<PAGE>
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SOUTHWESTERN BELL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6719 43-1301883
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
175 E. HOUSTON STREET
SAN ANTONIO, TEXAS 78205-2233
(210) 821-4105
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JUDITH SAHM
SOUTHWESTERN BELL CORPORATION
175 E. HOUSTON STREET, 11TH FLOOR
SAN ANTONIO, TEXAS 78205-2233
(210) 821-4105
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C> <C>
JOHN T. BOSTELMAN, ESQ. WAYNE WIRTZ, ESQ. PETER ALLAN ATKINS, ESQ.
SULLIVAN & CROMWELL SOUTHWESTERN BELL CORPORATION SKADDEN, ARPS, SLATE, MEAGHER & FLOM
250 PARK AVENUE 175 E. HOUSTON STREET, 12TH FLOOR 919 THIRD AVENUE
NEW YORK, NEW YORK 10177 SAN ANTONIO, TEXAS 78205-2233 NEW YORK, NEW YORK 10022
(212) 558-4000 (210) 821-4105 (212) 735-3000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of the Registration Statement.
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $1.00 per share (3)......... 19,210,348(1) Not Applicable Not Applicable $1,226.00(2)
</TABLE>
(1) Represents the maximum amount of Southwestern Bell Corporation ('SBC')
Common Stock estimated to be issuable upon the consummation of the merger
(the 'Merger') of SBMS Acquisition Corp., an indirect wholly owned
subsidiary of SBC with and into Associated Communications Corporation
('Associated').
(2) Pursuant to Rule 457(f)(2) under the Securities Act of 1933, as amended (the
'Securities Act'), and solely for the purpose of calculating the
registration fee, the proposed maximum aggregate offering price is based
upon the book value of $3,554,000.00 of the Associated Class A Common Stock
and the Associated Class B Common Stock to be received by SBC in the Merger,
calculated based on the book value as of March 31, 1994 of the Associated
Business to be Merged (as defined in the Registration Statement). Pursuant
to Rule 457(b), the registration fee has been reduced by the $170,461.29
paid on May 27, 1994, upon the filing under the Securities Exchange Act of
1934 of preliminary copies of Associated's proxy materials included herein.
Therefore, no registration fee is payable upon the filing of this
Registration Statement.
(3) Preferred Share Purchase Rights are attached to and trade with the SBC
Common Stock. The value attributable to such Rights, if any, is reflected
in the market price of SBC Common Stock.
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<PAGE>
SOUTHWESTERN BELL CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(B)
<TABLE>
<CAPTION>
LOCATION OR CAPTION IN PROXY
FORM S-4 ITEM STATEMENT--PROSPECTUS
---------------------------------------------------- ----------------------------------------------------
<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus.......................... Facing Page of Registration Statement; Outside Front
Cover Page of Proxy Statement-- Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ AVAILABLE INFORMATION; INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE; TABLE OF CONTENTS
3. Risk Factors and Other Information.................. SUMMARY--The Companies;--The Merger;-- The
Distribution;--Selected Historical Financial
Information;--Comparative Per Share Market
Information;--Certain Regulatory Matters;
--Appraisal Rights;-- Certain Federal Income Tax
Consequences;-- Comparative Per Share Data
4. Terms of the Transaction............................ SUMMARY; THE MERGER--Terms of the Merger;
--Associated's Reasons for the Merger;
Recommendation of the Associated Board; COMPARISON
OF CERTAIN RIGHTS OF HOLDERS OF SBC COMMON STOCK
AND ASSOCIATED COMMON STOCK; CERTAIN FEDERAL
INCOME TAX CONSEQUENCES
5. Pro Forma Financial Information..................... *
6. Material Contacts with the Company Being Acquired... SUMMARY--The Merger; THE MERGER-- Background of the
Merger;--Associated's Reasons for the Merger;
Recommendation of the Associated Board
7. Additional Information Required For Reoffering by
Persons and Parties Deemed to be Underwriters..... *
8. Interests of Named Experts and Counsel.............. EXPERTS; VALIDITY OF SHARES
9. Disclosure of Commission Position on Indemnification
for Securities Act
Liabilities....................................... *
</TABLE>
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* Item is omitted because answer is negative or item is inapplicable.
<PAGE>
<TABLE>
<CAPTION>
LOCATION OR CAPTION IN PROXY
FORM S-4 ITEM STATEMENT--PROSPECTUS
---------------------------------------------------- ----------------------------------------------------
<S> <C> <C>
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants......... INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
11. Incorporation of Certain Information by Reference... INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
12. Information with Respect to S-2 or S-3
Registrants....................................... *
13. Incorporation of Certain Information by Reference... *
14. Information with Respect to Registrants Other Than
S-3 or S-2 Registrants............................ *
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies........... INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
16. Information with Respect to S-2 or S-3 Companies.... *
17. Information with Respect to Companies Other Than S-2
or S-3 Companies.................................. *
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations
Are to be Solicited............................... INCORPORATION OF CERTAIN INFORMATION BY REFERENCE;
SUMMARY; THE ANNUAL MEETING-- General;--Record
Date;--Vote Required;-- Voting and Revocation of
Proxies; -- Solicitation of Proxies;--Appraisal
Rights; THE MERGER--Interests of Certain Persons
in the Transactions;--Indemnification and
Insurance; --Absence of Appraisal Rights
19. Information if Proxies, Consents or Authorizations
are not to be Solicited, or in an Exchange
Offer............................................. *
</TABLE>
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* Item is omitted because answer is negative or item is inapplicable.
ii
<PAGE>
[Associated Communications
Corporation Letterhead]
July 29, 1994
To Our Stockholders:
The 1994 Annual Meeting of Stockholders of Associated Communications
Corporation ('Associated') will be held at the Meeting Room of Gateway Towers,
320 Fort Duquesne Boulevard, Pittsburgh, Pennsylvania on Thursday, September 22,
1994, at 2:00 p.m., local time. Enclosed are a Notice of Annual Meeting of
Stockholders, a Proxy Statement-Prospectus and a Proxy relating to the Annual
Meeting.
At the Annual Meeting you will be asked to consider and vote upon a
proposal described in the Proxy Statement-Prospectus to approve and adopt the
Agreement and Plan of Merger and Reorganization, dated as of February 23, 1994,
among Associated, Southwestern Bell Corporation ('SBC') and SBMS Acquisition
Corp., an indirect wholly owned subsidiary of SBC, whereby SBMS Acquisition
Corp. will be merged with and into Associated and Associated will become an
indirect wholly owned subsidiary of SBC. In the Merger, holders of Associated
common stock will receive for each share owned by them (Class A or Class B) the
fraction of a share (in whole shares only, with cash being paid in lieu of
fractional shares) of SBC common stock determined as provided in the Merger
Agreement.
As a condition of and in order to faciliate the Merger, immediately prior
thereto, if the Merger is approved by stockholders and is about to occur,
Associated will spin-off to its stockholders in a non-taxable distribution all
of the shares of a subsidiary which will own all of Associated's assets and
businesses, other than its domestic cellular businesses and interests which will
be acquired by SBC in the Merger. These assets and businesses currently include
(i) a portfolio of marketable equity securities, including equity securities of
Tele-Communications, Inc. and Liberty Media Corporation, with a market value at
July 26, 1994 of approximately $475 million, (ii) an indirect equity interest in
a Mexican cellular telephone system, (iii) indirect equity interests in two
corporations formed for the development of specialized mobile radio systems in
Mexico, (iv) a microwave communications business, (v) ownership of, or equity
interests in, other private communications businesses, (vi) four radio
broadcasting stations, two AM and two FM, and (vii) a retail art gallery. These
assets and businesses are described in greater detail in Appendix D to the
accompanying Proxy Statement-Prospectus.
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS HAS UNANIMOUSLY
DETERMINED THE MERGER TO BE FAIR TO AND IN THE BEST INTERESTS OF ASSOCIATED AND
ITS STOCKHOLDERS. THE BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS ITS APPROVAL AND ADOPTION BY STOCKHOLDERS.
Salomon Brothers Inc, Associated's financial advisor in connection with the
Merger, has rendered an opinion to the Board of Directors that, as of the date
of such opinion, the consideration to be received by Associated stockholders in
connection with the Merger and the spin-off, taken as a whole, is fair to such
stockholders from a financial point of view.
<PAGE>
At the Annual Meeting you will also be asked to elect one director, to hold
office for a term of three years and until a successor shall be elected and
qualified.
All stockholders are invited to attend the Annual Meeting in person.
Approval and adoption of the Merger Agreement requires the affirmative vote of
66 2/3% of the total number of votes entitled to be cast at the Annual Meeting.
Stockholders are also being asked to confer authority through the accompanying
Proxy to vote to adjourn the Annual Meeting for up to 30 days to solicit
additional votes if necessary to approve and adopt the Merger Agreement. The
affirmative vote of a majority of the votes entitled to be cast at the Annual
Meeting is required in order to elect a director. Holders of Class A Common
Stock and Class B Common Stock will vote together without regard to class upon
the matters to come before the Annual Meeting.
In order that your shares may be represented at the Annual Meeting, you are
urged to promptly complete, sign, date and return the accompanying Proxy in the
enclosed envelope, whether or not you plan to attend the Annual Meeting. If you
attend the Annual Meeting in person, you may, if you wish, vote personally on
all matters brought before the Annual Meeting even if you have previously
returned your Proxy.
Sincerely,
Jack N. Berkman
Chairman and Secretary
2
<PAGE>
ASSOCIATED COMMUNICATIONS CORPORATION
200 GATEWAY TOWERS
PITTSBURGH, PA 15222
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 22, 1994
NOTICE HEREBY IS GIVEN that the Annual Meeting of Stockholders of
Associated Communications Corporation, a Delaware corporation ('Associated'),
has been called by the Board of Directors of Associated and will be held at the
Meeting Room of Gateway Towers, 320 Fort Duquesne Boulevard, Pittsburgh,
Pennsylvania at 2:00 p.m. local time on Thursday, September 22, 1994, for the
following purposes:
1. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger and Reorganization, dated as of February 23, 1994 (as it may
be amended, supplemented or otherwise modified from time to time, the 'Merger
Agreement'), among Associated, Southwestern Bell Corporation, a Delaware
corporation ('SBC'), and SBMS Acquisition Corp., a Delaware corporation and an
indirect wholly owned subsidiary of SBC ('Purchaser'), pursuant to which, among
other things, immediately following the Distribution contemplated by the Merger
Agreement, Purchaser will be merged with and into Associated upon the terms and
conditions contained in the Merger Agreement (the 'Merger'), and Associated will
become an indirect wholly owned subsidiary of SBC, all as more fully described
in the accompanying Proxy Statement-Prospectus, including the Appendices
thereto.
At the effective time of the Merger (the 'Effective Time'), (i) Purchaser
will be merged with and into Associated, with Associated surviving the Merger as
an indirect wholly owned subsidiary of SBC, (ii) each share of Class A common
stock, par value $.10 per share (the 'Class A Common Stock'), and Class B common
stock, par value $.10 per share (the 'Class B Common Stock' and, together with
the Class A Common Stock, the 'Associated Common Stock'), of Associated issued
and outstanding immediately prior to the Effective Time (other than shares of
Associated Common Stock that are owned by Associated as treasury stock and any
shares of Associated Common Stock owned by SBC, Purchaser or any other wholly
owned subsidiary of SBC) will be converted into the right to receive the
fraction of a share (in whole shares only) of common stock, par value $1.00 per
share, of SBC (together with the Preferred Stock Purchase Rights associated with
such common stock), determined as provided in Section 2.1 of the Merger
Agreement, and (iii) each share of Associated Common Stock issued and
outstanding immediately prior to the Effective Time and owned by Associated as
treasury stock and any shares of Associated Common Stock owned by SBC, Purchaser
or any other wholly owned subsidiary of SBC will cease to be outstanding, will
be cancelled and retired without payment of any consideration therefor, and will
cease to exist.
2. To elect one director, to hold office for a term of three years and
until a successor shall be elected and shall qualify.
3. To transact such other business as may properly come before the Annual
Meeting or any adjournments or postponements thereof.
Holders of shares of Associated Common Stock will not be entitled to
appraisal or dissenters' rights in connection with the Merger.
The Proxy Statement-Prospectus and the Appendices thereto (including the
Merger Agreement attached as Appendix A thereto) form a part of this Notice.
Only holders of record of Associated Common Stock at the close of business
on July 26, 1994 are entitled to notice of and to vote at the Annual Meeting or
any adjournments or postponements thereof. Approval and adoption of the Merger
Agreement requires the affirmative vote of 66 2/3% of the total number of votes
entitled to be cast at the Annual Meeting. Holders of record may be asked to
vote to adjourn the Annual Meeting for up to 30 days to solicit additional votes
if necessary to approve and adopt the Merger Agreement. The affirmative vote of
a majority of the votes entitled to be cast at the Annual Meeting is required in
order to elect a director. Holders of Class A Common Stock and Class B Common
Stock will vote together without regard to class upon the matters to come before
the Annual Meeting.
By Order of the Board of Directors,
Jack N. Berkman
Chairman and Secretary
Pittsburgh, Pennsylvania
July 29, 1994
------------------------
IMPORTANT NOTICES
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT YOU PLAN
TO ATTEND THE ANNUAL MEETING. YOUR PROXY WILL BE REVOCABLE, EITHER IN WRITING OR
BY VOTING IN PERSON AT THE ANNUAL MEETING, AT ANY TIME PRIOR TO ITS EXERCISE.
PLEASE DO NOT SEND IN STOCK CERTIFICATES AT THIS TIME.
THE BOARD OF DIRECTORS OF ASSOCIATED COMMUNICATIONS CORPORATION UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE TO APPROVE AND ADOPT THE MERGER AGREEMENT.
------------------------
<PAGE>
ASSOCIATED COMMUNICATIONS CORPORATION
PROXY STATEMENT
------------------------
SOUTHWESTERN BELL CORPORATION PROSPECTUS
This Proxy Statement-Prospectus is being furnished to the stockholders of
Associated Communications Corporation, a Delaware corporation ('Associated'), in
connection with the solicitation of proxies by Associated's Board of Directors
(the 'Associated Board') from holders of outstanding shares of Class A common
stock, par value $.10 per share (the 'Class A Common Stock'), and Class B common
stock, par value $.10 per share (the 'Class B Common Stock', and, together with
the Class A Common Stock, the 'Associated Common Stock'), of Associated, for use
at the Annual Meeting of Stockholders of Associated to be held on Thursday,
September 22, 1994 and at any adjournments or postponements thereof (the 'Annual
Meeting').
At the Annual Meeting, Associated stockholders will be asked to consider
and vote upon a proposal to approve and adopt an Agreement and Plan of Merger
and Reorganization, dated as of February 23, 1994, among Associated,
Southwestern Bell Corporation, a Delaware corporation ('SBC'), and SBMS
Acquisition Corp., a Delaware corporation and an indirect wholly owned
subsidiary of SBC ('Purchaser'), which is attached as Appendix A to this Proxy
Statement-Prospectus and is incorporated herein by reference (as it may be
amended, supplemented or otherwise modified from time to time, the 'Merger
Agreement'). The Merger Agreement provides, subject to the satisfaction or
waiver of certain conditions, that (a) Associated will effect the distribution
(the 'Distribution') as contemplated by the Distribution Agreement, the form of
which is attached as Appendix B hereto (as it may be amended, supplemented or
otherwise modified from time to time, the 'Distribution Agreement'), whereby all
of Associated's assets and businesses, other than its domestic cellular assets
and interests, together with related liabilities, will be distributed to
Associated stockholders in the form of a dividend of all of the capital stock of
Associated Communications of Delaware, Inc., a Delaware corporation and
currently a wholly owned subsidiary of Associated which will change its name
prior to the Distribution ('Spinco'), and (b) Purchaser will be merged with and
into Associated (the 'Merger'), with Associated surviving the Merger as an
indirect wholly owned subsidiary of SBC (sometimes hereinafter referred to as
the 'Surviving Corporation'). At the time the Merger becomes effective, each
share of Associated Common Stock outstanding immediately prior to the Effective
Time (other than shares of Associated Common Stock that are owned by Associated
as treasury stock and any shares of Associated Common Stock owned by SBC,
Purchaser or any other wholly owned subsidiary of SBC) will be converted into
the right to receive the fraction of a share of common stock, $1.00 par value
per share, of SBC (together with the Preferred Stock Purchase Right associated
with each whole share of such common stock, 'SBC Common Stock') determined as
provided in the Merger Agreement. Based on the assumptions set forth in this
Proxy Statement-Prospectus under 'The Merger--Terms of the Merger--Conversion of
Associated Common Stock in the Merger,' the aggregate market value of SBC Common
Stock to be received by holders of Associated Common Stock in the Merger will be
approximately $553.0 million, or approximately $14.75 per share of Associated
Common Stock. There can be no assurance that these assumptions will be the
actual amounts, and accordingly the actual aggregate market value of SBC Common
Stock, and corresponding market value of SBC Common Stock per share of
Associated Common Stock, to be received by holders of Associated Common Stock in
the Merger may be greater or less than $553.0 million, and $14.75 per share.
This Proxy Statement-Prospectus is first being mailed to Associated
stockholders on or about August 2, 1994.
------------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT-PROSPECTUS 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 PROXY
STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------------------------------------------------
The date of this Proxy Statement-Prospectus is July 29, 1994
<PAGE>
SBC has filed a Registration Statement on Form S-4 (including exhibits and
amendments thereto, the 'SBC Registration Statement') pursuant to the Securities
Act of 1933, as amended (the 'Securities Act'), covering shares of SBC Common
Stock issuable in the Merger. This Proxy Statement-Prospectus constitutes both
the Proxy Statement of Associated relating to the solicitation of proxies for
use at the Annual Meeting and the Prospectus of SBC filed as part of the SBC
Registration Statement.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF ASSOCIATED OR SBC CONCERNING THE MATTERS BEING
CONSIDERED AT THE ANNUAL MEETING IF NOT CONTAINED IN OR APPENDED TO THIS PROXY
STATEMENT-PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY
STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS PROXY STATEMENT-PROSPECTUS
OR THE SOLICITATION OF A PROXY, BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
AN OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER DELIVERY OF THIS PROXY
STATEMENT-PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES BEING OFFERED
PURSUANT TO THIS PROXY STATEMENT-PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH
HEREIN SINCE THE DATE OF THIS PROXY STATEMENT-PROSPECTUS.
AVAILABLE INFORMATION
Associated and SBC are (and, following the Distribution, Spinco will be)
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the 'Exchange Act'), and, in accordance therewith, file (and,
in the case of Spinco, will file) reports, proxy statements and other
information with the Securities and Exchange Commission (the 'Commission'). The
reports, proxy statements and other information filed by Associated and SBC (and
to be filed by Spinco) with the Commission can be inspected and copied at the
Commission's public reference room located at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the public reference facilities in the
Commission's regional offices located at: 7 World Trade Center, 13th Floor, New
York, New York 10048; and Suite 1400, Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661. Copies of such material can be obtained
at prescribed rates by writing to the Securities and Exchange Commission, Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. In addition,
reports, proxy statements and other information concerning SBC may be inspected
at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York,
New York 10005, and reports, proxy statements and other information concerning
Associated may be inspected at the offices of the National Association of
Securities Dealers, Inc. (the 'NASD'), 1735 K Street, N.W., Washington, D.C.
20006. Tele-Communications, Inc. ('TCI') and Liberty Media Corporation
('Liberty') are also subject to the informational requirements of the Exchange
Act, and, in accordance therewith, file reports, proxy statements and other
information with the Commission. The reports, proxy statements and other
information filed by TCI and Liberty with the Commission can be inspected and
copied at the Commission's public reference facilities at the above listed
locations. In addition, reports, proxy statements and other information
concerning TCI and Liberty may be inspected at the offices of the NASD at the
above-listed locations. TCI and Liberty are not affiliates of SBC or Associated,
and neither Associated nor SBC assumes any responsibility for the accuracy or
completeness of the information concerning TCI or Liberty contained in such
documents or for any failure by TCI or Liberty to disclose events which may have
occurred or may affect the significance or accuracy of any such information.
This Proxy Statement-Prospectus does not contain all of the information set
forth in the SBC Registration Statement covering the securities offered hereby,
certain portions of which have been omitted pursuant to the rules and
regulations of the Commission, and to which portions reference is hereby made
for further information with respect to SBC and the securities offered hereby.
Statements contained herein concerning any documents which are filed as exhibits
to the SBC Registration Statement are not necessarily complete and, in each
instance, reference is made to the copies of such documents filed as such
exhibits. Each such statement is qualified in its entirety by such reference.
This Proxy Statement-Prospectus does not contain all of the information to be
set forth in the Registration Statement on Form 10 to be filed by Associated
Communications of Delaware, Inc. with the Commission prior to the Distribution.
Certain important information relating to the Distribution is set forth in the
2
<PAGE>
Information Statement which is a part of this Proxy Statement-Prospectus and is
attached as Appendix D hereto (the 'Information Statement'). See 'Additional
Information' in the Information Statement.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATED TO SBC, EXCLUDING
EXHIBITS UNLESS SPECIFICALLY INCORPORATED HEREIN, ARE AVAILABLE WITHOUT CHARGE
UPON REQUEST TO THE DIRECTOR-FINANCIAL REPORTING, ROOM 9-N-4, SOUTHWESTERN BELL
CORPORATION, 175 E. HOUSTON, SAN ANTONIO, TEXAS 78205-2233. TELEPHONE REQUESTS
MAY BE DIRECTED TO (210) 351-3049. DOCUMENTS RELATING TO ASSOCIATED, EXCLUDING
EXHIBITS UNLESS SPECIFICALLY INCORPORATED HEREIN, ARE AVAILABLE WITHOUT CHARGE
UPON REQUEST TO ASSOCIATED COMMUNICATIONS CORPORATION, ASSISTANT SECRETARY,
SUITE 502, THREE BALA PLAZA EAST, BALA CYNWYD, PA 19004. TELEPHONE REQUESTS MAY
BE DIRECTED TO SCOTT G. BRUCE, ASSISTANT SECRETARY OF ASSOCIATED, AT (215)
660-4910. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY SEPTEMBER 13, 1994.
The following documents filed with the Commission by Associated (File No.
0-8884) are incorporated herein by reference: (a) Annual Report on Form 10-K for
the fiscal year ended December 31, 1993, as amended on Form 10-K/A dated July
28, 1994 ('Associated's 1993 Annual Report on Form 10-K'); (b) Quarterly Report
on Form 10-Q for the fiscal quarter ended March 31, 1994, as amended on Form
10-Q/A dated July 28, 1994 ('Associated's Quarterly Report on Form 10-Q'), and
(c) Current Reports on Form 8-K dated January 8, 1993 and March 2, 1994.
The following documents filed with the Commission by SBC (File No. 1-8610)
are incorporated herein by reference: (a) Annual Report on Form 10-K for the
fiscal year ended December 31, 1993; (b) Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1994; (c) Current Reports on Form 8-K dated March
15, 1994, April 5, 1994 and May 19, 1994; (d) the description of SBC Common
Stock contained in SBC's registration statement on Form 10 dated November 15,
1983, including any amendment or report filed for the purpose of updating such
description (the 'SBC Form 10'); and (e) the description of the Preferred Stock
Purchase Rights contained in SBC's Form 8-A dated February 9, 1989, including
any amendment or reports filed for the purpose of updating such description (the
'SBC Form 8-A').
All documents filed by Associated or SBC pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to the
Annual Meeting shall be deemed to be incorporated herein by reference and to be
a part hereof from the date of such filing. Any statement contained herein or in
a document incorporated or deemed to be incorporated herein by reference shall
be deemed to be modified or superseded for purposes hereof to the extent that a
statement contained herein or in any other subsequently filed document which
also is, or is deemed to be, incorporated herein by reference modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed to constitute a part hereof, except as so modified or superseded.
3
<PAGE>
SUMMARY
The following summary is not intended to be complete and is qualified in
its entirety by the more detailed information included elsewhere in this Proxy
Statement-Prospectus, the Appendices hereto and the documents incorporated
herein by reference. STOCKHOLDERS ARE URGED TO READ CAREFULLY THIS PROXY
STATEMENT-PROSPECTUS, INCLUDING THE APPENDICES HERETO AND THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE IN THEIR ENTIRETY.
All information concerning Associated and Spinco included in this Proxy
Statement-Prospectus, the Appendices hereto and the documents incorporated
herein by reference has been furnished by Associated and all information
concerning SBC included in this Proxy Statement-Prospectus, the Appendices
hereto and the documents incorporated herein by reference has been furnished by
SBC. Unless otherwise defined herein, capitalized terms used in this summary
shall have the respective meanings ascribed to them elsewhere in this Proxy
Statement-Prospectus. AN INDEX OF DEFINED TERMS USED HEREIN IS INCLUDED AT PAGE
75 OF THIS PROXY STATEMENT--PROSPECTUS.
THE COMPANIES
Associated
Associated is principally engaged in selected aspects of the communications
business. Associated has indirect interests in six domestic cellular telephone
systems, which will constitute all of the interests and assets of Associated at
the Effective Time. See 'The Distribution.' Associated's other assets and
businesses which are anticipated to comprise Spinco currently include (i) a
portfolio of marketable equity securities with a market value at July 26, 1994
of approximately $475 million, including equity securities of
Tele-Communications, Inc. representing approximately 3.62%, and approximately
5.79% of the voting power, of all outstanding shares of TCI common stock and
equity securities of Liberty Media Corporation representing approximately 2.54%,
and approximately 6.39% of the voting power, of all outstanding shares of
Liberty common stock (in each case before consummation of the proposed
combination of Liberty with TCI described under 'The Company--Marketable Equity
Securities' in the Information Statement), (ii) an indirect equity interest in a
Mexican corporation which operates a cellular telephone system in Mexico, (iii)
indirect equity interests in two Mexican corporations formed for the development
of specialized mobile radio systems in Mexico, (iv) ownership of a microwave
communications business, (v) ownership of, or equity interests in, other private
communications businesses, (vi) ownership of four radio broadcasting stations,
two AM and two FM, and (vii) ownership of a retail art gallery. Associated was
organized in Delaware in November of 1977 and commenced operations in March,
1979. The mailing address of Associated's principal executive offices is 200
Gateway Towers, Pittsburgh, Pennsylvania 15222.
SBC
SBC is a communications holding company, which in 1993 had operating
revenues of approximately $10.69 billion and income before extraordinary loss
and cumulative effect of changes in accounting principles of approximately $1.44
billion. At December 31, 1993, SBC had total assets of approximately $24.31
billion. SBC's subsidiaries are engaged principally in communications services,
including the provision of local telephone exchange services and wireless
communications services. SBC was incorporated under the laws of the State of
Delaware in 1983 by AT&T as one of seven regional holding companies formed to
hold AT&T's local telephone companies. AT&T divested SBC by means of a spin-off
of stock to its shareowners on January 1, 1984. The divestiture was made
pursuant to the Modification of Final Judgment consent decree issued by the
United States District Court for the District of Columbia. The mailing address
of SBC's principal executive offices is 175 E. Houston, San Antonio, Texas
78205-2233.
Purchaser
Purchaser, an indirect wholly owned subsidiary of SBC, was formed by SBC
solely for the purpose of effecting the Merger. The mailing address of
Purchaser's principal executive offices is 175 E. Houston, San Antonio, Texas
78205-2233.
5
<PAGE>
Additional Information
For additional information regarding the businesses of Associated and SBC,
see 'Available Information,' 'Incorporation of Certain Information by Reference'
and 'The Companies.' For information regarding Spinco, see the Information
Statement attached hereto as Appendix D.
THE MERGER
General
If the Merger Agreement is approved by the Associated stockholders and the
other conditions to the Merger are satisfied or waived, at the Effective Time
Purchaser will be merged with and into Associated, with Associated as the
Surviving Corporation, and the separate corporate existence of Purchaser shall
cease. As a result of the Merger, Associated will become an indirect wholly
owned subsidiary of SBC.
Pursuant to the Merger Agreement, at the Effective Time, each issued and
outstanding share of Associated Common Stock (other than shares of Associated
Common Stock that are owned by Associated as treasury stock and any shares of
Associated Common Stock owned by SBC, Purchaser or any other wholly owned
subsidiary of SBC) shall be converted into the right to receive the number
(rounded to the nearest one-thousandth of a share) (the 'Conversion Number') of
fully paid and nonassessable shares of SBC Common Stock determined by (i)
dividing the Aggregate Purchase Price (as defined in the following paragraph) by
the number of shares of Associated Common Stock outstanding at the Effective
Time to arrive at the Per Share Price, and then (ii) dividing the Per Share
Price by the Average SBC Price. The 'Average SBC Price' shall be equal to the
average of the closing prices of the SBC Common Stock on the New York Stock
Exchange (the 'NYSE') Composite Transactions Reporting System, as reported in
The Wall Street Journal, for the five (5) trading days immediately preceding the
second trading day prior to the Effective Time (the 'Trading Average'),
provided, that if the Trading Average is less than $30.00 then the Average SBC
Price shall be $30.00, unless Associated notifies SBC in writing prior to the
Closing Date that it is unwilling to accept a $30.00 Average SBC Price, in which
case, upon receipt of such written notice, SBC may elect either to terminate the
Merger Agreement or to cause the Average SBC Price to be the Trading Average or
such greater amount as SBC and Associated may agree; and provided, further, that
if the Trading Average is greater than $50.00 increased at a rate of seven
percent (7%) per annum commencing on July 22, 1994 and ending on the day prior
to the Effective Time (the 'Maximum SBC Price'), then the Average SBC Price
shall be the Maximum SBC Price, unless SBC notifies Associated in writing prior
to the Closing Date that it is unwilling to accept the Maximum SBC Price as the
Average SBC Price, in which case, upon receipt of such written notice,
Associated may elect to either terminate the Merger Agreement or to cause the
Average SBC Price to be the Trading Average or such lesser amount as Associated
and SBC may agree.
The 'Aggregate Purchase Price' will be an amount equal to $680,000,000 (six
hundred and eighty million dollars), increased at a rate of seven percent (7%)
per annum commencing on July 22, 1994 and ending on the day prior to the
Effective Time (the 'Base Purchase Price'), minus the sum of (i) $122,237,000
(comprised of $123,237,000, representing certain debt which will remain with the
Retained Company or be repaid prior to the closing of the Merger, net of an
amount of cash (determined in accordance with the Merger Agreement) reflected on
the Retained Business Balance Sheet, less $1 million, representing an agreed
upon amount in respect of certain potential net tax benefits of the Retained
Company) and (ii) 0.64 times the sum of (A) the total amount of interest paid or
accrued from January 1, 1994 through the Effective Time on indebtedness of the
Retained Company, (B) the aggregate amount paid or payable by Associated to
holders of Associated Stock Options in respect of the cancellation of such
options as contemplated by the Merger Agreement, (C) the aggregate amount of
bonuses paid or payable by Associated and its subsidiaries pursuant to the Bonus
Pool as contemplated by the Merger Agreement and (D) the aggregate amount of
severance payable pursuant to certain of Associated's employment agreements as
contemplated by the Merger Agreement. Assuming (i) an Average SBC Price of
$42.75, (ii) an Effective Time of December 31, 1994, (iii) aggregate payments or
accruals of $7,416,250 in interest on the indebtedness of the Retained Company
from January 1, 1994 through the Effective Time, (iv) aggregate payments of
$23,821,359 to holders of Associated Stock Options, (v) aggregate payments of
$5,000,000 pursuant to the Bonus Pool, and (vi) aggregate severance payments of
$4,164,000 pursuant to certain of Associated's employment agreements, the
Aggregate Purchase Price would be $553.0 million. There can be no
6
<PAGE>
assurance that these assumptions will be the actual amounts at the Effective
Time, and accordingly the actual Aggregate Purchase Price may be greater or less
than $553.0 million. See 'The Merger--Terms of the Merger' and 'The
Merger--Interests of Certain Persons in the Transactions'.
Fractional Shares
No fractional shares of SBC Common Stock will be issued in the Merger. The
Merger Agreement provides that each Associated stockholder who otherwise would
have been entitled to receive a fractional share of SBC Common Stock will be
entitled to receive, in lieu thereof, an amount in cash equal to such fraction
multiplied by the Average SBC Price.
Effective Time; Closing
The Merger will become effective and the Effective Time will occur upon the
filing of the Certificate of Merger with the Secretary of State of Delaware or
at such time thereafter as is provided in the Certificate of Merger. See 'The
Merger--Effective Time; Closing.'
Conditions
The Merger Agreement provides that the respective obligations of the
parties to effect the Merger are subject to certain conditions, including the
receipt of regulatory approvals, receipt of a Private Letter Ruling from the
Internal Revenue Service and, in the case of SBC, receipt of the MFJ Waiver. See
'The Merger--Conditions.'
Termination
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the Merger and the Merger Agreement by
the stockholders of Associated or Purchaser: (a) by mutual consent of SBC and
Associated; (b) by either SBC or Associated if the Merger shall not have been
consummated before January 31, 1995 (subject to extension under certain
circumstances); (c) by SBC if (i) there has been a breach on the part of
Associated in the representations, warranties or covenants of Associated set
forth in the Merger Agreement or in the Distribution Agreement, or any failure
on the part of Associated to comply with its obligations thereunder, or any
other events or circumstances shall have occurred such that, in any such case,
any of the conditions to SBC's obligation to consummate the Merger could not be
satisfied on or prior to the termination date contemplated by clause (b) above,
(ii) Associated's stockholders do not approve the Merger and the Merger
Agreement at the Annual Meeting, (iii) Associated withdraws, amends, or modifies
in a manner adverse to SBC its favorable recommendation of the Distribution or
the Merger, or promulgates any recommendation with respect to an Acquisition
Transaction other than a recommendation to reject such Acquisition Transaction,
provided that any action taken by Associated pursuant to clause (d)(iii)(A)
below or any public announcement by Associated relating thereto shall not give
rise to any right of termination by SBC, (iv) Associated takes any action that
would be prohibited by the provision of the Merger Agreement discussed under
'The Merger--No Solicitation' but for the exception permitting such action as
required by fiduciary duty, or (v) Associated has given SBC a notice in writing
that Associated is unwilling to accept a $30.00 Average SBC Price under the
circumstances described under 'The Merger--Terms of the Merger--Conversion of
Associated Common Stock in the Merger'; or (d) by Associated if (i) there has
been a breach on the part of SBC in the representations, warranties or covenants
of SBC set forth in the Merger Agreement, or any failure on the part of SBC to
comply with its obligations thereunder, or any other events or circumstances
shall have occurred, such that, in any such case, any of the conditions to
Associated's obligation to consummate the Merger could not be satisfied on or
prior to the termination date contemplated by clause (b) above, (ii) Associated
stockholders do not approve the Merger and the Merger Agreement at the Annual
Meeting, (iii) if (A) Associated has received a Higher Proposal that it advises
SBC in writing Associated wishes to accept and (B) SBC does not make, within ten
business days of receipt of written notice of Associated's desire to accept such
Higher Proposal, an offer that the Board of Directors of Associated believes, in
good faith after consultation with its financial advisors, is at least as
favorable, from a financial point of view, to the stockholders of Associated as
the Higher Proposal (subject, in the case of this clause (iii), to the prior or
simultaneous payment of the fee described in clause (y) under 'The
Merger--Certain Termination Fees'), or (iv) SBC has given Associated notice in
writing that SBC is unwilling to accept the Maximum SBC Price as the Average SBC
Price under the circumstances set forth in
7
<PAGE>
'The Merger--Terms of the Merger--Conversion of Associated Common Stock in the
Merger.' See 'The Merger--Termination; Amendment and Waiver.'
Certain Termination Fees
The Merger Agreement provides that Associated will pay SBC a termination
fee of $25,000,000 if the Merger Agreement is terminated under certain
circumstances. See 'The Merger--Certain Termination Fees.'
No Solicitation
The Merger Agreement provides that Associated will immediately cease any
existing discussions or negotiations with any third parties conducted prior to
the date of the Merger Agreement with respect to any Acquisition Transaction.
The Merger Agreement further provides that neither Associated nor any of its
subsidiaries nor any of their respective directors and officers shall, and
Associated shall use its best efforts to ensure that none of its subsidiaries'
affiliates, representatives or agents shall, directly or indirectly, solicit any
person, entity or group concerning any Acquisition Transaction (other than the
transactions contemplated by the Merger Agreement); provided that after prior
notice to SBC Associated may (i) furnish information or enter into negotiations
to the extent the Associated Board determines in good faith, after consultation
with its outside counsel, that the failure to do so could reasonably be deemed a
breach of its fiduciary duties under applicable law, but only in response to a
Higher Proposal and (ii) recommend to its stockholders an Acquisition
Transaction which is the subject of a Higher Proposal. See 'The Merger--No
Solicitation.'
RECOMMENDATION OF THE ASSOCIATED BOARD OF DIRECTORS
The Associated Board has unanimously determined the Merger to be fair to
and in the best interests of Associated and its stockholders. THE ASSOCIATED
BOARD HAS APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS ITS APPROVAL
AND ADOPTION BY ASSOCIATED STOCKHOLDERS.
The conclusion of the Associated Board with respect to the Merger is based
upon a number of factors. See 'The Merger--Background of the Merger,'
'--Associated's Reasons for the Merger; Recommendation of the Associated Board'
and '--Opinion of the Financial Advisor to the Associated Board.'
OPINION OF THE FINANCIAL ADVISOR TO THE ASSOCIATED BOARD
Salomon Brothers Inc, Associated's financial advisor, has delivered to the
Associated Board its written opinions that, as of February 23, 1994, and as of
July 29, 1994, the consideration to be received by Associated stockholders in
connection with the Merger and the Distribution, taken as a whole, is fair to
such stockholders from a financial point of view. The full text of the Salomon
Brothers July 29, 1994 opinion, which sets forth the assumptions made, matters
considered and limits on the review undertaken, is attached as Appendix C to
this Proxy Statement-Prospectus. Associated stockholders are urged to read the
Salomon Brothers opinion in its entirety. See 'The Merger--Opinion of the
Financial Advisor to the Associated Board.'
APPRAISAL RIGHTS
Holders of Associated Common Stock will not be entitled to any dissenters'
or appraisal rights as a result of the matters to be voted upon at the Annual
Meeting. See 'The Merger--Absence of Appraisal Rights.'
CERTAIN REGULATORY MATTERS
Certain federal and state regulatory requirements must be complied with
before the Merger is consummated and to allow the Surviving Corporation to
conduct the Retained Business as currently conducted by Associated. SBC is
subject to the Modification of Final Judgment entered on August 24, 1982 by the
U.S. District Court for the District of Columbia (the 'Court') in U.S. v.
American Telephone & Telegraph Co. (the 'MFJ'). The MFJ, among other things,
prohibits SBC (and thus the Surviving Corporation, which will be a wholly-owned
subsidiary of SBC) from engaging in certain activities currently engaged in by
the Retained Company. On March 9, 1994, SBC submitted to the Antitrust Division
of the United States Department of Justice (the 'DOJ'), for its review and for
comment by interested parties, a motion (the 'MFJ Motion') for a waiver (the
'MFJ Waiver')
8
<PAGE>
of certain aspects of the MFJ. Specifically, the MFJ Waiver would permit the
Surviving Corporation to continue after the Merger certain activities which may
be prohibited or limited by the interexchange restrictions of the MFJ. On April
8, 1994, AT&T Corporation ('AT&T') and MCI Communications Corporation ('MCI')
filed comments opposing, in part, the MFJ Motion. SBC replied to such comments
on April 29, 1994. The MFJ Motion is currently being reviewed by the DOJ.
Following such review, the DOJ will bring its recommendation in support of or
against the MFJ Motion to the attention of SBC and of AT&T Corporation and MCI
Corporation. SBC will then file the MFJ Motion with the Court for consideration
by Judge Harold Greene in accordance with the MFJ. The DOJ may respond to the
MFJ Motion or file its own motion within fourteen days of SBC's filing.
It is a condition to SBC's obligation to consummate the Merger that SBC
receive the MFJ Waiver, that the MFJ Transactions have been effected to the
satisfaction of SBC in the exercise of its good faith judgment and that the
Retained Company not be directly or indirectly engaged in any MFJ Activity
(other than through a minority investment in PCTC and a minority, non-voting
investment in BACTC and any other MFJ Activity covered by the MFJ Waiver). See
'The Merger--Conduct of Business Prior to Effective Time; Certain Covenants--MFJ
Covenants' and 'The Merger--Conditions--Conditions of Obligations of SBC and
Purchaser.'
In addition, FCC and various state regulatory filings and approvals are
necessary to consummate the Merger. Also, under the HSR Act, and the rules
promulgated thereunder by the FTC, certain transactions, including the Merger
and the Distribution (with respect to certain recipients of Spinco Common
Stock), may not be consummated unless certain waiting period and other
requirements have been satisfied. On May 25, 1994, the Notification and Report
Forms required pursuant to the HSR Act were filed by each of Associated and SBC
with the DOJ and the FTC for review in connection with the Merger. On June 23,
1994, Notification and Report Forms were also filed by ACDI (Spinco), Jack N.
Berkman, the Chairman of Associated, and Myles P. Berkman, the President of
Associated, in connection with Messrs. Berkmans' acquisition of Spinco Common
Stock in the Distribution (see 'Beneficial Ownership' in the Information
Statement attached as Appendix D hereto). The applicable waiting period with
respect to the Merger expired on June 24, 1994, and on July 8, 1994, early
termination of the applicable waiting period with respect to the acquisition by
Jack N. Berkman and Myles P. Berkman of Spinco Common Stock in the Distribution
was received. At any time before or after the Effective Time, the FTC, the DOJ
or others could take action under the antitrust laws with respect to the Merger
or the Distribution, including seeking to enjoin the consummation of the Merger
or the Distribution (with respect to the receipt by Messrs. Berkman named above
of Spinco Common Stock pursuant thereto) or seeking the divestiture by SBC of
all or any part of the stock or assets of Associated. See 'The Merger--Certain
Regulatory Matters.'
ACCOUNTING TREATMENT
The Merger will be accounted for as a 'purchase' for financial accounting
purposes in accordance with generally accepted accounting principles, whereby
the purchase price will be allocated based on fair values of assets acquired and
liabilities assumed. Such allocations will be made based upon valuations and
other studies that have not been finalized. The excess of such purchase price
over the amounts so allocated will be allocated to goodwill. See 'The
Merger--Accounting Treatment.'
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
In considering the recommendation of the Associated Board, stockholders
should be aware that certain members of Associated's management and the
Associated Board have certain interests in the Merger and the Distribution that
are in addition to the interests of Associated stockholders generally. These
include (i) for three members of Associated's management who are also directors,
lump sum severance payments, (ii) for members of Associated's management and the
members of the Associated Board, the acceleration of vesting and the cash-out of
Associated Stock Options as contemplated by the Merger Agreement and (iii) for
members of Associated's management and the members of the Associated Board, the
adjustment of outstanding options to purchase shares of common stock of
Associated Communications Resources, Inc., currently a wholly-owned subsidiary
of Associated, granted under the Associated Communications Resources, Inc. 1989
Stock Option Plan, whereby such options will be 'rolled-over' into options to
purchase shares of Spinco Class B Common Stock at an exercise price intended to
preserve the 'spread value' of such rolled-over options. See 'The
Merger--Interests of Certain Persons in the Transactions' and
'Management--Treatment of ACORN Options' in the Information Statement attached
as Appendix D hereto.
9
<PAGE>
VOTING AGREEMENT
As a condition to entering into the Merger Agreement, SBC required that
Jack N. Berkman and Myles P. Berkman enter into a Voting Agreement with SBC,
whereby they agreed that until the earliest of (i) the Effective Time and (ii)
the date on which the Merger Agreement is terminated in accordance with its
terms, they will vote an aggregate of 3,228,874 shares of Class A Common Stock
(a) in favor of adoption and approval of the Merger Agreement and the Merger at
every meeting of the stockholders of Associated at which such matters are
considered and at every adjournment thereof, and (b) against any other
Acquisition Transaction. See 'The Merger--Voting Agreement.' The shares subject
to the Voting Agreement represent approximately 17% of the votes eligible to be
cast at the Annual Meeting as of the Record Date.
THE DISTRIBUTION
The Distribution Agreement provides that prior to the time the Distribution
is effective, Associated will appropriately cause Spinco to amend its
Certificate of Incorporation to, among other things, (i) create two classes of
common stock of Spinco to be designated Class A Common Stock and Class B Common
Stock, to increase the authorized number of shares of Spinco common stock and to
exchange the 1,000 shares of common stock, par value $1.00 per share, of Spinco
currently outstanding for a total number of shares of Spinco Common Stock
(divided equally between Spinco Class A Common Stock and Spinco Class B Common
Stock) equal to one-half the total number of shares of Associated Common Stock
outstanding immediately prior to the Distribution Record Date and (ii) authorize
5 million shares of preferred stock, par value $.01 per share, of Spinco. See
'The Distribution.'
The Distribution will be effected by the distribution to each holder of
record of Associated Common Stock, as of the close of the stock transfer books
on the Distribution Record Date, of certificates representing 1/4 of a share of
Spinco Class A Common Stock and 1/4 of a share of Spinco Class B Common Stock
with respect to each share of Associated Common Stock held by such holder;
provided that no fractional shares of Spinco Common Stock will be distributed.
See 'The Distribution--Terms of the Distribution Agreement.'
The Distribution Agreement provides for a series of asset transfers, stock
transfers and mergers between and among certain of Associated's subsidiaries
prior to the Distribution. Associated's interests in six domestic cellular
telephone systems will constitute all of the interests and assets of Associated
at the Effective Time. See 'The Distribution.' All of Associated's other
businesses and assets will be transferred to, or remain with, Spinco as of the
time immediately prior to the Time of Distribution.
In connection with the Distribution, Spinco and Associated will satisfy by
cash payment the full net amount of any intercompany indebtedness or other
advances or accruals owing between members of the Spinco Group and members of
the Retained Company Group arising after December 31, 1993 and not previously
paid in full prior to the Time of Distribution. See 'The Distribution--Terms of
the Distribution Agreement.'
THE ANNUAL MEETING
Time, Place and Date
The Annual Meeting will be held at the Meeting Room of Gateway Towers, 320
Fort Duquesne Boulevard, Pittsburgh, Pennsylvania, on Thursday, September 22,
1994, at 2:00 p.m. local time.
Purpose of Annual Meeting
At the Annual Meeting, holders of shares of Associated Common Stock at the
close of business on the Record Date will be asked (i) to consider and vote upon
a proposal to approve and adopt the Merger Agreement, (ii) to elect one
director, to hold office for a term of three years and until a successor shall
be elected and shall qualify and (iii) to transact such other business as may
properly come before the Annual Meeting or any adjournments or postponements
thereof.
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<PAGE>
Record Date; Stockholders Entitled to Vote; Vote Required
The Associated Board has fixed the close of business on July 26, 1994 as
the Record Date for the determination of the holders of Associated Common Stock
entitled to receive notice of and to vote at the Annual Meeting and at any
adjournments or postponements thereof.
As of the Record Date, 18,200,538 shares of Class A Common Stock and
19,290,618 shares of Class B Common Stock were outstanding. Each share of Class
A Common Stock outstanding on the Record Date will be entitled to one vote and
each share of Class B Common Stock outstanding on the Record Date will be
entitled to 1/25th of a vote upon each matter properly submitted at the Annual
Meeting. Approval and adoption of the Merger Agreement requires the affirmative
vote of 66 2/3% of the total number of votes entitled to be cast at the Annual
Meeting. The affirmative vote of a majority of the votes entitled to be cast at
the Annual Meeting will be required in order to elect a director. The
affirmative vote of a majority of the votes represented in person or by proxy
and entitled to vote at the Annual Meeting is required in order to adjourn the
Annual Meeting. Holders of Class A Common Stock and Class B Common Stock will
vote together without regard to class upon the matters to come before the Annual
Meeting.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Associated has requested a Private Letter Ruling from the Service
substantially to the effect that the Distribution will qualify as a tax-free
spin-off to Associated and its stockholders under Section 355 of the Code, that
the Merger will qualify as a tax-free transaction to Associated and its
stockholders under Section 368(a) of the Code and that certain internal
reorganization transactions involving Associated or its subsidiaries to be
effected prior to the Distribution will not be taxable transactions. Receipt of
the Private Letter Ruling is a condition to the respective obligations of
Associated and SBC to consummate the Distribution and the Merger. See 'Certain
Federal Income Tax Consequences.'
COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF SBC COMMON STOCK AND ASSOCIATED
COMMON STOCK
See 'Comparison of Certain Rights of Holders of SBC Common Stock and
Associated Common Stock' for a summary of certain major differences between the
rights of holders of Associated Common Stock and SBC Common Stock.
COMPARATIVE PER SHARE MARKET INFORMATION
The SBC Common Stock is listed and principally traded on the NYSE. The
table below sets forth, for the fiscal periods indicated, the high and low sale
prices per share of SBC Common Stock in NYSE Composite Transactions as reported
in published financial sources and the dividends per share declared on SBC
Common Stock. The Class A Common Stock and Class B Common Stock are quoted on
the Nasdaq National Market. The table below sets forth, for the fiscal periods
indicated, the high and low sales prices per share for the Class A Common Stock
and Class B Common Stock on the Nasdaq National Market as reported in published
financial sources. These prices reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions. Associated has not declared any dividends on the Associated Common
Stock. For current price information, Associated stockholders are urged to
consult publicly available sources. Associated's stock prices have been adjusted
to reflect the two for one stock split effected in the form of a dividend, paid
on May 28, 1991 to holders of record on May 14, 1991. SBC's stock prices have
been adjusted to
11
<PAGE>
reflect the two for one stock split effected in the form of a dividend, paid on
May 25, 1993 to holders of record on May 7, 1993.
<TABLE>
<CAPTION>
ASSOCIATED CLASS ASSOCIATED CLASS
A B SBC
---------------- ---------------- ----------------------------------------
HIGH LOW HIGH LOW HIGH LOW DIVIDENDS
------ ------ ------ ------ ------ ------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fiscal 1991
First Quarter........ $15.13 $11.38 $15.13 $11.25 $28.63 $25.13 $.3550
Second Quarter....... 17.75 12.50 16.75 12.13 28.06 24.50 .3550
Third Quarter........ 18.75 12.50 18.50 12.75 28.88 25.75 .3550
Fourth Quarter....... 18.75 14.00 18.25 14.00 32.94 26.88 .3550
Fiscal 1992
First Quarter........ $19.25 $15.50 $19.50 $15.00 $33.00 $28.50 $.3650
Second Quarter....... 17.75 14.00 18.00 14.00 31.94 28.31 .3650
Third Quarter........ 17.75 14.00 18.50 13.75 34.50 30.44 .3650
Fourth Quarter....... 17.25 13.00 17.50 13.00 37.38 31.75 .3650
Fiscal 1993
First Quarter........ $21.75 $16.25 $21.00 $15.75 $39.06 $34.19 $.3775
Second Quarter....... 21.75 17.25 20.50 16.00 40.75 37.00 .3775
Third Quarter........ 25.75 19.50 25.75 18.50 47.00 38.63 .3775
Fourth Quarter....... 34.25 24.50 33.25 24.25 45.25 39.63 .3775
Fiscal 1994
First Quarter........ $28.50 $23.50 $28.00 $23.00 $42.00 $36.75 $.3950
Second Quarter....... 26.25 22.00 26.00 21.75 44.38 38.50 .3950
Third Quarter
(through July 26,
1994).............. 26.00 24.00 25.75 24.50 44.00 42.63
</TABLE>
HISTORICAL AND CONVERSION VALUES OF SHARES(1)
<TABLE>
<CAPTION>
ASSOCIATED ASSOCIATED
---------------------------- SBC COMMON STOCK
CLASS A CLASS B COMMON STOCK PRO FORMA
DATES (HISTORICAL) (HISTORICAL) (HISTORICAL) EQUIVALENT(2)
- ------------------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
February 23, 1994....... $26.13 $25.50 $ 37.50 .3933
July 26, 1994........... $25.50 $25.50 $ 42.75 .3450
</TABLE>
- ------------------
(1) The market values of SBC Common Stock and Associated Class A Common Stock
and Class B Common Stock represent the closing prices per share on the NYSE
(in the case of SBC Common Stock) and the Nasdaq National Market (in the
case of Associated Class A Common Stock and Class B Common Stock) on (a)
February 23, 1994, the last full trading day prior to the announcement of
the execution of the Merger Agreement and (b) July 26, 1994, the most recent
date available prior to printing this Proxy Statement-- Prospectus.
(2) The Associated Common Stock Pro Forma Equivalent is based on numerous
assumptions, including (i) an Average SBC Price of $42.75, (ii) an Effective
Time of December 31, 1994, (iii) aggregate payments or accruals of
$7,416,250 in interest on indebtedness of the Retained Company from January
1, 1994 through the Effective Time, (iv) aggregate payments of $23,821,359
to holders of Associated Stock Options, (v) aggregate payments of $5,000,000
pursuant to the Bonus Pool, (vi) aggregate severance payments of $4,164,000
pursuant to certain of Associated's employment agreements and (vii)
37,491,156 shares of Associated Common Stock outstanding as of the Effective
Time. See 'The Merger--Terms of the Merger--Conversion of Associated Common
Stock in the Merger.' The Associated Common Stock Pro Forma Equivalent
indicates the fraction of a share of SBC Common Stock which would be
received upon the conversion of a share of Associated Common Stock in the
Merger if the Average SBC Price were equal to the historical per share price
of SBC Common Stock on the date specified. The actual Average SBC Price may
be significantly higher or lower than $42.75. No assurance can be given as
to future market prices for SBC Common Stock or that SBC Common Stock will
trade in a manner consistent with past trading patterns of SBC Common Stock.
The Associated Common Stock Pro Forma Equivalent may be more or less than
.3450 depending upon changes in the foregoing assumptions.
12
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
Associated
The selected historical consolidated financial data of Associated set forth
in the table below have been derived from the audited financial statements of
Associated for each of the five fiscal years in the period ended December 31,
1993 and the unaudited financial statements of Associated for the three-month
periods ended March 31, 1994 and 1993. The selected historical consolidated
financial data set forth below should be read in conjunction with the historical
consolidated financial statements and the notes thereto contained in
Associated's 1993 Annual Report on Form 10-K, and Associated's Quarterly Report
on Form 10-Q for the three-months ended March 31, 1994, which are incorporated
by reference herein. The results for the three-month period ended March 31, 1994
are not necessarily indicative of the results to be expected for 1994. See
'Incorporation of Certain Information by Reference' and 'Available Information.'
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------------- --------------------------------------------------------
1994 1993(A) 1993(A) 1992 1991 1990 1989
---------- ------- ------- ------- ------- ------- -------
(UNAUDITED) (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Revenues.............................. $ 25,619 $21,303 $97,555 $55,633 $46,518 $35,721 $26,838
Cost and expenses..................... 27,188 20,918 99,081 54,590 56,795 40,071 36,280
Operating (loss) income............... (1,569) 385 (1,526) 1,043 (10,277) (4,350) (9,442)
Other income (expense)................ 213 (47) (1,043) 7,179 4,837 22,089(B) 1,236
(Loss) income before extraordinary
item and cumulative effect of
accounting change for income
taxes............................... (586) (112) (2,146) 3,735 (6,245) 10,602 (8,206)
Extraordinary item (C)................ -- -- -- 1,800 -- 6,231 --
Cumulative effect of accounting change
for income taxes (D)................ -- 3,314 3,314 -- -- -- --
Net (loss) income..................... (586) 3,202 1,168 5,535 (6,245) 16,833 (8,206)
(Loss) income per share before
extraordinary item and cumulative
effect of accounting change for
income taxes (E).................... (.02) .00 (.06) .11 (.17) .28 (.22)
Net (loss) income
per share (E)....................... (.02) .09 .03 .15 (.17) .45 (.22)
Balance Sheet Data
Total assets (F)...................... 635,670 182,289 812,986 86,121 66,671 66,224 54,297
Working capital (deficiency).......... 7,426 2,573 6,084 (2,635) (5,197) 9,960 5,179
Long-term obligations................. 126,523 104,269 126,770 17,692 17,298 21,315 23,892
Weighted average common shares
outstanding(E)...................... 37,462 37,418 37,435 37,350 37,332 37,307 37,224
</TABLE>
- ------------------
(A) In 1993, Associated purchased (through the Associated Business to be Merged)
additional cellular partnership interests in its domestic cellular markets.
(B) Includes $17,801,000 gain on sale of marketable equity securities.
(C) Reduction of income taxes from utilization of operating loss carryforward.
(D) Reflects adoption as of January 1, 1993 of Statement of Financial Accounting
Standards No. 109, 'Accounting for Income Taxes.'
(E) Adjusted for the 1991 and 1989 stock splits effected in the form of
dividends.
(F) Reflects adoption at December 31, 1993 of Statement of Financial Accounting
Standards No. 115, 'Accounting for Certain Investments in Debt and Equity
Securities.'
13
<PAGE>
Associated Business to be Merged
The selected combined financial data of the business of Associated after
the Distribution (the 'Associated Business to be Merged') set forth in the table
below have been derived from the combined financial statements of the Associated
Business to be Merged for each of the five years in the period ended December
31, 1993 and the three-month periods ended March 31, 1994 and 1993. The combined
financial statements of the Associated Business to be Merged have been audited
as of December 31, 1993 and 1992 and for each of the three years ended December
31, 1993. The selected combined financial data set forth below should be read in
conjunction with the Associated Business to be Merged combined financial
statements and the notes thereto contained elsewhere herein and the Associated
historical consolidated financial statements and the notes thereto contained in
Associated's 1993 Annual Report on Form 10-K and the Associated Quarterly Report
on Form 10-Q for the three months ended March 31, 1994, which are incorporated
by reference or included herein. The unaudited financial data set forth below
should also be read in conjunction with the unaudited combined financial
statements of the Associated Business to be Merged for the three month periods
ended March 31, 1994 and 1993 included elsewhere herein. The results for the
three-month period ended March 31, 1994 are not necessarily indicative of the
results to be expected for 1994. See 'Incorporation of Certain Information by
Reference,' 'Available Information,' and 'Index to Combined Financial Statements
of Associated Business to be Merged.' The selected combined financial data of
the Associated Business to be Merged set forth below do not reflect (a)
aggregate payments estimated to be $23,821,359 to holders of Associated Stock
Options, (b) aggregate payments estimated to be $5,000,000 pursuant to the Bonus
Pool, (c) aggregate severance payments estimated to be $4,164,000 pursuant to
certain of Associated's employment agreements, or the tax effects of such
payments. See 'Pro Forma Condensed Combined Statement of Financial Position.'
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------- --------------------------------------------------------
1994 1993(A) 1993(A) 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- -------
(UNAUDITED) (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Revenues................................. $24,375 $19,951 $91,480 $50,083 $41,125 $30,232 $20,834
Cost and expenses........................ 23,800 18,231 88,721 45,984 49,215 32,808 27,491
Operating income (loss).................. 575 1,720 2,759 4,099 (8,090) (2,576) (6,657)
Other income (expense)................... 56 (719) (3,019) 5,692 5,046 3,254 732
Income (loss) before extraordinary item
and cumulative effect of accounting
change for income taxes................ 272 454 (175) 3,692 (3,849) (425) (5,925)
Extraordinary item(B).................... -- -- -- 1,800 -- 208 --
Cumulative effect of accounting change
for income taxes(C).................... -- 2,431 2,431 -- -- -- --
Net income (loss)........................ 272 2,885 2,256 5,492 (3,849) (217) (5,925)
Income (loss) per share before
extraordinary item and cumulative
effect of accounting change for income
taxes(D)............................... .01 .01 .00 .10 (.10) (.01) (.16)
Net income (loss) per share(D)........... .01 .08 .06 .15 (.10) .(01) (.16)
Balance Sheet Data
Total assets............................. 161,095 158,934 159,781 63,220 42,420 34,992 29,653
Working capital (deficiency)............. 4,143 (40,265) 2,181(E) (46,404) (46,712) (35,600) (29,293)
Long-term obligations.................... 125,200 103,208 125,500 16,684 16,492 20,342 22,748
Weighted average common shares
outstanding............................ 37,462 37,418 37,435 37,350 37,332 37,307 37,224
</TABLE>
- ------------------
(A) In 1993, Associated purchased (through the Associated Business to be Merged)
additional cellular partnership interests in its domestic cellular markets.
(B) Reduction of income taxes from utilization of operating loss carryforward.
(C) Reflects adoption as of January 1, 1993 of Statement of Financial Accounting
Standards No. 109, 'Accounting for Income Taxes.'
(D) Adjusted for the 1991 and 1989 stock splits effected in the form of
dividends.
(E) Reflects the settlement of net intercompany amounts payable to ACDI
(Spinco).
14
<PAGE>
SBC
The selected historical consolidated financial data of SBC set forth in the
table below have been derived from the audited financial statements of SBC for
each of the five fiscal years in the period ended December 31, 1993 and the
unaudited financial statements of SBC for the three-month periods ended March
31, 1994 and 1993. The selected historical consolidated financial data set forth
below should be read in conjunction with the historical consolidated financial
statements and the notes thereto contained in SBC's 1993 Annual Report on Form
10-K and SBC's Quarterly Report on Form 10-Q for the three months ended March
31, 1994, which are incorporated by reference herein. The results for the
three-month period ended March 31, 1994 are not necessarily indicative of the
results to be expected for 1994. See 'Incorporation of Certain Information by
Reference' and 'Available Information.' Pro forma financial statements for SBC
giving effect to the Merger are not included in this Proxy Statement--Prospectus
because the Merger will not have a material effect on SBC's financial
statements.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
--------- ------- ------- ------- --------- ------- -------
(UNAUDITED) (AMOUNTS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Operating revenues...................... $ 2,646 $ 2,458 $10,690 $10,015 $ 9,332 $ 9,113 $ 8,730
Operating expenses...................... 2,048 1,937 8,310 7,818 7,198 7,071 6,722
Operating income........................ 598 521 2,380 2,197 2,134 2,042 2,008
Interest expense........................ 115 128 496 530 578 530 544
Equity in net income of affiliates...... 70 54 250 208 95 6 6
Income taxes............................ 181 137 625 568 488 440 387
Income before extraordinary loss and
cumulative effect of changes in
accounting principles................. 358 302 1,435 1,302 1,157 1,101 1,093
Extraordinary loss on early
extinguishment of debt, net of tax.... -- (89) (153) -- (81) -- --
Cumulative effect of changes in
accounting principles, net of tax..... -- (2,127) (2,127) -- -- -- --
Net income (loss)....................... 358 (1,914) (845) 1,302 1,076 1,101 1,093
Earnings per common share:(A)...........
Income before extraordinary loss and
cumulative effect of changes in
accounting principles................. 0.59 0.50 2.39 2.17 1.93 1.83 1.82
Extraordinary loss on early
extinguishment of debt, net of tax.... -- (0.15) (0.25) -- (0.14) -- --
Cumulative effect of changes in
accounting principles, net of tax..... -- (3.54) (3.55) -- -- -- --
Net income (loss)....................... 0.59 (3.19) (1.41) 2.17 1.79 1.83 1.82
Balance Sheet Data
Total assets............................ 24,670 23,825 24,308 23,810 23,179 22,196 21,161
Working capital (deficiency)............ (1,489.8) (898.2) (868.7) (929.3) (1,370.3) (919.0) (324.7)
Long-term debt.......................... 5,471 5,708 5,459 5,716 5,675 5,483 5,456
Dividends declared per common
share(A).............................. 0.3950 0.3775 1.51 1.46 1.42 1.38 1.30
Book value per common share(A)(B)....... 13.00 11.96 12.68 15.51 14.76 14.31 13.92
Weighted average common shares
outstanding........................... 601.8 600.1 599.8 600.2 600.3 600.9 601.1
</TABLE>
- ------------------
(A) Prior years have been restated to reflect a two for one stock split
effective May 25, 1993.
(B) Shareholders' equity used in book value per common share calculations
includes extraordinary loss and changes in accounting principles.
SBC Recent Development
SBC announced on July 22, 1994 that its net income for the three months
ended June 30, 1994 was $385.5 million, or $.64 per share, compared to the
comparable period in 1993 when SBC's net income before extraordinary loss was
$338.0 million and SBC's net income after extraordinary loss was $294.4 million.
These results were achieved on revenues for the quarter of approximately $2.76
billion, an increase over the comparable period in 1993 when SBC's revenues were
$2.54 billion.
15
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables set forth for Associated Common Stock and SBC Common
Stock certain historical, pro forma combined and pro forma equivalent per share
financial information as of and for the three months ended March 31, 1994 and
for the year ended December 31, 1993. The pro forma combined amounts included in
the table below are based on the purchase method of accounting and a preliminary
allocation of the purchase price. The following information should be read in
conjunction with and is qualified in its entirety by the consolidated financial
statements and accompanying notes of Associated and SBC included in the
documents described under 'Incorporation of Certain Information by Reference,'
the combined financial statements and accompanying notes of the Associated
Business to be Merged included elsewhere herein, and the pro forma condensed
combined financial information and accompanying notes of Spinco set forth under
'Pro Forma Condensed Combined Financial Information' included in the Information
Statement attached hereto as Appendix D.
EQUIVALENT ASSOCIATED PRO FORMA PER COMMON SHARE
DATA (A)
<TABLE>
<CAPTION>
ASSOCIATED TOTAL PRO
HISTORICAL PRO FORMA SBC SPINCO FORMA
---------- ------------- ------ ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1993
(Loss) earnings per common share
before extraordinary item and
cumulative effect of accounting
changes........................ $ (.06) $ .80 $ (.05) $ .75
Dividends per common share....... -- $ .52 -- $ .52
Three months ended March 31, 1994
(Loss) earnings per common share
before extraordinary items and
cumulative effect of accounting
changes........................ $ (.02) $ .20 $ (.02) $ .18
Dividends per common share....... -- $ .14 -- $ .14
As of March 31, 1994
Book value per common share...... $ 8.54 $ 4.67 $16.91 $ 21.58
</TABLE>
- ------------------
(a) Pro forma data reflect the pro forma equivalent of one share of Associated
Common Stock calculated by (i) multiplying the SBC pro forma combined per
share data times an assumed Conversion Number of .3450 and (ii) multiplying
the Spinco net loss by 0.5 (representing the fraction of a share of Spinco
Common Stock (1/4 of a share of Spinco Class A Common Stock and 1/4 of a
share of Spinco Class B Common Stock) to be distributed per share of
Associated Common Stock in the Distribution) and dividing by the pro forma
number of shares of Spinco Common Stock expected to be outstanding after the
Distribution. See 'Pro Forma Condensed Combined Financial Information'
including the notes thereto and the Spinco combined historical financial
information included in the Information Statement attached hereto as
Appendix D. The assumed Conversion Number is based upon numerous
assumptions, including (i) an Average SBC Price of $42.75, (ii) an Effective
Time of December 31, 1994, (iii) aggregate payments or accruals of
$7,416,250 in interest on indebtedness of the Retained Company from January
1, 1994 through the Effective Time, (iv) aggregate payments of $23,821,359
to holders of Associated Stock Options, (v) aggregate payments of $5,000,000
pursuant to the Bonus Pool, (vi) aggregate severance payments of $4,164,000
pursuant to certain of Associated's employment agreements and (vii)
37,491,156 total number of shares of Associated Common Stock outstanding as
of the Effective Time. See 'The Merger--Terms of the Merger--Conversion of
Associated Common Stock in the Merger.' The actual Conversion Number may be
more or less than .3450 depending upon changes in the foregoing assumptions.
<TABLE>
<CAPTION>
SBC PRO FORMA PER COMMON SHARE DATA
SBC SBC PRO
HISTORICAL FORMA
---------- ---------
<S> <C> <C>
Year ended December 31, 1993
Income (loss) per common share before
extraordinary loss and cumulative effect of
changes in accounting principles................ $ 2.39 $ 2.32
Dividends per common share........................ $ 1.51 $ 1.51
Three Months ended March 31, 1994
Income (loss) per common share before
extraordinary loss and cumulative effect of
changes in accounting principles................ $ .59 $ .58
Dividends per common share........................ $ .40 $ .40
As of March 31, 1994
Book value per common share....................... $13.00 $ 13.54
</TABLE>
16
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The unaudited pro forma information set forth below is presented to show
the estimated effect on Associated of the Distribution and the Merger as if they
had been consummated on March 31, 1994 for balance sheet presentation purposes
and January 1, 1993 for income statement presentation purposes subject to the
assumptions and adjustments in the accompanying Notes to the pro forma financial
information.
The pro forma adjustments to Associated Business to be Merged reflecting
the consummation of the Merger are based upon the assumptions set forth in the
Notes hereto. This pro forma financial information should be read in conjunction
with the financial data appearing under 'SUMMARY--Selected Historical Financial
Information' and the historical financial statements of Associated which have
been incorporated herein by reference. See 'AVAILABLE INFORMATION' and
'INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.' This pro forma financial
information should also be read in conjunction with the combined financial
statements of the Associated Business to be Merged and the Notes thereto
contained herein, and the combined financial statements of ACDI and the Notes
thereto and the Pro Forma Condensed Combined Financial Statements of ACDI and
the Notes thereto contained in the Information Statement attached as Appendix D
hereto.
The pro forma financial information differs from the combined financial
statements of Associated Business to be Merged and ACDI presented elsewhere
herein and in the Information Statement attached as Appendix D hereto,
respectively, principally as a result of (i) differing assumptions as to the
date of the Merger for accounting purposes, (ii) the presentation of Merger
adjustments and (iii) other matters referred to in the respective notes thereto.
17
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL POSITION
MARCH 31, 1994
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ASSOCIATED BUSINESS ASSOCIATED
TO BE MERGED BUSINESS TO
ASSOCIATED ACDI BEFORE MERGER MERGER BE MERGED
HISTORICAL DISTRIBUTION ADJUSTMENTS ADJUSTMENTS AS ADJUSTED
---------- ------------ ------------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and equivalents (deficit)................... $ 7,510 $ (39) $ 7,471 $ (33,360)(A) $ (17,977)
7,912(C)
Accounts receivable, net......................... 16,769 (1,438) 15,331 0 15,331
Notes receivable from foreign affiliates......... 3,874 (3,874) 0 0 0
Inventory held for resale........................ 3,432 (1,636) 1,796 0 1,796
Other current assets............................. 7,652 (2,040) 5,612 7,522(B) 12,437
(697)(C)
--------
---------- ------------ ----------- -----------
Total current assets........................... 39,237 (9,027) 30,210 (18,623) 11,587
Noncurrent Assets:
Property, plant, and equipment, net.............. 40,948 (4,817) 36,131 0 36,131
Marketable equity securities..................... 442,632 (442,632) 0 0 0
Intangible assets, net........................... 79,464 0 79,464 0 79,464
Other noncurrent assets.......................... 33,389 (18,099) 15,290 0 15,290
--------
---------- ------------ ----------- -----------
noncurrent assets.............................. 596,433 (465,548) 130,885 0 130,885
TOTAL ASSETS..................................... $635,670 $ (474,575) $ 161,095 $ (18,623) $ 142,472
---------- ------------ -------- ----------- -----------
---------- ------------ -------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities......... $ 14,939 $ (1,544) $ 13,395 $ 7,215(A) $ 20,610
Stock appreciation rights payable................ 9,926 0 9,926 (9,926)(D) 0
Deferred payable................................. 2,746 0 2,746 0 2,746
Short-term obligations........................... 4,200 (4,200) 0 0 0
---------- ------------ -------- ----------- -----------
Total current liabilities...................... 31,811 (5,744) 26,067 (2,711) 23,356
---------- ------------ -------- ----------- -----------
Noncurrent Liabilities:
Long-term obligations............................ 126,523 (1,323) 125,200 0 125,200
Deferred income taxes............................ 153,333 (150,748) 2,585 0 2,585
Minority interests............................... 3,639 50 3,689 0 3,689
---------- ------------ -------- ----------- -----------
Total noncurrent liabilities................... 283,495 (152,021) 131,474 0 131,474
---------- ------------ -------- ----------- -----------
Stockholders' Equity:
Preferred stock, par value $1.00 per share;
authorized 10,000,000 shares; none issued...... -- -- -- -- --
Common stock:
Class A, par value $.10 per share; authorized
60,000,000 shares; 18,200,538 issued and
outstanding.................................... 1,820 1,820 (1,820)(E) 0
Class B, par value $.10 per share; authorized
60,000,000 shares; 19,274,968 issued and
outstanding.................................... 1,927 1,927 (1,927)(E) 0
Common stock, par value $1.00 per share, issued
and outstanding 100 shares..................... -- -- 0(E) 0
Additional paid-in capital....................... 5,319 5,319 3,747(E) 9,066
Unrealized gains on marketable equity securities,
net of taxes................................... 283,169 (283,169) 0 0 0
Retained earnings (deficiency)................... 28,129 (33,641) (5,512) (15,912)(F) (21,424)
---------- ------------ -------- ----------- -----------
Total stockholders' equity..................... 320,364 (316,810) 3,554 (15,912) (12,358)
---------- ------------ -------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....... $635,670 $ (474,575) $ 161,095 $ (18,623) $ 142,472
---------- ------------ -------- ----------- -----------
---------- ------------ -------- ----------- -----------
</TABLE>
(A) Reflects estimated transaction costs consisting of (i) aggregate payments of
$23,821,359 to holders of Associated Stock Options, (ii) aggregate severance
payments of $4,164,000 pursuant to certain of Associated's employment
agreements, (iii) aggregate payments of $5,000,000 pursuant to the Bonus
Pool, and (iv) $375,000 to redeem the Associated Rights, for a total of
$33,360,359. See 'The Merger--Interests of Certain Persons in the
Transactions.' Also reflected is an additional accrued liability of
$7,215,000 in financial advisory, legal, accounting, printing and
similar expenses which are expected to be incurred by Associated
Business to be Merged.
(B) Reflects $1,000,000 tax benefit generated by ACDI and allocable to
Associated Business to be Merged in accordance with the terms of the Merger
Agreement, as well as the current and deferred tax effects of the payments
referred to in clauses (i) through (iii) of note (A).
(C) Reflects net settlement of intercompany balances between ACDI and Associated
Business to be Merged, primarily relating to certain transaction costs
described in note (A).
(D) Reflects elimination of stock appreciation rights payable in conjunction
with the cash-out of Associated Stock Options referred to in clause (i) of
note (A).
(E) Reflects the elimination of the Associated Business to be Merged equity
accounts, the corresponding increase in additional paid-in capital and the
issuance of 100 shares of Associated Business to be Merged common stock to a
wholly owned subsidiary of SBC.
(F) Reflects the changes in retained earnings (deficiency) resulting from the
cumulative effect of the adjustments discussed in notes (A), (B) and (D).
18
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ASSOCIATED
BUSINESS ASSOCIATED
TO BE BUSINESS
MERGED TO BE
BEFORE MERGED
ASSOCIATED ACDI MERGER MERGER AS
HISTORICAL DISTRIBUTION ADJUSTMENTS ADJUSTMENTS ADJUSTED
---------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues....................................... $ 97,555 $ (6,075) $91,480 $ 0 $ 91,480
Cost and expenses:
Cost of services and goods sold................ 31,727 (2,314) 29,413 0 29,413
Operating expenses............................. 19,598 (1,051) 18,547 0 18,547
General and administrative expenses............ 29,569 (5,700) 23,869 (856)(A) 23,013
Depreciation and amortization expense.......... 18,187 (1,295) 16,892 0 16,892
---------- ------------ ----------- ----------- ----------
99,081 (10,360) 88,721 (856) 87,865
---------- ------------ ----------- ----------- ----------
Operating (loss) income........................ (1,526) 4,285 2,759 856 3,615
Other income (expense):
Interest and dividend income................... 885 (667) 218 0 218
Interest income (expense)--affiliates.......... 0 (2,680) (2,680) 2,680(B) 0
Interest expense............................... (5,736) 278 (5,458) (150)(C) (5,608)
Equity in income and loss of cellular telephone
joint ventures............................... 5,555 1,239 6,794 0 6,794
Minority interests............................. (1,747) (146) (1,893) 0 (1,893)
---------- ------------ ----------- ----------- ----------
(1,043) (1,976) (3,019) 2,530 (489)
---------- ------------ ----------- ----------- ----------
(Loss) income before income taxes and
cumulative effect of accounting change for
income taxes................................. (2,569) 2,309 (260) 3,386 3,126
Income taxes (benefit)......................... (423) 338 (85) 1,384(D) 1,299
---------- ------------ ----------- ----------- ----------
(Loss) income before cumulative effect of
accounting change for income taxes........... (2,146) 1,971 (175) 2,002 1,827
Cumulative effect of accounting change for
income taxes................................. 3,314 (883) 2,431 0 2,431
---------- ------------ ----------- ----------- ----------
Net income (loss).............................. $ 1,168 $ 1,088 $ 2,256 $ 2,002 $ 4,258
---------- ------------ ----------- ----------- ----------
---------- ------------ ----------- ----------- ----------
</TABLE>
- ------------------
(A) Reflects adjustment of general and administrative expenses in an amount
equal to the difference between the historical amounts and those assumed to
be charged by SBC based upon the amounts allowed to be paid under the
Distribution Agreement. See 'The Distribution--Terms of the Distribution
Agreement-- Intercompany Adjustment.'
(B) Reflects elimination of interest expense on intercompany loans from ACDI to
Associated Business to be Merged.
(C) Assuming the ACDI II Senior Reducing Credit Facility continues after the
Merger, reflects adjustment for additional interest expense as a result of
an increase in the effective interest rate due to release of TCI stock
pledged by ACDI on behalf of Associated Business to be Merged. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations of Associated Business To Be Merged--Liquidity and Capital
Resources.'
(D) Reflects the adjustment to income taxes of Associated Business to be Merged
for presentation on a stand-alone basis and adjusted for the cumulative
effect of the adjustments discussed in notes (A), (B) and (C) above.
19
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1994
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ASSOCIATED BUSINESS
TO BE MERGED ASSOCIATED BUSINESS
ASSOCIATED ACDI BEFORE MERGER MERGER TO BE MERGED
HISTORICAL DISTRIBUTION ADJUSTMENTS ADJUSTMENTS AS ADJUSTED
---------- ------------ ------------------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
Revenues........................... $ 25,619 ($ 1,244) $24,375 $ 0 $24,375
Cost and expenses:
Cost of services and goods sold.... 8,674 (384) 8,290 0 8,290
Operating expenses................. 5,727 (237) 5,490 0 5,490
General and administrative
expenses......................... 8,052 (2,414) 5,638 0 5,638
Depreciation and amortization
expense.......................... 4,735 (353) 4,382 0 4,382
---------- ------------ ------------------- ----------- -------------------
27,188 (3,388) 23,800 0 23,800
---------- ------------ ------------------- ----------- -------------------
Operating (loss) income............ (1,569) 2,144 575 0 575
Other income (expense):
Interest and dividend income....... 452 (392) 60 0 60
Interest expense................... (1,389) 15 (1,374) (173)(A) (1,547)
Equity in income and loss of
cellular telephone joint
ventures......................... 1,700 222 1,922 0 1,922
Minority interests................. (550) (2) (552) 0 (552)
---------- ------------ ------------------- ----------- -------------------
213 (157) 56 (173) (117)
---------- ------------ ------------------- ----------- -------------------
(Loss) income before income taxes
and cumulative effect of
accounting change for income
taxes............................ (1,356) 1,987 631 (173) 458
Income taxes (benefit)............. (770) 1,129 359 (198)(B) 161
---------- ------------ ------------------- ----------- -------------------
(Loss) income before cumulative
effect of accounting change for
income taxes..................... (586) 858 272 25 297
Cumulative effect of accounting
change for income taxes.......... 0 0 0 0 0
---------- ------------ ------------------- ----------- -------------------
Net income (loss).................. $ (586) $ 858 $ 272 $ 25 $ 297
---------- ------------ ------------------- ----------- -------------------
---------- ------------ ------------------- ----------- -------------------
</TABLE>
- ------------------
(A) Assuming the ACDI II Senior Reducing Credit Facility continues after the
Merger, reflects adjustment for additional interest expense as a result
of an increase in the effective interest rate due to release of TCI
stock pledged by ACDI on behalf of Associated Business to be Merged.
See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations of Associated Business To Be Merged--Liquidity and
Capital Resources.'
(B) Reflects the adjustment to income taxes of Associated Business to be
Merged for presentation on a stand-alone basis exclusive of interperiod
income tax allocations and adjusted for the effect of the adjustment
discussed in note (A).
20
<PAGE>
SPECIAL FACTORS RELATING TO SPINCO
For a discussion of certain considerations relating to Spinco, see 'Special
Factors' in the Information Statement attached hereto as Appendix D.
Stockholders are urged to read the Information Statement in its entirety.
THE ANNUAL MEETING
GENERAL
This Proxy Statement-Prospectus is being furnished to holders of Associated
Common Stock in connection with the solicitation of proxies by the Associated
Board for use at the Annual Meeting, to be held at the Meeting Room of Gateway
Towers, 320 Fort Duquesne Boulevard, Pittsburgh, Pennsylvania, on Thursday,
September 22, 1994, at 2:00 p.m. local time and any adjournments or
postponements thereof, (i) to consider and vote upon a proposal to approve and
adopt the Merger Agreement, (ii) to elect one director, to hold office for a
term of three years and until a successor shall be elected and shall qualify and
(iii) to transact such other business as may properly come before the Annual
Meeting or any adjournments or postponements thereof.
Each copy of this Proxy Statement-Prospectus mailed to holders of
Associated Common Stock is accompanied by a form of proxy for use at the Annual
Meeting.
STOCKHOLDERS ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ACCOMPANYING
PROXY CARD AND RETURN IT PROMPTLY TO ASSOCIATED IN THE ENCLOSED, POSTAGE-PAID
ENVELOPE.
This Proxy Statement-Prospectus is also furnished to Associated
stockholders as the prospectus of SBC relating to the issuance by SBC of shares
of SBC Common Stock in connection with the Merger.
RECORD DATE
The Associated Board has fixed the close of business on July 26, 1994 as
the record date (the 'Record Date') for the determination of the holders of
Associated Common Stock entitled to receive notice of and to vote at the Annual
Meeting and at any adjournments or postponements thereof.
VOTE REQUIRED
As of the Record Date, 18,200,538 shares of Class A Common Stock and
19,290,618 shares of Class B Common Stock were outstanding and held by
approximately 503 and 382 holders of record of the Class A Common Stock and
Class B Common Stock, respectively. Each share of Class A Common Stock
outstanding on the Record Date will be entitled to one vote and each share of
Class B Common Stock outstanding on the Record Date will be entitled to 1/25th
of a vote upon each matter to come before the Annual Meeting. Approval and
adoption of the Merger Agreement requires the affirmative vote of 66 2/3% of the
total number of votes entitled to be cast at the Annual Meeting. The affirmative
vote of a majority of the votes entitled to be cast at the Annual Meeting is
required in order to elect a director. The affirmative vote of a majority of the
votes represented in person or by proxy and entitled to vote at the Annual
Meeting is required in order to adjourn the Annual Meeting. Holders of Class A
Common Stock and Class B Common Stock will vote together without regard to class
upon the matters to come before the Annual Meeting.
The presence in person or by proxy at the Annual Meeting of a majority of
the number of votes entitled to be cast is necessary to constitute a quorum for
the transaction of business. Abstentions will be counted as present for purposes
of determining whether a quorum is present. With respect to the proposal to
approve and adopt the Merger Agreement, abstentions will have the same effect as
a vote against such proposal and, with respect to the election of the Associated
Board's nominee for director, the withholding of authority with respect to such
nominee will have the same effect as a vote against the election of such
nominee. Under the rules of the NASD, brokers who hold shares in street name for
customers will not have the authority to vote on the proposal to approve and
adopt the Merger Agreement unless they receive specific instructions from
beneficial owners. While such a broker non-vote will be counted as present for
purposes of a quorum, it will have the same effect as a vote against approval
and adoption of the Merger Agreement.
Pursuant to the Voting Agreement dated as of February 23, 1994 (the 'Voting
Agreement'), the Chairman of the Board and the President of Associated have
agreed with SBC that they will vote 2,532,418 and 696,456
21
<PAGE>
shares of Class A Common Stock, respectively, in favor of approval and adoption
of the Merger Agreement. Such shares constitute approximately 17% of the votes
eligible to be cast at the Annual Meeting as of the Record Date. See 'The
Merger--Voting Agreement.'
As of the Record Date, directors and executive officers of Associated owned
beneficially an aggregate of 4,444,709 shares of Class A Common Stock (including
those shares subject to the Voting Agreement and shares issuable upon the
exercise of employee stock options which are currently exercisable or which
become exercisable within 60 days), or approximately 24.4 percent of the shares
of Class A Common Stock outstanding on such date, and 5,457,694 shares of Class
B Common Stock (including shares issuable upon the exercise of employee stock
options which are currently exercisable or which become exercisable within 60
days), or approximately 28.1 percent of the shares of Class B Common Stock
outstanding on such date. All directors and executive officers of Associated
have indicated their intention to vote their shares of Associated Common Stock
in favor of the proposal to approve and adopt the Merger Agreement.
As of the Record Date, directors and executive officers of SBC owned no
shares of Associated Common Stock.
VOTING AND REVOCATION OF PROXIES
Shares of Associated Common Stock represented by a proxy properly signed
and received at or prior to the Annual Meeting, unless subsequently revoked,
will be voted in accordance with the instructions thereon. IF A PROXY IS SIGNED
AND RETURNED WITHOUT INDICATING ANY VOTING INSTRUCTIONS, SHARES OF ASSOCIATED
COMMON STOCK REPRESENTED BY THE PROXY WILL BE VOTED FOR THE PROPOSAL TO APPROVE
AND ADOPT THE MERGER AGREEMENT, FOR THE ELECTION OF DONALD H. JONES AS A
DIRECTOR OF ASSOCIATED AND WILL CONFER AUTHORITY TO VOTE TO ADJOURN THE ANNUAL
MEETING FOR UP TO 30 DAYS TO SOLICIT ADDITIONAL VOTES IF NECESSARY TO APPROVE
AND ADOPT THE MERGER AGREEMENT. Any proxy given pursuant to this solicitation
may be revoked by the person giving it at any time before the proxy is voted by
the filing of an instrument revoking it or of a duly executed proxy bearing a
later date with the Secretary of Associated prior to or at the Annual Meeting,
or by voting in person at the Annual Meeting. All written notices of revocation
and other communications with respect to revocation of proxies should be
addressed to Associated Communications Corporation, 200 Gateway Towers,
Pittsburgh, Pennsylvania, 15222. Attention: Secretary. Attendance at the Annual
Meeting will not in and of itself constitute a revocation of a proxy.
The Associated Board is not currently aware of any matters to come before
the Annual Meeting other than as described herein. If, however, other matters
are properly brought before the Annual Meeting, or any adjournments or
postponements thereof, the persons appointed as proxies will have discretion to
vote or act thereon according to their best judgment.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
Associated, who will not be specifically compensated for such services, may
solicit proxies from Associated stockholders personally or by telephone,
telecopy or telegram or other forms of communication. Brokerage houses,
nominees, fiduciaries and other custodians will be requested to forward
soliciting materials to beneficial owners and will be reimbursed for their
reasonable expenses incurred in sending proxy materials to beneficial owners.
In addition, Associated has retained MacKenzie Partners, Inc. to assist in
the solicitation of proxies from its stockholders. The fees to be paid to such
firm for such services by Associated are not expected to exceed $8,500, plus
reasonable out-of-pocket costs and expenses. Associated will bear the expenses
in connection with the solicitation of proxies for the Annual Meeting. However,
under the Distribution Agreement, such expenses will be treated as an
intercompany loan from Associated to Spinco, which is taken into account in
calculating an overall 'true-up' payment from the Surviving Corporation to
Spinco or from Spinco to the Surviving Corporation, as the case may be. See 'The
Distribution--Terms of the Distribution Agreement--Intercompany Adjustment.'
APPRAISAL RIGHTS
Holders of Associated Common Stock will not be entitled to any dissenters'
or appraisal rights in connection with the matters to be voted upon at the
Annual Meeting. See 'The Merger--Absence of Appraisal Rights.'
22
<PAGE>
THE COMPANIES
ASSOCIATED
Associated is principally engaged in selected aspects of the communications
business. Associated has interests in six domestic cellular telephone systems
(the 'Retained Business'), which will constitute all of the interests and assets
of Associated at the Effective Time. See 'The Distribution.' Associated's other
assets and businesses which are anticipated to comprise Spinco currently include
(i) a portfolio of marketable equity securities with a market value at July 26,
1994 of approximately $475 million, (the 'Portfolio Securities'), including
equity securities of TCI representing approximately 3.62%, and approximately
5.79% of the voting power, of all outstanding shares of TCI common stock and
equity securities of Liberty representing approximately 2.54%, and approximately
6.39% of the voting power, of all outstanding shares of Liberty common stock (in
each case before the consummation of the proposed combination of Liberty with
TCI described under 'The Company--Marketable Equity Securities' in the
Information Statement), (ii) an indirect equity interest in a Mexican
corporation which operates a cellular telephone system in Mexico, (iii) indirect
equity interests in two Mexican corporations formed for the development of
specialized mobile radio systems in Mexico, (iv) ownership of a microwave
communications business, (v) ownership of, or equity interests in, other private
communications businesses, (vi) ownership of four radio broadcasting stations,
two AM and two FM, and (vii) ownership of a retail art gallery. These assets and
businesses had an aggregate net book value at March 31, 1994, as reflected on
the Combined Balance Sheet of ACDI and Subsidiaries included in the Information
Statement, of $316,811,000. The book value of the Portfolio Securities is stated
at market value, net of a deferred tax on the unrealized gain. See Note 3 to the
Combined Balance Sheet of ACDI and Subsidiaries included in the Information
Statement. The mailing address of Associated's principal executive offices is
200 Gateway Towers, Pittsburgh, Pennsylvania 15222.
The 'Retained Business' means and includes the assets, liabilities, capital
stock and partnership interests which appear on an audited balance sheet
reflecting the assets and liabilities of Associated and its subsidiaries as of
December 31, 1993 after giving pro forma effect to the Asset Transfers (as
defined herein), the Distribution and the Merger (as if the Asset Transfers, the
Distribution and the Merger had occurred on December 31, 1993), and as such
assets and liabilities may have changed since the date of the Retained Business
Balance Sheet (as defined below) delivered by Associated to SBC pursuant to the
Merger Agreement (the 'Retained Business Balance Sheet'), but in any event
includes all of Associated's direct and indirect right, title and interest
(including minority interests) in, and assets used in, cellular businesses in
the United States and its territories (except for certain assets specified in
the Merger Agreement), including, without limitation, in Albany Telephone
Company (including the assets of the Glens Falls cellular system), Buffalo
Telephone Company, Genesee Telephone Company, Pittsburgh Cellular Telephone
Company ('PCTC') and Bay Area Cellular Telephone Company ('BACTC') and all of
Associated's Alternative Minimum Tax ('AMT') tax credits. The 'Retained Company'
or the 'Retained Company Group' means Associated and those of its direct and
indirect subsidiaries included in the Retained Business.
SBC
SBC is a communications holding company, which in 1993 had operating
revenues of approximately $10.69 billion and income before extraordinary loss
and cumulative effect of changes in accounting principles of approximately $1.44
billion. At December 31, 1993, SBC had total assets of approximately $24.31
billion. SBC's subsidiaries are engaged principally in communications services,
including the provision of local telephone exchange services and wireless
telephone services. Southwestern Bell Telephone Company provides telephone
services in the states of Arkansas, Kansas, Missouri, Oklahoma and Texas
(five-state area) and is SBC's largest subsidiary, accounting for approximately
71 percent of SBC's 1993 income before extraordinary loss and cumulative effect
of changes in accounting principles; through its other subsidiaries SBC provides
wireless communications services; owns interests in directory, cable television
and telecommunications businesses in Australia, Israel, Mexico and the United
Kingdom; engages in the sale of advertising for and publication of Yellow Pages
and White Pages directories and in other directory-related activities; engages
in the production and distribution of non-Bell telephone directories and in
other directory-related activities; sells customer premises and private business
exchange equipment; and is engaged in the general directory and commercial
printing business.
SBC was incorporated under the laws of the State of Delaware in 1983 by
AT&T as one of seven regional holding companies formed to hold AT&T's local
telephone companies. AT&T divested SBC by means of a spin-
23
<PAGE>
off of stock to its shareowners on January 1, 1984. The divestiture was made
pursuant to the MFJ. The mailing address of SBC's principal executive offices is
175 E. Houston, San Antonio, Texas 78205-2233.
PURCHASER
Purchaser, an indirect wholly owned subsidiary of SBC, was formed by SBC
solely for the purpose of effecting the Merger. The mailing address of
Purchaser's principal executive offices is 175 E. Houston, San Antonio, Texas
78205-2233.
For a more detailed description of the respective businesses of Associated
and SBC, including audited and unaudited financial information, see 'Available
Information' and 'Incorporation of Certain Information by Reference.' For a more
detailed description of the business of Spinco, including audited and unaudited
financial information, see the Information Statement attached as Appendix D to
this Proxy Statement-Prospectus.
THE MERGER
This section of the Proxy Statement-Prospectus describes certain aspects of
the proposed Merger. To the extent that it relates to the Merger Agreement, the
following description does not purport to be complete and is qualified in its
entirety by reference to the Merger Agreement, which is attached as Appendix A
to this Proxy Statement-Prospectus and is incorporated herein by reference. ALL
STOCKHOLDERS ARE URGED TO READ THE MERGER AGREEMENT IN ITS ENTIRETY.
BACKGROUND OF THE MERGER
Associated's management has regularly reviewed possible strategies and
transactions to enhance Associated's competitiveness and position various
cellular and noncellular assets in a manner which would increase the value of
those assets and of Associated's business and operations, and thereby result in
a continued increase in stockholder value. These possible strategies and
transactions generally included acquisitions, joint ventures or dispositions
involving interests in cellular systems and other communications businesses and
technologies or a sale of Associated as a whole, as well as various secured
financing alternatives utilizing Associated's cellular assets or the Portfolio
Securities. As part of this ongoing review process, commencing early in 1993,
Associated began discussing with Salomon Brothers Inc ('Salomon Brothers')
various strategic and financing alternatives available to Associated, in light
of the concern of the Associated Board that Associated's size relative to other
companies in the cellular industry and the increasing consolidation in that
industry could limit somewhat Associated's ability to compete in the future, the
mix of Associated's assets and operations, and the Associated Board's view that
the stock market did not reflect appropriately the value of Associated. The
Associated Board's view regarding the stock market valuation of Associated was
based principally on its belief that investors would be better able to evaluate
the merits and future prospects of the assets and businesses which will comprise
Spinco if such assets and businesses were separated from Associated, thereby
enhancing the likelihood that such assets and businesses would achieve an
enhanced market valuation based on their performance and potential. The
alternatives discussed with Salomon Brothers involved possible strategies for
obtaining financing through the issuance of debt securities secured by the
Portfolio Securities or swapping the Portfolio Securities for an operating
business, as well as transactions involving the sale of Associated's cellular
interests or the entire company.
Principally because Associated concluded that the financing and swap
transactions referred to above would not adequately address the concerns noted
above with respect to Associated's size, the increasing consolidation in the
cellular industry and Associated's ability to compete in the future, Associated
determined not to pursue such alternatives at that time. Accordingly, during the
spring and summer of 1993, Associated explored with Salomon Brothers possible
structures for various transactions involving the sale or other disposition or
deployment of some or all of Associated's businesses and assets. In September
1993, the Associated Board determined to continue to explore various strategic
alternatives which might be available to Associated in light of the foregoing
considerations, and authorized Salomon Brothers to prepare materials and contact
companies on a preliminary basis to determine whether a sale of all or
substantially all of Associated's assets or equity, or of its cellular
businesses and interests, to, or a business combination between Associated and,
one of such companies was possible at an appropriate price.
During the fall of 1993, Salomon Brothers contacted twenty-three companies
on a confidential basis, including SBC. Certain nonpublic information concerning
Associated was provided to, and bids solicited from, eleven of those companies,
including SBC, which continued to express an interest in a possible transaction.
24
<PAGE>
Associated continued discussions with SBC and one other bidder based upon
Associated's determination of the relative strength of such bids. Discussions
with other bidders, as well as companies who continued to express interest but
had not submitted a formal bid, were terminated primarily as a result of lower
valuations offered by these companies.
Associated continued negotiations with SBC from late December 1993 through
February 23, 1994. These negotiations were conducted principally at a number of
meetings attended by representatives of Associated and SBC and their respective
legal and/or financial advisors. Negotiations were also conducted telephonically
from time to time during such period. During several meetings in January 1994,
the parties agreed in principle on the basic pricing structure for the Merger
(although not the final price), whereby SBC would pay a total consideration for
Associated's domestic cellular businesses based on their net equity value as of
December 31, 1993, less certain deductions. At these meetings and during several
meetings and discussions in February, the parties negotiated, and shortly before
execution of the Merger Agreement agreed upon, the final pricing structure,
including the 7% accretion factor (an increase in the purchase price of 7% per
annum commencing on July 23, 1994), the material conditions to which the Merger
would be subject (including conditions relating to SBC's compliance with the
MFJ), the circumstances in which Associated would be entitled to terminate the
Merger Agreement upon receipt of an alternative offer, the fee which would be
payable to SBC in such event, and that termination of the Merger Agreement would
result in termination of the Voting Agreement. Also, shortly before entering
into the Merger Agreement, the parties agreed on the terms of the 'collar' with
respect to the number of shares of SBC Common Stock to be issued in the Merger
and the trading period for determining the Average SBC Price, as well as certain
restrictions on SBC's purchase of SBC Common Stock during and for a specified
period prior to such trading period.
The positions of the parties during the course of the negotiations
regarding the specific terms referred to above are summarized briefly below.
With respect to an accretion factor, Associated insisted that this was
appropriate since, as noted above, the pricing structure was based on the value
of Associated as of December 31, 1993 (less certain deductions) and SBC was
acquiring any earnings of the Associated Business to be Merged after that date.
Accordingly, Associated asserted that the consideration to be paid should
include an accretion factor, commencing on January 1, 1994, thereby providing
Associated stockholders with the approximate economic benefit of the future
earnings growth of the Associated Business to be Merged. SBC initially took the
position that this factor was reflected in the purchase price and therefore
accretion was not appropriate, and during the negotiations sought to defer the
commencement of the accretion period.
With respect to a closing condition relating to compliance with the MFJ,
SBC sought to provide for maximum discretion on its part in determining whether
such condition had been met, while Associated sought to provide for an objective
standard or otherwise limit SBC's discretion in this regard.
With respect to provisions regarding termination of the Merger Agreement
and termination fees, SBC initially argued that it should be able to terminate
the Merger Agreement and collect a termination fee if Associated provided
information to a third party concerning an alternative acquisition transaction,
and that the Voting Agreement should extend for a term significantly beyond the
termination of the Merger Agreement. Associated sought maximum flexibility to
consider other proposals and insisted that the ability to collect a fee under
such circumstances, and the survival of the Voting Agreement, might eviscerate
the Associated Board's ability to entertain alternative offers, and was
therefore not appropriate.
With respect to a collar and related matters decribed above, SBC insisted
that a collar was necessary, initially requested a five day trading period for
determining the Average SBC Price and sought to minimize any limitations on
SBC's ability to purchase shares of SBC Common Stock prior to such trading
period. Associated resisted a collar, requested a longer trading period, and
requested limitations on SBC's ability to purchase shares of SBC Common Stock
prior to such trading period.
As described above, the various terms proposed by the parties were
negotiated in a number of meetings and discussions, and the final terms of the
Merger Agreement, which reflect the results of the negotiations with respect to
the above described and other terms, were accepted by the parties as a whole
without specific reference to the inclusion or omission of any particular term.
On February 22 and 23, 1994, the Associated Board considered the terms of the
Merger Agreement and the Distribution Agreement. Following the unanimous
approval of the Associated Board, the Merger Agreement was entered into late on
February 23, 1994, and was publicly announced on February 24, 1994.
25
<PAGE>
ASSOCIATED'S REASONS FOR THE MERGER; RECOMMENDATION OF THE ASSOCIATED BOARD
The Associated Board has unanimously determined the Merger to be fair to
and in the best interests of Associated and its stockholders. THE ASSOCIATED
BOARD HAS APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS ITS APPROVAL
AND ADOPTION BY ASSOCIATED STOCKHOLDERS.
In reaching this determination and recommendation, the Associated Board
considered the following factors:
(a) the terms and conditions of the Merger Agreement, including (i)
the amount and form of the consideration, (ii) the 'accretion' in the base
purchase price of 7% per annum commencing on July 22, 1994 if for any
reason the Merger is not consummated by such date, (iii) the terms and size
of the 'collar' on the amount of SBC Common Stock to be received in
connection with the Merger by Associated stockholders, (iv) the terms and
conditions under which Associated may terminate the Merger Agreement in
order to accept a more favorable transaction proposal from a third party
upon payment of a termination fee of $25 million, (v) the right of SBC to
terminate the Merger Agreement if Associated provides information to, or
enters into discussions with, a third party in connection with a possible
alternative acquisition transaction, and to receive a termination fee of
$25 million if thereafter Associated effects an alternative acquisition
transaction if entered into within 12 months of the date of termination or,
if such alternative acquisition transaction involves a tender or exchange
offer, if such offer is commenced within such 12-month period, and (vi) the
degree of flexibility provided to Associated to conduct the business of
Spinco prior to the Effective Time;
(b) the terms of the Voting Agreement, including that it terminates at
such time as the Merger Agreement is terminated in accordance with its
terms;
(c) the historical and prospective business of Associated, including,
among other things, the favorable financial condition of Associated, the
strategic direction of Associated's business and the need for Associated's
cellular businesses to expand, the existing conditions in, and future
prospects of, the cellular telephone industry and in particular the
increasing consolidation in that industry, the existing position of
Associated as an independent competitor in that industry and the likelihood
of Associated continuing as such given the increasing consolidation, and
the historical and future prospects of SBC and its existing financial
condition, as well as the existing conditions in, and future prospects of,
the telecommunications industry and the competitive position of SBC in that
industry;
(d) the fact that the Distribution and the Merger will allow
Associated stockholders to retain a significant continuing interest in the
communications and cable industries through their continuing ownership
interest in Spinco following the Distribution, and to retain a significant
continuing interest in the telecommunications industry in general and the
wireless industry in particular through their ownership of SBC Common Stock
(representing an aggregate of between approximately 3% of the outstanding
SBC Common Stock, if the Average SBC Price is $30 and 1.8% of the
outstanding SBC Common Stock, if the Average SBC Price is $50);
(e) historical data relating to market prices and trading volumes of
Associated Common Stock, historical data relating to market prices and
trading volumes of and dividends on SBC Common Stock and market prices of
SBC Common Stock compared to those of certain other publicly traded
companies;
(f) the regulatory approvals and tax ruling required for the Merger,
as well as the risks, uncertainties and possible delays associated with SBC
obtaining the MFJ Waiver (as defined herein), and the estimated length of
time required to consummate the Merger;
(g) the alternatives to the Merger, including, among other things,
remaining an independent entity, the possible availability of strategic
alliances or combinations with other entities and the risks associated with
and likelihood of any such alliances becoming available and being
completed;
(h) the fact that Salomon Brothers had solicited interest from 23
companies for the sale of all or a portion of Associated, and that SBC's
proposal which resulted in the Merger Agreement was, in the view of the
Associated Board, the most favorable proposal received by Associated;
(i) the structure of the Merger and the Distribution, which would
permit Associated stockholders to exchange all their Associated Common
Stock for SBC Common Stock, and to receive shares of Spinco Common Stock,
on a tax-free basis; and
(j) the presentation of Salomon Brothers delivered to the Associated
Board at its meetings on February 22 and 23, 1994, including its written
opinion dated February 23, 1994, that, as of February 23, 1994, the
26
<PAGE>
consideration to be received by Associated stockholders in connection with
the Merger and the Distribution, taken as a whole, is fair to such
stockholders from a financial point of view.
The Associated Board believes that the factors in paragraphs (a)(i)-(v),
(b), (h) and (j) above support its determination that the consideration to be
received in the Merger by Associated stockholders is fair. The terms of the
Merger Agreement described in paragraph (a)(i)-(v) above support its
determination that the consideration to be received by Associated stockholders
in the Merger is fair because the Associated Board believes (i) the amount of
SBC Common Stock to be received in the Merger, including as a result of the 7%
accretion, is fair, (ii) the size of the 'collar' is appropriate given the then
market price of SBC Common Stock and the actual and likely fluctuations in such
price over time and (iii) the conditions under which the Merger Agreement may be
terminated and the amount of the fee payable to SBC in the event of such
termination may allow a third party acquiror to make an offer with respect to an
alternative acquisition transaction which could provide more value to Associated
stockholders, and no offer with respect to such an alternative acquisition
transaction has been received. The Associated Board believes that the fact that
the Voting Agreement terminates at such time as the Merger Agreement terminates
(as noted in paragraph (b) above) allows the stockholders party to the Voting
Agreement to vote in favor of an alternative acquisition transaction and thus
would not deter a third party acquiror from making an offer which could provide
more value to Associated stockholders, and therefore supports its determination
that the consideration to be received by Associated stockholders is fair to such
stockholders, as evidenced by the fact that no such offers have been received.
The Associated Board believes that the fact that Salomon Brothers solicited
interest from 23 companies for a sale of all or a portion of Associated (as
noted in paragraph (h) above), and the fact that SBC's proposal which resulted
in the Merger Agreement was, in the view of the Associated Board, the most
favorable proposal received supports its determination that the consideration to
be received in the Merger is fair. In the view of the Associated Board, the
Salomon Brothers February 23, 1994 fairness opinion (referred to in paragraph
(j) above), and the substantially identical opinion of Salomon Brothers dated
July 29, 1994 (attached to this Proxy Statement as Appendix C), because they
provide independent opinions that the consideration to be received by Associated
stockholders in connection with the Merger and the Distribution, taken as a
whole, is fair to such stockholders from a financial point of view, further
supports its determination that the consideration to be received by Associated
stockholders is fair.
The Associated Board believes that the factors in paragraphs (a) (vi), (c),
(d), (e), (g) and (i) above support its determination that the Merger is in the
best interests of Associated and its stockholders. The Associated Board believes
that the factor in clause (vi) of paragraph (a) above supports its determination
that the Merger is in the best interests of Associated and its stockholders
because the degree of flexibility provided to Associated under the Merger
Agreement in conducting the business of Spinco will allow Associated to continue
to attempt to maximize the value of Spinco's assets and businesses, thereby
potentially providing more value for Associated stockholders. The Associated
Board believes that the historical, current and prospective conditions in the
cellular telephone industry referred to in paragraph (c) above support its
determination that the Merger is in the best interests of Associated and its
stockholders because the Associated Board believes it may be difficult for a
cellular operator of Associated's size to continue to compete effectively unless
it can become affiliated with other cellular operators. The Associated Board
believes the fact that Associated stockholders will receive SBC Common Stock in
the Merger as noted in paragraph (d) above supports its determination that the
Merger is in the best interests of Associated and its stockholders because the
Associated Board believes the telecommunications industry in general and the
wireless industry in particular (and SBC as a competitor in such industries)
have attractive future prospects. The factors in paragraph (e) above, in the
Associated Board's opinion, support its determination that the Merger is in the
best interests of Associated and its stockholders because Associated
stockholders will receive in the Merger common stock of a communications holding
company, with income (before extraordinary loss and cumulative effect of changes
in accounting principles) in 1993 of approximately $1.44 billion, which, in the
Associated Board's opinion, has the size to compete effectively in the cellular
telephone industry and its other businesses, which has historically paid a
regular cash dividend (while Associated has not) and the common stock of which
has a substantial public float thereby providing enhanced liquidity to
Associated stockholders. The Associated Board believes the factor in paragraph
(g) above, and the fact that Associated explored other possibilities prior to
entering into the Merger Agreement, support its determination that the Merger is
in the best interests of Associated and its stockholders because after exploring
these possibilities the Associated Board determined that the Merger and the
Distribution represented the most attractive alternative in light of the
likelihood of achieving, the risks associated with, and the overall value which
would be provided by, such other possibilities and in light of the other factors
discussed above. Finally, the Associated Board believes the factor in paragraph
(i) above supports its determination that the Merger is in the best interests
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of Associated stockholders because such stockholders will generally have the
ability to retain an interest in Spinco, and receive SBC Common Stock, without
having to pay federal income taxes on the shares received in the Merger and
Distribution until such shares are sold.
The Associated Board considered the regulatory approvals and tax ruling
required for the Merger (referred to in paragraph (f) above), but believes that
the risks and uncertainties involved in obtaining such approvals and the tax
ruling are outweighed by what it believes are the advantages of the Merger for
Associated and its stockholders as summarized above.
Based on all of these considerations, and such other matters as the members
of the Associated Board deemed relevant, the Associated Board unanimously
approved the Merger Agreement and the transactions contemplated thereby.
The foregoing discussion of the information and factors considered and
given weight by the Associated Board is not intended to be exhaustive but is
believed to include all material factors considered by the Associated Board. In
addition, in reaching the determination to approve and recommend the Merger
Agreement, the Associated Board did not assign any relative or specific weights
to the foregoing factors which were considered, and individual directors may
have given differing weights to different factors. The Associated Board is,
however, unanimous in its recommendation to the holders of Associated Common
Stock that the Merger Agreement be approved and adopted.
THE ASSOCIATED BOARD UNANIMOUSLY RECOMMENDS THAT ASSOCIATED STOCKHOLDERS
VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
OPINION OF THE FINANCIAL ADVISOR TO THE ASSOCIATED BOARD
Opinion of Salomon Brothers to the Associated Board
Salomon Brothers delivered to the Associated Board its written opinion
that, as of February 23, 1994, the consideration to be received by Associated
stockholders in connection with the Merger and the Distribution, taken as a
whole, is fair to such stockholders from a financial point of view. Salomon
Brothers has also delivered to the Associated Board a substantially identical
opinion, dated July 29, 1994, to the same effect. No limitations were imposed by
the Associated Board upon Salomon Brothers with respect to the investigations
made or the procedures followed by it in rendering its opinions.
THE FULL TEXT OF THE OPINION OF SALOMON BROTHERS DATED JULY 29, 1994, WHICH
SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS APPENDIX C TO THIS PROXY STATEMENT-PROSPECTUS.
ASSOCIATED STOCKHOLDERS ARE URGED TO READ THE OPINION IN ITS ENTIRETY. SALOMON
BROTHERS' OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE CONSIDERATION TO BE
RECEIVED BY THE ASSOCIATED STOCKHOLDERS IN THE DISTRIBUTION AND THE MERGER AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY ASSOCIATED STOCKHOLDER AS TO HOW
SUCH STOCKHOLDER SHOULD VOTE. THE SUMMARY OF THE OPINION OF SALOMON BROTHERS SET
FORTH IN THIS PROXY STATEMENT-PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinions Salomon Brothers (i) reviewed the Merger
Agreement and its related schedules, (ii) reviewed certain publicly available
business and financial information relating to Associated, (iii) reviewed
certain other information, including financial forecasts, provided to Salomon
Brothers by Associated and (iv) met with Associated management to discuss the
business of Associated. With respect to SBC, Salomon Brothers reviewed only
publicly available business and financial information. Salomon Brothers also
considered such other information, financial studies, analyses and
investigations and financial, economic, market and trading criteria which it
deemed relevant.
In connection with its review, Salomon Brothers did not independently
verify any of the foregoing information and Salomon Brothers relied on such
information being complete and accurate in all material respects. With respect
to the financial forecasts, Salomon Brothers assumed that they had been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of Associated management as to the future financial performance of
Associated. In addition, for purposes of its opinions, Salomon Brothers did not
make an independent evaluation or appraisal of any of the assets of Associated
or of SBC, nor was it furnished with any such appraisals.
On February 22, 1994, Salomon Brothers presented at a meeting of the
Associated Board a report (the 'Salomon Brothers Report') in connection with
Salomon Brothers' fairness opinion delivered on February 23, 1994. All directors
of Associated (Messrs. Jack N. Berkman, Myles P. Berkman, Donald H. Jones,
Joseph A.
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Katarincic and David J. Berkman) were present at and participated in the
meeting. The following is a summary of the report presented by Salomon Brothers.
Comparable Company Analysis
Salomon Brothers reviewed and compared the financial, operating and market
performance of the following group of eight publicly traded cellular
communications companies with that of Associated: Cellular Communications, Inc.;
Centennial Cellular Corp.; Contel Cellular Inc.; LIN Broadcasting Corporation;
McCaw Cellular Communications, Inc.; PacTel Corporation; United States Cellular
Corp. and Vanguard Cellular Systems, Inc. (collectively, the 'Comparable
Group'). Salomon Brothers selected the Comparable Group companies on the basis
of various factors, the most important of which was each company's concentration
in the cellular business. Salomon Brothers examined certain publicly available
or estimated financial and market data for each member of the Comparable Group,
including the ratios of firm value (defined as equity market value adjusted by
adding long-term debt and subtracting cash, marketable securities and estimated
cash proceeds from the exercise of certain stock options) to earnings before
interest, taxes, depreciation and amortization ('EBITDA') for the last twelve
months (ranging from 18.0x to 70.0x, with a median of 26.4x) and to estimated
1994 EBITDA (ranging from 12.4x to 30.8x, with a median of 18.1x), the net
number of United States persons ('POPs') represented by the interests owned in
Metropolitan Statistical Areas ('MSAs') and Rural Service Areas ('RSAs') and the
implied per POP value for the MSA POPs and the MSA and RSA POPs. Salomon
Brothers then calculated the mean and median (i) net number of MSA POPs and RSA
POPs, (ii) implied MSA (ranging from $156 to $290, with a median of $182) and
MSA and RSA (ranging from $120 to $290, with a median of $174) per POP values
and (iii) multiples of firm value to EBITDA for the Comparable Group. Salomon
Brothers arrived at a per POP public market valuation range of Associated of
$160 to $170 ($165 to $175 in its analysis for purposes of the July 29, 1994
opinion) by reference to the multiples of firm value to EBITDA and the per POP
valuations of the companies in the Comparable Group, with particular weight
being assigned to the companies deemed most similar to Associated. The change in
Salomon Brothers' per POP public market valuation range for Associated between
the February 23, 1994 opinion and the July 29, 1994 opinion resulted from the
application of updated market data relating to EBITDA and per POP valuations of
companies in the Comparable Group.
Demographic Characteristics Analysis
Salomon Brothers also reviewed and compared the demographic characteristics
of the markets served by the following group of three publicly traded cellular
communications companies with those of Associated: Vanguard Cellular Systems,
Inc., Centennial Cellular Corp. and Contel Cellular Inc. Salomon Brothers
selected the comparable companies on the basis of, among other things, the
similarity of the demographic characteristics of the areas served by such
companies to those served by Associated. Each of the comparable companies
selected is similar to Associated in that it has a high concentration of its
POPs in majority owned MSAs. Salomon Brothers derived a demographic index (based
on a multi-variable regression analysis of demographic statistics) for each of
the markets served by Associated and a weighted average demographic index for
all of Associated's markets and compared that demographic index to the indices
for the markets served by the comparable companies. Salomon Brothers then
derived a per POP demographic indices valuation range for Associated of
$180-$185 by reference to the per POP valuations of the comparable companies.
Comparable Acquisition Analysis
Salomon Brothers also reviewed the per POP acquisition prices paid or
proposed to be paid in other acquisitions of cellular communications companies
or properties. Specifically, Salomon Brothers reviewed the following
transactions: BellSouth Corporation/Mobile Communications Corp. of America
(2/19/88); Comcast Corporation/American Cellular Network Corp. (2/10/88); Rogers
Communications, Inc./Ameritech's 17% interest in Cantel (3/23/88); Century
Communications Corp./Providence Journal Telecommunications Inc. (3/29/88);
Centel Corporation/United Telespectrum (5/27/88); Rogers Communications,
Inc./Rogers Telecommunications Minority Interest (12/20/88); British
Communications Plc/Minority Interest in McCaw (1/19/89); Price Communications
Corp./Majority Interest in Wichita Falls, TX (2/15/89); Contel Corporation/McCaw
Cellular Communications (10/3/89); LIN Broadcasting Corp./Metromedia Co.
(10/27/89); ALLTEL/Pond Branch Telco (10/31/89); McCaw Cellular Communications,
Inc./LIN Broadcasting Corp. (12/5/89); McCaw Cellular Communications,
Inc./Cellular Communications, Inc. (Dallas) (1/11/90); Vanguard Cellular
Providence Journal JV/Vanguard's North Carolina Properties (1/22/90); GTE
Corporation/Providence Journal (Southeast) (4/20/90); Pacific Telesis
Group/Cellular Communications, Inc. (7/25/90); Continental
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Illinois Venture/Celutel, Inc. (11/30/90); BellSouth Enterprises, Inc./Graphic
Scanning Corp. (12/31/90); BellSouth Enterprises, Inc./GTE Corporation's
Southeastern Properties (3/7/91); U S WEST, Inc./U S WEST NewVector, Inc.
(3/25/91); BellSouth Enterprises, Inc./McCaw Wisconsin Properties (4/11/91);
Comcast Corporation/Metromedia Co. (5/7/91); Ameritech Corp./CyberTel Financial
Corp. (5/28/91); McCaw Cellular Communications/Crowley Cellular's Properties
(7/18/91); PacTel Telesis Group/McCaw Cellular Joint Venture (8/29/91); Bell
Atlantic Corporation/Metro Mobile CTS, Inc. (9/24/91); BellSouth Enterprises,
Inc./RAM Broadcasting Corporation (10/10/91); Associated Communications
Corporation/McCaw's New York Properties (8/3/92); Initial AT&T/McCaw Cellular
Communications, Inc. (11/4/92); AT&T/McCaw Cellular Communications, Inc.
(8/16/93) and Century Telephone Enterprises/Celutel, Inc. (8/19/93). Salomon
Brothers also considered the ratio of firm value to EBITDA in certain recent
comparable acquisition transactions, including the August 1993 AT&T/McCaw
transaction. Salomon Brothers then derived a per POP private market valuation
range for Associated of between $175 and $200 by reference to the per POP prices
paid in the comparable acquisitions and to the multiples of firm value to EBITDA
represented by the consideration in the AT&T/McCaw transaction.
During the course of the Salomon Brothers presentation, members of the
Associated Board made inquiries regarding the methodology utilized by Salomon
Brothers in selecting cellular communications companies comparable to Associated
and the various analyses considered. In response to questions, Salomon Brothers
informed the Associated Board that it selected the Comparable Group of companies
used in the comparable company analysis on the basis of various factors, the
most important of which was each company's concentration in the cellular
business, and that it selected the comparable companies used in the demographic
characteristics analysis on the basis of, among other things, the similarity of
the demographic characteristics of the areas served by such companies to those
served by Associated. Salomon Brothers also discussed the accretion factor and
the effect of the accretion on the purchase price. In response to a question
concerning the range of the collar, Salomon Brothers reviewed the trading
history of SBC Common Stock in relation to the collar, noting that the market
price of SBC Common Stock had never exceeded $50 per share (the upper range of
the collar).
Salomon Brothers calculated that the price per POP of Associated in the
Merger, using a transaction value of $701.3 million (representing the accreted
purchase price as of December 31, 1994, before any deductions provided in the
Merger Agreement), is $187 per POP. This per POP price is within or exceeds the
per POP valuation ranges resulting from each of the foregoing analyses. Salomon
Brothers believes that, subject to the assumptions and other limitations
contained in their opinions, the results of such analyses support its opinions
that, as of the respective dates of such opinions, the consideration to be
received by the stockholders of the Company in connection with the Merger and
the Distribution, taken as a whole, is fair to such stockholders from a
financial point of view. In arriving at its opinions, and in presenting the
Salomon Brothers Report, Salomon Brothers performed certain financial analyses,
the material portions of which are summarized above. The summary set forth above
does not purport to be a complete description of Salomon Brothers' analyses.
Salomon Brothers believes that its analyses and the summary set forth above must
be considered as a whole and that selecting portions of its analyses could
create an incomplete view of the process underlying the analyses set forth in
the opinions and the Salomon Brothers Report. In performing its analyses,
Salomon Brothers made numerous assumptions with respect to industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of Associated and SBC.
No company or transaction used in the comparable company analysis,
demographic characteristic analysis or comparable acquisition analysis
summarized above is identical to Associated or the Merger. Accordingly, any such
analysis of the value of the proposed Merger involves complex considerations and
judgments concerning differences in the potential financial and operating
characteristics of the comparable companies and other factors in relation to the
trading and acquisition values of the comparable companies and publicly
announced transactions.
Salomon Brothers is an internationally recognized investment banking firm
and regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions and for other purposes. The Associated
Board selected Salomon Brothers to act as its financial advisor on the basis of
Salomon Brothers' international reputation and Salomon Brothers' familiarity
with Associated and the cellular industry in general. Salomon Brothers has
previously acted as financial advisor to SBC in connection with financings and
other matters unrelated to the Merger for which it has received customary
compensation. In the course of its business, Salomon Brothers actively trades
the equity securities of Associated and the debt and equity securities of SBC
for
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its own account and for the accounts of customers. Accordingly, Salomon Brothers
may at any time hold a long or short position in such securities.
Fees Payable to Salomon Brothers
Associated has paid Salomon Brothers fees of $150,000 in respect of its
services in connection with the Merger. In addition, Associated has agreed to
pay Salomon Brothers a fee upon the closing of the Merger that will be not less
than 1% of the first $17.5 million of the Aggregate Transaction Value of the
Merger plus .5% of the Aggregate Transaction Value of the Merger in excess of
$17.5 million. For purposes of the foregoing, the 'Aggregate Transaction Value'
of the Merger will be an amount equal to $680,000,000, increased at a rate of
seven percent per annum commencing on July 22, 1994, and ending on the day prior
to the Effective Time, less $21,400,000. Associated has also agreed to reimburse
Salomon Brothers for its out-of-pocket expenses, including reasonable fees and
disbursements of counsel. Associated has agreed to indemnify Salomon Brothers
and its affiliates, their respective directors, officers, partners, agents and
employees and each person, if any, controlling Salomon Brothers or any of its
affiliates against certain liabilities, including certain liabilities under the
federal securities laws, relating to or arising out of its engagement. The fees
paid to Salomon will be treated as an intercompany advance from the Retained
Company Group to the Spinco Group for purposes of calculating the True-Up
Payment described under 'The Distribution--Terms of the Distribution
Agreement--Intercompany Adjustment.'
TERMS OF THE MERGER
The Merger
At the Effective Time, Associated, SBC and Purchaser will consummate the
Merger in which Purchaser will be merged with and into Associated, with
Associated as the Surviving Corporation, and the separate existence of Purchaser
shall cease. As a result of the Merger, Associated will become an indirect
wholly owned subsidiary of SBC.
Certificate of Incorporation and Bylaws
The Merger Agreement provides that the Certificate of Incorporation of
Purchaser at the Effective Time will be the Certificate of Incorporation of the
Surviving Corporation until amended in accordance with applicable law. The
Bylaws of Purchaser in effect at the Effective Time will become the Bylaws of
the Surviving Corporation until amended in accordance with applicable law.
Directors and Officers
The directors of Purchaser at the Effective Time will become the initial
directors of the Surviving Corporation, each to hold office from the Effective
Time in accordance with the Certificate of Incorporation and Bylaws of the
Surviving Corporation and until his or her successor is duly elected and
qualified. The officers of Purchaser at the Effective Time will become the
initial officers of the Surviving Corporation, each to hold office from the
Effective Time in accordance with the Certificate of Incorporation and Bylaws of
the Surviving Corporation and until his or her successor is duly appointed and
qualified. The current officers of Associated will not be employed by the
Surviving Corporation following the Merger.
Conversion of Associated Common Stock in the Merger
Pursuant to the Merger Agreement, at the Effective Time, each issued and
outstanding share of Associated Common Stock (other than shares of Associated
Common Stock that are owned by Associated as treasury stock and any shares of
Associated Common Stock owned by SBC, Purchaser or any other wholly owned
subsidiary of SBC) will be converted into the right to receive the Conversion
Number (rounded to the nearest one-thousandth of a share) of a fully paid and
nonassessable share of SBC Common Stock determined by (i) dividing the Aggregate
Purchase Price by the number of shares of Associated Common Stock outstanding at
the Effective Time to arrive at a price Per Share Price of Associated Common
Stock and then (ii) dividing the Per Share Price by the Average SBC Price. The
'Average SBC Price' will be equal to the Trading Average of the closing prices
of the SBC Common Stock on the NYSE Composite Transactions Reporting System, as
reported in The Wall Street Journal, for the five (5) trading days immediately
preceding the second trading day prior to the Effective Time; provided, that if
the Trading Average is less than $30.00 then the Average SBC Price shall be
$30.00, unless Associated notifies SBC in writing prior to the Closing Date (as
defined below) that it is unwilling to accept a $30.00 Average SBC Price, in
which case, upon receipt of such written notice, SBC may elect either to
terminate the Merger Agreement or to cause the Average SBC Price to be the
Trading Average or such greater amount as SBC and Associated may agree; and
provided, further, that if the Trading Average is greater than the Maximum SBC
Price of $50.00, increased at a rate of seven percent (7%) per annum commencing
on July 22,
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1994 and ending on the day prior to the Effective Time, then the Average SBC
Price shall be the Maximum SBC Price, unless SBC notifies Associated in writing
prior to the Closing Date that it is unwilling to accept the Maximum SBC Price
as the Average SBC Price, in which case, upon receipt of such written notice,
Associated may elect to either terminate the Merger Agreement or to cause the
Average SBC Price to be the Trading Average or such lesser amount as Associated
and SBC may agree.
All such shares of Associated Common Stock, when so converted, shall no
longer be outstanding and shall automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate representing any such shares
shall cease to have any rights with respect thereto, except the right to receive
the shares of SBC Common Stock and any cash in lieu of fractional shares of SBC
Common Stock to be issued or paid in consideration therefor upon the surrender
of such certificate in accordance with the Merger Agreement without interest. As
of the Record Date, 18,200,538 shares of Class A Common Stock and 19,290,618
shares of Class B Common Stock were outstanding. Associated does not anticipate
any material change in the number of shares of Associated Common Stock
outstanding during the period between the Record Date and the Effective Time,
although holders of Associated Stock Options are entitled to exercise such
Associated Stock Options, which would increase the number of shares of
Associated Common Stock outstanding.
The 'Aggregate Purchase Price' will be an amount equal to $680,000,000 (six
hundred and eighty million dollars), increased at a rate of seven percent (7%)
per annum commencing on July 22, 1994 and ending on the day prior to the
Effective Time, minus the sum of (i) $122,237,000, (comprised of $123,237,000,
representing certain debt which will remain with the Retained Company or be
repaid prior to the closing of the Merger, net of an amount of cash (determined
in accordance with the Merger Agreement) reflected on the Retained Business
Balance Sheet, less $1 million representing an agreed upon amount in respect of
certain potential net tax benefits of the Retained Company) and (ii) 0.64 times
the sum of (A) the total amount of interest paid or accrued from January 1, 1994
through the Effective Time on indebtedness of the Retained Company and its
subsidiaries, (B) the aggregate amount paid or payable by Associated to holders
of Associated Stock Options (as hereinafter defined) as contemplated by the
Merger Agreement (see '--Interests of Certain Persons in the Transactions--
Cash-Out of Associated Stock Options'), (C) the aggregate amount of bonuses paid
or payable by Associated and its subsidiaries pursuant to the Bonus Pool (as
defined herein) as contemplated by the Merger Agreement (see 'The
Merger--Interests of Certain Persons in the Transactions--Bonus Pool') and (D)
the aggregate amount of severance payable pursuant to certain of Associated's
employment agreements (see 'The Merger-- Interests of Certain Persons in the
Transactions--Employment Agreements; Indemnification').
The Merger Agreement further provides that, if, after the date of the
Merger Agreement and prior to the Effective Time, SBC shall have declared a
stock split (including a reverse split) of SBC Common Stock or a dividend
payable in SBC Common Stock, or any other distribution of securities or
extraordinary dividend (in cash or otherwise) to holders of SBC Common Stock
with respect to their SBC Common Stock (including without limitation such a
distribution or dividend made in connection with a recapitalization,
reclassification, merger, consolidation, reorganization or similar transaction)
then (i) the $30.00 minimum Average SBC Price and the Maximum SBC Price shall be
appropriately adjusted to reflect such stock split or dividend or other
distribution of securities and (ii) if such stock split, dividend or
distribution has a record date during or after the Averaging Period and prior to
the Effective Time, then the number of shares of SBC Common Stock to be issued
upon conversion of a share of Associated Common Stock shall be appropriately
adjusted to reflect such stock split, dividend or other distribution of
securities. The Merger Agreement provides that if SBC purchases shares of SBC
Common Stock pursuant to a Premium Tender Offer (as defined below) then the
amount of the per share Premium (as defined below) multiplied by the number of
shares of SBC Common Stock purchased pursuant to the Premium Tender Offer shall
be deemed for purposes of the preceding sentence to be an extraordinary dividend
on SBC Common Stock. A 'Premium Tender Offer' shall be a tender offer pursuant
to which SBC purchases shares of SBC Common Stock at a price in excess of (i)
the average of the closing prices of the SBC Common Stock on the NYSE, as
reported in The Wall Street Journal, for the five trading days immediately
preceding announcement of such tender offer multiplied by (ii) 1.10, with the
per share amount of any such excess being the 'Premium.'
Cash in Lieu of Fractional Shares. No fractional shares of SBC Common Stock
will be issued in the Merger. The Merger Agreement provides that each Associated
stockholder who otherwise would have been entitled to receive a fractional share
of SBC Common Stock will be entitled to receive, in lieu thereof, an amount in
cash equal to such fraction multiplied by the Average SBC Price.
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EFFECTIVE TIME; CLOSING
The Merger will become effective and the Effective Time will occur
contemporaneously with or immediately following the Distribution, upon the
filing of a certificate of merger (the 'Certificate of Merger') with the
Secretary of State of Delaware or at such time thereafter as is provided in the
Certificate of Merger. The Merger Agreement provides that the closing of the
Merger (the 'Closing') will take place on a date to be specified by the parties
to the Merger Agreement, which date shall be no later than the seventeenth
business day after the satisfaction or waiver of certain of the conditions
specified therein or on such other date as the parties thereto may agree;
provided, that (i) if SBC makes a public announcement during the Averaging
Period of an event that has a material effect on the business, assets or results
of operations of SBC and its subsidiaries taken as a whole and Associated's
financial advisor has advised Associated and its subsidiaries that such
announcement would reasonably be expected to have a temporary effect on the
price of SBC Common Stock, Associated may, by written notice to SBC, elect to
delay the commencement of the Averaging Period until the fifth trading day after
such announcement and thereby delay the Closing and (ii) in the event SBC shall
announce an intention to commence or shall commence a tender offer for more than
five percent of the outstanding shares of SBC Common Stock, Associated may, by
written notice to SBC, elect to delay commencement of the Averaging Period until
the twentieth trading day after SBC accepts shares for purchase pursuant to such
tender offer or otherwise terminates or abandons such tender offer and thereby
delay the Closing. See '--Conditions.' The date and time at which the Closing
occurs is referred to herein as the 'Closing Date.'
EXCHANGE OF CERTIFICATES IN THE MERGER
As soon as practicable after the Effective Time, the Surviving Corporation
shall cause the Exchange Agent (as defined in the Merger Agreement) to mail to
each holder of record of a certificate or certificates which immediately prior
to the Effective Time represented outstanding shares of Associated Common Stock
(the 'Certificates') (i) a letter of transmittal and (ii) instructions for use
in effecting the surrender of Certificates in exchange for certificates
representing shares of SBC Common Stock. ASSOCIATED STOCKHOLDERS ARE REQUESTED
NOT TO SURRENDER THEIR CERTIFICATES FOR EXCHANGE UNTIL SUCH LETTER OF
TRANSMITTAL AND INSTRUCTIONS ARE RECEIVED. Until surrendered, each Certificate
shall be deemed at any time after the Effective Time to represent only the right
to receive a certificate representing that number of whole shares of SBC Common
Stock into which the shares of Associated Common Stock formerly represented by
such Certificate were converted in the Merger and a cash payment in lieu of any
fractional shares of SBC Common Stock. The holders of Certificates will not be
entitled to receive dividends or other distributions declared or made after the
Effective Time with respect to SBC Common Stock until such Certificates are
surrendered and no cash payment with respect to fractional shares shall be paid
to any such holder. There shall be paid to the record holder of the SBC Common
Stock issued in exchange for each Certificate, without interest, (i) at the time
of such surrender, the amount of cash payable in lieu of any fractional shares
of SBC Common Stock to which such holder is entitled and the amount of dividends
or other distributions with a record date after the Effective Time theretofore
previously paid with respect to such whole shares of SBC Common Stock, and (ii)
at the appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time but prior to such surrender and a
payment date subsequent to surrender payable with respect to such whole shares
of SBC Common Stock.
LISTING OF THE SBC COMMON STOCK ON THE NYSE
In the Merger Agreement SBC has agreed to use its best reasonable efforts
to cause the shares of SBC Common Stock to be issued in the Merger to be
approved for listing on the NYSE and any other national securities exchange on
which shares of SBC Common Stock may at such time be listed. Such approval for
listing is a condition to the obligations of Associated, SBC and Purchaser to
consummate the Merger.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
parties thereto. The Merger Agreement includes representations and warranties by
Associated as to: the corporate organization of the Retained Company; the
capitalization of Associated; the authorization of the Merger Agreement and the
Distribution Agreement; required consents and approvals; the noncontravention of
any agreement, law, or charter or bylaw provision by the Merger Agreement, the
Distribution Agreement and the consummation by Associated of the transactions
contemplated thereby; the absence of the need, except as specified, for
governmental consents to the Merger to be obtained by Associated; the accuracy
of Associated's SEC reports and financial statements; the accuracy of
information supplied by Associated for use in this Proxy Statement-Prospectus
and the SBC Registration Statement; the accuracy of the pro forma balance sheet
relating to the Retained Business delivered to SBC, and certain other matters
relating to the Retained Business; pending or threatened litigation against the
Retained Business; the absence of any 'registration rights' with respect to the
securities of the Retained Company or SBC Common Stock; the fact that the Merger
Agreement and the Voting Agreement and the
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transactions contemplated thereby will not result, assuming the accuracy of
certain of SBC's representations, in a 'Triggering Event' or 'Distribution Date'
as defined in the Associated Rights Plan (as defined in 'Conduct of the Business
prior to the Effective Time; Certain Covenants--Associated Rights Plan'); the
terms, existence, operations, liabilities and compliance with applicable laws of
Associated's employee benefit plans; the absence of undisclosed liabilities of,
and of material adverse changes or events relating to, the Retained Business; no
violation of law by Associated; certain tax matters; the lack of labor
controversies relating to the Retained Business; certain environmental matters;
the sufficiency and validity of Associated's cellular licenses; Associated's
rights in certain intellectual property; obligations to brokers and finders;
certain transactions with affiliates; the completeness of Associated's
disclosure regarding its activities in certain specified areas, which activities
SBC is proscribed from engaging in by the MFJ (as defined in 'Conduct of
Business Prior to Effective Time; Certain Covenants--MFJ Covenants'); certain
agreements of the Retained Business; and the non-applicability of Section 203 of
the General Corporation Law of the State of Delaware (the 'DGCL') to the
transaction which resulted in SBC becoming an 'interested stockholder' within
the meaning of such Section.
The Merger Agreement also includes representations and warranties by SBC
and Purchaser as to: the corporate organization of SBC and Purchaser; the
capitalization of SBC; the authorization of the Merger Agreement; required
consents and approvals; the noncontravention of any agreement, law, or charter
or bylaw provision by the Merger Agreement and the consummation by SBC and
Purchaser of the transactions contemplated thereby; the absence of the need,
except as specified, for governmental consents to the Merger; the accuracy of
SBC's SEC reports and financial statements; the absence of undisclosed
liabilities; the accuracy of information supplied by SBC for use in this Proxy
Statement-Prospectus and the Registration Statement; ownership of Associated
Common Stock by SBC; and the lack of operations of Purchaser.
CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME; CERTAIN COVENANTS
Associated
The Merger Agreement provides that, during the period from the date of the
Merger Agreement until the Effective Time, except for the Asset Transfers, the
Distribution, and the other transactions expressly provided for in the
Distribution Agreement, as contemplated or permitted by the Merger Agreement, or
to the extent that SBC otherwise consents in writing:
(a) Associated and its subsidiaries shall carry on the Retained
Business in the usual, regular and ordinary course consistent with past
practice as a growing business and use its best reasonable efforts to
preserve intact the business organization of, keep available, consistent
with past practice, the services of the present officers and employees of
and preserve the relationships with customers, suppliers and others having
business dealings with, the Retained Business, it being understood that (i)
certain employees of the Retained Business will also be engaged in
activities for Spinco and its subsidiaries, (ii) the failure of any
employees of the Retained Business to remain employees of the Retained
Business or become employees of SBC or any subsidiary of SBC will not
constitute a breach of this covenant and (iii) the Retained Company and its
subsidiaries may comply with their respective contractual obligations under
the cellular system partnership agreements to which they are parties.
(b) Except for dividends paid by two partly-owned subsidiaries of
Associated, and the purchase from an individual or his assignees of his or
their interest in one of Associated's subsidiaries, Associated will not,
nor will it permit any subsidiaries of the Retained Company to, nor will
Associated propose to, (i) declare or pay any dividends on or make other
distributions in respect of any of its capital stock, except for the
Distribution and for dividends by a wholly owned subsidiary of Associated,
(ii) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock or (iii)
repurchase, redeem or otherwise acquire, or permit any subsidiary to
repurchase, redeem or otherwise acquire, any shares of capital stock of
Associated or any of its subsidiaries.
(c) The Retained Company shall not, nor shall the Retained Company
permit any of its subsidiaries to, issue, transfer or sell, or authorize or
propose or agree to the issuance, transfer or sale of, any shares of its
capital stock of any class, any bonds, debentures, notes or other
indebtedness having the right to vote (or convertible into securities
having the right to vote) ('Voting Debt') or other equity interests or any
securities convertible into, or any rights, warrants, calls, subscriptions,
options or other rights or agreements, commitments or understandings to
acquire, any such shares, Voting Debt, equity interests or convertible
securities, other than (i) the issuance of shares of Associated Common
Stock upon the exercise of stock options or stock grants outstanding on the
date of the Merger Agreement pursuant to Associated Stock Plans (as defined
herein) and in accordance with their present terms, (ii) issuances by a
wholly owned Subsidiary of its capital stock to its parent, and (iii) the
authorization and issuance of Associated Series A Preferred
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Stock upon exercise of Associated Rights (as defined herein) and
reservation for issuance of shares of Associated Series A Preferred Stock
in addition to those presently reserved for issuance.
(d) Associated shall not amend or propose to amend its Restated
Certificate of Incorporation or Bylaws.
(e) The Retained Company shall not, nor shall it permit any of its
subsidiaries to, acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof or otherwise acquire or agree to acquire any assets (other
than immaterial assets) outside the ordinary and usual course of business
consistent with past practice as a growing business; provided, Associated
shall be permitted to make certain agreed upon capital and other
expenditures.
(f) The Retained Company shall not, nor shall it permit any of its
subsidiaries to, sell, lease, license, encumber or otherwise dispose of, or
agree to sell, lease, license, encumber or otherwise dispose of, any of the
assets of the Retained Business other than in the ordinary course of
business and the sale or other disposition of obsolete equipment.
(g) The Retained Company shall not, nor shall it permit any of its
subsidiaries to, incur (which shall not be deemed to include (i) entering
into credit agreements, lines of credit or similar arrangements until
borrowings are made under such arrangements or (ii) refinancings of
existing indebtedness) any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities or warrants or
rights to acquire any debt securities of the Retained Company or any of its
subsidiaries or guarantee any obligations of others other than (x) in the
ordinary course of business consistent with past practice or (y) pursuant
to existing credit or guaranty agreements.
(h) The Retained Company shall not, nor shall it permit any of its
subsidiaries to, (i) enter into, adopt, amend (except as may be required by
law and except for immaterial amendments) or terminate any plan, contract
or arrangement which covers employees or former employees of the Retained
Company or other employee benefit plan or any agreement, arrangement, plan
or policy between the Retained Company or any such subsidiary and one or
more of its directors or officers or (ii) except for normal increases in
the ordinary course of business consistent with past practice and the
payment of bonuses to employees in the aggregate not to exceed $5,000,000,
increase in any manner the compensation or fringe benefits of any director,
officer or employee or pay any benefit to any director, officer or employee
not required by any plan or arrangement as in effect as of the date of the
Merger Agreement or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing; provided that the foregoing shall
not prohibit Associated from hiring and paying new employees in the
ordinary course of business consistent with past practice as a growing
business.
(i) Notwithstanding the fact that such action might otherwise be
permitted under the Merger Agreement, the Retained Company shall not, nor
shall it permit any of its subsidiaries to, take any action that would or
is reasonably likely to result in any of the conditions to the Merger not
being satisfied or would materially impair the ability of Associated to
consummate the Asset Transfers, the Distribution or the Merger in
accordance with the terms of the Merger Agreement and of the Distribution
Agreement or materially delay such consummation.
(j) Associated shall promptly advise SBC orally and in writing of any
change or development or combination of changes or developments that would
cause the representation regarding the absence of certain events having a
material adverse effect on the Retained Company and its subsidiaries taken
as a whole to be untrue. Associated shall promptly provide SBC (or its
counsel) copies of all filings (other than those filings, or portions
thereof, which SBC has no reasonable interest in obtaining in connection
with the Merger) made by Associated with any federal, state or foreign
governmental entity in connection with the Merger Agreement, the
Distribution Agreement and the transactions contemplated thereby.
(k) The Retained Company will not and will not permit any of its
subsidiaries to change any of its accounting principles, policies or
procedures, except as may be required by generally accepted accounting
principles.
(l) Associated shall (i) not engage in or allow transfers of assets or
liabilities or engage or enter into other transactions between the Retained
Company and its subsidiaries, on the one hand, and Spinco or any of its
subsidiaries, on the other hand, except as contemplated by the Distribution
Agreement, (ii) abide and cause Spinco to abide by their respective
obligations under the Distribution Agreement, (iii) not terminate or amend,
or waive compliance with any obligations under, the Distribution Agreement
and (iv) not make any payment, or permit any subsidiary of the Retained
Company to make any payment, to obtain any consent or approval relating to
Spinco and its subsidiaries; provided that this covenant does not prohibit
transfers of
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cash between the Retained Company and its subsidiaries and Spinco and its
subsidiaries, so long as such transfers are properly recorded on the
interest bearing intercompany accounts of the Retained Company and its
subsidiaries.
In addition, in the Merger Agreement Associated has agreed that during the
period from the date of the Merger Agreement and continuing to the Effective
Time, except as SBC shall otherwise agree in writing:
(a) Associated shall not and shall not permit its subsidiaries to make
any change in the lines of business engaged in by Spinco and any of its
subsidiaries as of the date of the Merger Agreement that would, based on
the facts and circumstances and conduct of the particular business,
materially increase the potential liability of the Retained Company under
statutes or legal doctrines permitting the imposition of liability on a
parent corporation in respect of the liabilities of its subsidiaries.
(b) Associated shall not, and shall not permit any of its subsidiaries
to, take any action, including, without limitation, with respect to the
terms of the Certificate of Incorporation or Bylaws of Spinco, that would
or is reasonably likely to result in any of the conditions to the Merger
set forth in the Merger Agreement not being satisfied or that would
materially impair the ability of Associated to consummate the Asset
Transfers and the Distribution in accordance with the terms of the
Distribution Agreement or the Merger in accordance with the terms of the
Merger Agreement or would materially delay such consummation or that would
disqualify the Distribution as a tax free spin-off within the meaning of
Section 355 of the Internal Revenue Code of 1986, as amended (the 'Code').
(c) Associated shall not, and shall not permit any subsidiary to,
exercise any option to purchase or enter into any lease or otherwise take
possession of the property located at 51 Broadway in Buffalo, New York,
without the prior written consent of SBC, which consent will not be
unreasonably withheld or delayed.
SBC
The Merger Agreement provides that, during the period from the date of the
Merger Agreement until the Effective Time:
(a) (i) SBC shall not take any action that would or is reasonably
likely to result in any of the conditions to the Merger set forth in the
Merger Agreement not being satisfied or that would materially impair the
ability of SBC to consummate the Merger in accordance with the terms of the
Merger Agreement or materially delay such consummation, (ii) SBC shall
promptly advise Associated orally and in writing of any change in, or event
with respect to, the business or operations of SBC having, or which insofar
as can reasonably be foreseen, could have, a material adverse effect on SBC
and its subsidiaries taken as a whole, (iii) SBC shall promptly provide
Associated (or its counsel) copies of all filings (other than those
portions of filings under HSR Act which Associated has no reasonable
interest in obtaining in connection with the Merger) made by SBC or
Purchaser with any Federal, state or foreign governmental entity in
connection with the Merger Agreement and the transactions contemplated
thereby, (iv) except to the extent that Associated shall otherwise consent
in writing, SBC shall not increase the matters sought to be covered by the
MFJ Waiver, and (v) SBC will not directly or indirectly control, supervise
or direct, or attempt to control, supervise or direct, the operation of the
Federal Communications Commission (the 'FCC') licensed facilities of
Associated and its subsidiaries, and the operations of Associated and the
subsidiaries shall be the sole responsibility of Associated and its
subsidiaries. See '--Certain Regulatory Matters-- MFJ.' SBC also agrees
that during the Averaging Period it will not purchase, redeem or otherwise
acquire, or offer or announce an intention to purchase, redeem or otherwise
acquire or permit any of its subsidiaries to purchase, redeem or otherwise
acquire, or offer or announce an intention to purchase, redeem or otherwise
acquire, any shares of SBC Common Stock and that on any of the ten trading
days immediately preceding the Averaging Period it will not purchase,
redeem or otherwise acquire, or announce an intention to purchase, redeem
or otherwise acquire, or permit any of its subsidiaries to purchase, redeem
or otherwise acquire, or announce an intention to purchase, redeem or
otherwise acquire, shares of SBC Common Stock in an amount greater than ten
percent of the average daily trading volume for SBC Common Stock on the
five preceding trading days.
(b) SBC shall not, and shall not permit any of its subsidiaries to,
take or cause or permit to be taken, any action that would disqualify the
Distribution as a tax-free spin-off within the meaning of Section 355 of
the Code.
(c) If required to consummate the Asset Transfers, the Distribution or
the Merger, SBC will, at Associated's request, as a part of the Closing,
lend or cause to be lent to Associated (pursuant to a demand promissory
note) any amount necessary to terminate all obligations of Associated and
its subsidiaries under the Credit Agreement dated as of September 28, 1993
by and among Associated Communications of Delaware, Inc. II and the Banks
party thereto, as amended, (the 'Credit Agreement'). The Merger
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Agreement further provides that the existence of borrowings under such
Credit Agreement shall not constitute a breach or violation of any
representation, covenant or agreement of Associated contained in the Merger
Agreement.
MFJ Covenants
SBC is subject to the MFJ, which prohibits SBC from engaging in certain
activities currently engaged in by the Retained Company. These activities of
Associated principally include interexchange telecommunications services
(including long distance resale) and the re-rating of charges assessed by other
cellular carriers for providing roaming services to customers of the Retained
Company. The Merger Agreement provides that Associated will modify the business
and operations of the Retained Company and its subsidiaries in the manner
previously disclosed by SBC to Associated pursuant to the Merger Agreement
(which are the modifications SBC considered necessary as of the date of the
Merger Agreement, together with the MFJ Waiver described below, to cause the
business and operations of the Retained Company and its Subsidiaries to comply
with the MFJ as of the Effective Time), and will take such additional action to
modify the business and operations of the Retained Company and its Subsidiaries
as SBC may request to cause the Retained Company and its Subsidiaries not to be
engaged in any MFJ Activities as of the Effective Time as determined by SBC in
its discretion exercised in good faith so long as such additional action (i)
arises out of the failure of Associated to disclose such activity (if required
by the Merger Agreement) or (ii) does not materially impair the value of the
Retained Business (taking into account any payment or reimbursement by SBC)
(collectively, the 'MFJ Transactions'). In the Merger Agreement SBC has agreed
to pay on behalf of Associated or reimburse Associated for the direct labor
costs and out-of-pocket expenses incurred in connection with the MFJ
Transactions, and to notify Associated promptly upon learning of the existence
of any MFJ Activities that will require action by Associated or any of its
subsidiaries so that the Retained Company and its subsidiaries are not engaged
in any MFJ Activities at the Effective Time. 'MFJ Activities' means all
activities, operations, services and facilities of the Retained Company or any
of its Subsidiaries (and any persons in which the Retained Company or any of its
Subsidiaries has any investment) that, if assumed or undertaken by SBC, would be
prohibited by the MFJ. See '--Certain Regulatory Matters--MFJ.'
In the Merger Agreement SBC has agreed to promptly prepare and file the MFJ
Motion with the DOJ and promptly after receipt of the DOJ's recommendation with
respect thereto, to file the MFJ Motion with the Court. SBC has filed the MFJ
Motion with the DOJ. See '--Certain Regulatory Matters--MFJ.' In addition, SBC
has agreed to promptly and continuously use its best reasonable efforts to
obtain a favorable recommendation from the DOJ and a favorable ruling from the
Court with respect to the MFJ Motion, including without limitation responding
promptly to any third party opposition thereto and otherwise vigorously pursuing
the issuance of such a favorable recommendation and ruling at the earliest
possible time. The Merger Agreement provides that the MFJ Motion for the MFJ
Waiver request will be to:
(a) allow the Retained Company to continue to own after the Effective
Time a 3% nonvoting interest in BACTC without any change in rights, and to
allow the system to be operated without regard to interexchange services
restrictions;
(b) allow the Retained Company to retain after the Effective Time a
35.7% voting interest in PCTC without any change in rights and to authorize
the operation of the system without regard to interexchange services
restrictions;
(c) allow the Retained Company to offer an integrated local calling
scope within the Rochester licensed area and certain adjacent areas; and
(d) allow the Retained Company to continue to provide certain
Canada-Buffalo local calling arrangements currently in place.
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Associated Rights Plan
In connection with and prior to the execution of the Merger Agreement,
Associated amended the Rights Agreement, dated as of January 3, 1989 (the
'Associated Rights Agreement'), between Associated and Mellon Bank, N.A., as
Rights Agent to provide, among other things, that neither SBC nor any of its
Affiliates or Associates (as such terms are defined in the Rights Agreement)
shall be deemed to be an Acquiring Person (as defined in the Rights Agreement)
by virtue of the Merger Agreement or of the Voting Agreement or the transactions
contemplated thereby or by virtue of the beneficial ownership by SBC and its
Associates and Affiliates, other than pursuant to the Voting Agreement, of (x)
additional shares of Associated Common Stock not in excess of 5% of the
Associated Common Stock then outstanding or (y) shares of Associated Common
Stock entitled to cast up to an additional 5% of the aggregate number of votes
entitled to be cast by all shares of Associated Common Stock then outstanding.
In the Merger Agreement, Associated has agreed to take all action necessary to
redeem the rights issued pursuant to the Associated Rights Agreement (the
'Associated Rights') so that the Associated Rights will no longer be outstanding
at the Effective Time. Associated intends to redeem the Rights at their
redemption price of $.01 per Right immediately prior to the Effective Time.
CERTAIN REGULATORY MATTERS
HSR Act and Antitrust
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the'HSR Act'), and the rules promulgated thereunder by the Federal Trade
Commission (the 'FTC'), certain transactions, including the Merger and the
Distribution (with respect to certain recipients of Spinco Common Stock pursuant
thereto), may not be consummated unless certain waiting period requirements have
been satisfied. On May 25, 1994, the Notification and Report Forms (the 'Report
Form') required pursuant to the HSR Act were filed by each of Associated and SBC
with the DOJ and the FTC for review in connection with the Merger. On June 23,
1994, Report Forms were also filed by ACDI (Spinco), Jack N. Berkman, the
Chairman of Associated, and Myles P. Berkman, President of Associated, in
connection with their acquisition of shares of Class A common stock, par value
$.10 per share (together with the accompanying Preferred Stock Purchase Right,
the 'Spinco Class A Common Stock'), and Class B common stock, par value $.10 per
share (together with the accompanying Preferred Stock Purchase Right, the
'Spinco Class B Common Stock' and, together with the Spinco Class A Common
Stock, the 'Spinco Common Stock'), of Spinco in the Distribution. (See
'Beneficial Ownership' in the Information Statement attached as Appendix D to
this Proxy Statement-Prospectus). The applicable waiting period with respect to
the Merger expired on June 24, 1994, and on July 8, 1994, early termination of
the applicable waiting period with respect to the acquisition by Jack N. Berkman
and Myles P. Berkman of Spinco Common Stock in the Distribution was received. At
any time before or after the Effective Time, the FTC, the DOJ or others could
take action under the antitrust laws with respect to the Merger or the
Distribution (with respect to the receipt by Messrs. Berkman named above of
Spinco Common Stock pursuant thereto), including seeking to enjoin the
consummation of the Merger or the Distribution or seeking the divestiture by SBC
of all or any part of the stock or assets of Associated.
MFJ
SBC is subject to the MFJ, which prohibits SBC (and thus the Surviving
Corporation, which will be a wholly owned subsidiary of SBC) from engaging in
certain activities currently engaged in by the Retained Company. On March 9,
1994, SBC submitted to the DOJ, for its review and comments by interested
parties, the MFJ Motion for the MFJ Waiver. Specifically, the MFJ Waiver would
permit the Surviving Corporation to continue after the Merger certain activities
which may be prohibited or limited by the interexchange restrictions of the MFJ.
(See 'Conduct of the Business Prior to the Effective Time; Certain
Covenants--MFJ Covenants'). On April 8, 1994, AT&T and MCI filed comments
opposing, in part, the MFJ Motion. SBC replied to such comments on April 29,
1994. The MFJ Motion is currently being reviewed by the DOJ. Following such
review,
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the DOJ will bring its recommendation in support of or against the MFJ Waiver to
the attention of SBC and of AT&T and MCI. SBC will then submit the MFJ Motion to
the Court for consideration by Judge Harold Greene in accordance with the MFJ.
The DOJ may respond to the MFJ Motion or file its own motion with the Court
within fourteen days of SBC's filing. See 'The Merger--Conditions.'
It is a condition to SBC's obligation to consummate the Merger that SBC
receive the MFJ Waiver, that the MFJ Transactions have been effected to the
satisfaction of SBC in the exercise of its good faith judgment and that the
Retained Company not be directly or indirectly engaged in any MFJ Activity
(other than through a minority investment in PCTC and a minority, non-voting
investment in BACTC and any other MFJ Activity covered by the MFJ Waiver). See
'Conduct of Business Prior to Effective Time; Certain Covenants--MFJ Covenants'
above and '--Conditions--Conditions of Obligations of SBC and Purchaser' below.
FCC
The FCC must grant prior approval of applications which Associated and SBC
filed on July 5, 1994 to transfer control of the cellular licenses from
Associated to SBC, and must also grant prior approval of applications, which are
expected to be filed shortly, to transfer control of microwave station licenses.
Applicable law requires the FCC to place the applications on public notice for
30 days during which time an interested person may file a petition(s) to deny
the application(s) or an informal objection(s) to the transfer(s) of control.
After the initial 30-day notice period, and after considering petitions to deny
and informal objections, responses by Associated and SBC to the petitions and
objections, and replies to such responses, if any, the FCC will grant or deny
the applications. The FCC places the grant or denial on public notice for an
additional 30 days during which time an interested person may file either a
petition for reconsideration or an application for review. After an additional
10 days for the FCC to reconsider its decision(s) on its own, the FCC's grant or
denial becomes final if a petition for reconsideration or an application for
review has not been filed, which filing would extend the processing time.
State Governmental Authorities
Associated and SBC have filed an application with the New York Public
Service Commission seeking approval of the Merger. The application was filed on
June 16, 1994 and is pending.
STOCK EXCHANGE LISTING
SBC has agreed in the Merger Agreement to use its best reasonable efforts
to cause the shares of SBC Common Stock to be issued in the Merger to be
approved for listing on the NYSE and any other national securities exchange on
which shares of SBC Common Stock may at such time be listed, subject to official
notice of issuance, prior to the Closing Date. Such approval for listing on the
NYSE is a condition to Associated's and SBC's obligations to consummate the
Merger. See '--Conditions--Conditions to Each Party's Obligation to Effect the
Merger' below.
INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that Associated shall, and from and after the
Effective Time SBC and the Surviving Corporation shall, indemnify, defend and
hold harmless each person who is now, or has been at any time prior to the date
of the Merger Agreement or who becomes prior to the Effective Time, an officer,
director or employee of Associated or any of its subsidiaries (the 'Indemnified
Parties') against (i) all losses, claims, damages, costs, expenses, liabilities
or judgments, or amounts that are paid in settlement with the approval of the
indemnifying party (which approval shall not be unreasonably withheld) of, or in
connection with, any claim, action, suit, proceeding or investigation based in
whole or in part on or arising in whole or in part out of the fact that such
person is or was a director, officer or employee of Associated or any of its
subsidiaries, whether pertaining to any matter existing or occurring at or prior
to the Effective Time and whether asserted or claimed prior to, or at or after,
the Effective Time ('Indemnified Liabilities') and (ii) all Indemnified
Liabilities based in
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whole or in part on, or arising in whole or in part out of, or pertaining to the
Merger Agreement, the Distribution (if and only if such Indemnified Liability is
based on acts or omissions or alleged acts or omissions existing or occurring at
or prior to the Distribution), the Merger or any other transactions contemplated
thereby, in each case to the full extent a corporation is permitted under the
DGCL (notwithstanding the Bylaws of Associated, the Surviving Corporation or
SBC) to indemnify its own directors, officers and employees, as the case may be
(and SBC and the Surviving Corporation, as the case may be, will pay expenses in
advance of the final disposition of any such action or proceeding to each
Indemnified Party to the full extent permitted by law upon receipt of any
undertaking contemplated by Section 145(e) of the DGCL). Without limiting the
foregoing, in the event any such claim, action, suit, proceeding or
investigation is brought against any Indemnified Party (whether arising before
or after the Effective Time), (i) the Indemnified Parties may retain counsel
satisfactory to them with the consent of Associated (or the consent of SBC and
the Surviving Corporation after the Effective Time) which consent of Associated
(or, after the Effective Time, SBC and the Surviving Corporation) with respect
to such counsel retained by the Indemnified Parties may not be unreasonably
withheld, (ii) Associated (or after the Effective Time, SBC and the Surviving
Corporation) shall pay all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received, and (iii)
Associated (or after the Effective Time, SBC and the Surviving Corporation) will
use all reasonable efforts to assist in the vigorous defense of any such matter,
provided that none of Associated, SBC or the Surviving Corporation shall be
liable for any settlement of any claim effected without its written consent,
which consent, however, shall not be unreasonably withheld.
The Merger Agreement further provides that, for a period of six years after
the Effective Time, SBC and the Surviving Corporation shall cause to be
maintained in effect the current policies of directors' and officers' liability
insurance maintained by Associated (provided that SBC may substitute therefor
policies of at least the same coverage and amounts containing terms and
conditions which are no less advantageous) with respect to claims arising from
facts or events which occurred at or prior to the Effective Time to the extent
such liability insurance can be maintained at an annual cost not greater than
300 percent of Associated's 1993 annual premium for its directors' and officers'
liability insurance (it being understood that in any such case SBC shall
purchase or cause Associated to purchase as much coverage as possible for such
300 percent premium amount); provided that if Spinco does not make certain
payments required by the Distribution Agreement prior to any premium payment
date, SBC shall only be obligated to maintain such liability insurance to the
extent it can be maintained at an annual cost not greater than 150% of such 1993
annual premium (it being understood that in any such case SBC shall purchase or
cause Associated to purchase as much coverage as possible for such 150 percent
premium amount). See 'The Distribution--Terms of the Distribution
Agreement--Certain Covenants.'
CONDITIONS
Conditions to Each Party's Obligation to Effect the Merger
The Merger Agreement provides that the respective obligations of the
parties to effect the Merger are subject to the satisfaction, on or prior to the
Closing Date, of the following conditions:
(a) The Merger Agreement shall have been approved and adopted by the
affirmative vote of the holders of Associated Common Stock entitled to cast
at least 66 2/3% of the total number of votes entitled to be cast; (b) the
shares of SBC Common Stock issuable to Associated's stockholders pursuant
to the Merger Agreement shall have been authorized for listing on the NYSE,
upon official notice of issuance; (c) all consents, approvals and action of
the FCC or any state public utility commission having jurisdiction required
to permit the consummation of the transactions contemplated by the Merger
Agreement shall have been obtained or made, free of any condition that
would materially adversely impact the economic or business benefits of the
Merger to SBC and its subsidiaries or that would have a material adverse
effect on the Retained Business, and, other than the filing of the
Certificate of Merger, excluding the MFJ Waiver, all authorizations,
consents, orders or approvals of, or declarations or filings with, or
expirations of waiting period imposed by, any other governmental entity the
failure to obtain which would have a material adverse effect on SBC and its
Subsidiaries or the Surviving Corporation and its Subsidiaries, in each
case taken as a
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whole, shall have been filed, occurred or been obtained, and SBC shall have
received all state securities or 'blue sky' permits and other
authorizations necessary to issue the SBC Common Stock pursuant to the
Merger Agreement; (d) the SBC Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceeding by the SEC seeking a stop order; (e) no temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Merger shall be in effect
(each party agreeing to use all reasonable efforts to have any such order
reversed or injunction lifted); (f) any applicable waiting period under the
HSR Act shall have expired or been terminated; and (g) the Distribution
shall have become effective in accordance with the Distribution Agreement.
Conditions of Obligations of SBC and Purchaser
The obligations of SBC and Purchaser to effect the Merger are subject to
the satisfaction, on or prior to the Closing Date, of the following conditions
unless waived by SBC and Purchaser:
(a) (i) The aggregate effect of all inaccuracies in the
representations and warranties of Associated set forth in the Merger
Agreement (without taking into account any qualifications as to materiality
contained in such representations and warranties, it being understood,
however, that for purposes of this clause (i), the accuracy of any
representation or warranty which speaks as of the date of the Merger
Agreement or another date prior to the Closing Date shall be determined
solely as of the date of the Merger Agreement or such other date and not as
of the Closing Date) does not and will not have a material adverse effect
on Associated and its subsidiaries taken as a whole and (ii) the
representations and warranties of Associated relating to organization,
capitalization, authority, and certain licenses shall be true and correct
in all material respects as of the date of the Merger Agreement, and,
except to the extent such representations and warranties speak as of an
earlier date, as of the Closing Date as though made on and as of the
Closing Date, except as otherwise contemplated by the Merger Agreement, and
SBC shall have received a certificate signed on behalf of Associated by the
chief operating officer and the chief financial officer of Associated to
such effect. Without limitation of Associated's representation relating to
certain licenses (and the operation thereof as a closing condition), no
actual or threatened litigation shall be a basis for this condition not
being satisfied to the extent the indemnification obligation of Spinco
relating to certain litigation set forth in the Distribution Agreement is
applicable and no inaccuracy in the cash or working capital amounts on the
Retained Business Balance Sheet shall be a basis for this condition not
being satisfied.
(b) Associated shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement and
the Distribution Agreement at or prior to the Closing Date, and SBC shall
have received a certificate signed on behalf of Associated by the chief
operating officer and the chief financial officer of Associated to such
effect.
(c) The Internal Revenue Service (the 'Service') shall have issued and
not revoked a private letter ruling (the 'Private Letter Ruling'),
reasonably satisfactory in form and substance to SBC, in response to a
request made by Associated (the 'Ruling Request') substantially to the
effect that, on the basis of the facts, representations, and assumptions
existing at the Effective Time:
(i) the contribution to a newly formed subsidiary of Spinco ('Newco
Cellular') of the Retained Business and the assumption of certain
liabilities by Newco Cellular, as contemplated by the Distribution
Agreement (as it may be amended with SBC's consent) will qualify for
federal tax purposes as a tax-free reorganization within the meaning of
Section 368(a)(1)(D) of the Code or as a tax-free transfer under Section
351 of the Code;
(ii) the distribution of the stock of Newco Cellular to Associated
will be tax-free for federal income tax purposes to Spinco under Section
361(c) of the Code and to Associated under Section 355(a) of the Code;
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(iii) the distribution of the stock of Spinco on a pro rata basis
to the holders of Associated Common Stock will be tax-free for federal
income tax purposes to Associated under Section 361(c) of the Code and
to Associated stockholders under Section 355(a) of the Code; and
(iv) the Merger will be treated for federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Code, and
that SBC, Purchaser and Associated will each be a party to that
reorganization within the meaning of Section 368(b) of the Code.
(d) (i) The MFJ Transactions shall have been effected to the
satisfaction of SBC in the exercise of its good faith judgment and (ii) the
Retained Company shall not be directly or indirectly engaged in any MFJ
Activity (other than through a minority investment in PCTC and a minority,
non-voting investment in BACTC and any other MFJ Activity covered by the
MFJ Waiver). In the Merger Agreement the parties have agreed for purposes
of clause (ii) immediately above that there can be uncertainty as to what
constitutes an MFJ Activity, that SBC's views as to what may constitute an
MFJ Activity are established to eliminate any possibility of a violation of
the MFJ and SBC's conclusion as to whether the Retained Company is directly
or indirectly engaged in any MFJ Activity for purposes of clause (ii) shall
be made consistent with SBC's historical conservative approach to such
questions.
(e) SBC shall have received the opinions of Skadden, Arps, Slate,
Meagher & Flom, Fleishman & Walsh and Sullivan Benatovich Oliverio &
Trimboli provided for in the Merger Agreement.
(f) SBC shall have received the MFJ Waiver.
Conditions of Obligations of Associated
The obligation of Associated to effect the Merger is subject to the
satisfaction of the following conditions, on or prior to the Closing Date,
unless waived by Associated:
(a) (i) The aggregate effect of all inaccuracies in the
representations and warranties of SBC and Purchaser set forth in the Merger
Agreement (without taking into account any qualifications as to materiality
contained in such representations and warranties, it being understood,
however, that for purposes of this clause (i), the accuracy of any
representation or warranty which speaks as of the date of the Merger
Agreement or another date prior to the Closing Date shall be determined
solely as of the date of the Merger Agreement or such other date and not as
of the Closing Date) does not and will not have a material adverse effect
on SBC and its subsidiaries taken as a whole and (ii) the representations
and warranties of SBC and Purchaser contained in the Merger Agreement shall
be true and correct in all material respects as of the date thereof, and,
except to the extent such representations and warranties speak as of an
earlier date, as of the Closing Date as though made on and as of the
Closing Date, except as otherwise contemplated by the Merger Agreement, and
Associated shall have received a certificate signed on behalf of SBC and
Purchaser by a senior vice president and the treasurer or assistant
treasurer of SBC and Purchaser, respectively, to such effect.
(b) SBC and Purchaser shall have performed in all material respects
all obligations required to be performed by them under the Merger Agreement
at or prior to the Closing Date, and Associated shall have received a
certificate signed on behalf of SBC by a senior vice president and the
treasurer or assistant treasurer of SBC to such effect.
(c) The Service shall have issued and not revoked the Private Letter
Ruling reasonably satisfactory in form and substance to Associated.
(d) Associated shall have received the opinion of Sullivan and
Cromwell, special counsel to SBC, provided for in the Merger Agreement.
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TERMINATION; AMENDMENT AND WAIVER
Termination
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the Merger and the Merger Agreement by
the stockholders of Associated or Purchaser:
(a) by mutual consent of SBC and Associated;
(b) by either SBC or Associated if the Merger shall not have been
consummated before January 31, 1995 (unless the failure to so consummate
the Merger by such date shall be due to the action or failure to act of the
party seeking to terminate the Merger Agreement); provided that SBC or
Associated may extend this date to a date not later than March 31, 1995 and
May 31, 1995, respectively, in the event that the Merger shall not have
been consummated before January 31, 1995 solely because either the MFJ
Waiver has not been obtained or SBC has directed after October 31, 1994
(and is entitled by the terms of the Merger Agreement to so direct) that
Associated effect a MFJ Transaction and such MFJ Transaction is not
effected prior to January 31, 1995;
(c) by SBC if (i) there has been a breach on the part of Associated in
the representations, warranties or covenants of Associated set forth in the
Merger Agreement or in the Distribution Agreement, or any failure on the
part of Associated to comply with its obligations thereunder, or any other
events or circumstances shall have occurred, such that, in any such case,
any of the conditions to SBC's obligation to consummate the Merger could
not be satisfied on or prior to the termination date contemplated by clause
(b) above, (ii) Associated's stockholders do not approve the Merger and the
Merger Agreement at the Annual Meeting, (iii) Associated withdraws, amends,
or modifies in a manner adverse to SBC its favorable recommendation of the
Distribution or the Merger, or promulgates any recommendation with respect
to an Acquisition Transaction (as defined under '--No Solicitation' below)
other than a recommendation to reject such Acquisition Transaction,
provided that any action taken by Associated pursuant to clause (d)(iii)(A)
below or any public announcement by Associated relating thereto shall not
give rise to any right of termination by SBC, (iv) Associated takes any
action that would be prohibited by the provision of the Merger Agreement
discussed under '--No Solicitation' below but for the exception permitting
such action as required by fiduciary duty; or (v) Associated has given SBC
a notice in writing that Associated is unwilling to accept a $30.00 Average
SBC Price under the circumstances described above under '--Terms of the
Merger-- Conversion of Associated Common Stock in the Merger'; or
(d) by Associated if (i) there has been a breach on the part of SBC in
the representations, warranties or covenants of SBC set forth in the Merger
Agreement, or any failure on the part of SBC to comply with its obligations
under the Merger Agreement, or any other events or circumstances shall have
occurred, such that, in any such case, any of the conditions to
Associated's obligation to consummate the Merger could not be satisfied on
or prior to the termination date contemplated by clause (b) above, (ii)
Associated's stockholders do not approve the Merger and the Merger
Agreement at the Annual Meeting, (iii) if (A) Associated has received a
Higher Proposal (as defined below under 'No Solicitation') that it advises
SBC in writing Associated wishes to accept and (B) SBC does not make,
within ten business days of receipt of written notice of Associated's
desire to accept such Higher Proposal, an offer that the Board of Directors
of Associated believes, in good faith after consultation with its financial
advisors, is at least as favorable, from a financial point of view, to the
stockholders of Associated as the Higher Proposal, subject in the case of
termination as described in this clause (iii), to the prior or simultaneous
payment of the fee described in clause (y) under '--Certain Termination
Fees' below, or (iv) SBC has given Associated notice in writing that SBC is
unwilling to accept the Maximum SBC Price as the Average SBC Price under
the circumstances described above under 'Terms of the Merger--Conversion of
Associated Common Stock in the Merger.'
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Effect of Termination
In the event of a termination of the Merger Agreement, the Merger Agreement
shall forthwith become void and there shall be no liability or obligation on the
part of Associated, SBC or Purchaser or their affiliates or respective officers
or directors, other than the provisions of the Merger Agreement described below
under '--Certain Termination Fees' and the obligation of SBC to pay or reimburse
Associated for certain costs as described above under '--Conduct of Business
Prior to Effective Time; Certain Covenants--MFJ Covenants'; provided, however
that any such termination shall not relieve any party from liability for willful
breach of the Merger Agreement.
Amendment
The Merger Agreement may be amended by the parties thereto, by action taken
or authorized by their respective Boards of Directors, at any time before or
after approval of the matters presented in connection with the Merger by the
Associated stockholders, but, after any such approval, no amendment shall be
made which by law requires further approval by such stockholders without such
further approval. The Merger Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties thereto.
Extension; Waiver
At any time prior to the Effective Time, the parties to the Merger
Agreement by action taken or authorized by their respective Boards of Directors,
may to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties thereto, (ii) waive
any inaccuracies in the representations and warranties contained therein or in
any document delivered pursuant thereto and (iii) waive compliance with any of
the agreements or conditions contained therein.
CERTAIN TERMINATION FEES
The Merger Agreement provides that, so long as SBC and Purchaser shall not
have materially breached their obligations under the Merger Agreement,
Associated will pay SBC, in immediately available funds, $25,000,000 (x)
promptly, but in no event later than two business days, after the termination of
the Merger Agreement as described in clause (c)(iii) under 'Termination;
Amendment and Waiver--Termination' above, if the Associated Board has
recommended to the Associated stockholders an Acquisition Transaction or has
otherwise withdrawn, amended or modified in a manner adverse to SBC its
favorable recommendation of the Distribution or the Merger, except for any such
withdrawal, amendment or modification which the Associated Board, after
consultation with its outside counsel, determines, if not effected, could
reasonably be deemed to cause the members of the Associated Board to breach
their fiduciary duties under applicable law, and which arises or results from a
material improvement in the business, properties, assets, results of operations
or financial condition of the Retained Company (but excluding any such
improvement to the extent such improvement arises or results from changes in
general economic conditions, stock market fluctuations or conditions or changes
in the communications or cellular telephone industry generally), provided that
in the event SBC terminates the Merger Agreement as described in such clause
(c)(iii) of 'Termination; Amendment and Waiver--Termination' above and the
aforesaid fee is not payable due to the foregoing exception, SBC shall
nevertheless be entitled following such termination to reimbursement for
expenses actually incurred by SBC in connection with the Merger Agreement and
the transactions contemplated hereby up to a maximum of $3,500,000 (but only if
and to the extent SBC provides a written statement to Associated that it has
incurred such expenses and setting forth the components of such expenses in
reasonable detail), (y) prior to or simultaneously with termination as described
in clause (d)(iii) under 'Termination; Amendment and Waiver--Termination' above
or (z) if after the termination of the Merger Agreement as described in clauses
(c)(i) (as a result of any willful breach by Associated of a covenant or
agreement), (ii), (iii) (in a circumstance where SBC is not entitled to a
termination fee within two business days of termination) or (iv) under
'--Termination; Amendment and Waiver--Termination' above or as described in
clause (d)(ii) under '--Termination; Amendment and Waiver--Termination' above,
Associated shall effect an Acquisition Transaction, simultaneously with the
consummation of such Acquisition Transaction,
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provided that if the Acquisition Transaction involves a merger, consolidation,
sale of assets, purchase of shares from Associated or similar business
combination, the agreement with respect thereto shall have been entered into
within 12 months of the date of termination of the Merger Agreement, or if the
Acquisition Transaction involves a tender or exchange offer not effected in
connection with an agreement with Associated, the tender or exchange offer shall
have been commenced within such 12 month period and provided, further, that if
SBC shall have previously received any reimbursement of expenses the amount
reimbursed shall be credited against any termination fee payable.
EXPENSES
The Merger Agreement provides that, except as described above under
'Certain Termination Fees,' whether or not the Merger is consummated, all costs
and expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby will be paid by the party incurring such
expenses. The Distribution Agreement provides, however, that for purposes of the
Distribution Agreement, all expenses, except those expenses of compliance with
the MFJ which are subject to reimbursement pursuant to the Merger Agreement,
paid or payable by Associated after December 31, 1993 in connection with the
Distribution Agreement and the Merger Agreement and the transactions
contemplated thereby, including, without limitation, all fees and expenses of
Associated's investment bankers and lawyers, shall be treated for purposes of
the payment described below under 'The Distribution--Terms of the Distribution
Agreement--Certain Transfers' as an intercompany loan from the Retained Company
Group (as defined in the Distribution Agreement) to the Spinco Group (as defined
in the Distribution Agreement); provided, however, that only one half of any
fees and expenses relating to the prepayment of the Credit Agreement shall be
treated as an intercompany loan. See 'The Distribution--Terms of the
Distribution Agreement--Certain Transfers.'
NO SOLICITATION
The Merger Agreement provides that Associated will immediately cease any
existing discussions or negotiations with any third parties conducted prior to
the date of the Merger Agreement with respect to any merger, consolidation,
business combination, sale of a significant amount of assets outside of the
ordinary course of business, sale of shares of capital stock outside of the
ordinary course of business, tender or exchange offer or similar transaction
involving Associated or any of its subsidiaries or divisions, but excluding any
of the foregoing involving solely Spinco or its subsidiaries or their respective
businesses (an 'Acquisition Transaction'). The Merger Agreement further provides
that neither Associated nor any of its subsidiaries nor any of their respective
directors and officers shall, and Associated shall use its best efforts to
ensure that none of its subsidiaries' affiliates, representatives or agents
shall, directly or indirectly, solicit any person, entity or group concerning
any Acquisition Transaction (other than the transactions contemplated by the
Merger Agreement); provided that after prior notice to SBC Associated may (i)
furnish information or enter into negotiations to the extent the Associated
Board determines in good faith, after consultation with its outside counsel,
that the failure to do so could reasonably be deemed a breach of its fiduciary
duties under applicable law, but only in response to a written proposal (which
may be subject to due diligence) for a bona fide Acquisition Transaction that
the Associated Board determines in good faith after consultation with its
financial advisors is likely to be more favorable, from a financial point of
view, to the stockholders of Associated than the Asset Transfers, the
Distribution and the Merger, taking into account the financial responsibility of
the party making such proposal as then reasonably determinable by Associated and
such party's ability, as then reasonably determinable by Associated, to obtain
regulatory approvals for such Acquisition Transaction (a 'Higher Proposal') and
(ii) recommend to its stockholders an Acquisition Transaction which is the
subject of a Higher Proposal. Associated will advise SBC immediately if such
proposal or other indication of interest is received by Associated and the terms
and conditions thereof and will keep SBC reasonably apprised in reasonable
detail of all such discussions, negotiations or other contacts that may occur.
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ACCOUNTING TREATMENT
The Merger will be accounted for as a 'purchase' for financial accounting
purposes in accordance with generally accepted accounting principles, whereby
the purchase price will be allocated based on fair values of assets acquired and
liabilities assumed. Such allocations will be made based upon valuations and
other studies that have not been finalized. The excess of such purchase price
over the amounts so allocated will be allocated to goodwill.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
Employment Agreements; Indemnification
Associated has preexisting employment agreements (the 'Employment
Agreements') with Jack N. Berkman, Myles P. Berkman, and David J. Berkman, the
Chairman of the Board and Chief Executive Officer, the President and Chief
Operating Officer, and the Executive Vice President, respectively, of
Associated. The Employment Agreements were intended to retain their services as
executive officers of Associated during the original or extended term of such
agreements. The Employment Agreements were also intended to assure that
Associated's key employees would continue to act in the interests of
stockholders rather than be affected by personal uncertainty during any attempt
to effect a change in control of Associated. It is expected that Jack N.
Berkman, Myles P. Berkman, and David J. Berkman will not be employed by the
Surviving Corporation following the Merger.
Each Employment Agreement provides that in the event of a 'Change in
Control' (as defined) of Associated during the original or extended term of the
agreement, the agreement will be extended for an additional 36 months beyond the
month in which it would otherwise have terminated. Additionally, if following a
Change in Control, Associated terminates (except for 'Cause' (as defined in the
Employment Agreements ) or disability) the executive's employment or the
executive voluntarily terminates his employment for 'Good Reason' (as defined),
the executive will be entitled to a lump sum payment (the 'Severance Payments').
Such Severance Payments are equal to the sum of (i) three times the total of the
executive's base salary immediately prior to the events giving rise to the
termination plus incentive and bonus compensation paid in the immediately
preceding year, (ii) any incentive and bonus compensation already allocated
which has not yet been paid and a pro rata portion to the Date of Termination
(as defined) of all incentive and bonus compensation awards for all uncompleted
periods, and (iii) in lieu of shares of Common Stock issuable upon exercise of
outstanding options (other than incentive stock options granted prior to the
date of the Employment Agreements) an amount in cash equal to the difference
between market price and exercise price of outstanding stock options multiplied
by the number of shares covered by such options. If any payment or benefit to be
received by the executive following a Change in Control is not deductible (in
whole or part) by Associated as a result of Section 280G of the Code, the
Severance Payments will be reduced until no part of the payments is not
deductible or the Severance Payments are reduced to zero. Under the agreements,
each executive agrees to remain in the employ of Associated in the event of a
'potential change in control' (as defined) for at least six months, unless there
is a breach of the agreement or an actual Change in Control or his health
becomes seriously impaired.
The Employment Agreements provide that commencing on January 1, 1990
(January 1, 1994, in the case of David J. Berkman), and each January 1
thereafter, the term of each executive's employment will automatically be
extended for one additional year, unless, not later than June 30 of the
preceding year, Associated gives written notice to the executive that it does
not wish to extend his agreement. Accordingly, the term of each of Jack N.
Berkman's, Myles P. Berkman's and David J. Berkman's Employment Agreement
presently extends to December 31, 2003.
In the Merger Agreement SBC has acknowledged that consummation of the
Merger will constitute 'Good Reason' for purposes of such Employment Agreements,
and SBC has agreed to cause the Surviving Corporation to honor without
modification the severance provisions of such Employment Agreements. Pursuant to
the Employment Agreements, following consummation of the Merger (assuming such
consummation occurs in
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1994), it is estimated that Jack N. Berkman will receive approximately
$1,200,000, Myles P. Berkman will receive approximately $2,080,000 and David J.
Berkman will receive approximately $712,000.
The Merger Agreement provides for certain indemnification of officers and
directors of Associated, and for the continuation of directors and officers
liability insurance. See '--Indemnification and Insurance' above.
Cash-Out of Associated Stock Options
The Merger Agreement provides that at or immediately prior to the Effective
Time, each outstanding option (the 'Associated Stock Options') to purchase
shares of Associated Common Stock under Associated's 1988 Stock Option Plan (the
'1988 Plan') and Associated's 1989 Stock Option Plan (the '1989 Plan,' and
together with the 1988 Plan, the 'Associated Stock Plans'), whether vested or
unvested, shall be cancelled and only entitle the holder thereof, upon surrender
thereof to receive a cash payment in accordance with the terms of the Associated
Stock Plans. Pursuant to the terms of the Associated Stock Plans, the holders of
Associated Stock Options will receive a cash payment in respect of the
cancellation of each Associated Stock Option held by such holder immediately
prior to the Effective Time equal to the product computed by multiplying (i) the
excess of (A) the highest Fair Market Value (as defined in the Associated Stock
Plans) per share of the relevant class of Associated Common Stock during the 60
day period ending on the Closing Date over (B) the exercise price of such
Associated Stock Option, by (ii) the number of shares of Associated Common Stock
subject to such Associated Stock Option. Jack N. Berkman will receive
$1,012,500, Myles P. Berkman will receive $6,750,000, David J. Berkman will
receive $3,637,500, Donald H. Jones, a non-employee director of Associated, will
receive $2,178,140, Joseph A. Katarincic, a non-employee director of Associated,
will receive $528,125, Keith C. Hartman, Controller of Associated, will receive
$1,950,000 and Richard I. Goldstein, Vice President-Cellular of Associated will
receive $315,620 in respect of the cancellation of their Stock Options as
described above (assuming Fair Market Values per share of Associated Common
Stock of $25.00).
Bonus Pool
In connection with and as contemplated by the Merger Agreement, Associated
anticipates that cash payments of up to an aggregate $5 million (the 'Bonus
Pool') will be made to certain persons (other than executive officers) employed
by Associated and its subsidiaries prior to the Effective Time, conditioned upon
consummation of the Merger. The Bonus Pool is principally intended to encourage
Associated employees to remain with Associated until the Merger to help assure
that the Merger will be completed and that Associated's value will be preserved
if for any reason the Merger Agreement is terminated and the Merger is
abandoned. The specific bonus payable to each employee will be determined based
on the employees' compensation, overall contributions to Associated, length of
service to Associated and other factors considered appropriate. All such bonuses
will be payable immediately prior to the Effective Time.
Adjustment of ACORN Stock Options
For a description of the interests of certain persons in the Distribution
in connection with the adjustment of options ('ACORN Options') outstanding under
the Associated Communications Resources, Inc. 1989 Stock Option Plan (the 'ACORN
Plan'), which was approved by Associated stockholders on May 4, 1989, whereby
all outstanding ACORN Options whether or not vested (except for certain
outstanding ACORN Options held by persons who are not officers or directors of
Associated and who will not become employees of Spinco, which will be cashed
out), will become fully vested options to purchase Spinco Class B Common Stock
under the Spinco 1994 Stock Option and Incentive Award Plan, see 'Interests of
Certain Persons in the Distribution' in the Information Statement attached as
Appendix D hereto.
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RESALES OF SBC COMMON STOCK ISSUED IN THE MERGER; AFFILIATES
The SBC Common Stock to be issued to Associated stockholders in connection
with the Merger will be freely transferable under the Securities Act, except for
shares issued to any person who may be deemed an 'affiliate' of Associated
within the meaning of Rule 145 under the Securities Act. In the Merger
Agreement, Associated has agreed to use its best efforts to cause each of those
persons who may be deemed affiliates of Associated to deliver to SBC on or prior
to the Closing Date a written agreement providing that such persons will not
make any sale, transfer or other disposition of the SBC Common Stock received in
connection with the Merger in violation of the Securities Act or the rules and
regulations promulgated thereunder. If any affiliate refuses to provide such an
agreement, SBC will be entitled to place appropriate legends on the SBC shares
to be received by such affiliates, and to issue stop transfer instructions to
SBC's transfer agent in regard to such shares. This Proxy Statement-Prospectus
does not cover any resales of SBC Common Stock received by affiliates of
Associated, including certain family members and related interests.
VOTING AGREEMENT
As a condition to entering into the Merger Agreement, SBC required that
Jack N. Berkman and Myles P. Berkman (together, the 'Voting Stockholders') enter
into a Voting Agreement with SBC, whereby such Voting Stockholders agreed that
until the earliest of (i) the Effective Time and (ii) the date on which the
Merger Agreement is terminated in accordance with its terms, the Voting
Stockholders will vote an aggregate of 3,228,874 shares of Class A Common Stock
(the 'Owned Shares') (a) in favor of adoption and approval of the Merger
Agreement and the Merger at every meeting of the stockholders of Associated at
which such matters are considered and at every adjournment thereof, and (b)
against any other Acquisition Transaction. Each Voting Stockholder agreed to
deliver to SBC upon request immediately prior to any vote contemplated by clause
(a) or (b) above a proxy substantially in the form attached to the Voting
Agreement (a 'Proxy'), which Proxy shall be irrevocable during the term of the
Voting Agreement to the extent permitted under the DGCL, and SBC agrees to vote
the Owned Shares in favor of adoption and approval of the Merger Agreement and
the Merger. In addition, each Voting Stockholder agreed that such Voting
Stockholder will not, nor will such Voting Stockholder permit any entity under
his control to, deposit any of his Owned Shares in a voting trust or subject any
of his Owned Shares to any arrangement with respect to the voting of such shares
inconsistent with the Voting Agreement. Each of the Voting Stockholders has
agreed that during the term of the Voting Agreement, he will not sell any of
such Voting Stockholder's Owned Shares except as he reasonably determines is
necessary or appropriate to satisfy tax obligations, and that any pledge of any
of such Owned Shares shall include a retention by such Voting Stockholder of
voting rights with respect to such pledged Owned Shares.
ABSENCE OF APPRAISAL RIGHTS
Under the DGCL, holders of Associated Common Stock will not be entitled to
appraisal rights as a result of the Merger because both classes of Associated
Common Stock are designated as Nasdaq National Market securities and SBC Common
Stock is listed on the NYSE.
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THE DISTRIBUTION
This section of the Proxy Statement-Prospectus describes certain aspects of the
proposed Distribution. To the extent that they relate to the Distribution
Agreement or the Tax Disaffiliation Agreement, the following descriptions do not
purport to be complete and are qualified in their entirety by reference to the
Distribution Agreement or the Tax Disaffiliation Agreement, as the case may be,
which are attached as Appendix B to this Proxy Statement-Prospectus and are
incorporated herein by reference. ALL ASSOCIATED STOCKHOLDERS ARE URGED TO READ
THE DISTRIBUTION AGREEMENT AND THE TAX DISAFFILIATION AGREEMENT IN THEIR
ENTIRETY.
BACKGROUND OF AND REASONS FOR THE DISTRIBUTION
Because the domestic cellular businesses and interests were the only assets
of Associated which SBC was legally permitted or proposed to acquire, Associated
determined to effect the Distribution, which will be tax free to Associated
stockholders for federal income tax purposes except to the extent of cash
received for fractional shares, and which was a condition to SBC's willingness
to enter into the Merger Agreement. Associated believes the Distribution will
enable Associated stockholders to participate in the values and prospects of the
assets and businesses of Spinco.
Although the Distribution will not be effected unless the Merger is
approved and is about to occur, the Distribution is separate from the Merger and
the Spinco Common Stock to be received by holders of Associated Common Stock in
the Distribution do not constitute a part of the Merger consideration.
STOCKHOLDER APPROVAL OF THE DISTRIBUTION IS NOT REQUIRED UNDER DELAWARE LAW, AND
SUCH APPROVAL IS NOT BEING SOUGHT.
TERMS OF THE DISTRIBUTION AGREEMENT
Recapitalization of Spinco
The Distribution Agreement provides that prior to the time as of which the
Distribution is effective (the 'Time of Distribution'), Associated will
appropriately cause Spinco to amend its Certificate of Incorporation to, among
other things, (i) create two classes of common stock of Spinco, to be designated
Class A and Class B Common Stock, to increase the currently authorized number of
shares of common stock of Spinco and to exchange the 1,000 shares of common
stock, par value $1.00 per share of Spinco currently outstanding for a total
number of shares of Spinco Common Stock (divided equally between Spinco Class A
Common Stock and Spinco Class B Common Stock) equal to one-half the total number
of shares of Associated Common Stock outstanding immediately prior to the
Distribution Record Date (as defined below) and (ii) authorize 5 million shares
of preferred stock, par value $.01 per share, of Spinco.
The Distribution
The Distribution Agreement provides that the Distribution will be effected
by the distribution to each holder of record of Associated Common Stock, as of
the close of the stock transfer books on the record date designated by or
pursuant to the authorization of the Associated Board (the 'Distribution Record
Date'), of certificates representing 1/4 of a share of Spinco Class A Common
Stock and 1/4 of a share of Spinco Class B Common Stock multiplied by the number
of shares of Associated Common Stock held by such holder; provided that no
fractional shares of Spinco Common Stock will be distributed. In the event a
holder of Associated Common Stock holds of record on the Distribution Record
Date a number of shares of Associated Common Stock such that fractional shares
of Spinco Common Stock would be distributed to such holder, the Distribution
Agent for the Distribution (the 'Distribution Agent') will distribute Spinco
Common Stock certificates on the basis of the next lowest number of shares of
Associated Common Stock held below the actual number of shares held such that no
fractional shares of Spinco Common Stock will be distributed to such holder. The
Distribution Agent shall aggregate all shares of Spinco Common Stock that would
have been distributable but for the proviso to the first sentence of this
paragraph, shall sell such shares in the public market as soon as is practicable
after the Time of Distribution and shall distribute the proceeds of the sale of
such shares pro rata among the holders of record of Associated Common Stock who
would otherwise have been entitled to receive fractional shares of Spinco Common
Stock.
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The Asset Transfers
The Distribution Agreement provides for a series of asset transfers, stock
transfers, and mergers between and among certain of Associated's subsidiaries
prior to the Distribution (collectively, the 'Asset Transfers'). The Asset
Transfers are as follows:
(a) Immediately prior to the Time of Distribution Spinco will:
(i) contribute to the capital of Celcom Communications Corporation
of Pittsburgh ('Pitts-burgh') a note receivable from Pittsburgh to
Spinco in cancellation of such indebtedness;
(ii) transfer, assign and convey to Newco Cellular, a newly formed,
wholly-owned subsidiary of Associated, all of the issued and outstanding
capital stock of the following indirect Subsidiaries of Associated:
(A) Associated Communications of Delaware, Inc. II;
(B) Pittsburgh;
(C) Celcom Equipment Corporation of Albany ('Albany');
(D) Celcom Equipment Corporation of Buffalo ('Buffalo');
(E) Celcom Equipment Corporation of Rochester ('Rochester');
(F) Associated Data Services Corporation ('Data Services'); and
(G) Celcom Communications Corporation of Rochester.
(iii) transfer, assign and convey to Newco Cellular all assets of
Spinco not transferred as described in clause (a)(ii) above, other than
securities; and
(iv) cause Newco Cellular to transfer, assign and convey all of the
issued and outstanding capital stock of Pittsburgh, Albany, Buffalo,
Rochester, and Data Services (the 'Transferred Subsidiaries') to
Associated Communications of Delaware, Inc. II ('ACDI II') as a
contribution to the capital of ACDI II.
(b) Immediately after the transfers described in clause (a) (iv)
above, Newco Cellular will cause ACDI II to transfer, assign and convey:
(i) all of the stock of the Transferred Subsidiaries to Celcom
Communications Corporation of Albany, a New York corporation and a
direct wholly owned subsidiary of ACDI II; and
(ii) all of the issued and outstanding capital stock of California
Celcom Communications Corporation to Celcom Communications Corporation
of Buffalo, a New York corporation and a direct wholly-owned subsidiary
of ACDI II.
(c) Prior to the Time of Distribution and immediately after the
transfers described in clauses (a) and (b) above, Associated will:
(i) cause each of the following direct wholly-owned subsidiaries of
Associated to be merged with and into Spinco, with Spinco being the
surviving corporation in such mergers (the 'Merged Subsidiaries'):
(A) Associated WOMP, Inc., an Ohio corporation,
(B) WSTV, Inc., an Ohio corporation,
(C) Associated American Artists, Inc., a New York corporation,
(D) Associated Technologies, Inc., a Delaware corporation,
(E) Associated Communications of America, Inc., a Delaware
corporation, and
(F) Associated Communications Resources, Inc., a Delaware
corporation ('ACORN'); and
(ii) transfer, assign and convey to Spinco certain assets referred
to in the Merger Agreement (the 'Excluded Assets').
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(d) Immediately after the mergers described in clause (c)(i) above,
Spinco will cause:
(A) Associated Communications of Los Angeles, Inc., currently a
wholly owned subsidiary of ACORN, to be merged with and into Spinco,
with Spinco being the surviving corporation; and
(B) all of the Portfolio Securities that Spinco owns at the Time
of Distribution to be transferred to a direct wholly-owned subsidiary
of Spinco formed solely for the purpose of holding the Portfolio
Securities.
Certain Transfers
The Distribution Agreement provides that if, after the Time of
Distribution, either party holds assets which by the terms of the Distribution
Agreement or of the Merger Agreement were intended to be assigned and
transferred to, or retained by, the other party, such party will promptly assign
and transfer or cause to be assigned and transferred such assets to the other
party. The Distribution Agreement further provides that, except as otherwise
provided therein or in the Merger Agreement or Tax Disaffiliation Agreement, at
or prior to the Time of Distribution Spinco will assume all liabilities (whether
arising before or after the Time of Distribution) primarily arising out of,
based upon, or resulting from the operation of the business of, or primarily
relating to, Spinco and its subsidiaries immediately after giving effect to the
Distribution (the 'Spinco Group'), including all liabilities primarily relating
to the Excluded Assets (the 'Spinco Assumed Liabilities'), and the Retained
Company will assume all liabilities (whether arising before or after the Time of
Distribution, and including, without limitation, all liabilities reflected on
the Retained Business Balance Sheet) (the 'Retained Company Assumed
Liabilities') primarily arising out of, based upon, or resulting from the
operation of, or primarily relating to, the Retained Company and its
subsidiaries immediately following the Distribution (the 'Retained Company
Group').
Intercompany Adjustment
The Distribution Agreement provides that immediately prior to the
Distribution, Spinco and Associated will satisfy by cash payment the full net
amount of any intercompany indebtedness or other advances or accruals owing
between members of the Spinco Group and members of the Retained Company Group
arising after December 31, 1993 and not previously paid in full prior to the
Time of Distribution. Pursuant to the Distribution Agreement, Spinco shall pay
Associated (or, if negative, Associated shall pay Spinco) an amount equal to:
(i) (A) the Fair Market Value (as defined in the Distribution Agreement) of
(x) all contributions to capital (including by way of forgiveness of
intercompany indebtedness, advances or accruals owing between members of
Retained Company Group and members of the Spinco Group, but excluding the Asset
Transfers) paid or made after December 31, 1993 and prior to the Time of
Distribution by members of Retained Company Group to members of the Spinco Group
plus (y) the Fair Market Value of all dividends (including by way of forgiveness
of intercompany indebtedness, advances or accruals owing between members of the
Spinco Group and members of Retained Company Group but excluding the Asset
Transfers) paid or made after December 31, 1993 and prior to the Time of
Distribution by members of Retained Company Group to members of the Spinco Group
plus (B) the sum of (w) any consulting fees in excess of $100,000 per month, (x)
any expense payments in excess of $50,000 per month, (y) any management fees in
excess of $315,000 per month and (z) any other fees, expense allocations,
reimbursements or charges of any nature, in each case paid by members of
Retained Company Group to members of the Spinco Group after December 31, 1993
and prior to the Time of Distribution (prorating any such amounts for any
partial months),
minus
(ii) the Fair Market Value of (x) all dividends (including by way of
forgiveness of intercompany indebtedness, advances or accruals owing between
members of Retained Company Group and members of the Spinco Group but excluding
the Asset Transfers) paid or made after December 31, 1993 and prior to the Time
of Distribution by members of the Spinco Group to members of Retained Company
Group plus (y) all contributions to capital (including by way of forgiveness of
intercompany indebtedness, advances or accruals owing between members of the
Spinco Group and members of Retained Company Group but excluding the Asset
Transfers) paid or made after December 31, 1993 and prior to the Time of
Distribution by members of the Spinco Group to members of Retained Company
Group.
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Any of the foregoing amounts due from members of the Retained Company Group
to members of the Spinco Group or from members of the Spinco Group to members of
Retained Company Group as contemplated above shall be netted so that there shall
be a single payment due immediately prior to the Time of Distribution. Prior to
the Time of Distribution, Associated, SBC and Spinco shall agree on a reasonable
estimate of the net amount so payable (such single payment being sometimes
referred to herein as the 'True-Up Payment') Associated and Spinco shall use
their reasonable efforts within 90 days after the Time of Distribution to agree
on the actual amount so payable. If the actual amount so payable is different
from such estimated amount, Associated or Spinco (as appropriate) will promptly
pay the difference to the other, plus interest thereon at a floating rate equal
to the average prime rate (as in effect from time to time) as reported in The
Wall Street Journal plus 1% from the Time of Distribution to the date of
payment. If the parties are unable to so agree on the actual amount, any
disputes will be resolved by an independent accounting firm selected by
Associated and Spinco, the fees and expenses of which will be borne equally by
Associated and Spinco. Once the actual amount is so agreed or resolved, such
amount shall be final and non-appealable. As of July 26, 1994, the amount of the
True-Up Payment is estimated at $10 million owed by Spinco to the Retained
Company.
For purposes of the Distribution Agreement, all expenses, except those
expenses of compliance with the MFJ which are subject to reimbursement pursuant
to the Merger Agreement, paid or payable by any member of the Retained Company
Group after December 31, 1993 in connection with the Distribution Agreement and
the Merger Agreement and the transactions contemplated thereby, including,
without limitation, all fees and expenses of Associated's investment bankers and
lawyers, shall be treated for purposes of the payment described above under
'--Intercompany Adjustment' as an intercompany loan from the Retained Company
Group to the Spinco Group; provided, however, that only one half of any fees and
expenses relating to the prepayment of the Credit Agreement shall be treated as
an intercompany loan.
Certain Covenants
In the Distribution Agreement, Spinco has agreed to indemnify and hold
Associated harmless from and against (a) 50% of any amounts paid by Associated
to persons who are direct employees of Associated immediately prior to the Time
of Distribution and who become employees of a member of the Spinco Group
immediately after the Time of Distribution and (b) except for payments pursuant
to contractual obligations, 100% of any amounts paid to certain persons referred
to therein, in the case of clauses (a) and (b) above, resulting from any claim,
action or suit arising out of such employee's status as an employee of
Associated prior to the Time of Distribution, other than claims for wages,
salaries and other employee benefits accrued prior to the Time of Distribution.
The Distribution Agreement provides that for two years after the Time of
Distribution, neither party will, directly or indirectly, solicit the employment
of any employee of the other party and its subsidiaries; provided, that Spinco
may solicit the employment of those persons referred to in the Distribution
Agreement.
Following the Time of Distribution, Spinco shall pay to the Surviving
Corporation any annual premium costs in excess of 150 percent of Associated's
1993 annual premium cost for its directors and officers liability insurance
incurred by SBC in order to maintain directors and officers liability insurance
pursuant to the Merger Agreement.
Mutual Indemnities
The Distribution Agreement provides that effective upon the Distribution
Spinco will indemnify and hold Associated, its affiliates, successors and
assigns and the officers, directors, partners, employees, agents and
representatives of any of them, harmless from and against any and all Spinco
Assumed Liabilities. Effective upon the Distribution, Associated has agreed to
indemnify and hold Spinco, its affiliates, successors and assigns and the
officers, directors, partners, employees, agents and representatives of any of
them, harmless from and against any and all Retained Company Assumed
Liabilities. If either of the foregoing indemnities is unavailable for any
reason, the parties have agreed to contribute in respect of any such loss,
claim, damage or liability on an equitable basis.
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Additional Indemnification
The Distribution Agreement provides that from and after the Time of
Distribution, Spinco shall indemnify and hold harmless the members of the
Retained Company Group, and the respective officers, directors, employees,
agents, successors and assigns of the members of the Retained Company Group
(collectively, the 'Indemnified Persons'), and shall reimburse the Indemnified
Persons for, from and against each and every demand, claim, loss, liability,
judgment, damage, cost and expense (including, without limitation, interest,
penalties, diminution in value of an equity interest, costs of preparation and
investigation, and reasonable attorneys' fees and disbursements) (a 'Loss')
imposed on or incurred, directly or indirectly, by the Indemnified Persons,
resulting from or arising out of any claim made in any suit, action or
proceeding, which claim is based on or arises out of the facts and circumstances
alleged in any document filed or exchanged by the parties prior to the Time of
Distribution in any of certain proceedings referred to in the Distribution
Agreement, but only if and to the extent such Loss is attributable to the acts
or omissions of Associated or any of its affiliates or any of their respective
directors, officers, employees or agents prior to the Time of Distribution.
Mutual Releases
The Distribution Agreement provides that effective upon the Distribution
and except as otherwise specifically set forth in the Distribution Agreement,
each of Spinco and Associated releases and forever discharges the other, and its
officers, directors, agents, affiliates, record and beneficial security holders
(including, without limitation, trustees and beneficiaries of trusts holding
such securities), advisors and representatives, of and from all debts, demands,
actions, causes of action, suits, accounts, covenants, contracts, agreements,
damages, and any and all claims, demands and liabilities whatsoever of every
name and nature, both in law and in equity, against such other party or any of
its assigns, which the releasing party has or ever had, which arise out of or
relate to events, circumstances or actions taken by such other party prior to
the Time of Distribution; provided, however, that the foregoing general release
does not apply to the Distribution Agreement or the transactions contemplated
thereby and does not affect either party's right to enforce the Distribution
Agreement or any other agreement contemplated thereby in accordance with its
terms. The Distribution Agreement provides that each party understands and
agrees that, except as otherwise specifically provided therein, neither the
other party nor any of its subsidiaries is, in the Distribution Agreement or any
other agreement or document, representing or warranting to such party in any way
as to the assets, businesses or liabilities transferred or assumed as
contemplated by the Distribution Agreement or as to any consents or approvals
required in connection with the consummation of the transactions contemplated by
the Distribution Agreement, it being agreed and understood that each party shall
take or keep all of its assets 'as is' and that it shall bear the economic and
legal risk that conveyance of such assets shall prove to be insufficient or that
the title to any assets shall be other than good and marketable and free from
encumbrances.
Conditions to the Distribution
The obligations of Associated to consummate the Distribution are subject to
the fulfillment of each of the following conditions: (i) the recapitalization of
Spinco shall have been completed substantially as described in the Distribution
Agreement; (ii) the Tax Disaffiliation Agreement shall have been executed and
delivered by each of Associated and Spinco; (iii) all of the Asset Transfers as
described in the Distribution Agreement have been successfully consummated; (iv)
each condition to the Closing of the Merger Agreement set forth therein, other
than the condition to each parties obligations set forth therein as to the
satisfaction of conditions contained in the Distribution Agreement, has been
fulfilled; (v) any registration statement filed by Spinco with the Commission in
connection with the issuance of Spinco Common Stock in the Distribution shall
have become effective, and shall not be the subject of any stop order or
proceeding by the Commission seeking a stop order; (vi) the shares of Spinco
Common Stock to be issued in the Distribution shall have been designated as a
national market system security on the interdealer quotation system by the NASD
or listed on the NYSE or American Stock Exchange, subject to official notice of
issuance; (vii) all consents, approvals and action of the FCC or any state
public utility commission having jurisdiction required to permit the
consummation of the transactions contemplated by the Distribution Agreement
shall have been obtained or made, free of any condition that would materially
adversely impact the economic or business benefits of the Distribution to
Associated stockholders or that would have a material adverse effect on Spinco
and its subsidiaries taken as a whole, all authorizations, consents, orders or
approvals of, or declarations or filings with, or expirations of waiting periods
imposed by, any other
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governmental entity the failure to obtain which would have a material adverse
effect on Spinco and its subsidiaries taken as a whole, shall have been filed,
occurred, or been obtained, and all consents, approvals or waivers of any party
to certain contracts set forth in the Merger Agreement shall have been obtained
and Spinco shall have received all state securities or 'blue sky' permits and
other authorizations necessary to distribute the Spinco Common Stock to be
distributed in the Distribution; (viii) no temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Distribution shall be in effect (each party agreeing to use
all reasonable efforts to have any such order reversed or injunction lifted);
and (ix) any applicable waiting period under the HSR Act shall have expired or
been terminated (see 'The Merger--Certain Regulatory Matters--HSR Act and
Antitrust').
Amendment
The Distribution Agreement provides that Associated and Spinco may modify
or amend the Distribution Agreement by written agreement executed and delivered
by authorized officers of the respective parties; provided, however, that
pursuant to the Merger Agreement the consent of SBC is required for any such
amendment.
TAX DISAFFILIATION AGREEMENT
Prior to the Distribution, Associated and Spinco will enter into a tax
disaffiliation agreement (the 'Tax Disaffiliation Agreement') which sets forth
each party's rights and obligations with respect to deficiencies and refunds, if
any, of federal, state, local or foreign taxes for periods before and after the
Distribution and related matters such as the filing of tax returns and the
conduct of Service and other audits.
In general, under the Tax Disaffiliation Agreement, Spinco will be
responsible for (1) all adjustments to the reported tax liability of Spinco and
its subsidiaries for periods before the Distribution, (2) any tax liability of
Spinco and its subsidiaries for periods after the Distribution, (3) any tax
liability of Associated and its subsidiaries attributable to certain
intercompany transfers occurring pursuant to the Distribution Agreement, (4) up
to 36% of amounts paid by Associated in connection with the Merger to cash out
Associated Stock Options, as severance payable pursuant to employment agreements
and bonus payments made pursuant to the Bonus Pool, to the extent those amounts
are determined not to be deductible by Associated (see 'The Merger--Interests of
Certain Persons in the Transactions'), and (5) except as otherwise described
below, any tax liability resulting from the failure of the Distribution to
qualify as a tax-free spinoff under Section 355 of the Code (notwithstanding
receipt by Associated of the Private Letter Ruling requested from the Service).
Spinco will be entitled to any refunds that relate to those liabilities.
Associated will generally be responsible for all tax liabilities of Associated
and its subsidiaries (other than Spinco and its subsidiaries) for all periods.
However, in the event that the Distribution shall be determined not to qualify
as a tax-free spin-off under Section 355 due to the actions or inactions of
either Associated or Spinco (or any of their respective affiliates), the party
whose action or inaction resulted in the Distribution's failure to qualify as a
tax-free spin-off shall be liable for all corporate level taxes resulting
therefrom.
The Tax Disaffiliation Agreement is attached as Exhibit A to Appendix B to
this Proxy Statement-Prospectus and is incorporated herein by reference. The
foregoing summary is qualified in its entirety by reference thereto.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
CONSEQUENCES OF THE DISTRIBUTION
Associated has requested the Private Letter Ruling from the Service
substantially to the effect that, among other things, the Distribution will
qualify as a tax-free spin-off to Associated and its stockholders under Section
355 of the Code and that the Asset Transfers will not be taxable transactions.
Receipt of the Private Letter Ruling reasonably satisfactory to each of
Associated and SBC is a condition to the respective obligations of Associated
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and SBC to consummate the Merger. See 'The Merger--Conditions.' The following is
a summary of the material federal income tax consequences of the Distribution:
1. An Associated stockholder will not recognize any income, gain or
loss as a result of the Distribution, except, as described below, in
connection with cash received in lieu of fractional shares of Spinco Common
Stock.
2. An Associated stockholder will apportion his tax basis for his
Associated Class A Common Stock, if any, on which the Spinco Common Stock
is distributed between such Associated Class A Common Stock and the Spinco
Common Stock received in the Distribution (including any fractional shares
of Spinco Common Stock deemed received) in proportion to the relative fair
market values of such Associated Class A Common Stock and Spinco Common
Stock on the Distribution Date. An Associated stockholder will apportion
his tax basis for his Associated Class B Common Stock, if any, on which the
Spinco Common Stock is distributed between such Associated Class B Common
Stock and the Spinco Common Stock received in the Distribution (including
any fractional shares of Spinco Common Stock deemed received) in proportion
to the relative fair market values of such Associated Class B Common Stock
and Spinco Common Stock on the Distribution Date.
3. An Associated stockholder's holding period for the Spinco Class A
Common Stock and Spinco Class B Common Stock received in the Distribution
will include the period during which such stockholder held Associated Class
A Common Stock or Associated Class B Common Stock, as the case may be,
provided that in each case such Associated Common Stock is held as a
capital asset by such stockholder as of the Time of Distribution.
4. An Associated stockholder who receives cash in lieu of fractional
shares of Spinco Common Stock as a result of the sale of such shares by the
Transfer Agent will be treated as if such fractional shares had been
received by the stockholder as part of the Distribution and then sold by
such stockholder. Accordingly, such stockholder will recognize gain or loss
equal to the difference between the cash so received and the portion of the
tax basis in the Spinco Common Stock that is allocable to such fractional
shares. Such gain or loss will be capital gain or loss, provided that such
fractional shares would have been held by such stockholder as a capital
asset at the Time of Distribution.
5. No gain or loss will be recognized to Associated as a result of the
Distribution.
Current Treasury regulations require each Associated stockholder who
receives Spinco Common Stock pursuant to the Distribution to attach to his
federal income tax return for the year in which the Distribution occurs a
detailed statement setting forth such data as may be appropriate in order to
show the applicability of Section 355 of the Code to the Distribution.
Associated will convey the appropriate information to each Associated
stockholder of record as of the Distribution Record Date.
CONSEQUENCES OF THE REDEMPTION OF THE RIGHTS
The redemption of the Rights should be treated as a dividend to each
Associated stockholder in the amount of $0.01 for each share of Associated Class
A Common Stock and each share of Associated Class B Common Stock held by a
stockholder, but only to the extent of Associated's current and accumulated
earnings and profits, as determined for federal income tax purposes. Associated
intends to report the redemption as a dividend for purposes of the information
returns which it is required to send to Associated stockholders and to the
Service, if the aggregate amount of all dividends received by, or attributable
to, an Associated stockholder in the relevant year (including dividends
attributable to the redemption of the Rights) is $10 or more. In such
circumstance, Associated will notify each stockholder of the amount of all
dividends attributable to such stockholder on a Form 1099-DIV, which will be
mailed at a later date.
CONSEQUENCES OF THE MERGER
Associated has requested the Private Letter Ruling from the Service
substantially to the effect that, among other things, the Merger will qualify as
a tax-free transaction to Associated and its stockholders under Section 368(a)
of the Code. The following is a summary of the material federal income tax
consequences of the Merger:
1. The Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code.
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2. No gain or loss will be recognized by Associated as a result of the
Merger.
3. No gain or loss will be recognized by Associated stockholders whose
shares of Associated Common Stock are exchanged solely for SBC Common Stock
pursuant to the Merger (except with respect to cash received by such
Associated stockholders in lieu of fractional share interests in SBC Common
Stock). An Associated stockholder who receives cash in lieu of fractional
shares of SBC Common Stock as a result of the sale of such shares by the
Transfer Agent will be treated as if such fractional shares had been
received by the stockholder as part of the Merger and then sold by such
stockholder. Accordingly, such stockholder will recognize gain or loss
equal to the difference between the cash so received and the portion of the
tax basis in the Associated Common Stock that is allocable to such
fractional shares. Such gain or loss will be capital gain or loss, provided
that such fractional shares would have been held by such stockholder as a
capital asset at the Effective Time.
4. The tax basis of the SBC Common Stock received or, in the case of
fractional shares, deemed received by Associated stockholders who exchange
their Associated Common Stock solely for SBC Common Stock in the Merger
will be the same as the tax basis of the Associated Common Stock
surrendered in exchange therefor.
5. The holding period for the shares of SBC Common Stock received in
the Merger will include the period during which the shares of Associated
Common Stock surrendered in exchange therefor were held, provided that such
shares of Associated Common Stock were held as capital assets at the
Effective Time.
It is possible that, as a result of the Merger, certain New York state and
local real property transfer taxes (the 'Transfer Taxes') will be imposed on
Associated stockholders. Associated will pay all such Transfer Taxes, if any,
directly to state and local taxing authorities on the behalf of all Associated
stockholders. Any such payments by Associated made on behalf of the Associated
stockholders should result in dividend income to each Associated stockholder, to
the extent of Associated's current and accumulated earnings and profits, as
determined for federal income tax purposes. The amount of such dividend income
attributable to each share of Associated Common Stock cannot be calculated at
this time but is not expected to be material. Associated will be required to
report any such dividend income to the Service if the aggregate amount of all
dividends received by an Associated stockholder in the relevant year (including
dividends attributable to Associated's payment of the Transfer Taxes) is $10 or
more. Associated will notify each stockholder of the amount of all dividends
attributable to such stockholder on a Form 1099-DIV which will be mailed to at a
later date.
It is a condition to the consummation of both the Distribution and the
Merger that the Private Letter Ruling be obtained from the Service which affirms
that the Distribution, the internal reorganization transactions, and the Merger
will be tax-free. Consequently, Associated will not proceed with either the
Distribution or the Merger if the Private Letter Ruling is not obtained unless
both Associated and SBC agree to waive this condition to the consummation of the
transactions.
The foregoing summary of federal income tax consequences is included herein
for general information only and does not address the federal income tax
consequences to all categories of Associated stockholders, including those who
acquired shares of Associated Common Stock pursuant to the exercise of employee
stock options or otherwise as compensation. EACH ASSOCIATED STOCKHOLDER IS URGED
TO CONSULT HIS TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE
DISTRIBUTION, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN
INCOME AND OTHER TAX LAWS.
DESCRIPTION OF CAPITAL STOCK OF SBC
The following description of certain terms of the capital stock of SBC does
not purport to be complete and is qualified in its entirety by reference to the
SBC Form 10. See 'Available Information.'
SBC's Restated Certificate of Incorporation currently authorizes the
issuance of 1,100,000,000 shares of SBC Common Stock, and 10,000,000 preferred
shares, par value $1.00 per share, issuable in series (the 'SBC Preferred
Stock'). SBC's Board of Directors is authorized to approve the issuance of one
or more series of preferred stock and to fix the number of shares, the
designations, the relative rights and the limitations of any such series without
further authorization of the stockholders of SBC.
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No shares of SBC Preferred Stock are currently outstanding.
SBC Common Stock is listed on the NYSE, the Chicago Stock Exchange and the
Pacific Stock Exchange.
The holders of SBC Common Stock are entitled to participate equally in
dividends when and as such dividends are declared by the SBC Board of Directors
out of funds legally available therefor.
The holders of SBC Common Stock are entitled to one vote for each share
held on all matters voted on by stockholders, including election of directors.
The holders of SBC Common Stock do not have any conversion, redemption,
preemptive or cumulative voting rights. In the event of the dissolution,
liquidation or winding up of SBC, holders of SBC Common Stock are entitled to
share ratably in any assets remaining after the satisfaction in full of the
prior rights of creditors, including holders of SBC's indebtedness, and the
aggregate liquidation preference of any SBC Preferred Stock then outstanding.
All outstanding shares of SBC Common Stock are, and the shares of SBC
Common Stock offered in connection with the Merger upon issuance will be, fully
paid and nonassessable.
The transfer agent for SBC Common Stock is The Bank of New York, Church
Street Station, P.O. Box 11272, New York, New York 10277-0123.
DESCRIPTION OF SBC RIGHTS
The following description of certain terms of the SBC Rights does not
purport to be complete and is qualified in its entirety by reference to the SBC
Form 8-A, as amended. See 'Available Information.'
On January 27, 1989, the Board of Directors of SBC declared a dividend
distribution of one right (a 'SBC Right') for each outstanding share of SBC
Common Stock to shareholders of record at the close of business on February 16,
1989. After giving effect to a stock split in May 1993, effected in the form of
a stock dividend, each share of SBC Common Stock also represents one-half of a
SBC Right. Each SBC Right entitles the registered holder to purchase from SBC a
unit consisting of one one-hundredth of a share (a 'Unit') of Series A Junior
Participating Preferred Stock, par value $1.00 per share (the 'Series A
Preferred Stock'), at a purchase price of $160 per Unit, subject to adjustment
(the 'Purchase Price'). The description and terms of the SBC Rights are set
forth in a Rights Agreement (the 'Rights Agreement') between SBC and The Bank of
New York, as Rights Agent. Pursuant to the Merger Agreement, each share of SBC
Common Stock issued in the Merger will be accompanied by one duly authorized and
validly issued SBC Right having the terms summarized herein.
Initially, the SBC Rights will be attached to all SBC Common Stock
certificates representing shares then outstanding, and no separate SBC Rights
Certificates will be distributed. The SBC Rights will separate from the SBC
Common Stock and a distribution date (a 'Distribution Date') will occur upon the
earliest of any of the following events:
(A) 10 business days following a public announcement that a person or
group of affiliated or associated persons (an 'Acquiring Person') has
acquired, or obtained the right to acquire (the 'Stock Acquisition Date'),
beneficial ownership of 20% or more of the shares of SBC Common Stock then
outstanding;
(B) 10 business days following the commencement of a tender offer or
exchange offer that would result in a person or group beneficially owning
20% or more of such outstanding shares of SBC Common Stock;
(C) 10 days after the Board of Directors of SBC determines that any
person, alone or together with its affiliates and associates, has become
the beneficial owner of an amount of SBC Common Stock which the SBC Board
of Directors determines to be substantial (which amount shall in no event
be less than 10% of the shares of SBC Common Stock outstanding) and at
least a majority of the independent directors, after reasonable inquiry and
investigation, including consultation with such persons as such directors
shall deem appropriate, determines that (i) beneficial ownership by such
person is intended to cause SBC to repurchase the SBC Common Stock
beneficially owned by such person or to cause pressure on SBC to take
action or enter into a transaction or series of transactions intended to
provide such person with short-term financial gain under circumstances
where the SBC Board of Directors determines that the best long-term
interests of SBC and its shareowners would not be served by taking such
action or entering into such transactions or series of transactions at that
time or (ii) beneficial ownership by such person is causing or reasonably
likely
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to cause a material adverse impact (including, but not limited to,
impairment of relationships with customers or regulators or impairment of
SBC's ability to maintain its competitive position) on the business or
prospects of SBC (any such person being referred to herein and in the
Rights Agreement as an 'Adverse Person').
Until the Distribution Date, (i) the SBC Rights will be evidenced by the
SBC Common Stock certificates and will be transferred with and only with such
SBC Common Stock certificates, (ii) new SBC Common Stock certificates issued
after February 16, 1989 will contain a notation incorporating the Rights
Agreement by reference and (iii) the surrender for transfer of any certificates
for SBC Common Stock outstanding will also constitute the transfer of the SBC
Rights associated with the SBC Common Stock represented by such certificate.
Pursuant to the Rights Agreement, SBC reserves the right to require that, upon
any exercise of SBC Rights, a number of SBC Rights be exercised so that only
whole shares of SBC Preferred Stock will be issued.
The SBC Rights are not exercisable until the Distribution Date and will
expire at the close of business on January 27, 1999, unless they are earlier
redeemed by SBC or expire in accordance with other provisions of the Rights
Agreement as described below.
As soon as practicable after the Distribution Date, SBC Rights Certificates
will be mailed to holders of record of the SBC Common Stock as of the close of
business on the Distribution Date and, thereafter, the separate SBC Rights
Certificates alone will represent the SBC Rights. Except as otherwise determined
by the SBC Board of Directors, only shares of SBC Common Stock issued prior to
the Distribution Date will be issued with SBC Rights.
In the event that, at any time following the Distribution Date, (i) a
Person becomes the beneficial owner (except pursuant to a Flip-Over Event, as
described below, or an offer for all outstanding shares of SBC Common Stock
which the independent directors determine to be fair to and otherwise in the
best interests of SBC and its shareowners) of more than 20% of the then
outstanding shares of SBC Common Stock, or (ii) a Person becomes an Adverse
Person, each holder of a SBC Right will thereafter have the right to receive,
upon exercise, SBC Common Stock (or, in certain circumstances, cash, property or
other securities of SBC) having a value equal to two times the Purchase Price of
the SBC Right. Notwithstanding any of the foregoing, following the occurrence of
any of the events set forth in this paragraph ('Flip-In Events'), all SBC Rights
that are, or (under certain circumstances specified in the SBC Rights Agreement)
were, beneficially owned by any Acquiring Person or an Adverse Person will be
null and void. However, SBC Rights are not exercisable following the occurrence
of either of the Flip-In Events set forth above until such time as the SBC
Rights are no longer redeemable by SBC as set forth below.
Following the occurrence of any of the Flip-In Events set forth in the
preceding paragraph, subject to applicable law, the SBC Board of Directors may
determine to exchange for any or all SBC Rights (other than SBC Rights held by
the Acquiring Person or Adverse Person and certain transferees) SBC Common Stock
with a value equal to the SBC Right's Purchase Price or substitute value in the
form of cash, property, debt or equity securities, or any combination of the
foregoing. Such exchange shall be on a pro rata basis if less than all SBC
Rights are to be exchanged, and holders of SBC Rights pay no consideration
(other than delivery of the SBC Right) in such exchange.
In the event that, at any time following the Stock Acquisition Date, (i)
SBC is acquired in a merger or other business combination transaction in which
SBC is not the surviving corporation (other than certain mergers following a
fair offer described in the third preceding paragraph), or (ii) more than 50% of
SBC's assets, cash flow or earning power is sold or transferred (events (i) and
(ii) are referred to as 'Flip-Over Events' and together with Flip-In Events, the
'Triggering Events') each holder of a SBC Right which has not yet been exercised
(except SBC Rights which previously have been voided as set forth above) shall
thereafter have the right to receive, upon exercise, common stock of the
acquiring company having a value equal to two times the Purchase Price of the
SBC Right.
The Purchase Price payable, and the number of Units of Series A Preferred
Stock or other securities or property issuable, upon exercise of the SBC Rights
are subject to adjustment from time to time to prevent dilution (i) in the event
of a stock dividend on, or a subdivision, combination or reclassification of,
the Series A Preferred Stock, (ii) if holders of the Series A Preferred Stock
are granted certain rights or warrants to subscribe for Series A Preferred Stock
or convertible securities at less than the current market price of Series A
Preferred Stock, or
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(iii) upon the distribution to holders of the Series A Preferred Stock of
evidences of indebtedness or assets (excluding regular quarterly cash dividends)
or of subscription rights or warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment in
cash will be made based on the market price of the Series A Preferred Stock on
the last trading date prior to the date of exercise.
In general, at any time until 10 business days following the Stock
Acquisition Date, or such later date as the SBC Board of Directors may
designate, SBC may redeem the SBC Rights in whole, but not in part, at a price
of $.05 per SBC Right (payable in cash, SBC Common Stock or other consideration
deemed appropriate by the SBC Board of Directors). Under certain circumstances
set forth in the Rights Agreement, the decision to redeem the SBC Rights shall
require the concurrence of a majority of the Continuing Directors. Immediately
upon the action of the SBC Board of Directors ordering redemption of the SBC
Rights (with, where required, the concurrence of the Continuing Directors) the
SBC Rights will terminate and the only right of the holders of SBC Rights will
be to receive the $.05 redemption price.
The term 'Continuing Directors' means any member of the Board of Directors
of SBC who was a member of the Board prior to the date of the Rights Agreement,
and any person who is subsequently elected to the Board if such person is
recommended or approved by a majority of the Continuing Directors, but shall not
include an Acquiring Person, Adverse Person or an affiliate or associate of an
Acquiring Person or Adverse Person, or any representative of the foregoing
entities.
Until a SBC Right is exercised, the holder thereof, as such, will have no
rights as a shareowner of SBC, including, without limitation, the right to vote
or to receive dividends. While the distribution of the SBC Rights will not be
taxable to shareowners or to SBC, shareowners may, depending upon the
circumstances, recognize taxable income in the event that the SBC Rights become
exercisable for SBC Common Stock (or for other consideration) or for common
stock of the acquiring company as set forth above.
Other than those provisions relating to the principal economic terms of the
SBC Rights, any of the provisions of the Rights Agreement may be amended by the
SBC Board of Directors prior to the Distribution Date. After the Distribution
Date, the provisions of the Rights Agreement may be amended by the Board (in
certain circumstances, with the concurrence of the Continuing Directors) in
order to cure any ambiguity, to make changes which do not adversely affect the
interests of holders of SBC Rights (excluding the interests of any Acquiring
Person or Adverse Person), or to shorten or lengthen any time period under the
Rights Agreement.
COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF SBC COMMON STOCK AND ASSOCIATED
COMMON STOCK
Upon consummation of the Merger, the stockholders of Associated will become
stockholders of SBC and their rights will be governed by the SBC Restated
Certificate of Incorporation and Bylaws, which differ in certain material
respects from the Associated Restated Certificate and Bylaws. The following
summary of certain significant differences which may affect the rights and
interests of stockholders is not intended to be an all-inclusive discussion of
such differences, but should provide some basis for Associated stockholders to
evaluate their rights as SBC stockholders after the Effective Time. As
stockholders of SBC, the rights of former Associated stockholders will continue
to be governed by the DGCL.
COMMON STOCK CLASSIFICATION
Associated has issued and outstanding shares of Class A Common Stock and
shares of Class B Common Stock. Each share of Class A Comon Stock is identical
in all respects to each share of Class B Common Stock except that (i) each
holder of shares of Class A Common Stock is entitled to one vote for each share
of Class A Common Stock standing in his name on the books of Associated on the
record date for the determination of stockholders entitled to notice of, or to
vote at, any meeting of stockholders, and each holder of shares of Class B
Common Stock is entitled to one twenty-fifth (1/25) of a vote for each share of
Class B Common Stock standing in his name on the books of Associated on the
record date for the determination of stockholders entitled to notice of, or to
vote at, any meeting of stockholders and (ii) the holders of Class B Common
Stock are not entitled to
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vote as a class upon any proposed increase or decrease in the aggregate number
of shares of Class B Common Stock. SBC has issued and outstanding just one class
of shares of SBC Common Stock. Each stockholder of SBC Common Stock has one vote
for each share registered in such stockholders' name.
SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS
Pursuant to the Associated Restated Certificate and the SBC Bylaws, the
Boards of Directors of Associated and SBC, respectively, are divided into three
classes, and directors are elected to serve staggered three-year terms. The
Associated Restated Certificate provides that the number of directors of
Associated will be not less than three nor more than nine, with the precise
number determined by a majority of the Associated Board. The SBC Bylaws provide
that the number of directors of SBC will be not more than twenty-one, with the
precise number determined by a majority of the SBC Board. The classified SBC
Board provisions may not be changed and the maximum number of directors may not
be increased except by an affirmative vote of two-thirds of all shares of SBC
Common Stock then outstanding and entitled to vote.
Classification of directors has the effect of making it more difficult for
stockholders to change the composition of a board. At least two annual meetings
of stockholders, instead of one, will generally be required to effect a change
in the majority of a classified board. Such a delay may help ensure that
incumbent directors, if confronted by a holder attempting to force a proxy
contest, a tender or exchange offer or other extraordinary corporate
transaction, would have sufficient time to review the proposal as well as any
available alternatives to the proposal and to act in what they believe to be the
best interests of the stockholders.
REMOVAL OF DIRECTORS; VACANCIES
The Associated Restated Certificate provides that directors of Associated
may be removed only for cause and by the affirmative vote of stockholders
entitled to cast at least two-thirds (66 2/3%) of the total number of votes
entitled to be cast. The Associated Restated Certificate also provides that if
the number of directors is increased, the additional directors may be elected by
a majority of the directors then in office.
Pursuant to the DGCL, directors of SBC may be removed only for cause. If
the position of any director is or becomes vacant, a majority of the directors
remaining in office may appoint a successor to serve the full or remaining term,
as the case may be, of the other directors of the group in which the vacancy
occurred or was created.
The term 'cause' is not defined in either the Associated Restated
Certificate or the DGCL. Consequently, any question concerning the legal
standard for 'cause' would have to be judicially determined, and such a
determination could be difficult, expensive and time consuming.
STOCKHOLDER NOMINATIONS AND PROPOSALS
The Associated and SBC Bylaws establish procedures that must be followed
for stockholders to nominate individuals for election to their respective Boards
of Directors. Nominations of persons for election to Associated's or SBC's
Board, as applicable, must be made by delivering written notice to the Secretary
of Associated or the Secretary of SBC, as applicable, within certain time
periods and must set forth certain background information about the persons to
be nominated.
The Associated and SBC Bylaws establish procedures that must be followed
for a stockholder to submit a proposal at the corporations' respective annual
meetings of stockholders. No proposal for a stockholder vote may be submitted to
the stockholders unless such submitting stockholder has filed with the Secretary
of Associated or the Secretary of SBC, as applicable, within certain time
periods a written statement setting forth specified information, including the
names and addresses of the persons making the proposal, the class and number of
shares of capital stock of Associated or SBC, as applicable, beneficially owned
by such persons, a description of the proposal and the reasons for bringing such
business before the annual meeting and any material interest of the stockholder
in such business.
By requiring advance notice of nominatons by stockholders, these
stockholder notice procedures afford the Associated and SBC Boards an
opportunity to consider the qualifications of the proposed nominees and, to the
extent deemed necessary or desirable by such Boards, to inform stockholders
about such qualifications. By requiring advance notice of other proposed
business, these stockholder notice procedures also provide a more
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orderly procedure for conducting annual meetings of stockholders and, to the
extent deemed necessary or desirable by the Associated and SBC Boards, provide
such Boards with an opportunity to inform stockholders, prior to such meetings,
of any business proposed to be conducted at such meetings, together with any
recommendations as to such Boards' position regarding action to be taken with
respect to such business, so that stockholders can better decide whether to
attend such a meeting or to grant a proxy regarding the disposition of any such
business.
Although the Associated and SBC Bylaws do not give their respective Boards
any power to approve or disapprove stockholder nominations for the election of
directors or proposals for action, the foregoing provisions may have the effect
of precluding a contest for the election of directors or the consideration of
stockholder proposals if the proper procedures are not followed, and of
discouraging or deterring a third party from conducting a solicitation of
proxies to elect its own slate of directors or to approve its own proposal,
without regard to whether consideration of such nominees or proposals might be
harmful or beneficial to Associated or SBC and their respective stockholders.
ACTION BY WRITTEN CONSENT
Associated
Under the DGCL, unless a corporation's certificate of incorporation
provides otherwise, stockholders may take action without a meeting, without
prior notice and without a vote, upon the written consent of stockholders having
not less than the minimum number of votes that would be necessary to authorize a
proposed action at a meeting at which all shares entitled to vote were present
and voted. However, the Associated Restated Certificate provides that action can
be taken by stockholders only at an annual or special meeting and prohibits
action by written consent. The SBC Restated Certificate of Incorporation
provides that no action required to be taken or which may be taken by
stockholders at an annual or special meeting may be taken by written consent
without a meeting, except where such consent is signed by stockholders
representing at least two-thirds of the total number of shares of stock of the
corporation then outstanding and entitled to vote thereon.
MEETINGS OF STOCKHOLDERS
A special meeting of stockholders of Associated may be called only by the
Chairman of the Associated Board or the President of Associated and is required
to be called by either such officer at the request in writing of a majority of
the Associated Board. The Associated Bylaws provide that a quorum for any
meeting of stockholders is a majority of the total number of votes entitled to
be cast.
A special meeting of stockholders of SBC may be called either by the SBC
Board of Directors or by the Chairman of the Board. The Chairman of the Board is
required to call a special meeting whenever requested in writing to do so by
stockholders representing two-thirds of the shares of SBC then outstanding and
entitled to vote at such meeting. The holders of forty percent (40%) of all of
the shares of SBC entitled to vote at the meeting constitute a quorum.
REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS
Pursuant to Article Eighth of the Associated Restated Certificate, the
affirmative vote of stockholders who are entitled to cast at least two-thirds
(66 2/3%) of the total number of votes entitled to be cast is required in order
for Associated to take action to authorize: (i) the merger or consolidation of
Associated with or into any other corporation; provided, however, that this
clause (i) will not apply to any merger or consolidation as to which the laws of
the State of Delaware, as then in effect, do not require the vote of
Associated's stockholders; (ii) the sale, lease or exchange of all, or
substantially all, of the property and assets of Associated; (iii) the
dissolution of Associated; or (iv) any amendment to such Article Eighth.
Under the DGCL, the recommendation of the SBC Board of Directors and the
approval of a simple majority of the outstanding shares of SBC entitled to vote
thereon are required to effect a merger or consolidation or to sell, lease or
exchange all or substantially all of SBC's assets.
Thus, SBC may effect a merger or consolidation, or a sale, lease or
exchange of all or substantially all its assets, upon a lesser stockholder vote
than is required under the Associated Restated Certificate for Associated to
effect such a transaction.
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AMENDMENT OF CORPORATE CHARTER AND BYLAWS
The DGCL provides that an amendment to a corporation's certificate of
incorporation requires the recommendation of the corporation's board of
directors, the approval of a majority of all shares entitled to vote thereon
unless a higher vote is required in the corporation's certificate of
incorporation, voting together as a single class, and the approval of a majority
of the outstanding stock of each class entitled to vote thereon. As noted above,
amendment of Article Eighth of the Associated Restated Certificate requires the
affirmative vote of stockholders who are entitled to cast at least two-thirds
(66 2/3%) of the total number of votes entitled to be cast. The Associated
Restated Certificate provides that the Board of Directors may amend the Bylaws
and the Bylaws may also be amended by the affirmative vote of stockholders who
are entitled to cast at least two-thirds (66 2/3%) of the total number of votes
entitled to be cast.
The SBC Restated Certificate of Incorporation may be amended in accordance
with the DGCL as described above. The SBC Board of Directors may amend the SBC
Bylaws and the SBC Bylaws may also be amended by the affirmative vote of a
majority of the votes cast, except that provisions relating to the maximum
number of directors, the classified board or requiring the approval by the
stockholders or the SBC Board of certain business combinations (as described
below under 'Fair Price Provision') may only be amended by a two-thirds
(66 2/3%) majority vote of the total number of shares of stock of SBC then
outstanding and entitled to vote.
Thus, except for amendments to certain specified provisions of the SBC
Bylaws, amendment of the SBC Bylaws may be effected upon a lesser stockholder
vote than is required under the Associated Restated Certificate to amend the
Associated Bylaws. Except for amendments to certain provisions of the Associated
Restated Certificate noted above, amendments to the Associated Restated
Certificate and the SBC Restated Certificate of Incorporation may be effected
upon the stockholder vote required by the DGCL as described above.
FAIR PRICE PROVISION
The SBC Bylaws provide that certain 'business combinations' involving
'interested stockholders' (defined generally to be holders of 10% or more of SBC
Common Stock) require approval by vote of the holders of at least two-thirds
(66 2/3%) of the then outstanding shares of capital stock of SBC entitled to
vote generally for the election of directors, voting as a single class, if not
previously approved by a majority of the disinterested members of the SBC Board
of Directors or unless certain minimum price and procedural criteria are
satisfied. The minimum price criteria require that the consideration paid to
SBC's stockholders must be either cash or the same type of consideration paid by
the interested stockholder in acquiring the largest portion of its SBC shares
prior to the first public announcement of the terms of the proposed business
combination and would generally have to be at least equal in value to the
greater of (i) the highest per share price paid by the interested stockholder in
acquiring any share of SBC Common Stock during the two years prior to such
announcement date or in the transaction in which it became an interested
stockholder (whichever is higher), (ii) the fair market value per share of SBC
Common Stock on the day after such announcement date or on the date on which the
interested stockholder became an interested stockholder (whichever is higher),
or (iii) the price per share determined pursuant to (ii) multiplied by the ratio
of (a) the highest per share price paid by the interested stockholder in
acquiring any share of SBC Common Stock during the two years prior to such
announcement to (b) the fair market value per share of SBC Common Stock on the
first day in such two-year period upon which the interested stockholder acquired
any shares of SBC Common Stock.
The Associated Restated Certificate does not contain any 'Fair Price'
provision.
Thus, the SBC 'Fair Price' provision may impede or prevent certain
'business combination' transactions involving an 'interested stockholder' which
would not be applicable to such a transaction involving Associated and an
'interested stockholder'.
STOCKHOLDER RIGHTS PLANS
The terms and provisions of the Associated Rights Agreement and the SBC
Rights Agreement are substantially similar, with the principal differences
relating to (i) the 'Purchase Price' (which constitutes the exercise price for
the respective Rights), (ii) the redemption price of the respective Rights and
the circumstances under which each company may redeem its Rights, (iii) those
events which result in a 'Distribution Date' (the date on which the respective
Rights separate from SBC Common Stock and the Associated Common Stock,
respectively), (iv) those events which give the holders of SBC Rights the right
to receive SBC Common Stock
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having a value equal to two times the SBC Purchase Price and those events which
give the holders of Associated Rights the right to receive Associated Class B
Common Stock having a value equal to two times the Associated Purchase Price,
(v) a provision in the Associated Rights Agreement excluding from the category
of 'Acquiring Persons' certain persons who have a written acquisition agreement
with Associated and (vi) the date on which the Associated Rights and the SBC
Rights will expire unless earlier redeemed. The Rights Agreements in certain
circumstances could deter potential takeovers not approved by the Associated or
SBC Boards, as applicable. See 'Description of SBC Rights.' Also see
'Description of Capital Stock of the Company--Stockholder Rights Plan' in the
Information Statement included as Appendix D hereto.
STATE ANTITAKEOVER STATUTES
Section 203 of the DGCL (the 'Delaware Statute'), a statutory provision
restricting business combinations with certain stockholders who acquire 15
percent or more of a Delaware corporation's voting stock, is applicable to
Associated and SBC. The Delaware Statute prohibits certain 'business
combination' transactions between a publicly held Delaware corporation and any
'interested stockholder' for a period of three years after the date on which the
interested stockholder became an interested stockholder unless (a) prior to that
date the corporation's board of directors approved either the proposed business
combination or the transaction which resulted in the interested stockholder
becoming an interested stockholder, (b) upon consummation of the transaction
which resulted in the interested stockholder becoming an interested stockholder,
the interested stockholder owned at least 85 percent of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned (i)
by persons who are directors and also officers and (ii) by employee stock plans
in which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer, or (c) on or subsequent to such date the business combination is approved
by the corporation's board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of
at least two-thirds of the outstanding voting stock which is not owned by the
interested stockholder.
The Delaware Statute would not prevent the holder of a controlling interest
from exercising control over Associated or SBC and would not prevent a hostile
takeover or hostile acquisition of control of Associated or SBC. The Delaware
Statute may, however, discourage or make more difficult a hostile takeover or
acquisition of control.
LIMITATION OF LIABILITY
Section 102(b)(7) of the DGCL allows a Delaware corporation to limit or
eliminate the personal liability of directors to the corporation and its
stockholders for monetary damages for breach of fiduciary duty as a director
subject to certain limitations. The Restated Certificate of Incorporation of SBC
and the Associated Restated Certificate provide for the limitation of liability
as permitted by such Section 102(b)(7).
While these provisions provide directors with protection from awards for
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. Also, these provisions do not eliminate or
limit the liability of a director for breach of the duty of loyalty, acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law, unlawful dividends or stock repurchases, or any transaction
from which the director derived an improper personal benefit. The provisions
described above apply to an officer of a corporation only if he or she is a
director of such corporation and is acting in his or her capacity as director,
and do not apply to officers of the corporation who are not directors.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the DGCL provides that a Delaware corporation may indemnify
its officers and directors party, or threatened to be made a party, to any
threatened, pending or completed action, suit or proceeding by reason of the
fact that he or she is or was a director, officer, or employee of the
corporation by, among other things, a majority vote of directors who were not
parties to such action, suit or proceeding (whether or not a quorum), provided
that such officers and directors acted in good faith and in a manner they
reasonably believed
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to be in or not opposed to the best interests of the corporation. The Bylaws of
SBC and Associated Restated Certificate each provide for indemnification of
officers and directors as permitted by Section 145.
EXPERTS
The financial statements and schedules of Associated, Associated Business
to be Merged and Associated Communications of Delaware, Inc. included or
incorporated by reference in this Proxy Statement-Prospectus have been audited
by Ernst & Young, independent auditors, as set forth in their reports thereon
(which include an explanatory paragraph that describes the changes in method of
accounting for income taxes and marketable equity securities for Associated and
Associated Communications of Delaware, Inc. and income taxes for Associated
Business to be Merged) which appear elsewhere herein and in Associated's Annual
Report on Form 10-K for the year ended December 31, 1993, which is incorporated
herein by reference. The reports of Ernst & Young are based in part on the
reports of Coopers & Lybrand, Price Waterhouse, Arthur Andersen & Co., and KPMG
Cardenas Dosal, S.C., independent auditors, on the financial statements of BACTC
for the year ended December 31, 1993, BACTC for the two-year period ended
December 31, 1992, PCTC for the three-year period ended December 31, 1993, and
Portatel for the three-year period ended December 31, 1993 (which contains an
explanatory paragraph with respect to the change in method of accounting for
income taxes and an explanatory paragraph with respect to contingencies
mentioned in Note 12 to the financial statements), respectively. Such financial
statements and schedules have been included or incorporated herein by reference
in reliance upon such reports given upon the authority of such firms as experts
in accounting and auditing.
The consolidated financial statements and schedules of SBC at December 31,
1993 and 1992, and for each of the three years in the period ended December 31,
1993, incorporated by reference in this Proxy Statement-Prospectus and
Registration Statement, have been audited by Ernst & Young, independent
auditors, as set forth in their report thereon (which contain an explanatory
paragraph with respect to the change in method of accounting for postretirement
benefits other than pensions, postemployment benefits, and income taxes), which
is incorporated herein by reference. Such consolidated financial statements have
been incorporated herein by reference in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
VALIDITY OF SHARES
The validity of the SBC Common Stock to be issued pursuant to the terms of
the Merger Agreement will be passed upon for SBC by James D. Ellis, Esq., Senior
Executive Vice President and General Counsel of SBC. As of June 1, 1994, Mr.
Ellis is the beneficial owner of 43,513.368 shares of SBC Common Stock and
options to purchase 18,575 shares of SBC Common Stock.
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ELECTION OF DIRECTORS
Associated's Restated Certificate specifies that the number of directors
shall be not less than three nor more than nine, with the exact number to be
determined from time to time by the Associated Board. The Restated Certificate
also provides that the directors shall be divided into three classes, each class
to consist, as nearly as possible, of one-third of the total number of
directors.
Pursuant to Associated's Restated Certificate, one director is to be
elected at the Annual Meeting to hold office until the 1997 annual meeting of
stockholders or until his successor is elected and qualified. It is intended
that shares represented by the accompanying proxy card(s) will be voted for the
election of the nominee named below unless a contrary direction is indicated.
Associated's Restated Certificate requires the affirmative vote of a majority of
the total number of votes entitled to be cast in order to elect a director.
Accordingly, the nominee must receive at least 9,486,081.40 votes to be elected.
If no nominee receives the requisite number of votes, Donald H. Jones will
continue to serve as a director until his successor is elected and qualified.
In the event that the nominee becomes unavailable for election, proxies in
the form solicited will be voted for an alternative or alternatives designated
by the Associated Board. Information concerning the nominee for election as a
director is set forth below.
NOMINEE FOR DIRECTOR WHOSE TERM EXPIRES IN 1997
Donald H. Jones, age 57, has served as a consultant to Associated since
1982 and as a director of Associated since April 1986. Mr. Jones has been the
President of Franklin McKee Corporation, a firm engaged in electronic
publishing, since 1990. From 1989 to 1990 Mr. Jones served as President of DHJ
Enterprises, a firm engaged in the development of new business enterprises and
investment activities. Mr. Jones serves as director of Sentient Systems
Technology, an electronics corporation engaged in the development and
manufacturing of electronic vocational and rehabilitation equipment.
CONTINUING DIRECTORS WHOSE TERM EXPIRES IN 1996
The terms of Jack N. Berkman and David J. Berkman as directors expire in
1996. For certain information concerning Jack N. Berkman and David J. Berkman,
see 'Directors and Executive Officers' below.
CONTINUING DIRECTORS WHOSE TERM EXPIRES IN 1995
The terms of Myles P. Berkman and Joseph A. Katarincic as directors expire
in 1995. For certain information concerning Myles P. Berkman, see 'Directors and
Executive Officers' below.
Joseph A. Katarincic, age 62, has been a director of Associated since
December 1988, and is currently an attorney admitted to practice in the
Commonwealth of Pennsylvania. Since January 1989, Mr. Katarincic has been a
partner in the law firm of Katarincic & Salmon in Pittsburgh, Pennsylvania. He
is also a director of Duquesne University, a member of the Board of Visitors of
University of Pittsburgh School of Law and a director of the Port Authority of
Allegheny County, Pennsylvania.
INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Associated Board has an Audit Committee which considers the overall
scope and approach of the annual audit and recommendations of the audit
performed by the independent accountants; recommends the appointment of
independent accountants; considers significant accounting methods adopted or
proposed to be adopted; and considers procedures for internal controls. The
Audit Committee is comprised of Donald H. Jones and Joseph A. Katarincic. The
Audit Committee held one meeting during 1993.
The Associated Board held six meetings during 1993 and each of the
directors attended or participated in at least 75% of all meetings of the
Associated Board and all meetings of committees on which he served which were
held during 1993.
65
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE EMPLOYMENT HISTORY
- ------------------------ --- -------------------------------------------------
<S> <C> <C>
David J. Berkman........ 32 Executive Vice President since December 1992;
Vice President from July 1991 through December
1992; Assistant Secretary since 1986; member of
the Board of Directors since March 1993.
Jack N. Berkman......... 89 Chairman of the Board, Chief Executive Officer
and Secretary since 1979.
Lillian R. Berkman...... 72 Vice President since 1986.
Monroe E. Berkman....... 54 Vice President since 1986.
Myles P. Berkman........ 57 President, Chief Operating Officer, Treasurer;
member of the Board of Directors since 1979.
Richard I. Goldstein.... 33 Vice President, Cellular, since December 1992.
Regional General Manager of the Company's
cellular systems from March 1991 to December
1992. Employed by AT&T from June 1983 to March
1991 as a Management and Marketing Executive.
Keith C. Hartman........ 36 Controller and Assistant Secretary since 1986.
</TABLE>
Mr. Jack N. Berkman is the father of Mr. Myles P. Berkman and Mr. Monroe E.
Berkman, the grandfather of Mr. David J. Berkman and the husband of Mrs. Lillian
R. Berkman. Mr. Myles P. Berkman is the brother of Mr. Monroe E. Berkman and the
father of Mr. David J. Berkman.
BENEFICIAL OWNERSHIP
ASSOCIATED
The following table sets forth information regarding the beneficial
ownership of each class of Associated Common Stock as of July 26, 1994 by (i)
each person known by Associated to own more than five percent of either class of
the outstanding Associated Common Stock, (ii) each director of Associated, (iii)
each of the named executive officers of Associated and (iv) all directors and
officers as a group. Unless otherwise noted, the persons named in the table have
sole voting and investment power with respect to all shares of Associated Common
Stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
AS OF JULY 26, 1994
-----------------------------------------------------------
PERCENT OF
PERCENT OF OUTSTANDING
NUMBER OF SHARES OUTSTANDING VOTING
BENEFICIALLY OWNED SHARES POWER
------------------------ ---------------- -----------
BENEFICIAL OWNER CLASS A CLASS B CLASS A CLASS B
- --------------------------------- --------- --------- ------- ------- -----------
<S> <C> <C> <C> <C> <C>
GAMCO Investors, Inc............. 1,061,999(1) N/A 5.8 N/A 5.6
Gabelli Funds, Inc.
Gabelli & Company, Inc.
Gabelli Securities, Inc.
Mario J. Gabelli
One Corporate Center
Rye, NY 10580
The Louis Berkman Company........ 1,170,750(2) 1,829,250(2) 6.4 9.5 6.6
330 North 7th Street
Steubenville, OH 43952
The Equitable Life............... 1,413,352(3) 969,644(4) 7.8 5.0 7.7
Assurance Society
of the United States
787 Seventh Avenue
New York, NY 10019
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
AS OF JULY 26, 1994
-----------------------------------------------------------
PERCENT OF
PERCENT OF OUTSTANDING
NUMBER OF SHARES OUTSTANDING VOTING
BENEFICIALLY OWNED SHARES POWER
------------------------ ---------------- -----------
BENEFICIAL OWNER CLASS A CLASS B CLASS A CLASS B
- --------------------------------- --------- --------- ------- ------- -----------
<S> <C> <C> <C> <C> <C>
Scudder Stevens & Clark, Inc..... N/A 1,056,000(5) N/A 5.5 *
345 Park Avenue
New York, NY 10154
The Capital Group, Inc........... 1,845,500(6) 1,006,000(7) 10.1 5.2 9.9
Capital Research and
Management Company
333 South Hope Street
Los Angeles, CA 90071
Allen H. Berkman................. 1,088,630(8) 1,029,986(8) 6.0 5.3 6.0
1500 Oliver Building
Pittsburgh, PA 15222
Jack N. Berkman.................. 2,784,723(9) 2,844,574(9) 15.3 14.7 15.3
Myles P. Berkman................. 705,906(10) 1,051,906(10) 3.9 5.3 3.9
David J. Berkman................. 126(11) 252,126(11) * 1.3 *
Donald H. Jones.................. 175,202(12) 247,452(12) 1.0 1.3 1.0
Joseph A. Katarincic............. 36,800(13) 86,200(13) * * *
Keith C. Hartman................. 3,870(14) 91,160(15) * * *
Richard I. Goldstein............. N/A 15,000(16) * * *
All directors and officers as a
group (9 persons).............. 4,444,709(17) 5,457,694(18) 24.4 28.1 24.6
</TABLE>
- ------------------------
* Less than 1%
(1) This figure is based upon the aggregate amount of Class A Common Stock
reported by GAMCO Investors, Inc. (669,999), Gabelli Funds, Inc. (339,000),
Gabelli & Company (6,100), Gabelli Securities, Inc. (300) and Mario J.
Gabelli (46,600) in Amendment No. 3 to their Schedule 13D filed with the
Commission and dated January 10, 1992.
(2) Includes 1,170,750 shares of Class A Common Stock and 1,829,250 shares of
Class B Common Stock owned by The Louis Berkman Company, of which Louis
Berkman is President and the principal stockholder, as reported by The
Louis Berkman Company to Associated on May 10, 1994. Louis Berkman is a
brother of Jack N. Berkman.
(3) This figure is based upon the aggregate amount of Class A Common Stock
reported by The Equitable Life Assurance Society of the United States
(520,000), Alliance Capital Management L.P. (836,450 and an additional
54,700 with only sole dispositive power), Donaldson, Lufkin & Jenrette
Securities Corporation (2 and an additional 2,200 with shared dispositive
power), in their Schedule 13G filed with the Commission and dated February
9, 1994.
(4) This figure is based upon the aggregate amount of Class B Common Stock
reported by The Equitable Life Assurance Society of the United States
(450,000), Alliance Capital Management, L.P. (514,100), Donaldson, Lufkin &
Jenrette Securities Corporation (1,044 and an additional 4,500 with shared
dispositive power), in their Schedule 13G filed with the Commission and
dated February 9, 1994.
(5) This figure is based upon the number of shares of Class B Common Stock
reported by Scudder Stevens & Clark, Inc. in their Schedule 13G filed with
the Commission and dated February 4, 1994.
(6) This figure is based upon the number of shares of Class A Common Stock
reported in a Schedule 13G filed with the Commission and dated February 11,
1994. Certain operating subsidiaries of The Capital Group, Inc. exercised
investment discretion over various institutional accounts which held, as of
December 31, 1993, 1,845,500 shares of Associated. Capital Guardian Trust
Company, a bank, and one of such operating companies, exercised investment
discretion over 617,000 of said shares. Capital Research and Management
Company, a registered investment adviser, and Capital International
Limited, another operating subsidiary,
67
<PAGE>
had investment discretion with respect to 1,226,300 and 2,200 shares,
respectively, of the aggregate shares reported by The Capital Group, Inc.
As noted on the Schedule 13G, The Capital Group, Inc. disclaimed beneficial
ownership of all shares of Class A Common Stock pursuant to Rule 13d-4.
(7) This figure is based upon the number of shares of Class B Common Stock
reported in a Schedule 13G filed with the Commission and dated February 11,
1994. Capital Guardian Trust Company and Capital Research and Management
Company, operating subsidiaries of the Capital Group, Inc., exercised as of
December 31, 1993, investment discretion with respect to 531,000 and
475,000 shares, respectively, which were owned by various institutional
investors. As noted on the Schedule 13G, The Capital Group, Inc. disclaimed
beneficial ownership of shares of Class B Common Stock pursuant to Rule
13d-4.
(8) These figures are based upon the aggregate amount of Class A and Class B
Common Stock reported by Allen H. Berkman in his Schedule 13G filed with
the Commission and dated November 8, 1985, as adjusted by Associated for
subsequent stock splits, effected in the form of dividends. Allen H.
Berkman is a brother of Jack N. Berkman.
(9) Excludes 450,000 shares of Class A Common Stock and 510,000 shares of Class
B Common Stock owned by Jack N. Berkman's wife, Lillian R. Berkman, which
are reflected in the share ownership indicated for all directors and
officers as a group. Includes 251,604 shares of each class held as
co-trustee with Lillian R. Berkman. Also includes 701.00 shares of Class A
Common Stock held through the Kagan Stock Fund, an investment fund of which
Jack N. Berkman owns a 3.3% interest, but has no power to vote or dispose
of shares held by the fund and 552.31 shares of Class B Common Stock held
through Sandler Associates, L.P., an investment partnership of which Jack
N. Berkman owns a 0.6% interest, but has no power to vote or dispose of
shares held by the partnership. Includes 60,000 shares of Class B Common
Stock underlying currently exercisable stock options. Includes 2,532,418
shares of Class A Common Stock as to which SBC acquired beneficial
ownership pursuant to the Voting Agreement (See 'The Merger--Voting
Agreement'). SBC reported such beneficial ownership in a Schedule 13D filed
with the Securities and Exchange Commission and dated March 31, 1994.
(10) Includes 400,000 shares of Class B Common Stock underlying currently
exercisable stock options. Excludes 1,026 shares of each class owned by
Myles P. Berkman's wife, Carol E. Berkman. Includes 696,456 shares of Class
A Common Stock as to which SBC acquired beneficial ownership pursuant to
the Voting Agreement (See 'The Merger--Voting Agreement'). SBC reported
such beneficial ownership in a Schedule 13D filed with the Securities and
Exchange Commission and dated March 31, 1994.
(11) Includes 225,000 shares of Class B Common Stock underlying currently
exercisable stock options. Excludes 900 shares of each class owned by David
J. Berkman's wife, Pamela Berkman.
(12) Includes 33,830 shares of Class A Common Stock and 67,580 shares of Class B
Common Stock held as a trustee and 90,000 shares of Class A Common Stock
and 70,000 shares of Class B Common Stock underlying currently exercisable
stock options.
(13) Includes 7,000 shares of Class A Common Stock held by the IRA account of
Joseph A. Katarincic and 70,000 shares of Class B Common Stock underlying
currently exercisable stock options.
(14) Shares owned jointly with Mr. Hartman's wife, Deborah L. Hartman.
(15) Includes 80,000 shares of Class B Common Stock underlying currently
exercisable stock options and 11,160 shares owned jointly with Mr.
Hartman's wife, Deborah L. Hartman.
(16) Includes 15,000 shares of Class B Common Stock underlying currently
exercisable stock options.
(17) Includes 90,000 shares of Class A Common Stock underlying currently
exercisable stock options.
(18) Includes 1,080,000 shares of Class B Common Stock underlying currently
exercisable stock options or stock options exercisable within 60 days.
68
<PAGE>
ASSOCIATED COMMUNICATIONS RESOURCES, INC.
The following table sets forth information regarding the beneficial
ownership of shares of Class A Common Stock of ACORN, currently an indirect
wholly-owned subsidiary of Associated, by (i) each director of Associated, (ii)
each of the named executive officers of Associated and (iii) all directors and
officers of Associated as a group. Such beneficial ownership relates solely to
currently exercisable ACORN Options granted pursuant to the ACORN Plan, which
was approved by Associated stockholders on May 4, 1989. No ACORN Options to
purchase shares of Class B Common Stock of ACORN have been granted. In each
case, the persons named in the table would, upon exercise of the listed ACORN
Options, have sole voting and investment power with respect to the shares of
Class A Common Stock of ACORN issued upon such exercise. The maximum number of
shares of Common Stock of ACORN as to which ACORN Options may be granted under
the ACORN Plan is 200,000 shares, representing 10.0% of the outstanding shares
of ACORN after giving effect to the issuance of such shares. See
'Management--Treatment of ACORN Options' in the Information Statement attached
as Appendix D to this Proxy Statement-Prospectus for a description of the
treatment of the ACORN Options in connection with the Merger and the
Distribution.
<TABLE>
<CAPTION>
AS OF JULY 26, 1994
-----------------------------------
PERCENT OF
NUMBER OF SHARES OUTSTANDING
BENEFICIALLY SHARES OF COMMON
OWNED STOCK
---------------- -----------------
BENEFICIAL OWNER CLASS A CLASS B
- ---------------------------------------- ------- ------- -----------------
<S> <C> <C> <C>
Jack N. Berkman......................... 5,000 N/A *
Myles P. Berkman........................ 50,000 N/A 2.7
David J. Berkman........................ 40,000 N/A 2.2
Donald H. Jones......................... 10,000 N/A *
Joseph A. Katarincic.................... 10,000 N/A *
Keith C. Hartman........................ 10,200 N/A *
Richard I. Goldstein.................... 4,000 N/A *
All directors and officers as a group (9
persons).............................. 139,200 N/A 7.2
</TABLE>
- ------------------------
* Less than 1%.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Joseph A. Katarincic is a partner in the law firm of Katarincic & Salmon
which performed services for Associated in fiscal year 1993. The aggregate
amount of fees paid by Associated to Katarincic & Salmon was less than 5% of the
law firm's gross revenues for the last fiscal year. Associated believes that the
billing rates of Katarincic & Salmon for the foregoing legal services were no
less favorable to Associated than could have been obtained from unaffiliated
parties for comparable services.
Associated has entered into employment agreements with Jack N. Berkman,
Myles P. Berkman and David J. Berkman for retention of their services as
executive officers during the original or extended term of such agreements. See
'The Merger--Interests of Certain Persons in the Transactions.'
69
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth a summary of all compensation paid or
accrued by Associated to each of the named executive officers of Associated for
services rendered for the last three fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
--------------
SECURITIES ALL
UNDERLYING OTHER
ANNUAL COMPENSATION STOCK OPTION COMPENSATION
---------------------------------------- AWARDS (3)(4)
FISCAL OTHER ANNUAL -------------- ------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1) (2)
- ------------------------------ ------ -------- -------- ------------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Myles P. Berkman.............. 1993 $650,000 $100,000 -- -- -- $4,497
President, Chief Operating 1992 600,000 100,000 -- -- -- 4,364
Officer and Treasurer 1991 550,000 125,000 -- -- -- --
Jack N. Berkman............... 1993 300,000 100,000 -- -- -- --
Chairman of the Board, Chief 1992 325,000 75,000 -- -- -- --
Executive Officer and 1991 325,000 100,000 -- -- -- --
Secretary
David J. Berkman.............. 1993 233,600 85,000 -- -- -- 4,497
Executive Vice President 1992 203,600 65,000 -- -- -- 4,364
1991 178,600 55,000 -- 25,000 10,000 --
Keith C. Hartman.............. 1993 178,600 75,000 -- -- -- 4,497
Controller and Assistant 1992 153,600 65,000 -- -- -- 4,364
Secretary 1991 123,600 65,000 -- 25,000 8,000 --
Richard I. Goldstein.......... 1993 182,800 100,000 -- -- -- 4,497
Vice President, Cellular 1992 102,100 85,000 $ 9,411 (5) -- -- 4,364
1991 81,019 25,000 -- 30,000 7,000 --
</TABLE>
- ------------------------
(1) Options granted pursuant to the 1989 Plan.
(2) Options granted pursuant to the ACORN Plan.
(3) In accordance with the transitional provisions of the rules and regulations
of the Commission regarding the disclosure of executive compensation,
amounts of Other Annual Compensation and All Other Compensation are excluded
for Associated's 1991 fiscal year.
(4) All amounts represent Associated contributions to Associated's 401(k) Plan.
(5) Represents reimbursement by Associated for taxes incurred by Mr. Goldstein
relating to the sale of a residence for relocation required by Associated.
STOCK OPTIONS
No stock options were granted to or exercised by any of the named executive
officers of Associated during the fiscal year ended December 31, 1993. The
following tables set forth information regarding unexercised stock options at
December 31, 1993:
70
<PAGE>
ASSOCIATED COMMUNICATIONS CORPORATION
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY OPTIONS
UNEXERCISED OPTIONS (1) AT FISCAL YEAR END (1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Myles P. Berkman.... 400,000 N/A $7,850,000 N/A
Jack N. Berkman..... 60,000 N/A 1,177,500 N/A
David J. Berkman.... 225,000 N/A 4,256,250 N/A
Keith C. Hartman.... 80,000 45,000 1,506,250 $787,500
Richard I.
Goldstein......... 15,000 15,000 199,184 198,936
</TABLE>
- ------------------------
(1) All stock options reflected in the table immediately above relate to Class B
Common Stock. The closing price of the Class B Common Stock on the NNM was
$27.75 on December 31, 1993.
ASSOCIATED COMMUNICATIONS RESOURCES, INC.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY OPTIONS
UNEXERCISED OPTIONS (1) AT FISCAL YEAR END (1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Myles P. Berkman.... 50,000 N/A * *
Jack N. Berkman..... 5,000 N/A * *
David J. Berkman.... 40,000 N/A * *
Keith C. Hartman.... 10,200 4,800 * *
Richard I.
Goldstein......... 4,000 3,000 * *
</TABLE>
- ------------------------
(1) All stock options reflected in the table immediately above relate to ACORN
Class A Common Stock subject to ACORN Options.
* The fair market value of the ACORN Options is not set forth because there is
currently no trading market for the shares of ACORN Class A Common Stock. In
connection with the adjustment to outstanding ACORN Options which will be
effective at the Effective Time, Associated has engaged financial advisors to
advise and make recommendations to the Committee of outside directors which
administers the ACORN Plan with respect to the Fair Market Value (as defined in
the ACORN Plan) per share of ACORN Class A Common Stock subject to such ACORN
Options as of the Time of Distribution, and to render opinions to the Associated
Board with respect to the fairness, from a financial point of view, to the
stockholders of Spinco, of such Fair Market Value which such Committee
determines at the Time of Distribution will be utilized for purposes of
effecting such adjustment. See 'Management--Treatment of ACORN Options--Analysis
of Wasserstein Perella & Co.' and-- 'Analysis of Salomon Brothers Inc' in the
Information Statement attached as Appendix D hereto. The shares of ACORN Class A
Common Stock subject to outstanding ACORN Options listed in the table (whether
or not exercisable) represent approximately 6.1% of the outstanding shares of
ACORN after giving effect to the issuance of such shares. The shares of ACORN
Class A Common Stock subject to all outstanding ACORN Options (whether or not
exercisable and whether or not listed in the table) (191,500 shares) represent
approximately 9.6% of the outstanding shares of ACORN Common Stock after giving
effect to the issuance of such shares.
COMPENSATION COMMITTEE REPORT
The following report shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement-Prospectus
into any filing under the Securities Act of 1933 or under the Securities
Exchange Act of 1934, except to the extent Associated specifically incorporates
this information by reference, and shall not be deemed filed under such acts.
Associated has no standing compensation committee, and all decisions
regarding compensation for fiscal year 1993 were made by the entire Board of
Directors, except that the compensation of Jack N. Berkman, Myles
71
<PAGE>
P. Berkman and David J. Berkman was determined by Messrs. Jones and Katarincic,
who are outside directors of Associated.
In awarding executive compensation, Associated seeks to attract and retain
the most qualified personnel for meeting the needs and objectives of Associated,
and to motivate such individuals to achieve Associated's goals through
compensation arrangements which reward executives based on individual
contributions, as well as Associated's overall results. The Board of Directors
compares Associated's executive compensation with corporate performance and
shareholder returns of similarly situated companies. The key elements of
Associated's executive compensation arrangements include base salary, annual
bonus and stock options. Base salaries are generally determined by evaluating
each individual's responsibilities and relative experience, including a
comparison of the base salaries of executives with comparable positions at other
companies, each of which are included in the Total Return Index for NASDAQ
Telecommunications Stock represented in Associated's stock price performance
graph set forth below. In comparing base salary levels against those of such
companies, the Board of Directors considered the competitiveness of the entire
compensation package offered to Associated's executive officers as compared to
that of executives with comparable positions at such other companies; however,
salary levels established for Associated's executive officers were not targeted
to correspond to any particular salary level paid by such other companies.
Annual bonuses are determined and stock options are granted by evaluating both
the performance of Associated (including revenue and cash flow generation and
stock price performance) and the individual officers. The financial performance
of definable business units or markets is considered with respect to executives
with responsibility for such units or markets. In addition, other non-financial
performance measures such as improvements in customer relations, increase in
market share and operational efficiencies are also considered.
The base salary of Myles P. Berkman, President and Chief Operating Officer
and Jack N. Berkman, Chairman and Chief Executive Officer, for the 1993 fiscal
year was based primarily on their rights under their respective employment
contracts, which require the base salary for any fiscal year to be equal to or
greater than the base salary for the immediately preceding fiscal year. In
determining the compensation (including base salary and bonus) of Myles P.
Berkman and Jack N. Berkman, the outside directors of Associated took into
account a comparison of the base salaries of chief executive and chief operating
officers of certain of the companies referred to above, the increase in
Associated's revenue and cash flow, and the performance of Associated's Common
Stock as well as individual performance.
In determining bonuses for 1993 for Myles P. Berkman and Jack N. Berkman,
the outside directors considered, among other things, (a) the increase in the
value per share of Associated's Common Stock from $17.50 (Class A) and $17.25
(Class B) at December 31, 1992 to $28.50 (Class A) and $27.75 (Class B) at
December 31, 1993; (b) the completion of significant strategic acquisitions of
cellular interests in upstate New York which expanded and consolidated
Associated's ownership in the Buffalo, Rochester and Albany/Glens Falls
geographic service areas; (c) Messrs. Berkman's management of Associated's
evaluation of, and actions with respect to, strategic alternatives available to
Associated, which preceded Associated's successful negotiation of the Merger
Agreement, and (d) the length of Messrs. Berkman service to Associated and their
stature and reputation in the communications industry.
Stockholder value is strongly emphasized by the Board of Directors and
management. They believe that the incentives awarded to officers of Associated
through annual bonuses and stock options, as well as the significant level of
equity ownership of the Chief Executive Officer, Chief Operating Officer and
other executive officers, have been and will continue to be of great importance
to Associated in providing a significant total return to its stockholders.
The Board of Directors,
Jack N. Berkman
Myles P. Berkman
Donald H. Jones
Joseph A. Katarincic
David J. Berkman
72
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the 1993 fiscal year, Associated had no standing compensation
committee, and all decisions regarding compensation were made by the entire
Associated Board, except the compensation of Jack N. Berkman, Myles P. Berkman
and David J. Berkman was determined by Messrs. Jones and Katarincic, who are
outside directors of Associated. Jack N. Berkman is Chairman of the Board and
Chief Executive Officer, Myles P. Berkman is President and Chief Operating
Officer and David J. Berkman is Executive Vice President of Associated.
Joseph A. Katarincic is a partner in the law firm of Katarincic & Salmon in
Pittsburgh, Pennsylvania. Such firm and Mr. Katarincic performed legal services
for Associated in fiscal year 1993. The aggregate amount of fees paid by
Associated to Katarincic & Salmon was less than 5% of the law firm's gross
revenues for the last fiscal year. Associated believes that the billing rates
for the foregoing legal services were no less favorable to Associated than could
have been obtained from unaffiliated parties for comparable services. Mr. Jones
has served as a consultant to Associated since 1982, with respect to new and
emerging technologies. Mr. Jones' consulting services involve significant
ongoing advice to and discussions with management, and are not performed
pursuant to a formal contract. He is compensated for such services at the rate
of $2,000 per month, a rate which Associated believes is no less favorable to
Associated than could have been obtained from unaffiliated parties for
comparable services. Messrs. Jones and Katarincic each receive $1,000 per month
for their service on the Board of Directors. Jack N. Berkman, Myles P. Berkman
and David J. Berkman receive no compensation for their services as directors.
STOCK PRICE PERFORMANCE GRAPH
The Stock Price Performance Graph below shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement-Prospectus into any filing under the Securities Act of 1933 or under
the Securities Exchange Act of 1934, except to the extent Associated
specifically incorporates this information by reference, and shall not be deemed
filed under such acts.
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C> <C>
ACCMA 100 152.083 120.843 137.511 143.762 237.519
ACCMB 100 150.012 119.801 139.595 145.845 231.269
TELECOM 100 157.5 106.171 146.431 179.847 277.144
NASDAQ 100 121.24 102.945 165.186 192.078 219.18
</TABLE>
Note: Reflects performance of a $100 investment made on December 31, 1988
(i) in Class A Common Stock (symbol: ACCMA) and Class B Common Stock (symbol:
ACCMB), (ii) based on the Center for Research in Securities Prices ('CRSP')
Total Return Index for The NASDAQ Stock Market(Registered) (US Companies) and
(iii) based on the CRSP Total Return Index for NASDAQ Telecommunications Stocks.
73
<PAGE>
APPOINTMENT OF AUDITORS
The firm of Ernst & Young has served as independent auditors for Associated
since February 25, 1985 and has been appointed by the Audit Committee of the
Associated Board as Associated's independent auditors for the fiscal year 1994.
Representatives of Ernst & Young are expected to be available at the Annual
Meeting to respond to appropriate questions from stockholders and have the
opportunity to make a statement if they so desire.
OTHER BUSINESS
The Associated Board does not intend to present to the Annual Meeting any
business other than as described in this Proxy Statement-Prospectus and, at the
time this Proxy Statement-Prospectus was printed, was not aware of any other
matters that properly might be presented to the Annual Meeting. If any other
business not described herein properly should come before the Annual Meeting,
the persons named in the enclosed proxy card(s) or their substitutes will vote
the shares represented by them in accordance with their best judgment.
Discretionary authority for them to do so is contained in the proxy card(s).
STOCKHOLDER PROPOSALS
Associated will hold a 1995 annual meeting of stockholders only if the
Merger is not consummated before the time for such meeting. In the event that
such a meeting is held, stockholder proposals intended to be presented at
Associated's 1995 annual meeting must be received by Associated at its principal
executive offices in a timely manner in order to be considered for inclusion in
Associated's proxy statement and proxy cards for that meeting.
74
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
---------------------------------------- ----
<S> <C>
ACDI II................................. 50
ACORN................................... 50
ACORN Options........................... 47
ACORN Plan.............................. 47
Acquiring Person........................ 57
Acquisition Transaction................. 45
Aggregate Purchase Price................ 6
Aggregate Transaction Value............. 31
Albany.................................. 50
AMT..................................... 23
Annual Meeting.......................... 1
Asset Transfers......................... 50
Associated.............................. 1
Associated Board........................ 1
Associated Business to be Merged........ 14
Associated Common Stock................. 1
Associated Rights Agreement............. 38
Associated Rights....................... 38
Associated Stock Options................ 47
Associated Stock Plans.................. 47
Associated's 1993 Annual Report on Form
10-K.................................. 3
Associated's Quarterly Report on Form
10-Q.................................. 3
AT&T.................................... 9
Average SBC Price....................... 6
BACTC................................... 23
Base Purchase Price..................... 6
Bonus Pool.............................. 47
Buffalo................................. 50
Certificate of Merger................... 33
Certificates............................ 33
Class A Common Stock.................... 1
Class B Common Stock.................... 1
Closing................................. 33
Closing Date............................ 33
Code.................................... 36
Commission.............................. 2
Comparable Group........................ 29
Continuing Directors.................... 59
Conversion Number....................... 6
Court................................... 8
Credit Agreement........................ 36
CRSP.................................... 73
Data Services........................... 50
Delaware Statute........................ 63
DGCL.................................... 34
Distribution............................ 1
Distribution Agent...................... 49
Distribution Agreement.................. 1
Distribution Date....................... 57
Distribution Record Date................ 49
DOJ..................................... 8
</TABLE>
75
<PAGE>
<TABLE>
<S> <C>
EBITDA.................................. 29
Employment Agreements................... 46
Exchange Act............................ 2
Excluded Assets......................... 50
FCC..................................... 36
Flip-In Events.......................... 58
Flip-Over Events........................ 58
FTC..................................... 38
Higher Proposal......................... 45
HSR Act................................. 38
Indemnified Liabilities................. 40
Indemnified Parties..................... 39
Indemnified Persons..................... 53
Information Statement................... 3
Liberty................................. 2
Loss.................................... 53
Maximum SBC Price....................... 6
MCI..................................... 9
Merged Subsidiaries..................... 50
Merger.................................. 1
Merger Agreement........................ 1
MFJ..................................... 8
MFJ Activities.......................... 37
MFJ Motion.............................. 8
MFJ Transactions........................ 37
MFJ Waiver.............................. 8
MSAs.................................... 29
NASD.................................... 2
Newco Cellular.......................... 41
NYSE.................................... 6
Owned Shares............................ 48
PCTC.................................... 23
Pittsburgh.............................. 50
POPs.................................... 29
Portfolio Securities.................... 23
Premium................................. 32
Premium Tender Offer.................... 32
Private Letter Ruling................... 41
Proxy................................... 48
Purchase Price.......................... 57
Purchaser............................... 1
Record Date............................. 21
Report Form............................. 38
Retained Business....................... 23
Retained Business Balance Sheet......... 23
Retained Company Assumed Liabilities.... 51
Retained Company Group.................. 51
Rights Agreement........................ 57
Rochester............................... 50
RSAs.................................... 29
Ruling Request.......................... 41
Salomon Brothers........................ 24
Salomon Brothers Report................. 28
SBC..................................... 1
</TABLE>
76
<PAGE>
<TABLE>
<S> <C>
SBC Common Stock........................ 1
SBC Form 10............................. 3
SBC Form 8-A............................ 3
SBC Preferred Stock..................... 56
SBC Registration Statement.............. 2
SBC Rights.............................. 57
Securities Act.......................... 2
Series A Preferred Stock................ 57
Service................................. 41
Severance Payments...................... 46
Spinco.................................. 1
Spinco Assumed Liabilities.............. 51
Spinco Class A Common Stock............. 38
Spinco Class B Common Stock............. 38
Spinco Common Stock..................... 38
Spinco Group............................ 51
Stock Acquisition Date.................. 57
Surviving Corporation................... 1
Tax Disaffiliation Agreement............ 54
TCI..................................... 2
Time of Distribution.................... 49
Trading Average......................... 6
Transfer Taxes.......................... 56
Transferred Subsidiaries................ 50
Triggering Events....................... 58
True-Up Payment......................... 52
Unit.................................... 57
Voting Agreement........................ 21
Voting Debt............................. 34
Voting Stockholders..................... 48
1988 Plan............................... 47
1989 Plan............................... 47
</TABLE>
77
<PAGE>
ASSOCIATED BUSINESS TO BE MERGED
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors............................................ F-2
Audited Combined Financial Statements
Combined Balance Sheets--December 31, 1993 and 1992....................... F-6
Combined Statements of Operations--Years ended December 31, 1993, 1992 and
1991.................................................................... F-7
Combined Statements of Stockholders' Equity--Years ended December 31,
1993, 1992 and 1991..................................................... F-8
Combined Statements of Cash Flows--Years ended December 31, 1993, 1992 and
1991.................................................................... F-9
Notes to Combined Financial Statements.................................... F-10
The following combined financial statement schedules of Associated Business To
Be Merged are included:
Schedule V--Property, Plant, and Equipment.............................. F-20
Schedule VI--Accumulated Depreciation, Depletion, and Amortization of
Property, Plant, and Equipment....................................... F-21
Schedule VIII--Valuation and Qualifying Accounts........................ F-22
Schedule X--Supplementary Income Statement Information.................. F-23
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Years Ended December 31, 1993 and 1992............... F-24
Audited Combined Financial Statements and Schedules of Bay Area Cellular
Telephone Company and Pittsburgh Cellular Telephone Company as of and
for the Year Ended December 31, 1993.................................... F-28
Audited Combined Financial Statements and Schedules of Bay Area Cellular
Telephone Company, Buffalo Telephone Company and Pittsburgh Cellular
Telephone Company for Each of the Three Years Ended December 31, 1992,
1991 and 1990........................................................... F-44
Interim Combined Financial Statements
Combined Balance Sheet--March 31, 1994 (Unaudited)........................ F-63
Combined Statements of Operations--Three Months ended March 31, 1994 and
1993 (Unaudited)........................................................ F-64
Combined Statements of Cash Flows--Three Months ended March 31, 1994 and
1993 (Unaudited)........................................................ F-65
Notes to Interim Combined Financial Statements (Unaudited)................ F-66
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Three Months Ended March 31, 1994.................... F-69
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Directors
Associated Communications Corporation
We have audited the accompanying combined balance sheets of Associated
Business to be Merged (See Note 1) as of December 31, 1993 and 1992, and the
related combined statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1993. Our audits
also included the financial statement schedules listed in the index to the
combined financial statements. These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits. We did
not audit the financial statements of Pittsburgh Cellular Telephone Company or
Bay Area Cellular Telephone Company, partnerships accounted for on the equity
method. The Company's investments in and equity in these partnerships was
$11,850,000 at December 31, 1993 and $11,979,000 at December 31, 1992. The
Company's equity in the partnerships' net income was approximately $7,077,000 in
1993, $8,342,000 in 1992, and $5,518,000 in 1991. These statements were audited
by other auditors whose reports have been furnished to us, and our opinion,
insofar as it relates to the amounts included for Pittsburgh Cellular Telephone
Company and Bay Area Cellular Telephone Company, is based solely upon 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 and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based upon our audits and the reports of other auditors,
the combined financial statements referred to above present fairly, in all
material respects, the combined financial position of Associated Business to be
Merged at December 31, 1993 and 1992, and the combined results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedules, when considered
in relation to the financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
As discussed in Note 1 to the combined financial statements, the Company
has changed its method of accounting for income taxes.
ERNST & YOUNG
Pittsburgh, Pennsylvania
February 25, 1994
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Bay Area Cellular Telephone Company:
We have audited the accompanying balance sheet of Bay Area Cellular Telephone
Company (the 'Partnership') as of December 31, 1993, and the related statements
of operations, changes in partners' equity, and cash flows for the year 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 audit. The financial statements of the Partnership as
of, and for the year ended, December 31, 1992, were audited by other auditors,
whose report, dated January 28, 1993, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Bay Area Cellular Telephone
Company as of December 31, 1993, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND
San Francisco, California
February 15, 1994
F-3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Pittsburgh Cellular Telephone Company:
We have audited the accompanying balance sheets of Pittsburgh Cellular Telephone
Company (a Pennsylvania general partnership) as of December 31, 1993 and 1992,
and the related statements of income, changes in partners' capital (deficit) and
cash flows for each of the three years in the period ended December 31, 1993.
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 Pittsburgh Cellular Telephone
Company as of December 31, 1993 and 1992, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 1993
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Seattle, Washington
January 28, 1994
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Bay Area Cellular Telephone Company
In our opinion, the accompanying balance sheet and the related statements of
income, of partners' equity and of cash flows present fairly, in all material
respects, the financial position of Bay Area Cellular Telephone Company at
December 31, 1992, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1992, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audits 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. We have not
audited the financial statements of Bay Area Cellular Telephone Company for any
period subsequent to December 31, 1992.
PRICE WATERHOUSE
Price Waterhouse
San Francisco
January 28, 1993
F-5
<PAGE>
ASSOCIATED BUSINESS TO BE MERGED
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1993 1992
-------- -------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (approximates fair
value)............................................ $ 5,457 $ 2,644
Accounts receivable, less allowance for doubtful
accounts (1993--$1,945,000;
1992--$1,384,000)................................. 14,227 8,767
Inventory held for resale............................ 1,503 762
Prepaid federal and state income taxes............... 1,821 --
Prepaid expenses and other assets.................... 297 144
Deferred income taxes................................ 4,030 3,511
-------- -------
Total current assets................................... 27,335 15,828
Property, plant, and equipment--net of accumulated
depreciation
and amortization..................................... 36,775 22,654
Investments in unconsolidated cellular telephone joint
ventures............................................. 11,850 24,069
Intangible assets, less accumulated amortization
(1993--$13,811,000;
1992--$1,013,000).................................... 81,855 669
Other noncurrent assets................................ 1,966 --
-------- -------
Total assets........................................... $159,781 $63,220
-------- -------
-------- -------
LIABILITIES AND STOCKHOLDERS'EQUITY....................
Current liabilities:
Accounts payable..................................... $ 6,600 $ 5,280
Due to Associated Communications of Delaware, Inc.... -- 42,697
Employee compensation................................ 1,534 669
Other accrued expenses............................... 1,970 1,486
Deferred revenue..................................... 2,129 1,158
Stock appreciation rights payable.................... 10,113 10,327
Accrued federal and state income taxes............... 103 615
Deferred payable..................................... 2,705 --
-------- -------
Total current liabilities.............................. 25,154 62,232
Long-term obligations.................................. 125,500 16,684
Deferred payable....................................... -- 1,698
Deferred income taxes.................................. 2,576 4,686
Commitments and contingencies.......................... -- --
Minority interests (deficiency in assets).............. 3,612 (181)
Stockholders' equity:
Preferred stock, par value $1.00 per share;
authorized 10,000,000 shares; none issued......... -- --
Common stock:
Class A, par value $.10 per share; authorized
60,000,000 shares; issued and outstanding
(18,200,538 in 1993 and 1992).................... 1,820 1,820
Class B, par value $.10 per share; authorized
60,000,000 shares; issued and outstanding
(19,255,568 in 1993 and 19,211,768 in 1992)...... 1,925 1,921
Additional paid-in capital........................... 4,978 4,256
Accumulated deficit.................................. (5,784) (29,896)
-------- -------
Total stockholders' equity............................. 2,939 (21,899)
-------- -------
Total liabilities and stockholders' equity............. $159,781 $63,220
-------- -------
-------- -------
</TABLE>
See accompanying notes.
F-6
<PAGE>
ASSOCIATED BUSINESS TO BE MERGED
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues..................................... $ 91,480 $ 50,083 $ 41,125
Cost and expenses:
Cost of services........................... 29,413 18,399 16,607
Operating expenses......................... 18,547 9,888 10,114
General and administrative expenses........ 23,869 12,620 11,485
Stock appreciation rights expense.......... -- 1,275 7,952
Depreciation and amortization expense...... 16,892 3,802 3,057
--------- --------- ---------
88,721 45,984 49,215
--------- --------- ---------
Operating income (loss)...................... 2,759 4,099 (8,090)
Other income (expense):
Interest income............................ 218 42 69
Interest expense........................... (5,458) (970) (1,575)
Interest expense--affiliates............... (2,680) (2,377) (487)
Equity in income of unconsolidated cellular
telephone joint ventures................ 6,794 11,316 7,906
Minority interests......................... (1,893) (2,319) (867)
--------- --------- ---------
(3,019) 5,692 5,046
--------- --------- ---------
(Loss) income before income taxes,
extraordinary item and cumulative effect of
accounting change for income taxes......... (260) 9,791 (3,044)
Income taxes (benefit):
Federal and state.......................... (85) 4,299 805
Charge in lieu of federal income taxes..... -- 1,800 --
--------- --------- ---------
(85) 6,099 805
--------- --------- ---------
(Loss) income before extraordinary item and
cumulative effect of accounting change for
income taxes............................... (175) 3,692 (3,849)
Extraordinary item--reduction of income taxes
from utilization of operating loss
carryforward............................... -- 1,800 --
Cumulative effect of accounting change for
income taxes............................... 2,431 -- --
--------- --------- ---------
Net income (loss)............................ $ 2,256 $ 5,492 $ (3,849)
--------- --------- ---------
--------- --------- ---------
Income (loss) per share:
Income (loss) before extraordinary item and
cumulative effect of accounting change
for income taxes........................ $ .00 $ .10 $ (.10)
Extraordinary item......................... .00 .05 .00
Cumulative effect of accounting change for
income taxes............................ .06 .00 .00
--------- --------- ---------
Net income (loss) per share.................. $ .06 $ .15 $ (.10)
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
F-7
<PAGE>
ASSOCIATED BUSINESS TO BE MERGED
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------------------
CLASS A CLASS B
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, January 1, 1991...... 9,496,539 $ 950 9,888,154 $ 989
Net loss.................... -- -- -- --
Stock issued in connection
with stock option plan.... -- -- 800 1
Stock dividend.............. 9,100,269 910 9,565,884 956
----------- ----------- ----------- -----------
Balance, December 31, 1991.... 18,596,808 1,860 19,454,838 1,946
Net income.................. -- -- -- --
Stock issued in connection
with stock option plan.... -- -- 79,200 7
Treasury stock retired...... (396,270) (40) (322,270) (32)
----------- ----------- ----------- -----------
Balance, December 31, 1992.... 18,200,538 1,820 19,211,768 1,921
Net income.................. -- -- -- --
Stock issued in connection
with stock option plan.... -- -- 43,800 4
Net settlement of
intercompany accounts with
Associated Communications
of Delaware, Inc.......... -- -- -- --
----------- ----------- ----------- -----------
Balance, December 31, 1993.... 18,200,538 $ 1,820 19,255,568 $ 1,925
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
ADDITIONAL TOTAL
PAID-IN ACCUMULATED TREASURY STOCKHOLDERS'
CAPITAL DEFICIT STOCK EQUITY
---------- ------------ ----------- --------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1991...... $ 5,579 $ (25,252) $ (7,185) $(24,919)
Net loss.................... -- (3,849) -- (3,849)
Stock issued in connection
with stock option plan.... 6 -- -- 7
Stock dividend.............. (1,866 ) -- -- --
---------- ------------ ----------- ----------
Balance, December 31, 1991.... 3,719 (29,101) (7,185) (28,761)
Net income.................. -- 5,492 -- 5,492
Stock issued in connection
with stock option plan.... 1,363 -- -- 1,370
Treasury stock retired...... (826 ) (6,287) 7,185 --
---------- ------------ ----------- ----------
Balance, December 31, 1992.... 4,256 (29,896) -- (21,899)
Net income.................. -- 2,256 -- 2,256
Stock issued in connection
with stock option plan.... 722 -- -- 726
Net settlement of
intercompany accounts with
Associated Communications
of Delaware, Inc.......... -- 21,856 -- 21,856
---------- ------------ ----------- ----------
Balance, December 31, 1993.... $ 4,978 $ (5,784) $ -- $ 2,939
---------- ------------ ----------- ----------
---------- ------------ ----------- ----------
</TABLE>
See accompanying notes.
F-8
<PAGE>
ASSOCIATED BUSINESS TO BE MERGED
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)............................ $ 2,256 $ 5,492 $ (3,849)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization........... 16,892 3,802 3,057
Loss on disposal of property, plant, and
equipment............................. -- 104 168
Provision for losses on accounts
receivable............................ 2,437 1,264 1,455
Equity in income of unconsolidated
cellular telephone joint ventures, net
of distributed earnings............... (4,364) (7,956) (4,466)
Minority interests, net of distributed
earnings.............................. (307) 2,319 867
Cumulative effect of accounting change
for income taxes...................... (2,431) -- --
Provision for deferred income taxes..... (998) 1,175 --
Other................................... 214 -- --
Change in assets and liabilities:
Accounts receivable................... (3,826) (3,447) (3,498)
Inventory held for resale............. (125) (29) 2
Prepaid federal and state income
taxes.............................. (1,821) 300 (300)
Prepaid expenses and other assets..... 48 (48) 2
Accounts payable...................... (1,034) 11 2,506
Employee compensation................. 542 329 78
Other accrued expenses................ (854) (151) 395
Deferred revenue...................... 210 412 294
Stock appreciation rights payable..... -- 1,275 7,836
Accrued federal and state income
taxes.............................. (343) 409 65
---------- --------- ---------
Net cash provided by operating activities.... 6,496 5,261 4,612
CASH FLOWS FROM INVESTING ACTIVITIES
Cash and cash equivalents resulting from
consolidation of affiliates................ 4,786 -- --
Cash paid for acquisition.................... (1,743) -- --
Purchases of property, plant, and
equipment.................................. (7,846) (8,986) (2,835)
Dispositions of property, plant, and
equipment.................................. 49 13 19
Investments in unconsolidated cellular
telephone joint ventures................... (17) (728) (181)
Investment by minority interest.............. 292 -- --
Increase in other intangible assets.......... (44) -- (47)
---------- --------- ---------
Net cash used in investing activities........ (4,523) (9,701) (3,044)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock options.................. 512 641 7
Proceeds from borrowings..................... 120,154 2,050 --
Principal payments on borrowings............. (96,963) (1,859) (3,856)
Due to Associated Communications of Delaware,
Inc........................................ (20,841) 3,488 3,084
Other financing activities................... (2,022) -- --
---------- --------- ---------
Net cash provided by (used in) financing
activities................................. 840 4,320 (765)
---------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................ 2,813 (120) 803
Cash and cash equivalents at beginning of
year....................................... 2,644 2,764 1,961
---------- --------- ---------
Cash and cash equivalents at end of year..... $ 5,457 $ 2,644 $ 2,764
---------- --------- ---------
---------- --------- ---------
</TABLE>
See accompanying notes.
F-9
<PAGE>
ASSOCIATED BUSINESS TO BE MERGED
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
On February 23, 1994, Associated Communications Corporation ('Associated')
entered into an Agreement and Plan of Merger and Reorganization (the 'Merger
Agreement') which provides that the common stock of Associated Communications of
Delaware, Inc. ('ACDI'), a wholly owned subsidiary of Associated, would be spun
off on a pro rata basis to the stockholders of Associated pursuant to the terms
of an Agreement and Plan of Distribution, the form of which is an Appendix to
the Merger Agreement. After the spin-off, Associated would continue to own its
domestic cellular businesses and interests (the 'Associated Business to be
Merged' or the 'Company') and would be merged ('the Merger') with an indirect
wholly owned subsidiary of Southwestern Bell Corporation ('SBC'), pursuant to
the Merger Agreement.
These combined financial statements present the financial position, results
of operations and cash flows of the Associated Business to be Merged. The
combined financial statements include certain Associated corporate expenses
allocated to the Associated Business to be Merged. These amounts include
allocable salaries, rent, accounting services, legal services, and
administrative expenses. Management believes these allocations were made on a
reasonable and consistent basis.
The Associated Business to be Merged includes primarily the accounts of
three consolidated cellular telephone joint ventures; Albany Telephone Company
('ATC') (which includes the assets of the Glens Falls cellular system), Buffalo
Telephone Company ('BTC'), and Genesee Telephone Company ('GTC'); Cellular
Mobile Corporation ('CMC'), which owns a one-third partnership interest in BTC;
as well as equity investments in Pittsburgh Cellular Telephone Company ('PCTC')
and Bay Area Cellular Telephone Company ('BACTC'), in addition to the accounts
of Associated Communications of Delaware, Inc. II ('ACDI II') and certain
accounts of Associated, primarily cash and income taxes. The Company operates in
one dominant industry segment, cellular and communications services, principally
in the northeastern United States.
As discussed in Note 2 to the combined financial statements, the accounts
of BTC were consolidated since January 8, 1993. BTC was accounted for under the
equity method for the years ended December 31, 1992 and 1991.
Under the terms of the Merger Agreement, which is subject to, among other
things, Associated stockholder and regulatory agency approvals, stockholders of
Associated will receive in a tax-free transaction, on a pro rata basis, shares
of SBC Common Stock having an aggregate market value of $680,000,000, increased
by a factor of 7% per annum commencing on July 22, 1994, and continuing until
closing, less net long-term indebtedness of the Company and certain other
adjustments.
CASH EQUIVALENTS
Cash equivalents are recorded at cost and consist of time deposits with
initial maturities of one month or less.
ACCOUNTS RECEIVABLE
Accounts receivable relate to the cellular telephone entities. These
entities generally grant unsecured credit to customers, the majority of which
are residents of the Greater Rochester, Buffalo, Albany and Glens Falls, New
York areas.
INVENTORY HELD FOR RESALE
Inventory, which consists of cellular telephones and related equipment, is
valued at the lower of cost (first-in, first-out method) or market, and is net
of an allowance of approximately $387,000 and $258,000 at December 31, 1993 and
1992, respectively, to reduce inventory to market value.
F-10
<PAGE>
ASSOCIATED BUSINESS TO BE MERGED
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost. Depreciation and
amortization are computed on the straight-line method over the estimated useful
lives of the assets for financial reporting and on accelerated methods for tax
reporting.
INVESTMENTS IN UNCONSOLIDATED CELLULAR TELEPHONE JOINT VENTURES
The investments in unconsolidated cellular telephone joint ventures, less
than 51% owned, are accounted for on the equity method.
INTANGIBLE ASSETS
The cost of investments in consolidated cellular telephone joint ventures
over the net equity in such ventures and cellular license application costs are
amortized on the straight-line basis over ten years. In connection with the
'McCaw' transaction described below, the Company recorded intangible assets of
approximately $85,000,000 representing the cost of investments over net assets
acquired. In addition, the Company reclassified intangible assets of
approximately $9,000,000 from investments in unconsolidated cellular telephone
joint ventures due to the consolidation of BTC as described above.
INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, 'Accounting for Income Taxes' ('FASB 109'). Refer
to Note 10 to the combined financial statements for a discussion of the impact
of the adoption of this statement on the Company's financial position.
Under FASB 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted rates and laws that will be in
effect when the differences are expected to reverse. Prior to the adoption of
FASB 109, income tax expense was determined using the deferred method. Deferred
tax expense was based on items of income and expense that were reported in
different years in the financial statements and tax returns and were measured at
the tax rate in effect in the year the difference originated.
REVENUES
Cellular air time revenue is recognized when the service is provided.
Cellular access charges are billed in advance and recognized as revenue in the
service period. Equipment sales are recognized at the time of sale.
INCOME (LOSS) PER SHARE
Income (loss) per share is computed based on the weighted average number of
common shares of Associated outstanding of 37,434,852 in 1993, 37,349,598 in
1992, and 37,332,429 in 1991.
2. SIGNIFICANT TRANSACTIONS
On January 8, 1993, the Company formed a joint venture with McCaw Cellular
Communications, Inc. ('McCaw'). The joint venture, owned 50% by each of the
parties, combined on a debt-free basis, the Company's 6% ownership interest in
BACTC with McCaw's 50% interest in BTC. As a result of this transaction, the
Company holds an effective 75% and 3% interest in BTC and BACTC, respectively.
Also on January 8, 1993, the Company acquired McCaw's 34.17% interest in
ATC, 28.57% interest in GTC, and 100% interest in the Glens Falls cellular
system for a total purchase price of approximately $85,600,000, plus the
assumption of certain liabilities. This transaction provides the Company with
effective ownership of 85.71% of GTC and 100% of ATC and the Glens Falls
cellular system. The purchase price for these interests was originally paid by a
three-year note payable to McCaw, secured by a pledge of the Company's 35.70%
interest in
F-11
<PAGE>
ASSOCIATED BUSINESS TO BE MERGED
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993
2. SIGNIFICANT TRANSACTIONS--(CONTINUED)
PCTC and guaranteed by Associated. This note was refinanced on September 28,
1993, through a syndicated senior reducing revolving credit facility (see Note 8
to the combined financial statements). As a result of this note being paid in
full, the date to trigger the elective right of either party (the Company or
McCaw) to exercise the 'shotgun' (buy/sell) provision of the amendment to the
PCTC partnership agreement has now been established as September 28, 1995, or
anytime thereafter. This date is two years following the date on which the note
to McCaw was paid in full, in accordance with the January 8, 1993 agreements.
The shotgun provision provides that either partner has the right to offer to
either purchase the other partner's partnership interest or sells its own
partnership interest, at a specified price. The non-offering partner must elect
either to sell its interest to the offering partner or to purchase the
partnership interest of the offering partner, at the specified price.
The Company has accounted for the transactions described above under the
purchase method, and accordingly, has consolidated the results of operations of
BTC since the acquisition date.
The pro forma unaudited results of operations for the year ended December
31, 1992, assuming consummation of the above transactions as of January 1, 1992,
are as follows:
<TABLE>
<S> <C>
Revenues................. $ 79,722
Net loss................. (4,109)
Net loss per share....... (.11)
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the transactions had been consummated at January 1, 1992. In
addition, such pro forma results are not intended to be a projection of future
results.
3. INVESTMENTS IN UNCONSOLIDATED CELLULAR TELEPHONE JOINT VENTURES
The Company's interests in unconsolidated cellular telephone joint ventures
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Pittsburgh, PA (PCTC)........................ 35.7% 35.7% 35.7%
San Francisco--San Jose, CA (BACTC).......... 3.0% 6.0% 6.0%
Buffalo, NY.................................. N/A 50.0% 50.0%
</TABLE>
Summary financial information, in thousands, for the unconsolidated
cellular telephone joint ventures for 1993, 1992 and 1991 is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Current assets................ $ 52,128 $ 51,756 $ 40,978
Noncurrent assets............. 159,344 161,210 132,355
Current liabilities........... 48,044 49,447 45,649
Noncurrent liabilities........ 8,049 11,944 13,629
Revenues...................... 276,061 256,956 211,938
Expenses...................... 183,182 163,433 139,948
Net income.................... 92,879 93,523 71,990
</TABLE>
Since January 8, 1993, the Company has consolidated the results of
operations of BTC; while in 1992 and 1991, BTC was accounted for by the equity
method. Refer to Note 2 to the combined financial statements for a discussion of
changes in the Company's BTC and BACTC partnership interests during 1993.
Substantially all of the noncurrent liabilities of the joint ventures
consist of bank or vendor financing, which is nonrecourse to the Company, and is
secured by the equipment of the entity. Even though most of the cellular systems
are being financed with nonrecourse debt, the Company is still obligated to meet
capital commitments in accordance with certain partnership agreements. Failure
to contribute capital when called for by such partnership could result in the
mandatory sale of part or all of the Company's interest in the partnership at
book value.
F-12
<PAGE>
ASSOCIATED BUSINESS TO BE MERGED
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993
3. INVESTMENTS IN UNCONSOLIDATED CELLULAR TELEPHONE JOINT VENTURES--(CONTINUED)
The Company's investments in unconsolidated cellular telephone joint
ventures exceed its share of the net equity in such ventures by approximately
$739,000 and $3,330,000 at December 31, 1993 and 1992, respectively. This excess
is being amortized over ten years and is net of accumulated amortization at
December 31, 1993 and 1992 of approximately $2,079,000 and $4,420,000,
respectively.
The Company's share of the net undistributed equity of the unconsolidated
cellular telephone joint ventures is approximately $12,024,000 and $15,272,000
at December 31, 1993 and 1992, respectively. The Company's share of such net
undistributed equity is restricted in accordance with the respective partnership
agreements.
4. MINORITY INTERESTS
The minority interests represent the minority partners' interests in the
consolidated cellular telephone joint ventures at December 31, 1993 and a
receivable from the minority partners at December 31, 1992. This amount is
affected by income of the consolidated joint ventures, the changes in ownership
percentages of the consolidated cellular telephone joint ventures and the
consolidation of BTC during 1993. The receivable at December 31, 1992 resulted
from the cumulative losses of the joint ventures allocable to the minority
partners exceeding their respective capital contributions as of December 31,
1992. Such amounts are recoverable through capital calls from the other
partners. In accordance with the respective partnership agreements, if a partner
fails to meet a capital call, part or all of the partner's interest could be
required to be sold to the remaining partners at book value.
5. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment, in thousands, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31 ESTIMATED
-------------------- USEFUL
1993 1992 LIFE--YEARS
--------- --------- -----------
<S> <C> <C> <C>
Land............................... $ 429 $ 50
Buildings and improvements......... 176 16 10
Leasehold improvements............. 1,465 418 10
Operating equipment................ 63,326 34,138 3-10
Office furniture and equipment..... 3,634 1,558 5-10
--------- ---------
69,030 36,180
Less accumulated depreciation and
amortization....................... 32,255 13,526
--------- ---------
$ 36,775 $ 22,654
--------- ---------
--------- ---------
</TABLE>
6. EMPLOYEE SAVINGS PLAN
Employees of the Company, qualifying under certain age and service
requirements, are eligible to participate in a 401(k) plan. The Company makes a
limited matching contribution based upon a percentage of the employee's
contribution. The Company funds accrued savings plan costs incurred. Expense
relating to this plan was approximately $130,000, $83,000 and $37,000 for the
years ended December 31, 1993, 1992 and 1991, respectively.
7. DEFERRED PAYABLE
On August 1, 1992, the three consolidated cellular telephone joint ventures
entered into a noninterest-bearing deferred payment arrangement for $2,871,600,
in the aggregate, for the purchase of certain operating equipment with capacity
to process cellular telephone traffic in excess of the requirements of the joint
ventures' current subscriber load. The payment terms defer a portion of the
equipment's cost until the subscriber load would normally require the purchase
of equipment which supports such excess capacity, but in any event no later
F-13
<PAGE>
ASSOCIATED BUSINESS TO BE MERGED
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993
7. DEFERRED PAYABLE--(CONTINUED)
than December 31, 1994. At December 31, 1993, the liability has been discounted
to its present value of approximately $2,705,000 from the anticipated payment
date of December 31, 1994, at an interest rate of 6%.
8. LONG-TERM OBLIGATIONS
On September 28, 1993, ACDI II, a wholly owned subsidiary of Associated,
entered into a syndicated senior reducing revolving credit facility. At closing,
ACDI II borrowed $110,000,000 and used these proceeds to satisfy (i) the
$85,625,000 note payable to McCaw described in Note 2 to the combined financial
statements plus interest, (ii) the balance of one of the consolidated cellular
telephone joint ventures' revolving credit/term loan bank facilities, (iii) the
outstanding borrowings under a bank credit facility available to ACDI, and (iv)
costs affiliated with the new credit facility.
The maximum aggregate principal amount which may be outstanding is
$120,000,000, and the credit agreement provides for scheduled reductions in the
maximum principal amount which may be outstanding beginning December 31, 1995,
and each December 31 thereafter (with the amount of each such reduction
increasing in each succeeding year) until December 31, 2000, at which time all
borrowings must be repaid. In addition, beginning with the fiscal year ending
December 31, 1996, the maximum amount of principal outstanding is to be reduced
by an amount equal to 50% of excess cash flow, as defined in the agreement. The
credit agreement requires, among other things, the maintenance of minimum fixed
charge coverage and minimum debt service coverage ratios and maximum leverage
ratios.
ACDI II can select either a Euro-Rate interest option or a Base Rate (prime
rate) interest option on outstanding borrowings. Interest on borrowings is
calculated at the Euro-Rate plus between 0.875% and 1.75% or the Base Rate plus
between 0.0% and 0.50%, depending on certain leverage ratios. At December 31,
1993, borrowings outstanding were $109,500,000 with an approximate annual
interest rate of 4.125% on the borrowings.
The credit facility is secured by all of the shares of stock of ACDI II's
wholly owned subsidiaries, which includes the partnership interests in two of
the consolidated cellular telephone joint ventures. At ACDI II's option, shares
of Class A Common Stock of Tele-Communications, Inc. ('TCI'), owned by ACDI, can
be pledged as additional collateral to lower certain leverage ratios and,
accordingly, lower the effective rate of interest. Accordingly, at December 31,
1993, 3,119,994 shares of TCI Class A Common Stock were pledged by ACDI on
behalf of ACDI II as additional collateral.
On May 20, 1993, Associated increased its revolving credit/term loan bank
facility for GTC from $12,000,000 to $20,000,000. In May and September 1993,
Associated canceled two of its credit/term loan bank facilities for BTC and ATC,
respectively. Accordingly, as of December 31, 1993, the Company has one
revolving credit/term loan bank facility with a limit of $20,000,000 for GTC.
The borrower can select either a floating or fixed interest rate option. The
floating rate of interest will vary between the prime rate and the prime rate
less 0.50%, and the fixed interest rate will vary from the fixed rate, as
determined by the bank, plus 1.50% to the fixed rate, as determined by the bank,
plus 1.00%. The rates are determined by the debt/operating cash profit ratio of
the borrower. The aggregate borrowings outstanding of $16,000,000 at December
31, 1993 were at interest rates ranging from 4.50% to 5.75%. A commitment fee is
calculated on the unused portion of the revolver at a rate of 3/8 of 1% per
annum. Also, on May 20, 1993 the revolving credit agreement was amended to
mature on June 30, 1995, at which time the respective outstanding balance
converts to a term loan payable in 12 consecutive quarterly installments
beginning September 30, 1995. For each fiscal year beginning with 1995, GTC is
required to make a prepayment against the outstanding term loan in an amount
equal to 50% of the excess cash flow, as defined in the agreement, for that
fiscal year. Collateral for the loans is a first lien on all partnership assets.
In addition, a negative pledge of each partners' equity interest in GTC is
required. The debt agreement requires, among other things, the maintenance of
certain financial ratios, limits on the amount of capital expenditures, and
limits on distributions to partners.
F-14
<PAGE>
ASSOCIATED BUSINESS TO BE MERGED
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993
8. LONG-TERM OBLIGATIONS--(CONTINUED)
Based upon the borrowing rates currently available to the Company for the
bank loans with similar terms, the carrying value of the long-term obligations
approximates fair value.
Assuming prepayments as described above are not required, future maturities
of the long-term obligations at December 31, 1993, in thousands, are as follows:
<TABLE>
<S> <C>
1994..................... $ --
1995..................... 2,669
1996..................... 21,498
1997..................... 27,553
1998..................... 24,891
Thereafter............... 48,889
----------
$ 125,500
----------
----------
</TABLE>
The Merger Agreement provides that if required to consummate the
contribution, the Distribution or the Merger, Southwestern will, at Associated's
request, as part of the closing under the Merger Agreement, lend or cause to be
lent to Associated (pursuant to a demand promissory note) any amount necessary
to terminate all obligations of Associated and its subsidiaries under the Senior
Reducing Revolving Credit Facility.
Total interest paid for the above long-term obligations during 1993, 1992
and 1991 was approximately $5,429,000, $1,223,000 and $1,790,000, respectively.
9. LEASES
The Company leases office space, cellular transmission sites, and vehicles
under operating leases. The Company incurred approximately $2,274,000, $940,000,
and $769,000 in rent expense for the years ended December 31, 1993, 1992 and
1991, respectively.
Approximate future minimum lease payments, in thousands, by year and in the
aggregate, under noncancelable operating leases with initial or remaining terms
of one year or more consisted of the following at December 31, 1993:
<TABLE>
<S> <C>
1994..................... $ 1,731
1995..................... 1,303
1996..................... 944
1997..................... 794
1998 and thereafter...... 785
---------
$ 5,557
---------
---------
</TABLE>
10. INCOME TAXES
Associated and its subsidiaries, with the exception of CMC, a majority
owned subsidiary, file income tax returns as a consolidated group. Income taxes
presented in these financial statements represent the portion of consolidated
income taxes that are attributable to the taxable income, alternative minimum
tax preferential items, and book and tax bases differences of the companies
included in these combined statements, as well as income taxes for the separate
returns of CMC. Such amounts do not represent the taxes which would be recorded
if the Associated Business to be Merged filed income tax returns as an
independent entity. Had the tax provision been calculated as though separate
income tax returns were filed for the Company, the pro forma income tax expense
(benefit) and the pro forma net income (loss) for the years ended December 31,
1993, 1992, and 1991, in thousands, would have been as follows:
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Pro forma income tax expense (benefit)....... $ 148 $ 4,521 $ (134)
Pro forma net income (loss).................. $ 2,023 $ 5,270 $ (2,910)
</TABLE>
F-15
<PAGE>
ASSOCIATED BUSINESS TO BE MERGED
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993
10. INCOME TAXES--(CONTINUED)
Effective January 1, 1993, the Company adopted FASB 109. Under FASB 109,
deferred taxes are recognized using the liability method, whereby tax rates are
applied to cumulative temporary differences based on when and how they are
expected to affect the Company's future tax liability. As permitted under the
new rules, prior year's financial statements have not been restated. The
cumulative prior years' effect of this change increased net income by
approximately $2,431,000, or $0.06 per share. The adoption of FASB 109 had no
effect on the loss before income taxes, extraordinary item, and cumulative
effect of accounting change for income taxes.
The tax effects of temporary differences that give rise to the net deferred
tax asset, in thousands, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1993 1993
------------ ----------
<S> <C> <C>
Deferred tax liabilities:
Temporary differences of cellular telephone
joint ventures (primarily depreciation)...... $5,742 $4,007
Deferred state income taxes--net of federal tax
benefit...................................... 520 511
------------ ----------
Total deferred tax liabilities.................... 6,262 4,518
Deferred tax assets:
Stock appreciation rights....................... 3,438 3,511
Alternative minimum tax credit carryforward..... 2,541 1,345
Intangible asset amortization................... 1,020 804
Legal and organizational costs.................. 717 114
------------ ----------
Total deferred tax assets......................... 7,716 5,774
------------ ----------
Net deferred tax asset............................ $1,454 $1,256
------------ ----------
------------ ----------
</TABLE>
Based upon the level and trend of historical taxable income and the ability
to carry back operating losses to prior periods of taxable income, management
believes it is more likely than not the Company will realize the benefit of the
net deferred tax asset referred to above.
Income taxes (benefit) for the three years ended December 31, 1993, in
thousands, consist of the following:
<TABLE>
<CAPTION>
DEFERRED
LIABILITY METHOD
METHOD --------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Federal:
Current..................... $ 722 $ 2,621 $ 425
Deferred.................... (1,075) 419 --
--------- --------- ---------
(353) 3,040 425
State:
Current..................... 191 503 380
Deferred.................... 77 756 --
--------- --------- ---------
268 1,259 380
--------- --------- ---------
$ (85) $ 4,299 $ 805
--------- --------- ---------
--------- --------- ---------
</TABLE>
In 1992, the Company utilized all remaining federal operating loss
carryforwards and reinstated deferred taxes, principally temporary differences
of cellular telephone joint ventures and stock appreciation rights.
F-16
<PAGE>
ASSOCIATED BUSINESS TO BE MERGED
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993
10. INCOME TAXES--(CONTINUED)
A reconciliation between income taxes computed using the statutory federal
income tax rate and the effective rate, in thousands, are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Federal income tax (credit) at statutory rate
(34%)...................................... $ (88) $ 3,329 $ (1,035)
State income taxes, net of federal benefit... 177 831 251
Alternative minimum tax...................... -- -- 425
Capitalized costs for cellular telephone
joint ventures............................. 173 402 207
Effect of income tax allocation.............. (347) 1,537 324
Tax effect of net operating loss (utilized)
not utilized............................... -- (1,800) 633
--------- --------- ---------
Total........................................ $ (85) $ 4,299 $ 805
--------- --------- ---------
--------- --------- ---------
</TABLE>
Income taxes paid amounted to approximately $3,120,000 in 1993, $2,600,000
in 1992, and $1,040,000 in 1991.
11. CAPITAL STOCK
On May 2, 1991, Associated declared a stock split, effected in the form of
a dividend, on its outstanding shares of Class A Common Stock and Class B Common
Stock, on a two-for-one basis. As a result of the stock split, additional
paid-in capital was charged and common stock was credited for the par value of
the additional shares issued. The treasury shares outstanding at the time did
not participate in the stock dividend. All share and per share amounts in the
financial statements and accompanying notes have been restated to reflect the
1991 stock dividend.
In conjunction with the adoption of Associated's Stockholder Rights Plan
(the 'Rights Plan'), shareholders of record at the close of business on January
18, 1989 were granted a Rights dividend payable with respect to each share
outstanding. Each Right entitles the registered holder to purchase from
Associated a unit consisting of one one-hundredth of a share (a 'Unit') of
Series A Junior Participating Preferred Stock, par value $1.00 per share, at a
purchase price of $90 per Unit, subject to adjustment (the 'Purchase Price'). As
a result of the stock split paid on May 28, 1991, the number of Rights
associated with each share of Associated's common stock was reduced by one-half.
Upon the occurrence of certain events as set forth in the Rights Plan, each
holder of a Right will thereafter have the right to receive, upon exercise,
Class B Common Stock (or, in certain circumstances, cash, property, or other
securities of Associated) having a value equal to two times the Purchase Price.
The Merger Agreement requires that the Rights be redeemed prior to the Merger.
Under the terms of the Rights Plan, Associated can redeem the Rights at a price
of $.01 per Right under such circumstances as contemplated by the Merger
Agreement.
During 1992, Associated retired the outstanding treasury shares consisting
of 396,270 shares of Class A Common Stock and 322,270 shares of Class B Common
Stock. The retirement of these shares places such shares in the authorized, but
unissued capital stock classification to be available to be issued in the
future.
Each share of the Class A Common Stock entitles the holder to one vote and
each share of the Class B Common Stock entitles the holder to one twenty-fifth
( 1/25) of a vote. There is no cumulative voting.
12. STOCK OPTIONS
Associated sponsors various stock option plans as approved by Associated
stockholders. The plans are summarized below:
1988 STOCK OPTION PLAN: The 1988 Stock Option Plan ('1988 Plan') provides
for the issuance of Class A Common Stock options with accompanying stock
appreciation rights ('SARs'). Options are granted at fair market value on the
grant date and become exercisable one year after the date of grant. Options
expire ten years
F-17
<PAGE>
ASSOCIATED BUSINESS TO BE MERGED
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993
12. STOCK OPTIONS--(CONTINUED)
after the grant date. Pursuant to the 1988 Plan, 90,000 Class A Common Stock
options with SARs were authorized and granted to one of Associated's outside
directors.
The 1988 Plan has been terminated pursuant to its terms by the Board of
Directors. While the options granted to one outside director will remain in
effect, no further options will be granted under the 1988 Plan. Options
outstanding are exercisable at $6.67 per share.
1989 STOCK OPTION PLAN: The 1989 Stock Option Plan ('1989 Plan') provides
for grants of stock options for Class B Common Stock, SARs and limited SARs.
Under the 1989 Plan, 1,900,000 shares were authorized for grant. Options
generally become exercisable over the four years following the date of grant,
while certain of the options become exercisable one year after the grant date.
All options expire ten years from the date of grant.
During 1990, Associated's Board of Directors approved an exchange program
whereby, with the approval of the Stock Option Plan Committee which administers
the 1989 Plan, the holders of outstanding options could surrender such options
for cancelation and receive in exchange a new option for an equal number of
shares with a restarted vesting period at an exercise price equal to the fair
market value of shares of Associated's common stock on the date of grant of the
new option. In accordance with such exchange program, on May 4, 1990, 817,500
options to purchase shares of Class B Common Stock with an exercise price of
$16.69 per share were exchanged on a one-for-one basis for new options with an
exercise price of $13.13 per share by all eligible holders of outstanding
options.
Similarly, on October 18, 1990, 1,308,500 options to purchase shares of
Class B Common Stock with an exercise price of $13.13 per share were exchanged
on a one-for-one basis for new options with an exercise price of $8.13 per share
by all eligible holders of outstanding options.
Effective January 31, 1992, in consideration for an offer by Associated to
provide short-term loans for the purpose of exercising outstanding stock options
issued under the 1988 and 1989 Plans, as amended, the holders of 1,512,600
corresponding SARs have surrendered such SARs for cancelation. Accordingly,
Associated did not recognize any additional expense for the canceled SARs after
January 31, 1992 and if an employee elects to exercise the stock option, the
accrued compensation recorded for the right or award will be recognized as
consideration for the stock issued.
Options were exercised during 1993 and 1992 at prices ranging from $8.13 to
$14.50 per share. Options outstanding are exercisable at prices ranging from
$8.13 to $20.75.
Activity of the plans described above is summarized below:
<TABLE>
<CAPTION>
1993 1992 1991
NUMBER OF NUMBER OF NUMBER OF
OPTIONS OPTIONS OPTIONS
---------- ---------- ----------
<S> <C> <C> <C>
Options outstanding, beginning of
year.................................... 1,671,200 1,720,600 1,538,500
Options granted......................... 12,000 51,000 208,000
Options exercised....................... (43,800) (79,200) (13,100)
Options canceled and returned........... (19,500) (21,200) (12,800)
---------- ---------- ----------
Options outstanding, end of year........ 1,619,900 1,671,200 1,720,600
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
At December 31, 1993, 1,407,950 options to purchase Associated's Class A
and Class B Common Stock were exercisable, 211,950 were exercisable subject to
vesting and 234,000 options were available for grant. Under the provisions of
the Merger Agreement, prior to or at the time of the Merger, all options and
related SARs outstanding under the above plans will be canceled, and option
holders will be paid for the value of amounts due under the terms of the plans.
F-18
<PAGE>
ASSOCIATED BUSINESS TO BE MERGED
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993
13. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Significant noncash investing and financing activities, in thousands, are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1993
------------
<S> <C>
Cash resulting from consolidation of certain
affiliates:
Fair value of assets acquired........................ $ (25,518)
Net liabilities assumed.............................. 30,304
------------
Cash acquired.......................................... $ 4,786
------------
------------
Acquisition of partnership interests:
Fair value of assets acquired........................ $ (85,625)
Financing provided by seller......................... 85,625
------------
$ --
------------
------------
Net settlement of intercompany accounts
by ACDI.............................................. $ 21,856
</TABLE>
14. RELATED PARTY TRANSACTIONS
Associated provided technical, administrative and management services to
the consolidated telephone joint ventures. The Company was reimbursed for these
services at rates which approximate cost. The reimbursement of these costs are
used to offset operating and general and administrative expenses. The total
reimbursement for these services on a net equity basis was approximately
$1,121,000, $1,366,000 and $1,010,000 in 1993, 1992 and 1991, respectively.
Accounts payable at December 31, 1992 includes approximately $365,000 due
from ATC and GTC to BTC for shared costs and services.
Prior to obtaining the ACDI II credit facility (see Note 8 to the combined
financial statements), the Company met a portion of its cash flow requirements
through intercompany borrowings from ACDI. Interest expense was charged on such
borrowings at the prime rate. In 1993, all intercompany accounts due to ACDI
were settled.
15. COMMITMENTS AND CONTINGENCIES
The Company is involved in certain lawsuits arising in the ordinary course
of business. In management's opinion, the claims are without merit and
management plans to defend the cases vigorously. The outcome of these matters is
not expected to have a material adverse effect on the Company's financial
position.
F-19
<PAGE>
ASSOCIATED BUSINESS TO BE MERGED
SCHEDULE V--PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
<CAPTION>
COLUMN B COLUMN E
----------- COLUMN C -------------- COLUMN F
COLUMN A BALANCE AT ----------- COLUMN D OTHER CHANGES -------------
- ----------------------------------- BEGINNING ADDITIONS ------------- ADD (DEDUCT) BALANCE AT
CLASSIFICATION OF PERIOD AT COST RETIREMENTS DESCRIBE END OF PERIOD
- ----------------------------------- ----------- ----------- ------------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Land............................. $ 50 $ 236 $ -- $ 143 $ 429
Buildings and improvements....... 16 97 -- 63 176
Leasehold improvements........... 418 867 -- 180 1,465
Equipment........................ 35,696 6,646 51 24,669 66,960
----------- ----------- ------------- -------------- -------------
Total.............................. $ 36,180 $ 7,846 $ 51 $ 25,055(1) $ 69,030
----------- ----------- ------------- -------------- -------------
----------- ----------- ------------- -------------- -------------
Year ended December 31, 1992:
Land............................. $ 50 $ -- $ -- $ -- $ 50
Buildings and improvements....... 17 -- 1 -- 16
Leasehold improvements........... 283 136 1 -- 418
Equipment........................ 25,476 10,548 328 -- 35,696
----------- ----------- ------------- -------------- -------------
Total.............................. $ 25,826 $ 10,684 $ 330 $ -- $ 36,180
----------- ----------- ------------- -------------- -------------
----------- ----------- ------------- -------------- -------------
Year ended December 31, 1991:
Land............................. $ 50 $ -- $ -- $ -- $ 50
Buildings and improvements....... 17 -- -- -- 17
Leasehold improvements........... 201 82 -- -- 283
Equipment........................ 22,961 2,753 238 -- 25,476
----------- ----------- ------------- -------------- -------------
Total.............................. $ 23,229 $ 2,835 $ 238 $ -- $ 25,826
----------- ----------- ------------- -------------- -------------
----------- ----------- ------------- -------------- -------------
</TABLE>
- ------------------
(1)--Relates to consolidation of cellular telephone joint venture described in
Note 2 to the combined financial statements.
F-20
<PAGE>
ASSOCIATED BUSINESS TO BE MERGED
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION, AND
AMORTIZATION OF PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
<CAPTION>
COLUMN C
COLUMN B -------- COLUMN E
-------- ADDITIONS -------- COLUMN F
BALANCE CHARGED OTHER --------
AT TO CHARGES BALANCE
COLUMN A BEGINNING COSTS COLUMN D ADD AT
- ----------------------------------- OF AND ----------- (DEDUCT) END OF
CLASSIFICATION PERIOD EXPENSES RETIREMENTS DESCRIBE PERIOD
- ----------------------------------- -------- -------- ----------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Buildings and improvements....... $ 6 $ 13 $ -- $ 55 $ 74
Leasehold improvements........... 145 123 -- 112 380
Equipment........................ 13,375 7,379 2 11,049 31,801
-------- -------- ----------- -------- --------
Total.............................. $13,526 $7,515 $ 2 $ 11,216(1) $32,255
-------- -------- ----------- -------- --------
-------- -------- ----------- -------- --------
Year ended December 31, 1992:
Buildings and improvements....... $ 4 $ 2 $ -- $ -- $ 6
Leasehold improvements........... 104 42 1 -- 145
Equipment........................ 9,994 3,593 212 -- 13,375
-------- -------- ----------- -------- --------
Total.............................. $10,102 $3,637 $ 213 $ -- $13,526
-------- -------- ----------- -------- --------
-------- -------- ----------- -------- --------
Year ended December 31, 1991:
Buildings and improvements....... $ 3 $ 1 $ -- $ -- $ 4
Leasehold improvements........... 79 25 -- -- 104
Equipment........................ 7,231 2,814 51 -- 9,994
-------- -------- ----------- -------- --------
Total.............................. $ 7,313 $2,840 $ 51 $ -- $10,102
-------- -------- ----------- -------- --------
-------- -------- ----------- -------- --------
</TABLE>
- ---------------
(1)--Relates to consolidation of cellular telephone joint venture described in
Note 2 to the combined financial statements.
F-21
<PAGE>
ASSOCIATED BUSINESS TO BE MERGED
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN C
--------------------------
COLUMN B ADDITIONS COLUMN E
----------- -------------------------- ---------
COLUMN A BALANCE AT CHARGED TO CHARGED TO COLUMN D BALANCE
- ----------------------------------- BEGINNING COSTS AND OTHER ---------- AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ----------------------------------- ----------- ----------- ------------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Deducted from assets:
Allowance for doubtful
accounts (deducted from
accounts receivable)........ $ 1,384 $ 2,437 $ 784(B) $ 2,660 (A) $ 1,945
----------- ----------- ------------- ---------- ---------
----------- ----------- ------------- ---------- ---------
Inventory market valuation
reserve (deducted from
inventory).................. $ 258 $ -- $ 142(B) $ 13 $ 387
----------- ----------- ------------- ---------- ---------
----------- ----------- ------------- ---------- ---------
Year ended December 31, 1992:
Deducted from assets:
Allowance for doubtful
accounts (deducted from
accounts receivable)........ $ 1,028 $ 1,264 $ -- $ 908 (A) $ 1,384
----------- ----------- ------------- ---------- ---------
----------- ----------- ------------- ---------- ---------
Inventory market valuation
reserve (deducted from
inventory).................. $ 256 $ 2 $ -- $ -- $ 258
----------- ----------- ------------- ---------- ---------
----------- ----------- ------------- ---------- ---------
Year ended December 31, 1991:
Deducted from assets:
Allowance for doubtful
accounts (deducted from
accounts receivable)........ $ 65 $ 1,455 $ -- $ 492 (A) $ 1,028
----------- ----------- ------------- ---------- ---------
----------- ----------- ------------- ---------- ---------
Inventory market valuation
reserve (deducted from
inventory).................. $ 114 $ 142 $ -- $ -- $ 256
----------- ----------- ------------- ---------- ---------
----------- ----------- ------------- ---------- ---------
</TABLE>
- ------------------
(A)--Accounts written off, net of recoveries.
(B)--Relates to consolidation of cellular telephone joint venture described in
Note 2 to the combined financial statements.
F-22
<PAGE>
ASSOCIATED BUSINESS TO BE MERGED
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
COLUMN B
------------------------
CHARGED TO COSTS AND
EXPENSES
------------------------
COLUMN A YEAR ENDED DECEMBER 31,
- --------------------------------------------- ------------------------
ITEM 1993 1992 1991
- --------------------------------------------- ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Maintenance and repairs...................... N/A N/A N/A
Amortization................................. $9,377 N/A N/A
Taxes, other than payroll and income taxes:
Gross receipts tax......................... $3,439 $1,736 $1,439
Royalties.................................... N/A N/A N/A
Advertising costs............................ $2,333 $ 817 $ 724
</TABLE>
- ------------------
N/A--Less than 1% of revenues
F-23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ASSOCIATED BUSINESS TO BE MERGED.
(all amounts are rounded and approximate)
The combined financial statements present the financial position, results
of operations and cash flows of the Associated Business to be Merged. These
financial statements do not reflect any business organization that exists or is
intended to exist as a stand-alone company. Accordingly, the following
discussion includes only limited forward-looking information.
OVERVIEW
The Company's results for the period ended December 31, 1993 reflect the
transactions with McCaw (the 'McCaw Transactions') (See Note 2 to the combined
financial statements). As a result of these transactions, the Company has
consolidated the results of the Buffalo and the Glens Falls cellular systems.
Also, the minority interest computations reflect (i) a decrease in the minority
ownership interest in the Rochester cellular system from 42.86% to 14.29%, (ii)
a 25.00% minority ownership interest in the Buffalo cellular system, and (iii)
since the Albany and the Glens Falls cellular systems are 100% owned by the
Company, no recognition of minority interest with respect to such cellular
systems. Likewise, equity in income of unconsolidated cellular telephone joint
ventures in the 1993 period is decreased as compared to the 1992 period due to
the Company's consolidation of the Buffalo cellular system and the reduction in
the Company's effective ownership percentage in the San Francisco-San Jose
cellular system from 6.00% to 3.00%.
Combined revenues for the year ended December 31, 1993 were $91,480,000
compared to $50,083,000 in the 1992 period, for a 83% increase. Net income in
1993 was $2,256,000 or $.06 per share, compared to $5,492,000 or $0.15 per
share, in 1992. For the year ended December 31, 1991, combined revenues were
$41,125,000 and the net loss was $3,849,000, or $0.10 per share.
YEARS ENDED DECEMBER 31, 1993 AND 1992
For the year ended December 31, 1993, revenues were $91,480,000 or a 83%
increase over 1992 revenues. This increase is primarily a result of the increase
in the Company's ownership interests in the upstate New York cellular systems
resulting from the McCaw Transactions as well as the continued growth of the
consolidated cellular telephone joint ventures' ('consolidated ventures')
revenues. The Company expects overall revenue growth to continue as a result of
subscriber additions as well as through selling value added features to existing
subscribers. However, average revenues per subscriber may gradually decrease, as
more 'casual' users subscribe for cellular service.
As a result of the McCaw Transactions and the continued growth of the
consolidated ventures, cost of services, operating expenses and general and
administrative expenses increased 60%, 88% and 89%, respectively. The Company
believes that certain expenses will continue to increase but economies of scale
will continue to be recognized.
Effective January 31, 1992, all stock appreciation rights ('SARs') were
canceled. Consequently, in 1993 no SAR expense was reflected, as compared to a
$1,275,000 SAR expense in 1992. Depreciation and amortization expense for the
1993 period over the 1992 period increased by $13,090,000, or 344%. The increase
was primarily due to the McCaw Transactions, in addition to capital expenditures
in 1993.
Interest income in 1993 increased $176,000 over such income in 1992. The
increase was primarily due to the consolidation of the Buffalo cellular system
in 1993. Interest expense-affiliates increased $303,000, or 13%, as a result of
increased principal balances outstanding. Interest expense in 1993 increased
$4,488,000 or 463% as compared to 1992 primarily due to borrowings relating to
the McCaw Transactions.
Due to changes in cellular partnership ownership percentages relating to
the McCaw Transactions, equity results for the unconsolidated cellular telephone
joint ventures in 1993 showed a decrease in income of $4,522,000 or 40%, as
compared to 1992.
Minority interests decreased a net amount of $426,000 as a result of the
McCaw Transactions mitigated by the growth of the previously consolidated
cellular ventures.
F-24
<PAGE>
The Company recorded a federal income tax benefit of $353,000 and state
income tax expense of $268,000 in 1993. In 1992, the Company incurred federal
and state income taxes of $4,299,000 and a charge in lieu of federal taxes of
$1,800,000. The Company used an operating loss carryforward to reduce federal
income taxes by $1,800,000 in 1992.
1993 results reflect a $2,431,000 credit for the recognition of a
cumulative effect of an accounting change for income taxes, resulting from the
Company's adoption of Statement of Financial Accounting Standards No. 109,
'Accounting for Income Taxes'.
YEARS ENDED DECEMBER 31, 1992 AND 1991
Combined revenues increased $8,958,000 or 22%, to $50,083,000 for 1992,
compared to $41,125,000 for the year ended December 31, 1991, primarily
representing the growth of the consolidated ventures.
In conjunction with the growth of the consolidated ventures, cost of
services and general and administrative expenses increased 11% and 10%,
respectively from 1991 to 1992. These increases were primarily due to the
consolidated ventures' increased administrative costs associated with the
continued growth of their subscriber bases. These subscriber bases continued to
grow in 1992, but at a slower rate than in 1991. As a result of the slower
growth, operating expenses decreased 2% from 1991 to 1992 due to reduced
marketing costs.
The 1992 period reflected a SAR expense of $1,275,000 as compared to
$7,952,000 in 1991. Both periods reflect increased employee vesting in the
Company's stock option plans and the appreciation of the Company's stock prices.
Effective January 31, 1992, the SARs were canceled and the Company has not
recognized any additional SAR expense since that time.
Interest income in 1992 decreased to $42,000 as compared to $69,000 in 1991
primarily as a result of a smaller investment portfolio and lower interest rates
during 1992. Interest expense in 1992 decreased $605,000 or 38% as compared to
1991. The decrease was primarily attributable to lower interest rates during
1992.
Equity results for the cellular telephone unconsolidated joint ventures
showed a significant increase in income in 1992 of $3,410,000, or 43%, as
compared to 1991. This increase reflected the strong performance of the
Company's unconsolidated cellular telephone joint ventures. Overall, this
increase was indicative of the continuing growth in the cellular telephone
industry.
Minority interest increased a net amount of $1,452,000 in 1992 as compared
to 1991 primarily due to improved performance of the consolidated ventures.
The Company incurred federal and state income taxes of $4,299,000 and a
charge in lieu of federal income taxes of $1,800,000 in 1992. Thus, the Company
used its operating loss carryforward to reduce federal income taxes by
$1,800,000 in 1992. In 1991, the Company incurred federal and state income taxes
of $805,000.
INFLATION
The Company does not believe that it is significantly affected by
inflation.
LIQUIDITY AND CAPITAL RESOURCES
The Company has utilized capital to construct, operate and expand its
cellular systems as well as acquire additional cellular system interests. Also,
as subscriber growth has continued and usage has increased, it has been
necessary to make additional capital expenditures for the purchase of additional
operating equipment and to invest in new equipment and technologies, including
digital equipment. The full implementation of digital cellular systems is
expected to take place over the next several years, but at present the Company
cannot accurately estimate the timing and costs of digital system
implementation. See Note 9 to the Company's combined financial statements
included elsewhere herein regarding future minimum lease commitments.
The Company has financed its continuing cash requirements through existing
credit facilities, including borrowings from ACDI and distributions from
cellular telephone partnerships. The Company continually evaluates its financial
position and alternative financing arrangements. A significant portion of the
Company's assets are not highly liquid.
F-25
<PAGE>
During the last three years, the Company's revenues and cash flows have
grown at significant rates. While the Company expects its revenues and cash
flows to continue to grow in the future, management is unable to predict that
the growth will equal the rates achieved in the past three years.
Net cash provided by operating activities was $6,496,000, $5,261,000, and
$4,612,000 in 1993, 1992 and 1991 respectively. These increases were primarily
attributable to the continued growth of the cellular telephone operations. Net
cash used in investing activities was $4,523,000 in 1993. Such investing
activities related primarily to the effects of the consolidation of the Buffalo
cellular telephone partnership resulting from the McCaw Transactions and capital
expenditures for the consolidated ventures. Net cash used in investing
activities in 1992 and 1991 was $9,701,000 and $3,044,000, respectively, which
was primarily due to purchases of property, plant and equipment. The net cash
from financing activities in 1993 of $840,000 was provided by borrowings under
the Senior Reducing Revolving Credit Facility and the revolving credit/term loan
bank facility of one of the consolidated ventures, as described below. Net cash
from financing activities in 1992 of $4,320,000 was provided principally by
borrowings from Associated Communications of Delaware, Inc. Net cash used in
financing activities in 1991 was $765,000 relating to net principal payments on
borrowings from under the revolving credit/term loan bank facilities of two of
the consolidated ventures.
The Company's ratio of current assets to current liabilities was 1.09 to
1.00 at December 31, 1993, compared to 0.25 to 1.00 at December 31, 1992. Both
ratios are affected by the amounts due to ACDI, as well as the accrued SAR
liability. As previously mentioned, effective January 31, 1992, the SARs were
canceled and the Company has not recognized any additional expense or liability
thereafter. As stock options are exercised, the accrued compensation recorded
for the SARs is being recognized as consideration for the stock issued.
Purchases of property, plant and equipment amounted to $7,846,000 and
$8,986,000 in 1993 and 1992, respectively, primarily for cellular systems
expansion.
With respect to the previously described acquisitions of interests in
cellular systems from McCaw, the total purchase price of $85,600,000 was
originally paid by means of a three-year note secured by a pledge of the
Company's 35.70% interest in the Pittsburgh cellular system and guaranteed by
the Company. The interest rate on this note was LIBOR plus 1.88%. In September
1993 the Company refinanced this obligation as described below.
As of December 31, 1993, the Company had a revolving credit/term loan bank
facility for one of the three consolidated ventures which is without recourse
against the partners. The Company has increased this facility from $12,000,000
to $20,000,000 and amended the facility to mature on June 30, 1995, at which
time the outstanding balance converts to a term loan payable in 12 consecutive
quarterly installments beginning September 30, 1995. As of July 26, 1994,
borrowings under this credit/term loan bank facility were $12,000,000 at a
current interest rate of 6.125% and $3,200,000 at a current rate of 6.00%.
During 1993, the Company canceled the revolving credit/term loan bank facilities
for the other two consolidated ventures and repaid the obligation, as described
below.
On August 1, 1992, the consolidated ventures entered into a non
interest-bearing deferred payable arrangement for the purchase of certain
operating equipment. The payment terms defer the equipment cost to no later than
December 31, 1994. As of July 26, 1994, the liability is $2,801,000. In order to
obtain a more favorable financing rate, the Company guaranteed a $1,300,000
three-year lease between a major computer supplier and one of the consolidated
ventures.
SENIOR REDUCING CREDIT FACILITY
On September 28, 1993, Associated Communications of Delaware, Inc. II
('ACDI II'), an indirect wholly-owned subsidiary of Associated entered into a
$120,000,000 syndicated senior reducing revolving credit facility ('the Senior
Reducing Credit Facility'). At closing, ACDI II borrowed $110,000,000 and used
these proceeds to satisfy (i) a $85,625,000 note payable to McCaw plus accrued
interest, (ii) the balance (including accrued and unpaid interest) of one of the
consolidated ventures' revolving credit/term loan bank facilities, (iii) the
outstanding borrowings (including accrued and unpaid interest) under a demand
bank credit facility available to ACDI, a company which is not part of the
Associated Business to be Merged and (iv) expenses associated with the Senior
Reducing Credit Facility.
F-26
<PAGE>
Under the terms of the Senior Reducing Credit Facility, the maximum
aggregate principal amount which may be outstanding is $120,000,000, and the
credit agreement provides for scheduled reductions in the maximum principal
amount which may be outstanding beginning December 31, 1995, and each December
31, thereafter (with the amount of each such reduction increasing in each
succeeding year) until December 31, 2000, at which time all borrowings under the
Senior Reducing Credit Facility must be repaid. Also, beginning with the fiscal
year ending December 31, 1996, the maximum principal amount which may be
outstanding is reduced by an additional amount equal to 50% of excess cash flow,
as defined in the Senior Reducing Credit Facility. The Senior Reducing Credit
Facility requires, among other things, the maintenance of minimum fixed charge
coverage and minimum debt service coverage ratios, as well as maximum leverage
ratios. Because these ratios decrease each year, it will be necessary over that
time period for ACDI II to either reduce debt or to continue to increase cash
flow in order to remain in compliance. The Senior Reducing Credit Facility also
prohibits the payment of dividends and other distributions by ACDI II except
within specified limits intended to allow the Company to meet the cash needs of
its corporate operations consistent with past practice, plus an agreed 'basket'
amount in excess of such limits.
Any failure to comply with these or other covenants and restrictions
contained in the Senior Reducing Credit Facility could result in a default
thereunder. The ability of ACDI II to comply with these provisions may be
affected by events beyond its control. If ACDI II fails to service the
borrowings under the Senior Reducing Credit Facility, ACDI II will be in
default. In such an event, the lenders under the Senior Reducing Credit Facility
will be able to exercise their rights including the right to declare all the
borrowed funds and interest thereon immediately due and payable. If ACDI II were
unable to repay such indebtedness, the holders of such indebtedness could
proceed against the collateral described below which secures borrowings under
the Senior Reducing Credit Facility.
As of April 29, 1994 ACDI II amended the Senior Reducing Credit Facility
to, among other things, increase the maximum leverage ratio for the first and
second quarter of 1994 to address the increased costs associated with higher
than anticipated subscriber growth rate experienced by the Company's
consolidated cellular telephone joint venture.
ACDI II can select either a Euro-Rate interest option or a Base Rate (prime
rate) interest option on outstanding borrowings under the Senior Reducing Credit
Facility. Interest on borrowings is presently calculated at the Euro-Rate plus
between 0.875% and 1.75% or the Base Rate plus between 0.0% and 0.5%, depending
on certain leverage ratios. At December 31, 1993, borrowings outstanding under
the Senior Reducing Credit Facility were $109,500,000 with an annual interest
rate of 4.125%. At July 26, 1994, borrowings outstanding under the Senior
Reducing Credit Facility were $107,700,000 with an annual interest rate of
5.375% on $31,300,000 of the borrowings, 5.125% on $54,600,000 of the borrowings
and 5.50% on $21,800,000 of the borrowings.
Amounts owing under the Senior Reducing Credit Facility are secured by all
of the shares of stock of ACDI II and of ACDI II's wholly-owned subsidiaries
(each of which wholly-owned subsidiary, together with the Company's wholly-owned
consolidated ventures, is an unconditional guarantor of all of ACDI II's
obligations under the Senior Reducing Credit Facility), as well as by the
partnership interests in two of the consolidated cellular telephone partnerships
held directly by such wholly-owned subsidiaries. ACDI, a company which is not
part of the Associated Business to be Merged, is also a non-recourse (except to
the extent of any shares of Tele-Communications, Inc ('TCI') Class A Common
Stock pledged as described below and the shares of ACDI II pledged as described
above) unconditional guarantor of all of ACDI II's obligations under the Senior
Reducing Credit Facility. Currently, at ACDI II's option, shares of TCI Class A
Common Stock, can be pledged by ACDI as additional collateral to lower certain
leverage ratios and accordingly, lower the effective rate of interest. At
December 31, 1993, and July 26, 1994, 3,119,994 and 5,519,994 shares of TCI
Class A Common Stock, respectively, were pledged as additional collateral by
ACDI on behalf of ACDI II.
The Merger Agreement provides that if required to consummate the
contribution, the Distribution or the Merger, Southwestern will, at Associated's
request, as part of the closing under the Merger Agreement, lend or cause to be
lent to the Company (pursuant to a demand promissory note) any amount necessary
to terminate all obligations of Associated and its subsidiaries under the Senior
Reducing Credit Facility.
F-27
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1993
F-28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Associated Communications Corporation:
We have audited the accompanying combined balance sheet of Bay Area Cellular
Telephone Company and Pittsburgh Cellular Telephone Company (collectively, the
'Company') as of December 31, 1993 and the related combined statements of
income, partners' equity, and cash flows for the year then ended. We have also
audited the related combined financial statement schedules for the Company as
of, and for the year ended, December 31, 1993. These financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audit. We did not
audit the 1993 financial statements and financial statement schedules of
Pittsburgh Cellular Telephone Company ('PCTC') which financial statements
reflect combined total assets of $56,194,000 as of December 31, 1993 and
combined total revenues of $54,929,000 for the year ended December 31, 1993.
Those statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the amounts included for PCTC,
is based solely on the report of other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
combined financial statements referred to above present fairly, in all material
respects, the combined financial position of the Company as of December 31, 1993
and the combined results of its operations and its cash flows for the year ended
December 31, 1993, in conformity with generally accepted accounting principles.
In addition, in our opinion, based on our audit and the report of other
auditors, the combined financial statement schedules referred to above, when
considered in relation to the basic combined financial statements taken as a
whole, present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND
San Francisco, California
March 28, 1994
F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Pittsburgh Cellular Telephone Company:
We have audited the accompanying balance sheet of Pittsburgh Cellular Telephone
Company (a Pennsylvania general partnership) as of December 31, 1993, and the
related statements of income, changes in partners' capital and cash flows for
the year 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 audit.
We conducted our audit 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 audit 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 Pittsburgh Cellular Telephone
Company as of December 31, 1993, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN & CO.
Seattle, Washington
January 28, 1994
F-30
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
1993 1992
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 7,453,700 $ 4,511,500
Accounts receivable:
Trade (less allowance for doubtful accounts
of $1,539,600 and $1,128,200 for 1993 and
1992, respectively)........................ 41,217,500 34,574,100
Other........................................ 154,700 395,200
Inventory....................................... 864,900 657,300
Prepaid expenses and other current assets....... 2,437,000 1,184,400
------------ ------------
Total current assets 52,127,800 41,322,500
Property and equipment, net (Note 2).............. 158,394,300 141,061,100
Other assets...................................... 949,900 279,500
------------ ------------
$211,472,000 $182,663,100
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities........ $ 27,411,744 $ 24,056,900
Payable to affiliates........................... 13,915,800 14,943,200
Current portion--notes payable (Note 6)......... 3,045,800 2,539,100
Deferred revenue................................ 3,670,356 2,529,000
------------ ------------
Total current liabilities.................. 48,043,700 44,068,200
Notes payable (Note 6)............................ 8,049,400 11,095,200
------------ ------------
Total liabilities.......................... 56,093,100 55,163,400
Commitments and contingencies (Note 9)
Partners' equity.................................. 155,378,900 127,499,700
------------ ------------
$211,472,000 $182,663,100
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral
part of these combined financial statements.
F-31
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
<TABLE>
<CAPTION>
1993 1992 1991
------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue............................. $276,061,000 $223,281,400 $178,589,400
------------ ------------ ------------
Costs and expenses:
Cost of services.................. 71,837,300 57,361,486 43,677,254
General and administrative
expenses....................... 81,553,400 57,203,714 49,578,846
Depreciation and amortization..... 28,818,100 23,320,800 19,144,800
------------ ------------ ------------
182,208,800 137,886,000 112,400,900
------------ ------------ ------------
Operating income.................... 93,852,200 85,395,400 66,188,500
Interest expense, net............... (160,200) (701,000) (1,065,700)
Interest expense--affiliates........ (788,800) (1,120,300) (1,581,000)
Other income (expense).............. (24,000) (376,500) 464,000
------------ ------------ ------------
Net income.......................... $ 92,879,200 $ 83,197,600 $ 64,005,800
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral
part of these combined financial statements.
F-32
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
COMBINED STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
<TABLE>
<S> <C>
Partners' equity, January 1, 1991--unaudited................ $ 76,296,300
Distribution to partners--unaudited......................... (40,000,000)
Net income--unaudited....................................... 64,005,800
------------
Partners' equity, December 31, 1991--unaudited.............. 100,302,100
Distribution to partners--unaudited......................... (56,000,000)
Net income--unaudited....................................... 83,197,600
------------
Partners' equity, December 31, 1992--unaudited.............. 127,499,700
Distribution to partners.................................... (65,000,000)
Net income.................................................. 92,879,200
------------
Partners' equity, December 31, 1993......................... $155,378,900
------------
------------
</TABLE>
The accompanying notes are an integral
part of these combined financial statements.
F-33
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
<TABLE>
<CAPTION>
1993 1992 1991
------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income....................... $ 92,879,200 $ 83,197,600 $ 64,005,800
Adjustments to reconcile net
income to net cash provided by
operating activities:.........
Depreciation and
amortization............. 28,818,100 23,320,800 19,144,800
Loss on disposal of
equipment................ 36,000 404,000 --
Changes in assets and
liabilities:
Accounts
receivable--trade...... (6,651,400) (6,994,800) (6,516,100)
Accounts
receivable--other...... 240,500 (245,200) 183,400
Inventory................ (207,600) 132,700 (129,100)
Prepaid expenses and
other current assets... (2,003,600) (359,600) (179,100)
Accounts payable, accrued
liabilities, and
deferred revenue....... 4,496,200 3,897,000 (5,400,600)
------------ ------------ ------------
Net cash provided by operating
activities....................... 117,607,400 103,352,500 71,109,100
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to property and
equipment, net................ (48,286,700) (45,643,700) (34,354,700)
Other investing activities,
net........................... 2,188,000 118,000 --
------------ ------------ ------------
Net cash used in investing
activities.................... (46,098,700) (45,525,700) (34,354,700)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on notes payable........ (2,539,100) (2,111,000) (1,763,000)
Proceeds from (payments to)
affiliates.................... (1,027,400) (318,100) 729,300
Distributions to partners........ (65,000,000) (56,000,000) (40,000,000)
------------ ------------ ------------
Net cash used in financing
activities.................... (68,566,500) (58,429,100) (41,033,700)
------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents.......... 2,942,200 (602,300) (4,279,300)
Cash and cash equivalents,
beginning of year............. 4,511,500 5,113,800 9,393,100
------------ ------------ ------------
Cash and cash equivalents, end of
year.......................... $ 7,453,700 $ 4,511,500 $ 5,113,800
------------ ------------ ------------
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during year for:
Interest.................... $ 949,100 $ 1,266,500 $ 1,880,900
</TABLE>
The accompanying notes are an integral
part of these combined financial statements.
F-34
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1993 (AUDITED), 1992 (UNAUDITED), AND 1991 (UNAUDITED)
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Bay Area Cellular Telephone Company ('BACTC') and Pittsburgh Cellular
Telephone Company ('PCTC'), (collectively, the 'Company'), are general
partnerships formed to construct and operate cellular mobile radio systems (the
'Systems') in the domestic metropolitan statistical areas ('MSAs') of San
Francisco and San Jose, California, and Pittsburgh, Pennsylvania, respectively.
These systems initially went into service in September 1986 and December 1986,
respectively. Additional cell sites are continually being added to the Systems.
The Company generally grants unsecured credit primarily to customers, the
majority of which are local residents. These amounts are included in accounts
receivable-trade.
Additionally, the Company engages in the retail sales of cellular
telephones and related equipment.
PRINCIPLES OF COMBINATION
The financial statements of the Company are combined due to Associated
Communications Corporation's ('ACC's') common partnership interest in the
combined entities through AM Partners and Celcom Communications Corporation of
Pittsburgh, and due to the fact that the individual entities forming the Company
are significant to ACC as it is defined in the Securities and Exchange
Commissions rules and regulations. All intercompany accounts and transactions
have been eliminated.
PARTNERSHIP EQUITY
In general, income earned and expenses incurred by BACTC and PCTC are
allocated to the partners pro rata in accordance with their respective
percentage interest during the period. The partners' effective percentage
interests at December 31, 1993 were as follows:
BACTC
<TABLE>
<S> <C>
CMT Partners....................................... 94.0%
AM Partners........................................ 6.0%
</TABLE>
PCTC
<TABLE>
<S> <C>
McCaw Communications of Pittsburgh, Inc............ 64.3%
Celcom Communications Corporation of Pittsburgh.... 35.7%
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment, which includes the Systems' assets, are stated at
cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which range from 3 to 7 years for equipment not
directly associated with the Systems. Equipment and other capitalized costs of
the Systems are being depreciated over 5 to 15 years. Leasehold improvements are
amortized on a straight-line basis over the shorter of the lease term or the
estimated useful life of the asset, which is generally 5 years.
Minor replacements, enhancements, maintenance and repairs are charged to
expense as incurred. Major replacements and enhancements are capitalized and
depreciated over the remaining useful lives of the assets.
F-35
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
INVENTORY
Inventory, which consists of cellular telephones and related equipment, is
stated at the lower of cost or market.
CELLULAR SYSTEMS UNDER CONSTRUCTION
Included in cellular systems under construction are salaries, legal fees,
system design costs, equipment and other costs directly associated with the
construction of the Systems.
INCOME TAXES
BACTC and PCTC, as partnerships, are not subject to income tax, and the tax
effects of their activities accrue to their respective partners.
CASH AND CASH EQUIVALENTS
The Company considers all unrestricted highly liquid investments with an
initial maturity of three months or less to be cash equivalents. Cash
equivalents at December 31, 1993 consist principally of investments in
commercial paper. The investments are recorded at cost, which approximates
market value.
REVENUE RECOGNITION
Cellular air time is recorded as revenue as earned. Sales of equipment and
related services are recorded when goods and services are delivered. Cellular
access charges are billed in advance and recognized as revenue when the services
are provided.
PENDING ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 112, 'Employers' Accounting for Postemployment
Benefits,' ('FASB 112') which is effective for fiscal years beginning after
December 15, 1993. FASB 112 requires employers to accrue for postemployment
benefits that are provided to former or inactive employees after employment, but
before retirement. The Company has not made a determination of the effects this
pronouncement will have on its financial results.
2. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1993 and 1992 consist of the
following:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Land.................................... $ 1,484 $ 1,449
Operating Equipment..................... 216,028 181,669
Administrative Assets................... 31,961 21,892
-------- --------
249,473 205,010
Accumulated Depreciation and
Amortization.......................... (108,144) (79,039)
Cellular Systems under Construction..... 17,065 15,090
-------- --------
$158,394 $141,061
-------- --------
-------- --------
</TABLE>
F-36
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. RELATED PARTY TRANSACTIONS
The Company has ongoing relationships and transactions with certain related
parties. All material transactions fall within the Company's principal line of
business of providing cellular service. These transactions are described as
follows:
The Company has contracted with affiliates for technical and administrative
services, working capital funding and interconnection services essential to the
operation of its cellular network. The costs pursuant to these contracts account
for 7%, 6%, and 7% of the Company's total operating costs during 1993, 1992, and
1991, respectively. The outstanding balances due under these agreements comprise
less than 10% of combined current liabilities at December 31, 1993 and 1992.
The Company provides services to certain affiliates operating the
nonwireline cellular systems in other MSAs. Services consist of sharing the
facilities and the maintenance of the Company's mobile telephone switching
office. Revenues from these affiliates are included in the statements of income
and amount to less than 1% of sales for the years ended December 31, 1993, 1992,
and 1991.
The Company is charged interest on amounts due to affiliates. Interest is
being charged at the rate of 1% in excess of the prime rate and is payable
quarterly. At December 31, 1993, the prime rate was 6.0%. Interest paid to
affiliates in 1993, 1992, and 1991 was $789, $1,120, and $1,581, respectively.
4. EMPLOYEE BENEFITS
Employees of the Company qualifying under certain age and service
requirements are eligible to participate in the applicable 401(k) plans
sponsored by the partners of the Company. The Company makes a limited matching
contribution based upon a percentage of the employee's contribution.
Contributions to the 401(k) plans amounted to approximately $1,305, $958, and
$689 in 1993, 1992, and 1991, respectively.
5. OBLIGATIONS UNDER LEASES
The Company leases cell sites for the Systems, certain computer equipment,
vehicles, and office space under long-term operating leases expiring from 1994
to 2018. Certain of these leases contain renewal options. Future minimum
payments on operating leases as of December 31, 1993 are as follows:
<TABLE>
<S> <C>
1994................ $5,081
1995................ 4,619
1996................ 3,870
1997................ 3,228
1998................ 2,486
Thereafter.......... 5,114
--------
$24,398
--------
--------
</TABLE>
Rental expense was approximately $5,649, $4,707, and $3,389 for the years
ended December 31, 1993, 1992, and 1991, respectively.
F-37
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
6. NOTES PAYABLE
Notes payable consist of the following at December 31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Equipment loan payable to a bank, at prime plus 1% (7%
at December 31, 1993), in graduated quarterly
principal payments through 1996...................... $ 7,793 $ 9,577
Working capital loan payable to a bank, at prime plus
1% (7% at December 31, 1993), in graduated quarterly
principal payments through 1996...................... 3,302 4,057
------- -------
11,095 13,634
Less current portion................................... (3,046) (2,539)
------- -------
$ 8,049 $11,095
------- -------
------- -------
</TABLE>
The above arrangements restrict the incurrence of additional indebtedness
and distributions to partners and are collateralized by the assets purchased
under the equipment loan and by the partners' interests in the partnership.
Based upon the borrowing rates currently available to the Company for bank
loans with similar terms, the book value of notes payable approximates its fair
value.
Maturities of notes payable as of December 31, 1993, are as follows:
<TABLE>
<S> <C>
1995...... $ 3,657
1996...... 4,392
--------
$ 8,049
--------
--------
</TABLE>
7. REGULATORY ISSUES
The California Public Utilities Commission ('CPUC') issued an 'Order
Instituting Investigation' ('OII') on January 10, 1992. This order investigated
all facilities-based cellular carriers and their practices, operations, and
conduct in connection with their siting of towers and compliance with the
Commission's General Order No. 159 ('GO-159').
BACTC is one of three initial respondents, all of whom are alleged to have
either (1) prematurely constructed cellular facilities prior to filing advice
letters with the commission or (2) failed to obtain necessary governmental
permits for certain cellular facilities.
In connection with the OII proceedings, on April 7, 1993, the CPUC issued
an 'Order to Show Cause' which alleged that the BACTC failed to comply with
GO-159. Hearings were conducted from September 20 to 23, 1993, and BACTC is
awaiting a decision from the presiding Administrative Law Judge.
BACTC continues to cooperate with the CPUC and has instituted formal
procedures to ensure strict compliance with GO-159.
Based on the treatment of the sites evaluated and resolved by the CPUC, it
is the Company's opinion that it is unlikely that the CPUC will require any cell
sites to be removed.
The OII has stated that fines could be assessed against BACTC for
violations of GO-159. Management is unable to estimate the amount of fines that
may be levied against the Company; however, these fines are not expected to have
a material impact on the financial statements.
F-38
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
8. JOINT VENTURE
A joint venture agreement between PacTel Corporation ('PacTel'), PTC
Partnership, and McCaw Cellular Communications, Inc. ('McCaw') was signed on
August 29, 1991 to form a new entity, CMT Partners. The agreement was approved
by the CPUC and became effective September 1, 1993. CMT Partners is comprised of
PacTel's 61.1% interest and McCaw's 32.9% interest in BACTC, as well as other
PacTel and McCaw cellular properties. Additionally, CMT Partners purchased the
net assets and liabilities of PacTel's cellular reseller, at an agreed-upon
price of $0. The liabilities exceeded the assets and this amount is treated as
an intangible asset related to the acquisition of subscribers and is included on
the BACTC balance sheet in the category of Other Assets. This transaction did
not effect the partners' equity of either CMT Partners or BACTC. Immediately
thereafter, CMT Partners contributed substantially all of the reseller's assets
and liabilities to BACTC. The Company's financial statements as of December 31,
1993 reflect the assets and results of operations of these assets from September
1, 1993 through December 31, 1993.
On January 8, 1993, ACC, the parent of California Celcom Communications
Corporation, closed on a Joint Venture Agreement with McCaw, forming AM
Partners. Under the agreement, McCaw has contributed certain cellular properties
and ACC has contributed its 6% partners' equity interest in BACTC for 50/50
ownership in the joint venture.
On July 31, 1992, the BACTC Partnership agreement was amended. The majority
of the amendment became effective upon the closing of the McCaw/ACC Joint
Venture Agreement and changed the partner's voting rights' giving PacTel and
McCaw each 50% and changing the 6% owned by AM Partners to a non-voting
interest. Subsequently, the CMT Partners joint venture referred to above was
formed, resulting in CMT Partners controlling 100% voting interest in BACTC.
9. COMMITMENTS AND CONTINGENCIES
The Company is party to commitments and contingencies arising from the
normal course of business. Although the outcome of these matters is uncertain,
they are not expected to have a material adverse effect on the Company's
financial position or results of operations.
F-39
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
A COMBINED ENTITY
SCHEDULE V--PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
COLUMN B
---------- COLUMN C COLUMN E COLUMN F
COLUMN A BALANCE AT ----------- COLUMN D ------------------- -------------
- ----------------------------------- BEGINNING ADDITIONS ----------- OTHER CHANGES-- ADD BALANCE AT
CLASSIFICATION OF PERIOD AT COST RETIREMENT (DEDUCT)-- DESCRIBE END OF PERIOD
- ----------------------------------- ---------- ----------- ----------- ------------------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Land.......................... $ 1,449 $ 35 $ -- $ -- $ 1,484
Equipment..................... 218,651 47,342 939 -- 265,054
---------- ----------- ----------- --- -------------
Total....................... $ 220,100 $ 47,377 $ 939 $ -- $ 266,538
---------- ----------- ----------- --- -------------
---------- ----------- ----------- --- -------------
Year ended December 31, 1992--
unaudited:
Land.......................... $ 1,449 $ -- $ -- $ -- $ 1,449
Equipment..................... 174,417 45,642 1,408 -- 218,651
---------- ----------- ----------- --- -------------
Total....................... $ 175,866 $ 45,642 $ 1,408 $ -- $ 220,100
---------- ----------- ----------- --- -------------
---------- ----------- ----------- --- -------------
Year ended December 31, 1991--
unaudited:
Land.......................... $ 1,449 $ -- $ -- $ -- $ 1,449
Equipment..................... 140,397 34,356 336 -- 174,417
---------- ----------- ----------- --- -------------
Total....................... $ 141,846 $ 34,356 $ 336 $ -- $ 175,866
---------- ----------- ----------- --- -------------
---------- ----------- ----------- --- -------------
</TABLE>
F-40
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
A COMBINED ENTITY
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
COLUMN B
----------- COLUMN C COLUMN E COLUMN F
COLUMN A BALANCE AT ----------- COLUMN D ------------------- -------------
- ----------------------------------- BEGINNING ADDITIONS ------------- OTHER CHANGES-- ADD BALANCE AT
CLASSIFICATION OF PERIOD AT COST RETIREMENT (DEDUCT)-- DESCRIBE END OF PERIOD
- ----------------------------------- ----------- ----------- ------------- ------------------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Total............................ $ 79,039 $ 29,719 $ 614 $ -- $ 108,144
----------- ----------- ------------- --- -------------
----------- ----------- ------------- --- -------------
Year ended December 31, 1992--
unaudited:
Total............................ $ 56,590 $ 23,335 $ 886 $ -- $ 79,039
----------- ----------- ------------- --- -------------
----------- ----------- ------------- --- -------------
Year ended December 31, 1991--
unaudited:
Total............................ $ 37,844 $ 19,082 $ 336 $ -- $ 56,590
----------- ----------- ------------- --- -------------
----------- ----------- ------------- --- -------------
</TABLE>
F-41
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
A COMBINED ENTITY
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN C
COLUMN B -----------
----------- ADDITIONS COLUMN E
COLUMN A BALANCE AT CHARGED TO COLUMN D -------------
- --------------------------------------------- BEGINNING COSTS AND ------------- BALANCE AT
CLASSIFICATION OF PERIOD EXPENSES DEDUCTIONS(A) END OF PERIOD
- --------------------------------------------- ----------- ----------- ------------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended December 31, 1993:
Deduct from assets:
Allowance for doubtful accounts
(deducted from accounts receivable)... $ 1,128 $ 2,328 $ (1,916) $ 1,540
----------- ----------- ------------- -------------
----------- ----------- ------------- -------------
Year ended December 31, 1992--unaudited:
Deduct from assets:
Allowance for doubtful accounts
(deducted from accounts receivable)... $ 1,455 $ 1,326 $ (1,653) $ 1,128
----------- ----------- ------------- -------------
----------- ----------- ------------- -------------
Year ended December 31, 1991--unaudited:
Deduct from assets:
Allowance for doubtful accounts
(deducted from accounts receivable)... $ 1,064 $ 1,231 $ (840) $ 1,455
----------- ----------- ------------- -------------
----------- ----------- ------------- -------------
</TABLE>
- ------------------
(A)--Accounts written off, net of recoveries
F-42
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
A COMBINED ENTITY
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
COLUMN B
-----------------------------------------------
CHARGES TO COSTS AND EXPENSES
-----------------------------------------------
COLUMN A YEAR ENDED YEAR ENDED YEAR ENDED
- --------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31,
ITEM 1993 1992 1991
- --------------------------------------------- ------------- --------------- ---------------
(AMOUNTS IN THOUSANDS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Maintenance and repairs...................... N/A $ 2,336 $ 1,815
Taxes, other than payroll and income taxes:
Property tax............................... $ 3,568 $ 4,151 $ 3,788
Advertising costs............................ $ 9,491 $ 6,727 $ 5,213
</TABLE>
F-43
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
BUFFALO TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1992
F-44
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Associated Communications Corporation
In our opinion, based upon our audits and the reports of other auditors, the
accompanying combined balance sheets and the related combined statements of
income, of partners' equity and of cash flows present fairly, in all material
respects, the financial position of the combined partnership entity at December
31, 1992 and 1991, and the results of their operations and their cash flows for
the three years in the period ended December 31, 1992, in conformity with
generally accepted accounting principles. 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 Pittsburgh Cellular Telephone Company and Buffalo
Telephone Company, which statements reflect total assets of $69,333,984 and
$52,167,798 at December 31, 1992 and 1991, respectively, and total revenues of
$77,678,518, $62,864,392 and $47,718,600 for the years ended December 31, 1992,
1991 and 1990, respectively. Those statements were audited by other auditors
whose report thereon has been furnished to us, and our opinion expressed herein,
insofar as it relates to the amounts included for Pittsburgh Cellular Telephone
Company and Buffalo Telephone Company, is based solely on the report of other
auditors. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits and the report of other auditors provide a reasonable
basis for the opinion expressed above. We have not audited the financial
statements of the combined partnership entity for any period subsequent to
December 31, 1992.
PRICE WATERHOUSE
Price Waterhouse
San Francisco
March 24, 1993
F-45
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Pittsburgh Cellular Telephone Company:
We have audited the accompanying balance sheets of Pittsburgh Cellular Telephone
Company (a Pennsyvlania general partnership) as of December 31, 1992 and 1991,
and the related statements of income, changes in partners' capital (deficit) and
cash flows for each of the three years in the period ended December 31, 1992.
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 Pittsburgh Cellular Telephone
Company as of December 31, 1992 and 1991, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 1992
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Seattle, Washington,
January 29, 1993
F-46
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners
Buffalo Telephone Company
We have audited the accompanying balance sheets of Buffalo Telephone Company (a
Partnership) as of December 31, 1992 and 1991, and the related statements of
income, changes in partners' equity 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 Buffalo Telephone Company at
December 31, 1992 and 1991, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
ERNST & YOUNG
Pittsburgh, PA
February 5, 1993
F-47
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
BUFFALO TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1992 1991
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 9,273,827 $ 5,751,430
Accounts receivable--trade, less allowance
for doubtful accounts of $1,912,000 and
$2,068,000.............................. 38,976,256 31,426,001
Accounts receivable--other................. 395,200 150,000
Receivable from affiliates................. 428,453 530,707
Inventory.................................. 1,273,152 1,054,258
Prepaid expenses and other current
assets.................................. 1,385,400 946,818
--------------- ---------------
Total current assets.................. 51,732,288 39,859,214
Property and equipment, net.................. 154,470,258 128,383,502
Other assets, net of accumulated amortization
of $811,502 and $716,958................... 413,438 463,082
--------------- ---------------
$ 206,615,984 $ 168,705,798
--------------- ---------------
--------------- ---------------
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities... $ 27,437,833 $ 23,955,418
Payable to affiliates...................... 14,973,500 15,695,049
Current portion--notes payable............. 2,539,100 2,115,900
Deferred revenue........................... 3,289,658 2,562,080
--------------- ---------------
Total current liabilities............. 48,240,091 44,328,447
Deferred payable............................. 849,214 --
Notes payable................................ 11,095,200 13,629,400
Partners' equity............................. 146,431,479 110,747,951
Commitments and contingencies (Notes 5 and
8).........................................
--------------- ---------------
$ 206,615,984 $ 168,705,798
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes to combined financial statements.
F-48
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
BUFFALO TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------
1992 1991 1990
--------------- --------------- ---------------
<S> <C> <C> <C>
Sales....................... $ 254,985,518 $ 205,209,392 $ 161,279,600
--------------- --------------- ---------------
Costs and expenses:
Cost of sales............. 66,903,819 52,291,313 41,054,998
General and
administrative......... 68,718,522 58,913,726 46,266,085
Depreciation and
amortizaton............ 25,563,552 21,100,665 15,576,675
--------------- --------------- ---------------
161,185,893 132,305,704 102,897,758
--------------- --------------- ---------------
Operating income............ 93,799,625 72,903,688 58,381,842
Interest expense............ (1,215,644) (1,784,677) (2,623,731)
Interest
expense--affiliates....... (1,120,300) (1,581,000) --
Interest income............. 587,000 767,992 1,062,315
Other (expense) income...... (365,005) 535,756 170,700
--------------- --------------- ---------------
Net income........... $ 91,685,676 $ 70,841,759 $ 56,991,126
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
See accompanying notes to combined financial statements.
F-49
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
BUFFALO TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
COMBINED STATEMENT OF PARTNERS' EQUITY
<TABLE>
<S> <C>
Partners' equity, December 31, 1989.......... $ 46,235,066
Distributions to partners.................... (20,200,000)
Net income................................... 56,991,126
---------------
Partners' equity, December 31, 1990.......... 83,026,192
Distributions to partners.................... (43,120,000)
Net income................................... 70,841,759
---------------
Partners' equity, December 31, 1991.......... 110,747,951
Distributions to partners.................... (56,002,148)
Net income................................... 91,685,676
---------------
Partners' equity, December 31, 1992.......... $ 146,431,479
---------------
---------------
</TABLE>
See accompanying notes to combined financial statements.
F-50
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
BUFFALO TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1992 1991 1990
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income................ $ 91,685,676 $ 70,841,759 $ 56,991,126
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization...... 25,563,552 21,100,665 15,576,675
Loss on disposal of
equipment......... 408,991 1,586 7,745
Changes in assets and
liabilities:
Accounts
receivable--
trade........... (7,550,255) (7,598,274) (3,795,738)
Accounts
receivable--
other........... (245,200) 183,400 (174,800)
Receivable from
affiliates...... 102,254 102,684 (447,331)
Inventory......... (218,894) (180,607) (144,105)
Prepaid expenses
and other
assets.......... (468,582) (198,370) (361,783)
Accounts payable
and accrued
liabilities..... 3,482,415 (5,474,146) 10,155,970
Payable to
affiliates...... (721,549) 603,061 8,400,309
Accrued
interest........ -- (38,265) (111,935)
Deferred
revenue......... 727,578 691,269 43,234
--------------- --------------- ---------------
Net cash provided by
operating activities...... 112,765,986 80,034,762 86,139,367
--------------- --------------- ---------------
CASH FLOWS USED IN INVESTING
ACTIVITIES:
Additions to property and
equipment, net......... (51,130,441 (38,433,704) (44,338,025)
--------------- --------------- ---------------
CASH FLOWS PROVIDED BY (USED
IN) FINANCING ACTIVITIES:
Decrease in line of
credit, net............ -- -- (5,000,000)
Proceeds from
borrowings............. -- -- 315,000
Payment on notes
payable................ (2,111,000) (1,763,000) (1,468,800)
Payment on long-term debt
and capital lease
obligations............ -- (811,387) (6,800,723)
Distributions to
partners............... (56,002,148) (43,120,000) (20,200,000)
--------------- --------------- ---------------
Net cash used in financing
activities............. (58,113,148) (45,694,387) (33,154,523)
--------------- --------------- ---------------
Net increase (decrease) in
cash and cash
equivalents............ 3,522,397 (4,093,329) 8,646,819
Cash and cash equivalents,
beginning of year...... 5,751,430 9,844,759 1,197,940
--------------- --------------- ---------------
Cash and cash equivalents,
end of year............ $ 9,273,827 $ 5,751,430 $ 9,844,759
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
See accompanying notes to combined financial statements.
F-51
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
BUFFALO TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Bay Area Cellular Telephone Company ('BACTC'), Buffalo Telephone Company
('BTC'), and Pittsburgh Cellular Telephone Company ('PCTC'), collectively ('the
Company'), are general partnerships constructing and operating cellular mobile
radio systems (the 'Systems') in the cellular geographic service areas ('CGSAs')
of San Francisco and San Jose, California, Buffalo, New York, and Pittsburgh,
Pennsylvania, respectively. The Systems initially went into service on September
26, 1986, June 1, 1984, and December 19, 1986, respectively. Additional cell
sites are continually being added to the Systems. The Company generally grants
unsecured credit primarily to customers, the majority of which are local
residents.
ALLOCATION OF PROFITS AND LOSSES
In general, income earned and expenses incurred by the Company are
allocated to the partners pro rata in accordance with their respective
percentage interest during the period. The partners' effective percentage
interests at December 31, 1992 were as follows:
BACTC
<TABLE>
<S> <C>
PacTel Cellular................................... 61.10%
McCaw Communications of San Francisco, Inc........ 11.75%
McCaw Communications of San Jose, Inc............. 11.75%
Cellular Mobile Systems of the Bay Area, Inc...... 9.40%
California Celcom Communications Corporation...... 6.00%
</TABLE>
BTC
<TABLE>
<S> <C>
Celcom Communications Corporation of Buffalo...... 33.33%
Cellular Mobile Corporation....................... 33.34%
(owned 50% by Celcom Communications Corporation
of Buffalo and 50% by McCaw Communications of
the Northeast, Inc.)
Cellular Services of Buffalo, Inc................. 33.33%
(owned by McCaw Cellular Communications, Inc.)
</TABLE>
PCTC
<TABLE>
<S> <C>
McCaw Communications of Pittsburgh, Inc........... 64.30%
Celcom Communications Corporation of Pittsburgh... 35.70%
</TABLE>
PRINCIPLES OF COMBINATION
The financial statements of the Company are combined due to Associated
Communications Corporations' wholly owned subsidiaries (California Celcom
Communications Corporation, Celcom Communications Corporation of Buffalo and
Celcom Communications Corporation of Pittsburgh) common partnership interest in
the combined entities. All intercompany accounts and transactions have been
eliminated.
PROPERTY AND EQUIPMENT
Property and equipment, which includes the Systems' assets, are stated at
cost. Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which range from 3 to 10 years for equipment not
directly associated with the Systems. Equipment and other capitalized costs of
the Systems are
F-52
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
BUFFALO TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
being depreciated over 3 to 15 years. Leasehold improvements are amortized on a
straight-line basis over the shorter of the lease term or the estimated useful
life of the asset, which is generally 5 years.
Minor replacements, enhancements, maintenance and repairs are charged to
expense as incurred. Major replacements and enhancements are capitalized and
depreciated over the remaining useful lives of the assets.
INVENTORY
Inventory, which consists of cellular telephones and related equipment, is
stated at the lower of cost or market.
CELLULAR SYSTEMS UNDER CONSTRUCTION
Included in cellular systems under construction are salaries, legal fees,
system design costs, equipment and other costs directly associated with the
construction of the Systems.
INCOME TAXES
No provisions for income taxes is necessary in the financial statements of
the Company because, as partnerships, they are not subject to income tax and the
tax effect of their activities accrues to the partners.
CASH AND CASH EQUIVALENTS
The Company considers all unrestricted highly liquid investments with an
initial maturity of three months or less to be cash equivalents. Cash
equivalents at December 31, 1992 consist principally of investments in
commercial paper and money market funds. The investments are recorded at cost,
which approximates market value.
DEFERRED ORGANIZATION COSTS
Deferred organization costs consisting of legal fees, engineering and
start-up costs, are included in other assets and are being amortized using the
straight-line method over ten years, the life of the license.
REVENUE RECOGNITION
Cellular air time is recorded as revenue as earned. Sales of equipment and
related services are recorded when goods and services are delivered. Cellular
access charges are billed in advance and recognized as revenue when the services
are provided.
F-53
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
BUFFALO TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1992 1991
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land.............................................. $ 1,592 $ 1,582
Radio frequency equipment......................... 104,530 86,311
System design and construction cost............... 39,922 34,149
MTSO equipment.................................... 53,799 44,562
Microwave equipment............................... 6,707 5,754
Administrative assets............................. 23,086 16,298
---------- ----------
229,636 188,656
Less--accumulated depreciation and amortization... (90,256) (65,659)
Cellular systems under construction............... 15,090 5,387
---------- ----------
$ 154,470 $ 128,384
---------- ----------
---------- ----------
</TABLE>
3. RELATED PARTY TRANSACTIONS
The Company has ongoing relationships and transactions with certain related
parties. All material transactions fall within the Company's principal line of
business of providing cellular service. These transactions are described as
follows:
PacTel Mobile Services, a significant reseller, is a wholly owned
subsidiary of one of the three partnership's managing partner. This reseller
accounts for approximately 19% of the Company's revenues earned in 1992 and
1991, 25% in 1990, and 20%, 18%, and 22% of the Company's outstanding
receivables at December 31, 1992, 1991 and 1990, respectively.
The Company has contracted with affiliates for technical and administrative
services, working capital funding and interconnection services essential to the
operation of its cellular network. The costs pursuant to these contracts account
for 7%, 8% and 5% of the Company's total operating costs during 1992, 1991 and
1990, respectively. The outstanding balances due under these agreements comprise
less than 10% of current liabilities at December 31, 1992, 1991 and 1990.
The Company provides services to certain affiliates operating the
nonwireline cellular systems in the CGSAs of Wheeling and Parkersburg, West
Virginia and Johnstown and Erie, Pennsylvania. Services consist of sharing the
facilities and the maintenance of the Company's mobile telephone switching
office. Revenues from these affiliates are included in the combined Statements
of Income and amount to less than 1% of sales for the years ended December 31,
1992, 1991 and 1990, respectively.
4. EMPLOYEE BENEFIT PLAN
Employees of the Company qualifying under certain age and service
requirements are eligible to participate in the applicable 401(k) plans
sponsored by the partners of the Company. The Company makes a limited matching
contribution based upon a percentage of the employee's contribution.
Contributions to the 401(k) plans amounted to approximately $998,400, $665,400
and $398,400 in 1992, 1991 and 1990, respectively.
F-54
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
BUFFALO TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
5. OBLIGATION UNDER LEASES
The Company leases cell sites for the Systems, certain computer equipment,
vehicles and office space under long-term operating leases expiring from 1993 to
2017. Certain of these leases contain renewal options. Future minimum lease
payments as of December 31, 1992 are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
--------------
(IN THOUSANDS)
<S> <C>
1993..................... $ 5,417
1994..................... 5,026
1995..................... 4,360
1996..................... 3,634
1997..................... 2,960
Thereafter............... 7,543
--------------
$ 28,940
--------------
--------------
</TABLE>
Rental expense was approximately $5,269,100, $3,883,900 and $3,030,800 for
the years ended December 31, 1992, 1991 and 1990, respectively.
6. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
1992 1991
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Equipment loan payable to a bank, at prime plus 1% (7%
at December 31, 1992), in graduated quarterly
principal payments through 1996, secured by
$13,340,000 of equipment............................. $ 9,577 $ 11,063
Working capital loan payable to a bank, at prime plus
1% (7% at December 31, 1992), in graduated quarterly
principal payments through 1996, secured by the
partners' interest in the Partnership................ 4,057 4,682
-------- --------
13,634 15,745
Less--current portion.................................. (2,539) (2,116)
-------- --------
Notes payable.......................................... $ 11,095 $ 13,629
-------- --------
-------- --------
</TABLE>
At December 31, 1992, the Company has an available $6,000,000 secured
revolving credit/term loan. There were no borrowings outstanding at December 31,
1992 and 1991. The Company can select either a floating or fixed interest rate
option for the credit/term loan. The floating interest rate option will vary
between the bank's prime rate and the bank's prime rate less 1/2%, and the fixed
interest rate will vary from the fixed rate as determined by the bank plus
1 1/2% to the fixed rate as determined by the bank plus 1%. The rate is
determined by the debt/operating cash profit ratio of the borrower. The
agreement also requires that the Company pay a commitment fee of 1/4 of 1% per
year on the unused amount of the available portion of the credit agreement. The
revolving credit agreement, as amended, matures on June 30, 1993, at which time
the outstanding balance converts to a term loan which matures on June 30, 1996.
For each fiscal year beginning in 1993, the Company is required to make a
prepayment against the outstanding term loan in an amount equal to 50% of the
excess cash flow, as defined, for that fiscal year.
The credit/term loan agreement requires, among other things, the
maintenance of certain financial ratios, limits on the amount of capital
expenditures, limits on distributions to partners and restriction on the
incurrence of additional indebtedness, which is the most restrictive.
F-55
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
BUFFALO TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. NOTES PAYABLE--(CONTINUED)
Based upon the borrowing rates currently available to the Company for bank
loans with similar terms, the book value of notes payable approximates its fair
value.
Maturities of notes payable as of December 31, 1992, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1993..................... $ 2,539
1994..................... 3,046
1995..................... 3,657
1996..................... 4,392
--------------
$13,634
--------------
--------------
</TABLE>
Total interest paid by the Company during 1992, 1991 and 1990 was
approximately $1,266,500, $1,963,900 and $2,781,800, respectively.
7. DEFERRED PAYABLE
On August 1, 1992, the Company entered into a non-interest bearing note
payable for $957,200 with an equipment vendor for the purchase of certain
operating equipment with capacity to process cellular telephone traffic in
excess of the requirements of the Company's current subscriber load in certain
CGSA's. The payment terms on the note defer a portion of the equipment's cost
until the Company's subscriber load in those CGSA's would normally require the
purchase of equipment which supports such excess capacity, but no later than
December 31, 1994. At December 31, 1992, the note has been discounted to its
present value of $849,214 from December 31, 1994, at an interest rate of 6%.
8. REGULATORY ISSUES
The California Public Utilities Commission opened an investigation on
January 10, 1992 which will investigate all facilities based cellular carriers
and their practices, operations and conduct in connection with their citing of
towers, and compliance with the Commission's General Order No. 159 ('G.O. 159').
BACTC is one of three initial respondents, all of whom are alleged to have
either (1) prematurely constructed cellular facilities prior to filing advice
letters with the Commission or (2) failed to obtain necessary governmental
permits for certain cellular facilities.
BACTC continues to cooperate fully with the Commission during its
investigation and will take immediate steps to remedy any conditions that result
in adverse findings.
The Commission has stated that violations of G.O. 159 are subject to
sanctions which could include monetary damages. Management is unable to estimate
the nature or amount of any sanctions that may be imposed by the Commission.
9. SUBSEQUENT EVENTS
A joint venture agreement between PacTel Corporation (PacTel), PTC
Partnership and McCaw Cellular Communications, Inc. ('MCCI') was signed August
29, 1991 to form a new entity, CMT Partners. CMT Partners will be comprised of
PacTel Cellular's 61.10%, McCaw Communications of San Francisco, Inc.'s 11.75%
interest, McCaw Communications of San Jose, Inc.'s 11.75% and Cellular Mobile
Systems of the Bay Area, Inc.'s 9.4% interest in BACTC as well as other PacTel
and MCCI cellular properties. PacTel and MCCI will have 50/50 ownership of CMT
Partners and CMT Partners will have a 94% partner's equity interest in
F-56
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
BUFFALO TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
9. SUBSEQUENT EVENTS--(CONTINUED)
BACTC. This agreement is scheduled to become effective pending approval from the
California Public Utilities Commission.
On January 8, 1993, Associated Communications Corporation ('ACC'), the
parent of California Celcom Communications Corporation, closed on a Joint
Venture Agreement with MCCI. Under the agreement, MCCI has contributed its
effective 50% partners' equity interest in BTC and ACC has contributed its 6%
partners' equity interest in BACTC for 50/50 ownership in the joint venture (AM
Partners).
As a result of the MCCI/ACC joint venture, an amendment was made to the
BACTC partnership agreement effectively converting ACC's voting rights to a
non-voting interest.
10. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
A deferred payable of $849,214 was incurred when the Company entered into a
lease for new equipment.
F-57
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
Associated Communications Corporation
Our audits of the combined financial statements referred to in our report dated
March 24, 1993, appearing on page F-45 of this Proxy Statement of Associated
Communications Corporation, also included an audit of the Financial Statement
Schedules in this Proxy Statement. In our opinion, these Financial Statement
Schedules present fairly, in all material respects, the information set forth
therein when read in conjunction with the related combined financial statements.
PRICE WATERHOUSE
Price Waterhouse
San Francisco
March 24, 1993
F-58
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
BUFFALO TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
A COMBINED PARTNERSHIP ENTITY
SCHEDULE V
PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -----------------------------------------------------------------------------------------------
BALANCE AT OTHER CHANGES BALANCE AT
BEGINNING ADDITIONS ADD (DEDUCT) END OF
CLASSIFICATION OF PERIOD AT COST RETIREMENT DESCRIBE PERIOD
- -----------------------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1992:
Land........................ $ 1,582 $ 10 $ -- $ -- $ 1,592
Equipment................... 192,461 52,057 1,384 -- 243,134
---------------------------------------------------------------
Total......................... $ 194,043 $ 52,067 $ 1,384 $ -- $ 244,726
---------------------------------------------------------------
---------------------------------------------------------------
Year Ended December 31, 1991:
Land........................ $ 1,582 $ -- $ -- $ -- $ 1,582
Equipment................... 154,371 38,435 345 -- 192,461
---------------------------------------------------------------
Total......................... $ 155,953 $ 38,435 $ 345 $ -- $ 194,043
---------------------------------------------------------------
---------------------------------------------------------------
Year Ended December 31, 1990:
Land........................ $ 1,582 $ -- $ -- $ -- $ 1,582
Equipment................... 110,251 44,340 220 -- 154,371
---------------------------------------------------------------
Total......................... $ 111,833 $ 44,340 $ 220 $ -- $ 155,953
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>
F-59
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
BUFFALO TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
A COMBINED PARTNERSHIP ENTITY
SCHEDULE VI
ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -----------------------------------------------------------------------------------------------
ADDITIONS
BALANCE AT CHARGED TO OTHER CHANGES BALANCE AT
BEGINNING COSTS AND ADD (DEDUCT) END OF
CLASSIFICATION OF PERIOD EXPENSES RETIREMENT DESCRIBE PERIOD
- -----------------------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1992--Total................. $ 65,659 $ 25,484 $ 887 $ -- $ 90,256
---------------------------------------------------------------
---------------------------------------------------------------
Year ended December 31,
1991--Total................. $ 45,059 $ 20,943 $ 343 $ -- $ 65,659
---------------------------------------------------------------
---------------------------------------------------------------
Year ended December 31,
1990--Total................. $ 29,941 $ 15,329 $ 211 $ -- $ 45,059
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>
F-60
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
BUFFALO TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------------------------------------------------------
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- --------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended December 31,
1992:
Deducted from assets:
Allowance for doubtful
accounts (deducted
from accounts
receivable).......... $ 2,068 $ 2,069 $ (2,225)(A) $ 1,912
---------------------------------------------------
---------------------------------------------------
Year ended December 31,
1991:
Deducted from assets:
Allowance for doubtful
accounts (deducted
from
accounts
receivable).......... $ 1,307 $ 1,974 $ (1,213)(A) $ 2,068
----------------------------------------------------
----------------------------------------------------
Year ended December 31,
1990:
Deducted from assets:
Allowance for doubtful
accounts (deducted
from accounts
receivable).......... $ 1,392 $ 1,417 $ (1,502)(A) $ 1,307
----------------------------------------------------
----------------------------------------------------
</TABLE>
- ------------------
(A)--Accounts written off, net of recoveries.
F-61
<PAGE>
BAY AREA CELLULAR TELEPHONE COMPANY
BUFFALO TELEPHONE COMPANY
PITTSBURGH CELLULAR TELEPHONE COMPANY
SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
COLUMN A COLUMN B
- -------------------------------------------------------------------------------
CHARGES TO COSTS AND EXPENSES
ITEM
- -------------------------------------------------------------------------------
1992 1991 1990
---------- ---------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Maintenance and repairs.................... N/A N/A N/A
Amortization............................... N/A N/A N/A
Taxes, other than payroll and income taxes:
Property tax............................. $ 3,958 $ 3,640 $ 2,452
Royalties.................................. N/A N/A N/A
Advertising costs.......................... $ 7,180 $ 5,582 $ 4,373
</TABLE>
- ------------------
N/A--Less than 1% of sales.
F-62
<PAGE>
ASSOCIATED BUSINESS TO BE MERGED
COMBINED BALANCE SHEET
(UNAUDITED)
MARCH 31, 1994
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents (approximates fair value)....... $ 7,471
Accounts receivable, less allowance for doubtful accounts
of $2,106,000.......................................... 15,331
Inventory held for resale................................. 1,796
Prepaid federal and state income taxes.................... 534
Prepaid expenses and other assets......................... 406
Due from Associated Communications of Delaware, Inc....... 697
Deferred income taxes..................................... 3,975
--------------
Total current assets........................................ 30,210
Property, plant, and equipment--net of accumulated
depreciation and amortization............................. 36,131
Investments in unconsolidated cellular telephone joint
ventures.................................................. 13,381
Intangible assets, less accumulated amortization of
$16,202,000............................................... 79,464
Other noncurrent assets..................................... 1,909
--------------
Total assets................................................ $ 161,095
--------------
--------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 8,503
Employee compensation..................................... 904
Other accrued expenses.................................... 1,681
Deferred revenue.......................................... 2,210
Stock appreciation rights payable......................... 9,926
Accrued federal and state income taxes.................... 97
Deferred payable.......................................... 2,746
--------------
Total current liabilities................................... 26,067
Long-term obligations....................................... 125,200
Deferred income taxes....................................... 2,585
Commitments and contingencies............................... --
Minority interests.......................................... 3,689
Stockholders' equity:
Preferred stock, par value $1.00 per share; authorized
10,000,000 shares;
none issued............................................ --
Common stock:
Class A, par value $.10 per share; authorized
60,000,000 shares;
18,200,538 issued and outstanding..................... 1,820
Class B, par value $.10 per share; authorized
60,000,000 shares;
19,274,968 issued and outstanding..................... 1,927
Additional paid-in capital................................ 5,319
Accumulated deficit....................................... (5,512)
--------------
Total stockholders' equity.................................. 3,554
--------------
Total liabilities and stockholders' equity.................. $ 161,095
--------------
--------------
</TABLE>
See accompanying notes.
F-63
<PAGE>
ASSOCIATED BUSINESS TO BE MERGED
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1994 1993
------------ ------------
(IN THOUSANDS,
EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C> <C>
Revenues.......................................... $ 24,375 $ 19,951
Cost and expenses:
Cost of services................................ 8,290 5,857
Operating expenses.............................. 5,490 3,370
General and administrative expenses............. 5,638 4,990
Depreciation and amortization expense........... 4,382 4,014
------------ ------------
23,800 18,231
------------ ------------
Operating income.................................. 575 1,720
Other income (expense):
Interest income................................. 60 56
Interest expense................................ (1,374) (1,252)
Interest expense--affiliates.................... -- (449)
Equity in income of unconsolidated cellular
telephone joint ventures..................... 1,922 1,631
Minority interests.............................. (552) (705)
------------ ------------
56 (719)
------------ ------------
Income before income taxes and cumulative effect
of accounting
change for income taxes......................... 631 1,001
Income taxes...................................... 359 547
------------ ------------
Income before cumulative effect of accounting
change for income taxes......................... 272 454
Cumulative effect of accounting change for income
taxes........................................... -- 2,431
------------ ------------
Net income........................................ $ 272 $ 2,885
------------ ------------
------------ ------------
Income per share:
Income before cumulative effect of accounting
change for income taxes...................... $ .01 $ .01
Cumulative effect of accounting change for
income taxes................................. .00 .07
------------ ------------
Net income per share.............................. $ .01 $ .08
------------ ------------
------------ ------------
Weighted average number of shares outstanding..... 37,461,506 37,418,406
</TABLE>
See accompanying notes.
F-64
<PAGE>
ASSOCIATED BUSINESS TO BE MERGED
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................ $ 272 $ 2,885
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 4,382 4,014
Provision for losses on accounts
receivable................................. 617 581
Equity in income of unconsolidated cellular
telephone joint ventures, net of
distributed earnings....................... (1,531) (1,631)
Minority interests, net of distributed
earnings................................... 77 555
Cumulative effect of accounting change for
income taxes............................... -- (2,431)
Provision for deferred income taxes.......... 64 97
Other........................................ 98 39
Change in assets and liabilities:
Accounts receivable........................ (1,721) 995
Inventory held for resale.................. (293) (779)
Prepaid federal and state income taxes..... 1,287 --
Prepaid expenses and other assets.......... (109) (282)
Accounts payable........................... 1,903 (3,046)
Employee compensation...................... (630) (395)
Other accrued expenses..................... (289) (460)
Deferred revenue........................... 81 (52)
Accrued federal and state income taxes..... (6) 283
-------- --------
Net cash provided by operating activities......... 4,202 373
CASH FLOWS FROM INVESTING ACTIVITIES
Cash and cash equivalents resulting from
consolidation of affiliates..................... -- 4,786
Cash paid for acquisition......................... -- (1,743)
Purchases of property, plant, and equipment,
net............................................. (1,347) (1,964)
Investments in unconsolidated cellular telephone
joint ventures.................................. -- (20)
-------- --------
Net cash (used in) provided by investing
activities...................................... (1,347) 1,059
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock options....................... 156 101
Proceeds from borrowings.......................... 1,000 900
Principal payments on borrowings.................. (1,300) --
Due to (from) Associated Communications of
Delaware, Inc................................... (697) 2,160
-------- --------
Net cash (used in) provided by financing
activities...................................... (841) 3,161
-------- --------
Net increase in cash and cash equivalents......... 2,014 4,593
Cash and cash equivalents at beginning of
period.......................................... 5,457 2,644
-------- --------
Cash and cash equivalents at end of period........ $ 7,471 $ 7,237
-------- --------
-------- --------
</TABLE>
See accompanying notes.
F-65
<PAGE>
ASSOCIATED BUSINESS TO BE MERGED
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1994
1. INTERIM PRESENTATION
On February 23, 1994, Associated Communications Corporation ('Associated')
entered into an Agreement and Plan of Merger and Reorganization (the 'Merger
Agreement') which provides that the common stock of Associated Communications of
Delaware, Inc. ('ACDI'), a wholly owned subsidiary of Associated, would be spun
off on a pro rata basis to the stockholders of Associated pursuant to the terms
of an Agreement and Plan of Distribution, the form of which is an Appendix to
the Merger Agreement. After the spin-off, Associated would continue to own its
domestic cellular businesses and interests (the 'Associated Business to be
Merged' or the 'Company') and would be merged (the 'Merger') with a wholly owned
indirect subsidiary of Southwestern Bell Corporation ('SBC'), pursuant to the
Merger Agreement.
These combined financial statements present the financial position, results
of operations and cash flows of the Associated Business to be Merged. For the
three months ended March 31, 1993, the combined financial statements include
certain Associated corporate expenses allocated to the Associated Business to be
Merged. These amounts include allocable salaries, rent, accounting services,
legal services, and administrative expenses. Management believes these
allocations were made on a reasonable and consistent basis. For the three months
ended March 31, 1994, the combined financial statements include only the amount
of historical corporate expenses allowable, as defined in the Distribution
Agreement. Amounts over the allowable amount of historical corporate expenses
have been allocated to ACDI.
The Associated Business to be Merged includes primarily the accounts of
three combined cellular telephone joint ventures; Albany Telephone Company
('ATC') (which includes the assets of the Glens Falls cellular system), Buffalo
Telephone Company ('BTC'), and Genesee Telephone Company ('GTC'); Cellular
Mobile Corporation ('CMC'), which owns a one-third partnership interest in BTC;
as well as equity investments in Pittsburgh Cellular Telephone Company ('PCTC')
and Bay Area Cellular Telephone Company ('BACTC'), in addition to the accounts
of Associated Communications of Delaware, Inc. II ('ACDI II') and certain
accounts of Associated, primarily cash and income taxes. The Company operates in
one dominant industry segment, cellular and communications services, principally
in the northeastern United States.
The accompanying unaudited interim combined financial statements have been
prepared in accordance with generally accepted accounting principles. In the
opinion of management, all adjustments (consisting of only normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1994, are not necessarily
indicative of the results that may be expected for the year ended December 31,
1994. These statements should be read in conjunction with the audited combined
financial statements of the Company for the year ended December 31, 1993.
2. SUMMARIZED FINANCIAL DATA
Summarized income statement information for the significant cellular
telephone joint ventures accounted for on the equity method for the three months
ended March 31, 1994 and 1993, is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1994 1993
-------- --------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Net revenues....................... $ 81,133 $ 59,818
Operating income................... 31,018 22,979
Net income......................... 30,980 22,731
</TABLE>
F-66
<PAGE>
ASSOCIATED BUSINESS TO BE MERGED
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
MARCH 31, 1994
3. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest was approximately $1,464,000 and $1,228,000 for the
three months ended March 31, 1994 and 1993, respectively. The Company received a
federal income tax refund of approximately $1,000,000 and made state income tax
payments of approximately $20,000 for the three months ended March 31, 1994. The
Company made federal and state income tax payments of approximately $417,000 for
the three months ended March 31, 1993.
Significant noncash investing and financing activities for the three months
ended March 31, 1993, in thousands, are as follows:
<TABLE>
<S> <C>
Cash resulting from consolidation of certain
affiliates:
Fair value of assets acquired................... $ (25,518)
Net liabilities assumed......................... 30,304
---------
Cash acquired..................................... $ 4,786
---------
---------
Acquisition of partnership interests:
Fair value of assets acquired................... $ (85,625)
Financing provided by seller.................... 85,625
---------
$ --
---------
---------
</TABLE>
4. LONG-TERM OBLIGATIONS
As of April 29, 1994, the Company amended the $120,000,000 syndicated
senior reducing revolving credit facility ('the Senior Reducing Credit
Facility') of ACDI II, an indirect wholly owned subsidiary of Associated. The
credit agreement establishing the Senior Reducing Credit Facility requires,
among other things, the maintenance of minimum fixed charge coverage and minimum
debt service coverage ratios, as well as maximum leverage ratios. The amendment,
among other things, increases the allowable maximum leverage ratio for the first
and second quarters of 1994 to address the increased costs associated with
higher than anticipated subscriber growth rates experienced by the Company's
consolidated cellular telephone joint ventures.
At ACDI II's option, shares of TCI Class A Common Stock, owned by ACDI, can
be pledged as additional collateral to lower certain leverage ratios and
accordingly, lower the effective rate of interest under the Senior Reducing
Credit Facility. At March 31, 1994, 4,519,994 shares of TCI Class A Common Stock
were pledged by ACDI on behalf of ACDI II as additional collateral. As of May
11, 1994, ACDI II increased the amount of TCI Class A Common Stock pledged as
additional collateral by ACDI on behalf of ACDI II to an aggregate amount of
5,519,994 shares.
ACDI II can select either a Euro-Rate interest option or a Base Rate (prime
rate) interest option on outstanding borrowings under the Senior Reducing Credit
Facility. Interest on borrowings is calculated at the Euro-Rate plus between
0.875% and 1.75% or the Base Rate plus between 0.0% and 0.5%, depending on
certain leverage ratios. At March 31, 1994, borrowings outstanding under the
Senior Reducing Credit Facility were $109,800,000 with an annual interest rate
of 4.5625% on $109,200,000 of the borrowings and 4.4375% on $600,000 of the
borrowings.
5. INCOME TAXES
Associated and its subsidiaries, with the exception of CMC, a majority
owned subsidiary, file income tax returns as a consolidated group. Income taxes
presented in these financial statements include interperiod income tax
allocations and represent the portion of consolidated income taxes that are
attributable to the taxable income,
F-67
<PAGE>
ASSOCIATED BUSINESS TO BE MERGED
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
MARCH 31, 1994
5. INCOME TAXES--(CONTINUED)
alternative minimum tax preferential items, and book and tax bases differences
of the companies included in these combined statements, as well as income taxes
for the separate returns of CMC. Such amounts do not represent the taxes which
would be recorded if the Associated Business to be Merged filed income tax
returns as an independent entity. Had the tax provision been calculated as
though separate income tax returns were filed for the Company, the pro forma net
income and tax provision for the three months ended March 31, 1994 would have
been $229,000 and $402,000 respectively.
6. COMMITMENTS AND CONTINGENCIES
The Company is involved in certain lawsuits arising in the ordinary course
of business. In management's opinion, the claims are without merit and
management plans to defend the cases vigorously. The outcome of these matters is
not expected to have a material adverse effect on the Company's financial
position.
F-68
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1994,
COMPARED TO THE QUARTER ENDED MARCH 31, 1993
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1994, COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1993
For the period ended March 31, 1994, revenues were $24,375,000,
representing a 22% increase compared to revenues of $19,951,000 for the 1993
period. This increase of $4,424,000 is a result of the continued growth of the
consolidated cellular telephone joint ventures' ('consolidated ventures')
revenues. The consolidated ventures' revenue growth is principally a result of
subscriber growth as well as the sale of value added features to existing
subscribers. For the first quarter 1994 subscriber growth was higher than
anticipated. This increase was partially offset by a decline in the average
revenue per subscriber as more 'casual' users subscribed for cellular service.
For the 1994 period, cost of services, operating expenses and general and
administrative expenses increased $2,433,000, $2,120,000 and $648,000
respectively, or 42%, 63% and 13%, respectively, over the 1993 period. These
increases were due to the continued growth of the consolidated ventures'
subscriber bases and the additional costs required to satisfy the accompanying
increased demand for cellular services and features.
Depreciation and amortization expense for the 1994 period over the 1993
period increased by $368,000, or 9%. Contributing to this increase were capital
expenditures for the cellular systems during 1993.
Interest income in the 1994 period increased $4,000 or 7%, over such income
in the 1993 period due to an increased level of cash and cash equivalents in
1994.
Interest expense in 1994 increased $122,000 or 10%, as compared to the 1993
period, a result of an increased debt level in 1994, offset by a lower effective
interest rate on outstanding debt.
Due to the settlement in 1993 through a contribution to capital by ACDI of
all amounts due to ACDI affiliate interest was $0 in 1994, as compared to
$449,000 in the 1993 period.
Equity results for the unconsolidated cellular telephone joint ventures in
1994 provided an increase in income of $291,000 or 18%, as compared to 1993.
This increase reflects improved operating results of the unconsolidated cellular
telephone joint ventures and the continuing growth of the cellular industry.
Minority interests decreased a net amount of $153,000 or 22%, reflecting a
decrease in the net income of the consolidated ventures resulting from the
increased costs associated with the higher than anticipated subscriber growth.
The Company recorded federal and state income tax expense of $359,000 in
the 1994 period compared to $547,000 in the 1993 period. The 1994 period
reflects an approximate 57% income tax rate due to the effects of nondeductible
items and interperiod income tax allocations. The first quarter 1993 results
reflect a $2,431,000 credit for the recognition of a cumulative effect of an
accounting change for income taxes, resulting from the Company's adoption of
Statement of Financial Accounting Standards No. 109, 'Accounting for Income
Taxes.'
Net income for the first quarter of 1994 was $272,000 or $.01 per share,
compared to net income of $2,885,000 or $0.08 per share in the 1993 period. This
change in net income was primarily due to the cumulative effect of an accounting
change for income taxes in 1993.
FINANCIAL CONDITION
Cash and cash equivalents were $7,471,000 at March 31, 1994 compared to
$5,457,000 at December 31, 1993. In the first three months of 1994, the net cash
provided by operations was $4,202,000 an increase of $3,829,000 over the 1993
period, primarily due to changes in working capital items, most notably accounts
receivable, prepaid federal income taxes, and accounts payable. Net cash used in
investing activities was $1,347,000 for capital expenditures at the consolidated
ventures. The net cash used in financing activities of
F-69
<PAGE>
$841,000 resulted from an increase in amounts due from ACDI as well as net
payments on the consolidated venture's credit/term loan bank facility offset by
net borrowings on the Senior Reducing Credit Facility.
As of July 26, 1994, in addition to cash flow from operations, the Company
has available unused debt capacity to finance internal and external development,
additional capital expenditures, and investment and business opportunities. The
Company has available $12,300,000 from the Senior Reducing Credit Facility,
subject to certain restrictions and $4,800,000 from the consolidated cellular
venture's credit/term loan bank facility.
The Company's non interest-bearing deferred payable arrangement for the
purchase of certain operating equipment of $2,746,000 is payable no later than
December 31, 1994.
F-70
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
DATED AS OF FEBRUARY 23, 1994
BY AND AMONG
SOUTHWESTERN BELL CORPORATION
SBMS ACQUISITION CORP.
AND
ASSOCIATED COMMUNICATIONS CORPORATION
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE MERGER
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 1.1 Effective Time of the Merger................................................................ 1
Section 1.2 Closing..................................................................................... 1
Section 1.3 Effects of the Merger....................................................................... 2
Section 1.4 Certificate of Incorporation and By-Laws.................................................... 2
Section 1.5 Directors................................................................................... 2
Section 1.6 Officers.................................................................................... 2
</TABLE>
ARTICLE II
CONVERSION OF SECURITIES
<TABLE>
<S> <C> <C>
Section 2.1 Conversion of Capital Stock................................................................. 2
Section 2.2 Exchange of Certificates.................................................................... 4
</TABLE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
<TABLE>
<S> <C> <C>
Section 3.1 Organization................................................................................ 6
Section 3.2 Capitalization.............................................................................. 6
Section 3.3 Authority................................................................................... 7
Section 3.4 Consents and Approvals; No Violations....................................................... 7
Section 3.5 SEC Reports and Financial Statements........................................................ 8
Section 3.6 Information in Disclosure Documents and Registration Statements............................. 8
Section 3.7 Retained Business........................................................................... 9
Section 3.8 Litigation.................................................................................. 10
Section 3.9 Opinion of Financial Advisor................................................................ 10
Section 3.10 Registration Rights......................................................................... 10
Section 3.11 Rights Agreement............................................................................ 10
Section 3.12 Employee Benefits........................................................................... 10
Section 3.13 Absence of Undisclosed Liabilities.......................................................... 11
Section 3.14 Absence of Certain Changes or Events........................................................ 11
Section 3.15 No Violation of Law......................................................................... 12
Section 3.16 Taxes....................................................................................... 12
Section 3.17 Labor Controversies......................................................................... 13
Section 3.18 Environmental Matters....................................................................... 13
Section 3.19 Licenses.................................................................................... 14
Section 3.20 Intellectual Property....................................................................... 14
Section 3.21 Brokers or Finders.......................................................................... 14
Section 3.22 Transactions with Affiliates................................................................ 14
Section 3.23 MFJ Activities.............................................................................. 15
Section 3.24 Material Agreements......................................................................... 15
Section 3.25 DGCL Section 203............................................................................ 15
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
<S> <C> <C>
Section 4.1 Organization................................................................................ 15
Section 4.2 Capitalization.............................................................................. 16
Section 4.3 Authority................................................................................... 16
Section 4.4 Consents and Approvals; No Violations....................................................... 16
Section 4.5 SEC Reports and Financial Statements........................................................ 16
Section 4.6 Absence of Undisclosed Liabilities.......................................................... 17
Section 4.7 Information in Disclosure Documents and Registration Statements............................. 17
Section 4.8 Parent Ownership of Company Common Stock.................................................... 17
Section 4.9 Interim Operations of Sub................................................................... 17
</TABLE>
ARTICLE V
COVENANTS
<TABLE>
<S> <C> <C>
Section 5.1 Covenants of the Company with Respect to the Retained Business.............................. 18
Section 5.2 Covenants of the Company.................................................................... 19
Section 5.3 Covenants of Parent......................................................................... 20
</TABLE>
ARTICLE VI
ADDITIONAL AGREEMENTS
<TABLE>
<S> <C> <C>
Section 6.1 Reasonable Efforts.......................................................................... 20
Section 6.2 Letter of the Company's Accountants......................................................... 21
Section 6.3 Letter of Parent's Accountants.............................................................. 21
Section 6.4 Access to Information....................................................................... 21
Section 6.5 Stockholders Meeting........................................................................ 21
Section 6.6 Legal Conditions to Contribution, Distribution and Merger; Legal Compliance................. 22
Section 6.7 Stock Exchange Listing; NASDAQ/NMS Designation.............................................. 22
Section 6.8 Company Severance Obligations............................................................... 22
Section 6.9 Company Stock Plans......................................................................... 22
Section 6.10 Fees and Expenses........................................................................... 22
Section 6.11 Indemnification; Insurance.................................................................. 23
Section 6.12 Rights Plan................................................................................. 24
Section 6.13 No Solicitations............................................................................ 24
Section 6.14 MFJ Matters................................................................................. 24
Section 6.15 Distribution................................................................................ 25
Section 6.16 Affiliate Agreements........................................................................ 25
Section 6.17 Rochester Radiolocation System.............................................................. 25
Section 6.18 Audited Balance Sheet....................................................................... 25
</TABLE>
ARTICLE VII
CONDITIONS
<TABLE>
<S> <C> <C>
Section 7.1 Conditions to Each Party's Obligation To Effect the Merger.................................. 26
Section 7.2 Conditions of Obligations of Parent and Sub................................................. 26
Section 7.3 Conditions of Obligations of the Company.................................................... 27
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
ARTICLE VIII
TERMINATION AND AMENDMENT
<S> <C> <C>
Section 8.1 Termination................................................................................. 28
Section 8.2 Effect of Termination....................................................................... 29
Section 8.3 Amendment................................................................................... 29
Section 8.4 Extension; Waiver........................................................................... 29
</TABLE>
ARTICLE IX
MISCELLANEOUS
<TABLE>
<S> <C> <C>
Section 9.1 Nonsurvival of Representations and Warranties............................................... 30
Section 9.2 Notices..................................................................................... 30
Section 9.3 Interpretation.............................................................................. 30
Section 9.4 Counterparts................................................................................ 30
Section 9.5 Entire Agreement; No Third Party Beneficiaries.............................................. 31
Section 9.6 Governing Law............................................................................... 31
Section 9.7 Specific Performance........................................................................ 31
Section 9.8 Publicity................................................................................... 31
Section 9.9 Assignment.................................................................................. 31
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of February 23,
1994, by and among Southwestern Bell Corporation, a Delaware corporation
('Parent'), SBMS Acquisition Corp., a Delaware corporation and a second tier
indirect wholly owned subsidiary of Parent ('Sub'), and Associated
Communications Corporation, a Delaware corporation (the 'Company').
WHEREAS, the Board of Directors of the Company has approved a plan of
distribution embodied in the form of agreement attached hereto as Annex 1 (the
'Distribution Agreement') which will be entered into prior to the Effective Time
(as defined in Section 1.1), subject to the issuance of a private letter ruling
from the Internal Revenue Service (the 'Service') as described in Sections
7.2(c) and 7.3(c) hereof in response to a ruling request to be made by the
Company (the 'Ruling Request'), pursuant to which (i) the Retained Business (as
defined in Section 3.7), has been or will be contributed by the Company and
Associated Communications of Delaware, Inc., a Delaware corporation and a direct
wholly-owned subsidiary of the Company ('Newco'), to a wholly-owned subsidiary
of Newco to be formed by Newco (the entity that does or will own the Retained
Business at the time of the Distribution (as defined below) is referred to
herein as 'Newco Cellular', and references herein to the Subsidiaries of Newco
Cellular shall mean those entities that the Distribution Agreement provides will
be Subsidiaries of Newco Cellular immediately prior to the Distribution) and all
of the shares of capital stock of Newco Cellular will be distributed to the
Company (the 'Newco Cellular Distribution') and (ii) substantially all of the
Company's remaining assets and liabilities other than Newco Cellular and the
Retained Business, have been or will be contributed to or merged with and into
Newco (the 'Contribution'), and all of the shares of capital stock of Newco will
be distributed on a pro rata basis to the Company's stockholders as provided in
the Distribution Agreement (the 'Newco Distribution' and, together with the
Newco Cellular Distribution, the 'Distribution');
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have determined that, following the Distribution, the merger of Sub with and
into the Company (the 'Merger') with the Company surviving as an indirect wholly
owned subsidiary of Parent (the 'Surviving Corporation') would be advantageous
and beneficial to their respective corporations and stockholders;
WHEREAS, certain stockholders of the Company have entered into a Voting
Agreement, dated as of the date hereof (the 'Voting Agreement'), among Parent
and the stockholders named therein providing, among other things, that such
stockholders will vote in favor of the Merger and grant a proxy to Sub for that
purpose; and
WHEREAS, for federal income tax purposes, it is intended that (a) the
Distribution shall qualify as a tax-free distribution within the meaning of
Section 355 of the Internal Revenue Code of 1986, as amended (the 'Code'), and
(b) the Merger shall qualify as a reorganization under Section 368(a) of the
Code, and this Agreement is intended to be and is adopted as a plan of
reorganization;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein the
parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 Effective Time of the Merger. Upon the terms and subject to the
conditions hereof, a certificate of merger (the 'Certificate of Merger') shall
be duly prepared, executed and acknowledged by the Surviving Corporation and
thereafter delivered to the Secretary of State of the State of Delaware, for
filing, as provided in the Delaware General Corporation Law (the 'DGCL'), as
soon as practicable on or after the Closing Date (as defined in Section 1.2).
The Merger shall become effective contemporaneously with or immediately
following the Distribution, upon the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware or at such time thereafter as is
provided in the Certificate of Merger (the 'Effective Time').
Section 1.2 Closing. Subject to the satisfaction or waiver of all the
conditions to closing contained in Article VII hereof, the closing of the Merger
(the 'Closing') will take place at 10:00 a.m. on a date to be specified by
1
<PAGE>
the parties, which shall be no later than the seventeenth business day
after satisfaction or waiver of the conditions to Closing contained in
Sections 7.1(a), (b), (c), (d) and (f), 7.2 (c), (d)(i) and (f) and
7.3(c), at the offices of Skadden, Arps, Slate, Meagher & Flom, 919
Third Avenue, New York, New York 10022, unless another date or place is
agreed to in writing by the parties hereto; provided, that (i) if Parent
makes a public announcement during the Averaging Period (as defined
below) of an event that has a material effect on the business, assets or
results of operations of Parent and its Subsidiaries taken as a whole
and the Company's financial advisor has advised the Company that such
announcement would reasonably be expected to have a temporary effect on
the price of Parent Common Stock, the Company may, by written notice to
Parent, elect to delay the commencement of the Averaging Period until
the fifth trading day after such announcement and thereby delay the
Closing and (ii) in
the event Parent shall announce an intention to commence or shall commence a
tender offer for more than five percent of the outstanding shares of Parent
Common Stock, the Company may, by written notice to Parent, elect to delay
commencement of the Averaging Period until the twentieth trading day after
Parent accepts shares for purchase pursuant to such tender offer or otherwise
terminates or abandons such tender offer and thereby delay the Closing. Any
written notice to Parent pursuant to this Section 1.2 shall be given not later
than three business days after such announcement or commencement. The date and
time at which the Closing occurs is referred to herein as the 'Closing Date'.
Section 1.3 Effects of the Merger. The Merger shall have the effects set
forth in the DGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the properties, rights, privileges, powers
and franchises of the Company and Sub shall vest in the Surviving Corporation,
and all debts, liabilities and duties of the Company and Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
Section 1.4 Certificate of Incorporation and By-Laws.
(a) The Certificate of Incorporation of Sub in effect at the Effective Time
shall be the Certificate of Incorporation of the Surviving Corporation until
amended in accordance with applicable law.
(b) The By-Laws of Sub in effect at the Effective Time shall be the By-Laws
of the Surviving Corporation until amended in accordance with applicable law.
Section 1.5 Directors. The directors of Sub at the Effective Time shall be
the initial directors of the Surviving Corporation, each to hold office from the
Effective Time in accordance with the Certificate of Incorporation and By-Laws
of the Surviving Corporation and until his or her successor is duly elected and
qualified.
Section 1.6 Officers. The officers of Sub at the Effective Time shall be
the initial officers of the Surviving Corporation, each to hold office from the
Effective Time in accordance with the Certificate of Incorporation and By-Laws
of the Surviving Corporation and until his or her successor is duly appointed
and qualified.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Class A Common Stock, par value $.10 per share, of the Company (the
'Class A Common Stock') or any shares of Class B Common Stock, par value $.10
per share, of the Company (the 'Class B Common Stock,' and together with the
Class A Common Stock, the 'Company Common Stock') or the holder of any capital
stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of the
capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock, par value $.10 per share, of the
Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. All shares
of Company Common Stock that are owned by the Company as treasury stock and
any shares of Company Common Stock owned by Parent, Sub or any other wholly
owned Subsidiary (as hereinafter defined) of Parent shall be cancelled and
retired and shall cease to exist and no stock of Parent or other
consideration shall be delivered in exchange therefor. As used in this
Agreement, the word 'Subsidiary' means, with respect to any party, any
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corporation or other organization, whether incorporated or unincorporated,
of which (i) such party or any other Subsidiary of such party is a general
partner (excluding partnerships, the general partnership interests of which
held by such party or any Subsidiary of such party do not have a majority
of the voting interest in such partnership) or (ii) at least a majority of
the securities or other interests having by their terms ordinary voting
power to elect a majority of the Board of Directors or others performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such party or by any one or
more of its Subsidiaries, or by such party and one or more of its
Subsidiaries.
(c) Exchange Ratio for Company Common Stock. Subject to Section 2.2
(e), each issued and outstanding share of Company Common Stock (other than
shares to be cancelled in accordance with Section 2.1(b)) shall be
converted into the right to receive the number (rounded to the nearest
one-thousandth of a share) (the 'Conversion Number') of fully paid and
nonassessable shares of Common Stock, $1 par value per share, of Parent
('Parent Common Stock') determined by (i) dividing the Aggregate Purchase
Price (as defined below) by the number of shares of Company Common Stock
outstanding at the Effective Time as certified to Parent by the Company's
registrar and transfer agent to arrive at a price per share of Company
Common Stock (the 'Per Share Price') and then (ii) dividing the Per Share
Price by the Average Parent Price (as defined below). The 'Average Parent
Price' shall be equal to the average of the closing prices of the Parent
Common Stock on the New York Stock Exchange (the 'NYSE') Composite
Transactions Reporting System, as reported in The Wall Street Journal, for
the five (5) trading days (the 'Average Period') immediately preceding the
second trading day prior to the Effective Time (the 'Trading Average');
provided, that if the Trading Average is less than $30.00 then the Average
Parent Price shall be $30.00, unless the Company notifies Parent in writing
prior to the Closing Date that it is unwilling to accept a $30.00 Average
Parent Price, in which case, upon receipt of such written notice, Parent
may elect either to terminate this Agreement pursuant to Section 8.1(c)(v)
or to cause the Average Parent Price to be the Trading Average or such
greater amount as Parent and the Company may agree; and provided, further,
that if the Trading Average is greater than $50.00 increased at a rate of
seven percent (7%) per annum commencing on July 22, 1994 and ending on the
day prior to the Effective Time (the 'Maximum Parent Price') then the
Average Parent Price shall be the Maximum Parent Price, unless Parent
notifies the Company in writing prior to the Closing Date that it is
unwilling to accept the Maximum Parent Price as the Average Parent Price,
in which case, upon receipt of such written notice, the Company may elect
to either terminate this Agreement pursuant to Section 8.1(d)(iv) or to
cause the Average Parent Price to be the Trading Average or such lesser
amount as the Company and Parent may agree. The 'Aggregate Purchase Price'
shall be an amount equal to $680,000,000 (six hundred and eighty million
dollars) increased at a rate
of seven percent (7%) per annum commencing on July 22, 1994, and ending on
the day prior to the Effective Time (the 'Base Purchase Price'), minus the
sum of (i) the Retained Company Debt (as defined below) less the Working
Capital Amount (as defined below) and less $1,000,000 in respect of certain
income tax refunds, regardless of the actual amount thereof, and (ii) 0.64
times the sum of (A) the total amount of interest paid or accrued from
January 1, 1994 through the Effective Time on indebtedness of the Retained
Company and its Subsidiaries, (B) the aggregate amount paid or payable by
the Company to holders of Company Stock Options (as hereinafter defined)
pursuant to Section 6.9, (C) the aggregate amount of bonuses paid or
payable by the Company and its Subsidiaries as contemplated by Section
5.1(h) and (D) the aggregate amount of severance payable pursuant to the
employment agreements referred to in Section 6.8. All such shares of
Company Common Stock, when so converted, shall no longer be outstanding and
shall automatically be cancelled and retired and shall cease to exist, and
each holder of a certificate representing any such shares shall cease to
have any rights with respect thereto, except the right to receive the
shares of Parent Common Stock and any cash in lieu of fractional shares of
Parent Common Stock to be issued or paid in consideration therefor upon the
surrender of such certificate in accordance with Section 2.2, without
interest. 'Retained Company Debt' means the amount determined on the basis
of the Audited Balance Sheet to be the sum of the long term obligations and
deferred payables of the Retained Company (with the components of such line
items to be consistent with the Retained Business Balance Sheet). 'Working
Capital Amount' means the amount (positive or negative) determined on the
basis of the Audited Balance Sheet (as defined in Section 6.18) equal to
(i) (A) if the amount of cash and cash equivalents on the Audited Balance
Sheet ('Audited Balance Sheet Cash'; it being acknowledged that Audited
Balance Sheet Cash shall be determined as provided in Section 6.18 (i. e.,
in accordance with GAAP), provided, that in any event Audited Balance Sheet
Cash shall be calculated as an amount net of all outstanding checks, drafts
and
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other debits against any account) is greater than or equal to
$4,115,000, then the Working Capital Amount shall be the greater of (x)
$4,115,000 and (y) the sum of the Retained Company's net equity interest in
the respective cash and cash equivalent amounts (1) with respect to the
Retained Company and the Retained Company's consolidated subsidiaries,
reflected on the Audited Balance Sheet as Audited Balance Sheet Cash and
(2) with respect to the Retained Company's unconsolidated investments,
reflected on the respective audited balance sheets as of December 31, 1993
of the entities in which the Retained Company has such investments (such
total net equity amount being the 'Proportionate Cash Amount') minus
$275,000 and (B) if the Audited Balance Sheet Cash is less than $4,115,000,
then the Working Capital Amount shall be the greater of (x) the Audited
Balance Sheet Cash and (y) the Proportionate Cash Amount, minus (ii) any
amount by which $4,502,000 exceeds the amount of (1) current assets minus
(2) the sum of Audited Balance Sheet Cash and current liabilities
(provided, that for this purpose such current liabilities shall not include
the deferred payables included in Retained Company Debt), in each case
determined for the Retained Business and its consolidated subsidiaries on
the basis of the Audited Balance Sheet; provided, that in no event will the
Proportionate Cash Amount be greater than $5,457,000.
(d) Adjustment of Exchange Ratio and Collar. If after the date hereof
and prior to the Effective Time Parent shall have declared a stock split
(including a reverse split) of Parent Common Stock or a dividend payable in
Parent Common Stock, or any other distribution of securities or
extraordinary dividend (in cash or otherwise) to holders of Parent Common
Stock with respect to their Parent Common Stock (including without
limitation such a distribution or dividend made in connection with a
recapitalization, reclassification, merger, consolidation, reorganization
or similar transaction) then (i) the $30.00 minimum Average Parent Price
and the Maximum Parent Price referred to in Section 2.1(c) shall be
appropriately adjusted to reflect such stock split or dividend or other
distribution of securities and (ii) if such stock split, dividend or
distribution has a record date during or after the Averaging Period and
prior to the Effective Time, then the number of shares of Parent Common
Stock to be issued upon conversion of a share of Company Common Stock
pursuant to Section 2.1(c) shall be appropriately adjusted to reflect such
stock split, dividend or other distribution of securities. If Parent
purchases shares of Parent Common Stock pursuant to a Premium Tender Offer
(as defined below) then the amount of the per share Premium (as defined
below) multiplied by the number of shares of Parent Common Stock purchased
pursuant to the Premium Tender Offer shall be deemed for purposes of the
preceding sentence to be an extraordinary dividend on Parent Common Stock.
A 'Premium Tender Offer' shall be a tender offer pursuant to which Parent
purchases shares of Parent Common Stock at a price in excess of (i) the
average of the closing prices of the Parent Common Stock on the
NYSE, as reported in The Wall Street Journal, for the five trading days
immediately preceding announcement of such tender offer multiplied by
(ii) 1.10, with the per share amount of any such excess being the
'Premium'.
Section 2.2 Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, Parent shall deposit with The
Bank of New York, or such other bank or trust company designated by Parent (and
reasonably acceptable to the Company) (the 'Exchange Agent'), for the benefit of
the holders of shares of Company Common Stock, for exchange in accordance with
this Article II, through the Exchange Agent, certificates representing the
shares of Parent Common Stock (such shares of Parent Common Stock, together with
any dividends or distributions with respect thereto contemplated by Section
2.2(c) and cash in lieu of fractional shares, being hereinafter referred to as
the 'Exchange Fund') issuable pursuant to Section 2.1 in exchange for
outstanding shares of Company Common Stock, together with cash to be paid in
lieu of fractional shares.
(b) Exchange Procedures. As soon as practicable after the Effective Time,
the Surviving Corporation shall cause the Exchange Agent to mail to each holder
of record of a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock (the
'Certificates') whose shares were converted pursuant to Section 2.1 into the
right to receive shares of Parent Common Stock (i) a letter of transmittal
(which shall be in such form and have such provisions as Parent and the Company
may reasonably specify) and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for certificates representing shares of Parent
Common Stock. Upon surrender of a Certificate for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by Parent and Sub,
together with such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Parent Common Stock which such
holder has the right to
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receive pursuant to the provisions of this Article II, after giving
effect to any required tax withholdings, and the Certificate so
surrendered shall forthwith be cancelled. In the event of a transfer of
ownership of Company Common Stock which is not registered in the
transfer records of the Company, a certificate representing the proper
number of shares of Parent Common Stock may be issued to a transferee if
the Certificate representing such Company Common Stock is presented to
the Exchange Agent, accompanied by all documents required to evidence
and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this
Section 2.2, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such
surrender a certificate representing shares of Parent Common Stock and
cash in lieu of any fractional shares of Parent Common Stock as
contemplated by this Section 2.2.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to Parent
Common Stock with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock which such holder is entitled to receive upon the surrender thereof
in accordance with this Section 2.2 and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to Section 2.2(e) until the
holder of record of such Certificate shall so surrender such Certificate.
Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Parent Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of any cash
payable in lieu of any fractional share of Parent Common Stock to which such
holder is entitled pursuant to Section 2.2(e) and the amount of dividends or
other distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of Parent Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to such surrender and a payment
date subsequent to surrender payable with respect to such whole shares of Parent
Common Stock.
(d) No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of shares of Company
Common Stock in accordance with the terms hereof (including any cash paid
pursuant to Section 2.2(c) or 2.2(e)) shall be deemed to have been issued in
full satisfaction of all rights pertaining to such shares of Company Common
Stock, and there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of Company Common
Stock which were outstanding immediately prior to the Effective Time. If, after
the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be cancelled and exchanged as provided in this Article II.
(e) No Fractional Shares. No certificate or scrip representing fractional
shares of Parent Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of Parent. In lieu of any such
fractional shares, each holder of Company Common Stock who would otherwise have
been entitled to a fraction of a share of Parent Common Stock upon surrender of
certificates for exchange will be entitled to receive a cash payment in lieu of
such fractional share in an amount equal to such fraction multiplied by the
Average Parent Price.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the stockholders of the Company for six months after
the Effective Time shall be delivered to Parent, upon demand, and any
stockholders of the Company who have not theretofore complied with this Article
II shall thereafter look only to Parent for payment of their claim for Parent
Common Stock, any cash in lieu of fractional shares of Parent Common Stock and
any dividends or distributions with respect to Parent Common Stock.
(g) No Liability. Neither Parent nor the Company shall be liable to any
holder of shares of Company Common Stock or Parent Common Stock, as the case may
be, for such shares (or dividends or distributions with respect thereto) or cash
for payment in lieu of fractional shares delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
Section 3.1 Organization. As used in this Agreement, any reference to the
Company and its Subsidiaries means the Company and each of its Subsidiaries, any
reference to the 'Retained Company' and its Subsidiaries or the Surviving
Corporation and its Subsidiaries means the Company and those of its direct and
indirect Subsidiaries included in the Retained Business, including Newco
Cellular, references to Subsidiaries of the Retained Company means the direct
and indirect Subsidiaries included in the Retained Business, including Newco
Cellular, and any reference to Newco and its Subsidiaries means Newco at the
time of the Distribution and those entities that at or immediately prior to the
Distribution will be direct or indirect Subsidiaries of or merged with or
liquidated into Newco and references to Subsidiaries of Newco means those
entities that at or immediately prior to the Distribution will be direct or
indirect Subsidiaries of or merged with or liquidated into Newco. As used in
this Agreement, any reference to any event, change or effect having a material
adverse effect on or with respect to an entity (or group of entities taken as a
whole) or a Company System (as hereinafter defined) means such event, change or
effect is, or could reasonably be expected to be, materially adverse to the
business, properties, assets, results of operations or financial condition of
such entity (or, if with respect thereto, of such group of entities taken as a
whole) or a Company System, or on the ability of such entity or group of
entities to consummate the transactions contemplated hereby, including the
Contribution, the Distribution and the Merger. Each of the Retained Company and
its Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted, except where the failure to
be so organized, existing and in good standing or to have such power and
authority would not have a material adverse effect on the Retained Company and
its Subsidiaries taken as a whole. The Retained Company and each of its
Subsidiaries is duly qualified or licensed to do business and in good standing
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified or licensed and in
good standing would not in the aggregate have a material adverse effect on the
Retained Company and its Subsidiaries taken as a whole. True, accurate and
complete copies of the Company's Restated Certificate of Incorporation and
By-Laws, as in effect on the date hereof, including all amendments thereto, have
heretofore been delivered to Parent.
Section 3.2 Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of : (i) 60,000,000 shares of Class A Common Stock
of which, as of February 18, 1994, 18,200,538 shares were issued and outstanding
and no shares were held in treasury, (ii) 60,000,000 shares of Class B Common
Stock of which, as of February 18, 1994, 19,256,968 shares were issued and
outstanding and no shares were held in treasury, and (iii) 10,000,000 shares of
preferred stock, par value $1.00 per share, of which no shares are issued or
outstanding and 5,000,000 shares are designated Series A Junior Participating
Preferred Stock (the 'Company Series A Preferred Stock') and are reserved for
issuance in accordance with the Rights Agreement, dated as of January 3, 1989
(the 'Rights Agreement'), by and between the Company and Mellon Bank, N.A., as
Rights Agent (the 'Company Rights Agent'), pursuant to which the Company has
issued rights (the 'Company Rights') to purchase shares of Company Series A
Preferred Stock. As of the date hereof, 90,000 shares of Class A Common Stock,
and 1,762,500 shares of Class B Common Stock were reserved for issuance upon
exercise of outstanding options pursuant to the Company's 1988 Stock Option Plan
(the '1988 Plan') and 1989 Stock Option Plan (the '1989 Plan' and together with
the 1988 Plan, the 'Company Stock Plans'). All the outstanding shares of the
Company's capital stock are, and all shares which may be issued pursuant to
Company Stock Plans will be, when issued in accordance with the terms thereof,
duly authorized, validly issued, fully paid and non-assessable and free of any
preemptive rights in respect thereto. As of the date hereof, no bonds,
debentures, notes or other indebtedness having the right to vote (or convertible
into securities having the right to vote) ('Voting Debt') of the Company are
issued or outstanding. The Retained Company and its Subsidiaries have no
liability or obligation under the 1989 Stock Option Plan of Associated
Communications Resources, Inc., a Delaware corporation. Except as set forth
above or in Section 3.2(a) of the disclosure schedule delivered by the
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Company to Parent on or prior to the date hereof (the 'Company
Disclosure Schedule'), as of the date hereof, there are no existing
options, warrants, calls, subscriptions or other rights or
other agreements, commitments, understandings or restrictions of any character
binding on the Retained Company or any of its Subsidiaries with respect to the
issued or unissued capital stock or Voting Debt of the Retained Company or any
of its Subsidiaries. Except as set forth above or in Section 3.2(b) of the
Company Disclosure Schedule, there are no existing options, warrants, calls,
subscriptions or other rights or other agreements, commitments, understandings
or restrictions of any character obligating the Retained Company or any of its
Subsidiaries to issue, transfer or sell or cause to be issued, transferred or
sold any shares of capital stock or Voting Debt of, or other equity interests
in, the Retained Company or any of its Subsidiaries or securities convertible
into or exchangeable for such shares, Voting Debt or equity interests or
obligating the Retained Company or any of its Subsidiaries to grant, extend or
enter into any such option, warrant, call, subscription or other right,
agreement, commitment, understanding or restriction. Except as set forth in
Section 3.2(c) of the Company Disclosure Schedule, there are no contractual
obligations of the Retained Company or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of capital stock of the Company or any of
its Subsidiaries. After February 18, 1994 no shares of Company Common Stock have
been issued except issuances of shares reserved for issuance and issued pursuant
to the Company Stock Plans in the ordinary course of business. Except as set
forth in Section 3.2(d) of the Company Disclosure Schedule, there are no voting
trusts, proxies or other agreements or understandings to which the Retained
Company or any of its Subsidiaries is a party or is bound with respect to voting
any shares of capital stock of the Retained Company or any of its Subsidiaries.
Section 3.3 Authority. The Company has the requisite corporate power and
authority to execute and deliver this Agreement and the Distribution Agreement
and to consummate the transactions contemplated hereby and thereby (other than,
with respect to the Merger, the approval and adoption of this Agreement by the
affirmative vote of the holders of Company Common Stock entitled to cast at
least 66 2/3% of the total number of votes entitled to be cast, formal
declaration of the Newco Distribution by the Company's Board of Directors and,
if required by applicable law, approval of the Contribution and the Distribution
by the holders of the Company's Common Stock entitled to cast at least 66 2/3%
of the total number of votes entitled to be cast). The execution, delivery and
performance of this Agreement and the Distribution Agreement by the Company and
the consummation by the Company of the Contribution, the Distribution and the
Merger and of the other transactions contemplated hereby and thereby have been
duly authorized by the Company's Board of Directors, and no other corporate
proceedings on the part of the Company are necessary to authorize this
Agreement, the Distribution Agreement, the Contribution or the Distribution or
for the Company to consummate the transactions so contemplated (other than, with
respect to the Merger, the approval and adoption of this Agreement by the
affirmative vote of the holders of Company Common Stock entitled to cast at
least 66 2/3% of the total number of votes entitled to be cast, formal
declaration of the Newco Distribution by the Company's Board of Directors and,
if required by applicable law, approval of the Contribution and the Distribution
by the holders of the Company's Common Stock entitled to cast at least 66 2/3%
of the total number of votes entitled to be cast). This Agreement has been duly
executed and delivered by the Company and, assuming this Agreement constitutes a
valid and binding obligation of Parent and Sub, constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms. The Distribution Agreement has been or prior to the Distribution will
be duly executed and delivered by each of the Company and Newco and constitutes
or upon such execution and delivery will constitute a valid and binding
obligation of each of the Company and Newco, enforceable against them in
accordance with its terms.
Section 3.4 Consents and Approvals; No Violations. Except as set forth in
Section 3.4 of the Company Disclosure Schedule, and except for filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Securities Exchange Act of 1934, as amended (the
'Exchange Act'), the Securities Act of 1933, as amended (the 'Securities Act'),
the National Association of Securities Dealers, Inc. (including the rules and
regulations governing the NASDAQ National Market System), the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the 'HSR Act'), the Federal
Communications Commission (the 'FCC') and the public utilities or public service
commissions of New York (the 'New York PSC') and Pennsylvania (the 'Pennsylvania
PUC'), filings under state securities or 'blue sky' laws and the filing of the
Certificate of Merger, none of the execution, delivery or performance of this
Agreement or the Distribution Agreement by the Company, the Contribution, the
Distribution, or the consummation by the Company of the transactions
contemplated hereby or thereby and compliance by the Company with any of the
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provisions hereof or thereof will (i) conflict with or result in any
breach of any provisions of the charter or by-laws of the Company or of
any of its Subsidiaries, (ii) require any filing by the Company or any
of its Subsidiaries with, or any permit, authorization, consent or
approval to be obtained by the Company or any of its Subsidiaries of,
any court, arbitral tribunal, administrative agency or commission or
other governmental or other regulatory authority or agency (a
'Governmental Entity') (except where the failure to obtain such permits,
authorizations, consents or approvals or to make such filings would not
have a material adverse effect on the Retained Company and its
Subsidiaries taken as a whole or on the ability of the Company to effect
the Contribution or the Distribution), (iii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement, franchise, permit, concession or other instrument,
obligation, understanding, commitment or other arrangement to which the
Company or any of its Subsidiaries is a party or by which any of them or
any of their properties or assets may be bound or affected
('Contracts'), (iv) result in the triggering of any right of first
refusal or other right under any stockholder, partnership or joint
venture agreement to which the Company or any of its Subsidiaries is a
party or (v) violate any order, writ, injunction, decree, statute,
ordinance, rule or regulation applicable to the Company or any of its
Subsidiaries, except, in the case of clauses (iii) or (v), for
violations, breaches or defaults which would not, individually or in the
aggregate, have a material adverse effect on the Retained Company and
its Subsidiaries taken as a whole or on the ability of the Company to
effect the Contribution or the Distribution and in the case of clause
(iv), for rights of first refusal or other rights under agreements (x)
to which Newco or any of its Subsidiaries is a party and (y) which would
not, individually or in the aggregate, have a material adverse effect on
the ability of the Company to effect the Contribution or the
Distribution.
Section 3.5 SEC Reports and Financial Statements. The Company has timely
filed with the Securities and Exchange Commission (the 'SEC'), and has
heretofore made available to Parent true and complete copies of, all forms,
reports and documents required to be filed by it since January 1, 1992 under the
Securities Act or the Exchange Act (as such documents have been amended since
the time of their filing, collectively, the 'Company SEC Documents'). The
Company SEC Documents, including without limitation any financial statements or
schedules included therein, at the time filed, (a) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading and (b) complied in
all material respects with the applicable requirements of the Securities Act or
the Exchange Act, as the case may be. The consolidated financial statements of
the Company included in the Company SEC Documents (including the notes and
schedules thereto, the 'Company Financial Statements') comply as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of the unaudited statements, as permitted by Form 10-Q
of the SEC) and fairly present (subject, in the case of the unaudited
statements, to normal, recurring audit adjustments which are not material in
amount) the consolidated financial position of the Company and its consolidated
Subsidiaries as at the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended.
Section 3.6 Information in Disclosure Documents and Registration
Statements. None of the information supplied or to be supplied by the Company or
its representatives for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance of shares of Parent Common Stock in the Merger (the
'S-4') or in any registration statement on Form S-1 or other applicable form to
be filed with the SEC by Newco in connection with the distribution of shares of
Newco Common Stock in the Distribution (the 'S-1') will, at the time such
Registration Statements become effective under the Securities Act and at the
Effective Time, in the case of the S-4, and at the time of the meeting of
stockholders of the Company to be held in connection with the Contribution and
the Distribution and at the time of Distribution, in the case of the S-1,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading and
(ii) the proxy statement relating to the meeting of the Company's stockholders
to be held in connection with the Merger (the 'Proxy Statement') will, at the
date mailed to the Company's stockholders and at the time of the meeting of
stockholders to be held in connection with the Merger,
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contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they are made, not misleading. The Proxy Statement will comply as to
form in all material respects with the provisions of the Exchange Act
and the rules and regulations thereunder, and the S-1 will comply as to
form in all material respects with the provisions of the Securities Act
or the Exchange Act, as applicable, and the rules and regulations
thereunder, except that no representation is made by the Company with
respect to statements made therein based on information supplied by
Parent or Sub for inclusion in the Proxy Statement or the S-1,
respectively, or with respect to information concerning Parent or any of
its Subsidiaries incorporated by reference in the Proxy Statement.
Section 3.7 Retained Business.
(a) Attached hereto as Exhibit 3.7 is a pro forma consolidated combined
balance sheet of the Retained Company and its Subsidiaries at December 31, 1993
(including the notes thereto, the 'Retained Business Balance Sheet') and a
consolidated statement of income for the Retained Company and its Subsidiaries
for the one-year period ended as of December 31, 1993 (including the notes
thereto, the 'Retained Business Income Statement' and, together with the
Retained Business Balance Sheet, the 'Retained Business Financial Statements').
Except as described on Exhibit 3.7, there has been no change in the consolidated
financial position of the Retained Company and its Subsidiaries since December
31, 1993 to the date hereof, except as has resulted from the ordinary course of
operation of the Retained Company and its Subsidiaries and any such change is
not material to the financial position of the Retained Company and its
Subsidiaries. Except as set forth in Section 3.7 of the Company Disclosure
Schedule, the Retained Business Balance Sheet fairly presents in all material
respects the consolidated financial position of the Retained Company at December
31, 1993 after giving pro forma effect to the Contribution, the Distribution and
the Merger (assuming that the Contribution, the Distribution and the Merger
occurred on December 31, 1993) in accordance with generally accepted accounting
principles applied on a basis consistent with the consolidated financial
statements of the Company referred to in Section 3.5. As of December 31, 1993,
the Company directly or indirectly owned or had a valid leasehold interest in
the assets reflected on the Retained Business Balance Sheet, free and clear of
liens, claims, encumbrances or other rights of third parties, except as may be
set forth therein or in Section 3.7 of the Company Disclosure Schedule. The
'Retained Business' means and includes the assets, liabilities, capital stock
and partnership interests reflected on the Retained Business Balance Sheet, as
such assets and liabilities may have changed since the date of the Retained
Business Balance Sheet, but in any event shall include all of the Company's
direct and indirect right, title and interest (including minority interests) in,
and assets used in, cellular businesses in the United States and its territories
(except as set forth in Section 3.7 of the Company Disclosure Schedule under
'Excluded Assets', which shall not be included in the Retained Business),
including, without limitation, in Albany Telephone Company, Buffalo Telephone
Company, Genesee Telephone Company, Pittsburgh Cellular Telephone Company and
Bay Area Cellular Telephone Company and all of the Company's AMT tax credits.
The Retained Business and the Excluded Assets constitute all of the assets or
rights of the Company and its Subsidiaries that are used in the operation of
such cellular businesses (such cellular businesses to be referred to hereinafter
collectively as the 'Company Systems' and each cellular business serving a
metropolitan service area or rural service area is hereinafter referred to as a
'Company System'). As of December 31, 1993, all of the buildings and other
material tangible personal property owned or leased by the Company and its
Subsidiaries that are included in the Retained Business were in good working
condition (normal wear and tear excepted) and were suitable in all material
respects for the purposes for which they were being used. The Retained Business
Financial Statements have been prepared in accordance with generally accepted
accounting principles on a consistent basis during the periods involved, and
fairly present in all material respects (subject, in the case of such unaudited
statements, to normal, recurring audit adjustments which will not be material in
amount) the consolidated financial position of the Retained Company and its
consolidated Subsidiaries as at the date thereof, after giving pro forma effect
to the Contribution, the Distribution, and the Merger (assuming the
Contribution, the Distribution and the Merger occurred on December 31, 1993),
and the consolidated results of their operations for the period then ended,
after giving pro forma effect to the Contribution, the Distribution and the
Merger (assuming the Contribution, the Distribution and the Merger occurred on
January 1, 1993).
(b) At the Effective Time, except for the Excluded Assets and as
contemplated by the Distribution Agreement, neither Newco nor any of its
Subsidiaries will use in the conduct of its business or own or have rights
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to use any assets or property, whether tangible, intangible or mixed, which are
also used in the conduct of the business of the Retained Business. Except as set
forth in Section 3.7 of the Company Disclosure Schedule, at the Effective Time
neither Newco nor any of its Subsidiaries will be a party to any material
agreement, arrangement or understanding with the Retained Company or any of its
Subsidiaries (other than the Distribution Agreement and any agreements
contemplated by the Distribution Agreement), including, without limitation, any
material Contract, providing for the furnishing of services or rental of real or
personal property to or from, or otherwise relating to the business or
operations of, any of the Retained Company or any of its Subsidiaries or
pursuant to which the Retained Company or any of its Subsidiaries may have any
obligation or liability. After the Effective Time, none of the Retained Company
or any of its Subsidiaries will have any liability whatsoever, direct or
indirect, contingent or otherwise, in any way relating to the business,
operations, indebtedness, assets or liabilities of Newco or any of
its Subsidiaries, except as contemplated by the Distribution Agreement.
Section 3.8 Litigation. Except as set forth in Section 3.8 of the Company
Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation pending or, to the best knowledge of the Company, threatened,
against the Company or any of its Subsidiaries before any Governmental Entity
which, (i) individually or in the aggregate, is reasonably likely to have a
material adverse effect on the Retained Company and its Subsidiaries taken as a
whole or (ii) exists on the date hereof and in which the amount claimed or cost
of compliance with the action sought is in excess of $100,000. Except as
disclosed in Section 3.8 of the Company Disclosure Schedule, neither the Company
nor any of its Subsidiaries is subject to any outstanding order, writ,
injunction or decree which, insofar as can be reasonably foreseen, individually
or in the aggregate, in the future would have a material adverse effect on the
Retained Company and its Subsidiaries taken as a whole or a material adverse
effect on the ability of the Company to consummate the transactions contemplated
hereby.
Section 3.9 Opinion of Financial Advisor. The Company has received the
opinion of Salomon Brothers Inc, dated the date hereof, to the effect that, as
of such date, the consideration to be received in the Merger by the Company's
stockholders is fair to the Company's stockholders from a financial point of
view, a copy of which opinion has been delivered to Parent.
Section 3.10 Registration Rights. After the Effective Time, assuming all
obligations under the PNC Credit Agreement, dated as of September 28, 1993 among
Associated Communications of Delaware, Inc. II and the banks party thereto, and
related agreements and instruments (the 'Credit Agreement'), have been fully
paid and satisfied, no person or entity will have the right to demand or request
that the Retained Company or any of its Subsidiaries effect the registration
under the Securities Act of all or any part of the securities of the Retained
Company or any of its Subsidiaries or any Parent Common Stock.
Section 3.11 Rights Agreement. The Company and the Rights Agent have
amended the Rights Agreement to the extent necessary so that assuming the
accuracy of the representations contained in Section 4.8 (without giving effect
to the knowledge qualification thereof), the execution and delivery of this
Agreement and the Voting Agreement and the consummation of the transactions
contemplated hereby and thereby will not result in a 'Distribution Date' or a
'Triggering Event' as defined in the Company Rights Agreement.
Section 3.12 Employee Benefits.
(a) Section 3.12 of the Company Disclosure Schedule contains a list of all
bonus, deferred compensation, pension, retirement, profit-sharing, thrift,
savings, employee stock ownership, stock bonus, stock purchase, restricted stock
and stock option plans, all employment or severance contracts, other material
employee benefit plans and any applicable 'change of control' or similar
provisions in any plan, contract or arrangement which cover employees or former
employees of the Company and its Subsidiaries (the 'Compensation and Benefit
Plans') and all other benefit plans, contracts or arrangements (regardless of
whether they are funded or unfunded or foreign or domestic) covering employees
or former employees of the Company and its Subsidiaries (the 'Employees'),
including, but not limited to, 'employee benefit plans' within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
('ERISA'). True and complete copies of all Compensation and Benefit Plans and
such other benefit plans, contracts or arrangements, including, but not limited
to, any trust instruments and/or insurance contracts, if any, forming a part of
any such plans and agreements, and all amendments thereto have been made
available to Parent.
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(b) All employee benefit plans covering Employees (the 'Plans'), to the
extent subject to ERISA, are in substantial compliance with ERISA. Each Plan
which is an 'employee pension benefit plan' within the meaning of Section 3(2)
of ERISA ('Pension Plan') and which is intended to be qualified under Section
401(a) of the Code, has received a favorable determination letter from the
Service, and the Company is not aware of any circumstances likely to result in
revocation of any such favorable determination letter. Neither the Company nor
any of its Subsidiaries has engaged in a transaction with respect to any Plan
that, assuming the taxable period of such transaction expired as of the
date hereof, could subject the Company or any of its Subsidiaries to a
tax or penalty imposed by either Section 4975 of the Code or Section
502(i) of ERISA in an amount which would have a material adverse effect
on the Retained Company and its Subsidiaries, taken as a whole. Neither
the Company nor any of its Subsidiaries or any ERISA Affiliate (as
defined below) has contributed or been required to contribute to any
Multiemployer Plan.
(c) No liability under Subtitles C or D of Title IV of ERISA has been or is
expected to be incurred by the Company or any Subsidiary with respect to any
ongoing, frozen or terminated Plan, currently or formerly maintained by any of
them, or the Plan of any entity which is considered one employer with the
Company under Section 4001 of ERISA or Section 414 of the Code (an 'ERISA
Affiliate') which would have a material adverse effect on the Retained Company
and its Subsidiaries taken as a whole.
(d) All contributions required to be made or accrued as of December 31,
1993 under the terms of any Plan for which the Retained Company or any of its
Subsidiaries may have liability have been timely made or have been reflected on
the Retained Business Balance Sheet. Neither any Pension Plan nor any
single-employer plan of an ERISA Affiliate has incurred an 'accumulated funding
deficiency' (whether or not waived) within the meaning of Section 412 of the
Code or Section 302 of ERISA in an amount which would have a material adverse
effect on the Retained Company and its Subsidiaries taken as a whole. Neither
the Company nor its Subsidiaries has provided, or is required to provide,
security to any Pension Plan or to any Plan of an ERISA Affiliate pursuant to
Section 401(a)(29) of the Code.
(e) Neither the Retained Company nor any of its Subsidiaries have any
obligations for retiree health and life benefits under any Plan, except as set
forth in Section 3.12 of the Company Disclosure Schedule.
(f) All Compensation and Benefit Plans covering foreign Employees comply in
all material respects with applicable local law, except where the failure to so
comply would not have a material adverse effect on the Retained Company and its
Subsidiaries taken as a whole. The Company and the Subsidiaries have no unfunded
liabilities in an amount which would have a material adverse effect on the
Retained Company and its Subsidiaries taken as a whole with respect to any
Pension Plan which covers foreign Employees.
(g) The two forms of employee confidentiality agreements (one of which form
includes noncompete provisions) previously provided to Parent are true and
complete copies of the only form of employee confidentiality and/or
noncompetition agreement utilized by the Retained Company and its Subsidiaries.
Section 3.13 Absence of Undisclosed Liabilities. Except as set forth in
Section 3.13 of the Company Disclosure Schedule or as contemplated by this
Agreement, neither the Retained Company nor any of its Subsidiaries had at
December 31, 1993, or has incurred since that date, any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of any nature,
except liabilities, obligations or contingencies (a) which are accrued or
reserved against in the Retained Business Balance Sheet or reflected in the
notes thereto, (b) which were incurred after December 31, 1993 and were incurred
in the ordinary course of business, or (c) which would not, in the aggregate,
have a material adverse effect on the Retained Company and its Subsidiaries
taken as a whole or have been discharged or paid in full prior to the date
hereof and taking into account, in the case of contingent liabilities, both the
probability of the realization of the contingency and the likely resultant
liability.
Section 3.14 Absence of Certain Changes or Events. Since December 31, 1993,
the Retained Company and its Subsidiaries have conducted their business only in
the ordinary and usual course consistent with past practice, except as set forth
in Section 3.14 of the Company Disclosure Schedule, and there has not been any
change or development, or combination of changes or developments, which
individually or in the aggregate have a material adverse effect on the Retained
Company and its Subsidiaries taken as a whole. Notwithstanding any of the
foregoing, this representation shall not apply to any such change or
development, or combination of changes or developments, to the extent such
changes and developments are the result of adverse changes in general
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economic conditions, stock market fluctuations or conditions or adverse
changes in the communications or cellular telephone industry generally.
Section 3.15 No Violation of Law. Except as set forth in Section 3.15 of
the Company Disclosure Schedule or the Company SEC Documents as filed prior to
the date hereof, neither the Company nor any of its Subsidiaries is in violation
of, or, to the knowledge of the Company, is under investigation with respect to
or has been given notice or been charged by any Governmental Entity with any
violation of, any law, statute, order, rule, regulation, ordinance or judgment
(including, without limitation, any applicable environmental law, ordinance or
regulation)
of any Governmental Entity, except for violations which, in the aggregate, do
not have a material adverse effect on the Retained Company and its Subsidiaries
taken as a whole. The Retained Company and its Subsidiaries have all permits,
licenses, franchises and other governmental authorizations, consents and
approvals necessary to conduct their businesses as presently conducted, except
for any such permits, licenses, franchises or other governmental authorizations,
consents and approvals the failure of which to have would not have a material
adverse effect on the Retained Company and its Subsidiaries, taken as a whole.
Section 3.16 Taxes.
(a) Except as set forth in Section 3.16 of the Company Disclosure Schedule,
the Company and its Subsidiaries have (i) duly filed with the appropriate
governmental authorities all Tax Returns (as hereinafter defined) required to be
filed by them on or prior to the Effective Time, other than those Tax Returns
the failure of which to file would not have a material adverse effect on the
Retained Company and its Subsidiaries taken as a whole, and such Tax Returns are
true, correct and complete in all material respects, and (ii) duly paid in full
or made provision in accordance with generally accepted accounting principles
for the payment of all Taxes (as hereinafter defined) for all periods ending at
or prior to the Effective Time. Except as set forth in Section 3.16 of the
Company Disclosure Schedule or in the Company Financial Statements for the year
ended December 31, 1992, there are no liens for Taxes upon any property or
assets of the Company or any Subsidiary thereof, except for liens for Taxes not
yet due, any liens for Taxes shown in such Section 3.16 of the Company
Disclosure Schedule or disclosed in the Company Financial Statements for the
year ended December 31, 1992 which are being contested in good faith through
appropriate proceedings and any liens for Taxes which in the aggregate do not
have a material adverse effect on the Retained Company and its Subsidiaries
taken as a whole. Except as set forth in Section 3.16 of the Company Disclosure
Schedule or the Company Financial Statements for the year ended December 31,
1992, the Company has not made any change in accounting method, received a
ruling from any taxing authority or signed an agreement with any taxing
authority which will materially adversely affect the Retained Company and its
Subsidiaries taken as a whole. Except as set forth in Section 3.16 of the
Company Disclosure Schedule or the Company Financial Statements for the year
ended December 31, 1992, during the past five years neither the Company nor any
of its Subsidiaries has received any notice of deficiency, proposed deficiency
or assessment from any governmental taxing authority with respect to Taxes of
the Company or any of its Subsidiaries, except for any such deficiency or
assessment which has been paid or is being contested in good faith through
appropriate proceedings or which do not in the aggregate have a material adverse
effect on the Retained Company and its Subsidiaries taken as a whole. Except as
set forth in Section 3.16 of the Company Disclosure Schedule, as of the date
hereof, the federal income Tax Returns for the Company and its subsidiaries are
not currently the subject of any audit by the Service, and such federal income
Tax Returns have been examined by the Service (or the applicable statutes of
limitation for the assessment of federal Taxes for such periods have expired)
for all periods through and including December 31, 1989, and no material
deficiencies were asserted as a result of such examinations which have not been
resolved and fully paid. Except as set forth in Section 3.16 of the Company
Disclosure Schedule, as of the date hereof, there are no outstanding requests,
agreements, consents or waivers to extend the statutory period of limitations
applicable to the assessment of any Taxes or deficiencies against the Company or
any of its Subsidiaries, and no power of attorney granted by either the Company
or any of its Subsidiaries with respect to any Taxes is currently in force.
Except as set forth in Section 3.16 of the Company Disclosure Schedule, neither
the Company nor any of its Subsidiaries is a party to any agreement providing
for the allocation or sharing of Taxes. Except as set forth in Section 3.16 of
the Company Disclosure Schedule, the deductibility of compensation payments will
not be limited by Section 280G of the Code. Neither the Company nor any of its
Subsidiaries has, with regard to any assets or property held, acquired or to be
acquired by any of them, filed a consent to the application of Section 341(f) of
the Code. As of the date hereof, except as set forth in Section 3.16 of the
Company Disclosure Schedule or in the Company
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Financial Statements for the year ended December 31, 1992, the Company
does not have any carryovers which would be subject to limitation under
Section 382 or Section 383 of the Code immediately after the Merger.
(b) 'Taxes' means all taxes, charges, fees, levies or other assessments,
including, without limitation, income, gross receipts, excise, property, sales,
withholding, social security, occupation, use, service, service use, license,
payroll, franchise, transfer and recording taxes, fees and charges, imposed by
the United States or any Governmental Entity whether computed on a separate,
consolidated, unitary, combined or any other basis; and such term shall include
any interest, fines, penalties or additional amounts attributable or imposed or
with respect
to any such taxes, charges, fees, levies or other assessments. 'Tax Return'
means any return, report or other document or information required to be
supplied to a taxing authority in connection with Taxes.
Section 3.17 Labor Controversies. As of the date hereof, neither the
Retained Company nor any of its Subsidiaries is a party to, or bound by, any
collective bargaining agreement, contract or other understanding with a labor
union or labor organization. Except as set forth in Section 3.17 of the Company
Disclosure Schedule, as of the date hereof, there are no significant
controversies pending or, to the knowledge of the Company, threatened between
the Retained Company or any of its Subsidiaries and any representatives of their
respective employees, and, to the knowledge of the Company, as of the date
hereof, there are no organizational efforts presently being made involving any
of the presently unorganized employees of the Retained Company or any of its
Subsidiaries. The Company and its Subsidiaries have, to the Company's knowledge,
as of the date hereof, complied in all material respects with all laws relating
to wages, hours, collective bargaining, and the payment of social security and
similar taxes, and, as of the date hereof, no person has, to the knowledge of
the Company, asserted that the Company or any of its Subsidiaries is liable in
any material amount for any arrears of wages or any taxes or penalties for
failure to comply with any of the foregoing.
Section 3.18 Environmental Matters.
(a) Except as disclosed in Section 3.18 of the Company Disclosure Schedule,
or to the extent a fact or condition has been specifically reported to Parent as
of the date hereof through its own due diligence or through copies of reports of
outside consultants provided by the Company and except for such matters that,
individually or in the aggregate, are not reasonably likely to have a material
adverse effect on the Retained Company and its Subsidiaries taken as a whole,
(i) the Company and its Subsidiaries have complied with all applicable
Environmental Laws (as hereinafter defined); (ii) the properties presently or,
to the best knowledge of the Company, formerly owned or operated by the Company
or its Subsidiaries (including, without limitation, soil, groundwater or surface
water on or under the properties, and buildings thereon) (the 'Properties') do
not contain any Hazardous Substance (as hereinafter defined) other than as
permitted under applicable Environmental Law, do not, and have not, contained
any underground storage tanks, do not have any asbestos present (and, to the
best knowledge of the Company, have not had any asbestos removed therefrom) and
have not been used as a sanitary landfill or hazardous waste disposal site
(provided, however, that with respect to Properties formerly owned or operated
by the Company, such representation is limited to the period prior to the
disposition of such Properties by the Company or one of its Subsidiaries); (iii)
neither the Company nor any of its Subsidiaries has received any notices, demand
letters or request for information from any Governmental Entity or any third
party alleging that the Company is in violation of, or liable under, any
Environmental Law and none of the Company, its Subsidiaries or the Properties
are subject to any court order, administrative order or decree arising under any
Environmental Law and (iv) no Hazardous Substance has been disposed of,
transferred, released or transported from any of the Properties during the time
such Property was owned or operated by the Company or one of its Subsidiaries,
other than as permitted under applicable Environmental Law.
(b) 'Environmental Law' means (i) any applicable Federal, state, foreign or
local law, statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decree, injunction or
agreement with any Governmental Entity, (x) relating to the protection,
preservation or restoration of the environment (including, without limitation,
air, water vapor, surface water, groundwater, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety, or (y) the exposure to, or the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances, in each case
as amended and as now in effect. 'Hazardous Substance' means any substance
presently listed, defined, designated or classified as hazardous,
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toxic, radioactive or dangerous, or otherwise regulated, under any
Environmental Law, whether by type or by quantity, including any
substance containing any such substance as a component.
Section 3.19 Licenses. Each Company System has all permits, licenses,
waivers and authorizations (including, without limitation, licenses by the FCC,
and licenses, authorizations and certificates of public convenience and
necessity from applicable state and local authorities), which are necessary for
it to conduct its cellular operations in the manner in which they are presently
being conducted (collectively, 'Licenses'), other than any Licenses the failure
of which to have would not, individually or in the aggregate, have a material
adverse effect on any Company System. No event has occurred or other fact exists
with respect to the Licenses which permits, or after notice or lapse of time or
both would permit, revocation or termination of any of the Licenses or
would result in any other impairment of the rights of the holder of any
of the Licenses, which either individually or in the aggregate would
result in a material adverse effect on any Company System. The Company
and its Subsidiaries have duly performed their respective obligations
under such Licenses except for such non-performance as would not have a
material adverse effect on any Company System. There is not pending or,
to the knowledge of the Company, threatened, any application, petition,
objection or other pleading with the FCC or other Governmental Entity
which challenges or questions the validity of or any rights of the
holder under any License, except for such applications, petitions,
objections or other pleadings, that do not, singly or in the aggregate,
have a reasonable probability (taking into account both the likelihood
of success and the likely relief) of having a material adverse effect on
any License. Except as set forth in Section 3.19 of the Company
Disclosure Schedule, all of the cell sites and microwave paths of the
Company and its Subsidiaries used in the Retained Business have been
constructed and are currently operated in all material respects as
represented to the FCC in original and subsequent filings, and, except
as would not have a material adverse effect on any License, all
modifications to such cell sites and microwave paths have been preceded
by the submission to the FCC of all required filings. Except as set
forth in Section 3.19 of the Company Disclosure Schedule, all cellular
and microwave licenses utilized in the Company Systems located in
Rochester, Buffalo, and Albany and Glens Falls are held in the names
Genesee Telephone Company, Buffalo Telephone Company and Albany
Telephone Company, respectively.
Section 3.20 Intellectual Property. The Company and its Subsidiaries own or
have rights to use (a) all material computer software utilized in the conduct of
the Retained Business and (b) the Cellular One name and service mark to the
extent provided in the license agreements previously provided to Parent, and, to
the best knowledge of the Company, such use does not conflict with the rights of
others, except for such conflicts that have not had and are not reasonably
likely to have a material adverse effect on the Retained Company and its
Subsidiaries taken as a whole.
Section 3.21 Brokers or Finders. Neither the Company nor any of its
Subsidiaries has any liability to any agent, broker, investment banker,
financial advisor or other firm or person for any brokers' or finder's fee or
any other commission or similar fee in connection with any of the transactions
contemplated by this Agreement except Salomon Brothers Inc, whose fees and
expenses, as previously disclosed to Parent, will be paid by the Company in
accordance with the Company's agreement with such firm.
Section 3.22 Transactions with Affiliates. As of the date hereof, except
(i) as was disclosed in the Company's proxy statement for its 1993 annual
meeting of stockholders (the '1993 Proxy Statement'), (ii) for such changes from
such disclosure as are individually and in the aggregate immaterial, (iii) as
disclosed in Section 3.22 of the Company Disclosure Schedule, (iv) as arise from
extensions of credit to, and reimbursements of expenses of, employees and
directors in the ordinary course of business and (v) transactions and Contracts
between non-wholly owned Subsidiaries of the Company and the Company or any of
its Subsidiaries in the ordinary course of business (x) there are no outstanding
notes payable to or accounts receivable from, or advances by the Retained
Company or any Subsidiary to, and neither the Retained Company nor any
Subsidiary is otherwise a creditor of, any stockholder, officer, director,
employee, Subsidiary or affiliate of the Company, other than any such
transactions between the Retained Company and any of its wholly owned
Subsidiaries or between two or more wholly owned Subsidiaries of the Retained
Company and (y) neither the Retained Company nor any Subsidiary is a party to
any Contract with any stockholder, officer, director, or employee of the Company
or any Subsidiary.
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Section 3.23 MFJ Activities. For purposes of this Agreement, 'MFJ
Activities' means all activities, operations, services and facilities of the
Retained Company and its Subsidiaries (and any persons in which the Retained
Company or any of its Subsidiaries has any investment) that, if assumed or
undertaken by Parent, would be prohibited by the Modification of Final Judgment
entered on August 24, 1982 by the U.S. District Court for the District of
Columbia in U.S. v. American Telephone & Telegraph Co. (the 'MFJ'). Section 3.23
of the Company Disclosure Schedule sets forth for the Retained Company and its
Subsidiaries and, to the best knowledge of the Company without any inquiry or
investigation, each person in which the Retained Company or any of its
Subsidiaries has any investment, a true and complete list of (i) all interLATA
transmission facilities and services and Contracts to provide such services
(including long distance resale, call hand-off and automatic call delivery),
(ii) any activities which constitute the manufacture or distribution of
telecommunications equipment (it being understood that the distribution of
customer premises equipment, including subscriber equipment, is not
prohibited) and (iii) any re-rating of charges assessed by foreign systems for
providing roaming services to the customers of the Retained Company or such
Subsidiary.
Section 3.24 Material Agreements. Except as disclosed in Section 3.24 of
the Company Disclosure Schedule, as of the date hereof, neither the Retained
Company nor any of its Subsidiaries is a party to any Contract: (a) to undertake
capital expenditures or to acquire any property in an aggregate amount exceeding
$500,000; (b) to loan money or to extend credit in an amount greater than
$100,000 to any person or group of related persons; (c) involving rebates,
sales, advertising or other allowances with customers in an amount of more than
$75,000 per year; (d) which would restrict the Retained Company or any of its
Subsidiaries or any affiliate of the Retained Company or any of its Subsidiaries
from carrying on any business anywhere in the world; (e) involving any
indebtedness, obligation or liability for borrowed money in excess of $100,000;
(f) except as are on the Cellular Telecommunications Industry Association
standard form agreement or as are terminable by the Retained Company or any of
its Subsidiaries on not more than 90 days advance notice, relating to the
provision of 'roaming' services to cellular customers of the Retained Company
and its Subsidiaries or to the provision by the Retained Company and its
Subsidiaries of such services to others; or (g) involving any lease of real
property having annual payments in excess of $100,000. To the best knowledge of
the Company, except as set forth in Section 3.24 of the Company Disclosure
Schedule or as would not have a material adverse effect on the Retained Company
and its Subsidiaries taken as a whole, there is no breach or violation of, or
default under any such Contract, and no event has occurred which, with notice or
lapse of time or both, would constitute a breach, violation or default, or give
rise to a right of termination, modification, cancellation, prepayment or
acceleration under any such Contract.
Section 3.25 DGCL Section 203. Assuming the accuracy of Parent's
representations and warranties contained in Section 4.8 (without giving effect
to the knowledge qualifications thereof), prior to the date hereof the Board of
Directors of the Company has approved the transaction which resulted in Parent
becoming an 'interested stockholder' within the meaning of paragraph (a)(i) of
Section 203 of the DGCL.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
Section 4.1 Organization. Each of Parent and Sub is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted
except where the failure to be so organized, existing and in good standing or to
have such power and authority would not have a material adverse effect on Parent
and its Subsidiaries taken as a whole. Parent and each of its Subsidiaries is
duly qualified or licensed to do business and in good standing in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification or licensing necessary,
except where the failure to be so duly qualified or licensed and in good
standing would not in the aggregate have a material adverse effect on Parent and
its Subsidiaries taken as a whole or on the ability of Parent or Sub to
consummate the transactions contemplated hereby. True, accurate and complete
copies of the Parent's and Sub's charter and by-laws, as in effect on the date
hereof, including all amendments thereto, have heretofore been delivered to the
Company.
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Section 4.2 Capitalization. As of the date hereof, the authorized capital
stock of Parent consists of: (i) 1,100,000,000 shares of Parent Common Stock of
which, as of January 31, 1994, 601,768,695 shares were issued and
outstanding and 1,073,063 shares were held in treasury, (ii) 10,000,000
shares of preferred stock, par value $1.00 per share, of which no shares
were issued and outstanding. All the outstanding shares of Parent's
capital stock are, and all shares of Parent Common Stock which are to be
issued pursuant to the Merger will be, when issued in accordance with
the respective terms thereof, duly authorized, validly issued, fully
paid and non-assessable and free of any preemptive rights in respect
thereto. As of the date hereof, no Voting Debt of Parent is issued or
outstanding. Except for Parent Common Stock issuable to directors,
officers and employees pursuant to Parent stock option and other benefit
plans and except for this Agreement, as of the date hereof, there are no
material existing options, warrants, calls, subscriptions or other
rights or other agreements, commitments, understandings or restrictions
of any character relating to the issued or unissued capital stock or
Voting Debt of Parent or any of its Subsidiaries or obligating Parent or
any of its Subsidiaries to issue, transfer or sell or cause to be
issued, transferred or sold any material number of shares of capital
stock or Voting Debt of, or other material equity interests in, Parent
or of any of its Subsidiaries or securities convertible into or
exchangeable for such shares, Voting Debt or equity interests or
obligating Parent or any of its subsidiaries to grant, extend or enter
into any such option, warrant, call, subscription or other right,
agreement or commitment. As of the date hereof, the authorized capital
stock of Sub consists of 100 shares of Capital Stock, par value $1.00
per share, all of which are validly issued, fully paid and nonassessable
and are indirectly owned by Parent. After January 31, 1994 and prior to
the date hereof, no material number of shares of Parent Common Stock
have been issued except issuances of shares reserved for issuance as
described above and issued in the ordinary course of business.
Section 4.3 Authority. Parent and Sub have requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by each of Parent and Sub and the consummation by Sub of the
Merger and by Parent and Sub of the other transactions contemplated hereby have
been duly authorized by the Boards of Directors of Parent and Sub and no other
corporate proceedings on the part of Parent or Sub are necessary to authorize
this Agreement or for Parent and Sub to consummate the transactions so
contemplated. This Agreement has been duly executed and delivered by Parent and
Sub, as the case may be, and assuming this Agreement constitutes a valid and
binding obligation of the Company, constitutes a valid and binding obligation of
each of Parent and Sub, enforceable against each of them in accordance with its
terms.
Section 4.4 Consents and Approvals; No Violations. Except as set forth in
Section 4.4 of the disclosure schedule delivered by Parent to the Company on or
prior to the date hereof (the 'Parent Disclosure Schedule'), and except for
filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Securities Act, the Exchange
Act, the HSR Act, the FCC, the waiver under the MFJ as described in Section 4.4
of the Parent Disclosure Schedule (the 'MFJ Waiver'), the New York PSC, the
Pennsylvania PUC, filings under state securities or 'blue sky' laws, and the
filing of the Certificate of Merger, neither the execution, delivery or
performance of this Agreement by Parent and Sub nor the consummation by Parent
and Sub of the transactions contemplated hereby nor compliance by Parent and Sub
with any of the provisions hereof will (i) conflict with or result in any breach
of any provision of the respective charter or by-laws of Parent and Sub, (ii)
require any filing by Parent or its Subsidiaries with, or permit, authorization,
consent or approval of, any Governmental Entity to be obtained by Parent or its
Subsidiaries (except where the failure to obtain such permits, authorizations,
consents or approvals or to make such filings would not have a material adverse
effect on Parent and its Subsidiaries taken as a whole), (iii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under, any of the terms, conditions or provisions of any
Contract to which Parent or any of its Subsidiaries is a party or by which any
of them or any of their properties or assets may be bound or affected or (iv)
violate any order, writ, injunction, decree, statute, ordinance, rule or
regulation applicable to Parent or any of its Subsidiaries, except, in the case
of clauses (iii) or (iv), for violations, breaches or defaults which would not,
individually or in the aggregate, have a material adverse effect on Parent and
its Subsidiaries taken as a whole.
Section 4.5 SEC Reports and Financial Statements. Each of Parent and its
Subsidiaries has timely filed with the SEC, and has heretofore made available to
the Company true and complete copies of all forms, reports and other documents
required to be filed by it since January 1, 1992 under the Exchange Act or the
Securities Act
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(as such documents have been amended since the time of their filing,
collectively, the 'Parent SEC Documents'). The Parent SEC Documents,
including without limitation any financial statements or schedules
included therein, at the time filed, (a) did not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (b) complied in all material respects with the applicable
requirements of the Exchange Act or the Securities Act, as the case may
be. The consolidated financial statements of Parent included in the SEC
Documents comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
during the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited statements, as permitted by Form
10-Q of the SEC) and fairly present (subject, in the case of the
unaudited statements, to normal, recurring audit adjustments which will
not be material in amount) the consolidated financial position of
Parent and its consolidated Subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended.
Section 4.6 Absence of Undisclosed Liabilities. Except as set forth in
Section 4.6 of the Parent Disclosure Schedule, as contemplated by this Agreement
or as set forth in the Parent SEC Documents as filed prior to the date hereof,
neither the Parent nor any of its Subsidiaries had at December 31, 1992, or has
incurred since that date, any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) of any nature, except liabilities, obligations
or contingencies (a) which are accrued or reserved against in the financial
statements of the Parent included in the Parent's Annual Report on Form 10-K for
the year ended December 31, 1992 (the '1992 10-K') or reflected in the notes
thereto, (b) which were incurred after December 31, 1992 and were incurred in
the ordinary course of business, or (c) which would not, in the aggregate, have
a material adverse effect on Parent and its Subsidiaries taken as a whole or
have been discharged and paid in full prior to the date hereof, taking into
account, in the case of contingent liabilities, both the probability of
realization of the contingency and the likely resultant liability.
Section 4.7 Information in Disclosure Documents and Registration
Statements. None of the information supplied by Parent or Sub or their
representatives for inclusion or incorporation by reference in (i) the S-4 will,
at the time the S-4 becomes effective under the Securities Act and at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading and (ii) the Proxy Statement will, at the date mailed to stockholders
and at the time of the meeting of the Company's stockholders to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The S-4 will comply as to form in all material
respects with the provisions of the Securities Act and the rules and regulations
thereunder, except that no representation is made by Parent or Sub with respect
to statements made therein based on information supplied by the Company for
inclusion in the S-4 or with respect to information concerning the Company or
any of its Subsidiaries incorporated by reference in the S-4.
Section 4.8 Parent Ownership of Company Common Stock. As of the Closing
Date, neither Parent nor any of its Subsidiaries will beneficially own any
shares of Company Common Stock. Parent does not 'own' and has not within the
past three years 'owned' (as such terms are defined in Section 203 of the DGCL),
and does not 'beneficially own' (as such term is defined in the Company Rights
Agreement) five percent (5%) or more of the outstanding shares of Company Common
Stock; provided that the foregoing representation is to the best knowledge of
Parent with respect to shares of Common Stock so 'owned' or 'beneficially owned'
by Parent by virtue of the ownership of shares by Parent's 'affiliates or
associates' (as such terms are defined in the DGCL) or 'Affiliates' or
'Associates' (as such terms are defined in the Company Rights Agreement). Parent
agrees to vote or cause to be voted any shares of Company Common Stock owned by
it or its Subsidiaries in favor of the Contribution, the Distribution and the
Merger.
Section 4.9 Interim Operations of Sub. Sub was formed solely for the
purpose of engaging in the transactions contemplated hereby, has engaged in no
other business activities and has conducted its operations only as contemplated
hereby.
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ARTICLE V
COVENANTS
Section 5.1 Covenants of the Company with Respect to the Retained Business.
During the period from the date of this Agreement and continuing until the
Effective Time, the Company agrees as to itself and its Subsidiaries that except
for the Contribution, the Distribution and the other transactions expressly
provided for in the Distribution Agreement, as contemplated or permitted by this
Agreement, or to the extent that Parent shall otherwise consent in writing:
(a) Ordinary Course. The Company and its Subsidiaries shall carry on
the Retained Business in the usual, regular and ordinary course consistent
with past practice as a growing business and use its best reasonable
efforts to preserve intact the present business organization, keep
available, consistent with past practice, the services of the present
officers and employees and preserve the relationships with customers,
suppliers and others having business dealings with the Retained Business,
it being understood that (i) certain employees of the Retained Business
will also be engaged in activities for Newco and its Subsidiaries, (ii) the
failure of any employees of the Retained Business to remain employees of
the Retained Business or become employees of Parent or any Subsidiary of
Parent shall not constitute a breach of this covenant and (iii) the
Retained Company and its Subsidiaries may comply with their respective
contractual obligations under the cellular system partnership agreements to
which they are parties.
(b) Dividends; Changes in Stock. Except as set forth in Section 5.1(b)
of the Company Disclosure Schedule, the Company shall not, nor shall it
permit any Subsidiaries of the Retained Company to, nor shall the Company
propose to, (i) declare or pay any dividends on or make other distributions
in respect of any of its capital stock, except for the Distribution and for
dividends by a wholly owned Subsidiary of the Company, (ii) split, combine
or reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (iii) repurchase, redeem or
otherwise acquire, or permit any Subsidiary to repurchase, redeem or
otherwise acquire, any shares of capital stock of the Company or any of its
Subsidiaries.
(c) Issuance of Securities. Except as set forth in Section 5.1(c) of
the Company Disclosure Schedule, the Retained Company shall not, nor shall
the Retained Company permit any of its Subsidiaries to, issue, transfer or
sell, or authorize or propose or agree to the issuance, transfer or sale
of, any shares of its capital stock of any class, any Voting Debt or other
equity interests or any securities convertible into, or any rights,
warrants, calls, subscriptions, options or other rights or agreements,
commitments or understandings to acquire, any such shares, Voting Debt,
equity interests or convertible securities, other than (i) the issuance of
shares of Company Common Stock upon the exercise of stock options or stock
grants outstanding on the date of this Agreement pursuant to Company Stock
Plans and in accordance with their present terms, (ii) issuances by a
wholly owned Subsidiary of its capital stock to its parent, and (iii) the
authorization and issuance of Company Series A Preferred Stock upon
exercise of the Company Rights and reservation for issuance of shares of
Company Series A Preferred Stock in addition to those presently reserved
for issuance.
(d) Governing Documents. The Company shall not amend or propose to
amend its Restated Certificate of Incorporation or By-Laws.
(e) No Acquisitions. The Retained Company shall not, nor shall it
permit any of its Subsidiaries to, acquire or agree to acquire by merging
or consolidating with, or by purchasing a substantial equity interest in or
substantial portion of the assets of, or by any other manner, any business
or any corporation, partnership, association or other business organization
or division thereof or otherwise acquire or agree to acquire any assets
(other than immaterial assets) outside the ordinary and usual course of
business consistent with past practice as a growing business; provided, the
Company shall be permitted to make those capital and other expenditures set
forth on Section 5.1(e) of the Company Disclosure Schedule.
(f) No Dispositions. The Retained Company shall not, nor shall it
permit any of its Subsidiaries to, sell, lease, license, encumber or
otherwise dispose of, or agree to sell, lease, license, encumber or
otherwise dispose of, any of the assets of the Retained Business other than
in the ordinary course of business and the sale or other disposition of
obsolete equipment.
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(g) Indebtedness. The Retained Company shall not, nor shall it permit
any of its Subsidiaries to, incur (which shall not be deemed to include
(i) entering into credit agreements, lines of credit or similar
arrangements until borrowings are made under such arrangements or (ii)
refinancings of existing indebtedness) any indebtedness for borrowed
money or guarantee any such indebtedness or issue or sell any debt
securities or warrants or rights to acquire any debt securities of the
Retained Company or any of its Subsidiaries or guarantee any obligations
of others other than (x) in the ordinary course of business consistent
with past practice or (y) pursuant to existing credit or guaranty
agreements.
(h) Changes to Benefit Plans. The Retained Company shall not, nor
shall it permit any of its Subsidiaries to, (i) enter into, adopt, amend
(except as may be required by law and except for immaterial amendments) or
terminate any Company Compensation and Benefit Plan or other employee
benefit plan or any agreement, arrangement, plan or policy between the
Retained Company or any such Subsidiary and one or more of its directors or
officers or (ii) except for normal increases in the ordinary course of
business consistent with past practice and the payment of bonuses to
employees in the aggregate not to exceed the amount set forth in Section
5.1(h) of the Company Disclosure Schedule, increase in any manner, the
compensation or fringe benefits of any director, officer or employee or pay
any benefit to any director, officer or employee not required by any plan
or arrangement as in effect as of the date hereof or enter into any
contract, agreement, commitment or arrangement to do any of the foregoing;
provided that the foregoing shall not prohibit the Company from hiring and
paying new employees in the ordinary course of business consistent with
past practice as a growing business.
(i) Other Actions. Notwithstanding the fact that such action might
otherwise be permitted pursuant to this Section 5.1, the Retained Company
shall not, nor shall it permit any of its Subsidiaries to, take any action
that would or is reasonably likely to result in any of the conditions to
the Merger set forth in Article VII not being satisfied or would materially
impair the ability of the Company to consummate the Contribution, the
Distribution or the Merger in accordance with the terms hereof and of the
Distribution Agreement or materially delay such consummation.
(j) Advice of Changes; Filings. The Company shall promptly advise
Parent orally and in writing of any change or development or combination of
changes or developments that would cause the representation in Section 3.14
(giving effect to the last sentence thereof) to be untrue. The Company
shall promptly provide Parent (or its counsel) copies of all filings (other
than those filings, or portions thereof, which Parent has no reasonable
interest in obtaining in connection with the Merger) made by the Company
with any Federal, state or foreign Governmental Entity in connection with
this Agreement, the Distribution Agreement and the transactions
contemplated hereby and thereby.
(k) Accounting Policies and Procedures. The Retained Company will not
and will not permit any of its Subsidiaries to change any of its accounting
principles, policies or procedures, except as may be required by generally
accepted accounting principles.
(l) Newco. The Company shall (i) not engage in or allow transfers of
assets or liabilities or engage or enter into other transactions between
the Retained Company and its Subsidiaries, on the one hand, and Newco or
any of its Subsidiaries, on the other hand, except as contemplated by the
Distribution Agreement, (ii) abide and cause Newco to abide by their
respective obligations under the Distribution Agreement, (iii) not
terminate or amend, or waive compliance with any obligations under, the
Distribution Agreement and (iv) not make any payment or permit any
Subsidiary of the Retained Company to make any payment, to obtain any
consent or approval relating to Newco and its Subsidiaries; provided that
nothing herein shall prohibit transfers of cash between the Retained
Company and its Subsidiaries and Newco and its Subsidiaries, so long as
such transfers are properly recorded on the interest bearing intercompany
accounts of the Retained Company and its Subsidiaries.
Section 5.2 Covenants of the Company. During the period from the date of
this Agreement and continuing to the Effective Time, the Company agrees as to
itself and its Subsidiaries that, except as Parent shall otherwise agree in
writing:
(a) No Change in Nature of Business. The Company shall not and shall
not permit its Subsidiaries to make any change in the lines of business
engaged in by Newco and any of its Subsidiaries as of the date hereof that
would, based on the facts and circumstances and conduct of the particular
business, materially
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increase the potential liability of the Retained Company under
statutes or legal doctrines permitting the imposition of liability on a
parent corporation in respect of the liabilities of its subsidiaries.
(b) Other Actions. The Company shall not, and shall not permit any of
its Subsidiaries to, take any action, including, without limitation, with
respect to the terms of the Certificate of Incorporation or By-Laws
of Newco, that would or is reasonably likely to result in any of the
conditions to the Merger set forth in Article VII not being satisfied or
that would materially impair the ability of the Company to consummate the
Contribution and the Distribution in accordance with the terms of the
Distribution Agreement or the Merger in accordance with the terms hereof or
would materially delay such consummation or that would disqualify the
Distribution as a tax free spin-off within the meaning of Section 355 of
the Code.
(c) 51 Broadway. The Company shall not, and shall not permit any
Subsidiary to, exercise any option to purchase or enter into any lease or
otherwise take possession of the property located at 51 Broadway in
Buffalo, New York, without the prior written consent of Parent, which
consent will not be unreasonably withheld or delayed.
Section 5.3 Covenants of Parent.
(a) During the period from the date of this Agreement and continuing until
the Effective Time, Parent agrees as to itself and its Subsidiaries that (i)
Parent shall not take any action that would or is reasonably likely to result in
any of the conditions to the Merger set forth in Article VII not being satisfied
or that would materially impair the ability of Parent to consummate the Merger
in accordance with the terms hereof or materially delay such consummation, (ii)
Parent shall promptly advise the Company orally and in writing of any change in,
or event with respect to, the business or operations of Parent having, or which,
insofar as can reasonably be foreseen, could have, a material adverse effect on
Parent and its Subsidiaries taken as a whole, (iii) Parent shall promptly
provide the Company (or its counsel) copies of all filings (other than those
portions of filings under the HSR Act which the Company has no reasonable
interest in obtaining in connection with the Merger) made by Parent or Sub with
any Federal, state or foreign Governmental Entity in connection with this
Agreement and the transactions contemplated hereby, (iv) except to the extent
that the Company shall otherwise consent in writing, Parent shall not increase
the matters sought to be covered by the MFJ Waiver as set forth in Section 4.4
of the Parent Disclosure Schedule, and (v) Parent will not directly or
indirectly control, supervise or direct, or attempt to control, supervise or
direct, the operation of the FCC licensed facilities of the Company and its
Subsidiaries, and the operations of the Company and the Subsidiaries shall be
the sole responsibility of the Company and its Subsidiaries. Parent agrees that
during the Averaging Period it will not purchase, redeem or otherwise acquire,
or offer or announce an intention to purchase, redeem or otherwise acquire, or
permit any of its Subsidiaries to purchase, redeem or otherwise acquire, or
offer or announce an intention to purchase, redeem or otherwise acquire, any
shares of Parent Common Stock and that on any of the ten trading days
immediately preceding the Averaging Period it will not purchase, redeem or
otherwise acquire, or announce an intention to purchase, redeem or otherwise
acquire, or permit any of its Subsidiaries to purchase, redeem or otherwise
acquire, or announce an intention to purchase, redeem or otherwise acquire,
shares of Parent Common Stock in an amount greater than ten percent of the
average daily trading volume for Parent Common Stock on the five preceding
trading days.
(b) Parent shall not, and shall not permit any of its Subsidiaries to, take
or cause or permit to be taken, any action that would disqualify the
Distribution as a tax-free spin-off within the meaning of Section 355 of the
Code.
(c) If required to consummate the Contribution, the Distribution or the
Merger, Parent will, at the Company's request, as a part of the Closing, lend or
cause to be lent to the Company (pursuant to a demand promissory note) any
amount necessary to terminate all obligations of the Company and its
Subsidiaries under the Credit Agreement. The existence of such loan shall not
constitute a breach or violation of any representation, covenant or agreement of
the Company contained herein.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Reasonable Efforts. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use its best reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
including, without limitation, (i) the prompt
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preparation and filing with the SEC of the S-4, the S-1, if required,
and the Proxy Statement, (ii) such actions as may be required to have
the S-4, and the S-1, if required, declared effective under the
Securities Act or Exchange Act, as applicable, and to have the Proxy
Statement cleared by the SEC, in each case as promptly as practicable,
including by consulting with each other as to, and responding promptly
to, any SEC comments with respect thereto, (iii) such actions as may be
required to be taken under applicable state securities or 'blue sky'
laws in connection with the issuance of shares of Parent Common Stock
and Newco Common Stock contemplated hereby and (iv) the distribution of
the prospectus constituting a part of the S-4, the prospectus
constituting a part of the S-1 and the Proxy Statement to stockholders
of the Company. Without limiting the foregoing, Parent will promptly
prepare and file with the Antitrust Division of the United States
Department of Justice (the 'Antitrust Division') a motion for the MFJ
Waiver (the 'MFJ Motion'), and promptly after receipt of the Antitrust
Division's recommendation with respect thereto, will file the MFJ Motion
with the U.S. District Court for the District of Columbia (the 'Court').
Parent will promptly and continuously use its best reasonable efforts to
obtain a favorable recommendation from the Antitrust Division and a
favorable ruling from the Court with respect to the MFJ Motion,
including without limitation responding promptly to any third party
opposition thereto and otherwise vigorously pursuing the issuance of
such a favorable recommendation and ruling at the earliest possible
time. Each party shall promptly consult with the other with respect to
and provide any necessary information with respect to all filings made
by such party with any Governmental Entity in connection with this
Agreement and the transactions contemplated hereby.
Section 6.2 Letter of the Company's Accountants. The Company shall use its
best reasonable efforts to cause to be delivered to Parent a letter of Ernst &
Young, the Company's independent auditors, dated a date within two business days
before the date on which the S-4 shall become effective and addressed to Parent,
in form and substance reasonably satisfactory to Parent and customary in scope
and substance for letters delivered by independent public accountants in
connection with registration statements similar to the S-4.
Section 6.3 Letter of Parent's Accountants. Parent shall use its best
reasonable efforts to cause to be delivered to the Company a letter of Ernst &
Young, Parent's independent auditors, dated a date within two business days
before the date on which the S-4 shall become effective and addressed to the
Company, in form and substance reasonably satisfactory to the Company and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the S-4.
Section 6.4 Access to Information. Upon reasonable notice, the Company
shall (and shall cause its Subsidiaries to) afford to the officers, employees,
accountants, counsel and other representatives of Parent, access, during normal
business hours during the period prior to the Effective Time, to all its
properties, books, contracts, commitments and records, and, during such period,
each of the Company and Parent shall (and shall cause each of their respective
Subsidiaries to) furnish promptly to the other (a) a copy of each report,
schedule, registration statement and other document filed by it during such
period pursuant to the requirements of federal securities laws and (b) all other
information concerning its business, properties and personnel as such other
party may reasonably request. Unless otherwise required by law, the parties will
hold any such information which is nonpublic in confidence in accordance with
the confidentiality agreements, dated September 29, 1993 and January 11, 1994
(the 'Confidentiality Agreements'), between Parent and the Company. The Company
shall be required to provide information concerning Newco and its Subsidiaries
pursuant to this Section 6.4 only to the extent Parent has a reasonable interest
in obtaining such information in connection with the Merger. The Company agrees,
to the extent requested by Parent, to consult with Parent prior to making the
capital expenditures contemplated by Section 5.1(e) of the Parent Disclosure
Schedule.
Section 6.5 Stockholders Meeting. The Company shall call a meeting of its
stockholders to be held as promptly as practicable for the purpose of voting
upon the approval and adoption of this Agreement and, if the Company determines
such approval to be necessary or appropriate, upon the Contribution and the
Distribution. The Company will, through its Board of Directors, recommend to its
stockholders approval and adoption of this Agreement and, if the Company
determines such approval to be necessary or appropriate, the Contribution and
the Distribution and shall use its best efforts to hold such meeting as soon as
practicable after the date hereof; provided, however, that the Board of
Directors of the Company may fail to make such a recommendation, or withdraw,
modify or change any such recommendation if such Board of Directors, after
consultation with its outside counsel, determines in good faith that making such
recommendation, or the failure to withdraw, modify or change its recommendation,
could reasonably be deemed to cause the members of such Board of Directors to
breach their fiduciary duties under applicable law.
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Section 6.6 Legal Conditions to Contribution, Distribution and Merger;
Legal Compliance. Each of the Company, Parent and Sub will use its best
reasonable efforts to comply promptly with all legal requirements which may be
imposed on itself or its respective Subsidiaries with respect to the
Contribution, the Distribution and the Merger (which actions shall include,
without limitation, furnishing all information required under the HSR Act and in
connection with approvals of or filings with the FCC, the New York PSC and the
Pennsylvania PUC and with any other Governmental Entity and in connection with
the MFJ Waiver) and will promptly cooperate with and furnish information to each
other in connection with any such requirements imposed upon any of them
or any of their respective Subsidiaries in connection with the
Contribution, the Distribution or the Merger. Subject to the terms and
conditions hereof, each of the Company, Parent and Sub will, and will
cause its Subsidiaries to, promptly use its best reasonable efforts to
obtain (and will cooperate with each other in obtaining) any consent,
authorization, order or approval of, or any exemption by, any
Governmental Entity or other public or private third party, required to
be obtained or made by such party in connection with the Contribution,
the Distribution or the Merger or the taking of any action contemplated
thereby or by this Agreement or the Distribution Agreement, including
without limitation in obtaining the ruling contemplated by the Ruling
Request. The Company agrees that it shall use its best reasonable
efforts to take, and to cause its Subsidiaries to take, such actions as
are necessary to assure compliance by the Retained Company and its
Subsidiaries with all applicable legal requirements relating to Licenses
(including, without limitation, those actions set forth in Section 6.6
of the Parent Disclosure Schedule), employment and benefits matters and
other governmental regulations (and in this connection will have due
regard to any reasonable request of Parent as to what, if any, such
actions should be taken). The Company agrees that it will promptly file
or cause its Subsidiaries to file with the FCC the applications set
forth in Section 6.6 of the Parent Disclosure Schedule.
Section 6.7 Stock Exchange Listing; NASDAQ/NMS Designation. Parent shall
use its best reasonable efforts to cause the shares of Parent Common Stock to be
issued in the Merger to be approved for listing on the NYSE and any other
national securities exchange on which shares of Parent Common Stock may at such
time be listed, subject to official notice of issuance, prior to the Closing
Date. The Company shall use its best reasonable efforts to cause the shares of
Newco Common Stock to be distributed in the Distribution to be designated as a
national market system security on the interdealer quotation system by the
National Association of Securities Dealers, Inc. or listed on the New York or
American Stock Exchanges, subject to official notice of issuance.
Section 6.8 Company Severance Obligations. Parent will, and will cause the
Surviving Corporation to, honor without modification the severance provisions of
the employment agreements listed in Section 3.12 of the Company Disclosure
Schedule. Parent acknowledges that consummation of the Merger as provided herein
will constitute 'Good Reason' for purposes of such employment agreements.
Section 6.9 Company Stock Plans. At or immediately prior to the Effective
Time, each outstanding option to purchase shares of Company Common Stock under
the Company Stock Plans (a 'Company Stock Option'), whether vested or unvested,
shall be cancelled and only entitle the holder thereof, upon surrender thereof,
to receive a cash payment in accordance with the terms of the Company Stock
Plans.
Section 6.10 Fees and Expenses.
(a) Except as set forth in Section 6.10(b) and 6.14(a) and subject to the
Distribution Agreement, whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
(b) So long as Parent and Sub shall not have materially breached their
obligations under this Agreement, the Company will pay Parent, in immediately
available funds, $25,000,000 (x) promptly, but in no event later than two
business days, after the termination of this Agreement pursuant to Section
8.1(c)(iii) if the Company's Board of Directors has recommended to the Company's
stockholders an Acquisition Transaction (as defined below) or has otherwise
withdrawn, amended or modified in a manner adverse to Parent its favorable
recommendation of the Contribution, the Distribution or the Merger, except for
any such withdrawal, amendment or modification permitted by Section 6.5 which
arises or results from a material improvement in the business, properties,
assets, results of operations or financial condition of the Retained Company
(but excluding any such improvement to the extent such improvement arises or
results from changes in general economic conditions, stock market fluctuations
or conditions or changes in the communications or cellular telephone industry
generally), provided that in the event Parent terminates this Agreement pursuant
to Section 8.1(c)(iii) and the aforesaid fee is not payable due to the foregoing
exception, Parent shall nevertheless be entitled following such termination to
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reimbursement for expenses actually incurred by Parent in connection with this
Agreement and the transactions contemplated hereby up to a maximum of $3,500,000
(but only if and to the extent Parent provides a written statement to the
Company that it has incurred such expenses and setting forth the components of
such expenses in reasonable detail), (y) prior to or simultaneously with
termination pursuant to Section 8.1(d)(iii) or (z) if after the termination of
this Agreement pursuant to Sections 8.1(c)(i) (as a result of any willful breach
of a covenant or agreement by the Company it being understood that termination
pursuant to such clause (i) of Section 8.1(c) due to a breach of a
representation or warranty shall not give rise to any fee payment), (ii), (iii)
(in a circumstance where Parent is not entitled to a termination fee within two
business days of termination) or (iv) or 8.1(d)(ii), the
Company shall effect an Acquisition Transaction, simultaneously with the
consummation of such Acquisition Transaction, provided that if the Acquisition
Transaction involves a merger, consolidation, sale of assets, purchase of shares
from the Company or similar business combination, the agreement with respect
thereto shall have been entered into within 12 months of the date of termination
of this Agreement, or if the Acquisition Transaction involves a tender or
exchange offer not effected in connection with an agreement with the Company,
the tender or exchange offer shall have been commenced within such 12 month
period and provided, further, that if Parent shall have previously received any
reimbursement of expenses the amount reimbursed shall be credited against any
termination fee payable hereunder.
Section 6.11 Indemnification; Insurance.
(a) The Company shall, and from and after the Effective Time Parent and the
Surviving Corporation shall, indemnify, defend and hold harmless each person who
is now, or has been at any time prior to the date of this Agreement or who
becomes prior to the Effective Time, an officer, director or employee of the
Company or any of its Subsidiaries (the 'Indemnified Parties') against (i) all
losses, claims, damages, costs, expenses, liabilities or judgments, or amounts
that are paid in settlement with the approval of the indemnifying party (which
approval shall not be unreasonably withheld) of, or in connection with, any
claim, action, suit, proceeding or investigation based in whole or in part on or
arising in whole or in part out of the fact that such person is or was a
director, officer or employee of the Company or any of its Subsidiaries, whether
pertaining to any matter existing or occurring at or prior to the Effective Time
and whether asserted or claimed prior to, or at or after, the Effective Time
('Indemnified Liabilities') and (ii) all Indemnified Liabilities based in whole
or in part on, or arising in whole or in part out of, or pertaining to this
Agreement, the Distribution (if and only if such Indemnified Liability is based
on acts or omissions or alleged acts or omissions existing or occurring at or
prior to the Distribution), the Merger or any other transactions contemplated
hereby or thereby, in each case to the full extent a corporation is permitted
under the DGCL (notwithstanding the By-Laws of the Company, the Surviving
Corporation or Parent) to indemnify its own directors, officers and employees,
as the case may be (and Parent and the Surviving Corporation, as the case may
be, will pay expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the full extent permitted by law upon
receipt of any undertaking contemplated by Section 145(e) of the DGCL). Without
limiting the foregoing, in the event any such claim, action, suit, proceeding or
investigation is brought against any Indemnified Party (whether arising before
or after the Effective Time), (i) the Indemnified Parties may retain counsel
satisfactory to them with the consent of the Company (or the consent of Parent
and the Surviving Corporation after the Effective Time) which consent of the
Company (or, after the Effective Time, Parent and the Surviving Corporation)
with respect to such counsel retained by the Indemnified Parties may not be
unreasonably withheld, (ii) the Company (or after the Effective Time, Parent and
the Surviving Corporation) shall pay all reasonable fees and expenses of such
counsel for the Indemnified Parties promptly as statements therefor are
received, and (iii) the Company (or after the Effective Time, Parent and the
Surviving Corporation) will use all reasonable efforts to assist in the vigorous
defense of any such matter, provided that none of the Company, Parent or the
Surviving Corporation shall be liable for any settlement of any claim effected
without its written consent, which consent, however, shall not be unreasonably
withheld. Any Indemnified Party wishing to claim indemnification under this
Section 6.11, upon learning of any such claim, action, suit, proceeding or
investigation, shall notify the Company, Parent or the Surviving Corporation
(but the failure so to notify shall not relieve the Company, Parent or the
Surviving Corporation from any liability which it may have under this Section
6.11 except to the extent such failure prejudices such party), and shall deliver
to the Company (or after the Effective Time, Parent and the Surviving
Corporation) the undertaking contemplated by Section 145(e) of the DGCL. The
Indemnified Parties as a group may retain only one law firm to represent them
with respect to each such matter unless there is, under applicable standards of
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professional conduct, a conflict on any significant issue between the positions
of any two or more Indemnified Parties.
(b) For a period of six years after the Effective Time, Parent and the
Surviving Corporation shall cause to be maintained in effect the current
policies of directors' and officers' liability insurance maintained by the
Company (provided that Parent may substitute therefor policies of at least the
same coverage and amounts containing terms and conditions which are no less
advantageous) with respect to claims arising from facts or events which occurred
at or prior to the Effective Time to the extent such liability insurance can be
maintained at an annual cost not greater than 300 percent of the Company's 1993
annual premium for its directors' and officers' liability insurance (it being
understood that in any such case Parent shall purchase or cause the Company to
purchase as much coverage as possible for such 300 percent premium amount);
provided that if Newco does not make the payments required pursuant to
Section 5.6 of the Distribution Agreement prior to any premium payment
date, Parent shall only be obligated to maintain such liability
insurance to the extent it can be maintained at an annual cost not
greater than 150% of such 1993 annual premium (it being understood that
in any such case Parent shall purchase or cause the Company to purchase
as much coverage as possible for such 150 percent premium amount).
(c) The provisions of this Section 6.11 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
representatives.
Section 6.12 Rights Plan. The Company shall take all action necessary to
redeem the Company Rights so that the Company Rights will no longer be
outstanding at the Effective Time.
Section 6.13 No Solicitations. The Company will immediately cease any
existing discussions or negotiations with any third parties conducted prior to
the date hereof with respect to any merger, consolidation, business combination,
sale of a significant amount of assets outside of the ordinary course of
business, sale of shares of capital stock outside of the ordinary course of
business, tender or exchange offer or similar transaction involving the Company
or any of its subsidiaries or divisions, but excluding any of the foregoing
involving solely Newco or its Subsidiaries or their respective businesses (an
'Acquisition Transaction'). Neither the Company nor any of its Subsidiaries nor
any of their respective directors and officers shall, and the Company shall use
its best efforts to ensure that none of its or its Subsidiaries' affiliates,
representatives or agents shall, directly or indirectly, solicit any person,
entity or group concerning any Acquisition Transaction (other than the
transactions contemplated by this Agreement); provided that after prior notice
to Parent the Company may (i) furnish information or enter into negotiations to
the extent the Company's Board of Directors determines in good faith, after
consultation with its outside counsel, that the failure to do so could
reasonably be deemed a breach of its fiduciary duties under applicable law, but
only in response to a written proposal (which may be subject to due diligence)
for a bona fide Acquisition Transaction that the Board of Directors determines
in good faith after consultation with its financial advisors (x) is likely to be
more favorable, from a financial point of view, to the stockholders of the
Company than the Contribution, the Distribution and the Merger, taking into
account the financial responsibility of the party making such proposal as then
reasonably determinable by the Company and such party's ability, as then
reasonably determinable by the Company, to obtain regulatory approvals for such
Acquisition Transaction (a 'Higher Proposal') and (ii) recommend to its
stockholders an Acquisition Transaction which is the subject of a Higher
Proposal. The Company will advise Parent immediately if such proposal or other
indication of interest is received by the Company and the terms and conditions
thereof and will keep Parent reasonably apprised in reasonable detail of all
such discussions, negotiations or other contacts that may occur.
Section 6.14 MFJ Matters.
(a) Section 6.14 of the Parent Disclosure Schedule contains a written
description of all modifications in the business and operations of the Retained
Company and its Subsidiaries that Parent considers necessary as of the date
hereof to cause the businesses and operations of the Retained Company and its
Subsidiaries to comply with the MFJ as of the Effective Time (the 'Modification
Notice'). Prior to the Closing, the Company shall modify the businesses and
operations of the Retained Company and its Subsidiaries in the manner described
in the Modification Notice and shall also take such additional action to modify
the business and operations of the Retained Company and its Subsidiaries as
Parent may request to cause the Retained Company and its Subsidiaries not to be
engaged in any MFJ Activities as of the Effective Time as determined by Parent
in its discretion exercised in good faith so long as such additional action (i)
arises out of any failure by the Company to include any matter on Section 3.23
of the Company Disclosure Schedule that should have been so included or (ii)
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does not materially impair the value of the Retained Business (taking into
account any payment or reimbursement provided by Parent) (collectively the 'MFJ
Transactions'). Parent shall pay on behalf of the Company or reimburse the
Company for the direct labor costs and actual out-of-pocket expenses of the
Company incurred in connection with the MFJ Transactions within 30 days of
receipt of invoices or statements and supporting documentation for such costs
and expenses. Parent agrees to notify the Company promptly upon learning of the
existence of any MFJ Activities that will require action by the Company or any
of its Subsidiaries so that the Retained Company and its Subsidiaries are not
engaged in any MFJ Activities as of the Effective Time.
(b) From and after the date hereof, the Retained Company shall not, and
shall cause its Subsidiaries not to, undertake any new activity, conduct any new
operation or acquire or establish any facility not existing on the date hereof,
nor enter into any other agreement, transaction or commitment (including without
limitation those relating to any acquisition of any interest in any other
entity) in each case which in Parent's judgment exercised in good faith,
would be prohibited by the MFJ if assumed or undertaken by Parent.
Parent shall respond promptly to any request by the Company for
information as to whether any proposed activity, operation or facility
of the Company or any Subsidiary of the Company would be prohibited by
the MFJ.
Section 6.15 Distribution. Prior to the Closing, the Company will enter
into the Distribution Agreement and cause Newco and Newco Cellular to enter into
the Distribution Agreement and the Company will take all action necessary to
effect the Distribution pursuant to the terms of the Distribution Agreement. The
Company agrees to keep Parent informed concerning actions taken to cause the
representation in Section 3.7(b) to be true at the Effective Time and agrees to
consult with Parent in connection with such actions.
Section 6.16 Affiliate Agreements. The Company shall use its best efforts
to cause each of those persons who may be deemed to be 'affiliates' of the
Company as that term is used in paragraphs (c) and (d) of Rule 145 under the
Securities Act (the 'Affiliates') to deliver to Parent on or prior to the
Closing Date a written agreement in the form of Annex 2. If any Affiliate
refuses to provide such agreement, Parent may place appropriate legends on the
certificates evidencing the shares of Parent Common Stock to be received by such
Affiliate pursuant to the terms of this Agreement and to issue appropriate stop
transfer instructions to the transfer agent for shares of Parent Common Stock to
the effect that the shares of Parent Common Stock received by such Affiliate
pursuant to this Agreement only may be sold, transferred or otherwise conveyed,
(x) pursuant to an effective registration statement under the Securities Act,
(y) in compliance with Rule 145 promulgated under the Securities Act, or (z)
pursuant to another exemption under the Securities Act.
Section 6.17 Rochester Radiolocation System. Parent and the Company agree
to negotiate in good faith to reach an agreement to permit Newco to have
continued access to the facilities of the Rochester cellular system after the
Merger for the purpose of testing and demonstrating its cellular radiolocation
system.
Section 6.18 Audited Balance Sheet. The Company agrees that it shall use
its best reasonable efforts to cause Ernst & Young, its independent public
accountants, to prepare promptly, and in any event by April 15, 1994, an audited
consolidated and consolidating balance sheet for the Retained Company and its
consolidated subsidiaries at December 31, 1993 after giving pro forma effect to
the Contribution, the Distribution and the Merger (assuming that the
Contribution, the Distribution and the Merger occurred on December 31, 1993) in
accordance with generally accepted accounting principles, on a basis consistent
with the Company Financial Statements (the 'Audited Balance Sheet'). The Company
agrees that representatives of Parent shall be given access to all books,
records and other information related to the preparation of the Audited Balance
Sheet. In addition, the Company will authorize the release of, and will use its
best reasonable efforts to cause the delivery of, all work papers of the
Company's independent public accountants in connection with or relating to such
audit. The Company agrees to provide Parent with a draft of the Audited Balance
Sheet and shall consult with Parent in connection with the finalization of such
Audited Balance Sheet.
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ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Each Party's Obligation To Effect the Merger. The
respective obligations of the parties to effect the Merger are subject to the
satisfaction, on or prior to the Closing Date, of the following conditions:
(a) Stockholder Approval. This Agreement shall have been approved and
adopted by the affirmative vote of the holders of Company Common Stock
entitled to cast at least 66 2/3% of the total number of votes entitled to
be cast.
(b) NYSE Listing. The shares of Parent Common Stock issuable to the
Company's stockholders pursuant to this Agreement shall have been
authorized for listing on the NYSE, upon official notice of issuance.
(c) Other Approvals. All consents, approvals and action of the FCC or
any state public utility commission having jurisdiction required to permit
the consummation of the transaction contemplated hereby shall have been
obtained or made, free of any condition that would materially adversely
impact the economic or business benefits of the Merger to Parent and its
Subsidiaries or that would have a material adverse effect on the Retained
Business, and other than the filing provided for by Section 1.1 and
excluding the MFJ Waiver contemplated by Section 7.2(f), all
authorizations, consents, orders or approvals of, or declarations or
filings with, or expirations of waiting periods imposed by, any other
Governmental Entity the failure to obtain which would have a material
adverse effect on Parent and its Subsidiaries or the Surviving Corporation
and its Subsidiaries, in each case taken as a whole, shall have been filed,
occurred or been obtained. Parent shall have received all state securities
or 'blue sky' permits and other authorizations necessary to issue the
Parent Common Stock pursuant to this Agreement.
(d) Registration Statement. The S-4 shall have become effective under
the Securities Act and shall not be the subject of any stop order or
proceeding by the SEC seeking a stop order.
(e) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger shall be in effect (each party agreeing to
use all reasonable efforts to have any such order reversed or injunction
lifted).
(f) HSR Approval. Any applicable waiting period under the HSR Act
shall have expired or been terminated.
(g) Consummation of the Distribution. The Distribution shall have
become effective in accordance with the Distribution Agreement.
Section 7.2 Conditions of Obligations of Parent and Sub. The obligations of
Parent and Sub to effect the Merger are subject to the satisfaction, on or prior
to the Closing Date, of the following conditions unless waived by Parent and
Sub:
(a) Representations and Warranties. (i) The aggregate effect of all
inaccuracies in the representations and warranties of the Company set forth
in this Agreement (without taking into account any qualifications as to
materiality contained in such representations and warranties, it being
understood, however, that for purposes of this clause (i), the accuracy of
any representation or warranty which speaks as of the date of this
Agreement or another date prior to the Closing Date shall be determined
solely as of the date of this Agreement or such other date and not as of
the Closing Date) does not and will not have a material adverse effect on
the Company and its Subsidiaries taken as a whole and (ii) the
representations and warranties of the Company contained in Sections 3.1,
3.2, 3.3 and 3.19 shall be true and correct in all material respects as of
the date hereof, and, except to the extent such representations and
warranties speak as of an earlier date, as of the Closing Date as though
made on and as of the Closing Date, except as otherwise contemplated by
this Agreement, and Parent shall have received a certificate signed on
behalf of the Company by the chief
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operating officer and the chief financial officer of the Company to
such effect. Without limitation of Section
3.19 (and the operation thereof as a closing condition in this Section
7.2(a)), no actual or threatened litigation shall be a basis for the
condition in this Section 7.2(a) not being satisfied to the extent the
indemnification obligation of Newco set forth in Section 5.1(b) of the
Distribution Agreement is applicable and no inaccuracy in the cash or
working capital amounts on the Retained Business Balance Sheet shall be a
basis for the condition in this Section 7.2(a) not being satisfied.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement and the Distribution Agreement at or prior to
the Closing Date, and Parent shall have received a certificate signed on
behalf of the Company by the chief operating officer and the chief
financial officer of the Company to such effect.
(c) Private Letter Ruling. The Service shall have issued and not
revoked a private letter ruling (the 'Private Letter Ruling'), reasonably
satisfactory in form and substance to Parent, in response to the Ruling
Request, substantially to the effect that, on the basis of the facts,
representations, and assumptions existing at the Effective Time:
(i) the contribution to Newco Cellular of the Retained Business and
the assumption of certain liabilities by Newco Cellular, as contemplated
by the Distribution Agreement (as it may be amended with Parent's
consent) will qualify for Federal tax purposes as a tax-free
reorganization within the meaning of Section 368(a)(1)(D) of the Code or
as a tax-free transfer under Section 351 of the Code;
(ii) the distribution of the stock of Newco Cellular to the Company
will be tax-free for Federal income tax purposes to Newco under Section
361(c) of the Code and to the Company under Section 355(a) of the Code;
(iii) the distribution of the stock of Newco on a pro rata basis to
the holders of the Company Common Stock will be tax-free for Federal
income tax purposes to the Company under Section 361(c) of the Code and
to the Company's stockholders under Section 355(a) of the Code; and
(iv) the Merger will be treated for Federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Code, and
that Parent, Sub and the Company will each be a party to that
reorganization within the meaning of Section 368(b) of the Code.
(d) MFJ Matters. (i) The MFJ Transactions shall have been effected to
the satisfaction of Parent in the exercise of its good faith judgment and
(ii) the Retained Company shall not be directly or indirectly engaged in
any MFJ Activity (other than through a minority investment in the
Pittsburgh cellular metropolitan service area and a minority, non-voting
investment in the San Francisco-San Jose cellular metropolitan service
areas and any other MFJ Activity covered by the MFJ Waiver). The parties
agree for purposes of clause (ii) that there can be uncertainty as to what
constitutes an MFJ Activity, that Parent's views as to what may constitute
an MFJ Activity are established to eliminate any possibility of a violation
of the MFJ and Parent's conclusion as to whether the Retained Company is
directly or indirectly engaged in any MFJ Activity for purposes of clause
(ii) shall be made consistent with Parent's historical conservative
approach to such questions.
(e) Opinions of Counsel. Parent shall have received the opinion of
Skadden, Arps, Slate, Meagher & Flom to the effect set forth on Section
7.2(e)(i) of the Company Disclosure Schedule, the opinion of Fleishman &
Walsh to the effect set forth on Section 7.2(e)(ii) of the Company
Disclosure Schedule and the opinion of Sullivan Benatovich Oliverio &
Trimboli to the effect set forth on Section 7.2(e)(iii) of the Company
Disclosure Schedule.
(f) MFJ Waiver. Parent shall have received the MFJ Waiver.
Section 7.3 Conditions of Obligations of the Company. The obligation of the
Company to effect the Merger is subject to the satisfaction of the following
conditions, on or prior to the Closing Date, unless waived by the Company:
(a) Representations and Warranties. (i) The aggregate effect of all
inaccuracies in the representations and warranties of Parent and Sub set
forth in this Agreement (without taking into account any qualifications
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as to materiality contained in such representations and warranties,
it being understood, however, that for purposes of this clause (i), the
accuracy of any representation or warranty which speaks as of the date
of this Agreement or another date prior to the Closing Date shall be
determined solely as of the date of this Agreement or such other
date and not as of the Closing Date) does not and will not have a
material adverse effect on Parent and its Subsidiaries taken as a whole
and (ii) the representations and warranties of Parent and Sub contained
in this Agreement shall be true and correct in all material respects as
of the date hereof, and, except to the extent such representations and
warranties speak as of an earlier date, as of the Closing Date as though
made on and as of the Closing Date, except as otherwise contemplated by
this Agreement, and the Company shall have received a certificate signed
on behalf of Parent and Sub by a senior vice president and the treasurer
or assistant treasurer of Parent and Sub, respectively, to such effect.
(b) Performance of Obligations of Parent and Sub. Parent and Sub shall
have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date, and
the Company shall have received a certificate signed on behalf of Parent by
a senior vice president and the treasurer or assistant treasurer of Parent
to such effect.
(c) Private Letter Ruling. The Service shall have issued and not
revoked the Private Letter Ruling reasonably satisfactory in form and
substance to the Company.
(d) Opinion of Parent Counsel. The Company shall have received the
opinion of the Sullivan & Cromwell, special counsel to Parent, to the
effect set forth on Section 7.3 of the Parent Disclosure Schedule.
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval of the Merger and this
Agreement by the stockholders of the Company or Sub:
(a) by mutual consent of Parent and the Company;
(b) by either Parent or the Company if the Merger shall not have been
consummated before January 31, 1995 (unless the failure to so consummate
the Merger by such date shall be due to the action or failure to act of the
party seeking to terminate this Agreement); provided that Parent or the
Company may extend this date to a date not later than March 31, 1995 and
May 31, 1995, respectively, in the event that the Merger shall not have
been consummated before January 31, 1995 solely because either the MFJ
Waiver has not been obtained or Parent has directed after October 31, 1994
(and is entitled by the terms hereof to so direct) that the Company effect
a MFJ Transaction and such MFJ Transaction is not effected prior to January
31, 1995;
(c) by Parent if (i) there has been a breach on the part of the
Company in the representations, warranties or covenants of the Company set
forth herein or in the Distribution Agreement, or any failure on the part
of the Company to comply with its obligations hereunder or thereunder, or
any other events or circumstances shall have occurred, such that, in any
such case, any of the conditions to the Closing set forth in Sections 7.1
or 7.3 hereof could not be satisfied on or prior to the termination date
contemplated by Section 8.1(b), (ii) the Company's stockholders do not
approve the Contribution and the Distribution and the Merger and this
Agreement at the meeting required under Section 6.5 hereof, (iii) the
Company withdraws, amends, or modifies in a manner adverse to Parent its
favorable recommendation of the Contribution, the Distribution or the
Merger, or promulgates any recommendation with respect to an Acquisition
Transaction other than a recommendation to reject such Acquisition
Transaction, provided that any action taken by the Company pursuant to
Section 8.1(d)(iii)(A) or any public announcement by the Company relating
thereto shall not give rise to any right of termination by Parent, (iv) the
Company takes any action that would be prohibited by Section 6.13 but for
the exception permitting such action as required by fiduciary duty; or (v)
the Company has given Parent a notice in writing pursuant to Section 2.1(c)
that the Company is unwilling to accept a $30.00 Average Parent Price; or
(d) by the Company if (i) there has been a breach on the part of
Parent in the representations, warranties or covenants of Parent set forth
herein, or any failure on the part of Parent to comply with its obligations
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hereunder, or any other events or circumstances shall have occurred,
such that, in any such case, any of the conditions to the Closing set
forth in Sections 7.1 or 7.2 hereof could not be satisfied on or prior
to the termination date contemplated by Section 8.1(b), (ii) the
Company's stockholders do not approve the Contribution and the
Distribution and the Merger and this Agreement at the meeting required
under Section 6.5 hereof, (iii) if (A) the Company has received a Higher
Proposal that it advises Parent in writing the Company wishes to accept
and (B) Parent does not make, within ten business days of receipt of
written notice of the Company's desire to accept such Higher Proposal,
an offer that the Board of Directors of the Company believes, in good
faith after consultation with its financial advisors, is at least as
favorable, from a financial point of view, to the stockholders of the
Company as the Higher Proposal, subject in the case of this clause
(iii), to the prior or simultaneous payment of the fee required by
clause (y) of Section 6.10(b), or (iv) Parent has given the Company
notice in writing pursuant to Section 2.1(c) that Parent is unwilling to
accept the Maximum Parent Price as the Average Parent Price.
Section 8.2 Effect of Termination. In the event of a termination of this
Agreement by either the Company or Parent as provided in Section 8.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Parent, Sub or the Company or their affiliates or
respective officers or directors, other than the provisions of Sections 6.10 and
the penultimate sentence of Section 6.14(a); provided, however that any such
termination shall not relieve any party from liability for willful breach of
this Agreement.
Section 8.3 Amendment. This Agreement may be amended by the parties hereto,
by action taken or authorized by their respective Boards of Directors, at any
time before or after approval of the matters presented in connection with the
Merger by the stockholders of the Company or of Parent, but, after any such
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 8.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by the respective Boards of
Directors, may to the extent legally allowed, (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 delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained here. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
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ARTICLE IX
MISCELLANEOUS
Section 9.1 Nonsurvival of Representations and Warranties. None of the
representations or warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time.
Section 9.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given on the date delivered if delivered
personally (including by reputable overnight courier), on the date transmitted
if sent by telecopy (which is confirmed) or mailed by registered or certified
mail (return receipt requested) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to
Southwestern Bell Corporation
175 East Houston
San Antonio, Texas
Attn: Paul Lane
Telecopy: (210) 351-3488
with a copy to
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Att: Benjamin F. Stapleton
Telecopy: (212) 558-3588
and
(b) if to the Company, to
Associated Communications Corporation
200 Gateway Towers
Pittsburgh, Pennsylvania 15222
Attn: Chief Executive Officer
Telecopy: (412) 281-6988
with a copy to
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Att: Peter Allan Atkins
Telecopy: (212) 735-2000
Section 9.3 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words 'include,'
'includes' or 'including' are used in this Agreement they shall be deemed to be
followed by the words 'without limitation.' The phrase 'made available' in this
Agreement shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available. The
phrases 'the date of this Agreement,' 'the date hereof' and terms of similar
import, unless the context otherwise requires, shall be deemed to refer to
February 23, 1994.
Section 9.4 Counterparts. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement and shall become
effective when a counterpart has been signed by each of the parties and
delivered to each of the other parties, it being understood that all parties
need not sign the same counterpart.
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Section 9.5 Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the documents and the instruments referred to herein) and the
Confidentiality Agreements (a) constitute the entire agreement and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof and thereof, and (b) except as
provided in Section 6.11 are not intended to confer upon any person other than
the parties hereto and thereto any rights or remedies hereunder or thereunder.
Section 9.6 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law principles.
Section 9.7 Specific Performance. The parties hereto agree that if any of
the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to determine,
and that the parties shall be entitled to specific performance of the terms
hereof, in addition to any other remedy at law or equity.
Section 9.8 Publicity. Except as otherwise required by law, the rules of
NASDAQ or the rules of NYSE, for so long as this Agreement is in effect, neither
the Company nor Parent shall, or shall permit any of its Subsidiaries to, issue
or cause the publication of any press release or other public announcement with
respect to the transactions contemplated by this Agreement without the consent
of the other party, which consent shall not be unreasonably withheld or delayed.
Section 9.9 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Sub may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to any
direct or indirect wholly owned Subsidiary of Parent. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first written above.
SOUTHWESTERN BELL CORPORATION
By: ______/s/ RONALD M. JENNINGS______
Name: Ronald M. Jennings
Title: Vice President--Corporate
Development
SBMS ACQUISITION CORP.
By: ________/s/ JOHN T. STUPKA________
Name: John T. Stupka
Title: President
ASSOCIATED COMMUNICATIONS CORPORATION
By: _______/s/ MYLES P. BERKMAN_______
Name: Myles P. Berkman
Title: President
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APPENDIX B
AGREEMENT AND PLAN OF DISTRIBUTION, DATED AS OF , 199 (this
'Spin-Off Agreement'), among Associated Communications Corporation, a Delaware
corporation (the 'Company'), Associated Communications of Delaware, Inc., a
Delaware corporation and a direct wholly-owned subsidiary of the Company
('ACDI') and [Newco], a Delaware corporation and a wholly owned subsidiary of
ACDI ('Newco').
RECITALS
A. The Merger Transaction. The Company, Southwestern Bell Corporation, a
Delaware corporation ('Parent'), and SBMS Acquisition Corp., a Delaware
corporation and a second-tier indirect wholly owned subsidiary of Parent
('Sub'), have entered into an Agreement and Plan of Merger and Reorganization,
dated as of February 23, 1994 ('Merger Agreement'), providing for the Merger (as
defined in the Merger Agreement) of Sub with and into the Company, with the
Company as the surviving corporation.
B. The Spin-Offs. Immediately prior to the Effective Time (as defined in
Section 1.1 of the Merger Agreement), subject to the satisfaction or waiver of
the conditions set forth in Article VI of this Spin-Off Agreement, (i) the Board
of Directors of ACDI expects to distribute as a dividend to the Company all of
the outstanding shares of Common Stock, par value $.01 per share, of Newco (the
'Newco Spin-off') and (ii) the Company's Board of Directors expects to
distribute as a dividend to the holders of Class A and Class B Common Stock of
the Company, par value $.10 per share ('Company Common Stock'), on a pro rata
basis, all of the then outstanding shares of Class A Common Stock, par value
$.10 per share ('New ACDI Class A Common Stock'), and Class B Common Stock, par
value $.10 per share ('New ACDI Class B Common Stock,' and, together with New
ACDI Class A Common Stock, 'New ACDI Stock'), of ACDI (the 'ACDI Spin-Off' and
together with the Newco Spin-Off, the 'SpinOffs').
C. Purpose. The purpose of the Spin-Offs is to make possible the Merger by
divesting the Company of the businesses and operations conducted or to be
conducted by ACDI, which Parent is unwilling to acquire. This Spin-Off Agreement
sets forth or provides for certain agreements among the Company, Newco and ACDI
in consideration of the separation of their ownership.
NOW, THEREFORE, in consideration of the premises, and of the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Spin-Off Agreement, the following terms
shall have the following respective meanings (capitalized terms used but not
defined herein shall have the respective meanings ascribed thereto in the Merger
Agreement):
'ACDI Group' shall mean ACDI and its subsidiaries (determined after
giving effect to the transfers and transactions contemplated by Sections
4.1 and 4.2 of this Spin-Off Agreement).
'Company Group' shall mean the Company and its subsidiaries, other
than ACDI and its subsidiaries (determined after giving effect to the
transfers and transactions contemplated by Sections 4.1 and 4.2 of this
Spin-Off Agreement).
'Fair Market Value' shall mean, with respect to any asset or property,
the sale value that would be obtained in an arms length transaction between
an informed and willing seller under no compulsion to sell and an informed
and willing buyer under no compulsion to buy.
'Time of Distribution' shall mean the time as of which the Spin-Offs
are effective.
'Transfer Agent' shall mean Mellon Bank, N.A., the transfer agent for
the Company Common Stock.
<PAGE>
ARTICLE II
CAPITALIZATION OF NEWCO; RECAPITALIZATION
OF ACDI; MECHANICS OF SPIN-OFF
2.1 Capitalization of Newco. The authorized capital stock of Newco
currently consists of 1,000 shares of Common Stock, par value $.01 per share
('Newco Common Stock'), all of which are issued and outstanding and owned
beneficially and of record by ACDI.
2.2 Recapitalization of ACDI. (a) The authorized capital stock of ACDI
currently consists of 1,000 shares of Common Stock, par value $1.00 per share
('ACDI Common Stock'), all of which are issued and outstanding and owned
beneficially and of record by the Company.
(b) Immediately prior to the Time of Distribution, the Company shall (i)
appropriately cause ACDI to amend and restate its Certificate of Incorporation
to, among other things, provide (x) for an increase in the number of authorized
shares of common stock of ACDI from the number of shares of ACDI Common Stock
authorized prior to such amendment and restatement, (y) that the authorized
common stock of ACDI shall consist of New ACDI Class A Common Stock and New ACDI
Class B Common Stock (thereby reducing the par value per share of such
authorized common stock from $1.00 to $.10) and (z) that the authorized capital
of ACDI shall also include 5 million shares of Preferred Stock, par value $.01
per share, and (ii) exchange the 1,000 shares of ACDI Common Stock owned by the
Company for a total number of shares of New ACDI Stock (divided equally between
shares of New ACDI Class A Common Stock and New ACDI Class B Common Stock) equal
to one-half the total number of shares of Company Common Stock outstanding as of
the Record Date (as defined below) for the Distribution.
2.3 Mechanics of Spin-Offs. The Spin-Offs shall be effected by the
declaration and payment of a dividend by ACDI of all the outstanding capital
stock of Newco to the Company, followed by the distribution to each holder of
record of Company Common Stock, as of the close of the stock transfer books on
the record date designated by or pursuant to the authorization of the Board of
Directors of the Company (the 'Record Date'), of certificates representing 1/4
of a share of New ACDI Class A Common Stock and 1/4 of a share of New ACDI Class
B Common Stock multiplied by the number of shares of Company Common Stock held
by such holder, provided that no fractional shares of New ACDI Stock shall be
distributed. In the event a holder of Company Common Stock holds of record on
the Record Date a number of shares of Company Common Stock such that, but for
the proviso in the preceding sentence, fractional shares of New ACDI Stock would
be distributed to such holder, the Transfer Agent shall distribute to such
holder New ACDI Stock certificates on the basis of the next lowest number of
shares of Company Common Stock held by such holder below the actual number of
shares held such that no fractional shares of New ACDI Stock will be distributed
to such holder. The Transfer Agent shall aggregate all shares of New ACDI Stock
that would be distributable but for the proviso to the first sentence of this
Section 2.3, shall sell such shares in the public market as soon as practicable
after the Time of Distribution and shall distribute the proceeds of the sale of
such shares pro rata (based upon the fractional shares of New ACDI Stock which
would otherwise be received by such holders) among the holders of record of
Company Common Stock who, but for the foregoing provisions of this Section 2.3,
would have received fractional shares of New ACDI Stock.
2.4 Timing of Spin-Offs. Immediately prior to the Effective Time (as
defined in the Merger Agreement), subject to the satisfaction or waiver of the
conditions set forth in Article VI of this Spin-off Agreement, the Board of
Directors of ACDI shall formally declare the Newco Spin-Off and pay it by
delivery of certificates for Newco Common Stock to the Company, and the Board of
Directors of the Company shall formally declare the ACDI Spin-Off and pay it by
delivery of certificates for New ACDI Stock to the Transfer Agent for delivery
to the holders entitled thereto. The Spin-Offs shall be deemed to be effective
upon notification by the Company to the Transfer Agent that the Spin-Offs have
been declared and that the Transfer Agent is authorized to proceed with the
distribution.
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ARTICLE III
TAX MATTERS
Prior to the Time of Distribution ACDI and the Company shall enter into an
agreement relating to past and future tax sharing and certain issues associated
therewith in substantially the form attached hereto as Exhibit A (the 'Tax
Disaffiliation Agreement').
ARTICLE IV
CERTAIN TRANSACTIONS
4.1 Transactions Relating to Newco Spin-Off. (a) Immediately prior to the
Time of Distribution, subject to the satisfaction or waiver of the conditions
set forth in Article VI of this Spin-Off Agreement ACDI shall:
(i) contribute to the capital of Celcom Communications Corporation of
Pittsburgh ('Pittsburgh') the note receivable from Pittsburgh to ACDI in
cancellation of such indebtedness;
(ii) transfer, assign and convey to Newco all of the issued and
outstanding capital stock of the following companies:
(A) Associated Communications of Delaware, Inc. II;
(B) Pittsburgh;
(C) Celcom Equipment Corporation of Albany ('Albany');
(D) Celcom Equipment Corporation of Buffalo ('Buffalo');
(E) Celcom Equipment Corporation of Rochester ('Rochester');
(F) Associated Data Services Corporation ('Data Services'); and
(G) Celcom Communications Corporation of Rochester.
(iii) transfer, assign and convey to Newco all assets of ACDI not
transferred pursuant to Section 4.1(a)(ii) hereof, other than securities
(the 'Portfolio Securities'); and
(iv) cause Newco to transfer, assign and convey all of the issued and
outstanding capital stock of Pittsburgh, Albany, Buffalo, Rochester, and
Data Services (the 'Transferred Subsidiaries') to Associated Communications
of Delaware, Inc. II ('ACDI II') as a contribution to the capital of ACDI
II.
(b) Immediately after the transfers described in subparagraph (iv) of
Section 4.1(a), Newco shall cause ACDI II to transfer, assign and convey:
(i) all of the stock of the Transferred Subsidiaries to Celcom
Communications Corporation of Albany, a New York corporation and a direct
wholly owned subsidiary of ACDI II; and
(ii) all of the issued and outstanding capital stock of California
Celcom Communications Corporation to Celcom Communications Corporation of
Buffalo, a New York corporation and a direct wholly-owned subsidiary of
ACDI II.
4.2 Transactions Relating to ACDI Spin-Off. (a) Prior to the Time of
Distribution and immediately after the transfers described in Section 4.1
hereof, the Company shall:
(i) cause each of the following direct wholly-owned subsidiaries of
the Company to be merged with and into ACDI, with ACDI being the surviving
corporation in such mergers (the 'Merged Subsidiaries'):
(A) Associated WOMP, Inc., an Ohio corporation,
(B) WSTV, Inc., an Ohio corporation,
(C) Associated American Artists, Inc., a New York corporation,
(D) Associated Technologies, Inc., a Delaware corporation,
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(E) Associated Communications of America, Inc., a Delaware
corporation, and
(F) Associated Communications Resources, Inc., a Delaware
corporation; and
(ii) transfer, assign and convey to ACDI the assets listed in Section
3.7 of the Company Disclosure Schedule under the caption 'Excluded Assets'
(the 'Excluded Assets').
(b) Immediately after the mergers described in clause (i) of Section 4.2(a)
hereof, ACDI shall cause:
(A) Associated Communications of Los Angeles, Inc. to be merged with
and into ACDI, with ACDI being the surviving corporation; and
(B) all of the Portfolio Securities that it owns at the Effective Time
to be transferred to a direct wholly-owned subsidiary of ACDI formed solely
for the purpose of holding the Portfolio Securities.
4.3 Intercompany Payments. The Company and members of the ACDI Group shall
at or prior to the Time of Distribution, satisfy by cash payment the full net
amount of any intercompany indebtedness or other advances or accruals owing
between members of the Company Group and members of the ACDI Group arising after
December 31, 1993 and not previously paid in full prior to the Time of
Distribution and ACDI shall pay the Company (or, if negative, the Company shall
pay ACDI) an amount equal to (i) (A) the Fair Market Value of (x) all
contributions to capital (including by way of forgiveness of intercompany
indebtedness, advances or accruals owing between members of the Company Group
and members of the ACDI Group but excluding the transfers contemplated by
Sections 4.1 and 4.2) paid or made after December 31, 1993 and prior to the Time
of Distribution by members of the Company Group to members of the ACDI Group
plus (y) the Fair Market Value of all dividends (including by way of forgiveness
of intercompany indebtedness, advances or accruals owing between members of the
ACDI Group and members of the Company Group but excluding the transfers
contemplated by Sections 4.1 and 4.2) paid or made after December 31, 1993 and
prior to the Time of Distribution by members of the Company Group to members of
the ACDI Group plus (B) the sum of (w) any consulting fees in excess of $100,000
per month, (x) any expense payments in excess of $50,000 per month, (y) any
management fees in excess of $315,000 per month and (z) any other fees, expense
allocations, reimbursements or charges of any nature, in each case paid by
members of the Company Group to members of the ACDI Group after December 31,
1993 and prior to the Time of Distribution (prorating any such amounts for any
partial months),
minus
(ii) the Fair Market Value of (x) all dividends (including by way of
forgiveness of intercompany indebtedness, advances or accruals owing between
members of the Company Group and members of the ACDI Group but excluding the
transfers contemplated by Sections 4.1 and 4.2) paid or made after December 31,
1993 and prior to the Time of Distribution by members of the ACDI Group to
members of the Company Group plus (y) all contributions to capital (including by
way of forgiveness of intercompany indebtedness, advances or accruals owing
between members of the ACDI Group and members of the Company Group but excluding
the transfers contemplated by Sections 4.1 and 4.2) paid or made after December
31, 1993 and prior to the Time of Distribution by members of the ACDI Group to
members of the Company Group. Any of the foregoing amounts due from members of
the Company Group to members of the ACDI Group or from members of the ACDI Group
to members of the Company Group as contemplated above shall be netted so that
there shall be a single payment due immediately prior to the Time of
Distribution. Prior to the Time of Distribution, the Company, Parent and ACDI
shall agree on a reasonable estimate of the net amount so payable. The Company
and ACDI shall use their reasonable efforts within 90 days after the Time of
Distribution to agree on the actual amount so payable. If the actual amount so
payable pursuant to this Section 4.3 is different from such estimated amount,
the Company or ACDI (as appropriate) will promptly pay the difference to the
other, plus interest thereon at a floating rate equal to the average prime rate
(as in effect from time to time) as reported in The Wall Street Journal plus 1%
from the Time of Distribution to the date of payment. If the parties are unable
to so agree on the actual amount, any disputes will be resolved by an
independent accounting firm selected by the Company and ACDI, the fees and
expenses of which will be borne equally by the Company and ACDI. Once the actual
amount is so agreed or resolved, such amount shall be final and non-appealable.
The Company Group may pay consulting fees, expense payments and management fees
to ACDI, subject to the provisions of this Section 4.3 with respect to payments
of such fees in excess of the amounts set forth herein.
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4.4 Further Assurances. The parties agree that if after the Time of
Distribution, either party holds assets which by the terms hereof or of the
Merger Agreement were intended to be assigned and transferred to, or retained
by, the other party, such party shall promptly assign and transfer or cause to
be assigned and transferred such assets to the other party. The parties further
agree that, except as otherwise provided in this Agreement, the Merger Agreement
or Tax Disaffiliation Agreement, at or prior to the Time of Distribution ACDI
shall assume all liabilities (whether arising before or after the Time of
Distribution) primarily arising out of, based upon, or resulting from the
operation of the business of, or primarily relating to, the ACDI Group,
including all liabilities primarily relating to the Excluded Assets (the 'ACDI
Assumed Liabilities'), and the Company shall assume all liabilities (whether
arising before or after the Time of Distribution, and including, without
limitation, all liabilities reflected on the Retained Business Balance Sheet)
primarily arising out of, based upon, or resulting from the operation of, or
primarily relating to, the Company Group (the 'Company Assumed Liabilities').
ARTICLE V
CERTAIN COVENANTS
5.1 Indemnity. (a) Effective upon the Spin-Offs, ACDI agrees to indemnify
and hold the Company, its affiliates, successors and assigns and the officers,
directors, partners, employees, agents and representatives of any of them,
harmless from and against any and all ACDI Assumed Liabilities. Effective upon
the Spin-off, the Company agrees to indemnify and hold ACDI, its affiliates,
successors and assigns and the officers, directors, partners, employees, agents
and representatives of any of them, harmless from and against any and all
Company Assumed Liabilities. If either of the foregoing indemnities is
unavailable for any reason, the parties shall contribute in respect of any such
loss, claim, damage or liability on an equitable basis.
(b) (i) From and after the Time of Distribution, ACDI shall indemnify and
hold harmless the members of the Company Group, and the respective officers,
directors, employees, agents, successors and assigns of the members of the
Company Group (collectively, the 'Indemnified Persons'), and shall reimburse the
Indemnified Persons for, from and against each and every demand, claim, loss,
liability, judgment, damage, cost and expense (including, without limitation,
interest, penalties, diminution in value of an equity interest, costs of
preparation and investigation, and reasonable attorneys' fees and disbursements)
(a 'Loss') imposed on or incurred, directly or indirectly, by the Indemnified
Persons, resulting from or arising out of any claim made in any suit, action or
proceeding, which claim is based on or arises out of the facts and circumstances
alleged in any document filed or exchanged by the parties prior to the Time of
Distribution in any of the proceedings set forth on Schedule 5.1(b) hereto, but
only if and to the extent such Loss is attributable to the acts or omissions of
Associated Communications Corporation or any of its affiliates or any of their
respective directors, officers, employees or agents prior to the Time of
Distribution (an 'Indemnified Claim').
(ii) The relevant Indemnified Person shall give prompt written notice of
any Indemnified Claim to ACDI which shall assume the defense thereof (and shall
continue to control the defense of any Indemnified Claim made in any suit,
action or proceeding pending at the Time of Distribution), including the
employment of counsel reasonably satisfactory to the Indemnified Person and the
payment of all of such counsel's fees and expenses; provided that any delay or
failure to so notify ACDI shall relieve ACDI of its obligations hereunder only
to the extent, if at all, that it is prejudiced by reason of such delay or
failure. Any such notice shall refer to this Section 5.1(b) of this Distribution
Agreement and shall state that the Indemnified Person may undertake the defense
of the applicable suit, action or proceeding unless it is assumed by ACDI within
fifteen (15) business days after the date it receives such notice. ACDI will
keep the Indemnified Person advised as to all material developments in
connection with any such suit, action or proceeding, including, but not limited
to, promptly furnishing to the Indemnified Person copies of all documents filed
or served in connection therewith. The Indemnified Person shall have the right
to employ one separate counsel per jurisdiction in any of the foregoing suits,
actions or proceedings and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the Indemnified Person
unless both the Indemnified Person and ACDI are named as parties and the
Indemnified Person shall reasonably determine in good faith that representation
by the same counsel is inappropriate due to actual or potential differing
interests between them. In the event that ACDI within fifteen (15) business days
after receiving written notice of any such suit, action or proceeding, fails to
assume the defense thereof, the Indemnified Person shall have the right, subject
to the further provisions hereof, to undertake
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the defense, compromise or settlement of such suit, action or proceeding for the
account of ACDI. Anything in this Section 5.1(b) to the contrary
notwithstanding, ACDI shall not, without the Indemnified Person's prior written
consent, settle or compromise any Indemnified Claim or consent to the entry of
any judgment with respect to any Indemnified Claim if such settlement,
compromise or judgment requires anything other than money damages paid by ACDI.
ACDI may, without the Indemnified Person's prior written consent, settle or
compromise any suit, action or proceeding or consent to entry of any judgment
that does not admit any illegal conduct by any Indemnified Person requires
solely the payment of money damages by ACDI and that includes as an
unconditional term thereof the release by the claimant or the plaintiff of all
Indemnified Persons from all liability in respect of such Indemnified Claim.
5.2 Mutual Release, Etc. Effective upon the Spin-Offs and except as
otherwise specifically set forth in this Spin-Off Agreement, each of the Company
and ACDI releases and forever discharges the other, and its officers, directors,
agents, affiliates, record and beneficial security holders (including, without
limitation, trustees and beneficiaries of trusts holding such securities),
advisors and representatives, of and from all debts, demands, actions, causes of
action, suits, accounts, covenants, contracts, agreements, damages, and any and
all claims, demands and liabilities whatsoever of every name and nature, both in
law and in equity, against such other party or any of its assigns, which the
releasing party has or ever had, which arise out of or relate to events,
circumstances or actions taken by such other party prior to the Time of
Distribution; provided, however, that the foregoing general release shall not
apply to this Spin-Off Agreement or the transactions contemplated hereby and
shall not affect either party's right to enforce this Spin-Off Agreement or any
other agreement contemplated hereby in accordance with its terms. Each party
understands and agrees that, except as otherwise specifically provided herein,
neither the other party nor any of its subsidiaries is, in this Spin-Off
Agreement or any other agreement or document representing or warranting to such
party in any way as to the assets, business or liabilities transferred or
assumed as contemplated hereby or as to any consents or approvals required in
connection with the consummation of the transactions contemplated by this
Spin-Off Agreement, it being agreed and understood that each party shall take or
keep all of its assets 'as is' and that it shall bear the economic and legal
risk that conveyance of such assets shall prove to be insufficient or that the
title to any assets shall be other than good and marketable and free from
encumbrances.
5.3 Employee Liabilities. ACDI agrees to indemnify and hold the Company
harmless from and against (a) 50% of any amounts paid by the Company to persons
who are direct employees of the Company immediately prior to the Time of
Distribution and who become employees of a member of the ACDI Group immediately
after the Time of Distribution and (b) except for payments pursuant to
contractual obligations, 100% of any amounts paid to persons listed on Schedule
5.3 hereto, in the case of clauses (a) and (b) above, resulting from any claim,
action or suit arising out of such employee's status as an employee of the
Company prior to the Time of Distribution, other than claims for wages, salaries
and other employee benefits accrued prior to the Time of Distribution.
5.4 Transaction Expenses. For purposes of this Spin-Off Agreement, all
expenses, except those expenses subject to reimbursement pursuant to Section
6.14(a) of the Merger Agreement, paid or payable by any member of the Company
Group after December 31, 1993 in connection with this Spin-Off Agreement and the
Merger Agreement and the transactions contemplated hereby and thereby,
including, without limitation, all fees and expenses of the Company's investment
bankers and lawyers, shall be treated for purposes of Section 4.3 as an
intercompany loan from the Company Group to the ACDI Group; provided, however,
that only one half of any fees and expenses relating to the prepayment of the
Credit Agreement shall be treated as an intercompany loan.
5.5 Solicitation of Employees. For two years after the Time of
Distribution, neither party will, directly or indirectly, solicit the employment
of any employee of the other party and its Subsidiaries; provided, that ACDI may
solicit the employment of those persons set forth on Schedule 5.5 hereto.
5.6 Insurance. Following the Time of Distribution, ACDI shall pay to the
Company any annual premium costs in excess of 150 percent of the Company's 1993
annual premium cost for its directors and officers liability insurance incurred
by Parent in order to maintain directors and officers liabilty insurance
pursuant to Section 6.11 of the Merger.
6
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ARTICLE VI
CONDITIONS
The obligations of the Company and ACDI to consummate the Spin-Offs shall
be subject to the fulfillment of each of the following conditions:
6.1 Recapitalization of ACDI. The recapitalization of ACDI in accordance
with Section 2.2 hereof shall have been completed substantially as described
therein.
6.2 Tax Disaffiliation Agreement. The Tax Disaffiliation Agreement, in the
form of Exhibit A hereto, shall have been executed and delivered by each of the
Company and ACDI.
6.3 Certain Transactions. All of the transactions or obligations
contemplated by Sections 4.1 and 4.2 hereof to be consummated or performed at or
prior to the Time of Distribution shall have been successfully consummated or so
performed.
6.4 Conditions to Merger Satisfied. Each condition to the closing of the
Merger set forth in Article VII of the Merger Agreement, other than the
condition to each party's obligations set forth in Section 7.1(g) thereof as to
the consummation of the transactions contemplated by this Spin-Off Agreement,
shall have been satisfied or waived.
6.5 Stockholder Approval. If submitted to stockholders for approval, this
Agreement and the Spin-Offs shall have been approved and adopted by the
affirmative vote of the holders of Company Common Stock entitled to cast at
least 66 2/3% of the total number of votes entitled to be cast.
6.6 Registration of ACDI Shares. Any registration statement filed by ACDI
with the Securities and Exchange Commission (the 'SEC') pursuant to the
Securities Act of 1933, as amended (the 'Securities Act') or the Securities
Exchange Act of 1934, as amended (the 'Exchange Act') in connection with the
issuance of New ACDI Stock in the ACDI Spin-Off shall have become effective
under the Securities Act or Exchange Act, as applicable, and shall not be the
subject of any stop order or proceeding by the SEC seeking a stop order.
6.7 Quotation on NASDQ/NMS. The shares of New ACDI Stock to be issued in
the ACDI Spin-Off shall have been designated as national market system
securities on the interdealer quotation system by the National Association of
Securities Dealers, Inc. or listed on the New York or American Stock Exchanges,
subject to official notice of issuance.
6.8 Other Approvals. All consents, approvals and action of the FCC or any
state public utility commission having jurisdiction required to permit the
consummation of the transactions contemplated hereby shall have been obtained or
made, free of any condition that would materially adversely impact the economic
or business benefits of the Spin-Offs to the Company's shareholders or that
would have a material adverse effect on ACDI and its subsidiaries taken as a
whole, all authorizations, consents, orders or approvals of, or declarations or
filings with, or expirations of waiting periods imposed by, any other
Governmental Entity the failure to obtain which would have a material adverse
effect on ACDI and its subsidiaries taken as a whole, shall have been filed,
occurred, or been obtained, and all consents, approvals or waivers of any party
to a contract set forth in Section 3.4 of the Company Disclosure Schedule
attached to the Merger Agreement shall have been obtained. ACDI shall have
received all state securities or 'blue sky' permits and other authorizations
necessary to issue the New ACDI Stock to be issued in the Spin-Off.
6.9 No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Spin-Offs shall be in effect (each party agreeing to use all
reasonable efforts to have any such order reversed or injunction lifted).
6.10 HSR Approval. Any applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have
expired or been terminated.
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ARTICLE VII
MISCELLANEOUS AND GENERAL
7.1 Modification or Amendment. The parties hereto may modify or amend this
Spin-Off Agreement by written agreement executed and delivered by authorized
officers of the respective parties.
7.2 Counterparts. For the convenience of the parties hereto, this Spin-Off
Agreement may be executed in separate counterparts, each such counterpart being
deemed to be an original instrument, and which counterparts shall together
constitute the same agreement.
7.3 Governing Law. This Spin-Off Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to its conflicts of law principles.
7.4 Notices. Any notice, request, instruction or other document to be given
hereunder by any party to the other shall be in writing and shall be deemed to
have been duly given (i) on the date of delivery if delivered by facsimile (upon
confirmation of receipt) or personally, (ii) on the first business day following
the date of dispatch if delivered by Federal Express or other next-day courier
service, or (iii) on the third business day following the date of mailing if
delivered by registered or certified mail, return receipt requested, postage
prepaid. All notices hereunder shall be delivered as set forth below, or
pursuant to such other instructions as may be designated in writing by the party
to receive such notice:
If to the Company:
Associated Communications Corporation
200 Gateway Towers
Pittsburgh, PA 15222
Attn: Myles P. Berkman
If to ACDI or Newco:
C/O Associated Communications Corporation
200 Gateway Towers
Pittsburgh, PA 15222
Attn: Myles P. Berkman
7.5 Captions. All Article, Section and paragraph captions herein are for
convenience of reference only, do not constitute part of this Spin-Off Agreement
and shall not be deemed to limit or otherwise affect any of the provisions
hereof.
7.6 Assignment. Except as expressly otherwise provided herein, nothing
contained in this Spin-Off Agreement or the agreements referred to herein is
intended to confer on any person or entity other than the parties hereto and
their respective successors and permitted assigns any benefit, rights or
remedies under or by reason of this Spin-Off Agreement and such other
agreements, except that the provisions of Sections 5.1 and 5.2 hereof shall
inure to the benefit of the persons referred to therein.
7.7 Further Assurances. Subject to the terms and conditions hereof and, as
applicable, of the Merger Agreement, ACDI, Newco and the Company will, and will
cause their respective subsidiaries to, do such additional things as are
necessary or proper to carry out and effectuate the intent of this Spin-Off
Agreement or any part hereof or the transactions contemplated hereby.
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IN WITNESS WHEREOF, this Spin-Off Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first hereinabove written.
[COMPANY]
By: __________________________________
Name:
Title:
[NEWCO]
By: __________________________________
Name:
Title:
[ACDI]
By: __________________________________
Name:
Title:
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EXHIBIT A
TAX DISAFFILIATION AGREEMENT dated as of [ ], 199[ ] by and among
Associated Communications Corporation, a Delaware corporation ('Associated'),
Associated Communications of Delaware, Inc., a Delaware corporation and a direct
wholly-owned subsidiary of the Company ('ACDI') and [Newco] ('Newco'), a newly
incorporated Delaware corporation and a direct, wholly-owned subsidiary of ACDI.
RECITALS
WHEREAS:
A. Associated is the common parent of an affiliated group of corporations
within the meaning of Section 1504(a) of the Internal Revenue Code of 1986, as
amended (the 'Code'), and the members of the affiliated group have heretofore
joined in filing consolidated Federal income tax returns.
B. Associated expects, pursuant to the Agreement and Plan of Distribution
dated as of [ ], 199[ ] (the 'Distribution Agreement') among
Associated, ACDI and Newco, to spin-off its interest in certain of its cellular
and its non-cellular activities to its shareholders. In furtherance of this
decision, among other things (and as more fully set forth in the Distribution
Agreement) (i) ACDI intends to transfer the stock of its cellular subsidiaries
and certain of its cellular assets to Newco, (ii) Newco intends to cause certain
of those subsidiaries to be transferred to certain of its indirect subsidiaries,
(iii) Associated intends to cause certain of its direct subsidiaries to merge
with and into ACDI with ACDI surviving, (iv) ACDI intends to transfer the
Portfolio Securities (as defined in the Distribution Agreement) to a newly
formed subsidiary, (v) ACDI intends to distribute on the Distribution Date (as
hereinafter defined) all of the Newco Common Stock owned by it to Associated
(the 'Newco Distribution'), and (vi) Associated intends to distribute on the
Distribution Date pro rata to the holders of its Common Stock all of the
outstanding shares of the Common Stock of ACDI (the 'ACDI Distribution' and,
together with the Newco Distribution, the 'Distribution').
C. Immediately after the distribution of the Common Stock of ACDI to the
holders of the Common Stock of Associated, Associated will merge with SBMS
Acquisition Corp., a Delaware corporation ('Acquisition Sub'), with Associated
surviving (the 'Merger'), as contemplated by the Agreement and Plan of Merger
and Reorganization dated as of February 23, 1994 (the 'Merger Agreement')
between Associated and Southwestern Bell Corporation, a Delaware corporation and
the indirect shareholder of Acquisition Sub ('Acquiror'), in connection with
which the holders of the Common Stock of Associated will receive Common Stock of
Acquiror.
D. Associated and ACDI intend the Newco Distribution and the ACDI
Distribution each to be a transaction described in Section 355 of the Code,
after which neither ACDI nor any of its Subsidiaries (as hereinafter defined)
will be a member of the Associated affiliated group for Federal income tax
purposes.
E. Associated and ACDI desire on behalf of themselves, their subsidiaries
and their successors to set forth their rights and obligations with respect to
Taxes (as hereinafter defined) due for periods before and after the
Distribution.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement,
1.1 'Associated Group' shall mean, for any period, Associated and its then
Subsidiaries.
1.2 'ACDI Group' shall mean, for any period, ACDI and its then
Subsidiaries.
1.3 'Distribution Date' shall mean the day on which, due to the
distribution of the shares of ACDI Common Stock to the holders of the Common
Stock of Associated, ACDI could no longer be considered a member of the
affiliated group of which Associated is the common parent.
<PAGE>
1.4 'Event of Loss' shall mean the incurrence by the Associated Group of
any liability for Taxes which arise as a result of the Newco Distribution or the
ACDI Distribution failing to qualifying as a tax-free spinoff within the meaning
of Section 355 of the Code.
1.5 'Final Determination' shall mean with respect to any issue (1) a
decision, judgment, decree or other order by any court of competent
jurisdiction, which decision, judgment, decree or other order has become final
and not subject to further appeal, (2) a closing agreement entered into under
Section 7121 of the Code or any other binding settlement agreement (whether or
not with the Internal Revenue Service) entered into in connection with or in
contemplation of an administrative or judicial proceeding, or (3) the completion
of the highest level of administrative proceedings if a judicial contest is not
or is no longer available.
1.6 'Indemnitor' shall have the meaning set forth in Section 5.2.
1.7 'Period After Distribution' shall mean any taxable year or other
taxable period beginning after the Distribution Date and, in the case of any
taxable year or other taxable period that begins before and ends after the
Distribution Date, that part of the taxable year or other taxable period that
begins after the close of the Distribution Date.
1.8 'Period Before Distribution' shall mean any taxable year or other
taxable period that ends on or before the Distribution Date and, in the case of
any taxable year or other taxable period that begins before and ends after the
Distribution Date, that part of the taxable year or other taxable period through
the close of the Distribution Date.
1.9 'Subsidiary' shall mean a corporation, partnership, joint venture or
other business entity where 50% or more of the outstanding equity or voting
power of such entity is owned directly or indirectly by another corporation. In
determining whether a Subsidiary is a Subsidiary of ACDI or Associated for any
period, ACDI shall not be considered a Subsidiary of Associated, and any
Subsidiary of ACDI shall be considered a Subsidiary of ACDI, not Associated, for
such period. Notwithstanding the foregoing, any corporation whose shares are
transferred pursuant to Article IV of the Distribution Agreement, or that is a
Subsidiary of such corporation, shall be a Subsidiary of the corporation to
which its shares are so transferred.
1.10 'Tax' or 'Taxes' whether used in the form of a noun or adjective,
shall mean taxes on or measured by or with respect to income, franchise, gross
receipts, sales, use, excise, payroll, personal property, real property,
ad-valorem, value-added, leasing, leasing use or other taxes, PSC fees, levies,
imposts, duties, charges or withholdings of any nature. Whenever the term 'Tax'
or 'Taxes' is used (including without limitation, regarding any duty to
reimburse another party for indemnified Taxes or refunds or credit of Taxes) it
shall include penalties, fines, additions to Tax and interest thereon.
1.11 'Tax Returns' shall mean all returns or reports to be filed or that
may be filed for any period with any Taxing authority (whether domestic or
foreign) in connection with any Tax or Taxes (whether domestic or foreign).
1.12 'Tax Sharing Agreement' shall mean the Tax Allocation Agreement dated
as of September 28, 1993, between Associated and Associated Communications of
Delaware, Inc. II.
ARTICLE II
TAX RETURNS, TAX PAYMENTS, EVENT OF LOSS
AND TAX SHARING AGREEMENT
2.1 Obligation to File Tax Returns. Associated shall timely file or cause
to be filed all Tax Returns with respect to the ACDI Group that (a) are filed on
a consolidated, combined or unitary basis, (b) include ACDI or any of its
Subsidiaries and Associated or any of its Subsidiaries, and (c) are required to
be filed (i) for any Period Before Distribution or (ii) for any taxable year or
period of the Associated Group that begins before and ends after the
Distribution Date. ACDI shall timely file or cause to be filed any other Tax
Return with respect to the ACDI Group.
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2.2 Obligation to Remit Taxes. Associated and ACDI shall each remit or
cause to be remitted any Taxes due in respect of any Tax for which it is
required to file a Tax Return and shall be entitled to reimbursement for such
payments only to the extent provided in Section 2.3.
2.3 Certain Tax Sharing Obligations and Prior Agreements.
(a) ACDI shall be liable for and shall hold the Associated Group harmless
against (i) any Tax liability of the ACDI Group for any Period After
Distribution, (ii) any Tax liability asserted against any member of the
Associated Group under the provisions of Treas. Reg. 1.1502-6(a) that impose
several liability on members of an affiliated group of corporations that files
consolidated returns, or similar provisions of any foreign, state or local law,
in respect of Taxes of any member of the ACDI Group (or of any member of the
ACDI Group that is a successor to an entity that was a member of the Associated
Group during any Period Before Distribution) for any Period Before Distribution
and (iii) any Tax liability, other than a Tax liability resulting from the
breach of a representation contained in Section 2.4(c)(ii) or (iii) of this
Agreement, of the Associated Group resulting from the transactions contemplated
in Section 2.4 and Article IV of the Distribution Agreement. ACDI shall be
entitled to any refund or credit of Taxes of the ACDI Group for any period that
is attributable to the ACDI Group. Any liability for Taxes under this Section
2.3(a) shall be measured by the Associated Group's actual liability for Taxes
prior to applying Tax benefits otherwise available to the Associated Group. Any
right to a refund under this Section 2.3(a) shall be measured by the actual
refund or credit of the Associated Group attributable to the adjustment without
regard to offsetting Tax attributes of the Associated Group.
(b) Associated shall be liable for and shall hold the ACDI Group harmless
against any liability attributable to any Subsidiary that is a member of the
Associated Group for Taxes, regardless of whether attributable to a Period
Before Distribution or a Period After Distribution, including any liability
asserted against any member of the ACDI Group under the provisions of Treas.
Reg. 1.1502-6(a) that impose several liability on members of an affiliated group
of corporations that files consolidated returns, or similar provisions of any
foreign, state or local law, in respect of Taxes of any Subsidiary that is a
member of the Associated Group. Associated shall be entitled to any refund of
Taxes for any period that is attributable to the Associated Group. Any liability
for Taxes under this Section 2.3(b) shall be measured by the ACDI Group's actual
liability for Taxes prior to applying Tax benefits otherwise available to the
ACDI Group. Any right to a refund under this Section 2.3(b) shall be measured by
the actual refund or credit of the ACDI Group attributable to the adjustment
without regard to offsetting Tax attributable of the ACDI Group.
(c) Except as set forth in this Section 2.3 and in consideration of the
mutual indemnities and other obligations of this Agreement, any and all prior
tax sharing agreements or practices between any member of the Associated Group
and any member of the ACDI Group shall be terminated with respect to the ACDI
Group as of the Distribution Date.
2.4 Event of Loss.
(a) Notwithstanding anything in this Agreement to the contrary, to the
extent that an Event of Loss would not have resulted but for an act (other than
an act required by the Distribution Agreement or the Merger Agreement) or
omission of the ACDI Group or the ACDI Group's shareholders that resulted in a
breach of ACDI's representation contained in Section 2.4(c)(i) of this Agreement
(without regard to whether the ACDI Group obtained the opinion of counsel
described in such section), ACDI shall indemnify and hold harmless each member
of the Associated Group from and against such Event of Loss.
(b) Notwithstanding anything in this Agreement to the contrary, to the
extent that an Event of Loss would not have resulted but for an act (other than
an act required by the Distribution Agreement or the Merger Agreement) or
omission of the Associated Group or the shareholders of the Associated Group
that resulted in a breach of Associated's representation contained in Section
2.4(c)(ii) of this Agreement or a breach of Newco's representation contained in
Section 2.4(c)(iii) of this Agreement (in each case, without regard to whether
the Associated Group or Newco obtained the opinion of counsel described in such
section), Associated shall indemnify and hold harmless each member of the ACDI
Group from and against such Event of Loss.
(c)(i) ACDI represents that, except as otherwise provided in the
Distribution Agreement or the Merger Agreement, as of the date hereof,
it has no plan or intention to participate in any of the following
described events or transactions: a reorganization, consolidation or
merger; the sale or disposition of its assets other
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than in the ordinary course of business; ACDI's ceasing to engaged in the
active conduct of a trade of business; the acquisition or disposition
of shares of stock of ACDI by any person or persons; the redemption or
repurchase of shares of its stock by ACDI or any successor; the
recapitalization or other reclassification of the shares of ACDI or any
successor; exercising, transferring or repurchasing rights distributed
pursuant to a stock purchase rights plan, or any other act or omission
of ACDI which results in failure to comply with each representation and
statement made to the Internal Revenue Service (the 'Service') in
connection with the rulings received with respect to the Distribution.
(ii) Associated represents that, except as otherwise provided in the
Distribution Agreement or the Merger Agreement, as of the date hereof, it
has no plan or intention to participate in any of the following described
events or transactions: a reorganization, consolidation or merger; the sale
or disposition of the assets of Associated other than in the ordinary
course of business; Associated's ceasing to engaged in the active conduct
of a trade of business; the acquisition or disposition of shares of stock
of Associated by any person or persons; the redemption or repurchase of
shares of its stock by Associated or any successor; the recapitalization or
other reclassification of the shares of Associated or any successor;
exercising, transferring or repurchasing rights distributed pursuant to a
stock purchase rights plan, or any other act or omission of Associated
which results in failure to comply with each representation and statement
made to the Service in connection with the rulings received with respect to
the Distribution.
(iii) Newco represents that, except as otherwise provided in the
Distribution Agreement or the Merger Agreement, as of the date hereof, it
has no plan or intention to participate in any of the following described
events or transactions: a reorganization, consolidation or merger; the sale
or disposition of the assets of Newco other than in the ordinary course of
business; Newco's ceasing to engaged in the active conduct of a trade of
business; the acquisition or disposition of shares of stock of Newco by any
person or persons; the redemption or repurchase of shares of its stock by
Newco or any successor; the recapitalization or other reclassification of
the shares of Newco or any successor; exercising, transferring or
repurchasing rights distributed pursuant to a stock purchase rights plan,
or any other act or omission of Newco which results in failure to comply
with each representation and statement made to the Service in connection
with the rulings received with respect to the Distribution.
(iv) Notwithstanding the foregoing, ACDI, Associated or Newco, as the
case may be, may engage in acts described in paragraphs (i), (ii) or (iii)
of this Section 2.4(c) if the other parties to this Agreement consent in
writing in advance to such action, or ACDI, Associated or Newco, as the
case may be, at its discretion obtains a ruling from the Service, or
obtains an unqualified opinion from a nationally recognized tax counsel,
which ruling or opinion states that such action will not cause the
Associated Group to experience an Event of Loss, and that any Service
ruling obtained remains in full force and effect, and may continue to be
relied upon by ACDI, Associated or Newco, as the case may be, and their
respective shareholders.
2.5 Taxes Attributable to the Merger and the Distribution.
(a) Associated shall be liable for and shall hold the ACDI Group harmless
against any liability for Taxes arising as a result the Merger under the
provisions of the New York State Real Estate Transfer Tax (N.Y. Law Section
1402), New York City Real Estate Transfer Tax (N.Y.C. Law Section 11-2100) and
New York State Real Property Transfer Gains Tax (N.Y. Tax Law Section 1441),
other than any such Taxes arising in connection with any transfer of the
Excluded Assets (as defined in the Merger Agreement), which Taxes the ACDI Group
shall be liable for and shall hold Associated harmless against. Associated shall
timely file or cause to be timely filed all Tax Returns that are required to be
filed and for which it is responsible, and shall remit or cause to be remitted
any Taxes that are due and for which it is responsible, under the foregoing
provisions of New York law. ACDI shall timely file or cause to be timely filed
all Tax Returns that are required to be filed and for which it is responsible,
and shall remit or cause to be remitted any Taxes that are due and for which it
is responsible, under the foregoing provisions of New York law.
(b) Notwithstanding anything to the contrary in this Agreement, to the
extent that there is a Final Determination by any taxing authority that any of
the payments to be made by Associated to the holders of its options, certain of
its employees, or certain members of its management, which payments are
described in clauses (ii)(B), (ii)(C) and (ii)(D) of the third sentence of
Section 2.1(c) of the Merger Agreement, are not deductible by
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Associated for income tax purposes, then ACDI shall pay an amount to Associated
which is equal to the sum of (x) the lesser of (i) the product of the payment
(or portion thereof) described in this Section 2.5(b) that was determined not to
be deductible and the applicable tax rate for the appropriate taxing
jurisdiction, or (ii) the product of .36 and the payment (or portion thereof)
described in this Section 2.5(b) that was determined not to be deductible, and
(y) the amount of any interest, penalties or additions to tax imposed upon
Associated as a result of its deduction of any payment (or portion thereof)
described in this Section 2.5(b) that was determined not to be deductible, which
interest, penalties and additions to tax are attributable to the payment made by
ACDI to Associated pursuant to clause (x) of this Section 2.5(b). For purposes
of the preceding sentence, the 'applicable tax rate' shall mean 9.3% for
California income tax purposes, 12.25% for Pennsylvania income tax purposes and
35% for Federal income tax purposes.
2.6 Period that Includes the Distribution Date.
(a) To the extent permitted by law or administrative practice, the taxable
year of the ACDI Group shall be treated as closing on the Distribution Date.
(b) If it is necessary for purposes of this Agreement to determine the
income tax liability of any member of the ACDI Group or of the Associated Group
for a taxable year that begins on or before and ends after the Distribution Date
and is not treated under Section 2.6(a) as closing at the close of the
Distribution Date, the determination shall be made by assuming that such member
of the ACDI Group or of the Associated Group had a taxable year that ended at
the close of the Distribution Date, except that exemptions, allowances or
deductions that are calculated on an annual basis shall be apportioned on a per
diem basis.
ARTICLE III
CARRYBACKS
Without the prior consent of Associated, no member of the ACDI Group shall
carry back any net operating loss or other Tax attribute from a Period After
Distribution to a Period Before Distribution.
ARTICLE IV
PAYMENTS
4.1 Payments. Payments due to a party under Section 2.3 shall be due not
later than 20 business days after the receipt or crediting of a refund or the
receipt of notice of a Final Determination that the indemnified party is liable
for an indemnified cost.
4.2 Notice. Associated and ACDI shall give each other reasonable notice of
any payment that may be due under this Agreement.
ARTICLE V
TAX AUDITS
5.1 General. Except as provided in Section 5.2, each of ACDI and Associated
shall have sole responsibility for all audits or other proceedings with respect
to Tax Returns that it is required to file under Section 2.1.
5.2 Indemnified Claims. Associated or ACDI shall promptly notify the other
in writing of any proposed adjustment to a Tax Return that may result in
liability of the other party (the 'Indemnitor') under this Agreement. The
Indemnitor shall have the sole right to contest the proposed adjustment and to
employ counsel of its choice at its expense; provided, however, that if the
proposed adjustment involves a consolidated, combined or similar Tax Return for
which the other party is responsible and cannot be separated from the Tax Return
under applicable law, the Indemnitor shall not settle the proposed adjustment
without the consent of the other party, which consent shall not be unreasonably
withheld. The Indemnitor shall provide the other party with information
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<PAGE>
concerning the proposed adjustments and, in the sole discretion of the
Indemnitor, may permit the other party to participate in the proceeding.
ARTICLE VI
COOPERATION
Associated and ACDI shall cooperate with each other in the filing of any
Tax Returns and the conduct of any audit or other proceeding and each shall
execute and deliver such powers of attorney and make available such other
documents as are necessary to carry out the intent of this Agreement. Each party
agrees to notify the other party of any audit adjustments which do not result in
Tax liability but can be reasonably expected to affect Tax Returns of the other
party, or any of its Subsidiaries, for a Period After Distribution. Each party
agrees to treat the Distribution for all income tax purposes as a tax-free
spinoff pursuant to Section 355(a) of the Code unless and until there has been a
Final Determination that the Distribution is not a tax-free spinoff under
Section 355(a) of the Code.
ARTICLE VII
RETENTION OF RECORDS; ACCESS
The Associated Group and the ACDI Group shall (a) in accordance with their
then current record retention policy, retain records, documents, accounting data
and other information (including computer data) necessary for the preparation
and filing of all Tax Returns in respect of Taxes of the Associated Group or the
ACDI Group or for the audit of such Tax Returns; and (b) give to the other
reasonable access to such records, documents, accounting data and other
information (including computer data) and to its personnel (insuring their
cooperation) and premises, for the purpose of the review or audit of such
returns to the extent relevant to an obligation or liability of a party under
this Agreement.
ARTICLE VIII
DISPUTES
If Associated and ACDI cannot agree on any calculation of any liabilities
under this Agreement, such calculation shall be made by any 'Big Six' accounting
firm acceptable to both Associated and ACDI. The decision of such firm shall be
final and binding. The fees and expenses incurred in connection with such
calculation shall be borne equally by Associated and ACDI.
ARTICLE IX
TERMINATION OF LIABILITIES
Notwithstanding any other provision in this Agreement, any liabilities
determined under this Agreement shall not terminate any earlier than the
expiration of the applicable statute of limitation for such liability. All other
covenants under this Agreement shall survive indefinitely.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Notices and Governing Law. All notices required or permitted to be
given pursuant to this Agreement shall be given, and the applicable law
governing the interpretation of this Agreement shall be determined, by the
applicable provisions of the Distribution Agreement.
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10.2 Treatment of Payments. The parties hereto shall treat any payments
made pursuant to the terms of this Agreement as a capital transaction
for all tax purposes.
10.3 Binding Effect; No Assignment; Third Party Beneficiaries. This
Agreement shall be binding on, and shall inure to the benefit of, the parties
and their respective successors and assigns, including Acquiror. Associated and
ACDI hereby guarantee the performance of all actions, agreements and obligations
provided for under this Agreement of each member of the Associated Group and the
ACDI Group, respectively. Associated and ACDI shall, upon the written request of
the other, cause any of their respective Subsidiaries to execute this Agreement.
Associated or ACDI shall not assign any of its rights or delegate any of its
duties under this Agreement without the prior written consent of the other
party. No person (including, without limitation, any employee of a party or any
stockholder of a party) shall be, or shall be deemed to be, a third party
beneficiary of this Agreement.
IN WITNESS WHEREOF, the parties hereto have dully executed this Agreement
as of the day and year first above written.
ASSOCIATED COMMUNICATIONS
CORPORATION
By ___________________________________
[Title]
ASSOCIATED COMMUNICATIONS OF
DELAWARE, INC.
By ___________________________________
[Title]
[NEWCO]
By ___________________________________
[Title]
7
<PAGE>
APPENDIX C
July 29, 1994
Board of Directors
Associated Communications Corporation
200 Gateway Towers
Pittsburgh, PA 15222
Dear Sirs:
You have requested our opinion as to the fairness, from a financial point
of view, to the stockholders of Associated Communications Corporation (the
'Company'), of the consideration to be received by such stockholders in
connection with the proposed merger (the 'Merger') of the Company with a
subsidiary of Southwestern Bell Corporation ('SBC'). In the Merger, each share
of the Company's Common Stock will be converted into the right to receive an
amount of SBC's Common Stock, as more fully described in the Merger Agreement
dated as of February 23, 1994, among SBC, a subsidiary of SBC and the Company
(the 'Merger Agreement'). We understand that, as set forth in the Merger
Agreement, prior to the Merger the Company will spin-off to its stockholders the
common stock of a newly-formed corporation ('Spinco') into which the Company
will have contributed its securities portfolio, its international cellular
interests and certain other assets (the 'Spin-off').
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company, as well as certain
other information, including financial projections for 1993 and 1994, provided
to us by the Company. We have discussed the past and current operations and
financial condition and prospects of the Company with its senior management.
With respect to SBC, we have reviewed only publicly available business,
financial and trading information. We have also considered such other
information, financial studies, analyses, investigations and financial,
economic, market and trading criteria which we deemed relevant.
We have assumed and relied without independent verification on the accuracy
and completeness of the information reviewed by us for the purpose of this
opinion. With respect to the Company's financial projections, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the Company's management as to the future
financial performance of the Company. We have not made an independent evaluation
or appraisal of the assets of the Company or of SBC, nor have we been furnished
with any such appraisals. Our opinion is necessarily based upon business,
market, economic and other conditions as they exist on, and can be evaluated as
of, the date of this letter and does not address the Company's underlying
business decision to effect the Merger. Our opinion as expressed below does not
imply any conclusion as to the likely trading range for the common stock of SBC
or Spinco following the consummation of the Merger and the Spin-off.
We have acted as financial advisor to the Board of Directors of the Company
in connection with the Merger and will receive a fee for our services which is
payable upon consummation of the Merger. In the ordinary course of our business,
we actively trade the debt and equity securities of SBC and the equity
securities of the Company
<PAGE>
for our own account and for the accounts of customers and, accordingly, may at
any time hold a long or short position in such securities.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be received by the stockholders of the Company
in connection with the Merger and the Spin-off, taken as a whole, is fair to
such stockholders from a financial point of view.
Very truly yours,
SALOMON BROTHERS INC
By: /s/ Michael J. Carr
2
<PAGE>
APPENDIX D
INFORMATION STATEMENT RELATING TO ASSOCIATED COMMUNICATIONS OF DELAWARE, INC.
AND THE DISTRIBUTION
INTRODUCTION
This Information Statement is being furnished to stockholders of Associated
Communications Corporation, a Delaware corporation ('Associated'), in connection
with the contemplated pro rata distribution (the 'Distribution') to Associated
stockholders of shares of Class A common stock, par value $.10 per share
(together with the accompanying Preferred Stock Purchase Right, the 'Class A
Common Stock'), and Class B common stock, par value $.10 per share (together
with the accompanying Preferred Stock Purchase Right, the 'Class B Common
Stock,' and, together with the Class A Common Stock, the 'Company Common
Stock'), of Associated Communications of Delaware, Inc., a Delaware corporation
and wholly-owned subsidiary of Associated (the 'Company'). The holders of
Associated Class A common stock, par value $.10 per share (the 'Associated Class
A Common Stock'), and Associated Class B common stock, par value $.10 per share
(the 'Associated Class B Common Stock,' and, together with the Associated Class
A Common Stock, the 'Associated Common Stock'), will receive 1/4 of a share of
Class A Common Stock and 1/4 of a share of Class B Common Stock with respect to
each share of Associated Common Stock held on the record date for the
Distribution (the 'Distribution Record Date'). The Distribution will result in
100% of the outstanding shares of Company Common Stock being distributed to
holders of Associated Common Stock on a pro rata basis.
At the time of the Distribution, the Company will own all of Associated's
businesses and assets other than its domestic cellular businesses and interests.
These businesses and assets currently include (i) a portfolio of marketable
equity securities with a market value at July 26, 1994 of approximately $475
million, including equity securities of Tele-Communications, Inc. ('TCI') and
Liberty Media Corporation ('Liberty'), (ii) an indirect equity interest in a
Mexican corporation which operates a cellular telephone system in Mexico, (iii)
indirect equity interests in two Mexican corporations formed for the development
of specialized mobile radio systems in Mexico, (iv) ownership of a microwave
communications business, (v) ownership of, or equity interests in, other private
communications businesses, (vi) ownership of four radio broadcasting stations,
two AM and two FM, and (vii) ownership of a retail art gallery. As used in this
Information Statement, the 'Company' means the Company and its consolidated
subsidiaries at the time of the Distribution, including the assets and
liabilities which will be transferred to the Company by Associated and the
assets and liabilities of certain subsidiaries which will be merged with and
into the Company immediately prior to the Distribution in accordance with the
Agreement and Plan of Distribution to be entered into prior to the Distribution,
the form of which is attached as Appendix B to the Proxy Statement-Prospectus
(as such form may be amended, supplemented or otherwise modified from time to
time, the 'Distribution Agreement') to which this Information Statement is
Appendix D (the 'Proxy Statement-Prospectus'). See 'The Company.'
No consideration will be paid by Associated stockholders for the shares of
Company Common Stock to be received by them in the Distribution. There is
currently no public trading market for the shares of Company Common Stock. The
Company intends to apply for the listing of the Company Common Stock on the
Nasdaq National Market (the 'NNM').
No fractional shares of Company Common Stock will be distributed in the
Distribution. Associated stockholders who otherwise would be entitled to receive
fractional shares of Company Common Stock will receive cash based on the market
value of such shares after the Distribution. See 'The Distribution--Terms of the
Distribution Agreement--Method of Effecting the Distribution.'
The Distribution has not yet been declared by the Associated Board of
Directors (the 'Associated Board'), and, accordingly, the Distribution Record
Date has not yet been determined. The Distribution is conditioned on, among
other things, the satisfaction of all conditions (other than consummation of the
Distribution) to the parties' obligations to consummate the merger (the
'Merger') provided for in the Agreement and Plan of Merger and Reorganization,
dated as of February 23, 1994 (as it may be amended, supplemented or otherwise
modified from time to time, the 'Merger Agreement'), among Associated,
Southwestern Bell Corporation, a Delaware corporation ('SBC'), and SBMS
Acquisition Corp., a Delaware corporation and an indirect wholly-owned
subsidiary of SBC ('Purchaser'), which is attached as Appendix A to the Proxy
Statement--Prospectus to which this Information Statement is Appendix D. See
'The Distribution--Terms of the Distribution Agreement--Conditions to the
Distribution.' Also see 'The Merger--Conditions' in the Proxy Statement-
Prospectus to which this Information Statement is Appendix D.
NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THE DISTRIBUTION. WE ARE
NOT ASKING YOU FOR A PROXY IN CONNECTION WITH THE DISTRIBUTION.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION........................................... 1
SUMMARY................................................ 3
The Company.......................................... 3
The Transactions..................................... 3
The Distribution..................................... 4
Summary Combined Historical and Pro Forma Financial
Data............................................... 5
SPECIAL FACTORS........................................ 7
Portfolio Securities; Volatility of Company's Stock
Price.............................................. 7
Net Losses and Cash Flow; Liquidity.................. 7
Absence of Trading Market............................ 8
Reliance upon Growth and Speculative Nature of
Investments........................................ 8
Reliance on Key Personnel............................ 8
Scope and Enforcement of Intellectual Property
Rights............................................. 8
Competition.......................................... 9
Dividends and Dividend Policy........................ 9
Certain Aspects of Minority Investments.............. 9
Risks of Doing Business in Developing Markets........ 10
Regulatory Environment............................... 10
Disparate Voting Rights; Substantial Stockholders;
Certain
Charter Provisions................................. 10
Possible Application of Investment Company Act of
1940............................................... 10
Relationship with Associated; Reorganization to
Effect Distribution................................ 12
THE COMPANY............................................ 13
Marketable Equity Securities......................... 13
Mexican Wireless Market.............................. 14
Personal Communications Services..................... 15
Radiolocation Technology............................. 15
Other Communications Businesses...................... 16
Radio Broadcasting................................... 16
Retail Art Gallery................................... 16
Future Conduct of the Business....................... 17
Employees............................................ 17
Properties........................................... 17
THE DISTRIBUTION....................................... 17
Background of and Reasons for the Distribution....... 17
Terms of the Distribution Agreement.................. 18
Certain Federal Income Tax
Consequences....................................... 23
LISTING AND TRADING OF COMPANY COMMON STOCK............ 24
CAPITALIZATION......................................... 25
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS...... 26
PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL
POSITION............................................. 27
PRO FORMA CONDENSED COMBINED STATEMENTS OF
OPERATIONS........................................... 28
SELECTED FINANCIAL DATA................................ 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................. 30
Three Months Ended March 31, 1994, Compared to the
Three Months Ended March 31, 1993.................. 30
Financial Condition.................................. 30
Years Ended December 31,
1993 and 1992...................................... 31
Years Ended December 31,
1992 and 1991...................................... 31
Inflation............................................ 32
Liquidity and Capital Resources...................... 32
MANAGEMENT............................................. 33
Directors............................................ 33
Committees of the Board of Directors................. 33
Compensation of Directors............................ 34
Executive Officers................................... 34
Executive Compensation............................... 34
Associated Stock Options............................. 35
ACORN Options........................................ 36
Treatment of ACORN Options........................... 36
BENEFICIAL OWNERSHIP................................... 42
EXECUTIVE COMPENSATION PLANS IN EFFECT AFTER THE
DISTRIBUTION......................................... 45
1994 Stock Option and Incentive
Award Plan......................................... 45
Certain Federal Income Tax Considerations Relating to
the 1994 Plan...................................... 49
Executive Employment Agreements...................... 51
401(k) Savings Plan.................................. 52
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY............ 53
Authorized Capital Stock............................. 53
Common Stock......................................... 53
Preferred Stock...................................... 53
Stockholder Rights Plan.............................. 54
No Preemptive Rights................................. 57
Description of Certain Statutory, Charter and By-law
Provisions......................................... 57
Indemnification and Insurance........................ 59
ADDITIONAL INFORMATION................................. 60
INDEX OF DEFINED TERMS................................. 61
INDEX TO COMBINED FINANCIAL STATEMENTS................. F-1
APPENDIX I--RESTATED CERTIFICATE OF INCORPORATION OF
SPINCO
</TABLE>
2
<PAGE>
SUMMARY
The following summarizes certain information contained elsewhere in this
Information Statement. Reference is made to, and this Summary is qualified in
its entirety by, the more detailed information and financial statements,
including the notes thereto, set forth in this Information Statement, which
should be read in its entirety. This Information Statement is Appendix D to the
Proxy Statement-Prospectus dated July 29, 1994 (the 'Proxy
Statement-Prospectus') of Associated and SBC relating to the Merger of Purchaser
into Associated, with Associated surviving as an indirect wholly-owned
subsidiary of SBC, pursuant to the Merger Agreement. See 'Summary--The
Transactions' below. The Company did not participate in the preparation of the
Proxy Statement-Prospectus, and does not have independent knowledge of the
matters set forth therein, except to the extent the Proxy Statement-Prospectus
contains excerpts from this Information Statement without material change.
Immediately prior to the Distribution described herein, the Company expects to
effect a recapitalization pursuant to which the 1,000 shares of the Company's
common stock currently outstanding will be exchanged for a total number of
shares of Company Common Stock (divided equally between Class A Common Stock and
Class B Common Stock) equal to one-half the total number of shares of Associated
Common Stock outstanding as of the Distribution Record Date. See 'Description of
Capital Stock of the Company.' Based on the number of shares of Associated
Common Stock outstanding on July 26, 1994, the 1,000 shares of common stock of
the Company would be exchanged for 18,745,578 shares of Company Common Stock
(divided equally between Class A Common Stock and Class B Common Stock), all of
which will be distributed to Associated's stockholders in the Distribution.
Unless otherwise noted, the financial statements and other financial
information and data herein are presented on a combined basis, giving effect to
certain of the transactions contemplated as part of the Merger and the
Distribution. See Note 1 to the Combined Financial Statements included elsewhere
herein. Unless otherwise defined herein, capitalized terms used in this Summary
shall have the respective meanings ascribed to them elsewhere in this
Information Statement. An Index of Defined Terms used herein is included at page
61 of this Information Statement.
THE COMPANY
The Company's businesses and assets currently include (i) a portfolio of
marketable equity securities with a market value at July 26, 1994 of
approximately $475 million, including equity securities of Tele-Communications,
Inc. and Liberty Media Corporation, (ii) an indirect equity interest in a
Mexican corporation which operates a cellular telephone system in Mexico, (iii)
indirect equity interests in two corporations formed for the development of
specialized mobile radio systems in Mexico, (iv) ownership of a microwave
communications business, (v) ownership of, or equity interests in, other private
communications businesses, (vi) ownership of four radio broadcasting stations,
two AM and two FM, and (vii) ownership of a retail art gallery. The Company was
organized in Delaware in 1981. The mailing address of the Company's principal
executive offices is 200 Gateway Towers, Pittsburgh, Pennsylvania 15222. See
'The Company.'
THE TRANSACTIONS
The Company is currently a wholly-owned subsidiary of Associated.
Associated has entered into the Merger Agreement whereby, upon the terms and
subject to the conditions set forth therein, Purchaser will be merged with and
into Associated, with Associated surviving as an indirect wholly-owned
subsidiary of SBC. In connection with and in order to facilitate the Merger,
Associated has agreed to effect, pro rata to its stockholders immediately prior
to the effectiveness of the Merger, the Distribution of all of the outstanding
shares of Company Common Stock, which will be tax free to Associated
stockholders for federal income tax purposes except to the extent of cash
payments received for fractional shares.
Pursuant to the Merger Agreement, at the effective time of the Merger (the
'Effective Time'), each issued and outstanding share of Associated Common Stock
(other than shares of Associated Common Stock that are owned by Associated as
treasury stock and any shares of Associated Common Stock owned by SBC, Merger
Sub
3
<PAGE>
or any other wholly-owned subsidiary of SBC) shall be converted into the right
to receive common stock of SBC as described under 'The Merger--Terms of the
Merger' in the Proxy Statement-Prospectus.
Pursuant to the Distribution Agreement, prior to the Distribution the
Company and Associated will effect certain intercompany transfers of assets. See
'The Distribution--Terms of the Distribution--The Asset Transfers.' Also,
pursuant to the Distribution Agreement, the Company and Associated will satisfy
by cash payment the full net amount of any intercompany indebtedness or other
advances or accruals owing between the Company and certain of its affiliates and
Associated and certain of its affiliates, arising after December 31, 1993 and
not previously paid in full prior to the Time of Distribution. See 'The
Distribution--Terms of the Distribution--Intercompany Adjustment.' In addition,
each of Associated and the Company have agreed to indemnify the other after the
Distribution with respect to certain losses, damages, claims and liabilities
arising primarily from their respective businesses. See 'The Distribution--Terms
of the Distribution--Mutual Indemnities.'
The foregoing is a brief summary of certain terms of the Merger affecting
the Company. A complete description of the Merger and the Merger Agreement may
be found in the Proxy Statement-Prospectus to which this Information Statement
is Appendix D. The Distribution Agreement between the Company and Associated is
more fully described herein under 'The Distribution.'
THE DISTRIBUTION
<TABLE>
<S> <C>
Distributing Company.......... Associated
Securities to be
Distributed................... All the outstanding Class A Common Stock and
Class B Common Stock of the Company, which is a
wholly owned subsidiary of Associated. Based on
the 37,491,156 shares of Associated Common Stock
outstanding as of July 26, 1994, it is estimated
that 9,372,789 shares of Class A Common Stock
and 9,372,789 shares of Class B Common Stock
will be distributed pursuant to the
Distribution. See 'Distribution Ratio'
immediately below.
Distribution Ratio............ 1/4 of a share of Class A Common Stock and 1/4
of a share of Class B Common Stock for each
share of Associated Class A Common Stock
outstanding on the Distribution Record Date and
1/4 of a share of Class A Common Stock and 1/4
of a share of Class B Common Stock for each
share of Associated Class B Common Stock
outstanding on the Distribution Record Date.
Time of Distribution.......... The Distribution is expected to be effective
(the 'Time of Distribution') immediately prior
to the Effective Time. Stock certificates for
shares of Company Common Stock will be mailed as
soon as practicable after the Time of
Distribution. See 'The Distribution--Terms of
the Distribution Agreement--The Distribution.'
Distribution Record Date...... It is expected that the Distribution Record Date
will be established as the day on which the Time
of Distribution occurs.
Trading Market................ The Company expects to apply for listing of the
Company Common Stock on the NNM. See 'Listing
and Trading of Company Common Stock.'
Conditions to Distribution.... Consummation of the Distribution is subject to
the conditions set forth in the Distribution
Agreement. See 'The Distribution--Terms of the
Distribution Agreement--Conditions to the
Distribution.'
Distribution Agent............ The Bank of New York
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Tax Consequences.............. It is a condition to the Distribution that
Associated receive a private letter ruling from
the Internal Revenue Service, reasonably
satisfactory in form and substance to Associated
and SBC, that, among other things, the receipt
of Company Common Stock by Associated
stockholders pursuant to the Distribution will
be tax free for federal income tax purposes,
except with respect to cash received in lieu of
fractional shares of Company Common Stock. See
'The Distribution--Certain Federal Income Tax
Consequences.'
Dividends After the
Distribution.................. The Company does not anticipate declaring and
paying cash dividends on the Company Common
Stock at any time in the foreseeable future. The
decision whether to apply legally available
funds to the payment of dividends on the Company
Common Stock will be made by the Company Board
from time to time in the exercise of its
business judgment, taking into account, among
other things, the Company's results of
operations and financial condition and any then
existing or proposed commitments for the use by
the Company of available funds. See 'Special
Factors-- Dividends and Dividend Policy.'
Certain Provisions of the
Company's Charter and
Bylaws........................ Certain provisions of the Company's Certificate
of Incorporation, as it is anticipated to be
amended and restated prior to the Distribution
substantially as set forth in the form of
Restated Certificate of Incorporation of the
Company attached to this Information Statement
as Appendix I (the 'Restated Certificate'), and
the Company's Bylaws, as they are anticipated to
be amended and restated prior to the
Distribution (as so amended and restated, the
'Bylaws'), may be deemed to have the effect of
making difficult an acquisition of control of
the Company in a transaction not approved by the
Company Board. See 'Special Factors-- Disparate
Voting Rights; Substantial Stockholders; Certain
Charter Provisions,' and 'Description of Capital
Stock of the Company-- Description of Certain
Statutory, Charter and Bylaw Provisions.'
Relationship with Associated
After the Distribution........ Associated and the Company have agreed to
indemnify each other after the Distribution with
respect to certain losses, damages, claims and
liabilities arising primarily from their
respective businesses, including certain tax
liabilities and, in the case of the Company, to
indemnify Associated with respect to specified
litigation against certain affiliates of
Associated. See 'Special Factors--Relationship
with Associated; Reorganization to Effect
Distribution,' and 'The Distribution--Terms of
the Distribution Agreement--Additional
Indemnification' and '-- Mutual Indemnities.'
Special Factors............... Stockholders should carefully consider the
matters discussed under the section entitled
'Special Factors' in this Information Statement.
</TABLE>
SUMMARY COMBINED HISTORICAL AND PRO FORMA FINANCIAL DATA
The table below sets forth summary combined historical financial data of
the Company for each of the three years in the period ended December 31, 1993.
The summary combined historical financial data set forth below should be read in
conjunction with the audited Combined Financial Statements of the Company and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' included elsewhere in this Information Statement. Historical
financial information may not be indicative of the Company's future performance
as an independent company. The table also sets forth summary combined historical
financial data of the Company for the three-month periods ended March 31, 1994
and 1993, which have been derived from the
5
<PAGE>
unaudited Combined Financial Statements of the Company included elsewhere in
this Information Statement. The results for the three-month period ended March
31, 1994 are not necessarily indicative of the results to be expected for the
full year. Historical per share data for earnings and dividends have not been
presented as the Company was not a publicly-held company during the periods
presented below.
The summary pro forma combined financial data set forth in the table below
reflect adjustments to the historical combined balance sheet and the historical
combined statements of operations of the Company, as if the Distribution had
occurred on March 31, 1994 for purposes of the pro forma balance sheet and on
January 1, 1993 for purposes of the pro forma statements of operations for the
year ended December 31, 1993 and the quarter ended March 31, 1994, respectively.
See the Pro Forma Condensed Combined Financial Statements of the Company
included elsewhere in this Information Statement for a discussion of the
principal adjustments involved in the preparation of the pro forma financial
information. The Pro Forma Condensed Combined Financial Statements of the
Company may not reflect the results of operations or financial position that
would have been obtained had the Company been a separate, independent company
during such periods. Assumptions regarding the number of shares of the Company's
Common Stock may not reflect the actual numbers immediately after the
Distribution. See the Pro Forma Condensed Combined Statements of Operations
included elsewhere in this Information Statement for per share data presented on
a pro forma basis, adjusted to reflect the Distribution.
SUMMARY COMBINED HISTORICAL AND PRO FORMA FINANCIAL DATA (A)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
THREE MONTHS ENDED MARCH 31, DECEMBER 31, 1993 DECEMBER 31,
-------------------------------- -------------------------- ------------------
(UNAUDITED)
HISTORICAL HISTORICAL
PRO FORMA ------------------- ------------------
1994(B) 1994 1993 PRO FORMA(B) HISTORICAL 1992 1991
--------- -------- ------- ------------ ---------- ------- -------
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Revenues........................ $ 1,244 $ 1,244 $ 1,352 $ 6,075 $ 6,075 $ 5,550 $ 5,393
Cost and expenses............... 3,503 3,388 2,687 14,721 10,360 8,606 7,576
Operating loss.................. (2,259) (2,144) (1,335) (8,646) (4,285) (3,056) (2,183)
(Loss) income before cumulative
effect of accounting change
for income taxes.............. (1,392) (858) (566) (6,162) (1,971) 43 (2,396)
Cumulative effect of accounting
change for income taxes (C)... -- -- 883 883 883 -- --
Net (loss) income............... (1,392) (858) 317 (5,279) (1,088) 43 (2,396)
Loss per share before cumulative
effect of accounting change
for income taxes.............. (.07) (.33)
Net loss
per share..................... (.07) (.28)
Balance Sheet Data
Total assets (D)................ 466,410 475,322 69,026 653,330 65,401 60,960
Long-term obligation............ 1,323 1,323 1,061 1,270 1,008 806
Total stockholders' equity...... 308,596 316,811 57,761 436,021 57,444 57,401
</TABLE>
- ------------------
(A) Presented on a combined basis; see Note 1 to the Combined Financial
Statements of the Company included elsewhere in this Information Statement.
(B) See the Pro Forma Condensed Combined Financial Statements of the Company
included elsewhere in this Information Statement for a discussion of
assumptions and adjustments relating to the pro forma amounts.
(C) Reflects the adoption as of January 1, 1993 of Statement of Financial
Accounting Standards No. 109, 'Accounting for Income Taxes.'
(D) Reflects the adoption at December 31, 1993 of Statement of Financial
Accounting Standards No. 115, 'Accounting for Certain Investments in Debt
and Equity Securities.'
6
<PAGE>
SPECIAL FACTORS
PORTFOLIO SECURITIES; VOLATILITY OF COMPANY'S STOCK PRICE
A substantial majority of the total value of the Company's assets currently
consists of publicly traded securities (the 'Portfolio Securities'), which
securities are subject to price volatility resulting from changes in general
economic and market conditions. In addition, substantially all of the value of
the Portfolio Securities is attributable to stock of TCI and Liberty. The
trading prices of TCI, a cable television operator, and Liberty, which holds
cable television and programming interests, are subject to volatility resulting
from conditions affecting the cable industry generally, such as competition,
technological developments and government regulation, including recently enacted
regulations relating to the provision of cable television services. At the
inception of Associated in 1979, it acquired equity securities of TCI at a cost
basis of approximately $6.9 million. The market value of these and other
Portfolio Securities appreciated to approximately $660 million as of October,
1993, and the value of the Portfolio Securities at July 26, 1994 was
approximately $475 million. See 'The Company--Marketable Equity Securities.'
Future volatility in the trading prices of the Portfolio Securities, and in the
trading prices of TCI and Liberty in particular, may have a significant impact
on the Company's borrowing capacity and on the market price of the Company's
Common Stock. See '--Net Losses and Cash Flow; Liquidity' below.
NET LOSSES AND CASH FLOW; LIQUIDITY
The Combined Statement of Operations of the Company for the year ended
December 31, 1993 and the Combined Statement of Operations of the Company for
the three months ended March 31, 1994 included elsewhere in this Information
Statement reflect that the Company had net losses of $1,088,000 and $858,000,
respectively, for such periods. The Company's ability to realize earnings in the
future will depend in large part on the availability of appropriate investment
and acquisition opportunities, the earnings and other characteristics of the
Company's current and future investments, businesses and operations, and the
opportunities available to the Company to dispose of such investments and
businesses on favorable terms. Given its current investments, the Company
expects that its losses are likely to continue, and there can be no assurance as
to if or when the Company will achieve profitability.
Historically, the Company's operations and investments in foreign cellular
systems and other communications services businesses and technologies have been
funded principally through margin loans secured by certain of the Portfolio
Securities or the sale of securities or investments, and Associated's corporate
expenses have been funded principally through borrowings and through dividends
from its domestic cellular subsidiaries of cash generated by their cellular
operations. After the Distribution, absent earnings from its existing or future
businesses or investments, the Company will be dependent on margin or other
borrowings, dispositions of its investments or operating assets or equity
financings to fund its operations, service indebtedness and finance any
investments or acquisitions, including to meet its obligations under certain of
the agreements governing its non-Portfolio Securities investments to pay its
share of capital contributions or loans agreed to by the partners or
shareholders of the particular entity. In some instances, failure to make such
required payments could result in the Company's interest in the particular
entity being diluted, its right to vote or certain other rights being forfeited
or the other partners or shareholders being entitled to purchase the Company's
interest at a discount from its fair market value. See '--Certain Aspects of
Minority Investments' below.
Historically, no cash dividends have been paid on shares of TCI and Liberty
common stock. While the Company currently has substantial borrowing capacity
based on the market value of the Portfolio Securities, such value is subject to
market volatility and other factors (see '--Portfolio Securities; Volatility of
Company's Stock Price' above), and there can be no assurance that the additional
funding, through borrowings, dispositions of investments or operating assets,
equity issuances or otherwise, required by the Company will be available or, if
available, that it will be on terms favorable to the Company. In addition, if
substantial additional indebtedness were incurred, the Company's ability to
respond to changing financial, business and economic conditions, and
7
<PAGE>
accordingly its stockholders' investment in the Company, could be adversely
affected. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations' and 'The Company.'
ABSENCE OF TRADING MARKET
There is no existing trading market for the Company Common Stock and there
can be no assurance as to the establishment or continuity of any such market.
The Company expects to apply for listing of the Company Common Stock on the
Nasdaq National Market and such listing or listing on the American Stock
Exchange or the New York Stock Exchange is a condition to consummation of the
Distribution. However, there can be no assurance either as to the price at which
the Company Common Stock will trade or that such price will not be significantly
below the book value per share of the Company Common Stock.
RELIANCE UPON GROWTH AND SPECULATIVE NATURE OF INVESTMENTS
The future growth of the Company depends to a considerable extent upon the
Company's ability to identify new opportunities for acquisitions or investments
and conclude such transactions on favorable terms. The Company has made and may
in the future make acquisitions of, or debt or equity investments in, emerging
growth companies or more mature companies with growth prospects, either by
acquiring operating companies or making investments. The Company has in the past
made and may continue to make, acquisitions of, or investments in, companies
with little or no operating history, or which operate at losses or experience
substantial fluctuations in operating results. While such acquisitions and
investments offer the opportunity for significant capital gains, they are likely
to be speculative and may often involve a high degree of risk. These companies
may need substantial capital to support expansion or achieve or maintain a
competitive position. Such companies may face intense competition, including
competition from companies with greater financial resources, more extensive
development, manufacturing, marketing and service capabilities, and a larger
number of qualified managerial and technical personnel. See--'Possible
Application of Investment Company Act of 1940.' The Company anticipates that it
may acquire or take significant positions in companies in rapidly changing
high-technology fields. Such companies may face additional risks of product and
technological obsolescence over which the Company will have little or no
control. As a result, no assurances can be given that the Company's acquisitions
or investments will not result in substantial or complete losses. In addition,
the Company may invest in or acquire more mature companies whose prospects may
prove to be less assured than anticipated.
RELIANCE ON KEY PERSONNEL
The Company's business is managed by key executive officers, the loss of
whom could have a material adverse effect on the Company. The Company believes
that its continued success will depend in large part on its ability to attract
and retain highly skilled and qualified personnel. The Company's management has
principal responsibility for the review of potential investments and
acquisitions and for recommendations to the Company's Board of Directors (the
'Company Board'), which exercises final authority over major investment and
acquisition decisions. Therefore, the Company is dependent upon the ability of
its management to select what it believes are appropriate acquisitions and
investments for the Company. In the event that any officers or directors of the
Company cease to be associated with the Company, the Company will seek to find a
qualified person or persons to fill their positions. There can, however, be no
assurance that such individuals could be engaged by the Company. The Company
intends to enter into employment contracts with certain key executive officers.
See 'Executive Compensation Plans in Effect After the Distribution--Executive
Employment Agreements' and 'Management.'
SCOPE AND ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS
The Company expects to explore a wide variety of industries and companies
for investments or acquisitions. Because the Company may make some of its
acquisitions and investments in emerging technology-based companies, the
Company's success may depend in part upon the ability of these entities to
obtain and enforce
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<PAGE>
intellectual property protection for their technologies. In addition, the
Company is developing its own proprietary technologies for which patents have
been obtained or applied. No assurance can be given that such protection can be
obtained for all such technologies or, if obtained, that it will not be
challenged, invalidated or circumvented, or that competitors of such entities
will not independently develop or patent technologies that are substantially
equivalent to or superior to such entities' technologies.
In some foreign countries, patent protection is not available. Also, some
countries that grant patents do not afford meaningful protection or redress for
violations. Accordingly, to the extent the Company acquires businesses in or
invests in businesses in such countries, the foregoing uncertainties may be more
significant. See '--Risks of Doing Business in Developing Markets' below.
COMPETITION
The Company has encountered, and expects to continue to encounter,
competition in its efforts to locate attractive acquisition opportunities and
opportunities for the investment of its capital. Many of the companies against
which the Company competes for acquisitions and investments have greater
resources and managerial capabilities than the Company and therefore may be in a
better position than the Company to obtain access to attractive acquisitions and
investments. To the extent that the Company can compete for such acquisitions
and investments, it may be able to do so only on less favorable terms than are
available to others.
In addition, competition in certain industries in which the Company has
made acquisitions or investments and in those in which the Company may make
acquisitions or investments is intense. These potential competitors include
major domestic and international companies, many of which have substantially
greater financial, technical, marketing, sales and other resources than the
Company.
DIVIDENDS AND DIVIDEND POLICY
The Company does not anticipate declaring and paying cash dividends on the
Company Common Stock at any time in the foreseeable future. The decision whether
to apply legally available funds to the payment of dividends on the Company
Common Stock will be made by the Company Board from time to time in the exercise
of its business judgment, taking into account, among other things, the Company's
results of operations and financial condition and any then existing or proposed
commitments for the use of the Company's available funds.
In addition, the Company may in the future issue debt securities, preferred
stock or enter into loan or other agreements that restrict the payment of
dividends on and repurchases of the Company's capital stock. See '-- Net Losses
and Cash Flow; Liquidity' above.
CERTAIN ASPECTS OF MINORITY INVESTMENTS
Substantially all of the Company's minority investments (other than
wholly-owned subsidiaries and other than the Portfolio Securities) are governed
by, and future investments may be governed by, partnership agreements,
stockholder agreements or other instruments and agreements which contain
provisions, including restrictions on transfers, that may affect the liquidity
and value of such investments. To the extent these investments, and future
investments, are in private companies, restrictions on transfer imposed by law
may also apply.
Also, the Company does not have the right to manage the businesses or
affairs of the entities in which the Company has minority investments, although
in some cases it is represented on a board of directors or partners' committee
that supervises such management or has the right to consent to the taking of
certain significant actions by such entities. Such consent rights and
representation may enable the Company to prevent, but will not entitle the
Company to cause, any such entity to dispose of any of its assets or to make any
dividends or distributions to its partners or stockholders. See '--Net Losses
and Cash Flow; Liquidity' above.
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<PAGE>
RISKS OF DOING BUSINESS IN DEVELOPING MARKETS
The Company currently has investments in, and may in the future acquire or
make investments in the businesses or operations of, entities in developing
countries. In doing business in developing markets, the Company may face
economic, political and currency conditions that are more volatile than those
commonly experienced in the United States and other areas. See '--Scope and
Enforcement of Intellectual Property Rights.'
REGULATORY ENVIRONMENT
Most of the companies which the Company has acquired or in which it
currently has investments are subject to regulation at the federal and state
levels in the United States or at various levels in other countries. The
Company's broadcasting and communications assets and investments are generally
regulated by the Federal Communications Commission ('FCC'), and its investments
in Mexican communications businesses are subject to Mexican regulatory
authority. The Company currently anticipates that similar regulations will
govern certain of the industries in which it is likely to operate or make
investments in the future. Changes in the laws or regulations governing these
industries, in the United States or elsewhere, could adversely affect the
Company's business.
DISPARATE VOTING RIGHTS; SUBSTANTIAL STOCKHOLDERS; CERTAIN CHARTER PROVISIONS
Under the terms of the Restated Certificate, holders of shares of Class A
Stock will be entitled to one vote per share, and holders of shares of Class B
Stock will be entitled to 1/25th of a vote per share. See 'Description of
Capital Stock of the Company--Authorized Capital Stock.' In addition,
immediately following the Distribution, directors and officers of the Company
will beneficially own shares of Company Common Stock representing over 20% of
the voting power of all the Company's then outstanding voting securities. See
'Beneficial Ownership.'
Certain provisions of the Restated Certificate and the Bylaws may be deemed
to have the effect of making difficult an acquisition of control of the Company
in a transaction not approved by the Company's Board of Directors. These
provisions include the disparate voting rights of the Class A Common Stock and
Class B Common Stock, the ability of the Company Board to issue shares of
preferred stock in one or more series and additional shares of authorized but
unissued Class A Common Stock and Class B Common Stock without further
authorization of the Company stockholders and certain other provisions described
under 'Description of Capital Stock of the Company.' Many of these provisions
are also present in Associated's Restated Certificate of Incorporation and
Bylaws as currently in effect, and generally are designed to permit the Company
to develop its businesses and foster its long-term growth without the disruption
caused by the threat of a takeover not deemed by the Company's Board of
Directors to be in the best interests of the Company and its stockholders. These
provisions may also have the effect of discouraging a third party from making a
tender offer or otherwise attempting to obtain control of the Company even
though such a transaction might be economically beneficial to the Company and
its stockholders. Furthermore, the Company intends, prior to the Distribution,
to adopt a stockholder rights plan, which may have a similar effect. See
'Description of Capital Stock of the Company-- Stockholder Rights Plan.'
POSSIBLE APPLICATION OF INVESTMENT COMPANY ACT OF 1940
Immediately following the Distribution, the value of the Portfolio
Securities will likely constitute a substantial majority of the total value of
the assets of the Company. As a result, after the Distribution, the Company
could be considered to be engaged in the business of holding or owning
investment securities within the meaning of the Investment Company Act of 1940
(the '1940 Act'), which could subject the Company to regulation as an investment
company by the Securities and Exchange Commission (the 'Commission') that could
significantly and adversely affect the Company's activities. However, the
Company believes that, in
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<PAGE>
accordance with the rules promulgated by the Commission under the 1940 Act, it
will be deemed not to be engaged in such business (and therefore will not be
subject to such regulation) for a period of at least one year following the
Distribution because of the Company's intent to be engaged primarily in a
business other than holding or owning investment securities as soon as
reasonably possible and, in any event, prior to the end of such one-year period.
These rules require that the Company's intent be evidenced by the Company's
business activities and an appropriate resolution of its Board of Directors. The
Company has adopted such a resolution and the Company currently believes its
business activities will demonstrate the requisite intent.
Under the 1940 Act and the applicable rules, the Company's business
activities must result in its becoming primarily engaged by approximately the
end of this one year period in one or more businesses other than owning or
holding investment securities such as the Portfolio Securities. The Company
currently believes that it may be able to acquire sufficient operating assets
(whether out of the proceeds of borrowings or further issuances of securities,
the proceeds of dispositions of Portfolio Securities or the proceeds of some
combination of the foregoing) such that it will achieve this result and thus
will not be required to register as an investment company under the 1940 Act.
However, the Company's ability to do so is subject to numerous factors some of
which may be outside the Company's control, including, among others, the
availability of opportunities to acquire operating assets on acceptable price
and other terms (see '--Competition' above), the Company's ability to finance
and complete such acquisitions on a timely basis (see '--Net Losses and Cash
Flow; Liquidity' above) and general economic and market conditions (see
'--Portfolio Securities; Volatility of Company's Stock Price' above).
Accordingly, there can be no assurance in this regard.
The 1940 Act permits companies which make certain types of investments to
elect to become a business development company ('BDC') rather than register as
an investment company. Generally, to be eligible to elect BDC status a company
must engage in the business of furnishing capital and making available
significant managerial assistance to companies which do not have a liquid public
market for their securities. Such portfolio companies are termed 'eligible
portfolio companies.' An eligible portfolio company generally is a U.S. company
that is not an investment company and that (i) does not have a class of
securities registered on an exchange or included in the Federal Reserve Board's
over-the-counter margin list; (ii) is actively controlled by a BDC and has an
affiliate of a BDC on its board of directors; or (iii) meets such other criteria
as may be established by the Commission.
Under the 1940 Act, BDCs enjoy greater flexibility in such areas as capital
structure, portfolio diversification, transactions with affiliates and employee
compensation matters (such as stock options or profit sharing plans) than is
available to registered investment companies. On the other hand, BDCs are more
limited than registered investment companies in the types of investments they
may make. BDCs may acquire only certain prescribed qualifying assets and certain
assets necessary for their operations (such as interests in real estate and
leasehold improvements, office furniture, equipment and facilities) unless, at
the time of acquisition, at least 70% of the value of the BDC's assets consists
of 'qualifying securities.' 'Qualifying securities' include: (1) privately
acquired securities of companies that were eligible portfolio companies at the
time the BDC acquired such securities; (2) privately acquired securities of
bankrupt or insolvent companies; (3) securities of eligible portfolio companies
controlled by the BDC; (4) securities received in exchange for or distributed in
or with respect to any of the foregoing; and (5) cash items, U.S. government
securities and high quality short-term debt. BDCs are also subject to
restrictions on the nature of the transactions in which, and the persons from
whom, securities can be purchased in order for the securities to be considered
qualifying securities. Such restrictions include limiting purchases to
transactions not involving a public offering and acquiring securities directly
from either the portfolio company or its officers, directors or affiliates.
The Company currently expects that if it would be required to register as
an investment company, it would be eligible to, and would, elect BDC status.
While the Company believes that its current assets would not prevent its
election of BDC status, in order to remain eligible to maintain BDC status, the
Company would need to achieve within approximately two years after the
Distribution or its election of BDC status an asset mix such that at least 50%
of the value of its assets would consist of qualifying securities referred to in
clauses (1) through (3) of the immediately preceding paragraph. The Company's
ability to make acquisitions or divestitures to achieve such asset mix on a
timely basis, and thus to remain eligible for BDC status, is subject to numerous
factors and
11
<PAGE>
contingencies, many of which are outside the Company's control. No assurance can
be given that BDC status will be, or will continue to be, available to the
Company. In addition, even if the Company is able to maintain such status, the
restrictions applicable to BDCs could significantly and adversely affect the
Company's activities.
If the Company elects to be regulated as a BDC, it may not change the
nature of its business so as to cease to be, and may not withdraw its election
as, a BDC unless authorized by the Company stockholders. If the Company elected
BDC status and subsequently lost such status, it would be subject to more
stringent regulation as an investment company under the 1940 Act, unless at such
time, the Company was not subject to regulation as an investment company within
the meaning of the 1940 Act or was otherwise exempt from regulation as such
under the 1940 Act.
RELATIONSHIP WITH ASSOCIATED; REORGANIZATION TO EFFECT DISTRIBUTION
In the Distribution Agreement and the Tax Disaffiliation Agreement
described herein and attached to the Distribution Agreement as Exhibit A (the
'Tax Disaffiliation Agreement'), Associated and the Company have agreed to
indemnify each other after the Distribution with respect to certain losses,
damages, claims and liabilities arising primarily from their respective
businesses, including certain tax liabilities and, in the case of the Company,
to indemnify Associated with respect to specified litigation against certain
affiliates of Associated. See 'The Distribution--Terms of the Distribution
Agreement--Additional Indemnification' and '--Mutual Indemnities.'
In accordance with the Distribution Agreement, prior to the Distribution
all of the Company's operating businesses will be merged into and owned directly
by the Company. Accordingly, any liabilities of such operating business will be
direct liabilities of the Company.
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<PAGE>
THE COMPANY
MARKETABLE EQUITY SECURITIES
The Company's marketable equity securities described below are traded on
the Nasdaq National Market (except for General Communication, Inc. ('GCI') Class
B Common Stock, which is traded on the Nasdaq Over-the-Counter Market). The
issuers of these securities are required to file periodic reports with the
Commission under Section 13 of the Securities Exchange Act of 1934, as amended
(the 'Exchange Act'). All percentages with respect to ownership and voting power
set forth below are based on information with respect to numbers of shares
outstanding contained in the respective issuers' Quarterly Reports on Form 10-Q
for the fiscal quarter ended March 31, 1994.
TCI. TCI is principally engaged in the development and operation of cable
television systems, and is the nation's largest cable television company in
terms of subscribers.
The Company owns 12,479,976 shares, or approximately 3.09% of the
outstanding shares, of TCI Class A Common Stock, and 3,827,208 shares, or
approximately 8.10% of the outstanding shares, of TCI Class B Common Stock. The
TCI Class A Common Stock has one vote per share and the TCI Class B Common Stock
has ten votes per share. Accordingly, the Company's ownership of TCI Common
Stock represents approximately 3.62%, and approximately 5.79% of the voting
power, of all outstanding shares of TCI Common Stock.
TCI and Liberty are parties to an Agreement and Plan of Merger, dated as of
January 27, 1994, pursuant to which the two companies will be combined in a
transaction to be structured as a tax-free exchange of shares of both companies
for shares of a newly-formed holding company. The transaction is subject to both
TCI and Liberty shareholder approval in addition to various regulatory approvals
and other customary conditions. Both TCI and Liberty have given notice to their
shareholders of a special meeting to be held on August 4, 1994 to vote on the
proposed merger. Assuming the merger is consummated, the Company would own
12,479,976 shares, or approximately 2.59%, of the outstanding shares of the
Class A Common Stock of the new company, and 7,071,852 shares, or approximately
8.23%, of the outstanding shares of the Class B Common Stock of the new company.
These shares would represent approximately 6.19% of the voting power of the new
company. The Class A Common Stock of the new company will have one vote per
share and the Class B Common Stock of the new company will have ten votes per
share. See 'Additional Information' for a discussion of how to obtain
information about TCI.
Liberty. Liberty was spun off from TCI in 1991. Liberty holds certain cable
television and programming interests formerly held by TCI.
The Company owns 3,327,840 shares, or approximately 7.68% of the
outstanding shares of Liberty Class B Common Stock (and representing
approximately 2.54% of all outstanding Common Stock of Liberty and 6.39% of the
voting power of all outstanding Common Stock of Liberty). In addition, the
Company owns 41,598 shares of the outstanding Liberty Class E 6% Cumulative
Redeemable Exchangeable Junior Preferred Stock. See 'Additional Information' for
a discussion of how to obtain information about Liberty.
GCI. In December 1986, an affiliate of TCI spun off its microwave and long
distance telephone subsidiary into a new company, GCI. GCI provides
telecommunications services within Alaska as well as between Alaska, the United
States and certain foreign countries.
The Company owns 416,000 shares, or approximately 2.18% of the outstanding
shares of GCI Class A Common Stock, and 138,668 shares, or approximately 3.37%
of the outstanding shares, of GCI Class B Common Stock. The Class A Common Stock
has one vote per share and the Class B Common Stock has ten votes per share.
Accordingly, the Company's ownership of GCI Common Stock represents
approximately 2.39%, and approximately 3.00% of the total voting power, of all
outstanding shares of GCI Common Stock.
American Mobile Satellite Corporation ('AMSC'). AMSC is the recipient of an
FCC license granting authority to provide a full range of satellite services.
The Company owns 25,252 shares, representing less than 1% of the outstanding
shares, of AMSC Common Stock.
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In addition to the foregoing, the Company owns other marketable equity
securities with an aggregate market value of approximately $150,000 as of July
26, 1994.
MEXICAN WIRELESS MARKET
Cellular
In July 1990, the Ministry of Communications and Transportation of the
Republic of Mexico (the 'Ministry') awarded a twenty-year cellular license to
Portatel del Sureste, S.A. de C.V. ('Portatel') to provide 'A' band
(non-wireline) service covering Region 8 of the nine regions into which the
Ministry divided the country. Region 8, located in southeastern Mexico and the
Yucatan Peninsula, has a total population of approximately 7.9 million and is
comprised of the Mexican States of Quintana Roo, Yucatan, Campeche, Tabasco and
Chiapas. Region 8 includes the cities of Cancun, Cozumel, Tuxtla Gutierrez,
Merida, Tapachula, Chetumel and Villahermosa. The Company has a 30.15% indirect
interest in Grupo Portatel, S.A. de C.V. ('Grupo'), a Mexican corporation of
which Portatel is a wholly-owned subsidiary.
Portatel maintains a cellular network containing twenty-two cell sites,
with two additional sites currently under construction. The network includes
seven switches which are interconnected through Portatel's regional satellite
system. The satellite network permits Portatel to provide intraregional long
distance services directly for its subscribers. The satellite network also
facilitates switch management, network alarm monitoring and corporate
communication functions.
Service usage levels of Portatel customers are approximately double those
of cellular customers in the United States. The Company believes that the
disparity of usage levels is due in part to the limited availability and poor
quality of the Mexican landline telephone network. The Company believes that the
existing landline telephone services are inadequate to support the existing and
future telecommunication needs of the region, and that cellular telephone
service may represent a principal means of satisfying the region's
telecommunications demands.
A subsidiary of Telefonos de Mexico, S.A. de C.V., the wireline telephone
company, holds the 'B' band license to provide nationwide cellular service in
Mexico. The subsidiary, RadioMovil VIPSA, S.A. de C.V. ('RadioMovil'), began
direct competition with Portatel in certain areas in August 1992. The Company
believes that Portatel competes effectively with RadioMovil, however,
competition has been intense.
The Ministry regulates the tariffs of cellular service providers in Mexico.
Service rate increases may be implemented with the approval of the Ministry. The
Ministry requires equal rate structures for both the A and B band service
providers, thereby eliminating service price competition.
On June 30, 1994, a wholly owned subsidiary of the Company entered into an
Association in Participation Agreement ('AP Agreement') and a related Joint
Venture Agreement (together, the 'Grupo Documents') with a United States
corporation and a Mexican national with 18.85% and 1.66% indirect equity
interests in Grupo, respectively. Through the AP Agreement, the Mexican
national, acting as the Active Partner (as defined in the AP Agreement), holds a
39.09% equity interest in Grupo. The Company is a Silent Partner (as defined in
the AP Agreement) in the AP Agreement and has no direct voting power over the
shares of Grupo held by the AP Agreement. In the event of the sale of Grupo
common stock held pursuant to the AP Agreement, the Company will receive
approximately 45% of the adjusted sale proceeds distributed to the parties of
the AP Agreement. Adjustments to the proceeds will include (1) payment of income
tax liabilities and expenses related to a sale, and (2) return of capital
invested by the Company and the other Silent Partner, as well as related
investment fees thereon.
The shareholders of Grupo have received offers to purchase their shares and
preliminary discussions relating to the possible sale of Grupo have occurred.
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Specialized Mobile Radio ('SMR')
The Company has indirect equity investments in two Mexican corporations,
Radiophone, S.A. de C.V. ('Radiophone') and Corporacion Mobilcom, S.A. de C.V.
('Mobilcom'), which were formed for the development of SMR systems in Mexico.
SMR, or 'trunked mobile radio,' is a wireless communications service which can
transmit voice and data.
The Company currently has an indirect 19.6% interest in Mobilcom and an
indirect 10.03% interest in Radiophone. Mobilcom and Radiophone hold licenses or
equity interests in corporations licensed to provide trunked mobile radio
service in the 800 MHz and 400 MHz frequency bands in major metropolitan areas
in Mexico, including Mexico City, Guadalajara and Monterrey, as well as the
connecting highways. Mobilcom and Radiophone currently provide SMR services
based on analog technologies to limited areas within their licensed territories
under the brand name 'Tricom.' It is currently anticipated that Radiophone and
Mobilcom will merge.
On June 6, 1994, the Company and certain other shareholders of Mobilcom
and Radiophone entered into a letter of intent with Nextel Communications, Inc.
('Nextel') which provides that Nextel would invest $165 million in return for a
22% equity interest in Mobilcom (post-merger) and a Mobilcom note. The note
would have a face value of $42.5 million and would be partially or totally
forgiven if certain conditions are met, or would be converted at Mobilcom's
option into up to an additional 7.65% equity interest in Mobilcom. Nextel would
also receive a three year option to purchase an additional 13% of Mobilcom for
$96.9 million. The equity initially purchased by Nextel would involve the
purchase of a combination of newly-issued Mobilcom shares and outstanding shares
from existing shareholders. The Company anticipates that it would receive
proceeds of approximately $15 million from Nextel's purchase of certain
outstanding Mobilcom shares. Assuming the completion of the merger of Radiophone
into Mobilcom and the initial investment by Nextel, the Company's continuing
equity interest in Mobilcom would be approximately 14.9%. The letter of intent
is subject to definitive documentation and the completion of due diligence by
Nextel.
PERSONAL COMMUNICATIONS SERVICES ('PCS')
The Company has a 75% interest in a general partnership which recently
acquired a 4.42% interest in Omnipoint Communications, Inc. ('OCI'), a
wholly-owned subsidiary of Omnipoint Corporation ('Omnipoint'). Omnipoint,
through OCI, was awarded a pioneer's preference by the FCC to receive a license
to construct and operate a PCS system in the New York Metropolitan Trading Area,
a region covering a population of approximately 27 million. The partnership also
holds experimental radio licenses from the FCC to test a new PCS technology in
Los Angeles. PCS licensing has been delayed while the FCC concludes various
spectrum reallocation and competitive bidding (auction) proceedings. Although
the FCC has adopted decisions in these proceedings, certain of those decisions
have been challenged (including the award of pioneer's preferences). Legislation
was recently introduced in the U.S. House of Representatives which could require
payments by recipients of PCS pioneer's preferences in order to receive a
license.
RADIOLOCATION TECHNOLOGY
On July 5, 1994, the United States Patent and Trademark Office issued U.S.
Patent No. 5,327,144 to the Company relating to the Company's technology for
locating cellular telephones. Two additional patent applications relating to
this technology are pending.
The Company created a prototype location system in Rochester, New York to
demonstrate this technology. The location system is a passive addition to a
cellular telephone system that uses receivers and processing equipment at cell
sites and additional processing equipment at switch sites to passively monitor
transmissions in every cell site simultaneously. Signal processing algorithms
triangulate the position of the phone, calculate speed and direction of travel.
The location, speed, direction, time of transmission and dialed digits of any
phone can be sent to any desired application software.
The location system's design was developed to support many cellular and
end-user applications, including fraud detection and prosecution, billing by
location, highway management systems, cellular system optimization, emergency
services and a multitude of vehicle, object and personal location applications.
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OTHER COMMUNICATIONS BUSINESSES
The Company owns and operates a digital microwave communications network in
the Los Angeles, California market. The Company's network operates as a
Competitive Access Provider ('CAP') of local exchange service to interexchange
carriers and private users. Customers transmit voice and data through the
network, which has been significantly expanded since its acquisition in 1989.
The Company is also exploring new businesses to complement its digital network
and has acquired a satellite earth station to market satellite based voice and
data traffic in the western United States, Mexico and the Pacific Rim. The CAP
faces significant competition from other alternate access providers,
particularly existing landline operators and those using fiber optic technology.
The Company has constructed 956 MHz Operational Fixed Services ('OFS') (a
one-way point to multi-point, individually or group addressable broadcast
information service) systems in the Los Angeles and New York markets.
Additionally, the Company has constructed 2.6 GHz OFS systems in the Los
Angeles, Pittsburgh and Phoenix markets. 2.6 GHz frequencies are generally used
for wireless cable television.
The Company recently filed with the FCC applications for licenses for
Digital Termination Systems ('DTS') in 51 major markets. From time to time the
Company has filed applications for numerous other wireless communications
licenses. The Company cannot predict when the FCC will take action on any such
pending applications.
RADIO BROADCASTING
The Company owns and operates WSTV-AM ('WSTV') and WRKY-FM ('WRKY') in
Steubenville, Ohio. WSTV and WRKY commenced broadcasting operations in November
1940 and May 1947, respectively. In January 1993, the Company acquired the
assets and FCC licenses of radio broadcasting stations WOMP-AM/FM ('WOMP')
located in Bellaire, Ohio, serving Bellaire and the adjacent Wheeling, West
Virginia markets. All of these stations are authorized to operate 24 hours a
day.
The following table sets forth certain information concerning the
broadcasting stations:
<TABLE>
<CAPTION>
STATIONS
IN
MARKET
LICENCE (AM & FM
MARKET STATIONS TYPE EXPIRES FORMAT COMBINED)
- ------------------------------ ------------- ------- ------ --------
<S> <C> <C> <C> <C>
Steubenville, OH.............. WSTV-AM 10/1/96 Talk 5
WRKY-FM 10/1/96 Rock
Wheeling, WV.................. WOMP-AM 10/1/96 Talk 12
WOMP-FM 10/1/96 Rock
</TABLE>
In December 1992, the FCC's Mass Media Bureau granted the Company's
application to acquire WOMP-AM and WOMP-FM over the objections of a competing
broadcaster. The Company consummated that acquisition in January 1993. The
Company's acquisition of WOMP-FM provides for a much wider broadcast area than
WRKY's previous FM coverage. Since the Bellaire and Wheeling markets are
adjacent to the Steubenville market, the radio operations share many services
including programming, sales, technical and billing. Programming on the two FM
radio stations is simulcast a majority of the time.
RETAIL ART GALLERY
Associated American Artists, Inc. ('AAA'), a wholly-owned subsidiary of the
Company, sells original prints, drawings, oil paintings, sculptures and related
works of art at its gallery at Twenty West 57th Street in New York City. The
gallery's extensive inventory has been acquired directly from artists, as well
as from dealers, collectors and estates of artists. The gallery also holds
inventory for sale on consignment. The need to maintain a broad selection of
works requires a large inventory investment in relation to sales volume. AAA
competes with other galleries in New York City and around the country.
AAA maintains, almost monthly, exhibitions of outstanding artists from Old
Masters to Contemporary Masters, and loans works for exhibitions to major
museums, libraries and institutions around the country.
16
<PAGE>
FUTURE CONDUCT OF THE BUSINESS
In addition to the assets and investments described above, following the
Distribution the Company will continue to seek acquisitions, strategic
alliances, joint ventures and investments in an effort to increase stockholder
value. The management of the Company following the Distribution will be
substantially the same as the management of Associated prior to the
Distribution. The Company's goal is to seek acquisitions and investments such
that the Company will not be required to register as an investment company, or
elect BDC status, under the 1940 Act, although there can be no assurance that
the Company will achieve this goal. See 'Special Factors--Possible Application
of Investment Company Act of 1940.'
EMPLOYEES
It is anticipated that immediately following the Distribution, the Company
will employ approximately 80 persons.
PROPERTIES
The Company will own its principal executive office in Pittsburgh,
Pennsylvania which is currently owned by Associated. Additional executive
offices currently leased by Associated will be leased in New York, New York;
Philadelphia, Pennsylvania; Tampa, Florida; and Wilmington, Delaware.
The Company's broadcast operations maintain administrative offices,
studios, transmitter and antenna sites, which are either owned or leased. The
Company, for its other communications services, leases administrative offices,
transmitter and antenna sites. The Company's art gallery leases sales and
administrative offices. The Company's management believes that all of its
properties are adequate for the existing business conditions and are in good
operating condition.
See Note 9 to the Company's Combined Financial Statements included
elsewhere in this Information Statement for additional information regarding
future minimum commitments.
THE DISTRIBUTION
This section of the Information Statement describes certain aspects of the
proposed Distribution. To the extent that they relate to the Distribution
Agreement or the Tax Disaffiliation Agreement, the following descriptions do not
purport to be complete and are qualified in their entirety by reference to the
Distribution Agreement or the Tax Disaffiliation Agreement, as the case may be,
which are attached as Appendix B to the Proxy Statement-Prospectus and are
incorporated herein by reference. ALL STOCKHOLDERS ARE URGED TO READ THE
DISTRIBUTION AGREEMENT AND THE TAX DISAFFILIATION AGREEMENT IN THEIR ENTIRETY.
BACKGROUND OF AND REASONS FOR THE DISTRIBUTION
Because Associated's domestic cellular businesses and interests were the
only assets of Associated which SBC was legally permitted or proposed to
acquire, Associated determined to effect the Distribution, which will be tax
free to Associated stockholders for federal income tax purposes except to the
extent of cash payments for fractional shares, and which was a condition to
SBC's willingness to enter into the Merger Agreement. Associated believes the
Distribution will enable Associated stockholders to participate in the values
and prospects of the assets and businesses of the Company.
Although the Distribution will not be effected unless the Merger is
approved and about to occur, the Distribution is separate from the Merger and
the Company Common Stock to be received by holders of Associated Common Stock in
the Distribution does not constitute a part of the Merger consideration.
STOCKHOLDER APPROVAL OF THE DISTRIBUTION IS NOT REQUIRED UNDER DELAWARE LAW, AND
SUCH APPROVAL IS NOT BEING SOUGHT.
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<PAGE>
TERMS OF THE DISTRIBUTION AGREEMENT
Recapitalization of the Company
The Distribution Agreement provides that prior to the Time of Distribution,
Associated will appropriately cause the Company to amend its Certificate of
Incorporation to, among other things, (i) create two classes of common stock of
the Company, to be designated Class A and Class B Common Stock, to increase the
currently authorized number of shares of common stock of the Company and to
exchange the 1,000 shares of such common stock currently outstanding for a total
number of shares of Company Common Stock (divided equally between Class A Common
Stock and Class B Common Stock), equal to one-half the total number of shares of
Associated Common Stock outstanding immediately prior to the Distribution Record
Date and (ii) to authorize 5 million shares of preferred stock, par value $.01
per share ('Company Preferred Stock').
Method of Effecting the Distribution
The Distribution Agreement provides that the Distribution will be effected
by the distribution to each holder of record of Associated Common Stock, as of
the close of the stock transfer books on the Distribution Record Date, of
certificates representing 1/4 of a share of Class A Common Stock and 1/4 of a
share of Class B Common Stock multiplied by the number of shares of Associated
Common Stock held by such holder; provided that no fractional shares of Company
Common Stock will be distributed. In the event a holder of Associated Common
Stock holds of record on the Distribution Record Date a number of shares of
Associated Common Stock such that fractional shares of Company Common Stock
would be distributed to such holder, the Distribution Agent for the Distribution
(the 'Distribution Agent') will distribute Company Common Stock certificates on
the basis of the next lowest number of shares of Associated Common Stock held
below the actual number of shares held such that no fractional shares of Company
Common Stock will be distributed to such holder. The Distribution Agent shall
aggregate all shares of Company Common Stock that would have been distributable
but for the proviso to the first sentence of this paragraph, shall sell such
shares in the public market as soon as is practicable after the Time of
Distribution and shall distribute the proceeds of the sale of such shares pro
rata among the holders of record of Associated Common Stock who would otherwise
have been entitled to receive.
The Asset Transfers
The Distribution Agreement provides for a series of asset transfers, stock
transfers, and mergers between and among certain of Associated's subsidiaries
(collectively, the 'Asset Transfers'). The Asset Transfers are as follows:
(a) Immediately prior to the Time of Distribution the Company will:
(i) contribute to the capital of Celcom Communications Corporation
of Pittsburgh ('Pittsburgh') a note receivable from Pittsburgh to the
Company in cancellation of such indebtedness;
(ii) transfer, assign and convey to a newly formed subsidiary of
Associated ('Newco Cellular') all of the issued and outstanding capital
stock of the following indirect subsidiaries of Associated:
(A) Associated Communications of Delaware, Inc. II;
(B) Pittsburgh;
(C) Celcom Equipment Corporation of Albany ('Albany');
(D) Celcom Equipment Corporation of Buffalo ('Buffalo');
(E) Celcom Equipment Corporation of Rochester ('Rochester');
(F) Associated Data Services Corporation ('Data Services'); and
(G) Celcom Communications Corporation of Rochester.
(iii) transfer, assign and convey to Newco Cellular all assets of
the Company not transferred as described in clause (a)(ii) above, other
than marketable equity securities; and
18
<PAGE>
(iv) cause Newco Cellular to transfer, assign and convey all of the
issued and outstanding capital stock of Pittsburgh, Albany, Buffalo,
Rochester, and Data Services (the 'Transferred Subsidiaries') to
Associated Communications of Delaware, Inc. II ('ACDI II') as a
contribution to the capital of ACDI II.
(b) Immediately after the transfers described in clause (a) (iv)
above, Newco Cellular will cause ACDI II to transfer, assign and convey:
(i) all of the stock of the Transferred Subsidiaries to Celcom
Communications Corporation of Albany, a New York corporation and a
direct wholly-owned subsidiary of ACDI II; and
(ii) all of the issued and outstanding capital stock of California
Celcom Communications Corporation to Celcom Communications Corporation
of Buffalo, a New York corporation and a direct wholly-owned subsidiary
of ACDI II.
(c) Prior to the Time of Distribution and immediately after the
transfers described in clauses (a) and (b) above, Associated will:
(i) cause each of the following direct wholly-owned subsidiaries of
Associated to be merged with and into the Company, with the Company
being the surviving corporation in such mergers (the 'Merged
Subsidiaries'):
(A) Associated WOMP, Inc., an Ohio corporation,
(B) WSTV, Inc., an Ohio corporation,
(C) Associated American Artists, Inc., a New York corporation,
(D) Associated Technologies, Inc., a Delaware corporation,
(E) Associated Communications of America, Inc., a Delaware
corporation, and
(F) Associated Communications Resources, Inc., a Delaware
corporation ('ACORN'); and
(ii) transfer, assign and convey to the Company certain assets
referred to in the Merger Agreement (the 'Excluded Assets').
(d) Immediately after the mergers described in clause (c)(i) above,
the Company will cause:
(A) Associated Communications of Los Angeles, Inc., currently a
wholly-owned subsidiary of ACORN, to be merged with and into the
Company, with the Company being the surviving corporation; and
(B) all of the Portfolio Securities that the Company owns at the
Time of Distribution to be transferred to a direct wholly-owned
subsidiary of the Company formed solely for the purpose of holding the
Portfolio Securities.
Certain Transfers
The Distribution Agreement provides that if, after the Time of
Distribution, either party holds assets which by the terms of the Distribution
Agreement or of the Merger Agreement were intended to be assigned and
transferred to, or retained by, the other party, such party will promptly assign
and transfer or cause to be assigned and transferred such assets to the other
party. The Distribution Agreement further provides that, except as otherwise
provided therein or in the Merger Agreement or Tax Disaffiliation Agreement, at
or prior to the Time of Distribution the Company will assume all liabilities
(whether arising before or after the Time of Distribution) primarily arising out
of, based upon, or resulting from the operation of the business of, or primarily
relating to, the Company and its subsidiaries immediately after giving effect to
the Distribution (the 'Company Group'), including all liabilities primarily
relating to the Excluded Assets (the 'Company Assumed Liabilities'), and
Associated will assume all liabilities (whether arising before or after the Time
of Distribution, and including, without limitation, all liabilities reflected on
the audited pro forma balance sheet of Associated and its subsidiaries as of
December 31, 1993, after giving effect to the Asset Transfers, the Distribution
and the Merger (as if such transactions had occurred on December 31, 1993),
delivered by Associated to SBC pursuant to the
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<PAGE>
Merger Agreement) (the 'Retained Company Assumed Liabilities') primarily arising
out of, based upon, or resulting from the operation of, or primarily relating
to, Associated and its subsidiaries immediately after giving effect to the
Distribution (the 'Retained Company Group').
Intercompany Adjustment
The Distribution Agreement provides that immediately prior to the
Distribution, the Company and Associated will satisfy by cash payment the full
net amount of any intercompany indebtedness or other advances or accruals owing
between members of the Company Group and members of the Retained Company Group
arising after December 31, 1993 and not previously paid in full prior to the
Time of Distribution. Pursuant to the Distribution Agreement, the Company shall
pay Associated (or, if negative, Associated shall pay the Company) an amount
equal to:
(i) (A) the Fair Market Value (as defined in the Distribution
Agreement) of (x) all contributions to capital (including by way of
forgiveness of intercompany indebtedness, advances or accruals owing
between members of Retained Company Group and members of the Company Group
but excluding the Asset Transfers) contemplated by the Distribution
Agreement (the 'Asset Transfers') paid or made after December 31, 1993 and
prior to the Time of Distribution by members of Retained Company Group to
members of the Company Group plus (y) the Fair Market Value of all
dividends (including by way of forgiveness of intercompany indebtedness,
advances or accruals owing between members of the Company Group and members
of Retained Company Group but excluding the Asset Transfers) paid or made
after December 31, 1993 and prior to the Time of Distribution by members of
Retained Company Group to members of the Company Group plus (B) the sum of
(w) any consulting fees in excess of $100,000 per month, (x) any expense
payments in excess of $50,000 per month, (y) any management fees in excess
of $315,000 per month and (z) any other fees, expense allocations,
reimbursements or charges of any nature, in each case paid by members of
Retained Company Group to members of the Company Group after December 31,
1993 and prior to the Time of Distribution (prorating any such amounts for
any partial months),
minus
(ii) the Fair Market Value of (x) all dividends (including by way of
forgiveness of intercompany indebtedness, advances or accruals owing
between members of Retained Company Group and members of the Company Group
but excluding the Asset Transfers) paid or made after December 31, 1993 and
prior to the Time of Distribution by members of the Company Group to
members of Retained Company Group plus (y) all contributions to capital
(including by way of forgiveness of intercompany indebtedness, advances or
accruals owing between members of the Company Group and members of Retained
Company Group but excluding the Asset Transfers) paid or made after
December 31, 1993 and prior to the Time of Distribution by members of the
Company Group to members of Retained Company Group.
Any of the foregoing amounts due from members of the Retained Company Group
to members of the Company Group or from members of the Company Group to members
of Retained Company Group as contemplated above shall be netted so that there
shall be a single payment due immediately prior to the Time of Distribution
(such single payment being sometimes referred to herein as the 'True-Up
Payment') Prior to the Time of Distribution, Associated, SBC and the Company
shall agree on a reasonable estimate of the net amount so payable. Associated
and the Company shall use their reasonable efforts within 90 days after the Time
of Distribution to agree on the actual amount so payable. If the actual amount
so payable is different from such estimated amount, Associated or the Company
(as appropriate) will promptly pay the difference to the other, plus interest
thereon at a floating rate equal to the average prime rate (as in effect from
time to time) as reported in The Wall Street Journal plus 1% from the Time of
Distribution to the date of payment. If the parties are unable to so agree on
the actual amount, any disputes will be resolved by an independent accounting
firm selected by Associated and the Company, the fees and expenses of which will
be borne equally by Associated and the Company. Once the actual amount is so
agreed or resolved, such amount shall be final and non-appealable. As of July
26, 1994, the amount of the True-Up Payment is estimated at $10 million owed by
the Company to the Retained Company. For purposes of the Distribution Agreement,
all expenses, except those expenses of compliance with the MFJ which are subject
to reimbursement pursuant to the Merger Agreement, paid or payable
20
<PAGE>
by any member of the Retained Company Group after December 31, 1993 in
connection with the Distribution Agreement and the Merger Agreement and the
transactions contemplated thereby, including, without limitation, all fees and
expenses of Associated's investment bankers and lawyers, shall be treated for
purposes of the payment described above under '--Intercompany Adjustment' as an
intercompany loan from the Retained Company Group to the Company Group;
provided, however, that only one half of any fees and expenses relating to the
prepayment of the Credit Agreement shall be treated as an intercompany loan.
Certain Covenants
In the Distribution Agreement, the Company has agreed to indemnify and hold
Associated harmless from and against (a) 50% of any amounts paid by Associated
to persons who are direct employees of Associated immediately prior to the Time
of Distribution and who become employees of a member of the Company Group
immediately after the Time of Distribution and (b) except for payments pursuant
to contractual obligations, 100% of any amounts paid to certain persons referred
to therein, in the case of clauses (a) and (b) above, resulting from any claim,
action or suit arising out of such employee's status as an employee of
Associated prior to the Time of Distribution, other than claims for wages,
salaries and other employee benefits accrued prior to the Time of Distribution.
The Distribution Agreement provides that for two years after the Time of
Distribution, neither party will, directly or indirectly, solicit the employment
of any employee of the other party and its subsidiaries; provided, that the
Company may solicit the employment of those persons referred to in the
Distribution Agreement.
Following the Time of Distribution, the Company shall pay to the Surviving
Corporation (as defined in the Distribution Agreement) any annual premium costs
in excess of 150 percent of Associated's 1993 annual premium cost for its
directors and officers liability insurance incurred by SBC in order to maintain
directors and officers liability insurance pursuant to the Merger Agreement.
Mutual Indemnities
The Distribution Agreement provides that effective upon the Distribution
the Company will indemnify and hold Associated, its affiliates, successors and
assigns and the officers, directors, partners, employees, agents and
representatives of any of them, harmless from and against any and all Company
Assumed Liabilities. Effective upon the Distribution, Associated has agreed to
indemnify and hold the Company, its affiliates, successors and assigns and the
officers, directors, partners, employees, agents and representatives of any of
them, harmless from and against any and all Retained Company Assumed
Liabilities. If either of the foregoing indemnities is unavailable for any
reason, the parties have agreed to contribute in respect of any such loss,
claim, damage or liability on an equitable basis.
Additional Indemnification
The Distribution Agreement provides that from and after the Time of
Distribution, the Company shall indemnify and hold harmless the members of the
Retained Company Group, and the respective officers, directors, employees,
agents, successors and assigns of the members of the Retained Company Group
(collectively, the 'Indemnified Persons'), and shall reimburse the Indemnified
Persons for, from and against each and every demand, claim, loss, liability,
judgment, damage, cost and expense (including, without limitation, interest,
penalties, diminution in value of an equity interest, costs of preparation and
investigation, and reasonable attorneys' fees and disbursements) (a 'Loss')
imposed on or incurred, directly or indirectly, by the Indemnified Persons,
resulting from or arising out of any claim made in any suit, action or
proceeding, which claim is based on or arises out of the facts and circumstances
alleged in any document filed or exchanged by the parties prior to the Time of
Distribution in any of certain proceedings referred to in the Distribution
Agreement but only if and to the extent such Loss is attributable to the acts or
omissions of Associated or any of its affiliates or any of their respective
directors, officers, employees or agents prior to the Time of Distribution.
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<PAGE>
Mutual Releases
The Distribution Agreement provides that effective upon the Distribution
and except as otherwise specifically set forth in the Distribution Agreement,
each of the Company and Associated releases and forever discharges the other,
and its officers, directors, agents, affiliates, record and beneficial security
holders (including, without limitation, trustees and beneficiaries of trusts
holding such securities), advisors and representatives, of and from all debts,
demands, actions, causes of action, suits, accounts, covenants, contracts,
agreements, damages, and any and all claims, demands and liabilities whatsoever
of every name and nature, both in law and in equity, against such other party or
any of its assigns, which the releasing party has or ever had, which arise out
of or relate to events, circumstances or actions taken by such other party prior
to the Time of Distribution; provided, however, that the foregoing general
release does not apply to the Distribution Agreement or the transactions
contemplated thereby and does not affect either party's right to enforce the
Distribution Agreement or any other agreement contemplated thereby in accordance
with its terms. The Distribution Agreement provides that each party understands
and agrees that, except as otherwise specifically provided therein, neither the
other party nor any of its subsidiaries is, in the Distribution Agreement or any
other agreement or document, representing or warranting to such party in any way
as to the assets, businesses or liabilities transferred or assumed as
contemplated in the Distribution Agreement or as to any consents or approvals
required in connection with the consummation of the transactions contemplated by
the Distribution Agreement, it being agreed and understood that each party shall
take or keep all of its assets 'as is' and that it shall bear the economic and
legal risk that conveyance of such assets shall prove to be insufficient or that
the title to any assets shall be other than good and marketable and free from
encumbrances.
Conditions to the Distribution
The obligations of Associated to consummate the Distribution are subject to
the fulfillment of each of the following conditions: (i) the recapitalization of
the Company shall have been completed substantially as described in the
Distribution Agreement; (ii) the Tax Disaffiliation Agreement shall have been
executed and delivered by each of Associated and the Company; (iii) all of the
Asset Transfers as described in the Distribution Agreement have been
successfully consummated; (iv) each condition to the Closing of the Merger
Agreement set forth therein, other than the condition to each parties
obligations set forth therein as to the satisfaction of conditions contained in
the Distribution Agreement, has been fulfilled; (v) any registration statement
filed by the Company with the Commission in connection with the issuance of
Company Common Stock in the Distribution shall have become effective, and shall
not be the subject of any stop order or proceeding by the Commission seeking a
stop order; (vi) the shares of Company Common Stock to be issued in the
Distribution shall have been designated as a national market system security on
the interdealer quotation system by the NASD or listed on the NYSE or American
Stock Exchange, subject to official notice of issuance; (vii) all consents,
approvals and action of the FCC or any state public utility commission having
jurisdiction required to permit the consummation of the transactions
contemplated by the Distribution Agreement shall have been obtained or made,
free of any condition that would materially adversely impact the economic or
business benefits of the Distribution to Associated's stockholders or that would
have a material adverse effect on the Company and its subsidiaries taken as a
whole, all authorizations, consents, orders or approvals of, or declarations or
filings with, or expirations of waiting periods imposed by, any other
governmental entity the failure to obtain which would have a material adverse
effect on the Company and its subsidiaries taken as a whole, shall have been
filed, occurred, or been obtained, and all consents, approvals or waivers of any
party to certain contracts set forth in the Merger Agreement shall have been
obtained and the Company shall have received all state securities or 'blue sky'
permits and other authorizations necessary to distribute the Company Common
Stock to be distributed in the Distribution; (viii) no temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Distribution shall be in effect (each party agreeing to use
all reasonable efforts to have any such order reversed or injunction lifted);
and (ix) any applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended shall have expired or been terminated.
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<PAGE>
Amendment
The Distribution Agreement provides that Associated and the Company may
modify or amend the Distribution Agreement by written agreement executed and
delivered by authorized officers of the respective parties; provided, however,
that pursuant to the Merger Agreement the consent of SBC is required for any
such amendment.
Tax Disaffiliation Agreement
Prior to the Distribution, Associated, the Company and Newco Cellular will
enter into a Tax Disaffiliation Agreement which sets forth each party's rights
and obligations with respect to deficiencies and refunds, if any, of federal,
state, local or foreign taxes for periods before and after the Distribution and
related matters such as the filing of tax returns and the conduct of Internal
Revenue Service ('Service') and other audits.
In general, under the Tax Disaffiliation Agreement, the Company will be
responsible for (1) all adjustments to the reported tax liability of the Company
and its subsidiaries for periods before the Distribution, (2) any tax liability
of the Company and its subsidiaries for periods after the Distribution, (3) any
tax liability of Associated and its subsidiaries attributable to certain
intercompany transfers occurring pursuant to the Distribution Agreement, (4) up
to 36% of amounts paid by Associated in connection with the Merger to cash out
Associated stock options, as severance payable pursuant to employment agreements
and as bonus payments pursuant to the Bonus Pool (as described in the Proxy
Statement-Prospectus under 'The Merger--Interests of Certain Persons in the
Transactions'), to the extent those amounts are determined not to be deductible
by Associated, and (5) except as otherwise described below, any tax liability
resulting from the failure of the Distribution to qualify as a tax-free spinoff
under Section 355 of the Code (notwithstanding receipt by Associated of the
Private Letter Ruling requested from the Service). The Company will be entitled
to any refunds that relate to those liabilities. Associated will generally be
responsible for all tax liabilities of Associated and its subsidiaries (other
than the Company and its subsidiaries) for all periods. However, in the event
that the Distribution shall be determined not to qualify as a tax-free spin-off
under Section 355 due to the actions or inactions of either Associated or the
Company (or any of their respective affiliates), the party whose action or
inaction resulted in the Distribution's failure to qualify as a tax-free
spin-off shall be liable for all corporate level taxes resulting therefrom.
The Tax Disaffiliation Agreement is attached as Exhibit A to Appendix B to
the Proxy Statement-Prospectus and is incorporated herein by reference. The
foregoing summary is qualified in its entirety by reference thereto.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Associated has requested the Private Letter Ruling from the Service
substantially to the effect that, among other things, the Distribution will
qualify as a tax-free spin-off to Associated and its stockholders under Section
355 of the Code and that certain internal reorganization transactions involving
Associated and/or its subsidiaries to be effected prior to the Distribution will
not be taxable transactions. Receipt of the Private Letter Ruling reasonably
satisfactory to each of Associated and SBC is a condition to the respective
obligations of Associated and SBC to consummate the Merger, and it is a
condition to the Company's obligation to consummate the Distribution that all
conditions to the Merger be satisfied. See 'The Distribution--Terms of the
Distribution Agreement --Conditions to the Distribution.' The following is a
summary of the material federal income tax consequences of the Distribution:
1. An Associated stockholder will not recognize any income, gain or
loss as a result of the Distribution, except, as described below, in
connection with cash received in lieu of fractional shares of Company
Common Stock.
2. An Associated stockholder will apportion his tax basis for his
Associated Common Stock on which Company Common Stock is distributed
between such Associated Common Stock and the Company Common Stock received
in the Distribution (including any fractional shares of Company Common
Stock deemed received) in proportion to the relative fair market values of
such Associated Common Stock and Company Common Stock on the Distribution
Date.
3. An Associated stockholder's holding period for the Company Common
Stock received in the Distribution will include the period during which
such stockholder held the Associated Common Stock,
23
<PAGE>
provided that such Associated Common Stock is held as a capital asset by
such stockholder as of the Time of Distribution.
4. An Associated stockholder who receives cash in lieu of fractional
shares of Company Common Stock as a result of the sale of such shares by
the Distribution Agent will be treated as if such fractional shares had
been received by the stockholder as part of the Distribution and then sold
by such stockholder. Accordingly, such stockholder will recognize gain or
loss equal to the difference between the cash so received and the portion
of the tax basis in the Company Common Stock that is allocable to such
fractional shares. Such gain or loss will be capital gain or loss, provided
that such fractional shares would have been held by such stockholder as a
capital asset at the Time of Distribution.
5. No gain or loss will be recognized to Associated as a result of the
Distribution.
Current Treasury regulations require each Associated stockholder who
receives Company Common Stock pursuant to the Distribution to attach to his
federal income tax return for the year in which the Distribution occurs a
detailed statement setting forth such data as may be appropriate in order to
show the applicability of Section 355 of the Code to the Distribution.
Associated will convey the appropriate information to each Associated
stockholder of record as of the Distribution Record Date.
LISTING AND TRADING OF COMPANY COMMON STOCK
The Company expects to apply for listing of the Company Common Stock on the
Nasdaq National Market. It is a condition to the Company's and Associated's
obligations to consummate the Distribution that the Company Common Stock shall
have been designated as a national market system security on the interdealer
quotation system by the National Association of Securities Dealers, Inc., or
listed on the New York or American Stock Exchanges, subject to official notice
of issuance. See 'The Distribution--Terms of the Distribution
Agreement--Conditions to the Distribution.'
The Company Common Stock received pursuant to the Distribution will be
freely transferable under the Securities Act of 1933, as amended (the
'Securities Act'), except for shares of such Company Common Stock received by
any person who may be deemed an 'affiliate' of the Company within the meaning of
Rule 145 under the Securities Act. Persons who may be deemed to be affiliates of
the Company after the Distribution generally include individuals or entities
that control, are controlled by, or are under common control with the Company,
and may include the directors and principal executive officers of the Company as
well as any principal stockholder of the Company. Persons who are affiliates of
the Company will be permitted to sell their Company Common Stock received
pursuant to the Distribution only pursuant to an effective registration
statement under the Securities Act, such as the exemptions afforded by Section
4(2) of the Securities Act and Rule 144 thereunder.
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CAPITALIZATION
The following table sets forth, as of March 31, 1994, the combined
historical capitalization of the Company and its combined capital, as adjusted
to reflect the Distribution. This information should be read in conjunction with
the Combined Financial Statements and the related notes thereto of the Company
included elsewhere in this Information Statement.
<TABLE>
<CAPTION>
MARCH 31, 1994
------------------------------------
PRO FORMA
--------------------------
COMBINED AS
HISTORICAL ADJUSTMENTS ADJUSTED
---------- ------------ ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Current maturities of long-term debt.... $ -- $ -- $ --
Long-term debt.......................... -- -- --
---------- ------------ ----------
Stockholders' equity:
Preferred Stock of $.01 par
value--authorized 5,000,000
shares--no shares outstanding
Common Stock of $1.00 par
value--authorized, issued and
outstanding 1,000 shares........... 1 (1)(B) --
Class A Common Stock of $.10 par
value--authorized 100,000,000
shares; as adjusted 9,368,877
shares(A).......................... -- 937(B) 937
Class B Common Stock of $.10 par
value--authorized 50,000,000
shares; as adjusted 9,368,877
shares(A).......................... -- 937(B) 937
Unrealized gain on marketable equity
securities, net of taxes........... 283,169 -- 283,169
Retained earnings..................... 33,641 (10,088)(B) 23,553
---------- ------------ ----------
Total stockholders' equity............ 316,811 (8,215)(B) 308,596
---------- ------------ ----------
Total long-term debt and
stockholders' equity............. $ 316,811 $ (8,215) $ 308,596
---------- ------------ ----------
---------- ------------ ----------
</TABLE>
- ------------------
(A) Based on Associated Common Stock outstanding at March 31, 1994.
(B) Reflects changes in stockholders' equity resulting from the adjustments set
forth in footnote (E) to the Pro Forma Condensed Combined Statement of
Financial Position. See 'Pro Forma Condensed Combined Financial Statements'
and 'The Distribution--Terms of the Distribution--Recapitalization of the
Company' and '--The Distribution.'
25
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Set forth on the following pages are a pro forma condensed combined
statement of financial position of the Company as of March 31, 1994 and pro
forma condensed combined statements of operations of the Company for the
three-month period ended March 31, 1994 and for the year ended December 31, 1993
(which have not been examined by independent public accountants).
The pro forma condensed combined statement of financial position includes
combined historical amounts for the Company as of March 31, 1994, adjusted for
the effect of the Distribution, as if the Distribution had been consummated on
that date. The pro forma condensed combined statements of operations include
combined historical amounts for the Company for the respective periods, adjusted
retroactively to January 1, 1993, to reflect the effect of the Distribution as
if the Distribution had been consummated on that date.
The pro forma condensed combined financial statements should be read in
conjunction with the other financial information presented elsewhere in this
Information Statement. The pro forma condensed combined information is presented
for illustrative purposes only and is not necessarily indicative either of (1)
the operating or financial results that would have occurred had the Distribution
occurred on January 1, 1993, in the case of the pro forma condensed combined
statements of operations, or on March 31, 1994 in the case of the pro forma
condensed combined statement of financial position, or (2) the Company's future
operating or financial results.
26
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL POSITION
MARCH 31, 1994
<TABLE>
<CAPTION>
PRO FORMA
AS
HISTORICAL ADJUSTMENTS ADJUSTED
---------- ------------ ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......... $ 39 $ (7,912)(A) $ (7,873)
Accounts receivable, net........... 1,438 1,438
Notes receivable from foreign
affiliates....................... 3,874 3,874
Inventory held for resale.......... 1,636 1,636
Other current assets............... 2,737 (1,000)(B) 1,737
---------- ------------ ----------
Total current assets.......... 9,724 (8,912) 812
---------- ------------ ----------
Noncurrent Assets:
Property, plant and equipment,
net.............................. 4,817 4,817
Marketable equity securities....... 442,632 442,632
Notes receivable from foreign
affiliates....................... 6,896 6,896
Investments in specialized mobile
radio system..................... 7,977 7,977
Other noncurrent assets............ 3,276 3,276
---------- ----------
Total noncurrent assets....... 465,598 465,598
---------- ------------ ----------
TOTAL ASSETS............................ $ 475,322 $ (8,912) $ 466,410
---------- ------------ ----------
---------- ------------ ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued
liabilities...................... $ 2,240 $ (697)(C) $ 1,543
Short-term obligations............. 4,200 4,200
---------- ------------ ----------
Total current liabilities..... 6,440 (697) 5,743
---------- ----------
Noncurrent Liabilities:
Long-term obligation............... 1,323 1,323
Deferred income tax................ 150,748 150,748
---------- ----------
Total noncurrent
liabilities................. 152,071 152,071
---------- ----------
Stockholders' Equity:
Preferred Stock of $.01 par
value--authorized 5,000,000
shares-- no shares issued and
outstanding...................... -- -- --
Common Stock of $1.00 par
value--authorized, issued and
outstanding 1,000 shares......... 1 (1)(E) --
Class A Common Stock par value $.10
per share--authorized 100,000,000
shares--issued and outstanding
9,368,877 shares(D).............. -- 937(E) 937
Class B Common Stock par value $.10
per share--authorized 50,000,000
shares--issued and outstanding
9,368,877 shares(D).............. -- 937(E) 937
Unrealized gain on marketable
equity securities, net of
taxes............................ 283,169 283,169
Retained earnings.................. 33,641 (10,088)(E) 23,553
---------- ------------ ----------
Total stockholders' equity....... 316,811 (8,215)(E) 308,596
---------- ------------ ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................ $ 475,322 $ (8,912) $ 466,410
---------- ------------ ----------
---------- ------------ ----------
</TABLE>
- ------------------
(A) Reflects True-Up Payment from the Company to Associated, primarily
consisting of estimated fees and expenses relating to the Merger and the
Distribution, in addition to the $697,000 intercompany payable from the
Company to Associated. See 'The Distribution--Terms of the Distribution
Agreement--Intercompany Adjustment.'
(B) Reflects the elimination as a result of the Distribution of $1,000,000
income tax benefit; the benefit arises from interperiod income tax
allocations.
(C) Reflects elimination of intercompany payable referred to in (A) above.
(D) Based on Associated Common Stock outstanding at March 31, 1994.
(E) Reflects changes in stockholders' equity resulting from the cumulative
effect of the adjustments discussed in notes (A) and (B) above and the
recapitalization of the Company described under 'The Distribution'-- 'Terms
of the Distribution Agreement'--'Recapitalization of the Company.'
27
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH YEAR ENDED DECEMBER 31,
31, 1994 1993
------------------------ ------------------------
COMBINED PRO FORMA AS COMBINED PRO FORMA AS
HISTORICAL ADJUSTED HISTORICAL ADJUSTED
---------- ------------ ---------- ------------
(THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues...................... $ 1,244 $ 1,244 $ 6,075 $ 6,075
Costs and expenses
Costs of services and
goods sold............. 621 621 3,365 3,365
General and
administrative......... 2,414 2,529 (A) 5,700 10,061 (C)
Depreciation and
amortization........... 353 353 1,295 1,295
---------- ------------ ---------- ------------
3,388 3,503 10,360 14,721
---------- ------------ ---------- ------------
Operating loss................ (2,144) (2,259) (4,285) (8,646)
Other income (expense)
Interest and dividend
income................... 392 392 667 667
Interest income from
affiliate................ -- -- 2,680 -- (D)
Interest expense............ (15) (15) (278) (278)
Equity in loss of joint
venture.................. (222) (222) (1,239) (1,239)
Minority interest........... 2 2 146 146
---------- ------------ ---------- ------------
157 157 1,976 (704)
---------- ------------ ---------- ------------
Loss before income taxes and
cumulative effect of
accounting change for income
taxes....................... (1,987) (2,102) (2,309) (9,350)
Income taxes (benefit)........ (1,129) (710)(B) (338) (3,188)(E)
---------- ------------ ---------- ------------
Loss before cumulative effect
of accounting change for
income taxes................ (858) (1,392) (1,971) (6,162)
Cumulative effect of
accounting change for income
taxes....................... -- -- 883 883
---------- ------------ ---------- ------------
Net loss.................... $ (858) $ (1,392) $ (1,088) $ (5,279)
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
Pro forma loss per share...... $ (.07) $ (.28)
Pro forma weighted average
shares outstanding (in
thousands).................. 18,731 18,717
</TABLE>
- ------------------
(A) The Distribution Agreement permits payments from the Retained Company Group
to the Company Group of management and consulting fees up to specified
amounts without inclusion in the True-Up Payment. See 'The
Distribution--Terms of the Distribution Agreement--Intercompany Adjustment.'
Adjustment reflects the elimination of these payments. In addition,
estimated fees and expenses of $785,000 relating to the Merger and the
Distribution have been eliminated.
(B) Reflects the elimination of interperiod income tax allocations and income
taxes for the Company on a stand-alone basis.
(C) Reflects the elimination of allocations of corporate expenses previously
charged to the Retained Company Group as well as the elimination of
estimated fees and expenses of $275,000 relating to the Merger and the
Distribution.
(D) Reflects the elimination of interest income from intercompany loans from the
Company to the Retained Company Group.
(E) Reflects income taxes on a stand-alone basis.
28
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company for
each of the five years in the period ended December 31, 1993. Such information
has been derived from the audited Combined Financial Statements of the Company
for the three years ended December 31, 1993 included elsewhere in this
Information Statement and the unaudited Combined Financial Statements of the
Company for the two years ended December 31, 1990 and 1989. Historical financial
information may not be indicative of the Company's future performance as an
independent company. The selected financial data set forth below should be read
in conjunction with 'Management's Discussion and Analysis of Financial Condition
and Results of Operations' which follows this section, and the Combined
Financial Statements and related notes contained elsewhere in this Information
Statement. The table also sets forth selected financial data of the Company for
the three-month periods ended March 31, 1994 and 1993, which have been derived
from the unaudited combined financial statements of the Company included
elsewhere in this Information Statement. Such information in management's
opinion includes all adjustments, consisting of only normal recurring accruals,
necessary for a fair presentation of financial position and the results of
operations of the Company for the unaudited interim periods. The results for the
three-month period ended March 31, 1994 are not necessarily indicative of the
results to be expected for 1994. Historical per share data for earnings and
dividends have not been presented as the Company was not a publicly-held company
during the periods presented below. See the Pro Forma Condensed Combined
Statements of Operations included elsewhere herein for per share data presented
on a pro forma basis, adjusted to reflect the Distribution.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------------- ------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
---------- --------- ---------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
--------------------- (AMOUNTS IN THOUSANDS) --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Revenues................ $ 1,244 $ 1,352 $ 6,075 $ 5,550 $ 5,393 $ 5,489 $ 6,004
Cost and expenses....... 3,388 2,687 10,360 8,606 7,576 7,263 8,792
Operating loss.......... (2,144) (1,335) (4,285) (3,056) (2,183) (1,774) (2,788)
Other income (expense).. 157 672 1,976 1,487 (213) 18,835(A) 507
(Loss) income before
extraordinary item
and cumulative effect
of accounting change
for income taxes..... (858) (566) (1,971) 43 (2,396) 11,027 (2,281)
Extraordinary item(B)... -- -- -- -- -- 6,023 --
Cumulative effect of
accounting change for
income taxes(C)...... -- 883 883 -- -- -- --
Net (loss) income....... (858) 317 (1,088) 43 (2,396) 17,050 (2,281)
Balance Sheet Data
Total assets(D)......... 475,322 69,026 653,330 65,401 60,960 63,602 47,474
Working capital......... 3,284(E) 41,778 3,899(E) 42,709 41,516 45,563 34,476
Long-term obligation.... 1,323 1,061 1,270 1,008 806 973 1,144
</TABLE>
- ------------------
(A) Includes $17,801,000 gain on sale of marketable equity securities.
(B) Reduction of income taxes from utilization of operating loss carryforward.
(C) Reflects the adoption as of January 1, 1993 of Statement of Financial
Accounting Standards No. 109, 'Accounting for Income Taxes.'
(D) Reflects the adoption at December 31, 1993 of Statement of Financial
Accounting Standards No. 115, 'Accounting for Certain Investments in Debt
and Equity Securities.'
(E) Reflects the settlement of net intercompany amounts payable to the Company
by the Retained Company Group.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(all amounts are rounded and approximate)
THREE MONTHS ENDED MARCH 31, 1994, COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1993
For the period ended March 31, 1994, revenues were $1,244,000 as compared
to $1,352,000 for the 1993 period reflecting a net decrease of $108,000 or 8%.
Microwave communication service revenue decreased $95,000 or 12% in the 1994
period compared to the 1993 period primarily as a result of increased
competition from alternate access providers. Radio broadcasting revenue
increased $26,000, or 8% primarily as a result of the continued effects of the
acquisition of WOMP in January 1993. Art gallery sales decreased $39,000 or 20%
from the comparable period in 1993 as a result of the soft art market.
Cost of microwave communication services increased from the 1993 period to
the 1994 period primarily as a result of site rental costs in the exploration of
international satellite and other types of communications services. Cost of art
sales increased $54,000. Art gallery sales and related costs are cyclical in
nature and fluctuate significantly as a result of current conditions in the art
market and the economy. Operating expenses were $237,000 in the 1994 period,
reflecting an increase of $13,000 or 6% over the 1993 period. This increase is
directly related to the increase in broadcasting revenues during the period.
General and administrative expenses increased $579,000 due primarily to costs
related to the Merger. In the 1994 period, depreciation and amortization expense
increased $38,000 or 12% over 1993.
Other income decreased a net $515,000 or 77% from the 1993 period to the
1994 period. Interest and dividend income increased $104,000 over such income in
the 1993 period. Beginning in the fourth quarter 1993, interest was accrued on
certain notes receivable from foreign affiliates and continued in the 1994
period. Interest income from affiliates decreased from $449,000 in the 1993
period to $0 in the 1994 period due to the settlement of intercompany accounts
with Associated. Interest expense in the 1994 period decreased $56,000 or 79%,
as compared to the 1993 period, as a result of lower short-term debt levels in
1994.
Equity in loss of unconsolidated cellular telephone joint venture was
$222,000 in the first quarter of 1994 compared to $84,000 in first quarter of
1993 reflecting an increase of 164%, primarily due to currency translation
losses during the first quarter of 1994. Minority interest which reflects the
activities of the PCS partnership was $2,000 in the 1994 period compared to
$90,000 in the 1993 period, primarily as a result of higher expenses in the 1993
period.
The Company recorded a credit to income taxes of $1,129,000 in the 1994
period compared to a credit of $97,000 in the 1993 period primarily as a result
of interperiod income tax allocations. In addition, in the 1993 period, a
$883,000 credit was recorded for the recognition of a cumulative effect of an
accounting change for income taxes, resulting from the Company's adoption of
Statement of Financial Accounting Standards No. 109, 'Accounting for Income
Taxes'.
FINANCIAL CONDITION
In the first three months of 1994, the net cash used in operating
activities was $1,247,000, an increase of $1,184,000 over the 1993 period,
primarily due to the refundable income taxes offset by less cash used for
working capital items, primarily higher accrued liability balances. Net cash
used in investing activities was $3,751,000, related primarily to advances for
investments in SMR systems in Mexico. The net cash from financing activities of
$4,950,000 was provided primarily from borrowings under the Company's
$25,000,000 demand credit bank facility (the 'Demand Credit Facility').
Management is unable to predict to what extent positive operating cash flow can
be generated.
As of July 26, 1994, the Company had available unused debt capacity to
finance internal and external development, additional capital expenditures, and
investment and business opportunities. As of July 26, 1994, the Company had
available $17,000,000 from the ACDI demand credit bank facility and also has
brokerage margin loan facilities available. A significant portion of the
Company's assets are liquid.
On May 10, 1994, the Company received approximately $2,912,000 of pre-tax
proceeds from the redemption of a portion of its marketable equity securities
portfolio.
The Company continually evaluates its financial position and alternative
financing arrangements.
The Company's principal commitments at March 31, 1994 consisted of certain
obligations under operating leases for offices, equipment and facilities.
30
<PAGE>
YEARS ENDED DECEMBER 31, 1993 AND 1992
For the year ended December 31, 1993, revenues were $6,075,000 as compared
to $5,550,000 for the 1992 period reflecting an increase of $525,000 or 9%.
Microwave communication service revenue in 1993 was consistent with 1992 as the
system was functioning near capacity. Radio broadcasting revenue increased
$778,000, or 65% primarily as a result of the acquisition of the WOMP-AM and FM
radio stations in January 1993. Art gallery sales decreased $247,000 or 22% from
the prior year primarily as a result of the extremely soft art market.
Cost of microwave communication services increased from 1992 to 1993
primarily as a result of research and development costs as well as site rental
costs in the exploration of international satellite and other types of
communications services. Cost of art sales increased a net $366,000 or 39%
primarily due to a $702,000 charge to increase the inventory market valuation
reserve, offset by the reduced costs associated with the decline in art sales.
Operating expenses were $1,051,000 in 1993, reflecting an increase of $327,000
or 45% over the 1992 period. This increase is directly related to the
acquisition of WOMP. General and administrative expenses increased $965,000 or
20% primarily due to research and development costs associated with the
development of advanced communication services such as PCS, SMR, DTS, and OFS
and costs related to the Merger. In 1993, depreciation and amortization expense
increased $17,000, or 1% over the 1992 amount as a result of the purchases of
property, plant, and equipment in 1993 and 1992.
Interest and dividend income in 1993 increased $442,000 over such income in
1992. The increase was primarily due to a dividend paid by Liberty. Interest
income from affiliates increased $303,000 or 13% primarily due to increased
principal balances outstanding. Interest expense increased in 1993 to $278,000
as compared to $155,000 in 1992 as a result of increased short term borrowings
during 1993 over 1992. Equity in loss of unconsolidated cellular telephone joint
venture was $1,239,000 in 1993 as compared to $1,214,000 in 1992, reflecting an
increase of 2%. Minority interest which reflects the activities of the PCS
partnership was $146,000 in 1993 compared to $254,000 in 1992.
1993 results reflect a credit to income taxes of $338,000 in addition to a
$883,000 credit for the recognition of a cumulative effect of an accounting
change for income taxes, resulting from the Company's adoption of Statement of
Financial Accounting Standards No. 109, 'Accounting for Income Taxes.' See Note
10 to the Company's Combined Financial Statements for a discussion regarding
income tax allocations.
YEARS ENDED DECEMBER 31, 1992 AND 1991
Revenues increased to $5,550,000 in 1992 as compared to $5,393,000 in 1991,
reflecting a net increase of $157,000 or 3%. Microwave communication service
revenue increased $552,000 or 21% from 1991 to 1992 as a result of increased
capacity and greater utilization on the network. Radio broadcasting revenue
decreased $21,000 and art gallery sales decreased $374,000 primarily as a result
of the weak economy and weak art market, respectively.
Cost of microwave communication services was $937,000 in 1992 as compared
to $1,025,000 in 1991, reflecting a decrease of $88,000 primarily due to costs
incurred in 1991 relating to enhancing the capacity of the system. Cost of art
sales decreased $35,000 primarily as a result of costs associated with weaker
art sales mitigated by a $150,000 charge to increase the inventory market
valuation reserve. Operating expenses were relatively consistent reflecting 1992
expenses of $724,000 as compared to $705,000 in 1991. General and administrative
expenses increased $792,000 or 20% principally due to the growth of the
microwave communication services combined with increased research and
development costs associated with development of advanced communication
services. Depreciation and amortization expense was $1,278,000 in 1992 as
compared to $936,000 in 1991, an increase of $342,000 primarily as a result of
the purchases of property, plant, and equipment in 1991 and 1992.
In 1991, the Company realized a gain of $22,000 on the sale of certain
exchange rights of Liberty. Interest and dividend income in 1992 decreased
$394,000 as compared to 1991 primarily as a result of a smaller investment
portfolio and lower interest rates during 1992. Interest income from affiliates
increased to $2,377,000 in 1992 from $487,000 in 1991 primarily due to increased
principal balances outstanding. Interest expense was $155,000 in 1992 as
compared to $123,000 in 1991, primarily attributable to increased borrowings
during 1992.
Equity in loss of unconsolidated cellular telephone joint venture decreased
$213,000 reflecting the growth of the unconsolidated cellular telephone joint
venture, mitigated by the Company's increased equity investment from 24.00% in
1991 to 30.15% in 1992. Minority interest which reflects the activities of the
Company's PCS partnership was $254,000 in 1992 as compared to $209,000 in 1991.
31
<PAGE>
Income taxes in 1992 reflected a $1,612,000 credit. There was no income tax
expense in 1991. See Note 10 to the Combined Financial Statements for a
discussion regarding income tax allocations.
INFLATION
The Company does not believe that it is significantly affected by
inflation.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded the start-up operating and capital costs for its
advanced communications ventures and technologies, such as PCS, SMR, DTS, and
OFS. The Company will continue to incur costs developing technologies,
maintaining site leases and maintaining licenses. Since these technologies are
in the development stage, future financial commitments cannot adequately be
estimated by the Company at the present time. However, it is the Company's
policy to carefully monitor and assess current and future cash requirements. See
Notes 9 and 14 to the Company's Combined Financial Statements regarding future
minimum lease commitments and research and development expenses, respectively.
The Company has financed its continuing cash requirements through existing
credit and margin loan facilities. The Company continually evaluates its
financial position and alternative financing arrangements. A significant portion
of the Company's assets are highly liquid.
Net cash provided by operating activities was $68,000 in 1993 and $968,000
in 1992 and net cash used in operating activities was $342,000 in 1991. Such
changes in net cash provided by or used in operating activities related
primarily to fluctuations in net income and loss. Net cash provided by investing
activities was $5,218,000 in 1993 and net cash used in investing activities was
$6,197,000 in 1992 and $6,692,000 in 1991. Net cash provided by investing
activities in 1993 was primarily attributable to repayments of advances to the
Associated Business to be Merged. Net cash used in financing activities was
$5,288,000 in 1993 and $120,000 in 1991. Net cash provided by financing
activities was $5,305,000 in 1992. Changes in net cash provided by or used in
financing activities related primarily to fluctuations in the Company's net
borrowings.
The Company's ratio of current assets to current liabilities was 3.73 to
1.00 at December 31, 1993, compared to 7.29 to 1.00 at December 31, 1992. The
1992 ratio is significantly affected by the receivable from Associated.
Purchases of property, plant and equipment amounted to $541,000 and
$1,457,000 in 1993 and 1992, respectively, primarily for microwave communication
equipment, building improvements, and office furniture, fixtures and equipment.
As of April 23, 1994, the Company renewed its Demand Credit Facility, for a
one-year period maturing April 30, 1995. At December 31, 1993, there were no
short-term obligations outstanding under the Demand Credit Facility. At July 26,
1994, borrowings of $7,000,000 and $1,000,000 were outstanding under the Demand
Credit Facility at annual interest rates of 5.875% and 5.8125%, respectively.
Borrowings under the Demand Credit Facility are secured by 2,079,996 shares of
TCI Class A Common Stock.
As of July 26, 1994, the Company also has margin loan facilities available
with two brokerage firms, pledging an aggregate of 1,039,998 shares of TCI Class
A Common Stock as collateral for such facilities. The Company can borrow up to
50% of the market value of such securities. As of July 26, 1994, the market
value of the pledged securities was $24,439,953, providing the Company with an
available credit line of $12,219,976. As of July 26, 1994, the annual interest
rate on the brokerage margin loan facilities was 7.25% and there were no
outstanding borrowings on the brokerage margin facilities.
As of December 31, 1993, the Company has contributed $5,725,000 for stock
in the holding company of Portatel and could be assessed additional payments for
such stock of up to $4,004,000. The Company has also loaned $6,718,000 to other
Portatel holding company shareholders for their purchase of stock which is
secured by said stock. Interest accrues on certain of these notes at the prime
rate plus 2%. The Company may be required to meet additional capital commitments
with respect to its ownership interest.
The Company is evaluating other business opportunities and acquisitions in
the communications industry as well as other industries. Present developmental
communications opportunities include PCS, SMR, DTS, and OFS. In certain cases,
the Company has either invested in, applied for or received licenses for some of
these technologies. These ventures may also require additional working capital.
Additionally, other business opportunities or acquisitions, which may also
require additional capital, are currently being evaluated. There can be no
assurance that adequate liquidity or capital resources will be available to
enable the Company to avail itself of any such opportunities or to undertake any
such transactions.
32
<PAGE>
MANAGEMENT
DIRECTORS
Following the Distribution, the Company Board will consist of five persons,
each of whom will have been elected for a term expiring at the annual meeting of
the Company's stockholders indicated below and until his successor shall have
been elected and qualified. The following table sets forth information
concerning the individuals who will serve as directors of the Company. These
individuals comprise the current Company Board, other than Kenneth J. Kubacki, a
current director of the Company who will not continue to serve as a director
following the Distribution.
<TABLE>
<CAPTION>
TERM EXPIRES AT
NAME AGE ANNUAL MEETING IN
- ------------------------------ --- --------------------
<S> <C> <C>
Jack N. Berkman............... 89 1996
Myles P. Berkman.............. 57 1995
David J. Berkman.............. 32 1996
Donald H. Jones............... 57 1997
Joseph A. Katarincic.......... 62 1995
</TABLE>
Jack N. Berkman has served as Chairman of the Board and Secretary of the
Company since its inception. Prior to the Distribution, he also served as the
Company's Chief Executive Officer. He serves as a member of the Board of
Directors of the Mexican Cultural Institute of New York. Mr. Berkman has been a
member of the National Council of Rockefeller University since 1984 and is a
Founding Member of the Japan Society. He is also on the Committee on University
Resources of the Harvard College Board of Overseers and on the Dean's Advisory
Council of the Harvard Law School.
Myles P. Berkman has served as President, Treasurer and a Director of the
Company since its inception. Subsequent to the Distribution, he will also serve
as Chief Executive Officer of the Company.
David J. Berkman has served as a Vice President of the Company from June
1987 to December 1992, at which time he became Executive Vice President, the
office which he holds currently. He has served as a Director since December
1991. Mr. Berkman is a member of the Board and of the Executive Committee of the
Cellular Telephone Industry Association, a member of the Board of Directors of
Grupo Portatel, S.A. de C.V. and Vice Chairman of Portatel del Sureste, S.A. de
C.V.
Donald H. Jones has served as a director of the Company since 1987. Mr.
Jones has been the President of Franklin McKee Corporation, a firm engaged in
electronic publishing, since 1990. From 1989 to 1990, Mr. Jones served as
President of DHJ Enterprises, a firm engaged in the development of new business
enterprises and investment activities. Mr. Jones serves as a director of
Sentient Systems Technology, an electronics corporation engaged in the
development and manufacturing of electronic vocational and rehabilitation
equipment.
Joseph A. Katarincic has been a director of the Company since 1989, and is
currently an attorney admitted to practice in the Commonwealth of Pennsylvania.
Since January 1989, Mr. Katarincic has been a partner in the law firm of
Katarincic & Salmon in Pittsburgh, Pennsylvania. He is also a director of
Duquesne University, a member of the Board of Visitors of University of
Pittsburgh School of Law and a director of the Port Authority of Allegheny
County, Pennsylvania.
Joseph A. Katarincic is a partner in the law firm of Katarincic & Salmon in
Pittsburgh, Pennsylvania. Such firm and Mr. Katarincic performed legal services
for Associated in fiscal year 1993 and are expected to perform legal services
for the Company following the Distributon. The aggregate amount of fees paid by
Associated to Katarincic & Salmon was less than 5% of the law firm's gross
revenues for the last fiscal year. Associated believes that the billing rates
for the foregoing legal services were no less favorable to Associated than could
have been obtained from unaffiliated parties for comparable services.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company Board will establish an Audit Committee which will, among other
things, consider the overall scope and approach of the annual audit and
recommendations of the audit performed by the independent accountants; recommend
the appointment of independent accountants; consider significant accounting
methods
33
<PAGE>
adopted or proposed to be adopted; and consider procedures for internal
controls. The Audit Committee will initially be comprised of Donald H. Jones and
Joseph A. Katarincic.
COMPENSATION OF DIRECTORS
At present, no separate compensation or fees are payable to directors of
the Company in such capacity. Following the Distribution, the Company's
non-employee directors will receive $1,000 per month for their service on the
Company Board. Directors who are also employees of the Company will receive no
compensation for their services as directors.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning the persons
who currently or will serve as executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- --- ----------------------------------------
<S> <C> <C>
Jack N. Berkman.......... 89 Chairman of the Board and Secretary
Myles P. Berkman......... 57 President, Chief Executive Officer and
Treasurer
David J. Berkman......... 32 Executive Vice President
Lillian R. Berkman....... 72 Vice President
Monroe E. Berkman........ 54 Vice President
Richard I. Goldstein..... 33 Vice President
Keith C. Hartman......... 36 Controller and Assistant Secretary
</TABLE>
The principal occupations and positions for the past five years of each of
the persons named above are as follows:
David J. Berkman has been Executive Vice President of Associated since
December 1992. He was Vice President of Associated from July 1991 through
December 1992, prior to which he served Associated in various capacities.
Jack N. Berkman has been Chairman of the Board, Chief Executive Officer and
Secretary of Associated since 1979.
Lillian R. Berkman has been Vice President of Associated since 1986.
Monroe E. Berkman has been Vice President of Associated since 1986.
Myles P. Berkman has been President, Chief Operating Officer and Treasurer
of Associated since 1979.
Richard I. Goldstein has been Vice President, Cellular of Associated since
December 1992. He was Regional General Manager of Associated's cellular systems
from March 1991 through December 1992, and was employed by AT&T Corporation from
June 1983 to March 1991 as a Management and Marketing Executive.
Keith C. Hartman has served as Controller and Assistant Secretary of
Associated since 1986.
Jack N. Berkman is the father of Myles P. Berkman and Monroe E. Berkman,
the grandfather of David J. Berkman and the husband of Lillian R. Berkman. Myles
P. Berkman is the brother of Monroe E. Berkman and the father of David J.
Berkman.
It is anticipated that, effective at the Time of Distribution, Myles P.
Berkman will become Chief Executive Officer (and will also continue as
President) of the Company and Jack N. Berkman will continue as Chairman of the
Board and Secretary.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid by Associated during 1993 to the Company's Chief Executive Officer and the
four other most highly compensated persons who are or will be executive officers
of the Company, based on salary and bonus earned during 1993.
34
<PAGE>
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
------------------ ALL OTHER
NAMES AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(2)
- ---------------------------------------- -------- -------- ---------------
<S> <C> <C> <C>
Myles P. Berkman........................ $650,000 $100,000 $ 4,497
President, Chief Operating Officer and
Treasurer of Associated
Jack N. Berkman......................... 300,000 100,000 --
Chairman of the Board, Chief Executive
Officer and Secretary of Associated
David J. Berkman........................ 233,600 85,000 4,497
Executive Vice President of Associated
Keith C. Hartman........................ 178,600 75,000 4,497
Controller and Assistant Secretary of
Associated
Richard I. Goldstein.................... 182,800 100,000 4,497
Vice President, Cellular of Associated
</TABLE>
- ------------------------
(1) There was no disclosable 'Long-Term Compensation' paid, payable or accrued
to any of the persons named above during 1993.
(2) All amounts represent Associated contributions to the Associated 401(k)
Plan.
ASSOCIATED STOCK OPTIONS
No Associated Stock Options (as defined below) were granted to or exercised
by any of the persons named above during the fiscal year ended December 31,
1993. The following table sets forth information regarding unexercised
Associated Stock Options held at December 31, 1993 by the Company's Chief
Executive Officer and the four other most highly compensated persons who are or
will be executive officers of the Company, and the aggregate payment to be
received by each such person from Associated in respect of the cash-out of such
options as contemplated by the Merger Agreement. See 'The Merger--Interests of
Certain Persons in the Transactions-- Cash-Out of Associated Stock Options', in
the Proxy Statement-Prospectus.
ASSOCIATED COMMUNICATIONS CORPORATION
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED PAYMENT TO BE RECEIVED
NUMBER OF SECURITIES IN-THE-MONEY OPTIONS UNDER CHANGE OF
UNEXERCISED OPTIONS(1) AT FISCAL YEAR-END(1) CONTROL SETTLEMENT(2)
-------------------------- -------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- ----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Myles P. Berkman.... 400,000 N/A $ 7,850,000 N/A $ 6,750,000 $ --
Jack N. Berkman..... 60,000 N/A 1,177,500 N/A 1,012,500 --
David J. Berkman.... 225,000 N/A 4,256,250 N/A 3,637,500 --
Keith C. Hartman.... 80,000 45,000 1,506,250 $ 787,500 1,286,250 663,750
Richard I.
Goldstein......... 15,000 15,000 199,184 198,936 157,934 157,686
</TABLE>
- ------------------------
(1) All stock options reflected in the table immediately above relate to
Associated's Class B Common Stock. The closing price of the Class B Common
Stock on the Nasdaq National Market was $27.75 on December 31, 1993.
(2) The Merger Agreement provides that at or immediately prior to the Effective
Time, each outstanding option (the 'Associated Stock Options') to purchase
shares of Associated Common Stock under Associated's 1988 Stock Option Plan
(the '1988 Plan') and Associated's 1989 Stock Option Plan (the '1989 Plan,'
and together with the 1988 Plan, the 'Associated Stock Plans'), whether
vested or unvested, shall be cancelled and only entitle the holder thereof,
upon surrender thereof to receive a cash payment in accordance with the
35
<PAGE>
terms of the Associated Stock Plans. Pursuant to the terms of the Associated
Stock Plans, the holders of Associated Stock Options will receive an amount
in respect of the cancellation of each Associated Stock Option held by such
holder immediately prior to the Effective Time equal to the product computed
by multiplying (i) the excess of (A) the highest Fair Market Value (as
defined in the Associated Stock Plans) per share of the relevant class of
Associated Common Stock during the 60 day period ending on the Closing Date
over (B) the exercise price of such Associated Stock Option, by (ii) the
number of shares of Associated Common Stock subject to such Associated Stock
Option. For purposes of this table the Fair Market Value of Class B Common
Stock has been assumed to be $25.00 per share.
ACORN OPTIONS
No stock options ('ACORN Options') under the Associated Communications
Resources, Inc. ('ACORN') 1989 Stock Option Plan (the 'ACORN Plan') were granted
to or exercised by any of the named persons during the fiscal year ended
December 31, 1993. The following table sets forth information regarding
unexercised ACORN Options held at December 31, 1993 by the Company's Chief
Executive Officer and the four other most highly compensated persons who are or
will be executive officers of the Company.
ASSOCIATED COMMUNICATIONS RESOURCES, INC.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY ACORN
ACORN OPTIONS(1) OPTIONS AT FISCAL YEAR END
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Myles P. Berkman.... 50,000 N/A * *
Jack N. Berkman..... 5,000 N/A * *
David J. Berkman.... 40,000 N/A * *
Keith C. Hartman.... 10,200 4,800 * *
Richard I.
Goldstein......... 4,000 3,000 * *
</TABLE>
- ------------------------
(1) All ACORN Options reflected in the table immediately above relate to ACORN
Class A Common Stock. ACORN is currently an indirect wholly-owned subsidiary
of Associated.
* The shares of ACORN Class A Common Stock subject to ACORN Options listed in
the table (whether or not exercisable) represent approximately 6.1% of the
outstanding shares of ACORN after giving effect to the issuance of such
shares. The shares of ACORN Class A Common Stock subject to all outstanding
ACORN Options (whether or not exercisable and whether or not listed in the
table) (191,500 shares) represent approximately 9.6% of the outstanding shares
of ACORN Common Stock after giving effect to the issuance of such shares. All
outstanding ACORN Options (whether or not exercisable and whether or not
vested) will be adjusted as contemplated by the ACORN Plan and thereby become
fully vested options to purchase shares of Class B Common Stock (except for
certain outstanding ACORN Options held by persons who are not officers or
directors of Associated and who will not become employees of Spinco, which
will be cashed out as described below), effective upon the Merger. See
'Treatment of ACORN Options' below.
TREATMENT OF ACORN OPTIONS
Adjustment of ACORN Options
The ACORN Plan, which was approved by Associated stockholders on May 4,
1989, provides that, subject to the discretion of the committee which
administers the ACORN Plan (the 'ACORN Committee'), comprised of Messrs. Jones
and Katarincic, non-employee directors of Associated and ACORN, approval of the
Merger by Associated stockholders will accelerate the vesting of ACORN Options.
As contemplated by the ACORN Plan, and to enable the holders of outstanding
ACORN Options to retain, through options in the Company, the value of and
continuing equity incentive represented by such ACORN Options, following the
approval of the Merger by Associated stockholders, the ACORN Committee will make
an adjustment (the 'Adjustment') to all outstanding ACORN Options (except for
certain outstanding ACORN Options which will be cashed out as described below)
whereby, effective at the Effective Time, such ACORN Options (whether or not
vested) will be 'rolled over' (the 'Roll-Over') into and will become fully
vested options to purchase a number of shares of Class B Common
36
<PAGE>
Stock representing not more than 5% of all outstanding shares of Company Common
Stock at the Time of Distribution (the 'Roll-Over Options'), at an exercise
price such that the 'spread value' of such ACORN Options will be reflected in
the 'spread value' of the Roll-Over Options in a manner which maintains in the
initial 'spread' of the Roll-Over Options the proportionality between the
exercise price of such ACORN Options and the Fair Market Value (as defined
below) per share of ACORN Common Stock as determined by the ACORN Committee for
purposes of the Adjustment, as described below. The Roll-Over Options will be
governed by and subject to the terms of the Company's 1994 Stock Option and
Incentive Award Plan. Only holders of ACORN Options who are or will become
employees or directors of Spinco will receive Roll-Over Options. ACORN Options
held by current employees of Associated who will not become employees of Spinco
(none of whom is a director or officer of Associated) will be cancelled, and
upon surrender by the holder thereof, the holder will be entitled to receive a
cash payment in respect of the cancellation of each such ACORN Option held by
such holder immediately prior to the Effective Time equal to the product of (i)
the Fair Market Value (as defined below) per share of ACORN Common Stock as
determined by the ACORN Committee for purposes of the Adjustment (as described
below) less the exercise price of $2.50, by (ii) the number of shares of ACORN
Common Stock subject to such ACORN Option.
Adjustment Procedure and Formula
Associated engaged Wasserstein Perella & Co., Inc. ('Wasserstein') to act
as financial advisor in connection with the Adjustment, and to advise and make
recommendations to the ACORN Committee with respect to the value of ACORN for
purposes of the Adjustment. Based on Wasserstein's advice and recommendations,
the ACORN Committee will determine at the Time of Distribution the Fair Market
Value per share of ACORN Class A Common Stock (defined under the ACORN Plan to
be, in circumstances where there is no public trading market for such shares,
such value as the ACORN Committee in its discretion may determine in good faith,
provided however that the ACORN Committee is required to make its best effort to
calculate such value based upon what a willing buyer would pay a willing seller
in an arms-length transaction) as of the Time of Distribution (and the
difference between such Fair Market Value per share and the exercise price per
share of ACORN Class A Common Stock subject to an ACORN Option will constitute
the 'Spread Value') for purposes of effecting the Adjustment. However,
irrespective of the Fair Market Value per share of ACORN Class A Common Stock
which the ACORN Committee determines will be utilized for purposes of the
Adjustment, the Fair Market Value per share of ACORN Class A Common Stock
subject to ACORN Options held by the members of the ACORN Committee (the
'Committee ACORN Options') will be determined based on the lowest value in the
private market valuation reference range for ACORN determined by Wasserstein as
of the Time of Distribution. It is anticipated that Wasserstein, and Salomon
Brothers Inc ('Salomon Brothers'), which was also retained by Associated in
connection with the Adjustment, will each render an opinion as of the Time of
Distribution to the Associated Board (and the Company's Board of Directors) with
respect to the fairness, from a financial point of view, to the stockholders of
the Company, of the valuation for ACORN and the resultant Fair Market Value per
share of ACORN Common Stock as of the Time of Distribution which the ACORN
Committee determines at the Time of Distribution will be utilized for purposes
of the Adjustment. See 'Analysis of Wasserstein Perella & Co.' below for a
summary of the information reviewed and analyses performed by Wasserstein to
date in connection with rendering their advice and recommendations.
Upon the ACORN Committee's determination of the Fair Market Value per share
of ACORN Common Stock as described above, each ACORN Option will, pursuant to
the Adjustment, effective at the Effective Time, become an option to purchase a
number of shares of Class B Common Stock of the Company determined by dividing
(i) such Fair Market Value per share of ACORN Common Stock subject to such ACORN
Option by (ii) the Trading Price of Class B Common Stock (as defined below), at
an exercise price determined by dividing the exercise price per share of ACORN
Common Stock subject to such ACORN Option by a fraction the numerator of which
is the Fair Market Value per share of ACORN Common Stock and the denominator of
which is the Trading Price of Class B Common Stock. However, in no event will
the total number of shares of Class B Common Stock subject to the Roll-Over
Options (the 'Roll-Over Shares') exceed 5% of the shares of Company Common Stock
outstanding at the Time of Distribution (the 'Roll-Over Shares Cap'). If the
Roll-Over Shares Cap would be exceeded, the number of Roll-Over Shares subject
to the Roll-Over Options of each holder will be reduced pro rata based on the
portion of all Roll-Over Shares which are subject to such holder's Roll-Over
Options. For purposes of the Roll-Over, the Trading Price of Class B Common
Stock shall be the average, over
37
<PAGE>
the ten trading days commencing five trading days after the Time of
Distribution, of the average of the closing prices per share of Class B Common
Stock on the Nasdaq National Market on each of such ten trading days.
Assuming the Fair Market Value per share of ACORN Common Stock determined
as described above is between $42.07 and $85.03, the low and high values,
respectively, as preliminarily reported by Wasserstein to the Committee as
described below, the Spread Value of ACORN Options held by Jack N. Berkman would
range between approximately $197,900 and $412,600, by Myles P. Berkman would
range between approximately $1,978,700 and $4,126,300, by David J. Berkman would
range between approximately $1,583,000 and $3,301,100, by Donald H. Jones would
range between approximately $395,700 and $825,300, by Joseph A. Katarincic would
range between approximately $395,700 and $825,300, by Keith C. Hartman would
range between approximately $593,600 and $1,237,900, by Richard I. Goldstein
would range between approximately $277,000 and $577,700, and by all directors
and executive officers of Associated as a group (9 persons) would range between
approximately $5,817,400 and $12,131,400. However, as noted above, for purposes
of effecting the Adjustment to the Committee ACORN Options, the Fair Market
Value per share of ACORN Class A Common Stock subject to the Committee ACORN
Options will be determined based on the lowest value in the private market
valuation reference range for ACORN determined by Wasserstein as of the Time of
Distribution. Assuming the Fair Market Value per share of ACORN Common Stock
determined as described above is between $42.07 and $85.03, the low and high
values, respectively, as preliminarily reported by Wasserstein to the ACORN
Committee as described below, the value range for ACORN Options to be cashed out
as described above is between approximately $356,000 and $743,000.
Assuming 18,745,578 shares of Company Common Stock outstanding at the Time
of Distribution and a Trading Price of Class B Common Stock and/or a Fair Market
Value per share of ACORN Common Stock such that the number of Roll-Over Shares
would equal the Roll-Over Shares Cap, Jack N. Berkman, Myles P. Berkman, David
J. Berkman, Donald H. Jones, Joseph A. Katarincic, Keith C. Hartman, Richard I.
Goldstein, and all directors and executive officers of Associated as a group (9
persons), would receive Roll-Over Options to purchase 25,680, 256,800, 205,440,
51,360, 51,360, 77,040, 35,952 and 754,991 shares of Class B Common Stock,
respectively, representing approximately .14%, 1.37%, 1.10%, .27%, .27%, .41%,
.19% and 4.03%, respectively, of all outstanding shares of Company Common Stock.
However, because for purposes of effecting the Adjustment to the Committee ACORN
Options, the Fair Market Value per share of ACORN Class A Common Stock subject
to the Committee ACORN Options will be determined based on the lowest value in
the private market valuation reference range for ACORN determined by Wasserstein
as of the Time of Distribution, unless, in the foregoing case, the ACORN
Committee determined that such lowest value would be utilized for purposes of
the Adjustment generally, the number of Roll-Over Shares subject to Roll-Over
Options received by the members of the ACORN Committee, and the respective
percentages of all outstanding shares of Company Common Stock represented by
such Roll-Over Shares, would be less than that stated above, and the number of
Roll-Over Shares subject to the Roll-Over Options received by the other named
persons, and the respective percentages of all outstanding shares of Company
Common Stock represented by such Roll-Over Shares, would be greater than that
stated above. In view of the relatively early stage character of certain of
ACORN's assets and interests, and the regulatory and other uncertainties, as
well as rapidly changing market conditions associated with, such assets and
interests, the ACORN Committee determined that a final determination of the Fair
Market Value per share of ACORN Common Stock for purposes of the Adjustment
would not be made until the Time of Distribution. Accordingly, the Fair Market
Value per share of ACORN Common Stock as of the Time of Distribution, as
determined by the Committee for purposes of the Adjustment, could be higher or
lower, possibly in a material respect, than such Fair Market Value indicated by
the reference range of values preliminarily reported by Wasserstein to the ACORN
Committee as described below. Also, there can be no assurance as to the actual
trading prices for the Company Class B Common Stock during the period for
determining the Trading Price of Class B Common Stock for purposes of effecting
the Adjustment.
Analysis of Wasserstein Perella & Co.
General. In order to advise and make a recommendation to the ACORN
Committee with respect to the Fair Market Value per share of ACORN Common Stock
subject to an ACORN Option for purposes of the Adjustment, Wasserstein developed
a private market reference range of values for ACORN. Wasserstein has advised
the ACORN Committee that, as of the date of this Information Statement, the
private market valuation reference range for ACORN which it developed, after
deduction of intercompany capital and after applying a
38
<PAGE>
discount to reflect the fact that the ACORN Options constitute the right to
acquire a minority interest in a nonpublic entity, is between approximately $84
million and $169 million.
In performing its analysis, Wasserstein (i) reviewed the Distribution
Agreement and the Merger Agreement, (ii) reviewed certain publicly available
business and financial information relating to ACORN, (iii) reviewed certain
other information, including financial forecasts, provided to Wasserstein by
Associated and (iv) discussed the business of ACORN with Associated's
management. Wasserstein also considered such other information, financial
studies, analyses and investigations and financial, economic, market and trading
criteria that it deemed relevant.
In connection with its review, Wasserstein did not independently verify any
of the foregoing information and Wasserstein relied upon such information being
complete and accurate in all material respects. With respect to financial
forecasts, Wasserstein assumed that they had been reasonably prepared on bases
reflecting the best currently available estimates and judgments of Associated's
management as to the future financial performance of ACORN. Wasserstein's
analysis did not constitute an independent evaluation or appraisal of any of the
assets of ACORN, nor was it furnished with any such appraisals.
ACORN consists of the following subsidiaries: Associated Information
Services Corporation, Associated Communications of Los Angeles, Inc. ('ACLA'),
Associated MDS Corporation, Associated Communications of Mexico, Inc. ('ACM'),
Associated PCN Holding Corporation ('APCN'), Associated SMR, Inc. ('ASMR'),
Associated VenCap Corporation, Associated RT, Inc. ('ARTI'), Associated
Communications Medical Services Inc., PCN Corporation and Microwave Services,
Inc. Of these entities, Associated Information Services Corporation and
Associated MDS Corporation were valued at their book values (which were
immaterial to the overall valuation ranges), and no value was attributed to
Associated VenCap Corporation, Associated Communications Medical Services Inc.,
PCN Corporation and Microwave Services, Inc., which are currently inactive or
have de minimis assets.
In arriving at a valuation reference range for ACORN, Wasserstein employed
various valuation methodologies and analyses which Wasserstein determined were
appropriate for the particular assets and interests comprising ACORN. The
following is a summary of those analyses.
Discounted Cash Flow Analysis. With respect to ACM, the principal asset of
which is its interest in Grupo, the parent company of Portatel (see 'The
Company--Mexican Wireless Market--Cellular'), ASMR, the principal assets of
which are its interests in Mobilcom and Radiophone (see 'The Company--Mexican
Wireless Market--Specialized Mobile Radio'), and ARTI, the principal assets of
which are patent rights and patent applications relating to radio location
technology (see 'The Company--Radiolocation Technology'), Wasserstein employed a
discounted cash flow analysis utilizing various assumptions with respect to
discount rates, and estimates of future cash flows based on management's
forecasts and other factors. In the case of ARTI, Wasserstein used a range of
relatively high discount rates and low multiples because of ARTI's status as a
start-up business. For ACM and ASMR, Wasserstein added the present value of
estimated unleveraged future free cash flows over a five year period and ten
year period, respectively, and the present value of their terminal value in 1998
and 2003, respectively, determined by projecting a range of real perpetual cash
flow growth rates in the terminal year derived from an analysis of comparable
companies. Because the U.S. cellular market developed relatively earlier and
more rapidly than the Mexican market, Wasserstein used 1989 data with respect to
the cost of equity capital for comparable U.S. cellular companies for the
purpose of determining an analogous cost of equity capital for the current
Mexican cellular market.
Comparable Companies Analysis. With respect to ACM and ASMR, Wasserstein
also employed a comparable companies analysis. For ACM, Wasserstein reviewed and
compared the financial, operating and market performance of the following group
of six U.S. cellular communications companies with that of Portatel: Cellular
Communications, Inc., Contel Cellular Inc., LIN Broadcasting Corporation, McCaw
Cellular Communications, Inc., United States Cellular Corp. and Vanguard
Cellular Systems, Inc. Wasserstein adjusted the per POP trading value of the
U.S. cellular companies to reflect the risk premium assigned by the market to
Mexican companies.
For ASMR, Wasserstein reviewed and compared the financial, operating and
market performance of the following group of three U.S. SMR communications
companies with that of ASMR: Nextel Communications,
39
<PAGE>
Inc., Dial Page, Inc. and OneComm, and adjusted their respective per POP trading
values to reflect the risk premium assigned by the market to Mexican companies.
Comparable Acquisition Analysis. For ACM, Wasserstein also reviewed and
compared per POP acquisition prices paid or proposed to be paid in the following
transactions involving acquisitions of Mexican cellular communications companies
or properties: Monterrey (Region 4) Millicom/Motorola; Mexico City (Region 9)
IUSACELL/Bell Atlantic; and Guadalajara (Region 5) BellSouth/IUSACELL.
Strategic Purchaser Analysis and Certain Other Valuation Factors. In
addition to the foregoing analyses, with respect to certain assets and interests
of ACORN, Wasserstein analyzed and considered the possible terms of potential
investment or acquisition transactions with strategic investors, as well as
certain other indicia of value which it deemed relevant for the particular
assets or interests. Thus for ASMR, Wasserstein reviewed the terms of a letter
of intent providing for an investment by a strategic investor in a combined
Mobilcom/Radiophone entity (see 'The Company--Mexican Wireless
Market--Specialized Mobile Radio'). For APCN, the principal asset of which is
its effective 3.32% interest in Omnipoint Communications, Inc. ('Omnipoint'), a
company that was awarded a 'pioneers' preference to receive a license to operate
a PCS business in the New York Metropolitan Trading Area (see 'The
Company--Personal Communications Services'), Wasserstein reviewed the terms of a
1993 equity investment in Omnipoint as well as preliminary indications of per
POP valuations of the PCS spectrum in the New York metropolitan area. In the
case of ARTI, in addition to utilizing a discounted cash flow analysis as noted
above, Wasserstein estimated what a third-party arm's length strategic purchaser
might pay today for ownership of ARTI's patent rights to 'radio location'
technology. And for ACLA, an 'alternative access' business that competes with
local exchange carriers in the Los Angeles area (see 'The Company--Other
Communication Businesses'), Wasserstein reviewed the history of certain price
discussions between ACLA and a prospective purchaser in 1993, and reviewed and
compared certain market data, including various trading multiples, of comparable
companies such as Metropolitan Fiber Systems, Inc. and Intermedia Communications
of Florida, Inc.
ACORN Value Range; ACORN Option Spread Value Range
The analyses described above resulted in Wasserstein arriving at a total
private market valuation reference range for ACORN of from approximately $84
million to $169 million, after deduction of $43.4 million of intercompany
capital and after applying a range of discounts to the private market valuation
reference range of ACORN to reflect the fact that the outstanding ACORN Options
constitute the right to acquire a minority interest in a nonpublic entity. This
private market valuation reference range for ACORN yielded a range of private
market values of from $42.07 to $85.03 per share of ACORN Common Stock subject
to an ACORN Option (on a fully diluted basis, assuming the exercise of all
outstanding ACORN Options), a range of Spread Values per share of ACORN Common
Stock subject to an ACORN Option of between approximately $39.57 and $82.53
(based on the exercise price for each ACORN Option of $2.50 per share), and a
range of total Spread Value for all outstanding ACORN Options of between
approximately $7.6 million and $15.8 million (based on the exercise price for
each ACORN Option of $2.50 per share).
In advising the ACORN Committee regarding its analyses and the
determination of the foregoing private market valuation reference range for
ACORN, Wasserstein noted that in view of the relatively early stage character of
certain of ACORN's assets and interests, and the regulatory and other
uncertainties, as well as the rapidly changing market conditions, associated
with, such assets and interests, the values thereof may be particularly volatile
and subject to material change, and, accordingly, the private market valuation
reference range for ACORN determined by Wasserstein as of the Time of
Distribution could be different, possibly in a material respect, than the
reference range of values stated above. However, Wasserstein has orally advised
the ACORN Committee that it believes the aforesaid valuation reference range
represents a fair range of values for ACORN as of the date of the Proxy
Statement--Prospectus.
The summary set forth above does not purport to be a complete description
of Wasserstein's analyses. Wasserstein believes that its analyses and the
summary set forth above must be considered as a whole and that selecting
portions of its analyses could create an incomplete view of the process
underlying the analyses. In performing its analyses, Wasserstein made numerous
assumptions with respect to industry performance, general business, economic,
market and financial, conditions and other matters, many of which are beyond the
control of ACORN and all of which are beyond the control of Wasserstein.
40
<PAGE>
No company or transaction used in the comparable company analysis or
comparable acquisition analysis summarized above is identical to ACORN or the
contemplated transaction. Accordingly, any such analysis of the value of ACORN
involves complex considerations and judgments concerning differences in the
potential financial and operating characteristics of the comparable companies
and other factors in relation to the trading and acquisition values of the
comparable companies and publicly announced transactions.
Wasserstein is an internationally recognized investment banking firm and
regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions and for other purposes. Associated
selected Wasserstein to act as financial advisor in connection with the
Adjustment on the basis of Wasserstein's international reputation and
Wasserstein's familiarity with ACORN and the industries and businesses in which
it has assets or interests. In the course of its business, Wasserstein may from
time to time trade the equity securities of Associated for its own account and
for the accounts of customers. Accordingly, Wasserstein may at any time hold a
long or short position in such securities.
Fees Payable to Wasserstein
Associated has agreed to pay Wasserstein fees of $150,000 in consideration
of Wasserstein's services in connection with the Adjustment and the aforesaid
fairness opinion. Wasserstein is also entitled to reimbursement for its
out-of-pocket expenses, including reasonable fees and disbursements of counsel.
Associated has agreed to indemnify Wasserstein and its affiliates, their
respective directors, officers, partners, agents and employees and each person,
if any, controlling Wasserstein or any of its affiliates against certain
liabilities, including under certain federal securities laws, relating to or
arising out of its engagement. The fees paid or payable to Wasserstein will be
treated as an intercompany advance from the Retained Company Group to the
Company Group for purposes of calculating the True-Up Payment described under
'The Distribution--Terms of the Distribution Agreement--Intercompany
Adjustment'.
Analysis of Salomon Brothers Inc
As noted above, Salomon Brothers was retained by Associated to render an
opinion as of the Time of Distribution to the Associated Board (and the
Company's Board of Directors) with respect to the fairness, from a financial
point of view, to the stockholders of the Company, of the valuation for ACORN
and the resultant Fair Market Value per share of ACORN Common Stock which the
Committee determines at the Time of Distribution will be utilized for purposes
of the Adjustment.
Salomon Brothers has preliminarily advised the ACORN Committee orally that
the private market reference range of values for ACORN determined by Wasserstein
as described above represents a reasonable range of fair values for ACORN as of
the date of the Proxy Statement--Prospectus. Salomon Brothers' advice is based
solely on its review of Wasserstein's conclusions and on preliminary analyses
substantially similar to those performed by Wasserstein as described above.
Salomon Brothers has not and will not render an opinion with respect to such
range of values but, as described above, has been retained to render an opinion
as of the Time of Distribution with respect to the fairness, from a financial
point of view, of the valuation for ACORN and the resultant Fair Market Value
per share of ACORN Common Stock which the ACORN Committee determines at the Time
of Distribution will be utilized for purposes of the Adjustment.
Salomon Brothers is an internationally recognized investment banking firm
and regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions and for other purposes. Associated
selected Salomon Brothers to act as financial advisor in connection with the
Adjustment on the basis of Salomon's international reputation and Salomon
Brothers' familiarity with ACORN and the industries and businesses in which it
has assets or interests. In the course of its business, Salomon Brothers may
from time to time trade the equity securities of Associated for its own account
and for the accounts of customers. Accordingly, Salomon Brothers may at any time
hold a long or short position in such securities.
Fees Payable to Salomon Brothers
Associated has agreed to pay Salomon Brothers fees of $150,000 in respect
of its services in connection with the Adjustment and the aforesaid fairness
opinion. Salomon Brothers is also entitled to reimbursement for its
out-of-pocket expenses, including reasonable fees and disbursements of counsel.
Associated has agreed to indemnify Salomon Brothers and its affiliates, their
respective directors, officers, partners, agents and employees
41
<PAGE>
and each person, if any, controlling Salomon Brothers or any of its affiliates
against certain liabilities, including under certain federal securities laws,
relating to or arising out of its engagement. The fees paid or payable to
Salomon Brothers will be treated as an intercompany advance from the Retained
Company Group to the Company Group for purposes of calculating the True-Up
Payment described under 'The Distribution--Terms of the Distribution
Agreement--Intercompany Adjustment'. For a description of the fees paid or
payable to Salomon Brothers in connection with the Merger, see 'The
Merger--Opinion of the Financial Advisor to the Associated Board--Fees Paid to
Salomon Brothers'.
BENEFICIAL OWNERSHIP
All of the outstanding shares of Company Common Stock are, and will be
prior to the Distribution, held beneficially and of record by Associated. Set
forth in the table below is information as of July 26, 1994 with respect to the
number of shares of Associated Common Stock beneficially owned by (i) each
person or entity known by the Company to own more than five percent of either
class of the outstanding Associated Common Stock, (ii) each director of
Associated, (iii) each of the named executive officers of Associated and (iv)
all directors and officers of Associated as a group. Also set forth below are
the number of shares of Company Common Stock that each such person or entity
would own immediately after the Distribution, on a pro forma basis, assuming no
changes in such ownership of Associated Common Stock. A person or entity is
considered to 'beneficially own' any shares (i) over which such person or entity
exercises sole or shared voting or investment power or (ii) which such person or
entity has the right to acquire at any time within 60 days (e.g., through the
exercise of employee stock options). Unless otherwise indicated, each person or
entity has sole voting and investment power with respect to the shares set forth
opposite person's or entity's name.
<TABLE>
<CAPTION>
ASSOCIATED COMPANY PRO FORMA*
----------------------------------------------------------------- ----------------------
NUMBER OF SHARES PERCENT OF OUTSTANDING NUMBER OF SHARES
BENEFICIALLY OWNED SHARES PERCENT OF BENEFICIALLY OWNED
----------------------- ------------------------ OUTSTANDING ----------------------
BENEFICIAL OWNER CLASS A CLASS B CLASS A CLASS B VOTING POWER CLASS A CLASS B
- ------------------------------ ---------- ----------- ----------- ----------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
GAMCO Investors, Inc.......... 1,061,999(1) N/A 5.8 N/A 5.6 265,500 265,500
Gabelli Funds, Inc.
Gabelli & Company, Inc.
Gabelli Securities, Inc.
Mario J. Gabelli
One Corporate Center
Rye, NY 10580
The Louis Berkman Company..... 1,170,750(2) 1,829,250(2) 6.4 9.5 6.6 750,000 750,000
330 North 7th Street
Steubenville, OH 43952
The Equitable Life............ 1,413,352(3) 969,644(4) 7.8 5.0 7.7 595,749 595,749
Assurance Society of
the United States
787 Seventh Avenue
New York, NY 10019
Scudder Stevens & Clark,
Inc......................... N/A 1,056,000(5) N/A 5.5 ** 264,000 264,000
345 Park Avenue
New York, NY 10154
The Capital Group, Inc........ 1,845,500(6) 1,006,000(7) 10.1 5.2 9.9 712,875 712,875
Capital Research and
Management Company
333 South Hope Street
Los Angeles, CA 90071
Allen H. Berkman.............. 1,088,630(8) 1,029,986(8) 6.0 5.3 6.0 529,654 529,654
1500 Oliver Building
Pittsburgh, PA 15222
Jack N. Berkman............... 2,784,723(9) 2,844,574(9) 15.3 14.7 15.3 1,392,324 1,392,324
Myles P. Berkman.............. 705,906(10) 1,051,906(10) 3.9 5.3 3.9 339,453 339,453
David J. Berkman............. 126(11) 252,126(11) ** 1.3 ** 6,813 6,813
Donald H. Jones............... 175,202(12) 247,452(12) 1.0 1.3 1.0 65,664 65,664
Joseph A. Katarincic.......... 36,800(13) 86,200(13) ** ** ** 13,250 13,250
Keith C. Hartman.............. 3,870(14) 91,160(15) ** ** ** 3,758 3,758
Richard I. Goldstein.......... N/A 15,000(16) ** ** ** 0 0
All directors and officers
as a group (9 persons)...... 4,444,709(17) 5,457,694(18) 24.4 28.1 24.6 2,183,102 2,183,102
<CAPTION>
COMPANY PRO FORMA*
---------------------------------------
PERCENT OF PERCENT OF
OUTSTANDING OUTSTANDING
SHARES VOTING POWER
------------------------ ---------------
BENEFICIAL OWNER CLASS A CLASS B
- ------------------------------ ----------- -----------
<S> <C> <C> <C>
GAMCO Investors, Inc.......... 2.8 2.8 2.8
Gabelli Funds, Inc.
Gabelli & Company, Inc.
Gabelli Securities, Inc.
Mario J. Gabelli
One Corporate Center
Rye, NY 10580
The Louis Berkman Company..... 8.0 8.0 8.0
330 North 7th Street
Steubenville, OH 43952
The Equitable Life............ 6.4 6.4 6.4
Assurance Society of
the United States
787 Seventh Avenue
New York, NY 10019
Scudder Stevens & Clark,
Inc......................... 2.8 2.8 2.8
345 Park Avenue
New York, NY 10154
The Capital Group, Inc........ 7.6 7.6 7.6
Capital Research and
Management Company
333 South Hope Street
Los Angeles, CA 90071
Allen H. Berkman.............. 5.7 5.7 5.7
1500 Oliver Building
Pittsburgh, PA 15222
Jack N. Berkman............... 14.9 14.9 14.9
Myles P. Berkman.............. 3.6 3.6 3.6
David J. Berkman.............. ** ** **
Donald H. Jones............... ** ** **
Joseph A. Katarincic.......... ** ** **
Keith C. Hartman.............. ** ** **
Richard I. Goldstein.......... ** ** **
All directors and officers
as a group (9 persons)...... 23.3 23.3 23.3
</TABLE>
42
<PAGE>
- ------------------
* Does not reflect shares of Class B Common Stock issued pursuant to the
Roll-Over. See '--Treatment of ACORN Options.' Also reflects the cash-out of
Associated Stock Options. See 'Management--Associated Stock Options.'
** Less than 1%.
(1) This figure is based upon the aggregate amount of Associated Class A Common
Stock reported by GAMCO Investors, Inc. (669,999), Gabelli Funds, Inc.
(339,000), Gabelli & Company (6,100), Gabelli Securities, Inc. (300) and
Mario J. Gabelli (46,600) in Amendment No. 3 to their Schedule 13D filed
with the Commission and dated January 10, 1992.
(2) Includes 1,170,750 shares of Associated Class A Common Stock and 1,829,250
shares of Associated Class B Common Stock owned by The Louis Berkman
Company, of which Louis Berkman is President and the principal stockholder,
as reported by The Louis Berkman Company to Associated on May 10, 1994.
Louis Berkman is a brother of Jack N. Berkman.
(3) This figure is based upon the aggregate amount of Associated Class A Common
Stock reported by The Equitable Life Assurance Society of the United States
(520,000), Alliance Capital Management L.P. (836,450 and an additional
54,700 with only sole dispositive power), Donaldson, Lufkin & Jenrette
Securities Corporation (2 and an additional 2,200 with shared dispositive
power), in their Schedule 13G filed with the Commission and dated February
9, 1994.
(4) This figure is based upon the aggregate amount of Associated Class B Common
Stock reported by The Equitable Life Assurance Society of the United States
(450,000), Alliance Capital Management, L.P. (514,100), Donaldson, Lufkin &
Jenrette Securities Corporation (1,044 and an additional 4,500 with shared
dispositive power), in their Schedule 13G filed with the Commission and
dated February 9, 1994.
(5) This figure is based upon the number of shares of Associated Class B Common
Stock reported by Scudder Stevens & Clark, Inc. in their Schedule 13G filed
with the Commission and dated February 4, 1994.
(6) This figure is based upon the number of shares of Associated Class A Common
Stock reported in a Schedule 13G filed with the Commission and dated
February 11, 1994. Certain operating subsidiaries of The Capital Group,
Inc. exercised investment discretion over various institutional accounts
which held, as of December 31, 1993, 1,845,500 shares of Associated.
Capital Guardian Trust Company, a bank, and one of such operating
companies, exercised investment discretion over 617,000 of said shares.
Capital Research and Management Company, a registered investment adviser,
and Capital International Limited, another operating subsidiary, had
investment discretion with respect to 1,226,300 and 2,200 shares,
respectively, of the aggregate shares reported by The Capital Group, Inc.
As noted on the Schedule 13G, The Capital Group, Inc. disclaimed beneficial
ownership of all shares of Class A Common Stock pursuant to Rule 13d-4.
(7) This figure is based upon the number of shares of Associated Class B Common
Stock reported in a Schedule 13G filed with the Commission and dated
February 11, 1994. Capital Guardian Trust Company and Capital Research and
Management Company, operating subsidiaries of the Capital Group, Inc.,
exercised as of December 31, 1993, investment discretion with respect to
531,000 and 475,000 shares, respectively, which were owned by various
institutional investors. As noted on the Schedule 13G, The Capital Group,
Inc. disclaimed beneficial ownership of shares of Associated Class B Common
Stock pursuant to Rule 13d-4.
(8) These figures are based upon the aggregate amount of Associated Class A and
Associated Class B Common Stock reported by Allen H. Berkman in his Schedule
13G filed with the Commission and dated November 8, 1985, as adjusted by
Associated for subsequent stock splits, effected in the form of dividends.
Allen H. Berkman is a brother of Jack N. Berkman.
(9) Excludes 450,000 shares of Associated Class A Common Stock and 510,000
shares of Associated Class B Common Stock owned by Jack N. Berkman's wife,
Lillian R. Berkman, which are reflected in the share ownership indicated
for all directors and officers as a group. Includes 251,604 shares of each
class held as co-trustee with Lillian R. Berkman. Also includes 701.00
shares of Associated Class A Common Stock held through the Kagan Stock
Fund, an investment fund of which Jack N. Berkman owns a 3.3% interest, but
has no power to vote or dispose of shares held by the fund and 552.31
shares of Associated Class B
43
<PAGE>
Common Stock held through Sandler Associates, L.P., an investment
partnership of which Jack N. Berkman owns a 0.6% interest, but has no power
to vote or dispose of shares held by the partnership. Includes 60,000
shares of Associated Class B Common Stock underlying currently exercisable
stock options. Includes 2,532,418 shares of Associated Class A Common Stock
as to which SBC acquired beneficial ownership pursuant to a Voting
Agreement dated as of February 23, 1994 among Jack N. Berkman, Myles P.
Berkman and SBC, whereby Messrs. Berkman have agreed, so long as the Merger
Agreement has not been terminated in accordance with its terms, to vote
(and to grant SBC an irrevocable proxy to vote) such shares in favor of
adoption and approval of the Merger Agreement and the Merger and against
any other similar alternative transactions. SBC reported such beneficial
ownership in a Schedule 13D filed with the Commission and dated March 31,
1994.
(10) Includes 400,000 shares of Associated Class B Common Stock underlying
currently exercisable stock options. Excludes 1,026 shares of each class
owned by Myles P. Berkman's wife, Carol E. Berkman. Includes 696,456
shares of Associated Class A Common Stock as to which SBC acquired
beneficial ownership pursuant to a Voting Agreement dated as of February
23, 1994 among Jack N. Berkman, Myles P. Berkman and SBC, whereby Messrs.
Berkman have agreed, so long as the Merger Agreement has not been
terminated in accordance with its terms, to vote (and to grant SBC an
irrevocable proxy to vote) such shares in favor of adoption and approval
of the Merger Agreement and the Merger and against any other similar
alternative transactions. SBC reported such beneficial ownership in a
Schedule 13D filed with the Commission and dated March 31, 1994.
(11) Includes 225,000 shares of Associated Class B Common Stock underlying
currently exercisable stock options. Excludes 900 shares of each class
owned by David J. Berkman's wife, Pamela Berkman.
(12) Includes 33,830 shares of Associated Class A Common Stock and 67,580
shares of Associated Class B Common Stock held as a trustee and 90,000
shares of Associated Class A Common Stock and 70,000 shares of Associated
Class B Common Stock underlying currently exercisable stock options.
(13) Includes 7,000 shares of Associated Class A Common Stock held by the IRA
account of Joseph A. Katarincic and 70,000 shares of Associated Class B
Common Stock underlying currently exercisable stock options.
(14) Shares owned jointly with Mr. Hartman's wife, Deborah L. Hartman.
(15) Includes 80,000 shares of Associated Class B Common Stock underlying
currently exercisable stock options and 11,160 shares owned jointly with
Mr. Hartman's wife, Deborah L. Hartman.
(16) Includes 15,000 shares of Associated Class B Common Stock underlying
currently exercisable stock options.
(17) Includes 90,000 shares of Associated Class A Common Stock underlying
currently exercisable stock options.
(18) Includes 1,080,000 shares of Associated Class B Common Stock underlying
currently exercisable stock options or stock options exercisable within 60
days.
44
<PAGE>
EXECUTIVE COMPENSATION PLANS IN EFFECT AFTER THE DISTRIBUTION
The Company, with the approval of Associated as its sole stockholder, will
adopt certain new compensation and employee benefit plans and employment
agreements, effective at or after the Distribution Date. The plans and
agreements will replace those of Associated currently applicable to employees of
Associated who will continue as employees of the Company. These plans and
agreements are summarized below.
1994 STOCK OPTION AND INCENTIVE AWARD PLAN
The Company's Board of Directors will adopt, prior to the Distribution, and
Associated, as the sole stockholder of the Company, will approve, a 1994 Stock
Option and Incentive Award Plan (the '1994 Plan'). The 1994 Plan will be
intended to replace the Associated 1989 Stock Option Plan, which authorized,
among other things, the issuance of Associated Class B Common Stock upon
exercise of options granted pursuant thereto. The purpose of the 1994 Plan will
be to attract, motivate and retain the best available executive personnel and
key employees of, and consultants for, the Company and its subsidiaries by
permitting them to acquire or increase their equity interest in the Company, and
to compensate the Company's non-employee directors.
The 1994 Plan is designed to comply with the provisions of Section 162(m)
of the Code. Section 162(m) denies a deduction by an employer for certain
compensation in excess of $1 million per year paid by a publicly traded
corporation to the chief executive officer and the four most highly compensated
executive officers other than the chief executive officer. Certain compensation,
including compensation based on specified performance goals, is excluded from
this deduction limit. Among the requirements for compensation to qualify for
this exclusion is that the material terms pursuant to which the compensation is
to be paid, including the performance goals, be disclosed to stockholders prior
to the Distribution.
The 1994 Plan will authorize the granting of awards (the 'Awards') of (a)
options to purchase shares of Class B Common Stock ('Options'), (b) 'stock
appreciation rights' accompanying Options ('SARs'), (c) 'restricted (Class B
Common) stock' ('Restricted Stock'), and (d) 'incentive units' ('Incentive
Units'). Under the 1994 Plan, an aggregate of 950,000 shares of Class B Common
Stock will be authorized to be issued pursuant to the exercise of Options, (with
up to 150,000 shares of such authorized amount of Class B Common Stock being
authorized to be issued as Restricted Stock) and up to an additional number of
shares of Class B Common Stock, not to exceed 5% of the outstanding Company
Common Stock at the Time of Distribution, may be issued upon the exercise of the
Roll-Over Options (See 'Management--Treatment of ACORN Options'). The Roll-Over
Options will be governed by the terms of the 1994 Plan. During the term of the
1994 Plan, no person may receive stock-based Awards, including Options (but
excluding for this purpose the Roll-Over Options) and Restricted Stock, relating
to shares of Class B Common Stock which in the aggregate exceed 20% of the total
number of shares of Class B Common Stock authorized to be issued with respect to
such Awards pursuant to the 1994 Plan (subject to adjustment as provided in the
1994 Plan).
The 1994 Plan will provide for the grant of 'incentive stock options'
('ISOs') as defined in the Code, or options that do not qualify as ISOs
('NQSO's' or 'nonqualified options'). The aggregate Fair Market Value (as
defined in the 1994 Plan) of all shares of Class B Common Stock with respect to
which ISOs will be permitted to be granted under the 1994 Plan and any other
stock option plans of the Company and any parent or subsidiary which are
exercisable for the first time by an individual during any calendar year will be
limited to $100,000 at the time such ISOs are granted, as required by the Code.
A summary of the material features of the 1994 Plan follows.
Participation in the 1994 Plan
The 1994 Plan will provide for the grant of Awards to employees or
consultants of the Company and members of the Company's Board in the sole
discretion of the Committee (as defined below). In determining the persons to
whom Awards will be granted and the type of Awards, the Committee will take into
account such factors as the Committee deems relevant in connection with
accomplishing the purposes of the 1994 Plan. Directors who are not employees of
the Company will each be awarded annually a non-discretionary option for 2,500
shares of Class B Common Stock (see 'Non-Employee Directors' below). The 1994
Plan will be administered by a committee (the 'Committee') appointed by the
Board of Directors of the Company which
45
<PAGE>
will consist of two or more persons who are anticipated to be 'disinterested
persons' within the meaning of Rule 16b-3 under the Exchange Act, and to meet
the requirements of Section 162(m) of the Code with respect to Awards granted by
them in their capacity as members of the Committee.
The Committee will have the authority in its sole discretion, subject to
and not inconsistent with the express provisions of the 1994 Plan, to administer
the 1994 Plan and to exercise all the powers and authority either specifically
granted to it under the 1994 Plan or necessary or advisable in connection with
the administration of the 1994 Plan, including, without limitation, the
authority to grant Awards; to determine the persons to whom and the time or
times at which Awards will be granted; to determine the type and number of
Awards to be granted, the number of shares of Class B Common Stock to which an
Award may relate and the terms, conditions, restrictions and performance
criteria relating to any Award; to determine whether, to what extent, and under
what circumstances and on what terms, an Award may be settled, cancelled,
forfeited, exchanged, surrendered or accelerated or an Option or Options may be
repriced to a lower exercise price; to make adjustments in the performance goals
relating to any Award in recognition of unusual or non-recurring events
affecting the Company or the financial statements of the Company, or in response
to changes in applicable laws, regulations, or accounting principles; to
construe and interpret the 1994 Plan and any Award; to prescribe, amend and
rescind rules and regulations relating to the 1994 Plan; to determine the terms
and provisions of Award agreements; and to make all other determinations deemed
necessary or advisable for the administration of the 1994 Plan. The Committee
may interpret the 1994 Plan and may at any time adopt such rules and regulations
for the 1994 Plan as it deems advisable.
Options
Each Option will be exercisable over a period determined by the Committee
in its discretion; provided however, that an Option may not be exercisable more
than ten years from the date of grant (in the case of a Roll-Over Option, the
grant date being the date of grant of the related ACORN Option). In addition, in
the case of an ISO granted to an individual who, at the time such ISO is
granted, owns shares representing more than ten percent of the total combined
voting power of all classes of stock of the Company (a 'Ten Percent
Stockholder') or its subsidiaries, the period during which such ISO may be
exercised will be limited to five years from the date of grant. Options will be
exercisable during the term of the Option at such times, in such amount, in
accordance with the terms and conditions, and subject to such restrictions as
are set forth in, the option agreement which will evidence the grant of such
Options.
The 1994 Plan will provide that the exercise price of an Option ('Option
Price') may not be less than one hundred percent (100%) of the Fair Market Value
of the shares of Class B Common Stock for which such Option is exercisable on
the date of grant, except that, in the case of an ISO granted to a Ten Percent
Stockholder, such Option Price may not be less than one hundred ten percent
(110%) of such Fair Market Value, and except that the foregoing requirements
with respect to Option Price will not apply to the Roll-Over Options (which will
not be ISOs).
The 1994 Plan will provide that the shares of Class B Common Stock
purchased upon the exercise of an Option are to be paid for at the time of
exercise in cash (including cash that may be received from the Company at the
time of exercise as additional compensation) or through the delivery of shares
of Company Common Stock with a Fair Market Value equal to the total Option Price
or in a combination of cash and such shares, or in the sole discretion of the
Committee, through a cashless exercise procedure.
In the event of termination of employment of a recipient of an Option, the
Committee will have the exclusive authority to determine if and for how long,
and under what conditions, such Option may be exercised after such termination;
however, in no event will an Option continue to be exercisable beyond the
expiration date of such Option.
SARs
The 1994 Plan will authorize the Committee to grant SARs which will
generally have the same terms and conditions as an Option, except as described
below. The Committee will be authorized to grant SARs simultaneously with the
granting of an Option or at any time during the term of the Option (except that
the 1994 Plan will authorize the grant of SARs with respect to ISO's only at the
time the ISO is granted). To the extent
46
<PAGE>
required by Rule 16b-3 promulgated under the Exchange Act, payment in the form
of cash will not be permitted to be made upon the exercise of a SAR to a holder
who is subject to the reporting requirements of Section 16(a) of the Exchange
Act, unless the exercise of such SAR is made during the period beginning on the
third business day and ending on the twelfth business day following the date of
release for publication of the Company's quarterly or annual statements of
earnings or is otherwise made under circumstances which comply with Rule 16b-3.
The Committee may also grant limited SARs, that will, in general, be
automatically exercised for cash upon a Change of Control (as defined under
'--Change of Control; 1990 Act Applicability')
Upon exercise of a SAR, the holder will receive for each share of Class B
Common Stock for which a SAR is exercised (i) shares of Class B Common Stock or
(ii) in the sole discretion of the Committee, cash or a combination of cash and
shares of Class B Common Stock equal in value in each case to the difference
between the Fair Market Value per share of Class B Common Stock on the date of
exercise of the SAR and the Option Price per share of the Option to which such
SAR relates.
When SARs are exercised, the Options to which they relate will be cancelled
to the extent of the number of shares of Class B Common Stock with respect to
which the SARs are exercised. When Options are exercised, the related SARs will
be cancelled to the extent of the number of shares of Class B Common Stock with
respect to which the Options are exercised. The terms of any SARs will be set
forth in the agreement covering the Options to which they relate, which
agreements will contain the provisions referred to above and such other
provisions as the Committee may determine.
Performance Based Incentive Compensation Awards
Long-term performance based incentive compensation Awards may be granted in
the form of (i) Incentive Units, to which the Committee assigns a dollar value
and (ii) Restricted Stock, each of which vest on the attainment of certain
performance goals. A long-term performance period will consist of at least three
consecutive plan years, or such other period (not less than one plan year) as
may be determined by the Committee.
In the case of Incentive Units, the Committee will determine the
performance goal for a performance period. Unless otherwise provided by the
Committee in connection with specified circumstances involving terminations of
employment, payment in respect of an Incentive Unit shall be made only if and to
the extent performance goals with respect to the applicable performance period
to which such Incentive Unit relates are attained. A grant of Incentive Units
may provide for performance goals that may include a level of performance below
which no payment shall be made and levels of performance at which specified
percentages (which may be greater than 100%) of the value of the Incentive Units
shall be paid. In no event will payment in respect of an Incentive Unit for a
long-term performance period be made to a participant who is a 'Covered
Employee,' as defined in Section 162(m) of the Code, as of the end of such
performance period, in an amount which exceeds 100% of the Annual Base Salary
(as defined in the 1994 Plan) paid to such participant during such performance
period.
In the case of Restricted Stock Awards, the Committee will determine the
performance goal for a performance period, the attainment of which will cause
the restrictions on the Restricted Stock to lapse in whole or in part and allow
all or a specified portion of the Restricted Stock to vest. Subject to such
exceptions as may be determined by the Committee, upon termination of employment
prior to the expiration of a performance period, or to the extent any
performance goals are not met, any shares of Restricted Stock remaining subject
to restrictions will be forfeited. Except to the extent otherwise set forth in
the applicable Award agreement, during a performance period the holder will
possess all incidents of ownership of shares of Restricted Stock, including the
right to receive dividends with respect to such shares and to vote such shares.
As stated, the Committee will determine the performance goals that will be
in effect during a long-term performance period; provided that performance goals
in respect of long-term Incentive Units granted to participants who are
'Executive Officers,' as defined in Rule 3b-7 promulgated under the Exchange
Act, will be based on the attainment of specified goals determined by the
Committee in respect of the trading price of the Company Common Stock during the
applicable performance period. In addition, the Committee will have the
authority to make adjustments in the performance goals in recognition of unusual
or non-recurring events affecting the Company or the financial statements of the
Company, or in response to changes in applicable laws, regulations or accounting
principles.
47
<PAGE>
Annual performance based incentive compensation awards will relate to a
performance period coinciding with the Company's fiscal year. These awards will
be expressed as a dollar amount and, unless otherwise provided by the Committee,
payment in respect of such awards will be made only if and to the extent
performance goals with respect to the performance period are attained.
Performance goals may include a level of performance below which no payment will
be made and levels of performance at which specified percentages (which may not
be greater than 100%) of the annual incentive compensation award will be paid.
The Committee generally will have the authority to determine the
performance goals that will be in effect during an annual performance period;
provided that performance goals in respect of annual incentive compensation
awards granted to participants who are 'Executive Officers' will be based on the
attainment of specified goals determined by the Committee in respect of the
public trading price of the Company Common Stock during the performance period.
In addition, the Committee will have the authority to make adjustments in the
annual performance goals in recognition of unusual or non-recurring events
affecting the Company or the financial statements of the Company, or in response
to changes in applicable laws, regulations, or accounting principles.
Amendment and Termination
The 1994 Plan will provide that the Board of Directors or the Committee may
at any time and from time to time alter, amend, suspend or terminate the 1994
Plan in whole or in part; provided that, no amendment which requires stockholder
approval in order for the 1994 Plan to continue to comply with Code Section
162(m) will be effective unless the same has been approved by the requisite vote
of the stockholders of the Company. Notwithstanding the foregoing, an amendment
may not adversely affect any of the rights of any participant, without such
participant's consent, under any Award theretofore granted.
The 1994 Plan will terminate at the end of the 2004 fiscal year, but
payment with respect to all Awards previously granted under the 1994 Plan will
be paid pursuant to the terms of the 1994 Plan.
Transfer
Awards generally will be nontransferable other than transfers by the holder
of an Award to his or her family members (including for this purpose any
relatives by blood or marriage) and other than by will or by the laws of descent
and distribution or, if then permitted under Rule 16b-3, pursuant to a qualified
domestic relations order as defined under the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder, and
will be exercisable during the lifetime of a holder only by such holder or his
guardian or legal representative.
Non-Employee Directors
The 1994 Plan will include special provisions pertaining to the Company's
non-employee directors, which provisions will be designed to ensure that no
discretion by the Committee is utilized with respect to such individuals.
Directors who are not employees of the Company will each be awarded annually a
non-discretionary option for 2,500 shares of Class B Common Stock. It is
currently anticipated that the Company will initially have two non-employees
directors that may participate in the 1994 Plan.
Change of Control; 1940 Act Applicability
The 1994 Plan will provide that if, while any Awards remain outstanding
under the 1994 Plan, a 'Change in Control' of the Company (as defined below)
occurs, then, subject to the discretion of the Committee, (1) all Options may
become immediately exercisable in full and/or may be cancelled in exchange for a
cash payment; (2) with respect to all Awards of Incentive Units and all annual
incentive compensation Awards, all performance periods outstanding at the time
of such Change in Control may be deemed to have been completed, the maximum
level of performance under the respective performance goals be deemed to have
been attained and a pro rata portion of each such outstanding Award granted for
all outstanding performance periods may become payable in cash to each
participant, with the remainder of each such outstanding award being cancelled
for no value; and (3) all restrictions with respect to shares of Restricted
Stock may lapse, and such shares may be fully vested and nonforfeitable. If,
while any Awards remain outstanding under the 1994 Plan, the Company determines
to
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register as an investment company or elects to become a BDC, the Committee will
have the discretion to terminate the 1994 Plan, to make any provision it deems
appropriate with respect to any or all outstanding Awards (including without
limitation the cancellation or termination thereof in exchange for a cash
payment) or to make any amendments to the 1994 Plan as are necessary to comply
with the applicable provisions of the 1940 Act.
A Change in Control shall occur upon the happening of the earliest to occur
of the following: (i) beneficial ownership of securities representing more than
thirty percent (30%) of the combined voting power of the Company is acquired by
any 'person' as defined in Sections 13(d) and 14(d) of the Exchange Act (not
including in the securities beneficially owned by such person any securities
acquired directly from the Company or its affiliates); (ii) during any period of
not more than two consecutive years, individuals who at the beginning of such
period constitute the Company Board, and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (i), (iii), or (iv) of this paragraph)
whose election by the Company Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds ( 2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved
(other than approval given in connection with an actual or threatened proxy or
election contest), cease for any reason to constitute at least a 70 percent
majority of the Company Board; (ii) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than
(A) a merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving or parent entity) 80% or more of the combined voting power of the
voting securities of the Company or such surviving or parent entity outstanding
immediately after such merger or consolidation or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction)
in which no 'person' (as hereinabove defined) acquires 30% or more of the
combined voting power of the Company's then outstanding securities; or (iv) the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets (or any transaction having a similar
effect). The foregoing provisions may, in certain circumstances, be deemed to
have an anti-takeover effect.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE 1994 PLAN
The following summary is a general discussion of certain of the expected
federal income tax consequences under present law to participants in the 1994
Plan and to the Company. This summary does not discuss all aspects of federal
income taxation that may be relevant to a particular employee in light of his or
her personal circumstances or to employees subject to special treatment under
the Federal income tax laws. The Company will not seek a ruling from the Service
or an opinion of counsel regarding any matter discussed herein. The discussion
assumes that grantees will hold Class B Common Stock as capital assets within
the meaning of Section 1221 of the Code. Each grantee should consult his or her
tax advisor as to the specific federal tax consequences of participation in the
1994 Plan, as well as the application of state, local and other tax laws.
Nonqualified Stock Options
A grantee will not recognize any income, and the Company will not be
entitled to a deduction, upon the grant of a NQSO. Upon the exercise of a NQSO
the holder will recognize ordinary income in an amount equal to the excess of
the fair market value of the Class B Common Stock acquired upon exercise over
the Option Price. The Company generally will be entitled to a deduction of a
corresponding amount at that time (subject to the discussion in 'Limitation in
Deductions' below).
A holder's aggregate basis for Class B Common Stock acquired upon cash
exercise of a NQSO will be equal to the fair market value of such stock on the
date that governs the determination of the holder's ordinary income. The holding
period for such stock will commence on the day after such date and, accordingly,
will not include the period during which the NQSO was held.
Generally, upon a sale or other disposition of Class B Common Stock
acquired pursuant to the exercise of a NQSO, the holder will recognize capital
gain or loss in an amount equal to the difference between the amount
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realized on such sale or other disposition and the holder's basis in such stock.
Such gain or loss will be long-term capital gain or loss if the holding period
for such stock is more than one year.
Incentive Stock Options
All incentive stock options granted under the Plan are intended to qualify
as ISOs within the meaning of Section 422 of the Code. An employee will not
recognize any income, and the Company will not be entitled to a deduction, upon
the grant of an ISO or its timely exercise. The timely exercise of an ISO may,
however, affect the computation of an employee's alternative minimum tax.
Exercise of an ISO will be timely if made while the employee is employed by the
Company or within three months after the cessation of such employment (one year
if the employee is disabled within the meaning of Section 22(e)(3) of the Code).
If the exercise of an ISO is not timely, the ISO will be taxed according to the
rules described above for NQSOs.
An employee's aggregate basis for Class B Common Stock acquired upon cash
exercise of an ISO will be equal to the Option Price paid for such stock. The
holding period for such stock will begin on the day after the date of exercise
and, accordingly, will not include the period during which the ISO was held.
If an employee makes a disposition of Class B Common Stock acquired
pursuant to an ISO, and such stock was held for more than two years from the
date of the granting of such ISO and one year from the transfer of such stock to
the employee, then any gain or loss realized upon such disposition will be
treated as a long-term capital gain or loss. Under such circumstances, the
Company will not be entitled to any deduction. If, however, the employee makes a
disposition of Class B Common Stock acquired pursuant to an ISO within either
two years from the date of the granting of such ISO or one year from the
transfer of such stock to the employee (a 'Disqualifying Disposition'), then any
gain realized will generally be taxable as follows: (i) as ordinary income in an
amount equal to any excess of (a) the lesser of the fair market value of the
Class B Common Stock on the date the ISO is exercised (the value and timing of
recognition on a later date is likely to govern in the case of a Section 16
Individual as discussed in '--Nonqualified Stock Options' above) or the amount
realized on the Disqualifying Disposition, over (b) the Option Price, and (ii)
as capital gain to the extent of any excess of the amount realized on the
Disqualifying Disposition over the fair market value of the Class B Common Stock
on the date that governs the determination of his ordinary income. In such case,
the Company generally will be entitled to a deduction at the time of the
Disqualifying Disposition for the amount taxable to the employee as ordinary
income (subject to the discussion in '--Limitation on Deductions' below). Any
loss realized upon a Disqualifying Disposition will generally be a capital loss,
and will be long-term capital loss if the holding period for the disposed shares
is more than one year.
To the extent that the aggregate fair market value of Class B Common Stock
(determined as of the date of grant) with respect to which ISOs are exercisable
for the first time during any calendar year exceeds $100,000, such ISOs will
constitute nonqualified stock options.
Restricted Stock
A grantee will not recognize any income upon the receipt of Restricted
Stock unless the holder elects under Section 83(b) of the Code, within thirty
days of such receipt, to recognize ordinary income in an amount equal to the
fair market value of the restricted stock at the time of receipt (generally
determined without regard to any restrictions of such shares). If the election
is made, the holder will not be allowed a deduction for amounts subsequently
required to be returned to the Company. If the election is not made, the holder
will recognize ordinary income on the date that the restrictions to which the
restricted stock are subject are removed in an amount equal to the fair market
value of such shares on such date. At the time the holder recognizes ordinary
income, the Company generally will be entitled to a deduction of a corresponding
amount (subject to the discussion in '--Limitations on Deductions' below).
Generally, upon a sale or other disposition of Restricted Stock in respect
to which the holder has recognized ordinary income (i.e., a Section 83(b)
election was previously made or the restrictions were previously removed), the
holder will recognize capital gain or loss in an amount equal to the difference
between the amount realized on such sale or other disposition and the holder's
basis in such shares. Such gain or loss will be long-term capital gain or loss
if the holding period for such shares is more than one year. For this purpose, a
holder's basis for
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Restricted Stock will be equal to the amount of ordinary income recognized with
respect to such shares, and the holding period for such shares will begin on the
day after the date that such ordinary income is recognized.
SAR's
A grantee will not recognize income, and the Company will not be entitled
to a deduction, upon the grant of a SAR. On the exercise of a SAR for cash, the
holder will be taxed at ordinary income rates on the amount of cash received. On
the exercise of a limited SAR for shares, the holder will be taxed at that time
on the fair market value of the shares received and will have a tax basis in
such shares equal to their fair market value. Subject to the discussion in
'--Limitation on Deductions,' below, the Company will be entitled to a deduction
at the same time and in the same amount as the holder has income, including a
deduction for any dividends paid to the holder in the absence of the election
under Section 83(b).
Limitation on Deductions
If a SAR is exercised, or if the termination of any restriction, limitation
or condition, or acceleration of any vesting or exercise right with respect to
any Award under the 1994 Plan is due to a change in control of the Company or
similar event, this may cause payments with respect such SAR or other Award to
be non-deductible to the Company in whole or in part and may subject the holder
to a non-deductible 20% federal excise tax on all or a portion of such payments
(in addition to other taxes ordinarily payable).
Pursuant to Section 162(m) of the Code, which was enacted as part of the
Omnibus Budget Reconciliation Act of 1993 (the '1993 Act'), for tax years
beginning on or after January 1, 1994, the Company's federal income tax
deduction for compensation paid to its chief executive officer and four other
highest compensated officers (the 'Covered Employees') generally will be limited
to $1 million per year for each Covered Employee. An exemption to this rule
exists for compensation that is paid solely on account of the attainment of one
or more performance goals ('Performance Based Compensation').
The legislative history of the 1993 Act and the proposed regulations
published by the Service on December 15, 1993 indicate that stock option and
other stock appreciation rights generally will be considered to be Performance
Based Compensation if certain adoption and approval requirements are met and the
amount of compensation an employee can receive under the option or right is
based solely on the increase in value of the stock after the date of grant.
Restricted shares generally will not be considered to be Performance Based
Compensation. If compensation paid to Covered Employees under the 1994 Plan is
not Performance Based Compensation, the Company's deduction for such
compensation will be disallowed to the extent that a Covered Employee's total
compensation exceeds $1 million in the year such deduction would otherwise
become available. The Company currently believes that the grants of NQSO's
described herein will be the only Awards that should qualify as Performance
Based Compensation under the 1994 Plan until performance criteria for other
types of Awards are developed and approved by the Committee and the Company's
shareholders. Because the statute and legislative history are unclear in a
number of respects, and no final regulatory or other guidance exists at this
time, no assurance can be given that grants of NQSO's will qualify as
Performance Based Compensation.
Withholding
Income and payroll taxes generally are required to be withheld on the
amount of ordinary income recognized by an employee with respect to an Option,
Restricted Stock, SAR or other Award under the 1994 Plan. If such income is
recognized in connection with receipt by an employee of non-cash consideration,
the employee may be required to make a payment to the Company at the time such
income is recognized to satisfy any applicable Federal, state, local and other
withholding tax requirements.
EXECUTIVE EMPLOYMENT AGREEMENTS
In connection with the Distribution, the Company will enter into employment
agreements with Myles P. Berkman and David J. Berkman for retention of their
services as executive officers during the original or extended term of such
agreements. These employment agreements will be substantially the same as the
current agreements of such persons with Associated, and are intended to assure
that the Company's key employees will
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continue to act in the interests of stockholders rather than be affected by
personal uncertainty during any attempt to effect a change in control of the
Company.
Each agreement will provide that in the event of a 'Change in Control' (as
defined) of the Company during the original or extended term of the agreement,
the agreement will be extended for an additional 36 months beyond the month in
which it would otherwise have terminated. Additionally, if following a Change in
Control, the Company terminates (except for 'Cause' (as defined) or disability)
the executive's employment or the executive voluntarily terminates his
employment for 'Good Reason' (as defined), the executive will be entitled to a
lump sum payment (the 'Severance Payments'). Such Severance Payments will be
equal to the sum of (i) three times the total of the executive's base salary
immediately prior to the events giving rise to the termination plus incentive
and bonus compensation paid in the immediately preceding year, (ii) incentive
and bonus compensation already allocated which has not yet been paid and a pro
rata portion to the Date of Termination (as defined) of all incentive and bonus
compensation awards for all uncompleted periods, and (iii) in lieu of shares of
Class B Common Stock issuable upon exercise of outstanding options (other than
incentive stock options ('ISOs') granted prior to the date of the employment
agreements) an amount in cash equal to the difference between the market price
and exercise price of outstanding stock options multiplied by the number of
shares covered by such options. If any payment or benefit to be received by the
executive following a Change in Control is not deductible (in whole or part) by
the Company as a result of Section 280G of the Code, the Severance Payments will
be reduced until no part of the payments is not deductible or the Severance
Payments are reduced to zero. Under the employment agreements, each executive
will agree to remain in the employ of the company in the event of a 'potential
change in control' (as defined) for at least six months, unless there is a
breach of the agreement or an actual Change in Control or his health becomes
seriously impaired.
Each agreement will also provide that in the event of the termination of
the agreement due to the disability or death of the executive, he, his
designated beneficiaries or his estate will be paid during the remaining term of
the agreement one-half of his annual base salary at the rate in effect
immediately prior to such termination. Under the employment agreements, any
payments made to an executive during a disability period will be required to be
reduced by the sum of the amounts, if any, payable to the executive for such
disability at or prior to the time of any such payment under disability benefit
plans of the Company or under the Social Security disability insurance program.
In addition, the agreements will also provide that the Company may terminate the
executive's employment for Cause (as defined). If an executive's employment is
terminated by the Company for Cause, the Company will be required to pay the
executive his full base salary through the Date of Termination, and the Company
will have no further obligations to the executive under his employment
agreement.
The term of the employment agreements will commence on the date of the
execution thereof and continue until the December 31 following the tenth
anniversary of such execution date. The employment agreements will provide that
commencing on the first January 1 following such execution date, and each
January 1 thereafter, the term of each executive's employment will automatically
be extended for one additional year, unless, not later than June 30 of the
preceding year, the Company gives written notice to the executive that it does
not wish to extend his agreement.
401(K) SAVINGS PLAN
The Company will adopt, prior to the Distribution, a voluntary contributory
401(k) savings plan for full-time employees of the Company or wholly-owned
subsidiaries of the Company. The 401(k) savings plan will be a defined
contribution plan which allows employees to elect to contribute up to 15% of
their gross earnings, not to exceed $9,240 for fiscal year 1994. Employer
contributions pursuant to the savings plan will be equal to 50% of the first 6%
of employee gross wages for those employees who chose to participate. An
employee, if at least 21 years of age, will be able to enter the savings plan
after completing one year of full-time service with the Company. Upon
termination of employment of a participant for any reason other than death,
disability or normal retirement at age 65, the portion of the Company
contributions in the participant's account which the participant may withdraw is
based on the number of years of service the employee has with the Company. All
Company contributions will be fully vested after the sixth year of employment
(in calculating years of employment with the Company, employment with Associated
will be considered employment with the Company.)
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DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
AUTHORIZED CAPITAL STOCK
In accordance with the Distribution Agreement, Associated will
appropriately cause the Company to amend its Certificate of Incorporation to,
among other things, (i) create two classes of common stock of the Company, to be
designated Class A Common Stock and Class B Common Stock, to increase the
currently authorized number of shares of common stock of the Company and to
exchange the 1,000 shares of such common stock currently outstanding for a total
number of shares of Company Common Stock (divided equally between Class A Common
Stock and Class B Common Stock), equal to one half the total number of shares of
Associated Common Stock outstanding immediately prior to the Distribution Record
Date and (ii) to authorize 5 million shares of Company Preferred Stock. See 'The
Distribution--Terms of the Distribution Agreement.' Under the Restated
Certificate, the total number of shares of all classes of stock that the Company
will have authority to issue is 155,000,000, of which 100,000,000 may be shares
of Class A Common Stock, 50,000,000 may be shares of Class B Common Stock, and
5,000,000 may be shares of Company Preferred Stock.
Based on the 37,491,156 shares of Associated Common Stock outstanding at
July 26, 1994, 9,372,789 shares of Class A Common Stock and 9,372,789 shares of
Class B Common Stock will be distributed to Associated stockholders in the
Distribution. All the shares of Company Common Stock to be distributed to
Associated stockholders in the Distribution will be fully paid and
non-assessable.
The following summary describes material provisions of, but does not
purport to be complete and is subject to, and qualified in its entirety by, the
Restated Certificate attached as Annex I hereto and by applicable provisions of
law.
COMMON STOCK
The Class A Common Stock and Class B Common Stock will be identical, except
as described below. Dividends will be payable on the Company Common Stock at the
discretion of the Board of Directors from sources legally available therefor
and, in the case of stock dividends, including to effect a spin-off, may be made
on a class on class basis. Upon dissolution of the Company, holders of the
Common Stock will be entitled to share pro rata in the assets remaining after
payment of corporate debts and any other priority claims. The Company Common
Stock will not be subject to any redemption or sinking fund provisions, and will
have no subscription rights or, except as described below, conversion feature.
Each holder of Class A Common Stock will be entitled to one vote per share and
each holder of Class B Common Stock will be entitled to one twenty-fifth ( 1/25)
of a vote per share. Holders of Class B Common Stock will not be entitled to
vote as a class upon any proposed increase or decrease in the authorized number
of shares of Class B Common Stock.
Each share of Class B Common Stock will be mandatorily convertible, at the
election of the Company and without stockholder action, into one share of Class
A Common Stock, upon the determination of the Company's Board of Directors that
such a conversion is necessary or appropriate in connection with an election by
the Company to become a BDC under the 1940 Act or to register as an investment
company under the 1940 Act.
PREFERRED STOCK
The Company's Board of Directors may authorize the issuance of Company
Preferred Stock in one or more series, which series may have such voting powers,
(if any) and such designations, preferences and relative, participating,
optional or other special rights, and qualifications, or restrictions thereof,
as the Board shall establish in its resolution providing for the issuance of
such series. Any series of Company Preferred Stock issued by the Company may
have dividend, dissolution and other preferences over the Company Common Stock
and may be convertible into shares of either class of Company Common Stock. The
Company has no present plans to issue any Company Preferred Stock. The Company
will, however, at or prior to the Time of Distribution, designate a series of
Company Preferred Stock as Series A Junior Participating Preferred Stock, (the
'Series A Preferred Stock') in connection with its Stockholder Rights Plan. See
'Stockholder Rights Plan' below.
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STOCKHOLDER RIGHTS PLAN
The Company expects that the Board of Directors of the Company will, at or
prior to the Time of Distribution, declare a dividend distribution of one right
(a 'Company Right') for each outstanding share of Company Common Stock
distributed to Associated stockholders pursuant to the Distribution. Each Right
will entitle the registered holder to purchase from the Company a unit
consisting of one one-hundredth of a share (a 'Unit') of Series A Preferred
Stock, at a purchase price per Unit (the 'Purchase Price'), to be determined
prior to issuing the Rights. The description and terms of the Rights will be set
forth in a Rights Agreement (the 'Rights Agreement') between the Company and a
Rights Agent.
Initially, the Rights will be attached to all Company Common Stock
certificates representing shares then outstanding, and no separate Rights
Certificates will be distributed. The Rights will separate from the Company
Common Stock and a Rights Distribution Date will occur upon the earliest of any
of the following events:
(i) 10 business days following a public announcement that a person or
group of affiliated or associated persons (an 'Acquiring Person') has
acquired, or obtained the right to acquire (the 'Stock Acquisition Date'),
beneficial ownership of (a) 30% or more of the shares of Company Common
Stock then outstanding or (b) shares of Company Common Stock entitled to
cast 30% or more of the aggregate number of votes entitled to be cast by
all shares of Common Stock then outstanding;
(ii) 10 business days following the commencement of a tender offer or
exchange offer that would result in a person or group beneficially owning
(a) 20% or more of such outstanding shares of Company Common Stock or (b)
shares of Company Common Stock entitled to cast 20% or more of the
aggregate number of votes entitled to be cast by all shares of Company
Common Stock then outstanding (unless such tender offer or exchange offer
is an offer for all outstanding shares of Company Common Stock which the
Company's independent directors determine to be fair to and otherwise in
the best interests of the Company and its stockholders); or
(iii) 10 days after the date on which a person or persons become an
Adverse Person (as herein defined). A person shall be an Adverse Person if
all of the following shall occur: (a) the Company's Board of Directors
shall designate a specific limitation on the amount of Company Common Stock
which a specified person may beneficially own, which amount (the 'Ownership
Limitation') may be less than, equal to, or more than the amount of shares
of Company Common Stock then owned by such Person but shall in no event be
less than the number of shares entitled to cast 15% of the aggregate number
of votes entitled to be cast by all shares of Company Common Stock; (b) a
majority of the Company's independent directors, after reasonable inquiry
and investigation and consultation with such persons as it deems
appropriate, determines that (1) beneficial ownership by such person of an
amount of Company Common Stock exceeding the Ownership Limitation is, or
would likely be, intended to cause the Company to repurchase the Company
Common Stock beneficially owned by such person or to cause pressure on the
Company to take action or enter into a transaction or series of
transactions intended to provide such person with short-term financial gain
under circumstances where the majority of Company's independent directors
determines that the best long-term interests of the Company and its
stockholders would not be served by taking such action or entering into
such transactions or series of transactions at that time or (2) beneficial
ownership by such person of an amount of Company Common Stock exceeding the
Ownership Limitation is causing or reasonably likely to cause a material
adverse impact (including, but not limited to, impairment of the Company's
ability to maintain its competitive position) on the business or prospects
of the Company; and (c) the beneficial ownership of shares of such person,
including its affiliates and associates, shall (before or after (a) or (b)
above) exceed the Ownership Limitation.
Notwithstanding the foregoing, with respect to events (i) and (ii) above, the
Company's Board of Directors, or any duly authorized committee thereof, may
designate in accordance with the Rights Agreement a later date as the Rights
Distribution Date.
Until the Rights Distribution Date, (i) the Rights will be evidenced by the
Company Common Stock certificates (which will contain a notation incorporating
the Rights Agreement by reference) and will be transferred with and only with
such Company Common Stock certificates, and (ii) the surrender for transfer of
any certificates for Company Common Stock outstanding will also constitute the
transfer of the Rights associated
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with the Company Common Stock represented by such certificate. Pursuant to the
Rights Agreement, the Company will reserve the right to require that, upon any
exercise of Rights, a number of Rights be exercised so that only whole shares of
Preferred Stock will be issued.
The Rights will not be exercisable until the Rights Distribution Date and
will expire at the close of business on the tenth anniversary of the issuance of
the Rights, unless they are earlier redeemed by the Company as described below
or they expire in accordance with other provisions of the Rights Agreement.
As soon as practicable after the Rights Distribution Date, Rights
Certificates will be mailed to holders of record of the Company Common Stock as
of the close of business on the Rights Distribution Date and, thereafter, the
separate Rights Certificates alone will represent the Rights. Except as
otherwise determined by the Board of Directors, only shares of Company Common
Stock issued prior to the Rights Distribution Date will be issued with Rights.
In the event that (i) a Person becomes the beneficial owner (except
pursuant to an offer for all outstanding shares of Company Common Stock which
the Company's independent directors determine to be fair to and otherwise in the
best interests of the Company and its stockholders) of (a) more than 30% of the
then outstanding shares of Company Common Stock or (b) shares of Company Common
Stock entitled to cast 30% or more of the aggregate number of votes entitled to
be cast by all shares of Company Common Stock then outstanding, or (ii) a person
becomes an Adverse Person, each holder of a Right will thereafter have the right
to receive, upon exercise, Class B Common Stock (or, in certain circumstances,
cash, property or other securities of the Company) having a value equal to two
times the Purchase Price of the Right. Notwithstanding any of the foregoing,
following the occurrence of any of the events set forth in this paragraph, all
Rights that are, or (under certain circumstances specified in the Rights
Agreement) were, beneficially owned by any Acquiring Person or an Adverse Person
will be null and void. However, Rights are not exercisable following the
occurrence of either of the events set forth above until such time as the Rights
are no longer redeemable by the Company as set forth below.
Following the occurrence of either of the events set forth in the
immediately preceding paragraph, subject to applicable law, the Board of
Directors may determine to exchange for any or all Rights (other than Rights
held by the Acquiring Person or Adverse Person and certain transferees) Class B
Common Stock with a value equal to the Right's Purchase Price or substitute
value in the form of cash, property, debt or equity securities, or any
combination of the foregoing. Such exchange shall be on a pro rata basis if less
than all Rights are to be exchanged, and holders of Rights pay no consideration
(other than delivery of the Right) in such exchange.
In the event that, at any time following the Stock Acquisition Date, (i)
the Company is acquired in a merger or other business combination transaction in
which the Company is not the surviving corporation (other than a merger which
follows a fair offer described in the second preceding paragraph), or (ii) more
than 50% of the Company's assets or earning power is sold or transferred, each
holder of a Right which has not yet been exercised (except Rights which
previously have been voided as set forth above) shall thereafter have the right
to receive, upon exercise, common stock of the acquiring company having a value
equal to two times the Purchase Price of the Right. The events set forth in this
paragraph and in the second preceding paragraph are referred to as 'Triggering
Events.'
Notwithstanding the foregoing, the Rights will not be distributed or become
exercisable as a result of purchases of Company Common Stock by a person
pursuant to a written agreement with the Company (and approved by the Company's
Board of Directors) that sets limits on such person's ownership of Company
Common Stock and is executed before such person (with its affiliates and
associates) purchases 30% or more of Company Common Stock or shares with 30% or
more of the aggregate voting power of such Company Common Stock, so long as they
are in substantial compliance with the terms of such written agreement and the
limitations on such person's ownership of Common Stock continue to be binding.
The Purchase Price payable and the number of Units of Series A Preferred
Stock or other securities or property issuable upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Series A Preferred Stock, (ii) if holders of the Series A Preferred Stock are
granted certain rights or warrants to subscribe for Preferred Stock or
convertible securities at less than the current market price of the Series A
Preferred Stock, or
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(iii) upon the distribution to holders of the Series A Preferred Stock of
evidences of indebtedness or assets (excluding regular quarterly cash dividends)
or of subscription rights or warrants (other than those referred to above).
With certain exceptions no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. The Company may determine not to issue fractional Units and, in lieu
thereof, an adjustment in cash may be made based on the market price of the
Series A Preferred Stock on the last trading date prior to the date of exercise.
In general, at any time until 10 business days following the Stock
Acquisition Date, or such later date as the Board of Directors may designate,
the Company may redeem the Rights in whole, but not in part, at a price of $.01
per Right (payable in cash, Company Common Stock or other consideration deemed
appropriate by the Company's Board of Directors). The Company may not redeem the
Rights if a person has previously become an Adverse Person. Immediately upon the
action of the Company Board of Directors ordering redemption of the Rights, the
Rights will terminate and the only right of the holders of Rights will be to
receive the $.01 redemption price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Class B Common Stock of the Company (or for other consideration)
or for common stock of the acquiring company as set forth above.
Other than those provisions relating to the principal economic terms of the
Rights, any of the provisions of the Rights Agreement may be amended by the
Company's Board of Directors prior to the Rights Distribution Date. After the
Rights Distribution Date, the provisions of the Rights Agreement may be amended
by the Company's Board of Directors in order to cure any ambiguity, to make
changes which do not adversely affect the interests of holders of Rights
(excluding the interests of any Acquiring Person or Adverse Person), or to
shorten or lengthen any time period under the Rights Agreement.
Each share of Common Stock of the Company outstanding at the close of
business at the Time of Distribution will receive one Right. So long as the
Rights are attached to the Company Common Stock one Right (as such number may be
adjusted pursuant to the provisions of the Rights Agreement) shall be deemed to
be delivered for each share of Company Common Stock issued or transferred by the
Company after the Time of Distribution. In addition, following the Rights
Distribution Date and prior to the expiration or redemption of the Rights, the
Company may issue Rights when it issues Company Common Stock only if the Board
of Directors deemed it to be necessary or appropriate, or in connection with the
issuance of shares of Company Common Stock pursuant to the exercise of stock
options, under employee plans or upon the exercise, conversion or exchange of
certain securities of the Company granted or existing prior to the Rights
Distribution Date. A number of shares of Series A Preferred Stock equal to
1/100th of the number of shares of Company Common Stock outstanding at the Time
of Distribution will initially be reserved for issuance upon exercise of the
Rights.
The Rights may have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
in a manner which causes the Rights to become discount Rights unless the offer
is conditioned on a substantial number of Rights being acquired. The Rights,
however, should not affect any prospective offeror willing to make an offer at a
fair price and otherwise in the best interests of the Company and its
stockholders, or willing to negotiate with the Company's Board of Directors. The
Rights should not interfere with any merger or other business combination
approved by the Company's Board of Directors since the Company's Board of
Directors may, at its option, at any time within 10 business days following the
Stock Acquisition Date (or such later date or dates as the Board properly
determines) redeem all but not less than all the then outstanding Rights at the
Redemption Price.
56
<PAGE>
NO PREEMPTIVE RIGHTS
No holder of any stock of any class of the Company authorized at the Time
of Distribution will then have any preemptive right to subscribe to any
securities of any kind or class.
DESCRIPTION OF CERTAIN STATUTORY, CHARTER AND BYLAW PROVISIONS
Section 203 of the Delaware General Corporation Law
Section 203 of the Delaware General Corporation Law (the 'Delaware
Statute'), a statutory provision restricting business combinations with
stockholders who acquire 15 percent or more of a corporation's voting stock, is
applicable to Associated and will be applicable to the Company after the
Distribution. The Delaware Statute prohibits certain 'business combination'
transactions between a publicly held Delaware corporation and any 'interested
stockholder' for a period of three years after the date on which the interested
stockholder became an interested stockholder unless (a) prior to that date the
corporation's board of directors approved either the proposed business
combination or the transaction which resulted in the interested stockholder
becoming an interested stockholder, (b) upon consummation of the transaction
which resulted in the interested stockholder becoming an interested stockholder,
the interested stockholder owned at least 85 percent of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned (i)
by persons who are directors and also officers and (ii) by employee stock plans
in which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer, or (c) on or subsequent to such date the business combination is approved
by the corporation's board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of
at least two-thirds of the outstanding voting stock which is not owned by the
interested stockholder.
The Delaware Statute would not prevent the holder of a controlling interest
from exercising control over the Company and would not prevent a hostile
takeover or hostile acquisition of control of the Company. The Delaware Statute
may, however, discourage or make more difficult a hostile takeover or
acquisition of control.
Classified Board of Directors
The Restated Certificate provides for the Company's Board of Directors to
be divided into three classes of Directors serving staggered three-year terms,
as is the case under Associated's Restated Certificate of Incorporation as
currently in effect. As a result, approximately one-third of the members of the
Company Board will be elected each year. See 'Management--Directors.' This
provision could prevent a party who acquires outstanding voting stock of the
Company having majority voting power from obtaining control of the Company Board
until the second annual stockholders' meeting following the date the acquiror
obtains the controlling interest, and thus could have the effect of discouraging
a potential acquiror from making a tender offer or otherwise attempting to
obtain control of the Company. Accordingly, this provision could increase the
likelihood that incumbent directors will retain their positions.
Number of Directors; Removal; Vacancies
The Restated Certificate provides that the number of directors will be
determined from time to time by a majority of the Company Board, provided that
in no event may such number be less than three nor more than fifteen. The Bylaws
will provide that only the Company Board will be entitled to fill vacancies,
including vacancies created by expansion of the Company Board.
The Restated Certificate further provides that directors may be removed
only for cause and then only by the affirmative vote of stockholders entitled to
cast at least two-thirds of the total number of votes entitled to be cast. This
provision, in conjunction with the Bylaws which, as noted above, will authorize
only the Company Board to fill vacant directorships, would prevent stockholders
from removing incumbent directors without cause and filling the resulting
vacancies with their own nominees.
57
<PAGE>
Stockholder Action by Unanimous Consent; Special Meetings
The Restated Certificate provides that stockholder action may be taken only
at an annual or special meeting of stockholders and that no action may be taken
by the written consent of stockholders in lieu of a meeting. The Company's
Bylaws will provide that special meetings of the Company's stockholders may only
be called pursuant to a resolution approved by a majority of the Company Board.
Stockholders will not be entitled to call a special meeting or to require the
Company Board to call a special meeting of stockholders.
Stockholder Nominations
The Bylaws will establish procedures that must be followed for a
stockholder to nominate individuals for election to the Company Board.
Nominations of persons for election to the Company Board will be required to be
made by delivering written notice to the Secretary of the Company not less than
50 days and not more than 75 days prior to the meeting at which directors will
be elected; provided however, that in the event that less than 65 days' notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely will be required to be so
received not later than the close of business on the 15th day following the day
on which such notice of the date of the meeting was mailed or such public
disclosure made, whichever first occurs. The nomination notice will be required
to set forth certain background information about the persons to be nominated,
including the nominees' principal occupation or employment and the class and
number of shares of capital stock of the Company that are beneficially owned by
such person. If the presiding officer at the stockholders meeting determines
that a nomination was not made in accordance with these procedures, he may so
declare at the meeting and the nomination may be disregarded.
Stockholder Proposals
The Bylaws will establish procedures that must be followed for a
stockholder to submit a proposal at an annual meeting of the stockholders of the
Company. Under these procedures, no proposal for a stockholder vote will be able
to be submitted to the stockholders unless the submitting stockholder has timely
filed with the Secretary of the Company a written statement setting forth
specified information, including the names and addresses of the persons making
the proposal, the class and number of shares of capital stock of the Company
beneficially owned by such persons, a description of the proposal and the
reasons for bringing such business before the annual meeting and any material
interest of the stockholder in such business. The statement will be required to
be filed no later than the latest date for filing a nomination notice as
described above under '--Stockholder Nominations.' If the presiding officer at
any stockholder meeting determines that any such proposal was not made in
accordance with these procedures or is otherwise not in accordance with
applicable law, he may so declare at the meeting and such defective proposal may
be disregarded.
Amendment of Certain Charter and Bylaw Provisions
The Restated Certificate provides that the Company Board may adopt, amend
or repeal any provision of the Bylaws. The Bylaws will also provide that Bylaw
provisions may be adopted, amended or repealed by the affirmative vote of
stockholders who are entitled to cast at least two-thirds of the total number of
votes entitled to be cast.
Any amendment, modification or repeal of the provisions of the Restated
Certificate relating to the election and removal of directors will require
approval by the affirmative vote of the holders of 66 2/3% of the total number
of votes entitled to be cast.
Preferred Stock
Under the Restated Certificate, the Company Board will have the authority
to provide by resolution for the issuance of shares of one or more series of
Company Preferred Stock and to fix the terms and conditions of each such series.
See 'Description of Capital Stock of the Company.' The authorized shares of
Company Preferred Stock, as well as authorized but unissued shares of Company
Common Stock, will be available for issuance without further action by the
Company's stockholders, unless stockholder action is required by applicable law
or by the rules of a stock exchange on which any series of the Company's stock
may then be listed.
58
<PAGE>
These provisions will give the Company Board the power to approve the
issuance of a series of Company Preferred Stock that could, depending on its
terms, either impede or facilitate the completion of a merger, tender offer or
other takeover attempt. For example, the issuance of new shares might impede a
business combination if the terms of those shares include voting rights which
would enable a holder to block business combinations. Conversely, the issuance
of new shares might facilitate a business combination if those shares have
general voting rights sufficient to cause an applicable percentage vote
requirement to be satisfied.
INDEMNIFICATION AND INSURANCE
Pursuant to authority conferred by Delaware General Corporation Law Section
102(b)(7), the Restated Certificate contains a provision providing that no
director of the Company shall be liable to it or its stockholders for monetary
damages for breach of fiduciary duty as a director, except to the extent that
such exemption from liability or limitation thereof is not permitted under the
Delaware General Corporation Law as then in effect or as the same may be
amended. This provision is intended to eliminate the risk that a director might
incur personal liability to the Company or its stockholders for breach of the
duty of care.
Delaware General Corporation Law Section 145 contains provisions
permitting, and in some situations requiring, Delaware corporations, such as the
Company, to provide indemnification to their officers and directors for losses
and litigation expenses incurred in connection with their service to the
corporation in those capacities. The Bylaws will contain provisions requiring
indemnification by the Company of, and advancement of expenses to, its directors
and officers to the fullest extent permitted by law. Among other things, these
provisions will provide indemnification for the Company's officers and directors
against liabilities for judgments in and settlements of lawsuits and other
proceedings and for the advance and payment of fees and expenses reasonably
incurred by the director or officer in defense of any such lawsuit or
proceeding.
The Company intends to purchase and maintain insurance on behalf of any
person who is or was a director or officer of the Company, or is or was a
director or officer of the Company serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Company would have the power or the
obligation to indemnify him against such liability under the provisions of the
Bylaws.
The form of the Restated Certificate is attached to this Information
Statement as Annex I and is incorporated herein by reference. The foregoing
description of certain provisions of the Restated Certificate does not purport
to be complete and is subject to, and is qualified in entirety by reference to,
the Restated Certificate, including the definitions therein of certain terms.
59
<PAGE>
ADDITIONAL INFORMATION
Prior to the Distribution, the Company will file with the Commission a
Registration Statement on Form 10 under the Exchange Act (such Registration
Statement, as it may be amended or supplemented, the 'Registration Statement')
with respect to the shares of Company Common Stock to be distributed to
Associated stockholders in the Distribution. This Information Statement does not
contain all of the information which will be set forth in the Registration
Statement and the exhibits and schedules thereto.
When filed, the Registration Statement and the exhibits thereto will be
available for inspection and copying at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, as well as at the Regional Offices of the Commission at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
information will be obtainable by mail from the Public Reference Branch of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.
Following the Distribution, the Company will be subject to the
informational requirements of the Exchange Act, and, in accordance therewith,
will file reports, proxy statements and other information with the Commission.
The reports, proxy statements and other information which will be filed by the
Company with the Commission will be available for inspection and copying at the
Commission's public reference facilities referred to above. Copies of such
material will be obtainable by mail at prescribed rates by writing to the Public
Reference Branch of the Commission at the address referred to above. In
addition, it is expected that reports, proxy statements and other information
concerning the Company will be available for inspection at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006. TCI and Liberty are also subject to the informational
requirements of the Exchange Act, and, in accordance therewith, file reports,
proxy statements and other information with the Commission. The reports, proxy
statements and other information filed by TCI and Liberty with the Commission
can be inspected and copied at the Commission's public reference facilities at
the above listed locations. In addition, reports, proxy statements and other
information concerning TCI and Liberty may be inspected at the offices of the
National Association of Securities Dealers, Inc., at the above listed address.
TCI and Liberty Media are not affiliates of the Company and the Company does not
assume any responsibility for the accuracy or completeness of the information
concerning TCI and Liberty Media contained in such documents, or for the failure
of TCI or Liberty Media to disclose events which may have occurred or may affect
the significance or accuracy of such information.
60
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
- -------------------------------------------------- ----
<S> <C>
AP Agreement...................................... 14
AAA............................................... 16
ACDI II........................................... 18
ACLA.............................................. 38
ACM............................................... 39
ACORN............................................. 19
ACORN Committee................................... 36
ACORN Options..................................... 36
ACORN Plan........................................ 36
Acquiring Person.................................. 54
Adjustment........................................ 36
Albany............................................ 18
AMSC.............................................. 13
APCN.............................................. 39
ARTI.............................................. 39
ASMR.............................................. 39
Asset Transfers................................... 18
Associated........................................ 1
Associated Board.................................. 1
Associated Class A Common Stock................... 1
Associated Class B Common Stock................... 1
Associated Common Stock........................... 1
Associated Stock Options.......................... 35
Associated Stock Plans............................ 35
Awards............................................ 45
BDC............................................... 11
Buffalo........................................... 18
Bylaws............................................ 5
CAP............................................... 15
Class A Common Stock.............................. 1
Class B Common Stock.............................. 1
Commission........................................ 10
Committee......................................... 45
Committee ACORN Options........................... 37
Company........................................... 1
Company Assumed Liabilities....................... 19
Company Board..................................... 8
Company Common Stock.............................. 1
Company Group..................................... 19
Company Preferred Stock........................... 18
Company Right..................................... 54
Covered Employees................................. 51
Data Services..................................... 18
Delaware Statute.................................. 57
Demand Credit Facility............................ 30
Disqualifying Disposition......................... 50
Distribution...................................... 1
Distribution Agent................................ 18
Distribution Agreement............................ 1
Distribution Record Date.......................... 1
DTS............................................... 16
</TABLE>
61
<PAGE>
<TABLE>
<S> <C>
Effective Time.................................... 3
Exchange Act...................................... 13
Excluded Assets................................... 19
FCC............................................... 10
GCI............................................... 13
Grupo............................................. 14
Grupo Documents................................... 14
Incentive Units................................... 45
Indemnified Persons............................... 21
ISOs.............................................. 45
Liberty........................................... 1
Loss.............................................. 21
Merged Subsidiaries............................... 19
Merger............................................ 1
Merger Agreement.................................. 1
Ministry.......................................... 14
Mobilcom.......................................... 14
Newco Cellular.................................... 18
Nextel............................................ 15
NNM............................................... 1
Nonqualified Options.............................. 45
NQSO's............................................ 45
OCI............................................... 15
OFS............................................... 16
Omnipoint......................................... 15
Option Price...................................... 46
Options........................................... 45
Ownership Limitation.............................. 54
PCS............................................... 15
Performance Based Compensation.................... 51
Pittsburgh........................................ 18
Portatel.......................................... 14
Portfolio Securities.............................. 7
Proxy Statement-Prospectus........................ 1
Purchase Price.................................... 54
Purchaser......................................... 1
RadioMovil........................................ 14
Radiophone........................................ 14
Registration Statement............................ 60
Restated Certificate.............................. 5
Restricted Stock.................................. 45
Retained Company Assumed Liabilities.............. 19
Retained Company Group............................ 19
Rights Agreement.................................. 54
Rochester......................................... 18
Roll-Over......................................... 36
Roll-Over Options................................. 36
Roll-Over Shares.................................. 37
Roll-Over Shares Cap.............................. 37
Salomon Brothers.................................. 37
SARs.............................................. 45
SBC............................................... 1
Securities Act.................................... 24
Series A Preferred Stock.......................... 53
</TABLE>
62
<PAGE>
<TABLE>
<S> <C>
Service........................................... 23
Severance Payments................................ 52
SMR............................................... 14
Spread Value...................................... 37
Stock Acquisition Date............................ 54
Tax Disaffiliation Agreement...................... 12
TCI............................................... 1
TCI Merger Agreement.............................. 13
Time of Distribution.............................. 4
Transferred Subsidiaries.......................... 18
True-Up Payment................................... 20
Unit.............................................. 54
Wasserstein....................................... 37
WOMP.............................................. 16
WRKY.............................................. 16
WSTV.............................................. 16
1933 Act.......................................... 51
1940 Act.......................................... 10
1988 Plan......................................... 35
1989 Plan......................................... 35
1994 Plan......................................... 45
</TABLE>
63
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors........................................ F-2
Audited Combined Financial Statements
Combined Balance Sheets--December 31, 1993 and 1992................... F-4
Combined Statements of Operations--Years ended December 31, 1993, 1992
and 1991............................................................ F-5
Combined Statements of Stockholder's Equity--Years ended December 31,
1993, 1992, and 1991................................................ F-6
Combined Statements of Cash Flows--Years ended December 31, 1993, 1992
and 1991............................................................ F-7
Notes to Combined Financial Statements................................ F-8
The following combined financial statement schedules of Associated
Communications of Delaware, Inc. and subsidiaries are included:
Schedule II--Amounts Receivable from Related Parties and
Underwriters, Promoters, and Employees Other than Related
Parties......................................................... F-17
Schedule IV--Indebtedness of and to Related Parties--Not
Current......................................................... F-18
Schedule V--Property, Plant, and Equipment....................... F-19
Schedule VI--Accumulated Depreciation, Depletion, and
Amortization of Property, Plant, and Equipment.................. F-20
Schedule VIII--Valuation and Qualifying Accounts................. F-21
Schedule IX--Short-Term Borrowings............................... F-22
Schedule X--Supplementary Income Statement Information........... F-23
Audited Consolidated Financial Statements and Schedules of Grupo
Portatel, S.A. de C.V. December 31, 1993, 1992 and 1991............. F-24
Interim Combined Financial Statements
Combined Balance Sheet--March 31, 1994 (Unaudited).................... F-45
Combined Statements of Operations--Three Months ended March 31, 1994
and 1993 (Unaudited)................................................ F-46
Combined Statements of Cash Flows--Three Months ended March 31, 1994
and 1993 (Unaudited)................................................ F-47
Notes to Interim Combined Financial Statements (Unaudited)............ F-48
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Directors
Associated Communications Corporation
We have audited the accompanying combined balance sheets of Associated
Communications of Delaware, Inc. and subsidiaries as of December 31, 1993 and
1992, and the related combined statements of operations, stockholder's equity,
and cash flows for each of the three years in the period ended December 31,
1993. Our audits also included the financial statement schedules listed in the
Index to the Combined Financial Statements. These financial statements and
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedules based on
our audits. We did not audit the financial statements of Grupo Portatel, S.A. de
C.V. (Portatel), a corporate joint venture accounted for on the equity method.
The Company's investment in and equity in Portatel was $2,650,000 at December
31, 1993 and $244,000 at December 31, 1992. The Company's equity in Portatel's
net loss was $874,000 in 1993, $1,214,000 in 1992, and $1,427,000 in 1991. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for Portatel, is
based solely upon the report 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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based upon our audits and the report of other auditors, the
combined financial statements referred to above present fairly, in all material
respects, the combined financial position of Associated Communications of
Delaware, Inc. and subsidiaries at December 31, 1993 and 1992, and the combined
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1993, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedules, when considered in relation to the financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
As discussed in Note 2 to the combined financial statements, the Company
has changed its methods of accounting for income taxes and marketable equity
securities.
ERNST & YOUNG
Pittsburgh, Pennsylvania
February 25, 1994
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Grupo Portatel, S.A. de C.V.:
We have audited the accompanying consolidated balance sheets of Grupo Portatel,
S.A. de C.V. and Subsidiaries as of December 31, 1993 and 1992 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each year in the three-year period ended December 31, 1993. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedules. These consolidated financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing standards
in Mexico which are substantially the same as those followed in the United
States. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Grupo Portatel, S.A.
de C.V. and Subsidiaries as of December 31, 1993 and 1992, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1993, in conformity with generally accepted accounting
principles. Also in our opinion, the related consolidated financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
As discussed in notes 2 and 11 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993 to adopt the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109.
As discussed in note 12, the Company has contingencies with the Mexican Ministry
of Communications and Transportation, the Mexican tax authorities and Telefonos
de Mexico over certain fees, withholding taxes and long distance charges,
respectively, totalling approximately $2,500,000. The ultimate outcome of these
uncertainties cannot be presently determined. Accordingly, no provision for any
additional liability that may result upon resolution of these matters has been
recognized in the accompanying consolidated financial statements.
KPMG CARDENAS DOSAL, S.C.
HECTOR ARTURO RAMIREZ
Mexico, D.F.
February 11, 1994
F-3
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1993 1992
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (approximates fair
value)....................................... $ 87 $ 89
Accounts receivable, less allowance for doubtful
accounts (1993--$263,000; 1992--$256,000).... 1,514 587
Due from Associated Business to be Merged....... -- 42,697
Notes receivable from foreign affiliate......... 369 2,057
Inventory held for resale....................... 1,706 2,527
Prepaid expenses and other assets............... 771 570
Deferred income taxes........................... 878 973
----------- -----------
Total current assets.............................. 5,325 49,500
Property, plant, and equipment--net of accumulated
depreciation and amortization................... 5,146 5,604
Marketable equity securities--(1993 at market
value, cost--$6,997,000;
1992 at cost, market value--$395,535,000)....... 624,721 6,924
Notes receivable from foreign affiliates.......... 6,718 1,792
Investment in unconsolidated cellular telephone
joint venture................................... 2,650 244
Investment in specialized mobile radio system, at
cost............................................ 7,977 --
Minority share of deficiency in assets............ 48 165
Deferred income taxes............................. -- 639
Other noncurrent assets........................... 745 533
----------- -----------
Total assets...................................... $ 653,330 $ 65,401
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable................................ $ 887 $ 652
Employee compensation........................... 269 270
Other accrued expenses.......................... 97 114
Deferred revenue................................ 173 205
Short-term obligations.......................... -- 5,550
----------- -----------
Total current liabilities......................... 1,426 6,791
Long-term obligation.............................. 1,270 1,008
Excess of net assets acquired over cost........... -- 158
Deferred income taxes............................. 214,613 --
Commitments and contingencies..................... -- --
Stockholder's equity:
Common stock, par value $1.00 per share; 1,000
shares authorized, issued and outstanding.... 1 1
Unrealized gain on marketable equity securities,
net of taxes................................. 401,521 --
Retained earnings............................... 34,499 57,443
----------- -----------
Total stockholder's equity........................ 436,021 57,444
----------- -----------
Total liabilities and stockholder's equity........ $ 653,330 $ 65,401
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1992 1991
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Microwave communication services............. $ 3,206 $ 3,212 $ 2,660
Radio broadcasting........................... 1,980 1,202 1,223
Art gallery sales............................ 889 1,136 1,510
--------- -------- --------
6,075 5,550 5,393
Cost and expenses:
Cost of microwave communication services..... 1,016 937 1,025
Cost of art gallery sales.................... 1,298 932 967
Operating expenses........................... 1,051 724 705
General and administrative expenses.......... 5,700 4,735 3,943
Depreciation and amortization expense........ 1,295 1,278 936
--------- -------- --------
10,360 8,606 7,576
--------- -------- --------
Operating loss................................. (4,285) (3,056) (2,183)
Other income (expense):
Gain on sale of marketable equity
securities................................ -- -- 22
Interest and dividend income................. 667 225 619
Interest income from affiliate............... 2,680 2,377 487
Interest expense............................. (278) (155) (123)
Equity in loss of unconsolidated cellular
telephone joint venture................... (1,239) (1,214) (1,427)
Minority interest............................ 146 254 209
--------- -------- --------
1,976 1,487 (213)
--------- -------- --------
Loss before income taxes and cumulative effect
of accounting change for income taxes........ (2,309) (1,569) (2,396)
Income taxes (benefit)......................... (338) (1,612) --
--------- -------- --------
(Loss) income before cumulative effect of
accounting change for income taxes........... (1,971) 43 (2,396)
Cumulative effect of accounting change for
income taxes................................. 883 -- --
--------- -------- --------
Net (loss) income.............................. $ (1,088) $ 43 $ (2,396)
--------- -------- --------
--------- -------- --------
</TABLE>
See accompanying notes.
F-5
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
<TABLE>
<CAPTION>
COMMON STOCK UNREALIZED TOTAL
-------------- GAINS AND RETAINED STOCKHOLDER'S
SHARES AMOUNT (LOSSES) EARNINGS EQUITY
------ ------ --------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1991... 1,000 $ 1 $ -- $ 59,796 $ 59,797
Net loss................. -- -- -- (2,396) (2,396)
------ -- --------- -------- -------------
Balance, December 31,
1991..................... 1,000 1 -- 57,400 57,401
Net income............... -- -- -- 43 43
------ -- --------- -------- -------------
Balance, December 31,
1992..................... 1,000 1 -- 57,443 57,444
Net loss................. -- -- -- (1,088) (1,088)
Net settlement of
intercompany accounts
with Associated
Business to be
Merged................ -- -- -- (21,856) (21,856)
Cumulative effect of
accounting change for
marketable equity
securities, net of
income taxes of
$216,203.............. -- 401,521 -- 401,521
------ -- --------- -------- -------------
Balance, December 31,
1993..................... 1,000 $ 1 $ 401,521 $ 34,499 $ 436,021
------ -- --------- -------- -------------
------ -- --------- -------- -------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income............................ $ (1,088) $ 43 $ (2,396)
Adjustments to reconcile net (loss) income to
net cash provided by
(used in) operating activities:
Depreciation and amortization........... 1,295 1,278 936
Loss (gain) on disposal of property,
plant, and equipment.................. -- 2 (9)
Provision for losses on accounts
receivable............................ 71 30 34
Equity in loss of unconsolidated
cellular telephone joint venture...... 1,239 1,214 1,427
Gain on sale of marketable equity
securities............................ -- -- (22)
Minority share of deficiency in
assets................................ (146) (254) (209)
Cumulative effect of accounting change
for income taxes...................... (883) -- --
Provision for deferred income taxes..... (338) (1,612) --
Change in assets and liabilities:
Accounts receivable................... (869) 682 (80)
Inventory held for resale............. 821 443 164
Prepaid expenses and other assets..... (201) (108) (220)
Accounts payable...................... 217 (223) 119
Employee compensation................. (1) (715) (84)
Other accrued expenses................ (17) 21 1
Deferred revenue...................... (32) 167 (3)
-------- -------- --------
Net cash provided by (used in) operating
activities................................. 68 968 (342)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for acquisition.................... (575) -- --
Purchases of property, plant, and
equipment.................................. (541) (1,457) (2,956)
Dispositions of property, plant, and
equipment.................................. 11 38 51
Purchase of marketable equity securities..... (73) -- (69)
Proceeds from sale of marketable equity
securities................................. -- -- 22
Repayments of notes receivable from foreign
affiliates................................. 2,613 1,772 557
Increase in notes receivable from foreign
affiliates................................. (5,851) (1,346) (1,153)
Investment in unconsolidated cellular
telephone joint venture.................... (3,281) (1,822) --
Investment by minority interest.............. 263 298 --
Investment in specialized mobile radio
system..................................... (7,977) -- --
Decrease (increase) in amount due from
Associated Business to be Merged........... 20,841 (3,488) (3,084)
Other investing activities................... (212) (192) (60)
-------- -------- --------
Net cash provided by (used in) investing
activities................................. 5,218 (6,197) (6,692)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings..................... 15,161 5,793 482
Principal payments on borrowings............. (20,449) (488) (602)
-------- -------- --------
Net cash (used in) provided by financing
activities................................. (5,288) 5,305 (120)
-------- -------- --------
Net (decrease) increase in cash and cash
equivalents................................ (2) 76 (7,154)
Cash and cash equivalents at beginning of
year....................................... 89 13 7,167
-------- -------- --------
Cash and cash equivalents at end of year..... $ 87 $ 89 $ 13
-------- -------- --------
-------- -------- --------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
ACTIVITIES:
Net settlement of intercompany accounts
with Associated Business to be Merged... $ 21,856 -- --
</TABLE>
See accompanying notes.
F-7
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993
1. BASIS OF PRESENTATION
On February 23, 1994, Associated Communications Corporation ('Associated')
entered into an Agreement and Plan of Merger and Reorganization (the 'Merger
Agreement') which provides that the common stock of Associated Communications of
Delaware, Inc. ('ACDI'), a wholly owned subsidiary of Associated, would be spun
off on a pro rata basis to the stockholders of Associated, after giving effect
to a recapitalization of ACDI. After the spin off, Associated would consist of
the parent company and its domestic cellular businesses and interests (the
'Associated Business to be Merged') and would be merged with (the 'Merger') a
wholly owned subsidiary of Southwestern Bell Corporation ('Southwestern'),
pursuant to the Merger Agreement.
The accompanying combined financial statements include the accounts of
ACDI, certain of its subsidiaries, and certain other assets and liabilities of
Associated, all to be transferred to ACDI prior to the spin off. The combined
financial statements include certain Associated corporate expenses allocated to
ACDI. These amounts include allocable salaries, rent, accounting services, legal
services, and administrative expenses. Management believes the corporate expense
allocations were made on a reasonable and consistent basis. ACDI and its
consolidated subsidiaries, along with the other assets and liabilities, are
referred to as the 'Company' in these combined financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The Company includes the accounts of Associated Communications of Delaware,
Inc., its wholly owned subsidiaries, as well as an indirect 30.15% equity
investment in Portatel del Sureste, S.A. de C.V., a cellular telephone system
licensed to provide cellular service in southeastern Mexico and the Yucatan
Peninsula ('Portatel'), and a majority-owned experimental Personal
Communications System partnership (51% ownership). All significant intercompany
accounts and transactions have been eliminated.
CASH EQUIVALENTS
Cash equivalents are recorded at cost and consist of time deposits with
initial maturities of one month or less.
INVENTORY HELD FOR RESALE
Inventory, which consists of art prints, is valued at the lower of cost or
market as determined by the first-in, first-out method. Inventory is reported
net of a market valuation reserve of approximately $1,573,000 and $871,000 at
December 31, 1993 and 1992, respectively.
MARKETABLE EQUITY SECURITIES
As of December 31, 1993, the Company adopted Statement of Financial
Accounting Standards No. 115, 'Accounting for Certain Investments in Debt and
Equity Securities' ('FASB 115'). Under FASB 115, the Company's marketable equity
securities, which are classified as available-for-sale, are reported at fair
value, with unrealized gains and losses excluded from earnings and reported as a
separate component of stockholder's equity. Subsequent changes in the unrealized
gain will be excluded from earnings and will be reported in stockholder's equity
until realized.
F-8
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
INVESTMENT IN UNCONSOLIDATED CELLULAR TELEPHONE JOINT VENTURE
The investment in the unconsolidated cellular telephone joint venture, less
than 51% owned, is accounted for on the equity method.
The equity in loss of the cellular telephone joint venture includes the
effects of foreign currency translation adjustment in accordance with the
provisions of Financial Accounting Standard No. 52, 'Foreign Currency
Translation.' The effect of these transactions to the Company's combined
financial statements is deemed insignificant for separate presentation in the
current reporting periods.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is recorded at cost. Depreciation and
amortization are computed on the straight-line method for financial reporting
and on accelerated methods for tax reporting.
EMPLOYEE SAVINGS PLAN
Associated has a voluntary contributory savings plan (401(k) plan) which
covers the full-time employees of the Company. Savings plan costs are computed
on the basis of a limited percentage of the participants' basic contributions.
The Company funds accrued savings plan costs incurred.
INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, 'Accounting for Income Taxes' ('FASB 109'). Refer
to Note 10 to the combined financial statements for a discussion of the impact
of the adoption of this statement on the Company's financial position.
Under FASB 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted rates and laws that will be in
effect when the differences are expected to reverse. Prior to the adoption of
FASB 109, income tax expense was determined using the deferred method. Deferred
tax expense was based on items of income and expense that were reported in
different years in the financial statements and tax returns and were measured at
the tax rate in effect in the year the difference originated.
3. MARKETABLE EQUITY SECURITIES
The Company has adopted FASB 115 and has recorded the cumulative effect of
this change in accounting principle, $401,521,000, net of the deferred tax
effect, as a component of stockholder's equity at December 31, 1993. In
accordance with FASB 115, prior financial statements have not been restated to
reflect the change in accounting principle. Subsequent changes in the unrealized
gain will be excluded from earnings and will be reported in the special
stockholder's equity classification until realized.
F-9
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993
3. MARKETABLE EQUITY SECURITIES--(CONTINUED)
The cost and market value of each issue of marketable equity securities
classified as available for sale, at December 31, 1993 are as follows:
<TABLE>
<CAPTION>
MARKET VALUE
COST OF EACH OF EACH
NAME OF ISSUER AND NUMBER OF ISSUE IN ISSUE IN
TITLE OF EACH ISSUE SHARES THOUSANDS THOUSANDS
- ---------------------------------------- --------- ------------- ------------
<S> <C> <C> <C>
Tele-Communications, Inc.
Class A Common Stock.................. 12,479,976 $ 5,068 $ 377,519
Tele-Communications, Inc.
Class B Common Stock.................. 3,827,208 1,555 129,168
Liberty Media Corporation
Class B Common Stock.................. 3,327,840 123 108,155
Liberty Media Corporation
Class E 6% Cumulative Redeemable
Exchangeable Junior Preferred
Stock.............................. 41,598 12 3,827
General Communication, Inc.
Class A Common Stock.................. 416,000 12 1,976
General Communication, Inc.
Class B Common Stock.................. 138,668 4 555
Republic Pictures Corporation
Common Stock.......................... 223,998 81 2,829
Other................................... Various 142 692
------------- ------------
$ 6,997 $ 624,721
------------- ------------
------------- ------------
</TABLE>
On October 8, 1993, Liberty Media Corporation ('Liberty') announced that
the Boards of Directors of Tele-Communications Inc. ('TCI') and Liberty had
agreed to the combination of the two companies in a transaction to be structured
as a tax-free exchange of Class A and Class B Common shares of both companies
for like shares of a to-be-formed holding company. TCI shareholders will receive
one share of the new company for each of their shares and Liberty shareholders
will receive 0.975 shares of the new company for each of their shares. The
transaction is subject to both TCI and Liberty shareholder approval in addition
to various regulatory approvals.
In 1993, Spelling Entertainment Group, Inc. ('Spelling') and Republic
Pictures Corporation ('Republic') announced that they had entered into a
definitive agreement relating to the merger of Republic with Spelling. Spelling
will pay $13.00 in cash for each share of Republic Common Stock outstanding at
the effective time of the merger. The closing of the merger is subject to
approval by Republic's shareholders and other customary conditions. The
transaction is expected to close in early 1994, and is anticipated to provide
pretax proceeds of approximately $2,900,000 to the Company.
At December 31, 1993, 3,119,994 shares of TCI Class A Common Stock were
pledged by ACDI as additional collateral to lower the effective interest rate on
the senior reducing revolving credit facility of Associated Communications of
Delaware, Inc. II, ('ACDI II'), an indirect wholly owned subsidiary of
Associated Business to be Merged which will be merged with Southwestern. The TCI
stock will be retained by ACDI in the Distribution, and will no longer be
pledged for the senior reducing revolving credit facility.
On February 25, 1994, the aggregate market value of marketable equity
securities held by the Company was approximately $494,120,000.
F-10
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993
4. INVESTMENT IN UNCONSOLIDATED CELLULAR TELEPHONE JOINT VENTURE
On July 14, 1990, the Ministry of Communications and Transportation of the
Republic of Mexico awarded a 20-year cellular license to Portatel, a Mexican
corporation in which Associated Communications of Mexico, Inc. ('ACM'), a wholly
owned subsidiary of the Company, currently has an indirect 30.15% interest. The
license covers Region 8 of the nine regions into which the Ministry divided the
country and awarded one license per region for the 'A' band (nonwireline)
service. Region 8, located in southeastern Mexico, is comprised of the Mexican
States of Quintana Roo, Yucatan, Campeche, Tabasco and Chiapas, and includes the
cities of Cancun, Cozumel, Tuxtla Gutierrez, Merida and Villahermosa. Summary
financial information, in thousands, of Portatel for the years ended December
31, 1993, 1992 and 1991 is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Current assets.......................... $ 12,219 $ 7,398 $ 3,970
Noncurrent assets....................... 32,693 28,769 29,831
Current liabilities..................... 14,144 6,601 4,971
Noncurrent liabilities.................. 24,814 31,783 29,892
Revenues................................ 26,786 20,012 7,569
Expenses................................ 29,435 23,975 13,732
Net loss................................ (2,649) (3,963) (6,163)
</TABLE>
In 1992, the Company acquired stock representing an additional 6.15%
interest (providing an aggregate 30.15% ownership) in Portatel. The excess of
the acquisition price over the net equity acquired of $724,000 is being
amortized over ten years and is recorded net of accumulated amortization at
December 31, 1993 and 1992 of approximately $121,000 and $24,000, respectively.
The Company's share of the undistributed net deficit of Portatel is
approximately $3,809,000 and $2,716,000 at December 31, 1993 and 1992,
respectively.
Portatel is obligated to pay the Mexican government 6% of certain adjusted
service revenues derived from operations. Through ACM, the Company has paid
$5,725,000 for stock in the holding company of Portatel and could be assessed
with additional payments for such stock of up to $4,004,000 at December 31,
1993, if so directed by the Board of Directors of Portatel.
ACM has also loaned approximately $6,718,000 to other Portatel holding
company shareholders used for their purchase of stock which is secured by said
stock. Interest accrues on certain of these notes at prime plus 2%. The carrying
value of these loans approximates fair value.
One other United States shareholder participates in Portatel. Under the
license terms and Mexican regulations, total foreign ownership of a Mexican
cellular venture may not exceed 49%. The Mexican partners presently have a 51%
interest and voting control while the United States shareholders have a veto
right on votes relating to significant corporate actions of Portatel.
The Company made certain agreements in connection with its purchase of
stock of Portatel to loan or arrange for loans to Portatel for construction and
operation of its cellular systems. As of December 31, 1993 and 1992, Portatel
had approximately $369,000 and $2,057,000, respectively, outstanding in loans
for working capital purposes payable to ACM at the prime rate plus 2%. The
principal of such working capital loan was repaid to ACM during the fourth
quarter of 1993. The balance outstanding at December 31, 1993 represents accrued
interest due on such loans which is scheduled to be repaid in 1994.
On April 18, 1991, Portatel secured financing of up to $58,000,000 covering
cellular infrastructure equipment purchased by Portatel from Motorola, Inc., and
working capital and local cost financing. The financing is funded by affiliates
of Citibank, N.A. and the Banco de Comercio Exterior de Mexico and is guaranteed
by Motorola. On December 31, 1993, approximately $21,437,000 was available under
such financing.
F-11
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993
5. MINORITY SHARE OF DEFICIENCY IN ASSETS
The minority share of deficiency in assets represents a receivable from the
minority partner of the Personal Communications System partnership, and
represents allocable cumulative losses of the partnership in excess of the
minority partner's capital contributions. Such amount is recoverable through
capital calls from the minority partner. In accordance with the partnership
agreement, if a partner fails to meet a capital call, part or all of the
partner's interest could be required to be sold to the remaining partner at book
value. Included in accounts receivable is approximately $383,000 and $98,000 for
capital calls due from the minority partner at December 31, 1993 and 1992,
respectively.
6. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment, in thousands, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
------------------ USEFUL
1993 1992 LIFE--YEARS
-------- -------- ----------
<S> <C> <C> <C>
Land.................................... $ 100 $ --
Buildings and improvements.............. 1,268 1,165 10
Leasehold improvements.................. 497 497 7-10
Operating equipment..................... 7,487 6,926 3-10
Office furniture and equipment.......... 1,156 850 3-10
Construction in progress................ 111 210
-------- --------
10,619 9,648
Less accumulated depreciation and
amortization.......................... (5,473) (4,044)
-------- --------
$ 5,146 $ 5,604
-------- --------
-------- --------
</TABLE>
7. SHORT-TERM OBLIGATIONS
In April 1993, ACDI renewed its demand credit facility which provides for
borrowings of up to $25,000,000 for a one-year period ending April 23, 1994.
Borrowings under the facility bear interest at either the Euro-Rate plus 1.25%
or the prime rate, as selected by the borrower. As of December 31, 1993, there
were no borrowings outstanding on such credit facility. The demand credit
facility is secured by 2,079,996 shares of TCI Class A Common Stock. It is
anticipated by management that such facility will be continued for another
one-year term.
The Company has margin loan facilities with two brokerage firms pledging in
the aggregate 1,039,998 shares of TCI Class A Common Stock as collateral for
such facilities. The Company can borrow up to 50% of the market value of the
securities. As of February 25, 1994, the market value of the pledged securities
was approximately $25,090,000, providing the Company with an available credit
line of approximately $12,545,000. The interest rate on the margin loan
facilities was approximately 6.0% on December 31, 1993. There were no borrowings
outstanding under these agreements at December 31, 1993.
Interest paid amounted to approximately $276,000, $155,000, and $137,000 in
1993, 1992, and 1991, respectively.
8. LONG-TERM OBLIGATION
Certain officers of the Company serve under employment agreements that
provide for deferred compensation. The agreements provide for the payment for
ten years to the officers' beneficiary of one-half of the officers' base salary
upon termination due to disability or death. The Company accrues the present
value of the estimated payments due over the expected service period of the
employee.
F-12
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993
9. LEASES
The Company leases facilities for its art gallery, broadcasting operations,
certain corporate offices, microwave and other communications facilities and
transmitter sites under operating lease agreements. Total rent expense was
approximately $1,609,000, $1,503,000, and $1,366,000 in 1993, 1992, and 1991,
respectively.
Approximate future minimum lease payments, in thousands, by year and in the
aggregate, are as follows at December 31, 1993:
<TABLE>
<S> <C>
1994.............................................. $ 705
1995.............................................. 446
1996.............................................. 80
1997.............................................. 45
1998 and thereafter............................... 385
------
$1,661
------
------
</TABLE>
10. INCOME TAXES
Associated and its subsidiaries file income tax returns as a consolidated
group. Income taxes presented in these financial statements represent the
portion of consolidated income taxes that are attributable to the taxable
income, alternative minimum tax preferential items, and book and tax bases
differences of the companies included in these combined statements. Such amounts
do not represent the taxes which would be recorded if the Company filed income
tax returns as an independent entity. Had the tax provision been calculated as
though separate income tax returns were filed, the pro forma income tax benefit
and the pro forma net loss for the years ended December 31, 1993, 1992 and 1991,
in thousands, would have been as follows (in thousands).
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ --------
<S> <C> <C> <C>
Proforma income tax (benefit)..................... $ (848) $ (98) $ (853)
Proforma net (loss)............................... $ (578) $(1,471) $ (1,543)
</TABLE>
Effective January 1, 1993, the Company adopted FASB 109. Under FASB 109,
deferred taxes are recognized using the liability method, whereby tax rates are
applied to cumulative temporary differences based on when and how they are
expected to affect the Company's future tax returns. As permitted under the new
rules, prior year's financial statements have not been restated. The cumulative
prior years' effect of this change increased net income by approximately
$883,000, including the effect of adoption on Portatel. There was no effect of
the adoption of FASB 109 on the loss before income taxes and cumulative effect
of accounting changes for income taxes.
The tax effects of temporary differences that give rise to the net deferred
tax (liability) asset, in thousands, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1993 1993
------------ ------------
<S> <C> <C>
Deferred tax liability:
Unrealized appreciation of marketable equity
securities................................... $ 216,203 $ --
Deferred tax assets:
Equity in loss of cellular telephone joint
venture...................................... 1,171 923
Inventory reserves.............................. 792 886
Other........................................... 505 322
------------ ------------
Total deferred tax assets......................... 2,468 2,131
------------ ------------
Net deferred tax (liability) asset................ $ (213,735 ) $ 2,131
------------ ------------
------------ ------------
</TABLE>
F-13
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993
10. INCOME TAXES--(CONTINUED)
Income taxes (benefit) for the three years ended December 31, 1993, in
thousands, consist of the following:
<TABLE>
<CAPTION>
LIABILITY DEFERRED
METHOD METHOD
---------- --------------
1993 1992 1991
---------- -------- ----
<S> <C> <C> <C>
Federal:
Current......................................... $ -- $ -- $ --
Deferred........................................ (338 ) (1,612) --
---------- -------- ----
$ (338 ) $ (1,612) $ --
---------- -------- ----
---------- -------- ----
</TABLE>
A reconciliation between income taxes computed using the statutory federal
income tax rate and the effective rate, in thousands, is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------ -------- ------
<S> <C> <C> <C>
Federal income tax (credit) at statutory rate
(34%)........................................... $(785 ) $ (533) $ (815)
Dividend exclusion................................ (58 ) -- --
Equity in loss of foreign cellular joint
venture......................................... -- 382 --
Effect of income tax allocation................... 347 (1,537) (324)
Tax effect of net operating loss.................. 135 24 1,124
Other............................................. 23 52 15
------ -------- ------
Total............................................. $(338 ) $ (1,612) $ --
------ -------- ------
------ -------- ------
</TABLE>
11. STOCK OPTIONS
Associated Communications Resources, Inc., a wholly owned subsidiary of the
Company, sponsors a stock option plan ('Acorn Plan'). Under the Acorn Plan,
200,000 shares were authorized for grant. Options generally become exercisable
over the four years following the date of grant, while certain of the options
become exercisable one year after the grant date. All options expire ten years
after the date of grant. Options outstanding are exercisable at $2.50 per share,
the fair market value on the grant date as determined by the Stock Option Plan
Committee.
Activity of the Acorn Plan is summarized below:
<TABLE>
<CAPTION>
1993 1992 1991
NUMBER NUMBER NUMBER
OF OF OF
OPTIONS OPTIONS OPTIONS
-------- -------- --------
<S> <C> <C> <C>
Options outstanding, beginning of year....... 183,500 181,000 120,000
Options granted.............................. 1,000 3,500 61,000
Options exercised............................ -- -- --
Options canceled and returned................ -- (1,000 ) --
-------- -------- --------
Options outstanding, end of year............. 184,500 183,500 181,000
-------- -------- --------
-------- -------- --------
</TABLE>
At December 31, 1993, 144,600 options were exercisable, 39,900 were
exercisable subject to vesting and 15,500 options were available for grant.
12. EMPLOYEE BENEFITS
The Company's contributions to the Associated 401(k) plan amounted to
approximately $93,000, $73,000 and $41,000 in 1993, 1992, and 1991,
respectively.
F-14
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993
13. SEGMENT INFORMATION
In addition to the development of exploratory communication licenses, the
Company operates principally in three industry segments; microwave communication
services, retail art in New York, New York, and radio broadcasting in Ohio.
Information concerning the Company's operations in the different industry
segments, in thousands, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Microwave communication services........... $ 3,206 $ 3,212 $ 2,660
Radio broadcasting......................... 1,980 1,202 1,223
Art gallery................................ 889 1,136 1,510
-------- -------- --------
Total revenues............................... 6,075 5,550 5,393
Operating (loss) income:
Microwave communication services........... 305 418 (135)
Radio broadcasting......................... (40) (190) (67)
Art gallery................................ (1,433) (949) (693)
Other...................................... (1,325) (930) (141)
Corporate expense allocation............... (1,792) (1,405) (1,147)
-------- -------- --------
Operating loss............................... (4,285) (3,056) (2,183)
Other income (expense)....................... 1,976 1,487 (213)
-------- -------- --------
Loss before income taxes and cumulative
effect of accounting change for income
taxes...................................... $ (2,309) $ (1,569) $ (2,396)
-------- -------- --------
-------- -------- --------
Identifiable assets:
Microwave communication services........... $ 2,539 $ 3,443 $ 4,328
Radio broadcasting......................... 1,127 428 406
Art gallery................................ 1,885 2,626 3,323
Other...................................... 19,092 4,811 5,305
Corporate.................................. 628,687 54,093 47,598
-------- -------- --------
Total assets................................. $653,330 $ 65,401 $ 60,960
-------- -------- --------
-------- -------- --------
Depreciation and amortization:
Microwave communication services........... $ 1,033 $ 1,113 $ 858
Radio broadcasting......................... 79 47 46
Art gallery................................ 14 14 16
Other...................................... 96 94 70
Corporate.................................. 73 10 (54)
-------- -------- --------
$ 1,295 $ 1,278 $ 936
-------- -------- --------
-------- -------- --------
Capital expenditures:
Microwave communication services........... $ 150 $ 269 $ 2,358
Radio broadcasting......................... 71 18 78
Art gallery................................ 5 3 7
Other...................................... 17 23 32
Corporate.................................. 298 1,144 481
-------- -------- --------
$ 541 $ 1,457 $ 2,956
-------- -------- --------
-------- -------- --------
</TABLE>
F-15
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993
13. SEGMENT INFORMATION (CONTINUED)
On January 15, 1993, the Company purchased the assets and was awarded an
assignment of the Federal Communications Commission license of radio
broadcasting stations WOMP-AM/FM located in Bellaire, Ohio, serving the
Wheeling, West Virginia market, for a purchase price of approximately $575,000.
Corporate assets consist principally of marketable equity securities,
deferred income taxes, and amounts due from Associated Business to be Merged.
Other operations include the investments in Portatel and in specialized mobile
radio systems, in addition to other advanced communications ventures.
14. RESEARCH AND DEVELOPMENT
Research and development costs related primarily to Personal Communications
System activities, Specialized Mobile Radio, Digital Termination Services,
Operational Fixed Services, and other communications services amounted to
approximately $1,246,000, $707,000, and $535,000 for the years ended December
31, 1993, 1992, and 1991, respectively.
15. RELATED PARTY TRANSACTIONS
The Company provided technical, administrative, and management services to
the unconsolidated cellular joint venture and to other affiliated organizations.
The Company was reimbursed for these services at rates which approximate cost.
The reimbursement of these costs is used to offset operating and general and
administrative expenses. The total reimbursement for these services on a net
equity basis was approximately $97,000, $157,000, and $447,000 in 1993, 1992,
and 1991, respectively.
Accounts receivable at December 31, 1993 and 1992 include approximately
$366,000 and $60,000, respectively, for balances due from affiliates for
technical, administrative, and management services.
In 1993, all intercompany accounts with the Associated Business to be
Merged were settled.
16. COMMITMENTS AND CONTINGENCIES
The Company is involved in certain lawsuits arising in the ordinary course
of business. In management's opinion, the claims are without merit and
management plans to defend the cases vigorously. The outcome of these matters is
not expected to have a material adverse effect on the Company's financial
position.
F-16
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
<TABLE>
<CAPTION>
COLUMN B
--------- COLUMN D COLUMN E
BALANCE ------------- -------------
COLUMN A AT COLUMN C AMOUNTS BALANCE AT
- --------------------------- BEGINNING --------- COLLECTED END OF PERIOD
NAME OF DEBTOR OF PERIOD ADDITIONS (WRITTEN OFF) CURRENT
- --------------------------- --------- --------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended December 31,
1993:
Notes receivable:
International Wireless
Communications........ $ -- $ 125 $ -- $125(A )
</TABLE>
- ------------------
(A) Due June 1, 1994, with interest at a rate of prime plus 3%.
F-17
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
SCHEDULE IV--INDEBTEDNESS OF AND TO RELATED PARTIES--NOT CURRENT
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------- ---------- -------- ---------- --------
BALANCE
BALANCE AT AT END
BEGINNING --INDEBTEDNESS OF-- OF
NAME OF PERSON/COMPANY OF PERIOD ADDITIONS DEDUCTIONS PERIOD
- ----------------------------------- ---------- -------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended December 31, 1993:
Various shareholders of
Grupo Portatel del Sureste, S.A.
de C.V........................... $ 1,792 $ 5,716 $ 790 $ 6,718
---------- -------- ---------- --------
---------- -------- ---------- --------
Year ended December 31, 1992:
Portatel del Sureste, S.A.
de C.V........................... $ 1,906 $ 151 $ 2,057 (A) $ --
Various shareholders of
Grupo Portatel del Sureste, S.A.
de C.V........................... 2,369 1,195 1,772 1,792
---------- -------- ---------- --------
$ 4,275 $ 1,346 $ 3,829 $ 1,792
---------- -------- ---------- --------
---------- -------- ---------- --------
Year ended December 31, 1991:
Portatel del Sureste, S.A.
de C.V........................... $ 2,251 $ 212 $ 557 $ 1,906
Various shareholders of
Grupo Portatel del Sureste, S.A.
de C.V........................... 1,428 941 -- 2,369
---------- -------- ---------- --------
$ 3,679 $ 1,153 $ 557 $ 4,275
---------- -------- ---------- --------
---------- -------- ---------- --------
</TABLE>
- ------------------
(A) Included in current assets at December 31, 1992
F-18
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
SCHEDULE V--PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
<CAPTION>
COLUMN B COLUMN F
--------- COLUMN E ---------
BALANCE COLUMN C ------------- BALANCE
COLUMN A AT --------- COLUMN D OTHER CHANGES AT
- ------------------------------ BEGINNING ADDITIONS ----------- ADD (DEDUCT) END OF
CLASSIFICATION OF PERIOD AT COST RETIREMENTS DESCRIBE PERIOD
- ------------------------------ --------- --------- ----------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Land........................ $ -- $ -- $ -- $ 100 $ 100
Buildings and
improvements............. 1,165 103 -- -- 1,268
Leasehold improvements...... 497 -- -- -- 497
Equipment................... 7,776 537 35 365 8,643
Construction in progress.... 210 221 320 -- 111
--------- --------- ----------- ------------- ---------
Total......................... $ 9,648 $ 861 $ 355 $ 465 (1) $ 10,619
--------- --------- ----------- ------------- ---------
--------- --------- ----------- ------------- ---------
Year ended December 31, 1992:
Land........................ $ -- $ -- $ -- $ -- $ --
Buildings and
improvements............. 317 848 -- -- 1,165
Leasehold improvements...... 504 40 47 -- 497
Equipment................... 7,482 399 105 -- 7,776
Construction in progress.... 40 170 -- -- 210
--------- --------- ----------- ------------- ---------
Total......................... $ 8,343 $ 1,457 $ 152 $ -- $ 9,648
--------- --------- ----------- ------------- ---------
--------- --------- ----------- ------------- ---------
Year ended December 31, 1991:
Land........................ $ -- $ -- $ -- $ -- $ --
Buildings and
improvements............. 100 217 -- -- 317
Leasehold improvements...... 304 211 11 -- 504
Equipment................... 5,120 2,488 126 -- 7,482
Construction in progress.... -- 40 -- -- 40
--------- --------- ----------- ------------- ---------
Total......................... $ 5,524 $ 2,956 $ 137 $ -- $ 8,343
--------- --------- ----------- ------------- ---------
--------- --------- ----------- ------------- ---------
</TABLE>
- ---------------
(1)--Relates to the acquisition of radio station assets described in Note 13 to
the combined financial statements.
F-19
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION, AND
AMORTIZATION OF PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
<CAPTION>
COLUMN C
COLUMN B ----------- COLUMN E COLUMN F
----------- ADDITIONS --------------- -----------
COLUMN A BALANCE AT CHARGED TO COLUMN D OTHER CHANGES BALANCE AT
- ------------------------------------------------ BEGINNING COSTS AND ----------- ADD (DEDUCT) END OF
CLASSIFICATION OF PERIOD EXPENSES RETIREMENTS DESCRIBE PERIOD
- ------------------------------------------------ ----------- ----------- ----------- --------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Buildings and improvements.................... $ 96 $ 111 $ -- $ -- $ 207
Leasehold improvements........................ 268 45 -- -- 313
Equipment..................................... 3,680 1,297 24 -- 4,953
----------- ----------- ----------- --------------- -----------
Total........................................... $ 4,044 $ 1,453 $ 24 $ -- $ 5,473
----------- ----------- ----------- --------------- -----------
----------- ----------- ----------- --------------- -----------
Year ended December 31, 1992:
Buildings and improvements.................... $ 38 $ 59 $ 1 $ -- $ 96
Leasehold improvements........................ 255 46 33 -- 268
Equipment..................................... 2,429 1,329 78 -- 3,680
----------- ----------- ----------- --------------- -----------
Total........................................... $ 2,722 $ 1,434 $ 112 $ -- $ 4,044
----------- ----------- ----------- --------------- -----------
----------- ----------- ----------- --------------- -----------
Year ended December 31, 1991:
Buildings and improvements.................... $ 29 $ 9 $ -- $ -- $ 38
Leasehold improvements........................ 235 30 10 -- 255
Equipment..................................... 1,461 1,053 85 -- 2,429
----------- ----------- ----------- --------------- -----------
Total........................................... $ 1,725 $ 1,092 $ 95 $ -- $ 2,722
----------- ----------- ----------- --------------- -----------
----------- ----------- ----------- --------------- -----------
</TABLE>
F-20
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN C
----------------------------
COLUMN B ADDITIONS COLUMN E
------------- ---------------------------- -----------
COLUMN A BALANCE AT CHARGED TO CHARGED TO COLUMN D BALANCE AT
- ---------------------------------------------------- BEGINNING COSTS AND OTHER ----------- END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ---------------------------------------------------- ------------- ------------- ------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Deducted from assets:
Allowance for doubtful accounts (deducted from
accounts receivable)......................... $ 256 $ 71 $ -- $ 64(A) $ 263
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
Inventory market valuation reserve (deducted
from inventory).............................. $ 871 $ 702 $ -- $ -- $ 1,573
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
Investment valuation reserve (deducted from
marketable equity securities)................ $ 979 $ -- $ -- $ 518(B) $ 461
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
Year ended December 31, 1992:
Deducted from assets:
Allowance for doubtful accounts (deducted from
accounts receivable)......................... $ 226 $ 30 $ -- $ -- $ 256
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
Inventory market valuation reserve (deducted
from inventory).............................. $ 721 $ 150 $ -- $ -- $ 871
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
Investment valuation reserve (deducted from
other noncurrent assets)..................... $ 979 $ -- $ -- $ -- $ 979
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
Year ended December 31, 1991:
Deducted from assets:
Allowance for doubtful accounts (deducted from
accounts receivable)......................... $ 236 $ 34 $ -- $ 44(A) $ 226
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
Inventory market valuation reserve (deducted
from inventory).............................. $ 721 $ -- $ -- $ -- $ 721
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
Investment valuation reserve (deducted from
other noncurrent assets)..................... $ 979 $ -- $ -- $ -- $ 979
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
</TABLE>
- ------------------
(A)--Accounts written off, net of recoveries.
(B)--Fair value adjustment.
F-21
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
SCHEDULE IX--SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
COLUMN E COLUMN F
COLUMN D ----------- -----------
COLUMN C ----------- AVERAGE WEIGHTED
COLUMN B ----------- MAXIMUM AMOUNT AVERAGE
----------- WEIGHTED AMOUNT OUTSTANDING INTEREST
COLUMN A BALANCE AT AVERAGE OUTSTANDING DURING THE RATE DURING
- ------------------------------------------------- END INTEREST DURING THE PERIOD THE PERIOD
CATEGORY OF AGGREGATE SHORT-TERM BORROWINGS OF PERIOD RATE PERIOD (A) (B)
- ------------------------------------------------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Demand credit facility payable to bank......... $ -- N/A $ 12,550 $ 5,429 5.13%
Margin loans................................... $ -- N/A $ -- $ -- N/A
Year ended December 31, 1992:
Demand credit facility payable to bank......... $ 5,550 4.88% $ 5,550 $ 2,267 4.29%
Margin loans................................... $ -- N/A $ 1,550 $ 458 6.49%
Year ended December 31, 1991:.................... $ -- N/A $ -- $ -- N/A
</TABLE>
- ------------------
N/A--Not Applicable
(A)--Computed by dividing the total of month-end outstanding principal balances
by 12
(B)--Computed by dividing the actual interest expense by average short-term debt
outstanding
F-22
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
COLUMN B
----------------------
CHARGED TO COSTS AND
EXPENSES
----------------------
YEAR ENDED DECEMBER
COLUMN A 31,
- ------------------------------------------ ----------------------
ITEM 1993 1992 1991
- ------------------------------------------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Maintenance and repairs................... $ 126 $ 97 $ 123
Amortization.............................. $(158 ) $(158 ) $(158 )
Taxes, other than payroll and income
taxes................................... N/A N/A N/A
Royalties................................. N/A N/A N/A
Advertising costs......................... $ 120 $ 127 $ 158
</TABLE>
- ------------------
N/A--Less than 1% of revenues
F-23
GRUPO PORTATEL, S.A. DE C.V.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
(With the Independent Auditors' Report Thereon)
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Grupo Portatel, S.A. de C.V.:
We have audited the accompanying consolidated balance sheets of Grupo Portatel,
S.A. de C.V. and Subsidiaries as of December 31, 1993 and 1992 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each year in the three-year period ended December 31, 1993. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedules. These consolidated financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing standards
in Mexico which are substantially the same as those followed in the United
States. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Grupo Portatel, S.A.
de C.V. and Subsidiaries as of December 31, 1993 and 1992, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1993, in conformity with generally accepted accounting
principles. Also in our opinion, the related consolidated financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
As discussed in notes 2 and 11 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993 to adopt the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109.
As discussed in note 12, the Company has contingencies with the Mexican Ministry
of Communications and Transportation, the Mexican tax authorities and Telefonos
de Mexico over certain fees, withholding taxes and long distance charges,
respectively, totalling approximately $2,500,000. The ultimate outcome of these
uncertainties cannot be presently determined. Accordingly, no provision for any
additional liability that may result upon resolution of these matters has been
recognized in the accompanying consolidated financial statements.
KPMG CARDENAS DOSAL, S.C.
HECTOR ARTURO RAMIREZ
Mexico, D.F.
February 11, 1994
F-25
<PAGE>
GRUPO PORTATEL, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
(THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 351 $ 1,664
Accounts receivable, net (note 4)....................... 8,730 4,066
Inventories............................................. 972 557
Deposit................................................. -- 541
Prepaid expenses........................................ 173 457
Income tax recoverable.................................. -- 113
Deferred income taxes (note 11)......................... 1,471 --
Deferred employee profit sharing........................ 522 --
-------- --------
Total current assets...................................... 12,219 7,398
Property, furniture and equipment, net (note 5)........... 27,613 23,208
Preoperating expenses, net (note 6)....................... 2,088 2,388
Concession cost, net (note 7)............................. 2,992 3,173
-------- --------
$ 44,912 $ 36,167
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Note payable to bank.................................... $ 439 $ --
Accounts payable:
Trade................................................ 2,378 1,286
Related parties (note 8)............................. 1,008 2,304
Motorola............................................. 793 770
Mexican Ministry of Communications and
Transportation....................................... 1,145 363
Accrued liabilities..................................... 709 836
Income taxes payable.................................... 2 --
Current portion long-term debt (note 9)................. 7,670 1,042
-------- --------
Total current liabilities................................. 14,144 6,601
Long-term debt, excluding current portion (note 9)........ 24,814 31,783
-------- --------
Total liabilities......................................... 38,958 38,384
-------- --------
Stockholders' equity (deficit):
Capital stock (note 10)................................. 32,180 10,000
Capital stock subscriptions receivable.................. (13,280) (1,920)
Deficit................................................. (12,946) (10,297)
-------- --------
Total stockholders' equity
(deficit)............................................... 5,954 (2,217)
Commitments and contingencies (note 12)
-------- --------
$ 44,912 $ 36,167
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
GRUPO PORTATEL, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Air time and activations...................... $ 17,297 $ 14,037 $ 4,581
Telephone sales, net of discounts............. 3,050 2,809 2,835
Other......................................... 6,439 3,166 153
-------- -------- --------
Total revenue.............................. 26,786 20,012 7,569
-------- -------- --------
Costs and expenses:
Cost of services.............................. 6,809 4,596 1,274
Cost of telephones and equipment sold......... 3,831 2,937 2,744
Operating expenses............................ 13,388 10,338 5,963
Depreciation and amortization................. 3,388 3,017 1,391
-------- -------- --------
27,416 20,888 11,372
-------- -------- --------
Operating loss............................. (630) (876) (3,803)
-------- -------- --------
Other income (expense):
Interest income............................... 287 125 427
Interest expense.............................. (2,721) (3,295) (2,711)
Translation gain (loss)....................... 157 (138) 30
Other, net.................................... (323) 151 4
-------- -------- --------
Other expenses............................. (2,600) (3,157) (2,250)
-------- -------- --------
Loss before income taxes, extraordinary
item and cumulative effect of change in
accounting principle..................... (3,230) (4,033) (6,053)
Income tax expense (note 11).................... (628) (445) (110)
-------- -------- --------
Loss before extraordinary item and cumulative
effect of change in accounting principle...... (3,858) (4,478) (6,163)
Extraordinary item--Benefit from the
amortization of operating loss carry forward
(note 11)..................................... -- 515 --
Cumulative effect on prior years of change in
accounting principle
(note 11)..................................... 1,209 -- --
-------- -------- --------
Net loss................................... $ (2,649) $ (3,963) $ (6,163)
-------- -------- --------
-------- -------- --------
Earnings per common share (note 2):
Loss before extraordinary item and cumulative
effect of change in accounting principle...... $ (0.21) $ (0.41) $ (0.70)
Extraordinary item--Benefit from the
amortization of operating loss carry
forward....................................... -- 0.05 --
Cumulative effect on prior years of change in
accounting principle.......................... 0.07 -- --
-------- -------- --------
Net loss per common share.................. $ (0.14) $ (0.36) $ (0.70)
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
GRUPO PORTATEL, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
CAPITAL STOCK
NUMBER OF CAPITAL STOCK
SHARES ISSUED CAPITAL SUBSCRIPTIONS
AND OUTSTANDING STOCK RECEIVABLE DEFICIT TOTAL
--------------- --------- ------------- -------- -------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1990..................... 14,356,500 $ 10,000 $ (4,900) $ (171) $ 4,929
Payment of Stock Subscriptions Receivable......... -- -- 235 -- 235
Net loss.......................................... -- -- -- (6,163) (6,163)
--------------- --------- ------------- -------- -------
Balances at December 31, 1991..................... 14,356,500 10,000 (4,665) (6,334) (999)
Payment of Stock Subscriptions Receivable......... -- -- 2,745 -- 2,745
Net loss.......................................... -- -- -- (3,963) (3,963)
--------------- --------- ------------- -------- -------
Balances at December 31, 1992..................... 14,356,500 10,000 (1,920) (10,297) (2,217)
Increase in capital stock (note 10)............... 34,294,271 22,180 (22,180) -- --
Payment of Stock Subscriptions Receivable......... -- -- 10,820 -- 10,820
Net loss.......................................... -- -- -- (2,649) (2,649)
--------------- --------- ------------- -------- -------
Balances at December 31, 1993..................... 48,650,771 $ 32,180 $ (13,280) $(12,946) $ 5,954
--------------- --------- ------------- -------- -------
--------------- --------- ------------- -------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
GRUPO PORTATEL, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ $ (2,649) $ (3,963) $ (6,163)
Adjustments to reconcile net loss to cash used
in operating activities:
Cumulative effect on prior years of change in
accounting principle.......................... (1,209) -- --
Deferred income tax........................... (262) (70) 70
Deferred profit sharing....................... (522) -- --
Depreciation.................................. 2,907 2,550 924
Amortization.................................. 481 467 467
Increase in accounts receivable, net.......... (4,664) (2,096) (1,520)
(Increase) decrease in inventories............ (415) 28 (190)
Decrease (increase) in prepaid expenses....... 284 (206) (210)
Increase (decrease) in accounts payable
trade...................................... 1,897 (358) 449
Decrease in accounts payable related
parties....................................... (1,296) (503) (532)
(Decrease) increase in accrued liabilities.... (127) (333) 2,079
Increase (decrease) in income tax payable..... 115 (40) 40
-------- -------- --------
Net cash used in operating activities:..... (5,460) (4,524) (4,586)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................ (7,312) (1,955) (19,307)
Refund received for cellular concession......... -- -- 1,176
Investment in pre-operating costs............... -- -- (315)
-------- -------- --------
Net cash used in investing activities...... (7,312) (1,955) (18,446)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of interim Motorola debt.............. -- -- (7,199)
Repayment of long-term debt..................... (1,041) -- --
Proceeds from Citibank long-term debt........... 700 4,888 25,045
Increase in related party debt.................. -- -- 494
Proceeds from issuance of capital stock......... 10,820 2,745 235
Reduction in Motorola downpayment............... 541 168 2,183
Increase in bank loan........................... 439 -- --
-------- -------- --------
Net cash provided by financing
activities................................. 11,459 7,801 20,758
-------- -------- --------
Net (decrease) increase in cash and cash
equivalents................................... (1,313) 1,322 (2,274)
Cash and cash equivalents at beginning of
year.......................................... 1,664 342 2,616
-------- -------- --------
Cash and cash equivalents at end of year... $ 351 $ 1,664 $ 342
-------- -------- --------
-------- -------- --------
SUPPLEMENTARY DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest paid................................... $ 2,759 $ 3,184 $ 2,156
Income taxes paid............................... 775 52 31
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
GRUPO PORTATEL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF U.S. DOLLARS)
(1) OPERATIONS:
Grupo Portatel, S.A. de C.V. and Subsidiaries (the Group, the Company) is
engaged in the operation of a concession granted by the Mexican Ministry of
Communications and Transportation (SCT) to render cellular telephone services in
the southeast of the Mexican Republic. Additionally, the Group engages in the
retail sales of cellular telephones and related equipment.
Portatel del Sureste, S.A. de C.V., a subsidiary company, was incorporated
on May 18, 1990. Grupo Portatel, S.A. de C.V. was incorporated on October 1,
1990 through the acquisition at that date of the subsidiary's capital stock and
of the other companies mentioned in note 2b.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Group's financial records are maintained in Mexican new pesos (new
pesos, N$) and in accordance with accounting principles generally accepted in
Mexico. The accompanying consolidated financial statements have been prepared
under United States generally accepted accounting principles (U.S. GAAP) and
have been translated to U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52 'Foreign Currency Translation' (FASB 52). The
primary adjustments made to conform the new peso financial statements to U.S.
GAAP are the elimination of the effects of inflation required by the accounting
principles generally accepted in Mexico and the recording of deferred income
taxes.
The significant accounting policies followed in the preparation of the
accompanying consolidated financial statements are described below:
a. Foreign currency translation--For purposes of foreign currency
translation, the Company accounts for such translation in accordance with FASB
52. The Company has utilized the U.S. Dollar as the functional currency from its
inception in 1990. Though the cumulative inflation of the Mexican economy has
dropped below 100% over the last three years, management believes that
utilization of the Dollar as the functional currency best reflects the current
economic and financial results of the Group. The Company has weighed factors
such as the inflationary and political environment, along with the economic
dependency it has had from its stockholders and the source of its cash outflows
and determined that at December 31, 1993 such factors weigh to the utilization
of the U.S. Dollar as the functional currency. The translation from new pesos to
U.S. Dollars is as follows:
(i) Property, furniture and equipment, preoperating expenses,
concession cost and stockholders' equity (deficit) accounts have been
translated at historical exchange rates.
(ii) All other new peso denominated assets and liabilities at December
31, 1993 and 1992 have been translated at the year-end exchange rate of
N$3.107 and N$3.114, respectively. U.S. Dollar denominated transactions and
balances are recorded at their nominal amounts.
(iii) The consolidated statements of operations and cash flows for the
years ended December 31, 1993 and 1992 have been translated at the weighted
average exchange rate in effect during the respective periods, except
telephones and equipment sales and depreciation which have been translated
at historical exchange rates.
(iv) Translation gains and losses are included in the statements of
operations.
b. Basis of consolidation--The consolidated financial statements include
the assets and liabilities of its wholly-owned subsidiary Portatel del Sureste,
S.A. de C.V. and Subsidiaries.
Portatel del Sureste, S.A. de C.V. is the entity that has been granted the
concession to provide cellular services in the southeast of the Mexican
Republic. The subsidiary companies of Portatel del Sureste, S.A. de C.V.
included in the consolidated financial statements are as follows:
F-30
<PAGE>
GRUPO PORTATEL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF U.S. DOLLARS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
Portatel Comercializadora, S.A. de C.V.
Portatel Servicios, S.A. de C.V.
Portatel Bienes Races, S.A. de C.V.
Portatel Corporativa, S.A. de C.V.
All significant inter-company balances and transactions have been
eliminated in consolidation.
c. Inventories--Inventories which consist of cellular telephones and
related equipment, are recorded at the lower of cost or market value. Cost is
determined under the first-in, first-out method for all inventories.
d. Property, furniture and equipment--Property, furniture and equipment is
recorded at historical cost and is depreciated on the straight-line method based
upon the average lives of the respective assets.
e. Cash and cash equivalents--Cash equivalents represent unrestricted
highly liquid investments with a maturity not more than three months. The
investments are recorded at cost, which approximates fair value.
f. Preoperating expenses--Preoperating expenses represent expenses
necessary to establish operations and are amortized on a straight-line basis
over ten years.
g. Concession cost--Concession cost represents payments made to the Mexican
Ministry of Communications and Transportation in order to obtain a twenty-year
concession to operate cellular telephone services in the southeast of the
Mexican Republic. This cost is amortized over a period of twenty years based
upon the term of the concession.
h. Deferred income taxes--Deferred income taxes are recognized in 1992 and
1991 in accordance with APB Opinion 11, for income and expense items that are
reported in different years for financial reporting purposes and for Mexican
income tax purposes, using the rate applicable for the year of calculation.
In February 1992 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, 'Accounting for Income Taxes', (FASB
109) effective for fiscal years beginning after December 15, 1992, which
requires a change from the deferred method of accounting for income taxes of APB
11, to the asset and liability method of accounting for income taxes. Under this
method, deferred income taxes are recognized for the tax consequences of
'temporary differences' by applying enacted statutory tax rates applicable to
future years to differences between the financial statements carrying amounts
and the tax bases of existing assets and liabilities. Under FASB 109, the effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Effective January 1, 1993, the Company adopted FASB 109 and the cumulative
effect of that change in the method of accounting for income taxes amounted to
$1,209.
Mexican tax law provides for an alternative minimum tax (AMT) (assets tax).
When the AMT calculated is greater than the regular income tax, the alternative
tax is paid.
i. Employee Profit Sharing--Mexican Law requires that all corporations make
a payment equal to 10% of a defined amount to its employees. The Company has not
paid any employee profit sharing since its inception.
Deferred employee profit sharing results principally from the provision for
doubtful accounts receivable which is not currently deductible for purposes of
calculating employee profit sharing.
j. Seniority premiums and severance payments--The liability for seniority
premiums to which employees are entitled upon retirement after fifteen years or
more of service, in accordance with the Federal Labor Law, have not been
recognized. Such a liability has been deemed insignificant based on the relative
short average
F-31
<PAGE>
GRUPO PORTATEL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF U.S. DOLLARS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
service life of employees as well as the discounting assumptions allowed in
computing the present value of such benefits.
Any other payments to which employees may be entitled in the event of
separation, disability or death are charged to operations of the year in which
paid.
k. Revenue Recognition--Cellular air time is recorded as revenue as earned.
Sales of equipment and related services are recorded when goods and services are
delivered. Cellular access charges are billed in advanced and recognized as
revenue when the services are provided.
l. Earnings per common share--The computation of loss per common share is
based upon the weighted average number of shares outstanding during the year
reduced by the shares relating to the subscriptions receivable. Such weighted
average shares used to compute net loss per common share were 18,279,564,
10,884,322, and 8,815,470 in 1993, 1992, and 1991 respectively. The weighted
average number of total shares outstanding including the shares relating to the
subscriptions receivable and the related net loss per common share is as
follows:
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average shares outstanding..... 38,221,554 14,356,500 14,356,500
Net loss per common share............... $ (0.07) $ (0.28) $ (0.43)
</TABLE>
(3) FOREIGN CURRENCY EXPOSURE:
The U.S. Dollar assets and liabilities at December 31, 1993 and 1992 which
have been translated into Mexican pesos for inclusion in the local accounting
records are as follows:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Current assets................ $ 294 $ 541
Current liabilities........... (9,789) (3,581)
------- -------
Net current liabilities..... (9,495) (3,040)
Long-term debt.............. (24,814) (31,825)
------- -------
Net liability position...... $(34,309) $(34,865)
------- -------
------- -------
</TABLE>
(4) ACCOUNTS RECEIVABLE, NET:
Accounts receivable at December 31, 1993 and 1992 consist of:
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Accounts receivable--trade.............. $11,572 $ 5,671
Allowance for doubtful accounts......... (5,564) (2,744)
------- -------
6,008 2,927
Recoverable value added tax............. 502 350
Other................................... 2,220 789
------- -------
$ 8,730 $ 4,066
------- -------
------- -------
</TABLE>
The Company reserves for any potential uncollectible trade receivables. The
amount expensed for uncollectible items was $2,820, $2,357 and $387 in 1993,
1992, and 1991, respectively.
F-32
<PAGE>
GRUPO PORTATEL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF U.S. DOLLARS)
(5) PROPERTY, FURNITURE AND EQUIPMENT, NET:
Property, furniture and equipment as of December 31, 1993 and 1992 consist
of the following:
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Land.................................... $ 348 $ 321
Building................................ 1,948 1,808
Operating equipment..................... 25,629 22,655
Transportation equipment................ 460 262
Office furniture and fixtures........... 1,596 854
Construction in progress................ 3,446 520
Leasehold improvements 567 262
------- -------
33,994 26,682
Less accumulated depreciation and
amortization.......................... (6,381) (3,474)
------- -------
$27,613 $23,208
------- -------
------- -------
</TABLE>
(6) PREOPERATING EXPENSES:
Preoperating expenses include costs incurred necessary to establish
operation, such as feasibility studies, technical engineering, external advice,
incorporation expenses and interest expense identified with the portion of the
long-term debt which financed the preoperating costs.
These expenses are being amortized over ten years which is the allowable
period for income tax purposes. Accumulated amortization at December 31, 1993
and 1992 was $882 and $582 respectively.
(7) CONCESSION FROM THE MEXICAN MINISTRY OF COMMUNICATIONS AND TRANSPORTATION
(SCT):
During July 1990 the SCT granted to Portatel del Sureste, S.A. de C.V. the
concession rights to operate cellular telephone services in the southeast of the
Mexican Republic for a period of twenty years, which may be extended. The
original cost of the concession was $4,701 and amortization over the life of the
concession, began in 1991. During 1991, SCT notified the Company that Telefonos
de Mexico would also be granted the right to provide cellular services in the
southeast region of the Mexican Republic. As this diminishes the value of the
concession, the Company sought and obtained a reduction of the concession cost
in the amount of $1,176. Accumulated amortization at December 31, 1993 and 1992
totals $533 and $352, respectively.
The concession also provides for an annual fee to the SCT equal to 6% of
revenues. At December 31, 1993, and 1992, $1,145 and $363, respectively was
recorded as a liability for fees in connection with the concession. Included in
cost of services are charges of $1,302, $414 and $249 for 1993, 1992, and 1991,
respectively, relating to the annual fees to the SCT.
(8) TRANSACTIONS WITH RELATED PARTIES:
Transactions with related parties include charges for engineering and
administrative services. The Company recorded $240, $441, and $611 as
engineering and administrative expenses for 1993, 1992 and 1991, respectively.
F-33
<PAGE>
GRUPO PORTATEL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF U.S. DOLLARS)
(8) TRANSACTIONS WITH RELATED PARTIES:--(CONTINUED)
Amounts due to related parties as of December 31, 1993 and 1992 consist of
the following:
<TABLE>
<CAPTION>
1993 1992
------ ------
<S> <C> <C>
Associated Technologies, Inc................. $ 366 $ 21
L.C.C........................................ 273 98
Associated Communications of Mexico.......... 369 2,185
------ ------
$1,008 $2,304
------ ------
------ ------
</TABLE>
The amounts due to Associated Technologies, Inc. and Associated
Communications of Mexico are interest bearing at the prime rate plus 2% plus a
gross up factor for the 35% income tax withholding.
(9) LONG-TERM DEBT:
During 1991, the Company entered into various credit agreements (the Credit
Agreements) with Citibank and various related parties collectively referred to
as Citibank, to provide working capital and financing for the purchase and
construction of cellular equipment. The loans are denominated in U.S. Dollars
and are guaranteed by Motorola Inc. The credit is subdivided into various
pieces, referred to as Tranches. The funds provided by each Tranche are
specified as to their use. Each of the three Tranches are described as follows:
Tranche I
Citibank acts as service of loans to be provided by Banco de Comercio
Exterior (Bancomext), a Mexican Bank, up to a maximum amount of $29,072 to be
used to finance up to a maximum of 85% of the purchase value of cellular
equipment purchased from Motorola Inc. and Microwave Networks, Inc. Tranche I
also includes $4,500 of credit to finance certain local installation costs not
to exceed 15% of the value of the related equipment. The loans from Bancomext
bear interest at the LIBOR rate plus 2.5% at December 31, 1993. Interest is
payable on a semiannual basis and the principal amounts are payable in 17
semiannual installments commencing November 15, 1993.
Tranche II
Citibank originally provided credit totalling $5,998 to be used to finance
up to 15% of the purchase value of cellular equipment purchased from Motorola
Inc. and Microwave Networks, Inc. The Company received one initial advance in
the amount of $2,892 during 1990. The remaining credit was available in fixed
amounts at specific dates until December 31, 1992. The unused amount of $3,106
is no longer available. The advances drawn from this line of credit bear
interest at the LIBOR rate plus 6% at December 31, 1993. Interest is payable on
a semiannual basis and the principal amounts are payable in 17 semiannual
installments commencing September 25, 1993.
The initial advance in the amount of $2,892, was remitted directly to
Motorola Inc. as a downpayment to be applied to subsequent purchases. The
downpayment was interest bearing at 6% through April 29, 1991 after which time
there is no provision for interest.
Tranche III
This credit facility provides financing for working capital, customs duties
and interest payments in maximum amounts of $11,489, $5,341 and $1,670,
respectively. The advances drawn from the working capital, customs duties and
interest lines bear interest at the LIBOR rate plus 5.5%, 2.5% and 4%,
respectively. Interest is payable on a semiannual basis. The initial advance in
the amount of $6,270 is due and payable in two installments of $2,307 and $3,963
on November 15, 1994 and November 15, 1995, respectively. The second
F-34
<PAGE>
GRUPO PORTATEL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF U.S. DOLLARS)
(9) LONG-TERM DEBT:--(CONTINUED)
advance in the amount of $2,845 is due and payable on November 15, 1995. All
subsequent advances are due and payable 36 months from the date of issuance.
Should the total of advances drawn to finance the payment of interest exceed the
maximum credit available for interest payments, the credit available for working
capital and customs duties are reduced accordingly by the excess.
Concurrent with the execution of the credit agreements with Citibank, the
Company executed a letter agreement with Motorola, Inc. that in the event that
the Company does not have sufficient funds to pay interest and that further
interest advances are not available, that Motorola, Inc. will provide to or
secure for the Company another credit facility which will provide funds for the
payment of interest.
The amounts outstanding at December 31, 1993 and 1992 and the credit
remaining for each of the Tranches at December 31, 1993 are as follows:
<TABLE>
<CAPTION>
1993
---------------------------------------------
TRANCHE I TRANCHE II TRANCHE III TOTAL
---------- ---------- ------------ -------
<S> <C> <C> <C> <C>
Current........ $ 1,741 $ 340 $ 5,589 $ 7,670
Long-term...... 12,190 2,382 10,242 24,814
---------- ---------- ------------ -------
Total........ $ 13,931 $ 2,722 $ 15,831 $32,484
---------- ---------- ------------ -------
---------- ---------- ------------ -------
<CAPTION>
1992
---------------------------------------------
TRANCHE I TRANCHE II TRANCHE III TOTAL
---------- ---------- ------------ -------
<S> <C> <C> <C> <C>
Current........ $ 872 $ 170 $ 0 $ 1,042
Long-term...... 13,230 2,722 15,831 31,783
---------- ---------- ------------ -------
Total........ $ 14,102 $ 2,892 $ 15,831 $32,825
---------- ---------- ------------ -------
---------- ---------- ------------ -------
<CAPTION>
TRANCHE I TRANCHE II TRANCHE III TOTAL
---------- ---------- ------------ -------
<S> <C> <C> <C> <C>
Credit
available--
December 31,
1993........... $ 18,768 -- $ 2,669 $21,437
---------- ---------- ------------ -------
---------- ---------- ------------ -------
</TABLE>
Principal amounts that will become payable during the following five years
are as follows:
<TABLE>
<S> <C>
1994.......................... $ 7,670
1995.......................... 9,479
1996.......................... 4,927
1997.......................... 2,082
1998.......................... 2,082
Thereafter.................... 6,244
-------
Total......................... 32,484
Less current portion.......... $(7,670)
-------
Total long-term debt........ $24,814
-------
-------
</TABLE>
Based upon the borrowing rates currently available to the Company for bank
loans with similar terms, the book value of long-term debt approximates its fair
value.
Loans are secured by 40% of the stock of Portatel del Sureste, S.A. de C.V.
Certain of the interest payments to Citibank are subject to tax
withholdings equal to 15% of the payments which results in an increase in the
effective interest rate as the payments are grossed up for the tax withholding.
F-35
<PAGE>
GRUPO PORTATEL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF U.S. DOLLARS)
(10) CAPITAL STOCK:
At December 31, 1993, the subscribed capital stock is composed of
48,650,771 common shares with no par value as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------------
1993 1992
---------- ----------
<S> <C> <C> <C>
Class I 2,650,000 Series 'A' shares that may only be
acquired by Mexican nationals, and
2,350,000 Series 'B' shares that are not
restricted as to the nationally of the
party that may acquire them............... 5,000,000 5,000,000
Class II 22,161,894 Series 'A' shares that may only
be acquired by Mexican nationals, and
21,488,877 Series 'B' shares that are not
restricted as to the nationally of the
party that may acquire them............... 43,650,771 9,356,500
---------- ----------
48,650,771 14,356,500
---------- ----------
---------- ----------
</TABLE>
On September 19, 1990 at an Extraordinary General Stockholders' Meeting,
the stockholders resolved to increase the capital stock to $10,000, subscribing
9,356,500 Class II shares, for an equivalent of $8,224. From such increase
$3,324 was paid in 1990, $235 was paid in 1991 and $2,745 was paid in 1992. The
remaining amount of $1,920 was paid in 1993.
On April 22, 1993 in the General Stockholders' Meeting, the stockholders
resolved to increase the capital stock to $32,180, subscribing 34,294,271 Class
II shares. The stockholders paid $8,900 of this capital increase during 1993.
(11) INCOME TAXES:
a. The consolidated financial statements reflect the consolidation of
subsidiaries referred to in note 2b. For income tax filing purposes, however,
each individual Company is subject to income and assets taxes based on each
filing respective tax returns. Accordingly, net operating losses for one
subsidiary may not be used to offset taxable income of other subsidiaries.
Current income taxes are computed taking into consideration the taxable and
deductible effects of inflation, such as depreciation calculated on restated
asset values and the deduction of purchases in place of cost of sales, which
permit the deduction of current cost, and taxable income is increased or reduced
by the effects of inflation on certain monetary assets and liabilities through
the inflationary component.
The assets tax is computed at annual rate of 2% of the average of the
majority of restated assets less certain liabilities, and the tax is paid only
to the extent that it exceeds regular income tax of the period. Any required
payment of assets taxes is refundable against the excess of income taxes over
asset taxes for the following ten years.
b. The provision for income tax benefit on loss before extraordinary item
and cumulative effect of change in accounting principle for the years ended
December 31, 1993, 1992 and 1991 is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Current............. $ 890 $ 515 $ 40
Deferred............ (262) (70) 70
----- ----- -----
Income tax
expense........ $ 628 $ 445 $ 110
----- ----- -----
----- ----- -----
</TABLE>
F-36
<PAGE>
GRUPO PORTATEL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF U.S. DOLLARS)
(11) INCOME TAXES:--(CONTINUED)
A reconciliation of the expected tax benefit computed by applying the
statutory income tax rate to loss before income taxes, extraordinary item and
cumulative effect of change in accounting principle to the actual tax (benefit)
expense for the years ended December 31, 1993, 1992 and 1991 is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Computed 'expected' tax benefit................... (1,123) (1,412) (2,118)
Inflation indexed depreciation for tax purposes
only............................................ (223) (136) (23)
Effect of tax inflation accounting................ 675 1,222 1,464
Non-deductible expenses........................... 112 79 180
Non-recognition of deferred tax benefit........... -- 764 --
Change in statutory tax rate...................... (35) -- --
Non-recognition of subsidiary tax losses.......... -- 137 650
Increase in valuation allowance................... 1,490 -- --
Other net......................................... (268) (209) (43)
-------- -------- --------
Total tax expense............................... $ 628 $ 445 $ 110
-------- -------- --------
-------- -------- --------
</TABLE>
The tax provision for 1992 includes certain timing differences which give
rise to a deferred tax benefit. The full recognition of such benefit would
result in a net deferred tax asset at December 31, 1992. Under principles of APB
11 there is not sufficient basis to assure that such asset will be realized and
accordingly, the deferred tax benefit has only been recognized to the extent of
the deferred tax liability at December 31, 1992.
Portatel del Sureste, S.A. de C.V. realized taxable income for the year
ended December 31, 1993 and 1992. Prior years net operating losses of $1,510 and
$515 were utilized in 1993 and 1992, respectively to offset the liability for
current tax expense. For 1992, such carryforwards have been recorded as an
extraordinary item in the statements of the utilization of operations.
Under FASB 109, income taxes must be accounted for on the asset and
liability method. The cumulative effect of the change in accounting principle
reduced 1993 consolidated net loss by $1,209. There was no effect of the
adoption of FASB 109 on the loss before income taxes, extraordinary items and
cumulative effect of change in accounting principles.
c. The tax effects of temporary differences are as follows:
<TABLE>
<CAPTION>
DECEMBER
31, JANUARY
1993 1, 1993
------- -------
<S> <C> <C>
Deferred tax assets:
Account receivable--principally allowance for
doubtful accounts............................ $1,776 $ 908
Net operating loss carryforwards................ 855 725
Assets tax credit carryforwards................. 890 0
------- -------
Total gross deferred tax assets.............. 3,521 1,633
Less valuation allowance..................... (1,719 ) (229)
------- -------
Net deferred tax assets...................... 1,802 1,404
------- -------
------- -------
Deferred tax liability:
Inventories..................................... (331) (195)
------- -------
Net deferred tax asset....................... $1,471 $1,209
------- -------
------- -------
</TABLE>
F-37
<PAGE>
GRUPO PORTATEL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF U.S. DOLLARS)
(11) INCOME TAXES:--(CONTINUED)
Included in the cumulative effect of change in accounting principle at
January 1, 1993 was a valuation allowance relating to net operating loss
carryforwards of $229. The net change in the valuation allowance for the year
ended December 31, 1993 was an increase of $1,490 relating to net operating
losses generated in 1993, tax indexing of operating loss carryforwards from tax
years 1990 through 1992 and assets tax credit carryforwards. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Based upon the level and trend of historical
taxable income measured by individual subsidiary management believes it is more
likely than not the Company will realize the benefit of these deductible
differences, net of the existing valuation allowances at December 31, 1993.
In accordance with Mexican tax law, net operating loss carryforwards can be
carried forward, as defined, five or ten years to offset future taxable income.
Additionally, such losses can be increased to give effect to inflation during
the period subsequent to the loss year. At December 31, 1993, net operating loss
carryforwards available to offset future taxable income totalled $2,515. Such
losses expire as follows:
<TABLE>
<CAPTION>
1993
------
<S> <C>
1995...... $ 338
1996...... 170
1997...... 281
2003...... 1,726
------
$2,515
------
------
</TABLE>
In addition, the Company has assets tax credit carryforwards of $890
available to reduce future regular income taxes through 2003.
(12) COMMITMENTS AND CONTINGENCIES:
a. As described in note 7, the Company is required to pay an annual fee to
the SCT equal to 6% of gross revenues. The 1993 fee recorded in the consolidated
financial statements is based on requirements as defined in the concession
granted by the SCT. However, for 1991 and 1992, the Company recorded such fees
under a basis different to that interpreted under the terms of the concession.
For 1991 and 1992, a contingency totalling $800 exists representing the
difference between the calculation as originally declared to the SCT and as
interpreted under the requirements of the concession. Subsequent to filing such
declarations, the Company received verbal acceptance from the local branch of
the SCT regarding the methodology employed in the declarations for such years.
Recently, however, the Federal SCT office disapproved with the decision of the
local SCT office. The Company plans further discussions with the SCT in order to
resolve this issue. At this time, however, the Company cannot predict the
ultimate outcome of this matter.
b. The Company as part of providing long distance service to its customers
is charged a long distance fee by Telefonos de Mexico. Such charges for the
months of June and November 1993 are being disputed by the Company. The Company
believes that such charges are exorbitant and thus is disputing the charges.
Telefonos de Mexico charges for the above mentioned months are approximately
$1,900, of which the Company has paid $300 to date and is negotiating with
Telefonos de Mexico to settle the remaining $1,600.
F-38
<PAGE>
GRUPO PORTATEL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF U.S. DOLLARS)
(12) COMMITMENTS AND CONTINGENCIES:--(CONTINUED)
The Company is in the process of negotiating a settlement on the amount in
dispute. At December 31, 1993, the Company had recorded a reserve of $500,
representing an estimate of the final settlement.
c. During 1993 there was a change in fiscal requirements relating to
withholding taxes on foreign interests paid. Companies are required to register
the debt with the fiscal authorities permitting the application of a 15% rate.
The Company did not make the registration mentioned above and thus the
fiscal authorities can require a withholding tax rate of up to 35%. This
represents a contingency of $610 representing additional amounts over the
previous tax declarations made, including indexing and penalties.
d. At December 31, 1993, the total future minimum rental commitments under
noncancelable leases were $185 and such yearly amounts are as follow:
<TABLE>
<S> <C>
1994.......................... $122
1995.......................... 63
----
Total minimum payments
required.................... $185
----
----
</TABLE>
(13) SEGMENT OF BUSINESS AND CREDIT CONCENTRATIONS:
The Company is engaged in one line of business, to render cellular
telephone services exclusively in south east Mexico. No single customer
accounted for more than 5% of the Company's sales in 1993, 1992 and 1991.
(14) PENDING ACCOUNTING PRONOUNCEMENTS:
The Financial Standards Board issued Statements of Financial Accounting
Standard No. 112 'Employers Accounting for Postemployment Benefits' ('FASB
112'), which is effective for fiscal years beginning after December 15, 1993.
FASB 112 requires employers to accrue for postemployment benefits that are
provided to former or inactive employees after employment, but before
retirement. The Company has not made a determination of the effects this
pronouncement will have on their financial results.
F-39
<PAGE>
GRUPO PORTATEL, S.A. DE C.V. AND SUBSIDIARIES
SCHEDULE V--PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
COLUMN
B
------- COLUMN E
BALANCE COLUMN -----------
AT C OTHER COLUMN F
COLUMN A BEGINNING ------- COLUMN D CHANGES ADD -------------
- ----------------------------------- OF ADDITIONS ---------- (DEDUCT) BALANCE AT
CLASSIFICATION PERIOD AT COST RETIREMENT DESCRIBE END OF PERIOD
- ----------------------------------- ------- ------- ---------- ----------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Land............................. $ 321 $ 27 $ 0 $ 0 $ 348
Building......................... 1,808 140 0 0 1,948
Operating equipment.............. 22,655 2,980 6 0 25,629
Construction in progress......... 520 2,926 0 0 3,446
Office furniture and fixtures.... 854 742 0 0 1,596
Other............................ 524 527 24 0 1,027
------- ------- --- ----------- -------------
Total.............................. $26,682 $7,342 $ 30 $ 0 $ 33,994
------- ------- --- ----------- -------------
------- ------- --- ----------- -------------
Year ended December 31, 1992:
Land............................. $ 321 $ 0 $ 0 $ 0 $ 321
Building......................... 1,708 0 0 100 1,808
Operating equipment.............. 19,832 1,164 0 1,659 22,655
Construction in progress......... 1,759 520 0 (1,759) 520
Office furniture and fixtures.... 736 118 0 0 854
Other............................ 371 153 0 0 524
------- ------- --- ----------- -------------
Total.............................. $24,727 $1,955 $ 0 $ 0 $ 26,682
------- ------- --- ----------- -------------
------- ------- --- ----------- -------------
Year ended December 31, 1991:
Land............................. $ 278 $ 43 $ 0 $ 0 $ 321
Building......................... 0 0 0 1,708 1,708
Operating equipment.............. 1,489 2,625 0 15,718 19,832
Construction in progress......... 3,297 15,888 0 (17,426) 1,759
Office furniture and fixtures.... 302 434 0 0 736
Other............................ 54 317 0 0 371
------- ------- --- ----------- -------------
Total.............................. $5,420 $19,307 $ 0 $ 0 $ 24,727
------- ------- --- ----------- -------------
------- ------- --- ----------- -------------
</TABLE>
F-40
<PAGE>
GRUPO PORTATEL, S.A. DE C.V. AND SUBSIDIARIES
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY
AND EQUIPMENT
<TABLE>
<CAPTION>
COLUMN C COLUMN E COLUMN F
COLUMN B ---------- ----------- --------
------------ ADDITIONS OTHER BALANCE
COLUMN A BALANCE AT CHARGED TO COLUMN D CHARGES ADD AT
- ------------------------------ BEGINNING OF COSTS AND ---------- (DEDUCT) END OF
CLASSIFICATION PERIOD EXPENSES RETIREMENT DESCRIBE PERIOD
- ------------------------------ ------------ ---------- ---------- ----------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Building.................... $ 121 $ 91 $ 0 $ 0 $ 212
Operating equipment......... 3,089 2,543 3 0 5,629
Office furniture and
fixtures................. 130 145 10 0 265
Other....................... 134 141 0 0 275
------------ ---------- --- -- --------
Total......................... $ 3,474 $ 2,920 $ 13 $ 0 $ 6,381
------------ ---------- --- -- --------
------------ ---------- --- -- --------
Year ended December 31, 1992:
Building.................... $ 31 $ 90 $ 0 $ 0 $ 121
Operating equipment......... 725 2,364 0 0 3,089
Office furniture and
fixtures................. 104 26 0 0 130
Other....................... 64 70 0 0 134
------------ ---------- --- -- --------
Total......................... $ 924 $ 2,550 $ 0 $ 0 $ 3,474
------------ ---------- --- -- --------
------------ ---------- --- -- --------
Year ended December 31, 1991:
Building.................... $ 0 $ 31 $ 0 $ 0 $ 31
Operating equipment......... 0 725 0 0 725
Office furniture and
fixtures................. 0 104 0 0 104
Other....................... 0 64 0 0 64
------------ ---------- --- -- --------
Total......................... $ 0 $ 924 $ 0 $ 0 $ 924
------------ ---------- --- -- --------
------------ ---------- --- -- --------
</TABLE>
F-41
<PAGE>
GRUPO PORTATEL, S.A. DE C.V. AND SUBSIDIARIES
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN D
COLUMN B COLUMN C -----------
------------- ------------- ADDITIONS COLUMN F
COLUMN A BALANCE AT OTHER CHARGED TO COLUMN E -------------
- ----------------------------------------------- BEGINNING OF CHANGES COST AND ------------- BALANCE AT
CLASSIFICATION PERIOD DESCRIBE (B) EXPENSES DEDUCTIONS END OF PERIOD
- ----------------------------------------------- ------------- ------------- ----------- ------------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Deducted from assets:
Allowance for doubtful accounts
(deducted from accounts receivable).......... $ 2,744 $ -- $ 2,820 $ -- $ 5,564
------------- ------------- ----------- ------------- -------------
------------- ------------- ----------- ------------- -------------
Income taxes-valuation allowance............... -- 229 1,490 -- 1,719
------------- ------------- ----------- ------------- -------------
------------- ------------- ----------- ------------- -------------
Year ended December 31, 1992:
Deducted from assets:
Allowance for doubtful accounts
(deducted from accounts receivable).......... 387 -- 2,357 -- 2,744
------------- ------------- ----------- ------------- -------------
------------- ------------- ----------- ------------- -------------
Income taxes-valuation allowance............... -- -- -- -- --
------------- ------------- ----------- ------------- -------------
------------- ------------- ----------- ------------- -------------
Year ended December 31, 1991:
Deducted from assets:
Allowance for doubtful accounts
(deducted from accounts receivable).......... -- -- 387 -- 387
------------- ------------- ----------- ------------- -------------
------------- ------------- ----------- ------------- -------------
Income taxes-valuation allowance............... -- -- -- -- --
------------- ------------- ----------- ------------- -------------
------------- ------------- ----------- ------------- -------------
</TABLE>
- ---------------
(A) Account written off, net of recoveries.
(B) Relates to the cumulative effect of adopting Statement of Financial
Accounting Standards No. 109 'Accounting for Income Taxes'.
F-42
<PAGE>
GRUPO PORTATEL, S.A. DE C.V. AND SUBSIDIARIES
SCHEDULE IX--SHORT TERM BORROWINGS
<TABLE>
<CAPTION>
COLUMN D COLUMN E COLUMN F
----------- ----------- -------------
COLUMN B COLUMN C MAXIMUM AVERAGE WEIGHTED
------------- ------------- AMOUNT AMOUNT AVERAGE
COLUMN A BALANCE AT WEIGHTED OUTSTANDING OUTSTANDING INTEREST RATE
- ------------------------------------------- END OF AVERAGE DURING THE DURING THE DURING THE
CATEGORY OF AGGREGATE SHORT-TERM BORROWINGS PERIOD INTEREST RATE PERIOD PERIOD PERIOD
- ------------------------------------------- ------------- ------------- ----------- ----------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Note Payable to bank..................... $ 439 11.76% $ 439 $ 439 11.76%
------------- ------------- ----------- ----------- -------------
------------- ------------- ----------- ----------- -------------
Year ended December 31, 1992............... -- N/A -- -- N/A
------------- ------------- ----------- ----------- -------------
------------- ------------- ----------- ----------- -------------
Year ended December 31, 1991............... -- N/A -- -- N/A
------------- ------------- ----------- ----------- -------------
------------- ------------- ----------- ----------- -------------
</TABLE>
- ---------------
N/A--Not Applicable
F-43
<PAGE>
GRUPO PORTATEL, S.A. DE C.V. AND SUBSIDIARIES
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENTS INFORMATION
<TABLE>
<CAPTION>
COLUMN A COLUMN B
- -------------------------------------------------- -----------------------------
YEAR ENDED DECEMBER 31,
CHARGES TO COSTS AND EXPENSES
-----------------------------
1993 1992 1991
------ ------ ------
ITEM (AMOUNTS IN THOUSANDS)
- -------------------------------
<S> <C> <C> <C>
Maintenance and repairs........ $ 541 $ 333 $ --
------ ------ ------
Amortization................... 481 467 467
------ ------ ------
------ ------ ------
Taxes, other than payroll and income taxes:
Gross receipts tax.......................... N/A N/A N/A
------ ------ ------
------ ------ ------
Advertising costs............................. $ 1,034 $ 542 N/A
------ ------ ------
------ ------ ------
</TABLE>
- ---------------
N/A--Less than 1% of revenues
F-44
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
COMBINED BALANCE SHEET (UNAUDITED)
MARCH 31, 1994
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents (approximates fair
value)....................................... $ 39
Accounts receivable, less allowance for doubtful
accounts of $247,000......................... 1,438
Notes receivable from foreign affiliates........ 3,874
Inventory held for resale....................... 1,636
Refundable income taxes......................... 1,000
Prepaid expenses and other assets............... 864
Deferred income taxes........................... 873
---------------
Total current assets.............................. 9,724
Property, plant, and equipment--net of accumulated
depreciation and amortization................... 4,817
Marketable equity securities, at market--cost of
$6,987,000...................................... 442,632
Notes receivable from foreign affiliates.......... 6,896
Investment in unconsolidated cellular telephone
joint venture................................... 2,428
Investment in specialized mobile radio system, at
cost............................................ 7,977
Minority share of deficiency in assets............ 50
Other noncurrent assets........................... 798
---------------
Total assets...................................... $ 475,322
---------------
---------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable................................ $ 773
Due to Associated Business to be Merged......... 697
Employee compensation........................... 346
Other accrued expenses.......................... 249
Deferred revenue................................ 175
Short-term obligations.......................... 4,200
---------------
Total current liabilities....................... 6,440
Long-term obligation.............................. 1,323
Deferred income taxes............................. 150,748
Commitments and contingencies..................... --
Stockholder's equity:
Common stock, par value $1.00 per share;
1,000 shares authorized, issued and
outstanding.................................. 1
Unrealized gain on marketable equity
securities, net of taxes..................... 283,169
Retained earnings............................... 33,641
---------------
Total stockholder's equity........................ 316,811
---------------
Total liabilities and stockholder's equity........ $ 475,322
---------------
---------------
</TABLE>
See accompanying notes.
F-45
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Microwave communication services........... $ 721 $ 816
Radio broadcasting......................... 369 343
Art gallery sales.......................... 154 193
-------- --------
1,244 1,352
Cost and expenses:
Cost of microwave communication services... 251 234
Cost of art gallery sales.................. 133 79
Operating expenses......................... 237 224
General and administrative expenses........ 2,414 1,835
Depreciation and amortization expense...... 353 315
-------- --------
3,388 2,687
-------- --------
Operating loss............................... (2,144) (1,335)
Other income (expense):
Interest and dividend income............... 392 288
Interest income from affiliate............. -- 449
Interest expense........................... (15) (71)
Equity in loss of unconsolidated cellular
telephone joint venture................. (222) (84)
Minority interest.......................... 2 90
-------- --------
157 672
-------- --------
Loss before income taxes and cumulative
effect
of accounting change for income taxes...... (1,987) (663)
Income taxes (benefit)....................... (1,129) (97)
-------- --------
Loss before cumulative effect of accounting
change for income taxes.................... (858) (566)
Cumulative effect of accounting change for
income taxes............................... -- 883
-------- --------
Net (loss) income............................ $(858) $ 317
-------- --------
-------- --------
</TABLE>
See accompanying notes.
F-46
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income............................... $(858) $ 317
Adjustments to reconcile net (loss) income to
net cash used in operating activities:
Depreciation and amortization.............. 353 315
Provision for losses on accounts
receivable............................... 4 26
Equity in loss of unconsolidated cellular
telephone joint venture.................. 222 84
Minority share of deficiency in assets..... (2) (90)
Cumulative effect of accounting change for
income taxes............................. -- (883)
Deferred income tax benefit................ (132) (97)
Change in assets and liabilities:
Accounts receivable...................... 72 (10)
Inventory held for resale................ 70 (34)
Refundable income taxes.................. (1,000) --
Prepaid expenses and other assets........ (93) (70)
Accounts payable......................... (114) 412
Employee compensation.................... 77 48
Other accrued expenses................... 152 (53)
Deferred revenue......................... 2 (28)
-------- --------
Net cash used in operating activities........... (1,247) (63)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for acquisition....................... -- (575)
Purchases of property, plant, and equipment,
net........................................... (24) (135)
Proceeds from marketable equity securities...... 9 --
Repayments of notes receivable from foreign
affiliates.................................... 69 --
Increase in notes receivable from foreign
affiliates.................................... (3,752) (10)
Increase in amount due from Associated Business
to be Merged.................................. -- (2,160)
Other investing activities...................... (53) (53)
-------- --------
Net cash used in investing activities........... (3,751) (2,933)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings........................ 4,253 2,952
Due to Associated Business to be Merged......... 697 --
-------- --------
Net cash provided by financing activities....... 4,950 2,952
-------- --------
Net decrease in cash and cash equivalents....... (48) (44)
Cash and cash equivalents at beginning of
period........................................ 87 89
-------- --------
Cash and cash equivalents at end of period...... $ 39 $ 45
-------- --------
-------- --------
</TABLE>
See accompanying notes.
F-47
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1994
1. INTERIM PRESENTATION
The accompanying unaudited interim combined financial statements for March
31, 1994 and 1993 are presented on a combined basis (see Note 1 to the Combined
Financial Statements of Associated Communications of Delaware, Inc. ('ACDI')
included elsewhere in this Information Statement). The unaudited interim
combined financial statements have been prepared in accordance with generally
accepted accounting principles. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three months ended
March 31, 1994, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1994. These statements should be read
in conjunction with the audited combined financial statements for ACDI for the
year ended December 31, 1993, included elsewhere in this Information Statement.
For the three months ended March 31, 1993, the accompanying interim
combined financial statements include certain Associated corporate expenses
allocated to ACDI. These amounts include allocable salaries, rent, accounting
services, legal services, and administrative expenses. Management believes the
corporate expense allocations were made on a reasonable and consistent basis.
For the three months ended March 31, 1994, in accordance with the Agreement and
Plan of Distribution (the 'Distribution Agreement'), the accompanying interim
combined financial statements include all of the historical corporate expenses
of Associated less an allowable amount of expenses allocable to Associated
Business to be Merged, as defined in the Distribution Agreement.
2. SUMMARIZED FINANCIAL DATA
Summarized income statement information for the cellular telephone joint
venture accounted for on the equity method for the three months ended March 31,
1994 and 1993, is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1994 1993
-------- --------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Net revenues...................................... $7,485 $5,852
Operating income.................................. 757 851
Net loss before cumulative effect of accounting
change for income taxes......................... (636) (114)
Cumulative effect of accounting change for income
taxes........................................... -- 1,209
Net (loss) income................................. (636) 1,095
</TABLE>
3. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest was approximately $7,000 and $66,000 for the three
months ended March 31, 1994 and 1993, respectively. The Company made no federal
and state income tax payments for the three months ended March 31, 1994 and
1993, respectively.
On January 15, 1993, the Company purchased the assets and was awarded an
assignment of the Federal Communications Commission license of radio
broadcasting stations WOMP-AM/FM, located in Bellaire, Ohio, serving the
Wheeling, West Virginia market, for a purchase price of approximately $575,000.
F-48
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
MARCH 31, 1994
4. MARKETABLE EQUITY SECURITIES
Marketable equity securities at March 31, 1994, which are recorded at
market, consist of the following:
<TABLE>
<CAPTION>
MARKET VALUE
OF EACH ISSUE
COST OF EACH AT BALANCE
NAME OF ISSUER AND NUMBER OF ISSUE IN SHEET DATE IN
TITLE OF EACH ISSUE SHARES THOUSANDS THOUSANDS
- ----------------------------------- ---------- ------------ --------------
<S> <C> <C> <C>
Tele-Communications, Inc.
Class A Common Stock............. 12,479,976 $ 5,068 $ 258,960
Tele-Communications, Inc.
Class B Common Stock............. 3,827,208 1,555 94,723
Liberty Media Corporation
Class B Common Stock............. 3,327,840 123 79,868
Liberty Media Corporation
Class E 6% Cumulative Redeemable
Exchangeable
Junior Preferred Stock........... 41,598 12 3,120
General Communication, Inc.
Class A Common Stock............. 416,000 12 1,924
General Communication, Inc.
Class B Common Stock............. 138,668 4 555
Republic Pictures Corporation
Common Stock..................... 223,998 81 2,856
Other.............................. Various 132 626
------------ --------------
$ 6,987 $ 442,632
------------ --------------
------------ --------------
</TABLE>
On April 26, 1994, the stockholders of Republic Pictures Corporation
('Republic') approved the Agreement and Plan of Merger dated as of December 8,
1993 with Spelling Entertainment Group Inc. As a result of the merger, the
Company received $13.00 for each share of Republic or $2,912,000 of pre-tax
proceeds on May 10, 1994.
On October 8, 1993, Liberty announced that TCI and Liberty had agreed to a
combination of the two companies in a transaction to be structured as a tax-free
exchange of Class A and Class B Common Stock of both companies for like shares
of a to-be-formed holding company. Under the terms of the agreement as
announced, TCI shareholders will receive one share of the new company for each
of their shares and Liberty shareholders will receive 0.975 shares of the new
company for each of their shares. The transaction is subject to both TCI and
Liberty shareholder approval in addition to various regulatory approvals and
other customary conditions. On April 28, 1994 TCI and Liberty received the
Department of Justice approval for the proposed merger.
As of December 31, 1993, the Company adopted Statement of Financial
Accounting Standards No. 115, 'Accounting for Certain Investments in Debt and
Equity Securities' ('FASB 115'). During the quarter ended March 31, 1994, the
market value of the marketable equity securities decreased $182,079,000. In
accordance with FASB 115, the Company has recorded a subsequent decrease of
$118,352,000 in the unrealized gain on marketable equity securities, net of tax,
in the separate component of stockholder's equity and a related decrease of
$63,727,000 in the deferred income tax liability.
At March 31, 1994, 4,519,994 shares of TCI Class A Common Stock were
pledged by ACDI as additional collateral to lower certain leverage ratios and
accordingly, lower the effective interest rate on the senior reducing revolving
credit facility of Associated Communications of Delaware, Inc. II ('ACDI II'),
an indirect wholly owned subsidiary of Associated which will be merged with
Southwestern Bell Corporation ('Southwestern'). The TCI stock will be retained
by ACDI in the Distribution. As of May 11, 1994, ACDI increased the amount of
F-49
<PAGE>
ASSOCIATED COMMUNICATIONS OF DELAWARE, INC. AND SUBSIDIARIES
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
MARCH 31, 1994
4. MARKETABLE EQUITY SECURITIES--(CONTINUED)
TCI Class A Common Stock pledged as additional collateral on behalf of ACDI II
to an aggregate amount of 5,519,994 shares.
The market value of the marketable equity securities as of May 11, 1994,
was approximately $405,000,000.
5. SHORT-TERM OBLIGATIONS
As of April 23 1994, ACDI renewed its $25,000,000 demand credit bank
facility through the period ending April 30, 1995. Borrowings under the facility
bear interest at either the bank's prime rate or at the Euro-Rate plus 1.25%, as
selected by ACDI. As of March 31, 1994, borrowings of $4,200,000 were
outstanding under the ACDI demand credit facility and the annual interest rate
was 4.8125%. Borrowings under the ACDI demand credit facility are secured by
shares of TCI Class A Common Stock.
6. INCOME TAXES
Associated and its subsidiaries file income tax returns as a consolidated
group. Income taxes presented in these financial statements include interperiod
income tax allocations and represent the portion of consolidated income taxes
that are attributable to the taxable income, alternative minimum tax
preferential items, and book and tax bases differences of the companies included
in these combined statements. Such amounts do not represent the taxes which
would be recorded if the Company filed income tax returns as an independent
entity. Had the tax provision been calculated as though separate income tax
returns were filed, the pro forma net loss and tax benefit for the three months
ended March 31, 1994, would have been $1,317,000 and $670,000, respectively.
7. COMMITMENTS AND CONTINGENCIES
The Company is involved in certain lawsuits arising in the ordinary course
of business. In management's opinion, the claims are without merit and
management plans to defend the cases vigorously. The outcome of these matters is
not expected to have a material adverse effect on the Company's financial
position.
F-50
<PAGE>
APPENDIX I
RESTATED CERTIFICATE OF INCORPORATION
OF
[SPINCO]
[SPINCO], a Delaware corporation, hereby certifies as follows:
ONE: The name of the Corporation is [Spinco], which was originally
incorporated under the name Associated Communications of Delaware, Inc. The
date of filing of its original certificate of incorporation with the
Secretary of State was August 27, 1981.
TWO: This Restated Certificate of Incorporation amends, restates and
integrates the provisions of the Restated Certificate of Incorporation as
currently in effect of said Corporation and has been duly adopted in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware by written consent of the holder
of all of the outstanding stock entitled to vote thereon in accordance with
the provisions of Section 228 of the General Corporation Law of the State
of Delaware.
THREE: The text of the Restated Certificate of Incorporation as
currently in effect is hereby amended and restated to read herein as set
forth in full:
FIRST: The name of this Corporation is [Spinco].
SECOND: Its registered office in the State of Delaware is located
at Three Christina Centre 201 N. Walnut Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at
that address is The Company Corporation.
THIRD: The nature of the business and purposes to be conducted and
promoted are any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the Corporation
shall have the authority to issue shall be One Hundred and Fifty-Five
Million (155,000,000) shares divided into the following classes:
(i) One Hundred Million (100,000,000) shares of Class A Common
Stock having a par value of $.10 per share,
(ii) Fifty Million (50,000,000) shares of Class B Common Stock
having a par value of $.10 per share, and
(iii) Five Million (5,000,000) shares of Preferred Stock having
a par value of $.01 per share.
Except as provided in this Article FOURTH, each share of Class B
Common Stock shall be identical in all respects to the Class A Common
Stock.
(a) Each holder of shares of Class A Common Stock shall be entitled
to one vote for each share of Class A Common Stock standing in his name
on the books of the Corporation on the record date for the determination
of stockholders entitled to notice of, or to vote at, any meeting of
stockholders, and each holder of shares of Class B Common Stock shall be
entitled to one twenty-fifth ( 1/25) of a vote for each share of Class B
Common Stock standing in his name on the books of the Corporation on the
record date for the determination of stockholders entitled to notice of,
or to vote at, any meeting of stockholders. There shall be no cumulative
voting. Action shall be taken by the stockholders only at an annual or
special meeting of stockholders and stockholders may not act by written
consent.
(b) Subject to the rights of holders of Preferred Stock, when, as
and if dividends or distributions are declared on the Common Stock,
whether payable in cash, in property or in securities of the
Corporation, the holders of Class A Common Stock and Class B Common
Stock shall be entitled to share equally, share for share, in such
dividends; provided that dividends or distributions payable in shares
of, or in subscription or other rights to acquire shares of, Class A
Common Stock and/or Class B Common Stock may be declared on, and paid
only to holders of, such class of Common Stock.
<PAGE>
(c) (i) In the event the Board of Directors of the Corporation
determines that such conversion is necessary or appropriate in
connection with an election by the Corporation to become a business
development company under the Investment Company Act of 1940, as
amended, or to register as an investment company under such Act, at
midnight on the tenth day after delivery of written notice by the
Corporation to the stockholders of such determination (the
'Conversion Time'), each share of Class B Common Stock shall, to the
extent permitted by law, be automatically converted, without further
action, into an equal number of shares of Class A Common Stock, and
the stock certificates formerly representing such shares of Class B
Common Stock shall thereupon and thereafter be deemed to represent
only the like number of shares of Class A Common Stock.
(ii) Promptly following the Conversion Time, the Corporation
shall notify each holder of a certificate or certificates formerly
representing shares of Class B Common Stock as to the timing of and
manner in which such holder may surrender such certificate or
certificates in exchange for a certificate or certificates
representing shares of Class A Common Stock into which such shares of
Class B Common Stock have been converted.
(iii) From and after the Conversion Time, upon any surrender for
transfer of any certificate or certificates formerly representing
shares of Class B Common Stock, the Corporation will issue and
deliver a certificate or certificates for the shares of Class A
Common Stock into which such shares of Class B Common Stock have been
converted.
(iv) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Class A Common
Stock or its treasury shares, solely for the purpose of issuance upon
the conversion of the Class B Common Stock, such number of shares of
Class A Common Stock as may be issued upon conversion of all
outstanding Class B Common Stock pursuant to paragraph (c)(i).
(d) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, holders of Class A Common
Stock and holders of Class B Common Stock shall receive a pro rata
distribution of any remaining assets after payment or provision for
liabilities and the liquidation preference on Preferred Stock, if any.
The Board of Directors is expressly authorized to provide for the
issuance of Preferred Stock from time to time in one or more series,
each with such voting powers (if any), and such designation, rights,
preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, as the
Board of Directors shall establish in its resolution or resolutions
providing for the issuance of such stock or series of such stock. The
Board of Directors may at any time authorize the issuance of additional
shares of an outstanding series of Preferred Stock or reduce the number
of shares constituting such series, but not below the number of shares
of such series then outstanding.
FIFTH: The business and affairs of the Corporation shall be managed
by or under the direction of a Board of Directors consisting of not less
than three nor more than fifteen directors, the exact number of
directors to be determined from time to time by resolution adopted by
affirmative vote of a majority of the entire Board of Directors. If the
number of directors of the Corporation so determined by the Board of
Directors is three and there shall occur a vacancy in the Board of
Directors, until such vacancy is filled the unanimous vote of all
directors present at a meeting shall be required in order for the Board
of Directors to act. The directors shall be divided into three classes.
Each class shall consist, as nearly as may be possible, of one-third of
the total number of directors constituting the entire Board of
Directors. Each director shall serve for a term ending on the date of
the third annual meeting of stockholders following the annual meeting at
which such director was elected and until his successor is elected and
qualified; provided, however, that each initial director of the first
class shall hold office until the date of the annual meeting of
stockholders held in 1995 and until his successor is elected and
qualified, each initial director of the second class shall hold office
until the date of the annual meeting of stockholders held in 1996 and
until his successor is elected and qualified, and each initial director
of the third class shall hold office until the date of the annual
meeting of stockholders held in 1997 and until his successor is elected
and qualified. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes so as to maintain the
number of directors in each class
2
<PAGE>
as nearly equal as possible, and any additional director of any class
elected to fill a vacancy resulting from an increase in such class shall
hold office for a term that shall coincide with the remaining term of
that class, but in no case will a decrease in the number of directors
shorten the term of any incumbent director. A director shall hold office
until the annual meeting for the year in which his term expires and
until his successor shall be elected and shall qualify, subject,
however, to prior death, resignation, retirement, disqualification or
removal from office. Any vacancy on the Board of Directors that results
from an increase in the number of directors may be filled by a majority
of the directors then in office, provided that a quorum is present, and
any other vacancy occurring in the Board of Directors may be filled by a
majority of the directors then in office, even if less than a quorum, or
by a sole remaining director. Any director elected to fill a vacancy not
resulting from an increase in the number of directors shall have the
same remaining term as that of his predecessor.
Any director may be removed from office as a director, but only for
cause, by the affirmative vote of stockholders who are entitled to cast
at least two-thirds (66 2/3%) of the total number of votes entitled to
be cast.
Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of Preferred Stock issued by the Corporation
shall have the right, voting separately by class or series, to elect
directors at an annual or special meeting of stockholders, the election,
term of office, filling of vacancies, removal and other features of such
directorships shall be governed by the terms of the instrument creating
such class or series of Preferred Stock, and such directors so elected
shall not be divided into classes pursuant to this Article FIFTH unless
expressly provided by such terms.
The provisions set forth in this Article FIFTH may not be replaced
or amended in any respect unless such action is approved by the
affirmative vote of stockholders who are entitled to cast at least
two-thirds (66 2/3%) of the total number of votes entitled to be cast.
SIXTH: The affirmative vote of a plurality of the votes cast at an
annual meeting of stockholders shall be required in order to elect
directors.
SEVENTH: The presence of two-thirds of the total number of
directors shall constitute a quorum for the transaction of business and,
except as otherwise provided herein, the vote of a majority of such
quorum shall be required in order for the board of directors to act.
EIGHTH: In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware, the Board of Directors
is expressly authorized and empowered to adopt, amend or repeal any
provision of the By-Laws of the Corporation. The By-Laws of the
Corporation may be adopted, amended or repealed by the stockholders by
the affirmative vote of stockholders who are entitled to cast at least
two-thirds (66 2/3%) of the total number of votes entitled to be cast.
NINTH: The Corporation shall indemnify to the full extent permitted
by, and in the manner permissible under, the laws of the State of
Delaware, any person made, or threatened to be made, a party to an
action or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that such person is or was a
director or officer of the Corporation, or is serving or served any
other enterprise as a director or officer at the request of the
Corporation and such right of indemnification shall also be applicable
to the legal representative of any such director or officer. The
foregoing provisions of this Article NINTH shall be deemed to be a
contract between this Corporation and each director or officer who
serves in such capacity at any time while this Article NINTH is in
effect, and any repeal or modification of this Article NINTH shall not
affect any rights or obligations then existing with respect to any state
of facts then or theretofore existing or any action, suit or proceeding
theretofore or thereafter brought based in whole or in part upon any
such state of facts. The foregoing rights of indemnification shall not
be deemed exclusive of any other rights to which any director or officer
or his legal representative may be entitled apart from the provisions of
this Article NINTH.
TENTH: No director shall be personally liable to the Corporation or
any of its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in
3
<PAGE>
good faith or which involve intentional misconduct or a knowing
violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director
derived an improper personal benefit. Any repeal or modification of this
Article TENTH by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing
at the time of such repeal or modification with respect to acts or
omissions occurring prior to such repeal or modification.
4
<PAGE>
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents
fair and accurate narrative descriptions of graphic and image material
omitted from this EDGAR filing due to ASCII-incompatibility and
cross-references this material to the location of each occurrence in the
text.
LOCATION OF NARRATIVE DESCRIPTION
OMITTED GRAPHIC OR IMAGE IN EDGAR FILING
- ----------------------------------------- -----------------------------------
Stock Price Performance Graph on page 73
of the Proxy Statement-Prospectus...... Table on page 73 immediately fol-
lowing the first paragraph under
"Executive Compensation and Other
Information--Stock Price Per-
formance Graph."
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
SBC's Bylaws provide that SBC shall indemnify any person who was or is a
party or is threatened to be made a party to any action, suit or proceeding,
whether civil, criminal, administrative or investigative (including any action
or suit by or in the right of SBC) by reason of the fact that such person is or
was a director, officer, employee or agent of SBC or is or was serving at the
request of SBC as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, but in each case only if and to the extent permitted under
applicable state or federal law.
SBC's Bylaws further state that the indemnification provided therein shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs, and
personal representatives of such a person.
Section 145 of the DGCL permits a corporation to indemnify its directors
and officers against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlements actually and reasonably incurred by them in
connection with any action, suit or proceeding brought by third parties, if such
directors or officers acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reason to believe
their conduct was unlawful. In a derivative action, i.e., only by or in the
right of the corporation, indemnification may be made only for expenses actually
and reasonably incurred by directors and officers in connection with the defense
or settlement of an action or suit, and only with respect to a matter as to
which they shall have acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification shall be made if such person shall have been
adjudged liable to the corporation, unless and only to the extent that the court
in which the action or suit was brought shall determine upon application that
the defendant officers or directors are fairly and reasonably entitled to
indemnity for such expenses despite such adjudication of liability.
The SBC Restated Certificate of Incorporation provides that no director of
SBC shall be liable to SBC or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (1) for any breach of the
director's duty of loyalty to SBC or its stockholders; (2) for acts or omissions
not in good faith or which involve intentional misconduct or knowing violation
of the law; (3) under Section 174 of the DGCL; or (4) for any transaction from
which a director derived an improper benefit.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- --------- ------------------------------------------------------------------------------- -------------------------
<S> <C> <C>
2.1.1 Agreement and Plan of Merger and Reorganization, dated as of February 23, 1994,
among Southwestern Bell Corporation, SMBS Acquisition Corp. and Associated
Communications Corporation..................................................... Appendix A to Proxy
Statement--Prospectus
2.1.2 Agreement and Plan of Distribution Agreement, among Associated Communications
Corporation, Associated Communications of Delaware, Inc. and [Newco] (including
as Exhibit A thereto the Tax Disaffiliation Agreement)......................... Appendix B to Proxy
Statement--Prospectus
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- --------- ------------------------------------------------------------------------------- -------------------------
<S> <C> <C>
3.1 Restated Certificate of Incorporation of Southwestern Bell Corporation, filed
with the Secretary of State of the State of Delaware on June 6, 1988........... Exhibit 3-a to Form 8A/A,
dated June 22, 1994, File
1-8610
3.2 Bylaws of Southwestern Bell Corporation, dated June 28, 1991................... Exhibit 3-b to
Registrant's Form 10-Q
for the second quarter
1991, File 1-8610
4.1 Pursuant to Regulation S-K, Item 601(b)(4)(iii)(A), no instrument which defines
the rights of holders of long term debt of the Registrant or any of its
consolidated Subsidiaries is filed herewith. Pursuant to this regulation, the
Registrant hereby agrees to furnish a copy of any such instrument to the SEC
upon request
4.2 Support Agreement, dated November 10, 1986, between Southwestern Bell
Corporation and Southwestern Bell Capital Corporation.......................... Exhibit 4-b to
Registration Statement
No. 33-11669
4.3 Rights Agreement (executed in the form as filed), dated as of January 27, 1989,
between Southwestern Bell Corporation and American Transtech, Inc., the Rights
Agent, which includes as Exhibit B thereto the Form of Rights Certificate...... Exhibit 4-a to Form 8-A,
dated February 9, 1989,
File 1-8610
4.4 Amendment of Rights Agreement (executed in the form as filed), dated as of
August 5, 1992, between Southwestern Bell Corporation, American Transtech,
Inc., and The Bank of New York, the successor Rights Agent, which includes the
Form of Rights Certificate as an attachment identified as Exhibit B............ Exhibit 4-a to Form 8-K,
dated August 7, 1992,
File 1-8610
4.5 Form of Rights Certificate (included in the attachment to the Amendment of
Rights Agreement and identified as Exhibit B).................................. Exhibit 4-b to Form 8-K,
dated August 7, 1992,
File 1-8610
4.6 Second Amendment of Rights Agreement, dated as of June 15, 1994, between
Southwestern Bell Corporation and The Bank of New York, as successor Rights
Agent.......................................................................... Exhibit 4-e to Form
8-A/A, dated June 22,
1994, File 1-8610
5 Opinion of James D. Ellis, Esq. as to legality of securities being registered
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom as to certain federal income
tax consequences...............................................................
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- --------- ------------------------------------------------------------------------------- -------------------------
<S> <C> <C>
10.1 Southwestern Bell Corporation Senior Management Short Term Incentive Plan,
revised January 1, 1991........................................................ Exhibit 10-a to Form 10-K
for 1990, File 1-8610
10.2 Southwestern Bell Corporation Senior Management Long Term Incentive Plan,
revised effective January 1, 1993.............................................. Exhibit 10-b to Form 10-K
for 1992, File 1-8610
10.3 Southwestern Bell Corporation Senior Management Survivor Benefit Plan.......... Exhibit 10-c to Form 10-K
for 1986, File 1-8610
10.4 Southwestern Bell Corporation Senior Management Supplemental Retirement Income
Plan, revised effective January 1, 1993........................................ Exhibit 10-d to Form 10-K
for 1992, File 1-8610
10.5 Southwestern Bell Corporation Senior Management Deferred Compensation Plan
(effective for units of participation having a unit start date prior to January
1, 1988), revised July 30, 1993................................................
10.6 Southwestern Bell Corporation Senior Management Deferred Compensation Program
of 1988, revised July 30, 1993.................................................
10.7 Southwestern Bell Corporation Senior Management Long Term Disability Plan...... Exhibit 10-f to Form 10-K
for 1986, File 1-8610
10.8 Southwestern Bell Corporation Senior Management Incentive Award Deferral
Plan........................................................................... Exhibit 10-g to Form 10-K
for 1986, File 1-8610
10.9 Southwestern Bell Corporation Senior Management Financial Counseling Program... Exhibit 10-h to Form 10-K
for 1986, File 1-8610
10.10 Southwestern Bell Corporation Senior Management Executive Health Plan,
effective January 1, 1987...................................................... Exhibit 10-i to Form 10-K
for 1986, File 1-8610
10.11 Southwestern Bell Corporation Retirement Plan for Non-Employee Directors....... Exhibit 10-t to Form 10-K
for 1985, File 1-8610
10.12 Form of Indemnity Agreement, effective July 1, 1986, between Southwestern Bell
Corporation and each of its directors and officers............................. Appendix 1 to Definitive
Proxy Statement dated
March 18, 1987, File
1-8610
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- --------- ------------------------------------------------------------------------------- -------------------------
<S> <C> <C>
10.13 Form of Southwestern Bell Corporation Change of Control Severance Agreements
for all Officers of the Corporation and certain Officers of the Corporation's
subsidiaries................................................................... Exhibit 10-p to Form 10-K
for 1988, File 1-8610
10.14 Southwestern Bell Corporation Stock Savings Plan, revised effective February 1,
1994........................................................................... Appendix A to Definitive
Proxy Statement dated
March 18, 1994, File
1-8610
10.15 Southwestern Bell Corporation 1992 Stock Option Plan, revised effective
December 1, 1993...............................................................
10.16 Southwestern Bell Corporation Key Executive Officer Short Term Incentive
Plan........................................................................... Appendix B to Definitive
Proxy Statement dated
March 18, 1994, File
1-8610
10.17 Southwestern Bell Corporation Restricted Stock Plan for Non-Employee Directors.
10.18 Southwestern Bell Corporation Officer Retirement Savings Plan..................
23.1 Consent of James D. Ellis, Esq................................................. Included in the opinion
filed as Exhibit 5 to
this Registration
Statement
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom................................ Included in the opinion
filed as Exhibit 8.1 to
this Registration
Statement
23.3 Consent of Ernst & Young (relating to financial statements of Southwestern Bell
Corporation)...................................................................
23.4 Consent of Ernst & Young (relating to financial statements of Associated
Communications Corporation and Buffalo Telephone Company)......................
23.5 Consent of Coopers & Lybrand (relating to financial statements of Bay Area
Cellular Telephone Company and Pittsburgh Cellular Telephone Company)..........
23.6 Consent of Coopers & Lybrand (relating to financial statements of Bay Area
Cellular Telephone Company)....................................................
23.7 Consent of Coopers & Lybrand (relating to certain financial statements
incorporated by reference).....................................................
23.8 Consent of Coopers & Lybrand (relating to certain financial statements
incorporated by reference).....................................................
23.9 Consent of Arthur Andersen & Co. (relating to financial statements of
Pittsburgh Cellular Telephone Company).........................................
23.10 Consent of Price Waterhouse (relating to financial statements of Associated
Communications Corporation and Bay Area Cellular Telephone Company)............
23.11 Consent of Price Waterhouse (relating to financial statements of Bay Area
Cellular Telephone Company)....................................................
23.12 Consent of KPMG Cardenas Dosal, S.C. Peat Marwick (relating to financial
statements of Grupo Portatel, S.A. de C.V.)....................................
23.13 Consent of Salomon Brothers Inc................................................
23.14 Consent of Wasserstein Perella & Co. ..........................................
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- --------- ------------------------------------------------------------------------------- -------------------------
<S> <C> <C>
24 Powers of Attorney.............................................................
99.1 Opinion of Salomon Brothers Inc................................................ Appendix C to Proxy
Statement--Prospectus
99.2 Form of proxy for Annual Meeting of Shareholders of Associated.................
</TABLE>
(b) Financial Statement Schedules
<TABLE>
<CAPTION>
SCHEDULE PAGE
NUMBER DESCRIPTION NUMBER
- ---------- ------------------------------------------------------ -------
<S> <C> <C>
V Property, Plant and Equipment......................... F-20
VI Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment........ F-21
VIII Valuation and Qualifying Accounts..................... F-22
X Supplementary Income Statement Information............ F-23
</TABLE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to file, during any period
in which offer or sales are being made, a post-effective amendment to this
registration statement (i) to include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933, (ii) to reflect in the
prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement and (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(b) The undersigned registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes to remove from
registration by means of a post-effective amendment any of the securities which
remain unsold at the termination of the offering.
(d) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(f) The undersigned registrant hereby undertakes that every prospectus (i)
that is filed pursuant to paragraph (e) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to
II-5
<PAGE>
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(g) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(h) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(i) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Antonio, State of
Texas, on the 28th day of July, 1994.
SOUTHWESTERN BELL CORPORATION
By: /s/ D. E. Kiernan
Donald E. Kiernan
Senior Vice President, Treasurer
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<S> <C>
Principal Executive Officer: Edward E. Whitacre, Jr.,*
Chairman and Chief Executive Officer
Principal Financial and Accounting Officer: Donald E. Kiernan,
Senior Vice President, Treasurer
and Chief Financial Officer
</TABLE>
By: /s/ D. E. Kiernan
Donald E. Kiernan, as
attorney-in-fact for Mr. Whitacre, the
Directors, and on his own behalf as
Principal Financial Officer and
Principal Accounting Officer
<TABLE>
<S> <C>
July 28, 1994
DIRECTORS:
Clarence C. Barksdale* Bobby R. Inman*
James E. Barnes* Charles F. Knight*
Jack S. Blanton* Sybil C. Mobley*
August A. Busch, III* Haskell M. Monroe, Jr.*
Ruben R. Cardenas* Ing. Carlos Slim Helu*
Martin K. Eby, Jr.* Patricia P. Upton*
Tom C. Frost* Edward E. Whitacre, Jr.*
Jess T. Hay*
</TABLE>
- ------------------
* By power of attorney
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- --------- ------------------------------------------------------------------------------- -------------------------
<S> <C> <C>
2.1.1 Agreement and Plan of Merger and Reorganization, dated as of February 23, 1994,
among Southwestern Bell Corporation, SMBS Acquisition Corp. and Associated
Communications Corporation..................................................... Appendix A to Proxy
Statement--Prospectus
2.1.2 Agreement and Plan of Distribution Agreement, among Associated Communications
Corporation, Associated Communications of Delaware, Inc. and [Newco] (including
as Exhibit A thereto the Tax Disaffiliation Agreement)......................... Appendix B to Proxy
Statement--Prospectus
3.1 Restated Certificate of Incorporation of Southwestern Bell Corporation, filed
with the Secretary of State of the State of Delaware on June 6, 1988........... Exhibit 3-a to Form 8A/A,
dated June 22, 1994, File
1-8610
3.2 Bylaws of Southwestern Bell Corporation, dated June 28, 1991................... Exhibit 3-b to
Registrant's Form 10-Q
for the second quarter
1991, File 1-8610
4.1 Pursuant to Regulation S-K, Item 601(b)(4)(iii)(A), no instrument which defines
the rights of holders of long term debt of the Registrant or any of its
consolidated Subsidiaries is filed herewith. Pursuant to this regulation, the
Registrant hereby agrees to furnish a copy of any such instrument to the SEC
upon request
4.2 Support Agreement, dated November 10, 1986, between Southwestern Bell
Corporation and Southwestern Bell Capital Corporation.......................... Exhibit 4-b to
Registration Statement
No. 33-11669
4.3 Rights Agreement (executed in the form as filed), dated as of January 27, 1989,
between Southwestern Bell Corporation and American Transtech, Inc., the Rights
Agent, which includes as Exhibit B thereto the Form of Rights Certificate...... Exhibit 4-a to Form 8-A,
dated February 9, 1989,
File 1-8610
4.4 Amendment of Rights Agreement (executed in the form as filed), dated as of
August 5, 1992, between Southwestern Bell Corporation, American Transtech,
Inc., and The Bank of New York, the successor Rights Agent, which includes the
Form of Rights Certificate as an attachment identified as Exhibit B............ Exhibit 4-a to Form 8-K,
dated August 7, 1992,
File 1-8610
4.5 Form of Rights Certificate (included in the attachment to the Amendment of
Rights Agreement and identified as Exhibit B).................................. Exhibit 4-b to Form 8-K,
dated August 7, 1992,
File 1-8610
4.6 Second Amendment of Rights Agreement, dated as of June 15, 1994, between
Southwestern Bell Corporation and The Bank of New York, as successor Rights
Agent.......................................................................... Exhibit 4-e to Form
8-A/A, dated June 22,
1994, File 1-8610
5 Opinion of James D. Ellis, Esq. as to legality of securities being registered
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom as to certain federal income
tax consequences...............................................................
10.1 Southwestern Bell Corporation Senior Management Short Term Incentive Plan,
revised January 1, 1991........................................................ Exhibit 10-a to Form 10-K
for 1990, File 1-8610
10.2 Southwestern Bell Corporation Senior Management Long Term Incentive Plan,
revised effective January 1, 1993.............................................. Exhibit 10-b to Form 10-K
for 1992, File 1-8610
10.3 Southwestern Bell Corporation Senior Management Survivor Benefit Plan.......... Exhibit 10-c to Form 10-K
for 1986, File 1-8610
10.4 Southwestern Bell Corporation Senior Management Supplemental Retirement Income
Plan, revised effective January 1, 1993........................................ Exhibit 10-d to Form 10-K
for 1992, File 1-8610
10.5 Southwestern Bell Corporation Senior Management Deferred Compensation Plan
(effective for units of participation having a unit start date prior to January
1, 1988), revised July 30, 1993................................................
10.6 Southwestern Bell Corporation Senior Management Deferred Compensation Program
of 1988, revised July 30, 1993.................................................
10.7 Southwestern Bell Corporation Senior Management Long Term Disability Plan...... Exhibit 10-f to Form 10-K
for 1986, File 1-8610
10.8 Southwestern Bell Corporation Senior Management Incentive Award Deferral
Plan........................................................................... Exhibit 10-g to Form 10-K
for 1986, File 1-8610
10.9 Southwestern Bell Corporation Senior Management Financial Counseling Program... Exhibit 10-h to Form 10-K
for 1986, File 1-8610
10.10 Southwestern Bell Corporation Senior Management Executive Health Plan,
effective January 1, 1987...................................................... Exhibit 10-i to Form 10-K
for 1986, File 1-8610
10.11 Southwestern Bell Corporation Retirement Plan for Non-Employee Directors....... Exhibit 10-t to Form 10-K
for 1985, File 1-8610
10.12 Form of Indemnity Agreement, effective July 1, 1986, between Southwestern Bell
Corporation and each of its directors and officers............................. Appendix 1 to Definitive
Proxy Statement dated
March 18, 1987, File
1-8610
10.13 Form of Southwestern Bell Corporation Change of Control Severance Agreements
for all Officers of the Corporation and certain Officers of the Corporation's
subsidiaries................................................................... Exhibit 10-p to Form 10-K
for 1988, File 1-8610
10.14 Southwestern Bell Corporation Stock Savings Plan, revised effective February 1,
1994........................................................................... Appendix A to Definitive
Proxy Statement dated
March 18, 1994, File
1-8610
10.15 Southwestern Bell Corporation 1992 Stock Option Plan, revised effective
December 1, 1993...............................................................
10.16 Southwestern Bell Corporation Key Executive Officer Short Term Incentive
Plan........................................................................... Appendix B to Definitive
Proxy Statement dated
March 18, 1994, File
1-8610
10.17 Southwestern Bell Corporation Restricted Stock Plan for Non-Employee Directors.
10.18 Southwestern Bell Corporation Officer Retirement Savings Plan..................
23.1 Consent of James D. Ellis, Esq................................................. Included in the opinion
filed as Exhibit 5 to
this Registration
Statement
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom................................ Included in the opinion
filed as Exhibit 8.1 to
this Registration
Statement
23.3 Consent of Ernst & Young (relating to financial statements of Southwestern Bell
Corporation)...................................................................
23.4 Consent of Ernst & Young (relating to financial statements of Associated
Communications Corporation and Buffalo Telephone Company)......................
23.5 Consent of Coopers & Lybrand (relating to financial statements of Bay Area
Cellular Telephone Company and Pittsburgh Cellular Telephone Company)..........
23.6 Consent of Coopers & Lybrand (relating to financial statements of Bay Area
Cellular Telephone Company)....................................................
23.7 Consent of Coopers & Lybrand (relating to certain financial statements
incorporated by reference).....................................................
23.8 Consent of Coopers & Lybrand (relating to certain financial statements
incorporated by reference).....................................................
23.9 Consent of Arthur Andersen & Co. (relating to financial statements of
Pittsburgh Cellular Telephone Company).........................................
23.10 Consent of Price Waterhouse (relating to financial statements of Associated
Communications Corporation and Bay Area Cellular Telephone Company)............
23.11 Consent of Price Waterhouse (relating to financial statements of Bay Area
Cellular Telephone Company)....................................................
23.12 Consent of KPMG Cardenas Dosal, S.C. Peat Marwick (relating to financial
statements of Grupo Portatel, S.A. de C.V.)....................................
23.13 Consent of Salomon Brothers Inc................................................
23.14 Consent of Wasserstein Perella & Co. ..........................................
24 Powers of Attorney.............................................................
99.1 Opinion of Salomon Brothers Inc................................................ Appendix C to Proxy
Statement--Prospectus
99.2 Form of proxy for Annual Meeting of Shareholders of Associated.................
</TABLE>
Exhibit 5
July 29, 1994
Southwestern Bell Corporation
175 E. Houston Street
San Antonio, Texas 78205
Dear Sirs:
In connection with the registration under the Securities Act of 1933 (the
"Act") of 19,210,348 shares (the "Shares") of Common Stock, par value $1.00 per
share, of Southwestern Bell Corporation, a Delaware corporation ("SBC"),
and related stock purchase rights (the "Rights") to be issued pursuant
to the Shareowner Rights Plan, dated as of January 27, 1989, between SBC
and American Transtech, Inc. ("ATI"), as amended by the Amendment to
Rights Agreement, dated as of August 5, 1992, by and among SBC, ATI,
and The Bank of New York ("BNY"), as successor Rights Agent, and as
further amended by the Second Amendment to Rights Agreement, dated as of
June 15, 1994, by and between SBC and BNY (as amended, the "Rights
Plan"), I am of the opinion that:
(1) When the Registration Statement relating to the Shares and
the Rights is effective under the Act, the Agreement and Plan of
Merger and Reorganization, dated as of February 23, 1994 (the "Merger
Agreement") by and among SBC, SBMS Acquisition Corp. and Associated
Communications Corporation ("Associated") has been duly and validly
approved and adopted by the shareholders of Associated and the
certificate relating to the merger contemplated by the Merger Agreement
has been duly filed with the Secretary of State of the State of
Delaware, upon issuance of the Shares in accordance with the Merger
Agreement the Shares will be legally issued, fully paid and
non-assessable; and
(2) Assuming that the Rights Plan has been duly authorized, executed
and delivered by the Rights Agent, then when the Registration Statement
has become effective under the Act and the Shares have been legally issued
as contemplated in paragraph (1) above, the Rights attributable to the
Shares will be legally issued.
The foregoing opinion is limited to the laws of the United States and the
General Corporation Law of the State of Delaware, and I am expressing no opinion
as to the effect of the laws of any other jurisdiction.
I have relied as to certain matters on information obtained from public
officials, officers of SBC and other sources believed by me to be responsible.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving such consent, I do not thereby admit that I
am in the category of persons whose consent is required under Section 7 of the
Act.
Very truly yours,
/s/ James D. Ellis
<PAGE>
July 28, 1994
Board of Directors
Associated Communications Corporation
200 Gateway Towers
Pittsburgh, Pennsylvania 15222
Dear Board Members:
We have acted as counsel to Associated Communi-
cations Corporation, a Delaware corporation ("Associat-
ed"), in connection with the contemplated distribution
(the "Distribution") of all of Associated's assets and
businesses, other than its domestic cellular assets and
interests, together with related liabilities, to Associ-
ated stockholders in the form of a dividend of all of the
capital stock of Associated Communications of Delaware,
Inc., a Delaware corporation and currently a wholly-owned
subsidiary of Associated, and the merger (the "Merger")
of SBMS Acquisition Corp. ("Purchaser"), a Delaware
corporation and an indirect wholly-owned subsidiary of
Southwestern Bell Corporation ("SBC"), a Delaware corpo-
ration, with and into Associated with Associated surviv-
ing, pursuant to an Agreement and Plan of Merger and
Reorganization, dated as of February 23, 1994, among
Associated, SBC and Purchaser (the "Merger and Reorgani-
zation Agreement").
We have assisted in the preparation of the
description of certain federal income tax consequences of
the Distribution and the Merger contained in the Joint
Proxy Statement-Prospectus of Associated and SBC (the
"Proxy Statement-Prospectus") filed as a part of SBC's
Registration Statement on Form S-4, dated July 28, 1994
(the "Registration Statement") which includes as Appendix
D the Information Statement of Associated relating to the
Distribution (the "Information Statement"), in each case
under the heading "Certain Federal Income Tax Consequenc-
es" (the "Tax Summaries").
We have examined copies of the Proxy Statement-
Prospectus and the Information Statement, each filed with
the Securities Exchange Commission as part of the Regis-
tration Statement on July 28, 1994, and the Tax Summaries
contained therein. In rendering our opinion, we have
examined and relied upon the accuracy and completeness of
the facts, information, covenants and representations
contained in originals or copies, certified or otherwise
identified to our satisfaction, of the Merger and Reorga-
nization Agreement, the Proxy Statement-Prospectus, the
Information Statement and such other documents as we have
deemed necessary or appropriate as a basis for the opin-
ion set forth below. We have assumed that the Distribu-
tion and the Merger will be consummated in accordance
with the Merger and Reorganization Agreement and as de-
scribed in the Proxy Statement-Prospectus and Information
Statement.
In rendering our opinion, we have considered
the applicable provisions of the Internal Revenue Code of
1986, as amended, Treasury Regulations promulgated there-
under, pertinent judicial authorities, interpretive
rulings of the Internal Revenue Service (the "Service")
and such other authorities as we have considered rele-
vant, in each case as in effect on the date hereof.
Opinion.
Based solely upon the foregoing, and assuming
that the Private Letter Ruling (as defined in the Proxy
Statement-Prospectus) is received from the Service, we
are of the opinion that the Tax Summaries, although
general in nature, are, in all material respects, fair
and accurate summaries of the principal United States
federal income tax consequences of the Distribution and
the Merger under present law. The United States federal
income tax consequences with respect to any stockholder
of Associated will depend upon that stockholder's partic-
ular circumstances and tax situation, and we express no
belief with respect to the accuracy or completeness of
the Tax Summaries as applied to any stockholder in par-
ticular.
Except as set forth above, we express no opin-
ion as to the tax consequences, whether federal, state,
local or foreign, of the Distribution or the Merger or of
any transactions related thereto. This opinion is solely
for your benefit and is not to be used, circulated,
quoted or otherwise referred to for any purpose without
our express written permission. Notwithstanding the
previous sentence, we hereby consent to the filing of
this opinion with the Securities and Exchange Commission
as an exhibit to the Registration Statement. In giving
such consent, we do not thereby admit that we are in the
category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
Skadden, Arps, Slate,
Meagher & Flom
Southwestern Bell Corporation
Senior Management
Deferred Compensation Plan
Effective For Units of Participation
Having a Unit Start Date Prior to
January 1, 1988
Effective: January 1, 1984
Revised: July 30, 1993
<PAGE>
Senior Management
Deferred Compensation Plan
Section 1 - Statement of Purpose
The purpose of the Senior Management Deferred Compensation
Plan is to provide retirement, death, or
termination-of-employment benefits to a select group of highly
compensated or management employees consisting of Senior Managers
of Southwestern Bell Corporation (the "Company") and its
subsidiaries ("Participating Companies").
Section 2 - Definitions
For the purposes of this Plan, the following words and
phrases shall have the meanings indicated, unless the context
clearly indicates otherwise:
1. Administrative Committee. "Administrative Committee"
means a committee of three or more members, at least one
of whom is a Senior Manager, who shall be designated by
the Senior Vice President-Human Resources to administer
the Plan pursuant to Section 3.
2. Agreement. "Agreement" means the written agreement
entitled "Senior Management Deferred Compensation Plan
Agreement" (substantially in the form attached to this
Plan) that shall be entered into by the Employer and a
Participant with respect to each Unit of Participation to
carry out the Plan with respect to such Participant.
3. Annualized Total Unit Deferral Amount. The "Annualized
Total Unit Deferral Amount" means the Total Unit Deferral
Amount divided by eight years.
4. Beneficiary. "Beneficiary" means the person or persons
designated as such in accordance with Section 7.
5. Board. "Board" means the Board of Directors of
Southwestern Bell Corporation.
6. Compensation. "Compensation" means the Participant's
monthly base salary as of the Participant's Unit Start
Date, but before reduction for compensation deferred
pursuant to this Plan or any Plan of the Employer whereby
compensation is deferred including but not limited to a
plan whereby compensation is deferred in accordance with
Section 401(k) of the Internal Revenue Code.
<PAGE>
2
7. Deferral Amounts For All Units of Participation. "Deferral
Amounts for all Units of Participation" means the
aggregate amount of Compensation deferred in a given
calendar year with respect to all Units of Participation
as specified in Exhibit A of a Participant's Agreements.
8. Deferred Compensation Account. "Deferred Compensation
Account" means the account maintained on the books of
account of the Employer for each Participant pursuant to
Section 5.1.
9. Disability. "Disability" means a disability as defined in
the Southwestern Bell Corporation Sickness and Accident
Disability Benefit Plan and the Southwestern Bell
Corporation Senior Management Long Term Disability Plan
covering the Participant.
10. Early Retirement. "Early Retirement" means the
termination of a Participant's employment with Employer
for reasons other than death on or after Participant
attains age 55.
11. Election Form. The "Election Form" means an Eligible
Employee's written election to participate in the Plan
with respect to each Unit of Participation in accordance
with Section 4.
12. Eligible Employee. "Eligible Employee" means an Employee
of the Employer who (a) is in active service, (b) has an
employment status which has been approved by the Board or
its Chairman to be eligible to participate in this Plan,
and (c) who continuously maintains the employment status
upon which such approval was based.
13. Employee. "Employee" means any person employed by the
Employer on a regular full-time salaried basis.
14. Employer. "Employer" means Southwestern Bell Corporation
and any of its subsidiaries.
15. Normal Retirement. "Normal Retirement" means termination
of a Participant's employment with Employer for reasons
other than death on or after the date Participant attains
age 65.
16. Participant. "Participant" means an Eligible Employee who
has entered into an Agreement to participate in the Plan
in accordance with the provisions of Section 4.
<PAGE>
3
17. Plan Year. "Plan Year" means the calendar year.
18. "Rotational Work Assignment Company ("RWAC")" shall mean
Bell Communications Research, Inc. ("Bellcore"), formerly
the Central Services Organization, Inc., and/or any other
entity with which Southwestern Bell Corporation or any of
its subsidiaries may enter into an agreement to provide an
employee for a rotational work assignment.
19. Southwestern Bell Corporation Savings Plan for
Salaried_Employees. "Southwestern Bell Corporation
Savings Plan for Salaried Employees" means the
Southwestern Bell Corporation Savings Plan for Salaried
Employees and any successor plan adopted by the Employer.
20. Subsidiary. A "Subsidiary" of the Company is any
corporation, partnership, venture or other entity in which
the Company has at least a 50% ownership interest.
21. Total Unit Deferral Amount. "Total Unit Deferral Amount"
means the sum of all amounts of Compensation deferred
during the Unit Deferral Period with respect to a Unit of
Participation, as shown in Exhibit A of Participant's
Agreement for that Unit of Participation.
22. Unit Deferral Period. "Unit Deferral Period" means the
number of months the Participant elects to reduce his
Compensation with respect to a Unit of Participation, as
shown in Exhibit A of Participant's Agreement for that
Unit of Participation.
23. Unit of Participation. A "Unit of Participation" consists
of a stated Total Unit Deferral Amount and associated
Employer contributions which provide stated benefits in
accordance with the Participant's Agreement for that Unit
of Participation.
24. Unit Start Date. "Unit Start Date" means the date shown
in Exhibit A of a Participant's Agreement for a given Unit
of Participation which follows an Eligible Employee's
election to commence a Unit of Participation under the
Plan. For years subsequent to the first year as an
Eligible Employee, the Unit Start Date will be January 1,
unless the Administrative Committee, in its sole
discretion deems that another date is allowable. A Unit
of Participation may not commence if the employee cannot
complete eight (8) years of participation prior to age 65,
unless otherwise permitted by the Administrative
Committee.
<PAGE>
4
Section 3 - Administration of the Plan
3.1 Administration of Plan. The Administrative Committee
shall be the sole administrator of the Plan and will administer
the Plan, interpret, construe and apply its provisions in
accordance with its terms. The Administrative Committee shall
further establish, adopt or revise such rules and regulations as
it may deem necessary or advisable for the administration of the
Plan. All decisions of the Administrative Committee shall be
final and binding unless the Board of Directors should determine
otherwise.
Section 4 - Participation
4.1 Election to Commence a Unit of Participation. Any
Eligible Employee may elect to commence deferral of Compensation
with respect to a Unit of Participation in the Plan by filing a
completed Election Form with the Administrative Committee prior
to the beginning of the Unit Start Date. Pursuant to said
Election Form, the Eligible Employee shall elect a Total Unit
Deferral Amount and a Unit Deferral Period to be specified in
Exhibit A of Participant's Agreement with respect to such Unit.
The Deferral Amount For All Units of Participation cannot
exceed one hundred percent (100%) of Compensation during any
calendar year. In order to participate in the Plan, a
Participant must defer a minimum of six percent (6%) of his
Compensation at the time of commencement of his first Unit of
Participation in the Plan. Subsequent additional Units of
Participation require a minimum annual Participant deferral of
$1,000. The sum of the Participant's contributions, if any, to
the Southwestern Bell Savings Plan for Salaried Employees plus
the Annualized Total Unit Deferral Amounts for all Units of
Participation in a given year may not exceed thirty percent
(30%) of a Participant's Compensation for that year.
4.2 Termination of Election. A Participant's election to
defer Compensation is irrevocable upon the filing of his Election
Form with the Administrative Committee, provided, however, that
the election may be terminated with respect to Compensation not
yet paid by mutual agreement in writing between the Participant
and the Administrative Committee. Such termination if approved
shall be effective beginning the first day of the month following
the execution of such mutual agreement.
<PAGE>
5
Section 5 - Deferred Compensation
5.1 Deferred Compensation Account. The Administrative
Committee shall establish and maintain a separate Deferred
Compensation Account for each Participant for each Unit of
Participation. Each of a Participant's Deferred Compensation
Accounts will be credited from time to time with interest on the
balance compounded at an eight percent (8%) annual rate.
5.2 Total Unit Deferral Amount. The Participant's Total Unit
Deferral Amount is deferred in equal amounts on a monthly basis
over the Unit Deferral Period or as otherwise may be permitted by
the Administrative Committee. The amount deferred each month
with respect to a given Unit of Participation shall be credited
by the Employer to the Participant's Deferred Compensation
Account for that Unit of Participation on the last day of such
month.
The Participant will be permitted to complete deferrals of
the Total Unit Deferral Amount on an accelerated basis over a
shorter period than the original Unit Deferral Period at such
times and in such manner as may be permitted by the
Administrative Committee. In this connection the Administrative
Committee may permit a Participant to defer an additional amount
or percent of his Compensation and/or all or a portion of his
Short Term Incentive Award, subject to the limitations contained
in Section 4.1. Any acceleration in deferrals by a Participant
with respect to a given Unit of Participation shall not increase
the Total Unit Deferral Amount and shall not cause any change in
the amounts of the benefits payable pursuant to Section 6 on
account of such Unit of Participation or any change in the
maximum Employer Contribution pursuant to Section 5.3 for the
year, but shall be applied proportionally as a credit against the
Total Unit Deferral Amount and Equivalent Employer Contribution
Shortfall and shorten the length of the Unit Deferral Period for
such Unit of Participation. In no event shall any such increase
in deferrals by a Participant result in any reduction in the
amounts by which the Participant's Compensation is reduced in
subsequent years pursuant to Exhibit A to the Participant's
Agreement with respect to such Unit of Participation prior to
completion of deferral of the Total Unit Deferral Amount for such
Unit of Participation. Equivalent Employer Contribution
Shortfall shall mean an amount equal to the Employer Contribution
that would be associated with the accelerated deferral if said
deferral amount was deferred in the manner as originally agreed
upon as timely. Amounts credited against Equivalent Employer
Contribution Shortfall shall be immediately vested.
<PAGE>
6
5.3 Employer Contribution. Participation in this Plan does
not preclude participation in the Southwestern Bell Corporation
Savings Plan for Salaried Employees. For a given year, the
aggregate Employer contribution to both the Savings Plan for
Salaried Employees and this Plan on behalf of a Participant will
be an amount equal to the Company Match Rate Expressed as a
Percent* as in effect during all or portions of that year times
the Participant's Compensation as in effect during all or
portions of that year which is contributed or deferred during
that year in accordance with each Plan, respectively. Any amount
of Employer contribution not allocated to the Savings Plan for
Salaried Employees will be credited to the Participant's Deferred
Compensation Accounts. The amount or percent of a Participant's
Compensation to be allocated to Basic Allotments in the Savings
Plan for Salaried Employees shall be specified in Paragraph 3 of
his Agreement.
5.4 Vesting of Deferred Compensation Account. A Participant's
interest in his Deferred Compensation Account shall vest at the
same rate and in the same manner as it would under the
Southwestern Bell Corporation Savings Plan for Salaried
Employees, as in effect from time to time, had both the amount of
the Participant's Deferral Amount and the Employer contribution
with respect to that Participant's Deferral Amount for any given
Unit of Participation been contributed instead to the Savings
Plan for Salaried Employees. For this purpose all years of
previous participation under the Savings Plan for Salaried
Employees, for purposes of determining a Participant's vested
interest under that Plan, shall be taken into account in
determining the Participant's vested interest under this Plan.
Section 6 - Benefits
6.1 Normal Retirement. Upon Normal Retirement, Employer shall
pay to Participant the amount per month specified in Paragraph 6
of his Agreement for a period of one hundred eighty (180) months
("Standard Retirement Benefit"). Alternatively, a Participant
may elect to receive the
* The Company Match Rate Expressed as a Percent means the maximum
percent of salary that can be received as Employer matching
contribution under the Southwestern Bell Corporation Savings Plan
for Salaried Employees, e.g., a match of 66 2/3% of the amount of
basic allotment (up to 6%) of salary results in a Company Match
Rate Expressed as a Percent of .667 x 6% = 4%.
<PAGE>
7
present value equivalent of his Standard Retirement Benefit
("Alternative Retirement Benefit"). He may elect in his
Agreement to receive this Alternative Retirement Benefit as (i) a
lump sum payment, (ii) sixty (60) monthly installments, or (iii)
one hundred twenty (120) monthly installments. Any such election
once made shall be irrevocable.
Notwithstanding the foregoing, a Participant may elect in
his Agreement to defer the time by which he is required to elect
the manner of payment of any Alternative Retirement Benefit until
no later than the last day of the calendar year preceding the
calendar year in which Normal Retirement takes place. Any such
deferred election must be made in writing to the Administrative
Committee. If a Participant's Agreement fails to show an
election of a manner of payment of an Alternative Retirement
Benefit, or if the Participant, having chosen to defer his
election, fails to make a timely election, such Participant will
receive the Standard Retirement Benefit upon his Normal
Retirement.
In the event that a final determination shall be made by
the Internal Revenue Service or any court of competent
jurisdiction that by reason of Normal Retirement a Participant
has recognized gross income for Federal Income tax purposes in
excess of the Standard or Alternative Retirement Benefit actually
paid by the Employer to which such gross income is attributable,
the Employer shall deem the Participant to have elected a lump
sum payment of his Alternative Retirement Benefit effective as of
his Normal Retirement. Under these circumstances, the Employer
shall pay to the Participant in one lump sum, within sixty (60)
days of such final determination, an amount equal to the excess
of (a) the lump sum Alternative Retirement Benefit that would
have been payable to the Participant had the Participant so
elected such an Alternative Retirement Benefit in his Agreement
plus interest thereon of 10% per annum, compounded annually, from
a Participant's Normal Retirement until receipt of such lump sum
payment, less (b) any amounts of Standard or Alternative
Retirement Benefit theretofore paid to such Participant plus
interest thereon at 10% per annum, compounded annually from the
date of receipt of each such amount to the date a Participant
received such lump sum payment. If a benefit is payable to a
Participant pursuant to this paragraph, no other Standard or
Alternative Retirement Benefit shall be payable under the Plan.
If a Participant who is entitled to either a Standard or
Alternative Retirement Benefit dies after his Normal Retirement,
his Beneficiary shall be entitled to receive
<PAGE>
8
the remaining installments, if any, of such Standard or
Alternative Retirement Benefit.
6.2 Early Retirement. Upon Early Retirement after deferral of
a Participant's Total Unit Deferral Amount, Employer shall pay to
Participant commencing on the date he attains age sixty-five (65)
the Standard or Alternative Retirement Benefit as specified in
Paragraphs 6 and 7 of his Agreement.
A Participant may elect in his Agreements to commence
payment, following his Early Retirement and completion of
deferral of his Total Unit Deferral Amount, of any Standard or
Alternative Retirement Benefit at a date prior to the
Participant's attainment of age sixty-five (65), but no earlier
than eight years following the Unit Start Date. However, in such
event, the amount of the Standard Retirement Benefit shall be
reduced by the result of multiplying (i) fifty one-hundredths of
one percent (0.50%) of such Early Retirement Benefit by (ii) the
number of whole and fractional months between the Participant's
age on the date of commencement of benefits and the date on which
the Participant will attain age sixty-five (65). The amount of
any Alternative Retirement Benefit payable pursuant to this
paragraph shall be the actuarial equivalent of the Standard
Retirement Benefit payable pursuant to this paragraph. Any such
election in any Agreement once made shall be irrevocable.
Notwithstanding the foregoing, a Participant may elect in
his Agreement to defer the time by which he is required to elect
commencement of payment of Standard Retirement Benefit or
Alternative Retirement Benefit until no later than the last day
of the calendar year preceding the calendar year in which the
Participant's Early Retirement takes place. Any such deferred
election must be made in writing to the Administrative Committee.
If a Participant's Agreements fail to show an election as to
timing of commencement of payment of a Standard or Alternative
Early Retirement Benefit, or if the Participant, having chosen to
defer his election, fails to make a timely election, such
Participant's Standard or Alternative Retirement Benefit, if any,
shall commence as of the date he reaches age sixty-five (65) in
accordance with the first paragraph of this Section 6.2.
In the event that a final determination shall be made by
the Internal Revenue Service or any court of competent
jurisdiction that by reason of Early Retirement a Participant has
recognized gross income for Federal income tax purposes prior to
the actual payment to such Participant of the Standard or
Alternative Retirement
<PAGE>
9
Benefit to which such gross income is attributable, the Employer
shall deem the Participant to have elected a Standard or
Alternative Retirement Benefit commencing on the date as of which
such Participant is determined to have recognized his first
payment of Standard or Alternative Retirement Benefit. Under
these circumstances, the Employer shall pay to the Participant in
one lump sum within sixty (60) days following such final
determination an amount equal to the sum of (a) the excess of (i)
the aggregate of the payments that would have been made to the
Participant through such date had the Participant so elected such
a Standard or Alternative Retirement Benefit over (ii) any
amounts of Standard or Alternative Retirement Benefits
theretofore paid to such Participant and (b) 10% per annum
interest, compounded annually, on such payments from the date
each would otherwise have been made had such Standard or
Alternative Retirement Benefit been elected until the date of
actual payment. Thereafter, the Employer shall pay to the
Participant the remaining installments of Standard or Alternative
Retirement Benefit in accordance with the deemed Standard or
Alternative Retirement Benefit election described in the
preceding two sentences. If a benefit is payable to a
Participant pursuant to this paragraph, no other Standard or
Alternative Retirement Benefit shall be payable under the Plan.
If a Participant dies subsequent to commencement of
payment of a Standard or Alternative Retirement Benefit, his
Beneficiary shall be entitled to receive the remaining
installments of Standard or Alternative Retirement Benefit, if
any.
If a Participant dies after his Early Retirement or
eligibility for Early Retirement and after his eligibility to
commence payments of his Standard or Alternative Retirement
Benefit, his Beneficiaries will receive his Standard or
Alternative Retirement Benefit as if payments had commenced on
the date of the Participant's death.
If a Participant dies after his Early Retirement or
eligibility for Early Retirement but prior to is eligibility to
commence payments of his Standard or Alternative Retirement
Benefit, his Beneficiaries will receive a Pre-Retirement Survivor
Benefit in accordance with Section 6.4.
6.3 Termination Benefit.
a. Termination of Employment Before Attaining Age 55 or
After Attaining Age 55 but Prior To Completion of
Deferral of Total Unit Deferral Amount. Upon any
termination of employment of the Participant for
reasons other than death before the Participant
attains age fifty-five
<PAGE>
10
(55), or after the Participant attains age fifty-
five (55) but before the Participant completes
deferral of his Total Unit Deferral Amount, the
Company shall pay to the Participant, with respect
to each Unit of Participation if Participant
terminates employment before attaining age fifty-
five (55), or with respect to each Unit of
Participation for which deferrals have not been
completed if Participant terminates employment after
attaining age fifty-five (55) but before completing
deferral of his Total Unit Deferral Amount, as
Compensation earned for services rendered prior to
his termination of service, a lump sum equal to the
vested portion of the amounts standing credited to
his Deferred Compensation Account as of the date of
such termination of service ("Termination Benefit").
b. Termination of a Unit of Participation. A
Participant may discontinue a Unit of Participation
while continuing in the service of the Employer.
Notwithstanding any other provision of the Plan,
upon such discontinuance, the Participant shall
immediately cease to be eligible for any benefits
other than his Termination Benefit with respect to
that Unit of Participation. No other benefit shall
be payable with regard to his Unit of Participation
to either the Participant or any Beneficiary of such
Participant. The Participant shall continue to be
credited with interest on the amounts standing
credited to his Deferred Compensation Accounts as
provided under Section 5.1 and to vest in such
amounts as provided under Section 5.4 while he
remains in employment with the Employer until
payment of his Termination Benefit. However, no
further Participant deferrals or Employer
contributions shall be made pursuant to Sections 5.2
or 5.3 with respect to a Unit of Participation
after a Participant discontinues or terminates such
Unit of Participation.
A Participation shall terminate a Unit of
Participation if he terminates his election to defer
Compensation with the approval of the Administrative
Committee pursuant to Section 4.2.
<PAGE>
11
6.4 Pre-Retirement Survivor Benefit. If the Participant dies
prior to his eligibility for Early Retirement while in service
with the Employer, the Employer shall pay to the Participant's
Beneficiary the amount per month specified in paragraph 5 of his
Agreement for the greater of one hundred twenty (120) months or
the number of months from the date of Participant's death until
he would have been age 65. ("Pre-Retirement Survivor Benefit".)
6.5 Additional Benefit. The reduction of any benefit payable
under the Southwestern Bell Corporation Management Pension Plan,
which results from participation in this Plan, will be restored
as an additional benefit under this Plan or any other comparable
deferral plan. The Company shall have the option to pay in a
lump sum the present value equivalent of the pension retirement
benefit (life annuity).
6.6 Survivor Spouse Benefit. If a Participant dies subsequent
to eligibility to commence payment of a Standard or Alternative
Retirement Benefit, and has a surviving spouse, the Employer
shall pay to the spouse commencing on the later of (a) the
sixteenth (16th) year after commencement of payment of any
Standard or Alternative Retirement Benefit or (b) the first of
the month following the Participant's death, an amount per month
for the life of the spouse equal to sixty-six and two-thirds
percent (66-2/3%) of the Standard Retirement Benefit. If the
spouse is more than three (3) years younger or older than the
Participant on the date of Participant's death, the amount of
such benefit shall be actuarially adjusted based on standard
mortality tables.
6.7 Disability. In the event that a Participant suffers a
Disability, amounts that otherwise would have been credited to
the Deferred Compensation Accounts of the Participant in
accordance with Sections 5.2 and 5.3 will continue to be credited
to such Deferred Compensation Accounts at the same times and in
the same amounts as they would have been credited if the
Participant had not suffered a Disability. During such
Disability, deferrals shall continue to be made by the
Participant in accordance with Section 5.2 for as long as he is
eligible to receive monthly disability benefits equal to 100
percent of his monthly base salary at the time of his Disability.
If the Participant is no longer eligible to receive monthly
disability benefits equal to 100 percent of his monthly base
salary at the time of his Disability, the deferrals which would
otherwise have been made by the Participant in accordance with
Section 5.2 shall be contributed by the Employer. Employer
contributions shall continue to be made by the Employer in
accordance with Section 5.3.
<PAGE>
12
If the Participant recovers from his Disability and
returns to employment with the Employer in an employment status
which would make him eligible to participate in this Plan or
another similar Deferred Compensation Plan of the Employer, the
Participant shall resume making deferrals in accordance with
Section 5.2 and shall thereafter repay any amounts which were
previously contributed by the Employer in lieu of deferrals which
would otherwise have been made by the Participant in accordance
with Section 5.2. Such repayment shall be made following the end
of the Unit Deferral Period in monthly amounts equal to the
Amount Deferred per Month during the Unit Deferral Period as
shown on Exhibit A, or such larger amounts as the Participant may
elect. The amounts to be repaid by the Participant shall be
equal to the amounts contributed by the Employer which would
otherwise have been deferred by the Employee pursuant to
Section 5.2, compounded at an eleven percent (11%) annual rate on
all such amounts from the date of crediting such amounts to the
Participant's Deferred Compensation Account until repaid.
All Participant deferrals and Employer contributions shall
cease upon the happening of the earliest of the following:
(a) the Participant's death;
(b) the Participant's attainment of age 65; or
(c) the Participant's election to take Early Retirement
under the Plan.
If a Participant's Disability terminates by reason of his
death, the rights of his Beneficiary shall be those pursuant to
whichever of Section 6.1, 6.2, 6.4, 6.5, or 6.6 would have been
applicable if the Participant had not been disabled but rather
had been in service on the date of his death and either died or
retired on such date, whichever would be most advantageous to
such Beneficiary. If a Participant's Disability terminates by
reason of (b) above, the Participant shall be treated as having a
Normal Retirement upon the attainment of age 65 and shall be
entitled to a Normal Retirement Benefit determined pursuant to
Section 6.1, subject to reduction as provided below in the
following paragraph. If a Participant's Disability terminates by
reason of (c) above, the Participant shall be treated as having
an Early Retirement on the date elected by the Participant and
shall be entitled to an Early Retirement Benefit determined
pursuant to Section 6.2, subject to reduction as provided below
in the following paragraph.
A reduction shall be made in the Normal Retirement or
Early Retirement Benefit paid to the Participant or his
Beneficiary, with respect to any Unit of Participation for
<PAGE>
13
which a portion of the Total Unit Deferral Amount required under
Section 5.2 has been contributed by the Employer rather than from
deferrals by the Employee, unless such amount has been repaid by
the Employee as described in the second paragraph of this
Section 6.7. Each payment of the Normal or Early Retirement
Benefit shall be reduced by the amount necessary to amortize over
such payments an amount equal to the sum of (i) the amounts
contributed by the Employer which would otherwise have been
deferred by the Employee pursuant to Section 5.2 plus (ii) the
amounts contributed by the Employer pursuant to Section 5.3 which
are matching contributions based on amounts described in (i)
above, compounded at an eleven percent (11%) annual rate on all
such amounts from the date of crediting such amounts to the
Participant's Deferred Compensation Account until deducted from
amounts paid to the Participant.
6.8 Emergency Benefit. In the event that the Administrative
Committee, upon written petition of the Participant, determines
in its sole discretion, that the Participant has suffered an
unforeseeable financial emergency, the Employer shall pay to the
Participant, as soon as practicable following such determination,
an amount necessary to meet the emergency not in excess of the
Termination Benefit to which the Participant would have been
entitled pursuant to Section 6.3 if he had a termination of
service on the date of such determination (the "Emergency
Benefit"). For purposes of this Plan, an unforeseeable financial
emergency is an unexpected need for cash arising from an illness,
casualty loss, sudden financial reversal, or other such
unforeseeable occurrence. Cash needs arising from foreseeable
events such as the purchase of a house or education expenses for
children shall not be considered to be the result of an
unforeseeable financial emergency. The amount of the benefit
otherwise payable under Sections 6.l, 6.2, 6.3, 6.4, 6.5, 6.6 or
6.7 shall thereafter be actuarially adjusted to reflect the early
payment of the Emergency Benefit.
6.9 Withholding; Unemployment Taxes. To the extent required
by the law in effect at the time payments are made, the Employer
shall withhold from payments made hereunder the minimum taxes
required to be withheld by the federal or any state or local
government.
6.10 Commencement of Payments. Except as otherwise provided in
this Plan, commencement of payments under this Plan shall begin
sixty (60) days following the event which entitles a Participant
(or a Beneficiary) to payments under the Plan, or at such earlier
date as may be determined by the Administrative Committee.
<PAGE>
14
6.11 Change in Status. In the event of a change in the
employment status of a Participant to a status in which he is no
longer an eligible employee under this Plan, but is an eligible
employee under the Management Deferred Compensation Plan or
another similar deferred compensation plan of the Employer, the
Participant and all of his Units of Participation under this Plan
shall automatically be transferred to such other deferred
compensation plan for which he is then an eligible employee,
unless otherwise determined by the Administrative Committee. In
the event of any such transfer, the provisions of the other
deferred compensation plan to which the Participant transfers
shall thereafter determine the rights and benefits of the
Participant with respect to all of his Units of Participation,
unless otherwise determined by the Administrative Committee. The
Employer may, but shall not be required to, enter into revised
Agreements with the Participant to carry out the provisions of
this Section.
6.12 Transfer to RWAC. Effective August 1, 1990, if a
Participant transfers to a RWAC prior to completion of a Unit of
Participation, deferrals which would otherwise have been made by
the Participant in accordance with Section 5.2 shall continue to
be made by the Employer until the Participant resumes employment
with the Employer but for a maximum period not to exceed 5 years.
Contributions which would have been made by the Employer in
accordance with Section 5.3 shall also continue to be made by the
Employer during such period as Participant contributions are
continued in accordance with the preceding sentence. Benefits
applicable during the period of employment at a RWAC (not to
exceed 5 years) and the methods used for crediting the Deferred
Compensation Account and repaying amounts contributed by the
Employer and reducing the Normal Retirement or Early Retirement
Benefit paid to the Participant or his Beneficiary shall be the
same as those applicable pursuant to Section 6.7 in the case of
Disability, i.e., employment at a RWAC shall be deemed a
Disability for the purpose of making determinations pursuant to
Section 6.7. If the Participant has not resumed employment with
the Employer or has not completed a Unit of Participation as
result of Employer Contributions within 5 years from date of
transfer, a Termination Benefit based on the amounts credited to
the Participant's Deferred Compensation Account at the date of
transfer shall be paid upon termination of employment with a RWAC
or the expiration of such 5 year period whichever is earlier.
6.13 Leave of Absence. Effective January 1, 1985, if a
Participant absents himself from employment on a formally granted
leave of absence (i.e., the absence is with formal permission in
order to prevent a break in the continuity of the Employee's term
of employment which permission is
<PAGE>
15
granted in conformity with the rules of the Employer which
employs the individual, as adopted from time to time) prior to
completion of a Unit of Participation, deferrals which would
otherwise have been made by the Participant in accordance with
Section 5.2 shall continue to be made by the Employer until the
Participant resumes employment with the Employer but for a
maximum period not to exceed 6 months. Contributions which would
have been made by the Employer in accordance with Section 5.3
shall also continue to be made by the Employer during such period
as Participant contributions are continued in accordance with the
preceding sentence.
Benefits applicable during the leave of absence (not to
exceed 6 months) and the methods used for crediting the Deferred
Compensation Account and repaying amounts contributed by the
Employer and reducing the Normal Retirement or Early Retirement
Benefit paid to the Participant or his Beneficiary shall be the
same as those applicable pursuant to Section 6.7 in the case of
Disability, i.e, the leave of absence shall be deemed a
Disability for the purpose of making determination pursuant to
Section 6.7, except in the case of a political leave (i.e., to
campaign for or serve when elected to political office, to serve
if appointed to public office or for non-candidate employees to
participate in campaigns of candidates for political office) the
only benefit payable if the Participant dies during such leave
shall be a Termination Benefit based on the amounts credited to
the Participant's Deferred Compensation Account on the date of
commencement of the leave which shall be payable to the
Participant's Beneficiary. If the Participant has not resumed
employment with the Employer within 6 months from the
commencement of the leave of absence, a Termination Benefit based
on the amounts credited to the Participant's Deferred
Compensation Account at the commencement of the leave of absence
shall be paid to the Participant.
Section 6.7 of this Plan and not this Section 6.13 shall
apply with respect to any period during which a Participant is
suffering a Disability and such period of Disability shall not be
included under this Section 6.13 as a portion of a period of
leave of absence.
6.14 Ineligible Participant. Notwithstanding any other
provisions of this Plan to the contrary, if any Participant is
determined not to be a "management or highly compensated
employee" within the meaning of the Employee Retirement Income
Security act of 1974, as amended (ERISA) or Regulations
thereunder, such Participant will not be eligible to participate
in this Plan and shall receive an immediate lump sum payment
equal to the vested portion of
<PAGE>
16
the amounts standing credited to his Deferred Compensation
Accounts with interest on the balance compounded at an eight
percent (8%) annual rate. Upon such payment no survivor benefit
or other benefit shall thereafter by payable under this Plan
either to the Participant or any Beneficiary of the Participant,
except as provided under Section 6.5.
Section 7 - Beneficiary Designation
Each Participant shall have the right, at any time, to
designate any person or persons as his Beneficiary or
Beneficiaries (both primary as well as contingent) to whom
payment under this Plan shall be made in the event of his death
prior to complete distribution to Participant of the benefits due
him under the Plan. Each Beneficiary designation shall become
effective only when filed in writing with the Administrative
Committee during the Participant's lifetime on a form prescribed
by the Administrative Committee with written acknowledgment of
receipt.
The filing of a new Beneficiary designation form will
cancel all Beneficiary designations previously filed. The spouse
of a married Participant domiciled in a community property
jurisdiction shall join in any designation of Beneficiary or
Beneficiaries other than the spouse.
If a Participant fails to designate a Beneficiary as
provided above, or if all designated Beneficiaries predecease the
Participant or die prior to complete distribution of the
Participant's benefits, then the Administrative Committee shall
direct the distribution of such benefits to the Participant's
estate.
Section 8 - Termination, Amendment
8.l Employer's Right to Terminate Plan. The Board may at any
time terminate the Plan. Termination of the Plan shall mean that
(1) Base Salary shall prospectively cease to be deferred with
respect to all Units of Participation for the then Plan Year and
thereafter; and (2) all then currently existing Units of
Participation shall be treated as follows:
The Participant's Deferred Compensation Accounts shall be
100% vested. The Participant shall receive or continue to
receive all benefits under this Plan at such time as
provided in and pursuant to the terms and conditions of
his Agreement(s) and as described in this Plan, provided
however, any benefits payable under a Unit of
Participation that is not completed
<PAGE>
17
due to a termination of the Plan under this Section 8.1
shall be prorated based upon the amount in the Deferred
Compensation Account for that Unit of Participation as of
said Plan termination divided by the Total Unit Deferral
amount for that Unit of Participation.
8.2 Amendment. The Board may at any time amend the Plan in
whole or in part, provided however, that no amendment, including
an amendment to this Section 8, shall be effective, without the
written consent of a Participant, to alter, to the detriment of
such Participant, the benefits described in this Plan as
applicable to a Unit of Participation of the Participant or to
decrease amounts standing credited to such Participant's Deferred
Compensation Accounts under the Plan. For purposes of this
Section 8.2, an alteration to the detriment of a Participant
shall mean a reduction in the period of time over which benefits
are payable under a Participant's Agreement, subject however to
the proration provisions of Section 8.1 hereof, or any change in
the form of benefits payable to a Participant under the
Participant's Agreement. Written notice of any amendment shall
be given to each Participant.
Section 9 - Miscellaneous
9.l Unsecured General Creditor. Participants and their
Beneficiaries, heirs, successors, and assigns shall have no legal
or equitable rights, interest, or claims in any property or
assets of Employer, nor shall they be Beneficiaries of, or have
any rights, claims, or interests in any life insurance policies,
annuity contracts, or the proceeds therefrom owned or which may
be acquired by Employer ("Policies"). Any such Policies or other
assets of Employer shall not be held under any trust for the
benefit of Participants, their Beneficiaries, heirs, successors,
or assigns, or held in any way as collateral security for the
fulfilling of the obligations of Employer under this Plan. Any
and all of the Employer's assets and Policies shall be, and
remain, the general, unpledged, unrestricted assets of Employer.
Employer's obligation under the Plan shall be merely that of an
unfunded and unsecured promise of Employer to pay money in the
future.
9.2 Trust Fund. The Employer shall be responsible for the
payment of all benefits provided under the Plan. At its
discretion, the Company may establish one or more trusts, for the
purpose of providing for the payment of such benefits. Such
trust or trusts may be irrevocable, but the assets thereof shall
be subject to the claims of the Employer's creditors. To the
extent any benefits provided
<PAGE>
18
under the Plan are actually paid from any such trust, the
Employer shall have no further obligation with respect thereto,
but to the extent not so paid, such benefits shall remain the
obligation of and shall be paid by, the Employer.
9.3 Obligations to Employer. If a Participant becomes
entitled to a distribution of benefits under the Plan, the
Employer may offset against the amount of benefits otherwise
distributable any claims to reimbursement for intentional
wrongdoing by the Participant against the Employer or an
affiliate. Such determination shall be made by the
Administrative Committee.
9.4 Non-Assignability. Neither a Participant nor any other
person shall have any right to commute, sell, assign, transfer,
pledge, anticipate, mortgage, or otherwise encumber, transfer,
hypothecate or convey in advance of actual receipt the amounts,
if any, payable hereunder, or any part thereof, which are, and
all rights to which are, expressly declared to be unassignable
and non-transferable. No part of the amounts payable shall,
prior to actual payment, be subject to seizure or sequestration
for the payment of any debts, judgments, alimony or separate
maintenance owed by a Participant or any other person, nor be
transferable by operation of law in the event of a Participant's
or any other person's bankruptcy or insolvency.
9.5 Employment Not Guaranteed. Nothing contained in this Plan
nor any action taken hereunder shall be construed as a contract
of employment or as giving any Employee any right to be retained
in the employ of the Employer or to serve as a director.
9.6 Protective Provisions. A Participant will cooperate with
the Employer by furnishing any and all information requested by
the Employer, in order to facilitate the payment of benefits
hereunder, taking such physical examinations as the Employer may
deem necessary and taking such other relevant action as may be
requested by the Employer. If a Participant refuses so to
cooperate, the Employer shall have no further obligation to the
Participant under the Plan. If a Participant commits suicide
during the two-year period beginning on the Unit Start Date for a
given Unit of Participation or if the Participant makes any
material misstatement of information or non-disclosure of medical
history, then no benefits will be payable with respect to that
Unit of Participation to such Participant or his Beneficiary, or
in the Employer's sole discretion, benefits may be payable in a
reduced amount.
<PAGE>
19
9.7 Gender, Singular and Plural. All pronouns and any
variations thereof shall be deemed to refer to the masculine or
feminine, as the identity of the person or persons may require.
As the context may require, the singular may be read as the
plural and the plural as the singular.
9.8 Waiver of Benefits. No benefit shall be payable under the
provisions of this Plan with respect to any Participant who is or
was a member of a group of employees designated by an Employer as
eligible to waive such benefit if such Participant has waived
such benefit under this Plan unless the Employer by which such
Participant is or was last employed has authorized the revocation
of such waiver and such Participant has revoked such waiver.
9.9 Captions. The captions of the articles, sections, and
paragraphs of this Plan are for convenience only and shall not
control nor affect the meaning or construction of any of its
provisions.
9.10 Applicable Law. This Plan shall be governed and construed
in accordance with the laws of the State of Missouri.
9.11 Validity. In the event any provision of this Plan is held
invalid, void, or unenforceable, the same shall not affect, in
any respect whatsoever, the validity of any other provision of
this Plan.
9.12 Notice. Any notice or filing required or permitted to be
given to the Committee under the Plan shall be sufficient if in
writing and hand delivered, or sent by registered or certified
mail, to the principal office of the Employer, directed to the
attention of the Vice President-Human Resources of the Employer.
Such notice shall be deemed given as of the date of delivery or,
if delivery is made by mail, as of the date shown on the postmark
on the receipt for registration or certification.
<PAGE>
20
SOUTHWESTERN BELL CORPORATION
SENIOR MANAGEMENT
DEFERRED COMPENSATION PLAN AGREEMENT
THIS AGREEMENT is made and entered into at
St. Louis, Missouri as of the 31st day of December, 1983, by and between
SOUTHWESTERN BELL CORPORATION ("Company"), and ___________________________
("Senior Manager").
WHEREAS, the Company has adopted a Senior Management Deferred
Compensation Plan (the "Plan"); and
WHEREAS, The Senior Manager has been determined to be eligible
to participate in the Plan; and
WHEREAS, the Plan requires that an agreement be entered into
between the Company and the Senior Manager setting out certain terms and
benefits of the Plan as they apply to the Senior Manager;
NOW, THEREFORE, the Company and the Senior Manager hereby agree
as follows:
1. The Plan is hereby incorporated into and made a part of this
Agreement, as though set forth in full herein. The parties shall be
bound by, and have the benefit of, each and every provision of the Plan,
including without limitation the restrictions on assignability set forth
in the Plan.
2. The Senior Manager was born on ______________.
3. The Senior Manager's basic allotment percentage in the
Southwestern Bell Corporation Savings Plan for Salaried Employees is
____ percent (__%) of his Compensation. Any subsequent change in this
level of participation by the Senior Manager will void this Agreement
and require that a new Agreement be entered into between the Employer
and the Senior Manager.
<PAGE>
21
4. The Senior Manager's Compensation during a calendar year shall
be reduced in accordance with Exhibit A attached to this Agreement.
5. The amount per month of Pre-Retirement Survivor Benefit in
accordance with Section 6.4 of the Plan is $________, payable for the
greater of ten (10) years or the number of years from the date of
Participant's death until he would have been age 65.
6. The amount per month of Standard Retirement Benefit in
accordance with Section 6.1 of the Plan is $_________, payable for a
period of 180 months commencing the first day of the month following
Participant's 65th birthday.
7. Upon Normal or Early Retirement, the Participant hereby elects:
(please initial (a), (b) or (c))
(a) ____ To receive a Standard Retirement Benefit, payable for a
period of one hundred eighty (180) months.
(b) ____ To receive an Alternative Retirement Benefit to be paid
in accordance with one of the following payment modes:
(please initial one of the following)
(i) ____ In a lump sum payment.
(ii) ____ In equal monthly installments for a period
of sixty (60) months.
(iii) ____ In equal monthly installments for a period
of one hundred twenty (120) months.
(c) ____ The Participant elects to defer the making of an election
as to whether to receive a Standard Retirement Benefit or
an Alternative Retirement Benefit until no later than the
last day of the calendar year preceding the calendar year
in which Normal or Early Retirement takes place.
<PAGE>
22
8. The Participant hereby elects to receive any Early
Retirement Benefit as follows (please initial one of the
following):
(a) ______. Commencing at age 65.
(b) ______. Commencing at Early Retirement.
(c) ______. The Participant elects to defer the making of
an election as to the time of commencement of
Standard or Alternative Retirement Benefit
until no later than the last day of the
calendar year preceding the calendar year in
which the Participant's Early Retirement
takes place.
9. This Agreement shall inure to the benefit of, and be
binding upon, the Company, its successors and assigns, and the
Senior Manager and his Beneficiaries.
IN WITNESS WHEREOF, the parties hereto have signed and
entered into this Agreement on and as of the date first above written.
THE COMPANY:
By_________________________________
Its Senior Vice President-
Human Resources
SENIOR MANAGER: _________________________ _______
Signature Date
<PAGE>
23
SOUTHWESTERN BELL CORPORATION
SENIOR MANAGEMENT
DEFERRED COMPENSATION PLAN AGREEMENT
Exhibit A
19__ Unit of Participation
Unit Start Date: _________, 19__ Unit Deferral Period: __ Months
Annual Amount (1)
Year Deferred
---- -----------------
1. Unit Start Date:
1984 (commencing the first day
of the month of ________) $ _________
2. 1985 _________
3. 1986 _________
4. 1987 _________
5. 1988 _________
6. 1989 _________
7. 1990 _________
8. 1991 _________
9. 1992 (ending the last day of
the month of ________) _________
Total Unit
Deferral Amount $___________
- -----------------------------------------------------------------
(1) This amount will be deferred in equal amounts on a monthly
basis.
<PAGE>
Southwestern Bell Corporation
Senior Management
Deferred Compensation Program
of 1988
Consisting of the following (attached hereto):
(1) Southwestern Bell Corporation Senior Management
Deferred Compensation Plan of 1988
(2) Southwestern Bell Corporation Senior Management
Deferred Compensation Plan of 1988 (Early Payment
Option)
EFFECTIVE FOR UNITS OF PARTICIPATION
HAVING A UNIT START DATE OF
JANUARY 1, 1988 OR LATER
AND
Prior to January 1, 1991
Effective: January 1, 1988
Revised: July 30, 1993
<PAGE>
Southwestern Bell Corporation
Senior Management
Deferred Compensation Plan
of 1988
EFFECTIVE FOR UNITS OF PARTICIPATION
HAVING A UNIT START DATE OF
JANUARY 1, 1988 OR LATER
AND
PRIOR TO JANUARY 1, 1991
Effective: January 1, 1988
Revised and Restated: July 30, 1993
<PAGE>
INDEX
Section Subject Page
- ------- ------- ----
1 Statement of Purpose 1
2 Definitions 1
3 Administration of the Plan 5
4 Participation 6
4.1 Election to Commence a Unit
of Participation
4.2 Termination of Election
5 Deferred Compensation 6
5.1 Deferred Compensation Account
5.2 Participant Deferrals
5.3 Employer Contribution
5.4 Vesting of Deferred
Compensation Account
5.5 Valuation of Account
5.6 Statement of Accounts
6 Retirement Benefits 9
6.1 Normal Retirement
6.2 Early Retirement
6.3 Provisions Relating to
Manner and Time of Payments
6.4 Termination Benefit
6.5 Disability
6.6 Survivor Benefits
7 INTENTIONALLY OMITTED 17
8 Payment of Benefits 17
8.1 INTENTIONALLY OMITTED
8.2 Small Benefit
8.3 Emergency Benefit
8.4 Commencement of Payments
8.5 Withholding; Unemployment Taxes
8.6 Change in Status
8.7 Transfer to Bellcore
8.8 Leave of Absence
8.9 Ineligible Participant
9 Beneficiary Designation 20
<PAGE>
2
10 Discontinuation, Termination, Amendment 20
10.1 Employer's Right to Discontinue
Offering Units
10.2 Employer's Right to Terminate
Plan
10.3 Amendment
11 Miscellaneous 22
11.1 Unsecured General Creditor
11.2 Trust Fund
11.3 Obligations to Employer
11.4 Non-Assignability
11.5 Employment Not Guaranteed
11.6 Protective Provision
11.7 Gender, Singular and Plural
11.8 Waiver of Benefits
11.9 Captions
11.10 Applicable Law
11.11 Validity
11.12 Notice
11.13 Successors and Assigns
AGREEMENT 25
<PAGE>
1
Senior Management
Deferred Compensation Plan of 1988
Section 1 - Statement of Purpose
The purpose of the Senior Management Deferred
Compensation Plan of 1988 is to provide retirement,
death, or termination-of-employment benefits to a select
group of management employees consisting of Eligible
Employees of Southwestern Bell Corporation (the "Company")
and its subsidiaries ("Participating Companies").
Section 2 - Definitions
For the purposes of this Plan, the following words and
phrases shall have the meanings indicated, unless the context
clearly indicates otherwise:
1. Administrative Committee. "Administrative
Committee" means a committee of three or more
members, at least one of whom is a Senior Manager, who
shall be designated by the Vice President- Human
Resources to administer the Plan pursuant to Section 3.
2. Agreement. "Agreement" means the written agreement
entitled "Senior Management Deferred Compensation Plan
of 1988 Agreement" (substantially in the form attached
to this Plan) that shall be entered into by the
Employer and a Participant with respect to each Unit of
Participation to carry out the Plan with respect to
such Participant.
3. Annualized Total Unit Deferral Amount. The "Annualized
Total Unit Deferral Amount" means the Total Unit
Deferral Amount divided by four.
4. Base Salary. "Base Salary" means the Participant's
annual base salary before reduction pursuant to this
Plan or any plan of the Employer whereby compensation
is deferred, including but not limited to a plan
whereby compensation is deferred in accordance with
Section 401(k) of the Internal Revenue Code.
<PAGE>
2
Section 2 - Definitions (cont'd)
5. Beneficiary. "Beneficiary" means the person or persons
designated as such in accordance with Section 9.
6. Board. "Board" means the Board of Directors of
Southwestern Bell Corporation.
7. Compensation. "Compensation" means the Participant's
monthly Base Salary plus any other compensation that is
normally matched in the Southwestern Bell Corporation
Savings Plan for Salaried Employees before reduction
for compensation deferred pursuant to this Plan or any
plan of the Employer whereby compensation is deferred,
including but not limited to a plan whereby
compensation is deferred in accordance with
Section 401(k) of the Internal Revenue Code.
8. Declared Rate. "Declared Rate" means with respect to
any Plan Year the interest rate which will be credited
during such Plan Year on a Participant's Deferred
Compensation Accounts for Units of Participation which
have not yet commenced benefit payments. The Declared
Rate for each Plan Year will be determined by the
Administrative Committee, in its complete and sole
discretion, and will be announced on or before January
1 of the applicable Plan Year; provided that in no
event will the Declared Rate for any Plan Year be less
than the Moody's Corporate Bond Yield Average-Monthly
Average Corporates as published by Moody's Investor's
Service, Inc. (or any successor thereto) for the month
of September before the Plan Year in question, or, if
such yield is no longer published, a substantially
similar average selected by the Administrative
Committee.
9. Deferral Amount. "Deferral Amount" means an amount of
Base Salary deferred with respect to a Unit of
Participation under this Plan.
10. Deferred Compensation Account. "Deferred Compensation
Account" means the account maintained on the books of
account of the Employer for each Participant for each
Unit of Participation pursuant to Section 5.1.
<PAGE>
3
Section 2 - Definitions (cont'd)
11. Disability. "Disability" means a disability as
defined in the Southwestern Bell Corporation Sickness
and Accident Disability Benefit Plan or the
Southwestern Bell Corporation Senior Management Long
Term Disability Plan covering the Participant, as
applicable.
12. INTENTIONALLY OMITTED.
13. INTENTIONALLY OMITTED
14. INTENTIONALLY OMITTED
15. Early Retirement. "Early Retirement" means the
termination of a Participant's employment with Employer
for reasons other than death prior to Normal Retirement
and on or after the date Participant attains age 55.
16. Election Form. The "Election Form" means an Eligible
Employee's written election to participate in the Plan
with respect to each Unit of Participation in
accordance with Section 4.
17. Eligible Employee. "Eligible Employee" means an
Employee of the Employer who (a) is in active service,
(b) is a Senior Manager or has an employment status
which has been approved by the Board or its Chairman to
be eligible to participate in this Plan, and (c) who
continuously maintains the employment status upon which
eligibility to participate in this Plan was based.
18. Employee. "Employee" means any person employed by the
Employer on a regular full-time salaried basis.
19. Employer. "Employer" means Southwestern Bell
Corporation or any of its subsidiaries.
20. Normal Retirement. "Normal Retirement" means
attainment of age 65 during a Participant's employment
with Employer irrespective of whether there is a
termination of Participant's employment with Employer.
21. Participant. "Participant" means an Employee
participating in the Plan in accordance with the
provisions of Section 4.
<PAGE>
4
Section 2 - Definitions (cont'd)
22. Plan Year. "Plan Year" means the calendar year.
23. "Rotational Work Assignment Company. ("RWAC")" shall
mean Bell Communications Research, Inc. ("BellCore"),
formerly the Central Services Organization, Inc.,
and/or any other entity with which Southwestern Bell
Corporation or any of its subsidiaries may enter into
an agreement to provide an employee for a rotational
work assignment.
24. Projected Employer Contribution. "Projected Employer
Contribution" means for purposes of computing the
Pre-Retirement Survivor Benefit with respect to a Unit
of Participation pursuant to Section 6.6(a), the
product of (i) the Company Match Rate Expressed as a
Percent*, as in effect at the time of the Unit Start
Date, times the Participant's annual Base Salary at the
Unit Start Date minus (a) any Employer matching
contribution determined as of the Unit Start Date
associated with said Base Salary at the Unit Start Date
which is then being contributed or is to be contributed
to the Salaried Savings Plan and minus (b) any Employer
matching contribution which has previously been
allocated to a Unit of Participation under this or any
other Employer deferred compensation plan and (ii) the
number of years in the Unit Deferral Period for the
Unit of Participation.
25. Retirement Benefit Option. "Retirement Benefit Option"
means with respect to any Unit of Participation the
Retirement Benefit payment option described in
Section 6.
26. Senior Manager. "Senior Manager" means an individual
employed by Employer in a position having a Salary
Grade of 29 or above or equivalent.
27. Southwestern Bell Corporation Savings Plan for Salaried
Employees. "Southwestern Bell Corporation Savings Plan
for Salaried Employees" or "Salaried Savings Plan"
means the Southwestern Bell Corporation Savings Plan
for Salaried Employees or any successor plan to such
plan adopted by the Employer. Participants from any
subsidiary, permitted to participate in this Plan,
shall be treated as participating in the Southwestern
Bell Corporation Savings Plan for Salaried Employees
for purposes of calculating any matching Employer
contributions.
* The Company Match Rate Expressed as a Percent means the
maximum percent of salary that can be received as Employer
matching contribution under the Southwestern Bell Corporation
Savings Plan for Salaried Employees, e.g., a match of 66 2/3%
of the amount of basic allotment (up to 6%) of salary results
in a Company Match Rate Expressed as a Percent of .667 x 6% =
4%.
<PAGE>
5
Section 2 - Definitions (cont'd)
28. Subsidiary. A "Subsidiary" of the Company is any
corporation, partnership, venture or other entity in
which the Company has at least a 50% ownership
interest.
29. Total Unit Deferral Amount. "Total Unit Deferral
Amount" means the sum of all amounts of Base Salary
deferred during the Unit Deferral Period with respect
to a Unit of Participation, as shown in Exhibit A of
Participant's Agreement for that Unit of Participation.
30. Unit Deferral Period. "Unit Deferral Period" means the
number of months the Participant elects to reduce his
Base Salary with respect to a Unit of Participation, as
shown in Exhibit A of Participant's Agreement for that
Unit of Participation. The Unit Deferral Period for a
Unit of Participation will commence on the Unit Start
Date and end upon the earliest to occur of the
following: (i) the last day of the forty-eight (48)
month period which commenced with the Unit Start Date,
or (ii) when the Participant terminates employment,
terminates the Unit of Participation or ceases to be an
Eligible Employee as described in Section 6.4 of the
Plan. In no event shall the Unit Deferral Period for a
Unit of Participation end later than forty-eight (48)
months after the Unit Start Date.
31. Unit of Participation. "Unit of Participation" means a
stated Total Unit Deferral Amount and associated
Employer contributions which provide stated benefits
pursuant to Section 6 in accordance with the
Participant's Agreement for that Unit of Participation.
32. Unit Start Date. "Unit Start Date" means the date for
commencement of deferrals shown in Exhibit A of a
Participant's Agreement for a given Unit of
Participation. The Unit Start Date will be January 1,
unless the Administrative Committee, in its sole
discretion permits a new Participant to elect a Unit
Start Date within 30 days after such Participant first
becomes an Eligible Employee.
Section 3 - Administration of the Plan
The Administrative Committee shall be the sole
administrator of the Plan and will administer the Plan,
interpret, construe and apply its provisions in accordance
with its terms. The Administrative Committee shall further
establish, adopt or revise such rules and regulations as it
may deem necessary or advisable for the administration of the
Plan. All decisions of the Administrative Committee shall be
final and binding.
<PAGE>
6
Section 4 - Participation
4.1 Election to Commence a Unit of Participation. Any
Eligible Employee may elect to commence deferral of Base
Salary with respect to a Unit of Participation under the Plan
by filing a completed Election Form with the Administrative
Committee prior to the beginning of the Unit Start Date.
Pursuant to said Election Form, the Eligible Employee shall
elect a Total Unit Deferral Amount and a Unit Deferral Period
to be specified in Exhibit A of Participant's Agreement with
respect to such Unit of Participation.
The combination of deferrals from all of the
Participant's Units of Participation including the Unit of
Participation with respect to which the Participant is
electing to commence deferrals and from Units of
Participation under the Southwestern Bell Corporation Senior
Management Deferred Compensation Plan ("SBC DCP"), must be at
least six percent (6%) of Participant's Base Salary at the
Unit Start Date for the Unit of Participation with respect to
which the Participant is electing to commence deferrals. A
Unit of Participation shall require a minimum Annualized
Total Unit Deferral Amount of $1,000. The sum of the
Participant's contributions, if any, to the Southwestern Bell
Corporation Savings Plan for Salaried Employees plus the
Annualized Total Unit Deferral Amounts for all Units of
Participation under this Plan and under the SBC DCP in a
given Plan Year may not exceed thirty percent (30%) of a
Participant's Compensation for that Plan Year.
4.2 Termination of Election. A Participant's election to
defer Base Salary is irrevocable upon the filing of his
Election Form with the Administrative Committee, provided,
however, that the election may be terminated with respect to
Base Salary not yet paid by mutual agreement in writing
between the Participant and the Administrative Committee.
Such termination if approved shall be effective beginning the
first day of the month following the execution of such mutual
agreement.
Section 5 - Deferred Compensation
5.1 Deferred Compensation Account. The Administrative
Committee shall establish and maintain a separate Deferred
Compensation Account for each Participant for each Unit of
Participation. The amount by which a Participant's Base
Salary is reduced each month pursuant to Section 4.1 and the
<PAGE>
7
amount of Employer contribution allocated to the
Participant's Units of Participation pursuant to Section 5.3
with respect to any Unit of Participation shall be credited
by the Employer to the Participant's Deferred Compensation
Account for such Unit of Participation no later than the
first day of the following month, and such Deferred
Compensation Account shall be debited by the amount of any
payments made by the Employer to the Participant or the
Participant's Beneficiary with respect to such Unit of
Participation pursuant to this Plan.
With respect to each Unit of Participation, the
Deferred Compensation Account of a Participant shall be
deemed to bear interest from the date such Deferred
Compensation Account was established through the date of
commencement of benefit payments at a rate equal to the
applicable Declared Rate for the particular Plan Year on the
balance from month-to-month in such Deferred Compensation
Account. Interest will be credited monthly to the Deferred
Compensation Account at one-twelfth of the annual Declared
Rate, compounded annually. Following the commencement of
benefit payments with respect to a Unit of Participation, a
Participant's Deferred Compensation Account shall be deemed
to bear interest on the balance in such Deferred Compensation
Account from month-to-month at a rate equal to one-twelfth of
the average of the annual Declared Rates for the five (5)
Plan Years ending prior to commencement of benefit payments
(or, if the Plan has been in operation for less than five (5)
Plan Years, the average of the Declared Rates for all Plan
Years ending prior to commencement of benefit payments).
5.2 Participant Deferrals. The Participant's Total Unit
Deferral Amount is deferred in equal amounts on a monthly
basis over the Unit Deferral Period or as otherwise may be
permitted by the Administrative Committee. The amount
deferred each month with respect to a given Unit of
Participation shall be credited by the Employer to the
Participant's Deferred Compensation Account for that Unit of
Participation no later than the first day of the following
month.
The Participant will be permitted to defer an
additional amount equal to all or a portion of his Short Term
Incentive Award. A Participant shall not be permitted to
"defer" into the Plan any monies that are not compensation
paid by Employer. Any additional deferrals by a Participant
with respect to a given Unit of Participation shall not
affect Total Unit Deferral Amount and shall not result in any
change in the maximum Employer contribution
<PAGE>
8
Section 5 - Deferred Compensation (cont'd)
pursuant to Section 5.3 for the Plan Year during which the
additional deferral is made. In no event shall any such
additional deferral by a Participant result in any reduction
in the amounts by which the Participant's Base Salary is
reduced pursuant to Exhibit A to the Participant's Agreement
with respect to such Unit of Participation prior to
completion of deferral of the Total Unit Deferral Amount for
such Unit of Participation. Participant's election to defer
all or a portion of his Short Term Incentive Award shall be
filed with the Administrative Committee (on a form to be
provided by said Committee for such purpose) prior to the
beginning of the fiscal year during which such Award is
earned.
Such additional deferral amount shall be considered a
separate part of Participant's Deferred Compensation Account,
shall be subject to the terms thereof except survivor
benefits, and shall be paid out in the same manner as the
rest of such Deferred Compensation Account.
5.3 Employer Contribution. Participation in this Plan does
not preclude participation in the Southwestern Bell
Corporation Savings Plan for Salaried Employees. For a given
Plan Year, the aggregate Employer contribution to both the
Southwestern Bell Corporation Savings Plan for Salaried
Employees and this Plan on behalf of a Participant will be an
amount equal to the Company Match Rate Expressed as a Percent
as in effect during all or portions of that Plan year times
the Participant's Compensation as in effect during all or
portions of that Plan Year which is contributed or deferred
for that Plan Year by the Participant in accordance with each
plan, respectively. Any such amount of Employer contribution
not allocated to the Southwestern Bell Corporation Savings
Plan for Salaried Employees will be credited to the
Participant's Deferred Compensation Accounts, as applicable.
The amount or percent of a Participant's Base Salary to be
allocated to Basic Allotments in the Southwestern Bell
Corporation Savings Plan for Salaried Employees shall be
specified in Paragraph 3 of a Participant's Agreement.
<PAGE>
9
Section 5 - Deferred Compensation (cont'd)
5.4 Vesting of Deferred Compensation Account. A
Participant's interest in his Deferred Compensation Account
shall vest at the same rate and in the same manner as it
would under the Southwestern Bell Corporation Savings Plan
for Salaried Employees, as in effect from time to time, had
both the Deferral Amount and the Employer contribution to
this Plan with respect to that Deferral Amount for any given
Unit of Participation been contributed instead to the
Southwestern Bell Corporation Savings Plan for Salaried
Employees. For this purpose all years of service recognized
under the Southwestern Bell Corporation Savings Plan for
Salaried Employees, for purposes of determining a
Participant's vested interest under that plan, shall be taken
into account in determining the Participant's vested interest
under this Plan.
5.5 Valuation of Accounts. The value of a Deferred
Compensation Account as of any date shall equal the amounts
theretofore credited to such account plus the interest on
such account credited in accordance with Section 5.1 through
the day preceding such date.
5.6 Statement of Accounts. Each Participant will receive
annual statements in such form as the Administrative
Committee deems desirable setting forth the balance standing
to the credit of each of the Participant's Deferred
Compensation Accounts.
Section 6 - Retirement Benefits
Section 6 shall apply to all Units of Participation
under this Plan. The benefits specified in this Section 6
shall be provided under the Retirement Benefit Option.
6.1 Normal Retirement. Upon Normal Retirement, with
respect to a Unit of Participation, the Employer shall pay to
the Participant an equal amount each month for one hundred
eighty (180) months, beginning on the first day of the month
next following the date of Normal Retirement, which will
amortize over such one hundred eighty (180) equal monthly
payments the sum of (a) the value of the Deferred
Compensation Account for such Unit of Participation as of the
date of commencement of benefit payments, plus (b) the
interest that will accrue on the unpaid balance in such
Deferred Compensation Account during such one hundred eighty
(180) month period pursuant to Section 5.1 ("Standard
Retirement Benefit"). Alternatively, a Participant may elect
in the Agreement for any Unit of Participation to receive an
alternative retirement benefit in lieu of the Standard
Retirement Benefit ("Alternative
<PAGE>
10
Section 6 - Retirement Benefits (cont'd)
Retirement Benefit") for such Unit of Participation either in
a lump sum payment or in sixty (60) or one hundred twenty
(120) equal monthly payments, with the amount of each monthly
payment to be calculated in accordance with the principle
stated in the preceding sentence.
6.2 Early Retirement. Upon Early Retirement, with
respect to a Unit of Participation, the Employer shall pay to
the Participant an equal amount each month for one hundred
eighty (180) months, beginning on the first day of the month
next following the date of Early Retirement, which will
amortize over such one hundred eighty (180) equal monthly
payments the sum of (a) the value of the Deferred
Compensation Account for such Unit of Participation as of the
date of commencement of benefit payments, plus (b) the
interest that will accrue on the unpaid balance in such
Deferred Compensation Account during such one hundred eighty
(180) month period pursuant to Section 5.1 ("Standard
Retirement Benefit"). Alternatively, a Participant may elect
in the Agreement for any Unit of Participation to receive an
alternative retirement benefit in lieu of the Standard
Retirement Benefit ("Alternative Retirement Benefit") for
such Unit of Participation either in a lump sum payment or in
sixty (60) or one hundred twenty (120) equal monthly
payments, with the amount of each monthly payment to be
calculated in accordance with the principle stated in the
preceding sentence. A Participant may further elect in the
Agreement for any Unit of Participation to have the Early
Retirement Benefit for such Unit of Participation commence
when he attains age 65.
6.3 Provisions Relating to Manner and Time of Payments. If
a Participant's Agreement fails to show an election of a
manner of payment of a Normal or Early Retirement Benefit
such Participant will receive the Standard Normal or Early
Retirement Benefit in accordance with Section 6.1 or
Section 6.2, respectively.
In the event that a final determination shall be made
by the Internal Revenue Service or any court of competent
jurisdiction that by reason of Normal or Early Retirement a
Participant has recognized gross income for Federal income
tax purposes in excess of the Standard or Alternative
Retirement Benefit actually paid by the Employer to which
such gross income is attributable, the Employer shall make a
lump sum payment to the Participant of the remaining balance
of his Deferred Compensation Accounts for any affected
<PAGE>
11
Section 6 - Retirement Benefits (cont'd)
Units of Participation. If a benefit is payable to a
Participant pursuant to this paragraph for any Unit of
Participation, no other benefits shall thereafter be payable
under this Plan with respect to such Unit of Participation.
Notwithstanding any election made by the Participant,
the Administrative Committee will pay the Participant's
Standard or Alternative Retirement Benefit in the form of a
lump sum payment if the value of his Deferred Compensation
Account for a Unit of Participation is less than $10,000 when
payment of a Normal or Early Retirement Benefit with respect
to the Unit of Participation would otherwise commence.
6.4 Termination Benefit.
6.4(a) Termination of Employment Before Attaining Age
55. Upon any termination of employment of the
Participant for reasons other than death or
Disability before the Participant attains age
fifty-five (55), the Company shall pay to the
Participant, with respect to a Unit of
Participation, as compensation earned for
services rendered prior to his termination of
service, a lump sum equal to the vested
portion of the amounts standing credited to
his Deferred Compensation Account for such
Unit of Participation as of the date of such
termination of service ("Termination
Benefit").
6.4(b) Termination of a Unit of Participation. A
Participant may discontinue a Unit of
Participation while continuing in the service
of the Employer. Notwithstanding any other
provision of the Plan, upon such
discontinuance, the Participant shall
immediately cease to be eligible for any
benefits other than his Termination Benefit
with respect to that Unit of Participation
except as provided under Section 8.1.
<PAGE>
12
Section 6 - Retirement Benefits (cont'd)
No other benefit shall be payable with regard
to such Unit of Participation to either the
Participant or any Beneficiary of such
Participant. The Participant shall continue
to be credited with interest on the amounts
standing credited to his Deferred Compensation
Accounts as provided under Section 5.1 and to
vest in such amounts as provided under
Section 5.4 while he remains in employment
with the Employer until payment of his
Termination Benefit. However, no further
Participant deferrals or Employer
contributions to this Plan shall be made
pursuant to Sections 5.2 or 5.3 with respect
to a Unit of Participation after a Participant
discontinues or terminates such Unit of
Participation.
A Participant shall terminate a Unit of
Participation if he terminates his election to
defer Base Salary with the approval of the
Administrative Committee pursuant to
Section 4.2.
6.4(c) Loss of Eligibility. In the event that the
Participant ceases to be an Eligible Employee
by reason of a change to an employment status
which is not eligible to participate in this
Plan, except as provided under Section 8.1,
the Participant shall immediately cease to be
eligible for any benefits other than a
modified Termination Benefit which shall
consist of a lump sum equal to the vested
amounts standing credited to his Deferred
Compensation Accounts as of the date of such
loss of eligibility, provided the Participant
shall continue to be credited with interest on
such amounts as provided under Section 5.1 and
to vest in such amounts as provided under
Section 5.4 while he remains in employment
with the Employer. However, no further
Participant deferrals or Employer
contributions shall be made to this Plan
pursuant to Sections 5.2 or 5.3 subsequent to
the date of such loss of eligibility. Each
such lump sum Termination Benefit shall be
payable upon the Participant's termination of
employment by the Employer,
<PAGE>
13
Section 6 - Retirement Benefits (cont'd)
whether by death, Normal Retirement, Early
Retirement or any other means. The provisions
18 of this subparagraph 6.4(c) shall not apply
if the Participant in his new employment
status is an eligible employee under another
similar deferred compensation plan of the
Employer. In such event the provisions of
Section 8.6 of this Plan shall apply.
6.4(d) No Other Benefits Payable. When a Participant
terminates employment, terminates a Unit of
Participation or ceases to be an Eligible
Employee under circumstances in which
Section 6.4(a), (b) or (c) applies, no
Survivor Benefit or other benefit shall
thereafter be payable under this Plan to
either the Participant or any Beneficiary of
the Participant with respect to such Unit of
Participation except as provided under
Section 8.1.
6.5 Disability. In the event that a Participant
suffers a Disability, Participant deferrals and Employer
contributions that otherwise would have been credited to the
Deferred Compensation Accounts of the Participant in
accordance with Sections 5.2 and 5.3 will continue to be
credited to such Deferred Compensation Accounts at the same
time and in the same amounts as they would have been credited
if the Participant had not suffered a Disability for as long
as he is eligible to receive monthly disability benefits
equal to 100 percent of his monthly base salary at the time
of his Disability. At such time as the Participant is not
eligible to receive monthly disability benefits equal to 100
percent of his monthly base salary at the time of his
Disability, Participant deferrals and Employer contributions
that otherwise would have been credited to the Deferred
Compensation Accounts of the Participant in accordance with
Section 5.2 and 5.3 shall cease.
If the Participant recovers from his Disability and
returns within sixty (60) days thereafter to employment with
the Employer in an employment status which would make him
eligible to participate in this Plan and prior to the end of
the original Unit Deferral Period, the Participant shall
continue or resume making deferrals, as the case may be, in
accordance with Section 5.2 and the Employer shall continue
or resume making contributions, as the case may be, in
accordance with Section 5.3 until the end of the original
Unit Deferral Period.
<PAGE>
14
Section 6 - Retirement Benefits (cont'd)
If the Participant recovers from his Disability, the
Participant shall be treated as terminating service with the
Employer on the date of his recovery, unless within sixty
(60) days thereafter he returns to employment with the
Employer in an employment status which makes him eligible to
participate in this Plan.
If a Participant's Disability terminates by reason of
his death, the rights of his Beneficiary shall be determined
pursuant to Section 6.6 as if the Participant had not been
disabled but rather had been in service on the date of his
death and either died or retired on such date, whichever
would be most advantageous to such Beneficiary. If a
Participant's Disability terminates by reason of attainment
of age 65, the Participant shall upon the attainment of age
65 be entitled to a Normal Retirement Benefit determined
pursuant to Section 6.1. If a Participant's Disability
terminates by reason of the Participant's election to take
Early Retirement under the Plan, the Participant shall be
treated as having an Early Retirement on the date elected by
the Participant and shall be entitled to an Early Retirement
Benefit determined pursuant to Section 6.2.
6.6 Survivor Benefits.
6.6(a) If a Participant dies while in service with
the Employer (or while suffering from a
Disability prior to attaining age 55) prior to
eligibility for Early Retirement with respect
to a Unit of Participation, upon the
Participant's death the Employer will pay to
the Participant's Beneficiary with respect to
each Unit of Participation an amount per
month, as specified in paragraph 6 of his
Agreement, equal to the greater of (i) [(50%
of the sum of the Total Unit Deferral Amount
plus the Projected Employer Contribution for
such Unit of Participation) divided by 12] or
(ii) the balance in the Deferred Compensation
Account (excluding any Short Term Incentive
Award deferred pursuant to Section 5.2 and
excluding any interest earned on the Short
Term Incentive Award) divided by the number of
months payments are to be made as stated
below, plus interest in accordance with the
interest methodology of Section 6.2. Payments
are to be made for the greater of one hundred
twenty (120) months or the number of months
from the date of Participant's death until he
would have been age 65. ("Pre-Retirement
Survivor Benefit")
<PAGE>
15
Section 6 - Retirement Benefits (cont'd)
In addition, the Participant's Beneficiary
will receive any Short Term Incentive Award
associated with such Unit of Participation,
deferred pursuant to Section 5.2, plus
corresponding interest earned on the Short
Term Incentive Award, paid out over the same
period as the Pre- Retirement Survivor Benefit
and in accordance with the interest
methodology of Section 6.2.
6.6(b) If a Participant dies while in service after
eligibility for Early Retirement with respect
to a Unit of Participation, but prior to
commencement of payment of an Early or Normal
Retirement Benefit with respect to such Unit
of Participation, the Employer will pay to the
Participant's Beneficiary the greater of (i)
the benefit that such Participant's
Beneficiary would have received with respect
to such Unit of Participation had the
Participant retired and commenced to receive
an Early Retirement Benefit on the day prior
to such Participant's death or (ii) a benefit
equal to the Pre-Retirement Survivor Benefit.
The Administrative Committee shall determine
which benefit is greater on a present value
basis using such interest rate as the
Administrative Committee may determine in its
sole discretion. Payments will commence upon
the Participant's death, irrespective of when
Early Retirement Benefit payments would have
commenced if the Participant had survived.
Such payments shall be made in accordance with
the method of payment which the Participant
had elected for payment of his Normal or Early
Retirement Benefit.
6.6(c) If a Participant dies after Early or Normal
Retirement but before commencement of payment
of an Early or Normal Retirement Benefit with
respect to a Unit of Participation, the
Employer will pay to the Participant's
Beneficiary the installments of any such
benefit that such Participant's Beneficiary
would have received with respect to such Unit
of Participation had the
<PAGE>
16
Section 6 - Retirement Benefits (cont'd)
Participant commenced to receive an Early or
Normal Retirement Benefit on the day prior to
such Participant's death. Payments will
commence upon the Participant's death,
irrespective of when Early or Normal
Retirement Benefit payments would have
commenced if the Participant had survived.
Such payments shall be made in accordance with
the method of payment which the Participant
had elected for payment of his Normal or Early
Retirement Benefit.
6.6(d) If a Participant dies after the commencement
of payment of an Early or Normal Retirement
Benefit with respect to a Unit of
Participation, the Employer will pay to the
Participant's Beneficiary the remaining
installments of any such benefit that would
have been paid to the Participant had the
Participant survived.
6.6(e) As an additional benefit, if a Participant
dies subsequent to eligibility to commence
payment of a Standard or Alternative
Retirement Benefit, and has a surviving
spouse, the Employer shall pay to the spouse
commencing on the later of (a) the sixteenth
(16th) year after commencement of payment of
any Standard or Alternative Retirement Benefit
or (b) the first of the month following the
Participant's death, an amount per month for
the life of the spouse equal to sixty-six and
two-thirds percent (66-2/3%) of the Standard
Retirement Benefit. If the spouse is more
than three (3) years younger or older than the
Participant on the date of Participant's
death, the amount of such benefit shall be
actuarially adjusted based on standard
mortality tables.
<PAGE>
17
Section 7 - INTENTIONALLY OMITTED
Section 8 - Payment of Benefits
8.1 INTENTIONALLY OMITTED
8.2 Small Benefit. Notwithstanding any election made by
the Participant, the Administrative Committee will pay any
benefit in the form of a lump sum payment if the lump sum
equivalent amount is less than $10,000 when payment of such
benefit would otherwise commence.
8.3 Emergency Benefit. In the event that the
Administrative Committee, upon written petition of the
Participant, determines in its sole discretion, that the
Participant has suffered an unforeseeable financial
emergency, the Employer shall pay to the Participant, as soon
as practicable following such determination, the balance of
his Deferred Compensation Accounts for one or more Units of
Participation as necessary to meet the emergency (the
"Emergency Benefit"). For purposes of this Plan, an
unforeseeable financial emergency is an unexpected need for
cash arising from an illness, casualty loss, sudden financial
reversal, or other such unforeseeable occurrence. Cash needs
arising from foreseeable events such as the purchase of a
house or education expenses for children shall not be
considered to be the result of an unforeseeable financial
emergency. Upon payment of an Emergency Benefit with respect
to any Unit of Participation, the Unit of Participation shall
thereupon terminate, and no other benefits shall be payable
under the Plan to either the Participant or any Beneficiary
of the Participant with respect to the Unit of Participation.
8.4 Commencement of Payments. Except as otherwise provided
in this Plan, commencement of payments under this Plan shall
begin sixty (60) days following the event which entitles a
Participant (or a Beneficiary) to payments under the Plan, or
at such earlier date as may be determined by the
Administrative Committee.
8.5 Withholding; Unemployment Taxes. To the extent
required by the law in effect at the time payments are made,
the Employer shall withhold from payments made hereunder the
minimum taxes required to be withheld by the federal or any
state or local government.
<PAGE>
18
Section 8 - Payment of Benefits (cont'd)
8.6 Change in Status. In the event of a change in the
employment status of a Participant to a status in which he is
no longer an Eligible Employee under this Plan, but is an
eligible employee under the Management Deferred Compensation
Plan of 1988 or another similar deferred compensation plan of
the Employer, the Participant and all of his Units of
Participation under this Plan shall automatically be
transferred to such other deferred compensation plan for
which he is then an eligible employee, unless otherwise
determined by the Administrative Committee. In the event of
any such transfer, the provisions of the other deferred
compensation plan to which the Participant transfers shall
thereafter determine the rights and benefits of the
Participant with respect to all of his Units of
Participation, unless otherwise determined by the
Administrative Committee. The Employer may, but shall not be
required to, enter into revised Agreements with the
Participant to carry out the provisions of this Section.
8.7 Transfer to RWAC. Effective August 1, 1990, if a
Participant transfers to a RWAC prior to completion of a Unit
of Participation, deferrals which would otherwise have been
made by the Participant in accordance with Section 5.2 shall
continue to be made by the Employer until the Participant
resumes employment with the Employer but for a maximum period
not to exceed 5 years. Contributions which would have been
made by the Employer in accordance with Section 5.3 shall
also continue to be made by the Employer during such period
as Participant contributions are continued in accordance with
the preceding sentence. Benefits applicable during the
period of employment at a RWAC (not to exceed 5 years) and
the methods used for crediting the Deferred Compensation
Account and repaying amounts contributed by the Employer and
reducing the Normal Retirement or Early Retirement Benefit
paid to the Participant or his Beneficiary shall be the same
as those applicable pursuant to Section 6.7 in the case of
Disability, i.e., employment at a RWAC shall be deemed a
Disability for the purpose of making determinations pursuant
to Section 6.7. If the Participant has not resumed
employment with the Employer in an employment status which
makes him eligible to participate in this Plan within 5 years
from date of transfer, a Termination Benefit based on the
amounts credited to the Participant's Deferred Compensation
Account at the date of transfer shall be paid upon
termination of employment with a RWAC or the Expiration of
such 5 year period, whichever is earlier.
<PAGE>
19
Section 8 - Payment of Benefits (cont'd)
8.8 Leave of Absence. If a Participant absents himself
from employment on a formally granted leave of absence (i.e.,
the absence is with formal permission in order to prevent a
break in the continuity of the Employee's term of employment
which permission is granted in conformity with the rules of
the Employer which employs the individual, as adopted from
time to time), all of the Participant's Units of
Participation shall automatically be frozen upon such leave
of absence, unless otherwise determined by the
Administrative Committee. No Participant deferrals or
Employer contributions shall be made during the leave of
absence. However, during the leave of absence (for a period
not to exceed six (6) months), the Participant shall continue
to be credited with interest on his Deferred Compensation
Accounts as provided under Section 5.1 and to vest in such
amounts as provided under Section 5.4, and all benefits shall
continue to be payable to the Participant and his
Beneficiaries in accordance with Section 6 hereof, except in
the case of a political leave (i.e., to campaign for or serve
when elected to a political office, to serve if appointed to
public office or for non-candidate employees to participate
in campaigns of candidates for political office). In the
case of such a political leave, except as provided under
Section 8.1, the only benefit payable if the Participant dies
during such leave shall be a Termination Benefit based on the
amounts credited to the Participant's Deferred Compensation
Accounts, which shall be payable to the Participant's
Beneficiary. If the Participant returns to employment with
the Employer in an employment status which makes him eligible
to participate in this Plan within six (6) months from
commencement of the leave of absence, Participant deferrals
and Employer contributions will resume until the end of the
original Unit Deferral Period. If the Participant has not
resumed employment with the Employer in an employment status
which makes him eligible to participate in this Plan within
six (6) months from the commencement of the leave of absence,
a Termination Benefit based on the amounts credited to the
Participant's Deferred Compensation Accounts shall be paid to
the Participant.
This Section 8.8 shall not apply with respect to any
period during which a Participant is suffering from a
Disability, and such period of Disability shall not be
included under this Section 8.8 as a portion of a period of
leave of absence.
<PAGE>
20
Section 8 - Payment of Benefits (cont'd)
8.9 Ineligible Participant. Notwithstanding any other
provisions of this Plan to the contrary, if any Participant
is determined not to be a "management or highly compensated
employee" within the meaning of the Employee Retirement
Income Security Act of 1974, as amended (ERISA) or
Regulations thereunder, such Participant will not be eligible
to participate in this Plan and shall receive an immediate
lump sum payment equal to the vested portion of the amounts
standing credited to his Deferred Compensation Accounts.
Upon such payment no Survivor Benefit or other benefit shall
thereafter be payable under this Plan either to the
Participant or any Beneficiary of the Participant, except as
provided under Section 8.1.
Section 9 - Beneficiary Designation
Each Participant shall have the right, at any time, to
designate any person or persons as his Beneficiary or
Beneficiaries (both primary as well as contingent) to whom
payment under this Plan shall be made in the event of his
death prior to complete distribution to Participant of the
benefits due him under the Plan. Each Beneficiary
designation shall become effective only when filed in writing
with the Administrative Committee during the Participant's
lifetime on a form prescribed by the Administrative Committee
with written acknowledgment of receipt.
The filing of a new Beneficiary designation form will
cancel all Beneficiary designations previously filed. The
spouse of a married Participant domiciled in a community
property jurisdiction shall join in any designation of
Beneficiary or Beneficiaries other than the spouse.
If a Participant fails to designate a Beneficiary as
provided above, or if all designated Beneficiaries predecease
the Participant or die prior to complete distribution of the
Participant's benefits, then the Administrative Committee
shall direct the distribution of such benefits to the
Participant's estate.
Section 10 - Discontinuation, Termination, Amendment
10.1 Employer's Right to Discontinue Offering Units. The
Chairman of the Board may at any time discontinue offerings
of additional Units of Participation with respect to any or
all future Plan Years. Any such discontinuance shall have no
affect upon the deferrals or benefits or the terms or
provisions of this Plan as applicable to any then previously
existing Units of Participation.
<PAGE>
21
Section 10 - Discontinuation, Termination, Amendment
(cont'd)
10.2 Employer's Right to Terminate Plan. The Board may at
any time terminate the Plan. Termination of the Plan shall
mean that (1) there shall be no further offerings of
additional Units of Participation with respect to any future
Plan Year; (2) Base Salary shall prospectively cease to be
deferred with respect to all Units of Participation for the
then Plan Year and thereafter; and (3) all then currently
existing Units of Participation shall be treated as follows:
The Participant's Deferred Compensation Accounts shall
be 100% vested. The Participant shall receive or
continue to receive all benefits under this Plan at
such time as provided in and pursuant to the terms and
conditions of his Agreement(s) and as described in
this Plan, provided however, any benefits payable under
a Unit of Participation that is not completed due to a
termination of the Plan under this Section 10.2 shall
be prorated based upon the number of months Participant
made deferrals with respect to such Unit of
Participation divided by the Unit Deferral Period for
that Unit of Participation.
10.3 Amendment. The Board may at any time amend the Plan in
whole or in part, provided however, that no amendment,
including an amendment to this Section 10, shall be
effective, without the written consent of a Participant, to
alter, to the detriment of such Participant, the benefits
described in this Plan as applicable to a Unit of
Participation of the Participant or to decrease amounts
standing credited to such Participant's Deferred Compensation
Accounts under the Plan. For purposes of this Section 10.3,
an alteration to the detriment of a Participant shall mean a
reduction in the period of time over which benefits are
payable under a Participant's Agreement, subject however to
the proration provisions of Section 10.2 hereof, or any
change in the form of benefits payable to a Participant under
the Participant's Agreement. Written notice of any amendment
shall be given to each Participant.
<PAGE>
22
Section 11 - Miscellaneous
11.1 Unsecured General Creditor. Participants and their
Beneficiaries, heirs, successors, and assigns shall have no
legal or equitable rights,interest, or claims in any property
or assets of Employer, nor shall they be Beneficiaries of, or
have any rights, claims, or interests in any life insurance
policies, annuity contracts, or the proceeds therefrom owned
or which may be acquired by Employer ("Policies"). Any such
Policies or other assets of Employer shall not be held under
any trust for the benefit of Participants, their
Beneficiaries, heirs, successors, or assigns, or held in any
way as collateral security for the fulfilling of the
obligations of Employer under this Plan. Any and all of the
Employer's assets and Policies shall be, and remain, the
general, unpledged, unrestricted assets of Employer.
Employer's obligation under the Plan shall be merely that of
an unfunded and unsecured promise of Employer to pay money in
the future.
11.2 Trust Fund. The Employer shall be responsible for the
payment of all benefits provided under the Plan. At its
discretion, the Company may establish one or more trusts, for
the purpose of providing for the payment of such benefits.
Such trust or trusts may be irrevocable, but the assets
thereof shall be subject to the claims of the Employer's
creditors. To the extent any benefits provided under the
Plan are actually paid from any such trust, the Employer
shall have no further obligation with respect thereto, but to
the extent not so paid, such benefits shall remain the
obligation of, and shall be paid by, the Employer.
11.3 Obligations to Employer. If a Participant becomes
entitled to a distribution of benefits under the Plan, the
Employer may offset against the amount of benefits otherwise
distributable any claim to reimbursement for intentional
wrongdoing by the Participant against the Employer or an
affiliate. Such determination shall be made by the
Administrative Committee.
<PAGE>
23
Section 11 - Miscellaneous (cont'd)
11.4 Non-Assignability. Neither a Participant nor any other
person shall have any right to commute, sell, assign,
transfer, pledge, anticipate, mortgage, or otherwise
encumber, transfer, hypothecate or convey in advance of
actual receipt the amounts, if any, payable hereunder, or any
part thereof, which are, and all rights to which are,
expressly declared to be unassignable and non-transferable.
No part of the amounts payable shall, prior to actual
payment, be subject to seizure or sequestration for the
payment of any debts, judgments, alimony or separate
maintenance owed by a Participant or any other person, nor be
transferable by operation of law in the event of a
Participant's or any other person's bankruptcy or insolvency.
11.5 Employment Not Guaranteed. Nothing contained in this
Plan nor any action taken hereunder shall be construed as a
contract of employment or as giving any Employee any right to
be retained in the employ of the Employer or to serve as a
director.
11.6 Protective Provisions. A Participant will cooperate
with the Employer by furnishing any and all information
requested by the Employer, in order to facilitate the payment
of benefits hereunder, taking such physical examinations as
the Employer may deem necessary and taking such other
relevant action as may be requested by the Employer. If a
Participant refuses so to cooperate, the Employer shall have
no further obligation to the Participant under the Plan. If
a Participant commits suicide during the two-year period
beginning on the Unit Start Date for a given Unit of
Participation or if the Participant makes any material
misstatement of information or non-disclosure of medical
history, then no benefits will be payable with respect to
that Unit of Participation to such Participant or his
Beneficiary, or in the Employer's sole discretion, benefits
may be payable in a reduced amount.
11.7 Gender, Singular and Plural. All pronouns and any
variations thereof shall be deemed to refer to the masculine
or feminine, as the identity of the person or persons may
require. As the context may require, the singular may be
read as the plural and the plural as the singular.
<PAGE>
24
Section 11 - Miscellaneous (cont'd)
11.8 Waiver of Benefits. No benefit shall be payable under
the provisions of this Plan with respect to any Participant
who is or was a member of a group of employees designated by
an Employer as eligible to waive such benefit if such
Participant has waived such benefit under this Plan unless
the Employer by which such Participant is or was last
employed has authorized the revocation of such waiver and
such Participant has revoked such waiver.
11.9 Captions. The captions of the articles, sections, and
paragraphs of this Plan are for convenience only and shall
not control nor affect the meaning of construction of any of
its provisions.
11.10 Applicable Law. This Plan shall be governed and
construed in accordance with the laws of the State
of Missouri.
11.11 Validity. In the event any provision of this Plan is
held invalid, void, or unenforceable, the same shall not
affect, in any respect whatsoever, the validity of any other
provision of this Plan.
11.12 Notice. Any notice or filing required or permitted to
be given to the Administrative Committee under the Plan shall
be sufficient if in writing and hand delivered, or sent by
registered or certified mail, to the principal office of the
Employer, directed to the attention of the Vice
President-Human Resources of the Employer. Such notice shall
be deemed given as of the date of delivery or, if delivery is
made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
11.13 Successors and Assigns. This Plan shall be binding
upon the Company and its successors and assigns.
<PAGE>
25
SOUTHWESTERN BELL CORPORATION
SENIOR MANAGEMENT
DEFERRED COMPENSATION PLAN OF 1988 AGREEMENT
19__ UNIT OF PARTICIPATION
THIS AGREEMENT is made and entered into at
St. Louis, Missouri as of the _____ day of ________, 19__, by
and between SOUTHWESTERN BELL CORPORATION ("Company"), and
__________________________ ("Senior Manager").
WHEREAS, the Company has adopted a Senior
Management Deferred Compensation Plan of 1988 (the "Plan");
and
WHEREAS, The Senior Manager has been determined to
be eligible to participate in the Plan; and
WHEREAS, the Plan requires that an agreement be
entered into between the Company and the Senior Manager
setting out certain terms and benefits of the Plan as they
apply to the Senior Manager;
NOW, THEREFORE, the Company and the Senior Manager
hereby agree as follows:
1. The Plan is hereby incorporated into and made a
part of this Agreement, as though set forth in full herein.
The parties shall be bound by, and have the benefit of, each
and every provision of the Plan, including without limitation
the restrictions on assignability set forth in the Plan.
2. The Senior Manager was born on _____________.
3. The Senior Manager's basic allotment percentage in
the Southwestern Bell Corporation Savings Plan for Salaried
Employees ("Savings Plan") is ____ percent (__%). Any
subsequent change in this level of participation by the
Senior Manager before this Unit of Participation is completed
will void this Agreement and require that a new Agreement be
entered into between the Employer and the Senior Manager.
4. The Senior Manager's Base Salary during a calendar
year shall be reduced in accordance with Exhibit A attached
to this Agreement.
<PAGE>
26
5. The Senior Manager's Projected Employer
Contribution associated with this Unit of Participation is
set forth in Exhibit A attached to this Agreement. There
shall be no duplication of Employer matching contributions,
i.e., it is understood that any Employer matching
contributions corresponding to Senior Manager deferrals under
this Unit of Participation that are contributed to the Plan
will preclude Employer matching contributions to the Savings
Plan with respect to such Senior Manager deferrals, and vice
versa.
6. The amount per month of Pre-Retirement Survivor
Benefit in accordance with Section 6.6(a) of the Plan is the
greater of (i) $__________, or (ii) the balance in the
Deferred Compensation Account (excluding Short Term Incentive
Awards deferred and interest earned on such awards) divided
by the number of months payments are to be made, plus
interest; such amounts shall be payable for the greater of
ten (10) years or the number of years from the date of
Participant's death until he would have been age 65.
7. The payment option for Participant's 19__ Unit of
Participation shall be the Retirement Benefit Option in
accordance with Section 6.
This payment option will also apply to payout of
any Short Term Incentive Awards deferred and interest earned
on such awards. Such payout is not considered part of the
Standard Retirement Benefit.
RETIREMENT BENEFIT OPTION
(Paragraphs 8 and 9 apply to benefits paid pursuant to
the Retirement Benefit Option.)
8. Upon Normal or Early Retirement, the Participant
hereby elects: (please initial (a) or (b))
(a) ____To receive a Standard Retirement Benefit,
payable for a period of one hundred eighty (180) months.
(b) ____To receive an Alternative Retirement Benefit
to be paid in accordance with one of the following payment modes:
(please initial one of the following)
(i) ______ In a lump sum payment.
(ii) ______ In equal monthly installments for
a period of sixty (60) months.
(iii) ______ In equal monthly installments for
a period of one hundred twenty
(120) months.
<PAGE>
27
9. The Participant hereby elects to receive any Early
Retirement Benefit as follows (please initial [a] or [b]):
(a) ________ Commencing at age 65.
(b) ________ Commencing at Early Retirement.
10. INTENTIONALLY OMITTED
11. INTENTIONALLY OMITTED
12. This Agreement shall inure to the benefit of, and
be binding upon, the Company, its successors and assigns, and
the Senior Manager and his Beneficiaries.
IN WITNESS WHEREOF, the parties hereto have signed
and entered into this Agreement on and as of the date first
above written.
THE COMPANY:
By _______________________________
Its Senior Vice President-
Human Resources
SENIOR MANAGER: ___________________ ____________
Signature Date
<PAGE>
28
_____________________________
Senior Manager's Name
SOUTHWESTERN BELL CORPORATION
SENIOR MANAGEMENT
DEFERRED COMPENSATION PLAN AGREEMENT
Exhibit A
19__ Unit of Participation
Unit Start Date: _________, 19__
Unit Deferral Period: 48 Months
Annual Amount
Year Deferred
---- -------------
1. Unit Start Date:
19__ (commencing the first day
of the month of January) $___________ (1)
2. 19__ ___________ (1)
3. 19__ ___________ (1)
4. 19__ (ending the last day of ___________ (1)
the month of December)
Total Unit
Deferral Amount $____________
Projected Employer Contribution $____________
associated with this Unit of
Participation
Monthly Pre-Retirement Survivor $____________
Benefit associated with this Unit
of Participation
- ----------------------------------------------------------------
(1) This amount will be deferred in equal amounts on a monthly
basis.
<PAGE>
Southwestern Bell Corporation
Senior Management
Deferred Compensation Plan
of 1988
(Early Payment Option)
EFFECTIVE FOR UNITS OF PARTICIPATION
HAVING A UNIT START DATE OF
JANUARY 1, 1988 OR LATER
AND
PRIOR TO JANUARY 1, 1991
Effective: January 1, 1988
Revised and Restated: July 30, 1993
<PAGE>
INDEX
Section Subject Page
- ------- ------- ----
1 Statement of Purpose 1
2 Definitions 2
3 Administration of the Plan 6
4 Participation 6
4.1 Election to Commence a Unit
of Participation
4.2 Termination of Election
5 Deferred Compensation 7
5.1 Deferred Compensation Account
5.2 Participant Deferrals
5.3 Employer Contribution
5.4 Vesting of Deferred
Compensation Account
5.5 Valuation of Account
5.6 Statement of Accounts
6 INTENTIONALLY OMITTED 10
7 Early Payment Option 10
7.1 Early Payment Benefit
7.2 Termination Benefit
7.3 Disabilty
7.4 Survivor Benefits
8 Payment of Benefits 17
8.1 INTENTIONALLY OMITTED
8.2 Small Benefit
8.3 Emergency Benefit
8.4 Commencement of Payments
8.5 Withholding; Unemployment Taxes
8.6 Change in Status
8.7 Transfer to Bellcore
8.8 Leave of Absence
8.9 Ineligible Participant
9 Beneficiary Designation 21
<PAGE>
2
10 Discontinuation, Termination, Amendment 21
10.1 Employer's Right to Discontinue
Offering Units
10.2 Employer's Right to Terminate
Plan
10.3 Amendment
11 Miscellaneous 22
11.1 Unsecured General Creditor
11.2 Trust Fund
11.3 Obligations to Employer
11.4 Non-Assignability
11.5 Employment Not Guaranteed
11.6 Protective Provisions
11.7 Gender, Singular and Plural
11.8 Waiver of Benefits
11.9 Captions
11.10 Applicable Law
11.11 Validity
11.12 Notice
11.13 Successors and Assigns
AGREEMENT 25
<PAGE>
1
Senior Management
Deferred Compensation Plan of 1988
(Early Payment Option)
Section 1 - Statement of Purpose
The purpose of the Senior Management Deferred
Compensation Plan of 1988 (Early Payment Option) is to
provide retirement, short-term savings, death, or
termination-of-employment benefits to a select group of
management employees consisting of Eligible Employees of
Southwestern Bell Corporation (the "Company") and its
subsidiaries ("Participating Companies").
For purposes of this document, the Southwestern Bell
Corporation Senior Management Deferred Compensation Plan of
1988 (Early Payment Option) is referred to as the "EPO
Portion of the Plan" and the Southwestern Bell Corporation
Senior Management Deferred Compensation Program of 1988 of
which the EPO Portion of the Plan is a part is referred to as
the "Plan."
Section 2 - Definitions
For the purposes of this EPO Portion of the Plan, the
following words and phrases shall have the meanings
indicated, unless the context clearly indicates otherwise:
1. Administrative Committee. "Administrative Committee"
means a committee of three or more members, at least
one of whom is a Senior Manager, who shall be
designated by the Vice President-Human Resources to
administer the Plan pursuant to Section 3.
2. Agreement. "Agreement" means the written agreement
entitled "Senior Management Deferred Compensation Plan
of 1988 Agreement (Early Payment Option)"
(substantially in the form attached to this EPO Portion
of the Plan) that shall be entered into by the Employer
and a Participant with respect to each Unit of
Participation to carry out the EPO Portion of the Plan
with respect to such Participant.
3. Annualized Total Unit Deferral Amount. The "Annualized
Total Unit Deferral Amount" means the Total Unit
Deferral Amount divided by four.
<PAGE>
2
Section 2 - Definitions (cont'd)
4. Base Salary. "Base Salary" means the Participant's
annual base salary before reduction pursuant to this
Plan or any plan of the Employer whereby compensation
is deferred, including but not limited to a plan
whereby compensation is deferred in accordance with
Section 401(k) of the Internal Revenue Code.
5. Beneficiary. "Beneficiary" means the person or persons
designated as such in accordance with Section 9.
6. Board. "Board" means the Board of Directors of
Southwestern Bell Corporation.
7. Compensation. "Compensation" means the Participant's
monthly Base Salary plus any other compensation that is
normally matched in the Southwestern Bell Corporation
Savings Plan for Salaried Employees before reduction
for compensation deferred pursuant to this Plan or any
plan of the Employer whereby compensation is deferred,
including but not limited to a plan whereby
compensation is deferred in accordance with Section
401(k) of the Internal Revenue Code.
8. Declared Rate. "Declared Rate" means with respect to
any Plan Year the interest rate which will be credited
during such Plan Year on a Participant's Deferred
Compensation Accounts for Units of Participation which
have not yet commenced benefit payments. The Declared
Rate for each Plan Year will be determined by the
Administrative Committee, in its complete and sole
discretion, and will be announced on or before January
1 of the applicable Plan Year; provided that in no
event will the Declared Rate for any Plan Year be less
than the Moody's Corporate Bond Yield Average-Monthly
Average Corporates as published by Moody's Investor's
Service, Inc. (or any successor thereto) for the month
of September before the Plan Year in question, or, if
such yield is no longer published, a substantially
similar average selected by the Administrative
Committee.
9. Deferral Amount. "Deferral Amount" means an amount of
Base Salary deferred with respect to a Unit of
Participation under this Plan.
10. Deferred Compensation Account. "Deferred Compensation
Account" means the account maintained on the books of
account of the Employer for each Participant for each
Unit of Participation pursuant to Section 5.1.
<PAGE>
3
Section 2 - Definitions (cont'd)
11. Disability. "Disability" means a disability as defined
in the Southwestern Bell Corporation Sickness and
Accident Disability Benefit Plan or the Southwestern
Bell Corporation Senior Management Long Term Disability
Plan covering the Participant, as applicable.
12. Early Payment Benefit. "Early Payment Benefit" means
the benefit described in Section 7.1.
13. Early Payment Date. "Early Payment Date" means, with
respect to any Unit of Participation for which the
Participant elects the Early Payment Option, the fixed
date prior to Normal Retirement specified in the
Agreement on which the Early Payment Benefit will
commence. Such date may be the first day of any month
at least four (4) years after the commencement of
deferrals with respect to the Unit of Participation,
but not later than the first day of the month after the
Participant attains age 65. An Employee may not elect
the Early Payment Option for a Unit of Participation if
he is age 61 or older on the Unit Start Date for the
Unit of Participation.
14. Early Payment Option. "Early Payment Option" means
with respect to any Unit of Participation the Early
Payment Benefit payment option described in Section 7.
15. Early Retirement. "Early Retirement" means the
termination of a Participant's employment with Employer
for reasons other than death prior to Normal Retirement
and on or after the date Participant attains age 55.
16. Election Form. The "Election Form" means an Eligible
Employee's written election to participate in the Plan
with respect to each Unit of Participation in
accordance with Section 4.
17. Eligible Employee. "Eligible Employee" means an
Employee of the Employer who (a) is in active service,
(b) is a Senior Manager or has an employment status
which has been approved by the Board or its Chairman to
be eligible to participate in this Plan, and (c) who
continuously maintains the employment status upon which
eligibility to participate in this Plan was based.
<PAGE>
4
Section 2 - Definitions (cont'd)
18. Employee. "Employee" means any person employed by the
Employer on a regular full-time salaried basis.
19. Employer. "Employer" means Southwestern Bell
Corporation or any of its subsidiaries.
20. Normal Retirement. "Normal Retirement" means
attainment of age 65 during a Participant's employment
with Employer irrespective of whether there is a
termination of Participant's employment with Employer.
21. Participant. "Participant" means an Employee
participating in the Plan in accordance with the
provisions of Section 4.
22. Plan Year. "Plan Year" means the calendar year.
23. Projected Employer Contribution. "Projected Employer
Contribution" means for purposes of computing the
Pre-Retirement Survivor Benefit with respect to a Unit
of Participation pursuant to Section 6.6(a) of the Plan
or 7.4(a) hereof, the product of (i) the Company Match
Rate Expressed as a Percent*, as in effect at the time
of the unit Start Date, times the Participant's annual
Base Salary at the Unit Start Date minus (a) any
Employer matching contribution determined as of the
Unit Start Date associated with said Base Salary at the
Unit Start Date which is then being contributed or is
to be contributed to the Salaried Savings Plan and
minus (b) any Employer matching contribution which has
previously been allocated to a Unit of Participation
under this or any other Employer deferred compensation
plan and (ii) the number of years in the Unit Deferral
Period for the Unit of Participation.
24. Retirement Benefit Option. "Retirement Benefit Option"
means with respect to any Unit of Participation the
Retirement Benefit payment option described in Section
6 of the Plan.
25. "Rotational Work Assignment Company ("RWAC")". shall
mean Bell Communications Research, Inc. ("Bellcore"),
formerly the Central Services Organization, Inc.,
and/or any other entity with which Southwestern Bell
Corporation or any of its subsidiaries may enter into
an agreement to provide an employee for a rotational
work assignment.
26. Senior Manager. "Senior Manager" means an individual
employed by Employer in a position having a Salary
Grade of 29 or above or equivalent.
* The Company Match Rate Expressed as a Percent means the
maximum percent of salary that can be received as Employer
matching contribution under the Southwestern Bell Corporation
Savings Plan for Salaried Employees, e.g., a match of 66 2/3%
of the amount of basic allotment (up to a Percent of .667 x
6% = 4%.
<PAGE>
5
Section 2 - Definitions (cont'd)
27. Southwestern Bell Corporation Savings Plan for Salaried
Employees. "Southwestern Bell Corporation Savings Plan
for Salaried Employees" or "Salaried Savings Plan"
means the Southwestern Bell Corporation Savings Plan
for Salaried Employees or any successor plan to such
plan adopted by the Employer. Participants from any
subsidiary, permitted to participate in this Plan,
shall be treated as participating in the Southwestern
Bell Corporation Savings Plan for Salaried Employees
for purposes of calculating any matching Employer
contributions.
28. Subsidiary. A "Subsidiary" of the Company is any
corporation, partnership, venture or other entity in
which the Company has at least a 50% ownership
interest.
29. Total Unit Deferral Amount. "Total Unit Deferral
Amount" means the sum of all amounts of Base Salary
deferred during the Unit Deferral Period with respect
to a Unit of Participation, as shown in Exhibit A of
Participant's Agreement for that Unit of Participation.
30. Unit Deferral Period. "Unit Deferral Period" means
the number of months the Participant elects to reduce
his Base Salary with respect to a Unit of
Participation, as shown in Exhibit A of Participant's
Agreement for that Unit of Participation. The Unit
Deferral Period for a Unit of Participation will
commence on the Unit Start Date and end upon the
earliest to occur of the following: (i) the last day
of the forty-eight (48) month period which commenced
with the Unit Start Date, or (ii) when the Participant
terminates employment, terminates the Unit of
Participation or ceases to be an Eligible Employee as
described in Sections 6.4 of the Plan or 7.2 hereof.
In no event shall the Unit Deferral Period for a Unit
of Participation end later than forty-eight (48) months
after the Unit Start Date.
31. Unit of Participation. "Unit of Participation" means
a stated Total Unit Deferral Amount and associated
Employer contributions which provide stated benefits
pursuant to Section 6 of the Plan or Section 7 hereof
in accordance with the Participant's Agreement for that
Unit of Participation.
<PAGE>
6
Section 2 - Definitions (cont'd)
32. Unit Start Date. "Unit Start Date" means the date for
commencement of deferrals shown in Exhibit A of a
Participant's Agreement for a given Unit of
Participation. The Unit Start Date will be January 1,
unless the Administrative Committee, in its sole
discretion permits a new Participant to elect a Unit
Start Date within 30 days after such Participant first
becomes an Eligible Employee.
Section 3 - Administration of the Plan
The Administrative Committee shall be the sole
administrator of the Plan and will administer the Plan,
interpret, construe and apply its provisions in accordance
with its terms. The Administrative Committee shall further
establish, adopt or revise such rules and regulations as it
may deem necessary or advisable for the administration of the
Plan. All decisions of the Administrative Committee shall be
final and binding.
Section 4 - Participation
4.1 Election to Commence a Unit of Participation. Any
Eligible Employee may elect to commence deferral of Base
Salary with respect to a Unit of Participation under the Plan
by filing a completed Election Form with the Administrative
Committee prior to the beginning of the Unit Start Date.
Pursuant to said Election Form, the Eligible Employee shall
elect a Total Unit Deferral Amount and a Unit Deferral Period
to be specified in Exhibit A of Participant's Agreement with
respect to such Unit of Participation. In the Election Form
for each Unit of Participation, the Participant shall also
elect either the "Retirement Benefit Option" providing the
benefits described in Section 6 of the Plan or the "Early
Payment Option" providing the benefits described in Section 7
hereof. A Participant shall be permitted to commence only
one Unit of Participation pursuant to the Plan in any one
Plan Year.
The combination of deferrals from all of the
Participant's Units of Participation including the Unit of
Participation with respect to which the Participant is
electing to commence deferrals and from Units of
Participation under the Southwestern Bell Corporation Senior
Management Deferred Compensation Plan ("SBC DCP"), must be at
least six percent (6%) of Participant's Base Salary at the
Unit Start Date for
<PAGE>
7
Section 4 - Participation (cont'd)
the Unit of Participation with respect to which the
Participant is electing to commence deferrals. A Unit of
Participation shall require a minimum Annualized Total Unit
Deferral Amount of $1,000. The sum of the Participant's
contributions, if any, to the Southwestern Bell Corporation
Savings Plan for Salaried Employees plus the Annualized Total
Unit Deferral Amounts for all Units of Participation under
this Plan and under the SBC DCP in a given Plan Year may not
exceed thirty percent (30%) of a Participant's Compensation
for that Plan Year.
4.2 Termination of Election. A Participant's election to
defer Base Salary is irrevocable upon the filing of his
Election Form with the Administrative Committee, provided,
however, that the election may be terminated with respect to
Base Salary not yet paid by mutual agreement in writing
between the Participant and the Administrative Committee.
Such termination if approved shall be effective beginning the
first day of the month following the execution of such mutual
agreement.
Section 5 - Deferred Compensation
5.1 Deferred Compensation Account. The Administrative
Committee shall establish and maintain a separate Deferred
Compensation Account for each Participant for each Unit of
Participation. The amount by which a Participant's Base
Salary is reduced each month pursuant to Section 4.1 and the
amount of Employer contribution allocated to the
Participant's Units of Participation pursuant to Section 5.3
with respect to any Unit of Participation shall be credited
by the Employer to the Participant's Deferred Compensation
Account for such Unit of Participation no later than the
first day of the following month, and such Deferred
Compensation Account shall be debited by the amount of any
payments made by the Employer to the Participant or the
Participant's Beneficiary with respect to such Unit of
Participation pursuant to this Plan.
With respect to each Unit of Participation, the
Deferred Compensation Account of a Participant shall be
deemed to bear interest from the date such Deferred
Compensation Account was established through the date of
commencement of benefit payments at a rate equal to the
applicable Declared Rate for the particular Plan Year on the
balance from month-to-month in such Deferred Compensation
Account. Interest will be credited monthly to the Deferred
Compensation Account at one-twelfth of the annual Declared
Rate, compounded
<PAGE>
8
Section 5 - Deferred Compensation (cont'd)
annually. Following the commencement of benefit payments
with respect to a Unit of Participation, a Participant's
Deferred Compensation Account shall be deemed to bear
interest on the balance in such Deferred Compensation Account
from month-to-month at a rate equal to one-twelfth of the
average of the annual Declared Rates for the five (5) Plan
Years ending prior to commencement of benefit payments (or,
if the Plan has been in operation for less than five (5) Plan
Years, the average of the Declared Rates for all Plan Years
ending prior to commencement of benefit payments).
5.2 Participant Deferrals. The Participant's Total Unit
Deferral Amount is deferred in equal amounts on a monthly
basis over the Unit Deferral Period or as otherwise may be
permitted by the Administrative Committee. The amount
deferred each month with respect to a given Unit of
Participation shall be credited by the Employer to the
Participant's Deferred Compensation Account for that Unit of
Participation no later than the first day of the following
month.
The Participant will be permitted to defer an
additional amount equal to all or a portion of his Short Term
Incentive Award. A Participant shall not be permitted to
"defer" into the Plan any monies that are not compensation
paid by Employer. Any additional deferrals by a Participant
with respect to a given Unit of Participation shall not
affect Total Unit Deferral Amount and shall not result in any
change in the maximum Employer contribution pursuant to
Section 5.3 for the Plan Year during which the additional
deferral is made. In no event shall any such additional
deferral by a Participant result in any reduction in the
amounts by which the Participant's Base Salary is reduced
pursuant to Exhibit A to the Participant's Agreement with
respect to such Unit of Participation prior to completion of
deferral of the Total Unit Deferral Amount for such Unit of
Participation. Participant's election to defer all or a
portion of his Short Term Incentive Award shall be filed with
the Administrative Committee (on a form to be provided by
said Committee for such purpose) prior to the beginning of
the fiscal year during which such Award is earned.
<PAGE>
9
Section 5 - Deferred Compensation (cont'd)
Such additional deferral amount shall be considered a
separate part of Participant's Deferred Compensation Account,
shall be subject to the terms thereof except survivor
benefits, and shall be paid out in the same manner as the
rest of such Deferred Compensation Account.
5.3 Employer Contribution. Participation in this Plan does
not preclude participation in the Southwestern Bell
Corporation Savings Plan for Salaried Employees. For a given
Plan Year, the aggregate Employer contribution to both the
Southwestern Bell Corporation Savings Plan for Salaried
Employees and this Plan on behalf of a Participant will be an
amount equal to the Company Match Rate Expressed as a Percent
as in effect during all or portions of that Plan year times
the Participant's Compensation as in effect during all or
portions of that Plan Year which is contributed or deferred
for that Plan Year by the Participant in accordance with each
plan, respectively. Any such amount of Employer contribution
not allocated to the Southwestern Bell Corporation Savings
Plan for Salaried Employees will be credited to the
Participant's Deferred Compensation Accounts, as applicable.
The amount or percent of a Participant's Base Salary to be
allocated to Basic Allotments in the Southwestern Bell
Corporation Savings Plan for Salaried Employees shall be
specified in Paragraph 3 of a Participant's Agreement.
5.4 Vesting of Deferred Compensation Account. A
Participant's interest in his Deferred Compensation Account
shall vest at the same rate and in the same manner as it
would under the Southwestern Bell Corporation Savings Plan
for Salaried Employees, as in effect from time to time, had
both the Deferral Amount and the Employer contribution to
this Plan with respect to that Deferral Amount for any given
Unit of Participation been contributed instead to the
Southwestern Bell Corporation Savings Plan for Salaried
Employees. For this purpose all years of service recognized
under the Southwestern Bell Corporation Savings Plan for
Salaried Employees, for purposes of determining a
Participant's vested interest under that plan, shall be taken
into account in determining the Participant's vested interest
under this Plan.
5.5 Valuation of Accounts. The value of a Deferred
Compensation Account as of any date shall equal the amounts
theretofore credited to such account plus the interest on
such account credited in accordance with Section 5.1 through
the day preceding such date.
<PAGE>
10
Section 5 - Deferred Compensation (cont'd)
5.6 Statement of Accounts. Each Participant will receive
annual statements in such form as the Administrative
Committee deems desirable setting forth the balance standing
to the credit of each of the Participant's Deferred
Compensation Accounts.
Section 6 - INTENTIONALLY OMITTED HEREIN
Section 7 - Early Payment Option
Section 7 shall apply to all Units of Participation for
which the Early Payment Option is elected pursuant to the EPO
Portion of the Plan. (Section 6 shall have no application to
such Units of Participation.) The benefits specified in this
Section 7 shall be provided under the Early Payment Option.
An Employee may not elect the Early Payment Option for a Unit
of Participation if he is age 61 or older on the Unit Start
Date for the Unit of Participation.
7.1 Early Payment Benefit. If a Participant elects the
Early Payment Option with respect to a Unit of Participation,
the Employer shall pay to the Participant an equal amount
each month for forty-eight (48) months, beginning on the
Early Payment Date elected by the Participant, which will
amortize over such forty-eight (48) equal monthly payments,
the sum of (a) the value of the Deferred Compensation Account
for such Unit of Participation as of the date of commencement
of benefit payments, plus (b) the interest that will accrue
on the unpaid balance in such Deferred Compensation Account
during such forty-eight (48) month period pursuant to Section
5.1 ("Standard Early Payment Benefit"). Alternatively, a
Participant may elect in the Agreement for any Unit of
Participation to receive on the Early Payment Date a lump sum
payment equal to the vested portion of the amounts standing
credited to his Deferred Compensation Account ("Alternative
Early Payment Benefit"). A Participant may elect, as the Early
Payment Date for a Unit of Participation, the first day of any
month at least four (4) years after the commencement of deferrals
with respect to the Unit of Participation, but not later than the
first day of the month after the Participant attains age 65.
If a Participant's Agreement fails to show an election as to
the method of payment of an Early Payment Benefit, the
Participant shall receive the Standard Early Payment Benefit
commencing on the Early Payment Date.
<PAGE>
11
Section 7 - Early Payment Option (cont'd)
Notwithstanding any election made by the Participant,
the Administrative Committee will pay the Participant's Early
Payment Benefit in the form of a lump sum payment if the
value of his Deferred Compensation Account for a Unit of
Participation is less than $10,000 when payment of an Early
Payment Benefit with respect to the Unit of Participation
would otherwise commence.
7.2 Termination Benefit.
7.2(a) Termination of Employment Prior to Early
Payment Date.
(i) Termination of Employment Before
Attaining Age 55. Upon any
termination of employment of the
Participant for reasons other than
death or Disability before the
Participant attains age fifty-five
(55) and prior to the Early Payment
Date, with respect to a Unit of
Participation, the Company shall pay
to the Participant, as compensation
earned for services rendered prior to
his termination of service, a lump sum
equal to the vested portion of the
amounts standing credited to his
Deferred Compensation Account for such
Unit of Participation as of the date
of such termination of service
("Termination Benefit").
(ii) Termination of Employment After
Attaining Age 55. Upon any
termination of employment of the
Participant for reasons other than
death or Disability after the
Participant attains age fifty-five
(55) but prior to the Early Payment
Date, with respect to a Unit of
Participation, the Company shall pay
to the Participant one of the
following alternative forms of benefit
as elected by the Participant in his
Agreement for the Unit of
Participation:
<PAGE>
12
Section 7 - Early Payment Option (cont'd)
(A) Standard Early Payment Benefit,
payable for a period of
forty-eight (48) months,
commencing on the Early Payment
Date.
(B) Alternative Early Payment Benefit,
payable in a lump sum payment on
the Early Payment Date.
(C) Termination Benefit pursuant to
Section 7.2(a) upon termination of
employment.
If a Participant's Agreement fails to show
an election as to the method of payment, the
Participant shall receive the Standard Early
Payment Benefit commencing on the Early
Payment Date.
7.2(b) Termination of a Unit of Participation. A
Participant may discontinue a Unit of
Participation while continuing in the
service of the Employer. Notwithstanding
any other provision of the Plan, upon such
discontinuance, the Participant shall
immediately cease to be eligible for any
benefits other than his Termination Benefit
with respect to that Unit of Participation
except as provided under Section 8.1. No
other benefit shall be payable with regard
to such Unit of Participation to either the
Participant or any Beneficiary of such
Participant. The Participant shall continue
to be credited with interest on the amounts
standing credited to his Deferred
Compensation Accounts as provided under
Section 5.1 and to vest in such amounts as
provided under Section 5.4 while he remains
in employment with the Employer until
payment of his Termination Benefit.
However, no further Participant deferrals or
Employer contributions to this Plan shall be
made pursuant to Sections 5.2 or 5.3 with
respect to a Unit of Participation after a
Participant discontinues or terminates such
Unit of Participation.
<PAGE>
13
Section 7 - Early Payment Option (cont'd)
Payment of the Termination Benefit with respect to
a terminated Unit of Participation shall be made
on the Early Payment Date for such Unit of
Participation or the Participant's termination of
service, whichever is earlier. A Participant
shall terminate a Unit of Participation if he
terminates his election to defer Base Salary with
the approval of the Administrative Committee
pursuant to Section 4.2.
7.2(c) Loss of Eligibility. In the event that the
Participant ceases to be an Eligible Employee by
reason of a change to an employment status which
is not eligible to participate in this Plan,
except as provided under Section 8.1, the
Participant shall immediately cease to be eligible
for any benefits other than a modified Termination
Benefit which shall consist of a lump sum equal to
the vested amounts standing credited to his
Deferred Compensation Accounts as of the date of
such loss of eligibility, provided the Participant
shall continue to be credited with interest on
such amounts as provided under Section 5.1 and to
vest in such amounts as provided under Section 5.4
while he remains in employment with the Employer.
However, no further Participant deferrals or
Employer contributions shall be made to this Plan
pursuant to Section 5.2 or 5.3 subsequent to the
date of such loss of eligibility. Such lump sum
Termination Benefit shall be payable upon the
Participant's termination of service or Early
Payment Date, whichever is earlier. The
provisions of this subparagraph 7.2(c) shall not
apply if the Participant in his new employment
status is an eligible employee under another
similar deferred compensation plan of the
Employer. In such event the provisions of Section
8.6 of this Plan shall apply.
<PAGE>
14
Section 7 - Early Payment Option (cont'd)
7.2(d) No Other Benefits Payable. When a
Participant terminates employment,
terminates a Unit of Participation or ceases
to be an Eligible Employee under
circumstances in which Section 7.2(a), (b)
or (c) applies, no Survivor Benefit or other
benefit shall thereafter be payable under
this Plan to either the Participant or any
Beneficiary of the Participant with respect
to a Unit of Participation except as
provided under Section 8.1.
7.3 Disability. In the event that a Participant suffers a
Disability, Participant deferrals and Employer contributions
that otherwise would have been credited to the Deferred
Compensation Accounts of the Participant in accordance with
Sections 5.2 and 5.3 will continue to be credited to such
Deferred Compensation Accounts at the same times and in the
same amounts as they would have been credited if the
Participant had not suffered a Disability for as long as he
is eligible to receive monthly disability benefits equal to
100 percent of his monthly base salary at the time of his
Disability. At such time as the Participant is not eligible
to receive monthly disability benefits equal to 100 percent
of his monthly base salary at the time of his Disability,
Participant deferrals and Employer contributions that would
otherwise have been credited to the Deferred Compensation
Accounts of the Participant in accordance with Sections 5.2
and 5.3 shall cease.
If the Participant recovers from his Disability and
returns within sixty (60) days thereafter to employment with
the Employer in an employment status which would make him
eligible to participate in this Plan and prior to the end of
the original Unit Deferral Period, the Participant shall
continue or resume making deferrals, as the case may be, in
accordance with Section 5.2 and the Employer shall continue
or resume making contributions, as the case may be, in
accordance with Section 5.3 until the end of the original
Unit Deferral Period.
<PAGE>
15
Section 7 - Early Payment Option (cont'd)
If a Participant recovers from his Disability, the
Participant shall be treated as terminating service with the
Employer on the date of his recovery, unless within sixty
(60) days thereafter he returns to employment with the
Employer in an employment status which makes him eligible to
participate in this Plan.
If a Participant's Disability terminates by reason of
his death prior to the Early Payment Date, the rights of his
Beneficiary shall be determined pursuant to Section 7.4 as if
the Participant had not been disabled but rather had been in
service on the date of his death and either died or retired
on such date, whichever would be most advantageous to such
Beneficiary.
If a Participant suffering from a Disability attains
the Early Payment Date for a Unit of Participation, the
Participant shall be entitled to the Early Payment Benefit
determined pursuant to Section 7.1.
7.4 Survivor Benefits.
7.4(a) If a Participant dies while in service with
the Employer (or while suffering from a
Disability prior to attaining age 55) prior
to the Early Payment Date with respect to a
Unit of Participation and before attaining
age 55, upon the Participant's death the
Employer will pay to the Participant's
Beneficiary with respect to each Unit of
Participation an amount per month, as
specified in paragraph 6 of his Agreement,
equal to the greater of (i) [(50% of the sum
of the Total Unit Deferral Amount plus the
Projected Employer Contribution for such
Unit of Participation) divided by 12] or
(ii) the balance in the Deferred
Compensation Account (excluding any Short
Term Incentive Award deferred pursuant to
Section 5.2 and excluding any interest
earned on the Short Term Incentive Award)
divided by the number of months payments are
to be made as stated below, plus interest in
accordance with the interest methodology of
Section 6.2. Payments are to be made for
the greater of one hundred twenty (120)
months or the number of months from the date
of Participant's death until he would have
been age 65. ("Pre-Retirement Survivor
Benefit")
<PAGE>
16
Section 7 - Early Payment Option (cont'd)
In addition, the Participant's Beneficiary
will receive any Short Term Incentive Award
associated with such Unit of Participation,
deferred pursuant to Section 5.2, plus
corresponding interest earned on the Short
Term Incentive Award, paid out over the same
period as the Pre-Retirement Survivor
Benefit and in accordance with the interest
methodology of Section 6.2.
7.4(b) If a Participant dies after attaining age 55
while in service with the Employer, prior to
the Early Payment Date with respect to a
Unit of Participation, the Employer will pay
to the Participant's Beneficiary the greater
of (i) the benefit that such Participant's
Beneficiary would have received with respect
to such Unit of Participation had the
Participant commenced to receive the Early
Payment Benefit on the day prior to such
Participant's death or (ii) a benefit equal
to the Pre-Retirement Survivor Benefit. The
Administrative Committee shall determine
which benefit is greater on a present-value
basis using such interest rate as the
Administrative Committee may determine in
its sole discretion. Such payments shall be
made in accordance with the method of
payment which the Participant had elected
for payment of his Early Payment Benefit.
Payments will commence upon the
Participant's death, irrespective of when
the Early Payment Benefit would have
commenced if the Participant had survived.
<PAGE>
17
Section 7 - Early Payment Option (cont'd)
7.4(c) If a Participant terminates employment with
the Employer after the Participant attains
age 55 but prior to the Early Payment Date
with respect to a Unit of Participation and
dies prior to that Early Payment Date, and
had elected to receive a delayed Early
Payment Benefit commencing on the Early
Payment Date, the Employer will pay to the
Participant's Beneficiary the installments
of the Early Payment Benefit that would have
been paid to the Participant had the
Participant commenced to receive the Early
Payment Benefit on the day prior to such
Participant's death. Such payments shall be
made in accordance with the method of
payment which the Participant had elected
for payment of his Early Payment Benefit.
Payments will commence upon the
Participant's death, irrespective of when
the Early Payment Benefit would have
commenced if the Participant had survived.
7.4(d) If a Participant dies after the commencement
of payment of an Early Payment Benefit with
respect to a Unit of Participation, the
Employer will pay to the Participant's
Beneficiary the remaining installments of
any such benefit that would have been paid
to the Participant had the Participant
survived.
Section 8 - Payment of Benefits
8.1 INTENTIONALLY OMITTED
8.2 Small Benefit. Notwithstanding any election made by
the Participant, the Administrative Committee will pay any
benefit in the form of a lump sum payment if the lump sum
equivalent amount is less than $10,000 when payment of such
benefit would otherwise commence.
<PAGE>
18
Section 8 - Payment of Benefits
8.3 Emergency Benefit. In the event that the
Administrative Committee, upon written petition of the
Participant, determines in its sole discretion, that the
Participant has suffered an unforeseeable financial
emergency, the Employer shall pay to the Participant, as soon
as practicable following such determination, the balance of
his Deferred Compensation Accounts for one or more Units of
Participation as necessary to meet the emergency (the
"Emergency Benefit"). For purposes of this Plan, an
unforeseeable financial emergency is an unexpected need for
cash arising from an illness, casualty loss, sudden financial
reversal, or other such unforeseeable occurrence. Cash needs
arising from foreseeable events such as the purchase of a
house or education expenses for children shall not be
considered to be the result of an unforeseeable financial
emergency. Upon payment of an Emergency Benefit with respect
to any Unit of Participation, the Unit of Participation shall
thereupon terminate, and no other benefits shall be payable
under the Plan to either the Participant or any Beneficiary
of the Participant with respect to the Unit of Participation.
8.4 Commencement of Payments. Except as otherwise provided
in this Plan, commencement of payments under this Plan shall
begin sixty (60) days following the event which entitles a
Participant (or a Beneficiary) to payments under the Plan, or
at such earlier date as may be determined by the
Administrative Committee.
8.5 Withholding; Unemployment Taxes. To the extent
required by the law in effect at the time payments are made,
the Employer shall withhold from payments made hereunder the
minimum taxes required to be withheld by the federal or any
state or local government.
8.6 Change in Status. In the event of a change in the
employment status of a Participant to a status in which he is
no longer an Eligible Employee under this Plan, but is an
eligible employee under the Management Deferred Compensation
Plan of 1988 or another similar deferred compensation plan of
the Employer, the Participant and all of his Units of
Participation under this Plan shall automatically be
transferred to such other deferred compensation plan for
which he is then an eligible employee, unless otherwise
determined by the Administrative Committee. In the event of
any such transfer, the provisions of the other deferred
compensation plan to which the Participant transfers shall
thereafter determine the rights and benefits of the
Participant with respect to all of his Units of
<PAGE>
19
Section 8 - Payment of Benefits (cont'd)
Participation, unless otherwise determined by the
Administrative Committee. The Employer may, but shall not be
required to, enter into revised Agreements with the
Participant to carry out the provisions of this Section.
8.7 Transfer to a RWAC. If a Participant transfers to a
RWAC, all of the Participant's Units of Participation shall
automatically be frozen upon such transfer, unless otherwise
determined by the Administrative Committee. No further
Participant deferrals or Employer contributions shall be made
subsequent to the transfer, unless the Participant returns to
employment with the Employer in an employment status which
makes him eligible to participate in this Plan within five
(5) years from the date of transfer (in which event
Participant deferrals and Employer contributions will resume
until the end of the original Unit Deferral Period). However,
during the period of employment at a RWAC (for a period not
to exceed five (5) years), the Participant shall continue to
be credited with interest on his Deferred Compensation
Accounts as provided under Section 5.1 and to vest in such
amounts as provided under Section 5.4, and all benefits shall
continue to be payable to the Participant and his
Beneficiaries in accordance with Section 6 of the Plan or
Section 7 hereof. If the Participant has not resumed
employment with the Employer in an employment status which
makes him eligible to participate in this Plan within five
(5) years from date of transfer, a Termination Benefit based
on the amounts credited to the Participant's Deferred
Compensation Accounts shall be paid upon termination of
employment with a RWAC or the expiration of such five (5)
year period, whichever is earlier.
8.8 Leave of Absence. If a Participant absents himself
from employment on a formally granted leave of absence (i.e.,
the absence is with formal permission in order to prevent a
break in the continuity of the Employee's term of employment
which permission is granted in conformity with the rules of
the Employer which employs the individual, as adopted from
time to time), all of the Participant's Units of
Participation shall automatically be frozen upon such leave
of absence, unless otherwise determined by the Administrative
Committee. No Participant deferrals or Employer
contributions shall be made during the leave of absence.
However, during the leave of absence (for a period not to
exceed six (6) months), the Participant shall continue to be
credited with interest on his
<PAGE>
20
Section 8 - Payment of Benefits (cont'd)
Deferred Compensation Accounts as provided under Section 5.1
and to vest in such amounts as provided under Section 5.4,
and all benefits shall continue to be payable to the
Participant and his Beneficiaries in accordance with Section
6 of the Plan or Section 7 hereof, except in the case of a
political leave (i.e., to campaign for or serve when elected
to a political office, to serve if appointed to public office
or for non-candidate employees to participate in campaigns of
candidates for political office). In the case of such a
political leave, except as provided under Section 8.1, the
only benefit payable if the Participant dies during such
leave shall be a Termination Benefit based on the amounts
credited to the Participant's Deferred Compensation Accounts,
which shall be payable to the Participant's Beneficiary. If
the Participant returns to employment with the Employer in an
employment status which makes him eligible to participate in
this Plan within six (6) months from commencement of the
leave of absence, Participant deferrals and Employer
contributions will resume until the end of the original Unit
Deferral Period. If the Participant has not resumed
employment with the Employer in an employment status which
makes him eligible to participate in this Plan within six (6)
months from the commencement of the leave of absence, a
Termination Benefit based on the amounts credited to the
Participant's Deferred Compensation Accounts shall be paid to
the Participant.
This Section 8.8 shall not apply with respect to any
period during which a Participant is suffering from a
Disability, and such period of Disability shall not be
included under this Section 8.8 as a portion of a period of
leave of absence.
8.9 Ineligible Participant. Notwithstanding any other
provisions of this Plan to the contrary, if any Participant
is determined not to be a "management or highly compensated
employee" within the meaning of the Employee Retirement
Income Security Act of 1974, as amended (ERISA) or
Regulations thereunder, such Participant will not be eligible
to participate in this Plan and shall receive an immediate
lump sum payment equal to the vested portion of the amounts
standing credited to his Deferred Compensation Accounts.
Upon such payment no Survivor Benefit or other benefit shall
thereafter be payable under this Plan either to the
Participant or any Beneficiary of the Participant, except as
provided under Section 8.1.
<PAGE>
21
Section 9 - Beneficiary Designation
Each Participant shall have the right, at any time, to
designate any person or persons as his Beneficiary or
Beneficiaries (both primary as well as contingent) to whom
payment under this Plan shall be made in the event of his
death prior to complete distribution to Participant of the
benefits due him under the Plan. Each Beneficiary
designation shall become effective only when filed in writing
with the Administrative Committee during the Participant's
lifetime on a form prescribed by the Administrative Committee
with written acknowledgment of receipt.
The filing of a new Beneficiary designation form will
cancel all Beneficiary designations previously filed. The
spouse of a married Participant domiciled in a community
property jurisdiction shall join in any designation of
Beneficiary or Beneficiaries other than the spouse.
If a Participant fails to designate a Beneficiary as
provided above, or if all designated Beneficiaries predecease
the Participant or die prior to complete distribution of the
Participant's benefits, then the Administrative Committee
shall direct the distribution of such benefits to the
Participant's estate.
Section 10 - Discontinuation, Termination, Amendment
10.1 Employer's Right to Discontinue Offering Units. The
Chairman of the Board may at any time discontinue offerings
of additional Units of Participation with respect to any or
all future Plan Years. Any such discontinuance shall have no
affect upon the deferrals or benefits or the terms or
provisions of this Plan as applicable to any then previously
existing Units of Participation.
10.2 Employer's Right to Terminate Plan. The Board may at
any time terminate the Plan. Termination of the Plan shall
mean that (1) there shall be no further offerings of
additional Units of Participation with respect to any future
Plan Year; (2) Base Salary shall prospectively cease to be
deferred with respect to all Units of Participation for the
then Plan Year and thereafter; and (3) all then currently
existing Units of Participate shall be treated as follows:
<PAGE>
22
Section 10 - Discontinuation, Termination, Amendment (cont'd)
The Participant's Deferred Compensation Accounts shall
be 100% vested. The Participant shall receive or
continue to receive all benefits under this Plan at
such time as provided in and pursuant to the terms and
conditions of his Agreement(s) and as described in this
Plan, provided however, any benefits payable under a
Unit of Participation that is not completed due to a
termination of the Plan under this Section 10.2 shall
be prorated based upon the number of months Participant
made deferrals with respect to such Unit of
Participation divided by the Unit Deferral Period for
the Unit of Participation.
10.3 Amendment. The Board may at any time amend the Plan in
whole or in part, provided however, that no amendment,
including an amendment to this Section 10, shall be
effective, without the written consent of a Participant, to
alter, to the detriment of such Participant, the benefits
described in this Plan as applicable to a Unit of Participate
of the Participant or to decrease amounts standing credited
to such Participant's Deferred Compensation Accounts under
the Plan. For purposes of this Section 10.3, an alteration
to the detriment of a Participant shall mean a reduction in
the period of time over which benefits are payable under a
Participant's Agreement, subject however to the proration
provisions of Section 10.2 hereof, or any change in the form
of benefits payable to a Participant under the Participant's
Agreement. Written notice of any amendment shall be given to
each Participant.
Section 11 - Miscellaneous
11.1 Unsecured General Creditor. Participants and their
Beneficiaries, heirs, successors, and assigns shall have no
legal or equitable rights, interest, or claims in any
property or assets of Employer, nor shall they be
Beneficiaries of, or have any rights, claims, or interests in
any life insurance policies, annuity contracts, or the
proceeds therefrom owned or which may be acquired by Employer
("Policies"). Any such Policies or other assets of Employer
shall not be held under any trust for the benefit of
Participants, their Beneficiaries, heirs, successors, or
assigns, or held in any way as collateral security for the
fulfilling of the obligations of Employer under this Plan.
Any and all of the Employer's assets and Policies shall be,
and remain, the general, unpledged, unrestricted assets of
Employer. Employer's obligation under the Plan shall be
merely that of an unfunded and unsecured promise of Employer
to pay money in the future.
<PAGE>
23
Section 11 - Miscellaneous (cont'd)
11.2 Trust Fund. The Employer shall be responsible for the
payment of all benefits provided under the Plan. At its
discretion, the Company may establish one or more trusts, for
the purpose of providing for the payment of such benefits.
Such trust or trusts may be irrevocable, but the assets
thereof shall be subject to the claims of the Employer's
creditors. To the extent any benefits provided under the
Plan are actually paid from any such trust, the Employer
shall have no further obligation with respect thereto, but to
the extent not so paid, such benefits shall remain the
obligation of, and shall be paid by, the Employer.
11.3 Obligations to Employer. If a Participant becomes
entitled to a distribution of benefits under the Plan, the
Employer may offset against the amount of benefits otherwise
distributable, any claim to reimbursement for intentional
wrongdoing by the Participant against the Employer or an
affiliate. Such determination shall be made by the
Administrative Committee.
11.4 Non-Assignability. Neither a Participant nor any other
person shall have any right to commute, sell, assign,
transfer, pledge, anticipate, mortgage, or otherwise
encumber,m transfer, hypothecate or convey in advance of
actual receipt the amounts, if any, payable hereunder, or any
part thereof, which are, and all rights to which are,
expressly declared to be unassignable and non-transferable.
No part of the amounts payable shall, prior to actual
payment, be subject to seizure or sequestration for the
payment of any debts, judgments, alimony or separate
maintenance owed by a Participant or any other person, nor be
transferable by operation of law in the event of a
Participant's or any other person's bankruptcy or insolvency.
11.5 Employment Not Guaranteed. Nothing contained in this
Plan nor any action taken hereunder shall be construed as a
contract of employment or as giving any Employee any right to
be retained in the employ of the Employer or to serve as a
director.
11.6 Protective Provisions. A Participant will cooperate
with the Employer by furnishing any and all information
requested by the Employer, in order to facilitate the payment
of benefits hereunder, taking such physical examinations as
the Employer may deem necessary and taking such other
relevant action as may be requested by the Employer. If a
Participant refuses
<PAGE>
24
Section 11 - Miscellaneous (cont'd)
so to cooperate, the Employer shall have no further
obligation to the Participant under the Plan. If a
Participant commits suicide during the two-year period
beginning on the Unit Start Date for a given Unit of
Participation or if the Participant makes any material
misstatement of information or non-disclosure of medical
history, then no benefits will be payable with respect to the
Unit of Participation to such Participant or his Beneficiary,
or in the Employer's sole discretion, benefits may be payable
in a reduced amount.
11.7 Gender, Singular and Plural. All pronouns and any
variations thereof shall be deemed to refer to the masculine
or feminine, as the identity of the person or persons may
require. As the context may require, the singular may be
read as the plural and the plural as the singular.
11.8 Waiver of Benefits. No benefit shall be payable under
the provisions of this Plan with respect to any Participant
who is or was a member of a group of employees designated by
an Employer as eligible to waive such benefit if such
Participant has waived such benefit under this Plan unless
the Employer by which such Participant is or was last
employed has authorized the revocation of such waiver and
such Participant has revoked such waiver.
11.9 Captions. The captions of the articles, sections, and
paragraphs of this Plan are for convenience only and shall
not control nor affect the meaning or construction of any of
its provisions.
11.10 Applicable Law. This Plan shall be governed and
construed in accordance with the laws of the State of
Missouri.
11.11 Validity. In the event any provision of this Plan is
held invalid, void, or unenforceable, the same shall not
affect, in any respect whatsoever, the validity of any other
provision of this Plan.
11.12 Notice. Any notice or filing required or permitted to
be given to the Administrative Committee under the Plan shall
be sufficient if in writing and hand delivered, or sent by
registered or certified mail, to the principal office of the
Employer, directed to the attention of the Vice President-
Human Resources of the Employer. Such notice shall be deemed
given as of the date of delivery or, if postmark on the
receipt for registration or certification.
11.13 Successors and Assigns. This Plan shall be binding
upon the Company and its successors and assigns.
<PAGE>
25
SOUTHWESTERN BELL CORPORATION
SENIOR MANAGEMENT
DEFERRED COMPENSATION PLAN OF 1988 AGREEMENT
(EARLY PAYMENT OPTION)
19__ UNIT OF PARTICIPATION
THIS AGREEMENT is made and entered into at
St. Louis, Missouri as of the ____ day of _______, 19__, by and
between SOUTHWESTERN BELL CORPORATION ("Company"), and
________________________ ("Senior Manager").
WHEREAS, the Company has adopted a Senior Management
Deferred Compensation Program of 1988 (the "Plan") of which the
Early Payment Option ("EPO Portion of the Plan") is a part; and
WHEREAS, the Senior Manager has been determined to be
eligible to participate in the Plan; and
WHEREAS, the Plan requires that an agreement be entered
into between the Company and the Senior Manager setting out
certain terms and benefits of the Plan as they apply to the Senior
Manager;
NOW, THEREFORE, the Company and the Senior Manager
hereby agree as follows:
1. The Plan is hereby incorporated into and made a part of
this Agreement, as though set forth in full herein. The parties
shall be bound by, and have the benefit of, each and every
provision of the Plan, including without limitation the
restrictions on assignability set forth in the Plan.
2. The Senior Manager was born on ____________.
3. The Senior Manager's basic allotment percentage in the
Southwestern Bell Corporation Savings Plan for Salaried Employees
("Savings Plan") is ___ percent (___%). Any subsequent change in
this level of participation by the Senior Manager before this Unit
of Participation is completed will void this Agreement and require
that a new Agreement be entered into between the Employer and the
Senior Manager.
4. The Senior Manager's Base Salary during a calendar year
shall be reduced in accordance with Exhibit A attached to this
Agreement.
<PAGE>
26
5. The Senior Manager's Projected Employer Contribution
associated with this Unit of Participation is set forth in Exhibit
A attached to this Agreement. There shall be no duplication of
Employer matching contributions, i.e., it is understood that any
Employer matching contributions corresponding to Senior Manager
deferrals under this Unit of Participation that are contributed to
the Plan will preclude Employer matching contributions to the
Savings Plan with respect to such Senior Manager deferrals, and
vice versa.
6. The amount per month of Pre-Retirement Survivor Benefit
in accordance with Section 7.4(a) of the Plan is the greater of
(i) $_______, or (ii) the balance in the Deferred Compensation
Account (excluding Short Term Incentive Awards deferred and
interest earned on such awards) divided by the number of months
payments are to be made, plus interest; such amounts shall be
payable for the greater of ten (10) years or the number of years
from the date of Participant's death until be would have been age
65.
7. The payment option for Participant's 19__ Unit of
Participation shall be the Early Payment Option in accordance with
Section 7.
This payment option will also apply to payout of any
Short Term Incentive Awards deferred during 19__ or thereafter and
interest earned on such awards. Such payout is not considered
part of the Standard Retirement Benefit.
8. INTENTIONALLY OMITTED
9. INTENTIONALLY OMITTED
<PAGE>
27
EARLY PAYMENT OPTION
(Paragraphs 10 and 11 apply to benefits paid pursuant to the
Early Payment Option of the EPO Portion of the Plan.)
10. The Participant hereby elects to receive an Early
Payment Benefit beginning _____________ ("Early Payment Date") to
be paid in accordance with one of the following payment modes
(please initial (a) or (b)):
(a) ________ A Standard Early Payment Benefit in
equal monthly installments for a
period of forty-eight (48) months.
(b) ________ An Alternative Early Payment Benefit
in a lump sum payment.
11. The Participant hereby elects to receive benefits under
the Early Payment Option in the event of termination of employment
with Employer after the Participant's 55th birthday but prior to
the Early Payment Date, as follows (please initial (a), (b) or
(c)):
(a) _______ To receive a Standard Early Payment Benefit,
payable for a period of forty-eight (48)
months, commencing on the Early Payment
Date.
(b) _______ To receive an Alternative Early Payment
Benefit, payable in a lump sum payment on
the Early Payment Date.
(c) _______ To receive a lump sum Termination Benefit
upon termination of employment.
12. This Agreement shall inure to the benefit of, and be
binding upon, the Company, its successors and assigns, and the
Senior Manager and his Beneficiaries.
IN WITNESS WHEREOF, the parties hereto have signed and
entered into this Agreement on and as of the date first above
written.
THE COMPANY:
By ______________________________
Its Senior Vice President-
Human Resources
SENIOR MANAGER: ________________________ __________
Signature Date
<PAGE>
28
______________________________
Senior Manager's Name
SOUTHWESTERN BELL CORPORATION
SENIOR MANAGEMENT
DEFERRED COMPENSATION PLAN AGREEMENT
Exhibit A
19__ Unit of Participation
Unit Start Date: _______, 19__ Unit Deferral Period: 48 Months
Annual Amount
Year Deferred
---- -------------
1. Unit Start Date:
19__ (commencing the first day
of the month of January) $___________(1)
2. 19__ ___________(1)
3. 19__ ___________(1)
4. 19__ (ending the last day of
the month of December) ___________(1)
Total Unit
Deferral Amount $___________
Projected Employer Contribution $___________
associated with this Unit of
Participation
Monthly Pre-Retirement Survivor $___________
Benefit associated with this Unit
of Participation
- ----------------------------------------------------------------
(1) This amount will be deferred in equal amounts on a monthly
basis.
SOUTHWESTERN BELL CORPORATION
1992 STOCK OPTION PLAN
ARTICLE 1. PURPOSE, DEFINITIONS AND EFFECTIVE DATE
1.1 Purpose. The purpose of the Southwestern Bell
Corporation 1992 Stock Option Plan ("Plan") is to promote the
success and enhance the value of Southwestern Bell Corporation
(the "Company") by linking the personal interests of the
Employees of the Company and its Subsidiaries to the interests of
the Company's shareowners, and by providing Employees with an
additional incentive for outstanding performance. To achieve
this purpose, Options to purchase common stock of the Company may
be granted to Employees of the Company and its Subsidiaries
pursuant to the Plan.
1.2 Additional Definitions. In addition to definitions set
forth elsewhere in the Plan, for purposes of the Plan:
(a) "Cause" shall mean willful and gross misconduct on
the part of a Participant that is materially and
demonstrably detrimental to the Company or any
Subsidiary as determined by the Committee in its
sole discretion.
(b) "Employee" shall mean any management employee of
the Company or of one of its Subsidiaries in the
third (3rd) level of management or above.
Directors who are not otherwise employed by the
Company or any of its Subsidiaries shall not be
considered Employees under the Plan.
(c) "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended, or any successor Act
thereto.
(d) "Fair Market Value" shall mean the closing price
of Shares on the relevant date, or on the next
preceding trading day if such date was not a
trading day, all as reported on the New York Stock
Exchange Composite Trading listings, or a similar
report selected by the Committee.
(e) "Option" shall mean the right to purchase one or
more shares of the common stock of Southwestern
Bell Corporation on the terms and conditions
contained in this Plan, the rules of the
Committee, and the terms of the Option.
(f) "Retirement" shall mean the termination of a
Participant's employment with the Company or one
of its Subsidiaries, for reasons other than death,
disability (as that term is used in the
Southwestern Bell Corporation Senior Management
Long Term Disability Plan) or for Cause, on or
after the date the Participant is eligible to
retire with an immediate pension pursuant to the
Southwestern Bell Corporation Management Pension
Plan and/or the Southwestern Bell Corporation
Supplemental Retirement Income Plan.
(g) "Rotational Work Assignment Company" or "RWAC"
shall mean Bell Communications Research, Inc.,
formerly the Central Services Organization, Inc.,
and/or any other entity with which Southwestern
Bell Corporation or any of its subsidiaries may
enter into an agreement to provide an employee for
a rotational work assignment.
(h) "Shares" or "Stock" or "Shares of Stock" shall
mean the common stock of Southwestern Bell
Corporation.
(i) "Subsidiary" shall mean any corporation in which
the Company owns directly, or indirectly through
subsidiaries, more than fifty percent (50%) of the
total combined voting power of all classes of
Stock, or any other entity (including, but not
limited to, partnerships and joint ventures) in
which the Company owns more than fifty percent
(50%) of the combined equity thereof.
1.3 Effective Date. The Plan shall be effective on the
date it is approved by the Company's shareowners.
ARTICLE 2. ADMINISTRATION
2.1 The Committee. The Plan shall be administered by a
committee (the "Committee") which shall be the Human Resources
Committee or any other committee appointed by the Board of
Directors (the "Board") consisting of two or more Directors, each
of whom is a disinterested administrator, i.e., a Director who
was not, during the one year prior to service as an administrator
of the Plan, or during such service, granted or awarded equity
securities (as defined in Rule 16a-1(d) of the Exchange Act)
pursuant to this Plan or any other plan of the Company, except as
otherwise provided in Rule 16b-3(c)(2)(i)(A) through (D)
promulgated under the Exchange Act.
2.2 Authority of the Committee. The Committee shall have
full power, except as limited by law or by the Articles of
Incorporation or Bylaws of the Company, and subject to the
provisions of this Plan, to select the recipients of Options
("Participants"); determine the sizes of grants of Options under
the Plan; determine the exercise price, duration, vesting
requirements, and period of exercisability of each Option;
determine the terms and conditions of such Option grants in a
manner consistent with the Plan; construe and interpret the Plan
and any agreement or instrument entered into under the Plan;
establish, amend, or waive rules and regulations for the Plan's
administration; and, subject to the provisions of Article 5 -
Amendment, Modification, and Termination, herein, amend the terms
and conditions of any outstanding Option to the extent such terms
and conditions are within the discretion of the Committee as
provided in the Plan. Further, the Committee shall make all
other determinations which may be necessary or advisable for the
administration of the Plan.
All determinations and decisions made by the Committee
pursuant to the provisions of the Plan, and all related orders
and resolutions of the Board shall be final, conclusive, and
binding on all persons, including the Company, its shareowners,
Employees, Participants, and their estates and beneficiaries.
ARTICLE 3. SHARES SUBJECT TO THE PLAN
3.1 Number of Shares. Subject to adjustment as provided in
Section 3.3 Adjustments in Authorized Shares, herein, the total
number of Shares of Stock for which Options may be granted under
the Plan may not exceed 9,000,000 Shares. These Shares may be
either authorized but unissued or reacquired Shares.
3.2 Lapsed Options. If any Option granted under the Plan
is canceled, terminates, expires, or lapses for any reason, any
Shares subject to such Option again shall be available for the
grant of an Option under the Plan.
3.3 Adjustments in Authorized Shares. In the event of a
merger, reorganization, consolidation, recapitalization,
separation, liquidation, stock dividend, stock split, share
combination, or other change in the corporate structure of the
Company affecting the Shares, such adjustment shall be made in
the number and class of Shares which may be delivered under the
plan, and in the number and class of and/or price of Shares
subject to outstanding Options granted under the Plan, as may be
determined to be appropriate and equitable by the Committee, in
its sole discretion, to prevent dilution or enlargement of
rights; and provided that the number of Shares subject to any
Option shall always be a whole number.
ARTICLE 4. STOCK OPTIONS
4.1 Grant of Options. Subject to the terms and provisions
of the Plan, Options may be granted to such Employees, at such
times and on such terms and conditions, as shall be determined by
the Committee; provided, however, no Options may be granted after
the 10th anniversary of the effective date of the Plan. The
Committee shall have discretion in determining the number of
Options and the number of Shares subject to each Option granted
to each Participant. Without limiting the generality of the
foregoing, the Committee shall have the authority to establish
guidelines setting forth anticipated grant levels which
correspond to various salary grades or the equivalent thereof.
4.2 Form of Issuance. Options may be issued in the form of
a certificate or may be recorded on the books and records of the
Company for the account of the Participant. If an Option is not
issued in the form of a certificate, then the Option shall be
deemed granted upon issuance of a notice of the grant addressed
to the recipient. The terms and conditions of an Option shall be
set forth in the certificate, in the notice of the issuance of
the grant, or in such other documents as the Committee shall
determine. The Committee may require a Participant to enter into
a written agreement containing terms and conditions relating to
the Option and its exercise.
4.3 Option Price. The Option Price for each grant of an
Option shall be determined by the Committee; provided, however,
that the minimum Option Price shall be one hundred percent (100%)
of the Fair Market Value of a Share on the date the Option is
granted.
4.4 Duration of Options. Each Option shall expire at such
time as the Committee shall determine at the time of grant;
provided, however, that no Option shall be exercisable later than
the tenth (10th) anniversary date of its grant.
4.5 Vesting of Options. Options shall vest at such times
and under such terms and conditions as determined by the
Committee. The Committee shall have the authority to accelerate
the vesting of any Option; provided, however, that the Senior
Executive Vice President - Human Resources, or his successor, or
such other person designated by the Committee, shall have the
authority to accelerate the vesting of Options for any
Participant who is in the fifth level of management or below and
who is not a Director or an officer (as that term is defined in
Section 16 of the Exchange Act).
4.6. Exercise of Options. Options granted under the Plan
shall be exercisable at such times and be subject to such
restrictions and conditions as the Committee shall in each
instance approve, which need not be the same for each grant or
for each Participant. However, in no event may any Option
granted under this Plan become exercisable prior to the first
anniversary of the date of its grant, except as provided in
Section 4.11 Change in Control.
4.7 Payment. The Option Price shall be paid in full at the
time of exercise. No Shares shall be issued or transferred until
full payment has been received therefor. Payment may be in cash
or, unless otherwise provided by the Committee at any time, by
delivery of Shares of Stock owned by the Participant in partial
or full payment; provided, however, as a condition to paying any
part of the exercise price in Stock, the Stock tendered to the
Company must have been held by the Participant for a minimum of
six (6) months preceding the tender. If payment is made by the
delivery of Shares of Stock, the value of the Shares delivered
shall be the Fair Market Value of the Shares on the day preceding
the date of exercise of the Option.
4.8 Termination of Employment.
(a) Termination by Reason of Death or Disability. In
the event the employment of a Participant is
terminated by reason of death or disability (as
that term is used in the Southwestern Bell
Corporation Senior Management Long Term Disability
Plan), any outstanding Options granted to the
Participant shall vest as of the date of
termination of employment and may be exercised, if
at all, no more than one (1) year following
termination of employment, unless the Options, by
their terms, expire earlier.
(b) Termination by Retirement. In the event the
employment of a Participant is terminated by
reason of Retirement, any outstanding Options
granted to the Participant which are vested as of
the date of termination of employment may be
exercised, if at all, no more than three (3) years
following termination of employment, unless the
Options, by their terms, expire earlier.
(c) Termination of Employment for Other Reasons. If
the employment of a Participant shall terminate
for any reason other than the reasons set forth in
(a) or (b), above, and other than for Cause, all
outstanding Options granted to the Participant
which are vested as of the date of termination of
employment may be exercised by the Participant
within the period beginning on the effective date
of termination of employment and ending three (3)
months after such date, unless the Options, by
their terms, expire earlier.
(d) Termination for Cause. If the employment of a
Participant shall terminate for Cause, all
outstanding Options held by the Participant shall
immediately terminate and be forfeited to the
Company, and no additional exercise period shall
be allowed.
(e) Options not Vested at Termination. Any
outstanding Options not vested as of the effective
date of termination of employment shall expire
immediately and shall be forfeited to the Company.
4.9 Transfers. For purposes of the Plan, transfer of
employment of a Participant between the Company and any one of
its Subsidiaries (or between Subsidiaries) or between the Company
or a Subsidiary and a RWAC, to the extent the term of employment
at a RWAC is equal to or less than five years shall not be deemed
a termination of employment.
4.10 Nontransferability of Options. No Option granted
pursuant to the Plan shall be transferable otherwise than by will
or by the laws of descent and distribution. During the lifetime
of a Participant, the Option shall be exercisable only by the
Participant personally or by the Participant's guardian or legal
representative. If a Participant shall die, the executor or
administrator of the Participant's estate or a transferee of the
Option pursuant to a will or the laws of descent and distribution
shall have the right to exercise the Option in lieu of the
Participant.
4.11 Change in Control. Upon the occurrence of a Change in
Control, all Options held by Participants hereunder shall
immediately become vested and exercisable, notwithstanding the
provisions of Section 4.6 Exercise of Options to the contrary. A
"Change in Control" shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the shareowners of
the Company in substantially the same proportions as their
ownership of stock of the Company, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing twenty
percent (20%) or more of the total voting power represented by
the Company's then outstanding voting securities, or (ii) during
any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the
Company and any new Director whose election by the Board of
Directors or nomination for election by the Company's shareowners
was approved by a vote of at least two-thirds (2/3) of the
Directors then still in office who either were Directors at the
beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the shareowners of the
Company approve a merger or consolidation of the Company with any
other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) at least eighty percent (80%)
of the total voting power represented by the voting securities of
the Company or such surviving entity outstanding immediately
after such merger or consolidation, or the shareowners of the
Company approve a plan of complete liquidation of the Company or
an agreement for the sale or disposition by the Company of all or
substantially all the Company's assets.
ARTICLE 5. AMENDMENT, MODIFICATION, AND TERMINATION
5.1 Amendment, Modification, and Termination. The Board,
may at any time and from time to time, terminate, amend, or
modify the Plan. However, no such amendment, modification, or
termination of the Plan may be made without the approval of the
shareowners of the Company, if such approval is required by the
Internal Revenue Code, by the insider trading rules of Section 16
of the Exchange Act, by any national securities exchange or
system on which the Shares are then listed or reported, or by a
regulatory body having jurisdiction with respect hereto.
5.2 Awards Previously Granted. No termination, amendment,
or modification of the Plan shall in any material manner
adversely affect any Option previously granted under the Plan,
without the written consent of the Participant holding such
Option.
ARTICLE 6. WITHHOLDING
6.1 Tax Withholding. Upon the exercise of an Option, the
Company shall withhold sufficient Shares necessary to satisfy the
minimum amount of federal, state, and local taxes required by law
to be withheld as a result of such exercise. Any excess
fractional amounts remaining after such withholding shall be
withheld as additional federal withholding.
ARTICLE 7. MISCELLANEOUS
7.1 Employment. Nothing in the Plan shall interfere with
or limit in any way the right of the Company or any Subsidiary
thereof to terminate any Participant's employment at any time,
nor confer upon any Participant any right to continue in the
employment of the Company or any Subsidiary thereof.
7.2 Participation. No Employee shall have the right to be
selected to receive an Option under the Plan, or, having been so
selected, to be selected to receive a future Option.
7.3 Successors. All obligations of the Company under the
Plan shall be binding on any successor to the Company, whether
the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise, of all or
substantially all of the business and/or assets of the Company.
7.4 Governing Law. The Plan, and any and all agreements
hereunder, shall be construed in accordance with and governed by
the laws of the State of Missouri.
SOUTHWESTERN BELL CORPORATION
RESTRICTED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
I. Purpose
The purpose of the Plan is to further align the financial interests of
the Non-Employee Directors of Southwestern Bell Corporation with those
of the Corporation's shareowners through the issuance of the
Corporation's Common Stock to such Non-Employee Directors, and to help
the Corporation attract and retain highly-qualified individuals to serve
as Directors.
II. Effective Date
The effective date of the Plan shall be August 1, 1994.
III. Definitions
In this Plan, the following definitions apply:
(a) "Board" means the Board of Directors of the Corporation.
(b) "Common Stock" or "Stock" means the common stock, $1 par
value, of the Corporation.
(c) "Corporation" means Southwestern Bell Corporation, a Delaware
corporation.
(d) "Director" means a member of the Board of Directors of the
Corporation.
(e) "Non-Employee Director" means any member of the Corporation's
Board of Directors who, when he or she first became a Director of the
Corporation, was not an employee of the Corporation or of any fifty
percent or majority owned subsidiary of the Corporation.
(f) "Plan" means the Southwestern Bell Corporation Restricted
Stock Plan for Non-Employee Directors.
(g) "Restricted Stock" means Common Stock of the Corporation which
is subject to the restrictions provided in this Plan.
IV. Eligibility
Participation in this Plan is limited to Non-Employee Directors.
V. Awards
On the effective date of this Plan, each Non-Employee Director holding
office on such date shall be granted an award of 1,000 shares of
Restricted Stock. In addition, each Non-Employee Director who first
becomes a Director after the effective date of the Plan shall, on the
date of taking office, receive an award of 1,000 shares of Restricted
Stock.
All Stock issued under this Plan shall be treasury Stock of the
Corporation.
VI. Restricted Stock
(a) Restrictions. During the period Stock granted under the Plan
is restricted, the Stock shall not be transferable other than by
will or the laws of descent and distribution. However, it is the
intent of the Plan that all other attributes of ownership in such
Restricted Stock, including the right to dividends and to vote the
Restricted Stock, shall be immediately vested in the participants
under the Plan.
(b) Duration of Restrictions. All Stock granted to a Director
under the Plan will be issued in his or her name and shall be
subject to the restrictions described herein for a period of five
years from the issuance of such Stock or until the recipient ceases
to be a Director, whichever occurs first. Unless otherwise provided
by the Human Resources Committee of the Board, the Corporation shall
hold the shares on behalf of the participants until all restrictions
are removed. In the event any certificates are distributed to
participants under the Plan before all restrictions are removed, the
Corporation shall place a legend on such certificates containing or
referring to the restrictions.
VII. Taxes
The Corporation shall pay to each participant at the time of issuance of
Stock under the Plan, or, at the election of the Human Resources
Committee, to the appropriate tax authorities on behalf of each
participant, an amount equal to the Federal tax liabilities, computed at
the maximum individual Federal rates then applicable (based on residence
and citizenship), including any tax surcharges, resulting from an award
of Stock and payment of taxes under this Plan.
VIII. Regulatory Compliance and Listing
The issuance or delivery of any shares of Stock under this Plan may be
postponed by the Corporation for such period as may be required to
comply with any applicable requirements under the Federal Securities
Laws, any applicable listing requirements of any national securities
exchange, or any requirements under any other law or regulation
applicable to the issuance of such delivery of such shares. The
Corporation shall not be obligated to issue or deliver any such shares
if the issuance or delivery thereof shall constitute a violation of any
provision of any law or of any regulation of any governmental authority
or any national securities exchange.
IX. Change in Capitalization
In the event of a recapitalization, stock split, stock dividend or other
change in capitalization affecting the shares, an appropriate adjustment
shall be made by the administrator in the number of shares which may be
issued under the Plan.
X. Administration
The Human Resources Committee of the Board shall administer the Plan.
This Plan and all actions taken under it shall be governed by the laws
of the State of Texas.
XI. Amendment
The Board may from time to time amend this Plan or cancel future grants.
SOUTHWESTERN BELL CORPORATION
OFFICER RETIREMENT SAVINGS PLAN
Effective: November 1, 1993
SOUTHWESTERN BELL CORPORATION
OFFICER RETIREMENT SAVINGS PLAN
Section 1 - Statement of Purpose
The purpose of the Officer Retirement Savings Plan
("Plan") is to provide a means for elective retirement
savings for a select group of management employees
consisting of Eligible Employees of Southwestern Bell
Corporation (the "Company") and its subsidiaries
("Participating Companies").
Section 2 - Definitions
For the purposes of this Plan, the following words and
phrases shall have the meanings indicated, unless the
context clearly indicates otherwise:
Administrative Committee. "Administrative Committee"
means a committee of three or more members, at least
one of whom is a Senior Manager, who shall be
designated by the Senior Executive Vice President-Human
Resources, or successor position, to administer the
Plan.
Agreement. "Agreement" means the written agreement
entitled "OFFICER RETIREMENT SAVINGS PLAN ("PLAN")
ENROLLMENT FORM" (substantially in the form attached
hereto as Exhibit (1)) that shall be entered into by
the Employer and a Participant to carry out the Plan
with respect to such Participant.
Base Salary. "Base Salary" means the Participant's
base salary before reduction due to any contribution
pursuant to this Plan or reduction pursuant to any
deferral plan of the Employer, including but not
limited to a plan that includes a qualified cash or
deferred arrangement under Section 401(k) of the
Internal Revenue Code ("Code").
Beneficiary. "Beneficiary" means the person or persons
designated as such in accordance with Section 7 of this
Plan.
Board. "Board" means the Board of Directors of
Southwestern Bell Corporation.
Chairman. "Chairman" means the Chairman of the Board
of Southwestern Bell Corporation ("Chairman").
Declared Rate. "Declared Rate" means with respect to
any Plan Year the interest rate which will be credited
during such Plan Year on a Participant's Pre-Tax
Account for any Savings Unit which has not yet
commenced benefit payments. The Declared Rate for each
Plan Year will be announced on/or before the beginning
of the applicable Plan Year. The Declared Rate for any
Plan Year shall be the Moody's Corporate Bond Yield
Average-Monthly Average Corporates as published by
Moody's Investor's Service, Inc. (or any successor
thereto) for the month of September before the Plan
Year in question and rounded to the next higher tenth
of one percent, or, if such yield is no longer
published, a substantially similar average selected by
the Administrative Committee.
Disability. "Disability" means inability to work due
to being physically disabled.
Eligible Employee. "Eligible Employee" means an
Employee of the Employer who (a) is in active service,
(b) is an Officer or has an employment status which has
been approved by the Board or the HRC to be eligible to
participate in this Plan, (c) has an annual Base Salary
exceeding $250,000 and (d) who continuously maintains
the employment status upon which eligibility to
participate in this Plan was based.
Employee. "Employee" means any person employed by the
Employer on a regular full-time salaried basis.
Employer. "Employer" means Southwestern Bell
Corporation or any of its subsidiaries.
HRC. "HRC" means the Human Resources Committee of the
Board.
Officer. "Officer" means an individual employed by
Employer who has been elected an officer of the Company
by the Board and whose title is Vice President or
higher or an individual at an equivalent level in a
Subsidiary.
Participant. "Participant" means an Employee
participating in the Plan.
Plan Year. "Plan Year" means the calendar year except
the 1993 Plan Year shall mean November 1, 1993 through
the end of the 1993 calendar year.
Pre-Tax Account. "Pre-Tax Account" means the account
maintained on a pre-tax basis on the books of account
of the Employer for each Participant for each Savings
Unit to which Pre-Tax Amounts are credited.
Pre-Tax Amount. "Pre-Tax Amount" means an amount of
Base Salary contributed by Participant on a pre-tax
basis with respect to a Savings Unit under this Plan.
Retirement. "Retirement" means the termination of a
Participant's employment with Employer, for reasons
other than death, on or after the date Participant is
eligible to retire with an immediate pension pursuant
to the Southwestern Bell Corporation Pension Benefit
Plan and/or the Southwestern Bell Corporation
Supplemental Retirement Income Plan ("SRIP").
Retirement Distribution. "Retirement Distribution"
means the distribution described in Section 6.1.
Savings Unit. "Savings Unit" means the Participant's
Pre-Tax Amount which provides stated distributions
pursuant to Section 6 of this Plan in accordance with
the Participant's Agreement for such Savings Unit.
Subsidiary. A "Subsidiary" of the Company is any
corporation, partnership, venture or other entity in
which the Company has at least a 50% ownership
interest.
Unit Period. "Unit Period" means the calendar year
with respect to which the Participant participates in
the Plan. The Unit Period for a Savings Unit will
commence on the Unit Start Date and end upon the
earliest to occur of the following: (i) the last day
of the calendar year which includes the Unit Start
Date, or (ii) when the Participant terminates
employment, terminates the Savings Unit or ceases to be
an Eligible Employee.
Unit Start Date. "Unit Start Date" means the date for
commencement of a given Savings Unit. The Unit Start
Date will be January 1, except (1) a new Participant
shall be permitted to elect a Unit Start Date within
thirty (30) days after such Participant first becomes
an Eligible Employee and (2) with respect to a 1993
Savings Unit, the Unit Start Date shall be November 1,
1993.
Section 3 - Administration of the Plan
The Administrative Committee shall be the sole
administrator of the Plan and will interpret, construe
and apply Plan provisions in accordance with the terms
of the Plan. The Administrative Committee shall
further establish, adopt or revise such rules and
regulations as it may deem necessary or advisable for
the administration of the Plan. All decisions of the
Administrative Committee shall be final and binding.
Section 4 - Participation
4.1 Commencement of a Savings Unit. Any Eligible
Employee may commence a Savings Unit by filing a
completed Agreement with the Administrative Committee
prior to the Unit Start Date. With respect to the 1993
Plan Year, any Eligible Employee may commence a 1993
Savings Unit by filing a completed Agreement with the
Administrative Committee prior to December 1, 1993.
Pursuant to any such Agreement, the Eligible Employee
shall elect the percentage of monthly Base Salary that
shall comprise Participant's Pre-Tax Amount. Such
percentage shall remain in effect for the duration of
the Unit Period even if Base Salary should change. In
the Agreement, the Participant shall also elect the
timing of distribution of benefits pursuant to this
Plan. Only annual Base Salary amounts expected to
exceed $250,000 per Plan Year shall be eligible to be
contributed under this Plan.
4.2 Termination of Participation. A Participant's
participation in the Plan for the duration of the Unit
Period is irrevocable upon the filing of his Agreement
with the Administrative Committee; provided however,
such participation may be terminated by mutual
agreement in writing between the Participant and the
Administrative Committee. Such termination, if
approved, shall be effective beginning the first day of
the month following the execution of such mutual
agreement.
Section 5 - Participant Account(s)
5.1 Participant Deferrals. The percentage of monthly
Base Salary that shall comprise Participant's Pre-Tax
Amount shall be deferred each month or as otherwise may
be permitted by the HRC. The Administrative Committee
shall establish and maintain a separate Pre-Tax Account
for each Participant for each Savings Unit. The amount
by which a Participant's Base Salary is reduced each
month shall be credited by the Employer to the
Participant's Pre-Tax Account for such Savings Unit no
later than the first day of the following month, and
such Pre-Tax Account shall be debited by the amount of
any payments made by the Employer to the Participant or
the Participant's Beneficiary with respect to such
Savings Unit pursuant to this Plan.
With respect to each Savings Unit, the Pre-Tax Account
of a Participant shall be deemed to bear interest from
the date such Pre-Tax Account was established through
the date of commencement of benefit payments at a rate
equal to the applicable Declared Rate for the
particular Plan Year on the balance from month-to-month
in such Pre-Tax Account. Interest will be credited
monthly to the Pre-Tax Account at one-twelfth of the
annual Declared Rate, compounded annually. Following
the commencement of benefit payments with respect to a
Savings Unit, a Participant's Pre-Tax Account shall be
deemed to bear interest on the balance in such Pre-Tax
Account from month-to-month at a rate equal to one-
twelfth of the average of the annual Declared Rates for
the five (5) Plan Years ending prior to commencement of
benefit payments (or, if the Plan has been in operation
for less than five (5) Plan Years, the average of the
Declared Rates for all Plan Years ending prior to
commencement of benefit payments). A Participant's
interest in his Pre-Tax Account(s) shall be 100% vested
at all times.
5.2 Statement of Account(s). Each Participant will
receive annual statements in such form as the
Administrative Committee deems desirable setting forth
the balance of the Participant's Pre-Tax Account(s).
Section 6 - Benefits
6.1 Retirement Distribution. Upon Retirement, with
respect to a Savings Unit, the Employer shall pay to
the Participant an equal amount each month for one
hundred eighty (180) months, beginning in January of
the year next following the date of Retirement, which
will amortize over such one hundred eighty (180) equal
monthly payments the sum of (a) the value of the Pre-
Tax Account for such Savings Unit as of the date of
commencement of payments, plus (b) the interest that
will accrue on the unpaid balance in such Pre-Tax
Account during such one hundred eighty (180) month
period pursuant to Section 5.1 ("Standard Retirement
Benefit"). Alternatively, a Participant may elect in
the Agreement for any Savings Unit to receive an
alternative retirement benefit in lieu of the Standard
Retirement Benefit ("Alternative Retirement Benefit")
for such Savings Unit either in a lump sum payment or
in sixty (60) or one hundred twenty (120) equal monthly
payments, with the amount of each monthly payment to be
calculated in accordance with the principle stated in
the preceding sentence. If a Participant fails to
submit an election as to the number of months of
distribution for Participant's Retirement Benefit prior
to January 1 of the year next following the date of
Retirement, such Participant will receive distribution
in the form of a Standard Retirement Benefit.
In the event that a final determination shall be made
by the Internal Revenue Service or any court of
competent jurisdiction that, by reason of Retirement, a
Participant has recognized gross income for Federal
income tax purposes in excess of the Retirement
Distribution installment actually distributed by the
Employer to which such gross income is attributable,
the Employer shall make a lump sum distribution to the
Participant of his Pre-Tax Account for any affected
Savings Unit. If a distribution is made to a
Participant pursuant to this paragraph for any Savings
Unit, no other distributions shall thereafter be made
under this Plan with respect to such Savings Unit.
Notwithstanding any election made by the Participant,
the Administrative Committee will distribute the
Participant's Retirement Distribution in the form of a
lump sum distribution if the value of a Savings Unit is
less than $10,000 when distribution of the Retirement
Distribution for such Savings Unit would otherwise
commence.
In the event that the HRC shall determine that it is in
the best interest of a Participant and the Company, the
HRC may, with the Participant's consent, in its
complete and sole discretion, distribute the
Participant's Retirement Distribution prior to the
Participant's Retirement at such date determined by the
HRC.
6.2 Termination Distribution.
6.2(a) Termination of Employment Before Retirement.
Termination of employment of the Participant for
reasons other than death or Retirement shall not affect
any distribution elections previously made by the
Participant with respect to a Savings Unit. The
termination shall be considered a Retirement under
provisions of the Plan.
6.2(b) Termination of a Savings Unit. A Participant
shall terminate a Savings Unit if he terminates his
participation in the Plan with respect to a Savings
Unit as permitted pursuant to Section 4.2. The
Participant shall continue to be credited with interest
on his Pre-Tax Account applicable to such Savings Unit
as provided under Section 5.1 while he remains in
employment with the Employer. However, no further
Participant contributions to this Plan shall be made
pursuant to Section 5.1 with respect to the Savings
Unit after a Participant terminates such Savings Unit.
6.2(c) Loss of Eligibility. Subject to Section 9.8,
in the event that the Participant ceases to be an
Eligible Employee by reason of a change to an
employment status which is not eligible to participate
in this Plan, the Participant shall nevertheless
continue participation in this Plan while he remains in
employment with the Employer; however, no further
Participant contributions shall be made to this Plan
pursuant to Section 5.1.
6.3 Disability. In the event that a Participant
incurs a Disability, contributions that otherwise would
have been credited to Participant's Pre-Tax Account in
accordance with Section 5.1 will continue to be
credited to such Account out of his disability payments
at the same time and in the same amounts as they would
have been credited if the Participant had not suffered
a Disability for as long as he is eligible to receive
monthly disability benefits equal to 100 percent of his
monthly base salary at the time of his Disability. At
such time as the Participant is not eligible to receive
monthly disability benefits equal to 100 percent of his
monthly Base Salary at the time of his Disability,
Participant contributions that otherwise would have
been credited to the Pre-Tax Account of the Participant
in accordance with Section 5.1 shall cease.
If the Participant's Disability ceases and Participant
returns within sixty (60) days thereafter to employment
with the Employer in an employment status which would
make him eligible to participate in this Plan and prior
to the end of the original Unit Period, the Participant
shall continue or resume making contributions in
accordance with Section 5.1 until the end of the
original Unit Period.
If the Participant's Disability ceases, the Participant
shall be treated as terminating service with the
Employer on the date his Disability ceases, unless
within sixty (60) days thereafter he returns to
employment with Employer in an employment status which
makes him eligible to participate in this Plan.
If a Participant's Disability terminates by reason of
his death, the rights of his Beneficiary shall be
determined pursuant to Section 6.4 as if the
Participant had not been disabled but rather had been
in service on the date of his death and died on such
date. If a Participant's Disability terminates by
reason of attainment of age 65, the Participant shall
upon the attainment of age 65 be entitled to a
Retirement Distribution determined pursuant to
Section 6.1. If a Participant's Disability terminates
by reason of Retirement, the Participant shall be
treated as having a Retirement on the date elected by
the Participant and shall be entitled to a Retirement
Distribution determined pursuant to Section 6.1.
6.4 Survivor Distribution.
6.4(a) If a Participant dies while in service with the
Employer (or while absent because of Disability) or
after Retirement (or after a termination which is
considered a Retirement pursuant to Section 6.2(a)) but
before commencement of distribution of a Retirement
Distribution with respect to a Savings Unit, the
Employer will distribute to the Participant's
Beneficiary such Participant's Retirement Distribution
with respect to such Savings Unit determined as if the
Participant had retired on the day of such
Participant's death. Such distribution shall be made
in accordance with the number of installments which the
Participant's Beneficiary elects for distribution of
Participant's Retirement Distribution. Such election
shall be irrevocable and shall be made prior to January
1 of the year next following the date of death.
6.4(b) If a Participant dies after the commencement of
payment of a Retirement Distribution with respect to a
Savings Unit, the Employer will distribute to the
Participant's Beneficiary the remaining installments
that would have been distributed to the Participant had
the Participant survived.
Section 7 - Beneficiary Designation
Each Participant shall have the right, at any time, to
designate any person or persons as his Beneficiary or
Beneficiaries (both primary as well as contingent) to
whom distributions under this Plan shall be made in the
event of his death prior to complete distribution to
Participant of the distributions due him under the
Plan. Each Beneficiary designation shall become
effective only when filed in writing with the
Administrative Committee during the Participant's
lifetime on a form prescribed by the Administrative
Committee with written acknowledgment of receipt.
The filing of a new Beneficiary designation form will
cancel all Beneficiary designations previously filed.
The spouse of a married Participant domiciled in a
community property jurisdiction shall join in any
designation of Beneficiary or Beneficiaries other than
the spouse.
If a Participant fails to designate a Beneficiary as
provided above, or if all designated Beneficiaries
predecease the Participant or die prior to complete
distribution of the Participant's distributions, then
the Administrative Committee shall direct the
distribution of such distributions in accordance with
the SBC Rules for Employee Beneficiary Designations.
Section 8 - Discontinuation, Termination, Amendment
8.1 Company's Right to Discontinue Offering Savings
Units. The HRC may at any time discontinue offerings
of additional Savings Units with respect to any or all
future Plan Years. Any such discontinuance shall have
no effect upon the contributions or the terms or
provisions of this Plan as applicable to any then
existing Savings Units.
8.2 Company's Right to Terminate Plan. No Savings
Unit may be commenced after December 31, 2003. The HRC
may terminate the Plan at any earlier time.
Termination of the Plan shall mean that (1) there shall
be no further offerings of additional Savings Units
with respect to any future Plan Year: (2) contributions
shall prospectively cease with respect to all Savings
Units for the then Plan Year and thereafter; and (3)
all then existing Savings Unit shall be treated as
follows:
The Participant shall receive or continue to
receive all distributions under this Plan at such
time as provided in and pursuant to the terms and
conditions of his Agreement(s) and as described in
this Plan; provided, however, any distributions
under a Savings Unit that is not completed due to
a termination of the Plan under this Section 8.2
shall be based upon only the actual contributions
made with respect to such Savings Unit prior to
such termination, and interest on same thereafter.
8.3 Amendment. The Chairman may make non-material
changes to the Plan and/or changes required or made
desirable by law. The HRC may at any time amend the
Plan in whole or in part provided, however, that no
amendment, including an amendment to this Section 8,
altering to the detriment of such Participant the
distributions described in this Plan as applicable to a
Savings Unit of the Participant, or decreasing the
balance credited to such Participant's Pre-Tax Account
under the Plan, shall be effective without the written
consent of a Participant. For purposes of this
Section 8, an alteration to the detriment of a
Participant shall mean a reduction in the period of
time over which payments are distributable under a
Participant's Agreement, or any reduction in the value
of a Pre-Tax Account. Written notice of any amendment
shall be given to each Participant.
Section 9 - Miscellaneous.
9.1 Additional Benefit. The reduction of any benefit
payable under the Southwestern Bell Corporation Pension
Benefit Plan, which results from participation in this
Plan, will be restored as an additional benefit ("make-
up piece") under this Plan or under any other
comparable non-qualified savings plan. The
Administrative Committee shall have the option to
distribute, in a lump sum, the present value equivalent
of the pension retirement benefit (life annuity) make-
up piece. Notwithstanding the preceding provisions of
this Section 9.1, if all or a portion of the make-up
piece is paid pursuant to SRIP or another non-qualified
plan, then such amount shall not be payable pursuant to
this Plan.
9.2 Small Distribution. Notwithstanding any election
made by the Participant, the Administrative Committee
will distribute any Pre-Tax Account in the form of a
lump sum distribution if the Participant's Pre-Tax
Account has a value less than $10,000 when such
distribution would otherwise commence.
9.3 Emergency Distribution. In the event that the
Administrative Committee, upon written petition of the
Participant, determines in its sole discretion that the
Participant has suffered an unforeseeable financial
emergency, the Employer shall distribute to the
Participant, as soon as practicable following such
determination, a payment from his Pre-Tax Account for
one or more Savings Units as necessary to meet the
emergency (the "Emergency Distribution"). For purposes
of this Plan, an unforeseeable financial emergency is
an unexpected need for cash arising from an illness,
casualty loss, sudden financial reversal, or other such
unforeseeable occurrence. Cash needs arising from
foreseeable events such as the purchase of a house or
education expenses for children shall not be considered
to be the result of an unforeseeable financial
emergency. Upon receipt of an Emergency Benefit,
except for mandatory savings as required pursuant to
Section 4.1, a Participant shall not be permitted to
commence a new Savings Unit until one whole calendar
year has elapsed.
9.4 Commencement of Payments. Except as otherwise
provided in this Plan, commencement of a distribution
under this Plan shall begin sixty (60) days following
the event which entitles a Participant (or a
Beneficiary) to such distribution, or at such earlier
date as may be determined by the Administrative
Committee or the HRC.
9.5 Withholding. Upon any distribution hereunder,
payment shall be reduced by the minimum amount
necessary to satisfy Federal, state or local taxes
required by law to be withheld with respect to such
distribution.
9.6 Transfer to Bellcore. If a Participant transfers
to Bellcore, all of the Participant's Savings Units
shall automatically be frozen upon such transfer,
unless otherwise determined by the Administrative
Committee. No further Participant contributions shall
be made subsequent to the transfer. During the period
of employment at Bellcore (for a period not to exceed
five (5) years), the Participant shall continue to be
credited with interest on his Pre-Tax Accounts as
provided under Section 5.1 and all distributions shall
continue to be payable to the Participant or the
Participant's Beneficiaries in accordance with Section
6 hereof. If the Participant has not resumed
employment with the Employer in an employment status
which makes him eligible to participate in this Plan
within five (5) years from date of transfer, a
Termination Distribution based on the amounts credited
to the Participant's Pre-Tax Accounts shall be paid
upon termination of employment with Bellcore or the
expiration of such five (5) year period, whichever is
earlier.
9.7 Leave of Absence. If a Participant absents
himself from employment on a formally granted leave of
absence (i.e., the absence is with formal permission in
order to prevent a break in the continuity of the
Employee's term of employment, which permission is
granted in conformity with the rules of the Employer
which employs the individual), all of the Participant's
Savings Units shall automatically be frozen upon such
leave of absence, unless otherwise determined by the
Administrative Committee. No Participant contributions
shall be made during the leave of absence. However,
during the leave of absence, the Participant shall
continue to be credited with interest on his Pre-Tax
Accounts, as provided under Section 5.1 and all
distributions shall continue to be payable to the
Participant and his Beneficiaries in accordance with
Section 6 hereof. If the participant returns to
employment with the Employer in an employment status
which makes him eligible to participate in this Plan
before completion of or immediately upon the expiration
of the leave of absence, Participant contributions will
resume until the end of the original Unit Period. If
the Participant has not resumed employment with the
Employer in an employment status which makes him
eligible to participate in this Plan before completion
of or immediately upon the expiration of the leave of
absence, a Termination Distribution based on the
amounts credited to the Participant's Pre-Tax Accounts
shall be paid to the Participant.
This Section 9.7 shall not apply with respect to any
period during which a Participant is suffering from a
Disability, and such period of Disability shall not be
included under this Section 9.7 as a portion of a
period of leave of absence.
9.8 Ineligible Participant. Notwithstanding any other
provisions of this Plan to the contrary, if any
Participant is determined not to be a "management or
highly compensated employee" within the meaning of the
Employee Retirement Income Security Act of 1974, as
amended (ERISA) or Regulations thereunder, such
Participant will not be eligible to participate in this
Plan and shall receive an immediate lump sum
distribution of his Pre-Tax Accounts. Upon such
payment no other distribution shall thereafter be
payable under this Plan either to the Participant or
any Beneficiary of the Participant, except as provided
under Section 9.1.
9.9 Unsecured General Creditor. Participants and
their Beneficiaries, heirs, successors, and assigns
shall have no legal or equitable rights, interest, or
claims in any property or assets of Employer. No
assets of Employer shall be held under any trust for
the benefit of Participants, their Beneficiaries,
heirs, successors, or assigns, or held in any way as
collateral security for the fulfilling of the
obligations of Employer under this Plan. Any and all
of the Employer's assets shall be, and remain, the
general, unpledged, unrestricted assets of Employer.
Employer's obligation under the Plan shall be merely
that of an unfunded and unsecured promise of Employer
to pay money under the Plan in the future.
9.10 Offset. If a Participant becomes entitled to a
distribution under the Plan, the Employer may offset
against the amount otherwise distributable, any claims
to reimbursement for intentional wrongdoing by the
Participant against the Employer or an affiliate. Such
determination shall be made by the Administrative
Committee in its sole discretion.
9.11 Non-Assignability. Neither a Participant nor any
other person shall have any right to commute, sell,
assign, transfer, pledge, anticipate, mortgage, or
otherwise encumber, transfer, hypothecate or convey in
advance of actual receipt, the amounts, if any, payable
hereunder, or any part thereof, which are, and all
rights to which are, expressly declared to be
unassignable and non-transferable. No part of the
amounts payable shall, prior to actual distribution, be
subject to seizure or sequestration for the payment of
any debts, judgments, alimony or separate maintenance
owed by a Participant or any other person, nor be
transferable by operation of law in the event of a
Participant's or any other person's bankruptcy or
insolvency.
9.12 Employment Not Guaranteed. Nothing contained in
this Plan nor any action taken hereunder shall be
construed as a contract of employment or as giving any
Employee any right to be retained in the employ of the
Employer or to serve as a director.
9.13 Gender, Singular and Plural. All pronouns and
any variations thereof shall be deemed to refer to the
masculine or feminine, as the identity of the person or
persons may require. As the context may require, the
singular may be read as the plural and the plural as
the singular.
9.14 Captions. The captions of the articles,
sections, and paragraphs of this Plan are for
convenience only and shall not control nor affect the
meaning or construction of any of its provisions.
9.15 Applicable Law. This Plan shall be governed and
construed in accordance with the laws of the State of
Texas.
9.16 Validity. In the event any provision of this
Plan is held invalid, void, or unenforceable, the same
shall not affect, in any respect whatsoever, the
validity of any other provision of this Plan.
9.17 Notice. Any notice or filing required or
permitted to be given to the Administrative Committee
under the Plan shall be sufficient if in writing and
hand delivered, or sent by registered or certified
mail, to the principal office of the Employer, directed
to the attention of the Senior Executive Vice
President-Human Resources of the Employer. Such notice
shall be deemed given on the date of delivery or, if
delivery is made by mail, on the date shown on the
postmark on the receipt for registration or
certification.
9.18 Successors and Assigns. This Plan shall be
binding upon the Company and its successors and
assigns.
9.19 Trust Fund. The Employer shall be responsible
for the payment of all benefits provided under the
Plan. At its discretion, the Company may establish one
or more trusts, for the purpose of providing for the
payment of such benefits. Such trust or trusts may be
irrevocable, but the assets thereof shall be subject to
the claims of the Employer's creditors. To the extent
any benefits provided under the Plan are actually paid
from any such trust, the Employer shall have no further
obligation with respect thereto, but to the extent not
so paid, such benefits shall remain the obligation of,
and shall be paid by, the Employer.
INDEX
Section Subject
- ------- -------
1 Statement of Purpose
2 Definitions
3 Administration of the Plan
4 Participation
4.1 Commencement of a Savings Unit
4.2 Termination of Participation
5 Participant Account(s)
5.1 Participant Deferrals
5.2 Statement of Account(s)
6 Benefits
6.1 Retirement Distribution
6.2 Termination Distribution
6.3 Disability
6.4 Survivor Distribution
7 Beneficiary Designation
8 Discontinuation, Termination, Amendment
8.1 Company's Right to Discontinue Offering Savings Units
8.2 Company's Right to Terminate Plan
8.3 Amendment
9 Miscellaneous
9.1 Additional Benefit
9.2 Small Distribution
9.3 Emergency Distribution
9.4 Commencement of Payments
9.5 Withholding
9.6 Transfer to Bellcore
9.7 Leave of Absence
9.8 Ineligible Participant
9.9 Unsecured General Creditor
9.10 Offset
9.11 Non-Assignability
9.12 Employment Not Guaranteed
9.13 Gender, Singular and Plural
9.14 Captions
9.15 Applicable Law
9.16 Validity
9.17 Notice
9.18 Successors and Assigns
9.19 Trust Fund
Exhibit (1) - AGREEMENT
EXHIBIT (1)
SBC OFFICER RETIREMENT SAVINGS PLAN ("PLAN") ENROLLMENT FORM
1994 ENROLLMENT FORM DUE DATE: 12/15/93
Return of this Form is Required.
Name ____________________________ Social Security Number____________________
Please Print
Officer hereby agrees to contribute a portion of his/her monthly Base
Salary, effective January 1, 1994, as shown below, the terms of the Plan to
govern and control (all elections are irrevocable):
Pre-Tax Amount (deferral percentage) = ___________% (Note 1 & 2)
The distribution of this Unit including my contributions and interest
thereon shall be as follows (Note 3):
___ I elect to defer making my choice as to the number of payments for my
Retirement Distribution which shall commence in January of the year
following my Retirement until no later than the last day of the
calendar year in which my Retirement takes place.
___ I elect to receive my Retirement Distribution commencing in
January of the year following my Retirement in _________ (specify
number 1,60,120, or 180) monthly installments.
Note 1: This is your pre-tax deferral percentage for this Plan only.
This does not affect deferrals related to your deferred
compensation plans' Units or your Stock Savings Plan Units. The
percentage will apply to your full Base Salary before deferrals
to other plans.
Note 2: Only Base Salary above $250,000 can be deferred.
Note 3: Withholding on all distributions will be at the minimum rate
prescribed by law.
ACCEPTED AND AGREED:
BY THE COMPANY: BY OFFICER:
By ____________________________________ ____________________________________
Its Senior Executive Vice Signature Date
President-Human Resources
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement on Form S-4 and related Prospectus of
Southwestern Bell Corporation and to the incorporation by reference
therein of our reports dated February 11, 1994, with respect to the
consolidated financial statements of Southwestern Bell Corporation
incorporated by reference in its Annual Report (Form 10-K) for the year
ended December 31, 1993 and the related financial statement schedules
included therein, filed with the Securities and Exchange Commission.
/s/ Ernst & Young
ERNST & YOUNG
San Antonio, Texas
July 28, 1994
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption 'Experts' and
to the use of our report dated February 25, 1994 with respect to the
consolidated financial statements and schedules of Associated
Communications Corporation for the years ended December 31, 1993, 1992,
and 1991 included in its Annual Report (Form 10-K), as amended on Form
10-K/A dated July 28, 1994, filed with the Securities and Exchange
Commission, incorporated by reference in the Proxy Statement of
Associated Communications Corporations which is made a part of the
Registration Statement (Form S-4) and Prospectus of Southwestern Bell
Corporation dated July 29, 1994.
We also consent to the use of our report dated February 5, 1993 with
respect to the financial statements of Buffalo Telephone Company for the
years ended December 31, 1992 and 1991, and of our reports dated
February 25, 1994 with respect to the combined financial statements and
schedules of Associated Business to be Merged for the years ended
December 31, 1993, 1992, and 1991, and with respect to the combined
financial statements and schedules of Associated Communications of
Delaware, Inc. for the years ended December 31, 1993, 1992, and 1991,
included or incorporated by reference in the Proxy Statement of
Associated Communications Corporations which is made a part of the
Registration Statement (Form S-4) and Prospectus of Southwestern Bell
Corporation dated July 29, 1994.
/s/Ernst & Young
ERNST & YOUNG
July 29, 1994
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference of our report dated
February 15, 1994, included in the Annual Report on Form 10-K of
Associated Communications Corporation ('Associated'), as amended on Form
10-K/A dated July 28, 1994, incorporated by reference in the Associated
Proxy Statement which is made a part of the Registration Statement (Form
S-4) dated July 29, 1994 and Southwestern Bell Corporation Prospectus,
on our audit of the financial statements of Bay Area Cellular Telephone
Company, as of, and for the year ended, December 31, 1993; such
financial statements are not included separately in the Form 10-K/A.
We also consent to the reference to our firm under the caption "Experts."
/s/ COOPERS & LYBRAND
San Francisco, California
July 29, 1994
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Associated Communications Corporation Proxy
Statement which is made a part of the Registration Statement (Form S-4) dated
July 29, 1994 and Southwestern Bell Corporation Prospectus, of our report dated
February 15, 1994, with respect to the financial statements of Bay Area Cellular
Telephone Company; such financial statements are not included separately in this
Registration Statement. We also consent to the reference to our firm under
the caption "Experts."
/s/ COOPERS & LYBRAND
San Francisco, California
July 29, 1994
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Associated Communications
Corporation Proxy Statement which is made a part of the Registration
Statement (Form S-4) dated July 29, 1994 and Southwestern Bell
Corporation Prospectus of our report dated March 28, 1994, on our audit
of the combined financial statements and financial statement schedules
of Bay Area Cellular Telephone Company and Pittsburgh Cellular Telephone
Company as of, and for the year ended, December 31, 1993. We also consent
to the reference to our firm under the caption "Experts."
/s/ COOPERS AND LYBRAND
San Francisco, California
July 29, 1994
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference of our report dated
March 28, 1994, with respect to the combined financial statements and
financial statement schedules of Bay Area Cellular Telephone Company,
Pittsburgh Cellular Telephone Company, and Grupo Portatel, S.A. de C.V.
and Subsidiaries included as an exhibit to the Associated Communications
Corporation ("Associated") Annual Report on Form 10-K for the year
ended December 31, 1993, as amended on Form 10-K/A dated July 28, 1994,
incorporated by reference in the Associated Proxy Statement which is
made a part of the Registration Statement (Form S-4) dated July 29, 1994
and Southwestern Bell Corporation Prospectus. We also consent to the
reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand
San Francisco, California
July 29, 1994
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports dated:
o January 28, 1994, with respect to the financial statements of
Pittsburgh Cellular Telephone Company.
o January 28, 1994, with respect to the financial statements of
Pittsburgh Cellular Telephone Company included in the combined 1993
financial statements of Bay Area Cellular Telephone Company and
Pittsburgh Cellular Telephone Company.
o January 29, 1993, with respect to the financial statements of
Pittsburgh Cellular Telephone Company included in the combined 1992
and 1991 financial statements of Bay Area Cellular Telephone
Company, Pittsburgh Cellular Telephone Company and Buffalo Telephone
Company.
o January 28, 1994, with respect to the financial statements of
Pittsburgh Cellular Telephone Company included in the 1993 Form 10-K
of Associated Communications Corporation as amended by Form 10-K/A
on July , 1994, incorporated by reference.
o January 29, 1993, with respect to the financial statements of
Pittsburgh Cellular Telephone Company included in the combined 1992
and 1991 financial statements of Bay Area Cellular Telephone
Company, Pittsburgh Cellular Telephone Company and Buffalo Telephone
Company included in the 1993 Form 10-K of Associated Communications
Corporation, as amended by Form 10-K/A on July , 1994, incorporated
by reference.
o January 28, 1994, with respect to the financial statements of
Pittsburgh Cellular Telephone Company included in the combined 1993
financial statements of Bay Area Cellular Telephone Company,
Pittsburgh Cellular Telephone Company and Grupo Portatel, S.A. de
C.V. and Subsidiaries included in the 1993 Form 10-K of Associated
Communications Corporation, as amended by Form 10-K/A on July ,
1994, incorporated by reference.
and to all references to our Firm included in the Proxy Statement of Associated
Communications Corporation (Associated) which is made as part of the
Registration Statement on Form S-4 and Prospectus of Southwestern Bell
Corporation dated July 29, 1994, prepared pursuant to the Agreement and Plan of
Merger between Associated and Southwestern Bell Corporation.
Seattle, Washington,
July 27, 1994
Consent of Independent Accountants
We hereby consent to the use in this Proxy Statement of Associated
Communications Corporation constituting part of this Registration
Statement on Form S-4 and Prospectus of Southwestern Bell Corporation
dated July 29, 1994 of our report dated March 24, 1993, relating to the
combined financial statements of Bay Area Cellular Telephone Company,
Buffalo Telephone Company and Pittsburgh Cellular Telephone Company for
the years ended December 31, 1992 and 1991 appearing on page F-45 of this
Proxy Statement. We also consent to the use of our report on the
Financial Statement Schedules, which appears on page F-58 of this Proxy
Statement.
/s/ Price Waterhouse
Price Waterhouse
San Francisco, California
July 26, 1994
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Proxy Statement of Associated
Communications Corporation constituting part of this Registration
Statement on Form S-4 and Prospectus of Southwestern Bell Corporation
dated July 29, 1994 of our report dated March 24, 1993, relating to
the financial statements of Bay Area Cellular Telephone Company,
appearing on page F-5 of this Proxy Statement. We also consent to the
reference to our firm under the heading "Experts" in the Proxy Statement
of Associated Communications Corporation constituting part of this
Registration Statement on Form S-4 of Southwestern Bell Corporation
dated July 29, 1994.
/s/ Price Waterhouse
Price Waterhouse
San Francisco, California
July 26, 1994
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Grupo Portatel, S.A. de C.V.:
We consent to the use of our report dated February 11, 1994, relating to
the consolidated balance sheets of Grupo Portatel, S.A. de C.V. as of
December 31, 1993 and 1992, and the related statements of operations,
stockholders' equity (deficit) and cash flows for each of the years in
the three year period ended December 31, 1993, and all related
schedules, included herein, or incorporated herein by reference, and to
the reference to our firm under the heading "Experts" in the Proxy
Statement-Prospectus constituting part of this Registration Statement on
Form S-4 of Southwestern Bell Corporation.
Our report contains an explanatory paragraph that states the Company
has contingencies with the Mexican Ministry of Communications and
Transportation, the Mexican tax authorities and Telefonos de Mexico over
certain fees, withholding taxes and long distance charges, respectively
totalling approximately $2,500,000. The consolidated financial
statements and schedules do not include any adjustments that might
result from the outcome of the contingencies.
Our report refers to a change in the method of accounting for income
taxes in 1993 to adopt the provisions of the Financial Accounting
Standards Board's Statement of Financial Standards No. 109.
KPMG CARDENAS DOSAL, S.C.
Hector Arturo Ramirez
Hector Arturo Ramirez
July 27, 1994
CONSENT OF SALOMON BROTHERS INC
We hereby consent to the use of our name and to the description of our
opinion letter, dated July 29, 1994, under the captions 'Summary--Opinion of
Financial Advisor to the Associated Board,' 'The Merger--Background of the
Merger,' 'The Merger--Associated's Reasons for the Merger; Recommendation of the
Associated Board' and 'The Merger--Opinion of the Financial Advisor to the
Associated Board' in the Prospectus of Southwestern Bell Corporation, and in the
Information Statement included as Appendix D to the Prospectus under the caption
'Management--Treatment of Acorn Options,' and to the inclusion of our opinion
letter as Appendix C to the Prospectus, which Prospectus is part of the
Registration Statement on Form S-4 of Southwestern Bell Corporation. By giving
such consent, we do not thereby admit that we are experts with respect to any
part of such Registration Statement within the meaning of the term 'expert' as
used in, or that we come within the category of persons whose consent is
required under, the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
SALOMON BROTHERS INC
By: /s/ Michael J. Carr
Managing Director
New York, New York
July 29, 1994
CONSENT OF WASSERSTEIN PERELLA & CO., INC.
We hereby consent to the use of our name under the caption 'Management--
Treatment of ACORN Options' in the Information Statement included as Annex D to
the Prospectus of Southwestern Bell Corporation, which Prospectus is part of the
Registration Statement on Form S-4 of Southwestern Bell Corporation. By giving
such consent, we do not thereby admit that we are experts with respect to any
part of such Registration Statement within the meaning of the term 'expert' as
used in, or that we come within the category of persons whose consent is
required under, the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
WASSERSTEIN PERELLA & CO., INC.
By: /s/ Larry Grafstein
New York, New York
July 28, 1994
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SOUTHWESTERN BELL CORPORATION, a Delaware
corporation, hereinafter referred to as the "Corporation," proposes to
file with the Securities and Exchange Commission under the provisions of
the Securities Act of 1933, as amended, a Registration Statement on Form
S-4 with respect to the issuance of the Common Stock of the Corporation,
$1.00 par value, in an aggregate amount not to exceed Six Hundred Eighty
Million Dollars ($680,000,000); and
WHEREAS, the undersigned is an officer or a director, or both, of
the Corporation, as set forth beneath his or her signature;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Robert G. Pope, James D. Ellis, William J. Free, Donald E. Kiernan,
Judith M. Sahm, or any one of them, his or her attorney, for him or her
and in his or her name, place and stead, and in his or her office
and capacity in the Corporation as an officer or a director, or, if he
or she holds both such offices, then as both an officer and as a
director, to execute and file such registration, and thereafter to
execute and file any amendment or amendments thereto, hereby giving and
granting to said attorneys full power and authority to do and perform
each and every act and thing whatsoever requisite or necessary to be
done in and concerning the premises, as fully to all intents and
purposes as he or she might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys
may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of Attorney
the 28th day of January, 1994.
/s/ Edward E. Whitacre, Jr.
Edward E. Whitacre, Jr.
Director and Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SOUTHWESTERN BELL CORPORATION, a Delaware
corporation, hereinafter referred to as the "Corporation,"
proposes to file with the Securities and Exchange Commission,
under the provisions of the Securities Act of 1933, as amended,
a Registration Statement on Form S-4 with respect to the
issuance of the Common Stock of the Corporation, $1.00 par
value, in an aggregate amount not to exceed Six Hundred Eighty
Million Dollars ($680,000,000); and
WHEREAS, the undersigned is an officer or a director, or
both, of the Corporation, as set forth beneath his or her
signature;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Edward E. Whitacre, Jr., Robert G. Pope, James D. Ellis, William J.
Free, Donald E. Kiernan, Judith M. Sahm, or any one of them, his or
her attorney, for him or her and in his or her name, place and
stead, and in his or her office and capacity in the Corporation
as an officer or a director, or, if he or she holds both such
offices, then as both an officer and as a director, to execute
and file such registration, and thereafter to execute and file
any amendment or amendments thereto, hereby giving and granting
to said attorneys full power and authority to do and perform
each and every act and thing whatsoever requisite or necessary
to be done in and concerning the premises, as fully to all
intents and purposes as he or she might or could do if
personally present at the doing thereof, hereby ratifying and
confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of
Attorney the 28th day of January, 1994.
/s/ Clarence C. Barksdale /s/ James E. Barnes
Clarence C. Barksdale James E. Barnes
Director Director
/s/ Jack S. Blanton /s/ August A. Busch III
Jack S. Blanton August A. Busch III
Director Director
/s/ Ruben R. Cardenas /s/ Martin K. Eby, Jr.
Ruben R. Cardenas Martin K. Eby, Jr.
Director Director
/s/ Tom C. Frost /s/ Jess Hay
Tom C. Frost Jess Hay
Director Director
/s/ B. R. Inman /s/ Charles F. Knight
B. R. Inman Charles F. Knight
Director Director
/s/ Sybil C. Mobley /s/ Haskell M. Monroe, Jr.
Sybil C. Mobley Haskell M. Monroe, Jr.
Director Director
/s/ Carlos Slim Helu /s/ Patricia P. Upton
Carlos Slim Helu Patricia P. Upton
Director Director
<PAGE>
ASSOCIATED COMMUNICATIONS CORPORATION PROXY
CLASS A COMMON STOCK
ANNUAL MEETING OF STOCKHOLDERS--SEPTEMBER 22, 1994
The undersigned hereby appoints each of Myles P. Berkman and David J.
Berkman as Proxies, each with the full power to appoint a substitute, to
represent and to vote, as designated below, all the shares of Class A Common
Stock of Associated Communications Corporation, a Delaware corporation (the
'Company'), the undersigned may be entitled to vote, with all powers the
undersigned would possess if personally present, at the Annual Meeting of
Stockholders to be held on September 22, 1994 and any adjournment or
postponement thereof (the 'Meeting'). In their discretion, the Proxies are
authorized to vote upon such other business as may properly come before the
Meeting, the election of an alternative person to serve as a director if Donald
H. Jones is unable to serve or for good cause will not serve, and matters
incident to the conduct of the meeting. This proxy revokes all prior proxies
given by the undersigned.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT (AS DEFINED
HEREIN), FOR THE ELECTION OF DONALD H. JONES AS A DIRECTOR AND FOR ADJOURNING
THE ANNUAL MEETING, IF NECESSARY. ADDITIONALLY, THIS PROXY WILL BE VOTED IN THE
DISCRETION OF THE PROXIES UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE
THE MEETING, THE ELECTION OF AN ALTERNATIVE PERSON TO SERVE AS A DIRECTOR IF
DONALD H. JONES IS UNABLE TO SERVE OR FOR GOOD CAUSE WILL NOT SERVE, AND MATTERS
INCIDENT TO THE CONDUCT OF THE MEETING. THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF
THE COMPANY'S PROXY STATEMENT DATED JULY 29, 1994 AND THE RELATED NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS AND THE 1993 ANNUAL REPORT.
(continued--to be dated and signed on reverse side)
<PAGE>
THE COMPANY RECOMMENDS A VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT, FOR THE ELECTION OF DONALD J. JONES AS DIRECTOR AND FOR
ADJOURNING THE ANNUAL MEETING.
1. Approval and adoption of the Agreement and Plan of Merger and
Reorganization, dated as of February 23, 1994, among the Company, Southwestern
Bell Corporation, a Delaware corporation ('SBC'), and SBMS Acquisition Corp., a
Delaware corporation and an indirect wholly owned subsidiary of SBC
('Purchaser'), pursuant to which, among other things, immediately following the
Distribution contemplated by the Merger Agreement, Purchaser will be merged with
and into Associated upon the terms and conditions contained in the Merger
Agreement (the 'Merger'), and Associated will become an indirect wholly owned
subsidiary of SBC.
FOR AGAINST ABSTAIN
/ / / / / /
2. Election of director duly nominated: Donald M. Jones
FOR WITHHOLD
the AUTHORITY
nominee to vote for
the nominee
/ / / /
3. To vote to adjourn the Annual Meeting for up to 30 days to solicit
additional votes if necessary to approve and adopt the Merger Agreement.
FOR AGAINST ABSTAIN
/ / / / / /
Please mark, date and sign your name as it appears on this proxy card and return
it in the enclosed envelope. If shares are held by two or more holders, each
holder should sign. If shares are held in more than one capacity this proxy will
be deemed valid for all shares held in all capacities. When signing as attorney,
executor, administrator, trustee, or guardian, please give full title. If a
corporation, please sign in full corporate name by Chairman of the Board,
President, Secretary, Treasurer, or other duly authorized officer. If a
partnership, please sign in partnership name by authorized person.
Please sign here exactly as your name(s) appear(s) to the left.
Dated _______________________, 1994
___________________________________
(Signature)
___________________________________
(Signature)
___________________________________
(Title or Authority)
'PLEASE MARK INSIDE BLUE BOXES SO THAT DATA
PROCESSING EQUIPMENT WILL RECORD YOUR VOTES'
<PAGE>
ASSOCIATED COMMUNICATIONS CORPORATION PROXY
CLASS B COMMON STOCK
ANNUAL MEETING OF STOCKHOLDERS--SEPTEMBER 22, 1994
The undersigned hereby appoints each of Myles P. Berkman and David J.
Berkman as Proxies, each with the full power to appoint a substitute, to
represent and to vote, as designated below, all the shares of Class B Common
Stock of Associated Communications Corporation, a Delaware corporation (the
'Company'), the undersigned may be entitled to vote, with all powers the
undersigned would possess if personally present, at the Annual Meeting of
Stockholders to be held on September 22, 1994 and any adjournment or
postponement thereof (the 'Meeting'). In their discretion, the Proxies are
authorized to vote upon such other business as may properly come before the
Meeting, the election of an alternative person to serve as a director if Donald
H. Jones is unable to serve or for good cause will not serve, and matters
incident to the conduct of the meeting. This proxy revokes all prior proxies
given by the undersigned.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT (AS DEFINED
HEREIN), FOR THE ELECTION OF DONALD H. JONES AS A DIRECTOR AND FOR ADJOURNING
THE ANNUAL MEETING, IF NECESSARY. ADDITIONALLY, THIS PROXY WILL BE VOTED IN THE
DISCRETION OF THE PROXIES UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE
THE MEETING, THE ELECTION OF AN ALTERNATIVE PERSON TO SERVE AS A DIRECTOR IF
DONALD H. JONES IS UNABLE TO SERVE OR FOR GOOD CAUSE WILL NOT SERVE, AND MATTERS
INCIDENT TO THE CONDUCT OF THE MEETING. THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF
THE COMPANY'S PROXY STATEMENT DATED JULY 29, 1994 AND THE RELATED NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS AND THE 1993 ANNUAL REPORT.
(continued--to be dated and signed on reverse side)
<PAGE>
THE COMPANY RECOMMENDS A VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT, FOR THE ELECTION OF DONALD J. JONES AS DIRECTOR AND FOR
ADJOURNING THE ANNUAL MEETING.
1. Approval and adoption of the Agreement and Plan of Merger and
Reorganization, dated as of February 23, 1994, among the Company, Southwestern
Bell Corporation, a Delaware corporation ('SBC'), and SBMS Acquisition Corp., a
Delaware corporation and an indirect wholly owned subsidiary of SBC
('Purchaser'), pursuant to which, among other things, immediately following the
Distribution contemplated by the Merger Agreement, Purchaser will be merged with
and into Associated upon the terms and conditions contained in the Merger
Agreement (the 'Merger'), and Associated will become an indirect wholly owned
subsidiary of SBC.
FOR AGAINST ABSTAIN
/ / / / / /
2. Election of director duly nominated: Donald M. Jones
FOR WITHHOLD
the AUTHORITY
nominee to vote for
the nominee
/ / / /
3. To vote to adjourn the Annual Meeting for up to 30 days to solicit
additional votes if necessary to approve and adopt the Merger Agreement.
FOR AGAINST ABSTAIN
/ / / / / /
Please mark, date and sign your name as it appears on this proxy card and return
it in the enclosed envelope. If shares are held by two or more holders, each
holder should sign. If shares are held in more than one capacity this proxy will
be deemed valid for all shares held in all capacities. When signing as attorney,
executor, administrator, trustee, or guardian, please give full title. If a
corporation, please sign in full corporate name by Chairman of the Board,
President, Secretary, Treasurer, or other duly authorized officer. If a
partnership, please sign in partnership name by authorized person.
Please sign here exactly as your name(s) appear(s) to the left.
Dated _______________________, 1994
___________________________________
(Signature)
___________________________________
(Signature)
___________________________________
(Title or Authority)
'PLEASE MARK INSIDE BLUE BOXES SO THAT DATA
PROCESSING EQUIPMENT WILL RECORD YOUR VOTES'
