<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
AERIAL COMMUNICATIONS, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
N/A
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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4) Date Filed:
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<PAGE>
[LOGO]
AERIAL COMMUNICATIONS, INC.
8410 W. Bryn Mawr Avenue, Suite 1100
Chicago, IL 60631
(773) 399-4200 Phone
(773) 399-7997 Fax
April 10, 1998
Dear Shareholders:
You are cordially invited to attend the Aerial Communications, Inc. 1998
Annual Meeting on Monday, May 11, 1998, at 10:00 a.m., Chicago time, at Harris
Trust and Savings Bank, 111 West Monroe Street, Chicago, Illinois, on the 8th
floor in the Auditorium.
The formal notice of the meeting, the Board of Directors' Proxy Statement
and the Company's 1997 Annual Report are enclosed. During the meeting, we will
report on the accomplishments and plans of the Company. At the Annual Meeting,
shareholders are being asked to elect directors, approve the amendment of the
Company's 1996 Long-Term Incentive Plan, and ratify the selection of outside
auditors. The Board of Directors recommends a vote "FOR" the nominees for
directors and "FOR" the proposal to amend the 1996 Long-Term Incentive Plan and
"FOR" the ratification of the selection of independent public accountants.
The Board of Directors and members of our management team will be at the
Annual Meeting to meet with shareholders and discuss our recent results and
plans for the future. We would like to have as many shareholders as possible
represented at the meeting. Therefore, please sign and return the enclosed proxy
card, whether or not you plan to attend the meeting.
If you have any questions prior to the Annual Meeting, please call Investor
Relations at (773) 399-4385. We look forward with pleasure to visiting with you
at the Annual Meeting.
As previously reported, the Company received an offer from its parent
company, Telephone and Data Systems, Inc. ("TDS"), to acquire all of the issued
Common Shares of the Company not already owned by TDS in exchange for TDS
tracking stock which would track the performance of the Company. As discussed in
the accompanying Proxy Statement, this offer is being considered by an
independent special committee of the Board of Directors. At this time, no
agreement has been reached between the Company and TDS relating to the TDS
offer.
With very best regards,
<TABLE>
<S> <C>
[SIGNATURE] [SIGNATURE]
[SIGNATURE]
</TABLE>
<PAGE>
<TABLE>
<S> <C>
LeRoy T. Carlson, Jr. Don Warkentin
Chairman President
</TABLE>
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
AND
PROXY STATEMENT
To the Shareholders of
AERIAL COMMUNICATIONS, INC.
The 1998 Annual Meeting of the Shareholders of Aerial Communications, Inc.,
a Delaware corporation (the "Company" or "Aerial"), will be held at Harris Trust
and Savings Bank, 111 West Monroe Street, 8th floor, Chicago, Illinois, in the
Auditorium on Monday, May 11, 1998, at 10:00 a.m., Chicago time, for the
following purposes:
1. to elect four Class I Directors;
2. to approve the amendment of the Company's 1996 Long-Term Incentive Plan;
3. to ratify the selection of Arthur Andersen LLP as the Company's
independent public accountants for the year ending December 31, 1998; and
4. to transact such other business as may properly come before the Annual
Meeting or to any adjournments thereof.
This Notice of Annual Meeting and Proxy Statement is being mailed to
shareholders on or about April 10, 1998.
The Board of Directors has fixed the close of business on March 27, 1998, as
the record date for determination of shareholders entitled to notice of and to
vote at the Annual Meeting or any adjournments thereof.
The Board of Directors would like to have all shareholders represented at
the Annual Meeting. If you do not expect to be present, please sign and mail
your proxy in the enclosed self-addressed envelope to Harris Trust and Savings
Bank, 311 West Monroe Street, Chicago, Illinois 60606. You have the power to
revoke your proxy at any time before it is voted, and the giving of a proxy will
not affect your right to vote in person if you attend the Annual Meeting.
On February 28, 1998, the Company had 31,626,997 outstanding Common Shares,
par value $1.00 per share, and 40,000,000 Series A Common Shares, par value
$1.00 per share. As of February 28, 1998, there were no outstanding Series B
Common Shares, par value $1.00 per share, or Preferred Shares, par value $1.00
per share, of the Company. Each holder of outstanding Common Shares, as of March
27, 1998, is entitled to vote for each Common Share held in such holder's name
with respect to all matters on which holders of Common Shares are entitled to
vote at the Annual Meeting. The holder of Series A Common Shares is entitled to
15 votes for each Series A Common Share held in such holder's name with respect
to all matters on which the holder of Series A Common Shares is entitled to vote
at the Annual Meeting. Accordingly, the voting power of the Series A Common
Shares was 600,000,000 votes, and the total voting power of all outstanding
shares of capital stock was 631,626,997 votes at February 28, 1998. Telephone
and Data Systems, Inc., an Iowa corporation ("TDS"), is the sole holder of
Series A Common Shares. The holder of Series A Common Shares will elect three
Class I Directors at the Annual Meeting. Proxies are being requested from the
holders of Common Shares in connection with the election of one Class I
Director, the approval of the amendment of the Company's 1996 Long-Term
Incentive Plan, and the ratification of the selection of Arthur Andersen LLP.
1
<PAGE>
VOTING INFORMATION
Holders of Common Shares may, with respect to the election of the Class I
Director to be elected by the holders of Common Shares, vote FOR the election of
such Director nominee or WITHHOLD authority to vote for such Director nominee.
The holder of Series A Common Shares may, with respect to the election of the
three Class I Directors to be elected by the holders of Series A Common Shares,
vote FOR the election of such Director nominees or WITHHOLD authority to vote
for such Director nominees. A shareholder may, with respect to each of the other
proposals, (i) vote FOR approval, (ii) vote AGAINST approval or (iii) ABSTAIN
from voting on such proposal. All properly executed and unrevoked proxies
received in the accompanying form in time for the 1998 Annual Meeting will be
voted in the manner directed therein. If no direction is made, a proxy by a
holder of Common Shares will be voted FOR the election of the named Director
nominee to serve as the Class I Director, a proxy by the holder of Series A
Common Shares will be voted FOR the election of the three director nominees to
serve as the Class I Directors, and a proxy by any shareholder will be voted FOR
the proposals to approve the amendment to the Company's 1996 Long-Term Incentive
Plan and to ratify the selection of Arthur Andersen LLP as the Company's
independent public accountants for 1998. If a proxy indicates that all or a
portion of the votes represented by such proxy are not being voted with respect
to a particular matter, such non-votes will not be considered present and
entitled to vote on such matters, although such votes may be considered present
and entitled to vote on other matters and will count for purposes of determining
the presence of a quorum. The holders of a majority of the votes of the shares
issued and outstanding and entitled to vote, present in person or represented by
proxy, will constitute a quorum at the Annual Meeting, except that, in the case
of matters such as the election of Directors, where a separate vote by a class
is required, the holders of a majority of the votes of the shares of such class,
present in person or represented by proxy, will constitute a quorum entitled to
take action with respect to that vote on that matter.
The election of the Class I Directors to be elected requires the affirmative
vote of plurality of the voting power of the shares present in person or
represented by proxy and entitled to vote on such matter at the Annual Meeting.
Accordingly, if a quorum is present at the Annual Meeting, each nominee
receiving the greatest number of votes by the holders of shares entitled to vote
with respect to the election of such Class I Director will be elected to serve
as a Class I Director. Since the election of Class I Directors require only the
affirmative vote of a plurality of the shares present in person or represented
by proxy and entitled to vote with respect to such matter, withholding authority
to vote for a nominee and non-votes with respect to the election of Class I
Directors will not affect the outcome of the election of the Class I Directors.
If a quorum is present at the Annual Meeting, the approval of the amendment
of the Company's 1996 Long-Term Incentive Plan requires the affirmative vote of
a majority of the voting power of the Common Shares and Series A Common Shares
voting together and present in person or represented by proxy and entitled to
vote on such matter at the Annual Meeting. A vote to abstain from voting on such
proposal will be treated as a vote against such proposal. Non-votes with respect
to such proposal will not affect the determination of whether such proposal is
approved.
If a quorum is present at the Annual Meeting, the ratification of the
selection of Arthur Andersen LLP as the Company's independent public accountants
for 1998 requires the affirmative vote of a majority of the voting power of the
Common Shares and Series A Common Shares voting together and present in person
or represented by proxy and entitled to vote on such matter at the Annual
Meeting. A vote to abstain from voting on such proposal will be treated as a
vote against such proposal. Non-votes with respect to such proposal will not
affect the determination of whether such proposal is approved.
A complete list of shareholders entitled to vote at the Annual Meeting,
arranged in alphabetical order and by voting group, showing the address of and
number of shares held by each shareholder, will be kept open at the offices of
the Company, 8410 West Bryn Mawr Avenue, Suite 1100, Chicago, Illinois
2
<PAGE>
60631, for examination by any shareholder during normal business hours,
beginning at least ten days prior to the date of the meeting and continuing
through the Annual Meeting.
RECENT DEVELOPMENTS
On December 17, 1997, the Company received an offer from TDS to acquire all
of the issued Common Shares of the Company which TDS does not own pursuant to a
merger (the "Aerial Merger"), in exchange for a TDS tracking stock which tracks
the performance of the Company. The Company's Board of Directors appointed
Messrs. John Foster and Thomas Wilson, Jr., independent Directors of the
Company, to a special committee (the "Special Committee") of the Board to
consider this offer. The Special Committee retained independent financial
advisors and independent legal advisors to the Special Committee. The Special
Committee and its representatives have been conducting a due diligence review
and have held discussions with representatives of TDS relating to the TDS offer.
The review and discussions by the Special Committee and its representatives are
continuing and, at this time, there is no agreement between the Company and TDS
relating to the TDS offer.
PROPOSAL I
ELECTION OF DIRECTORS
The business of the Company is managed under the direction of the Company's
Board of Directors. The Board of Directors presently is composed of ten
Directors and is divided into three classes. Every year, one of the classes is
elected to serve for three years. The term of office of the initial Class I
Directors will expire at the Annual Meeting in 1998; the term of office of the
initial Class II Directors will expire at the Annual Meeting in 1999; and the
term of office of the initial Class III Directors will expire at the Annual
Meeting in 2000 and, thereafter, in terms of three years or when their
respective successors in each case are qualified and elected. At each annual
election held after the 1998 Annual Meeting, the directors chosen to succeed
those whose terms then expire will be identified as being of the same Class as
the Directors they succeed and will be elected for a term expiring at the third
succeeding Annual Meeting and, thereafter, when their respective successors in
each case are qualified and elected.
NOMINEES
CLASS I DIRECTORS--TERMS SCHEDULED TO EXPIRE IN 2001
The following persons, if elected at the Annual Meeting of Shareholders on
May 11, 1998, will serve as Class I Directors for a period of three years or
until their successors are qualified and elected:
NOMINEE FOR ELECTION BY HOLDERS OF COMMON SHARES
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY SERVED AS
NAME AGE AND PRINCIPAL OCCUPATION DIRECTOR SINCE
- - -------------------------------------------- --- ------------------------------------- ---------------
<S> <C> <C> <C>
John D. Foster.............................. 54 Director of the Company and President 1996
of Vedra International Associates
</TABLE>
John D. Foster was appointed a Director of the Company in 1996. He is
President of Vedra International Associates, an investment banking firm based in
Florida. From 1968 to 1996, Mr. Foster held a number of senior management
positions both domestic and international with AT&T Corp.
3
<PAGE>
NOMINEES FOR ELECTION BY HOLDER OF SERIES A COMMON SHARES
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY SERVED AS
NAME AGE AND PRINCIPAL OCCUPATION DIRECTOR SINCE
- - ---------------------------------------- --- ----------------------------------------- -----------------
<S> <C> <C> <C>
LeRoy T. Carlson, Jr.................... 51 Chairman and Director of the Company and 1995
President and Chief Executive Officer of
TDS
Rudolph E. Hornacek..................... 70 Director of the Company and Vice 1991
President--Engineering of TDS
Donald W. Warkentin..................... 42 Director and President and Chief 1995
Executive Officer of the Company
</TABLE>
LeRoy T. Carlson, Jr., Chairman of the Company, has been President and Chief
Executive Officer of TDS for more than five years. Mr. Carlson also serves on
the Board of Directors of TDS. He is also Chairman and a Director of United
States Cellular Corporation ("United States Cellular"), a majority owned
subsidiary of TDS that provides cellular service, and TDS Telecommunications
Corporation ("TDS Telecom"), a wholly owned subsidiary of TDS that operates
local telephone companies. He is the son of LeRoy T. Carlson, Sr. and the
brother of Walter C.D. Carlson.
Rudolph E. Hornacek has been Vice President--Engineering of TDS for more
than five years. He is a Director of TDS and TDS Telecom.
Donald W. Warkentin has been President and Chief Executive Officer of the
Company since June, 1995. He has served as a Director of the Company since
August, 1995. From 1994 to 1995, Mr. Warkentin was Vice President of Multimedia
Marketing for U.S. West Communications. From 1990 to 1994, he was head of
Marketing for Mercury One-2-One in the United Kingdom.
OTHER DIRECTORS
CLASS II DIRECTORS--TERMS SCHEDULED TO EXPIRE IN 1999
The following persons were elected at the Annual Meeting of Shareholders on
May 12, 1997, to serve as the initial Class II Directors for a period of two
years or until their successors are qualified and elected:
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY SERVED AS
NAME AGE AND PRINCIPAL OCCUPATION DIRECTOR SINCE
- - ------------------------------------------ --- ---------------------------------------- ---------------
<S> <C> <C> <C>
James Barr III............................ 59 Director of the Company and President of 1996
TDS Telecom
Walter C.D. Carlson....................... 44 Director of the Company and Partner, 1996
Sidley & Austin, Chicago, Illinois
J. Clarke Smith........................... 55 Director and Vice President-- Finance 1996
and Administration, Chief Financial
Officer, Treasurer and Assistant
Secretary of the Company
</TABLE>
James Barr III has been President and Chief Executive Officer of TDS Telecom
for more than five years. He is also a Director of TDS.
Walter C.D. Carlson has been a partner of the law firm of Sidley & Austin
for more than five years. He also serves on the Board of Directors of TDS and
United States Cellular. He is the son of LeRoy T. Carlson, Sr. and the brother
of LeRoy T. Carlson, Jr.
4
<PAGE>
J. Clarke Smith has been Vice President--Finance & Administration, Chief
Financial Officer, Treasurer and Assistant Secretary of the Company since
November, 1995. He has served as a Director of the Company since February 1996.
Prior to that, he was President and CEO of Mortgage Edge Corporation from 1993
to 1995 and President of Sears Savings Bank from 1989 to 1993.
Mr. Barr was elected by the holders of Common Shares and Messrs. Carlson and
Smith were elected by the holder of Series A Common Shares.
CLASS III DIRECTORS--TERMS SCHEDULED TO EXPIRE IN 2000
The following persons were elected at the Annual Meeting of Shareholders on
May 12, 1997, to serve as the initial Class III Directors for a period of three
years or until their successors are qualified and elected:
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY SERVED AS
NAME AGE AND PRINCIPAL OCCUPATION DIRECTOR SINCE
- - ---------------------------------------- --- ---------------------------------------- -----------------
<S> <C> <C> <C>
Thomas W. Wilson, Jr.................... 66 Director of the Company and Chairman, 1996
Information Resources, Inc.
LeRoy T. Carlson, Sr.................... 81 Director of the Company and Chairman of 1996
TDS
Murray L. Swanson....................... 56 Director of the Company and Executive 1996
Vice President and Chief Financial
Officer of TDS
</TABLE>
Thomas W. Wilson, Jr. has been Chairman of Information Resources, Inc., a
consumer research corporation based in Chicago, since 1995. Prior to his
retirement in 1990, he was a Director of McKinsey & Company, where he spent 23
years. He also serves on the Board of Directors of Information Resources, Inc.
and Productivity Solutions, Inc.
LeRoy T. Carlson, Sr. has been Chairman of TDS for more than five years. He
is also a Director of TDS and United States Cellular. He is the father of LeRoy
T. Carlson, Jr. and Walter C.D. Carlson.
Murray L. Swanson has been Executive Vice President and Chief Financial
Officer of TDS for more than five years. He also serves on the Board of
Directors of TDS, United States Cellular and TDS Telecom.
Mr. Wilson was elected by the holders of Common Shares and Messrs. Carlson
and Swanson were elected by the holder of Series A Common Shares.
COMMITTEES AND MEETINGS
The Board of Directors of the Company held five meetings during 1997. All of
the Directors attended at least 75 percent of the meetings of the Board of
Directors held in 1997, except Mr. LeRoy T. Carlson, Sr. who attended three of
the meetings.
The Board of Directors does not presently have a formal Director nominating
committee.
The Audit Committee of the Board of Directors, among other things,
determines audit policies, reviews external and internal audit reports and
reviews recommendations made by the Company's internal auditing staff and
independent public accountants. The Audit Committee is composed of Messrs.
Walter C.D. Carlson (Chairman), John D. Foster and Thomas W. Wilson, Jr. The
Audit Committee held four meetings in 1997. Messrs. Carlson, Foster and Wilson
attended all of the meetings held in 1997.
The Stock Option Compensation Committee of the Board of Directors consists
of Thomas W. Wilson, Jr. (Chairman) and John D. Foster. The principal functions
of the Stock Option Compensation
5
<PAGE>
Committee are to consider and approve long-term compensation for Executive
Officers and to consider and recommend new long-term compensation plans or
changes to long-term compensation plans to the Board of Directors. The Stock
Option Compensation Committee held one meeting in 1997 that was attended by
Messrs. Wilson and Foster.
In 1997, the Board of Directors established a special committee consisting
of John D. Foster and Thomas W. Wilson, Jr. (the "Special Committee") to
consider a proposal by TDS to acquire all of the Common Shares of the Company
which it does not own in exchange for TDS tracking stock which tracks the
performance of the Company. The Special Committee held one meeting in 1997 that
was attended by Messrs. Foster and Wilson.
EXECUTIVE OFFICERS
Set forth below is a Table identifying other Executive Officers of the
Company who are not identified in the Tables regarding the election of Directors
of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- - ---------------------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Joseph E. Griffin............................. 50 Vice President--Business Development
David B. Lowry................................ 51 Vice President--Engineering and Operations
David E. McCarthy............................. 44 Vice President--Information Technology
Carol J. Ogren................................ 50 Vice President--Human Resources
Gerald N. Rhodes.............................. 53 Vice President--Marketing and Sales
B. Scott Dailey............................... 36 Controller and Assistant Secretary
Michael G. Hron............................... 53 Secretary
</TABLE>
JOSEPH E. GRIFFIN. Mr. Griffin became Vice President--Business Development
for the Company on March 25, 1996. Mr. Griffin joined the Company from General
Magic, Inc. where he was the Director, Alliance Management and Licensing, since
1992. Prior to that, Mr. Griffin served as the Director, Visanet Business
Development with Visa International from 1990 to 1992.
DAVID B. LOWRY. Mr. Lowry became Vice President--Engineering and Operations
for the Company on April 10, 1996. Mr. Lowry joined the Company from Go
Communications Corporation where he was Senior Vice President and Chief
Technical Officer from 1994 to 1996. Mr. Lowry's prior position was Executive
Director, Operations & Engineering--U.S. WEST International from 1992 to 1994.
DAVID E. MCCARTHY. Mr. McCarthy has been Vice President--Information
Technology for the Company since May 1, 1996. Mr. McCarthy joined the Company
from Telezone Corporation where he was Chief Information Officer from 1994 to
1996. Prior to Telezone, he held key information technology positions with
Baycom, Inc. and STM Systems Corporation from 1981 to 1993.
CAROL J. OGREN. Ms. Ogren has been Vice President--Human Resources for the
Company since March 1, 1996. Prior to March 1, 1996, she served as the Director,
Human Resources of the Company, beginning August 8, 1995. Before joining the
Company, she held a series of key human resources positions with Ameritech
(1982-1994) and operating positions within AT&T Corp. (1981-1982) and Illinois
Bell Telephone Company (1971-1981).
GERALD N. RHODES. Mr. Rhodes has been Vice President--Marketing and Sales
for the Company since September 9, 1996. Prior to joining the Company Mr. Rhodes
held the positions of Vice President of Strategic & Emerging Markets and Vice
President of Marketing (Consumer) for U.S. Sprint Corporation from 1993 to 1996.
Between 1984 and 1993, Mr. Rhodes held senior marketing positions at Citibank.
B. SCOTT DAILEY. Mr. Dailey has been the Controller of the Company since
December 1995 and Assistant Secretary since October 21, 1996, and was appointed
the Principal Accounting Officer of the Company in 1996. Mr. Dailey joined the
Company from Mortgage Edge Corporation where he was the
6
<PAGE>
Chief Financial Officer from 1994 to 1995. Prior to that, he was the Controller
for Dovenmuehle Mortgage Company from 1993 to 1994 and, from 1991 to 1993, he
was the Director, Financial Planning and Analysis for Sears Mortgage
Corporation.
MICHAEL G. HRON. Mr. Hron has been the Secretary of the Company since 1994.
He has been a partner at the law firm of Sidley & Austin for more than five
years.
All of the Company's Executive Officers devote all of their professional
time to the affairs of the Company, with the exception of LeRoy T. Carlson, Jr.
and Michael G. Hron. Mr. Carlson devotes most of his professional time as
President and Chief Executive Officer at TDS, but does devote a portion of his
time to the Company, and Mr. Hron is a practicing attorney who devotes most of
his professional time as outside counsel to TDS and affiliated companies,
including Aerial.
PROPOSAL 2
AMENDMENT OF 1996 LONG-TERM INCENTIVE PLAN
GENERAL
Aerial Communication, Inc. 1996 Long-Term Incentive Plan became effective on
April 25, 1996, the date of the Company's initial public offering ("IPO"), and
will terminate ten years thereafter unless terminated earlier by the Board of
Directors. The shareholders of the Company approved such plan at the 1996 Annual
Meeting. Initially, 1,500,000 shares of the Company's Common Stock were reserved
for issuance under the 1996 Long-Term Incentive Plan. The Company granted
options with respect to 1,447,740 shares of Common Stock under such Plan and,
accordingly, 52,260 shares of Common Stock remain available for issuance. The
Board of Directors believes that it is desirable to increase the number of
shares available for issuance under the 1996 Long-Term Incentive Plan to
increase the Company's flexibility in granting options and other awards when
circumstances warrant. In connection therewith, the Board of Directors has
approved an amendment of such Plan from 1,500,000 share to 3,000,000 shares (the
"Amendment") (the Company's 1996 Long-Term Incentive Plan, as amended, is
hereinafter referred to as the "1996 Plan"). Accordingly, the Amendment to the
1996 Plan to increase the number of shares authorized for issuance from
1,500,000 to 3,000,000 is being submitted for approval by shareholders at the
1998 Annual Meeting. The following is a description of the 1996 Plan.
DESCRIPTION OF THE 1996 PLAN
The purposes of the 1996 Plan are (i) to align the interests of the
shareholders of the Company and the Executive Officers and key management
employees of the Company hired by the Company ("employees") who receive options
under the 1996 Plan by increasing the proprietary interest of such employees in
the Company's growth and success, (ii) to advance the interests of the Company
by attracting and retaining such employees of the Company, and (iii) to motivate
such employees to act in the long-term best interests of the Company.
The 1996 Plan will be administered by the Stock Option Compensation
Committee (the "Option Committee") designated by the Board of Directors of the
Company, consisting of two or more members of the Board of Directors, each of
whom may be required to be "outside directors," within the meaning of Section
162(m) of the Code, and a "Non-Employee Director," within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Option Committee will select those eligible employees for
participation in the 1996 Plan as the Option Committee determines and will
determine the form and timing of each grant of an option and the number of
Common Shares subject to each option, the purchase price per Common Share
purchasable upon exercise of the option, the time and conditions of exercise of
the option and all other terms and conditions of the option, including, without
limitation, the form of the award evidencing of the option.
7
<PAGE>
Participants in the 1996 Plan may consist of such employees of the Company
as the Option Committee may select from time to time. The Option Committee may
grant incentive stock options which meet the requirements of Section 422 of the
Code ("ISOs") or non-qualified stock options which are not ISOs ("NSOs"). Each
ISO must be granted within ten years of the effective date of the 1996 Plan.
Options will be subject to the terms and conditions set forth in the 1996 Plan
and will contain such additional terms and conditions, not inconsistent with the
terms of the 1996 Plan, as the Option Committee deems advisable, except that the
Option Committee may not grant an option or options in any calendar year to any
eligible employee which, in the aggregate, give such an employee an option to
purchase more than 300,000 Common Shares (as may be adjusted pursuant to the
1996 Plan due to changes in the capital structure of the Company).
The number of Common Shares subject to an option and the purchase price per
Common Share purchasable upon exercise of the option will be determined by the
Committee in its discretion. The 1996 Plan provides that the purchase price per
Common Share purchasable upon exercise of either an ISO or a NSO generally will
be the average fair market value of a Common Share during the twenty trading
days immediately preceding the date the option is granted, but, in the case of
an ISO, will not be less than one hundred percent of the fair market value of a
Common Share on the date of grant of such option and that, if an ISO is granted
to an employee who owns capital stock possessing more than ten percent of the
total combined voting power of all classes of capital stock of the Company or
any of its subsidiaries (a "ten percent holder"), the purchase price per Common
Share must be at least one hundred ten percent of its fair market value. In the
case of options which were granted in connection with the Company's IPO, the
purchase price was $17.00 per share, the initial public offering price of a
Common Share.
The period during which an option may be exercised will be determined by the
Option Committee. The 1996 Plan provides that no ISO may be exercised later than
ten years after its date of grant and that, if an ISO is granted to a ten
percent holder, such option must be exercised within five years of its date of
grant. The Option Committee may establish performance measures which must be
satisfied during a performance period as a condition either to a grant of an
option or to the exercisability of all or a portion of an option.
Notwithstanding any other provision of the 1996 Plan or any provision of any
award, in the event of a change in control (as defined in the 1996 Plan) of the
Company, all outstanding options will become immediately exercisable in full.
The maximum number of shares available to be offered to approximately 41
eligible employees will initially be 3,000,000 Common Shares, subject to
adjustment in the event of certain changes in the capital structure of the
Company. To the extent that any such event entitles a holder of an option to
purchase additional Common Shares or other securities, the securities available
under the 1996 Plan will be deemed to include such additional Common Shares or
other securities.
The Board of Directors may amend the 1996 Plan as it deems advisable,
subject to any requirement of shareholder approval under applicable law,
including Section 162(m) of the Code, except that, subject to adjustment for
certain changes in the capital structure of the Company, no amendment may be
made without shareholder approval if such amendment (a) would increase the
maximum number of Common Shares available for issuance under the 1996 Plan or
(b) would reduce the minimum purchase price in the case of an option and no
amendment may extend the term of the 1996 Plan or effect any change inconsistent
with Section 422 of the Code with respect to any ISO granted under the 1996
Plan.
There are no tax consequences to the Company or a participant upon the grant
of an option pursuant to the 1996 Plan. A participant who is granted an NSO
generally will recognize income at the time such option is exercised in an
amount equal to the difference between the exercise price of the Common Shares
with respect to which the option is exercised and the market value of the shares
on the date of exercise. The Company will be entitled to a tax deduction for the
amount of income recognized by a participant. A participant who is granted an
ISO will not recognize any taxable income at the time of its exercise. If the
holder of an ISO does not dispose of the Common Shares acquired upon
8
<PAGE>
the exercise of the option before the later of two years from the date of grant
of the option and one year from the date of exercise, any gain or loss realized
on a subsequent disposition of the shares will be treated as a long-term capital
gain or loss, and the Company will not be entitled to any deduction for federal
income tax purposes. If the holder sells or disposes of the Common Shares
acquired upon the exercise of an ISO within two years from the date of the grant
or one year from the date of exercise (a "disqualifying disposition") and the
amount realized upon such disposition is greater than the exercise price, then
the holder will recognize ordinary income at the time of the disqualifying
disposition in an amount equal to the excess of the lesser of (i) the amount
realized upon the disposition and (ii) the fair market value of the shares
disposed of, determined on the date such shares were transferred to the holder
pursuant to the exercise of the option, over the exercise price. The Company
generally will be entitled to a deduction corresponding to the amount of
recognized ordinary income.
The following Table specifies the number of Common Shares that are subject
to options granted to the named Executive Officer or Group as of December 31,
1997.
1996 LONG-TERM INCENTIVE PLAN
<TABLE>
<CAPTION>
NUMBER OF STOCK
NAME AND POSITION(1) OPTIONS(2)
- - ------------------------------------------------------------------------------------------------ ----------------
<S> <C>
LeRoy T. Carlson, Jr............................................................................ -0-
Chairman(3)
Donald W. Warkentin............................................................................. 255,112
President and Chief Executive Officer
Gerald N. Rhodes................................................................................ 108,375
Vice President-Marketing and Sales
J. Clarke Smith................................................................................. 124,212
Vice President--Finance and Administration, Chief Financial Officer, Treasurer, and Assistant
Secretary
David B. Lowry.................................................................................. 79,608
Vice President--Engineering and Operations
Carol J. Ogren.................................................................................. 51,950
Vice President--Human Resources
Other Executive Officers........................................................................ 117,866
----------------
Executive Officers Group........................................................................ 737,123
Non-Executive Officer Board of Director Group................................................... -0-
Non-Executive Officer Employee Group............................................................ 710,617
----------------
TOTAL....................................................................................... 1,447,740
----------------
----------------
</TABLE>
- - ------------------------
(1) Represents the number of Common Shares that are subject to options granted
to the named Executive Officer or Group.
(2) Since the option exercise price for all options was equal to or greater than
the fair market value of the underlying Common Shares on the grant date, no
value was assigned to the options for purposes of the above table.
(3) Pursuant to the 1996 Plan, LeRoy T. Carlson, Jr. is not eligible to
participate.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE AMENDMENT
OF 1996 LONG-TERM INCENTIVE PLAN.
9
<PAGE>
PROPOSAL 3
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors anticipates continuing the services of Arthur
Andersen LLP as independent public accountants for the 1998 fiscal year.
Representatives of Arthur Andersen LLP, who served as independent public
accountants for the last fiscal year, are expected to be present at the Annual
Meeting of Shareholders and will have the opportunity to make a statement and
respond to questions at the Annual Meeting.
Shareholder ratification of the selection of Arthur Andersen LLP as the
Company's independent public accountants is not required by the Bylaws or
otherwise. As a matter of good corporate practice, however, the Board of
Directors has elected to seek such ratification by the affirmative vote of the
holders of a majority of the votes cast by shares entitled to vote with respect
to such matter at the Annual Meeting. Should the shareholders fail to ratify the
selection of Arthur Andersen LLP as independent public accountants, the Board of
Directors will consider whether to retain such firm for the year ending December
31, 1998, subject to the obligations of the Company under the Intercompany
Agreement discussed below to engage the firm of independent public accountants
selected by TDS or selected by the Company's Audit Committee and acceptable to
TDS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE SELECTION
OF ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE COMPANY FOR THE
1998 FISCAL YEAR.
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION
The following Table sets forth compensation information for the President
and Chief Executive Officer of the Company and the next four most highly
compensated Executive Officers of the Company for services rendered during the
years ended December 31, 1997, 1996, and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
ANNUAL ----------------------------
COMPENSATION(2) SECURITIES UNDERLYING ALL OTHER
NAME & PRINCIPAL POSITION(1) YEAR SALARY(3) BONUS(4) OPTIONS/SARS(5) COMPENSATION(6)
- - ----------------------------------------------- ---- --------------- ---------- ---------------------------- ---------------
<S> <C> <C> <C> <C> <C>
Donald W. Warkentin............................ 1997 $283,011 $ 59,873(7) 255,112 $24,817
President and Chief Executive Officer 1996 $238,996 $ 264,372(8) -- $12,682
1995 $103,788 $ 56,000 -- $95,411
Gerald N. Rhodes............................... 1997 $227,301 $ 91,828 108,375 $61,846
Vice President--Marketing and Sales 1996 $ 60,577 $ 116,874(9) -- $53,772
1995 -- -- -- --
J. Clarke Smith................................ 1997 $186,674 $ 57,174 69,477 $16,987
Vice President--Finance and Administration 1996 $176,875 $ 56,493 54,735 $ 1,679
1995 $ 21,875 $ 32,300 -- --
David B. Lowry................................. 1997 $178,518 $ 52,445 46,358 $12,491
Vice President--Engineering and Operations 1996 $107,462 $ 35,806 33,250 $45,237
1995 -- -- -- --
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
ANNUAL ----------------------------
COMPENSATION(2) SECURITIES UNDERLYING ALL OTHER
NAME & PRINCIPAL POSITION(1) YEAR SALARY(3) BONUS(4) OPTIONS/SARS(5) COMPENSATION(6)
- - ----------------------------------------------- ---- --------------- ---------- ---------------------------- ---------------
<S> <C> <C> <C> <C> <C>
Carol J. Ogren................................. 1997 $152,725 $ 59,713 30,950 $14,357
Vice President--Human Resources 1996 $125,833 $ 38,105 21,000 $ 2,230
1995 $ 39,167 $ 17,600 -- $ 53
</TABLE>
- - ------------------------
(1) Mr. LeRoy T. Carlson, Jr., Chairman of the Company, receives no compensation
directly from the Company. Mr. Carlson is compensated by TDS in connection
with his services for TDS and affiliated companies, including Aerial. A
portion of Mr. Carlson's salary and bonus paid by TDS is charged to the
Company by TDS pursuant to the Intercompany Agreement discussed below. Such
allocation in 1997 consisted of $102,091 in salary and $18,256 in bonus for
a total of $120,347. Such allocation in the aggregate for 1996 and 1995 was
less than $100,000 in each year. Mr. Carlson does not receive any long-term
compensation awards or any other compensation directly from the Company. Mr.
Carlson receives long-term and other compensation from TDS, but this is not
charged to the Company.
(2) Does not include the discount amount of any employee stock purchase plan
since such plans generally are available to all eligible salaried employees.
Does not include the value of any perquisites and other personal benefits,
securities or property, since the aggregate amount of such compensation is
less than the lesser of either $50,000 or ten percent of the total of annual
salary and bonus reported for the named Executive Officers.
(3) Represents the dollar value of base salary (cash and non-cash) earned by the
named Executive Officer during 1997, 1996 and 1995.
(4) Represents the dollar value of bonus (cash and non-cash) earned by the named
Executive Officer during 1997, 1996, and 1995.
(5) Represents the number of shares of common stock of the Company subject to
stock options awarded during the fiscal year identified. No stock
appreciation rights ("SARs") were awarded, either on a stand-alone basis or
in tandem with options, during any of the identified fiscal years.
(6) Includes contributions for the benefit of the named Executive Officer under
the TDS Tax-Deferred Savings Plan ("TDSP"), the Wireless Companies' Pension
Plan ("Pension Plan") and the TDS Supplemental Executive Retirement Plan
("SERP"), the taxable dollar value of any insurance premiums paid during the
covered fiscal year with respect to term life insurance for the benefit of
the named Executive Officer ("Life Insurance") and the reimbursement of
moving expenses ("Moving Expenses"), as indicated below for 1997.
<TABLE>
<CAPTION>
DONALD W. WARKENTIN GERALD N. RHODES J. CLARKE SMITH DAVID B. LOWRY CAROL J. OGREN
-------------------- ------------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
TDSP......................... $ 3,166 $ 1,948 $ 3,166 $ 3,166 $ 3,166
Pension Plan................. $ 7,638 $ 2,775 $ 7,638 $ 4,641 $ 7,638
SERP......................... $ 13,563 $ 9,904 $ 4,966 $ 3,938 $ 2,987
Life Insurance............... $ 450 $ 1,034 $ 1,217 $ 746 $ 566
Moving Expense............... -- $ 46,185 -- -- --
-------- -------- --------------- --------------- ---------------
Total........................ $ 24,817 $ 61,846 $ 16,987 $ 12,491 $ 14,357
-------- -------- --------------- --------------- ---------------
-------- -------- --------------- --------------- ---------------
</TABLE>
- - ------------------------
(7) Does not include the 1997 fourth quarter and year-end bonuses which have not
been determined by the Chairman.
11
<PAGE>
(8) Includes a $150,000 signing bonus on his one year anniversary date of his
employment by the Company.
(9) Includes a $80,000 signing bonus.
GENERAL INFORMATION REGARDING OPTIONS AND SARS
The following Tables show, as to the Executive Officers who are named in the
Summary Compensation Table, information regarding Options and/or SARs.
INDIVIDUAL AND AGGREGATED OPTION/SAR GRANTS IN 1997
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
ANNUAL
RATES
OF STOCK
PRICE
APPRECIATION
FOR
NUMBER OF % OF TOTAL OPTION
SECURITIES OPTIONS/SARS TERMS(5)
UNDERLYING GRANTED TO EXERCISE MARKET EXPIRATION ---------
NAME(1) OPTIONS/SARS(2) EMPLOYEES(3) PRICE PRICE(4) DATE 5%
- - ---------------------------- ----------------- ----------------- ----------- ----------- ------------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Donald W. Warkentin
1996 Performance
Options(6).............. 43,729 3.02% $ 4.94 $ 4.88 December 15, 2007 $ 142,051
1996 Supplemental
Options(7).............. 104,500 7.22% $ 9.74 $ 7.38 April 18, 2006 $ 192,565
1996 Automatic
Options(8).............. 106,883 7.38% $ 17.00 $ 6.38 April 18, 2006 --
Gerald N. Rhodes
1996 Automatic
Options(10)............. 108,375 7.49% $ 9.74 $ 7.38 April 18, 2006 $ 199,705
J. Clarke Smith
1996 Performance
Options(6).............. 15,977 1.1% $ 4.94 $ 4.88 December 15, 2007 $ 51,900
1996 Supplemental
Options(7).............. 53,500 3.70% $ 9.74 $ 7.38 April 18, 2006 $ 98,586
David B. Lowry
1996 Performance
Options(6).............. 13,958 0.96% $ 4.94 $ 4.88 December 15, 2007 $ 45,342
1996 Supplemental
Options(7).............. 32,400 2.24% $ 9.74 $ 7.38 April 18, 2006 $ 59,704
Carol J. Ogren
1996 Performance
Options(6).............. 10,250 0.71% $ 4.94 $ 4.88 December 15, 2007 $ 33,296
1996 Supplemental
Options(7).............. 20,700 1.43% $ 9.74 $ 7.38 April 18, 2006 $ 38,144
<CAPTION>
NAME(1) 10%
- - ---------------------------- ----------
<S> <C>
Donald W. Warkentin
1996 Performance
Options(6).............. $ 370,511
1996 Supplemental
Options(7).............. $ 842,427
1996 Automatic
Options(8).............. --
Gerald N. Rhodes
1996 Automatic
Options(10)............. $ 873,666
J. Clarke Smith
1996 Performance
Options(6).............. $ 135,371
1996 Supplemental
Options(7).............. $ 431,291
David B. Lowry
1996 Performance
Options(6).............. $ 118,265
1996 Supplemental
Options(7).............. $ 261,193
Carol J. Ogren
1996 Performance
Options(6).............. $ 86,847
1996 Supplemental
Options(7).............. $ 166,873
</TABLE>
- - ------------------------------
(1) Mr. LeRoy T. Carlson, Jr. does not receive Options/SARs from the Company. Mr
Carlson receives long-term compensation from TDS, but this is not charged to
the Company by TDS.
(2) Represents the number of Company shares underlying Options/SARs which were
awarded for the named Executive Officer during the fiscal year.
(3) Represents the percent of Options/SARs awarded to each participant.
(4) Represents the average of the high and low sales price of the shares as of
the award date.
(5) Represents the potential realizable value of each grant of Options, assuming
that the market price of the shares appreciates in value from the award date
to the end of the Option term at the indicated annualized rates.
(6) The 1996 Performance Options became exercisable on December 15, 1996, and
are exercisable until December 15, 2007, at the exercise price of $4.94 per
share and expire on December 15, 2007.
(7) The 1996 Supplemental Options became exercisable in annual increments of
twenty percent on January 23, 1997, and on December 15 of each year of 1997,
1998, 1999 and 2000 at the exercise price of $9.74 per share and expire on
April 18, 2006.
(8) Such Options were granted on February 24, 1997, at the Company's initial
public offering price of $17.00 per share. They were immediately exercisable
with respect to 21,377 Common Shares, became exercisable with respect to an
additional 21,377
12
<PAGE>
Common Shares on December 15, 1997, and will become exercisable with respect
to an additional 21,377 Common Shares on each of December 15, 1998, 1999 and
2000, and expire on April 18, 2006.
(9) Mr. Rhodes joined the Company in September 1996 and did not receive any
options until 1997.
(10) Such Automatic Options became exercisable with respect to twenty percent of
such options on January 23, 1997, and on December 15, 1997, and will become
exercisable with respect to twenty percent of such options on December 15 in
1998, 1999 and 2000, at the exercise price of $9.74 per share and expire on
April 18, 2006.
AGGREGATED OPTION/SAR EXERCISES IN 1997 AND
AGGREGATED DECEMBER 31, 1997 OPTION/SAR VALUE
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
----------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS(2) OPTIONS/SARS(3)
---------------------------- ----------------------------
NAME(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - --------------------------------------------------------------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Donald W. Warkentin(4)
1996 Performance Options(4).................................. 43,729 -- $ 103,747 --
1996 Supplemental Options(5)................................. 41,800 62,700 -- --
1996 Automatic Options(6).................................... 42,753 64,130 -- --
----------- --------------- ----------- ---------------
TOTAL...................................................... 128,282 126,830 $ 103,747 --
----------- --------------- ----------- ---------------
----------- --------------- ----------- ---------------
Gerald N. Rhodes
1996 Automatic Options(7).................................... 43,350 65,025 -- --
----------- --------------- ----------- ---------------
TOTAL...................................................... 43,350 65,025 -- --
----------- --------------- ----------- ---------------
----------- --------------- ----------- ---------------
J. Clarke Smith
1996 Performance Options(4).................................. 15,977 -- $ 37,905 --
1996 Supplemental Options(5)................................. 21,400 32,100 -- --
1996 Automatic Options(6).................................... 21,894 32,841 -- --
----------- --------------- ----------- ---------------
TOTAL...................................................... 59,271 64,941 $ 37,905 --
----------- --------------- ----------- ---------------
----------- --------------- ----------- ---------------
David B. Lowry
1996 Performance Options(4).................................. 13,958 -- $ 33,115 --
1996 Supplemental Options(5)................................. 12,960 19,440 -- --
1996 Automatic Options(6).................................... 13,300 19,950 -- --
----------- --------------- ----------- ---------------
TOTAL...................................................... 40,218 39,390 $ 33,115 --
----------- --------------- ----------- ---------------
----------- --------------- ----------- ---------------
Carol J. Ogren.................................................
1996 Performance Options(4).................................. 10,250 -- $ 24,318 --
1996 Supplemental Options(5)................................. 8,280 12,420 -- --
1996 Automatic Options(6).................................... 8,400 12,600 -- --
----------- --------------- ----------- ---------------
TOTAL...................................................... 26,930 25,020 $ 24,318 --
----------- --------------- ----------- ---------------
----------- --------------- ----------- ---------------
</TABLE>
- - ------------------------------
(1) Mr. LeRoy T. Carlson, Jr., does not receive Options or SARs from the
Company. Mr. Carlson receives long-term compensation from TDS, but this is
not charged to the Company by TDS.
(2) Represents number of shares subject to free-standing Options and/or
free-standing SARs, as indicated as of December 31, 1997.
(3) Represents the aggregate dollar value of the in-the-money, unexercised
Options and/or SARs held at December 31, 1997, based on the difference
between the exercised price and $7.3125, the average of the high and low
sales price on December 31, 1997.
(4) The 1996 Performance Options became exercisable on December 15, 1997, and
are exercisable until December 15, 2007, at the exercise price of $4.94 per
share.
(5) The 1996 Supplemental Options become exercisable with respect to twenty
percent of the underlying shares on January 23, 1997, and December 15 of
each of 1998, 1999 and 2000 at the exercise price of $9.74 per share and
expire on April 18, 2006.
13
<PAGE>
(6) The 1996 Automatic Options became exercisable with respect to twenty percent
of such options on December 15, 1996, and on December 15, 1997, and will
become exercisable with respect to twenty percent of such options on
December 15 in 1998, 1999 and 2000, at the exercise price of $17.00 per
share and expire on April 18, 2006.
(7) Mr. Rhodes joined the Company in September 1996 and did not receive any
options until 1997.
None of the named Executive Officers exercised options in 1996 or 1997.
SUPPLEMENTAL BENEFIT AGREEMENT WITH DONALD W. WARKENTIN
In 1996, the Company entered into a nonqualified supplemental benefit
agreement with Donald W. Warkentin which requires the Company to pay a
supplemental retirement benefit to Mr. Warkentin. The agreement was entered into
when Mr. Warkentin left employment with TDS and took employment with the Company
at the completion of the initial public offering of the Company's Common Shares
in 1996 and, as a result, he was no longer eligible to participate in the TDS
Pension Plan. Under the supplemental benefit agreement, the Company is obligated
to pay Mr. Warkentin an amount equal to the difference between the retirement
benefit he will receive from the TDS Wireless Pension Plan and that which he
would have received had he continued to work for TDS, less any amounts which he
is entitled to receive under any other qualified defined benefit or money
purchase pension plan (such as the Wireless Pension Plan). The Company will pay
any such benefit at the same time as Mr. Warkentin receives payments from the
TDS Wireless Pension Plan. The actual benefits payable to Mr. Warkentin upon
retirement will be based upon the facts that exist at the time and will be
determined actuarially. Since the nature of this agreement is a defined benefit
arrangement, no amounts related thereto are included above in the Summary
Compensation Table.
COMPENSATION OF DIRECTORS
Prior to October 21, 1996, members of the Board of Directors of the Company
who were not employees of the Company or its subsidiaries or affiliates received
$1,000 for attendance at each meeting of the Board of Directors and $500 for
attendance at each Audit Committee meeting and an annual Director's fee
consisting of $10,000 in cash and $10,000 in Common Shares of the Company per
year. Directors who were employees of the Company or a subsidiary or affiliate
thereof did not receive any additional compensation for services rendered as
members of the Board of Directors. All directors were reimbursed for
out-of-pocket travel expenses incurred in connection with attendance at meetings
of the Board of Directors and meetings of committees thereof.
On October 21, 1996, the Board of Directors of the Company approved a
compensation plan (the "Non-Employee Director Plan") for non-employee members of
the Board of Directors ("Non-Employee Directors"). A Non-Employee Director is a
member of the Board of Directors who is not an employee of the Company, TDS,
United States Cellular, American Paging, Inc., or TDS Telecom or their
subsidiaries or other corporate affiliates. The purpose of the Non-Employee
Director Plan is to provide reasonable compensation to Non-Employee Directors in
connection with their services to the Company in order to induce qualified
persons to become and serve as Non-Employee Directors of the Company's Board of
Directors.
The Non-Employee Director Plan provides that, effective for the 12 month
period ending at the time of the Company's Annual Meeting, each Non-Employee
Director will receive an annual Director's fee of $20,000 and that each
Non-Employee Director will continue to receive a fee of $1,000, plus
reimbursement of reasonable out-of-pocket travel expenses, for attendance at
each regularly scheduled or special meeting of the Board of Directors. The
Non-Employee Director Plan also provides that each Non-Employee Director will
receive a fee of $500, plus reimbursement of reasonable out-of-pocket travel
expenses, for attendance at each meeting of the Audit Committee, Stock Option
Compensation Committee, or other Committee established by resolution of the
Board of Directors.
14
<PAGE>
The Non-Employee Director Plan further provides that fifty percent of the
annual Director's fee shall be paid immediately prior to the Company's Annual
Meeting of Shareholders by the delivery of Common Shares of the Company having a
fair market value, as herein defined, as of the date of payment equal to such
percentage of the annual Director's fee.
Under the Non-Employee Director Plan, for the purposes of determining the
number of Common Shares deliverable pursuant to the preceding paragraph, the
fair market value of a Common Share of the Company will be the average closing
price of Common Shares of the Company as reported on the Nasdaq National Market
for the twenty trading days ending on the third trading day before the Annual
Meeting of Shareholders. The Board of Directors has reserved 20,000 Common
Shares of the Company for issuance pursuant to the Non-Employee Director Plan.
The Board of Directors also approved a fee of $2,000 per day for service on
the Special Committee, plus reimbursement of out-of-pocket travel expenses.
EXECUTIVE OFFICER COMPENSATION REPORT
This report is submitted by LeRoy T. Carlson, Jr., Chairman of the Company,
who in effect functions as the compensation committee of the Board of Directors,
except with respect to long-term compensation, and by the Stock Option
Compensation Committee, which approves long-term compensation for the Executive
Officers of the Company.
The Chairman, as President and Chief Executive Officer of TDS, is paid by
TDS and receives no compensation directly from the Company. As the President and
Chief Executive Officer of TDS, the Chairman of the Company represents the
controlling shareholder of the Company.
The Stock Option Compensation Committee of the Company consists of Thomas W.
Wilson, Jr. (Chairman) and John D. Foster. The Stock Option Compensation
Committee approves long-term compensation for Executive Officers of the Company.
The Company's Stock Option Compensation Committee is composed of members of the
Board of Directors who are not officers or employees of TDS or any of its
corporate subsidiaries or affiliates, including Aerial.
The Company's compensation policy for Executive Officers is intended to
provide incentives for the achievement of corporate and individual performance
goals and to provide compensation consistent with the operational and financial
performance of the Company. The Company's policy is based on the belief that the
incentive compensation performance goals for Executive Officers should be based
on factors over which such Executive Officers have significant control and which
are important to the Company's long-term success. It also is believed that
compensation paid should be appropriate in relation to the financial performance
of the Company and should be sufficient to enable the Company to attract and
retain individuals possessing the talents required for the Company's long-term
successful performance.
Executive Officers compensation consists of both annual and long-term
compensation. Annual compensation consists of a base salary and bonus. The
Company evaluates the base salary and bonus of each Executive Officer on an
annual basis. Annual compensation decisions are based partly on annual
performance measures, as described below. Long-term compensation is intended to
compensate Executive Officers primarily for their contributions to long-term
increases in shareholder value. Long-term compensation generally is provided
through the grant of Options.
The process of determining base salary begins with obtaining appropriate
comparative data for each Executive Officer's position. Sources for comparative
data include surveys of General Industry, such as the Cooper & Lybrand
Compensation Study of 55 companies from the following industries: Business
Services, Utilities, Non-durable Manufacturing, and Durable Manufacturing
ranging up to one billion dollars in revenue. Also included are
telecommunications industry figures taken from the Wyatt Compensation Study of
twelve hundred companies that range up to one billion dollars in revenue.
15
<PAGE>
Using this data, the Company's President and Chief Executive Officer
provides a recommendation of the appropriate base salary amount for each
Executive Officer, excluding himself. The Chairman uses these surveys, as well
as the recommendation of the Company's President and Chief Executive Officer and
the counsel of the Vice President Human Resources of TDS, to make a personal
determination of the appropriate salary level for each Executive Officer. The
base salary level of the Company's President and Chief Executive Officer is
based on data from the above sources combined with the counsel of the Vice
President Human Resources of TDS and the personal evaluation of the Chairman.
Targeted compensation for the Executive Officers (base salary plus bonus)
approximates the 50th to 75th percentile of the surveyed positions.
Annually, the nature and extent of each Executive Officer's personal
accomplishments and contributions for the year are evaluated by the Company's
President and Chief Executive Officer. This evaluation is based on the
attainment of specific, mutually agreed upon individual objectives, as well as
the extent to which each Executive Officer contributed to the overall results of
the Company. These facts and circumstances are taken into consideration by the
Company's President and Chief Executive Officer and by the Chairman in their
Executive Officers compensation decisions. Ultimately, it is the judgment of the
Chairman that determines an Executive Officer's base salary.
In addition, the Executive Officers participate in a bonus program. For
1997, the bonus program was built on the Company attaining specific business
milestones as well as achieving specific critical financial measurements. The
program measured and paid bonuses based on specific criteria established for
each of the four 1997 calendar quarters. In addition, financial indicators were
measured based on results for the 1997 calendar year. Team performance awards,
as well as an individual award, calculated as individual performance results
multiplied by the fourth quarter and financial results, were available under the
1997 Aerial Incentive Pay Plan. At target performance, the President and Chief
Executive Officer and the Vice President of Marketing and Sales would be
compensated at forty percent of base salary and all other Executive Officers at
thirty percent of base. Overall 1997 Company results were evaluated at 94
percent of target and named Executive Officers' performance results ranged from
110 percent to 118 percent of target.
The salary and bonus for the President and Chief Executive Officer is
established in a manner similar to that described for the Executive Officers. In
addition to survey data, the Chairman also considers compensation paid to chief
executive officers of comparable companies, including those that are divisions
or subsidiaries of parent companies. The base salary of the President and Chief
Executive Officer increased from $248,000 in 1996 to $275,000 during 1997,
representing an increase of approximately 11 percent. The President and Chief
Executive Officer's 1997 bonus, under the 1997 Incentive Pay Plan, was $59,873
(fourth quarter and year-end bonuses have not been determined by the Chairman).
The 1998 base salary and target incentive bonus have not been determined by the
Chairman.
SECTION 162(m) OF THE CODE. Section 162(m) of the Code generally limits to
one million dollars the amount that a publicly held corporation is allowed each
year to deduct for the compensation paid to each of the corporation's chief
executive officer and the corporation's four most highly compensated officers
other than the chief executive officer, subject to certain exceptions. One such
exception is "qualified performance-based" compensation. Compensation paid under
stock option plans is "qualified performance-based compensation" if all of the
following conditions are satisfied: (i) options are granted by a compensation
committee consisting solely of two or more "outside directors;" (ii) the stock
option plan states the maximum number of shares with respect to which options
may be granted during a specified period to any individual; (iii) under the term
of the option, the amount of compensation the optionee could receive is based
solely upon an increase in the value of the stock after the grant date; and (iv)
the material terms of the stock option plan must be disclosed to the publicly
held corporation's shareholders and approved by them before any compensation
under the plan is paid. The Company is seeking stockholder approval of the
Company's amendment to the Long-Term Incentive Plan at the 1998 Annual Meeting
of Shareholders so that, if all other requirements are satisfied, stock options
granted
16
<PAGE>
thereunder may qualify as performance-based compensation within the meaning of
Section 162(m). In addition, the Stock Option Compensation Committee consists
solely of "outside directors," as defined for purposes of Section 162(m) of the
Code. Due to these and other reasons, the Company does not believe that the one
million dollar deduction limitation should have a material effect on the Company
in the near future. If the one million dollar deduction limitation is expected
to have a material effect on the Company in the future, the Company will
consider ways to maximize the deductibility of executive compensation, while
retaining the discretion the Company deems necessary to compensate Executive
Officers in a manner commensurate with performance and the competitive
environment for executive talent.
The above Executive Officer Compensation Report is submitted by the Chairman
of the Board of Directors: LeRoy T. Carlson, Jr., and by the Stock Option
Compensation Committee: Thomas W. Wilson, Jr. (Chairman), and John D. Foster.
STOCK PERFORMANCE CHART
The following chart graphs the performance of the cumulative total return to
shareholders (stock price appreciation plus dividends) for a period from April
25, 1996, to December 31, 1997, in comparison to returns of the Nasdaq Stock
Market--U.S. Index and the Nasdaq Telecommunications Index for the 21 months
ended December 31, 1997.
COMPARISON OF CUMULATIVE TOTAL RETURNS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AERIAL NASDAQ US NASDAQ - TELECOM
<S> <C> <C> <C>
4/25/96 $100.00 $100.00 $100.00
4/30/96 93.75 100.55 77.40
5/31/96 82.81 105.17 79.27
6/28/96 67.19 100.43 76.92
7/31/96 57.03 91.48 67.02
8/30/96 59.38 96.61 70.24
9/30/96 63.28 104.00 72.39
10/31/96 47.66 102.85 69.39
11/29/96 53.13 109.21 70.51
12/31/96 50.78 109.11 72.48
1/31/97 42.19 116.86 74.24
2/28/98 35.16 110.40 72.19
3/31/97 34.38 103.20 67.37
4/30/97 30.47 106.42 69.93
5/30/97 55.47 118.49 78.59
6/30/97 53.13 122.11 84.57
7/31/97 50.78 135.00 89.89
8/29/97 54.30 134.80 86.86
9/30/97 55.86 142.77 98.17
10/31/97 53.13 135.35 101.03
11/28/97 56.64 136.02 101.73
12/31/97 44.53 133.89 107.06
</TABLE>
Assumes $100 invested at the close of trading April 25, 1996 in Aerial
Communications, Inc. Common Stock, the Nasdaq Stock Market-U.S. Index and the
Nasdaq Telecommunications Index.
17
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, LeRoy T. Carlson, Jr., President and Chief Executive Officer
of TDS, makes annual executive compensation decisions for TDS, other than for
himself. The Stock Option Compensation Committee of TDS makes annual executive
compensation decisions for the President and Chief Executive Officer of TDS and
approves long-term compensation awards for the Executive Officers of TDS. The
TDS Stock Option Compensation Committee is composed of members of the TDS Board
of Directors who are not officers or employees of TDS or any of its
subsidiaries, and who are not Directors of any TDS subsidiaries. LeRoy T.
Carlson, Jr., is a member of the Board of Directors of TDS and the Company.
LeRoy T. Carlson, Jr. is also the Chairman of the Company and, as such, approves
the Executive Officer compensation decisions for the Company. LeRoy T. Carlson,
Jr. is compensated by TDS for his services to TDS and all of its subsidiaries.
TDS is reimbursed, however, by the Company for a portion of LeRoy T. Carlson
Jr.'s salary and bonus paid by TDS pursuant to the Intercompany Agreement
described below. See Footnote (1) to the Summary Compensation Table, above.
Donald W. Warkentin, a Director and the President and Chief Executive
Officer of the Company, participates in Executive Officers compensation
decisions for the Company, other than for himself. Long-term compensation for
Executive Officers of the Company is approved by the Stock Option Compensation
Committee of the Company, which consists of Company Directors Thomas W. Wilson,
Jr. (Chairman) and John D. Foster. The Company's Stock Option Compensation
Committee is composed of members of the Board of Directors of the Company who
are not Executive Officers of the Company or its corporate affiliates.
LeRoy T. Carlson, Jr. and Walter C.D. Carlson, Directors of the Company, are
trustees and beneficiaries of the voting trust that controls TDS, which controls
the Company, and LeRoy T. Carlson, Jr., a Director of the Company, also is a
beneficiary of such voting trust. See "Security Ownership of Certain Beneficial
Owners and Management." LeRoy T. Carlson, LeRoy T. Carlson, Jr., Walter C.D.
Carlson and Murray L. Swanson, James Barr III and Rudolph E. Hornacek, Directors
of the Company, are also Directors of TDS. See "Election of Directors."
ARRANGEMENTS AND TRANSACTIONS WITH TDS
The Company has entered into a number of arrangements and transactions with
TDS. Some of these arrangements were established prior to the Company's IPO when
TDS owned more than ninety percent of the Company's outstanding capital stock
and were not the result of arm's-length negotiations. There can be no assurance
that such arrangements will continue or that the terms of such arrangements will
not be modified in the future. If additional transactions occur in the future,
there can be no assurance that the terms of such future transactions will be
favorable to the Company or will continue to provide the Company with the same
level of support for the Company's financing and other needs as TDS has provided
in the past. The principal arrangements that exist between the Company and TDS
are summarized below.
In connection with the Aerial Merger, TDS intends to terminate certain
Intercompany Agreements between TDS and Aerial. Thereafter, all of the
relationships between TDS and such subsidiaries would be determined solely by
policies that management of TDS believes to be reasonable. Many such policies
would continue the arrangements which presently exist between TDS and Aerial
pursuant to the Intercompany Agreements, but TDS would have no contractual
obligation to continue such policies after the Intercompany Agreements have been
terminated.
EXCHANGE AGREEMENT
The Company and TDS are parties to an Exchange Agreement dated as of January
1, 1996 (the "Exchange Agreement").
18
<PAGE>
COMMON SHARE PURCHASE RIGHTS; POTENTIAL DILUTION. The Exchange Agreement
grants TDS the right to subscribe to any issuance of Common Shares or any other
voting securities of the Company, or of any securities convertible into or
exchangeable for, or carrying a right to subscribe to or acquire, Common Shares
or any voting securities of the Company, other than the Common Shares issued in
the IPO, to the extent necessary for TDS to maintain its proportionate interest
in the Common Shares. To the extent an issuance of Common Shares or other
securities by the Company is to be made for consideration other than cash, the
fair market value of the non-cash consideration will be determined by the
Company's Board of Directors. For purposes of calculating TDS's proportionate
interest in the Common Shares, the Series A Common Shares will be treated as if
converted into Common Shares. Upon notice to the Company, TDS will be entitled
to subscribe to each issuance in full or in part at its discretion. If TDS
decides to waive, in whole or in part, one or more of its purchase
opportunities, the number of Common Shares subject to purchase as a result of
subsequent issuances will be reduced.
If TDS elects to exercise its purchase rights, it will be required to pay
for all Common Shares issued to it by the Company with cash, cancellation of
indebtedness owed by the Company to TDS, or such other consideration as is
reasonably acceptable to the Company. Depending on the price per Common Share
paid by TDS upon exercise of these rights, the issuance of Common Shares by the
Company pursuant thereto could have a dilutive effect on other shareholders of
the Company. The purchase rights described above will be in addition to the
preemptive rights held by TDS as a holder of Series A Common Shares under the
Company's Restated Certificate of Incorporation.
The Exchange Agreement also contains provisions which contemplate that the
Company will issue to TDS from time-to-time additional Series A Common Shares.
Any such issuance could have the effect of maintaining or increasing TDS's
relative ownership of capital stock and voting power in the Company.
CORPORATE OPPORTUNITY ARRANGEMENTS
The Company's Restated Certificate of Incorporation provides that the
Company may not, directly or indirectly, without the written consent of TDS,
own, invest or otherwise have an interest in, lease, operate or manage any
business other than a business engaged solely in the construction, ownership or
management and operation of a Personal Communications Service ("PCS")
telecommunications business and related services. Company management has been
informed that TDS anticipates that it would be willing to consent to the Company
engaging in the provision of other telecommunications services in addition to
PCS. There can be no commitment that TDS will give such consent with respect to
the aforementioned or other business opportunities. In addition, TDS could
impose conditions on any such consent.
The Restated Certificate of Incorporation and the Exchange Agreement also
restrict the circumstances under which the Company is entitled to claim that an
opportunity, transaction, agreement or other arrangement to which TDS or any
person in which TDS, or any person in which TDS has or acquires a financial
interest, is or shall become a party, should be the property of the Company or
its subsidiaries. TDS or one of its corporate affiliates, other than the
Company, may acquire a Federal Communications Commission ("FCC") license to
provide PCS services or acquire control of any entity which has such a license.
So long as at least 500,000 Series A Common Shares are outstanding, TDS would be
obligated to offer to the Company the opportunity to negotiate regarding the
purchase by the Company or one of its subsidiaries of such license or business
entity if the relevant FCC license is for (a) a Major Trading Area ("MTA") or
(b) a Basic Trading Area ("BTA") which is located, in whole or in part, in an
MTA in which the Company or one of its subsidiaries has a direct or indirect
interest.
The Board of Directors of the Company is aware of the foregoing provisions
of the Restated Certificate of Incorporation and the Exchange Agreement and is
obligated to act in accordance therewith. In addition, the Board of Directors
recognizes that it has, under Delaware law, certain duties and responsibilities
to the Company and its shareholders. The Board of Directors has served, and
expects to
19
<PAGE>
continue to serve the Company and all of its shareholders, including persons who
purchase Common Shares hereunder, by seeking to introduce new and improved
services, whether developed by the Company or others, in a manner that is in
accordance with the Board's obligations and duties and which will permit the
Company to compete successfully as a provider of telecommunications services.
REVOLVING CREDIT AGREEMENT
All of the outstanding financial obligations of the Company to TDS are
incorporated under the Revolving Credit Agreement. Pursuant to the Revolving
Credit Agreement, as amended, (the "Revolving Credit Agreement"), the Company
may borrow up to an aggregate of $525 million from TDS, at an interest rate
equal to 1 1/2 percent above the Prime Rate announced from time to time by the
LaSalle National Bank of Chicago on the unpaid principal amount, with interest
payable on demand at a rate equal to 3 1/2 percent above such Prime Rate on any
overdue principal or overdue installment of interest. The advances made by TDS
under the Revolving Credit Agreement are unsecured. Interest on the balance due
under the Revolving Credit Agreement is payable quarterly and no principal will
be payable until the earlier of December 31, 1999, or six months after such time
that TDS's ownership of the Company falls below seventy percent, subject to
acceleration under certain circumstances, at which time the entire principal
balance due under the Revolving Credit Agreement then outstanding will become
due and payable. The Company may prepay the balance due under the Revolving
Credit Agreement at any time, in whole or in part, without premium. Any
principal so repaid is available for the Company to borrow during the remaining
term of the Revolving Credit Agreement, subject to the satisfaction of certain
conditions. Interest expense incurred by the Company under the Revolving Credit
Agreement totaled $21.0 million for the year ended December 31, 1997. The total
amount advanced to the Company under the Revolving Credit Agreement as of
December 31, 1997, was $448.2 million.
The Revolving Credit Agreement provides that the Company will not, without
the prior written consent of TDS: (i) purchase or redeem (except in limited
circumstances set forth in such Agreement) any shares of its stock or declare or
pay any dividends thereon or make any other distribution to its shareholders,
except to the extent of the cumulative consolidated net income, if any, of the
Company; (ii) incur or guarantee any indebtedness that is senior to the
Revolving Credit Agreement; or (iii) with certain exceptions, create any lien on
any of the Company's assets.
The Revolving Credit Agreement provides that, if certain "events of default"
occur, TDS may immediately declare the amount under the Revolving Credit
Agreement due and payable and terminate the Revolving Credit Agreement. Events
of default under the Revolving Credit Agreement include the failure to pay
interest or principal, the breach of specified covenants (including the
covenants specified in the immediately preceding paragraph and covenants to
furnish to TDS specified financial information, to permit TDS to visit and
inspect the Company's properties, to maintain customary levels of insurance, and
to pay all taxes and other material liabilities of the Company), any default
under certain other indebtedness, and certain judgments, defaults and events of
bankruptcy or insolvency.
TAX ALLOCATION AGREEMENT
The Company is a party to a Tax Allocation Agreement with TDS (the "Tax
Allocation Agreement") under which the Company and its subsidiaries will
continue to join in filing consolidated federal income tax returns with TDS and
certain corporate affiliates unless TDS's equity interest in the Company falls
below eighty percent. For tax years ended prior to January 1, 1996, TDS has
reimbursed the Company for the reduction in the provision for federal income
taxes reflected in TDS's consolidated statements of income resulting from the
inclusion of the Company and its subsidiaries in the TDS affiliated group. For
tax years beginning after December 31, 1995, TDS will no longer reimburse the
Company on a current basis for losses or credits used by the TDS affiliated
group. Instead, the Company will be compensated (by an offset to amounts the
Company would otherwise be required to pay to TDS for federal income taxes) for
TDS's use of tax benefits at such time as the Company could utilize such
benefits on a separate
20
<PAGE>
return basis. The Company will be required to pay to TDS an amount equal to the
greater of the federal income tax liability of the Company, calculated as if it
were a separate affiliated group (including any minimum tax liability,
notwithstanding the absence of consolidated group liability for minimum tax) or
the tax calculated using the highest marginal tax rate (before taking into
account tax credits) of the TDS affiliated group. Any deficiency in tax
thereafter proposed by the Internal Revenue Service for any consolidated return
year (whether before or after the IPO) that involves income, deductions or
credits of the Company or its subsidiaries, and any claim for refund of tax for
any consolidated return year that involves such items, will be contested or
prosecuted at the sole discretion of TDS and at the expense of the Company. To
the extent that any deficiency in tax or refund of tax is finally determined to
be attributable to the income, deductions or credits of the Company, such
deficiency or refund will be payable by or to the Company.
If the Company ceases to be a member of the TDS affiliated group and, for a
subsequent year, the Company or its subsidiaries are required to pay a greater
amount of federal income tax than they would have paid if they had not been
members of the TDS affiliated group after December 31, 1995, TDS will reimburse
the Company for the excess amount of tax, without interest. In determining the
amount of reimbursement, any profits or losses from new business activities
acquired by the Company or its subsidiaries after the Company leaves the TDS
affiliated group will be disregarded. No reimbursement will be required if at
any time in the future fewer than 500,000 Series A Common Shares are
outstanding. Nor will reimbursement be required on account of the income of any
subsidiary of the Company if more than fifty percent of the voting power or
assets of such subsidiary is held by a person or group other than a person or
group owning more than fifty percent of the voting power of TDS.
Rules similar to those described above will be applied to any state or local
franchise or income tax liabilities to which TDS and the Company and its
subsidiaries are subject and which are required to be determined on a unitary,
combined or consolidated basis. Payments under the Tax Allocation Agreement by
one party to the other are required to be increased by an amount sufficient so
that after deduction of any federal, state or local taxes payable in respect of
the receipt of such payments, the net amount received will equal the amount that
would have been payable had no deduction been made.
CASH MANAGEMENT AGREEMENT
The Company has entered into an agreement with TDS pursuant to which it will
deposit its excess cash with TDS for investment under TDS's cash management
programs. Such arrangement will be continued pursuant to the terms of a Cash
Management Agreement (the "Cash Management Agreement"). To the extent of the
Company's normal working capital requirements, such cash is deposited into an
account (which may include cash from other participants in TDS's cash management
programs) and then invested in the name of a nominee for each participant in
such account. The Company is credited with, and may withdraw on demand, its pro
rata share of investment income from such account minus its pro rata share of
costs attributable to such investment income. Funds in excess of the Company's
normal working capital requirements that are deposited under the Cash Management
Agreement are available to the Company on demand and bear interest each month at
the thirty-day Commercial Paper Rate reported in THE WALL STREET JOURNAL on the
last business day of the preceding month, plus 1/4 percent, or such higher rate
as TDS may in its discretion offer on such demand deposits. The Company may
elect to place funds for a longer period than on demand in which event, if such
funds are placed with TDS, they will bear interest at the Commercial Paper Rate
for investments of similar maturity plus 1/4 percent, or at such higher rate as
TDS may in its discretion offer on such investments.
21
<PAGE>
INTERCOMPANY AGREEMENT
In order to provide for certain transactions and relationships between the
parties, the Company and TDS have agreed under an Intercompany Agreement (the
"Intercompany Agreement"), among other things, as follows:
SERVICES. TDS, either directly or through one or more subsidiaries, makes
available to the Company from time-to-time management and consulting services
such as general management oversight; marketing and customer support, counsel
and advice; financial services including general accounting, business planning
and budgeting counsel and support, financial reporting, income and other tax
consulting and return preparation services, internal auditing, financial
information systems support, and treasury services; and human resources support.
The Company from time-to-time participates in standing committees, councils, and
other activities within the TDS family of companies focused on matters such as
improving service to customers, re-engineering business processes and systems,
and more generally creating and enhancing synergies within each of TDS's
strategic business units and across those units. Unless otherwise specified by
written agreement, services provided by TDS or any of its subsidiaries to
another member of the consolidated group are charged on the basis of time
reports. The costs of such services and any other expenses incurred on behalf of
a specific subsidiary will be charged directly to that subsidiary, except, that
in the case of services provided to TDS, the Company receives payment for the
salaries of its employees and agents assigned to render such services (plus
forty percent of the cost of such salaries in respect of overhead) for the time
spent rendering such services, plus out-of-pocket expenses. The costs of
services and any other expenses incurred jointly on behalf of a number of
subsidiaries are charged to those subsidiaries on the basis of the subsidiaries'
relative operating revenues and total assets. Although there can be no assurance
that the terms and rates charged by TDS for services to the Company are as
favorable to the Company as those the Company could have obtained from
unaffiliated third parties, the Company believes that such terms and rates are
no less favorable than those available from unaffiliated third parties. Payments
by the Company to TDS for such services totaled $3.9 million in 1997.
MATERIALS AND EQUIPMENT. The Company and its subsidiaries will purchase
materials and equipment from TDS and its subsidiaries at cost. In the event
items of materials and equipment are not available from TDS and its other
subsidiaries, the Company and its subsidiaries would purchase such items from
such alternative vendors and on such terms as the Company shall deem
appropriate. The Company and its subsidiaries did not purchase any materials or
equipment from TDS and its subsidiaries in 1997.
GUARANTEES. The Company is obligated to use its best efforts to have TDS
removed as guarantor or obligor in connection with any indebtedness, lease,
contract or other obligation relating to the business of the Company or its
subsidiaries. Until TDS is removed as guarantor or obligor, the Company is
required to pay TDS semi-annually on June 30 and December 31 in advance 1 1/2
percent (3 percent on an annual basis) of the present value of the amounts that
TDS could be required to pay on account of acting as guarantor or obligor,
computed by discounting such amounts at a rate per annum equal to the Prime Rate
(as defined in the Revolving Credit Agreement) in effect on the June 15 or
December 15 preceding the applicable June 30 or December 31, compounded
annually. In addition, until TDS is removed as guarantor or obligor, the Company
must indemnify TDS with respect to such obligations. As of December 31, 1997,
TDS is not obligated as guarantor or obligor under any material Company
agreements, with the exception of the Company's Series A and Series B Zero
Coupon Notes and the Credit Agreement with Nokia Telecommunications Inc. dated
June 19, 1996, as amended. Guarantee fees insured by the Company (including
amounts capitalized) totaled $3.3 million for the year ended December 31, 1997.
22
<PAGE>
ACCOUNTANTS AND LEGAL COUNSEL. The Company has agreed to engage the firm of
independent public accountants, selected by TDS, or selected by the Audit
Committee of the Company and acceptable to TDS, for purposes of auditing the
financial statements of the Company, including the financial statements of its
direct and indirect subsidiaries and providing tax, data processing and all
other accounting services and advice. The Company also has agreed that, in any
case where legal counsel is to be engaged to represent the parties for any
purpose, TDS has the right to select or approve the counsel to be engaged, which
may be the same counsel selected to represent TDS unless there should be a
conflict of interest. If TDS and the Company use the same counsel, each is
responsible for its portion of the fees and expenses of such counsel.
INDEMNIFICATION. The Company will indemnify TDS and its subsidiaries
against certain losses, claims, damages or liabilities including those arising
out of: (i) the conduct by the Company and its subsidiaries of their respective
businesses (except where the loss, claim, damage or liability arises from TDS's
gross negligence or willful misconduct); (ii) any inaccurate representation or
breach of material warranty under the Intercompany Agreement; and (iii) any
indebtedness, lease, contract or other obligation referred to under "Guarantees"
above. The Company also will indemnify TDS, as a controlling person, against any
loss, claim, damage or liability arising out of the IPO (except for losses,
claims, damages or liabilities arising from information supplied in writing by
TDS for inclusion in this Proxy Statement). TDS similarly will indemnify the
Company and its subsidiaries with respect: (i) to the conduct by TDS and its
subsidiaries of their respective businesses before the date of such agreement
(except where the loss, claim, damage or liability arises from the Company's
gross negligence or willful misconduct) and (ii) to any inaccurate material
representation or breach of material warranty under the Intercompany Agreement.
DISPOSAL OF COMPANY SECURITIES. TDS will not dispose of any securities of
the Company held by it if such disposition would result in the loss of any
license or other authorization held by the Company or its subsidiaries and such
loss would have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
TRANSFER OF ASSETS. Without the prior written consent of TDS, the Company
or any of its subsidiaries may not transfer (by sale, merger or otherwise) more
than 15 percent of its consolidated assets unless the transferee agrees to
become subject to the Intercompany Agreement.
REGISTRATION RIGHTS AGREEMENT
Under a Registration Rights Agreement (the "Registration Rights Agreement"),
the Company has agreed, upon the request of TDS, to file one or more
registration statements under the Securities Act or take other appropriate
action under the laws of foreign jurisdictions in order to permit TDS to offer
and sell, domestically or abroad, any debt or equity securities of the Company
that TDS may hold at any time. TDS will pay all costs relating thereto and all
underwriting discounts and commissions relating to any such offering, except
that the Company will pay the fees and expenses of its counsel and accountants
and all trustees, transfer agents or other agents appointed in connection
therewith. TDS has the right to select or approve the counsel the Company
retains to assist it in fulfilling any of its obligations under the Registration
Rights Agreement.
There is no limitation on the number or frequency of the occasions on which
TDS may exercise its registration rights, except that the Company will not be
required to comply with any registration request unless, in the case of a class
of equity securities, the request involves at least the lesser of one million
shares or one percent of the total number of shares of such class then
outstanding or, in the case of debt securities, the principal amount of debt
securities covered by the request is at least five million dollars. The Company
also has granted TDS the right to include its securities in certain registration
statements covering offerings by the Company and will pay all costs of such
offerings other than incremental costs attributable to the inclusion of
securities of the Company owned by TDS in such
23
<PAGE>
registration statements and TDS will pay the fees and expenses of its counsel
and all underwriting discounts and commissions.
The Company will indemnify TDS, its officers and directors and each
underwriter, if any, and controlling persons of TDS or any such underwriter
against certain liabilities arising under the laws of any country in respect of
any registration or other offering covered by the Registration Rights Agreement.
The Company has the right to require TDS to delay any exercise by TDS of its
rights to require registration and other actions for a period of up to ninety
days if, in the judgment of the Company, any underwritten offering by the
Company for its account then being conducted or about to be conducted would be
materially and adversely affected. TDS has further agreed that it will not
include any securities of the Company in any registration statement of the
Company which, in the judgment of the managing underwriters, would materially
and adversely affect any offering by the Company. The rights of TDS under the
Registration Rights Agreement are transferable to non-affiliates of TDS.
INSURANCE COST SHARING AGREEMENT
Pursuant to an Insurance Cost Sharing Agreement (the "Insurance Cost Sharing
Agreement"), the Company and its subsidiaries, and their officers, directors and
employees, are afforded coverage under certain insurance policies purchased by
TDS. A portion of the premiums payable under each such policy is allocated by
TDS to the Company on the same basis as premiums were allocated before the
Insurance Cost Sharing Agreement was entered into or on such other reasonable
basis as TDS may select from time to time. If TDS decides to change the
allocation of premiums at any time, TDS will consult with the Company before the
change is made, but the decision as to whether to make the change will be in the
reasonable discretion of TDS. Management of the Company believes that the
amounts payable by the Company under the Insurance Cost Sharing Agreement are
generally more favorable than the premiums the Company would pay if it were to
obtain coverage under separate policies.
EMPLOYEE BENEFIT PLANS AGREEMENT
Under an Employee Benefit Plans Agreement, in connection with the purchase
by employees of the Company of TDS Common Shares, $1.00 par value ("TDS Common
Share"), under the TDS Employee Stock Purchase Plan or pursuant to the exercise
of non-qualified stock options granted by TDS, the Company has agreed to
reimburse TDS in an amount equal to the excess of the fair market value of the
TDS Common Shares on the date of purchase over the amount paid for such shares
plus amounts paid or to be paid by TDS for taxes, less any amounts paid by the
Company's employees for withholding taxes.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF THE COMPANY BY CERTAIN BENEFICIAL OWNERS
The following Table sets forth certain information regarding the beneficial
ownership by TDS of the Common Shares and Series A Common Shares of the Company
as of February 28, 1998. TDS has sole voting and investment power with respect
to all shares indicated as beneficially owned by TDS.
<TABLE>
<CAPTION>
PERCENT PERCENT OF
NAME AND ADDRESS TITLE OF CLASS(1) NUMBER OF CLASS VOTING POWER(2)
- - ---------------------------------------------------- ------------------------ ---------- ----------- -------------------
<S> <C> <C> <C> <C>
Telephone and Data Systems Inc...................... Common Shares 19,086,000 60.3% 3.0%
30 N. LaSalle Street Series A Common Shares 40,000,000 100.0% 95.0%
Chicago, IL 60602
</TABLE>
- - ------------------------------
(1) Series A Common Shares are convertible on a share-for-shares basis at any
time into Common Shares.
(2) The Series A Common Shares have 15 votes per share and the Common Shares
have 1 vote per share.
24
<PAGE>
SECURITY OWNERSHIP OF THE COMPANY BY MANAGEMENT
Several Executive Officers and Directors of the Company hold substantial
ownership interests indirectly in the Company by virtue of their ownership of
the capital stock of TDS. See "Security Ownership of TDS by Management of the
Company." In addition, the following members of the Board of Directors and
Executive Officers beneficially owned the following number of the Common Shares
of the Company as of February 28, 1998:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
BENEFICIAL PERCENT OF VOTING
NAME TITLE OF CLASS OWNERSHIP(1) CLASS POWER
- - ------------------------------------------------ -------------------- ------------- --------------- -------------------
<S> <C> <C> <C> <C>
LeRoy T. Carlson, Jr.,
C. Theodore Herbert, and
Michael G. Hron(2)............................. Common Shares 63,671 * *
LeRoy T. Carlson................................ Common Shares 1,243 * *
LeRoy T. Carlson, Jr.(3)........................ Common Shares 8,400 * *
Donald W. Warkentin(4).......................... Common Shares 134,142 * *
Walter C.D. Carlson............................. Common Shares 2,001 * *
Murray L. Swanson............................... Common Shares 3,600 -- --
James Barr III.................................. -- -- -- --
Rudolph E. Hornacek............................. -- -- -- --
Thomas W. Wilson, Jr............................ Common Shares 2,001 * *
John D. Foster(5)............................... Common Shares 3,001 * *
J. Clarke Smith(6).............................. Common Shares 65,822 * *
Carol J. Ogren(7)............................... Common Shares 28,661 * *
Gerald N. Rhodes(8)............................. Common Shares 44,807 * *
David B. Lowry(9)............................... Common Shares 59,645 * *
All members of the Board of Directors and
Executive Officers as a group (17
persons)(10)................................... Common Shares 473,686 * *
</TABLE>
- - ------------------------
* Less than one percent
(1) The nature of beneficial ownership is sole voting and investment power
unless otherwise specified.
(2) Represents Common Shares acquired through company-match contributions by
the persons named as trustees of the Telephone and Data Systems, Inc. Tax
Deferred Savings Trust. Does not include 197,691 Common Shares acquired by
such trust with employee contributions which are voted by plan
participants. Such trustees disclaim beneficial ownership of all such
shares except for shares held for their individual benefit in such trust.
Information is presented as of December 31, 1997.
(3) Such Common Shares are owned by Mr. Carlson's wife. Mr. Carlson disclaims
beneficial ownership of such shares.
(4) Includes 128,282 Common Shares subject to Options or SARs which are
currently exercisable or exercisable within sixty days.
(5) Included 1,000 Common Shares which are owned by Mr. Foster's wife.
(6) Includes 59,271 Common Shares subject to Options or SARs which are
currently exercisable or exercisable within sixty days.
(7) Includes 26,930 Common Shares subject to Options or SARs which are
currently exercisable or exercisable within sixty days.
25
<PAGE>
(8) Includes 43,350 Common Shares subject to Options or SARs which are
currently exercisable or exercisable within sixty days.
(9) Includes 40,218 Common Shares subject to Options or SARs which are
currently exercisable or exercisable within sixty days.
(10) Includes 358,527 Common Shares subject to Options or SARs which are
currently exercisable or exercisable within sixty days.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Exchange Act and the rules and regulations thereunder
require the Company's Executive Officers and members of its Board of Directors,
and persons who are deemed to own more than ten percent of the Common Shares
(collectively, the "Reporting Persons"), to file certain reports ("Section 16
Reports") with the SEC with respect to their beneficial ownership of Common
Shares. The Reporting Persons also are required to furnish the Company with
copies of all Section 16 Reports they file.
Based on a review of copies of Section 16 Reports furnished to the Company
by the Reporting Persons and written representations by Directors and Executive
Officers of the Company, the Company believes that all Section 16 filing
requirements applicable to the Reporting Persons during and with respect to 1997
were complied with on a timely basis.
DESCRIPTION OF TDS SECURITIES
The authorized capital stock of TDS consists of 100,000,000 Common Shares,
$1.00 par value (the "TDS Common Shares"), 25,000,000 Series A Common Shares,
$1.00 par value, (the "TDS Series A Common Shares") and 5,000,000 Preferred
Shares, without par value (the "TDS Preferred Shares"). As of February 28, 1998,
53,934,975 TDS Common Shares (excluding Common Shares held by TDS and a
subsidiary of TDS), 6,936,277 TDS Series A Common Shares and 294,721 TDS
Preferred Shares were outstanding.
The TDS Series A Common Shares have ten votes per share, and TDS Common
Shares and TDS Preferred Shares have one vote per share. The holders of TDS
Series A Common Shares, TDS Common Shares and TDS Preferred Shares vote as a
single group, except with respect to matters as to which the Iowa Business
Corporation Act grants class voting rights and with respect to the election of
Directors. With respect to the election of Directors, the holders of TDS Common
Shares and the TDS Preferred Shares issued before October 31, 1981, voting as a
group, are entitled to elect 25 percent of the Board of Directors of TDS,
rounded up to the nearest whole number, and the holders of TDS Series A Common
Shares and TDS Preferred Shares issued after October 31, 1981, voting as a
group, are entitled to elect the remaining members of the Board of Directors of
TDS.
26
<PAGE>
SECURITY OWNERSHIP OF TDS BY MANAGEMENT OF THE COMPANY
The following Table sets forth the number of TDS Common Shares and TDS
Series A Common Shares beneficially owned by each Director of the Company, by
each Executive Officer named in the Summary Compensation Table and by all
Executive Officers and all members of the Board of Directors and Executive
Officers of the Company, as a group, as of February 28, 1998.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
NAME OF INDIVIDUAL OR NUMBER BENEFICIAL PERCENT OF TDS
OF PERSONS IN GROUP TITLE OF TDS CLASS OWNERSHIP(1) TDS CLASS VOTING POWER
- - ------------------------------------ ------------------------------------ -------------- ------------- -------------
<S> <C> <C> <C> <C>
LeRoy T. Carlson, Jr.,
Walter C.D. Carlson,
Letitia G.C. Carlson,
Donald C. Nebergall and
Melanie J. Heald(2)................ TDS Series A Common Shares 6,337,187 91.4% 51.3%
LeRoy T. Carlson, Jr.,
C. Theodore Herbert,
and Michael G. Hron (3)............ TDS Common Shares 148,876 * *
TDS Series A Common Shares.......... 1,008 * *
LeRoy T. Carlson, Jr.,
C. Theodore Herbert,
and Michael G. Hron(4)............. TDS Common Shares 142,575 * *
LeRoy T. Carlson(5)(9).............. TDS Common Shares 62,407 * *
TDS Series A Common Shares.......... 51,975 * *
LeRoy T. Carlson, Jr.(6)(9)......... TDS Common Shares 165,047 * *
Walter C.D. Carlson(7).............. TDS Common Shares 405 * *
Murray L. Swanson(8)(9)............. TDS Common Shares 47,324 * *
TDS Series A Common Shares.......... 2,506 * *
James Barr III(9)................... TDS Common Shares 19,958 * *
Rudolph E. Hornacek (9)(10)......... TDS Common Shares 22,410 * *
TDS Series A Common Shares.......... 1,669 * *
Thomas W. Wilson, Jr................ TDS Common Shares -- -- --
John D. Foster...................... TDS Common Shares -- -- --
Donald W. Warkentin(9).............. TDS Common Shares 29,566 * *
J. Clarke Smith..................... TDS Common Shares -- -- --
Carol J. Ogren(9)................... TDS Common Shares 520 * *
Gerald N. Rhodes.................... TDS Common Shares -- -- --
David B. Lowry...................... TDS Common Shares -- -- --
All Directors and Executive Officers
as a Group (17 persons) (9)........ TDS Common Shares 640,088 1.2% *
TDS Series A Common Shares 6,394,345 92.2% 51.7%
</TABLE>
- - ------------------------------
* Less than one percent
(1) The nature of beneficial ownership for shares in this column is sole voting
and investment power, except as otherwise set forth in these footnotes.
(2) The shares of TDS listed are held by the persons named as trustees under a
voting trust which expires June 30, 2009, created to facilitate
long-standing relationships among the trust certificate
27
<PAGE>
holders. Under the terms of the voting trust, the trustees hold and vote
the Series A Common Shares of TDS held in the trust. If the voting trust
were terminated, the following persons would each be deemed to own
beneficially over five percent of the outstanding TDS Series A Common
Shares: Margaret D. Carlson (wife of LeRoy T. Carlson), LeRoy T. Carlson,
Jr., Walter C.D. Carlson, Prudence E. Carlson, Letitia G.C. Carlson
(children of LeRoy T. Carlson and Margaret D. Carlson), and Donald C.
Nebergall, as trustee under certain trusts for the benefit of the heirs of
LeRoy T. and Margaret D. Carlson and an educational institution.
(3) Voting and investment control is shared by the persons named as members of
the investment management committee of the Telephone and Data Systems, Inc.
Employees' Pension Trust I and the Wireless Companies' Pension Plan. Such
members disclaim beneficial ownership of such shares which are held for the
benefit of plan participants.
(4) Voting and investment control with respect to TDS-match shares is shared by
the persons named as members of the investment management committee of the
Telephone and Data Systems, Inc. Tax-Deferred Savings Trust. Does not
include 55,125 shares acquired by such trust employee contributions for
which are voting and investment control is passed through to plan
participants.
(5) Includes 51,975 TDS Series A Common Shares held by Mr. LeRoy T. Carlson's
wife. Mr. LeRoy T. Carlson disclaims beneficial ownership of such shares.
Does not include 252,668 TDS Series A Common Shares held for the benefit of
Mr. LeRoy T. Carlson, 630,525 TDS Series A Common Shares held for the
benefit of Mr. LeRoy T. Carlson's wife or 50,526 TDS Series A Common Shares
held for the benefit of certain grandchildren of Mr. LeRoy T. Carlson (an
aggregate of 933,719 shares, or 13.5 percent of class) in the voting trust
described in footnote (2) above. Beneficial ownership is disclaimed as to
TDS Series A Common Shares held for the benefit of his wife and
grandchildren in such voting trust.
(6) Does not include 1,068,186 TDS Series A Common Shares (15.4 percent of
class) held in the voting trust referred to in footnote (2) above, of which
1,037,084 shares are held for the benefit of Mr. LeRoy T. Carlson, Jr.
Beneficial ownership is disclaimed with respect to an aggregate of 31,102
TDS Series A Common Shares held for the benefit of his wife, his children
and others in such voting trust.
(7) Does not include 1,087,366 TDS Series A Common Shares (15.7 percent of
class) held in the voting trust referred to in footnote (2) above, of which
1,058,143 shares are held for the benefit of Mr. Walter C.D. Carlson.
Beneficial ownership is disclaimed with respect to an aggregate of 29,223
TDS Series A Common Shares held for the benefit of his wife and children in
such voting trust.
(8) Includes shares as to which voting and/or investment power is shared,
and/or shares held by spouse and/or children.
(9) Includes the following number of TDS Common Shares that may be purchased
pursuant to stock options and/or stock appreciation rights which are
currently exercisable or exercisable within sixty days: Mr. LeRoy T.
Carlson, 55,978 shares; Mr. LeRoy T. Carlson, Jr., 152,297 shares; Mr.
Swanson, 28,541 shares; Mr. Barr, 16,000 shares; Mr. Hornacek, 14,551
shares; Mr. Warkentin, 29,026 shares; Ms. Ogren, 520 shares; and all
Directors and Executive Officers as a group, 296,913 shares.
(10) Does not include Series A Common Shares held as custodian for his
children, for which beneficial ownership is disclaimed.
28
<PAGE>
SECURITY OWNERSHIP OF TDS BY CERTAIN BENEFICIAL OWNERS
In addition to the persons listed under "Security Ownership of TDS by
Management of the Company," the following Table sets forth, as of February 28,
1998, information regarding the persons who beneficially own more than five
percent of any class of the voting securities of TDS. The nature of beneficial
ownership in this Table is sole voting and investment power, except as otherwise
set forth in the footnotes.
<TABLE>
<CAPTION>
SHARES OF PERCENT OF
TDS CLASS PERCENT OF TDS
SHAREHOLDER'S NAME AND ADDRESS TITLE OF CLASS OWNED TDS CLASS VOTING POWER
- - ---------------------------------------------- ------------------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
The Equitable Companies Inc.(1) TDS Common Shares 10,988,100 20.4% 8.9%
787 Seventh Avenue
New York, New York 10019
Franklin Mutual Advisors, Inc.(2) TDS Common Shares 5,279,200 9.8% 4.3%
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
Gabelli Funds, Inc.(3) TDS Common Shares 2,799,405 5.2% 2.3%
One Corporate Center
Rye, New York 10580
William and Betty McDaniel TDS Preferred Shares 46,666 15.8% *
160 Stowell Road
Salkum, Washington 98582
Bennet R. Miller TDS Preferred Shares 30,000 10.2% *
1212 Wea Avenue
Lafayette, Indiana 47905
The Peterson Revocable Living Trust TDS Preferred Shares 20,637 7.0% *
Kenneth M. & Audrey M. Peterson, Trustees
108 Avocado Lane
Weslaco, Texas 78596
</TABLE>
- - ------------------------
* Less than one percent
(1) Based on the most recent Schedule 13G (Amendment No. 11) filed with the SEC.
Includes shares held by the following affiliates: The Equitable Life
Assurance Society of the United States-- 4,176,200 shares; Alliance Capital
Management, L.P.--6,782,543 shares; Wood, Struthers & Winthrop Management
Corp.--28,976 shares; and Donaldson Lufkin & Jenrette Securities
Corporation--381 shares. In such Schedule 13G, Equitable reported sole
voting power with respect to 5,644,753 shares, shared voting power with
respect to 5,255,600 shares, sole dispositive power with respect to
10,987,719 shares and shared dispositive power with respect to 381 shares.
Alpha Assurance I.A.R.D. Mutuelle, Alpha Assurances Vie Mutuelle, AXA
Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, Uni Europe
Assurance Mutuelle and AXA, corporations organized under the laws of France,
are affiliates of The Equitable Companies, Inc.
(2) Based on a Schedule 13D (Amendment No.4) filed with the SEC. Such Schedule
13D reports that Franklin Mutual Advisors, Inc. exercised sole voting and
investment power with respect to all such shares. Such Schedule 13D is also
filed on behalf of Franklin Resources, Inc., the parent holding company of
Franklin Mutual Advisors, Inc., and by Charles B. Johnson and Rupert H.
Johnson, Jr., principal shareholders of such parent holding company.
29
<PAGE>
(3) Based on a Schedule 13D filed with the SEC. Includes shares by the following
affiliates: Gabelli Funds, Inc.--810,000 shares; ALCE Partners, L.P.--1,000
shares; GAMCO Investors, Inc.-- 1,969,705 shares; Gabelli Fund, LDC--1,000
shares; Gabelli International Limited--10,000 shares; Gabelli Multimedia
Partners, L.P.--1,200 shares; Gemini Capital Management Ltd.--4,000 shares;
Marc J. Gabelli--0 shares; and Mario J. Gabelli--2,500 shares. In such
Schedule 13D filing, such group has reported sole voting power with respect
to 2,724,405 shares, shared voting power with respect to -0- shares, sole
dispositive power with respect to 2,799,405 shares and shared dispositive
power with respect to -0- shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Executive Compensation--Compensation Committee Interlocks and Insider
Participation."
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
In order to be considered for inclusion in the Company's proxy materials for
the 1998 Annual Meeting of Shareholders, any shareholder proposal must be
addressed to Aerial Communications Inc., 8410 W. Bryn Mawr Avenue, Suite 1100,
Chicago, Illinois 60631, Attention: Assistant Secretary, and must be received no
later than December 11, 1998.
GENERAL
Your proxy is solicited by the Board of Directors and its agents and the
cost of solicitation will be paid by the Company. Officers, directors and
regular employees of the Company, acting on its behalf, may also solicit proxies
by telephone, facsimile transmission or personal interview. The Company will, at
its expense, request brokers and other custodians, nominees and fiduciaries to
forward proxy soliciting material to the beneficial owners of shares of record
by such persons. The Company has retained Kissel-Blake Inc. to aid in
solicitation of proxies for a fee of $1,500, plus out-of-pocket expenses.
THE COMPANY WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997, INCLUDING THE FINANCIAL STATEMENTS
AND THE SCHEDULES THERETO UPON THE WRITTEN REQUEST OF ANY SHAREHOLDER AS OF THE
RECORD DATE AND WILL PROVIDE COPIES OF THE EXHIBITS TO THE REPORT UPON PAYMENT
OF A REASONABLE FEE THAT WILL NOT EXCEED THE COMPANY'S REASONABLE EXPENSES
INCURRED IN CONNECTION THEREWITH. REQUESTS FOR SUCH MATERIALS SHOULD BE DIRECTED
TO AERIAL COMMUNICATIONS, INC., 8410 W. BRYN MAWR AVENUE, SUITE 1100, CHICAGO,
ILLINOIS 60631, ATTENTION: INVESTOR RELATIONS.
OTHER BUSINESS
It is not anticipated that any action will be asked of the shareholders
other than that set forth above, but if other matters are brought properly
before the Annual Meeting, the persons named in the proxy will vote in
accordance with their best judgment.
By order of the Board of Directors
[SIGNATURE]
Michael G. Hron
Secretary
ALL SHAREHOLDERS ARE URGED TO SIGN, DATE AND MAIL THEIR PROXIES PROMPTLY.
30
<PAGE>
PROXY PROXY
PROXY FOR COMMON SHARES SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF THE SHAREHOLDERS OF
AERIAL COMMUNICATIONS, INC.
TO BE HELD ON MAY 11, 1998
The undersigned hereby appoints LeRoy T. Carlson, Jr., and Donald W.
Warkentin, or either of them acting in the absence of the other, with power
of substitution, attorneys and proxies for and in the name and place of the
undersigned, to vote the number of Common Shares that the undersigned would
be entitled to vote if then personally present at the 1998 Annual Meeting of
the Shareholders of Aerial Communications, Inc., to be held on Monday, May
11, 1998, or at any adjournment thereof, as set forth in the accompanying
Notice of Annual Meeting and Proxy Statement, receipt of which is hereby
acknowledged, as designated on the reverse side hereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEE IN PROPOSAL 1 AND
"FOR" PROPOSALS 2 AND 3.
IF NO DIRECTION IS MADE, PROXIES WILL BE VOTED "FOR" THE NOMINEE IN PROPOSAL
1 AND "FOR" PROPOSALS 2 AND 3.
(CONTINED AND TO BE SIGNED ON REVERSE SIDE)
FOLD AND DETACH HERE
Whether or not you are able to attend the Annual Meeting of
Shareholders, it is important that your shares be represented.
Accordingly, please complete and sign the proxy card printed above,
tear at the perforation, and mail the card in the enclosed postage paid
envelope addressed to Aerial Communications, Inc., c/o Harris Trust and
Savings Bank.
<PAGE>
AERIAL COMMUNICATIONS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY /X/
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEE IN PROPOSAL 1 AND
"FOR" PROPOSALS 2 AND 3.
For Withhold
1. ELECTION OF CLASS II DIRECTOR
(NOMINEE: J. FOSTER) / / / /
For Against Abstain
2. AMENDMENT OF 1996 LONG-TERM
INCENTIVE PLAN / / / / / /
For Against Abstain
3. RATIFY ACCOUNTANTS FOR 1998 / / / / / /
4. In accordance with their discretion, to vote upon all other matters that may
properly come before said Annual Meeting and any adjournment thereof,
including matters incidental to the conduct of the meeting.
Dated: , 1998
---------------------
Please Sign Here -----------------------------------
-----------------------------------
NOTE: Please date this proxy and sign it exactly as your name or names appear.
All joint owners of shares should sign. State full title when signing as
executor, administrator, trustee, guardian, etc. Please return signed proxy in
the enclosed envelope.
FOLD AND DETACH HERE
Whether or not you are able to attend the Annual Meeting of
Shareholders, it is important that your shares be represented.
Accordingly, please complete and sign the proxy card printed above,
tear at the perforation, and mail the card in the enclosed postage paid
envelope addressed to Aerial Communications, Inc., c/o Harris Trust and
Savings Bank.
<PAGE>
Aerial Communications, Inc.
Suite 1100
8410 West Bryn Mawr Avenue
Chicago, Illinois 60631
(773) 399-4200
April 10, 1998
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Aerial Communications, Inc.
Ladies and Gentlemen:
Pursuant to Rule 14a-6(b) under the Securities Exchange Act of 1934, as
amended (the "Act"), on behalf of Aerial Communications, Inc. (the "Company"),
transmitted herewith is a Schedule 14A Information cover sheet, proxy card and
the definitive proxy materials of the Company for use in connection with its
1998 Annual Meeting.
If you have any questions or comments regarding the foregoing, please
contact the undersigned at (773) 399-4367.
<TABLE>
<S> <C> <C>
Very truly yours,
AERIAL COMMUNICATIONS, INC.
By: /s/ J. CLARKE SMITH
-----------------------------------------
Name: J. Clarke Smith
Title: VICE PRESIDENT--
FINANCE AND ADMINISTRATION
</TABLE>
Enclosures
cc: Nasdaq National Market
