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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, 1996.
COMMISSION FILE NUMBER 1-12342
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AIRTOUCH COMMUNICATIONS, INC.
A DELAWARE CORPORATION I.R.S. EMPLOYER NUMBER 94-3213132
ONE CALIFORNIA STREET
SAN FRANCISCO, CA 94111
(415) 658-2000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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Title of each class Name of each exchange on which registered
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COMMON STOCK, $.01 PAR VALUE, WITH NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS PACIFIC STOCK EXCHANGE
6.00% CLASS B MANDATORILY
CONVERTIBLE PREFERRED STOCK, NEW YORK STOCK EXCHANGE
SERIES 1996
4.25% CLASS C CONVERTIBLE NEW YORK STOCK EXCHANGE
PREFERRED STOCK, SERIES 1996
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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 19, 1997, the aggregate
market value of all voting stock held by nonaffiliates was approximately $12.9
billion. At March 19, 1997, 502,947,400 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
indicated Parts of this Form 10-K:
1996 Annual Report to Stockholders - Part II
1997 Proxy Statement - Part III
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TABLE OF CONTENTS
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PART I
ITEM 1 Business.................................................................... 1
ITEM 2 Properties.................................................................. 14
ITEM 3 Legal Proceedings........................................................... 14
ITEM 4 Submission of Matters to a Vote of Security Holders......................... 15
PART II
ITEM 5 Market for Registrant's Common Equity and Related Stockholder Matters....... 17
ITEM 6 Selected Financial Data..................................................... 17
ITEM 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................. 17
ITEM 8 Financial Statements and Supplementary Data................................. 17
ITEM 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................. 17
PART III
ITEM 10 Directors and Executive Officers of the Registrant.......................... 18
ITEM 11 Executive Compensation...................................................... 18
ITEM 12 Security Ownership of Certain Beneficial Owners and Management.............. 18
ITEM 13 Certain Relationships and Related Transactions.............................. 18
PART IV
ITEM 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K............. 19
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Unless the context otherwise requires, references to "AirTouch" or the "Company"
include AirTouch Communications, Inc. and entities over which it has or shares
operational control.
When used in this Form 10-K, "cellular service" refers to wireless service
operating at the 800 MHz band in the United States and South Korea and at the
900 MHz band in Europe, and "broadband personal communications service" or "PCS"
refers to wireless service operating at the 1900 MHz band in the United States
and South Korea and at the 1800 MHz band in Europe. The Company considers the
functionality of both services to be similar despite the different bands at
which they operate.
This Form 10-K includes trademarks or service marks of the Company and of other
companies that are the property of their respective owner.
Proportionate customer data is obtained, for each system over which the Company
has or shares operational control, by multiplying (i) the aggregate number of
customers of such system by (ii) the Company's ownership interest in the
licensee operating such system. Proportionate customer data does not include
information with respect to the Company's cost-based investments or with respect
to certain equity-based investments that are not material to the proportionate
information presented.
The term "POPs" means the population of a licensed market (based on population
estimates for such market) multiplied by the Company's ownership interest in a
licensee operating in that market as of the date specified, and include networks
under construction and the markets of certain equity-based and cost-based
investments not included in proportionate operating results.
Private Securities Litigation Reform Act Safe Harbor Statement: When used in
this Report, the words "estimate," "project," "intend," "expect" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to risks and uncertainties that could cause actual results to differ
materially. For a discussion of such risks, see Business-Investment
Considerations. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
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PART I
ITEM 1. BUSINESS.
OVERVIEW
AirTouch Communications, Inc. is one of the world's leading wireless
telecommunications companies, with significant wireless interests in the United
States, Europe and Asia. The Company's worldwide cellular and broadband personal
communications service ("PCS") interests represented over 178 million POPs and
more than 5 million proportionate customers at December 31, 1996. In the United
States, the Company had approximately 58 million proportionate cellular and
broadband PCS POPs and over 3.4 million proportionate customers as of the end of
1996. The Company controls or shares control over cellular systems in ten of the
30 largest cellular markets, including Los Angeles, San Francisco, San Diego,
Detroit and Atlanta, and through PrimeCo Personal Communications, L.P.
("PrimeCo"), shares control over 11 major broadband PCS markets.
Internationally, as of December 31, 1996, the Company had over 120 million
cellular and broadband PCS POPs and more than 1.7 million proportionate
customers, and held significant ownership interests, with board representation
and significant operating influence, in cellular systems operating in Belgium,
Germany, India (Madras and Madhya Pradesh), Italy, Japan, Poland, Portugal,
Romania, Sweden, South Korea and Spain. Based on industry surveys, the Company
is also among the largest providers of paging services in the United States,
with approximately 2.9 million units in service at December 31, 1996.
The Company's objective is to be the premier provider of wireless
telecommunications services worldwide. To achieve its objective, the Company
seeks to expand its scale and scope in its wireless operations in order to
increase marketing effectiveness and achieve operating cost savings and
efficiencies; pursues wireless licenses in new countries; selectively increases
ownership interests in existing wireless markets; and pursues other
value-creating opportunities around the world.
In response to the continuing evolution of telecommunications technology and
customer requirements, the Company is evaluating the possibility of expanding
its operations into lines of business beyond its historical base of high
mobility wireless services where such expansion would enhance or complement
existing wireless services. Areas of possible expansion could include: wireless
local loop (the construction and operation of dedicated wireless networks
designed to compete directly with or substitute for wireline networks);
international long-distance service for the Company's wireless subscribers; and
international wireline long-distance services that complement the Company's
wireless properties. Any decision by the Company to enter any of these lines of
business will depend on the Company's evaluation of its ability to create value
by employing the assets or expertise of its wireless operations, including
networks and customer bases, as well as the standalone attractiveness of the
opportunity.
INVESTMENT CONSIDERATIONS
COMPETITION
The sale of cellular and paging services in each of the Company's markets has
become increasingly competitive. In the United States, where the Company
previously had one cellular competitor in each market, the Company in the near
future could face up to eight wireless competitors due to the introduction of
broadband PCS on frequencies auctioned by the FCC in 1995 and 1996 and
specialized mobile radio ("SMR") services on existing SMR frequencies. Broadband
PCS providers began service in some of the Company's markets in the United
States in late 1996, and competitors are expected to begin offering broadband
PCS in the remainder of the Company's markets during 1997. Broadband PCS is
expected to be highly competitive with the Company's cellular service. Broadband
PCS providers will offer digital service, which may be more attractive to
certain customers than analog service. The Company currently offers digital
cellular service in two of its managed markets in the United States and has
plans to offer digital cellular service in all of its United States managed
markets by 1998. One SMR operator is currently offering digital SMR service in
many of the Company's United States markets and has begun to deploy a nationwide
SMR system. Depending on features such as voice quality, system reliability and
coverage, marketing and pricing, SMR service may be competitive with the
Company's United States cellular service. The Telecommunica-
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tions Act of 1996 may have removed certain restrictions on the ability of the
Company's competitors to offer as a single package a variety of services, such
as wireless voice and data, paging, long-distance, local landline and cable
services, some of which the Company does not currently provide. Increased
competition could result in pricing pressure, which contributes to lower
revenues per customer, and in higher customer acquisition costs, resulting in
lower profit margins. While the Company's average revenues per customer declined
in 1996, the Company managed to reduce operating cash costs at an equal or
greater rate. However, as competition intensifies, there can be no assurance
that the Company will be able to continue to match revenue declines with
reductions in operating cash costs.
There is also significant competition in the Company's international markets.
For example, in Poland there are three wireless competitors. In Germany and
Sweden, recent license awards will bring the total number of competitors in each
of those markets to four. In Japan there are as many as four digital cellular
licensees and three Personal Handy Phone licensees in certain regions. In South
Korea, the government has recently issued three new PCS licenses, bringing the
total number of licensees in that market to five. Government-operated cellular
systems in these and other countries have become increasingly competitive with
privately operated systems. It is expected that additional licenses will be
issued in many of the markets in which the Company and its ventures provide
services. For instance, it is expected that the Portuguese government will issue
an additional cellular or broadband PCS license in 1997 or 1998. In addition,
subject to certain exceptions, European Community Directive 96/2 prohibits
member states from refusing to allocate licenses for broadband PCS spectrum
after January 1, 1998, which may result in the entrance of new competitors to
the European markets in which the Company's ventures operate. In 1998
telecommunications regulation in the European Union ("EU") will be significantly
liberalized, enabling a broader group of companies to gain wider access to the
telecommunications industry. Certain countries, including Portugal and Greece,
have received EU authorization to delay certain aspects of liberalization beyond
1998.
TECHNOLOGY
The operations of the Company and its ventures depend in part upon the
successful deployment of continuously evolving wireless communications
technologies. The Company uses technologies from a number of vendors and makes
significant capital expenditures in connection with the deployment of such
technologies. There can be no assurance that such technologies will be developed
according to anticipated schedules, that they will perform according to
expectations or that they will achieve commercial acceptance. The Company may be
required to make more capital expenditures than currently expected if vendors
fail to meet anticipated schedules, if a technology's performance falls short of
expectations or if commercial acceptance is not achieved.
LICENSE RENEWAL
The Company's international and United States wireless licenses are granted for
specific periods of time. The most significant United States cellular and paging
licenses are granted for a period of ten years. The Company believes that each
of its expiring United States licenses will be renewed based upon its prior
experience with expired licenses and upon FCC rules establishing a presumption
in favor of licensees that have substantially complied with their regulatory
obligations during the initial license period. The terms of the licenses granted
to the Company's international ventures and conditions for license renewal vary
from country to country. In some countries, there is no specified mechanism for
license renewal, and accordingly it is not certain what criteria will be used by
the governments of those countries to determine whether the licenses should be
renewed. There can be no assurance that any United States or international
license will be renewed.
FUTURE FUNDING REQUIREMENTS
The Company's existing capital obligations, as well as any additional
obligations arising from the Company's pursuit of acquisitions and other new
opportunities, may require the Company to seek additional sources of financing
in the next few years. The Company may seek such financing in the form of equity
or debt. The Company's senior unsecured long-term debt has been assigned a
rating of BBB+ by Standard & Poor's Ratings Group and a rating of Baa2 by
Moody's Investors Service, Inc. and its commercial paper has been
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assigned a rating of A-2 by Standard & Poor's and P-2 by Moody's, based in part
upon each agency's respective analysis of the expected future financial
performance of the Company. These ratings may be revised or withdrawn by the
rating agency at any time, and there can be no assurance that the Company will
be able to maintain such ratings.
LOSSES FROM STARTUP OPERATIONS
Over the past several years, the Company's consortia were awarded digital
cellular licenses in India, Italy, Japan, Poland, Romania, South Korea and
Spain, and the Company is continuing to pursue selected opportunities in
international markets. In March 1995, PrimeCo was awarded eleven 30 MHz licenses
in the FCC's broadband PCS auctions for a license cost of approximately $1.1
billion. The Company's indirect interest in PrimeCo is currently 25%, but will
increase upon the contribution by U S WEST and the Company of their respective
interests in PrimeCo to their cellular partnership. As a result of costs
associated with the foregoing international and United States system
deployments, the Company's startup investments will incur losses which will, at
least in the near term, have a dilutive effect on the Company's earnings. See
"United States Cellular Operations -- Joint Ventures -- U S WEST Transaction;
PrimeCo Personal Communications."
DILUTION FROM U S WEST TRANSACTION
The Company and U S WEST have entered into a transaction to combine their United
States cellular properties and their jointly owned PCS assets into a partnership
(the "Cellular Partnership"). See "United States Cellular Operations -- Joint
Ventures -- U S WEST Transaction" for a description of that transaction. The
Company could experience earnings dilution in connection with the contribution
of its and U S WEST's cellular and PCS properties to the Cellular Partnership.
The extent of such dilution, which could be material, will depend on the
relative profitability of the Company's and U S WEST's respective operations
subsequent to their contribution to the partnership. U S WEST has the right to
exchange its interest in the Cellular Partnership for up to 19.9% of the
Company's common stock outstanding at the time of the exchange. Any such
exchange would be made at a ratio reflecting the appraised private market value
of U S WEST's interest in the Cellular Partnership and the appraised public
market value of the shares of the Company's common stock to be acquired by U S
WEST in the exchange. In the event that the value of U S WEST's interest in the
Cellular Partnership determined by such appraisals would result in the issuance
to U S WEST of more than 19.9% of the Company's then outstanding common stock, U
S WEST is entitled to receive the excess in the form of non-voting preferred
stock which is redeemable at any time following issuance, at the option of U S
WEST, for cash or, at the option of the Company, for the Company's common stock.
The Company expects that an issuance of its shares as described above would
result in per share earnings dilution.
ANTITRUST PROCEEDINGS
The Company believes that its cellular and paging pricing and marketing
practices were and are in compliance with antitrust laws. However, the Company
is a defendant in a number of class action complaints with respect to its Los
Angeles, San Francisco and San Diego cellular operations which allege that the
Company conspired to fix retail and wholesale cellular prices. The Company does
not believe that these proceedings will have a material adverse effect on the
Company's financial condition. No assurance can be given as to the foregoing,
however, or that any disposition of these proceedings, if adverse to the
Company, might not have a material adverse affect on the Company's results of
operations in the year of such disposition. See "Legal Proceedings."
IMPLICATIONS OF LICENSEE OWNERSHIP STRUCTURE
The Company holds most of its United States cellular properties and broadband
PCS properties through partnership interests, a number of which are controlling
interests. Upon the contribution of certain of the Company's United States
cellular properties to the Cellular Partnership with U S WEST, U S WEST will
have certain governance rights in the Cellular Partnership. In addition, most of
the Company's interests in international wireless licenses are held through
foreign entities in which the Company is a significant, but not controlling,
owner. Under the governing documents for certain of these partnerships and
corporations, certain
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key matters such as the approval of business plans and decisions as to the
timing and amount of cash distributions require the consent of the Company's
partners or may be approved without the consent of the Company. Although the
Company has not been materially constrained 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 may enter into similar arrangements as it participates in consortia
formed to pursue additional opportunities.
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 against such volatility 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 generates
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 currency 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 foreign denominated credit arrangements. There can be no assurance that the
Company will be successful in its foreign currency hedging efforts.
FRAUD
The cellular industry continues to be subject to fraudulent activity. Cloning,
which is one form of such fraud, refers to the use of scanners and other
electronic devices to illegally obtain telephone numbers and electronic serial
numbers during cellular transmission. The stolen telephone and serial number
combinations can be programmed into a cellular phone and used to obtain
fraudulent access to cellular networks. Roaming fraud occurs when a phone
programmed with a number stolen from one of the Company's customers is used to
place fraudulent calls from another carrier's market, resulting in a roaming fee
charged to the Company that cannot be collected from the customer. Cloning is
present primarily in the Company's United States markets. The Company is working
to reduce the negative impacts of fraud through the deployment of new
technologies and other measures. In its own markets, the Company has had
significant success in detecting and limiting fraudulent usage of numbers stolen
from the Company's customers. However, the Company continues to experience
significant levels of roaming fraud in its United States cellular markets. The
cost of cellular fraud could have a significant impact on the Company's
operating results for the foreseeable future.
UNITED STATES CELLULAR OPERATIONS
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 over 43 million POPs and more than 3.4
million proportionate customers at December 31, 1996. 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 30 largest cellular markets in the
United States. The Company has management control over the systems operating in
Los Angeles, San Diego, the Sacramento Valley, Atlanta and the Great Lakes
market (Detroit, Cleveland, Cincinnati, Columbus and other markets in Michigan
and Ohio).
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The following table sets forth the Company's United States cellular POPs by
geographic area at December 31, 1996.
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GEOGRAPHIC REGION(1)
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(IN MILLIONS)
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Michigan and Ohio............................................................... 16.4
Southern California............................................................. 16.0
Georgia......................................................................... 3.7
San Francisco Bay Area.......................................................... 3.2
Sacramento Valley............................................................... 1.9
Kansas/Missouri................................................................. 1.5
Other United States interests................................................... .7
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United States cellular total.................................................... 43.4
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(1) Does not indicate coverage of entire geographic area.
(2) Population numbers obtained from Paul Kagan Associates Inc. "1996
Cellular/PCS POP Book" population estimates.
MARKETING
The Company aggressively markets its cellular services in its managed markets
under the AirTouch Cellular name through its own sales force and arrangements
with independent agents, as well as through newspaper, television, and radio
advertising and telemarketing via toll-free telephone numbers. 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 to access 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 specialized cellular stores,
automobile dealers, specialized electronics stores and department stores. The
Company generally pays its agents a commission for each customer who uses the
Company's service for a specified period and makes residual payments to the
agent based on the customer's ongoing service charges. The Company has been
taking steps to align sales costs with revenues by emphasizing residual payments
to agents over upfront commissions and utilizing Company controlled distribution
channels such as direct sales and telemarketing. The Company has increasingly
targeted the consumer market with special promotions and pricing plans and by
expanding into consumer electronics stores and other mass-market distribution
channels.
The Company's systems in the San Francisco Bay Area, Kansas and Missouri market
cellular service under the CellularOne(R) brand name.
In May 1996, U S WEST Cellular assumed the AirTouch Cellular brand name
throughout most of its 12-state service area. U S WEST Cellular properties cover
20 million people including the major cellular markets of Seattle, Portland,
Denver, Phoenix, Minneapolis/St. Paul and Salt Lake City. The AirTouch Cellular
brand now covers most states west of the Mississippi. See "-- Joint Ventures; U
S WEST Transaction."
SERVICES
The Company maintains a customer service department in each of its managed
cellular markets for billing and service inquiries. In most markets the Company
offers custom calling services such as voice mail, call forwarding, call
waiting, three way calling, no-answer and busy transfer. The Company also offers
a variety of other enhanced features, including display messaging, which allows
a cellular phone to receive and store voice mail messages, short alphanumeric
messages and pages even if the handset is in use or switched off, and enhanced
directory assistance, which enables callers to be connected to the party whose
number was requested without hanging up and redialing. In Sacramento, the
Company has introduced a service called the Answer(TM), which features a
pre-paid cellular calling card, no monthly service charge, no contract
commitment, and no
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billings. In 1996, the Company introduced Powerband(SM) in its Los Angeles and
San Diego markets. Powerband(SM) is digital cellular service based on the Code
Division Multiple Access ("CDMA") technology and offers customers a variety of
enhanced features. The Company plans to introduce Powerband(SM) in all of its
managed markets by 1998.
The Company charges its customers for service activation, monthly access,
per-minute airtime and custom calling features, and generally offers a variety
of pricing options, most of which combine a fixed monthly access fee and
per-minute charges. The Company pays the local telephone service company
directly for interconnection of cellular networks with the wireline telephone
network. In 1996 and early 1997, the Company executed new interconnection
agreements with the major local carriers in its managed markets that are
expected to result in significant savings on interconnect costs in 1997.
Customers are billed directly by their selected long-distance carrier or by the
Company, which provides the billing service for a fee to the long-distance
carrier. The Company offers long-distance service to its cellular customers in
its managed markets as a reseller.
RESELLER SERVICES
The Company intends to commence reselling cellular service in the San Francisco
Bay Area under the name AirTouch Cellular in 1997. The Company is currently a
partner with AT&T Wireless Services, Inc. ("AT&T Wireless," successor in
interest to McCaw Cellular Communications, Inc. ("McCaw")), in CMT Partners,
which offers cellular service in the San Francisco region. See "-- Joint
Ventures; CMT Partners." The Company intends to resell the cellular services of
CMT Partners. The Company may pursue opportunities to resell cellular service
under the AirTouch Cellular name in other strategic markets where that brand
name is not currently present. In addition, the Company may explore
opportunities to resell other related telecommunications services if it
determines that they would enhance its current cellular offerings. The Company
already resells long-distance service in connection with cellular service in its
managed markets.
TECHNOLOGY
Currently, in most of the Company's cellular 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 cellular technology offers many advantages over analog technology,
including substantially increased capacity, greater call privacy, lower
operating costs, reduced susceptibility to fraud and the opportunity to provide
improved data transmissions. However, the Company expects that analog and
digital technologies will continue to coexist for the foreseeable future due to
continued demand for analog service and the fact that analog networks provide
the only common roaming platform currently available throughout the United
States. Manufacturers currently offer dual-mode cellular telephones capable of
sending and receiving both analog and digital transmissions, thereby
facilitating roaming by digital users. However, no manufacturers currently offer
dual-mode cellular telephones capable of receiving transmissions from multiple
digital technologies.
The Company has selected CDMA as its United States digital technology. The
Company was an early proponent of CDMA research and worked with Qualcomm
Incorporated ("QUALCOMM") and others to develop this technology. The Company
introduced CDMA service on a commercial basis in May 1996 in portions of its Los
Angeles market, focusing first on transferring high-usage customers to the CDMA
network. CDMA commercial service was introduced in San Diego in November 1996.
PrimeCo has deployed CDMA technology, and the Company's three PrimeCo partners,
Bell Atlantic, NYNEX and U S WEST, have also chosen CDMA as their digital
cellular standard.
CMT Partners introduced digital cellular service based on Time Division Multiple
Access ("TDMA") technology in the San Francisco Bay Area in October 1993.
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 believes that its
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technological expertise, emphasis on quality and customer service, large
coverage areas, and development of new products and services make it a strong
competitor. For further discussion of competition, see "Business -- Investment
Considerations -- Competition."
JOINT VENTURES
CCI MERGER. In April 1996, the Company and Cellular Communications, Inc.
("CCI") entered into a merger agreement pursuant to which the Company agreed to
acquire the 63% of CCI's stock that it did not already own in an alternative
transaction to that set forth in a 1990 merger agreement between the parties.
The Company completed its acquisition of CCI on August 16, 1996. The acquisition
cost to the Company was approximately $1.6 billion including liabilities less
cash and cash equivalents acquired. The merger consideration consisted of
$1,040.3 million in AirTouch convertible preferred securities, $393.3 million in
cash, and AirTouch stock options valued at approximately $17.0 million.
Preferred securities issued in connection with the acquisition consisted of
17,237,394 shares of 6.00% Class B Mandatorily Convertible Preferred Securities,
Series 1996 and 11,069,958 shares of 4.25% Class C Convertible Preferred
Securities, Series 1996.
CMT PARTNERS. In September 1993, the Company and AT&T Wireless (at the time,
McCaw) formed CMT Partners, an equally owned partnership that holds interests in
cellular systems operating in San Francisco, San Jose, Dallas/Ft. Worth, Kansas
City and certain adjacent suburban areas. In a related transaction, the Company
purchased McCaw's Wichita and Topeka systems. CMT Partners is governed by a
four-person committee consisting of two members from each company. CMT Partners
has a fifteen year term, ending in 2008, which may be extended by either partner
or shortened under certain circumstances. Upon dissolution of CMT Partners its
assets will be sold unless either the Company or AT&T Wireless elects to have
the assets distributed in kind to the partners.
U S WEST TRANSACTION. In July 1994, the Company and U S WEST, Inc. ("U S WEST")
entered into an agreement to combine their United States cellular properties in
a multi-phased transaction. During the initial phase of the transaction ("Phase
I"), the companies formed a jointly owned management company to provide support
services to both companies' United States cellular operations, which remain
separately owned and operated throughout Phase I. The parties are currently in
Phase I of the transaction. In May 1996, U S WEST began providing cellular
services under the AirTouch Cellular brand name throughout most of its 12 state
service area.
In the second phase of the transaction ("Phase II"), the parties will combine
certain of their United States cellular properties in a partnership (the
"Cellular Partnership"). The closing of Phase II is conditioned upon the
satisfaction of certain conditions, including the ability of AirTouch and U S
WEST to contribute at least 60% of their respective United States cellular
interests to the Cellular Partnership, measured on the basis of the adjusted
POPs represented by such interests and, in the case of AirTouch, excluding POPs
of the Great Lakes markets. Although the Company and U S WEST are currently
seeking to obtain the regulatory and other approvals and consents necessary to
enter into Phase II, the Company does not believe that Phase II will commence
prior to mid-1997. Under the terms of the parties' agreement, Phase II must
occur by July 25, 1998, if all closing conditions have been satisfied. If all
closing conditions to Phase II have not been satisfied by July 25, 2004, the
agreement will terminate.
As part of the 1994 transaction, the companies also formed an equally owned PCS
partnership (the "PCS Partnership"), which is a 50% partner in PrimeCo. The
Company and U S WEST plan to contribute their respective interests in the PCS
Partnership to the Cellular Partnership. The timing of such contribution is at U
S WEST's discretion and will occur either at the commencement of Phase II or at
a later date selected by U S WEST, but no later than mid-1998. The Company
anticipates that the PCS Partnership will be required to make significant
capital contributions to PrimeCo for the buildout of its PCS markets and that it
will continue to experience substantial operating losses associated with the
start-up phase of the PCS business, which is expected to last several years.
Upon contribution of the PCS Partnership to the Cellular Partnership, the
Company's relative share of PCS capital investments and operating losses related
to the PCS Partnership will increase from 50% to its percentage ownership of the
Cellular Partnership.
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If the Company and U S WEST were to contribute all of their United States
cellular properties (but not their interests in the PCS Partnership) at the
commencement of Phase II, the Company would own approximately 74% of the
Cellular Partnership and U S WEST would own approximately 26%. However, the
actual ownership interest of the Company and U S WEST in the Cellular
Partnership at the commencement of Phase II of the transaction or at any given
point in time thereafter will depend, among other things, on the ability of the
companies to contribute their respective United States cellular properties, the
timing of the contributions of such properties, and the timing and value of the
PCS Partnership contribution. Some of the cellular interests of AirTouch and U S
WEST, including their general partner interests in Los Angeles and Seattle,
respectively, are subject to consent provisions in connection with certain
transactions. In addition, other partnership interests may, under certain
circumstances, be subject to rights of first refusal provisions in favor of
third parties. Such provisions may result in certain of the parties' properties
not being contributed to the Cellular Partnership. No assurance can be given
that any necessary consents will be obtained or that rights of first refusal
will not be exercised. A Washington state court has ruled that by entering into
the transaction with AirTouch, U S WEST has withdrawn as general partner of its
Seattle partnership, entitling the limited partners to attempt to secure
unanimous consent to a substitute general partner to purchase U S WEST's
partnership interest. The court has also ruled that U S WEST must allow the
other limited partners the opportunity to exercise their rights of first refusal
with respect to U S WEST's limited partner interest in the Seattle partnership.
U S WEST has indicated its intention to appeal the court's order. The Washington
court order does not prohibit the parties from proceeding to Phase II of their
transaction without the Seattle market. In February 1997, litigation was
initiated to resolve similar issues with respect to U S WEST's interests in
partnerships that provide cellular service in Tucson, Duluth, Olympia and other
rural service area markets.
In the third phase of the transaction ("Phase III"), U S WEST has the right to
exchange its interest in the Cellular Partnership for up to 19.9% of the
Company's common stock outstanding at the time of the exchange, which right is
exercisable after (i) the commencement of Phase II and (ii) the contribution of
the PCS Partnership. This right expires on July 25, 2004. Any such exchange
would be made at a ratio reflecting the appraised private market value of U S
WEST's interest in the Cellular Partnership and the appraised public market
value of the shares of the Company's capital stock to be acquired by U S WEST in
the exchange. In the event that the value of U S WEST's interest in the Cellular
Partnership determined by such appraisals would result in the issuance to U S
WEST of more than 19.9% of the Company's then outstanding common stock, U S WEST
is entitled to receive the excess in the form of non-voting preferred stock
which is redeemable at any time following issuance, at the option of U S WEST,
for cash or, at the option of the Company, for the Company's common stock. The
Company has amended its stockholder rights agreement so that U S WEST will not
be deemed to be an Acquiring Person, as defined therein, by reason of the
exchange.
U S WEST also has the right, exercisable between July 25, 1999, and July 25,
2009, to exchange its interest in the Cellular Partnership for common stock of
the Company to be held by a trust for purposes of systematic sale to the public.
Any such exchange would be made at a ratio reflecting the appraised private
market value of U S WEST's interest in the Cellular Partnership and an average
trading price of the Company's common stock during a period prior to U S WEST's
exercise of the right. U S WEST has the right to cause the exchange to occur
either (a) after full relief from certain operational restrictions placed on
Bell Operating Companies or July 25, 2004, whichever is later, if there is a
deadlock with U S WEST regarding the management of the Cellular Partnership or
(b) at any time after such relief has been obtained, if at such time U S WEST
holds less than a 5% interest in the Cellular Partnership.
If U S WEST exercises its right to exchange its interest in the Cellular
Partnership for capital stock of the Company, U S WEST will be entitled to
representation on the Company's Board of Directors and will be subject to
certain voting restrictions. U S WEST is subject to certain standstill
restrictions with respect to the Company through July 24, 2004, unless such
restrictions are earlier terminated or suspended. U S WEST is also prohibited
from selling, exchanging, transferring or otherwise disposing of the Company's
common stock received in Phase III (or any interest therein) prior to July 25,
1999 (except for transfers to direct or indirect wholly-owned subsidiaries of U
S WEST), and thereafter is subject to certain transfer restrictions and rights
of first refusal and is entitled to certain registration rights.
8
<PAGE> 11
The Company could experience earnings dilution in connection with the
contribution of its and U S WEST's United States cellular properties to the
Cellular Partnership. The extent of such dilution, which could be material, will
depend on the properties contributed and the relative profitability of the
Company's and U S WEST's respective operations subsequent to the contributions
of such operations. Also, subsequent to the commencement of Phase II, the
Company and U S WEST will each deconsolidate for financial reporting purposes
the operations they contribute to the Cellular Partnership, using instead the
equity method of accounting to report their respective percentage interests in
subsequent operating results of the Cellular Partnership. The Company also
expects that an issuance of its shares at Phase III would result in per share
earnings dilution. The Company cannot precisely assess the future impact of its
transaction with U S WEST on the Company's results of operations due to, among
other things, uncertainty surrounding: the timing of Phase II; the parties'
ability to contribute certain of their cellular properties to the Cellular
Partnership; the timing of the contribution of the PCS Partnership to the
Cellular Partnership; and the occurrence and timing of Phase III. The Company is
currently exploring how best to resolve these uncertainties and achieve the
objectives of the transaction.
PRIMECO PERSONAL COMMUNICATIONS. In October 1994, the PCS Partnership between
the Company and U S WEST joined with a partnership between Bell Atlantic and
NYNEX ("BA/NYN ) to form a partnership to jointly pursue PCS opportunities,
called PrimeCo Personal Communications, L.P. PrimeCo is owned equally by the PCS
Partnership and BA/NYN, and is governed by a board composed of three members
from each of the PCS Partnership and BA/NYN. In March 1995, PrimeCo was awarded
eleven 30 MHz PCS licenses covering over 57 million POPs in the Chicago, Dallas,
Tampa, Houston, Miami, New Orleans, Milwaukee, Richmond, San Antonio,
Jacksonville and Honolulu markets with bids of approximately $1.1 billion. The
acquired markets complement the existing United States cellular franchises of
the partners. PrimeCo began providing service in 16 cities in November 1996 and
continues to develop and expand its PCS systems in its 11 markets. As of
December 31, 1996, PrimeCo had over 37,000 customers. The Company has already
contributed its share of the PCS license costs and of certain buildout expenses.
Additionally, the Company expects to continue to make significant capital
contributions to PrimeCo and to experience substantial operating losses
associated with the start-up phase of the PCS business, which is expected to
last several years. Currently, the Company has a 25% indirect interest in
PrimeCo, through an interest in its PCS Partnership with U S WEST. The Company's
interest in PrimeCo, and accordingly its share of capital contributions and
losses, will increase upon the contribution by the Company and U S WEST of their
respective interests in the PCS Partnership to the Cellular Partnership. "See
United States Cellular -- Joint Ventures -- U S WEST Transaction."
Either the PCS Partnership or BA/NYN may cause PrimeCo to be dissolved on
October 20, 2001, and any PCS properties owned by it to be allocated between
them according to agreed criteria. Bell Atlantic and NYNEX each are subject to
certain standstill restrictions with respect to the Company through October 20,
2001, unless such restrictions are earlier terminated or suspended.
TOMCOM. Concurrent with the formation of PrimeCo, AirTouch and U S WEST and
Bell Atlantic and NYNEX formed another partnership called TOMCOM, L.P. TOMCOM
was formed to develop technical and service standards for the partners' wireless
properties, pursue national marketing strategies, develop information
technology, create a national distribution strategy and implement joint
purchasing arrangements. TOMCOM is governed by a board composed of three members
from an AirTouch/U S WEST partnership and three members from a Bell
Atlantic/NYNEX partnership.
Unlike in the Company's transaction with U S WEST, the agreements with Bell
Atlantic and NYNEX do not provide for a merger of cellular properties.
Accordingly, each of the AirTouch/U S WEST partnership and the Bell
Atlantic/NYNEX partnership will continue to hold such properties separately.
9
<PAGE> 12
INTERNATIONAL CELLULAR OPERATIONS
The Company's international cellular interests represented over 120 million POPs
and 1.7 million proportionate customers at December 31, 1996.
OVERVIEW OF INTERNATIONAL CELLULAR AND PCS VENTURES
(ALL INFORMATION AS OF 12/31/96 UNLESS OTHERWISE INDICATED)
<TABLE>
<CAPTION>
MARKET
POPULATION SERVICE TOTAL TOTAL
(IN INITIATION VENTURE AIRTOUCH LICENSEES
COUNTRY/VENTURE MILLIONS)(1) DATE CUSTOMERS INTEREST(2) IN MARKET
- - ----------------------------------------------- ------------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Belgium/Belgacom Mobile......... 10.1 1/94(3) 410,000 25.0% 2
Germany/Mannesmann Mobilfunk.... 81.5 6/92 2,313,000 34.8% 4
India -- Madhya Pradesh/CCIL.... 72.7 2/97 * 49.0% 2
India -- Madras/RPG Cellcom
Limited....................... 6.7 9/95 11,000 20.0% 2
Italy/Omnitel-Pronto Italia..... 57.5 10/95 713,000 15.5%(4) 2
Japan
Tokyo Digital Phone Company... 42.2 4/94 * 15.0% 7
Kansai Digital Phone
Company.................... 20.6 5/94 * 13.0% 7
Central Japan Digital Phone
Company.................... 14.4 7/94 * 13.0% 7
---------
1,845,000
Japan
Digital TU-KA(5).............. 46.3 1/96-2/97 532,000 4.5% 7
Poland/Polkomtel................ 38.9 10/96 49,050 19.3% 3
Portugal/Telecel................ 10.5 10/92 331,000 50.9% 2
Romania/MobiFon................. 22.7 3/97 -- 10.0%(6) 3
Sweden/NordicTel Holdings....... 8.9 9/92(3) 281,000 51.1% 4
South Korea/Shinsegi............ 45.6 4/96 290,000 10.7% 5
Spain/Airtel.................... 39.3 10/95 652,000 16.7%(7) 2
</TABLE>
- - ---------------
* Not disclosed
(1) Based on population estimates from a variety of leading publications.
(2) Exclusive of any options, warrants or other rights to increase ownership.
(3) The Company acquired its interest after commercial launch. In Belgium,
reflects launch of digital system only; analog system was launched in
January 1987.
(4) Indirect ownership interest through Pronto-Italia S.p.A. The Company holds
an option to acquire an additional 6.2% indirect interest in Omnitel-Pronto
Italia.
(5) Includes Kyushu, Chugoku, Tohoku, Hokkaido, Hokuriku and Shikoku regions.
Customers will not be disclosed in proportionate customers because the
Company accounts for these investments on a cost basis.
(6) The Company holds an option to purchase an additional 10%.
(7) The Company expects to purchase either an additional 5% or, under certain
circumstances, may be obligated to purchase an additional 10% interest in
Airtel. The purchase is expected to occur in 1998.
1996 INTERNATIONAL HIGHLIGHTS AND RECENT DEVELOPMENTS
In 1996, the Company increased its ownership interests in its Italian and
Spanish ventures. In February 1996, the Polish government awarded Polkomtel, a
consortium in which the Company has a 19.3% interest, one of two new national
GSM licenses. Polkomtel launched service in October. In November 1996, the
Romanian government awarded the consortium in which the Company has a 10%
interest a national cellular license. In late 1996, the Company increased its
ownership in Telecel, its Portuguese venture, to 50.9%, and Telecel became a
publicly traded company when one of its shareholders sold 39.1% of the
outstanding shares of
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<PAGE> 13
Telecel in a public offering. Telecel's shares are listed on the Lisbon Stock
Exchange and are quoted on the SEAQ International.
See Note E to the Company's consolidated financial statements for the year ended
December 31, 1996 for a description of certain of the Company's operating
results by geographic area.
On March 20, 1997, the Company signed an agreement to acquire an ownership
interest in a consortium involved in wireline telecommunications in Germany. The
consortium is led by Mannesmann A.G. ("Mannesmann"), which will own 55.5%. The
Company will have a 4.5% interest in the consortium with an option to increase
its interest to 9% by 2000. The consortium in turn owns a 49.8% interest in
Mannesmann Arcor K.G. ("Arcor"), Germany's second largest wireline
telecommunications company, and has an option to increase its interest in Arcor
to 74.9% by 1999. Deutsche Bahn, Germany's railway company, holds the other
50.2% of Arcor. The Company and Mannesmann jointly own Mannesmann Mobilfunk
GmbH, Germany's leading cellular operator.
OWNERSHIP RIGHTS AND OBLIGATIONS
The structure of the Company's international cellular interests typically
reflects government preferences or requirements that local owners hold at least
a majority interest in their telecommunications licenses. In structuring its
international investments, the Company attempts to obtain operating influence
through board representation, the right to appoint certain key members of
management and consent rights with respect to significant matters, including
amounts of capital contributions, incurrence of recourse debt and fundamental
corporate transactions. In addition, the Company tries to assure its ability to
maintain a position of influence in the Company by obtaining rights of first
refusal on future sales and issuances of equity. The particular governance
rights of the Company vary from venture to venture, and are often dependent upon
the size of the Company's investment relative to other investors. The Company
currently has the majority interest in its Portuguese and Swedish ventures, the
largest ownership interest in its Spanish venture, the second largest ownership
interest in three of its Japanese ventures, and the third largest ownership
interest in its Korean and Italian ventures. In Germany, the Company is the only
shareholder in addition to the majority shareholder, Mannesmann A.G., and in
Belgium, the Company is the sole partner in a joint venture with a
telecommunications company a majority of which is state owned.
COMPETITION
While competition varies from market to market, in general competition is
increasing in every international market in which the Company's ventures
operate. See "Business -- Investment Considerations -- Competition."
TECHNOLOGY
LEAD TECHNOLOGICAL PARTNER. The Company usually plays the lead role in the
design, construction and maintenance of the cellular networks for the ventures
in which it has ownership interests. For example, the Company has taken the
technical lead in the development of the digital systems in Belgium, Germany,
India (Madras and Madhya Pradesh), Italy, Poland, Portugal, Sweden, South Korea
and Spain, as well as for the network under construction in Romania, and was
integrally involved in the design and construction of three of the systems in
Japan. In each of those markets, the Company has appointed the chief technical
officer, who is responsible for network construction and technical operations.
GSM. The Company's cellular systems in Europe and India 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 substantially different
from United States TDMA technology and has been adopted in more than 109
countries worldwide, including all those in the EU and others such as Australia,
New Zealand, Singapore, Hong Kong and South Africa. The Company's German
venture, Mannesmann Mobilfunk GmbH, was the first GSM system to offer commercial
service. One of the Company's European employees currently holds the position of
Chairman of
11
<PAGE> 14
the GSM MOU Association, an organization with 229 members representing 109
countries that oversees GSM technical standards and promotes the use and
evolution of GSM throughout the world.
JAPAN DIGITAL CELLULAR STANDARD. The technology utilized by the Company's
Japanese ventures represents Japan's entry into second-generation cellular
communications. The Japan Digital Cellular standard uses narrowband Japanese
TDMA technology and allows enhanced roaming potential and expanded supplementary
services potential. To provide service to customers away from their home
regions, all of the Company's Japanese ventures are implementing automatic
roaming throughout their combined coverage areas. Customers of any of the
companies will be able to initiate and receive calls anywhere within the
combined coverage area.
KOREAN CDMA. The Company's cellular venture in South Korea employs CDMA
technology, developed by Samsung, Lucent and Hyundai under a license from
QUALCOMM.
NEW OPPORTUNITIES
The Company constantly evaluates opportunities to increase its ownership in its
existing international ventures, especially where contractual rights of first
refusal provide the Company with favorable opportunities. The Company also plans
to continue pursuing selected opportunities to acquire new interests in wireless
systems throughout the world. 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 and that such
expertise has been a significant factor in the success of the subsequent license
applications by its consortia.
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. Until recently, the Company's primary
focus in pursuing licenses had been Western Europe and Asia because the Company
believes that these regions provide the highest potential for value creation;
however, the Company has increasingly been considering opportunities in other
parts of the world. The Company is currently pursuing licenses in Brazil and in
Greece, and expects to pursue other opportunities in the future. The pursuit of
new international wireless telecommunications opportunities is expected to
remain highly competitive. The trend toward awarding new licenses on the basis
of an auction rather than on merit-based selection criteria may limit the
Company's ability to win new licenses, particularly if competing bidders place a
higher value on the license or have less stringent return requirements than the
Company.
PAGING
The Company offers local, regional, statewide, and nationwide paging services
under the AirTouch Paging brand name in over 170 markets in 32 states. As of
December 31, 1996, the Company had approximately 2.9 million paging units in
service. Based upon industry surveys, the Company was among the largest
providers 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, and to provide new narrowband PCS services.
SERVICES AND MARKETING
The Company currently offers numeric display, alphanumeric, tone-only, and tone
and voice paging service. The Company offers, under the name AirTouch
America(R), nationwide coverage on its own nationwide frequencies and as a
reseller of nationwide common carrier paging services. The Company offers
several enhanced features, including voice mail retrieval, Internet paging
origination, and news information services. The Company's paging revenues
consist primarily of monthly charges for paging service and equipment rental.
The Company utilizes a decentralized marketing approach that is 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.
12
<PAGE> 15
In 1994, the Company acquired one nationwide 50/12.5 KHz narrowband PCS license
and three regional 50/12.5 KHz licenses covering the Northeast, Central and
Western regions of the United States. Narrowband PCS may include advanced two
way acknowledgment paging, data messaging, electronic mail, facsimile
transmissions and voice paging. The Company is currently evaluating different
technology platforms from different suppliers to provide the infrastructure and
customer equipment for its narrowband PCS services. The Company expects to
conduct trials of narrowband PCS in certain markets in 1997. The Company under
its narrowband PCS licenses is required to construct systems serving 37.5% of
the population of the license area within 5 years of the initial license grant
date and 75% of the population of the license area within 10 years.
COMPETITION
The Company's paging operations face intense competition from other paging
carriers and other wireless services. Paging systems compete primarily on the
basis of system reliability, geographic coverage, customer service and price.
The Company believes that its extensive experience in the paging business and
emphasis on customer service and cost control make it an effective paging
competitor. Competition is expected to intensify in 1997 when some of the
Company's competitors begin offering narrowband PCS in the Company's paging
markets. Long-distance carriers, such as AT&T, Sprint and MCI, have also entered
the paging market as resellers. In addition, the paging industry has experienced
consolidation, with paging carriers being acquired by other larger paging
carriers. The largest carrier now has approximately 9 million units in service
and the second largest has over 4 million units in service.
PAGING MARKET AREA LICENSING
On February 24, 1997, the FCC issued a Report and Order providing for market
area licensing on all exclusive paging channels to be awarded via auction. The
FCC will cease accepting any new paging license applications. The Company was
formally awarded three nationwide paging licenses which will not be subject to
auction. Even if the Company is not awarded market area licenses for its
existing markets, the Company will continue to hold its existing paging
authorizations and will be permitted to add new facilities inside its existing
geographic contours but will not be permitted to expand coverage outside
existing areas.
INTERNATIONAL
Through Telecel, the Company owns a 50.9% interest in Telechamada-Servico de
Chamada de Pessoas, S.A., a Portuguese paging company. The Company also holds a
17.5% indirect interest in Sistelcom-Telemensaje, S.A., a Spanish paging
company.
OTHER SERVICES
TELETRAC. In January 1996, the Company sold its vehicle location and fleet
tracking services business.
GLOBALSTAR. The Company holds a 6.4% interest in Globalstar, L.P.
("Globalstar"), a limited partnership led by Loral Space & Communications
Corporation Ltd. ("Loral") and QUALCOMM that will construct and operate a
satellite-based network utilizing CDMA technology to offer communications
services on a worldwide basis. The initial satellite launches are expected to
take place in late 1997 and 1998, with initial operations expected to begin in
late 1998 and commercial service expected to commence in 1999. The Company has
exclusive service provider status in the United States, Austria, Belgium, the
Caribbean, Indonesia, Japan, Malaysia, The Netherlands, Portugal and
Switzerland. In 1995, the Company initiated formation of a venture with Sime
Darby to provide Globalstar services in Malaysia. In 1996, the Company initiated
formation of a venture with Intidaya Sistelindomitra to provide Globalstar
services in Indonesia. The Company has entered into agreements with Loral to
provide Globalstar service in Canada and Mexico. The Company and Loral have
selected Telefonica Autrey, S.A. de C.V. as their partner to develop Globalstar
service in Mexico and Canadian Satellite Communications, Inc. as their partner
to develop service in Canada.
INTERNATIONAL LONG DISTANCE. The Company presently holds a 10% interest in
International Digital Communications ("IDC"). IDC provides long-distance
telephone service between Japan and 178 other countries, including the United
States, to business and residential customers. IDC also offers private leased
13
<PAGE> 16
circuit services between Japan and 57 other countries. In 1991, IDC began
offering service over a 5,200 mile undersea fiber optic cable. For the fiscal
year ended March 31, 1997, IDC had gross revenues of approximately $600 million.
EMPLOYEES
At December 31, 1996, the Company and its wholly owned subsidiaries had
approximately 8,800 employees. None of the Company's United States employees are
represented by a labor organization, although employees of certain international
subsidiaries are represented by unions or trade organizations. Management
considers its relations with the Company's employees to be good.
REGULATION
UNITED STATES
GENERAL. The Company's United States cellular, paging and PCS licenses are
issued and regulated by the FCC. In addition, certain aspects of the Company's
United States wireless operations may be subject to public utility regulation in
the state in which service is provided and to local regulations. States are
preempted from regulating cellular and paging rates and market entry, but may
regulate certain other terms and conditions of cellular and paging service. The
Company does not anticipate that such state regulation will interfere with
efficient operation of its wireless businesses. The location and construction of
wireless service facilities are also often subject to state or local zoning,
land use and other local regulation and fees.
TELECOMMUNICATIONS LEGISLATION. The Telecommunications Act of 1996 (the "Act")
fundamentally changed the rules and regulations under which all United States
providers of telecommunications services operate. The Act preserved the
regulatory environment for wireless operators by not imposing rate regulation.
The Act modifies requirements for local telephone companies to provide
interconnection services to commercial mobile radio service carriers. In late
1996 and early 1997, the Company executed new cellular interconnection
agreements with the major local carriers in its managed markets that are
expected to result in substantial savings on the Company's interconnect costs in
1997. The FCC is expected to issue rules pursuant to the Act establishing
mechanisms pursuant to which telecommunications providers would subsidize
telephone service for rural and low-income customers, also known as universal
service.
INTERNATIONAL
The Company's international cellular and paging operations provide services
pursuant to the terms of licenses granted by the telecommunications agency or
similar supervisory authority in the various countries. Such agencies typically
also promulgate and enforce regulations regarding the construction and operation
of network equipment. Other regulations commonly encountered in international
markets include legal restrictions on the percentage ownership of
telecommunications licensees by foreign entities such as the Company, and
transfer restrictions or governmental approval requirements regarding changes in
the ownership of such licensees.
ITEM 2. PROPERTIES.
For each market served by the Company's cellular operations, the Company or its
venture 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
available to satisfy its foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS.
In November 1993, a class action complaint was filed on behalf of the Company's
cellular customers in Orange County Superior Court naming, among others, the
Company. This complaint alleges certain facts, including a similarity in the
pricing structures of the two defendant cellular carriers, which plaintiffs
contend are circumstantial evidence that the Company, as general partner of Los
Angeles SMSA Limited Partnership,
14
<PAGE> 17
and Los Angeles Cellular Telephone Company conspired to fix the prices of retail
and wholesale cellular radio services in the Los Angeles market. The complaints
seek damages for the class "in a sum in excess of $100,000,000." A similar agent
case was settled for an immaterial amount. Trial has been set for July 7, 1997.
The Company does not believe that this proceeding will have a material adverse
effect on the Company's financial position or results of operations.
In 1994, two class action complaints were filed on behalf of the Company's
cellular customers, one in San Diego County Superior Court and one in the United
States District Court for the Southern District of California, alleging that
there is circumstantial evidence that the Company and U S West colluded to fix
the prices of retail and wholesale cellular radio services in the San Diego
market by setting their initial basic rates for cellular service at nearly
identical levels and having similar basic rates thereafter. Plaintiffs estimate
the damages to the class at between $46 million and $69 million. The state case
has been stayed pending the outcome of the federal case. A class has been
certified and the defendants motion for summary judgment was heard in November
1996. Two additional cases, one in Orange County and one in San Diego, have been
brought by a number of individual agents against the Company and others. Each
contains allegations similar to those in the San Diego and Orange County price
fixing cases, and also allegations of various business torts and monopolization.
One case seeks damages of approximately $80 million and the other approximately
$50 million. The Company is vigorously defending these suits and does not
believe that these proceedings will have a material adverse effect on the
Company's financial position or results of operations.
In 1994, a class action complaint was filed on behalf of the Company's cellular
customers in San Francisco County Superior Court alleging certain facts,
including a similarity in the pricing structures of the two competitors, which
plaintiffs contend is circumstantial evidence of a tacit conspiracy between Bay
Area Cellular Telephone Company, in which the Company has an indirect interest,
and GTE Mobilnet to fix the prices of retail and wholesale cellular radio
services in the San Francisco Bay Area market. A class has been stipulated and
discovery has begun. In 1996, an almost identical class action complaint was
filed by a different plaintiff in Alameda County Superior Court against Bay Area
Cellular Telephone Company, GTE Mobilnet and a number of other companies,
including the Company. It alleges essentially the same facts as the San
Francisco case alleges. The two cases have been assigned to a single judge for
coordination. The Company does not believe that these proceedings will have a
material adverse effect on the Company's financial position or results of
operations.
The Company is party to various other legal proceedings in the ordinary course
of business. Although the ultimate resolution of these various other proceedings
cannot be ascertained, management does not expect that they will have a material
adverse effect on the results of operations or financial position of the
Company.
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, 1996.
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<PAGE> 18
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information concerning the persons who serve as
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.
<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICES HELD
------------------------- --- -------------------------------------------------------------
<S> <C> <C>
Sam Ginn 60 Chairman of the Board and Chief Executive Officer
Arun Sarin 42 President and Chief Operating Officer
Mohan S. Gyani 45 Executive Vice President and Chief Financial Officer
Margaret G. Gill 57 Senior Vice President, Legal, External Affairs and Secretary
Brian R. Jones 46 Senior Vice President; President of AirTouch Cellular
Michael Miron 41 Vice President, Corporate Strategy and Development
F. Craig Farrill 44 Vice President, Strategic Technology
Louis C. Golm 55 Vice President; President of AirTouch International
</TABLE>
Mr. Ginn has been Chairman of the Board and Chief Executive Officer of the
Company since December 1993. He was Chairman of the Board, President and Chief
Executive Officer of Pacific Telesis Group from 1988 to April 1994 and became a
director of Pacific Telesis Group in 1983. He was Chairman of the Board of
Pacific Bell from 1988 to April 1994. Mr. Ginn is also a director of Chevron
Corporation, Safeway Inc., Transamerica Corporation, and Hewlett-Packard
Company.
Mr. Sarin became President and Chief Operating Officer on February 1, 1997. He
was named Vice Chairman of the Board in August 1995, and was President and Chief
Executive Officer of AirTouch International from May 1995 until February 1,
1997. He was Senior Vice President, Corporate Strategy/Development and
International Operations until August 1995, and was also responsible for Human
Resources through 1994. He was Vice President, Organization Design of Pacific
Telesis Group from March 1993 to April 1994. Mr. Sarin joined Pacific Telesis
Group in 1984 and held a variety of positions there until the spin-off of the
Company in April 1994.
Mr. Gyani became Executive Vice President and Chief Financial Officer of the
Company in September 1995. From November 1993 until that time he was Vice
President, Finance and Treasurer of the Company. He was Vice President and
Treasurer of Pacific Telesis Group from March 1993 to November 1993. From
February 1992 to March 1993 he was Vice President and Controller at Pacific
Bell. From November 1991 to February 1992 he was Vice President Financial
Assurance for Pacific Bell.
Mrs. Gill became Senior Vice President, Legal, 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. Mrs. Gill is a director of CNF Transportation Inc.
Mr. Jones became Senior Vice President of the Company and President of AirTouch
Cellular in February 1997. From March 1992 until that time he was Executive Vice
President of AirTouch Cellular and General Manager of the Los Angeles market.
From March 1990 to March 1992 he was President of the Company's subsidiary
operating in Michigan. Prior to joining the Company in 1984, Mr. Jones worked
for AT&T International.
Mr. Miron has been Vice President, Corporate Strategy and Development since
April 1996. Prior to joining the Company, Mr. Miron was Managing Director,
Strategic Planning and Analysis at Salomon Brothers Inc. Mr. Miron joined
Salomon Brothers Inc. in 1990.
Mr. Farrill became Vice President, Strategic Technology of the Company in June
1996. From June 1991 until that time he served as Vice President of Technology,
Planning and Development of the Company. Prior to joining the Company in 1986,
Mr. Farrill was Vice President of Engineering for Communications Industries,
Inc.
Mr. Golm became Vice President in February 1997. From 1994 until that time, he
served as President and Chief Executive Officer of AT&T Japan. From 1991 to
1994, Mr. Golm was Vice President -- Business Network Sales for AT&T Business
Communications Services. Mr. Golm first joined AT&T in 1964.
16
<PAGE> 19
Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is listed on the New York Stock Exchange and the
Pacific Exchange.
Set forth below are the high and low sales prices for the Company's Common Stock
for each full quarterly period within the two most recent fiscal years as
reported on the New York Stock Exchange.
STOCK TRADING--COMMON
<TABLE>
<CAPTION>
1995 HIGH LOW CLOSE
----------------------------------------- ---- --- -----
<S> <C> <C> <C>
First Quarter 30 25 7/8 27 1/4
Second Quarter 29 1/4 23 7/8 28 1/2
Third Quarter 35 5/8 28 1/4 30 5/8
Fourth Quarter 32 1/4 26 1/4 28 1/8
12 Months 1995 35 5/8 23 7/8 28 1/8
</TABLE>
<TABLE>
<CAPTION>
1996 HIGH LOW CLOSE
----------------------------------------- ---- --- -----
<S> <C> <C> <C>
First Quarter 33 5/8 25 5/8 31 1/8
Second Quarter 33 1/8 27 5/8 28 1/4
Third Quarter 29 5/8 25 27 5/8
Fourth Quarter 28 3/8 24 7/8 25 1/4
12 Months 1996 33 5/8 24 7/8 25 1/4
</TABLE>
The number of holders of record of the Company's Common Stock as of March 20,
1997 was 630,269.
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.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item is set forth in the Company's 1996 Annual
Report to Stockholders on pages 12 through 15, which portions are incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by this Item is set forth in the Company's 1996 Annual
Report to Stockholders on pages 16 through 25, which portions are incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is set forth in the Company's 1996 Annual
Report to Stockholders on pages 27 through 53, which portions are incorporated
herein by reference, and in Part IV of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The information required by this Item is set forth in the Company's Current
Report on Form 8-K: Date of Report: June 30, 1995, which is incorporated herein
in its entirety by reference.
17
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is set forth under "Executive Officers of
the Registrant" at the end of Part I of this report and under the headings
"Class III -- Nominees for Election", "Class II -- Directors Continuing in
Office Until the 1998 Annual Meeting of Stockholders," "Class I -- Directors
Continuing in Office Until the 1999 Annual Meeting of Stockholders" and
"Compliance with Section 16(a) of the Exchange Act" in the Company's 1997 Proxy
Statement, which sections are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is set forth under the headings "Director
Compensation," "Executive Compensation" and "Employment Contracts and
Termination of Employment or Change-in-Control Arrangements" in the Company's
1997 Proxy Statement, which sections are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is set forth under the headings "Security
Ownership of Certain Beneficial Owners" and "Security Ownership of Management"
in the Company's 1997 Proxy Statement, which sections are incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is set forth under the heading "Certain
Relationships and Related Transactions" in the Company's 1997 Proxy Statement,
which section is incorporated herein by reference.
18
<PAGE> 21
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, INC. AND SUBSIDIARIES
The financial statements required by this Item are set forth in the
Company's 1996 Annual Report to Stockholders on pages 27 through 53,
which portions are incorporated herein by reference.
<TABLE>
<S> <C>
CMT PARTNERS
Report of Independent Accountants
Consolidated Balance Sheets -- December 31, 1996 and 1995
Consolidated Statements of Income and Changes in Partners' Equity -- For
the years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows -- For the years ended December 31,
1996, 1995, and 1994
Notes to Financial Statements
Financial Statement Schedule
Report of Independent Accountants
Schedule II -- Valuation and Qualifying Accounts and Reserves
Report of Independent Accountants (Kansas Combined Cellular)
MANNESMANN MOBILFUNK GMBH
Independent Auditors' Report
Balance Sheets -- December 31, 1996 and 1995
Statements of Income -- Years ended December 31, 1996, 1995 and 1994
Statements of Capital Subscribers' Equity -- Years ended December 31,
1996, 1995 and 1994
Statements of Cash Flows -- Years ended December 31, 1996, 1995 and 1994
Notes to Financial Statements
</TABLE>
NEW PAR
The financial statements required by this Item are incorporated
herein by reference to the Company's Annual Report on Form 10-K for
the period ended December 31, 1995, pages S-34 to S-53, File No.
1-12342.
CELLULAR COMMUNICATIONS, INC.
The financial statements required by this Item are incorporated
herein by reference to the Cellular Communications, Inc. Annual
Report on Form 10-K for the period ended December 31, 1995, Item 8
and Item 14(a) and (d), File No. 1-10789.
2. Financial Statement Schedules:
<TABLE>
<S> <C>
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
Report of Independent Accountants (Price Waterhouse LLP)
Report of Independent Accountants (Coopers & Lybrand L.L.P.)
Schedule II -- Valuation and Qualifying Accounts and Reserves
</TABLE>
19
<PAGE> 22
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 or in the other
financial statements listed under Item 14(a)(1) above.
3. Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated by reference as exhibits hereto.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------ ---------------------------------------------------------------------------------
<C> <S>
3.1 Certificate of Incorporation of the Company, as filed with the Secretary of State
of the State of Delaware on September 19, 1994 (Exhibit 3.1 to the Company's Form
8-K -- Date of Report: December 15, 1994, File No. 1-12342)
3.2 Designation, Preferences and Rights of Series A Participating Preferred Stock of
the Company, as filed with the Secretary of State of the State of Delaware on
December 15, 1994 (Exhibit 3.2 to the Company's Form 8-B, File No. 1-12342, filed
January 27, 1995)
3.3 Amended By-laws of the Company as of June 13, 1996 (Exhibit 3 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1996, File No.
1-12342)
4.1 Form of Common Stock certificate (Exhibit 4.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994, File No. 1-12342))
4.2 Rights Agreement between the Company and The Bank of New York, Rights Agent,
dated as of September 19, 1994 (Exhibit 4 to the Company's Current Report on Form
8-K -- Date of Report: December 15, 1994, File No. 1-12342)
4.3 Certificate of Designation, Preferences and Rights of Class B Preferred Stock,
Series 1996
4.4 Certificate of Designation, Preferences and Rights of Class C Preferred Stock,
Series 1996
4.5 Indenture dated as of July 16, 1996 between the Company and The First National
Bank of Chicago, as trustee (Exhibit 4.1 to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1996, File No. 1-12342)
4.6 First Supplemental Indenture dated as of July 16, 1996 between the Company and
The First National Bank of Chicago, as trustee (Exhibit 4.1 to the Company's
Current Report on Form 8-K, Date of Report: July 3, 1996, File No. 1-12342)
4.7 Second Supplemental Indenture dated as of July 16, 1996 between the Company and
The First National Bank of Chicago, as trustee (Exhibit 4.1 to the Company's
Current Report on Form 8-K, Date of Report: July 11, 1996, File No. 1-12342)
4.8 Third Supplemental Indenture dated as of October 7, 1996 between the Company and
The First National Bank of Chicago, as trustee (Exhibit 4.1 to the Company's
Current Report on Form 8-K: Date of Report: October 2, 1996, File No. 1-12342)
10.1 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, Registration No. 33-68012, filed August 27,
1993)
10.2 Agreement and Plan of Merger dated as of April 5, 1996, as amended and restated
as of July 12, 1996 among CCI, the Company, and AirTouch Cellular (Exhibit 2.1 to
the Company's Registration Statement on Form S-4, No. 333-03107)
10.3 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, Registration No. 33-68012, filed August 27, 1993)
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------ ---------------------------------------------------------------------------------
<C> <S>
10.4 Amendment No. 1 to Separation Agreement between the Company and Pacific Telesis
Group, dated November 2, 1993 (Exhibit 10.2 to the Company's Annual Report on
Form 10-K for the period ended December 31, 1993, File No. 1-12342)
10.5 Amendment No. 2 to Separation Agreement between the Company and Pacific Telesis
Group, dated as of March 25, 1994 (Exhibit 10.6 to the Company's Annual Report on
Form 10-K for the period ended December 31, 1994, File No. 1-12342)
10.6 Amendment No. 3 to Separation Agreement between the Company and Pacific Telesis
Group, dated as of April 1, 1994 (Exhibit 10.7 to the Company's Annual Report on
Form 10-K for the period ended December 31, 1994, File No. 1-12342)
10.7 Amendment No. 4 to Separation Agreement between the Company and Pacific Telesis
Group, dated as of March 21, 1995 (Exhibit 10.8 to the Company's Annual Report on
Form 10-K for the period ended December 31, 1995, File No. 1-12342)
10.8 Amended and Restated Joint Venture Organization Agreement dated as of September
30, 1995 between the Company and U S WEST Inc. (Exhibit 2.1 to the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1995, File No.
1-12342)
10.9 Amended and Restated Agreement of Limited Partnership of WMC Partners, L.P. dated
as of September 30, 1995 by and between the Company and U S WEST Inc. (Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1995, File No. 1-12342)
10.10 First Amendment to Amended and Restated Agreement of Limited Partnership of WMC
Partners, L.P. dated as of April 16, 1996 between the Company and U S WEST Inc.
(Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1996, File No. 1-12342)
10.11 Amended and Restated Agreement of Limited Partnership of PCS Nucleus, L. P. dated
as of September 30, 1995 by and between the Company and U S WEST Inc. (Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1995, File No. 1-12342)
10.12 First Amendment to Amended and Restated Agreement of Limited Partnership of PCS
Nucleus, L.P. dated as of April 16, 1996 between the Company and U S WEST Inc.
(Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1996, File No. 1-12342)
10.13 Amended and Restated Investment Agreement dated as of September 30, 1995 by and
between the Company and U S WEST Inc. (Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the period ended September 30, 1995, File No. 1-12342)
10.14 First Amendment to Amended and Restated Investment Agreement dated as of April
16, 1996 between the Company and U S WEST Inc. (Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1996, File No.
1-12342)
10.15 Amended and Restated Agreement of Exchange dated as of September 30, 1995 by and
between the Company and U S WEST Inc. (Exhibit 10.4 to the Company's Quarterly
Report on Form 10-Q for the period ended September 30, 1995, File No. 1-12342)
10.16 First Amendment to Amended and Restated Agreement of Exchange dated as of April
16, 1996 between the Company and U S WEST Inc. (Exhibit 10.5 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1996, File No.
1-12342)
10.17 Amended and Restated Trust Agreement of Exchange dated as of September 30, 1995
by and between the Company and U S WEST Inc. (Exhibit 10.5 to the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1995, File No.
1-12342)
10.18 First Amendment to Amended and Restated Trust Agreement of Exchange dated as of
April 16, 1996 between the Company and U S WEST Inc. (Exhibit 10.6 to the
Company's Quarterly Report on Form 10-Q for the period ended June 30, 1996, File
No. 1-12342)
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------ ---------------------------------------------------------------------------------
<C> <S>
10.19 Agreement of Limited Partnership dated as of October 20, 1994 between CELLCO
Partnership and WMC Partners, L.P. (Exhibit 10.1 to the Company's Form
8-K -- Date of Report: October 20, 1994, File No. 1-12342)
10.20 Agreement of Limited Partnership dated as of October 20, 1994 of PrimeCo, L.P.
(Exhibit 10.2 to the Company's Form 8-K -- Date of Report: October 20, 1994, File
No. 1-12342)
10.21 Standstill Agreement dated as of October 20, 1994 between AirTouch
Communications, Inc. and Bell Atlantic Corporation (Exhibit 10.3 to the Company's
Form 8-K -- Date of Report: October 20, 1994, File No. 1-12342)
10.22 Standstill Agreement dated as of October 20, 1994 between AirTouch Communications
and NYNEX Corporation (Exhibit 10.4 to the Company's Form 8-K -- Date of Report:
October 20, 1994, File No. 1-12342)
10.23 Standstill Agreement dated as of October 20, 1994 between AirTouch Communications
and CELLCO Partnership (Exhibit 10.5 to the Company's Form 8-K -- Date of Report:
October 20, 1994, File No. 1-12342)
10.24 Credit Agreement between the Company, Bank of America National Trust and Savings
Association and The Other Financial Institutions Party Thereto dated July 20,
1995 (Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the period
ended June 30, 1995, File No. 1-12342)
10.25 Amended and Restated Partnership Agreement dated as of September 1, 1993 by and
between Members of the PacTel Group and Members of the McCaw Group (Exhibit 28(a)
to McCaw Cellular Communications, Inc. Current Report on Form 8-K for the period
ended October 1, 1991, File No. 0-16051)
10.26 Representative Employment Agreement for Messrs. Ginn, Sarin, Gyani, Jones,
Farrill and Golm and Mrs. Gill
10.27 Representative Employment Agreement for other officers of the Company
10.28 Form of Indemnity Agreement between the Company and each of its directors and
certain officers (Exhibit 10.24 to the Company's Annual Report on Form 10-K for
the period ended December 31, 1994, File No. 1-12342)
10.29 Trust Agreement No. 1 for AirTouch Communications, Inc. Supplemental Executive
Pension Plan Benefits (Exhibit 10.25 to the Company's Annual Report on Form 10-K
for the period ended December 31, 1994, File No. 1-12342)
10.30 AirTouch Communications, Inc. Deferred Compensation Plan (Exhibit 10.26 to the
Company's Form 10-K for the period ended December 31, 1994, File No. 1-12342)
10.31 AirTouch Communications, Inc. Deferred Compensation Plan for Nonemployee
Directors (Exhibit 10.10 to the Company's Annual Report on Form 10-K for the
period ended December 31, 1993, File No. 1-12342)
10.32 AirTouch Communications, Inc. Supplemental Executive Pension Plan -- Second
Amendment and Restatement Effective as of April 1, 1994
10.33 AirTouch Communications, Inc. Executive Life Insurance Plan (Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the period ended December 31, 1993, File
No. 1-12342)
10.34 AirTouch Communications, Inc. Executive Long-Term Disability Plan (Exhibit 10.14
to the Company's Annual Report on Form 10-K for the period ended December 31,
1994, File No. 1-12342)
10.35 Description of the Company's Business Travel Accident Insurance for Non-Employee
Directors (Exhibit 10.31 to the Company's Annual Report on Form 10-K for the
period ended December 31, 1994, File No. 1-12342)
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- - ------
<C> <S>
10.36 AirTouch Communications, Inc. 1993 Long-Term Stock Incentive Plan -- Second
Amendment and Restatement Effective as of December 15, 1994 (Exhibit 10.33 to the
Company's Annual Report on Form 10-K for the period ended December 31, 1995, File
No. 1-12342)
10.37 Description of the Executive Financial Counseling Program (Exhibit 10.34 to the
Company's Annual Report on Form 10-K for the period ended December 31, 1995, File
No. 1-12342)
10.38 Consulting Agreement with Executive Officer
13 1996 Annual Report to Security Holders -- Financial Section
21 Subsidiaries of the Registrant
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Ernst & Young LLP (CCI)
23.4 Consent of KPMG Deutsche Treuhand-Gesellschaft (Mannesmann Mobilfunk GmbH)
23.5 Consent of Coopers & Lybrand L.L.P. (CMT Partners)
23.6 Consent of Ernst & Young LLP (New Par)
23.7 Consent of Arthur Andersen LLP (Kansas Combined Cellular)
24 Power of Attorney
27 Financial Data Schedule
99.1 The Company's Current Report on Form 8-K: Date of Report: June 30, 1995, File No.
1-12342 (Exhibit 99.1 to the Company's Annual Report on Form 10-K for the period
ended December 31, 1995)
99.2 Coopers & Lybrand L.L.P. Report of Independent Accountants on the Company's
consolidated financial statements for the period ended December 31, 1994
99.3 Cellular Communications, Inc. financial statements for each of the three years in
the period ended December 31, 1995 (incorporated by reference to Cellular
Communications, Inc. Annual Report on Form 10-K for the period ended December 31,
1995, Item 8 and Item 14(a) and (d), File No. 1-10789)
99.4 New Par financial statements for each of the three years in the period ended
December 31, 1995 (incorporated by reference to the Company's Annual Report on Form
10-K for the period ended December 31, 1995, page S-34 to S-53, File No. 1-12342)
</TABLE>
(b) Reports on Form 8-K:
Date of Report: October 4, 1996
Item 7. Financial Statements and Exhibits
23
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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, INC.
By: /s/ MOHAN S. GYANI
------------------------------------
Mohan S. Gyani
Executive Vice President and
Chief Financial Officer
Date: March 20, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE
- - --------------------------------------------- ----------------------------------------------
<C> <S>
SAM GINN* Chairman of the Board and Chief Executive
- - --------------------------------------------- Officer (Principal Executive Officer)
Sam Ginn
/s/ MOHAN S. GYANI Executive Vice President and Chief Financial
- - --------------------------------------------- Officer (Principal Financial and Accounting
Mohan S. Gyani Officer)
ARUN SARIN* President and Chief Operating Officer and
- - --------------------------------------------- Director
Arun Sarin
C. LEE COX* Vice Chairman of the Board
- - ---------------------------------------------
C. Lee Cox
CAROL A. BARTZ* Director
- - ---------------------------------------------
Carol A. Bartz
MICHAEL J. BOSKIN* Director
- - ---------------------------------------------
Michael J. Boskin
DONALD G. FISHER* Director
- - ---------------------------------------------
Donald G. Fisher
PAUL HAZEN* Director
- - ---------------------------------------------
Paul Hazen
ARTHUR ROCK* Director
- - ---------------------------------------------
Arthur Rock
CHARLES R. SCHWAB* Director
- - ---------------------------------------------
Charles R. Schwab
GEORGE P. SHULTZ* Director
- - ---------------------------------------------
George P. Shultz
*By: /s/ MOHAN S. GYANI
- - ---------------------------------------------
Mohan S. Gyani, Attorney-in-fact Executive
Vice President and Chief Financial Officer
Date: March 20, 1997
</TABLE>
24
<PAGE> 27
INDEX TO
SEPARATE FINANCIAL STATEMENTS OF SIGNIFICANT ENTITIES NOT
CONSOLIDATED AND AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE
<TABLE>
<S> <C>
CMT PARTNERS
Report of Independent Accountants................................................... S-3
Consolidated Balance Sheets -- December 31, 1996 and 1995........................... S-4
Consolidated Statements of Income and Changes in Partners' Equity -- for the years
ended December 31, 1996, 1995, and 1994.......................................... S-5
Consolidated Statements of Cash Flows -- for the years ended December 31, 1996,
1995, and 1994................................................................... S-6
Notes to Financial Statements....................................................... S-7
Financial Statement Schedule
Report of Independent Accountants................................................ S-13
Schedule II -- Valuation and Qualifying Accounts and Reserves.................... S-14
Report of Independent Public Accountants (Kansas Combined Cellular)................. S-15
MANNESMANN MOBILFUNK GMBH
Independent Auditors' Report........................................................ S-17
Balance Sheets -- December 31, 1996 and 1995........................................ S-18
Statements of Income -- Years ended December 31, 1996, 1995 and 1994................ S-19
Statements of Capital Subscribers' Equity -- Years ended December 31, 1996, 1995,
and 1994......................................................................... S-20
Statements of Cash Flows -- Years ended December 31, 1996, 1995 and 1994............ S-21
Notes to Financial Statements....................................................... S-22
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
Financial Statement Schedule
Report of Independent Accountants (Price Waterhouse LLP)......................... X-1
Report of Independent Accountants (Coopers & Lybrand L.L.P.)..................... X-2
Schedule II -- Valuation and Qualifying Accounts and Reserves.................... X-3
</TABLE>
S-1
<PAGE> 28
CMT PARTNERS
---------------
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
S-2
<PAGE> 29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of CMT Partners:
We have audited the accompanying consolidated balance sheets of CMT Partners
(the Partnership) as of December 31, 1996 and 1995 and the related consolidated
statements of income and changes in partners' equity and cash flows for the
years ended December 31, 1996, 1995, and 1994. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit. We did not
audit the financial statements of Kansas Combined Cellular, which statements
reflect (in thousands) total assets of $78,229 and $57,332 as of December 31,
1996 and 1995, respectively, and total revenues of $87,180, $78,472, and
$49,027, for the years ended December 31, 1996, 1995, and 1994, respectively.
Those statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the amounts included for Kansas
Combined Cellular, is based solely on the report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of CMT Partners as of
December 31, 1996 and 1995 and the consolidated results of their operations and
their cash flows for the years ended December 31, 1996, 1995, and 1994 in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
February 14, 1997
S-3
<PAGE> 30
CMT PARTNERS
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 5,040 $ 1,317
Accounts receivable:
Trade accounts receivable, net of allowance for doubtful accounts
of $9,406 and $4,819 in 1996 and 1995, respectively.............. 90,514 79,735
Other accounts receivable, net of allowance for doubtful accounts
of $1,747 and $870 in 1996 and 1995, respectively................ 27,032 25,520
Due from affiliates.................................................. -- 210
Inventory............................................................ 6,210 12,205
Other................................................................ 3,833 4,961
-------- --------
Total current assets......................................... 132,629 123,948
Property and equipment, net of accumulated depreciation of $237,924 and
$189,143 in 1996 and 1995, respectively.............................. 265,455 224,798
Unconsolidated investment.............................................. 129,984 104,574
Intangibles, net of accumulated amortization of $37,468 and $34,368 in
1996 and 1995, respectively.......................................... 73,024 73,864
-------- --------
$601,092 $527,184
======== ========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 17,783 $ 21,814
Accrued expenses..................................................... 47,663 30,557
Other current liabilities............................................ 14,396 5,699
-------- --------
Total current liabilities.................................... 79,842 58,070
-------- --------
Minority interests................................................... 14,667 14,226
-------- --------
Commitments and contingencies (Note 8).
Partners' equity....................................................... 506,583 454,888
-------- --------
Total partners' equity....................................... 506,583 454,888
-------- --------
$601,092 $527,184
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-4
<PAGE> 31
CMT PARTNERS
CONSOLIDATED STATEMENTS OF INCOME AND
CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenues................................................ $ 605,193 $ 515,010 $ 404,209
--------- --------- ---------
Expenses:
Cost of revenues...................................... 133,394 120,242 78,700
Selling, general and administrative................... 234,982 193,304 154,849
Depreciation and amortization......................... 57,696 50,319 41,835
--------- --------- ---------
426,072 363,865 275,384
--------- --------- ---------
Operating income.............................. 179,121 151,145 128,825
Earnings in unconsolidated investment................... 28,810 24,651 18,363
Minority interests...................................... (9,826) (7,799) (6,955)
--------- --------- ---------
Net income.................................... 198,105 167,997 140,233
Partners' equity, beginning of period................... 454,888 398,291 349,458
Distributions to partners............................... (146,410) (111,400) (104,200)
Contribution from partners.............................. -- -- 12,800
--------- --------- ---------
Partners' equity, end of period......................... $ 506,583 $ 454,888 $ 398,291
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-5
<PAGE> 32
CMT PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 198,105 $ 167,997 $ 140,233
--------- --------- ---------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 57,696 50,319 41,835
Minority interest..................................... 9,826 7,799 6,955
Earnings in unconsolidated investment................. (28,810) (24,651) (18,363)
Loss on disposition of property and equipment......... 347 1,171 1,644
Changes in assets and liabilities:
Trade accounts receivable, net..................... (10,779) (20,294) (23,191)
Other accounts receivable, net..................... (1,512) (7,330) (12,409)
Inventory.......................................... 5,995 (7,177) (2,093)
Other current assets............................... 1,128 (3,902) (537)
Accounts payable................................... (4,031) 3,613 10,547
Accrued expenses................................... 17,106 2,251 4,301
Other current liabilities.......................... 8,697 2,448 (583)
--------- --------- ---------
55,663 4,247 8,106
--------- --------- ---------
Net cash provided by operating activities..... 253,768 172,244 148,339
--------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment.................... (98,700) (82,436) (69,585)
Contributions to unconsolidated investment............ -- -- (5,099)
Distributions from unconsolidated investment.......... 3,400 25,500 13,600
(Increase) decrease in other assets................... 840 (1,266) 245
--------- --------- ---------
Net cash used for investing activities........ (94,460) (58,202) (60,839)
--------- --------- ---------
Cash flows from financing activities:
Distributions to partners of CMT...................... (146,410) (111,400) (104,200)
Distributions to minority partners.................... (9,385) (6,731) (4,980)
Due to (from) affiliates, net......................... 210 3,256 (585)
Partners' contribution................................ -- -- 12,800
--------- --------- ---------
Net cash used for financing activities........ (155,585) (114,875) (96,965)
--------- --------- ---------
Net increase (decrease) in cash............... 3,723 (833) (9,465)
Cash and cash equivalents, beginning of period.......... 1,317 2,150 11,615
--------- --------- ---------
Cash and cash equivalents, end of period................ $ 5,040 $ 1,317 $ 2,150
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-6
<PAGE> 33
CMT PARTNERS
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS:
CMT Partners (the Partnership) was formed on September 1, 1993 (inception)
pursuant to the Amended and Restated Partnership Agreement dated as of September
1, 1993 between subsidiaries of AirTouch Communications, Inc. (ATI), formerly
PacTel Corporation, and subsidiaries of AT&T Wireless Services, Inc. (AT&TWS),
formerly McCaw Cellular Communications, Inc. (MCCI). The Partnership is a
Delaware general partnership equally owned by ATI and AT&TWS through the
following contributions:
<TABLE>
<CAPTION>
CONTRIBUTIONS
TO
GENERAL PARTNERS CMT PARTNERS
------------------------------------------------------------------------ ------------
<S> <C>
AirTouch Communications, Inc.:
Bay Area Cellular Telephone Company (BACTC)........................... 61.099%
Interest in A Block licensee in Dallas-Fort Worth, TX (D/FW).......... 33.915%
AT&T Wireless Services, Inc.:
Cagal Cellular Communications Corporation (Cagal)..................... 80.370%
Salinas Cellular Telephone Company (Salinas).......................... 85.930%
Napa Cellular Telephone Company (Napa)................................ 99.999%
Net operating assets of A Block licensee in Kansas City, MO (Kansas
City).............................................................. 100.00%
St. Joseph CellTel Co (St. Joseph).................................... 87.00%
Net operating assets of A Block licensee in Lawrence, KS (Lawrence)... 100.00%
BACTC................................................................. 32.90%
</TABLE>
The initial contributions were accounted for at the net book value of the assets
and liabilities of the entities. Each of the entities holds a license or
licenses from the Federal Communication Commission (FCC) and state authorities
to operate cellular telephone systems in Metropolitan Statistical Areas (MSAs)
as listed below:
<TABLE>
<S> <C>
Bay Area Cellular Telephone Company...................... San Francisco/San Jose, CA
Metroplex Telephone Company.............................. Dallas-Fort Worth, TX
Cagal Cellular Communications Corporation................ Santa Rosa, CA
Salinas Cellular Telephone Company....................... Salinas, CA
Napa Cellular Telephone Company.......................... Napa/Vallejo, CA
Net operating assets of A Block licensee................. Kansas City, MO
St. Joseph CellTel Co.................................... St. Joseph, MO
Net operating assets of A Block licensee................. Lawrence, KS
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The consolidated financial statements of the Partnership include the accounts of
all significant ownership interests which include the accounts of BACTC,
Combined Suburban Cellular (CSC), and Kansas Combined Cellular (KCC). CSC is
comprised of the Cagal, Salinas and Napa cellular markets. KCC is comprised of
the Kansas City, St. Joseph, and Lawrence cellular markets.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
S-7
<PAGE> 34
CMT PARTNERS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition:
Cellular air time and access charges are recorded as revenue when earned. Sales
of equipment and related services are recorded when the goods and services are
delivered.
Cash and Cash Equivalents:
Cash and cash equivalents consist of investments with original maturities of
less than three months. The carrying amount approximates fair value because of
the short maturity of those instruments.
Allocation of Profits and Losses:
In general, profits and losses incurred by the Partnership are allocated to the
partners pro rata in accordance with their partnership ownership percentage.
Inventory:
Inventory consists of cellular phones and related equipment. Inventory is stated
at the lower of cost or replacement cost. Gains and losses on the sale of
cellular equipment are recognized at the time of sale.
Property and Equipment:
Property and equipment are stated at historical cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
<TABLE>
<CAPTION>
DEPRECIABLE LIFE
----------------
<S> <C>
Cellular equipment.................................................... 3 - 7 years
Cellular towers/shelters.............................................. 5 - 15 years
Other................................................................. 3 - 7 years
</TABLE>
Leasehold improvements are amortized using the straight-line method over the
shorter of the lease term or the estimated useful life of the asset. When
property and equipment are retired or sold, the cost and accumulated
depreciation of dispositions are removed from the accounts, and any gain or loss
is reflected in income.
Repairs and maintenance costs are charged to expense when incurred. Renewals and
betterments are capitalized and depreciated over the remaining useful lives of
the assets.
Intangibles:
Intangible assets primarily represent costs incurred in the acquisition and
development of the cellular licenses and acquisition of subscriber lists. The
costs of the cellular licenses are being amortized over 40 years using the
straight-line method. The costs of the subscriber lists are being amortized over
three years using the straight-line method. The Company periodically evaluates
the recoverability of its goodwill using various criteria, including projected
future earnings. If necessary, goodwill is written down to its estimated
recoverable value.
Income Taxes:
The income or loss of CMT Partners and its consolidated subsidiaries are
included in the tax returns of the individual partners. Accordingly, no
provision has been made for income taxes for these entities in the financial
statements.
S-8
<PAGE> 35
CMT PARTNERS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Minority Interests:
Minority interests represent equity interests held by entities other than CMT
Partners for the general partnerships serving the St. Joseph, BACTC and Salinas
markets and the corporation serving the Cagal market.
Reclassifications:
Certain items in the financial statements have been reclassified to conform to
the 1996 presentation. These reclassifications have no effect on previously
reported net income or partners' equity.
Accounting Changes:
Effective January 1, 1996, the Partnership implemented the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Under SFAS No. 121, the Partnership is required to review long-lived assets
and certain identifiable intangibles for impairment whenever events or changes
in circumstances indicate that the book value of an asset may not be
recoverable. An impairment loss would be recognized whenever the review
demonstrates that the book value of a long-lived asset is not recoverable. The
implementation of SFAS No. 121 did not have an impact on the Partnership's
financial position or results of operations.
3. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land......................................................... $ 1,752 $ 1,724
Cellular property and equipment.............................. 395,515 333,375
Administrative assets........................................ 65,068 50,184
--------- ---------
462,335 385,283
Less accumulated depreciation and amortization............... (237,924) (189,143)
--------- ---------
224,411 196,140
Cellular system under construction........................... 41,044 28,658
--------- ---------
$ 265,455 $ 224,798
========= =========
</TABLE>
Administrative assets primarily consist of office furniture and fixtures,
including leasehold improvements and computer equipment.
S-9
<PAGE> 36
CMT PARTNERS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. ACCRUED EXPENSES:
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued commissions.............................................. $ 9,791 $10,881
Accrued benefits................................................. 5,690 5,945
Accrued network and inventory purchases.......................... 8,926 --
Accrued operating expenses....................................... 14,650 8,031
Other accrued expenses........................................... 8,606 5,700
------- -------
Total accrued expenses................................. $47,663 $30,557
======= =======
</TABLE>
5. UNCONSOLIDATED INVESTMENT:
The unconsolidated investment represents an investment in Dallas-Fort Worth
Signal Partnership which owns approximately 34% of Metroplex Telephone Company,
the A Block licensee in Dallas-Fort Worth, Texas. Accordingly, the investment
has been accounted for by the equity method of accounting. The purchase price in
excess of the Partnership's share of net assets is $71.5 million and is being
amortized over 40 years. The financial information of Metroplex Telephone
Company at December 31, 1996, 1995 and 1994 and for the years ended December 31,
1996, 1995 and 1994 are shown below:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current assets..................................... $ 43,504 $ 37,346 $ 47,759
Noncurrent assets.................................. 202,385 146,194 125,899
-------- -------- --------
Total assets............................. $245,889 $183,540 $173,658
======== ======== ========
Current liabilities................................ $ 24,579 $ 42,174 $ 35,073
-------- -------- --------
Total liabilities........................ $ 24,579 $ 42,174 $ 35,073
======== ======== ========
Total equity....................................... $221,310 $141,366 $138,585
======== ======== ========
Revenue............................................ $275,780 $224,213 $190,099
======== ======== ========
Net income......................................... $ 89,944 $ 77,781 $ 58,156
======== ======== ========
</TABLE>
6. TRANSACTIONS WITH RELATED PARTIES:
The Partnership and its affiliated companies have entered into several
transactions and agreements related to their respective businesses. The
following represents the material transactions between the Partnership and its
affiliated companies:
Technical, Administrative and Marketing Services:
The Partnership entered into a service agreement (the Agreement) with AT&TWS to
provide certain services to CSC and KCC markets. The costs charged pursuant to
the Agreement are generally determined using an allocation method. Substantially
all of the services under the Agreements were terminated during 1994, and CMT
Partners began providing these services to its affiliated markets.
S-10
<PAGE> 37
CMT PARTNERS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Cellular Equipment Purchases:
The Partnership purchased cellular electronic equipment from AT&T Corp.
comprising approximately 22% of total capital expenditures for the period from
January 1, 1995 through December 31, 1995. For the year ended December 31, 1996,
purchases of cellular electronic equipment from AT&T Corp. was approximately 15%
of total capital expenditures.
Long Distance:
Effective with the formation of CMT Partners on September 1, 1993, CSC, KCC, and
two interexchange carriers (Interexchange Carriers), both of which are wholly
owned subsidiaries of AT&TWS, entered into Agreements under which the
Interexchange Carriers provide InterLATA long distance services for CSC and KCC
customers. CMT Partners may have been subject to certain restrictions regarding
the provision of InterLATA services pursuant to the Modified Final Judgment and
the AT&T Corp. consent decree. Such restrictions were superseded by the
Telecommunications Act of 1996.
CSC and KCC provided billing and collection functions on behalf of the
Interexchange Carriers at $.42 per customer account. The Interexchange Carriers
were responsible for the wholesale cost of the InterLATA long distance services
and any other expense incurred by the Interexchange Carriers in operating their
business. In August 1996, this arrangement ceased as the Partnership (including
CSC and KCC) began reselling long distance services as allowed by the
Telecommunications Act of 1996.
Interconnection:
BACTC contracted with Pacific Bell, an affiliate of ATI during 1993 and for the
first three months of 1994, for interconnection services essential to the
operation of its cellular network. The costs pursuant to this contract accounted
for 7% of the total operating costs for the first three months of 1994.
7. EMPLOYEE CONTRIBUTION AND PROFIT SHARING PLAN:
Employees of CMT Partners and its subsidiaries participate in a contributory
profit-sharing plan referred to as the Cellular One Section 401(k) and Profit
Sharing Plan (the Plan), formerly known as the Bay Area Cellular Telephone
Company 401(k) and Profit Sharing Plan, which qualifies as a cash or deferred
arrangement under Section 401(k) of the Internal Revenue Code. Upon formation of
CMT Partners, employees of the markets contributed by AT&TWS may elect to
participate in the Plan at any time. Otherwise, these employees may maintain
their contributions in AT&TWS's 401(k) plan.
The Plan allows participating employees to elect to contribute up to 15% of
their monthly salaries, to a maximum as prescribed by the Internal Revenue
Service. The Plan sponsor, CMT Partners, contributes to the Plan, on behalf of
each participating employee, an amount equal to 50% of the employee's
contribution, not to exceed 5% of the participant's salary. Contributions are
invested in six different funds. Under the 401(k) Plan, participants are at all
times fully vested. Under the profit sharing plan, CMT Partners contributes a
discretionary percentage of each eligible employee's salary. Employees vest in
the profit sharing plan over five years. CMT Partners contributed $2,212,511,
$2,164,064, and $2,023,757 to the 401(k) and profit sharing plan for 1996, 1995,
and 1994.
S-11
<PAGE> 38
CMT PARTNERS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES:
Lease Commitments:
Future minimum payments required under operating leases and agreements that have
an initial or remaining noncancelable lease term in excess of one year at
December 31, 1996 are summarized below:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Year Ending December 31,
1997............................................................... $ 11,080
1998............................................................... 10,133
1999............................................................... 9,345
2000............................................................... 5,668
2001............................................................... 3,445
Thereafter......................................................... 4,566
-------
$ 44,237
=======
</TABLE>
Rental expense for operating leases was $11,667,476, $9,244,000, and $7,562,000
for 1996, 1995, and 1994, respectively.
Litigation:
In 1994, a class action complaint was filed on behalf of the Partnership's
cellular customers in San Francisco County Superior Court alleging certain
facts, including a similarity in the pricing structures of the two competitors,
which plaintiffs contend is circumstantial evidence of an implicit conspiracy
between BACTC and GTE Mobilnet to fix the prices of retail and wholesale
cellular radio services in the San Francisco Bay Area market. A class action
lawsuit has been stipulated and discovery has begun. In 1996, an almost
identical class action complaint was filed by a different plaintiff in Alameda
County Superior Court against BACTC, GTE Mobilnet, and a number of other
companies. It alleges essentially the same facts as the San Francisco case
alleges. The two cases have been assigned to a single judge for coordination.
The Partnership does not believe that these proceedings will have a material
adverse effect on its financial position or results of operations.
The Partnership is a party to certain litigation in the ordinary course of
business and is also a party to routine filings with the FCC, state regulatory
authorities and other proceedings which management believes are immaterial to
the Partnership.
9. LINE OF CREDIT:
The Partnership has a revolving line of credit with a bank that allows for
borrowings up to $10,000,000. Interest on all advances on the line of credit
accrue at the lesser of a variable rate equal to .50% below the Prime Rate or
.90% above the LIBOR rate. The line of credit agreement expires August 1, 1998.
S-12
<PAGE> 39
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of CMT Partners:
Our report on the consolidated financial statements of CMT Partners is included
as an exhibit to the AirTouch Communications, Inc. (ATI) Form 10-K. In
connection with our audit of such financial statements, we have audited the
related financial statement schedule listed in the index as an exhibit of ATI
Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
February 14, 1997
S-13
<PAGE> 40
CMT PARTNERS
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COST AND END OF
PERIOD EXPENSES DEDUCTIONS(A) PERIOD
------------ ---------- ------------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts........... $5,689 $ 22,728 $17,264 $ 11,153
Year ended December 31, 1995:
Allowance for doubtful accounts........... $3,228 $ 19,378 $16,917 $ 5,689
Year ended December 31, 1994:
Allowance for doubtful accounts........... $1,576 $ 8,107 $ 6,455 $ 3,228
</TABLE>
- - ---------------
(a) Amounts in this column reflect items written off, net of recoveries.
S-14
<PAGE> 41
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CMT Partners:
We have audited the balance sheets of Kansas Combined Cellular, (a division of
CMT Partners, a Delaware general partnership) as of December 31, 1996 and 1995,
and the related statements of operations and changes in partners' capital and
cash flows for each of the three years in the period ended December 31, 1996,
not presented separately herein. 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 auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, not presented
separately herein, present fairly, in all material respects, the financial
position of Kansas Combined Cellular as of December 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Kansas City, Missouri
January 24, 1997
S-15
<PAGE> 42
MANNESMANN MOBILFUNK GMBH
FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<S> <C>
Independent Auditors' Report.......................................................... S-17
Balance Sheets as of December 31, 1996 and 1995....................................... S-18
Statements of Income for the Years ended December 31, 1996, 1995 and 1994............. S-19
Statements of Capital Subscribers' Equity for the Years ended December 31, 1996, 1995
and 1994............................................................................ S-20
Statements of Cash Flows for the Years ended December 31, 1996, 1995 and 1994......... S-21
Notes to Financial Statements......................................................... S-22
</TABLE>
S-16
<PAGE> 43
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, 1996 and 1995, and the related statements of income, capital
subscribers' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996. 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, 1996 and 1995, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1996, in
conformity with accounting principles generally accepted in the United States.
As discussed in notes 1 and 9 to the financial statements, the Company changed
its method of accounting for income taxes in 1995 to adopt the consensus reached
by the Emerging Issues Task Force of the Financial Accounting Standards Board in
Issue No. 95-10.
Dusseldorf, Germany, February 19, 1997
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
<TABLE>
<S> <C>
/s/ SCHEFFLER /s/ HAAS
Wirtschaftsprufer Wirtschaftsprufer
</TABLE>
S-17
<PAGE> 44
MANNESMANN MOBILFUNK GMBH
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1996 1995
------------- ------------ ------------
U.S. DOLLARS DEUTSCHMARKS DEUTSCHMARKS
(NOTE 1)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (note 2)................. 37,380 58,006 54,007
Accounts receivable, less allowance for doubtful
accounts of DM 52,422 in 1996 and DM 27,660 in
1995............................................ 411,991 639,328 414,286
Due from affiliated companies (notes 3 and 9)...... 141,387 219,404 53,626
Inventories of products, parts and related supplies
(note 4)........................................ 25,673 39,839 36,435
Prepaid expenses................................... 16,786 26,049 21,745
Other current assets............................... 19,369 30,057 9,935
Deferred tax asset (note 9)........................ -- -- 105,498
--------- --------- ---------
Total current assets............................ 652,586 1,012,683 695,532
--------- --------- ---------
Property, plant and equipment:
Telecommunications equipment....................... 2,223,073 3,449,765 2,769,103
Equipment in course of construction................ 41,205 63,942 54,217
Other equipment.................................... 105,364 163,503 111,543
--------- --------- ---------
2,369,642 3,677,210 2,934,863
Less accumulated depreciation...................... (755,002) (1,171,612) (814,270)
--------- --------- ---------
Net property, plant, and equipment................... 1,614,640 2,505,598 2,120,593
Other assets, at cost, less accumulated amortization
of DM 45,142 in 1996 and DM 39,389 in 1995......... 27,037 41,956 46,230
--------- --------- ---------
2,294,263 3,560,237 2,862,355
========= ========= =========
LIABILITIES AND CAPITAL SUBSCRIBERS' EQUITY
Current liabilities:
Due to banks....................................... 28,999 45,000 135,500
Accounts payable................................... 265,077 411,347 346,794
Income taxes payable............................... 24,154 37,482 --
Accrued expenses................................... 74,210 115,159 55,650
Due to affiliated companies (notes 3 and 6)........ 68,934 106,972 242,070
--------- --------- ---------
Total current liabilities....................... 461,374 715,960 780,014
Long-term debt due to affiliated company (notes 3 and
6)................................................. -- -- 100,000
Pension liabilities (note 7)......................... 6,350 9,853 8,818
Other non-current liabilities (note 8)............... 24,745 38,400 11,545
Deferred income taxes (note 9)....................... 294,790 457,455 261,443
--------- --------- ---------
Total liabilities............................... 787,259 1,221,668 1,161,820
--------- --------- ---------
Commitments (note 10)
Capital subscribers' equity:
Subscribed capital (note 11)....................... 260,987 405,000 405,000
Additional capital................................. 782,962 1,215,000 1,215,000
--------- --------- ---------
1,043,949 1,620,000 1,620,000
Retained earnings (note 12)........................ 463,055 718,569 80,535
--------- --------- ---------
Total capital subscribers' equity............... 1,507,004 2,338,569 1,700,535
--------- --------- ---------
2,294,263 3,560,237 2,862,355
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
S-18
<PAGE> 45
MANNESMANN MOBILFUNK GMBH
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1996 1995 1994
------------- ------------ ------------ ------------
U.S. DOLLARS DEUTSCHMARKS DEUTSCHMARKS DEUTSCHMARKS
(NOTE 1)
<S> <C> <C> <C> <C>
Net revenues.......................................... 2,712,203 4,208,796 2,716,160 1,744,165
--------- --------- --------- ---------
Operating costs and expenses:
Cost of services and products, including DM 3,508,
DM 3,318 and DM 5,924 with related parties in
1996, 1995 and 1994 respectively (note 3)........ 793,473 1,231,311 923,101 697,764
Selling, general and administrative expenses,
including DM 95,305, DM 74,354 and DM 56,548 with
related parties in 1996, 1995 and 1994
respectively (note 3)............................ 823,133 1,277,337 807,314 510,904
Depreciation and amortization......................... 251,820 390,775 305,270 309,139
--------- --------- --------- ---------
Operating income.................................... 843,777 1,309,373 680,475 226,358
Other income (expense):
Interest income..................................... 2,616 4,059 3,205 2,851
Interest expense, including DM 2,510, DM 9,678 and
DM 166 with related parties in 1996, 1995 and
1994 respectively................................ (3,438) (5,335) (33,384) (40,584)
Other, net.......................................... 13,697 21,253 15,929 3,256
--------- --------- --------- ---------
12,873 19,977 (14,250) (34,477)
Income before income taxes and cumulative effect of
change in accounting principle................... 856,650 1,329,350 666,225 191,881
Income taxes (note 9)................................. (445,493) (691,316) (383,212) (84,889)
--------- --------- --------- ---------
Income before cumulative effect of change in
accounting principle............................. 411,157 638,034 283,013 106,992
Cumulative effect at January 1, 1995, of change in
accounting for income taxes (note 9)................ -- -- 63,297 --
--------- --------- --------- ---------
Net income.......................................... 411,157 638,034 346,310 106,992
========= ========= ========= =========
Pro forma net income assuming the new change in
accounting for income taxes had been applied
retroactively....................................... 411,157 638,034 283,013 81,511
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
S-19
<PAGE> 46
MANNESMANN MOBILFUNK GMBH
STATEMENTS OF CAPITAL SUBSCRIBERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED CAPITAL
SUBSCRIBED ADDITIONAL EARNINGS SUBSCRIBERS'
CAPITAL CAPITAL (DEFICIT) EQUITY
---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993................ DM 405,000 1,215,000 (372,767) 1,247,233
Net income................................... -- -- 106,992 106,992
------- --------- -------- ---------
Balances at December 31, 1994................ 405,000 1,215,000 (265,775) 1,354,225
Net income................................... -- -- 346,310 346,310
------- --------- -------- ---------
Balances at December 31, 1995................ 405,000 1,215,000 80,535 1,700,535
Net income................................... -- -- 638,034 638,034
------- --------- -------- ---------
Balances at December 31, 1996................ DM 405,000 1,215,000 718,569 2,338,569
======= ========= ======== =========
Balances at December 31, 1996 (note 1)....... $ 260,987 782,962 463,055 1,507,004
======= ========= ======== =========
</TABLE>
See accompanying notes to financial statements.
S-20
<PAGE> 47
MANNESMANN MOBILFUNK GMBH
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1996 1995 1994
--------- ------------ ------------ ------------
U.S. DEUTSCHMARKS DEUTSCHMARKS DEUTSCHMARKS
DOLLARS
(NOTE 1)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................................. 411,157 638,034 346,310 106,992
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting principle..... -- -- (63,297) --
Deferred income taxes................................... 224,515 348,403 383,212 84,889
Depreciation and amortization........................... 251,820 390,775 305,270 309,139
Allowance for doubtful accounts......................... 15,957 24,762 9,651 7,991
Loss on sale of equipment............................... 2,120 3,290 1,039 6,150
Provision for pension costs............................. 1,215 1,885 1,796 1,383
Provision for other costs............................... 17,306 26,855 4,095 3,100
Changes in operating assets and liabilities
Accounts receivable..................................... (160,976) (249,804) (153,849) (111,137)
Due from affiliated companies........................... (137,047) (212,671) 7,164 1,680
Inventories............................................. (2,194) (3,404) (13,427) (3,708)
Prepaid expenses........................................ (2,774) (4,304) (6,870) (4,079)
Other current assets.................................... (12,967) (20,122) (4,347) (3,966)
Accounts payable........................................ 41,599 64,553 36,423 (12,262)
Income taxes payable.................................... 24,154 37,482 -- --
Accrued expenses........................................ 38,348 59,509 19,412 27,056
Due to affiliated companies............................. 248 385 (1,499) (8,355)
Pension liabilities..................................... (548) (850) (76) (541)
-------- --------- -------- --------
Net cash provided by operating activities.................... 711,933 1,104,778 871,007 404,332
-------- --------- -------- --------
Cash flows from investing activities:
Proceeds from sale of equipment and other assets........... 3,355 5,207 15,458 10,538
Capital expenditures, including interest capitalized....... (502,518) (779,808) (542,949) (689,178)
Increase in other assets................................... (126) (195) (184) (365)
-------- --------- -------- --------
Net cash used in investing activities........................ (499,289) (774,796) (527,675) (679,005)
-------- --------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt................... -- -- -- 280,000
Proceeds from a loan by an affiliated company.............. -- -- 100,000 --
Increase (decrease) in due to affiliated company........... (151,748) (235,483) 236,648 0
Increase (decrease) in due to banks........................ (58,319) (90,500) 63,479 (5,627)
Repayment of long-term debt................................ -- -- (720,000) --
-------- --------- -------- --------
Net cash (used for) provided by financing activities......... (210,067) (325,983) (319,873) 274,373
-------- --------- -------- --------
Net increase (decrease) in cash and cash equivalents......... 2,577 3,999 23,459 (300)
Cash and cash equivalents at beginning of year............... 34,803 54,007 30,548 30,848
-------- --------- -------- --------
Cash and cash equivalents at end of year..................... 37,380 58,006 54,007 30,548
======== ========= ======== ========
</TABLE>
See accompanying notes to financial statements.
S-21
<PAGE> 48
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(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, 1996 Mannesmann AG held a controlling interest of 65.23%, and AirTouch
Communications, Inc. held an interest of 34.77%.
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
license 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 1996 the Company
had about 2,300,000 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, depreciation and amortization,
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.
(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:
<TABLE>
<CAPTION>
YEARS PERCENTAGE METHOD
----- ---------- ------------------
<S> <C> <C> <C>
Telecommunications equipment:
D2 infrastructure center...................... 10 10% straight-line
Switching locations........................... 15 6.67% straight-line
Base station equipment
-- poles................................... 10 30% declining balance
-- components.............................. 20 5% straight-line
Transmission and message switching
technology................................. 10 10% straight-line
Other equipment:
Data processing equipment..................... 4 30% declining balance
Office equipment.............................. 10 30% declining balance
Measuring instruments......................... 5 30% declining balance
Vehicles...................................... 5 30% declining balance
</TABLE>
S-22
<PAGE> 49
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 and concessions which are being amortized over periods ranging
from three to eight years on a straight-line basis.
(g) Income Taxes
Income taxes are recognized during the year in which transactions enter into the
determination of financial statement income. 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. 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.
In July 1995, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus in Issue No. 95-10 that addresses the
accounting for tax benefits of future tax credits, arising from the difference
between the German corporate tax rate of 45% applicable to undistributed profits
and 30% applicable to distributed income, that will be realized when the
previously taxed income is distributed. The Task Force concluded that the tax
benefits of the tax credits should be recognized as a reduction of income tax
expense in the period the tax credits are included in the enterprise's tax
return and that the enterprise should measure the tax effects of temporary
differences using the tax rate for undistributed income.
Prior to 1995, the Company applied a combined net income tax rate, which
reflected the lower corporate tax rate, to its income and loss before income
taxes on the basis that profits would be distributed in the future in accordance
with the dividend policy agreed by the capital subscribers. This approach
resulted in a lower net deferred tax asset being reported than otherwise would
have been the case had the higher corporate tax rate been applied, due to the
recognized benefits of primarily the net operating loss carry forwards incurred
by the Company during its development phase.
Effective January 1, 1995, the Company adopted the consensus reached in Issue
No. 95-10 and has reported the cumulative effect of that change in the method of
accounting for income taxes in the 1995 statement of income.
Accordingly, under this consensus, the benefit of the tax credit arising from
the declaration of a dividend distribution, to be included in the tax return for
1996, is being recognized as a reduction of income tax expense in the 1996
statement of income.
(h) Pension Plans
The Company has defined benefit plans limited to its management group. 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 1.5518 to U.S. $1, the closing rate quotation on December 31,
1996.
S-23
<PAGE> 50
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(j) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(2) CASH AND CASH EQUIVALENTS
This caption includes cash equivalents representing time deposits for amounts
maturing within periods of between one day and three months. The balances at
December 31, 1996 and 1995 are both DM 20,000.
(3) RELATED PARTY TRANSACTIONS
The Company has significant business transactions with its main capital
subscribers, Mannesmann AG and AirTouch Communications, Inc. 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 sheet and statement of income. In addition, purchases
of property, plant and equipment from related parties during the years stated
are shown below:
<TABLE>
<CAPTION>
1996 1995 1994
------ ----- ------
<S> <C> <C> <C> <C>
Purchases included under property, plant and
equipment........................................... DM 3,802 6,878 15,174
===== ===== ======
</TABLE>
The amounts shown as due to and from affiliated companies at December 31, 1996
and 1995 include interest bearing balances due to and from Mannesmann AG. For
intercompany current account arrangements interest is fixed on an arms length
basis. Also outstanding at each year-end are various loans receivable and
payable at fixed rates of interest as follows:
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C> <C>
Loans receivable........................................... DM 200,000 --
======= =======
Loans payable.............................................. DM 100,000 100,000
======= =======
</TABLE>
(4) INVENTORIES
This caption includes stocks of products, parts and related supplies. The
balances at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C> <C>
Mobile telephones............................................ DM 21,917 20,370
Subscriber identification module cards....................... 9,238 6,721
Spare parts.................................................. 7,851 9,094
Other trade goods............................................ 833 250
------ ------
DM 39,839 36,435
====== ======
</TABLE>
S-24
<PAGE> 51
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) INTEREST COST
The Company capitalizes interest related to the continuing expansion of the
infrastructure for its private mobile cellular network. The following is a
summary of interest cost incurred and subject to capitalization during 1996,
1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C> <C>
Interest cost capitalized............................ DM 3,336 2,470 4,092
Interest cost charged to income...................... 5,335 33,384 40,584
----- ------ ------
DM 8,671 35,854 44,676
===== ====== ======
</TABLE>
Interest capitalized has been included in the telecommunications equipment
component of property, plant and equipment.
The Company paid interest of DM 8,172, DM 43,147 and DM 48,213 in 1996, 1995 and
1994 respectively.
(6) LONG-TERM DEBT
There is no long term debt at December 31, 1996, as the amount of a DM 100,000
loan with a fixed interest rate of 5.675% repayable on June 30, 1997, to an
affiliated company, shown as long-term debt at December 31, 1995, has been
reclassified as current.
(7) PENSION PLANS
The Company has a defined benefit pension plan covering all of its 75 member
management group (1995 - 75 members and 1994 - 80 members).
By the end of 1996 approximately 2,600 of the remaining employees are covered by
a defined contribution plan funded externally with an insurance company. The
remaining employees totaling about 2,100 at the end of 1996 (about 900 and 2,400
at the end of 1995 and 1994 respectively) are not presently covered by such
plans. 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 of the two defined
benefit plans 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 1996, 1995 and 1994 are DM 3,207, DM
3,389 and DM 1,383 respectively.
The discount rate assumed in the actuarial valuations for each of the years
ended December 31, 1996, 1995 and 1994 is 6%.
S-25
<PAGE> 52
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(8) OTHER NON-CURRENT LIABILITIES
This represents a provision for site restoration costs expected to be incurred
upon expiration of the respective leases.
(9) INCOME TAXES
As discussed in note 1, the Company adopted the consensus reached in Issue No.
95-10 of the Emerging Issues Task Force as of January 1, 1995. The cumulative
effect of this change in accounting for income taxes of DM 63,297 was determined
as of January 1, 1995 and has been reported separately in the statement of
income for the year ended December 31, 1995. As a result of applying this
change, the income from continuing operations for the year ended December 31,
1995 was decreased by DM 88,474.
Total income taxes for the years ended December 31, 1996, 1995 and 1994 were
allocated as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ------
<S> <C> <C> <C> <C>
Income............................................. DM 691,316 383,212 84,889
Cumulative effect of change in accounting for
income taxes..................................... -- (63,297) --
------- ------- ------
DM 691,316 319,915 84,889
======= ======= ======
</TABLE>
Income tax expense attributable to income for the years ended December 31, 1996,
1995 and 1994 consists of various types of taxes as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
German trade tax................................ DM 139,500 107,210 246,710
German corporate tax............................ 189,221 224,354 413,575
German solidarity surcharge tax................. 14,192 16,839 31,031
------- ------- -------
DM 342,913 348,403 691,316
======= ======= =======
Year ended December 31, 1995
German trade tax................................ DM -- 117,922 117,922
German corporate tax............................ -- 246,769 246,769
German solidarity surcharge tax................. -- 18,521 18,521
------- ------- -------
DM -- 383,212 383,212
======= ======= =======
Year ended December 31, 1994
German trade tax................................ DM -- 33,963 33,963
German corporate tax............................ -- 47,376 47,376
German solidarity surcharge tax................. -- 3,550 3,550
------- ------- -------
DM -- 84,889 84,889
======= ======= =======
</TABLE>
S-26
<PAGE> 53
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The respective rates for the above types of taxes and their application for the
years ended December 31, 1996, 1995 and 1994 are analyzed as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
% % %
<S> <C> <C> <C>
Income before income taxes............................... 100.00 100.00 100.00
German trade tax gross rate of 17.7% for 1996, 1995 and
1994 applied to income before income taxes............. (17.70) (17.70) (17.70)
------ ------ ------
82.30 82.30 82.30
German corporate tax gross rate for undistributed income
of 45% for 1996 and 1995 and for distributed income of
30% for 1994 applied to income after German trade tax,
a net rate of 37.04% for 1996 and 1995 and 24.69% for
1994................................................... (37.04) (37.04) (24.69)
------ ------ ------
45.26 45.26 57.61
German solidarity surcharge tax gross rate of 7.5%,
announced in 1993 effective 1995, applied to German
corporate tax net rate of 37.04% for 1996 and 1995, a
net rate of 2.78% and 24.69% for 1994, a net rate of
1.85%.................................................. (2.78) (2.78) (1.85)
------ ------ ------
Income after income taxes................................ 42.48 42.48 55.76
====== ====== ======
German trade tax net rate................................ 17.70 17.70 17.70
German corporate tax net rate............................ 37.04 37.04 24.69
German solidarity surcharge tax net rate................. 2.78 2.78 1.85
------ ------ ------
Combined German income tax rate.......................... 57.52 57.52 44.24
====== ====== ======
</TABLE>
As noted above, the impact of applying a change in accounting for income taxes
using the higher German corporate tax gross rate for undistributed income of 45%
in 1996 and 1995 has resulted in the combined income tax rate increasing to
57.52% in 1996 and 1995 from 44.24% in 1994.
Income tax expense attributable to income was DM 691,316, DM 383,212 and DM
84,889 for the years ended December 31, 1996, 1995 and 1994 respectively, and
differed from the amount computed by applying the above combined German income
tax rate of 57.52% for 1996 and 1995 and 44.24% for 1994 to pretax income as a
result of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ------
<S> <C> <C> <C> <C>
Computed "expected" tax expense.................... DM 764,642 383,212 84,889
Adjustment to reflect net effect of lower German
corporate tax rate applicable to the declared
dividend distribution............................ (80,612) -- --
Adjustments to German book basis income for net
effect of permanent differences attributable to
certain non taxable income and non deductible
expense in computing the German fiscal basis
income........................................... 7,286 -- --
------- ------- ------
DM 691,316 383,212 84,889
======= ======= ======
</TABLE>
S-27
<PAGE> 54
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The significant components of the income tax expense attributable to the income
for the years ended December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ------
<S> <C> <C> <C> <C>
Current German fiscal basis tax expense............ DM 342,913 -- --
Deferred tax expense attributable to the
realization of the benefit of net operating loss
carryforwards.................................... 152,391 244,994 89,833
Tax effect of the temporary differences between the
financial statement carrying amounts of existing
assets and liabilities and their respective tax
bases............................................ 196,012 138,218 (4,944)
------- ------- ------
Net tax expense.................................... DM 691,316 383,212 84,889
======= ======= ======
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1996 and
1995 are presented below:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................... DM -- 152,391
Less amount due from affiliated company for realization of
the benefit of net operating loss carryforwards for
German trade tax purposes............................... -- (46,893)
------- -------
Total deferred tax assets, current................. DM -- 105,498
======= =======
Deferred tax liabilities:
Property, plant and equipment due to differences in
capitalization and related depreciation................. DM 457,455 261,443
------- -------
Total deferred tax liabilities..................... DM 457,455 261,443
======= =======
</TABLE>
The benefit of the net operating loss carryforward at December 31, 1995 was
realized in 1996, as was the reclassified amount due from affiliated company due
to the group relief arrangement applicable to German trade tax.
Income taxes paid on account during 1996 are DM 171,416. None were paid in 1995
and 1994.
(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 1996, 1995 and 1994
was DM 88,059, DM 65,922 and DM 51,769, respectively.
Future minimum lease payments under noncancelable leases (with initial or
remaining lease terms in excess of one year) are:
<TABLE>
<S> <C> <C>
Year ending December 31:
1997................................................................. DM 45,692
1998................................................................. 45,377
1999................................................................. 45,242
2000................................................................. 44,716
2001................................................................. 43,998
2002 and beyond...................................................... 88,954
-------
Total minimum lease payments................................. DM 313,979
=======
</TABLE>
S-28
<PAGE> 55
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(11) SUBSCRIBED CAPITAL
Subscribed capital is represented by whole sum subscription amounts on a
proportional basis to the investing parties. The respective amounts of
proportional subscriptions directly reflect the percentage of respective
ownership and related voting and dividend rights.
(12) RESTRICTIONS ON RETAINED EARNINGS
The payment of dividends from retained earnings is restricted to the extent of
available retained earnings per the German books of account. At December 31,
1996 there are retained earnings of DM 376,189 per the German books of account,
all of which have been paid as a dividend on February 4, 1997 following a
resolution by the capital subscribers to that effect on January 30, 1997.
(13) FINANCIAL INSTRUMENTS
The fair values of all the Company's financial instruments at December 31, 1996
and 1995 approximate the carrying amounts either because of the short-term
maturity of these instruments or because of the insignificant movement in
interest rates compared to those fixed for amounts due and from related parties
over their relatively short terms.
The Company has no involvement with derivative financial instruments.
(14) ADVERTISING COSTS
The advertising costs directly charged to income during 1996, 1995 and 1994 were
DM 65,824, DM 61,116 and DM 14,354 respectively.
(15) CHANGE IN ACCOUNTING ESTIMATE
Following a review of the estimated useful lives of its cellular
telecommunications equipment, the Company extended the estimated useful lives of
its transmission and message switching technology from eight to ten years. The
change was made to reflect more accurately the estimated period that such assets
will remain in service and was effective January 1, 1995. The new ten year
depreciation period is consistent with current industry standards. The change
increased net income for the year ended December 31, 1995 by DM 29,724 (net of
deferred income taxes of DM 40,247).
S-29
<PAGE> 56
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of AirTouch Communications, Inc.
Our audits of the consolidated financial statements referred to in our report
dated February 25, 1997 appearing on page 27 of the 1996 Annual Report to
Stockholders of AirTouch Communications, Inc. (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedule listed in Item
14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ Price Waterhouse LLP
San Francisco, California
February 25, 1997
X-1
<PAGE> 57
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of AirTouch Communications, Inc.:
Our report on the December 31, 1994 consolidated financial statements of
AirTouch Communications, Inc. (AirTouch) is included as an exhibit to the Form
10-K of AirTouch. In connection with our audit of such financial statements, we
have audited the related financial statement schedule listed in Item 14(a) of
AirTouch's Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
March 13, 1995
X-2
<PAGE> 58
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- - ----------------------------------------- ---------- ---------------------------- ---------- ----------
CHARGES
BALANCE AT CHARGED TO RELATED TO BALANCE AT
BEGINNING COSTS AND ACQUISITIONS/ END OF
DESCRIPTION OF PERIOD EXPENSES DISPOSITIONS(A) DEDUCTIONS PERIOD
- - ----------------------------------------- ---------- ---------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts........ $ 21.2 $ 61.6 $37.0 $ 58.7(b) $ 61.1
Deferred tax valuation allowance....... $ 25.5 $ 6.7 $ -- $ 29.6 $ 2.6
Other loss reserves and allowances..... $ 39.8 $ 18.2 $ 1.9 $ 38.5 $ 21.4
Year ended December 31, 1995:
Allowance for doubtful accounts........ $ 10.1 $ 56.0 $ -- $ 44.9(b) $ 21.2
Deferred tax valuation allowance....... $ 10.5 $ 28.3 $ -- $ 13.3(c) $ 25.5
Other loss reserves and allowances..... $ 3.2 $ 40.1 $ -- $ 3.5 $ 39.8
Year ended December 31, 1994:
Allowance for doubtful accounts........ $ 9.2 $ 33.8 $ -- $ 32.9(b) $ 10.1
Deferred tax valuation allowance....... $ 4.8 $ 5.7 $ -- $ -- $ 10.5
Other loss reserves and allowances..... $ 5.3 $ -- $ -- $ 2.1 $ 3.2
</TABLE>
- - ---------------
(a) Amounts reflect allowances acquired through acquisitions, net of
dispositions.
(b) Amounts reflect items written-off, net of recoveries.
(c) Amounts reflect realization of tax benefit.
X-3
<PAGE> 1
EXHIBIT 4.3
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF
6.00% CLASS B MANDATORILY CONVERTIBLE PREFERRED STOCK,
SERIES 1996
OF
AIRTOUCH COMMUNICATIONS, INC.
AIRTOUCH COMMUNICATIONS, INC. (the "Corporation"), a Delaware corporation
governed by the provisions of the General Corporation Law of the State of
Delaware, as amended, hereby certifies that, under authority conferred upon the
Board of Directors by the Certificate of Incorporation of the Corporation and
the provisions of Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors at a meeting held on April 4, 1996 duly adopted
the following resolution (the "April 4, 1996 Resolutions"):
RESOLVED that pursuant to the authority vested in the Board of Directors of
this Corporation by the Certificate of Incorporation and Section 151 of the
Delaware General Corporation Law, the Board of Directors hereby approves the
amount, preferences, and rights, including voting rights, of this Corporation's
6.0% Class B Mandatorily Convertible Preferred Stock, Series 1996 (the "Class B
Preferred"), as presented to the Board of Directors; and be it further
RESOLVED that pursuant to the authority vested in the Board of Directors of
this Corporation by the Certificate of Incorporation and Section 141 of the
Delaware General Corporation Law, a committee known as the Preferred Stock
Committee, of which Arun Sarin shall be the sole member, is established, and
that such committee is authorized to incorporate the amount, rights, and
preferences of each of the Class B Preferred and the Class C Preferred, as
approved by this Board of Directors, into Certificates of Designation,
Preferences and Rights to be filed with the Secretary of State of the State of
Delaware, provided that the Preferred Stock Committee may approve modifications
to the amounts, preferences and rights of the Class B Preferred and the Class C
Preferred, other than the voting rights.
The Corporation further certifies that the Executive Committee of the Board
of Directors of this Corporation duly adopted, by unanimous written consent
pursuant to the provisions of Sections 141 and 151 of the General Corporation
Law of the State of Delaware, resolutions dated July 3, 1996 (the "July 3, 1996
Resolutions"), modifying the terms of the Class B Preferred Stock and
authorizing the Preferred Stock Committee to incorporate such terms into the
Certificate of Designation, Preferences and Rights.
The Corporation further certifies that under the authority conferred upon
the Preferred Stock Committee by the April 4, 1996 Resolutions and the July 3,
1996 Resolutions, the Preferred Stock Committee of the Board of Directors duly
adopted the following resolution by unanimous written consent pursuant to the
provisions of Sections 141 and 151 of the General Corporation Law of the State
of Delaware:
RESOLVED, that under authority conferred upon the Preferred Stock Committee
by resolutions of the Board of Directors duly adopted at a meeting held on April
4, 1996 and the provisions of Section 141 and 151 of the General Corporation Law
of the State of Delaware, the Preferred Stock Committee hereby fixes the amount,
preferences and rights of the shares of the 6.00% Class B Mandatorily
Convertible Preferred Stock, Series 1996, as set forth in Schedule A attached
hereto, and the proper officers of the Corporation are hereby authorized and
directed to execute and file a Certificate of Designation, Preferences and
Rights containing such provisions with the Secretary of the State of Delaware
and with such other governmental agencies or authorities as any of such officers
may deem appropriate.
<PAGE> 2
SCHEDULE A
1. DESIGNATION AND AMOUNT.
The designation of the series of Preferred Stock created by this Certificate
shall be "6.00% Class B Mandatorily Convertible Preferred Stock, Series 1996,
par value $0.01 per share" (the "Class B Preferred Shares"), and the number of
shares constituting such series shall be 24,000,000. Such number of shares may
be increased or decreased by resolution of the Board of Directors, provided that
no decrease shall reduce the number of Class B Preferred Shares to a number less
than that of the Class B Preferred Shares then outstanding plus the number of
shares issuable upon exercise of outstanding rights, options or warrants or upon
conversion of outstanding securities issued by the Corporation.
2. DEFINITIONS.
As used in this Certificate:
"Anti-Dilution Adjustment Ratio" has the meaning set forth in Section
4(d)(ii).
"Business Day" shall mean any day other than a Saturday, Sunday, or a day on
which banking institutions in the State of California or the State of New York
are authorized or obligated by law or executive order to close or are closed
because of a banking moratorium or otherwise.
"Class B Preferred Shares" means the shares of 6.00% Class B Mandatorily
Convertible Preferred Stock, 1996 Series.
"Class C Preferred Stock" shall mean the 4.25% Class C Convertible Preferred
Stock, Series 1996.
"Common Stock" shall mean the common stock of the Corporation, par value
$.01 per share.
"Contingent Payment" has the meaning set forth in Section 5(a).
"Contingent Payment Calculation Date" has the meaning set forth in Section
5(a).
"Conversion Price" has the meaning set forth in the definition of Maturity
Exchange Rate.
"Current Market Price" per share of Common Stock at any date shall be deemed
to be the Volume-Weighted Average Trading Price over the fifteen consecutive
Trading Day period ending on and including such date of determination; provided,
however, if any event that results in an adjustment of the Maturity Exchange
Rate or the Optional Conversion Rate occurs during such fifteen Trading Day
period, the Current Market Price as determined pursuant to the foregoing shall
be appropriately adjusted to reflect the occurrence of such event.
"Determination Date" means, with respect to the issuance, sale or exchange
of any Equity Securities, the later of (a) the date upon which the price or the
amount of consideration to be received in consideration of such issuance, sale
or exchange is fixed and (b) the date upon which a public announcement of the
transaction is made, provided that if no public announcement is made, the
Determination Date shall be the date set forth in (a).
"Distribution Adjustment Ratio" has the meaning set forth in Section
4(d)(iii).
"Dividend Payment Date" has the meaning set forth in Section 3(a).
"Equity Securities" shall mean the Common Stock or any debt, equity or other
security or contractual right, in each case that is convertible into or
exercisable or exchangeable for, or based on the value of, the
<PAGE> 3
Common Stock or any warrants, options or other rights to purchase the Common
Stock or other Equity Securities (other than Rights).
"Equity Security Adjustment Ratio" has the meaning set forth in Section
4(d)(vi).
"Exempt Issuance" means (a) Equity Securities issued pursuant to any
existing or future employee stock purchase plan, employee stock option plan or
other employee or director benefit plan or (b) Equity Securities issued pursuant
to any stockholder purchase plan or plan for the reinvestment of dividends or
interest, to the extent that the consideration paid for the Equity Securities
issued pursuant to any such stockholder or dividend or interest reinvestment
plan is not less than 95% of the Fair Market Value of such securities as of the
date of the issuance of the Equity Securities.
"Extraordinary Distribution" means any single dividend or other distribution
(including by reclassification of shares or recapitalization of the Corporation,
as well as any such dividend or distribution made in connection with a merger or
consolidation in which the Corporation is the continuing corporation and the
Common Stock is not changed or exchanged) to holders of Common Stock (effected
while any of the Class B Preferred Shares are outstanding) (i) of cash, where
the aggregate amount of such single cash dividend or distribution together with
the amount of all cash dividends and distributions made to holders of Common
Stock over the twelve-month period ending on the payment date for such cash
dividend or distribution, when combined with the aggregate amount of all
previous Pro Rata Repurchases during such period (for this purpose, including
only that portion of the aggregate purchase price of each such Pro Rata
Repurchase which is in excess of the Fair Market Value of the Common Stock
repurchased as determined on the Business Day prior to the public announcement
of such Pro Rata Repurchase made during such period), exceeds twelve and
one-half percent (12 1/2%) of the aggregate Fair Market Value of all shares of
Common Stock outstanding on the record date for determining the stockholders
entitled to receive such Extraordinary Distribution and (ii) of any evidences of
indebtedness of the Corporation or evidences of indebtedness or securities of
any other person or any other property (including, without limitation, shares of
capital stock of any subsidiary of the Corporation), or any combination thereof.
The Fair Market Value of any such single dividend or other distribution that,
pursuant to clause (i), constitutes an Extraordinary Distribution shall for
purposes of the first paragraph of Section 4(d)(iii) hereof be the sum of the
Fair Market Value of such Extraordinary Distribution plus the amount of any
other cash dividends and distributions made within the relevant period referred
to above to holders of Common Stock to the extent such other dividends and
distributions were not previously included in the calculation of an adjustment
pursuant to the first paragraph of Section 4(d)(iii) hereof within such period.
"Fair Market Value" shall mean the Volume-Weighted Average Trading Price of
the Security in question for the five-day period before the earlier of the day
in question and the "ex" date with respect to any issuance or distribution
requiring such computation. The term "ex" date, when used with respect to any
issuance or distribution, means the first day on which the Common Stock trades
regular way, without the right to receive such issuance or distribution, on the
exchange or in the market to determine that day's Volume-Weighted Average
Trading Price. With respect to any asset or security for which there is no
Current Market Price, the Fair Market Value of such asset or security shall be
determined in good faith by the Board of Directors.
"Initial Issuance Date" means the date upon which a Certificate of Merger
providing for the merger of Cellular Communications, Inc. into a wholly-owned
subsidiary of the Corporation is filed with the Secretary of State of Delaware.
"International Adjustment Ratio" has the meaning set forth in Section
4(d)(iv).
"International Distribution" means a distribution to the holders of Common
Stock of any equity interest in an International Entity, on a per share basis.
2
<PAGE> 4
"International Entity" means any entity predominantly holding interests in
cellular operations outside the United States that has an aggregate Fair Market
Value of U.S.$1 billion or more.
"Issue Price" has the meaning set forth in the definition of Maturity
Exchange Rate.
"Issued Equity Securities" has the meaning set forth in Section 4(d)(ii).
"Junior Stock" has the meaning set forth in Section 3(b).
"Liquidation Amount" has the meaning set forth in Section 6(c).
"Mandatory Conversion" has the meaning set forth in Section 4(a).
"Maturity Date" has the meaning set forth in Section 4(a).
"Maturity Exchange Rate" is equal to, subject to adjustment as to amount and
shares, as described herein, (a) if the Maturity Price is greater than or equal
to $35.96 per share (the "Conversion Price"), 0.806 shares of Common Stock per
Class B Preferred Share, (b) if the Maturity Price is less than the Conversion
Price but greater than $29.00 per share (the "Issue Price"), the rate of Common
Stock per Class B Preferred Share that is equal to the Issue Price divided by
the Maturity Price, and (c) if the Maturity Price is less than or equal to the
Issue Price, one share of Common Stock per Class B Preferred Share.
"Maturity Price" means the Volume-Weighted Average Trading Price per share
of Common Stock for the 20 consecutive Trading Day period immediately prior to
(but not including) the Maturity Date.
"New Issuance Adjustment Ratio" has the meaning set forth in Section
4(d)(v).
"Non-Dilutive Amount" in respect of an issuance, sale or exchange by the
Corporation of any Equity Securities (other than Common Stock) shall mean the
excess of (i) the Fair Market Value of a share of Common Stock on the
Determination Date multiplied by the maximum number of shares of Common Stock
which could be acquired on such date upon the exercise, conversion or exchange
in full of such Equity Securities (and any Equity Securities receivable upon
exercise, conversion or exchange thereof), whether or not then exercisable,
convertible or exchangeable at such date, if any, over (ii) the aggregate amount
payable pursuant to the exercise, conversion or exchange of such Equity
Securities, whether or not then exercisable, convertible or exchangeable, to
purchase or acquire such maximum number of shares of Common Stock (and any
Equity Securities receivable upon exercise, conversion or exchange thereof);
provided, however, that in no event shall the Non-Dilutive Amount be less than
zero. For purposes of the foregoing sentence, the amount payable pursuant to the
exercise, conversion or exchange of such Equity Securities to purchase or
acquire shares of Common Stock shall be deemed to be the Fair Market Value of
the consideration payable pursuant to the exercise, conversion or exchange of
such Equity Securities on the Determination Date (excluding for that purpose the
Fair Market Value of the Equity Security to be so exercised, converted or
exchanged).
"Optional Conversion Rate" has the meaning set forth in Section 4(c).
"Parity Preferred Stock" has the meaning set forth in Section 3(a).
"Preferred Stock Directors" has the meaning set forth in Section 8(b).
"Pro Rata Repurchases" means any purchase of shares of Common Stock by the
Corporation or any affiliate thereof (as defined in Rule 12b-2 under the
Securities Exchange Act of 1934 (the "Exchange Act")) pursuant to any tender
offer or exchange offer subject to Section 13(e) of the Exchange Act, or
pursuant to any other offer available to substantially all holders of Common
Stock, whether for cash, shares of capital stock of the Corporation, other
securities of the Corporation, evidences of indebtedness of the
3
<PAGE> 5
Corporation or any other person or any other property (including, without
limitation, shares of capital stock, other securities or evidences of
indebtedness of a subsidiary of the Corporation), or any combination thereof,
effected while any of the shares of Class B Preferred Shares are outstanding;
provided, however, that "Pro Rata Repurchase" shall not include any purchase of
shares by the Corporation or any affiliate thereof made in open market
transactions substantially in accordance with the requirements of Rule 10b-18 as
in effect under the Exchange Act or on such other terms and conditions as the
Board of Directors shall have determined are reasonably designed to prevent such
purchases from having a material effect on the trading market for the Common
Stock. The "Effective Date" of a Pro Rata Repurchase shall mean the date of
acceptance of shares for purchase or exchange under any tender or exchange offer
which is a Pro Rata Repurchase or the date of purchase with respect to any Pro
Rata Repurchase that is not a tender or exchange offer.
"Recapitalization Adjustment Ratio" has the meaning set forth in Section
4(d)(i).
"Reorganization Event" has the meaning set forth in Section 4(e).
"Rights" means rights of the Corporation issued or issuable under the Rights
Agreement dated September 9, 1994 between the Corporation and The Bank of New
York or pursuant to any successor stockholder rights plan replacing the Rights
Agreement.
"Security Issue Date" means the date on which a particular Class B Preferred
Share is issued.
"Senior Preferred Stock" has the meaning set forth in Section 3(a).
"Third Party" means any person as to which the Corporation does not own,
directly or indirectly, and does not have the power to direct, more than 20% of
the outstanding voting interests.
"Trading Date" shall mean a date on which the New York Stock Exchange (or
any successor thereto) is open for the transaction of business.
"Volume-Weighted Average Trading Price" for any given period means, for a
security, an amount equal to (A) the cumulative sum, for each trade of such
security during such period on the New York Stock Exchange (or such other
principal exchange or over-the-counter market on which such security is listed),
of the product of: (x) the sale price times (y) the number of shares of the
security sold at such price; divided by (B) the total number of securities so
traded during the specified period.
3. DIVIDENDS.
(a) Payment of Dividends. The holders of outstanding Class B Preferred
Shares shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available therefor, cumulative preferential
dividends at the rate per Class B Preferred Share of $1.74 per annum, as may be
adjusted in accordance with the provisions hereof, and no more, payable
quarterly in arrears on the 15th day of each February, May, August and November,
respectively (each such date being hereinafter referred to as a "Dividend
Payment Date"), or, if any Dividend Payment Date is not a Business Day, then the
Dividend Payment Date shall be the next succeeding Business Day. The first
dividend payment shall be for the period from the Initial Issuance Date to but
excluding the first day of the next calendar quarter, and will be payable on the
first Dividend Payment Date thereafter. Each quarterly period beginning on
January 1, April 1, July 1 and October 1 in each year and ending on and
including the day next preceding the first day of the next such quarterly period
shall be a dividend period. Dividends (or amounts equal to accrued and unpaid
dividends) payable on Class B Preferred Shares for any period less than a full
quarterly dividend period will be computed on the basis of a 360-day year of
twelve 30-day months and the actual number of days elapsed in any period less
than one month. The Board of Directors may fix a record date for the
determination of holders of Class B Preferred Shares entitled to receive payment
of a dividend or distribution declared thereon, which record date shall be no
more than 60 calendar days prior to the date
4
<PAGE> 6
fixed for the payment thereof. If the Security Issue Date of a particular Class
B Preferred Share is later than the Initial Issuance Date solely due to a delay
in the surrender by the holder of a certificate representing a share of capital
stock of Cellular Communications, Inc. ("CCI") pursuant to Section 3.2 of the
Agreement and Plan of Merger between the Corporation and CCI, then dividends on
such Class B Preferred Share shall be payable from the Initial Issuance Date. If
the Security Issuance Date of a particular Class B Preferred Share is later than
the Initial Issuance Date for reasons other than those described in the
preceding sentence, then dividends on such Class B Preferred Share shall accrue
only from the first day of the dividend period during which such Class B
Preferred Share was issued.
Dividends on the Class B Preferred Shares will accrue, whether or not there
are funds legally available for the payment of such dividends and whether or not
such dividends are declared, on a daily basis from the previous Dividend Payment
Date. Accumulated unpaid dividends shall not bear interest. Dividends will cease
to accrue in respect of Class B Preferred Shares on the Maturity Date or on the
date of their earlier conversion.
The Preferred Shares will rank on a parity as to payment of dividends with
the Class C Preferred, and with any future preferred stock issued by the
Corporation (the "Parity Preferred Stock") that by its terms ranks pari passu
with the Preferred Shares with respect to payment of dividends.
The Preferred Shares will be subordinate as to payment of dividends to any
future preferred stock issued by the Corporation that by its terms is senior to
the Preferred Shares with respect to payment of dividends (the "Senior Preferred
Stock").
(b) Payment of Dividends on Junior Stock. As long as any Class B Preferred
Shares are outstanding, no dividends or other distributions for any dividend
period (other than dividends payable in shares of, or warrants, rights or
options exercisable for or convertible into shares of, Common Stock or any other
capital stock of the Corporation ranking junior to the Class B Preferred Shares
as to the payment of dividends and the distribution of assets upon liquidation,
including the Corporation's Series A Participating Preferred Stock, par value
$0.01 per share ("Junior Stock"), and cash in lieu of fractional shares of such
Junior Stock in connection with any such dividend) will be paid on any Junior
Stock unless: (i) full dividends on all outstanding shares of Senior Preferred
Stock and Parity Preferred Stock (including the Class B Preferred Shares) have
been paid, or declared and set aside for payment, for all dividend periods
terminating on or prior to the payment date of such Junior Stock dividend or
distribution and for the current dividend period, to the extent such Senior
Preferred Stock or Parity Preferred Stock dividends are cumulative; (ii) the
Corporation has paid or set aside all amounts, if any, then or theretofore
required to be paid or set aside for all purchase, retirement, and sinking
funds, if any, for any outstanding shares of Senior Preferred Stock or Parity
Preferred Stock; and (iii) the Corporation is not in default on any of its
obligations to redeem any outstanding shares of Senior Preferred Stock or Parity
Preferred Stock.
In addition, as long as any Class B Preferred Shares are outstanding, no
shares of any Junior Stock may be purchased, redeemed, or otherwise acquired by
the Corporation or any of its subsidiaries (except in connection with a
reclassification or exchange of any Junior Stock through the issuance of other
Junior Stock (and cash in lieu of fractional shares of such Junior Stock in
connection therewith) or the purchase, redemption, or other acquisition of any
Junior Stock with any Junior Stock (and cash in lieu of fractional shares of
such Junior Stock in connection therewith)) nor may any funds be set aside or
made available for any sinking fund for the purchase or redemption of any Junior
Stock unless: (i) full dividends on all outstanding shares of Senior Preferred
Stock and Parity Preferred Stock have been paid, or declared and set aside for
payment, for all dividend periods terminating on or prior to the date of such
purchase, redemption or acquisition and for the current dividend period, to the
extent such Senior Preferred Stock or Parity Preferred Stock dividends are
cumulative; (ii) the Corporation has paid or set aside all amounts, if any, then
or theretofore required to be paid or set aside for all purchase, retirement,
and sinking funds, if any, for any outstanding shares of Senior Preferred Stock
or Parity Preferred Stock; and (iii) the Corporation is not in default on any of
its obligations to redeem any outstanding shares of Senior Preferred Stock or
Parity Preferred Stock.
5
<PAGE> 7
Subject to the provisions described above, such dividends or other
distributions (payable in cash, property, or Junior Stock) as may be determined
from time to time by the Board of Directors may be declared and paid on the
shares of any Junior Stock and from time to time Junior Stock may be purchased,
redeemed or otherwise acquired by the Corporation or any of its subsidiaries. In
the event of the declaration and payment of any such dividends or other
distributions, the holders of such Junior Stock will be entitled, to the
exclusion of holders of any outstanding Senior Preferred Stock or Parity
Preferred Stock, to share therein according to their respective interests.
(c) Payment of Dividends on Parity Preferred Stock. As long as any Class B
Preferred Shares are outstanding, dividends or other distributions for any
dividend period may not be paid on any outstanding shares of Parity Preferred
Stock (other than dividends or other distributions payable in Junior Stock and
cash in lieu of fractional shares of such Junior Stock in connection therewith),
unless either: (a) (i) full dividends on all outstanding shares of Senior
Preferred Stock and Parity Preferred Stock have been paid, or declared and set
aside for payment, for all dividend periods terminating on or prior to the
payment date of such Senior Preferred Stock or Parity Preferred Stock dividend
or distribution and for the current dividend period, to the extent such Senior
Preferred Stock or Parity Preferred Stock dividends are cumulative; (ii) the
Corporation has paid or set aside all amounts, if any, then or theretofore
required to be paid or set aside for all purchase, retirement and sinking funds,
if any, for any outstanding shares of Senior Preferred Stock and Parity
Preferred Stock; and (iii) the Corporation is not in default on any of its
obligations to redeem any outstanding shares of Senior Preferred Stock or Parity
Preferred Stock; or (b) any such dividends are declared and paid pro rata so
that the amounts of any dividends declared and paid per share on outstanding
Class B Preferred Shares and each other share of such Parity Preferred Stock
will in all cases bear to each other the same ratio that accrued and unpaid
dividends (including any accumulation with respect to unpaid dividends for prior
dividend periods, if such dividends are cumulative) per share of outstanding
Class B Preferred Shares and such other outstanding shares of Parity Preferred
Stock bear to each other.
In addition, as long as any Class B Preferred Shares are outstanding, the
Corporation may not purchase, redeem or otherwise acquire any Parity Preferred
Stock (except with any Junior Stock and cash in lieu of fractional shares of
such Junior Stock in connection therewith) unless: (i) full dividends on all
outstanding shares of Senior Preferred Stock and Parity Preferred Stock have
been paid, or declared and set aside for payment, for all dividend periods
terminating on or prior to the payment date of such Senior Preferred Stock or
Parity Preferred Stock purchase, redemption or other acquisition and for the
current dividend period, to the extent such Senior Preferred Stock and Parity
Preferred Stock dividends are cumulative; (ii) the Corporation has paid or set
aside all amounts, if any, then or theretofore required to be paid or set aside
for all purchase, retirement, and sinking funds, if any, for any outstanding
shares of Senior Preferred Stock and Parity Preferred Stock; (iii) the
Corporation is not in default of any of its obligations to redeem any
outstanding shares of Senior Preferred Stock or Parity Preferred Stock unless
all Parity Preferred Stock as to which such a default exists is purchased or
redeemed on a pro rata basis.
(d) Any dividend payment made on the Class B Preferred Shares shall first be
credited against the earliest accrued but unpaid dividend due with respect to
the Class B Preferred Shares.
(e) All dividends paid with respect to the Class B Preferred Shares shall be
paid pro rata to the holders entitled thereto.
(f) Holders of the Class B Preferred Shares shall be entitled to receive
dividends in preference to and in priority over any dividends upon any shares of
the Corporation ranking junior to the Class B Preferred Shares as to dividends,
but subject to the rights of holders of shares of the Corporation having a
preference and a priority over the payment of dividends on the Class B Preferred
Shares.
6
<PAGE> 8
4. CONVERSION.
(a) Mandatory Conversion. On the third anniversary of the Initial Issuance
Date, or, if such date is not a Business Day, then the next succeeding Business
Day, or such earlier date as may occur as a result of an event set forth in
Section 4(e) (the "Maturity Date"), each outstanding Class B Preferred Share
shall convert automatically (the "Mandatory Conversion") into Common Stock at
the Maturity Exchange Rate in effect on the Maturity Date, and all accrued and
unpaid dividends on such Class B Preferred Share (other than previously declared
dividends payable to the holder of record on a prior date) through and including
the Maturity Date, whether or not declared, shall be immediately due and payable
in cash out of funds legally available for the payment of dividends, subject to
the conversion of the Class B Preferred Shares at the option of the holder at
any time prior to the Maturity Date. Dividends on the Class B Preferred Shares
shall cease to accrue and such shares shall cease to be outstanding on the
Maturity Date. The Corporation shall make such arrangements as it deems
appropriate for the issuance of certificates representing shares of Common Stock
and for the payment of cash in respect of such accrued and unpaid dividends, if
any, or cash in lieu of fractional shares, if any, in exchange for and
contingent upon surrender of certificates representing the Class B Preferred
Shares, and the Corporation may defer the payment of dividends on shares of
Common Stock issuable upon conversion of the Class B Preferred Shares and the
voting thereof until, and make such payment and voting contingent upon, the
surrender of such certificates representing the Class B Preferred Shares,
provided that the Corporation shall give the holders of the Class B Preferred
Shares such notice of any such actions as the Corporation deems appropriate and
upon such surrender such holders shall be entitled to receive such dividends
declared and paid on such shares of Common Stock subsequent to the Maturity
Date. Amounts payable in cash in respect of the Class B Preferred Shares or in
respect of such shares of Common Stock shall not bear interest.
(b) Redemption by the Corporation. Class B Preferred Shares are not
redeemable by the Corporation prior to the Maturity Date.
(c) Conversion at Option of Holder. Class B Preferred Shares are convertible
at the option of the holder thereof at any time prior to the Maturity Date into
shares of Common Stock at a rate of 0.806 of a share of Common Stock for each
Class B Preferred Share (the "Optional Conversion Rate") (equivalent to a
conversion price of $35.96 per share of Common Stock), subject to adjustment as
set forth below.
Conversion of Class B Preferred Shares at the option of the holder may be
effected by delivering certificates evidencing such shares, together with
written notice of conversion and a proper assignment of such certificates to the
Corporation or in blank, to the office or agency to be maintained by the
Corporation for that purpose (and, if applicable, cash payment of an amount
equal to the dividend payable on such shares), and otherwise in accordance with
conversion procedures established by the Corporation. Each optional conversion
shall be deemed to have been effected immediately prior to the close of business
on the date on which the foregoing requirements shall have been satisfied and
dividends will cease to accrue in respect of Class B Preferred Shares at such
time. The conversion shall be at the Optional Conversion Rate in effect at such
time and on such date.
Holders of Class B Preferred Shares at the close of business on a record
date for any payment of declared dividends shall be entitled to receive the
dividend payable on such shares on the corresponding Dividend Payment Date
notwithstanding the conversion of such shares following such record date and
prior to the corresponding Dividend Payment Date. Except as provided above, upon
any optional conversion of Class B Preferred Shares, the Corporation shall make
no payment or allowance for unpaid dividends, whether or not in arrears, on
converted Class B Preferred Shares or for previously declared dividends or
distributions on the shares of Common Stock issued upon such conversion.
(d) Maturity Exchange Rate and Optional Conversion Rate Adjustments. The
Maturity Exchange Rate and the Optional Conversion Rate shall each be subject to
adjustment from time to time as provided below in this section (d).
7
<PAGE> 9
(i) If the Corporation shall, after the Initial Issuance Date:
(A) pay a stock dividend or make a distribution with respect to its
Common Stock in shares of such Common Stock,
(B) subdivide or split its outstanding Common Stock into a greater
number of shares,
(C) combine its outstanding shares of Common Stock into a smaller number
of shares, or
(D) issue any shares of capital stock of the Corporation as a
distribution with respect to, or by reclassification of, its Common Stock
(other than the Rights, Equity Securities covered under Section 4(d)(ii),
and distributions pursuant to Section 5 hereof),
then, in any such event, (1) the Maturity Exchange Rate in effect immediately
prior to such event shall be adjusted such that (aa) the Issue Price and the
Conversion Price shall each be adjusted by multiplying them by a fraction, the
numerator of which is one and the denominator of which is the number of shares
of Common Stock of the Corporation that a holder of one share of Common Stock
prior to any event described above would hold after such event (assuming the
issuance of fractional shares) (the "Recapitalization Adjustment Ratio"), and
(bb) the ratios set forth in (a), (b) and (c) of the definition of Maturity
Exchange Rate shall each be adjusted by multiplying them by a fraction, the
numerator of which is one and the denominator of which is the Recapitalization
Adjustment Ratio; and (2) the Optional Conversion Rate in effect immediately
prior to such event shall be adjusted by multiplying it by a fraction, the
numerator of which is one and the denominator of which is the Recapitalization
Adjustment Ratio. Such adjustment shall become effective at the opening of
business on the Business Day next following the record date for determination of
stockholders entitled to receive such dividend or distribution, in the case of a
dividend or distribution, and shall become effective immediately after the
effective date, in the case of a subdivision, split, combination or
reclassification. Such adjustment shall be made successively. In the case of an
event described in subsection (D) above, each Class B Preferred Share shall
become convertible into shares of capital stock of the Corporation as to which a
holder of Common Stock immediately prior to such a distribution shall be
entitled, or into which the Common Stock has become reclassified, at the
Maturity Exchange Rate or Optional Conversion Rate as modified by this
subsection (i). In the event of any such reclassification into more than one
resulting class of capital stock of the Corporation, the shares of each such
resulting class issuable upon conversion of a Class B Preferred Share shall be
in the same proportion, if possible, or if not possible, in substantially the
same portion, which the total number of shares of such class resulting from such
reclassification bears to the total number of shares of all classes resulting
from all such reclassifications.
(ii) If the Corporation shall, after the Initial Issuance Date, issue Equity
Securities (other than Common Stock, the Rights or Exempt Issuances) ("Issued
Equity Securities") to all holders of its Common Stock entitling them (for a
period not exceeding 45 days from the later of the record date and the
Determination Date of such issuance) to subscribe for or purchase shares of
Common Stock or other Equity Securities at a price per share less than the Fair
Market Value of the Common Stock or other Equity Security to be acquired in
effect on the Determination Date for such issuance of Equity Securities
(treating the price per share of the Equity Securities to be acquired as equal
to (x) the sum of (A) the Fair Market Value of the consideration payable for a
unit of the Equity Security plus (B) the Fair Market Value of any additional
consideration initially payable upon the exercise, conversion or exchange of
such security into Common Stock divided by (y) the number of shares of Common
Stock initially underlying or that may be acquired upon the exercise, conversion
or exchange of such Equity Security) then, in any such event unless such Equity
Securities are issued to holders of Class B Preferred Shares on a pro rata basis
with the shares of Common Stock based on the Optional Conversion Rate on the
date immediately preceding the record date for such issuance, (A) the Maturity
Exchange Rate in effect on the record date described below shall be adjusted (1)
by multiplying the ratios set forth in (a), (b) and (c) of the definition of
Maturity Exchange by a fraction of which the numerator shall be the sum of (x)
the number of shares of Common Stock outstanding on the date of issuance of such
Issued Equity Securities immediately prior to such issuance, plus (y) the number
of additional shares of Common Stock offered for subscription or purchase
pursuant to such Issued Equity Securities (including the Common Stock that may
be acquired upon the exercise, conversion or exchange of the Equity Securities),
and of which the denominator shall be the sum of (x) the number of shares of
Common Stock outstanding on the date of
8
<PAGE> 10
issuance of such Issued Equity Securities immediately prior to such issuance,
plus (y) the number of additional shares of Common Stock which the aggregate
offering price of the total number of shares of Common Stock so offered for
subscription or purchase (including, without limitation, the Fair Market Value
of the consideration payable for a unit of the Equity Securities so offered plus
the Fair Market Value of any additional consideration payable upon exercise,
conversion or exchange of such Equity Securities) would purchase at such Fair
Market Value as of the record date for such issuance (the "Anti-Dilution
Adjustment Ratio") and (2) by multiplying the Issue Price and the Conversion
Price by a fraction equal to one divided by the Anti-Dilution Adjustment Ratio,
and (B) the Optional Conversion Ratio in effect on the record date described
below shall be adjusted by multiplying it by the Anti-Dilution Adjustment Ratio.
Such adjustment shall become effective at the opening of business on the
Business Day next following the record date for the determination of
stockholders entitled to receive such rights or warrants. To the extent that
shares of Common Stock are not delivered after the expiration of such rights or
warrants, the Maturity Exchange Rate and the Optional Conversion Rate shall each
be readjusted to the Maturity Exchange Rate and the Optional Conversion Rate
which would then be in effect had the adjustments been made upon the issuance of
such rights or warrants upon the basis of delivery of only the number of shares
of Common Stock actually delivered. Such adjustment shall be made successively.
(iii) If the Corporation shall, after the Initial Issuance Date, make an
Extraordinary Dividend or effect a Pro Rata Repurchase of Common Stock, then
unless such Extraordinary Dividend is made to each holder of Class B Preferred
Shares on a pro rata basis with the shares of Common Stock based on the Optional
Conversion Rate in effect on the record date for such payment or distribution,
in any such event, then (A) the Maturity Exchange Rate in effect immediately
prior to such event shall be adjusted (1) by multiplying the ratios set forth in
(a), (b) and (c) of the definition of Maturity Exchange Rate by a fraction of
which the numerator shall be the product of (i) the number of shares of Common
Stock outstanding immediately before such Extraordinary Dividend or Pro Rata
Repurchase (minus, in the case of a Pro Rata Repurchase, the number of shares of
Common Stock repurchased by the Corporation) and (ii) the Fair Market Value per
share of the Common Stock on the record date for the determination of
stockholders entitled to receive such Extraordinary Dividend or, with respect to
a Pro Rata Purchase, on the Trading Day immediately preceding the first public
announcement of such Pro Rata Repurchase, and of which the denominator shall be
(i) the product of (x) the number of shares of Common Stock outstanding
immediately before such Extraordinary Distribution or Pro Rata Repurchase and
(y) the Fair Market Value of a share of Common Stock on the record date with
respect to such Extraordinary Distribution, or, in the case of a Pro Rata
Repurchase on the Trading Day immediately preceding the first public
announcement by the Corporation or any of its Affiliates of the intent to effect
such Pro Rata Repurchase, minus (ii) the Fair Market Value of the Extraordinary
Distribution or the aggregate purchase price of the Pro Rata Repurchase, as the
case may be (provided that such denominator shall never be less than 1.0) (the
"Distribution Adjustment Ratio") and (2) by multiplying the Issue Price and the
Conversion Price by a fraction of which the numerator shall be one and the
denominator shall be the Distribution Adjustment Ratio; and (B) the Optional
Conversion Rate in effect immediately prior to such event shall be adjusted by
multiplying it by the Distribution Adjustment Ratio; provided, however, that no
Pro Rata Repurchase shall cause an adjustment to the Maturity Exchange Rate or
the Optional Conversion Rate unless the amount of all cash dividends and
distributions made to holders of Common Stock over the twelve-month period
ending on the Effective Date of such Pro Rata Repurchase, when combined with the
aggregate amount of all Pro Rata Repurchases, including such Pro Rata Repurchase
(for all purposes of this Section 4(d)(iii) including only that portion of the
Fair Market Value of the aggregate purchase price of each Pro Rata Repurchase
which is in excess of the Fair Market Value of the Common Stock repurchased as
determined on the Trading Day immediately preceding the first public
announcement by the Corporation or any of its Affiliates of the intent to effect
each such Pro Rata Repurchase), the Effective Dates of which fall
9
<PAGE> 11
within such period, exceeds twelve and one-half percent (12 1/2%) of the
aggregate Fair Market Value of all shares of Common Stock outstanding on the
Trading Day immediately preceding the first public announcement by the
Corporation or any of its Affiliates of the intent to effect such Pro Rata
Repurchase. Such adjustment shall become effective on the opening of business on
the Business Day next following the record date for the determination of
stockholders entitled to receive such dividend or distribution. Such adjustment
shall be made successively.
(iv) If the Corporation shall, after the Initial Issuance Date, make an
International Distribution, and on the record date for such International
Distribution the Fair Market Value of the Common Stock is greater than the
Conversion Price, then each holder of Class B Preferred Shares as of the record
date of such distribution shall receive such International Distribution on a pro
rata basis with the shares of Common Stock based on the Optional Conversion Rate
in effect on the record date for such International Distribution, and the Issue
Price and the Conversion Price shall be adjusted by multiplying the Issue Price
and the Conversion Price by a fraction, of which the numerator shall be (i) the
product of (x) the number of shares of Common Stock outstanding immediately
prior to such International Distribution and (y)(i) the Fair Market Value of a
share of Common Stock on the record date with respect to such International
Distribution, minus (ii) the Fair Market Value of the International
Distribution, and of which the denominator shall be the product of (x) the
number of shares of Common Stock outstanding immediately prior to such
International Distribution and (y) the Fair Market Value per share of the Common
Stock on the record date for the determination of stockholders entitled to
receive such International Dividend (the "International Adjustment Rate"). With
respect to all shares of Series B Preferred Shares outstanding and subsequently
issued, the dividend payable pursuant to Section 2(a) hereof and the Liquidation
Amount shall each be adjusted by multiplying each of them by the International
Adjustment Rate. Such adjustment shall be made successively. In the event that
this subsection (iv) is applicable, then the provisions of subsection (iii)
shall not apply. If this subsection (iv) is not applicable, then the provisions
of subsection (iii) shall apply to such International Distribution. All
adjustments pursuant to this subsection shall become effective on the opening of
business on the Business Day next following the record date for the
determination of stockholders entitled to receive such International
Distribution. If the Corporation has received an opinion of a nationally
recognized law firm or accounting firm that the procedure set forth in this
subsection (iv) would result in an adverse tax consequence to the Corporation or
the holders of the Common Stock, then the provisions of this subsection (iv)
shall not apply, and the provisions of subsection (iii) shall be applicable.
(v) In case the Corporation shall, at any time or from time to time while
any of the shares of Class B Preferred Shares are outstanding, issue, sell or
exchange shares of Common Stock (other than (i) pursuant to any Rights, (ii)
Exempt Issuances or pursuant to Equity Securities issued as Exempt Issuances,
(iii) pursuant to Equity Security theretofore outstanding entitling the holder
to purchase or acquire shares of Common Stock, (iv) a dividend or distribution
to holders of Common Stock or (v) distributions pursuant to Section 5 hereof)
for a consideration having a Fair Market Value on the Determination Date less
than the Fair Market Value of such shares of Common Stock on the Determination
Date, then (A) the Maturity Exchange Rate in effect immediately prior to such
issuance, sale or exchange shall be adjusted (1) by multiplying the ratios set
forth in (a), (b) and (c) of the definition of Maturity Exchange Rate by a
fraction of which the numerator shall be the sum of (x) number of shares of
Common Stock outstanding on the date of such issuance immediately prior to such
issuance, plus (y) the number of additional shares of Common Stock so issued,
and of which the denominator shall be the sum of (x) the number of shares of
Common Stock outstanding on the date of such issuance immediately prior to such
issuance, plus (y) the number of additional shares of Common Stock which the
aggregate price paid for the total number of shares of Common Stock so offered
for subscription or purchase would purchase at such Fair Market Value as of the
Determination Date (the "New Issuance Adjustment Ratio") and (2) by multiplying
the Issue Price and the Conversion Price by a fraction equal to one divided by
the New Issuance Adjustment Ratio, and (B) the Optional Conversion Ratio in
effect immediately prior to such issuance shall be adjusted by multiplying it by
the New Issuance Adjustment Ratio. Notwithstanding the foregoing, the provisions
of this subsection (iv)
10
<PAGE> 12
shall not apply if the Board of Directors of the Corporation has determined that
the value of any consideration to be received in exchange for the issuance, sale
or exchange of such Common Stock to any Third Party following arm's length
negotiations shall be based upon the Volume-Weighted Average Trading Price or
closing price or similar measure of the Common Stock or of the consideration to
be paid for the Common Stock, as measured on a single date or over a period of
days within a reasonable amount of time prior to the issuance, sale or exchange
of such Common Stock.
(vi) In case the Corporation shall, at any time or from time to time while
any of the shares of Class B Preferred Shares are outstanding, issue, sell or
exchange any Equity Security (other than Common Stock, the Rights, Exempt
Issuances or distributions pursuant to Section 5 hereof) other than any such
issuance to all holders of shares of Common Stock as a dividend or distribution
(including by way of a reclassification of shares or a recapitalization of the
Corporation) for a consideration having a Fair Market Value on the Determination
Date less than the Non-Dilutive Amount, then (A) the Maturity Exchange Rate
shall be adjusted (1) by multiplying the ratios set forth in (a), (b) and (c) of
the definition of Maturity Exchange Rate by a fraction, the numerator of which
shall be the product of (x) the Fair Market Value of a share of Common Stock on
the Determination Date and (y) the sum of the number of shares of Common Stock
outstanding on such day plus the maximum number of shares of Common Stock
underlying or which could be acquired pursuant to such Equity Security at the
time of the issuance, sale or exchange of such Equity Security (assuming shares
of Common Stock could be acquired pursuant to such Equity Security at such
time), and the denominator of which shall be the sum of (x) the Fair Market
Value of all the shares of Common Stock outstanding on Determination Date plus
(y) the Fair Market Value of the consideration received by the Corporation in
respect of such issuance, sale or exchange of such Equity Security plus (z) the
Fair Market Value as of the Determination Date of the consideration which the
Corporation would receive upon exercise, conversion or exchange in full of all
such Equity Securities (the "Equity Security Issuance Adjustment Ratio") and (2)
by multiplying the Issue Price and the Conversion Price by a fraction equal to
one over the Equity Security Adjustment Ratio, and (B) the Optional Conversion
Ratio shall be adjusted by multiplying it by the Equity Security Adjustment
Ratio. Notwithstanding the foregoing, the provisions of this subsection (vi)
shall not apply if the Board of Directors has determined that the value of any
consideration to be received in exchange for the issuance, sale or exchange of
such Equity Securities to a Third Party following arm's length negotiations
shall be based upon the Volume-Weighted Average Trading Price or closing price
or similar measure of the Equity Securities or of the consideration to be paid
therefor, as measured on a single day or over a period of days within a
reasonable amount of time prior to the issuance, sale or exchange of such Equity
Securities.
(vii) Any shares of Common Stock issuable in payment of a dividend shall be
deemed to have been issued immediately prior to the close of business on the
record date for such dividend for purposes of calculating the number of
outstanding shares of Common Stock under subsection (ii) above.
(viii) The Corporation shall also be entitled to make such adjustments in
the Maturity Exchange Rate and the Optional Conversion Rate as it in its sole
discretion shall determine to be advisable in order that any stock dividends,
subdivisions of shares, distribution of rights to purchase stock or securities,
or distribution of securities convertible into or exchangeable for stock (or any
transaction which could be treated as any of the foregoing transactions pursuant
to Section 305 of the Internal Revenue Code of 1986, as amended) made by the
Corporation to its stockholders after the Initial Issuance Date shall not be
taxable.
(ix) In any case in which subsection 4(d) shall require that an adjustment
as a result of any event become effective at the opening of business on the
Business Day next following a record date and the date fixed for conversion
pursuant to subsection 4(a) or 4(c) occurs after such record date, but before
the occurrence of such event, the Corporation may, in its sole discretion, elect
to defer the following until after the occurrence of such event: (A) issuing to
the holder of any converted Class B Preferred Shares the additional shares of
11
<PAGE> 13
Common Stock issuable upon such conversion over the shares of Common
Stock issuable before giving effect to such adjustments and (B) paying
to such holder any amount in cash in lieu of a fractional share of
Common Stock pursuant to subsection 4(i).
(x) All adjustments to the Maturity Exchange Rate and the
Optional Conversion Rate shall be calculated to the nearest 1/1000th of
a share of Common Stock. No adjustment in the Maturity Exchange Rate or
the Optional Conversion Rate shall be required unless such adjustment
would require an increase or decrease of at least one percent therein;
provided, however, that any adjustment which by reason of this
subsection (x) is not required to be made shall be carried forward and
taken into account in any subsequent adjustment, and provided further
that any adjustment shall be required and made in accordance with the
provisions of this Section (other than this subparagraph (x)) not later
than such time as may be required in order to preserve the taxfree
nature of a distribution to the holders of shares of Common Stock. If
any action or transaction would require adjustment to the Maturity
Exchange Rate or the Optional Conversion Rate pursuant to more than one
paragraph of this Section 4, only one adjustment shall be made and such
adjustment shall be the amount of the adjustment that has the highest
absolute value.
(e) Adjustment for Consolidation or Merger. In case of (A) any
consolidation or merger to which the Corporation is a party (other than a merger
or consolidation in which the Corporation is the surviving or continuing
corporation and in which the Common Stock outstanding immediately prior to the
merger or consolidation remains unchanged), (B) any sale or transfer to another
corporation of the property of the Corporation as an entirety or substantially
as an entirety, or (C) any statutory exchange of securities with another
corporation (other than in connection with a merger or acquisition in which the
Corporation is the surviving or continuing corporation and in which the Common
Stock outstanding immediately prior to the merger or consolidation remains
unchanged) (each a "Reorganization Event"), then the Maturity Date of the Class
B Preferred Shares shall accelerate to be the time and date that is immediately
prior to the effective time of the Reorganization Event, and the Class B
Preferred Shares shall automatically convert on such date in accordance with the
procedure set forth in Section 4(a) without any further action on the part of
the holder or the Corporation. Notwithstanding the foregoing, a transaction
described in (A), (B) or (C) above shall only be a Reorganization Event if it is
a bona fide transaction not entered into primarily for the purposes of causing
the Maturity Date to occur.
For purposes of the immediately preceding paragraph and subsection 4(g)
(iii), any sale or transfer to another corporation of property of the
Corporation which did not account for at least 50% of the consolidated net
income of the Corporation for its most recent fiscal year ending prior to the
consummation of such transaction shall not in any event be deemed to be a sale
or transfer of the property of the Corporation as an entirety or substantially
as an entirety.
(f) Notice of Adjustments. Whenever the Maturity Exchange Rate and
Optional Conversion Rate are adjusted as herein provided, the Corporation shall:
(i) forthwith compute the adjusted Maturity Exchange Rate and
Optional Conversion Rate in accordance herewith and prepare a
certificate signed by an officer of the Corporation setting forth the
adjusted Maturity Exchange Rate and the Optional Conversion Rate, the
method of calculation thereof in reasonable detail and the facts
requiring such adjustment and upon which such adjustment is based,
which certificate shall be conclusive, final and binding evidence of
the correctness of the adjustment, and file such certificate forthwith
with the transfer agent for the Class B Preferred Shares and the Common
Stock; and
(ii) make a prompt public announcement and mail a notice to
the holders of the outstanding Class B Preferred Shares stating that
the Maturity Exchange Rate and the Optional Conversion Rate have been
adjusted, the facts requiring such adjustment and upon which such
adjustment is based and setting forth the adjusted Maturity Exchange
Rate and Optional Conversion Rate, such notice to be mailed at or prior
to the time the Corporation mails an interim statement to its
stockholders covering the fiscal
12
<PAGE> 14
quarter during which the facts requiring such adjustment occurred, but
in any event within 45 days of the end of such fiscal quarter.
(g) Notices. In case, at any time while any of the Class B Preferred
Shares are outstanding,
(i) the Corporation shall declare a dividend (or any other
distribution) on its Common Stock, excluding any cash dividends (other
than Extraordinary Dividends), or
(ii) the Corporation shall authorize the issuance to all holders
of its Common Stock of rights or warrants to subscribe for or purchase
shares or its Common Stock or of any other Equity Securities, or
(iii) the Corporation shall authorize any reclassification of
its Common Stock (other than a subdivision or combination thereof) or
capital stock or any consolidation or merger to which the Corporation
is a party and for which approval of any stockholders of the
Corporation is required (except for a merger of the Corporation into
one of its subsidiaries solely for the purpose of changing the
corporate name or corporate domicile of the Corporation to another
state of the United States and in connection with which there is no
substantive change in the rights or privileges of any securities of the
Corporation other than changes resulting from differences in the
corporate statutes of the then existing and the new state of domicile),
or the sale or transfer to another corporation of the property of the
Corporation as an entirety or substantially as an entirety, or
(iv) the Corporation shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, or
(v) there shall occur any Pro Rata Repurchase,
then the Corporation shall cause to be filed at each office or agency
maintained for the purpose of conversion of the Class B Preferred
Shares, and shall cause to be mailed to the holders of Class B
Preferred Shares at their last addresses as they shall appear on the
stock register, at least 10 days before the date hereinafter specified
(or the earlier of the dates hereinafter specified, in the event that
more than one date is specified), a notice stating (A) the date on
which a record is to be taken for the purpose of such dividend,
distribution, rights or warrants, or, if a record is not to be taken,
the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, rights or warrants are to be
determined, or (B) the date on which any such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or
winding up is expected to become effective, and the date as of which it
is expected that holders of Common Stock of record shall be entitled to
exchange their Common Stock for securities or other property (including
cash), if any, deliverable upon such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation. or winding up. The
failure to give or receive the notice required by this subsection (g)
or any defect therein shall not affect the legality or validity of such
dividend, distribution, right or warrant or other action.
(h) Effect of Conversions. The person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall be usable upon
any conversion or redemption shall be deemed to have become on the date of any
such conversion or redemption the holder or holders of record of the shares
represented thereby; provided, however, that any such surrender on any date when
the stock transfer books of the Corporation shall be closed shall constitute the
person or persons in whose name or names the certificate or certificates for
such shares are to be issued as the record holder or holders thereof for all
purposes at the opening of business on the next succeeding day on which such
stock transfer books are open.
(i) No Fractional Shares. No fractional shares or script representing
fractional shares of Common Stock shall be issued upon the redemption or
conversion of any Class B Preferred Shares. In lieu of any fractional share
otherwise issuable in respect of the aggregate number of Class B Preferred
Shares of any holder which are converted upon Mandatory Conversion or any
optional conversion, such holder shall be
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<PAGE> 15
entitled to receive an amount in cash (computed to the nearest cent) equal to
the same fraction of (i) the Maturity Price of the Common Stock, in the case of
a Mandatory Conversion, or (ii) the Current Market Price as of the second
Trading Date immediately preceding the effective date of conversion, in the case
of an optional conversion by a holder. If more than one share shall be
surrendered for conversion at one time by or for the same holder, the number of
full shares of Common Stock issuable upon conversion thereof shall be computed
on the basis of the aggregate number of Class B Preferred Shares so surrendered.
(j) Re-issuance. Class B Preferred Shares that have been issued and
reacquired in any manner, including shares purchased, exchanged, redeemed or
converted, shall not be reissued as 6.00% Class B Mandatorily Convertible
Preferred Stock, Series 1996 and shall (upon compliance with any applicable
provisions of the laws of the State of Delaware) have the status of authorized
and unissued shares of the Preferred Stock undesignated as to series and may be
redesignated and reissued as part of any series of Preferred Stock.
(k) Payment of Taxes. The Corporation shall pay any and all
documentary, stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock on the redemption or conversion of
share of Class B Preferred Shares pursuant to this Section 4; provided, however,
that the Corporation shall not be required to pay any tax which may be payable
in respect of any registration of transfer involved in the issue or delivery of
shares of Common Stock in a name other than that of the registered holder of
Class B Preferred Shares redeemed or converted or to be redeemed or converted,
and no such issue or delivery shall be made unless and until the person
requesting such issue has paid to the Corporation the amount of any such tax or
has established, to the satisfaction of the Corporation, that such tax has been
paid.
(l) Reservation of Common Stock. The Corporation shall at all times
reserve and keep available, free from preemptive rights, out of the aggregate of
its authorized but unissued Common Stock and/or its issued Common Stock held in
its treasury, for the purpose of effecting any Mandatory Conversion of the Class
B Preferred Shares or any conversion of the Class B Preferred Shares at the
option of the holder, the full number of shares of Common Stock then deliverable
upon any such conversion of all outstanding Class B Preferred Shares.
5. CONTINGENT PRICE ADJUSTMENT PAYMENT.
(a) Holders of outstanding Class B Preferred Shares shall be entitled
to receive, when, as and if declared by the Board of Directors out of funds
legally available therefor, a contingent payment (the "Contingent Payment") in
the amount set forth below if the Volume-Weighted Average Trading Price of the
Class B Preferred Shares over the period of 30 consecutive calendar days
commencing on the date that is three months after the Initial Issuance Date (the
last day of such period being the "Contingent Payment Calculation Date") is as
follows:
<TABLE>
<CAPTION>
CUMULATIVE AMOUNT
TRADING PRICE PER SHARE
------------- -----------------
($ MILLION)
<S> <C> <C>
$29.000 to $28.736 0.00 in each case divided by the total
$28.735 to $28.473 2.00 number of shares of Class B
$28.472 to $28.341 4.00 Preferred Stock issued and
$28.340 to $28.209 6.00 outstanding as of the Contingent
$28.208 to $28.077 8.00 Payment Calculation Date
$28.076 to $27.945 10.00
$27.944 to $27.814 12.50
$27.813 to $27.550 15.00
Less than $27.550 16.85
</TABLE>
The Contingent Payment shall be sent no later than the tenth Business
Day following the Contingent Payment Calculation Date to holders of record as of
the Contingent Payment Calculation Date.
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<PAGE> 16
(b) The Corporation may, at its option, pay the Contingent Payment in
the form of capital stock by delivering a number of shares of Class C Preferred
Stock or Common Stock equal to the Contingent Payment Amount divided by the
Volume-Weighted Average Trading Price of the Class C Preferred Stock or Common
Stock, as applicable, over the 30 day period described above, or cash in lieu of
fractional shares at such price.
6. LIQUIDATION RIGHTS.
(a) The Class B Preferred Shares will rank on a parity as to preference
on distribution of assets upon liquidation with the Class C Preferred Stock, and
with any future preferred stock issued by the Corporation that by its terms
ranks pari passu with the Class B Preferred Shares with respect to distribution
of assets upon liquidation.
(b) The Class B Preferred Shares will be subordinate as to preference
on distribution of assets upon liquidation of dividends to any future preferred
stock issued by the Corporation that by its terms is senior to the Class B
Preferred Shares with respect to distribution of assets upon liquidation.
(c) In the event of the liquidation, dissolution, or winding up of the
business of the Corporation, whether voluntary or involuntary, the holders of
Class B Preferred Shares then outstanding, after payment or provision for
payment of the debts and other liabilities of the Corporation and the payment or
provision for payment of any distribution on any shares of the Corporation
having a preference and a priority over the Class B Preferred Shares on
liquidation, and before any distribution to holders of any shares of the
Corporation that are junior and subordinate to the Class B Preferred Shares on
liquidation, including the Common Stock and the Series A Participating Preferred
Stock, shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders an amount per Class B Preferred
Share of cash equal to $29.00, as adjusted pursuant to the terms hereof (the
"Liquidation Amount"), plus an amount equal to all accrued and unpaid dividends
thereon, and shall, after the holders of Common Stock have received an amount
per share of Common Stock equal to the amount paid per Class B Preferred Share,
be entitled to participate on a pro rata basis with the holders of Common Stock.
In the event the assets of the Corporation available for distribution to the
holders of the Class B Preferred Shares upon any dissolution, liquidation or
winding up of the Corporation shall be insufficient to pay in full the
liquidation payments payable to the holders of outstanding Class B Preferred
Shares and of all other series of Preferred Stock that ranks on a parity with
the Class B Preferred Shares in the event of liquidation, the holders of Class B
Preferred Shares and of all other series of such parity Preferred Stock shall
share ratably in such distribution of assets in proportion to the amount which
would be payable on such distribution if the amounts to which the holders of
outstanding Class B Preferred Shares and the holders of outstanding shares of
such parity Preferred Stock were paid in full. Except as provided in this
Section 6, holders of Class B Preferred Shares shall not be entitled to any
distribution in the event of liquidation, dissolution or winding up of the
affairs of the Corporation.
(d) For the purposes of this Section 6, none of the following shall be
deemed to be a voluntary or involuntary liquidation, dissolution or winding up
of the Corporation:
(i) the sale, lease, transfer or exchange of all or substantially
all of the assets of the Corporation; or
(ii) the consolidation or merger of the Corporation with one or
more other corporations (whether or not the Corporation is the
corporation surviving such consolidation or merger).
7. NO PREEMPTIVE RIGHTS.
The holders of Class B Preferred Shares shall have no preemptive
rights, including preemptive rights with respect to any shares of capital stock
or other securities of the Corporation convertible into or carrying rights or
options to purchase any such shares.
15
<PAGE> 17
8. VOTING RIGHTS.
(a) The holders of Class B Preferred Shares shall have the right with
the holders of Common Stock to vote in the election of directors and upon each
other matter coming before any meeting of the stockholders on which the holders
of Common Stock are entitled to vote, on the basis of four-fifths of a vote for
each share held (which number shall be adjusted in accordance with adjustments
to the Optional Conversion Ratio). The holders of Class B Preferred Shares and
Common Stock shall vote together as one class except as otherwise set forth
herein or as otherwise provided by law or elsewhere in the Certificate of
Incorporation.
(b) If at any time dividends payable on the Class B Preferred Shares or
any other series of Parity Preferred Stock are in arrears and unpaid in an
aggregate amount equal to or exceeding the aggregate amount of dividends payable
thereon for six quarterly dividend periods, or if any other series of Preferred
Stock shall be entitled for any other reason to exercise voting rights, separate
from the Common Stock, to elect any Directors of the Corporation ("Preferred
Stock Directors"), the holders of the Class B Preferred Shares, voting
separately as a class with the holders of all other series of Preferred Stock
upon which like voting rights have been conferred and are exercisable, shall
have the right to vote for the election of two Preferred Stock Directors of the
Corporation, such Directors to be in addition to the number of Directors
constituting the Board of Directors immediately prior to the accrual of such
right. Such right of the holders of Class B Preferred Shares to elect two
Preferred Stock Directors shall, when vested, continue until all dividends in
arrears on the Class B Preferred Shares and such other series of Preferred Stock
shall have been paid in full and the right of any other series of Preferred
Stock to exercise voting rights, separate from the Common Stock, to elect
Preferred Stock Directors shall terminate or have terminated and, when so paid,
and any such termination occurs or has occurred, such right of the holders of
Class B Preferred Shares to elect two Preferred Stock Directors separately as a
class shall cease, subject always to the same provisions for the vesting of such
right of the holders of the Class B Preferred Shares to elect two Preferred
Stock Directors in the case of future dividend defaults.
The term of office of each Director elected pursuant to the preceding
paragraph shall terminate on the earlier of (i) the next annual meeting of
stockholders at which a successor shall have been elected and qualified or (ii)
the termination of the right of the holders of Class B Preferred Shares and such
other series of Preferred Stock to vote for Directors pursuant to the preceding
paragraph. Vacancies on the Board of Directors resulting from the death,
resignation or other cause of any such Director shall be filled exclusively by
no less than two-thirds of the remaining Directors and the Director so elected
shall hold office until a successor is elected and qualified.
(c) For as long as any Class B Preferred Shares remain outstanding, the
affirmative consent of the holders of at least two-thirds thereof actually
voting (voting separately as a class) given in person or by proxy, at any annual
meeting or special meeting of the stockholders called for such purpose, shall be
necessary to amend, alter or repeal any of the provisions of the Certificate of
Incorporation of the Corporation which would adversely affect the powers,
preferences or rights of the holders of the Class B Preferred Shares then
outstanding or reduce the minimum time required for any notice to which holders
of Class B Preferred Shares then outstanding may be entitled; provided, however,
that any such amendment, alteration or repeal that would authorize, create or
increase the authorized amount of any shares of stock (whether or not already
authorized) ranking junior to, on a parity with, or senior to the Class B
Preferred Shares with respect to payment of dividends or payment upon
liquidation shall be deemed not to affect adversely such powers, preferences or
rights and shall not be subject to approval by the holders of Class B Preferred
Shares; and provided further that the holders of the Class B Preferred Shares
shall not have any voting rights with respect to the amendment, alteration or
repeal of any provisions of the Certificate of Incorporation of the Corporation
approved at a meeting of the stockholders the record date of which is prior to
the issuance of any Class B Preferred Shares.
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<PAGE> 18
(d) Except as set forth in this Section 8 or as required by law, the holders
of the Class B Preferred Shares shall not have any voting rights.
IN WITNESS WHEREOF, AirTouch Communications, Inc. has caused this
certificate to be executed this 13th day of August, 1996.
AIRTOUCH COMMUNICATIONS, INC.
By: _____________________________________________
Margaret G. Gill
Senior Vice President Legal, External Affairs
and Secretary
17
<PAGE> 1
EXHIBIT 4.4
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF
4.25% CLASS C CONVERTIBLE PREFERRED STOCK,
SERIES 1996
OF
AIRTOUCH COMMUNICATIONS, INC.
AIRTOUCH COMMUNICATIONS, INC. (the "Corporation"), a Delaware corporation
governed by the provisions of the General Corporation Law of the State of
Delaware, as amended, hereby certifies that, under authority conferred upon the
Board of Directors by the Certificate of Incorporation of the Corporation and
the provisions of Section 151 and Section 141 of the General Corporation Law of
the State of Delaware, the Board of Directors at a meeting held on April 4, 1996
duly adopted the following resolutions (the April 4, 1996 Resolutions):
RESOLVED that pursuant to the authority vested in the Board of Directors of
this Corporation by the Certificate of Incorporation and Section 151 of the
Delaware General Corporation Law, the Board of Directors hereby approves the
amount, preferences and rights, including voting rights, of this Corporation's
4.25% Class C Convertible Preferred Stock, Series 1996 (the "Class C
Preferred"), as presented to the Board of Directors; and be it further
RESOLVED that pursuant to the authority vested in the Board of Directors of
this Corporation by the Certificate of Incorporation and Section 141 of the
Delaware General Corporation Law, a committee known as the Preferred Stock
Committee, of which Arun Sarin shall be the sole member, is established, and
that such committee is authorized to incorporate the amount, rights, and
preferences of each of the Class B Preferred and the Class C Preferred, as
approved by this Board of Directors, into Certificates of Designation,
Preferences and Rights to be filed with the Secretary of State of the State of
Delaware, provided that the Preferred Stock Committee may approve modifications
to the amounts, preferences and rights of the Class B Preferred and the Class C
Preferred, other than the voting rights.
The Corporation further certifies that the Executive Committee of the Board
of Directors of this Corporation duly adopted, by unanimous written consent
pursuant to the provisions of Sections 141 and 151 of the General Corporation
Law of the State of Delaware, resolutions dated July 3, 1996 (the "July 3, 1996
Resolutions"), modifying the terms of the Class C Preferred Stock and
authorizing the Preferred Stock Committee to incorporate such terms into the
Certificate of Designation, Preferences and Rights.
The Corporation further certifies that under the authority conferred upon
the Preferred Stock Committee by the April 4, 1996 Resolutions and the July 3,
1996 Resolutions, the Preferred Stock Committee of the Board of Directors duly
adopted the following resolution by unanimous written consent pursuant to the
provisions of Sections 141 and 151 of the General Corporation Law of the State
of Delaware:
RESOLVED, that under authority conferred upon the Preferred Stock Committee
by resolutions of the Board of Directors duly adopted at a meeting held on April
4, 1996 and the provisions of Section 141 and 151 of the General Corporation Law
of the State of Delaware, the Preferred Stock Committee hereby fixes the amount,
preferences and rights of the shares of the 4.25% Class C Mandatorily
Convertible Preferred Stock, Series 1996, as set forth in Schedule A attached
hereto, and the proper officers of the Corporation are hereby authorized and
directed to execute and file a Certificate of Designation, Preferences and
Rights containing such provisions with the Secretary of the State of Delaware
and with such other governmental agencies or authorities as any of such officers
may deem appropriate.
<PAGE> 2
SCHEDULE A
SECTION 1. DESIGNATION AND AMOUNT.
The designation of the series of Preferred Stock created by this
Certificate shall be "4.25% Class C Convertible Preferred Stock, Series 1996,
par value $0.01 per share" (the "Class C Preferred Shares"), and the number of
shares constituting such series shall be 19,000,000. Such number of shares may
be increased or decreased by resolution of the Board of Directors, provided that
no decrease shall reduce the number of Class C Preferred Shares to a number less
than that of the Class C Preferred Shares then outstanding plus the number of
shares issuable upon exercise of outstanding rights, options or warrants or upon
conversion of outstanding securities issued by the Corporation.
SECTION 2. DEFINITIONS.
As used in this Certificate:
"Business Day" shall mean any day other than a Saturday,
Sunday, or a day on which banking institutions in the State of
California or the State of New York are authorized or obligated by law
or executive order to close or are closed because of a banking
moratorium or otherwise.
"Current Market Price" per share of Common Stock at any date
shall be deemed to be the Volume-Weighted Average Trading Price over
the fifteen consecutive Trading Day period ending on and including such
date of determination; provided, however, if any event that results in
an adjustment of the Exchange Rate occurs during such fifteen Trading
Day period, the Current Market Price as determined pursuant to the
foregoing shall be appropriately adjusted to reflect the occurrence of
such event;
"Call Price" has the meaning set forth in Section 4(a).
"Class B Preferred Shares" means the shares of 6.0% Class B
Mandatorily Convertible Preferred Stock, 1996 Series.
"Class C Preferred Shares" means the shares of 4.25% Class C
Convertible Preferred Stock, 1996 Series.
"Determination Date" means, with respect to the issuance, sale
or exchange of any Equity Securities, the later of (a) the date upon
which the price or the amount of consideration to be received in
consideration of such issuance, sale or exchange is fixed and (b) the
date upon which a public announcement of the transaction is made,
provided that if no public announcement is made, the Determination Date
shall be the date set forth in (a).
"Dividend Payment Date" has the meaning set forth in Section
3(a).
"Equity Securities" shall mean the Common Stock or any debt,
equity or other security or contractual right, in each case that is
convertible into or exercisable or exchangeable for, or based on the
value of, the Common Stock or any warrants, options or other rights to
purchase the Common Stock or other Equity Securities (other than
Rights).
"Exchange Rate" has the meaning set forth in Section 4(c).
"Exempt Issuance" means (a) Equity Securities issued pursuant
to any existing or future employee stock purchase plan, employee stock
option plan or other employee or director benefit plan or (b) Equity
Securities issued pursuant to any stockholder purchase plan or plan for
the reinvestment of dividends or interest, to the extent that the
consideration paid for the Equity Securities issued pursuant
<PAGE> 3
to any such stockholder or dividend or interest reinvestment plan is
not less than 95% of the Fair Market Value of such securities as of the
date of the issuance of the Equity Securities.
<PAGE> 4
"Extraordinary Distribution" means any single dividend or
other distribution (including by reclassification of shares or
recapitalization of the Corporation, as well as any such dividend or
distribution made in connection with a merger or consolidation in which
the Corporation is the continuing corporation and the Common Stock is
not changed or exchanged) to holders of Common Stock (effected while
any of the shares of Class C Preferred Stock are outstanding) (i) of
cash, where the aggregate amount of such single cash dividend or
distribution together with the amount of all cash dividends and
distributions made to holders of Common Stock during the twelve-month
period ending on the payment date for such cash dividend or
distribution to holders of Common Stock, when combined with the
aggregate amount of all previous Pro Rata Repurchases during such
period (for this purpose, including only that portion of the aggregate
purchase price of each such Pro Rata Repurchase which is in excess of
the Fair Market Value of the Common Stock repurchased as determined on
the Business Day prior to the public announcement of such Pro Rata
Repurchase made during such period), exceeds twelve and one-half
percent (12 1/2%) of the aggregate Fair Market Value of all shares of
Common Stock outstanding on the record date for determining the
stockholders entitled to receive such Extraordinary Distribution and
(ii) of any evidences of indebtedness of the Corporation or evidences
of indebtedness or securities of any other person or any other property
(including, without limitation, shares of capital stock of any
subsidiary of the Corporation), or any combination thereof. The Fair
Market Value of any such single dividend or other distribution that,
pursuant to clause (i), constitutes an Extraordinary Distribution shall
for purposes of the first paragraph of Section 4(d)(iii) hereof be the
sum of the Fair Market Value of such Extraordinary Distribution plus
the amount of any other cash dividends and distributions made within
the relevant period referred to above to holders of Common Stock to the
extent such other dividends and distributions were not previously
included in the calculation of an adjustment pursuant to the first
paragraph of Section 4(d)(iii) hereof within such period.
"Fair Market Value" shall mean the Volume-Weighted Average
Trading Price of the Security in question for the five-day period
before the earlier of the day in question and the "ex" date with
respect to any issuance or distribution requiring such computation. The
term "ex" date, when used with respect to any issuance or distribution,
means the first day on which the Common Stock trades regular way,
without the right to receive such issuance or distribution, on the
exchange or in the market to determine that day's Volume-Weighted
Average Trading Price. With respect to any asset or security for which
there is no Current Market Price, the Fair Market Value of such asset
or security shall be determined in good faith by the Board of
Directors.
"Issued Equity Securities" has the meaning set forth in
Section 4(d)(ii).
"Initial Issuance Date" means the date upon which a
Certificate of Merger providing for the merger of Cellular
Communications, Inc. into a wholly-owned subsidiary of the Corporation
is filed with the Secretary of State of Delaware.
"International Distribution" means a distribution to the
holders of Common Stock of any equity interest in an International
Entity, on a per share basis.
"International Entity" means any entity predominantly holding
interests in cellular operations outside the United States that has an
aggregate Fair Market Value of U.S.$1 billion or more.
"Junior Stock" has the meaning set forth in Section 3(b).
"Maturity Date" has the meaning set forth in Section 4(a).
"Non-Dilutive Amount" in respect of an issuance, sale or
exchange by the Corporation of any Equity Securities (other than Common
Stock) shall mean the excess of (i) the Fair Market Value of a share of
Common Stock on the Determination Date multiplied by the maximum number
of shares of
2
<PAGE> 5
Common Stock which could be acquired on such date upon the exercise,
conversion or exchange in full of such Equity Securities (and any
Equity Securities receivable upon exercise, conversion or exchange
thereof), whether or not then exercisable, convertible or exchangeable
at such date, if any, over (ii) the aggregate amount payable pursuant
to the exercise, conversion or exchange of such Equity Securities,
whether or not then exercisable, convertible or exchangeable, to
purchase or acquire such maximum number of shares of Common Stock (and
any Equity Securities receivable upon exercise, conversion or exchange
thereof); provided, however, that in no event shall the Non-Dilutive
Amount be less than zero. For purposes of the foregoing sentence, the
amount payable pursuant to the exercise, conversion or exchange of such
Equity Securities to purchase or acquire shares of Common Stock shall
be deemed to be the Fair Market Value of the consideration payable
pursuant to the exercise, conversion or exchange of such Equity
Securities on the Determination Date (excluding for that purpose the
Fair Market Value of the Equity Security to be so exercised, converted
or exchanged).
"Parity Preferred Stock" has the meaning set forth in Section
3(a).
"Preferred Stock Directors" has the meaning set forth in
Section 8(b).
"Pro Rata Repurchases" means any purchase of shares of Common
Stock by the Corporation or any affiliate thereof (as defined in Rule
12b-2 under the Security Exchange Act of 1934 (the "Exchange Act")
pursuant to any tender offer or exchange offer subject to Section 13(e)
of the Exchange Act, or pursuant to any other offer available to
substantially all holders of Common Stock, whether for cash, shares of
capital stock of the Corporation, other securities of the Corporation,
evidences of indebtedness of the Corporation or any other person or any
other property (including, without limitation, shares of capital stock,
other securities or evidences of indebtedness of a subsidiary of the
Corporation), or any combination thereof, effected while any of the
shares of Class C Preferred Shares are outstanding, pursuant to any
tender offer or exchange offer subject to Section 13(e) of the Exchange
Act, or pursuant to any other offer available to substantially all
holders of Common Stock; provided, however, that "Pro Rata Repurchase"
shall not include any purchase of shares by the Corporation or any
subsidiary thereof made in open market transactions substantially in
accordance with the requirements of Rule 10b-18 as in effect under the
Exchange Act or on such other terms and conditions as the Board of
Directors shall have determined are reasonably designed to prevent such
purchases from having a material effect on the trading market for the
Common Stock. The "Effective Date" of a Pro Rata Repurchase shall mean
the date of acceptance of shares for purchase or exchange under any
tender or exchange offer which is a Pro Rata Repurchase or the date of
purchase with respect to any Pro Rata Repurchase that is not a tender
or exchange offer.
"Provisional Redemption Date" has the meaning set forth in
Section 4(b)(i).
"Provisional Redemption Price" has the meaning set forth in
Section 4(b)(i).
"Provisional Redemption Year" has the meaning set forth in
Section 4(b)(i).
"Reorganization Event" has the meaning set forth in Section
4(e).
"Rights" means rights of the Corporation issued or issuable
under the Rights Agreement dated September 9, 1994 between the
Corporation and The Bank of New York or pursuant to any successor
stockholder rights plan replacing the Rights Agreement.
"Senior Preferred Stock" has the meaning set forth in Section
3(a).
"Security Issue Date" means the date on which a particular
Class C Preferred Share is issued.
"Third Party" means any person as to which the Corporation
does not own, directly or indirectly, and does not have the power to
direct, more than 20% of the outstanding voting interests.
3
<PAGE> 6
"Trading Date" shall mean a date on which the New York Stock Exchange
(or any successor thereto) is open for the transaction of business.
"Volume-Weighted Average Trading Price" for any given period means, for
a security, an amount equal to (A) the cumulative sum, for each trade of
such security during such period on the New York Stock Exchange (or such
other principal exchange or over-the-counter market on which such security
is listed), of the product of: (x) the sale price and (y) the number of
shares of the security sold at such price; divided by (B) the total number
of securities so traded during the specified period.
SECTION 3. DIVIDENDS.
(a) Payment of Dividends. The holders of outstanding Class C Preferred
Shares shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available therefor, cumulative preferential
dividends at the rate per Class C Preferred Share of $2.125 per annum, as
adjusted pursuant hereto, and no more, payable quarterly in arrears on the 15th
day of each February, May, August and November, respectively (each such date
being hereinafter referred to as a "Dividend Payment Date"), or, if any Dividend
Payment Date is not a Business Day, then the Dividend Payment Date shall be the
next succeeding Business Day. The first dividend payment shall be for the period
from the Initial Issuance Date to but excluding the first day of the next
calendar quarter, and will be payable on the first Dividend Payment Date
thereafter. Each quarterly period beginning on January 1, April 1, July 1 and
October 1 in each year and ending on and including the day next preceding the
first day of the next such quarterly period shall be a dividend period.
Dividends (or amounts equal to accrued and unpaid dividends) payable on Class C
Preferred Shares for any period less than a full quarterly dividend period will
be computed on the basis of a 360-day year of twelve 30-day months and the
actual number of days elapsed in any period less than one month. The Board of
Directors may fix a record date for the determination of holders of Class C
Preferred Shares entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 60 calendar days prior
to the date fixed for the payment thereof. If the Security Issue Date of a
particular Class C Preferred Share is later than the Initial Issuance Date
solely due to a delay in the surrender by the holder of a certificate
representing a share of capital stock of Cellular Communications, Inc. ("CCI")
pursuant to Section 3.2 of the Agreement and Plan of Merger between the
Corporation and CCI, then, dividends on such Class C Preferred Share shall be
payable from the Initial Issuance Date. If the Security Issuance Date of a
particular Class C Preferred Share is later than the Initial Issuance Date for
reasons other than those described in the preceding sentence, then dividends on
such Class C Preferred Share shall accrue only from the first day of the
dividend period during which such Class C Preferred Share was issued.
Dividends on the Class C Preferred Shares will accrue whether or not there
are funds legally available for the payment of such dividends and whether or not
such dividends are declared on a daily basis from the previous Dividend Payment
Date. Accumulated unpaid dividends shall not bear interest. Dividends will cease
to accrue in respect of Class C Preferred Shares on the Maturity Date or on the
date of their earlier redemption or conversion.
The Class C Preferred Shares will rank on a parity as to payment of
dividends with Class B Preferred Shares, and with any future preferred stock
issued by the Corporation (the "Parity Preferred Stock") that by its terms ranks
pari passu with the Class C Preferred Shares with respect to payment of
dividends.
The Class C Preferred Shares will be subordinate as to payment of dividends
to any future preferred stock issued by the Corporation that by its terms is
senior to the Class C Preferred Shares with respect to payment of dividends (the
"Senior Preferred Stock").
(b) Payment of Dividends on Junior Stock. As long as any Class C Preferred
Shares are outstanding, no dividends or other distributions for any dividend
period (other than dividends payable in shares of, or warrants, rights or
options exercisable for or convertible into shares of, Common Stock or any other
capital
4
<PAGE> 7
stock of the Corporation ranking junior to the Class C Preferred Shares
as to the payment of dividends and distribution of assets upon liquidation,
including the Corporation's Series A Redeemable Participating Preferred Stock,
par value $0.01 per share ("Junior Stock"), and cash in lieu of fractional
shares of such Junior Stock in connection with any such dividend) will be paid
on any Junior Stock unless: (i) full dividends on all outstanding shares of
Senior Preferred Stock and Parity Preferred Stock (including the Class C
Preferred Shares) have been paid, or declared and set aside for payment, for all
dividend periods terminating on or prior to the payment date of such Junior
Stock dividend or distribution and for the current dividend period, to the
extent such Senior Preferred Stock or Parity Preferred Stock dividends are
cumulative; (ii) the Corporation has paid or set aside all amounts, if any, then
or theretofor required to be paid or set aside for all purchase, retirement, and
sinking funds, if any, for any outstanding shares of Senior Preferred Stock or
Parity Preferred Stock; and (iii) the Corporation is not in default on any of
its obligations to redeem any outstanding shares of Senior Preferred Stock or
Parity Preferred Stock.
In addition, as long as any Class C Preferred Shares are outstanding, no
shares of any Junior Stock may be purchased, redeemed, or otherwise acquired by
the Corporation or any of its subsidiaries (except in connection with a
reclassification or exchange of any Junior Stock through the issuance of other
Junior Stock (and cash in lieu of fractional shares of such Junior Stock in
connection therewith) or the purchase, redemption, or other acquisition of any
Junior Stock with any Junior Stock (and cash in lieu of fractional shares of
such Junior Stock in connection therewith)) nor may any funds be set aside or
made available for any sinking fund for the purchase or redemption of any Junior
Stock unless: (i) full dividends on all outstanding shares of Senior Preferred
Stock and Parity Preferred Stock have been paid, or declared and set aside for
payment, for all dividend periods terminating on or prior to the date of such
purchase, redemption or acquisition and for the current dividend period, to the
extent such Senior Preferred Stock or Parity Preferred Stock dividends are
cumulative; (ii) the Corporation has paid or set aside all amounts, if any, then
or theretofor required to be paid or set aside for all purchase, retirement, and
sinking funds, if any, for any outstanding shares of Senior Preferred Stock or
Parity Preferred Stock; and (iii) the Corporation is not in default on any of
its obligations to redeem any outstanding shares of Senior Preferred Stock or
Parity Preferred Stock unless all Parity Preferred Stock at to which such a
default exists is purchased or redeemed on a pro rata basis.
Subject to the provisions described above, such dividends or other
distributions (payable in cash, property, or Junior Stock) as may be determined
from time to time by the Board of Directors may be declared and paid on the
shares of any Junior Stock and from time to time Junior Stock may be purchased,
redeemed or otherwise acquired by the Corporation or any of its subsidiaries. In
the event of the declaration and payment of any such dividends or other
distributions, the holders of such Junior Stock will be entitled, to the
exclusion of holders of any outstanding Senior Preferred Stock or Parity
Preferred Stock, to share therein according to their respective interests.
(c) Payment of Dividends on Parity Preferred Stock. As long as any Class C
Preferred Shares are outstanding, dividends or other distributions for any
dividend period may not be paid on any outstanding shares of Parity Preferred
Stock (other than dividends or other distributions payable in Junior Stock and
cash in lieu of fractional shares of such Junior Stock in connection therewith),
unless either: (a) (i) full dividends on all outstanding shares of Senior
Preferred Stock and Parity Preferred Stock have been paid, or declared and set
aside for payment, for all dividend periods terminating on or prior to the
payment date of such Senior Preferred Stock or Parity Preferred Stock dividend
or distribution and for the current dividend period, to the extent such Senior
Preferred Stock or Parity Preferred Stock dividends are cumulative; (ii) the
Corporation has paid or set aside all amounts, if any, then or theretofor
required to be paid or set aside for all purchase, retirement and sinking funds,
if any, for any outstanding shares of Senior Preferred Stock and Parity
Preferred Stock; and (iii) the Corporation is not in default on any of its
obligations to redeem any outstanding shares of Senior Preferred Stock or Parity
Preferred Stock; or (b) any such dividends are declared and paid pro rata so
that the amounts of any dividends declared and paid per share on outstanding
Class C Preferred Shares and each other share of such Parity Preferred Stock
will in all cases bear to each other the same ratio that accrued and unpaid
dividends (including any accumulation with respect to unpaid
5
<PAGE> 8
dividends for prior dividend periods, if such dividends are cumulative) per
share of outstanding Class C Preferred Shares and such other outstanding shares
of Parity Preferred Stock bear to each other.
In addition, as long as any Class C Preferred Shares are outstanding, the
Corporation may not purchase, redeem or otherwise acquire any Senior Preferred
Stock or Parity Preferred Stock (except with any Junior Stock and cash in lieu
of fractional shares of such Junior Stock in connection therewith) unless: (i)
full dividends on all outstanding shares of Senior Preferred Stock and Parity
Preferred Stock have been paid, or declared and set aside for payment, for all
dividend periods terminating on or prior to the payment date of such Parity
Preferred Stock purchase, redemption or other acquisition and for the current
dividend period, to the extent such Senior Preferred Stock and Parity Preferred
Stock dividends are cumulative; (ii) the Corporation has paid or set aside all
amounts, if any, then or theretofor required to be paid or set aside for all
purchase, retirement, and sinking funds, if any, for any outstanding shares of
Senior Preferred Stock and Parity Preferred Stock; and (iii) the Corporation is
not in default of any of its obligations to redeem any outstanding shares of
Senior Preferred Stock or Parity Preferred Stock., unless all Parity Preferred
Stock as to which such a default exists is purchased or redeemed on a pro rata
basis.
(d) Any dividend payment made on the Class C Preferred Shares shall first be
credited against the earliest accrued but unpaid dividend due with respect to
the Class C Preferred Shares.
(e) All dividends paid with respect to the Class C Preferred Shares shall be
paid pro rata to the holders entitled thereto.
(f) Holders of the Class C Preferred Shares shall be entitled to receive
dividends in preference to and in priority over any dividends upon any shares of
the Corporation ranking junior to the Class C Preferred Shares as to dividends,
but subject to the rights of holders of shares of the Corporation having a
preference and a priority over the payment of dividends on the Class C Preferred
Shares.
SECTION 4. REDEMPTION AND CONVERSION.
(a) Mandatory Redemption. On the twentieth anniversary of the Initial
Issuance Date, or, if such date is not a Business Day, then the next succeeding
Business Day (the "Maturity Date"), the Class C Preferred Shares shall terminate
and the holder of each outstanding Class C Preferred Share shall be entitled to
receive an amount in cash equal to $50.00 per share (the "Call Price") plus all
accrued and unpaid dividends on such Class C Preferred Share (other than
previously declared dividends payable to a holder of record on a prior date) to
the Maturity Date, whether or not declared, out of funds legally available for
the payment of dividends, subject to the redemption of the Class C Preferred
Shares by the Corporation or the conversion of the Class C Preferred Shares at
the option of the holder at any time prior to the Maturity Date. Dividends on
the Class C Preferred Shares shall cease to accrue and such shares shall cease
to be outstanding on the Maturity Date. The Corporation shall make such
arrangements as it deems appropriate for the payment of cash in respect of the
Call Price and accrued and unpaid dividends, if any, in exchange for and
contingent upon surrender of certificates representing the Class C Preferred
Shares, and the Corporation may defer the payment of the Call Price or dividends
on such shares of Common Stock and the voting thereof until, and make such
payment and voting contingent upon, the surrender of such certificates
representing the Class C Preferred Shares, provided that the Corporation shall
give the holders of the Class C Preferred Shares such notice of any such actions
as the Corporation deems appropriate and upon such surrender such holders shall
be entitled to receive such dividends declared and paid on such shares of Common
Stock subsequent to the Maturity Date. Amounts payable in cash in respect of the
Class C Preferred Shares or in respect of such shares of Common Stock shall not
bear interest.
(b) Redemption at the Option of the Corporation.
(i) Right to Redeem. Class C Preferred Shares are not redeemable by the
Corporation prior to the third anniversary of the Initial Issuance Date (the
"Provisional Redemption Date"). From and after the Provisional Redemption Date
until the fourth anniversary of the Initial Issuance Date (the "Provisional
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<PAGE> 9
Redemption Year"), the Class C Preferred Shares may be redeemed by the
Corporation at any time after the Volume-Weighted Average Trading Price of the
Common Stock on a per day basis has exceeded $47.125 on 15 separate Trading Days
during any 30 consecutive Trading Day period during the Provisional Redemption
Year (the "Provisional Redemption Price"). After the Provisional Redemption
Year, the Class C Preferred Shares may be redeemed by the Corporation regardless
of whether the Common Stock has achieved the Provisional Redemption Price. Until
the tenth anniversary of the Initial Issuance Date, the Corporation may only
redeem the Class C Preferred Shares by delivering an amount of Common Stock
equal to the Call Price divided by the Volume-Weighted Average Trading Price of
the Common Stock for the 15 consecutive Trading Day period prior to the record
date for such redemption. From the tenth anniversary of the Initial Issuance
Date until the Maturity Date, the Class C Preferred Shares may be redeemed by
the Corporation by delivering either (a) the amount of Common Stock described in
the previous sentence or (b) cash in an amount equal to the Call Price.
The public announcement of any call for redemption shall be made prior
to, or at the time of, the mailing of the notice of such call to holders of
Class C Preferred Shares as described below. If fewer than all the outstanding
Class C Preferred Shares are to be redeemed, Class C Preferred Shares to be
redeemed shall be selected by the Corporation from outstanding Class C Preferred
Shares not previously redeemed by lot or pro rata (as nearly as may be
practicable) or by any other method determined by the Board of Directors in its
sole discretion to be equitable. As used in this subparagraph (b), the term
"Notice Date" with respect to any notice given by the Corporation in connection
with a redemption of Class C Preferred Shares means the date on which first
occurs either the public announcement of such redemption or the commencement of
mailing of such notice to the holders of Class C Preferred Shares.
(ii) Notice of Redemption. The Corporation shall provide notice of any
redemption of the Class C Preferred Shares to holders of record of Class C
Preferred Shares to be called for redemption not less than 15 nor more than 60
days prior to the date fixed for such redemption. Such notice shall be provided
by mailing notice of such redemption, first class postage prepaid, to each
holder of record of Class C Preferred Shares to be redeemed, at such holder's
address as it appears on the stock register of the Corporation; provided,
however, that neither failure to give such notice nor any defect therein shall
affect the validity of the proceeding for the redemption of any Class C
Preferred Shares to be redeemed except as to the holders to whom the Corporation
has failed to give said notice or whose notice was defective.
Each such notice shall state, as appropriate, the following and may
contain such other information as the Corporation deems advisable:
(A) the redemption date;
(B) that all outstanding Class C Preferred Shares are to be
redeemed or, in the case of a call for redemption of fewer than all
outstanding Class C Preferred Shares, the number of such shares held by
such holder to be redeemed;
(C) the number of shares of Common Stock deliverable upon
redemption of each Class C Preferred Share to be redeemed and, if
applicable, the Call Price and the Current Market Price used to
calculate such number of shares of Common Stock;
(D) the place or places where certificates for such shares are
to be surrendered for redemption; and
(E) that dividends on the Class C Preferred Shares to be
redeemed shall cease to accrue on such redemption date (except as
otherwise provided herein).
(iii) Deposit of Shares and Funds. The Corporation's obligation to
deliver shares of Common Stock and provide funds upon redemption in accordance
with this Section 4 shall be deemed fulfilled if, on or before a redemption
date, the Corporation shall irrevocably deposit, with a bank or trust company,
or an affiliate of a bank or trust company, having an office or agency in New
York City and having a capital and
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surplus of at least $50,000,000, or shall set aside or make other reasonable
provision for the issuance of such number of shares of Common Stock as are
required to be delivered by the Corporation pursuant to this Section 4 upon the
occurrence of the related redemption (and for the payment of cash in lieu of the
issuance of fractional share amounts and accrued and unpaid dividends payable in
cash on the shares to be redeemed as and to the extent provided by this Section
4). Any interest accrued on such funds shall be paid to the Corporation from
time to time. Any shares of Common Stock or funds so deposited and unclaimed at
the end of two years from such redemption date shall be repaid and released to
the Corporation, after which the holder or holders of such Class C Preferred
Shares so called for redemption shall look only to the Corporation for delivery
of such shares of Common Stock or funds.
(iv) Surrender of Certificates; Status. Each holder of Class C
Preferred Shares to be redeemed shall surrender the certificates evidencing such
shares (properly endorsed or assigned for transfer, if the Board of Directors
shall so require and the notice shall so state) to the Corporation at the place
designated in the notice of such redemption and shall there upon be entitled to
receive certificates evidencing shares of Common Stock and to receive any funds
payable pursuant to this Section 4 following such surrender and following the
date of such redemption. In case fewer than all the Class C Preferred Shares
represented by any such surrendered certificate are called for redemption, a new
certificate shall be issued at the expense of the Corporation representing the
unredeemed Class C Preferred Shares. If such notice of redemption shall have
been given, and if on the date fixed for redemption, shares of Common Stock and
funds necessary for the redemption shall have been irrevocably either set aside
by the Corporation separate and apart from its other funds or assets in trust
for the account of the holders of the shares to be redeemed or converted (and so
as to be and continue to be available therefore) or deposited with a bank or a
trust company or an affiliate thereof as provided herein or the Corporation
shall have made other reasonable provision therefore, then, notwithstanding that
the certificates evidencing any Class C Preferred Shares so called for
redemption or subject to conversion shall not have been surrendered, the Class C
Preferred Shares represented thereby so called for redemption shall be deemed no
longer outstanding, dividends with respect to the Class C Preferred Shares so
called for redemption shall cease to accrue on the date fixed for redemption
(except that holders of Class C Preferred Shares at the close of business on a
record date for any payment of dividends shall be entitled to receive the
dividend payable on such shares on the corresponding Dividend Payment Date
notwithstanding the redemption of such shares following such record date and
prior to such Dividend Payment Date) and all rights with respect to the Class C
Preferred Shares so called for redemption shall forthwith after such date cease
and terminate, except for the rights of the holders to receive the shares of
Common Stock and funds, if any, payable pursuant to this Section 4 without
interest upon surrender of their certificates therefore (unless the Corporation
defaults on the delivery of such shares or the payment of such funds). Holders
of Class C Preferred Shares that are redeemed shall not be entitled to receive
dividends declared and paid on such shares of Common Stock, and such shares of
Common Stock shall not be entitled to vote, until such shares of Common Stock
are issued upon the surrender of the certificates representing such Class C
Preferred Shares and upon such surrender such holders shall be entitled to
receive such dividends declared and paid on such shares of Common Stock
subsequent to such redemption date without interest thereon.
(c) Conversion at Option of Holder. Class C Preferred Shares are
convertible at the option of the holder thereof at any time prior to the
Maturity Date, unless previously redeemed, into shares of Common Stock at a rate
of 1.379 shares of Common Stock per Class C Preferred Share, as such rate may be
adjusted as provided below (the "Exchange Rate").
Conversion of Class C Preferred Shares at the option of the holder may
be effected by delivering certificates evidencing such shares, together with
written notice of conversion and a proper assignment of such certificates to the
Corporation or in blank, to the office or agency to be maintained by the
Corporation for that purpose (and, if applicable, cash payment of an amount
equal to the dividend payable on such shares), and otherwise in accordance with
conversion procedures established by the Corporation. Each optional conversion
shall be deemed to have been effected immediately prior to the close of business
on the date on which the foregoing requirements shall have been satisfied, and
dividends will cease to accrue in
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respect of Class C Preferred Shares at such time. The conversion shall be at the
Exchange Rate in effect at such time and on such date.
Holders of Class C Preferred Shares at the close of business on a
record date for any payment of declared dividends shall be entitled to receive
the dividend payable on such shares on the corresponding Dividend Payment Date
notwithstanding the conversion of such shares following such record date and
prior to the corresponding Dividend Payment Date. Except as provided above, upon
any optional conversion of Class C Preferred Shares, the Corporation shall make
no payment or allowance for unpaid dividends, whether or not in arrears, on
converted Class C Preferred Shares or for previously declared dividends or
distributions on the shares of Common Stock issued upon such conversion.
(d) Exchange Rate Adjustments. The Exchange Rate shall be subject to
adjustment from time to time as provided below in this section (d).
(i) If the Corporation shall, after the Initial Issuance Date:
(A) pay a stock dividend or make a distribution with respect to its
Common Stock in capital stock of the Corporation,
(B) subdivide or split its outstanding Common Stock into a greater
number of shares,
(C) combine its outstanding shares of Common Stock into a smaller
number of shares, or
(D) issue any shares of capital stock of the Corporation as a
distribution with respect to, or by reclassification of its shares of
Common Stock (other than the Rights or Equity Securities covered under
Section 4(d)(ii)),
then, in any such event, the Exchange Rate in effect immediately prior to such
event shall be adjusted so that the holder of any Preferred Shares shall
thereafter be entitled to receive upon conversion or upon redemption by the
Corporation in the form of Common Stock or conversion at the option of the
holder, the number of shares of Common Stock of the Corporation which such
holder would have owned or been entitled to receive immediately following any
event described above had such Preferred Shares been converted immediately prior
to such event or any record date with respect thereto. Such adjustment shall
become effective at the opening of business on the business day next following
the record date for determination of stockholders entitled to receive such
dividend or distribution, in the case of a dividend or distribution, and shall
become effective immediately after the effective date, in the case of a
subdivision, split, combination or reclassification. Such adjustment shall be
made successively. In the case of an event described in subsection (D) above,
each Class C Preferred Share shall become convertible into shares of capital
stock of the Corporation as to which a holder of Common Stock immediately prior
to such a distribution shall be entitled, or into which the Common Stock has
become reclassified, at the Exchange Rate as modified by this subsection (i). In
the event of any such reclassification into more than one resulting class of
capital stock of the Corporation, the shares of each such resulting class
issuable upon conversion of a Class C Preferred Share shall be in the same
proportion, if possible, or if not possible, substantially the same proportion
which the total number of shares of such class resulting from such
reclassification bears to the total number of shares of all classes resulting
from all such reclassifications.
(ii) If the Corporation shall, after the Initial Issuance Date, issue
without cost Equity Securities (other than Common Stock, the Rights or Exempt
Issuances) ("Issued Equity Securities") to all holders of its Common Stock
entitling them (for a period not exceeding 45 days from the later of the record
date of such issuance and the Determination Date) to subscribe for or purchase
shares of Common Stock or other Equity Securities at a price per share less than
the Fair Market Value of the Common Stock or other Equity Security to be
acquired in effect on the Determination Date for such issuance (treating the
price per share of the Equity Securities to be acquired as equal to (x) the sum
of the Fair Market Value of the consideration payable for a unit of the Equity
Security plus (B) the Fair Market Value of any additional consideration
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<PAGE> 12
initially payable upon the exercise, conversion or exchange of such security
into Common Stock divided by (y) the number of shares of Common Stock initially
underlying or that may be acquired upon the exercise, conversion or exchange of
such Equity Security) then, in any such event unless such Equity Securities are
issued to holders of Class C Preferred Shares on a pro rata basis with the
shares of Common Stock based on the Exchange Rate on the date immediately
preceding such issuance, the Exchange Rate in effect on the record date
described below shall be adjusted by multiplying it by a fraction of which the
numerator shall be the sum of (x) the number of shares of Common Stock
outstanding on the date of issuance of such Issued Equity Securities immediately
prior to such issuance, plus (y) the number of additional shares of Common Stock
offered for subscription or purchase pursuant to such Issued Equity Securities
(including the Common Stock that may be acquired upon the exercise, conversion
or exchange of the Equity Securities), and of which the denominator shall be the
sum of (x) number of shares of Common Stock outstanding on the date of issuance
of such Issued Equity Securities immediately prior to such issuance, plus (y)
the number of additional shares of Common Stock which the aggregate offering
price of the total number of shares of Common Stock so offered for subscription
or purchase (including, without limitation, the Fair Market Value of the
consideration payable for a unit of the Equity Securities so offered plus the
Fair Market Value of any additional consideration payable upon exercise,
conversion or exchange of such Equity Securities) would purchase at such Fair
Market Value as of the Determination Date for such issuance. Such adjustment
shall become effective at the opening of business on the Business Day next
following the record date for the determination of stockholders entitled to
receive such rights or warrants. To the extent that shares of Common Stock are
not delivered after the expiration of such Equity Securities, the Exchange Rate
shall each be readjusted to the Exchange Rate which would then be in effect had
the adjustments been made upon the issuance of such Equity Securities upon the
basis of delivery of only the number of shares of Common Stock actually
delivered. Such adjustment shall be made successively.
(iii) If the Corporation shall, after the Initial Issuance Date, make an
Extraordinary Dividend or effect a Pro Rata Repurchase of Common Stock, then
unless such Extraordinary Dividend is made to each holder of Class C Preferred
Shares on a pro rata basis with the shares of Common Stock based on the Exchange
Rate in effect on the date immediately preceding such payment or distribution,
in any such event, then the Exchange Rate in effect immediately prior to such
event shall be adjusted by multiplying it by a fraction of which the numerator
shall be the product of (i) the number of shares of Common Stock outstanding
immediately before such Extraordinary Dividend or Pro Rata Repurchase (minus, in
the case of a Pro Rata Repurchase, the number of shares of Common Stock
repurchased by the Corporation and (ii) the Fair Market Value per share of the
Common Stock on the record date for the determination of stockholders entitled
to receive such Extraordinary Dividend and the number of shares outstanding
immediately prior to such Distribution or, in the case of a Pro Rata Repurchase
on the Trading Day immediately preceding the first public announcement of such
Pro Rata Repurchase, as the case may be, and of which the denominator shall be
(i) the product of (x) the number of shares of Common Stock outstanding
immediately before such Extraordinary Distribution or Pro Rata Repurchase and
(y) the Fair Market Value of a share of Common Stock on the record date with
respect to such Extraordinary Distribution, or, in the case of a Pro Rata
Repurchase on the Trading Day immediately preceding the first public
announcement by the Corporation or any of its Affiliates of the intent to effect
such Pro Rata Repurchase, as the case may be, minus (ii) the Fair Market Value
of the Extraordinary Distribution or the aggregate purchase price of the Pro
Rata Repurchase, as the case may be (provided that such denominator shall never
be less than 1.0); provided, however, that no Pro Rata Repurchase shall cause an
adjustment to the Exchange Rate unless the amount of all cash dividends and
distributions made to holders of Common Stock during the twelve-month period
ending on the Effective Date of such Pro Rata Repurchase, when combined with the
aggregate amount of all Pro Rata Repurchases, including such Pro Rata Repurchase
(for all purposes of this Section 4(d)(iii) including only that portion of the
Fair Market Value of the aggregate purchase price of each Pro Rata Repurchase
which is in excess of the Fair Market Value of the Common Stock repurchased as
determined on the Trading Day immediately preceding the first public
announcement by the Corporation or any of its Affiliates of the intent to effect
each such Pro Rata Repurchase), the Effective Dates of which fall within such
period, exceeds twelve and one-half percent (12 1/2%) of the aggregate Fair
Market Value of all shares of Common Stock outstanding on the Trading Day
immediately preceding the first public
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announcement by the Corporation or any of its Affiliates of the intent to effect
such Pro Rata Repurchase. Such adjustment shall become effective on the opening
of business on the Business Day next following the record date for the
determination of stockholders entitled to receive such dividend or distribution.
Such adjustment shall be made successively.
(iv) If the Corporation shall, after the Initial Issuance Date, make an
International Distribution, then each holder of Class C Preferred Shares as of
the record date of such distribution shall receive such International
Distribution on a pro rata basis with the shares of Common Stock based on the
Exchange Rate in effect on the record date for such International Distribution.
With respect to all shares of Series C Preferred Shares outstanding and
subsequently issued, the dividend payable pursuant to Section 2(a) hereof and
the Call Price shall each be adjusted by multiplying each of them by a fraction,
of which the numerator shall be (i) the product of (x) the number of shares of
Common Stock outstanding immediately prior to such International Distribution
and (y)(i) the Fair Market Value of a share of Common Stock on the record date
with respect to such International Distribution, minus (ii) the Fair Market
Value of the International Distribution, and of which the denominator shall be
the product of (x) the number of shares of Common Stock outstanding immediately
prior to such International Distribution and (y) the Fair Market Value per share
of the Common Stock on the record date for the determination of stockholders
entitled to receive such International Dividend. Such adjustment shall be made
successively. In the event that this subsection (iv) is applicable, then the
provisions of subsection (iii) shall not apply. All adjustments pursuant to this
subsection shall become effective on the opening of business on the Business Day
next following the record date for the determination of stockholders entitled to
receive such International Distribution. If the Corporation has received an
opinion of a nationally recognized law firm or accounting firm that the
procedure set forth in this subsection (iv) would result in an adverse tax
consequence to the Corporation or the holders of the Common Stock, then the
provisions of this subsection (iv) shall not apply, and the provisions of
subsection (iii) shall be applicable.
(v) In case the Corporation shall, at any time or from time to time while
any of the shares of Class C Preferred Shares are outstanding, issue, sell or
exchange shares of Common Stock (other than (i) pursuant to any Rights, (ii)
Exempt Issuances or pursuant to Equity Securities issued as Exempt Issuances,
(iii) pursuant to any Equity Security theretofore outstanding entitling the
holder to purchase or acquire shares of Common Stock or (iv) distributions
pursuant to Section 5 of the Certificate of Designation, Rights and Preferences
of the Class B Preferred Shares) for a consideration having a Fair Market Value
on the Determination Date for such issuance of Equity Securities less than the
Fair Market Value of such shares of Common Stock on the date of such issuance,
sale or exchange, then the Exchange Rate in effect immediately prior to such
issuance, sale or exchange shall be adjusted by multiplying it by a fraction of
which the numerator shall be the sum of (x) number of shares of Common Stock
outstanding on the date of such issuance immediately prior to such issuance,
plus (y) the number of additional shares of Common Stock so issued, and of which
the denominator shall be the sum of (x) the number of shares of Common Stock
outstanding on the date of such issuance immediately prior to such issuance,
plus (y) the number of additional shares of Common Stock which the aggregate
price paid for the total number of shares of Common Stock so offered for
subscription or purchase would purchase at such Fair Market Value as of the
Determination Date for such issuance. Notwithstanding the foregoing, the
provisions of this subsection (v) shall not apply if the Board of Directors of
the Corporation has determined that the value of any consideration to be
received in exchange for the issuance, sale or exchange of such Common Stock in
a transaction with a Third Party negotiated at arm's length shall be based upon
the Volume-Weighted Average Trading Price or closing price or similar measure of
the Common Stock or of the consideration to be paid for the Common Stock, as
measured on a single date or over a period of days within a reasonable amount of
time prior to the issuance, sale or exchange of such Common Stock.
(vi) In case the Corporation shall, at any time or from time to time while
any of the shares of Class C Preferred Shares are outstanding, issue, sell or
exchange any Equity Security (other than Common Stock, the Rights, Exempt
Issuances or distributions to holders pursuant to Section 5 of the Certificate
of Designation, Preferences and Rights for the Class B Shares) other than any
such issuance to all holders of shares of Common Stock as a dividend or
distribution (including by way of a reclassification of shares or a
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recapitalization of the Corporation) for a consideration having a Fair Market
Value on the Distribution Date less than the Non-Dilutive Amount, then the
Exchange Rate shall be adjusted by multiplying it by a fraction, the numerator
of which shall be the product of (x) the Fair Market Value of a share of Common
Stock on the Trading Day immediately preceding the first public announcement of
such issuance, sale or exchange and (y) the sum of the number of shares of
Common Stock outstanding on such day plus the maximum number of shares of Common
Stock underlying or which could be acquired pursuant to such Equity Security at
the time of the issuance, sale or exchange of such Equity Security (assuming
shares of Common Stock could be acquired pursuant to such Equity Security at
such time), and the denominator of which shall be the sum of (x) the Fair Market
Value of all the shares of Common Stock outstanding on the Distribution Date
plus (y) the Fair Market Value of the consideration received by the Corporation
in respect of such issuance, sale or exchange of such Equity Security plus (z)
the Fair Market Value as of the time of such issuance of the consideration which
the Corporation would receive upon exercise, conversion or exchange in full of
all such Equity Securities. Notwithstanding the foregoing, the provisions of
this subsection (vi) shall not apply if the Board of Directors has determined
that the value of any consideration to be received in exchange for the issuance,
sale or exchange of such Equity Securities in a transaction with a Third Party
negotiated at arm's length shall be based upon the Volume-Weighted Average
Trading Price or closing price or similar measure of the Equity Securities or of
the consideration to be paid therefor, as measured on a single day or over a
period of days within a reasonable amount of time prior to the issuance, sale or
exchange of such Equity Securities.
(vi) Any shares of Common Stock issuable in payment of a dividend shall be
deemed to have been issued immediately prior to the close of business on the
record date for such dividend for purposes of calculating the number of
outstanding shares of Common Stock under subsection (ii) above.
(vii) The Corporation shall also be entitled to make such adjustments in
the Exchange Rate as it in its sole discretion shall determine to be advisable
in order that any stock dividends, subdivisions of shares, distribution of
rights to purchase stock or securities, or distribution of securities
convertible into or exchangeable for stock (or any transaction which could be
treated as any of the foregoing transactions pursuant to Section 305 of the
Internal Revenue Code of 1986, as amended) made by the Corporation to its
stockholders the Initial Issuance Date shall not be taxable.
(viii) In any case in which subsection 4(d) shall require that an adjustment
as a result of any event become effective at the opening of business on the
Business Day next following a record date and the date fixed for conversion
pursuant to subsection 4(b) occurs after such record date, but before the
occurrence of such event, the Corporation may, in its sole discretion, elect to
defer the following until after the occurrence of such event: (A) issuing to the
holder of any converted Class C Preferred Shares the additional shares of Common
Stock issuable upon such conversion over the shares of Common Stock issuable
before giving effect to such adjustments and (B) paying to such holder any
amount in cash in lieu of a fractional share of Common Stock pursuant to
subsection 3(i).
(ix) All adjustments to the Exchange Rate shall be calculated to the
nearest 1/1000th of a share of Common Stock. No adjustment in the Exchange Rate
shall be required unless such adjustment would require an increase or decrease
of at least one percent therein; provided, however, that any adjustment which by
reason of this subsection (ix) is not required to be made shall be carried
forward and taken into account in any subsequent adjustment and provided further
that any adjustment shall be required and made in accordance with the provisions
of this Section (other than this subparagraph (ix)) not later than such time as
may be required in order to preserve the taxfree nature of a distribution to the
holders of shares of Common Stock. If any action or transaction would require
adjustment to the Exchange Rate pursuant to more than one paragraph of this
Section 4, only one adjustment shall be made and such adjustment shall be the
amount of the adjustment that has the highest absolute value.
(e) Adjustment for Consolidation or Merger. In case of (A) any
consolidation or merger to which the Corporation is a party (other than a merger
or consolidation in which the Corporation is the surviving or continuing
corporation and in which the Common Stock outstanding immediately prior to the
merger or
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consolidation remains unchanged), (B) any sale or transfer to another
corporation of the property of the Corporation as an entirety or substantially
as an entirety, or (C) any statutory exchange of securities with another
corporation (other than in connection with a merger or acquisition in which the
Corporation is the surviving or continuing corporation and in which the Common
Stock outstanding immediately prior to the merger or consolidation remains
unchanged) (each a "Reorganization Event"), then proper provision shall be made
so that each Class C Preferred Share shall, after consummation of such
transaction, be subject to (i) conversion at the option of the holder into the
Merger Consideration (as defined below) receivable upon consummation of such
transaction by a holder of the number of shares of Common Stock into which such
Class C Preferred Share might have been converted immediately prior to
consummation of such transaction, (ii) conversion on the Maturity Date into the
Merger Consideration receivable upon consummation of such transaction by a
holder of the number of shares of Common Stock into which such Class C Preferred
Share would have converted if the conversion on the Maturity Date had occurred
immediately prior to the date of consummation of such transaction, plus the
right to receive cash in an amount equal to all accrued and unpaid dividends on
such Class C Preferred Shares (other than previously declared dividends payable
to a holder of record as of a prior date) and (iii) redemption on any redemption
date in exchange for the Merger Consideration receivable upon consummation of
such transaction by a holder of the number of shares of Common Stock that would
have been issuable in effect on such redemption date upon a redemption of such
share immediately prior to consummation of such transaction, assuming that, if
the Notice Date for such redemption is not prior to such transaction, the Notice
Date had been the date of such transaction.
"Merger Consideration" means the kind or amount of securities, cash or other
property receivable upon consummation of a Reorganization Event (provided that
if the kind or amount of securities, cash or other property receivable upon
consummation of such transaction is not the same for each non-electing share,
then the kind and amount of securities, cash or other property receivable upon
consummation of such transaction for each non-electing share shall be deemed to
be the kind and amount so receivable per share by a plurality of the
non-electing shares).
For purposes of the immediately preceding paragraph and subsection
4(g)(iii), any sale or transfer to another corporation of property of the
Corporation which did not account for at least 50% of the consolidated net
income of the Corporation for its most recent fiscal year ending prior to the
consummation of such transaction shall not in any event be deemed to be a sale
or transfer of the property of the Corporation as an entirety or substantially
as an entirety.
(f) Notice of Adjustments. Whenever the Exchange Rate is adjusted as herein
provided, the Corporation shall:
(i) forthwith compute the adjusted Exchange Rate in accordance herewith
and prepare a certificate signed by an officer of the Corporation setting
forth the adjusted Exchange Rate, the method of calculation thereof in
reasonable detail and the facts requiring such adjustment and upon which
such adjustment is based, which certificate shall be conclusive, final and
binding evidence of the correctness of the adjustment, and file such
certificate forthwith with the transfer agent for the Class C Preferred
Shares and the Common Stock; and
(ii) make a prompt public announcement and mail a notice to the holders
of the outstanding Class C Preferred Shares stating that the Exchange Rate
has been adjusted, the facts requiring such adjustment and upon which such
adjustment is based and setting forth the adjusted Exchange Rate, such
notice to be mailed within 45 days after the close of the fiscal quarter
during which the facts requiring such adjustment occurred.
(g) Notices. In case, at any time while any of the Class C Preferred Shares
are outstanding,
(i) the Corporation shall declare a dividend (or any other
distribution) on its Common Stock, excluding any cash dividends (other than
an Extraordinary Distribution); or
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(ii) the Corporation shall authorize the issuance to all holders of its
Common Stock of rights or warrants to subscribe for or purchase shares or
its Common Stock or of any other Equity Securities; or
(iii) the Corporation shall authorize any reclassification of its Common
Stock (other than a subdivision or combination thereof) or capital stock or
any consolidation or merger to which the Corporation is a party and for
which approval of any stockholders of the Corporation is required (except
for a merger of the Corporation into one of its subsidiaries solely for the
purpose of changing the corporate name or corporate domicile of the
Corporation to another state of the United States and in connection with
which there is no substantive change in the rights or privileges of any
securities of the Corporation other than changes resulting from differences
in the corporate statutes of the then existing and the new state of
domicile), or the sale or transfer to another corporation of the property of
the Corporation as an entirety or substantially as an entirety; or
(iv) the Corporation shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the Corporation; or
(v) there shall occur any Pro Rata Repurchase,
then the Corporation shall cause to be filed at each office or agency maintained
for the purpose of conversion of the Class C Preferred Shares, and shall cause
to be mailed to the holders of Class C Preferred Shares at their last addresses
as they shall appear on the stock register, at least 10 days before the date
hereinafter specified (or the earlier of the dates hereinafter specified, in the
event that more than one date is specified), a notice stating (A) the date on
which a record is to be taken for the purpose of such dividend, distribution,
rights or warrants, or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend, distribution,
rights or warrants are to be determined, or (B) the date on which any such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their Common Stock for securities or other property (including cash),
if any, deliverable upon such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation. or winding up. The failure to give or
receive the notice required by this subsection (g) or any defect therein shall
not affect the legality or validity of such dividend, distribution, right or
warrant or other action.
(h) Effect of Conversions. The person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be usable upon any
conversion or redemption shall be deemed to have become on the date of any such
conversion or redemption the holder or holders of record of the shares
represented thereby; provided, however, that any such surrender on any date when
the stock transfer books of the Corporation shall be closed shall constitute the
person or persons in whose name or names the certificate or certificates for
such shares are to be issued as the record holder or holders thereof for all
purposes at the opening of business on the next succeeding day on which such
stock transfer books are open.
(i) No Fractional Shares. No fractional shares or script representing
fractional shares of Common Stock shall be issued upon the redemption or
conversion of any Class C Preferred Shares. In lieu of any fractional share
otherwise issuable in respect of the aggregate number of Class C Preferred
Shares of any holder which are converted upon Mandatory Conversion or any
optional conversion, such holder shall be entitled to receive an amount in cash
(computed to the nearest cent) equal to the same fraction of (i) the Maturity
Price of the Common Stock or (ii) the Current Market Price on the second Trading
Date immediately preceding the effective date of conversion, in the case of an
optional conversion by a holder. If more than one share shall be surrendered for
conversion at one time by or for the same holder, the number of full shares of
Common Stock issuable upon conversion thereof shall be computed on the basis of
the aggregate number of Class C Preferred Shares so surrendered.
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(j) Re-issuance. Class C Preferred Shares that have been issued and
reacquired in any manner, including shares purchased, exchanged, redeemed or
converted, shall not be reissued as 4.25% Class C Convertible Preferred Stock,
Series 1996, and shall (upon compliance with any applicable provisions of the
laws of the State of Delaware) have the status of authorized and unissued shares
of the Preferred Stock undesignated as to series and may be redesignated and
reissued as part of any series of Preferred Stock.
(k) Payment of Taxes. The Corporation shall pay any and all documentary,
stamp or similar issue or transfer taxes payable in respect of the issue or
delivery of shares of Common Stock on the redemption or conversion of share of
Class C Preferred Shares pursuant to this Section 3; provided, however, that the
Corporation shall not be required to pay any tax which may be payable in respect
of any registration of transfer involved in the issue or delivery of shares of
Common Stock in a name other than that of the registered holder of Class C
Preferred Shares redeemed or converted or to be redeemed or converted, and no
such issue or delivery shall be made unless and until the person requesting such
issue has paid to the Corporation the amount of any such tax or has established,
to the satisfaction of the Corporation, that such tax has been paid.
(l) Reservation of Common Stock. The Corporation shall at all times reserve
and keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Common Stock and/or its issued Common Stock held in its
treasury, for the purpose of effecting any Mandatory Conversion of the Class C
Preferred Shares or any conversion of the Class C Preferred Shares at the option
of the holder, the full number of shares of Common Stock then deliverable upon
any such conversion of all outstanding Class C Preferred Shares.
SECTION 5. LIQUIDATION RIGHTS.
(a) The Class C Preferred Shares will rank on a parity as to distribution of
assets upon liquidation with the Class B Preferred Stock, and with any future
preferred stock issued by the Corporation that by its terms ranks pari passu
with the Class C Preferred Shares, with respect to distribution of assets upon
liquidation.
(b) The Class C Preferred Shares will be subordinate as to distribution upon
liquidation to any future preferred stock issued by the Corporation that by its
terms is senior to the Class C Preferred Shares with respect to distribution of
assets upon liquidation.
(c) In the event of the liquidation, dissolution, or winding up of the
business of the Corporation, whether voluntary or involuntary, the holders of
Class C Preferred Shares then outstanding, after payment or provision for
payment of the debts and other liabilities of the Corporation and the payment or
provision for payment of any distribution on any shares of the Corporation
having a preference and a priority over the Class C Preferred Shares on
liquidation, and before any distribution to holders of any shares of the
Corporation that are junior and subordinate to the Class C Preferred Shares on
liquidation, including the Common Stock and the Series A Participating Preferred
Stock, shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders an amount of cash per Class C
Preferred Share equal to the Call Price, as adjusted pursuant to the terms
hereof, plus an amount equal to all accrued and unpaid dividends thereon, and
shall, after the holders of Common Stock have received an amount per share of
Common Stock equal to the Call Price divided by the Exchange Rate, be entitled
to participate on a pro rata basis with the holders of Common Stock on a per
share basis, as if such Class C Preferred Shares had converted to Common Stock
at the Exchange Rate then in effect on the date immediately prior to such
distribution. In the event the assets of the Corporation available for
distribution to the holders of the Class C Preferred Shares upon any
dissolution, liquidation or winding up of the Corporation shall be insufficient
to pay in full the liquidation payments payable to the holders of outstanding
Class C Preferred Shares and of all other series of Preferred Stock that rank on
a parity with the Class C Preferred Shares in the event of liquidation, the
holders of the Class C Preferred Shares and of all other series of such parity
Preferred Stock shall share ratably in such distribution of assets in proportion
to the amount which would be payable on such distribution if the amounts to
which the holders of outstanding Class C Preferred Shares and the holders of
outstanding shares of such parity Preferred Stock were paid in full. Except as
provided in this
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<PAGE> 18
Section 5, holders of Class C Preferred Shares shall not be entitled to any
distribution in the event of liquidation, dissolution or winding up of the
affairs of the Corporation.
(d) For the purposes of this Section 5, none of the following shall be
deemed to be a voluntary or involuntary liquidation, dissolution or winding up
of the Corporation:
(i) the sale, lease, transfer or exchange of all or substantially all
of the assets of the Corporation; or
(ii) the consolidation or merger of the Corporation with one or more
other corporations (whether or not the Corporation is the corporation
surviving such consolidation or merger).
SECTION 6. NO PREEMPTIVE RIGHTS.
The holders of Class C Preferred Shares shall have no preemptive rights,
including preemptive rights with respect to any shares of capital stock or other
securities of the Corporation convertible into or carrying rights or options to
purchase any such shares.
SECTION 7. VOTING RIGHTS.
(a) The holders of Class C Preferred Shares shall not have any voting rights
except as required by law and except as set forth below in Section 7(b) and (c).
(b) If at any time dividends payable on the Class C Preferred Shares or any
other series of Parity Preferred Stock are in arrears and unpaid in an aggregate
amount equal to or exceeding the aggregate amount of dividends payable thereon
for six quarterly dividend periods, or if any other series of Preferred Stock
shall be entitled for any other reason to exercise voting rights, separate from
the Common Stock, to elect any Directors of the Corporation ("Preferred Stock
Directors"), the holders of the Class C Preferred Shares, voting separately as a
class with the holders of all other series of Preferred Stock upon which like
voting rights have been conferred and are exercisable, shall have the right to
vote for the election of two Preferred Stock Directors of the Corporation, such
Directors to be in addition to the number of Directors constituting the Board of
Directors immediately prior to the accrual of such right. Such right of the
holders of Class C Preferred Shares to elect two Preferred Stock Directors
shall, when vested, continue until all dividends in arrears on the Class C
Preferred Shares and such other series of Preferred Stock shall have been paid
in full and the right of any other series of Preferred Stock to exercise voting
rights, separate from the Common Stock, to elect Preferred Stock Directors shall
terminate or have terminated and, when so paid, and any such termination occurs
or has occurred, such right of the holders of Class C Preferred Shares to elect
two Preferred Stock Directors separately as a class shall cease, subject always
to the same provisions for the vesting of such right of the holders of the Class
C Preferred Shares to elect two Preferred Stock Directors in the case of future
dividend defaults.
The term of office of each Director elected pursuant to the preceding
paragraph shall terminate on the earlier of (i) the next annual meeting of
stockholders at which a successor shall have been elected and qualified or (ii)
the termination of the right of the holders of Class C Preferred Shares and such
other series of Preferred Stock to vote for Directors pursuant to the preceding
paragraph. Vacancies on the Board of Directors resulting from the death,
resignation or other cause of any such Director shall be filled exclusively by
no less than two-thirds of the remaining Directors and the Director so elected
shall hold office until a successor is elected and qualified.
(c) For as long as any Class C Preferred Shares remain outstanding, the
affirmative consent of the holders of at least two-thirds thereof actually
voting (voting separately as a class) given in person or by proxy, at any annual
meeting or special meeting of the shareholders called for such purpose, shall be
necessary to amend, alter or repeal any of the provisions of the Certificate of
Incorporation of the Corporation which would adversely affect the powers,
preferences or rights of the holders of the Class C Preferred Shares then
outstanding or reduce the minimum time required for any notice to which holders
of
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<PAGE> 19
Class C Preferred Shares then outstanding may be entitled; provided, however,
that any such amendment, alteration or repeal that would authorize, create or
increase the authorized amount of any shares of stock (whether or not already
authorized) ranking junior to, on a parity with, or senior to the Class C
Preferred Shares with respect to payment of dividends or payment upon
liquidation shall be deemed not to adversely affect such powers, preferences or
rights and shall not be subject to approval by the holders of Class C Preferred
Shares; and provided further that the holders of the Preferred Shares shall not
have any voting rights with respect to the amendment, alteration or repeal of
any provisions of the Certificate of Incorporation of the Corporation approved
at a meeting of the stockholders the record date of which is prior to the
issuance of any Class C Preferred Shares.
17
<PAGE> 1
EXHIBIT 10.26
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the 8th day of February, 1996, by and
between ______________ (the "Employee") and AIRTOUCH COMMUNICATIONS, INC., a
Delaware corporation (the "Corporation").
For ease of reference, this Agreement is divided into the following parts, which
begin on the pages indicated:
FIRST PART: TERM OF EMPLOYMENT, DUTIES AND SCOPE, COMPENSATION
AND BENEFITS DURING EMPLOYMENT (Sections 1-5,
beginning on page 1)
SECOND PART: COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR CONSTRUCTIVE
TERMINATION NOT OCCURRING WITHIN THREE YEARS AFTER
A CHANGE IN CONTROL (Sections 6-8, beginning on page 6)
THIRD PART: COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR
CONSTRUCTIVE TERMINATION OCCURRING WITHIN THREE
YEARS AFTER A CHANGE IN CONTROL
(Sections 9-12, beginning on page 9)
FOURTH PART: PARACHUTE PAYMENTS
(Sections 13-14, beginning on page 12)
FIFTH PART: TRADE SECRETS, SUCCESSORS, MISCELLANEOUS
PROVISIONS, SIGNATURE PAGE
(Sections 15-17, beginning on page 14)
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<PAGE> 2
FIRST PART: TERM OF EMPLOYMENT, DUTIES AND SCOPE, COMPENSATION AND
BENEFITS DURING EMPLOYMENT
SECTION 1: TERM OF EMPLOYMENT
(a) Basic Rule. The Corporation agrees to continue the Employee's
employment, and the Employee agrees to remain in employment with the
Corporation, from February 8, 1996, until the earliest of:
(1) The date of the Employee's death; or
(2) The date when the Employee's employment terminates pursuant
to Subsection (b), (c), (d) or (e) below.
(b) Early Termination or Resignation. The Corporation may terminate the
Employee's employment for any reason by giving the Employee not less
than 30 days' advance notice in writing. The Employee may terminate the
Employee's employment for any reason by giving the Corporation not less
than 30 days' advance notice in writing.
(c) Termination for Cause. The Corporation may terminate the Employee's
employment at any time for Cause shown by giving the Employee not
less than 30 days' advance notice in writing. For all purposes under
this Agreement, "Cause" shall mean (1) a willful failure by the
Employee to substantially perform the Employee's duties under this
Agreement, other than a failure resulting from the Employee's
complete or partial incapacity due to physical or mental illness or
impairment, (2) a willful act by the Employee that constitutes gross
misconduct and that is injurious to the Corporation, (3) a willful
breach by the Employee of a material provision of this Agreement or
(4) a material and willful violation of a federal or state law or
regulation applicable to the business of the Corporation. No act, or
failure to act, by the Employee shall be considered "willful" unless
committed without good faith and without a reasonable belief that the
act or omission was in the Corporation's best interest.
(d) Termination for Disability. The Corporation may terminate the
Employee's employment for Disability by giving the Employee not less
than six months' advance notice in writing. For all purposes under
this Agreement, "Disability" shall mean that the Employee, at the
time notice is given, has been unable to perform the Employee's
duties under this Agreement for a period of not less than six
consecutive months as the result of the Employee's incapacity due to
physical or mental illness. In the event that the Employee resumes
the performance of substantially all of the Employee's duties under
this Agreement before the termination of the Employee's employment
under this Section becomes effective, the notice of termination shall
automatically be deemed to have been revoked.
(e) Notice. For all purposes under this Section 1, the employment
relationship shall terminate on the date specified in the notice of
termination. Any waiver of notice shall be valid only if it is made
in writing and expressly refers to the applicable notice requirement
of this Section 1. If the Corporation specifies a termination
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<PAGE> 3
date that is earlier than the minimum advance notice date required
under Subsection (b), (c) or (d) (as applicable), then the Employee is
entitled to pay and benefits in lieu of the omitted period of advance
notice.
(f) Termination of Agreement. This Agreement shall expire when all
obligations of the parties hereunder have been satisfied. In
addition, either the Corporation or the Employee may terminate this
Agreement for any reason, and without affecting the Employee's status
as an employee, by giving the other party one year's advance notice
in writing. A termination of this Agreement pursuant to the
preceding sentence shall be effective for all purposes, except that
such termination shall not affect the payment or provision of
compensation or benefits under this Agreement on account of a
termination of employment occurring prior to the termination of this
Agreement.
SECTION 2: DUTIES AND SCOPE OF EMPLOYMENT
(a) Position. The Corporation agrees to employ the Employee for the term
of employment under this Agreement in the position of
___________________ (as such position was defined in terms of
responsibilities and compensation as of the effective date of this
Agreement) or in another position offering comparable compensation,
either with the Corporation, a Subsidiary, an Affiliate or a Joint
Venture. The Corporation, Subsidiary, Affiliate or Joint Venture
directly employing the Employee is referred to in this Agreement as
the "Employing Entity," and the Corporation, its Subsidiaries,
Affiliates and Joint Ventures are referred to, in the aggregate, in
this Agreement as the "AirTouch Group."
For all purposes under this Agreement, the terms "Affiliate,"
"Subsidiary" and "Joint Venture" shall mean the following:
(1) "Affiliate" shall mean any entity other than a Subsidiary, if
the Corporation and/or one or more Subsidiaries own(s) not
less than 50% of such entity.
(2) "Subsidiary" shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning
with the Corporation, 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.
(3) "Joint Venture" shall mean any entity (other than a Subsidiary
or Affiliate) in which the Corporation and/or one or more
Subsidiaries and/or one or more Affiliates has a direct or
indirect ownership interest.
(b) Obligations. During the term of employment under this Agreement, the
Employee shall devote the Employee's full business efforts and time
to the Employing Entity and the AirTouch Group. The foregoing shall
not preclude the Employee from engaging in appropriate civic,
charitable or religious activities or from devoting a reasonable
amount of time to private investments or from serving on the boards
of directors of other entities, as long as such activities and
service do not interfere or conflict with the Employee's
responsibilities to the Employing Entity and the AirTouch Group.
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<PAGE> 4
SECTION 3: BASE COMPENSATION
During the term of employment under this Agreement, the Corporation agrees to
pay (itself or through the Employing Entity) the Employee as compensation for
services a base salary at the annual rate of $___,___, or at such higher rate as
the Corporation's Compensation and Personnel Committee of the Board of Directors
may determine from time to time. Such salary shall be payable in accordance with
the standard payroll procedures of the Employing Entity. Once the Corporation's
Compensation and Personnel Committee of the Board of Directors has increased
such salary, it thereafter shall not be reduced; provided, however, that if a
Change in Control has not occurred, such salary (including any increases) may be
reduced by the Corporation if (1) the Employee commits an act or omission that
meets the definition of Cause, as defined in Section 1(c), or (2) the Employee
and all other officers of the Corporation who are parties to written employment
agreements containing substantially the same provisions as this Agreement have
their salaries (including any increases) reduced by the same percentage amount
for the same time period. The annual compensation specified in this Section 3,
together with any increases in such compensation that the Compensation and
Personnel Committee of the Board of Directors of the Corporation may grant from
time to time, and together with any reductions made in accordance with this
Section 3, is referred to in this Agreement as "Base Compensation."
SECTION 4: EMPLOYEE BENEFITS
(a) In General. During the term of employment under this Agreement, the
Employee shall be eligible to participate in the employee benefit
plans and executive compensation programs maintained by the Employing
Entity, including (without limitation) pension plans, savings or
profit-sharing plans, deferred compensation plans, supplemental
retirement or excess-benefit plans, stock option, incentive or other
bonus plans, life, disability, health, accident and other insurance
programs, paid vacations, and similar plans or programs, subject in
each case to the generally applicable terms and conditions of the
plan or program in question and to the discretion and determinations
of any person, committee or entity administering such plan or program.
(b) Accelerated Vesting in Incentive Awards in Case of a Change in
Control of the Corporation. If, during the term of this Agreement, a
Change in Control (as defined in Section 12) occurs with respect to
the Corporation, then each of the incentive awards heretofore or
hereafter granted to the Employee by the members of the AirTouch
Group or their delegates shall become fully vested, fully exercisable
or fully payable, as the case may be, any contrary provisions of such
awards or the applicable plan notwithstanding. The term "incentive
award" shall include, without limitation, all awards under the
AirTouch Communications, Inc. 1993 Long-Term Stock Incentive Plan,
all other awards with respect to equity or derivative securities of
the AirTouch Group, and all cash incentive awards.
(c) Accelerated Vesting in Supplemental Pension Benefits in Case of a
Change in Control of the Corporation. If, during the term of this
Agreement, a Change in Control (as defined in Section 12) occurs with
respect to the Corporation, then all of the Employee's supplemental
pension benefits shall become fully vested, any contrary provisions
of the applicable plan notwithstanding. The term
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<PAGE> 5
"supplemental pension benefit" shall include, without limitation, all
retirement benefits provided under a plan or program of the AirTouch
Group that is not intended to qualify under section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
SECTION 5: BUSINESS EXPENSES AND TRAVEL
During the term of employment under this Agreement, the Employee shall be
authorized to incur necessary and reasonable travel, entertainment and other
business expenses in connection with the Employee's duties hereunder. The
Employing Entity shall reimburse the Employee for such expenses upon
presentation of an itemized account and appropriate supporting documentation,
all in accordance with generally applicable policies.
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<PAGE> 6
SECOND PART: COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR CONSTRUCTIVE
TERMINATION NOT OCCURRING WITHIN THREE YEARS AFTER A CHANGE IN
CONTROL
SECTION 6: TERMINATIONS NOT RELATING TO A CHANGE IN CONTROL
This Second Part of the Agreement, consisting of Sections 6 through 8, describes
the benefits and compensation, if any, payable in case of termination of
employment that does not occur within three years after a Change in Control (as
defined in Section 12). The Third Part of the Agreement, consisting of Sections
9 through 12, describes benefits and compensation, if any, payable in case of
termination occurring within three years after a Change in Control. If benefits
and compensation are payable under this Second Part, then no benefits and
compensation are payable under the Third Part.
SECTION 7: INVOLUNTARY TERMINATION WITHOUT CAUSE OR DISABILITY
In the event that, during the term of this Agreement, the Corporation or
Employing Entity terminates the Employee's employment with the AirTouch Group
for any reason other than Cause or Disability, and such termination does not
occur within three years after a Change in Control, then, after executing the
release of claims described in Section 7(e), the Employee shall be entitled to
receive the following payments and benefits:
(a) Severance (1-1/2 x payment)(1). The Corporation shall pay to the
Employee in a lump sum, not less than 31 days nor more than 120 days
following the date of the employment termination, an amount equal to
the following:
(1) One and one-half times(1) the Employee's Base Compensation
in effect on the date of the employment termination; plus
(2) 150% of the target Team Award under the AirTouch
Communications Short-Term Incentive Plan, for the Employee's
position as of the date of the termination.
Any other provision of this Agreement or of the AirTouch Communications
Short-Term Incentive Plan notwithstanding, after the amount described
in this Subsection (a) has been paid to the Employee, the Employee
shall have no further interest in such
Short-Term Incentive Plan.
(b) Eighteen Months of Life Insurance and Health Plan Coverage. The
coverage described in this Subsection (b) shall be provided for a
"Continuation Period" beginning on the date when the employment
termination is effective and ending on the earlier of (1) the
18-month anniversary(2) of the date when the employment termination is
effective or (2) the date of the Employee's death. During the
Continuation Period, the Employee (and, where applicable, the
Employee's dependents) shall be entitled to continue participation in
the basic and supplemental group term life insurance plan and in the
health care plan for employees maintained by the Employing Entity as
if the Employee were still an
- - ----------
(1) CEO agreement provides for two times (2X) relevant amount.
(2) CEO agreement provides for "24-month anniversary."
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<PAGE> 7
employee of the Employing Entity, but only if the Employee does not
elect any continuation coverage under Part 6 of Title I of the Employee
Retirement Income Security Act of 1974, as amended. Where applicable,
the Employee's compensation for purposes of such plans shall be deemed
to be equal to the Employee's compensation (as defined in such plans)
in effect on the date of the employment termination. To the extent that
the Corporation finds it undesirable to cover the Employee under the
group life insurance and health plans of the AirTouch Group, the
Corporation shall provide the Employee (at its own expense) with the
same level of coverage under individual policies.
(c) Incentive Programs. The period (the "Extension Period") beginning on
the date when the termination of employment is effective and ending
on the earlier of (1) the one-year anniversary of the date when the
employment termination is effective or (2) the date of the Employee's
death shall be counted as employment with the Corporation for
purposes of vesting in each of the incentive awards heretofore or
hereafter granted to the Employee by the members of the AirTouch
Group or their delegates, any contrary provisions of such awards or
the applicable plan notwithstanding. The term "incentive award"
shall include, without limitation, all awards under the AirTouch
Communications, Inc. 1993 Long-Term Stock Incentive Plan, all other
awards with respect to equity or derivative securities of the
AirTouch Group, and all cash incentive awards. This Subsection shall
not be construed to require any member of the AirTouch Group to grant
any new awards to the Employee during the Extension Period. The
parties understand and agree that the Extension Period also counts as
employment with the Corporation for purposes of determining the
expiration date of any stock option granted by any member of the
AirTouch Group and held by the Employee when employment terminates.
(d) Financial Counseling. For a one-year period after termination of
employment, the Corporation shall provide the Employee with
professional financial counseling services comparable in scope and
value to the financial counseling services made available to the
Employee immediately prior to the Change in Control.
(e) Release of Claims. As a condition to the receipt of the payments and
benefits described in this Section 7, the Employee shall be required to
execute a release of all claims arising out of the Employee's
employment or the termination thereof including, but not limited to,
any claim of discrimination under state or federal law.
(f) No Mitigation. The Employee shall not be required to mitigate the
amount of any payment or benefit contemplated by this Section 7, nor
shall any such payment or benefit be reduced by any earnings or
benefits that the Employee may receive from any other source.
SECTION 8: OTHER TERMINATIONS UNDER THIS PART
If termination of employment, actual or constructive, occurs at a time that is
not within three years after a Change in Control, and the termination is not
described in Section 7, then the Employee is entitled only to the compensation,
benefits and reimbursements payable under the terms of Sections 3, 4 and 5 of
this Agreement for the period preceding the effective date of the termination.
The payments under this Agreement
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<PAGE> 8
shall fully discharge all responsibilities of the AirTouch Group to the Employee
upon termination of the Employee's employment. This Section 8 applies, without
limitation, to any termination of employment initiated by the Employee,
termination of employment caused by the Employee's death or Disability,
termination of the Employee for Cause, and any constructive termination.
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THIRD PART: COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR CONSTRUCTIVE
TERMINATION OCCURRING WITHIN THREE YEARS AFTER A CHANGE IN
CONTROL
SECTION 9: TERMINATIONS RELATING TO A CHANGE IN CONTROL
This Third Part of the Agreement, consisting of Sections 9 through 12, describes
the benefits and compensation, if any, payable in case of termination of
employment that occurs within three years after a Change in Control (as defined
in Section 12). The Second Part of the Agreement, consisting of Sections 6
through 8, describes benefits and compensation, if any, payable in case of
termination that does not occur within three years after a Change in Control. If
benefits and compensation are payable under this Third Part, then no benefits
and compensation are payable under the Second Part.
SECTION 10: INVOLUNTARY ACTUAL OR CONSTRUCTIVE TERMINATION WITHOUT CAUSE
In the event that, during the term of this Agreement and within three years
after a Change in Control, the Employee's employment terminates in a Qualifying
Termination, as defined in Subsection (a), the Employee shall be entitled to
receive the payments and benefits described in Subsections (b), (c), (d) and
(e).
(a) Qualifying Termination. A Qualifying Termination occurs if:
(1) The Corporation or Employing Entity terminates the Employee's
employment with the AirTouch Group for any reason including,
without limitation, Cause or Disability;
(2) The Employee separates from employment with the AirTouch Group
in response to a "Constructive Termination," which means a
material reduction in salary or benefits, a material change in
responsibilities, or a requirement to relocate, except for
office relocations that would not increase the Employee's
one-way commute distance by more than 40 miles; or
(3) During the term of this Agreement and during the 13th full
calendar month after the occurrence of a Change in Control,
the Employee voluntarily separates from employment with the
AirTouch Group for any reason.
(b) Severance (3x payment). The Corporation shall pay to the Employee in a
lump sum, not less than 31 days nor more than 120 days following the
date of the employment termination, an amount equal to the following:
(1) Three times the Employee's Base Compensation in effect on
the date of the employment termination; plus
(2) 300% of the target Team Award under the AirTouch
Communications Short-Term Incentive Plan, for the Employee's
position as of the date of the termination.
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Any other provision of this Agreement or of the AirTouch Communications
Short-Term Incentive Plan notwithstanding, after the amount described
in this Subsection (b) has been paid to the Employee, the Employee
shall have no further interest in such
Short-Term Incentive Plan.
(c) Three Years of Life Insurance and Health Plan Coverage. The coverage
described in this Subsection (c) shall be provided for a
"Continuation Period" beginning on the date when the employment
termination is effective and ending on the earlier of (1) the third
anniversary of the date when the employment termination is effective
or (2) the date of the Employee's death. During the Continuation
Period, the Employee (and, where applicable, the Employee's
dependents) shall be entitled to continue participation in the basic
and supplemental group term life insurance plan and in the health
care plan for employees maintained by the Employing Entity as if the
Employee were still an employee of the Employing Entity, but only if
the Employee does not elect any continuation coverage under Part 6 of
Title I of the Employee Retirement Income Security Act of 1974, as
amended. Where applicable, the Employee's compensation for purposes
of such plans shall be deemed to be equal to the Employee's
compensation (as defined in such plans) in effect on the date of the
employment termination. To the extent that the Corporation finds it
undesirable to cover the Employee under the group life insurance and
health plans of the AirTouch Group, the Corporation shall provide the
Employee (at its own expense) with the same level of coverage under
individual policies.
(d) Incentive Programs. The period (the "Extension Period") beginning on
the date when the termination of employment is effective and ending
on the earlier of (1) the one-year anniversary of the date when the
employment termination is effective or (2) the date of the Employee's
death shall be counted as employment with the Corporation for
purposes of vesting in each of the incentive awards heretofore or
hereafter granted to the Employee by the members of the AirTouch
Group or their delegates, any contrary provisions of such awards or
the applicable plan notwithstanding. The term "incentive award"
shall include, without limitation, all awards under the AirTouch
Communications, Inc. 1993 Long-Term Stock Incentive Plan, all other
awards with respect to equity or derivative securities of the
AirTouch Group, and all cash incentive awards. This Subsection shall
not be construed to require any member of the AirTouch Group to grant
any new awards to the Employee during the Extension Period. The
parties understand and agree that the Extension Period also counts as
employment with the Corporation for purposes of determining the
expiration date of any stock option granted by any member of the
AirTouch Group and held by the Employee when employment terminates.
(e) Financial Counseling. For a one-year period after termination of
employment, the Corporation shall provide the Employee with
professional financial counseling services comparable in scope and
value to the financial counseling services made available to the
Employee immediately prior to the Change in Control.
(f) Penalty for Late or Refused Payment. If the Corporation refuses or
fails to timely pay or provide the compensation and benefits
specified in this Section 10 upon demand as provided in Section
17(c), and if such refusal or failure is not corrected within 10
business days after the Employee provides written notice to
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the Corporation concerning the refusal or failure, then the Corporation
shall pay immediately to the Employee an additional amount equal to 50%
of the Employee's Base Compensation. This provision shall apply only
once.
(g) No Mitigation. The Employee shall not be required to mitigate the
amount of any payment or benefit contemplated by this Section 10, nor
shall any such payment or benefit be reduced by any earnings or
benefits that the Employee may receive from any other source.
SECTION 11: OTHER TERMINATIONS UNDER THIS PART
If termination of employment, actual or constructive, occurs at a time that is
within three years after a Change in Control, and the termination is not
described in Section 10, then the Employee is entitled only to the compensation,
benefits and reimbursements payable under the terms of Sections 3, 4 and 5 of
this Agreement for the period preceding the effective date of the termination.
The payments under this Agreement shall fully discharge all responsibilities of
the AirTouch Group to the Employee upon termination of the Employee's
employment. This Section 11 applies, without limitation, to any termination of
employment initiated by the Employee (except an Employee-initiated termination
that is described in Paragraph (2) or (3) of Section 10(a)), a termination of
employment caused by the Employee's death, or any constructive termination that
does not meet the requirements of a "Constructive Termination" defined in
Paragraph (2) of Section 10(a).
SECTION 12: DEFINITION OF CHANGE IN CONTROL
For all purposes under this Agreement, "Change in Control" shall mean a "Change
in Control" of the Corporation, as defined in the AirTouch Communications, Inc.
1993 Long-Term Stock Incentive Plan (or the successor to such plan).
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<PAGE> 12
FOURTH PART: PARACHUTE PAYMENTS
SECTION 13: GROSS-UP PAYMENT.
In the event it is determined that any payment or distribution of any type to or
for the benefit of the Employee, pursuant to this Agreement or otherwise, by the
Corporation or any member of the AirTouch Group, any Person who acquires
ownership or effective control of the Corporation or any member of the AirTouch
Group, or ownership of a substantial portion of the assets of the Corporation or
any member of the AirTouch Group (within the meaning of section 280G of the Code
and the regulations thereunder) or any affiliate of such Person (the "Total
Payments") would be subject to the excise tax imposed by section 4999 of the
Code or any interest or penalties with respect to such excise tax (such excise
tax, together with any such interest and penalties, are collectively referred to
as the "Excise Tax"), then the Employee shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that, after payment
by the Employee of all taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax, imposed upon the Gross-Up
Payment, the Employee retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Total Payments.
SECTION 14: DETERMINATION BY ACCOUNTANT
All mathematical determinations and determinations as to whether any of the
Total Payments are "parachute payments" (within the meaning of section 280G of
the Code), in each case which determinations are required to be made under this
Section 14, including whether a Gross-Up Payment is required, the amount of such
Gross-Up Payment, and amounts relevant to the last sentence of this Section 14,
shall be made by an independent accounting firm selected by the Employee from
amount the largest six accounting firms in the United States (the "Accounting
Firm"). The Accounting Firm shall provide to the Corporation and to the Employee
its determination (the "Determination"), together with detailed supporting
calculations regarding the amount of any Gross-Up Payment and any other relevant
matter, within five days after termination of the Employee's employment, if
applicable, or at such earlier time as is requested by the Corporation or the
Employee (if the Employee reasonably believes that any of the Total Payments may
be subject to the Excise Tax). If the Accounting Firm determines that no Excise
Tax is payable by the Employee, it shall furnish the Employee with a written
statement that such Accounting Firm has concluded that no Excise Tax is payable
(including the reasons therefor) and that the Employee has substantial authority
not to report any Excise Tax on the Employee's federal income tax return. If a
Gross-Up Payment is determined to be payable, it shall be paid to the Employee
within five days after the Determination is delivered to the Corporation or the
Employee. Any determination by the Accounting Firm shall be binding upon the
Corporation and the Employee, absent manifest error.
As a result of uncertainty in the application of section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments not made by the Corporation and members of the
AirTouch Group should have been made ("Underpayment"), or that Gross-Up Payments
were made by the Corporation and members of the AirTouch Group that should not
have been made ("Overpayments"). In either such event, the Accounting Firm shall
determine the
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<PAGE> 13
amount of the Underpayment or Overpayment that has occurred. In the case of an
Underpayment, the Corporation promptly shall pay, or cause to be paid, the
amount of such Underpayment to or for the benefit of the Employee. In the case
of an Overpayment, the Employee shall, at the direction and expense of the
Corporation, take such steps as are reasonably necessary (including the filing
of returns and claims for refund), follow reasonable instructions from, and
procedures established by, the Corporation, and otherwise reasonably cooperate
with the Corporation to correct such Overpayment; provided, however, that (1)
Employee shall not in any event be obligated to return to the Corporation an
amount greater than the net after-tax portion of the Overpayment that he has
retained or recovered as a refund from the applicable taxing authorities and (2)
this provision shall be interpreted in a manner consistent with the intent of
Section 13, which is to make the Employee whole, on an after-tax basis, from the
application of the Excise Tax, it being understood that the correction of an
Overpayment may result in the Employee repaying to the Corporation an amount
that is less than the Overpayment.
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<PAGE> 14
FIFTH PART: TRADE SECRETS, SUCCESSORS, MISCELLANEOUS PROVISIONS,
SIGNATURE PAGE
SECTION 15: CONFIDENTIAL INFORMATION
(a) Acknowledgement. The Corporation and the Employee acknowledge that
the services to be performed by the Employee under this Agreement are
unique and extraordinary and that, as a result of the Employee's
employment, the Employee will be in a relationship of confidence and
trust with the Corporation and will come into possession of
"Confidential Information" (1) owned or controlled by the AirTouch
Group, (2) in the possession of the AirTouch Group and belonging to
third parties or (3) conceived, originated, discovered or developed,
in whole or in part, by the Employee. As used herein "Confidential
Information" includes trade secrets and other confidential or
proprietary business, technical, personnel or financial information,
whether or not the Employee's work product, in written, graphic, oral
or other tangible or intangible forms, including but not limited to
specifications, samples, records, data, computer programs, drawings,
diagrams, models, customer names, business or marketing plans,
studies, analyses, projections and reports, communications by or to
attorneys (including attorney-client privileged communications),
memos and other materials prepared by attorneys or under their
direction (including attorney work product), and software systems and
processes. Any information that is not readily available to the
public shall be considered to be a trade secret and confidential and
proprietary, even if it is not specifically marked as such, unless
the Corporation advises the Employee otherwise in writing.
(b) Nondisclosure. The Employee agrees that the Employee will not,
without the prior written consent of the Corporation, directly or
indirectly use or disclose Confidential Information to any person,
during or after the Employee's employment, except as may be necessary
in the ordinary course of performing the Employee's duties under this
Agreement. The Employee will keep the Confidential Information in
strictest confidence and trust. This Section 15 shall apply
indefinitely, both during and after the term of this Agreement.
(c) Surrender Upon Termination. The Employee agrees that in the event of
the termination of the Employee's employment for any reason, the
Employee will immediately deliver to the Corporation (and/or other
members of the AirTouch Group, as applicable) all property belonging
to the AirTouch Group, including all documents and materials of any
nature pertaining to the Employee's work with the AirTouch Group, and
will not take with the Employee any documents or materials of any
description, or any reproduction thereof of any description,
containing or pertaining to any Confidential Information. It is
understood that the Employee is free to use information that is in
the public domain (not as a result of a breach of this Agreement).
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<PAGE> 15
SECTION 16: SUCCESSORS
(a) Corporation's Successors. The Corporation shall require any
successor (whether direct or indirect and whether by purchase, lease,
merger, consolidation, liquidation or otherwise) to all or
substantially all of the Corporation's business and/or assets, by an
agreement in substance and form satisfactory to the Employee, to
assume this Agreement and to agree expressly to perform this
Agreement in the same manner and to the same extent as the
Corporation would be required to perform it in the absence of a
succession. The Corporation's failure to obtain such agreement prior
to the effectiveness of a succession shall be a breach of this
Agreement and shall entitle the Employee to all of the compensation
and benefits to which the Employee would have been entitled hereunder
if the Corporation had involuntarily terminated the Employee's
employment without Cause or Disability, on the date when such
succession becomes effective. For all purposes under this Agreement,
the term "Corporation" shall include any successor to the
Corporation's business and/or assets that executes and delivers the
assumption agreement described in this Subsection (a) or that becomes
bound by this Agreement by operation of law.
(b) Employee's Successors. This Agreement and all rights of the Employee
hereunder shall inure to the benefit of, and be enforceable by, the
Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees.
SECTION 17: MISCELLANEOUS PROVISIONS
(a) Waiver. No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Employee and by an authorized officer of
the Corporation (other than the Employee). No waiver by either party
of any breach of, or of compliance with, any condition or provision
of this Agreement by the other party shall be considered a waiver of
any other condition or provision or of the same condition or
provision at another time.
(b) Whole Agreement. No agreements, representations or understandings
(whether oral or written and whether express or implied) that are not
expressly set forth in this Agreement have been made or entered into
by either party with respect to the subject matter hereof. In
addition, the Employee hereby acknowledges and agrees that this
Agreement supersedes in its entirety any employment agreement between
the Employee and the Corporation in effect immediately prior to the
effective date of this Agreement. As of the effective date of this
Agreement, such employment agreement shall terminate without any
further obligation by either party thereto, and the Employee hereby
relinquishes any further rights that the Employee may have had under
such prior employment agreement.
(c) Presumption. Subject to the provisions of Section 13, the
Corporation shall make or cause to be made a payment described in
this Agreement upon receiving written notice from the Employee
describing such payment, referring to the provision of this Agreement
under which such payment is claimed and certifying that all
conditions for such payment, as set forth in this Agreement,
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<PAGE> 16
have been satisfied. The information so furnished to the Corporation by
the Employee shall be presumed to be correct, subject to rebuttal by
the Corporation after payment. After making the payment claimed by the
Employee, the Corporation may seek a refund of such payment in
accordance with Subsection (h) below. This Subsection (c) shall not be
used to cause a payment to be made at a time earlier than provided in
this Agreement.
(d) Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid. In the
case of the Employee, mailed notices shall be addressed to the
Employee at the home address that the Employee most recently
communicated to the Corporation in writing. In the case of the
Corporation, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of
its Secretary.
(e) No Setoff. There shall be no right of setoff or counterclaim, with
respect to any claim, debt or obligation, against payments to the
Employee under this Agreement.
(f) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the
State of California, irrespective of California's choice-of-law
principles.
(g) Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in
full force and effect.
(h) Arbitration. Except as otherwise provided in Section 13, any dispute
or controversy arising out of the Employee's employment or the
termination thereof, including, but not limited to, any claim of
discrimination under state or federal law, shall be settled
exclusively by arbitration in San Francisco, California, in
accordance with the rules of the American Arbitration Association
then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction. The foregoing notwithstanding, a
dispute or controversy over whether Cause exists for the termination
of an Employee, whether such termination occurred within three years
after a Change in Control, or a dispute or controversy over whether a
Constructive Termination has occurred, shall be arbitrated by a
three-member panel of the outside directors of the Corporation, with
the selection of the panel to be made by the Chairman, as of one year
prior to the Change in Control, of the Corporation's Board of
Directors. If three such individuals are unwilling to serve as
arbitrators, the preceding sentence shall be inapplicable, and all
disputes and controversies shall be subject to arbitration in
accordance with the rules of the American Arbitration Association, as
provided above in this Subsection. For purposes of this Subsection,
"outside directors" shall mean members of the Board of Directors of
the Corporation, as such Board of Directors was constituted one year
prior to the Change in Control, who were not employees of the
Corporation or another member of the AirTouch Group one year prior to
the Change in Control.
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<PAGE> 17
(i) No Assignment of Benefits. The rights of any person to payments or
benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by
operation of law, including (without limitation) bankruptcy,
garnishment, attachment or other creditor's process, and any action in
violation of this Subsection (i) shall be void.
(j) Employment at Will; Limitation of Remedies. The Corporation and the
Employee acknowledge that the Employee's employment is at will, as
defined under applicable law. If the Employee's employment terminates
for any reason, the Employee shall not be entitled to any payments,
benefits, damages, awards or compensation other than as provided by
this Agreement.
(k) Employment Taxes. All payments made pursuant to this Agreement shall
be subject to withholding of applicable taxes.
(l) Benefit Coverage Non-Additive. In the event that the Employee is
entitled to life insurance and health plan coverage under more than one
provision hereunder, only one provision shall apply, and neither the
periods of coverage nor the amounts of benefits shall be additive.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case
of the Corporation by its duly authorized officer, as of the day and year first
above written.
______________________________
Employee
AIRTOUCH COMMUNICATIONS, INC.
By____________________________
Its___________________________
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EXHIBIT 10.27
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the _____ day of ____________, 199_, by and
between (the "Employee") and AIRTOUCH COMMUNICATIONS, INC., a Delaware
corporation (the "Corporation").
For ease of reference, this Agreement is divided into the following parts, which
begin on the pages indicated:
FIRST PART: TERM OF EMPLOYMENT, DUTIES AND SCOPE, COMPENSATION
AND BENEFITS DURING EMPLOYMENT (Sections 1-5,
beginning on page 1)
SECOND PART: COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR CONSTRUCTIVE
TERMINATION NOT OCCURRING WITHIN THREE YEARS AFTER
A CHANGE IN CONTROL (Sections 6-8, beginning on page 6)
THIRD PART: COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR
CONSTRUCTIVE TERMINATION OCCURRING WITHIN THREE
YEARS AFTER A CHANGE IN CONTROL
(Sections 9-12, beginning on page 8)
FOURTH PART: PARACHUTE PAYMENTS
(Sections 13-16, beginning on page 11)
FIFTH PART: TRADE SECRETS, SUCCESSORS, MISCELLANEOUS
PROVISIONS, SIGNATURE PAGE
(Sections 17-19, beginning on page 14)
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FIRST PART: TERM OF EMPLOYMENT, DUTIES AND SCOPE, COMPENSATION AND
BENEFITS DURING EMPLOYMENT
SECTION 1: TERM OF EMPLOYMENT
(a) Basic Rule. The Corporation agrees to continue the Employee's
employment, and the Employee agrees to remain in employment with the
Corporation, from _____________ ___, 199_, until the earliest of:
(1) The date of the Employee's death; or
(2) The date when the Employee's employment terminates pursuant
to Subsection (b), (c), (d) or (e) below.
(b) Early Termination or Resignation. The Corporation may terminate the
Employee's employment for any reason by giving the Employee not less
than 30 days' advance notice in writing. The Employee may terminate the
Employee's employment for any reason by giving the Corporation not less
than 30 days' advance notice in writing.
(c) Termination for Cause. The Corporation may terminate the Employee's
employment at any time for Cause shown by giving the Employee notice
in writing and paying the Employee pay and benefits in lieu of
advance notice to the extent that notice of termination was not given
at least 30 days in advance. For all purposes under this Agreement,
"Cause" shall mean (1) a willful failure by the Employee to
substantially perform the Employee's duties under this Agreement,
other than a failure resulting from the Employee's complete or
partial incapacity due to physical or mental illness or impairment,
(2) a willful act by the Employee that constitutes gross misconduct
and that is injurious to the Corporation, (3) a willful breach by the
Employee of a material provision of this Agreement or (4) a material
and willful violation of a federal or state law or regulation
applicable to the business of the Corporation. No act, or failure to
act, by the Employee shall be considered "willful" unless committed
without good faith and without a reasonable belief that the act or
omission was in the Corporation's best interest.
(d) Termination for Disability. The Corporation may terminate the
Employee's employment for Disability by giving the Employee not less
than six months' advance notice in writing. For all purposes under
this Agreement, "Disability" shall mean that the Employee, at the
time notice is given, has been unable to perform the Employee's
duties under this Agreement for a period of not less than six
consecutive months as the result of the Employee's incapacity due to
physical or mental illness. In the event that the Employee resumes
the performance of substantially all of the Employee's duties under
this Agreement before the termination of the Employee's employment
under this Section becomes effective, the notice of termination shall
automatically be deemed to have been revoked.
(e) Notice. For all purposes under this Section 1, the employment
relationship shall terminate on the date specified in the notice of
termination. Any waiver of notice
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shall be valid only if it is made in writing and expressly refers to
the applicable notice requirement of this Section 1. If the Corporation
specifies a termination date that is earlier than the minimum advance
notice date required under Subsection (b), (c) or (d) (as applicable),
then the Employee is entitled to pay and benefits in lieu of the
omitted period of advance notice.
(f) Termination of Agreement. This Agreement shall expire when all
obligations of the parties hereunder have been satisfied. In
addition, either the Corporation or the Employee may terminate this
Agreement for any reason, and without affecting the Employee's status
as an employee, by giving the other party one year's advance notice
in writing. A termination of this Agreement pursuant to the
preceding sentence shall be effective for all purposes, except that
such termination shall not affect the payment or provision of
compensation or benefits under this Agreement on account of a
termination of employment occurring prior to the termination of this
Agreement.
SECTION 2: DUTIES AND SCOPE OF EMPLOYMENT
(a) Position. The Corporation agrees to employ the Employee for the term
of employment under this Agreement in the position of
___________________ (as such position was defined in terms of
responsibilities and compensation as of the effective date of this
Agreement) or in another position offering comparable compensation,
either with the Corporation, a Subsidiary, an Affiliate or a Joint
Venture. The Corporation, Subsidiary, Affiliate or Joint Venture
directly employing the Employee is referred to in this Agreement as
the "Employing Entity," and the Corporation, its Subsidiaries,
Affiliates and Joint Ventures are referred to, in the aggregate, in
this Agreement as the "AirTouch Group."
For all purposes under this Agreement, the terms "Affiliate,"
"Subsidiary" and "Joint Venture" shall mean the following:
(1) "Affiliate" shall mean any entity other than a Subsidiary, if
the Corporation and/or one or more Subsidiaries own(s) not
less than 50% of such entity.
(2) "Subsidiary" shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning
with the Corporation, 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.
(3) "Joint Venture" shall mean any entity (other than a Subsidiary
or Affiliate) in which the Corporation and/or one or more
Subsidiaries and/or one or more Affiliates has a direct or
indirect ownership interest.
(b) Obligations. During the term of employment under this Agreement, the
Employee shall devote the Employee's full business efforts and time
to the Employing Entity and the AirTouch Group. The foregoing shall
not preclude the Employee from engaging in appropriate civic,
charitable or religious activities or from devoting a reasonable
amount of time to private investments or from serving on the boards
of directors of other entities, as long as such activities and
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service do not interfere or conflict with the Employee's
responsibilities to the Employing Entity and the AirTouch Group.
SECTION 3: BASE COMPENSATION
During the term of employment under this Agreement, the Corporation agrees to
pay (itself or through the Employing Entity) the Employee as compensation for
services a base salary at the annual rate of $___,___, or at such higher rate as
the Corporation's Compensation and Personnel Committee of the Board of Directors
may determine from time to time. Such salary shall be payable in accordance with
the standard payroll procedures of the Employing Entity. Once the Corporation's
Compensation and Personnel Committee of the Board of Directors has increased
such salary, it thereafter shall not be reduced; provided, however, that if a
Change in Control has not occurred, such salary (including any increases) may be
reduced by the Corporation if (1) the Employee commits an act or omission that
meets the definition of Cause, as defined in Section 1(c), or (2) the Employee
and all other officers of the Corporation who are parties to written employment
agreements containing substantially the same provisions as this Agreement have
their salaries (including any increases) reduced by the same percentage amount
for the same time period. The annual compensation specified in this Section 3,
together with any increases in such compensation that the Compensation and
Personnel Committee of the Board of Directors of the Corporation may grant from
time to time, and together with any reductions made in accordance with this
Section 3, is referred to in this Agreement as "Base Compensation."
SECTION 4: EMPLOYEE BENEFITS
(a) In General. During the term of employment under this Agreement, the
Employee shall be eligible to participate in the employee benefit
plans and executive compensation programs maintained by the Employing
Entity, including (without limitation) pension plans, savings or
profit-sharing plans, deferred compensation plans, supplemental
retirement or excess-benefit plans, stock option, incentive or other
bonus plans, life, disability, health, accident and other insurance
programs, paid vacations, and similar plans or programs, subject in
each case to the generally applicable terms and conditions of the
plan or program in question and to the discretion and determinations
of any person, committee or entity administering such plan or program.
(b) Accelerated Vesting in Incentive Awards in Case of a Change in
Control of the Corporation. If, during the term of this Agreement, a
Change in Control (as defined in Section 12) occurs with respect to
the Corporation, then each of the incentive awards heretofore or
hereafter granted to the Employee by the members of the AirTouch
Group or their delegates shall become fully vested, fully exercisable
or fully payable, as the case may be, any contrary provisions of such
awards or the applicable plan notwithstanding. The term "incentive
award" shall include, without limitation, all awards under the
AirTouch Communications, Inc. 1993 Long-Term Stock Incentive Plan,
all other awards with respect to equity or derivative securities of
the AirTouch Group, and all cash incentive awards.
(c) Accelerated Vesting in Supplemental Pension Benefits in Case of a
Change in
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Control of the Corporation. If, during the term of this Agreement, a
Change in Control (as defined in Section 12) occurs with respect to the
Corporation, then all of the Employee's supplemental pension benefits
shall become fully vested, any contrary provisions of the applicable
plan notwithstanding. The term "supplemental pension benefit" shall
include, without limitation, all benefits under the AirTouch
Communications Supplemental Executive Pension Plan and all other
retirement benefits provided under a plan or program of the AirTouch
Group that is not intended to qualify under section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
SECTION 5: BUSINESS EXPENSES AND TRAVEL
During the term of employment under this Agreement, the Employee shall be
authorized to incur necessary and reasonable travel, entertainment and other
business expenses in connection with the Employee's duties hereunder. The
Employing Entity shall reimburse the Employee for such expenses upon
presentation of an itemized account and appropriate supporting documentation,
all in accordance with generally applicable policies.
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SECOND PART: COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR CONSTRUCTIVE
TERMINATION NOT OCCURRING WITHIN THREE YEARS AFTER A CHANGE IN
CONTROL
SECTION 6: TERMINATIONS NOT RELATING TO A CHANGE IN CONTROL
This Second Part of the Agreement, consisting of Sections 6 through 8, describes
the benefits and compensation, if any, payable in case of termination of
employment that does not occur within three years after a Change in Control (as
defined in Section 12). The Third Part of the Agreement, consisting of Sections
9 through 12, describes benefits and compensation, if any, payable in case of
termination occurring within three years after a Change in Control. If benefits
and compensation are payable under this Second Part, then no benefits and
compensation are payable under the Third Part.
SECTION 7: INVOLUNTARY TERMINATION WITHOUT CAUSE OR DISABILITY
In the event that, during the term of this Agreement, the Corporation or
Employing Entity terminates the Employee's employment with the AirTouch Group
for any reason other than Cause or Disability, and such termination does not
occur within three years after a Change in Control, then, after executing the
release of claims described in Section 7(d), the Employee shall be entitled to
receive the following payments and benefits:
(a) Severance (1x payment). The Corporation shall pay to the Employee in a
lump sum, not less than 31 days nor more than 120 days following the
date of the employment termination, an amount equal to the following:
(1) One times the Employee's Base Compensation in effect on the
date of the employment termination; plus
(2) 100% of the target Team Award under the AirTouch
Communications Short-Term Incentive Plan, for the Employee's
position as of the date of the termination.
Any other provision of this Agreement or of the AirTouch Communications
Short-Term Incentive Plan notwithstanding, after the amount described
in this Subsection (a) has been paid to the Employee, the Employee
shall have no further interest in such
Short-Term Incentive Plan.
(b) One Year of Life Insurance and Health Plan Coverage. The coverage
described in this Subsection (b) shall be provided for a
"Continuation Period" beginning on the date when the employment
termination is effective and ending on the earlier of (1) the first
anniversary of the date when the employment termination is effective
or (2) the date of the Employee's death. During the Continuation
Period, the Employee (and, where applicable, the Employee's
dependents) shall be entitled to continue participation in the basic
and supplemental group term life insurance plan and in the health
care plan for employees maintained by the Employing Entity as if the
Employee were still an employee of the Employing Entity, but only if
the Employee does not elect any continuation coverage under Part 6 of
Title I of the Employee Retirement Income Security Act of 1974, as
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<PAGE> 7
amended. Where applicable, the Employee's compensation for purposes
of such plans shall be deemed to be equal to the Employee's
compensation (as defined in such plans) in effect on the date of the
employment termination. To the extent that the Corporation finds it
undesirable to cover the Employee under the group life insurance and
health plans of the AirTouch Group, the Corporation shall provide the
Employee (at its own expense) with the same level of coverage under
individual policies.
(c) Financial Counseling. For a one-year period after termination of
employment, the Corporation shall provide the Employee with
professional financial counseling services comparable in scope and
value to the financial counseling services made available to the
Employee immediately prior to the Change in Control.
(d) Release of Claims. As a condition to the receipt of the payments and
benefits described in this Section 7, the Employee shall be required to
execute a release of all claims arising out of the Employee's
employment or the termination thereof including, but not limited to,
any claim of discrimination under state or federal law.
(e) No Mitigation. The Employee shall not be required to mitigate the
amount of any payment or benefit contemplated by this Section 7, nor
shall any such payment or benefit be reduced by any earnings or
benefits that the Employee may receive from any other source.
SECTION 8: OTHER TERMINATIONS UNDER THIS PART
If termination of employment, actual or constructive, occurs at a time that is
not within three years after a Change in Control, and the termination is not
described in Section 7, then the Employee is entitled only to the compensation,
benefits and reimbursements payable under the terms of Sections 3, 4 and 5 of
this Agreement for the period preceding the effective date of the termination.
The payments under this Agreement shall fully discharge all responsibilities of
the AirTouch Group to the Employee upon termination of the Employee's
employment. This Section 8 applies, without limitation, to any termination of
employment initiated by the Employee, termination of employment caused by the
Employee's death or Disability, termination of the Employee for Cause, and any
constructive termination.
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<PAGE> 8
THIRD PART: COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR CONSTRUCTIVE
TERMINATION OCCURRING WITHIN THREE YEARS AFTER A
CHANGE IN CONTROL
SECTION 9: TERMINATIONS RELATING TO A CHANGE IN CONTROL
This Third Part of the Agreement, consisting of Sections 9 through 12, describes
the benefits and compensation, if any, payable in case of termination of
employment that occurs within three years after a Change in Control (as defined
in Section 12). The Second Part of the Agreement, consisting of Sections 6
through 8, describes benefits and compensation, if any, payable in case of
termination that does not occur within three years after a Change in Control. If
benefits and compensation are payable under this Third Part, then no benefits
and compensation are payable under the Second Part.
SECTION 10: INVOLUNTARY ACTUAL OR CONSTRUCTIVE TERMINATION WITHOUT CAUSE
In the event that, during the term of this Agreement and within three years
after a Change in Control, the Employee's employment terminates in a Qualifying
Termination, as defined in Subsection (a), the Employee shall be entitled to
receive the payments and benefits described in Subsections (b), (c) and (d).
(a) Qualifying Termination. A Qualifying Termination occurs if the
Corporation or Employing Entity terminates the Employee's employment
with the AirTouch Group for any reason including, without limitation,
Cause or Disability. A Qualifying Termination also includes a
"Constructive Termination," which means a material reduction in
salary or benefits, a material change in responsibilities, or a
requirement to relocate, except for office relocations that would not
increase the Employee's one-way commute distance by more than 40
miles.
(b) Severance (2x payment). The Corporation shall pay to the Employee in a
lump sum, not less than 31 days nor more than 120 days following the
date of the employment termination, an amount equal to the following:
(1) Two times the Employee's Base Compensation in effect on the
date of the employment termination; plus
(2) 200% of the target Team Award under the AirTouch
Communications Short-Term Incentive Plan, for the Employee's
position as of the date of the termination.
Any other provision of this Agreement or of the AirTouch Communications
Short-Term Incentive Plan notwithstanding, after the amount described
in this Subsection (b) has been paid to the Employee, the Employee
shall have no further interest in such
Short-Term Incentive Plan.
(c) Two Years of Life Insurance and Health Plan Coverage. The coverage
described in this Subsection (c) shall be provided for a
"Continuation Period" beginning on the date when the employment
termination is effective and ending on the earlier of (1) the second
anniversary of the date when the employment
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<PAGE> 9
termination is effective or (2) the date of the Employee's death.
During the Continuation Period, the Employee (and, where applicable,
the Employee's dependents) shall be entitled to continue participation
in the basic and supplemental group term life insurance plan and in the
health care plan for employees maintained by the Employing Entity as if
the Employee were still an employee of the Employing Entity, but only
if the Employee does not elect any continuation coverage under Part 6
of Title I of the Employee Retirement Income Security Act of 1974, as
amended. Where applicable, the Employee's compensation for purposes of
such plans shall be deemed to be equal to the Employee's compensation
(as defined in such plans) in effect on the date of the employment
termination. To the extent that the Corporation finds it undesirable to
cover the Employee under the group life insurance and health plans of
the AirTouch Group, the Corporation shall provide the Employee (at its
own expense) with the same level of coverage under individual policies.
(d) Financial Counseling. For a two-year period after termination of
employment, the Corporation shall provide the Employee with
professional financial counseling services comparable in scope and
value to the financial counseling services made available to the
Employee immediately prior to the Change in Control.
(e) Penalty for Late or Refused Payment. If the Corporation refuses or
fails to timely pay or provide the compensation and benefits
specified in this Section 10 upon demand as provided in Section
19(c), and if such refusal or failure is not corrected within 10
business days after the Employee provides written notice to the
Corporation concerning the refusal or failure, then the Corporation
shall pay immediately to the Employee an additional amount equal to
50% of the Employee's Base Compensation. This provision shall apply
only once.
(f) No Mitigation. The Employee shall not be required to mitigate the
amount of any payment or benefit contemplated by this Section 10, nor
shall any such payment or benefit be reduced by any earnings or
benefits that the Employee may receive from any other source.
SECTION 11: OTHER TERMINATIONS UNDER THIS PART
If termination of employment, actual or constructive, occurs at a time that is
within three years after a Change in Control, and the termination is not
described in Section 10, then the Employee is entitled only to the compensation,
benefits and reimbursements payable under the terms of Sections 3, 4 and 5 of
this Agreement for the period preceding the effective date of the termination.
The payments under this Agreement shall fully discharge all responsibilities of
the AirTouch Group to the Employee upon termination of the Employee's
employment. This Section 11 applies, without limitation, to any termination of
employment initiated by the Employee (except an Employee-initiated termination
in response to a "Constructive Termination," as defined in Section 10(a)),
termination of employment caused by the Employee's death, and any constructive
termination that does not meet the requirements of a "Constructive Termination"
defined in Section 10(a).
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<PAGE> 10
SECTION 12: DEFINITION OF CHANGE IN CONTROL
For all purposes under this Agreement, "Change in Control" shall mean a "Change
in Control" of the Corporation, as defined in the AirTouch Communications, Inc.
Long-Term Stock Incentive Plan (or the successor to such plan).
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<PAGE> 11
FOURTH PART: PARACHUTE PAYMENTS
SECTION 13: GENERAL RULE ON LIMITATION ON PAYMENTS
Any provision of this Agreement to the contrary notwithstanding, in the event
that the independent auditors retained by the Corporation most recently prior to
a Change in Control (the "Auditors") determine that any payment or transfer by
the AirTouch Group to or for the benefit of the Employee, whether paid or
payable (or transferred or transferable) pursuant to the terms of this Agreement
or otherwise (a "Payment"), would be nondeductible by the Corporation or any
member of the AirTouch Group for federal income tax purposes because of section
280G of the Code, then the aggregate present value of all Payments shall be
reduced (but not below zero) to the Reduced Amount. For purposes of this Section
13, the "Reduced Amount" shall be the amount, expressed as a present value, that
maximizes the aggregate present value of the Payments without causing any
Payment to be nondeductible by the Corporation or any member of the AirTouch
Group because of section 280G of the Code.
SECTION 14: REDUCTION OF PAYMENTS
If the Auditors determine that any Payment would be nondeductible by the
Corporation or any member of the AirTouch Group because of section 280G of the
Code, then the Corporation, within five business days after being notified by
the Auditors, shall give the Employee notice to that effect and a copy of the
detailed calculation thereof and of the Reduced Amount. The Employee may then
elect, in the Employee's 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
Corporation in writing of this election within thirty (30) days of receipt of
notice. If no such election is made by the Employee within such thirty (30) day
period, then the Corporation 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 Employee
promptly of such election. For purposes of this Section 14, present values shall
be determined in accordance with section 280G(d)(4) of the Code. All
determinations made by the Auditors under this Section 14 shall be binding upon
the Corporation and the Employee and shall be made within 60 days of the date of
the employment termination.
SECTION 15: 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 AirTouch Group that should not have been
made (an "Overpayment") or that additional Payments that will not have been made
by the Corporation 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 Corporation, a member of the AirTouch Group or the Employee
that 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 Employee that the Employee shall repay to the Corporation (or the
appropriate member of the AirTouch Group), together with interest
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<PAGE> 12
at the applicable federal rate provided for in section 7872(f)(2)(A) of the
Code; provided, however, that no amount shall be so payable by the Employee if
and to the extent that such payment would not reduce the amount that is subject
to taxation under section 4999 of the Code. In the event that the Auditors
determine that an Underpayment has occurred, such Underpayment shall promptly be
paid or transferred by the Corporation to or for the benefit of the Employee,
together with interest at the applicable federal rate provided for in section
7872(f)(2)(A) of the Code.
SECTION 16: COMPENSATION AND PERSONNEL COMMITTEE'S ABILITY TO WAIVE LIMITATIONS
At any time, and in its sole discretion, the Corporation's Compensation and
Personnel Committee of the Board of Directors may elect to waive, in whole or in
part, the reduction of a Payment, notwithstanding the determination that such
Payment will be nondeductible by the Corporation (or other member of the
AirTouch Group) for federal income tax purposes because of section 280G of the
Code.
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<PAGE> 13
FIFTH PART: TRADE SECRETS, SUCCESSORS, MISCELLANEOUS PROVISIONS,
SIGNATURE PAGE
SECTION 17: CONFIDENTIAL INFORMATION
(a) Acknowledgement. The Corporation and the Employee acknowledge that
the services to be performed by the Employee under this Agreement are
unique and extraordinary and that, as a result of the Employee's
employment, the Employee will be in a relationship of confidence and
trust with the Corporation and will come into possession of
"Confidential Information" (1) owned or controlled by the AirTouch
Group, (2) in the possession of the AirTouch Group and belonging to
third parties or (3) conceived, originated, discovered or developed,
in whole or in part, by the Employee. As used herein "Confidential
Information" includes trade secrets and other confidential or
proprietary business, technical, personnel or financial information,
whether or not the Employee's work product, in written, graphic, oral
or other tangible or intangible forms, including but not limited to
specifications, samples, records, data, computer programs, drawings,
diagrams, models, customer names, business or marketing plans,
studies, analyses, projections and reports, communications by or to
attorneys (including attorney-client privileged communications),
memos and other materials prepared by attorneys or under their
direction (including attorney work product), and software systems and
processes. Any information that is not readily available to the
public shall be considered to be a trade secret and confidential and
proprietary, even if it is not specifically marked as such, unless
the Corporation advises the Employee otherwise in writing.
(b) Nondisclosure. The Employee agrees that the Employee will not,
without the prior written consent of the Corporation, directly or
indirectly use or disclose Confidential Information to any person,
during or after the Employee's employment, except as may be necessary
in the ordinary course of performing the Employee's duties under this
Agreement. The Employee will keep the Confidential Information in
strictest confidence and trust. This Section 17 shall apply
indefinitely, both during and after the term of this Agreement.
(c) Surrender Upon Termination. The Employee agrees that in the event of
the termination of the Employee's employment for any reason, the
Employee will immediately deliver to the Corporation (and/or other
members of the AirTouch Group, as applicable) all property belonging
to the AirTouch Group, including all documents and materials of any
nature pertaining to the Employee's work with the AirTouch Group, and
will not take with the Employee any documents or materials of any
description, or any reproduction thereof of any description,
containing or pertaining to any Confidential Information. It is
understood that the Employee is free to use information that is in
the public domain (not as a result of a breach of this Agreement).
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<PAGE> 14
SECTION 18: SUCCESSORS
(a) Corporation's Successors. The Corporation shall require any
successor (whether direct or indirect and whether by purchase, lease,
merger, consolidation, liquidation or otherwise) to all or
substantially all of the Corporation's business and/or assets, by an
agreement in substance and form satisfactory to the Employee, to
assume this Agreement and to agree expressly to perform this
Agreement in the same manner and to the same extent as the
Corporation would be required to perform it in the absence of a
succession. The Corporation's failure to obtain such agreement prior
to the effectiveness of a succession shall be a breach of this
Agreement and shall entitle the Employee to all of the compensation
and benefits to which the Employee would have been entitled hereunder
if the Corporation had involuntarily terminated the Employee's
employment without Cause or Disability, on the date when such
succession becomes effective. For all purposes under this Agreement,
the term "Corporation" shall include any successor to the
Corporation's business and/or assets that executes and delivers the
assumption agreement described in this Subsection (a) or that becomes
bound by this Agreement by operation of law.
(b) Employee's Successors. This Agreement and all rights of the Employee
hereunder shall inure to the benefit of, and be enforceable by, the
Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees.
SECTION 19: MISCELLANEOUS PROVISIONS
(a) Waiver. No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Employee and by an authorized officer of
the Corporation (other than the Employee). No waiver by either party
of any breach of, or of compliance with, any condition or provision
of this Agreement by the other party shall be considered a waiver of
any other condition or provision or of the same condition or
provision at another time.
(b) Whole Agreement. No agreements, representations or understandings
(whether oral or written and whether express or implied) that are not
expressly set forth in this Agreement have been made or entered into
by either party with respect to the subject matter hereof. In
addition, the Employee hereby acknowledges and agrees that this
Agreement supersedes in its entirety any employment agreement between
the Employee and the Corporation in effect immediately prior to the
effective date of this Agreement. As of the effective date of this
Agreement, such employment agreement shall terminate without any
further obligation by either party thereto, and the Employee hereby
relinquishes any further rights that the Employee may have had under
such prior employment agreement.
(c) Presumption. Subject to the provisions of Section 13, the
Corporation shall make or cause to be made a payment described in
this Agreement upon receiving written notice from the Employee
describing such payment, referring to the provision of this Agreement
under which such payment is claimed and
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<PAGE> 15
certifying that all conditions for such payment, as set forth in this
Agreement, have been satisfied. The information so furnished to the
Corporation by the Employee shall be presumed to be correct, subject to
rebuttal by the Corporation after payment. After making the payment
claimed by the Employee, the Corporation may seek a refund of such
payment in accordance with Subsection (h) below. This Subsection (c)
shall not be used to cause a payment to be made at a time earlier than
provided in this Agreement.
(d) Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid. In the
case of the Employee, mailed notices shall be addressed to the
Employee at the home address that the Employee most recently
communicated to the Corporation in writing. In the case of the
Corporation, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of
its Secretary.
(e) No Setoff. There shall be no right of setoff or counterclaim, with
respect to any claim, debt or obligation, against payments to the
Employee under this Agreement.
(f) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the
State of California, irrespective of California's choice-of-law
principles.
(g) Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in
full force and effect.
(h) Arbitration. Except as otherwise provided in Section 13, any dispute
or controversy arising out of the Employee's employment or the
termination thereof, including, but not limited to, any claim of
discrimination under state or federal law, shall be settled
exclusively by arbitration in San Francisco, California, in
accordance with the rules of the American Arbitration Association
then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction. The foregoing notwithstanding, a
dispute or controversy over whether Cause exists for the termination
of an Employee, whether such termination occurred within three years
after a Change in Control, or a dispute or controversy over whether a
Constructive Termination has occurred, shall be arbitrated by a
three-member panel of the outside directors of the Corporation, with
the selection of the panel to be made by the Chairman, as of one year
prior to the Change in Control, of the Corporation's Board of
Directors. If three such individuals are unwilling to serve as
arbitrators, the preceding sentence shall be inapplicable, and all
disputes and controversies shall be subject to arbitration in
accordance with the rules of the American Arbitration Association, as
provided above in this Subsection. For purposes of this Subsection,
"outside directors" shall mean members of the Board of Directors of
the Corporation, as such Board of Directors was constituted one year
prior to the Change in Control, who were not employees of the
Corporation or another member of the AirTouch Group one year prior to
the Change in Control.
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<PAGE> 16
(i) No Assignment of Benefits. The rights of any person to payments or
benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by
operation of law, including (without limitation) bankruptcy,
garnishment, attachment or other creditor's process, and any action in
violation of this Subsection (i) shall be void.
(j) Employment at Will; Limitation of Remedies. The Corporation and the
Employee acknowledge that the Employee's employment is at will, as
defined under applicable law. If the Employee's employment terminates
for any reason, the Employee shall not be entitled to any payments,
benefits, damages, awards or compensation other than as provided by
this Agreement.
(k) Employment Taxes. All payments made pursuant to this Agreement shall
be subject to withholding of applicable taxes.
(l) Benefit Coverage Non-Additive. In the event that the Employee is
entitled to life insurance and health plan coverage under more than one
provision hereunder, only one provision shall apply, and neither the
periods of coverage nor the amounts of benefits shall be additive.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case
of the Corporation by its duly authorized officer, as of the day and year first
above written.
_______________________________
Employee
AIRTOUCH COMMUNICATIONS, INC.
By_____________________________
Its____________________________
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<PAGE> 1
EXHIBIT 10.32
AIRTOUCH COMMUNICATIONS
SUPPLEMENTAL EXECUTIVE PENSION PLAN
(Second Amendment and Restatement as of April 1, 1994)
EXECUTION VERSION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. INTRODUCTION AND PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 3. ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.1 Eligibility To Participate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.2 Eligibility to Receive Executive Pension. . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Must Be Eligible for Qualified Benefit, Defined
Contribution Makeup Benefit or Minimum Benefit . . . . . . . . . . . . . . . . . 9
(b) Payment of Executive Pension as a Service or Vested
Pension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4. AMOUNT OF EXECUTIVE PENSION . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . 11
4.1 Executive Pension Formula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(a) Participants Who Are Executives at Retirement . . . . . . . . . . . . . . . . . . 11
(b) Participants Who Were Executives Before Retirement . . . . . . . . . . . . . . . 12
4.2 Defined Benefit Makeup Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(a) Eligibility for Defined Benefit Makeup Benefit . . . . . . . . . . . . . . . . . 13
(b) Amount of Defined Benefit Makeup Benefit . . . . . . . . . . . . . . . . . . . . 13
4.3 Defined Contribution Makeup Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(a) Eligibility for Defined Contribution Makeup
Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(b) Amount of Defined Contribution Makeup Benefit . . . . . . . . . . . . . . . . . . 15
4.4 Mid-Career Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(a) Eligibility for Mid-Career Benefit . . . . . . . . . . . . . . . . . . . . . . . 15
(b) Mid-Career Benefit Formula . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(c) Mid-Career Pension Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.5 No Reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.6 Early Retirement Discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
(a) Service Pensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(b) Vested Pensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(c) Exceptions to Early Payment Reductions . . . . . . . . . . . . . . . . . . . . . . 19
(d) Health Benefits for Certain Executives Eligible for
Unreduced Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.7 Minimum Benefit For Certain Executives . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(a) Eligibility for Minimum Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . 20
(b) Amount of Minimum Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(c) Definition of Account Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.8 Special Increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 5. PAYMENT OF EXECUTIVE PENSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.1 Time of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.2 Form of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.3 Adjustment to Executive Pension for Form of Payment . . . . . . . . . . . . . . . . . . . . . 25
(a) Life Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(b) Joint and Survivor Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(c) Single Sum Cashout Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(d) Other Forms of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.4 Notification and Application for Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.5 Death Following Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 6. DEATH BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.1 Surviving Spouse Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(a) Eligibility for Surviving Spouse Annuity . . . . . . . . . . . . . . . . . . . . . 27
(b) Amount of the Surviving Spouse Annuity . . . . . . . . . . . . . . . . . . . . . . 27
(c) Form and Time of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.2 Pensioner Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(a) Eligibility for Pensioner Death Benefit . . . . . . . . . . . . . . . . . . . . . . 28
(b) Amount of Pensioner Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . 28
(c) Waiver of Pensioner Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 7. SOURCE OF BENEFIT PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.1 Unfunded; Rabbi Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.2 Participating Company Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 8. FORFEITURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 9. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.1 Plan Sponsor and Plan Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.2 Determination of Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.3 Procedure To Approve and Deny Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.4 Procedure To Review Denied Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.5 Additional Duties of Plan Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.6 Allocation of Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.7 Named Fiduciaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.8 More Than One Fiduciary Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 10. AMENDMENT AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.1 Plan Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.2 Plan Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 11. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.1 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.2 Rights to Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.3 No Right to Company Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.4 Assignment or Alienation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.5 Break in Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.6 Leave of Absence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.7 Amounts Accrued Prior to Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.8 Payments to Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.9 Claims Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.10 Damage Claims or Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.11 Judgment or Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.12 Payments Under Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 12. EXECUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
iii
<PAGE> 5
AIRTOUCH COMMUNICATIONS
SUPPLEMENTAL EXECUTIVE PENSION PLAN
(Second Amendment and Restatement as of April 1, 1994)
SECTION 1. INTRODUCTION AND PURPOSE.
1.1 Introduction. The AirTouch Communications Supplemental Executive Pension
Plan (the "Plan") was adopted as of April 1, 1994 to provide the
supplemental retirement benefits that were accrued by eligible executives
as of March 31, 1994 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 April 1, 1994, and the minimum
benefit and the mid-career provisions of the Predecessor Plans shall
continue to apply. The Plan is amended and restated as of April 1, 1994,
for the second time, to read as set forth herein. The group of Executives
eligible to participate in the Plan is fixed as of April 1, 1994, and no
participants become newly eligible after that date.
1.2 Purpose. The purposes of the Plan are to assist the Participating
Companies in 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.
1
<PAGE> 6
The benefits provided by the Plan, together with the benefits provided by
the Qualified Pension Plan and the Qualified Retirement Plan are intended
to provide the Executive with approximately the same benefit that the
Executive would have been entitled under the normal provisions of the
Qualified Pension Plan (with accrual service frozen as of March 31, 1994)
and the Qualified Retirement Plan (other than matching contributions) if
the qualified plans (a) recognized total base pay (whether or not
deferred) and short term incentive awards as compensation for benefit
purposes, and (b) were not subject to any limitations on the amount of
benefits that could otherwise be paid.
In addition, the Plan permits certain Executives to continue to accrue
pension benefits for service after Separation Date for purposes of the
mid-career benefit and the minimum benefit formulas.
2
<PAGE> 7
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" means the sum of the Defined Benefit Makeup Benefit, Defined
Contribution Makeup Benefit and Mid-Career Benefit, reduced by the Qualified
Pension Benefit, as described in Section 4.1(a)(i).
"Board" means the Board of Directors of the Company.
"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.
"Company" means AirTouch Communications, a California corporation prior to
September 19, 1994, and a Delaware corporation named AirTouch Communications,
Inc. on and after such date.
"Defined Benefit Makeup Benefit" is a portion of the Basic Benefit based on
the Executive's rate of base pay and standard or target awards under short-term
incentive plans, as set forth in Section 4.2.
"Defined Contribution Makeup Benefit" is a portion of the Basic Benefit based
on certain compensation deferred before the Separation Date, as set forth in
Section 4.3.
"Employee" means a common law employee of the Company or any Participating
Company.
"Executive" means the following individuals:
Mr. Lydell L. Christensen
Mr. C. Lee Cox
3
<PAGE> 8
Mr. F. Craig Farrill
Mr. Mohan S. Gyani
Mr. Charlie E. Jackson
Mr. John R. Lister
Mr. Jan K. Neels
Mr. Arun Sarin
Mr. George F. Schmitt
Ms. Susan G. Swenson
Mr. Paul H. White
An Executive retains his or her status as an Executive so long as he or she
continues to be designated by the Board as a member of the Company's Senior
Management 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 Team Award" means the average of the Participant's "Monthly PTG
Standard Awards" and the Participant's "Monthly AirTouch Team Award" 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 AirTouch Team Award" means, for any month in the calendar year, 1/12
of the Participant's target award established for that year under the Company's
Short Term Incentive Plan.
4
<PAGE> 9
"Mid-Career Benefit" means the benefit provided to certain Executives under
Section 4.4.
"Minimum Benefit" means the benefit provided to certain Executives under
Section 4.7 if it is greater than the Basic Benefit reduced by the Qualified
Pension Benefit as described in Section 4.1(a)(i).
"Pacific Telesis Group Executive Deferral Plan" means the plan adopted by
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.
"Participant" means an Executive who met the eligibility requirements of
Section 3 of the Plan as of Separation Date and who is named as a Participant
in Section 3.1. An Executive who terminates employment with a Participating
Company remains a Participant while Plan benefits are paid or payable.
"Participating Company" means the Company and any subsidiary of the Company
that shall have determined, with the concurrence of the Company's Board, to
participate in the Plan. As of April 1, 1994, the following Company
subsidiaries are Participating Companies: AirTouch International, AirTouch
Cellular and AirTouch Paging. In addition, but only for the purposes of
determining (a) the amount of the Participant's benefits under the Plan,
including compensation and service, and (b) the Participant's status as a
retired or terminated employee, any other corporation, partnership or joint
venture designated as a "Joint Venture Employer" under the Qualified Pension
Plan shall be treated as a Participating Company.
"Plan" means this AirTouch Communications Supplemental Executive Pension Plan.
5
<PAGE> 10
"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 that is actuarially equivalent to a
monthly annuity payable for life based on actuarial factors developed by the
Plan's actuaries with reference to (a) the Participant's or surviving spouse's
attained age in years and whole months as of the effective date of the annuity,
(b) an interest assumption that is 120% of the PBGC interest rate and (c) 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 Pension Plan.
"Qualified Pension Benefit" means the amount of the monthly pension actually
payable under the Qualified Pension Plan, as adjusted for early payment, based
on the effective date as of which the Executive Pension is determined.
"Qualified Pension Plan" means the AirTouch Communications Employees Pension
Plan and its predecessor plan, the PacTel Corporation Employees Pension Plan.
"Qualified Retirement Plan" means the AirTouch Communications Retirement Plan
and its predecessor plan, the PacTel Corporation Retirement Plan, the qualified
defined contribution plans that covered employees of the Company and its
subsidiaries before and after Separation Date.
"Separation Agreement" means the agreement, dated October 7, 1993, between
Pacific Telesis Group and PacTel Corporation, relating to the separation of
their corporate affiliation.
6
<PAGE> 11
"Separation Date" means April 1, 1994, 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 AirTouch Communications 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 Pension Plan or, in the case of a
Participant who is not covered by the Qualified Pension Plan, the years that
would have been credited to the Participant if the Participant were covered
under such plan. As provided under the Qualified Pension Plan, a Participant's
Term of Employment (a) is not adjusted for part-time employment, (b) 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 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
Pension Plan or, in the case of a Participant who is not covered by the
Qualified Pension Plan, the years that would have been credited to the
Participant for benefit accrual purposes under the Qualified Pension Plan if
the Participant were covered under such plan. As provided under the terms of
the Qualified Pension Plan, a Participant's Years of Credited Service (a) are
adjusted for part-time employment, (b) 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 the Qualified Pension Plan, (c) are adjusted for breaks in
service, and (d) 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 Defined Benefit Makeup Benefit and Defined Contribution Makeup
Benefit, a Participant's Years of Credited Service shall not include years
credited to the Participant for benefit accrual purposes under the Qualified
Pension Plan after the Separation Date.
7
<PAGE> 12
SECTION 3. ELIGIBILITY.
3.1 Eligibility To Participate. An 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 individual is eligible to participate in the Plan. As of the
Separation Date, the Plan Participants are:
Mr. Lydell L. Christensen
Mr. C. Lee Cox
Mr. F. Craig Farrill
Mr. Mohan S. Gyani
Mr. Charlie E. Jackson
Mr. John R. Lister
Mr. Jan K. Neels
Mr. Arun Sarin
Mr. George F. Schmitt
Ms. Susan G. Swenson
Mr. Paul H. White
No other individual is or shall become eligible to participate in the
Plan.
3.2 Eligibility to Receive Executive Pension.
(a) Must Be Eligible for Qualified Benefit, Defined Contribution Makeup
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 a Defined Contribution Makeup 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 Pension Plan.
8
<PAGE> 13
(b) Payment of Executive Pension as a Service or Vested Pension. The
Executive Pension shall be paid as a service pension or as a vested
pension, based on the pension for which the Participant is eligible
under the Qualified Pension Plan (or would be eligible, if a
participant thereunder), without regard to any minimum benefit or
early retirement window benefits that would change the eligibility
requirements for pensions under the Qualified Pension Plan. An
Executive Pension is payable at the time described in Section 5.1.
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 Pension Plan, the Executive Pension
nonetheless shall be paid as an unreduced service pension.
If the Participant's Qualified Pension Benefit is payable as an
in-service pension under the Qualified Pension Plan, the Participant's
Executive Pension shall be paid as a service pension.
9
<PAGE> 14
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, the
Participant's Executive Pension, expressed as a monthly pension
payable for life, shall equal the greater of:
(i) The Basic Benefit, which is the sum of the:
(A) Defined Benefit Makeup Benefit under Section 4.2;
(B) Defined Contribution Makeup Benefit under Section 4.3; and
(C) Mid-Career Benefit under Section 4.4;
Reduced by the Qualified Pension Benefit (not including that
portion of the Qualified Pension Benefit representing the accrued
benefit as of December 31, 1986, under the Communications
Industries, Inc. Employees' Pension Plan); or
(ii) The Minimum Benefit under Section 4.7, if any.
The Defined Benefit Makeup Benefit and Mid-Career Benefit determined
under (i)(A) and (i)(C) above shall be adjusted for early payment to
the extent provided in Section 4.6. The Qualified Pension Benefit
under (i) above shall reflect the benefit that would be payable under
the Qualified Pension Plan if the benefit were paid at the same time
as the Executive Pension. The Participant's Executive Pension shall
be paid at the time and in the form provided in Section 5.
10
<PAGE> 15
(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,
then the Participant's Executive Pension shall be determined in
the same manner as set forth in (a) above, except that the amount
of the Defined Benefit Makeup Benefit shall be determined as
though the Participant terminated employment on the date he ceased
serving as an Executive, and except that the Minimum Benefit shall
not be payable. Estimated earnings under Section 4.3(b)(ii) (the
Hypothetical Account value of the Defined Contribution Makeup
Benefit) shall continue to accrue to the effective date of the
Executive Pension. 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 Defined Benefit Makeup Benefit. The Defined Benefit Makeup 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
Defined Benefit Makeup Benefit was formerly provided by the restoration
benefit plus the short term award benefit under the Pacific Telesis Group
Non-Qualified Pension Plan, and 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 Defined Benefit Makeup Benefit formula continues to recognize
compensation after the Separation Date but does not recognize service
after such date for benefit accrual purposes.
11
<PAGE> 16
(a) Eligibility for Defined Benefit Makeup Benefit. A Participant who is
or was an Executive shall be eligible for a Defined Benefit Makeup
Benefit if the Participant is eligible for a Qualified Pension
Benefit. As of the Separation Date, the following Participants are
eligible for a Defined Benefit Makeup Benefit:
Mr. Lydell L. Christensen
Mr. C. Lee Cox
Mr. F. Craig Farrill
Mr. Mohan S. Gyani
Mr. Charlie E. Jackson
Mr. John R. Lister
Mr. Jan K. Neels
Mr. Arun Sarin
Mr. George F. Schmitt
Ms. Susan G. Swenson
Mr. Paul H. White
By virtue of their eligibility for the Defined Benefit Makeup Benefit
under this Plan, these Participants are not eligible for the
nonqualified benefits set forth in the Qualified Pension Plan
document.
(b) Amount of Defined Benefit Makeup Benefit. A Participant's Defined
Benefit Makeup 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 Team Award; multiplied by
(ii) The Participant's Years of Credited Service.
12
<PAGE> 17
4.3 Defined Contribution Makeup Benefit. The Defined Contribution Makeup
Benefit provides a monthly benefit for Executives who were executives of
PacTel Corporation or certain of its subsidiaries before the Separation
Date, based on hypothetical company contributions that would have been
made under the Qualified Retirement Plan if that plan had recognized
compensation deferred under the Pacific Telesis Group Executive Deferral
Plan before the Separation Date and if the rules under sections 401(a)(17)
and 415 of the Code did not limit such hypothetical company contributions.
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 Defined Contribution Makeup Benefit. A Participant
who was an executive of PacTel Corporation or of a PacTel Corporation
subsidiary that was a participating company in the Pacific Telesis
Group Non-Qualified Pension Plan before the Separation Date and who
received allocations of basic and variable contributions under the
Qualified Retirement Plan before the Separation Date while deferring
compensation under the Pacific Telesis Group Executive Deferral Plan
shall be eligible for a Defined Contribution Makeup Benefit. As of
the Separation Date, the following Participants are eligible for a
Defined Contribution Makeup Benefit:
Mr. C. Lee Cox
Mr. Charlie E. Jackson
Mr. John R. Lister
Mr. Jan K. Neels
Mr. George F. Schmitt
Ms. Susan G. Swenson
Mr. Paul H. White
13
<PAGE> 18
(b) Amount of Defined Contribution Makeup Benefit. A Participant's
Defined Contribution Makeup Benefit is a monthly pension with a
Present Value equal to the Participant's vested Hypothetical Account
as of the effective date the Executive Pension starts. The
Hypothetical Account, described below, is based upon certain
pre-Separation Date deferrals. A makeup benefit relating to
post-Separation Date deferrals is included in the AirTouch
Communications Deferred Compensation Plan.
The "Hypothetical Account" means an amount equal to (i) the amounts
actually deferred each year under the Pacific Telesis Group Executive
Deferral Plan (attributable to both base pay and actual amounts
otherwise payable under the Short Term Incentive Plan in each year)
for the period between January 1, 1987 and the Separation Date
multiplied by the sum of the basic and variable contribution rates in
effect under the Qualified Retirement Plan for each such year,
respectively, plus (ii) estimated earnings on amounts credited to the
Hypothetical Account 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 Qualified
Retirement Plan on all its investments. 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 was hired or
rehired before the Separation Date by Pacific Telesis Group at age 35
or older at Fourth Level or above,
14
<PAGE> 19
who was a participant in the Pacific Telesis Group Mid-Career Pension
Plan immediately before the Separation Date, 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. As of the Separation Date,
Mr. Lydell L. Christensen is the only Participant eligible for a
Mid-Career Benefit.
(b) Mid-Career Benefit Formula. An eligible Participant's Mid-Career
Benefit shall be determined under one of the following formulas.
(i) Non-Executive Formula. If the Participant has not served as an
Executive, the Mid-Career Benefit shall be a monthly pension
equal to 1% of the sum of the Participant's Final Average Base
Pay and Final Average Team Award, multiplied by the Participant's
Mid- Career Pension Credits.
(ii) Executive Formula. If the Participant served as an Executive,
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:
15
<PAGE> 20
A = Months of service below Executive level
B = Months of service at Executive level
C = Total months of service
A "month of service" means a calendar month that 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 lesser of (A)
the excess of 35 years over the Term of Employment that the
Participant could accrue if the Participant worked to age 65, or
(B) his or her Term of Employment at termination 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 in the Term of Employment completed at Fifth Level or
above and the denominator of which equals the Participant's
total months in the Term of Employment.
(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.
16
<PAGE> 21
4.5 No Reduction. In no event shall the benefits payable under this Plan
determined as of the Participant's termination of employment with the
Participating Companies be less than the benefits accrued under the
Predecessor Plans determined as though the Participant terminated
employment as of March 31, 1994.
4.6 Early Retirement Discount.
(a) Service Pensions. If the Participant's Executive Pension is paid as a
55 years, the Executive Pension shall not be reduced for early
payment. Except as provided in (c) below, any other Executive Pension
paid as a service 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 Pension Plan, except as otherwise provided in (c)
below.
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(c) 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 Executive on or after age 55 and who has served
at least 10 years as an Executive, including service after the
Separation Date, shall not be reduced.
(ii) The Defined Contribution Makeup Benefit shall not be reduced for
early payment. This benefit formula reflects the early payment
value of the benefit payment without further adjustment.
(d) Health Benefits for Certain Executives Eligible for Unreduced
Benefits. If any Executive eligible for an unreduced Executive
Pension under (c)(i) above is not eligible for retiree welfare benefit
coverage under the Company's welfare benefit plans, then such
Participant, after his or her termination of employment hereunder,
shall be deemed eligible for medical, dental and life insurance
benefits under the Company's welfare benefit plans for retirees.
4.7 Minimum Benefit For Certain Executives. The Minimum Benefit is available
to certain Participants who serve as Executives. 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 Executive.
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(a) Eligibility for Minimum Benefit. A Minimum Benefit shall apply only
to Participants who became Executives on or before January 24, 1992,
who serve as Executives for a period of at least 10 years, including
service before and after the Separation Date, and who terminate
employment as an Executive at or after age 55. This Minimum Benefit
shall be payable only if it exceeds the Basic Benefit reduced by the
Qualified Pension Benefit, as described in Section 4.1(a)(i). As of
the Separation Date, each of the following Participants is eligible
for a Minimum Benefit if it exceeds the Basic Benefit reduced by the
Qualified Pension Benefit as described in Section 4.1(a)(i) and if he
or she terminates employment as an Executive at or after age 55:
Mr. Lydell L. Christensen
Mr. C. Lee Cox
Mr. F. Craig Farrill
Mr. Charlie E. Jackson
Mr. Jan K. Neels
Mr. Arun Sarin
Mr. George F. Schmitt
Ms. Susan G. Swenson
Mr. Paul H. White
(b) Amount of Minimum Benefit. An eligible Executive's Minimum Pension is
a monthly pension equal to:
(i) 45% of the sum of the Executive's Final Average Base Pay and
Final Average Team Award;
reduced by
(ii) The sum of the Executive's Qualified Pension Benefit (not
including that portion of the Qualified Pension Benefit
representing the accrued benefit as of December 31, 1986, under
the Communications Industries, Inc. Employees' Pension Plan) and
the Account Benefit (determined under (c) below).
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The percentage in (i) above shall be increased one percentage for each
additional year as an Executive beyond 10 years, including years after
the Separation Date, up to a maximum of 50% at 15 years as an
Executive. 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
Pension Plan.
(c) Definition of Account Benefit. The "Account Benefit" means an
immediate monthly life annuity commencing at termination of employment
with the Participating Companies that has a Present Value equal 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 Qualified Retirement Plan
at termination of employment;
(ii) Value of the Variable Account under the Qualified Retirement
Plan at termination of employment;
(iii) Value of the Transition Account under the Qualified Retirement
Plan at termination of employment;
(iv) Amount of all withdrawals and distributions made from the Basic,
Variable and Transitions Accounts under the Qualified Retirement
Plan before termination of employment, plus "interest" thereon
to date of termination;
(v) Payments from the Company's Excess Benefit Plan and Deferred
Compensation Plan before termination of employment attributable
to Company contributions other than "matching" contributions,
plus "interest" thereon to the date of termination;
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(vi) Value of the Participant's Account at termination of employment
under the Company's Excess Benefit Plan and Deferred
Compensation Plan attributable to Company contributions other
than "matching" contributions; and
(vii) Payments made directly to the Executive before termination under
the bonus program relating to transition credits, plus
"interest" thereon to the date of termination.
"Interest" shall be determined by the Committee in its sole discretion
from the date payment was made to the date of the Participant's
termination of employment, based on the annual rate of return earned
by the Qualified Retirement Plan on all its investments during the
applicable period.
If the Participant's Minimum Pension commences as of a date later than
the day following the termination date, the Participant's Account
Benefit shall be redetermined by increasing the amounts in (i)-(vii)
by "Interest" from the date of termination to the effective date that
the Minimum Pension is paid. The amounts in (i)-(vii) shall not
include amounts attributable to any Merger Account a Participant may
have or have had under the Qualified Retirement Plan.
4.8 Special Increases. Unless the Committee determines otherwise, Executive
Pensions payable as monthly service 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
Pension Plan for ad hoc increases to retired Participants or their
surviving spouses. This Section shall apply only to Participants who
retire or terminate as Executives.
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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
Pension 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 Participant's Executive 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. The Participant
may elect to receive the Executive Pension in any of the forms then
available under the Qualified Pension Plan, subject to the following
conditions:
(a) If the Participant's Qualified Pension Benefit is payable in the form
of an annuity, the Participant's Executive Pension shall be paid in
the same form of an annuity.
(b) If the Participant's Qualified Pension Benefit is payable in the form
of a cashout payment, the Participant's Executive Pension shall be
paid in the form of an annuity, unless a cashout payment is made
(pursuant to Subsection (c)).
(c) 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.
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(d) An Executive Pension shall be paid in the same form as any pension
payable to the Participant under the nonqualified pension plans whose
terms are set forth in the Qualified Pension Plan document.
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 the amount payable as a life annuity, reduced
by the percentage that would be used as an actuarial reduction factor
to the Participant's life annuity under the Qualified Pension Plan if
the Participant was eligible for and elected to receive a 50% joint
and survivor spousal annuity under the Qualified Pension Plan. 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. If that spouse dies before the
Participant's death, the Executive Pension shall be increased to 100%
of the amount that would have been payable as a life annuity, if this
"pop-up" feature would be applicable to an annuity payable to the
Participant under the Qualified Pension Plan.
(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.
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(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.
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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
therefor, 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, depending upon which of the two
would have been payable to the Executive.
(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 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.
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6.5 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 Pension Plan.
(b) Amount of Pensioner Death Benefit. The Pensioner Death Benefit
provided by the Plan shall equal one times the sum of the
Participant's annual rate of base pay, deferred and non deferred, and
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 and such sum
shall be reduced by the pensioner death benefit under the Qualified
Pension Plan.
(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.
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<PAGE> 31
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 through the
purchase of insurance from an insurance company, or by a trust established
by the Company for this purpose, as the Company may determine.
7.2 Participating Company Liability. Where a Participant's term of employment
includes service with more than one Participating Company, the last
Participating Company (other than a Participating Company that is a Joint
Venture Employer as defined in the Qualified Pension Plan) 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 Participating Company's withdrawal from participation shall not
affect that company's liability hereunder. In addition, the liability of
a Participating 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.
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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
Board, 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.
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<PAGE> 33
SECTION 9. ADMINISTRATION.
9.1 Plan Sponsor and Plan Administrator. The Company shall be the sponsor of
the Plan and the Vice President-Human Resources of the Company shall be
the Plan Administrator. The Vice President-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 Plan Administrator shall have
the sole discretion to grant or deny claims for benefits under the Plan
with respect to Executives of each Participating Company (other than
claims of the Plan Administrator), 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 the Board of Directors of the Company shall serve as the
Review Committee for purposes of Section 9.4. 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 Committee 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.
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<PAGE> 34
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, 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 Plan Administrator 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 Vice President-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 Vice President-Human
Resources of the Company shall not be subject to further review.
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9.6 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, the Vice President-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.
9.7 Named Fiduciaries. The Company, the Committee, the Vice President-Human
Resources of the Company and each Participating Company (other than a
Joint Venture Employer, as defined in the Qualified Pension Plan) 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.
9.8 More Than One Fiduciary Capacity. A person or group of persons may serve
in more than fiduciary capacity with respect to the Plan.
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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 or its delegate. 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 Vice President-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 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 Participating Company's withdrawal from participation shall not affect
that company's liability described in Section 7.2.
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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
that 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 Pension Plan; provided that, in determining
years of service as an Executive 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
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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 Pension 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
Pension Plan.
11.8 Payments to Others. Benefits payable to a former employee or retiree
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
Pension Plan.
11.9 Claims Release. In case of accident resulting in the death of a
Participant that 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 that
the Executive, the Executive's beneficiaries and/or annuitant had or may
have against them, otherwise than under this Plan, on account of
35
<PAGE> 39
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, that 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.
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.
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 that 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
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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 that 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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<PAGE> 41
SECTION 12. EXECUTION.
To record the second amendment and restatement of the Plan to read as set forth
herein, effective as of April 1, 1994, the Company has caused its authorized
officer to execute this document on this 26th day of September, 1995.
AIRTOUCH COMMUNICATIONS, INC.
By: /s/
---------------------------------
38
<PAGE> 1
EXHIBIT 10.38
CONSULTING AGREEMENT
THIS AGREEMENT, entered into as of April 4, 1997, by and
between [Executive Officer] (the "Executive") and AirTouch Communications, Inc.,
a Delaware corporation (referred to herein as the "Corporation"),
W I T N E S S E T H
Whereas the Executive has elected to retire as an employee of the
Corporation effective April 4, 1997 and will cease to be an officer of the
Corporation as of that date; and
Whereas the Board of Directors of the Corporation wishes to recognize
the Executive's years of dedicated leadership and service to the Corporation;
and
Whereas the Corporation and the Executive wish to enter an agreement
describing their obligations to each other and the scope of the Executive's
services to the Corporation as an independent contractor and consultant to the
Corporation after his retirement:
N o w, T h e r e f o r e, in consideration of the mutual covenants
herein contained, the parties agree as follows:
1. Term of Agreement.
This Agreement shall continue in effect for a five-year period from
the Executive's retirement date or until all of the obligations of the parties
hereunder have been satisfied, unless the Agreement is sooner terminated by
mutual written agreement of the Executive and the Corporation. In the event of
the Executive's death during the term of this Agreement, the obligations of the
parties hereunder shall cease but the rights of the Executive's beneficiaries,
heirs or estate under any stock incentive agreements shall continue in
accordance with the terms of those agreements.
2. Payments.
2.1 Cash Compensation. In consideration of the Executive's
covenants under Section 5 and his agreement to provide the consulting services
described in Section 3, the Corporation agrees that it shall pay the Executive
cash compensation at an annual rate of $518,000, with payments to be made
monthly in accordance with the Corporation's usual procedures. Such
compensation shall be paid for a period beginning as of the Executive's
retirement date and ending on the five-year anniversary of the Executive's
retirement date.
2.2 Stock Incentives.
(a) Stock Awards Granted On or Prior to April 4, 1994.
The Corporation and the Executive agree that all of his rights in any stock
incentives granted under the AirTouch Communications, Inc. 1993 Long-Term Stock
Incentive Plan (the "Plan") on or prior to April 4, 1994, shall continue in
effect in accordance with the terms of the Plan and relevant
<PAGE> 2
agreements and shall not be affected by this Agreement, except that in the
event that the Executive takes any action contrary to the covenants set forth
in Subsections 5.1, 5.2 and 5.3 of this Agreement, any portion of any incentive
award granted on or prior to April 4, 1994, that remains unvested as of the
date when the Executive first takes such action shall be forfeited.
(b) Stock Awards Granted After April 4, 1994. Except as
specifically provided in this Agreement, the Executive agrees that,
notwithstanding the terms of any stock incentive agreement, all of his rights
in any stock incentives granted after April 4, 1994, under the Plan shall cease
effective as of his retirement except that the grant of 73,110 of the so-called
"premium-priced" options granted on November 16, 1995, shall continue in force
as if the Executive had continued in his employment with the Corporation until
April 4, 2002.
3. Consulting Services.
3.1 Duration and Scope. During the five-year period beginning
with the Executive's retirement date, the Executive shall serve as a consultant
to the Corporation (including its subsidiaries, affiliates and joint venture
partners). If the Corporation terminates the Executive's services as a
consultant prior to the expiration of the term of this Agreement, such
termination shall be a breach of this Agreement and shall entitle the Executive
to an immediate cash payment equal to all of the cash compensation to be paid
to the Executive under Section 2.1 for the remainder of the term of this
Agreement.
3.2 Directions. As a consultant, the Executive shall provide such
advice and counsel to the Corporation as reasonably requested by the Chairman
and Chief Executive Officer of this Corporation. That assistance could include
advice, counsel, history or coaching and may be provided in verbal or written
form as necessary. Upon reasonable notice, the Executive shall hold himself
available to the Corporation's Chairman and Chief Executive Officer, and shall
travel at the request of the Corporation's Chairman and Chief Executive
Officer. The Executive shall accept any reasonable directions issued by the
Corporation, through the Chairman and Chief Executive Officer, pertaining to
the goals to be attained and the results to be achieved by him, but he shall be
responsible for the manner and working hours in which he will perform his
services under this Agreement.
3.3 Compliance With Laws. The Executive shall comply at his
expense with all applicable provisions of workers' compensation laws,
unemployment compensation laws, federal social security law, the Fair Labor
Standards Act, federal, state and local income tax laws, and all other
applicable federal, state and local laws, regulations and codes relating to
terms and conditions of employment required to be fulfilled by employers or
independent contractors.
3.4 Status. As a consultant to the Corporation, the Executive
shall act as an independent contractor. Thus, the Executive shall not have the
status of an employee of the Corporation. Except as otherwise provided in this
Agreement, the Executive shall not be eligible to participate in any employee
benefit, group insurance or executive compensation plans or programs maintained
by the Corporation; provided, however, that any rights of the Executive under
such plans or programs arising from his prior status as an employee and officer
of the Corporation or his status as a consultant shall not be affected by this
Agreement. The Corporation shall not provide Social Security, unemployment
compensation, disability
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<PAGE> 3
insurance, workers' compensation or similar coverage, nor any other statutory
employment benefit, to the Executive.
3.5 Reimbursement of Reasonable Expenses. The Corporation agrees
to reimburse the Executive under guidelines similar to those applicable to
Officers of the Corporation for reasonable expenses incurred by the Executive
for the performance of consulting services and related travel, described in
this Section 3, upon presentment of appropriate documentation of such expenses
to the Corporation.
4. Change in Control.
4.1 Accelerated Vesting in Incentive Awards in Case of a Change in
Control of the Corporation. If, during the term of this Agreement, a Change in
Control (as defined in the AirTouch Communications, Inc. 1993 Long-Term Stock
Incentive Plan) occurs with respect to the Corporation, then each of the
incentive awards heretofore or hereafter granted to the Employee by the
Corporation under the terms of the AirTouch Communications, Inc. 1993 Long-Term
Stock Incentive Plan shall become fully vested, fully exercisable or fully
payable, as the case may be, any contrary provisions of such awards or the
applicable plan notwithstanding.
4.2 Accelerated Payment of Cash Compensation in Case of a Change
in Control of the Corporation. If, during the term of this Agreement, a Change
in Control (as defined in the AirTouch Communications, Inc. 1993 Long-Term
Stock Incentive Plan) occurs with respect to the Corporation, then all of the
cash compensation to be paid under Section 2.1 shall be fully vested and the
Corporation shall pay such compensation to the Executive in a cash lump sum on
the same day that such Change in Control occurs. Such accelerated payment of
cash compensation shall not, in itself, accelerate the term of this Agreement.
If the accounting firm retained by the Corporation determines that any payment
of cash compensation under this Agreement would be subject to the excise tax
imposed by section 4999 of the Code, then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") from the Corporation in an
amount such that, after payment by the Executive of any such excise tax imposed
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the excise tax imposed upon such cash compensation and the
Gross-Up Payment. Any Gross-Up Payment shall be made as soon as reasonably
practicable after the accounting firm completes its determination.
5. Protection of the Corporation's Interests.
5.1 Protection of Trade Secrets. For the term of this Agreement,
the Executive shall not, without the prior written consent of the Corporation,
disclose or use for any purpose (except in the course of his consulting
services with the Corporation and in furtherance of the Corporation's business)
confidential information or proprietary data of the Corporation, its
subsidiaries, affiliates and joint venture partners, except as required by
applicable law or legal process. The Executive agrees to deliver to the
Corporation at the termination of this Agreement, or at such other time as the
Corporation may request, all memoranda, notes, plans, records, reports and
other documents (and copies thereof) relating to the business of the
Corporation, its subsidiaries, affiliates and joint venture partners, that the
Executive may then possess or have under his control.
-3-
<PAGE> 4
5.2 Covenant Not To Compete. During the term of this Agreement,
the Executive shall not, directly or indirectly:
(a) Engage in any business or activity in which the
Corporation or any subsidiary, affiliate or joint venture partner of
the Corporation is engaged; nor
(b) Be employed by, render services of any kind to,
advise or receive compensation in any form from, nor invest or
participate in any manner or capacity in, any entity or person that
directly or indirectly engages in such business or activity.
This Subsection 5.2 shall not preclude investments in a corporation whose stock
is traded on a public market and of which the Executive owns less than a
significant interest.
5.3 Covenant Not To Recruit Employees. During the term of this
Agreement, the Executive shall not, directly or indirectly:
(a) Attempt to cause any employee of the Corporation or
any subsidiary, affiliate or joint venture partner to leave his or her
employment; nor
(b) Knowingly advise or provide information to any person
in connection with an attempt by such person to cause any employee of
the Corporation or any subsidiary, affiliate or joint venture partner
to leave his or her employment.
5.4 Modification by Court. If any of the covenants set forth in
Subsections 5.1, 5.2 and 5.3 above is determined to be unenforceable because of
the duration of such covenants or the area covered thereby, then the court or
arbitrator making the determination shall have the power to reduce the duration
of such covenants and/or the area covered thereby, and such covenants, in their
reduced form, shall be enforceable.
5.5 Different Jurisdictions. If any of the covenants set forth in
Subsections 5.1, 5.2 and 5.3 above is determined to be wholly unenforceable by
the courts or arbitrators of any domestic or foreign jurisdiction, then the
determination shall not bar or in any way affect the Corporation's right to
relief in the courts or in arbitration proceedings of any other jurisdiction
with respect to any breach of such covenants in such other jurisdiction. Such
covenants, as they relate to each jurisdiction, shall be severable into
independent covenants and shall be governed by the laws of the jurisdiction
where a breach occurs.
5.6 Purpose of Covenants. The Executive and the Corporation agree
that the covenants set forth in Subsections 5.1, 5.2 and 5.3 above are
reasonable and necessary to protect the confidentiality of the trade secrets
and other proprietary information concerning the business of the Corporation
and its subsidiaries, affiliates and joint venture partners that was acquired
by the Executive as an employee of the Corporation and during the course of his
consulting services under this Agreement.
5.7 Expiration of Stock Incentives and Repayment of Gains. The
Executive and the Corporation agree that the principal purpose of entering into
this Agreement was to motivate the Executive to contribute to the Corporation's
success and to increase the Corporation's value. The Optionee and the
Corporation also agree that any breach of the covenants set forth in
Subsections 5.1, 5.2 and 5.3 above would be contrary to the purpose of
-4-
<PAGE> 5
this Agreement. Therefore, in the event that the Executive takes any action
contrary to any of the covenants set forth in Subsections 5.1, 5.2 and 5.3
above, any portion of any incentive award described in Subsection 2.2(b) that
remains outstanding as of the date when the Executive first takes such action
shall no longer be exercisable and shall expire (any contrary provision of this
Agreement notwithstanding). In the event that the Executive has exercised any
portion of such incentive awards at any time on or after the effective date of
this Agreement (regardless of whether such exercise was effected before or
after his taking such action), the Executive shall upon demand pay to the
Corporation an amount equal to the difference between:
(a) The fair market value of the stock (or other assets)
acquired by the Executive upon exercising such portion, determined as
of the date of exercise; minus
(b) The exercise price paid by the Executive.
Such amount shall be paid in the form of cash or in the form of shares of the
Corporation's common stock with a fair market value (determined as of the
payment date) equal to such amount.
In addition, in the event that the Executive takes any action contrary
to any of the covenants set forth in Subsections 5.1, 5.2 and 5.3 above, the
Executive shall upon demand pay the Corporation an amount equal to the total
amount of all cash compensation paid to the Executive pursuant to this
Agreement, whether such cash compensation was paid before or after the time
when the Executive takes such contrary action.
The Corporation, in addition to or in lieu of pursuing any other
remedies, may deduct any unpaid amount due under this Subsection 5.7 from any
payment, other than pension, benefit or deferred compensation payments that are
vested and payable to the Executive.
6. Miscellaneous Provisions.
6.1 Waiver. No provisions of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Executive and by the Corporation. No waiver by
either party of any breach of, or of compliance with, any condition or
provision of this Agreement by the other party shall be considered a waiver of
any other condition or provision or of the same condition or provision at
another time.
6.2 Assignment and Successors; The Corporation. The Corporation
shall require any successor (whether direct or indirect and whether by
purchase, lease, merger, consolidation, liquidation or otherwise) to all or
substantially all of the Corporation's business and/or assets, by an agreement
in substance and form satisfactory to the Executive, to assume this Agreement
and to agree expressly to perform this Agreement in the same manner and to the
same extent as the Corporation would be required to perform it in the absence
of a succession. The Corporation's failure to obtain such agreement prior to
the effectiveness of a succession shall be a breach of this Agreement and shall
entitle the Executive to an immediate cash payment equal to all of the cash
compensation to be paid to the Executive under Section 2.1 for the remainder of
the term of this Agreement. For all purposes under this Agreement, the term
"Corporation" shall include any successor to the
-5-
<PAGE> 6
Corporation's business and/or assets that executes and delivers the assumption
agreement described in this Subsection 6.2 or that becomes bound by this
Agreement by operation of law.
6.3 Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
San Francisco, California, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Within 30 days following
the conclusion of any arbitration proceeding (notwithstanding any appeal), the
Corporation shall pay all reasonable attorneys' fees and related expenses
incurred by the Executive in connection with any such arbitration; provided,
however, that the Corporation's reimbursement obligation under this sentence
shall be limited to $15,000 in the event that the Corporation is the prevailing
party in the action and $30,000 if the Executive is the prevailing party in the
action. For purposes of the preceding sentence, if there is disagreement
concerning who is the prevailing party, then the parties shall request that the
arbitrator hearing the dispute determine the point and the parties agree to be
bound by the arbitrator's determination.
6.4 Taxes. All payments made pursuant to this Agreement shall be
subject to any required withholding of applicable taxes.
6.5 Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof.
6.6 Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
6.7 Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
-6-
<PAGE> 7
6.8 Delivery of Notice. Notices and all other communications
contemplated by this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or when mailed by certified mail,
return receipt requested and postage prepaid. In the case of the Executive,
mailed notices shall be addressed to him at the home address which he most
recently communicated to the Corporation in writing. In the case of the
Corporation, mailed notices shall be addressed to its corporate headquarters,
and all notices shall be directed to the attention of its Secretary.
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Corporation by its duly authorized officer, as of the day
and year first above written.
EXECUTIVE OFFICER
________________________________
AIRTOUCH COMMUNICATIONS, INC.
By ____________________________
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<PAGE> 1
EXHIBIT 13
FINANCIAL SECTION
2 SELECTED FINANCIAL DATA
2 Selected Five-Year Consolidated Data
2 Selected Five-Year Proportionate Data
6 MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
19 CONSOLIDATED FINANCIAL STATEMENTS
19 Report of Management
20 Report of Independent Accountants
21 Consolidated Statements of Income
for the years ended December 31, 1996,
1995, and 1994
22 Consolidated Balance Sheets
as of December 31, 1996 and 1995
23 Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1996, 1995, and 1994
24 Consolidated Statements of Cash Flows
for the years ended December 31, 1996, 1995, and 1994
25 Notes to Consolidated Financial Statements
44 Selected Proportionate Financial Data
-1-
<PAGE> 2
SELECTED FINANCIAL DATA
SELECTED FIVE-YEAR CONSOLIDATED DATA
<TABLE>
<CAPTION>
=================================================================================================================================
For the Year Ended December 31
------------------------------------------------------------------------------
Operating Results (Dollars in millions,
except per share amounts) 1996(a) 1995 1994(b) 1993(c) 1992
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 2,251.7 $ 1,618.6 $ 1,246.9 $ 1,057.7 $ 880.2
Operating income $ 281.0 $ 112.8 $ 72.6 $ 128.2 $ 95.9
Equity in net income of unconsolidated
wireless systems $ 133.3 $ 152.3 $ 110.7 $ 32.9 $ 2.6
Interest:
Expense $ (52.0) $ (13.0) $ (10.3) $ (22.1) $ (52.9)
Income $ 14.0 $ 34.9 $ 54.7 $ 12.0 $ 13.3
Income (loss) from operations (d) $ 199.0 $ 131.9 $ 98.1 $ 40.1 $ (10.1)
Preferred dividends $ 20.1 -- -- -- --
Net income available to common stockholders $ 178.9 $ 131.9 $ 98.1 $ 34.5 $ 10.2
Per share data:
Income (loss) from operations (d) $ 0.40 $ 0.27 $ 0.20 $ 0.09 $ (0.02)
Net income available to common stockholders $ 0.36 $ 0.27 $ 0.20 $ 0.08 $ 0.02
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31
--------------------------------------------------------------------------
Balance Sheet Data (Dollars in millions) 1996(a) 1995 1994(b) 1993(c) 1992
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments in unconsolidated wireless systems $1,991.6 $3,076.3 $1,697.9 $1,154.5 $ 935.4
Intangible assets, net $3,408.8 $ 605.7 $ 470.5 $ 413.2 $ 225.0
Total assets $8,523.6 $5,647.9 $4,488.0 $4,076.7 $2,371.1
Long-term debt, including current portion $1,653.3 $ 906.4 $ 130.1 $ 78.9 $ 257.3
Total stockholders' equity $5,062.0 $3,750.7 $3,459.6 $3,337.3 $ 752.1
Working capital (deficit) $ (136.4) $ 18.5 $ 736.5 $1,346.8 $ (698.4)
Capital expenditures, excluding acquisitions
and capital calls (e) $ 536.4 $ 530.3 $ 408.7 $ 225.9 $ 231.0
- - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) In August 1996, AirTouch Communications, Inc. and its subsidiaries (the
"Company") completed its acquisition of Cellular Communications, Inc. See
Note F, "Partnerships and Acquisitions," to the Consolidated Financial
Statements for further information.
(b) Prior to April 1, 1994, the Company was an 86.1% owned subsidiary of
Pacific Telesis Group ("Telesis"). On April 1, 1994, the Company was spun
off from Telesis.
(c) In December 1993, the Company completed a public offering of 68,500,000
shares of newly issued common stock. Additionally, in September 1993 the
Company and AT&T Wireless (at the time McCaw Cellular Communications Inc.)
formed CMT Partners, an equally owned partnership.
(d) Income (loss) before preferred dividends (1996) and cumulative effects of
accounting changes (1993 and 1992) and extraordinary item (1992).
(e) For the year ended December 31.
SELECTED FIVE-YEAR PROPORTIONATE DATA
================================================================================
The following table is not required by generally accepted accounting principles
("GAAP") and is not intended to replace the Consolidated Financial Statements
prepared in accordance with GAAP. It is presented to provide supplemental data.
Because significant assets of the Company are not consolidated and because of
the substantial effect of the formation of certain entities on the year-to-year
comparability of the Company's consolidated financial results, the Company
believes that proportionate financial and operating data facilitates the
understanding and assessment of its Consolidated Financial Statements.
Under GAAP, the Company consolidates the entities in which it has a controlling
interest and uses the equity method to account for entities over which the
Company has significant influence but does not have a controlling interest. In
contrast, proportionate accounting reflects the Company's relative ownership
interests in operating revenues and expenses for both its consolidated and
equity-method entities. For example, U.S. cellular proportionate results present
the Company's share - its percentage ownership - for all significant U.S.
cellular operations, including those corporations and partnerships where the
Company does not own more than 50 percent. Similarly, total proportionate
results show the Company's share of all its significant worldwide operations.
-2-
<PAGE> 3
SELECTED FINANCIAL DATA
TOTAL COMPANY (1)
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------------
For the Year Ended December 31
Proportionate --------------------------------------------------------------------------
Financial Data (Dollars in millions) 1996 1995 1994 1993 1992
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net operating revenues $3,748.7 $2,605.2 $1,791.8 $1,226.1 $ 873.2
Operating income $ 521.2 $ 296.7 $ 171.5 $ 97.6 $ 11.3
Operating cash flow (2) $1,123.7 $ 702.3 $ 506.1 $ 351.5 $ 191.5
Operating cash flow margin 30.0% 27.0% 28.2% 28.7% 21.9%
</TABLE>
<TABLE>
<CAPTION>
December 31
Proportionate --------------------------------------------------------------------------
Operating Data (In thousands) 1996 1995 1994 1993 1992
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cellular and PCS POPs (3) (4) 178,317 164,908 99,508 75,290 69,468
Cellular and PCS subscribers (3) 5,146 3,059 1,948 1,206 779
Cellular and PCS subscriber net adds in period,
excluding acquisitions (3) 1,625 974 713 409 221
Paging units in service 2,886 2,474 1,647 1,269 899
Paging units in service net adds in period,
excluding acquisitions 535 477 378 348 230
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
U.S. CELLULAR
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------------
For the Year Ended December 31
Proportionate --------------------------------------------------------------------------
Financial Data (Dollars in millions) 1996 1995 1994 1993 1992
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service and other revenues $1,984.2 $1,523.3 $1,160.1 $ 892.0 $ 699.4
Equipment sales 83.0 78.9 74.6 40.2 24.8
Cost of equipment sales (180.7) (125.6) (82.0) (42.2) (23.9)
- - ---------------------------------------------------------------------------------------------------------------------------------
Net operating revenues 1,886.5 1,476.6 1,152.7 890.0 700.3
- - ---------------------------------------------------------------------------------------------------------------------------------
Cost of revenues 222.3 188.4 136.5 116.3 98.7
Selling and customer operations expenses (5) 682.5 544.0 415.2 297.2 --
General, administrative, and other expenses (5) 160.3 139.0 122.0 96.9 322.5
Depreciation and amortization expenses 292.4 189.2 185.7 164.7 124.1
- - ---------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,357.5 1,060.6 859.4 675.1 545.3
- - ---------------------------------------------------------------------------------------------------------------------------------
Operating income $ 529.0 $ 416.0 $ 293.3 $ 214.9 $ 155.0
- - ---------------------------------------------------------------------------------------------------------------------------------
Operating cash flow (2) $ 821.4 $ 605.2 $ 479.0 $ 379.6 $ 279.1
Operating cash flow margin (6) 43.5% 41.0% 41.6% 42.7% 39.9%
Capital expenditures, excluding acquisitions $ 408.0 $ 475.0 $ 296.7 $ 198.4 $ 199.8
</TABLE>
<TABLE>
<CAPTION>
December 31
Proportionate --------------------------------------------------------------------------
Operating Data (In thousands) 1996 1995 1994 1993 1992
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cellular POPs (4) 43,364 37,739 35,390 34,889 34,121
Cellular subscribers 3,403 2,262 1,560 1,046 744
Subscriber net adds in period, excluding
acquisitions 770 591 514 286 186
Monthly average revenue per unit $ 61 $ 70 $ 78 $ 83 $ 90
Monthly cash cost per unit $ 36 $ 42 $ 46 $ 48 $ 54
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Footnotes on page 5.
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<PAGE> 4
SELECTED FINANCIAL DATA
INTERNATIONAL CELLULAR
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended December 31
Proportionate ----------------------------------------------------------------------
Financial Data (Dollars in millions) 1996 1995 1994 1993 1992
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Existing operations: (7)
Net operating revenues $1,473.4 $ 841.0 $ 352.8 $ 88.3 --
Operating income (loss) $ 283.9 $ 62.7 $ 10.0 $ (17.3) --
Operating cash flow (2) $ 477.7 $ 203.7 $ 87.4 $ 6.5 --
Operating cash flow margin 32.4% 24.2% 24.8% 7.4% --
Income (loss) $ 141.0 $ (0.5) $ (13.2) $ (18.9) --
Start-up systems: (8)
Income (loss) $ (157.2) $ (51.6) $ (26.1) $ (20.9) --
Total income (loss) $ (16.2) $ (52.1) $ (39.3) $ (39.8) --
</TABLE>
<TABLE>
<CAPTION>
December 31
Proportionate ----------------------------------------------------------------------
Operating Data (In thousands) 1996 1995 1994 1993 1992
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cellular POPs (4) 120,724 112,869 64,118 40,401 35,347
Cellular subscribers 1,734 797 388 160 35
Subscriber net adds in period, excluding acquisitions 846 383 199 123 35
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
U.S. PAGING (9)
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
For the Year Ended December 31
--------------------------------------------------------------------
Financial Data (Dollars in millions) 1996 1995 1994 1993 1992
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service and other revenues $ 292.4 $ 219.4 $ 183.5 $ 145.7 $ 113.5
Equipment sales 50.0 45.5 43.4 35.2 22.2
Cost of equipment sales (45.8) (39.5) (38.0) (31.9) (19.2)
- - -----------------------------------------------------------------------------------------------------------------------------------
Net operating revenues 296.6 225.4 188.9 149.0 116.5
- - -----------------------------------------------------------------------------------------------------------------------------------
Total operating expenses before depreciation
and amortization 208.8 150.8 122.5 98.7 74.0
Depreciation and amortization expenses 64.4 42.8 36.8 30.6 26.3
- - -----------------------------------------------------------------------------------------------------------------------------------
Operating income $ 23.4 $ 31.8 $ 29.6 $ 19.7 $ 16.2
- - -----------------------------------------------------------------------------------------------------------------------------------
Operating cash flow (2) $ 87.8 $ 74.6 $ 66.4 $ 50.3 $ 42.5
Operating cash flow margin 29.6% 33.1% 35.2% 33.8% 36.5%
Capital expenditures, excluding acquisitions $ 98.9 $ 72.0 $ 61.3 $ 53.4 $ 42.9
</TABLE>
<TABLE>
<CAPTION>
December 31
-------------------------------------------------------------------
Operating Data (In thousands) 1996 1995 1994 1993 1992
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Units in service 2,850 2,338 1,525 1,167 821
Units in service net adds in period, excluding acquisitions 512 463 358 324 220
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRIMECO (3)
- - -----------------------------------------------------------------------------------------------------------------------------------
December 31
Proportionate -------------------------------------------------------------------
Operating Data (In thousands) 1996 1995 1994 1993 1992
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PCS POPs (3) (4) 14,229 14,300 -- -- --
PCS subscribers (3) 9 -- -- -- --
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Footnotes on page 5.
-4-
<PAGE> 5
SELECTED FINANCIAL DATA
Footnotes:
(1) Reflects financial and operating data of systems in which the Company owns
an interest, multiplied by the Company's ownership interest, exclusive of
cost-based investments and certain equity-based investments that are not
material to the information presented.
(2) Operating cash flow is defined as operating income plus depreciation and
amortization and is not the same as cash flow from operating activities in
the Company's Consolidated Statements of Cash Flows. Proportionate
operating cash flow represents the Company's ownership interests in the
respective entities' operating cash flows. As such, proportionate
operating cash flow does not represent cash available to the Company.
(3) PCS data relates to PrimeCo Personal Communications, L.P. ("PrimeCo"), a
personal communications services ("PCS") business in which the Company has
a 25% interest.
(4) POPs are the estimated market population multiplied by the Company's
ownership interest in a licensee operating in that market. Includes
markets in which the networks are under construction and the markets of
certain cost-based and equity-based investments not included in
proportionate operating results.
(5) In 1992, selling and customer operations expenses were reported on a
combined basis with general, administrative, and other expenses.
(6) If net losses on equipment sales were reclassified as operating expenses,
operating cash flow margins would be 41.4%, 39.7%, 41.3%, 42.6%, and 39.9%
for 1996, 1995, 1994, 1993, and 1992, respectively.
(7) Effective January 1, 1996, existing operations represent the Company's
share of results (after foreign taxes where applicable) for the following
international cellular systems which have provided commercial service for
the full 12 months of any preceding calendar year: Germany, Portugal,
Sweden, Belgium, and Japan. Prior to January 1, 1996, existing operations
represented the Company's share of results (after foreign taxes where
applicable) for the following international cellular systems which had
completed 12 months of commercial service: 1995: Germany, Portugal,
Sweden, Belgium, and Japan; 1994: Germany, Portugal, Sweden, and Belgium
(6 months); and 1993: Germany (6 months), Portugal (3 months), and Sweden
(3 months).
(8) Effective January 1, 1996, start-up systems represent the Company's share
of income or loss (after foreign taxes where applicable) for the following
international cellular systems which did not provide commercial service
for the full 12 months of any preceding calendar year: Italy, South
Korea, Spain, India, and Poland. Prior to January 1, 1996, start-up
systems represented the Company's share of income or loss (after foreign
taxes where applicable) for the following international cellular systems
which had not yet completed 12 months of commercial service: 1995:
Italy, South Korea, Spain, and India (4 months); 1994: Japan, Italy (3
months), and South Korea (3 months); and 1993: Japan, Germany (6 months),
and Portugal (9 months).
(9) U.S. Paging is wholly owned by the Company; therefore, proportionate
information reflects 100% of the subsidiary's GAAP-basis operating
results.
-5-
<PAGE> 6
MANAGEMENT'S DISCUSSION & ANALYSIS
Financial Condition & Results of Operations
GENERAL
Management's discussion and analysis is intended to assist in the understanding
and assessment of significant changes and trends related to the results of
operations and financial condition of AirTouch Communications, Inc., together
with its subsidiaries and partnerships (collectively, the "Company" or
"AirTouch"). This discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and accompanying Notes.
Private Securities Litigation Reform Act Safe Harbor Statement. In addition to
historical information, management's discussion and analysis includes certain
forward-looking statements regarding events and financial trends which may
affect the Company's future operating results and financial position. Such
statements are subject to risks and uncertainties that could cause the
Company's actual results and financial position to differ materially. Such
factors include, but are not limited to: a change in economic conditions in
various markets served by the Company's operations which would adversely affect
the level of demand for wireless services; greater-than-anticipated competitive
activity requiring new pricing and/or product offerings or resulting in higher
acquisition costs; greater-than-expected customer growth driving increased
investment in network capacity; the level of fraudulent activity; the impact of
new business opportunities requiring significant up-front investments; the
timing and manner of implementation of the subsequent phases of the Company's
relationship with U S WEST, Inc. ("U S WEST"); the impact on capital spending
from the deployment of new technologies; and the risk that technologies will
not be developed according to anticipated schedules or perform according to
expectations. These and other risks and uncertainties related to the business
are described in detail in the Company's 1996 Annual Report on Form 10-K under
the heading "Investment Considerations." Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
BASIS OF PRESENTATION
CONSOLIDATION VS. THE EQUITY METHOD
In accordance with generally accepted accounting principles ("GAAP"), the
Company consolidates revenues and expenses of each subsidiary and partnership in
which the Company has a controlling interest. The Company uses the equity method
to record the operating results of entities in which the Company has significant
influence, but does not have a controlling interest. Consolidated operating
revenues and expenses principally include seven U.S. cellular markets, all U.S.
paging markets, and NordicTel Holdings AB ("NordicTel"), the Company's cellular
operations in Sweden. On December 31, 1996, AirTouch consolidated Telecel
Communicacoes Pessoais, S.A. ("Telecel"), its cellular system in Portugal,
subsequent to obtaining a controlling interest and, accordingly, the Company
will consolidate the cellular system's results of operations beginning January
1, 1997. The seven U.S. cellular markets included in consolidated revenues and
expenses during 1996 were Los Angeles, Sacramento, Atlanta, San Diego, Great
Lakes (properties in Michigan and Ohio), Wichita, and Topeka. Consolidation of
the Company's Great Lakes market commenced on August 16, 1996, the date on which
the Company completed its acquisition of the remaining capital stock of Cellular
Communications, Inc. ("CCI") that it did not already own. For further
information regarding the acquisition, see "Cellular Communications, Inc.
Merger."
GAAP VS. PROPORTIONATE PRESENTATION
Tables presenting results of operations on a proportionate basis are included as
supplementary information in the discussion and analysis of results of
operations for the Company's U.S. and international cellular operations.
Proportionate presentation is a pro-rata consolidation which reflects the
Company's share of revenues and expenses in both its consolidated and
unconsolidated wireless systems, net of interests of minority and equity
partners. Proportionate results
-6-
<PAGE> 7
MANAGEMENT'S DISCUSSION & ANALYSIS
Financial Condition & Results of Operations
are calculated by multiplying the Company's ownership interest in each wireless
system by each system's total operating results, whereas the presentation
prepared in accordance with GAAP requires consolidation of wireless systems
controlled by the Company and the equity method of accounting for wireless
systems in which the Company has significant influence, but not a controlling
interest. Net income under either presentation is the same. Proportionate
presentation is not required by GAAP, nor is it intended to replace the
consolidated operating results prepared and presented in accordance with GAAP.
However, since significant wireless systems are not consolidated, proportionate
information is provided as supplemental data to facilitate a more detailed
understanding and assessment of consolidated operating results prepared and
presented in accordance with GAAP.
COMPOSITION OF OPERATING REVENUES AND EXPENSES
Operating revenues include cellular and paging service revenues, as well as
equipment sales. Cellular service revenues primarily consist of air time
charges, access fees, and in-bound roaming charges. Paging service revenues
primarily consist of paging service charges and rentals of paging units in the
United States. Equipment sales consist of revenues from sales of cellular
telephones and pagers. Equipment sales are not a primary part of the Company's
cellular or paging businesses. Rather, the Company offers cellular and paging
equipment at competitive prices, which are usually at or below cost, as an
incentive for its customers to subscribe to its cellular and paging services.
Operating expenses include: cost of revenues; cost of equipment sales; selling
and customer operations expenses; general, administrative, and other expenses;
and depreciation and amortization expenses. However, cost of equipment sales are
reported as a reduction to operating revenues for purposes of proportionate
presentation. Cost of revenues primarily consists of cellular and paging network
operating costs, interconnection fees assessed by local exchange carriers, and
costs of cellular roaming fraud. Interconnection costs have fixed and variable
components. The fixed component of interconnection costs consists of monthly
flat-rate fees for facilities leased from local exchange carriers. The variable
component of interconnection costs, which fluctuates in relation to the level of
cellular calls and paging transmissions, consists of per-minute usage fees
charged by local exchange carriers for cellular calls or paging transmissions
terminating on their networks. 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. General, administrative, and other
expenses primarily consist of salaries, wages, and related benefits for general
and administrative personnel, international license application costs, bad debt,
and other overhead expenses. Depreciation and amortization primarily consists of
depreciation recorded for the Company's cellular and paging networks, as well as
amortization of intangibles such as wireless license costs, subscriber lists,
and goodwill.
RESULTS OF OPERATIONS
The following discussions compare the results of operations for the year ended
December 31, 1996 to the year ended December 31, 1995 and the year ended
December 31, 1995 to the year ended December 31, 1994. The operating results of
these periods are not necessarily indicative of operating results in future
periods. The following comparative information should be read in conjunction
with the Consolidated Financial Statements and accompanying Notes for each
period discussed, as well as the information presented in all other sections of
management's discussion and analysis.
-7-
<PAGE> 8
MANAGEMENT'S DISCUSSION & ANALYSIS
Financial Condition & Results of Operations
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------
(GAAP-Basis) For the Year Ended
December 31
----------------------------------------
(Dollars in millions) 1996 1995 1994
- - ------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues $ 2,251.7 $ 1,618.6 $ 1,246.9
Total operating
expenses 1,970.7 1,505.8 1,174.3
- - ------------------------------------------------------------------------
Operating income 281.0 112.8 72.6
Equity in net income
(loss) of
unconsolidated
wireless systems 133.3 152.3 110.7
Minority interests in
net (income) loss of
consolidated
wireless systems (95.1) (36.5) (16.3)
Interest:
Expense (52.0) (13.0) (10.3)
Income 14.0 34.9 54.7
Foreign exchange
gain (loss) 6.0 3.3 (3.5)
Misc. income
(expense) 61.1 (8.8) (1.5)
Income taxes (149.3) (113.1) (108.3)
Preferred dividends (20.1) -- --
- - ------------------------------------------------------------------------
Net income available
to common
stockholders $ 178.9 $ 131.9 $ 98.1
========================================================================
</TABLE>
1996 vs. 1995
Consolidated operating income improved $168.2 million or 149.1%, due primarily
to improvements of $109.5 million and $32.9 million in operating income of U.S.
and international cellular operations, respectively. The remaining increase in
consolidated operating income of $25.8 million was attributable to the absence
of AirTouch Teletrac (a radio vehicle location service subsidiary sold effective
January 17, 1996) during most of 1996 and a $25.0 million loss reserve recorded
for AirTouch Teletrac in 1995. Equity in net income (loss) of unconsolidated
wireless services decreased $19.0 million due primarily to the consolidation of
the Great Lakes market beginning August 16, 1996 (see "Cellular Communications,
Inc. Merger") and increased operating losses of PrimeCo Personal Communications,
L.P. ("PrimeCo") associated with the start-up phase of the personal
communications services ("PCS") business. Such decreases were largely offset by
improvements in the operating results of international cellular operations and
CMT Partners (the Company's partnership which provides cellular service
primarily in the San Francisco Bay Area).
The increase in interest expense resulted from higher debt balances. Similarly,
the decrease in interest income resulted from lower cash balances available for
investment. The increase in miscellaneous income was primarily attributable to a
$56.0 million gain on the sale of Dansk Mobiltelefon AB ("DMT"), an investment
held by NordicTel. Net of minority interest and taxes, the sale of DMT resulted
in a $6.0 million increase in consolidated net income. The effective tax rate
declined from 46.2% to 42.9% due primarily to a decrease in foreign losses of
equity-method subsidiaries, certain foreign tax benefits, and lower California
state taxes, all of which were largely offset by taxes associated with the sale
of DMT and tax benefits recognized in 1995 related to the tax loss on the sale
of AirTouch Teletrac (see Note K, "Income Taxes," to the Consolidated Financial
Statements).
1995 vs. 1994
Consolidated operating income improved $40.2 million or 55.4%, due primarily to
an $82.5 million improvement in operating income of U.S. cellular operations,
partially offset by a $25.0 million loss reserve related to the sale of AirTouch
Teletrac and other individually insignificant loss reserves. Equity in net
income (loss) of unconsolidated wireless services increased $41.6 million due
primarily to customer growth in the Company's U.S. cellular equity-method
markets, partially offset by increased start-up losses in international cellular
equity-method markets.
The increase in interest expense resulted from higher debt balances. Similarly,
the decrease in interest income resulted from lower cash balances available for
investment. The effective tax rate declined from 52.5% to 46.2% due primarily to
income tax benefits recognized for NordicTel and the 1995 tax loss on the sale
of AirTouch Teletrac, partially offset by increases in foreign losses of
equity-method subsidiaries.
-8-
<PAGE> 9
MANAGEMENT'S DISCUSSION & ANALYSIS
Financial Condition & Results of Operations
U.S. CELLULAR OPERATIONS
Cellular Communications, Inc. Merger
Effective November 1, 1995, the Company increased its ownership interest in CCI
from approximately 13.0% to approximately 37.0%. Effective August 16, 1996,
AirTouch acquired the remaining 63.0% of CCI's capital stock that it did not
already own. As a result of the acquisition, AirTouch now owns 100.0% of CCI and
New Par, the equally owned partnership between the Company and CCI that operated
cellular properties in Michigan and Ohio. Accordingly, the operating results of
CCI and New Par (referred to elsewhere in management's discussion and analysis
as the "Great Lakes" market) are reflected in equity earnings through August 15,
1996 and in consolidated results thereafter. The transaction was recorded using
the purchase method of accounting for business combinations and may result in
near-term earnings dilution. For a detailed discussion of cost and funding of
the acquisition, see "Liquidity and Capital Resources." For additional
information related to the acquisition, see Note F, "Partnerships and
Acquisitions," to the Consolidated Financial Statements.
U.S. Cellular Operating Results
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------
(GAAP-Basis) For the Year Ended
December 31
-------------------------------------
(Dollars in millions) 1996 1995 1994
- - -----------------------------------------------------------------------------
<S> <C> <C> <C>
Service & other
revenues $ 1,634.4 $ 1,145.2 $ 874.8
Equipment sales 59.8 43.7 46.3
- - -----------------------------------------------------------------------------
Operating revenues 1,694.2 1,188.9 921.1
- - -----------------------------------------------------------------------------
Total cash operating
costs(a) 1,054.9 771.3 583.4
Depreciation and
amortization
expenses 239.8 127.6 130.2
- - -----------------------------------------------------------------------------
Operating income 399.5 290.0 207.5
Equity in net income
(loss) of
unconsolidated
wireless systems 198.8 196.2 129.0
Minority interests in
net (income) loss
of consolidated
wireless systems (71.4) (56.4) (38.0)
Other (income)
expense included
in equity income
and minority
interests(b) 2.1 (13.8) (5.2)
- - -----------------------------------------------------------------------------
U.S. cellular
operating
contribution to net
income(c) $ 529.0 $ 416.0 $ 293.3
=============================================================================
</TABLE>
(a) Cash operating costs are defined as all operating expenses other than
depreciation and amortization.
(b) Represents income taxes and non-operating expenses included in equity in
net income (loss) of unconsolidated wireless systems and in minority
interests in net (income) loss of consolidated wireless systems.
(c) Represents the Company's share of combined operating income of
consolidated and unconsolidated U.S. cellular operations, net of the
interests of minority and equity partners (equal to proportionate
operating income).
1996 vs. 1995
The Company's seven consolidated U.S. cellular markets are Los Angeles,
Sacramento, Atlanta, San Diego, Great Lakes, Wichita, and Topeka. Consolidation
of the Great Lakes market commenced on August 16, 1996. Significant
equity-method U.S. cellular entities include CMT Partners and the Great Lakes
market prior to August 16, 1996 (see "Basis of Presentation" and "Cellular
Communications, Inc. Merger").
-9-
<PAGE> 10
MANAGEMENT'S DISCUSSION & ANALYSIS
Financial Condition & Results of Operations
Excluding the effect of the consolidation of the Great Lakes market beginning
August 16, 1996, U.S. cellular consolidated operating revenues increased 15.9%,
due primarily to a 29.8% increase in subscribers, partially offset by a 14.0%
decrease in the average revenue per cellular customer. The Company achieved
customer growth in its consolidated markets through advertising and by
continuing to offer incentive programs such as waived service establishment
charges, discounted monthly access fees, discounted cellular handsets, free or
discounted air time packages, and reduced or fixed rates for off-peak usage and
roaming. The decline in average revenue per customer was primarily attributable
to continued success in penetrating the consumer markets and to rate reductions
and discounts associated with customer incentive programs and marketing
promotions. Consumer usage patterns contributed to declines in average revenue
per customer because consumers typically place and receive fewer calls than
commercial customers and often use their telephones more during lower-rate,
off-peak calling periods. The Company expects the shift toward consumer markets
to continue, resulting in continuing declines in average revenue per customer.
Excluding the effect of the consolidation of the Great Lakes market beginning
August 16, 1996, U.S. cellular operating income increased 17.8% and operating
margins were consistent at approximately 24.0%. Operating cash flow margins
(operating margin excluding the effect of depreciation and amortization
expenses) increased from 35.1% to 36.9%. Stable margins despite declining
average revenue per customer resulted primarily from a 19.0% decline in the
average cash cost per customer (including the loss on equipment sales) in the
Company's consolidated markets, which reflects the Company's continuing efforts
to reduce cash costs faster than the related declines in average revenue per
customer. Decreases in average cash costs resulted from several factors,
including increased economies of scale, significant reductions in roaming fraud,
declines in handset costs, a shift in customer acquisitions to lower-cost direct
sales channels, and some reduction in interconnection rates. The Company has
also reduced the rate at which customers discontinue service by increasing its
focus on customer incentive programs designed to retain existing customers,
which is significantly less expensive than replacing customers that discontinue
service. The aforementioned cost reductions were partially offset by increases
in personnel, billing, facilities, and certain other costs necessary to serve
the expanded customer base. Depreciation and amortization increased by
approximately 31.3%, due primarily to depreciation of significantly larger
property, plant, and equipment balances associated with analog network expansion
and digital cellular deployment across various consolidated markets.
Equity in net income of U.S. cellular properties increased 1.3%, reflecting a
15.8% increase in the net income of CMT Partners, partially offset by the effect
of consolidation of the Great Lakes market beginning August 16, 1996. Prior to
its consolidation, approximately 69.0% of Great Lakes' net income was reflected
in net income (loss) of unconsolidated wireless systems (see "Cellular
Communications, Inc. Merger").
1995 vs. 1994
U.S. cellular consolidated operating revenues increased 29.1%, due primarily to
a 35.8% increase in subscribers, partially offset by a 9.3% decrease in the
average revenue per cellular customer. The Company achieved customer growth in
its consolidated markets through advertising and by offering incentive programs
similar to those described for 1996. The decline in average revenue per customer
was primarily attributable to continued success in penetrating the consumer
markets and to rate reductions and discounts associated with customer incentive
programs and marketing promotions.
U.S. cellular operating income increased 39.7% and operating margins increased
from 22.5% to 24.4%. Operating cash flow margins (operating margin excluding the
effect of depreciation and amortization expenses) decreased slightly from 36.7%
to 35.1%. Stable margins despite declining
-10-
<PAGE> 11
MANAGEMENT'S DISCUSSION & ANALYSIS
Financial Condition & Results of Operations
average revenue per customer resulted primarily from a 6.2% decline in the
average cash cost per customer (including the loss on equipment sales) in the
Company's consolidated markets, which reflects the Company's efforts to reduce
cash costs. Decreases in average cash costs resulted from several factors,
including increased economies of scale and a shift in customer acquisitions to
lower-cost direct sales channels. The aforementioned cost reductions were
partially offset by moderate increases in personnel, billing, facilities, and
certain other costs necessary to serve the expanded customer base. In addition,
cellular fraud losses during 1995 increased significantly over losses incurred
during 1994. Depreciation and amortization decreased by approximately 2.0%, due
to a change in the estimated useful lives of certain analog cellular assets from
seven to ten years effective January 1, 1995, partially offset by increased
depreciation resulting from analog network expansion.
Equity in net income of U.S. cellular properties increased by 52.1% reflecting
growth in each of the customer bases of the Great Lakes market and CMT Partners,
as well as increases in the estimated useful lives of certain cellular assets,
partially offset by declines in average revenue per customer. A portion of the
increase was also attributable to the November 1, 1995 increase in the Company's
interest in CCI (see "Cellular Communications, Inc. Merger").
Proportionate U.S. Cellular Operating Results
Proportionate information for the Company's U.S. cellular operations is
presented as supplemental information only and is a pro-rata consolidation of
the Company's share of all U.S. cellular operating revenues and expenses, net of
the interests of minority and equity partners. Since significant U.S. cellular
operations are not consolidated, the Company believes that proportionate
information facilitates a more detailed understanding of the Company's operating
results prepared and presented in accordance with GAAP.
U.S. Cellular Operating Results
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------
(Proportionate- For the Year Ended
Basis) December 31
---------------------------------------
(Dollars in millions) 1996 1995 1994
- - --------------------------------------------------------------------------
<S> <C> <C> <C>
Service & other
revenues $ 1,984.2 $ 1,523.3 $ 1,160.1
Equipment sales 83.0 78.9 74.6
Cost of equipment
sales (180.7) (125.6) (82.0)
- - --------------------------------------------------------------------------
Net operating
revenues 1,886.5 1,476.6 1,152.7
Total operating
expenses 1,357.5 1,060.6 859.4
- - --------------------------------------------------------------------------
Operating income $ 529.0 $ 416.0 $ 293.3
==========================================================================
Operating cash flow(a) $ 821.4 $ 605.2 $ 479.0
Operating cash flow
margin(b) 43.5% 41.0% 41.6%
==========================================================================
Operating Data
(In thousands, except
unit data)
- - --------------------------------------------------------------------------
Subscribers 3,403 2,262 1,560
Subscriber net adds in
period, excluding
acquisitions 770 591 514
Monthly average
revenue per unit $ 61 $ 70 $ 78
Monthly cash cost per
unit $ 36 $ 42 $ 46
==========================================================================
</TABLE>
(a) See Footnote 2 on page 5.
(b) See Footnote 6 on page 5.
-11-
<PAGE> 12
MANAGEMENT'S DISCUSSION & ANALYSIS
Financial Condition & Results of Operations
Other Matters Affecting U.S. Cellular Operations
AirTouch/U S WEST Partnerships. The Company and U S WEST have entered into a
three-phase transaction to combine their U.S. cellular properties. The parties
are currently in the first phase of the transaction, during which the parties
formed a jointly owned management company that provides support services to both
companies' U.S. cellular operations. The companies also formed an equally owned
PCS partnership (the "PCS Partnership") which holds both companies' interest in
PrimeCo.
Phase II of the transaction will involve the contribution of certain of each
company's U.S. cellular properties and, at some point, their respective
interests in the PCS Partnership to a jointly owned partnership. Contribution of
both parties' U.S. cellular properties is subject to receipt of required
approvals and consents. Phase II of the transaction could result in near-term
dilution of AirTouch's earnings. The Company's ownership interest in the
resulting partnership and the extent of any dilution will depend on, among other
things, the ability of both companies to contribute their respective U.S.
cellular properties, the timing of the contributions of the U.S. cellular
properties, the timing and value of the PCS Partnership contribution, and the
relative profitability of the Company's and U S WEST's respective operations
subsequent to contribution of such operations.
Phase III will involve the acquisition by the Company of U S WEST's ownership
interest in the partnership subsequent to the completion of Phase II in exchange
for a combination of AirTouch common stock and, if required, non-voting
preferred stock. This exchange is at U S WEST's option. The issuance of stock
would result in dilution of the Company's per share earnings, the extent of
which will depend on, among other things, the appraised values of AirTouch
common stock and U S WEST's interest in the partnership at the time of the
exchange. The Company cannot precisely assess the future impact of these
transactions with U S WEST on the Company's results of operations due to the
uncertain timing of events in Phase II, as well as uncertainty surrounding the
occurrence of Phase III. For a more detailed description of the transactions
with U S WEST, see Note F, "Partnerships and Acquisitions," to the Consolidated
Financial Statements.
Government Regulation
On February 8, 1996, President Clinton signed the Telecommunications Act of 1996
(the "Act") into law. The Act fundamentally changed the domestic rules and
regulations under which all providers of telecommunications services operate.
Among positive changes for the Company, the Act clarified AirTouch's right to
offer long distance service, exempted commercial mobile radio service ("CMRS")
providers such as AirTouch from equal access and unbundling requirements imposed
on local exchange carriers ("LECs"), and established requirements for reciprocal
interconnection arrangements between LECs and CMRS providers for the termination
of one another's calls (previously, CMRS companies paid for calls terminated by
LECs, but LECs did not compensate CMRS providers for terminating LEC calls).
Although management believes the Act creates a more favorable business
environment for AirTouch, management is unable to precisely quantify the
numerous effects of the Act on future operating results.
-12-
<PAGE> 13
MANAGEMENT'S DISCUSSION & ANALYSIS
Financial Condition & Results of Operations
U.S. PAGING OPERATIONS
All U.S. paging markets are wholly-owned by the Company.
U.S. Paging Operating Results
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------
(GAAP-Basis) For the Year Ended
December 31
-------------------------------------
(Dollars in millions) 1996 1995 1994
- - --------------------------------------------------------------------------
<S> <C> <C> <C>
Service & other
revenues $ 292.4 $ 219.4 $ 183.5
Equipment sales 50.0 45.5 43.4
- - --------------------------------------------------------------------------
Operating revenues 342.4 264.9 226.9
Total operating
expenses 319.0 233.1 197.3
- - --------------------------------------------------------------------------
Operating income $ 23.4 $ 31.8 $ 29.6
==========================================================================
Operating cash flow $ 87.8 $ 74.6 $ 66.4
Operating cash flow
margin(a) 25.6% 28.2% 29.3%
==========================================================================
Operating Data
(In thousands)
- - --------------------------------------------------------------------------
Units in service 2,850 2,338 1,525
Units in service net
adds during
period, excluding
acquisitions 512 463 358
==========================================================================
</TABLE>
(a) Operating cash flow margins in the GAAP presentation above differ from the
same margins presented in "Selected Five-Year Proportionate Data" because
costs of equipment sales are included in operating expenses in this
presentation in accordance with GAAP, rather than being presented as a
reduction to operating revenues as is done in the proportionate
presentation.
1996 vs. 1995
Operating revenues increased 29.3%, due primarily to the acquisition of Message
Center Beepers, Inc. ("Message Center") in mid-December 1995 and to a 21.9%
increase in paging units in service in existing and start-up paging markets.
Operating income declined 26.4% and operating margins decreased from 12.0% to
6.8%. Operating cash flow margins (operating margins excluding the effect of
depreciation and amortization) decreased from 28.2% to 25.6%. The decline in the
operating cash flow margin resulted primarily from significant operating costs
incurred in initiating service in start-up markets. Excluding the effect of
start-up markets, the 1996 operating cash flow margin was 31.4%. Increased
depreciation and amortization associated with the expansion of paging networks
and amortization of intangibles acquired in connection with Message Center,
combined with increased cash costs in start-up markets, resulted in the more
significant decline in the overall operating margin. Excluding the effect of
start-ups, the 1996 operating margin was 13.2%.
1995 vs. 1994
Operating revenues increased 16.7%, due to a 30.4% increase in paging units in
service (excluding units acquired in connection with Message Center), partially
offset by a 9.3% decrease in average revenue per paging unit. Operating income
increased 7.4%, while overall operating margins decreased slightly from 13.0% to
12.0%. Operating cash flow margins (operating margins excluding the effect of
depreciation and amortization) also remained relatively stable, decreasing from
29.3% to 28.2%.
INTERNATIONAL CELLULAR OPERATIONS
Consolidated international cellular results reflect the operations of NordicTel.
On December 31, 1996, the Company consolidated Telecel, its cellular system in
Portugal, subsequent to acquiring a controlling interest and, accordingly,
operating results of Telecel will be reflected in consolidated results rather
than equity in net income (loss) of unconsolidated wireless systems beginning
January 1, 1997. During 1996, the results of all international cellular systems
other than NordicTel were reflected in equity in net income (loss) of
unconsolidated wireless systems.
-13-
<PAGE> 14
MANAGEMENT'S DISCUSSION & ANALYSIS
Financial Condition & Results of Operations
<TABLE>
<CAPTION>
International Cellular Operating Results
- - ---------------------------------------------------------------------------
(GAAP-Basis) For the Year Ended
December 31
-------------------------------
(Dollars in millions) 1996 1995 1994
- - ---------------------------------------------------------------------------
<S> <C> <C> <C>
Cellular service & other
revenues $ 181.1 $ 85.6 $ 28.8
Cellular equipment
sales 19.3 12.5 1.0
- - ---------------------------------------------------------------------------
Operating revenues 200.4 98.1 29.8
Total operating
expenses 213.7 144.3 75.1
- - ---------------------------------------------------------------------------
Operating income (loss) (13.3) (46.2) (45.3)
Equity in net income
(loss) of
unconsolidated
wireless systems (16.1) (27.1) (12.4)
Minority interests in net
(income) loss of
consolidated wireless
systems (23.7) 19.9 21.6
Other income
(expense) 36.9 1.3 (3.2)
- - ---------------------------------------------------------------------------
Net income (loss) $ (16.2) $ (52.1) $ (39.3)
===========================================================================
</TABLE>
1996 vs. 1995
The 104.3% increase in NordicTel's operating revenues resulted primarily from
substantial subscriber growth. Operating losses in Sweden declined 71.2% and
negative operating margins improved from 47.1% to 6.6%, due primarily to rapidly
declining cash costs per customer achieved as operations gained scale. The
increase in other income and expenses resulted primarily from a $56.0 million
gain on the sale of DMT, partially offset by increases in interest expense
associated with higher debt balances and a decrease in income tax benefits.
Cellular equity losses decreased 40.6% due to significant improvement in
existing operations in Germany, Portugal, Belgium, and Japan partially offset by
increased losses of start-up operations in Spain, South Korea, Italy, and
Poland. Improved results of existing operations resulted from increasing scale
and continued subscriber growth, partially offset by slight declines in the
average revenue per customer. Higher start-up losses were attributable to
acquisition costs associated with rapid subscriber growth. International
start-up operations expected to dilute earnings during 1997 include Poland,
South Korea, and Madyha Pradesh, India.
1995 vs. 1994
The 229.2% increase in NordicTel's operating revenues resulted from a
significant increase in subscribers, partially offset by a decline in average
revenue per customer. Operating losses in Sweden increased 2.0%. Negative
operating margins, however, improved from 152.0% to 47.1%, due primarily to
rapidly declining cash costs per customer, partially offset by significant
increases in overall acquisition costs associated with accelerated subscriber
growth. Declining cash costs per customer were achieved as operations gained
scale. The increase in other income and expenses resulted primarily from higher
income tax benefits, partially offset by increases in interest expense
associated with higher debt balances.
The increase in equity losses during 1995 reflected losses associated with the
first full year of operations for the Company's investments in Japan and the
commencement of operations in Italy and Spain during late 1995, offset by a
substantial increase in earnings in Germany and, to a lesser extent, improved
operating results in Belgium and Portugal. The increases in losses of Japan and
the start-ups resulted from costs associated with network build-out and rapid
customer growth. The Company's earnings in Germany increased due to significant
customer growth, a 2.1% increase in the Company's interest acquired in October
1995, and the extension of depreciable lives for certain cellular assets from
seven to ten years, effective January 1, 1995.
-14-
<PAGE> 15
MANAGEMENT'S DISCUSSION & ANALYSIS
Financial Condition & Results of Operations
Proportionate International Cellular Operating Results
The proportionate information presented below for the Company's international
cellular operations is presented as supplemental information only and is a
pro-rata consolidation of the Company's share of all international cellular net
operating revenues, operating income (loss), and operating cash flow, net of
interests of minority and equity partners. Since significant international
cellular operations are not consolidated, the Company believes that
proportionate information facilitates a more detailed understanding of the
Company's operating results prepared and presented in accordance with GAAP.
International Cellular Operating Results
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------
(Proportionate-Basis) For the Year Ended
December 31
---------------------------------
(Dollars in millions) 1996 1995 1994
- - ----------------------------------------------------------------------------
<S> <C> <C> <C>
Existing operations: (a)
Net operating
revenues $ 1,473.4 $ 841.0 $ 352.8
Operating income $ 283.9 $ 62.7 $ 10.0
Operating cash flow(b) $ 477.7 $ 203.7 $ 87.4
Income (loss) $ 141.0 $ (0.5) $ (13.2)
Start-up systems: (c)
Income (loss) $ (157.2) $ (51.6) $ (26.1)
Total cellular income
(loss) $ (16.2) $ (52.1) $ (39.3)
============================================================================
Operating Data
(In thousands)
- - ----------------------------------------------------------------------------
Subscribers 1,734 797 388
Subscriber net adds in
period, excluding
acquisitions 846 383 199
============================================================================
</TABLE>
(a) See Footnote 7 on page 5.
(b) See Footnote 2 on page 5.
(c) See Footnote 8 on page 5.
Other Matters Affecting International Cellular Operations
Foreign Currencies. The Company engages in risk management activities to hedge
foreign currency denominated investments and firm capital commitments. The
Company does not engage in speculative foreign exchange activities.
The Company's foreign exposures primarily take the form of equity investments in
foreign wireless systems and are viewed as long-term assets valued in the local
currency, translated into United States dollars and reported in the Company's
financial statements. The Company hedges a portion of these investments with
long-dated forward contracts and foreign currency denominated loans. Generally,
the currencies in which the Company has foreign exchange forward contracts have
numerous market makers to provide ample depth for hedging activities. These
hedges are in accordance with the Company's objective to offset the United
States dollar values of foreign currency denominated assets with foreign
currency denominated liabilities. The accounting treatment is described in Note
D, "Financial Instruments," to the Consolidated Financial Statements.
Virtually all of the Company's economic hedges qualify as hedges under
accounting rules. Non-qualifying hedges relate to a cost method investment that
does not qualify for hedge accounting or mismatches between the hedge
instruments and the hedged investments due to equity losses of foreign wireless
systems during start-up. All gains and losses pertaining to hedges that do not
qualify for hedge accounting are included in net income.
Deferred Taxes. International equity losses were partially offset by tax
benefits of $9.5 million, $39.8 million, and $27.3 million in 1996, 1995, and
1994, respectively. These tax benefits are recorded in "Equity in net income
(loss) of unconsolidated wireless systems" on the Consolidated Statements of
Income. The tax benefits were recorded as an asset that represents future
benefits the equity investees will receive by deducting the net operating losses
from future taxable income. At December 31, 1996, the Company's proportionate
share of deferred tax assets of its international equity investees was
approximately $172.0 million, which was offset by a valuation allowance of
approximately $103.0 million. While the Company believes that it is more likely
than not that the net deferred tax assets will be fully realized, there can be
no assurance this will happen as certain factors beyond the control of the
Company, such as deteriorating local economic conditions and
-15-
<PAGE> 16
MANAGEMENT'S DISCUSSION & ANALYSIS
Financial Condition & Results of Operations
increasing competition, can affect future timing and amounts of taxable income.
CONTINGENCIES
The Company is party to various legal proceedings, including certain antitrust
litigation. See Note M, "Commitments and Contingencies," to the Consolidated
Financial Statements.
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 requires substantial capital to operate and expand its existing
wireless systems, to construct new wireless systems, and to acquire interests in
existing wireless systems.
1996 CAPITAL EXPENDITURES
During 1996, the Company incurred capital expenditures of $480.3 million for
additions to property, plant, and equipment for its consolidated wireless
networks and other capital expenditures, primarily to increase cellular and
paging network capacity and to expand customer operations functions necessary to
support customer growth. The Company invested an additional $856.7 million in
its unconsolidated wireless systems to fund the expansion and build-out of
cellular and PCS networks and to increase its interest in certain systems.
During January 1996, the Company purchased options for 2.4 million shares of
capital stock in CCI for an aggregate cost of $107.7 million, an amount equal to
the aggregate consideration paid by CCI for cancellation of its employee options
pursuant to the transaction set forth in the Company's original merger agreement
with CCI. In addition, effective August 16, 1996, pursuant to the Agreement and
Plan of Merger dated April 5, 1996, as amended and restated as of July 12, 1996,
(the "1996 Merger Agreement"), the Company completed its acquisition of the
approximately 63.0% of CCI's stock that it did not already own in exchange for a
combination of AirTouch convertible preferred stock and cash. The acquisition
cost to the Company was approximately $1.6 billion including net liabilities
assumed less cash and cash equivalents acquired. Pursuant to the 1996 Merger
Agreement, the merger consideration consisted of $1,040.3 million in AirTouch
preferred securities, $393.3 million in cash paid to CCI shareholders, and the
issuance of AirTouch stock options valued at approximately $17.0 million.
The cash portion of the acquisition was funded through borrowings (see "Funding
of 1996 Capital Expenditures"). Convertible preferred securities issued in
connection with the acquisition consisted of 17,237,394 shares of Class B
Preferred and 11,069,958 shares of Class C Preferred (see Note I, "Capital
Stock," to the Consolidated Financial Statements). The Class B and C preferred
shares bear annual dividends at the rate of $1.74 and $2.125 per share,
respectively, both of which are payable quarterly in arrears.
FUNDING OF 1996 CAPITAL EXPENDITURES
The Company did not generate sufficient cash flows from operations to meet its
capital requirements during 1996. Accordingly, in March 1996, the Company
initiated a commercial paper program consisting of the sale of discounted notes
that are exempt from registration under the Securities Act of 1933 (see Note H,
"Debt and Credit Facilities," to the Consolidated Financial Statements). The
Company's Board of Directors authorized the issuance of commercial paper in
amounts necessary to finance the Company's working capital requirements,
provided that the amount outstanding under the commercial paper program,
together with all indebtedness incurred under the Company's $2.0 billion
long-term revolving credit facility ("the Facility"), does not in the aggregate
exceed $2.0 billion. In addition, on July 16, 1996, the Company issued long-term
debt in the form of $250.0 million in 7.125% Notes and $400.0 million in 7.50%
Notes, maturing in July 2001 and July 2006, respectively. The Notes were issued
pursuant to AirTouch's Registration Statement on Form S-3 (Reg. No. 33-62787),
which registered $2.0 billion in various forms of debt and equity securities
(the "Shelf"). Interest on the Notes is payable semi-annually on January 15 and
July 15, commencing in 1997. Finally, on October 2, 1996, the Company issued
additional long-term debt in the form of $250.0 million in 7.00% Notes, maturing
in October 2003. The Notes were also issued pursuant to the Shelf and require
semi-
-16-
<PAGE> 17
MANAGEMENT'S DISCUSSION & ANALYSIS
Financial Condition & Results of Operations
annual interest payments due on April 1 and October 1, commencing in 1997.
Funding needs in excess of cash flows from operations during 1996 were satisfied
primarily by proceeds from borrowings under the Shelf, the Facility, and the
commercial paper program discussed above. During 1996, the Company raised $521.3
million in new capital consisting of the issuance of $897.2 million in notes
pursuant to the Shelf (net of related discounts), the net issuance of $195.7
million in commercial paper, and the issuance of $16.2 million in short-term
borrowings, less the net repayment of $587.8 million on indebtedness under the
Facility and other long-term debt. In connection with the CCI Merger, a
subsidiary of the Company also assumed $174.5 million in convertible zero coupon
notes with a face value of $217.0 million and retired $189.2 million in other
long-term debt acquired from CCI. The convertible zero coupon notes were
subsequently retired for $180.5 million on January 27, 1997. In addition to debt
financing, the Company also received $79.5 million in proceeds from the issuance
of capital stock. The net proceeds from the issuance of debt and capital stock,
in addition to $774.7 million in cash flows from operating activities, were used
primarily to fund investments in unconsolidated wireless systems, capital
expenditures, and the cash portion of the CCI acquisition.
FUTURE CAPITAL EXPENDITURES
The Company will continue to be required to make substantial expenditures in
connection with its efforts to expand its wireless business. U.S. and
international requirements for capital expenditures and contributions to
unconsolidated wireless systems during 1997 are expected to be approximately
$1.2 billion.
Consolidated Expenditures. The Company plans to incur significant capital
expenditures in its consolidated markets to expand its existing analog and
digital wireless networks and to construct and deploy new digital wireless
networks, including the continuing expansion of its Code Division Multiple
Access ("CDMA") digital networks in Los Angeles and San Diego, as well as in
other markets, under the brand name Powerband. AirTouch plans to have CDMA
digital cellular service available in all of its managed U.S. markets by 1998.
The Company expects its future annual capital expenditures for digital
technology to continue to increase and, at some point, surpass its annual
capital expenditures for analog technology. Digital networks enable significant
increases in the Company's cellular network capacity and allow the Company to
offer additional services and features comparable to those available on digital
networks operating at PCS frequencies. Accordingly, the Company anticipates that
a significant portion of its future U.S. wireless network traffic will migrate
to digital service as high-usage customers take advantage of enhanced digital
features such as superior voice quality, longer handset battery life, improved
security, and high-speed data transmission capabilities. However, both analog
and digital technologies are expected to coexist for the foreseeable future due
to continued demand for analog service and the fact that analog networks provide
the only common roaming platform currently available throughout the United
States.
Management believes that a viable analog market will continue to exist for the
foreseeable future to serve consumers and other customers who do not desire
digital features or do not wish to purchase new digital handsets. With respect
to roaming capabilities, the Company believes that a significant portion of its
digital and analog customer base will continue to require access to nationwide
analog networks in the United States. Accordingly, the Company plans to maintain
and, as required, expand its analog networks and to offer dual-mode
(analog/digital), dual-band (cellular/PCS) phones in each of its U.S. digital
markets to facilitate the greatest possible roaming capabilities for its
customers.
At December 31, 1996, the Company was committed to spend approximately $145.0
million for the acquisition of property, plant, and equipment for its
consolidated operations in 1997. In addition to these commitments, the Company
plans to make additional capital expenditures of approximately $745.0 million
during 1997 to increase the capacity of its existing wireless networks and to
continue deployment of
-17-
<PAGE> 18
MANAGEMENT'S DISCUSSION & ANALYSIS
Financial Condition & Results of Operations
CDMA digital technology. At December 31, 1996, the Company had also committed to
spend approximately $47.0 million for the purchase of cellular handsets, pagers,
and other items.
Unconsolidated Wireless Systems. As of December 31, 1996, the Company was
committed to make capital contributions of approximately $95.0 million to its
unconsolidated wireless systems. In addition to these commitments, the Company
plans to make additional capital contributions of approximately $326.0 million
during 1997 to certain of its U.S. and international unconsolidated wireless
systems, including contributions to PrimeCo for the continuing build-out of its
PCS networks. The Company continually evaluates opportunities to increase its
ownership in its existing international wireless systems, which could result in
additional capital commitments.
FUTURE CAPITAL FUNDING
The Company anticipates cash flows from operations to be its primary source of
funding for capital needs of existing operations, debt service, and preferred
dividends through the end of 1997. However, should additional funding be
required due to new investment opportunities or other unanticipated events, the
Company may need to raise the required funds through borrowings or public or
private sales of debt or equity securities. Such funding may be obtained through
borrowings under the Facility; through the Company's commercial paper program;
from additional securities which may be issued from time to time under the
Shelf; through the issuance of securities in a transaction exempt from
registration under the Securities Act of 1933; or a combination of one or more
of the foregoing. The Company believes that, in the event of such requirements,
it will be able to access the capital markets on terms and in amounts adequate
to meet its objectives. However, given the possibility of changes in market
conditions or other occurrences, there can be no certainty that such funding
will be available in quantities or on terms favorable to the Company.
-18-
<PAGE> 19
REPORT OF MANAGEMENT
To the Stockholders of AirTouch Communications, Inc.:
FINANCIAL STATEMENTS
The management of AirTouch Communications, Inc. and its subsidiaries prepared
the accompanying Consolidated Financial Statements and is responsible for their
integrity and objectivity. The statements were prepared in accordance with
generally accepted accounting principles in the United States applied on a
consistent basis and are not misstated as a result of material fraud or error.
The Consolidated Financial Statements include amounts based on management's best
estimates and judgments, where necessary. Management also prepared the other
information in this annual report and is responsible for its accuracy and
consistency with the Consolidated Financial Statements.
The Company's 1996 and 1995 Consolidated Financial Statements have been audited
by Price Waterhouse LLP, independent accountants. The Company's 1994
Consolidated Financial Statements were audited by Coopers & Lybrand L.L.P.,
independent accountants. Management has made available to Price Waterhouse LLP
and Coopers & Lybrand L.L.P. all of the Company's financial records and related
data, as well as the minutes of meetings of the Board of Directors. Furthermore,
management believes that all of the representations made to Price Waterhouse LLP
and Coopers & Lybrand L.L.P. during their audits were valid and appropriate.
INTERNAL CONTROL SYSTEM
AirTouch Communications, Inc. and its subsidiaries maintain 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
and Investment Committee of the Board of Directors is responsible for overseeing
the Company's financial reporting process on behalf of the Board.
During 1996, the Audit and Investment 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, 1996. 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") were considered in management's control process assessments.
To assess the internal control systems in its unconsolidated partnerships and
corporations, management relied on reports issued by the Company's internal
audit group and various external public accountants who performed audits of
those entities, where such reports were available. Management believes that, as
of December 31, 1996, its overall system of internal control over financial
reporting was operating effectively.
/s/ Sam Ginn
Chairman and Chief Executive Officer
/s/ Mohan Gyani
Executive Vice President and Chief Financial Officer
February 25, 1997
-19-
<PAGE> 20
REPORT OF INDEPENDENT
ACCOUNTANTS
To the Board of Directors and Stockholders of AirTouch Communications, Inc.:
In our opinion, the accompanying Consolidated Balance Sheets and the related
Consolidated Statements of Income, of Stockholders' Equity and of Cash Flows
present fairly, in all material respects, the financial position of AirTouch
Communications, Inc. and subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above. The Consolidated Financial Statements of AirTouch Communications, Inc.
for the year ended December 31, 1994 were audited by other independent
accountants whose report dated March 13, 1995 indicated the extent of their
reliance on the report of other independent accountants insofar as it related to
amounts included in the financial statements for Mannesmann Mobilfunk GmbH, an
investment of the Company accounted for using the equity method of accounting
(see Note E), and expressed an unqualified opinion on those statements.
Our audits were made for the purpose of forming an opinion on the Consolidated
Financial Statements taken as a whole. The Selected Proportionate Financial Data
(Proportionate Financial Data) for each of the years in the three years ended
December 31, 1996, appearing on page 44 is presented for additional analysis and
is not a required part of the basic financial statements. As discussed on page
45, this Proportionate Financial Data has been prepared by the Company to
present financial information that, in the opinion of management, is not
provided by financial statements prepared in conformity with generally accepted
accounting principles. The Proportionate Financial Data reflects selected
operating data of the Company's consolidated and unconsolidated investments
using the proportionate method of accounting and is not a presentation in
accordance with generally accepted accounting principles. Such Proportionate
Financial Data for the years ended December 31, 1996 and 1995, determined on the
basis of presentation described on page 45, has been subjected to the auditing
procedures applied in our audits of the basic financial statements for 1996 and
1995 and, in our opinion, is fairly stated in all material respects in relation
to the December 31, 1996 and 1995 Consolidated Financial Statements taken as a
whole. The Proportionate Financial Data appearing on page 44, determined on the
basis of presentation described on page 45, for the year ended December 31, 1994
was audited by other independent accountants whose report dated March 13, 1995
indicated the extent of their reliance on the report of other independent
accountants insofar as it related to financial information included in the
Proportionate Financial Data for Mannesmann Mobilfunk GmbH and expressed an
unqualified opinion on that Proportionate Financial Data.
/s/ PRICE WATERHOUSE LLP
San Francisco, California
February 25, 1997
-20-
<PAGE> 21
CONSOLIDATED STATEMENTS
OF INCOME
AirTouch Communications, Inc. and Subsidiaries
<TABLE>
<CAPTION>
===============================================================================================
For the Year Ended December 31
-----------------------------------
(Dollars in millions, except per share amounts) 1996 1995 1994
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues $ 2,251.7 $ 1,618.6 $ 1,246.9
- - -----------------------------------------------------------------------------------------------
Operating expenses:
Cost of revenues 521.0 372.9 266.6
Selling and customer operations expenses 704.8 524.7 389.8
General, administrative, and other expenses 393.6 392.4 312.6
Depreciation and amortization expenses 351.3 215.8 205.3
- - -----------------------------------------------------------------------------------------------
Total operating expenses 1,970.7 1,505.8 1,174.3
- - -----------------------------------------------------------------------------------------------
Operating income 281.0 112.8 72.6
Equity in net income (loss) of unconsolidated
wireless systems 133.3 152.3 110.7
Minority interests in net (income) loss of
consolidated wireless systems (95.1) (36.5) (16.3)
Interest:
Expense (52.0) (13.0) (10.3)
Income 14.0 34.9 54.7
Foreign exchange gain (loss) 6.0 3.3 (3.5)
Miscellaneous income (expense) 61.1 (8.8) (1.5)
- - -----------------------------------------------------------------------------------------------
Income before income taxes and preferred dividends 348.3 245.0 206.4
Income taxes 149.3 113.1 108.3
- - -----------------------------------------------------------------------------------------------
Income before preferred dividends 199.0 131.9 98.1
Preferred dividends (20.1) -- --
- - -----------------------------------------------------------------------------------------------
Net income available to common stockholders $ 178.9 $ 131.9 $ 98.1
===============================================================================================
Net income available to common stockholders - per share $ 0.36 $ 0.27 $ 0.20
===============================================================================================
Weighted average shares outstanding (in thousands) 500,051 494,925 493,351
===============================================================================================
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
-21-
<PAGE> 22
CONSOLIDATED BALANCE SHEETS
AirTouch Communications, Inc. and Subsidiaries
<TABLE>
<CAPTION>
===================================================================================================
December 31
-----------------------
(Dollars in millions) 1996 1995
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 27.7 $ 82.9
Accounts receivable, net of allowance for uncollectibles of
$61.1 and $21.2, respectively 415.5 232.4
Inventories 54.5 20.2
Other receivables 33.6 103.6
Due from affiliates 34.1 21.0
Other current assets 58.7 46.1
- - ---------------------------------------------------------------------------------------------------
Total current assets 624.1 506.2
Property, plant, and equipment, net 2,321.5 1,320.2
Investments in unconsolidated wireless systems 1,991.6 3,076.3
Intangible assets, net 3,408.8 605.7
Deferred charges and other noncurrent assets 177.6 139.5
- - ---------------------------------------------------------------------------------------------------
Total assets $ 8,523.6 $ 5,647.9
===================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ---------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable, trade $ 200.4 $ 171.4
Short-term borrowings 53.1 --
Current portion of long-term debt 16.3 14.0
Other current liabilities 490.7 302.3
- - ---------------------------------------------------------------------------------------------------
Total current liabilities 760.5 487.7
Long-term debt 1,637.0 892.4
Deferred income taxes 692.6 258.6
Deferred credits 103.9 106.0
- - ---------------------------------------------------------------------------------------------------
Total liabilities 3,194.0 1,744.7
- - ---------------------------------------------------------------------------------------------------
Commitments and contingencies
Minority interests in consolidated wireless systems 267.6 152.5
- - ---------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock and additional paid-in capital ($.01 par value;
50 million shares authorized):
Series A: 6 million shares authorized, no shares issued or outstanding -- --
6.00% Class B Mandatorily Convertible: 24 million shares authorized,
17.2 million shares issued and outstanding (liquidation value of
$500.4 million) 500.1 --
4.25% Class C Convertible: 19 million shares authorized,
11.1 million shares issued and outstanding (liquidation value
of $554.0 million) 540.7 --
Common stock and additional paid-in capital ($.01 par value;
1.1 billion shares authorized; 502.4 million shares issued and
502.3 million shares outstanding for 1996; 498.7 million shares
issued and 498.6 million shares outstanding for 1995) 3,986.2 3,882.2
Retained earnings (accumulated deficit) 20.8 (158.1)
Cumulative translation adjustment 3.4 17.1
Other 10.8 9.5
- - ---------------------------------------------------------------------------------------------------
Total stockholders' equity 5,062.0 3,750.7
- - ---------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 8,523.6 $ 5,647.9
===================================================================================================
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
-22-
<PAGE> 23
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
AirTouch Communications, Inc. and Subsidiaries
<TABLE>
<CAPTION>
==================================================================================================================================
Class B Class C
Preferred Preferred Common Retained Cumulative
Stock (a) Stock (a) Stock (a) Earnings Translation
(Dollars in millions) and APIC and APIC and APIC (Deficit) Adjustment Other Total
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1993 balances $ -- $ -- $ 3,724.4 $ (387.9) $ 0.8 $ -- $ 3,337.3
Net income 98.1 98.1
Share additions under
incentive programs 25.8 25.8
Foreign currency translation gain 10.1 10.1
Minimum pension liability (0.6) (0.6)
Unearned compensation (16.4) (16.4)
Compensation expense 1.5 1.5
Unrealized holding gain on
available-for-sale securities, net 3.8 3.8
Other (0.2) 0.2 --
- - ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1994 balances -- -- 3,750.2 (290.0) 11.1 (11.7) 3,459.6
Net income 131.9 131.9
Share additions under
incentive programs 39.9 39.9
Shares issued for acquisition 93.8 93.8
Treasury share additions through
incentive plan forfeitures, net of
shares reissued under incentive
programs (1.8) (1.8)
Foreign currency translation gain 6.0 6.0
Unearned compensation (7.8) (7.8)
Compensation expense 5.8 5.8
Unrealized holding gain on
noncurrent available-for-sale
securities, net 23.2 23.2
Other 0.1 0.1
- - ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1995 balances -- -- 3,882.2 (158.1) 17.1 9.5 3,750.7
Income before preferred dividends 199.0 199.0
Preferred stock dividends (b) (20.1) (20.1)
Preferred stock issued 500.1 540.7 1,040.8
Stock options issued with CCI merger 17.0 17.0
Share additions under
incentive programs 88.9 88.9
Treasury share additions through
incentive plan forfeitures, net of
shares reissued under incentive
programs (1.9) (1.9)
Foreign currency translation loss (13.7) (13.7)
Unearned compensation (13.1) (13.1)
Compensation expense 16.3 16.3
Unrealized holding loss on
noncurrent available-for-sale
securities, net (1.9) (1.9)
- - ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1996 balances $ 500.1 $ 540.7 $ 3,986.2 $ 20.8 $ 3.4 $ 10.8 $ 5,062.0
==================================================================================================================================
</TABLE>
(a) See Note I, "Capital Stock," to the Consolidated Financial Statements for
changes in the number of shares.
(b) Class B Preferred dividends were $1.74 per share per annum and Class C
Preferred dividends were $2.125 per share per annum for the period of
August 16, 1996 through December 31, 1996.
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
-23-
<PAGE> 24
CONSOLIDATED STATEMENTS
OF CASH FLOWS
AirTouch Communications, Inc. and Subsidiaries
<TABLE>
<CAPTION>
==============================================================================================================================
For the Year Ended December 31
-------------------------------------
(Dollars in millions) 1996 1995 1994
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Income before preferred dividends $ 199.0 $ 131.9 $ 98.1
Adjustments to reconcile income before preferred dividends for
items currently not affecting operating cash flows:
Depreciation, amortization, and other noncash charges 358.2 221.6 206.8
Equity in net income of unconsolidated wireless systems (133.3) (152.3) (110.7)
Distributions received from equity investees 140.2 104.0 80.3
Deferred income taxes 33.1 24.3 (28.5)
Minority interests in net income (loss) of consolidated wireless systems 95.1 36.5 16.3
Gain on sale of assets and telecommunications interests, net (59.8) (4.3) (1.1)
Changes in assets and liabilities, net of amounts acquired:
Accounts receivable, net (6.6) (51.1) (35.1)
Other current assets and receivables 24.3 53.1 (167.1)
Deferred charges and other noncurrent assets 60.7 (32.6) (51.1)
Accounts payable and other current liabilities 25.7 (6.1) 130.1
Deferred credits and other liabilities 38.1 (2.8) (20.4)
- - ------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities 774.7 322.2 117.6
- - ------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Investments in wireless systems and acquisitions, net of cash acquired (856.7) (1,264.1) (502.3)
Proceeds from sale of wireless systems 131.2 4.2 --
Additions to property, plant, and equipment (480.3) (501.7) (399.5)
Proceeds from sale of property, plant, and equipment 25.1 17.5 16.1
Maturity (purchase) of available-for-sale securities 10.5 86.3 (110.9)
Maturity of held-to-maturity investments -- 310.1 504.0
Other investing activities (5.1) (13.9) 21.0
- - ------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities (1,175.3) (1,361.6) (471.6)
- - ------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuing long-term debt and commercial paper 2,306.8 766.5 45.9
Retirement of long-term debt and commercial paper (1,990.9) (7.8) (5.5)
Distributions to minority interests in consolidated wireless systems (55.9) (20.7) (32.0)
Contributions from minority interests in consolidated wireless systems 1.3 6.2 36.7
Proceeds from common shares issued 79.5 32.1 9.4
Increase (decrease) in short-term borrowings 16.2 (86.0) 77.8
Payment of preferred stock dividend (6.7) -- --
Other financing activities (4.4) 2.7 (0.1)
- - ------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities 345.9 693.0 132.2
- - ------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (0.5) 0.3 4.1
- - ------------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents (55.2) (346.1) (217.7)
Beginning cash and cash equivalents 82.9 429.0 646.7
- - ------------------------------------------------------------------------------------------------------------------------------
Ending cash and cash equivalents $ 27.7 $ 82.9 $ 429.0
==============================================================================================================================
Supplemental information:
Cash payments for:
Interest, net of amounts capitalized $ 22.4 $ 4.4 $ 9.4
Income taxes $ 54.2 $ 108.1 $ 151.2
Noncash financing activities:
Preferred stock dividends accrued $ 13.4 -- --
Preferred stock and options issued for CCI merger (a) $ 1,057.3 -- --
Common stock issued for paging acquisition -- $ 93.8 --
==============================================================================================================================
</TABLE>
(a) See Note F, "Partnerships and Acquisitions - CCI Merger," for additional
noncash information.
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
-24-
<PAGE> 25
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - ---------------------------------------------
BASIS OF PRESENTATION
AirTouch Communications, Inc., a holding company, together with its
subsidiaries, unconsolidated partnerships and corporations (collectively
referred to herein as the "Company"), provide wireless telecommunications
services in the United States, Europe, and Asia. The principal business units of
AirTouch Communications, Inc. are AirTouch Cellular, AirTouch Paging, and
AirTouch International. These business units principally provide cellular and
paging services. The majority of the Company's revenues are provided by its U.S.
cellular operations, AirTouch Cellular.
The Consolidated Financial Statements include the accounts of the Company, its
subsidiaries, and partnerships in which the Company has controlling interests.
All significant intercompany balances and transactions have been eliminated.
On December 31, 1996, the Company consolidated Telecel Communicacoes Pessoias,
S.A. ("Telecel"), its cellular system in Portugal, subsequent to obtaining a
controlling interest. Accordingly, Telecel's Balance Sheet has been consolidated
in the Company's Consolidated Balance Sheet as of December 31, 1996. The Company
will consolidate Telecel's results of operations beginning January 1, 1997.
Effective August 16, 1996, the Company completed its acquisition of Cellular
Communications, Inc. ("CCI"). Prior to the merger, the Company owned
approximately 37.0% of the outstanding capital stock of CCI and the Company and
CCI each held a 50% interest in New Par, a partnership that owned and operated
cellular systems located principally in Michigan and Ohio. The Company used the
equity method of accounting to report the results of both CCI and New Par prior
to the merger on August 16, 1996. Since the merger, CCI and New Par have been
consolidated in the Company's Consolidated Financial Statements. See Note F,
"Partnerships and Acquisitions - CCI Merger," for further information.
Effective January 17, 1996, the Company sold its vehicle location and fleet
tracking services business, AirTouch Teletrac ("Teletrac"). In 1995, the Company
recorded a pre-tax charge of approximately $25.0 million primarily related to
the write-down of its investment in Teletrac to net realizable value. For the
years ended December 31, 1995 and 1994, Teletrac reported pre-tax losses of
$25.9 million and $26.1 million, respectively.
Prior to April 1, 1994, the Company was an 86.1% owned subsidiary of Pacific
Telesis Group ("Telesis"). In April 1994, Telesis distributed to its
stockholders all of the common stock of the Company owned by Telesis. Management
believes that the Consolidated Statement of Income for the year ended December
31, 1994 reasonably reflects the historical relationships with Telesis and its
affiliates and reflects all of the Company's costs of doing business. Management
believes there would not have been any material difference from the amounts
presented in the 1994 historical Consolidated Financial Statements had the
Company operated on a stand-alone basis.
The Consolidated Financial Statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applicable in the United
States. Conformity with GAAP requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
CASH EQUIVALENTS
Cash equivalents are short-term, highly liquid, held-to-maturity investments
with original maturities of 90 days or less from the date of purchase.
INVENTORIES
Inventories held for sale are valued at lower of cost or market. Costs are based
on either the first-in, first-out, or average methods.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
Results of operations for international investments are translated using average
exchange rates during the period, while assets and liabilities are translated
using end-of-period rates. The resulting exchange gains or losses are
accumulated in the "Cumulative translation adjustment" account (the "CTA
account"), a component of stockholders' equity. All gains and losses resulting
from foreign currency transactions are included in operations.
FINANCIAL INSTRUMENTS
The Company is exposed to market risks arising from foreign currency and
interest rate fluctuations. The Company enters into foreign currency hedging
activities to reduce currency exposures to its long-term investments in
international wireless systems. The Company hedges a portion of these
investments with long-dated forward foreign currency exchange contracts
("forward contracts") and foreign currency denominated loans. In addition, the
Company enters into forward contracts to reduce exposures of firm capital
commitments denominated in foreign currencies. The Company also enters into
interest rate swap agreements to manage its exposure to fluctuations in interest
rates in an effort to minimize the Company's cost of funds. Swap agreements are
primarily used to effectively convert existing variable rate debt to fixed rate
and to reduce the interest rate risk for future
-25-
<PAGE> 26
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
borrowings. The Company does not hold or issue financial instruments for trading
or speculative purposes.
Foreign currency hedges: Under a forward contract, the Company undertakes to
exchange an agreed upon amount of a foreign currency for equivalent U.S. dollars
at a specified rate at a stated future date. Gains or losses associated with
forward contracts that qualify as accounting hedges of net foreign investments
("qualifying hedges") are recorded in the CTA account, with a corresponding
adjustment to a deferred asset or liability account. Gains and losses from
foreign currency denominated debt qualifying as a hedge are recorded in the CTA
account, with the corresponding adjustment to the carrying value of the debt.
Gains and losses related to qualifying hedges of firm commitments are deferred
and are recognized as adjustments of carrying amounts when the hedged
transactions occur. Gains or losses on forward contracts and foreign currency
denominated debt that do not qualify as hedges are recorded in "Foreign exchange
gain (loss)" in the Consolidated Statements of Income.
Interest rate hedges: Under an interest rate swap, the Company agrees with
another party to exchange interest payments at specified intervals over a
defined term. Interest payments are calculated by reference to the notional
amount of the instrument based on the fixed and variable terms of the swap
agreement. The net interest received or paid as part of the interest rate swap
is accounted for as an adjustment to interest expense. The Company amortizes the
fair value of forward interest rate swaps used to hedge future borrowings over
the term of the related debt when incurred.
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 fifty years except land, which is
not depreciated. Gains and losses on disposals are included in income at amounts
equal to the difference between the net book value of the disposed assets and
the proceeds received upon disposal. Expenditures for replacements and
betterments are capitalized, while expenditures for maintenance and repairs are
charged against earnings as incurred. Interest cost incurred during the
construction period for property, plant, and equipment is capitalized, as
discussed below in "Capitalized Interest."
INTANGIBLE ASSETS
The Company uses modeling techniques on new acquisitions and long-range business
plans, revised annually, to assess whether a revision of the existing estimated
useful lives of intangible assets is necessary.
FCC licenses: The Federal Communications Commission ("FCC") issues cellular
licenses that enable U.S. cellular carriers to provide service in specific
Cellular Geographic Service Areas. A cellular license is issued conditionally
for ten years. Historically, the FCC has routinely granted license renewals
providing the licensees have complied with applicable rules, policies, and the
Communications Act of 1934, as amended. 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 40 years.
FCC licenses for U.S. paging operations are amortized on a straight-line basis
over 40 years. FCC licenses acquired by the Company through business
combinations are generally stated at appraised values as of the date of
acquisition and amortized using the straight-line method over 40 years.
International licenses: Licenses for the Company's international cellular and
paging operations are amortized on a straight-line basis over the expected term
of the licenses, which are generally up to 20 years.
Subscriber lists: Subscriber lists acquired through business combinations are
generally stated at appraised values as of the date of acquisition. Amortization
is computed using the straight-line method over estimated average customer
service length, typically two to five years.
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 over its expected useful period, generally 40 years, using the
straight-line method.
INVESTMENTS IN UNCONSOLIDATED WIRELESS SYSTEMS
The equity method is used to account for investments in all U.S. cellular
markets and international markets in which the Company has significant influence
but does not have controlling interest, including those investments in which the
Company's ownership percentage may be less than 20%. Limited partnership
interests and other unconsolidated wireless system investments in which the
Company has a minor interest and does not exercise significant influence are
accounted for using the cost method.
EARNINGS PER SHARE
Earnings per share is calculated based on net income after deducting dividends
on preferred stock divided by the weighted average common shares outstanding.
Common stock equivalents are determined using the treasury stock method. The
effect of convertible preferred stock and
-26-
<PAGE> 27
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
convertible debt, using the "if converted" method, had an anti-dilutive impact
on earnings per share.
CAPITALIZED INTEREST
The Company capitalizes interest applicable to the expenditures for construction
of significant additions to property, plant, and equipment and on start-up
investments in unconsolidated wireless systems accounted for under the equity
method of accounting until their principal operations commence. These costs are
amortized over the related assets' estimated useful lives. Total interest was
$82.8 million, $28.2 million, and $10.7 million for 1996, 1995, and 1994,
respectively, of which $30.8 million, $15.2 million, and $0.4 million was
capitalized in 1996, 1995, and 1994, respectively.
ADVERTISING EXPENSE
The Company expenses advertising costs as incurred. Advertising expense was
$107.1 million, $80.3 million, and $74.4 million for 1996, 1995, and 1994,
respectively.
B. ACCOUNTING CHANGES
- - ----------------------
Effective January 1, 1996, the Company implemented the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Under SFAS No. 121, the Company is required to review long-lived assets and
certain identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the book value of an asset may not be recoverable.
An impairment loss would be recognized whenever the review demonstrates that the
book value of a long-lived asset is not recoverable. The implementation of SFAS
No. 121 did not have an impact on the Company's financial position or results of
operations.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation." Under SFAS No. 123, the Company had a
choice of adopting a fair value based method of accounting for employee
stock-based compensation plans, as established by SFAS No. 123, or retaining the
intrinsic value-based method prescribed under Accounting Principles Board
Opinion ("APB") No. 25, provided certain pro forma disclosures were made.
Effective January 1, 1996, the Company chose to retain the intrinsic value-
based method of accounting for employee stock-based compensation plans as
prescribed by APB No. 25 and adopted the pro forma disclosure provisions of SFAS
No. 123, which did not have an impact on the Company's financial position or its
results of operations.
C. PROPERTY, PLANT, AND EQUIPMENT
- - ----------------------------------
Property, plant, and equipment consists of the following:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------
December 31
Depreciable --------------------
(Dollars in millions) Lives (Years) 1996 1995
- - ------------------------------------------------------------------
<S> <C> <C> <C>
Land -- $ 29.0 $ 9.5
Buildings and
leasehold improvements 5 - 50 335.4 232.4
Cellular plant and equipment 5 - 15 2,216.7 1,042.1
Pagers, paging terminals,
and other paging equipment 3 - 15 291.7 240.8
Other equipment and furniture 3 - 10 628.0 386.4
Construction in progress -- 195.6 176.4
- - ------------------------------------------------------------------
3,696.4 2,087.6
Less: accumulated depreciation 1,374.9 767.4
- - ------------------------------------------------------------------
$2,321.5 $1,320.2
==================================================================
</TABLE>
Depreciation expense relating to property, plant, and equipment for the years
ended December 31, 1996, 1995, and 1994 was $294.9 million, $196.4 million, and
$184.0 million, respectively. In the first quarter of 1995, the Company
completed a review of the estimated service lives of certain U.S. and
international cellular telecommunications equipment. As a result, the Company
and certain of its equity investees extended the estimated service lives of such
equipment from seven to ten years. The change was made to reflect more
accurately the estimated periods that such assets will remain in service and was
effective January 1, 1995. The new ten-year depreciation period is consistent
with current industry standards. The change increased net income by $26.3
million, $.05 per share, for the year ended 1995.
D. FINANCIAL INSTRUMENTS
- - ------------------------
MARKET RISK MANAGEMENT
As of December 31, 1996 and 1995, the Company had outstanding forward exchange
contracts principally denominated in Lira, Escudos, Belgian Francs,
Deutschmarks, Krona, Pesetas, Won, and Yen. These contracts had face amounts
totaling $821.0 million and $721.5 million as of December 31, 1996 and 1995,
respectively, with maturities through 2002. The amounts exchanged are calculated
on the basis of the face amounts of the financial instruments.
In October 1995, the Company entered into a cross-currency swap, expiring in
1997, to hedge the currency and interest rate risk from a Deutschmark ("Mark")
179 million borrowing. The swap converts Mark-denominated variable rate coupons,
indexed to the London Interbank Offered Rate, to dollar-denominated fixed
interest rate payments. At December 31, 1996, the notional amount of the
cross-currency swap was $116.8 million and the related fixed interest rate as of
that date was 4.83%.
-27-
<PAGE> 28
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
CONCENTRATION OF CREDIT RISK
The off-balance-sheet risk in outstanding forward foreign exchange contracts and
interest rate swaps 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 Company monitors its positions, the credit ratings of counterparties,
and the level of contracts the Company enters with any one party. The
counterparties to these contracts are major financial institutions. The Company
has a policy of entering into contracts with parties that have at least an "AA-"
(or equivalent) credit rating as well as other stringent qualifications and,
given the high level of credit quality of its derivative counterparties, the
Company does not believe it necessary to obtain collateral arrangements. The
Company believes that losses from counterparty nonperformance on settlements of
these transactions would not have any material adverse effect upon the Company's
financial position or results of operations. The Company does not have any
significant exposure to any individual counterparty.
Financial instruments that potentially subject the Company to concentrations of
credit risk are trade receivables and interest-bearing investments. Due to the
large volume and diversity of the Company's customer base, concentrations of
credit risk with respect to trade receivables are limited. The Company avoids
concentrations of credit risk in its interest-bearing investment portfolio by
investing in securities issued by the U.S. Government and its agencies, and by
limiting other investments in interest-bearing securities to those rated in the
highest category by nationally recognized statistical rating agencies. As of
December 31, 1996, the Company held no significant interest-bearing investments.
Fair Value
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------
December 31
---------------------------------------------------
1996 1995
---------------------------------------------------
Carrying Estimated Carrying Estimated
(Dollars in millions) Value Fair Value Value Fair Value
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Noncurrent assets $ 48.7 $ 48.7 $ 51.9 $ 51.9
Investments at cost $ 71.6 $ N/A $ 69.8 $ N/A
Financial liabilities:
Current obligations $ 69.4 $ 69.4 $ 14.0 $ 14.0
Deposit liabilities $ 49.6 $ 49.6 $ 38.4 $ 38.4
Long-term debt, including leases $1,637.0 $1,656.5 $892.4 $892.4
Off-balance-sheet financial instruments $ 23.5 $ 51.9 $ 73.3 $ 70.3
====================================================================================================
</TABLE>
N/A - Not available
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Noncurrent asset: represents an investment in shares and warrants of common
stock and is recorded at quoted market prices.
Investments at cost: it is not practicable to estimate the fair value of the
Company's cost-based investments because quoted market prices are not available
and, since certain of these ventures are in a start-up phase, other valuation
techniques are not appropriate. Further, alternative information which might be
pertinent to estimating the fair value of such investments is not readily
available to the Company.
Current obligations and deposit liabilities: due to the short-term character of
the securities and obligations, carrying amounts are a reasonable approximation
of fair value.
Long-term debt, including leases: 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: fair values of forward exchange
contracts and interest rate swaps are based upon the current value in the market
for transactions with similar terms and adjusted for the holding period. 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 M, "Commitments and Contingencies - Other," for further
information). Fair value is based on estimated fees to enter into similar
arrangements.
-28-
<PAGE> 29
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
E. INVESTMENTS IN UNCONSOLIDATED WIRELESS SYSTEMS
- - -------------------------------------------------
The Company's investments in unconsolidated wireless systems
consist of the following:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------
December 31
---------------------
(Dollars in millions) 1996 1995
- - ---------------------------------------------------------
<S> <C> <C>
Investments at equity $1,920.0 $3,006.5
Investments at cost 71.6 69.8
- - ---------------------------------------------------------
$1,991.6 $3,076.3
=========================================================
</TABLE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------
Percentage of Ownership
December 31
-----------------------
1996 1995
- - --------------------------------------------------------------------------------------------
<S> <C> <C>
Equity Investments
U.S.:
CMT Partners (California, Texas, Missouri, and Kansas) 50.0% 50.0%
Nevada RSA2 Ltd. Partnership (Lander, Nevada) 50.0% 50.0%
TOMCOM, L.P. (a) 35.0% 35.0%
Centel Cellular Company of Nevada Limited
Partnership (Las Vegas, Nevada) 27.8% 27.8%
PrimeCo Personal Communications, L.P. (a) 25.0% 25.0%
Cellular Communications, Inc. (Ohio/Michigan) (b) 37.6%
New Par (Ohio/Michigan) (b) 50.0%
Muskegon Cellular Partnership (Muskegon, Michigan) (b) 40.5%
International:
Telechamada-Servico de Pessoais, S.A. (Portugal) (a) 50.9% 23.0%
Cellular Communications India Ltd. (India) 49.0% 49.0%
Mannesmann Mobilfunk GmbH (Germany) 34.8% 34.8%
Belgacom Mobile (Belgium) 25.0% 25.0%
Globalstar de Mexico, S. de R. L. de C.V. (Mexico) 24.6% --
RPG Cellular Services Limited (India) 20.0% 20.0%
Rainbow Star Telecommunications Co., Ltd. (Taiwan) 20.0% --
Polkomtel (Poland) 19.3% 19.3%
Sistelcom-Telemensaje, S.A. (Spain) (a) 17.5% 17.5%
Airtel Movil, S.A. (Spain) 16.7% 15.8%
Omnitel-Pronto Italia, S.p.A. (Italy) (a) 15.5% 11.7%
Tokyo Digital Phone Co. (Japan) 15.0% 15.0%
Kansai Digital Phone Co. (Japan) 13.0% 13.0%
Central Japan Digital Phone Co. (Japan) 13.0% 13.0%
Shinsegi Mobile Telecommunication Co., Ltd. (South Korea) 10.7% 10.7%
MobiFon S A (Romania) 10.0% --
Infomobile (France) (c) -- 18.5%
Telecel Comunicacoes Pessoais, S.A. (Portugal) (d) 23.0%
============================================================================================
</TABLE>
(a) Indirect ownership through partially owned venture.
(b) Ownership interest increased in August 1996, see Note F, "Partnerships and
Acquisitions - CCI Merger."
(c) Interest in entity sold during 1996.
(d) Ownership interest increased to 50.9% in December 1996, see Note A,
"Summary of Significant Accounting Policies - Basis of Presentation."
-29-
<PAGE> 30
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------
Percentage of Ownership
December 31
-----------------------
1996 1995
- - --------------------------------------------------------------------------------------------
<S> <C> <C>
Cost Investments
U.S.:
GTE Mobilnet of Santa Barbara Limited Partnership 10.0% 10.0%
Globalstar, L.P. 6.4% 6.4%
Cal-One Cellular Limited Partnership 5.6% 5.6%
Fresno MSA Limited Partnership 1.1% 1.1%
International:
Japan:
International Digital Communications, Inc. 10.0% 10.0%
Digital TU-KA (a) 4.5% 4.5%
- - --------------------------------------------------------------------------------------------
</TABLE>
(a) Includes Chugoku, Kyushu, Tohoku, Hokkaido, Hokuriku, and Shikoku regions.
The Company has options to purchase additional interests, ranging from 5% to
10%, in several of its international cellular consortia. The Company expects the
purchases to occur in 1998 and 1999. Also, under certain circumstances, the
Company may be obligated to purchase an additional 10% interest in one of its
cellular consortium. This purchase could require an investment of as much as
$200.0 million.
Condensed combined financial information for unconsolidated wireless systems
accounted for under the equity method is summarized as follows:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------
For the Year Ended December 31 (a)
--------------------------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------------------------
United Inter- United Inter- United Inter-
(Dollars in millions) States national States national States national
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues/equity in net
income of partnership $1,167.7 $7,419.0 $1,281.3 $3,683.9 $1,166.0 $1,401.0
Operating income (loss) $ 190.2 $( 251.1) $ 420.4 $( 496.8) $ 297.7 $( 251.2)
=======================================================================================================================
Net income (loss) $ 204.8 $( 760.0) $ 411.0 $( 539.2) $ 284.9 $( 155.4)
Other partners' and stockholders'
share of net income (loss) 59.2 ( 764.2) 213.0 ( 519.7) 153.7 ( 144.7)
- - -----------------------------------------------------------------------------------------------------------------------
Company's share of
net income (loss) 145.6 4.2 198.0 ( 19.5) 131.2 ( 10.7)
Amortization of intangibles
and other adjustments 5.2 ( 21.8) ( 9.8) ( 16.4) ( 5.8) ( 4.0)
- - -----------------------------------------------------------------------------------------------------------------------
Equity in net income (loss) of
unconsolidated wireless systems $ 150.8 $ ( 17.5) $ 188.2 $ ( 35.9) $ 125.4 $ ( 14.7)
=======================================================================================================================
</TABLE>
(a) Includes results of operations for Telecel for 1996, 1995, and 1994.
Telecel's results of operations will be consolidated beginning January
1997. Also, includes results of operations for CCI and New Par through
August 15 for 1996 and the entire year for 1995 and 1994.
-30-
<PAGE> 31
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------
December 31 (a)
----------------------------------------------------------
1996 1995
----------------------------------------------------------
United United
(Dollars in millions) States International States International
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current assets $ 270.1 $ 2,440.3 $ 494.8 $ 1,419.0
Noncurrent assets 2,652.0 7,055.5 3,160.1 4,736.7
Current liabilities (552.1) (3,309.0) (329.3) (2,105.3)
Noncurrent liabilities and minority interest (361.7) (3,774.4) (441.0) (1,790.2)
- - -------------------------------------------------------------------------------------------------------------
Total partners' and stockholders' capital 2,008.3 2,412.4 2,884.6 2,260.2
Other partners' and stockholders'
share of capital 1,376.7 1,696.0 1,776.2 1,677.2
- - -------------------------------------------------------------------------------------------------------------
Company's share of capital 631.6 716.4 1,108.4 583.0
Goodwill and other intangible items 75.9 496.1 817.2 497.9
- - -------------------------------------------------------------------------------------------------------------
Equity investments in unconsolidated
wireless systems $ 707.5 $ 1,212.5 $ 1,925.6 $ 1,080.9
=============================================================================================================
</TABLE>
(a) Balance sheet data for Telecel is excluded for 1996 but included in 1995 as
the Company acquired a controlling interest in Telecel in December 1996.
Balance sheet data for CCI and New Par is excluded for 1996 but included in
1995 as the Company acquired CCI as of August 16, 1996.
International equity losses were partially offset by tax benefits of $9.5
million, $39.8 million, and $27.3 million in 1996, 1995, and 1994, respectively.
These tax benefits are recorded in "Equity in net income (loss) of
unconsolidated wireless systems" in the Consolidated Statements of Income. The
tax benefits were recorded as an asset that represents future benefits the
entities will receive by deducting the net operating losses from future taxable
income. At December 31, 1996, the Company's proportionate share of deferred tax
assets of its international equity subsidiaries was $172.4 million, which was
offset by a related proportionate valuation allowance of $103.1 million. While
the Company believes that it is more likely than not that the net deferred tax
assets will be fully realized, there can be no assurance that this will happen
as certain factors beyond the control of the entities and the Company, such as
deteriorating local economic conditions and increasing competition, can affect
future timing and amounts of taxable income.
SUMMARY FINANCIAL INFORMATION
Summarized financial information for the Company's significant equity
investments is as follows:
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------
For the Year Ended December 31
----------------------------------
(Dollars in millions) 1996(a) 1995(b) 1994(b)
- - ----------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues (c) $4,089.5 $2,992.2 $1,994.9
Equity in net income of
partnership $ -- $ 101.3 $ 59.0
Operating income $ 69.4 $ 908.9 $ 433.3
Net income (loss) $( 120.9) $ 659.9 $ 341.9
================================================================
</TABLE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------
December 31
--------------------------
(Dollars in millions) 1996(a) 1995(b)
- - ---------------------------------------------------------
<S> <C> <C>
Current assets $ 1,412.9 $ 929.2
Noncurrent assets 7,081.5 3,295.3
Current liabilities (2,475.8) (736.4)
Noncurrent liabilities (1,475.8) (639.5)
- - ---------------------------------------------------------
4,542.8 2,848.6
Minority interests (78.0) (15.7)
- - ---------------------------------------------------------
Total partners' and
stockholders' capital $ 4,464.8 $ 2,832.9
=========================================================
</TABLE>
(a) Includes Mannesmann Mobilfunk GmbH, Airtel Movil S.A., Omnitel-Pronto
Italia, S.p.A., CMT Partners, and PrimeCo Personal Communications, L.P. CCI
and New Par are excluded due to the Company's acquisition of CCI described
in Note F.
(b) Includes Mannesmann Mobilfunk GmbH, CMT Partners, New Par, and CCI.
(c) Restated to conform to the Company's basis of presentation.
-31-
<PAGE> 32
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
F. PARTNERSHIPS AND ACQUISITIONS
- - ---------------------------------
AIRTOUCH/U S WEST PARTNERSHIPS
In July 1994, the Company and U S WEST, Inc. ("U S WEST") entered into an
agreement to combine their U.S. cellular properties in a multi-phased
transaction. During the initial phase of the transaction ("Phase I"), the
companies formed a jointly owned management company to provide support services
to both companies' U.S. cellular operations, which remain separately owned and
operated throughout Phase I. In May 1996, U S WEST began providing cellular
services under the AirTouch Cellular brand name in the 12 states in which it
operates.
In the second phase of the transaction ("Phase II"), the parties will combine
certain of their U.S. cellular properties in a partnership (the "Cellular
Partnership"). The closing of Phase II is conditioned upon the satisfaction of
certain conditions, including the ability of AirTouch and U S WEST to contribute
at least 60% of their respective U.S. cellular interests to the Cellular
Partnership, measured on the basis of the adjusted POPs represented by such
interests and, in the case of AirTouch, excluding POPs of the Great Lakes
markets. Although the Company and U S WEST are currently seeking to obtain the
regulatory and other approvals and consents necessary to enter into Phase II,
the Company does not believe that Phase II will commence prior to mid-1997.
Under the terms of the parties' agreement, Phase II must occur by July 25, 1998,
if all closing conditions have been satisfied. If all closing conditions to
Phase II have not been satisfied by July 25, 2004, the agreement will terminate.
As part of the 1994 transaction, the companies also formed an equally owned
personal communications services ("PCS") partnership (the "PCS Partnership"),
which is a 50% partner in PrimeCo Personal Communications, L.P. ("PrimeCo"). The
Company and U S WEST plan to contribute their respective interests in the PCS
Partnership to the Cellular Partnership. The timing of such contribution is at
U S WEST's discretion and will occur either at the commencement of Phase II or
at a later date selected by U S WEST, but no later than mid-1998. The Company
anticipates that the PCS Partnership will be required to make significant
capital contributions to PrimeCo for the build-out of its PCS markets and that
it will continue to experience substantial operating losses associated with the
start-up phase of the PCS business, which is expected to last several years.
Upon contribution of the PCS Partnership to the Cellular Partnership, the
Company's relative share of PCS capital investments and operating losses related
to the PCS Partnership will increase from 50% to its percentage ownership of the
Cellular Partnership.
If the Company and U S WEST were to contribute all of their U.S. cellular
properties (but not their interests in the PCS Partnership) at the commencement
of Phase II, the Company would own approximately 74% of the Cellular Partnership
and U S WEST would own approximately 26%. However, the actual ownership interest
of the Company and U S WEST in the Cellular Partnership at the commencement of
Phase II of the transaction or at any given point in time thereafter will depend
on, among other things, the ability of the companies to contribute their
respective U.S. cellular properties, the timing of the contributions of such
properties, and the timing and value of the PCS Partnership contribution. Some
of the cellular interests of AirTouch and U S WEST, including their general
partner interests in Los Angeles and Seattle, respectively, are subject to
consent provisions in connection with certain transactions. In addition, other
partnership interests may, under certain circumstances, be subject to rights of
first refusal provisions in favor of third parties. Such provisions may result
in certain of the parties' properties not being contributed to the Cellular
Partnership. No assurance can be given that any necessary consents will be
obtained or that rights of first refusal will not be exercised. A Washington
state court has ruled that by entering into the transaction with AirTouch, U S
WEST has withdrawn as general partner of its Seattle partnership, entitling the
limited partners to attempt to secure unanimous consent to a substitute general
partner to purchase U S WEST's partnership interest. The court has also ruled
that U S WEST must allow the other limited partners the opportunity to exercise
their rights of first refusal with respect to U S WEST's limited partner
interest in the Seattle partnership. U S WEST has indicated its intention to
appeal the court's order. The Washington court order does not prohibit the
parties from proceeding to Phase II of their transaction without the Seattle
market. In February 1997, litigation was initiated to resolve similar issues
with respect to U S WEST's interests in partnerships that provide cellular
service in Tucson, Duluth, Olympia, and other markets.
-32-
<PAGE> 33
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
In the third phase of the transaction ("Phase III"), U S WEST has the right to
exchange its interest in the Cellular Partnership for up to 19.9% of the
Company's common stock outstanding at the time of the exchange, which right is
exercisable after (i) the commencement of Phase II and (ii) the contribution of
the PCS Partnership. This right expires on July 25, 2004. Any such exchange
would be made at a ratio reflecting the appraised private market value of U S
WEST's interest in the Cellular Partnership and the appraised public market
value of the shares of the Company's capital stock to be acquired by U S WEST in
the exchange. In the event that the value of U S WEST's interest in the Cellular
Partnership determined by such appraisals would result in the issuance to U S
WEST of more than 19.9% of the Company's then outstanding common stock, U S WEST
is entitled to receive the excess in the form of non-voting preferred stock
which is redeemable at any time following issuance, at the option of U S WEST,
for cash or, at the option of the Company, for the Company's common stock. The
Company has amended its stockholder rights agreement so that U S WEST will not
be deemed to be an Acquiring Person, as defined therein, by reason of the
exchange.
U S WEST also has the right, exercisable between July 25, 1999 and July 25,
2009, to exchange its interest in the Cellular Partnership for common stock of
the Company to be held by a trust for purposes of systematic sale to the public.
Any such exchange would be made at a ratio reflecting the appraised private
market value of U S WEST's interest in the Cellular Partnership and an average
trading price of the Company's common stock during a period prior to U S WEST's
exercise of the right. U S WEST has the right to cause the exchange to occur
either (i) after full relief from certain operational restrictions placed on
Bell Operating Companies or July 25, 2004, whichever is later, if there is a
deadlock with U S WEST regarding the management of the Cellular Partnership or
(ii) at any time after such relief has been obtained, if at such time U S WEST
holds less than a 5% interest in the Cellular Partnership.
If U S WEST exercises its right to exchange its interest in the Cellular
Partnership for capital stock of the Company, U S WEST will be entitled to
representation on the Company's Board of Directors and will be subject to
certain voting restrictions. U S WEST is subject to certain standstill
restrictions with respect to the Company through July 24, 2004, unless such
restrictions are earlier terminated or suspended. U S WEST is also prohibited
from selling, exchanging, transferring, or otherwise disposing of the Company's
common stock received in Phase III (or any interest therein) prior to July 25,
1999 (except for transfers to direct or indirect wholly-owned subsidiaries of U
S WEST), and thereafter is subject to certain transfer restrictions and entitled
to certain registration rights.
The Company could experience earnings dilution in connection with the
contribution of its and U S WEST's U.S. cellular properties to the Cellular
Partnership. The extent of such dilution, which could be material, will depend
on the properties contributed and the relative profitability of the Company's
and U S WEST's respective operations subsequent to the contributions of such
operations. Also, subsequent to the commencement of Phase II, the Company and
U S WEST will each deconsolidate for financial reporting purposes the operations
they contribute to the partnership, using instead the equity method of
accounting to report their respective percentage interests in subsequent
operating results of the Cellular Partnership. The Company also expects that an
issuance of its shares at Phase III would result in per share earnings dilution.
The Company cannot precisely assess the future impact of its transaction with
U S WEST on the Company's results of operations due to, among other things,
uncertainty surrounding: the timing of Phase II; the parties' ability to
contribute certain of their cellular properties to the Cellular Partnership; the
timing of the contribution of the PCS Partnership to the Cellular Partnership;
and the occurrence and timing of Phase III. The Company is currently exploring
how best to resolve these uncertainties and achieve the objectives of the
transaction.
BELL ATLANTIC/NYNEX MOBILE
In October 1994, the Company and U S WEST ("ATI/USW") joined with Bell Atlantic
Corporation and NYNEX Corporation ("BA/NYN") to form the PrimeCo partnership to
jointly pursue PCS opportunities. PrimeCo is owned equally by ATI/USW and
BA/NYN, and is governed by a board composed of three members from each of
ATI/USW and BA/NYN. In March 1995, PrimeCo was awarded eleven 30 MHz PCS
licenses covering over 57 million POPs with bids of approximately $1.1 billion.
The acquired markets complement the existing U.S. cellular franchises of the
partners. PrimeCo launched service in November 1996. The Company has already
contributed its share of the PCS license costs and of certain build-out
expenses, and expects to continue to make significant capital contributions to
PrimeCo and to experience substantial operating losses associated with the start
up phase of the PCS business, which is expected to last several years.
Currently, the Company has a 25% indirect interest in PrimeCo through an
interest in its PCS Partnership with U S WEST.
Either ATI/USW or BA/NYN may cause PrimeCo to be dissolved on October 20, 2001,
and any PCS properties owned by it to be allocated between them according to
agreed upon criteria. Bell Atlantic and NYNEX each are subject to certain
standstill restrictions with respect to the Company through October 20, 2001,
unless such restrictions are earlier terminated or suspended.
Concurrent with the formation of PrimeCo, ATI/USW and BA/NYN formed another
partnership called TOMCOM, L.P. ("TOMCOM"). TOMCOM was formed to develop
technical and service standards for the partners' wireless properties, pursue
national marketing strategies, develop information technology, create a national
distribution strategy, and implement joint purchasing arrangements. TOMCOM is
governed by a board composed of three members from each of ATI/USW and BA/NYN.
Unlike the Company's partnership with U S WEST, the agreements with BA/NYN do
not provide for a merger of cellular properties. Accordingly, each of ATI/USW
and BA/NYN will continue to hold such properties separately.
CCI MERGER
Effective August 16, 1996, pursuant to the Agreement and Plan of Merger dated as
of April 5, 1996, as amended and restated as of July 12, 1996 (the "1996 Merger
Agreement"), the Company completed its acquisition of the approximately 63% of
CCI's outstanding stock that it did not already own. CCI was a holding company
whose primary asset was its indirect ownership interest in New Par, a
partnership with the Company that owned and operated cellular systems located
principally in Michigan
-33-
<PAGE> 34
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
and Ohio. The acquisition cost to the Company was approximately $1.6 billion
including liabilities assumed less cash and cash equivalents acquired. Pursuant
to the 1996 Merger Agreement, the merger consideration consisted of $1,040.3
million in AirTouch preferred securities, $393.3 million in cash, and AirTouch
stock options valued at approximately $17.0 million. Preferred securities issued
in connection with the acquisition consisted of 17,237,394 shares of Class B
Preferred totaling $499.9 million and 11,069,958 shares of Class C Preferred
totaling $540.4 million. Options to purchase CCI stock were converted into
options to purchase 1,924,001 shares of Company common stock, 16,875 shares of
Class B Preferred, and 10,837 shares of Class C Preferred. Holders of Class B
Preferred had the right to require the Company to make additional payment if the
volume-weighted average trading price of the Class B Preferred shares fell below
$28.736 per share during a specified time period. Such event did not occur and
no contingent payments were made.
The Company's subsidiary, AirTouch Cellular, assumed the obligations relating to
CCI's $217.0 million Zero Coupon Convertible Subordinated Notes Due 1999 ("Zero
Coupon Notes"). AirTouch Cellular redeemed the Zero Coupon Notes on January 27,
1997 for an aggregate redemption price of $180.5 million.
The merger has been accounted for using the purchase method of accounting and,
accordingly, the purchase price has been allocated to the net assets acquired
based upon their appraised fair values. The excess of the purchase price over
the final appraised fair values of net assets acquired was $1,086.4 million and
has been recorded as goodwill, which is being amortized on a straight-line basis
over 40 years. The following cash and noncash entries were recorded in
connection with the merger:
<TABLE>
<CAPTION>
- - -------------------------------------------------------
(Dollars in millions)
- - -------------------------------------------------------
<S> <C>
Fair value of assets acquired $ 2,326.4
Liabilities assumed 866.6
Fair value of preferred stock and
preferred stock options issued 1,057.3
- - -------------------------------------------------------
Cash paid, including acquisition costs 402.5
Less: cash acquired 221.3
- - -------------------------------------------------------
Net cash paid $ 181.2
=======================================================
</TABLE>
The operating results of CCI and New Par have been included in the Company's
Consolidated Statements of Income since the date of merger. The following
unaudited pro forma summary presents the Company's consolidated results of
operations as if the merger occurred at the beginning of the respective periods,
after giving effect to certain adjustments including amortization of goodwill
and other intangibles, increased interest expense from debt issued to fund the
merger, deduction for preferred stock dividends, and related income tax effects.
These pro forma results are not necessarily indicative of those that would have
occurred had the merger taken place at the beginning of the respective periods.
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------
For the Year Ended
December 31
---------------------
(Dollars in millions, except per share) 1996 1995
- - ----------------------------------------------------------------------
<S> <C> <C>
Operating revenues $2,730.7 $2,278.9
Net income available to common
stockholders $ 124.5 $ 14.5
Net income available to common
stockholders - per share $ 0.25 $ 0.03
======================================================================
</TABLE>
G. INTANGIBLE ASSETS
- - --------------------
Intangible assets consist of the following:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------
December 31
------------------
(Dollars in millions) 1996 1995
- - ------------------------------------------------------------------
<S> <C> <C>
FCC and international licenses, at
cost, less accumulated amortization
of $139.9 and $49.4 for 1996 and
1995, respectively $1,367.7 $212.7
Goodwill, at cost, less accumulated
amortization of $52.3 and $25.0
for 1996 and 1995, respectively 1,905.9 376.0
Other intangible assets, at cost, less
accumulated amortization of
$38.1 and $24.5 for 1996 and
1995, respectively 135.2 17.0
- - ------------------------------------------------------------------
$3,408.8 $605.7
==================================================================
</TABLE>
The increases in FCC and international licenses of $1,155.0 million in 1996 and
in goodwill of $1,529.9 million in 1996 are primarily related to the third
quarter completion of the Company's acquisition of the remaining approximately
63% of CCI's outstanding stock that it did not already own. Amortization expense
relating to intangible assets for the years ended December 31, 1996, 1995, and
1994 was $56.4 million, $19.4 million, and $21.3 million, respectively.
H. DEBT AND CREDIT FACILITIES
- - ------------------------------
SHORT-TERM DEBT
Short-term borrowings at December 31, 1996 were $53.1 million and consisted of
unsecured bank loans with a weighted average interest rate of 6.25%. There were
no short-term borrowings outstanding at December 31, 1995.
-34-
<PAGE> 35
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------
December 31
------------------------
(Dollars in millions) 1996 1995
- - ------------------------------------------------------------------
<S> <C> <C>
Revolving credit facilities,
due 1997-2000 $ 167.7 $ 763.6
Bank promissory note 25.9 28.7
Commercial paper 195.7 --
NordicTel debt facility 102.5 105.3
Zero coupon notes 179.4 --
7.125% notes, due 2001 (a) 249.7 --
7.00% notes, due 2003 (a) 249.7 --
7.50% notes, due 2006 (a) 397.8 --
Telecel bonds 63.9 --
Various other notes and obligations 21.0 8.8
- - ------------------------------------------------------------------
1,653.3 906.4
Less: portion due within one year 16.3 14.0
- - ------------------------------------------------------------------
$ 1,637.0 $ 892.4
==================================================================
</TABLE>
(a) Net of discount.
REVOLVING LINES OF CREDIT
In July 1995, the Company obtained for general corporate purposes, an unsecured
$2.0 billion, five-year revolving credit facility (the "Facility") from a
syndicate of banks. The debt under the Facility bears interest at the London
Interbank Offered Rate ("LIBOR") plus an applicable margin based on the
Company's long-term senior unsecured debt rating. The commitment fee on the
available balance will also be determined with reference to the Company's credit
rating. Drawings under the Facility are available in U.S. dollars or selected
foreign currencies, however, drawings of foreign currencies may not exceed the
U.S. dollar equivalent of $300.0 million. Borrowings against the Facility
totaled $116.8 million and $664.6 million at December 31, 1996 and December 31,
1995, respectively. All borrowings at December 31, 1996 under the Facility were
denominated in Deutschmarks and had an average balance during the year of $119.5
million in U.S. dollars with a weighted average interest rate of 5.05%. At
December 31, 1996 the Facility had no U.S. component, but during the year the
average U.S. component balance was $135.0 million with a weighted average
interest rate of 5.77%.
The Company has revolving credit facilities which support cellular equipment
purchases by NordicTel (a 51% owned subsidiary of the Company). Borrowings bear
interest at the Stockholm Interbank Offered Rate ("STIBOR") plus a margin. At
December 31, 1996 and December 31, 1995, the weighted average interest rate of
these facilities was 8.85% and 9.23%, respectively. Borrowings are
collateralized by certain of the equipment purchased thereunder and by shares of
a wholly-owned subsidiary of NordicTel. In addition, NordicTel is restricted in
making distributions or interest payments on its common stock or stockholders'
contributions.
In December 1996, NordicTel refinanced two existing revolving credit facilities
that were due to expire in 1997 and obtained a new revolving credit facility in
the approximate amount of $200.0 million. Borrowings against this facility
totaled $25.6 million at December 31, 1996 with a weighted average interest rate
of 5.67%.
The Company has various other lines of credit with certain banks. At December
31, 1996 and 1995, the total unused amount under all lines of credit was
$1,902.2 million and $1,419.9 million, respectively.
BANK PROMISSORY NOTE
The bank promissory note represents a note with a Japanese bank. The note is due
in 1997 with options to extend for two additional years. The note bears interest
at the Japanese yen LIBOR plus a margin which is dependent upon the Company's
Standard and Poor's rating. At December 31, 1996 and December 31, 1995, the
interest rate was 0.82% for both years.
COMMERCIAL PAPER PROGRAM
In March 1996, the Company initiated a commercial paper program consisting of
the sale of discounted notes that is exempt from registration under the
Securities Act of 1933. The Company's Board of Directors has authorized the
issuance of commercial paper in amounts necessary to finance the Company's
working capital requirements, provided that the amount outstanding under the
commercial paper program, together with all indebtedness incurred under the
Facility, does not in aggregate exceed $2.0 billion. The Company obtained A-2
and P-2 prime commercial paper ratings from Standard and Poor's Corporation and
Moody's Investor Service, respectively. These ratings may be revised or
withdrawn by the rating agencies at any time. At December 31, 1996, borrowings
of $195.7 million were payable to holders of commercial paper and were
classified as long-term debt because these borrowings are supported by the
Company's long-term revolving credit facility. The borrowings had a weighted
average interest rate of 6.33% at December 31, 1996. During the year, the
average borrowing was $320.4 million with a weighted average interest rate of
5.55%.
NORDICTEL DEBT FACILITY
NordicTel has entered into a borrowing facility with an international banking
consortium. The debt bears interest at STIBOR plus a margin, and the weighted
average interest rate on the facility was 8.37% and 8.75% at December 31, 1996
and December 31, 1995, respectively. Borrowings are secured by certain equity
rights in NordicTel.
-35-
<PAGE> 36
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DEBT ISSUANCE
On July 16, 1996, the Company issued $250.0 million in 7.125% Notes and $400.0
million in 7.50% Notes, maturing in July 2001 and July 2006, respectively.
Interest on the Notes is payable semi-annually on January 15 and July 15,
commencing January 15, 1997. The purpose of the offering was to obtain funds
necessary to satisfy the cash component of the consideration for the acquisition
of CCI and for general corporate purposes. Pending such uses, the proceeds of
the Notes were used to retire then outstanding commercial paper.
On October 2, 1996, the Company issued $250.0 million in 7.00% Notes, maturing
in October 2003. Interest on the Notes is payable semi-annually on April 1 and
October 1, commencing April 1, 1997. The Company utilized the proceeds of the
Notes to retire commercial paper which had been issued to meet the Company's
general corporate requirements and its cash obligations in connection with the
CCI acquisition.
TELECEL BONDS
During 1994 and 1995, Telecel issued bonds due in 1998 and 1999 to finance
infrastructure development. At December 31, 1996, the weighted average interest
rate of these bonds was 7.58%.
OTHER
Annual maturities of long-term debt are as follows: 1997, $16.3 million; 1998,
$66.1 million; 1999, $46.2 million; 2000, $521.3 million; 2001, $251.3 million;
2002 and thereafter, $752.1 million.
At December 31, 1996, the Company was in compliance with all covenants
associated with its debt and credit facilities.
I. CAPITAL STOCK
- - ----------------
The following table summarizes changes in the number of equity security shares
outstanding:
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------
Class B Class C
Preferred Preferred Common
(In millions) Stock Stock Stock
- - ----------------------------------------------------------------
<S> <C> <C> <C>
Shares outstanding at
December 31, 1993 -- -- 492.5
Share additions under
incentive programs -- -- 1.3
- - ----------------------------------------------------------------
Shares outstanding at
December 31, 1994 -- -- 493.8
Share additions under
incentive programs -- -- 1.7
Shares issued for
acquisition -- -- 3.2
Other (a) -- -- ( 0.1)
- - ----------------------------------------------------------------
Shares outstanding at
December 31, 1995 -- -- 498.6
Preferred stock issued in
connection with CCI
merger 17.2 11.1 --
Common stock additions
under incentive programs -- -- 1.6
Other (a) -- -- ( 0.1)
Options exercised -- -- 2.2
- - ----------------------------------------------------------------
Shares outstanding at
December 31, 1996 17.2 11.1 502.3
================================================================
</TABLE>
(a) Treasury share additions through incentive plan forfeitures, net of shares
reissued under incentive programs.
In addition to the 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 million authorized shares of preferred stock, 6 million shares have
been designated as Series A Participating Preferred Stock. There are no
outstanding shares of Series A Participating Preferred Stock. In connection with
the acquisition of CCI described in Note F, the Company's Board of Directors
authorized the creation of 24 million shares of 6.00% Class B Mandatorily
Convertible Preferred Stock, Series 1996 (the "Class B Preferred") and 19
million shares of 4.25% Class C Convertible Preferred Stock, Series 1996 (the
"Class C Preferred"). Both the Class B Preferred and Class C Preferred (the
"Preferred Shares") have a par value of $0.01 per share.
Holders of the Preferred Shares are entitled to receive dividends in preference
to, and in priority over, any
-36-
<PAGE> 37
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
dividends upon any shares of the Company ranking junior to the Preferred Shares
as to dividends, but subject to the rights of holders of shares of the Company
having a preference and a priority over the payment of dividends on the
Preferred Shares. Holders of Class B Preferred are entitled to receive
cumulative preferential dividends at the rate of $1.74 per share per annum,
payable quarterly in arrears, and holders of Class C Preferred are entitled to
receive cumulative preferential dividends at the rate of $2.125 per share per
annum, also payable quarterly in arrears.
Each share of Class B Preferred mandatorily converts into Company common stock
on August 16, 1999 (or earlier if the Company is a party to a merger or
consolidation in which the Company is not the surviving or continuing
corporation or if the Company transfers its property as an entirety or
substantially as an entirety). Each share of Class B Preferred mandatorily
converts into between 0.806 and one share of Company common stock, depending
upon the trading price of the Company common stock at the time of conversion.
Each Class B Preferred share is also convertible at the option of the holder at
any time into 0.806 of a share of Company common stock. Class B Preferred shares
are not redeemable by the Company. In the event of liquidation, whether
voluntary or involuntary, the holders of Class B Preferred are entitled to
receive a liquidation preference equal to $29.00 per share plus all accrued and
unpaid dividends. The holders of Class B Preferred shares are entitled to vote
on any matter coming before any meeting in which the common stockholders are
entitled to vote, on the basis of four-fifths of a vote for each Class B
Preferred share held.
The Class C Preferred shares will mature on August 16, 2016, and the holders
will be entitled to receive cash equal to $50.00 per share plus an amount equal
to all accrued and unpaid dividends. Class C Preferred shares are convertible at
the option of the holder into 1.379 shares of the Company's common stock,
subject to certain adjustments. The Class C Preferred is not redeemable by the
Company prior to August 16, 1999, but thereafter may under certain circumstances
be redeemed for cash or converted into shares of common stock at the option of
the Company. Therefore, for financial reporting purposes, these shares are not
considered to be mandatorily redeemable. In the event of liquidation, either
voluntary or involuntary, the Class C Preferred holders are entitled to a
liquidation preference equal to $50.00 per share plus accrued and unpaid
dividends. The holders of Class C Preferred are not entitled to vote unless the
Class C Preferred dividends are in arrears and unpaid for six quarterly dividend
periods, and in certain other circumstances, in which case holders of Class C
Preferred are entitled to certain rights to vote for the election of two
directors.
Both the Class B Preferred and Class C Preferred are subject to certain
anti-dilution adjustments. For Delaware law purposes, the stated capital
attributable to the Preferred Shares is $0.01 per share.
STOCKHOLDER RIGHTS PLAN
The Company's stockholder rights plan (the "Rights Plan") provides for the
distribution of rights ("Rights") to holders of outstanding shares of common
stock. Except as set forth below, each Right, when exercisable, entitles the
stockholder to purchase from the Company one one-hundredth of a share of Series
A Participating Preferred Stock at a price of $80.00 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 Person")
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 Person) 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 Person (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 Person 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.
J. STOCK OPTIONS and STOCK APPRECIATION RIGHTS
- - -----------------------------------------------
The Company has a Long-Term Stock Incentive Plan (the "Plan") under which it has
reserved 49 million shares of common stock. Awards to eligible employees under
the Plan can take the form of incentive ("ISOs") or non-qualified ("NSOs") stock
options, stock appreciation rights ("SARs"), restricted stock, stock units, or a
combination of these forms. The options granted to date have a term of up to ten
years and generally vest over three to four years of continuous employment and,
in some cases, require that certain stock performance conditions be met before
vesting.
-37-
<PAGE> 38
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The Plan requires that the exercise price be equal to the fair market value of
the stock at the grant date for ISOs and at the discretion of the Company for
NSOs. The exercise price may be paid in cash, stock already owned by the holder,
or a combination. SARs may be settled in cash or stock at the discretion of the
Company. The settlement of SARs issued in conjunction with NSOs requires the
related unexercised NSOs to be canceled. Restricted stock is held in escrow
until the vesting provisions are satisfied, although such shares have full
voting and other rights. Stock units represent shares of common stock. Holders
of stock units are not required to pay for such units and have no voting or
other rights as a stockholder. Although the Company does not currently pay
dividends on its common stock, stock units may have dividend rights at the
Company's discretion. Settlement of stock unit awards may be in cash, shares, or
a combination at the discretion of the Company.
Early vesting can occur for certain awards of restricted stock if the Company's
initial public offering stock price of $23.00 per share is doubled within a
specified period of time. During 1996, the terms of these restricted stock
awards were amended to provide for another provision of early vesting if certain
1997 business goals are achieved. As a result of this amendment, deferred
compensation expense of $8.0 million was accelerated and recognized in the
fourth quarter of 1996.
For purposes of the following pro forma disclosures required by SFAS No. 123,
the estimated fair value of options is amortized to expense over the option's
vesting period. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option valuation model. The Black-Scholes model
was developed for use in estimating the fair value of traded options that have
no vesting restrictions and are fully transferable. In addition, option
valuation models, such as the Black-Scholes model, require the input of highly
subjective assumptions including the expected stock price volatility which are
subject to change from time to time. For this reason, and because the SFAS No.
123 fair value-based method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation costs are
not necessarily indicative of costs to be expected in future years.
The following pro forma information has been prepared as if the Company had
accounted for its employee stock options using the fair value-based method of
accounting established by SFAS No. 123:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------
For the Year Ended
December 31
------------------
(Dollars in millions, except per share) 1996 1995
- - -------------------------------------------------------------------------------------------
<S> <C> <C>
Net income available to
common stockholders:
As reported $178.9 $131.9
Pro forma (a) $154.4 $127.7
Net income available to common stockholders - per share:
As reported $ 0.36 $ 0.27
Pro forma (a) $ 0.31 $ 0.26
===========================================================================================
</TABLE>
(a) Based on the following assumptions for grants in 1996 and 1995,
respectively: risk-free weighted average interest rates of 6.0% and 5.4%;
volatility factors of the expected market price of the Company's common
stock of 29.0% in each year; and weighted average expected option lives of
4.3 years and 4.1 years.
Total compensation recognized under APB No. 25 was $11.3 million, $3.2 million,
and $1.5 million for 1996, 1995, and 1994, respectively.
There were 24.5 million shares available for future employee awards at December
31, 1996. The following table summarizes employee award activity:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- - ------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 12,618,329 $25.63 7,034,403 $18.52 -- --
Stock options granted 10,176,998 $29.48 7,158,965 $30.61 6,369,662 $18.47
Restricted stock granted 813,210 -- 284,618 -- 840,075 --
Stock units granted 59,532 -- 7,465 -- 201,773 --
Options exercised (585,251) $16.26 (506,802) $16.06 (256,315) $16.54
Awards forfeited (645,387) $28.61 (328,697) $20.98 (120,792) $19.40
Restricted stock issued (1,012,346) -- (925,277) -- -- --
Stock units issued (47,150) -- (106,346) -- -- --
- - ------------------------------------------------------------------------------------------------------------------------
Outstanding, end of year 21,377,935 $27.62 12,618,329 $25.63 7,034,403 $18.52
========================================================================================================================
Options exercisable 5,822,319 $23.27 3,195,121 $17.61 3,131,605 $16.76
========================================================================================================================
</TABLE>
-38-
<PAGE> 39
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Summary information concerning outstanding and exercisable employee options as
of December 31, 1996 is as follows:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- - ---------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 0.00 - $ 0.00 (a) 67,032 9.1 yrs $ 0.00 -- $ 0.00
$11.02 - $ 20.88 4,468,477 4.2 yrs $18.93 3,491,352 $18.52
$23.00 - $ 31.50 14,174,796 6.5 yrs $27.72 1,974,117 $29.87
$33.28 - $ 59.85 2,667,630 9.0 yrs $41.65 356,850 $33.28
- - ---------------------------------------------------------------------------------------------------
21,377,935 5,822,319
===================================================================================================
</TABLE>
(a) Relates to stock units granted under a fixed plan which does not require the
holders to pay for such units.
Exercise prices of some options differ from the market price of the stock on the
grant date. The following table summarizes options by those that have exercise
prices equal to, greater than, or less than the market price on the grant date.
The weighted average fair values below have been determined using the
Black-Scholes model.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------
Exercise Price Exercise Price Exercise Price
Equal To Greater Than Less Than
Market Price (a) Market Price (a) Market Price (a)
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1996:
Options granted 8,503,618 1,673,380 --
Weighted average exercise price $ 26.13 $ 46.52 --
Weighted average fair value $ 7.79 $ 8.62 --
1995:
Options granted 6,088,415 1,070,550 --
Weighted average exercise price $ 30.14 $ 33.28 --
Weighted average fair value $ 8.69 $ 12.16 --
1994:
Options granted 3,020,910 -- 3,348,752
Weighted average exercise price $ 20.50 -- $ 16.64
=====================================================================================================
</TABLE>
(a) Represents the closing market price of the Company's common stock as quoted
on the grant date.
In connection with the Company's acquisition of CCI described in Note F, options
to purchase CCI stock were converted into options to purchase 1,924,001 shares
of Company common stock (the "CCI Options"). At the time of conversion, the CCI
Options had a weighted average exercise price of $20.24 per share and a weighted
average fair value of $8.59 per share. There were 334,369 CCI Options
outstanding and exercisable at December 31, 1996.
Furthermore, at the time of the spin-off, the Company granted SARs, which were
not a part of the Plan, to an investment firm that advised Telesis and the
Company. The Company and Telesis each granted SARs covering 350,000 shares of
their respective common stock. The exercise price for the Company's shares is
$20.00 per share for one half the shares and $24.00 per share for the remaining
shares ($30.00 per share and $36.00 per share, respectively, for the Telesis
shares). The SARs are exercisable through April 1997. The SARs may be exercised
as to the Telesis shares or the Company's shares in any order; however, once
SARs with an aggregate value of $6.0 million have been exercised, the remaining
rights are canceled. At December 31, 1996, SARs with respect to 325,000 shares
of the Company's common stock (representing $2.7 million in value) had been
exercised. The Company has accrued the excess of fair market value over the
exercise price for the remaining shares applicable to the Company.
The Company also has an Employee Stock Purchase Plan ("ESPP") under which it has
reserved 2.4 million shares of common stock. The purpose of the ESPP is to
provide employees with the opportunity to increase their interest in the success
of the Company by purchasing stock from the Company on favorable terms and
paying for such purchases through payroll deductions. Stock purchases under the
ESPP were 429,981 shares, 358,301 shares, and 136,480 shares for 1996, 1995, and
1994, respectively. The weighted average fair value of the ESPP purchases was
estimated at $5.78 per share in 1996 and $5.85 per share in 1995 based upon the
Black-Scholes
-39-
<PAGE> 40
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
model using the following assumptions for 1996 and 1995, respectively: risk-free
weighted average interest rates of 5.1% and 5.7%, volatility factors of the
expected market price of the Company's common stock of 29.7% and 27.8%, and an
expected life of 90 days for both years.
K. INCOME TAXES
- - ----------------
The components of income tax expense for each of the three years in the period
ended December 31 are as follows:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------
(Dollars in millions) 1996 1995 1994
- - -------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 90.0 $ 77.6 $ 92.6
State and other taxes 26.1 10.5 18.9
Foreign 0.1 0.7 1.3
- - -------------------------------------------------------------------
Total current 116.2 88.8 112.8
- - -------------------------------------------------------------------
Deferred:
Federal 48.7 23.0 (2.5)
State and other taxes 0.3 14.6 (2.0)
Foreign (15.9) (13.3) --
- - -------------------------------------------------------------------
Total deferred 33.1 24.3 (4.5)
- - -------------------------------------------------------------------
Total income taxes $ 149.3 $ 113.1 $ 108.3
===================================================================
</TABLE>
The domestic and foreign components of income (loss) before income taxes and
preferred dividends for each year ended December 31 are as follows:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------
(Dollars in millions) 1996 1995 1994
- - ---------------------------------------------------------------
<S> <C> <C> <C>
U.S. operations $ 404.8 $ 305.5 $ 247.6
International operations ( 56.5) ( 60.5) ( 41.2)
- - ---------------------------------------------------------------
Income before income taxes
and preferred dividends $ 348.3 $ 245.0 $ 206.4
================================================================
</TABLE>
Significant components of the Company's deferred tax liabilities and assets are
as follows:
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------
December 31
-----------------------
(Dollars in millions) 1996 1995
- - ----------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Amortization $ 447.6 $ 62.2
Depreciation 114.0 68.2
Investments in U.S. partnerships 137.9 89.2
Unrealized gains 16.8 18.3
Other 37.9 59.2
- - ----------------------------------------------------------------
754.2 297.1
- - ----------------------------------------------------------------
Deferred tax assets:
Foreign tax benefits in consolidated
subsidiaries 28.2 38.8
Accruals deductible when paid 33.5 25.8
Organization and start-up costs 6.1 10.9
Accounts receivable 11.1 1.2
Other 34.4 22.0
- - ----------------------------------------------------------------
113.3 98.7
Less: valuation allowance 2.6 25.5
- - ----------------------------------------------------------------
110.7 73.2
- - ----------------------------------------------------------------
Total deferred taxes recorded in
Consolidated Balance Sheets $ 643.5 $ 223.9
================================================================
Current $ ( 23.5) $ ( 21.3)
Noncurrent 667.0 245.2
- - ----------------------------------------------------------------
Net deferred tax liabilities $ 643.5 $ 223.9
================================================================
</TABLE>
The net change in the valuation allowance for deferred tax assets was a decrease
of $22.9 million related to benefits arising from foreign net operating loss
carryforwards of NordicTel. Although there can be no assurances, the Company
believes that it is more likely than not that it will generate future taxable
income sufficient to fully realize future benefits from the net deferred tax
assets of $110.7 million.
At December 31, 1996, the Company had $85.5 million in net operating loss
carryforwards for foreign tax reporting purposes, all of which can be carried
forward indefinitely.
-40-
<PAGE> 41
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The reasons for differences each year between the statutory federal income tax
rate and the effective income tax rate are provided in the following
reconciliation:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------
1996 1995 1994
- - ------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Increase (decrease) in taxes
resulting from:
Equity in net income (loss) of
certain unconsolidated
wireless systems (0.2) 9.6 7.0
State income taxes, net of
federal tax benefit 4.3 6.7 5.3
Nondeductible amortization 3.2 1.7 1.5
Tax impact of foreign income (0.9) (5.2) 0.7
Other 1.5 (1.6) 3.0
- - ------------------------------------------------------------------------
Effective income tax rate 42.9% 46.2% 52.5%
========================================================================
</TABLE>
At December 31, 1996, $53.5 million of deferred tax liabilities relating to
$150.0 million of cumulative unrepatriated earnings on consolidated foreign
subsidiaries and equity investments in unconsolidated foreign wireless systems
were excluded from recognition under SFAS No. 109, "Accounting for Income
Taxes," because such earnings are intended to be reinvested indefinitely.
At December 31, 1996, deferred tax liabilities relating to items which were
credited directly to stockholders' equity totaled $25.9 million.
L. EMPLOYEE BENEFITS
- - ---------------------
DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution plan, the AirTouch Communications
Retirement Plan ("Retirement Plan"), which covers substantially all full-time
employees. The Company's contributions to the Retirement Plan are based on a
percentage of pay and on matching a portion of employee contributions. The cost
recognized for the Retirement Plan was $23.5 million, $17.0 million, and $16.3
million for 1996, 1995, and 1994, respectively.
DEFINED BENEFIT PENSION PLAN
The Company maintains a defined benefit plan, the AirTouch Communications
Employee Pension Plan ("Pension Plan"), under which individuals who were
employees at December 31, 1986, and transferees from Telesis, receive pension,
death, and survivor benefits based on a percentage of their final five-year
average pay and years of service. The accrual of service credit was discontinued
in 1986 for Pension Plan participants. Thus, pension benefits only increase as a
participant's compensation increases.
The Company recognized pension income of $5.0 million, $6.1 million, and $3.7
million for 1996, 1995, and 1994, respectively, using discount rates of 7.25%,
9.0%, and 7.5% for 1996, 1995, and 1994, respectively.
The Pension Plan assets in excess of projected benefit obligations were $60.9
million and $50.2 million as of December 31, 1996 and 1995, respectively. The
prepaid pension costs were $35.4 million and $30.6 million as of December 31,
1996 and 1995, respectively. On January 1, 1987, the Company adopted SFAS 87,
"Employers' Accounting for Pensions," at which time there was a $10.2 million
excess of the fair value of the Pension Plan's assets over projected benefit
obligations. This excess is being recognized through amortization over 17 years.
The assets of the Pension Plan are primarily composed of common stocks, U.S.
Government and corporate obligations, and index funds. The Pension 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, 1996 and 1995, the actuarial present value of the Plan's
accumulated benefit obligations, which does not anticipate future salary
increases, was $32.8 million and $33.3 million, respectively. Of these amounts,
$27.2 million and $28.4 million, respectively, were vested. The assumptions used
in computing the present values of benefit obligations include a discount rate
of 7.75% and 7.25% for December 31, 1996 and 1995, respectively. An 8.5%
long-term rate of return on assets was assumed in calculating pension costs in
1996 and 1995.
OTHER POSTRETIREMENT BENEFITS
The Company provides health and dental 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 Pension Plan or attainment of certain
combinations of age and years of service. Approximately 105 retirees and
dependents were eligible to receive medical, dental, and life insurance benefits
as of January 1, 1996. As is the case with all of the Company's benefit plans
and programs, the Company retains the right to amend or terminate these benefits
in any way at any time.
A discount rate of 7.75% and 7.25% was used to measure the accumulated
postretirement benefit obligation ("APBO") at December 31, 1996 and 1995,
respectively. As of December 31, 1996 and 1995, the APBO was $13.5 million and
$16.0 million, respectively. The postretirement benefit plans' assets were less
than the accumulated benefit obligations by $13.3 million and $15.3 million as
of December 31, 1996 and 1995, respectively. At December 31, 1996, the
postretirement benefit plans were principally unfunded.
A discount rate of 7.25%, 9.0%, and 7.5% was assumed in calculating the 1996,
1995, and 1994, net periodic
-41-
<PAGE> 42
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
postretirement benefit cost, respectively. The postretirement benefit cost was
$2.5 million, $1.3 million, and $3.7 million for 1996, 1995, and 1994,
respectively.
A 7.5% annual increase in health care costs is assumed in 1997. The rate of
increase is assumed to decline to an ultimate rate of 5.0% by the year 2002.
Should the health care cost trend rate increase by 1% each year, the 1996 impact
would increase the APBO by $2.6 million and the aggregate of the service and
interest cost components of the net period cost by $0.6 million.
M. COMMITMENTS and CONTINGENCIES
- - ---------------------------------
CONTINGENCIES
In November 1993, a class action complaint was filed on behalf of AirTouch's
cellular customers in Orange County Superior Court naming, among others, the
Company. This complaint alleges certain facts, including a similarity in the
pricing structures of the two defendant cellular carriers, which plaintiffs
contend are circumstantial evidence that the Company, as general partner of Los
Angeles SMSA Limited Partnership, and Los Angeles Cellular Telephone Company
conspired to fix the prices of retail and wholesale cellular radio services in
the Los Angeles market. The complaint seeks damages for the class "in a sum in
excess of $100,000,000." A similar agent case was settled for an immaterial
amount. Trial has been set for July 7, 1997. The Company does not believe that
this proceeding will have a material adverse effect on the Company's financial
position or results of operations.
In 1994, two class action complaints were filed on behalf of AirTouch's cellular
customers, one in San Diego County Superior Court and one in the U.S. District
Court for the Southern District of California, alleging that there is
circumstantial evidence that the Company and U S WEST colluded to fix the prices
of retail and wholesale cellular radio services in the San Diego market by
setting their initial basic rates for cellular service at nearly identical
levels and having similar basic rates thereafter. Plaintiffs estimate damages to
the class at between $46.0 million and $69.0 million. The state case has been
stayed pending the outcome of the federal case. A class has been certified, and
the defendants motion for summary judgment was heard in November 1996. Two
additional cases, one in Orange County and one in San Diego, have been brought
by a number of individual agents against the Company and others. Each contains
allegations similar to those in the San Diego and Orange County price fixing
cases, and also allegations of various business torts and monopolization. One
case seeks damages of approximately $80.0 million and the other approximately
$50.0 million. The Company is vigorously defending these suits and does not
believe that these proceedings will have a material adverse effect on the
Company's financial position or results of operations.
In 1994, a class action complaint was filed on behalf of AirTouch's cellular
customers in San Francisco County Superior Court alleging certain facts,
including a similarity in the pricing structures of the two competitors, which
plaintiffs contend is circumstantial evidence of a tacit conspiracy between Bay
Area Cellular Telephone Company, in which the Company has an indirect interest,
and GTE Mobilnet to fix the prices of retail and wholesale cellular radio
services in the San Francisco Bay Area market. A class has been stipulated and
discovery has begun. In 1996, an almost identical class action complaint was
filed by a different plaintiff in Alameda County Superior Court against Bay Area
Cellular Telephone Company, GTE Mobilnet, and a number of other companies,
including the Company. It alleges essentially the same facts as the San
Francisco case alleges. The two cases have been assigned to a single judge for
coordination. The Company does not believe that these proceedings will have a
material adverse effect on the Company's financial position or results of
operations.
The Company is party to various other legal proceedings in the ordinary course
of business. Although the ultimate resolution of these various other proceedings
cannot be ascertained, management does not expect that they will have a material
adverse effect on the results of operations or financial position of the
Company.
LEASE COMMITMENTS
The Company leases various facilities and equipment under noncancelable lease
arrangements. Most leases contain renewal options for varying periods. Rent
expense under all operating leases was $76.3 million, $50.3 million, and $35.3
million in 1996, 1995, and 1994, respectively.
Future minimum lease payments under noncancelable operating leases with an
initial term of one year or more are as follows at December 31, 1996:
<TABLE>
<CAPTION>
- - -----------------------------------------------
(Dollars in millions)
- - -----------------------------------------------
<S> <C>
1997 $ 80.5
1998 72.9
1999 64.5
2000 54.4
2001 33.7
Thereafter 125.0
- - -----------------------------------------------
Total minimum lease payments $431.0
===============================================
</TABLE>
OTHER
In the ordinary course of business, the Company has issued letters of
responsibility and letters of support for performance guarantees, refundable
security deposits, and credit facilities of certain subsidiaries and affiliates
providing varying degrees of recourse to the Company. At
-42-
<PAGE> 43
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1996, the Company's proportionate share under such arrangements
was $227.9 million. The Company believes it is remote that it will be required
to pay under these various arrangements.
At December 31, 1996, the Company was committed to spend $286.7 million for the
acquisition of property, plant, and equipment, purchases of cellular equipment
and other items, and capital contributions to unconsolidated wireless systems.
N. SUBSEQUENT EVENTS
- - ---------------------
On January 27, 1997, the Company's subsidiary, AirTouch Cellular, redeemed the
$217.0 million Zero Coupon Notes assumed with the Company's acquisition of CCI.
The Zero Coupon Notes were redeemed for an aggregate redemption price of $180.5
million. Financing for the redemption was obtained through the Company's
commercial paper program.
In February 1997, Mannesmann Mobilfunk, the German cellular venture in which
the Company is a partner, made a $229.0 million distribution of profits. The
Company's share was 34.8%.
O. ADDITIONAL FINANCIAL INFORMATION
- - ------------------------------------
<TABLE>
<CAPTION>
- - ---------------------------------------------------------
December 31
---------------
(Dollars in millions) 1996 1995
- - ---------------------------------------------------------
<S> <C> <C>
Selected "Other current liabilities":
Accrued compensation $116.1 $84.8
Various reserves and accruals $ 30.4 $48.0
Advance billings and customer
deposits $ 49.6 $38.4
Deferred gain $ -- $30.4
Accrued taxes payable $ 68.6 $21.9
Accrued interest $ 39.4 $ 9.8
</TABLE>
P. QUARTERLY FINANCIAL DATA (UNAUDITED)
- - ----------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
(Dollars in millions, except per share amounts)
- - -------------------------------------------------------------------------------------------------
1996 First Second Third Fourth
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 448.9 $ 481.3 $ 600.7 $ 720.8
Operating income $ 49.3 $ 62.9 $ 105.2 $ 63.6
Income before preferred dividends $ 52.2 $ 61.2 $ 58.9 $ 26.7
Preferred dividends $ -- $ -- $ 6.7 $ 13.4
Net income available to
common stockholders $ 52.2 $ 61.2 $ 52.2 $ 13.3
Per share data:
Net income available to
common stockholders $ 0.10 $ 0.12 $ 0.10 $ 0.03
- - -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
1995 First Second Third Fourth
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 373.9 $ 403.4 $ 414.7 $ 426.6
Operating income (loss) $ 54.0 $ 34.6 $ 29.5 $ (5.3)
Net income available to
common stockholders $ 35.3 $ 38.7 $ 46.7 $ 11.2
Per share data:
Net income available to
common stockholders $ 0.07 $ 0.08 $ 0.09 $ 0.02
</TABLE>
The operating loss in the fourth quarter of 1995 was primarily driven by
negative equipment margins associated with high volume holiday promotion
programs occurring in all U.S. cellular markets.
-43-
<PAGE> 44
SELECTED PROPORTIONATE
FINANCIAL DATA(a)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------
For the Year Ended December 31
----------------------------------------------
(Dollars in millions) 1996 1995 1994
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Company(b)
Net operating revenues $ 3,748.7 $ 2,605.2 $ 1,791.8
Operating income $ 521.2 $ 296.7 $ 171.5
Operating cash flow(c) $ 1,123.7 $ 702.3 $ 506.1
Operating cash flow margin 30.0% 27.0% 28.2%
==========================================================================================================
U.S. Cellular Operations
Service and other revenues $ 1,984.2 $ 1,523.3 $ 1,160.1
Equipment sales 83.0 78.9 74.6
Cost of equipment sales (180.7) (125.6) (82.0)
- - ----------------------------------------------------------------------------------------------------------
Net operating revenues 1,886.5 1,476.6 1,152.7
- - ----------------------------------------------------------------------------------------------------------
Cost of revenues 222.3 188.4 136.5
Selling and customer operations expenses 682.5 544.0 415.2
General, administrative, and other expenses 160.3 139.0 122.0
Depreciation and amortization expenses 292.4 189.2 185.7
- - ----------------------------------------------------------------------------------------------------------
Total operating expenses 1,357.5 1,060.6 859.4
- - ----------------------------------------------------------------------------------------------------------
Operating income $ 529.0 $ 416.0 $ 293.3
==========================================================================================================
Operating cash flow(c) $ 821.4 $ 605.2 $ 479.0
Operating cash flow margin(d) 43.5% 41.0% 41.6%
Capital expenditures, excluding acquisitions $ 408.0 $ 475.0 $ 296.7
==========================================================================================================
International Cellular Operations
Existing operations:(e)
Net operating revenues $ 1,473.4 $ 841.0 $ 352.8
Operating income $ 283.9 $ 62.7 $ 10.0
Operating cash flow(c) $ 477.7 $ 203.7 $ 87.4
Operating cash flow margin 32.4% 24.2% 24.8%
Income (loss) $ 141.0 $ (0.5) $ (13.2)
Start-up systems:(f)
Income (loss) $ (157.2) $ (51.6) $ (26.1)
Total cellular income (loss) $ (16.2) $ (52.1) $ (39.3)
==========================================================================================================
U.S. Paging Operations(g)
Service and other revenues $ 292.4 $ 219.4 $ 183.5
Equipment sales 50.0 45.5 43.4
Cost of equipment sales (45.8) (39.5) (38.0)
- - ----------------------------------------------------------------------------------------------------------
Net operating revenues 296.6 225.4 188.9
- - ----------------------------------------------------------------------------------------------------------
Total operating expenses before
depreciation and amortization expenses 208.8 150.8 122.5
Depreciation and amortization expenses 64.4 42.8 36.8
- - ----------------------------------------------------------------------------------------------------------
Operating income $ 23.4 $ 31.8 $ 29.6
==========================================================================================================
Operating cash flow(c) $ 87.8 $ 74.6 $ 66.4
Operating cash flow margin 29.6% 33.1% 35.2%
Capital expenditures, excluding acquisitions $ 98.9 $ 72.0 $ 61.3
==========================================================================================================
</TABLE>
See Footnotes on page 45.
-44-
<PAGE> 45
SELECTED PROPORTIONATE
FINANCIAL DATA(a)
Footnotes:
(a) This table is not required by GAAP and is not intended to replace the
Consolidated Financial Statements prepared in accordance with GAAP. It is
presented to provide supplemental data. Because significant assets of the
Company are not consolidated, the Company believes that proportionate
financial data facilitates the understanding and assessment
of its Consolidated Financial Statements. Under GAAP, the Company
consolidates the entities in which it has a controlling interest and uses
the equity method to account for entities over which the Company has
significant influence but does not have a controlling interest. In
contrast, proportionate accounting reflects the Company's relative
ownership interests in operating revenues and expenses for both its
consolidated and equity method entities. For example, U.S. cellular
proportionate results present the Company's share -- its percentage
ownership -- for all significant U.S. cellular operations, including those
entities where the Company does not own more than 50 percent. Similarly,
total proportionate results show the Company's share of all its significant
worldwide operations.
(b) Reflects results of systems in which the Company owns an interest,
multiplied by the Company's ownership interest, exclusive of cost-based
investments and certain equity-based investments that are not material to
the information presented. Certain Total Company data for 1995 and 1994
have been restated to include effects of the Company's interests in Italy,
South Korea, and Spain.
(c) Operating cash flow is defined as operating income plus depreciation and
amortization and is not the same as cash flow from operating activities in
the Company's Consolidated Statements of Cash Flows. Proportionate
operating cash flow represents the Company's ownership interests in the
respective entities' operating cash flows. As such, proportionate operating
cash flow does not represent cash available to the Company.
(d) If net losses on equipment sales were reclassified as operating expenses,
operating cash flow margins would be 41.4%, 39.7%, and 41.3% for 1996,
1995, and 1994, respectively.
(e) Effective January 1, 1996, existing operations represent the Company's
share of results (after foreign taxes where applicable) for the following
international cellular systems which have provided commercial service for
the full 12 months of any preceding calendar year: Germany, Portugal,
Sweden, Belgium, and Japan. Prior to January 1, 1996, existing operations
represented the Company's share of results (after foreign taxes where
applicable) for the following international cellular systems which had
completed 12 months of commercial service: 1995: Germany, Portugal,
Sweden, Belgium, and Japan; and 1994: Germany, Portugal, Sweden, and
Belgium (6 months).
(f) Effective January 1, 1996, start-up systems represent the Company's share
of income or loss (after foreign taxes where applicable) for the following
international cellular systems which did not provide commercial service for
the full 12 months of any preceding calendar year: Italy, South Korea,
Spain, India, and Poland. Prior to January 1, 1996, start-up systems
represented the Company's share of income or loss (after foreign taxes
where applicable) for the following international cellular systems which
had not yet completed 12 months of commercial service: 1995: Italy,
South Korea, Spain, and India (4 months); and 1994: Japan, Italy (3
months), and South Korea (3 months).
(g) U.S. Paging Operations are wholly owned by the Company; therefore,
proportionate information reflects 100% of the subsidiary's GAAP-basis
operating results.
-45-
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF
AIRTOUCH COMMUNICATIONS, INC.
AirTouch International (California)
AirTouch Thailand Ltd. (Thailand)
AirTouch International GmbH (Germany)
AirTouch Taiwan, Inc. (Delaware)
AirTouch Asia, Inc. (Delaware)
AirTouch California, Inc. (Delaware)
AirTouch International Holdings, Inc. (Delaware)
AirTouch Limited, Inc. (Delaware)
AirTouch Germany, Inc. (Delaware)
AirTouch Belgium, S.A. (Belgium)
AirTouch Cayman Holdings Unlimited
(Cayman Islands, British West Indies)
AirTouch Espana, S.A. (Spain)
AirTouch (Europe) B.V. (Netherlands)
AirTouch (Europe) Deinstleistungs-und Beteiligungs-B.V. &
Co. KG (Germany)
AirTouch International (Mauritius) Limited (Port Louis,
Mauritius)
AirTouch Japan Company Limited (Japan)
AirTouch Netherlands B.V. (Netherlands)
AirTouch Netherlands II B.V.( Netherlands)
India Wireless Holdings Limited (India)
NordicTel Holdings, AB (Sweden)
A.B. Europolitan (Sweden)
Europolitan Stores A.B. (Sweden)
Telecel - Comunicacoes Pessoais, SA (Portugal)
Zahan Communications (Mauritius) Limited (Mauritius)
AirTouch Communications - Washington, Inc. (Delaware)
AirTouch Communications Deutschland GmbH (Germany)
AirTouch Development Corporation (California)
AirTouch Satellite Services, Inc. (Delaware)
ATSS Canada, Inc. (Delaware)
ATSS Mexico, Inc. (Delaware)
ATSS/Loral Mexico L.P. (Delaware)
AirTouch Satellite Services US, Inc. (Delaware)
AirTouch Technical Services (California)
AirTouch Services (California)
AirTouch PCS, Inc. (Delaware)
AirTouch PCS Holding, Inc. (Delaware)
PCS Nucleus, L.P. (Delaware)
AirTouch WMC, Inc. (Delaware)
WMC Partners, L.P. (Delaware)
AirTouch Cellular, Inc. (Delaware)
New Par (Delaware)
<PAGE> 2
AirTouch Cellular (California)
AirTouch Group, LLC (Delaware)
CMT Partners (Delaware)
AirTouch Cellular of California, Inc. (Delaware)
Los Angeles SMSA Limited Partnership (California)
Mineral RSA Limited Partnership (California)
Nevada RSA No. 2 Limited Partnership (California)
Oxnard-Ventura-Simi Limited Partnership (California)
AirTouch Cellular of Nevada (Nevada)
AirTouch Cellular of Arizona (Nevada)
AirTouch Cellular of Georgia (Nevada)
Athens Cellular, Inc. (Delaware)
AirTouch Cellular of Kansas (Nevada)
Topeka Cellular Telephone Company, Inc. (Delaware)
AirTouch Cellular of Michigan (Nevada)
AirTouch Cellular of Texas (Nevada)
AirTouch Paging (Nevada)
AirTouch Paging of Kentucky, Inc. (Kentucky)
AirTouch Paging of Virginia, Inc. (Virginia)
AirTouch Paging of California (California)
AirTouch Paging of Ohio, Inc. (Delaware)
AirTouch Paging of Texas (Nevada)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statement on Form S-3 (No. 33-62787)
and Form S-4 (333-03107) and in the Registration Statements on Form S-8 (Nos.
33-57083, 33-57077, 33-57081, 33-64553, 333-10389 and 333-17891) of AirTouch
Communications, Inc. of our report dated February 25, 1997 appearing on page
27 of the Annual Report to Stockholders which is incorporated by reference
in this Annual Report on Form 10-K. We also consent to the incorporation by
reference of our report on the Financial Statement Schedule listed in Item
14(a) of this Form 10-K, which appears on page X-1 of this Form 10-K.
/s/ PRICE WATERHOUSE LLP
San Francisco, California
March 20, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement on
Form S-3 (No. 33-62787) and Form S-4 (333-03107) and in the Registration
Statements on Form S-8 (Nos. 33-57083, 33-57077, 33-57081, 33-64553, 333-10389
and 333-17891) of AirTouch Communications, Inc. of our reports dated March 13,
1995, on our audits of the consolidated financial statements and financial
statement schedule of AirTouch Communications, Inc. for the year ended December
31, 1994, which report is included in AirTouch Communications Inc. Annual
Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
March 17, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-3 (No. 33-62787); Registration Statement on Form S-4 (No. 333-03107)
and in the Registration Statements on Form S-8 (Nos. 33-57083, 33-57077,
33-57081, 33-64553, 333-10389 and 333-17891) of AirTouch Communications, Inc.
of our report dated February 16, 1996, relating to the consolidated financial
statements and schedule of Cellular Communications, Inc. included in its Annual
Report (Form 10-K) for the year ended December 31, 1995.
/s/ Ernst & Young LLP
New York, New York
March 20, 1997
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-62787), in
the Registration Statement on Form S-4 (No. 333-03107) and in the Registration
Statements on Form S-8 (Nos. 33-57083, 33-57077, 33-57081, 33-64553,
333-10389, and 333-17891) of AirTouch Communications, Inc. of our report dated
February 19, 1997 relating to the financial statements of Mannesmann Mobilfunk
GmbH, which appears in AirTouch Communications Inc.'s Annual Report on Form
10-K for the year ended December 31, 1996.
Dusseldorf, Germany, March 17, 1997
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
/s/ Scheffler /s/ Haas
Wirtschaftsprufer Wirtschaftsprufer
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement on
Form S-3 (No. 33-62787) and Form S-4 (333-03107) and in the Registration
Statements on Form S-8 (Nos. 33-57083, 33-57077, 33-57081, 33-64553, 333-10389
and 333-17891) of AirTouch Communications, Inc. of our reports dated February
14, 1997, on our audits of the consolidated financial statements and financial
statement schedule of CMT Partners as of December 31, 1996 and 1995, and for the
years ended December 31, 1996, 1995 and 1994, which reports are included in
AirTouch Communications Inc. Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
March 17, 1997
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-3 No. 33-62787 and S-4 No. 333-03107) of AirTouch Communications, Inc.
and in the Registration Statements (Forms S-8 Nos. 33-57081, 33-64553 and
333-17891, No. 33-57077, No. 33-57083, and No. 333-10389) pertaining to the
AirTouch Communications, Inc. 1993 Long-Term Stock Incentive Plan, the AirTouch
Communications, Inc. Employee Stock Purchase Plan, the AirTouch Communications,
Inc. Retirement Plan, and the CCI Agreement and Plan of Merger (to be issued
upon exercise of outstanding options of CCI) of our report dated February 16,
1996, with respect to the consolidated financial statements and schedule of New
Par, (A Partnership), incorporated by reference in the Annual Report (Form 10-K)
of AirTouch Communications Inc. for the year ended December 31, 1996.
/s/ Ernst & Young LLP
Columbus, Ohio
March 20, 1997
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion of our
report dated January 24, 1997, on the financial statements of Kansas Combined
Cellular in this Form 10-K and to the incorporation of our reports included in
this Form 10-K, in the Registration Statement on Form S-3 (No. 33-62787),
Registration Statement on Form S-4 (No. 333-03107) and Registration Statements
on Form S-8 (Nos. 33-57083, 33-57077, 33-57081, 33-64553, 333-10389 and
333-17891), of AirTouch Communications, Inc. It should be noted that we have
not audited any financial statements of Kansas Combined Cellular subsequent to
December 31, 1996, nor performed any procedures subsequent to the date of our
report.
/s/ ARTHUR ANDERSEN LLP
Kansas City, Missouri,
March 17, 1997
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
WHEREAS, AIRTOUCH COMMUNICATIONS, INC., a Delaware 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/her name;
NOW, THEREFORE, each of the undersigned hereby constitutes and appoints Sam
Ginn, C. Lee Cox, Margaret G. Gill, Mohan S. Gyani, Arun Sarin, and each of
them, his/her attorneys for him/her in his/her stead, in his/her 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/she 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/her hand this 6th day
of February, 1997.
<TABLE>
<S> <C>
/s/ SAM GINN /s/ DONALD G. FISHER
- - ------------------------------------------ ----------------------------------------
Sam Ginn Donald G. Fisher
Chairman of the Board and Chief Executive Officer Director
(Principal Executive Officer)
/s/ ARUN SARIN /s/ PAUL HAZEN
- - ------------------------------------------ ----------------------------------------
Arun Sarin Paul Hazen
President, Chief Operating Officer and Director Director
/s/ C. LEE COX /s/ ARTHUR ROCK
- - ------------------------------------------ ----------------------------------------
C. Lee Cox Arthur Rock
Vice Chairman of the Board Director
/s/ MOHAN S. GYANI /s/ CHARLES R. SCHWAB
- - ------------------------------------------ ----------------------------------------
Mohan S. Gyani Charles R. Schwab
Executive Vice President and Chief Financial Officer Director
(Principal Financial and Accounting Officer)
/s/ CAROL BARTZ /s/ GEORGE P. SHULTZ
- - ------------------------------------------ ----------------------------------------
Carol Bartz George P. Shultz
Director Director
/s/ MICHAEL J. BOSKIN
- - ------------------------------------------
Michael J. Boskin
Director
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 27,700
<SECURITIES> 0
<RECEIVABLES> 476,600
<ALLOWANCES> 61,100
<INVENTORY> 54,500
<CURRENT-ASSETS> 624,100
<PP&E> 3,696,400
<DEPRECIATION> 1,374,900
<TOTAL-ASSETS> 8,523,600
<CURRENT-LIABILITIES> 760,500
<BONDS> 1,637,000
0
1,040,800
<COMMON> 5,000
<OTHER-SE> 3,981,200
<TOTAL-LIABILITY-AND-EQUITY> 8,523,600
<SALES> 131,700
<TOTAL-REVENUES> 2,251,700
<CGS> 222,900
<TOTAL-COSTS> 1,970,700
<OTHER-EXPENSES> (61,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,000
<INCOME-PRETAX> 348,300
<INCOME-TAX> 149,300
<INCOME-CONTINUING> 199,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 178,900
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
<PAGE> 1
EXHIBIT 99.2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of AirTouch Communications, Inc.:
We have audited the consolidated statements of income, stockholder's equity, and
cash flows for AirTouch Communications, Inc. and Subsidiaries (the "Company")
for the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
1994 financial statements of Mannesmann Mobilfunk GmbH ("MMO"), an equity
investee of the Company, which statements reflect net income of $69,072,000 for
the year ended December 31, 1994. Those statements were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar as it
relates to the amounts included for MMO, is based solely on the reports of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform 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 results of their operations and their cash
flows for the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
We have also audited the Supplementary Selected Proportionate Financial Data for
the period ended December 31, 1994, presented on Page 54, certain of which data
includes amounts derived from financial statements of MMO, which statements are
audited by other auditors as stated above. As described on Page 55, the
Supplementary Selected Proportionate Financial Data have been prepared by
management to present relevant financial information that is not provided by the
consolidated financial statement and is not intended to be a presentation in
accordance with generally accepted accounting principles.
In our opinion, the Supplementary Selected Proportionate Financial Data referred
to above presents fairly, in all material respects, the information set forth
therein on the basis of accounting described on Page 55.
/s/ Coopers and Lybrand L.L.P.
San Francisco, California
March 13, 1995
