<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
NATIONWIDE CELLULAR SERVICE, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
NATIONWIDE CELLULAR SERVICE, INC.
20 EAST SUNRISE HIGHWAY
VALLEY STREAM, NEW YORK 11581-1252
August 21, 1995
TO OUR STOCKHOLDERS:
You are cordially invited to attend the Special Meeting of Stockholders of
Nationwide Cellular Service, Inc. (the "Company"), to be held at The Drake
Hotel, 440 Park Avenue, New York, New York 10022 on Tuesday, September 19, 1995
at 10:00 a.m., local time.
At the Special Meeting of Stockholders you will be asked to consider and
vote upon a proposal to approve and adopt the Agreement and Plan of Merger,
dated May 22, 1995, as Amended and Restated as of August 17, 1995 (the "Merger
Agreement"), by and among MCI Communications Corporation, a Delaware corporation
("MCI"), NTS Acquisition Corp., a Delaware corporation and an indirect
wholly-owned subsidiary of MCI (the "Purchaser"), and the Company, pursuant to
which, upon the terms and subject to the conditions of the Merger Agreement, the
Purchaser will be merged with and into the Company (the "Merger"), with the
Company being the surviving corporation and an indirect wholly-owned subsidiary
of MCI. If the proposed Merger is consummated, each share of the Company's
common stock, par value $0.01 per share (the "Shares") (other than Shares held
by the Company, MCI, the Purchaser, any of their respective subsidiaries or by
stockholders who perfect their statutory appraisal rights under Delaware law),
will be converted into the right to receive $18.50 in cash, without interest
thereon.
In the event that the Merger is approved and the other conditions set forth
in the Merger Agreement are satisfied or waived, prior to the effective date of
the Merger, the Company will distribute, on a pro rata basis to holders of
Shares and to the holder of a stock purchase warrant, a number of shares of the
common stock of Cellular Technical Services Company, Inc. ("CTS") owned by the
Company determined as provided in the Merger Agreement (the "Spin-Off
Distribution"). No vote of stockholders of the Company is required, or is being
requested, in connection with the Spin-Off Distribution.
Approval and adoption of the Merger Agreement requires the affirmative vote
of the holders of a majority of the outstanding Shares of the Company. All
Shares represented by properly executed proxies will be voted in accordance with
the specifications on the enclosed proxy. If no such specifications are made,
proxies will be voted FOR approval and adoption of the Merger Agreement.
Detailed information concerning the Merger is set forth in the attached Proxy
Statement, which we urge you to read carefully.
YOUR BOARD OF DIRECTORS, AFTER CAREFUL CONSIDERATION, HAS APPROVED THE
MERGER AGREEMENT AND DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST
INTERESTS OF THE STOCKHOLDERS OF THE COMPANY AND RECOMMENDS THAT YOU VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. In reaching this conclusion, the
Board relied upon, among other things, the oral opinion of PaineWebber
Incorporated, an investment banking firm engaged by the Board, as to the
fairness, from a financial point of view, of the consideration to be received by
the stockholders of the Company pursuant to the Merger. A copy of the written
confirmation of this opinion is attached to the enclosed Proxy Statement as
Annex B and should be read in its entirety.
Your vote is important to the Company. Whether or not you plan to attend
the Special Meeting in person and regardless of the number of Shares you own,
please complete, sign, date and return the enclosed proxy card promptly in the
enclosed pre-addressed envelope. No postage is required if mailed in the United
States.
Sincerely,
Stephen Katz
Chairman and Chief Executive Officer
<PAGE> 3
NATIONWIDE CELLULAR SERVICE, INC.
20 EAST SUNRISE HIGHWAY
VALLEY STREAM, NEW YORK 11581-1252
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, SEPTEMBER 19, 1995
---------------------
Notice is hereby given that a Special Meeting of Stockholders (the "Special
Meeting") of Nationwide Cellular Service, Inc. (the "Company") will be held at
The Drake Hotel, 440 Park Avenue, New York, New York 10022 on Tuesday, September
19, 1995 at 10:00 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger, dated May 22, 1995, as Amended and Restated as of
August 17, 1995 (the "Merger Agreement"), by and among MCI
Communications Corporation, a Delaware corporation ("MCI"), NTS
Acquisition Corp., a Delaware corporation and an indirect wholly-owned
subsidiary of MCI (the "Purchaser"), and the Company, pursuant to which,
upon the terms and subject to the conditions of the Merger Agreement,
(a) the Purchaser will be merged with and into the Company (the
"Merger"), with the Company being the surviving corporation and an
indirect wholly-owned subsidiary of MCI, and (b) each share of the
Company's common stock, par value $0.01 per share (the "Shares"),
outstanding at the effective time of the Merger (other than Shares held
by the Company, MCI, the Purchaser, any of their respective subsidiaries
or by stockholders who perfect their statutory appraisal rights under
Delaware law) will be converted into the right to receive $18.50 in
cash, without interest thereon.
2. To transact such other business as may properly come before the Special
Meeting and any adjournment or postponement thereof.
The Merger and other related matters are more fully described in the
attached Proxy Statement and Annexes thereto.
The stock transfer books of the Company will not be closed but only
stockholders of record at the close of business on July 24, 1995 will be
entitled to notice of and to vote at the Special Meeting or any adjournment or
postponement thereof. A complete list of the stockholders entitled to vote will
be available for inspection by any stockholder during the Special Meeting; in
addition, the list will be open for examination by any stockholder, for any
purpose germane to the Special Meeting, during ordinary business hours, for a
period of at least 10 days prior to the Special Meeting, at the offices of
Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the Americas, 18th Floor,
New York, New York 10036.
All Shares represented by properly executed proxies will be voted in
accordance with the specifications on the enclosed proxy. If no such
specifications are made, proxies will be voted FOR approval and adoption of the
Merger Agreement. Stockholders of the Company who do not vote in favor of
approval and adoption of the Merger Agreement and who otherwise comply with the
provisions of Section 262 of the General Corporation Law of the State of
Delaware will, under certain circumstances, have the right, if the Merger is
consummated, to dissent and to demand appraisal of the fair market value of
their Shares. A copy of Section 262 is attached to the Proxy Statement as Annex
C. See "The Merger -- Rights of Dissenting Stockholders" in the accompanying
Proxy Statement for a description of the procedures required to exercise
dissenters' rights properly.
<PAGE> 4
YOUR VOTE IS IMPORTANT TO THE COMPANY. WHETHER OR NOT YOU PLAN TO ATTEND
THE SPECIAL MEETING IN PERSON AND REGARDLESS OF THE NUMBER OF SHARES YOU OWN,
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY IN THE
ENCLOSED PRE-ADDRESSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES. YOU MAY, OF COURSE, ATTEND THE SPECIAL MEETING, REVOKE YOUR PROXY AND
VOTE IN PERSON EVEN IF YOU HAVE ALREADY RETURNED YOUR PROXY CARD.
BY ORDER OF THE BOARD OF DIRECTORS
Jerome Sanders
Secretary
Valley Stream, New York
August 21, 1995
2
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NATIONWIDE CELLULAR SERVICE, INC.
20 EAST SUNRISE HIGHWAY
VALLEY STREAM, NEW YORK 11581-1252
---------------------
PROXY STATEMENT
---------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, SEPTEMBER 19, 1995
---------------------
INTRODUCTION
This proxy statement (the "Proxy Statement") is being furnished to
stockholders of Nationwide Cellular Service, Inc. (the "Company") in connection
with the solicitation of proxies by the Board of Directors of the Company (the
"Board of Directors" or the "Board") for use at the Special Meeting of
Stockholders (the "Special Meeting") to be held at The Drake Hotel, 440 Park
Avenue, New York, New York 10022 on Tuesday, September 19, 1995 at 10:00 a.m.,
local time, or at any adjournment or postponement thereof, for the purposes set
forth in the accompanying Notice of Special Meeting of Stockholders.
At the Special Meeting, the holders of the shares of common stock, par
value $0.01 per share (the "Shares"), of the Company will be asked to consider
and vote upon (i) a proposal to approve and adopt the Agreement and Plan of
Merger, dated May 22, 1995, as Amended and Restated as of August 17, 1995 (the
"Merger Agreement"), by and among MCI Communications Corporation, a Delaware
corporation ("MCI"), NTS Acquisition Corp., a Delaware corporation and an
indirect wholly-owned subsidiary of MCI (the "Purchaser"), and the Company,
pursuant to which, upon the terms and subject to the conditions of the Merger
Agreement, (a) the Purchaser will be merged with and into the Company (the
"Merger"), with the Company being the surviving corporation (the "Surviving
Corporation") and an indirect wholly-owned subsidiary of MCI, and (b) each Share
outstanding at the effective time of the Merger (other than Shares held by the
Company, MCI, the Purchaser, any of their respective subsidiaries or by
stockholders who perfect their statutory appraisal rights under Delaware law)
will be converted into the right to receive $18.50 in cash, without interest
thereon, and (ii) the transaction of such other business as may properly come
before the Special Meeting and any adjournment or postponement thereof.
In the event that the Merger is approved and the other conditions set forth
in the Merger Agreement are satisfied or waived, prior to the effective time of
the Merger the Company will distribute, on a pro rata basis to holders of Shares
and to the holder of a stock purchase warrant, a number of shares of the common
stock of Cellular Technical Services Company, Inc. ("CTS") owned by the Company
(the "CTS Common Stock") determined as provided in the Merger Agreement (the
"Spin-Off Distribution"). As of the date hereof, the Company owns 3,340,000
shares of CTS Common Stock and holds an option (the "CTS Option") to purchase an
additional 640,000 shares of CTS Common Stock, which CTS Option the Company has
agreed in the Merger Agreement to exercise prior to the Spin-Off Distribution.
Upon exercise of the CTS Option, the Company will own approximately 37.3% of the
outstanding CTS Common Stock. No vote of stockholders of the Company is
required, or is being requested, in connection with the Spin-Off Distribution.
The enclosed proxy is solicited on behalf of the Board of Directors. The
giving of a proxy does not preclude the right to vote in person should you so
desire. You may revoke or change your proxy at any time prior to its use at the
Special Meeting by giving the Company a written direction to revoke your proxy,
giving the Company a new proxy or attending the Special Meeting and voting in
person.
A conformed copy of the Merger Agreement is included as Annex A hereto. The
summaries of portions of the Merger Agreement set forth in this Proxy Statement
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the text of the Merger Agreement.
<PAGE> 6
YOUR BOARD OF DIRECTORS, AFTER CAREFUL CONSIDERATION, HAS APPROVED THE
MERGER AGREEMENT AND DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST
INTERESTS OF THE STOCKHOLDERS OF THE COMPANY AND RECOMMENDS THAT YOU VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. In reaching this conclusion, the
Board relied upon, among other things, the oral opinion of PaineWebber
Incorporated, an investment banking firm engaged by the Board, as to the
fairness, from a financial point of view, of the consideration to be received by
the stockholders of the Company pursuant to the Merger. A copy of the written
confirmation of this opinion is attached to the enclosed Proxy Statement as
Annex B and should be read in its entirety.
Stockholders of the Company who do not vote in favor of approval and
adoption of the Merger Agreement and who otherwise comply with the provisions of
Section 262 of the General Corporation Law of the State of Delaware (the "DGCL")
will, under certain circumstances, have the right if the Merger is consummated
to dissent and to demand appraisal of the fair market value of their Shares. A
copy of Section 262 of the DGCL is attached to the Proxy Statement as Annex C.
See "The Merger -- Rights of Dissenting Stockholders" for a description of the
procedures required to exercise dissenters' rights properly.
The Company's principal executive office is located at 20 East Sunrise
Highway, Valley Stream, New York, New York 11581-1252, and the telephone number
at that address is (516) 568-2000.
This Proxy Statement is first being mailed to the Company's stockholders on
or about August 21, 1995.
---------------------
The date of this Proxy Statement is August 21, 1995.
2
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
SUMMARY............................................................................... 5
Parties to the Merger............................................................... 5
The Special Meeting................................................................. 5
Vote Required....................................................................... 5
Director and Adelson Voting Agreements.............................................. 6
Recommendation of the Board and Reasons for the Merger.............................. 6
Opinion of Financial Advisor........................................................ 6
Interests of Certain Persons in the Merger.......................................... 6
Effective Time...................................................................... 7
Surrender of Stock Certificates; Payment for Shares................................. 7
Conditions to the Merger............................................................ 7
No Solicitation; Fiduciary Duties................................................... 7
Termination; Fees and Expenses...................................................... 8
Stock Options....................................................................... 8
Adelson Warrant..................................................................... 9
The Spin-Off Distribution........................................................... 9
Rights of Dissenting Stockholders................................................... 9
Certain Federal Income Tax Consequences............................................. 10
Recent Market Prices of Company's Common Stock...................................... 10
Selected Financial Information of the Company....................................... 11
VOTING AND PROXIES.................................................................... 12
Purpose, Record Date and Voting..................................................... 12
Proxy Information................................................................... 12
Director and Adelson Voting Agreements.............................................. 13
THE MERGER............................................................................ 13
Background of the Merger............................................................ 13
Reasons for the Merger and Board of Directors' Recommendation....................... 16
Opinion of Financial Advisor........................................................ 17
Interests of Certain Persons in the Merger.......................................... 21
Effective Time...................................................................... 22
Payment for Shares and Surrender of Stock Certificates.............................. 22
Certain Other Effects of the Merger................................................. 22
Accounting Treatment................................................................ 23
Terms of the Merger Agreement....................................................... 23
Source and Amount of Funds.......................................................... 30
Adelson Warrant..................................................................... 30
The Spin-Off Distribution........................................................... 30
Federal Income Tax Consequences..................................................... 32
Regulatory Filings and Approvals.................................................... 33
Rights of Dissenting Stockholders................................................... 34
SELECTED CONSOLIDATED FINANCIAL INFORMATION........................................... 36
PRICE RANGE OF COMMON STOCK AND DIVIDEND HISTORY...................................... 37
OWNERSHIP OF VOTING SECURITIES........................................................ 38
BUSINESS OF THE COMPANY............................................................... 40
AVAILABLE INFORMATION................................................................. 44
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 44
INDEPENDENT PUBLIC ACCOUNTANTS........................................................ 45
</TABLE>
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<TABLE>
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<S> <C>
OTHER MATTERS......................................................................... 45
STOCKHOLDER PROPOSALS................................................................. 45
ANNEX A -- Agreement and Plan of Merger
ANNEX B -- Fairness Opinion of PaineWebber Incorporated
ANNEX C -- Delaware General Corporation Law Section 262
</TABLE>
4
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SUMMARY
The following summary is intended to highlight certain information included
elsewhere in this Proxy Statement. This summary does not purport to be complete
and is qualified in its entirety by the more detailed information contained
elsewhere in this Proxy Statement, the Annexes hereto and other documents
referred to and incorporated by reference herein. Unless defined herein,
capitalized terms used in this summary have the meanings ascribed to them
elsewhere in this Proxy Statement. Stockholders are urged to read this Proxy
Statement, the Annexes hereto and the documents referred to herein in their
entirety.
PARTIES TO THE MERGER
The parties to the Merger Agreement are the Company, MCI and the Purchaser.
The Company is engaged in the purchase and resale of cellular telephone
service and, to a lesser extent, the sale of cellular telephone equipment and
accessories.
MCI is the second largest nationwide carrier of long-distance
telecommunications services and the third largest carrier of international
long-distance telecommunications services in the world. MCI provides a wide
spectrum of domestic and international voice and data services, which include
long-distance telephone services, data communications services and electronic
messaging services. During each of the last three years, more than 90% of MCI's
operating revenues, operating income and assets related to MCI's activities in
the long-distance telecommunications industry.
The Purchaser is an indirect, wholly-owned subsidiary of MCI. The Purchaser
was recently formed solely to facilitate MCI's acquisition of the Company and
will not perform any activities other than of an organizational nature and as
required by the Merger Agreement prior to consummation of the Merger.
THE SPECIAL MEETING
The Special Meeting will be held on Tuesday, September 19, 1995, at The
Drake Hotel, 440 Park Avenue, New York, New York 10022 at 10:00 a.m., local
time. The Board of Directors has fixed the close of business on July 24, 1995 as
the record date (the "Record Date") for the determination of the stockholders
entitled to notice of, and to vote at, the Special Meeting and any adjournment
or postponement thereof. Only holders of record of Shares at the close of
business on the Record Date will be entitled to notice of and to vote at the
Special Meeting.
The purpose of the Special Meeting is (i) to consider and vote upon a
proposal to approve and adopt the Merger Agreement, pursuant to which, upon the
terms and subject to the conditions of the Merger Agreement, (a) the Purchaser
will be merged with and into the Company, with the Company being the surviving
corporation and an indirect wholly-owned subsidiary of MCI; and (b) each Share
outstanding at the effective time of the Merger (other than Shares held by the
Company, MCI, the Purchaser, any of their respective subsidiaries or by
stockholders who perfect their statutory appraisal rights under Delaware law)
will be converted into the right to receive $18.50 in cash, without interest
thereon (the "Merger Consideration"); and (ii) to transact such other business
as may properly come before the Special Meeting.
VOTE REQUIRED
The presence, in person or by proxy, of the holders of a majority of the
outstanding Shares is necessary to constitute a quorum at the Special Meeting.
Holders of Shares on the Record Date are entitled to one vote per Share,
exercisable in person or by a properly executed proxy, at the Special Meeting
with respect to all matters to be acted upon. Under applicable law, the
affirmative vote of the holders of a majority of the Shares outstanding on the
Record Date is required to approve and adopt the Merger Agreement. As of the
Record Date, 8,168,199 Shares, held by 117 holders of record, were issued and
outstanding and entitled to vote at the Special Meeting. Stockholders holding in
the aggregate 1,982,064 Shares (representing approximately 24.3% of the Shares
outstanding on the Record Date) have entered into agreements with MCI to vote in
favor of the approval of and adoption of the Merger Agreement and have granted
proxies to MCI giving MCI the right to vote the Shares in favor of the Merger
Agreement. See "Voting and Proxies -- Director and Adelson Voting
5
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Agreements." All Shares represented by properly executed proxies will be voted
in accordance with the specifications on the enclosed proxy. If no such
specifications are made, proxies will be voted FOR approval and adoption of the
Merger Agreement.
DIRECTOR AND ADELSON VOTING AGREEMENTS
Stephen Katz, Joseph Gregori, Jerome Sanders, Jay Bernstein, Larry Altman
and Mel Steinberg, each of whom is a director of the Company (collectively, the
"Director Stockholders"), have each agreed in writing with MCI to vote all
Shares owned by them (the "Director Shares") in favor of the Merger, and each
has granted to MCI a proxy to vote all his Director Shares in favor of the
Merger. In addition, the Director Stockholders have agreed in writing not to
sell or transfer the Director Shares prior to the first to occur of the
Effective Time or the termination of the Merger Agreement. On the Record Date,
the Director Stockholders owned an aggregate of 1,224,325 Shares (representing
approximately 15% of the then outstanding Shares). See "Voting and
Proxies -- Director and Adelson Voting Agreements." On August 18, 1995, Mr. Katz
sold, with MCI's consent, 55,000 Shares to an unaffiliated party who has
acknowledged in writing that such Shares are subject to the voting agreement and
proxy delivered by Mr. Katz and who has agreed, in certain circumstances upon
request of MCI, to deliver a similar voting agreement and proxy.
In addition, Merv Adelson, the owner of 757,739 Shares (the "Adelson
Shares") and a warrant to purchase up to 850,000 Shares (the "Adelson Warrant"),
has agreed in writing to vote all of the Adelson Shares (representing
approximately 9.3% of the Shares outstanding on the Record Date) in favor of the
Merger and has granted to MCI a proxy to vote all the Adelson Shares in favor of
the Merger. Mr. Adelson has agreed in writing (i) not to sell or transfer the
Adelson Shares or the Adelson Warrant prior to the first to occur of the
Effective Time (as defined below) or the termination of the Merger Agreement and
(ii) to waive certain rights under a stockholders agreement between Mr. Adelson
and the Company, including registration rights with respect to the Adelson
Shares. See "Voting and Proxies -- Director and Adelson Voting Agreements."
RECOMMENDATION OF THE BOARD AND REASONS FOR THE MERGER
On May 21, 1995, the Board of Directors approved a merger agreement (the
"Original Agreement"), authorized its execution and delivery, determined that
the Merger is fair to and in the best interests of the Company's stockholders
and recommended that the Company's stockholders vote FOR the approval and
adoption of the Original Agreement. On August 17, 1995, the Board approved the
Merger Agreement and confirmed its determination that the Merger is fair to and
in the best interests of the Company's stockholders and recommended that the
Company's stockholders vote FOR the approval and adoption of the Merger
Agreement. The Board, in reaching its decisions, considered a number of factors.
See "The Merger -- Reasons for the Merger and Board of Directors'
Recommendation" and "-- Opinion of Financial Advisor."
OPINION OF FINANCIAL ADVISOR
The Company has retained PaineWebber Incorporated (the "Financial Advisor")
to provide financial advice and other assistance to the Board. On May 21, 1995,
the Financial Advisor delivered its oral opinion to the Board to the effect
that, as of May 20, 1995, and based on the assumptions made, matters considered
and limits of the review undertaken, as described in such oral opinion, the
Merger Consideration is fair to the Company's stockholders from a financial
point of view. On August 18, 1995, the Financial Advisor delivered a written
fairness opinion to the Company. A copy of the Financial Advisor's written
opinion is attached hereto as Annex B. Stockholders are urged to read this
opinion in its entirety and consider the assumptions made, matters considered,
procedures followed and scope of review by the Financial Advisor in rendering
its opinion. See "The Merger -- Opinion of Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Board of Directors, stockholders
should be aware that certain executive officers of the Company who are also
members of the Company's Board of Directors have certain
6
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interests in the Merger that are in addition to the interests of the Company's
stockholders generally and which may present them with potential conflicts of
interest in connection with the Merger. See "The Merger -- Interests of Certain
Persons in the Merger."
EFFECTIVE TIME
The Merger will be effective as of the date and time of filing of a
Certificate of Merger with the Secretary of State of the State of Delaware (the
"Effective Time") in accordance with the DGCL. The Merger Agreement provides
that such filing will be made as soon as practicable following approval and
adoption of the Merger Agreement by the Company's stockholders and the
satisfaction or waiver of the other conditions set forth in the Merger
Agreement. See "The Merger -- Terms of the Merger Agreement -- Conditions to the
Merger."
SURRENDER OF STOCK CERTIFICATES; PAYMENT FOR SHARES
Promptly after the Effective Time, a letter of transmittal containing
instructions with respect to the surrender of certificates previously
representing Shares will be furnished to each record holder of Shares. The
letter of transmittal will set forth the procedure for surrendering such
certificates for exchange to Citibank, N.A., as the paying agent (the "Paying
Agent"). In order to receive the Merger Consideration to which a holder of
Shares will be entitled as a result of the Merger, such holder will be required,
following the Effective Time, to surrender such holder's stock certificate(s),
together with a duly executed and properly completed letter of transmittal (and
any other required documents), to the Paying Agent. STOCKHOLDERS SHOULD
SURRENDER CERTIFICATES REPRESENTING SHARES ONLY WITH A LETTER OF TRANSMITTAL.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THE ENCLOSED PROXY
CARD. Thereafter, the stockholder shall receive as promptly as practicable in
exchange therefor cash in an amount equal to the product of the number of Shares
represented by such stockholder's certificate(s) and $18.50. No interest will be
paid on the cash payable upon the surrender of such certificate(s). See "The
Merger -- Payment for Shares and Surrender of Stock Certificates."
CONDITIONS TO THE MERGER
The respective obligations of MCI and the Purchaser, on the one hand, and
the Company, on the other, to consummate the Merger are subject to the
satisfaction or waiver of certain conditions, including the receipt of requisite
stockholder and regulatory approvals and the absence of any injunction or other
legal restraint preventing the consummation of the Merger. The obligations of
MCI and the Purchaser to consummate the Merger are subject to the satisfaction
or waiver of certain additional conditions, including (i) the accuracy of the
representations and warranties of the Company set forth in the Merger Agreement,
including the representation concerning the absence, since December 31, 1994, of
any condition, event or occurrence which has had, or could reasonably be
expected to have, a material adverse effect on the Company, (ii) the absence of
any action taken or any statute, rule, regulation or order enacted by any
governmental authority which, (x) in connection with the grant of a required
regulatory approval, would require MCI or any of its subsidiaries to dispose of
any assets with a value in excess of $15,000,000, or would so materially
adversely impact the economic or business benefits of the transactions
contemplated by the Merger Agreement as to render it inadvisable to proceed with
the Merger, or (y) in connection with the grant of a required regulatory
approval or otherwise, would be reasonably likely to result in a material
adverse effect with respect to the Company or any of its subsidiaries, and (iii)
no more than 7% of the Shares being held by Dissenting Stockholders (as defined
below). The obligation of the Company to consummate the Merger is subject to the
satisfaction or waiver of certain additional conditions. See "The
Merger -- Terms of the Merger Agreement -- Conditions to the Merger."
NO SOLICITATION; FIDUCIARY DUTIES
During the period from the date of the Merger Agreement to the Effective
Time, the Company has agreed not to solicit, encourage or take any other action
to facilitate the making of any inquiry or proposal regarding a sale of the
Company's capital stock or a merger, acquisition, sale of substantial assets or
similar transaction involving the Company or any subsidiary, division or major
asset thereof. The Company has also
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agreed not to enter into discussions or negotiations concerning any such
transaction except to the extent that the Board of Directors shall conclude in
good faith on the basis of advice of outside counsel that such action is
required in order for the Board of Directors to exercise its fiduciary duties
under applicable law. See "The Merger -- Terms of the Merger Agreement -- No
Solicitation."
TERMINATION; FEES AND EXPENSES
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time by the mutual written consent of MCI, the Purchaser
and the Company, or (i) by either MCI or the Company upon a breach of any
material representation, warranty, covenant or agreement by the other party and
the lapse of a reasonable cure period; (ii) by either MCI or the Company if any
governmental authority issues a final permanent injunction or order prohibiting
the Merger; (iii) by either MCI or the Company if, other than due to the willful
failure of the party seeking to terminate the Merger Agreement to perform its
obligations thereunder required to be performed at or prior to the Effective
Time, the Merger is not consummated on or before October 21, 1995, and in any
event, if the Merger is not consummated on or before December 31, 1995; (iv) by
MCI if the Merger Agreement and the Merger are not approved by the stockholders
of the Company; (v) by MCI if (a) the Board of Directors withdraws or modifies
its approval or recommendation of the Merger Agreement or the Merger in a manner
adverse to MCI or the Purchaser, (b) the Board of Directors approves or
recommends, or resolves to approve or recommend, a Transaction Proposal (as
defined below in "The Merger -- Terms of the Merger Agreement -- No
Solicitation"), (c) a tender offer or exchange offer for 15% or more of the
Shares is commenced, and the Board of Directors recommends that the stockholders
of the Company tender their Shares or otherwise fails to recommend that the
stockholders reject such tender offer or exchange offer, or (d) if any person
becomes the beneficial owner of either 15% or more of the Shares and the Company
encourages or assists in such acquisition of Shares, or 25% or more of the
Shares, or if Merv Adelson becomes the beneficial owner of Shares in addition to
those owned by him on May 22, 1995; or (vi) by the Company if prior to the
Special Meeting, there exists a tender offer or exchange offer or a written,
bona fide proposal by a third party to acquire the Company, and the Board of
Directors, after determining in good faith, based on the advice of independent
legal counsel, that such action is required in order to comply with its
fiduciary duties to the stockholders of the Company, withdraws or modifies its
recommendation of the Merger Agreement or the Merger or recommends the approval
or acceptance of any such tender offer, exchange offer or proposal to acquire
the Company.
In certain circumstances (including if the stockholders of the Company do
not approve the Merger Agreement), upon the termination of the Merger Agreement,
the Company will be obligated to pay to MCI an amount equal to $7,500,000 plus
all out-of-pocket fees and expenses incurred by MCI in connection with the
Merger Agreement, up to a maximum amount of $1,500,000. In other circumstances,
following termination of the Merger Agreement, the Company will be obligated to
pay to MCI an amount equal to all out-of-pocket fees and expenses incurred by
MCI, or on its behalf. In certain circumstances, upon the termination of the
Merger Agreement, MCI is obligated to pay to the Company an amount equal to
$1,500,000 plus all out-of-pocket fees and expenses incurred by the Company in
connection with the Merger Agreement, up to a maximum amount of $1,500,000. See
"The Merger -- Terms of the Merger Agreement -- Termination" and -- "Fees and
Expenses."
STOCK OPTIONS
Each stock option (collectively, the "Options" and each individually, an
"Option") outstanding under any stock option plan of the Company (the "Stock
Option Plans"), whether or not otherwise exercisable, will become fully
exercisable on the business day immediately prior to the Effective Time. All
holders of Options will therefore be able to exercise their Options prior to the
Merger and, as stockholders of the Company on the record date for the Spin-Off
Distribution and at the Effective Time, will be entitled to receive the shares
of CTS Common Stock and the Merger Consideration in respect of the Shares
acquired on exercise of such Options as a result of the Spin-off Distribution
and the Merger. The Company may lend Option holders funds to facilitate the
payment of the exercise price with respect to the Options (the "Loans");
provided, however, that the maximum amount that the Company may lend to any
Option holder with respect to an Option will be an amount equal to
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<PAGE> 13
the product of (i) the number of shares subject to the Option, multiplied by
(ii) the lesser of (A) $18.50 or (B) the per share exercise price of such Option
plus the amount of any applicable tax withholding per share with respect to the
exercise of the Option. The Loans will be made on such terms and subject to such
documentation as is reasonably satisfactory in form and substance to MCI. All
Loans to Option holders will be secured by a pledge of the Shares issuable upon
the exercise of the Option and will be due and payable at the Effective Time,
and the Company will be entitled to repayment of the Loans from any amounts due
to such Option holders, including, without limitation, any payment of Merger
Consideration. The Company will not make a Loan to an Option holder, however,
unless such Option holder agrees in advance to direct the Paying Agent to repay,
on behalf of such Option holder, the entire amount of such holder's Loan
directly to the Company out of the funds to be received by such Option holder as
Merger Consideration. Any Options which remain outstanding at the Effective Time
will be cancelled, and holders of unexercised Options will not receive any
Merger Consideration in the Merger or any CTS Common Stock in the Spin-Off
Distribution with respect to such unexercised Options. See "The Merger -- Terms
of the Merger Agreement -- Stock Options."
ADELSON WARRANT
Immediately prior to the Effective Time, pursuant to the anti-dilution
provisions of the Adelson Warrant, Mr. Adelson will receive, with respect to
each Share covered by the Adelson Warrant, the number of shares of CTS Common
Stock which will be distributed in respect of each Share pursuant to the
Spin-Off Distribution. Mr. Adelson also has the right to require the Company to
repurchase the Adelson Warrant for an amount in cash equal to the difference
between $18.50 and the per Share exercise price of the Adelson Warrant,
multiplied by the number of Shares covered by the Adelson Warrant. See "The
Merger -- Terms of the Merger Agreement -- Adelson Warrant."
THE SPIN-OFF DISTRIBUTION
In the event that the Merger is approved and the other conditions set forth
in the Merger Agreement are satisfied or waived, immediately prior to the
Effective Time of the Merger the Company will distribute, on a pro rata basis to
holders of Shares on the Spin-Off Distribution Record Date (as defined below),
including those holders who exercise their rights as Dissenting Stockholders
(described below), and to the holder of the Adelson Warrant, a number of shares
of CTS Common Stock owned by the Company, determined as provided in the Merger
Agreement. The number of shares of CTS Common Stock to be distributed for each
Share will be determined by a formula based on the market price of CTS Common
Stock during the three trading days preceding the record date for the Spin-Off
Distribution. As of the date hereof, the Company owns 3,340,000 shares of CTS
Common Stock and holds the CTS Option to purchase an additional 640,000 shares
of CTS Common Stock, which CTS Option the Company has agreed in the Merger
Agreement to exercise prior to the Spin-Off Distribution. Upon exercise of the
CTS Option, the Company will own approximately 37.3% of the outstanding CTS
Common Stock. No vote of stockholders is required, or is being requested, in
connection with the Spin-Off Distribution. See "The Merger -- The Spin-Off
Distribution."
The Company will make available to stockholders of the Company, without
charge, copies of all reports filed by CTS with the Securities and Exchange
Commission (the "SEC") under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), upon request. Requests for such documents should be
directed to: Investor Relations, Nationwide Cellular Service, Inc., 20 East
Sunrise Highway, Valley Stream, New York 11581-1252 (telephone: (516) 887-0399).
RIGHTS OF DISSENTING STOCKHOLDERS
Under Delaware law, stockholders who do not vote in favor of the Merger and
who file demands for appraisal prior to the stockholder vote on the Merger
Agreement ("Dissenting Stockholders") have the right to obtain, upon the
consummation of the Merger, a cash payment for the "fair value" of their Shares
(excluding any element of value arising from the accomplishment or expectation
of the Merger). In order to exercise such rights, a stockholder must comply with
all of the procedural requirements of Section 262 ("Section 262") of the DGCL, a
description of which is provided in "The Merger -- Rights of Dissenting
Stockholders" herein and the full text of which is attached to this Proxy
Statement as Annex C. Such "fair
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<PAGE> 14
value" would be determined in judicial proceedings, the result of which cannot
be predicted. Failure to take any of the steps required under Section 262 may
result in a loss of such dissenters' rights. See "The Merger -- Rights of
Dissenting Stockholders."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In general, the receipt of cash by a stockholder pursuant to the Merger or
the exercise of appraisal rights, and the receipt of the CTS Common Stock in the
Spin-Off Distribution, will be taxable events for such stockholder for federal
income tax purposes and may also be taxable events under applicable local, state
and foreign tax laws. The tax consequences for a particular stockholder will
depend upon the facts and circumstances applicable to such stockholder.
Accordingly, each stockholder should consult his or her own tax advisor with
respect to the federal, state, local or foreign tax consequences of the Merger.
See "The Merger -- Federal Income Tax Consequences."
RECENT MARKET PRICES OF COMPANY'S COMMON STOCK
The Shares are listed on the NASDAQ National Market System (the "NMS"). On
May 19, 1995, the last trading day prior to the public announcement that the
Company, MCI and the Purchaser had executed the Original Agreement, which was
the first public announcement of the proposed Merger, the last reported sale
price of the Company's Shares as reported on the NMS was $17.50 per Share. On
August 16, 1995, the last trading day prior to the execution of the Merger
Agreement, the last reported sale price of the Company's Shares as reported on
the NMS was $27.63 per Share. On August 17, 1995, the latest practicable trading
day prior to the date of this Proxy Statement, the last reported sale price of
the Shares as reported on the NMS was $27.50 per Share. Stockholders are urged
to obtain current quotations for the Shares. See "Price Range of Common Stock
and Dividend History."
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<PAGE> 15
SELECTED FINANCIAL INFORMATION OF THE COMPANY
The following table presents certain selected consolidated financial
information for the Company as of and for the years ended December 31, 1994,
1993, 1992, 1991 and 1990, and as of and for the six months ended June 30, 1995
and 1994. The selected financial information has been derived from the
consolidated financial statements of the Company and should be read in
conjunction with such financial statements and the notes thereto. The Company's
audited financial statements are incorporated by reference in this Proxy
Statement from the Company's Annual Report on Form 10-K for the year ended
December 31, 1994, and the Company's unaudited financial statements are
incorporated by reference in this Proxy Statement from the Company's Quarterly
Report on Form 10-Q, as amended on Form 10-Q/A, for the six months ended June
30, 1995. See "Incorporation of Certain Documents By Reference."
(AMOUNTS IN THOUSANDS, EXCEPT FOR
PER SHARE AND SUBSCRIBER DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues.................................. $117,446 $101,395 $213,202 $182,675 $141,774 $114,621 $104,773
Net (loss) income......................... (3,982) 832 1,222 1,817 6,695 1,180 (6,551)
Net (loss) income per common share:(2)
Primary................................. $ (.50) $ .05 $ .19 $ .13 $ .79 $ .06 $ (1.17)
======== ======== ======== ======== ======== ======== ========
Fully diluted........................... $ .17 $ .12
======== ========
Average Monthly Revenue per Subscriber.... $ 68 $ 84 $ 81 $ 91 $ 101 $ 107 $ 120
Amortization of Purchased Subscriber
Base.................................... 2,688 3,290 5,939 6,752 4,315 1,728 744
BALANCE SHEET DATA:
Total Assets.............................. $ 79,241 $ 71,273 $ 75,679 $ 61,425 $ 73,502 $ 46,231 $ 33,773
Long-term obligations:
Notes Payable........................... 6,587 8,393 911 6,249 2,023
Contingent Value Rights(3).............. 3,600 2,800 2,000 1,200
Redeemable Warrant...................... 3,600
Series A Convertible, Preferred
Stock(4).............................. 6,000 6,000 6,000 6,000 6,000 6,000
Total Stockholders' Equity
(Deficiency)(4)......................... 16,263 13,425 15,107 12,709 9,650 184 (406)
Weighted average common and common share
equivalents outstanding:(5)
Primary................................. 7,902 8,530 8,686 7,696 8,343 6,895 6,277
======== ======== ======== ======== ======== ======== ========
Fully diluted........................... 8,912 8,315
======== ========
PER SHARE DATA:
Book Value per common share:
Primary................................. $ 2.06 $ 1.57 $ 1.74 $ 1.65 $ 1.16 $ 0.03 $ (0.06)
Fully Diluted........................... $ 1.70 $ 1.53
Dividends Declared........................ 0 0 0 0 0 0 0
Number of Subscribers..................... 292,000 212,000 250,000 176,000 143,000 86,000 67,300
</TABLE>
---------------
(1) In 1992 the Company changed its method of accounting for income taxes which
was retroactively applied to 1991.
(2) For the purpose of computing per share amounts, the net income attributable
to common shares has been reduced by the Contingent Value Rights ("CVRs")
accretion of $400,000 for the six months ended June 30, 1994 and $800,000
for each of the years ended December 31, 1993, 1992, 1991 and 1990. For the
year ended December 31, 1994, the net income attributable to common shares
has been increased by a reduction in the liability for the Contingent Value
Rights obligation of $320,000. The amounts recorded are not a credit or a
charge to operations, but rather result in an increase or reduction of net
worth. Except for the years ended December 31, 1994 and 1993, primary and
fully diluted earnings per common share were the same amounts.
(3) The CVRs described in footnote (2) above were recorded as a current
liability at December 31, 1994 and on January 12, 1995, the Company paid to
its holder $3,280,000 extinguishing the liability for the CVRs.
(4) The Series A Convertible, Preferred Stock was converted into shares of the
Company's Common Stock on a one-for-one basis on January 12, 1995.
(5) The adjusted weighted average shares outstanding at June 30, 1994 and
December 31, 1994 and December 31, 1992 was computed under the modified
treasury stock method. For the six months ended June 30, 1995 and the year
ended December 31, 1993, the "modified treasury stock method" yielded
anti-dilutive results for primary earnings per share.
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<PAGE> 16
VOTING AND PROXIES
PURPOSE, RECORD DATE AND VOTING
The Special Meeting will be held on Tuesday, September 19, 1995, at The
Drake Hotel, 440 Park Avenue, New York, New York 10022 at 10:00 a.m., local
time.
The purpose of the Special Meeting is to consider and vote upon a proposal
to approve and adopt the Merger Agreement. As a result of the Merger, all
stockholders of the Company will cease to have an equity interest in, or possess
any rights as stockholders of, the Company. See "The Merger."
The presence, in person or by proxy, of the holders of a majority of the
outstanding Shares entitled to vote at the Special Meeting is necessary to
constitute a quorum. Holders of Shares on the Record Date are entitled to one
vote per Share, exercisable in person or by a properly executed proxy, at the
Special Meeting with respect to all matters to be voted upon. Under applicable
law, the affirmative vote of the holders of a majority of the Shares outstanding
on the Record Date is required to approve and adopt the Merger Agreement.
The Board of Directors has set the close of business on July 24, 1995 as
the Record Date for the determination of stockholders of the Company entitled to
notice of and to vote at the Special Meeting. As of July 24, 1995, there were
issued and outstanding 8,168,199 Shares held by 117 stockholders of record.
Stockholders holding in the aggregate 1,982,064 Shares (representing
approximately 24.3% of the Shares outstanding on the Record Date) have entered
into agreements with MCI to vote in favor of the approval of and adoption of the
Merger Agreement and have granted proxies to MCI giving MCI the right to vote
the Shares in favor of the Merger Agreement. See "Voting and Proxies -- Director
and Adelson Voting Agreements."
PROXY INFORMATION
All Shares represented at the Special Meeting by properly executed proxies
received prior to or at the Special Meeting, unless such proxies previously have
been revoked, will be voted at the Special Meeting in accordance with the
specifications in the proxies. If no such specifications are made, the proxies
will be voted for approval and adoption of the Merger Agreement.
Any person giving a proxy has the power to revoke it at any time before its
exercise. A proxy may be revoked by filing with the Secretary of the Company, at
the Company's principal executive office as set forth above, an instrument of
revocation or a duly executed proxy bearing a later date, or by attending the
Special Meeting and voting in person. Subject to any such revocation, all Shares
represented by properly executed proxies will be voted in accordance with
specifications on the enclosed proxy. If no such specifications are made,
proxies will be voted FOR approval and adoption of the Merger Agreement.
Management does not know of any matters to be presented at the Special Meeting
other than those set forth in this Proxy Statement and the Notice accompanying
this Proxy Statement. If other matters should properly come before the Special
Meeting, the proxy holders will vote on such matters in accordance with their
best judgment. Shares represented at the Special Meeting by a properly executed,
dated and returned proxy will be treated as present at the Special Meeting for
purposes of determining a quorum, without regard to whether the proxy is marked
as casting a vote or abstaining. Proxies relating to Shares held in "street
name" that are voted by brokers will be counted as Shares present for purposes
of determining the presence of a quorum, but will not be treated as Shares
having voted at the Special Meeting as to the Merger Agreement and the Merger if
authority to vote is withheld by the broker. Abstentions will also be recorded
as such. In light of the treatment of abstentions and broker non-votes and the
fact that the affirmative votes required to authorize and adopt the Merger
Agreement and the Merger are stated percentages of the total number of
outstanding Shares on the Record Date, abstentions and broker non-votes will
have the same effect as votes against the authorization and adoption of the
Merger Agreement and the Merger.
The entire cost of soliciting proxies, including the costs of preparing,
assembling, printing and mailing this Proxy Statement, the proxy and any
additional soliciting material furnished to stockholders, will be borne by the
Company. Arrangements will be made with brokerage houses and other custodians,
nominees and
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<PAGE> 17
fiduciaries to send proxies and proxy materials to the beneficial owners of
stock, and such persons will be reimbursed for their expenses by the Company.
The Company has retained Georgeson & Company Inc., a proxy solicitation firm, to
solicit proxies. The amount to be paid to such proxy solicitation firm is not
expected to exceed $10,000. Any questions or requests regarding proxies or
related materials may be directed in writing to Georgeson & Company Inc., Wall
Street Plaza, New York, New York 10005, Attention: Nationwide Cellular, or by
telephone at (800) 223-2064. Proxies may also be solicited by directors,
officers or regular employees of the Company in person or by telephone, telegram
or other means. No additional compensation will be paid to such individuals for
these services.
DIRECTOR AND ADELSON VOTING AGREEMENTS
Each Director Stockholder has agreed in writing with MCI to vote all of his
Shares in favor of the Merger and has granted to MCI a proxy to vote all his
Shares in favor of the Merger (collectively, the "Voting Agreements"). In
addition, each Director Stockholder has agreed in writing not to sell or
transfer his Director Shares prior to the first to occur of the Effective Time
or the termination of the Merger Agreement. On the Record Date, the Director
Stockholders owned an aggregate of 1,224,325 Shares (representing approximately
15% of the then outstanding Shares). On August 18, 1995, Mr. Katz sold, with
MCI's consent, 55,000 Shares to an unaffiliated party who has acknowledged in
writing that such Shares are subject to the voting agreement and proxy delivered
by Mr. Katz and who has agreed, in certain circumstances upon request of MCI, to
deliver a similar voting agreement and proxy.
In addition, Merv Adelson, the owner of the Adelson Shares and the Adelson
Warrant (to purchase an additional 850,000 Shares), has agreed in writing to
vote all of the Adelson Shares in favor of the Merger and has granted to MCI a
proxy to vote all of the Adelson Shares in favor of the Merger (the "Adelson
Voting Agreement"). On the Record Date, there were outstanding 757,739 Adelson
Shares representing approximately 9.3% of the then outstanding Shares. Mr.
Adelson has agreed in writing not to sell or transfer the Adelson Shares or the
Adelson Warrant prior to the first to occur of the Effective Time or the
termination of the Merger Agreement and to waive certain rights under a
stockholders agreement between Adelson and the Company, including registration
rights with respect to the Adelson Shares.
The Voting Agreements and the Adelson Voting Agreement terminate if the
Merger Agreement is terminated for any reason. See "The Merger -- Terms of the
Merger Agreement -- Termination."
THE MERGER
BACKGROUND OF THE MERGER
In recent years, the United States telecommunications industry in general
has been characterized by intense competition, continual technological
innovations and improvements and consolidation. Recent developments in the
wireless telecommunications business have created uncertainty regarding the
Company's future competitive position. The cellular resale business has
consisted primarily of relatively small competitors with limited resources and
marketing capability. However, in the fall of 1994, MCI announced that it
intended to enter the wireless resale market and to market a nationwide wireless
service under the MCI brand. In the fall of 1994, Time Warner Inc. ("Time
Warner") also announced its intention to enter into the wireless resale
business. MCI and Time Warner each possess substantially greater resources,
marketing and sales staffs than the Company and, in the case of MCI, have a
brand that is well recognized by telecommunications customers. Accordingly, the
Company anticipates an increasingly difficult competitive environment as larger
communications companies such as MCI and Time Warner enter the wireless resale
business. In addition, the development of personal communication services and
other wireless technologies make it difficult to assess the level of competition
that will emerge in the wireless communications industry generally. See
"Business of the Company." In light of the foregoing, the Company has from time
to time considered its strategic alternatives, including the possibility of a
merger or other strategic alliance to improve its position in the marketplace.
In September 1994, Merv Adelson, the Company's largest stockholder,
approached representatives of MCI as to the possibility of some type of
transaction between the Company and MCI. After speaking with Mr. Katz, Chairman
and Chief Executive Officer of the Company, Mr. Adelson furnished to MCI a
"press
13
<PAGE> 18
kit" containing current SEC filings, press releases and investment analyst
reports about the Company. Thereafter, representatives of MCI contacted the
Company. On September 30, 1994, the Company and MCI entered into a Nondisclosure
Agreement pursuant to which the Company agreed to grant MCI access to certain
non-public information, and MCI agreed to keep such information confidential.
On October 14, 1994, Walter Schonfeld, Senior Manager in the Corporate
Development department of MCI, met with Stephen Katz, Joseph Gregori, President
of the Company, and Edward Seidenberg, Chief Financial Officer of the Company,
at the Company's offices to learn more about the Company's business. In the
several weeks which followed, Mr. Schonfeld had several telephone conversations
with Messrs. Katz, Gregori and Seidenberg and, together with Anand Malani, a
Director in the Corporate Development department of MCI, met with such officers
at the Company's offices on November 11, 1994.
During 1994, the Company received three inquiries about the Company from
third parties, including the one from MCI. In light of the competitive and other
market factors referred to above, and as part of the Company's consideration of
strategic alternatives such as acquisitions, dispositions and/or joint-ventures
generally, Mr. Katz contacted the Financial Advisor, and on October 20, 1994,
the Financial Advisor met with Mr. Katz and Mr. Seidenberg to discuss the public
market valuation of the securities of companies engaged in the cellular
telephone business as well as the tax implications to the Company of any
disposition of the shares of CTS Common Stock owned by the Company. At this
meeting, the Financial Advisor was also informed of the inquiries which the
Company had received. From October through December 1994, the Financial Advisor
and the senior officers of the Company had several meetings and telephone
conversations during which they further discussed and analyzed the ways in which
the Company could enhance and maximize the value of the Company and the Shares,
as well as the specific inquiries which had been received from third parties. It
was in this context that, commencing in November 1994, at the Company's request,
the Financial Advisor contacted and had conversations with ten other companies
which the Company and the Financial Advisor thought would be most likely to be
interested in a strategic transaction with the Company. The objective of these
conversations was to ascertain the level of interest and potential value that
other potential business partners might place upon the Company. Except for the
inquiry from MCI, none of the inquiries or contacts initiated by the Financial
Advisor led to any proposal for a transaction.
The members of the Board of Directors were periodically advised by senior
management of the Company that discussions were taking place with third parties.
Ultimately, after exploring each of the third party inquiries referred to
above, the senior management of the Company determined that since one of the
inquiries indicated an interest in only a portion of the Company's cellular
resale operations and a second came from a party that did not seem capable of
offering sufficient financial strength and operating synergies to justify
pursuing at that time, the inquiry received from MCI represented the most
promising potential to lead to a transaction which could benefit the
stockholders of the Company and maximize the value of the Shares. Accordingly,
the senior management of the Company decided to explore further the possibility
of a transaction with MCI.
During the first week of December 1994, Walter Schonfeld notified Stephen
Katz that at such time, MCI had not determined whether or not to pursue a
transaction with the Company, and that, accordingly, MCI had determined that it
would be inappropriate to continue discussions regarding such a transaction.
However, representatives of the Company and MCI spoke on the telephone from time
to time through the first months of 1995 concerning the possibility of the
Company making certain strategic acquisitions of small cellular resale companies
and entering the long-distance resale business, the degree of success the
Company was experiencing in the cellular resale and paging resale businesses and
certain regulatory issues affecting the Company.
On March 17, 1995, Mr. Schonfeld contacted the Company to recommence
discussions regarding a possible transaction involving MCI and the Company.
After conversations with the Company, it was decided by MCI and the Company that
any potential transaction would not include the acquisition by MCI of the
Company's shares of CTS Common Stock. On April 13, 1995, Mr. Schonfeld, together
with representatives of MCI's Consumer Markets and Business Markets Divisions
and of MCI Systems Operations, conducted a more detailed review of information
about the Company at the offices of the Company. As of May 5, 1995, the Company
had not received any definitive proposal from MCI concerning a possible
transaction between them,
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<PAGE> 19
and MCI had not determined whether to proceed with a possible transaction. On
May 5, 1995, Mr. Katz wrote to Susan Mayer, Senior Vice President, Corporate
Development of MCI, to request that all confidential information relating to the
Company which had been forwarded to MCI be returned to the Company.
On May 11, 1995, following further internal discussions within MCI, Ms.
Mayer contacted Mr. Katz by telephone to discuss the possibility of resuming
discussions concerning a possible transaction involving the Company and MCI.
Discussions followed between Ms. Mayer and Mr. Katz, primarily by telephone,
during which Mr. Katz indicated to Ms. Mayer that the Company was willing to
enter into negotiations with MCI regarding a possible business combination
whereby MCI would acquire the outstanding capital stock of the Company. On May
15, 1995, MCI delivered a draft merger agreement to the Company which
contemplated a stock-for-stock merger of the Company with a newly-formed
subsidiary of MCI and the pro rata distribution to the Company's stockholders of
all the Company's shares of CTS Common Stock. Such draft merger agreement did
not indicate any exchange ratio for the proposed merger.
During the period from May 15 through May 19, 1995, the Company, MCI and
their respective financial and legal advisors had several telephone
conversations regarding the structure proposed by MCI, including whether it
would be possible to structure the distribution of CTS Common Stock to the
Company's stockholders in a manner that would be taxfree for the Company. On May
17, 1995, representatives of MCI and its advisors met at the offices of the
Company to review additional information relating to the Company, including
information relating to cash flows, employee compensation and benefits, prior
acquisitions and investments, the Company's tax basis in the CTS Common Stock,
an industrial revenue bond financing being considered for a new headquarters
building, the Company's paging business and the Company's relationship with its
telemarketer. Also on May 17, the Company provided MCI with its preliminary
comments on the draft merger agreement.
During the afternoon of May 19, 1995, representatives of the Company and
MCI met in New York at the offices of MCI's counsel to continue discussions
concerning the proposed structure and to begin to negotiate the terms of the
Original Agreement, including the amount and type of consideration to be paid to
the Company's stockholders. MCI indicated that it was prepared to proceed with a
stock-for-stock transaction which valued the Company at the equivalent of $17.50
per Share. In light of the fact that the Spin-Off Distribution would be taxable
to the Company, MCI also indicated that it was concerned that since an increase
in the price of the CTS Common Stock would result in an increase in the
Company's tax liability upon consummation of the Spin-Off Distribution, MCI
would need protection against any such increase. Representatives of MCI and the
Company and their respective financial and legal advisors continued to discuss
other aspects of the transaction through May 20 and May 21, including the
purchase price per Share and the allocation of the risk that the price of the
CTS Common Stock would be higher at the time of the Spin-Off Distribution,
resulting in a greater tax liability for the Company upon consummation of the
Spin-Off Distribution. Over the course of these discussions, MCI indicated its
willingness to offer cash consideration at values slightly higher than those
discussed for a stock-for-stock transaction since MCI anticipated certain costs
of doing a stock-for-stock transaction which costs would not be present in a
transaction involving only cash consideration. The representatives of the
Company pursued the alternative of an all cash transaction in an attempt to
negotiate the best possible result for the Company's stockholders.
On May 20, 1995, the Company and the Financial Advisor executed an
agreement whereby the Financial Advisor was formally retained to act as the
Company's exclusive financial advisor. This agreement confirmed the oral
arrangements between the Company and the Financial Advisor which had been in
place since October 1994. On the same date, Mr. Katz fully briefed each of the
directors of the Company on the status of the negotiations with MCI.
On May 21, 1995, the parties reached agreement on a value of $18.50 per
Share in cash, subject to approval of their respective boards and the mutually
satisfactory negotiation of the remaining terms and conditions of the Original
Agreement. The Board of Directors of the Company met that morning to discuss the
terms and conditions of the proposed Merger and Spin-Off Distribution and met
again later that evening to review, discuss and vote on the Merger and the
Original Agreement. At the evening meeting, the Financial Advisor made a
presentation to the Board of Directors setting forth the basis of the Financial
Advisor's
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<PAGE> 20
analysis of the proposed Merger and of its opinion as to the fairness, from a
financial point of view, of the consideration to be received by the stockholders
of the Company in the proposed Merger. After the presentation and discussion,
the Board of Directors approved the Merger and the Original Agreement, which was
executed and delivered by the parties thereto on May 22, 1995.
In early August, the Company and MCI held discussions regarding proposed
changes to certain provisions of the Original Agreement pertaining to the
treatment of the Options. Shortly thereafter, on August 17, 1995, the Board of
Directors approved such revisions, and the Merger Agreement, as amended and
restated, was then executed and delivered by the parties thereto as of August
17, 1995.
REASONS FOR THE MERGER AND BOARD OF DIRECTORS' RECOMMENDATION
On May 21, 1995, the Company's Board of Directors approved the Merger and
the Original Agreement and determined that the Merger is fair to, and in the
best interests of, the Company and its stockholders and recommended that all
stockholders approve and adopt the Original Agreement and the transactions
contemplated thereby at the Special Meeting. On August 17, 1995, the Board
approved the Merger Agreement and confirmed its determination that the Merger is
fair to, and in the best interests of, the Company and its stockholders and
again recommended that stockholders approve and adopt the Merger Agreement and
the transactions contemplated thereby at the Special Meeting. At the May 21 and
August 17 meetings, Messrs. Katz, Gregori and Sanders, directors who are also
executive officers of the Company and will be entitled to receive certain
benefits as a result of the consummation of the Merger, abstained from voting.
All other directors voted to approve and adopt the Merger, the Original
Agreement and the Merger Agreement.
The following is a summary of the factors considered material by the Board
of Directors when making its determination: (i) the Board's knowledge of the
business, operations, assets, financial condition and results of operations of
the Company and MCI, (ii) the oral opinion of the Financial Advisor to the
effect that, as of May 20, 1995, and based on the assumptions made, matters
considered and limits of the review undertaken, as described in such oral
opinion, the $18.50 per Share in cash to be received by holders of Shares
pursuant to the Merger is fair to such holders from a financial point of view,
(iii) the Company's inability to successfully negotiate a transaction on
acceptable terms with another party, (iv) that since November 1994, the
Financial Advisor had contacted parties which it believed might be interested in
pursuing a possible strategic transaction with the Company and that such efforts
did not result in any definitive offer to acquire the Company other than the
offer from MCI, (v) that the terms of the Original Agreement and the Merger
Agreement permit the Board of Directors properly to discharge its fiduciary
duties, which may include responding to inquiries and proposals from third
parties interested in the possible acquisition of the Company and providing
information to, and entering into discussions and negotiations with, such
parties, and that it is anticipated that the Special Meeting will not occur
until at least three months after the execution of the Original Agreement and
the belief of the Board that such period would be adequate to receive offers
from other parties, if any, having an interest in acquiring the Company, and the
belief of the Board of Directors that the provisions of the Original Agreement
and the Merger Agreement providing for a termination fee to be paid to MCI in
the event of, among other things, a termination of the Original Agreement or the
Merger Agreement, as the case may be, due to a change in the Board's
recommendation of the Merger, and the terms of the Voting Agreements containing,
among other things, proxies from Messrs. Adelson, Katz, Gregori, Sanders,
Bernstein, Altman and Steinberg to vote their Shares in favor of the Merger,
would not unreasonably discourage offers from third parties, (vi) the difficult
competitive environment for the Company which the Board anticipated in light of,
among other things, the announcements by MCI and Time Warner that they would be
entering the cellular resale marketplace shortly, since each was expected to
have significantly greater resources than the Company and far greater access to
the capital markets to fuel expansion (see "The Merger -- Background of the
Merger" and "Business of the Company -- Competition"), (vii) the need for
significant amounts of capital to finance expansion and development of new
technologies, (viii) the terms of the Original Agreement and the Merger
Agreement, (ix) the Board's belief that there was not another company with whom
the Company could effect a transaction in the immediate future and the fact that
MCI might be unwilling to pursue a transaction if it was not completed quickly
and (x) that the Spin-Off Distribution will enable the Company's stockholders to
retain a continuing interest in the future prospects of CTS by retaining the CTS
Common
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<PAGE> 21
Stock distributed in the Spin-Off Distribution, and the fact that the tax
liability resulting from the Spin-Off Distribution would be retained by the
Company. The Board of Directors also considered whether the Company should enter
into the transaction or continue to operate independently and, while the Board
noted that the Company had a qualified management team and had experienced
controlled growth, it also noted that, due to emerging technologies and
increased competition, the environment within which the Company operates was
becoming increasingly difficult. Each of such factors supported the Board's
decision, and the Board viewed all of the foregoing factors as important in
reaching its conclusion and did not assign any particular weight to any
individual factor.
OPINION OF FINANCIAL ADVISOR
At the meeting of the Company's Board of Directors held on May 21, 1995,
the Financial Advisor delivered its oral opinion to the effect that, as of May
20, 1995, and based upon the assumptions made, matters considered and limits of
the review undertaken, as described in such oral opinion, the consideration to
be received by the stockholders of the Company pursuant to the Merger is fair to
such stockholders from a financial point of view. This opinion was updated and
confirmed in writing by the Financial Advisor as of August 18, 1995.
The full text of the Financial Advisor's written opinion, dated August 18,
1995, is included as Annex B to this Proxy Statement. Stockholders are urged to
read the opinion in its entirety for the assumptions made, matters considered
and limits of the review undertaken by the Financial Advisor. The Financial
Advisor's opinion was directed to the Board of Directors and does not constitute
a recommendation to any stockholder of the Company as to how such stockholder
should vote on the Merger. The Financial Advisor's opinion notes that all
liabilities (including the tax liability resulting from the Spin-Off
Distribution) of the Company will be retained by the Company following the
Merger. The Financial Advisor's opinion assumes that the tax liability of the
Company resulting from the Spin-Off Distribution will not be substantially less
than it would have been if the Spin-Off Distribution had occurred on May 19,
1995. The Financial Advisor has expressed no opinion as to the value of the CTS
Common Stock or the fairness, from a financial point of view, of the
distribution of such stock to the Company's stockholders. The summary of the
opinion of the Financial Advisor set forth in this Proxy Statement is qualified
in its entirety by reference to the full text of such opinion.
In arriving at its written opinion delivered on August 18, 1995, the
Financial Advisor (i) reviewed the Company's Annual Reports, Forms 10-K, Forms
10-Q and the financial statements included therein at and for the twelve months
ended December 31, 1992, 1993 and 1994, at and for the three months ended March
31, 1995 and at and for the six months ended June 30, 1995; (ii) reviewed
financial forecasts relating to the business, earnings, cash flow, assets and
prospects of the Company prepared by the Company in the ordinary course of its
business and furnished to the Financial Advisor by the Company; (iii) held
discussions with Messrs. Katz, Seidenberg and Gregori concerning the Company's
businesses and prospects; (iv) reviewed the historical market prices and trading
activity for the Shares and compared them with that of (a) Airtouch
Communications, Cellular Communications Inc., Cellular Communications of Puerto
Rico, Centennial Cellular, CommNet Cellular, Intercel Inc., Palmer Wireless,
Inc., PriCellular Corporation, U.S. Cellular and Vanguard Cellular
(collectively, the "Cellular Companies"), all publicly-traded companies which
the Financial Advisor deemed to be reasonably similar to the Company because
each is engaged in the cellular telephone services business, even though none of
the foregoing companies is involved with "reselling" cellular airtime, and (b)
ACC Corporation, AT&T Corporation, LCI International, MCI Communications
Corporation, Sprint Corporation, U.S. Long Distance and Worldcom, Inc.
(collectively, the "Long Distance Companies"), all publicly-traded companies
which the Financial Advisor deemed to be reasonably similar to the Company
because each is engaged in the long distance telephone business and some are
participating, to varying extents, in the "reselling" of long distance services;
(v) compared the results of operations of the Company with the results of the
Long Distance Companies and the Cellular Companies; (vi) compared the proposed
financial terms of the Merger with the financial terms of certain other mergers
and acquisitions which the Financial Advisor deemed to be relevant; (vii)
reviewed the terms of the Merger Agreement; and (viii) reviewed such other
financial studies and analyses and performed such other investigations and took
into account such other matters as the Financial Advisor deemed appropriate.
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<PAGE> 22
In preparing its opinion, the Financial Advisor relied on the accuracy and
completeness of all information supplied or otherwise made available to it by
the Company, and did not independently verify such information. The Financial
Advisor assumed that the financial forecasts which the Financial Advisor
examined were prepared on bases reflecting the best currently available
estimates and good faith judgments of the Company's management with respect to
the future performance of the Company. The Financial Advisor has not undertaken,
and has not been provided with, an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of the Company and has assumed
that all material liabilities (contingent or otherwise, known or unknown) of the
Company, other than the tax liability resulting from the Spin-Off Distribution,
are set forth in the Company's consolidated financial statements. The Financial
Advisor's opinion is based on regulatory, economic, monetary and market
conditions existing as of the date of such opinion. The Financial Advisor's
opinion was prepared solely for the use of the Board of Directors in its
consideration of the Merger. The Financial Advisor has consented to the
inclusion of its written opinion and the description of its analysis in this
Proxy Statement.
In arriving at its opinion, the Financial Advisor performed a variety of
financial analyses, including those summarized below. Arriving at a fairness
opinion is a complex process that involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not necessarily susceptible to partial analysis or summary description. The
Financial Advisor believes that its analyses must be considered as a whole and
that selecting portions of its analyses or portions of the factors considered by
it, without considering all analyses and factors, could create an incomplete
view of the evaluation process underlying its opinion. In performing its
analyses, the Financial Advisor 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 the
Company. Any estimates incorporated in the analyses performed by the Financial
Advisor are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than suggested by such analyses.
Additionally, estimates of the value of businesses and securities neither
purport to be appraisals nor necessarily to reflect the prices at which
businesses or securities actually may be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty and neither the
Company nor the Financial Advisor assume responsibility for the accuracy of such
analyses and estimates.
As noted below, the Company is not identical to facilities-based Cellular
Companies in that the principal business of the Company is the "resale" of
cellular airtime. No other public U.S. company is engaged in the "resale" of
cellular airtime as such a substantial part of its business. Several U.S.
companies, however, are engaged, in part or exclusively, in the "resale" of long
distance telephone services. However, the characteristics of the long distance
telephone business are considerably different from those of the cellular
telephone services business and, consequently, none of the Long Distance
Companies is identical to the Company. Therefore, an analysis of publicly-traded
comparable companies and comparable merger and acquisition transactions is not
mathematical; rather it involves complex considerations and judgments concerning
differences in financial and operating characteristics of the comparable
companies and other factors that could affect the public trading value of the
comparable companies or company to which they are being compared.
The following is a summary of all the material financial analyses performed
by the Financial Advisor in connection with its fairness opinion:
Discounted Cash Flow Analysis. The Financial Advisor calculated the
estimated after-tax unlevered free cash flows that the Company could be expected
to generate over the five-year period ending December 31, 1999, using
projections prepared and provided to the Financial Advisor by the Company's
management for the fiscal years 1995 through 1999. The Financial Advisor
calculated terminal values for the Company at the end of the five-year period by
applying multiples ranging from 8x to 11x (which the Financial Advisor believed
to be appropriate for the Company's business) to the Company's fiscal 1999
projected earnings before interest and taxes, depreciation and amortization
("EBITDA"). The unlevered cash flows for the projected five-year period and the
range of terminal values were then discounted to present value (using discount
rates ranging from 15% to 24%) implying a range of enterprise values for the
Company. In arriving at the multiples and discount rates used in the discounted
cash flow analysis, the Financial Advisor relied on its experience with the
types of multiples/discount rates which have been used in the discounted cash
flow analysis relative to change
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<PAGE> 23
of control transactions involving industrial enterprises, particularly
enterprises in the telecommunications sector. The Financial Advisor's discounted
cash flow analysis indicated a hypothetical equity value in the range of between
$11.00 and $21.92 per Share (compared with the Merger Consideration of $18.50
per Share), after deducting the aggregate amount of the Company's net
indebtedness and other long-term liabilities. The Financial Advisor noted that
the Merger Consideration was within the range of values indicated by the
discounted cash flow analysis.
Premiums Paid Analysis. The Financial Advisor reviewed certain publicly
available information regarding certain completed U.S. acquisition transactions
during (i) the period from January 1, 1994 to May 19, 1995 ("Period I"); and
(ii) the period from January 1, 1993 to May 19, 1995 ("Period II"). The
Financial Advisor also reviewed certain publicly available information regarding
certain completed U.S. acquisition transactions during Period II where the total
enterprise value of the target was (i) between $50 million and $249 million;
(ii) between $250 million and $499 million; (iii) between $500 million and $999
million; (iv) between $1 billion and $1.999 billion; (v) between $2 billion and
$2.999 billion; and (vi) in excess of $3 billion. The Financial Advisor compared
the price per share paid in each such transaction to the market price of such
securities one day, one week and four weeks prior to the public announcement of
such transaction. This comparison indicated (i) a reference range of
approximately 35% to 44% average premium paid for transactions during Period I
and Period II; and (ii) premiums ranging from 18% to 46% within various size
classes of the target's total enterprise value with respect to such U.S.
acquisition transactions completed during Period I. The Financial Advisor
compared this range of premiums to the premium range applicable to the Merger.
The Financial Advisor computed the implied "trading price" of the Company's
cellular "reselling" business, i.e., the Company's traded share price less the
pro rata market value of the CTS Common Stock owned by the Company one day, one
week and four weeks prior to the public announcement of the Merger and compared
these implied prices to the Merger Consideration of $18.50 per Share. The
Financial Advisor noted that the premium applicable to the Merger was
approximately 79.6%, which premium was above the range of average premiums
applicable to other comparable acquisition transactions.
Comparable Company Analysis. The Financial Advisor noted that the Company
is principally involved in the business of "reselling" cellular telephone
airtime. In this sense the Company is not identical to facilities-based Cellular
Companies. For no other public U.S. company does the "resale" of cellular
telephone airtime constitute such a substantial part of its business. Several
U.S. companies, however, are engaged, in part or exclusively, in the "resale" of
long distance telephone services. However, as stated above, the characteristics
of the long distance telephone business are considerably different from those of
the cellular telephone services business and, consequently, none of the Long
Distance Companies is identical to the Company.
In order to gain a general sense of the trading valuation of companies
which could be deemed, to a limited extent, to be comparable to the Company, the
Financial Advisor reviewed certain publicly available historical financial
information and fiscal 1995 and 1996 earnings per share estimates (reflecting a
composite of research analysts' estimates) of the Long Distance Companies as
well as the Cellular Companies. The Financial Advisor also considered various
multiples of the Company's financial performance throughout the twelve months
ended March 30, 1995 (including multiples of revenues, earnings before interest
and taxes ("EBIT"), EBITDA and earnings per share) implied by the Merger
Consideration of $18.50 per Share. The Financial Advisor noted that (i) the
Company's implied multiples of EBIT and earnings per share for the twelve months
ended March 30, 1995 were negative and, hence, not meaningful; and (ii) the
Company's implied multiples of revenues and EBITDA for the twelve months ended
March 30, 1995 pursuant to the Merger Consideration were 1.06x and 31.3x,
respectively; while the corresponding average revenues, EBIT, EBITDA and
earnings per share multiples for the Long Distance Companies were 1.80x, 17.2x,
10.0x and 19.3x, respectively, and the corresponding average revenues, EBIT,
EBITDA and earnings per share multiples for the Cellular Companies were 9.5x,
59.8x, 28.6x and 83.14x, respectively. The Financial Advisor also compared the
average estimated calendar year 1996 earnings per share multiple of Long
Distance Companies of 21.1x and the corresponding average earnings per share
multiple of the Cellular Companies of 38.5x to the Company's implied and
projected 1996 earnings per share multiple of 29.7x inherent in the Merger
Consideration. The Financial Advisor noted that (i) with the exception of the
revenue multiples, the multiples inherent in the Merger were consistently higher
than the multiples applicable to Long Distance Companies, some of whom are
resellers of
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long distance telephone services; and (ii) in instances in which the multiples
applicable to the Merger are lower than the average of Cellular Companies'
relevant multiples they are within the range of such multiples. The Financial
Advisor cautioned against placing undue reliance upon the revenue multiples, the
Long Distance Companies' EBITDA multiples and the Cellular Companies' earnings
multiples, since (i) the revenue multiples of Long Distance Companies represent
the "quality" of such revenues as measured by "churn rates", cost of adding an
additional customer, etc., which is quite different from the "quality" of
facilities based Cellular Companies' revenues and the Company's revenues; (ii)
the EBITDA multiples for Long Distance Companies reflect the lower marketing
costs of such companies; and (iii) Cellular Companies' common stock tends to
trade in the public markets relative to their cash flows rather than earnings.
Comparable Transaction Analysis. Subject to the Financial Advisor's
observations about the limitations discussed above on the comparability of other
companies to the Company, the Financial Advisor reviewed certain
publicly-announced transactions involving the acquisition of certain companies
in both the long distance telecommunications business and the cellular services
business. These transactions were Rochester Telephone/WCT Communications, Inc.,
Frontier Corporation/ALC Communications Corporation, MCI Communications
Corporation/Telecom USA Inc., Resurgens Communications/Com Systems, Inc.,
Worldcom Inc./Advanced Telecomm, and Resurgens Communications/Worldcom Inc.,
AT&T/LIN Broadcasting, AT&T/McCaw Cellular and Southwestern Bell/Associated
Communications. With respect to the Long Distance Companies, the Financial
Advisor then calculated certain multiples (including multiples of revenues,
EBIT, EBITDA and earnings per share paid in such acquisitions). With respect to
the Cellular Companies the Financial Advisor computed multiples of EBITDA. The
Financial Advisor noted that (i) the Company's implied multiples of EBIT and
earnings per share for the twelve months ended March 30, 1995 pursuant to the
Merger Consideration were negative and, hence, not meaningful; and (ii) the
Company's implied multiples of revenues and EBITDA for the twelve months ended
March 30, 1995 pursuant to the Merger Consideration were 1.06x and 31.3x,
respectively; while the corresponding average "change of control" revenues,
EBIT, EBITDA and earnings per share multiples for the long distance companies
were 1.77x, 18.24x, 11.36x and 27.70x, respectively, and the "change of control"
EBITDA multiples for the facilities based cellular companies ranged from 23.40
to 40.80x. Other than the revenue multiples (for the reasons discussed above),
the Financial Advisor noted that the multiples inherent in the Merger
Consideration of $18.50 per Share were consistently higher than the comparable
multiples for the long distance companies mentioned above and the Company's
EBITDA multiple inherent in the Merger Consideration was consistent with the
range of EBITDA multiples applicable to transactions involving the cellular
companies mentioned above.
The Financial Advisor is an internationally recognized investment banking
firm engaged in the evaluation of businesses and their securities in connection
with mergers and acquisitions and for other purposes. The Financial Advisor was
selected as financial advisor to the Company based on such expertise. The
Company did not impose any limitations on the scope of the Financial Advisor's
analysis.
In the ordinary course of its business, the Financial Advisor may trade the
debt and equity securities of the Company and MCI for the Financial Advisor's
own account and for the accounts of its customers and, accordingly, may at any
time hold a long or short positions in such securities.
Pursuant to an engagement letter dated May 20, 1995, the Company agreed to
pay the Financial Advisor a transaction fee equal to 1.00% of the aggregate fair
market value of the property to be delivered to stockholders pursuant to the
Merger Agreement, i.e., the Merger Consideration and the market value of the CTS
Common Stock distributed to the Company's stockholders pursuant to the Spin-Off
Distribution. For purposes of calculating the fee payable to the Financial
Advisor, the aggregate value of the property to be delivered to the stockholders
of the Company pursuant to the Merger Agreement shall also be deemed to include
all indebtedness of the Company that is assumed, directly or indirectly, by MCI.
The Company estimates that the Financial Advisor's transaction fee will be
approximately $3.25 million. The Company has also agreed to reimburse the
Financial Advisor for its reasonable out-of-pocket expenses, including the fees,
disbursements and other charges of its counsel, and to indemnify the Financial
Advisor and certain related entities and persons against certain liabilities in
connection with its engagement, including certain liabilities under the federal
securities laws.
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<PAGE> 25
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Board of Directors, stockholders
should be aware that certain members of the Company's Board of Directors and
certain executive officers of the Company have certain interests in the Merger
that are in addition to the interests of the Company's stockholders generally
and which may present them with potential conflicts of interest in connection
with the Merger.
Severance Arrangements. The Company is a party to employment agreements
with Stephen Katz, Joseph A. Gregori, Jerome Sanders, Edward Seidenberg and
Harold J. Saving pursuant to which the employment of Mr. Katz terminates on
December 31, 1995, that of Mr. Sanders terminates on December 31, 1996, and that
of Mr. Gregori on December 31, 1997, Mr. Seidenberg on May 31, 1996 and Mr.
Saving on June 30, 1996. Each employment agreement provides that upon
termination of an executive officer's employment following a "change of control"
transaction such as the Merger, the executive officer party thereto shall be
entitled to a lump-sum payment (the "Severance Payment"). Mr. Katz's Severance
Payment is equal to (i) 2.99 times the total of his base salary prior to the
change of control; (ii) the amount of his bonus for the year preceding the
change of control; (iii) a special payment of $500,000; and (iv) the sum of his
base salary earned but not paid through the date of his termination and a pro
rata portion of his bonus for the preceding year. The Severance Payments for
each of Messrs. Gregori, Sanders and Seidenberg are equal to the sum of (i) 2.99
times the total of the executive's base salary immediately prior to the events
giving rise to the "change of control" plus the highest annual bonus paid during
the term of the agreement and (ii) the sum of the executive's base salary
through the date of termination not yet paid and a pro rata portion of the
highest annual bonus awarded to the executive during the term of his agreement.
Mr. Saving's Severance Agreement has similar provisions, except that instead of
the 2.99 multiple referred to in the preceding clause (i), such Severance
Agreement provides for a multiple of one. Pursuant to their agreements, Messrs.
Gregori and Sanders have each agreed to remain in the employ of the Company for
at least twelve months in the event of a "change of control", and Messrs.
Seidenberg and Saving have each agreed to remain in the employ of the Company
for at least nine months in the event of a "change of control." Mr. Katz has
agreed that for a two-year period after he terminates his employment with the
Company he will not, within the United States or in any foreign country where
the Company or any material subsidiary of the Company engages in business,
directly or indirectly engage in any business activity that is competitive with
the business conducted by the Company or any material subsidiary, either as
principal, officer, employee, partner or stockholder (other than as a holder of
less than 3% of any class of outstanding voting securities of any business whose
voting securities are listed on a national securities exchange or traded in the
over-the-counter market), or director, trustee or manager of any competing
corporation, association, business or firm without the prior written approval of
the Board of Directors of the Company. Messrs. Gregori, Sanders, Seidenberg and
Saving have each agreed that, for a two-year period after the end of their
respective employment, they will not directly or indirectly be a shareholder,
partner, owner or act or participate in any similar capacity with an entity
involved in the resale of cellular telephone service which, during the term of
such person's employment, is in direct competition with the business activities
of the Company.
Directors and Officers Indemnification. In the Merger Agreement, the
Surviving Corporation has agreed that for a period of six years after the
Effective Time it will indemnify, defend and hold harmless the present and
former officers and directors of the Company in respect of acts or omissions
occurring prior to the Effective Time to the fullest extent permitted under
applicable law and the Certificate of Incorporation and by-laws of the Company
in effect on the date of the Merger Agreement. In addition, the Surviving
Corporation has agreed that for a period of six years after the Effective Time,
it will maintain officers and directors liability insurance comparable in
coverage to the insurance policy currently maintained by the Company; provided,
however, that the Surviving Corporation is not required to expend more than an
amount per year equal to 150% of current annual premiums paid by the Company to
maintain or procure such insurance.
Share Ownership. As of the Record Date, executive officers and directors of
the Company owned of record or beneficially an aggregate of 1,224,325 Shares for
which they will receive the Merger Consideration pursuant to the terms of the
Merger Agreement and will also receive shares of CTS Common Stock pursuant to
the Spin-Off Distribution. In addition, the executive officers and directors of
the Company hold Options to
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<PAGE> 26
purchase 1,041,000 Shares at a weighted average exercise price of $9.81 per
Share, which Options will, if not exercised prior to the Effective Time, be
cancelled. It is expected that all of these Options will be exercised prior to
the Effective Time.
EFFECTIVE TIME
The Merger will be effective as of the date and time of filing of a
Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the DGCL. The Merger Agreement provides that such filing will be
made as soon as practicable following approval and adoption of the Merger
Agreement by the Company's stockholders and the satisfaction or waiver of the
other conditions stated in the Merger Agreement. See "The Merger -- Terms of the
Merger Agreement -- Conditions to the Merger."
PAYMENT FOR SHARES AND SURRENDER OF STOCK CERTIFICATES
As a result of the Merger, holders of certificates formerly evidencing
Shares will cease to have any equity interest in the Company. Promptly after the
Effective Time, a letter of transmittal containing instructions with respect to
the surrender of certificates previously representing Shares will be furnished
to each record holder of Shares. The letter of transmittal will set forth the
procedure for surrendering such certificates for exchange to the Paying Agent.
After the Effective Time and until surrendered, each stock certificate which
represented Shares (other than Shares held by the Company, MCI, the Purchaser,
any of their respective subsidiaries and stockholders who perfect their
statutory appraisal rights under Delaware law) will evidence only the right to
receive the Merger Consideration for each Share represented. In order to receive
the Merger Consideration to which a holder of Shares will be entitled as a
result of the Merger, such holder will be required, following the Effective
Time, to surrender his stock certificate(s), together with a duly executed and
properly completed letter of transmittal (and any other required documents), to
the Paying Agent. STOCKHOLDERS SHOULD SURRENDER CERTIFICATES REPRESENTING SHARES
ONLY WITH A LETTER OF TRANSMITTAL. STOCKHOLDERS SHOULD NOT SEND ANY STOCK
CERTIFICATES WITH THE ENCLOSED PROXY CARD. Thereafter, the stockholder will
receive as promptly as practicable in exchange therefor cash in an amount equal
to the product of the number of Shares represented by such stockholder's
certificate(s) and $18.50. No interest will be paid on the cash payable upon the
surrender of such certificate(s).
After the Effective Time there will be no transfers of Shares on the stock
transfer books of the Company. If, after the Effective Time, certificates
theretofore representing Shares are presented for transfer, they will be
cancelled and exchanged for the Merger Consideration pursuant to the terms of
the Merger Agreement.
No transfer taxes will be payable in connection with any such payment for
Shares, except that if the check for such payment is to be delivered to a person
other than the person in whose name the certificates surrendered are registered,
the person requesting delivery of the check must, prior to the delivery thereof,
either (a) pay to the Paying Agent any resulting transfer taxes or other taxes
or (b) establish to the satisfaction of the Paying Agent that such tax has been
paid or is not applicable.
At any time following six months after the Effective Time, MCI will be
entitled to require the Paying Agent to deliver to it or to the Surviving
Corporation any funds which have not been disbursed to holders of stock
certificates (subject to abandoned property, escheat or other similar laws). If
outstanding certificates representing Shares are not surrendered prior to six
months following the Effective Time and the payment of the Merger Consideration
has not been claimed by such time, the holders of such Shares will have to look
only to the Surviving Corporation for payment of their claim. Notwithstanding
the foregoing, neither the Paying Agent nor any party to the Merger Agreement
will be liable to any holder of stock certificates for any amount paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law. Except as otherwise indicated in the immediately preceding
paragraph, MCI will pay all charges and expenses, including those of the Paying
Agent, in connection with the exchange of stock certificates for the Merger
Consideration.
CERTAIN OTHER EFFECTS OF THE MERGER
If the Merger is consummated, the Company's stockholders will not have an
opportunity to continue their equity interest in the Company as an ongoing
corporation and, therefore, will not share in future earnings and growth, if
any, of the Company. If the Merger is consummated, public trading of the Shares
will cease, the
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Shares will cease to be quoted on the NMS, and the registration of the Shares
under the Exchange Act will be terminated. As a result, the Surviving
Corporation will be relieved of the duty to file informational reports under the
Exchange Act.
For information concerning the income tax consequences of the Merger, see
"The Merger -- Federal Income Tax Consequences."
ACCOUNTING TREATMENT
The Merger will be accounted for as a "purchase", as such term is used
under generally accepted accounting principles, for accounting and financial
reporting purposes. Accordingly, a determination of the fair value of the
Company's assets and liabilities will be made in order to allocate the purchase
price to the assets acquired and the liabilities assumed.
TERMS OF THE MERGER AGREEMENT
The following is a summary of the Merger Agreement, the full text of which
is attached to this Proxy Statement as Annex A and which is incorporated by
reference into this Proxy Statement. Stockholders are urged to read the Merger
Agreement in its entirety for a more complete description of the Merger.
General. The Merger Agreement sets forth the terms and conditions upon and
subject to which the Merger is to be effected. If the Merger Agreement is
approved and adopted by the stockholders in accordance with the provisions of
the DGCL, and the other conditions contained in the Merger Agreement are
satisfied or waived, the Purchaser will merge with and into the Company, the
separate corporate existence of the Purchaser will cease, and the Company will
continue as the Surviving Corporation, operating as an indirect wholly-owned
subsidiary of MCI. The Merger will become effective at the time that a
Certificate of Merger is filed with the Secretary of State of the State of
Delaware.
At the Effective Time, each Share (other than Shares held by the Company,
MCI, the Purchaser, any of their respective subsidiaries and by stockholders who
perfect their statutory appraisal rights under the DGCL) will, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
solely into the right to receive $18.50 in cash, without interest thereon. Such
Shares will no longer be outstanding and will be cancelled of record. Each share
of common stock of the Purchaser issued and outstanding immediately prior to the
Effective Time shall automatically be converted into one share of common stock
of the Surviving Corporation.
Holders of Shares who do not vote to approve and adopt the Merger Agreement
and who otherwise strictly comply with the provisions of Delaware law regarding
statutory appraisal rights (each a "Dissenting Stockholder") have the right to
seek a determination of the fair value of their Shares and payment in cash
therefor in lieu of the Merger Consideration to which they would otherwise be
entitled. See "The Merger -- Rights of Dissenting Stockholders."
Stock Options. Each Option outstanding under any of the Company's Stock
Option Plans, whether or not otherwise exercisable, will become fully
exercisable on the business day immediately prior to the Effective Time. All
holders of Options will therefore be able to exercise their Options prior to the
Merger and, as stockholders of the Company on the record date for the Spin-Off
Distribution and at the Effective Time, will be entitled to receive the shares
of CTS Common Stock and the Merger Consideration in respect of the Shares
acquired on exercise of such Options as a result of the Spin-Off Distribution
and the Merger. The Company may make Loans to Option holders to facilitate the
payment of the exercise price with respect to the Options; provided, however,
that the maximum amount that the Company may lend to any Option holder with
respect to an Option will be an amount equal to the product of (i) the number of
shares subject to the Option, multiplied by (ii) the lesser of (A) $18.50 or (B)
the per share exercise price of such Option plus the amount of any applicable
tax withholding per share with respect to the exercise of the Option. The Loans
will be made on such terms and subject to such documentation as is reasonably
satisfactory in form and substance to MCI. All Loans to Option holders will be
secured by a pledge of the Shares issuable upon the exercise of the Option and
will be due and payable at the Effective Time, and the Company will be entitled
to repayment of the Loans from any amounts due to such Option holders,
including, without limitation, any payments of Merger
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<PAGE> 28
Consideration. The Company will not make a Loan to an Option holder, however,
unless such Option holder agrees in advance to direct the Paying Agent to repay,
on behalf of such Option holder, the entire amount of such holder's Loan
directly to the Company out of the funds to be received by such Option holder as
Merger Consideration. Any Options which remain outstanding at the Effective Time
will be cancelled, and holders of unexercised Options will not receive any
Merger Consideration or any CTS Common Stock in the Merger or the Spin-Off
Distribution with respect to such unexercised Options.
Option to Restructure Merger. At MCI's option, the Merger may alternatively
be restructured so that (i) the Company is merged with and into MCI or any other
direct or indirect subsidiary of MCI, or (ii) any direct or indirect subsidiary
of MCI other than the Purchaser is merged with and into the Company.
Conditions to the Merger. The respective obligations of MCI and the
Purchaser, on the one hand, and the Company, on the other, to consummate the
Merger are subject to the following conditions, any and all of which may be
waived by MCI and the Purchaser or by the Company at their discretion to the
extent permitted by applicable law:
(i) the approval and adoption of the Merger Agreement by the
affirmative vote of a majority of the outstanding Shares entitled to vote
thereon;
(ii) other than the filing of a certificate of merger with the
Secretary of State of the State of Delaware, all consents, approvals,
authorizations or permits of, actions by, or filings with or notifications
to, and all expirations of waiting periods imposed by, any governmental
body, agency, official or authority which are necessary for the
consummation of the Merger, shall have been filed, occurred or been
obtained and be in full force and effect; and
(iii) 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 nor shall any proceeding by any court or
governmental authority be pending, and no statute, rule, regulation,
executive order, decree or injunction shall have been enacted, entered,
promulgated or enforced by any court or governmental authority which
prohibits the consummation of the Merger.
The obligations of MCI and the Purchaser to consummate the Merger are
subject to the satisfaction of the following conditions, any and all of which
may be waived by MCI and the Purchaser at their discretion to the extent
permitted by applicable law:
(i) each of the representations and warranties of the Company set
forth in the Merger Agreement shall have been true and correct in all
material respects when made and as of the date set for consummation of the
Merger (except to the extent such representations and warranties speak as
of an earlier date and except as otherwise contemplated by the Merger
Agreement) and MCI shall have received a certificate signed on behalf of
the Company by its Chairman of the Board and Chief Executive Officer and by
its Chief Financial Officer to such effect;
(ii) the Company shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement at or
prior to the date set for consummation of the Merger and MCI shall have
received a certificate signed on behalf of the Company by its Chairman of
the Board and Chief Executive Officer and by its Chief Financial Officer to
such effect;
(iii) there shall not be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger which (x) in connection with the grant of any required regulatory
approval, imposes any condition or restriction upon MCI or any of its
subsidiaries which would require MCI or any subsidiary, including the
Company after the Merger, to dispose of any assets with a value in excess
of $15,000,000 or which would so materially adversely impact the economic
or business benefits of the transactions contemplated by the Merger
Agreement as to render inadvisable the consummation of the Merger, provided
that the parties shall have contested in good faith the imposition of any
such condition or restriction, or (y) in connection with the grant of any
required regulatory
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approval or otherwise, would be reasonably likely to result in a material
adverse effect with respect to the Company or any subsidiary thereof;
(iv) the Board of Directors of the Company shall have set the Spin-Off
Distribution Record Date (as defined below) and effected the Spin-Off
Distribution; and
(v) no more than 7% of the Shares shall be held by Dissenting
Stockholders.
The obligation of the Company to consummate the Merger is subject to the
satisfaction of the following conditions, any and all of which may be waived by
the Company at its discretion to the extent permitted by applicable law:
(i) each of the representations and warranties of MCI and the
Purchaser set forth in the Merger Agreement shall have been true and
correct in all material respects when made and as of the date set for
consummation of the Merger (except to the extent such representations and
warranties speak as of an earlier date and except as otherwise contemplated
by the Merger Agreement) and the Company shall have received a certificate
signed on behalf of MCI by its Chief Financial Officer to such effect; and
(ii) MCI and the 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 date set for consummation of the Merger and
the Company shall have received a certificate signed on behalf of MCI by
its Chief Financial Officer to such effect.
Representations and Covenants. The Merger Agreement contains various
representations and warranties of MCI, the Purchaser and the Company. The
representations of MCI and the Purchaser relate to: (i) corporate organization;
(ii) authority relative to agreements; (iii) conflicts and required filings and
consents; (iv) accuracy and completeness of information supplied; (v)
availability of adequate financing; and (vi) brokerage, finder's and other fees.
The representations of the Company relate to: (i) corporate organization; (ii)
certificate of incorporation and by-laws; (iii) capitalization; (iv) authority
relative to agreements; (v) conflicts and required filings and consents; (vi)
compliance; (vii) SEC filings and financial statements; (viii) accuracy and
completeness of information supplied; (ix) absence of certain changes or events;
(x) absence of litigation; (xi) employment and labor contracts; (xii) employee
benefit plans; (xiii) tax matters; (xiv) intellectual property rights; (xv)
environmental matters; (xvi) the Spin-Off Distribution; (xvii) transactions with
affiliates; (xviii) the opinion of the Financial Advisor; and (xix) brokerage,
finder's and other fees.
The Company has agreed to conduct its business in the ordinary and usual
course prior to the Effective Time and to use its best efforts to preserve
intact the business organization of the Company and its subsidiaries, to keep
available the services of the present officers, employees and consultants of the
Company and its subsidiaries and to preserve the present relationships of the
Company and its subsidiaries with customers, providers of cellular telephone
service and other suppliers and other persons with which the Company or any of
its subsidiaries has significant business relations. The term "subsidiaries" is
defined in the Merger Agreement to include only majority-owned subsidiaries and
hence does not apply to CTS. In this regard, the Company has agreed that it and
its subsidiaries will not, without the prior written consent of MCI, engage in
certain types of transactions, including, among other things, any of the
following:
(i) (a) declare, set aside or pay any dividends on, or make any
distributions in respect of, any of its capital stock (except for the
Spin-Off Distribution or dividends or distributions by a wholly-owned
subsidiary to its parent), (b) split, combine or reclassify any shares of
its capital stock or issue any other securities in respect of, in lieu of
or in substitution for shares of its capital stock, or (c) redeem, purchase
or otherwise acquire any of its capital stock or of any of its subsidiaries
or any other securities thereof;
(ii) except for the issuance of securities upon exercise of
outstanding Options and warrants, authorize for issuance, issue, sell,
deliver or agree or commit to issue, sell or deliver any securities;
(iii) except to the extent required under existing Stock Option Plans
or employment arrangements in effect on the date of the Merger Agreement,
(a) increase the compensation or fringe benefits of any of
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its directors, officers or employees, except for increases in salary or
wages of employees of the Company who are not officers of the Company in
the ordinary course of business in accordance with past practice, (b) grant
any severance or termination pay not currently required to be paid under
existing plans, (c) enter into any employment arrangement with any present
or former director level or other equivalent or more senior officer or
employee, or, other than in the ordinary course of business consistent with
past practice, any other employee of the Company or any of its subsidiaries
or (d) establish, adopt, enter into or amend or terminate any plan or
employment arrangement or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees except
to the extent amendment or termination is necessary or desirable to
effectuate the provisions contained in the Merger Agreement;
(iv) amend its Certificate of Incorporation, by-laws or alter in any
fashion the corporate structure or ownership of any subsidiary of the
Company;
(v) acquire or agree to acquire (a) by merging or consolidating with,
or by purchasing a substantial portion of the stock or assets of, or by any
other manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or (b) any
assets that are material, individually or in the aggregate, to the Company
and its subsidiaries taken as a whole, except purchases of cellular
telephone minutes in the ordinary course of business consistent with past
practice and except for the exercise of the CTS Option;
(vi) sell, lease, license, mortgage or otherwise encumber or subject
to any lien or otherwise dispose of any of its properties or assets, except
sales of (a) cellular telephone minutes and cellular telephone equipment in
the ordinary course of business consistent with past practice, (b) sales of
accounts receivable in the ordinary course of business consistent with past
practice and (c) in connection with capital expenditures permitted to be
incurred by the Company pursuant to the Merger Agreement;
(vii) (a) except as set forth in the Merger Agreement, incur any
indebtedness for borrowed money or guarantee any such indebtedness of
another person (other than guarantees by the Company in favor of any of its
whollyowned subsidiaries or by any of its subsidiaries in favor of the
Company ), issue or sell any debt securities or warrants or other rights to
acquire any debt securities of the Company or any of its subsidiaries,
guarantee any debt securities of another person, enter into any "keep well"
or other agreement to maintain any financial statement condition of another
person or enter into any arrangement having the economic effect of any of
the foregoing, except for short-term borrowings incurred in the ordinary
course of business consistent with past practice or (b) make any loans
(except for Loans to Option holders in connection with the exercise of such
Options), advances or capital contributions to, or investments in, any
other person, other than to the Company or any direct or indirect wholly
owned subsidiary of the Company, except for the exercise of the CTS Option;
(viii) expend funds for capital expenditures other than in accordance
with the Company's current capital expenditure plans or replace or modify
the Company's billing system;
(ix) enter into or amend, supplement or otherwise modify any
agreement, arrangement or understanding other than in the ordinary course
of business, consistent with past practice and other than with respect to
the Adelson Warrant to enhance the anti-dilution rights thereunder, as set
forth in the Merger Agreement;
(x) (a) waive, release, grant or transfer any rights, or extend or
modify or change in any material respect any services agreement or other
arrangement or understanding with CTS or any subsidiary of CTS, or enter
into any additional agreement, arrangement or understanding with CTS or any
subsidiary of CTS, in each case, except for extensions up to the date of
the Effective Time of any existing agreement which would otherwise expire
before then or (b) waive, release, grant or transfer any rights of value,
or extend or modify or change in any material respect any existing, or
enter into any additional, license, lease, contract or other document,
other than in the ordinary course of business consistent with past
practice;
(xi) adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or reorganization;
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(xii) recognize any labor union (unless legally required to do so) or
enter into or amend any collective bargaining agreement;
(xiii) change any accounting principle used by it, unless required by
the SEC or the Financial Accounting Standards Board;
(xiv) make any tax election or settle or compromise any income tax
liability or file any federal income tax return prior to the last day
(including extensions) prescribed by law, in the case of any of the
foregoing, material to the business, financial condition or results of
operations of the Company and its subsidiaries taken as a whole;
(xv) settle or compromise any litigation in which the Company or any
subsidiary is a defendant (whether or not commenced prior to the date of
the Merger Agreement) or settle, pay or compromise any claims not required
to be paid, which payments are individually in an amount in excess of
$500,000 and in the aggregate in an amount in excess of $1,000,000; and
(xvi) authorize, commit or agree to take any of the foregoing actions.
In addition, the Merger Agreement contains agreements of MCI, the Purchaser
and the Company regarding employee benefit matters; officers' and directors'
liability insurance and indemnification; best efforts to successfully consummate
the Merger; notices in connection with the Merger; access to the Company's
records; public announcements and tax matters.
No Solicitation. Pursuant to the Merger Agreement, the Company has agreed
that neither it nor any of its subsidiaries shall, nor shall the Company or any
of its subsidiaries authorize or permit any of its officers, directors,
employees or representatives to, solicit, encourage, or take any other action to
facilitate, any inquiries or the making of any proposal which constitutes, or
may reasonably be expected to lead to, any Transaction Proposal (as defined
below), or enter into or maintain or continue discussions or negotiate with any
person in furtherance of such inquiries or to obtain a Transaction Proposal, or
agree to or endorse any Transaction Proposal. The Company has agreed to notify
MCI orally and in writing as to any inquiries and proposals which it or any of
its subsidiaries or any of their respective representatives or agents may
receive. Notwithstanding the foregoing, (i) the Company may furnish or cause to
be furnished information concerning the Company and its business, properties or
assets to a third party, and (ii) the Company may engage in discussions or
negotiations with a third party if, and only to the extent that (A) the Board of
Directors of the Company shall conclude in good faith on the basis of advice
from outside counsel that such action is required in order for the Board of
Directors of the Company to satisfy its fiduciary obligations under applicable
law and (B) prior to taking any of the foregoing actions referred to in clauses
(i) or (ii) above, the Company provides reasonable notice to and keeps MCI
informed with respect to such action and obtains a confidentiality agreement
from the third party prior to delivering to any such person any non-public
information.
The term "Transaction Proposal" is defined in the Merger Agreement to mean
(i) any acquisition or purchase of a substantial amount of assets of, or any
equity interest in, the Company or any of its subsidiaries or any tender offer
or exchange offer, merger, consolidation, business combination, sale of
substantially all assets, sale of securities, recapitalization, liquidation,
dissolution or similar transaction involving the Company or any of its
subsidiaries (other than the transactions contemplated by the Merger Agreement)
or any other transaction the consummation of which would or could reasonably be
expected to impede, interfere with, prevent or materially delay the consummation
of the Merger or the transactions contemplated thereby or (ii) any proposal,
plan or intention to do any of the foregoing either publicly announced or
communicated to the Company or any agreement to engage in any of the foregoing.
Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time by the mutual written consent of MCI, the Purchaser and the
Company, or by either MCI or the Company if:
(i) any permanent injunction or action by any governmental entity
preventing the consummation of the Merger shall have become final and
nonappealable, provided that such right of termination shall not be
available to any party if such party shall have failed to make reasonable
efforts to prevent or contest the imposition of such injunction or action
and such failure materially contributed to such imposition; or
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<PAGE> 32
(ii) other than due to the willful failure of the party seeking to
terminate the Merger Agreement to perform its obligations required to be
performed thereunder at to or prior to the Effective Time, the Merger shall
not have been consummated on or prior to October 21, 1995, and in any event
if the Merger shall not have been consummated on or prior to December 31,
1995 (the "Outside Termination Date").
The Merger Agreement may be terminated at any time prior to the Effective
Time by MCI upon the occurrence of any of the events described below (the "MCI
Trigger Events"):
(i) upon a breach by the Company of any material representation,
warranty, covenant or agreement set forth in the Merger Agreement, or if
any such representation or warranty of the Company shall have been or
become untrue, in each case such that the conditions to closing that each
of the Company's representations and warranties contained in the Merger
Agreement are true and correct in all material respects and that it has
performed all obligations in all material respects under the Merger
Agreement would be incapable of being satisfied (following notice and a
reasonable opportunity to cure) by October 21, 1995;
(ii) if the approval of the stockholders of the Company of the Merger
Agreement and the Merger shall not have been obtained; or
(iii) if (a) the Board of Directors of the Company shall have
withdrawn, modified or changed its approval or recommendation of the Merger
Agreement or the Merger in any manner which is adverse to MCI or the
Purchaser or shall have resolved to do the foregoing; or (b) the Board of
Directors of the Company shall have approved or have recommended to the
stockholders of the Company a Transaction Proposal or shall have resolved
to do the foregoing; or (c) a tender offer or exchange offer for 15% or
more of the outstanding Shares is commenced (other than by MCI or any of
its subsidiaries or affiliates), and the Board of Directors of the Company
recommends that the stockholders of the Company tender their shares in such
tender or exchange offer or otherwise fails to recommend that such
stockholders reject such tender offer or exchange offer within ten business
days of the commencement thereof; or (d) (A) any person (including the
Company or any of its subsidiaries or affiliates, but excluding Mr.
Adelson) or group (other than MCI or any of its subsidiaries or affiliates)
shall have become the beneficial owner of either (x) 15% or more of the
outstanding Shares and the Company has directly or indirectly encouraged or
assisted such acquisition (including, without limitation, taking any action
under Section 203 of the DGCL (which Section in general prohibits business
combinations between the Company and any stockholder which owns in excess
of 15% of the Company's Shares for a period of three years from the date
such Shares are acquired unless the Board has previously approved such a
transaction)) or (y) 25% or more of the outstanding Shares, or (B) if Mr.
Adelson becomes the beneficial owner of Shares in addition to those owned
by him on May 22, 1995.
The Merger Agreement may be terminated at any time prior to the Effective
Time by the Company upon the occurrence of any of the events described below
(the "Company Trigger Events"):
(i) upon a breach by MCI of any material representation, warranty,
covenant or agreement set forth in the Merger Agreement, or if any such
representation or warranty of MCI shall have been or become untrue, in each
case such that the conditions to closing that each of MCI's representations
and warranties contained in the Merger Agreement are true and correct in
all material respects and that it has performed all obligations in all
material respects under the Merger Agreement would be incapable of being
satisfied (following notice and a reasonable opportunity to cure) by
October 21, 1995; or
(ii) if prior to the Special Meeting the Board of Directors of the
Company (i) shall fail to make or shall withdraw or modify its
recommendation of the Merger Agreement or the Merger if there shall exist
at such time a tender offer or exchange offer or a written, bona fide
proposal by a third party to acquire the Company pursuant to a merger,
consolidation, share exchange, business combination, tender or exchange
offer or other similar transaction or (ii) recommends to the Company's
stockholders approval or acceptance of any such transaction, in each case
if, and only to the extent that, the Board of Directors of the Company,
after consultation with and based upon the advice of independent legal
counsel,
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determines in good faith that such action is required for the Board of
Directors of the Company to comply with its fiduciary duties to
stockholders under applicable law.
Fees and Expenses. Except as specifically provided below, each party to the
Merger Agreement shall bear its own expenses in connection with the Merger
Agreement and the transactions contemplated thereby.
The Merger Agreement provides that if the Merger Agreement is terminated
pursuant to:
(i) subsection (i) under MCI Trigger Events above and (x) such
termination is the result of willful breach by the Company of any material
covenant, agreement, representation or warranty contained in the Merger
Agreement and (y) at any time during the period commencing May 22, 1995 and
ending twelve months after the date of termination of the Merger Agreement,
a Business Combination (as defined below) involving the Company shall have
occurred or the Company shall have entered into a definitive agreement
providing for such a Business Combination;
(ii) the Outside Termination Date and (x) there shall exist a
Transaction Proposal with respect to the Company, and (y) at any time
during the period commencing on May 22, 1995 and ending twelve months after
the date of termination of the Merger Agreement, a Business Combination
involving the Company shall have occurred or the Company shall have entered
into a definitive agreement providing for a Business Combination;
(iii) subsection (ii) under MCI Trigger Events above because the
Merger Agreement and the Merger shall fail to receive the requisite vote
for approval and adoption by the stockholders of the Company at the Special
Meeting and at the time of the Special Meeting (x) there shall exist a
Transaction Proposal with respect to the Company or (y) any event specified
in subsection (iii)(d) under MCI Trigger Events above shall have occurred;
(iv) subsection (iii)(a) under MCI Trigger Events above and at the
time of the withdrawal, modification or change (or resolution to do so) of
its recommendation by the Board of Directors of the Company, there shall
exist a Transaction Proposal with respect to the Company or any event
specified in subsection (iii)(d) under MCI Trigger Events above shall have
occurred;
(v) subsection (iii)(d) under MCI Trigger Events above and at any time
during the period commencing on May 22, 1995 and ending twelve months after
the date of termination of the Merger Agreement, either (A) a Business
Combination specified in clause (i) or (ii) of the definition thereof shall
have occurred or the Company shall have entered into a definitive agreement
providing for such a Business Combination or (B) any person or group shall
acquire beneficial ownership of 50% or more of the outstanding Shares; or
(vi) subsections (iii)(b) or (c) under MCI Trigger Events above or
subsection (ii) under Company Trigger Events above;
then the Company shall pay to MCI an amount equal to (x) $7,500,000, plus (y)
all out-of-pocket fees and expenses (including, without limitation, reasonable
fees and disbursements payable to any investment bankers, counsel to MCI and
counsel to such investment bankers and accountants) incurred by MCI or on its
behalf in connection with the analysis, negotiation, preparation, execution and
performance of the Merger Agreement and the Voting Agreements and the
consummation of the transactions contemplated thereby ("Expenses") up to
$1,500,000.
The Merger Agreement provides that if the Merger Agreement is terminated
pursuant to subsection (ii) under MCI Trigger Events above because the Merger
Agreement and the Merger shall fail to receive the requisite vote for approval
and adoption by the stockholders of the Company at the Special Meeting, or
pursuant to subsections (i), (iii)(a) or (iv) under MCI Trigger Events above,
then, in any such event, the Company shall pay to MCI an amount equal to MCI's
Expenses, provided that the Company shall not be obligated to make any such
payment if the Company shall be obligated to make a payment to MCI pursuant to
the provisions of the Merger Agreement summarized in the immediately preceding
paragraph.
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The Merger Agreement further provides that if the Merger Agreement is
terminated pursuant to subsection (i) under Company Trigger Events above, MCI
shall pay to the Company an amount equal to (x) $1,500,000 plus (y) all
out-of-pocket fees and expenses (including, without limitation, reasonable fees
and disbursements payable to any investment bankers, counsel to the Company and
counsel to such investment bankers and accountants) incurred by the Company or
on its behalf in connection with the analysis, negotiation, preparation,
execution and performance of the Merger Agreement and the consummation of the
transactions contemplated hereby, up to $1,500,000.
The term "Business Combination" is defined in the Merger Agreement to mean
any of the following involving the Company: (i) any merger, consolidation, share
exchange, business combination or similar transaction; (ii) any sale, lease,
exchange, transfer or other disposition of 15% or more of the assets of the
Company and its subsidiaries, taken as a whole, in a single transaction or
series of related transactions; or (iii) (A) any person (including the Company
or any of its subsidiaries or affiliates, but excluding Mr. Adelson) or any
group (other than MCI or any of its subsidiaries or affiliates) becoming the
beneficial owner of either (x) 15% or more of the outstanding Shares and the
Company has directly or indirectly encouraged or assisted such acquisition
(including, without limitation, taking any action under Section 203 of the DGCL)
or (y) 25% or more of the outstanding Shares, or (B) Mr. Adelson becoming the
beneficial owner of Shares in addition to those owned on May 22, 1995.
SOURCE AND AMOUNT OF FUNDS
Based on the number of outstanding Shares on the Record Date, MCI will
require approximately $151 million to pay for all of the outstanding Shares. MCI
expects to obtain all required funds from its general corporate funds.
ADELSON WARRANT
Immediately prior to the Effective Time, pursuant to the anti-dilution
provisions of the Adelson Warrant, Mr. Adelson will receive, with respect to
each Share covered by the Adelson Warrant, the number of shares of CTS Common
Stock which shall be distributable in respect of each Share pursuant to the
Spin-Off Distribution. Mr. Adelson also has the right to require the Company to
repurchase the Adelson Warrant for an amount in cash equal to the difference
between $18.50 and the per Share exercise price of the Adelson Warrant,
multiplied by the number of Shares covered by the Adelson Warrant.
THE SPIN-OFF DISTRIBUTION
The Spin-Off Distribution, which is a condition precedent to the Merger, is
being done to facilitate the Merger, which the Board has determined is in the
best interests of the Company's stockholders, by excluding from the Merger the
Company's interest in CTS which MCI does not wish to acquire and the Company
does not wish to sell to MCI. In reaching this conclusion, the Board considered
that holders of the Shares will receive fair value in cash for the Company's
operating business (principally comprised of the resale of cellular airtime) and
in addition they will be able to retain a continuing interest in the future
prospects of CTS by retaining the CTS Common Stock received by them in the
Spin-Off Distribution. The Board also considered that since the principal
customers of CTS include competitors of MCI who might decline to pursue business
with CTS if MCI became the largest stockholder of CTS, which development could
adversely affect the business of CTS and the value of CTS Common Stock, and
since MCI had indicated that, since CTS does not fit within MCI's strategic
business plan, it was not interested in acquiring the CTS Common Stock, MCI was
unlikely to attribute any significant value to the CTS Common Stock in valuing
the consideration it was prepared to pay to the Company's stockholders in the
Merger. Each of the foregoing factors supported the Board's decision, and the
Board viewed all of the foregoing factors as important in reaching its
conclusion and did not assign any particular weight to any individual factor.
The Spin-Off Distribution will occur immediately prior to the Effective
Time (the "Spin-Off Distribution Payment Date") only after the Merger has been
approved by the Company's stockholders and all other conditions to the Merger
other than the filing of the Certificate of Merger have been satisfied or waived
and
30
<PAGE> 35
will be payable to the holders of record of Shares at the close of business on
the date immediately preceding the Spin-Off Distribution Payment Date (the
"Spin-Off Distribution Record Date"), and to the holder of the Adelson Warrant.
See "The Merger -- Terms of the Merger Agreement" and "Voting and Proxies --
Director and Adelson Voting Agreements."
The Spin-Off Distribution will be a dividend distribution in respect of the
outstanding Shares and will be made to holders of Shares in an amount per Share
as follows: (i) if the average closing market price of CTS Common Stock on each
of the three trading days ending on the Spin-Off Distribution Record Date (the
"Distribution Price") is equal to or less than $22.00 per share, then each Share
shall be entitled to receive that number of shares of CTS Common Stock equal to
the quotient obtained by dividing 3,980,000 by the sum of the then outstanding
number of Shares and the Shares then reserved for issuance upon exercise of the
Adelson Warrant, and (ii) if the Distribution Price is more than $22.00 per
share, then each Share shall be entitled to receive that number of shares of CTS
Common Stock equal to (x) the sum of (i) the product of $22.00 times 3,980,000,
plus (ii) the product of 3,980,000 times 60% of the difference between the
Distribution Price and $22.00, divided by (y) the Distribution Price and further
divided by (z) the sum of the then outstanding Shares and the Shares then
reserved for issuance upon exercise of the Adelson Warrant. Fractional shares of
CTS Common Stock will not be delivered in the Spin-Off Distribution. In lieu of
fractional shares, the Company shall deliver cash to those persons who would
otherwise be entitled to a fractional share of CTS Common Stock in an amount
equal to the Distribution Price times such fraction, rounded to the nearest
$0.01. If the Distribution Price were $28.00 per share, which was the closing
market price of CTS Common Stock on August 17, 1995, the latest practicable date
prior to the date of this Proxy Statement, then, assuming the exercise in full
of all the Options, each stockholder of the Company at the Spin-Off Distribution
Record Date would receive .352 shares of CTS Common Stock in the Spin-Off
Distribution, which .352 shares of CTS Common Stock would have a market value,
based on such August 17, 1995 closing price, of approximately $9.86.
If the Distribution Price exceeds $22.00, less than all of the shares of
CTS Common Stock owned by the Company will be distributed in the Spin-Off
Distribution. MCI has informed the Company that after the Effective Time, it
intends to cause the Company to dispose of any shares of CTS Common Stock
retained by the Company through sales in the open market or otherwise.
The receipt of shares of CTS Common Stock in the Spin-Off Distribution will
be taxable to the recipients of such shares. See "The Merger -- Federal Income
Tax Consequences."
While the CTS Common Stock to be received in the Spin-Off Distribution is
not part of the consideration to be received in the Merger, the Spin-Off
Distribution will only be made if the Merger is approved by the Company's
stockholders and all other conditions to the consummation of the Merger (other
than the completion of the Spin-Off Distribution and the filing of the
Certificate of Merger) have been satisfied or waived. The Spin-Off Distribution
is subject to further action by the Board of Directors, which must set the
Spin-Off Distribution Record Date and declare the dividend effectuating the
Spin-Off Distribution.
STOCKHOLDER APPROVAL OF THE SPIN-OFF DISTRIBUTION IS NOT REQUIRED, AND YOUR
APPROVAL OF THE SPIN-OFF DISTRIBUTION IS NOT BEING SOUGHT.
It is anticipated that after the effectiveness of the Merger there will be
no substantial continuing business relationships between the Company and CTS
other than relationships which may be entered into from time to time in the
future after arms-length negotiations between the Company, as controlled by MCI,
and CTS.
CTS was incorporated in the State of Delaware in August 1988 under the name
NCS Ventures Corp. ("Ventures") and was then a majority-owned subsidiary of the
Company. In September 1988, Ventures and NYNEX Mobile Billing Services, Inc.
("NYNEX") formed a partnership known as Cellular Technical Services Company (the
"Partnership") in which each held a 50% interest. In May 1991, Ventures obtained
an option to purchase the 50% interest in the Partnership owned by NYNEX (the
"Purchase Option") and, in anticipation of the exercise of the Purchase Option,
changed its name to Cellular Technical Services Company, Inc. Concurrently with
the exercise of the Purchase Option, on August 13, 1991, CTS consummated the
initial public offering of its common stock.
31
<PAGE> 36
CTS is engaged in the design, development, marketing, installation and
support of integrated real-time information management systems for the cellular
communications industry. The CTS Common Stock is registered under Section 12(g)
of the Exchange Act and is listed on the NMS. As of August 4, 1995, an aggregate
of 10,022,974 shares of CTS Common Stock were issued and outstanding of which
the Company owned 3,340,000 shares or approximately 33.3%. In addition, at such
date the Company held a currently exercisable stock option to purchase 640,000
shares of CTS Common Stock. The Company has agreed in the Merger Agreement to
exercise such stock option prior to the Spin-Off Distribution. Upon exercise of
the CTS Option, the Company will own approximately 37.3% of the outstanding CTS
Common Stock. CTS is current in its reporting under the Exchange Act and with
NMS, and the Company will make available to stockholders of the Company, without
charge, copies of all reports filed by CTS with the SEC under the Exchange Act
upon request. Requests for such documents should be directed to: Investor
Relations, Nationwide Cellular Service, Inc., 20 East Sunrise Highway, Valley
Stream, New York 11581-1252 (telephone: (516) 887-0399).
Merv Adelson has agreed in writing with CTS not to sell or transfer an
aggregate of approximately 464,000 shares of CTS Common Stock received pursuant
to the Spin-Off Distribution and in respect of the Adelson Warrant for a period
of six months from the date of the Spin-Off Distribution, and the Director
Stockholders have agreed in writing with CTS not to sell or transfer an
aggregate of approximately 632,000 shares of CTS Common Stock received by them
pursuant to the Spin-Off Distribution and in respect of the Options for a period
of one year from the date of the Spin-Off Distribution. In addition, one
additional holder of Shares has agreed in writing with CTS not to sell or
transfer an aggregate of 150,000 shares of CTS Common Stock received pursuant to
the Spin-Off Distribution for a period of one year from the date of the Spin-Off
Distribution.
FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING DISCUSSION SETS FORTH CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE MERGER AND THE SPIN-OFF DISTRIBUTION APPLICABLE TO STOCKHOLDERS THAT HOLD
THEIR SHARES AS CAPITAL ASSETS WITHIN THE MEANING OF SECTION 1221 OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). HOWEVER, SUCH DISCUSSION
DOES NOT ADDRESS ALL FEDERAL INCOME TAX CONSIDERATIONS THAT MAY BE RELEVANT TO
PARTICULAR STOCKHOLDERS IN LIGHT OF THEIR SPECIFIC CIRCUMSTANCES, SUCH AS
STOCKHOLDERS WHO ARE DEALERS IN SECURITIES, FOREIGN PERSONS OR STOCKHOLDERS WHO
ACQUIRED THEIR SHARES IN CONNECTION WITH STOCK OPTIONS OR STOCK PURCHASE
WARRANTS. EACH STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO
DETERMINE THE TAX CONSEQUENCES TO HIM OR HER OF THE MERGER AND THE SPIN-OFF
DISTRIBUTION IN LIGHT OF HIS OR HER PARTICULAR CIRCUMSTANCES, INCLUDING THE
APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER
TAX LAWS AND POSSIBLE CHANGES IN SUCH TAX LAWS (WHICH MAY HAVE RETROACTIVE
EFFECT).
In general, the receipt by a Company stockholder of cash pursuant to the
Merger (or cash pursuant to the exercise of dissenters' rights of appraisal) and
CTS Common Stock pursuant to the Spin-Off Distribution will be a taxable event
for such stockholder. Although there is no specific authority directly on point,
the receipt by a Company stockholder of cash and CTS Common Stock should be
treated as an exchange of Shares for both cash and CTS Common Stock. Under this
treatment, a stockholder will generally recognize capital gain or loss for
federal income tax purposes equal to the difference between (i) the fair market
value at the Effective Time of the CTS Common Stock received plus the amount of
cash received and (ii) the tax basis in the Shares surrendered in exchange
therefor. Such gain or loss will be long-term capital gain or loss if the
stockholder's holding period for such Shares is more than one year at the
Effective Time. If a Company stockholder owns more than one block of Shares, the
cash and CTS Common Stock received must be allocated ratably among the blocks in
the proportion that the number of Shares in a particular block bears to the
total number of Shares owned by such stockholder. A stockholder's holding period
for his or her CTS Common Stock received in the Spin-Off Distribution will begin
on the day following the Effective Time, and
32
<PAGE> 37
such stockholder will have an initial tax basis in such CTS Common Stock equal
to the fair market value thereof.
Although, as stated above, the receipt by a Company stockholder of cash and
CTS Common Stock should be treated as an exchange of Shares for both cash and
CTS Common Stock, it is possible that the Internal Revenue Service (the
"Service")might contend that only the cash payment was received as payment for
the Shares, and that the receipt of CTS Common Stock is instead taxable to the
recipient as a distribution from the Company under Section 301 of the Code. If
the Service were to so contend and if such contention were to be upheld, then
the cash payment received by a Company stockholder would still be treated as
received in exchange for such stockholder's Shares.
If the receipt of CTS Common Stock were treated as a distribution, the
amount of such distribution for federal income tax purposes would be the fair
market value of the CTS Common Stock at the Effective Time. Under Section 301 of
the Code, the receipt of the CTS Common Stock would be taxable to the holders of
Shares as a dividend to the extent of the Company's current or accumulated
earnings and profits (including as a result of the deemed sale of the CTS Common
Stock by the Company). Any amount of CTS Common Stock that exceeds the earnings
and profits of the Company would first be treated as a non-taxable return of
capital to the extent of each stockholder's tax basis in his or her Shares, and
such stockholder's tax basis in such stock would be reduced accordingly (but not
below zero). To the extent that the CTS Common Stock were to exceed the
stockholder's tax basis in his or her Shares, such excess would be treated as
long-term or short-term capital gain from the sale or exchange of Shares,
depending on the period he held the Shares.
With respect to corporate stockholders, the portion of the CTS Common
Stock, if any, that is a taxable dividend under the foregoing rules generally
should be eligible for the 70% dividends received deduction. However, a
corporate stockholder's ability to use the dividends received deduction is
subject to several limitations, including those relating to "debt financed
portfolio stock" under Section 246A of the Code and certain holding period
requirements. In addition, even if the dividends received deduction is fully
available, a portion of the CTS Common Stock distribution may constitute an
"extraordinary dividend," which is subject to the provisions of Section 1059 of
the Code.
A stockholder may be subject to information reporting and to backup
withholding at a rate of 31% of amounts paid to the stockholder, unless such
stockholder provides proof of an applicable exemption or a correct taxpayer
identification number, and otherwise complies with applicable requirements of
the backup withholding rules.
THE DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS FOR
GENERAL INFORMATION ONLY AND IS BASED ON EXISTING LAW AS OF THE DATE OF THIS
PROXY STATEMENT. STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER AND THE SPIN-OFF
DISTRIBUTION (INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS).
REGULATORY FILINGS AND APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act"), and the rules promulgated thereunder by the Federal Trade Commission
("FTC"), certain acquisition transactions, including the Merger, may not be
consummated until specified notification requirements have been satisfied and
waiting periods have been terminated or expired. On July 21, 1995, the
Notification and Report Forms required pursuant to the HSR Act were filed by the
Company and MCI with the Antitrust Division of the Department of Justice and the
FTC for review in connection with the Merger. Early termination of the
applicable waiting period was granted effective August 3, 1995. Even though the
HSR Act waiting period has expired, the FTC or the Antitrust Division could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking divestiture of substantial assets of MCI or
the Company. The parties do not believe that consummation of the Merger will
result in a violation of any applicable antitrust laws. However, there can be no
assurances that a challenge to the Merger on antitrust grounds will not be made
or, if such a challenge is made, of the result thereof.
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<PAGE> 38
In addition, the Merger is also subject to the review and approval of the
New York State Public Service Commission ("NYPSC"). The Company and MCI have
filed an application with the NYPSC seeking such approval and, pursuant to
consultations with the staff of the California Public Utilities Commission
("CPUC"), have filed all information with the CPUC which was deemed necessary by
such staff under currently applicable regulations.
RIGHTS OF DISSENTING STOCKHOLDERS
Record holders of Shares are entitled to appraisal rights under Section 262
of the DGCL in connection with the Merger. The following discussion is not a
complete statement of the law pertaining to appraisal rights under the DGCL and
is qualified in its entirety by reference to the full text of Section 262 which
is reprinted in its entirety as Annex C to this Proxy Statement. Except as set
forth herein and in Annex C, holders of Shares will not be entitled to appraisal
rights in connection with the Merger.
Under the DGCL, record holders of Shares who follow the procedures set
forth in Section 262 and who have not voted in favor of the Merger will be
entitled to have their Shares appraised by the Delaware Court of Chancery and to
receive payment of the "fair value" of such shares, exclusive of any element of
value arising from the accomplishment or expectation of the Merger, together
with a fair rate of interest, as determined by such court.
Under Section 262, where a merger agreement is to be submitted for adoption
at a meeting of stockholders, as in the case of the Special Meeting, not less
than 20 days prior to such meeting, the Company must notify each of the holders
of Shares at the close of business on the record date for such meeting that such
appraisal rights are available and include in each such notice a copy of Section
262. This Proxy Statement constitutes such notice for purposes of the Special
Meeting. Any stockholder of record who wishes to exercise appraisal rights
should review the following discussion and Annex C carefully because failure
timely and properly to comply with the procedures specified in Section 262 will
result in the loss of appraisal rights under the DGCL.
A holder of Shares wishing to exercise appraisal rights must deliver to the
Company, before the vote on the approval and adoption of the Merger Agreement at
the Special Meeting, a written demand for appraisal of such holder's Shares. In
addition, a holder of Shares wishing to exercise appraisal rights must hold of
record such Shares on the date the written demand for appraisal is made and must
continue to hold such Shares through the Effective Time.
Only a holder of record of Shares is entitled to assert appraisal rights
for the Shares registered in that holder's name. A demand for appraisal should
be executed by or on behalf of the holder of record fully and correctly, as the
holder's name appears on the stock certificates.
If Shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand for appraisal should be
made in that capacity, and if the Shares are owned of record by more than one
person, as in a joint tenancy or tenancy in common, the demand should be
executed by or on behalf of all joint owners. An authorized agent, including one
for two or more joint owners, may execute the demand for appraisal on behalf of
a holder of record; however, the agent must identify the record owner or owners
and expressly disclose the fact that, in executing the demand, he or she is
acting as agent for such owner or owners. A record holder such as a broker who
holds Shares as nominee for several beneficial owners may exercise appraisal
rights with respect to the Shares held for one or more beneficial owners while
not exercising such rights with respect to the Shares held for other beneficial
owners; in such case, the written demand should set forth the number of Shares
as to which appraisal is sought and where no number of Shares is expressly
mentioned the demand will be presumed to cover all Shares held in the name of
the record owner. Holders of Shares who hold their Shares in brokerage accounts
or other nominee forms and who wish to exercise appraisal rights are urged to
consult with their brokers to determine the appropriate procedures for the
making of a demand for appraisal by such nominee. All written demands for
appraisal of Shares should be delivered to Nationwide Cellular Service, Inc., 20
East Sunrise Highway, Valley Stream, New York, 11581-1252, Attention: Secretary,
so as to be received before the vote on the approval and adoption of the Merger
Agreement and the Merger at the Special Meeting.
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<PAGE> 39
Within 10 days after the Effective Time, the Company, as the Surviving
Corporation, must send a notice as to the effectiveness of the Merger to each
person who has satisfied the appropriate provisions of Section 262. Within 120
days after the Effective Time, but not thereafter, the Surviving Corporation or
any such stockholder who has satisfied the foregoing conditions and is otherwise
entitled to appraisal rights under Section 262, may file a petition in the
Delaware Court of Chancery demanding a determination of the fair value of the
Shares held by such stockholder. If no such petition is filed, appraisal rights
will be lost for all stockholders who had previously demanded appraisal of their
Shares. Stockholders of the Company seeking to exercise appraisal rights should
assume that the Surviving Corporation will not file a petition with respect to
the appraisal of the value of Shares and that the Surviving Corporation will not
initiate any negotiations with respect to the "fair value" of Shares.
Accordingly, stockholders of the Company who wish to exercise their appraisal
rights should regard it as their obligation to take all steps necessary to
perfect their appraisal rights in the manner prescribed in Section 262.
Within 120 days after the Effective Time, any record holder of Shares who
has complied with the provisions of Section 262 will be entitled, upon written
request, to receive from the Surviving Corporation a statement setting forth the
aggregate number of Shares not voted in favor of approval of the Merger
Agreement and with respect to which demands for appraisal were received by the
Company, and the number of holders of such Shares. Such statement must be mailed
within ten days after the written request therefore has been received by the
Surviving Corporation or within ten days after expiration of the time for
delivery of demands for appraisal under Section 262, whichever is later.
If a petition for appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine the holders of Shares
entitled to appraisal rights and will appraise the "fair value" of the shares of
Common Stock, exclusive of any element of value arising from the accomplishment
or expectation of the Merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. Holders considering
seeking appraisal should be aware that the fair value of their Shares as
determined under Section 262 could be more than, the same as or less than the
value of the Merger Consideration that they would otherwise receive if they did
not seek appraisal of their Shares. The Delaware Supreme Court has stated that
"proof of value by any techniques or methods which are generally considered
acceptable in the financial community are otherwise admissible in court" should
be considered in the appraisal proceedings. In addition, Delaware courts have
decided that the statutory appraisal remedy, depending on factual circumstances,
may or may not be a dissenter's exclusive remedy. The Court will also determine
the amount of interest, if any, to be paid upon the amounts to be received by
persons whose Shares have been appraised. The costs of the action may be
determined by the Court and taxed upon the parties as the Court deems equitable.
The Court may also order that all or a portion of the expenses incurred by any
holder of Shares in connection with an appraisal, including without limitation,
reasonable attorneys' fees and the fees and expenses of experts utilized in the
appraisal proceeding, be charged pro rata against the value of all of the Shares
entitled to appraisal.
Any stockholder of the Company who has duly demanded an appraisal in
compliance with Section 262 will not, after the Effective Time, be entitled to
vote his or her Shares for any purpose nor, after the Effective Time, be
entitled to the payment of dividends or other distributions thereon (other than
the Spin-Off Distribution).
If no petition for an appraisal is filed within the time provided, or if a
stockholder of the Company delivers to the Surviving Corporation a written
withdrawal of his or her demand for an appraisal and an acceptance of the
Merger, within 60 days after the Effective Time or with the written approval of
the Surviving Corporation thereafter, then the right of such stockholder to an
appraisal will cease and such stockholder shall be entitled to receive the
Merger Consideration, without interest, as if he or she had not demanded
appraisal of his or her Shares. No pending appraisal proceeding in the Court of
Chancery will be dismissed as to any stockholder without the approval of the
Court, which approval may be conditioned on such terms as the Court deems just.
STOCKHOLDERS DESIRING TO EXERCISE THEIR APPRAISAL RIGHTS SHOULD STRICTLY
COMPLY WITH THE PROCEDURES SET FORTH IN SECTION 262 OF THE DGCL. FAILURE TO
FOLLOW ANY OF SUCH PROCEDURES MAY RESULT IN A TERMINATION OR WAIVER OF APPRAISAL
RIGHTS UNDER SECTION 262 OF THE DGCL.
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<PAGE> 40
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table presents certain selected consolidated financial
information for the Company as of and for the years ended December 31, 1994,
1993, 1992, 1991 and 1990, and as of and for the six months ended June 30, 1995
and 1994. The selected financial information has been derived from the
consolidated financial statements of the Company and should be read in
conjunction with such financial statements and the notes thereto. The Company's
audited financial statements are incorporated by reference in this Proxy
Statement from the Company's Annual Report on Form 10-K for the year ended
December 31, 1994, and the Company's unaudited financial statements are
incorporated by reference in this Proxy Statement from the Company's Quarterly
Report on Form 10-Q, as amended on Form 10-Q/A, for the six months ended June
30, 1995. See "Incorporation of Certain Documents By Reference."
(AMOUNTS IN THOUSANDS, EXCEPT FOR
PER SHARE AND SUBSCRIBER DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues.................................. $117,446 $101,395 $213,202 $182,675 $141,774 $114,621 $104,773
Net (loss) income......................... (3,982) 832 1,222 1,817 6,695 1,180 (6,551)
Net (loss) income per common share:(2)
Primary................................. $ (.50) $ .05 $ .19 $ .13 $ .79 $ .06 $ (1.17)
======== ======== ======== ======== ======== ======== ========
Fully diluted........................... $ .17 $ .12
======== ========
Average Monthly Revenue per Subscriber.... $ 68 $ 84 $ 81 $ 91 $ 101 $ 107 $ 120
Amortization of Purchased Subscriber
Base.................................... 2,688 3,290 5,939 6,752 4,315 1,728 744
BALANCE SHEET DATA:
Total Assets.............................. $ 79,241 $ 71,273 $ 75,679 $ 61,425 $ 73,502 $ 46,231 $ 33,773
Long-term obligations:
Notes Payable........................... 6,587 8,393 911 6,249 2,023
Contingent Value Rights(3).............. 3,600 2,800 2,000 1,200
Redeemable Warrant...................... 3,600
Series A Convertible, Preferred
Stock(4).............................. 6,000 6,000 6,000 6,000 6,000 6,000
Total Stockholders' Equity
(Deficiency)(4)......................... 16,263 13,425 15,107 12,709 9,650 184 (406)
Weighted average common and common share
equivalents outstanding:(5)
Primary................................. 7,902 8,530 8,686 7,696 8,343 6,895 6,277
======== ======== ======== ======== ======== ======== ========
Fully diluted........................... 8,912 8,315
======== ========
PER SHARE DATA:
Book Value per common share:
Primary................................. $ 2.06 $ 1.57 $ 1.74 $ 1.65 $ 1.16 $ 0.03 $ (0.06)
Fully Diluted........................... $ 1.70 $ 1.53
Dividends Declared........................ 0 0 0 0 0 0 0
Number of Subscribers..................... 292,000 212,000 250,000 176,000 143,000 86,000 67,300
</TABLE>
---------------
(1) In 1992 the Company changed its method of accounting for income taxes which
was retroactively applied to 1991.
(2) For the purpose of computing per share amounts, the net income attributable
to common shares has been reduced by the Contingent Value Rights ("CVRs")
accretion of $400,000 for the six months ended June 30, 1994 and $800,000
for each of the years ended December 31, 1993, 1992, 1991 and 1990. For the
year ended December 31, 1994, the net income attributable to common shares
has been increased by a reduction in the liability for the Contingent Value
Rights obligation of $320,000. The amounts recorded are not a credit or a
charge to operations, but rather result in an increase or reduction of net
worth. Except for the years ended December 31, 1994 and 1993, primary and
fully diluted earnings per common share were the same amounts.
(3) The CVRs described in footnote (2) above were recorded as a current
liability at December 31, 1994 and on January 12, 1995, the Company paid to
its holder $3,280,000 extinguishing the liability for the CVRs.
(4) The Series A Convertible, Preferred Stock was converted into shares of the
Company's Common Stock on a one-for-one basis on January 12, 1995.
(5) The adjusted weighted average shares outstanding at June 30, 1994 and
December 31, 1994 and December 31, 1992 was computed under the modified
treasury stock method. For the six months ended June 30, 1995 and the year
ended December 31, 1993, the "modified treasury stock method" yielded
anti-dilutive results for primary earnings per share.
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<PAGE> 41
PRICE RANGE OF COMMON STOCK AND DIVIDEND HISTORY
The Company's Shares are traded on NASDAQ under the trading symbol NCEL.
The prices shown below are the range of high and low closing prices on the
NASDAQ National Market System ("NMS") of the Shares. On July 24, 1995 the number
of holders of record of the Shares was 117.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
1993
First Quarter................................................ $10 3/4 $8 1/8
Second Quarter............................................... 8 3/4 6 3/4
Third Quarter................................................ 13 7 5/8
Fourth Quarter............................................... 16 1/4 11 1/4
1994
First Quarter................................................ $17 1/8 $12 5/8
Second Quarter............................................... 14 5/8 11 1/2
Third Quarter................................................ 16 1/8 11 7/8
Fourth Quarter............................................... 19 1/8 15 3/8
1995
First Quarter................................................ $ 19 $14 1/4
Second Quarter............................................... 27 1/8 15 1/8
Third Quarter (through August 17, 1995)...................... 28 13/16 26 1/8
</TABLE>
On May 19, 1995, the last trading day prior to the Company's public
announcement of the execution of the Original Agreement, the last reported sale
price as reported on the NMS was $17.50 per Share. On August 16, 1995, the last
trading day prior to the execution of the Merger Agreement, the last reported
sale price as reported on the NMS was $27.63 per Share. On August 17, 1995, the
latest practicable trading day prior to the date of this Proxy Statement, the
last reported sale price as reported on the NMS was $27.50 per Share.
Stockholders are urged to obtain current quotations for the Shares.
There were no dividends or other distributions made by the Company with
respect to the Shares during 1995, 1994 or 1993. The Company's financing
agreement prohibits the payment of cash dividends by the Company.
37
<PAGE> 42
OWNERSHIP OF VOTING SECURITIES
The following table sets forth, as of August 2, 1995, information with
respect to the beneficial ownership of the Shares by (i) each person known by
the Company to beneficially own more than 5% of the outstanding Shares, (ii)
each director of the Company, (iii) each of the Chief Executive Officer and the
four other most highly compensated executive officers of the Company and (iv)
all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
NAME AND ADDRESS BENEFICIAL OUTSTANDING
OF BENEFICIAL OWNER(1) OWNERSHIP(2) SHARES
------------------------------------------------------------------ ------------ -----------
<S> <C> <C>
Merv Adelson...................................................... 1,607,739(3) 17.83%
c/o East-West Capital Associates
10100 Santa Monica Blvd.
Los Angeles, CA 90067
Harvey and Phyllis Sandler........................................ 683,800(4) 8.37%
2800 Island Boulevard
N. Miami Beach, FL 33160
Stephen Katz...................................................... 580,325(5) 6.88%
20 East Sunrise Highway
Valley Stream, NY 11582
Dimensional Fund Advisors Inc..................................... 466,200(6) 5.71%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Jay Bernstein..................................................... 400,500(7) 4.90%
Mel Steinberg..................................................... 318,500(7) 3.89%
Larry Altman...................................................... 170,500(7) 2.08%
Jerome Sanders.................................................... 145,500(8) 1.76%
Joseph A. Gregori................................................. 128,000(9) 1.54%
Steven B. Fink.................................................... 10,500(9) *
Stuart D. Buchalter............................................... 10,500(9) *
Harold Saving..................................................... 1,000(9) *
Edward Seidenberg................................................. 500(9) *
All directors and executive officers as a group (10) persons...... 1,765,825(10) 20.27%
</TABLE>
---------------
* Less than 1%.
(1) Pursuant to the rules of the SEC, addresses are only given for holders of
5% or more of the outstanding Shares of the Company.
(2) Unless otherwise indicated, each person or group has sole voting and
investment power with respect to such Shares. For purposes of this table, a
person or group of persons is deemed to have "beneficial ownership" of any
Shares which such person or group has the right to acquire within 60 days
of August 2, 1995. For purposes of computing the percent of outstanding
Shares held by each person or group named above as of a given date, any
Shares which such person or group has the right to so acquire are deemed to
be outstanding, but are not deemed to be outstanding for the purpose of
computing the percentage owned by any other person or group.
(3) Includes 850,000 Shares issuable upon exercise of the Adelson Warrant. The
information as to Mr. Adelson is based on a Schedule 13D dated January 19,
1990, as last amended on January 17, 1995, filed with the SEC by Mr.
Adelson.
38
<PAGE> 43
(4) The information as to Harvey and Phyllis Sandler is as of August 2, 1995
and is based on information provided to the Company by Harvey and Phyllis
Sandler.
(5) Includes 40,000 Shares held by Mr. Katz as custodian for one of his
children and Shares issuable upon exercise of options to purchase 267,000
Shares, and excludes 40,000 Shares held by one of Mr. Katz's children as to
which he disclaims beneficial ownership. On August 18, 1995, Mr. Katz sold,
with MCI's consent, 55,000 Shares to an unaffiliated party who has
acknowledged in writing that such Shares are subject to the voting
agreement and proxy delivered by Mr. Katz and who has agreed, in certain
circumstances upon request of MCI, to deliver a similar voting agreement
and proxy.
(6) The information as to Dimensional Fund Advisors Inc. ("Dimensional") is
based on information provided to the Company by Dimensional. Dimensional, a
registered investment advisor, is deemed to have beneficial ownership of
466,200 Shares as of March 31, 1995, all of which shares are held in
portfolios of DFA Investment Dimensions Group Inc., a registered open-end
investment company, or in series of the DFA Investment Trust Company, a
Delaware business trust, or the DFA Group Trust and DFA Participation Group
Trust, investment vehicles for qualified employee benefit plans, all of
which Dimensional serves as investment manager. Dimensional disclaims
beneficial ownership of all such Shares.
(7) Includes Shares issuable upon exercise of options to purchase 10,500
Shares.
(8) Includes Shares issuable upon exercise of options to purchase 92,500
Shares.
(9) Represents Shares issuable upon exercise of options.
(10) Includes 40,000 Shares held as custodian and options to purchase 541,000
Shares.
39
<PAGE> 44
BUSINESS OF THE COMPANY
GENERAL
The Company is engaged in the purchase and resale of cellular telephone
service and, to a lesser extent, the sale of cellular telephone equipment and
accessories. Cellular telephone service may be defined as access to a cellular
telephone system through the assignment of an individual mobile telephone number
enabling the subscriber to make local and long distance telephone calls from a
cellular telephone in all areas where a cellular telephone system has been
established. Once a connection to the system has been established, calls may be
placed to any landline phone or to a cellular phone in any area in which a
cellular telephone system exists. The Company purchases such service from local
cellular telephone system operators in accordance with the operators' wholesale
rates or, where applicable, tariffs filed with local regulatory agencies and
resells the service to its customers according to its retail rates or tariffs,
if such tariffs are required by regulatory agencies. Service is normally sold by
the Company on a month-to-month or on a one or two-year contract basis by
charging monthly access fees, per-minute use fees and local and long distance
toll charges.
In the cellular telephone industry, service is provided within a regional
unit known as a Cellular Geographic Service Area ("CGSA"). Federal
Communications Commission ("FCC") regulations provide for the licensing of two
cellular telephone system operators for each CGSA throughout the United States.
The Company, which does not hold licenses as a system operator in any CGSA,
resells cellular service in eight CGSAs, consisting of the metropolitan areas of
New York-New Jersey, Los Angeles, Chicago, Baltimore-Washington, D.C., Boston,
Philadelphia, San Diego and San Francisco and as of July 31, 1995 provided
service to approximately 300,000 subscribers.
The Company also conducts business through two wholly-owned subsidiaries,
Nova Cellular Co. ("Nova") and N.C.S. Equipment Corporation ("NCS"). Nova
purchases and resells cellular telephone service and markets cellular telephones
and accessories in the Chicago metropolitan area and NCS markets cellular
telephones and accessories in CGSAs serviced by the Company other than Chicago.
The Company owns 3,340,000 shares of CTS Common Stock or 33.3% of CTS (and
holds the CTS Option to purchase an additional 640,000 Shares), which is engaged
in the design, development, marketing, installation and support of integrated
real-time information management and fraud detection systems for the wireless
communications industry.
The Company owns a 25% interest in the common stock of Mobile Datacom
Corporation ("MDC"), a $500,000 five-year convertible subordinated debenture,
and a $50,000 five-year subordinated debenture, each debenture bearing interest
at 10%. MDC was formed in February 1993 and is a development stage company which
provides a range of satellite-based, two-way digital data communications and
reporting services and systems for mobile platforms and remote fixed site needs.
SERVICES AND PRODUCTS
The Company's revenues are principally derived from the purchase and resale
of cellular telephone service and, to a lesser extent, the sale of cellular
telephone equipment and related accessories.
In order to use a cellular telephone, it is necessary to arrange for
service with a cellular telephone system operator or a reseller of services such
as the Company. The Company purchases such service from cellular telephone
system operators based on wholesale rates, as set forth in published tariffs of
the cellular telephone system operators or as negotiated on a contractual basis,
and resells such service at retail rates to its subscribers. Fees charged to
subscribers include a one-time connection fee, a fixed monthly access fee, usage
fees that vary with the number and duration of calls and toll charges for the
calls made. Service is sold by the Company on a month-to-month or on a one or
two-year contract basis.
MARKETING
The Company currently markets cellular service and equipment primarily
through Company operated retail stores, a direct sales force, telemarketing and,
to a limited extent, independent dealers. The Company's
40
<PAGE> 45
marketing efforts include advertising activities and offering a wide selection
of subscriber pricing plans, cellular telephone equipment and accessories. As of
July 31, 1995 the Company provided cellular telephone service to approximately
300,000 subscribers in eight CGSAs, of which 208,000 are in the New York-New
Jersey, Los Angeles and Chicago CGSAs and 92,000 are in other CGSAs. The Company
continues to seek the expansion of its customer base through its marketing
efforts in addition to the acquisition of customer bases from competitors.
For distribution of its products and services, the Company utilizes a
direct retail strategy encompassing both Company operated stores and a corporate
sales force. The Company believes that selling directly through Company retail
stores improves subscriber retention by establishing closer contact with its
customer base and will enhance the ability of the Company to take advantage of
additional sales opportunities including referral business and value-added
services such as paging, voice mail, cellular telephone accessory sales and
future wireless communication services. The Company has also recently expanded
its telemarketing distribution effort. Customers so acquired are encouraged to
visit Company stores in order to establish closer contact which the Company
believes will cause these customers to emulate the behavior of the customers
acquired directly through the stores with respect to subscriber longevity. The
Company believes distribution through telemarketing will, over time, tend to
reduce customer acquisition costs. See "Competition."
The Company believes that a high level of customer service is essential to
the success of its business. To enhance the level of customer service it
provides, the Company has decentralized many customer service functions to its
regional offices. In addition, the Company utilizes a proprietary customer
billing and record system which integrates all customer data into a single
source and provides on-line access of those records to all customer service
representatives.
COMPETITION
The telecommunications industry is generally highly competitive. However,
in the cellular industry there are only two licensed carriers of cellular radio
service in each market. Among the Company's cellular competitors are cellular
subsidiaries or divisions of cellular telephone system operators, such as those
from which the Company purchases service and, to a lesser extent, other
resellers of cellular telephone services. As there is little differentiation in
the quality of the cellular service provided, the two cellular carriers in each
area have sought to compete primarily through offering various packages of
equipment and cellular air time minutes at different price points. Carriers,
through arrangements with other carriers, also have differentiated their service
by offering enlarged local calling areas. The Company, to remain competitive,
has found it necessary to offer similar packages and service areas and
differentiates itself by offering a higher level of customer service. Many of
the Company's competitors have substantially greater resources, experience,
marketing and sales staffs than the Company. It is difficult to assess the level
of competition that will emerge in the wireless communications industry. New
communication technologies are continually being developed, some of which may
provide increased competition to the cellular business conducted by the Company.
The mobile services marketplace, of which cellular is part, is subject to
technical and regulatory changes which can affect the number and type of
competitors, the viability of competitors and services offered thereby and thus
either materially enhance or impair the Company's business.
The FCC has licensed specialized mobile radio ("SMR") system operators to
construct digital mobile communications systems on existing SMR frequencies in
many cities throughout the United States. One such operator began offering
service, on a limited basis, in the Los Angeles area in August 1993 and has
announced plans to initiate service by year end 1995 in all of the eight CGSAs
in which the Company conducts its resale business. The operator of such system
has announced that it intends to initially position itself as a major provider
of dispatch mobile services and beginning sometime after year end 1995 provide a
service competitive to cellular. Further, the FCC has recently allocated radio
frequency spectrum for seven personal communication service ("PCS") licenses in
markets throughout the United States, including each market in which the Company
conducts its business. Auctions for such licenses began in December 1994 and two
licenses in each major market throughout the United States were awarded. The
schedule for auctioning the remaining PCS licenses has not been set and is
dependent upon the outcome of legal challenges to the FCC's licensing criteria.
Although the marketing and technical elements are not well defined, the Company
expects that at
41
<PAGE> 46
some future point in time PCS services will become competitive with cellular
service. Future competition may also include commercial mobile satellite
services which are currently being designed. The Company believes these new
services will offer resale opportunities. Although no arrangements as to the
resale of any of these emerging services have been completed, discussions with
respect to such resale opportunities are continuing.
GOVERNMENT REGULATION
The resale of cellular mobile telephone service is subject to federal and
state regulation as a common carrier radio telephone service.
Federal Regulation. The FCC licenses cellular telephone system operators
such as those from which the Company purchases services. Although it has the
authority, the FCC does not license or prescribe regulations for resellers other
than through its general policies for the cellular industry. Cellular system
operators either publish wholesale tariffs or promulgate rates which enable the
Company to resell such service at a profit. However, there are no federal rules
which guarantee or are intended to assure a profit to cellular resellers. The
FCC does not presently require wholesale tariff rates, but does require, without
restriction, that all cellular system operators offer their service to
non-licensed entities, such as the Company, for resale to the public.
On August 9, 1993, Congress passed the Budget Reconciliation Act (the
"Budget Act") which amended the Communications Act of 1934. The Budget Act
prohibits states from imposing entry regulations and, one year after the date of
enactment, from imposing rate regulation on commercial mobile radio service
("CMRS") providers (which among others include cellular, PCS and SMR providers)
unless the FCC grants the state the authority to do so. Eight states filed
requests with the FCC to maintain state regulation over the intrastate cellular
service rates. In orders released May 19, 1995, the FCC denied all of the eight
states authority to retain such rate regulation. In two of these states,
California and New York, the Company engages in the resale of cellular service.
The amendments to the Communications Act under the Budget Act do not
preempt states from regulating, other than as to rates and entry, the terms and
conditions under which CMRS providers offer service to the public. On March 7,
1994 the FCC released a "Second Report and Order" adopting certain rules and
policies designed to implement the provisions of the Budget Act. In pertinent
part, the FCC held that cellular resellers are CMRS providers under the Budget
Act; that although competition exists in the provision of cellular service
justifying forbearance from Federal tariffing requirements, the FCC does not
have sufficient information upon which to conclude at this time that cellular
service, with only two facilities-based carriers in each market, is fully
competitive. Although the FCC stated that it intended to initiate a formal
proceeding with regard to the monitoring of cellular rates, it has not yet begun
such a proceeding. The FCC has, however, instituted formal proceedings to (i)
examine the extent and nature of the obligations of CMRS providers to provide
and obtain interconnected service to and from other CMRS providers, (ii)
evaluate resale obligations of licensed carriers in the evolving PCS market, and
(iii) determine whether resellers should generally be permitted to interconnect
their own switches to the facilities of CMRS systems. Telecommunications
regulation reform legislation that may limit the power and discretion of the
states and the FCC to regulate cellular service is currently being considered by
Congress. The Company cannot predict the nature or timing of changes which the
FCC and/or Congressional initiatives may have on the Company's operations.
State Regulation. Prior to passage of the Budget Act, when regulated at the
state level, FCC-licensed cellular system operators and/or resellers were
sometimes required to obtain certificates of public convenience and necessity
and/or register with local authorities and publicly file their tariff rates. In
that regard, the Company and the FCC-licensed cellular system operators from
which it purchases services have obtained certificates of public convenience and
necessity and filed tariffs for the rates they can charge in New York and
California. By virtue of the Budget Act, that form of entry regulation along
with rate regulation by states was preempted by federal law. Such preemption,
however, does not apply to terms and conditions of services. Nonetheless,
consistent with the Budget Act, both California and New York filed petitions
with the FCC to continue rate regulation, which petitions the FCC denied,
including a petition to reconsider the California order.
42
<PAGE> 47
The Company is not subject to state rate or entry regulation as a reseller
in the states in which it conducts its business. Although the Company believes
that it is in compliance with all existing material state regulations, any
future regulations which might govern the Company could impair its ability to
continue its operations in one or more of these states.
In August 1994, pursuant to an investigation of the regulatory framework of
wireless communications ("Wireless Investigation"), the CPUC issued a Decision
94-08-022 ("California Decision") which continues to regulate cellular service
under a framework in which the FCC licensed cellular carriers are deemed
dominant cellular providers subject to more regulation than resellers which have
been deemed non-dominant. As part of the California Decision, and subsequent
decisions promulgated in the Wireless Investigation, the CPUC ordered that the
FCC licensed cellular carriers allow the interconnection of reseller switches
whereby resellers such as the Company may be allowed to utilize cellular
telephone switches and switch software to perform certain switching functions
performed to date solely by the cellular telephone system operators. In July
1995, the Company and several other resellers engaged in a test of the
interconnection of a reseller switch with a cellular carrier in the Los Angeles
CGSA. The California Decision and subsequent rulings issued in the Wireless
Investigation also require that the California cellular telephone system
operators unbundle wholesale tariffs and offer those elements which a
switch-based reseller cannot purchase elsewhere at tariffed market-based rates.
In light of the FCC denial of the California petition to continue rate
regulation, certain cellular telephone system operators have requested the CPUC
stay ordering the unbundling requirement pending the outcome of the reseller
switch test. The Company cannot predict the timing or outcome of such requests.
The Company does not believe that the FCC's denial of the aforementioned
California petition to continue to regulate rates is applicable to the
requirement of the California Decision and other Wireless Investigation rulings
that the reseller switch test and wholesale unbundling proceed but this position
is being challenged by other parties. The Company cannot predict whether the
CPUC, or the FCC, may alter or change such decisions and rulings in the future
to the extent of each agency's jurisdiction.
CUSTOMER RETENTION PROGRAMS
The Company has instituted various programs to improve its overall customer
satisfaction levels which management believes should improve customer retention
rates. The Company has and continues to promote contract plans with discounted
rates for a one or two-year customer commitment to subscribe to the Company's
service. At July 31, 1995 approximately 79% of the Company's subscribers were
participating in such contract plans. Virtually all of the Company's new
subscribers begin service on one of the contract plans. The Company utilizes
various marketing programs to promote subscriber acceptance of these annual
contract plans including direct mail campaigns, telemarketing solicitation and
various other incentive programs. Further, the Company has increased the
frequency and expanded the content of customer surveys and questionnaires, which
has enabled the Company to more effectively measure existing customer
satisfaction levels in order to improve the delivery of its products and
services.
EMPLOYEES
As of July 31, 1995, the Company and its subsidiaries had 682 full-time
employees. Of these employees, 10 are executive management, 222 are in direct
sales, 61 are in sales support, 293 are administrative and clerical employees
and 96 are in warehouse and service centers. Other personnel are engaged on a
part-time basis, including individuals or firms who are independent contractors.
The Company considers its relations with its employees to be good.
43
<PAGE> 48
PROPERTIES
On January 25, 1995, the Company purchased a 55,000 square foot building at
901 Stewart Avenue, Garden City, New York, for use as executive and
administrative offices. The building, with occupancy scheduled for fall 1995,
will replace the Company's offices currently located at 20 East Sunrise Highway,
Valley Stream, New York. Such premises are currently occupied under a lease
which expired on October 31, 1994 and which is continuing on a month-to-month
basis. The Company and its subsidiaries also maintain sales offices and
installation and service centers in leased facilities in the following states:
<TABLE>
<CAPTION>
NUMBER OF
STATE FACILITIES
---------------------------------------------------------- ---------
<S> <C>
California................................................ 7
Illinois.................................................. 9
New York.................................................. 7
New Jersey................................................ 4
Massachusetts............................................. 5
Maryland.................................................. 3
Pennsylvania.............................................. 1
Virginia.................................................. 1
</TABLE>
The Company and its subsidiaries also maintain a warehouse and a storage
facility in New York. The Company believes these facilities are suitable for
their intended use and are adequate for the conduct of its business.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and the rules and regulations thereunder, and in accordance therewith files
reports, proxy statements and other information with the SEC. Such reports,
proxy statements and other information filed by the Company may be inspected and
copied at the public reference facilities maintained by the SEC at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional
offices located at Suite 1400, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661 and Suite 1300, Seven World Trade Center, New York, New
York 10048. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. See "Incorporation of Certain Documents by Reference."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the SEC are incorporated
into this Proxy Statement by reference:
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1994 (and Proxy Statement, dated May 2, 1995, to the extent it was
incorporated by reference therein);
2. The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1995, as amended on Form 10-Q/A, filed August 18, 1995;
3. The Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1995, as amended on Form 10-Q/A, filed August 18, 1995; and
4. The Company's Current Report on Form 8-K, filed June 7, 1995.
All documents or reports subsequently filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and
prior to the date of the Special Meeting shall be deemed to be incorporated by
reference into this Proxy Statement and to be a part of this Proxy Statement
from the date of filing of such document. Any statement contained herein, or in
a document all or a portion of which is
44
<PAGE> 49
incorporated or deemed to be incorporated by reference herein, shall be deemed
to be modified or superseded for purposes of this Proxy Statement to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement.
The Company will provide without charge to any person to whom this Proxy
Statement is delivered, on the written or oral request of such person, a copy of
any or all of the foregoing documents incorporated by reference (other than
exhibits not specifically incorporated by reference into the texts of such
documents). Requests for such documents should be directed to: Investor
Relations, Nationwide Cellular Service, Inc., 20 East Sunrise Highway, Valley
Stream, New York 11581-1252 (telephone: (516) 887-0399).
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP serves as the Company's independent certified public
accountants. A representative of KPMG Peat Marwick LLP will be at the Special
Meeting to answer questions by stockholders and will have the opportunity to
make a statement if so desired.
OTHER MATTERS
The Board of Directors knows of no other matter to be acted upon at the
meeting. However, if any other matters are properly brought before the meeting,
the persons named in the accompanying form of proxy will vote thereon in
accordance with their best judgment.
STOCKHOLDER PROPOSALS
Under the rules of the SEC, any Company stockholder who wishes to submit a
proposal for presentation at the Company's 1996 Annual Meeting of Stockholders
(if the Merger has not been consummated prior to the date such Meeting is to be
held) must submit the proposal to the Company at its principal executive
offices, attention: Secretary. Such proposal must be received not later than
January 3, 1996 for inclusion, if appropriate, in the Company's proxy statement
and form of proxy relating to the 1996 Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Jerome Sanders
Secretary
August 21, 1995
45
<PAGE> 50
ANNEX A
---------------------
AGREEMENT AND PLAN OF MERGER
AMONG
MCI COMMUNICATIONS CORPORATION,
NTS ACQUISITION CORP.
AND
NATIONWIDE CELLULAR SERVICE, INC.
DATED MAY 22, 1995
AS AMENDED AND RESTATED AS OF AUGUST 17, 1995
---------------------
<PAGE> 51
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I
THE MERGER
SECTION 1.1 The Merger.............................................................. 2
SECTION 1.2 Closing................................................................. 2
SECTION 1.3 Effective Time of the Merger............................................ 2
SECTION 1.4 Effects of the Merger................................................... 2
SECTION 1.5 Certificate of Incorporation; By-Laws................................... 2
SECTION 1.6 Directors and Officers.................................................. 2
SECTION 1.7 Stockholders' Meeting................................................... 2
SECTION 1.8 Company Action.......................................................... 3
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.1 Effect on Capital Stock................................................. 3
(a) Common Stock of the Purchaser................................................ 3
(b) Cancellation of Treasury Stock and Parent-Owned Company Common Stock......... 3
(c) Conversion of Company Common Stock........................................... 3
(d) Shares of Dissenting Holders................................................. 4
SECTION 2.2 Exchange of Certificates................................................ 4
(a) Paying Agent................................................................. 4
(b) Exchange Procedures.......................................................... 4
(d) Termination of Exchange Fund................................................. 5
(e) No Liability................................................................. 5
(f) Withholding Rights........................................................... 5
SECTION 2.3 Treatment of Employee Options........................................... 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of the Company........................... 6
(a) Organization and Qualification; Subsidiaries................................. 6
(b) Certificates of Incorporation and By-Laws.................................... 6
(c) Capitalization............................................................... 6
(d) Authority Relative to Agreements............................................. 7
(e) No Conflict; Required Filings and Consents................................... 8
(f) Compliance................................................................... 9
(g) SEC Filings; Financial Statements............................................ 9
(h) Information Supplied......................................................... 10
(i) Absence of Certain Changes or Events......................................... 10
(j) Absence of Litigation........................................................ 10
(k) Employment and Labor Contracts............................................... 10
(l) Employee Benefit Plans....................................................... 11
(m) Tax Matters.................................................................. 11
(n) Intellectual Property........................................................ 12
(o) Enviornmental Matters........................................................ 13
(p) Spin-Off Distribution........................................................ 13
(q) Transactions with Affiliates................................................. 13
(r) Opinion of Financial Advisor................................................. 13
(s) Brokers...................................................................... 13
</TABLE>
i
<PAGE> 52
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 3.2 Representations and Warranties of the Parent and the Purchaser.......... 13
(a) Corporate Organization....................................................... 13
(b) Authority Relative to Agreements............................................. 14
(c) No Conflict; Required Filings and Consents................................... 14
(d) Information Supplied......................................................... 14
(e) Financing.................................................................... 14
(f) Brokers...................................................................... 14
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER; OTHER COVENANTS
SECTION 4.1 Conduct of Business of the Company Pending the Merger................... 15
SECTION 4.2 Conduct of Business of the Purchaser.................................... 17
SECTION 4.3 Preparation of Proxy Statement.......................................... 17
SECTION 4.4 Access to Information; Confidentiality.................................. 17
SECTION 4.5 No Solicitation......................................................... 18
SECTION 4.6 Employee Benefits Matters............................................... 18
SECTION 4.7 Directors' and Officers' Indemnification and Insurance.................. 18
SECTION 4.8 Further Action; Reasonable Best Efforts................................. 19
SECTION 4.9 Public Announcements.................................................... 19
SECTION 4.10 Taxes................................................................... 19
SECTION 4.11 Spin-Off Distribution................................................... 19
SECTION 4.12 Certain Agreements...................................................... 21
SECTION 4.13 CTS Warrant............................................................. 21
SECTION 4.14 Conveyance Taxes........................................................ 21
ARTICLE V
CONDITIONS OF MERGER
SECTION 5.1 Conditions to Obligation of Each Party to Effect the Merger............. 21
SECTION 5.2 Conditions to Obligations of Parent and Purchaser....................... 21
SECTION 5.3 Conditions to Obligations of the Company................................ 22
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
SECTION 6.1 Termination............................................................. 23
SECTION 6.2 Effect of Termination................................................... 24
SECTION 6.3 Fees and Expenses....................................................... 24
SECTION 6.4 Amendment............................................................... 25
SECTION 6.5 Waiver.................................................................. 26
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.1 Non-Survival of Representations, Warranties and Agreements.............. 26
SECTION 7.2 Notices................................................................. 26
SECTION 7.3 Certain Definitions..................................................... 26
SECTION 7.4 Severability............................................................ 27
SECTION 7.5 Amendment and Restatement: Effectiveness of Representations, Warranties
and Agreements.......................................................... 27
SECTION 7.6 Entire Agreement; Assignment............................................ 28
SECTION 7.7 Parties in Interest..................................................... 28
SECTION 7.8 Governing Law........................................................... 28
SECTION 7.9 Headings................................................................ 28
SECTION 7.10 Counterparts............................................................ 28
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated May 22, 1995, as amended and restated
as of August 17, 1995 (this "Agreement"), among MCI COMMUNICATIONS CORPORATION,
a Delaware corporation (the "Parent"), NTS ACQUISITION CORP., a Delaware
corporation and an indirect wholly owned subsidiary of the Parent (the
"Purchaser"), and NATIONWIDE CELLULAR SERVICE, INC., a Delaware corporation (the
"Company").
WHEREAS, the Boards of Directors of the Company and the Purchaser have
approved, and deem it advisable and in the best interests of their respective
stockholders to consummate, the business combination transaction provided for
herein in which the Purchaser will merge with and into the Company (the
"Merger");
WHEREAS, the Merger and this Agreement require the vote of a majority of
the shares of Company Common Stock (as defined below) for the approval thereof;
WHEREAS, as a condition and inducement to their willingness to enter into
the Agreement and Plan of Merger, dated May 22, 1995 (the "Original Agreement"),
and to consummate the transactions contemplated thereby, the Parent and the
Purchaser required that each of the stockholders listed on Schedule A hereto
agree, simultaneously with the execution of the Original Agreement to execute
and deliver a Voting Agreement (a "Voting Agreement") and, pursuant thereto, to
grant a proxy to vote in favor of the Merger (a "Management Proxy"); and in
order to induce the Parent and the Purchaser to enter into the Original
Agreement, each of such stockholders executed a Voting Agreement and Management
Proxy simultaneously with the execution of the Original Agreement;
WHEREAS, as a further condition and inducement to their willingness to
enter into the Original Agreement and to consummate the transactions
contemplated thereby, the Parent and the Purchaser required that Mr. Merv
Adelson ("Mr. Adelson") agree, simultaneously with the execution of the Original
Agreement, to execute and deliver a Voting Agreement (the "Adelson Agreement")
and, pursuant thereto (i) to grant a proxy to vote in favor of the Merger (the
"Adelson Proxy," and together with the Management Proxies, the "Proxies") and
(ii) to waive certain rights and make certain undertakings with respect to the
Warrant (the "Warrant") to purchase up to 850,000 shares of the Company Common
Stock (as defined below) at an exercise price of $11.00 per share; and in order
to induce the Parent and the Purchaser to enter into the Original Agreement, Mr.
Adelson executed and delivered the Adelson Agreement simultaneously with the
execution of the Original Agreement;
WHEREAS, the Parent, the Purchaser and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger;
WHEREAS the Parent, the Purchaser and the Company desire to amend and
restate the Original Agreement to make changes to certain provisions set forth
therein pertaining to, among other things, the treatment of outstanding employee
stock options; and
WHEREAS, the Parent, the Purchaser and the Company have agreed to certain
amendments to the Original Agreement and wish to amend and restate the Original
Agreement in its entirety;
NOW, THEREFORE, pursuant to Section 6.4 of the Original Agreement and in
consideration of the foregoing and the respective representations, warranties,
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, the Parent, the Purchaser and the Company hereby amend and restate
the Original Agreement, including the annexes and schedules thereto, so as to
read in its entirety as follows:
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ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the General Corporation Law of
the State of Delaware (the "DGCL"), at the Effective Time (as defined in Section
1.3 below), the Purchaser shall be merged with and into the Company. Upon the
Effective Time, the separate corporate existence of the Purchaser shall cease,
and the Company shall continue as the surviving corporation of the Merger (the
"Surviving Corporation") and shall continue under the name Nationwide Cellular
Service, Inc. At the Parent's election, the Merger may alternatively be
structured so that (i) the Company is merged with and into the Parent, the
Purchaser or any other direct or indirect subsidiary of the Parent or (ii) any
direct or indirect subsidiary of the Parent other than the Purchaser is merged
with and into the Company. In the event of such an election, the parties agree
to execute an appropriate amendment to this Agreement in order to reflect such
election.
SECTION 1.2 Closing. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 6.1 and subject to the satisfaction or waiver of the conditions set
forth in Article V, the closing of the Merger (the "Closing") will take place as
promptly as practicable (and in any event within two business days) following
satisfaction or waiver of the conditions set forth in Article V (the "Closing
Date"), at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New
York, New York 10017, unless another date, time or place is agreed to in writing
by the parties hereto.
SECTION 1.3 Effective Time of the Merger. As soon as practicable after the
satisfaction or waiver of the conditions set forth in Article V, the parties
hereto shall cause the Merger to be consummated by filing this Agreement or a
certificate of merger or a certificate of ownership and merger (the "Certificate
of Merger") with the Secretary of State of the State of Delaware, in such form
as required by, and executed in accordance with the relevant provisions of, the
DGCL (the date and time of the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware (or such later time as is specified
in the Certificate of Merger) being the "Effective Time").
SECTION 1.4 Effects of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the properties,
rights, privileges, immunities, powers and franchises of the Company and the
Purchaser shall vest in the Surviving Corporation, and all debts, liabilities
and duties of the Company and the Purchaser shall become the debts, liabilities
and duties of the Surviving Corporation.
SECTION 1.5 Certificate of Incorporation; By-Laws. (a) At the Effective
Time, the Certificate of Incorporation of the Surviving Corporation shall be
amended in accordance with the DGCL such that, at the Effective Time, the
Certificate of Incorporation of the Surviving Corporation shall consist of the
provisions set forth in the Certificate of Incorporation of the Purchaser, as in
effect immediately prior to the Effective Time, except that Article I of the
Certificate of Incorporation of the Surviving Corporation shall read in its
entirety as follows: "The name of this Corporation is 'Nationwide Cellular
Service, Inc."'
(b) At the Effective Time and without any other further action on the part
of the Company and the Purchaser, the By-Laws of the Purchaser shall be the
By-Laws of the Surviving Corporation and thereafter may be amended or repealed
in accordance with their terms or the Certificate of Incorporation of the
Surviving Corporation and as provided by law.
SECTION 1.6 Directors and Officers. The directors of the Purchaser
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed, as the case may be, and qualified.
SECTION 1.7 Stockholders' Meeting. The Company will take all action
necessary in accordance with and subject to applicable law and its Certificate
of Incorporation and By-Laws to convene a meeting of its stockholders (the
"Stockholders' Meeting") as soon as practicable after the date of this Agreement
to
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consider and vote upon the adoption and authorization of this Agreement. Subject
to the fiduciary duties of the Board of Directors to the stockholders of the
Company, the Company, through its Board of Directors, shall recommend to its
stockholders adoption and authorization of this Agreement and the transactions
contemplated hereby and shall use all reasonable efforts to obtain adoption and
authorization of this Agreement and the Merger by the stockholders of the
Company.
SECTION 1.8 Company Action. The Company hereby approves of and consents to
the Merger and represents and warrants that its Board of Directors, at meetings
duly called and held on May 21, 1995 and August 17, 1995, has (a) determined
that the Original Agreement and this Agreement and the transactions contemplated
thereby and hereby, including (i) the Merger and (ii) the declaration and
payment of the Spin-Off Distribution (as defined below) of the common stock
("CTS Common Stock"), par value $.001 per share, of Cellular Technical Services
Company, Inc. ("CTS") owned by the Company (and to be owned by the Company
following the exercise of warrants to purchase CTS Common Stock as contemplated
hereby), taken together, are fair to and in the best interests of the holders of
the shares of Company Common Stock, (b) approved the Original Agreement and this
Agreement and the transactions contemplated thereby and hereby (other than the
Spin-Off Distribution), and (c) resolved to recommend that the stockholders of
the Company approve this Agreement and the transactions contemplated hereby;
provided, however, that it is understood and agreed that stockholder approval is
not required in order to consummate the Spin-Off Distribution, and unless
necessary in order to obtain the no-action letter contemplated by Section
4.11(e) hereof or to consummate the Spin-Off Distribution, stockholder approval
thereof will not be sought. The Company further represents and warrants that the
approvals referred to in clause (b) above include and constitute approval of
this Agreement, the Original Agreement, the Voting Agreements, the Warrant
Agreement, the grant of the Proxies and the transactions contemplated hereby and
thereby, including the Merger, for purposes of Section 203 of the DGCL.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.1 Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of the holders of any shares of
Common Stock, par value $.10 per share, of the Company (the "Company Common
Stock"), or any shares of capital stock of the Purchaser:
(a) Common Stock of the Purchaser. Each share of Common Stock, par
value $.10 per share, of the Purchaser issued and outstanding immediately
prior to the Effective Time shall be converted into one validly issued,
fully paid and nonassessable share of Common Stock, par value $.10 per
share, of the Surviving Corporation, which shall be all of the issued and
outstanding capital stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Company Common
Stock. Each share of Company Common Stock that is owned by the Company or
by any subsidiary of the Company, and each share of Company Common Stock
that is owned by the Parent, the Purchaser or any other subsidiary of the
Parent shall automatically be cancelled and retired and shall cease to
exist, and no stock of the Parent or other consideration shall be delivered
or deliverable in exchange therefor.
(c) Conversion of Company Common Stock. Except as otherwise provided
herein and subject to Section 2.1(d), 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 $18.50,
payable to the holder thereof, without interest (the "Merger
Consideration"), upon surrender of the certificate formerly representing
such share of Company Common Stock in the manner provided in Section 2.2.
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 certificate previously representing any such
shares shall cease to have any rights with respect thereto, except the
right to receive the
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<PAGE> 56
Merger Consideration therefor upon the surrender of such certificates in
accordance with Section 2.2, without interest.
(d) Shares of Dissenting Holders. Notwithstanding anything in this
Agreement to the contrary, shares of Company Common Stock issued and
outstanding immediately prior to the Effective Time held by holders (if
any) who have not voted in favor of the Merger or consented thereto in
writing and who have demanded appraisal rights with respect thereto in
accordance with Section 262 of the DGCL (the "Dissenting Shares") shall not
be converted as described in Section 2.1(c), but holders of such shares
shall be entitled to receive payment of the appraised value of such shares
in accordance with the provisions of such Section 262, except that any
Dissenting Shares held by a holder who shall thereafter withdraw such
demand for appraisal of such shares or lose the right to appraisal as
provided in Section 262 of the DGCL shall thereupon be deemed to have been
converted, at the Effective Time, as described in Section 2.1(c). The
Company shall give the Parent (i) prompt notice of any written demands for
appraisal of any shares, attempted withdrawals of such demands, and any
other instruments served pursuant to the DGCL received by the Company
relating to stockholders' rights of appraisal and (ii) the opportunity to
direct all negotiations and proceedings with respect to demands for
appraisal under the DGCL. The Company shall not, except with the prior
written consent of the Parent, voluntarily make any payment with respect to
any demands for appraisals of capital stock of the Company, offer to settle
or settle any such demands or approve any withdrawal of any such demands.
SECTION 2.2 Exchange of Certificates.
(a) Paying Agent. The Parent shall designate a bank or trust company to act
as agent for the holders of shares of Company Common Stock in connection with
the Merger, which Paying Agent shall be reasonably satisfactory to the Company
(the "Paying Agent"), to receive the funds to which holders of shares of Company
Common Stock shall become entitled pursuant to Section 2.1(c). Such funds shall
be invested by the Paying Agent as directed by the Parent or the Surviving
Corporation.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Paying Agent shall 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
the Merger Consideration (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the Paying Agent and
shall be in such form and have such other provisions as the Parent and the
Company may reasonably specify) and (ii) instructions to effect the surrender of
the Certificates in exchange for payment of the Merger Consideration. Upon
surrender of one or more Certificates for cancellation to the Paying Agent or to
such other agent or agents as may be appointed by the Parent, which agents shall
be reasonably satisfactory to the Company, together with such letter of
transmittal, duly executed, the holder of such Certificates shall be entitled to
receive in exchange therefor the Merger Consideration for each share of Company
Common Stock formerly represented by such Certificate, and the Certificates so
surrendered shall forthwith be cancelled. If payment of the Merger Consideration
is to be made to a person other than the person in whose name the surrendered
Certificate is registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed or shall be otherwise in
proper form for transfer and that the person requesting such payment shall have
paid any transfer and other taxes required by reason of the payment of the
Merger Consideration to a person other than the registered holder of the
Certificate surrendered or shall have established to the satisfaction of the
Surviving Corporation that such tax either has been paid or is not applicable.
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 the Merger Consideration in cash as contemplated by this Section 2.2.
(c) After the Effective Time there shall be no 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,
they shall be cancelled and exchanged for the Merger Consideration as provided
in this Article II.
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(d) Termination of Exchange Fund. Any portion of the funds held by the
Paying Agent pursuant to this Section 2.2 which remain undistributed to the
stockholders of the Company for six months after the Effective Time shall be
delivered to the Parent, upon demand, and any stockholders of the Company who
have not theretofore complied with this Article II shall thereafter look only to
the Parent, and only as general creditors thereof, for payment of their claim
for the Merger Consideration to which such stockholders may be entitled.
(e) No Liability. None of the Parent, the Purchaser, the Company or the
Paying Agent shall be liable to any holder of shares of Company Common Stock for
any cash delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law. If any Certificates shall not have been
surrendered prior to five years after the Effective Time (or immediately prior
to such earlier date on which any payment in respect thereof would otherwise
escheat to or become the property of any Governmental Entity (as defined in
Section 3.1(e))), the payment in respect of such Certificates shall, to the
extent permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any person previously
entitled thereto.
(f) Withholding Rights. The Parent or the Paying Agent shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of shares of Company Common Stock such amounts as the
Parent or the Paying Agent is required to deduct and withhold with respect to
the making of such payment under the Code, or any provision of state, local or
foreign tax law, or any court order. To the extent that amounts are so withheld
by the Parent or the Paying Agent, such withheld amounts shall be treated for
all purposes of this Agreement as having been paid to the holder of the shares
of Company Common Stock in respect of which such deduction and withholding was
made by the Parent or the Paying Agent.
SECTION 2.3 Treatment of Employee Options. (a) Prior to the Effective
Time, the Board of Directors of the Company (or, if appropriate, any committee
thereof) shall adopt appropriate resolutions and take all other actions
necessary to provide for the cancellation, effective at the Effective Time, of
all the outstanding stock options, stock appreciation rights, limited stock
appreciation rights and performance units (the "Options") heretofore granted
under any stock option, performance unit or similar plan of the Company (the
"Stock Plans"). All Options, whether or not otherwise exercisable, shall become
fully exercisable on the business day immediately prior to the Effective Time.
The Company may lend Option holders funds to facilitate the payment of the
exercise price with respect to the Options (the "Loans"); provided, however,
that the maximum amount that the Company may lend to any Option holder with
respect to an Option shall be an amount equal to the product of (i) the number
of shares subject to the Option, multiplied by (ii) the lesser of (A) $18.50 or
(B) the per share exercise price of such Option plus the amount of any
applicable tax withholding per share with respect to the exercise of the Option.
The Loans shall be made on such terms and subject to such documentation as is
reasonably satisfactory in form and substance to the Parent. All Loans to Option
holders shall be secured by a pledge of the shares of Company Common Stock
issuable upon the exercise of the Option and shall be due and payable at the
Effective Time, and the Company shall be entitled to repayment of the Loans from
any amounts due to such Option holders, including, without limitation, any
payment of Merger Consideration. The Company shall not make a Loan to an Option
holder pursuant to this Section 2.3, however, unless such Option holder agrees
in advance to direct the Paying Agent to repay, on behalf of such Option holder,
the entire amount of such holder's Loan directly to the Company out of the funds
to be received by such Option holder as Merger Consideration. Shares of Company
Common Stock will be issued to an Option holder only against payment by the
Option holder of the relevant exercise price and the amount of any applicable
withholding taxes. The Company shall take such action as is necessary to amend
the Company's registration statements on Form S-8 relating to the Company Common
Stock deliverable upon exercise of such Options in order to reflect the
foregoing. Prior to filing such amendment with the SEC, the Company will provide
counsel to the Parent with the opportunity to review and comment thereon, and
the Company will cooperate in good faith in responding to any such comments and
will not file any amendment to which the Parent reasonably objects.
(b) As provided herein, the Stock Plans and any other plan, program or
arrangement providing for the issuance or grant of any other interest in respect
of the capital stock of the Company or any subsidiary (collectively with the
Stock Plans, referred to as the "Stock Incentive Plans") shall terminate as of
the
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<PAGE> 58
Effective Time. The Company will take all necessary steps to ensure that none of
the Parent, the Company or any of their respective subsidiaries is or will be
bound by any Options, other options, warrants, rights or agreements which would
entitle any person, other than Parent or its affiliates, to own any capital
stock of the Surviving Corporation or any of its subsidiaries or to receive any
payment in respect thereof after the Effective Time. The Company will use its
best efforts to obtain all necessary consents to ensure that after the Effective
Time, the only rights of the holders of Options to purchase shares of Common
Stock in respect of such Options will be to receive the distribution provided
herein in cancellation and settlement thereof.
(c) The aggregate exercise price of all Options and the Warrant, together
with the warrant owned by Jay Brown to acquire 125,000 shares of Company Common
Stock equals $25,496,534.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of the Company. The Company
hereby represents and warrants to the Parent and the Purchaser as follows:
(a) Organization and Qualification; Subsidiaries. Each of the Company
and each of its subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority and any
necessary governmental approvals to own, lease and operate its properties
and to carry on its business as it is now being conducted, except where the
failure to be so organized, existing and in good standing or to have such
power, authority and governmental approvals could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect (as
defined below). Each of the Company and each of its subsidiaries is duly
qualified or licensed as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of the properties
owned, leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so
duly qualified or licensed and in good standing which could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
When used in connection with the Company or any of its subsidiaries,
the term "Material Adverse Effect" means any change or effect that is or
could reasonably be expected to be materially adverse to the business,
assets, results of operations, condition (financial or other) or prospects
of the Company and its subsidiaries taken as a whole or to impair the
ability of the Company to perform its obligations hereunder or under the
other agreements to which it is or is to become a party as contemplated
hereby.
(b) Certificates of Incorporation and By-Laws. The Company has
heretofore furnished to the Parent a complete and correct copy of the
Certificate of Incorporation and the By-Laws of the Company and each
subsidiary of the Company as currently in effect. The Certificate of
Incorporation and By-Laws of the Company are in full force and effect and
no other organizational documents are applicable to or binding upon the
Company. The Certificates of Incorporation and By-Laws of each of the
Company's subsidiaries are in full force and effect and no other
organizational documents are binding upon any such subsidiary. Neither the
Company nor any subsidiary thereof is in violation of any of the provisions
of its Certificate of Incorporation or By-Laws.
(c) Capitalization. The authorized capital stock of the Company
consists of 20,000,000 shares of Company Common Stock and 800,000 shares of
Preferred Stock, $.01 par value per share (collectively, "Company Preferred
Stock"). As of May 19, 1995, (i) 7,938,599 shares of Company Common Stock
were issued and outstanding, all of which were validly issued, fully paid
and nonassessable and were issued free of preemptive (or similar) rights,
(ii) 32,000 shares of Company Common Stock were held in the treasury of the
Company, (iii) an aggregate of 1,423,940 shares of Company Common Stock
were reserved for issuance and issuable upon or otherwise deliverable in
connection with the exercise of outstanding employee Options issued
pursuant to the Plans (as defined in Section 3.1(l)) and (iv) an aggregate
of 975,000 shares of Company Common Stock were reserved for issuance and
issuable upon exercise of certain stock purchase warrants, including the
Warrant. Since May 19, 1995, no options to
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<PAGE> 59
purchase shares of Company Common Stock have been granted and no shares of
Company Common Stock have been issued except for shares issued pursuant to
the exercise of employee Options outstanding as of May 19, 1995. As of the
date hereof, no shares of Company Preferred Stock are issued and
outstanding. Except as set forth above and except as a result of the
exercise of employee Options outstanding as of May 19, 1995, there are
outstanding (i) no shares of capital stock or other voting securities of
the Company, (ii) no securities of the Company convertible into or
exchangeable or exercisable for shares of capital stock or voting
securities of the Company, (iii) no options or other rights to acquire from
the Company or any subsidiary, and no obligation of the Company or any
subsidiary to issue, any capital stock, voting securities or securities
convertible into or exchangeable or exercisable for capital stock or voting
securities of the Company or any subsidiary and (iv) no equity equivalents,
interests in the ownership or earnings of the Company or any subsidiary or
other similar rights (collectively, "Company Securities"). Except as set
forth on Schedule 3.1(c) hereto, there are no outstanding obligations of
the Company or any of its subsidiaries to repurchase, redeem or otherwise
acquire any Company Securities, and there are no other options, calls,
warrants or other rights, agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock of the Company
or any of its subsidiaries to which the Company or any of its subsidiaries
is a party. All shares of Company Common Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, shall be duly authorized,
validly issued, fully paid and nonassessable and free of preemptive (or
similar) rights. There are no outstanding contractual obligations of the
Company or any of its subsidiaries to repurchase, redeem or otherwise
acquire any shares of Company Common Stock or the capital stock of any
subsidiary or, except as described in Schedule 3.1(c) hereto, to provide
funds to or make any investment (in the form of a loan, capital
contribution, guarantee or otherwise) in any such subsidiary or any other
entity. Except as set forth in Schedule 3.1(c) hereto, each of the
outstanding shares of capital stock of each of the Company's subsidiaries
is duly authorized, validly issued, fully paid and nonassessable and is
owned free and clear of all security interests, liens, claims, pledges,
agreements, limitations in voting rights, charges or other encumbrances of
any nature whatsoever, except where the failure to own such shares free and
clear could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect. Attached as Annex A hereto is a list of
the subsidiaries of the Company and other entities in which the Company
holds an equity interest which evidences the percentage of capital stock or
other equity interests owned by the Company, directly or indirectly, in
such subsidiaries or entities. Except for Mobile Datacom Corporation common
stock, of which the Company on the date hereof owns 736,945 shares,
representing 25% of its outstanding common stock, and except for CTS Common
Stock, of which the Company (i) on the date hereof owns 3,340,000 shares,
representing 33.56% of its outstanding common stock, (ii) following the
full exercise of the option to purchase additional shares of CTS Common
Stock (the "CTS Option"), will own 3,980,000 shares representing 37.58% of
its outstanding common stock, and (iii) Page Telecommunications Inc., in
which the Company has invested $70,000 in exchange for a warrant to
purchase 20,000 shares of common stock and a $70,000 promissory note due
2003, and the Company does not own, directly or indirectly, less than a 50%
equity interest in any other corporation, partnership, joint venture or
other entity.
(d) Authority Relative to Agreements. The Company has all necessary
corporate power and authority to execute and deliver the Original Agreement
and this Agreement, to declare and make payment of the Spin-Off
Distribution, to perform its obligations under the Original Agreement and
this Agreement and to consummate the transactions contemplated thereby and
hereby. The execution, delivery and performance of the Original Agreement
and this Agreement by the Company and the consummation by the Company of
the transactions contemplated thereby and hereby (other than the
declaration and payment of the Spin-Off Distribution) have been duly and
validly authorized by all necessary corporate action and no other corporate
proceedings on the part of the Company are necessary to authorize the
Original Agreement or this Agreement or to consummate such transactions
(other than the approval and adoption of the Merger and this Agreement by
the holders of a majority of the outstanding shares of Company Common
Stock, and, with respect to the Merger, the filing of appropriate merger
documents as required by the DGCL and the declaration by the Board of
Directors of the
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<PAGE> 60
Company of the Spin-Off Distribution). Each of the Original Agreement and
this Agreement has been duly and validly executed and delivered by the
Company and, assuming the due authorization, execution and delivery hereof
by the other parties thereto, constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance
with its terms. The only vote required to authorize the Merger is the
affirmative vote of a majority of the outstanding shares of Company Common
Stock. The approval of the transactions contemplated by this Agreement,
including the Merger, the Voting Agreements and the grant of the Proxies,
by the Board of Directors of the Company shall constitute, for the purposes
of Section 203 of the DGCL, the approval of a "business combination" (as
defined in Section 203 of the DGCL) between the Company and the Parent or
any affiliate thereof.
(e) No Conflict; Required Filings and Consents. (i) The execution,
delivery and performance of this Agreement by the Company and the
declaration and payment of the Spin-Off Distribution do not and will not:
(A) conflict with or violate the Certificate of Incorporation or By-Laws of
the Company or the equivalent organizational documents of any of its
subsidiaries; (B) assuming that all consents, approvals and authorizations
contemplated by subsection (ii) below have been obtained and all filings
described in such clauses have been made, conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to the Company or
any of its subsidiaries or by which its or any of their respective
properties are bound or affected; or (C) result in any breach or violation
of or constitute a default (or an event which with notice or lapse of time
or both could become a default) or result in the loss of a benefit under,
or give rise to any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any
of the properties or assets of the Company or any of its subsidiaries
pursuant to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or its or any of their respective
properties are bound or affected, except, in the case of clauses (B) and
(C), for any such conflicts, violations, breaches, defaults or other
occurrences which could not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect. The Company has, and on the
date the Board of Directors declares the Spin-Off Distribution and on the
Spin-Off Distribution Payment Date (as defined below) will have, the
ability to declare and pay the Spin-Off Distribution under Section 170 of
the DGCL.
(ii) The execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated hereby by the
Company do not and will not require any consent, approval, authorization or
permit of, action by, filing with or notification to, any court,
administrative agency or commission, or entity created by rule, regulation
or order of any commission or other governmental authority or other
governmental authority or instrumentality, domestic or foreign (a
"Governmental Entity"), except for: (A) the filing with the SEC of (1) a
proxy statement in definitive form relating to the Stockholders' Meeting
(such proxy statement as amended or supplemented from time to time, the
"Proxy Statement") and (2) such other filings under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or the Securities Act of
1933, as amended (the "Securities Act"), as may be required in connection
with this Agreement and the transactions contemplated hereby and the
obtaining from the SEC of such orders as may be required in connection
therewith; (B) applicable filings, if any, pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"); (C) applicable permits, licenses, waivers, authorizations, approvals
and certificates of public convenience and necessity ("Licenses"),
including Licenses by the Federal Communications Commission ("FCC") and
state public utility or public service commissions ("Public Utility
Commissions") which are necessary to enable the Company and its
subsidiaries to conduct their operations after the Merger in the manner
heretofore conducted (collectively, the "Regulatory Requirements") and
which are listed in Schedule 3.1(e) hereto; (D) the filing and recordation
of appropriate merger or other documents as required by the DGCL; (E)
compliance with the statutory provisions and regulations relating to real
property transfer gains taxes and real property transfer taxes; and (F)
such consents, approvals, authorizations, permits, actions, filings or
notifications which the failure to make or obtain could not individually or
in the aggregate reasonably be expected to (x) prevent consummation of
Merger or materially delay the Merger, (y) otherwise prevent or delay the
Company from performing its obligations under this Agreement or (z)
individually or in the aggregate, have a Material Adverse Effect.
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(f) Compliance. The Company and its subsidiaries hold all Licenses,
variances, exemptions, orders and approvals of all Governmental Entities
necessary or appropriate for the operation of the businesses of the Company
and each subsidiary, except to the extent the failure to hold such will not
have a Material Adverse Effect on the Company or any such subsidiary.
Neither the Company nor any of its subsidiaries is in conflict with, or in
default or violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to the Company or any of its subsidiaries or by which its
or any of their respective properties are bound or affected, or (ii) any
note, bond, mortgage, indenture, contract, agreement, lease, License,
permit, franchise or other instrument or obligation to which the Company or
any of its subsidiaries is a party or by which the Company or any of its
subsidiaries or its or any of their respective properties are bound or
affected, except for any such conflicts, defaults or violations which could
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on the Company or any such subsidiary.
(g) SEC Filings; Financial Statements. (i) The Company, each of its
then or current subsidiaries (to the extent applicable) and, to the best
knowledge of the Company, CTS, have filed all forms, reports, statements
and documents required to be filed with the SEC since January 1, 1992
(collectively, the "SEC Reports"), each of which has complied in all
material respects with the applicable requirements of the Securities Act or
the Exchange Act, as applicable, each as in effect on the date so filed.
The Company has delivered to the Parent, in the form filed with the SEC
(including any amendments thereto), (A) its (and, to the extent applicable,
its subsidiaries') Annual Reports on Form 10-K for each of the three fiscal
years ended December 31, 1992, 1993 and 1994, and the Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995 (the "March 1995 10-Q") (B)
all definitive proxy statements relating to the Company's (and such
subsidiaries') meetings of stockholders (whether annual or special) held
since January 1, 1992 and (C) all other reports or registration statements
filed by the Company (and such subsidiaries) with the SEC since January 1,
1992. None of such forms, reports or documents (including but not limited
to any financial statements or schedules included or incorporated by
reference therein) filed by the Company and its then or current
subsidiaries contained, when filed, any untrue statement of a material fact
or omitted to state a material fact required to be stated or incorporated
by reference therein or necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading. Except to the extent revised or superseded by a subsequent
filing with the SEC (a copy of which has been provided to the Parent prior
to the date hereof), none of the SEC Reports filed by the Company since
December 31, 1994 and prior to the date hereof contains any untrue
statement of a material fact or omits to state a material fact required to
be stated or incorporated by reference therein or necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading.
(ii) Each of the audited and unaudited consolidated interim financial
statements of the Company (including, in each case, any related notes
thereto) included in its Annual Reports on Form 10-K for each of the three
fiscal years ended December 31, 1992, 1993 and 1994, and in the March 1995
10-Q, which have previously been furnished to the Parent, complies as to
form in all material respects with applicable accounting requirements and
with the published rules and regulations of the SEC with respect thereto,
has been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes thereto) and each fairly presents
the consolidated financial position of the Company and its subsidiaries at
the respective dates thereof and the consolidated results of its operations
and changes in cash flows for the periods indicated.
(iii) Except as and to the extent set forth on the consolidated
balance sheet of the Company and its subsidiaries at December 31, 1994,
including the notes thereto, neither the Company nor any of its
subsidiaries has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) which would be required to be
reflected on a balance sheet or in the notes thereto prepared in accordance
with generally accepted accounting principles, except for liabilities or
obligations incurred in the ordinary course of business since December 31,
1994 which could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
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(iv) The Company has heretofore furnished to the Parent a complete and
correct copy of any amendments or modifications, which have not yet been
filed with the SEC, to agreements, documents or other instruments which
previously were filed by the Company with the SEC pursuant to the
Securities Act or the Exchange Act or which would be required to be so
filed in connection with the filing of any annual or interim report or
registration statement.
(h) Information Supplied. The Proxy Statement (or any amendment
thereof or supplement thereto) will, at the date of mailing to stockholders
of the Company and at the time of the Stockholders' Meeting to be held in
connection with the Merger, not 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 the light of the
circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to statements made
therein based on information supplied by the Parent or the Purchaser in
writing for inclusion in the Proxy Statement. 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.
(i) Absence of Certain Changes or Events. Since December 31, 1994,
except as contemplated by this Agreement, as set forth on Schedule 3.1(i)
hereto or disclosed in the SEC Reports filed since that date and up to the
date of this Agreement, the Company and its subsidiaries have conducted
their businesses only in the ordinary course and in a manner consistent
with past practice and, since such date, there has not been (i) any
condition, event or occurrence which, individually or in the aggregate, has
had, or could reasonably be expected to have, a Material Adverse Effect,
(ii) any termination or cancellation of, or any modification to, any
agreement, arrangement or understanding pursuant to which the Company
purchases or has the right to purchase cellular telephone service, or to
any other agreement, arrangement or understanding which is material to the
Company or to any subsidiary thereof, which is or could reasonably be
expected to be adverse to the Company, any subsidiary of the Company, the
Parent or the Purchaser, (iii) any change by the Company in its accounting
methods, principles or practices, (iv) any revaluation by the Company of
any of its material assets, including but not limited to writing down the
value of inventory or writing off notes or accounts receivable other than
in the ordinary course of business, (v) any entry by the Company or any of
its subsidiaries into any commitment or transactions material to the
Company or any such subsidiary, (vi) except for the Spin-Off Distribution,
any declaration, setting aside or payment of any dividends or distributions
in respect of the shares of Company Common Stock or any redemption,
purchase or other acquisition of any of its securities, or (vii) any
increase in or establishment of any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option (including,
without limitation, the granting of stock options, stock appreciation
rights, performance awards, or restricted stock awards), stock purchase or
other employee benefit plan or agreement or arrangement, or any other
increase in the compensation payable or to become payable to any officers
or key employees of the Company or any of its subsidiaries.
(j) Absence of Litigation. Except as disclosed in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994, there are
no suits, claims, actions, proceedings or investigations pending or, to the
knowledge of the Company, threatened against the Company or any of its
subsidiaries, or any properties or rights of the Company or any of its
subsidiaries, or, to the best knowledge of the Company, against CTS in
circumstances in which a claim against the Company, as a controlling person
or otherwise, is possible, before any court, arbitrator or administrative,
governmental or regulatory authority or body, domestic or foreign, that (i)
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect or (ii) seek to delay or prevent the consummation
of the transactions contemplated hereby. As of the date hereof, neither the
Company nor any of its subsidiaries nor any of their respective properties
is or are subject to any order, writ, judgment, injunction, decree,
determination or award having, or which could reasonably be expected to
have, a Material Adverse Effect or which could prevent or delay the
consummation of the transactions contemplated hereby.
(k) Employment and Labor Contracts. (i) Except as disclosed in the SEC
Reports or on Schedule 3.1(k) hereto, there exist no employment,
consulting, severance or indemnification agreements between the Company and
any current or former director, officer or employee of the Company pursuant
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to which the Company has, or may have, obligations as of the date hereof,
and no such person is entitled to any severance benefits from the Company
or any of its subsidiaries.
(ii) Neither the Company nor any of its subsidiaries is a party to any
collective bargaining agreement. Since January 1, 1992, neither the Company
nor any of its subsidiaries has (x) had any employees strikes, work
stoppages, slowdowns or lockouts or (y) received any requests for
certifications of bargaining units or any other requests for collective
bargaining.
(l) Employee Benefit Plans. With respect to all the employee benefit
plans, programs and arrangements maintained for the benefit of any current
or former employee, officer or director of the Company or any subsidiary of
the Company (collectively, the "Plans") and to all the employment,
consulting, severance, change-in-control, termination, compensation,
collective bargaining or indemnification agreements, arrangements or
understandings between the Company or any of its subsidiaries and any
current or former employee, officer or director of the Company or any of
its subsidiaries (collectively, the "Employment Arrangements"), except as
set forth in the SEC Reports or in the attached Schedule 3.1(l) hereto and
except as could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect: (i) there has not been any
adoption or amendment by the Company or any of its subsidiaries of any
Plan; (ii) there exists no Employment Arrangement; (iii) none of the Plans
is a multiemployer plan within the meaning of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"); (iv) none of the Plans
promises or provides retiree medical or life insurance benefits to any
person, except as otherwise required by law in the applicable jurisdiction
and, outside of the United States, in accordance with local custom and
practice; (v) each Plan intended to be qualified under Section 401(a) of
the Internal Revenue Code of 1986, as amended, has received a favorable
determination letter from the Internal Revenue Service that it is so
qualified and nothing has occurred since the date of such letter that could
reasonably be expected to affect the qualified status of such Plan; (vi)
each Plan has been operated in all respects in accordance with its terms
and the requirements of applicable law; (vii) neither the Company nor any
subsidiary of the Company has incurred any direct or indirect liability
under, arising out of or by operation of Title IV of ERISA in connection
with the termination of, or withdrawal from, any Plan or other retirement
plan or arrangement, and no fact or event exists that could reasonably be
expected to give rise to any such liability; (viii) the Company and its
subsidiaries have not incurred any liability under, and have complied in
all respects with, the Worker Adjustment Retraining Notification Act, and
no fact or event exists that could give rise to liability under such Act;
and (ix) no Plan or Employment Arrangement exists which could result in the
payment to any current, former or future director or employee of the
Company or any commonly controlled entity of any money or other property or
rights or accelerate or provide any other rights or benefits to any such
employee or director as a result of the transactions contemplated by this
Agreement, whether or not such payment, acceleration or provision would
constitute a "parachute payment" (within the meaning of Section 280G of the
Code) or whether or not some other subsequent action or event would be
required to cause such payment, acceleration or provision to be triggered.
Except as set forth in the SEC Reports, the aggregate accumulated benefit
obligations of each Plan subject to Title IV of ERISA (as of the date of
the most recent actuarial valuation prepared for such Plan) do not exceed
the fair market value of the assets of such Plan (as of the date of such
valuation).
(m) Tax Matters. (i) Except as set forth in the SEC Reports filed
prior to the date of this Agreement or in Schedule 3.1(m), (A) the Company
and its subsidiaries have filed, been included in or sent, all material
returns, material declarations and reports and information returns and
statements required to be filed or sent by any of them relating to any
Taxes (as defined below) with respect to any material income, properties or
operations of the Company or any of its subsidiaries (collectively,
"Returns"); (B) as of the time of filing, the Returns correctly reflected
in all material respects the facts regarding the income, business, assets,
operations, activities and status of the Company and its subsidiaries and
any other material information required to be shown therein; (C) the
Company and its subsidiaries have timely paid or made provision for all
material Taxes that have been shown as due and payable on the Returns that
have been filed; (D) the Company and its subsidiaries have made or will
make provision for all material Taxes payable for any periods that end
before the Effective Time for
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which no Returns have yet been filed and for any periods that begin before
the Effective Time and end after the Effective Time to the extent such
Taxes are attributable to the portion of any such period ending at the
Effective Time; (E) the charges, accruals and reserves for taxes reflected
on the books of the Company and its subsidiaries are adequate under
generally accepted accounting principles to cover the Tax liabilities
accruing or payable by the Company and its subsidiaries in respect of
periods prior to the date hereof; (F) neither the Company nor any of its
subsidiaries is delinquent in the payment of any material Taxes or has
requested any extension of time within which to file or send any material
Return (other than extensions granted to the Company for the filing of its
Returns as set forth in Schedule 3.1(m)), which Return has not since been
filed or sent; (G) no material deficiency for any Taxes has been proposed,
asserted or assessed in writing against the Company or any of its
subsidiaries (or any member of any affiliated or combined group of which
the Company or any of its subsidiaries is or has been a member for which
either the Company or any of its subsidiaries could be liable) other than
those Taxes being contested in good faith by appropriate proceedings and
set forth in Schedule 3.1(m) (which shall set forth the nature of the
proceeding, the type of return, the deficiencies proposed, asserted or
assessed and the amount thereof, and the taxable year in question); (H)
neither the Company nor any of its subsidiaries has granted any extension
of the limitation period applicable to any material Tax claims other than
those Taxes being contested in good faith by appropriate proceedings; (I)
neither the Company nor any of its subsidiaries is subject to liability for
Taxes of any person (other than the Company or its subsidiaries),
including, without limitation, liability arising from the application of
U.S. Treasury Regulation section 1.1502-6 or any analogous provision of
state, local or foreign law; and (J) neither the Company nor any of its
subsidiaries is or has been a party to any material tax sharing agreement
with any corporation which is not currently a member of the affiliated
group of which the Company is currently a member.
(ii) "Tax" means with respect to any person (A) any net income, gross
income, gross receipts, sales, use, ad valorem, franchise, profits,
license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, value-added, windfall profits, custom duty
or other tax, governmental fee, capital stock, social security (or
similar), unemployment, disability, transfer, registration, alternative or
add-on minimum, estimated or other like assessment or charge of any kind
whatsoever, together with any interest and any penalty, addition to tax or
additional amount imposed by any taxing authority (domestic or foreign) on
such person and (B) any liability of the Company or any subsidiary for the
payment of any amount of the type described in clause (i) as a result of
being a member of an affiliated or combined group.
(iii) The Company's tax basis in the shares of CTS Common Stock is
equal to $2,750,782, and the Company holds such shares as a long-term
capital asset. The Company's tax basis in the shares of CTS Common Stock to
be acquired prior to the Effective Time upon exercise of the CTS Warrant
will be $1,600,000.
(n) Intellectual Property. Except to the extent that the inaccuracy of
any of the following (or the circumstances giving rise to such inaccuracy),
individually or in the aggregate, could not reasonably be expected to have
a Material Adverse Effect: (a) the Company and each of its subsidiaries
owns, or is licensed to use (in each case, clear of any liens or
encumbrances of any kind), all Intellectual Property (as defined below)
used in or necessary for the conduct of its business as currently
conducted; (b) the use of any Intellectual Property by the Company and its
subsidiaries does not infringe on or otherwise violate the rights of any
person and is in accordance with any applicable license pursuant to which
the Company or any subsidiary acquired the right to use any Intellectual
Property; and (c) to the knowledge of the Company, no person is
challenging, infringing on or otherwise violating any right of the Company
or any of its subsidiaries with respect to any Intellectual Property owned
by and/or licensed to the Company and its subsidiaries. For purposes of
this Agreement "Intellectual Property" shall mean trademarks, service
marks, brand names and other indications of origin, the goodwill associated
with the foregoing and registrations in any jurisdiction of, and
applications in any jurisdiction to register, the foregoing, including any
extension, modification or renewal of any such registration or application;
inventions, discoveries and ideas, whether patentable or not in any
jurisdiction; patents, applications for patents (including, without
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limitation, divisions, continuations, continuations in part and renewal
applications), and any renewals, extensions or reissues thereof, in any
jurisdiction; nonpublic information, trade secrets and confidential
information and rights in any jurisdiction to limit the use or disclosure
thereof by any person; writings and other works, whether copyrightable or
not in any jurisdiction; registrations or applications for registration of
copyrights in any jurisdiction, and any renewals or extensions thereof; any
similar intellectual property or proprietary rights; and any claims or
causes of action arising out of or relating to any infringement or
misappropriation of any of the foregoing.
(o) Environmental Matters. Except as disclosed in the SEC Reports
filed prior to the date of this Agreement, there are no Environmental
Liabilities (as defined below) of the Company or any of its subsidiaries
which would, individually or in the aggregate, have a Material Adverse
Effect. As used in this Agreement, "Environmental Laws" means any and all
federal, state, local or municipal laws, rules, orders, regulations,
statutes, ordinances, codes, decisions, injunctions, orders, decrees,
requirements of any Governmental Entity, any and all common law
requirements, rules and bases of liability regulating, relating to or
imposing liability or standards of conduct concerning pollution, Hazardous
Materials or protection of human health or the environment, as now or may
at any time hereafter be in effect. "Environmental Liabilities" with
respect to any person means any and all liabilities of or relating to such
person or any of its subsidiaries (including any entity which is, in whole
or in part, a predecessor of such person or any of such subsidiaries),
whether vested or unvested, contingent or fixed, actual or potential, known
or unknown, which (i) arise under or relate to matters covered by
Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the Closing Date. "Hazardous Materials" means any
hazardous or toxic substances, materials or wastes, defined, listed,
classified or regulated as such in or under any Environmental Laws,
including, without limitation, asbestos, petroleum or petroleum products
(including gasoline, crude oil or any fraction thereof), polychlorinated
biphenyls, and urea-formaldehyde insulation.
(p) Spin-Off Distribution. The Company will have, on the date the
Spin-Off Distribution is declared, and on the Spin-Off Distribution Payment
Date, sufficient surplus, or if there shall be no such surplus, net profits
for the current fiscal year and/or preceding fiscal year, to make the
Spin-Off Distribution.
(q) Transactions with Affiliates. Except as set forth on Schedule
3.1(q) hereto, there are no contracts, agreements, arrangements or
understandings of any kind between CTS or any other affiliate of the
Company, on the one hand, and the Company or any subsidiary of the Company,
on the other hand.
(r) Opinion of Financial Advisor. On the date hereof, the Company has
received the opinion of PaineWebber Incorporated to the effect that, in the
context of the transactions contemplated hereby, the Merger Consideration
is fair to the stockholders of the Company from a financial point of view.
(s) Brokers. No broker, finder or investment banker (other than
PaineWebber Incorporated) is entitled to any brokerage, finder's or other
fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by and on behalf of the Company. The
Company has heretofore furnished to the Parent a complete and correct copy
of all agreements between the Company and PaineWebber Incorporated pursuant
to which such firm would be entitled to any payment relating to the
transactions contemplated by this Agreement.
SECTION 3.2 Representations and Warranties of the Parent and the
Purchaser. The Parent and the Purchaser hereby, jointly and severally, represent
and warrant to the Company as follows:
(a) Corporate Organization. Each of the Parent and the Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power and
authority and any necessary governmental authority to own, operate or lease
its properties and to carry on its business as it is now being conducted,
except where the failure to be so organized, existing and in good standing
or to have such power, authority and governmental approvals could not,
individually or in the aggregate, reasonably be expected to prevent the
consummation of the Merger.
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(b) Authority Relative to Agreements. Each of the Parent and the
Purchaser has all necessary corporate power and authority to enter into the
Original Agreement and this Agreement, to perform its obligations
thereunder and hereunder and to consummate the transactions contemplated
thereby and hereby. The execution, delivery and performance of the Original
Agreement and this Agreement by each of the Parent and the Purchaser and,
subject to Section 5.2(e), the consummation by each of the Parent and the
Purchaser of the transactions contemplated thereby and hereby have been
duly and validly authorized by all necessary corporate action on the part
of the Parent and the Purchaser, and no other corporate proceedings on the
part of the Parent and the Purchaser are necessary to authorize this
Agreement or to consummate such transactions, other than filing and
recordation of appropriate merger documents as required by the DGCL and the
approval of the Board of Directors of the Parent. Each of the Original
Agreement and this Agreement has been duly executed and delivered by each
of the Parent and the Purchaser and, assuming due authorization, execution
and delivery by the other parties hereto, constitutes a legal, valid and
binding obligation of each such corporation enforceable against such
corporation in accordance with its terms.
(c) No Conflict; Required Filings and Consents. (i) The execution,
delivery and performance of this Agreement by the Parent and the Purchaser
do not and will not: (A) conflict with or violate the respective
certificates of incorporation or by-laws of the Parent or the Purchaser, as
the case may be; (B) assuming that all consents, approvals and
authorizations contemplated by subsection (ii) below have been obtained and
all filings described in such subsection have been made, conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to
the Parent or the Purchaser or by which either of them or their respective
properties are bound or affected; or (C) result in any breach or violation
of or constitute a default (or an event which with notice or lapse of time
or both could become a default) or result in the loss of a material benefit
under, or give rise to any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any
of the property or assets of the Parent or the Purchaser pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, License,
franchise or other instrument or obligation to which the Parent or the
Purchaser is a party or by which the Parent or the Purchaser or any of
their respective properties are bound or affected, except, in the case of
clauses (B) and (C), for any such conflicts, violations, breaches, defaults
or other occurrences which could not, individually or in the aggregate,
reasonably be expected to prevent the consummation of the Merger.
(ii) The execution, delivery and performance of this Agreement by the
Parent and the Purchaser and the consummation of the transactions
contemplated hereby by the Parent and the Purchaser do not and will not
require any consent, approval, authorization or permit of, action by,
filing with or notification to, any Governmental Entity, except for: (A)
applicable filings, if any, pursuant to HSR, (B) applicable requirements,
if any, under any License, including any License by the FCC or any Public
Utility Commission, (C) the filing and recordation of appropriate merger or
other documents as required by the DGCL, (D) compliance with the statutory
provisions and regulations relating to any real property transfer gains tax
or real property transfer tax, (E) applicable filings under state
anti-takeover laws and (F) such consents, approvals, authorizations,
permits, actions, filings or notifications the failure of which to make or
obtain could not, individually or in the aggregate, reasonably be expected
to prevent the consummation of the Merger.
(d) Information Supplied. None of the information supplied or to be
supplied by the Parent or the Purchaser for inclusion or incorporation by
reference in the Proxy Statement will, at the date of mailing to
stockholders and at the time of the Stockholders' Meeting, 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 the light of the circumstances under which they were made, not
misleading.
(e) Financing. Either the Parent or the Purchaser has, or will have
prior to the satisfaction of the conditions to the Merger, sufficient funds
available (through existing credit arrangements or otherwise) to deliver
the Merger Consideration with respect to all of the shares of Company
Common Stock.
(f) Brokers. No broker, finder or investment banker (other than Lazard
Freres & Company, LLC) is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions
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contemplated by this Agreement based upon arrangements made by and on
behalf of the Parent or the Purchaser.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER; OTHER COVENANTS
SECTION 4.1 Conduct of Business of the Company Pending the Merger. The
Company covenants and agrees that, during the period from the date hereof to the
Effective Time, except pursuant to the terms hereof, or unless the Parent shall
otherwise agree in writing, the businesses of the Company and its subsidiaries
shall be conducted only in, and the Company shall not take any action and its
subsidiaries shall not take any action except in the ordinary course of business
and in a manner consistent with past practice and in compliance with applicable
laws; and the Company and its subsidiaries shall each use its best efforts to
preserve intact the business organization of the Company and its subsidiaries,
to keep available the services of the present officers, employees and
consultants of the Company and its subsidiaries and to preserve the present
relationships of the Company and its subsidiaries with customers, providers of
cellular telephone service and other suppliers and other persons with which the
Company or any of its subsidiaries has significant business relations. By way of
amplification and not limitation, neither the Company nor any of its
subsidiaries shall, between the date of this Agreement and the Effective Time,
directly or indirectly do, or propose or commit to do, any of the following
without the prior written consent of the Parent:
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock (except (x) the
Spin-Off Distribution or (y) dividends and distributions by a wholly owned
subsidiary of the Company to its parent), (ii) split, combine or reclassify
any of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock or (iii) purchase, redeem or otherwise acquire any shares of
capital stock of the Company or any of its subsidiaries or any other
securities thereof or any rights, warrants or options to acquire any such
shares or other securities (except for the cashless exercise of the
Warrant);
(b) authorize for issuance, issue, deliver, sell or agree or commit to
issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise), pledge or otherwise encumber any shares of its capital stock or
the capital stock of any of its subsidiaries, any other voting securities
or any securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities or
any other securities or equity equivalents (including without limitation
stock appreciation rights) (other than sales of capital stock of any wholly
owned subsidiary of the Company to the Company or another wholly owned
subsidiary of the Company); provided, however, and not in limitation of the
foregoing, no additional equity securities or rights to purchase equity
securities will be granted after the date hereof;
(c) except to the extent required under existing Plans or Employment
Arrangements as in effect on the date of this Agreement, (i) increase the
compensation or fringe benefits of any of its directors, officers or
employees, except for increases in salary or wages of employees of the
Company or its subsidiaries who are not officers of the Company in the
ordinary course of business in accordance with past practice, or (ii) grant
any severance or termination pay not currently required to be paid under
existing Plans, or (iii) enter into any Employment Arrangement with any
present or former director level or other equivalent or more senior officer
or employee, or, other than in the ordinary course of business consistent
with past practice, any other employee of the Company or any of its
subsidiaries, or (iv) establish, adopt, enter into or amend or terminate
any Plan or Employment Arrangement or other plan, agreement, trust, fund,
policy or arrangement for the benefit of any directors, officers or
employees except to the extent amendment or termination is necessary or
desirable to effectuate the provisions herein and the purposes of Section
2.3;
(d) amend its Certificate of Incorporation, By-Laws or other
comparable charter or organizational documents or alter through merger,
liquidation, reorganization, restructuring or in any other fashion the
corporate structure or ownership of any subsidiary of the Company;
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(e) acquire or agree to acquire (i) by merging or consolidating with,
or by purchasing a substantial portion of the stock or assets of, or by any
other manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or (ii) any
assets that are material, individually or in the aggregate, to the Company
and its subsidiaries taken as a whole, except purchases of cellular
telephone minutes in the ordinary course of business consistent with past
practice and except for the exercise of the CTS Option;
(f) sell, lease, license, mortgage or otherwise encumber or subject to
any lien or otherwise dispose of any of its properties or assets, except
sales of (i) cellular telephone minutes and cellular telephone equipment in
the ordinary course of business consistent with past practice, (ii) sales
of accounts receivable in the ordinary course of business consistent with
past practice, and (iii) in connection with capital expenditures permitted
to be expended by the Company pursuant to Section 4.1(h);
(g) (i) except as set forth on Schedule 4.1(g) hereto, incur any
indebtedness for borrowed money or guarantee any such indebtedness of
another person (other than guarantees by the Company in favor of any of its
wholly owned subsidiaries or by any of its subsidiaries in favor of the
Company), issue or sell any debt securities or warrants or other rights to
acquire any debt securities of the Company or any of its subsidiaries,
guarantee any debt securities of another person, enter into any "keep well"
or other agreement to maintain any financial statement condition of another
person or enter into any arrangement having the economic effect of any of
the foregoing, except for short-term borrowings incurred in the ordinary
course of business consistent with past practice or (ii) make any loans
(except for loans to Option holders in connection with the exercise of such
Options pursuant to Section 2.3), advances or capital contributions to, or
investments in, any other person, other than to the Company or any direct
or indirect wholly owned subsidiary of the Company, except for the exercise
of the CTS Option;
(h) expend funds for capital expenditures other than in accordance
with the Company's current capital expenditure plans (which plans shall
have been disclosed in writing to the Parent on or prior to the date
hereof) or replace or modify the Company's billing system, whether or not
such replacement or modification was included in current capital
expenditure plans and/or disclosed in writing to the Parent;
(i) enter into or amend, supplement or otherwise modify any agreement,
arrangement or understanding other than in the ordinary course of business,
consistent with past practice, except that the Warrant may be amended to
provide that in the event of a cashless exercise of the Warrant upon a
Change of Control (as defined therein), in addition to receiving the excess
of the Merger Consideration over the exercise price, Mr. Adelson will be
entitled to receive the number of shares of CTS Common Stock which he would
have received in the Spin-Off Distribution had he exercised the Warrant in
full prior to the Spin-Off Distribution Record Date;
(j) (A) waive, release, grant or transfer any rights, or extend or
modify or change in any material respect any services agreement or other
arrangement or understanding with CTS or any subsidiary of CTS, or enter
into any additional agreement, arrangement or understanding with CTS or any
subsidiary of CTS, in each case, except for extensions up to the date of
the Effective Time of any existing agreement which would otherwise expire
before then, or (B) waive, release, grant or transfer any rights of value,
or extend or modify or change in any material respect any existing, or
enter into any additional, license, lease, contract or other document,
other than in the ordinary course of business consistent with past
practice;
(k) adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or reorganization;
(l) recognize any labor union (unless legally required to do so) or
enter into or amend any collective bargaining agreement;
(m) change any accounting principle used by it, unless required by the
SEC or the Financial Accounting Standards Board;
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(n) make any Tax election or settle or compromise any income Tax
liability or file any federal income tax return prior to the last day
(including extensions) prescribed by law, in the case of any of the
foregoing, material to the business, financial condition or results of
operations of the Company and its subsidiaries taken as a whole;
(o) settle or compromise any litigation in which the Company or any
subsidiary is a defendant (whether or not commenced prior to the date of
this Agreement) or settle, pay or compromise any claims not required to be
paid, which payments are individually in an amount in excess of $500,000
and in the aggregate in an amount in excess of $1,000,000; and
(p) authorize any of, or commit or agree to take any of, the foregoing
actions.
SECTION 4.2 Conduct of Business of the Purchaser. The Purchaser has not
engaged, and during the period from the date of this Agreement to the Effective
Time, the Purchaser shall not engage, in any activities of any nature except as
provided in, or in connection with the transactions contemplated by, this
Agreement.
SECTION 4.3 Preparation of Proxy Statement. The Company shall promptly
prepare and file with the SEC a preliminary proxy statement relating to the
Merger and this Agreement and use its best efforts (x) to obtain and furnish the
information required to be included by the SEC in the Proxy Statement (as
hereinafter defined) and, after consultation with the Parent, to respond
promptly to any comments made by the SEC with respect to the preliminary proxy
statement and cause a definitive proxy statement (the "Proxy Statement") to be
mailed to its stockholders and (y) to obtain the necessary approvals of the
Merger and this Agreement by its stockholders.
SECTION 4.4 Access to Information; Confidentiality. (a) From the date
hereof to the Effective Time, the Company shall, and shall cause its
subsidiaries, officers, directors, employees, auditors and other agents to,
afford the officers, employees, auditors and other agents of the Parent,
complete access at all reasonable times to its officers, employees, agents,
properties, offices, plants and other facilities and to all books and records,
and shall furnish the Parent and such other persons with all financial,
operating and other data and information as the Parent, through its officers,
employees or agents may from time to time request.
(b) Each of the Parent and the Purchaser will hold and will cause its
officers, employees, auditors and other agents to hold in confidence, unless
compelled to disclose by judicial or administrative process or by other
requirements of law or regulation (in which event the Parent shall give prompt
notice thereof to the Company), all documents and information concerning the
Company and its subsidiaries furnished to the Parent or the Purchaser in
connection with the transactions contemplated in this Agreement (except to the
extent that such information can be shown to have been (i) previously known by
the Parent or the Purchaser from sources other than the Company, or its
directors, officers, auditors or other agents, (ii) in the public domain through
no fault of the Parent or the Purchaser or (iii) lawfully acquired by the Parent
or the Purchaser on a non-confidential basis from sources who are not known by
the Parent or the Purchaser to be bound by a confidentiality agreement or
otherwise prohibited from transmitting the information to the Parent or the
Purchaser by a contractual, legal or fiduciary obligation) and will not release
or disclose such information to any other person, unless compelled to disclose
by judicial or administrative process or by other requirements of law or
regulation (in which event the Parent shall give prompt notice thereof to the
Company), except its auditors and other advisors in connection with this
Agreement who need to know such information. If the transactions contemplated by
this Agreement are not consummated, such confidence shall be maintained for a
period of two years from the date hereof and, if requested by or on behalf of
the Company, the Parent and the Purchaser will, and will cause their auditors
and other agents to, return to the Company or destroy all copies of written
information furnished by the Company to the Parent and the Purchaser or their
agents, representatives or advisors. It is understood that the Parent and the
Purchaser shall be deemed to have satisfied their obligation to hold such
information confidential in accordance herewith if they exercise the same care
as they take to preserve confidentiality for their own similar information. The
provisions of this Section 4.4(b) replace and supersede the obligations of the
Parent set forth in any confidentiality agreement previously entered into
between the Parent and the Company.
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(c) No investigation pursuant to this Section 4.4 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
SECTION 4.5 No Solicitation. Neither the Company nor any of its
subsidiaries shall, nor shall the Company or any of its subsidiaries authorize
or permit any of its officers, directors or employees or any investment banker,
financial advisor, attorney, accountant or other representative retained by it
or any of its subsidiaries to solicit, encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal which constitutes, or may reasonably be
expected to lead to, any Transaction Proposal (as defined below), or enter into
or maintain or continue discussions or negotiate with any person in furtherance
of such inquiries or to obtain a Transaction Proposal, or agree to or endorse
any Transaction Proposal, and the Company shall notify the Parent orally (within
one business day) and in writing (as promptly as practicable), in reasonable
detail, as to any inquiries and proposals which it or any of its subsidiaries or
any of their respective representatives or agents may receive; provided,
however, that (i) the Company may furnish or cause to be furnished information
concerning the Company and its businesses, properties or assets to a third
party, and (ii) the Company may engage in discussions or negotiations with a
third party if, and only to the extent that (A) the Board of Directors of the
Company shall conclude in good faith on the basis of advice from outside counsel
that such action is required in order for the Board of Directors of the Company
to satisfy its fiduciary obligations under applicable law and (B) prior to
taking any of the foregoing actions referred to in clauses (i) or (ii) above,
the Company provides reasonable notice (no less than one business day) to and
keeps the Parent informed, on a current basis, with respect to such action and
obtains a confidentiality agreement from the third party substantially the same
as that obtained from the Parent prior to delivering to any such person any
non-public information. As used herein, the term "Transaction Proposal" means
(x) any acquisition or purchase of a substantial amount of assets of, or any
equity interest in, the Company or any of its subsidiaries or any tender offer
(including a self tender offer) or exchange offer, merger, consolidation,
business combination, sale of substantially all assets, sale of securities,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any of its subsidiaries (other than the transactions contemplated
hereby) or any other transaction the consummation of which would or could
reasonably be expected to impede, interfere with, prevent or materially delay
the consummation of the Merger or the other transactions contemplated hereby or
(y) any proposal, plan or intention to do any of the foregoing either publicly
announced or communicated to the Company or any agreement to engage in any of
the foregoing. The Company will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. This section shall not prohibit
accurate disclosure by the Company in any document that is required to be filed
by the Company with the SEC.
SECTION 4.6 Employee Benefits Matters. (a) The Parent agrees that, during
the period commencing at the Effective Time and ending on December 31, 1995, the
employees of the Company and its subsidiaries (other than those employees
covered by a collective bargaining agreement) will continue to be provided with
employee benefit plans which in the aggregate are substantially comparable to
those currently provided by the Company and its subsidiaries to such employees
(other than plans involving or related to the securities of the Company).
Subject to the foregoing, nothing herein shall (i) prevent the amendment or
termination of any such plan, program or arrangement, (ii) interfere with the
Surviving Corporation's right or obligation to take any action or refrain from
taking any action which the Company could take or refrain from taking prior to
the Effective Time. In addition, in administering such plans, programs or
arrangements, the Parent may cause a reduction of benefits under any such plans,
programs or arrangements to the extent necessary to avoid duplication of
benefits with respect to the same covered matter or years of service.
SECTION 4.7 Directors' and Officers' Indemnification and Insurance. (a)
The By-Laws of the Surviving Corporation shall contain provisions no less
favorable with respect to indemnification than are set forth in the By-laws of
the Company, which provisions shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who at the Effective
Time were directors, officers, agents or employees of the Company or otherwise
entitled to indemnification pursuant to the Company's By-Laws. In the event that
the Surviving Corporation transfers all or substantially all of its operations,
the Parent shall guarantee, or shall
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cause MCI Telecommunications, Inc. to guarantee, the obligations of the
Surviving Corporation under this Section 4.7(a).
(b) The Parent shall cause to be maintained in effect for six years from
the Effective Time the current policies of the directors' and officers'
liability insurance maintained by the Company (provided that the Parent may
substitute therefor policies of at least the same coverage containing terms and
conditions which are not materially less advantageous) with respect to matters
occurring prior to the Effective Time to the extent available; provided,
however, that in no event shall the Parent or the Surviving Corporation be
required to expend more than an amount per year equal to 150% of current annual
premiums paid by the Company to maintain or procure insurance coverage pursuant
hereto.
SECTION 4.8 Further Action; Reasonable Best Efforts. Upon the terms and
subject to the conditions hereof, each of the parties hereto shall use its
reasonable best efforts to take, or cause to be taken, all appropriate action,
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 but not limited to (i)
cooperation in the preparation and filing of the Proxy Statement, any required
filings under the HSR Act and other Regulatory Requirements, and any amendments
to any thereof and (ii) using its reasonable best efforts to make all required
regulatory filings and applications and to obtain all Licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts with the Company and its subsidiaries as
are necessary for the consummation of the transactions contemplated by this
Agreement and to fulfill the conditions to the Merger. In case at any time after
the Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of each party to
this Agreement shall use their reasonable best efforts to take all such
necessary action. In addition, the Company shall cause senior management of the
Company and its subsidiaries to cooperate in good faith with representatives of
the Parent in identifying transition issues and formulating plans and strategies
to address any such issues.
SECTION 4.9 Public Announcements. The Parent and the Company shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to the Merger and shall not issue any such press release
or make any such public statement prior to such consultation, except as may be
required by law or any listing agreement with its securities exchange or
quotation system.
SECTION 4.10 Taxes. Any liability with respect to taxes specified in
Section 4.14 hereof that are incurred in connection with the Merger shall be
borne by the Company and expressly shall not be a liability of the stockholders
of the Company.
SECTION 4.11 Spin-Off Distribution. (a) After the Proxy Statement has been
mailed to the Stockholders of the Company but prior to the tenth day before the
date of the Stockholders' Meeting, the Board of Directors of the Company shall
declare a distribution (the "Spin-Off Distribution") of CTS Common Stock to the
holders of Company Common Stock, which distribution shall be payable, contingent
on the satisfaction or waiver of the conditions hereto, other than the
conditions set forth in Section 5.2(d), in an amount per share of Company Common
Stock as follows, in each case subject to Section 4.11(b): (i) if the average
closing market price of CTS Common Stock on each of the three trading-days
ending on the Spin-Off Distribution Record Date (as defined below) (the
"Distribution Price") is equal to or less than $22.00 per share, then each share
of Company Common Stock shall be entitled to receive that number of shares of
CTS Common Stock equal to the quotient obtained by dividing 3,980,000 by the sum
of the then outstanding shares of Company Common Stock and the shares of Company
Common Stock then reserved for issuance upon exercise of the Warrant, and (ii)
if the Distribution Price per share is more than $22.00 per share, then each
share of Company Common Stock shall be entitled to receive that number of shares
of CTS Common Stock equal to the quotient obtained by dividing (A) (x) the
number of shares which, based on the Distribution Price, have an aggregate value
equal to the product of $22.00 times 3,980,000, plus (y) the number of shares
which, based on the Distribution Price, have an aggregate value equal to the
product of 60% of the difference between the Distribution Price and $22.00 times
3,980,000 by (B) the sum of the then outstanding shares of Company Common Stock
and the shares of Company Common Stock then reserved for issuance upon exercise
of the Warrant. In the event of any stock split, combination, reclassification,
share dividend or other
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event similarly altering or affecting the value of CTS Common Stock, the
foregoing shall be adjusted to the extent deemed appropriate by the Board of
Directors of the Company, and subject to the reasonable approval of the Parent,
to carry out fully the purposes and intents hereof. The resolutions of the Board
of Directors declaring the Spin-Off Distributions and setting forth the terms
and conditions described above shall in form and substance be reasonably
satisfactory to the Parent.
(b) In no event will any fractional shares be delivered in the Spin-Off
Distribution, and in lieu of fractional shares, the Company shall deliver cash
to each holder who would otherwise be entitled to a fractional share in an
amount equal to the Distribution Price times such fraction, rounded to the
nearest $0.01.
(c) The Company agrees that until the Spin-Off Distribution has occurred,
the resolutions of the Board of Directors of the Company pursuant to which the
Spin-Off Distribution is to be declared shall not be terminated, modified,
amended or supplemented without the consent of the Parent if the Parent would be
adversely affected thereby.
(d) The Spin-Off Distribution shall occur after the Merger has been
approved by the stockholders of the Company and the satisfaction of any other
conditions set forth herein (other than as set forth in Section 5.2(d)) and
immediately prior to the Effective Time (the "Spin-Off Distribution Payment
Date") and be payable to holders of record of Company Common Stock at the close
of business on the date immediately preceding the Spin-Off Distribution Payment
Date (the "Spin-Off Record Date").
(e) The Company shall promptly prepare and submit a no-action request
letter to the SEC requesting the Division of Corporate Finance of the SEC to
confirm that (i) it would not recommend enforcement action to the SEC if the
Spin-Off Distribution were effected without registration under the Securities
Act, (ii) the shares of CTS Common Stock received in the distribution by
stockholders of the Company would not be "restricted securities" within the
meaning of Rule 144(a)(3) of the Securities Act, and (iii) such other matters as
are customarily requested in effecting distributions of shares in similar
circumstances. The Company shall exercise its best efforts to obtain a no-action
letter confirming the foregoing and, unless such letter includes terms and
conditions that are not customary and that are not reasonably satisfactory to
the Company, to comply with any conditions imposed by the Division of Corporate
Finance in connection therewith. Prior to submitting any such request, the
Company will provide counsel to the Purchaser with the opportunity to review and
comment thereon, and the Company will cooperate in good faith in responding to
any such comments. The Company will promptly furnish to the Parent and its
counsel copies of all correspondence with the SEC in connection with the
Spin-Off Distribution.
(f) In the event that the Division of Corporate Finance declines to issue a
no-action letter in response to the request described in Section 4.11(e) above,
or issues a letter with other than customary terms and conditions which are not
reasonably satisfactory to the Parent or the Company, so that the conditions set
forth in Sections 5.2(d) and 5.3(c) below cannot be satisfied, then, at the
Parent's request, the Company will use its best efforts to enter into a
registration rights agreement with CTS on terms and conditions satisfactory to
Parent pursuant to which CTS will promptly prepare and file a registration
statement (the "CTS Registration Statement") with respect to the CTS Common
Stock with the SEC and exercise best efforts to cause such registration
statement to be declared effective by the SEC as promptly as practicable, and
the Company will use its best efforts to cause the prospectus contained within
the CTS Registration Statement to be mailed to the Company's stockholders as
promptly as practicable after the CTS Registration Statement is declared
effective. The Company hereby covenants that the CTS Registration Statement, at
the time it is declared effective, and any amendments or supplements thereto,
shall not 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 the light of the circumstances in which they were made,
not misleading, and shall comply as to form in all material respects with the
requirements of the Securities Act and the rules and regulations promulgated
thereunder. Any registration rights agreement with CTS will require that, prior
to filing the CTS Registration Statement or any amendment thereto, CTS will
provide the Purchaser and its counsel the opportunity to review and comment
thereon, and CTS will cooperate in good faith in responding to any such
comments. Any registration rights agreement with CTS will also provide the
Purchaser and its legal, financial and other advisors the opportunity to conduct
such legal, financial and business due diligence with
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respect to CTS as they shall reasonably request and that CTS will use its best
efforts to cause to be delivered to the Company a letter of Ernst & Young LLP,
the independent auditors of CTS, dated a date within two business days of the
date on which the registration statement shall become effective and addressed to
the Company, in form and substance reasonably satisfactory to the Parent and
customary in scope and substance for letters delivered by independent
accountants in connection with registration statements similar to the
registration statement filed in connection with the CTS Common Stock.
SECTION 4.12 Certain Agreements. Neither the Company nor any subsidiary
will waive any provision of any confidentiality or standstill or similar
agreement to which it is a party without the prior written consent of the
Parent, unless the Board of Directors of the Company or such subsidiary
concludes in good faith that waiving such provision is necessary or appropriate
in order for the Board of Directors of the Company to act in a manner which is
consistent with its fiduciary obligations under applicable law.
SECTION 4.13 CTS Warrant. The Company shall timely exercise the CTS
Warrant to acquire shares of CTS Common Stock in order to include the shares
deliverable upon any such exercise in the Spin-Off Distribution.
SECTION 4.14 Conveyance Taxes. The Parent and the Company shall cooperate
in the preparation, execution and filing of all returns, questionnaires,
applications, or other documents regarding any real property transfer gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees, and any similar taxes that become
payable in connection with the transactions contemplated hereby that are
required or permitted to be filed on or before the Effective Time.
ARTICLE V
CONDITIONS OF MERGER
SECTION 5.1 Conditions to Obligation of Each Party to Effect the Merger.
The respective obligations of each party to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Stockholder Approval. This Agreement shall have been approved and
adopted by the affirmative vote of the holders of a majority of the
outstanding shares of Company Common Stock entitled to vote thereon.
(b) Other Approvals. Other than the filing contemplated by Section
1.3, all consents, approvals, authorizations or permits of, actions by, or
filings with or notifications to, and all expirations of waiting periods
imposed by, any Governmental Entity (all the foregoing, "Consents") which
are necessary for the consummation of the Merger, other than immaterial
Consents the failure to obtain which would have no material adverse effect
on the consummation of the Merger, shall have been filed, occurred or been
obtained (all such permits, approvals, filings and consents and the lapse
of all such waiting periods being referred to as the "Requisite Regulatory
Approvals"), and all such Requisite Regulatory Approvals shall be in full
force and effect.
(c) No Injunctions or Restraints; Illegality. 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, nor shall any
proceeding by any Governmental Entity seeking any of the foregoing be
pending. There shall not be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal.
SECTION 5.2 Conditions to Obligations of Parent and Purchaser. The
obligations of the Parent and the Purchaser to effect the Merger are subject to
the satisfaction of the following conditions unless waived by the Parent and the
Purchaser:
(a) Representations and Warranties. The representations and warranties
of the Company set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and
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(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
Parent shall have received a certificate signed on behalf of the Company by
the Chairman of the Board and Chief Executive Officer of the Company, and
by the Chief Financial Officer of the Company to such effect.
(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 at or prior to the Closing Date, and the Parent
shall have received a certificate signed on behalf of the Company by the
Chairman of the Board and Chief Executive Officer of the Company, and by
the Chief Financial Officer of the Company to such effect.
(c) Burdensome Condition. There shall not be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, by any federal or state Governmental Entity
which, (i) in connection with the grant of a Requisite Regulatory Approval,
imposes any condition or restriction upon the Parent or its subsidiaries
which would require the Parent or any subsidiary, including the Company or
any of its subsidiaries after the Merger, to dispose of any assets with a
value in excess of $15 million or which would so materially adversely
impact the economic or business benefits of the transactions contemplated
by this Agreement as to render inadvisable the consummation of the Merger,
provided that the parties shall have contested in good faith the imposition
of any such condition or restriction or (ii) in connection with the grant
of a Requisite Regulatory Approval or otherwise, would be reasonably likely
to result in a Material Adverse Effect with respect to the Company or any
subsidiary thereof.
(d) Spin-Off Distribution. The Company shall have received a no-action
letter from the Division of Corporate Finance of the SEC granting the
relief requested in the request letter contemplated by Section 4.11 above
and subject only to such customary terms and conditions as may be
reasonably satisfactory to the Parent or a CTS Registration Statement shall
have been declared effective by the SEC and no stop order shall have been
issued. The Board of Directors of the Company shall have set the Spin-Off
Record Date and paid the Spin-Off Distribution as contemplated hereby and
in compliance with the terms and conditions of the no-action letter so
received.
(e) Parent Board Approval. The Board of Directors of Parent shall have
duly authorized and approved this Agreement, the Merger and the other
transactions contemplated hereby.
(f) Dissenters' Rights. No more than 7% of the shares of Company
Common Stock shall be, or have the right to become, Dissenting Shares.
SECTION 5.3 Conditions to Obligations of the Company. The obligation of
the Company to effect the Merger is subject to the satisfaction of the following
unless waived by the Company:
(a) Representations and Warranties. The representations and warranties
of the Parent and the Purchaser set forth in this Agreement shall be true
and correct in all material respects as of the date of this 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 this Agreement, and the
Company shall have received a certificate signed on behalf of the Parent by
the Chief Financial Officer of the Parent to such effect.
(b) Performance of Obligations of the Parent and the Purchaser. The
Parent and the Purchaser 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 the Parent by the President of the Parent
to such effect.
(c) Spin-Off Distribution. The Company shall have received a no-action
letter from the Division of Corporate Finance of the SEC granting the
relief requested in the request letter contemplated by Section 4.11 above
and subject only to such customary terms and conditions as may be
reasonably satisfactory to the Company, or a CTS Registration Statement
shall have been declared effective by the SEC and no stop-order shall have
been issued.
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ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
SECTION 6.1 Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the stockholders of the Company:
(a) by mutual written consent of the Parent, the Purchaser and the
Company; or
(b) by the Parent, upon a breach of any material representation,
warranty, covenant or agreement on the part of the Company set forth in
this Agreement, or if any such representation or warranty of the Company
shall have been or become untrue, in each case such that the conditions set
forth in Section 5.2(a) or Section 5.2(b), as the case may be, would be
incapable of being satisfied (following notice and a reasonable opportunity
to cure) by October 21, 1995;
(c) by the Company, upon a breach of any material representation,
warranty, covenant or agreement on the part of the Parent set forth in this
Agreement, or if any such representation or warranty of the Parent shall
have been or become untrue, in each case such that the conditions set forth
in Section 5.3(a) or Section 5.3(b), as the case may be, would be incapable
of being satisfied (following notice and a reasonable opportunity to cure)
by October 21, 1995;
(d) by either the Parent or the Company if, any permanent injunction
or action by any Governmental Entity preventing the consummation of the
Merger shall have become final and nonappealable; provided that such right
of termination shall not be available to any party if such party shall have
failed to make reasonable efforts to prevent or contest the imposition of
such injunction or action and such failure materially contributed to such
imposition;
(e) by either the Parent or the Company if (other than due to the
willful failure of the party seeking to terminate this Agreement to perform
its obligations hereunder required to be performed at or prior to the
Effective Time) the Merger shall not have been consummated on or prior to
October 21, 1995, and in any event if the Merger shall not have been
consummated on or prior to December 31, 1995;
(f) by the Parent, if the approval of the stockholders of the Company
of this Agreement and the Merger required for the consummation of the
Merger shall not have been obtained by reason of the failure to obtain the
required vote at a duly held meeting of stockholders or at any adjournment
thereof;
(g) by the Parent, if (i) the Board of Directors of the Company shall
have withdrawn, modified or changed its approval or recommendation of this
Agreement or the Merger in any manner which is adverse to the Parent or the
Purchaser or shall have resolved to do the foregoing; or (ii) the Board of
Directors of the Company shall have approved or have recommended to the
stockholders of the Company a Transaction Proposal or shall have resolved
to do the foregoing; or (iii) a tender offer or exchange offer for 15% or
more of the outstanding shares of the Company Common Stock is commenced
(other than by the Parent or any of its subsidiaries or affiliates), and
the Board of Directors of the Company recommends that the stockholders of
the Company tender their shares in such tender or exchange offer or
otherwise fails to recommend that such stockholders reject such tender
offer or exchange offer within ten business days of the commencement
thereof; or (iv) (A) any person (including the Company or any of its
subsidiaries or affiliates, but excluding Mr. Adelson) or group (other than
the Parent or any of its subsidiaries or affiliates) shall have become the
beneficial owner of either (x) 15% or more of the outstanding shares of the
Company Common Stock and the Company has directly or indirectly encouraged
or assisted such acquisition (including, without limitation, taking any
action under Section 203 of the DGCL) or (y) 25% or more of the outstanding
shares of the Company Common Stock, or (B) if Mr. Adelson becomes the
beneficial owner of shares of Company Common Stock in addition to those
owned on the date hereof; or
23
<PAGE> 76
(h) by the Company, if prior to the Stockholders' Meeting the Board of
Directors of the Company (i) shall fail to make or shall withdraw or modify
its recommendation of this Agreement or the Merger if there shall exist at
such time a tender offer or exchange offer or a written, bona fide proposal
by a third party to acquire the Company pursuant to a merger,
consolidation, share exchange, business combination, tender or exchange
offer or other similar transaction or (ii) recommends to the Company's
stockholders approval or acceptance of any such transaction, in each case
if, and only to the extent that, the Board of Directors of the Company,
after consultation with and based upon the advice of independent legal
counsel, determines in good faith that such action is required for the
Board of Directors of the Company to comply with its fiduciary duties to
stockholders under applicable law;
(i) by the Parent if the SEC has declined to issue a favorable
no-action letter, or has issued a no-action letter that does not satisfy
the requirements of Section 4.11(e) and the Company has not entered into a
registration rights agreement with CTS that satisfies the requirements of
Section 4.11(f) within 15 days after the SEC declines to issue a no action
letter or issues a no action letter that does not satisfy the requirements
of Section 4.11(e); or
(j) by the Parent or the Company if the condition precedent set forth
in Section 5.2(e) shall not have been satisfied on or prior to June 9,
1995.
SECTION 6.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 6.1, this Agreement shall forthwith become void
and there shall be no liability on the part of any party hereto except as set
forth in Section 6.3, Section 4.4(b) and Section 7.1; provided, however, that
nothing herein shall relieve any party from liability for any breach hereof.
SECTION 6.3 Fees and Expenses. (a) The Company agrees that if this
Agreement shall be terminated pursuant to:
(i) Section 6.1(b) and (x) such termination is the result of wilful
breach by the Company of any material covenant, agreement, representation
or warranty contained herein and (y) at any time during the period
commencing on the date hereof and ending twelve months after the date of
termination of this Agreement, a Business Combination (as defined in
Section 6.3(e) below) involving the Company shall have occurred or the
Company shall have entered into a definitive agreement providing for such a
Business Combination;
(ii) Section 6.1(e) and (x) there shall exist a Transaction Proposal
with respect to the Company, and (y) at any time during the period
commencing on the date hereof and ending twelve months after the date of
termination of this Agreement, a Business Combination involving the Company
shall have occurred or the Company shall have entered into a definitive
agreement providing for a Business Combination;
(iii) Section 6.1(f) because the Agreement and the Merger shall fail
to receive the requisite vote for approval and adoption by the stockholders
of the Company at a meeting of stockholders of the Company called to vote
thereon and at the time of such meeting (x) there shall exist a Transaction
Proposal with respect to the Company or (y) any event specified in Section
6.1(g)(iv) shall have occurred;
(iv) Section 6.1(g)(i) and at the time of the withdrawal, modification
or change (or resolution to do so) of its recommendation by the Board of
Directors of the Company, there shall exist a Transaction Proposal with
respect to the Company or any event specified in Section 6.1(g)(iv) shall
have occurred; or
(v) Section 6.1(g)(iv) and at any time during the period commencing on
the date hereof and ending twelve months after the date of termination of
this Agreement, either (A) a Business Combination specified in clause (i)
or (ii) of the definition thereof shall have occurred or the Company shall
have entered into a definitive agreement providing for such a Business
Combination or (B) any person or group shall acquire beneficial ownership
of 50% or more of the outstanding Company Common Stock; or
24
<PAGE> 77
(vi) Sections 6.1(g)(ii) or (iii), or Section 6.1(h); then the Company
shall pay to the Parent an amount equal to (x) $7,500,000, plus (y) all
out-of-pocket fees and expenses (including, without limitation, reasonable
fees and disbursements payable to any investment bankers, counsel to the
Parent, counsel to such investment bankers, and accountants) incurred by
the Parent or on its behalf in connection with the analysis, negotiation,
preparation, execution and performance of this Agreement, and the Voting
Agreements and the consummation of the transactions contemplated hereby and
thereby ("Expenses") up to $1,500,000.
(b) The Company agrees that if this Agreement shall be terminated pursuant
to Section 6.1(f) because the Agreement and the Merger shall fail to receive the
requisite vote for approval and adoption by the stockholders of the Company at a
meeting of stockholders of the Company called to vote thereon, or pursuant to
Section 6.1(b), Section 6.1(g)(i) or Section 6.1(i), then, in any such event,
the Company shall pay to the Parent an amount equal to the Parent's Expenses,
provided that the Company shall not be obligated to make any payment pursuant to
this Section 6.3(b) if the Company shall be obligated to make a payment to the
Parent pursuant to Section 6.3(a).
(c) The Parent agrees that if this Agreement shall be terminated pursuant
to Section 6.1(c) or 6.1(j), then the Parent shall pay to the Company an amount
equal to (x) $1,500,000 plus (y) all out-of-pocket fees and expenses (including,
without limitation, reasonable fees and disbursements payable to any investment
bankers, counsel to the Company, counsel to such investment bankers, and
accountants) incurred by the Company or on its behalf in connection with the
analysis, negotiation, preparation, execution and performance of this Agreement
and the consummation of the transactions contemplated hereby, up to $1,500,000.
(d) Any payment required to be made pursuant to Section 6.3(a) through
Section 6.3(c), inclusive, shall be made contemporaneously with the termination
of this Agreement and shall be made by wire transfer of immediately available
funds to an account designated by the recipient of such payment, and termination
by any party required to make such payment contemporaneously therewith shall not
be effective until such payment shall have been made pursuant hereto, except
that any payment to be made as the result of an event described in Section
6.3(a)(i), 6.3(a)(ii) or 6.3(a)(v) shall be made as promptly as practicable but
not later than five business days after the occurrence of the Business
Combination or the execution of the definitive agreement providing for a
Business Combination. Any payment made pursuant to Sections 6.3(a) through
6.3(c), inclusive, shall not preclude the recipient of such payment from seeking
monetary damages from the other party as described in Section 6.2.
(e) For purposes of this Section 6.3, the term "Business Combination" shall
mean any of the following involving the Company: (i) any merger, consolidation,
share exchange, business combination or similar transaction; (ii) any sale,
lease, exchange, transfer or other disposition of 15% or more of the assets of
the Company and its subsidiaries, taken as a whole, in a single transaction or
series of related transactions; or (iii) (A) any person (including the Company
or any of its subsidiaries or affiliates, but excluding Mr. Adelson) or any
group (other than the Parent or any of its subsidiaries or affiliates) becoming
the beneficial owner of either (x) 15% or more of the outstanding shares of the
Company Common Stock and the Company has directly or indirectly encouraged or
assisted such acquisition (including, without limitation, taking any action
under Section 203 of the DGCL) or (y) 25% or more of the outstanding shares of
the Company Common Stock, or (B) Mr. Adelson becoming the beneficial owner of
shares of Company Common Stock in addition to those owned on the date hereof.
(f) Except as specifically provided in this Section 6.3, each party shall
bear its own expenses in connection with this Agreement and the transactions
contemplated hereby.
SECTION 6.4 Amendment. This Agreement may be amended by the parties hereto
by action taken by or on behalf of the Parent and the respective Boards of
Directors of the Purchaser and the Company at any time prior to the Effective
Time; provided, however, that, after approval of the Merger by the stockholders
of the Company, no amendment may be made which would reduce the amount or change
the type of consideration into which each share of Company Stock shall be
converted upon consummation of the Merger. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
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<PAGE> 78
SECTION 6.5 Waiver. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party or parties to be bound
thereby.
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.1 Non-Survival of Representations, Warranties and Agreements.
The representations, warranties and agreements in this Agreement shall terminate
at the Effective Time or upon the termination of this Agreement pursuant to
Section 6.1, except that those set forth in Section 4.4(b), Section 6.3 and
Article VII shall survive termination indefinitely (in accordance with the terms
of such provisions).
SECTION 7.2 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telecopy, telegram or telex or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
if to the Parent or the Purchaser:
MCI Communications Corporation
1801 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Attention: John R. Worthington, Esq.
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Richard Capelouto, Esq.
if to the Company:
Nationwide Cellular Service, Inc.
20 East Sunrise Highway
Valley Stream, New York 11582
Attention: Stephen Katz
with a copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attention: Edward R. Mandell, Esq.
SECTION 7.3 Certain Definitions. For purposes of this Agreement, the term:
(a) "affiliate" of a person means a person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the first mentioned person;
(b) "beneficial owner" with respect to any shares of Company Common
Stock means a person who shall be deemed to be the beneficial owner of such
shares of Company Common Stock (i) which such person or any of its
affiliates or associates beneficially owns, directly or indirectly, (ii)
which such person or any of its affiliates or associates (as such term is
defined in Rule 12b-2 of the Exchange Act) has,
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directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant
to any agreement, arrangement or understanding or upon the exercise of
consideration rights, exchange rights, warrants or options, or otherwise,
or (B) the right to vote pursuant to any agreement, arrangement or
understanding or (iii) which are beneficially owned, directly or
indirectly, by any other persons with whom such person or any of its
affiliates or person with whom such person or any of its affiliates or
associates has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting or disposing of any shares;
(c) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the
management policies of a person, whether through the ownership of stock, as
trustee or executor, by contract or credit arrangement or otherwise;
(d) "generally accepted accounting principles" shall mean the
generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession in the United States, in each case applied on a basis consistent
with the manner in which the audited financial statements for the fiscal
year of the Company ended December 31, 1994 were prepared;
(e) "knowledge" means knowledge after reasonable inquiry;
(f) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d)(3) of the Exchange Act); and
(g) "subsidiary" or "subsidiaries" of the Company, the Surviving
Corporation, the Parent or any other person means any corporation,
partnership, joint venture or other legal entity of which the Company, the
Surviving Corporation, the Parent or such other person, as the case may be
(either alone or through or together with any other subsidiary), owns,
directly or indirectly, 50% or more of the stock or other equity interests
the holder of which is generally entitled to vote for the election of the
board of directors or other governing body of such corporation or other
legal entity. For purposes of this Agreement, CTS shall not be considered a
subsidiary of the Company.
SECTION 7.4 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest extent possible.
SECTION 7.5 Amendment and Restatement; Effectiveness of Representations,
Warranties and Agreements. (a) This Agreement amends certain provisions of the
Original Agreement and restates the terms of the Original Agreement in their
entirety so as to reflect and give effect to such amendments; except as provided
in Section 7.5(b), all amendments to the Original Agreement effected by this
Agreement, and all other covenants, agreements, terms and provisions of this
Agreement, shall have effect from the date of the Original Agreement.
(b) Each of the representations and warranties made in Sections 3.1 and 3.2
shall be deemed (i) to be made on the date of the Original Agreement (other than
the representations and warranties in respect of this Agreement that are
contained in Sections 3.1(d) and 3.2(b), which are made as of the date hereof)
and as of the Closing Date and (ii) not made on the date hereof (except as set
forth in the parenthetical in clause (i) above).
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<PAGE> 80
SECTION 7.6 Entire Agreement; Assignment. This Agreement constitutes the
entire agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof. This
Agreement shall not be assigned by operation of law or otherwise, except that
the Parent and the Purchaser may assign all or any of their respective rights
and obligations hereunder to any direct or indirect wholly owned subsidiary or
subsidiaries of the Parent, provided that no such assignment shall relieve the
assigning party of its obligations hereunder if such assignee does not perform
such obligations.
SECTION 7.7 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
rights, benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 7.8 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 7.9 Headings. The descriptive headings contained in this Agreement
are included for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 7.10 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the Parent, the Purchaser and the Company have caused
this Agreement, as amended and restated, to be executed as of the date first
written above by their respective officers thereunto duly authorized, all as of
August 17, 1995.
MCI COMMUNICATIONS CORPORATION
By: /s/ MICHAEL J. ROWNY
---------------------------
Name: Michael J. Rowny
Title: Executive Vice President
NTS ACQUISITION CORP.
By: /s/ MICHAEL J. ROWNY
---------------------------
Name: Michael J. Rowny
Title: Executive Vice President
NATIONWIDE CELLULAR SERVICE, INC.
By: /s/ STEPHEN KATZ
-------------------------
Name: Stephen Katz
Title: Chief Executive Officer
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<PAGE> 81
SCHEDULE A
STOCKHOLDERS OF THE COMPANY TO EXECUTE AND
DELIVER VOTING AGREEMENTS
1. Stephen Katz
2. Jay Bernstein
3. Mel Steinberg
4. Larry Altman
5. Jerome Sanders
6. Joseph A. Gregori
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<PAGE> 82
Investment Banking Division
ANNEX B
PaineWebber Incorporated
1285 Avenue of the Americas
New York, NY 10019
212 713-2000
PaineWebber
August 18, 1995
Board of Directors
Nationwide Cellular Service, Inc.
20 East Sunrise Highway
Valley Stream, New York 11581-1252
Gentlemen:
Nationwide Cellular Service, Inc. (the "Company" or "Nationwide"), MCI
Communications Corporation (the "Purchaser") and NTS Acquisition Corp., an
indirect wholly-owned subsisidiary of the Purchaser ("Sub"), have entered into
an Agreement and Plan of Merger dated May 22, 1995, as amended and restated as
of August 17, 1995 (the "Agreement"), pursuant to which Sub shall be merged
with and into the Company (the "Merger"). At the Purchaser's election, the
Merger may alternatively be structured so that (i) the Company is merged with
and into the Purchaser, Sub or any other direct or indirect subsidiary of the
Purchaser or (ii) any direct or indirect subsidiary of the Purchaser other than
Sub is merged with and into the Company. In the Merger, each share of the
Company's Common Stock, par value $0.01 per share, will be converted into the
right to receive $18.50 per share in cash (the "Consodieration"), without
interest thereon. In addition, Nationwide will distribute to its stockholders,
immediately prior to the Merger (but not as a part of the Merger), shares of
common stock of Cellular Technical Services Company, Inc. ("CTS") which it then
owns; provided, however, that the number of shares of CTS common stock
distributed to the Company's stockholders is subject to adjustment based upon
the trading price of CTS's comon stock prior to the distribution. All
liabilities (including the tax liability resulting from the distribution of
shares of CTS common stock) of the Company will be retained by the Company
following the Merger.
You have asked us whether or not, in our opinion, the proposed
Consideration to be received by the stockholders of the Company in the Merger
is fair to such stockholders from a financial point of view.
<PAGE> 83
PaineWebber
In arriving at the opinion set forth, we have among other things:
(1) Reviewed, among other public information, the Company's Annual
Report, Forms 10-K, Forms 10-Q and related financial information
at and for the twelve months ended December 31, 1992; the twelve
months ended December 31, 1993; the twelve months ended December
31, 1994; the three months ended March 30, 1995; and the six
months ended June 30, 1995;
(2) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and
prospects of the Company, furnished to us by the Company;
(3) Conducted discussions with members of senior management of the
Company concerning its businesses and prospects;
(4) Reviewed the historical market prices and trading activity for the
Company's Common Stock and compared them with that of certain
publicly traded companies which we deemed relevant;
(5) Compared the results of operations of the Company with that of
certain companies which we deemed relevant;
(6) Compared the proposed financial terms of the Merger with the
financial terms of certain other mergers and acquisitions which
we deemed relevant;
(7) Reviewed the Agreement and Plan of Merger dated May 22, 1995 (the
"Merger Agreement") and a draft amendment to the Merger Agreement
dated August 16, 1995; and
(8) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other
matters as we deemed appropriate.
In addition our opinion assumes that the tax liability resulting from
the distribution by the Company, to its stockholders, of the CTS common shares
will not be substantially less than it would have been had such distribution
occurred on May 19, 1995. No opinion is expressed herein, however, as to the
value of the CTS common stock or the fairness, from a financial point of view,
of the distribution of such stock to the Company's stockholders.
In preparing our opinion, we have relied on the accuracy and
completeness of all information supplied or otherwise made available to us by
the Company and we have not independently verified such information. We have
assumed that the financial forecasts which we have examined were prepared on
bases reflecting the best currently available estimates and good faith
judgments of the management of the Company with respect to the future
performance of the Company. We have not undertaken, and have not been provided
with, an independent evaluation or appraisal of the assets or liablities
(contingent or otherwise) of the Company and have assumed, other than as noted
in the preceding paragraph, that all material liablities (contingent or
otherwise, known or unknown) of the Company are as set forth in the Company's
consolidated financial statements. Our opinion is based upon regulatory,
economic, monetary and market conditions exisiting on the date hereof.
-2-
<PAGE> 84
PaineWebber
Our opinion is directed to the Board of Directors of the Company and does
not constitute a recommendation to any holder of Common Stock as to how any
such stockholder should vote on the Merger. This opinion does not address the
relative merits of the Merger and any other potential transactions or business
strategies discussed by the Board of Directors of the Company.
This opinion has been prepared solely for the use of the Board of
Directors of the Company and shall not be reproduced, summarized, described or
referred to or given to any other person or otherwise made public without the
prior written consent of PaineWebber Incorporated; provided, however, that this
letter may be reproduced in full in filings by the Company under applicable
securities laws.
PaineWebber Incorporated is currently acting as financial advisor to the
Company in connection with the Merger and will receive a fee upon the closing
of the Merger.
In the ordinary course of our business, we may actively trade the equity
and debt securities of the Company and the Purchaser for our own account and
for the accounts of our customers and, accordingly, may at any time hold long
or short positions in such securities.
In rendering this opinion, we have not been engaged to act as an agent or
fiduciary of, and the Company has expressly waived and duties or liabilities we
may otherwise be deemed to have had to, the Company's equity holders or any
other third party.
On the basis of, and subject to the foregoing, we are of the opinion,
that, as of the date hereof, the proposed Consideration to be received in the
Merger by the stockholders of the Company is fair to such stockholders from a
financial point of view.
Very truly yours,
PAINEWEBBER INCORPORATED
/s/ PAINEWEBBER INCORPORATED
-----------------------------
<PAGE> 85
ANNEX C
DELAWARE GENERAL CORPORATION LAW SECTION 262
262. APPRAISAL RIGHTS -- (a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to sec. 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
<PAGE> 86
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the
shares of any class or series of its stock as a result of an amendment
to its certificate of incorporation, any merger or consolidation in
which the corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the certificate
of incorporation contains such a provision, the procedures of this
section, including those set forth in subsections (d) and (e) of this
section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for
approval at a meeting of stockholders, the corporation, not less than
20 days prior to the meeting, shall notify each of its stockholders
who was such on the record date for such meeting with respect to
shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for
any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of his shares. A proxy or vote
against the merger or consolidation shall not constitute such a
demand. A stockholder electing to take such action must do so by a
separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each
constituent corporation who has complied with this subsection and has
not voted in favor of or consented to the merger or consolidation of
the date that the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to
sec. 228 or sec. 253 of this title, the surviving or resulting
corporation, either before the effective date of the merger or
consolidation or within 10 days thereafter, shall notify each of the
stockholders entitled to appraisal rights of the effective date of
the merger or consolidation and that appraisal rights are available
for any or all of the shares of the constituent corporation, and
shall include in such notice a copy of this section. The notice shall
be sent by certified or registered mail, return receipt requested,
addressed to the stockholder at his address as it appears on the
records of the corporation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of the notice,
demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of
his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder
who has complied with subsections (a) and (d) hereof and who is
otherwise entitled to appraisal rights, may file a petition in the Court
of Chancery demanding a determination of the value of the stock of all
such stockholders. Notwithstanding the foregoing, at any time within 60
days after the effective date of the merger or consolidation, any
stockholder shall have the right to withdraw his demand for appraisal
and to accept the terms offered upon the merger or consolidation. Within
120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a)
and (d) hereof, upon written request, shall be entitled to receive from
the corporation surviving the merger or resulting from the consolidation
a statement setting forth the aggregate number of shares not voted in
favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of
such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days
after expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.
2
<PAGE> 87
(f) Upon the filing of any such petition by a stockholder, service
of a copy thereof shall be made upon the surviving or resulting
corporation, which shall within 20 days after such service file in the
office of the Register in Chancery in which the petition was filed a
duly verified list containing the names and addresses of all
stockholders who have demanded payment for their shares and with whom
agreements as to the value of their shares have not been reached by the
surviving or resulting corporation. If the petition shall be filed by
the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if
so ordered by the Court, shall give notice of the time and place fixed
for the hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown on the
list at the addresses therein stated. Such notice shall also be given by
1 or more publications at least 1 week before the day of the hearing, in
a newspaper of general circulation published in the City of Wilmington,
Delaware or such publication as the Court deems advisable. The forms of
the notices by mail and by publication shall be approved by the Court,
and the costs thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock
represented by certificates to submit their certificates of stock to the
Register in Chancery for notation thereon of the pendency of the
appraisal proceedings; and if any stockholder fails to comply with such
direction, the Court may dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal,
the Court shall appraise the shares, determining their fair value
exclusive of any element of value arising from the accomplishment or
expectation of the merger or consolidation, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair
value. In determining such fair value, the Court shall take into account
all relevant factors. In determining the fair rate of interest, the
Court may consider all relevant factors, including the rate of interest
which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by
the surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may, in its
discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of
the stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting corporation
pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required,
may participate fully in all proceedings until it is finally determined
that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple
or compound, as the Court may direct. Payment shall be so made to each
such stockholder, in the case of holders of uncertificated stock
forthwith, and the case of holders of shares represented by certificates
upon the surrender to the corporation of the certificates representing
such stock. The Court's decree may be enforced as other decrees in the
Court of Chancery may be enforced, whether such surviving or resulting
corporation be a corporation of this State or any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the
circumstances. Upon application of a stockholder, the Court may order
all or a portion of the expenses incurred by any stockholder in
connection with the appraisal proceeding, including, without limitation,
reasonable attorney's fees and the fees and expenses of experts, to be
charged pro rata against the value of all the shares entitled to an
appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded his appraisal rights as
provided in subsection (d) of this section shall be entitled to vote
such stock for any purpose or to receive payment of dividends or other
distributions on the stock (except dividends or other distributions
payable to stockholders of record at a date which is prior to
3
<PAGE> 88
the effective date of the merger or consolidation); provided, however,
that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the
merger or consolidation as provided in subsection (e) of this section or
thereafter with the written approval of the corporation, then right of
such stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery shall be
dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which
the shares of such objecting stockholders would have been converted had
they assented to the merger or consolidation shall have the status of
authorized and unissued shares of the surviving or resulting
corporation.
4
<PAGE> 89
PROXY
NATIONWIDE CELLULAR SERVICE, INC.
20 East Sunrise Highway
Valley Stream, New York 11582
THIS PROXY IS SOLICITED BY THE COMPANY'S
BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, SEPTEMBER 19, 1995
The undersigned holder of Common Stock of Nationwide Cellular Service,
Inc., a Delaware corporation (the "Company"), hereby appoints Stephen Katz and
Jerome Sanders, and each of them, as proxies for the undersigned, each with
full power of substitution, for and in the name of the undersigned to act for
the undersigned and to vote, as designated below, all of the shares of stock of
the Company that the undersigned is entitled to vote at the Special Meeting of
Stockholders of the Company, to be held on Tuesday, September 19, 1995 at 10:00
a.m. local time, at The Drake Hotel, 440 Park Avenue, New York, New York 10022,
and at any adjournment of postponement thereof.
The Board of Directors recommends a vote FOR approval and adoption of the
Agreement and Plan of Merger.
1. Approval and adoption of the Agreement and Plan of Merger as described
in the Company's Proxy Statement.
/ / FOR / / AGAINST / / ABSTAIN
2. Upon such other matters as may properly come before the Special Meeting
and any adjournments thereof. In their discretion, the proxies are authorized
to vote upon such other business as may properly come before the Special
Meeting and any adjournments or postponements thereof.
(Continue and sign on other side)
<PAGE> 90
(Continued from other side)
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 SET FORTH IN ITEM 1 AND WITH REGARD TO OTHER
MATTERS THAT MAY COME BEFORE THE MEETING OR ANY POSTPONEMENT OR ADJOURNMENT
THEREOF, IN THE DISCRETION OF THE PROXYHOLDERS AS DESCRIBED IN THE PROXY
STATEMENT.
The undersigned hereby acknowledges receipt of the Notice of the Special
Meeting and the accompanying Proxy Statement.
-----------------------------------------------
(Signature)
-----------------------------------------------
(Signature if held jointly)
Date , 1995
-----------------------------------
Please sign exactly as name appears hereon
and mail it promptly even though you now
plan to attend the Special Meeting. When
shares are held by joint tenants, both should
sign. When signing as Attorney, Executor,
Administrator, Guardian or Trustee, please
add your full title as such. If a corporation,
please sign in full corporate name by president
or other authorized officer. If a partnership,
please sign in partnership name by authorized
person.
PLEASE MARK, SIGN AND DATE THIS PROXY CARD
AND PROMPTLY RETURN IT IN THE ENVELOPE PROVIDED.
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES.
