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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993.
COMMISSION FILE NUMBER 1-12342
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AIRTOUCH COMMUNICATIONS
A CALIFORNIA CORPORATION I.R.S. EMPLOYER NUMBER 94-2995122
2999 OAK ROAD
WALNUT CREEK, CA 94596
(510) 210-3900
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
COMMON STOCK, $.01 PAR VALUE,
WITH NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS PACIFIC STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
___ ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item#405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
Based on the composite closing sales price on March 4, 1994, the aggregate
market value of all voting stock held by nonaffiliates was approximately $1.6
billion.
At March 4, 1994, 492,622,960 common shares were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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TABLE OF CONTENTS
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PART I
ITEM 1. Business 1
ITEM 2. Properties 41
ITEM 3. Legal Proceedings 42
ITEM 4. Submission of Matters to a Vote of Security Holders 42
PART II
ITEM 5. Market for Registrant's Common Equity and
Related Stockholder Matters 43
ITEM 6. Selected Financial Data 43
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 50
ITEM 8. Financial Statements and Supplementary Data 67
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 67
PART III
ITEM 10. Directors and Executive Officers of the Registrant 68
ITEM 11. Executive Compensation 71
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management 84
ITEM 13. Certain Relationships and Related Transactions 86
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 91
Unless the context otherwise requires, references to the "Company" herein
include AirTouch Communications and entities over which it has or shares
operational control.
AirTouch, KidTrack and SouthReach are trademarks or service marks of the
Company. This Form 10-K also includes trademarks or service marks of other
companies.
The term "POPs" means the population of a licensed cellular market (based on
population estimates for such market) multiplied by the Company's ownership
interest in the cellular licensee operating in such market as of the date
specified. POPs for international cellular markets include networks under
construction.
Proportionate subscriber data is obtained, for each system over which the
Company has or shares operational control, by multiplying (i) the aggregate
number of subscribers to such system and (ii) the Company's ownership interest
in such system. Proportionate subscriber data does not include subscribers to
systems which the Company does not have or share operational control.
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PART I
ITEM 1. BUSINESS.
OVERVIEW
AirTouch Communications, formerly PacTel Corporation (the "Company"), is one
of the world's leading wireless telecommunications companies, with significant
cellular interests in the United States, Germany, and Japan. The Company's
worldwide cellular interests represented 75.3 million POPs and more than 1.2
million subscribers on a proportionate basis at December 31, 1993. In the
United States, the Company has 34.9 million POPs and controls or shares
control over cellular systems in ten of the thirty largest markets, including
Los Angeles, San Francisco, San Diego, Detroit, and Atlanta. Internationally,
the Company has 40.4 million POPs and holds significant ownership interests,
with board representation and substantial operating influence, in national
cellular systems operating in Germany, Portugal, and Sweden and in cellular
systems under construction in three major metropolitan areas in Japan,
including Tokyo and Osaka. The Company is also the fourth largest provider of
paging services in the United States, based on industry surveys, with
approximately 1.2 million units in service at December 31, 1993.
The following table sets forth the Company's POPs and proportionate
subscribers at December 31, 1993.
PROPORTIONATE
POPS SUBSCRIBERS(1)
---- -------------
(In thousands)
Domestic Cellular:
Southern California........................ 15,551 436
San Francisco Bay Area..................... 3,075 104
Sacramento Valley.......................... 1,817 67
Michigan/Ohio(2)........................... 8,866 267
Georgia and Kansas/Missouri................ 4,825 172
Other domestic interests................... 755
------ ------
Domestic Total........................... 34,889 1,046
------ ------
International Cellular:
Germany(3)................................. 23,378 144
Portugal................................... 2,254 9
Japan(4)................................... 10,332
Sweden..................................... 4,437 7
------ ------
International Total...................... 40,401 160
------ ------
Worldwide Total.......................... 75,280 1,206
====== ======
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(1) Domestic proportionate subscriber data does not include subscribers to
cellular systems over which the Company does not have or share
operational control. For a list of such systems, see "Domestic Cellular."
(2) POPs and proportionate subscribers for the Michigan/Ohio region reflect
both the Company's 50% interest in a partnership with Cellular
Communications, Inc. ("CCI") and the Company's ownership of approximately
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12% of the equity in CCI at December 31, 1993.
(3) Includes POPs and proportionate subscribers represented by a 2.25%
interest which, under the terms of the cellular license, the Company is
under a current obligation to sell to small and medium-sized German
businesses. See "International Cellular-Germany."
(4) Three regional cellular systems in Japan in which the Company has an
ownership interest are under construction and are expected to commence
operations by the end of 1994.
On December 2, 1993, the Company sold 68,500,000 shares of common stock, par
value $.01 per share (the "Common Stock") representing 13.9% of the total
number of outstanding shares, in an initial public offering (the "Offering").
The net proceeds to the Company from the Offering were approximately $1.5
billion. The remaining 86.1% of the Company's outstanding Common Stock is
owned by Pacific Telesis Group ("Telesis"). On March 10, 1994, the Telesis
Board of Directors approved a distribution to Telesis shareowners of all of
the Common Stock of the Company owned by Telesis (the "Spin-off"). The
distribution, which will be tax-free, will be effective as of April 1, 1994
and will be made on a one-for-one basis to Telesis shareowners of record as of
March 21, 1994.
INVESTMENT CONSIDERATIONS
The following factors, in addition to the other information contained
elsewhere herein, should be considered carefully in evaluating the Company and
its business.
RELATIONSHIP BETWEEN THE COMPANY AND TELESIS
In February 1993, the California Public Utilities Commission ("CPUC")
instituted an investigation of the Spin-off for the purpose of assessing any
effects it might have on the telephone customers of Pacific Bell, the
California telephone subsidiary of Telesis. On November 2, 1993, the CPUC
issued a decision authorizing Telesis to proceed with the Spin-off. On
December 3, 1993, two parties filed applications for rehearing with the CPUC
and the CPUC staff filed a petition to modify the decision, all of which were
denied on March 9, 1994. Under California law, judicial review of the CPUC
decision is available only by petition for writ of certiorari or review to the
California Supreme Court, and any such petition must be filed by early April
1994. In the event the California Supreme Court were to review and reverse the
CPUC's decision, no assurance can be given that the CPUC might not reach a new
decision materially less favorable to the Company. In addition, a substantial
period of time could elapse before final resolution of these issues should a
review be granted. Based on the Company's evaluation of the legal and factual
matters relating to the investigation and matters of public and regulatory
policy, the Company believes that any request for judicial review would be
without merit and that the California Supreme Court will deny any such
request.
Until the Spin-off is effected, Telesis will control the Company. The Company
currently has a variety of contractual relationships with Telesis and its
affiliates, including an agreement with respect to the allocation of corporate
opportunities arising prior to the Spin-off. See "Transactions between the
Company and Telesis."
In order to minimize any potential confusion concerning the relationship of
the Company to Telesis, the Company changed its name to "AirTouch
Communications" in March 1994. In addition, the Company has agreed not to use
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the name "PacTel," including the names "PacTel Cellular" and "PacTel Paging,"
after the second anniversary of the Spin-off. Furthermore, the Company's right
to use the PacTel name prior to that date is non-exclusive. As a result, after
the Spin-off Telesis will be free to market wireless services under the
"PacTel" name. The Company may initially encounter difficulty in marketing its
wireless services under its new brand names, and has incurred, and expects to
continue to incur, certain expenses in connection with the transition to such
names.
SHARES ELIGIBLE FOR FUTURE SALE; EFFECT OF THE SPIN-OFF ON THE PUBLIC MARKET
The Spin-off will involve the distribution of 424,000,000 shares of Common
Stock of the Company to the shareowners of Telesis. Substantially all of such
shares would be eligible for immediate resale in the public market. The
Company is unable to predict whether substantial amounts of Common Stock will
be sold in the open market in anticipation of, or following, the Spin-off.
Sales of substantial amounts of Common Stock in the public market, or the
perception that such sales might occur, whether as a result of the Spin-off or
otherwise, could adversely affect the market price of the Common Stock.
Purchasers of the Company's Common Stock prior to the Spin-off are referred to
the statement in the CPUC's decision that anyone who might seek to control the
Company should be mindful that under Section 854 of the California Public
Utilities Code, acquisition of control of a utility without CPUC authorization
is void.
COMPETITION
The offering of cellular and paging services in each of the Company's markets
is expected to become increasingly competitive. In Germany, for example,
Mannesman Mobilfunk GmbH ("MMO") will face competition from a third cellular
operator in 1994, and in Japan, the Company's systems will compete against
three other cellular operators. In the United States, where the Company
currently has one competitor in each cellular market, competition is expected
to increase as a result of recent regulatory and legislative initiatives. The
Federal Communications Commission ("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. When constructed, these systems are expected to be competitive with
the Company's cellular service. One such operator began offering service in
the Los Angeles metropolitan area in early 1994, and has announced plans to
initiate service in the San Francisco Bay Area by mid-1994 and in several
other metropolitan areas, including Dallas, by mid-1995. In addition, the FCC
has recently allocated radiofrequency spectrum for seven personal
communications services ("PCS") licenses in each market. Auctions for such
licenses are expected to begin in late 1994. See "Domestic
Cellular-Competition" and "Domestic Paging-Competition." Although the Company
plans to pursue PCS licenses, whether through consortia or otherwise, the
Company may not be successful in expanding the scale of its wireless services
coverage. In such event, the Company may be adversely affected.
The Company has been conducting tests with both code division multiple access
("CDMA") and time division multiple access ("TDMA") digital technology and
intends to determine which technology to deploy in particular markets based
upon customer service and efficiency considerations. Any commercial
implementation by the Company of CDMA-based service in its markets may be
delayed up to two years beyond the introduction of TDMA-based service by the
Company's competitors in certain such markets. Thus, to the extent the Company
deploys CDMA in certain markets, it may not be able to offer digital service
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for a period during which its competitors may have deployed TDMA. See
"Domestic Cellular-Technology."
The Company faces competition in its pursuit of new wireless
telecommunications opportunities in international markets. In deciding which
companies should engineer, build and manage their new telecommunications
systems, most countries have adopted merit-based selection criteria to ensure
the necessary expertise and financial strength. The Company believes that its
technical and operating expertise have been critical in its success in
attracting desirable joint venture partners and winning international wireless
licenses. However, in prior application processes it is possible that foreign
countries may have taken into account the fact that the Company was a wholly
owned subsidiary of Telesis. Although the Company believes that its
capitalization will be more than adequate to allay any concerns that licensing
authorities or joint venture partners might have regarding the Company's
financial strength, there can be no assurance that this will be the case. See
"Future Funding Requirements." Recently, several countries have included an
"auction" element among the criteria used to determine the award of wireless
licenses. While auction procedures have not been adopted by any of the other
countries in which the Company is competing or planning to compete for
wireless licenses, such procedures may be adopted in the future. In the United
States, the Omnibus Budget Reconciliation Act of 1993 authorized the FCC to
auction future licenses for services utilizing radio frequency spectrum,
including PCS. Where auction procedures apply, whether domestically or
internationally, there can be no assurance that the Company will be willing or
able to compete as successfully as certain of its competitors possessing
greater financial resources.
REGULATION
The licensing, construction, operation, sale and acquisition of wireless
systems, as well as the number of competitors permitted in each market, are
regulated by the FCC and its counterparts in other countries. In addition,
certain aspects of the Company's domestic wireless operations, including the
setting of rates, may be subject to public utility regulation in the state in
which service is provided. The cellular regulatory structure in California is
the subject of a CPUC investigation, which is in rehearing. An order adopted
by the CPUC in October 1992 would have imposed on cellular operators an
accounting methodology to separate wholesale and retail costs, permitted
resellers to operate a switch interconnected to the cellular carrier's
facilities, and required the unbundling of certain wholesale rates to the
resellers. These unbundled rates would have been calculated by applying a rate
of return of 14.75% to the cost basis of assets utilized by such reseller
switch. The issues raised in the rehearing were consolidated with a new
investigation, which commenced in December 1993, into the regulation of all
wireless services provided in California. The CPUC instituted the
investigation to review the wireless market in light of the entrance of
multiple new competitors in 1994 and 1995, including PCS and SMR. The order
proposes a dominant/nondominant regulatory framework whereby cellular carriers
would be classified as dominant carriers as controllers of facilities
characterized by the CPUC as "bottleneck" facilities, and may be subject to
cost-based rate regulation. The CPUC also intends to explore regulation that
would require cellular carriers to offer the radio portion of cellular service
on an unbundled basis from all other aspects of services they may offer.
Nondominant carriers, including PCS and SMR, would be subject to minimal
regulation involving registration, record inspection and consumer safeguards.
The Company believes, and will urge in the proceeding, that regulation of
cellular carriers in California should be reduced, not increased, in order to
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encourage competition and innovation. The CPUC also is investigating whether
California cellular carriers have complied with the CPUC's rules regarding the
filing of applications and permits to locate and construct cell sites. No
assurance can be given that the outcome of either of these investigations, or
regulatory changes that may be enacted by federal, state or foreign
governmental authorities, will not have a material adverse effect on the
Company's business.
The Company, as an affiliate of Telesis' subsidiaries Pacific Bell and Nevada
Bell, is also currently subject to the 1982 consent decree known as the
Modification of Final Judgment ("MFJ"), which imposes lines-of-business
restrictions on affiliates of the Bell operating companies. The Company will
remain subject to the MFJ until the Spin-off. The Company believes, based on
the terms of the MFJ and its underlying policies, that the MFJ will cease to
apply to it thereafter, although there can be no assurance that will be the
case because the MFJ does not expressly provide that former affiliates of Bell
operating companies are not subject to the MFJ. For a further description of
the restrictions imposed by the MFJ and the reasons for the Company's belief
that the MFJ will not apply to it after the Spin-off, see "Regulation-MFJ."
Finally, the FCC granted all cellular licenses in the United States with an
initial 10-year term. The Company has filed an application for renewal of its
Los Angeles cellular license, whose initial term expired in October 1993. The
Company expects that its application will be granted, although an opposing
party has filed an informal objection and a petition to deny the Company's
application, alleging violations of FCC rules and the Communications Act of
1934. See "Regulation-Federal." The Company's licenses in San Diego, Detroit,
Cleveland and Sacramento expire in October 1994 and all of its other
significant domestic cellular licenses expire before the end of 1996. While
the Company believes that each of these licenses will be renewed based upon
FCC rules establishing a presumption in favor of licensees that have complied
with their regulatory obligations during the initial license period, there can
be no assurance that any license will be renewed. The licensing authorities in
Germany and Portugal have not established any procedures for renewal of the
cellular licenses held by MMO and Telecel Comunicacoes Pessoais, S.A.
("Telecel"). Such licenses expire in 2009 and 2006, respectively. See
"Regulation."
POTENTIAL DILUTION OF FUTURE OPERATING RESULTS
The Company is currently pursuing opportunities to expand its wireless
operations in international markets and intends to participate actively in the
license application process for PCS in the United States. To the extent that
the Company is successful in its pursuit of new wireless licenses, the Company
will incur start-up expenses, which, at least in the short-term, will have a
dilutive effect on the Company's future earnings. For example, primarily as a
result of start-up losses from MMO, Telecel, and the Company's other
international wireless ventures, the Company had international equity losses
of $37.5 million (including a $20.7 million tax benefit recognized as a result
of the adoption of SFAS 109), $38.5 million (including a $32.0 million tax
benefit) and $21.4 million for 1993, 1992, and 1991, respectively.
FUTURE FUNDING REQUIREMENTS
The Company expects that proceeds from the Offering and cash flows from
operations will provide the Company with adequate capital to satisfy its
projected funding requirements through mid-1995. The Company, however,
currently is pursuing or planning to pursue several wireless license awards
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and is continually considering acquisitions and other new opportunities for
future growth both domestically and internationally. If the Company is more
successful than anticipated in its pursuit of license opportunities, the
Company may require substantial additional external funding prior to mid-1995
for any related acquisition costs, auction fees, construction costs or
start-up losses. Furthermore, in October 1995, the Company has certain
obligations to purchase additional equity in CCI. These obligations are
expected to require the Company to raise substantial additional funding
through bank borrowings or public or private sales of debt or equity
securities. See "Domestic Cellular-Joint Ventures-New Par." The Company
believes that it will be able to access the capital markets on terms and in
amounts that will be adequate to accomplish its objectives, although there can
be no assurance that that will be the case. The Company was essentially
debt-free at year-end 1993 and that has been assigned a BBB+ implied senior
debt rating by Standard & Poor's based in part upon that agency's analysis of
the expected future financial performance of the Company. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
CCI TRANSACTION
Concurrent with the formation in 1991 of an equally owned joint venture with
CCI ("New Par"), the Company purchased 5% of the equity in CCI, agreed to
purchase additional equity in CCI and obtained the right to acquire all of
CCI's remaining equity in stages over the next several years. The Company
currently owns approximately 12% of the equity in CCI and has the right to
purchase up to an additional 15.5% of CCI's equity in the open market, through
privately negotiated transactions or otherwise, through October 1995. Pursuant
to an agreement between the Company and CCI, in October 1995 the Company is
obligated to purchase up to approximately $720 million of stock and stock
options in CCI, depending on the number of shares tendered to CCI in a related
redemption. The per share purchase price underlying such obligation is $60.
The stock and options that the Company is obligated to purchase represented
approximately 25% of CCI's equity on a fully diluted basis at December 31,
1993. The Company also has the right (but not the obligation) during an
18-month period commencing in August 1996 to purchase the remainder of CCI
(but excluding any assets and related liabilities other than CCI's interest in
New Par unless otherwise agreed by the partners) at a price that reflects
appraised private market value of CCI (excluding such assets and related
liabilities) at that time. In the event that the Company does not exercise
such right, New Par effectively terminates and CCI may be obligated to sell
its assets, including those relating to the joint venture, to a third party.
If New Par assets (and related liabilities) are sold within a specified period
(not to exceed two years) at less than the appraised price, the Company will
be obligated to effect certain "make-whole" payments to CCI's stockholders
based upon the amount of the shortfall. The Company's exercise of its rights
to purchase additional equity in CCI will depend upon the Company's evaluation
of the market for CCI's stock, CCI's business, prospects and financial
condition, other investment opportunities available to the Company, prospects
for the Company's business, general economic conditions, and other factors. No
assurance can be given that the Company's investment in CCI will be favorable
to the Company or that any sale of the joint venture assets, if required, will
be consummated at a price that will eliminate the Company's make-whole
obligation. See "Domestic Cellular-Joint Ventures-New Par."
IMPLICATIONS OF LICENSEE OWNERSHIP STRUCTURE
The Company holds most of its domestic cellular properties through partnership
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interests, a number of which are controlling interests. In addition, the
Company's interests in international wireless licenses are held almost
exclusively through foreign corporations in which the Company is a
significant, but not controlling, shareholder. Many of these partnerships or
corporations were formed in connection with the applications for new licenses.
Others, like New Par and an equally owned joint venture with McCaw Cellular
Communications, Inc. ("CMT Partners"), were formed as part of the Company's
strategy to create regional networks. Under the governing documents for
certain of these partnerships and corporations, decisions as to the timing and
amount of cash distributions may require a greater percentage vote than that
held by the Company. Although the Company has not been materially impeded by
the nature of its wireless ownership interests from pursuing its corporate
objectives, no assurance can be given that it will not experience difficulty
in this regard in the future. The Company expects to enter into similar
arrangements in the future as it participates in consortia to pursue wireless
opportunities.
FLUCTUATIONS IN THE VALUE OF WIRELESS LICENSES
A substantial portion of the Company's assets consists of interests in
entities holding cellular licenses, the value of which will depend
significantly upon the success of the operations of such entities and the
growth and future direction of the industry generally. Values of licenses also
have been affected by fluctuations in the level of supply and demand for such
licenses. Any transfer of control of an entity holding a domestic license is
subject to prior FCC (and possibly state regulatory) approval. Analogous
governmental approvals are required for transfers of interests in foreign
licenses. Where licenses are held by partnerships or foreign corporations,
transfers of interests also are often subject to contractual restrictions. See
"Regulation" and "International Cellular."
The Company believes that major license awards in the next several years will
establish two or more cellular competitors in most of the world's developed
countries and that international cellular opportunities thereafter will arise
primarily through acquisitions or combinations with existing license holders
or through awards by developing countries. Investment returns from
acquisitions of interests in existing entities holding wireless licenses or
from licenses acquired through auctions may be lower than those resulting from
the Company's prior license awards because of the substantial purchase prices
required to acquire such interests. In addition, licenses in developing
countries may involve risks beyond those encountered in developed countries.
EXCHANGE RATE FLUCTUATIONS
Foreign currency exchange rates are increasingly material to the Company's
results of operations. The Company evaluates the risk of significant exchange
rate volatility and its ability to hedge as part of its decision whether to
pursue an international opportunity. A significant weakening against the
dollar of the currency of a country where the Company recognizes revenues or
earnings may adversely affect the Company's results, while any weakening of
the dollar against such currency could have an adverse effect if the Company
is obligated to make significant foreign denominated capital investments in
such country. The Company attempts to mitigate the effect of foreign currency
fluctuations through the use of foreign currency contracts and local banking
accounts.
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RADIOFREQUENCY EMISSIONS CONCERNS
Media reports have suggested that certain radiofrequency ("RF") emissions from
portable cellular telephones might be linked to cancer. The Company has
collected and reviewed relevant scientific information and, based on such
information, is not aware of any credible evidence linking the usage of
portable cellular telephones with cancer. The FCC currently has a rulemaking
proceeding pending to update the guidelines and methods it uses for evaluating
RF emissions in radio equipment, including cellular telephones. While the
proposal would impose more restrictive standards on RF emissions from low
power devices such as portable cellular telephones, it is anticipated that all
cellular telephones currently marketed and in use will comply with those
standards. Additional concerns have been expressed about the safety of
emissions from cellular facilities which transmit calls to subscriber's
telephone handsets. The Company's facilities are licensed by the FCC and
comply with the exposure levels set by the FCC. The CPUC has also opened an
investigation into the safety of cellular facilities licensed in California.
The Company submitted extensive scientific data to the CPUC to support its
conclusion that cellular emissions will cause no adverse health effects. A
CPUC staff report issued in December 1993 concluded that the CPUC is unlikely
to adopt stricter requirements than the FCC absent convincing evidence of
risk.
DOMESTIC CELLULAR
The Company is one of the largest providers of cellular services in the United
States, with interests in some of the most attractive cellular markets based
upon total population and demographic characteristics. The Company's United
States cellular interests represented 34.9 million POPs and more than
1 million proportionate subscribers at December 31, 1993. The Company has or
shares operational control over cellular systems in Los Angeles, San
Francisco, San Diego, Atlanta, Detroit, Cleveland, San Jose, Sacramento,
Cincinnati, and Kansas City. These cities represent ten of the thirty largest
cellular markets in the United States. The Company also has or shares
operational control over cellular systems in 34 additional markets, including
Columbus, Dayton and Toledo, Ohio, and owns minority interests in cellular
systems serving 10 other markets, including Dallas/Fort Worth, Tucson, and Las
Vegas.
The FCC licenses only two cellular systems in each market. One license (the
"Block B" license) was initially reserved for applicants affiliated with a
company engaged in the wireline telephone business (the "wireline licensee")
and the other license (the "Block A" license) was initially reserved for a
non-wireline licensee. Through FCC license applications and grants, the
Company acquired controlling interests in wireline licensees in San Diego, the
greater Los Angeles area, including Oxnard and Ventura, and the greater
Sacramento area, including Stockton and Reno. Following the FCC's initial
license awards, the Company has aggressively pursued the acquisition of
additional cellular interests throughout the United States. In evaluating its
acquisition opportunities, the Company considers the attractiveness of the
market for cellular services, the Company's ability to control or
significantly influence the operations of the system and the opportunity to
create a regional network through integration with the Company's existing
systems or by acquiring licenses in adjacent markets.
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The following table sets forth as of December 31, 1993, (i) by region the
markets in which the Company owns an interest in a cellular system,
(ii) whether each such system is the wireline or non-wireline licensee, (iii)
the total population of the market served by such system, (iv) the Company's
percentage ownership in the operator of the system, and (v) the Company's POPs
based on its percentage ownership.
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<TABLE>
<CAPTION>
WIRELINE/ TOTAL
NON- POPULATION(1) OWNERSHIP POPS
MARKET WIRELINE (IN THOUSANDS) PERCENTAGE (IN THOUSANDS)
------ -------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
SOUTHERN CALIFORNIA REGION
LOS ANGELES (5)(7) . . . . . . . . . . WL 14,588 84.00% 12,254
SAN DIEGO (5)(7) . . . . . . . . . . . WL 2,640 100.00% 2,640
OXNARD/VENTURA (5)(7) . . . . . . . . . WL 693 50.00% 347
LAS VEGAS, NV (4) . . . . . . . . . . . WL 899 27.79% 250
SANTA BARBARA (6) . . . . . . . . . . . WL 379 10.00% 38
SAN LUIS OBISPO (6) . . . . . . . . . . WL 223 10.00% 22
------ ------
SUBTOTAL . . . . . . . . . . . . . . 19,422 15,551
------ ------
SAN FRANCISCO BAY AREA REGION
SAN FRANCISCO/OAKLAND (2)(7)(8) . . . . NWL 3,797 47.00% 1,785
SAN JOSE (2)(7)(8) . . . . . . . . . . NWL 1,536 47.00% 722
VALLEJO (2)(4)(7) . . . . . . . . . . . NWL 489 50.00% 245
SANTA ROSA (2)(4)(7) . . . . . . . . . NWL 409 40.18% 164
SALINAS/MONTEREY (2)(4)(7) . . . . . . NWL 371 42.96% 159
------ ------
SUBTOTAL . . . . . . . . . . . . . . 6,602 3,075
------ ------
</TABLE>
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<TABLE>
<CAPTION>
WIRELINE/ TOTAL
NON- POPULATION(1) OWNERSHIP POPS
MARKET WIRELINE (IN THOUSANDS) PERCENTAGE (IN THOUSANDS)
------ -------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
SACRAMENTO VALLEY REGION
SACRAMENTO (5)(7) . . . . . . . . . . . WL 1,474 49.88% 735
STOCKTON (5)(7) . . . . . . . . . . . . WL 514 49.88% 256
MODESTO (5)(7) . . . . . . . . . . . . WL 411 49.88% 205
RENO, NV (5)(7) . . . . . . . . . . . . WL 277 49.88% 138
CHICO (5)(7) . . . . . . . . . . . . . WL 194 49.88% 97
REDDING (5)(7) . . . . . . . . . . . . WL 165 48.43% 80
YUBA CITY (5)(7) . . . . . . . . . . . WL 133 49.88% 66
STOREY, NV (5)(7) . . . . . . . . . . . WL 103 49.88% 51
TEHEMA (5)(7) . . . . . . . . . . . . . WL 96 49.88% 48
SIERRA (5)(7) . . . . . . . . . . . . . WL 89 49.88% 44
LANDER, NV (4) . . . . . . . . . . . . WL 47 50.00% 24
MODOC (5)(7) . . . . . . . . . . . . . WL 59 25.00% 15
MINERAL, NV (5)(7) . . . . . . . . . . WL 27 50.00% 14
WHITE PINE, NV (5)(7) . . . . . . . . . WL 13 100.00% 13
DEL NORTE (6) . . . . . . . . . . . . . WL 209 5.60% 12
FRESNO (6) . . . . . . . . . . . . . . WL 720 1.10% 8
BAKERSFIELD (6) . . . . . . . . . . . . WL 602 1.10% 7
VISALIA/TULARE (6) . . . . . . . . . . WL 340 1.10% 4
------ ------
5,473 1,817
------ ------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
WIRELINE/ TOTAL
NON- POPULATION(1) OWNERSHIP POPS
MARKET WIRELINE (IN THOUSANDS) PERCENTAGE (IN THOUSANDS)
------ -------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
MICHIGAN/OHIO REGION (3)
DETROIT, MI (4)(7) . . . . . . . . . . NWL 4,597 55.94% 2,572
CLEVELAND, OH (4)(7) . . . . . . . . . NWL 1,847 55.94% 1,033
CINCINNATI, OH (4)(7) . . . . . . . . . NWL 1,495 55.94% 836
COLUMBUS, OH (4)(7) . . . . . . . . . . NWL 1,253 55.94% 712
DAYTON, OH (4)(7) . . . . . . . . . . . NWL 855 55.94% 478
TOLEDO, OH/MI (4)(7) . . . . . . . . . NWL 790 55.94% 442
GRAND RAPIDS, MI (4)(7) . . . . . . . . NWL 719 55.94% 402
AKRON, OH (4)(7) . . . . . . . . . . . NWL 674 55.94% 397
FLINT, MI (4)(7) . . . . . . . . . . . NWL 504 55.94% 282
LANSING, MI (4)(7) . . . . . . . . . . NWL 500 55.94% 280
SAGINAW/BAY CITY, MI (4)(7) . . . . . . NWL 402 55.94% 225
CANTON, OH (4)(7) . . . . . . . . . . . NWL 400 55.94% 224
HAMILTON/MIDDLETOWN, OH (4)(7) . . . . NWL 310 55.72% 173
LORAIN/ELYRIA, OH (4)(7) . . . . . . . NWL 277 55.94% 155
LIMA, OH (4)(7) . . . . . . . . . . . . NWL 221 55.94% 124
MERCER, OH (4)(7) . . . . . . . . . . . NWL 219 55.94% 123
MUSKEGON, MI (4)(7) . . . . . . . . . . NWL 186 62.23% 116
SPRINGFIELD, OH (4)(7) . . . . . . . . NWL 185 49.96% 92
CLINTON, OH (4)(7) . . . . . . . . . . NWL 167 55.94% 93
MANSFIELD, OH (4)(7) . . . . . . . . . NWL 127 55.94% 71
ASHTABULA, OH (4)(7) . . . . . . . . . NWL 101 55.94% 56
------ ------
SUBTOTAL . . . . . . . . . . . . . . 15,848 8,866
------ ------
GEORGIA REGION
ATLANTA (5)(7) . . . . . . . . . . . . NWL 2,904 100.00% 2,904
CHATTOOGA (5)(7) . . . . . . . . . . . NWL 1,202 100.00% 202
ATHENS (5)(7) . . . . . . . . . . . . . NWL 162 86.84% 141
JASPER (5)(7) . . . . . . . . . . . . . NWL 120 100.00% 120
------ ------
SUBTOTAL . . . . . . . . . . . . . . 3,388 3,367
------ ------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
WIRELINE/ TOTAL
NON- POPULATION(1) OWNERSHIP POPS
MARKET WIRELINE (IN THOUSANDS) PERCENTAGE (IN THOUSANDS)
------ -------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
KANSAS/MISSOURI REGION
KANSAS CITY, KS/MO (2)(4)(7) . . . . . NWL 1,487 50.00% 744
WICHITA, KS (2)(5)(7) . . . . . . . . . NWL 475 100.00% 475
TOPEKA, KS (2)(5)(7) . . . . . . . . . NWL 196 78.00% 153
ST. JOSEPH, MO (2)(4)(7) . . . . . . . NWL 98 43.50% 43
LAWRENCE, KS (2)(4)(7) . . . . . . . . NWL 86 50.00% 43
------ ------
SUBTOTAL . . . . . . . . . . . . . . 2,342 1,458
------ ------
OTHER
DALLAS/FORT WORTH, TX (2)(4) . . . . . NWL 4,202 17.00% 714
TUCSON, AZ (4) . . . . . . . . . . . . NWL 693 5.88% 41
------ ------
SUBTOTAL . . . . . . . . . . . . . . 4,895 755
------ ------
TOTAL . . . . . . . . . . . . . . . . . . 57,970 34,889
====== ======
______________
(1) 1993 DONNELLY MARKETING INFORMATION SERVICE POPULATION ESTIMATES.
(2) THESE MARKETS WERE INVOLVED IN THE COMPANY'S TRANSACTION WITH MCCAW CELLULAR COMMUNICATIONS,
INC. ("MCCAW"), WHICH CLOSED ON SEPTEMBER 1, 1993. SEE "-JOINT VENTURES-CMT PARTNERS."
(3) THE COMPANY'S OWNERSHIP PERCENTAGE AND POPS FOR THE MICHIGAN/OHIO REGION REFLECT BOTH
THE COMPANY'S 50% OWNERSHIP INTEREST IN NEW PAR AND THE COMPANY'S OWNERSHIP OF APPROXIMATELY
12% OF THE EQUITY IN CCI AT DECEMBER 31, 1993.
(4) OPERATING RESULTS ARE ACCOUNTED FOR UNDER THE EQUITY METHOD.
(5) OPERATING RESULTS ARE ACCOUNTED FOR UNDER THE CONSOLIDATION METHOD.
(6) THE COMPANY'S INTEREST IS ACCOUNTED FOR UNDER THE COST METHOD.
(7) OPERATING RESULTS ARE INCLUDED IN THE PROPORTIONATE CELLULAR OPERATING RESULTS PRESENTED
IN ITEM 6, "SELECTED FINANCIAL DATA," AND IN ITEM 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-PROPORTIONATE RESULTS OF OPERATIONS."
(8) THROUGH AUGUST 31, 1993, OPERATING RESULTS WERE ACCOUNTED FOR UNDER THE CONSOLIDATION
METHOD. BEGINNING SEPTEMBER 1, 1993, OPERATING RESULTS ARE ACCOUNTED FOR UNDER THE EQUITY
METHOD.
</TABLE>
15
<PAGE>
MARKETING
The Company aggressively markets its cellular services through its own sales
force and arrangements with independent agents, as well as newspaper and radio
advertising, toll-free telephone numbers and affiliations with nationwide
groups of cellular carriers under the brand names MobiLink and Cellular One.
In certain markets, the Company's cellular service is sold through resellers
who, pursuant to FCC requirements, are allowed to purchase blocks of cellular
telephone numbers and access to cellular services at wholesale rates for
resale to the public. Agents are independent contractors who solicit customers
for the Company's cellular service, and typically include automobile dealers,
specialized electronics stores and department stores. The Company generally
pays its agents a commission for each subscriber who uses the Company's
service for a specified period and makes residual payments to the agent based
on the subscriber's ongoing service charges. Recently, the Company has been
placing greater emphasis on residual payments in order to align more closely
the payment of sales commissions with revenues. The Company is continually
seeking new methods of marketing its cellular service. In 1991 and 1992, the
Company introduced cellular telephone rental programs in the systems it
contributed to New Par and in its Atlanta system. Under these rental programs,
new subscribers rent cellular telephones for a nominal monthly fee and commit
to a two-year subscription. The Company believes that this program, which
eliminates the need to purchase a cellular telephone, has contributed
significantly to subscriber growth and has reduced customer disconnects in
these markets.
The Company and fourteen other cellular companies have formed an alliance to
market their Block B (wireline) cellular service in the United States and
Canada under the brand name MobiLink. The group has set common standards for
cellular service, set up cellular telephone service centers, established
standard dialing codes for customer service, dialing instructions and
technical assistance and offers a 24-hour customer service line. Members of
the MobiLink group utilize new software that makes it much easier for
subscribers to make and receive telephone calls when they are traveling within
the area covered by the MobiLink network. This national network became
operational in July 1993 and covers more than 80% of the population of the
United States and Canada. Through licensing agreements, MobiLink expects to
cover virtually all of North America.
The Company's block a (non-wireline) cellular systems in the San Francisco Bay
Area and in Michigan/Ohio are part of the North American Cellular Network, an
alliance of non-wireline cellular operators that offers service under the
Cellular One brand name in broad areas throughout the United States and
Canada. The North American Cellular Network allows subscribers to travel from
city to city within the coverage area and have their calls and custom calling
features, such as call waiting, three-way calling and call-forwarding, follow
them automatically without having to notify callers of their location or to
rely on access codes.
In June 1993, the Company and three other cellular operators entered into an
arrangement to simplify and enhance calling services for their subscribers in
the southeastern United States. The new service, SouthReach, connects the
Company's Georgia regional network with nearby systems of other operators,
enabling cellular customers in an area covering more than 85,000 square miles
to make and receive intermarket calls as easily as calls in their home
markets. Another feature of SouthReach allows subscribers to continue calls
without interruption while traveling between systems served by the four
operators.
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<PAGE>
SERVICES
In addition to providing high quality wireless telephone service, in most
markets the Company makes available to subscribers custom calling services
such as voice-mail, call-forwarding, call-waiting, three-way calling,
no-answer and busy transfer. In some markets, the Company also provides news,
weather, sports and financial news recordings. The Company charges its
subscribers for service activation, monthly access, per-minute airtime and
custom calling features. The Company pays the local telephone service company
directly for interconnection of cellular telephone calls with the wireline
telephone network. Subscribers are billed directly by their selected long
distance carrier or the Company provides the billing services for a fee
charged to the long distance carrier. The Company generally offers a variety
of pricing options, most of which combine a fixed monthly access fee and
per-minute charges.
Service is generally arranged on a month-by-month basis with access fees paid
in advance. The Company has developed a variety of rate plans to serve
specific market segments. The Company has roaming agreements with other
cellular carriers across the United States and Canada that permit the
Company's subscribers to receive service while they are traveling in cellular
markets other than those served by the Company.
The Company maintains a customer service department in each of its cellular
markets for billing and service inquiries. Using a toll free telephone number,
customers are able to report any problems and obtain up-to-date information
with respect to their accounts. In each of its markets, the Company has
technicians on call on a 24-hour basis. Through the use of sophisticated
monitoring equipment, these technicians are able to check the performance of
the cellular network.
The Company also has improved its business operations to deliver a higher
level of customer service. The Company recently developed automated systems
designed to sharply reduce the time it takes to activate service for a new
customer. Paperless activation now allows the Company to perform a credit
check and activate a cellular telephone in approximately ten minutes.
Previously, this process consumed an hour or more. The Company is exploring
the possibility of introducing remote phone programming capability in
connection with its digital cellular service.
NEW SERVICES
WIRELESS DATA. The Company is developing additional revenue sources such as
wireless data for delivery over its existing cellular networks. In 1992, the
Company established a wireless data division which focuses on opportunities
for using the Company's cellular network to transmit data. For example, the
Company and three other cellular carriers were the primary developers of the
United States' first nationwide cellular data service for United Parcel
Service ("UPS"). This service allows UPS drivers, who record package tracking
information on an electronic clipboard, to send the information over the
networks of cellular carriers throughout the country, including the Company's
networks, to UPS' private network and ultimately to UPS' mainframe computers.
The Company and several other cellular operators have formed a consortium to
test packet-switching technology, which the Company believes will create
significant new opportunities in the wireless data market. Packet-switching
technology is designed to allow data to be transmitted much more quickly and
efficiently than the current circuit-switching technology. Packet-switching
17
<PAGE>
uses the intervals between voice traffic on cellular channels to send packets
of data, instead of tying up dedicated cellular channels. The packets of
information, which may be transmitted using several different channels, are
reassembled and directed to the correct party at the receiving end. It is
expected that the development of this technology will make it possible for
cellular carriers to offer a broad range of cost-effective wireless data
services, including fax and electronic mail transmissions and communications
between laptop units and local area networks or other computer databases. In
November 1993, the Company announced that it expects to begin offering data
transmission services using packet-switching technology in most of its
domestic markets by the end of 1994.
PERSONAL COMMUNICATIONS SERVICES. The Company is actively exploring
opportunities to provide PCS. While the marketing and technical elements of
PCS are not yet well defined, the Company anticipates that PCS will involve a
network of small, low-powered transceivers placed throughout a neighborhood,
business complex, community or metropolitan area to provide customers with
mobile voice and data communications. PCS subscribers could have dedicated
personal telephone numbers and would communicate using small digital radio
handsets that can be carried in a pocket or purse. PCS also could be used for
data transmission utilizing computers, portable facsimile machines or other
devices. Through an affiliate of Telesis, the Company currently is conducting
trials under experimental licenses for PCS granted by the FCC. The Company
believes that it is capable of offering PCS over its existing cellular
networks and plans to do so where there is sufficient demand for such
services. The Company is also planning to participate actively, through
consortia or otherwise, in the auction process for PCS licenses.
LONG DISTANCE SERVICES. The Company believes that following the Spin-off it
will no longer be subject to the restrictions of the MFJ. Among other things,
freedom from the MFJ would permit the Company to begin providing long distance
telephone services across local access and transport area ("LATA") boundaries.
As an affiliate of a Bell operating company, the Company currently is
prohibited, absent a court waiver, from directly connecting calls across
LATAs, even within its contiguous operating areas. See "Regulation-MFJ." Such
calls must be directed to the subscriber's interexchange carrier, which
separately charges the subscriber for long distance services. Unencumbered by
the MFJ, the Company would be able to complete its subscribers' interexchange
calls by a variety of methods, including through an exclusive arrangement with
a single interexchange carrier or by establishing its own microwave network.
Either of these methods would create a new source of revenue and allow its
subscribers to avoid a separate long distance charge.
TECHNOLOGY
The Company is an industry leader in cellular technology. The Company's Los
Angeles network was the first to introduce cell site sectorization and
overlay/underlay techniques which simultaneously provide increased coverage in
high traffic areas and umbrella coverage of difficult terrain. The Company was
an early proponent of research into CDMA and worked with Qualcomm Incorporated
("Qualcomm") and others to develop this technology. In July 1993, the Cellular
Telephone Industry Association adopted an interim standard based on Qualcomm's
CDMA technology. In 1991, the Company became the first to deploy microcells,
which make use of low power antennas located significantly farther from cell
sites than permitted by earlier technology, thereby allowing coverage inside
buildings, in canyons and tunnels and in other areas that are difficult or
impossible to serve with conventional cellular technology. Microcell
technology also includes a fast hand-off capability, which is valuable in
18
<PAGE>
downtown settings where a greater number of antennas at lower power settings
allows the network to handle high traffic densities.
The Company also has developed advanced network design and management tools.
The Company's proprietary software predicts cell site coverage, which is
critical in engineering new cellular networks and in making design
improvements to existing systems. Other proprietary software developed by the
Company detects and analyzes system problems, allowing the Company to react
quickly, often before the problem noticeably affects service quality.
The Company introduced digital cellular service in its network in the San
Francisco Bay Area in October 1993 and plans to introduce digital service in
its other regional networks by late 1995. Currently, in most markets the radio
transmission between the cellular telephone and the cell site is an analog
transmission, and both the cellular telephone and the transmitting equipment
are designed to send and receive voice signals exclusively in this mode. The
Company believes that digital technology will offer many advantages over
analog technology, including substantially increased capacity, improved voice
quality, greater call privacy, lower operating costs and the opportunity to
provide improved data transmissions. Because existing analog cellular
telephones will not be able to receive digital transmissions from the cell
site, the Company expects that the transition by subscribers who prefer
digital service will occur over a number of years. During such transition,
cellular systems will maintain transmitting equipment to serve both formats
and it is expected that manufacturers will make dual-mode cellular telephones
capable of sending and receiving both analog and digital transmissions in
order to meet subscriber needs for roaming.
The Company has been conducting tests with both CDMA and TDMA and intends to
determine which to deploy in particular markets based upon customer service
and efficiency considerations. The Company has agreed to purchase CDMA
infrastructure equipment for Los Angeles and certain other markets as well as
CDMA-compatible cellular telephone handsets for sale in such markets following
the installation of the system. The Company will continue to evaluate the
choice of a digital standard in all of its markets. In certain markets, the
Company may defer the installation of digital equipment until competitive
conditions or capacity constraints warrant digital service.
COMPETITION
The cellular services industry in the United States is highly competitive.
Cellular systems compete principally on the basis of network quality, customer
service, price and coverage area. The Company's chief competition in each
market is from the other cellular licensee. In certain markets, the Company
also competes at the retail level with resellers. The Company believes that
its technological expertise, emphasis on customer service, large coverage
areas, and development of new products and services make it a strong
competitor.
Several recent FCC initiatives indicate that the Company is likely to face
greater competition in the future. The FCC has permitted SMR system operators
to construct digital mobile communications systems on existing SMR frequencies
in many metropolitan areas throughout the United States. When constructed,
these multi-site configuration systems will offer interconnected mobile
telephone service and are expected to compete with the Company's cellular
service. One such operator, NexTel Communications, Inc., initiated service in
the Los Angeles metropolitan area in early 1994 and has announced plans to
initiate service in the San Francisco Bay Area by mid-1994 and in several
19
<PAGE>
other metropolitan areas, including Dallas, by mid-1995. At this time, the
Company is unable to predict the extent to which NexTel's service will
successfully compete with cellular service. In March 1994, NexTel and MCI
announced the formation of a strategic alliance to provide wireless services
under the MCI brand name throughout the United States. As a result, the
Company's domestic cellular systems may encounter such competition sooner then
previously anticipated.
Pursuant to the FCC's decision to allocate radio frequency spectrum for PCS,
seven new licenses will be granted: two 30 MHz blocks, one 20 MHz block and
four 10 MHz blocks. (By comparison, the two cellular carriers in each market
currently have 25 MHz of spectrum each.) Each 30 MHz license will authorize
the holder to provide service in one of 51 geographic market areas covering
the United States referred to as Major Trading Areas ("MTAs"), and each of the
other licenses will cover one of 492 Basic Trading Areas ("BTAs"),
representing smaller areas within the MTAs. The rules adopted by the FCC
permit a licensee to acquire up to 40 MHz in a single service area. Cellular
licensees (defined as entities owning more than 20% of a cellular system) are
not restricted from participating in PCS in areas outside of their cellular
service areas, although they are only permitted to obtain a 10 MHz block in
their cellular service areas. The Company expects that certain PCS services
will be competitive with the Company's cellular service.
AT&T's announcement in August 1993 that it will merge with McCaw may increase
the level of competition that the Company faces in Los Angeles and Sacramento,
where the Company's cellular operations compete with McCaw. The merger will
permit McCaw to use the AT&T brand name in marketing its cellular services and
give McCaw access to AT&T's sales, customer service and distribution channels,
as well as to the research and development capabilities of AT&T Bell
Laboratories. The Company and McCaw jointly operate cellular systems in San
Francisco, San Jose, Dallas, Kansas City and certain other markets through CMT
Partners. See "Joint Ventures CMT Partners."
JOINT VENTURES
NEW PAR. In August 1991, the Company and CCI formed New Par, to which CCI
contributed its cellular systems, located primarily in Ohio, and the Company
contributed its cellular systems in Michigan and Ohio. New Par is equally
owned by CCI and the Company and is governed by a four-person committee, with
two members appointed by each company.
The Company and CCI have entered into an agreement (the "Merger Agreement")
under which CCI will, in October 1995, offer to redeem up to 10.04 million
shares of its redeemable stock at $60 per share and the Company is obligated
to purchase from CCI shares or stock options representing in the aggregate
approximately 2.4 million shares at a price of $60 per share, less the
exercise price in the case of stock options (the "MRO"). The Company is
obligated to purchase from CCI at $60 per share a number of newly issued
shares of stock equal to the number of shares purchased by CCI in the MRO.
Pursuant to the Merger Agreement, the Company acquired approximately 5% of CCI
and obtained the right to acquire all of CCI's remaining equity in stages over
the next several years. The Company currently owns approximately 12% of CCI
and has the right to purchase up to an additional 15.5% of CCI's equity in the
open market, through privately negotiated purchases or otherwise, through
October 1995.
Beginning in August 1996, the Company has the right, by causing CCI to redeem
all of its redeemable stock not held by the Company (the "Redemption"), to
20
<PAGE>
acquire CCI, including its interests in New Par and such other CCI assets and
related liabilities as the Company and CCI may agree upon, at a price per
share that reflects the appraised private market value of New Par (and such
other CCI assets and related liabilities as the Company and CCI agree shall be
retained) determined in accordance with an appraisal process set forth in the
Merger Agreement. The Company has the opportunity to evaluate up to three
different appraisal values during the 18-month period beginning in August
1996, prior to determining whether to cause the Redemption. The Company will
finance the Redemption by providing to CCI any necessary funds.
In the event that the Company does not exercise its right to cause the
Redemption, CCI is obligated to promptly commence a process to sell itself
(and, if directed by the Company, the Company's interest in New Par). In the
event that the Company does not direct CCI to sell the Company's interest in
New Par, such partnership will dissolve and the assets will be returned to the
contributing partner. CCI may, in the alternative, purchase the Company's
interest in CCI or CCI and New Par, as the case may be, at a price based upon
their appraised values determined in accordance with the Merger Agreement. If
CCI or its interest in New Par is sold within certain specified time periods
not to exceed two years for a price less than the appraised private market
value, the Company is obligated to pay to each other CCI stockholder a
specified percentage of such shortfall.
In connection with the Merger Agreement, Telesis delivered a letter of
responsibility in which it agreed, among other things, to continue to own a
controlling interest in the Company. Telesis and CCI have agreed to the
termination of such letter of responsibility at the time that Telesis no
longer has a controlling interest in the Company in exchange for the provision
by the Company of substitute credit assurance, consisting of a $600 million
letter of credit and a pledge of up to 15% of CCI's shares on a fully diluted
basis, for the Company's obligations in connection with the MRO and for the
payment of any make-whole obligation, respectively.
CMT PARTNERS. In September 1993, the Company and McCaw formed CMT Partners, an
equally owned partnership that holds interests in cellular systems operating
in San Francisco, San Jose, Dallas, Kansas City and certain adjacent suburban
areas. CMT Partners is governed by a four-person committee consisting of two
members from each company. The Company's contributions to the partnership
included its 61.1% interest in Bay Area Cellular Telephone Company ("BACTC"),
which operates in the San Francisco and San Jose markets, and its 34% interest
in the non-wireline licensee operating in the Dallas/Fort Worth market, as
well as certain assets and liabilities of its retail reseller operations in
the San Francisco Bay Area. McCaw contributed its 32.9% interest in BACTC, as
well as its interests in the nearby Vallejo, Santa Rosa and Salinas/Monterey
systems. McCaw also contributed its interests in Kansas City, Missouri,
Lawrence, Kansas and St. Joseph, Missouri. In addition, the Company purchased
McCaw's interests in the Wichita and Topeka, Kansas cellular systems for $100
million. The partnership has a 99-year term. Upon dissolution of CMT Partners
its assets will be sold unless either the Company or McCaw elects to have the
assets distributed in kind. If that election is made, the Dallas/Fort Worth
interest would be distributed to McCaw, the Kansas/Missouri interests would be
distributed to the Company, and the interests in the other systems held by the
partnership would be distributed pro rata to both partners.
INTERNATIONAL CELLULAR
The Company has been highly successful in obtaining significant interests in
cellular licenses in some of the world's most attractive markets. The
21
<PAGE>
Company's cellular interests in Germany, Portugal and Japan reflect government
preferences or requirements that local owners hold at least a majority
interest in their telecommunications licenses. However, the Company has board
representation and substantial operating influence in each of its cellular
systems outside of the United States. The Company has the second largest
ownership position in MMO and three of the Japanese companies, and currently
has the third largest ownership position in Telecel. In addition, agreements
among the shareholders of MMO and Telecel require the Company's consent on
such matters as annual budgets and business plans, capital calls, the
incurrence of certain recourse debt and certain other fundamental corporate
actions. The Company has appointed the director of engineering of each of its
cellular systems in Germany, Portugal and Japan. Each of these directors is
responsible for network buildout and technical operations.
GERMANY
The Company currently holds a 29.15% interest and is the second largest
shareholder of MMO, the joint venture that holds the second of three national
digital cellular licenses in Germany. The Company's interest in MMO includes a
2.25% interest which, under the terms of MMO's license, the Company is under a
current obligation to sell to small or medium-sized German businesses. MMO
began commercial operations in June 1992 and had approximately 493,000
subscribers at December 31, 1993. The system presently covers approximately
94% of the population, including all of the major cities and highways.
MMO's network, known as "D2," was the world's first commercial cellular system
to be operated on the pan-European Global System for Mobile Communications
("GSM"). The Company played the lead role in the design and construction of
the D2 network. In June 1991, the government extended MMO's license by four
years to December 31, 2009 in exchange for MMO's agreement to extend the
network to the former East Germany. The Company believes that Germany's dense
population, high per capita income and attractive workforce profile make it a
promising market for cellular services. Cellular use may have been
constrained in Germany by the quality of the state-owned analog system, which
operated without competition until MMO initiated operations in June 1992, and
by relatively high analog cellular telephone and service prices. Cellular
penetration in Germany is approximately 2.2%, as compared to approximately
5.5% in the United States. There can be no assurance, however, that cellular
penetration in Germany will be comparable to that in the United States.
The other principal shareholders of MMO and their ownership interests are
Mannesmann AG ("Mannesmann"), a German industrial engineering company and
steel manufacturer (55.02%, including 2.25% held in trust for sale to small
and medium-sized German businesses), Deutsche Genossenschaftsbank, a German
commercial bank (10.29%), and Cable & Wireless plc, a British
telecommunications company (5.03%). At December 31, 1993, MMO's contributed
capital was approximately DM 1.62 billion (US $931 million), of which the
Company's contribution has been approximately DM 472 million (US $271
million). MMO does not expect to require further capital contributions from
its shareholders and will fund its remaining capital needs through operating
cash flows and bank loans. MMO has a DM 1.1 billion credit facility, of which
DM 518 million (US $298 million) had been drawn down at December 31, 1993.
OPERATIONS. The Company has had significant participation in the design and
operation of the D2 network. In addition to appointing the director of
engineering, the Company provided a large technical staff during the design
and construction phase of operations. The Company also has contributed to the
development and installation of MMO's customer service and billing system and
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has assisted with MMO's business planning and marketing, sales and
distribution arrangements. The Company continues to influence MMO's operations
through its right to appoint two of the eight members of the shareholder
board, including the deputy chairman.
The Company believes that D2's success in attracting customers reflects the
significantly improved quality of the digital system, falling equipment
prices, D2's customer-oriented service and aggressive marketing. For example,
all D2 subscribers have 24-hour toll-free telephone access to customer
service. Demand is expected to increase as hand-held cellular telephones, as
well as roaming on the GSM standard within Europe, become more available.
MMO utilizes three channels of distribution. Resellers have provided the most
significant portion of D2's subscribers to date. While they receive a discount
from the retail rate based on customer longevity, the Company believes that
such resellers nonetheless are an efficient means of distribution. D2 also
makes use of an increasing number of third-party agents and dealers. Agent
commissions generally are paid per new subscriber and are based primarily on
the volume of subscribers generated by the dealer. The remainder of D2's
customers are acquired through direct sales.
While D2's per-minute charges are relatively high by United States standards,
they are comparable to those of the competing digital cellular system. Unlike
in the United States, there is no additional charge for long distance service
within Germany. In addition, because D2 is a national franchise, there is no
roaming charge within Germany, although such a charge is imposed for
international roaming. In further contrast to United States systems, the
calling party in Germany pays for cellular calls. Accordingly, cellular users
in Germany are generally less reluctant than their counterparts in the United
States to make available their cellular telephone numbers.
COMPANY RIGHTS AND OBLIGATIONS. Under MMO's joint venture agreement, the
Company has significant participation in management. The Company's consent is
required for such matters as increases in capital contributions, incurrence of
certain recourse debt, material transactions with affiliates and any
fundamental corporate transactions. In addition, the Company must consent to
the adoption of annual budgets and business plans (which cover, among other
matters, distributions to the partners, external financing and projected
reserves). MMO's senior management group consists of six members, of which the
Company has appointed the director of engineering and, jointly with
Mannesmann, the director of marketing and the director of operations. In
addition, the Company and Mannesmann each appoint one member to a technical
committee, which is charged with resolving matters presented by the director
of engineering and must do so unanimously. The joint venture agreement
provides that any transfer of MMO shares is subject to the other partners'
rights of first refusal. Under the terms of the license, any transfer of an
ownership interest in MMO must be approved by the German telecommunications
ministry. Mannesmann and the Company have committed in principle to
maintaining a substantial share of ownership in MMO until certain debt is
retired pursuant to agreements with MMO's banks.
COMPETITION. Deutsche Bundespost Telekom ("DBPT"), the state-owned telephone
and postal carrier, currently is MMO's sole competitor. It operates three
mobile telephone networks. DBPT's "D1" network also operates on the GSM
standard. D1 commenced operations in July 1992 and had a reported 480,000
subscribers at January 1, 1994. Although D1 benefits from DBPT's name
recognition and a well-developed distribution channel integrated with the
landline service, the Company believes that D2 competes favorably with the
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state-owned digital system based upon network quality and customer service.
DBPT also operates "B-Netz," which is an older system with fewer than 20,000
subscribers. It is no longer marketed and is used primarily by government
agencies. DBPT's third system, "C-Netz," is an analog cellular system covering
all of Germany that began operations in 1985 and is reportedly near capacity,
with approximately 800,000 subscribers reported at January 1, 1994.
In February 1993, the German government awarded a third digital license to
E-Plus Mobilfunk GmbH. The third digital system, known as "E1," will
reportedly emphasize buildout initially in eastern Germany, where telephone
density is much lower, and is expected to begin commercial operations in
Berlin and Leipzig by the spring of 1994. The terms of the license require
that over 90% of the population of Germany be covered by 1997. The pricing for
this service has not been announced. The Company expects E1 to be a
significant competitor in the German cellular market. Because E1 will use a
different set of frequencies than those of the GSM cellular systems being
constructed throughout Europe, E1 subscribers will in general not be able to
make calls from or receive calls on such GSM systems without a "dual-mode"
handset.
The German government has stated that no additional licenses will be issued
for cellular or cellular-like services through 1996.
PORTUGAL
The Company owns a 23% interest in Telecel, the cellular company that was
awarded one of two national GSM licenses by the Portuguese government in
October 1991. Telecel began commercial service in October 1992, covering all
of Portugal's major cities and highways, and had approximately 40,000
subscribers at December 31, 1993. Telecel currently covers approximately 92%
of the population and is required under the terms of its license to cover 99%
by October 1996.
The Company's equity interest in Telecel will increase by up to an additional
12% if Portugal changes its law to allow non-residents to own a greater than
25% interest in its telecommunications licenses. Under an agreement among the
shareholders of Telecel, until January 1, 1997 the Company is required to fund
Telecel's capital as if it held a 35% equity interest. To the extent that the
Company's funding exceeds the amount it would be required to contribute as a
23% shareholder in Telecel, such funding is required to be in the form of
five-year interest-free loans. If Portuguese law is amended to permit greater
than 25% ownership by non-residents, the Company has the assignable obligation
to convert its loans into an additional 12% equity interest (or such lesser
percentage as is permitted under the new law). In the event that Portugal does
not relax its non-resident ownership restrictions before October 1996, the
Company has agreed to nominate a third party to purchase and convert the
loans, subject to the approval of the shareholders of Telecel. As of December
31, 1993, Telecel's contributed capital was approximately ESC 18.3 billion (US
$103.4 million), of which the Company's contribution was approximately ESC 6.4
billion (US $36.2 million). The Company expects that it will be required to
contribute approximately an additional $18 million to Telecel through 1995,
after which Telecel's capital needs will be met through operating cash flow
and borrowings. At December 31, 1993, Telecel had approximately ESC 6 billion
(US $33.9 million) in short-term commercial paper and other short-term
borrowings outstanding.
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In addition to the Company, Telecel's shareholders include Espirito Santo e
Irmaos, SA (34.33%), an affiliate of Espirito Santo-Sociedade de
Investimentos, SA, a Lisbon-based international finance and investment
company; Amorim, Investimentos e Participacoes SGPS, SA (34.33%), a
diversified Portuguese company; Centrel, Gestao e Comparticipacoes, SA
(6.34%), a Portuguese telecommunications manufacturer; and Eurofon of
Portugal, Inc. (2%), a subsidiary of LCC Incorporated, a United States
software and engineering company.
OPERATIONS. The Company appoints Telecel's director of network engineering and
operations and provides other seconded employees. The Company has played the
lead role in the design and implementation of Telecel's network. The Company
also is active in many other areas of Telecel's business, including marketing,
strategic planning, management information systems, and customer service. The
Company anticipates that it will continue to have significant involvement in
Telecel's operations.
Telecel has a distribution network of exclusive agents that account for a
majority of customer activations. These agents, through their own outlets and
those of subagents, represent several hundred points of sale in Portugal.
Telecel also has a direct sales force which accounts for the balance of the
activations. There are no resellers in Portugal. Telecel's pricing plan is
slightly more expensive than that of its sole competitor, Telecomunicacoes
Moveis Nacionais ("TMN"), which is operated by the three Portuguese
state-owned wireline telephone companies.
COMPANY RIGHTS AND OBLIGATIONS. Under the Telecel shareholders' agreement, the
Company appoints the director of engineering, who occupies one of five
positions on the board of directors, and three of the eleven members of
Telecel's shareholder board. As a greater than 20% shareholder, the Company's
consent is necessary for certain fundamental corporate actions such as
issuances of stock or debt convertible into stock, as well as for the
incurrence of recourse debt, material transactions with affiliates and the
approval of business plans and budgets. Telecel's shareholders may not
transfer their shares to non-shareholders without government approval for five
years following the grant of the license. Any transfer, other than in
connection with the conversion of the Company's loans to equity or a transfer
to a parent or affiliate of the transferring partner, is subject to the other
shareholders' rights of first refusal.
COMPETITION. TMN was awarded the competing GSM license in Portugal, and
commenced operations at approximately the same time as Telecel. TMN's digital
service was reported to have approximately 31,000 subscribers at January 1,
1994. Management believes that Telecel competes favorably with TMN based upon
coverage, network quality, service offerings, customer service, distribution
network and price. Cellular service has been available in Portugal since
September 1989 when TMN initiated analog cellular service. TMN's analog
system, which utilizes technology similar to that of the German C-Netz system,
was estimated to have approximately 31,000 subscribers at January 1, 1994.
JAPAN
The Company is the second largest shareholder in three companies licensed to
build and operate digital cellular systems in the Tokyo, Kansai (Western) and
Tokai (Central) regions of Japan. These three systems are expected to be
operational by the end of 1994 and are expected to be able to offer service to
approximately 74 million people, or 60% of the Japanese population, by 1997.
In February 1994, the Company agreed to acquire a 4.5% interest in a fourth
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company, which plans to build a digital cellular system that will reach about
70% of the population of the Kyushu/Okinawa region when it begins offering
service in 1996. There are approximately 15 million people in the region,
which is the fourth most populous of Japan's 11 cellular regions.
Tokyo Digital Phone Company ("TDP"), in which the Company owns a 15% interest,
was granted a cellular license in April 1992 for the Tokyo metropolitan
region, covering 39 million people. Service in metropolitan Tokyo is scheduled
to begin by mid-1994. The Company also owns a 13% stake in Kansai Digital
Phone Company ("KDP"), which is licensed to serve the cities of Osaka, Kyoto
and Kobe, a region with a population of approximately 21 million people.
Central Japan Digital Phone Company ("CDP"), in which the Company owns a 13%
interest, holds a license for the Tokai region of over 14 million people.
Nagoya is the principal city in this region, which is located between Tokyo
and Kansai. KDP and CDP received their licenses in August and December, 1992,
respectively. Both companies expect to begin service by December 1994. The
three companies' contributed capital through December 31, 1993 was
approximately Y26 billion (US $232.5 million), of which the Company's share
was approximately Y3.6 billion (US $32.2 million). The Company does not expect
to be required to make additional capital contributions to TDP, KDP and CDP.
The principal shareholders of each of the three companies include Japan
Telecom (a long distance carrier in Japan) as lead partner, a regional railway
company, Cable & Wireless plc and Toyota Motor Corporation.
The Company believes that favorable demographics make Japan an attractive
cellular market. Currently, cellular penetration in Japan is approximately
1.6%, which is attributable to several factors, including the relatively high
activation, access and usage charges that have characterized the current
Nippon Telegraph and Telephone ("NTT") analog system, the only recent
introduction of non-wireline competitors, and the traditional requirement of
the Japanese Ministry of Post and Telecommunications ("MPT") that customers
lease or rent (not purchase) cellular phones. The MPT has adopted regulations,
effective April 1, 1994, permitting the purchase of cellular handsets.
OPERATIONS. The Company has been integrally involved in the design of each of
the systems through its appointment of the director of engineering for each
company. The Company also has contributed in other areas, including assisting
with preparation of business plans. The Company is working with senior
management of each venture to ensure that the systems operate to the extent
possible as one network with common marketing and pricing policies and
equipment offerings.
COMPANY RIGHTS AND OBLIGATIONS. The Company has the right to appoint one
member to each board of directors. To date, the Company's appointee to the
board of directors of each company has also functioned as the director of
engineering.
COMPETITION. Cellular competition is anticipated to be substantial in Japan,
with up to four digital cellular operators in each of the markets served by
TDP, KDP and CDP. Currently, there are two existing analog operators in each
region: NTT, which provides nationwide service, and one other provider for
each region. Each of the analog providers has been awarded additional spectrum
to introduce digital service by the end of 1994. In addition to the licenses
held by the Company's joint ventures, another digital license has been awarded
in each of the Company's markets and the recipients have made in-service
commitments similar to those made by the Company's systems.
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SWEDEN
In October 1993, the Company acquired a 51% interest in NordicTel Holdings AB
("NordicTel"), one of three providers of GSM cellular services in Sweden, for
$153 million. The Company also contributed $5.4 million to NordicTel's equity
capital. The other principal shareholders of NordicTel are Vodafone Group Plc,
with an 18.5% interest, and AB Volvo, Trellswitch Intressenter AB, and
Spectra-Physics AB, the three of which hold in the aggregate a 28.5% interest.
The Company also holds an option, exercisable between July 1 and September 30,
1994, to purchase from Vodafone an additional 6.75% of NordicTel's equity for
approximately $20 million. The Company expects that it will be required to
contribute an additional Skr 282 million (US $35.7 million) to NordicTel in
1994. NordicTel's capital requirements thereafter are expected to be met
through operating cash flow. NordicTel is planning an initial public offering
in 1994.
NordicTel's cellular service, which is marketed under the name "Europolitan,"
began offering service in late 1992. The system presently covers approximately
80% of the population and all of the major cities. Under the terms of the
authority granted by the Swedish government, NordicTel will be required to
cover all of the major highways and all cities with a population greater than
10,000 by the end of 1995. Cellular penetration in Sweden, which has a
population of 8.7 million and more than 800,000 cellular subscribers at
December 31, 1993, is among the highest in the world.
COMPANY RIGHTS AND OBLIGATIONS. Under the NordicTel shareholders agreement,
the Company is entitled to appoint five of the nine members of NordicTel's
board of directors. In addition, under such agreement, 80% shareholder
approval is required for material corporate actions. The approval required for
certain of such actions will decrease to 51% following NordicTel's initial
public offering.
COMPETITION. NordicTel competes with two other cellular operators in Sweden.
Telia Mobitel AB, a wholly owned subsidiary of the state-owned telephone
company, operates one GSM network and two analog networks. Comvik GSM AB
operates the third GSM network. Nearly all of Sweden's cellular subscribers
belong to one of Telia Mobitel's two analog networks, which had no GSM
competition until late 1992, when all three GSM networks commenced operations.
Subscriber growth on the three Swedish GSM networks has been hampered to date
by limited GSM system coverage and a shortage of digital cellular telephone
handsets, which is expected to ease significantly.
DENMARK OPTION. Prior to the Company's acquisition, NordicTel held a 20%
interest in Dansk Mobiltelefon I/S ("DMT"), one of two GSM cellular licensees
in Denmark, through a wholly owned subsidiary, NordicTel Dk ("Dk"). Certain
shareholders of DMT have taken the position that the indirect acquisition by
the Company of a controlling interest in Dk would, under the terms of the DMT
joint venture agreement, trigger a transfer at book value to them of Dk's
interest in DMT. NordicTel and the Company oppose that position, and the issue
is expected to be submitted to arbitration for a binding decision.
In order not to trigger such a transfer, NordicTel sold Dk to the shareholders
of NordicTel other than the Company (the "Dk Shareholders") immediately prior
to the Company's acquisition of its 51% interest in NordicTel. NordicTel also
undertook to be responsible to the government of Denmark, jointly with the Dk
Shareholders, for fulfillment of DMT's obligations under the terms of its
license. The DK Shareholders have in turn agreed to hold NordicTel harmless
for any loss caused by such undertaking. NordicTel concurrently entered into
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an agreement with the Dk Shareholders under which it has the right to purchase
a 100% interest in Dk in the event that the arbitration concludes, among other
things, that the book-value transfer of Dk's interest in DMT would not be
triggered. The Company concurrently entered into an agreement with the Dk
Shareholders under which it has the right to purchase a 49% interest in Dk.
The Company's right is exercisable only if NordicTel is unable to exercise its
right to repurchase Dk in its entirety. Under such agreements, the Dk
Shareholders also have the right to sell either a 100% interest in Dk to
NordicTel (exercisable only if NordicTel's right to purchase is exercisable)
or a 49% interest in Dk to the Company (exercisable only if the Company's
right to purchase is exercisable).
BELGIUM
In July 1993, the Company was chosen by Belgium's state-owned telephone
company, Belgacom, from among twenty applicants to provide technical,
operating and marketing support for Belgacom's GSM network, which commenced
operations on January 1, 1994. Operating under the name "Proximus," the
network covers all of the major cities, including Brussels, Antwerp, Liege and
Ghent. By the end of 1994, the system is expected to reach approximately 85%
of the country and 95% of Belgium's 10 million people. The Company is
negotiating with Belgacom to acquire a 25% interest in a new mobile
communications joint venture, which will hold Belgacom's analog and GSM
cellular telephone operations. The Company currently expects that the terms of
its participation in such joint venture will be finalized by mid-1994.
NEW OPPORTUNITIES
The Company plans to actively pursue new opportunities to acquire interests in
wireless systems throughout the world. Such opportunities are expected to
arise through awards of new licenses and through the acquisition of interests
in existing licenses.
The Company believes that its proven technical, operating and marketing
expertise make it a highly desired participant in consortia formed to pursue
new international opportunities. The Company led the design and construction
of MMO's and Telecel's nationwide digital cellular systems. The Company also
is integrally involved in the design of all three of its digital cellular
systems in Japan. The Company believes that the technical expertise it
developed in the United States and Germany was a significant factor in the
success of the license applications of its consortia in Portugal and Japan and
in the Company's selection as technical adviser to Belgacom.
The Company measures each international investment against such criteria as
demographic factors, the degree of economic, political and regulatory
stability, the quality of local partners and the degree to which the Company
would control or meaningfully participate in management. Although the Company
assesses each opportunity independently, its strategy is to leverage off each
venture to evaluate and pursue other telecommunications opportunities in such
markets. For example, the Company has won paging licenses in Spain and France
and intends to pursue cellular opportunities in both countries. In addition,
the Company is now pursuing opportunities to provide paging and long distance
services in Germany, where MMO commenced operations in June 1992.
The Company's primary focus in pursuing licenses is Europe and Asia because
the Company believes that these regions currently provide the highest
potential for value creation, although the Company also is considering
opportunities in other parts of the world. The Company is currently competing
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or planning to compete for wireless licenses in South Korea, Italy, the
Netherlands, Spain and France.
SOUTH KOREA. Korea Mobile Telecom Corporation, a subsidiary of the
government-owned telephone company, is currently the sole provider of cellular
service in South Korea. In August 1992, the government's award of the second
national cellular license to a consortium not involving the Company was
rescinded following allegations of improper influence. In late February 1994,
the second license was awarded to a partially formed consortium consisting of
a subsidiary of POSCO (Pohang Iron and Steel), and the Kolon Group, which hold
interests of 15% and 14%, respectively. Telesis had been a 20% shareholder of
the POSCO joint venture. However, all prior agreements between POSCO and Kolon
and their respective joint venture partners have been voided and the makeup of
the remainder of the consortium is uncertain. According to the announcement of
the award, foreign participants would be allowed a maximum interest in the
consortium of 20.2%, with no single interest greater than 10%. The Company is
actively pursuing a share in the consortium.
ITALY. The state-owned telephone company, "SIP," operates three cellular
networks in Italy: two analog cellular systems and one GSM system. The Company
has an indirect interest of 10.2% in Omnitel, one of two consortia
prequalified by the government to apply for the second license. Ing. C.
Olivetti is the lead partner in Omnitel, with an interest of 35.7%; other
significant partners include Bell Atlantic (11.6%), Cellular Communications
International, Inc. (10.3%), Telia Mobitel AB (6.8%), Lehman Brothers (5.6%)
and Mannesmann AG (4.5%). An award of the license is expected by mid-1994.
THE NETHERLANDS. The Netherlands has one cellular operator, the state-owned
PTT Telecom B.V., which operates two analog systems and is constructing a GSM
system. The Netherlands Parliament is currently reviewing legislation that
would provide for the awarding of a second GSM license, and a request for
proposals is expected in mid-1994. The Company has signed a memorandum of
understanding for pursuit of the second GSM license with a consortium
including ABN AMRO Bank N.V., Cable & Wireless plc, Radio Holland Cellular
Services B.V., De Nationale Investeringsbank N.V., PGEM Energy, a Dutch
utility, and Heidemij Holding N.V.
SPAIN. Telefonica, the partially state-owned telephone company, operates three
cellular networks in Spain: two analog systems launched in 1982 and 1990 and a
GSM system that commenced service in 1993. The Spanish government is expected
to release a request for proposals in mid-1994, for an additional GSM cellular
license to be awarded in late 1994 or early 1995. The Company intends to
pursue this license actively.
FRANCE. Cellular service is available in France over two analog and two
digital systems, with state-owned France Telecom and Societe Francaise du
Radiotelephone, a private concern, operating one of each. The French
government is expected to announce the procedure for the award of a PCS
license, with service expected to be launched in 1996. Although the Company
has held discussions with several potential partners, it has not yet reached
an agreement for the pursuit of the PCS license.
TECHNOLOGY
GSM. The Company's cellular systems in Germany and Portugal conform to the GSM
digital cellular standard. Developed by a standards body within the European
Telecommunications Standards Institute with substantial input from the
Company's engineers, the GSM standard is a wide-band TDMA standard
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substantially different from United States TDMA technology and has been
adopted by more than 50 countries worldwide, including all those in the
European Union and others such as Australia, New Zealand, Singapore and Hong
Kong.
The GSM standard allows users to place and receive calls on any GSM cellular
telephone while traveling in all countries utilizing the standard. A
subscriber identification module ("SIM") card is necessary in order to receive
GSM cellular service. Each subscriber receives a SIM card, which is about the
size of a credit card, that contains a microchip identifying the subscriber.
By inserting the card into any GSM telephone, customers can make calls from
the telephone and have the calls billed directly to them. The card also allows
the subscriber's home GSM system to locate the subscriber on any GSM network
throughout the world. In addition to these conveniences, the SIM card can
reduce fraud significantly, because each customer has a unique personal
identification number that must be used in conjunction with the card. MMO was
the first GSM system to offer commercial service.
PERSONAL DIGITAL CELLULAR ("PDC") STANDARD. The technology utilized by TDP,
KDP and CDP represents Japan's entry into second-generation cellular
communications. The PDC standard uses narrow-band Japanese TDMA technology and
allows enhanced roaming potential and expanded supplementary services
potential. To provide service to subscribers away from their home regions,
TDP, KDP and CDP are implementing automatic roaming throughout their combined
coverage areas. Subscribers of any of the companies will be able to initiate
and receive calls anywhere within the combined coverage area. Two separate
digital system frequencies will be utilized throughout Japan: NTT's network
and one competing operator will dominate the 800 MHz band while the main
operators in the 1500 MHz band will be TDP, KDP and CDP and the other new
market entrant.
DOMESTIC PAGING
The Company offers local, regional, statewide, and nationwide narrow-band data
and messaging, or "paging," services in a total of 100 markets in 15 states,
including many of the largest metropolitan areas in the United States, such as
Atlanta, Dallas/Fort Worth, Detroit, Houston, Jacksonville, Kansas City, Las
Vegas, Los Angeles, Louisville, Miami, Orlando, Phoenix, Portland, Sacramento,
Salt Lake City, St. Louis, San Antonio, San Diego, the San Francisco Bay Area,
Seattle and Tampa/St. Petersburg. At December 31, 1993, the Company had
approximately 1.2 million paging units in service and, based upon industry
surveys, was the fourth largest provider of paging services in the United
States. The Company's growth strategy is to expand into new markets through
start-ups or acquisitions, to increase its share in existing markets by
providing superior customer service, to refine its mix of distribution
channels, including further expansion of its retail sales and to provide new
narrow-band PCS services.
PAGING SERVICES. The Company currently offers four types of paging services:
numeric display, alphanumeric, tone-only and tone and voice. Numeric display
service alerts the subscriber and then displays a short message, usually a
telephone number entered by the calling party via a touch-tone keypad. More
than 90% of the Company's subscribers use numeric display units. The Company's
paging revenues consist primarily of monthly charges for paging service and
equipment rental.
The Company also offers nationwide coverage on its own private carrier paging
frequency through an inter-carrier agreement with other paging providers and
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as a reseller of a nationwide common carrier paging service. A nationwide
system permits a subscriber to receive pages in most metropolitan areas of the
United States, including markets not otherwise served by the Company. In
addition, the Company offers voice retrieval service, which allows callers to
leave voice messages instead of telephone numbers, and then alerts the
subscriber that a message has been left. Subscribers then call in to retrieve
the message, much as they would with a remotely accessible answering machine.
The Company is actively exploring new opportunities to provide narrow-band PCS
services, including acknowledgment paging and news services. In 1992, the
Company began offering its Page Line News Service in San Diego, which provides
continuously updated news, financial reports, weather and sports information.
The Company now offers Page Line News Service in Los Angeles, Miami, Detroit,
Dallas, Phoenix and Seattle. In 1993, the Company introduced KidTrack, a
value-priced service specifically designed for families with young children.
KidTrack was introduced in the Company's Arizona markets and is now available
in San Diego and Las Vegas as well.
MARKETING. The Company utilizes a decentralized marketing approach, tailored
to each market, to promote and sell its paging services. In all of its
markets, the Company relies on both direct and indirect sales channels. The
Company conducts its direct marketing through its sales, service and customer
service representatives, who are located in the Company's local offices in
each market. The Company's indirect sales channels generally consist of
resellers, who purchase paging services from the Company in bulk quantities at
a wholesale monthly rate, and agents and retailers, who sell only pagers and
refer purchasers to the Company for service at the Company's rates. The
Company typically pays agents and retailers a commission for such referrals.
The Company, which was one of the first to offer paging service through retail
outlets, has greatly expanded its retail marketing efforts and now has sales
arrangements with over 2,000 retail locations nationwide. Sales of pagers and
service through retail outlets generally result in lower selling costs per
unit sold. In addition, the Company has found that a substantial number of the
units added through retail channels are sold to customers who are new to
paging.
COMPETITION. The Company's paging operations face intense competition from
local or regional carriers as well as from carriers with a broad nationwide
presence. Paging systems compete primarily on the basis of reliability,
geographic coverage, customer service and price. The Company believes that its
extensive experience in the paging business and emphasis on cost control and
customer service make it an effective paging competitor.
In June 1993, the FCC allocated spectrum and adopted rules (which were amended
in February 1994) that authorize the operation of narrow-band PCS, which is
expected to be competitive with the Company's paging services. Narrow-band PCS
offerings over this spectrum could include advanced voice paging, two-way
acknowledgment paging, data messaging, electronic mail and facsimile
transmissions. The FCC plans to issue nationwide, regional, MTA and BTA
licenses for narrow-band PCS and to license certain response channels to
existing licensees. The method for selecting licensees is yet to be
determined, and licenses may be auctioned. Existing cellular and paging
providers will be eligible for such licenses under the FCC's rules. While the
Company believes that it will be able to provide many PCS-type services over
its existing paging networks, competition is expected to intensify when PCS
offerings become available in the Company's paging markets. Technological
advances in the telecommunications industry are expected to continue to create
new services or products competitive with the paging services currently
offered by the Company.
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INTERNATIONAL PAGING
PORTUGAL. Through Telecel, the Company owns a 23% interest in
Telechamada-Servico de Chamada de Pessoas, S.A. ("Telechamada"), Portugal's
first nationwide private paging company. Telechamada began service in October
1992, on the same date that Telecel's nationwide cellular service became
available, six months ahead of schedule. Telechamada received its license in
April 1992 and offers numeric and alphanumeric paging services. At
December 31, 1993, Telechamada had approximately 4,900 subscribers.
Telechamada estimates that it currently covers 91% of the population.
SPAIN. The Company holds a 17.5% indirect interest in Sistelcom-Telemensaje,
S.A., which was awarded a nationwide paging license by the Spanish government
in August 1992. By January 1993, the digital paging system was operational in
14 cities, including Madrid, Barcelona and Seville. Sistelcom-Telemensaje
offers tone-only, numeric and alphanumeric paging services. At December 31,
1993, Sistelcom-Telemensaje had approximately 17,600 subscribers. The license
requires that all provincial capitals and all cities with a population of
greater than 150,000 be covered by September 1994.
THAILAND. The Company provides nationwide paging service in Thailand through a
49% interest in PerCom Service Limited ("PerCom"), which has served all of
Thailand's major population centers since February 1991, and through a wholly
owned subsidiary that has provided service in Bangkok since 1987. These
companies operate together under the name PacLinkTM and jointly served
approximately 98,000 subscribers at December 31, 1993. PerCom is obligated
under its license to pay between 25% and 40% of its annual paging revenues to
the Communications Authority of Thailand ("CAT") during the fifteen-year term
of the license, with guaranteed payments of approximately $57 million over
such period, of which approximately $3.8 million had been paid as of December
1993. Under the Bangkok paging license, the Company is obligated to pay 33% of
its annual paging revenues to CAT, with guaranteed payments of at least $12.4
million required during the remaining term of the license.
FRANCE. In September 1993, the French government awarded one of three national
digital paging licenses to Omnicom, a joint venture in which the Company has
an 18.5% interest. The Company's principal partners in Omnicom are Bouygues
S.A., Societe Generale, Preussen Elektra Telekom GmbH and
DeNeufliz-Schlumberger-Mallet Finance. Omnicom will construct and operate a
nationwide digital paging network based on ERMES, the European radio messaging
standard, and expects to begin service in Paris by the end of 1994. The
license requires that 20% of the population be covered by the end of 1994 and
60% by the end of 1999.
OTHER SERVICES
TELETRAC. The Company, through its subsidiary Location Technologies, Inc.
("LTI"), has a 51% interest in Teletrac, a partnership that offers vehicle
location services. Teletrac currently has operations in Los Angeles, Detroit,
Chicago, Dallas/Fort Worth, Houston and Miami, and has licenses to operate in
more than 100 additional cities. The Los Angeles system, the first to commence
commercial operations, began offering such services in January 1991.
Teletrac is in the start-up phase of its operations and to date its services
have not achieved a significant degree of commercial acceptance. Teletrac
reported net losses before taxes of $41.6 million, $49.1 million and $36.8
million in 1993, 1992 and 1991, respectively. The Company does not expect
Teletrac's operations to be profitable for several years. The Company intends
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to take actions to reduce Teletrac's operating losses and does not plan to
expand Teletrac's operations significantly until its services achieve a higher
level of commercial acceptance. In February 1994, the Company reduced
Teletrac's workforce by 30%, to approximately 200 employees. The Company is
exploring various opportunities to expand the market for Teletrac's services
and is continuously evaluating and considering other commercial applications
of its technology and radio spectrum.
TECHNOLOGY. Teletrac locates vehicles through the precise calculation of the
time a radio signal takes to travel from a vehicle equipped with a Teletrac
vehicle location unit ("VLU") to Teletrac's land-based receiver stations.
Teletrac's proprietary software automatically determines the vehicle's
location based on the time the signal arrives at each station, the geographic
relationship between the stations, and the speed at which the signal travels.
This location is then displayed on a computer-generated map. This process
takes only seconds and is generally accurate to within 100 feet, depending on
building obstruction, vehicle direction and radio wave interference.
PRODUCTS AND SERVICES. Teletrac offers two primary services: fleet tracking
and stolen vehicle location. Fleet tracking allows subscribers to monitor the
location of all of their vehicles equipped with VLUs, such as taxicabs,
ambulances, municipal buses and intra-city delivery trucks. A subscriber may
use the fleet tracking service to determine, for example, which vehicle is
closest to a customer or whether a vehicle is deviating from its route. In
addition, an alert button located in the vehicle allows a driver to signal an
emergency. Teletrac had approximately 24,000 fleet tracking units in service
at December 31, 1993. Teletrac's stolen vehicle location service is
automatically triggered when a car alarm connected to a VLU is not deactivated
within a short time after being triggered. The VLU will automatically
broadcast a signal that will appear on Teletrac's monitors. Teletrac personnel
will simultaneously attempt to contact the owner of the car and the police.
Teletrac provides the police with information such as the model and license
number of the car, as well as its location. The Company also is in the process
of introducing an emergency roadside assistance program for subscribers of its
stolen vehicle location service. Teletrac had approximately 6,700 stolen
vehicle location units in service at December 31, 1993.
MARKETING. Teletrac's fleet tracking service is marketed through a direct
sales force located in the individual markets served, and, for national
accounts, through a sales group located in Los Angeles. Teletrac sells the
VLUs used for fleet tracking directly to the purchaser of the service at
negotiated prices, and charges a monthly fee based on system usage. Teletrac's
stolen vehicle location service is marketed by distributors of VLUs, such as
automobile and electronics dealerships who purchase them directly from
manufacturers. Teletrac is not involved in the sale of such units. Once a
customer has purchased a unit, Teletrac receives an activation fee and a
monthly service fee thereafter.
COMPETITION. In fleet tracking, Teletrac's competitors include satellite
services and traditional fleet management services, such as specialized mobile
radio, which allows a driver to communicate with a dispatcher. In the stolen
vehicle location market, a competitor that uses a substantially different
technology began to offer service in several major cities prior to Teletrac,
and competes directly with Teletrac in most of its markets. Another competitor
using technology similar to Teletrac's offers services in certain of
Teletrac's markets.
JOINT VENTURE. The Company, through LTI, currently owns 51% of Teletrac. North
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American Teletrac ("NAT") (the other partner in Teletrac) owns, directly or
indirectly, 49%. Prior to March 31, 1995, and if certain conditions have been
fulfilled, LTI and NAT may each elect to cause a combination of NAT and LTI.
In the combination, the shareholders of LTI and NAT would receive stock in the
combined entity in an amount reflecting their indirect interest in Teletrac.
The shareholders of NAT may also elect to have the combined entity register
its shares in an initial public offering (the "LTI IPO"). The LTI IPO must
generally occur prior to March 31, 1995.
The Company and its affiliates have the right, but not the obligation, to
provide capital to Teletrac or the combined entity using convertible notes,
prior to the earlier of March 31, 1995 or the LTI IPO. If the Company's
affiliates do not purchase such notes, funds may be sought from other sources
(subject to certain restrictions). Teletrac also guaranteed a $49.5 million
debt of NAT's subsidiary.
Convertible securities may only be converted after the earlier of the LTI IPO
or March 31, 1995. If converted within two years after that date, the
conversion rate will generally be 50% of the price at which stock was sold in
the LTI IPO (or, if the LTI IPO did not occur, an appraised price). The
Company may not convert during that two-year period to the extent the
conversion would result in the Company owning more than 70% of the company.
After that time, the conversion rate will equal the LTI IPO price until
another limitation, based on a 1:9 relative ownership ratio between the former
NAT shareholders and the Company, is reached. Thereafter, the conversion rate
will equal the fair market value of the shares.
LONG DISTANCE. The Company presently holds a 10% interest in International
Digital Communications ("IDC"). IDC provides long-distance telephone service
between Japan and over 60 countries, including the United States, to business
and residential customers. IDC also offers private leased circuit services
within Japan. In 1991, IDC began offering service over a 5,200 mile undersea
fiber optic cable, the first such cable to connect Japan directly with the
U.S. mainland.
CREDIT CARD VERIFICATION. In conjunction with Korea Information and
Communications Company, a local service provider in South Korea, the Company
sells point-of-sale terminals and provides technology and management support
for a nationwide credit card verification system. More than 150,000 terminals
have been installed, which are linked to a central data base in Seoul. In
1993, the network handled more than 69 million transactions, representing an
increase of 35% over the previous year.
AIR-TO-GROUND SERVICES. The Company also provides air-to-ground telephone
services in Elmira, New York, New York City, Atlanta and Houston. The Company
has entered into an agreement to purchase additional air-to-ground facilities
in a number of other cities, including Denver, Phoenix, Portland, Oregon and
Seattle. Air-to-ground telephone service allows subscribers to place calls
over the public switched telephone network while in a private airplane.
INVESTMENT IN QUALCOMM. The Company owns 400,000 shares of common stock of
Qualcomm, a publicly held developer of digital mobile communications
technology. The Company also holds warrants to purchase approximately 780,000
additional shares of Qualcomm common stock at an exercise price of $5.50 per
share.
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EMPLOYEES
At December 31, 1993, the Company had approximately 4,695 employees, none of
whom is represented by a labor organization. Management considers its
relations with employees to be good.
REGULATION
The Company is subject to extensive regulation by federal, state and foreign
governments as a provider of cellular, paging and radiolocation services. The
Spin-off has been the subject of an investigation by the CPUC, which resulted
in a decision adopted on November 2, 1993. Until the Spin-off, the Company
will be subject to the restrictions imposed by the MFJ.
CPUC SPIN-OFF INVESTIGATION
In February 1993, the CPUC instituted an investigation of the Spin-off for the
purpose of assessing any effects it might have on the telephone customers of
Pacific Bell. On November 2, 1993, the CPUC issued a decision in the
investigation authorizing Telesis to proceed with the Spin-off. The decision
prohibits the Company and subsidiaries of Telesis from agreeing not to compete
after the Spin-off and from transferring utility assets, which may include
pension funds, out of the California utilities. The decision further requires
an independent auditor (selected by and under contract to the CPUC) to perform
an audit and file a compliance report with the CPUC to ensure that Telesis and
the Company have complied with the terms of the separation as described to the
CPUC and that the transaction complies with the conditions imposed by the
decision and the CPUC's affiliate transaction rules. The Company believes that
the audit will not result in any material liability for the Company. All five
Commissioners concurred in the result permitting Telesis to proceed with the
Spin-off. Two Commissioners issued partial dissents contending that further
proceedings should be held to determine the amount of customer compensation,
of no more than $265 million, for pre-1974 cellular research, cellular
licenses, and the Company's use of the PacTel name.
On December 3, 1993, two parties filed applications for rehearing with the
CPUC and the CPUC staff filed a petition to modify the decision, all of which
were denied on March 9, 1994. Under California law, judicial review of the
CPUC decision is available only by petition for writ of certiorari or review
to the California Supreme Court, and any such petition must be filed by early
April 1994. The decision whether to grant a petition for a writ of review of a
CPUC decision is at the discretion of the California Supreme Court. There is
no time limit within which the Court must act on any such petition.
In the event the California Supreme Court were to grant review and thereafter
reverse the CPUC's decision in a manner adverse to Telesis or the Company, the
CPUC could hold further hearings and reach a new decision with respect to the
basis for and amount of any potential compensation to Pacific Bell or its
customers. Based on the Company's evaluation of the legal and factual matters
relating to the investigation and matters of public and regulatory policy, the
Company believes that any petition for a writ of review would be without merit
and that the California Supreme Court will deny any such petition that might
be filed.
FEDERAL
The construction, operation and transfer of cellular systems in the United
States are regulated by the FCC pursuant to the Communications Act of 1934, as
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amended ("Communications Act"). The FCC has promulgated guidelines for
construction and operation of cellular systems and licensing and technical
standards for the provision of cellular telephone service. For licensing
purposes, the United States is divided into separate markets, called
Metropolitan Statistical Areas ("MSAs") and Rural Service Areas ("RSAs"). In
each market, the frequencies allocated for cellular use are divided into two
equal blocks designated as Block A or Block B. Block B licenses were initially
reserved for entities affiliated with a wireline telephone company such as the
Company, while Block A licenses were initially reserved for non-wireline
entities. Under current FCC rules, a Block A or Block B license may be
transferred after FCC approval, but no entity may own any interest in both
systems in any one MSA or RSA. The FCC may prohibit or impose conditions on
sales or transfers of licenses.
Initial operating licenses are generally granted for terms of 10 years,
renewable upon application to the FCC. Licenses may be revoked at any time and
license renewal applications may be denied for cause. The Company has filed an
application for renewal of its Los Angeles cellular license, the initial term
of which expired in October 1993. The initial terms of the Company's licenses
in San Diego, Detroit, Cleveland and Sacramento expire in October 1994 and the
initial terms of all of its other significant domestic cellular licenses
expire before the end of 1996. The FCC has issued a decision confirming that
current licensees will be granted a relicensing presumption (renewal
expectancy) if they have complied with their obligations under the
Communications Act during the initial period. The FCC's order has been
appealed, and oral argument before the United States Court of Appeals has been
set for April 1994. Notwithstanding the status of the appeal, the Company
believes that the licenses held by entities controlled by the Company will be
renewed upon application for relicensing. Although no competing applications
for the Los Angeles license were filed, the Company's operations in Los
Angeles and its application for renewal are the subject of an informal
objection and a petition to deny, both filed by the same party. The filings
allege, among other things, that the Company constructed and operates cells in
certain outlying areas of Los Angeles without authorization and filed
incorrect or misleading coverage maps with the FCC in violation of its rules
and the Communications Act. The Company does not believe that the informal
objection and the petition to deny will adversely affect the renewal of its
Los Angeles license.
Under FCC rules, each cellular licensee was given the exclusive right to
construct one of two cellular systems within the licensee's MSA or RSA during
the initial five-year period of its authorization. At the end of such
five-year period, other persons are permitted to apply to serve areas within
the licensed market that are not served by the licensee. Current FCC rules
provide that competing "unserved area" applications are to be resolved through
a lottery. In 1988, several entities, including the party that filed the
informal objection and petition to deny the Company's Los Angeles renewal
application, applied to the FCC to obtain the rights to serve certain sparsely
populated areas within the Los Angeles market that were unserved by the
Company at the end of its initial five-year period. The Company has also
applied for such rights. The Company does not expect any material adverse
impact on its operations or financial performance in the event that others
ultimately acquire rights to such unserved areas.
The Company's radio common carrier activities in connection with its paging
services also are subject to regulation by the FCC. The Company's paging
activities are conducted on radio frequencies assigned by the FCC. The FCC
allocates radio common carrier frequencies in specific geographic areas and
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grants licenses for use of an initial frequency only upon a satisfactory
demonstration of an applicant's legal and technical qualifications. The FCC
allocates frequencies to a number of competitors in each paging market, unlike
the FCC's limitation to two cellular licenses in each cellular market. The
Company's paging licenses are subject to periodic renewal by the FCC and, as
with all such licenses, can be revoked at any time for cause. However, renewal
applications are generally granted by the FCC upon a showing of compliance
with FCC regulations and the provision of adequate service to the public.
The Communications Act prohibits the holding of a common carrier license (such
as the Company's cellular licenses) by a corporation of which any officer or
director is an alien, or of which more than 20% of the capital stock is owned
directly or beneficially by aliens. Where a corporation such as the Company
controls another entity that holds an FCC license, such corporation may not
have any aliens as officers, may not have more than 25% of its directors as
aliens, and may not have more than 25% of its capital stock owned directly or
beneficially by aliens, in each case if the FCC finds that the public interest
would be served by such prohibitions. Failure to comply with these
requirements may result in fines or a denial or revocation of the license.
The FCC regulates the operation and construction of vehicle location systems.
Certain of Teletrac's radio frequencies are subordinate to industrial,
scientific and government uses. In a rulemaking before the FCC, Teletrac is
seeking improved radio frequency interference protection from vehicle
identification systems and other location systems utilizing the radio
spectrum. However, others have opposed all or parts of Teletrac's request. One
service provider is seeking to have the FCC shift Teletrac's frequencies,
which would have a material adverse impact on Teletrac's operations. The
Company is unable to predict the outcome of this rulemaking. Each of
Teletrac's licenses has been issued by the FCC for a term of five years.
During that period, the system must be constructed and 1,500 vehicle location
units must be placed in service under each license. There are no assurances,
even if these requirements are met, that the FCC will renew Teletrac's
licenses.
The Omnibus Budget Reconciliation Act of 1993 includes a provision preempting
state regulation of rates or entry for any "commercial mobile service." The
FCC has determined that the Company's cellular, paging and air-to-ground
services are commercial mobile services, and that the Company's vehicle
location services are private services. The FCC has also exercised its
authority to forbear from rate and entry regulation, including tariffs, for
cellular, paging and air-to-ground services. In states that regulate cellular
services, such as California, authority to continue such regulation extends
until August 10, 1994, prior to which time a state may petition the FCC for
continued authority. The state must show either that "market conditions with
respect to [commercial mobile] services fail to protect subscribers adequately
from unjust and unreasonable rates or rates that are unjustly or unreasonably
discriminatory" or that such conditions exist and commercial mobile service is
a "replacement for land line telephone exchange service for a substantial
portion of the telephone land line exchange service within such state." The
FCC must take final action on a state petition within one year of receipt, and
the state retains regulatory authority over cellular services during its
petition's pendency.
STATE AND LOCAL
In many states, the Company must obtain approvals and certification from state
regulators prior to the commencement of commercial service by a cellular
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system (or in certain states, prior to construction). In addition, certain
state authorities, including the CPUC, regulate the acquisition of control of
cellular systems and the prices of services or require the filing of prices,
price changes and other terms and conditions of service. The siting and
construction of cellular transmitter towers, antennas and equipment shelters
are often subject to state or local zoning, land use and other local
regulation, which may include zoning and building permit approvals or other
state or local certification.
In November 1988, the CPUC began an examination of the regulation of cellular
radiotelephone utilities operating in California. In June 1990, the CPUC
issued an interim order which granted cellular carriers greater pricing
flexibility and a faster approval process for rate changes. The interim order
deferred several issues to further proceedings in 1991, including a request by
resellers to perform switching functions, and certain modifications to the
system of accounts used by cellular companies. In October 1992, the CPUC
issued its decision on these deferred issues. Among other things, the order
adopted by the CPUC would have imposed on cellular utilities an accounting
methodology to separate wholesale and retail costs, would have permitted
resellers to operate a switch interconnected to the cellular carrier's
facilities, and would have required the unbundling of certain wholesale rates
to the resellers. These unbundled rates would have been calculated by applying
a rate of return of 14.75% to the cost basis of utility assets utilized by
such reseller switch. In addition, the order would have required the Company
to divest its retail reseller operations in the San Francisco Bay Area. In
October 1992, the Company filed an Application for Rehearing, which stayed the
effect of the decision. In May 1993, the CPUC granted limited rehearing of the
decision on the issues of the unbundling of carriers' wholesale rates and the
imposition of a 14.75% benchmark rate of return. The CPUC noted that the
hearing record was sufficient regarding the technical feasibility of a
reseller switch and would seek comments only on the economic aspects of the
concept. The CPUC also rescinded its order to modify the method for allocating
costs between wholesale and retail operations. The CPUC did not alter its
prohibition on resales of cellular service by a carrier's affiliate in the
same market. As a result, the Company transferred its reseller operations in
the San Francisco Bay Area directly to its San Francisco/San Jose cellular
system at the time of the formation of CMT Partners. In December 1993, the
CPUC consolidated the foregoing issues designated for rehearing into a new
order instituting investigation (the "OII") into mobile telephone service and
wireless communications. The OII will review the wireless market in light of
the entrance of multiple new competitors in 1994 and 1995 such as PCS and SMR.
The order proposes a dominant/nondominant regulatory framework whereby
cellular carriers would be classified as dominant carriers and controllers of
facilities characterized by the CPUC as "bottleneck" facilities, and may be
subject to cost based rate regulation. The CPUC also intends to explore
regulation that would require cellular carriers to offer the radio portion of
cellular service on an unbundled basis from all other aspects of services they
may offer. Nondominant carriers, including PCS and SMR, would be subject to
minimal regulation involving registration, record inspection and consumer
safeguards. The Company believes, and will urge in the proceeding, that
regulation of cellular carriers in California should be reduced, not
increased, in order to encourage competition and innovation.
Cellular carriers, as well as other telecommunications service providers, have
been named as respondents to the proceeding. The order solicits comments on
the status of the mobile telecommunications market and the appropriate
regulatory response. Opening and reply comments on the issues raised in the
OII have been filed. The CPUC will hold a prehearing conference to determine
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if any issues will proceed to hearing. The Company is unable to estimate the
effects of the OII, which could be material, because the impact on future
operations will depend on the ultimate outcome of the OII or other subsequent
proceedings.
In November 1992, the CPUC staff issued an interim report outlining the
partial findings of an investigation into compliance with General Order 159
("G.O. 159"), which requires prior CPUC approval of cellular facility
additions. In January 1993, the Company responded to the report indicating
that it contains significant inaccuracies and goes beyond the scope of the
CPUC's authority. In April 1993, the CPUC alleged that the Company failed to
obtain five required permits and issued an order requesting that the Company
show why a particular cellular facility should not be disapproved. Certain of
the Company's markets may have taken steps that the CPUC might consider to be
construction of cellular facilities prior to filing advice letters with the
CPUC and/or might be considered by the CPUC to involve the failure to obtain
necessary governmental permits for certain cellular facilities. The Company
does not anticipate that sanctions, if any, that may be imposed by the CPUC
for any failures to comply with G.O. 159 or to obtain other governmental
permits will have a material adverse effect on the Company.
In April 1993, Pacific Bell filed a petition with the CPUC seeking authority
to place cellular and paging interconnection service under tariff. Currently,
the price, terms and conditions of cellular and paging interconnection to
landline telephone company facilities are governed by negotiated contracts.
Concurrent with the petition, Pacific Bell filed an amended application in a
collateral CPUC case setting forth the proposed tariff rates if the petition
is granted. The Company's preliminary evaluation of the Pacific Bell tariff
rates suggests that the elimination of negotiated contracts could increase the
cost to the Company of cellular interconnection by as much as 15% in some
markets. The Company opposes the elimination of contracts for interconnection
service. The impact of the Pacific Bell request on future operations is
uncertain and depends upon the outcome of proceedings before both the CPUC and
FCC.
Certain states also require radio common carriers providing paging services to
be certified prior to commencing operations. Certain states in which the
Company operates paging activities require the carrier to file notices of its
prices or price changes for informational purposes or regulate the acquisition
of control of paging systems.
INTERNATIONAL REGULATION
GERMANY. MMO holds a license to operate the D2 network to supply digital
cellular mobile telephone services in the Federal Republic of Germany. The
license was issued in accordance with, and is governed by, the applicable
provisions of the German Law on Telecommunications Installations. Under such
law the right to erect and operate telecommunications facilities is reserved
to the government, represented by the Federal Ministry of Postal and
Telecommunications Services. The law contains the authority for the Minister
for Postal and Telecommunications Services to grant licenses for the exercise
of the right to erect and operate telecommunications installations. The
Minister also determines the terms and conditions of any license so granted
and, to ensure compliance therewith, issues regulations for the supervision of
telecommunications installations erected and/or operated by a licensee. To
date, no such regulations have been issued.
PORTUGAL. Cellular and paging services in Portugal are governed by laws
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establishing the public tender process for the granting of licenses to provide
telecommunications services as well as the guidelines for installation,
management and use of network equipment. The government agency with oversight
over cellular and paging providers is the Institute das Comunicacoes de
Portugal ("ICP"). The applicable Portuguese laws require that licensed
operators commence providing service within eighteen months of the date of
issuance of their licenses and restrict changes in share ownership for five
years from such date without the permission of the ICP.
JAPAN. Telecommunication companies ("TCs") engaged in cellular
telecommunications businesses in Japan are regulated by (i) the
Telecommunications Business Law ("TBL") with respect to the installation of
telecommunication circuits, and (ii) the Electric Wave Law ("EWL") with
respect to the establishment of electric wave stations. The Ministry of Posts
and Telecommunications ("MPT") has the authority under these laws to grant
licenses to TCs which will engage in these businesses. Under the TBL and EWL,
material restrictions imposed upon foreign companies and foreign persons
(collectively "Foreigners") include: (a) Foreigners may not be selected as the
representative director or other representing position of TCs; (b) the number
of Foreigners who may be elected as directors and senior officers (including
statutory auditors) shall be limited to less than one-third of the total
number of those directors and officers of a TC; and (c) the number of voting
rights which may be held directly or indirectly by Foreigners shall be limited
to less than one-third of the voting rights in a TC. A prior notice to, and
clearance from, the Ministry of Finance and other relevant ministries are
required under the Foreign Exchange Law ("FEL") before Foreigners may acquire
shares in TCs. Such FEL requirement has been complied with by the Company with
respect to the three cellular companies in Japan in which the Company has
investments.
SWEDEN. Under the Swedish Act on Telecommunications, a mobile telephone
operator is required to have a license in order to provide services over a
public telecommunication network, if the operator's business, measured by area
of distribution, number of users and other factors, is substantial. The
licensing authority is the National Telecommunications Board, which is also
the supervisory authority. A license application is typically approved, and an
applicant is disqualified only if there is a reason to believe that the
licensing requirements cannot be met by the applicant. NordicTel has applied
for a license and expects that its application will be approved. However, the
terms and conditions of the license have not been finalized.
A mobile telephone operator must also obtain permission under the Act on Radio
Communications to hold and use radio transmitters. Such permission is granted
by the National Telecommunications Board and an application for permission is
typically approved. NordicTel's license application includes an application
for permission in accordance with the Act on Radio Communications.
MFJ
Prior to the Spin-off, the Company will be subject to the restrictions imposed
by the MFJ, as modified from time to time. In general, the MFJ provided for
the divestiture by AT&T of the Bell Operating Companies ("BOCs") by means of a
reorganization of the BOCs into seven regional holding companies ("RHCs"),
including Telesis, and imposed restrictions on the business activities of the
BOCs and their affiliates, successors and assigns. Among other things, the MFJ
generally prohibits BOCs and their affiliates from providing voice and data
services that cross LATAs. The MFJ also precludes BOCs and their affiliates
from engaging in the design, development or manufacturing of
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telecommunications equipment or "customer premises equipment" such as cellular
telephones or the provision of telecommunications equipment such as switches.
The stated purpose of the MFJ was to prevent BOCs and their affiliated
enterprises from using a BOC's asserted local exchange monopoly to
discriminate against companies in other markets in which BOCs or their
affiliates compete.
Although the MFJ does not contain any provisions directly governing the
termination of status as a BOC or BOC affiliate, the Company believes, based
on the terms of the MFJ and its underlying policies, that it will not be bound
by the MFJ after the planned Spin-off. This conclusion is consistent with the
conclusion apparently reached in other transactions in which BOC affiliates or
their assets have been sold. For example, BellSouth Corporation has sold or
traded cellular properties to, among others, McCaw, United Telespectrum,
Contel Cellular Inc., United States Cellular Corporation and ALLTEL
Corporation, and NYNEX Corporation has sold its paging operations to Page
America of New York, Inc. Neither the Federal District Court which administers
the MFJ (the "Court") nor the United States Department of Justice ("DOJ") has,
to the Company's knowledge, taken the position that the purchasers of these
assets or affiliates are bound by the MFJ.
By letter dated January 19, 1993, Telesis notified the DOJ of its planned
Spin-off and advised the DOJ of its belief that the MFJ would not apply to the
Company after the Spin-off. DOJ has not stated any intention to object to
Telesis' position. There is no assurance, however, that DOJ or a third party
might not object at some time in the future or that the Court would not
interpret the MFJ contrary to Telesis' position.
The Company will remain subject to the MFJ until the Spin-off by virtue of
Telesis' ownership of Pacific Bell and Nevada Bell. The MFJ provides that the
Court may waive certain of the restrictions on the BOCs and their affiliates.
When a waiver is contested by the DOJ or AT&T, however, it will be granted
only upon a showing that there is no substantial possibility that the BOC's
market power could be used to impede competition in the markets it or its
affiliate seeks to enter. If neither the DOJ nor any other party to the MFJ
contests the waiver, then the Court should grant the requested waiver of these
restrictions if it would serve the public interest. In the past, the Court has
imposed conditions on waivers with respect to cellular and paging lines of
business restricted by the MFJ.
Telesis has been granted a number of waivers of the MFJ with regard to the
cellular and paging services provided by the Company. For example, in November
1988, following the acquisition of certain cellular systems in the Detroit
metropolitan area, Telesis was granted a waiver to allow it to operate the
cellular system among the LATAs in Michigan and northwestern Ohio. In February
1993, Telesis was granted a waiver to allow New Par to provide interLATA
cellular service in northern Ohio. While Telesis ultimately has been
successful in obtaining each of the waivers it has requested on behalf of the
Company, the waiver process is lengthy.
ITEM 2. PROPERTIES.
For each market served by the Company's cellular operations, the Company
maintains at least one sales or administrative office and many transmitter and
antenna sites. Some of the facilities are leased, and some are owned. The
Company also maintains both owned and leased sales and administrative
facilities for its paging services. The Company believes that its facilities
are suitable for its current business and that additional facilities will be
41
<PAGE>
available for its foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in legal proceedings that have arisen in the ordinary
course of business. While complete assurance cannot be given as to the outcome
of any litigation, the Company believes that with respect to such pending
litigation, any financial impact or effect on the business of the Company
would not be material. In addition, the Company may be subject to legal
challenges and litigation from time to time in connection with matters under
the jurisdiction of the FCC and state regulatory authorities with respect to
its wireless businesses and with respect to requests for waivers from
provisions of the MFJ. On November 24, 1993, a class action complaint was
filed in Orange County Superior Court naming, among others, the Company, as
general partner of Los Angeles SMSA Limited Partnership, and Los Angeles
Cellular Telephone Company ("LACTC"). The complaint alleges that the Company
and LACTC conspired to fix the prices of retail and wholesale cellular radio
services in the Los Angeles market, and alleges damages for the class "in a
sum in excess of $100,000,000." The Company filed a demurrer to the complaint
on January 31, 1994 and at March 3, 1994, no discovery or other action had
taken place. The Company intends to defend itself vigorously and does not
expect that this proceeding will have a material adverse effect on its
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1993.
42
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Common Stock has been listed on the New York and Pacific Stock Exchanges
under the symbol PTW since the Company's initial public offering on
December 2, 1993, and will be listed under the symbol "ATI" following the
spin-off. The following table sets forth, for the periods indicated, the high
and low sales prices of the Common Stock as reported in published financial
sources.
YEAR HIGH LOW
---- -------- --------
1993:
Fourth Quarter (December 3 $27 1/4 $24 3/4
to December 31)
1994:
First Quarter (to March 4) $25 3/4 $21
As of March 4, 1994, there were 9,411 holders of record of the Company's
Common Stock. Such number does not include persons whose shares are held of
record by a broker or clearing agency, but does include such broker house or
clearing agency as one recordholder.
The Company currently intends to retain future earnings for the development of
its business and does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. The Company's future dividend policy will be
determined by its Board of Directors on the basis of various factors,
including the Company's results of operation, financial condition, capital
requirements and investment opportunities.
In February 1994, Telesis as sole shareholder of record, approved the
reincorporation of the Company in Delaware subject to the condition subsequent
that the Board of Directors of the Company, after such further study as it
deems necessary or appropriate, also shall have approved the reincorporation.
If any such reincorporation in approved, the articles and bylaws of the new
Delaware company are expected to be substantially the same as those of the
Company immediately prior to any such reincorporation, except for such
modifications, amendments or deletions as the Board of Directors determines
are necessary to comply with Delaware law or which it deems necessary or
appropriate and relate to provisions required under California but not
Delaware law. The Board of Directors of the Company is expected to resolve by
year-end 1994 whether to pursue such a reincoporation. Any such
reincorporation would be subject to any necessary governmental approvals.
ITEM 6. SELECTED FINANCIAL DATA.
Set forth below are selected consolidated financial data with respect to the
Company for each of the five fiscal years in the period ended December 31,
1993. The selected consolidated financial data at December 31, 1993 and 1992
and for each of the three years in the period ended December 31, 1993, have
been derived from the consolidated financial statements included elsewhere
herein and audited by Coopers & Lybrand as set forth in their report also
included elsewhere herein. The selected consolidated financial data for the
year ended December 31, 1990, has been derived from audited consolidated
financial statements not included herein. The selected consolidated financial
data as of December 31, 1990 and 1989, and for the year ended December 31,
43
<PAGE>
1989, have been derived from unaudited consolidated financial statements not
included herein. The selected consolidated financial data presented below
should be read in conjunction with the consolidated financial statements and
related notes thereto appearing elsewhere herein; note references below are to
the notes to those consolidated financial statements.
44
<PAGE>
SUMMARY CONSOLIDATED STATEMENTS OF INCOME
For the Year Ended December 31,
----------------------------------------------
1993(1) 1992 1991(1) 1990 1989
-------- -------- -------- -------- --------
(Dollars in millions, except per share amounts)
NET OPERATING REVENUES....... $988.0 $838.5 $753.2 $677.4 $536.4
TOTAL OPERATING EXPENSES..... 859.8 742.6 616.6 510.7 408.7
-------- -------- -------- -------- --------
OPERATING INCOME............. 128.2 95.9 136.6 166.7 127.7
Interest expense............. (22.1) (52.9) (37.6) (21.7) (17.2)
Minority interests in net
income of consolidated part-
nerships and corporations.. (46.4) (45.5) (45.2) (38.1) (34.1)
Equity in net income (loss)
of unconsolidated partner-
ships and corporations:
Domestic................... 70.4 41.1 15.5 5.3 2.1
International.............. (37.5) (38.5) (21.4) (11.2) (2.8)
Gain on sale of telecommuni-
cations interests.......... 3.8 - 26.0 - -
Other income (expense)....... 11.5 14.3 19.0 0.7 (1.1)
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES,
EXTRAORDINARY ITEM AND
CUMULATIVE EFFECTS OF
ACCOUNTING CHANGES......... 107.9 14.4 92.9 101.7 74.6
Income taxes................. 67.8 24.5 49.8 51.7 35.2
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE EXTRA-
ORDINARY ITEM AND CUMULATIVE
EFFECTS OF ACCOUNTING
CHANGES ................... 40.1 (10.1) 43.1 50.0 39.4
Extraordinary item-loss from
retirement of debt (net of
income taxes of $5.1)
(Note G) .................. - (7.6) - - -
Cumulative effect of accounting
change for postretirement
costs in 1993 (net of income
taxes of $3.5) (Notes A and J)
and income taxes in 1992
(Notes A and H) ........... (5.6) 27.9 - - -
-------- -------- -------- -------- --------
NET INCOME .................. $ 34.5 $ 10.2 $ 43.1 $ 50.0 $ 39.4
======== ======== ======== ======== ========
Income per share before
Extraordinary item and
cumulative effects of
accounting changes ........ $ 0.09 $(0.02) $ 0.10 $ 0.12 $ 0.09
======== ======== ======== ======== ========
Weighted average shares
outstanding (in millions).. 429.6 424.0 424.0 424.0 424.0
======== ======== ======== ======== ========
45
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SUMMARY CONSOLIDATED BALANCE SHEETS
For the Year Ended December 31,
------------------------------------------------
1993(1) 1992 1991(1) 1990 1989
-------- --------- --------- --------- ---------
(Dollars in millions)
Total assets .............. $4,076.7 $2,371.1 $1,900.1 $1,433.2 $1,173.0
Total long-term obligations ..
$ 78.9 $ 257.3 $ 276.0 $ 225.1 $ 220.2
Total shareholders' equity. $3,337.3 $ 752.1 $ 635.2 $ 644.6 $ 613.8
Working capital (deficit).. $1,346.8 $ (698.4) $ (426.3) $ (147.4) $ (41.5)
Capital expenditures,
excluding acquisitions .. $ 225.9 $ 231.0 $ 230.2 $ 241.3 $ 263.7
(1) In 1991 and 1993, the Company contributed net cellular assets totaling
$330.0 million to the New Par joint venture and net cellular assets
totaling $206.0 million to the CMT Partners joint venture, respectively.
See Note E "Joint Ventures and Acquisitions," under Cellular
Communications, Inc. and McCaw Cellular Communications, Inc. The effect
of these transactions was a reduction in the individual assets and
liabilities and income statement accounts, and the reporting of income
and expense associated with these assets in the line item entitled
"Equity in net income (loss) of unconsolidated partnerships and
corporations: Domestic."
46
<PAGE>
SELECTED REPORTS OF OPERATIONS
The following table sets forth unaudited, supplemental financial data for the
Company's total, domestic cellular, and domestic paging operations. The table
reflects the proportionate consolidation of each cellular entity in which the
Company has or shares operational control and excludes certain minority
investments, principally the Company's investments in cellular systems serving
Dallas/Fort Worth, Las Vegas and Tucson, for which the Company does not
receive timely financial and operating data and which in total represented
approximately five percent of its proportionate domestic cellular operating
income in 1993. Domestic Paging is 100% owned. This table does not include
any data for the Company's international cellular and paging operations,
except for the Selected Total Proportionate Data.
TOTAL PROPORTIONATE DATA (1,2)
For the Year Ended December 31,
--------------------------------
1993 1992 1991
---------- --------- ----------
(Dollars in millions)
Total proportionate net operating revenues. $1,226.1 $ 873.2 $ 687.0
Total proportionate operating cash flow.... $ 351.5 $ 191.5 $ 223.9
Selected Proportionate Domestic Cellular Operating Results (1,2)
For the Year Ended December 31,
--------------------------------
1993 1992 1991
---------- --------- ----------
(Dollars in millions)
Cellular service and other revenues ....... $ 892.0 $ 699.4 $ 564.6
Equipment sales ........................... $ 40.2 $ 24.8 $ 19.3
Cost of equipment sales ................... $ (42.2) $ (23.9) $ (18.4)
Net operating revenues .................... $ 890.0 $ 700.3 $ 565.5
Total operating expenses .................. $ 675.1 $ 545.3 $ 412.3
Operating income .......................... $ 214.9 $ 155.0 $ 153.2
Operating cash flow ....................... $ 379.6 $ 279.1 $ 246.9
Capital expenditures, excluding
acquisitions ............................ $ 198.4 $ 199.8 $ 159.6
47
<PAGE>
CELLULAR OPERATING DATA
For the Year Ended December 31,
----------------------------------
1993 1992 1991
---------- ---------- ----------
Domestic
POPs(3)............................ 34,889,000 34,121,000 32,560,000
POPs in controlled markets(4)...... 33,595,000 32,264,000 30,806,000
Proportionate subscribers(5)....... 1,046,000 744,000 558,000
Penetration(6)..................... 3.1% 2.3% 1.8%
Controlled markets(7).............. 51 42 41
Total markets(8)................... 61 55 54
International
POPs(9)............................ 40,401,000 35,347,000 24,991,000
Proportionate subscribers(10)...... 159,600 35,200 0
Countries(11)...................... 4 3 2
SELECTED DOMESTIC PAGING OPERATING RESULTS
For the Year Ended December 31,
----------------------------------
1993 1992 1991
---------- --------- ---------
(Dollars in millions)
Paging service and other revenues...... $145.7 $113.5 $ 92.6
Equipment sales........................ $ 35.2 $ 22.2 $ 9.7
Cost of equipment sales................ $(31.9) $(19.2) $ (7.4)
Net operating revenues................. $149.0 $116.5 $ 94.9
Total operating expenses............... $129.3 $100.3 $ 79.6
Operating income....................... $ 19.7 $ 16.2 $ 15.3
Operating cash flow (2)................ $ 50.3 $ 42.5 $ 38.7
Capital expenditures, excluding
acquisitions......................... $ 53.4 $ 42.9 $ 34.8
PAGING OPERATING DATA
For the Year Ended December 31,
----------------------------------
1993 1992 1991
---------- --------- ---------
Domestic
Units in service (12)............... 1,167,000 821,000 601,000
Markets (13)........................ 100 81 60
International
Proportionate units in service (14). 101,200 78,200 68,200
Countries (15)...................... 3 2 1
48
<PAGE>
------------------------
(1) Significant assets of the Company are not consolidated, and because of
the substantial effect of the formation of certain joint ventures on the
year-to-year comparability of the Company's consolidated financial results,
the Company believes that proportionate operating data and results facilitate
the understanding and assessment of its consolidated financial statements.
Unlike consolidated accounting, proportionate accounting is not in accordance
with generally accepted accounting principles for the cellular industry.
Proportionate accounting reflects the relative weight of the Company's
ownership interests in its domestic cellular systems.
(2) Total proportionate operating revenues net of cellular and paging costs
of equipment sales and total proportionate operating cash flow. Total
proportionate operating cash flow equals proportionate operating income plus
depreciation and amortization. Proportionate amounts are computed by
multiplying the entities' total amount by the Company's interests in the
entities. The total proportionate amount includes proportionate domestic
cellular, 100% domestic paging, 100% Teletrac, 100% headquarter's costs and
the Company's proportionate interests in MMO, Telecel and NordicTel.
Proportionate domestic cellular operating results represent the Company's
interests in the entities multiplied by the entities' operating data.
(3) "POPs" for domestic cellular markets means the population of a Federal
Communications Commission ("FCC") licensed cellular market based on Donnelly
Marketing Information Service population estimates for counties comprising
such market, multiplied by the Company's ownership interest in the cellular
licensee operating in such market as of the date specified.
(4) POPs in controlled markets include only POPs of Controlled Cellular
Systems (i.e., those cellular systems that are included in Selected
Proportionate Domestic Cellular Operating Results).
(5) Aggregate number of subscribers to Controlled Cellular System multiplied
by the Company's ownership interest in the operator of such systems.
Excludes subscribers to cellular systems in which the Company has an ownership
interest but does not have or share operational control.
(6) Proportionate subscribers to the Company's Controlled Cellular System
divided by the Company's POPs in such Controlled Cellular Systems.
(7) Number of Metropolitan Statistical Areas ("MSAs") and Rural Service Areas
("RSAs") in which the Company has a Controlled Cellular System.
(8) Number of MSAs and RSAs in which the Company owns an interest in a
cellular system.
(9) International POPs is based upon mid-1992 estimated population of the
licensed cellular market, multiplied by the Company's ownership interest in
the cellular licensee operating in such market as of the date specified and
includes POPs for networks under construction. Includes POPs represented by a
2.25% interest in the Company's cellular system in Germany which, under the
terms of the cellular license, the Company is under a current obligation to
sell to small and medium-sized German businesses.
(10) Total subscribers to all cellular systems outside the United States in
which the Company owns an interest multiplied by the Company's ownership
interest. Includes proportionate subscribers represented by a 2.25% interest
49
<PAGE>
in the Company's cellular system in Germany which, under the terms of the
cellular license, the Company is under a current obligation to sell to small
and medium-sized German businesses.
(11) Number of countries outside the United States in which the Company owns
an interest in a cellular system that is in operation or under construction.
(12) The 1993 amount includes 22,000 units that were purchased through a
fourth quarter acquisition.
(13) Number of markets in which the Company provides paging services.
(14) Total units in service of all paging systems outside the United States in
which the Company owns an interest multiplied by the Company's ownership
interest.
(15) Number of countries outside the United States in which the Company owns
an interest in a provider of paging services.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The following discussion is intended to facilitate the understanding and
assessment of significant changes and trends related to the results of
operations and financial condition of AirTouch Communications ("the Company").
This discussion and analysis should be read in conjunction with the Company's
consolidated financial statements and notes.
CONSOLIDATION VS. EQUITY METHOD OF ACCOUNTING. For financial statement
reporting purposes, the Company consolidates each wireless subsidiary and
partnership in which it has a controlling interest. Therefore, in addition to
the Company's wholly owned cellular systems in San Diego and Atlanta, the
Company consolidates the entities that hold the licenses for cellular systems
operating in Los Angeles and Sacramento. The Company also consolidated the
partnership which operates a cellular system in the San Francisco and San Jose
markets prior to the closing of the partnership with McCaw ("CMT Partners") in
September 1993. In addition, the Company consolidates its domestic paging
operations, all of which are wholly owned, PacTel Teletrac ("Teletrac"), a
51%-owned partnership offering vehicle location service in six markets in the
United States, NordicTel Holdings AB ("NordicTel"), a 51%-owned cellular
network in Sweden, its paging subsidiaries in Thailand, and the Korean
subsidiary providing credit card verification system sale and support.
Revenues, expenses, assets and liabilities of consolidated entities are
reflected in the corresponding line items in the Company's consolidated
financial statements.
The Company's consolidated financial statements during the period from January
1, 1991 through March 31, 1992 also reflect the consolidation of International
Teletrac Systems ("ITS"), a corporation owned by the minority partner in
Teletrac. While the Company did not own an equity interest in ITS or its
assets prior to March 31, 1992, the Company believes that consolidation of ITS
is appropriate under applicable accounting guidelines as a result of the
Company's guarantee of ITS' substantial indebtedness during such period. The
Company had agreed to guarantee ITS' debt as part of the arrangement under
which Teletrac acquired an option to purchase the assets of ITS. At March 31,
1992, the Company had guaranteed bank loans totaling $49.5 million, the
50
<PAGE>
proceeds of which had been used to fund ITS' capital expenditures and start-up
operating losses. This note has since been retired. Teletrac exercised its
option to acquire the assets of ITS effective March 31, 1992. The exercise of
such option had been prohibited prior to the generic waiver of the MFJ's
information services restrictions in July 1991.
The equity method of accounting is generally used to account for the operating
results of entities over which the Company has significant influence but in
which it does not have a controlling interest. These entities primarily
include the partnership with CCI ("New Par"), CMT Partners (commencing in
September 1993), and certain international interests, including Mannesmann
Mobilfunk GmbH ("MMO") and Telecel Comunicacoes Pessoais, S.A. ("Telecel").
With respect to the entities accounted for under the equity method, the
Company recognizes its proportionate share of the net income (loss) of each
such entity in the line item entitled "Equity in net income (loss) of
unconsolidated partnerships and corporations." The revenues and expenses of
such entities are not otherwise reflected in the Company's consolidated
financial statements.
Prior to the formation of New Par in August 1991, the operations of the
Company's cellular systems in Michigan and northwestern Ohio were
consolidated. The use of the equity method to account for New Par since its
formation has reduced the growth of the Company's reported revenues and
expenses. The formation of CMT Partners in September 1993 had a similar
effect in the third and fourth quarters of 1993.
PROPORTIONATE ACCOUNTING. Because significant assets of the Company are not
consolidated and because of the substantial effect of formation of New Par and
CMT Partners on the year-to-year comparability of the Company's consolidated
financial results, the Company believes that proportionate operating data
facilitates the understanding and assessment of its consolidated financial
statements. Unlike consolidation accounting, proportionate accounting is not
in accordance with generally accepted accounting principles ("GAAP") for the
cellular industry. Proportionate accounting reflects the relative weight of
the Company's ownership interests in its domestic cellular systems.
For example, under GAAP, 100% of the operating revenues and expenses of the
Los Angeles cellular system would be included in the respective line items in
the Company's consolidated financial statements with 16% of the net income
from the system included in the line item entitled "Minority interests in
consolidated partnerships and corporations." By contrast, under proportionate
accounting, only 84% of such system's revenues and expenses would be included.
In addition, under proportionate accounting, the Company includes its share of
revenues and expenses of equity investments in which it shares control. For
example, 50% of the revenues and expenses of New Par, as well as an additional
interest reflecting the Company's ownership of equity in CCI, would be
included.
A discussion of the Company's domestic cellular results of operations on a
proportionate basis is set forth below under "Proportionate Results of
Operations."
51
<PAGE>
RESULTS OF OPERATIONS
NET OPERATING REVENUES. The following table sets forth the components of the
Company's net operating revenues for each of the last three years.
Year Ended December 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(Dollars in millions)
NET OPERATING REVENUES
Wireless services and other revenues:
Cellular service ...................... $787.0 $681.7 $625.4
Paging service ........................ 148.7 117.9 98.0
Vehicle location service .............. 4.0 2.4 0.7
Other revenues ........................ 47.6 32.8 25.4
--------- --------- ---------
987.3 834.8 749.5
--------- --------- ---------
Net cellular and paging equipment sales:
Revenues .............................. 70.4 45.4 31.6
Costs of equipment sold ............... (69.7) (41.7) (27.9)
--------- --------- ---------
0.7 3.7 3.7
--------- --------- ---------
Net operating revenues .................. $988.0 $838.5 $753.2
========= ========= =========
CELLULAR SERVICE. Cellular service revenues primarily consist of air time,
access fees, and in-bound roaming charges. Cellular service revenues
increased by 15.4% from 1992 to 1993 and by 9.0% from 1991 to 1992. The
increase in cellular service revenues in both 1993 and 1992 was primarily due
to continued domestic subscriber growth. On a percentage basis, subscriber
growth in Southern California lagged behind the Company's other markets in
1992 as a result of the severity of the economic recession in Southern
California. However, the Company's Los Angeles cellular system experienced a
dramatic increase in the number of subscribers from the fourth quarter of 1992
through 1993 in response to advertising and promotional campaigns which
commenced in September 1992. The increase in cellular service revenues did
not keep pace with subscriber growth because of declining average revenue per
subscriber, caused by lower usage by new subscribers and rate reductions made
in 1993 to meet competitive pressures. The Company expects that average
revenue per subscriber will continue to decline as it adds new subscribers and
responds to further competitive pressures. Reported revenues also were
affected by the formation of both New Par in August 1991 and CMT Partners in
September 1993. Since the formation of each partnership, the Company's share
of the net income has been recorded in "Equity in net income (loss) of
unconsolidated partnerships and corporations." The change from consolidation
to the equity method of accounting for these partnerships decreased 1993,
1992, and 1991 cellular service revenues by $232.9 million, $138.8 million,
and $51.3 million, respectively, from what would have been reported had the
Company been able to include in its revenues a 50% share of New Par's and CMT
Partners' revenues. This change similarly increased "Equity in net income
(loss) of unconsolidated partnerships and corporations" by $64.3 million,
$34.5 million, and $9.1 million, respectively.
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<PAGE>
PAGING SERVICE. Paging service revenues primarily consist of paging service
charges and rentals of paging units in the United States and, to a small
extent, Thailand. Paging service revenues increased 26.1% in 1993 and 20.3%
in 1992, as compared to the previous year. Such increases in paging service
revenues primarily resulted from 42.1% and 36.6% increases in the number of
domestic paging units in service in 1993 and 1992, respectively, as compared
to the previous year. The increases in domestic paging units in service
reflect increased penetration in existing markets primarily through successful
retail and reseller pager sales programs, the establishment of new paging
operations, and the purchase of Front Page, adding approximately 22,000 units.
With the acquisition of Front Page, the Company entered the Salt Lake City
paging market and further expanded its existing substantial customer base in
Northern California, San Diego, Los Angeles, Phoenix, and Tucson. The effect
of the growth in paging units in service on revenues was offset in part by the
decrease in the average revenue per paging unit in service, due to the
increase in customer owned and maintained units (i.e., a corresponding loss in
lease and maintenance revenues) as pager prices declined, and reduced contract
prices to match competition. The decline in average revenue per paging unit
is expected to continue.
VEHICLE LOCATION SERVICE. Vehicle location service revenues from Teletrac
primarily consist of charges on corporate fleet tracking and stolen vehicle
tracking services. Teletrac's vehicle location business is in the start-up
phase and its services have not yet achieved a significant degree of
commercial acceptance. Teletrac initiated operations in Los Angeles, Chicago,
Detroit, and Dallas/Fort Worth in 1991 and in Miami and Houston in 1992.
Teletrac's vehicle location service revenues were $4.0 million in 1993, $2.4
million in 1992, and $0.7 million in 1991.
OTHER REVENUES. Other revenues consist of cellular equipment rental and
installation charges, pager replacement program revenues, paging voice
retrieval revenues, paging activation charges, vehicle location unit sales and
revenues related to credit card verification terminal sales and maintenance.
Other revenues increased 45.1% and 29.1% in 1993 and 1992, respectively. The
increases in both years are due to higher vehicle location unit sales, paging
activation and voice retrieval charges, and credit card verification sales and
maintenance charges.
NET PAGING AND CELLULAR EQUIPMENT SALES. Equipment sales consist of revenues
from sales of cellular telephones and sales of paging units. Equipment sales
are not a primary part of the Company's cellular and paging businesses and
therefore the costs associated with these sales have been removed from the
cost of revenues and netted with equipment sales in the revenue section of the
income statement. All prior periods have been revised to conform to this
presentation format. The increase in equipment sales in 1993 and 1992 is
attributable to increases in sales of paging units and, to a lesser extent,
sales of cellular telephones. The Company sells cellular telephones at or
below cost and paging units approximately at cost.
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<PAGE>
OPERATING EXPENSES. The following table sets forth the components of the
Company's operating expenses for each of the last three years.
Year Ended December 31,
---------------------------------
1993 1992 1991
---------- --------- ---------
(Dollars in millions)
OPERATING EXPENSES
Cost of revenues...................... $144.0 $132.7 $110.5
Selling and customer operations
expenses............................ 291.3 262.9 201.5
General, administrative, and other
expenses............................ 250.3 203.6 174.6
Depreciation and amortization......... 174.2 143.4 130.0
---------- --------- ---------
Total operating expenses.............. $859.8 $742.6 $616.6
========== ========= =========
COST OF REVENUES. Cost of revenues primarily consists of charges for
interconnections of the Company's cellular and paging operations with wireline
telephone companies and other network-related expenses. As a percentage of
net operating revenues, cost of revenues remained relatively constant at
14.6%, 15.8%, and 14.7% in 1993, 1992, and 1991, respectively. The 1993
improvement was due to reassessment of property taxes and lower interconnect
charges. Cost of revenues increased 8.5% in 1993 and 20.1% in 1992 as
compared to the previous year as a result of the interconnection and other
charges generated by the Company's increased wireless services customer base.
Reported cost of revenues were also affected by the formation of both New Par
in August 1991 and CMT Partners in September 1993. This change decreased cost
of revenues by $30.1 million and $19.3 million in 1993 and 1992, respectively.
SELLING AND CUSTOMER OPERATIONS EXPENSES. Selling and customer operations
expenses primarily consist of compensation to sales channels, salaries, wages,
and related benefits for sales and customer service personnel, and billing,
advertising, and promotional expenses. As a percentage of net operating
revenues, these expenses were 29.4%, 31.4%, and 26.8% in 1993, 1992, and 1991,
respectively. The decrease in 1993 was primarily attributable to increased
revenues from the larger subscriber base and cost containment initiatives
particularly in the Company's domestic billing operations. This was partially
offset by an increase in agent commissions resulting from the increase in new
cellular subscribers and the increase in marketing and promotional expenses
which commenced in 1992. The 1992 increase similarly reflects commissions
paid for new cellular subscribers, expenses associated with new marketing
efforts, and other business development initiatives. In particular, in both
years, there were significant increases in commission expenses in the fourth
quarter as a result of a large increase in the number of cellular subscribers
during the quarter, with the related increases in revenue from the new
subscribers not being realized until after year-end. In addition, as
penetration of the consumer market increases, the most recently added cellular
subscribers typically generate less average revenue per subscriber than
existing subscribers. The 1992 increase in marketing and promotional expenses
was substantial, particularly in the Company's Los Angeles and Atlanta
markets. The Company expects to continue to have various promotional programs
and marketing efforts in the future. In addition, billing expenses increased
substantially during 1992 due to hardware and software upgrades in the billing
54
<PAGE>
system employed by the Company in its Los Angeles, Atlanta, and Sacramento
cellular markets and its retail reseller operation in the San Francisco Bay
Area. These upgrades were made in part to support the Company's rapid
cellular subscriber growth. The Company expects continued investment in the
billing system will be required to support subscriber growth, as well as, new
cellular products and services. These investments are not expected to result
in higher per subscriber costs, which should be at or below 1993 levels. The
Company continues to explore more efficient billing delivery options.
GENERAL, ADMINISTRATIVE, AND OTHER EXPENSES. General, administrative, and
other expenses primarily consist of salaries and wages and related benefits
for general and administrative personnel, international license application
costs, and other overhead expenses. As a percentage of net operating
revenues, these expenses were 25.3%, 24.3%, and 23.2% in 1993, 1992, and 1991,
respectively. The increase in 1993 was primarily due to organizational and
other costs associated with the spin-off, including a $5.0 million after-tax
spin-off related reserve and increased start-up expenses relating to the
development of wireless data services. In addition, the Company experienced
an increase in bad debt expense as a percentage of revenues in 1993 in most of
its markets; the Los Angeles market was particularly affected as a result of
the lingering recession in Southern California. In response, the Company has
initiated different means to limit exposure (e.g., prepayment for service and
credit limits for high risk customers) while promoting subscriber growth.
Increased expenses were partially offset by cost containment initiatives. The
increase in 1992 from the previous year was primarily due to greater costs
associated with the Company's pursuit of international license awards and
expenses associated with investments in new products and services, such as
wireless data. Increased start-up expenses for Teletrac's vehicle location
operations also contributed to the increase.
The Company expects that its selling and customer operations expenses and
general, administrative, and other expenses as a percentage of net operating
revenues will increase as a result of the reduction from 61.1% to 47.0% in the
Company's interest in the San Francisco/San Jose cellular system following the
formation of CMT Partners on September 1, 1993.
The Company also expects that it will experience additional expenses as it
begins to perform, as a separate publicly traded company in connection with
the planned spin-off, certain corporate functions previously provided to the
Company by Pacific Telesis Group ("Telesis"). The Company estimates $15.0
million in incremental operating expenses in 1994 for these activities. This,
combined with the costs of supporting the Company's anticipated growth,
including entry into new business opportunities, is expected to cause general,
administrative, and other expenses to continue increasing as a percentage of
net operating revenues.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization primarily
consist of depreciation expense on the Company's domestic cellular and paging
networks, as well as amortization of intangibles such as FCC license costs and
goodwill. The increase in depreciation and amortization expense for 1993 and
1992 mainly reflects increased capital investment in the Company's domestic
cellular network. The planned deployment of digital technology in the
Company's domestic cellular markets is expected to have minimal impact on
depreciation expense since most of the analog equipment will be redeployed in
other areas or used in parallel systems needed for compatibility with existing
customer equipment. The Company has negotiated to purchase network assets
currently in service in the Dallas/Fort Worth market. As a result,
depreciation expense will be lower than if the assets had been purchased new.
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NON-OPERATING INCOME (EXPENSE). The following table sets forth the components
of the Company's non-operating income (expense) for each of the last three
years:
Year Ended December 31,
--------------------------------
1993 1992 1991
--------- --------- ---------
(Dollars in millions)
Interest expense....................... $(22.1) $(52.9) $(37.6)
Minority interests in net income of
consolidated partnerships
and corporations..................... $(46.4) $(45.5) $(45.2)
Equity in net income (loss) of
unconsolidated partnerships
and corporations:
Domestic........................... $ 70.4 $ 41.1 $ 15.5
International...................... (37.5) (38.5) (21.4)
--------- --------- ---------
$ 32.9 $ 2.6 $ (5.9)
========= ========= =========
Interest income........................ $ 12.0 $ 13.3 $ 13.8
========= ========= =========
Gain on sale of telecommunications
interests............................ $ 3.8 - $ 26.0
========= ========= =========
Miscellaneous income (expense)......... $ (0.5) $ 1.0 $ 5.2
========= ========= =========
INTEREST EXPENSE. The $30.8 million decrease in interest expense in 1993
compared to the 1992 period primarily resulted from lower borrowings from
PacTel Capital Resources ("PTCR") due to $1,179.8 million in equity
contributions from Telesis. Interest expense increased in 1992 over the prior
year primarily due to increased borrowings from PTCR used to fund construction
costs and start-up losses for international joint ventures, the Company's
purchases of equity in CCI, and start-up losses for Teletrac. The Company's
indebtedness to PTCR totaled $0.3 million and $958.4 million at December 31,
1993 and 1992, respectively. At December 31, 1993, the debt outstanding on
the note assumed by the Company as part of the NordicTel acquisition was $50.1
million. See Note G to the Consolidated Financial Statements of AirTouch
Communications and Subsidiaries.
Interest expense incurred during each of the periods presented will not be
indicative of future expense. During 1993, Telesis settled the Company's tax
benefits receivable arising from the tax losses utilized in the Telesis
consolidated tax returns which the Company used to eliminate some of its
indebtedness to PTCR. The Company used the equity contributions received from
Telesis during 1993 to substantially eliminate its remaining indebtedness to
PTCR. The Company believes that the net proceeds from the Initial Public
Offering ("IPO"), together with cash flow from operations, will be sufficient
to satisfy the Company's estimated funding requirements through mid-1995. See
"Liquidity and Capital Resources."
MINORITY INTERESTS IN NET INCOME OF CONSOLIDATED PARTNERSHIPS AND
CORPORATIONS. The minority partners' portions of net income in consolidated
partnerships and corporations are reported as "Minority interests in net
income of consolidated partnerships and corporations." The increases in 1993
and 1992 are primarily attributable to better operating results for these
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partnerships and corporations. These increases were partially offset by the
effect of the change from consolidation to equity method of accounting as a
result of the formation of New Par and CMT Partners.
EQUITY IN NET INCOME (LOSS) OF UNCONSOLIDATED PARTNERSHIPS AND CORPORATIONS.
DOMESTIC. Domestic equity earnings increased in 1993 and 1992 over the prior
year period primarily as a result of the inclusion of New Par commencing
August 1, 1991 and CMT Partners commencing September 1, 1993. For at least
the near term, equity earnings attributable to CMT Partners are likely to be
less than the Company's prior share of the net income of the cellular systems
which the Company contributed to the partnership.
INTERNATIONAL. The decrease in international equity losses in 1993 was
primarily due to lower losses incurred by MMO, partially offset by higher
losses for cellular operations in Portugal and systems under construction in
Japan, and paging systems in Portugal and Spain. In 1992, international
equity losses increased due to the commencement of recognition of equity
losses from Telecel and the Company's cellular systems under construction in
Japan, and due to higher operating losses from the start-up of MMO. The
international equity losses in 1992 were partially offset by $32.0 million in
tax benefits recognized as a result of the adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). The
adoption of SFAS 109 had a similar earnings impact in 1993, resulting in a
$20.7 million reduction in equity losses, due to a reduction in the German
corporate tax rate. The deferred tax benefits recognized by MMO were lower in
1993. See "Income Taxes."
Fluctuations in currency exchange rates will affect the equity earnings and
losses from the Company's international ventures. For example, a significant
weakening against the dollar of the currency of a country in which the
Company's venture is generating net income would adversely affect the
Company's results, although conversely it could reduce the Company's start-up
losses.
INTEREST INCOME. The Company's interest income in each of the periods
presented was primarily the result of the interest earned on amounts loaned to
an affiliate and interest earned by the San Francisco/San Jose cellular
system. In 1993, interest income also reflected earnings on IPO proceeds, and
in 1991, interest on an Internal Revenue Service tax settlement relating to
1987. The affiliated loan was settled during the third quarter of 1993 and
the interest earned by the San Francisco/San Jose cellular system is no longer
reflected in this account subsequent to the September 1, 1993 formation of CMT
Partners, which is accounted for under the equity method. The Company expects
to continue to earn interest income on the investment of the net proceeds from
the IPO prior to their application, and therefore, interest income is expected
in the near term to be higher than in 1993.
GAIN ON SALE OF TELECOMMUNICATIONS INTERESTS. The 1991 gain of $26.0 million
resulted from the sale of the Company's cellular holdings in St. Louis and
the sale of the Company's interest in a personal communication services
("PCS") licensee in the United Kingdom. The $3.8 million gain in 1993
resulted from the sale of small interests in three wireline cellular systems
in the San Francisco Bay Area. FCC rules required the Company to sell its
interests in two of the three systems because the Company acquired interests
in competing non-wireline carriers as a result of the formation of CMT
Partners.
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MISCELLANEOUS INCOME (EXPENSE). Miscellaneous income (expense) primarily
consists of currency exchange gains or losses on financial instruments which
have not been deferred and one-time items such as gains or losses on sales of
property, plant, or equipment. Such income in 1991 included $12.0 million
received in settlement of litigation. The $0.5 million loss in 1993 primarily
represented currency exchange losses of $3.4 million, which were partially
offset by a $3.0 million net settlement gain due to an early retirement
election by the employees of a joint venture who participated in the Company's
qualified defined benefit plan. (See Note I to the Consolidated Financial
Statements of AirTouch Communications and Subsidiaries.) The Company attempts
to mitigate the effects of foreign currency fluctuation through the use of
hedges and local banking accounts. At December 31, 1993, the Company had
hedged a majority of its international investments against the risk of
currency fluctuations. Certain of these hedge instruments do not qualify, in
whole or in part, as hedges for financial accounting purposes. Accordingly,
the Company is required to recognize the currency exchange gain or loss on
these hedge instruments in the current period results of operations. The
Company is unable to determine the impact of future currency exchange gains
and losses.
INCOME TAXES. The Company's income tax expenses and effective tax rates for
1993, 1992, and 1991 were $67.8 million (62.8%), $24.5 million (170.1%), and
$49.8 million (53.6%), respectively. The effective tax rates for all such
periods were primarily affected by the international equity losses of
unconsolidated partnerships and corporations and ITS' losses prior to
March 31, 1992, for which no U.S. tax provisions were made. See Note H to the
Consolidated Financial Statements of AirTouch Communications and Subsidiaries
for a detailed reconciliation of the effective tax rates to statutory rates.
Effective January 1, 1992, the Company adopted SFAS 109. The use of the new
rules resulted in a $59.8 million tax benefit to 1992 reported earnings. On
the 1992 Statement of Income, $32.0 million of this increase is reflected in
equity earnings and $27.9 million as the cumulative effect of an accounting
change, offset by $0.1 million as income tax expense. The adoption of SFAS 109
had a similar impact in 1993, resulting in a $20.7 million reduction in equity
losses. Financial statements of prior years before the effective date were
not restated as permitted by SFAS 109. No deferred tax assets were recorded
on the Company's books. Instead, the deferred tax assets were recorded on the
joint ventures' books based on the applicable foreign tax rates as an
adjustment to convert to U.S. GAAP. The Company recorded its share of the
operating losses which reflected these tax benefits.
At December 31, 1993, the Company had deferred tax assets and liabilities of
$33.4 million and $205.9 million, respectively. A valuation allowance of $4.8
million has been provided for deferred tax assets. The Company believes that
it is more likely than not that the future benefits from the remaining
deferred tax assets will be realized in full.
Of the $20.7 million tax benefit related to international equity earnings in
1993, approximately 58% ($12.0 million) is attributable to the tax benefits
recorded by MMO for its net operating losses ("NOLs"). SFAS 109 requires that
the tax benefit of such operating losses be recorded as an asset to the extent
that management assesses the utilization of such losses to be "more likely
than not." Accordingly, these assets represent the future realization of tax
benefits to be gained by deducting current MMO operating losses from future
taxable income. Although MMO has not yet reached break-even, the Company and
MMO believe it is more likely than not that MMO will generate sufficient
taxable income in the future to utilize its accumulated NOLs. Through
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December 31, 1993, MMO had accumulated NOLs of approximately $384.6 million
(adjusted for U.S. GAAP and translated at December 31, 1993 spot rate), of
which the Company's share is approximately $109.5 million. The Company's
belief that MMO will produce taxable income sufficient to utilize its NOLs is
based on the following facts and assumptions.
MMO's current operating losses result from it being in the initial phase of
its operations. In this initial phase, MMO is incurring substantial selling
and marketing costs while building its subscriber base. At December 31, 1993
MMO had approximately 493,000 subscribers. It added, on average, more than
30,000 subscribers each month in 1993. At this rate MMO would reach
break-even by mid-1994, at which time it would have over 600,000 subscribers.
This represents a market penetration rate for MMO of approximately 0.7% on an
estimated total German cellular market penetration of 2.3% to 2.5%. Market
penetration is the percentage of Germany's population of approximately 80.2
million that subscribes to cellular service. Based on such number of
subscribers and assuming an average revenue per subscriber of $112 per month,
MMO's total revenues by mid-1994 would be in excess of $300 million. At this
growth rate, MMO's accumulated NOLs would be fully utilized by the end of
1996, at which time its subscriber base would be over 1,300,000. Based on
such number of subscribers and assuming an average revenue per subscriber of
$90 per month, MMO's total revenues in 1996 would be approximately $1.4
billion. If subscriber growth dropped as low as 5,000 per month after MMO's
operations reach break-even in mid-1994, MMO's NOLs would still be fully
utilized by 1996. Under German tax law, NOLs can be carried forward
indefinitely.
The Company also has available to it tax planning strategies that would allow
it to realize a United States tax benefit from MMO's losses. These strategies
primarily involve the sale of all or part of its investment in MMO. In such a
sale, the excess of tax basis over book basis in this investment would create
either a lower tax gain or a greater tax loss than book gain or loss
(depending on the sales price), thereby recognizing the deferred tax asset.
If the sale were to result in a capital loss due to an unexpectedly low sales
price, the Company has available to it sale or leaseback transactions for
various other properties that could generate capital gain sufficient to offset
any possible capital loss. However, because applicable tax rates in the
United States are lower than in Germany, the United States tax benefit at
December 31, 1993 would be approximately $38.3 million, which is $10.3 million
less than the German tax benefit reflected in the Company's financial
statements, including the impact of foreign currency translation.
In July 1993, the German Parliament passed the German Tax Act of 1994 which,
among other things, decreases the corporate tax rate on distributed earnings
effective January 1, 1994. Accordingly, as required by SFAS 109, the deferred
tax benefits recognized by MMO were adjusted downward to reflect the lower tax
rate. The Company's share of the adjustment reduced net income by
approximately $3.1 million in 1993.
While the Company believes that it is more likely than not that the recorded
deferred tax benefits will be fully realized, there can be no assurance that
this will happen as certain factors beyond control of the joint ventures and
the Company, such as worsening local economic conditions and increasing
competition, can affect future levels of taxable income.
In August 1993, the United States government enacted the Omnibus Budget
Reconciliation Act of 1993, which incorporates new business tax provisions.
These include an increase in the corporate tax rate from 34% to 35%
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retroactive to January 1, 1993. The Company's adjustment for the change in
tax rate reduced net income by $4.4 million in 1993.
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECTS OF ACCOUNTING
CHANGES. The Company reported income (loss) before extraordinary item and
cumulative effects of accounting changes of $40.1 million, $(10.1) million,
and $43.1 million (which included a $26.0 million pre-tax gain on the sale of
wireless interests) for 1993, 1992, and 1991, respectively. The increase in
income in 1993 was primarily due to increased cellular and paging revenues,
cost containment initiatives, and decrease in interest expense, partially
offset by additional agent commissions resulting from the increase in new
cellular subscribers, expenses related to the spin-off, and start-up losses
from wireless data service. The 1992 loss was primarily the result of
increasing start-up losses from the Company's international wireless ventures,
interest expenses related to the Company's international investments, expenses
associated with the Company's international license applications, and
operating losses from Teletrac.
The Company experiences fraud in all of its markets. Costs of this fraud,
which are common throughout the industry, include variable interconnect costs
of usage, costs related to preventive measures, and payments to other carriers
for unbillable fraudulent roaming activity. The Company is unable to quantify
the costs of fraud. The incidence of fraud is generally increasing,
particularly in the Los Angeles market. The Company is implementing measures
to identify and block fraudulent usage.
Teletrac (including ITS) reported pre-tax losses of $41.6 million, $49.1
million, and $36.8 million during 1993, 1992, and 1991, respectively. The
Company does not expect Teletrac's operations to be profitable for several
years. The Company intends to take actions to reduce Teletrac's operating
losses and does not intend to expand Teletrac's operations significantly until
its services achieve a higher level of commercial acceptance. In February of
1994, the Company reduced Teletrac's staff by 30% to approximately 200
employees. The Company is continuously evaluating and considering other
commercial applications of its technology and radio location spectrum.
The Company is currently pursuing opportunities to expand its wireless
operations in international markets and intends to participate actively in the
license application process for PCS in the United States. The Company will
continue its efforts to grow and develop its wireless data operations. To the
extent that the Company is successful in its pursuit of new wireless licenses
and its development of wireless data operations, the Company will incur
start-up expenses which, at least in the short-term, will have a dilutive
effect on the Company's future earnings.
EXTRAORDINARY ITEM. The extraordinary item recorded by the Company in 1992 is
the result of a $12.7 million early redemption expense related to the
refinancing of $100 million of long-term debt. The debt was retired with
short-term funding provided by PTCR.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE. The Company adopted SFAS 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions,"
effective January 1, 1993 and recognized $5.6 million (net of $3.5 million tax
benefit) transition obligation. See "Effects of Recently Issued Accounting
Standards."
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PROPORTIONATE RESULTS OF OPERATIONS
The following table sets forth unaudited, supplemental financial and operating
data for the Company's domestic cellular operations. The table reflects the
proportionate consolidation of each cellular entity in which the Company has
or shares operational control and excludes certain minority investments,
principally the Company's investments in cellular systems serving Dallas/Fort
Worth, Las Vegas and Tucson, for which the Company does not timely receive
financial and operating data and which in total represented approximately 5%
of its proportionate domestic cellular operating income in 1993.
SELECTED PROPORTIONATE DOMESTIC CELLULAR OPERATING DATA (1)
Year Ended December 31,
-------------------------------
1993 1992 1991
--------- ---------- ----------
(Dollars in millions)
OPERATING RESULTS:
Service and other revenues............. $ 892.0 $ 699.4 $ 564.6
Equipment sales........................ 40.2 24.8 19.3
Cost of equipment sales................ (42.2) (23.9) (18.4)
--------- ---------- ----------
Net operating revenues............... 890.0 700.3 565.5
--------- ---------- ----------
Cost of revenues....................... 116.3 98.7 80.0
Selling, general and administrative
expenses............................. 394.1 322.5 238.6
Depreciation and amortization.......... 164.7 124.1 93.7
--------- ---------- ----------
Total operating expenses............. 675.1 545.3 412.3
--------- ---------- ----------
Operating income....................... $ 214.9 $ 155.0 $ 153.2
========= ========== ==========
Operating cash flow (2)................ $ 379.6 $ 279.1 $ 246.9
========= ========== ==========
Capital expenditures, excluding
acquisitions......................... $ 198.4 $ 199.8 $ 159.6
========= ========== ==========
Year Ended December 31,
-----------------------------------
1993 1992 1991
----------- ----------- -----------
OPERATING DATA:
POPs (3)......................... 34,889,000 34,121,000 32,560,000
POPs in controlled markets (4)... 33,595,000 32,264,000 30,806,000
Proportionate cellular
subscribers (4)............... 1,046,000 744,000 558,000
Penetration (5).................. 3.1% 2.3% 1.8%
--------------------
(1) Unaudited, supplemental operating results for the Company's domestic
cellular operations. This presentation differs from the consolidation and
equity methods used to prepare the Company's audited financial statements,
which are in accordance with generally accepted accounting principles.
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(2) Operating income plus depreciation and amortization. Proportionate
operating cash flow represents the Company's interest in the entities
multiplied by the entities' operating cash flow. As such, proportionate
operating cash flow does not represent cash available to the Company.
(3) "POPs" for domestic cellular markets means the population of a Federal
Communications Commission ("FCC") licensed cellular market based on Donnelly
Marketing Information Service population estimates for counties comprising
such market, multiplied by the Company's ownership interest in the cellular
licensee operating in such market as of the date specified.
(4) POPs in controlled markets and cellular subscriber data include only
those cellular systems that are included in the operating results shown in the
Selected Proportionate Domestic Cellular Operating Data table.
(5) Proportionate cellular subscribers divided by the Company's POPs in
Controlled Cellular Systems.
Cellular service and other revenues increased on a proportionate basis 27.5%
in 1993 over 1992 and 23.9% in 1992 over 1991, primarily as a result of a
40.6% and 33.3% year-to-year increase in cellular subscribers in 1993 and
1992, respectively. In 1993, fixed-term discount plans and various promotional
programs reduced customer disconnects in all of the Company's cellular markets
and accounted for the increase in subscriber growth. Increase in cellular
service revenues did not keep pace with subscriber growth because of declining
average revenue per subscriber, caused by lower usage by new subscribers and
rate reductions made in 1993 to meet competitive pressures. The Company plans
to mitigate the impacts of the lower average revenue per subscriber by
offering new products and services. The Company expects that average revenues
per subscriber will continue to decline as it adds new subscribers and
responds to further competitive pressures. In 1992 New Par and the Company's
Atlanta cellular system experienced significant growth in subscribers on a
percentage basis. Each of these regional networks benefitted from a cellular
telephone rental program that was already in place in CCI's Ohio properties at
the time New Par was formed in August 1991. The rental program was expanded
throughout New Par and a similar program was introduced by the Atlanta system
in mid-1992, making these programs the primary driver for subscriber growth in
1992.
Equipment sales consist of revenues from sales of cellular telephones.
Equipment sales are not a primary part of the Company's cellular business and
therefore the costs associated with these sales have been removed from the
cost of revenues and netted with equipment sales in the revenue section of the
income statement. All prior periods have been revised to conform to this
presentation format.
Total operating expenses on a proportionate basis as a percentage of net
operating revenues were 75.9%, 77.9%, and 72.9% in 1993, 1992, and 1991,
respectively. These percentages reflect increases in expenses associated with
subscriber growth and increased investments in new products and services,
offset by cost containment efforts in 1993. Total operating expenses include
cost of revenues, selling, general, and administrative expenses, and
depreciation and amortization. Cost of revenues remained constant as a
percentage of net operating revenues between 1991 and 1992, and declined in
1993. The trend reflects technical efficiencies and realization of economies
of scale, and in 1993, the reassessment of property taxes and lower
interconnect charges. Selling, general, and administrative expenses increased
as a percentage of net operating revenues in 1992 and decreased in 1993. The
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1992 increase reflects higher advertising and promotional expenses, increased
agent commissions paid for new subscribers, who on average generate less
revenue per month than existing subscribers, increased billing expenses
associated with the increased number of domestic cellular subscribers and
other expenses associated with the Company's business development initiatives,
and investments in new technologies such as wireless data. The 1993 decrease
reflects the effects of cost containment initiatives. The increase in
depreciation and amortization expense in each year during the three- year
period ended December 31, 1993 reflects the Company's increasing capital
investment in its cellular systems.
BUSINESS ENVIRONMENT
COMPETITION. The competitive and regulatory environment for wireless
communications companies in the United States is in a rapid state of
development. The Company's domestic cellular systems are expected to
encounter increased competition as a result of new operators of digital mobile
communications systems, including NexTel Communications, Inc. ("NexTel"),
which initiated service in Los Angeles in early 1994 with plans to expand to
San Francisco by mid-1994, and Dallas and other markets by mid-1995. NexTel
has announced that it intends to position itself as the third major provider
of mobile telephone services in its markets. In March 1994, Nextel and MCI
announced the formation of a strategic alliance to provide wireless services
under the MCI brand name throughout the United States. As a result, the
Company's domestic cellular systems may encounter such competition sooner than
previously anticipated.
In addition, the FCC has recently allocated radio frequency spectrum for seven
PCS licenses in each market. Auctions for narrowband PCS licenses are
expected to begin by May 1994 while broadband PCS licenses are not expected to
be auctioned until much later in the year. Although the marketing and
technical elements of PCS are not yet well defined, the Company expects some
PCS services to be competitive with the Company's cellular and paging
operations. The Company is unable to estimate the impact of such potentially
competitive services on the Company's operations.
AT&T's announcement in August 1993 that it will merge with McCaw may increase
the level of competition that the Company faces in Los Angeles and Sacramento,
where the Company's cellular operations compete with McCaw. The merger will
permit McCaw to use the AT&T brand name in marketing its cellular service and
give McCaw access to AT&T's sales, customer service and distribution channels,
as well as to the research and development capabilities of AT&T Bell
Laboratories. The Company and McCaw jointly operate cellular systems in San
Francisco, San Jose, Kansas City, Dallas, and certain other markets through
CMT Partners.
REGULATION. The Company's operations are highly regulated and its results of
operations may be significantly affected by new regulatory developments. For
example, a decision rendered on October 26, 1993 by the California Public
Utilities Commission ("CPUC") as a result of an investigation into the
cellular industry would have imposed on cellular operators an accounting
methodology to separate wholesale and retail cost, permitted resellers to
operate a switch interconnected to the cellular carrier's facilities, and
required unbundling of certain wholesale rates to the resellers. These
unbundled rates would have been calculated by applying a rate of return of
14.75% to the cost basis of assets utilized by such reseller switch. On
May 19, 1993, the CPUC granted limited rehearing of the decision. The CPUC
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granted the Company's application for rehearing on the issue of the unbundling
of carrier's wholesale rates and the imposition of a 14.75% benchmark rate of
return. It noted that the hearing record was sufficient regarding the
technical feasibility of a reseller switch and would seek comments only on the
economic aspects of the concept. The CPUC also rescinded its order to modify
the method for allocating cost between wholesale and retail operations. On
December 17, 1993, the CPUC issued an Order Instituting Investigation
("OII")into the regulation of Mobile Telephone Service and Wireless
Communications, consolidating the rehearing of the above issues into a new
investigation. The OII initiates a review of the Commission's historic
policies governing cellular telephone service and proposes to classify
cellular carriers as dominant carriers and resellers and new providers of
mobile services as non-dominant carriers. The Commission requests comments on
alternative frameworks for regulating cellular carriers: (1) price caps at
current rates (the existing framework); (2) rate-of-return or cost-based price
caps which would result in mandatory price reductions; and (3) relaxed
regulation. Comments and rebuttals have been filed. Because the outcome of
the OII is uncertain, the Company cannot estimate the effects of this matter,
which could be material, on the Company's financial condition and results of
operations. No assurance can be given that regulatory changes that may be
enacted by federal, state, or foreign governmental authorities will not have a
material adverse effect on the Company's future business.
Initial operating licenses are generally granted for terms of 10 years,
renewal upon application to the FCC. Licenses may be revoked any time and
license renewal applications may be denied for cause. The Company has filed
an application for renewal of its Los Angeles cellular license, whose initial
term expired in October 1993. The Company expects that its application will
be granted, although an opposing party has filed an informal objection and a
petition to deny the Company's application, alleging violations of FCC rules
and Communications Act of 1934. The Company's licenses in San Diego, Detroit,
Cleveland and Sacramento expire in October 1994 and all of its other
significant domestic cellular licenses expire before the end of 1996. While
the Company believes that each of these licenses will be renewed based upon
FCC rules establishing a presumption in favor of licensees that have complied
with their regulatory obligations during the initial period, there can be no
assurance that any license will be renewed. The licensing authorities in
Germany and Portugal have not established any procedures for renewal of the
cellular licenses held by MMO and Telecel. Such licenses expire in 2009 and
2006, respectively.
EFFECT OF RECESSION. The effects of the recession have been felt in the areas
of bad debt, increased promotional expense and rate reductions to generate
subscriber growth, and lower usage. As most of the country slowly recovers,
the California economy is still lagging. If the recession continues, the
Company will continue to focus on cost containment efforts, closely monitor
bad debt, and promote its products in existing markets.
INTERNATIONAL ENVIRONMENTAL CONDITIONS. The Company has been successful in
obtaining significant interests in cellular licenses in Germany, Portugal,
Japan, and Sweden. Its paging and other operations cover Spain, Portugal,
Thailand, France, and Korea. The Company is not presently aware of any
economic, political, or competitive conditions in such countries that would
have a material adverse effect on the Company.
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CONTINGENCIES
GARABEDIAN DBA WESTERN MOBILE TELEPHONE COMPANY V. LASMSA LIMITED PARTNERSHIP,
ET AL. A class action complaint has been filed naming as defendants, among
others, Los Angeles Cellular Telephone Company ("LACTC") and the Company, as
general partner for Los Angeles SMSA Limited Partnership. The plaintiff
alleges that LACTC and the Company conspired to fix the price of wholesale and
retail cellular service in the Los Angeles market. The plaintiff alleges
damages for the class "in a sum in excess of $100 million." On January 31,
1994, the Company filed a demurrer to the complaint. No discovery has been
undertaken as of March 3, 1994. The Company intends to defend itself
vigorously. The Company does not anticipate this proceeding will have a
material adverse effect on the Company's financial position. Also, see Note N
to the Consolidated Financial Statements of AirTouch Communications and
Subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
The Company defines liquidity as its ability to generate resources to finance
business expansion, construct capital assets, and pay its current obligations.
The Company has met its financing needs from internally generated funds,
equity infusions from Telesis, and external financing through issuance of
common stock.
The Company requires substantial capital to expand and operate its existing
wireless systems, to construct new wireless systems and to acquire interests
in existing wireless systems. In the past, the Company has met its funding
requirements primarily through short-term borrowings from PTCR and equity
contributions from Telesis. During 1993, Telesis provided equity
contributions of $1,179.8 million which the Company used to significantly
reduce its indebtedness to PTCR. The Company's indebtedness to PTCR totaled
$958.4 million at December 31, 1992 and, as a result of debt repayments and
the settlement of the Company's tax benefits receivable from Telesis, the
Company reduced its indebtedness to PTCR to $0.3 million at December 31, 1993.
Prior to the IPO, the Company continued to borrow from PTCR to the extent that
its existing cash resources and cash flow from operations were not sufficient
to meet the Company's funding requirements. On December 2, 1993, the Company
sold to the public 68,500,000 shares of Common Stock, representing 13.9% of
the total number of outstanding shares. The net proceeds to the Company from
such sale were $1,489.2 million.
The Company generated cash from operating activities of $439.7 million,
$198.9 million, and $169.1 million during 1993, 1992, and 1991, respectively.
The Company's domestic cellular and paging operations were primarily
responsible for these cash flows. The increase in 1993 also included the
settlement of the Company's tax benefits receivable from Telesis. (See
"Interest Expense" and "Income Taxes.")
The Company's cash used for investing activities was $1,441.4 million, $491.9
million, and $430.2 million in 1993, 1992, and 1991, respectively. The
Company's cash used for investing activities increased in 1993 primarily due
to the investment of the proceeds from the IPO, and investments in Wichita and
Topeka Cellular and NordicTel. The increase in investments in 1992 reflects
increased construction funding for MMO's and Telecel's cellular systems (both
of which became operational in 1992) and the purchase of an additional 6.6%
equity in CCI for approximately $92.0 million.
The Company will be required to make substantial expenditures in connection
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with its efforts to expand its wireless business. The size of such
expenditures is difficult to anticipate primarily because of uncertainty as to
the Company's success in its pursuit of new wireless licenses and attractive
acquisition opportunities. In the United States, the Company plans to pursue
additional cellular and paging opportunities and intends to participate
actively in the license application process for PCS. Internationally, the
Company currently is negotiating to acquire an interest in a digital cellular
system in Belgium, is competing or planning to compete for wireless licenses
in South Korea, Italy, the Netherlands, Spain, and France and also is
considering opportunities in other parts of the world.
The Company also expects to make capital expenditures of approximately $700
million with respect to its existing domestic and international wireless
systems, including the deployment of digital technology in its domestic
cellular systems during 1994 and 1995. As of March 1, 1994, the Company was
committed to spend up to $191 million for the acquisition of property, plant
and equipment and expects that capital contributions to its existing
international ventures will total approximately $135 million prior to the end
of 1995. The Company used approximately $49.5 million of the net IPO proceeds
to purchase notes in connection with which a subsidiary of the Company has
issued a letter of responsibility. For a description of a note payable to an
affiliate to which these notes relate, see Notes E and G to the Consolidated
Financial Statements of AirTouch Communications and Subsidiaries. The Company
has agreed to fund CCI's redemption of up to 10.04 million shares of CCI stock
at $60 per share in October 1995 and to purchase from CCI shares or stock
options representing in the aggregate approximately 2.4 million shares at a
price of $60 per share, less the exercise price in the case of stock options
(the "Mandatory Redemption Obligation" or "MRO"). The Company's funding
obligation in connection with the MRO will not exceed $720 million. In
addition, the Company may be obligated to make payments to CCI stockholders in
the event that the Company does not elect, after three appraisals during the
18-month period beginning in August 1996, to purchase, at a price reflecting
the appraised private market value of CCI's interest in New Par (and such
other CCI assets and related liabilities as the Company and CCI agree shall be
retained), all of the outstanding shares of CCI stock which it does not then
hold. The Company has agreed to provide CCI with a $600 million letter of
credit in support of the Company's obligations in the MRO. See Note E to the
Consolidated Financial Statements of AirTouch Communications and Subsidiaries.
The Company's cash received from financing activities was $1,631.3 million,
$293.1 million, and $254.6 million for 1993, 1992, and 1991, respectively.
The cash received from financing activities primarily reflects proceeds from
the IPO, short-term borrowings from PTCR, and equity contributions from
Telesis. The Company does not expect its operations to generate sufficient
cash to meet its capital requirements for the next several years. However,
the Company currently believes that the net proceeds from the IPO, together
with cash flow from operations, will be sufficient to satisfy the Company's
estimated funding requirements through mid-1995. After such proceeds are
invested, the Company expects that it will need to raise additional funds
through bank borrowings or public or private sales of debt or equity
securities. Although there can be no assurance that such funding will be
available, the Company believes that it will be able to access the capital
markets on terms and in amounts adequate to meet its objectives.
DIVIDEND POLICY
The Company currently intends to retain future earnings for the development of
its business and does not anticipate paying cash dividends on its Common Stock
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in the foreseeable future. The Company's future dividend policy will be
determined by its Board of Directors on the basis of various factors,
including the Company's results of operations, financial condition, capital
requirements and investment opportunities.
EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. In December 1990, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions" ("SFAS 106"). The
Company currently offers postretirement benefits other than pensions which are
primarily retiree health care and life insurance benefits. SFAS 106 requires
the Company to change the method of accounting for these postretirement
benefits from a cash basis to an accrual basis. The Company adopted SFAS 106
effective January 1, 1993 with immediate recognition of its $9.1 million
transition obligation (before tax benefit of $3.5 million) as permitted by
SFAS 106. This accounting change increased the Company's 1993 operating
expenses by approximately $1.9 million.
POSTEMPLOYMENT BENEFITS. In November 1992, the FASB issued SFAS No. 112,
"Employers' Accounting for Postemployment Benefits" ("SFAS 112"). The Company
offers workers' compensation, short- and long-term disability, medical benefit
continuation, and severance pay. These benefits are paid to former employees
not yet retired. SFAS 112 requires that these postemployment benefits be
accounted for on an accrual basis beginning in 1994. The Company adopted SFAS
112 on January 1, 1994. Based on the accrual requirements, the Company
expects that future recognized expense under SFAS 112 will not differ
materially from current expenses and therefore believes that the adoption of
SFAS 112 will not have a material impact on the Company's results of
operations or financial condition.
INVESTMENTS IN DEBT AND EQUITY SECURITIES. In May 1993, the FASB issued SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS 115"). The new standard will change the carrying basis for certain
equity and debt securities. The Company adopted SFAS 115 on January 1, 1994,
consistent with the required adoption period. The Company does not expect
SFAS 115 to materially affect its financial position or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's consolidated financial statements and supplemental data, as well
as those of its significant subsidiaries, New Par and MMO, together with the
reports of Coopers & Lybrand, Ernst & Young and KPMG Peat Marwick, independent
accountants, are included elsewhere herein. Reference is made to the "Index
to Financial Statements" immediately preceding page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
No disagreements with accountants on any accounting or financial disclosure
occurred during the Company's two most recent fiscal years or any subsequent
interim period.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is certain information concerning the persons who serve as
directors and executive officers of the Company. The executive officers serve
at the pleasure of the Board of Directors and are subject to removal at any
time. At the time of the Spin-off, Messrs. Ginn, Christensen, Gyani and Sarin,
who are also officers of Telesis, will resign their positions at Telesis.
Directors are elected by shareholders at each annual meeting or, in the case
of a vacancy or increase in the number of directors, by the directors then in
office, to serve until the next annual meeting of shareholders and until their
successors are elected and qualified.
NAME AGE POSITION AND OFFICES HELD
------------------------ ----- --------------------------------------
Sam Ginn ............... 56 Chairman of the Board
and Chief Executive Officer
C. Lee Cox ............. 52 President and Chief Operating
Officer and Director
Lydell L. Christensen .. 59 Executive Vice President
and Chief Financial Officer
Margaret G. Gill ....... 54 Senior Vice President, Legal
and External Affairs and Secretary
Arun Sarin ............. 39 Senior Vice President, Corporate Strategy/
Development and Human Resources
F. Craig Farrill ....... 41 Vice President, Technology, Planning
and Development
Mohan S. Gyani ......... 42 Vice President, Finance and Treasurer
George F. Schmitt ...... 50 Vice President, International Operations
Susan G. Swenson ....... 45 Vice President
Paul H. White .......... 49 General Counsel
Charlie E. Jackson ..... 59 President and Chief Executive Officer,
AirTouch Paging
John R. Lister ......... 55 President and Co-Chief Executive Officer,
PacTel Teletrac
Jan K. Neels .......... 55 President and Chief Executive Officer,
AirTouch International
Carol A. Bartz ........ 45 Director
Donald G. Fisher ...... 65 Director
James R. Harvey ....... 59 Director
Paul Hazen ............ 51 Director
Arthur Rock ........... 67 Director
Charles R. Schwab ..... 56 Director
George P. Shultz ...... 72 Director
Mr. Ginn has been Chairman of the Board, President and Chief Executive Officer
of Telesis since 1988. He served as President and Chief Operating Officer of
Telesis from 1987 through 1988 and as Vice Chairman of the Board from 1983
through 1987. Previously, Mr. Ginn served as a director and as President and
Chief Operating Officer of the Company from 1984, when the Company was formed,
to 1987. He has been Chairman of Pacific Bell since 1988 and was Vice Chairman
from 1987 through 1988. Mr. Ginn has been a director of Telesis since 1983 and
is also a director of Chevron Corporation, Safeway Inc. and Transamerica
Corporation. Mr. Ginn will resign from the Board of Directors of Telesis at
the time of the Spin-off.
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<PAGE>
Mr. Cox has been President of the Company since 1987. Mr. Cox was a director
of the Company from 1987 to April 1993 and became a director again in January
1994. Mr. Cox has been a director and a Group President of Telesis since 1988.
Mr. Cox began his career with Pacific Bell in 1964 and, prior to joining the
Company in 1987, held various senior management positions at Pacific Bell.
Mr. Cox will resign from the Board of Directors of Telesis at the time of the
Spin-off.
Mr. Christensen was named Executive Vice President, Chief Financial Officer
and Treasurer of Telesis in 1992. In March 1993, Mohan S. Gyani, who reports
to Mr. Christensen, was named Treasurer of Telesis. From 1987 to 1992,
Mr. Christensen was Vice President and Treasurer of Telesis. He was a director
of the Company from 1992 to 1993.
Mrs. Gill became Senior Vice President, Legal and External Affairs and
Secretary of the Company in January 1994. She had been a partner in the law
firm of Pillsbury Madison & Sutro since 1973 and was the head of the firm's
Corporate and Securities Group.
Mr. Sarin was named Senior Vice President, Corporate Strategy/Development and
Human Resources of the Company in December 1993. Mr. Sarin became a joint
officer of Telesis and the Company in March 1993 when he was named Vice
President, Organization Design at Telesis and Vice President, Strategy at the
Company. In 1992, he became Vice President and General Manager, Bay Operations
for Pacific Bell. In 1990, he became Vice President, Chief Financial Officer
and Controller of Pacific Bell. He joined Pacific Bell in 1989 and shortly
thereafter was named Vice President, Corporate Strategy for Telesis. In 1987,
Mr. Sarin was named Vice President and Chief Financial Officer of PacTel
Personal Communications ("PerCom"), the former holding company for AirTouch
Cellular and AirTouch Paging.
Mr. Farrill has been Vice President, Technology, Planning and Development for
the Company since 1990. From 1987 to 1990, Mr. Farrill was a Vice President of
AirTouch Cellular responsible for the engineering, design and management of
domestic cellular operations.
Mr. Gyani became Vice President, Finance and Treasurer of the Company in
November 1993. He has been a Vice President and the Treasurer of Telesis since
March 1993. In 1992 he was named Vice President and Controller at Pacific
Bell. Previously Mr. Gyani held various positions at Telesis and Pacific Bell.
He began his career with Pacific Bell in 1978.
Mr. Schmitt has been Vice President of the Company and a member of the Board
of Management of MMO since 1990. From 1987 to 1990, Mr. Schmitt was Vice
President for State Regulatory Affairs for Pacific Bell. Mr. Schmitt began his
career with Pacific Bell in 1965 and became a Vice President in 1985.
Ms. Swenson has been Vice President of the Company and President of Bay Area
Cellular Telephone Company since March 1994. From April 1993 to March 1994,
she was Vice President and General Manager of Pacific Bell's Bay Area Regional
Marketing Group, and from 1990 to April 1993, she was President and Chief
Operating Officer of AirTouch Cellular. Prior to joining AirTouch Cellular,
Ms. Swenson was Pacific Bell's Vice President for Customer Services in
Southern California.
Mr. White has been General Counsel for the Company since 1987. Mr. White was
Assistant General Counsel for Telesis from 1985 to 1987 and prior to that was
an attorney for Pacific Bell. Mr. White began his career with Pacific Bell in
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1977.
Mr. Jackson has been President and Chief Executive Officer of AirTouch Paging
since 1986. He was named to that position after Telesis acquired Communication
Industries, Inc. Prior to the acquisition, Mr. Jackson was President and
General Manager of Gencom Incorporated, a subsidiary of Communication
Industries that provided paging, mobile telephone and cellular services.
Mr. Lister has been President and Co-Chief Executive Officer of PacTel
Teletrac since April 1992. He has also been a Vice President of the Company
since 1992. In November 1990, Mr. Lister joined PacTel Teletrac as President
and Chief Operating Officer. Since 1988, Mr. Lister had been a Vice President
at AirTouch Cellular. Mr. Lister joined PerCom in 1987 as Vice President of
Corporate Development.
Mr. Neels has been President and Chief Executive Officer of AirTouch
International since 1987. Mr. Neels joined AirTouch International in 1986 as a
Vice President, overseeing the business operations and marketing activities of
subsidiaries in Spain, Japan, Korea and Thailand.
Ms. Bartz became a director of the Company in February 1994. She has been
Chairman of the Board, President and Chief Executive Officer of Autodesk, Inc.
since April 1992. From 1983 to April 1992, Ms. Bartz served in various
positions with Sun Microsystems, Inc., most recently as Vice President of
Worldwide Field Operations.
Mr. Fisher became a director of the Company in January 1994, and is a member
of the Compensation and Personnel and Nominating Committees. Mr. Fisher is the
founder, Chairman of the Board and Chief Executive Officer of The Gap, Inc. He
is a director of Ross Stores, Inc., The Charles Schwab Corporation, San
Francisco Bay Area Council and the National Retail Federation.
Mr. Harvey became a director of the Company in April 1993, and is Chairman of
the Compensation and Personnel Committee and a member of the Executive and
Nominating Committees. Mr. Harvey has been Chairman of the Board of
Transamerica Corporation since 1983 and was Chief Executive Officer of
Transamerica from 1981 through 1991. He is a director of Telesis, The Charles
Schwab Corporation, McKesson Corporation, Sedgwick Group plc, The National
Park Foundation and The Nature Conservancy. Mr. Harvey will resign from the
Board of Directors of Telesis at the time of the Spin-off.
Mr. Hazen became a director of the Company in April 1993, and is Chairman of
the Audit Committee and a member of the Executive and Nominating Committees.
Mr. Hazen has been President and Chief Operating Officer of Wells Fargo &
Company and its principal subsidiary, Wells Fargo Bank, N.A., since 1984. He
is a director of Telesis, Wells Fargo & Company and its subsidiary, Wells
Fargo Bank, N.A., Phelps Dodge Corporation and Safeway Inc. Mr. Hazen will
resign from the Board of Directors of Telesis at the time of the Spin-off.
Mr. Rock became a director of the Company in January 1994, and is a member of
the Audit and Nominating Committees. Mr. Rock has been a principal in Arthur
Rock & Co., a venture capital firm, since 1969. He is a director of Intel
Corporation, Argonaut Group, Inc. and Teledyne, Inc. Mr. Rock is married to
Toni Rembe, who is a director of Telesis. Ms. Rembe beneficially owns 1,573
shares of Telesis stock and holds options to purchase an additional 3,000
shares of Telesis stock.
Mr. Schwab became a director of the Company in January 1994, and is Chairman
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of the Nominating Committee and a member of the Compensation and Personnel
Committee. Mr. Schwab is the founder, Chairman of the Board and Chief
Executive Officer of The Charles Schwab Corporation and Chairman of Charles
Schwab & Co. Inc. He is a director of The Gap, Inc. and Transamerica
Corporation.
Mr. Shultz became a director of the Company in January 1994, and is a member
of the Compensation and Personnel, Executive, and Nominating Committees. Mr.
Shultz has been a Professor at the Stanford University Graduate School of
Business since 1974. He served as United States Secretary of State from 1982
to 1989. Mr. Shultz is a Distinguished Fellow at the Hoover Institution, a
member of the Board of the Bechtel Group, Chairman of J.P. Morgan's
International Council and Chairman of the Governor's California Economic
Policy Advisory Council.
ITEM 11. EXECUTIVE COMPENSATION.
The following table discloses compensation earned by the Chief Executive
Officer and the four other most highly paid executive officers (the "Named
Executive Officers") for the three fiscal years ended December 31, 1993.
Unless otherwise indicated, positions listed are with the Company.
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<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
-------------------------------- -----------------------------
Awards Payouts
Other LTIP All
Annual Options/ Payouts Other
Name and Principal Position Year Salary($) Bonus($) Comp($) SARs(#) ($) Comp($)*
---------------------------- ---- --------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Sam Ginn ....................... 1993 $743,542 $793,200 $92,819 0 $591,548 $118,398
Chief Executive Officer 1992 709,167 581,000 85,769 90,000 337,885 101,612
1991 686,250 427,450 88,747 0 640,052 75,384
C. Lee Cox ..................... 1993 458,417 291,200 45,566 0 320,432 80,227
President and Chief Operating 1992 420,792 292,640 45,326 57,000 187,084 63,652
Officer 1991 391,292 242,050 51,135 0 356,685 43,497
Lydell L. Christensen .......... 1993 273,958 243,000 22,761 0 83,384 47,361
Executive Vice President and 1992 242,500 174,285 17,604 13,000 48,614 33,212
Chief Financial Officer 1991 219,583 92,700 12,498 0 94,126 21,486
George F. Schmitt .............. 1993 235,542 163,300 26,824 0 138,564 37,562
Vice President 1992 222,526 167,967 26,366 13,000 41,669 28,398
1991 213,208 153,400 29,175 0 70,330 21,007
Jan K. Neels.................... 1993 217,417 116,800 15,188 0 98,974 15,601
President and Chief Executive 1992 203,521 107,709 14,556 10,000 52,147 11,815
Officer - AirTouch Int'l 1991 191,771 114,000 16,798 0 76,174 9,284
--------------------
* Includes "above-market" interest on deferred compensation (1993: $88,598, $61,827, $36,361, $28,122 and
$6,881, respectively) and Company contributions under the PacTel Corporation Retirement Plan or the Pacific
Telesis Group Supplemental Retirement and Savings Plan for Salaried Employees, including a "make-up match"
under the Pacific Telesis Group Executive Deferral Plan for amounts that were deferred and therefore not
eligible for matching contributions under the Supplemental Retirement and Savings Plan (1993: $29,800,
$18,400, $11,000, $9,440 and $8,720, respectively).
</TABLE>
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<TABLE>
<CAPTION>
There were no grants of Telesis common stock options or stock appreciation rights in 1993 to the Named
Executive Officers.
The following table provides information on Telesis stock option/SAR exercises in 1993 by the Named
Executive Officers and the value of each of their unexercised options/SARs at December 31, 1993.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)*
-------------- ---------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
---- --------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C>
Sam Ginn No Exercises 0 166,600 / 0 $2,281,488 / 0
C. Lee Cox 14,390 $268,896 93,000 / 0 1,005,750 / 0
Lydell L. Christensen No Exercises 0 23,750 / 0 291,750 / 0
George F. Schmitt No Exercises 0 20,800 / 0 225,225 / 0
Jan K. Neels No Exercises 0 19,047 / 0 235,745 / 0
* Based on the closing price on the New York Stock Exchange-Composite Transactions of Telesis Common Stock
on December 31, 1993 of $54.25.
</TABLE>
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<TABLE>
The following table provides information on awards to the Named Executive Officers in 1993 under the Long-Term Incentive Plan.
<CAPTION>
LONG-TERM INCENTIVE PLANS* AWARDS IN LAST FISCAL YEAR
Estimated Future Payouts Under
Non-Stock Price-Based Plans
Number of Performance or
----------------------------------------------------
Shares, Units ** Other Period Until Threshold Target Maximum
Name or Other Rights (#) Maturation or Payout (# of Units) (# of Units) (# of Units)
--------------- ------------------- -------------------- ------------ ------------ ------------
<S> <C> <S> <C> <C> <C>
Sam Ginn 14,750 Three Years 6,195 14,750 19,175
C. Lee Cox 6,850 Three Years 2,877 6,850 8,905
Lydell L. Christensen 3,975 Three Years 1,670 3,975 5,168
George F. Schmitt 1,925 Three Years 809 1,800 2,503
Jan K. Neels 1,300 Three Years 546 1,300 1,690
* The Pacific Telesis Group Senior Management Long Term Incentive Plan provides for awards contingent
upon the achievement of performance objectives set by the Telesis Board's Compensation and Personnel
Committee over a three-year period. Awards are denominated in shares of Telesis common stock, and dividend
equivalents are paid during the performance period. At the end of the period, awards are paid either in
shares of Telesis common stock or in cash valued at the average price of the Telesis common stock for a
ten-day period in January. The above grants are for the three-year performance cycle that will end
December 31, 1995. Except as provided below, the measures of performance under this Plan are:
(1) Cash Flow Return on Investment in the third year of the performance period; (2) Cumulative Net
Cash Flow over the three-year period and (3) Total Investor Return relative to the Total Investor
Return of four comparator groups. These comparator groups are the Regional Holding Companies,
Independent Telecommunications Companies, California Utilities and the Dow Jones Industrial Average.
For Messrs. Schmitt and Neels, the above measures will determine 25 percent of their awards. The
remaining 75 percent will be determined by measures specific to their individual employers, such as
Total Controllable Cash Flow, Cumulative Equity Earnings and achievement of Key Milestones. See
"-1993 Long-Term Stock Incentive Plan-Telesis and Company LTIP Awards" for a description of the
method by which the awards for the three-year performance cycles ending December 31, 1994, and
December 31, 1995, held by officers of the Company will be converted into awards relating to the
Company's Common Stock in connection with the Spin-off.
** A unit is based on one share of Telesis common stock.
</TABLE>
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1993 LONG-TERM STOCK INCENTIVE PLAN
ADOPTION AND AMENDMENTS. The Company's 1993 Long-Term Stock Incentive Plan
(the "Stock Plan") was initially adopted by the Company's Board of Directors
on June 25, 1993, and approved by Telesis (as the Company's majority
shareholder) upon the recommendation of the Compensation and Personnel
Committee of the Telesis Board. Such committee consists entirely of directors
of Telesis who are not officers or employees of Telesis, the Company or any
subsidiary of either. The Stock Plan has been amended from time to time
thereafter, and the Board of Directors may amend any aspect of the Stock Plan
at any time in the future. Amendments are subject to the approval of the
Company's shareholders only to the extent required by applicable laws or
regulations.
SHARES AVAILABLE FOR ISSUANCE. The Stock Plan provides for awards in the form
of restricted shares, stock units, options or SARs, or any combination
thereof. The total number of shares of Common Stock available for issuance
under the Stock Plan is 24,000,000, subject to anti-dilution provisions. If
any restricted shares, stock units, options or Spars granted under the Plan
are forfeited, or if options or Spars terminate for any other reason prior to
exercise, then the underlying shares of Common Stock again become available
for awards.
ADMINISTRATION. The Stock Plan is administered by the Compensation and
Personnel Committee (the "C&P Committee") of the Company's Board of Directors.
The C&P Committee consists entirely of directors of the Company who are not
officers or employees of Telesis, the Company or any subsidiary of either. The
C&P Committee selects the employees of the Company or any subsidiary who will
receive awards, determines the size of the award (limited, in the case of
options or SARs, to 500,000 shares of Common Stock in any calendar year for
any employee) and establishes the vesting or other conditions. The Company's
Board of Directors may also appoint an additional committee, which consists of
directors who may be officers of the Company. This committee may administer
the Stock Plan with respect to participants other than directors and officers.
ELIGIBILITY. Employees, directors, consultants and advisors of the Company,
its subsidiaries, or affiliates of which the Company owns at least 50% are
eligible to participate in the Stock Plan, although incentive stock options
may be granted only to employees of the Company or a subsidiary. The
participation of nonemployee directors of the Company is limited to certain
automatic grants of nonstatutory stock options, except to the extent the
Company's Board of Directors implements provisions that would permit a
nonemployee director to convert the annual retainer payments and meeting fees
to stock options or stock units, as described below.
PAYMENT. In general, no payment will be required upon receipt of an award. The
Stock Plan, however, permits the grant of awards in consideration of a cash
payment or a voluntary reduction in cash compensation.
RESTRICTED STOCK. Restricted shares are shares of Common Stock that are
subject to forfeiture in the event that the applicable vesting conditions are
not satisfied, and they are nontransferable prior to vesting (except for
certain transfers to a trustee). Restricted shares have the same voting and
dividend rights as other shares of Common Stock.
STOCK UNITS. A stock unit is an unfunded bookkeeping entry representing the
equivalent of one share of Common Stock, and it is nontransferable prior to
the holder's death. A holder of stock units has no voting rights or other
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privileges as a stockholder but may be entitled to receive dividend
equivalents equal to the amount of any dividends paid on the same number of
shares of Common Stock. Dividend equivalents may be converted into additional
stock units or settled in the form of cash, Common Stock or a combination of
both.
Stock units, when vested, may be settled by distributing shares of Common
Stock or by a cash payment corresponding to the fair market value of the
appropriate number of shares of Common Stock, or a combination of both. The
number of shares of Common Stock (or the corresponding amount of cash)
distributed in settlement of stock units may be greater or smaller than the
number of stock units, depending upon the attainment of performance
objectives. Vested stock units will be settled at the time determined by the
C&P Committee. If the time of settlement is deferred, interest or additional
dividend equivalents may be credited on the deferred payment. The recipient of
restricted shares or stock units may pay all projected withholding taxes
relating to the award with Common Stock rather than cash.
STOCK OPTIONS. Options may include nonstatutory stock options ("NSOs") as well
as incentive stock options ("ISOs") intended to qualify for special tax
treatment. The term of an ISO cannot exceed 10 years, and the exercise price
of an ISO must be equal to or greater than the fair market value of the Common
Stock on the date of grant. (On March 4, 1994, the closing sale price of the
Company's Common Stock on the New York Stock Exchange was $23 3/8) The Stock
Plan permits the grant of NSOs with an exercise price that varies according to
a predetermined formula.
The exercise price of an option may be paid in any lawful form permitted by
the C&P Committee, including (without limitation) the surrender of shares of
Common Stock or restricted shares already owned by the optionee. The Stock
Plan also allows the optionee to pay the exercise price of an option by giving
"exercise/sale" or "exercise/pledge" directions. If exercise/ sale directions
are given, the option shares are issued directly to a securities broker
selected by the Company who, in turn, sells shares in the open market. The
broker remits to the Company the proceeds from the sale of these shares to the
extent necessary to pay the exercise price and any withholding taxes, and the
optionee receives the remaining option shares or cash. If exercise/pledge
directions are given, the option shares are issued directly to a securities
broker or other lender selected by the Company. The broker or other lender
will hold the shares as security and will extend credit for up to 50 percent
of their market value. The loan proceeds will be paid to the Company to the
extent necessary to pay the exercise price and any withholding taxes. Any
excess loan proceeds may be paid to the optionee. If the loan proceeds are
insufficient to cover the exercise price and withholding taxes, the optionee
will be required to pay the deficiency to the Company at the time of exercise.
The C&P Committee may also permit optionees to satisfy their withholding tax
obligation upon exercise of an NSO by surrendering a portion of their option
shares to the Company.
STOCK APPRECIATION RIGHTS ("SARs"). SARs permit the participant to elect to
receive any appreciation in the value of the underlying stock from the
Company, either in shares of Common Stock or in cash or a combination of the
two, with the C&P Committee having the discretion to determine the form in
which such payment will be made. The amount payable on exercise of an SAR is
measured by the difference between the market value of the underlying stock at
exercise and the exercise price. SARs may, but need not, be granted in
conjunction with options. Upon exercise of an SAR granted in tandem with an
option, the corresponding portion of the related option must be surrendered
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and cannot thereafter be exercised. Conversely, upon exercise of an option to
which an SAR is attached, the SAR may no longer be exercised to the extent
that the corresponding option has been exercised. All options and SARs are
nontransferable prior to the optionee's death.
VESTING CONDITIONS. As noted above, the C&P Committee determines the number
of restricted shares, stock units, options or SARs to be included in the award
as well as the vesting and other conditions. The vesting conditions may be
based on the employee's service, his or her individual performance, the
Company's performance or other criteria. Vesting may be accelerated in the
event of the employee's death, disability or retirement, in the event of a
change in control with respect to the Company, or upon other events. Moreover,
the C&P Committee may determine that outstanding options and SARs will become
fully vested if it has concluded that there is a reasonable possibility that a
change in control will occur within six months thereafter.
For purposes of the Stock Plan, the term "change in control" is defined as
(1) the acquisition, directly or indirectly, of at least 20 percent of the
outstanding securities of the Company by a person other than Telesis or an
employee benefit plan of the Company, (2) a greater than one-third change in
the composition of the Board of Directors of the Company over a period of 24
months or, if fewer than 24 months have elapsed since the Spin-off, over the
period following the Spin-off (if such change was not approved by a majority
of the existing directors), (3) certain mergers and consolidations involving
the Company, (4) a liquidation of the Company or (5) a sale of all or
substantially all of the Company's assets. The term "change in control" does
not include a reincorporation of the Company in a different state, the
Spin-off and certain other transactions.
LIMITATIONS UNDER TAX LAWS. Awards under the Stock Plan may provide that if
any payment (or transfer) by the Company to a recipient would be nondeductible
by the Company for federal income tax purposes pursuant to section 280G of the
Internal Revenue Code, then the aggregate present value of all such payments
(or transfers) will be reduced to an amount which maximizes such value without
causing any such payment (or transfer) to be nondeductible.
MODIFICATIONS. The C&P Committee is authorized, within the provisions of the
Stock Plan, to amend the terms of outstanding restricted shares or stock
units, to modify or extend outstanding options or SARs or to exchange new
options for outstanding options, including outstanding options with a higher
exercise price than the new options.
NONEMPLOYEE DIRECTORS. Members of the Company's Board of Directors who are not
employees of the Company or its subsidiaries will receive an annual grant of
1,000 NSOs (subject to anti-dilution adjustments) under the Stock Plan.
Starting in 1995, these grants are made at the conclusion of each regular
annual meeting of the Company's shareholders to nonemployee directors who will
continue to serve on the Board of Directors thereafter. Nonemployee directors
who join the Company's Board of Directors on or after February 25, 1994, will
receive a one-time grant of 10,000 NSOs (subject to anti-dilution
adjustments). As a condition to these one-time grants, the nonemployee
director must demonstrate that he or she beneficially owns shares of Common
Stock with a value of $100,000 or more within 30 days after the grant. The
exercise price of NSOs granted to nonemployee directors is equal to the market
value of Common Stock on the date of grant. The NSOs will become exercisable
one year after the grant or, if earlier, in the event of the director's death
or total and permanent disability or in the event of a change in control of
the Company. The NSOs expire (i) ten years after the date of grant, (ii) 36
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months after the termination of the director's service due to disability or
due to retirement after serving at least three years, (iii) 12 months after
the director's death, and (iv) three months after the termination of the
director's service for any other reason.
Nonemployee directors and prospective nonemployee directors named in the
prospectus for the Company's initial public offering received a one-time grant
of 10,000 NSOs under the Stock Plan on November 19, 1993. The exercise price
is equal to the initial public offering price ($23 per share). These NSOs will
become exercisable on the latest of (i) the first anniversary of the initial
public offering (December 2, 1994), (ii) the date when the optionee completes
one year of service as a member of the Company's Board of Directors or
(iii) the Spin-off. These NSOs also become exercisable in full in the event of
the director's death or total and permanent disability or a "change in
control" of the Company. The NSOs expire on the earliest of (i) November 18,
2003, (ii) 12 months after the nonemployee director's death, (iii) 36 months
after the termination of the director's service due to retirement after
serving at least three years or due to disability or (iv) three months after
the termination of the director's service for any other reason. As a condition
to these one-time grants, the nonemployee director or prospective nonemployee
director was required to demonstrate that he beneficially owned shares of
Common Stock with a value of $100,000 or more at any time within 30 days after
the initial public offering.
Finally, the Company's Board of Directors may implement provisions of the
Stock Plan that permit a nonemployee director to elect to receive all or a
portion of his or her annual retainer payments and meeting fees in the form of
NSOs or stock units to be issued under the Stock Plan, provided the election
is made at least six months before such fees are payable.
TELESIS OPTIONS. It is expected that, in connection with the Spin-off,
unexercised Telesis Options held by the directors, officers and other
employees of the Company will be replaced by Company Options granted under the
Stock Plan. See "-Stock Ownership" for a description of the method by which
Telesis Options will be converted into Company Options.
TELESIS AND COMPANY LTIP AWARDS. It is expected that, in connection with the
Spin-off, the awards made to officers of the Company under the Long-Term
Incentive Plans of Telesis and the Company for the three-year performance
cycles ending December 31, 1994 and December 31, 1995 will be converted into
awards relating to the Company's Common Stock. Awards for those portions of
these performance cycles which are completed as of the Spin-off will be
settled on the basis of the actual results achieved under the applicable
performance measures up to the date of the Spin-off. Settlement will be made
in the form of restricted shares of the Company's Common Stock granted under
the Stock Plan. Restricted shares granted in lieu of awards for the
performance cycle ending December 31, 1994 will vest not later than
January 28, 1995, and restricted shares granted to replace awards for the
performance cycle ending December 31, 1995 will vest not later than
January 27, 1996. Awards for the uncompleted portions of these performance
cycles, and the dividend equivalents that would have been paid with respect to
such awards, will be replaced by options to purchase Common Stock granted
under the Stock Plan. To determine the number of options to be granted, an
appropriate option valuation model will be used. Options granted to replace
awards for the performance cycle ending December 31, 1994 will become
exercisable not later than January 28, 1995, and options granted in
substitution for awards for the performance cycle ending December 31, 1995
will become exercisable not later than January 27, 1996.
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INITIAL RESTRICTED STOCK GRANT. The Company intends to grant restricted shares
under the Stock Plan to all employees of the Company and its wholly owned
subsidiaries at the time of the Spin-off, except those employees who have
received stock options under the Pacific Telesis Group Stock Option and Stock
Appreciation Rights Plan. The value of shares included in each employee's
award will not exceed 10% of that employee's total compensation. It is
expected that these shares will vest on the earlier of (a) the date 10 years
after the Spin-off or (b) the 15th consecutive trading day on which the
closing price of Common Stock is at least 200% of the initial public offering
price ($23 per share). If an employee's service terminates before these shares
vest, they will be forfeited, except that a stock award agreement may provide
for accelerated vesting in the event of termination of service on account of
death, total and permanent disability, or retirement. As an example, assuming
a price for the Common Stock of the Company of $23 per share at the time of
the Spin-off, the Company would grant approximately 400,000 shares of
restricted stock.
TAX CONSEQUENCES OF OPTIONS. Neither the optionee nor the Company will incur
any federal tax consequences as a result of the grant of an option. The
optionee will have no taxable income upon exercising an ISO (except that the
alternative minimum tax may apply), and the Company will receive no deduction
when an ISO is exercised. Upon exercising an NSO, the optionee generally must
recognize ordinary income equal to the "spread" between the exercise price and
the fair market value of Common Stock on the date of exercise; the Company
ordinarily will be entitled to a deduction for the same amount. In the case of
an employee, the option spread at the time an NSO is exercised is subject to
income tax withholding, but the optionee generally may elect to satisfy the
withholding tax obligation by having shares of Common Stock withheld from
those purchased under the NSO. The tax treatment of a disposition of option
shares acquired under the Stock Plan depends on how long the shares have been
held and on whether such shares were acquired by exercising an ISO or by
exercising an NSO. The Company will not be entitled to a deduction in
connection with a disposition of option shares, except in the case of a
disposition of shares acquired under an ISO before the applicable ISO holding
periods have been satisfied.
EMPLOYEE STOCK PURCHASE PLAN
The principal terms of an Employee Stock Purchase Plan (the "ESPP") were
approved by the Company's Board of Directors on July 22, 1993 and by Telesis
(as the Company's majority shareholder) upon the recommendation of the
Compensation and Personnel Committee of the Telesis Board. The ESPP is
expected to be adopted prior to the Spin-off and to take effect upon the
Spin-off. The ESPP is intended to meet the requirements of Internal Revenue
Code section 423. The ESPP will provide eligible employees of the Company and
designated subsidiaries the opportunity to purchase Common Stock at a
discount. Specific purchase periods will be established during which
participants will contribute toward the purchase of stock through regular
payroll deductions. Participants may withdraw their contributions at any time
before the close of the purchase period. A pool of 2,400,000 shares of Common
Stock has been reserved for issuance under the ESPP, subject to anti-dilution
adjustments.
SHORT-TERM INCENTIVE PLAN
The Company sponsors a Short-Term Incentive Plan applicable to executive
officers and all employees (except certain salespersons) that represents the
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bonus component of their compensation. Under the plan, the Board of Directors
determines a standard award amount for each employee position or level. The
plan provides for annual payment of individual cash awards in amounts equal to
a percentage of the standard award, based on the level of achievement of
corporate performance objectives and on individual performance in the
preceding year. Performance objectives are established by the Board and are
generally financial, operating and strategic in nature. Amounts awarded for a
fiscal year are normally paid in February of the following year.
PENSION PLANS
It is expected that the Company's qualified pension plan, in connection with
the Spin-off, will assume the liability for any accrued benefits of the
Company's executive officers under a qualified pension plan of Telesis.
("Qualified pension plans" are plans that are intended to qualify for
preferential tax treatment under section 401(a) of the Internal Revenue Code
of 1986.) Corresponding assets will be transferred from the Telesis qualified
plan to the Company's qualified plan. The accrual of service credit under the
Company's qualified pension plan was discontinued on December 31, 1986 for
most employees as of that date, although increases in compensation are still
reflected in the computation of pensions. Accordingly, service after the
Spin-off will not be counted in calculating the benefits of the Company's
executive officers under the Company's qualified pension plan, but salary
increases after the Spin-off will be taken into account.
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The following table shows the total annual pension benefits (stated as a
single-life annuity) that would be received by an executive officer of the
Company retiring today at age 65 under the Telesis qualified and nonqualified
pension plans. It assumes various specified levels of total years of service
and average annual compensation (which includes base salary and the standard
award under the Short-Term Incentive Plan) during the final five years of
service. The benefits shown in the table generally are not subject to offsets
for Social Security benefits or other payments.
Average Annual
Compensation
During Final Years of Service Prior to Retirement
Five Years
of Service 15 20 25 30 35
--------------- ---------- ---------- --------- ---------- ----------
$ 450,000 $ 97,875 $130,500 $163,125 $195,750 $228,375
500,000 108,750 145,000 181,250 217,500 253,750
650,000 141,375 188,500 235,625 282,750 329,875
700,000 152,250 203,000 253,750 304,500 355,250
800,000 174,000 232,000 290,000 348,000 406,000
900,000 195,750 261,000 326,250 391,500 456,750
1,000,000 217,500 290,000 362,500 435,000 507,500
1,150,000 250,125 333,500 416,875 500,250 583,625
1,250,000 217,875 362,500 453,125 543,750 634,375
1,400,000 304,500 406,000 507,500 609,000 710,500
The 1993 compensation of Messrs. Ginn, Cox, Christensen, Schmitt and Neels
covered by the pension plans was $1,230,000, $720,000, $425,000, $399,300, and
$0, respectively. As of December 31, 1993, the years of service of Messrs.
Ginn, Cox, Christensen, Schmitt and Neels that are credited under the pension
plans were 33, 29, 6, 28 and 0, respectively. Because Mr. Christensen is
covered under a Telesis nonqualified pension plan providing increased pension
benefits to mid-career hires, his pension is effectively calculated as if he
had 12 years of service.
Under other provisions of the Telesis nonqualified pension plans, eligible
officers who terminate after attaining age 55 and completing 10 years of
service as an officer are entitled to a minimum pension of 45% of average
annual compensation. This minimum pension is increased by an additional 1% per
year, up to a maximum of 50%, at 15 or more years of service as an officer. As
of December 31, 1993, the completed years of service of Messrs. Ginn, Cox,
Christensen, Schmitt and Neels that are credited under the minimum pension
provisions were 15, 9, 5, 7 and 5, respectively.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT OR CHANGE-IN-CONTROL
ARRANGEMENTS
Telesis has entered into employment agreements with certain officers of
Telesis or the Company, including each of the Named Executive Officers, which
provide for specified payments in the event of an involuntary termination of
employment. Such agreements do not have a fixed term and may be terminated by
either party upon three years' notice (in the case of Messrs. Ginn, Cox and
Christensen) or one year's notice (in the case of Messrs. Schmitt and Neels).
Telesis has assigned, or will assign prior to the Spin-off, such agreements to
the Company (except that Mr. Ginn's employment agreement by its terms may not
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be assigned).
The amount of the payments depends on whether the involuntary termination
occurs within three years after a "change in control." If an officer's
employment is involuntarily terminated for any reason other than cause, death
or disability, whether or not there has been a "change in control," Telesis or
the Company, as applicable, will make a cash payment of three times base
compensation for Messrs. Ginn, Cox and Christensen or of one times base
compensation for Messrs. Schmitt and Neels, plus 100% of the standard award
under the Short-Term Incentive Plan applicable for that calendar year. In such
event, Telesis or the Company will also compensate the officer for the value
of any forfeited units under the Long-Term Incentive Plan, based on the fair
market value of Telesis common stock on the date of employment termination,
and for the value of any stock options and SARs that terminate at the
officer's termination of employment, based on the difference between the fair
market value of Telesis common stock at the effective date of termination and
the option price (in the case of SARs, the difference between such fair market
value and the option price at which the stock option related to the SAR was
granted).
Upon an involuntary termination (including "constructive termination," which
is defined as a material reduction in responsibilities, a material reduction
in salary or benefits or a requirement to relocate) within three years after a
"change in control," all officers will receive a severance payment, in
addition to the payments described in the preceding paragraph, when
applicable, equal to approximately 200% of the officer's award under the
Long-Term Incentive Plan for one year. Messrs. Ginn, Cox and Christensen would
also receive approximately 200% of their standard award under the Short-Term
Incentive Plan for the year in which employment terminates. For these
agreements, "change in control" is defined generally as a party's acquisition,
directly or indirectly, of 20% or more of Telesis' securities, a greater than
one-third change in the composition of the Telesis Board of Directors in 24
months that was not approved by the majority of the existing directors, or
certain mergers, consolidations, sales or liquidations of substantially all of
the assets of Telesis. Any payments under the employment agreements are
subject to the limitation that if the auditors of Telesis determine that any
portion of the payments to be made is nondeductible by Telesis because of
section 280G of the Internal Revenue Code, payments will be reduced to the
extent of the nondeductible amount.
In connection with the Spin-off, it is expected that such agreements will be
replaced by new agreements between the Company and its executive officers, the
terms and conditions of which will be determined prior to the Spin-off by the
Company's Board of Directors upon the recommendation of its C&P Committee.
DIRECTOR COMPENSATION AND RELATED TRANSACTIONS
Nonemployee directors of the Company receive an annual retainer of $20,000 and
fees of $1,200 for each board meeting attended and $800 for each committee
meeting attended. The chairmen of the Audit, Compensation and Personnel, and
Finance Committees each receive an additional annual retainer of $5,000, and
the chairs of other committees of the Board receive additional annual
retainers of $4,000. In addition, nonemployee directors are entitled to
reimbursement for out-of-pocket expenses in connection with attendance at
Board and committee meetings. Nonemployee directors may elect to defer
receipt of all or part of their fees and retainers. Amounts deferred in 1994
will earn interest at a rate of 7.33% in 1994.
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Each nonemployee director of the Company has been granted stock options under
the Company's 1993 Long-Term Stock Incentive Plan. See "-1993 Long-Term Stock
Incentive Plan - Nonemployee Directors." In addition, the Company has adopted
an equity purchase program for nonemployee directors under which unsecured
loans of up to $100,000 will be available to enable such directors to purchase
shares of the Company's Common Stock. The term of any loan under the program
will be five years, with an option to extend for an additional five years.
Final maturity is ten years or 30 days following the borrower's resignation
from the Board. The interest rate for such loans would be the greater of the
mid-term, adjusted Applicable Federal Rate, as published by the Internal
Revenue Service (currently 5.23%) or the Company's cost of funds, currently
equivalent to the five-year Treasury rate plus 85 basis points (currently
6.75%), but in no event higher than permitted under California usury laws
(10%). The interest rate will be established at the time the loan is made and
will be reset if the loan is renewed for an additional five years. Interest
will compound annually and be paid at the end of each five-year term.
Messrs. Harvey and Hazen, who are also directors of Telesis, will resign as
such upon the Spin-off. They have not received annual retainers from the
Company during their terms as joint directors of Telesis and the Company, but
they have received fees for attendance at Board and committee meetings in the
amounts specified above.
Directors who are also employees of the Company receive no remuneration for
serving as directors or as members of committees of the Board.
All of the Company's directors are also reimbursed for the costs of certain
telecommunications services and equipment. Employee directors receive similar
reimbursements for services and equipment as part of their compensation as
officers. The Company also provides travel accident insurance covering
nonemployee directors on Company business.
The Company has entered into indemnity agreements with each of its directors
that provide for indemnification against any judgements or costs assessed
against them in the course of their service as directors. Such agreements do
not permit indemnification for acts or omissions for which indemnification is
not permitted under California law.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of February 28, 1994, certain information
concerning the ownership of the Company's Common Stock by each shareholder
known to the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, each Named Executive Officer, each
director and by all executive officers and directors as a group.
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership Percent of Class
------------------------------- -------------------- ----------------
Pacific Telesis Group ......... 424,122,960 86.1%
130 Kearny Street
San Francisco, CA 94108
Sam Ginn ...................... 10,100 *
C. Lee Cox .................... 500 *
Lydell L. Christensen ......... 5,000 *
George F. Schmitt ............. 5,000 *
Jan K. Neels .................. 500 *
Carol A. Bartz ................ 0 *
Donald G. Fisher .............. 4,000 *
James R. Harvey ............... 5,000 *
Paul Hazen .................... 4,348 *
Arthur Rock ................... 150,100 *
Charles R. Schwab ............. 4,000 *
George P. Shultz .............. 10,000 *
All directors and executive
officers as a group
(20 persons).................. 215,448 *
_____________________
* Less than 1%.
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The following table sets forth, as of February 28, 1994, the number of shares
of common stock of Telesis beneficially owned by each Named Executive Officer,
each director, and all executive officers and directors of the Company as a
group, as well as their options to purchase shares of common stock of Telesis
exercisable as of February 28, 1994. The total number of shares of common
stock of Telesis beneficially owned by the group is less than 1% of the class
outstanding.
Amount and
Nature of Presently
Beneficial Exercisable
Name of Beneficial Owner Ownership Options Total
------------------------------ ------------ ------------- ----------
Sam Ginn ..................... 9,883(1)(2) 166,600 176,483
C. Lee Cox ................... 6,598 93,000 99,598
Lydell L. Christensen ........ 1,489 23,750 25,239
George F. Schmitt ............ 689 20,800 21,489
Jan K. Neels ................. 1,482 19,047 20,529
Carol A. Bartz ............... 0 0 0
Donald G. Fisher ............. 0 0 0
James R. Harvey .............. 2,467(1) 3,000 5,467
Paul Hazen ................... 1,750 3,000 4,750
Arthur Rock ..................
Charles R. Schwab . . . . . . 0 0 0
George P. Shultz . . . . . . 0 0 0
All directors and executive .. 0 0 0
officers as a group
(20 persons) . . . . . . . . 41,133 458,590 499,723
_____________________
(1) Includes the following shares of Telesis common stock in which the
beneficial owner shares voting and investment power: Mr. Ginn, 1,860
shares; and Mr. Harvey, 2,467 shares.
(2) Includes one share beneficially owned by a dependent child, for which
beneficial ownership is disclaimed.
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At the time of the Spin-off, such officers and, directors will receive shares
of Common Stock in proportion to the shares of the common stock of Telesis
they own and that unexercised options to purchase common stock of Telesis
("Telesis Options") held by directors, officers and employees of the Company
will be replaced by options to purchase Common Stock of the Company ("Company
Options"). Company Options will be granted under the Company's 1993 Long-Term
Stock Incentive Plan.
To determine the number and exercise price of Company Options to be granted to
replace the Telesis Options, an exchange ratio will be computed by dividing
the market price of the Company's Common Stock before the Spin-off by the
market price of Telesis common stock before the Spin-off. The number of shares
subject to each Telesis Option will be divided by that ratio, and the original
exercise price per share under such Telesis Option will be multiplied by that
ratio. The aggregate spread between the option exercise price and the market
value of the underlying stock will not change as a result of the substitution
of a Company Option for a Telesis Option, and the terms of the option (other
than the exercise price) will remain the same in all material respects. As an
example, based upon an assumed average price for Telesis common stock of
$55 per share for the last 10 consecutive trading days before the ex-dividend
date and an assumed average price for the Common Stock of the Company of $23
per share for the same period, and assuming that all options held on
December 31, 1993, remain outstanding, the following individuals and groups
would hold the Company Options exercisable in the following amounts: Mr. Ginn,
398,391 shares; Mr. Cox, 222,391 shares; Mr. Christensen, 56,793 shares; Mr.
Schmitt, 49,739 shares; Mr. Neels, 45,547 shares; Mr. Harvey, 7,174 shares;
Mr. Hazen, 7,174 shares; and all directors and executive officers as a group,
1,096,628 shares. Additional options to purchase Common Stock may be granted
to directors, officers and other key employees of the Company in the future
under the Company's plan. See "-1993 Long-Term Stock Incentive Plan."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company currently has a variety of contractual and other relationships
with Telesis and its affiliates and has entered or will enter into other
arrangements to facilitate the Spin-off. A description of these existing and
contemplated arrangements follows.
PAST TRANSACTIONS WITH TELESIS AND ITS AFFILIATES
The Company and Telesis maintain a number of financial and administrative
arrangements and regularly engage in transactions with each other and their
affiliates. The CPUC and the FCC have established rules and regulations
requiring that the Company and its affiliates be fully separated from Pacific
Bell and Nevada Bell. In addition, transactions between the Company and such
entities are governed by extensive rules, regulations and reporting
requirements established by the CPUC. The following summarizes transactions
between the Company and Telesis or subsidiaries of Telesis since January 1,
1990.
In the past, the Company has met its funding requirements primarily through
borrowings from PTCR and equity contributions from Telesis. During the years
ended December 31, 1993, 1992 and 1991, the largest aggregate month-end amount
of indebtedness outstanding to PTCR was $718.0 million, $958.4 million and
$597.9 million, respectively. During the third quarter of 1993, Telesis
substantially settled the Company's tax benefits receivable arising from tax
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losses utilized in Telesis' consolidated tax returns. This settlement was used
to substantially eliminate the Company's indebtedness to PTCR at December 31,
1993. PTCR has charged the Company interest on such borrowings at rates which
averaged 6.1%, 5.7% and 8.1% during the years ended December 31, 1993, 1992
and 1991, respectively. Telesis' equity contributions to the Company were
primarily used to repay the Company's loans from PTCR. Equity contributions to
the Company by Telesis were $1,179.8 million, $212.2 million and $71.4 million
in the years ended December 31, 1993, 1992 and 1991, respectively.
The Company also paid dividends to Telesis. Such dividends totaled $113.6
million, $108.3 million and $125.3 million in the years ended December 31,
1993, 1992 and 1991, respectively.
In addition, Telesis has historically provided administrative services, and
Pacific Bell and Nevada Bell have provided interconnection with their wireline
telephone systems and other services, to the Company. In the years ended
December 31, 1993, 1992 and 1991, amounts paid by the Company to Telesis for
accounting, tax, legal and other such services were $15.2 million, $13.3
million and $11.9 million, respectively. Amounts paid by the Company to
Pacific Bell and Nevada Bell for interconnection and other expenses during
such periods were $28.5 million, $29.0 million and $29.3 million,
respectively.
The Company paid insurance premiums in 1993, 1992 and 1991 of $2.6 million,
$1.9 million and $1.2 million, respectively, to PacTel Reinsurance, a
reinsurance subsidiary of Telesis. In addition, the Company recognized
expenses in such years of $1.8 million, $2.2 million and $1.2 million,
respectively, in connection with work done for Telesis Technologies
Laboratory, a research and development subsidiary of Telesis.
Telesis has issued various forms of financial support on behalf of the
Company. Some of these forms of financial support have been renegotiated and
the remainder will be renegotiated prior to the planned Spin-off. No assurance
can be given that similar terms can be obtained.
FUTURE RELATIONSHIP WITH TELESIS AND ITS AFFILIATES
In anticipation of the separation of the ownership of the Company from
Telesis, the Company and Telesis have reviewed the contractual and other
arrangements that are necessary and appropriate for the Company and Telesis to
operate effectively after the Spin-off.
PRE-SPIN-OFF FUNDING
Telesis has advised the Company that it may offer to purchase shares of Common
Stock from the Company prior to the Spin-off at market prices if the Company
requires additional funding to effect currently unanticipated opportunities
arising during such period. Any shares of Common Stock so purchased by Telesis
would be included in the Spin-off.
SEPARATION AGREEMENT
Telesis and the Company have entered into an agreement relating to various
aspects of their operations (the "Separation Agreement") that will govern the
relationship between the Company and Telesis and its subsidiaries other than
the Company (collectively, the "Telesis Companies") after the Offering. The
following summary of certain aspects of the Separation Agreement is qualified
in its entirety by reference to the Separation Agreement, a copy of which has
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been filed as an exhibit to the Registration Statement.
CORPORATE OPPORTUNITIES. Under the Separation Agreement, Telesis and the
Company have agreed to allocate corporate business opportunities between (i)
the Telesis Companies on the one hand and (ii) the Company on the other hand.
This agreement, by its terms, will terminate at the time of the Spin-off. The
agreement provides that Telesis will have the right to determine, in its sole
discretion, what future business opportunities the Telesis Companies will
pursue, in addition to or to the exclusion of the Company, even if such
determination excludes the Company from currently existing or future
opportunities that could be considered logical, natural or beneficial
extensions of the Company's business. Notwithstanding the foregoing, the
agreement further provides that (i) the Company will have the right to pursue,
to the exclusion of the Telesis Companies, all domestic and international
business opportunities which, in whole or substantial part, are: (a) cellular
(as defined in 47 C.F.R. 22.900 et seq.), (b) paging or (c) radiolocation
opportunities; and (ii) in the unlikely event that to any extent the FCC in
its final regulations does not permit separate applications for PCS licenses
(as defined in FCC GEN Docket No. 90-314) by both the Telesis Companies and
the Company, whether by denial of waivers or otherwise, the Company will have
the right to such extent to pursue, to the exclusion of the Telesis Companies,
all PCS opportunities outside California and Nevada, and the Telesis Companies
will have the right to such extent to pursue, to the exclusion of the Company,
all PCS opportunities inside California and Nevada. If the FCC does not permit
such separate applications and if the territory intended to be served under a
prospective PCS license includes portions of California or Nevada as well as
territories outside California and Nevada, the Telesis Companies will have the
right to pursue such opportunity to the exclusion of the Company. (Such right
is subject to an obligation on the part of the Telesis Companies to use their
reasonable best efforts to assign (at the expense of the Company) all such
opportunities outside California and Nevada to the Company, and if the Board
of Directors of Telesis determines that the Telesis Companies would for any
reason be unable to accomplish this assignment, the Board of Directors of
Telesis will decide, in its sole discretion, whether such opportunity should
be pursued exclusively by the Telesis Companies or exclusively by the
Company.)
The agreement also provides that each party must use its best efforts to
decide whether to pursue a business opportunity as soon as reasonably possible
after first learning of the opportunity. If a party decides not to pursue a
business opportunity that it has the right to pursue to the exclusion of the
other party, it must promptly inform the other party of such decision. The
other party would then be free to pursue such opportunity.
The Company's Amended and Restated Articles of Incorporation provide that the
Company may not bring any claim against the Telesis Companies or the Company,
or any officer, director or other affiliate thereof, for breach of any duty,
including, but not limited to, the duty of loyalty or fair dealing, on account
of a diversion of a corporate business opportunity to the Telesis Companies
unless such opportunity relates solely to a business that the Company has the
right to elect to pursue, to the exclusion of the Telesis Companies, pursuant
to the agreement described above. Notwithstanding the foregoing, no such claim
may be made in any event if the Company's directors who are not employees of
any of the Telesis Companies disclaim the opportunity by a unanimous vote.
EMPLOYEE BENEFITS. Another component of the Separation Agreement provides for
(1) the exchange of participation, service and compensation records of
employees who transfer between Telesis and the Company; (2) the filing of
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annual reports and compliance with other legal requirements applicable to the
parties' employee benefit plans; (3) the transfer of pension assets and
liabilities from Telesis to the Company and vice versa for employees who
transfer between the two; (4) the allocation of assets and liabilities under
various nonqualified pension and deferred-compensation plans maintained by
Telesis for the benefit of employees and non-employee directors; (5) the
disposition of outstanding stock options, stock appreciation rights and long
term incentive awards; (6) the allocation of assets and liabilities pertaining
to post-retirement life insurance and health care benefits; (7) the allocation
of liabilities for accrued vacation, paid leave and certain other benefits;
and (8) mutual indemnification by Telesis and the Company for certain matters.
TAX SHARING. The Separation Agreement also governs the manner in which Telesis
and the Company will allocate their respective shares of federal and state
income taxes and make payments between them and to taxing authorities in
accordance with such tax allocations.
The Company will continue to join in filing consolidated federal income tax
returns with Telesis for all taxable years in which the parties are required
or permitted to file a consolidated return. In each taxable year for which the
parties file a consolidated return, Telesis will pay the tax to the taxing
authority, and the Company will pay Telesis the Company's share of the
consolidated tax liability based upon the Company's separate taxable income.
If the Company would have reported a net operating loss for any such year,
Telesis will pay to the Company an amount equal to Telesis' reduction in tax
liability attributable to the Company's net operating loss. The party with
more than 50% of the liability exposure or refund claim for an issue will, to
the extent possible, control any audit, appeals and refund procedures for that
issue.
In addition, the Separation Agreement provides that tax liabilities from the
Spin-off and certain related transactions will be allocated to the Company if
such liabilities result from any event occurring in the 24-month period
commencing on the date of the Spin-off and involving either the stock or
assets of the Company. The Company has not taken, and does not anticipate
taking, any actions that it believes would result in the allocation to the
Company of any material liabilities pursuant to this provision.
INTELLECTUAL PROPERTY. The Separation Agreement addresses Telesis' and the
Company's respective rights and obligations after the Spin-off with respect to
pre-Spin-off intellectual property, including proprietary information,
copyrights and copyrightable works, patents and patentable inventions, and
trademarks and trade names as well as the use of proprietary information by
employees of Telesis and the Company, including employees transferred in
connection with the Spin-off. Telesis will convey or license certain
intellectual property to the Company effective as of the Spin-off. Among other
things, the Company is required to terminate its use of the Telesis symbol
mark and the names "Pacific Telesis International" and "PacTel," including the
"PacTel Cellular" and "PacTel Paging" brand names. The Company will have a
non-exclusive license to use the PacTel name until the second anniversary of
the Spin-off.
CONTINGENT LIABILITIES. The Separation Agreement allocates financial
responsibility for liabilities which are not recorded on the books of the
Company or the Telesis Companies prior to the Spin-off and which are
attributable to (1) a pre-Spin-off event, (2) a condition that existed prior
to the Spin-off, or (3) a post-Spin-off event attributable to the separation
of the Company and the Telesis Companies. In general, financial responsibility
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for liabilities associated with the business of the Company is placed with the
Company and liabilities associated with the business of the Telesis Companies
is placed with Telesis. The agreement allocates responsibility for the defense
of litigation and other proceedings. The Separation Agreement also contains
mutual releases from certain liabilities arising from events occurring on or
before the Spin-off, including transactions and activities involved in
implementing the Spin-off.
TELESIS TECHNOLOGIES LABORATORY. The Separation Agreement provides that, no
later than the Spin-off, Telesis will transfer to the Company certain assets
that have been engaged in the wireless communications research and development
work of Telesis Technologies Laboratory ("TTL"), which will remain a
subsidiary of Telesis after the Spin-off. The experimental PCS licenses
currently held by TTL will remain with TTL. Telesis and the Company will agree
on the manner in which any uncompleted work of TTL will be completed after the
Spin-off. Existing agreements governing the ownership of, and other rights in,
the intellectual property work product of TTL produced prior to the Spin-off
will remain in effect and will also apply to any current TTL work jointly
completed by Telesis and the Company after the Spin-off. Such existing
agreements provide that TTL owns all such TTL intellectual property and that
the Company has a royalty-free, nonexclusive, perpetual license to use it.
OTHER MATTERS. The Separation Agreement also governs, among other things, (1)
the provision by Telesis of certain administrative services, such as tax,
accounting and legal services, prior to the Spin-off and, if mutually agreed,
for up to 90 days thereafter and the compensation to be paid by the Company
for such services, (2) the transfer of certain additional assets and
liabilities from Telesis to the Company at net book value, (3) the termination
of certain specified agreements between the Company and Telesis upon the
Spin-off and (4) the separation of the Company from the existing Telesis
property and casualty insurance program, the allocation of insurance-related
liabilities of Telesis and the Company and other insurance issues.
Mr. White's wife is a principal of Price Waterhouse, which provides auditing,
consulting, and tax return preparation services to the Company and certain of
its subsidiaries. During the year ended December 31, 1993, the Company and
such subsidiaries paid that firm fees of approximately $0.3 million. Charles
Schwab & Co. Inc., of which Mr. Schwab is Chairman, has subleased office space
from Telesis since April 6, 1992 under a lease that expires on December 17,
1999. The minimum rent payable over the entire term of the lease is
approximately $5.6 million.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
1. Financial Statements:
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
Report of Independent Accountants
Consolidated Statements of Income Years ended December 31, 1993,
1992, and 1991
Consolidated Balance Sheets December 31, 1993 and 1992
Consolidated Statements of Shareholders' Equity Years ended
December 31, 1993, 1992, and 1991
Consolidated Statements of Cash Flows Years ended December 31,
1993, 1992 and 1991
Notes to Consolidated Financial Statements
MANNESMANN MOBILFUNK GMBH
Independent Auditors' Report
Balance Sheets - December 31, 1993 and 1992
Statements of Operations - Years ended December 31, 1993, 1992, and
1991
Statements of Capital Subscribers' Equity - Years ended December 31,
1993, 1992, and 1991
Statements of Cash Flows - Years ended December 31, 1993, 1992, and
1991
Notes to Financial Statements
NEW PAR
Report of Independent Auditors
Consolidated Balance Sheets December 31, 1993 and 1992
Consolidated Statements of Income Years ended December 31, 1993
and 1992 and the period from August 1, 1991 (inception) to December
31, 1991
Consolidated Statements of Partners' Capital Years ended December
31, 1993 and 1992 and the period from August 1, 1991 (inception) to
December 31, 1991
Consolidated Statements of Cash Flows Years ended December 31,
1993 and 1992 and the period from August 1, 1991 (inception) to
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December 31, 1991
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
Schedule I -- Marketable Securities
Schedule II -- Amounts Receivable from Related Parties and
Underwriters, Promoters and Employees Other Than Related Parties
Schedule IV -- Indebtedness of and to Related Parties - Not Current
Schedule V -- Property, Plant and Equipment
Schedule VI -- Accumulated Depreciation, Depletion and Amortization
of Property, Plant and Equipment
Schedule VIII -- Valuation and Qualifying Accounts and Reserves
Schedule IX -- Short-Term Borrowings
Schedules other than those listed above are omitted because they are
either not required or not applicable, or the required information is
presented in the Consolidated Financial Statements.
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3. Exhibits:
Exhibits identified in parentheses below, on file with the Commission,
are incorporated by reference as exhibits hereto.
Exhibit
Number Description
------- -----------
3.1 Amended and Restated Articles of Incorporation of the Company, as
filed with the Secretary of State of the State of California on
November 29, 1993
3.2 Certificate of Amendment of Articles of Incorporation of the
Company, as filed with the Secretary of State of the State of
California on March 10, 1994
3.3 Amended and Restated By-laws of the Company, as amended to February
25, 1994
4.1 Form of Common Stock certificate (Exhibit 4.1 to the Company's
Registration Statement on Form S-1, File No. 33-68012)
4.2 Rights Agreement between the Company and The Bank of New York,
Rights Agent, dated as of July 22, 1993 (Exhibit 4.2 to the
Company's Registration Statement on Form S-1, File No. 33-68012)
10.1 Separation Agreement by and between the Company and Pacific Telesis
Group, dated as of October 7, 1993 (Exhibit 10.1 to the Company's
Registration Statement on Form S-1, File No. 33-68012)
10.2 Amendment No. 1 to Separation Agreement, dated November 2, 1993
10.3 Amended and Restated Plan of Merger and Joint Venture Organization
by and among the Company, CCI, CCI Newco, Inc. and CCI Newco Sub,
Inc. dated as of December 14, 1990 (Exhibit 1 to the Company's
Statement on Schedule 13D filed on February 18, 1992)
10.4 Termination Agreement by and among Telesis, the Company, CCI and
Cellular Communications of Ohio, Inc. dated December 11, 1992
(Exhibit 5 to Amendment No. 28 to the Company's Statement on
Schedule 13D filed on December 12, 1992)
10.5 Joint Venture agreement between Mannesmann Kienzle GmbH, Pacific
Telesis Netherlands B.V., Cable and Wireless plc, DG Bank Deutsch
Genossenschaftsbank and Lyonnaise des Eaux SA dated June 30, 1989
(Exhibit 10.43 to the Company's Registration Statement on Form S-1,
File No. 33-68012)
10.6 Form of Indemnity Agreement between the Company and each of its
directors (Exhibit 10.2 to the Company's Registration Statement on
Form S-1, File No. 33-68012)
10.7 PacTel Corporation 1993 Long-Term Stock Incentive Plan
10.8 PacTel Corporation Long-Term Incentive Plan (Exhibit 10.4 to the
Company's Registration Statement on Form S-1, File No. 33-68012)
10.9 PacTel Corporation Short-Term Incentive Plan
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10.10 PacTel Corporation Deferred Compensation Plan for Nonemployee
Directors
10.11 PacTel Corporation Deferred Compensation Plan
10.12 PacTel Corporation Supplemental Executive Pension Plan
10.13 PacTel Corporation Executive Life Insurance Plan
10.14 PacTel Corporation Executive Long-Term Disability Plan
10.15 Representative Employment Agreement for Certain Senior Officers of
Pacific Telesis Group (Exhibit 10pp to Form 10-K of Telesis for
1988, File No. 1-8609)
10.16 Pacific Telesis Group Senior Management Short Term Incentive Plan
(Exhibit 10-aa to Pacific Telesis Group Shareowner Dividend
Reinvestment and Stock Purchase Plan Registration Statement No.
2-87852)
10.17 Resolutions amending the Plan, effective August 28, 1987 (Exhibit
10aa to Form 10-K of Telesis for 1991, File No. 1-8609)
10.18 Pacific Telesis Group Senior Management Long Term Incentive Plan
(Exhibit 10aa to Form 10-K of Telesis for 1985, File No. 1-8609)
10.19 Pacific Telesis Group Executive Life Insurance Plan (Exhibit 10cc to
Form 10-K of Telesis for 1986, File No. 1-8609)
10.20 Pacific Telesis Group Senior Management Long Term Disability and
Survivor Protection Plan (Exhibit 10dd to Form 10-K of Telesis for
1988, file No. 1-8609)
10.21 Resolutions amending the Plan effective May 2, 1992 and November 20,
1992 (Exhibit 10dd(i) to Form 10-K of Telesis for 1992, File
No. 1-8609)
10.22 Pacific Telesis Group Senior Management Transfer Program (Exhibit
10ee to Pacific Telesis Group Shareowner Dividend Reinvestment and
Stock Purchase Plan Registration Statement No. 2-87852)
10.23 Pacific Telesis Group Senior Management Financial Counseling Program
(Exhibit 10ff to Pacific Telesis Group Shareowner Dividend
Reinvestment and Stock Purchase Plan Registration Statement No.
2-87852)
10.24 Pacific Telesis Group Deferred Compensation Plan for Nonemployee
Directors (Exhibit 10gg to Form 10-K of Telesis for 1990, File No.
1-8609)
10.25 Resolutions amending the Plan effective December 21, 1990,
November 20, 1992 and December 18, 1992 (Exhibit 10gg(i) to Form
10-K of Telesis for 1992, File No. 1-8609)
10.26 Description of Pacific Telesis Group Directors' and Officers'
Liability Insurance Program (Exhibit 10hh to Form 10-K of Telesis
for 1992, File No. 1-8609)
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10.27 Description of Pacific Telesis Group for Nonemployee Directors'
Travel Accident Insurance (Exhibit 10ii to Form 10-K of Telesis for
1989, File No. 1-8609)
10.28 Resolutions amending the Plan, effective as of June 28, 1991
(Exhibit 10kk to Form 10-K of Telesis for 1991, File No. 1-8609)
10.29 Resolutions amending the Plan effective May 22, 1992 and
November 20, 1992 (Exhibit 10kk(ii) to Form 10-K of Telesis for
1992, File No. 1-8609)
10.30 Pacific Telesis Group Mid-Career Hire Program (Exhibit 10mm to
Form 10-K of Telesis for 1988, File No. 1-8609)
10.31 Pacific Telesis Group Mid-Career Pension Plan (Exhibit 10nn to Form
10-K of Telesis for 1986, File No. 1-8609)
10.32 Resolutions amending the Plan effective May 22, 1992 and
November 20, 1992 (Exhibit 10kk(ii) to Form 10-K of Telesis for
1992, File No. 1-8609)
10.33 Pacific Telesis Group Executive Deferral Plan (Exhibit 1011 to Form
10-K of Telesis for 1989, File No. 1-8609)
10.34 Resolutions amending the Plan effective November 20, 1992 and
December 23, 1992 (Exhibit 1011(i) to Form 10-K of Telesis for 1992,
File No. 1-8609)
10.35 Pacific Telesis Group Stock Option and Stock Appreciation Rights
Plan (Plan Text, Sections 1-17, in Registration Statement No.
33-15391)
10.36 Resolutions amending the Plan effective November 17, 1989 and
June 26, 1992 (Exhibit 10oo(i) to Form 10-K of Telesis for 1992,
File No. 1-8609)
10.37 Pacific Telesis Group Outside Directors' Retirement Plan (Exhibit
10ss to Form 10-K of Telesis for 1984, File No. 1-8609)
10.38 Resolution amending the Plan effective May 25, 1990 (Exhibit 10ss(i)
to Form 10-K of Telesis for 1992, File No. 1-8609)
10.39 Representative Indemnity Agreement between Pacific Telesis Group and
certain of its officers and each of its directors (Exhibit 10tt to
Form 10-K of Telesis for 1987, File No. 1-8609)
10.40 Trust Agreement between Pacific Telesis Group and Bank of America
National Trust and Savings Association in connection with the
Pacific Telesis Group Executive Deferral Plan (Exhibit 10uu to Form
10-K of Telesis for 1988, File No. 1-8609)
10.41 Amendment to Trust Agreement No. 1 effective December 11, 1992
(Exhibit 10uu(i) to Form 10-K of Telesis of 1992, File No. 1-8609)
10.42 Trust Agreement between Pacific Telesis Group and Bank of America
National Trust and Savings Association in connection with the
Pacific Telesis Group Deferred Compensation Plan for the Non-
Employee Directors (Exhibit 10vv to Form 10-K of Telesis for 1988,
95
<PAGE>
File No. 1-8609)
10.43 Amendment to Trust Agreement No. 2 effective December 11, 1992
(Exhibit 10vv(i) to Form 10-K of Telesis for 1992, File No. 1-8609)
10.44 Pacific Telesis Group Long Term Incentive Award Deferral Plan
(Exhibit 10ww to Form 10-K of Telesis for 1989, File No. 1-8609)
10.45 Resolutions merging the Plan with the Executive Deferral Plan
effective May 22, 1992 (Exhibit 10ww(i) to Form 10-K of Telesis for
1992, File No. 1-8609)
10.46 Pacific Telesis Group Nonemployee Director Stock Option Plan
(Exhibit A to Pacific Telesis Group's 1990 Proxy Statement filed
February 26, 1990, File No. 1-8609)
10.47 Pacific Telesis Group Supplemental Executive Retirement Plan
(Exhibit 10yy to Form 10-K of Telesis for 1990, File No. 1-8609)
10.48 Resolutions amending the Plan effective November 20, 1992 (Exhibit
10yy(i) to Form 10-K of Telesis for 1992, File No. 1-8609)
21 Subsidiaries of the Company (Exhibit 21 to the Company's
Registration Statement on Form S-1, File No. 33-68012)
23.1 Consent of Coopers & Lybrand
23.2 Consent of Ernst & Young
23.3 Consent of KPMG Deutsche Treuhand-Gesellschaft
24 Powers of Attorney
99 Modification of Final Judgment, United States District Court,
District of Columbia, in "U.S. v. American Tel. & Tel. Co.," Civil
Action No. 82-0192 (Exhibit 99 to the Company's Registration
Statement on Form S-1, File No. 33-68012)
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
96
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SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AIRTOUCH COMMUNICATIONS
By: /s/ Mohan S. Gyani
Title: Vice President, Finance and
Treasurer
Date: March 22, 1994
97
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title
---------- -----
Samuel L. Ginn * Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Lydell L. Christensen * Executive Vice President and
Chief Financial Officer and
Treasurer (Principal Financial
Officer)
Mohan S. Gyani * Vice President - Finance
and Treasurer (Chief
Accounting Officer)
C. Lee Cox * President and Chief Operating
Officer and Director
James R. Harvey * Director
Paul Hazen * Director
Donald G. Fisher * Director
Arthur Rock * Director
Charles R. Schwab * Director
George P. Shultz * Director
* By /s/ Mohan S. Gyani
Mohan S. Gyani, Attorney-in-fact
Date: March 22, 1994
98
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
Report of Management . . . . . . . . . . . . . . . . . . . . . . . F-2
Report of Independent Accountants . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Income for the years ended
December 31, 1993, 1992, and 1991 . . . . . . . . . . . . . . . . F-4
Consolidated Balance Sheets as of December 31, 1993 and 1992 . . . F-6
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1993, 1992, and 1991 . . . . . . . . . . F-8
Consolidated Statements of Cash Flows for the years ended
December 31, 1993, 1992, and 1991 . . . . . . . . . . . . . . . . F-9
Notes to Consolidated Financial Statements . . . . . . . . . . . . F-11
NEW PAR (PARTNERSHIP BETWEEN CCI AND THE COMPANY)
Report of Independent Auditors . . . . . . . . . . . . . . . . . . F-47
Consolidated Balance Sheets as of December 31, 1993 and 1992 . . . F-48
Consolidated Statements of Income for the year ended
December 31, 1993 and 1992 and the period from
August 1, 1991 (inception) to December 31, 1991 . . . . . . . . . F-49
Consolidated Statements of Partners' Capital for the
years ended December 31, 1993 and 1992 and the period from
August 1, 1991 (inception) to December 31, 1991 . . . . . . . . . F-50
Consolidated Statements of Cash Flows for the
years ended December 31, 1993 and 1992 and the period from
August 1, 1991 (inception) to December 31, 1991 . . . . . . . . . F-51
Notes to Consolidated Financial Statements . . . . . . . . . . . . F-53
MANNESMANN MOBILFUNK GMBH
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . F-63
Balance Sheets as of December 31, 1993 and 1992 . . . . . . . . . . F-64
Statements of Operations for the years ended
December 31, 1993, 1992, and 1991 . . . . . . . . . . . . . . . . F-66
Statements of Capital Subscribers' Equity for the years ended
December 31, 1993, 1992, and 1991 . . . . . . . . . . . . . . . . F-68
Statements of Cash Flows for the years ended
December 31, 1993, 1992, and 1991 . . . . . . . . . . . . . . . . F-69
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . F-71
F-1
<PAGE>
REPORT OF MANAGEMENT
To the Shareholders of AirTouch Communications:
FINANCIAL STATEMENTS
AirTouch Communications' management prepared the accompanying financial
statements and is responsible for their integrity and objectivity. The
statements were prepared in accordance with generally accepted accounting
principles applied on a consistent basis and are not misstated as a result of
material fraud or error. The financial statements include amounts based on
management's best estimates and judgments, where necessary. Management also
prepared the other information in this annual financial review and is
responsible for its accuracy and consistency with the financial statements.
The Company's financial statements have been audited by Coopers & Lybrand,
independent accountants, whose appointment has been ratified by the Board of
Directors. Management has made available to Coopers & Lybrand all the
Company's financial records and related data, as well as the minutes of
meeting of the Board of Directors. Furthermore, management believes that all
of the representations made to Coopers & Lybrand during its audit were valid
and appropriate.
INTERNAL CONTROL SYSTEM
AirTouch Communications maintains a system of internal controls over financial
reporting, one of the purposes of which is to provide reasonable assurance to
the Company's management and Board of Directors regarding the preparation of
reliable published financial statements. The Audit Committee of the Pacific
Telesis Board of Directors is responsible for overseeing the Company's
financial reporting process on behalf of the Board. During 1993, the Audit
committee met regularly with management, internal audit and the independent
accountants to review internal controls, accounting, auditing, and financial
reporting matters.
The system of internal controls contains self-monitoring mechanisms, and
actions are taken to correct deficiencies as they are identified. Even an
effective internal control system, no matter how well designed, has inherent
limitations including the possibility of the circumvention or overriding of
controls and therefore can provide only reasonable assurance with respect
to financial statement preparation. Further, because of changes in
conditions, internal control system effectiveness may vary over time.
The Company assessed its internal control system in its consolidated
operations throughout the year ended December 31, 1993 in relation to criteria
for effective internal control over financial reporting described in Internal
Control Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). To assess the internal
control systems in its unconsolidated partnerships and corporations,
management relied on reports issued by various external public accountants who
performed audits of those entities, where such reports were available. Based
on these assessments, the Company believes that, as of December 31, 1993, its
overall system of internal control over financial reporting met the COSO
criteria.
/s/ Sam L. Ginn /s/ Lydell L. Christensen
Chairman and Chief Executive Officer Executive Vice President and
March 3, 1994 Chief Financial Officer
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of AirTouch Communications:
We have audited the accompanying consolidated balance sheets of AirTouch
Communications (formerly PacTel Corporation) and Subsidiaries (the "Company")
as of December 31, 1993 and 1992 and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We did not
audit the 1993 and 1992 financial statements of Mannesmann Mobilfunk GmbH
("MMO"), an equity investee of the Company, which statements reflect total
assets of $1,221,135,000 and $850,661,000 as of December 31, 1993 and 1992,
respectively, and total net loss of $67,655,000 and $52,983,000 for the years
ended December 1993 and 1992, respectively. Those statements were audited by
other auditors whose reports have been furnished to us, and our opinion,
insofar as it related to the amounts included for MMO, is based solely on the
reports of the other auditors.
We conducted our audits in accordance with generally accepted accounting
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of AirTouch
Communications and Subsidiaries as of December 31, 1993 and 1992 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles.
As discussed in Notes A and H to the consolidated financial statements, in
1992 the Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." As discussed in Notes A and
J, in 1993 the Company adopted Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other than Pensions."
/s/ Coopers & Lybrand
San Francisco, California
March 3, 1994 (except for Notes
B, L, and R, as to which the date
is March 9, 1994)
F-3
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Year Ended December 31,
-------------------------------
1993 1992 1991
-------- -------- ---------
(Dollars in millions,
except per share amounts)
OPERATING REVENUES
Wireless services and other revenues........ $987.3 $834.8 $749.5
Cellular and paging equipment sales......... 70.4 45.4 31.6
Cost of cellular and paging equipment sales. (69.7) (41.7) (27.9)
-------- -------- --------
NET OPERATING REVENUES...................... 988.0 838.5 753.2
-------- -------- --------
OPERATING EXPENSES
Cost of revenues............................ 144.0 132.7 110.5
Selling, general, administrative,
and other expenses........................ 541.6 466.5 376.1
Depreciation and amortization............... 174.2 143.4 130.0
-------- -------- --------
TOTAL OPERATING EXPENSES.................... 859.8 742.6 616.6
-------- -------- --------
OPERATING INCOME............................ 128.2 95.9 136.6
Interest expense............................ (22.1) (52.9) (37.6)
Minority interests in net income of consol-
idated partnerships and corporations...... (46.4) (45.5) (45.2)
Equity in net income (loss) of unconsol-
idated partnerships and corporations:
Domestic................................ 70.4 41.1 15.5
International........................... (37.5) (38.5) (21.4)
Interest income............................. 12.0 13.3 13.8
Gain on sale of telecommunications interests 3.8 - 26.0
Miscellaneous income (expense).............. (0.5) 1.0 5.2
-------- -------- --------
INCOME BEFORE INCOME TAXES, EXTRAORDINARY
ITEM AND CUMULATIVE EFFECTS OF ACCOUNTING
CHANGES................................... 107.9 14.4 92.9
Income taxes................................ 67.8 24.5 49.8
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECTS OF ACCOUNTING CHANGES.. 40.1 (10.1) 43.1
Extraordinary item-loss from retirement
of debt (net of income taxes of $5.1)
(Note T).................................. - (7.6) -
Cumulative effect of accounting change
for income taxes (Notes A and H).......... - 27.9 -
Cumulative effect of accounting change for
other postretirement benefits (net of
income taxes of $3.5) (Notes A and J)..... (5.6) - -
-------- -------- --------
NET INCOME.................................. $ 34.5 $ 10.2 $ 43.1
======== ======== ========
(Continued next page)
F-4
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Continued)
For the Year Ended December 31,
-------------------------------
1993 1992 1991
-------- -------- --------
(Dollars in millions,
except per share amounts)
PER SHARE AMOUNTS:
Income (loss) before extraordinary item
and cumulative effect of the changes in
accounting for other postretirement
benefits in 1993 and income taxes in
1992....................................... $0.09 $(0.02) $0.10
Extraordinary item........................... - (0.02) -
Cumulative effect of the changes in
accounting for other postretirement
benefits in 1993 and income taxes in 1992.. (0.01) 0.06 -
-------- -------- --------
NET INCOME................................... $0.08 $0.02 $0.10
======== ======== ========
Weighted average shares outstanding
(in millions).............................. 429.6 424.0 424.0
======== ======== ========
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
F-5
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
--------------------
1993 1992
--------- ---------
(Dollars in millions)
ASSETS
Cash and cash equivalents............................ $ 646.7 $ 17.1
Accounts receivable-net of allowance for
uncollectibles of $9.2 and $10.0, in 1993 and
1992, respectively ................................ 132.7 121.6
Short-term investments............................... 814.0 -
Other receivables.................................... 15.1 24.9
Due from affiliates.................................. 7.0 246.9
Other current assets................................. 45.3 28.6
--------- ---------
Total current assets................................. 1,660.8 439.1
--------- ---------
Property, plant, and equipment....................... 1,175.5 1,098.8
Less: accumulated depreciation....................... 433.4 373.1
--------- ---------
Property, plant, and equipment-net................... 742.1 725.7
Investments in unconsolidated
partnerships and corporations...................... 1,154.5 935.4
Intangible assets-net................................ 413.2 225.0
Deferred charges and other noncurrent assets......... 106.1
45.9
--------- ---------
TOTAL ASSETS......................................... $4,076.7 $2,371.1
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable..................................... $ 149.2 $ 141.8
Due to affiliates within one year.................... 40.7 906.7
Other current liabilities............................ 124.1 89.0
--------- ---------
Total current liabilities............................ 314.0 1,137.5
Due to non-affiliates................................ 68.6 22.4
Due to affiliates.................................... - 134.5
Deferred income taxes................................ 197.6 180.4
Deferred credits..................................... 54.1 17.6
--------- ---------
TOTAL LIABILITIES.................................... 634.3 1,492.4
--------- ---------
Commitments and contingencies.
Minority interests in consolidated
partnerships and corporations...................... 105.1 126.6
--------- ---------
(Continued on next page)
F-6
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
December 31,
--------------------
1993 1992
--------- ---------
(Dollars in millions,
except per share amounts)
Preferred stock ($.01 par value; 50,000,000 shares
authorized; no shares issued or outstanding)....... - -
Common stock ($.01 par value; 1,100,000,000 shares
authorized; 492,622,960 shares issued and
492,500,000 shares outstanding at December 31,
1993; 424,122,960 shares issued and 424,000,000
shares outstanding at December 31, 1992)........... 4.9 4.2
Additional paid-in capital .......................... 3,719.5 1,051.2
Accumulated deficit.................................. (387.9) (308.8)
Currency translation adjustment...................... 0.8 5.5
--------- ---------
TOTAL SHAREHOLDERS' EQUITY........................... 3,337.3 752.1
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........... $4,076.7 $2,371.1
========= =========
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
F-7
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Year Ended December 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
PREFERRED STOCK (Dollars in millions)
Balance at beginning of period............ - - -
--------- --------- ---------
Balance at end of period.................. - - -
--------- --------- ---------
COMMON STOCK
Balance at beginning of period............ $ 4.2 $ 4.2 $ 4.2
Shares issued during the period .......... 0.7 - -
--------- --------- ---------
Balance at end of period ................. 4.9 4.2 4.2
--------- --------- ---------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period ........... 1,051.2 839.0 767.6
Equity infusion by parent................. 1,179.8 212.2 71.4
Net proceeds from stock offering ......... 1,488.5 - -
--------- --------- ---------
Balance at end of period.................. 3,719.5 1,051.2 839.0
--------- --------- ---------
ACCUMULATED DEFICIT
Balance at beginning of period............ (308.8) (210.7) (128.5)
Net income ............................... 34.5 10.2 43.1
Dividends paid to parent.................. (113.6) (108.3) (125.3)
--------- --------- ---------
Balance at end of period.................. (387.9) (308.8) (210.7)
--------- --------- ---------
CURRENCY TRANSLATION ADJUSTMENT
Balance at beginning of period............ 5.5 2.7 1.3
Gains (losses)............................ (4.7) 2.8 1.4
--------- --------- ---------
Balance at end of period.................... 0.8 5.5 2.7
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY.................. $3,337.3 $ 752.1 $ 635.2
========= ========= =========
COMMON SHARES OUTSTANDING (in millions)
Balance at beginning of period............ 424.0 424.0 424.0
Shares issued during the period........... 68.5 - -
--------- --------- ---------
Balance at end of period.................. 492.5 424.0 424.0
========= ========= =========
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
F-8
<PAGE>
AIRTOUCH COMMMUNICATIONS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended
December 31,
--------------------------
1993 1992 1991
-------- -------- --------
CASH FROM (USED FOR) OPERATING ACTIVITIES: (Dollars in millions)
Net income................................. $ 34.5 $ 10.2 $ 43.1
Adjustments to reconcile net income for items
currently not affecting operating cash flows:
Depreciation and amortization.......... 174.2 143.4 130.0
Deferred income taxes.................. 15.5 36.0 33.5
Minority interests in net income of
consolidated partnerships and
corporations......................... 46.4 45.5 45.2
Equity in net (income) loss of
unconsolidated partnerships and
corporations......................... (32.9) (2.6) 5.9
Gain on sale of telecommunications
interests............................ (3.8) - (26.0)
Distributions received from equity
investments.......................... 42.2 17.0 -
Loss on sale of property, plant, and
equipment............................ 7.2 3.9 4.1
Loss from retirement of debt........... - 12.7 -
Cumulative effect of accounting change
for income taxes..................... - (27.9) -
Cumulative effect of accounting change
for postretirement costs............. 9.1 - -
Changes in assets and liabilities:
Accounts receivable-net.............. (30.3) (21.8) (21.1)
Other current assets and receivables. 131.8 (126.8) (10.8)
Deferred charges and other noncurrent
assets............................. 3.1 47.7 (49.4)
Accounts payable and other current
liabilities........................ 18.0 62.4 17.8
Deferred credits and other
liabilities........................ 24.7 (0.8) (3.2)
-------- -------- --------
CASH FROM OPERATING ACTIVITIES............. 439.7 198.9 169.1
-------- -------- --------
CASH FROM (USED FOR) INVESTING ACTIVITIES:
Additions to property, plant, and equipment (226.3) (233.0) (234.8)
Proceeds from sale of property, plant,
and equipment............................ 9.5 7.6 20.3
Proceeds from sale of telecommunications
interests................................ 4.3 8.1 37.4
Capital contributions to unconsolidated
partnerships and corporations............ (123.8) (135.0) (93.8)
(Continued on next page)
F-9
<PAGE>
AIRTOUCH COMMMUNICATIONS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31,
-----------------------------
1993 1992 1991
--------- --------- ---------
Cost of acquiring telecommunications (Dollars in millions)
interests:
Cellular Communications, Inc............. (9.9) (92.2) (89.7)
Wichita and Topeka Cellular.............. (100.0) - -
NordicTel Holdings AB.................... (153.0) - -
Other ................................... (0.2) (6.6) (36.5)
Purchase of short-term investments......... (814.0) - -
Other investing activities................. (28.0) (40.8) (33.1)
--------- --------- ---------
CASH USED FOR INVESTING ACTIVITIES......... (1,441.4) (491.9) (430.2)
--------- --------- ---------
CASH FROM (USED FOR) FINANCING ACTIVITIES:
Retirement of notes and obligations
payable.................................. (1.0) (100.7) (0.8)
Retirement of long-term debt from affiliate (234.5) - -
Distributions to minority interests in
consolidated partnerships and
corporations............................ (30.3) (41.5) (28.1)
Contributions from minority interests in
consolidated partnerships and
corporations............................ 2.8 3.3 10.2
Dividends paid to parent................... (113.6) (108.3) (125.3)
Increase (decrease) in short-term
borrowings from affiliates.............. (773.1) 275.5 351.3
Proceeds from non-current affiliate
borrowings.............................. - 85.0 40.0
Proceeds from issuing long-term debt....... 13.8 1.2 11.3
Proceeds from stock offering............... 1,489.2 - -
Equity infusion by parent.................. 1,179.8 212.2 71.4
Issuance of loan to affiliate.............. (6.8) (30.0) (79.4)
Loan repayments from affiliate............. 106.5 5.5 4.2
Other financing activities................. (1.5) (9.1) (0.2)
--------- --------- ---------
CASH FROM FINANCING ACTIVITIES............. 1,631.3 293.1 254.6
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS......................... 629.6 0.1 (6.5)
BEGINNING CASH AND CASH EQUIVALENTS........ 17.1 17.0 23.5
--------- --------- ---------
ENDING CASH AND CASH EQUIVALENTS........... $ 646.7 $ 17.1 $ 17.0
========= ========= =========
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
F-10
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
AirTouch Communications (the "Company"), formerly PacTel Corporation, and its
subsidiaries provide wireless telecommunications services in the United
States, Europe, and Asia. The Company is a holding company. Its principal
subsidiaries are AirTouch Cellular, AirTouch Paging, AirTouch International,
and PacTel Teletrac. These subsidiaries principally provide cellular, paging,
and vehicle location services.
The Company is an 86.1% owned subsidiary of Pacific Telesis Group ("Telesis"),
a reporting company under the Securities and Exchange Act of 1934 that also
owns Pacific Bell and Nevada Bell, its local telephone companies. In December
1992, Telesis announced that its Board of Directors had approved a plan to
separate its wireless telecommunications operations from its other businesses
(principally Pacific Bell and Nevada Bell) through a distribution to its
shareowners of all of the Common Stock of the Company (the "spin-off") held by
Telesis. For further discussion see Note B.
The Consolidated Financial Statements include the accounts of the Company and
its subsidiaries and partnerships in which the Company has controlling
interests. All significant intercompany balances and transactions have been
eliminated. Prior periods have been revised to agree with the 1993
presentation format. Equipment sales and cost of equipment are now both
presented in the revenue section of the income statements. The Consolidated
Financial Statements have been prepared in accordance with generally accepted
accounting principles applicable in the United States.
CASH AND CASH EQUIVALENTS
All highly liquid monetary instruments with original maturities of ninety days
or less from the date of purchase are considered to be cash equivalents.
FINANCIAL INSTRUMENTS
Short-term investments consist principally of highly liquid financial
instruments with original maturities in excess of three months and are carried
at cost, which approximates market.
Market value gains and losses on financial instruments that are designated and
effective as hedges of foreign currency commitments and net investments are
deferred to the extent that the financial instrument is equal to or less than
the underlying commitment or investment. The cash that is received from or
used for the hedges is reflected as an investing activity in the statements of
cash flows.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
Results of operations for foreign investments are translated using average
exchange rates during the period, while assets and liabilities are translated
using end-of-period rates. The resulting net exchange gains or losses are
accumulated in a separate section of shareholders' equity titled "Currency
translation adjustment." Gains and losses resulting from foreign currency
transactions are generally included in operations.
F-11
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
PROPERTY, PLANT, AND EQUIPMENT
Assets of businesses purchased are recorded at their fair values at the date
of acquisition. All other property, plant, and equipment are recorded at
cost. Depreciation is computed using the straight-line method over the
related assets' estimated useful lives ranging from three to forty years
except land, which is not depreciated (see Note C). Gains and losses on
disposals are included in income at amounts equal to the difference between
net book value of the disposed assets and proceeds received upon disposal.
Expenditures for replacements and betterments are capitalized, while
expenditures for maintenance and repairs are charged against earnings as
incurred.
FCC LICENSES
The Federal Communications Commission ("FCC") issues licenses that enable
cellular carriers to provide service in specific Cellular Geographic Service
Areas. A cellular license is issued conditionally for ten years. The FCC
has stated that "a renewal expectancy would be awarded to a cellular licensee
if, during the past ten-year term, it had substantially complied with
applicable commission rules, policies, and the Communications Act; and not
otherwise engaged in substantial relevant misconduct." Historically, the FCC
has granted license renewals routinely. The Company believes it has complied
and intends to continue to comply with these standards and is amortizing the
related costs using the straight-line method over forty years. FCC licenses
acquired by the Company through business combinations are stated at appraised
values as of the date of acquisition and amortized using the straight-line
method over forty years. The Company also has FCC licenses for its paging and
vehicle location operations. Amortization is computed on a straight-line
basis over periods ranging from twenty to forty years.
LICENSE APPLICATION COSTS
Costs associated with international license applications for
telecommunications services are expensed as incurred. Once the license is
granted, the Company capitalizes and amortizes these costs using the
straight-line method over the term of the license.
SUBSCRIBER LISTS
Subscriber lists acquired through business combinations are stated at
appraised values as of the date of acquisition. Amortization is computed using
the straight-line method over estimated useful lives of up to thirty-six
months.
GOODWILL
The excess of the purchase price paid over the fair value of net assets
acquired in business combinations is recorded as goodwill and is amortized
using the straight-line method over twenty to forty years.
INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS AND CORPORATIONS
The equity method is used to account for all domestic cellular markets and
international consortia in which the Company has significant influence but is
F-12
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
not the controlling or managing general partner, even though the ownership
percentage may be less than 20%. Limited partnership interests and joint
ventures in which the Company does not have significant influence are
accounted for using the cost method.
EARNINGS PER SHARE
Earnings per share are calculated by using weighted average common shares
outstanding.
INCOME TAXES
Effective January 1, 1992, the Company adopted new accounting rules for
accounting for income taxes (see Note H) which require the use of the
liability method of accounting for deferred income taxes. As permitted under
the new rules, prior years' financial statements have not been restated. Use
of the new rules resulted in a $59.8 million tax benefit to 1992 earnings. Of
this amount, $32.0 million is included in "Equity in net income (loss) of
unconsolidated partnerships and corporations-international" and $27.9 million
is reported within "Cumulative effect of accounting change for income taxes."
These amounts were offset by $0.1 million included in "Income Taxes."
Deferred income taxes are provided to reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for tax purposes, income tax
loss carryforwards and income tax credits. The Company accounts for
investment tax credits under the deferral method. The Company is included in
the consolidated federal and combined state income tax returns of Telesis (see
Note Q).
OTHER POSTRETIREMENT BENEFITS
In December 1990, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other than Pensions" ("SFAS 106"). The Company
currently offers postretirement benefits other than pensions ("postretirement
benefits") which are primarily retiree health care and life insurance
benefits.
SFAS 106 requires the Company to change the method of accounting for these
postretirement benefits from a cash basis to an accrual basis beginning in
1993 (see Note J). In the first quarter of 1993, the Company recorded a
one-time pre-tax expense and liability of $9.1 million for the transition
obligation. In addition, the Company recorded $2.0 million pre-tax expense
for the periodic SFAS 106 charge for 1993. The income tax benefits related to
these expenses totalled $4.4 million.
OTHER POSTEMPLOYMENT BENEFITS
In November 1992, the FASB issued Statement of Financial Accounting Standards
No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS 112").
The Company offers workers' compensation, short- and long-term disability
benefits, medical benefit continuation, and severance pay. These benefits are
paid to former employees not yet retired.
SFAS 112 requires accrual basis accounting for these postemployment benefits
F-13
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
to begin no later than January 1, 1994. The Company intends to adopt this
standard by the required adoption date. The Company expects that future
recorded expense under SFAS 112 (including any cumulative adjustment upon
adoption) will not differ materially from expenses recorded using the current
method and therefore believes the adoption of SFAS 112 will not have a
material impact on the Company's results of operations and financial
condition.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
In May 1993, the FASB issued Statement of Financial Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115"). The new standard will change the carrying basis for certain equity and
debt securities. The Company intends to adopt SFAS 115 in 1994, consistent
with the required adoption period. The Company does not expect SFAS 115 to
affect materially its financial position or results of operations.
B. PLANNED SPIN-OFF
In December 1992, Telesis announced that its Board of Directors had approved a
plan to separate its wireless telecommunications operations from its other
businesses (principally Pacific Bell and Nevada Bell, its local telephone
companies) through a distribution to its shareowners of all of the common
stock of the Company held by Telesis.
In March 1993, the Company accrued an after tax reserve of $5.0 million
related to incremental costs directly attributable to the spin-off. Of such
amount, approximately $3.8 million represents estimated costs that will be
incurred in connection with the Company's name change, including new signage
for the Company's retail and other business locations showing the new name and
logo. The remaining $1.2 million represents estimated moving and relocation
expenses. All these costs are expected to be incurred only after the
spin-off. The Company's operations will continue to function under its
current structure. Accordingly, the Company does not expect to write down any
assets as a result of the spin-off.
In March 1994, Telesis announced that its Board of Directors had given final
approval to the spin-off of the Company, which will occur April 1, 1994. On
the spin-off date, Telesis will distribute to its shareowners all common
shares of the Company it holds.
F-14
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
C. Property, Plant, and Equipment
Property, plant, and equipment consists of the following:
December 31,
Depreciable --------------------
Lives 1993 1992
----------- --------- ----------
(Dollars in millions)
Property, plant, and equipment:
Land and buildings................... 5-40 years $ 128.2 $ 140.1
Cellular plant and equipment......... 5-15 years 647.3 587.1
Pagers, paging terminals,
and other paging equipment......... 3-15 years 165.0 138.6
Office furniture and
other equipment.................... 3-7 years 172.8 163.7
Construction in progress................ 62.2 69.3
--------- ---------
1,175.5 1,098.8
Less: accumulated depreciation.......... 433.4 373.1
--------- ---------
$ 742.1 $ 725.7
========= =========
Depreciation and amortization expense relating to property, plant, and
equipment for the years ended December 31, 1993, 1992, and 1991 was $161.7
million, $132.4 million, and $114.0 million, respectively.
Commitments for future acquisitions of property, plant, and equipment at
December 31, 1993 are approximately $86.1 million and, depending upon final
design specifications, could reach approximately $104.1 million.
D. INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS AND CORPORATIONS
Interests owned in cellular and other telecommunications systems of
unconsolidated partnerships and corporations are as follows:
December 31,
--------------------
1993 1992
--------- ---------
(Dollars in millions)
Investments at equity.............................. $1,127.2 $ 913.6
Investments at cost................................ 27.3 21.8
--------- ---------
$1,154.5 $ 935.4
========= =========
F-15
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31,
--------------------
1993 1992
--------- ---------
At equity:
(Dollars in millions)
Centel Cellular Company of Nevada
Limited Partnership (Las Vegas, Nevada)........... 28% 28%
Metroplex Telephone Company (Dallas/Fort Worth,
Texas)............................................ - 34%
Tucson Cellular Telephone Company (Tucson, Arizona). 6% 6%
New Par (Ohio/Michigan)............................. 50% 50%
Telecel Comunicacoes Pessoais, S.A. (Portugal)...... 23% 23%
Mannesmann Mobilfunk GmbH (Germany)................. 29% 28%
Tokyo Digital Phone Co. (Japan)..................... 15% 15%
Kansai Digital Phone Co. (Japan).................... 13% 13%
Central Japan Digital Phone Co. (Japan)............. 13% 13%
Telechamada-Servico de Chamada de Pessoas,
S.A. (Portugal)................................... 23% 23%
Sistelcom, S.A. (Spain)............................. 25% 25%
Cellular Communications, Inc. (Ohio/Michigan)....... 12% 12%
Nevada RSA2 Ltd. Partnership (Lander, Nevada)....... 50% 50%
Muskegon Cellular Partnership (Muskegon, Michigan).. 41% 41%
CMT Partners (California, Texas, Missouri, and
Kansas)........................................... 50% -
Omnicom, S.A. (France).............................. 19% -
In May 1993, the Company purchased an additional 0.75% interest in Mannesmann
Mobilfunk GmbH ("MMO").
Cellular Communications, Inc. ("CCI") represents the only equity method
investment for which a quoted market price is available. At December 31,
1993, the market value of this investment was $235.8 million, compared to the
Company's recorded net investment of $174.2 million. The Company has the
right to purchase the remainder of CCI at a price reflecting private market
value (see Note E).
CMT Partners was formed in September 1993 and the Metroplex Telephone Company
was one of the investments contributed by the Company in the formation of this
partnership (see Note E).
December 31,
--------------------
1993 1992
--------- ---------
At cost:
Fresno MSA Limited Partnership (Fresno,
California)................................... 1% 1%
GTE Mobilnet of California Limited Partnership
(Salinas, Santa Cruz, and Santa Rosa,
California)................................... - 3%
GTE Mobilnet of Santa Barbara Limited Partnership
(Santa Barbara, California)................... 10% 10%
Cal-One Cellular Limited Partnership (Eureka,
California)................................... 6% 6%
IDC (Japan)..................................... 10% 10%
Qualcomm (San Diego, California)................ 1% 1%
F-16
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Qualcomm represents the only cost method investment for which a quoted market
price is available. At December 31, 1993, the market value of this investment
was $10.6 million compared to the Company's recorded net investment of $2.0
million.
Condensed combined financial information for unconsolidated partnerships and
corporations accounted for under the equity method is summarized as follows:
December 31,
---------------------------------------
1993 1992
------------------- -------------------
Inter- Inter-
Domestic national Domestic national
--------- --------- --------- ---------
(Dollars in millions)
Current assets................ $ 350.4 $ 370.0 $ 289.1 $ 250.0
Noncurrent assets............. 1,513.7 1,631.5 1,102.8 923.4
Current liabilities........... (116.3) (373.0) (81.6) (228.9)
Noncurrent liabilities........ (420.1) (630.8) (341.4) (30.2)
Redeemable preferred stock.... - - (32.7) -
--------- --------- --------- ---------
Total partners' and
shareholders'capital........ $1,327.7 $ 997.7 $ 936.2 $ 914.3
========= ========= ========= =========
Total partners' and
shareholders'capital........ $1,327.7 $ 997.7 $ 936.2 $ 914.3
Other partners' and
shareholders' share of
capital..................... 753.4 732.8 554.2 679.6
--------- --------- --------- ---------
Company share of capital...... 574.3 264.9 382.0 234.7
Goodwill and other intangible
items....................... 255.8 32.2 273.6 23.3
--------- --------- --------- ---------
Equity investments in
unconsolidated partnerships
and corporations............ $ 830.1 $ 297.1 $ 655.6 $ 258.0
========= ========= ========= =========
F-17
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Year Ended December 31,
--------------------------------------------------------
1993 1992 1991
--------------------------------------------------------
Inter- Inter- Inter-
Domestic national Domestic national Domestic national
-------- -------- -------- -------- -------- --------
(Dollars in millions)
Net operating
revenues.......... $ 697.5 $ 527.7 $501.6 $ 75.9 $338.8 $ 2.2
Cost of revenues.... 223.0 194.7 154.6 97.8 125.2 32.0
-------- -------- -------- -------- -------- -------
Gross profit (loss). 474.5 333.0 347.0 (21.9) 213.6 (29.8)
Selling, general,
administrative,
and other expenses,
net............... 277.3 555.8 226.2 244.7 178.1 53.9
Interest expense
(income).......... 10.8 10.7 11.8 (20.3) 11.7 (10.8)
Income tax expense
(benefit)......... 6.5 (93.3) 2.2 (114.0) - -
-------- -------- -------- -------- -------- -------
Income (loss) before
accounting change. 179.9 (140.2) 106.8 (132.3) 23.8 (72.9)
Cumulative effect of
accounting changes 8.5 - - 51.4 - -
-------- -------- -------- -------- -------- -------
Net income (loss)... $188.4 $(140.2) $106.8 $(80.9) $ 23.8 $(72.9)
======== ======== ======== ======== ======== =======
Net income (loss)... $188.4 $(140.2) $106.8 $(80.9) $ 23.8 $(72.9)
Other partners' and
shareholders'share
of net income
(loss)............ 110.4 (103.5) 60.0 (56.6) 5.2 (51.8)
-------- -------- -------- -------- -------- -------
Company share of
net income (loss). 78.0 (36.7) 46.8 (24.3) 18.6 (21.1)
Cumulative effect of
accounting change
for income taxes
recorded by the
Company........... - - - (13.7) - -
Amortization of
goodwill and other
intangible items.. (7.6) (0.8) (5.7) (0.5) (3.1) (0.3)
-------- -------- -------- -------- -------- -------
Equity in net income
(loss) of
unconsolidated
partnerships and
corporations...... $ 70.4 $(37.5) $ 41.1 $(38.5) $ 15.5 $(21.4)
======== ======== ======== ======== ======== =======
F-18
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Goodwill and other intangible items are amortized primarily over forty years.
Anticipated future international capital calls are $140.7 million at
December 31, 1993.
CCI adopted Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes," ("SFAS 109") effective January 1, 1993. The Company's
portion of the increase to CCI's net income from adoption was approximately
$1.0 million.
E. JOINT VENTURES AND ACQUISITIONS
CELLULAR COMMUNICATIONS, INC.
On August 1, 1991, the Company and CCI combined their cellular telephone
interests in Ohio and Michigan by forming an equally owned joint venture ("New
Par"). The Company also purchased an initial ownership interest in CCI of
approximately 5% for $39 per share, or approximately $90.0 million including
related acquisition costs. During 1992 the Company increased its holding in
CCI to approximately 12% through open-market purchases of stock. Both the
Company's joint venture interest in New Par and its purchase of CCI shares are
accounted for under the equity method. The investment in net assets
contributed by the Company to the joint venture has been recorded at the same
net book value reflected in the Company's consolidated accounts prior to
closing (see Note S).
The Company and CCI have entered into an agreement (the "Merger Agreement")
under which CCI will, in October 1995, offer to redeem up to 10.04 million
shares of its redeemable stock at $60 per share (the "Mandatory Redemption
Obligation" or "MRO"). The Company is obligated to purchase from CCI at such
price a number of newly issued shares of stock equal to the number of shares
purchased by CCI in the MRO. At the same time, the Company is obligated to
purchase from CCI shares or stock options representing in the aggregate
approximately 2.4 million shares at a price of $60 per share, less the
exercise price in the case of stock options. Pursuant to the Merger Agreement,
the Company initially acquired approximately 5% of CCI and obtained the right
to acquire all of CCI's remaining equity in stages over the next several
years.
Beginning in August 1996, the Company has the right, by causing CCI to redeem
all of its redeemable stock not held by the Company (the "Redemption"), to
acquire CCI, including its interests in New Par and such other CCI assets and
related liabilities as the Company and CCI may agree upon, at a price per
share that reflects the appraised private market value of New Par (and such
other CCI assets and related liabilities as the Company and CCI agree shall be
retained) determined in accordance with an appraisal process set forth in the
Merger Agreement.
The Company has the opportunity to evaluate up to three different appraisal
values during the 18-month period beginning in August 1996, prior to
determining whether to cause the Redemption. The Company will finance the
Redemption by providing to CCI any necessary funds.
In the event that the Company does not exercise its right to cause the
Redemption, CCI is obligated to commence promptly a process to sell itself
(and, if directed by the Company, the Company's interest in New Par). In the
F-19
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
event that the Company does not direct CCI to sell the Company's interest in
New Par, such partnership dissolves and the assets are returned to the
contributing partner. CCI may, in the alternative, purchase the Company's
interest in CCI or CCI and New Par, as the case may be, at a price based upon
their appraised values determined in accordance with the Merger Agreement. If
CCI or its interest in New Par is sold within certain specified time periods
not to exceed two years for a price less than the appraised private market
value, the Company is obligated to pay to each other CCI stockholder a
specified percentage of such shortfall.
In connection with the CCI transaction, Telesis delivered a letter of
responsibility in which it agreed, among other things, to continue to own a
controlling interest in the Company. Telesis and CCI have agreed to the
termination of such letter of responsibility at the time that Telesis no
longer has a controlling interest in the Company in exchange for the provision
by the Company of substitute credit assurance, consisting of a $600 million
letter of credit and a pledge of up to 15% of CCI's shares on a fully diluted
basis, for the Company's obligations in connection with the MRO and for the
payment of any make-whole obligation, respectively (see Note R).
MCCAW CELLULAR COMMUNICATIONS, INC.
In September 1993, the Company and McCaw Cellular Communications, Inc.
("McCaw") contributed their respective cellular operations in San Francisco,
San Jose, Dallas, Kansas City (Missouri/Kansas) and certain adjoining areas to
a joint venture with equal ownership by each company. The new venture ("CMT
Partners") manages two large cellular regional networks covering an estimated
population of 9.2 million people. (The Company previously had operations
covering an estimated population of 4.5 million people in the joint venture
service area.) In a related transaction, the Company purchased McCaw's Wichita
and Topeka systems for $100.0 million.
PACTEL TELETRAC
PacTel Teletrac ("Teletrac"), a start-up company offering vehicle location
services in six markets in the United States, is 51% owned by the Company, and
thus its operations are consolidated with the Company. Effective March 31,
1992, Teletrac exercised its option to acquire all of the assets of
International Teletrac Systems ("ITS"). The acquisition price was $9.5
million to be paid over two years and the creation of a $69.7 million
"preferred capital account," for the benefit of ITS, which Teletrac accounted
for as long-term debt. This amount was netted with a $20.2 million receivable
from ITS and was reflected as $49.5 million long-term debt in the Consolidated
Balance Sheet at December 31, 1992 (see Note G). This $49.5 million debt has
since been retired. Additionally, the Company's 49% partner in Teletrac
provided ITS with a 24% ownership interest in Teletrac, and, as a part of the
purchase agreement, Teletrac credited ITS' capital account $2.5 million.
Prior to the March 31, 1992 acquisition of ITS' assets, Teletrac had no
ownership interest in ITS. However, the Company had an obligation through
Teletrac to ITS' lender, who had funded the substantial operating losses of
ITS. Because of this obligation, Teletrac has consolidated ITS for all
periods presented.
Through December 31, 1993, the Company had advanced Teletrac a total of $170.5
F-20
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
million for ongoing operating expenses, of which $91.0 million was advanced in
1993. Teletrac pays interest quarterly at Wells Fargo's prime rate plus 2%.
Advances issued prior to May 29, 1992 have a three-year term with an option to
extend for up to an additional five years. Advances issued after May 29, 1992
have a six-year term. The Company can convert the advances into additional
equity interests in Teletrac or Teletrac's corporate successor. The
conversion rate may be based on an appraised price or a percentage of the
price of stock issued in an initial public offering for Teletrac's corporate
successor. Such initial public offering, which may be solely elected by the
shareholders of the minority partner of Teletrac, must generally occur prior
to March 31, 1995.
NORDICTEL
In October 1993, the Company acquired a 51% interest in NordicTel Holdings AB
("NordicTel"), one of three providers of global digital services in Sweden,
for $153.0 million. The Company also contributed $5.4 million to NordicTel's
equity capital. The Company also holds an option exercisable between July 1
and September 30, 1994, to purchase an additional 6.75% of NordicTel's equity
for approximately $20.0 million.
PRO FORMA RESULTS (UNAUDITED)
The unaudited pro forma data for significant acquisitions occurring in 1993
include the results of the Company, Wichita, Topeka, NordicTel, and the
Company's share of the results of CMT Partners. The results listed below
reflect purchase method accounting adjustments assuming the acquisitions
occurred at the beginning of each year presented. The unaudited pro forma
results are not necessarily indicative of what actually would have occurred
if the acquisitions had been in effect for the entire periods and are not
necessarily indicative of the results of future operations.
December 31,
-------------------
1993 1992
--------- ---------
(Dollars in millions,
except per share amounts)
Net operating revenues.......................... $844.3 $645.6
Income (loss) before extraordinary item and
cumulative effects of accounting changes.... $ 15.4 $(33.9)
Net income (loss)............................... $ 9.8 $(13.6)
Net income (loss) per share before extraordinary
item and cumulative effects of accounting
changes..................................... $ 0.04 $(0.08)
F-21
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
F. INTANGIBLE ASSETS
Intangible assets consist of the following:
December 31,
-------------------
1993 1992
--------- ---------
(Dollars in millions)
FCC licenses, at cost, less accumulated
amortization of $36.9 and $26.8 for 1993
and 1992, respectively....................... $143.7 $ 163.8
Goodwill, at cost, less accumulated
amortization of $8.4 and $8.0 for 1993 and
1992, respectively........................... 262.3 45.9
Other intangible assets, at cost, less
accumulated amortization of $9.6 and $20.3
for 1993 and 1992, respectively.............. 7.2 15.3
--------- ---------
$ 413.2 $ 225.0
========= =========
In 1993 goodwill increased approximately $133.7 million as a result of
purchasing NordicTel in October 1993, and approximately $85.7 million as a
result of purchasing McCaw's cellular systems in Wichita and Topeka in
September 1993 (see Note E for further discussion).
Amortization expense relating to intangible assets for the years ended
December 31, 1993, 1992, and 1991 was $12.5 million, $11.0 million, and $16.0
million, respectively.
G. DEBT
DUE TO AFFILIATES WITHIN ONE YEAR
Amounts due to affiliates at December 31, 1993 consisted principally of
accounts payable and accrued liabilities. Amounts due to affiliates within
one year at December 31, 1992 of $906.7 million were primarily promissory
notes bearing interest at variable rates which averaged 6.1% during 1993 and
5.7% during 1992. Included in this amount were accounts payable and accrued
liabilities totalling $33.3 million at December 31, 1992.
F-22
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NON-CURRENT BORROWINGS DUE TO AFFILIATES
Non-current borrowings due to affiliates are as follows:
December 31,
-------------------
1993 1992
--------- ---------
(Dollars in millions)
Variable rate note payable relating to the
CCI transaction. Interest averaged 6.1% during
1993 and 5.7% during 1992 and was payable
semi-annually. Principal was originally
due in 1997. This note was redeemed in
1993.......................................... - $ 85.0
Variable rate note payable relating to the
Teletrac transaction with interest payable
quarterly at prime plus 3%. Principal
originally due in 1995 and 1996. This note
was redeemed in 1993 (see related discussion
in Note E).................................... - 49.5
Variable rate note payable which matured
September 25,1993. Interest averaged 6.1%
during 1993 and 5.7% during 1992 and was
payable semi-annually......................... - 100.0
--------- ---------
- 234.5
Less portion due within one year................ - 100.0
--------- ---------
- $ 134.5
========= =========
F-23
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NON-CURRENT BORROWINGS DUE TO NON-AFFILIATES
Non-current borrowings due to non-affiliates are as follows:
December 31,
-------------------
1993 1992
--------- ---------
(Dollars in millions)
Variable rate revolving credit facility
expiring in 1998. The credit available
under this agreement, approximately
$51 million, supports a NordicTel purchase
contract. Principal and interest are due
in ten equal semi-annual installments
beginning in June, 1994. Amounts repaid,
except prepayments, are available for
redrawing. The draw-down period for the
additional advances commences on January 1,
1994 and ends on December 31, 1997*............. $50.1 -
Notes (two) payable to a bank. The first note,
which has two draw-downs, matures May 30, 1999,
and had interest rates of 5.4% for the first
draw-down and 7.2% for the second draw-down;
semi-annual interest payments began
November 30, 1993. The second note matures
June 10, 2001, with an interest rate of 7.5%;
semi-annual interest payments begin
December 10, 1995. Balances are payable in
full at maturity **............................. 24.1 $20.7
Various other notes and obligations............... 4.7 2.1
--------- --------
78.9 22.8
Less portion due within one year.................. 10.3 0.4
--------- --------
$68.6 $22.4
========= ========
-------------------------
* Terms of the note prevent NordicTel from making distributions/ repayments
or interest payments on its common stock or on shareholders' contribution
until at least 50% of the credit has been repaid. Such distributions /
repayments or interest payments can be made only if the funds available
for such payment exceed $24.0 million and only from funds in excess of
that amount. In addition, all of the outstanding shares of NordicTel have
been pledged as collateral until the credit has been repaid in full. The
lender also holds as collateral a chattel mortgage on NordicTel's
principal subsidiary. The total amount of chattel mortgages outstanding
at December 31, 1993 was approximately $39.0 million.
** Under the terms of both notes, prepayment of the entire outstanding
balance may be made after May 1994 at a premium of 0.25% of the amount
payable. Terms of the notes require Telesis to retain 51% of the
F-24
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ownership of AirTouch International, formerly Pacific Telesis
International. The Company has been granted a temporary waiver of this
restriction and continues to renegotiate this restriction.
Maturities of non-current borrowings due to non-affiliates are as follows:
December 31, 1993
-------------------
(Dollars in millions)
Maturities:
1995............................................. $13.2
1996............................................. 10.0
1997............................................. 10.0
1998............................................. 10.0
1999............................................. 17.6
Thereafter....................................... 6.4
-------
67.2
Long-term capital lease obligations................... 1.4
-------
$68.6
=======
LINES OF CREDIT
The Company has various lines of credit with certain banks. For the most
part, these arrangements do not require compensating balances or commitment
fees and, accordingly, are subject to continued review by the lending
institutions. At December 31, 1993 and 1992, the total unused lines of credit
available were approximately $86.2 and $5.0 million, respectively.
H. INCOME TAXES
Effective January 1, 1992, the Company adopted the provisions of SFAS 109.
This standard requires companies to record all deferred tax liabilities or
assets for the deferred tax consequences of all temporary differences and
requires ongoing adjustments for enacted changes in tax rates and laws.
F-25
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The components of income tax expense for each year ended December 31, are as
follows:
1993 1992 1991
-------- -------- --------
(Dollars in millions)
Current:
Federal..................................... $48.8 $ 1.5 $17.0
State and other taxes....................... 9.4 (4.4) 6.1
-------- -------- --------
Total current............................... 58.2 (2.9) 23.1
-------- -------- --------
Deferred:
Federal..................................... 8.5 19.1 25.1
Change in federal enacted tax rate.......... 4.4 - -
State and other taxes....................... (3.3) 8.4 2.7
-------- -------- --------
Total deferred.............................. 9.6 27.5 27.8
-------- -------- --------
Amortization of investment tax
credits-net................................. - (0.1) (1.1)
-------- -------- --------
Total income taxes............................ $67.8 $24.5 $49.8
======== ======== ========
The Company recorded international tax expense on its consolidated foreign
subsidiaries for 1993, 1992, and 1991 of $1.6 million, $1.3 million, and $2.2
million, respectively.
The net change in the valuation allowance for deferred tax assets was an
increase of $1.8 million relating to benefits arising from foreign net
operating loss carryforwards of consolidated subsidiaries. At December 31,
1993, the Company had unused tax benefits of $4.8 million related to foreign
net operating loss carryforwards. Of this amount, $0.7 million can be carried
forward indefinitely and the balance expires at various dates through 2001.
The loss before income tax expense on the Company's consolidated foreign
subsidiaries was $5.2 million and $1.5 million in 1993 and 1992, respectively.
Significant components of the Company's deferred tax assets and liabilities as
of December 31, are as follows:
F-26
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1993 1992
-------- --------
(Dollars in millions)
Deferred tax liabilities:
Depreciation and amortization............... $124.6 $111.9
Equity investments.......................... 59.0 54.9
Other....................................... 22.3 19.0
-------- --------
205.9 185.8
-------- --------
Deferred tax assets:
Postretirement benefits obligation.......... 4.4 -
Foreign tax benefits in consolidated
subsidiaries (1).......................... 4.8 3.0
Equity investments.......................... - 0.2
Accruals deductible for tax purposes
when paid................................. 16.0 10.2
Other....................................... 8.2 4.5
-------- --------
33.4 17.9
Valuation allowance (1)....................... (4.8) (3.0)
-------- --------
Total deferred taxes recorded in
consolidated balance sheets................. $177.3 $170.9
======== ========
Current....................................... $(13.1) $ (3.5)
Non-current................................... 190.4 174.4
-------- --------
Net deferred tax liabilities.................. $177.3 $170.9
======== ========
(1) 1992 has been revised to agree with the 1993 presentation.
At December 31, 1993, amounts due to affiliates include $20.6 million for the
Company's tax liability to be included in the Telesis consolidated tax
returns. At December 31, 1992, amounts receivable from affiliates include
$101.9 million for the Company's tax losses utilized in the Telesis
consolidated tax returns (see Note Q).
F-27
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The components of federal, state, and other deferred income taxes for the year
ended December 31, 1991 are as follows (dollars in millions):
Deferred tax-due to:
Depreciation and amortization....................... $26.2
Interest capitalized................................ 1.5
FCC license adjustment.............................. -
Partnership income-net.............................. 2.8
Reserves............................................ (0.9)
State taxes......................................... (1.6)
Other............................................... (0.2)
---------
Total deferred taxes................................ $27.8
=========
The reasons for differences each year between the statutory federal income tax
rate and the effective income tax rate are provided in the following
reconciliations:
1993 1992 1991
-------- -------- --------
Statutory federal income tax rate............. 35.0% 34.0% 34.0%
Increase (decrease) in taxes resulting from:
Equity losses of unconsolidated
partnerships and corporations............. 11.5 101.0 5.6
ITS losses prior to March 31, 1992.......... - 36.8 10.2
Nondeductible amortization.................... 3.0 4.6 2.6
Change in deferred taxes due to tax
rate change................................. 4.1 - -
Nondeductible amortization of investment tax
credits..................................... - (0.6) (1.2)
State income taxes-net of federal
tax benefit................................. 3.7 (9.3) 4.7
Tax on international income................... 1.5 8.9 2.4
Settlement of litigation...................... - - (4.4)
Other......................................... 4.0 (5.3) (0.3)
-------- -------- --------
Effective income tax rate..................... 62.8% 170.1% 53.6%
======== ======== ========
In July 1993, the German Parliament passed the German Tax Act of 1994 which,
among other provisions, decreases the corporate tax rate on distributed
earnings effective January 1, 1994. As required by SFAS 109, deferred tax
assets recognized by MMO through June 1993 were adjusted downward to reflect
the lower tax rate. The Company's share of this adjustment reduced net income
by $3.1 million in 1993. The Company's investment balance in MMO, an equity
method investee, contains significant deferred tax asset amounts as shown in
the attached MMO financial statements and notes thereto.
At December 31, 1993, deferred tax liabilities relating to cumulative
unrepatriated earnings on consolidated foreign subsidiaries totalling $7.3
million were excluded from recognition under SFAS 109, because such earnings
are intended to be reinvested indefinitely. Federal income tax expense of
$2.6 million would be due if this income were repatriated.
F-28
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In August 1993, the United States government enacted the Omnibus Budget
Reconciliation Act of 1993 which incorporates new business tax provisions.
These include an increase in the corporate tax rate from 34% to 35%
retroactive to January 1, 1993. The Company's adjustment for this change
reduced net income by $4.4 million in 1993.
I. EMPLOYEE RETIREMENT PLANS
DEFINED BENEFIT PLAN
The Company provides pension, death, and survivor benefits under a qualified
defined benefit plan, the PacTel Corporation Employees Pension Plan, qualified
under Section 401(a) of the Internal Revenue Code, which covers employees of
the Company and certain subsidiaries. Benefits are based on a percentage of
final five-year average pay and vary according to years of service. The
accrual of service credit was discontinued on December 31, 1986 for most
employees. Certain long-service employees were given the option of continuing
to have their service credited under this pension plan in lieu of full
participation in the Company's defined contribution plan.
The Company is responsible for contributing enough to the pension plan to
ensure that adequate funds are available to provide benefit payments upon the
employee's retirement. These contributions are made to an irrevocable trust
fund in amounts determined using the aggregate cost actuarial method, one of
the actuarial methods specified by the Employee Retirement Income Security Act
of 1974 ("ERISA"), subject to ERISA and IRS limitations.
A joint venture of Telesis has been treated as a participating employer in the
defined benefit pension plan. Approximately 130 joint venture employees who
previously were employees of the Company were not included in the Company's
pension obligation or plan assets. However, pursuant to recent IRS
regulations, the Company determined that its pension obligation and plan
assets should include amounts attributable to the joint venture employees.
The Company has approved plan changes effective November 1, 1993, requiring
pension assets and obligations for the joint venture employees to be included
in the footnotes to the financial statements for the year ended December 31,
1993. These actions increased the reported plan assets by $3.7 million and
the reported actuarial present value of projected benefit obligations by $2.1
million.
In November and December of 1993, approximately 85% of the employees at the
joint venture who participated in the qualified defined benefit plan elected
early retirement or termination benefits from the plan under a program offered
by the Company. The 1993 annual pension income in the table below excludes a
one-time $3 million net gain recognized for this program, under Statement of
Financial Accounting Standards No. 88, "Employers' Accounting for Settlements
and Curtailments of Defined Benefit Plans and for Termination Benefits."
F-29
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Annual pension income for each year consisted of the following components:
1993 1992 1991
-------- -------- --------
(Dollars in millions)
Service cost-benefits earned during the year.... $(0.1) $(0.3) $(0.2)
Interest cost on projected benefit obligations.. (2.6) (1.6) (1.1)
Actual return on assets......................... 10.2 0.6 7.3
Net amortization and deferral of items subject
to delayed recognition*....................... (4.8) 3.4 (3.0)
-------- -------- --------
Pension income recognized....................... $ 2.7 $ 2.1 $ 3.0
======== ======== ========
* Under Statement of Financial Accounting Standard No. 87, "Employers'
Accounting for Pensions," ("SFAS 87"), differences between actual returns
and losses on assets and assumed returns, which are based on an expected
long-term rate of return, are deferred and included with other
"unrecognized net gain" (see following table). During 1993, actual returns
exceeded assumed returns by $5.8 million. During 1992, actual returns were
less than assumed returns by $3.5 million. During 1991, actual returns
exceeded assumed returns by $6.3 million. Recognition of these differences
has been deferred.
The amount of annual pension income recognized in 1993, 1992, and 1991
reflects a substantially diminished participant count since inception of the
plan (which reduces both service and interest costs) and the effects of strong
fund asset performance.
The following table sets forth the status of the plan's assets and obligations
and the amounts recognized in the Company's consolidated balance sheets:
December 31,
--------------------
1993 1992
--------- ---------
(Dollars in millions)
Plan assets at estimated fair value.............. $68.3 $60.7
Actuarial present value of projected benefit
obligations.................................... 31.1 28.5
--------- ---------
Plan assets in excess of projected benefit
obligations.................................... 37.2 32.2
Less items subject to delayed recognition:
Unrecognized net gain *........................ 15.4 18.1
Unrecognized transition amount **.............. 5.3 6.6
Unrecognized prior service cost................ 1.1 (0.3)
--------- ---------
Prepaid pension cost recognized in the
consolidated balance sheets.................... $15.4 $ 7.8
========= =========
F-30
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AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
----------------------
* Gains or losses from actual returns on assets different from assumed
returns, as well as from demographic experience different from assumed
and the effects of changes in other assumptions, are recognized through
amortization, over time, when the cumulative gains or losses exceed
certain limits.
** The $10.2 million excess of the fair value of the plan's assets over
projected benefit obligations as of the January 1, 1987 adoption of SFAS
87 is being recognized through amortization over approximately 17 years.
Recognition has been accelerated due to the settlement of pension
obligations through lump sum benefit payments.
The assets of the plan are primarily composed of common stocks, United States
government and corporate obligations, index funds, and real estate
investments. The plan's projected benefit obligations for employee service to
date reflect the Company's expectations of the effects of future salary
progressions of 5.5% per year. As of December 31, 1993 and 1992, the
actuarial present value of the plan's accumulated benefit obligations, which
do not anticipate future salary increases, were $26.1 million and $22.0
million, respectively. Of these amounts, $23.2 million and $19.3 million,
respectively, were vested. The assumptions used in computing the present
values of benefit obligations include a discount rate of 7.5% for 1993 and
8.5% for 1992 and 1991. An 8.0% long-term rate of return on assets was
assumed in calculating pension costs in 1993 and 1992.
DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution plan, the PacTel Corporation
Retirement Plan, formerly the Retirement Plan, which covers substantially all
full-time employees. The Company's contributions to the AirTouch
Communications Retirement Plan are based on a combination of percentage of pay
and on matching a portion of employee contributions. The cost recognized for
the plan was $12.9 million, $9.8 million, and $5.4 million for 1993, 1992, and
1991, respectively.
J. OTHER POSTRETIREMENT BENEFITS
The Company provides health care benefits for retired employees and their
eligible dependents and provides life insurance benefits to retired employees.
Employees become eligible for these benefits upon retirement with eligibility
for a service pension under the defined benefit pension plan or attainment of
"retirement status" under the defined contribution plan. Substantially all
retirees and their dependents are covered under the Company's plans for
medical, dental, and life insurance benefits. Approximately 50 retirees were
eligible to receive benefits as of January 1, 1993. The Company retains the
right, subject to applicable legal requirements, to amend or terminate these
benefits.
The Company currently pays a portion of the cost of these benefits, with
retirees paying monthly contributions for medical and dental costs based on
the individual's family status. Commencing in 1994, the Company has
implemented managed care in order to reduce and contain medical costs. The
terms of this cost sharing have been reflected in the financial statements.
Through 1992, postretirement health care costs were expensed as claims were
F-31
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AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
incurred. Postretirement life insurance benefits were expensed as premiums
were paid. The costs of these benefits recognized in 1992 and 1991 were $0.2
million and $0.3 million, respectively.
On January 1, 1993, the Company implemented SFAS 106 on an immediate
recognition basis. The standard requires that the cost of retiree benefits be
recognized in the financial statements from an employee's date of hire until
becoming eligible for these benefits. Previously, the Company expensed these
retiree benefits as they were paid. Immediate recognition of the transition
obligation resulted in a one-time, noncash expense of $9.1 million before a
tax benefit of $3.5 million. In addition, the periodic expense recognized in
1993 amounted to $2.0 million before a tax benefit of $0.9 million. The $2.0
million is an increase of $1.9 million over the amount that would have been
expensed during the period using the previous method of accounting. The
projected unit credit actuarial method was used to determine the cost of these
benefits.
A discount rate of 7.5% was used to measure the accumulated postretirement
benefit obligation ("APBO") at December 31, 1993. An 8.5% discount rate was
assumed in calculating the 1993 net periodic postretirement benefit cost. At
December 31, 1993, the other postretirement benefits plans were unfunded.
The 1993 annual net periodic postretirement benefit cost consisted of the
following components :
1993
---------
(Dollars in millions)
Service cost.............................................. $1.2
Interest cost on accumulated postretirement benefit
obligation.............................................. 0.8
---------
Postretirement benefit cost............................... $2.0
=========
The following table sets forth the funded status of the plans and the amounts
recognized in the Company's consolidated balance sheets:
December 31, 1993
---------------
(Dollars in millions)
Retirees.............................................. $ 3.5
Eligible active employees............................. 1.0
Other active employees................................ 7.9
-------------
Total accumulated postretirement benefit obligation... 12.4
Less fair value of plan assets........................ -
Less unrecognized net loss (1), subject to delayed
recognition......................................... 1.1
-------------
Accrued postretirement benefit obligation in excess
of plan assets...................................... $11.3
=============
F-32
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(1) Gains or losses from actual returns on assets different than assumed
returns, as well as from demographic experience different than assumed
and the effects of changes in other assumptions, are recognized through
amortization, over time, when the cumulative gains or losses exceed
certain limits.
A 14% annual increase in health care costs is assumed in 1994 for retirees in
the medical network and for those outside the network. The rate of increase
is assumed to decline to an ultimate 6% by the year 2002. Should the health
care cost trend rate increase by 1% each year, the 1993 impact increases the
APBO by $2.1 million and the aggregate of the service and interest cost
components of the net period cost by $0.5 million.
K. FINANCIAL INSTRUMENTS
The Company uses various financial instruments that involve off-balance-sheet
risk. These include foreign currency swap contracts. These contracts are
used to reduce the impact of foreign currency fluctuations on international
investments. The Company also engages in forward contracts.
As of December 31, 1993 and 1992, the Company had outstanding foreign currency
swap and forward contracts with face amounts totalling $291.2 million and
$354.0 million, respectively, with maturities through November 2001.
The off-balance-sheet risk in these contracts involves both the risk of a
counterparty not performing under the terms of the contract and the risk
associated with changes in market value. The counterparties to these
contracts are major financial institutions. The Company monitors its
positions, the credit ratings of counterparties and the level of contracts the
Company enters with any one party. Therefore, the Company believes the
likelihood of realizing material losses from counterparty nonperformance is
remote. The settlements of these transactions are not expected to have any
material adverse effect upon the Company's financial position or results of
operations.
The following disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of Statement of Financial
Accounting Standard No. 107, "Disclosures about Fair Value of Financial
Instruments." The Company uses available market information and appropriate
valuation methods to determine fair value amounts. However, considerable
judgment enters into estimates of fair value. Accordingly, the estimates
presented may not be indicative of the amounts that the Company could realize
in a current market exchange.
F-33
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31,
------------------------------------------
1993 1992
------------------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- --------- ---------- ----------
(Dollars in millions)
Assets:
Cash and cash equivalents.....
$646.7 $646.7 $ 17.1 $ 17.1
Short-term investments........
$814.0 $814.0 - -
Notes receivable.............. - - $ 99.8 $ 99.8
Long-term investments:
Practicable to estimate
fair value................ $ 2.0 $ 10.6 $ 2.0 $ 4.9
Not practicable to estimate
fair value................ $ 25.3 - $ 19.8 -
Liabilities:
Current obligations........... $ 12.7 $ 12.7 $878.5 $878.5
Deposit liabilities........... $ 22.4 $ 22.4 $ 23.1 $ 23.1
Long-term debt................ $ 67.2 $ 70.0 $155.7 $155.7
Off-balance-sheet financial
instruments-net............... - $ 13.8 - $ 11.0
Cash and cash equivalents, short-term investments, notes receivable, and
current obligations. Carrying amounts are a reasonable approximation of fair
value.
Long-term investments. It is not practicable to estimate the fair value of
the Company's investment in several joint ventures since valuations are not
available in the current market. Ownership interests in such joint ventures
range from 1% to 10% in various cellular companies and a network cable under
the Pacific Ocean. Certain of these ventures are in the start-up mode. At
December 31, 1993, the Company's ownership interest in these ventures' assets
and shareholders' equity was approximately $72.9 million and $3.9 million,
respectively. In addition, the Company's ownership interest in 1993 revenues
and net loss was $42.3 million and $5.0 million, respectively.
Long-term debt. Interest rates that are currently available to the Company
for issuance of debt with similar terms and remaining maturities are used to
estimate fair value for debt issues that are not quoted on an exchange.
Off-balance-sheet financial instruments. These amounts primarily represent
foreign exchange hedge contracts. Fair value is based upon current value in
the market for transactions with similar terms. As a result of the planned
spin-off, these contracts will be renegotiated. No assurances can be given
that similar terms can be obtained.
Financial guarantees. The Company has letters of responsibility and letters
of support for various credit facilities and financing activities of certain
of its subsidiaries and affiliates (see Note N). Fair value is based on
estimated fees to enter similar agreements. There is no carrying value since
F-34
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
fees were not paid originally. As a result of the planned spin-off, these
letters of responsibility and letters of support will be renegotiated. No
assurances can be given that similar terms can be obtained.
Telesis has issued various forms of financial support on behalf of the
Company. All of these forms of financial support will be renegotiated before
the planned spin-off. No assurances can be given that similar terms can be
obtained.
L. REGULATORY MATTERS
SPIN-OFF HEARINGS
In February 1993, the CPUC instituted an investigation of the spin-off for the
purpose of assessing any effects it might have on the telephone customers of
Pacific Bell. The CPUC identified certain issues for evidentiary hearings,
including whether Pacific Bell customers should be compensated as a result of
the manner in which cellular research and development had been funded by
Telesis' predecessor companies (AT&T and the former Bell System operating
telephone companies) and cellular licenses had been granted by the FCC, and
whether Pacific Bell customers should be compensated for any continued use of
the PacTel name by the Company.
On November 2, 1993, the CPUC issued a decision in the investigation
authorizing Telesis to proceed with the spin-off. Among other things, the
decision prohibits the Company and subsidiaries of Telesis from agreeing not
to compete after the spin-off and from transferring utility assets, which may
include pension funds, out of the California utilities. The CPUC expects
Telesis to complete the spin-off in a manner which allows Pacific Bell to
compete for PCS licenses. An independent auditor (selected by and under
contract to the CPUC) will perform an audit and file a compliance report with
the CPUC to ensure that Telesis and the Company have complied with the terms
of the separation as described to the CPUC and that the transaction complies
with the conditions imposed by the decision and the CPUC's affiliate
transaction rules. The Company believes that the audit will not result in any
material liability for the Company and that Telesis and the Company will
satisfy all conditions in the CPUC decision.
The CPUC decision was effective immediately. On December 3, 1993, two parties
filed applications for rehearing with the CPUC and the CPUC staff filed a
petition to modify the decision. On March 9, 1994, the CPUC denied these
requests.
Under California law, judicial review of the CPUC decision is available only
by petition for writ of certiorari or review to the California Supreme Court.
As the CPUC denied the applications for rehearing, only a party that has filed
such an application with the CPUC may file such a petition, which must be
filed by early April 1994. One of the parties that urged the establishment of
a reserve for compensation has stated that it would seek review of the CPUC
decision. The decision whether to grant a petition for a writ of review of a
CPUC decision is at the discretion of the California Supreme Court. The
Company believes the California Supreme Court would deny a review.
CELLULAR REGULATION
F-35
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In October 1992, the CPUC issued an order that, among other things: required
cellular utilities to adopt a specific accounting methodology to separate
wholesale and retail costs; permitted resellers to operate a reseller switch
interconnected to the cellular carrier's facilities; mandated the unbundling
of certain wholesale rates requiring a cost basis plus a 14.75% rate of
return; and directed the Company to divest its reseller operations in the San
Francisco Bay Area.
In May 1993, the CPUC granted a limited rehearing of its October 1992 order.
The CPUC agreed to rehear the issues of unbundling wholesale rates and the
imposition of a rate of return. Also, the CPUC rescinded the order's
requirement that cellular utilities modify the accounting methodology for
allocating wholesale and retail costs. The CPUC did not alter, however, the
prohibition of a carrier's affiliate from reselling cellular services in the
carrier's same markets. As a result, in September 1993, the Company
contributed certain of the assets and liabilities of its retail reseller
operations in the San Francisco Bay Area to CMT Partners (see Note E).
In December 1993, the CPUC adopted an Order Instituting Investigation into the
regulation of Mobile Telephone Service and Wireless Communications. The CPUC
has consolidated the rehearing of the October 1992 decision with the new
investigation. The new investigation initiates a review of the Commission's
historic policies governing cellular telephone service and proposes to
classify cellular carriers as dominant carriers and resellers and new
providers of mobile service as non-dominant carriers. The Commission requests
comments on alternative frameworks for regulating cellular carriers: (1)
price caps at current rates (the existing framework); (2) rate-of-return or
cost-based price caps which would result in mandatory price reductions; and
(3) relaxed regulation. Because the outcome of the CPUC's new investigation
is uncertain, the Company cannot estimate the future effects of this
investigation.
GENERAL ORDER 159
In November 1992, the CPUC staff issued an interim report outlining the
partial findings of an investigation into compliance with General Order 159
("G.O. 159"), which requires prior CPUC approval of cellular facility
additions. In January 1993, the Company responded to the report indicating
that it contains significant inaccuracies and goes beyond the scope of the
CPUC's authority. In April 1993, the CPUC alleged that the Company failed to
obtain five required permits and issued an order requesting that the Company
show why a particular cellular facility should not be disapproved. Certain of
the Company's markets may have taken steps that the CPUC might consider to be
construction of cellular facilities prior to filing advice letters with the
CPUC and/or might be considered by the CPUC to involve the failure to obtain
necessary governmental permits for certain cellular facilities. The Company
does not anticipate that sanctions, if any, that may be imposed by the CPUC
for any failure to comply with G.O. 159 or to obtain other governmental
permits will have a material adverse effect on the Company.
FCC LICENSE RENEWAL
The Company has filed an application for renewal of its Los Angeles cellular
F-36
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
license, whose initial term expired in October 1993. The Company expects that
its application will be granted, although an opposing party has filed an
informal objection and a petition to deny the Company's application, alleging
violations of FCC rules and the Communications Act of 1934. The Company's
licenses in San Diego, Detroit, Cleveland and Sacramento expire in October
1994 and all of its other significant domestic cellular licenses expire before
the end of 1996. While the Company believes that each of these licenses will
be renewed based upon FCC rules establishing a presumption in favor of
licensees that have complied with their regulatory obligations during the
initial license period, there can be no assurance that any license will be
renewed. The licensing authorities in Germany and Portugal have not
established any procedures for renewal of the cellular licenses held by MMO
and Telecel. Such licenses expire in 2009 and 2006, respectively.
M. CAPITAL STOCK
CAPITAL RESTRUCTURING
In 1993, the Company amended and restated its Articles of Incorporation to
include, among other things, the conversion of its existing two classes of no
par value common stock into 1,150,000,000 shares of $.01 par value capital
stock. In connection with the conversion, the number of common shares
outstanding increased from 100,000 to 424,000,000. The Consolidated Financial
Statements of prior years have been restated to reflect the new capital
structure. The newly authorized capital stock consists of 50,000,000 shares
of preferred stock and 1,100,000,000 shares of common stock.
On December 2, 1993, the Company completed a public offering of 68,500,000
shares of newly issued common stock for proceeds of $1,489.2 million, net of
underwriting discounts and direct stock issuance costs. As a result of this
offering, the number of common shares outstanding increased from 424,000,000
to 492,500,000.
COMMON STOCK
In addition to the 492,500,000 common shares outstanding, a subsidiary of the
Company owns 122,960 shares of the Company's common stock. Because the
accounting treatment for subsidiary-held shares is similar to that for
treasury stock, the subsidiary-held shares are not considered outstanding.
PREFERRED STOCK
Of the 50,000,000 authorized shares of preferred stock, 6,000,000 shares have
been designated as Series A Participating Preferred Stock. There are no
outstanding shares of Series A Participating Preferred Stock. The remaining
authorized preferred stock may be issued in one or more series, and the Board
of Directors is authorized to designate the series and fix the relative
rights, preferences, and limitations of the respective series without any
further vote or action of the shareholders.
SHAREHOLDER RIGHTS PLAN
In July 1993, the Company's Board of Directors adopted a shareholder rights
plan (the "Rights Plan"), which provides for the distribution of rights
F-37
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
("Rights") to holders of outstanding shares of common stock. Except as set
forth below, each Right, when exercisable, entitles the shareholder to
purchase from the Company one one-hundredth of a share of Series A
Participating Preferred Stock at a price of $80 per share, subject to
adjustment.
The Rights are not currently exercisable, but would become exercisable if
certain events occurred related to a person or group ("Acquiring Party")
acquiring or attempting to acquire 10% or more of the Company's common stock.
In the event that the Rights become exercisable, each holder of a Right (other
than an Acquiring Party) would be entitled to purchase, for the exercise price
then in effect, shares of the Company's common stock having a market value at
the time of such transaction of two times the exercise price for each Right.
The Board of Directors, at its option, may at any time after a person becomes
an Acquiring Party (but not after the acquisition by such person of 50% or
more of the outstanding common stock) exchange on behalf of the Company all or
part of the then outstanding and exercisable Rights for shares of common stock
at an exchange ratio of one share of common stock for each Right.
At any time prior to the earlier of the occurrence of either (i) a person
becoming an Acquiring Party or (ii) the expiration of the Rights, the Company
may redeem the Rights in whole, but not in part, at a price of $0.01 per
Right.
N. COMMITMENTS AND CONTINGENCIES
CELLULAR PLUS INC.
A complaint has been filed in San Diego against the Company's wholly owned
subsidiary, AirTouch Cellular ("Cellular"), formerly PacTel Cellular, and
another regional telephone company (Cellular's competitor in San Diego),
alleging on behalf of agents and dealers that Cellular engaged in price fixing
of wholesale and retail cellular service. The outcome of this action is
uncertain. Accordingly, no accrual for a contingency has been made. The
Company intends to defend itself vigorously in this action and does not expect
that any unfavorable outcome will have a material impact on the Company's
results of operations or financial condition.
GARABEDIAN DBA WESTERN MOBILE TELEPHONE COMPANY V. LASMSA LIMITED PARTNERSHIP,
ET AL.
A class action complaint has been filed naming as defendants, among others,
Los Angeles Cellular Telephone Company ("LACTC") and the Company, as general
partner for Los Angeles SMSA Limited Partnership. The plaintiff alleges that
LACTC and the Company conspired to fix the price of wholesale and retail
cellular service in the Los Angeles market. The plaintiff alleges damages for
the class "in a sum in excess of $100 million." On January 31, 1994, the
Company filed a demurrer to the complaint. No discovery had been undertaken
as of March 3, 1994. The Company intends to defend itself vigorously. The
Company does not anticipate this proceeding will have a material adverse
effect on the Company's financial position.
F-38
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
OTHER
The Company is party to various other legal proceedings in the ordinary course
of business. Although the ultimate resolution of these proceedings cannot be
ascertained, management does not believe they will have a materially adverse
effect on the results of operations or financial position of the Company.
The Company has no material long-term capital lease obligations or operating
leases. Rental expense for the years ended December 31, 1993, 1992, and 1991
was $33.3 million, $31.9 million, and $26.6 million, respectively.
The Company and Telesis have various letters of responsibility and letters of
support for performance guarantees, refundable security deposits and credit
facilities of certain subsidiaries and affiliates. These letters of
responsibility and letters of support do not provide for recourse to either
Telesis or to the Company. Separately, as of December 31, 1993, the Company
guaranteed approximately $10.4 million owed by a third party. The Company
believes that the likelihood of having to pay under the guarantee is remote.
A subsidiary of the Company guarantees the liabilities of a third party, for
which the subsidiary is indemnified by minority shareholders unaffiliated with
the Company. The Company believes it is remote that it will be required to
pay under this guarantee.
Additionally, in August 1993, the Company provided a letter supporting the
commercial paper program entered into by Telecel Comunicacoes Pessoais, S.A.
in which the Company may be liable for its proportionate share of the loans
issued under the program if certain loan covenants are not met. As of
December 31, 1993, the potential liability is approximately $6.5 million. The
Company believes that the likelihood of having to pay under the letter is
remote.
O. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
COMPENSATION TO EMPLOYEES
Certain key employees of the Company are eligible for the grant of options to
purchase shares of Telesis common stock and stock appreciation rights ("SARs")
under the Pacific Telesis Group Stock Option and Stock Appreciation Rights
Plan (the "Plan"). The Plan was adopted by Telesis on January 1, 1984.
Following the spin-off, it is expected that outstanding awards under the Plan
as of the record date for the spin-off will be replaced by Company awards (the
"Replacement Awards"). For stock options and SARs, it is expected that the
Replacement Awards will have the same aggregate exercise prices, cover the
same aggregate fair market values of stock and continue the vesting schedules
and other conditions for exercise of the Telesis options or SARs they replace.
The formula to determine the total number of Replacement Awards to be issued
to Company employees is dependent on the respective market values of the
Telesis and Company common stock in the 10 trading days prior to the record
date associated with the spin-off. As such, the Company cannot accurately
determine the number of Replacement Awards that will be outstanding after the
spin-off date. The formula is a fraction, with the pre-spin-off market value
of Telesis common shares as the numerator and the pre-spin-off market value of
the Company's common stock as the denominator, multiplied by the number of
Telesis options held by Company employees. At December 31, 1993, Company
F-39
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
employees held approximately 1.3 million options on Telesis common stock.
COMPENSATION TO INVESTMENT ADVISERS
Telesis and the Company have agreed to the terms of compensation to be paid to
Sterling Payot Company, an investment firm that advised Telesis and the
Company. The terms require Telesis and the Company to each issue 350,000 SARs
to Sterling Payot on the spin-off date. The exercise price for one-half of
the Telesis and one-half of the Company SARs is $30 per share and $20 per
share, respectively, and the exercise price for the remaining one-half is $36
per share and $24 per share, respectively. The agreement provides that once
SARs with an aggregate value of $6 million have been exercised, any remaining
SARs expire and may not be exercised. The stock appreciation rights are
exercisable for three years from the date of issuance.
P. INTERNATIONAL OPERATIONS
The Company's subsidiary, AirTouch International ("International"), formerly
Pacific Telesis International, provides paging services through two companies
in Thailand. Company assets in that nation totalled $34.9 million at
December 31, 1993, and 1993 revenues and net loss totalled $26.6 million and
$2.6 million, respectively.
International also has substantial investments in consortia that do business
in other countries (see Note D). These consortia, for the most part, are
start-up businesses that are either in the process of constructing networks or
are just beginning operations. One consortium, Mannesmann Mobilfunk GmbH,
operates the world's largest digital cellular network. At the end of 1993,
the Company had a net investment in this German consortium of $234.2 million.
The Company's share of consortium revenues and net loss for 1993 totalled
$125.8 million and $20.6 million, respectively.
In Japan, the Company owns an interest in three ventures that will provide
cellular services to various metropolitan areas, including Tokyo and Osaka.
At December 31, 1993, the Company's net investment in these consortia totalled
$29.8 million. No revenues were recognized for 1993, and the Company's share
of the year's net loss was $4.2 million.
Another consortium, Telecel Comunicacoes Pessoais, S.A., operates a national
digital cellular system in Portugal. The Company's net investment in this
consortium at the end of 1993 totalled $26.9 million. The Company's share of
1993 revenues and net loss was $14.2 million and $6.3 million, respectively.
In Sweden, the Company owns a 51% interest in NordicTel, one of three
providers of global digital cellular services in Sweden. The Company's assets
in NordicTel totalled $77.9 million at December 31, 1993, and 1993 revenues
and net loss totalled $1.2 million and $4.2 million, respectively.
While the Company has chosen not to do business in nations with highly
inflationary economies, the Company continues to try to mitigate the effects
of foreign currency fluctuations through the use of hedges and local banking
accounts.
F-40
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Q. RELATED PARTY TRANSACTIONS
The Company and Telesis' affiliated companies have entered into several
transactions and agreements related to their respective businesses. The
following represents the material transactions between the Company and
Telesis' affiliated companies.
EQUITY CONTRIBUTIONS
Telesis provided equity contributions of $1,179.8 million during 1993 prior to
the IPO. Equity contributions from Telesis totalled $212.2 million and $71.4
million during 1992 and 1991, respectively.
ADMINISTRATIVE SERVICES
The Company obtains certain administrative services and other additional
benefits from Telesis. Service costs that are specifically attributable to
the Company are directly charged to the Company by Telesis. Other service
costs and corporate charges are allocated proportionately among Telesis'
subsidiaries, including the Company. The Company believes that the terms of
the arrangements determining charges to it by Telesis are reasonable, although
there can be no assurance that these terms are or will be as favorable to the
Company as could be obtained from unaffiliated third parties. Telesis may be
providing administrative services to the Company for up to 90 days after the
spin-off.
In the ordinary course of business, the Company participated in the following
transactions with affiliated companies:
For the Year Ended December 31,
-------------------------------
1993 1992 1991
---------- ---------- ---------
PROVIDED BY THE COMPANY: (Dollars in millions)
Revenues from cellular services......... $ 2.7 $ 2.3 $1.8
Revenues from paging services........... $ 1.7 $ 1.4 $1.3
PROVIDED TO THE COMPANY:
Expenses from telephone services........ $28.5 $29.0 $29.3
Expenses from administrative, research
and development, and insurance services. $16.3 $17.4 $14.3
Expenses from lending services.......... $19.6 $46.6 $33.1
CONTEMPLATED AGREEMENTS AND ARRANGEMENTS
In contemplation of the proposed spin-off, the Company and Telesis have
entered into a separation agreement that provides for complete separation of
all properties after the spin-off as well as transition agreements that
disengage the affairs of the Company and Telesis in an orderly manner.
INCOME TAX SHARING
The separation agreement provides that the Company will continue to join in
filing consolidated federal income tax returns with Telesis for all taxable
periods in which the parties are required or permitted to file a consolidated
F-41
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
return. In each taxable period, the Company must pay Telesis an amount equal
to the Company's share of the consolidated tax liability based on the
Company's separate taxable income and an amount equal to the Company's
contribution to Telesis' state tax liability. If the Company were to report a
net operating loss for any such year, Telesis would pay an amount equal to its
reduction in tax liability attributable to such loss. A similar method of
allocation would be applied to state income taxes filed pursuant to a combined
return.
EMPLOYEE BENEFIT ALLOCATION
The separation agreement provides for the transfer of a limited number of
employees' and retirees' accounts between Telesis and the Company and for
indemnification against certain claims. Telesis and the Company will exchange
such payroll data, service records, tax-related information, and other
employee information as may be necessary for the effective administration of
their benefit plans and compliance with governmental reporting requirements
after the spin-off.
CONTINGENT LIABILITIES
In general, the separation agreement will allocate nontax liabilities that
become certain after the spin-off and were not recognized in the financial
statements according to the origin of the claim and acts by, or benefits to,
Telesis or the Company.
DIVIDEND PAYMENTS
The Company does not expect to pay cash dividends on its common stock in the
foreseeable future.
Management believes that the consolidated financial statements of the Company,
presented herein, reasonably reflect the historical relationships with Telesis
and its affiliates and reflect all of the Company's costs of doing business.
Management believes that there would not have been any material difference
from the amounts presented in the historical financial statements had the
Company operated on a stand-alone basis. However, the historical financial
statements are not necessarily indicative of future financial condition,
results of operations, or cash flows.
R. SUBSEQUENT EVENTS
In January 1994, the Company's cellular services subsidiary signed a
definitive agreement to purchase digital cellular network equipment for use in
the greater Los Angeles area. The contract is initially valued at
approximately $77 million but could reach $130 million by the year 2000
depending upon final system design specifications.
In February 1994, the Company signed a commitment letter authorizing a major
financial institution to proceed with arranging and syndicating a $600 million
revolving credit facility. The proposed credit facility, which is subject to
the negotiation and execution of a definitive bank loan agreement, would
provide the Company with funding for general corporate purposes and with
standby letters of credit to support its obligations to purchase additional
shares in Cellular Communications, Inc. under the Mandatory Redemption
F-42
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Obligation as described in Note E. The new credit facility is anticipated to
close on or before the spin-off and would replace an existing letter of
responsibility issued by Telesis.
In February 1994, the Company announced a new corporate name, AirTouch
Communications.
In March 1994, Telesis announced that its Board of Directors had given final
approval to the spin-off of the Company which will occur on April 1, 1994.
S. ADDITIONAL FINANCIAL INFORMATION
December 31,
---------------------
1993 1992
---------- ----------
(Dollars in millions)
Accounts payable:
Trade............................................. $110.8 $111.5
Other............................................. 38.4 30.3
---------- ----------
Total............................................. $149.2 $141.8
========== ==========
Miscellaneous other current liabilities:
Accrued taxes .................................... $ 28.2 $ 18.7
Advance billings and customer deposits............ $ 22.4 $ 23.1
F-43
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Year Ended
December 31,
----------------------------
1993 1992 1991
-------- -------- --------
(Dollars in millions)
Miscellaneous income (expense):
Foreign currency transaction gain (loss)..... $(3.4) $ 2.2 $ (1.4)
Defined benefit plan settlement gain, net.... 3.0 - -
Settlement of litigation..................... - - 12.0
Loss on sale of equipment.................... - - (3.3)
Other........................................ (0.1) (1.2) (2.1)
-------- -------- --------
Total........................................ $(0.5) $ 1.0 $ 5.2
======== ======== ========
Wireless services and other revenues:
Cellular service............................. $787.0 $681.7 $625.4
Paging service............................... 148.7 117.9 98.0
Vehicle location service..................... 4.0 2.4 0.7
Other revenues............................... 47.6 32.8 25.4
-------- -------- --------
Total........................................ $987.3 $834.8 $749.5
======== ======== ========
Advertising.................................... $ 48.4 $ 37.1 $ 26.3
Property taxes................................. $ 16.7 $ 20.8 $ 18.5
Supplemental Cash Flow information:
Cash payments for:
Interest, net*........................... $ 26.4 $ 51.4 $ 37.7
Income taxes............................. $ 51.5 $ 16.3 $ 20.5
Noncash transactions:
Contribution of assets to CMT Partners
at book value.......................... $206.0 - -
Assumption of liabilities in exchange
for ITS' net assets.................... - $ 80.0 -
Contribution of assets to CCI joint
venture at book value.................. - - $330.0
-----------------
* Net of amounts capitalized of $3.7 million, $3.6 million, and $11.6 million
for 1993, 1992, and 1991, respectively.
F-44
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
T. QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars in millions,
except per share amounts)
---------------------------------------
1993 First Second Third Fourth
--------------------------------------------------------------------------
Net operating revenues........... $239.1 $259.5 $254.7 $234.7
Operating income................. $ 28.2 $ 42.4 $ 47.9 $ 9.7
Income (loss) before cumulative
effect of accounting change.... $ (2.3) $ 12.5 $ 15.3 $ 14.6
Net income (loss)................ $ (7.9) $ 12.5 $ 15.3 $ 14.6
Per share data:
Income (loss) before cumulative
effect of accounting change.. $(0.01) $ 0.03 $ 0.04 $ 0.03
Net income (loss).............. $(0.02) $ 0.03 $ 0.04 $ 0.03
- --------------------------------------------------------------------------
1992 First Second Third Fourth
- --------------------------------------------------------------------------
Net operating revenues........... $193.1 $203.1 $214.3 $228.0
Operating income................. $ 24.2 $ 21.6 $ 25.5 $ 24.6
Loss before extraordinary
item and cumulative effect
of accounting change.......... $ (6.5) $ (0.4) $ (0.1) $ (3.1)
Net income (loss)................ $ 21.4 $ (8.0) $ (0.1) $ (3.1)
Per share data:
Loss before extraordinary item
and cumulative effect of
accounting change............ $(0.01) $ 0.00 $ 0.00 $(0.01)
Net income (loss).............. $ 0.05 $(0.02) $ 0.00 $(0.01)
==========================================================================
In 1993, the Company implemented SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions." The implementation of SFAS
No. 106 reduced net income by $5.6 million in the first quarter of 1993.
Effective January 1, 1992, the Company adopted SFAS No. 109, "Accounting for
Income Taxes." The adoption of SFAS No. 109 increased net income by $27.9
million in the first quarter of 1992. In 1992, the Company prepaid $100
million of long-term debt. The early redemption expense related to the
prepayment reduced net income by $7.6 million in the second quarter of 1992.
F-45
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of AirTouch Communications
(formerly PacTel Corporation) and Subsidiaries is included on page F-3 of this
Form 10-K. In connection with our audits of such financial statements, we
have also audited the related financial statement schedules listed in Item
14(a) 2 of the Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand
San Francisco, California
March 3, 1994
F-46
<PAGE>
New Par (A Partnership)
Index of Consolidated Financial Statements
Page
----
Report of Independent Auditors ............................... F-47
Consolidated Balance Sheets - December 31, 1993 and 1992 ..... F-48
Consolidated Statements of Income - Years ended
December 31, 1993 and 1992 and the period from
August 1, 1991 (inception) to December 31, 1991 ............ F-49
Consolidated Statement of Partners' Capital - Years
ended December 31, 1993 and 1992 and the period
from August 1, 1991 (inception) to December 31, 1991 ....... F-50
Consolidated Statements of Cash Flows - Years
ended December 31, 1993 and 1992 and the
period from August 1, 1991 (inception) to
December 31, 1991 .......................................... F-51
Notes to Consolidated Financial Statements .................. F-53
F-47
<PAGE>
Report of Independent Auditors
The Partnership Committee
New Par
We have audited the accompanying balance sheets of New Par and the related
consolidated statements of income, partners' capital and cash flows for the
years ended December 31, 1993 and 1992 and for the period from August 1, 1991
(inception) to December 31, 1991. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of New Par at December 31, 1993 and 1992, and the consolidated results of its
operations and its cash flows for the years ended December 31, 1993 and 1992
and for the period from August 1, 1991 (inception) to December 31, 1991 in
conformity with generally accepted accounting principles.
/s/ Ernst and Young
Columbus, Ohio
February 25, 1994
F-48
<PAGE>
New Par (A Partnership)
Consolidated Balance Sheets
DECEMBER 31,
----------------------------
1993 1992
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 36,845,000 $ 6,279,000
Accounts receivable trade, less allowance
for doubtful accounts of $4,382,000 (1993)
and $4,431,000 (1992) 57,691,000 43,770,000
Due from affiliates 49,000 107,000
Telephone equipment inventory 8,149,000 8,225,000
Prepaid expenses and other current assets 1,866,000 1,785,000
------------- -------------
Total current assets 104,600,000 60,166,000
Property, plant and equipment, net 304,548,000 269,734,000
License acquisition costs, net 367,063,000 349,692,000
Other assets, net of accumulated amortization
of $10,583,000 (1993) and $8,496,000 (1992) 14,190,000 11,830,000
------------- -------------
Total assets $790,401,000 $691,422,000
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable $ 18,148,000 $ 7,577,000
Accrued expenses 14,123,000 17,554,000
Distribution payable to partners 22,982,000 22,318,000
Due to affiliates 1,813,000 1,257,000
Property and other taxes payable 10,955,000 11,541,000
Commissions payable 9,321,000 6,899,000
Deferred revenue 11,066,000 8,886,000
------------- -------------
Total current liabilities 88,408,000 76,032,000
Commitments and contingent liabilities
Partners' capital 701,993,000 615,390,000
------------- -------------
Total liabilities and partners' capital $790,401,000 $691,422,000
============= =============
See accompanying notes.
F-49
<PAGE>
New Par (A Partnership)
Consolidated Statements of Income
For the period
from
August 1, 1991
Year ended December 31, (inception) to
---------------------------- December 31,
1993 1992 1991
------------ ------------ -------------
REVENUES
Cellular service $390,181,000 $311,197,000 $109,961,000
Telephone equipment sales,
rental and other 45,668,000 29,135,000 9,245,000
------------ ------------ -------------
435,849,000 340,332,000 119,206,000
COSTS AND EXPENSES
Cost of telephone
equipment sold 28,037,000 14,538,000 6,357,000
Operating expenses 85,575,000 69,818,000 23,952,000
Selling, general and
administrative expenses 148,248,000 123,108,000 46,283,000
Restructuring charges 648,000 -- 2,697,000
Depreciation expense 39,796,000 30,437,000 10,615,000
Amortization expense 12,950,000 13,572,000 5,484,000
Depreciation of rental
telephones 28,496,000 18,957,000 4,756,000
------------ ------------ -------------
343,750,000 270,430,000 100,144,000
------------ ------------ -------------
Operating income 92,099,000 69,902,000 19,062,000
Other income (expense):
Interest and other income 1,100,000 272,000 354,000
Interest expense (124,000) (140,000) (24,000)
------------ ------------ -------------
Income before provision
for income taxes 93,075,000 70,034,000 19,392,000
Provision for income taxes (522,000) (771,000) (535,000)
------------ ------------ -------------
Net income $ 92,553,000 $ 69,263,000 $ 18,857,000
============ ============ =============
See accompanying notes.
F-50
<PAGE>
New Par (A Partnership)
Consolidated Statement of Partners' Capital
PacTel CCI
Group Group Total
------------ ------------ -------------
Initial capital
contributions $330,187,000 $216,917,000 $547,104,000
Capital contributions 3,000,000 4,337,000 7,337,000
Distribution payable (6,750,000) (6,750,000) (13,500,000)
Net income for the period
from August 1, 1991
(inception) to December
31, 1991 9,428,500 9,428,500 18,857,000
------------ ------------ -------------
Balance, December 31, 1991 335,865,500 223,932,500 559,798,000
Capital contributions 6,694,000 6,694,000 13,388,000
Distribution payable (13,529,500) (13,529,500) (27,059,000)
Net income for the year
ended December 31, 1992 34,631,500 34,631,500 69,263,000
------------ ------------ -------------
Balance, December 31, 1992 363,661,500 251,728,500 615,390,000
Capital contributions -- 29,714,000 29,714,000
Distribution payable (17,832,000) (17,832,000) (35,664,000)
Net income for the year
ended December 31, 1993 46,276,500 46,276,500 92,553,000
------------ ------------ -------------
Balance, December 31, 1993 $392,106,000 $309,887,000 $701,993,000
============ ============ =============
See accompanying notes.
F-51
<PAGE>
New Par (A Partnership)
Consolidated Statements of Cash Flows
For the period
from
August 1, 1991
Year ended December 31, (inception) to
---------------------------- December 31,
1993 1992 1991
------------ ------------ -------------
OPERATING ACTIVITIES
Net income $ 92,553,000 $ 69,263,000 $ 18,857,000
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 81,242,000 62,966,000 20,855,000
Provision for losses
on accounts receivable 16,877,000 6,603,000 2,973,000
Loss on sale of property,
plant and equipment 3,534,000 1,526,000 24,000
Provision for rental
telephone losses 4,426,000 1,214,000 592,000
Equity in earnings of
unconsolidated
partnership -- -- (31,000)
Change in operating assets
and liabilities:
Accounts receivable (30,871,000) (15,987,000) (4,756,000)
Due from affiliates 58,000 773,000 (767,000)
Inventory 76,000 (2,567,000) (1,246,000)
Prepaid expenses and
other current assets (41,000) (56,000) 759,000
Other assets (4,278,000) (3,882,000) (2,499,000)
Accounts payable 4,460,000 (3,782,000) (10,250,000)
Accrued expenses (3,703,000) (3,219,000) 2,462,000
Due to affiliates 556,000 (4,044,000) 4,639,000
Taxes payable (645,000) 3,386,000 3,518,000
Commissions payable 2,422,000 1,537,000 2,584,000
Deferred revenues 2,180,000 2,707,000 113,000
------------ ------------ -------------
Net cash provided by
operating activities 168,846,000 116,438,000 37,827,000
------------ ------------ -------------
INVESTING ACTIVITIES
Purchase of property, plant
and equipment (104,288,000) (114,300,000) (27,210,000)
Proceeds from sale of
property, plant and
equipment 1,035,000 617,000 143,000
Purchase of cellular license
interests (27,000) (4,463,000) (55,000)
------------ ------------ -------------
Net cash (used in) investing
activities (103,280,000) (118,146,000) (27,122,000)
------------ ------------ -------------
(Continued on next page)
F-52
<PAGE>
New Par (A Partnership)
Consolidated Statements of Cash Flows (continued)
For the period
from
August 1, 1991
Year ended December 31, (inception) to
---------------------------- December 31,
1993 1992 1991
------------ ------------ -------------
FINANCING ACTIVITIES
Capital distributions (35,000,000) (18,241,000) --
Capital contributions -- 4,463,000 6,000,000
Cash contributed at inception -- -- 597,000
Due to affiliate -- -- 4,463,000
------------ ------------ -------------
Net cash provided by (used
in) financing activities (35,000,000) (13,778,000) 11,060,000
------------ ------------ -------------
Increase (decrease) in cash
and cash equivalents 30,566,000 (15,486,000) 21,765,000
Cash and cash equivalents
at beginning of period 6,279,000 21,765,000 --
------------ ------------ -------------
Cash and cash equivalents
at end of period $ 36,845,000 $ 6,279,000 $21,765,000
============ ============ =============
Supplemental Disclosures of
Cash Flow Information:
Cash paid during the
period for interest $ 76,000 $ 79,000 $ 24,000
Income taxes paid $ 944,000 $ 675,000 $ 392,000
Supplemental Disclosures of
Noncash Investing Activities:
Cellular license interests
contributed by Cellular
Communications, Inc. $28,207,000 $ 4,462,000 $ 1,337,000
Purchases of property,
plant and equipment
included in current
liabilities $10,800,000 $ 4,417,000 $ 7,739,000
Supplemental Disclosures of
Noncash Financing Activities:
Distribution payable
to partners $22,982,000 $22,318,000 $13,500,000
See accompanying notes.
F-53
<PAGE>
New Par (A Partnership)
Notes to Consolidated Financial Statements
December 31, 1993 and 1992
1. ORGANIZATION
New Par was formed on August 1, 1991 (inception) pursuant to the Amended and
Restated Agreement and Plan of Merger and Joint Venture Organization dated as
of December 14, 1990 between PacTel Corporation ("PacTel"), Cellular
Communications, Inc. ("CCI"), CCI Newco, Inc. and CCI Newco Sub, Inc. (the
"Merger Agreement"). New Par is a Delaware general partnership equally owned
by PacTel and CCI through the following wholly-owned, indirect corporate
subsidiaries:
Percentage
Ownership of
General Partners New Par
---------------- ------------
The PacTel Group
----------------
PacTel Cellular Inc. of Michigan 27.74%
PacTel Cellular Inc. of Ohio 18.18
PacTel Cellular of Saginaw, Inc. 2.64
PacTel Cellular Inc. of Lima 1.44
---------
50.00
---------
The CCI Group
-------------
Cellular Communications of Cleveland, Inc. 12.45
Cellular Communications of Cincinnati, Inc. 11.22
Cellular Communications of Columbus, Inc. 7.94
Cellular Communications of Dayton, Inc. 5.19
Cellular Communications of Akron, Inc. 4.14
Cellular Communications of Canton, Inc. 2.29
Cellular Communications of Hamilton, Inc. 1.98
Lorain/Elyria Cellular Telephone Company 1.86
E&J Mobile Radio Service, Inc. .97
Cellular Communications of Mansfield, Inc. .87
Midwest Mobilephone of Cincinnati, Inc. .81
Star-Cel, Inc. .21
Cellular One Sales and Service, Inc. .07
---------
50.00
---------
100.00%
=========
F-54
<PAGE>
New Par (A Partnership)
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION (continued)
Each wholly-owned, indirect corporate subsidiary of PacTel and CCI initially
contributed to New Par its interests in the General Partnerships (see below).
The initial contributions were accounted for at the net book value of the
assets and liabilities of the General Partnerships. Each of these
partnerships, among other assets, holds a license or licenses from the Federal
Communications Commission ("FCC") and state authorities to operate cellular
telephone systems in Cellular Geographic Service Areas as listed below. New
Par owns 100% of the partnership interests in each partnership, except as
noted.
General Partnership Service Area
----------------------------------------- ------------------
Detroit Cellular Telephone Company Detroit, MI
Northern Ohio Cellular Telephone Company Cleveland, OH
Lorain/Elyria, OH
Mansfield, OH
Ashtabula, OH
Southern Ohio Telephone Company Cincinnati, OH
Clinton, OH
Columbus Cellular Telephone Company Columbus, OH
Mercer, OH
Dayton Cellular Telephone Company Dayton, OH
Toledo Cellular Telephone Company Toledo, OH
Lima, OH
Grand Rapids Cellular Telephone Company Grand Rapids, MI
Akron Cellular Telephone Company Akron, OH
Flint Cellular Telephone Company Flint, MI
Saginaw, MI
Lansing Cellular Telephone Company Lansing, MI
Canton Cellular Telephone Company Canton, OH
Hamilton Cellular Telephone Company Hamilton/Middletown, OH
Springfield Cellular Telephone Company Springfield, OH
Muskegon Cellular Telephone Company (a) Muskegon, MI
(a) New Par is a 38.91% general partner in the Muskegon partnership. PacTel
Cellular, Inc. of Michigan is a 40.5% general partner. The remaining
20.59% interests are owned by unaffiliated entities.
Each of the above General Partnerships owns 100% of the FCC license in the
Service Area, except for Hamilton/Middletown and Springfield in which the
applicable partnership owns 99.6% and 89.23% of the FCC license, respectively.
New Par owns 100% of Cellular One Sales and Service Company, which operates
New Par's sales and service center business.
F-55
<PAGE>
New Par (A Partnership)
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of New Par and its
wholly-owned partnerships. Significant intercompany accounts and transactions
have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents include cash, deposits in interest-bearing accounts
and short-term highly liquid investments purchased with a maturity of three
months or less.
Telephone Equipment Inventory
Telephone equipment inventory, which consists of telephones and accessories,
is stated at the lower of cost (first-in, first-out method) or market.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is computed by
the straight-line method over the estimated useful lives of the assets.
Estimated useful lives are as follows: building - 25 years, operating plant
and equipment - 7 to 25 years, rental telephones - 3 years and office
furniture, computer and other equipment - 3 to 5 years.
License Acquisition Costs
Deferred cellular license costs include costs incurred to design cellular
telephone systems for specific geographic areas, select and acquire sites to
place equipment for such systems, demographic and traffic pattern studies,
legal and organization costs, and costs incurred in connection with the
preparation and filing of FCC license applications. These costs are amortized
by the straight-line method from the commencement of operations over the life
of the Partnership's initial license period (ten years).
In connection with the purchase of license interests, the excess of purchase
price paid over the fair market value of tangible assets acquired is amortized
by the straight-line method over 40 years.
Revenue Recognition
Service revenue is recognized at the time the cellular service is rendered.
Telephone equipment sales are recorded when the equipment is shipped to the
customer. Telephone rental revenue is billed and recognized on a monthly
basis.
F-56
<PAGE>
New Par (A Partnership)
Notes to Consolidated Financial Statements (continued)
Income Taxes
No provision has been made for federal income taxes since such taxes, if any,
are the responsibility of the individual partners. Provision has been made
for state and local income taxes assessed on partnership income which is a
liability of the Partnership.
Allocation of Income
Pursuant to the New Par Partnership Agreement, income is allocated to the
General Partners in proportion to their respective percentage ownership of New
Par.
Fair Value of Financial Instruments
New Par's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, due from affiliates, accounts payable,
accrued expenses, distribution payable to partners, due to affiliates,
property and other taxes payable, and commissions payable. The terms and
short term nature of these assets and liabilities result in their carrying
value approximating fair value.
3. LICENSE ACQUISITION COSTS
License acquisition costs consist of:
December 31,
----------------------------
1993 1992
------------- ------------
Deferred cellular license costs $ 3,418,000 $ 3,418,000
Excess of purchase price paid over the fair
market value of tangible assets acquired 430,990,000 402,756,000
------------- ------------
434,408,000 406,174,000
Accumulated amortization 67,345,000 56,482,000
------------- ------------
$367,063,000 $349,692,000
============= ============
In August 1991, a subsidiary of CCI ("CCI RSA") acquired the Mercer, OH FCC
license. This license was contributed to one of the General Partnerships in
accordance with the New Par Partnership Agreement. The contribution was
initially recorded at CCI RSA's cost through December 31, 1991 of $1,315,000.
During 1993, CCI RSA incurred an additional $19,575,000 upon the receipt of a
favorable determination with respect to certain FCC matters. The additional
cost was recorded as a contribution in 1993.
In 1992, New Par purchased the Clinton, OH FCC license from CCI RSA for
$8,925,000 (CCI RSA's cost).
F-57
<PAGE>
New Par (A Partnership)
Notes to Consolidated Financial Statements (continued)
3. LICENSE ACQUISITION COSTS (continued)
In 1993, a subsidiary of CCI contributed the Ashtabula, OH FCC license and the
related assets and liabilities to one of the General Partnerships in
accordance with the New Par Partnership Agreement. The contribution was
recorded at $10,139,000, of which $8,632,000 was for the FCC license and
$1,507,000 was for other assets, net of liabilities.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
December 31,
----------------------------
1993 1992
------------- ------------
Land $ 8,709,000 $ 6,591,000
Building 10,540,000 6,911,000
Operating plant and equipment 313,966,000 247,493,000
Rental telephones 97,930,000 80,271,000
Office furniture, computer and other equipment 69,587,000 56,181,000
Construction-in-progress 8,940,000 15,014,000
------------- ------------
509,672,000 412,461,000
Allowance for depreciation 202,876,000 142,026,000
Allowance for unreturned rental telephones 2,248,000 701,000
------------- ------------
$304,548,000 $269,734,000
============= ============
F-58
<PAGE>
New Par (A Partnership)
Notes to Consolidated Financial Statements (continued)
5. RELATED PARTY TRANSACTIONS
Due from affiliates consists of the following:
December 31,
----------------------------
1993 1992
------------- ------------
CCPR Services, Inc. $24,000 $107,000
Cellular Communications International, Inc. 17,000 -
International CableTel Incorporated 8,000 -
------------- ------------
$49,000 $107,000
============= ============
Due to affiliates consists of the following:
December 31,
----------------------------
1993 1992
------------- ------------
PacTel and affiliates $ 937,000 $ 622,000
CCI and subsidiaries 510,000 471,000
OCOM Corporation 366,000 163,000
Cellular Communications International, Inc. - 1,000
------------- ------------
$1,813,000 $1,257,000
============= ============
F-59
<PAGE>
New Par (A Partnership)
Notes to Consolidated Financial Statements (continued)
5. RELATED PARTY TRANSACTIONS (continued)
Pursuant to the New Par Partnership Agreement, the CCI Group is responsible
for appointing and employing New Par's chief executive officer and half of the
next level executives and the PacTel Group is responsible for appointing and
employing the other half of the next level executives. In addition, the
PacTel Group employed the individuals associated with its former partnerships
until July 1, 1992. For the year ended December 31, 1993, New Par was charged
$779,000 and $816,000 for payroll and benefits by PacTel affiliates and CCI,
respectively, of which $176,000 and $1,419,000 are included in operating
expenses and selling, general and administrative expenses, respectively. For
the year ended December 31, 1992, New Par was charged $9,364,000 and $836,000
for payroll and benefits by PacTel affiliates and CCI, respectively, of which
$2,154,000 and $8,046,000 are included in operating expenses and selling,
general and administrative expenses, respectively. For the period from August
1, 1991 (inception) to December 31, 1991, New Par was charged $5,745,000 and
$421,000 for payroll and benefits by PacTel affiliates and CCI, respectively,
of which $1,147,000 and $5,019,000 are included in operating expenses and
selling, general and administrative expenses, respectively.
In connection with the Merger Agreement, CCI distributed its wholly-owned
subsidiary OCOM Corporation ("OCOM") to its shareholders on July 31, 1991.
OCOM owns the long distance and microwave operations formerly owned by the
partnerships that CCI contributed to New Par. Most of CCI's officers and
directors are officers and directors of OCOM. New Par provides billing and
collection services to OCOM for the long distance telephone service OCOM sells
to certain of New Par's subscribers. OCOM operates the microwave transmission
service between the cell sites and switches contributed by CCI. For the years
ended December 31, 1993 and 1992 and the period from August 1, 1991
(inception) to December 31, 1991, OCOM charged New Par $4,043,000, $4,846,000
and $1,871,000, respectively, for microwave transmission services which is
included in operating expenses.
6. LEASES
Leases for office space, sales and service centers and cell sites extend
through 2039. Total rent expense for the years ended December 31, 1993 and
1992 and the period from August 1, 1991 (inception) to December 31, 1991 under
operating leases was $5,608,000, $4,359,000 and $1,852,000, respectively.
Future minimum lease payments under noncancellable operating leases as of
December 31, 1993 are as follows:
Year ending December 31:
1994 $ 4,296,000
1995 3,863,000
1996 3,438,000
1997 2,456,000
1998 1,288,000
Thereafter 8,170,000
--------------
$23,511,000
==============
F-60
<PAGE>
New Par (A Partnership)
Notes to Consolidated Financial Statements (continued)
7. RESTRUCTURING CHARGES
Restructuring charges include costs incurred and expected to be incurred for
the consolidation of operations, relocation of operations, termination and/or
relocation of employees and abandonment of certain equipment. Restructuring
charges included in accrued expenses as of December 31, 1993 and 1992 are
$795,000 and $934,000, respectively.
8. PENSION PLAN
New Par has a defined contribution plan covering all employees who have
completed six months of service and worked over 500 hours. New Par's matching
and discretionary contributions are determined annually by New Par's Operating
Committee. Participants can make salary deferral contributions of 1% to 16%
of annual compensation not to exceed the maximum allowed by law. New Par's
expense for the years ended December 31, 1993 and 1992 was $3,186,000 and
$2,272,000, respectively.
9. COMMITMENTS AND CONTINGENT LIABILITIES
As of December 31, 1993, New Par had purchase commitments of approximately
$44,012,000 primarily for operating equipment, computer equipment and cellular
telephones and accessories.
In the ordinary course of business, there are various legal proceedings
pending against New Par. Management believes the aggregate liabilities, if
any, arising from such proceedings would not have a material adverse effect on
New Par's consolidated financial position.
10. PACTEL AND CCI RELATIONSHIP
A subsidiary of CCI, Cellular Communications of Ohio, Inc., (the parent of the
CCI Group) has a loan agreement which places certain restrictions on New Par.
These restrictions include the following: (i) New Par's aggregate lease
payments may not exceed $8,000,000 for any twelve consecutive months, (ii) New
Par's unsecured indebtedness, capital lease obligations and indebtedness for
cellular network equipment or cellular telephones and accessories evidenced by
a note or subject to a lien may not exceed $5,000,000, (iii) New Par's
borrowings secured by real property may not exceed $10,000,000, (iv) New Par
may not enter into an agreement that restricts partnership distributions and
(v) the aggregate payment obligations outstanding at any time for (ii) and
(iii) may not exceed $5,000,000 for any twelve consecutive months.
F-61
<PAGE>
New Par (A Partnership)
Notes to Consolidated Financial Statements (continued)
10. PACTEL AND CCI RELATIONSHIP (continued)
Pursuant to the Merger Agreement, at specified times from August 1996 through
January 1998, PacTel has the right to buy the shares of CCI it does not own at
an appraised value, subject to certain adjustments. If PacTel does not
exercise this right, it will determine whether New Par should be dissolved or
PacTel's interest in New Par and CCI should be sold as a whole. Upon such
determination, CCI must promptly commence a process to sell CCI, although in
lieu of any sales to a third party, CCI may purchase PacTel's CCI shares and,
in certain circumstances, its interest in New Par at their appraised values.
Any decision by CCI to buy out PacTel or any irrevocable election by CCI not
to effect a sale pursuant to the above sale process would require the approval
of CCI stockholders. In the event that either CCI or CCI's interest in New
Par is sold to a third party for less than the appraised value of CCI's
interest in New Par, PacTel may be required to pay a "make-whole" amount,
subject to certain downward adjustments, to the other CCI stockholders.
11. PARTNERS' CAPITAL
New Par is required to make cash distributions of a portion of estimated
federal taxable income on a quarterly basis, subject to the amount of cash
available including cash borrowable by New Par. Such distributions shall be
made to the partners in proportion to their respective ownership percentages.
As of December 31, 1993 and 1992, there was approximately $22,982,000 and
$22,318,000, respectively, payable to the partners for the estimated federal
taxable income distribution. During 1993 and 1992, New Par distributed
$35,000,000 and $18,241,000, respectively, pursuant to this requirement. New
Par must also distribute the amount, if any, that exceeds 120% of the amount
required for estimated federal income tax distributions, plus cash reasonably
contemplated as being necessary for the cash payment of New Par's operating
expenses (net of receipts), debt service, contingencies, budgeted capital
expenditures and working capital requirements within 45 days after each
quarter. Such distributions are to be made to the partners in proportion to
their respective ownership percentages.
F-62
<PAGE>
MANNESMANN MOBILFUNK GMBH
Table of Contents
Independent Auditors' Report .......................... F-63
Balance Sheets ........................................ F-64
Statements of Operations .............................. F-66
Statements of Capital Subscribers' Equity ............. F-68
Statements of Cash Flows .............................. F-69
Notes to Financial Statements ......................... F-71
F-63
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Capital Subscribers
Mannesmann Mobilfunk GmbH
We have audited the accompanying balance sheets of Mannesmann Mobilfunk GmbH
as of December 31, 1993 and 1992, and the related statements of operations,
capital subscribers' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted German auditing
standards which, in all material respects, are similar to auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mannesmann Mobilfunk GmbH at
December 31, 1993 and 1992, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States.
As discussed in Notes 1 and 6 to the financial statements, the Company changed
its method of accounting for income taxes in 1992 to adopt the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
Dusseldorf, Germany, February 28, 1994
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
Scheffler Haas
Wirtschaftsprufer Wirtschaftsprufer
F-64
<PAGE>
MANNESMANN MOBILFUNK GMBH
BALANCE SHEETS
DECEMBER 31, 1993 and 1992
(In thousands)
ASSETS 1993 1993 1992
---------------------------- ---------------- ------------- -------------
U.S. Dollars (1) Deutschmarks Deutschmarks
Current assets:
Cash and cash equivalents
(Note 2) ............... $ 17,747 DM 30,848 DM 62,745
Accounts receivable, less
allowance for doubtful
accounts of DM 10,397 in
1993 and DM 2,561 in
1992 ................... 95,825 166,563 55,328
Due from affiliated
companies (Note 3) ..... 8,962 15,577 29,147
Inventories of affiliated
products, parts and
related supplies
(Note 4) ............... 11,103 19,300 8,929
Prepaid expenses ......... 6,211 10,796 5,175
Other current assets ..... 1,151 2,001 768
------------ ------------ -----------
Total current assets 140,999 245,085 162,092
------------ ------------ -----------
Property, plant, and equipment
(Notes 3 and 5):
Telecommunications
equipment .............. 912,820 1,586,664 835,396
Equipment in course of
construction ........... 65,363 113,614 99,989
Other equipment .......... 37,882 65,847 47,878
------------ ------------ -----------
1,016,065 1,766,125 983,263
Less accumulated
depreciation ........... 153,051 266,034 87,363
------------ ------------ -----------
Net property, plant,
and equipment .... 863,014 1,500,091 895,900
Other assets, at cost, less
accumulated amortization
of DM 45,445 in 1993 and
DM 25,096 in 1992 ........ 46,973 81,650 91,480
Deferred tax asset (Note 6) 79,121 137,528 109,616
Due from affiliated company
(Notes 3 and 6) .......... 91,028 158,224 119,408
------------ ------------ -----------
$1,221,135 DM2,122,578 DM1,378,496
============ ============ ===========
(Continued on next page)
F-65
<PAGE>
MANNESMANN MOBILFUNK GMBH
BALANCE SHEETS (Continued)
DECEMBER 31, 1993 and 1992
(In thousands)
LIABILITIES AND CAPITAL
SUBSCRIBERS' EQUITY 1993 1993 1992
---------------------------- ---------------- ------------- -------------
U.S. Dollars (1) Deutschmarks Deutschmarks
Current liabilities:
Due to banks (Note 9) .... $ 44,671 DM 77,648 -
Accounts payable and
accrued expenses ....... 190,897 331,815 DM 277,954
Due to affiliated
companies (Note 3) ..... 8,788 15,276 13,378
------------ ------------ -----------
Total current
liabilities ....... 244,356 424,739 291,332
------------ ------------ -----------
Long-term debt (Note 9) .... 253,135 440,000 -
Pension liabilities (Note 7) 3,599 6,256 4,982
Other non-current liabilities 2,503 4,350 2,350
------------ ------------ -----------
Total non-current
liabilities ....... 259,237 450,606 7,332
------------ ------------ -----------
Commitments (Note 10)
Capital subscribers' equity:
Subscribed capital (Note 8) 233,000 405,000 405,000
Additional capital ....... 698,998 1,215,000 1,215,000
Unpaid capital ........... - - (285,000)
------------ ------------ -----------
931,998 1,620,000 1,335,000
Accumulated deficit ...... (214,456) (372,767) (255,168)
------------ ------------ -----------
Total capital
subscribers'
equity ............ 717,542 1,247,233 1,079,832
------------ ------------ -----------
$1,221,135 DM2,122,578 DM1,378,496
============ ============ ===========
See accompanying Notes to financial statements.
F-66
<PAGE>
MANNESMANN MOBILFUNK GMBH
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1992, and 1991
(In thousands)
1993 1993 1992 1991
------------ ------------ ------------ ------------
U.S. Dollars Deutschmarks Deutschmarks Deutschmarks
(Note 1) (unaudited)
Net revenues ........... $ 518,468 DM901,201 DM 137,486 -
---------- ---------- ----------- ----------
Operating costs and expenses:
Cost of services and
products, including
DM 2,583, DM 2,134,
and DM 1,270 with
related parties in
1993, 1992, and 1991,
respectively (Note 3) 272,740 474,077 173,598 DM 49,298
Selling, general, and
administrative
expenses, including
DM 46,302, DM 29,612,
and DM 22,800 with
related parties in
1993, 1992, and 1991,
respectively (Note 3) 231,926 403,134 200,639 74,776
Depreciation and
amortization ....... 118,645 206,229 105,916 15,056
---------- ---------- ----------- ----------
Operating loss (104,843) (182,239) (342,667) (139,130)
---------- ---------- ----------- ----------
(Continued on next page)
F-67
<PAGE>
MANNESMANN MOBILFUNK GMBH
STATEMENTS OF OPERATIONS (Continued)
YEARS ENDED DECEMBER 31, 1993, 1992, and 1991
(In thousands)
1993 1993 1992 1991
------------ ------------ ------------ ------------
U.S. Dollars Deutschmarks Deutschmarks Deutschmarks
(Note 1) (unaudited)
Other income (expense):
Interest income ...... 3,789 6,587 25,809 17,761
Interest expense
(Note 5) ........... (5,735) (9,969) (150) (21)
Other, net ........... 745 1,294 2,124 423
---------- ---------- ----------- ----------
(1,201) (2,088) 27,783 18,163
---------- ---------- ----------- ----------
Loss before income tax
benefit and cumulative
effect of change in
accounting principle (106,044) (184,327) (314,884) (120,967)
Income tax benefit
(Note 6) ........... 38,389 66,728 148,941 -
---------- ---------- ----------- ----------
Loss before cumulative
effect of change in
accounting principle (67,655) (117,599) (165,943) (120,967)
Cumulative effect at
January 1, 1992 of
change in accounting
for income taxes
(Note 6) ........... - - 80,083 -
---------- ---------- ----------- ----------
Net loss ........... $ (67,655) DM(117,599) DM (85,860) DM(120,967)
========== ========== =========== ==========
See accompanying Notes to financial statements.
F-68
<PAGE>
<TABLE>
<CAPTION>
MANNESMANN MOBILFUNK GMBH
STATEMENTS OF CAPITAL SUBSCRIBERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1992, and 1991
(In thousands)
Capital
Subs-
Subscribed Additional Unpaid Accumulated cribers'
Capital Capital Capital Deficit Equity
---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balances at December 31,
1990 (unaudited) DM 55,000 DM 165,000 - DM (48,341) DM 171,659
Net loss (unaudited) - - - (120,967) (120,967)
Issuance of subscribed
and additional capital
(unaudited) .............. 145,000 435,000 DM(115,000) - 465,000
---------- ------------ ----------- ----------- ------------
Balances at December 31,
1991 (unaudited) ......... 200,000 600,000 (115,000) (169,308) 515,692
Net loss ................... - - - (85,860) (85,860)
Issuance of subscribed
and additional
capital .................. 205,000 615,000 (285,000) - 535,000
Payment of unpaid
capital .................. - - 115,000 - 115,000
---------- ------------ ----------- ----------- ------------
Balances at December 31, 1992 405,000 1,215,000 (285,000) (255,168) 1,079,832
Net loss ................... - - - (117,599) (117,599)
Payment of unpaid
capital .................. - - 285,000 - 285,000
---------- ------------ ----------- ----------- ------------
Balances at December 31, 1993 DM405,000 DM1,215,000 - DM(372,767) DM1,247,233
========== ============ =========== =========== ============
Balances at December 31, 1993
(U.S. Dollars) (Note 1) .. $233,000 $698,998 - $(214,456) $717,542
========== ============ =========== =========== ============
See accompanying Notes to financial statements.
</TABLE>
F-69
<PAGE>
<TABLE>
<CAPTION>
MANNESMANN MOBILFUNK GMBH
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1992, and 1991
(In thousands)
1993 1993 1992 1991
------------ ------------ ------------ ------------
U.S. Dollars Deutschmarks Deutschmarks Deutschmarks
(Note 1) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss .............................................. $(67,655) DM(117,599) DM (85,860) DM(120,967)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Cumulative effect of change in accounting principle - - (80,083) -
Income tax benefit ................................ (38,389) (66,728) (148,941) -
Depreciation and amortization ..................... 119,388 207,520 105,916 15,056
Allowance for doubtful accounts ................... 4,536 7,884 2,595 10
(Gain)loss on sale of equipment ................... 1,533 2,664 (137) (2)
Provision for pension costs ....................... 628 1,092 1,192 854
Provision for other costs ......................... 1,151 2,000 1,360 990
Changes in operating assets and liabilities:
Accounts receivable ........................... (68,504) (119,071) (57,849) (40)
Due from affiliated companies ................. 7,807 13,570 (17,052) (4,763)
Inventories ................................... (5,967) (10,371) (8,281) (648)
Prepaid expenses .............................. (3,234) (5,621) (3,551) (1,461)
Other current assets .......................... (737) (1,281) (413) (217)
Accounts payable and accrued expenses ......... 30,987 53,862 109,469 156,529
Due to affiliated companies ................... 1,092 1,898 1,477 6,851
Pension liabilities ........................... 105 183 105 (327)
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities (17,259) (29,998) (180,053) 51,865
----------- ----------- ----------- -----------
(Continued on next page)
</TABLE>
F-70
<PAGE>
<TABLE>
<CAPTION>
MANNESMANN MOBILFUNK GMBH
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1992, and 1991
(In thousands)
1993 1993 1992 1991
------------ ------------ ------------ ------------
U.S. Dollars Deutschmarks Deutschmarks Deutschmarks
(Note 1) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from investing activities:
Proceeds from sale of equipment ....................... 3,874 6,734 6,340 67
Capital expenditures, including interest capitalized .. (466,580) (811,009) (584,791) (414,850)
Increase in other assets .............................. (156) (272) (9,559) (409)
----------- ----------- ----------- -----------
Net cash used in investing activities ............. (462,862) (804,547) (588,010) (415,192)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from contributed capital ..................... 163,963 285,000 650,000 465,000
Proceeds from issuance of long-term debt .............. 253,135 440,000 - -
Increase in due to banks .............................. 44,672 77,648 - -
----------- ----------- ----------- -----------
Net cash provided by financing activities ......... 461,770 802,648 650,000 465,000
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ..... (18,351) (31,897) (118,063) 101,673
Cash and cash equivalents at beginning of year ........... 36,098 62,745 180,808 79,135
----------- ----------- ----------- -----------
Cash and cash equivalents at end of year ................. $ 17,747 DM 30,848 DM 62,745 DM180,808
=========== =========== =========== ===========
The Company paid interest of DM 2,301, DM 150, and DM 21 in 1993, 1992, and 1991, respectively.
See accompanying Notes to financial statements.
</TABLE>
F-71
<PAGE>
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1992, and 1991
(All amounts in thousands of Deutschmarks)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Mannesmann Mobilfunk GmbH was incorporated on September 11, 1989. At
December 31, 1993, Mannesmann AG, held a controlling interest of
52.77%, and Pacific Telesis Netherlands B.V. held an interest of
26.90%. In addition, a 4.5% interest equally owned by Mannesmann AG
and Pacific Telesis Netherlands B.V. was held in a trust, which under
the terms of the Company's license, must be sold to small or medium
sized German businesses.
The Company's primary business is the construction, manufacture, and
operation of a private mobile cellular network ("D2") within Germany.
It is conducted under a licence agreement with the Federal Postal and
Telecommunications Ministry expiring at the end of 2009.
Commercial activities commenced in mid 1992 and by the end of 1993
the Company had nearly 500,000 customer subscribers.
(b) Basis of Presentation
In order to conform with accounting principles generally accepted in
the United States, certain adjustments are reflected in the financial
statements which are not recorded in the German books of account.
These adjustments relate primarily to capitalization of own payroll
and related costs associated with the design and construction of
telecommunications equipment and accounting for income taxes.
(c) Cash and Cash Equivalents
The Company considers all highly liquid monetary instruments with
original maturities of three months or less to be cash equivalents.
(d) Inventories
Inventories are stated at the lower of average cost or market.
F-72
<PAGE>
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS (Continued)
(e) Property, Plant, and Equipment
Property, plant and equipment are stated at cost. Depreciation is
calculated on both the straight-line and declining balance methods
over the estimated useful lives of the assets as follows:
Useful
Classification lives Method
----------------------------- ------ ------------------------------
Telecommunications equipment:
D2 infrastructure center 10 10% straight-line
Switching locations 15 6.67% straight-line
Base station equipment
- poles 20 15% declining balance
- components 20 5% straight-line
Transmission and message
switching technology 8 12.5% straight-line
Other equipment:
Data processing equipment 4 30% declining balance
Office equipment 10 30% declining balance
Measuring instruments 5 30% declining balance
Vehicles 4 30% declining balance
To the extent permissible under tax laws, systematic depreciation is
computed according to the declining balance method at a rate of up to
30 percent. Wherever straight-line depreciation results in higher
charges, this method is used.
Certain equipment installed at third party locations for rental
periods less than the above useful lives are depreciated over the
corresponding terms of the agreements.
(f) Other Assets
Other assets are stated at cost. They consist mainly of computer
software, patents, rights, concessions, and loan commitment fees
which are being amortized over periods ranging from three to eight
years on a straight-line basis.
F-73
<PAGE>
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS (Continued)
(g) Income Taxes
Effective January 1, 1992, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," and has reported the cumulative effect of the change
in the method of accounting for income taxes in the 1992 statement of
operations. Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(h) Pension Plans
The Company has defined benefit plans limited to its management group
and a small minority of its employees transferred with continuing
pension rights from other Mannesmann AG group companies. The benefits
are based on years of service and recent compensation. The
accumulated benefit obligation is determined based on annual
actuarial calculations and recorded as a liability in the balance
sheet with a corresponding charge to income. The liability is not
funded but represented by the Company's assets.
(i) Financial Statement Translation
The financial statements are expressed in Deutschmarks and, solely
for the convenience of the reader, have been translated into United
States dollars at the rate of DM 1.7382 to U.S. $1, the 3:00pm
(Pacific time - U.S.A.) Reuters quotation on December 31, 1993.
F-74
<PAGE>
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS (Continued)
(2) CASH AND CASH EQUIVALENTS
This caption includes cash equivalents representing time deposits and
commercial paper for amounts maturing within periods of between one day
and three months. The balances at December 31, 1993 and 1992 are as
follows:
1993 1992
------------- ------------
Time deposits ................ DM28,000 DM25,000
Commercial paper ............. - 30,000
------------- ------------
DM28,000 DM55,000
============= ============
The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of the investments.
(3) RELATED PARTY TRANSACTIONS
The Company has significant business transactions with its main capital
subscribers, Mannesmann AG and Pacific Telesis Netherlands B.V. and their
respective group companies. Such transactions are normally concluded
within a range of terms similar to those made with non-related parties.
The significant balances and transactions with these related parties are
shown separately in the balance sheets and statements of operations. In
addition, purchases of property, plant, and equipment and other assets
from related parties during the periods stated are shown below:
1993 1992 1991
--------- --------- ---------
(unaudited)
Purchases included under property,
plant, and equipment........... DM30,050 DM20,176 DM36,387
Purchases included under other
assets ........................ - DM 2,996 DM22,253
F-75
<PAGE>
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS (Continued)
(4) INVENTORIES
This caption includes stocks of affiliated products, parts, and related
supplies. The balances at December 31, 1993 and 1992 are as follows:
1993 1992
--------- ---------
Mobile telephones .......................... DM10,942 DM5,603
Spare parts ................................ 2,527 1,908
Subscriber identification module cards ..... 5,794 1,240
Other trade goods .......................... 37 178
--------- ---------
DM19,300 DM8,929
========= ==========
(5) INTEREST COST
The Company commenced capitalization of interest cost during 1993
commensurate with the drawdown of its credit facility to finance
continuing expansion of the infrastructure for its private mobile
cellular network. Of the total interest cost amounting to DM12,949,
DM2,980 has been included in the telecommunications equipment component
of property, plant, and equipment.
(6) INCOME TAXES
As discussed in Note 1, the Company adopted Statement 109 as of January
1, 1992. The cumulative effect of this change in accounting for income
taxes of DM80,083 was determined as of January 1, 1992 and has been
reported separately in the Statement of Operations for the year ended
December 31, 1992. As a result of applying Statement 109, the loss from
continuing operations for the years ended December 31, 1993 and 1992 was
decreased by DM66,728 and DM148,941, respectively, due to the recognition
of the net benefits attributable mainly to the deferred tax effects of
net operating loss carryforwards offset partially by other temporary
differences.
Under APB Opinion 11, which was applied to the year ended December 31,
1991 and all prior periods, the Company did not recognize the net tax
benefit representing the excess of the tax effect of the tax loss
carryforwards, representing deferred tax assets, over the timing
differences representing deferred tax liabilities, because the criteria
for such recognition were not considered to have been met at any time
during that year and all prior periods.
F-76
<PAGE>
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS (Continued)
(6) INCOME TAXES (Continued)
Accordingly, income taxes for the years ended December 31, 1993 and 1992,
but not 1991 as explained above, consist solely of net deferred income
tax benefits. There is no current income tax expense to date due to the
net operating loss carryforwards incurred by the Company during its
development phase. Such losses recorded in the German books of account
can be carried forward indefinitely for German tax purposes. The net
deferred income tax benefits were allocated as follows:
1993 1992
----------- ----------
Loss from continuing operations ............. DM66,728 DM148,941
Cumulative effect of change in
accounting for income taxes .............. 80,083
----------- ----------
DM66,728 DM229,024
=========== ==========
The various types of taxes contributing to the net deferred income tax
benefits attributable to the loss from continuing operations for the
years ended December 31, 1993 and 1992 are as follows:
1993 1992
----------- -----------
German corporate tax ......................... DM45,250 DM113,359
German trade tax ............................. 18,688 35,582
German solidarity surcharge tax .............. 2,790
----------- -----------
DM66,728 DM148,941
=========== ===========
The above reflects a decrease in German corporate tax rates to 30% for
1993 from 36% for 1992, an increase in net German trade tax rates to
12.39% for 1993 from 11.3% for 1992, because the unchanged gross rate of
17.7% is applied to income net of corporate tax, and an increase due to
the new German solidarity surcharge tax to be introduced in 1995 at a
rate of 1.85%.
These rates are based on the assumption that future profits will be
distributable, otherwise higher rates would apply to retained profits.
Since this accords with the future dividend policy agreed by the capital
subscribers, the adoption of the above lower basis rates is considered
appropriate.
F-77
<PAGE>
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS (Continued)
(6) INCOME TAXES (Continued)
Therefore due to the above changes, the net deferred income tax benefits
attributable to the loss from continuing operations differed from the
amount computed by applying the combined German corporate and trade tax
rate of 44.24% to the pretax loss for the year ended December 31, 1993 as
a result of the following:
1993
------------
Computed "expected" tax benefit ......................... DM 81,546
Adjustments to deferred tax assets
and liabilities for enacted
changes in tax laws and rates
from 47.3% to 44.24% ................................ (14,818)
------------
DM 66,728
============
For the year ended December 31, 1992 there was no difference between the
"expected" tax benefit at a combined rate of 47.3% and that actually
recorded.
The significant components of the deferred income tax benefits
attributable to the loss from continuing operations for the years ended
December 31, 1993 and 1992 are as follows:
1993 1992
----------- ------------
Tax effect of the German fiscal basis
operating loss for the year .......... DM(97,017) DM(159,586)
Tax effect of the temporary differences
attributable to items expensed for tax
purposes but capitalized as property,
plant, and equipment and partly
depreciated for book purposes ........ 16,353 24,666
Tax effect of the temporary difference
attributable to a loan commitment
fee expensed for tax purposes but
deferred as other assets and partly
amortized for book purposes .......... (882) 4,521
Tax effect of the temporary difference
attributable to a charge expensed
for tax purposes prior to 1992,
but expensed for book purposes
in 1992 .............................. - (18,542)
Adjustments to deferred tax assets and
liabilities for enacted changes in
tax laws and rates ................... 14,818 -
----------- ------------
Net tax benefit ......................... DM(66,728) DM(148,941)
=========== ============
F-78
<PAGE>
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS (Continued)
(6) INCOME TAXES (continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset and deferred tax liabilities at
December 31, 1993 and 1992 are presented below:
1993 1992
----------- -----------
Deferred tax asset:
Net operating loss carryforwards ....... DM237,247 DM199,689
Deferred tax liabilities:
Property, plant, and equipment due
to differences in capitalization
and related depreciation ............. (96,191) (85,359)
Loan commitment fee ..................... (3,528) (4,714)
----------- -----------
Net deferred tax asset .................. DM137,528 DM109,616
=========== ===========
No valuation allowance for the deferred tax asset at December 31, 1993
and 1992 has been recognized. In assessing the realizability of the
deferred tax asset, management considers whether it is more likely than
not that some portion or all of the deferred tax asset will not be
realized. The ultimate realization of the deferred tax asset is dependent
on the generation of future taxable income. The Company's net operating
losses to date have been incurred in the start-up phase of its
operations. Based on the growth rate in the number of subscribers and
projected market penetration, management believes it is more likely than
not that the Company will realize the benefits of the net operating loss
carryforwards, which are available to reduce future income taxes over an
indefinite period.
Due to its controlling interest of over 50%, Mannesmann AG has already
realized the full benefit of the Company's operating loss carryforwards
for German trade tax purposes in its consolidated tax return. Under an
agreement common to all majority owned subsidiaries of Mannesmann AG
within the German fiscal jurisdiction, the Company will not be liable to
such taxes on future profits until all prior losses have been absorbed.
This group arrangement is not applicable to corporation tax which is
assessed on an individual legal entity basis without the benefit of group
relief. Based on the gross rate of 17.7% for both years 1993 and 1992,
the DM158,224 and DM119,408 under the caption due from affiliated company
at December 31, 1993 and 1992 represent amounts that will be paid by
Mannesmann AG on behalf of the Company in respect of German trade tax, as
the Company generates future taxable income.
F-79
<PAGE>
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS (Continued)
(7) PENSION PLANS
The Company has two defined benefit pension plans. The first covers all
of its 73 member management group (1992 - 73 members, 1991 - 55 members).
The second covers only 45 of its employee group (1992 - 45 employees,
1991 - 48 employees) representing those employees transferred with
continuing pension rights from other Mannesmann AG group companies. The
remaining employees totalling about 2,100 at the end of 1993 (about 1,500
and 800 at the end of 1992 and 1991, respectively) are not presently
covered by such plans. It is intended that these employees will be
covered by a defined contribution plan funded externally with an
insurance company during 1994. All personnel are covered by a German
state pension scheme under a defined contribution plan funded equally by
the employer and the employee.
The pension liabilities shown in the Balance Sheet result directly from
independent actuarial calculations based on the situation at the end of
each year in accordance with German tax and commercial rules. Due to the
relatively insignificant amount of such pension liabilities given the
small number of employees covered, together with the short periods of
prior service, the Company considers that any potential adjustment or
additional disclosures, that would be required had Statement of Financial
Accounting Standards No. 87, "Employers' Accounting for Pensions," been
applied, would not be material.
As noted above, the pension liabilities shown in the Balance Sheet
represent the actuarial present value of accumulated benefit obligations.
Projected benefit obligations and increases in compensation levels are
not considered. The pension liabilities under these plans are not funded
but considered to be represented by the Company's assets.
The pension costs charged to income for 1993, 1992, and 1991 are DM
1,076, DM 1,192, and DM 854, respectively.
The discount rate assumed in the actuarial valuations for each of the
years ended December 31, 1993, 1992, and 1991 is 6%.
(8) SUBSCRIBED CAPITAL
Subscribed capital is represented by whole sum subscription amounts,
issued in the form of participation certificates, on a proportional basis
to the various investing parties. The respective amounts of proportional
subscriptions directly reflect the percentage of respective ownership and
related voting and dividend rights. As discussed below in Note 9, the
payment of dividends is restricted under the credit facility agreement.
F-80
<PAGE>
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS (Continued)
(9) LONG-TERM DEBT
During 1993, the Company began to utilize its unsecured credit facility
negotiated with a banking consortium for DM 1,100,000. The Company is
entitled to draw against the arrangement until December 31, 1995 and is
able to draw Domestic and Eurofacilities on roll-over or fixed interest
basis and to choose up to a maximum of five currencies with fixed and
variable interest rates. The arrangement provides for a flexible
repayment schedule with final maturity between June 30, 1995 and December
30, 2001. During 1993, the Company borrowed DM 440,000 in three drawings
on roll-over basis with interest rates between 6.81% and 7.41%. These
rates are based on Libor plus a fixed margin.
In accordance with the credit facility agreement, the Company is also
entitled to borrow up to 10% of its capital subscribers' equity on a
short-term basis. The payment of dividends will be dependent upon the
attainment of certain minimum cash flow requirements.
Maturities of non-current borrowings are as follows:
1994 ...................................... -
1995 ...................................... -
1996 ...................................... -
1997 ...................................... -
1998 ...................................... DM110,000
Thereafter ................................ 330,000
----------
DM440,000
==========
The carrying amount of the long-term debt at December 31, 1993 is also
considered to approximate fair value since market rates and conditions
have not changed significantly between the time of initial utilization of
the facility during 1993 and the end of the year.
F-81
<PAGE>
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS (Continued)
(10) COMMITMENTS
The Company is obligated under various noncancelable operating leases,
primarily of a long-term nature, for the main administrative building,
base stations, and sales offices. The rental expense charged to income
during 1993, 1992, and 1991 was DM 40,739, DM 25,254, and DM 14,491,
respectively.
Future minimum lease payments under noncancelable leases (with initial or
remaining lease terms in excess of one year) are:
Year ending December 31:
1994 ...................................... DM 24,633
1995 ...................................... 23,605
1996 ...................................... 21,924
1997 ...................................... 21,335
1998 ...................................... 9,468
1999 and beyond ........................... 48,622
-----------
Total minimum lease payments ............ DM149,587
===========
F-82
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of AirTouch Communications
(formerly PacTel Corporation) and Subsidiaries is included on page F-3 of this
Form 10-K. In connection with our audits of such financial statements, we
have also audited the related financial statement schedules listed in Item
14(a) 2 of the Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand
San Francisco, California
March 3, 1994
X-1
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
SCHEDULE I - MARKETABLE SECURITIES
(Dollars in millions)
COL. A COL. B COL. C COL. D COL. E
-------------------------- ----------- --------- --------- ---------------
Amount at Which
Each Portfolio
Number of of Equity
Shares of Market Security Issues
Units - Value of and Each Other
Principal Cost Each Issue Security Issue
Amounts of of at Balance Carried in the
Name of Issuer and Bonds and Each Sheet Balance Sheet
Title of Each Issue Notes Issue Date (a)
-------------------------- ----------- --------- --------- ---------------
As of December 31, 1993:
United States Government
Treasury Bonds ....... $650.0 $661.3 $661.3 $672.0
Governmental Municipal
Bonds ................ 49.9 58.5 58.5 60.0
Other Municipal Bonds .. 47.0 54.6 54.6 55.3
Miscellaneous Commercial
Paper and Mutual Funds 26.7 26.7 26.7 26.7
------- ------ ------ ------
Total .................. $773.6 $801.1 $801.1 $814.0
======= ====== ====== =======
-------------------
(a) Includes accrued interest, except for Miscellaneous Commercial Paper and
Mutual Funds.
X-2
<PAGE>
<TABLE>
<CAPTION>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
SCHEDULE II-AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
(Dollars in millions)
COL. A COL. B COL. C COL. D COL. E
-------------------------- --------- ----------
-------------------
---------------------
Deductions At End of Period
Balance ------------------- ---------------------
at Amounts
Beginning Amounts Written Not
Name of Debtor (a) of Period Additions Collected Off Current Current
-------------------------- --------- ---------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Pacific Telesis Group.... $134.4 $38.9 $159.3 $ 11.9 $ 2.1 -
Pacific Bell............. 2.4 0.7 - - 3.1 -
PacTel Properties........ 0.1 0.6 0.7 - - -
PacTel Business Systems.. - 0.2 - 0.2 - -
PacTel Cable............. 100.1 0.7 100.3 - 0.5 -
PacTel InfoSystems....... 6.8 - - 6.8 - -
PacTel Communications
Company................ - 0.4 - 0.4 - -
PacTel Products.......... 0.8 - - 0.8 - -
PacTel Finance........... 2.0 3.0 5.0 - - -
Telesis Technology
Laboratories........... 0.3 1.8 1.6 - 0.5 -
PacTel Reinsurance....... - 0.8 - - 0.8 -
--------- ---------- --------- --------- ----------- ---------
Subtotal(b).............. 246.9 47.1 266.9 20.1 7.0 -
--------- ---------- --------- --------- ----------- ---------
(Continued next page)
</TABLE>
X-3
<PAGE>
<TABLE>
<CAPTION>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
SCHEDULE II-AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES (Continued)
(Dollars in millions)
COL. A COL. B COL. C COL. D COL. E
-------------------------- --------- ----------
-------------------
---------------------
Deductions At End of Period
Balance ------------------- ---------------------
at Amounts
Beginning Amounts Written Not
Name of Debtor (a) of Period Additions Collected Off Current Current
-------------------------- --------- ---------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mannesmann Mobilfunk GmbH 7.5 9.7 10.2 1.5 5.5 -
Telecel Comunicacoes
Pessoais, S.A.......... 7.2 3.4 10.1 - 0.5 -
Telechamada - Servico de
Chamada de Pessoas, S.A 0.2 0.6 0.7 - 0.1 -
Sistelcom -
Telemensaje, S.A....... 0.6 - 0.6 - - -
CMT Partners............. - 0.6 - - 0.6 -
New Par.................. - 1.5 1.1 - 0.4 -
Bay Area Cellular
Telephone Company...... - 1.1 1.0 - 0.1 -
--------- ---------- --------- --------- ----------- ---------
Subtotal (c) 15.5 16.9 23.7 1.5 7.2 -
--------- ---------- --------- --------- ----------- ---------
Total $262.4 $64.0 $290.6 $21.6 $14.2 -
========= ========== ========= ========= =========== =========
---------------------------
(a) The balances shown in Schedule II are the results of transactions in the normal course
of business.
(b) Recorded on the Consolidated Balance Sheets in "Due from affiliates."
(c) Recorded on the Consolidated Balance Sheets in "Accounts receivable" and in "Other current assets."
</TABLE>
X-4
<PAGE>
<TABLE>
<CAPTION>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
SCHEDULE II-AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES - (Continued)
(Dollars in millions)
COL. A COL. B COL. C COL. D COL. E
-------------------------- --------- ----------
-------------------
---------------------
Deductions At End of Period
Balance ------------------- ---------------------
at Amounts
Beginning Amounts Written Not
Name of Debtor (a) of Period Additions Collected Off Current Current
-------------------------- --------- ---------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1992:
Pacific Telesis Group.... $ 74.5 $112.9 $53.0 - $134.4 -
Pacific Bell............. 0.8 6.4 4.8 - 2.4 -
PacTel Properties........ 0.1 0.6 0.6 - 0.1 -
PacTel Business Systems.. 2.2 1.8 4.0 - - -
PacTel Cable............. 76.4 38.7 15.0 - 100.1 -
PacTel InfoSystems....... 0.3 7.1 0.6 - 6.8 -
PacTel Communications
Company................ 0.3 0.4 0.7 - - -
PacTel Products.......... 0.3 0.6 0.1 - 0.8 -
PacTel Finance........... 0.2 2.0 0.2 - 2.0 -
Telesis Technology
Laboratories........... 0.3 2.7 2.7 - 0.3 -
--------- ---------- --------- --------- ----------- ---------
Subtotal(b) 155.4 173.2 81.7 - 246.9 -
--------- ---------- --------- --------- ----------- ---------
(Continued next page)
</TABLE>
X-5
<PAGE>
<TABLE>
<CAPTION>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
SCHEDULE II-AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES (Continued)
(Dollars in millions)
COL. A COL. B COL. C COL. D COL. E
-------------------------- --------- ----------
-------------------
---------------------
Deductions At End of Period
Balance ------------------- ---------------------
at Amounts
Beginning Amounts Written Not
Name of Debtor (a) of Period Additions Collected Off Current Current
-------------------------- --------- ---------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mannesmann Mobilfunk GmbH 6.9 17.9 15.5 $1.8 7.5 -
Microtel Communications
Ltd.................... 0.7 - 1.4 (0.7) - -
Telecel Comunicacoes
Pessoais, S.A.......... 1.1 6.5 0.4 - 7.2 -
Telechamada-Servico de
Chamada de Pessoas, S.A - 0.4 0.2 - 0.2 -
Sistelcom-Telemensaje, S.A 0.4 0.2 - - 0.6 -
--------- ---------- --------- --------- ----------- ---------
Subtotal(c).............. 9.1 25.0 17.5 1.1 15.5 -
--------- ---------- --------- --------- ----------- ---------
Total.................... $164.5 $198.2 $99.2 $1.1 $262.4 -
========= ========== ========= ========= =========== =========
--------------------
(a) The balances shown in Schedule II are the results of transactions in the normal course of business.
(b) Recorded on the Consolidated Balance Sheets in "Due from affiliates."
(c) Recorded on the Consolidated Balance Sheets in "Accounts receivable" and in "Other current assets."
</TABLE>
X-6
<PAGE>
<TABLE>
<CAPTION>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
SCHEDULE II-AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES - (Continued)
(Dollars in millions)
COL. A COL. B COL. C COL. D COL. E
-------------------------- --------- ----------
-------------------
---------------------
Deductions At End of Period
Balance ------------------- ---------------------
at Amounts
Beginning Amounts Written Not
Name of Debtor (a) of Period Additions Collected Off Current Current
-------------------------- --------- ---------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1991:
Pacific Telesis Group..... $41.7 $ 35.6 $2.8 - $ 32.7 $41.8
Pacific Bell.............. 0.2 3.6 3.0 - 0.8 -
PacTel Properties......... 0.1 2.2 2.2 - 0.1 -
PacTel Business Systems... 0.6 3.3 1.7 - 2.2 -
PacTel Cable.............. 0.3 81.9 5.8 - 76.4 -
PacTel InfoSystems........ - 1.1 0.8 - 0.3 -
PacTel Communications
Company................. 0.2 0.3 0.2 - 0.3 -
PacTel Products........... 0.3 0.6 0.6 - 0.3 -
PacTel Finance............ 0.1 0.3 0.2 - 0.2 -
Telesis Technology
Laboratories............ - 1.2 0.9 - 0.3 -
--------- ---------- --------- --------- ----------- ---------
Subtotal(b)............... 43.5 130.1 18.2 - 113.6 41.8
--------- ---------- --------- --------- ----------- ---------
(Continued next page)
</TABLE>
X-7
<PAGE>
<TABLE>
<CAPTION>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
SCHEDULE II-AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES - (Continued)
(Dollars in millions)
COL. A COL. B COL. C COL. D COL. E
-------------------------- --------- ----------
-------------------
---------------------
Deductions At End of Period
Balance ------------------- ---------------------
at Amounts
Beginning Amounts Written Not
Name of Debtor (a) of Period Additions Collected Off Current Current
-------------------------- --------- ---------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mannesmann Mobilfunk GmbH 1.1 23.6 17.8 - 6.9 -
Microtel Communications
Ltd..................... 1.4 1.3 - $2.0 0.7 -
Telecel Comunicacoes
Pessoais, S.A........... - 1.1 - - 1.1 -
Sistelcom-Telemensaje, S.A. - 0.4 - - 0.4 -
--------- ---------- --------- --------- ----------- ---------
Subtotal(c)............... 2.5 26.4 17.8 2.0 9.1 -
--------- ---------- --------- --------- ----------- ---------
$46.0 $156.5 $36.0 $2.0 $122.7 $41.8
========= ========== ========= ========= =========== =========
----------------
(a) The balances shown in Schedule II are the results of transactions in the normal course of business.
(b) Recorded on the Consolidated Balance Sheets in "Due from affiliates."
(c) Recorded on the Consolidated Balance Sheets in "Accounts receivable" and in "Other current assets."
</TABLE>
X-8
<PAGE>
<TABLE>
<CAPTION>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
SCHEDULE IV-INDEBTEDNESS OF AND TO RELATED PARTIES-NOT CURRENT
(Dollars in Millions)
COL A COL B COL C COL D COL E COL F COL G COL H COL I
------------------------ ----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Indebtedness of Indebtedness to
-------------------------------------------- -------------------------------------------
Balance at Balance Balance at Balance
Beginning Deduct- at End Beginning Deduct- at End
Name of person of Period Additions tions of Period of Period Additions tions of Period
------------------------ ----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
PacTel Capital
Resources ......... - - - - $ 85.0 - $ 85.0 -
International
Teletrac Systems .. - - - - 49.5 - 49.5 -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
- - - - $134.5 - $134.5 -
========== ========== ========== ========== ========== ========== ========== ==========
Year ended December 31, 1992:
PacTel Capital
Resources ......... - - - - $100.0 $85.0 $100.0 $ 85.0
International
Teletrac Systems .. - - - - 49.5 - - 49.5
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
- - - - $149.5 $85.0 $100.0 $134.5
========== ========== ========== ========== ========== ========== ========== ==========
Year ended December 31, 1991:
PacTel Capital
Resources ......... - - - - $100.0 - - $100.0
International
Teletrac Systems .. - - - - 9.5 $40.0 - 49.5
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
- - - - $109.5 $40.0 - $149.5
========== ========== ========== ========== ========== ========== ========== ==========
Note: For a description of these balances, see Notes E and G to the Consolidated Financial Statements.
</TABLE>
X-9
<PAGE>
<TABLE>
<CAPTION>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
Sheet 1 of 4 SCHEDULE V-PROPERTY, PLANT, AND EQUIPMENT
(Dollars in millions)
COL. A COL. B COL. C COL. D COL. E COL. F
-------------------------- ---------- ---------- ---------- ---------- ----------
Transfer Other
to Charges Balance
Balance at In-Service Add/ At
Beginning Additions & Retire- (Deduct) End of
Classification of Period at Cost ments (a) Period
-------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Land................... $ 8.6 $ 0.3 - $ (1.4) $ 7.5
Buildings and leasehold
improvements......... 131.5 24.0 $ 0.9 (33.9) 120.7
Cellular plant and
equipment............ 587.1 176.2 2.7 (113.3) 647.3
Pagers, paging
terminals and other
paging equipment..... 138.6 53.2 27.4 0.6 165.0
Office furniture and
other equipment...... 163.7 38.9 15.4 (14.4) 172.8
Construction in process 69.3 104.2 98.1 (13.2) 62.2
---------- ---------- ---------- ---------- ----------
Total............... $1,098.8 $ 396.8 $144.5 $(175.6) $1,175.5
========== ========== ========== ========== ==========
------------------
See footnotes on Sheet 4 of 4
</TABLE>
X-10
<PAGE>
<TABLE>
<CAPTION>
Sheet 2 of 4 AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
SCHEDULE V-PROPERTY, PLANT, AND EQUIPMENT
(Dollars in millions)
COL. A COL. B COL. C COL. D COL. E COL. F
-------------------- ----------- ---------- ---------- ---------- ----------
Transfer Other
to Charges Balance
Balance at In-Service Add/ at
Beginning Additions & Retire- (Deduct) End of
Classification of Period at Cost ments (a) Period
--------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1992:
Land .............. $ 8.6 - - - $ 8.6
Buildings and
leasehold
improvements .... 105.6 $ 26.7 $ 0.8 - 131.5
Cellular plant
and equipment ... 494.3 94.9 1.6 $ (0.5) 587.1
Pagers, paging
terminals, and
other paging
equipment ....... 120.6 37.6 19.3 (0.3) 138.6
Office furniture
and other
equipment ....... 116.9 48.2 0.8 (0.6) 163.7
Construction
in process ...... 49.7 125.9 106.3 - 69.3
---------- ---------- ---------- ---------- ----------
Total $895.7 $333.3 $128.8 $ (1.4) $1,098.8
========== ========== ========== ========== ==========
------------------------
See footnotes on Sheet 4 of 4
</TABLE>
X-11
<PAGE>
Sheet 3 of 4
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
SCHEDULE V-PROPERTY, PLANT, AND EQUIPMENT
(Dollars in millions)
COL. A COL. B COL. C COL. D COL. E COL. F
-------------------- ----------- ---------- ---------- ---------- ----------
Transfer Other
to Charges Balance
Balance at In-Service Add/ at
Beginning Additions & Retire- (Deduct) End of
Classification of Period at Cost ments (a) Period
--------------------- ---------- ---------- ---------- ---------- ----------
Year ended December 31, 1991: (b)
Land .............. $ 11.2 $ 0.4 $ 2.6 $(0.4) $ 8.6
Buildings and
leasehold
improvements .... 82.9 40.3 17.6 - 105.6
Cellular plant
and equipment ... 445.4 127.2 79.0 0.7 494.3
Pagers, paging
terminals, and
other paging
equipment ....... 101.9 35.1 15.8 (0.6) 120.6
Office furniture
and other
equipment ....... 81.2 46.1 10.0 (0.4) 116.9
Construction
in process ...... 69.2 109.1 128.6 - 49.7
---------- ---------- ---------- ---------- ----------
Total $791.8 $358.2 $253.6 $(0.7) $895.7
========== ========== ========== ========== ==========
See footnotes on Sheet 4 of 4
X-12
<PAGE>
Sheet 4 of 4
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
SCHEDULE V-PROPERTY, PLANT, AND EQUIPMENT
-----------------
(a) Reductions in 1993 are primarily the result of contributing Property,
Plant, and Equipment to CMT Partners, a jointly owned partnership with McCaw
Cellular Communications, Inc. See Notes E and S to the Consolidated Financial
Statements for further information.
(b) In 1991 amounts originally recorded to "Office furniture and other
equipment" were reclassified to other accounts within "Property, plant, and
equipment."
X-13
<PAGE>
Sheet 1 of 4
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
SCHEDULE VI-ACCUMULATED DEPRECIATION, DEPLETION,
AND AMORTIZATION OF PROPERTY, PLANT, AND EQUIPMENT
(Dollars in millions)
COL. A COL. B COL. C COL. D COL. E COL. F
-------------------- ----------- ---------- ---------- ---------- ----------
Transfer Other
to Charges Balance
Balance at In-Service Add/ at
Beginning Additions & Retire- (Deduct) End of
Classification of Period at Cost ments (a) Period
--------------------- ---------- ---------- ---------- ---------- ----------
Year ended December 31, 1993:
Buildings and
leasehold
improvements ...... $ 34.9 $ 15.5 $ 0.8 $(13.9) $ 35.7
Cellular plant and
equipment ......... 218.4 84.2 0.9 (50.8) 250.9
Pagers, paging
terminals, and
other paging
equipment ......... 56.6 27.3 20.7 - 63.2
Office furniture
and other
equipment ......... 63.2 34.7 10.3 (4.0) 83.6
---------- ---------- ---------- ---------- ----------
Total ............... $373.1 $161.7 $32.7 $(68.7) $433.4
========== ========== ========== ========== ==========
----------------
See footnotes on Sheet 4 of 4
X-14
<PAGE>
Sheet 2 of 4
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
SCHEDULE VI-ACCUMULATED DEPRECIATION, DEPLETION,
AND AMORTIZATION OF PROPERTY, PLANT, AND EQUIPMENT
(Dollars in millions)
COL. A COL. B COL. C COL. D COL. E COL. F
-------------------- ----------- ---------- ---------- ---------- ----------
Transfer Other
to Charges Balance
Balance at In-Service Add/ at
Beginning Additions & Retire- (Deduct) End of
Classification of Period at Cost ments (a) Period
--------------------- ---------- ---------- ---------- ---------- ----------
Year ended December 31, 1992:
Buildings and
leasehold
improvements ...... $ 23.9 $ 11.2 $ 0.2 - $ 34.9
Cellular plant
and equipment ..... 145.4 74.2 1.2 - 218.4
Pagers, paging
terminals, and
other paging
equipment ......... 48.4 23.0 14.8 - 56.6
Office furniture
and other
equipment ......... 41.9 24.0 2.9 $0.2 63.2
---------- ---------- ---------- ---------- ----------
Total $259.6 $132.4 $19.1 $0.2 $373.1
========== ========== ========== ========== ==========
-----------------
See footnotes on Sheet 4 of 4
X-15
<PAGE>
Sheet 3 of 4
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
SCHEDULE VI-ACCUMULATED DEPRECIATION, DEPLETION,
AND AMORTIZATION OF PROPERTY, PLANT, AND EQUIPMENT
(Dollars in millions)
COL. A COL. B COL. C COL. D COL. E COL. F
-------------------- ----------- ---------- ---------- ---------- ----------
Transfer Other
to Charges Balance
Balance at In-Service Add/ at
Beginning Additions & Retire- (Deduct) End of
Classification of Period at Cost ments (a) Period
--------------------- ---------- ---------- ---------- ---------- ----------
Year ended December 31, 1991: (b)
Buildings and
leasehold
improvements ...... $ 22.9 $ 8.4 $ 7.3 $(0.1) $ 23.9
Cellular plant
and equipment ..... 104.0 67.6 27.3 1.1 145.4
Pagers, paging
terminals, and
other paging
equipment ......... 40.9 19.4 11.9 - 48.4
Office furniture
and other
equipment ......... 29.0 18.6 4.5 (1.2) 41.9
---------- ---------- ---------- ---------- ----------
Total $196.8 $114.0 $51.0 $(0.2) $259.6
========== ========== ========== ========== ==========
----------------
See footnotes on Sheet 4 of 4
X-16
<PAGE>
Sheet 4 of 4
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
SCHEDULE VI-ACCUMULATED DEPRECIATION, DEPLETION,
AND AMORTIZATION OF PROPERTY, PLANT, AND EQUIPMENT
-----------------------
(a) Reductions in 1993 are primarily the result of contributing Property,
Plant, and Equipment and related Accumulated Depreciation to CMT Partners, a
jointly owned partnership with McCaw Cellular Communications, Inc. See Notes
E and S to the Consolidated Financial Statements for further information.
(b) In 1991 amounts originally recorded to "Office furniture and other
equipment" were reclassified to other accounts within "Property, plant, and
equipment."
X-17
<PAGE>
AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
SCHEDULE VIII-VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Dollars in millions)
COL. A COL. B COL. C COL. D COL. E
------------------------------- ---------- ---------- ---------- ----------
Balance Charged
at to Costs Balance
Beginning and Deductions at End
Description of Period Expenses (a) of Period
------------------------------- ---------- ---------- ---------- ----------
Year ended December 31, 1993:
Allowance for doubtful
accounts ................. $10.0 $23.8 $ 24.6 $ 9.2
Deferred tax valuation
allowance ................ $ 3.0 $ 1.8 - $ 4.8
Various loss reserves ...... $ 1.7 $ 5.7 $ 1.8 $ 5.6
Year ended December 31, 1992:
Allowance for doubtful
accounts ................ $ 9.7 $15.1 $ 14.8 $10.0
Deferred tax valuation
allowance ............... - $ 3.0 - $ 3.0
Various loss reserves ..... $ 2.3 $ 1.2 $ 1.8 $ 1.7
Year ended December 31, 1991:
Allowance for doubtful
accounts ................ $ 7.8 $15.4 $13.5 $ 9.7
Various loss reserves...... $10.9 $ 1.7 $10.3 $ 2.3
--------------------
(a) Amounts in this column reflect items written off, net of recoveries.
X-18
<PAGE>
<TABLE>
<CAPTION> AIRTOUCH COMMUNICATIONS AND SUBSIDIARIES
SCHEDULE IX-SHORT-TERM BORROWINGS
(Dollars in millions)
COL. A COL. B COL. C COL. D COL. E COL. F
-------------------- ---------- ---------- ---------- ---------- ----------
Maximum Average Weighted
Amount Amount Average
Weighted Out- Outs- Interest
Category of Balance Average standing standing Rate
Aggregate Short-Term at End Interest During During the During the
Borrowings of Period Rate the Period Period (a) Period (b)
--------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Notes payable to banks.... $ 2.1 8.00% $ 4.7 $ 3.5 8.00%
Loans from affiliates..... 0.3 7.20% $848.5 $333.0 5.60%
------
Total..................... $ 2.4
======
Year ended December 31, 1992:
Notes payable to banks.... $ 4.7 8.78% $4.7 $ 2.1 9.73%
Loans from affiliates..... 773.4 5.57% $773.4 $627.0 5.81%
------
Total..................... $778.1
======
Year ended December 31, 1991:
Notes payable to banks.... $ 0.2 9.49% $ 4.0 $ 1.1 10.48%
Loans from affiliates..... 497.9 7.00% $497.9 $301.3 7.80%
------
Total..................... $498.1
======
(a) Computed by dividing the aggregate daily amount outstanding by the number of days the amount was
outstanding
during the period.
(b) Computed by dividing the aggregate related interest cost by the average amount outstanding during
the period.
</TABLE>
X-19
<PAGE>
EXHIBIT INDEX
-------------
Exhibits identified in parentheses below, on file with the Commission, are
incorporated by reference as exhibits hereto.
Exhibit
Number Description
------- -----------
3.1 Amended and Restated Articles of Incorporation of the Company, as
filed with the Secretary of State of the State of California on
November 29, 1993
3.2 Certificate of Amendment of Articles of Incorporation of the
Company, as filed with the Secretary of State of the State of
California on March 10, 1994
3.3 Amended and Restated By-laws of the Company, as amended to February
25, 1994
4.1 Form of Common Stock certificate (Exhibit 4.1 to the Company's
Registration Statement on Form S-1, File No. 33-68012)
4.2 Rights Agreement between the Company and The Bank of New York,
Rights Agent, dated as of July 22, 1993 (Exhibit 4.2 to the
Company's Registration Statement on Form S-1, File No. 33-68012)
10.1 Separation Agreement by and between the Company and Pacific Telesis
Group, dated as of October 7, 1993 (Exhibit 10.1 to the Company's
Registration Statement on Form S-1, File No. 33-68012)
10.2 Amendment No. 1 to Separation Agreement, dated November 2, 1993
10.3 Amended and Restated Plan of Merger and Joint Venture Organization
by and among the Company, CCI, CCI Newco, Inc. and CCI Newco Sub,
Inc. dated as of December 14, 1990 (Exhibit 1 to the Company's
Statement on Schedule 13D filed on February 18, 1992)
10.4 Termination Agreement by and among Telesis, the Company, CCI and
Cellular Communications of Ohio, Inc. dated December 11, 1992
(Exhibit 5 to Amendment No. 28 to the Company's Statement on
Schedule 13D filed on December 12, 1992)
10.5 Joint Venture agreement between Mannesmann Kienzle GmbH, Pacific
Telesis Netherlands B.V., Cable and Wireless plc, DG Bank Deutsch
Genossenschaftsbank and Lyonnaise des Eaux SA dated June 30, 1989
(Exhibit 10.43 to the Company's Registration Statement on Form S-1,
File No. 33-68012)
10.6 Form of Indemnity Agreement between the Company and each of its
directors (Exhibit 10.2 to the Company's Registration Statement on
Form S-1, File No. 33-68012)
10.7 PacTel Corporation 1993 Long-Term Stock Incentive Plan
10.8 PacTel Corporation Long-Term Incentive Plan (Exhibit 10.4 to the
Company's Registration Statement on Form S-1, File No. 33-68012)
I-1
<PAGE>
10.9 PacTel Corporation Short-Term Incentive Plan
10.10 PacTel Corporation Deferred Compensation Plan for Nonemployee
Directors
10.11 PacTel Corporation Deferred Compensation Plan
10.12 PacTel Corporation Supplemental Executive Pension Plan
10.13 PacTel Corporation Executive Life Insurance Plan
10.14 PacTel Corporation Executive Long-Term Disability Plan
10.15 Representative Employment Agreement for Certain Senior Officers of
Pacific Telesis Group (Exhibit 10pp to Form 10-K of Telesis for
1988, File No. 1-8609)
10.16 Pacific Telesis Group Senior Management Short Term Incentive Plan
(Exhibit 10-aa to Pacific Telesis Group Shareowner Dividend
Reinvestment and Stock Purchase Plan Registration Statement No.
2-87852)
10.17 Resolutions amending the Plan, effective August 28, 1987 (Exhibit
10aa to Form 10-K of Telesis for 1991, File No. 1-8609)
10.18 Pacific Telesis Group Senior Management Long Term Incentive Plan
(Exhibit 10aa to Form 10-K of Telesis for 1985, File No. 1-8609)
10.19 Pacific Telesis Group Executive Life Insurance Plan (Exhibit 10cc to
Form 10-K of Telesis for 1986, File No. 1-8609)
10.20 Pacific Telesis Group Senior Management Long Term Disability and
Survivor Protection Plan (Exhibit 10dd to Form 10-K of Telesis for
1988, file No. 1-8609)
10.21 Resolutions amending the Plan effective May 2, 1992 and November 20,
1992 (Exhibit 10dd(i) to Form 10-K of Telesis for 1992, File
No. 1-8609)
10.22 Pacific Telesis Group Senior Management Transfer Program (Exhibit
10ee to Pacific Telesis Group Shareowner Dividend Reinvestment and
Stock Purchase Plan Registration Statement No. 2-87852)
10.23 Pacific Telesis Group Senior Management Financial Counseling Program
(Exhibit 10ff to Pacific Telesis Group Shareowner Dividend
Reinvestment and Stock Purchase Plan Registration Statement No.
2-87852)
10.24 Pacific Telesis Group Deferred Compensation Plan for Nonemployee
Directors (Exhibit 10gg to Form 10-K of Telesis for 1990, File No.
1-8609)
10.25 Resolutions amending the Plan effective December 21, 1990,
November 20, 1992 and December 18, 1992 (Exhibit 10gg(i) to Form
10-K of Telesis for 1992, File No. 1-8609)
10.26 Description of Pacific Telesis Group Directors' and Officers'
Liability Insurance Program (Exhibit 10hh to Form 10-K of Telesis
I-2
<PAGE>
for 1992, File No. 1-8609)
10.27 Description of Pacific Telesis Group for Nonemployee Directors'
Travel Accident Insurance (Exhibit 10ii to Form 10-K of Telesis for
1989, File No. 1-8609)
10.28 Resolutions amending the Plan, effective as of June 28, 1991
(Exhibit 10kk to Form 10-K of Telesis for 1991, File No. 1-8609)
10.29 Resolutions amending the Plan effective May 22, 1992 and
November 20, 1992 (Exhibit 10kk(ii) to Form 10-K of Telesis for
1992, File No. 1-8609)
10.30 Pacific Telesis Group Mid-Career Hire Program (Exhibit 10mm to
Form 10-K of Telesis for 1988, File No. 1-8609)
10.31 Pacific Telesis Group Mid-Career Pension Plan (Exhibit 10nn to Form
10-K of Telesis for 1986, File No. 1-8609)
10.32 Resolutions amending the Plan effective May 22, 1992 and
November 20, 1992 (Exhibit 10kk(ii) to Form 10-K of Telesis for
1992, File No. 1-8609)
10.33 Pacific Telesis Group Executive Deferral Plan (Exhibit 1011 to Form
10-K of Telesis for 1989, File No. 1-8609)
10.34 Resolutions amending the Plan effective November 20, 1992 and
December 23, 1992 (Exhibit 1011(i) to Form 10-K of Telesis for 1992,
File No. 1-8609)
10.35 Pacific Telesis Group Stock Option and Stock Appreciation Rights
Plan (Plan Text, Sections 1-17, in Registration Statement No.
33-15391)
10.36 Resolutions amending the Plan effective November 17, 1989 and
June 26, 1992 (Exhibit 10oo(i) to Form 10-K of Telesis for 1992,
File No. 1-8609)
10.37 Pacific Telesis Group Outside Directors' Retirement Plan (Exhibit
10ss to Form 10-K of Telesis for 1984, File No. 1-8609)
10.38 Resolution amending the Plan effective May 25, 1990 (Exhibit 10ss(i)
to Form 10-K of Telesis for 1992, File No. 1-8609)
10.39 Representative Indemnity Agreement between Pacific Telesis Group and
certain of its officers and each of its directors (Exhibit 10tt to
Form 10-K of Telesis for 1987, File No. 1-8609)
10.40 Trust Agreement between Pacific Telesis Group and Bank of America
National Trust and Savings Association in connection with the
Pacific Telesis Group Executive Deferral Plan (Exhibit 10uu to Form
10-K of Telesis for 1988, File No. 1-8609)
10.41 Amendment to Trust Agreement No. 1 effective December 11, 1992
(Exhibit 10uu(i) to Form 10-K of Telesis of 1992, File No. 1-8609)
10.42 Trust Agreement between Pacific Telesis Group and Bank of America
National Trust and Savings Association in connection with the
I-3
<PAGE>
Pacific Telesis Group Deferred Compensation Plan for the Non-
Employee Directors (Exhibit 10vv to Form 10-K of Telesis for 1988,
File No. 1-8609)
10.43 Amendment to Trust Agreement No. 2 effective December 11, 1992
(Exhibit 10vv(i) to Form 10-K of Telesis for 1992, File No. 1-8609)
10.44 Pacific Telesis Group Long Term Incentive Award Deferral Plan
(Exhibit 10ww to Form 10-K of Telesis for 1989, File No. 1-8609)
10.45 Resolutions merging the Plan with the Executive Deferral Plan
effective May 22, 1992 (Exhibit 10ww(i) to Form 10-K of Telesis for
1992, File No. 1-8609)
10.46 Pacific Telesis Group Nonemployee Director Stock Option Plan
(Exhibit A to Pacific Telesis Group's 1990 Proxy Statement filed
February 26, 1990, File No. 1-8609)
10.47 Pacific Telesis Group Supplemental Executive Retirement Plan
(Exhibit 10yy to Form 10-K of Telesis for 1990, File No. 1-8609)
10.48 Resolutions amending the Plan effective November 20, 1992 (Exhibit
10yy(i) to Form 10-K of Telesis for 1992, File No. 1-8609)
21 Subsidiaries of the Company (Exhibit 21 to the Company's
Registration Statement on Form S-1, File No. 33-68012)
23.1 Consent of Coopers & Lybrand
23.2 Consent of Ernst & Young
23.3 Consent of KPMG Deutsche Treuhand-Gesellschaft
24 Powers of Attorney
99 Modification of Final Judgment, United States District Court,
District of Columbia, in "U.S. v. American Tel. & Tel. Co.," Civil
Action No. 82-0192 (Exhibit 99 to the Company's Registration
Statement on Form S-1, File No. 33-68012)
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
I-4
<PAGE>
Exhibit 3.1
------------
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PACTEL CORPORATION
T. F. DiStefano and P. H. White certify that:
1. They are a Vice President and an Assistant Secretary, respectively,
of PacTel Corporation, a California corporation.
2. The Articles of Incorporation of the corporation are amended and
restated to read as follows:
FIRST: The name of the corporation is:
PacTel Corporation
SECOND: The purpose of the corporation is to engage in any lawful
act or activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust
company business or the practice of a profession permitted to be incorporated
by the California Corporations Code.
THIRD:
A. The corporation is authorized to issue two classes of shares, to be
designated respectively Preferred Stock ("Preferred Stock") and Common Stock
("Common Stock"). The total number of shares of capital stock that the
corporation is authorized to issue is 1,150,000,000, of which 50,000,000 shall
be Preferred Stock and 1,100,000,000 shall be Common Stock. Both the Preferred
Stock and Common Stock shall have a par value of $.01 per share.
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors of the corporation (the "Board of Directors")
is expressly authorized to provide for the issue of all or any of the shares
of the Preferred Stock in one or more series, and to fix the designation and
number of shares and to determine or alter for each such series, such voting
powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other rights and such
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issue of such shares and as may be permitted by the General
Corporation Law of California. The Board of Directors is also expressly
authorized to increase or decrease (but not below the number of shares of such
series then outstanding plus the number of shares of such series issuable upon
exercise of outstanding rights, options or warrants or upon conversion of
outstanding securities issued by the corporation) the number of shares of any
series subsequent to the issue of shares of that series. If the number of
shares of any such series shall be so decreased, the shares constituting such
1
<PAGE>
decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
C. The first series of Preferred Stock is designated as "Series A
Participating Preferred Stock." The number of shares constituting such series
shall be 6,000,000, and the rights, preferences, privileges and restrictions
granted to or imposed upon the shares of the Series A Participating Preferred
Stock or the holders thereof are as follows:
1. Dividends and Distributions.
(a) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Participating Preferred Stock with respect to dividends,
the holders of shares of Series A Participating Preferred Stock in preference
to the holders of shares of Common Stock of the corporation and any other
junior stock, shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the first day of March, June, September and
December in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment
Date after the first issuance of a share or fraction of a share of Series A
Participating Preferred Stock in an amount per share (rounded to the nearest
cent) equal to the greater of (x) $2.50, or (y) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share amount of
all cash dividends, and 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares
of Common Stock (by reclassification or otherwise), declared on the Common
Stock, since the immediately preceding Quarterly Dividend Payment Date, or,
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Participating
Preferred Stock. In the event the corporation shall at any time after the
close of business on July 22, 1993 (the "Rights Declaration Date") (i) declare
any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide
the outstanding Common Stock, or (iii) combine the outstanding Common Stock
into a smaller number of shares, by reclassification or otherwise, then in
each such case the amount to which holders of shares of Series A Participating
Preferred Stock were entitled immediately prior to such event under clause (x)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
(b) The corporation shall declare a dividend or distribution on the
Series A Participating Preferred Stock as provided in paragraph (a) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in
the event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend of $2.50 per share
on the Series A Participating Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Participating Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series A
2
<PAGE>
Participating Preferred Stock unless the date of issue of such shares is prior
to the record date for the first Quarterly Dividend Payment Date, in which
case dividends on such shares shall begin to accrue from the date of issue of
such shares, or unless the date of issue is a Quarterly Dividend Payment Date
or is a date after the record date for the determination of holders of shares
of Series A Participating Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date in either of which
events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Participating Preferred
Stock in an amount less than the total amount of such dividends at the time
accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board
of Directors may fix a record date for the determination of holders of shares
of Series A Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the payment thereof.
2. VOTING RIGHTS. The holders of shares of Series A Participating
Preferred Stock shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Participating Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the shareholders of
the corporation. In the event the corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock into a
greater number of shares, or (iii) combine the outstanding Common Stock into a
smaller number of shares, by reclassification or otherwise, then in each such
case the number of votes per share to which holders of shares of Series A
Participating Preferred Stock were entitled immediately prior to such event
shall be adjusted by multiplying such number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common
Stock outstanding immediately prior to such event.
(b) Except as otherwise provided herein or by law, the holders of
shares of Series A Participating Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a
vote of shareholders of the corporation.
(c)(i) If at any time dividends on any Series A Participating Preferred
Stock shall be in arrears in an amount equal to six quarterly dividends
thereon, the occurrence of such contingency shall mark the beginning of a
period (herein called a "default period") which shall extend until such time
when all accrued and unpaid dividends for all previous quarterly dividend
periods and for the current quarterly dividend period on all shares of
Series A Participating Preferred Stock then outstanding shall have been
declared and paid or set apart for payment. During each default period, all
holders of Preferred Stock (including holders of the Series A Participating
Preferred Stock) with dividends in arrears in an amount equal to six quarterly
dividends thereon, voting as a class, irrespective of series, shall have the
right to elect two Directors.
(ii) During any default period, such voting right of the holders of
Series A Participating Preferred Stock may be exercised initially at a special
meeting called pursuant to subparagraph (iii) of this Section 2(c) or at any
annual meeting of shareholders, and thereafter at annual meetings of
3
<PAGE>
shareholders, provided that such voting right shall not be exercised unless
the holders of thirty-three and one-third percent (33-1/3%) in number of
shares of Preferred Stock outstanding shall be present in person or by proxy.
The absence of a quorum of the holders of Common Stock shall not affect the
exercise by the holders of Preferred Stock of such voting right. At any
meeting at which the holders of Preferred Stock shall exercise such voting
right initially during an existing default period, they shall have the right,
voting as a class, to elect Directors to fill such vacancies, if any, in the
Board of Directors as may then exist up to two Directors or, if such right is
exercised at an annual meeting, to elect two Directors. After the holders of
Preferred Stock shall have exercised their right to elect Directors in any
default period and during the continuance of such period, the number of
Directors shall not be increased or decreased except pursuant to the rights of
any equity securities ranking senior to or pari passu with the Series A
Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an existing
default period, have previously exercised their right to elect Directors, the
Board of Directors may order, or any shareholder or shareholders owning in the
aggregate not less than ten percent (10%) of the total number of shares of
Preferred Stock outstanding, irrespective of series, may request, the calling
of a special meeting of the holders of Preferred Stock, which meeting shall
thereupon be called by the President, a Vice President or the Secretary of the
corporation. Notice of such meeting and of any annual meeting at which
holders of Preferred Stock are entitled to vote pursuant to this paragraph
(c)(iii) shall be given to each holder of record of Preferred Stock by mailing
a copy of such notice to him at his last address as the same appears on the
books of the corporation. Such meeting shall be called for a time not earlier
than ten days and not later than 60 days after such order or request or in
default of the calling of such meeting within 60 days after such order or
request, such meeting may be called on similar notice by any shareholder or
shareholders owning in the aggregate not less than ten percent (10%) of the
total number of shares of Preferred Stock outstanding. Notwithstanding the
provisions of this paragraph (c)(iii), no such special meeting shall be called
during the period within 60 days immediately preceding the date fixed for the
next annual meeting of the shareholders.
(iv) In any default period, the holders of Common Stock, and other
classes of stock of the corporation, if applicable, shall continue to be
entitled to elect the whole number of Directors until the holders of Preferred
Stock shall have exercised their right to elect two Directors voting as a
class, after the exercise of which right (x) the Directors so elected by the
holders of Preferred Stock shall continue in office until their successors
shall have been elected by such holders or until the expiration of the default
period, and (y) any vacancy in the Board of Directors may (except as provided
in paragraph (c)(ii) of this Section 2) be filled by vote of a majority of the
remaining Directors theretofore elected by the holders of the class of stock
which elected the Director whose office shall have become vacant. References
in this paragraph (c) to Directors elected by the holders of a particular
class of stock shall include Directors elected by such Directors to fill
vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the right
of the holders of Preferred Stock as a class to elect Directors shall cease,
(y) the term of any Directors elected by the holders of Preferred Stock as a
class shall terminate, and (z) the number of Directors shall be such number as
may be provided for in, or pursuant to, the Articles of Incorporation or
By-Laws (such number being subject, however, to change thereafter in any
4
<PAGE>
manner provided by law or in the Articles of Incorporation or By-Laws). Any
vacancies in the Board of Directors effected by the provisions of clauses (y)
and (z) in the preceding sentence may be filled by a majority of the remaining
Directors, even though less than a quorum.
(d) Except as set forth herein, holders of Series A Participating
Preferred Stock shall have no special voting rights and their consent shall
not be required (except to the extent they are entitled to vote with holders
of Common Stock as set forth herein) for taking any corporate action.
3. CERTAIN RESTRICTIONS.
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Participating Preferred Stock as provided in Section 1
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Participating
Preferred Stock outstanding shall have been paid in full, the corporation
shall not
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Participating Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Participating
Preferred Stock except dividends paid ratably on the Series A Participating
Preferred Stock and all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the holders of all such
shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Participating Preferred Stock
provided that the corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for shares of any stock of
the corporation ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Participating Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series A Participating Preferred Stock or any shares of stock ranking on a
parity with the Series A Participating Preferred Stock except in accordance
with a purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the Board
of Directors, after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable treatment
among the respective series or classes.
(b) The corporation shall not permit any subsidiary of the corporation
to purchase or otherwise acquire for consideration any shares of stock of the
corporation unless the corporation could, under paragraph (a) of this
Section 3, purchase or otherwise acquire such shares at such time and in such
manner.
4. REACQUIRED SHARES. Any shares of Series A Participating Preferred
Stock purchased or otherwise acquired by the corporation in any manner
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whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
5. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Participating Preferred Stock
unless, prior thereto, the holders of shares of Series A Participating
Preferred Stock shall have received per share, the greater of $100 or 100
times the payment made per share of Common Stock, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (the "Series A Liquidation Preference").
Following the payment of the full amount of the Series A Liquidation
Preference, no additional distributions shall be made to the holders of shares
of Series A Participating Preferred Stock unless, prior thereto, the holders
of shares of Common Stock shall have received an amount per share (the "Common
Adjustment") equal to the quotient obtained by dividing (i) the Series A
Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in
subparagraph (c) below to reflect such events as stock splits, stock dividends
and recapitalization with respect to the Common Stock) (such number in
clause (ii), the "Adjustment Number"). Following the payment of the full
amount of the Series A Liquidation Preference and the Common Adjustment in
respect of all outstanding shares of Series A Participating Preferred Stock
and Common Stock, respectively, holders of Series A Participating Preferred
Stock and holders of shares of Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio of
the Adjustment Number to 1 with respect to such Preferred Stock and Common
Stock, on a per share basis, respectively.
(b) In the event there are not sufficient assets available to permit
payment in full of the Series A Liquidation Preference and the liquidation
preferences of all other series of Preferred Stock, if any, which rank on a
parity with the Series A Participating Preferred Stock then such remaining
assets shall be distributed ratably to the holders of such parity shares in
proportion to their respective liquidation preferences. In the event there
are not sufficient assets available to permit payment in full of the Common
Adjustment, then such remaining assets shall be distributed ratably to the
holders of Common Stock.
(c) In the event the corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine
the outstanding Common Stock into a smaller number of shares, by
reclassification or otherwise, then in each such case the Adjustment Number in
effect immediately prior to such event shall be adjusted by multiplying such
Adjustment Number by a fraction the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
6. CONSOLIDATION, MERGER, ETC. In case the corporation shall enter
into any consolidation, merger, combination or other transaction in which the
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shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares
of Series A Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 100 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine
the outstanding Common Stock into a smaller number of shares, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Participating Preferred Stock shall
be adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that are
outstanding immediately prior to such event.
7. REDEMPTION. The shares of Series A Participating Preferred Stock
shall not be redeemable.
8. RANKING. The Series A Participating Preferred Stock shall rank
junior to all other series of the corporation's Preferred Stock as to the
payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
9. AMENDMENT. The Articles of Incorporation and the By-Laws of the
corporation shall not be further amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series A
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of at least 66-2/3% of the outstanding shares
of Series A Participating Preferred Stock voting separately as a class.
10. FRACTIONAL SHARES. Series A Participating Preferred Stock may be
issued in fractions of a share which shall entitle the holder, in proportion
to such holder's fractional shares, to exercise voting rights, receive
dividends, participate in distributions and to have the benefit of all other
rights of holders of Series A Participating Preferred Stock.
FOURTH:
A. The authorized number of directors of the corporation shall not be
less than three nor more than five; provided that effective upon the
commencement of the annual meeting of shareholders of the corporation first
following the filing of these Amended and Restated Articles of Incorporation
and to the date of effectiveness of Paragraph B of this Article FOURTH, the
authorized number of directors of the corporation shall not be less than six
nor more than 11; and further provided that upon the effectiveness of
Paragraph B of this Article FOURTH the authorized number of directors shall be
not less than nine nor more than 17. The exact authorized number of directors
shall be fixed from time to time, within the limits specified in this Article
FOURTH, by resolution of the Board of Directors, or by a by-law or amendment
thereof duly adopted by the Board of Directors or the affirmative vote of the
holders of shares representing at least 66-2/3% of the outstanding shares of
the corporation entitled to vote.
B. The Board of Directors shall be divided into three classes,
designated Class I, Class II and Class III, as nearly equal in number as
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possible, and the term of office of directors of one class shall expire at
each annual meeting of shareholders, and in all cases as to each director
until his successor shall be elected and shall qualify or until his earlier
resignation, removal from office, death or incapacity. Additional
directorships resulting from an increase in number of directors shall be
apportioned among the classes as equally as possible. The initial terms of
office shall be determined by resolution duly adopted by the Board of
Directors. At each annual meeting of shareholders the number of directors
equal to the number of directors of the class whose term expires at the time
of such meeting (or, if less, the number of directors properly nominated and
qualified for election) shall be elected to hold office until the third
succeeding annual meeting of shareholders after their election. This
Paragraph B of this Article FOURTH shall become effective only when (i) the
corporation shall have become a "listed corporation" within the meaning of
section 301.5 of the California Corporations Code and (ii) Pacific Telesis
Group, a Nevada corporation ("Telesis"), shall have distributed to its
shareholders shares of common stock of the corporation then owned by Telesis
such that Telesis shall thereafter cease to hold of record a majority of the
outstanding shares of Common Stock of the corporation (as determined pursuant
to Rule 13d-3 under the Securities Exchange Act of 1934).
C. Vacancies in the Board of Directors, including, without limitation,
vacancies created by the removal of any director, may be filled by a majority
of the directors then in office, whether or not less than a quorum, or by a
sole remaining director.
FIFTH: No shareholder may cumulate votes in the election of
directors. This Article FIFTH shall become effective only when the
corporation becomes a "listed corporation" within the meaning of section 301.5
of the California Corporations Code.
SIXTH: The corporation shall indemnify any director or officer of
the corporation in all circumstances in which indemnification is permitted by
California law. The corporation shall advance the expenses of any director or
officer in all circumstances in which such advancement of expenses is
permitted by the provisions of section 317(f) of the California Corporations
Code. In addition to the mandatory indemnification provided for in this
Article SIXTH, and without otherwise limiting the corporation's ability to
indemnify persons other than directors and officers by contract or otherwise,
the corporation is authorized to indemnify agents (as defined in section 317
of the California Corporations Code and including any and all persons who have
consented to serve as directors of the corporation) through by-law provisions,
agreements with agents, vote of shareholders or disinterested directors or
otherwise, in excess of the indemnification otherwise permitted by section 317
of the California Corporations Code, to the fullest extent permissible under
California law.
SEVENTH: The liability of the directors of the corporation for
monetary damages shall be eliminated to the fullest extent permissible under
California law.
EIGHTH: Any action required or permitted to be taken by
shareholders of the corporation must be taken at a duly called annual or
special meeting of shareholders of the corporation, and no action may be taken
by the written consent of the shareholders. This Article EIGHTH shall become
effective only when Telesis shall have distributed to its shareholders shares
of Common Stock of the corporation then owned by Telesis such that Telesis
shall thereafter cease to hold a majority of the outstanding shares of Common
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Stock of the corporation (as determined pursuant to Rule 13d-3 under the
Securities Exchange Act of 1934).
NINTH: The corporation shall not assert any claim against Telesis
or its subsidiaries (Telesis, together with such subsidiaries (other than the
corporation and its subsidiaries), the "Telesis Companies"), or any officer,
director or other affiliate of the Telesis Companies or of the corporation,
for breach of any duty, including, but not limited to, the duty of loyalty or
fair dealing, on account of a diversion of a corporate business opportunity to
the Telesis Companies unless such opportunity relates solely to a business
that the corporation has the right to elect to pursue, to the exclusion of the
Telesis Companies, pursuant to the Separation Agreement between Telesis and
the corporation dated as of October 7, 1993. Notwithstanding the foregoing, no
such claim shall be made in any event if the corporation's directors who are
not employees of any of the Telesis Companies disclaim such opportunity by a
unanimous vote.
TENTH: Notwithstanding any other provision of these Articles of
Incorporation to the contrary, outstanding shares of stock of the corporation
shall always be subject to redemption by the corporation, by action of the
Board of Directors, if in the judgment of the Board of Directors such action
should be taken, pursuant to applicable law, to the extent necessary to
prevent the loss or secure the reinstatement of any license or franchise from
any governmental agency held by the corporation or any of its subsidiaries to
conduct any portion of the business of the corporation or any of its
subsidiaries, which license or franchise is conditioned upon some or all of
the holders of the corporation's stock possessing prescribed qualifications.
The terms and conditions of such redemption shall be as follows:
(a) the redemption price of the shares to be redeemed pursuant to this
Article Tenth shall be equal to the Fair Market Value of such shares;
(b) the redemption price of such shares may be paid in cash, Redemption
Securities or any combination thereof;
(c) if less than all the shares held by Disqualified Holders are to be
redeemed, the shares to be redeemed shall be selected in such manner as shall
be determined by the Board of Directors, which may include selection first of
the most recently purchased shares thereof, selection by lot or selection in
any other manner determined by the Board of Directors;
(d) at least 30 days' advance written notice of the Redemption Date
shall be given to the record holders of the shares selected to be redeemed
(unless waived in writing by any such holder), provided that the Redemption
Date may be the date on which written notice shall be given to record holders
if the cash or Redemption Securities necessary to effect the redemption shall
have been deposited in trust for the benefit of such record holders and
subject to immediate withdrawal by them upon surrender of the stock
certificates for their shares to be redeemed; and
(e) from and after the Redemption Date, any and all rights of the owners
of shares selected for redemption (including without limitation any rights to
vote or receive dividends), shall cease and terminate and they shall
thenceforth be entitled only to receive the cash or Redemption Securities
payable upon redemption.
For purposes of this Article TENTH:
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(i) "Disqualified Holder" shall mean any holder of shares of stock of
the corporation whose holding of such stock, either individually or when taken
together with the holding of shares of stock of the corporation by any other
holders, may result, in the judgment of the Board of Directors, in the loss
of, or the failure to secure the reinstatement of, any license or franchise
from any governmental agency held by the corporation or any of its
subsidiaries to conduct any portion of the business of the corporation or any
of its subsidiaries.
(ii) "Fair Market Value" of a share of the corporation's stock of any
class or series shall mean the average Closing Price for such a share for each
of the 45 most recent days on which shares of stock of such class or series
shall have been traded preceding the day on which notice of redemption shall
be given pursuant to Paragraph (d) of this Article TENTH; provided, however,
that if shares of stock of such class or series are not traded on any
securities exchange or in the over-the-counter market, "Fair Market Value"
shall be determined by the Board of Directors in good faith. "Closing Price"
on any day means the reported closing sales price or, in case no such sale
takes place, the average of the reported closing bid and asked prices on the
principal United States securities exchange registered under the Securities
Exchange Act of 1934 on which such stock is listed, or, if such stock is not
listed on any such exchange, the highest closing sales price or bid quotation
for such stock on the National Association of Securities Dealers, Inc.
Automated Quotations System or any system then in use, or if no such prices or
quotations are available, the fair market value on the day in question as
determined by the Board of Directors in good faith.
(iii) "Redemption Date" shall mean the date fixed by the Board of
Directors for the redemption of any shares of stock of the corporation
pursuant to this Article TENTH.
(iv) "Redemption Securities" shall mean any debt or equity securities of
the corporation, any of its subsidiaries or any other corporation, or any
combination thereof, having such terms and conditions as shall be approved by
the Board of Directors and which, together with any cash to be paid as part of
the redemption price, in the opinion of any nationally recognized investment
banking firm selected by the Board of Directors (which may be a firm which
provides other investment banking, brokerage or other services to the
corporation), has a value, at the time notice of redemption is given pursuant
to Paragraph (d) of this Article TENTH, at least equal to the price required
to be paid pursuant to Paragraph (a) of this Article TENTH (assuming, in the
case of Redemption Securities to be publicly traded, such Redemption
Securities were fully distributed and subject only to normal trading
activity).
ELEVENTH: Without limiting its rights under the California
Corporations Code, the Board of Directors is hereby authorized to create and
issue, by dividend or otherwise and whether or not in connection with the
issuance and sale of any of its stock or other securities or property, rights
entitling the holders thereof to purchase from the corporation shares of stock
or other securities of the corporation or any other corporation ("Rights")
which Rights may be attached to and trade with the shares of Common Stock.
The Rights may provide for different or discriminate treatment among the
holders of the Rights in accordance with criteria selected by the Board of
Directors in connection with the creation of the Rights, which criteria may
include the number of shares of Common Stock held by a holder of Rights or the
percentage of the outstanding shares of Common Stock of the corporation held
by a holder of Rights.
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TWELFTH: The Board of Directors is expressly authorized to make,
amend or repeal the by-laws of the corporation, without any action on the part
of the shareholders, solely by the affirmative vote of at least 66-2/3% of the
directors of the corporation, except where approval of the shareholders is
required by law. The by-laws may also be amended or repealed by the
shareholders, but only by the affirmative vote of the holders of shares
representing at least 66-2/3% of the outstanding shares of the corporation
entitled to vote.
THIRTEENTH: The amendment or repeal of Articles FOURTH, FIFTH,
SIXTH, SEVENTH, EIGHTH, NINTH, TENTH, ELEVENTH, TWELFTH and THIRTEENTH shall
require the approval of the holders of shares representing at least 66-2/3% of
the outstanding shares of the corporation entitled to vote.
3. The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the Board of Directors.
4. The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the required vote of shareholders in
accordance with section 902 of the California Corporations Code. The total
number of outstanding shares of the corporation is 424,122,960. The foregoing
amendment and restatement of the Articles of Incorporation was approved by
100% of the outstanding shares of the corporation entitled to vote with
respect thereto. The percentage vote required was 66-2/3%. We further
declare under penalty of perjury under the laws of the State of California
that the matters set forth in this Certificate are true and correct of our own
knowledge.
Dated: November __, 1993.
__________________________________
T. F. DiStefano
Vice President
__________________________________
P. H. White
Assistant Secretary
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Exhibit 3.2
-----------
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
PACTEL CORPORATION
S. L. Ginn and M. G. Gill certify that:
1. They are the Chairman of the Board and the Secretary, respectively,
of PacTel Corporation, a California corporation.
2. Article FIRST of the Articles of Incorporation of the corporation is
amended to read as follows:
FIRST: The name of the corporation is:
AirTouch Communications
3. The foregoing amendment has been duly approved by the Board of
Directors of the corporation.
4. The foregoing amendment has been duly approved by the required vote
of shareholders of the corporation in accordance with section 902 of the
California Corporations Code. The total number of outstanding shares of the
corporation entitled to vote with respect to the amendment was 424,000,000.
The number of shares voting in favor of the amendment exceeded the vote
required. The percentage vote required was more than 50%.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this Certificate are true and
correct of our own knowledge.
Dated: February 15, 1994.
/s/ S. L. Ginn
Chairman of the Board
/s/ M. G. Gill
Secretary
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Exhibit 3.3
-----------
AMENDED AND RESTATED
B Y - L A W S
OF
PACTEL CORPORATION
ARTICLE I
Principal Office
Section 1. The principal executive office for the transaction of the
business of the corporation is hereby fixed and located at 2999 Oak Road,
Walnut Creek, CA 94596. The board of directors may change said principal
executive office from one location to another.
ARTICLE II
Meetings of Shareholders
Section 1. All meetings of the shareholders shall be held at any place
within or without the State of California which may be designated by the board
of directors. In the absence of any such designation, shareholders' meetings
shall be held at the principal executive office of the corporation.
Section 2. The annual meeting of the shareholders of the corporation
first following the adoption of these by-laws shall be held on the 59th day
following the effective date of the Registration Statement on Form S-1 filed
by the corporation with the Securities and Exchange Commission on August 27,
1993, and the record date for such meeting shall be the day immediately
preceding such effective date. The next annual meeting shall be held in 1995
in the months of April through July on such date and at such time as shall be
determined by the board of directors; and each annual meeting thereafter shall
be held on such date and at such time (but not more than 15 months after the
date of the preceding annual meeting) as shall be determined by the board of
directors. At such meeting, directors shall be elected and any other proper
business may be transacted which is within the powers of the shareholders.
Written notice of each annual meeting shall be given to each shareholder
entitled to vote either personally or by first-class (or by third-class, if
there are 500 or more shareholders of record) mail or other means of written
communication (which includes, without limitation and wherever used in these
by-laws, telegraphic and facsimile communication), charges prepaid, addressed
to each shareholder at the address appearing on the books of the corporation,
or given by the shareholder to the corporation for the purpose of notice. If
any notice or report addressed to the shareholder at the address of such
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice or report to the
shareholder at such address, all future notices or reports shall be deemed to
have been duly given without further mailing if the same shall be available
for the shareholder upon written demand of the shareholder at the principal
executive office of the corporation for a period of one year from the date of
the giving of the notice or report to all other shareholders. If no address of
a shareholder appears on the books of the corporation or is given by the
shareholder to the corporation, notice is duly given to him or her if sent by
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mail or other means of written communication addressed to the place where the
principal executive office of the corporation is located or if published at
least once in a newspaper of general circulation in the county in which said
principal executive office is located.
All such notices shall be given to each shareholder entitled thereto not
less than 10 days (30 days if there are 500 or more shareholders of record and
the corporation sends notice by third-class mail) nor more than 60 days before
each annual meeting. Any such notice shall be deemed to have been given at
the time when delivered personally or deposited in the United States mail or
delivered to a common carrier for transmission to the recipient or actually
transmitted by the person giving the notice by electronic means to the
recipient or sent by other means of written communication.
Such notices shall state:
(a) the place, date and hour of the meeting;
(b) those matters which the board, at the time of the mailing of the
notice, intends to present for action by the shareholders;
(c) if directors are to be elected, the names of nominees intended at
the time of the notice to be presented by management for election; and
(d) such other matters, if any, as may be expressly required by statute.
Section 3. Special meetings of the shareholders for the purpose of
taking any action permitted to be taken by the shareholders under the General
Corporation Law and the articles of incorporation of this corporation, may be
called by the chairman of the board, the chief executive officer or the
president, or by any executive vice president or vice president, or by the
board of directors, or by the holders of shares entitled to cast not less than
ten percent of the votes at the meeting.
Upon request in writing delivered either in person or by registered or
certified mail, return receipt requested, to the chairman, chief executive
officer, president or secretary by any persons entitled to call a meeting of
shareholders, it shall be the duty of such chairman, chief executive officer,
president or secretary forthwith to cause to be given to the shareholders
entitled thereto notice of such meeting to be held on a date not less than 20
nor more than 90 days after the receipt of such request, as such officer may
fix. If such notice is not given within 40 days after the delivery of or
mailing of such request, the persons calling the meeting may fix the time of
meeting and give notice thereof as in the manner hereinafter provided, or
cause such notice to be given by any designated representative.
Except in special cases where other express provision is made by statute,
notice of such special meetings shall be given in the same manner and contain
the same statements as required for annual meetings of shareholders. Notice
of any special meeting shall also specify the general nature of the business
to be transacted, and no other business may be transacted at such meeting.
Section 4. The presence in person or by proxy of the holders of a
majority of the shares entitled to vote at any meeting shall constitute a
quorum for the transaction of business. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken (other than
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adjournment) is approved by at least a majority of the shares required to
constitute a quorum. In the absence of a quorum, any meeting of shareholders
may be adjourned from time to time by the vote of a majority of the shares
represented either in person or by proxy, but no other business may be
transacted except as provided in the preceding sentence.
Section 5.
(a) Except as provided in the articles of incorporation, every
shareholder complying with paragraph (b) and entitled to vote at any election
of directors may cumulate such shareholder's votes and give one candidate a
number of votes equal to the number of directors to be elected multiplied by
the number of votes to which the shareholder's shares are normally entitled,
or distribute the shareholder's votes on the same principle among as many
candidates as the shareholder thinks fit.
(b) No shareholder shall be entitled to cumulate votes (i.e., cast for
any candidate a number of votes greater than the number of votes which such
shareholder normally is entitled to cast) unless such candidate or candidates'
names have been placed in nomination prior to the voting and the shareholder
has given notice at the meeting prior to the voting of the shareholder's
intention to cumulate the shareholder's votes. If any one shareholder has
given such notice, all shareholders may cumulate their votes for candidates in
nomination.
(c) In any election of directors, the candidates receiving the highest
number of votes of the shares entitled to be voted for them up to the number
of directors to be elected by such shares are elected.
Section 6. To be properly brought before the annual meeting, business
must be either (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the board of directors, (b) otherwise
properly brought before the meeting by or at the direction of the board of
directors, or (c) otherwise properly brought before the meeting by a
shareholder. In addition to any other applicable requirements, for business
to be properly brought before the annual meeting by a shareholder, the
shareholder must have given timely notice thereof in writing to the Secretary
of the corporation. To be timely, a shareholder's notice must be delivered to
or mailed and received at the principal executive offices of the corporation,
addressed to the attention of the Secretary of the corporation, within the
time specified in the federal proxy rules for timely submission of a
shareholder proposal or, if not within such time, then not less than 35 days
nor more than 60 days prior to the meeting; provided, however, that in the
event that less than 50 days' notice or prior public disclosure of the date of
the meeting is given or made to shareholders, notice by the shareholder to be
timely must be so received by the earlier of (a) the close of business on the
15th day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made, whichever first occurs,
and (b) two days prior to the date of the meeting. A shareholder's notice to
the Secretary shall set forth as to each matter the shareholder proposes to
bring before the annual meeting (i) a brief description of the business
desired to be brought before the annual meeting, (ii) the name and record
address of the shareholder proposing such business, (iii) the class and number
of shares of the corporation which are beneficially owned by the shareholder,
and (iv) any material interest of the shareholder in such business.
Notwithstanding anything in these by-laws to the contrary, no business shall
be conducted at the annual meeting except in accordance with the procedures
set forth in this Section 6; provided, however, that nothing in this Section 6
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shall be deemed to preclude discussion by any shareholder of any business
properly brought before the annual meeting.
The Chairman of the board of directors shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 6, and if
he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
Section 7. Only persons who are nominated in accordance with the
following procedures shall be eligible for election as directors. Nominations
of persons for election to the board of directors at the annual meeting, by or
at the direction of the board of directors, may be made by any Nominating
Committee or person appointed by the board of directors; nominations may also
be made by any shareholder of the corporation entitled to vote for the
election of directors at the meeting who complies with the notice procedures
set forth in this Section 7. Such nominations, other than those made by or at
the direction of the board of directors, shall be made pursuant to timely
notice in writing to the Secretary of the corporation. To be timely, a
shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the corporation addressed to the attention of
the Secretary of the corporation not less than 35 days prior to the meeting or
the date the shareholders are first solicited for their consents as the case
may be; provided, however, that, in the case of an annual meeting and in the
event that less than 50 days' notice or prior public disclosure of the date of
the meeting is given or made to shareholders, notice by the shareholder to be
timely must be so received not later than the earlier of (a) the close of
business on the 15th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made, whichever first
occurs, or (b) two days prior to the date of the meeting. Such shareholder's
notice to the Secretary shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or reelection as a director,
(i) the name, age, business address and residence address of the person,
(ii) the principal occupation or employment of the person, (iii) the class and
number of shares of capital stock of the corporation which are beneficially
owned by the person, (iv) a statement as to the person's citizenship, and
(v) any other information relating to the person that is required to be
disclosed in solicitations for proxies for election of directors pursuant to
Section 14 of the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder; and (b) as to the shareholder giving
the notice, (i) the name and record address of the shareholder and (ii) the
class, series and number of shares of capital stock of the corporation which
are beneficially owned by the shareholder. The corporation may require any
proposed nominee to furnish such other information as may reasonably be
required by the corporation to determine the eligibility of such proposed
nominee to serve as director of the corporation. No person shall be eligible
for election as a director of the corporation unless nominated in accordance
with the procedures set forth herein.
In connection with any annual meeting, the Chairman of the board of
directors shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the foregoing procedure, and
if he should so determine, he shall so declare to the meeting and the
defective nomination shall be disregarded.
ARTICLE III
Board of Directors
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Section 1. Subject to the provisions of the California General
Corporation Law and any limitations in the articles of incorporation and these
by-laws as to action to be authorized or approved by the shareholders, the
business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
Without prejudice to such general powers, but subject to the same limitations,
it is hereby expressly declared that the board of directors shall have the
following powers:
First: To conduct, manage and control the affairs and business of the
corporation and to make such rules and regulations therefor, not inconsistent
with law or with the articles of incorporation or with the by-laws, as they
may deem best;
Second: To elect and remove at pleasure the officers, agents and
employees of the corporation, prescribe their duties and fix their
compensation;
Third: To authorize the issue of shares of stock of the corporation from
time to time upon such terms as may be lawful;
Fourth: To borrow money and incur indebtedness for the purposes of the
corporation and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust,
mortgages, pledges, hypothecations or other evidences of debt and securities
therefor; and
Fifth: To alter, repeal or amend, from time to time, and at any time,
these by-laws and any and all amendments of the same, and from time to time,
and at any time, to make and adopt such new and additional by-laws as may be
necessary and proper, subject to the power of the shareholders to adopt, amend
or repeal such by-laws, or to revoke the delegation of authority of the
directors, as provided by law or by Article VI of these by-laws.
Section 2. The provisions governing the number of directors are stated
in the Articles of Incorporation and may be changed only by an amendment of
the Articles of Incorporation. Subject to the provisions of the Articles of
Incorporation for changing the authorized number of directors, the authorized
number of directors of the corporation shall be as follows. Until the
commencement of the annual meeting of shareholders of the corporation on
January 21, 1994, the authorized number of directors of the corporation shall
be three. Effective upon the commencement of the annual meeting of
shareholders of the corporation on January 21, 1994, and continuing to the
date of effectiveness of Paragraph B of Article FOURTH of the corporation's
Amended and Restated Articles of Incorporation, the authorized number of
directors of the corporation shall be eight or such greater number as the
board of directors may determine. Effective upon the date of effectiveness of
Paragraph B of Article FOURTH of the corporation's Amended and Restated
Articles of Incorporation, the authorized number of directors of the
corporation shall be ten or such greater or lesser number as the board of
directors may determine.
ARTICLE IV
Meetings of Directors
Section 1. Regular meetings of the board of directors shall be held at
any place within or without the State of California that has been designated
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from time to time by the board of directors. In the absence of such
designation, regular meetings shall be held at the principal executive office
of the corporation, except as provided in Section 2 of this Article. Special
meetings of the board of directors may be held at any place within or without
the State of California which has been designated in the notice of the
meeting, or, if not designated in the notice or if there is no notice, at the
principal executive office of the corporation.
Section 2. Immediately following each annual meeting of the shareholders
there shall be a regular meeting of the board of directors of the corporation
at the place of said annual meeting or at such other place as shall have been
designated by the board of directors for the purpose of organization, election
of officers and the transaction of other business. Other regular meetings of
the board of directors shall be held without call on such date and time as may
be fixed by the board of directors; provided, however, that should any such
day fall on a legal holiday, then said meeting shall be held at the same time
on the next business day thereafter ensuing which is not a legal holiday.
Notice of regular meetings of the directors is hereby dispensed with and no
notice whatever of any such meeting need be given, provided that notice of any
change in the time or place of regular meetings shall be given to all of the
directors in the same manner as notice for special meetings of the board of
directors.
Section 3. Special meetings of the board of directors for any purpose or
purposes may be called at any time by the chairman of the board, chief
executive officer or president or, if the chairman of the board, chief
executive officer and the president are all absent or are unable or refuse to
act, by any executive vice president or vice president or by any two
directors. Notice of the time and place of special meetings shall be
delivered personally or by telephone to each director, or sent by first-class
mail or telegram or facsimile transmission, charges prepaid, addressed to him
or her at his or her home or office address as they appear upon the records of
the corporation or, if not so shown on the records and not readily
ascertainable, at the place at which the meetings of the directors are
regularly held. In case such notice is mailed, it shall be deposited in the
United States mail at least four days prior to the time of the holding of the
meeting. In case such notice is telegraphed or sent by facsimile
transmission, it shall be delivered to a common carrier for transmission to
the director or actually transmitted by the person giving the notice by
electronic means to the director at least 48 hours prior to the time of the
holding of the meeting. In case such notice is delivered personally or by
telephone as above provided, it shall be so delivered at least eight hours
prior to the time of the holding of the meeting. Any notice given personally,
by facsimile or by telephone may be communicated to either the director or to
a person at the office of the director whom the person giving the notice has
reason to believe will promptly communicate it to the director. Such deposit
in the mail, delivery to a common carrier, transmission by electronic means or
delivery, personally or by telephone, as above provided, shall be due, legal
and personal notice to such directors. The notice need not specify the place
of the meeting if the meeting is to be held at the principal executive office
of the corporation, and need not specify the purpose of the meeting.
Section 4. Presence of a majority of the authorized number of directors
at a meeting of the board of directors constitutes a quorum for the
transaction of business, except as hereinafter provided. Members of the board
may participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in such meeting
can hear one another. A meeting at which a quorum is initially present may
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continue to transact business notwithstanding the withdrawal of directors,
provided that any action taken is approved by at least a majority of the
required quorum for such meeting. A majority of the directors present,
whether or not a quorum is present, may adjourn any meeting to another time
and place. If the meeting is adjourned for more than 24 hours, notice of any
adjournment to another time or place shall be given prior to the time of the
adjourned meeting to the directors who were not present at the time of the
adjournment.
Section 5. Notice of a meeting need not be given to any director who
signs a waiver of notice or consent to holding the meeting or an approval of
the minutes thereof, whether before or after the meeting, or who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such director. All such waivers, consents and approvals shall be
filed with the corporate records or made a part of the minutes of the meeting.
Section 6. Any action required or permitted to be taken by the board of
directors may be taken without a meeting if all members of the board shall
individually or collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
board. Such action by written consent shall have the same force and effect as
a unanimous vote of such directors.
Section 7. The provisions of this Article IV shall also apply, with
necessary changes in points of detail, to committees of the board of
directors, if any, and to actions by such committees (except (i) for the first
sentence of Section 2 of Article IV, which shall not apply, (ii) that special
meetings of a committee may also be called at any time by any two members of
the committee and (iii) that any committee may by resolution adopt provisions
governing notice of committee meetings that are different from the provisions
of Article IV, Section 3 of these by-laws), unless otherwise provided by these
by-laws or by the resolution of the board of directors designating such
committees. For such purpose, references to "the board" or "the board of
directors" shall be deemed to refer to each such committee and references to
"directors" or "members of the board" shall be deemed to refer to members of
the committee. Committees of the board of directors may be designated, and
shall be subject to the limitations on their authority, as provided in
Section 311 of the General Corporation Law. The appointment of members or
alternate members of a committee requires the vote of a majority of the
authorized number of directors.
ARTICLE V
Officers
Section 1. The officers of the corporation shall be a chairman of the
board, chief executive officer or a president, or all of the foregoing, a
secretary, and a chief financial officer. The corporation may also have, at
the discretion of the board of directors, one or more executive vice
presidents, senior vice presidents and vice presidents, a general counsel, a
treasurer, one or more assistant secretaries, one or more assistant
treasurers, and such other officers as may be designated from time to time by
the board of directors. Any number of offices may be held by the same person.
The officers shall be elected by the board of directors and shall hold office
at the pleasure of such board.
Chairman of the Board
Section 2. The chairman of the board, if there be such officer, shall,
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if present, preside at all meetings of the board of directors and exercise and
perform such other powers and duties as may be from time to time assigned to
him or her by the board of directors or prescribed by the by-laws. If there
is not a chief executive officer, the chairman of the board shall, in
addition, be the general manager and chief executive officer of the
corporation and shall have the powers and duties prescribed in Section 3 of
Article V of these by-laws.
Chief Executive Officer
Section 3. Subject to such powers and duties, if any, as may be
prescribed by these by-laws or the board of directors for the chairman of the
board, if there be such officer, the chief executive officer shall, subject to
the control of the board of directors, have general supervision, direction and
control of the business and officers of the corporation. He or she shall
preside at all meetings of the shareholders and, in the absence of the
chairman of the board, or if there be none, at all meetings of the board of
directors. He or she shall have all the powers and shall perform all of the
duties which are ordinarily inherent in the office of chief executive officer
of a corporation, and he or she shall have such further powers and shall
perform such further duties as may be prescribed for him or her by the board
of directors.
President
Section 4. In the absence or disability of the chief executive officer,
or if there be none, the president shall perform all of the duties of the
chief executive officer, and when so acting shall have all of the powers of
and be subject to all of the restrictions upon the chief executive officer.
The president shall have such other duties as from time to time may be
prescribed for him by the board of directors.
Executive Vice Presidents and Vice Presidents
Section 5. In the absence or disability or refusal to act of the
president, the executive vice presidents and vice presidents in order of their
rank as fixed by the board of directors or, if not ranked, the executive vice
presidents or vice president designated by the president or the board of
directors, shall perform all of the duties of the president and when so acting
shall have all the powers of and be subject to all the restrictions upon the
president. The executive vice presidents and vice presidents shall have such
other powers and perform such other duties as from time to time may be
prescribed for them, respectively, by the board of directors or the by-laws.
Secretary
Section 6. The secretary shall keep or cause to be kept at the principal
executive office of the corporation or such other place as the board of
directors may order, a book of minutes of all proceedings of the shareholders,
the board of directors and committees of the board, with the time and place of
holding, whether regular or special, and if special how authorized, the notice
thereof given, the names of those present at directors' and committee
meetings, and the number of shares present or represented at shareholders'
meetings. The secretary shall keep or cause to be kept at the principal
executive office or at the office of the corporation's transfer agent a record
of shareholders or a duplicate record of shareholders showing the names of the
shareholders and their addresses, the number of shares and classes of shares
held by each, the number and date of certificates issued for the same and the
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number and date of cancellation of every certificate surrendered for
cancellation. The secretary or an assistant secretary or, if they are absent
or unable or refuse to act, any other officer of the corporation, shall give
or cause to be given notice of all the meetings of the shareholders, the board
of directors and committees of the board required by the by-laws or by law to
be given, and he or she shall keep the seal of the corporation, if any, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by the by-laws.
Assistant Secretaries
Section 7. It shall be the duty of the assistant secretaries to assist
the secretary in the performance of his or her duties and generally to perform
such other duties as may be delegated to them by the board of directors.
Chief Financial Officer
Section 8. The chief financial officer shall keep and maintain, or cause
to be kept and maintained, adequate and correct books and records of account
of the corporation. He or she shall receive and deposit all moneys and other
valuables belonging to the corporation in the name and to the credit of the
corporation and shall disburse the same only in such manner as the board of
directors or the appropriate officers of the corporation may from time to time
determine, shall render to the chief executive officer and the board of
directors, whenever they request it, an account of all his or her transactions
as chief financial officer and of the financial condition of the corporation,
and shall perform such further duties as the board of directors may require.
Treasurer and Assistant Treasurers
Section 9. The treasurer of the corporation, if any, shall have such
duties as may be specified by the chief financial officer to assist the chief
financial officer in the performance of his or her duties. It shall be the
duty of the assistant treasurers to assist the treasurer in the performance of
his or her duties and generally to perform such other duties as may be
delegated to them by the board of directors.
General Counsel
Section 10. In the absence or disability or refusal to act of the senior
vice president-legal (if any), the general counsel shall perform all of the
duties of the senior vice president-legal and when so acting shall have all of
the powers of and be subject to all of the restrictions upon the senior vice
president-legal. The general counsel shall have such other powers and perform
such other duties as from time to time may be prescribed for him or her by the
board of directors, the by-laws, or the senior vice president-legal (if any).
ARTICLE VI
Amendments
Section 1. New by-laws may be adopted or these by-laws may be amended or
repealed by the affirmative vote of 66-2/3% of the outstanding shares entitled
to vote, except as otherwise provided by law or by the articles of
incorporation or these by-laws.
Section 2. Subject to the right of shareholders as provided in Section 1
of this Article to adopt, amend or repeal by-laws, and except as otherwise
provided by law or by the articles of incorporation, by-laws, other than a
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by-law or amendment thereof changing the authorized maximum or minimum number
of directors, may be adopted, amended or repealed by the affirmative vote of
at least 66-2/3% of the directors of the corporation, which shall include the
affirmative vote of at least one director of each class of the board of
directors if the board shall then be divided into classes.
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Exhibit 10.2
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AMENDMENT NO. 1
TO
SEPARATION AGREEMENT
THIS AMENDMENT NO. 1, dated November 2, 1993, is between PACIFIC TELESIS
GROUP ("Telesis") and PACTEL CORPORATION ("PacTel").
WHEREAS, there is currently in full force and effect between the Parties
a Separation Agreement, effective October 7, 1993 (the "Agreement"); and
WHEREAS, in Decision 93-11-011, dated November 2, 1993, the California
Public Utilities Commission directed the Parties to make certain changes in
the Agreement relating to the "PacTel Name"; and
WHEREAS, the Parties wish to make certain additional clarifications to
the Agreement;
THEREFORE, the Parties agree that the Agreement is hereby amended as
follows:
1. Section 5.4.c of Appendix C (Intellectual Property) is amended to
read as follows:
c. The license term of the Licensed Marks will expire
two years after the Separation Date. If PacTel adopts the New
Name prior to two years after the Separation Date, then until
two years after the Separation Date PacTel will be permitted to
use the taglines "Formerly PacTel Corporation", "Formerly
PacTel Cellular", "Formerly PacTel Paging", and "Formerly
PacTel Teletrac" in connection with the New Name. PacTel will
cease all use of the word "PacTel" in taglines at the end of
two years after the Separation Date. Nothing in this provision
shall require PacTel to recover leased equipment from customers
in order to remove the Licensed Marks provided that PacTel uses
reasonable measures to remove the Licensed Marks before leased
equipment is re-leased by PacTel to PacTel's lease customers
after PacTel has adopted its New Name.
2. Section 5.4.e of Appendix C (Intellectual Property) is amended to
read as follows:
e. Telesis will have the unrestricted right to use the
Licensed Marks for any purpose both during and after the
license term.
3. The introductory phrase in Section 5.4.f of Appendix C (Intellectual
Property) is amended to read as follows:
f. One year after the Separation Date and again at the
end of the license term, PacTel will certify to Telesis:
4. In Section 5.4.o of Appendix C (Intellectual Property), the
reference "Section 5.4.b" is changed to "Section 5.4.c".
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5. Section 3.1 of Appendix E (Telesis Technologies Laboratory, Inc.) is
amended to read as follows:
3.1 Transfer of Assets to PacTel. No later than the
Separation Date, Telesis will transfer, or cause TTL to
transfer, to PacTel the assets used by TTL in the San Diego PCS
Trial designed for use in the cellular frequencies, including
but not limited to the following groups of assets:
Existing software switch enhancements
Microcells (29 units)
SS7 network equipment
Existing switch hardware enhancements
Cellular handsets and accessories
UPS power and miscellaneous.
If such assets are transferred to PacTel prior to the
Separation Date, TTL may continue to use such assets in the San
Diego PCS Trial on such reasonable terms as the Parties may
agree, but without any payment to PacTel for such use. All
other TTL assets, including but not limited to TTL's
experimental PCS licenses, shall remain with TTL.
6. Except as expressly amended by this Amendment No. 1, the provisions
of the Agreement shall continue in full force and effect.
IN WITNESS WHEREOF, the Parties have caused this Amendment No. 1 to be
executed by their duly authorized representatives.
PACIFIC TELESIS GROUP PACTEL CORPORATION
By: /s/ P. J. Quigley By: /s/ C. L. Cox
Title: Group President Title: President and
Chief Executive Officer
Date Signed: November 23, 1993 Date Signed: December 6, 1993
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Exhibit 10.7
------------
PACTEL CORPORATION
1993 LONG-TERM STOCK INCENTIVE PLAN
(Restated Effective January 1, 1994)
1
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TABLE OF CONTENTS
ARTICLE 1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Committee Composition . . . . . . . . . . . . . . . . . . . . 1
2.2 Committee Responsibilities . . . . . . . . . . . . . . . . . . 1
ARTICLE 3. SHARES AVAILABLE FOR GRANTS. . . . . . . . . . . . . . . . . . 2
3.1 Basic Limitation . . . . . . . . . . . . . . . . . . . . . . . 2
3.2 Additional Shares . . . . . . . . . . . . . . . . . . . . . . 2
3.3 Dividend Equivalents . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 4. ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.1 General Rules . . . . . . . . . . . . . . . . . . . . . . . . 2
4.2 Outside Directors . . . . . . . . . . . . . . . . . . . . . . 2
4.3 Outside Directors and Prospective Outside Directors . . . . . 3
4.4 Incentive Stock Options . . . . . . . . . . . . . . . . . . . 4
4.5 Grants Related to Spin-Off . . . . . . . . . . . . . . . . . . 5
ARTICLE 5. OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.1 Stock Option Agreement . . . . . . . . . . . . . . . . . . . . 5
5.2 Number of Shares . . . . . . . . . . . . . . . . . . . . . . . 5
5.3 Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . 5
5.4 Exercisability and Term . . . . . . . . . . . . . . . . . . . 5
5.5 Effect of Change in Control . . . . . . . . . . . . . . . . . 6
5.6 Modification or Assumption of Options. . . . . . . . . . . . . 6
ARTICLE . PAYMENT FOR OPTION SHARES . . . . . . . . . . . . . . . . . . 6
6.1 General Rule . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.2 Surrender of Stock . . . . . . . . . . . . . . . . . . . . . . 6
6.3 Exercise/Sale . . . . . . . . . . . . . . . . . . . . . . . . 7
6.4 Exercise/Pledge . . . . . . . . . . . . . . . . . . . . . . . 7
6.5 Promissory Note . . . . . . . . . . . . . . . . . . . . . . . 7
6.6 Other Forms of Payment . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 7. STOCK APPRECIATION RIGHTS . . . . . . . . . . . . . . . . . . 7
7.1 SAR Agreement . . . . . . . . . . . . . . . . . . . . . . . . 7
7.2 Number of Shares . . . . . . . . . . . . . . . . . . . . . . . 7
7.3 Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . 7
7.4 Exercisability and Term . . . . . . . . . . . . . . . . . . . 8
7.5 Effect of Change in Control . . . . . . . . . . . . . . . . . 8
7.6 Exercise of SARs . . . . . . . . . . . . . . . . . . . . . . . 8
7.7 Modification or Assumption of SARs. . . . . . . . . . . . . . 8
ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS . . . . . . . . . . . . . . 9
8.1 Time, Amount and Form of Awards . . . . . . . . . . . . . . . 9
8.2 Payment for Awards . . . . . . . . . . . . . . . . . . . . . . 9
8.3 Vesting Conditions . . . . . . . . . . . . . . . . . . . . . . 9
8.4 Form and Time of Settlement of Stock Units . . . . . . . . . . 9
8.5 Death of Recipient . . . . . . . . . . . . . . . . . . . . . . 9
8.6 Creditors' Rights . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 9. VOTING AND DIVIDEND RIGHTS . . . . . . . . . . . . . . . . . . 10
9.1 Restricted Shares . . . . . . . . . . . . . . . . . . . . . . 10
9.2 Stock Units . . . . . . . . . . . . . . . . . . . . . . . . . 10
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ARTICLE 10. PROTECTION AGAINST DILUTION . . . . . . . . . . . . . . . 10
10.1 Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . 10
10.2 Reorganizations . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE 11. AWARDS UNDER OTHER PLANS . . . . . . . . . . . . . . . . . 11
ARTICLE 12. PAYMENT OF DIRECTOR'S FEES IN SECURITIES . . . . . . . . . 11
12.1 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . 11
12.2 Elections to Receive NSOs or Stock Units . . . . . . . . . . . 11
12.3 Number and Terms of NSOs . . . . . . . . . . . . . . . . . . . 12
12.4 Number and Terms of Stock Units . . . . . . . . . . . . . . . 12
ARTICLE 13. LIMITATION ON RIGHTS . . . . . . . . . . . . . . . . . . . 12
13.1 Retention Rights . . . . . . . . . . . . . . . . . . . . . . . 12
13.2 Shareholders' Rights . . . . . . . . . . . . . . . . . . . . . 12
13.3 Regulatory Requirements . . . . . . . . . . . . . . . . . . . 12
ARTICLE 14. LIMITATION ON PAYMENTS . . . . . . . . . . . . . . . . . . 13
14.1 Basic Rule . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14.2 Reduction of Payments . . . . . . . . . . . . . . . . . . . . 13
14.3 Overpayments and Underpayments . . . . . . . . . . . . . . . . 14
14.4 Related Corporations . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 15. WITHHOLDING TAXES . . . . . . . . . . . . . . . . . . . . 14
15.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15.2 Share Withholding . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 16. ASSIGNMENT OR TRANSFER OF AWARDS . . . . . . . . . . . . . 15
16.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.2 Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 17. FUTURE OF THE PLAN . . . . . . . . . . . . . . . . . . . . 15
17.1 Term of the Plan . . . . . . . . . . . . . . . . . . . . . . . 15
17.2 Amendment or Termination . . . . . . . . . . . . . . . . . . . 15
ARTICLE 18. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 19. EXECUTION . . . . . . . . . . . . . . . . . . . . . . . . 20
3
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PACTEL CORPORATION 1993 LONG-TERM STOCK INCENTIVE PLAN
(Restated Effective January 1, 1994)
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board on June 25, 1993, approved by the
Company's majority shareholder on September 24, 1993. The Plan was most
recently amended and restated on January 21, 1994.
The purpose of the Plan is to promote the long-term success of the
Company and the creation of shareholder value by (a) encouraging Key Employees
to focus on critical longrange objectives, (b) encouraging the attraction and
retention of Key Employees with exceptional qualifications and (c) linking Key
Employees directly to shareholder interests through increased stock ownership.
The Plan seeks to achieve this purpose by providing for Awards in the form of
Restricted Shares, Stock Units, Options (which may constitute incentive stock
options or nonstatutory stock options) or stock appreciation rights.
The Plan shall be governed by, and construed in accordance with, the laws
of the State of California (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 Committee Composition. The Plan shall be administered by the
Committee. The Committee shall consist of two or more disinterested directors
of the Company, who shall be appointed by the Board. A member of the Board
shall be deemed to be "disinterested" only if he or she satisfies such
requirements as the Securities and Exchange Commission may establish for
disinterested administrators acting under plans intended to qualify for
exemption under Rule 16b-3 (or its successor) under the Exchange Act. An
Outside Director shall not fail to be "disinterested" solely because he or she
receives the NSO grants described in Sections 4.2 and 4.3 or makes an election
under Article 12. The Board may also appoint one or more separate committees
of the Board, each composed of two or more directors of the Company who need
not be disinterested, who may administer the Plan with respect to Key
Employees who are not officers or directors of the Company, may grant Awards
under the Plan to such Key Employees and may determine all terms of such
Awards.
2.2 Committee Responsibilities. The Committee shall (a) select the Key
Employees who are to receive Awards under the Plan, (b) determine the type,
number, vesting requirements and other features and conditions of such Awards,
(c) interpret the Plan and (d) make all other decisions relating to the
operation of the Plan. The Committee may adopt such rules or guidelines as it
deems appropriate to implement the Plan. The Committee's determinations under
the Plan shall be final and binding on all persons.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 Basic Limitation. Common Shares issued pursuant to the Plan shall
be authorized but unissued shares. The aggregate number of Restricted Shares,
Stock Units, Options and SARs awarded under the Plan shall not exceed
24,000,000. The limitation of this Section 3.1 shall be subject to adjustment
pursuant to Article 10.
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3.2 Additional Shares. If Stock Units, Options or SARs are forfeited
or if Options or SARs terminate for any other reason before being exercised,
then such Stock Units, Options or SARs shall again become available for Awards
under the Plan. If SARs are exercised, then only the number of Common Shares
(if any) actually issued in settlement of such SARs shall reduce the number
available under Section 3.1 and the balance shall again become available for
Awards under the Plan. If Restricted Shares are forfeited before any
dividends have been paid with respect to such Restricted Shares, then such
Restricted Shares shall again become available for Awards under the Plan.
3.3 Dividend Equivalents. Any dividend equivalents distributed under
the Plan shall not be applied against the number of Restricted Shares, Stock
Units, Options or SARs available for Awards, whether or not such dividend
equivalents are converted into Stock Units.
ARTICLE 4. ELIGIBILITY.
4.1 General Rules. Only Key Employees (including, without limitation,
independent contractors who are not members of the Board) shall be eligible
for designation as Participants by the Committee. Key Employees who are
Outside Directors shall only be eligible for the grant of the NSOs described
in Sections 4.2 and 4.3 and for making an election described in Article 12.
Key Employees who are Prospective Outside Directors shall only be eligible for
the grant of the NSOs described in Section 4.3.
4.2 Outside Directors. Any other provision of the Plan
notwithstanding, the participation of Outside Directors in the Plan shall be
subject to the following restrictions:
(a) Outside Directors shall receive no Awards except as
described in this Section 4.2, in Section 4.3 and in Article 12.
(b) Upon the conclusion of each regular annual meeting of the
Company's shareholders, each Outside Director who will continue
serving as a member of the Board thereafter shall receive an NSO
covering 1,000 Common Shares (subject to adjustment under Arti-
cle 10). Such NSO shall become exercisable in full on the first
anniversary of the date of grant.
(c) All NSOs granted to an Outside Director under this
Section 4.2 shall also become exercisable in full in the event of
(i) the termination of such Outside Director's service because of
death or total and permanent disability or (ii) a Change in Control
with respect to the Company.
(d) The Exercise Price under all NSOs granted to an Outside
Director under this Section 4.2 shall be equal to 100% of the Fair
Market Value of a Common Share on the date of grant, payable in one
of the forms described in Sections 6.1, 6.2, 6.3 and 6.4.
(e) All NSOs granted to an Outside Director under this
Section 4.2 shall terminate on the earliest of (i) the 10th
anniversary of the date of grant, (ii) the date three months after
the termination of such Outside Director's service for any reason
other than death, total and permanent disability or Retirement,
(iii) the date 12 months after the termination of such Outside
Director's service because of death or (iv) the date 36 months after
the termination of such Outside Director's service because of total
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and permanent disability or Retirement.
4.3 Outside Directors and Prospective Outside Directors. Any other
provision of the Plan notwithstanding, the participation of Prospective
Outside Directors in the Plan shall be subject to the following restrictions:
(a) Prospective Outside Directors shall receive no Awards other
than the NSOs described in this Section 4.3. No Common Shares shall be
issued under the Plan to a Prospective Outside Director who has not
become a member of the Board, whether upon the exercise of such NSOs or
otherwise.
(b) On November 18, 1993, each individual who then is an Outside
Director or Prospective Outside Director shall receive an NSO covering
10,000 Common Shares. Such NSO shall become exercisable in full on the
latest of (i) the first anniversary of the IPO, (ii) the date when such
individual completes one year of service as a member of the Board or
(iii) the date of the distribution of the Company's common stock to the
shareholders of Pacific Telesis Group.
(c) NSOs granted under this Section 4.3 and held by Outside
Directors shall also become exercisable in full in the event of (i) the
termination of the Outside Director's service as a member of the Board
because of death or total and permanent disability or (ii) a Change in
Control with respect to the Company.
(d) The Exercise Price under NSOs granted under this Section 4.3
shall be equal to 100% of the initial public offering price in the IPO,
payable in one of the forms described in Sections 6.1, 6.2, 6.3 and 6.4.
(e) NSOs granted under this Section 4.3 shall terminate on the
earliest of (i) November 18, 2003, (ii) the date three months after the
termination of an Outside Director's service as a member of the Board for
any reason other than death, total and permanent disability or
Retirement, (iii) the date 12 months after the termination of an Outside
Director's service as a member of the Board because of death or (iv) the
date 36 months after the termination of an Outside Director's service as
a member of the Board because of total and permanent disability or
Retirement.
(f) NSOs granted under this Section 4.3 shall also terminate on
the date 30 days after the IPO unless the Outside Director or Prospective
Outside Director demonstrates to the Company's satisfaction that he or
she beneficially owned Common Shares with a Fair Market Value of $100,000
or more on any date within 30 days after the IPO.
4.4 Incentive Stock Options. Only Key Employees who are common-law
employees of the Company, a Parent or a Subsidiary shall be eligible for the
grant of ISOs. In addition, a Key Employee who owns more than 10% of the
total combined voting power of all classes of outstanding stock of the Company
or any of its Parents or Subsidiaries shall not be eligible for the grant of
an ISO unless the requirements set forth in section 422(c)(6) of the Code are
satisfied.
4.5 Grants Related to Spin-Off. Any other provision of this Article 4
notwithstanding, pursuant to a written agreement between the Company and
Pacific Telesis Group, Awards under the Plan may be made to any individual in
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order to supplement or replace stock options or long-term incentive awards
which were granted to such individual under a plan of Pacific Telesis Group or
of the Company and which are subject to adjustment in connection with the
distribution of the Company's common stock to the shareholders of Pacific
Telesis Group.
ARTICLE 5. OPTIONS.
5.1 Stock Option Agreement. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms of the Plan and
may be subject to any other terms that are not inconsistent with the Plan.
The Stock Option Agreement shall specify whether the Option is an ISO or an
NSO. The provisions of the various Stock Option Agreements entered into under
the Plan need not be identical. Options may be granted in consideration of a
cash payment or in consideration of a reduction in the Optionee's other
compensation. A Stock Option Agreement may provide that new Options will be
granted automatically to the Optionee when he or she exercises the prior
Options.
5.2 Number of Shares. Each Stock Option Agreement shall specify the
number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 10. Options granted to
any Optionee in a single calendar year shall in no event cover more than
500,000 Common Shares, subject to adjustment in accordance with Article 10.
5.3 Exercise Price. Each Stock Option Agreement shall specify the
Exercise Price; provided that the Exercise Price under an ISO shall in no
event be less than 100% of the Fair Market Value of a Common Share on the date
of grant. In the case of an NSO, a Stock Option Agreement may specify an
Exercise Price that varies in accordance with a predetermined formula while
the NSO is outstanding.
5.4 Exercisability and Term. Each Stock Option Agreement shall specify
the date when all or any installment of the Option is to become exercisable.
The Stock Option Agreement shall also specify the term of the Option; provided
that the term of an ISO shall in no event exceed 10 years from the date of
grant. A Stock Option Agreement may provide for accelerated exercisability in
the event of the Optionee's death, disability or retirement or other events
and may provide for expiration prior to the end of its term in the event of
the termination of the Optionee's service. Options may be awarded in
combination with SARs, and such an Award may provide that the Options will not
be exercisable unless the related SARs are forfeited. NSOs may also be
awarded in combination with Restricted Shares or Stock Units, and such an
Award may provide that the NSOs will not be exercisable unless the related
Restricted Shares or Stock Units are forfeited.
5.5 Effect of Change in Control. The Committee may determine, at the
time of granting an Option or thereafter, that such Option shall become fully
exercisable as to all Common Shares subject to such Option in the event that a
Change in Control occurs with respect to the Company. If the Committee finds
that there is a reasonable possibility that, within the succeeding six months,
a Change in Control will occur with respect to the Company, then the Committee
at its sole discretion may determine that any or all outstanding Options shall
become fully exercisable as to all Common Shares subject to such Options.
5.6 Modification or Assumption of Options. Within the limitations of
the Plan, the Committee may modify, extend or assume outstanding options or
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may accept the cancellation of outstanding options (whether granted by the
Company or by another issuer) in return for the grant of new options for the
same or a different number of shares and at the same or a different exercise
price. The foregoing notwithstanding, no modification of an Option shall,
without the consent of the Optionee, alter or impair his or her rights or
obligations under such Option.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 General Rule. The entire Exercise Price of Common Shares issued
upon exercise of Options shall be payable in cash at the time when such Common
Shares are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment
shall be made only pursuant to the express provisions of the
applicable Stock Option Agreement. The Stock Option Agreement may
specify that payment may be made in any form(s) described in this
Article 6.
(b) In the case of an NSO, the Committee may at any time
accept payment in any form(s) described in this Article 6.
6.2 Surrender of Stock. To the extent that this Section 6.2 is
applicable, payment for all or any part of the Exercise Price may be made with
Common Shares which have already been owned by the Optionee for more than six
months. Such Common Shares shall be valued at their Fair Market Value on the
date when the new Common Shares are purchased under the Plan.
6.3 Exercise/Sale. To the extent that this Section 6.3 is applicable,
payment may be made by the delivery (on a form prescribed by the Company) of
an irrevocable direction to a securities broker approved by the Company to
sell Common Shares and to deliver all or part of
the sales proceeds to the Company in payment of all or part of the Exercise
Price and any withholding taxes.
6.4 Exercise/Pledge. To the extent that this Section 6.4 is
applicable, payment may be made by the delivery (on a form prescribed by the
Company) of an irrevocable direction to pledge Common Shares to a securities
broker or lender approved by the Company, as security for a loan, and to
deliver all or part of the loan proceeds to the Company in payment of all or
part of the Exercise Price and any withholding taxes.
6.5 Promissory Note. To the extent that this Section 6.5 is
applicable, payment for all or any part of the Exercise Price may be made with
a full-recourse promissory note.
6.6 Other Forms of Payment. To the extent that this Section 6.6 is
applicable, payment may be made in any other form that is consistent with
applicable laws, regulations and rules.
ARTICLE 7. STOCK APPRECIATION RIGHTS.
7.1 SAR Agreement. Each grant of an SAR under the Plan shall be
evidenced by an SAR Agreement between the Optionee and the Company. Such SAR
shall be subject to all applicable terms of the Plan and may be subject to any
other terms that are not inconsistent with the Plan. The provisions of the
various SAR Agreements entered into under the Plan need not be identical.
SARs may be granted in consideration of a reduction in the Optionee's other
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compensation.
7.2 Number of Shares. Each SAR Agreement shall specify the number of
Common Shares to which the SAR pertains and shall provide for the adjustment
of such number in accordance with Article 10. SARs granted to any Optionee in
a single calendar year shall in no event pertain to more than 500,000 Common
Shares, subject to adjustment in accordance with Article 10.
7.3 Exercise Price. Each SAR Agreement shall specify the Exercise
Price. An SAR Agreement may specify an Exercise Price that varies in
accordance with a predetermined formula while the SAR is outstanding.
7.4 Exercisability and Term. Each SAR Agreement shall specify the date
when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. An SAR Agreement may
provide for accelerated exercisability in the event of the Optionee's death,
disability or retirement or other events and may provide for expiration prior
to the end of its term in the event of the termination of the Optionee's
service. SARs may also be awarded in combination with Options, Restricted
Shares or Stock Units, and such an Award may provide that the SARs will not be
exercisable unless the related Options, Restricted Shares or Stock Units are
forfeited. An SAR may be included in an ISO only at the time of grant but may
be included in an NSO at the time of grant or at any subsequent time, but not
later than six months before the expiration of such NSO. An SAR granted under
the Plan may provide that it will be exercisable only in the event of a Change
in Control.
7.5 Effect of Change in Control. The Committee may determine, at the
time of granting an SAR or thereafter, that such SAR shall become fully
exercisable as to all Common Shares subject to such SAR in the event that a
Change in Control occurs with respect to the Company. If the Committee finds
that there is a reasonable possibility that, within the succeeding six months,
a Change in Control will occur with respect to the Company, then the Committee
at its sole discretion may determine that any or all outstanding SARs shall
become fully exercisable as to all Common Shares subject to such SARs.
7.6 Exercise of SARs. The exercise of an SAR shall be subject to the
restrictions imposed by Rule 16b-3 (or its successor) under the Exchange Act,
if applicable. If, on the date when an SAR expires, the Exercise Price under
such SAR is less than the Fair Market Value on such date but any portion of
such SAR has not been exercised or surrendered, then such SAR shall
automatically be deemed to be exercised as of such date with respect to such
portion. Upon exercise of an SAR, the Optionee (or any person having the
right to exercise the SAR after his or her death) shall receive from the
Company (a) Common Shares, (b) cash or (c) a combination of Common Shares and
cash, as the Committee shall determine. The amount of cash and/or the Fair
Market Value of Common Shares received upon exercise of SARs shall, in the
aggregate, be equal to the amount by which the Fair Market Value (on the date
of surrender) of the Common Shares subject to the SARs exceeds the Exercise
Price.
7.7 Modification or Assumption of SARs. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding SARs or may
accept the cancellation of outstanding SARs (whether granted by the Company or
by another issuer) in return for the grant of new SARs for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an SAR shall, without the
consent of the Optionee, alter or impair his or her rights or obligations
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under such SAR.
ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS.
8.1 Time, Amount and Form of Awards. Awards under the Plan may be
granted in the form of Restricted Shares, in the form of Stock Units, or in
any combination of both. Restricted Shares or Stock Units may also be awarded
in combination with NSOs or SARs, and such an Award may provide that the
Restricted Shares or Stock Units will be forfeited in the event that the
related NSOs or SARs are exercised.
8.2 Payment for Awards. No cash consideration shall be required of the
recipients of Awards under this Article 8.
8.3 Vesting Conditions. Each Award of Restricted Shares or Stock Units
shall become vested, in full or in installments, upon satisfaction of the
conditions specified in the Stock Award Agreement. A Stock Award Agreement
may provide for accelerated vesting in the event of the Participant's death,
disability or retirement or other events. The Committee may determine, at the
time of making an Award or thereafter, that such Award shall become fully
vested in the event that a Change in Control occurs with respect to the
Company.
8.4 Form and Time of Settlement of Stock Units. Settlement of vested
Stock Units may be made in the form of (a) cash, (b) Common Shares or (c) any
combination of both. The actual number of Stock Units eligible for settlement
may be larger or smaller than the number included in the original Award, based
on predetermined performance factors. Methods of converting Stock Units into
cash may include (without limitation) a method based on the average Fair
Market Value of Common Shares over a series of trading days. Vested Stock
Units may be settled in a lump sum or in installments. The distribution may
occur or commence when all vesting conditions applicable to the Stock Units
have been satisfied or have lapsed, or it may be deferred to any later date.
The amount of a deferred distribution may be increased by an interest factor
or by dividend equivalents. Until an Award of Stock Units is settled, the
number of such Stock Units shall be subject to adjustment pursuant to
Article 10.
8.5 Death of Recipient. Any Stock Units Award that becomes payable
after the recipient's death shall be distributed to the recipient's
beneficiary or beneficiaries. Each recipient of a Stock Units Award under the
Plan shall designate one or more beneficiaries for this purpose by filing the
prescribed form with the Company. A beneficiary designation may be changed by
filing the prescribed form with the Company at any time before the Award
recipient's death. If no beneficiary was designated or if no designated
beneficiary survives the Award recipient, then any Stock Units Award that
becomes payable after the recipient's death shall be distributed to the recip-
ient's estate.
8.6 Creditors' Rights. A holder of Stock Units shall have no rights
other than those of a general creditor of the Company. Stock Units represent
an unfunded and unsecured obligation of the Company, subject to the terms and
conditions of the applicable Stock Award Agreement.
ARTICLE 9. VOTING AND DIVIDEND RIGHTS.
9.1 Restricted Shares. The holders of Restricted Shares awarded under
the Plan shall have the same voting, dividend and other rights as the
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Company's other shareholders. A Stock Award Agreement, however, may require
that the holders of Restricted Shares invest any cash dividends received in
additional Restricted Shares. Such additional Restricted Shares shall be
subject to the same conditions and restrictions as the Award with respect to
which the dividends were paid. Such additional Restricted Shares shall not
reduce the number of Common Shares available under Article 3.
9.2 Stock Units. The holders of Stock Units shall have no voting
rights. Prior to settlement or forfeiture, any Stock Unit awarded under the
Plan may, at the Committee's discretion, carry with it a right to dividend
equivalents. Such right entitles the holder to be credited with an amount
equal to all cash dividends paid on one Common Share while the Stock Unit is
outstanding. Dividend equivalents may be converted into additional Stock
Units. Settlement of dividend equivalents may be made in the form of cash, in
the form of Common Shares, or in a combination of both. Prior to
distribution, any dividend equivalents which are not paid shall be subject to
the same conditions and restrictions as the Stock Units to which they attach.
ARTICLE 10. PROTECTION AGAINST DILUTION.
10.1 Adjustments. In the event of a subdivision of the outstanding
Common Shares, a declaration of a dividend payable in Common Shares, a
declaration of a dividend payable in a form other than Common Shares in an
amount that has a material effect on the price of Common Shares, a combination
or consolidation of the outstanding Common Shares (by reclassification or
otherwise) into a lesser number of Common Shares, a recapitalization, a
spinoff or a similar occurrence, the Committee shall make such adjustments as
it, in its sole discretion, deems appropriate in one or more of (a) the number
of Options, SARs, Restricted Shares and Stock Units available for future
Awards under Article 3, (b) the limitations set forth in Sections 5.2 and 7.2,
(c) the number of NSOs to be granted to Outside Directors under Section 4.2,
(d) the number of Stock Units included in any prior Award which has not yet
been settled, (e) the number of Common Shares covered by each outstanding
Option and SAR, or (f) the Exercise Price under each outstanding Option and
SAR. Except as provided in this Article 10, a Participant shall have no
rights by reason of any issue by the Company of stock of any class or
securities convertible into stock of any class, any subdivision or
consolidation of shares of stock of any class, the payment of any stock
dividend or any other increase or decrease in the number of shares of stock of
any class.
10.2 Reorganizations. In the event that the Company is a party to a
merger or other reorganization, outstanding Options, SARs, Restricted Shares
and Stock Units shall be subject to the agreement of merger or reorganization.
Such agreement may provide, without limitation, for the assumption of
outstanding Awards by the surviving corporation or its parent, for their
continuation by the Company (if the Company is a surviving corporation), for
accelerated vesting and accelerated expiration, or for settlement in cash.
ARTICLE 11. AWARDS UNDER OTHER PLANS.
The Company may grant awards under other plans or programs. Such awards
may be settled in the form of Common Shares issued under this Plan. Such
Common Shares shall be treated for all purposes under the Plan like Common
Shares issued in settlement of Stock Units and shall, when issued, reduce the
number of Common Shares available under Article 3.
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ARTICLE 12. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.
12.1 Effective Date. No provision of this Article 12 shall be effective
unless and until the Board has determined to implement such provision.
12.2 Elections to Receive NSOs or Stock Units. An Outside Director may
elect to receive his or her annual retainer payments and meeting fees from the
Company in the form of cash, NSOs, Stock Units, or a combination thereof.
Such NSOs and Stock Units shall be issued under the Plan. An election under
this Article 12 shall be filed with the Company on the prescribed form. The
election shall apply only to annual retainers and meeting fees payable at
least six months after such form has been received by the Company. The
election may be amended or canceled by filing a new form with the Company, but
the new form shall apply only to annual retainers and meeting fees payable at
least six months after it has been received by the Company.
12.3 Number and Terms of NSOs. The number of NSOs to be granted to
Outside Directors in lieu of annual retainers and meeting fees that would
otherwise be paid in cash shall be calculated in a manner determined by the
Board. The terms of such NSOs shall also be determined by the Board.
12.4 Number and Terms of Stock Units. The number of Stock Units to be
granted to Outside Directors shall be calculated by dividing the amount of the
annual retainer or the meeting fee that would otherwise be paid in cash by the
arithmetic mean of the Fair Market Values of a Common Share on the 10
consecutive trading days ending with the date when such retainer or fee is
payable. The terms of such Stock Units shall be determined by the Board.
ARTICLE 13. LIMITATION ON RIGHTS.
13.1 Retention Rights. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an employee,
consultant or director of the Company, a Parent, a Subsidiary or an Affiliate.
The Company and its Parents and Subsidiaries reserve the right to terminate
the service of any employee, consultant or director at any time, with or
without cause, subject to applicable laws, the Company's certificate of
incorporation and by-laws and a written employment agreement (if any).
13.2 Shareholders' Rights. A Participant shall have no dividend rights,
voting rights or other rights as a shareholder with respect to any Common
Shares covered by his or her Award prior to the issuance of a stock
certificate for such Common Shares. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to the date when
such certificate is issued, except as expressly provided in Articles 8, 9 and
10.
13.3 Regulatory Requirements. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares under
the Plan shall be subject to all applicable laws, rules and regulations and
such approval by any regulatory body as may be required. The Company reserves
the right to restrict, in whole or in part, the delivery of Common Shares
pursuant to any Award prior to the satisfaction of all legal requirements
relating to the issuance of such Common Shares, to their registration, quali-
fication or listing or to an exemption from registration, qualification or
listing.
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ARTICLE 14. LIMITATION ON PAYMENTS.
14.1 Basic Rule. Any provision of the Plan to the contrary
notwithstanding, in the event that the independent auditors most recently
selected by the Board (the "Auditors") determine that any payment or transfer
by the Company to or for the benefit of a Participant, whether paid or payable
(or transferred or transferable) pursuant to the terms of this Plan or
otherwise (a "Payment"), would be nondeductible by the Company for federal
income tax purposes because of the provisions concerning "excess parachute
payments" in section 280G of the Code, then the aggregate present value of all
Payments shall be reduced (but not below zero) to the Reduced Amount; provided
that the Committee, at the time of making an Award under this Plan or at any
time thereafter, may specify in writing that such Award shall not be so
reduced and shall not be subject to this Article 14. For purposes of this
Article 14, the "Reduced Amount" shall be the amount, expressed as a present
value, which maximizes the aggregate present value of the Payments without
causing any Payment to be nondeductible by the Company because of section 280G
of the Code.
14.2 Reduction of Payments. If the Auditors determine that any Payment
would be nondeductible by the Company because of section 280G of the Code,
then the Company shall promptly give the Participant notice to that effect and
a copy of the detailed calculation thereof and of the Reduced Amount, and the
Participant may then elect, in his or her sole discretion, which and how much
of the Payments shall be eliminated or reduced (as long as after such election
the aggregate present value of the Payments equals the Reduced Amount) and
shall advise the Company in writing of his or her election within 10 days of
receipt of notice. If no such election is made by the Participant within such
10-day period, then the Company may elect which and how much of the Payments
shall be eliminated or reduced (as long as after such election the aggregate
present value of the Payments equals the Reduced Amount) and shall notify the
Participant promptly of such election. For purposes of this Article 14,
present value shall be determined in accordance with section 280G(d)(4) of the
Code. All determinations made by the Auditors under this Article 14 shall be
binding upon the Company and the Participant and shall be made within 60 days
of the date when a payment becomes payable or transferable. As promptly as
practicable following such determination and the elections hereunder, the
Company shall pay or transfer to or for the benefit of the Participant such
amounts as are then due to him or her under the Plan and shall promptly pay or
transfer to or for the benefit of the Participant in the future such amounts
as become due to him or her under the Plan.
14.3 Overpayments and Underpayments. As a result of uncertainty in the
application of section 280G of the Code at the time of an initial
determination by the Auditors hereunder, it is possible that Payments will
have been made by the Company which should not have been made (an
"Overpayment") or that additional Payments which will not have been made by
the Company could have been made (an "Underpayment"), consistent in each case
with the calculation of the Reduced Amount hereunder. In the event that the
Auditors, based upon the assertion of a deficiency by the Internal Revenue
Service against the Company or the Participant which the Auditors believe has
a high probability of success, determine that an Overpayment has been made,
such Overpayment shall be treated for all purposes as a loan to the
Participant which he or she shall repay to the Company, together with interest
at the applicable federal rate provided in section 7872(f)(2) of the Code;
provided, however, that no amount shall be payable by the Participant to the
Company if and to the extent that such payment would not reduce the amount
which is subject to taxation under section 4999 of the Code. In the event
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that the Auditors determine that an Underpayment has occurred, such
Underpayment shall promptly be paid or transferred by the Company to or for
the benefit of the Participant, together with interest at the applicable
federal rate provided in section 7872(f)(2) of the Code.
14.4 Related Corporations. For purposes of this Article 14, the term
"Company" shall include affiliated corporations to the extent determined by
the Auditors in accordance with section 280G(d)(5) of the Code.
ARTICLE 15. WITHHOLDING TAXES.
15.1 General. To the extent required by applicable federal, state,
local or foreign law, a Participant or his or her successor shall make ar-
rangements satisfactory to the Company for the satisfaction of any withholding
tax obligations that arise in connection with the Plan. The Company shall not
be required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.
15.2 Share Withholding. The Committee may permit a Participant to
satisfy all or part of his or her withholding or income tax obligations by
having the Company withhold all or a portion of any Common Shares that other-
wise would be issued to him or her or by surrendering all or a portion of any
Common Shares that he or she previously acquired. Such Common Shares shall be
valued at their Fair Market Value on the date when taxes otherwise would be
withheld in cash. Any payment of taxes by assigning Common Shares to the
Company may be subject to restrictions, including any restrictions required by
rules of the Securities and Exchange Commission.
ARTICLE 16. ASSIGNMENT OR TRANSFER OF AWARDS.
16.1 General. Except as provided in Article 15, an Award granted under
the Plan shall not be anticipated, assigned, attached, garnished, optioned,
transferred or made subject to any creditor's process, whether voluntarily,
involuntarily or by operation of law. An Option or SAR may be exercised
during the lifetime of the Optionee only by him or her or by his or her
guardian or legal representative. Any act in violation of this Article 16
shall be void. However, this Article 16 shall not preclude a Participant from
designating a beneficiary who will receive any outstanding Awards in the event
of the Participant's death, nor shall it preclude a transfer of Awards by will
or by the laws of descent and distribution.
16.2 Trusts. Neither this Article 16 nor any other provision of the
Plan shall preclude a Participant from transferring or assigning Restricted
Shares or Stock Units to (a) the trustee of a trust that is revocable by such
Participant alone, both at the time of the transfer or assignment and at all
times thereafter prior to such Participant's death, or (b) the trustee of any
other trust to the extent approved in advance by the
Committee in writing. A transfer or assignment of Restricted Shares or Stock
Units from such trustee to any person other than such Participant shall be
permitted only to the extent approved in advance by the Committee in writing,
and Restricted Shares or Stock Units held by such trustee shall be subject to
all of the conditions and restrictions set forth in the Plan and in the
applicable Stock Award Agreement, as if such trustee were a party to such
Agreement.
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ARTICLE 17. FUTURE OF THE PLAN.
17.1 Term of the Plan. The Plan, as set forth herein, shall become
effective on January 21, 1994. The Plan shall remain in effect until it is
terminated under Section 17.2, except that no ISOs shall be granted after
April 22, 2003.
17.2 Amendment or Termination. The Board may, at any time and for any
reason, amend or terminate the Plan, except that the provisions of Sections
4.2 and 4.3 relating to the amount, price and timing of Option grants to Out-
side Directors shall not be amended more than once in any six-month period
after the IPO. An amendment of the Plan shall be subject to the approval of
the Company's shareholders only to the extent required by applicable laws,
regulations or rules. No Awards shall be granted under the Plan after the
termination thereof. The termination of the Plan, or any amendment thereof,
shall not affect any Award previously granted under the Plan.
ARTICLE 18. DEFINITIONS.
18.1 "Affiliate" means any entity other than a Subsidiary, if the Com-
pany and/or one or more Subsidiaries own not less than 50% of such entity.
18.2 "Award" means any award of an Option, an SAR, a Restricted Share or
a Stock Unit under the Plan.
18.3 "Board" means the Company's Board of Directors, as constituted from
time to time.
18.4 "Change in Control" means the occurrence of any of the following
events:
(a) Any "person" (as defined below) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 20% or more of the
total voting power represented by the Company's then outstanding voting
securities; or
(b) A change in the composition of the Board occurs, as a result
of which fewer than two-thirds of the incumbent directors are directors
who either (i) had been directors of the Company on the "look-back date"
(as defined below) or (ii) were elected, or nominated for election, to
the Board with the affirmative votes of at least a majority of the
directors who had been directors of the Company on the "look-back date"
and who were still in office at the time of the election or nomination;
or
(c) The shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 80% of the total voting
power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation; or
(d) The shareholders of the Company approve (i) a plan of complete
liquidation of the Company or (ii) an agreement for the sale or
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disposition by the Company of all or substantially all of the Company's
assets.
For purposes of Subsection (a) above, the term "person" shall have the
same meaning as when used in sections 13(d) and 14(d) of the Exchange Act, but
shall exclude (i) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or of a Parent or Subsidiary, (ii) a
corporation owned directly or indirectly by the shareholders of the Company in
substantially the same proportions as their ownership of the common stock of
the Company, and (iii) Pacific Telesis Group.
For purposes of Subsection (b) above, the term "look-back date" shall
mean the later of (i) the earliest date on which securities of the Company
representing more than 20% of the total voting power represented by the
Company's then outstanding voting securities are owned by persons other than
Pacific Telesis Group or (ii) the date 24 months prior to the change in the
composition of the Board.
Any other provision of this Section 18.4 notwithstanding, the term
"Change in Control" shall not include either of the following events, if
undertaken at the election of the Company:
(i) A transaction, the sole purpose of which is to
change the state of the Company's incorporation; or
(ii) A transaction, the result of which is to sell all or
substantially all of the assets of the Company to another
corporation (the "surviving corporation"); provided that the
surviving corporation is owned directly or indirectly by the
shareholders of the Company immediately following such transaction
in substantially the same proportions as their ownership of the
Company's common stock immediately preceding such transaction; and
provided, further, that the surviving corporation expressly assumes
this Plan and all outstanding Awards.
18.5 "Code" means the Internal Revenue Code of 1986, as amended.
18.6 "Committee" means a committee of the Board, as described in
Article 2.
18.7 "Common Share" means one share of the common stock of the Company.
18.8 "Company" means PacTel Corporation, a California corporation.
18.9 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
18.10 "Exercise Price," in the case of an Option, means the amount for
which one Common Share may be purchased upon exercise of such Option, as
specified in the applicable Stock Option Agreement. "Exercise Price," in the
case of an SAR, means an amount, as specified in the applicable SAR Agreement,
which is subtracted from the Fair Market Value of one Common Share in
determining the amount payable upon exercise of such SAR.
18.11 "Fair Market Value" means the market price of Common Shares,
determined by the Committee as follows:
(a) If the Common Shares were traded over-thecounter on the date
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in question but were not classified as a national market issue, then the
Fair Market Value shall be equal to the mean between the last reported
representative bid and asked prices quoted by the NASDAQ system for such
date;
(b) If the Common Shares were traded over-thecounter on the date
in question and were classified as a national market issue, then the Fair
Market Value shall be equal to the last-transaction price quoted by the
NASDAQ system for such date;
(c) If the Common Shares were traded on a stock exchange on the
date in question, then the Fair Market Value shall be equal to the
closing price reported by the applicable composite transactions report
for such date; and
(d) If none of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good faith on
such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee
shall be based on the prices reported in the Western Edition of The Wall
Street Journal. Such determination shall be conclusive and binding on all
persons.
18.12 "IPO" means the initial public offering of the Company's common
stock pursuant to a Registration Statement on Form S-1 that has been declared
effective by the Securities and Exchange Commission.
18.13 "ISO" means an incentive stock option described in section 422(b)
of the Code.
18.14 "Key Employee" means (a) a common-law employee of the Company, a
Parent, a Subsidiary or an Affiliate, (b) an Outside Director, (c) a
Prospective Outside Director and (d) a consultant or adviser who provides
services to the Company, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as an Outside Director, or as an independent
contractor shall be considered employment for all purposes of the Plan, except
as provided in Sections 4.2 and 4.4.
18.15 "NSO" means an employee stock option not described in sections 422
or 423 of the Code.
18.16 "Option" means an ISO or NSO granted under the Plan and entitling
the holder to purchase one Common Share.
18.17 "Optionee" means an individual or estate who holds an Option or
SAR.
18.18 "Outside Director" shall mean a member of the Board who is not a
common-law employee of the Company, a Parent, a Subsidiary or an Affiliate.
18.19 "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent
on a date after the adoption of the Plan shall be considered a Parent
commencing as of such date.
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18.20 "Participant" means an individual or estate who holds an Award.
18.21 "Plan" means this PacTel Corporation 1993 Long-Term Stock
Incentive Plan, as it may be amended from time to time.
18.22 "Prospective Outside Director" means an individual who (i) is not
a common-law employee of the Company, a Parent, a Subsidiary or an Affiliate,
(ii) is expected to become an Outside Director and (iii) is listed as a
prospective director of the Company in the Registration Statement on Form S-1
filed by the Company in connection with the IPO.
18.23 "Restricted Share" means a Common Share awarded under the Plan.
18.24 "Retirement" means that an Outside Director's service terminates
after he or she has served for three or more years as a member of the Board
and/or as a member of the board of directors of Pacific Telesis Group.
18.25 "SAR" means a stock appreciation right granted under the Plan.
18.26 "SAR Agreement" means the agreement between the Company and an
Optionee which contains the terms, conditions and restrictions pertaining to
his or her SAR.
18.27 "Stock Award Agreement" means the agreement between the Company
and the recipient of a Restricted Share or Stock Unit which contains the
terms, conditions and restrictions pertaining to such Restricted Share or
Stock Unit.
18.28 "Stock Option Agreement" means the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions
pertaining to his or her Option.
18.29 "Stock Unit" means a bookkeeping entry representing the equivalent
of one Common Share, as awarded under the Plan.
18.30 "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that
attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
ARTICLE 19. EXECUTION.
To record the amendment and restatement of the Plan by the Board, the
Company has caused its duly authorized officer to affix the corporate name and
seal hereto.
PACTEL CORPORATION
By _____________________________
By _____________________________
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Exhibit 10.9
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PACTEL CORPORATION
SHORT-TERM INCENTIVE PLAN
(Effective as of January 1, 1994)
SECTION 1. ESTABLISHMENT AND PURPOSE OF THE PLAN
This Plan is established by the Corporation effective January 1, 1994 and
supersedes any previous short-term incentive plans for the payment of awards
based on the satisfaction of annual performance criteria. The purpose of the
Plan is to provide for the payment of annual awards to Eligible Employees
based on the achievement of performance criteria established by the
Corporation.
SECTION 2. ELIGIBILITY AND PARTICIPATION
Awards under the Plan are earned with respect to performance during the
Award Year. An Employee is an Eligible Employee entitled to receive an Award
with respect to an Award Year only if he or she:
(a) Has at least 90 days of Active Service during such Award Year;
(b) Is in Active Service and on the payroll of a Participating
Entity on October 1 of such Award Year or terminated employment during
such Award Year on account of death or Retirement; and
(c) Is in Active Service and on the payroll of a Participating
Entity on December 31 of such Award Year or terminated employment during
such Award Year on account of death or Retirement.
An individual's status as an Eligible Employee shall be determined by the
Corporation, and such determination shall be conclusive and binding on all
persons.
SECTION 3. AMOUNT OF AWARD
(a) Performance Criteria. With respect to each Award Year, the C&P
Committee shall adopt performance criteria for each Participating Entity. The
C&P Committee may also adopt difference performance criteria for different job
classifications. In order to assure the incentive features of the Plan and to
avoid distortion in its operation, the C&P Committee may, in its sole
discretion, revise any performance criteria to the extent the C&P Committee
deems appropriate to compensate for or reflect any extraordinary changes
occurring during the Award Year that significantly alter the basis upon which
the performance criteria were established. Any such revisions may be made
before, during or after the Award Year and, once adopted by the C&P Committee,
shall be conclusive and binding on all persons.
(b) Award Target. Award targets for each Award Year are determined by
the C&P Committee and may be expressed as a percentage of Base Pay or any
other form specified by the C&P Committee. The C&P Committee may designate
different Award targets for different job classifications and Participating
Entities.
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(c) Performance Levels. The C&P Committee shall annually designate
levels of minimum, maximum and target achievement of performance criteria and
shall establish percentages of Award targets to be given for achievement of
each such performance level. Different performance levels and associated
percentages of Award targets may be established for different Participating
Entities. The C&P Committee may also (i) increase Awards for an Eligible
Employee or group of Eligible Employees as a reward for extraordinary
performance in excess of designated achievement levels and (ii) reduce or
eliminate an Eligible Employee's Award if he or she receives a less-than-
satisfactory rating in his or her work performance review. In no event shall
the percentage of the Award target actually paid exceed 200%. No Award shall
be paid for performance below the minimum level of achievement of performance
criteria, unless the C&P Committee determines, in its sole discretion, that
special circumstances warrant the grant of an Award in an amount designated by
the C&P Committee.
(d) Accrued Awards. As of the end of the Award Year, the C&P Committee
shall determine Award amounts based on the Award targets and performance
criteria for each Participating Entity and job classification as described in
Subsections (a), (b) and (c). Individual Award amounts so determined may be
adjusted by the C&P Committee to reflect extraordinary or less-than-
satisfactory performance as described in Subsection (c). Award amounts so
determined (and adjusted, if applicable) are referred to as Accrued Awards.
(e) Proration of Accrued Awards. Accrued Awards shall be prorated as
follows:
(i) The Accrued Award of an Eligible Employee who has less than a
full year of Active Service with respect to a Award Year shall be
prorated by multiplying his or her Accrued Award by a fraction, the
denominator of which is 365 and the numerator of which is equal to the
number of days of such Eligible Employee's Active Service for such Award
Year. The foregoing notwithstanding, for purposes of this Paragraph (i)
only, up to 30 days of a period of approved leave of absence or sickness
disability absence may be counted as Active Service if such period does
not begin within 13 weeks of the end of a previous period of leave of
absence or sickness disability absence occurring in the current or
preceding Award Year.
(ii) The Accrued Award of an Eligible Employee who has Active
Service at more than one Award target level with respect to a Award Year
(because of a job transfer, temporary or permanent promotion or similar
reason) shall be determined as follows. First, for each such Award
target level, an Accrued Award shall be determined as if the Eligible
Employee had an entire year of Active Service at that Award target level.
Next, each such Accrued Award amount shall be prorated by multiplying it
by a fraction, the denominator of which is 365 and the numerator of which
is the number of days of such Eligible Employee's Active Service at such
Award target level for that Award Year. Finally, the prorated Accrued
Awards shall be added together to determine the Eligible Employee's total
Accrued Award.
SECTION 4. PAYMENT OF AWARDS
As described in Section 3(b), Awards may be expressed in dollars or any
other medium specified by the C&P Committee including, without limitation,
shares of stock of the Corporation. The C&P Committee shall also specify a
medium of payment (such as dollars, shares of stock of the Corporation or
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other medium) of Accrued Awards, which medium may be different from the medium
in which the Award was expressed under Section 3(b). Accrued Awards paid in
the form of dollars shall be rounded to the nearest whole dollar (rounding up
at $0.50) and Accrued Awards paid in the form of shares of stock shall be
rounded to the nearest whole share (rounding up at 1/2). Accrued Awards shall
be paid as soon as administratively practicable following the Award Year with
respect to which the Accrued Awards are earned. In the event of any Eligible
Employee's death before payment of an Accrued Award, payment shall be made (a)
to the Eligible Employee's spouse or (b) if there is no spouse living at the
time of such payment to the Eligible Employee's then living children in equal
shares or (c) if there are no such children living at the time of such payment
to the Eligible Employee's estate. Accrued Award payments shall be subject to
income tax and employment tax withholding as required by applicable law, but
shall not be subject to Eligible Employees' payroll deduction elections for
personal obligations, such as U.S. Savings Bonds, charitable giving, political
action committee contributions and credit union or bank payments.
SECTION 5. ADMINISTRATION
The Plan shall be administered by the C&P Committee. The C&P Committee
in its sole discretion shall make such rules, interpretations and computations
as it may deem appropriate. Any decision of the C&P Committee with respect to
the Plan, including (without limitation) any determination of eligibility to
receive an Award and any calculation of the amount of an Award shall be
conclusive and binding on all persons.
SECTION 6. AMENDMENT AND TERMINATION
The Board may amend or terminate the Plan at any time, to be effective at
such date as the Board designates. Any amendment or termination may affect
present and future Eligible Employees. The Corporation's Senior Vice
President--Corporate Development/Strategy and Human Resources, with the
approval of the Senior Vice President--Legal and External Affairs and
Secretary, shall be authorized to make minor or administrative changes to the
Plan.
SECTION 7. GENERAL PROVISIONS
(a) Stock Splits, Etc. In the event of any change in outstanding shares
of the Corporation by reason of any stock dividend or split, recapitalization,
merger, spinoff, consolidation, combination or exchange of shares or other
similar corporate change, the Board shall make such adjustments as it deems
appropriate to the performance criteria or Award targets for any Award Year
not yet completed. Any such adjustments, once adopted by the C&P Committee,
shall be conclusive and binding on all persons.
(b) Incompetence. If, in the opinion of the C&P Committee, an
individual becomes unable to handle properly any amounts payable to such
individual under the Plan, then the C&P Committee may make such arrangements
for payment on such individual's behalf as it determines will be beneficial to
such individual, including (without limitation) payment to such individual's
guardian, conservator, spouse, parent or dependent.
(c) No Employment Rights. Nothing in the Plan shall be deemed to give
any individual any right to remain in the employ of the Corporation or any
Participating Entity. The Corporation and Participating Entities reserve the
right to terminate any individual's employment at any time, with or without
cause.
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(d) Choice of Law. The validity, interpretation, construction and
performance of the Plan shall be governed under the laws of the state of
California.
SECTION 8. DEFINITIONS
(a) "Accrued Award" means the amount of an Award that has been
determined and is payable.
(b) "Active Service" means each day on which an individual is actively
at work as a common-law employee of the Corporation, a Participating Entity or
any member of the Corporation's Controlled Group and each day on which such
individual is absent from such active work but is entitled to payment on
account of vacation, holiday or jury duty.
(c) "Award" means an award under the Plan.
(d) "Award Year" means the calendar year or, if different, the
Corporation's fiscal year.
(e) "Base Pay" means an Eligible Employee's base rate of annual salary
or wages, without reduction for deferrals made under any plans or programs of
the Controlled Group, in effect as of the last day of the Award Year.
(f) "Board" means the Board of Directors of the Corporation.
(g) "C&P Committee" means the Compensation and Personnel Committee of
the Board.
(h) "Controlled Group" means the group of corporations and
unincorporated trades or businesses each member of which is at least 80%
owned, directly or indirectly, by AirTouch Communications.
(i) "Corporation" means PacTel Corporation, a California corporation.
(j) "Eligible Employee" is defined in Section 2.
(k) "Employee" means an individual who is a regular full-time employee
of a Participating Entity and who is not:
(i) A commissioned salesperson employed by PacTel Paging;
(ii) Included in a unit of employees covered by a collective
bargaining agreement under which the Employee is not eligible to
participate in the Plan; or
(iii) A nonresident alien with respect to the United States;
provided that this Paragraph (iii) shall not apply to an Employee whom
the C&P Committee has designated in writing as an Eligible Employee.
An individual's status as an Employee shall be determined by the C&P
Committee, and such determination shall be conclusive and binding on all
persons.
(l) "Participating Entity" means the Corporation and each of its
subsidiaries and affiliates that has been designated as a Participating Entity
by the C&P Committee. In addition, a particular division or separate
operating unit of the Corporation or any of its subsidiaries or affiliates may
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be designated as a separate Participating Entity.
(m) "Plan" means this PacTel Corporation Short-Term Incentive Plan.
(n) "Retirement" means a termination of employment (i) from a
Participating Entity at an age and with employment service that would entitle
the individual to a Service Pension under the PacTel Corporation Employees'
Pension Plan if the individual were a participant in such Pension Plan or (ii)
under circumstances designated as a Retirement by the C&P Committee.
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Exhibit 10.10
-------------
PACTEL CORPORATION
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
(Effective as of January 21, 1994)
SECTION 1. ELIGIBILITY.
Each member of the Board of Directors of PacTel Corporation ("Company")
who is not an employee of the Company, or any of its subsidiaries, is eligible
to participate in a Deferred Compensation Plan for Non-Employee Directors
("Plan").
SECTION 2. PARTICIPATION.
2.1 Each eligible Director or designated Director may elect to
participate in the Plan prior to the beginning of any calendar year by
directing that all or any part of the compensation which would otherwise have
been payable currently for services as a Director (including fees payable for
services as a member of a committee of the Board) during such calendar year
and subsequent calendar years shall be credited to a deferred compensation
account subject to the terms of the Plan.
2.2 Notwithstanding the foregoing, for calendar year 1994, each eligible
Director or designated Director may elect to participate in the Plan within 30
days after the effective date of the Plan by directing that all or any part of
the Compensation which would otherwise have been payable currently for
services as a Director subsequent to the Participant's election (including
fees payable for services as a member of a Committee of the Board) during such
calendar year and subsequent calendar years shall be credited to a deferred
compensation account subject to the terms of the Plan.
2.3 An election to participate in the Plan shall be in the form of a
document executed by the Director and filed with the Secretary of the Company.
An election related to fees otherwise payable currently in any calendar year
shall become irrevocable on the last day prior to the beginning of such
calendar year. An election shall continue until a Director ceases to be a
Director or until he or she terminates or modifies such election by written
notice. Any such termination or modification shall become effective as of the
end of the calendar year in which such notice is given with respect to all
fees otherwise payable in subsequent calendar years.
2.4 A Director who has filed a termination of election may thereafter
again file an election to participate for any calendar year or years
subsequent to the filing of such election.
SECTION 3. DEFERRED ACCOUNTS.
Deferred amounts shall be credited to the Director's account and shall
bear interest from the date such fees would otherwise have been paid. The
interest credited to the account will be compounded annually at the end of
each calendar year. The rate of interest credited at the end of each calendar
year shall be determined by the PacTel Corporation Board of Directors from
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time to time.
SECTION 4. DISTRIBUTION.
4.1 At the time of election to participate in the Plan, a Director shall
make an election with respect to the interest. A Director may elect to
receive such amounts in one payment or in some other number of approximately
level annual installments (not exceeding 15). The amount of an annual
installment shall be calculated by dividing the total amount, including
interest, credited to the Director's account immediately prior to such
installment by the remaining number of installments. As specified by the
Director, the first installment (or the single payment if the Director has so
elected) shall be paid as soon as practicable after the first day of the
calendar year following (a) the calendar year in which the Director ceases to
be a Director of the Company or any of its subsidiaries, (b) the calendar year
in which the Director attains a specified age (between age 59_ and 75),
(c) the earlier of a specified number of years (maximum of five) after the
Director ceases to be a Director of the Company or any of its subsidiaries or
the attainment of age 75, or (d) the earlier of the attainment of a specified
age (but not younger than 59_) or the calendar year in which the Director
ceases to be a Director of the Company or any of its subsidiaries. Subsequent
installments shall be paid on the first day of each succeeding calendar year
until the entire amount credited to the Director's account is paid. Amounts
held pending distribution pursuant to this Section shall continue to accrue
interest at the rate stated in Section 3.
4.2 The election with respect to the distribution of amounts deferred
under the Plan plus accumulated interest shall be contained in the document,
referred to in Section 2.2, executed by the Director and filed with the
Secretary of the Company. Such an election related to fees otherwise payable
currently in any calendar year shall become irrevocable on the last day prior
to the beginning of such calendar year.
4.3 Notwithstanding an election pursuant to Section 4.1, in the event a
Director ceases to be a Director of the Company or any of its subsidiaries and
becomes a proprietor, officer, partner, employee, or otherwise becomes
affiliated with any business that is in competition with the Company or any of
its subsidiaries, or becomes employed by any governmental agency having
jurisdiction over the activities of the Company or any of its subsidiaries,
the entire balance of deferred fees, including interest, shall be paid
immediately in a single payment.
4.4 A Director may elect that, in the event the Director should die
before full payment of all amounts credited to his or her account, the balance
of the deferred amounts shall be distributed in one payment, or in a number of
annual installments (not exceeding 10) or by a continuation of the installment
distributions being made or to be made to the Director, to the beneficiary or
beneficiaries designated in writing by the Director, or if no designation has
been made, to the estate of the Director in a single payment. The first
installment (or the single payment if the Director has so elected) shall be
paid on or about the first day of the calendar quarter next following the
month of death. The preceding sentence shall not apply if the beneficiary or
beneficiaries are to receive a continuation of installment distributions being
made or to be made to the Director.
SECTION 5. MISCELLANEOUS.
5.1 The rights of a Director to any deferred fees and/or interest
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thereon shall be those of a general creditor and shall not be subject in any
manner to assignment by the Director.
5.2 The Company shall not be required to reserve, or otherwise set
aside, funds for the payment of its obligations hereunder. The Company's
obligation to pay the deferred amounts shall be unfunded as to the Director.
5.3 Copies of the Plan and any and all amendments thereto shall be made
available at all reasonable times at the office of the Secretary of the
Company to all Directors.
5.4 The Board of Directors shall have the sole authority and discretion
to construe and interpret this Plan in accordance with its terms and
provisions and to make rules relating to the administration thereof. The
decision of the Board of Directors with respect to any issues relating to the
interpretation of this Plan shall be final, conclusive and binding on all
parties. The Board of Directors may delegate any part of its duties hereunder
to the Senior Vice President - Corporate Strategy/Development and Human
Resources of PacTel Corporation, subject to the final authority of the Board
of Directors.
5.5 The Board of Directors may terminate, suspend, or amend this Plan in
whole or in part, at any time, as it may deem advisable, provided that no such
termination, suspension, or amendment shall impair any rights which have
already accrued to a Participant under this Plan.
5.6 The Senior Vice President - Corporate Strategy/Development and Human
Resources of PacTel Corporation, with the approval of the Senior Vice
President - Legal, External Affairs and Secretary of PacTel Corporation, shall
be authorized to make minor or administrative changes to the Plan.
3
Exhibit 10.11
-------------
PACTEL CORPORATION
DEFERRED COMPENSATION PLAN
(Amended and Restated
as of Separation Date)
TABLE OF CONTENTS
Page
----
SECTION 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Employees Eligible Under Pre-Separation Plan . . . . . . . . . . . 3
2.2 Eligible Employees on and After Separation Date . . . . . . . . . 3
SECTION 3. Participation . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Election to Participate . . . . . . . . . . . . . . . . . . . . . 4
3.2 Form of Election . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 Newly Eligible Employees . . . . . . . . . . . . . . . . . . . . . 5
3.4 Termination and Modification of Election . . . . . . . . . . . . . 5
3.5 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.6 Establishment of Account . . . . . . . . . . . . . . . . . . . . . 6
SECTION 4. Allocations to Accounts . . . . . . . . . . . . . . . . . . . 7
4.1 Deferred Compensation . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Match Based on Deferred Compensation . . . . . . . . . . . . . . . 7
4.3 Restoration Based on Deferred Compensation . . . . . . . . . . . . 9
4.4 Restoration Based on Excess Compensation . . . . . . . . . . . . . 10
4.5 Interest Credited to Account . . . . . . . . . . . . . . . . . . . 12
4.6 Vesting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 5. Distribution . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 Date of Election . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.2 Distribution Options . . . . . . . . . . . . . . . . . . . . . . . 13
5.3 Immediate Single Sum Payment . . . . . . . . . . . . . . . . . . . 13
5.4 Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.5 Installment Payments . . . . . . . . . . . . . . . . . . . . . . . 14
5.6 Hardship Distribution . . . . . . . . . . . . . . . . . . . . . . 14
5.7 Payment Obligation . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 6. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 16
6.1 No Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.2 No Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.4 Plan Administrator . . . . . . . . . . . . . . . . . . . . . . . . 17
6.5 Plan Amendment and Termination . . . . . . . . . . . . . . . . . . 17
6.6 Claims and Review Procedures . . . . . . . . . . . . . . . . . . . 17
SECTION 7. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 19
6
PACTEL CORPORATION
DEFERRED COMPENSATION PLAN
(Amended and Restated
as of Separation Date)
SECTION 1. Introduction.
Effective January 1, 1989, the PacTel Corporation Deferred Compensation
Plan ("Plan") was established to provide deferred compensation to a select
group of management and highly compensated employees of PacTel Corporation and
its subsidiaries. The Plan is an unfunded employee pension benefit plan
within the meaning of the Employee Retirement Income Security Act of 1974.
Effective as of the Separation Date, the Separation Agreement obligates
the Company to retain the liability to provide benefits under this Plan to all
Participants, including Participants who will be employed by Pacific Telesis
Group and its subsidiaries at Separation Date. Further, pursuant to Section
9.02 of Appendix A of such agreement, each Participant in the Plan who is
employed by Pacific Telesis Group and its subsidiaries at Separation Date
shall not be considered to have terminated employment for purposes of
eligibility to receive a distribution from the Plan.
Effective as of Separation Date, the Plan is hereby amended and
restated to comply with the Separation Agreement and to make the following
changes: to increase the number of eligible groups of employees, to permit
participation regardless of length of service, to increase the maximum rate of
deferrals, to provide benefits previously provided by the PacTel Corporation
Excess Benefit Plan relating to limitations under section 401(a)(17) of the
Code, to change the rate of interest credited to Accounts and to approve the
transfer of the obligation to provide the restoration pension benefit
attributable deferred compensation from this Plan to another plan maintained
by the Company.
SECTION 2. Eligibility.
2.1 Employees Eligible Under Pre-Separation Plan. Each Employee who was
designated as eligible to participate in the Plan pursuant to the provisions
of the Plan in effect before the Separation Date shall continue to be eligible
to participate.
2.2 Eligible Employees on and After Separation Date. Employees who are
Officers and Select Employees of the Company or a Participating Company and
who are not eligible under Section 2.1 shall be eligible to participate in the
Plan.
SECTION 3. Participation.
3.1 Election to Participate. Prior to the beginning of any calendar year,
in accordance with procedures established by the Plan administrator, an
eligible Employee may elect to participate in the Plan by directing that
(i) part of his or her Salary and/or (ii) all or part of his or her awards
actually payable under the Short-Term Incentive Plan (herein referred to as an
"Accrued Award") shall be credited to the Employee's Account under the Plan.
As to Salary, this election shall be effective for Salary otherwise payable
for service in the next and subsequent calendar years after the year of
election. As to Accrued Awards, this election shall be effective for awards
which would otherwise be payable in the second calendar year and subsequent
years following the year of election. In no event, however, shall the part of
7
Salary and/or Accrued Awards (collectively "Compensation") so credited during
any calendar year (A) be less than $2,500 of Salary, or less than $5,000 of
Accrued Award, as applicable, or (B) include that amount of current Salary
required for all applicable tax, Social Security and employee benefit plan
withholding. An eligible Employee who does not elect to defer a portion of
his or her Compensation nonetheless may elect to participate in the Plan and
receive the 401(a)(17) Contributions, if eligible therefore.
3.2 Form of Election. An election to participate in the Plan shall be in
the form of a document approved by the Plan administrator, executed by the
Employee and filed with the Employee's Participating Company. An election
related to Salary otherwise payable for services in any calendar year shall
become irrevocable on the last day prior to the beginning of such calendar
year. An election related to the Accrued Award otherwise payable in any
calendar year shall become irrevocable on the last day prior to the beginning
of the preceding calendar year. An election related to the 401(a)(17)
Contribution shall become effective as of the first day of the month following
the date the election was made.
3.3 Newly Eligible Employees. Within thirty (30) days after first becoming
eligible to participate in the Plan, an Employee may elect to defer Salary
payable for service remaining in the calendar year by filing an election to
participate pursuant to procedures established by the Plan Administrator. An
election that is filed by the fifteenth day of a month shall be effective with
respect to Salary payable for service in subsequent months in that year. This
section also shall apply to any Employee who first becomes eligible to
participate in the Plan on or about the Separation Date.
3.4 Termination and Modification of Election. An election shall continue
until the Employee terminates or modifies such election by written notice in a
form approved by the Plan administrator, or until the Employee ceases to be
employed by his or her Participating Company (other than a transfer to another
Participating Company after which the Employee is still eligible to
participate in the Plan), in which case the Employee shall be considered to
have terminated the election. Any such termination or modification shall
become effective at the time an election would become effective under
Section 3.1.
3.5 Reinstatement. An eligible Employee who has filed a termination of
election may again file an election to participate with respect to
Compensation otherwise payable as provided under Section 3.1.
3.6 Establishment of Account. An Account shall be established for each
eligible Employee who becomes a Participant. The Account shall be credited
with allocations under Section 4 and debited with withdrawals and
distributions under Section 5.
8
SECTION 4. Allocations to Accounts.
4.1 Deferred Compensation. Deferred amounts related to Compensation which
would otherwise have been distributed in cash by a Participating Company shall
be credited to the Employee's Account and shall bear interest from the date
the Compensation would otherwise have been paid.
4.2 Match Based on Deferred Compensation. After the Employee has made for
the calendar year the maximum elective deferrals under section 402(g) of the
Code (as further limited by section 401(k)(3) of the Code, if applicable) to
an employee benefit plan that is maintained by the Company or any corporation
affiliated with and that is qualified under sections 401(a) and 401(k) of the
Code, matching amounts based on Compensation deferred pursuant to this Plan
("Deferred Match") and interest thereon shall be credited to the Employee's
Account, as provided below.
(a) Subject to the limitations provided in (b) and (c) below, the
Deferred Match for a calendar year shall be equal to:
(i) the dollar amount of Compensation deferred under this
Plan and credited to an Employee's Account under Section 4.1 for
such year, multiplied by--
(ii) the Matching Rate (the percentage in the Retirement
Plan in effect for that calendar year at which the Employee's
salary deferrals and employee contributions under the Retirement
Plan are matched by employing Company contributions).
(b) Notwithstanding the provisions of (a) above, the maximum Deferred
Match that may be credited to an Employee's Account hereunder with respect
to Compensation for a particular calendar year shall not exceed:
(i) the Employee's Compensation for that calendar year,
multiplied by--
(ii) the lesser of (A) six percent (6%), or (B) a percentage
equivalent to a fraction, the numerator of which is the total
amount for that calendar year that the Employee caused to be
contributed as salary deferrals or employee contributions to the
Employee's account in the Retirement Plan plus the amount of the
Employee's Compensation for that calendar year actually deferred
pursuant to this Plan, and the denominator of which is the
Employee's Compensation for that calendar year, multiplied by--
(iii) the Matching Rate (the percentage under the Retirement
Plan in effect for that calendar year at which the Employee's
salary deferrals and employee contributions are matched by
company contributions) under the Retirement Plan, less
(iv) the sum of (A) the amounts credited to the Employee's account
under the Retirement Plan as matching company contributions for that
calendar year and (B) the amounts credited to the Employee's Account as
the 401(a)(17) Match under Section 4.4 of the Plan for that calendar
year.
If this maximum limitation is reached with respect to a particular
calendar year, no Deferred Match shall be credited with respect to
subsequent amounts of Compensation for that calendar year deferred
pursuant to this Plan.
9
(c) In making the determinations in (a) and (b) above, the provisions
regarding matching company contributions in the Retirement Plan shall take
precedence over the provisions of this Section 4.2. The limitations of (a)
and (b) above shall be applied to limit the crediting of Deferred Match
hereunder, and shall not limit or affect the application of the provisions
regarding matching Company contributions in the Retirement Plan.
(d) The Deferred Match, as limited by (b) and (c) above, shall be
credited to the Employee's Account effective as of the same time that the
amounts of deferred Compensation to which the Deferred Match relates are
credited to the Employee's Account, except as follows. In no event shall
the Deferred Match for a calendar year be credited until after the
Employee has made the maximum elective deferrals for that calendar year,
as provided under section 402(g) of the Code (as further limited by
section 401(k)(3) of the Code, if applicable), to an employee benefit
plan that is maintained by the Company or any corporation affiliated with
the Company and that is qualified under sections 401(a) and 401(k) of the
Code. After such maximum elective deferrals have been made in a calendar
year, the Employee's Account shall be credited with an amount equal to
the Deferred Match for that year that was not credited previously solely
because the Employee had not yet made such maximum elective deferrals.
With respect to the Deferred Match described in the preceding sentence,
interest shall be applied as if such Deferred Match had been credited to
the Employee's Account at the same time that the related amounts of
Compensation deferred hereunder were credited to the Employee's Account.
In the case of an eligible Employee who leaves the service of the Company
and all corporations affiliated with the Company before the maximum
elective deferrals have been made for the calendar year, no Deferred
Match shall be credited for that calendar year.
4.3 Restoration Based on Deferred Compensation. If an eligible Employee
defers Compensation under this Plan for a calendar year, additional amounts
shall be allocated to the Employee's Account based on the rate of basic and
variable contributions under the Retirement Plan for the year, as follows.
(a) The additional amount for a calendar year shall be equal to:
(i) the dollar amount of Compensation deferred under this Plan
for such year, but only to the extent that the Compensation relates to
a period the Employee also participated in the Retirement Plan,
multiplied by
(ii) the sum of the Basic Rate and the Variable Rate applicable
to the Employee for the calendar year under the Retirement Plan.
(b) The allocations under (a) above relating to the Basic Rate shall
be credited to the Employee's Account effective as of the same time that
the amounts of deferred Compensation to which the allocation relates are
credited to the Employee's Account. The allocation under (a) above
relating to the Variable Rate shall be credited to the Employee's Account
effective as of the last day of the calendar year and shall be based on the
Employee's deferred Compensation for the entire calendar year.
4.4 Restoration Based on Excess Compensation. Employees eligible to
receive an allocation under this Section 4.4 are those Employees whose
Retirement Plan Compensation for a calendar year exceeds the limitations under
section 401(a)(17) of the Code. In addition, in order to be eligible to
receive a restoration allocation attributable to the Matching Rate under the
Retirement Plan (the "401(a)(17) Match"), as provided in (a)(ii)(A) below, the
Employee must have made the maximum elective deferrals for the calendar year
10
under section 402(g) of the Code (as further limited by section 401(k)(3) of
the Code, if applicable) to the Retirement Plan and any other plan that is
maintained by the Company or any corporation affiliated with the Company and
this qualified under sections 401(a) and 401(k) of the Code.
The amounts allocated to an Employee's Account under this Section 4.4
are based on the basic, variable and matching contribution rates under the
Retirement Plan and the Employee's Retirement Plan Compensation that exceeds
the limits of section 401(a)(17) of the Code, and interest thereon, as
provided below.
(a) The 401(a)(17) Excess Contribution for a calendar year shall be
equal to:
(i) The dollar amount of Retirement Plan Compensation which is
not recognized under the Retirement Plan due to the limits on
compensation under section 401(a)(17) of the Code, multiplied by
(ii) The sum of the following percentages applicable to the
Employee under the Retirement Plan for such year:
(A) The Matching Rate multiplied by the rate of employee
contributions and salary deferrals (up to six percent) that the
Employee was making to the Retirement Plan when the Employee's
Retirement Plan Compensation reached the limit under section
401(a)(17) during the year;
(B) The Basic Rate; and
(C) The Variable Rate.
The above formula shall be adjusted, as appropriate, to reflect any changes
in the rates under the Retirement Plan due to transfers of employment
between Participating Companies or for any other reason and to reflect
periods of ineligibility under the Retirement Plan.
(b) The 401(a)(17) Excess Contribution shall be credited to the
Employee's Account as of December 31 of each calendar year or the date of
the Employee's termination, if earlier. In no event shall the 401(a)(17)
Match under (a)(ii)(A) above for a calendar year be credited unless the
Employee made the maximum elective deferrals for that calendar year, as
provided under sections 402(g) of the Code (as further limited by section
401(k)(3) of the Code, if applicable) to the Retirement Plan or any like
plan maintained the Company or any other employer and that is qualified
under section 401(a) and 401(k) of the Code.
(c) In the case of an eligible Employee who leaves the service of the
Company and the Participating Companies before the maximum elective
deferrals have been made for the calendar year, no 401(a)(17) Match shall
be credited for that calendar year, but any 401(a)(17) Excess Contribution
attributable to basic and variable contributions shall be made.
4.5 Interest Credited to Account. Allocations to the Account shall bear
interest from the dates specified in Sections 4.1, 4.2(d), 4.3(b) and 4.4(b)
above. The interest credited to the Account shall be compounded annually at
the end of each calendar year. The annual rate of interest to be applied for
amounts credited to Accounts for periods ending before 1995 shall be the rate
earned under the Interest Income Fund in the Retirement Plan. For amounts
credited to Accounts for periods beginning on and after 1994, the annual rate
shall be determined by the Committee from time to time, and promptly
11
communicated to eligible Employees in advance of its application.
4.6 Vesting. The portion of an Employee's Account attributable to
deferred Compensation and interest credited thereon shall be immediately fully
vested and nonforfeitable. The remaining portion of the Employee's Account
shall vest on the same schedule and in the same manner as the Employee's
interest in Company contributions in the Retirement Plan.
SECTION 5. Distribution.
5.1 Date of Election. At the time an eligible Employee makes an election
to participate in the Plan, the Employee also shall make an election under
Section 5.2 below with respect to the distribution (during the employee's
lifetime or in the event of the employee's death) of the amounts credited to
the Employee's Account. Such an election shall apply to all amounts credited
to the Employee's Account for period that the election is in effect shall
become irrevocable as provided in Section 3.2, subject to the provisions on
hardship distributions in Section 5.6 below. Amounts distributed from the
Employee's Account, less applicable withholding taxes, shall be paid in cash.
An eligible Employee may change the distribution option for future
deferrals and company contributions by filing a new form of election to
participate as provided in Section 3.2.
5.2 Distribution Options. A Participant may elect to receive the amounts
credited to the Participant's Account in one payment or in a number of annual
installments (over a period not exceeding 10 years). As specified by the
Participant, distributions shall commence as soon as practicable on or after
February 15 of the calendar year next following (i) retirement or termination
from a Participating Company without employment by another Participating
Company or (ii) the earlier of a specified number of years (maximum of 5)
after retirement or termination from a Participating Company without
employment by another Participating Company, or attainment of age 70. For
this purpose "Participating Company" shall also include Pacific Telesis Group
and its subsidiaries (but only with respect to a Participant who was a Post-
Separation Telesis Employee as defined in the Separation Agreement) and any
other company affiliated with the Company, as determined by the Plan
Administrator.
5.3 Immediate Single Sum Payment. Notwithstanding an election pursuant to
Section 5.2 above, at the discretion of the Committee, the entire vested
amount then credited to the Participant's Account shall be paid immediately in
a single payment if the Participant is discharged for cause by his or her
Participating Company or becomes employed by a governmental agency having
jurisdiction over the activities of the Company or any of its subsidiaries.
5.4 Death. A Participant may elect that, in the event the Participant
should die before full payment of all amounts credited to the Participant's
Account, the balance of the deferred amounts shall be distributed in one
payment, or by a continuation of the installment distributions being made or
to be made to the Participant, to the beneficiary or beneficiaries designated
in writing by the Participant, or if no designation has been made, to the
estate of the Participant in a single payment. The first installment (or the
single payment if the Participant has so elected) shall be paid within ninety
(90) days of the Participant's death. The preceding sentence shall not apply
if the beneficiary or beneficiaries are to receive a continuation of
installment distributions being made or to be made to the Participant.
5.5 Installment Payments. Installments subsequent to the first installment
paid to the Participant, or to a beneficiary or to the Participant's estate,
12
shall be paid on or about the anniversary date of the first annual installment
in each succeeding calendar year until the entire vested amount credited to
the Participant's Account is paid. Deferred amounts held pending distribution
shall continue to be credited with interest determined in accordance with
Sections 4.4 and 4.5.
5.6 Hardship Distribution. A request may be made at any time by or on
behalf of a Participant for a hardship distribution from his or her Account by
filing the request with the Committee. For purposes of the Plan, "hardship"
means immediate and heavy financial needs arising from one or more of the
following, as determined by the Committee in its sole discretion:
(i) Extraordinary and unreimbursed medical or hospital
expenses incurred by the Employee or a member of his or her
family or a relative; or
(ii) Any other unanticipated expense which imposes an
extraordinary financial burden on the employee.
A distribution based on hardship cannot exceed the amount required to meet the
immediate financial need created by the hardship and not reasonably available
from other resources of the employee.
5.7 Payment Obligation. The obligation to make distribution of deferred
amounts credited to a Participant's Account during any calendar year plus
additional matching amounts under Sections 4.2 and 4.3 and interest thereon
under Section 4.4 shall be borne primarily by each Participating Company which
otherwise would have paid the related amounts concurrently (the "primarily
liable Participating Companies"). However, if for any reason any primarily
liable Participating Company fails to make timely payment of an amount due to
or on behalf of an Employee or former employee, the Company shall be jointly
and severally liable for the obligation to pay the amount due. A company's
withdrawal from participation shall not affect that company's liability
hereunder. In addition, the liability of a company shall not be affected by
any action or inaction (on the part of an employee, his beneficiaries or any
company) with respect to amounts owed, including, but not limited to, the
granting of extensions of time or other indulgences, the failure to make
timely demand, the failure to make timely payment or the failure to give
notices of any type.
SECTION 6. Miscellaneous.
6.1 No Funding. The deferred amounts related to each Participating Company
shall be held in the general funds of such company. A Participating Company
shall not be required to reserve, or otherwise set aside, funds for the
payment of such amounts. All amounts of Compensation deferred hereunder shall
remain an asset of the Participating Company, and the Participating Company's
obligation to pay such amounts shall be unfunded as to the employee.
6.2 No Assignment. The rights of an Employee to any deferred amounts plus
the additional amounts credited pursuant to Sections 4.2, 4.3 and 4.4 shall be
those of a general creditor and shall not be subject in any manner to
assignment by the employee. Title to and beneficial ownership of any assets
which the Participating Companies may earmark to make payments under the Plan
shall at all times remain in the Participating Companies, and the Participant
shall not have any property interest in any specific assets of the
Participating Companies.
6.3 Adverse IRS Action on Employee or Plan. Notwithstanding any other
provision hereof, in the event there is a determination by the Internal
13
Revenue Service, not being appealed by the Employee, or in the event of a
final determination by a court of competent jurisdiction, that amounts
credited to the Employee's Account hereunder are includable in the Employee's
gross income, the Committee may in its sole discretion distribute the entire
amount credited to the Employee's Account to the Employee and cause the
termination of future deferrals of Compensation by that employee.
In the event that with respect to an employee, there is a determination
by the Internal Revenue Service, not being appealed by Pacific Telesis Group
or an affiliate, or in the event of a final determination of a court of
competent jurisdiction, that the Plan is subject to Parts 2, 3 or 4 of Title I
of ERISA, the Committee may in its sole discretion distribute the entire
amount credited to the Employee's Account to the employee and cause the
termination of future deferrals of Compensation by that employee.
6.4 Plan Administrator. The Company's Senior Vice President - Corporate
Strategy/Development and Human Resources shall be the Plan administrator and
shall have the authority and discretion to administer and interpret the Plan.
6.5 Plan Amendment and Termination. The Board of Directors of the Company
may amend or terminate the Plan at any time and for any reason. In the event
of an amendment or termination of the Plan, the amount of an employee's
benefits hereunder shall not be less than the amount of the benefits to which
the Employee would have been entitled if his or her employment had terminated
immediately prior to such amendment or termination. Any termination of the
Plan shall not terminate the deferral of Compensation previously deferred, but
may prevent the deferral of Compensation not yet earned.
6.6 Claims and Review Procedures.
(a) Administrator to Grant and Deny Claims. The Plan administrator
shall have the sole discretion to grant or deny claims for benefits under the
Plan with respect to Employees (other than the Plan administrator) of each
Participating Company, respectively, and authorize disbursements according to
this Plan. The Committee shall have the sole discretion to grant or deny
claims for benefits with respect to the Plan administrator as a Participant
and in such a case the Board of Directors of the Company shall serve as the
Review Committee for purposes of Section 6.5(b). Adequate notice, pursuant to
applicable law and prescribed Company practices, shall be provided in writing
to any Employee or beneficiary whose claim has been denied, setting forth the
specific reasons for such denial and any other information required to be
provided under ERISA.
(b) Board to Review Denied Claims. The Board of Directors of the
Company (the "Review Committee") shall serve as the final review committee
under the Plan and ERISA, for the review of all appeal claims by Participants
or beneficiaries whose initial claims for benefits have been denied, in whole
or part, by the Committee, with respect to this Plan.
Any Participant or beneficiary whose claim for benefits has been
denied, in whole or part, may (and must for the purpose of seeking any further
review of a decision or determining any entitlement to a benefit under the
Plan), within 60 days after receipt of notice of denial, submit a written
request for review of the decision denying the claim. In such case, the
Review Committee, shall:
(i) make full and fair review of such decision within 60 days after
receipt of the written request for review, or within an additional 60 days,
provided the claimant is notified of the delay and the reasons for
requiring such additional time; and
14
(ii) notify the claimant in writing of the review decision,
specifying the reasons for such decision.
(c) Other Rights of Review. Any Participant or beneficiary whose
claim for benefits has been denied shall have such further rights of review as
are provided in section 503 of ERISA and regulations promulgated thereunder,
and the Review Committee and the Plan administrator shall retain such right,
authority and discretion as is provided in or not expressly limited by said
section 503 of ERISA and the regulations thereunder.
SECTION 7. Definitions.
For purposes of this Plan, the following words shall have the meaning
so defined unless the context clearly indicates otherwise.
7.1 "Account" shall mean the account established under the Plan for each
eligible Participant to reflect the allocations under Section 4 and the
payments under Section 5.
7.2 "Code" shall mean the Internal Revenue Code of 1986, as amended.
7.3 "Committee" shall mean the Compensation and Personnel Committee of the
Board of Directors of the Company.
7.4 "Company" shall mean PacTel Corporation, a California corporation.
7.5 "Compensation" means the Employee's Salary and the award actually
payable under the Short Term Incentive Plan.
7.6 "Effective Date" means January 1, 1989, the effective date of the Plan.
7.7 "Employee" means a common law employee of the Company or any
Participating Company.
7.8 "ERISA" means the Employee Retirement Income Security Act of 1974.
7.9 "Officer" means an Employee who is elected or appointed to, and serving
in, one or more of the following positions:
(a) A position with the Company described in the bylaws of the Company
as that of an officer, other than an Assistant Officer position; or
(b) A position with a Participating Company for which there is in
effect a specific designation by the Company's Board of Directors that the
position shall be considered to be that of an officer for purposes of the
benefit and retirement plans.
7.10 "Participant" means (i) an Officer or Select Employee who is eligible
to participate under Section 2 of the Plan and who elects to participate in
the Plan pursuant to Section 3, or (ii) a former Officer or former Select
Employee who has an Account under the Plan. Any employee of Pacific Telesis
Group or its subsidiaries as of Separation Date with an Account shall remain a
Participant.
7.11 "Participating Company" means the Company, a subsidiary of the
Company that determines, with the concurrence of the Company's Board of
Directors, to participate in the Plan and each other corporation, partnership
or joint venture designated by the Committee or the Company's Board of
Directors as a Participating Company.
15
7.12 "Retirement Plan" means the PacTel Corporation Retirement Plan, a
defined contribution plan that is qualified under sections 401(a) and 401(k)
of the Code and its predecessor plan, the PacTel Corporation Retirement Plan.
7.13 "Retirement Plan Compensation" means "compensation" as defined in the
Retirement Plan, without reduction for deferrals of compensation under that
plan and without regard to the limit on compensation under section 401(a)(17)
of the Code. "Retirement Plan Compensation" does not recognize Compensation
that is deferred under this Plan.
7.14 "Salary" means the rate of base pay in effect as of January 1 of each
calendar year whether or not deferred under this Plan; provided, however, that
in the case of any newly eligible Employee who is not yet a Participant,
"Salary" means the rate of base pay in effect as of the first day of the
calendar month following the date that the Employee was designated as an
eligible Employee.
7.15 "Select Employee" means an Employee whose position is rated as an
Executive Director or above, and whose rate of compensation paid by a Company
or a Participating Company falls within the Company's salary classification of
E-10 or above, as determined by the Plan administrator.
7.16 "Separation Agreement" means the agreement entered into between
PacTel Corporation and Pacific Telesis Group on October 7, 1993.
7.17 "Separation Date" means the date as of which the total and complete
separation of the ownership of PacTel Corporation from Pacific Telesis Group
occurs.
7.18 "Short Term Incentive Plan" means the PacTel Corporation Short Term
Incentive Plan, as may be amended from time to time, and any predecessor plan.
16
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Exhibit 10.12
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PACTEL CORPORATION
SUPPLEMENTAL EXECUTIVE PENSION PLAN
(Effective As of Separation Date)
1
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TABLE OF CONTENTS
Page
SECTION 1. INTRODUCTION AND PURPOSE . . . . . . . . . . . . . . . . . . 1
1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 3. ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.1 Eligibility To Participate . . . . . . . . . . . . . . . . . . . 8
3.2 Mandatory Retirement Age . . . . . . . . . . . . . . . . . . . . 8
3.3 Eligibility to Receive Executive Pension. . . . . . . . . . . . 8
(a) Must Be Eligible for Qualified Benefit, Imputed Basic Benefit
or Minimum Benefit . . . . . . . . . . . . . . . . . . . . 8
(b) Payment of Executive Pension as a Service, Vested or
Disability Pension . . . . . . . . . . . . . . . . . . . . 8
(c) Payment of Pensions That Commenced Under Predecessor Plans 9
SECTION 4. AMOUNT OF EXECUTIVE PENSION . . . . . . . . . . . . . . . . . 10
4.1 Executive Pension Formula . . . . . . . . . . . . . . . . . . . 10
(a) Participants Who Are Executives at Retirement . . . . . . . 10
(b) Participants Who Were Executives Before Retirement . . . . 10
4.2 Basic Benefit . . . . . . . . . . . . . . . . . . . . . . . . . 11
(a) Eligibility for Basic Benefit . . . . . . . . . . . . . . . 11
(b) Amount of Basic Benefit . . . . . . . . . . . . . . . . . . 11
4.3 Imputed Basic Benefit . . . . . . . . . . . . . . . . . . . . . 11
(a) Eligibility for Imputed Basic Benefit . . . . . . . . . . . 12
(b) Amount of Imputed Basic Benefit . . . . . . . . . . . . . . 12
4.4 Mid-Career Benefit . . . . . . . . . . . . . . . . . . . . . . . 12
(a) Eligibility for Mid-Career Benefit . . . . . . . . . . . . 12
(b) Mid-Career Benefit Formula . . . . . . . . . . . . . . . . 13
(c) Mid-Career Pension Credits . . . . . . . . . . . . . . . . 14
4.5 No Reduction . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.6 Early Retirement Discount . . . . . . . . . . . . . . . . . . . 15
(a) Service Pensions . . . . . . . . . . . . . . . . . . . . . 15
(b) Vested Pensions . . . . . . . . . . . . . . . . . . . . . . 15
(c) Disability Pension . . . . . . . . . . . . . . . . . . . . 15
(d) Exceptions to Early Payment Reductions . . . . . . . . . . 15
(e) Health Benefits for Certain Officers Eligible for Unreduced
Benefits . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.7 Minimum Benefit For Certain Officers . . . . . . . . . . . . . . 16
(a) Eligibility for Minimum Benefit. . . . . . . . . . . . . . 16
(b) Amount of Minimum Benefit . . . . . . . . . . . . . . . . . 16
(c) Definition of Account Benefit . . . . . . . . . . . . . . . 17
4.8 Special Increases . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 5. PAYMENT OF EXECUTIVE PENSION . . . . . . . . . . . . . . . . 19
5.1 Time of Payment . . . . . . . . . . . . . . . . . . . . . . . . 19
5.2 Form of Payment . . . . . . . . . . . . . . . . . . . . . . . . 19
(a) For Pensions Other Than Disability Pensions . . . . . . . . 19
(b) For Disability Pensions . . . . . . . . . . . . . . . . . . 20
5.3 Adjustment to Executive Pension for Form of Payment . . . . . . 20
(a) Life Annuity . . . . . . . . . . . . . . . . . . . . . . . 20
(b) Joint and Survivor Annuity . . . . . . . . . . . . . . . . 20
(c) Single Sum Cashout Payment . . . . . . . . . . . . . . . . 20
(d) Other Forms of Payment . . . . . . . . . . . . . . . . . . 20
i
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5.4 Notification and Application for Benefits . . . . . . . . . . . 21
5.5 Death Following Termination . . . . . . . . . . . . . . . . . . 21
SECTION 6. DEATH BENEFITS . . . . . . . . . . . . . . . . . . . . . . . 22
6.1 Surviving Spouse Annuity . . . . . . . . . . . . . . . . . . . . 22
(a) Eligibility for Surviving Spouse Annuity . . . . . . . . . 22
(b) Amount of the Surviving Spouse Annuity . . . . . . . . . . 22
(c) Form and Time of Payment . . . . . . . . . . . . . . . . . 22
6.2 Pensioner Death Benefit . . . . . . . . . . . . . . . . . . . . 22
(a) Eligibility for Pensioner Death Benefit . . . . . . . . . . 22
(b) Amount of Pensioner Death Benefit . . . . . . . . . . . . . 23
(c) Waiver of Pensioner Death Benefit . . . . . . . . . . . . . 23
SECTION 7. SOURCE OF BENEFIT PAYMENTS . . . . . . . . . . . . . . . . . 24
7.1 Unfunded; Rabbi Trust . . . . . . . . . . . . . . . . . . . . . 24
7.2 Participating Company Liability . . . . . . . . . . . . . . . . 24
SECTION 8. FORFEITURE . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 9. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . 26
9.1 Plan Sponsor and Plan Administrator . . . . . . . . . . . . . . 26
9.2 Determination of Eligibility . . . . . . . . . . . . . . . . . . 26
9.3 Procedure To Approve and Deny Claims . . . . . . . . . . . . . . 26
9.4 Procedure To Review Denied Claims . . . . . . . . . . . . . . . 26
9.5 Additional Duties of Plan Administrator . . . . . . . . . . . . 27
9.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.7 Allocation of Responsibilities . . . . . . . . . . . . . . . . . 27
9.8 Named Fiduciaries . . . . . . . . . . . . . . . . . . . . . . . 28
9.9 More Than One Fiduciary Capacity . . . . . . . . . . . . . . . . 28
SECTION 10. AMENDMENT AND TERMINATION . . . . . . . . . . . . . . . . . 29
10.1 Plan Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.2 Plan Termination . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 11. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . 30
11.1 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.2 Rights to Benefits . . . . . . . . . . . . . . . . . . . . . . . 30
11.3 No Right to Company Assets . . . . . . . . . . . . . . . . . . . 30
11.4 Assignment or Alienation . . . . . . . . . . . . . . . . . . . . 30
11.5 Break in Service . . . . . . . . . . . . . . . . . . . . . . . . 30
11.6 Leave of Absence . . . . . . . . . . . . . . . . . . . . . . . . 31
11.7 Amounts Accrued Prior to Death . . . . . . . . . . . . . . . . . 31
11.8 Payments to Others . . . . . . . . . . . . . . . . . . . . . . . 31
11.9 Claims Release . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.10 Damage Claims or Suits . . . . . . . . . . . . . . . . . . . . . 32
11.11 Judgment or Settlement . . . . . . . . . . . . . . . . . . . . . 32
11.12 Payments Under Law . . . . . . . . . . . . . . . . . . . . . . . 32
ii
<PAGE>
PACTEL CORPORATION
SUPPLEMENTAL EXECUTIVE PENSION PLAN
(Effective As of the Separation Date)
SECTION 1. INTRODUCTION AND PURPOSE.
1.1 Introduction. The PacTel Corporation Supplemental Executive Pension
Plan (the "Plan") is adopted as of the Separation Date to provide the
supplemental retirement benefits which were accrued as of the Separation Date
under the following plans (the "Predecessor Plans"):
(a) Pacific Telesis Group Non-Qualified Pension Plan;
(b) Pacific Telesis Group Supplemental Executive Retirement
Plan; and
(c) Pacific Telesis Group Mid-Career Pension Plan
In addition, eligible Executives shall continue to accrue additional
benefits due to salary increases after the Separation Date and the minimum
benefit and the mid-career provision of the Predecessor Plans shall continue
to apply.
1.2 Purpose. The purposes of the Plan are to assist the Participating
Companies in attracting and retaining highly competent managers by providing
certain unfunded pension benefits to certain eligible Executives and to
satisfy the Company's obligation under Section 6.1 of Appendix A of the
Separation Agreement between Pacific Telesis Group and PacTel Corporation
which is dated October 7, 1993.
The benefits provided by the Plan together with the benefits provided
by the Qualified Plan are intended to provide the Executive with the same
pension that the Executive would have been entitled to under the normal
provisions of the Qualified Plan (with benefit accrual service frozen at
Separation Date) if the Qualified Plan (a) recognized total base pay (whether
or not deferred) and short term incentive awards as compensation for benefit
purposes, and (b) was not subject to any limitations on the amount of benefits
which could otherwise be paid.
The Plan also provides a pension which has a Present Value equal to a
hypothetical account determined by (a) the amount of base pay deferred under
the Executive Deferral Plan for periods before Separation Date that the
Executive did not receive a full accrual under the Qualified Plan because the
Executive was classified as a "modified accrual participant" thereunder, and
(b) the rate of company contributions other than matching contributions under
the PacTel Corporation Retirement Plan attributable to the same period.
In addition, the Plan permits certain Executives to continue to
receive credit for service after Separation Date for purposes of the mid-
career benefit and the minimum benefit formulas.
1
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SECTION 2. DEFINITIONS.
"Account Benefit," which is used to offset the Minimum Benefit provided by
the Plan, is defined in Section 4.7(c).
"Basic Benefit" is a portion of the Executive Pension based on the
Executive's rate of base pay, as set forth in Section 4.2.
"Code" means the Internal Revenue Code of 1986, as it may be amended from
time to time.
"Committee" means the Compensation and Personnel Committee of the Board of
Directors of the Company.
"Company" means PacTel Corporation, a California corporation.
"Employee" means a common law employee of the Company or any Participating
Company.
"Executive" means an Employee who has been designated by the Company's
Board of Directors to be within the Participating Company's Executive Group or
who holds a position that the Board has designated to be within a Participat-
ing Company's Executive Group.
"Executive Pension" means the pension provided pursuant to Section 4 of
this Plan.
"Final Average Base Pay" means the average of the Participant's monthly
rates of base pay, both deferred and nondeferred base pay, for the final 60
months of employment with Pacific Telesis Group and its subsidiaries before
the Separation Date and with the Participating Companies after the Separation
Date.
"Final Average STIP Award" means the average of the Participant's "Monthly
PTG Standard Awards" and the Participant's "Monthly PTC STIP" for the final 60
months of employment with Pacific Telesis Group and its subsidiaries before
the Separation Date and the Participating Companies after the Separation Date.
For this purpose, "Monthly PTG Standard Award" means, for any pre-Separation
month in a calendar year, 1/12 of the Participant's "standard award" in effect
as of December 31 of the calendar year under the Pacific Telesis Group Short
Term Incentive Plan for the Participant's Position Rate. "Monthly PTC STIP"
means, for any month in the calendar year, 1/12 of the standard or target
award established for that year under the Company's Short Term Incentive Plan,
for the Participant's Position Rate, as determined by the Committee.
"Mandatory Retirement Age" means age 65 for any Executive who meets the
requirements of section 12(c)(1) of the Age Discrimination in Employment Act.
"Minimum Benefit" means the benefit provided to certain Executives under
Section 4.6.
"Officer" means an Executive elected or appointed to, and serving in, one
or more of the following positions:
(a) A position with the Company described in the bylaws of the
Company as that of an officer, other than an Assistant Officer
position; or
2
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(b) A position with a Participating Company for which there is
in effect a specific designation by the Company's Board of Directors
that the position shall be considered to be that of an officer for
purposes of the benefit and retirement plans.
"Officer" also means a named Executive of any Participating Company for
which there is in effect a designation by the Company's Board of Directors
that the named Executive is included in the definition of officer for purposes
of the benefit and retirement plans. For years prior to the Separation Date,
"Officer" also means a PTG Executive (a) who was elected or appointed to, and
served in, a position with Pacific Telesis Group described in the bylaws of
that company as that of an officer, other than an Assistant Officer position,
or (b) for whom there was in effect a designation by the Board of Directors of
Pacific Telesis Group that the PTG Executive was included in the definition of
officer for purposes of the benefit and retirement plans.
"Pacific Telesis Group Executive Deferral Plan" means the plan adopted by
the Pacific Telesis Group, as it may be amended from time to time by that
Company's Board of Directors, under which Participants deferred a portion of
their base pay and incentive compensation before Separation Date.
"PTG Executive" means a Participant who was employed by Pacific Telesis
Group (or any of its subsidiaries other than PacTel Corporation and its
subsidiaries) prior to the Separation Date as an executive or senior manager,
within the meaning of the Predecessor Plans.
"PacTel Executive" means a Participant who was employed by PacTel
Corporation (or any of its subsidiaries) prior to the Separation Date as an
executive or senior manager within the meaning of the Predecessor Plans.
"Participant" means an Executive or former Executive if such individual
met the eligibility requirements of Section 3 of the Plan as of Separation
Date.
"Participating Company" means the Company, a subsidiary of the Company
that shall have determined, with the concurrence of the Company's Board of
Directors, to participate in the Plan, and each other corporation, partnership
or joint venture designated by the Committee or the Board of Directors of the
Company as a Participating Company.
"Plan" means this PacTel Corporation Supplemental Executive Retirement
Plan.
"Position Rate" means an amount of compensation established periodically
by the Committee for each Executive position upon which base salaries are
administered.
"Predecessor Plan" means the Pacific Telesis Group Non-Qualified Pension
Plan, the Pacific Telesis Group Supplemental Executive Retirement Plan, or the
Pacific Telesis Group Mid-Career Pension Plan. It also means the predecessor
plans to those plans, i.e., the Bell System Senior Management Non-Qualified
Plan and the Bell System Mid-Career Pension Plan.
"Present Value" means a single sum amount which is actuarially equivalent
to a monthly annuity payable for life based on actuarial factors developed by
the Plan's actuaries with reference to (i) the Participant's or surviving
spouse's attained age in years and whole months as of the effective date of
the annuity, (ii) an interest assumption which is 120% of the PBGC interest
3
<PAGE>
rate and (iii) a mortality assumption based on the UP-1984 mortality table set
back two years. The "PBGC interest rate" shall be determined in the same
manner as it is determined under the Qualified Plan.
"Qualified Pension Benefit" means the amount of the pension actually
payable under the Qualified Plan, as adjusted for early payment and form of
payment, based on the time and form of payment used to determine the amount of
the Executive Pension.
"Qualified Plan" means the PacTel Corporation Employees Pension Plan and
its predecessor plan, the PacTel Corporation Employees Pension Plan.
"Retirement Plan" means the PacTel Corporation Retirement Plan and its
predecessor plan, the PacTel Corporation Retirement Plan, qualified defined
contribution plans which covered employees of the Company and its subsidiaries
before and after Separation Date.
"Separation Date" means the date as of which the total and complete
separation of the ownership of the Company from Pacific Telesis Group occurs.
"Short Term Incentive Plan" means the PacTel Corporation Short Term
Incentive Plan and its predecessor plan the PacTel Corporation Short Term
Incentive Plan.
"Term of Employment" means the number of years credited to the Participant
for eligibility for a service pension and for the determination of the early
payment age discount under the Qualified Plan, or in the case of a Participant
who is not covered by the Qualified Plan, the years that would have been
credited to the Participant if the Participant were covered under such plan.
As provided under the Qualified Plan, a Participant's Term of Employment
(i) is not adjusted for part-time employment, (ii) includes all periods that
the Participant was employed by the Company (and its subsidiaries), including
the period between January 1, 1987 and the Separation Date, and (iii) is
adjusted for breaks in service.
"Years of Credited Service" means the number of whole and partial years
credited to the Participant for benefit accrual purposes under the Qualified
Plan or, in the case of a Participant who is not covered by the Qualified
Plan, the years that would have been credited to the Participant for benefit
accrual purposes under the Qualified Plan if the Participant were covered
under such plan. As provided under the terms of the Qualified Plan, a
Participant's Years of Credited Service
(i) are adjusted for part-time employment, (ii) do not include periods that
the Participant was employed by the Company (and its subsidiaries) between
January 1, 1987 and the Separation Date, unless the Participant was a full
accrual participant under that plan, (iii) are adjusted for breaks in service,
and (iv) effective January 1, 1998, are limited to the greater of 30 years or
the actual years accrued for benefit accrual purposes as of December 31, 1997.
Notwithstanding the foregoing, for purposes of determining a Participant's
Basic Benefit and Imputed Benefit, a Participant's Years of Credited Service
shall not include years credited to the Participant for benefit accrual
purposes under the Qualified Plan after the Separation Date.
4
<PAGE>
SECTION 3. ELIGIBILITY.
3.1 Eligibility To Participate. Any Executive who was a participant in a
Predecessor Plan as of the Separation Date and whose accrued benefits under
the Predecessor Plans were transferred to this Plan pursuant to the Separation
Agreement shall be eligible to participate in the Plan. No other individuals
are eligible to participate in the Plan.
3.2 Mandatory Retirement Age. Each Participant shall cease to be
eligible for continued employment by a Participating Company no later than the
last day of the month in which the Participant attains the Mandatory
Retirement Age.
3.3 Eligibility to Receive Executive Pension.
(a) Must Be Eligible for Qualified Benefit, Imputed Basic Benefit or
Minimum Benefit. A Participant shall be eligible for an Executive Pension
upon termination of employment with the Company or Participating Company if
the Participant is eligible for a pension under the Qualified Plan.
Alternatively, if an Executive is eligible for an Imputed Basic Benefit under
Section 4.3 or a Minimum Benefit under Section 4.7, the Executive shall be
eligible for an Executive Pension even though he or she may not be eligible
for a pension under the Qualified Plan.
(b) Payment of Executive Pension as a Service, Vested or Disability
Pension. The Executive Pension shall be paid as a service pension or as a
vested pension, based on whichever pension the Participant is eligible under
the Qualified Plan (or would be eligible if a participant thereunder), without
regard to any minimum benefit or early retirement window benefits which would
change the eligibility requirements for pensions under the Qualified Plan.
If the Executive Pension is based on a Minimum Benefit under Section 4.7
of the Plan and the Participant is not eligible for a service pension under
the Qualified Plan, the Executive Pension nonetheless shall be paid as a
service pension.
If the Participant terminates employment with a Term of Employment of at
least 15 years and is totally disabled within the meaning of the Company's
executive long-term disability plan covering only Participants in this Plan,
the Participant's Executive Pension shall be paid as a disability pension.
If the Participant's Qualified Pension Benefit is payable as an in-service
pension under the Qualified Plan, the Participant's Executive Pension shall be
paid as a service pension.
(c) Payment of Pensions That Commenced Under Predecessor Plans. All
individuals who are retired or terminated employees as of the Separation Date
shall not be considered Participants under the Plan and shall not be eligible
to participate even if reemployed as an Executive after Separation Date.
Further, any such individual who is receiving pension payments under the terms
of one or more Predecessor Plans at Separation Date should continue to receive
the same benefit to which they were entitled as of such date under the terms
of the Predecessor Plans.
5
<PAGE>
SECTION 4. AMOUNT OF EXECUTIVE PENSION.
4.1 Executive Pension Formula.
(a) Participants Who Are Executives at Retirement. If a Participant is
an Executive at the time the Executive Pension becomes payable, then, subject
to the Minimum Benefit under of Section 4.7 below, a Participant's Executive
Pension shall equal:
(i) The sum of the:
(A) Basic Benefit under Section 4.2;
(B) Imputed Basic Benefit under Section 4.3;
and
(C) Mid-Career Benefit under Section 4.4;
(ii) Reduced by the Qualified Pension Benefit.
The benefit determined under (i) above shall be adjusted for early payment, to
the extent provided in Section 4.6, and for form of payment, if the Executive
Pension is paid in a form other than a life annuity, to the extent provided in
Section 5.2. The Qualified Benefit under (ii) above shall reflect the benefit
that would be payable under the Qualified Plan, if the benefit were paid at
the same time and under the same form as the Executive Pension.
(b) Participants Who Were Executives Before Retirement. If a Participant
is not an Executive when Plan benefits would otherwise become payable, but was
an Executive during some previous period, including service as a PTG Executive
or a PacTel Executive before the Separation Date, the Participant's Executive
Pension shall be determined in the same manner as set forth in (a) above,
except that the amounts of Basic Benefit and the Imputed Basic Benefit shall
be determined as though the Participant terminated employment on the date he
ceased serving as an Executive. However, after the Participant ceases to be
an Executive, the Participant's service and age continue to count for purposes
of determining the early payment discount factor under Section 4.6.
4.2 Basic Benefit. The Basic Benefit formula provides a pension benefit
based on the Executive's rate of base pay and standard or target awards under
short term incentive plans. The Basic Benefit was formerly provided by
(i) the restoration benefit plus the short term award benefit under the
Pacific Telesis Group Non-Qualified Pension Plan and (ii) the excess benefits
under sections 415 and 401(a)(17) of the Code under the Pacific Telesis Group
Supplemental Executive Retirement Plan, two of the Predecessor Plans.
The Basic Benefit formula continues to recognize compensation after
the Separation Date but does not recognize service after such date for benefit
accrual purposes.
(a) Eligibility for Basic Benefit. A Participant who is or was an
Executive shall be eligible for a Basic Benefit if the Participant is
eligible for a Qualified Pension Benefit.
(b) Amount of Basic Benefit. A Participant's Basic Benefit is a
monthly pension equal to:
(i) 1.45% of the sum of the Participant's Final Average Base
Pay and his or her Final Average STIP Award; multiplied by
(ii) The Participant's Years of Credited Service.
6
<PAGE>
4.3 Imputed Basic Benefit. The Imputed Basic Benefit provides a monthly
benefit for Executives who were PacTel Executives before the Separation Date
based on hypothetical company contributions which would have been made under
the Retirement Plan if that plan had recognized compensation deferred under
the Pacific Telesis Group Executive Deferral Plan before the Separation Date
and if the limitations under sections 401(a)(17) and 415 of the Code did not
apply to the Retirement Plan. This benefit was formerly provided as an
additional restoration benefit under the Pacific Telesis Group Non-Qualified
Pension Plan and was paid as a single sum cashout amount.
(a) Eligibility for Imputed Basic Benefit. A Participant who
was a PacTel Executive before the Separation Date and who received
allocations of basic and variable contributions under the Retirement
Plan before the Separation Date while deferring compensation under the
Pacific Telesis Group Executive Deferral Plan shall be eligible for an
Imputed Basic Benefit.
(b) Amount of Imputed Basic Benefit. A Participant's Imputed
Basic Benefit is a monthly pension with a Present Value equivalent to
the Participant's vested Hypothetical Account as of the date the
Executive Pension starts.
The "Hypothetical Account" means an amount equal to (i) the
amounts actually deferred under the Pacific Telesis Group Executive
Deferral Plan (attributable to both base pay and amounts otherwise
payable under the Short Term Incentive Plan) for the period between
January 1, 1987 and the Separation Date multiplied by the basic and
variable contribution rates in effect under the Retirement Plan for
such year, plus (ii) estimated earnings on such contributions to the
effective date of the pension. Earnings shall be determined by the
Committee, in its sole discretion, on the basis of the actual rates of
return earned under the Retirement Plan. If the Participant is not
100% vested in company contributions under the Retirement Plan, the
Hypothetical Account shall be reduced to reflect the portion vested.
4.4 Mid-Career Benefit. The Mid-Career Benefit provides a monthly
pension benefit based on periods of imputed pension credit. This benefit was
provided previously under the Pacific Telesis Group Mid-Career Pension Plan, a
Predecessor Plan.
(a) Eligibility for Mid-Career Benefit. A Participant who is
hired or rehired before the Separation Date by Pacific Telesis Group
(or one of its subsidiaries) at age 35 or older at Fourth Level or
above, whose Term of Employment includes at least five years at Fifth
Level or above, and who retires or terminates employment with a
Participating Company at Fifth Level or above, shall be eligible for
the Mid-Career Benefit. For purposes of this Section 4.4, "Fourth
Level" and "Fifth Level" shall mean the salary and job classifications
established by Pacific Telesis Group and the comparable classifications
applicable to the Participating Companies, as determined by the
Committee.
(b) Mid-Career Benefit Formula. An eligible Participant's Mid-
Career Benefit shall be determined under one of the following formulas.
(i) Non-officer Formula. If the Participant has not served as
an Officer, the Mid-Career Benefit shall be a monthly pension
equal to 1% of the sum of the Participant's Final Average Base Pay
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and Final Average STIP Award, multiplied by the Participant's Mid-
Career Pension Credits.
(ii) Officer Formula. If the Participant served as an
Officer, the Mid-Career Benefit shall be determined as provided in
(i) above, except that 1% shall be replaced by the following
fraction:
(A x .01) + (B x .0145)
C
For this purpose, A, B, and C shall have the following meanings:
A = Months of service below Officer level
B = Months of service at Officer level
C = Total months of service
A "month of service" means a calendar month which is included in the
Participant's Term of Employment.
(c) Mid-Career Pension Credits.
(i) In the case of a Participant hired or rehired at Fifth
Level or above and whose entire Term of Employment is at Fifth Level or
above, the "Mid-Career Pension Credits" equal the excess of 35 years
over the Term of Employment that the Participant could accrue if the
Participant worked to age 65; provided, however, that the Participant's
Mid-Career Pension Credits shall not exceed his or her Term of
Employment.
(ii) In the case of a Participant hired or rehired at Fourth
Level or above and whose Term of Employment includes service at Fourth
Level or below, the "Mid-Career Pension Credits" equal the product of
the Mid-Career Pension Credits determined in (i) above, multiplied by a
fraction, the numerator of which equals the months of such service
completed at Fifth Level or above and the denominator of which equals
the Participant's total months of such service.
(iii) For purposes of (i) and (ii) above, a Participant's Term of
Employment shall be determined by including service after the
Separation Date, but excluding all periods of part-time employment,
notwithstanding the definition of Term of Employment in Section 2.
4.5 No Reduction. In no event shall the sum of the Basic Benefit and the
Imputed Basic Benefit determined as of the Participant's termination of
employment with the Participating Companies be less than the greater of (a)
the benefits accrued under the Predecessor Plans as of the Separation Date or
(b) the sum of such benefits determined as of any time between Separation Date
and the Participant's termination, as though the benefit payments had then
commenced. For the purpose of (a) in the preceding sentence, the benefits
accrued as of Separation Date shall be determined under this Plan as though
the Participant terminated employment as of such date, but before reduction
for early payment, if any.
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4.6 Early Retirement Discount.
(a) Service Pensions. If the Participant's Executive Pension is paid as
a service pension and if the Participant's age of retirement is at least 55
years, the Executive Pension shall not be reduced for early payment. If the
Participant's Executive Pension is paid as a service pension, the Executive
Pension shall be reduced by:
(i) One-half percent (.5%) for each month or portion thereof
that the Participant's age at retirement is less than 55 years, if the
Participant's Term of Employment is less than 30 years; or
(ii) For service pensions commencing before 1995, one-quarter
percent (.25%) for each month or portion thereof that the Participant's
age at retirement is less than 55 years, if the Participant's Term of
Employment is at least 30 years; or
(iii) For service pensions commencing after 1994, there shall be
no reductions for early payment if the Participant's Term of Employment
is at least 30 years.
(b) Vested Pensions. If the Participant's Executive Pension is paid as a
vested pension, but not as a service pension, and if the Participant's
Executive Pension begins before age 65, the Executive Pension shall be reduced
pursuant to the early payment factor table for vested pensions under the
Qualified Plan.
(c) Disability Pension. If the Participant's Executive Pension is paid
as a disability pension, the Executive Pension shall not be reduced for early
payment.
(d) Exceptions to Early Payment Reductions. The early reduction
provisions in (a) or (b) above shall not apply in the following circumstances:
(i) The Executive Pension payable to any Participant who
terminates employment as an Officer on or after age 55 and who has
served at least 10 years as an Officer, including service after the
Separation Date shall not be reduced.
(ii) The Imputed Basic Benefit shall not be reduced for early
payment. This benefit formula reflects the early payment value of the
benefit payment without further adjustment.
(e) Health Benefits for Certain Officers Eligible for Unreduced Benefits.
If any Officer eligible for an unreduced Executive Pension under (d)(i) above
is not eligible for retiree welfare benefit coverage under his or her
company's welfare benefit plans, then such Participant, after his or her
termination of employment hereunder, shall be eligible for medical, dental and
life insurance benefits which are equivalent to benefits that would have been
provided to such Officer if he or she had been eligible for a service pension
under the Qualified Plan.
4.7 Minimum Benefit For Certain Officers. The Minimum Benefit is
available to certain Executives who serve as Officers. This benefit was
provided previously under the Pacific Telesis Group Non-Qualified Pension
Plan. Eligibility for and the amount of the Minimum Benefit are based on the
Participant's number of years of continuous service (subject to the break in
service rules of Section 11.5) as an Officer.
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(a) Eligibility for Minimum Benefit. A Minimum Benefit shall apply
only to Participants who became Officers on or before January 24, 1992,
who serve as Officers for a period of at least 10 years, including service
after the Separation Date, and who terminate employment as an Officer at
or after age 55. This Minimum Benefit shall be payable only if it exceeds
the benefit otherwise payable under Section 4.1.
(b) Amount of Minimum Benefit. An eligible Officer's Executive
Pension under Section 4.1, as reduced for both early payment (if
applicable) and the Qualified Pension Benefit, shall not be less than:
(i) 45% of the sum of the Officer's Final Average Base Pay and
Final Average STIP Award;
reduced by
(ii) The sum of the Officer's Qualified Pension Benefit and
the Account Benefit (determined under (c) below).
The percentage in (i) above shall be increased one percentage for
each additional year as an Officer beyond 10 years, including years after
the Separation Date, up to a maximum of 50% at 15 years as an Officer.
The benefit in (i) above shall not be adjusted for early payment. The
Qualified Pension Benefit under (ii) above shall reflect an adjustment for
early payment, if applicable under the Qualified Plan.
(c) Definition of Account Benefit. The "Account Benefit" means an
immediate monthly life annuity commencing at retirement which has a
Present Value equivalent to the sum of the amounts credited both before
and after the Separation Date under the Company's defined contribution
plans, as follows:
(i) Value of the Basic Account under the Retirement Plan at
retirement;
(ii) Value of the Variable Account under the Retirement Plan at
retirement;
(iii) Value of the Transition Account under the Retirement
Plan at retirement;
(iv) Amount of withdrawals or other payments made from the
Basic, Variable and Transitions Accounts under the Retirement Plan
before retirement, plus "interest" thereon;
(v) Payments from the Company's Excess Benefit Plan before
retirement attributable to Company contributions other than
"matching" contributions, plus "interest" thereon;
(vi) Value of the Participant's Account at retirement under the
Company's Excess Benefit Plan attributable to Company contributions
other than "matching" contributions; and
(vii) Payments made directly to the Executive before
retirement under the bonus program relating to transition credits,
plus "interest" thereon.
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"Interest" shall be determined by the Committee in its sole
discretion from the date payment was made to the date of the Participant's
retirement, based on the annual rate of return earned by the Retirement
Plan on all its investments during the applicable period.
4.8 Special Increases. Unless the Committee determines otherwise,
Executive Pensions payable as monthly service pensions or disability pensions
to retired Participants or their surviving spouses shall be increased by the
same percentage and pursuant to the same terms and conditions set forth in the
Qualified Plan for adhoc increases to retired Participants or their surviving
spouses. This Section shall apply only to participants who retired or
terminated as Executives.
SECTION 5. PAYMENT OF EXECUTIVE PENSION.
5.1 Time of Payment. Except as otherwise provided by the Plan or
determined by the Committee in its sole discretion, a Participant's Executive
Pension shall commence as of the date that the Participant's Qualified Pension
Benefit commences. If the Participant is not covered by the Qualified Plan,
the Executive Pension may commence as of the day following termination of
employment. The Committee reserves the right to select another date as of
which the Participant's Executive Pension commences.
5.2 Form of Payment.
(a) For Pensions Other Than Disability Pensions. A Participant's
Executive Pension payable as a service pension or vested pension shall be paid
in such form as the Committee shall determine in its sole discretion. In
order to assist the Committee in making such determination, the Committee may
follow the procedures set forth in this Section. The Committee may establish
additional procedures as it deems necessary.
If the Participant's Executive Pension is payable as a service pension or
a vested pension as provided in Section 3.3(b), the Participant may elect to
receive the Executive Pension in any of the forms then available under the
Qualified Plan, subject to the following conditions:
(i) If the Participant's Qualified Benefit is payable in the form
of an annuity, the Participant's Executive Pension shall be paid in
that same form.
(ii) Any election to receive the Executive Pension in a cashout
form of payment shall be subject to the approval of the Committee which
retains the sole discretion not to pay the Executive Pension in the
form of a cashout payment.
(b) For Disability Pensions. If the Participant's Executive Pension is
payable as a disability pension as provided under Section 3.3(b), the
Participant's Executive Pension shall be paid in the form of a monthly annuity
equal to the Participant's Executive Pension determined under Section 4, but
without any adjustment for early payment under Section 4.6. The disability
pension shall be paid until the Participant is no longer eligible for long
term disability benefits under the Company's executive long term disability
plan covering only Participants in this Plan. If the Participant is receiving
a disability pension under this Plan immediately before attaining age 65, the
disability pension shall cease, and the Participant shall then be eligible for
a service pension under Section 5.2(a) above in the same amount, including the
right to elect a form of payment.
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5.3 Adjustment to Executive Pension for Form of Payment.
(a) Life Annuity. If the Participant's Executive Pension is payable as a
life annuity, the amount paid as a life annuity shall equal the amount of the
Participant's Executive Pension determined under Section 4, including any
adjustment for early payment under Section 4.6, if applicable.
(b) Joint and Survivor Annuity. If the Participant's Executive Pension
is payable as a joint and survivor annuity, the Participant shall receive for
his or her lifetime 90% of the amount payable as a life annuity. Upon the
Participant's death, 50% of the monthly amount paid to the Participant shall
be payable for life to the surviving spouse of the Participant to whom the
Participant was married when the Joint and Survivor annuity commenced.
(c) Single Sum Cashout Payment. If the Participant's Executive Pension
is payable as a single sum cashout payment, the amount payable shall equal the
Present Value of the benefit determined under Section 4.
(d) Other Forms of Payment. If the Participant's Executive Pension is
payable in any other form of payment, the amount payable otherwise under
Section 4 shall be adjusted in such manner as the Committee shall determine.
5.4 Notification and Application for Benefits. The Committee may notify
the Participant of the amount of his or her Executive Pension and may require
the Participant to apply for benefits hereunder.
5.5 Death Following Termination. If a Participant dies after his or her
employment terminates (so that a Surviving Spouse Annuity is not payable under
Section 6.1), but before his Executive Pension commences or is paid, the
Participant's Executive Pension shall be paid in the form previously elected
and approved by the Committee. If no election was made before the
Participant's death, the Executive Pension shall be payable in the form
determined by the Committee in its sole discretion.
SECTION 6. DEATH BENEFITS.
6.1 Surviving Spouse Annuity.
(a) Eligibility for Surviving Spouse Annuity. The surviving spouse of a
Participant who dies during employment shall be entitled to a Surviving Spouse
Annuity if the surviving spouse is eligible for a survivor annuity under the
Qualified Plan or would be eligible therefore, if the Participant had been
covered under the Qualified Plan.
(b) Amount of the Surviving Spouse Annuity. The amount of the surviving
spouse annuity shall be equal to the survivor's portion of a Joint and
Survivor Annuity, determined as though the Participant had retired the day
before his or her death, had commenced receiving the Participant's Executive
Pension in the form of a Joint and Survivor Annuity under Section 5.3(b), and
then immediately died. For this purpose, the Participant's Executive Pension
shall be deemed payable as a service pension without any discount for early
payment if the Participant's Term of Employment at date of death was at least
15 years. Otherwise, the Participant's Executive Pension shall be deemed
payable as a service pension or vested pension whichever the Executive would
have been entitled to.
(c) Form and Time of Payment. The Surviving Spouse Annuity shall be
payable generally in the form of a monthly annuity for the surviving spouse's
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lifetime commencing the day after the Participant's death, subject to the
discretion of the Committee to pay the benefit at such other time or in such
form, including a cashout payment, as the Committee determines.
6.2 Pensioner Death Benefit.
(a) Eligibility for Pensioner Death Benefit. A Participant who is an
Executive upon his or her retirement, termination of employment, or death
during employment shall be covered by the Pensioner Death Benefit if the
Executive otherwise meets the coverage requirements for the pensioner death
benefit under the Qualified Plan.
(b) Amount of Pensioner Death Benefit. The Pensioner Death Benefit
provided by the Plan shall be determined under the benefit formula for the
pensioner death benefits under the Qualified Plan, except that "wages" shall
be equal to the Executive's standard or target award in effect under the
Company's Short Term Incentive Plan for the Participant's Position Rate as of
the earlier of the Participant's retirement or death.
(c) Waiver of Pensioner Death Benefit. If an Executive is deemed to have
waived the death benefit for which he or she was eligible under the Qualified
Plan, such Executive shall be deemed to have waived the Pensioner Death
Benefit under the Plan as well.
SECTION 7. SOURCE OF BENEFIT PAYMENTS.
7.1 Unfunded; Rabbi Trust. All benefits payable under the Plan shall be
paid from Company or Participating Company's operating expenses, or though the
purchase of insurance from an insurance company, or by a trust established by
the Company for this purpose, as the Company or Participating Company may
determine.
7.2 Participating Company Liability. Where a Participant's term of
employment includes service in more than one Participating Company or in a
company that is not a Participating Company, the last Participating Company to
employ the Participant as an Executive prior to his or her retirement or
termination of employment with entitlement to a benefit hereunder shall be
primarily liable for the full benefit payable under this Plan. However, if
for any reason, the primarily liable Participating Company fails to make
timely payment of an amount due to or on behalf of a Participant, the Company
shall be jointly and severally liable for the obligation to pay the amount
due. A company's withdrawal from participation shall not affect that
company's liability hereunder. In addition, the liability of a company shall
not be affected by any action or inaction (on the part of the Participant, his
or her joint annuitant or any company) with respect to amounts owed,
including, but not limited to, the granting of extensions of time or other
indulgences, the failure to make timely demand, the failure to make timely
payment or the failure to give notices of any type. For this purpose, a joint
venture or other entity that is a Participating Company, but is not a
subsidiary of the Company, shall not be liable for benefit payments under the
Plan.
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SECTION 8. FORFEITURE.
Notwithstanding any other provision of the Plan, all or a portion of
the benefits that a Participant, his or her joint annuitant or beneficiary
would be otherwise eligible hereunder may be forfeited, in the sole discretion
of the Company's Board of Directors, under the following circumstances:
(a) The Participant is discharged by a Participating Company for
cause; or
(b) A determination by the Board of Directors of a Participating
Company that the Participant engaged in misconduct in connection with
his or her employment with such Participating Company.
SECTION 9. ADMINISTRATION.
9.1 Plan Sponsor and Plan Administrator. The Company shall be the
sponsor of the Plan and the Senior Vice President-Corporate
Strategy/Development and Human Resources of the Company shall be the Plan
Administrator. The Senior Vice President-Corporate Strategy/Development and
Human Resources of the Company shall have the specific powers elsewhere
granted and shall have such other powers as may be necessary in order to
administer the Plan, in his sole discretion, except for powers herein granted
or provided to others.
9.2 Determination of Eligibility. In all questions relating to age and
service for eligibility for any benefit hereunder, or relating to service and
rates of pay for determining benefits, the decision of the Committee, based
upon this Plan and upon the records of the Participating Companies employing
such individual and insofar as permitted by applicable law shall be final.
9.3 Procedure To Approve and Deny Claims. The Committee shall have the
sole discretion to grant or deny claims for benefits under the Plan with
respect to Executives of each Participating Company, and authorize
disbursements according to this Plan. Adequate notice, pursuant to applicable
law and prescribed Company practices, shall be provided in writing to any
Executive or beneficiary whose claim has been denied, setting forth the
specific reasons for such denial and any other information required to be
furnished under ERISA.
9.4 Procedure To Review Denied Claims. The Board of Directors of the
Company shall serve as the final Review Committee for the review of all denied
claims appealed by an Executive or the joint annuitant or beneficiary of an
Executive.
An Executive or his or her joint annuitant or beneficiary whose claim
for benefits has been denied, in whole or in part, may (and must for the
purpose of seeking any further review of a decision or determining any
entitlement to a benefit under the Plan) within 60 days after receipt of
notice of denial, submit a written request for review of the decision denying
the claim. In such case, the Review Committee shall:
(a) Make full and fair review of such decision within 60 days
after receipt of the written request for review, or within an
additional 60 days, provided the claimant is notified of the delay and
the reasons for requiring such additional time; and
(b) Notify the claimant in writing of the review decision,
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specifying the reasons for such decision.
Any Executive or joint annuitant or beneficiary whose claim for
benefits has been denied shall have such further rights of review as are
provided in section 503 of ERISA and regulations promulgated thereunder. The
Review Committee and the Committee shall retain such right, authority and
discretion as is provided in or not expressly limited by section 503 of ERISA
and regulations thereunder.
9.5 Additional Duties of Plan Administrator. The Senior Vice President-
Corporate Strategy/Development and Human Resources of the Company shall
determine conclusively for all parties all questions arising in the
administration of the Plan, and insofar as permitted by applicable law, any
decision of the Senior Vice President-Corporate Strategy/Development and
Human Resources of the Company shall not be subject to further review.
9.6 Expenses. The expenses of the Senior Vice President-Corporate
Strategy/Development and Human Resources department of the Company in
administering the Plan may be apportioned among the Participating Companies if
the Committee so decides.
.
9.7 Allocation of Responsibilities. The Company may allocate
responsibilities for the operation and administration of the Plan consistent
with the Plan's terms. The Company, the Committee, the Senior Vice President-
Corporate Strategy/Development and Human Resources of the Company and each
Participating Company may designate in writing other persons to carry out
their respective responsibilities under the Plan and may employ persons to
advise them with regard to any such responsibilities.
9.8 Named Fiduciaries. The Company, the Committee, the Senior Vice
President-Corporate Strategy/Development and Human Resources of the Company
and each Participating Company are each named fiduciaries as that term is used
in ERISA with respect to the particular duties and responsibilities herein
provided to be allocated to each of them.
9.9 More Than One Fiduciary Capacity. A person or group of persons may
serve in more than fiduciary capacity with respect to the Plan.
SECTION 10. AMENDMENT AND TERMINATION.
10.1 Plan Amendment. The Company may from time to time make any changes
in the Plan as it deems appropriate with or without notice to participants by
appropriate action of its Board of Directors. However, in recognition of the
reliance placed upon the Plan and its contractual nature in inducing the
change in position caused by retirement, any such change or modification shall
not result in the cessation or reduction of benefits to retired individuals or
their annuitants, nor shall such modification affect the rights of any
individual to any benefit to which he may have previously become entitled
hereunder. The Senior Vice President-Corporate Strategy/Development and
Human Resources of the Company, with the approval of the Senior Vice
President-Legal, External Affairs and Secretary of the Company, shall be
authorized to make minor or administrative changes to the Plan.
10.2 Plan Termination. The Company retains the right to terminate the
Plan in whole or in part by appropriate action of its Board of Directors, and
each Participating Company retains the right to withdraw from this Plan, at
any time, for any reason, with or without notice to participants. Said
termination or withdrawal, as applicable, shall not result the cessation or
15
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reduction of benefits to retired individuals or their annuitants, nor shall
such termination or withdrawal affect the rights of any individual to any
benefit to which he may have previously become entitled hereunder. A Partici-
pating Company's withdrawal from participation shall not affect that company's
liability described in Section 7.2.
SECTION 11. GENERAL PROVISIONS.
11.1 Effective Date. This Plan is effective as of Separation Date.
11.2 Rights to Benefits. Except as otherwise provided in this Plan, a
Participant shall accrue those benefits as described in this Plan, other than
the Minimum Pension and the Pensioner Death Benefit, at the end of each
calendar year (or the date the Participant terminates employment, if earlier)
on the basis of compensation as of such time and service as of the Separation
Date. The Minimum Pension and the Pensioner Death Benefit shall accrue at the
date such benefit becomes payable.
11.3 No Right to Company Assets. Neither an Executive nor any other
person shall acquire by reason of the Plan any right in or title to any
assets, funds or property of any Participating Company, including, without
limiting the generality of the foregoing, any specific funds or assets which
any Participating Company, in its sole discretion, may earmark or set aside in
anticipation of a liability hereunder. A Participating Company's obligation
to pay any amounts hereunder shall be unfunded as to the Executive.
11.4 Assignment or Alienation. Assignment or alienation of pensions or
other benefits under this Plan will not be permitted or recognized except as
otherwise required by law.
11.5 Break in Service. For purposes of determining a Participant's Years
of Credited Service or Term of Employment under this Plan, a break in service
and any reemployment shall be defined and treated in the same manner as is set
forth in the Qualified Plan; provided that, in determining years of service as
an Officer for purposes of the Minimum Pension, service after reemployment
with a Participating Company, following a period of more than six (6) months
of non-employment by any Participating Company, shall not be taken into
account until the Executive has served five (5) years of continuous service
after reemployment. In addition, there shall be no eligibility for Executive
Pension benefits in the case of an Executive who becomes reemployed with a
Participating Company, following a period of more than six (6) months of non-
employment by any Participating Company, prior to the completion by the
Executive of five (5) years of continuous service after reemployment. If the
reemployed Executive again becomes eligible for an Executive Pension, such
pension shall be determined in the same manner as a recalculated pension under
the Qualified Plan following reemployment, including offset for the prior
pension cashed out.
11.6 Leave of Absence. For purposes of this Plan, a leave of absence
shall be defined and administered in the same manner as is set forth in the
Qualified Plan.
11.7 Amounts Accrued Prior to Death. Benefit amounts accrued but not
actually paid at the time of death of a former employee or retiree shall be
paid in accordance with the standards and procedures set forth in the
Qualified Plan.
11.8 Payments to Others. Benefits payable to a former employee or retiree
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unable to execute a proper receipt may be paid to other person(s) in
accordance with the standards and procedures set forth in the Qualified Plan.
11.9 Claims Release. In case of accident resulting in the death of a
Participant which entitles his beneficiaries or annuitant to benefits under
this Plan, such beneficiaries or annuitant shall, prior to the payment of any
such benefits, sign a release, releasing the Company or other Participating
Companies, as applicable, from all claims and demands which the Executive, the
Executive's beneficiaries and/or annuitant had or may have against them,
otherwise than under this Plan, on account of such accident. If any persons
other than the beneficiaries under this Plan might legally assert claims
against a Participating Company on account of the death of the Executive, no
part of the death benefit under this Plan shall be due or payable until there
have also been delivered to the Committee good and sufficient releases of all
claims, arising from or growing out of the death of the individual, which such
other persons might legally assert against any Participating Company. The
Committee, in its discretion, may require that the releases above described
shall release any other company connected with the accident, including the
Company or any other Participating Company, as applicable. This requirement
of a release shall not apply in the case of Survivor Annuities under
Section 6.1 of the Plan.
11.10 Damage Claims or Suits. Should a claim other than under the Plan
be presented or suit brought against the Company or any Participating Company
for damages on account of the death of an individual who was at any time an
Executive, nothing shall be payable under the Plan on account of such death,
except as provided in Section 11.11 below; provided, however, that the
Committee may, in its discretion and upon such terms as it may prescribe,
waive this provision if such claims be withdrawn or if such suit be
discontinued, and provided further that this provision shall not preclude the
payment of Survivor Annuities under Section 6.1 of the Plan.
11.11 Judgment or Settlement. In case any judgment is recovered against
any Participating Company or any settlement is made of any claim or suit on
account of the death of an individual who was at any time an Executive, and
the amount paid to the beneficiaries who would have received benefits under
the Plan is less than what would otherwise have been payable under the Plan,
the difference between the two amounts may, in the sole discretion of the
Committee, be distributed to such beneficiaries.
11.12 Payments Under Law. In case any benefit which the Committee
determines to be of the same general character as a payment provided by the
Plan, shall be payable under any law now in force or hereafter enacted to an
individual who was at any time an Executive, to such an individual's
beneficiaries or annuitant, the excess only, if any, of the amount prescribed
in the Plan above the amount of such payment prescribed by law shall be
payable under the Plan; provided, however, that no benefit payable under this
Plan shall be reduced by reason of any governmental benefit or pension payable
on account of military service, or by reason of any benefit which the
recipient would be entitled to receive under the Social Security Act. In
those cases where, because of differences in the beneficiaries, or differences
in the time or methods of payment, or otherwise, whether or not there is such
excess is not ascertainable by mere comparison but adjustments are necessary,
the Committee shall have discretion to determine whether or not any such
excess exists and to make the adjustments necessary to carry out in a fair and
equitable manner the spirit of the provision for the payment of such excess.
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Exhibit 10.13
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PACTEL CORPORATION
EXECUTIVE LIFE INSURANCE PLAN
(Effective as of Separation Date)
19
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TABLE OF CONTENTS
PAGE
SECTION 1. PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. ERISA PLAN . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 3. PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . 1
3.1 Covered Under Predecessor Plan . . . . . . . . . . . . . . . . 1
3.2 Election Not to Participate . . . . . . . . . . . . . . . . . . 1
3.3 Insurability . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.4 Addition and Removal of Participants . . . . . . . . . . . . . 2
3.5 Notification of Participants . . . . . . . . . . . . . . . . . 2
SECTION 4. ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 5. INSURANCE BENEFITS WHILE EMPLOYED . . . . . . . . . . . . . . 3
5.1 Amount of Insurance . . . . . . . . . . . . . . . . . . . . . . 3
5.2 No Cash Surrender Value While Employed . . . . . . . . . . . . 3
5.3 Payment of Premiums and Reimbursement . . . . . . . . . . . . . 3
5.4 Policy Ownership . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 6. DEATH BENEFIT AFTER APPROVED RETIREMENT . . . . . . . . . . . 4
SECTION 7. POLICY OWNERSHIP AFTER TERMINATION . . . . . . . . . . . . . 4
SECTION 8. INSUFFICIENT INSURANCE . . . . . . . . . . . . . . . . . . . 4
8.1 Insufficient Policies . . . . . . . . . . . . . . . . . . . . . 4
8.2 Not Timely Purchased . . . . . . . . . . . . . . . . . . . . . 5
8.3 Tax Treatment Ignored . . . . . . . . . . . . . . . . . . . . . 5
SECTION 9. WITHHOLDING . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 10. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . 6
10.1 Plan Sponsor and Administrator . . . . . . . . . . . . . . . 6
10.2 Determination of Eligibility . . . . . . . . . . . . . . . . 6
10.3 Procedure To Approve and Deny Claims . . . . . . . . . . . . 6
10.4 Procedure To Review Denied Claims . . . . . . . . . . . . . . 6
10.5 Additional Duties of Plan Administrator . . . . . . . . . . . 7
10.6 Allocation of Responsibilities . . . . . . . . . . . . . . . 7
10.7 Named Fiduciaries . . . . . . . . . . . . . . . . . . . . . . 8
10.8 More Than One Fiduciary Capacity . . . . . . . . . . . . . . 8
10.9 Applicable Law; Severability . . . . . . . . . . . . . . . . 8
10.10 Effective Date . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 11. AMENDMENT AND TERMINATION . . . . . . . . . . . . . . . . . . 8
11.1 Plan Amendment . . . . . . . . . . . . . . . . . . . . . . . 8
11.2 Plan Termination . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 12. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 9
20
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PACTEL CORPORATION
EXECUTIVE LIFE INSURANCE PLAN
SECTION 1. PURPOSE
This Plan is established to provide life insurance benefits to
certain key executive personnel who were provided similar benefits immediately
before Separation Date by a plan sponsored by Pacific Telesis Group.
SECTION 2. ERISA PLAN
This Plan is covered by Title I of ERISA as a welfare benefit plan.
SECTION 3. PARTICIPATION
3.1 Covered Under Predecessor Plan
Participation in the Plan shall be limited to those Executives who
were covered under the Pacific Telesis Group Executive Life Insurance Plan
("Predecessor Plan") immediately before the Separation Date, as determined by
the Administrator.
3.2 Election Not to Participate
A covered Executive may elect not to participate in this Plan at any
time; such election shall be in writing, and shall become effective upon its
receipt by the Administrator. No compensation or benefits in lieu of this
Plan shall be paid to an Executive who elects not to participate. An election
not to participate shall be irrevocable unless otherwise determined by the
Board.
3.3 Insurability
Executives who are eligible to participate are not automatically
entitled to the insurance benefits provided under this Plan. Each Executive
must satisfy the requirements for insurability of the insurer selected by the
Company before he becomes covered by insurance under this Plan.
3.4 Addition and Removal of Participants
The Board may, at its discretion and at any time, designate
additional Executives to participate in the Plan and remove Executives from
participation in the Plan. When an Executive ceases participation, he shall
be treated, solely for purposes of this Plan, as if he had terminated his
employment with the Company for reasons other than Approved Retirement.
3.5 Notification of Participants
The Administrator shall annually notify each Executive that he is a
participant in the Plan and shall notify each Executive of the amount of his
life insurance benefits under the Plan.
SECTION 4. ASSIGNMENT
The Executive may assign to one or more individuals or trustees all
or any part of his right, title, claim, interest, benefit and all other
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incidents of ownership which he may have in any life insurance under this
Plan. Such assignee shall then have all rights and obligations which have
been assigned and otherwise are the Executive's under this Plan. To the
extent that there has been such an assignment, the term Executive shall mean
the Executive's assignee (or any subsequent assignee) as the context requires,
in connection with ownership, actions, elections, or other events concerning
life insurance on the Executive.
SECTION 5. INSURANCE BENEFITS WHILE EMPLOYED
5.1 Amount of Insurance
The amount of insurance provided under this Plan on the life of each
covered Executive while he is employed by a Participating Company shall be two
times the annual base salary of the Executive. At its discretion and at any
time, however, the Board may specify a lower amount of insurance for an
Executive. The Executive shall have the incidents of ownership in such
insurance provided in paragraph 5.4.
5.2 No Cash Surrender Value While Employed
While the Executive is employed by a Participating Company, he shall
not have any interest in any cash surrender value with respect to any
insurance under this Plan.
5.3 Payment of Premiums and Reimbursement
The Company shall pay all the premiums for insurance under this Plan.
The Executive shall reimburse the Company in an amount determined by the
Company which, without reimbursement, would be required to be included in the
Executive's income for federal income tax purposes by reason of the economic
benefit of the life insurance protection provided under this Plan.
Reimbursement shall occur monthly on demand by the Company.
5.4 Policy Ownership
To provide the insurance benefits under this Plan, the Company shall
acquire one or more permanent insurance policies on the life of each
participating Executive who satisfies the insurer's requirements for
insurability. Such policies may be acquired directly from an insurance
company or by assignment from the Predecessor Plan, as the Administrator
determines. The ownership of each policy shall be divided between the Company
and the Executive. The Executive shall possess all incidents of ownership in
the policy or policies in an amount equal to the amount of the insurance
benefits provided to the Executive under this Plan, and the Company shall
possess all other incidents of ownership. The Executive shall not have any
ownership interest in any cash surrender value under any insurance policy.
The Executive shall have the right to designate the beneficiary to whom death
benefits are payable under each insurance policy, to the extent of his
ownership of the policy; the rest of any death benefits shall be payable to
the Company or its designated beneficiary.
SECTION 6. DEATH BENEFIT AFTER APPROVED RETIREMENT
At the death of a covered Executive who retires pursuant to an
Approved Retirement, the Company will pay to the Executive's beneficiary a
death benefit that on an after-income tax basis (including state income tax)
shall equal one times the Executive's final annual base salary. No death
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benefits will be paid on account of the death of an Executive who terminates
employment with the Company for reasons other than an Approved Retirement.
SECTION 7. POLICY OWNERSHIP AFTER TERMINATION
Effective with an Executive's termination of employment with a
Participating Company for any reason, including an Approved Retirement, all
interests and rights the Executive, or his assignee, had under this Plan in
any insurance policies on the Executive's life will cease, and thereafter all
interests and rights in such insurance policies will belong exclusively to the
Company. The Executive shall transfer to the Company the portion of the
policy or policies on his life which he owns under this Plan. After such a
termination, neither the Executive, his assignee, the Executive's beneficiary,
nor the assignee's beneficiary shall have any interests or rights under this
Plan in the cash surrender value of any insurance policy or the death benefit
payable under any insurance policy.
SECTION 8. INSUFFICIENT INSURANCE
8.1 Insufficient Policies
If an Executive who satisfies the insurer's requirements for
insurability should die at a time when the amount of insurance in force on his
life is less than the amount required under this Plan, the Company shall pay
such additional amounts as would have been paid by the insurer if such amount
of insurance had been in effect, subject to the exceptions which would have
been stated in the policy. Such exceptions shall be determined by reference
to the most recently purchased policy on the Executive's life under this Plan;
if no such policy exists, they shall be determined by reference to the most
recently purchased policy for any Executive covered under this Plan. Payment
shall be made from the general funds of the Company.
8.2 Not Timely Purchased
In addition, if the amount of insurance paid under this Plan is less
than the amount of insurance in force because of the application of a suicide,
incontestability of similar clause, and if such clause would not have applied
to reduce the amount of insurance if the insurance policy had been timely
purchased, then the Company shall pay such additional amounts as would have
been paid by the insurer if the insurance had been timely purchased.
Insurance shall be treated as timely purchased if it is purchased no later
than 120 days after the date of the applicable event. For example, insurance
shall be timely purchased if it is purchased no later than 120 days after an
Executive is first covered under the Plan. Similarly, insurance is timely
purchased if it is purchased no less than 120 days after the date on which an
Executive's periodic salary increase is effective.
8.3 Tax Treatment Ignored
Except as otherwise provided herein, no adjustment shall be made for
the fact that the tax treatment of Company payments may be different from the
tax treatment of the proceeds paid under an insurance policy.
SECTION 9. WITHHOLDING
The Executive and any beneficiary shall make appropriate arrangements
with the Company for the satisfaction of any federal, state or local income
tax withholding requirements and social security or other employee tax
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requirements applicable to the provision of benefits under this Plan. If no
other arrangements are made, the Company may provide, at its discretion, for
such withholding and tax payments as may be required.
SECTION 10. ADMINISTRATION.
10.1 Plan Sponsor and Administrator. The Company shall be the sponsor of
the Plan and the Senior Vice President-Corporate Strategy/Development and
Human Resources of the Company shall be the Administrator. The Senior Vice
President-Corporate Strategy/Development and Human Resources of the Company
shall have the specific powers elsewhere granted and shall have such other
powers as may be necessary in order to administer the Plan, in his sole
discretion, except for powers herein granted or provided to others.
10.2 Determination of Eligibility. In all questions relating to
eligibility for any benefit hereunder, the decision of the Administrator,
based upon this Plan and upon the insurance policies covering such individual
and, insofar as permitted by applicable law, shall be final.
10.3 Procedure To Approve and Deny Claims. The Administrator shall have
the sole discretion to grant or deny claims for benefits under the Plan with
respect to covered Executives. Adequate notice, pursuant to applicable law
and prescribed Company practices, shall be provided in writing to any
Executive or beneficiary whose claim has been denied, setting forth the
specific reasons for such denial and any other information required to be
furnished under ERISA.
10.4 Procedure To Review Denied Claims. The Committee shall serve as the
final Review Committee for the review of all denied claims appealed by an
Executive or beneficiary of an Executive.
An Executive or his or her beneficiary whose claim for benefits has
been denied, in whole or in part, may (and must for the purpose of seeking any
further review of a decision or determining any entitlement to a benefit under
the Plan) within 60 days after receipt of notice of denial, submit a written
request for review of the decision denying the claim. In such case, the
Review Committee shall:
(a) Make full and fair review of such decision within 60 days
after receipt of the written request for review, or within an additional
60 days, provided the claimant is notified of the delay and the reasons
for requiring such additional time; and
(b) Notify the claimant in writing of the review decision,
specifying the reasons for such decision.
Any Executive or beneficiary whose claim for benefits has been denied
shall have such further rights of review as are provided in section 503 of
ERISA and regulations promulgated thereunder. The Committee shall retain such
right, authority and discretion as is provided in or not expressly limited by
section 503 of ERISA and regulations thereunder.
10.5 Additional Duties of Plan Administrator. The Senior Vice President-
Corporate Strategy/Development and Human Resources of the Company shall
determine conclusively for all parties all questions arising in the
administration of the Plan, and insofar as permitted by applicable law, any
decision of the Senior Vice President-Corporate Strategy/Development and
Human Resources of the Company shall not be subject to further review.
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10.6 Allocation of Responsibilities. The Company may allocate
responsibilities for the operation and administration of the Plan consistent
with the Plan's terms. The Company, the Committee and the Senior Vice
President-Corporate Strategy/Development and Human Resources of the Company
may designate in writing other persons to carry out their respective
responsibilities under the Plan and may employ persons to advise them with
regard to any such responsibilities.
10.7 Named Fiduciaries. The Company, the Committee and the Senior Vice
President-Corporate Strategy/Development and Human Resources of the Company
are each named fiduciaries as that term is used in ERISA with respect to the
particular duties and responsibilities herein provided to be allocated to each
of them.
10.8 More Than One Fiduciary Capacity. A person or group of persons may
serve in more than fiduciary capacity with respect to the Plan.
10.9 Applicable Law; Severability
The Plan hereby created shall be construed, administered and governed
in all respects in accordance with ERISA and the laws of the State of
California to the extent the latter are not preempted by ERISA. If any
provision of this instrument shall be held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining provisions hereof
shall continue to be fully effective.
10.10 Effective Date
This Plan shall be effective as of Separation Date.
SECTION 11. AMENDMENT AND TERMINATION.
11.1 Plan Amendment. The Company may from time to time make any changes
in the Plan as it deems appropriate with or without notice to participants by
appropriate action of the Board of Directors. However, in recognition of the
reliance placed upon the Plan and its contractual nature in inducing the
change in position caused by retirement, any such change or modification shall
not affect the rights of any individual to any benefit to which he may have
previously become entitled hereunder. The Senior Vice President-Corporate
Strategy/Development and Human Resources of the Company, with the approval of
the Senior Vice President-Legal, External Affairs and Secretary of the
Company, shall be authorized to make minor or administrative changes to the
Plan.
11.2 Plan Termination. The Company retains the right to terminate the
Plan in whole or in part by appropriate action of the Board, at any time, for
any reason, with or without notice to participants. Said termination shall
not affect the rights of any individual to any benefit to which he may have
previously become entitled hereunder.
SECTION 12. DEFINITIONS
12.1 "Approved Retirement" shall mean a termination of employment with a
Participating Company with eligibility for an immediate nondiscounted service
pension under the PacTel Corporation Employees Pension Plan, or a termination
which the Board specifically determines to be an "Approved Retirement" for
purposes of this Plan.
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12.2 "Board" shall mean the Board of Directors of PacTel Corporation.
12.3 "Committee" means the Compensation and Personnel Committee, standing
committee of the Board.
12.4 "Company" shall mean PacTel Corporation, a California corporation.
12.5 "Executive" shall mean an employee of a Participating Company who is
eligible to participate in the Plan, as provided in Section 3 of the Plan.
12.6 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
12.7 "Participating Company" shall mean the Company, each subsidiary of
the Company which shall, with the consent of the Company determine to
participate in the Plan, and each other corporation, partnership or joint
venture designated by the Board or the Committee as a Participating Company.
12.8 "Plan" shall mean this PacTel Corporation Executive Life Insurance
Plan.
12.9 "Separation Date" shall mean the date that complete separation of
PacTel Corporation and Pacific Telesis Group occurs.
12.10 The use in this Plan of personal pronouns of the masculine gender is
intended to include both the masculine and feminine genders.
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Exhibit 10.14
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PACTEL CORPORATION
EXECUTIVE LONG TERM DISABILITY PLAN
(EFFECTIVE AS OF SEPARATION DATE)
1
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PacTel Corporation
Executive Long Term Disability Plan
(Effective as of Separation Date)
Section 1. Introduction
The PacTel Corporation Executive Long Term Disability Plan (the
"Plan") is established as of Separation Date to provide disability and certain
other benefits to certain Executives who become disabled while employed. These
benefits are similar to the benefits previously provided to Executives before
the Separation Date under the Pacific Telesis Group Long Term Disability and
Survivor Protection Plan (the "Predecessor Plan").
Section 2. Participation
2.1 Eligibility to Participate. An Executive on the active rolls of the
Company or of a Participating Company immediately following the Separation
Date shall be eligible to participate in the Plan, but only if the Executive
was a participant in the Predecessor Plan immediately before the Separation
Date. Any such former Executive who is receiving disability benefits under
Section 3 of the Plan remains a Participant.
2.2 Eligibility for Disability Benefit. A Participant who becomes disabled
within the meaning of Section 3.1 of the Plan while an Executive on the active
rolls of the Company or a Participating Company shall be eligible for a
Disability Benefit under Section 3.2 of the Plan.
2.3 Eligibility for Surviving Spouse Benefit. The Surviving Spouse of a
Participant who dies while eligible for a Disability Benefit under Section 3
of the Plan on the last day of employment with the Company or a Participating
Company shall be eligible for a Surviving Spouse Benefit under Section 4 of
the Plan.
2.4 Eligibility for Group Life Insurance Benefit.
A Participant who is eligible for a Disability Benefit under Section 3 of the
Plan on the last day of employment with the Company or a Participating Company
and who is not eligible for Company-paid life insurance coverage under the
Company's Disability Benefit and Insurance Plan after termination of
employment shall be eligible for the Group Life Insurance Benefit under
Section 5 of the Plan.
2.5 Eligibility for Medical Expense Benefit.
A Participant who is eligible for a Disability Benefit under Section 3 of the
Plan on the last day of employment with the Company or a Participating Company
and who is not eligible for Company-paid medical and dental coverage under the
Company's Health Benefit Plans after termination of employment shall be
eligible for the Medical Expense Benefits under Section 6 of the Plan.
2.6 General Participation Requirements. For purposes of Sections 2.3, 2.4
and 2.5 above, a Participant shall be considered to be eligible to receive a
Disability Benefit under Section 3 if he or she has met the conditions
specified in Section 3, even though the receipt of other benefits by such
Participant precludes his or her receipt of any benefits under Section 3.
Section 3. Disability Benefits
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3.1 Definition of Disability
(a) Disability During Initial 52-Week Period.
A Participant shall be considered to be "disabled" at any time during the
first fifty-two week period following the onset of a physical or mental
impairment, if such impairment prevents the Participant from meeting the
performance requirements of the position held immediately preceding the onset
of the physical or mental impairment.
(b) Disability After Initial 52-Week Period.
A Participant shall be considered to be "disabled" after the first fifty-two
week period following the onset of a physical or mental impairment if such
impairment prevents the Participant from meeting the performance requirements
of (i) the position held immediately preceding the onset of the physical or
mental impairment, (ii) a similar position, or (iii) any appropriate position
within the Company which the Participant would otherwise be capable of
performing by reason of the Participant's background and experience.
(c) Committee Determination. The Committee shall make the
determination of whether a Participant is disabled within the meaning of
Sections 3.1(a) and 3.1(b) above, in its sole discretion.
3.2 Amount of Disability Benefits
(a) Benefits During Initial 52-Week Period.
A Participant who is disabled during a period described in Section 3.1(a)
shall be eligible to receive a monthly disability benefit equal to 100 percent
of the Participant's monthly base salary rate on the last day the Participant
was on the active payroll, reduced by any amounts described in Section
3.2(d)(i) which are attributable to the period for which benefits are provided
under this paragraph.
(b) Benefits After Initial 52-Week Period But Before Age 65. A
Participant who is disabled during a period described in Section 3.1(b) shall,
prior to his sixty-fifth birthday, be eligible to receive a monthly disability
benefit equal to sixty percent of the Participant's monthly base salary rate
on the last day the Participant was on the active payroll, reduced by any
amounts described in Section 3.2(d)(ii) which are attributable to the period
for which benefits are provided under this paragraph.
(c) Benefits After Initial 52-Week Period And At or After Age 65. A
Participant who is disabled during a period described in Section 3.1(b) shall,
commencing with his sixty-fifth birthday or the start of the period described
in Section 3.1(b), if later, be eligible to receive a monthly disability
benefit equal to the greater of:
(A) One and one-quarter percent of the Participant's Annual
Basic Pay on the last day the Participant was on the active payroll, or
(B) If the Participant's Term of Employment has been five years
or more, ninety percent of the monthly pensions the Participant would have
been entitled to receive commencing at age 65 under the Qualified Pension
Plan and the Supplemental Executive Pension Plan, as in effect on the last
day the Participant was on the active payroll,
reduced by any amounts described in Section 3.2(d)(iii) which are attributable
to the period for which benefits are provided under this Section 3.2(c).
2
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(d) Offsets To Disability Benefits
(i) Offsets During Initial 52-Week Period. The disability
benefit determined for the initial 52-week period under Section 3.2(a) shall
be reduced by the sum of the following benefits received by the Participant
which are attributable to the period for which such disability benefit is
provided: a service pension under the Qualified Pension Plan, a pension under
the Supplemental Executive Pension Plan, a disability benefit under the
Disability Benefit and Insurance Plan, any Worker's Compensation Benefit, plus
any other benefit payments required by law on account of the Participant's
disability. However, no reduction shall be made on account of any pension
under the Qualified Pension Plan or the Supplemental Executive Pension Plan at
a rate greater than the rate of such pension on the date the Participant first
received such pension after his disability.
(ii) Offsets Following 52-Week PeriodBut Before Age 65. The
disability benefit determined for any period under Section 3.2(b)(i) above
shall be reduced by the sum of the following benefits received by the
Participant which are attributable to the period for which such disability
benefit is provided: a vested pension or service pension under the Qualified
Pension Plan, a pension under the Supplemental Executive Pension Plan, a
disability benefit under the Disability Benefit and Insurance Plan, any other
retirement income payments from the Company, any Worker's Compensation
Benefit, plus any Social Security Insurance Benefit. However, no reduction
shall be made on account of any pension under the Qualified Pension Plan or
the Supplemental Executive Pension Plan at a rate greater than the rate of
such pension on the date the Participant first received such pension after his
disability, and no reduction shall be made on account of any Social Security
Benefit at a rate greater than the rate which the Participant would have first
been eligible to receive after his disability and as if no other member of his
family were eligible for any Social Security Benefit.
Furthermore, the Board of Directors of the Company, in its
discretion, may reduce the Disability Benefit by the amount of outside
compensation or earnings of the Participant for work performed by the
Participant during the period for which such disability benefit is provided.
(iii) Offsets Following Both 52-Week PeriodAnd Age 65. The
disability benefit determined for any period under Section 3.2(b)(ii) above
shall be reduced by the sum of the following benefits received by the
Participant which are attributable to the period for which such disability
benefit is provided: a service pension or vested pension under the Qualified
Pension Plan, a pension under the Supplemental Executive Pension Plan, a
disability benefit under the Disability Benefit and Insurance Plan, any other
retirement income payments from the Company, plus any Worker's Compensation
Benefit. However, no reduction shall be made on account of any pension under
the Qualified Pension Plan or the Supplemental Executive Pension Plan at a
rate greater than the rate of such pension on the date the Participant first
received such pension after his disability.
3.3 Determination of Periods of Disability. For purposes of Sections
3.1(a) and (b), the measurement of time following the onset of a physical or
mental impairment shall coincide with the measurement of time used to
calculate periods of disability under the Disability Benefit and Insurance
Plan. Successive periods of physical or mental impairment shall be counted
together in computing the periods during which the Participant shall be
entitled to the benefits provided under Section 3.2(a) and (b), except that
any disability absence after the Participant has been continuously engaged in
3
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the performance of duty for thirteen weeks shall be considered to commence a
new period of physical or mental impairment under Section 3.1(a), so that such
Participant shall be entitled during such new period to the benefits provided
under Section 3.2(a).
3.4 Determination of Periods of Eligibility. With respect to a Participant
not subject to mandatory retirement at age 65 under section 12(b) of the Age
Discrimination in Employment Act (29 U.S.C. 621 et. seq.) or Sections 12941
and 12942 of the California Government Code, the period of eligibility for the
disability benefit following the initial 52-week period, as provided in
Section 3.2(b) and (c) shall be the period described therein or such other
period as is required under the Age Discrimination in Employment Act, the
California Government Code, or under any applicable governing regulations or
interpretations thereunder.
Section 4. Surviving Spouse Benefit
4.1 Amount of Surviving Spouse Benefit. When a disabled Participant
described in Section 2.3 of the Plan dies, the Participant's Surviving Spouse
shall be eligible to receive a monthly benefit equal to one and one-quarter
percent of the Participant's Annual Basic Pay on the last day the Participant
was on the active payroll prior to death, reduced by the sum of the following
benefits received by the Participant's Surviving Spouse on account of the
death of the Participant and which are attributable to the period for which
benefits are provided under this Section: (i) a surviving annuitant's pension
under the Qualified Pension Plan, (ii) a surviving annuitant's pension under
the Supplemental Executive Pension Plan, and (iii) any other lifetime payments
to the Surviving Spouse from the Company or a Participating Company.
However, no reduction shall be made on account of a pension under the
Qualified Pension Plan or the Supplemental Executive Pension Plan at a rate
greater than the rate when such pension was first payable.
4.2 Exception. Notwithstanding Section 4.1 above, the Surviving Spouse
of a Participant shall not be eligible to receive benefits under this Section,
if prior to the Participant's death, the Participant was eligible to elect,
but declined, a joint and survivor annuity form of payment under the Qualified
Pension Plan and elected to receive benefits under the Qualified Pension Plan
in some other form.
Section 5. Group Life Insurance Benefit
A disabled Participant described in Section 2.4 who has terminated
employment with the Company and Participating Companies shall be entitled to
Company-paid life insurance coverage and benefits equal in scope and value to
the coverage and benefits that would have been provided under the Company's
Disability Benefit and Insurance Plan and under the Executive Life Insurance
Program if the employee had retired on a service pension under the Qualified
Pension Plan. Benefits provided by this section shall be in lieu of any other
rights to continued coverage which a Participant may have under the Company's
Group Life Insurance Program.
Section 6. Medical Expense Benefits
A disabled Participant described in Section 2.5 who has terminated
employment with the Company and Participating Companies shall be entitled to
Company-paid medical and dental coverage and benefits equivalent in scope and
value to the coverage and benefits that would have been provided under the
Health Benefit Plans if the employee had retired on a service pension under
4
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the Qualified Pension Plan.
Section 7. Claims and Appeals
Any claim under the Plan by a Participant or anyone claiming through
a Participant shall be presented to the Company's Senior Vice
President-Corporate Strategy/Development and Human Resources. Any person
whose claim under the Plan has been denied may, within 60 days after receipt
of notice of denial, submit to the Committee a written request for review of
the decision denying the claim. The Committee shall determine conclusively
for all parties all questions arising in the administration of the Plan.
Section 8. General Provisions
8.1 Effective Date. The Plan shall be effective on Separation Date.
8.2 No Assignment. The rights of the Participant or his or her spouse to
benefits under the Plan shall not be subject to assignment or alienation.
8.3 Plan Expenses. All costs of providing the benefits under the Plan
shall be charged to the operating expense of the Company when and as paid.
8.4 Amendment and Termination. The Board of Directors of the Company may
from time to time make changes in the Plan and may terminate the Plan at any
time and for any reason. In addition, the Senior Vice President-Corporate
Strategy/Development and Human Resources of the Company with the concurrence
of the Senior Vice President-Legal, External Affairs and Secretary of the
Company shall be authorized to make minor or administrative changes to the
Plan, as well as changes necessary to provide Participants with benefits that
are comparable to the benefits provided by the Predecessor Plan and changes
dictated by the requirements of federal or state statutes applicable to the
Company or authorized or made desirable by such statutes. Such changes or
termination shall not affect the rights of any Participant or Surviving
Spouse, without his or her consent, to any benefit under the Plan to which
such Participant or Surviving Spouse may have previously become entitled as a
result of a disability, death or termination of employment which occurred
prior to the effective date of such change or termination.
8.5 Benefits Conditioned on Release. In case of accident resulting in
injury to or death of a Participant which entitles the Participant or his
beneficiary to benefits under the Plan, the Participant or his beneficiary may
elect to accept such benefits or to prosecute such claims at law as the
Participant or the beneficiary may have against the Company. If election is
made to accept the benefits under the Plan, such election shall be in writing
and shall release the Company from all claims and demands which the
Participant or his beneficiary may have against it, otherwise than under this
Plan or under any other plan maintained by the Company, on account of such
accident. The Committee, in its discretion, may require that the election
described above shall release any other company connected with the accident,
including any company participating in the Qualified Pension Plan, as well as
any company with which arrangements have been made, directly or indirectly,
for interchange of benefit obligations, as described in Section 8 of the
Qualified Pension Plan. The right of the Participant to a disability benefit
under Section 3 of the Plan shall lapse if election to accept such benefits,
as above provided, is not made within sixty days after injury, or within such
greater time as the Committee shall, by resolution duly entered on its
records, fix for the making of such election.
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8.6 Forfeiture or Loss of Benefits
(a) Filing of Claims Other Than Benefit Claims. Should claims other
than claims for benefits under this Plan or under any other plan maintained by
the Company be presented or suit brought against the Company, against any
other company participating in the Qualified Pension Plan or against any other
company with which arrangements have been made, directly or indirectly, for
interchange of benefit obligations, as described in Section 8 of the Qualified
Pension Plan, for damages on account of injury or death of a Participant,
nothing shall be payable under this Plan on account of such injury or death
except as provided in Section 8.6(b) below; provided however, that the
Committee may, in its discretion and upon such terms as it may prescribe,
waive this provision if such claims be withdrawn or if such suit be
discontinued.
(b) Additional Benefits Following Judgment or Settlement. In case
any judgment is recovered against the Company or any settlement is made of any
claim or suit on account of the injury or death of a Participant, and the
total amount which would otherwise have been payable under the Plan and under
any other plan maintained by the Company is greater than the amount paid on
account of such judgment or settlement, the lesser of (i) the difference
between such two amounts, or (ii) the amount which would otherwise have been
payable under this Plan, may in the discretion of the Committee, be
distributed to the beneficiaries who would have received benefits under this
Plan.
(c) Noncompetition Provision. All benefits provided under the Plan
with respect to a Participant shall be forfeited and cancelled in their
entirety if the Participant, without the consent of the Company and while
employed by the Company or after termination of such employment becomes
associated with, becomes employed by or renders services to, or owns an
interest in any business (other than as a shareholder with a nonsubstantial
interest in such business) that is competitive with the Company or with any
business with which a subsidiary or affiliated company has a substantial
interest, as determined by the Company's Board of Directors. All benefits
provided under the Plan with respect to a Participant shall be forfeited and
cancelled in their entirety if the Participant is discharged by the Company
for cause or the Participant engages in misconduct in connection with the
Participant's employment.
Section 9. Definitions
9.1 "Affiliate" means any corporation, partnership or joint venture in
which the Company or a subsidiary of the Company has an ownership interest of
50% or more.
9.2 "Annual Basic Pay" means the Participant's annual base salary rate as
determined by the Company on the last day the Participant was on the active
payroll plus an amount determined with reference to the Company's Short Term
Incentive Plan, but excluding all differentials regarded as temporary or extra
payments and all cash payments and distributions made under the Long Term
Incentive Plan. The amount determined with reference to the Short Term
Incentive Plan shall be the lesser of the Participant's standard short term
award in effect on the last day the Participant was on the active payroll, or
60% of the Participant's position rate on the last day the Participant was on
the active payroll.
9.3 "Committee" means the Compensation and Personnel Committee of the
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Board of Directors of the Company.
9.4 "Company" means PacTel Corporation, a California corporation, or its
successors.
9.5 "Disability Benefit and Insurance Plan" means the PacTel Corporation
Long Term Disability, Life and Accidental Death and Dismemberment Plan.
9.6 "Executive" means an employee who has been designated by the
Company's Board of Directors to be within the Participating Company's
Executive Group or who holds a position that the Board has designated to be
within a Participating Company's Executive Group.
9.7 "Supplemental Executive Pension Plan" means the PacTel Corporation
Supplemental Executive Pension Plan, which as of Separation Date replaced the
Pacific Telesis Group Non-Qualified Pension Plan, the Pacific Telesis Group
Supplemental Executive Retirement Plan, and the Pacific Telesis Group
Mid-Career Pension Plan.
9.8 "Health Benefits Plans" means the PacTel Corporation Medical and
Dental Plan and any other medical plan maintained by the Company for employees
or retired employees in general.
9.9 "Participant" means an Executive or former Executive who meets the
requirements of Section 2.
9.10 "Participating Company" means a subsidiary of the Company which
elects, with the permission of the Company, to participate in the Plan and
each other corporation, partnership or joint venture designated by the
Committee or the Board of Directors of the Company as a Participating Company.
9.11 "Plan" means this plan, the PacTel Corporation Executive Long Term
Disability Plan.
9.12 "Predecessor Plan" means the Pacific Telesis Group Senior Management
Long Term Disability and Survivor Protection Plan.
9.13 "Qualified Pension Plan" means the PacTel Corporation Employees
Pension Plan.
9.14 "Separation Date" means the date as of which the total and complete
separation of ownership of PacTel Corporation from Pacific Telesis Group
occurs.
9.15 "Surviving Spouse" means the individual who is eligible for a
surviving annuitant's pension under the Qualified Pension Plan and the
Supplemental Executive Pension Plan.
9.16 "Term of Employment" means "term of employment" as defined in the
Qualified Pension Plan.
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Exhibit 23.1
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Consent of Independent Accountants
We consent to the incorporation by reference in the registration statements of
PacTel Corporation on Form S-8 relating to the PacTel Corporation Retirement
Plan, PacTel Corporation Employee Stock Purchase Plan, and Pactel Corporation
1993 Long-Term Stock Incentive Plan of our reports dated March 3, 1994 (except
for Notes B, L, and R as to which the date is March 9, 1994), on our audits of
the consolidated financial statements and financial statement schedules of
AirTouch Communications (formerly PacTel Corporation) and Subsidiaries as of
December 31, 1993 and 1992 and for the years ended December 31, 1993, 1992,
and 1991, which reports are included in the Annual Report on Form 10-K.
/s/ Coopers & Lybrand
San Francisco, California
March 21, 1994
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Exhibit 23.2
------------
Consent of Ernst & Young
We consent to the incorporation by reference, in the Registration Statements
(Form S-8's No. 33-51945, No. 33-51947, and No. 33-51949) pertaining to the
PacTel Corporation 1993 Long-Term Stock Incentive Plan, the PacTel Corporation
Employee Stock Purchase Plan, and the PacTel Corporation Retirement Plan, of
our report dated February 25, 1994, with respect to the consolidated financial
statements of New Par included in the Annual Report (Form 10-K) of AirTouch
Communications for the year ended December 31, 1993.
/s/ Ernst & Young
Columbus, Ohio
March 22, 1994
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Exhibit 23.3
------------
Consent of Independent Auditors
The Board of Directors and Capital Subscribers
Mannesmann Mobilfunk GmbH:
We consent to incorporation by reference in the registration statements on
Form S-8 of PacTel Corporation relating to the PacTel Corporation Retirement
Plan, PacTel Corporation Employee Stock Purchase Plan, and Pactel Corporation
1993 Long-Term Stock Incentive Plan of our report dated February 28, 1994,
relating to the balance sheets of Mannesmann Mobilfunk GmbH as of December 31,
1993 and 1992, and the related statements of operations, capital subscribers'
equity and cash flows for the years then ended, which report appears in the
December 31, 1993 annual report on Form 10-K of AirTouch Communications.
Dusseldorf, Germany, March 21, 1994
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
Scheffler Haas
Wirtschaftsprufer Wirtschaftsprufer
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Exhibit 24
----------
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
WHEREAS, PACTEL CORPORATION, a California corporation (the "Corporation"),
proposes to file with the Securities and Exchange Commission (the "SEC"),
under the provisions of the Securities Act of 1934, as amended, an Annual
Report on Form 10-K; and
WHEREAS, each of the undersigned is an officer or director, or both, of the
Corporation as indicated below under his name;
NOW, THEREFORE, each of the undersigned hereby constitutes and appoints Sam
Ginn, C. Lee Cox, Lydell L. Christensen, Margaret G. Gill, Mohan S. Gyani, and
each of them, his attorneys for him in his stead, in his capacity as an
officer, director, or both, of the Corporation, to execute and file such
Annual Report on Form 10-K, and any and all amendments, modifications or
supplements thereto, and any exhibits thereto, and granting to each of said
attorneys full power and authority to sign and file any and all other
documents and to perform and do all and every act and thing whatsoever
requisite and necessary to be done as fully, to all intents and purposes, as
he might or could do if personally present at the doing thereof, and hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof in connection with effecting the filing of
the Annual Report on Form 10-K.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 25 day of
February, 1994.
/s/ Sam Ginn /s/ C. Lee Cox
Sam Ginn C. Lee Cox
Chairman of the Board and President and Chief Operating
Chief Executive Officer Officer and Director
/s/ Lydell L. Christensen /s/ Mohan S. Gyani
Lydell L. Christensen Mohan S. Gyani
Executive Vice President Vice President, Finance
and Chief Financial Officer and Treasurer
(Principal Accounting Officer)
1
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Exhibit 24 (Continued)
----------------------
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
WHEREAS, PACTEL CORPORATION, a California corporation (the "Corporation"),
proposes to file with the Securities and Exchange Commission (the "SEC"),
under the provisions of the Securities Act of 1934, as amended, an Annual
Report on Form 10-K; and
WHEREAS, each of the undersigned is a director of the Corporation as indicated
below under his name;
NOW, THEREFORE, each of the undersigned hereby constitutes and appoints Sam
Ginn, C. Lee Cox, Lydell L. Christensen, Margaret G. Gill, Mohan S. Gyani, and
each of them, his attorneys for him in his stead, in his capacity as a
director of the Corporation, to execute and file such Annual Report on Form
10-K, and any and all amendments, modifications or supplements thereto, and
any exhibits thereto, and granting to each of said attorneys full power and
authority to sign and file any and all other documents and to perform and do
all and every act and thing whatsoever requisite and necessary to be done as
fully, to all intents and purposes, as he might or could do if personally
present at the doing thereof, and hereby ratifying and confirming all that
said attorneys may or shall lawfully do, or cause to be done, by virtue hereof
in connection with effecting the filing of the Annual Report on Form 10-K.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 25 day of
February, 1994.
/s/ Donald G. Fisher /s/ James R. Harvey
Donald G. Fisher-Director James R. Harvey-Director
/s/ Paul Hazen /s/ Arthur Rock
Paul Hazen-Director Arthur Rock-Director
/s/ Charles R. Schwab /s/ George P. Shultz
Charles R. Schwab-Director George P. Shultz-Director
2
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Lydell L. Christensen
Executive Vice President and
Chief Financial Officer
AirTouch Communications
2999 Oak Road
Walnut Creek, CA 94596
March 22, 1994
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Document Control - EDGAR
Ladies and Gentlemen:
In accordance with the regulations of the Commission and the filing procedures
for the EDGAR electronic filing program, there is transmitted herewith the
AirTouch Communications Form 10-K, with certain exhibits, for the fiscal year
ended December 31, 1993. The filing fee of $250.00 has been deposited as
required by the EDGAR program in the lockbox depository at Mellon Bank in
Pittsburgh, Pennsylvania.
Executed copies of this Form 10-K, including exhibits, are being sent to the
New York and Pacific Stock Exchanges.
Please direct any comments or inquiries regarding the transmission of this
filing to Lemyrtle Thompson who may be called on 415-394-3169. It is
requested, however, that any comments or inquiries on the material submitted
herewith be directed to Kristina Veaco on (415) 394-3538.
Yours truly,
/s/ Lydell L. Christensen
Executive Vice President and
Chief Financial Officer
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