i) in
connection with the redemption on December 15, 1995 of the
following series of the Company's first mortgage bonds:
<TABLE>
<CAPTION> Original Outstanding Total
Principal
Interest Maturity Principal Amount Premium Paid
and Premium
Series Rate Date at Redemption at
Redemption at Redemption
<S> <C> <C> <C> <C> <C>
RR 7.75%12/01/98 $75,000,000 - $ 75,000,000
</TABLE>
and (ii) for the purpose of financing the Company's construction
program, and (B) for general corporate purposes. At March 31,
1996, the Company had short-term borrowings exclusive of current
maturities of $130,800,000 at an annual average interest rate of
5.46%. The Company's construction budget is currently estimated
at approximately $521,000,000 for 1996, approximately $70,283,000
of which has been incurred through March 31, 1996, principally
for central office equipment, outside plant and land and
buildings. Contel California finances part of its construction
program through the use of short term borrowings. At March 31,
1996, Contel California had short-term borrowings exclusive of
current maturities of $3,500,000 at an annual average interest
rate of 5.47%. Contel California's construction budget is
currently estimated at approximately $44,000,000 for 1996,
approximately $10,982,000 of which has been incurred through
March 31, 1996, principally for central office equipment, outside
plant and land and buildings. The balance of the funds for the
completion of the 1996 construction program will be obtained
primarily from internal sources and short-term loans.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION> Years Ended December 31,
1995 1994 1993 1992
1991
______ ______ ______ ______
______
<S> <C> <C> <C> <C>
<C>
Consolidated Ratios of
Earnings to Fixed Charges
(Unaudited) (a)............... 5.21 7.31 2.25(b) 5.55
5.45
Pro Forma Combined Consolidated
Ratios of Earnings to Fixed
Charges (Unaudited) (a)(c).... 5.44 7.53 2.77(d) 6.11
5.93
</TABLE>
___________
(a) Computed as follows: (1) "earnings" have been calculated by
adding income taxes and fixed charges to income before
extraordinary charges; (2) "fixed charges" include interest
expense and the portion of rentals representing interest.
(b) Results for 1993 include an after-tax restructuring charge of
approximately $274,000,000 for the implementation of a re-
engineering plan and a one-time, after-tax charge of
approximately $21,000,000 related to the enhanced early
retirement and voluntary separation programs offered to
eligible employees in 1993. Excluding these items, the
consolidated ratio of earnings to fixed charges for the year
ended December 31, 1993 would have been 5.90.
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(c) The pro forma combined consolidated ratios of earnings to
fixed charges represent the ratios of the Company as if the
Merger had been consummated at the beginning of each period
presented.
(d) Results for 1993 include an after-tax restructuring charge of
approximately $304,000,000 for the implementation of a re-
engineering plan and a one-time, after-tax charge of
approximately $23,000,000 related to the enhanced early
retirement and voluntary separation programs offered to
eligible employees in 1993. Excluding these items, the pro
forma combined consolidated ratio of earnings to fixed
charges for the year ended December 31, 1993 would have been
6.45.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Consolidating
Balance Sheet as of December 31, 1995, gives effect to the
proposed Merger as if it had occurred as of the balance sheet
date. The following Unaudited Pro Forma Condensed Consolidating
Statements of Income for the years ended December 31, 1995-1993
give effect to the proposed Merger as if it had occurred at the
beginning of each of the respective periods presented. The pro
forma condensed consolidating financial statements give effect to
the Merger as a "pooling of interests" for accounting purposes
and should be read in conjunction with the historical financial
statements and the related notes thereto contained in the
Company's Annual Report on Form 10-K for the year ended December
31, 1995 and subsequent filings with the SEC. All material
intercompany transactions have been eliminated in the pro forma
statements. The corporation that will result from the Merger,
currently scheduled to occur in the second half of 1996, is
hereinafter referred to as the "Surviving Corporation."
The pro forma data are presented for informational purposes
only and are not necessarily indicative of the operating results
or financial position that would have occurred had the Merger
been consummated at the dates indicated, nor are they necessarily
indicative of future operating results or financial position.
Organizational and other costs to be incurred in connection with
the Merger are not expected to be material.
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Pro Forma Condensed Consolidating Balance Sheet (Unaudited)
As of December 31, 1995
(Thousands of Dollars)
<TABLE>
<CAPTION>
Contel
Surviving
Company California
Corporation
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash $ 31,126 $ 2,139 $ 33,265
Accounts and notes receivable,
less allowances of $56,810
and $4,895 for the Company and
Contel California, respectively554,271 120,872 675,143
Materials and supplies 31,022 652 31,674
Deferred income tax benefits 81,181 18,432 99,613
Prepayments and other 13,906 841 14,747
Total current assets 711,506 142,936 854,442
Property, plant and equipment:
Original cost 8,597,000 915,291 9,512,291
Accumulated depreciation(4,882,561) (635,134) (5,517,695)
Net property, plant and equipment 3,714,439 280,157
3,994,596
Prepaid pension costs443,591 - 443,591
Other assets 36,562 16,331 52,893
Total assets $4,906,098 $439,424 $5,345,522
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt, including current
maturities $ 221,518 $ - $ 221,518
Notes payable to affiliates - 51,838 51,838
Affiliate payables and accruals113,112 3,173 116,285
Accounts payable 126,391 32,318 158,709
Accrued taxes 67,808 21,943 89,751
Accrued interest 22,836 2,389 25,225
Accrued payroll and vacations 100,041 9,369 109,410
Accrued dividends 88,754 - 88,754
Accrued restructuring costs and other 357,590 48,074
405,664
Total current liabilities1,098,050 169,104 1,267,154
Non-current liabilities:
Long-term debt 1,285,771 90,000 1,375,771
Deferred income taxes 316,716 5,781 322,497
Employee benefit obligations 98,676 60,516 159,192
Other 373,352 5,828 379,180
Total non-current liabilities2,074,515162,125 2,236,640
Shareholders' equity:
Preferred stock 81,866 - 81,866
Common stock 1,388,764 12,518 1,401,282
Other capital 2,040 78,917 80,957
Retained earnings 260,863 16,760 277,623
Total shareholders' equity1,733,533 108,195 1,841,728
Total liabilities and shareholders' equity$4,906,098 $439,424
$5,345,522
</TABLE>
______________
See Notes to Pro Forma Condensed Consolidating Financial
Statements.
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Pro Forma Condensed Consolidating Statement Of Income (Unaudited)
Year Ended December 31, 1995
(Thousands of Dollars)
<TABLE>
<CAPTION>
Contel Surviving
Company California Corporation
_______ __________ ___________
<S> <C> <C> <C>
OPERATING REVENUES: $2,801,333 $343,483 $3,144,816
OPERATING EXPENSES:
Cost of sales & services1,076,787 121,841 1,198,628
Depreciation & amortization602,998 69,496 672,494
Selling, general &
administrative 527,813 55,663 583,476
Total operating expenses2,207,598 247,000 2,454,598
OPERATING INCOME 593,735 96,483 690,218
OTHER DEDUCTIONS 100,910 10,913 111,823
Income before income taxes492,825 85,570 578,395
Income taxes 199,703 35,831 235,534
Income before extraordinary
charges 293,122 49,739 342,861
EXTRAORDINARY CHARGES(1)(583,428) (127,620) (711,048)
Net (loss) $ (290,306) $ (77,881) $ (368,187)
</TABLE>
__________
See Notes to Pro Forma Condensed Consolidating Financial
Statements.
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Pro Forma Condensed Consolidating Statement Of Income (Unaudited)
Year Ended December 31, 1994
(Thousands of Dollars)
<TABLE>
<CAPTION> Contel Surviving
Company California Corporation
_______ __________ ___________
<S> <C> <C> <C>
OPERATING REVENUES: $2,947,947 $371,924 $3,319,871
OPERATING EXPENSES:
Cost of sales & services1,061,059 123,777 1,184,836
Depreciation & amortization579,867 64,637 644,504
Selling, general &
administrative 484,536 60,323 544,859
_________ ________ _______
Total Operating Expenses2,125,462 248,737 2,374,199
_________ ________ ________
OPERATING INCOME 822,485 123,187 945,672
OTHER DEDUCTIONS 94,480 11,321 105,801
_________ ________ ________
Income before income taxes728,005 111,866 839,871
Income taxes 293,465 46,120 339,585
_________ ________ ________
Net income $ 434,540 $ 65,746 $ 500,286
</TABLE>
__________
See Notes to Pro Forma Condensed Consolidating Financial
Statements.
-8-
Pro Forma Condensed Consolidating Statement Of Income (Unaudited)
Year Ended December 31, 1993
(Thousands of Dollars)
<TABLE>
<CAPTION> Contel Surviving
Company California
Corporation
_______ __________
___________
<S> <C> <C> <C>
OPERATING REVENUES: $2,958,558 $390,967 $3,349,525
OPERATING EXPENSES:
Cost of sales & services 1,092,559 121,927 1,214,486
Depreciation & amortization583,066 58,431 641,497
Selling, general &
administrative 564,457 58,448 622,905
Restructuring costs 445,175 48,987 494,162
Total operating expenses2,685,257 287,793 2,973,050
OPERATING INCOME 273,301 103,174 376,475
OTHER DEDUCTIONS 109,147 10,708 119,855
Income before income taxes 164,154 92,466 256,620
Income taxes 70,535 37,397 107,932
Income before extraordinary
charge 93,619 55,069 148,688
EXTRAORDINARY CHARGE(2) (20,214) - (20,214)
________ _______ ________
Net income $ 73,405 $ 55,069 $ 128,474
</TABLE>
_________
See Notes to Pro Forma Condensed Consolidating Financial
Statements.
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Notes to Pro Forma Condensed Consolidating Financial Statements
(Unaudited)
1.Represents the after-tax effect of the discontinuance of FAS
No. 71 and costs associated with early retirement of debt.
2.Represents the costs associated with early retirement of debt.
3.Reclassifications of prior year data have been made in the pro
forma condensed consolidating financial statements where
appropriate to conform to the 1995 presentation.
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THE NEW DEBENTURES
The New Debentures are to be issued as one or more series of
the Company's debentures (the "Debentures") under an Indenture,
dated as of December 1, 1993, as amended and supplemented by the
First Supplemental Indenture dated as of April 15, 1996 (as
amended and supplemented, the "Indenture"), between the Company
and First Trust of California, National Association, as successor
trustee to Bank of America National Trust and Savings Association
(the "Trustee"). By resolution of the Board of Directors of the
Company specifically authorizing each new series of Debentures (a
"Board Resolution"), the Company will designate the title of each
series, aggregate principal amount, date or dates of maturity,
dates for payment and rate of interest, redemption dates, prices,
obligations and restrictions, if any, and any other terms with
respect to each such series. The following summary does not
purport to be complete and is subject in all respects to the
provisions of, and is qualified in its entirety by express
reference to, the cited Articles and Sections of the Indenture
and the form of Board Resolution, which are filed as exhibits to
the Registration Statement.
Form and Exchange
Unless issued in the form of a Global Debenture as described
under "Book-Entry, Delivery and Form" below, the New Debentures
are to be issued in registered form only in denominations of
$1,000 and integral multiples thereof and will be exchangeable
for New Debentures of the same series of other denominations of a
like aggregate principal amount without charge except for
reimbursement of taxes, if any. (ARTICLE TWO)
Maturity, Interest and Payment
Information concerning the maturity, interest rate and
payment dates of each series of the New Debentures will be
contained in a Prospectus Supplement relating to that series of
New Debentures.
Redemption Provisions, Sinking Fund and Defeasance
Each series of the New Debentures may be redeemed upon not
less than 30 days notice at the redemption prices and subject to
the conditions that will be set forth in a Board Resolution and
in a Prospectus Supplement relating to that series of New
Debentures. (ARTICLE THREE) If a sinking fund is established
with respect to any series of the New Debentures, a description
of the terms of such sinking fund will be set forth in a Board
Resolution and in a Prospectus Supplement relating to that series
of New Debentures. The Indenture provides that each series of
the New Debentures is subject to defeasance. (SECTION 11.02)
Book-Entry, Delivery and Form
If a Prospectus Supplement specifies that any series of New
Debentures will be issued in the form of one or more registered
global certificates (for each such series, collectively, the
"Global Debenture"), unless otherwise specified in such
Prospectus Supplement, the Global Debenture will be deposited
with, or on behalf of, The Depository Trust Company (the
"Depository") and registered in the name of the Depository's
nominee. Except as set forth below, the Global Debenture may be
transferred, in whole but not in part, only to another nominee of
the Depository or to a successor of the Depository or its
nominee.
The Depository has advised as follows: It is a limited-
purpose trust company which was created to hold securities for
its participants and facilitate the clearance and settlement of
securities transactions between
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participants in such securities through electronic book-entry
changes in accounts of its participants. Participants include
securities brokers and dealers (including the underwriters or
dealers named in the Prospectus Supplement relating to the New
Debentures), banks and trust companies, clearing corporations and
certain other organizations. Access to the Depository's system
is also available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly
("indirect participants"). Persons who are not participants may
beneficially own securities held by the Depository only through
participants or indirect participants.
The Depository has advised that pursuant to procedures
established by it (i) upon issuance of the New Debentures by the
Company, the Depository will credit the accounts of the
participants designated by the underwriters or dealers with the
principal amounts of the New Debentures purchased by the
underwriters or dealers and (ii) ownership of beneficial
interests in the Global Debenture will be shown on, and the
transfer of that ownership will be effected only through, records
maintained by the Depository (with respect to participants'
interests) or by the participants and indirect participants (with
respect to the owners of beneficial interests in the Global
Debenture). The laws of some states require that certain persons
take physical delivery in definitive form of securities which
they own. Consequently, the ability to transfer beneficial
interests in the Global Debenture is limited to such extent.
So long as the Depository's nominee is the registered owner
of the Global Debenture, such nominee for all purposes will be
considered the sole owner or holder of the New Debentures.
Except as provided below, owners of beneficial interests in the
Global Debenture will not be entitled to have any of the New
Debentures registered in their names and will not receive or be
entitled to receive physical delivery of the New Debentures in
definitive form.
Neither the Company, the Trustee, any paying agent of the
Company nor the Depository will have any responsibility or
liability for any aspect of the records relating to or payments
made on account of beneficial ownership interests in the Global
Debenture, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Principal and interest payments on the New Debentures
registered in the name of the Depository's nominee will be made
to the Depository's nominee as the registered owner of the Global
Debenture. The Company and the Trustee will treat the persons in
whose names the New Debentures are registered as the owners of
such Securities for the purpose of receiving payment of principal
and interest on the New Debentures and for all other purposes
whatsoever. Therefore, neither the Company, the Trustee nor any
paying agent of the Company will have any direct responsibility
or liability for the payment of principal and interest on the New
Debentures to owners of beneficial interests in the Global
Debenture. The Depository has advised the Company and the
Trustee that its present practice is, upon receipt of any payment
of principal and interest, to immediately credit the accounts of
the participants with such payment in amounts proportionate to
their respective holdings in principal amount of beneficial
interests in the Global Debenture as shown in the records of the
Depository. Payments by participants and indirect participants
to owners of beneficial interests in the Global Debenture will be
governed by standing instructions and customary practices, as is
now the case with securities held for the accounts of customers
in bearer form or registered in "street name," and will be the
responsibility of the participants or indirect participants.
-12-
If the Depository is at any time unwilling or unable to
continue as depository with respect to an outstanding series of
New Debentures or if at any time the Depository shall no longer
be registered or in good standing under the Exchange Act or other
applicable statute and a successor depository is not appointed by
the Company within 90 days, the Company will issue New Debentures
in definitive form in exchange for the Global Debenture. In
addition, the Company may at any time determine not to have an
outstanding series of New Debentures represented by a Global
Debenture. In either instance, an owner of a beneficial interest
in the Global Debenture will be entitled to have New Debentures
equal in principal amount to such beneficial interest registered
in its name and will be entitled to physical delivery of such New
Debentures in definitive form. New Debentures so issued in
definitive form will be issued in denominations of U.S. $1,000
and integral multiples thereof and will be issued in registered
form only, without coupons.
Restrictions
The New Debentures will not be secured. The Indenture
provides, however, that if the Company shall at any time mortgage
or pledge any of its property, the Company will secure the New
Debentures, equally and ratably with the other indebtedness or
obligations secured by such mortgage or pledge, so long as such
other indebtedness or obligations shall be so secured. There are
certain exceptions to the foregoing, among them that the
Debentures need not be secured:
(i) in the case of (a) purchase money mortgages, (b) conditional
sales agreements or (c) mortgages existing at the time of
purchase, on property acquired after the date of the Indenture;
(ii) with respect to certain deposits or pledges to secure the
performance of bids, tenders, contracts or leases or in
connection with worker's compensation and similar matters;
(iii) with respect to mechanics' and similar liens in the
ordinary course of business;
(iv) with respect to the Company's first mortgage bonds
outstanding on the date of the Indenture, issued and secured by
the Company and its predecessors in interest under various
security instruments, all of which have been assumed by the
Company (collectively, the "First Mortgage Bonds"), and any
replacement or renewal (without increase in principal amount or
extension of final maturity date) of such outstanding First
Mortgage Bonds;
(v) with respect to First Mortgage Bonds which may be issued by
the Company in connection with the consolidation or merger of the
Company with or into certain affiliates of the Company in
exchange for or otherwise in substitution for long-term senior
indebtedness of any such affiliate ("Affiliate Debt") which by
its terms (x) is secured by a mortgage on all or a portion of the
property of such affiliate, (y) prohibits long-term senior
secured indebtedness from being incurred by such affiliate, or a
successor thereto, unless the Affiliate Debt shall be secured
equally and ratably with such long-term senior secured
indebtedness or (z) prohibits long-term senior secured
indebtedness from being incurred by such affiliate; or
(vi) with respect to indebtedness required to be assumed by the
Company in connection with the merger or consolidation of certain
affiliates of the Company with or into the Company. (SECTION
4.05)
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The Indenture does not limit the amount of debt securities
which may be issued or the amount of debt which may be incurred
by the Company. (SECTION 2.01) However, while the restriction
in the Indenture described above would not afford holders of the
New Debentures protection in the event of a highly leveraged
transaction in which unsecured indebtedness was incurred, the
issuance of most debt securities by the Company, including the
New Debentures, does require state regulatory approval (which may
or may not be granted). In addition, in the event of a highly
leveraged transaction in which secured indebtedness was incurred,
the above restriction would require the New Debentures to be
secured equally and ratably with such secured indebtedness,
subject to the exceptions described above. It is unlikely that a
leveraged buyout initiated or supported by the Company, the
management of the Company or an affiliate of either party would
occur, because all of the common stock of the Company,
constituting approximately 99.6% of the total voting stock, is
owned by GTE, which has no current intention of selling its
ownership in the Company.
Modifications of Indenture
The Indenture contains provisions permitting the Company and
the Trustee, with the consent of the holders of not less than a
majority in aggregate principal amount of the Debentures of any
series at the time outstanding and affected by such modification,
to modify the Indenture or any supplemental indenture affecting
that series of the Debentures or the rights of the holders of
that series of Debentures. However, no such modification shall
(i) extend the fixed maturity of any Debenture, or reduce the
principal amount thereof, or reduce the rate or extend the time
of payment of interest thereon, or reduce any premium payable
upon the redemption thereof, without the consent of the holder of
each Debenture so affected, or (ii) reduce the aforesaid
percentage of Debentures, the holders of which are required to
consent to any such supplemental indenture, without the consent
of each holder of Debentures then outstanding and affected
thereby. (SECTION 9.02)
The Company and the Trustee may execute, without the consent
of any holder of Debentures, any supplemental indenture for
certain other usual purposes including the creation of any new
series of Debentures. (SECTIONS 2.01, 9.01 and 10.01)
Events of Default
The Indenture provides that the following described events
constitute "Events of Default" with respect to each series of the
Debentures thereunder: (a) failure for 30 business days to pay
interest on the Debentures of that series when due; (b) failure
to pay principal or premium, if any, on the Debentures of that
series when due, whether at maturity, upon redemption, by
declaration or otherwise, or to make any sinking fund payment
with respect to that series; (c) failure to observe or perform
any other covenant (other than those specifically relating to
another series) in the Indenture for 90 days after notice with
respect thereto; or (d) certain events in bankruptcy, insolvency
or reorganization. (SECTION 6.01)
The holders of a majority in aggregate outstanding principal
amount of any series of the Debentures have the right to direct
the time, method and place of conducting any proceeding for any
remedy available to the Trustee for that series. (SECTION 6.06)
The Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of any particular series of the
Debentures may declare the principal due and payable immediately
upon an Event
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of Default with respect to such series, but the holders of a
majority in aggregate outstanding principal amount of such series
may rescind and annul such declaration and waive the default if
the default has been cured and a sum sufficient to pay all
matured installments of interest and principal and any premium
has been deposited with the Trustee. (SECTION 6.01)
The holders of a majority in aggregate outstanding principal
amount of any series of the Debentures may, on behalf of the
holders of all the Debentures of such series, waive any past
default except a default in the payment of principal, premium, if
any, or interest. (SECTION 6.06) The Company is required to
file annually with the Trustee a certificate as to whether or not
the Company is in compliance with all the conditions and
covenants under the Indenture. (SECTION 5.03)
Concerning the Trustee
The Trustee, prior to an Event of Default, undertakes to
perform only such duties as are specifically set forth in the
Indenture and, after the occurrence of an Event of Default, shall
exercise the same degree of care as a prudent individual would
exercise in the conduct of his own affairs. (SECTION 7.01)
Subject to such provision, the Trustee is under no obligation to
exercise any of the powers vested in it by the Indenture at the
request of any holders of Debentures, unless offered reasonable
security or indemnity by such security holders against the costs,
expenses and liabilities which might be incurred thereby.
(SECTION 7.02) The Trustee is not required to expend or risk its
own funds or incur personal financial liability in the
performance of its duties if the Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
(SECTION 7.01)
EXPERTS
The financial statements, schedule and exhibit pertaining to
the Company's Statements re: Calculation of Consolidated Ratio of
Earnings to Fixed Charges included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1995 and the
financial statements and schedule included in Contel California's
Annual Report on Form 10-K for the year ended December 31, 1995,
which are incorporated by reference in this Prospectus, have been
audited by Arthur Andersen LLP, independent public accountants,
as indicated in their reports with respect thereto, and are
incorporated herein in reliance upon the authority of said firm
as experts in giving said reports. Reference is made to said
reports on the financial statements of the Company and Contel
California, which include an explanatory paragraph with respect
to the discontinuance of the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of
Certain Types of Regulation," as discussed in Note 2 to each of
the financial statements.
CERTAIN LEGAL MATTERS
The validity of the New Debentures will be passed upon for
the Company by Richard M. Cahill, Esq., Vice President - General
Counsel of the Company. Certain legal matters in connection with
the New Debentures will be passed upon for the underwriters,
agents, or institutional purchasers by Milbank, Tweed, Hadley &
McCloy of New York, New York.
PLAN OF DISTRIBUTION
The Company may sell any series of the New Debentures in one
or more of the following ways: (i) to underwriters for resale to
the public or to institutional purchasers; (ii) directly to
institutional purchasers; or (iii) through Company agents to the
public or to institutional purchasers. The
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Prospectus Supplement with respect to each series of New
Debentures will set forth the terms of the offering of such New
Debentures, including the name or names of any underwriters or
agents, the purchase price of such New Debentures and the
proceeds to the Company from such sale, any underwriting
discounts or agency fees and other items constituting
underwriters' or agents' compensation, any initial public
offering price, any discounts or concessions allowed or reallowed
or paid to dealers and any securities exchanges on which such New
Debentures may be listed.
If underwriters are used in the sale, such New Debentures
will be acquired by the underwriters for their own account and
may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale.
Unless otherwise set forth in the Prospectus Supplement, the
obligations of the underwriters to purchase any series of New
Debentures will be subject to certain conditions precedent and
the underwriters will be obligated to purchase all such New
Debentures if any are purchased. In the event of a default of
one or more of the underwriters involving not more than 10% of
the aggregate principal amount of the New Debentures offered for
sale, the non-defaulting underwriters would be required to
purchase the New Debentures agreed to be purchased by such
defaulting underwriter or underwriters. In the event of a
default in excess of 10% of the aggregate principal amount of the
New Debentures, the Company may, at its option, sell less than
all the New Debentures offered.
Underwriters and agents may be entitled under agreements
entered into with the Company to indemnification by the Company
against certain civil liabilities, including liabilities under
the Securities Act of 1933, as amended, or to contribution with
respect to payments which the underwriters or agents may be
required to make in respect thereof. Underwriters and agents may
be customers of, engage in transactions with, or perform services
for, the Company in the ordinary course of business.
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No dealer, salesman or any other person has
been authorized to give any information or [LOGO]
to make any representations other than those GTE California
Incorporated
contained in this Prospectus in connection
with the offer contained in this Prospectus, ____________
and, if given or made, such information or
representations must not be relied upon. PROSPECTUS
This Prospectus does not constitute an offer-
____________
ing by the Company or any dealer in any
jurisdiction in which such offering may not
be lawfully made.
TABLE OF CONTENTS
Page
Statement of Available Information... 2
Incorporation of Certain Documents
by Reference........................ 2
The Company.......................... 2
The Merger........................... 2
Use of Proceeds...................... 4
Consolidated Ratios of Earnings to
Fixed Charges....................... 4
Unaudited Pro Forma Condensed
Consolidating Financial Statements.. 5
The New Debentures................... 11
Experts.............................. 15
Certain Legal Matters................ 15
Plan of Distribution................. 15
____________
April 23, 1996
CA:424:18
