Introduction to Corporate Finance

Ross et al.: Fundamentals
of Corporate Finance, Sixth
Edition, Alternate Edition

VIII. Topics in Corporate

Finance

25. Mergers and
    Acquisitions

© The McGraw−Hill^885

Companies, 2002

FIGURE 25.1

Dear Stockholder:

In the current corporate takeover environment, Contel is concerned about certain abusive techniques that are

sometimes employed during takeover attempts. The use of such tactics is increasing and often threatens the

investment position of a company's stockholders. In response to the increasing use of these abusive tactics,

your Board of Directors has adopted a share rights plan designed to ensure that stockholders are treated fairly

by anyone who might seek to obtain control of the company. The plan consists of a preferred stock rights

agreement and a dividend distribution of one preferred stock purchase right on each outstanding share of

Contel common stock.

The share rights plan was not adopted because of any current effort by another party to acquire the company.

In fact, we are not aware of any such effort. Rather, it is a precautionary step that will increase the Board's

ability to represent effectively the interests of the company's stockholders in the event of an unsolicited takeover

attempt. While the share rights plan will not prevent a takeover, it should encourage anyone seeking to

acquire Contel to negotiate first with the Board of Directors. In adopting the share rights plan, the Board also

considered the fact that more than 650 public companies, including many major independent telephone

companies, have adopted share rights plans.

Under the share rights plan, you will receive one right for each share of Contel common stock you own. Each

right will entitle you to buy one one-hundredth of a share of a new series of preferred stock at an exercise

price of $120. The rights can only be exercised if a person or group acquires 20 percent or more of Contel

common stock or announces a tender offer for 30 percent or more of Contel common stock.

If certain triggering events occur, each right would entitle you to receive Contel common stock or, in certain

circumstances, cash, property or other Contel securities with a value equal to twice the exercise price.

Triggering events include the acquisition by a person or group of 20 percent or more of Contel common stock,

or a merger with a company that owns 20 percent or more of Contel common stock in which Contel is the

surviving company.

If Contel were acquired in certain other mergers or business combinations, or if 50 percent of the company's

assets or earning power is sold or transferred, each right would entitle you to receive common stock in the

acquiring company with a value equal to twice the exercise price. Contel can redeem the rights for 1 cent each

at any time prior to 10 days following the date that a person or group acquires 20 percent or more of Contel

common stock. The details of the rights plan are explained in the attachment to this letter. We urge you to read

it carefully.

The dividend distribution is payable to stockholders of record on December 7, 1988, and one right will attach

to each new share of common stock issued after the record date and prior to the time someone acquires 20

percent or more of Contel common stock or announces a tender offer for 30 percent or more of Contel

common stock. The rights will become part of your existing stock certificate and no separate rights certificates

will be issued at this time.

* * * * *

Sincerely,

Charles Wohlstetter

Chairman

Donald W. Weber

President and Chief Executive Officer

CONTEL

Adoption of a Share Rights Plan, or SRP

861