UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _____________
Commission File No. 0-10516
-----------------------------------------
Lincoln Telecommunications Company
(Exact name of registrant as specified in its charter)
Nebraska 47-0632436
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1440 M Street, Lincoln, Nebraska 68508
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 402-474-2211
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
($.25 par value)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Registrant's voting stock held by non-
affiliates, based upon the closing price of such stock as of February 28,
1995, was $459,698,086.
Number of shares of common stock outstanding
on
February 28, 1995 -- 32,377,290
The Registrant's Annual Report to Shareholders for the calendar year 1994
is incorporated by reference in Parts I, II, III and IV of this Form 10-K
to the extent stated herein. The Registrant's definitive Proxy Statement
for the Annual Meeting of Shareholders to be held on April 26, 1995 is
incorporated by reference in Parts III & IV of this Form 10-K to the extent
stated herein.
TABLE OF CONTENTS
Item Page
PART I
Description
1. Business 1-6
2. Properties 6-7
3. Legal Proceedings 7
4. Submission of Matters to a Vote of Security Holders 7
PART II
Description
5. Market for Registrant's Equity and Related Stockholder Matters 8
6. Selected Financial Data 8
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-9
8. Financial Statements and Supplementary Data 9
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 9
PART III
Description
10. Directors and Executive Officers of the Registrant 10
11. Executive Compensation 10
12. Security Ownership of Certain Beneficial Owners and Management 10
13. Certain Relationships and Related Transactions 11-12
PART IV
Description
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 13-15
Form 10-K
PART I
Item 1. Business
(a) General Development of Business.
Lincoln Telecommunications Company ("the Company") was incorporated
on November 24, 1980, as a Nebraska corporation, and is a holding company,
with The Lincoln Telephone and Telegraph Company (Lincoln Telephone), a
Delaware corporation, as its principal subsidiary. The Company owns 100%
of the issued and outstanding common stock of Lincoln Telephone. Other
subsidiaries which are wholly-owned by the Company are LinTel Systems Inc.
("LinTel") and Prairie Communications, Inc. ("Prairie Communications"),
both of which are Nebraska corporations. For general development of
business during the past five years and descriptions of the subsidiaries,
see 1994 Annual Report to Stockholders, pages 1 - 16 and 38 - 46.
(b) Financial Information About Industry Segments.
See 1994 Annual Report to Stockholders, pages 17 - 21.
(c) Narrative Description of Business.
Subsidiary Operations.
Lincoln Telephone, the Company's principal subsidiary, operates a
telephone system for both local and long distance service in the
southeastern 22 counties of Nebraska, having in service 246,963 landline
customer access lines as of December 31, 1994. This is a contiguous
geographical area. There are a total of 138 exchanges and 148 central
offices (there being ten central offices in Lincoln).
The Lincoln Telephone and Telegraph Company
Statistics
As of December 31
ACCESS LINES IN SERVICE* 1994 1993
Residence 177,695 173,477
Business 69,268 64,665
------- -------
Total 246,963 238,142
*The statistics in this table do not include cellular access lines and
Company access lines in service as of the dates shown.
TRAFFIC STATISTICS FOR 12 MONTHS ENDED DECEMBER 31, 1994
Long distance calls completed 109,629,932
Direct Distance Dialed 105,515,793
All other 4,114,139
Form 10-K
Item 1. cont'd.
Lincoln Telephone provides access services by connecting the
communications networks of interexchange and cellular carriers with the
equipment and facilities of end users by use of its public switched
networks or through private lines. Access charges, payable by
interexchange and cellular carriers, provided $50,570,000, $47,531,000 and
$44,458,000 of the Company's consolidated revenues for the years ended
December 31, 1994, 1993 and 1992 respectively.
Since 1986, telecommunications companies in Nebraska have been
permitted to increase local exchange rates up to 10% in any consecutive 12-
month period without review by the Nebraska Public Service Commission
(NPSC). However, Lincoln Telephone must provide at least 60 days notice to
affected customers and conduct public informational meetings. If at least
3% of all affected subscribers sign a formal complaint within 120 days from
such notice, opposing the rate increase, the NPSC must hold and complete a
hearing with regard to the complaint within 90 days to determine whether
the proposed rates are fair, just and reasonable, and within 60 days after
the close of hearing, enter an order adjusting the rates at issue.
Rates for all other services are not subject to regulation by the NPSC.
Rates for other services may be revised by a telecommunications company by
filing a rate list with the NPSC which is effective after ten days' notice
to the NPSC. Quality of service regulation over interexchange and local
exchange service is retained by the NPSC. Nebraska has completely deregu-
lated the provision of mobile radio services and radio paging services.
Regardless of whether a particular rate increase is subject to regu-
latory review, the Company's ability to raise rates will be determined by
various factors, including economic and competitive circumstances in effect
at the time. See 1994 Annual Report to Stockholders, pages 44 and 45.
Lincoln Telephone's wireless services include cellular operations and
wide area paging services. Lincoln Telephone operates a cellular
telecommunications system in the Lincoln, Nebraska Metropolitan Statistical
Area (MSA). Lincoln Telephone also manages the limited partnership which
is the license holder for Iowa Rural Service Area (RSA) 1 which serves the
southwestern six counties of Iowa.
On December 31, 1991, Prairie Communications acquired a 50% interest
in Omaha Cellular General Partnership (OCGP). The remaining 50% interest
in OCGP is owned by Centel Nebraska, Inc. (Centel-Neb). The Company
purchased its 50 percent share from Centel Cellular Co. (Centel) for $11.9
million cash and a discount note from OCGP that it holds for $23.8 million,
which note proceeds were paid to Centel and Centel Nebraska. For a two-
year period beginning on December 31, 1996, Prairie Communications will
have an opportunity to purchase Centel's remaining 50 percent interest in
OCGP at fair market value. OCGP is the general partner of and holds
approximately 55% of the partnership interests in Omaha Cellular Limited
Partnership, which provides cellular telecommunications services in Douglas
and Sarpy Counties in Nebraska and Pottawattamie County, Iowa. Omaha
Cellular Limited Partnership conducts business under the trade name First
Cellular Omaha. Prairie Communications is the managing partner of OCGP.
The Company also owns 16.1% of the outstanding shares of Nebraska
Cellular Telephone Corporation (NCTC). NCTC is the holder of cellular
operating licenses issued by the Federal Communications Commission (FCC)
for Nebraska RSA Nos. 533 through 542.
Form 10-K
Item 1. cont'd.
The following table sets forth certain information about the Company's
cellular operations.
<TABLE>
Cellular Operations
<CAPTION>
Pops December 31, 1994
Acquisition Percent Within Net Net
System (1) Date (2) Ownership Area (5) Pops Subscribers Subscribers
<S> <C> <C> <C> <C> <C> <C>
Lincoln MSA April 23, 1987 100.0 220,727 220,727 20,755 20,755
Omaha MSA December 31, 1991 27.6(3) 623,986(6) 172,220 32,577 8,991
Nebraska RSAs November 25, 1989 16.1 834,164 134,300 (7) (7)
Iowa RSA 1 June 30, 1989 11.8(4) 61,588 7,267 (7) (7)
</TABLE>
(1) Systems are as follows:
Lincoln MSA - Lancaster County, Nebraska
Omaha MSA - Douglas and Sarpy Counties in Nebraska and Pottawattamie
County in Iowa
Nebraska RSAs - 89 of the 90 Nebraska counties not in the Omaha and
Lincoln MSAs
Iowa RSA 1 - Southwestern six counties of Iowa
(2) The date Lincoln Telephone's operating license was granted in the case
of the Lincoln MSA, and the date of the Company's initial acquisition
of an interest in the licensee in the case of other systems.
(3) In addition, Prairie Communications has an option to purchase an
additional 27.6% interest in the licensee of the Omaha MSA at fair
market value.
(4) Includes the allocable portion of the 14.1% interest in the licensee
held by the Omaha MSA licensee.
(5) Based upon Donnelley Marketing Information Services population data
for 1993. Pops shown for Lincoln and Omaha MSAs are virtually all
covered by the networks of these systems. According to estimates
available to the Company, approximately 60% of the pops shown for
Nebraska RSAs and approximately 90% of the pops shown for Iowa RSA 1
are covered by the networks of these systems.
(6) Does not include the Omaha MSA licensee's 15.2% interest in Iowa RSA 1
(which system has been separately included in the table) or the Omaha
MSA licensee's 8.3% interest in Iowa RSA 8 (representing 54,659 pops
and 4,537 net pops).
(7) The data regarding the subscribers and net subscribers is not
disclosed herein because it is not considered material to the
Company's consolidated operations.
The licensing, ownership, construction, operation and sale of
controlling interests in cellular telephone systems are subject to
regulation by the FCC. The FCC licenses for the Company's Lincoln MSA and
Omaha MSA cellular operations expire between October 1994 and October 1996,
Form 10-K
Item 1. cont'd.
while FCC licenses for the Company's Iowa RSA and Nebraska RSA cellular
operations expire between July 1999 and August 2000. All renewal
applications for these licenses must be received by the FCC not later than
30 and not more than 60 days in advance of their respective expiration
dates and must be approved by the FCC. It is possible that there may be
competition for these FCC licenses upon expiration, and any such
competitors may apply for such licenses within the same time frame as the
Company. However, incumbent cellular providers generally retain their FCC
licenses upon a demonstration of substantial compliance with FCC
regulations and substantial service to the public. The FCC will only
consider competitors' applications if it determines the Company has not
made such a demonstration. Although the Company has no reason to believe
that the FCC renewal applications will not be granted by the FCC, no
assurance can be given.
For a five-year period ending after the date of the grant of a
cellular license by the FCC (the "fill-in period"), the licensee has the
exclusive right to apply to serve areas within the RSA or the MSA. At the
end of the fill-in period, any person may apply to serve the unserved areas
in the MSA or RSA. The fill-in period for both the Lincoln and Omaha MSAs
has expired and no person has filed to serve any unserved areas in those
locations. The fill-in periods for the Nebraska RSAs and the Iowa RSA
expire between November 1994 and May 1995.
LinTel is a "reseller" of long distance services, primarily in Lincoln
Telephone's exchange service area, and provides this service by aggregating
its customers' traffic to take advantage of volume discounts offered by
national networks. During 1993, the Company had 114.7 million minutes of
long distance traffic, an increase of 8.4 million minutes from 1992. For
1994, the Company had 114.5 million minutes of long distance traffic. The
Company has a variety of calling programs for both residential and business
customers.
LinTel also sells and services a wide range of PBX, key system and
other communications equipment to large and small businesses, including
products manufactured by ROLM and Northern Telecom. These systems
typically include a variety of special features such as automatic call
distribution, voice mail, and LAN functionality.
Nebraska State Income and Local Property Taxes
The Company's property and state income tax obligations during 1992
and 1993 were modified by actions of the Nebraska Legislature and the
Nebraska Supreme Court. In 1991, the Nebraska Supreme Court determined in
separate actions that Nebraska's personal property tax system as applied to
businesses in 1989 and 1990 was unconstitutional. The Court determined
that approximately 18.8% of taxes paid for 1990 should be refunded. The
NPSC approved a settlement whereby similar refunds were made applicable to
1989 taxes. As a result of these actions, the Company recorded refunds or
credits of approximately $1,359,000 and $1,494,000 in 1993 and 1992,
respectively.
In view of a constitutional amendment approved by the voters in 1992,
the constitutional issues concerning Nebraska property taxes appear to have
been resolved.
Form 10-K
Item 1. cont'd.
Competition.
Competitors now offer private line and switched voice and data
services in or adjacent to the territory served by Lincoln Telephone, thus
permitting bypass of local telephone facilities. In addition, satellite
transmission services, cellular communications and other services permit
bypass of the local exchange network. These alternatives to local exchange
service represent a potential threat to Lincoln Telephone's long-term
ability to provide local exchange service at economical rates.
In order to meet this competition, Lincoln Telephone has deployed new
technology for its local exchange network to increase operating
efficiencies and to provide new services to its customers. These new
technologies include conversion of all Lincoln Telephone switches to
digital technology, installation of over 1,350 miles of fiber optic cable,
and installation of SS7, an out-of-band signalling system, to over 60
percent of its access lines.
Lincoln Telephone faces competition in the market for customer
premises telephone equipment. Lincoln Telephone offers state-of-the-art
customer premises telephone equipment through well-trained and experienced
market representatives with long term relationships with customers. In so
doing, Lincoln Telephone believes that it effectively competes in this
market segment.
With respect to cellular mobile communications service, the FCC has
granted two licenses to provide cellular service in each MSA or RSA. One
license was granted to a company that provides local telephone service in
the area or to a group affiliated with the local service company (the
"Wireline Carrier"). The other license was granted to a company that does
not provide local telephone service and is not affiliated with a local
service company in the area (the "Non-Wireline Carrier"). Lincoln
Telephone currently operates as the Wireline Carrier in the Lincoln,
Nebraska MSA and Prairie Communications is the manager of the limited
partnership which operates as the Wireline Carrier in the Omaha, Nebraska,
MSA.
The Company faces significant competition from the Non-Wireline
Carrier in such markets and from other communications technologies that now
exist, such as specialized mobile radio systems and paging services, or
other communications technologies that may be developed or perfected. In
addition to providing cellular mobile communications service, the Company
sells and leases cellular mobile equipment in competition with numerous
equipment retailers. The providers in each market compete for customers
principally on the basis of services offered, the quality of customer
service and price. The Company has designed and deployed cellular systems
with greater radio signal coverage than competitive systems, particularly
for portable cellular telephone users. The Company believes it has
benefited competitively from such design.
In connection with provision of long distance telecommunications
services, LinTel competes with other long distance service providers such
as AT&T, MCI, and Sprint. This market is now competitive, and regulation
by the FCC and the NPSC has been substantially reduced since divestiture by
AT&T of the Bell Operating Companies and the advent of equal access. The
prices for long distance services offered by LinTel compare favorably with
prices of similar services offered by competitors.
Form 10-K
Item 1. cont'd.
Since the mid-1980's, the Company's business strategy has been to
position itself as a "one-stop" telecommunications services provider.
Long-term business relationships with its customers have strengthened the
Company's business position. The Company believes that its customers
value the fact that it is the "local company" whose goal is to meet the
customers' total communications needs.
The long-range effect of competition on the provision of
telecommunications services and equipment will depend on technological
advances, regulatory actions at both the state and federal levels, court
decisions, and possible future state and federal legislation. See 1994
Annual Report to Stockholders, pages 44 and 45.
Employees.
The Company and its subsidiaries employed 1,612 persons (1,392
employed by its principal subsidiary, Lincoln Telephone) at the end of
1994. As of December 1994, approximately 58 percent of the Company's and
subsidiaries' employees were represented by the Communications Workers of
America (CWA), which is affiliated with the AFL-CIO. New three-year
contracts with the CWA were signed in May 1992 as respects LinTel
bargaining unit employees and October 1992 as respects Lincoln Telephone
bargaining unit employees. The Lincoln Telephone contract with the CWA
will expire on October 14, 1995, and the LinTel contract with the CWA will
expire on May 19, 1995. The Company believes its relationship with its
employees is good and constructive. See 1994 Annual Report to
Stockholders, pages 47 and 48, for eleven-year figures.
(d) Financial Information About Foreign and Domestic Operations and
Export Sales.
Not applicable.
Item 2. Properties
Lincoln Telephone's telephone system consists of switching and
transmission equipment, cellular radio facilities, fiber optic systems and
distribution plant, through 138 communities within the state of Nebraska.
Among the larger exchanges served are Lincoln, Hastings, Beatrice, York,
Nebraska City, Plattsmouth and Seward.
For fiscal year 1994, Lincoln Telephone owned the equipment, plant and
facilities which were utilized in its telephone system. Lincoln Telephone
leases four locations on which business offices are located. The total
annual rentals for such leased offices are less than $100,000 and the
duration of such leases range from one to six years. Lincoln Telephone
owns its remaining business office locations. Additionally, Lincoln
Telephone leases the majority of the locations on which the sites of towers
for its Lincoln MSA cellular system are located. Annual rentals on the
sites are approximately $40,000, and the duration of the unexpired portions
of such leases range from four months to five years, with options to renew
thereafter.
LinTel leases transmission facilities and switching facilities in
connection with its Lincoln Telephone Long Distance Division. All of its
office locations are leased. Annual rentals are approximately $131,000,
and the duration of the unexpired portions of such leases range from four
Form 10-K
Item. 2. cont'd.
months to four years.
It is the opinion of Company management, including the Engineering
Director of Lincoln Telephone, that the properties of Lincoln Telephone are
suitable and adequate to provide modern and effective telecommunications
services within its franchised area, including both local and long distance
service. The capacity for furnishing these services, both currently and
for forecast growth, are under constant surveillance by the Engineering
Director and his staff. Facilities are put to full utilization after
installation and appropriate testing, according to two-, three- and
five-year construction plans.
Lincoln Telephone's continuing construction programs are divided
between meeting growth demands (population and service) and upgrading its
telephone equipment and plant. Conversion to digital switching systems was
completed in 1992.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Executive Officers of Registrant
First Elected
Officer Age Position Held Present Office
Frank H. Hilsabeck 50 President & Chief Executive Officer 1993
(President & Chief Operating Officer,
1991-1993; President-Telephone
Operations, 1990-1991)
James W. Strand 48 President-Diversified Operations 1990
Jack H. Geist 62 V. P.-Diversified Operations 1993
(President, Anixter-Lincoln,
a joint venture (1989-1994)
Robert L. Tyler 59 Senior V.P. and Chief Financial 1991
Officer (V.P.-Controller, 1989-1991)
Michael J. Tavlin 48 V.P.-Treasurer and Secretary 1986
Form 10-K
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
(a) Market Information
Company Common Stock is traded on the Nasdaq National Market
under the symbol "LTEC." The following table sets forth the high
and low bid quotations for the periods indicated, as reported in
"The Wall Street Journal." These quotations represent prices
between dealers without adjustments for markups, markdowns or
commissions and may not represent actual transactions.
High Low Dividends
Declared
1993
First Quarter 13.50 12.00 .12
Second Quarter 14.50 12.50 .12
Third Quarter 18.75 13.63 .12
Fourth Quarter 20.50 17.50 .13
1994
First Quarter 20.00 15.50 .13
Second Quarter 16.75 13.75 .13
Third Quarter 16.75 13.75 .13
Fourth Quarter 17.50 14.00 .14
(b) Holders
As of December 31, 1994, there were approximately 15,000 holders
of record of the Company's Common Stock. Such number does not
include beneficial owners of the Company's Common Stock, whose
shares are held in the names of broker dealers and clearing
agencies.
(c) Dividends
The long-term debt agreements of Lincoln Telephone contain
various restrictions, including those relating to payment of
dividends by Lincoln Telephone to the Company and to holders of
Lincoln Telephone's 5% Preferred Stock. Notes payable to banks
also contain various restrictions. At December 31, 1994,
approximately $34,861,000 of Lincoln Telephone's retained
earnings were available for payment of cash dividends to the
Company and to holders of Lincoln Telephone's 5% Preferred Stock
under the most restrictive provisions of such agreements.
Item 6. Selected Financial Data
See 1994 Annual Report to Stockholders, pages 47 and 48.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
See 1994 Annual Report to Stockholders, pages 38 - 46.
Form 10-K
Item 7. cont'd.
On March 17, 1993, the Board of Directors elected to expense the
entirety of the Company's post-retirement benefit obligation
accumulated as of January 1, 1993, of approximately $38,450,000
in the first quarter of 1993 for financial reporting purposes.
This obligation, net of related income taxes, amounted to
$23,166,000. This one-time charge equals $0.71 per share of
Common Stock, net of tax impact. This action was taken in
compliance with Statement of Financial Accounting Standards No.
106, which imposes new accounting rules regarding insurance and
other benefits provided to retirees and allows employers to
recognize this obligation either immediately or on an amortized
basis.
Recent Developments
(a) On March 16, 1994, the Company announced that due to changes in
technology, customer growth and usage demand for cellular
services in their respective markets, Lincoln Telephone Cellular
and First Cellular Omaha have entered into an agreement with AT&T
to purchase digital cellular telephone systems to replace the
existing analog systems serving these markets. These digital
systems are expected to increase capacity and performance in
these markets. The new Omaha system was operational in April
1994, and the Lincoln system is expected to be operational in
April 1995.
The implementation of these system upgrades will cause the early
retirement of existing analog equipment prior to the expiration
of its anticipated useful life. As a result, Lincoln
Telecommunications, in the first quarter of 1994, wrote down the
value of these assets. This write down resulted in a one-time,
non-cash reduction of first quarter 1994 earnings of
approximately $3,761,000, or $0.11 per share.
(b) On March 21, 1995, the Company, Capital Acquisition Corp., a
Nebraska corporation and wholly-owned subsidiary of the Company
(Subsidiary) and Nebraska Cellular Telephone Corporation, a
Nebraska corporation (NCTC) entered into an Agreement and Plan
of Reorganization (the Merger Agreement) pursuant to which NCTC
will merge with and into Subsidiary and thereby the Company will
acquire the approximately 84% of NCTC Commom Stock not currently
owned by the Company (the Merger).
The Merger Agreement provides, among other things, that at the
effective time of the Merger, each share of NCTC Common Stock,
other than shares owned by the Company, will be converted into the
right to receive, at the election of the holder, either (i) one
share of Company Common Stock, plus $4.00 in cash, or (ii) $20.00
cash, subject to certain provisions limiting the amount of Company
Common Stock to be issued in the Merger to 5,196,000 shares. Total
consideration of Company Common Stock and cash to be issued in the
Merger is valued at approximately $130 million.
Closing of the transaction is subject to the approval of the share-
holders of NCTC and the approvals of the Federal Communications
Commission and the Federal Trade Commission, as well as certain
other conditions set forth in the Merger Agreement. NCTC may
Form 10-K
Item 7. cont'd.
terminate the Merger Agreement if the average of the last reported
sales price per share of Company Common Stock as reported on the
Nasdaq National Market for the twenty (20) consecutive trading days
immediately preceding the fifth business day prior to the closing
of the Merger is less than $13.75 per share.
Set forth below is certain financial and operating data regarding
the cellular operations of the Company and NCTC.
Operating Characteristics of Cellular Properties
Proportionate Data - Unaudited
COMPANY DATA NCTC
--------------------------------- ----
Lincoln Omaha
12/31 MSA MSA Iowa RSA
Ownership 100.0% 27.6% 11.8%
POPS 1994 221,000 172,224 7,316 834,000
1993 221,000 172,224 7,316 834,000
1992 220,000 169,740 7,316 834,000
Customer Lines 1994 20,755 8,991 243 56,100
1993 13,145 5,972 128 24,090
1992 7,573 3,706 29 11,491
Service Revenues (1) 1994 $ 10,176 $ 4,563 $ 126 $ 23,418
in thousands 1993 $ 6,473 $ 3,094 $ 80 $ 13,063
1992 $ 4,265 $ 2,178 $ 41 $ 8,026
Operating Expenses (2) 1994 $ 5,837 $ 2,985 $ 109 $ 18,355
in thousands 1993 $ 4,468 $ 2,044 $ 71 $ 8,954
1992 $ 3,118 $ 1,563 $ 33 $ 5,529
Net Operating Income 1994 $ 4,339 $ 1,578 $ 17 $ 5,063
in thousands 1993 $ 2,005 $ 1,050 $ 9 $ 4,109
1992 $ 1,147 $ 615 $ 8 $ 2,497
Operating Margin (3) 1994 42.6% 34.6% 13.5% 21.6%
1993 31.0% 33.9% 11.3% 31.5%
1992 26.9% 28.2% 19.5% 31.1%
Penetration Rate 1994 9.4% 5.2% 3.3% 6.7%
1993 5.9% 3.5% 1.7% 2.9%
1992 3.4% 2.2% 0.4% 1.4%
Average Monthly 1994 $ 50.03 $ 50.83 $ 56.60 $ 48.67
Customer Revenue (4) 1993 $ 52.07 $ 53.28 $ 84.93 $ 61.19
1992 $ 57.21 $ 57.75 $ 235.63 $ 82.91
NOTES:
(1) Represents all service revenues net of out-bound roamer expenses and ex-
cludes equipment sales. The proportionate data for Omaha MSA and Iowa
RSA summarized above reflects the Company's ownership levels in these
markets. The Company's ownership interest in Iowa RSA was 11.8% in
1994, up from 11.0% in 1993 and 1992.
Form 10-K
Item 7. cont'd.
(2) Operating Expenses exclude depreciation, amortization, income tax and
interest.
(3) Operating margin represents Net Operating Income as a percent of service
revenues.
(4) Represents service revenue divided by 12 in relation to average customer
lines (beginning and end of year average).
Item 8. Financial Statements and Supplementary Data
See 1994 Annual Report to Stockholders, pages 18 - 37 and 47 -
48.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None
Form 10-K
PART III
Item 10. Directors and Executive Officers of the Registrant
See Proxy Statement for Annual Meeting of Stockholders, April 2
26, 1995, pages 2-6. See also 1994 Annual Report to
Stockholders, page 49.
TERM OF OFFICE OF ABOVE NAMED EXECUTIVE OFFICERS: At the meeting of the
Board of Directors each year held immediately following the Annual Meeting
of Stockholders, the officers are elected to serve for the ensuing year, or
until their successors are duly elected and qualified.
Compliance with Section 16(a) of the Exchange Act
See Proxy Statement for Annual Meeting of Stockholders,
April 26, 1995, page 13.
Item 11. Executive Compensation
See Proxy Statement for Annual Meeting of Stockholders,
April 26, 1995, pages 7 - 11.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners.
See Proxy Statement for Annual Meeting of Stockholders,
April 26, 1995, pages 1 and 2.
(b) Security ownership of management.
See Proxy Statement for Annual Meeting of Stockholders,
April 26, 1995, pages 5 and 6.
(c) Changes in control.
None.
Form 10-K
Item 13. Certain Relationships and Related Transactions
(a) Transactions with management and others.
On February 1, 1994, the Company entered into an agreement
(Agreement) with Sahara Enterprises, Inc. (Sahara), then an owner
of approximately 16.6% of the issued and outstanding common stock
of the Company in connection with a firm commitment underwritten
public offering of shares of the Company's common stock by Sahara
(Offering). The Agreement provides (i) the Company with a right
of first refusal to purchase additional shares of Company common
stock from Sahara for 120 days following the closing of the
Offering; (ii) that, concurrently with the closing of the
Offering, the Company will purchase 250,000 shares of Company
common stock from Sahara at the Offering price less 2 percent for
future use in funding the Company's stock obligations under one
or more of its employee benefit plans; and (iii) that Sahara will
indemnify and reimburse the Company against payment of an amount
not to exceed the first $200,000 of the Company's out-of-pocket
expenses in connection with the Offering.
On February 1, 1994, the Company filed a Form S-3 Registration
Statement with the Securities and Exchange Commission in
connection with the Offering. On March 24, 1994, the Offering
was closed and pursuant thereto, Sahara sold 1,850,000 shares of
Company common stock to the public, reducing its ownership of the
issued and outstanding Company common stock to approximately 10%.
Concurrently therewith and pursuant to the Agreement, the Company
purchased 250,000 shares of Company common stock from Sahara for
a purchase price of $15.68 per share, a transaction which the
Company financed with current assets. On April 12, 1994, Sahara
sold an additional 136,000 shares of the Company's Common Stock
to the public in connection with an over-allocation option which
Sahara had granted in connection with the offering. Exclusive of
shares of common stock received by Sahara pursuant to Company
stock dividends or stock splits, Sahara (or its wholly-owned
subsidiary) beneficially owned the shares sold in the Offering
and the 250,000 shares sold to the Company concurrently therewith
since the Company's formation as a holding company effective
February 23, 1981.
See Proxy Statement for Annual Meeting of Stockholders, April 26,
1995, pages 5 and 6.
(b) Certain business relationships.
See Proxy Statement for Annual Meeting of Stockholders, April 26,
1995, pages 3 and 4.
(c) Indebtedness of management.
Not applicable.
(d) Transactions with promoters.
Not applicable.
Form 10-K
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets, December 31, 1994 and 1993
Consolidated Statements of Earnings, Years ended December 31, 1994,
1993, and 1992
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1994, 1993, and 1992
Consolidated Statements of Cash Flows
Years ended December 31, 1994, 1993, and 1992
Notes to Consolidated Financial Statements, December 31, 1994, 1993,
and 1992
Management's Discussion and Analysis of Financial Conditions and
Results of Operations
Statements listed in (a) 1 are all incorporated by reference,
1994 Annual Report to Stockholders, pages 17 - 48.
2. Financial Statement schedules required by Item 8 of this form.
Schedule
Independent Auditors' Report
Condensed Financial Information of Parent Company:
Balance Sheets - December 31, 1994 and 1993
Statements of Earnings - Years ended December 31, 1994,
1993 and 1992
Statements of Stockholders' Equity - Years ended
December 31, 1994, 1993 and 1992
Statements of Cash Flows - Years ended December 31, 1994,
1993 and 1992 I
Valuation and Qualifying Accounts - Years ended
December 31, 1994, 1993 and 1992 II
All other schedules are omitted because they are not applicable or the
information required is immaterial or is presented within the
consolidated financial statements and notes thereto.
Form 10-K
Item 14. (a) cont'd.
3. Exhibits Required by Item 601 of Regulation S-K
Exhibit 2: Agreement and Plan of Reorganization, dated as of March 21,
1995 by and among the Company, Capital Acquisition Corp., a
Nebraska corporation and a wholly-owned subsidiary of the
Company and Nebraska Cellular Telephone Corporation, a
Nebraska corporation.
Exhibit 3: Articles of Incorporation and By-Laws
(3.1) Articles of Incorporation with amendments
(incorporated by reference to Exhibit 3 of the
Company's Form S-3 Registration Statement No. 33-
52117).
(3.2) By-Laws as amended March 16, 1994 (incorporated by
reference to Exhibit 3.2 of the Company's Annual
Report on Form 10-K for the year ending
December 31, 1993).
Exhibit 4: Instruments defining the rights of security holders,
including indentures
(4.1) Rights Agreement, dated as of June 21, 1989,
between the Company and Harris Trust and Savings
Bank (incorporated by reference to Exhibit 4.1 of
the Company's Current Report on Form 8-K dated
June 21, 1989).
(4.2) Amendment to Rights Agreement, dated as of
September 7, 1989, between the Company and Harris
Trust and Savings Bank (incorporated by reference
to Exhibit 4.2 to the Company's Current Report on
Form 8-K dated September 7, 1989).
(4.3) Amendment No. 2 to Rights Agreement dated June 15,
1993, between the Company and Mellon Securities
Trust Company (incorporated by reference to Exhibit
4.5 of the Company's Form S-3 Registration
Statement No. 33-52117.
(4.4) The Indenture issued by The Lincoln Telephone and
Telegraph Company (incorporated by reference to
Exhibit 4.4 to the Company's Annual Report on Form
10-K for the year ending December 31, 1993).
(4.5) Supplemental Indenture Eleven dated June 1, 1990,
(incorporated by reference to the Company's Annual
Report on Form 10-K for the year ending
December 31, 1990).
Form 10-K
Item 14. (a) cont'd.
Exhibit 10: Material Contracts
(10.1) The 1989 Stock and Incentive Plan approved by the
Corporation's stockholders on April 26, 1989, was
filed as an exhibit to Form S-8, File 33-39551,
effective March 22, 1991, and is incorporated
herein by this reference.
(10.2) A specimen of the Executive Benefit Plan
agreement, as amended through January 1, 1993,
provided to the executive officers and director-
level managers of the Corporation and its
affiliates, and a specimen of the Key Executive
Employment and Severance Agreement provided to the
executive officers of the Corporation and its
affiliates on December 23, 1987, were filed as
Exhibit 10 to the Company's 1992 Form 10-K Report
and are incorporated herein by reference.
Exhibit 13: Annual Report to Security Holders
(13.1) Filed as an exhibit to this Report on Form 10-K
and incorporated as indicated herein by reference.
Exhibit 21: Subsidiaries of the Registrant.
The Company owns all the outstanding common stock of The
Lincoln Telephone and Telegraph Company, LinTel Systems
Inc., and Prairie Communications, Inc. See pages 42 - 45,
1994 Annual Report to Stockholders.
Exhibit 23: Accountants' Consent
(23.1) Accountants' consent is attached hereto.
Exhibit 27: Financial Data Schedule
Exhibits 9, 11, 12, 16, 18, 22, 24 and 28 are not applicable.
(b) No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
(c) All exhibits required by Item 601 of Regulation S-K are as indicated
in paragraph (a) 3 above.
(d) Not applicable.
Form 10-K
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
LINCOLN TELECOMMUNICATIONS COMPANY
/s/ Michael J. Tavlin March 15, 1995
By-------------------------------------------- Date -------------------
Michael J. Tavlin, Vice President-Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
President and Chief
/s/ Frank H. Hilsabeck Executive Officer
____________________________ (Principal Executive Officer)
Frank H. Hilsabeck
Senior Vice President and
/s/ Robert L. Tyler Chief Financial Officer
____________________________ (Principal Financial and
Robert L. Tyler Accounting Officer)
/s/ Michael J. Tavlin Vice President - Treasurer
____________________________ and Secretary
Michael J. Tavlin
/s/ Duane W. Acklie
____________________________ Director
Duane W. Acklie
/s/ William W. Cook, Jr.
____________________________ Director
William W. Cook, Jr.
/s/ Terry L. Fairfield
____________________________ Director March 15, 1995
Terry L. Fairfield
/s/ James E. Geist
____________________________ Director
James E. Geist
/s/ J. Taylor Greer
____________________________ Director
J. Taylor Greer
/s/ John Haessler
____________________________ Director
John Haessler
/s/ Charles R. Hermes
____________________________ Director
Charles R. Hermes
Form 10-K
SIGNATURES (cont'd)
____________________________ Director
Donald H. Pegler, Jr.
/s/ Paul C. Schorr, III
____________________________ Director
Paul C. Schorr, III
/s/ William C. Smith
____________________________ Director
William C. Smith
/s/ James W. Stand
____________________________ Director
James W. Stand
/s/ Charles N. Wheatley
____________________________ Director
Charles N. Wheatley
/s/ Thomas C. Woods, III
____________________________ Director
Thomas C. Woods, III
____________________________ Director
Lyn Wallin Ziegenbein
Form 10-K
Exhibit Index
Exhibit Title Page No.
2 Agreement and Plan of Reorganization, dated as of March 21,
1995 by and among the Company, Capital Acquisition Corp.,
a Nebraska corporation and a wholly-owned subsidiary of
the Company and Nebraska Cellular Telephone Corporation,
a Nebraska corporation. *
3.1 Articles of Incorporation with amendments (incorporated
by reference to Exhibit 3 of the Company's Form S-3
Registration Statement No. 33-52117). *
3.2 By-Laws as amended March 16, 1994 (incorporated by re-
ference to Exhibit 3.2 of the Company's Annual Report
on Form 10-K for the year ending December 31, 1993). *
4.1 Rights Agreement, dated as of June 21, 1989, between the
Company and Harris Trust and Savings Bank (incorporated
by reference to Exhibit 4.1 of the Company's Current
Report on Form 8-K dated June 21, 1989). *
4.2 Amendments to Rights Agreement, dated as of September 7,
1989, between the Company and Harris Trust and Savings
Bank (incorporated by reference to Exhibit 4.2 to the
Company's Current Report on Form 8-K dated September 7,
1989). *
4.3 Amendment No. 2 to Rights Agreement dated June 15, 1993,
between the Company and Mellon Securities Trust Company
(incorporated by reference to Exhibit 4.5 of the Company's
Form S-3 Registration Statement No. 33-52117). *
4.4 Indenture issued by The Lincoln Telephone and Telegraph
Company (incorporated by reference to Exhibit 4.4 to the
Company's Annual Report on Form 10-K for the year ending
December 31, 1993). *
4.5 Supplemental Indenture Eleven dated June 1, 1990
(incorporated by reference to the Company's Annual Report
on Form 10-K for the year ending December 31, 1990). *
10.1 The 1989 Stock and Incentive Plan (incorporated by
reference to Form S-8, File 33-39551). *
10.2 Specimen of Executive Benefit Plan (incorporated by
reference to Exhibit 10 to the Company's 1992 Form 10-K). *
13 Annual Report to Security Holders *
21 Subsidiaries of Registrant *
23 Accountant's Consent
27 Financial Data Schedule
*Incorporated by reference.
KPMG Peat Marwick LLP
233 South 13th Street, Suite 1600
Lincoln, NE 68508-2041
Two Central Park Plaza
Suite 1501
Omaha, NE 68102
ACCOUNTANT'S CONSENT
The Board of Directors
Lincoln Telecommunications Company:
We consent to the incorporation by reference in the registration statement
on Forms S-3 and S-8 of Lincoln Telecommunications Company of our report,
dated February 3, 1995, relating to the consolidated balance sheets of
Lincoln Telecommunications Company and subsidiaries as of December 31, 1994
and 1993, and related consolidated statements of earnings, stockholders'
equity and cash flows and relating to the schedules to Form 10-K for each
of the years in the three-year period ended December 31, 1994, which
reports appear in the December 31, 1994 annual report on Form 10-K of
Lincoln Telecommunications Company.
/s/ KPMG Peat Marwick LLP
March 15, 1995
Lincoln, Nebraska
KPMG
LINCOLN TELECOMMUNICATIONS COMPANY
AND SUBSIDIARIES
Independent Auditors' Report and Schedules
Form 10-K Securities and Exchange Commission
December 31, 1994, 1993 and 1992
(With Independent Auditors' Report Thereon)
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Index to Schedules Filed
Schedule
Independent Auditors' Report
Condensed Financial Information of Parent Company:
Balance Sheets - December 31, 1994 and 1993
Statements of Earnings - Years ended December 31, 1994,
1993 and 1992
Statements of Stockholders' Equity - Years ended
December 31, 1994, 1993 and 1992
Statements of Cash Flows - Years ended December 31, 1994,
1993 and 1992 I
Valuation and Qualifying Accounts - Years ended December 31, 1994,
1993 and 1992 II
All other schedules are omitted because they are not applicable or the
information required is immaterial or is presented within the consolidated
financial statements and notes thereto.
KPMG Peat Marwick LLP
233 South 13th Street, Suite 1600
Lincoln, NE 68508-2041
Two Central Park Plaza
Suite 1501
Omaha, NE 68102
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Lincoln Telecommunications Company:
Under date of February 3, 1995, we reported on the consolidated balance
sheets of Lincoln Telecommunications Company and Subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements of
earnings, stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1994, as contained in the 1994 annual
report to stockholders. These consolidated financial statements and our
report thereon are incorporated by reference in the annual report on Form
10-K for the year ended December 31, 1994. In connection with our audits
of the aforementioned consolidated financial statements, we also audited
the related financial statement schedules as listed in the accompanying
index. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth
therein.
/s/ KPMG Peat Marwick LLP
Lincoln, Nebraska
February 3, 1995
Schedule I
<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Balance Sheets
(Parent Company Only)
December 31, 1994 and 1993
<CAPTION>
1994 1993
(Dollars in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,576 2,376
Temporary investments 4,280 9,354
Other current assets 6,652 6,506
-------- --------
Total current assets 13,508 18,236
Investment in subsidiaries 153,166 146,856
Note receivable from subsidiary 33,704 30,013
Other assets 10,199 7,817
-------- --------
$ 210,577 202,922
======== ========
Current liabilities:
Notes payable to banks 6,000 11,500
Other current liabilities 7,372 6,385
-------- --------
Total current liabilities 13,372 17,885
-------- --------
Deferred credits 770 1,005
-------- --------
Stockholders' equity:
Common stock 8,245 8,245
Premium on common stock 37,481 37,481
Retained earnings 159,143 142,859
Treasury stock (8,434) (4,553)
-------- --------
Total stockholders' equity 196,435 184,032
-------- --------
$ 210,577 202,922
======== ========
</TABLE>
(continued)
Schedule I,cont.
<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Statements of Earnings
(Parent Company Only)
Years ended December 31, 1994, 1993 and 1992
<CAPTION>
1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C>
Income:
Equity in earnings of subsidiaries $ 30,810 7,001 27,306
Interest income:
Subsidiary 3,690 3,286 2,926
Other investments 1,436 1,594 1,386
------- ------- -------
35,936 11,881 31,618
Interest expense and other deductions (997) (870) (1,136)
------- ------- -------
Earnings before income taxes and cumulative
effect of change in accounting principle 34,939 11,011 30,482
Income tax expense (1,559) (1,184) (1,211)
------- ------- -------
Earnings before cumulative effect of change
in accounting principle 33,380 9,827 29,271
Cumulative effect of change in accounting principle - (27) -
------- ------- -------
Net earnings $ 33,380 9,800 29,271
======= ======= =======
</TABLE>
(continued)
Schedule I,cont.
<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Statements of Stockholders' Equity
(Parent Company Only)
Years ended December 31, 1994, 1993 and 1992
<CAPTION>
1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C>
Common stock (note) $ 8,245 8,245 8,245
------- ------- -------
Premium on common stock (note) 37,481 37,481 37,481
------- ------- -------
Retained earnings:
Beginning of year 142,859 149,008 133,878
Net earnings 33,380 9,800 29,271
Premium on redemption of subsidiary's preferred stock - - (84)
Dividends declared (17,096) (15,949) (14,057)
------- ------- -------
End of year 159,143 142,859 149,008
------- ------- -------
Treasury stock:
Beginning of year (4,553) (5,299) (1,693)
Net (purchases) sales (3,881) 746 (3,606)
------- ------- -------
End of year (8,434) (4,553) (5,299)
------- ------- -------
Total stockholders' equity $ 196,435 184,032 189,435
======= ======= =======
Note: Effective January 6, 1994, the Company paid a 100% stock dividend to
stockholders of record on December 27, 1993, which has been treated as a stock
split for financial reporting purposes. Common stock, premium on common stock
and all per share information has been retroactively adjusted to give effect to
the stock dividend for all periods presented.
</TABLE>
(continued)
Schedule I,cont.
<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Statements of Cash Flows
(Parent Company Only)
Years ended December 31, 1994, 1993 and 1992
<CAPTION>
1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 33,380 9,800 29,271
------- ------- -------
Adjustments to reconcile net earnings to net
cash provided by (used for) operating activities:
Increase in note receivable (3,691) (3,286) (2,926)
Equity in earnings of subsidiaries (30,810) (7,001) (27,306)
Changes in assets and liabilities resulting
from operating activities:
Other current assets (146) (758) 682
Other current liabilities 746 665 1,045
Deferred credits (235) (479) (90)
------- ------- -------
Total adjustments (34,136) (10,859) (28,595)
------- ------- -------
Net cash provided by (used for)
operating activities (756) (1,059) 676
------- ------- -------
Cash flows from investing activities:
Net purchases (sales) of temporary investments 5,074 (755) 6,901
Purchases of investments and other assets (2,382) (570) (4,162)
------- ------- -------
Net cash provided by (used for)
investing activities 2,692 (1,325) 2,739
------- ------- -------
Cash flows from financing activities:
Dividends to stockholders (16,855) (15,364) (13,688)
Payments on notes payable (5,500) (2,500) (2,000)
Net sales (purchases) of treasury stock (3,881) 746 (3,606)
Dividends from subsidiaries 24,500 21,500 16,000
------- ------- -------
Net cash provided by (used for)
financing activities (1,736) 4,382 (3,294)
------- ------- -------
Increase in cash and cash equivalents 200 1,998 121
Cash and cash equivalents at beginning of year 2,376 378 257
------- ------- -------
Cash and cash equivalents at end of year $ 2,576 2,376 378
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 405 465 704
======= ======= =======
Income taxes $ 1,792 1,542 1,130
======= ======= =======
</TABLE>
Schedule II
<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1994, 1993 and 1992
<CAPTION>
Additions Deductions
Balance at charged to from Balance
beginning costs and allowance at end
Description of year expenses (note) of year
(Dollars in thousands)
<S> <C> <C> <C> <C>
Year ended December 31, 1994,
Allowance deducted from
asset accounts,allowance
for doubtful receivables $ 382 533 456 459
=== === === ===
Year ended December 31, 1993,
Allowance deducted from
asset accounts, allowance
for doubtful receivables $ 419 474 511 382
=== === === ===
Year ended December 31, 1992,
Allowance deducted from
asset accounts, allowance
for doubtful receivables $ 479 251 311 419
=== === === ===
Note: Customers' accounts written-off, net of recoveries.
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 11-K
X Annual Report pursuant to Section 15(d)
----- of the SECURITIES EXCHANGE ACT of 1934
[Fee Required]
For the Fiscal Year Ended December 31, 1994
Or
Transition Report pursuant to Section 15(d)
----- of the SECURITIES EXCHNAGE ACT of 1934
[No Fee Required]
A. Full title of the Plan and the address of the Plan, if different from
that of the issuer named below:
LINCOLN TELECOMMUNICATIONS COMPANY EMPLOYEE AND STOCKHOLDER
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN, AS AMENDED
B. Name of issuer of the securities held pusuant to the Plan and the
address of its principal executive office:
LINCOLN TELECOMMUNICATIONS COMPANY
1440 M Street
P.O. Box 81309
Lincoln, Nebraska 68501-1309
(402) 474-2211
KPMG
LINCOLN TELECOMMUNICATIONS COMPANY
EMPLOYEE AND STOCKHOLDER DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLAN
Financial Statements
Form 11-K
Securities and Exchange Commission
December 31, 1994, 1993 and 1992
(With Independent Auditors' Report Thereon)
LINCOLN TELECOMMUNICATIONS COMPANY
EMPLOYEE AND STOCKHOLDER DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLAN
Index to Financial Statements
Independent Auditors' Report
Statements of Financial Condition - December 31, 1994 and 1993
Statements of Revenues and Common Stock Purchases -
Years ended December 31, 1994, 1993 and 1992
Notes to Financial Statements - December 31, 1994, 1993 and 1992
All schedules are omitted because they are not applicable.
KPMG Peat Marwick LLP
233 South 13th Street, Suite 1600
Lincoln, NE 68508-2041
Two Central Park Plaza
Suite 1501
Omaha, NE 68102
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Lincoln Telecommunications Company:
We have audited the financial statements of Lincoln Telecommunications
Company Employee and Stockholder Dividend Reinvestment and Stock Purchase
Plan as listed in the accompanying index. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lincoln
Telecommunications Company Employee and Stockholder Dividend Reinvestment
and Stock Purchase Plan at December 31, 1994 and 1993, and its revenues and
common stock purchases for each of the years in the three-year period ended
December 31, 1994, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Lincoln, Nebraska
February 3, 1995
<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY
EMPLOYEE AND STOCKHOLDER DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLAN
Statements of Financial Condition
December 31, 1994 and 1993
<CAPTION>
Assets 1994 1993
<S> <C> <C>
Due from Lincoln Telecommunications Company (note 2):
Contributions $ 153,539 177,653
Dividends 282,989 269,246
------- -------
$ 436,528 446,899
======= =======
Liabilities
Balance to be invested in common stock for participants
(notes 1 and 2) $ 436,528 446,899
======= =======
See accompanying notes to financial statements.
</TABLE>
<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY
EMPLOYEE AND STOCKHOLDER DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLAN
Statements of Revenues and Common Stock Purchases
Years ended December 31, 1994, 1993 and 1992
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Revenues:
Cash dividends $1,096,160 925,269 502,839
Contributions 734,044 760,455 997,938
--------- --------- ---------
1,830,204 1,685,724 1,500,777
--------- --------- ---------
Assets held for purchases of common stock (note 2):
Beginning of year 446,899 387,682 308,622
Less, end of year (436,528) (446,899) (387,682)
--------- --------- ---------
10,371 (59,217) (79,060)
--------- --------- ---------
Common stock purchases $1,840,575 1,626,507 1,421,717
========= ========= =========
See accompanying notes to financial statements.
</TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY
EMPLOYEE AND STOCKHOLDER DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLAN
Notes to Financial Statements
December 31, 1994, 1993 and 1992
(1) STATEMENT OF PURPOSE AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Lincoln Telecommunications Company Employee and Stockholder
Dividend Reinvestment and Stock Purchase Plan (Plan) provides
stockholders and eligible employees of Lincoln Telecommunications
Company (Company) and its subsidiaries with a convenient and
economical way to invest cash dividends and optional cash
contributions to purchase additional shares of common stock of the
Company.
Shares are offered for purchase to all stockholders and all regular
full-time and regular part-time employees of the Company with not less
than six months of service. Any individual who owns 5 percent or more
of the total combined voting power of value of all classes of stock of
the Company is not eligible to participate in the Plan.
The Company paid, on January 6, 1994, a 100% stock dividend to
stockholders of record on December 27, 1993.
The accompanying financial statements have been prepared on an accrual
basis and present the financial condition of the Plan and its revenues
and common stock purchases. All assets are held for the purchase of
common stock of the Company.
Effective on June 15, 1993, Mellon Securities Trust Company became the
transfer agent, registrar, rights agent and Plan administrator. Prior
to that date, the Company was the transfer agent, registrar and Plan
administrator and Harris Trust and Savings Bank was the rights agent.
(2) PARTICIPATION
Stock for the Plan is purchased on the open market. The basis for the
purchase price of the stock allocated to the Plan participants is the
average price paid during the 5-day trading period preceding and
including the dividend payment date. Employee purchases are at 95%
of such price while purchases by non-employee participants are at 100%
of such price.
Participants in the Plan may use cash dividends declared on stock
owned and optional cash contributions to purchase additional stock.
Any contributions received by approximately eight days before the end
of each calendar quarter will be used to purchase shares of stock as
of the next dividend date.
Shares purchased in the open market for the Plan aggregated 112,423,
115,208 and 121,272 during 1994, 1993 and 1992, respectively. At
December 31, 1994, the agent for the Plan held 1,144,193 shares
registered for participants.
(3) INCOME TAXES
No provision is made for income taxes relating to the operations of
the Plan. Any income tax consequences of participation in the Plan
are that of the participants.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the plan) have duly caused this
annual report to be signed by the undersigned thereunto duly authorized.
LINCOLN TELECOMMUNICATIONS COMPANY
EMPLOYEE AND STOCKHOLDER DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLAN
------------------------------------
(Name of Plan)
/s/ Michael J. Tavlin
By ___________________________
Vice President-Treasurer
Date March 15, 1995
------------------
AN INSIDE LOOK
Toss a stone into the water. Ripples methodically move outward affecting
all they touch. At Lincoln Telecommunications we are part of an industry
caught up in the ripples of change. An industry that will blend
communications, information and entertainment. An industry challenged by
increased competition. In 1994, we set in motion ripples of our own that
will enable us to better serve our customers, while further rewarding our
shareholders. This report reflects some of these important changes.
ABOUT THE COMPANY. Lincoln Telecommunications is a diversified
communications company offering services and products to consumers,
businesses, educational institutions and government entities in
southeastern and eastern Nebraska. Headquartered in Lincoln, Nebraska, the
company employs over 1,600 people and is dedicated to excellence in the
business of helping people communicate. The company seeks to provide "one-
stop" communications shopping for its customers. Lincoln
Telecommunications' businesses are organized into three general
operations: local telecommunications, wireless and diversified. More
information about these business segments is included on pages 3 and 4.
STRATEGIC PRIORITIES. Our vision is to be the leader in providing our
customers with integrated communications, entertainment and information
services over wired broadband and wireless networks. We will achieve this
through five strategic priorities. This five-point plan was introduced in
1993 and continues to guide our growth for the future.
Priority One: Grow our business both in-region and out-of-region.
Priority Two: Increase our productivity through redesigned
business processes.
Priority Three: Rebalance our prices to become the competitive price
leader.
Priority Four: Achieve regulatory parity at local, state and
federal levels.
Priority Five: Strengthen our customer focus through an empowered
work force.
CONTENTS
Operations and Earnings Highlights 2
The Company at a Glance 3
Report to Stockholders 5
On the Move 9
Platforms for Growth 11
People and Communities 15
Financial 17
Officers, Directors and Committees 49
Investor Information 50
OPERATIONS AND EARNINGS HIGHLIGHTS
December 31 1994 1993 1992
(dollars in thousands, except per share date)
Operating Data
Operating Revenues $ 196,784 $ 184,350 $ 175,368
Net Income
Before one-time charge $ 37,186* $ 33,191* $ 29,609
After one-time charge $ 33,605 $ 10,025 $ 29,609
Per Share Data
Earnings
Before one-time charge $ 1.14* $ 1.01* $ 0.90
After one-time charge $ 1.03 $ 0.30 $ 0.90
Dividends $ 0.53 $ 0.49 $ 0.43
Book Value $ 6.07 $ 5.65 $ 5.82
Key Ratios
Return on Common Equity 18.8%* 17.9%* 15.5%
Debt Ratio 19.8% 20.9% 29.2%
Other Data
Total Assets $ 393,184 $ 395,279 $ 369,116
Stockholders' Equity $ 196,435 $ 184,032 $ 189,435
Capital Expenditures $ 31,291 $ 24,997 $ 25,730
Telephone Access Lines in Service 246,963 238,142 232,148
Telephone Employees 1,392 1,422 1,429
*In 1994, the company took an after-tax charge of $3,581,000 related to
one-time special depreciation charges for cellular equipment. In 1993, the
company took a one-time, after-tax accounting charge of $23,166,000 related
to retirees' health benefits. Return on common equity was 17.0% in 1994 and
5.3% in 1993, after these one-time charges.
Earnings Per Share Total Revenues Dividends Declared
1990 $ 0.74 (in millions)
1991 $ 0.83 1990 $ 165 1990 $ 0.37
1992 $ 0.90 1991 $ 168 1991 $ 0.40
1993 $ 1.01* 1992 $ 175 1992 $ 0.43
1993 $ .30 1993 $ 184 1993 $ 0.49
1994 $ 1.14* 1994 $ 197 1994 $ 0.53
1994 $ 1.03
*Before one-time charge (an accounting change in 1993;
depreciation charges in 1994).
Since 1990, growth in earnings per share has exceeded 11% on the average,
while growth in total revenues has averaged over 4%. There have been cash
dividend increases in each of the past five years.
THE COMPANY AT A GLANCE
LOCAL BUSINESS DESCRIPTION
The company provides local communication service through more than 246,000
customer access lines in 22 contiguous counties in southeast Nebraska. This
area includes the city of Lincoln, with a population of 200,000. The
company's local exchange network is 100 percent digital and includes nearly
1,300 miles of fiber optic cable, much of it in a ring configuration.
Customer segments served include residential, business, government and
education. These customers purchase local service, enhanced services like
Caller ID, intraLATA toll, and a variety of data services. The company also
publishes six regional telephone directories. In addition, the company
provides access services to long distance and cellular companies.
1994 HIGHLIGHTS
Over $23 million was invested in network upgrades. Access lines grew to
246,963, a 3.7 percent increase, with even greater increases in business
and Centrex lines. Marketing promotions stirred interest in enhanced
services. Around 25 percent of residential access lines now have
traditional Custom Calling services. About 17 percent of the company's
residential access lines have newer enhanced services like Caller ID. In
November, access to the Internet was offered to business customers. It will
be available to residential customers in early 1995.
1995 OBJECTIVES
- Begin deploying a broadband network in the city of Lincoln to increase
network efficiency, capacity and service offerings.
- Increase efficiencies and improve service delivery through Business
Process Re-engineering.
- Increase penetration of enhanced services.
- Conduct multimedia trials.
WIRELESS BUSINESS DESCRIPTION
The company manages three cellular markets in which it has an ownership
interest: Lincoln Telephone Cellular, with approximately 221,000 POPS
(population); First Cellular Omaha, with approximately 624,000 POPS; and
Cellular 29 Plus in Iowa, with approximately 62,000 POPS. Adjusted for
ownership levels of 100 percent for Lincoln, 27.6 percent for Omaha and
11.8 percent for Iowa, the company manages markets containing approximately
400,000 POPS. Additionally, the company has a 16.1 percent ownership
position in the Nebraska Cellular Telephone Corporation, which provides
cellular service to rural Nebraska. The company also provides a wide area
paging service in Nebraska's major cities and communities.
1994 HIGHLIGHTS
Cellular operations generated solid gains in subscribers, revenues and
operating income. Cellular subscribers increased over 55 percent. $6.8
million was invested in network upgrades as adjusted for ownership levels
in managed markets.The Omaha switching system was converted to digital.
Omaha added five new cell sites and one retail store. Lincoln added three
new cell sites and an expanded retail store was opened.
1995 OBJECTIVES
- Convert Lincoln Telephone Cellular's system to digital.
- Add two new retail/service center stores.
- Offer value-added services to increase "talk time."
- Continue efforts to improve customer retention.
- Work to reduce customer acquisition costs.
DIVERSIFIED BUSINESS DESCRIPTION
The company's diversified operations include LinTel Systems, a business
equipment division which markets and services PBXs, key systems and other
sophisticated communications equipment for business customers in eastern
and southeastern Nebraska. LinTel also provides a long distance service,
Lincoln Telephone Long Distance (LTLD), to residential and business
customers located within its primary 22-county market. The company is also
involved with Anixter-Lincoln, a wholesale service provider of
communications equipment.
1994 HIGHLIGHTS
LinTel Systems had a record year with total sales and revenues of $29.7
million. This growth was driven by major system upgrades at four hospitals
and increased sales in the Omaha market. Revenues from maintenance were
also up at LinTel. LTLD's revenues, down from the prior year, reflect the
highly competitive nature of the long distance business. Minutes of use for
the year were 114,520,000, about the same as the prior year.
1995 OBJECTIVES
- Maintain level performance at LinTel Systems.
- Develop and market new long distance calling programs at LTLD.
- Integrate advertising and communications programs to leverage the
company's position as a single-source provider of communications
services in southeast Nebraska.
TAKING CHARGE OF CHANGE
In 1994, we achieved outstanding operating results. Revenues grew by 6.7
percent. Earnings per share rose 12.9 percent before one-time charges. We
increased our quarterly dividend to $0.14 per share. We are equally proud
of the changes we set in motion in 1994 to sharpen our customer focus,
change our methods of operation and prepare ourselves for the new age of
telecommunications. We began transforming ourselves to ensure our long-term
growth prospects and future success. Before discussing these activities and
the impact they will have on customers and the company in the years ahead,
let us review our 1994 financial results.
1994 WAS A YEAR OF OUTSTANDING GROWTH. We experienced increases in our
basic telephone volumes, in demand for enhanced telephone services and for
our equipment business. But it was the performance of our cellular
operations that further strengthened our position in this fast growing
communications area.
Return on Common Equity Free Cash Flow
(in millions)
1990 14.7% 1990 $ 13
1991 15.4% 1991 $ 20
1992 15.5% 1992 $ 35
1993 17.9% 1993 $ 34
1994 18.8% 1994 $ 40
Return on Common Equity is shown before one-time charges for an accounting
change (1993) and depreciation charge (1994). Free Cash Flow shows net cash
provided by operating activities minus expenditures for property, plant and
equipment. This represents cash the company can invest in future growth.
Earnings for the year were a record $1.14 per share, versus $1.01 per
share in 1993. This 12.9 percent increase is before the special one-time
charges which are discussed later in this report. We are particularly proud
that our earnings growth rate exceeded our revenue growth by a considerable
margin.
Revenues achieved substantial gains. Total operating revenues were up 6.7
percent. The gain was led by a 57 percent increase in revenues in the
Lincoln cellular market. Local network service revenue growth of 9.6
percent and access service revenue growth of 6.4 percent contributed to our
success.
Healthy increases in telephone volumes added to our bottom-line
accomplishments. Access minutes of use for 1994 were up 6.5 percent over
1993, while total access lines in service grew 3.7 percent.
Driving our growth in 1994 were the cellular operations we manage.
Revenues, operating income and new subscribers added up to an impressive
year. Subscribers increased 55.8 percent.
Expense management continued to be an important goal during 1994. Early
retirement of $35 million in long-term debt, converted to short-term debt
at a reduced interest rate, helped further control our expenses.
In summary, Lincoln Telecommunications' 1994 performance produced solid
financial gains in revenues, earnings and dividends. Our past success,
however, does not guarantee our future. Good is not good enough when better
is expected.
In an environment of increasing competition, new technology and rapidly
emerging market opportunities, we must make fundamental changes to meet
these challenges and take advantage of them.
Achieving the growth we need requires more than entering new businesses.
It also involves changes to current businesses: streamlining operations,
understanding and meeting the needs of customers, preparing for competition
across all lines of business. We made significant progress on several
fronts.
IMPROVE OUR COMPETITIVE POSITION THROUGH RE-ENGINEERING. Business Process
Re-engineering will enable us to make our business more cost-efficient and
market focused. We are completely revamping the Customer Fulfillment
Process--all the things we do from the time a customer contacts us until
that customer's needs are fulfilled. Early results are starting to pay off
with faster service, higher customer satisfaction and reduced costs. As
more re-engineering is undertaken and implemented in 1995 and beyond, we
expect even greater benefits.
INNOVATE BY INTRODUCING NEW VALUE-ADDED SERVICES. Services like Voice Mail
and Caller ID have made strong contributions to revenue growth in our
traditional markets. In 1994, enhanced services added up to $3.3 million in
recurring revenues--up 217 percent since 1990. Navix, our new Internet
access service for business customers, is our latest innovation. It
provides easy access to the Internet: the nation's premier Information
Superhighway. This service will be available to residential customers in
early 1995. We're also exploring a whole range of interactive, multimedia
services.
EXPAND OUR PRESENCE IN CELLULAR. The demand for cellular products and
services continues to exceed our expectations. The number of subscribers
has tripled in the last three years. We increased capacity and upgraded to
a digital network in Omaha in 1994 and will be making similar improvements
to our Lincoln network in 1995. We increased our stake in Nebraska Cellular
Telephone Corporation to 16.1 percent in 1994 and continue to look for
opportunities to add to our holdings of this statewide network. After 1996,
we anticipate exercising our option to increase our holdings in First
Cellular Omaha to 55 percent. Cellular's appeal is expected to fuel
important growth in our company.
FOCUS MORE CLOSELY ON THE NEEDS OF SPECIFIC CUSTOMER SEGMENTS. By working
with specific customer groups, we can better anticipate and respond to our
customers' needs and requirements. This, in turn, reinforces our position
as a one-stop provider of communications services. These efforts helped us
win important government and business contracts. In addition, we have
increased penetration rates for enhanced services in our consumer market
and enjoyed healthy increases in the sale of services to our business
customers. These efforts will continue in 1995.
DEVELOP PLANS TO DEPLOY A BROADBAND NETWORK. In 1995, we'll begin the
initial phase of a new video-capable technology platform. This broadband
network will accelerate our entry into interactive, multimedia markets and
address our customers' growing interest in additional communications,
entertainment and information services. It will also allow more efficient
provisioning of traditional telephone services. We plan to conduct trials
in 1995 to learn more about consumer demand for multimedia services and to
gain first-hand experience for the provisioning and maintenance of video
dial tone services.
Many of these initiatives, most notably re-engineering, have created
significant, sometimes radical changes. We see change as good; difficult,
but necessary. Lincoln Telecommunications' many strengths enable us to take
charge of change. We are financially strong, a leader in deploying new
technology, and we benefit from an excellent regulatory environment in
Nebraska. We have loyal customers and a dedicated work force. We're also
very motivated.
In the pages that follow, you will learn more about what we are doing to
manage fundamental changes that are transforming our industry.
/s/ Thomas C. Woods, III /s/ Frank H. Hilsabeck
Thomas C. Woods, III Frank H. Hilsabeck
Chairman of the Board President and
Chief Executive Officer
ON THE MOVE...
NEVER OUT OF TOUCH
Cellular just keeps growing and growing and growing. It's become an
integral part of most businesses. Now, it's winning over the population at
large.
He's not a kid anymore. But your soon-to-be high school graduate isn't a
full-fledged adult either. He's got a car, a part-time job, a girlfriend,
school and a killer schedule. You bought him a cellular phone just in case
he might need it--and to give yourself a little peace of mind.
He's typical of today's new kind of cellular user--people who once
thought they'd never need it or couldn't justify the cost.
THE DRIVING FORCE. Cellular is driving our growth. In the markets we
manage--Omaha, Lincoln and RSA 1 in Iowa--annual customer growth has
exceeded 55 percent for the past two years. And while our penetration rates
are high, there's still enormous potential. We're positioning ourselves to
capitalize on these untapped markets.
STRATEGIC INVESTMENTS. Keeping ahead of demand is critical in this fast-
growing and increasingly competitive business. We are especially proud of
our cellular networks and the competitive advantage they give us. In 1994,
we installed a new digital cellular switch in Omaha. It is the first of its
kind for the area. The new system doubles capacity, delivers clearer
reception and provides greater call security. It is designed for the new
generation of digital cellular phones, yet still provides high quality
communication for customers with analog equipment. Lincoln will be
converted to digital in 1995.
The addition of more cell sites means better cellular communication. In
Lincoln, we currently have almost three times as many cell sites as our
competitor. This means our customers, especially those with small, hand-
held phones, receive more reliable service. In Omaha, we've nearly doubled
the number of cell sites in the last three years. And more sites are on the
drawing board for 1995.
RETAIL CENTERS PROMOTE CONVENIENCE, SERVICE. Our retail centers are growing
along with our customers. While we have many distribution outlets, we know
our retail centers are the most cost-effective way to promote and sell our
products and services. They offer customers a complete line of cellular
phones and services, along with a knowledgeable, helpful sales staff--a
personal service approach that sets us apart as the communications
specialists.
The public's perception of cellular is changing. More and more consumers
now consider cellular a good value. Add that to cellular's biggest appeal--
the freedom to roam; to make and receive calls anywhere, any time--and you
see the potential for growth and the attractive revenues the future holds.
THE POWER OF PAGING
While cellular gets most of the press these days, there's another wireless
service that shouldn't be overlooked. Paging doesn't let you carry on a
conversation, but it still delivers a lot of information--from a basic
phone number to extensive messages. Some pagers can store up to 40
messages. They come in many sizes, shapes and colors--even bright neon. The
price is right, too. Paging's a very affordable alternative to cellular.
You're free to roam, yet stay in touch. A new paging system installed in
January 1995 expands our coverage area into the Omaha market.
Cellular Subscribers Cellular Revenues Cellular Equipment
(in thousands) (in millions) Additions (in millions)
1992 11 1992 $ 6 1992 $ 2
1993 19 1993 $ 10 1993 $ 3
1994 30 1994 $ 15 1994 $ 7
Managed markets include the Lincoln and Omaha MSAs and Iowa RSAI. Data
represents the company's interest in Lincoln MSA (100%), Omaha MSA (27.6%)
and Iowa RSAI (11.8%).
PLATFORMS FOR GROWTH
If you're not leading-edge, you're left behind. Start with a good network
and make it better. Offer services that enhance customers' workdays as well
as their everyday lives. Delight customers with value-added services.
THE PHONE RINGS. YOU CHECK CALLER ID TO SEE WHO'S CALLING. At school, your
children point and click their way into a world of digitized films,
information and educational material. A customer calls wanting your
advertised special. You're sold out at your location, but your store across
town has plenty in stock. "Let me connect you with our other store." You
transfer the call and help make the sale.
Lincoln Telecommunications' advanced telecommunications network is the
strong link working behind the scenes to deliver these services.
AN ADVANCED NETWORK FOR TODAY & INTO THE FUTURE. During the past 10 years,
Lincoln Telecommunications has invested more than $300 million in new
technology to create a network with all-digital switching, improved
transmission quality and enhanced services to meet the changing needs of
customers. All this while benefiting the bottom line with reduced
administration and maintenance costs.
Nearly 1,300 miles of fiber optic cable provide the highest quality
communications links to customers. A total of 83 percent of our exchanges,
representing 97 percent of our access lines, are served by these fiber
optic facilities. In addition, five fiber optic rings, including one in
downtown Lincoln, connect all major offices in our network. These redundant
systems keep our customers communicating, even if a cable is cut or a
tornado knocks out a switching office.
ENHANCED SERVICES: SMART TOOLS FOR HOME & OFFICE. Remember when a remote
control TV was considered a luxury? Or you thought your neighbors were
spoiling their kids by giving them a teen line? Not anymore. They're
necessities for the '90s, right alongside Call Waiting, Caller ID, cordless
phones and second lines. They increase productivity and efficiency. They
put customers in control.
Lincoln Telecommunications offers products and services to make
communicating simple, convenient and helpful. Both at work and home,
customers are adding lines and enhanced services.
Lincoln, the largest city served by our wireline operations, is growing.
It recently topped the 200,000 mark. Other communities we serve are doing
well, but the population in smaller towns and rural areas is declining.
The demand for voice and data communications is strong. We see that trend
continuing, helped by the introduction of Navix, our new access service to
the Internet. Business customers were the first to tap into the world's
premier Information Superhighway when Navix was launched last November.
Soon, residential customers will have the same opportunity to explore this
extraordinary resource. The first stop on their way to cyberspace will be
our "home page."
THE VALUE OF ENHANCED SERVICES. Our network was built to offer customers a
variety of options. It can be customized to meet customers' growing and
changing needs. The value-added services now available, along with
innovative new services to debut this year, increase network use and
generate significant revenues. And because of the network's capacity, these
services offer tremendous growth potential.
Call Waiting and Caller ID again lead the list of the most popular
enhanced services we offer. Customers appreciate their convenience and
value. Revenues from Call Waiting grew 17 percent; Caller ID jumped 57
percent. Caller ID's appeal and popularity should continue to show
impressive gains. An industry change coming in 1995 will let a Caller ID
unit display the phone numbers of calls originating outside our area, as
long as both companies have Caller ID capabilities. While penetration rates
have increased over the past three years, there's still excellent growth
potential.
Access Lines by Type (in thousands)
Residence Business Centrex Total
1990 166 38 18 222
1991 168 39 19 226
1992 171 40 21 232
1993 173 42 23 238
1994 178 44 25 247
Access Minutes of Use LTLD Minutes of Use
(in millions) (in millions)
1990 663 1990 108
1991 696 1991 104
1992 728 1992 106
1993 789 1993 115
1994 841 1994 115
Access line growth was greatest in the higher revenue-producing areas,
especially Centrex and business lines. Access minutes of use for the local
exchange network rose 6.5% in 1994. Minutes of use for LTLD, our long
distance business, held steady.
These enhanced services, an important revenue source, demonstrate our
commitment to offering services that meet the needs of our customers. They
play an important role in building customer satisfaction and loyalty.
Call Trace--a new feature introduced in 1994 for tracing the last call
received--is a recent addition to the list of new services we offer. Other
advanced services will debut in 1995 and will include Call Rejection,
Priority Call and Selective Call Forwarding.
With FingerTips, an enhanced feature of our directories, customers use a
touch-tone phone to tap into a variety of information: local news, sports,
weather forecasts, games, horoscopes and even updates on favorite "soaps."
This 24-hour resource positions us as an information provider--an
association important to us and our advertisers as we begin exploring new
information-age opportunities.
BUILDING PARTNERSHIPS WITH BUSINESS CUSTOMERS. Our business customers see
our powerful network and its services in a different way. Their focus is on
the bottom line. We help with communications solutions--products and
services that make business sense and in some cases change the way business
works.
In 1994, we helped four major hospitals purchase new systems to meet
their critical communications needs. Our two largest Centrex customers--the
State of Nebraska and the University of Nebraska-Lincoln, extended long-
term contracts with us. A multimillion dollar contract with Lincoln Public
Schools makes us the provider of telecommunications products and services
for the district's 49 buildings, including data networks and access to the
Internet.
Our Frame Relay Service--a high-speed, wide-area communications network--
supports leading-edge technology for practically any business need:
multimedia, data transfer, LAN interconnection allowing businesses to share
applications among diverse locations, and access to the Internet. More than
80 customers now use the service, representing government, education and
businesses.
Significant growth is projected for 1995 when more companies will realize
the benefits the Internet and the Information Superhighway
can bring to their businesses.
ADDING VALUE TO OUR CORE NETWORK SERVICES. Fulfilling customer needs every
time is an important goal for us. And we want customers to regard Lincoln
Telecommunications as their single source for communications solutions and
information. Our business equipment division offers customers one-stop
shopping for communications services.
Lincoln Telephone Long Distance, our long distance service, provides
businesses, as well as residential customers, with a competitive, hometown
choice.
THE FUTURE: WORDS, IMAGES, DATA. We started as a telephone and telegraph
company 90 years ago. Our traditional telephone services continue to be our
core business. But we see changes coming, and we're preparing for them by
creating the platforms for growth and success.
We see a future filled with new possibilities: video-on-demand,
interactive games, home shopping and banking, and information resources
that reach into libraries, museums and institutions of higher learning
throughout the world.
It's a whole new world of communications. And Lincoln Telecommunications
plans to be a big part of it.
OUR NETWORK FOR THE FUTUTE
In 1995, we will start building an advanced, broadband network capable of
delivering video and multimedia services along with the telecommunications
services we offer today. This new platform will support such applications
as video-on-demand. And, it will be capable of delivering integrated
multimedia that blends voice, text, data and full-motion video. We expect
to have this network completed in 10 years.
PEOPLE & COMMUNITIES
Helpful, responsive service builds trust and loyalty among customers. It
strengthens our relationships with the communities we serve.
"Dear Lincoln Telephone," the handwritten note begins, "I really
appreciated the courtesy that I received from Joyce Sedersten while we
reviewed the billing. Employees such as Joyce are a real asset to any
company."
Joyce, a Hastings employee, exemplifies our commitment to "Putting
Customers First." It's a tradition that began in our days as a regulated
monopoly. It remains an important cornerstone in the competitive,
deregulated environment we operate in today.
"Putting Customers First" isn't just a slogan, it's a call to action for
each of our employees.
We are committed to gaining customer loyalty by developing mutually
beneficial relationships. We achieve this through a wide variety of high
quality communications services, competitive prices and friendly service.
We understand that satisfying customers is not enough; we need to delight
them.
WE LISTEN AND LEARN. We listen carefully to customers and use this
knowledge to influence investment decisions. For example, customers want
the convenience of "one-stop" shopping--a single, trusted source for local
phone service, cellular, long distance and communications equipment. Our
customers have also encouraged us to begin exploring interactive,
information-based services.
The customer loyalty we have today gives us a powerful competitive
advantage. We know our markets better than anyone and use this knowledge to
meet or exceed customer expectations.
SERVING OUR CUSTOMERS. Superior customer service is another goal.
Delighting customers requires an empowered work force equipped with the
right tools, training and authority. We're involving employees in decision-
making and tapping into their wealth of experience, intelligence and
commitment.
Employees are finding new ways to work using Business Process Re-
engineering. In just eight months, our first re-engineering team redesigned
our Customer Fulfillment Process. They carefully researched and designed a
radically different, customer-friendly process that reduces costs and
enhances revenues.
We started a second re-engineering project, Network Renewal, in January.
Network Renewal will enhance all of the behind-the-scenes work that's
needed to make the Customer Fulfillment Process more responsive to our
customers. Together, Network Renewal and Customer Fulfillment will
significantly improve our ability to deliver competitive products and
services.
SERVING OUR COMMUNITY. Lincoln Telecommunications strives to be a
responsible corporate citizen by contributing to the well-being of our
communities.
We support more than 75 organizations. Our employees are encouraged to be
active in their communities. They give generously to United Way campaigns,
serve on boards of nonprofit organizations, and volunteer their time to
organizations like Big Brothers and Big Sisters. We support the environment
through our directory recycling campaigns.
We've grown and prospered in southeast Nebraska for 90 years. We believe
the strength of our company is directly related to the health of the
communities we serve.
THAT "CAN-DO" SPIRIT
The Corporate Campaign Against Hunger, an annual food drive benefiting the
Food Bank of Lincoln, is a spirited competition for employees. Each year,
work groups compete to see who can bring in the most food. Over the past
two years, more than four tons of canned goods and nearly $800 in cash have
been donated. The 1994 winning team--drafters in our Engineering
Department--averaged 56 items per person. It was their second year to take
top honors.
Telephone Employees Per Revenues From Enhanced
10,000 Access Lines Services (in thousands)
1990 66.5 1990 $ 1,030
1991 64.5 1991 $ 1,248
1992 61.6 1992 $ 1,739
1993 59.7 1993 $ 2,498
1994 56.4 1994 $ 3,264
The decreasing number of employees per 10,000 access lines reflects efforts
to improve productivity. Revenues from enhanced services, such as Call
Waiting, Caller ID and Voice Mail, are growing steadily.
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Lincoln Telecommunications Company:
We have audited the accompanying consolidated balance sheets of Lincoln
Telecommunications Company and Subsidiaries as of December 31, 1994 and
1993, and the related consolidated statements of earnings, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Lincoln
Telecommunications Company and Subsidiaries at December 31, 1994 and 1993,
and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in notes 8 and 10 to the consolidated financial statements,
the Company adopted Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, and
Statement of Financial Accounting Standards No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions, in 1993.
KPMG PEAT MARWICK LLP
Lincoln, Nebraska
February 3, 1995
FINANCIAL STATEMENTS
<TABLE>
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1993
<CAPTION>
ASSETS 1994 1993
(Dollars in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 22,038 15,341
Temporary investments, at cost (note 3) 24,635 34,451
Receivables, less allowance for doubtful
receivables of $459,000 in 1994 and $382,000
in 1993 26,232 25,429
Materials, supplies and other assets 7,052 6,530
-------- --------
Total current assets 79,957 81,751
-------- --------
Property and equipment (note 2) 458,953 449,540
Less accumulated depreciation and amortization 217,183 203,436
-------- --------
Net property and equipment 241,770 246,104
-------- --------
Investments and other assets (note 4) 52,578 47,163
-------- --------
Deferred charges (note 8) 18,879 20,261
-------- --------
$ 393,184 395,279
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks (note 7) $ 23,000 41,500
Accounts payable and accrued expenses 26,632 19,989
Income taxes payable 1,910 2,493
Dividends payable 4,585 4,345
Advance billings and customer deposits 6,197 6,058
-------- --------
Total current liabilities 62,324 74,385
-------- --------
Deferred credits:
Unamortized investment tax credits 3,832 4,892
Deferred income taxes (note 8) 20,542 22,974
Other (notes 8 and 10) 61,552 60,497
-------- --------
Total deferred credits 85,926 88,363
-------- --------
Long-term debt (notes 2 and 7) 44,000 44,000
-------- --------
Preferred stock, 5%, redeemable (note 5) 4,499 4,499
-------- --------
Stockholders' equity 196,435 184,032
-------- --------
$ 393,184 395,279
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended December 31, 1994, 1993 and 1992
<CAPTION>
1994 1993 1992
(Dollars in thousands except per share data)
<S> <C> <C> <C>
Telephone operating revenues:
Local network services $ 77,617 70,833 66,022
Access services (note 12) 50,570 47,531 44,458
Long distance services 14,679 15,244 16,033
Directory advertising, billing and
other services (note 12) 16,972 16,355 16,229
Other operating revenues 14,856 13,951 14,018
------- ------- -------
Total telephone operating revenues 174,694 163,914 156,760
------- ------- -------
Diversified operations revenues and sales:
Long distance services 18,765 19,622 18,933
Product sales 10,583 8,089 7,469
Other revenues 353 343 349
------- ------- -------
Total diversified operations revenues
and sales 29,701 28,054 26,751
------- ------- -------
Intercompany revenues (note 12) (7,611) (7,618) (8,143)
------- ------- -------
Total operating revenues 196,784 184,350 175,368
------- ------- -------
Operating expenses:
Depreciation 31,864 28,596 29,626
Additional non-recurring depreciation
on cellular equipment (note 2) 3,761 -- --
Cost of goods and services (note 12) 18,603 17,709 18,103
Other operating expenses 88,694 85,915 80,219
Taxes, other than payroll and
income (note 15) 3,180 2,923 4,135
Intercompany expenses (7,611) (7,618) (8,143)
------- ------- -------
Total operating expenses 138,491 127,525 123,940
------- ------- -------
Operating income 58,293 56,825 51,428
------- ------- -------
Non-operating income and expense:
Income from interest and other investments 5,182 4,540 3,660
Charge for additional non-recurring
depreciation on cellular equipment in
limited partnership (note 2) 2,179 -- --
Interest expense and other deductions 6,624 8,556 9,378
------- ------- -------
Net non-operating expense 3,621 4,016 5,718
------- ------- -------
Income before income taxes and
cumulative effect of change in
accounting principle 54,672 52,809 45,710
Income taxes (notes 8 and 15) 21,067 19,618 16,101
------- ------- -------
(continued)
CONSOLIDATED STATEMENTS OF EARNINGS (continued)
Years ended December 31, 1994, 1993 and 1992
1994 1993 1992
Income before cumulative effect of
change in accounting principle 33,605 33,191 29,609
Cumulative effect of change in accounting
principle (note 10) -- 23,166 --
------- ------- -------
Net income 33,605 10,025 29,609
Preferred dividends 225 225 338
------- ------- -------
Earnings available for common shares $ 33,380 9,800 29,271
======= ======= =======
Earnings per common share (note 1):
Earnings before cumulative effect of
change in accounting principle $ 1.03 1.01 .90
Cumulative effect of change in
accounting principle -- ( .71) --
------- ------- -------
Earnings per common share $ 1.03 .30 .90
======= ======= =======
Weighted average common shares outstanding
(in thousands) 32,408 32,548 32,672
======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1994, 1993 and 1992
<CAPTION>
1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C>
Stockholders' equity (note 11):
Common stock of $.25 par value per share.
Authorized 100,000,000 shares; issued
32,980,376 shares (notes 1 and 6) $ 8,245 8,245 8,245
------- ------- -------
Premium on common stock (note 1) 37,481 37,481 37,481
------- ------- -------
Retained earnings (note 7):
Beginning of year 142,859 149,008 133,878
Net income 33,605 10,025 29,609
Premium on redemption of preferred stock -- -- (84)
Dividends declared:
5% cumulative preferred--$5.00 per share (225) (225) (225)
7.64% cumulative preferred--$7.64
per share -- -- (113)
Common--$.53 per share in 1994, $.49
per share in 1993 and $.43 per share
in 1992 (17,096) (15,949) (14,057)
------- ------- -------
End of year 159,143 142,859 149,008
------- ------- -------
Treasury stock, at cost:
Beginning of year, 385,026 shares,
446,000 shares, and 136,000 shares (4,553) (5,299) (1,693)
Sales of 18,390 shares in 1994 and
65,350 shares in 1993 (note 10) 263 804 --
Purchase of 265,000 shares in 1994,
4,376 shares in 1993 and 310,000
shares in 1992 (4,144) (58) (3,606)
------- ------- -------
End of year, 631,636 shares, 385,026
shares and 446,000 shares (8,434) (4,553) (5,299)
------- ------- -------
Preferred stock, $.50 par value per share.
Authorized 20,000,000 shares; none issued -- -- --
------- ------- -------
Total stockholders' equity $196,435 184,032 189,435
======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1994, 1993 and 1992
<CAPTION>
1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 33,605 10,025 29,609
------- ------- -------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 35,797 28,698 29,694
Cumulative effect of change in
accounting principle -- 23,166 --
Net change in investments and
other assets (499) (1,768) (1,121)
Deferred income taxes (2,432) (14,308) 2,261
Changes in assets and liabilities
resulting from operating activities:
Receivables (803) (1,799) (2,082)
Materials, supplies and other assets 833 (11,938) (1,718)
Accounts payable and accrued expenses 6,643 (1,812) 6,492
Other liabilities (449) 28,678 (673)
------- ------- -------
Total adjustments 39,090 48,917 32,853
------- ------- -------
Net cash provided by operating
activities 72,695 58,942 62,462
------- ------- -------
Cash flows from investing activities:
Expenditures for property and equipment (32,313) (24,995) (27,340)
Net salvage on retirements 1,022 (2) 1,610
------- ------- -------
Net capital additions (31,291) (24,997) (25,730)
Proceeds from sale of investments and
other assets 32 85 192
Purchases of investments and other assets (5,093) (744) (4,945)
Purchases of temporary investments (18,027) (38,292) (60,764)
Maturities and sales of temporary
investments 27,843 32,905 61,235
------- ------- -------
Net cash used for investing
activities (26,536) (31,043) (30,012)
------- ------- -------
Cash flows from financing activities:
Dividends to stockholders (17,081) (15,514) (14,124)
Proceeds from issuance of notes payable 7,800 35,000 --
Retirement of notes payable (26,300) (7,500) (2,000)
Net purchases and sales of treasury stock (3,881) 746 (3,606)
Retirement and conversion of long-term
debt and redemption of preferred stock -- (34,875) (9,819)
------- ------- -------
Net cash used in financing
activities (39,462) (22,143) (29,549)
------- ------- -------
Net increase in cash and cash equivalents 6,697 5,756 2,901
Cash and cash equivalents at beginning of year 15,341 9,585 6,684
------- ------- -------
(continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years ended December 31, 1994, 1993 and 1992
1994 1993 1992
Cash and cash equivalents at end of year $ 22,038 15,341 9,585
======= ======= =======
Supplemental disclosure of cash flow
information:
Interest paid $ 5,864 7,509 8,766
======= ======= =======
Income taxes paid $ 25,120 20,631 16,597
======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND ORGANIZATION
The consolidated financial statements reflect the accounts of Lincoln
Telecommunications Company (the Company), a holding company, and its
wholly-owned subsidiaries, The Lincoln Telephone and Telegraph Company
(Lincoln Telephone), LinTel Systems Inc. (LinTel) and Prairie Communications,
Inc.(Prairie).
Lincoln Telephone, the Company's principal subsidiary, provides local and
long distance telephone service in 22 southeastern counties of Nebraska and
cellular telecommunications services in the Lincoln, Nebraska Metropolitan
Service Area (MSA). LinTel provides telephone answering services, sales
of non-regulated telecommunication products and services and toll
services beyond Lincoln Telephone's local service territory. Prairie has
a 50% investment in a general partnership which operates a limited
partnership providing cellular telecommunications services in the Omaha,
Nebraska MSA. The limited partnership is conducting business as First
Cellular Omaha (FCO). The investment in the partnership is accounted for
using the equity method of accounting (see note 4).
Net earnings applicable to intercompany transactions between companies of
different groups of operations have been eliminated.
The Company and its subsidiaries maintain their records in accordance with
generally accepted accounting principles. Lincoln Telephone maintains its
telephone accounting records in accordance with the rules and regulations
of the Nebraska Public Service Commission (NPSC) which substantially
adheres to rules and regulations of the Federal Communications Commission
(FCC).
The Company's telephone operations follow accounting for regulated
enterprises prescribed by Statement of Financial Accounting Standard (FAS)
No. 71, Accounting for the Effects of Certain Types of Regulation. The effect
of FAS No. 71 results in regulatory assets of approximately $13,268,000 and
$15,182,000 at December 31, 1994 and 1993, respectively, and regulatory
liabilities of approximately $10,846,000 and $12,737,000 at December 31, 1994
and 1993, respectively.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Replacements and renewals of
items considered to be units of property are charged to the property and
equipment accounts. Maintenance and repairs of units of property and
replacements and renewals of items determined to be less than units of
property are charged to expense. Telephone property and equipment retired or
otherwise disposed of in the ordinary course of business, together with the
cost of removal, less salvage, is charged to accumulated depreciation. When
non-telephone property and equipment is sold or otherwise disposed of, the
gain or loss is recognized in operations. Lincoln Telephone capitalizes
estimated costs, during periods of construction of more than one year, of
debt and equity funds used for construction purposes. No significant
costs were capitalized during the three years ended December 31, 1994.
Depreciation on property and equipment is determined by using the
straight-line method based on estimated service and remaining lives.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
INCOME TAXES
The Company files a consolidated income tax return with its subsidiaries.
Deferred income taxes arise primarily from reporting differences for book
and tax purposes related to depreciation and postretirement benefits.
Investment tax credits applicable to telephone property and equipment were
deferred and taken into income over the estimated useful lives of such
property and equipment.
RETIREMENT BENEFITS
The Company has a qualified defined benefit pension plan which covers
substantially all employees. The Company also has a qualified defined
contribution profit-sharing plan which covers non-union-eligible employees.
Costs of the pension and profit-sharing plans are funded as accrued.
LOCAL NETWORK SERVICES
Lincoln Telephone's local network service rates are filed with and, in
certain circumstances, are subject to review and approval by the NPSC.
Billings for local network service are rendered monthly in advance on a
cyclical basis. Advance billings are recorded as a liability and subsequently
taken into income in the appropriate periods.
LONG DISTANCE AND ACCESS SERVICES
Long distance and access services revenues are derived from long distance
calls within the Company's service territory, carrier charges for access to
Lincoln Telephone's local exchange network, subscriber line charges, and
contractual arrangements with carriers for other services. Certain of these
revenues are realized under pooling arrangements with other telephone
companies, and are divided among the companies based on respective costs
and investments to provide the services. Revenues realized through the
various pooling processes are initially based on estimates. Adjustments are
recorded in subsequent years as participating companies finalize their
respective costs and investments. The Company elected to be subject to price
cap regulation by the FCC effective July 2, 1993, pursuant to which limits
are imposed on the Company's interstate service rates. Prior to July 2,
1993, the Company operated under rate-of-return regulation, which offered
less pricing and earnings flexibility than under price cap regulation.
DIVERSIFIED OPERATIONS--LONG DISTANCE SERVICES
Long distance service revenues included in Diversified Operations are
derived from toll services beyond Lincoln Telephone's local service
territory. These revenues are recognized when earned regardless of the period
in which they are billed to the customer. Billing and access costs related to
long distance services are included as a cost of Diversified Operations and
as revenues of the telephone operations, and are eliminated in consolidation.
STATEMENTS OF CASH FLOWS
For purposes of the consolidated statements of cash flows, the Company
considers all temporary investments with an original maturity of three
months or less when purchased to be cash equivalents. Cash equivalents of
approximately $20,699,000 and $11,581,000 at December 31, 1994 and 1993,
respectively, consist of short-term fixed income securities.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
COMMON STOCK AND EARNINGS PER COMMON SHARE
Effective January 6, 1994, the Company paid a 100% stock dividend to
stockholders of record on December 27, 1993, which has been treated as a
stock split for financial reporting purposes. Common stock, premium on common
stock and all per share information has been retroactively adjusted to give
effect to the stock dividend for all periods presented.
(2) PROPERTY AND EQUIPMENT
The following table summarizes the property and equipment at December 31,
1994 and 1993 used in operations.
1994 1993
---------------------- ---------------------
Accumulated Accumulated
depreciation and depreciation and
Classifications Cost amortization Cost amortization
(Dollars in thousands)
Used in telephone
operations:
Land $ 2,772 -- 2,772 --
Buildings 26,159 10,899 25,716 10,334
Equipment 410,665 200,706 407,477 187,953
Motor vehicles and
other work
equipment 10,679 4,153 10,116 4,012
------- ------- ------- -------
Total in service 450,275 215,758 446,081 202,299
Under construction 6,020 -- 1,608 --
------- ------- ------- -------
Total used in
telephone
operations 456,295 215,758 447,689 202,299
Used in diversified
operations,
non-regulated 2,658 1,425 1,851 1,137
------- ------- ------- -------
$458,953 217,183 449,540 203,436
======= ======= ======= =======
Included in "Equipment Used in Telephone Operations" are investments of
$12,106,000 and $10,986,000 in 1994 and 1993, respectively, that are directly
assigned to non-regulated operations. The corresponding accumulated
depreciation and amortization was $6,995,000 in 1994 and $6,247,000 in 1993.
In addition, other investments that are common to both regulated and
non-regulated operations are allocated in a manner consistent with the FCC's
rules and regulations.
The composite depreciation rate for telephone property was 7.1% in 1994,
6.5% in 1993, and 6.9% in 1992. The rate does not include the additional non-
recurring depreciation recognized in 1994.
Construction expenditures for 1995 are expected to approximate $42,435,000.
The Company anticipates funding construction through operations.
Due to changes in technology, customer growth, and usage demand for
cellular services in their respective markets, the Company and FCO have
(2) PROPERTY AND EQUIPMENT continued
entered into an agreement to purchase digital cellular telephone systems to
replace certain existing analog systems serving these markets. These digital
systems are expected to increase capacity and performance in these
markets. The FCO system was operational in April 1994, and the Company's
system in Lincoln is expected to be operational in mid-1995.
The implementation of these system upgrades will cause the early retirement
of certain existing analog equipment prior to the expiration of its
anticipated useful life. As a result, in the first quarter 1994, the
Company wrote down the value of these assets by approximately $3,398,000.
During the fourth quarter 1994, the Company recognized an additional
charge of approximately $363,000 after evaluating updated information related
to this analog equipment. The aggregate after-tax impact of these non-
recurring non-cash charges to earnings was $2,267,000. In March 1994, the
Company's share of a similar charge for FCO was $2,179,000, producing an
after-tax impact of $1,314,000.
Substantially all telephone property and equipment, with the exception of
motor vehicles, is mortgaged or pledged to secure Lincoln Telephone's first
mortgage bonds. Under certain circumstances, as defined in the bond
indenture, all assets become subject to the lien of the indenture.
(3) TEMPORARY INVESTMENTS
Effective December 31, 1994, the Company adopted Statement of Financial
Accounting Standards (FAS) No. 115, Accounting for Certain Investments
in Debt and Equity Securities. The Company will apply the provisions of this
accounting standard prospectively.
FAS No.115 requires fair value reporting for certain investments in debt
and equity securities. Pursuant to FAS No. 115, the Company has classified
all of its investments as "available for sale" at December 31, 1994. This
information is summarized as follows:
Estimated
Amortized Gross unrealized market
cost Gains Losses value
(Dollars in thousands)
Equity securities $ 1,505 -- (89) 1,416
U. S. Government obligations 795 -- (98) 697
U. S. Government agency
obligations 9,715 43 (159) 9,599
Corporate debt securities 12,620 37 (483) 12,174
------ -- ---- ------
$24,635 80 (829) 23,886
====== == ==== ======
The net unrealized loss on investments available for sale is not reported
separately as a component of stockholders' equity due to its insignificance
to the consolidated balance sheet at December 31, 1994.
The amortized cost and estimated market value of debt securities at
December 31, 1994, by contractual maturity, are shown below. Expected
maturities will differ from the contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
(3) TEMPORARY INVESTMENTS continued
Estimated
Amortized market
cost value
(Dollars in thousands)
Due after three months through five years $ 20,432 20,105
Due after five years through ten years 2,698 2,365
------- -------
$ 23,130 22,470
======= =======
The gross realized gains and losses on the sale of securities were
insignificant to the consolidated financial statements for the year ended
December 31, 1994. The Company does not invest in securities classified as
held to maturity or trading securities.
(4) EQUITY INVESTMENTS
On December 31, 1991, Prairie acquired a 50% interest in Omaha Cellular
General Partnership (OCGP). The remaining 50% interest in OCGP is owned by
Centel Nebraska, Inc. (Centel-Neb). OCGP is the general partner of and holds
approximately 55% of the partnership interests in Omaha Cellular Limited
Partnership, which provides cellular telecommunications services in
Douglas and Sarpy Counties in Nebraska and Pottawattamie County, Iowa. Omaha
Cellular Limited Partnership conducts business under the trade name First
Cellular Omaha. Prairie is the managing partner of OCGP.
Prairie purchased its 50% interest in OCGP from Centel Cellular Company for
$11.9 million. The carrying value of the investment at equity in net assets
was approximately $5.0 million at December 31, 1994. Also, Prairie purchased
and holds a discounted note from OCGP in the face amount of approximately $54
million, for which the purchase price was $23.8 million. The note has a
carrying value of approximately $33.7 million at December 31, 1994. Such
note has a stated interest rate of 11.94% and is due December 31, 1998.
Commencing on December 31, 1996, and for the two-year period thereafter,
Prairie has the option to purchase from Centel-Neb the remaining 50% interest
in OCGP.
(5) REDEEMABLE PREFERRED STOCK
Lincoln Telephone has 5% preferred stock with $100 par value per share. The
preferred stock is cumulative, non-voting, non-convertible, and redeemable
solely at the subsidiary's option at $105 per share, for a liquidating
amount of $4,724,000, plus accrued dividends. There were 44,991 shares
outstanding for each of the years ended December 31, 1994, 1993 and 1992.
In addition, Lincoln Telephone had 7.64% preferred stock. The preferred
stock required an annual sinking fund payment to redeem 2,400 shares annually
with an additional 2,400 shares subject to redemption at par value. In June
1992, the Board of Directors authorized the redemption of all outstanding
shares of the 7.64% preferred stock. This consisted of 4,800 shares at par
value and 24,800 shares at $103 per share. The redemption was completed on
July 10, 1992, with a total payment of $3,034,400.
(6) DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
Stock for the Company's Employee and Stockholder Dividend Reinvestment and
Stock Purchase Plan (Plan) is purchased on the open market by the Plan's
Administrator. The basis for the purchase price of the stock allocated to the
Plan participants is the average price paid by the Administrator during the
five-day trading period preceding and including the dividend payment date.
Employee purchases are at 95% of such price while purchases by non-employee
participants are at 100% of such price.
Participants in the Plan may use cash dividends declared on stock owned and
optional cash contributions to purchase additional stock. Any contributions
received by approximately eight days before the end of each calendar quarter
will be used to purchase shares of stock as of the next dividend date.
Shares purchased in the open market for the Plan aggregated 112,423 shares,
115,208 shares and 121,272 shares during 1994, 1993 and 1992, respectively.
Expenses incurred related to the Plan were approximately $33,700, $22,500
and $2,700 in 1994, 1993 and 1992, respectively. There are no shares
reserved for issuance under the Plan.
(7) LONG-TERM DEBT AND NOTES PAYABLE
Long-term debt at December 31, 1994 and 1993 consists of 9.91% First
Mortgage Bonds of $44,000,000. The First Mortgage Bonds are due June 1, 2000
with interest payable semi-annually.
The long-term debt agreement contains various restrictions, including those
relating to payment of dividends by Lincoln Telephone to its stockholder
(the Company). Notes payable to banks also contain various restrictions. At
December 31, 1994, approximately $34,861,000 of Lincoln Telephone's retained
earnings were available for payment of cash dividends under the most
restrictive provisions of such agreements.
The Company has notes payable to a bank with interest rates of 6.425% at
December 31, 1994 that are due by November 1995. The weighted average
interest rate on the notes payable was 4.4% and 3.5% for the years ended
December 31, 1994 and 1993, respectively.
(8) INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued FAS No.
109, Accounting for Income Taxes. FAS No. 109 required a change in the
method of accounting for deferred income taxes. Under the assets and
liability method of FAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under FAS No. 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
accounting period in which the enactment date occurs.
Generally accepted accounting principles for regulated enterprises adopting
FAS No. 109 required the recognition of deferred tax assets and liabilities.
The Company recognized deferred regulatory assets and liabilities of
approximately $17,096,000 and $14,743,000, respectively, as a result of
(8) INCOME TAXES continued
adopting FAS No. 109. The net effect of these deferred regulatory assets and
liabilities of approximately $2,353,000 was recorded on the financial
statements as of January 1, 1993 as an increase to deferred income tax
liabilities and is being amortized into income tax expense on the financial
statements over a ten-year period.
Shown below are the components of income taxes from operations before the
cumulative effect of change in accounting principle.
(Dollars in thousands) 1994 1993 1992
Current:
Federal $ 20,049 16,400 13,115
State 4,487 3,628 2,278
------- ------- -------
24,536 20,028 15,393
------- ------- -------
Investment tax credits (1,060) (1,360) (1,553)
Deferred:
Federal (2,293) 490 1,831
State (116) 460 430
------- ------- -------
(2,409) 950 2,261
------- ------- -------
Total income tax expense $ 21,067 19,618 16,101
======= ======= =======
Total income tax expense attributable to income from operations in each
year was greater than that computed by applying U.S. Federal income tax rates
to income before income taxes. The reasons for the differences are shown
below:
1994 1993 1992
(Dollars in thousands) % of % of % of
pretax pretax pretax
Amount income Amount income Amount income
Computed "expected"
income tax expense $19,135 35.0% $18,483 35.0% $15,542 34.0%
State income tax expense,net
of Federal income tax benefit 2,841 5.2 2,658 5.0 1,787 3.9
Tax effect of items
capitalized for financial
statement purposes but
expensed for tax purposes
on which deferred income
taxes were not provided -- -- -- -- 390 .9
Nontaxable interest income (123) (.2) (79) (.1) (25) (.1)
Amortization of regulatory
deferred charges 1,914 3.5 1,914 3.6 -- --
Amortization of regulatory
deferred liabilities (1,891) (3.5) (2,006) (3.8) -- --
Amortization of investment
tax credits (1,060) (1.9) (1,360) (2.6) (1,553) (3.4)
Effect of FAS No. 109
adoption on non-
regulated income -- -- (236) (.4) -- --
Other 251 .4 244 .4 (40) (.1)
------ ---- ------ ---- ------ ----
Actual income tax expense $21,067 38.5% $19,618 37.1% $16,101 35.2%
====== ==== ====== ==== ====== ====
(8) INCOME TAXES continued
The significant components of deferred income tax expense attributable to
income from operations for the years ended December 31, 1994 and 1993 were
as follows:
1994 1993
(Dollars in thousands)
Deferred tax expense (exclusive of the
effects of amortization below) $ (2,432) 1,042
Amortization of regulatory deferred charges 1,914 1,914
Amortization of regulatory deferred
liabilities (1,891) (2,006)
------- -------
$ (2,409) 950
======= =======
For the year ended December 31, 1992, deferred tax expense was provided on
certain timing differences in the recognition of revenue and expense for tax
and financial statement purposes. The sources of these differences and the
tax effect of each are shown below:
Tax over financial statement depreciation $ 855
Other taxes 1,200
Other 206
------
$ 2,261
======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1994 and 1993 are presented below:
1994 1993
(Dollars in thousands)
Deferred tax assets:
Accumulated postretirement benefit cost $ 16,739 15,946
Regulatory deferred liabilities 4,857 5,884
Other 2,537 2,438
------- -------
Total gross deferred tax assets 24,133 24,268
Less valuation allowance -- --
------- -------
Net deferred tax assets 24,133 24,268
------- -------
Deferred tax liabilities:
Plant and equipment, principally due
to depreciation differences 38,534 40,720
Regulatory deferred charges 3,527 4,036
Other 2,614 2,486
------- -------
Total gross deferred tax liabilities 44,675 47,242
------- -------
Net deferred tax liability $ 20,542 22,974
======= =======
As a result of the nature and amount of the temporary differences which
give rise to the gross deferred tax liabilities and the Company's expected
taxable income in future years, no valuation allowance for deferred tax
assets as of December 31, 1994 and 1993 was necessary.
(9) BENEFIT PLANS
The Company has a defined benefit pension plan covering substantially all
employees with at least one year of service. Annual contributions to the plan
are designed to fund current and past service costs as determined by
independent actuarial valuations. There is no prior service liability
associated with the basic benefits provided by the plan.
The net periodic pension credit for 1994, 1993 and 1992 amounted to
$1,570,000, $690,000 and $971,000, respectively. The net periodic pension
credit is comprised of the following components:
1994 1993 1992
(Dollars in thousands)
Service cost--benefits earned
during the period $ 3,479 3,408 3,160
Interest cost on projected benefit
obligations 8,797 8,441 7,744
Actual return on plan assets 1,529 (25,849) (9,309)
Amortization and deferrals, net (15,375) 13,310 (2,566)
------- ------- -------
Net periodic pension credit $ (1,570) (690) (971)
======= ======= =======
The table below summarizes the funded status of the pension plan at
December 31, 1994 and 1993.
1994 1993
(Dollars in thousands)
Actuarial present value of pension
benefit obligation:
Vested $ 100,817 97,040
Nonvested 15,097 14,108
-------- --------
Accumulated pension benefit
obligation $ 115,914 111,148
======== ========
Projected pension benefit obligation $ 133,108 127,884
Less, plan assets at market value 177,196 185,197
-------- --------
Excess of plan assets over projected
pension benefit obligation 44,088 57,313
Unrecognized prior service cost 4,888 5,924
Unrecognized net gain (34,689) (49,088)
Unrecognized net asset being recognized over
15.74 years (11,088) (12,520)
-------- --------
Prepaid pension cost recognized
in the consolidated balance sheets $ 3,199 1,629
======== ========
The assets of the pension plan are invested primarily in marketable equity
and fixed income securities and U.S. Government obligations.
The assumptions used in determining the funded status information and
pension expense for the three years were as follows:
(9) BENEFIT PLANS continued
1994 and 1993 1992
Discount rate 7.10% 7.10%
Rate of salary progression 6.00 6.25
Expected long-term rate of return on assets 8.00 8.00
In addition to the defined benefit pension plan, the Company has a defined
contribution profit-sharing plan which covers non-union-eligible employees
who have completed one year of service. Participants may elect to deposit a
maximum of 15% of their wages up to certain limits. The Company matches 25%
of the participants' contributions up to 5% of their wages. The profit-
sharing plan also has a provision for an employee stock ownership fund, to
which the Company has contributed an additional 1.75% of each eligible
participant's wage. The Company's matching contributions and employee stock
ownership fund contributions are used to acquire common stock of the Company.
The Company's combined contributions totaled $679,000, $640,000 and $601,000
for 1994, 1993 and 1992, respectively.
(10) POSTRETIREMENT BENEFITS
The Company sponsors a health care plan that provides postretirement
medical benefits and other benefits to employees who meet minimum age and
service requirements upon retirement. Currently, substantially all of the
Company's employees may become eligible for those benefits if they have 15
years of service with normal or early retirement. The cost of retiree health
care, dental and life insurance benefits was recognized as an expense as
premiums were paid for the year ended December 31, 1992. For 1992, such
expense totaled $2,290,000.
The Company adopted FAS No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions, as of January 1, 1993. The new standard
requires accounting for these benefits during the active employment of the
participants. The Company elected to record the accumulated benefit
obligation upon adoption. After taxes, this one-time charge amounted to
$23,166,000, net of income tax benefit of $15,258,000. Pursuant to FAS No.
71, Accounting for the Effects of Certain Types of Regulation, a regulatory
asset associated with the recognition of the transition obligation was not
recorded because of uncertainties as to the timing and extent of recovery
given the Company's assessment of its long-term competitive environment.
The following table presents the plan's status reconciled with
amounts recognized in the Company's consolidated balance sheet at
December 31, 1994 and 1993.
1994 1993
(Dollars in thousands)
Accumulated postretirement benefit
Retirees $ 30,872 29,851
Fully eligible active plan participants 11,994 10,202
Other active plan participants 7,622 7,328
------- -------
50,488 47,381
Plan assets at fair value -- --
Unrecognized prior service cost (170) --
Unrecognized net loss (8,001) (7,054)
------- -------
Accrued postretirement benefit cost
recognized in consolidated balance sheets $ 42,317 40,327
======= =======
(10) POSTRETIREMENT BENEFITS continued
Net periodic postretirement benefit costs for the years ended December 31,
1994 and 1993 include the following components:
1994 1993
(Dollars in thousands)
Service cost $ 428 300
Interest cost 3,695 3,632
Net deferral and amortization 167 --
----- -----
Net periodic postretirement benefit costs $ 4,290 3,932
===== =====
For purposes of measuring the benefit obligation, the following assumptions
were used:
1994 and 1993
Discount rate 8.0%
Health care cost trend rate 11.7
This health care cost trend rate of increase was assumed to decrease
gradually to 5.5% by the year 2004.
For purposes of measuring the benefit cost, the following assumptions were
used:
1994 1993
Discount rate 8.0% 9.5%
Health care cost trend rate 11.7 12.0
This health care cost trend rate of increase was assumed to decrease
gradually to 5.5% by the year 2004. The health care cost trend rate
assumptions have a significant effect on the amounts reported. For example,
a one percentage point increase in the assumed health care cost trend rate
would increase the aggregate service and interest cost by approximately
$360,000 and increase the accumulated postretirement benefit obligation by
approximately $4,400,000.
The Company has a stock and incentive plan which provides for the award of
short-term incentives (payable in cash or restricted stock), stock options,
stock appreciation rights or restricted stock to certain officers and key
employees conditioned upon the Company's attaining certain performance goals.
Under the plan, options may be granted for a term not to exceed ten years
from date of grant. The option price is the fair market value of the shares
on the date of grant. Such exercise price was $11.50 for the options granted
prior to 1992 and $12.75 for the 1992 options. The exercise price of a stock
option may be paid in cash, shares of Company common stock or a combination
of cash and shares.
Stock option activity under the plan is summarized as follows:
1994 1993 1992
Outstanding at January 1 110,650 176,000 88,000
Granted -- -- 88,000
Exercised (10,500) (65,350) --
Canceled -- -- --
------- ------- -------
Outstanding at December 31 100,150 110,650 176,000
======= ======= =======
Exercisable at December 31 32,150 42,650 --
======= ======= =======
(10) POSTRETIREMENT BENEFITS continued
All of the above information has been retroactively adjusted to give effect
to the 100% stock dividend paid January 6, 1994.
The plan also provides for the granting of stock appreciation rights (SARs)
to holders of options, in lieu of stock options, upon lapse of stock options
or independent of stock options. Such rights offer optionees the
alternative of electing not to exercise the related stock option, but to
receive instead an amount in cash, stock or a combination of cash and stock
equivalent to the difference between the option price and the fair market
value of shares of Company stock on the date the SAR is exercised. No SARs
have been issued under the plan.
In addition, 11,323 shares, 16,002 shares and 15,224 shares of restricted
stock were awarded from stock purchased on the open market by the Company
during 1994, 1993 and 1992, respectively. Recipients of the restricted stock
are entitled to cash dividends and to vote their respective shares.
Restrictions limit the sale or transfer of the shares for two years
subsequent to issuance unless employment is terminated earlier due to death,
disability or retirement.
Amounts charged against 1994, 1993 and 1992 net income for cash and
restricted stock awards were approximately $368,700, $460,500 and $388,500,
respectively. Pursuant to the plan, 2,000,000 shares of common stock are
reserved for issuance under this plan.
Telephone operating revenues include revenues received by Lincoln Telephone
for billing and access services provided to LinTel, which were approximately
$5,165,000 for 1994, $5,463,000 for 1993 and $5,482,000 for 1992, and
are deducted as intercompany revenues and expenses.
(13) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
1994 First Second Third Fourth
quarter quarter quarter quarter Total
(Dollars in thousands
except per share data)
Revenues and sales
from operations:
Telephone $ 42,772 43,195 44,295 44,432 174,694
Diversified 7,070 7,321 7,571 7,739 29,701
Intercompany revenues (1,829) (1,843) (2,078) (1,861) (7,611)
------- ------- ------- ------- -------
Total $ 48,013 48,673 49,788 50,310 196,784
======= ======= ======= ======= =======
Net income $ 4,978 8,966 9,701 9,960 33,605
======= ======= ======= ======= =======
Earnings per common
share $ .15 .28 .30 .31 1.03
======= ======= ======= ======= =======
(13) QUARTERLY FINANCIAL INFORMATION (UNAUDITED) continued
1994 First Second Third Fourth
quarter quarter quarter quarter Total
(Dollars in thousands
except per share data)
Revenues and sales
from operations:
Telephone $ 40,170 40,406 41,713 41,625 163,914
Diversified 6,463 6,828 7,224 7,539 28,054
Intercompany revenues (1,896) (1,955) (1,909) (1,858) (7,618)
------- ------- ------- ------- -------
Total $ 44,737 45,279 47,028 47,306 184,350
======= ======= ======= ======= =======
Earnings before cumulative
effect of change in
accounting principle $ 8,072 7,970 8,276 8,873 33,191
Cumulative effect of
change in accounting
principle (23,534) -- 368 -- (23,166)
------- ------- ------- ------- -------
Net income (loss) $ (15,462) 7,970 8,644 8,873 10,025
======= ======= ======= ======= =======
Earnings per common share
before cumulative effect
of change in accounting
principle $ .25 .24 .25 .27 1.01
Cumulative effect of change
in accounting principle (.72) -- .01 -- (.71)
------- ------- ------- ------- -------
Earnings (loss) per
common share $ ( .47) .24 .26 .27 .30
======= ======= ======= ======= =======
(14) COMMOM STOCK PURCHASE RIGHTS
The Board of Directors declared a dividend of one common stock purchase
right for each common share outstanding as of June 30, 1989. Under certain
conditions, each right may be exercised to purchase for $21.875 an amount of
the Company's common stock, or an acquiring company's common stock, having
a market value of $43.75. The rights may only be exercised after a person or
group (except for certain stockholders) acquires ownership of 10% or more
of the Company's common shares or announces a tender or exchange offer upon
which consummation would result in ownership of 10% or more of the common
shares. The rights expire on June 30, 1999 and may be redeemed by the Company
at a price of $.0025 per right, at any time until ten days after a public
announcement of the acquisition of 10% of the Company's common stock. At
December 31, 1994, 34,980,376 shares of common stock were reserved for
issuance in connection with these stock purchase rights.
(15) PROPERTY AND STATE INCOME TAXES
The Company's property and state income tax obligations during 1992 and
1993 were modified by actions of the Nebraska Legislature and the Nebraska
Supreme Court. In 1991, the Nebraska Supreme Court determined in separate
actions that Nebraska's personal property tax system as applied to businesses
(15) PROPERTY AND STATE INCOME TAXES continued
in 1989 and 1990 was unconstitutional. The Court determined that
approximately 18.8% of taxes paid for 1990 should be refunded. The NPSC
approved a settlement whereby similar refunds were made applicable to 1989
taxes. As a result of these actions, the Company recorded refunds or credits
of approximately $1,359,000 and $1,494,000 in 1993 and 1992, respectively.
In view of a constitutional amendment approved by the voters in 1992, the
constitutional issues concerning Nebraska property taxes appear to have been
resolved.
(16) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL STATEMENTS
Cash and Cash Equivalents, Receivables, Accounts Payable and Notes Payable
to Banks
The carrying amount approximates fair value because of the short maturity
of these instruments.
Temporary Investments
The fair values of the Company's marketable investment securities are
based on quoted market prices. See note 3 for the estimated fair value of
temporary investments.
Investments and Other Assets
The fair value of the Company's note receivable from OCGP is based on the
amount of future cash flow associated with the instrument discounted
using the Company's current borrowing rate on similar instruments of
comparable maturity.
Long-Term Debt
The fair values of each of the Company's long-term debt instruments are
based on the amount of future cash flows associated with each instrument
discounted using the Company's current borrowing rate on similar
debt instruments of comparable maturity.
Estimated Fair Value
The estimated fair value of the Company's financial instruments are
summarized as follows:
At December 31, 1994 At December 31, 1993
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(Dollars in thousands)
Note receivable
from OCGP $ 33,703 37,443 30,013 35,644
======= ======= ======= =======
Long-term debt $ 44,000 46,729 44,000 54,021
======= ======= ======= =======
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore, cannot
be determined with precision. Changes in assumptions could significantly
affect the estimates.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Lincoln Telecommunications Company (the Company) is a holding company whose
subsidiaries operate primarily in the telecommunications industry. The
Company's wholly-owned subsidiaries include The Lincoln Telephone and
Telegraph Company (Lincoln Telephone), LinTel Systems Inc. (LinTel) and
Prairie Communications, Inc. (Prairie).
RESULTS OF OPERATIONS
Net Earnings
Net income was $33,605,000 in 1994, compared to $10,025,000 in 1993, and
$29,609,000 in 1992. Excluding non-recurring charges for additional
depreciation relating to cellular equipment, net income in 1994 was
$37,186,000. Before a one-time accounting change adopted in 1993 related to
retirees' health benefits, net income was $33,191,000 in 1993.
Earnings per common share including the one-time accounting charges were
$1.03 in 1994, $0.30 in 1993 and $0.90 in 1992. Before the one-time charges,
earnings per common share were $1.14 in 1994 and $1.01 in 1993.
Operating Revenues
Led by growth in cellular network revenues, total operating revenues grew
by $12,434,000 in 1994, an increase of 6.7%, to a total of $196,784,000. In
1993, total operating revenues grew by $8,982,000, an increase of 5.1% over
1992, to a total of $184,350,000.
Telephone Operating Revenues
Telephone operating revenues increased by $10,780,000, or 6.6% over 1993,
to a total of $174,694,000. Growth in 1993 was $7,154,000 or 4.6% over 1992,
to a total of $163,914,000.
Local Network Services
Local network service revenues in 1994 were $77,617,000, an increase of
$6,784,000 or 9.6% over the 1993 total of $70,833,000. In 1993, local network
service revenues increased $4,811,000 or 7.3% over the 1992 total of
$66,022,000. These revenues reflect amounts billed to customers for local
exchange services, including enhanced services such as Call Waiting and
Caller ID, and network revenues from cellular operations in Lincoln
Telephone's operating territory.
These increases resulted primarily from growth in telephone access lines,
higher demand for enhanced services, and increased cellular subscribers.
Telephone access lines in service at December 31, 1994 and 1993 increased by
3.7% and 2.6%, respectively, over the prior year. In each case, business
and Centrex lines led the increases. Cellular subscriber lines in Lincoln
increased by 57.9% in 1994 and 73.6% in 1993.
Access Services
Access service revenues received from interexchange carriers for their use
of local exchange facilities in providing long distance service were
$50,570,000 in 1994, an increase of $3,039,000 or 6.4% over the 1993
total of $47,531,000. In 1993, access service revenues increased $3,073,000
or 6.9% from the 1992 total of $44,458,000. These increases were due
primarily to increased volume of access minutes. Minutes of use increased by
6.5% in 1994 and by 8.4% in 1993.
Long Distance Services
Long distance revenues in 1994 were $14,679,000, a decrease of $565,000 or
3.7% from the 1993 total of $15,244,000. In 1993, long distance revenues
decreased $789,000 or 4.9% from the 1992 total of $16,033,000. Long distance
revenues are received from providing services within Lincoln Telephone's
service area, and are primarily message toll, private line services, and
operator services. The decrease in 1994 was principally due to lower revenue
under a new agreement to provide operator services for AT&T. Long distance
rates were reduced by approximately $1,125,000 annually beginning on March
1, 1993, pursuant to an order of the Nebraska Public Service Commission
(NPSC).
Diversified Operations Revenues and Sales
Revenues and sales from diversified operations were $29,701,000 in 1994, up
$1,647,000 or 5.9%. In 1993, revenues and sales from diversified operations
had increased by $1,303,000, or 4.9%, from 1992.
Revenues are received from the Company's long distance resale division.
These revenues were $18,765,000 in 1994, a decrease of $857,000 or 4.4% from
the 1993 total of $19,622,000. In 1993, revenues increased $689,000 or 3.6%
over the 1992 total of $18,933,000. The decrease in 1994 was primarily due to
reduced rates for higher volume customers.
Revenues received from the Company's equipment division for product sales
were $10,583,000 in 1994, an increase of $2,494,000 or 30.8% over the 1993
amount of $8,089,000. In 1993, revenues increased $620,000 or 8.3% from the
1992 amount of $7,469,000. The increase in 1994 was led by an unusual number
of larger customers who were in the market to purchase new equipment.
Operating Expenses
Total operating expenses were $138,491,000 in 1994, an increase of
$10,966,000 or 8.6% from 1993. Total operating expenses increased $3,585,000
or 2.9% from 1992 to 1993.
In addition to non-recurring charges of $3,761,000 for additional
depreciation on cellular equipment (see "Managed Cellular Markets"),
depreciation expenses amounted to $31,864,000 in 1994, $28,596,000 in 1993,
and $29,626,000 in 1992. The NPSC authorized new depreciation rates for
telephone equipment in 1994, which generated approximately $2,700,000 of
additional expense. The previous depreciation rate order by the NPSC allowed
analog electronic and step-by-step switching equipment, as well as microwave
radio systems, to be fully amortized by December 31, 1992.
Costs of goods and services increased by $894,000 or 5.0% in 1994 from 1993
to an amount of $18,603,000, and reduced by $394,000 or 2.2% in 1993 from
1992. The 1994 increase resulted from increased product sales, while the
long distance resale division reduced costs of providing services in each
year. The gross margin from product sales increased by $962,000 in 1994 and
$641,000 in 1993, while the gross margin from the long distance resale
division decreased by $213,000 in 1994 and increased by $1,062,000 in 1993.
Other operating expenses were $88,694,000 in 1994, $85,915,000 in 1993, and
$80,219,000 in 1992. The increases amounted to 3.2% in 1994 and 7.1% in 1993.
Labor costs increased slightly each year although the number of employees
was reduced. Sales commissions and other costs of acquiring cellular
customers also increased each year. The 1993 increase was led by the
increased cost of employee benefits, including a change in accounting for the
costs of postretirement health care benefits which current employees will
receive in the future. The Company is actively pursuing ways to streamline
operations and manage its workforce requirements in an effort to improve
its productivity.
Taxes, other than payroll and income, are principally local property taxes.
The Company's tax obligations were significantly modified by actions of the
Nebraska Legislature and the Nebraska Supreme Court in 1991 and 1992, and a
constitutional amendment approved by the voters in 1992. These taxes amounted
to $3,180,000 in 1994, compared to $2,923,000 in 1993 and $4,135,000 in 1992.
The Company believes the adoption of the constitutional amendment should
serve to stabilize property taxes at a level similar to the 1994 level.
Non-Operating Income and Expenses
Income in this category includes net income from the Company's investment
in the Omaha cellular market. Expenses include a non-cash charge of
$2,179,000 for the Company's share of a non-recurring depreciation charge
(see "Managed Cellular Markets").
First Mortgage Bonds totalling $35,000,000 were called on July 6, 1993,
resulting in a call premium of $822,000. Short-term borrowings at lower
interest rates were used to fund the call. This action led to a total of
$6,624,000 for interest expense and other deductions in 1994, compared to
$8,556,000 in 1993 and $9,378,000 in 1992.
Income Taxes
Income tax expenses in 1994 were $21,067,000, compared to $19,618,000 in
1993 and $16,101,000 in 1992. In addition to increased taxable income each
year, the federal income tax rates increased from 34% to 35% in 1993.
LIQUIDITY AND CAPITAL RESOURCES
Capitalization
In addition to reducing its long-term debt by $35,000,000 in 1993, Lincoln
Telephone retired all of its 7.64% preferred stock in July 1992,
including 4,800 shares at par and 24,800 shares at $103 per share. A total
of $3,034,400 was paid to retire the preferred stock.
During 1991, the Board of Directors authorized the purchase of up to
600,000 shares of the Company's common stock as warranted by market
conditions. Pursuant to this authorization, the Company purchased 270,000
shares in 1992 for $3,125,000, 4,376 shares in 1993 for $58,000, and 15,000
shares for $224,000 in 1994. In addition, the Company purchased 250,000
shares for $3,920,000 in 1994 in connection with a secondary offering of
1,986,200 shares of the Company's stock which were owned by Sahara
Enterprises. These Treasury shares will be utilized over a period of time for
the ESOP account of the Company's 401(k) Savings and Stock Ownership Plan.
The foregoing common share information has been adjusted to reflect the 100%
stock dividend distributed on January 6, 1994.
Construction
The Company is continuing to invest in new technology. Net cash
expenditures for capital additions to property and equipment amounted to
$31,291,000 in 1994, $24,997,000 in 1993, and $25,730,000 in 1992. Cash
provided by operating activities, less dividends, exceeded capital additions
in each of those years. Gross additions to property and equipment are
expected to approximate $42,435,000 in 1995. The increase in 1995 is
primarily due to installing new technology in the cellular system serving the
Lincoln Metropolitan Statistical Area (MSA). The Company anticipates funding
this construction from operating activities.
Cash and Cash Equivalents
The Company had cash, cash equivalents, and temporary investments of
$46,673,000 and $49,792,000 at December 31, 1994 and 1993, respectively.
There were short-term borrowings of $23,000,000 and $41,500,000 at December
31 of 1994 and 1993, respectively.
Dividends
Quarterly dividends on the Company's common stock were increased from 10
cents per share to 11 cents per share commencing July 10, 1992, to 12 cents
per share commencing April 10, 1993, to 13 cents per share commencing January
10, 1994, and to 14 cents per share commencing January 10, 1995. In addition,
a 100% stock dividend was distributed on January 6, 1994. The total cash
dividends declared amounted to 53 cents per share in 1994, 49 cents per share
in 1993 and 43 cents per share in 1992. The foregoing per share information
has been adjusted to reflect such 100% stock dividend.
AQUISITION AND INVESTMENT
On December 31, 1991, Prairie entered into a partnership that holds a 55.2%
interest in the Omaha Cellular Limited Partnership, now doing business as
First Cellular Omaha, which provides cellular communications services in
the Omaha MSA. Prairie is an equal partner with Centel Nebraska Inc.
(Centel) in the partnership and has the option to purchase Centel's
remaining 50% interest in the partnership during the two-year period
following December 31, 1996. The Company assumed management of First Cellular
Omaha on January 1, 1992. See "Managed Cellular Markets" for further
discussion.
During 1994, the Company purchased 234,262 additional shares of the common
stock of Nebraska Cellular Telephone Corporation (NCTC). NCTC provides
cellular communications services in non-metropolitan areas of Nebraska
including approximately 834,000 POPs (potential customers). As of
December 31, 1994, the Company owned approximately 16.1% of the outstanding
shares of NCTC. The Company uses the cost method of accounting for its
interest in NCTC.
MANAGED CELLULAR MARKETS
The Company manages three of the four cellular entities in which it has an
ownership interest. The Lincoln MSA is a wholly-owned market containing
approximately 221,000 POPs. Through its partnership with Centel, the Company
holds a 27.6% interest in the partnership which operates the Omaha MSA
market, which includes approximately 624,000 POPs, and also holds an option
to purchase an additional 27.6% interest in the partnership beginning in
1997. In addition, the Company has an 11.8% interest in Iowa Rural Service
Area 1 (RSA 1) which is contiguous to the Company's telephone operating area
in Nebraska and to Omaha, and contains approximately 62,000 POPs. By the end
of 1994, penetration rates achieved in these markets by the entities in which
the Company holds interests were 9.4% in the Lincoln MSA, 5.2% in the Omaha
MSA, and 3.3% in RSA 1.
In these three markets, the composite selling cost to acquire new customer
lines, including a negative margin on equipment sales, was $266 per gross
addition and $363 per net addition in 1994. The churn (the percentage of
customers who are disconnected each month) averaged 1.36% in 1994.
The market development indices of penetration, cost to acquire new
customers and churn in the Company's managed markets are among the best in
the industry, according to statistics published by the Cellular Telephone
Industry Association.
Supplemental Proportionate Data
The Company believes the use of proportionate operating data for these
managed cellular markets facilitates the understanding and assessment of its
consolidated financial statements. Reporting proportionate data for the
cellular markets is not in accordance with generally accepted accounting
principles. The proportionate data summarized below reflects the Company's
relative ownership interests in its managed markets.
SUPPLEMENTAL PROPORTIONATE DATA FOR MANAGED CELLULAR MARKETS 1
Iowa Total
Lincoln MSA 2 Omaha MSA 3 RSA 1 4 Proportionate
100% 27.6% 11.8% Data
(Dollars in thousands)
Customer Lines: 1994 20,755 8,991 243 29,989
1993 13,145 5,972 128 19,245
1992 7,573 3,706 29 11,308
Service Revenues: 1994 $ 10,176 $ 4,563 $ 126 $ 14,865
1993 6,473 3,094 80 9,647
1992 4,265 2,178 41 6,484
Operating Expenses: 1994 $ 5,837 $ 2,985 $ 109 $ 8,931
1993 4,468 2,044 71 6,583
1992 3,118 1,563 33 4,714
Net Operating
Income: 1994 $ 4,339 $ 1,578 $ 17 $ 5,934
(before interest,
depreciation and 1993 2,005 1,050 9 3,064
income taxes)5 1992 1,147 615 8 1,770
1. The Company's interest in NCTC is not included in the proportionate
data.
2. Financial activities of the Lincoln MSA are included in respective
operating portions of the Company's Consolidated Statements of
Earnings.
3. The Company's share of the financial activities of the Omaha MSA is
included in the non-operating income and expense portion of the
Company's Consolidated Statements of Earnings.
4. The Company's interest in Iowa RSA 1 was 11.8% in 1994 and 11% in 1993
and 1992. The Company uses the cost method of accounting for its
interest in Iowa RSA 1.
5. Net Operating Income is commonly used in the cellular communications
industry to analyze cellular providers on the bases of operating
performance, leverage and liquidity.
Total service revenues in the managed cellular markets increased by 54.1%
to $14,865,000 in 1994, compared to an increase of 48.8% in 1993. Service
revenues include the net results of outbound roaming. Inbound roaming
contributed 12.9%, 12.8%, and 13.7% of service revenues in 1994, 1993
and 1992, respectively. The Company has negotiated roaming agreements
with other cellular providers which include preferred roaming rates for
customers.
At the end of 1994, there were 29,989 customer lines in the three markets.
Customer lines increased by 55.8% and 70.2% in the last two years.
Net operating income before interest, depreciation and income taxes
increased by 93.7% in 1994 and 73.1% in 1993. Net operating income was
$5,934,000 in 1994, or 39.9% of service revenue. In 1993, net operating
income was $3,064,000 or 31.8% of revenue, while comparable numbers in 1992
were $1,770,000 or 27.3% of revenue. Operating expenses, including the net
negative margin on sales of equipment, grew by 35.7% in 1994, compared to
39.6% in 1993.
Due to changes in technology, customer growth, and usage demand, on March
15, 1994, an agreement was made with AT&T to install new systems with digital
and analog capacity in the Lincoln and Omaha MSAs. The new systems are
expected to be a cost-effective method to increase capacity and performance.
The new Omaha MSA system was operational in April 1994, and the Lincoln MSA
system is expected to be operational in April 1995.
The implementation of these system upgrades will cause the early retirement
of existing equipment prior to the expiration of its anticipated useful
life. As a result, the Company recognized additional non-recurring
depreciation of approximately $3,761,000 in 1994 attributable to the
Lincoln MSA. The Company's share of a similar one-time charge in 1994 for the
Omaha MSA was $2,179,000.
COMPETITION AND REGULATORY ENVIRONMENT
The telecommunications industry is changing rapidly. These changes may have
a significant impact on the future financial performance of all
telecommunications companies. These changes are being driven by rapid
technological development, changing customer requirements, and the
convergence of once separate and distinct industries. In addition, recent
actions by the Federal Communications Commission (FCC), which regulates the
Company's interstate services, have been directed towards facilitating
competition in the local exchange and wireless business. Congress has also
been examining legislative proposals which would fully open the local
loop to competition and which would also allow local exchange carriers (LECs)
to enter the cable television business. Federal courts have recently struck
down FCC regulations which prohibited LECs from providing cable television
services. From time to time, the FCC modifies existing regulations and adopts
new regulations concerning interstate telephone services, and there
can be no assurance of the impact that such regulations may have on the
Company.
The Company's existing lines of businesses are already subject to
competition from many sources, including long distance companies, cellular
companies, competing directory companies and others. The convergence of cable
television, other information industries, and telecommunications can be
expected to increase competition in the future. In addition, the FCC has
taken steps to increase the number of wireless competitors through the
auctioning of radio spectrum for Personal Communication Services (PCS).
In October 1993, the FCC issued a Report and Order allocating radio
spectrum to be licensed for use in providing PCS. Under the Order, seven
separate bandwidths of spectrum, ranging in size from 10 MHz to 30 MHz, will
be auctioned to potential PCS providers in each geographic area of the
United States. LECs are eligible to bid for PCS licenses except that cellular
carriers, such as the Company, are limited to obtaining 10 MHz of PCS
bandwidth in areas where they provide cellular service. These spectrum
auctions commenced on December 5, 1994. The Company has not participated in
any bidding.
Lincoln Telephone operated under rate-of-return regulation by the FCC until
July 1, 1993. However, starting with the annual access tariff filing that
became effective at that date, Lincoln Telephone opted for price cap
regulation by the FCC.
Price caps focus on prices rather than costs of service and set maximum
limits on prices which LECs can charge for their services. These limits are
subject to adjustment each year to reflect inflation, a productivity factor,
and certain other cost changes. Under FCC price cap regulation, Lincoln
Telephone may earn a return on investments in interstate services of up to
approximately 12.25%. Above that level, earnings are subject to equal
sharing with carriers, until earnings reach an effective cap of approximately
16.25%. The FCC is currently reviewing its rules and regulations pertaining
to price caps in the context of an evolving regulatory environment with
a ruling expected in the spring of 1995.
At the state level, the NPSC regulates the types of service offered and
service quality. Nebraska does not have traditional rate-of-return regulation
for telecommunications carriers and allows telecommunications carriers
pricing flexibility for all services except basic local exchange services in
which pricing flexibility is subject to certain statutory limitations.
Since 1986, telecommunications companies in Nebraska have been permitted to
increase local exchange rates up to 10% in any consecutive 12-month period
without review by the NPSC. However, the Company must provide at least 60
days notice to affected customers and conduct public informational meetings.
If at least 3% of all affected subscribers sign a formal complaint opposing
the increase within 120 days from such notice, the NPSC must hold and
complete a hearing with regard to the complaint within 90 days to determine
whether the proposed rates are fair, just and reasonable. Within 60 days
after the close of such hearing, the NPSC must enter an order adjusting
the rates at issue.
Regardless of whether a particular rate increase is subject to regulatory
review, the Company's ability to raise rates will be determined by various
factors, including economic and competitive circumstances in effect at the
time.
ACCOUNTING PRONOUNCEMENTS
In December 1990, the Financial Accounting Standards Board issued a new
statement of accounting standards related to insurance and other non-
pension benefits provided to retirees (FAS No. 106). Prior to 1993, the
Company accounted for these benefits as costs were incurred. Under the new
standards, recognition of these costs is accelerated and accrued prior to
retirement, similar to accounting for pension benefits. Implementation of the
new standards was required in 1993. The Company elected to account for the
accumulated post-retirement benefit obligation as of January 1, 1993 taking
a charge of $23,166,000, net of income tax benefits.
In February 1992, the Financial Accounting Standards Board issued a new
statement of accounting standards relating to current and deferred income
taxes (FAS No. 109). The Company applied this new standard in 1993. The
new standard did not have a significant impact on the financial statements.
The Company presently gives accounting recognition to the actions of
regulators where appropriate, as prescribed by FAS No. 71, "Accounting for
the Effects of Certain Types of Regulation." Under FAS No. 71, the Company
records certain assets and liabilities because of the actions of regulators.
Amounts charged to operations for depreciation expense reflect estimated
useful lives and methods prescribed by regulators rather than those that
might otherwise apply to unregulated enterprises. In the event the Company
determines that it no longer meets the criteria for following FAS No. 71, the
accounting impact to the Company would be a one-time non-cash charge to
operations of an amount which would be material to the consolidated
financial statements. Criteria that give rise to the discontinuance
of FAS No. 71 include increasing competition, which restricts the Company's
ability to establish prices to recover specific costs, possible obsolescence
driven by accelerating technology, and a significant change in the manner
in which rates are set by regulators from cost-based regulation to another
form of regulation. The Company periodically reviews these criteria
to ensure that continuing application of FAS No. 71 is appropriate.
LABOR CONTRACTS
Three-year agreements between Lincoln Telephone and the Communications
Workers of America (CWA) will expire on October 14, 1995. Similarly, a
three-year agreement between LinTel Systems and the CWA will expire on May
19, 1995. Each contract concerns wages and general working conditions.
<TABLE>
SELECTED FINANCIAL DATA (not covered by independent auditors' report)
(Dollars in thousands except per share data)
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Selected Consolidated Earnings Statement Items
1. Telephone operating revenues $ 174,694 163,914 156,760
2. Diversified operations revenues
and sales (Note 1) 29,701 28,054 26,751
3. Intercompany revenues (7,611) (7,618) (8,143)
4. Total revenues and sales 196,784 184,350 175,368
5. Income before cumulative effect of change
in accounting principle (Note 2) 33,605 33,191 29,609
6. Cumulative effect of change in
accounting principle -- 23,166 --
7. Net income 33,605 10,025 29,609
8. Earnings available for common shares 33,380 9,800 29,271
9. Earnings before cumulative effect of
change in accounting principle 1.03 1.01 0.90
10. Cumulative effect of change in
accounting principle -- (.071) --
11. Earnings per common share (Note 2) 1.03 0.30 0.90
Selected Consolidated Balance Sheet Items
12. Total assets $ 393,184 395,279 369,116
13. Property and equipment 458,953 449,540 435,226
14. Accumulated depreciation and amortization 217,183 203,436 185,661
15. Accumulated depreciation to
depreciable plant 48.2% 45.7% 43.4%
16. Current ratio 1.3:1 1.1:1 1.3:1
17. Long-term debt and redeemable
preferred stock* $ 48,499 48,499 78,049
18. Long-term debt and redeemable preferred
stock as a percent of total capitalization 19.8% 20.9% 29.2%
19. Common stock, premium and common stock
subscribed less treasury stock $ 37,292 41,173 40,427
20. Retained earnings 159,143 142,859 149,008
21. Total long-term debt, redeemable preferred
stock and stockholders' equity 244,934 232,531 267,484
Telephone Statistics
22. Access lines in service 246,963 238,142 232,148
23. Number of employees 1,392 1,422 1,429
24. Total salaries $ 48,994 48,066 46,211
Selected Common Stock Items
25. Dividends declared per common share $ 0.530 0.490 0.430
26. Shares of common stock outstanding at
end of year 32,348,740 32,595,350 32,534,376
27. Market value common stock--high/low $20.00/13.75 20.50/12.00 14.25/10.63
28. Price earnings ratio--high/low 19.4x/13.3x 20.3x/11.9x 15.8x/11.8x
29. Book value per common share $ 6.07 5.65 5.82
All shares and share data have been adjusted to reflect stock splits.
*Excludes current installments and redemptions due in subsequent years.
Note 1: Diversified operations revenues and sales have been restated to
exclude discontinued operations.
Note 2: Net earnings and earnings per common share have not been restated
to reflect the immaterial impact of discontinued operations in 1989.
SELECTED FINANCIAL DATA (not covered by independent auditors' report) continued
(Dollars in thousands except per share data)
1991 1990 1989
<S> <C> <C> <C>
Selected Consolidated Earnings Statement Items
1. Telephone operating revenues $ 149,312 146,162 142,872
2. Diversified operations revenues
and sales (Note 1) 26,902 25,799 25,806
3. Intercompany revenues (8,121 (7,296) (6,724)
4. Total revenues and sales 168,093 164,665 161,954
5. Income before cumulative effect of change
in accounting principle (Note 2) 27,820 24,696 25,046
6. Cumulative effect of change in
accounting principle -- -- --
7. Net income 27,820 24,696 25,046
8. Earnings available for common shares 27,351 24,190 24,503
9. Earnings before cumulative effect of
change in accounting principle 0.83 0.74 0.75
10. Cumulative effect of change in
accounting principle -- -- --
11. Earnings per common share (Note 2) 0.83 0.74 0.75
Selected Consolidated Balance Sheet Items
12. Total assets $ 360,976 348,434 304,908
13. Property and equipment 436,496 417,844 397,630
14. Accumulated depreciation and amortization 183,128 167,569 152,867
15. Accumulated depreciation to
depreciable plant 42.9% 41.0% 39.2%
16. Current ratio 1.3:1 2.2:1 1.3:1
17. Long-term debt and redeemable
preferred stock* $ 87,544 93,493 63,254
18. Long-term debt and redeemable preferred
stock as a percent of total capitalization 33.0% 36.2% 29.2%
19. Common stock, premium and common stock
subscribed less treasury stock $ 44,033 45,134 45,726
20. Retained earnings 133,878 119,681 107,694
21. Total long-term debt, redeemable preferred
stock and stockholders' equity 265,455 258,308 216,674
Telephone Statistics
22. Access lines in service 226,077 221,706 216,109
23. Number of employees 1,459 1,474 1,500
24. Total salaries $ 45,570 44,828 44,472
Selected Common Stock Items
25. Dividends declared per common share $ 0.400 0.370 0.370
26. Shares of common stock outstanding at
end of year 32,844,376 32,934,376 32,980,376
27. Market value common stock--high/low $14.63/10.50 16.75/9.75 17.31/8.56
28. Price earnings ratio--high/low 17.6x/12.7x 22.6x/13.2x 23.1x/11.4x
29. Book value per common share $ 5.42 5.00 4.65
SELECTED FINANCIAL DATA (not covered by independent auditors' report) continued
(Dollars in thousands except per share data)
1988 1987 1986
<S> <C> <C> <C>
Selected Consolidated Earnings Statement Items
1. Telephone operating revenues $ 141,039 134,681 137,608
2. Diversified operations revenues
and sales (Note 1) 23,623 19,900 8,163
3. Intercompany revenues (6,458) (5,692) 0
4. Total revenues and sales 158,204 148,889 145,771
5. Income before cumulative effect of change
in accounting principle (Note 2) 25,478 21,692 18,963
6. Cumulative effect of change in
accounting principle -- -- --
7. Net income 25,478 21,692 18,963
8. Earnings available for common shares 24,899 21,076 18,319
9. Earnings before cumulative effect of
change in accounting principle 0.75 0.61 0.56
10. Cumulative effect of change in
accounting principle -- -- --
11. Earnings per common share (Note 2) 0.75 0.61 0.56
Selected Consolidated Balance Sheet Items
12. Total assets $ 289,806 289,426 285,895
13. Property and equipment 386,421 398,605 384,388
14. Accumulated depreciation and amortization 147,794 157,373 144,584
15. Accumulated depreciation to
depreciable plant 38.9% 40.2% 38.4%
16. Current ratio 1.7:1 1.6:1 1.7:1
17. Long-term debt and redeemable
preferred stock* $ 69,743 71,714 86,391
18. Long-term debt and redeemable preferred
stock as a percent of total capitalization 33.0% 33.8% 40.8%
19. Common stock, premium and common stock
subscribed less treasury stock $ 45,726 41,816 36,500
20. Retained earnings 95,805 98,935 88,599
21. Total long-term debt, redeemable preferred
stock and stockholders' equity 211,265 212,465 211,490
Telephone Statistics
22. Access lines in service 210,343 204,561 201,182
23. Number of employees 1,525 1,564 1,587
24. Total salaries $ 44,352 46,906 44,047
Selected Common Stock Items
25. Dividends declared per common share $ 0.335 0.295 0.275
26. Shares of common stock outstanding at
end of year 32,980,376 32,673,576 33,189,624
27. Market value common stock--high/low $ 9.13/6.57 7.25/5.07 6.88/4.60
28. Price earnings ratio--high/low 12.2x/8.8x 11.9x/8.3x 12.3x/8.2x
29. Book value per common share $ 4.29 4.06 3.77
SELECTED FINANCIAL DATA (not covered by independent auditors' report) continued
(Dollars in thousands except per share data)
1985 1984
<S> <C> <C>
Selected Consolidated Earnings Statement Items
1. Telephone operating revenues $ 123,344 129,145
2. Diversified operations revenues
and sales (Note 1) 7,244 4,941
3. Intercompany revenues 0 0
4. Total revenues and sales 130,588 134,086
5. Income before cumulative effect of change
in accounting principle (Note 2) 15,150 16,892
6. Cumulative effect of change in
accounting principle -- --
7. Net income 15,150 16,892
8. Earnings available for common shares 14,488 16,212
9. Earnings before cumulative effect of
change in accounting principle 0.44 0.50
10. Cumulative effect of change in
accounting principle -- --
11. Earnings per common share (Note 2) 0.44 0.50
Selected Consolidated Balance Sheet Items
12. Total assets $ 280,766 279,067
13. Property and equipment 369,407 363,043
14. Accumulated depreciation and amortization 130,171 122,558
15. Accumulated depreciation to
depreciable plant 36.0% 34.6%
16. Current ratio 1.4:1 1.1:1
17. Long-term debt and redeemable
preferred stock* $ 88,190 90,776
18. Long-term debt and redeemable preferred
stock as a percent of total capitalization 43.1% 45.1%
19. Common stock, premium and common stock
subscribed less treasury stock $ 37,126 36,497
20. Retained earnings 79,407 74,038
21. Total long-term debt, redeemable preferred
stock and stockholders' equity 204,723 201,311
Telephone Statistics
22. Access lines in service 199,576 198,284
23. Number of employees 1,623 1,672
24. Total salaries $ 43,839 43,454
Selected Common Stock Items
25. Dividends declared per common share $ 0.275 0.270
26. Shares of common stock outstanding at
end of year 33,189,624 33,007,736
27. Market value common stock--high/low $ 5.54/3.66 3.69/2.85
28. Price earnings ratio--high/low 12.6x/8.3x 7.4x/5.7x
29. Book value per common share $ 3.51 3.35
OFFICERS, DIRECTORS AND COMMITTEES
OFFICERS
Corporate Officers
Thomas C. Woods, III
Chairman of the Board
Frank H. Hilsabeck
President and Chief Executive Officer
James W. Strand
President-Diversified Operations
Jack H. Geist
Vice President-Diversified Operations
Robert L. Tyler
Senior Vice President-Chief Financial Officer
Michael J. Tavlin
Vice President-Treasurer and Secretary
Robert C. Halvorsen
Assistant Secretary
The Lincoln Telephone and
Telegraph Company
Thomas C. Woods, III
Chairman of the Board
Frank H. Hilsabeck
President
James W. Strand
Executive Vice President-Marketing and Customer Services
Charles P. Arnold
Senior Vice President-Network Operations
Robert L. Tyler
Senior Vice President-Chief Financial Officer
Michael J. Tavlin
Vice President-Treasurer and Secretary
Robert C. Halvorsen
Assistant Secretary
Lintel Systems Inc.
James W. Strand
President
Jack H. Geist
Vice President
Michael J. Tavlin
Vice President-Treasurer and Secretary
Prairie Communications, Inc.
James W. Strand
President
Michael J. Tavlin
Vice President-Treasurer and Secretary
DIRECTORS
Duane W. Acklie
Chairman
Crete Carrier Corporation
William W. Cook, Jr.
President and Chief Executive Officer
The Beatrice National Bank and Trust Company
Terry L. Fairfield
President and Chief Executive Officer
University of Nebraska Foundation
James E. Geist
Retired Chairman and Chief Executive Officer
Lincoln Telecommunications Company
J. Taylor Greer
Partner
Woods & Aitken
John Haessler
President and Chief Executive Officer
Woodmen Accident and Life Company
Charles R. Hermes
President
Dutton-Lainson Company
Frank H. Hilsabeck
President and Chief Executive Officer
Lincoln Telecommunications Company
Donald H. Pegler, Jr.
Chairman and Chief Executive Officer
Pegler-Sysco Food Services Company
Paul C. Schorr, III
President and Chief Executive Officer
Ebco-Commonwealth Inc.
William C. Smith
Retired Chairman
FirsTier Financial, Inc.
James W. Strand
President-Diversified Operations
Lincoln Telecommunications Company
Charles N. Wheatley
President and Chief Executive Officer
Sahara Enterprises, Inc.
Thomas C. Woods, II
Chairman of the Board
Lincoln Telecommunications Company
Lyn Wallin Ziegenbein
Executive Director
Peter Kiewit Foundation
COMMITTEES
Executive
Frank H. Hilsabeck,
Chairman
William W. Cook, Jr.
J. Taylor Greer
Paul C. Schorr, III
William C. Smith
Audit
Charles R. Hermes,
Chairman
Terry L. Fairfield
John Haessler
Charles N. Wheatley
Executive Compensation
Duane W. Acklie,
Chairman
Paul C. Schorr, III
Charles N. Wheatley
Lyn Wallin Ziegenbein
INVESTOR INFORMATION
CORPORATE INFORMATION
Corporate Headquarters
1440 M Street
Lincoln, NE 68508
(402) 436-3737
Mailing Address:
P.O. Box 81309
Lincoln, NE 68501-1309
Stock Listed
NASDAQ National Market
Symbol: LTEC
The preferred stock of The Lincoln Telephone and
Telegraph Company is traded over-the-counter.
Auditors
KPMG Peat Marwick
1600 FirsTier Bank Building
233 South 13th Street
Lincoln, NE 68508
STOCKHOLDER INFORMATION
Investor Relations Center
The Form 10-K, Quarterly Reports, a prospectus and stock information may be
obtained without charge by contacting:
Investor Relations Center
Lincoln area:
(402) 436-5277
From anywhere in the continental U.S.:
1-800-829-5832
Via e-mail: [email protected]
Annual Meeting of Stockholders
April 26, 1995
10:30 a.m.
The Cornhusker Hotel
333 South 13th Street
Lincoln, Nebraska
Stock Transfer Agent and Registrar
Mellon Securities Trust Company is the company's Stock Transfer Agent,
Registrar, Dividend Reinvestment Plan Administrator, and the Rights Agent
for the Stockholder Rights Plan. All questions about stockholder accounts,
stock certificates, the dividend reinvestment plan or dividend checks should
be addressed to:
Mellon Securities Trust Company
85 Challenger Road, Overpeck Centre
Ridgefield Park, NJ 07660
1-800-526-0801 / 1-800-231-5469 (TDD)
SECURITY ANALYSTS & PORTFOLIO MANAGERS
Direct inquiries to:
Mr. Michael J. Tavlin
Vice President-Treasurer
1440 M Street
Lincoln, NE 68508
(402) 436-5289
DIVIDEND REINVESTMENT & STOCK PURCHASE PLAN
The company offers a dividend reinvestment and stock purchase plan.
Participants can make optional cash payments of at least $100 per payment
with a maximum of $3,000 per calendar quarter. The company pays all
administrative and investment service costs.
MARKET & DIVIDEND DATA
(Adjusted to reflect 100% stock dividend paid January 6, 1994)
Market Price Dividends Declared
Calendar 1994 1993 1994 1993
Quarter High Low High Low
1st $20.00 $15.50 $13.50 $12.00 $.13 $.12
2nd 16.75 13.75 14.50 12.50 .13 .12
3rd 16.75 13.75 18.75 13.63 .13 .12
4th 17.50 14.00 20.50 17.50 .14 .13
12 Mos. 20.00 13.75 20.50 12.00 .53 .49
The company has paid a dividend on its common stock every quarter since
1936.
The quarterly record dates are typically five days before the end of the
calendar quarter.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000320446
<NAME> LINCOLN TELECOMMUNICATIONS COMPANY
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 22038
<SECURITIES> 24635
<RECEIVABLES> 26691
<ALLOWANCES> 459
<INVENTORY> 7052
<CURRENT-ASSETS> 79957
<PP&E> 458953
<DEPRECIATION> 217183
<TOTAL-ASSETS> 393184
<CURRENT-LIABILITIES> 62324
<BONDS> 44000
<COMMON> 8245
0
4499
<OTHER-SE> 188190
<TOTAL-LIABILITY-AND-EQUITY> 393184
<SALES> 13964
<TOTAL-REVENUES> 196784
<CGS> 7130
<TOTAL-COSTS> 138491
<OTHER-EXPENSES> 3621
<LOSS-PROVISION> 533
<INTEREST-EXPENSE> 6624
<INCOME-PRETAX> 54672
<INCOME-TAX> 21067
<INCOME-CONTINUING> 33380
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33380
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 1.03
</TABLE>
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of March 21, 1995
(the "Agreement"), by and among LINCOLN TELECOMMUNICATIONS COMPANY, a
Nebraska corporation ("Parent"), CAPITAL ACQUISITION CORP., a Nebraska
corporation and a wholly-owned subsidiary of Parent ("Subsidiary") and
NEBRASKA CELLULAR TELEPHONE CORPORATION, a Nebraska corporation
("Company").
WHEREAS, the Boards of Directors of Parent, Subsidiary and
Company have approved the merger of Company with and into Subsidiary
pursuant to this Agreement (the "Merger") and the transactions
contemplated hereby upon the terms and subject to the conditions set forth
herein; and
WHEREAS, it is intended that the Merger will be treated as a
reorganization under Sections 368(a)(1)(A) and (a)(2)(D) of the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations
thereunder;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein,
the parties hereto, intending to be legally bound hereby, agree as
follows:
ARTICLE I
The Merger
Section 1.1 THE MERGER. Upon the terms and subject to the
conditions of this Agreement, at the Effective Time (as defined in Section
1.2), Company shall be merged with and into Subsidiary and the separate
existence of Company shall thereupon cease. Subsidiary shall be the
surviving corporation in the Merger (hereinafter sometimes referred to as
the "Surviving Corporation") and shall simultaneously change its name to
"Nebraska Cellular Telephone Corporation."
Section 1.2 EFFECTIVE TIME OF THE MERGER. The Merger shall
become effective at such time (the "Effective Time") as Articles of
Merger, in the form set forth as Exhibit 1.2 hereto, are filed with the
Secretary of State of the State of Nebraska (the "Merger Filing"); such
filing shall be made simultaneously with or as soon as practicable after
the Closing (as defined in Section 3.4).
ARTICLE II
The Surviving and Parent Corporations
Section 2.1 EFFECTS OF THE MERGER. At the Effective Time,
(i) the Articles of Incorporation of Subsidiary, as in effect immediately
prior to the Effective Time, shall be the Articles of Incorporation of
Subsidiary as the surviving corporation in the Merger until thereafter
amended as provided by law and such Articles of Incorporation, and (ii)
the By-laws of Subsidiary, as in effect immediately prior to the Effective
Time, shall be the By-laws of Subsidiary as the surviving corporation in
the Merger, until thereafter amended as provided by law, the Articles of
Incorporation of the Surviving Corporation and such By-laws. Subject to
the foregoing, the additional effects of the Merger shall be as provided
in the applicable provisions of the Nebraska Business Corporation Act (the
"NBCA").
Section 2.2 DIRECTORS. Effective as of the Effective Time,
all members of the Board of Directors of Subsidiary shall resign and
Parent shall take such corporate action as may be necessary to cause
Subsidiary's Board of Directors immediately following the Effective Time
to be nominated and elected in accordance with Sections 3.1, 3.2 and 3.3
of Subsidiary's By-laws, a copy of which is attached hereto as Schedule
4.1(b). Parent shall take such action as is necessary to maintain in full
force and effect Sections 3.1, 3.2 and 3.3 of Subsidiary's By-laws in the
form attached as Schedule 4.1(b) and shall refrain from repealing or
otherwise amending or modifying such Sections in a manner detrimental to
the interests of the present shareholders of Company (other than
amendments made in accordance with Section 3.3 of Subsidiary's By-laws)
until the Sunset Date (as such term is defined in Section 3.1 of
Subsidiary's By-laws). Until the Sunset Date and subject to the veto
rights of Parent set forth in Section 3.2 of Subsidiary's By-laws, Parent
agrees that: (a) it shall vote all shares of Subsidiary common stock it
owns, or any of its subsidiaries owns, in favor of the election of persons
nominated to become NCTC Directors (as such term is defined in Section 3.1
of Subsidiary's By-laws); and (b) so long as Kevin J. Wiley is an employee
of either Parent, Subsidiary or any affiliate of Parent or Subsidiary, it
shall vote all shares of Subsidiary common stock it owns, or any of its
subsidiaries owns, in favor of the election of Kevin J. Wiley as one of
the directors of the Subsidiary. In the event that the business of the
Surviving Corporation is transferred to another entity controlled by
Parent, then, to the extent permitted under applicable law, Parent shall
create and maintain an advisory board of directors to supervise the
operations of the business transferred to the new entity, composed of
members selected in the manner set forth in this Section 2.2, until the
Sunset Date. It is expressly understood and agreed that the present
shareholders of the Company, other than Parent, are intended beneficiaries
of the covenants and agreements set forth in this Section 2.2, and that
any such shareholder of the Company shall be entitled to enforce such
covenants and agreements as if it were a party hereto.
Section 2.3 OFFICERS. Immediately after the new Board of
Directors referred to in Section 2.2 is constituted, Parent shall cause
all such corporate action to be taken as may be necessary to cause Kevin
J. Wiley, President of Company, and Andrew Arnold, Vice President of
Company, to each become officers of the Surviving Corporation. Further,
Parent covenants and agrees that for a period of at least two (2) years
from the Effective Date both Kevin J. Wiley and Andrew Arnold shall each
have responsibilities, compensation and benefits with the Surviving
Corporation on a basis no less favorable than their respective current
basis at Company. It is expressly understood and agreed that Kevin J.
Wiley and Andrew Arnold are intended beneficiaries of the covenants and
agreements set forth in this Section 2.3, and that each of Kevin J. Wiley
and Andrew Arnold shall be entitled to enforce such covenants and
agreements as if they were parties hereto.
ARTICLE III
Conversion of Shares
Section 3.1 EFFECT OF THE MERGER ON CAPITAL STOCK. At the
Effective Time:
(a) Each then outstanding share of common stock, par value $.01
per share, of Company ("Common Stock") not owned by Parent,
Subsidiary or any other direct or indirect subsidiary of Parent
(other than those shares of Common Stock held in the treasury of
Company, and other than shares of Common Stock the holders of which
have perfected any dissenter's rights that they may have under the
NBCA and which have not withdrawn or lost such rights ("Dissenting
Shares")) will be converted into a right to receive (i) one (1) share
of common stock, par value $.25 per share, of Parent ("Parent Common
Stock"); (ii) one (1) Common Stock Purchase Right (a "Right") under
that certain Rights Agreement, dated as of June 21, 1989 by and
between Parent and Mellon Securities Trust Company, as amended
("Parent's Rights Plan"); and (iii) $4.00 in cash (the "Stock Cash
Amount"); provided, however, in lieu of such conversion into Parent
Common Stock, Rights and the Stock Cash Amount as provided above, a
number of shares of Common Stock not to exceed the number of shares
of Common Stock determined in accordance with Exhibit 3.1(a) shall be
converted into a right to receive $20.00 in cash per share (the
"Basic Cash Amount") to the extent that the holders of record of such
shares elect to receive cash in accordance with Section 3.2 (such
elections to receive cash are hereinafter referred to as "Cash
Elections"); provided further, however, if at the Effective Time the
number of shares of Common Stock subject to Cash Elections is less
than 20% of the number of outstanding shares of Common Stock at the
Effective Time ("Effective Time Shares") (exclusive of shares of
Common Stock owned by Parent, Subsidiary or any other direct or
indirect subsidiary of Parent and exclusive of Dissenting Shares), in
lieu of conversion into Parent Common Stock, Rights and the Stock
Cash Amount as provided above, each share of Common Stock not then
subject to a Cash Election (exclusive of shares of Common Stock held
in the treasury of the Company, shares of Common Stock owned by
Parent, Subsidiary or any other direct or indirect Subsidiary of
Parent, and Dissenting Shares) shall be converted into (i) a fraction
of a share of Parent Common Stock, a fraction of a Right and a
fraction of the Stock Cash Amount which fraction shall in each case
be equal to the Stock Percentage, plus (ii) the Additional Cash;
provided further, however, that in no event shall the sum of (i) the
aggregate amount of the Additional Cash paid to holders of shares of
Common Stock pursuant to this Section 3.1(a), plus (ii) the product
of multiplying the Basic Cash Amount by the number of shares of
Common Stock which are subject to Cash Elections at the Effective
Time exceed the product of multiplying the Basic Cash Amount by the
number of shares of Common Stock determined in accordance with
Exhibit 3.1(a); and provided further, however, if immediately prior
to the Effective Time, no Rights are outstanding under Parent's
Rights Plan, the Common Stock shall not be converted into the right
to receive any Rights. For purposes of this Agreement, (i)
"Additional Cash" means the product (computed to two (2) decimal
places) of multiplying the Basic Cash Amount by the Additional Cash
Percentage, (ii) "Cash Percentage" means 20% minus the Cash Election
Percentage, (iii) "Cash Election Percentage" means the quotient,
expressed as a percentage (computed to four (4) decimal places), of
dividing the number of shares of Common Stock which at the Effective
Time are subject to Cash Elections by the number of Effective Time
Shares (exclusive of shares of Common Stock owned by Parent,
Subsidiary or any other direct or indirect subsidiary of Parent and
exclusive of Dissenting Shares); (iv) "Additional Cash Percentage"
means the quotient, expressed as a percentage (computed to four (4)
decimal places), of dividing (A) the product of multiplying (I) the
Cash Percentage by (II) the number of Effective Time Shares
(exclusive of shares of Common Stock owned by Parent, Subsidiary or
any other direct or indirect subsidiary of Parent and exclusive of
Dissenting Shares) by (B) the excess of (I) the number of Effective
Time Shares (exclusive of shares of Common Stock owned by Parent,
Subsidiary or any other direct or indirect subsidiary of Parent and
exclusive of Dissenting Shares) over (II) the number of shares of
Common Stock which are subject to Cash Elections at the Effective
Time; and (v) "Stock Percentage" means 100% minus the Additional Cash
Percentage.
(b) Each then outstanding share of Common Stock owned by
Parent, Subsidiary or any other direct or indirect subsidiary of
Parent will be canceled and retired, and each share of Common Stock
issued and held in Company's treasury will be canceled and retired.
Section 3.2 EXCHANGE OF CERTIFICATES.
(a) As of the Effective Time, each holder of an outstanding
certificate which immediately prior to the Effective Time represented
shares of Common Stock and which was surrendered to Parent in
accordance with Section 3.2(b) shall be entitled to receive in
exchange therefor, (i) a certificate or certificates theretofore
representing the number of whole shares of Parent Common Stock, to
which such holder is entitled pursuant to Section 3.1 and (ii) any
cash to which such holder is entitled pursuant to Section 3.1 payable
in the form of bank cashiers' or certified checks each payable to the
order of recipient. If any certificate for shares of Parent Common
Stock is to be issued in a name other than that in which the
certificate for shares of Common Stock surrendered in exchange
therefor is registered, it shall be a condition of such exchange that
the person requesting such exchange shall pay any transfer or other
taxes required by reason of the issuance of certificates for such
shares of Parent Common Stock in a name other than that of the
registered holder of the certificate surrendered, or shall establish
to the satisfaction of Parent that such tax has been paid or is not
applicable.
(b) Within ten (10) days after approval of this Agreement and
the Merger by the requisite number of shareholders of Company in
accordance with the NBCA ("Company Shareholders' Approval"), Parent
shall mail to each holder of record of a certificate or certificates
that as of the date of such approval, represented outstanding shares
of Common Stock (the "Company Certificates"): (i) a form letter of
transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to Company Certificates shall pass, only upon
actual delivery of Company Certificates to Parent); and (ii)
instructions for use in (A) effecting the surrender of Company
Certificates in exchange for certificates representing shares of
Parent Common Stock and the Stock Cash Amount and (B) making a Cash
Election, which may be made with respect to all or a portion of a
holder's shares of Common Stock. Such instructions shall instruct
each such holder to deliver to Parent their respective Company
Certificates within twenty (20) days from the date such holder
receives the form letter of transmittal, together with a duly
executed and completed letter of transmittal and such other documents
as the Parent shall reasonably require and shall specify that no Cash
Elections may be validly made after such 20 day period. Thereafter,
at and after the Effective Time, each holder of shares of Common
Stock, upon delivery of their respective Company Certificates,
together with a duly executed letter of transmittal, shall be
entitled to receive in exchange therefor the consideration to which
such holder is entitled pursuant to Section 3.1, and Company
Certificates so surrendered shall forthwith be canceled.
Notwithstanding the foregoing, no party hereto shall be liable to a
holder of shares of Common Stock for any shares of Parent Common
Stock or dividends or distributions thereon delivered to a public
official pursuant to applicable abandoned property, escheat or
similar laws.
(c) If the number of shares of Common Stock for which Cash
Elections were validly made pursuant to this Section 3.2 exceeds an
amount equal to the number of shares of Common Stock determined in
accordance with Exhibit 3.1(a) (the "Cash Election Maximum"), then
Parent shall reduce the number of shares of Common Stock (pro rata as
nearly as practicable in proportion to the total number of shares of
Common Stock for which Cash Elections were validly made pursuant to
this Section 3.2) by such additional number of shares as may be
necessary so that the number of such shares remaining which are to be
converted into the right to receive cash pursuant to Cash Elections
has been reduced to (or to the most practicable number thereof
immediately below) the Cash Election Maximum.
(d) Parent shall in its sole discretion determine whether or
not Cash Elections have been properly or timely made. Neither
Company, Parent nor Subsidiary shall be under any duty to give
notification that Cash Elections have not been timely made; however,
Parent shall use reasonable efforts to notify holders of shares of
Common Stock of any Cash Election that was not properly made. If
Parent determines that any Cash Election was not properly or timely
made (including as a result of a failure to timely deliver Company
Certificates pursuant to Section 3.2(b)), the shares subject to such
Cash Election shall be treated by Parent as shares of Common Stock
which were not subject to any Cash Election and at the Effective Time
such shares shall be converted into Parent Common Stock, Rights and
the Stock Cash Amount pursuant to Section 3.1. Parent shall make all
computations as to proration contemplated by this Section 3.2 and any
such computations shall be conclusive and binding on the holders of
Common Stock.
(e) Notwithstanding any provision of this Agreement to the
contrary, Dissenting Shares shall not be converted into or represent
a right to receive the consideration to which other shares of Common
Stock other than Dissenting Shares are entitled pursuant to this
Article III, but the holder of Dissenting Shares shall only be
entitled to such rights as are granted by the NBCA. If a holder of
shares of Common Stock who pursues dissenters' rights with respect to
those shares under the NBCA shall effectively withdraw or lose
(through failure to perfect or otherwise) the right to dissent, then,
as of the Effective Time or the occurrence of such event, whichever
last occurs, those shares of Common Stock shall be converted into and
represent only the right to receive the consideration as provided in
Article III (but with the right to make a Cash Election only to the
extent such holder complies with Section 3.2(b)), without interest,
upon the surrender of Company Certificate or Company Certificates
representing those shares of Common Stock. Company shall give Parent
prompt notice of any written demands made pursuant to Sections 21-
2079 or 21-2080 of the NBCA with respect to any shares of Common
Stock, attempted withdrawals of such demands and any other
instruments served pursuant to the NBCA received by Company relating
to a shareholder's rights to dissent. Company shall not, except with
the prior written consent of Parent, voluntarily make any payment
with respect to any demands made pursuant to such dissenters' rights
with respect to any shares of Common Stock, offer to settle or settle
any such demands or approve any withdrawal of any such demands.
Parent shall contribute to Company or the Surviving Corporation, as
the case may be, sufficient funds to enable Company or the Surviving
Corporation to make, or shall itself directly make, any payments
required to be made to holders of Dissenting Shares.
(f) Anything to the contrary notwithstanding in this Section
3.2, if this Agreement is terminated pursuant to Article IX, any
Company Certificate or Company Certificates which have been
surrendered to Parent shall be promptly returned to the persons
submitting the same.
(g) Until surrendered and exchanged in accordance with this
Section 3.2, each Company Certificate shall, after the Effective
Time, represent solely the right to receive the Parent Common Stock,
Rights and the Stock Cash Amount to which the holder of such Company
Certificate is entitled to hereunder, and shall have no other rights.
At the Effective Time, the stock transfer books of Company will be
closed and no transfer of shares of Common Stock will thereafter be
made.
Section 3.3 NO FRACTIONAL SECURITIES. Notwithstanding any
other provision of this Agreement, no certificates or scrip for fractional
shares of Parent Common Stock shall be issued in the Merger and no Parent
Common Stock dividend, stock split or interest shall relate to any
fractional security, and such fractional interests shall not entitle the
owner thereof to vote or to any other rights of a security holder. In
lieu of any such fractional shares, each holder of Common Stock who would
otherwise have been entitled to receive a fraction of a share of Parent
Common Stock upon surrender of Company Certificates for exchange pursuant
to this Article III shall be entitled to receive from the Parent a cash
payment equal to such fraction multiplied by $16.00.
Section 3.4 CLOSING. The closing (the "Closing") of the
transactions contemplated by this Agreement shall take place at the
offices of Foley & Lardner, Chicago, Illinois, on the fifth business day
immediately following the date on which the last of the conditions set
forth in Article VIII is fulfilled or waived, or at such other time and
place as Parent and Company shall agree (the date on which the Closing
occurs being the "Closing Date").
ARTICLE IV
Representations and Warranties of Parent and Subsidiary
Parent and Subsidiary each represent and warrant to Company as
follows:
Section 4.1 ORGANIZATION AND QUALIFICATION. Each of Parent
and Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation and has the
requisite power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted.
Each of Parent and Subsidiary is qualified to do business and is in good
standing in each jurisdiction in which the properties owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified and
in good standing will not, when taken together with all other such
failures, have a material adverse effect on the business, financial
condition or results of operations of Parent and its subsidiaries, taken
as a whole (a "Parent Material Adverse Effect"). True, accurate and
complete copies of Parent's Articles of Incorporation, By-laws and Rights
Plan, in each case as in effect on the date hereof, including all
amendments thereto, have heretofore been delivered to Company. True,
accurate and complete copies of Subsidiary's Articles of Incorporation and
By-laws, as in effect on the date hereof, including all amendments
thereto, are attached as Schedule 4.1(a) and (b), respectively.
Section 4.2 CAPITALIZATION.
(a) The authorized capital stock of Parent consists of
100,000,000 shares of Parent Common Stock, par value $.25 per share. As
of February 28, 1995, the number of issued and outstanding shares of
Parent Common Stock was 32,377,290. All of the issued and outstanding
shares of Parent Common Stock are validly issued and are fully paid,
nonassessable and free of preemptive rights. No subsidiary of Parent
holds any shares of capital stock of Parent.
(b) The authorized capital stock of Subsidiary consists of
10,000 shares of Subsidiary common stock, par value $.25 per share, of
which 100 shares are issued and outstanding, all of which are owned
beneficially and of record by Parent.
(c) Except as set forth in Schedule 4.2(c), as of the date
hereof, there are no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement obligating Parent or
any subsidiary of Parent to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of the capital stock of Parent or
obligating Parent or any subsidiary of Parent to grant, extend or enter
into any such agreement or commitment, except for this Agreement, the
Parent's Rights Plan, Parent's Employee and Shareholder Dividend
Reinvestment and Stock Purchase Plan (the "Parent DRIP"), Parent's 1989
Stock and Incentive Plan (the "Parent SIP"), and Parent's 401(k) Savings
and Stock Ownership Plan (the "Parent Savings Plan"). There are no voting
trusts, proxies or other agreements or understandings to which Parent or
any subsidiary of Parent is a party or is bound with respect to the voting
of any shares of capital stock of Parent. The shares of Parent Common
Stock to be issued to shareholders of Company in the Merger will be at the
Effective Time duly authorized, validly issued, fully paid and
nonassessable and free of preemptive rights.
Section 4.3 SUBSIDIARIES. Each corporate subsidiary of
Parent is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has the
requisite power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted.
Each subsidiary of Parent is qualified to do business, and is in good
standing, in each jurisdiction in which the properties owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified and
in good standing will not, when taken together with all such other
failures, have a Parent Material Adverse Effect. Except as set forth in
Parent's Annual Report on Form 10-K for the year ended December 31, 1993
and the exhibits and schedules thereto (the "Parent 10-K"), or Parent's
Quarterly Reports on Form 10-Q for the quarter ended September 30, 1994
and the exhibits and schedules thereto (the "Parent 10-Q"), all of the
outstanding shares of capital stock of each corporate subsidiary of Parent
are validly issued, fully paid, nonassessable and free of preemptive
rights, and those owned directly or indirectly by Parent are owned free
and clear of any liens, claims, encumbrances, security interests,
equities, charges and options of any nature whatsoever. Except as set
forth in the Parent 10-K or the Parent 10-Q and except with respect to the
5% Redeemable Preferred Stock of The Lincoln Telephone and Telegraph
Company, Parent owns directly or indirectly all of the issued and
outstanding shares of the capital stock of each of its corporate
subsidiaries. Immediately prior to the Effective Time, Parent will be in
control of Subsidiary within the meaning of Section 368(c)(1) of the Code.
Except as set forth in the Parent 10-K or the Parent 10-Q, there are no
subscriptions, options, warrants, rights, calls, contracts, voting trusts,
proxies or other commitments, understandings, restrictions or arrangements
relating to the issuance, sale, voting, transfer, ownership or other
rights with respect to any shares of capital stock of any corporate
subsidiary of Parent, including any right of conversion or exchange under
any outstanding security, instrument or agreement. As used in this
Agreement, the term "subsidiary" shall mean any corporation, partnership,
joint venture or other entity of which the specified entity, directly or
indirectly, controls or which the specified entity (either acting alone or
together with its other subsidiaries) owns, directly or indirectly, 50% or
more of the stock or other voting interests, the holders of which are,
ordinarily or generally, in the absence of contingencies (which
contingencies have not occurred) or understandings (which understandings
have not yet been required to be performed) entitled to vote for the
election of a majority of the board of director or any similar governing
body.
Section 4.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) Parent and Subsidiary each have full corporate power and
authority to enter into this Agreement and, subject to the Parent Required
Statutory Approvals (as defined in Section 4.4(c)), to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement, and the consummation by Parent and Subsidiary of the
transactions contemplated hereby, have been duly authorized by Parent's
and Subsidiary's Board of Directors, respectively, and by Parent as sole
shareholder of Subsidiary, and no other corporate proceedings on the part
of Parent or Subsidiary are necessary to authorize the execution and
delivery of this Agreement and the consummation by Parent and Subsidiary
of the transactions contemplated hereby, except for the obtaining of the
Parent Required Statutory Approvals. This Agreement has been duly and
validly executed and delivered by each of Parent and Subsidiary, and,
assuming the due authorization, execution and delivery hereof by Company,
constitutes a valid and binding agreement of each of Parent and Subsidiary
enforceable against each of them in accordance with its terms, except that
such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally; and (ii) general equitable
principles.
(b) The execution and delivery of this Agreement by each of
Parent and Subsidiary do not, and the consummation by Parent and
Subsidiary of the transactions contemplated hereby will not, violate,
conflict with or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or
assets of Parent or any of its subsidiaries under any of the terms,
conditions or provisions of (i) the respective charters or by-laws of
Parent or any of its subsidiaries; (ii) subject to obtaining the Parent
Required Statutory Approvals, any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license
of any court or governmental authority applicable to Parent or any of its
subsidiaries or any of their respective properties or assets; or (iii) any
note, bond, mortgage, indenture, deed of trust, license, franchise,
permit, concession, contract, lease or other instrument, obligation or
agreement of any kind to which Parent or any of its subsidiaries is now a
party or by which Parent or any of its subsidiaries or any of their
respective properties or assets may be bound or affected, excluding from
the foregoing clauses (ii) and (iii) such violations, conflicts, breaches,
defaults, terminations, accelerations or creations of liens, security
interests, charges or encumbrances that would not, in the aggregate, have
a Parent Material Adverse Effect.
(c) Except for (i) the filings by Parent and Company required
by Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"); (ii) the necessary approvals, if any, of any
state public utilities commissions or similar state bodies ("PUCs")
identified in Schedule 4.4(c), as having jurisdiction over Parent or any
of its subsidiaries (the "Parent PUCs") and Company PUCs (as defined in
Section 5.4 hereof), in each case pursuant to applicable state laws or
regulations (together with any other similar state laws or regulations
relating to or regulating the telephone, mobile cellular, paging or other
telecommunications business ("Utilities Codes"); (iv) the approvals of the
Federal Communications Commission (the "FCC") pursuant to the Federal
Communications Act of 1934, as amended (the "Federal Communications Act");
(v) the making of the Merger Filing with the Secretary of State of the
State of Nebraska in connection with the Merger; and (vi) any required
filings with or approvals from applicable state environmental authorities;
(the filings and approvals referred to in clauses (i) through (vi) are
collectively referred to as the "Parent Required Statutory Approvals"), no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority
is necessary for the execution and delivery of this Agreement by Parent or
Subsidiary or the consummation by Parent or Subsidiary of the transactions
contemplated hereby, other than such declarations, filings, registration,
notices, authorizations, consents or approvals which,if not made or
obtained, as the case may be, would not, in the aggregate, have a Parent
Material Adverse Effect.
Section 4.5 REPORTS AND FINANCIAL STATEMENTS. Except as
disclosed in Schedule 4.5 hereof, since December 31, 1990, Parent and each
of its subsidiaries required to make filings under the Securities Act of
1933, as amended (the "Securities Act"), the Securities Exchange Act of
1934, as amended (the "Exchange Act"), any Utilities Codes or the Federal
Communications Act have filed with the Securities and Exchange Commission
("SEC"), the pertinent PUCs or the FCC, as the case may be, all material
forms, statements, reports and documents (including all exhibits,
amendments and supplements thereto) required to be filed by them under
each of the Securities Act, the Exchange Act, the applicable Utilities
Codes and the Federal Communications Act and the respective rules and
regulations, all of which complied in all material respects with all
applicable requirements of the appropriate act and the rules and
regulations thereunder. Parent has previously delivered to Company copies
of (a) the Parent 10-K and Parent's Annual Reports on Form 10-K for each
of the two immediately preceding fiscal years, as filed with the SEC;
(b) proxy and information statements relating to (i) the meetings of its
shareholders (whether annual or special) since December 31, 1990; and
(ii) actions by written consent in lieu of a shareholders' meeting from
December 31, 1990, until the date hereof; and (c) all other reports or
registration statements (but only in such form as declared effective by
the SEC) filed by Parent with the SEC since December 31, 1990, and Parent
shall promptly deliver to the Company copies of Parent's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994 and any subsequent
Parent Quarterly Report on Form 10-Q filed with the SEC prior to the
Effective Time, after the filing thereof with the SEC (collectively, the
"Parent SEC Reports"). As of their respective dates, the Parent SEC
Reports did not, and will not, contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. The audited consolidated
financial statements and unaudited interim consolidated financial
statements of Parent included and to be included in such reports
(including all notes and schedules contained therein and annexed thereto)
(the "Parent Financial Statements") have been, and will be, prepared in
accordance with generally accepted accounting principles (except, in the
case of unaudited statements, for the absence of footnote disclosure)
applied on a consistent basis (except as may be indicated therein or in
the notes thereto) and fairly, and will fairly, present the financial
position of Parent and its subsidiaries as of the dates thereof and the
results of their operations and changes in financial position for the
periods then ended, subject, in the case of the unaudited interim
financial statements, to normal year-end and audit adjustments and any
other adjustments described therein.
Section 4.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as
disclosed in the Parent 10-K or the Parent 10-Q, or as expressly disclosed
and described in any of the schedules hereto, neither Parent nor any of
its subsidiaries has any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) of any nature (a) except liabilities,
obligations or contingencies (i) which are accrued or reserved against in
the Parent Financial Statements or reflected in the notes thereto; or
(ii) which were incurred in the ordinary course of business and consistent
with past practices; and (b) except for any liabilities, obligations or
contingencies which (i) would not, in the aggregate, have a Parent
Material Adverse Effect.
Section 4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
set forth in the Parent 10-Q, since September 30, 1994, there has not been
any material adverse change in the business, operations, properties,
assets, liabilities, condition (financial or other), results of operations
or prospects of Parent and its subsidiaries, taken as a whole.
Section 4.8 LITIGATION. There are no claims, suits, actions
or proceedings pending or, to the knowledge of Parent, threatened against,
relating to or affecting Parent or any of its subsidiaries, before any
court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator which could reasonably be expected, either
alone or in the aggregate with all such claims, actions or proceedings, to
have a Parent Material Adverse Effect. Except as set forth in the
Parent 10-K or the Parent 10-Q, neither Parent nor any of its subsidiaries
is subject to any judgment, decree, injunction, rule or order of any
court, governmental department, commission, agency, instrumentality or
authority or any arbitrator which prohibits or restricts the consummation
of the transactions contemplated hereby or would have any Parent Material
Adverse Effect.
Section 4.9 NO VIOLATION OF LAW. Except as disclosed in the
Parent 10-K or the Parent 10-Q, neither Parent nor any of its subsidiaries
is in violation of, or has been given notice or been charged with any
violation of, any law, statute, order, rule, regulation, ordinance or
judgment (including, without limitation, any applicable environmental law,
ordinance or regulation) of any governmental or regulatory body or
authority, except for violations which, in the aggregate, do not have a
Parent Material Adverse Effect. Except as disclosed in the Parent 10-K or
the Parent 10-Q, as of the date of this Agreement, no investigation or
review by any governmental or regulatory body or authority is pending or,
to the knowledge of Parent, is threatened, nor has any governmental or
regulatory body or authority indicated an intention to conduct the same,
other than, in each case, those the outcome of which, as far as reasonably
can be foreseen, will not have a Parent Material Adverse Effect. Parent
and its subsidiaries have all permits, licenses, franchises, variances,
exemptions, orders and other governmental authorizations, consents and
approvals necessary to conduct their businesses as presently conducted,
including, without limitation, authorizations under applicable Utilities
Codes and under the Federal Communications Act (the "Parent Permits"),
except for permits, licenses, franchises, variances, exemptions, orders,
authorizations, consents and approvals the absence of which, alone or in
the aggregate, would not have a Parent Material Adverse Effect. Parent
and its subsidiaries (a) have duly and currently filed all reports and
other information required to be filed with the FCC or any other
governmental or regulatory authority in connection with the Parent
Permits; and (b) are not in violation of the terms of any Parent Permit,
except for delays in filing reports or violations which, alone or in the
aggregate, would not have a Parent Material Adverse Effect.
Section 4.10 COMPLIANCE WITH AGREEMENTS. Except as disclosed
in the Parent 10-K or the Parent 10-Q, Parent and each of its subsidiaries
are not in breach or violation of or in default in the performance or
observance of any term or provision of, and no event has occurred which,
with lapse of time or action by a third party, could result in a default
under (a) the respective charters, by-laws or other similar organizational
instruments of Parent or any of its subsidiaries; or (b) any contract,
commitment, agreement, indenture, mortgage, loan agreement, note, lease,
bond, license, approval or other instrument to which Parent or any of its
subsidiaries is a party or by which any of them is bound or to which any
of their property is subject, which breaches, violations and defaults, in
the case of clause (b) of this Section 4.10, would have, in the aggregate,
a Parent Material Adverse Effect.
Section 4.11 TAXES.
(a) Parent and its subsidiaries have (i) duly filed with the
appropriate governmental authorities all Tax Returns (as defined in
Section 4.11(c)) required to be filed by them for all periods ending on or
prior to the Effective Time, other than those Tax Returns the failure of
which to file would not have a Parent Material Adverse Effect, and such
Tax Returns are true, correct and complete in all material respects; and
(ii) duly paid in full or made adequate provision for the payment of all
Taxes for all periods ending at or prior to the Effective Time. The
liabilities and reserves for Taxes reflected in the Parent balance sheet
as of December 31, 1993 contained in the Parent 10-K and the Parent
balance sheet as of December 31, 1994 to be contained in the Parent Annual
Report on Form 10-K for the fiscal year ended December 31, 1994 (the "1993
and 1994 Parent Balance Sheets") are, and will be, adequate to cover all
Taxes for all periods ending on or prior to December 31, 1993 and December
31, 1994, respectively, and there are no material liens for Taxes upon any
property or assets of Parent or any subsidiary thereof, except for liens
for Taxes not yet due. There are no unresolved issues of law or fact
arising out of a notice of deficiency, proposed deficiency or assessment
from the Internal Revenue Service (the "IRS") or any other governmental
taxing authority with respect to Taxes of the Parent or any of its
subsidiaries which, if decided adversely, singly or in the aggregate,
would have a Parent Material Adverse Effect. Neither Parent nor any of
its subsidiaries is a party to any agreement providing for the allocation
or sharing of Taxes with any entity that is not, directly or indirectly, a
wholly owned corporate subsidiary of Parent other than agreements the
consequences of which are fully and adequately reserved for on the 1993
Parent Balance Sheet. Neither Parent nor any of its corporate
subsidiaries has, with regard to any assets or property held, acquired or
to be acquired by any of them, filed a consent to the application of
Section 341(f) of the Code.
(b) For purposes of this Agreement, the term "Taxes" shall mean
all taxes, charges, fees, levies or other assessments, including, without
limitation, income, gross receipts, excise, property, sales, withholding,
social security, occupation, use, service, service use, license, payroll,
franchise, transfer and record taxes, fees and charges, imposed by the
United States, or any state, local or foreign government or subdivision or
agency thereof whether computed on a separate, consolidated, unitary,
combined or any other basis; and such term shall include any interest,
fines, penalties or additional amounts attributable or imposed or with
respect to any such taxes, charges, fees, levies or other assessments.
(c) For purposes of this Agreement, the term "Tax Return" shall
mean any return, report or other document or information required to be
supplied to a taxing authority in connection with Taxes.
Section 4.12 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Except as set forth in the Parent 10-K, the proxy statement
for the 1994 annual meeting of shareholders of Parent or in Schedule 4.12
hereof, at the date hereof, Parent and its subsidiaries do not maintain or
contribute to any material employee benefit plans, programs, arrangements
or practices (such plans, programs, arrangements or practices of Parent
and its subsidiaries being referred to as the "Parent Plans"), including
employee benefit plans within the meaning set forth in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
other similar material arrangements for the provision of benefits
(excluding any "Multiemployer Plan" within the meaning of Section 3(37) of
ERISA or a "Multiple Employer Plan" within the meaning of Section 413(c)
of the Code). Schedule 4.12 lists all Multiemployer Plans and Multiple
Employer Plans which any of Parent or its subsidiaries maintains or to
which any of them makes contributions. Neither Parent nor its
subsidiaries has any obligation to create any additional such plan or to
amend any such plan so as to increase benefits thereunder, except as
required under the terms of the Parent Plans, under existing collective
bargaining agreements or to comply with applicable law.
(b) Except as disclosed in the Parent 10-K, (i) there have been
no prohibited transactions within the meaning of Section 406 or 407 of
ERISA or Section 4975 of the Code with respect to any of the Parent Plans
that could result in penalties, taxes or liabilities which, singly or in
the aggregate, could have a Parent Material Adverse Effect; (ii) except
for premiums due, there is no outstanding liability in excess of
$1,000,000, whether measured alone or in the aggregate, under Title IV of
ERISA with respect to any of the Parent Plans; (iii) neither the Pension
Benefit Guaranty Corporation nor any plan administrator has instituted
proceedings to terminate any of the Parent Plans subject to Title IV of
ERISA other than in a "standard termination" described in Section 4041(b)
of ERISA; (vi) none of the Parent Plans has incurred any "accumulated
funding deficiency" (as defined in Section 302 of ERISA and Section 412 of
the Code), whether or not waived, as of the last day of the most recent
fiscal year of each of the Parent Plans ended prior to the date of this
Agreement; (v) the current present value of all projected benefit
obligations under each of the Parent Plans which is subject to Title IV of
ERISA did not, as of its latest valuation date, exceed the then current
value of the assets of such plan allocable to such benefit liabilities by
more than the amount, if any, disclosed in the Parent 10-K as of
December 31, 1993, based upon reasonable actuarial assumptions currently
utilized for such Parent Plan; (vi) each of the Parent Plans has been
operated and administered in all material respects in accordance with
applicable laws during the period of time covered by the applicable
statute of limitations; (vii) each of the Parent Plans which is intended
to be "qualified" within the meaning of Section 401(a) of the Code has
been determined by the Internal Revenue Service to be so qualified and
such determination has not been modified, revoked or limited by failure to
satisfy any condition thereof or by a subsequent amendment thereto or a
failure to amend, except that it may be necessary to make additional
amendments retroactively to maintain the "qualified" status of such Parent
Plans, and the period for making any such necessary retroactive amendments
has not expired; (viii) with respect to Multiemployer Plans, neither
Parent nor any of its subsidiaries has, since December 31, 1990, made or
suffered a "complete withdrawal" or a "partial withdrawal," as such terms
are respectively defined in Sections 4203, 4204 and 4205; (ix) to the best
knowledge of Parent and its subsidiaries, there are no material pending,
threatened or anticipated claims involving any of the Parent Plans other
than claims for benefits in the ordinary course; and (x) Parent and its
subsidiaries have no current liability in excess of $1,000,000, whether
measured alone or in the aggregate, for plan termination or withdrawal
(complete or partial) under Title IV of ERISA based on any plan to which
any entity that would be deemed one employer with Parent and its
subsidiaries under Section 4001 of ERISA or Section 414 of the Code
contributed during the period of time covered by the applicable statute of
limitations (a "Parent Controlled Group Plan"), and Parent and its
subsidiaries do not reasonably anticipate that any such liability will be
asserted against Parent or any of its subsidiaries, none of the Parent
Controlled Group Plans has an "accumulated funding deficiency" (as defined
in Section 302 of ERISA and Section 412 of the Code), and no Parent
Controlled Group Plan has an outstanding funding waiver which could result
in the imposition of liens, excise taxes or liability in excess of
$1,000,000 against Parent and its subsidiaries.
Section 4.13 INVESTMENT COMPANY ACT. Parent and each of its
subsidiaries either (a) is not an "investment company", or a company
"controlled" by, or an "affiliated company" with respect to, an
"investment company", within the meaning of the Investment Company Act of
1940 (the "Investment Company Act"); or (b) satisfies all conditions for
an exemption from the Investment Company Act, and, accordingly, neither
Parent nor any of its subsidiaries is required to be registered under the
Investment Company Act.
Section 4.14 LABOR CONTROVERSIES. Except as set forth in the
Parent 10-K or the Parent 10-Q, (a) there are no significant controversies
pending or, to the knowledge of Parent, threatened between Parent or its
subsidiaries and any representatives of any of their employees; (b) to the
knowledge of Parent, there are no material organizational efforts
presently being made involving any of the presently unorganized employees
of Parent and its subsidiaries; (c) Parent and its subsidiaries have, to
the knowledge of Parent, complied in all material respects with all laws
relating to the employment of labor, including, without limitation, any
provisions thereof relating to wages, hours, collective bargaining, and
the payment of social security and similar taxes; and (d) no person has,
to the knowledge of Parent, asserted that Parent or any of its
subsidiaries is liable in any material amount for any arrears of wages, or
any taxes or penalties for failure to comply with any of the foregoing,
except for such controversies, organizational efforts, non-compliance and
liabilities which, singly or in the aggregate, could not reasonably be
expected to have a Parent Material Adverse Effect.
Section 4.15 ENVIRONMENTAL MATTERS. Except as set forth in
the Parent 10-K or the Parent 10-Q, to the knowledge of Parent, neither
Parent nor any of its subsidiaries has disposed of or arranged for the
disposal of any hazardous substance at any facility, location or site so
as to be or become a potentially liable party for remedial action or
response costs in connection with such facility, location or site under
the Federal Comprehensive Environmental Response, Compensation and
Liability Act, as amended, the Federal Resource Conservation and Recovery
Act, as amended, or similar state statutes which liability could
reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of Parent and its subsidiaries taken as a whole.
Section 4.16 BROKERS. Except for Morgan Stanley & Co.
Incorporated, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Subsidiary.
Section 4.17 SUBSEQUENT LIQUIDATION OR SALE; REACQUISITION OF
PARENT COMMON STOCK. Parent has no plan or intention (i) to liquidate
Subsidiary, (ii) to merge Subsidiary with and into another corporation,
(iii) to sell or otherwise dispose of the stock of Subsidiary, or (iv) to
cause Subsidiary to sell or otherwise dispose of any of the assets of the
Company acquired in the Merger, except for dispositions made in the
ordinary course of business or transfers described in Section 368(a)(2)(C)
of the Code. Parent has no plan or intention to reacquire, directly or
indirectly, any of the Parent Common Stock issued in the Merger.
ARTICLE V
Representations and Warranties of Company
Company represents and warrants to Parent and Subsidiary as
follows:
Section 5.1 ORGANIZATION AND QUALIFICATION. Company is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Nebraska and has the requisite corporate power
and authority to own, lease and operate its assets and properties and to
carry on its business as it is now being conducted. Company is qualified
to do business and is in good standing in each jurisdiction in which the
properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the
failure to be so qualified and in good standing will not, when taken
together with all other such failures, have a material adverse effect on
the business, financial condition or results of operations of Company (a
"Company Material Adverse Effect"). True, accurate and complete copies of
Company's Articles of Incorporation and By-laws, in each case as in effect
on the date hereof, including all amendments thereto, have heretofore been
delivered to Parent.
Section 5.2 CAPITALIZATION.
(a) The authorized capital stock of Company consists of
25,000,000 shares of Common Stock. As of the date hereof, 7,742,180
shares of Common Stock were issued and outstanding. All of the issued and
outstanding shares of Common Stock are validly issued and are fully paid
and nonassessable.
(b) As of the date hereof, there are no outstanding
subscriptions, options, calls, contracts, commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement, obligating Company to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of the capital stock of
Company or obligating Company to grant, extend or enter into any such
agreement or commitment. There are no voting trusts, proxies or other
agreements or understandings to which Company is a party or is bound with
respect to the voting of any shares of capital stock of Company.
Section 5.3 NO SUBSIDIARIES. Company does not own, and since
December 31, 1991 has not owned, any interest in any corporation,
partnership, business organization or other entity.
Section 5.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) Company has full corporate power and authority to enter
into this Agreement and, subject to Company Shareholders' Approval and
Company Required Statutory Approvals (as defined in Section 5.4(c)), to
consummate the transactions contemplated hereby. The execution and
delivery of this Agreement, and the consummation by Company of the
transactions contemplated hereby, have been duly authorized by Company's
Board of Directors and no other corporate proceedings on the part of
Company are necessary to authorize the execution and delivery of this
Agreement and the consummation by Company of the transactions contemplated
hereby, except for Company Shareholders' Approval and the obtaining of
Company Required Statutory Approvals. This Agreement has been duly and
validly executed and delivered by Company, and, assuming the due
authorization, execution and delivery hereof by Parent and Subsidiary,
constitutes a valid and binding agreement of Company, enforceable against
Company in accordance with its terms, except that such enforcement may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting or relating to enforcement of creditors' rights
generally; and (ii) general equitable principles.
(b) Except as set forth on Schedule 5.4, the execution and
delivery of this Agreement by Company does not, and the consummation by
Company of the transactions contemplated hereby will not, violate,
conflict with or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or
assets of Company under any of the terms, conditions or provisions of
(i) the articles of incorporation or by-laws of Company; (ii) subject to
obtaining Company Required Statutory Approvals and the receipt of Company
Shareholders' Approval, any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any court
or government authority applicable to Company or any of its properties or
assets; or (iii) subject to obtaining Company Required Statutory
Approvals, any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which Company is now a party or by
which Company or any of its properties or assets may be bound or affected,
excluding from the foregoing clauses (ii) and (iii) such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
liens, security interests, charges or encumbrances that would not, in the
aggregate, have a Company Material Adverse Effect.
(c) Except for (i) the filings by Parent and Company required
by Title II of the HSR Act; (ii) the necessary approvals, if any, of the
PUCs identified on Schedule 5.4 as having jurisdiction over Company (the
"Company PUCs") pursuant to applicable Utilities Codes; (iii) the
approvals of the FCC pursuant to the Federal Communications Act; (iv) the
making of the Merger Filing with the Secretary of State of the State of
Nebraska in connection with the Merger; and (v) any required filings with
or approvals from applicable state environmental authorities (the filings
and approvals referred to in clauses (i) through (v) are collectively
referred to as the "Company Required Statutory Approvals"), no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority
is necessary for the execution and delivery of this Agreement by Company
or the consummation by Company of the transactions contemplated hereby,
other than such declarations, filings, registrations, notices,
authorizations, consents or approvals which, if not made or obtained, as
the case may be, would not, in the aggregate, have a Company Material
Adverse Effect.
Section 5.5 FINANCIAL STATEMENTS. Included as Schedule 5.5
are true and complete copies of the financial statements of Company
consisting of (i) balance sheets of Company as of December 31, 1992, 1993
and 1994, and the related statements of income and cash flows for the
years then ended (including the notes contained therein or annexed
thereto), which financial statements have been reported on, and are
accompanied by, the signed, unqualified opinions of KPMG Peat Marwick LLP,
independent auditors for Company for such years, and (ii) an unaudited
balance sheet of Company as of January 31, 1995 (the "Recent Balance
Sheet"), the related unaudited statement of income for the one (1) month
then ended and for the corresponding period of the prior year and the
related unaudited statement of cash flow for the one (1) month then ended
(including the notes and schedules contained therein or annexed thereto).
All of such financial statements (including all notes and schedules
contained therein and annexed thereto) have been prepared in accordance
with generally accepted accounting principles (except, in the case of
unaudited statements, for the absence of footnote disclosure) applied on a
consistent basis (except as may be indicated therein or in the notes
thereto), and fairly present in all material respects the financial
position, results of operations and cash flows of Company as of the dates
and for the years and periods indicated, subject, in the case of the
unaudited interim financial statements, to normal year-end and audit
adjustments and any other adjustments described therein.
Section 5.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as
disclosed in the Recent Balance Sheet or in Schedule 5.6, Company does not
have any liabilities or obligations (whether absolute, accrued, contingent
or otherwise) of any nature (a) except liabilities, obligations or
contingencies (i) which are accrued or reserved against in the Recent
Balance Sheet or reflected in the notes thereto; or (ii) which were
incurred after the date of the Recent Balance Sheet and were incurred in
the ordinary course of business and consistent with past practice; and
(b) except for any liabilities, obligations or contingencies which
(i) would not, in the aggregate, have a Company Material Adverse Effect;
or (ii) have been discharged or paid in full prior to the date hereof.
Section 5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
set forth in the Schedule 5.7, since the date of the Recent Balance Sheet,
there has not been:
(a) Any material adverse change in the financial condition,
assets, liabilities, business, prospects or operations of Company;
(b) Any loss, damage or destruction, whether covered by
insurance or not, affecting Company's business or properties which would
have a Company Material Adverse Effect;
(c) Any increase in the compensation, salaries or wages payable
or to become payable to any employee or agent of Company (including,
without limitation, any increase or change pursuant to any bonus, pension,
profit sharing, retirement or other plan or commitment), in each case,
except in the ordinary course of business consistent with past practice;
(d) Any labor dispute or disturbance, other than routine
individual grievances which do not have a Company Material Adverse Effect.
(e) Any commitment or transaction by Company (including,
without limitation, any borrowing or capital expenditure) involving in
excess of $100,000, other than in the ordinary course of business
consistent with past practice;
(f) Any declaration, setting aside, or payment of any dividend
or any other distribution in respect of Company's capital stock; any
redemption, purchase or other acquisition by Company of any capital stock
of Company, or any security relating thereto; or any other payment to any
shareholder of Company as such a shareholder;
(g) Any sale, lease or other transfer or disposition of any
properties or assets of Company, except for the sale of inventory items or
other items with an aggregate value of less than $100,000 in the ordinary
course of business;
(h) Any indebtedness for borrowed money incurred, assumed or
guaranteed by Company;
(i) Any mortgage, pledge, lien or encumbrance made on any of
the properties or assets of Company;
(j) Any entering into, amendment or termination by Company of
any contract, or any waiver of material rights thereunder, other than in
the ordinary course of business;
(k) Any loan or advance (other than advances to employees in
the ordinary course of business for travel and entertainment in accordance
with past practice) to any person including, but not limited to, any
Affiliate (for purposes of this Agreement, the term "Affiliate" shall mean
and include all shareholders, directors and officers of Company; the
spouse of any such person; any person who would be the heir or descendant
of any such person if he or she were not living; and any entity in which
any of the foregoing has a direct or indirect interest, except through
ownership of less than 5% of the outstanding shares of any entity whose
securities are listed on a national securities exchange or traded in the
national over-the-counter market); or
(l) Any grant of credit to any customer on terms or in amounts
more favorable than those which have been extended to such customer in the
past, any other change in the terms of any credit heretofore extended, or
any other change of Company's policies or practices with respect to the
granting of credit.
Section 5.8 LITIGATION. Except as set forth in Schedule 5.8
hereof, there are no claims, suits, actions or proceedings pending or, to
the knowledge of Company, threatened against, relating to or affecting
Company, before any court, governmental department, commission, agency,
instrumentality or authority, or any arbitrator which could reasonably be
expected, either alone or in the aggregate with all such claims, actions
or proceedings, to have a Company Material Adverse Effect. Except as set
forth in Schedule 5.8 hereof, Company is not subject to any judgment,
decree, injunction, rule or order of any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator which
prohibits or restricts the consummation of the transactions contemplated
hereby or would have any Company Material Adverse Effect.
Section 5.9 NO VIOLATION OF LAW. Except as disclosed in
Schedule 5.9, Company is not in violation of and has not been given notice
or been charged with any violation of, any law, statute, order, rule,
regulation, ordinance or judgment (including, without limitation, any
applicable environmental law, ordinance or regulation) of any governmental
or regulatory body or authority, except for violations which, in the
aggregate, do not have a Company Material Adverse Effect. Except as
disclosed in Schedule 5.9, as of the date of this Agreement, no
investigation or review by any governmental or regulatory body or
authority is pending or, to the knowledge of Company, threatened, nor has
any governmental or regulatory body or authority indicated an intention to
conduct the same, other than, in each case, those the outcome of which, as
far as reasonably can be foreseen, will not have a Company Material
Adverse Effect. Except as disclosed on Schedule 5.9, Company has all
permits, licenses, franchises, variances, exemptions, orders and other
governmental authorizations, consents and approvals necessary to conduct
its business as presently conducted, including, without limitation,
authorizations under applicable Utilities Codes and under the Federal
Communications Act (the "Company Permits"), except for permits, licenses,
franchises, variances, exemptions, orders, authorizations, consents and
approvals the absence of which, alone or in the aggregate, would not have
a Company Material Adverse Effect. Company (a) has duly and currently
filed all reports and other information required to be filed with the FCC
or any other governmental or regulatory authority in connection with
Company Permits; and (b) is not in violation of the terms of any Company
Permit, except for delays in filing reports or violations which, alone or
in the aggregate, would not have a Company Material Adverse Effect.
Section 5.10 COMPLIANCE WITH AGREEMENTS. Except as disclosed
in Schedule 5.10, Company is not in breach or violation of or in default
in the performance or observance of any term or provision of, and no event
has occurred which, with lapse of time or action by a third party, could
result in a default under (a) the articles of incorporation or by-laws of
Company; or (b) any contract, commitment, agreement, indenture, mortgage,
loan agreement, note, lease, bond, license, approval or other instrument
to which Company is a party or by which it is bound or to which any of its
property is subject, which breaches, violations and defaults, in the case
of clause (b) of this Section 5.10, would have, in the aggregate, a
Company Material Adverse Effect.
Section 5.11 TAXES. Company has (i) duly filed with the
appropriate governmental authorities all Tax Returns required to be filed
by it for all periods ending on or prior to the Effective Time, other than
those Tax Returns the failure of which to file would not have a Company
Material Adverse Effect, and such Tax Returns are true, correct and
complete in all material respects; and (ii) duly paid in full or made
adequate provision for the payment of all Taxes for all periods ending at
or prior to the Effective Time. The liabilities and reserves for Taxes
reflected in the Recent Balance Sheet are adequate to cover all Taxes for
all periods ending on or prior to the date of the Recent Balance Sheet and
there are no material liens for Taxes upon any property or asset of
Company, except for liens for Taxes not yet due. There are no unresolved
issues of law or fact arising out of a notice of deficiency, proposed
deficiency or assessment from the IRS or any other governmental taxing
authority with respect to Taxes of Company which, if decided adversely,
singly or in the aggregate, would have a Company Material Adverse Effect.
Company is not a party to any agreement providing for the allocation or
sharing of Taxes with any other entity.
Section 5.12 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Except as set forth in Schedule 5.12(a) hereof, at the date
hereof, Company does not maintain or contribute to any material employee
benefit plans, programs, arrangements and practices (such plans, programs,
arrangements and practices of Company being referred to as the "Company
Plans"), including employee benefit plans within the meaning set forth in
Section 3(3) of ERISA, or any written employment contracts providing for
an annual base salary in excess of $150,000 and having a term in excess of
one (1) year, which contracts are not immediately terminable without
penalty or further liability. The Company does not maintain or make
contributions to any Multiemployer Plans or Multiple Employer Plans.
Company has no obligation to create any additional such plan or to amend
any such plan so as to increase benefits thereunder, except as required
under the terms of Company Plans or to comply with applicable law.
(b) Except as disclosed in Schedule 5.12(b) hereof (i) there
have been no non-exempt prohibited transactions within the meaning of
Section 406 or 407 of ERISA or Section 4975 of the Code with respect to
any of Company Plans that could result in penalties, taxes or liabilities
which, singly or in the aggregate, could have a Company Material Adverse
Effect; (ii) except for premiums due, there is no outstanding liability in
excess of $250,000, whether measured alone or in the aggregate, under
Title IV of ERISA with respect to any of Company Plans; (iii) neither the
Pension Benefit Guaranty Corporation nor any plan administrator has
instituted proceedings to terminate any of Company Plans subject to
Title IV of ERISA other than in a "standard termination" described in
Section 4041(b) of ERISA; (iv) none of Company Plans has incurred any
"accumulated funding deficiency" (as defined in Section 302 of ERISA and
Section 412 of the Code), whether or not waived, as of the last day of the
most recent fiscal year of each such Company Plan ended prior to the date
of this Agreement for which the required time for making contributions has
expired; (v) the current present value of all projected benefit
obligations under each of Company Plans which is subject to Title IV of
ERISA did not, as of its latest valuation date, exceed the then current
value of the assets of such plan allocable to such benefit liabilities by
more than the amount, if any, disclosed in the Recent Balance Sheet (based
upon reasonable actuarial assumptions currently utilized for such Company
Plan); (vi) each of Company Plans has been operated and administered in
all material respects in accordance with applicable laws during the period
of time covered by the applicable statute of limitations; (vii) each of
Company Plans which is intended to be "qualified" within the meaning of
Section 401(a) of the Code has been determined by the Internal Revenue
Service to be so qualified and such determination has not been modified,
revoked or limited by failure to satisfy any condition thereof or by a
subsequent amendment thereto or a failure to amend, except that it may be
necessary to make additional amendments retroactively to maintain the
"qualified" status of such Company Plans, and the period for making any
such necessary retroactive amendments has not expired; (viii) with respect
to Multiemployer Plans, Company has not, since December 31, 1990, made or
suffered a "complete withdrawal" or a "partial withdrawal," as such terms
are respectively defined in Sections 4203, 4204 and 4205 of ERISA; (ix) to
the best knowledge of Company, there are no material pending, threatened
or anticipated claims involving any of Company Plans other than claims for
benefits in the ordinary course; and (x) Company has no current liability
in excess of $250,000, whether measured alone or in the aggregate, for
plan termination or withdrawal (complete or partial) which has occurred
under Title IV of ERISA based on any plan to which any entity that would
be deemed one employer with Company under Section 4001 of ERISA or
Section 414 of the Code contributed during the period of time covered by
the applicable statute of limitations (the "Company Controlled Group
Plans"), and Company has no knowledge that any such liability will be
asserted against it, none of Company Controlled Group Plans has an
"accumulated funding deficiency" (as defined in Section 302 of ERISA and
Section 412 of the Code) as of the last day of the most recent fiscal year
of such plan ended prior to the date of this Agreement for which the
required time for making contributions has expired, and no Company
Controlled Group Plan has an outstanding funding waiver which could result
in the imposition of liens, excise taxes or liability against Company in
excess of $250,000 whether measured alone or in the aggregate.
Section 5.13 INVESTMENT COMPANY ACT. Company either (a) is
not an "investment company," or a company "controlled" by, or an
"affiliated company" with respect to, an "investment company," within the
meaning of the Investment Company Act; or (b) satisfies all conditions for
an exemption from the Investment Company Act, and, accordingly, Company is
not required to be registered under the Investment Company Act.
Section 5.14 LABOR CONTROVERSIES. Except as set forth in the
Schedule 5.14, (a) there are no significant controversies pending or, to
the knowledge of Company, threatened between Company and any
representatives of any of its employees; (b) to the knowledge of Company,
there are no material organizational efforts presently being made
involving any of the presently unorganized employees of Company;
(c) Company has, to its knowledge, complied in all material respects with
all laws relating to the employment of labor, including, without
limitation, any provisions thereof relating to wages, hours, collective
bargaining and the payment of social security and similar taxes; and
(d) no person has, to the knowledge of Company, asserted that Company is
liable in any material amount for any arrears of wages or any taxes or
penalties for failure to comply with any of the foregoing, except for such
controversies, organizational efforts, non-compliance and liabilities
which, singly or in the aggregate, could not reasonably be expected to
have a Company Material Adverse Effect.
Section 5.15 ENVIRONMENTAL MATTERS. The applicable Federal,
state or local laws ("Laws") relating to pollution or protection of the
environment, including Laws relating to emissions, discharges, generation,
storage, releases or threatened releases of pollutants, contaminants,
chemicals or industrial, toxic, hazardous or petroleum or petroleum-based
substances or wastes ("Waste") into the environment (including, without
limitation, ambient air, surface water, ground water, land surface or
subsurface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Waste including, without limitation, the Clean Water Act, the Clean Air
Act, the Resource Conservation and Recovery Act, the Toxic Substances
Control Act and the Comprehensive Environmental Response Compensation
Liability Act ("CERCLA"), as amended, and their state and local
counterparts are herein collectively referred to as the "Environmental
Laws". Company is in full compliance with all limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules
and timetables contained in the Environmental Laws or contained in any
regulation, code, plan, order, decree, judgment, injunction, notice or
demand letter issued, entered, promulgated or approved thereunder, except
to the extent that noncompliance would not have a Company Material Adverse
Effect. Except as set forth in Schedule 5.15, there is no civil, criminal
or administrative action, suit, demand, claim, hearing, notice of
violation, investigation, proceeding, notice or demand letter pending or,
to Company's knowledge, threatened against Company relating in any way to
the Environmental Laws or any regulation, code, plan, order, decree,
judgment, injunction, notice or demand letter issued, entered, promulgated
or approved thereunder. Except as set forth in Schedule 5.15, to
Company's knowledge, there are no past or present events, conditions,
activities, practices, incidents, actions, omissions or plans which would
interfere with or prevent compliance or continued compliance with the
Environmental Laws or with any regulation, code, plan, order, decree,
judgment, injunction, notice or demand letter issued, entered, promulgated
or approved thereunder, or which would give rise to any liability
thereunder, including, without limitation, liability under CERCLA or
similar state or local Laws, or otherwise form the basis of any claim,
action, demand, suit, proceeding, hearing, notice of violation, study or
investigation, based on or related to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or
the emission, discharge, release or threatened release into the
environment, of any Waste, except to the extent that such noncompliance,
liability or claim would not have a Company Material Adverse Effect.
Section 5.16 CERTAIN REGULATIONS.
(a) Schedule 5.16(a) sets forth a list as of the date hereof of
all licenses, permits and authorizations issued by any federal, state or
local governmental agency or unit authorizing Company to operate its
cellular systems.
(b) Company is not subject to regulation as a public utility,
public service company (or similar designation) in the State of Nebraska
by virtue of the provision of cellular telephone services, or by any other
state in the United States or any foreign country.
Section 5.17 CERTAIN AGREEMENTS. Except as set forth in
Schedule 5.17 hereof, and except for this Agreement, as of the date
hereof, Company is not a party to any oral or written (a) consulting or
similar agreement with any present or former director, officer or employee
or any entity controlled by any such person not terminable on 60 days' or
less notice involving the payment of more than $100,000 per annum;
(b) agreement with any executive officer or other key employee of Company
the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving Company of the
nature contemplated by this Agreement; (c) agreement with respect to any
executive officer or other key employee of Company providing any term of
employment or compensation guarantee extending for a period longer than
three years and for the payment in excess of $150,000 per annum; or
(d) agreement or plan, including any stock option plan, stock appreciation
right plan, restricted stock plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of the benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of
which will be calculated on the basis of the transactions contemplated by
this Agreement.
Section 5.18 INTELLECTUAL PROPERTY. Company is licensed or
otherwise has the right to use, all patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, service marks, service
mark rights, copyrights and other proprietary intellectual property rights
and computer programs which are material to the business, financial
condition or results of operations of Company. Except as set forth on
Schedule 5.18, no claims are pending or, to the knowledge of Company,
threatened that Company is infringing or otherwise adversely affecting the
rights of any person with regard to any patent, license, trademark, trade
name, service mark, copyright or other intellectual property right, except
for any of the foregoing as would not have a Company Material Adverse
Effect. To the knowledge of Company, no person is infringing the rights
of Company with respect to any patent, license, trademark, trade name,
service mark, copyright or other intellectual property right, except for
any of the foregoing as would not have a Company Material Adverse Effect.
Section 5.19 TITLE TO AND CONDITION OF PROPERTIES. (a)
Company has good and marketable title to all of Company's material assets,
business and properties, including, without limitation, all such
properties (tangible and intangible) reflected in the Recent Balance
Sheet, free and clear of all mortgages, liens (statutory or otherwise),
security interests, claims, pledges, licenses, equities, options,
conditional sales contracts, assessments, levies, easements, covenants,
reservations, restrictions, rights-of-way, exceptions, limitations,
charges or encumbrances of any nature whatsoever (collectively, "Liens")
except those described in Schedule 5.19 and, in the case of real property,
Liens for taxes not yet due or which are being contested in good faith by
appropriate proceedings (and which have been sufficiently accrued or
reserved against in the Recent Balance Sheet), municipal and zoning
ordinances and easements for public utilities, none of which interfere
with the use of the property as currently utilized.
(b) All material property and material assets owned or utilized
by Company are in good operating condition and repair, free from any
defects (except such minor defects as do not interfere with the use
thereof in the conduct of the normal operations of Company), have been
maintained consistent with the standards generally followed in the
industry and are sufficient to carry on the business of Company as
conducted during the preceding 12 months.
Section 5.20 BROKERS. Except for William Blair & Company, no
broker, finder or investment banker is entitled to any brokerage, finder's
or other fee or commission in connection with the Merger or the
transactions contemplated by this Agreement based upon arrangements made
by or on behalf of Company.
ARTICLE VI
Conduct of Business Pending the Merger
Section 6.1 CONDUCT OF BUSINESS BY COMPANY PENDING THE
MERGER. Except as set forth in Schedule 6.1 hereof or as otherwise
contemplated by this Agreement, after the date hereof and prior to the
Closing Date or earlier termination of this Agreement, unless Parent shall
otherwise agree in writing, Company shall:
(a) conduct its business in the ordinary and usual course of
business, consistent with past practice;
(b) not (i) amend or propose to amend its Articles of
Incorporation or By-laws; or (ii) split, combine or reclassify its
outstanding capital stock or declare, set aside or pay any dividend
or distribution payable in cash, stock, property or otherwise;
(c) not issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of, any additional shares of, or any options,
warrants or rights of any kind to acquire any shares of its capital
stock of any class or any debt or equity securities convertible into
or exchangeable for such capital stock.
(d) not (i) incur or become contingently liable with respect to
any indebtedness for borrowed money other than borrowings in the
ordinary course of business; (ii) redeem, purchase, acquire or offer
to purchase or acquire any shares of its capital stock; (iii) take or
fail to take any action which action or failure to take action would
cause Company or its shareholders (except to the extent that any
shareholders receive consideration other than Parent Common Stock) to
recognize gain or loss for federal income tax purposes as a result of
the consummation of the Merger; (iv) make any acquisition of any
material amount of assets or any businesses other than expenditures
for fixed or capital assets in the ordinary course of business;
(v) sell any material amount of assets or any businesses other than
sales in the ordinary course of business; or (vi) enter into any
contract, agreement, commitment or arrangement with respect to any of
the foregoing;
(e) use all reasonable efforts to preserve intact its business
organization and goodwill, keep available the services of their
respective present officers and key employees, and preserve the
goodwill and business relationships with suppliers, distributors,
customers and others having business relationships with it and not
engage in any action, directly or indirectly, with the intent to
adversely impact the transactions contemplated by this Agreement;
(f) confer on a regular and frequent basis with one or more
representatives of Parent to report operational matters of
materiality and the general status of ongoing operations;
(g) not enter into or amend any employment, severance, special
pay arrangement with respect to termination of employment or other
similar arrangements or agreements with any directors, officers or
key employees, except in the ordinary course and consistent with past
practice;
(h) not adopt, enter into or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred
compensation, health care, employment or other employee benefit plan,
agreement, trust, fund or arrangement for the benefit or welfare of
any employee or retiree except in the ordinary course of business and
consistent with past practice or as required under the terms of such
plans; and
(i) maintain with financially responsible insurance companies
insurance on its tangible assets and its businesses in such amounts
and against such risks and losses as are consistent with past
practice.
Section 6.2 CONTROL OF COMPANY'S OPERATIONS. Nothing
contained in this Agreement shall give to Parent, directly or indirectly,
rights to control or direct Company's operations prior to the Effective
Time. Prior to the Effective Time, Company shall exercise, consistent
with the terms and conditions of this Agreement, complete control and
supervision of its operations.
Section 6.3 CONDUCT OF BUSINESS BY PARENT AND SUBSIDIARY
PENDING THE MERGER. Except as set forth in Schedule 6.3 or as otherwise
contemplated hereby, after the date hereof and prior to the Closing Date
or earlier termination of this Agreement, unless Company shall otherwise
agree in writing, Parent shall, and shall cause its subsidiaries to:
(a) conduct their respective businesses in the ordinary and
usual course of business and consistent with past practice;
(b) not amend or propose to amend their respective articles of
incorporation or by-laws; except that Parent and Subsidiary shall be
permitted to take whatever actions may be necessary to change
Subsidiary's name as required pursuant to Section 1.1 of this
Agreement;
(c) not (i) split, combine or reclassify (whether by stock
dividend or otherwise) its issued and outstanding shares of Parent
Common Stock; (ii) reduce dividends on the Parent Common Stock to a
level of less than $0.14 per share per calendar quarter or make any
extraordinary distribution on or with respect to Parent Common Stock;
(iii) issue or sell any shares of Parent Common Stock for less than
fair value, except for the issuance and sale of shares under the
Parent DRIP, the Parent SID or the Parent Savings Plan, in each case
in the ordinary course consistent with past practice, and shares
issuable upon conversion of securities or exercise of options
outstanding on the date hereof or issued in accordance herewith;
(iv) grant any options or issue any warrants exercisable for or
securities convertible or exchangeable into Parent Common Stock,
except under the Parent DRIP, the Parent SIP or the Parent Savings
Plan, in the ordinary course consistent with past practice; or (v)
enter into any agreement, contract, commitment or arrangement with
respect to any of the foregoing;
(d) not (i) take or fail to take any action which action or
failure to act would cause Company or its shareholders (except to the
extent that any such shareholders receive consideration other than
Parent Common Stock) to recognize gain or loss for federal income tax
purposes as a result of the consummation of the Merger; (ii) make any
acquisition of any assets or businesses other than (A) the
acquisitions described on Schedule 6.3 hereto; (B) expenditures for
fixed capital assets in the ordinary course of business; or (C) other
acquisitions having a value (including the principal amount of
indebtedness assumed) of less than $150 Million individually and $150
Million in the aggregate; (iii) sell any assets or businesses other
than (A) the sales described on Schedule 6.3 hereto; (B) sales in the
ordinary course of business; or (C) other sales of less than $150
Million individually and $150 Million in the aggregate; or (iv) enter
into any contract, agreement, commitment or arrangement with respect
to any of the foregoing;
(e) use all reasonable efforts to preserve intact their
respective business organizations and goodwill, keep available the
services of their respective present officers and key employees, and
preserve the goodwill and business relationships with suppliers,
distributors, customers and others having business relationships with
them and not engage in any action, directly or indirectly, with the
intent to adversely impact the transactions contemplated by this
Agreement;
(f) confer with one or more representatives of Company to
report any material changes in their respective operations;
(g) maintain with financially responsible insurance companies
insurance on their respective tangible assets and its businesses in
such amounts and against such risks and losses as are consistent with
past practice; and
(h) not acquire, directly or indirectly, shares of Common Stock
for consideration having a value at the time of such acquisition in
excess of the value of the consideration that would have been
received for such shares of Common Stock had such shares of Common
Stock been exchanged in the Merger; provided, however, that in
determining the amount of such consideration, the tax consequences of
the relevant transaction shall not be taken into account.
Section 6.4 NO SOLICITATIONS. Company shall not permit any
of its officers, directors or employees or any attorney, accountant,
investment advisor or other agent retained by it ("Company
Representative") to, and shall use its best efforts to cause such person
not to, directly or indirectly: initiate, solicit or encourage, or take
any action to facilitate the making of any offer or proposal which
constitutes or is reasonably likely to lead to any Takeover Proposal (as
defined below), or, in the event of an unsolicited Takeover Proposal,
except to the extent required of Company's Board of Directors in order to
fulfill its fiduciary duties under applicable law if so advised by outside
counsel, engage in negotiations or provide any confidential information or
data to any person relating to any Takeover Proposal. Company shall
notify Parent orally and in writing of any such inquiries, offers or
proposals (including, without limitation, the terms and conditions of any
such proposal and the identity of the person making it), within 24 hours
of the receipt thereof and shall give the Parent five days' advance notice
of any agreement to be entered into with or any information to be supplied
to any person making such inquiry, offer or proposal. Company shall
immediately cease and cause to be terminated all existing discussions and
negotiations, if any, with any parties conducted heretofore with respect
to any Takeover Proposal. As used in this Section 6.4, "Takeover
Proposal" shall mean any tender or exchange offer, proposal for a merger,
consolidation or other business combination involving Company, or any
proposal or offer to acquire in any manner a substantial equity interest
in, or a substantial portion of the assets of Company, other than pursuant
to the transactions contemplated by this Agreement.
ARTICLE VII
Additional Agreements
Section 7.1 ACCESS TO INFORMATION. Company shall afford to
Parent and Subsidiary and their respective accountants, counsel, financial
advisors and other representatives (the "Parent Representatives") and
Parent and its subsidiaries shall afford to Company Representatives full
access during normal business hours throughout the period prior to the
Effective Time to all of their respective properties, books, contracts,
commitments and records (including, but not limited to, Tax Returns) and,
during such period, shall furnish promptly to one another (i) a copy of
each report, schedule and other document filed or received by any of them
pursuant to the requirements of any PUC or the FCC in connection with the
transactions contemplated by this Agreement or which may have a material
effect on their respective businesses, properties or personnel; and
(ii) such other information concerning their respective businesses,
properties and personnel as Parent or Subsidiary or Company, as the case
may be, shall reasonably request; provided, that no investigation pursuant
to this Section 7.1 shall affect any representations or warranties made
herein or the conditions to the obligations of the respective parties to
consummate the Merger. Parent and its subsidiaries shall hold and shall
use their best efforts to cause the Parent Representatives to hold, and
Company shall hold and shall use its best efforts to cause Company
Representatives to hold, in strict confidence all non-public documents and
information furnished to Parent and Subsidiary or to Company, as the case
may be, in connection with the transactions contemplated by this
Agreement, except that Parent, Subsidiary and Company may disclose such
information as may be necessary in connection with seeking the Parent
Required Statutory Approvals, Company Required Statutory Approvals and
Company Shareholders' Approval, and Parent, Subsidiary and Company may
disclose any information that any of them is required by law or judicial
or administrative order to disclose; provided that the party required to
disclose such information shall provide the other parties with adequate
prior notice to such effect and such party shall cooperate with any other
party which wishes to obtain a protective order or injunction covering
such information. In the event that this Agreement is terminated in
accordance with its terms, each party shall promptly redeliver to the
other all non-public written material provided pursuant to this
Section 7.1 and shall not retain any copies, extracts or other
reproductions in whole or in part of such written material. In such
event, all documents, memoranda, notes and other writing whatsoever
prepared by Parent or Company based on the information in such material
shall be destroyed (and Parent and Company shall use their respective best
efforts to cause their advisors and representatives to similarly destroy
their documents, memoranda and notes), and such destruction (and best
efforts) shall be certified in writing by an authorized officer
supervising such destruction. Company shall promptly advise Parent and
Parent shall promptly advise Company in writing of any change or the
occurrence of any event after the date of this Agreement having, or which,
insofar as can reasonably be foreseen, in the future may have, any
material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of
Company or Parent and its subsidiaries, taken as a whole.
Section 7.2 COMPANY SHAREHOLDERS' APPROVAL. Company shall
promptly submit this Agreement and the transactions contemplated hereby
for Company Shareholders' Approval at a meeting of shareholders and, shall
use its best efforts to obtain shareholder approval and adoption of this
Agreement and the transactions contemplated hereby. Such meeting shall be
held as soon as practicable following the date hereof. Company shall,
through its Board of Directors, recommend to its shareholders approval of
the transactions contemplated by this Agreement. Notwithstanding the
foregoing, the Company shall have the right to postpone such meeting of
shareholders as may be necessary for its Board of Directors to exercise
its fiduciary duties with respect to a Takeover Proposal as provided for
in Section 6.4.
Section 7.3 EXCHANGE LISTING. Parent shall use its best
efforts to effect, at or before the Effective Time, authorization for
listing on Nasdaq, upon official notice of issuance, of the additional
shares of Parent Common Stock to be issued pursuant to the Merger.
Section 7.4 EXPENSES. Subject to Section 9.5, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
Section 7.5 AGREEMENT TO COOPERATE.
(a) Each of the parties hereto shall cooperate and use all
reasonable efforts to prepare and file with the FCC and the PUCs as
promptly as practicable after the execution of this Agreement all
requisite applications and amendments thereto, together with related
information, data and exhibits, necessary to request issuance of orders
approving the transaction contemplated by this Agreement by the FCC and
the PUCs, each of which must become a Final Order in order to satisfy the
condition set forth in Section 8.1(f). For the purposes of this
Agreement, the term "Final Order" shall mean action by the FCC or a PUC as
to which (i) no request for stay by the FCC or PUC, as applicable, of the
action is pending, no such stay is in effect, and, if any deadline for
filing any such request is designated by statute or regulation, it has
passed, (ii) no petition for rehearing or reconsideration, or application
for review, of the action is pending before the FCC or PUC, as applicable,
and the time for filing any such petition or application has passed, (iii)
the FCC or PUC, as applicable, does not have the action under
reconsideration or review on its own motion and the time for such
reconsideration or review has passed, and (iv) no appeal to a court, or
request for stay by a court, of the FCC's or PUC's action, as applicable,
is pending or in effect, and, if any deadline for filing any such appeal
or request is designated by statute or rule, it has passed.
(b) Subject to the terms and conditions herein provided, each
of the parties hereto shall use all reasonable efforts to take, or cause
to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this
Agreement, including using its reasonable efforts to obtain all necessary
or appropriate waivers, consents and approvals (including, but not limited
to, required approvals under the Utilities Codes and the Federal
Communications Act), to effect all necessary registrations, filings and
submissions (including, but not limited to, filings under the HSR Act and
any other submissions requested by the Federal Trade Commission or
Department of Justice) and to lift any injunction or other legal bar to
the Merger (and, in such case, to proceed with the Merger as expeditiously
as possible), subject, however, to the requisite votes of the shareholders
of Company.
(c) In addition to the covenants set forth in Section 7.5(a)
and (b), Parent, Subsidiary and Company each agree to take such actions as
may be necessary to obtain any governmental consents, orders and approvals
legally required for the consummation of the Merger, and the transactions
contemplated hereby, including the making of any filings, publications and
requests for extensions and waivers, and shall (i) sell or otherwise
dispose of their respective interests in licensees holding competing
licenses for identical cellular telephone service areas (the party holding
the smaller percentage of ownership in a competing licensee being
obligated so to sell or dispose of its interest) and (ii) if required to
obtain the approval of the FCC, the Department of Justice or any other
governmental authority having jurisdiction over such matter, or if
required by any court with jurisdiction over the subject matter to which
any such requirement has been referred or appealed, hold separate, sell,
or otherwise dispose of any subsidiary, subsidiaries, or assets, and
accept entry of consent decrees in respect thereof. In the event that the
sale or other disposition of any subsidiaries or assets is required as
contemplated by clause (ii) above and the governmental authority or court
having jurisdiction over the matter fails to specify which of Parent or
Company shall be obligated to consummate such sale or disposition, the
parties shall negotiate in good faith the appropriate resolution of the
problem, it being understood that the party holding the overlapping asset
or subsidiary with the least value shall be obligated to sell or dispose
of its interest herein. Notwithstanding the foregoing, nothing in this
Section 7.5(c) shall be construed to require Parent or Subsidiary to (A)
sell or otherwise dispose of any subsidiary or assets which either alone
or in the aggregate with all such other sales or dispositions would
constitute the sale or disposition of a "significant subsidiary" of
Parent, (B) take any action the effectiveness of which cannot be
conditioned upon the consummation of the Merger which would materially
impair the business, operations, financial condition or prospects of
Parent and its subsidiaries, taken as a whole, or (C) take any action
which either would materially impair the business, operations, financial
condition or prospects of Parent and its subsidiaries, taken as a whole,
following the Merger or materially impair the value to Parent of the
Merger. For purposes of this Section 7.5(c) the term "significant
subsidiary" shall have the meaning attributed to such term by Rule 1-02(v)
of Regulation S-X of the rules and regulations of the SEC.
Section 7.6 PUBLIC STATEMENTS. Both the timing and the
content of all disclosure to third parties and public announcements
concerning the transactions provided for in this Agreement by either
Company or Parent shall be subject to the prior approval of Parent, which
shall not be unreasonably withheld. Company and Parent expressly agree
that a public announcement of the transactions contemplated by this
Agreement shall be made at or immediately after, but not before, the date
and time each party hereto has executed this Agreement.
Section 7.7 EMPLOYEE BENEFITS. Parent hereby acknowledges
the existence of each of the Company Plans identified in Schedule 5.12(a),
and agrees that it shall perform, or cause to be performed, after the
Effective Time all of the obligations of Company thereunder. Each of the
Parent Plans and Company Plans in effect at the date hereof shall be
maintained in effect, without any amendments or modifications which would
adversely affect the beneficiaries thereof, with respect to the employees
or former employees of Parent, on the one hand, and of Company, on the
other hand, respectively, who received any benefits under any such benefit
plans immediately prior to the Closing Date, until the second anniversary
of the Effective Time. It is expressly understood and agreed that the
employees of Company are intended beneficiaries of the covenants and
agreements set forth in this Section 7.7, and that each such employee
shall be entitled to enforce such covenants and agreements as if they were
parties hereto.
Section 7.8 REGISTRATION RIGHTS. At the Closing, Parent and
each of the Company shareholders who receive Parent Common Stock pursuant
to Article III shall execute and deliver to each other a Registration
Rights Agreement ("Registration Rights Agreement") substantially in the
form of Exhibit 7.8 hereto.
Section 7.9 INDEMNIFICATION.
(a) For a period of seven years from and after the Effective
Time, neither Parent nor Subsidiary shall take any action, or permit any
action to be taken, which would change or amend the provisions of the
Articles of Incorporation or By-Laws of Subsidiary in effect on the date
hereof relating to indemnification.
(b) At the Closing, Subsidiary shall expressly assume in
writing, in a form acceptable to the Company, all of the obligations of
Company under the Indemnification Agreements ("Indemnification
Agreements") with certain officers and directors of Company (including,
without limitation, all of the indemnification obligations under Section 2
of such Indemnification Agreements), a form of which has been furnished to
Subsidiary. Subsidiary covenants and agrees that each such officer and
director of Company shall stand in the same position under such
Indemnification Agreements with respect to the Surviving Corporation as he
or she would have with respect to Company if its separate existence had
continued. Any parties to such Indemnification Agreements who become
officers or directors of the Surviving Corporation shall, as a condition
to their election or appointment to such positions, execute amended and
restated indemnification agreements in substantially the form of the
indemnification agreements currently in force for the officers and
directors of Parent.
(c) From and after the Effective Time, Parent shall indemnify
and hold harmless each of the directors and officers, who have acted in
such capacity prior to or after the date hereof, of Company (collectively,
the "Indemnitees") against any and all claims, damages, liabilities,
losses, costs, charges, expenses (including without limitation reasonable
costs of investigation, and the fees and disbursements of legal counsel
and other advisers and experts), judgments, fines, penalties and amounts
paid in settlement, asserted against, incurred by or imposed upon any
Indemnitee (collectively, "Losses" and individually, a "Loss"), (i) in
connection with or arising out of any threatened, pending or completed
claim, action, suit or proceeding (whether civil, criminal, administrative
or investigative) including without limitation any and all claims,
actions, suits, proceedings or investigations by or on behalf of or in the
right of or against Company, or by any present shareholder of Company
(collectively, "Claims" and individually, a "Claim"), which is based upon,
arises out of or in any way relates to the Merger, the issuance and sale
of Parent Common Stock in connection with the Merger, any information or
disclosure documents furnished to the shareholders of Company by the
Parent in connection with the Merger, including any schedule or exhibit
hereto, and (ii) in connection with or arising out of the enforcement of
the obligations of Parent or Subsidiary set forth in this Section 7.9;
provided, however, that indemnification shall only be provided under this
Section 7.9(c) with respect to any Indemnitee for any Loss if he acted in
good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of Company, and with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was
unlawful.
(d) In the event that Parent or the Surviving Corporation or
any of their successors or assigns (i) reorganizes or consolidates with or
merges into or enters into another business combination transaction with
any other person or entity and is not the resulting, continuing or
surviving corporation or entity of such consolidation, merger or
transaction, (ii) liquidates, dissolves or transfers all or substantially
all of its properties and assets to any person or entity, then, and in
each such case, proper provision shall be made so that the successors and
assigns of Parent or the Surviving Corporation, as applicable, assume the
respective obligations of Parent or the Surviving Corporation set forth in
this Section 7.9.
(e) Parent hereby unconditionally guarantees the full and
prompt payment and performance by the Surviving Corporation or any of its
successors or assigns of its obligations under this Section 7.9.
(f) Prior to the Effective Time, Subsidiary shall use its
reasonable efforts to obtain officers' and directors' liability insurance
substantially comparable to that presently in force for Company, and the
Surviving Corporation shall use its reasonable efforts to maintain such
substantially comparable insurance for a period of at least seven years
after the Effective Time. In addition, on and after the Effective Time,
the Surviving Corporation shall use its reasonable efforts to maintain in
full force and effect, for the period ending with the expiration of the
last applicable statute of limitations period, the existing directors' and
officers' liability insurance of Company insofar as the same applies to
events occurring prior to the Effective Time.
(g) It is expressly understood and agreed that the directors
and officers of Company are intended beneficiaries of the covenants and
agreements set forth in this Section 7.9, and that any such beneficiary
shall be entitled to enforce such covenants and agreements against Parent
and Subsidiary as if he or she were a party hereto.
Section 7.10 REGULATION D. In connection with the issuance in
the Merger of shares of Parent Common Stock which have not been registered
under the Securities Act of 1933, as amended, Parent shall use all
reasonable efforts to comply with the requirements for the exemption from
registration under Regulation D promulgated under such Act, including,
without limitation, by providing the shareholders of the Company, in
connection with the proxy or information statement for any meeting of
shareholders at which the Merger is to be voted upon, a disclosure
statement containing such information (including without limitation
financial information) regarding Parent, the Subsidiary, the Merger and
other matters as may be required under Rule 502(b)(2) of Regulation D.
Section 7.11 MERGER VOTE. In any vote of the shareholders of
Company regarding approval of the Merger, Parent shall vote, or cause to
be voted, all shares of Common Stock then owned by Parent, Subsidiary or
any other subsidiary of Parent, or with respect to which Parent,
Subsidiary or any other subsidiary of Parent holds to power to direct the
voting, in favor of approval of the Merger and this Agreement.
Section 7.12 TAX TREATMENT. Following the Merger, Parent and
Subsidiary shall not take any actions that would adversely impact the
treatment of the Merger as a reorganization that qualifies under Sections
368(a)(1)(A) and (a)(2)(D) of the Code. It is expressly understood and
agreed that the present shareholders of Company (other than Parent) are
intended beneficiaries who are entitled to enforce the provisions of this
Section 7.12 as if they were parties hereto.
Section 7.13 CAPITAL EXPENDITURES. Following the Merger,
Parent shall arrange for sufficient funding for the Surviving Corporation
to meet, and shall otherwise implement, all capital expenditures of
Company budgeted for the calendar years 1995 through 1999 as set forth in
Schedule 7.13. Additionally, Parent covenants and agrees to invest any
surplus funds that may be generated by the Assets (as defined below)
during such period in the development of the telecommunications
infrastructure in the state of Nebraska. For the purposes of this Section
7.13 only, "Assets" means the business operations and assets of the
Company transferred to the Surviving Corporation pursuant to the Merger.
It is expressly understood and agreed that the present shareholders of
Company (other than Parent) are intended beneficiaries who are entitled to
enforce the provisions of this Section 7.13 as if they were parties
hereto.
Section 7.14 NEBWEST TRANSACTION. Parent agrees to use its
reasonable efforts to consummate a transaction with Nebwest Cellular Inc.
("Nebwest") or all of its shareholders; provided, however, Parent
covenants that in no event will such transaction either (a) result in the
shareholders of Nebwest receiving, in exchange for their shares of
Nebwest, total consideration having a value at the time of such exchange
in excess of the value of the total consideration that such shareholders
would have received had the total number of shares of Common Stock held by
Nebwest been exchanged in the Merger (provided, however, that in
determining the amount of such consideration, the tax consequences of the
relevant transaction shall not be taken into account), or (b) adversely
impact the treatment of the Merger as a reorganization that qualifies
under Section 368(a)(1)(A) and (a)(2)(D) of the Code.
Section 7.15 DISCLOSURE STATEMENT INFORMATION. Neither Parent
nor Subsidiary shall make, in the disclosure statement referenced in
Section 7.10, any untrue statement of a material fact, or omit to state
therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the foregoing shall not
apply with respect to any written information furnished by or on behalf of
Company to Parent expressly for use in any such disclosure statement.
Company shall not make, in any written material provided by or on behalf
of Company for inclusion in such disclosure statement, any untrue
statement of a material fact, or omit to state therein a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
ARTICLE VIII
Conditions
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT
THE MERGER. The respective obligations of each party to effect the Merger
shall be subject to the fulfillment at or prior to the Closing Date of the
following conditions:
(a) This Agreement and the transactions contemplated hereby
shall have been approved and adopted by the requisite vote of the
shareholders of Company under applicable law;
(b) Parent Common Stock issuable in the Merger shall have been
authorized for listing on Nasdaq upon official notice of issuance;
(c) The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated;
(d) No preliminary or permanent injunction or other order or
decree by any federal or state court which prevents the consummation
of the Merger shall have been issued and remain in effect (each party
agreeing to use its reasonable efforts to have any such injunction,
order or decree lifted);
(e) No action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal
government or governmental agency in the United States which would
prevent the consummation of the Merger; and
(f) All governmental consents, orders and approvals legally
required for the consummation of the Merger and the transactions
contemplated hereby, including, without limitation, approval (if
required) by the PUCs, the FCC and the Department of Justice, shall
have been obtained and be in effect at the Effective Time, and all
consents, orders and approvals of the FCC or PUCs legally required
for the consummation of the Merger and the transactions contemplated
hereby shall have become Final Orders.
Section 8.2 CONDITIONS TO OBLIGATION OF COMPANY TO EFFECT THE
MERGER. Unless waived by Company, the obligation of Company to effect the
Merger shall be subject to the fulfillment at or prior to the Closing Date
of the following additional conditions:
(a) Parent and Subsidiary shall have performed in all material
respects their agreements contained in this Agreement required to be
performed on or prior to the Closing Date and the representations and
warranties of Parent and Subsidiary contained in this Agreement shall
be true and correct in all material respects on and as of (i) the
date made and (ii) except in the case of representations and
warranties expressly made solely with reference to a particular date
and to the extent the failure of such to be true and correct in all
material respects on and as of the Closing Date is the result of
actions expressly mandated by Section 7.5(c), the Closing Date, and
Company shall have received a certificate of the Chief Executive
Officer or a Vice President of Parent and of the President and Chief
Executive Officer or a Vice President of Subsidiary to that effect;
(b) Company shall have received an opinion of its special
counsel, Jones, Day, Reavis & Pogue, in form and substance reasonably
satisfactory to Company, dated the Closing Date, to the effect that
Company and its shareholders (except to the extent any shareholders
receive consideration other than Parent Common Stock) will recognize
no gain or loss for federal income tax purposes as a result of
consummation of the Merger;
(c) Company shall have received an opinion from counsel to
Parent and Subsidiary, dated the Closing Date, substantially in the
form set forth in Exhibit 8.2(c) hereto;
(d) All governmental consents, orders, and approvals legally
required for the consummation of the Merger and the transactions
contemplated hereby, including, without limitation, approval (if
required) by the PUCs and the FCC, shall have been obtained and be in
effect at the Closing Date, and no such consent, order or approval
shall have any terms which in the reasonable judgment of Company,
when taken together with the terms of all such consents, orders or
approvals, would materially impair the value of the Merger to the
shareholders of the Company (other than Parent), and no governmental
authority shall have promulgated any statute, rule or regulation
which, when taken together with all such promulgations, would
materially impair the value of the Merger to the shareholders of the
Company (other than Parent);
(e) Company shall have received from William Blair & Company an
opinion, dated as of the Closing Date, confirming, with no new
qualifications other than those that are customary for transactions
of this sort and additional qualifications relating to circumstances
not material to the conclusion stated in such opinion, the opinion
delivered by such firm to Company on the date hereof; and
(f) Company shall have received a certificate of the President
or a Vice President of Parent, dated the Closing Date and addressed
to Company's special counsel, Jones, Day, Reavis & Pogue,
substantially in the form set forth in Exhibit 8.2(f) hereto.
Section 8.3 CONDITIONS TO OBLIGATIONS OF PARENT AND
SUBSIDIARY TO EFFECT THE MERGER. Unless waived by Parent and Subsidiary,
the obligations of Parent and Subsidiary to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the
additional following conditions:
(a) Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or
prior to the Closing Date and the representations and warranties of
Company contained in this Agreement shall be true and correct in all
material respects on and as of (i) the date made and (ii) except in
the case of representations and warranties expressly made solely with
reference to a particular date and to the extent the failure of such
to be true and correct in all material respects on and as of the
Closing Date is the result of actions expressly mandated by Section
7.5(c)) the Closing Date, and Parent shall have received a
Certificate of the President and Chief Executive Officer or of a Vice
President of Company to that effect;
(b) Parent shall have received an opinion from counsel to
Company dated the Closing Date, substantially in the form set forth
in Exhibit 8.3(b) hereto;
(c) Investor Representation Forms in substantially the form of
Exhibit 8.3(c) hereto, executed by each Company shareholder (other
than Parent and any holders of Dissenting Shares) as of the date on
which Company Shareholders' Approval is received shall have been
delivered to Parent;
(d) All governmental consents, orders, and approvals legally
required for the consummation of the Merger and the transactions
contemplated hereby, including, without limitation, approval (if
required) by the PUCs and the FCC, shall have been obtained and be in
effect at the Closing Date, and no such consent, order or approval
shall have any terms which in the reasonable judgment of Parent, when
taken together with the terms of all such consents, orders or
approvals, would materially impair the value to Parent of the Merger,
and no governmental authority shall have promulgated any statute,
rule or regulation which, when taken together with all such
promulgations, would materially impair the value to Parent of the
Merger; and
(e) Parent shall have received from Morgan Stanley & Co.
Incorporated an opinion, dated as of the Closing Date, confirming,
with no new qualifications other than those that are customary for
transactions of this sort and additional qualifications relating to
circumstances not material to the conclusion stated in such opinion,
the opinion delivered by such firm to Parent on the date hereof.
ARTICLE IX
Termination, Amendment and Waiver
Section 9.1 TERMINATION. This Agreement may be terminated at
any time prior to the Closing Date, whether before or after approval by
the shareholders of Company:
(a) by mutual consent of Parent and Company;
(b) by either Parent or Company, so long as such party has not
breached its obligations hereunder in any material respect, after
November 30, 1995, if the Merger shall not have been consummated on
or before November 30, 1995 (the "Termination Date");
(c) by any party hereto, by written notice to the other party,
if Company Shareholder Approval shall not have been obtained at a
duly held Company Special Meeting, including any adjournments
thereof;
(d) by any party hereto, if any state or federal law, order,
rule or regulation is adopted or issued, which has the effect, as
supported by the written opinion of outside counsel for such party,
of prohibiting the Merger, or by any party hereto, if any court of
competent jurisdiction in the United States or any State shall have
issued an order, judgment or decree permanently restraining,
enjoining or otherwise prohibiting the Merger, and such order,
judgment or decree shall have become final and nonappealable;
(e) by Company, upon five days' prior notice to Parent, if, as
a result of an unsolicited tender offer by a party other than Parent
or any of its affiliates or any unsolicited written offer or proposal
with respect to a merger, sale of a material portion of its assets or
other business combination (each, a "Business Combination") by a
party other than Parent or any of its affiliates, the Board of
Directors of Company determines in good faith that its fiduciary
obligations under applicable law require that such tender offer or
other written offer or proposal be accepted; provided, however, that
(i) the Board of Directors of Company shall have been advised by
outside counsel that notwithstanding a binding commitment to
consummate an agreement of the nature of this Agreement entered into
in the proper exercise of their applicable fiduciary duties, such
fiduciary duties would also require the directors to reconsider such
commitment as a result of such tender offer or other written offer or
proposal; and (ii) prior to any such termination, Company shall, and
shall cause its respective financial and legal advisors to, negotiate
with the Parent to make such adjustments in the terms and conditions
of this Agreement as would enable Company to proceed with the
transactions contemplated herein;
(f) by Company, by written notice to the Parent, if (i) there
shall have been any material breach of any representation or
warranty, or any material breach of any covenant or agreement of
Parent or Subsidiary, hereunder, and such breach shall not have been
remedied within twenty days after receipt by the Parent of notice in
writing from Company, specifying the nature of such breach and
requesting that it be remedied; or (ii) the Board of Directors of the
Parent (A) shall withdraw or modify in any manner adverse to Company
its approval of this Agreement, the Plan of Merger and the
transactions contemplated hereby or thereby, (B) shall fail to
reaffirm such approval or recommendation upon Company's request, (C)
shall approve or recommend any acquisition of the Parent or a
material portion of its assets or any tender offer for the Parent
Common Stock, or (D) shall resolve to take any of the actions
specified in clause (A), (B) or (C);
(g) by Parent by written notice to Company, if (i) there shall
have been any material breach of any representation or warranty, or
any material breach of any covenant or agreement of Company,
hereunder, and such breach shall not have been remedied within twenty
days after receipt by Company of notice in writing from Parent,
specifying the nature of such breach and requesting that it be
remedied; or (ii) the Board of Directors of Company (A) shall
withdraw or modify in any manner adverse to Parent its approval or
recommendation of this Agreement, the Plan of Merger and the
transactions contemplated hereby or thereby, (B) shall fail to
reaffirm such approval or recommendation upon Parent's request, (C)
shall approve or recommend any acquisition of Company or a material
portion of its assets or any tender offer for the shares of capital
stock of Company, in each case by a party other than Parent or any of
its affiliates, and in each case, pursuant to Section 9.1(e) above,
or (D) shall resolve to take any of the actions specified in clause
(A), (B) or (C); and
(h) by Company if the average of the last reported sales price
per share of Parent Common Stock as reported on the Nasdaq National
Market for the twenty (20) consecutive trading days immediately
preceding the fifth business day prior to Closing is less than $13.75
per share.
Section 9.2 EFFECT OF TERMINATION. In the event of
termination of this Agreement by either Parent or Company, as provided in
Section 9.1, this Agreement shall forthwith become void and there shall be
no further obligation on the part of either Company, Parent, Subsidiary or
their respective officers or directors (except as set forth in this
Section 9.2 and in Sections 7.1, 7.4 and 9.5 which shall survive the
termination). Nothing in this Section 9.2 shall relieve any party from
liability for any breach of this Agreement.
Section 9.3 AMENDMENT. This Agreement may be amended before
or after Company Shareholder Approval has been obtained, but only by an
instrument in writing signed on behalf of each of the parties hereto and
in compliance with applicable law.
Section 9.4 WAIVER. At any time prior to the Effective Time,
the parties hereto may (a) extend the time for the performance of any of
the obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties of the other parties
contained herein or in any document delivered pursuant thereto and (c)
waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension
or waiver shall be valid if set forth in an instrument in writing signed
on behalf of such party.
Section 9.5 EXPENSE REIMBURSEMENT; ETC.
(a) Termination Fee upon Breach or Failure of Shareholder
Approval. If this Agreement is terminated (i) at such time that this
Agreement is terminable pursuant to one of Section 9.1(f)(i) or Section
9.1(g)(i) (other than solely pursuant to a non-curable breach of a
representation or warranty unless such breach was willful) but not the
other, then the breaching party shall promptly (but not later than five
business days after receipt of notice from the non-breaching party) pay to
the non-breaching party in cash an amount equal to $500,000 as payment for
expenses and fees incurred by the non-breaching party (including, without
limitation, fees and expenses payable to all legal, accounting, financial,
public relations and other professional advisors arising out of, in
connection with or related to the Merger or the transactions contemplated
by this Agreement), or (ii) following a failure of Company to receive
Company Shareholders' Approval, Company shall promptly pay to Parent in
cash an amount equal to $500,000 as payment for the expenses and fees
incurred by Parent (including, without limitation, fees and expenses
payable to all legal, accounting, financial, public relations and other
professional advisors arising out of, in connection with or related to the
Merger or the transaction contemplated by this Agreement); provided,
however, that in no event shall a party be required to pay more than
$500,000 under this Section 9.5(a).
(b) Other Termination Fee. If (i) this Agreement (A) is
terminated by Company pursuant to Section 9.1(e), or (B) is terminated as
a result of Company's material breach of Section 7.2, and (ii) at the time
of such termination or prior to the meeting of Company's shareholders
there shall have been a third-party tender offer of shares of, or a third-
party offer or proposal with respect to a Business Combination involving,
such party or its affiliates which at the time of such termination or of
the meeting of Company's shareholders shall not have been (A) rejected by
Company's Board of Directors and (B) withdrawn by the third-party and
(iii) within three (3) years of any such termination described in clause
(i) above, Company becomes a subsidiary of such offeror or a subsidiary of
an affiliate of such offeror or enters into a definitive agreement to
consummate a Business Combination with such offeror or affiliate thereof,
then Company will at the time of execution of such definitive agreement,
pay to the Parent a termination fee equal to $2.5 million in cash, less
any amounts paid by Company under Section 9.5(a).
(c) Expenses. The parties agree that the agreements contained
in this Section 9.5 are an integral part of the transactions contemplated
by the Agreement and constitute liquidated damages and not a penalty. If
one party fails to promptly pay to the other any expense and/or fee due
hereunder, the defaulting party shall pay the costs and expenses
(including legal fees and expenses) in connection with any action,
including the filing of any lawsuit or other legal action, taken to
collect payment, together with interest on the amount of any unpaid fee at
the prime rate as published in The Wall Street Journal as of the date such
fee was required to be paid.
ARTICLE X
General Provisions
Section 10.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All representations and warranties contained in Articles IV and V of this
Agreement shall not survive the Merger.
Section 10.2 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered
personally, mailed by registered or certified mail (return receipt
requested) or sent via facsimile to the parties at the following addresses
(or at such other address for a party as shall be specified by like
notice):
(a) If to Parent or Subsidiary to:
Lincoln Telecommunications Company
1440 "M" Street
P.O. Box 81309
Lincoln, Nebraska 68501-1309
Attention: Frank H. Hilsabeck
Fax: (402) 475-9195
with a copy to:
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attention: Benjamin F. Garmer III, Esq.
Fax: (414) 297-4900
(b) If to Company, to:
Nebraska Cellular Telephone Company
1431 North Webb Road
Grand Island, Nebraska 68803
Attention: Kevin J. Wiley
Fax: (308) 384-3397
with a copy to:
Jones, Day, Reavis & Pogue
77 West Wacker
Chicago, Illinois 60601
Attention: William P. Ritchie, Esq.
Fax: (312) 782-8585
Section 10.4 INTERPRETATION. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
Section 10.5 MISCELLANEOUS. This Agreement (including the
documents and instruments referred to herein) (a) constitutes the entire
agreement and supersedes all other prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to
the subject matter hereof; (b) shall not be assigned by operation of law
or otherwise; and (c) shall be governed in all respects, including
validity, interpretation and effect, by the laws of the State of Nebraska
(without giving effect to the provisions thereof relating to conflicts of
law).
Section 10.6 COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed to be an original,
but all of which shall constitute one and the same agreement.
Section 10.7 PARTIES IN INTEREST. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and,
except as provided in Sections 2.2, 2.3, 7.7, 7.9, 7.12 and 7.13, nothing
in this Agreement, express or implied, is intended to confer upon any
other person any rights or remedies of any nature whatsoever under or by
reason of this Agreement.
IN WITNESS WHEREOF, Parent, Subsidiary and Company have caused
this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
LINCOLN TELECOMMUNICATIONS COMPANY
("Parent")
By:
Frank H. Hilsabeck
President and Chief Executive Officer
CAPITAL ACQUISITION CORP.
("Subsidiary")
By:
Frank H. Hilsabeck, President
NEBRASKA CELLULAR TELEPHONE CORPORATION
("Company")
By:
Kevin J. Wiley, President
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
Exhibit/Schedule Description
Exhibit 1.2 Form of Articles of Merger
Exhibit 3.1(a) Formula of maximum permitted Cash
Elections
Exhibit 7.8 Form of Registration Rights Agreement
Exhibit 8.2(c) Form of Opinion of Counsel to Parent
and Subsidiary
Exhibit 8.2(g) Form of Certificate of Parent re:
Tax Representations
Exhibit 8.3(b) Form of Opinion of Counsel to Company
Exhibit 8.3(c) Form of Investor Representations
Schedule 4.1(a) Articles of Incorporation of
Subsidiary
Schedule 4.1(b) By-laws of Subsidiary
Schedule 7.13 Company Five Year Plan
Various Schedules Disclosure Schedules of Parent and
Subsidiary
Various Schedules Disclosure Schedules of Company
Registrant agrees to supplementally furnish a copy of such omitted
schedules to the Commission upon request.
