<PAGE>
FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------------- -----------------
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
----------- ---------------------------------- -----------------
0-10516 ALIANT COMMUNICATIONS INC. 47-0632436
(A Nebraska Corporation)
1440 "M" Street
Lincoln, NE 68508
402-436-5289
2-39373 ALIANT COMMUNICATIONS CO. 47-0223220
(A Delaware Corporation)
1440 "M" Street
Lincoln, NE 68508
402-436-5289
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
ALIANT COMMUNICATIONS INC. Common Stock, $.25 par value
ALIANT COMMUNICATIONS CO. 5% Preferred Stock, $100.00 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. [ X ]
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant.
ALIANT COMMUNICATIONS INC. $950,462,914 as of February 28, 1998
ALIANT COMMUNICATIONS CO. None
Number of shares outstanding of each class of common stock, as of
February 28, 1998:
ALIANT COMMUNICATIONS INC. 36,208,111
ALIANT COMMUNICATIONS CO. 1,000
The Aliant Communications Inc. Annual Report to Shareholders for the
calendar year 1997 is incorporated by reference in Parts I, II, III and IV
of this Form 10-K to the extent stated herein. The Aliant Communications
Inc. definitive Proxy Statement for the Annual Meeting of Shareholders to
be held on April 22, 1998 is incorporated by reference in Parts III & IV of
this Form 10-K to the extent stated herein.
<PAGE>
ALIANT COMMUNICATIONS INC.
AND
ALIANT COMMUNICATIONS CO.
FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
Item Page
- ---- ----
PART I
Description
1. Business 1-7
2. Properties 7-8
3. Legal Proceedings 8
4. Submission of Matters to a Vote of Security Holders 8
4a. Executive Officers of the Registrant 9
PART II
Description
5. Market for Registrant's Common Equity and Related Stockholder
Matters 10
6. Selected Financial Data 11
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-17
8. Financial Statements and Supplementary Data 17
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 17
PART III
Description
10. Directors and Executive Officers of the Registrant 18
11. Executive Compensation 18
12. Security Ownership of Certain Beneficial Owners and Management 18
13. Certain Relationships and Related Transactions 18
PART IV
Description
14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 19-22
<PAGE>
PART I
Item 1. Business
- ------
Aliant Communications Inc. (the Company), f/k/a Lincoln
Telecommunications Company, was incorporated on November 24, 1980, as a
Nebraska corporation, and is a holding company. Aliant Communications Co.
(Telco), f/k/a The Lincoln Telephone and Telegraph Company, a Delaware
corporation, is the principal subsidiary of the Company. The Company owns
100% of the issued and outstanding common stock of Telco. Other wholly-
owned subsidiaries of the Company are Prairie Communications, Inc.
(Prairie); Aliant Cellular Inc. (Cellular); Aliant Systems Inc. (Systems);
Aliant Midwest Inc. (Midwest); and Aliant Network Services Inc. (Network),
all of which are Nebraska corporations. For information relating to the
general development of the Company's business during the past five years
and descriptions of the Company's subsidiaries, see 1997 Annual Report to
Stockholders, pages 1-11 and 43-54.
Subsidiary Operations
- ---------------------
Telco, the Company's principal subsidiary, provides local exchange and
intraLATA interexchange service to approximately 201,000 customers in the
contiguous geographical area consisting of the southeastern 22 counties of
Nebraska, having in service 273,008 landline customer access lines as of
December 31, 1997. There are a total of 137 exchanges and 146 central
offices in the service area of Telco. Telco's fully digital local exchange
network supports SS7 technology and includes over 1,400 miles of fiber
optic cable, much of it in a ring configuration. Data communications
services include Internet access, which is provided under the Navix brand
name. Enhanced services include Voice Mail, Custom Calling, Centrex, and
Integrated Services Digital Network (ISDN). Telco publishes six regional
directories and provides access service to long distance and cellular
companies. Set forth below is a schedule of Telco's residential and
business access lines in service for the years ended December 31, 1997 and
1996.
As of December 31,
Access Lines In Service* 1997 1996
----------------------- ---- ----
Residence 188,312 184,294
Business 84,696 78,914
------- -------
Total 273,008 263,208
*The statistics in this table exclude cellular access lines and
Company access lines in service.
Telco 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 switch networks or through
private lines. Access charges, including interstate subscriber line
charges and those payable by interexchange and cellular carriers, provided
$57,621,000, $56,746,000, and $53,653,000 of the Company's consolidated
revenues for the years ended December 31, 1997, 1996, and 1995,
respectively.
1
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Telco's wireless services include cellular operations and wide-area
paging services. Telco operates a cellular telecommunications system in
the Lincoln, Nebraska Metropolitan Statistical Area (MSA). The Company
also manages the limited partnership which is the license holder for Iowa
Rural Statistical Area (RSA) 1, which serves the southwestern six counties
of Iowa.
On December 31, 1991, Prairie entered into a general partnership that
holds an ownership interest of approximately 56% in the Omaha Cellular
Limited Partnership, now doing business as Aliant Cellular - Omaha, which
provides cellular communications services in the Omaha MSA. On December
17, 1997, the Company announced that it had entered into a Purchase
Agreement with 360 Communications Company of Nebraska (360) to acquire
360's ownership interest for approximately $15,000,000, and the release of
360 from its obligation pursuant to the discounted note receivable from the
general partnership, which had a carrying value of approximately $47.7
million at December 31, 1997. This transaction closed on February 27,
1998. As a result, the Company owns 100% of the general partnership and
approximately 56% of Aliant Cellular-Omaha. The acquisition will be
accounted for as a purchase and, accordingly, the results of the
partnership will be included in the operating revenues and expenses of the
Company. Goodwill of approximately $30 million will result and will be
amortized over approximately 34 years. The Company assumed management of
Aliant Cellular-Omaha on January 1, 1992.
Cellular is the holder of cellular operating licenses issued by the
Federal Communications Commission (FCC) for Nebraska RSA Nos. 533 through
542. Cellular's network serves the entire State of Nebraska through these
ten RSAs, with the exception of Dakota, Douglas, Lancaster, and Sarpy
counties.
Effective May 15, 1997, Cellular acquired from Telebeep, Inc.
approximately 10,000 customer service agreements and customers who had
previously received cellular telecommunications services provided by
Cellular on a resold basis. These customers are located principally in
northeastern Nebraska. As a result of the acquisition of this additional
customer base, Cellular is providing its cellular telecommunications
services directly to these customers on a retail basis rather than on a
wholesale basis. This acquisition is expected to result in increased
annual revenue of approximately $1,300,000.
Due to changes in technology, customer growth, and usage demand,
Cellular recently entered into a contract with Motorola to replace the
existing analog cellular equipment in the Lincoln and Omaha MSAs, requiring
a $22,000,000 cash outlay. The new digital switching platforms will
increase network capacity and make additional services, such as Caller ID,
available to customers. The network will be upgraded in two phases. By
early spring 1998, Narrowband Advanced Mobile Phone Service (NAMPS) will be
in place, which will nearly double the capacity on the network. By early
1999, Code Division Multiple Access (CDMA) will be deployed, which will
further improve capacity, coverage, and voice quality.
The following table sets forth certain information about the Company's
managed cellular operations.
2
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<TABLE>
Cellular Operations
-------------------
<CAPTION>
December 31, 1997
-----------------
POPs Gross Net
Acquisition Percent Within Net Sub- Sub-
System (1) Date (2) Ownership Area (5) POPs scribers scribers
---------- -------- --------- -------- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Lincoln MSA April 23, 1987 100.0 231,000 231,000 51,045 51,045
Nebraska RSAs Nov. 25, 1989 100.0 848,000 848,000 131,942 131,942
Omaha MSA Dec. 31, 1991 27.9(3) 634,000(6) 177,000 80,424 22,446
Iowa RSA 1 June 30, 1989 11.8(4) 62,000 7,000 4,086 482
</TABLE>
(1) Systems are as follows:
Lincoln MSA - Lancaster County, Nebraska (held by Telco).
Nebraska RSAs - 89 of the 90 Nebraska counties not in the Omaha and
Lincoln MSAs.
Omaha MSA - Douglas and Sarpy Counties in Nebraska and
Pottawattamie County in Iowa.
Iowa RSA 1 - Southwestern six counties of Iowa.
(2) The date Telco'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. The Company's
ownership interest in the Nebraska RSAs increased from approximately 16%
to 100% on July 13, 1995.
(3) In addition, the Company exercised its option to purchase an
additional 27.9% interest in the licensee of the Omaha MSA at fair market
value in December 1997, and the purchase was closed February 27, 1998.
(See discussion of Prairie, above.)
(4) Includes the allocable portion of the 15.2% interest in the licensee
held by the Omaha MSA licensee, which interest is subject to a right of
first refusal in favor of the general and limited partners of Iowa RSA 1.
(5) POPs represent potential customers. Based upon population data for
1997, POPs shown for Lincoln and Omaha MSAs are 99% covered by the
networks of these systems. According to estimates available to the
Company, approximately 93% of the POPs shown for Nebraska RSAs and
approximately 92% 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 54,745 POPs and
4,544 net POPs).
The licensing, ownership, construction, operation, and sale of
controlling interests in cellular telephone systems are subject to
3
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regulation by the FCC. The FCC license for the Company's Lincoln MSA
expired in October 1996, and it was subsequently renewed by the FCC for an
additional 10 years on November 29, 1996. The Omaha MSA license expires
May 2005, while FCC licenses for the Company's Iowa RSA and Nebraska RSA
cellular operations expire between November 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. 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.
The Company, through Systems, is a "reseller" of long distance
services, primarily in Telco's exchange service area, and provides this
service by aggregating its customers' traffic to take advantage of volume
discounts offered by national networks. During 1997, Systems had 137.9
million minutes of long distance traffic, an increase of 21.0 million
minutes from 116.9 million minutes of long distance traffic in 1996. The
Company has a variety of calling programs for both residential and business
customers.
Systems also sells and services a wide range of PBX, key system, and
other communications equipment to large and small businesses, including
sophisticated switching systems from ROLM and NorTel. These systems
provide a variety of call center applications such as automatic call
distribution, voice mail, and LAN functionality.
Midwest, the Company's Competitive Local Exchange Carrier (CLEC),
began offering facilities-based service outside the Company's traditional
southeast Nebraska service area in June 1997. Doing business as Aliant
Communications, Midwest is currently offering service in Omaha, Nebraska,
and Grand Island, Nebraska. The Company will continue to evaluate entry
into other markets.
Network was formed to own and operate fiber optic transmission
facilities being constructed within and outside of Telco's traditional
service area. Capacity on the network will be leased to long distance and
wireless carriers.
Competition and Regulatory Environment
- --------------------------------------
See Competition and Regulatory Environment Section of Management's
Discussion and Analysis, pages 51-53 of 1997 Annual Report to Stockholders,
and as filed on the Company's Form 8-K dated March 20, 1998.
Rate Changes
- ------------
On November 8, 1996, Telco announced a 10% increase to residential
basic local service rates effective March 23, 1997. Telco had not
increased such rates since 1991. The residential basic local exchange
service increase was offset by an 8% to 10% reduction in Telco's long
distance rates within its service area, and by a reduction to intrastate
4
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access service rates of approximately 16%. The passage of the
Telecommunications Act of 1996 (the Act), which encourages local exchange
competition, necessitated this rate adjustment by Telco to bring prices for
residential basic local exchange service closer to actual costs. Taken as
a whole, the projected annual revenue impact to Telco is expected to be a
reduction of approximately $1.1 million in operating revenues. Also
effective March 23, Telco raised rates for paystation calls and directory
assistance calls.
Rates for several optional business and residential services increased
July 1, 1997. Services affected include several custom calling services,
Extended Area Service (EAS), Enhanced Local Calling Area Plans (ELCAP),
some directory listings, and inside wire maintenance. The rates for some
leased telephones also increased. These rate changes should result in
increased annual revenues of approximately $1 million.
Cellular rates were reduced and simplified in June 1997. Formerly,
separate rate plans had existed for Lincoln, Omaha, and Nebraska statewide
customers. The new plan consolidates the former plans to only two sets of
rates--one for the metropolitan areas of Lincoln and Omaha, and one for
statewide customers. The rate decreases accompanying the new rate plan
will result in an annual revenue reduction of approximately $6 million;
however, it is anticipated that the lower rates will stimulate demand to
partially offset the revenue reduction, and the impact of recently
negotiated interconnection agreements will also help to offset the
reduction.
On March 10, 1998, Telco received approval of its application with the
NPSC to increase Telco's residential basic local service rates to $16.35
per month (existing residential rates range from $11.00 to $13.75 per
month). This increase will be implemented in May 1998. Approval of this
rate increase is important to Telco's efforts to respond to the competitive
environment required by the Act. Competitive market forces require Telco
to bring prices for residential basic local exchange service closer to
actual cost, and to lower rates for business customers who are especially
attractive to potential competitors. The additional revenue to be
generated by such increase will be offset by (i) reductions in Telco's
business basic local service rates to $31.40 per month (existing business
rates range from $33.00 to $39.00 per month); (ii) the elimination of a
separate Touch Tone charge ($.50 and $1.50 per month for residential and
business customers, respectively); (iii) the reduction of day time
intraLATA toll rates from $.18 per minute to $.13 per minute; and (iv) the
reduction of intraLATA access charges by approximately $900,000 per year.
Telco has estimated that the net impact of all these changes will be
immaterial to revenues. Revenue neutrality is required by Nebraska Statute
86-803, under which Telco filed its rate application.
The Company may, in the future, request authority from the NPSC to
further re-balance its local service rates to more closely reflect costs of
service. The timing and the specific rates that may be requested in any
such further rebalancing dockets are not currently known. However, such
timing and specific rates will likely be influenced by the outcome of the
current NPSC Docket C-1628 in which the structure of access charges and the
nature of universal service funding in Nebraska are being investigated. No
assurance can be given that any future rate re-balancing requests will be
approved.
5
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Employees
- ---------
The Company had 1,537 employees (1,036 employed by Telco) at the end
of 1997. As of December 1997, approximately 61% of Telco's employees and
27% of Systems' employees (constituting 44% of the Company's overall
employees) were represented by the Communications Workers of America (CWA),
which is affiliated with the AFL-CIO. Three-year contracts with the CWA
were signed in May 1995 with respect to Systems' bargaining unit employees
and in October 1995 with respect to Telco bargaining unit employees.
Telco's contract with the CWA will expire on October 14, 1998, and Systems'
contract with the CWA will expire on May 19, 1998.
Credit Agreements
- -----------------
The Company has in place three separate credit agreements (the Credit
Agreements) two of which are with The Bank of Tokyo-Mitsubishi, Ltd., as
agent, and certain other banks which are parties thereto and one of which
is with the U.S. Bank National Association d/b/a First Bank N.A. (together,
the Banks). Pursuant to the terms of the Credit Agreements, the Company
will, subject to compliance with certain conditions, have the right to
obtain revolving loans in the following outstanding principal amounts:
Maximum Amount of
Time Period Revolving Loans Outstanding
----------- ---------------------------
December 31, 1997 through July 6, 1998 $115 million
July 7, 1998 through July 6, 1999 $ 40 million
July 7, 1999 through July 6, 2000 $ 40 million
The entire unpaid principal balance of all loans made under the Credit
Agreements will be due and payable on July 6, 2000.
The Credit Agreements are not secured by liens, deeds of trust,
mortgages or security interests on any of the assets of the Company.
The interest rates on borrowings under the Credit Agreements vary and
are generally based on rates such as LIBOR, the U.S Treasury Bill Rate, the
Federal Funds Rate or the Prime Rate, at the option of the Company. These
rates may also vary over the duration of the Credit Agreements either based
on the long-term debt rating of Telco as published by Standard & Poor's or
pursuant to a pricing grid based on the financial performance of the
Company. The Credit Agreements also contain customary provisions requiring
the Company to reimburse the Banks for certain fees and costs.
Loans made under the Credit Agreements may be prepaid in whole or in
part without premium or penalty, except for customary break-funding
charges.
The Credit Agreements contain customary and appropriate
representations and warranties including without limitation those relating
to due organization and authorization, governmental approvals, financial
condition, title to properties, litigation, compliance with laws, payment
of taxes, no material misstatements, and environmental liabilities.
The Credit Agreements also contain customary and appropriate
conditions to all borrowings including requirements relating to prior
6
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notice of borrowing, the accuracy of representations and warranties, and
the absence of any default or potential event of default.
The Credit Agreements also contain customary affirmative and negative
convenants including but not limited to nature and continuance of business,
insurance, payment of taxes, furnishing information, litigation, liens,
limitations on indebtedness, investments, mergers and acquisitions, sales
of assets, dividends and affiliate transactions. The Credit Agreements
also contain the following financial covenants: maximum consolidated total
indebtedness; minimum consolidated tangible net worth; and minimum
consolidated cash flow coverage ratio.
Events of default under the Credit Agreements are usual and customary
including, without limitation, those relating to: (i) materially
inaccurate or false representations or warranties; (ii) non-payment of
interest, principal or fees under the Credit Agreements; (iii) non-
performance of covenants; (iv) bankruptcy or insolvency; (v) unsatisfied
judgments in excess of specified amounts; and (vi) a change of control.
Statement Regarding Forward-Looking Information
- -----------------------------------------------
This document may contain "forward-looking" statements, as defined in
the Private Securities Litigation Reform Act of 1995. All statements,
other than historical facts, that address activities, events, or
developments that the Company expects or anticipates will or may occur in
the future, including such things as expansion and growth of the Company's
business, acquisitions, capital expenditures and the Company's business
strategy are forward-looking statements. These statements contain
potential risks and uncertainties; therefore, actual results may differ
materially. The Company undertakes no obligation to update publicly any
forward-looking statements whether as a result of new information, future
events or otherwise.
Important assumptions and other important factors that could cause
actual results to differ from those set forth in the forward-looking
information include, but are not limited to: changes in the national and
local economic and market conditions; demographic changes; the size and
growth of the overall telecommunications market; changes in competition in
markets in which the Company operates; advances in telecommunications
technology; changes in the telecommunications regulatory environment; the
need for regulatory approval to make acquisitions or undertake certain
other activities, including rate re-balancing; changes in business strategy
or development plans; pending and future litigation; availability of future
financing; start-up of Personal Communications Services operations; new
product and service development and introductions; changes in consumer
preferences; and unanticipated changes in growth in cellular customers,
penetration rates, churn rates and the mix of products and services offered
in the Company's markets.
Item 2. Properties
- ------
Telco's telephone system consists of digital switching and
transmission equipment, cellular radio facilities, fiber optic systems, and
distribution plant, operating through 137 communities within the State of
Nebraska. Among the larger exchanges served are Lincoln, Hastings,
Beatrice, York, Nebraska City, Plattsmouth, and Seward.
7
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Telco owns the equipment, plant, and facilities which are utilized in
its telephone system. Telco leases five locations on which business
offices are located. The total annual rentals for such leased offices were
approximately $156,000 in 1997, and the duration of such leases ranges from
one to six years. Telco owns its remaining business office locations.
Additionally, Telco leases the majority of the locations on which the sites
of towers for its Lincoln MSA cellular system and wide-area paging system
are located. Annual rentals on the sites are approximately $75,000, and
the duration of the unexpired portions of such leases ranges from four
months to five years, with options to renew thereafter.
Cellular has numerous operating lease agreements for various building
space, towers, and land sites. Lease terms are between one and ten years,
with various renewal clauses. Rentals for cellular sites are $224,000 per
year, retail site rentals for locations around the state of Nebraska total
$144,000 per year, and office space in Lincoln is leased from other Company
operations for $156,000 per year.
Systems leases transmission facilities and switching facilities in
connection with its Aliant Communications Long Distance Division. All of
its office locations are leased. Annual rentals are approximately
$161,000, and the duration of the unexpired portions of such leases ranges
from 15 months to 30 months.
It is the opinion of Company management, including the Vice President-
Technology of Telco, that the properties of Telco are suitable and adequate
to provide modern and effective telecommunications services within its
service area, including both local and long distance service. The capacity
for furnishing these services, both currently and for forecast growth, is
under constant surveillance by the Vice President-Technology and his staff.
Facilities are put to full utilization after installation and appropriate
testing, according to two-, three-, and five-year construction plans.
Telco's continuing construction programs are divided between meeting
growth demands (population and service) and upgrading its telephone
equipment and plant. Competition, customer needs, and market conditions
drive network technology deployment.
Item 3. Legal Proceedings
- ------
None.
Item 4. Submission of Matters to a Vote of Security Holders
- ------
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year.
8
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Item 4a. Executive Officers of the Registrant
- -------
A. Executive Officers of Aliant Communications Inc. (Company)
----------------------------------------------------------
Current Position and Business Effective
Officer Age Experience During Past Five Years Date
- ------- --- --------------------------------- ----
Frank H. Hilsabeck 53 President and Chief Executive Officer 1993
President and Chief Operating Officer 1992
James W. Strand 51 President-Diversified Operations 1990
Robert L. Tyler 62 Senior Vice President-Chief Financial
Officer 1991
Bryan C. Rickertsen 50 Vice President-Technology 1995
Information and Technology Services
Director 1994
Data Processing Director 1986
Michael J. Tavlin 51 Vice President-Treasurer and Secretary 1986
B. Executive Officers of Aliant Communications Co. (Telco)
-------------------------------------------------------
Current Position and Business Effective
Officer Age Experience During Past Five Years Date
- ------- --- --------------------------------- ----
Frank H. Hilsabeck 53 President and Chief Executive Officer 1993
President and Chief Operating Officer 1992
James W. Strand 51 Executive Vice President-Marketing and
Customer Services and Director 1990
Robert L. Tyler 62 Senior Vice President-Chief Financial
Officer 1991
Bryan C. Rickertsen 50 Vice President-Technology 1995
Information and Technology Services
Director 1994
Data Processing Director 1986
Michael J. Tavlin 51 Vice President-Treasurer and Secretary 1986
9
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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 "ALNT." The following table sets forth the high and low
bid quotations for the periods indicated. These quotations represent
prices between dealers without adjustments for markups, markdowns, or
commissions and may not represent actual transactions.
Dividends Declared
High Low Per Share
---- --- ---------
1996
First Quarter 22.375 18.500 .15
Second Quarter 20.000 15.875 .15
Third Quarter 17.125 15.250 .15
Fourth Quarter 17.000 15.250 .16
1997
First Quarter 19.500 16.000 .16
Second Quarter 20.500 15.000 .16
Third Quarter 24.875 18.250 .17
Fourth Quarter 33.188 23.750 .17
(b) Holders
As of December 31, 1997, there were approximately 7,000 holders
of record of the Company's Common Stock. In addition, the Company believes
it has approximately 11,000 beneficial owners of the Company's Common
Stock, whose shares are held in the names of broker dealers and clearing
agencies. Since Telco's reorganization in 1981, all outstanding shares of
Telco's Common Stock have been owned by the Company.
(c) Dividends
The long-term debt agreements and notes payable of the Company,
Telco, and Cellular contain various restrictions. The restrictions include
those relating to payment of dividends by the Company to holders of Company
Common Stock, by Telco to the Company, and by Telco to holders of Telco's
5% Preferred Stock. At December 31, 1997, approximately $17,600,000 of the
Company's; and $34,400,000 of Telco's retained earnings were available for
payment of cash dividends. Total dividends paid by Telco to the Company
were $29,000,000 in 1997 and $26,000,000 in 1996. The Company has paid a
dividend on every quarter since 1936 and attempts to maintain an
approximate 50% payout ratio.
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Item 6. Selected Financial Data
- ------
A. ALIANT COMMUNICATIONS INC.
See Selected Financial Data, 1997 Annual Report to
Stockholders, pages 55-59, and as filed on the Company's Form
8-K dated March 20, 1998.
<TABLE>
<CAPTION>
B. ALIANT COMMUNICATIONS CO.
Dollars in thousands 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Selected Earnings Statement Items
1. Operating revenues $207,693 194,606 183,303 174,556 163,539
2. Income before extraordinary item
and cumulative effect of change
in accounting principle 39,899 35,528 22,325 30,169 28,702
3. Extraordinary item and cumulative
effect of change in accounting
principle -- -- 16,516 -- 22,999
4. Net income 39,899 35,528 5,809 30,169 5,703
5. Earnings available for
common shares 39,674 35,303 5,584 29,944 5,478
Selected Balance Sheet Items
6. Total assets $296,755 293,644 293,614 327,752 328,476
7. Property and equipment 523,106 496,814 477,291 456,295 447,689
8. Accumulated depreciation 306,607 274,909 254,412 215,758 202,299
9. Accumulated depreciation to
depreciable plant 59.9% 56.2% 54.3% 48.2% 45.6%
10. Current ratio 1.1:1 1:1 .9:1 1.2:1 1:1
11. Long-term debt and redeemable
preferred stock* $ 48,499 48,499 48,499 48,499 48,499
12. Long-term debt and redeemable
preferred stock as a percent
of total capitalization 25.9% 27.3% 28.8% 25.9% 27.0%
13. Common stock and premium $ 32,495 32,495 32,495 32,495 32,495
14. Retained earnings 106,126 96,452 87,649 106,565 98,621
15. Total long-term debt and
stockholders' equity 187,120 177,446 168,643 187,559 179,615
Telephone Statistics
16. Landline access lines in
service** 273,008 263,208 254,173 246,963 238,142
17. Number of employees 1,036 1,205 1,264 1,392 1,422
18. Total salaries $ 50,263 48,482 50,087 48,994 48,066
</TABLE>
* Excludes current installments and redemptions due in subsequent years.
** Excludes Company access lines.
11
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
- ------ and Results of Operations
A. ALIANT COMMUNICATIONS INC.
See Management's Discussion and Analysis of Financial
Condition and Results of Operations, 1997 Annual Report to
Stockholders, pages 43-54, and as filed on the Company's Form
8-K dated March 20, 1998.
B. ALIANT COMMUNICATIONS CO.
RESULTS OF OPERATIONS
Approximately 73% and 54% of the Company's 1997 revenues and assets,
respectively, are derived from Telco.
Net Earnings
Earnings available for common shares were $39,674,000 in 1997,
compared to $35,303,000 in 1996, and $5,584,000 in 1995. Before
restructuring charges and an extraordinary charge in 1995, earnings
available for common shares were $35,129,000.
Operating Revenues
Operating revenues increased by $13,087,000 or 6.7% to $207,693,000 in
1997 over 1996, compared to growth of $11,303,000 or 6.2% in 1996 over
1995.
Local Network Revenues
Local network service revenues in 1997 were $80,825,000, an increase
of $5,947,000 or 7.9% over the 1996 total of $74,878,000. In 1996, local
network service revenues increased $3,387,000 or 4.7% over the 1995 total
of $71,491,000. These revenues reflect amounts billed to customers for
local exchange services, including enhanced services such as Call Waiting
and Caller ID.
The 1997 increase was due, in part, to a 10% increase to residential
basic local exchange rates which became effective near the end of the first
quarter. The balance of the 1997 increase, along with the 1996 increase,
resulted primarily from growth in telephone access lines and continued
demand for enhanced services. Telephone access lines in service at
December 31, 1997 and 1996 increased by 3.7% and 3.6% respectively, over
the prior year. In each year, business and Centrex line growth led the
increases.
On March 10, 1998, the NPSC approved Telco's application to increase
its residential basic local service rates. See Rate Changes Section of
Item 1, Business, on page 4.
12
<PAGE>
Access Revenues
Access service revenues received from interexchange carriers for their
use of local exchange facilities in providing long distance service were
$57,621,000 in 1997, an increase of $875,000 or 1.5% over the 1996 total of
$56,746,000. In 1996, access service revenues increased $3,093,000 or 5.8%
over the 1995 total of $53,653,000. These increases were due primarily to
increased volume of access minutes which increased by 5.8% in 1997 and by
7.6% in 1996.
Long Distance Revenues
Long distance revenues in 1997 were $10,492,000, a decrease of
$1,768,000 or 14.4% from the 1996 total of $12,260,000. In 1996, long
distance revenues decreased $1,116,000 or 8.3% from the 1995 total of
$13,376,000. Long distance revenues are received from providing services
within Telco's service area, and are primarily message toll, private line
services, and operator services. The 1997 decrease was due, in part, to a
first quarter reduction in long distance rates of 8% to 10% within Telco's
service area in southeast Nebraska. The 1996 decrease was mainly due to
the cancellation of the AT&T operator service agreement as of December 1,
1995. Both 1996 and 1995 long distance revenues were affected by lower
calling volumes.
Other Wireline Communications Revenues
Other wireline communication service revenues were $29,476,000 in
1997, an increase of $4,371,000 or 17.4% from the 1996 total of
$25,105,000. In 1996, other wireline revenues increased $1,814,000 or 7.8%
over the 1995 total of $23,291,000. The 1997 increase was attributable to
greater directory advertising and sales revenues, greater data
communications revenue mainly due to the growth of Navix and increased
public paystation revenue. The paystation revenue increase was due, in
part, to a rate increase with the remainder resulting from the FCC's
deregulation of paystation business. The 1996 growth was attributable to
greater directory advertising and sales revenues as well as increased data
communications revenues.
Wireless Communication Revenues
Wireless communication services revenues were $22,507,000 in 1997, an
increase of $3,797,000 or 20.3% from the 1996 total of $18,710,000. In
1996, wireless revenues increased $4,650,000 or 33.1% over the 1995 total
of $14,060,000. These increases were primarily due to the steady addition
of subscribers and resulting revenue generated from the larger subscriber
base. Cellular subscriber line increases were 27.5% in 1997 over 1996, and
36.7% in 1996 over 1995. The 1997 increase was offset by a June 1, 1997,
reduction in service rates offered to subscribers.
Equipment Sales and Service Revenues
Equipment sales and services revenues were $6,772,000 in 1997, a
decrease of $135,000 or 2.0% from the 1996 total of $6,907,000. The 1996
revenues reflected a decrease of $525,000 or 7.1% from the $7,432,000
recorded in 1995.
13
<PAGE>
Operating Expenses
Total operating expenses were $138,597,000 in 1997, an increase of
$5,107,000 or 3.8% over the 1996 total of $133,490,000. In 1996, total
operating expenses decreased $9,464,000 or 6.6% from the 1995 total of
$142,954,000.
Depreciation expenses amounted to $38,635,000 in 1997, $36,989,000 in
1996, and $32,859,000 in 1995. The composite depreciation rate for
property and equipment was 7.7% in 1997, 7.8% in 1996, and 7.2% in 1995.
The 1997 increase is attributable to gross additions to plant resulting
from the Company's strategic objective to remain a forerunner in the
implementation of new technology. The higher rate for 1996 results from
determining rates under generally accepted accounting principles. See Item
7, Extraordinary Item, on page 15. The rate does not include the
extraordinary charge in 1995. Due to changes in technology, customer
growth, and usage demand, an agreement was made with AT&T to install a
system with digital and analog capacity in order to increase capacity and
performance. This new system became operational in April 1995.
Other operating expenses were $96,383,000 in 1997, $93,105,000 in
1996, and $85,755,000 in 1995. The increases amounted to 3.5% in 1997 and
8.6% in 1996. The 1997 increase was due, in part, to expenses incurred for
repairing the damages resulting from a severe October snowstorm. Costs of
goods and services sold increased in both 1997 and 1996, resulting from
increased product sales and greater discounts. Sales commissions and other
costs of acquiring cellular customers also increased each year. The 1996
increase was due primarily to an increase in commissions for a new
directory yellow pages contract, growth in cellular operations, and
software upgrades to central office switches.
Non-recurring restructuring charges, $1,552,000 from the operator
services force reduction in September 1995 and $19,663,000 from the
voluntary early retirement program recognized in December 1995, increased
operating expenses $21,215,000 in 1995.
In July 1995, Telco announced its decision to reduce its operator
service work force from 140 to approximately 50 employees by the end of
1995. Retirement and separation incentives and out-placement services were
offered to the affected employees. As a result, Telco recognized a pre-tax
restructuring charge in 1995 of $1,552,000, $937,000 net of tax.
In November 1995, the Company offered a voluntary early retirement
program to eligible employees in an effort to position itself for the long
term. The existing Pension Plan was enhanced by adding five years to both
age and net credited service for eligible employees. In addition to normal
pension payments, lump-sum payments and supplemental monthly payments will
be provided. A total of 319 management and non-management employees of
Telco accepted the offering. Telco recorded a reduction to its pension
asset, the source of funding for the program, and recognized a pre-tax
restructuring charge of $19,663,000, $11,854,000 after tax, in 1995.
Because the entire restructuring charge for the work force reduction was
recorded in December 1995, and because the enhanced pension payments are
paid through Telco's pension fund, there has been no further financial
impact to Telco.
14
<PAGE>
Taxes, other than payroll and income, are principally local property
taxes. These taxes amounted to $3,579,000 in 1997, compared to $3,396,000
in 1996 and $3,125,000 in 1995.
Income Taxes
Income tax expenses in 1997 were $24,742,000, compared to $22,053,000
in 1996 and $13,653,000 in 1995. Income tax expense has remained
proportionate to taxable income over the three-year period.
Extraordinary Item (Net of Income Tax) - FAS71
Financial Accounting Standard (FAS) 71, "Accounting for the Effects
of Certain Types of Regulation," generally applies to regulated companies
that meet certain requirements, including a requirement that a company be
able to recover its costs by charging its customers rates prescribed by
regulators and that competition will not threaten the recovery of those
costs. Having achieved price regulation and recognizing potential
increased competition, the Company decided, in the fourth quarter of 1995,
that the principles prescribed by FAS 71 were no longer applicable. As a
result of that decision, a non-cash, extraordinary charge of approximately
$16,516,000, net of an income tax benefit of approximately $9,351,000 was
incurred in December 1995.
An increase to accumulated depreciation of approximately $13,305,000
after tax was necessary as the estimated useful lives prescribed by
regulators were not appropriate considering the rapid rate of technological
changes in the telecommunications industry. This increase to accumulated
depreciation was determined by performing a study which identified
inadequate accumulated depreciation levels by individual asset categories.
The estimated useful lives of these individual asset categories were
shortened to more closely reflect economically realistic lives.
Upon adoption of FAS 109, "Accounting for Income Taxes," in 1993,
adjustments were required to adjust excess deferred tax levels to the
currently enacted statutory rates as regulatory liabilities and regulatory
assets were recognized on the cumulative amount of tax benefits previously
flowed through to ratepayers. These tax-related regulatory assets and
liabilities were grossed up for the tax effect anticipated when collected
at future rates. At the time the application of FAS 71 was discontinued,
the tax-related regulatory assets and regulatory liabilities were
eliminated with a net after-tax charge of $3,211,000, and the related
deferred taxes were adjusted to reflect application of FAS 109 consistent
with deregulated entities.
LIQUIDITY AND CAPITAL RESOURCES
Construction
Telco is continuing to invest in new technology. Net cash
expenditures for capital additions to property and equipment amounted to
$33,230,000 in 1997, $36,015,000 in 1996, and $37,270,000 in 1995. Cash
provided by operating activities, less dividends, exceeded net capital
additions in 1997 and 1996. Net capital additions exceeded cash provided
by operating activities less dividends paid in 1995. Gross additions to
telephone property and equipment are expected to be approximately
15
<PAGE>
$52,298,000 in 1998. The increase in 1998 is due in part to additions and
upgrades of cellular equipment and additions to electronic switching
equipment. The Company anticipates funding this construction primarily
from operating activities, existing temporary investments, and debt.
The Company entered into a contract with Northern Telecom Inc. to
upgrade Telco's electronic switching equipment over the next five years
requiring a cash outlay of $20.9 million over the five-year period. Among
its many benefits, the replacement equipment will provide the capability to
offer the same services throughout Telco's entire service area. Software
will only be needed in three host switches, which will be a significant
reduction from the fifteen switches operating at the present time.
Cash and Cash Equivalents
Telco had cash, cash equivalents, and temporary investments of
$24,666,000 and $24,552,000 at December 31, 1997 and 1996, respectively.
There were no short-term borrowings during 1997.
Net cash provided by operating activities for the year ended December
31, 1997, decreased to 62.6 million from 69.8 million during 1996 and
increased from 59.0 million in 1995. The 1997 decrease from 1996 was
primarily attributable to a $6.0 million increase in accounts receivable
and a 5.2 million decrease in accounts payable. These decreases were
offset by the 4.4 million increase in net income and a 1.6 million increase
in depreciation and amortization, a noncash expense. The 1996 increase
from 1995 was primarily attributable to an increase in net income of $29.7
million, a $9.9 million decrease in accounts receivable, an increase in
depreciation and amortization of $4.1 million and a $5.1 million decrease
in other liabilities. An extraordinary item of $16.5 million and a
restructuring charge of $21.2 million, both occurring in 1995, offset these
increases.
Net cash used for investing activities for the year ended December 31,
1997, decreased to $30.3 million from $31.3 million for the year ended
December 31,1996, which increased over the 1995 amount of $30.1 million.
The 1997 decrease was primarily due to decreased property and equipment
expenditures, offset by a decrease in net sale of temporary investments.
The 1996 increase was primarily due to an increase in net sale of temporary
investments, offset by a decrease in property and equipment expenditures.
Expenditures for property and equipment decreased to $34.0 million for
1997, compared to $37.0 million in 1996, and $39.4 million in 1995.
Net cash used in financing activities in the year ended December 31,
1997, totaled $29.2 million compared to $34.2 million in the year ended
December 31, 1996 and $32.7 million in 1995. The 1997 decrease was
primarily due to the receipt of $22.0 million in proceeds from the issuance
of notes payable and long-term debt.
COMPETITION AND REGULATORY ENVIRONMENT
See Competition and Regulatory Environment Section of Management's
Discussion and Analysis, pages 51-53 of 1997 Annual Report to Stockholders,
and as filed on the Company's Form 8-K dated March 20, 1998.
16
<PAGE>
YEAR 2000
See Year 2000 Section of Management's Discussion and Analysis of
Financial Condition and Results of Operations for the Company, page 53 of
1997 Annual Report to Stockholders, and as filed on the Company's Form 8-K
dated March 20, 1998. Since publication of the 1997 Annual Report to
Shareholders, further information regarding Year 2000 compliance has become
available. The current estimate of reprogramming costs is approximately
40,000 person hours at an approximate cost of $1.5 million. To date, 9,500
hours of labor have been completed. All switching equipment will be Year
2000 compliant without any significant cost to the Company. The estimated
costs are not expected to significantly affect operating results or the
financial condition of the Company in 1998 and 1999.
ACCOUNTING PRONOUNCEMENTS
See Accounting Pronouncements Section of Management's Discussion and
Analysis of Financial Condition and Results of Operations for the Company,
page 54 of 1997 Annual Report to Stockholders, and as filed on the
Company's Form 8-K dated March 20, 1998.
Item 8. Financial Statements and Supplementary Data
- ------
A. ALIANT COMMUNICATIONS INC.
See 1997 Annual Report to Stockholders, pages 16-42 and 55-59
for consolidated financial statements and notes to
consolidated financial statements, and as filed on the
Company's Form 8-K dated March 20, 1998.
See pages S-1 through S-9 herein for other required financial
statement schedules.
B. ALIANT COMMUNICATIONS CO.
See pages F-1 through F-25 herein for financial statements,
notes to financial statements, and other required financial
statement schedules.
Item 9. Changes In and Disagreements with Accountants on Accounting
- ------ and Financial Disclosure
None
17
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
- -------
Item 11. Executive Compensation
- -------
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -------
Item 13. Certain Relationships and Related Transactions
- -------
Information required under Items 10, 11, 12, and 13 is included
in the Registrant's Proxy Statement dated March 20, 1998, on pages 1
(commencing under the caption "Outstanding Shares and Voting Rights")
through 16, and page 17 (the first paragraph commencing under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance"). Such
information is incorporated herein by reference and applies to both the
Company and Telco.
Certain information regarding Executive Officers of the
Registrant required by Item 401 of Regulation S-K is included in Part I of
this Annual Report on Form 10-K in Item 4a.
18
<PAGE>
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:
Page(s)
in 1997 Annual
Report to Stockholders
----------------------
1. Financial Statements:
Independent Auditors' Report 16
Consolidated Balance Sheets, December 31,
1997 and 1996 17
Consolidated Statements of Earnings
Years ended December 31, 1997, 1996, and 1995 18
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997, 1996, and 1995 20
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996, and 1995 21
Notes to Consolidated Financial Statements,
December 31, 1997, 1996, and 1995 23-42
Management's Discussion and Analysis of Financial
Condition and Results of Operations 43-54
2. Financial Statement schedules required by Item 8 of this form.
Page(s)
in this Annual
Report Form 10-K
----------------
Independent Auditors' Report S-3
Schedule I - Condensed Financial Information of
Parent Company:
Balance Sheets - December 31, 1997 and 1996 S-4
Statements of Earnings - Years ended December 31,
1997, 1996, and 1995 S-5
Statements of Stockholders' Equity - Years ended
December 31, 1997, 1996, and 1995 S-6
Statements of Cash Flows - Years ended December 31,
1997, 1996, and 1995 S-7 & S-8
Schedule II - Valuation and Qualifying Accounts -
Years ended December 31, 1997, 1996, and 1995 S-9
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.
(b) Reports on Form 8-K
Current report on Form 8-K as filed on November 18, 1997, reporting
the Registrant's filing of an application with the NPSC proposing
several rate adjustments.
19
<PAGE>
Current report on Form 8-K as filed on December 19, 1997, reporting
the Registrant's announcement that it has entered into a definitive
agreement with 360 by which a wholly owned subsidiary of Aliant will
acquire 360's 50% ownership interest in Omaha Cellular General
Partnership (OCGP), subject to FCC approval.
Current report on Form 8-K as filed on March 20, 1998, reporting the
Registrant's consolidated balance sheets as of December 31, 1997 and
1996, 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, 1997, along with the Independent
Auditor's Report thereon of KPMG Peat Marwick. Also reported was the
Registrant's 1997 Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Current report on Form 8-K as filed on March 23, 1998, reporting the
Registrant's announcement that it intends to offer $100,000,000
aggregate principal amount of debt securities.
(c) Exhibits
Exhibit 3: Articles of Incorporation and By-Laws
(3.1) Company's Articles of Incorporation as amended
effective September 3, 1996 (incorporated by
reference to Exhibit 3(i) of the Company's
Quarterly Report on Form 10-Q for the quarter ended
ended June 30, 1996).
Telco's Certificate of Incorporation as amended
effective September 3, 1996 (incorporated by
reference to Exhibit 3(i) of Telco's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1996).
(3.2) Company By-Laws as amended November 19, 1997,
(incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-3, filed
February 23, 1998 [Reg. No. 333-46751]).
Telco By-Laws as amended November 19, 1997.
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).
20
<PAGE>
(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 former 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 ended 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 ended December 31,
1990).
(4.6) Credit agreement dated August 8, 1995, between the
Company and The Bank of Tokyo-Mitsubishi, Ltd.
filed herewith. The Registrant has in place other
credit facilities which, pursuant to Item
601(4)(iii)(A) of Regulation S-K, the Registrant is
not required to file. The Registrant undertakes
and agrees to furnish a copy of the agreements
relating to these credit facilities to the
Securities and Exchange Commission upon request.
(4.7) Form of Indenture between the Company and U.S. Bank
National Association (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement
on Form S-3, filed February 23, 1998 [Reg. No.
333-46751]).
Exhibit 10: Material Contracts
(10.1) The 1989 Stock and Incentive Plan, incorporated by
reference to Exhibit - Form S-8, File 33-39551,
effective March 22, 1991, and is incorporated
herein by this reference.
(10.2) A form of the Executive Benefit Plan agreement, as
amended through January 1, 1993, provided to the
executive officers and director-level managers of
the Company and its affiliates, and a form of the
Key Executive Employment and Severance Agreement
provided to the executive officers of the
Corporation and its affiliates on December 23,
1987, was filed as an exhibit to the Company's Form
10-K for the year ending December 31, 1992, and is
incorporated herein by reference.
Exhibit 13: Annual Report to Stockholders
Filed as an exhibit to this Report on Form 10-K and
incorporated as indicated herein by reference.
21
<PAGE>
Exhibit 21: Subsidiaries of the Registrant
The Company owns all the outstanding common stock of
Telco, Cellular, Systems, Prairie, Midwest, and Network.
See pages 48-51, 1997 Annual Report to Stockholders,
(Exhibit 13, filed with this report).
Exhibit 23: Accountants' Consent
Exhibit 24: Powers of Attorney
Exhibit 27: Financial Data Schedule
Aliant Communications Inc.
Aliant Communications Co.
(d) The required schedules are filed as part of Item 14(a)2 of this
report.
22
<PAGE>
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.
ALIANT COMMUNICATIONS INC. AND ALIANT COMMUNICATIONS CO.
By /s/ Robert L. Tyler Date March 31, 1998
-------------------------------------- --------------
Robert L. Tyler, Senior Vice President
and Chief Financial Officer
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
--------- ----- ----
Duane W. Acklie Director
William W. Cook, Jr. Director
Terry L. Fairfield Director
John Haessler Director
Charles R. Hermes Director March 31, 1998
Paul C. Schorr, III Director
William C. Smith Director
James W. Strand Director
Charles N. Wheatley Director By /s/ Michael J. Tavlin
Thomas C. Woods, III Director ----------------------
Lyn Wallin Ziegenbein Director Attorney-in-Fact
/s/ Frank H. Hilsabeck Principal Executive
---------------------- Officer and Director
Frank H. Hilsabeck
/s/ Robert L. Tyler Principal Financial
---------------------- Officer
Robert L. Tyler
/s/ Michael J. Tavlin Officer
----------------------
Michael J. Tavlin
<PAGE>
KPMG
ALIANT COMMUNICATIONS INC.
Independent Auditors' Report and Schedules
Form 10-K Securities and Exchange Commission
December 31, 1997, 1996 and 1995
(With Independent Auditors' Report Thereon)
S-1
<PAGE>
ALIANT COMMUNICATIONS INC. AND SUBSIDIARIES
Index to Schedules Filed
- --------------------------------------------------------------------------
Schedule
Independent Auditors' Report
Condensed Financial Information of Parent Company:
Balance Sheets - December 31, 1997 and 1996 I
Statements of Earnings - Years ended December 31,
1997, 1996 and 1995 I
Statements of Stockholders' Equity - Years ended
December 31, 1997, 1996 and 1995 I
Statements of Cash Flows - Years ended December 31,
1997, 1996 and 1995 I
Valuation and Qualifying Accounts - Years ended December 31,
1997, 1996 and 1995 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.
S-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Aliant Communications Inc.:
Under date of February 6, 1998, we reported on the consolidated balance
sheets of Aliant Communications Inc. and subsidiaries as of December 31,
1997 and 1996, 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, 1997, as contained in the 1997 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, 1997. 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 6, 1998
S-3
<PAGE>
<TABLE>
ALIANT COMMUNICATIONS INC. AND SUBSIDIARIES Schedule I
Balance Sheets
(Parent Company Only)
December 31, 1997 and 1996
<CAPTION>
1997 1996
(Dollars in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,982 127
Other current assets 15,641 9,069
------- -------
Total current assets 18,623 9,196
Investment in subsidiaries 190,930 168,251
Note receivable from subsidiary 47,728 42,502
Other assets 10,588 3,539
Goodwill, net of amortization 118,287 121,627
------- -------
$ 386,156 345,115
======= =======
Current liabilities:
Note payable $ 11,000 -
Current installments of long-term debt 8,000 4,000
Other current liabilities 13,456 12,751
------- -------
Total current liabilities 32,456 16,751
Deferred credits 702 797
Long-term debt 50,000 49,000
Stockholders' equity:
Common stock 9,144 9,240
Premium on common stock 95,748 102,257
Retained earnings 203,064 174,172
Treasury stock (4,958) (7,102)
------- -------
Total stockholders' equity 302,998 278,567
------- -------
$ 386,156 345,115
======= =======
</TABLE>
(Continued)
S-4
<PAGE>
<TABLE>
ALIANT COMMUNICATIONS INC. AND SUBSIDIARIES Schedule I, cont.
Statements of Earnings
(Parent Company Only)
Years ended December 31, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C>
Income:
Equity in earnings of subsidiaries $ 55,179 47,257 11,662
Interest income:
Subsidiary 5,226 4,654 4,144
Other investments 1,597 775 2,190
------ ------ ------
62,002 52,686 17,996
Interest expense and other deductions 8,627 7,497 4,229
------ ------ ------
Earnings before income taxes 53,375 45,189 13,767
Income tax expense 561 460 1,479
------ ------ ------
Net earnings $ 52,814 44,729 12,288
====== ====== ======
</TABLE>
(Continued)
S-5
<PAGE>
<TABLE>
ALIANT COMMUNICATIONS INC. AND SUBSIDIARIES Schedule I, cont.
Statements of Stockholders' Equity
(Parent Company Only)
Years ended December 31, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C>
Common stock:
Beginning of year $ 9,240 9,312 8,245
Issuance of common stock - - 1,067
Purchase of common stock (96) (72) -
------- ------- -------
End of year 9,144 9,240 9,312
-------- ------- -------
Premium on common stock:
Beginning of year 102,257 106,822 37,481
Issuance of common stock - - 69,341
Purchase of common stock (6,509) (4,565) -
------- ------- -------
End of year 95,748 102,257 106,822
------- ------- -------
Retained earnings:
Beginning of year 174,172 151,754 159,143
Net earnings 52,814 44,729 12,288
Dividends declared (23,922) (22,311) (19,677)
------- ------- -------
End of year 203,064 174,172 151,754
------- ------- -------
Treasury stock:
Beginning of year (7,102) (8,343) (8,434)
Net sales 2,144 1,241 91
------- ------- -------
End of year (4,958) (7,102) (8,343)
------- ------- -------
Total stockholders' equity $ 302,998 278,567 259,545
======= ======= =======
</TABLE>
(Continued)
S-6
<PAGE>
<TABLE>
ALIANT COMMUNICATIONS INC. AND SUBSIDIARIES Schedule I, cont.
Statements of Cash Flows
(Parent Company Only)
Years ended December 31, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 52,814 44,729 12,288
------ ------ ------
Adjustments to reconcile net earnings to
net cash used for operating activities:
Increase in note receivable (5,226) (4,654) (4,144)
Amortization 3,340 3,168 1,570
Equity in earnings of subsidiaries (55,179) (47,257) (11,662)
Restructuring charge - - 8
Changes in assets and liabilities
resulting from operating activities:
Other current assets (5,322) 199 (616)
Other current liabilities 380 2,623 1,450
Deferred credits (95) (140) 167
------ ------ ------
Total adjustments (62,102) (46,061) (13,227)
------ ------ ------
Net cash used for operating
activities (9,288) (1,332) (939)
------ ------ ------
Cash flows from investing activities:
Net sales of temporary investments - 1,600 2,680
Net sales (purchases) of investments
and other assets (7,049) 224 (830)
Purchase of Aliant Cellular Inc., net - - (1,606)
------ ------ ------
Net cash provided by investing
activities (7,049) 1,824 244
------ ------ ------
Cash flows from financing activities:
Dividends to stockholders (23,597) (21,978) (18,713)
Proceeds from long-term debt 11,000 - -
Proceeds from note payable 11,000 - -
Payments on notes payable - - (6,000)
Payments on long-term debt (6,000) (7,000) -
Net sales (purchases) of common and
treasury stock (4,461) (3,396) 91
Dividends from subsidiaries 31,250 28,250 26,500
------ ------ ------
Net cash provided by (used for)
financing activities 19,192 (4,124) 1,878
------- ------ ------
Increase (decrease) in cash and
cash equivalents 2,855 (3,632) 1,183
Cash and cash equivalents at beginning of year 127 3,759 2,576
------ ------ ------
(Continued)
S-7
<PAGE>
ALIANT COMMUNICATIONS INC. AND SUBSIDIARIES Schedule I,cont.
Statements of Cash Flows, Continued
(Parent Company Only)
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
(Dollars in thousands)
Cash and cash equivalents at end of year $ 2,982 127 3,759
====== ====== ======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 3,675 3,491 2,182
===== ===== =====
Income taxes $ 729 223 1,892
===== ===== =====
The Company consummated the acquisition of Aliant Cellular Inc. (formerly known as
Nebraska Cellular Telephone Corporation) during 1995. In connection with the
acquisition, the following assets were acquired, liabilities assumed and long-term
debt and common stock issued:
(Dollars in thousands)
Property and equipment $ 28,101
Excess of cost of net assets acquired 124,609
Long-term debt assumed (17,890)
Other assets and liabilities 3,476
Prior investment in Nebraska Cellular
Telephone Corporation (6,282)
Issuance of long-term debt (60,000)
Common stock issued (70,408)
-------
Decrease in cash $ 1,606
=======
</TABLE>
S-8
<PAGE>
<TABLE>
ALIANT COMMUNICATIONS INC. AND SUBSIDIARIES Schedule II
Valuation and Qualifying Accounts
Years ended December 31, 1997, 1996 and 1995
<CAPTION>
Addition
Additions due to Deductions
Balance at charged to purchase from Balance
beginning costs and of Aliant allowance at end
Description of year expenses Cellular (note) of year
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997,
Allowance deducted from
asset accounts, allowance
for doubtful receivables $1,015 960 - 1,348 627
===== ===== === ===== =====
Year ended December 31, 1996,
Allowance deducted from
asset accounts, allowance
for doubtful receivables $ 754 1,175 - 914 1,015
===== ===== === ===== =====
Year ended December 31, 1995,
Allowance deducted from
asset accounts, allowance
for doubtful receivables $ 459 820 272 797 754
===== ===== === ===== =====
Note: Customers' accounts written-off, net of recoveries.
</TABLE>
S-9
<PAGE>
KPMG
ALIANT COMMUNICATIONS CO.
Financial Statements
December 31, 1997, 1996 and 1995
(With Independent Auditors' Report Thereon)
F-1
<PAGE>
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
Aliant Communications Co.:
We have audited the accompanying balance sheets of Aliant Communications
Co. as of December 31, 1997 and 1996, and the related statements of
earnings, stockholder's equity and cash flows for each of the years in the
three-year period ended December 31, 1997. 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 Aliant Communications
Co. at December 31, 1997 and 1996 and the results of its operations and its
cash flows for each of the years in the three-year period ended December
31, 1997, in conformity with generally accepted accounting principles.
As discussed in note 2 to the financial statements, the Company
discontinued applying the provisions of Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 71, "Accounting
for the Effects of Certain Types of Regulation," in 1995.
/s/ KPMG Peat Marwick LLP
February 6, 1998
F-2
<PAGE>
<TABLE>
ALIANT COMMUNICATIONS CO.
Balance Sheets
December 31, 1997 and 1996
<CAPTION>
Assets 1997 1996
(Dollars in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 20,973 17,865
Temporary investments, at cost 3,693 6,687
Receivables, net of allowance for doubtful
receivables of $335,000 in 1997 and $159,000 in 1996 30,045 26,966
Materials, supplies and other assets 7,497 5,398
Due from affiliated company 465 1,987
------- -------
Total current assets 62,673 58,903
------- -------
Property and equipment 523,106 496,814
Less accumulated depreciation and amortization 306,607 274,909
------- -------
Net property and equipment 216,499 221,905
Investments and other assets 471 409
Deferred income taxes 351 -
Deferred charges 16,761 12,427
------- -------
$ 296,755 293,644
======= =======
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable and accrued expenses 37,631 43,536
Income taxes payable 984 3,374
Dividends payable 8,056 7,056
Advance billings and customer deposits 8,407 7,056
------- -------
Total current liabilities 55,078 61,022
------- -------
Deferred credits:
Unamortized investment tax credits 1,209 1,929
Deferred income taxes - 1,310
Other 53,348 51,937
------- -------
Total deferred credits 54,557 55,176
Long-term debt 44,000 44,000
Preferred stock, 5%, redeemable 4,499 4,499
Stockholder's equity 138,621 128,947
------- -------
$ 296,755 293,644
======= =======
See accompanying notes to financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
ALIANT COMMUNICATIONS CO.
Statements of Earnings
Years ended December 31, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C>
Operating revenues:
Telephone revenues:
Local network services $ 80,825 74,878 71,491
Access services 57,621 56,746 53,653
Long distance services 10,492 12,260 13,376
Other wireline communication services 29,476 25,105 23,291
------- ------- -------
Total telephone 178,414 168,989 161,811
Wireless communications services 22,507 18,710 14,060
Telephone equipment sales and services 6,772 6,907 7,432
------- ------- -------
Total operating revenues 207,693 194,606 183,303
------- ------- -------
Operating expenses:
Depreciation 38,635 36,989 32,859
Other operating expenses 96,383 93,105 85,755
Restructuring charges - - 21,215
Taxes, other than payroll and income 3,579 3,396 3,125
------- ------- -------
Total operating expenses 138,597 133,490 142,954
------- ------- -------
Operating income 69,096 61,116 40,349
------- ------- -------
Non-operating income and expense:
Income from interest and other investments 1,585 1,736 3,395
Interest expense and other deductions 6,040 5,271 7,766
------- ------- -------
Net nonoperating expense 4,455 3,535 4,371
------- ------- -------
Income before income taxes and
extraordinary item 64,641 57,581 35,978
Income taxes 24,742 22,053 13,653
------- ------- -------
Income before extraordinary item 39,899 35,528 22,325
Extraordinary item - - (16,516)
------- ------- -------
Net income 39,899 35,528 5,809
Preferred dividends 225 225 225
------- ------- -------
Earnings available for common shares $ 39,674 35,303 5,584
======= ======= =======
See accompanying notes to financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
ALIANT COMMUNICATIONS CO.
Statements of Stockholder's Equity
Years ended December 31, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C>
Stockholder's equity:
Common stock of $3.125 par value per share.
Authorized 10,000 shares; issued
1,000 shares $ 3 3 3
------- ------- -------
Premium on common stock 32,492 32,492 32,492
------- ------- -------
Retained earnings:
Beginning of year 96,452 87,649 106,565
Net income 39,899 35,528 5,809
Dividends declared:
5% cumulative preferred - $5.00 per share (225) (225) (225)
Common - $30,000 per share in 1997,
$26,500 per share in 1996 and
$24,500 per share in 1995 (30,000) (26,500) (24,500)
------- ------- -------
End of year 106,126 96,452 87,649
------- ------- -------
Total stockholder's equity $ 138,621 128,947 120,144
======= ======= =======
See accompanying notes to financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
ALIANT COMMUNICATIONS CO.
Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 39,899 35,528 5,809
------ ------ ------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 38,666 37,020 32,891
Extraordinary item - - 16,516
Restructuring changes - - 21,215
Deferred income taxes (1,661) (3,459) (6,949)
Changes in assets and liabilities resulting
from operating activities:
Receivables (3,079) 2,911 (7,006)
Other assets (4,938) (4,343) (3,438)
Accounts payable and accrued expenses (5,905) (692) 2,231
Other liabilities (347) 2,879 (2,226)
------ ------ ------
Total adjustments 22,736 34,316 53,234
------ ------ ------
Net cash provided by operating activities 62,635 69,844 59,043
------ ------ ------
Cash flows used for investing activities:
Expenditures for property and equipment (34,017) (36,954) (39,384)
Net salvage on retirements 787 939 2,114
------ ------ ------
Net capital additions (33,230) (36,015) (37,270)
Purchases of investments and other assets, net (66) (73) (1,415)
Purchases of temporary investments (1,331) (10,175) (4,417)
Maturities and sales of temporary investments 4,325 15,013 13,010
------ ------ ------
Net cash used for investing activities (30,302) (31,250) (30,092)
------ ------ ------
Cash flows used for financing activities:
Dividends to stockholders (29,225) (26,225) (23,725)
Payments on note payable to bank - (8,000) (9,000)
------ ------ ------
Net cash used in financing activities (29,225) (34,225) (32,725)
------ ------ ------
Net increase (decrease) in cash and cash
equivalents 3,108 4,369 (3,774)
Cash and cash equivalents, beginning of year 17,865 13,496 17,270
------ ------ ------
Cash and cash equivalents, end of year $ 20,973 17,865 13,496
====== ====== ======
(CONTINUED)
F-6
<PAGE>
ALIANT COMMUNICATIONS CO.
Statements of Cash Flows (Cont'd)
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
(Dollars in thousands)
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 4,417 4,537 5,349
====== ====== ======
Income taxes $ 29,517 22,446 23,431
====== ====== ======
See accompanying notes to financial statements.
</TABLE>
F-7
<PAGE>
ALIANT COMMUNICATIONS CO.
Notes to Financial Statements
December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
General
All of the outstanding common stock of Aliant Communications Co. (the
Company) is owned by Aliant Communications Inc., (the Parent). The Company
provides local and long-distance telephone service in 22 southeastern
counties of Nebraska and cellular telecommunication service in the Lincoln,
Nebraska Metropolitan Statistical Area.
Effective December 31, 1995, the Company discontinued accounting for
its operations under the provisions of Statement of Financial Accounting
Standards (FAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation" (see note 2).
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. 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. The
Company capitalizes estimated costs of debt and equity funds used for
construction purposes. No significant costs were capitalized during the
three years ended December 31, 1997. Depreciation on property and
equipment is determined by using the straight-line method based on
estimated service and remaining lives.
Income Taxes
The Company files a consolidated income tax return with the Parent and
the Parent's other subsidiaries. The Company's share of the consolidated
tax liability is determined by computing the Company's liability as if a
separate return had been filed.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carry forwards. Deferred tax
assets and liabilities are measured using the enacted tax rates expected to
apply to taxable income in the years in which temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Investment tax credits related to telephone property and equipment
were deferred and are being taken into income over the estimated useful
lives of such property and equipment.
F-8
<PAGE>
Retirement Benefits
The Company has a noncontributory qualified defined benefit pension
plan which covers substantially all employees of the Parent and its
subsidiaries. The Parent also has a qualified defined contribution profit-
sharing plan which covers substantially all employees. Costs of the
pension and profit-sharing plans are funded as accrued.
Revenue Recognition
Telephone and wireless revenues are recognized when earned and are
primarily derived from usage of the Company's network and facilities. For
all other operations, revenue is recognized when products are delivered or
services are rendered to customers.
Statements of Cash Flows
For purposes of the 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
$17.5 million and $13.2 million at December 31, 1997 and 1996,
respectively, consist of short-term fixed income securities.
Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
(2) Extraordinary Item - Discontinuance of Regulatory Accounting
Principles
FAS No. 71 generally applies to regulated companies that meet certain
requirements, including a requirement that a company be able to recover its
costs by charging its customers rates prescribed by regulators and that
competition will not threaten the recovery of those costs. Having achieved
price regulation and recognizing potential increased competition, the
Company concluded, in the fourth quarter of 1995, that the principles
prescribed by FAS No. 71 were no longer applicable.
As a result of the Company's conclusion, a noncash, extraordinary
charge of approximately $16.5 million, net of an income tax benefit of
approximately $9.4 million, was recorded in December 1995. The following
table summarizes the extraordinary charge:
Pre-tax After-tax
(Dollars in thousands)
Increase to accumulated depreciation $ 22,069 13,305
Elimination of net regulatory assets 3,799 3,211
------ ------
Total extraordinary charge $ 25,868 16,516
====== ======
F-9
<PAGE>
The increase to accumulated depreciation of approximately $13.3
million after-tax was necessary as the estimated useful lives prescribed by
regulators were not appropriate considering the rapid rate of technological
change in the telecommunications industry. The increase to accumulated
depreciation was determined by performing a study which identified
inadequate accumulated depreciation levels by individual asset categories.
The estimated useful lives of these individual asset categories were
shortened to more closely reflect economically realistic lives.
On adoption of FAS No. 109, "Accounting for Income Taxes," in 1993,
adjustments were required to adjust excess deferred tax levels to the
currently enacted statutory rates as regulatory liabilities and regulatory
assets were recognized on the cumulative amount of tax benefits previously
flowed through to ratepayers. These tax-related regulatory assets and
liabilities were grossed up for the tax effect anticipated when collected
at future rates. At the time the application of FAS No. 71 was
discontinued, the tax-related regulatory assets and regulatory liabilities
were eliminated and the related deferred taxes were adjusted to reflect
application of FAS No. 109 consistent with unregulated entities.
(3) Property and Equipment
The table below summarizes the property and equipment at December 31,
1997 and 1996:
1997 1996
------------------- -------------------
Accumulated Accumulated
depreciation depreciation
and and
Classification Cost amortization Cost amortization
(Dollars in thousands)
Land $ 2,794 - 2,794 -
Buildings 28,299 13,025 27,859 12,242
Equipment 473,280 287,914 449,177 257,751
Motor vehicles and other
work equipment 12,822 5,668 11,842 4,916
------- ------- ------- -------
Total in service 517,195 306,607 491,672 274,909
Under construction 5,911 - 5,142 -
------- ------- ------- -------
$ 523,106 306,607 496,814 274,909
======= ======= ======= =======
The composite depreciation rate for property and equipment was 7.7% in
1997, 7.8% in 1996 and 7.2% in 1995. The rate does not include the
extraordinary charge in 1995.
Construction expenditures for 1998 are expected to approximate $52.3
million. The Company anticipates funding construction from operating
activities, existing temporary investments, and debt financings.
Substantially all telephone property and equipment, with the exception
of motor vehicles, is mortgaged or pledged to secure the first mortgage
bonds. Under certain circumstances, as defined in the bond indenture, all
assets become subject to the lien of the indenture.
F-10
<PAGE>
(4) Temporary Investments
All of the Company's investments in debt and equity securities are
classified as available for sale. The Company does not invest in
securities classified as held to maturity or trading securities. The table
on the following page sets forth certain fair value information
Gross unrealized Estimated
Amortized ---------------- market
1997 cost Gains Losses value
(Dollars in thousands)
U. S. government obligations $ 800 13 - 813
U. S. government agency
obligations 2,467 36 (31) 2,472
Corporate debt securities 426 2 (19) 409
------ --- --- ------
$ 3,693 51 (50) 3,694
===== === === =====
1996
U. S. government obligations 2,663 14 (12) 2,665
U. S. government agency
obligations 3,400 32 (60) 3,372
Corporate debt securities 624 15 (32) 607
------ --- --- ------
$ 6,687 61 (104) 6,644
====== === === ======
The net unrealized gain (loss) on investments available for sale is
not reported separately as a component of stockholder's equity due to its
insignificance to the balance sheet at December 31, 1997 and 1996.
The amortized cost and estimated market value of debt securities at
December 31, 1997 and 1996, 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.
1997 1996
-------------------- --------------------
Estimated Estimated
Amortized market Amortized market
cost value cost value
(Dollars in thousands)
Due after three months
through five years $ 1,356 1,379 1,182 1,192
Due after five years
through ten years 1,827 1,792 3,801 3,725
Thereafter 510 523 1,704 1,727
------ ------ ------ ------
$ 3,693 3,694 6,687 6,644
====== ====== ====== ======
The gross realized gains and losses on the sale of securities were
insignificant to the financial statements for the years ended December 31,
1997, 1996 and 1995.
F-11
<PAGE>
(5) Redeemable Preferred Stock
The Company has 5% preferred stock with $100 par value per share. The
preferred stock is cumulative, nonvoting, nonconvertible and redeemable
solely at the Company'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, 1997, 1996 and 1995.
(6) Dividend Reinvestment and Stock Purchase Plan
The Company's parent has an employee and stockholder dividend
reinvestment and stock purchase plan (Plan) which is available to the
Company's employees.
Stock for the 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
nonemployee 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.
Expenses incurred by the Company related to the Plan were
approximately $24,000, $29,000 and $28,700 in 1997, 1996 and 1995,
respectively.
(7) Long-Term Debt
Long-term debt at December 31, 1997 and 1996 consists of 9.91% First
Mortgage Bonds of $44 million. 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 the Company to its parent. In
management's opinion, the Company has complied with all such requirements.
At December 31, 1997, approximately $34.4 million of retained earnings were
available for the payment of cash dividends to the Parent under the most
restrictive provisions of such agreements.
F-12
<PAGE>
(8) Income Taxes
The components of income taxes from operations before the
extraordinary item are shown below:
1997 1996 1995
(Dollars in thousands)
Current:
Federal $ 22,173 21,541 19,130
State 4,950 4,738 2,484
------ ------ ------
Total current income tax
expense 27,123 26,279 21,614
------ ------ ------
Investment tax credits (720) (767) (1,136)
------ ------ ------
Deferred:
Federal (1,359) (2,858) (5,883)
State (302) (601) (942)
------ ------ ------
Total deferred income tax
expense (benefit) (1,661) (3,459) (6,825)
------ ------ ------
Total income tax expense $ 24,742 22,053 13,653
====== ====== ======
Shown below is a reconciliation between the statutory federal income
tax rate and the Company's effective tax rate for each of the years in the
three-year period ended December 31, 1997:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
% of % of % of
pretax pretax pretax
Amount income Amount income Amount income
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Computed "expected" tax
expense $ 22,624 35.0% $ 20,153 35.0% $ 12,592 35.0%
State income tax expense,
net of federal income tax
benefit 3,022 4.7 2,689 4.7 2,042 5.7
Nontaxable interest income (123) (.2) (59) (.1) (103) (.3)
Amortization of regulatory
deferred charge - - - - 1,914 5.3
Amortization of regulatory
deferred liabilities - - - - (1,790) (5.0)
Amortization of investment tax
credits (720) (1.1) (767) (1.3) (1,136) (3.2)
Other (61) (.1) 37 .1 134 .5
------ ---- ------ ---- ------ ----
Actual income tax expense $ 24,742 38.3% 22,053 38.4% $ 13,653 38.0%
====== ==== ====== ==== ====== ====
</TABLE>
F-13
<PAGE>
Shown below are the significant components of deferred income tax
benefit attributable to income from operations for the years ended December
31, 1997, 1996 and 1995:
1997 1996 1995
(Dollars in thousands)
Deferred tax expense (benefit)
(exclusive of the effects of
amortization below) $ (1,661) (3,459) (6,949)
Amortization of regulatory
deferred charges - - 1,914
Amortization of regulatory
deferred liabilities - - (1,790)
----- ----- -----
Deferred income tax expense
(benefit) $ (1,661) (3,459) (6,825)
===== ===== =====
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1997 and 1996 are presented on the following page.
1997 1996
(Dollars in thousands)
Deferred tax assets:
Accumulated postretirement benefit cost $ 18,802 18,251
Voluntary early retirement liability 5,928 6,337
Other 1,950 2,239
------ ------
Total gross deferred tax assets 26,680 26,827
Less valuation allowance - -
------ ------
Net deferred tax assets 26,680 26,827
------ ------
Deferred tax liabilities:
Plant and equipment, principally due to
depreciation differences 26,192 27,867
Other 137 270
------ ------
Total gross deferred tax liabilities 26,329 28,137
------ ------
Net deferred tax liabilities $ 351 (1,310)
====== ======
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, 1997 and 1996 was necessary.
(9) Benefit Plans
The Company has a noncontributory defined benefit pension plan
covering substantially all employees with at least one year of service.
Other companies affiliated with the Company through common ownership also
participate in the plan. Annual contributions to the plan are designed to
fund current and past service costs as determined by independent actuarial
evaluations.
F-14
<PAGE>
The net periodic pension credit for all affiliated companies amounted
to $1,029,000, $608,000 and $1,389,000 in 1997, 1996 and 1995,
respectively. The net periodic pension credit is comprised as shown below.
The components of pension costs for individual affiliates are not
available.
1997 1996 1995
(Dollars in thousands)
Service cost - benefits earned
during the period $ 3,758 3,538 3,628
Interest cost on projected benefit
obligations 11,729 11,338 9,286
Actual return on plan assets (36,657) (19,287) (37,696)
Amortization and deferrals, net 20,141 3,803 23,393)
------ ------ ------
Net periodic pension credit $ (1,029) (608) (1,389)
====== ====== ======
The table below summarizes the funded status of the pension plan at
December 31, 1997 and 1996:
1997 1996
(Dollars in thousands)
Actuarial present value of benefit pension
obligation:
Vested $ 136,571 134,110
Nonvested 17,674 18,357
------- -------
Accumulated benefit pension obligation $ 154,245 152,467
======= =======
Projected benefit pension obligation $ 174,077 169,759
Less plan assets at market value 243,685 218,507
------- -------
Excess of plan assets over projected
benefit pension obligation 69,608 48,748
------- -------
Unrecognized prior service cost 6,486 7,065
Unrecognized net gain (84,233) (63,548)
Unrecognized net asset being recognized over
15.74 years (6,790) (8,223)
------- ------
Accrued pension cost $ (14,929) (15,958)
======= =======
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 were as follows:
1997 and 1996 1995
Discount rate 7.1% 7.1%
Rate of salary progression 5.5 6.0
Expected long-term rate of return on assets 8.0 8.0
F-15
<PAGE>
In addition to the defined benefit pension plan, the Parent has a
defined contribution profit-sharing plan which covers employees of the
Company who have completed one year of service. Union-eligible employees
became eligible to participate in the plan beginning January 1, 1997.
Participants may elect to deposit a maximum of 15% of their wages up to
certain limits. The Company matches 25% of the nonunion-eligible
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 nonunion-eligible
participant's wage. The Company's matching contributions and employee
stock ownership fund contributions are used to acquire common stock of the
Parent. The Company's combined contributions totaled $560,000, $531,700
and $556,300 for 1997, 1996 and 1995, respectively.
In July 1995, the Company announced its decision to reduce its
operator services work force from 140 to approximately 50 employees by the
end of 1995. The remaining work force handles the Company's long distance
operator service needs. The Company offered retirement and separation
incentives along with out-placement services to those employees affected by
the work force adjustment. As a result, the Company recognized a
restructuring charge of $1.5 million. The charge reduced the Company's
pension asset by $1.1 million for pension enhancements. The charge
included severance payments of approximately $400,000.
In addition, in November 1995, the Company announced its plans to
reduce its existing work force by offering a voluntary early retirement
program to eligible employees. The eligible employees were both management
and nonmanagement employees. The Company implemented an enhancement to the
Company's pension plan by adding five years to both the age and net
credited service for eligible employees. The program also provided for the
employees to receive a lump-sum payment and a supplemental monthly income
payment in addition to their normal pension. As a result of 319 employees
accepting this voluntary early retirement offer, the Company recorded a
reduction to its pension asset and recognized a restructuring charge of
$19.7 million at December 31, 1995. The charge included pension
enhancements of $22.7 million and curtailment gains of $3.0 million.
(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
fifteen years of service with normal or early retirement. The Company
accounts for these benefits during the active employment of the
participants.
F-16
<PAGE>
The table below presents the plan's status reconciled with amounts
recognized in the Company's balance sheet at December 31, 1997 and 1996.
1997 1996
(Dollars in thousands)
Accumulated postretirement benefit
obligation:
Retirees $ 40,903 33,212
Fully eligible active plan participants 14,119 11,929
Other active plan participants 6,175 6,677
------ ------
61,197 51,818
Unrecognized prior service cost (1,422) (1,531)
Unrecognized net loss (13,482) (5,324)
------ ------
Accrued postretirement benefit cost $ 46,293 44,963
====== ======
Net periodic postretirement benefit costs for the years ended December
31, 1997, 1996 and 1995 include the following components:
1997 1996 1995
(Dollars in thousands)
Service cost $ 514 458 358
Interest cost 4,017 3,961 3,862
Net deferral and amortization 118 140 206
----- ----- -----
Net periodic postretirement
benefit costs $ 4,649 4,559 4,426
===== ===== =====
For purposes of measuring the benefit obligation, the following
assumptions were used:
1997 1996
Discount rate 8.0% 8.0%
Health care cost trend rate 10.3 10.8
==== ====
For purposes of measuring the benefit cost, the following assumptions
were used:
1997 1996 1995
Discount rate 8.0% 8.0% 8.0%
Health care cost trend rate 10.7 11.3 11.7
====
This health care cost trend rate of increase is 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 $177,000 and increase the accumulated postretirement benefit
obligation by approximately $2.2 million.
F-17
<PAGE>
(11) Stock and Incentive Plan
The Parent has adopted 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 of the Company and its affiliates conditioned
upon the Parent and its subsidiaries 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 1990
options, $12.75 for the 1992 options, $16.50 for the 1995 options, $16.75
for the 1996 options and $19.75 for the 1997 options. The exercise price
of a stock option may be paid in cash, shares of the Parent's common stock
or a combination of cash and shares.
Stock option activity under the plan is summarized below:
1997 1996 1995
Outstanding at January 1 195,337 146,412 100,150
Granted 46,750 58,400 53,450
Exercised (90,237) (9,475) (3,100)
Canceled (3,763) - (4,088)
------- ------- -------
Outstanding at December 31 148,087 195,337 146,412
======= ======= =======
Exercisable at December 31 12,682 92,237 98,412
======= ======= =======
Prior to January 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock
exceeded the exercise price. On January 1, 1996, the Company adopted FAS
No. 123, "Accounting for Stock-Based Compensation," which permits
entities to recognize as expense over the vesting period the fair value of
all stock-based awards on the date of grant. Alternatively, FAS No. 123
also allows entities to continue to apply the provisions of APB Opinion No.
25 and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years
as if the fair-value-based method defined in FAS No. 123 had been applied.
The Company has elected to continue to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosure provisions of FAS No. 123.
The per share weighted-average fair value of stock options granted
during 1997, 1996 and 1995 was $14.24, $4.44 and $7.45, respectively on the
date of grant using the Black Scholes option-pricing model with the
following weighted-average assumptions:
1997 1996 1995
Expected dividend yield 2.17% 3.59% 2.70%
Risk-free interest rate 5.70% 6.41% 5.36%
Expected volatility factor 28.30% 27.00% 27.50%
Expected life in years 4.90 5.75 5.45
==== ==== ====
F-18
<PAGE>
Since the Company applies APB Opinion No. 25 in accounting for its
plan, no compensation cost has been recognized for its stock options in the
financial statements. Had the Company recorded compensation cost based on
the fair value at the grant date for its stock options under FAS No. 123,
the Company's net income for 1997, 1996 and 1995 would have been reduced by
approximately $22,000, $14,000 and $7,000, respectively.
Pro forma net income reflects only options granted in 1997 and 1996.
Therefore, the full impact of calculating compensation cost for stock
options under FAS No. 123 is not reflected in the pro forma net income
amounts presented above because compensation cost is reflected over the
options' vesting period of four years for the 1997, 1996 and 1995 options.
Compensation cost for options granted prior to January 1, 1995 is not
considered.
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 the Parent's stock on the date the SAR is exercised. No
SARs have been issued under the plan.
In addition, 7,974 shares, 8,867 shares and 10,836 shares of
restricted stock were awarded from stock purchased on the open market by
the Parent during 1997, 1996 and 1995, 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 1997, 1996 and 1995 net income for cash and
restricted stock awards were $342,000, $222,000 and $307,000, respectively.
Pursuant to the plan, 2,000,000 shares of the Parent's common stock are
reserved for issuance under this plan.
(12) Related Party Transactions
The Company had sales to Aliant Systems Inc., a subsidiary of the
Parent, for access and billing services of approximately $4,393,000 in
1997, $4,209,000 in 1996 and $4,342,000 in 1995.
F-19
<PAGE>
(13) Quarterly Financial Information (Unaudited)
First Second Third Fourth
1997 quarter quarter quarter quarter Total
(Dollars in thousands)
Operating revenues $ 50,389 50,917 52,888 53,499 207,693
====== ====== ====== ====== =======
Net income $ 9,332 9,540 10,502 10,525 39,899
====== ====== ====== ====== ======
1996
Operating revenues $ 47,770 48,779 48,405 49,652 194,606
====== ====== ====== ====== =======
Net income $ 8,414 9,485 8,996 8,633 35,528
====== ====== ====== ====== ======
(14) Major Customer
The Company derives significant revenues from AT&T principally from
network access and billing and collecting service. For the years ended
1997, 1996 and 1995, the Company recognized revenue of $22,147,000,
$22,206,000 and $27,808,000, respectively. This represented approximately
10.7%, 11.4% and 15.2% of revenues for the years ended 1997, 1996 and 1995,
respectively. No other customer accounted for more than 10% of revenues.
(15) Disclosures About the Fair Value of Financial Instruments
Cash and Cash Equivalents, Investments and Other
Assets, Receivables and Accounts Payable
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 4 for the estimated fair value of
temporary investments.
Long-Term Debt
The fair value of the Company's long-term debt instrument is based on
the amount of future cash flows associated with the instrument discounted
using the Company's current borrowing rate on similar debt instruments of
comparable maturity. The long-term debt has a carrying value of $44
million at December 31, 1997 and 1996 and an estimated fair value of $48.1
million and $48.6 million at December 31, 1997 and 1996, respectively.
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.
F-20
<PAGE>
(16) Commitment
The Company entered into a purchase agreement during 1997 for the
purchase of new landline equipment over the next five years commencing the
first quarter of 1998. The aggregate cash payments for each of the five
years subsequent to December 31, 1997 approximate $7.4 million; $7.7
million; $2.0 million; $3.9 million; and $3.0 million, respectively. The
Company anticipates funding this purchase from operations and debt
financings.
F-21
<PAGE>
KPMG
ALIANT COMMUNICATIONS CO.
Independent Auditors' Report and Schedules
Form 10-K Securities and Exchange Commission
December 31, 1997, 1996 and 1995
(With Independent Auditors' Report Thereon)
F-22
<PAGE>
ALIANT COMMUNICATIONS CO.
Index to Schedule Filed
- --------------------------------------------------------------------------
Schedule
Independent Auditors' Report
Valuation and Qualifying Accounts - Years ended
December 31, 1997, 1996 and 1995 II
All other schedules are omitted because they are not applicable or the
information required is immaterial or is presented within the financial
statements and notes thereto.
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Aliant Communications Co.:
Under date of February 6, 1998, we reported on the balance sheets of Aliant
Communications Co. as of December 31, 1997 and 1996, and the related
statements of earnings, stockholder's equity and cash flows for each of the
years in the three-year period ended December 31, 1997. These financial
statements and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year ended December 31, 1997. In
connection with our audits of the aforementioned financial statements, we
also audited the related financial statement schedule as listed in the
accompanying index. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our
audits.
In our opinion, this financial statement schedule, when considered in
relation to the basic 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 6, 1998
F-24
<PAGE>
ALIANT COMMUNICATIONS CO. Schedule II
Valuation and Qualifying Accounts
Years ended December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------
Additions Deductions
Balance at charged to from Balance
beginning costs and allowance at end
Description of year expenses (note) of year
(Dollars in thousands)
Year ended December 31, 1997,
Allowance deducted from asset
accounts, allowance for
doubtful receivables $ 159 616 440 335
=== === === ===
Year ended December 31, 1996
Allowance deducted from asset
accounts, allowance for
doubtful receivables $ 155 739 735 159
=== === === ===
Year ended December 31, 1995
Allowance deducted from asset
accounts, allowance for
doubtful receivables $ 192 684 721 155
=== === === ===
Note: Customers' accounts written-off, net of recoveries.
F-25
<PAGE>
KPMG
ALIANT COMMUNICATIONS INC.
EMPLOYEE AND STOCKHOLDER DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLAN
Financial Statements Form 11-K
Securities and Exchange Commission
December 31, 1997, 1996 and 1995
(With Independent Auditors' Report Thereon)
<PAGE>
ALIANT COMMUNICATIONS INC.
EMPLOYEE AND STOCKHOLDER DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLAN
Index to Financial Statements
- --------------------------------------------------------------------------
Independent Auditors' Report
Statements of Financial Condition - December 31, 1997 and 1996
Statements of Revenues and Common Stock Purchases -
Years ended December 31, 1997, 1996 and 1995
Notes to Financial Statements - December 31, 1997, 1996 and 1995
All schedules are omitted because they are not applicable.
<PAGE>
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
Aliant Communications Inc.:
We have audited the financial statements of the Aliant Communications Inc.
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 the Aliant
Communications Inc. Employee and Stockholder Dividend Reinvestment and
Stock Purchase Plan at December 31, 1997 and 1996, and its revenues and
common stock purchases for each of the years in the three-year period ended
December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Lincoln, Nebraska
March 10, 1998
<PAGE>
ALIANT COMMUNICATIONS INC.
EMPLOYEE AND STOCKHOLDER DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLAN
Statements of Financial Condition
December 31, 1997 and 1996
- --------------------------------------------------------------------------
Assets 1997 1996
Due from Aliant Communications Inc. (note 2):
Contributions $ 74,054 147,915
Dividends 288,440 296,305
------- -------
$ 362,494 444,220
======= =======
Liabilities
Balance to be invested in common stock for
participants (notes 1 and 2) $ 362,494 444,220
======= =======
See accompanying notes to financial statements.
<PAGE>
ALIANT COMMUNICATIONS INC.
EMPLOYEE AND STOCKHOLDER DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLAN
Statements of Revenues and Common Stock Purchases
Years ended December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------
1997 1996 1995
Revenues:
Cash dividends $ 1,163,946 1,146,525 1,158,320
Contributions 435,856 659,238 744,930
--------- --------- ---------
1,599,802 1,805,763 1,903,250
--------- --------- ---------
Assets held for purchases of common
stock (note 2):
Beginning of year 444,220 500,011 436,528
Less, end of year (362,494) (444,220) (500,011)
--------- --------- ---------
81,726 55,791 (63,483)
--------- --------- ---------
Common stock purchases $ 1,681,528 1,861,554 1,839,767
========= ========= =========
See accompanying notes to financial statements.
<PAGE>
ALIANT COMMUNICATIONS INC.
EMPLOYEE AND STOCKHOLDER DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLAN
Notes to Financial Statements
December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------
(1) Statement of Purpose and Summary of Significant Accounting Policies
The Aliant Communications Inc. Employee and Stockholder Dividend
Reinvestment and Stock Purchase Plan (Plan) provides stockholders and
eligible employees of Aliant Communications Inc. (Company), formerly known
as Lincoln Telecommunications 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% 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 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.
ChaseMellon Shareholder Services, L.L.C. is the transfer agent,
registrar, rights agent and Plan administrator.
(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 86,250,
100,494 and 115,385 during 1997, 1996 and 1995, respectively. At December
31, 1997, the agent for the Plan held 1,033,741 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
borne by the participants.
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
ALIANT COMMUNICATIONS CO.
ARTICLE I
SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders
shall be held on such date and at such time as shall be determined by the
Board of Directors and stated in the notice thereof, for the purpose of
electing successors to the class of directors whose term expires at that
annual meeting and any additional director of any class nominated to fill a
vacancy resulting from an increase in such class determined by the Board of
Directors and for the transaction of such other business as may come before
the meeting. Annual meetings shall be held in the principal office of the
Corporation or at such other place, either within or without the State of
Nebraska, as shall be determined by the Board of Directors and stated in
the notice thereof.
Section 2. Special Meetings. Special meetings of the shareholders
may be called by the President and CEO, the Board of Directors, or the
holders of not less than one-tenth (1/10) of all the shares entitled to
vote at the meeting. Special meetings shall be held at such place, either
within or without the State of Nebraska, and at such date and time as shall
be stated in the notice.
Section 3. Notice of Meeting. Written or printed notice stating the
place, date and time of the meeting and, in the case of a special meeting,
the purpose or purposes for which the meeting is called, shall be delivered
not less than ten (10) nor more than sixty (60) days before the date of the
meeting, either personally or by mail, by or at the direction of the
President and CEO, the Secretary, or the officer or persons calling the
meeting, to each shareholder of record entitled to vote at such meeting.
If mailed, such notice shall be deemed delivered when deposited in the
United States mails addressed to the shareholder at the address appearing
on the stock transfer books of the Corporation, postage prepaid. A
shareholder's attendance at a meeting of shareholders waives objection to a
lack of notice or defective notice of such meeting, unless the shareholder
at the beginning of the meeting objects to holding the meeting or
transacting the meeting, and waives objection to consideration of a
particular matter at the meeting that is not within the purposes described
in the meeting notice, unless the shareholder objects to considering the
matter when it is presented.
Section 4. Quorum. A majority of the outstanding shares entitled to
vote, represented in person or by proxy, shall constitute a quorum at a
meeting of shareholders. Once a share is represented for any purpose at a
meeting it shall be deemed present for quorum purposes for the remainder of
the meeting and for any adjournment of that meeting unless a new record
date is set for that adjourned meeting. The holders (or their
representatives) of a majority of the shares present at a meeting, even
though less than a majority of the shares outstanding, may adjourn the
meeting from time to time without notice other than an announcement at the
meeting, until such time as a quorum is present. At any such adjourned
meeting at which a quorum is present, any business may be transacted which
might have been transacted at the original meeting. If a quorum exists,
shareholder action on a matter, other than the election of directors, shall
be approved if the shareholder votes cast favoring such action exceed the
votes cast opposing the action, unless the Articles of Incorporation of the
Corporation or the Business Corporation Act (the "Act") requires a greater
number of affirmative votes.
Section 5. Proxies. At all meetings of the shareholders, a
shareholder may vote either in person or by proxy executed in writing by a
shareholder or his or her duly authorized attorney-in-fact. No proxy shall
be valid after eleven (11) months from the date of its execution, unless
otherwise provided in the proxy.
Section 6. Voting of Shares by a Corporate Shareholder. Shares
standing in the name of another corporation may be voted by such officer,
agent or proxy as the bylaws of such corporation may prescribe, or, in the
absence of such provision, as the board of directors of such corporation
may determine.
Section 7. Informal Action by Shareholders. Any action required to
be taken at a meeting of the shareholders, or any action which may be taken
at a meeting of the shareholders, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by
all of the shareholders entitled to vote with respect to the subject matter
thereof. Such consent shall have the same force and effect as a unanimous
vote of shareholders and may be stated as such in any articles or document
filed with the Nebraska Secretary of State under the Act.
ARTICLE II
DIRECTORS
Section 1. Number and Qualification. The business and affairs of the
Corporation shall be managed by a Board of Directors consisting of not less
than twelve (12) nor more than eighteen (18) directors. The number of
directors to serve during any year shall be fixed by resolution of the
Board of Directors at its last regular meeting during the previous calendar
year, but may also be fixed by resolution of the Board of Directors or the
Executive Committee at a regular or special meeting of the Board of
Directors or Executive Committee held prior to the annual meeting of
shareholders in the year of such annual meeting. In the event of failure
of the Board of Directors or Executive Committee to fix the number of
directors at such meetings, the number shall be the same as last fixed by
the Board of Directors. Nominations of directors to be elected may be made
by the Board of Directors or by a committee of the Board of Directors
designated by the Board to make such nominations, or by any shareholder of
record entitled to vote generally in elections of directors.
Section 2. Classes. The directors shall be divided into three (3)
classes. Each class shall consist, as nearly as possible, of one-third
(1/3) of the total number of directors constituting the whole Board of
Directors. At each annual meeting of shareholders, successors to the class
of directors whose term expires at that annual meeting shall be elected for
a three (3) year term. A director shall hold office until the annual
meeting in the year in which the director's term expires and until the
director's successor shall be elected and qualified, subject however, to
prior death, resignation, retirement, disqualification or removal from
office. If the number of directors is changed, any increase or decrease
shall be appropriated among the classes so as to maintain the number of
directors in each class as nearly equal as possible, and any additional
director of any class elected to fill a vacancy resulting from an increase
in such class shall hold office for a term that shall coincide with the
remaining term of that class, but in no case will a decrease in the number
of directors shorten the term of any director then in office. The
termination of employment other than by retirement of any director who is
an employee of the Corporation shall be cause for disqualification from
further board membership unless waived by the Board of Directors.
Section 3. Vacancies. If the office of any director becomes vacant
by reason of death, resignation, disqualification, removal from office, or
otherwise, a majority of the remaining directors (or the sole remaining
director), though less than a quorum, may appoint a successor, who shall
hold office for the unexpired term of the director he or she succeeds. If
there shall be no directors in office, the shareholders shall be entitled
to fill the vacancies of the Board of Directors.
Section 4. Quorum. The presence of a majority of the number of
directors prescribed, or if no number is prescribed, the number in office
immediately before the meeting beings, shall constitute a quorum for the
transaction of any business at any meeting of the Board of Directors. If a
quorum is present when a vote is taken, the affirmative vote of a majority
of the directors present when such vote is taken shall be the act of the
Board of Directors. If less than a quorum is present at any meeting, the
majority of those present may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum is
present.
Section 5. Annual Meeting. The annual meeting of the Board of
Directors shall be held without notice other than this Bylaw immediately
following the adjournment of the annual meeting of shareholders and shall
be held at the same place as the annual meeting of shareholders unless some
other place is agreed upon by vote of a majority of the then elected Board
of Directors.
Section 6. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and place either within
or without the State of Nebraska as shall be from time to time determined
by the Board of Directors.
Section 7. Special Meetings. Special meetings of the Board of
Directors may be called by the President and CEO on three (3) days' notice
to each director by mail or forty-eight (48) hours' notice by personal
delivery of written notice or by facsimile transmission; special meetir1gs
shall be called by the President and CEO or Secretary in like manner on the
written request of two (2) directors. In all cases, notice shall be
addressed or otherwise delivered to the director at the director's last
known address.
Section 8. Action Without a Meeting. Any action required to be taken
at a meeting of the Board of Directors may be taken without a meeting, if a
consent in writing, setting forth the action so taken, shall be signed by
all of the directors. Such consent shall have the same effect as a
unanimous vote. The consent may be executed by the directors in
counterparts.
Section 9. Presumption of Assent. A director of the Corporation who
is present at a meeting of the Board of Directors or a committee thereof at
which action on any corporate matter is taken shall be presumed to have
assented to the action taken unless (a) he or she objects at the beginning
of the meeting or promptly upon his or her arrival to holding it or
transacting business at the meeting; (b) his or her dissent or abstention
is entered in the minutes of the meeting; or (c) he or she delivers written
notice of dissent or abstention with respect to such action to the person
acting as the Secretary of the meeting before the adjournment thereof or to
the Secretary of the Corporation immediately after the adjournment of the
meeting. Such right to dissent or abstain shall not be available to a
director who voted in favor of such action.
Section 10. Compensation. Directors shall receive such compensation
for their services as may be determined by resolution of the Board of
Directors from time to time and, in addition, a fixed sum of expenses of
attendance, if any, at each regular or special meeting of the Board of
Directors; provided that nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity
and receiving compensation therefor. Members of special of standing
committees may be allowed compensation for attending committee meetings as
determined by the Board of Directors.
Section 11. Telephonic Meetings. Members of the Board of Directors
or any committee appointed by the Board of Directors may participate in a
meeting of such Board or committee by means of a conference telephone or
similar communications equipment by which all persons participating in the
meeting can hear each other at the same time. Participation by such means
shall constitute presence in person at a meeting.
Section 12. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees,
each committee to consist of three (3) or more directors and shall have
such functions and responsibilities as the Board shall prescribe in said
resolution of appointment subject to limitations provided by the Act. Such
committee or committees shall have such name or names as may be determined
from time to time by resolution of the Board. The Committees shall keep
regular minutes of their proceedings and report the same to the Board of
Directors upon request.
Section 13. Executive Committee. There shall be an Executive
Committee appointed annually by the Board of Directors at its annual
meeting consisting of not less than three (3) nor more than seven (7) of
the directors as fixed by the Board of Director's resolution of appointment
and shall include the President and CEO. Subject to the limitations
provided by the Act, the Executive Committee shall have and may exercise
all powers of the Board of Directors when the Board is not in session.
Meetings of the Executive Committee may be called by the President and CEO
or a member of the Executive Committee upon at least two (2) days' prior
oral notice or written notice delivered personally or by facsimile
transmission. At all meetings of the Executive Committee, a majority of
the number of directors as appointed to the Executive Committee by the
Board of Directors shall constitute a quorum for the transaction of
business.
ARTICLE III
OFFICERS
Section 1. Number and Qualification. The officers of the Corporation
shall be a President and CEO, one or more Vice Presidents (as the Board of
Directors shall determine), a Secretary, a Treasurer and a Controller and
such other officers and agents as may be deemed necessary by the Board of
Directors including, but not limited to, a Chairman of the Board, Executive
Vice President, Chief Financial Officer, Assistant Secretaries and
Assistant Treasurers. Any two or more offices may be held by the same
person.
Section 2. Election and Tenure. The Board of directors, at its first
meeting after each annual meeting of shareholders, shall elect the officers
of the Corporation, none of whom is required to be a member of the Board of
Directors except for the President and CEO and the Chairman of the Board,
and all of whom shall hold their offices for such terms and shall exercise
such powers and perform such duties as are prescribed in these Bylaws and
as shall be determined from time to time by the Board of Directors. The
officers of the Corporation shall hold office until their successors are
elected and qualify in their stead. Any officer elected or appointed by
the Board of Directors may be removed and his or her employment terminated
at any time by the affirmative vote of a majority of the whole Board of
Directors, or any officer may be removed and his or her employment
terminated at any time by the President and CEO. If the office of any
officer required to be filled pursuant to Section 1 of this Article III
becomes vacant for any reason, the vacancy shall be filled by the Board of
Directors.
Section 3. Duties and Authority of Officers.
(a) President and CEO. The President and CEO shall be the chief
executive officer of the Corporation and, subject to the control of the
Board of Directors, shall in general supervise and control all of the
business and affairs of the Corporation. The President and CEO shall be a
member of the Executive Committee and ex officio a member of all other
committees of the Board of Directors. The President and CEO shall, when
present, preside at all meetings of the shareholders and of the Board of
Directors. The President and CEO may sign, with the Secretary or any other
proper officer of the Corporation thereunto authorized by the Board of
Directors, certificates for shares of the Corporation and deeds, mortgages,
bonds, contracts or other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
Bylaws to some other officer or agent of the Corporation or shall be
required by law to be otherwise signed or executed; and in general, shall
perform all duties incident to the office of President and CEO and such
other duties as may be prescribed by the Board of Directors from time to
time.
(b) Chairman of the Board. The Chairman of the Board, if
elected, may preside at all meetings of the Board of Directors and
shareholders at which he may be present and shall have such other powers
and duties as may be prescribed by the President and CEO or the Board of
Directors from time to time.
(c) Executive Vice President. An Executive Vice President, when
elected, shall in the absence of disability of the President and CEO
perform the duties an exercise the powers of the President and CEO and
shall perform such other duties as from time to time may be assigned by the
President and CEO or by the Board of Directors.
(d) Chief Financial Officer. The Chief Financial Officer, when
elected, shall be the chief financial officer of the Corporation, and
subject to the direction of the President and CEO, shall in general
supervise and control the financial affairs of the Corporation. Absent the
election of another individual as the Controller, the Chief Financial
Officer shall also be elected as the Controller of the Corporation and
shall perform the duties of the Controller as described below. In the
absence or disability of either the Secretary or the Treasurer, the Chief
Financial Officer shall perform the duties and exercise the powers of the
Secretary or the Treasurer, as the case may be, as described below.
(e) Vice President. In the absence of the President and CEO or
Executive Vice President, if elected, or in the event of his or her death,
inability or refusal to act, the Vice President (or in the event there
shall be more than one Vice President, the Vice Presidents in order of
their length of service) shall perform the duties of the President and CEO,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the President and CEO. Any Vice President shall perform
such other duties as from time to time may be assigned by the President and
CEO or by the Board of Directors.
(f) Secretary. The Secretary shall attend and keep minutes of
the meetings of the shareholders and of the Board of Directors in one or
more books provided for that purpose, and shall perform like duties for the
committees of the Board of Directors when required. The Secretary shall
give, or cause to be given, all notices in accordance with the provisions
of these Bylaws or as required by law, be the custodian of and authenticate
the corporate records of the Corporation, keep a register of the post
office address of each shareholder which shall be furnished to the
Secretary by such shareholder, sign with the President and CEO, the
Chairman of the Board, or a Vice President certificates for shares of the
Corporation the issuance of which shall be authorized by resolution of the
Board of Directors, have general charge of the stock transfer books of the
Corporation, and in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned by the
President and CEO or by the Board of Directors.
(g) Treasurer. The Treasurer shall have charge and custody and
be responsible for all funds and securities of the Corporation, receive and
give receipts for all securities and monies due and payable to the
Corporation from any source whatsoever, deposit all such monies in the name
of the Corporation in such banks, trust companies, or in other depositories
as shall be designated by the Board of Directors, and in general perform
all of the duties incident to the office of Treasurer and such other duties
as from time to time may be assigned by the President and CEO or by the
Board of Directors.
(h) Controller. The Controller shall be the chief accounting
officer of the Corporation and have full responsibility and control of the
accounting department, which department shall include all accounting
functions carried on in all of the Corporation's offices, branches and
subsidiaries. As such he shall, subject to the approval of the Board of
Directors, establish accounting policies. He shall standardize and
coordinate accounting practices, supervise all accounting records and the
preparation of all financial statements and tax returns. The Controller
shall also direct the internal auditing of the Corporation and keep the
Audit Committee of the Board of Directors and the President and CEO
informed as to occurrences and procedures that may need their attention.
He shall also perform such other duties as from time to time may be
assigned by the President and CEO or by the Board of Directors.
Section 4. Compensation. The compensation of the officers shall be
fixed from time to time by the Board of Directors. No such payment shall
preclude any officer from serving the Corporation in any other capacity and
receiving compensation therefor.
ARTICLE IV
STOCK CERTIFICATES
Section 1. Form. Certificates of stock of the Corporation shall be
differentiated between common and preferred stock and numbered and shall be
entered in the books of the Corporation or the transfer agent and registrar
of the Corporation as they are issued. Certificates shall exhibit the
holder's name and number of shares held and shall be signed by the
President and CEO, the Chairman of the Board, an Executive Vice President,
or a Vice President, and by the Secretary or Treasurer, and the seal of the
Corporation shall be affixed thereto. The signatures of any of the
aforesaid officers and the seal of the Corporation may be facsimiles
engraved, lithographed, stamped or printed. The certificates shall be
countersigned by the transfer agent and registrar of the Corporation. If
any officer who has signed or whose facsimile signature has been used on
any such certificate shall cease to be such officer of the Corporation,
whether because of death, resignation or otherwise, before such certificate
has been delivered by the Corporation, such certificate when countersigned
by the transfer agent and registrar of the Corporation, shall nevertheless
be as effective in all respects as though the person who signed such
certificate or whose facsimile signature shall have been used thereon had
not ceased to be an office of the Corporation. The procedures set forth in
this Section shall apply to all certificates of stock issued on or after
May 1, 1993.
Section 2. Transfer. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or transfer, it
shall be the duty of the Corporation to issue a new certificate to the
person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 3. Loss or Destruction. In case of loss or destruction of a
certificate of stock, no new certificate shall be issued in lieu thereof
except upon satisfactory proof to the Board of Directors or the transfer
agent of the Corporation of such loss or destruction. The Board of
Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost or destroyed certificate
or certificates, or such owner's legal representative, to advertise the
same in such manner as it shall require and give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate or certificates
alleged to have been lost or destroyed.
ARTICLE V
DIVIDENDS AND BANK ACCOUNT
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Articles of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. For the purpose of determining shareholders
entitled to receive payment of any dividend, the Board of Directors of the
Corporation may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than
seventy (70) days prior to the dividend payment date. If no record date is
fixed for the determination of shareholders entitled to receive payment of
a dividend, the day before the date on which the resolution of the Board of
Directors declaring such dividend is adopted shall be the record date for
such determination. Dividends may be paid in cash, in property or in
shares of capital stock. Before payment of any dividend there may be set
aside out of any funds of the Corporation available for dividends such sum
or sums as the Board of Directors may from time to time, in their absolute
discretion, think proper as a reserve fund to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Board of Directors shall
think conducive to the interest of the Corporation, and the Board of
Directors may abolish any such reserve in the manner in which it was
created.
Section 2. Bank Account. The funds of the Corporation shall be
deposited in such banks, trust funds or depositories as the Board of
Directors may designate and shall be withdrawn upon the signature of the
President and CEO and/or upon the signatures of such other person or
persons as the directors may by resolution authorize.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
To the fullest extent permitted by law, the Corporation shall indemnify any
individual who was or is a party or threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (and whether or not by or in the
right of the Corporation) by reason of the fact that he or she was a
director or officer of the Corporation or was serving at the request
(whether formal or informal) of the Corporation as a director, officer,
employee, agent or fiduciary of another corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise against liability
and/or expense incurred by such individual in connection therewith to the
fullest extent mandated or permitted under the Act or other applicable law.
The indemnity provided for by this Article I shall not be deemed to be
exclusive of any other rights to which those indemnified may be otherwise
entitled, nor shall the provisions of this Article I be deemed to prohibit
the Corporation from extending its indemnification to cover other persons
or activities, to the extent permitted by the Act, any other provision of
applicable law or pursuant to any provision in the Bylaws.
ARTICLE VII
AMENDMENTS
Except as otherwise provided by the Act or by specific provisions of
these Bylaws, the Bylaws may be amended or repealed by the Board of
Directors or by the shareholders at any annual, regular or special meeting
of the Board of Directors or of the shareholders.
ARTICLE VIII
WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or
director of the Corporation under the provisions of the Articles of
Incorporation, these Bylaws or the Act, a waiver thereof in writing, signed
by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be equivalent to the giving of such notice.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall end as of the 31st day of December
in each year.
<PAGE>
Dated:_________________________,
1998
Aliant Communications Co.,
a Delaware corporation
domesticated in Nebraska
By: /s/ Michael J. Tavlin
------------------------
Michael J. Tavlin, Vice
President - Treasurer and
Secretary
<PAGE>
EXHIBIT 4.6
- ---------------------------------------------------------------------------
U.S. $70,000,000
CREDIT AGREEMENT
Dated as of August 8, 1995
among
LINCOLN TELECOMMUNICATIONS COMPANY
as Borrower,
THE LENDERS NAMED HEREIN
as Lenders
and
THE MITSUBISHI BANK, LIMITED
as Agent and Lender
- ---------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Article Page
1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Terms Generally . . . . . . . . . . . . . . . . . . . . . . . 18
2 THE CREDITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.1 Term Loan Facility . . . . . . . . . . . . . . . . . . . . . 18
2.2 Term Loans . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.3 Repayment of the Term Loans . . . . . . . . . . . . . . . . . 19
2.4 The Revolving Credit Facility . . . . . . . . . . . . . . . . 20
2.5 Revolving Loans . . . . . . . . . . . . . . . . . . . . . . . 20
2.6 Notice of Borrowings of Revolving Loans . . . . . . . . . . . 21
2.7 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.8 Repayment of Revolving Loans . . . . . . . . . . . . . . . . 22
2.9 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.10 Interest on Loans . . . . . . . . . . . . . . . . . . . . . . 23
2.11 Default Interest . . . . . . . . . . . . . . . . . . . . . . 24
2.12 Alternate Rate of Interest . . . . . . . . . . . . . . . . . 24
2.13 Reduction or Cancellation of Commitments . . . . . . . . . . .24
2.14 Conversion and Continuation of Borrowings of Revolving Loans 25
2.15 Conversion and Continuation of Term Loans . . . . . . . . . . 26
2.16 Voluntary Prepayments . . . . . . . . . . . . . . . . . . . . 27
2.17 Mandatory Prepayments of Revolving Loans . . . . . . . . . . 27
2.18 Mandatory Prepayments Upon NCTC Sale . . . . . . . . . . . . 27
2.19 Additional Interest on Eurodollar Loans; Reserve Requirements;
Change in Circumstances . . . . . . . . . . . . . . . . . . . 28
2.20 Change in Legality . . . . . . . . . . . . . . . . . . . . . 29
2.21 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.22 Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . 31
2.23 Sharing of Setoffs . . . . . . . . . . . . . . . . . . . . . 31
2.24 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.25 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.26 Duty to Mitigate Additional Costs, Reductions in Rate of
Return and Taxes . . . . . . . . . . . . . . . . . . . . . . 34
2.27 Termination or Assignment of Commitments Under Certain
Circumstances . . . . . . . . . . . . . . . . . . . . . . . . 34
3 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . 35
3.1 Organization; Powers . . . . . . . . . . . . . . . . . . . . . 35
3.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . 35
3.3 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . 35
3.4 Governmental Approvals . . . . . . . . . . . . . . . . . . . . .36
3.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . 36
3.6 Title to Properties; Possession Under Leases . . . . . . . . . 36
3.7 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.8 Litigation; Compliance with Laws . . . . . . . . . . . . . . . .36
3.9 Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.10 Federal Reserve Regulations . . . . . . . . . . . . . . . . . 37
3.11 Investment Company Act; Public Utility Holding Company Act . . 37
3.12 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.13 No Material Misstatements . . . . . . . . . . . . . . . . . . 37
3.14 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . 38
3.15 Environmental and Safety Matters . . . . . . . . . . . . . . . 38
ii
<PAGE>
4 CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . 39
4.1 All Credit Events . . . . . . . . . . . . . . . . . . . . . . 39
4.2 First Credit Event . . . . . . . . . . . . . . . . . . . . . . 39
4.3 Execution of the Agreement . . . . . . . . . . . . . . . . . . 40
4.4 Termination of the Agreement . . . . . . . . . . . . . . . . . 41
5 AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 41
5.1 Existence: Businesses and Properties . . . . . . . . . . . . . 41
5.2 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.3 Obligations and Taxes . . . . . . . . . . . . . . . . . . . . 41
5.4 Financial Statements, Reports, etc. . . . . . . . . . . . . . 42
5.5 Litigation and Other Notices . . . . . . . . . . . . . . . . . 43
5.6 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.7 Maintaining Records; Access to Properties and Inspections . . 44
5.8 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . 44
6 NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 44
6.1 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.2 Sale and Lease-Back Transactions . . . . . . . . . . . . . . . 46
6.3 Investments, Loans and Advances . . . . . . . . . . . . . . . 46
6.4 Mergers, Consolidations, Sales of Assets and Acquisitions . . 46
6.5 Dividends and Distributions . . . . . . . . . . . . . . . . . 47
6.6 Transactions with Affiliates . . . . . . . . . . . . . . . . . 48
6.7 Consolidated Total Indebtedness to Capital . . . . . . . . . . 48
6.8 Consolidated Tangible Net Worth . . . . . . . . . . . . . . . 48
6.9 Interest Coverage Ratio . . . . . . . . . . . . . . . . . . . 48
7 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . 49
8 THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.2 Nature of Duties . . . . . . . . . . . . . . . . . . . . . . . 52
8.3 Rights, Exculpation, Etc. . . . . . . . . . . . . . . . . . . 53
8.4 Successor Agent; Resignation of the Agent . . . . . . . . . . 53
8.5 The Agent Individually . . . . . . . . . . . . . . . . . . . . 54
8.6 Indemnification . . . . . . . . . . . . . . . . . . . . . . . 54
8.7 Independent Credit Analysis . . . . . . . . . . . . . . . . . 54
9 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
9.2 Survival of Agreement . . . . . . . . . . . . . . . . . . . . 55
9.3 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . 55
9.4 Successors and Assigns . . . . . . . . . . . . . . . . . . . . 55
9.5 Expenses; Indemnity . . . . . . . . . . . . . . . . . . . . . 58
9.6 Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . 59
9.7 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . 59
9.8 Waivers; Amendment . . . . . . . . . . . . . . . . . . . . . . 59
9.9 Interest Rate Limitation. . . . . . . . . . . . . . . . . . . 60
9.10 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . 60
9.11 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 61
9.12 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . 61
9.13 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.15 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.16 Jurisdiction; Consent to Service of Process . . . . . . . . . 62
9.17 Defaulting Lender . . . . . . . . . . . . . . . . . . . . . . 62
iii
<PAGE>
INDEX OF EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit A -- Form of Administrative Questionnaire
Exhibit B -- Form of Assignment and Acceptance
Exhibit C -- Form of Notice of Borrowing of Revolving Loans
Exhibit D-1 -- Form of Term Loan Note
Exhibit D-2 -- Form of Revolving Loan Note
Exhibit E-1 -- Form of Notice of Conversion/Continuation of Revolving
Loans
Exhibit E-2 -- Form of Notice of Conversion/Continuation of Term Loans
EXhibit F -- List of Closing Documents
Exhibit G -- Form of opinion of Counsel for the Borrower
SCHEDULES
Schedule 1.1A -- Reserved
Schedule 1.1B -- Investment Guidelines
Schedule 2.1 -- Term Loan Commitments
Schedule 2.4 -- Revolving Credit Commitments
Schedule 3.4 -- Governmental Approvals
Schedule 3.7 -- Subsidiaries of Borrower
Schedule 3.8 -- Litigation
Schedule 3.15 -- Environmental and Safety Matters
Schedule 6.1 -- Liens
Schedule 6.3 -- Loans and Investments
Schedule 6.11 -- Preferred Stock of Subsidiaries
iv
<PAGE>
This CREDIT AGREEMENT dated as of August 8, 1995, (this "Agreement")
is entered into among LINCOLN TELECOMMUNICATIONS COMPANY, a Nebraska
corporation (the "Borrower"), the "Lenders" (as defined herein), and THE
MITSUBISHI BANK, LIMITED, a Japanese corporation acting through its Chicago
branch ("Mitsubishi"), as agent for the Lenders (in such capacity, the
"Agent").
In accordance with the terms and subject to the conditions set forth
in this Agreement, the Borrower (i) has requested the Term Lenders to
extend credit to the Borrower on a term basis on the Closing Date in the
aggregate principal amount of the Aggregate Term Loan Commitments
hereunder, and (ii) has requested the Revolving Credit Lenders to extend
credit to the Borrower to enable the Borrower to borrow on a revolving
basis, at any time and from time to time from and including the Closing
Date, an aggregate principal amount at any time outstanding not in excess
of the Aggregate Revolving Credit Commitments hereunder.
Accordingly, the Borrower, the Lenders and the Agent agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms
shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any Revolving Loan or any portion of a Term
Loan bearing interest at a rate determined by reference to he Alternate
Base Rate in accordance with the provisions of Article 2.
"Acquisition" shall mean the acquisition of all of the capital
stock of Nebwest Cellular, Inc. by the Borrower in accordance with the
terms of the Purchase Agreement and the merger of NCTC with and into
Capital Acquisition Corp., a subsidiary of Borrower, in accordance with the
terms of the Merger Agreement.
"Acquisition Documents" shall mean the Purchase Agreement, the
Merger Agreement and each of the other documents executed by the Borrower
or any Subsidiary in connection with the Acquisition and/or the
transactions contemplated in connection therewith.
"Administrative Questionnaire" shall mean an Administrative Questionnaire
in the form of Exhibit A.
"Affiliate" shall mean, when used with respect to a specified
Person, another Person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control
with the Person specified.
"Agent" shall have the meaning given such term in the preamble to
this Agreement.
"Agent Fee Letter" shall mean the Administrative Agent Fee Letter
dated August 8, 1995, from the Borrower to the Agent.
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"Aggregate Revolving Credit Commitments" shall mean the aggregate
amount of the Revolving Credit Commitments of all Revolving Credit Lenders,
which as of the date hereof is $40,000,000 and which may be reduced from
time to time pursuant to Section 2.12.
"Aggregate Term Loan Commitments" shall mean the aggregate amount
of the Term Loan Commitments of all Term Lenders, which as of the date
hereof is $30,000,000.
"Agreement" shall have the meaning ascribed to such term in the
preamble hereto.
"Alternate Base Rate" shall mean, for any date, a rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the
greater of (a) the Prime Rate in effect on such day and (b) the Federal
Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes
hereof, "Prime Rate" shall mean the rate of interest per annum publicly
announced from time to time by the Agent as its prime rate in effect at its
principal office in Chicago. "Federal Funds Effective Rate" shall mean,
for any day, the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published on the next succeeding Business Day by the
Federal Reserve Bank of New York, or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for the day
of such transactions received by the Agent from three Federal funds brokers
of recognized standing selected by it. If for any reason the Agent shall
have determined (which determination shall be conclusive absent manifest
error) that it is unable to ascertain the Federal Funds Effective Rate for
any reason, including the inability or failure of the Agent to obtain
sufficient quotations in accordance with the terms thereof, the Alternate
Base Rate shall be determined without regard to clause (b) of the first
sentence of this definition, as appropriate, until the circumstances giving
rise to such inability no longer exist. Any change in the Alternate Base
Rate due to a change in the Prime Rate or the Federal Funds Effective Rate
shall be effective on the effective date of such change in the Prime Rate
or the Federal Funds Effective Rate, respectively.
"Alternative Margin" shall mean for any date, with respect to the
Term Loans, the applicable margin set forth under the column entitled
"Applicable Term Loan Margin" in the definition of "Financial Covenant
Based Margin" and, with respect to the Revolving Loans, the applicable
margin set forth under the column entitled "Applicable Revolving Loan
Margin" in the definition of "Financial Covenant Based Margin".
"Applicable Facility Fee" shall mean for any date, the applicable
number of basis points (expressed as a percentage) set forth in the
definition of "Rating Based Facility Fee" unless the Alternative Margin is
in effect with respect to the Term Loan or the Revolving Loan, in which
case, the applicable number of basis points (expressed as a percentage) set
forth in the definition of "Financial Covenant Based Fee".
"Applicable Revolving Loan Margin" the Borrower shall for any Fiscal Year
derive less than 70% of its Total Operating Revenues from Lincoln
Telephone, in either of which cases for any date after the date of
cessation of publication of such rating or the last day of the Fiscal Year
for which such minimum percentage of Total Operating Revenues was not
derived from Lincoln Telephone, the Applicable Revolving Loan Margin with
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respect to the Revolving Loans shall mean the Alternative Margin and the
Alternative Margin shall thereafter continue in effect unless and until
either (a) if the Alternative Margin was in effect on account of the
cessation of publication by Standard & Poor's of the rating referred to in
clause (i) above, Standard & Poor's once again commences publication of
such rating, or (b) if the Alternative Margin was in effect on account of
the Borrower deriving less than 70% of Total Operating Revenues from
Lincoln Telephone referred to in clause (ii) above, the Borrower in any
subsequent Fiscal year derives at least 70% of its Total Operating Revenues
from Lincoln Telephone, in which case, on the date of commencement of such
rating or on the first day of the immediately succeeding Fiscal Year
following the Fiscal Year in which the Borrower derived such minimum
percentage of Total Operating Revenues from Lincoln Telephone, as the case
may be, the Alternative Margin shall cease to apply and the applicable
margin set forth under the column entitled "Applicable Revolving Loan
Margin" in the definition of "Rating Based Margin" will once again be
applicable. The Alternative Margin may be made effective and rescinded
from time to time in accordance with the provisions of this definition.
"Applicable Term Loan Margin" shall mean for any date, with
respect to Term Loans, the applicable margin set forth under the column
entitled "Applicable Term Loan Margin" in the definition of "Rating Based
Margin", unless either (i) a rating for the Long Term Debt of Lincoln
Telephone shall cease to be published by Standard & Poor's, or (ii) the
Borrower shall for any Fiscal Year derive less than 70% of Total Operating
Revenues from Lincoln Telephone, in either of which cases for any date
after the date of cessation of publication of such rating or the last day
of the Fiscal Year for which such minimum percentage of Total Operating
Revenues was not derived from Lincoln Telephone, the Applicable Term Loan
Margin with respect to the Term Loans shall mean the Alternative Margin and
the Alternative Margin shall thereafter continue in effect unless and until
either (a) if the Alternative Margin was in effect on account of the
cessation of publication by Standard & Poor's of the rating referred to in
clause (i) above, Standard & Poor's once again commences publication of
such rating, or (b) if the Alternative Margin was in effect on account of
the Borrower deriving less than 70% of Total Operating Revenues from
Lincoln Telephone referred to in clause (ii) above, the Borrower in any
subsequent Fiscal year derives at least 70% of Total Operating Revenues
from Lincoln Telephone, in which case, on the date of commencement of such
rating or on the first day of the immediately succeeding Fiscal Year
following the Fiscal Year in which the Borrower derived such minimum
percentage of Total Operating Revenues from Lincoln Telephone, as the case
may be, the Alternative Margin shall cease to apply and the applicable
margin set forth under the column entitled "Applicable Term Loan Margin" in
the definition of "Rating Based Margin" will once again be applicable. The
Alternative Margin may be made effective and rescinded from time to time in
accordance with the provisions of this definition.
"Assignment and Acceptance" shall mean an assignment and accept-
ance entered into by a Lender and an Eligible Assignee, approved in accord-
ance with Section 9.4 and accepted by the Agent, in the form of Exhibit B
or such other substantially similar form as shall be approved by the Agent.
"Attributable Debt" shall mean, in connection with a Sale and
Lease-Back Transaction, the present value (discounted in accordance with
GAAP at the debt rate implied in the lease) of the obligations of the
lessee for rental payments during the term of the lease.
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"Board" shall mean the Board of Governors of the Federal Reserve
System of the United States.
"Borrowing" shall mean a Revolving Loan Borrowing.
"Business Day" shall mean any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of Illinois) on which banks
are open for business in Chicago; provided, however, that, when used in
connection with a Eurodollar Loan, the term "Business Day" shall also
exclude any day on which banks are not open for dealings in dollar deposits
in the London interbank market.
"Capital Lease" shall mean any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination
thereof, which obligations are required to be classified and accounted for
as capital leases on a balance sheet of such Person under GAAP and, for the
purposes of this Agreement, the amount of such obligations at any time
shall be the capitalized amount thereof at such time determined in
accordance with GAAP.
"Capital Lease Obligations" of any Person shall mean the
obligations of such Person to pay rent or other amounts under any Capital
Lease.
"A Change in Control" shall be deemed to have occurred with
respect to the Borrower if (a) any Person or group (within the meaning of
Rule 13d-5 of the Securities and Exchange Commission as in effect on the
date hereof) shall own, directly or indirectly, beneficially or of record,
shares representing more than 50% of the aggregate ordinary voting power
represented by the issued and outstanding capital stock of the Borrower; or
(b) a change shall occur during any period in the Board of Directors of the
Borrower in which the individuals who constituted the Board of Directors of
the Borrower at the beginning of such period (together with any other
director whose election by the Board of Directors of the Borrower or whose
nomination for election by the stockholders of the Borrower was approved by
a vote of at least two-thirds of the directors then in office who either
were directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the directors of the Borrower then in office.
"Closing Date" shall mean the date designated by the Borrower
pursuant to Section 4.2(d) as the date upon which, subject to the
satisfaction of all conditions precedent contained in Article 4 hereof, the
Term Loans shall be funded. The Closing Date shall occur not later than
August 31, 1995, unless otherwise agreed to by all of the parties hereto.
"Code" shall mean the Internal Revenue Code of 1986, as the same
may be amended from time to time.
"Commitment" shall mean each Lender's Revolving Credit Commitment
or Term Loan Commitment, and "Commitments", when used in respect of any
Lender, shall mean such Lender's Revolving Credit Commitment and/or Term
Loan Commitment.
"Consolidated Cash Flow From Operations" shall mean, for any
period, Consolidated Net Income for such period plus the aggregate amount
deducted in determining such Consolidated Net Income in respect of the
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following, each determined in accordance with GAAP: (i) Consolidated
Interest Expense, (ii) income taxes, (iii) depreciation, depletion and
amortization, (iv) other non-cash charges and (v) non-cash charges for non-
recurring or extraordinary items.
"Consolidated Cash Interest Expense" shall mean, for any period,
that portion of the Consolidated Interest Expense of the Borrower and the
Subsidiaries for such period which shall be paid or payable in cash,
computed on a consolidated basis in accordance with GAAP.
"Consolidated Debt to Cash Flow Ratio" shall mean at any date of
determination thereof, the ratio of (a) Consolidated Total Indebtedness of
Borrower and its Subsidiaries, to (b) Consolidated Cash Flow From
Operations.
"Consolidated Interest Expense" shall mean gross interest expense
of the Borrower and its Subsidiaries computed on a consolidated basis in
accordance with GAAP, including, without limitation, amortization of debt
discounts and the portion of any Capital Lease Obligation allocable to
interest expense.
"Consolidated Long-Term Capitalization" shall mean the
consolidated Funded Debt of the Borrower plus Consolidated Net Worth,
determined in accordance with GAAP.
"Consolidated Net Income" shall mean, for any period, the
aggregate net income (or net deficit) of the Borrower and the Subsidiaries
for such period computed on a consolidated basis in accordance with GAAP.
"Consolidated Net Worth" shall mean, at any date, on a
consolidated basis for the Borrower and the Subsidiaries, the sum at such
date of common and preferred stock (taken at par or stated value, as
applicable), paid-in capital and retained earnings, all determined in
accordance with GAAP.
"Consolidated Tangible Net Worth" shall mean Consolidated Net
Worth less the consolidated book value of Intangible Assets of Borrower and
its Subsidiaries determined in accordance with GAAP.
"Consolidated Total Indebtedness" shall mean, at any date of
determination thereof, the total of (a) all Indebtedness which would be
classified as indebtedness in accordance with GAAP, including, without
limitation, the aggregate outstanding principal amount of all Term Loans
hereunder, that has a final maturity, or that is extendible or renewable at
the option of the obligor to a date, one year or more after the date on
which such Indebtedness is incurred including all principal payments in
respect thereof required to be made within one year from the date as of
which Consolidated Total Indebtedness is being determined, (b) the
aggregate outstanding principal amount of all Revolving Loan Borrowings to
the extent not included under clause (a) above, and (c) all Indebtedness in
the form of commercial paper of Borrower and its Subsidiaries outstanding
on such date determined in accordance with GAAP.
"Consolidated Total Indebtedness to Capital Ratio" shall mean, at
any date of determination thereof, the ratio of (a) Consolidated Total
Indebtedness of Borrower and its Subsidiaries outstanding on such date, to
(b) the sum of (i) consolidated stockholders' equity of Borrower, (ii)
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preferred stock of Borrower and the Subsidiaries and (iii) all Funded Debt
of Borrower and its Subsidiaries.
"Control" shall mean the direct or indirect possession of the power to
direct or cause the direction of the management or policies of a Person,
whether through the ownership of voting securities, by contract or
otherwise, and "Controlling" and "Controlled" shall have meanings
correlative thereto.
"Credit Event" shall have the meaning given such term in
Article 4.
"Documentation Completion Date" shall mean the date as of which
this Agreement is executed by all of the parties hereto.
"dollars" or "$" shall mean lawful money of the United States of
America.
"EBITDA/Interest Coverage" shall mean the ratio of Consolidated
Cash Flow from Operations to Consolidated Cash Interest Expense for any
period of four consecutive fiscal quarters.
"Eligible Assignee" shall mean (a) a commercial bank having total
assets in excess of $2,000,000,000, (b) a savings and loan association or a
savings bank organized under the laws of the United States or any state
thereof and having a net worth of at least $300,000,000 computed in
accordance with GAAP or (c) a finance company, insurance company or other
financial institution or fund that is regularly engaged in making,
purchasing or investing in loans and has total assets in excess of
$300,000,000.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as the same may be amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or
not incorporated) that is a member of a group of which the Borrower is a
member and which is treated as a single employer under Section 414 of the
Code, which from and after the Closing Date.
"Eurodollar Borrowing" shall mean a Borrowing comprised of
Eurodollar Loans.
"Eurodollar Loan" shall mean any Revolving Loan or any portion of
the Term Loans bearing interest at a rate determined by reference to the
LIBO Rate in accordance with the provisions of Article 2.
"Event of Default" shall have the meaning given such term in
Article 7.
"Existing Credit Arrangement" shall mean the Promissory Note
dated July 13, 1995 issued by the Borrower to Mitsubishi.
"Facilities" shall mean the Term Loan Facility and the Revolving
Credit Facility.
"Facility Fee" shall have the meaning given to such term in
Section 2.9.
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"Federal Funds Effective Rate" shall mean, for any day, the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for the day of such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it.
"Financial Covenant Based Fee" shall mean for any date that the
Alternative Margin is in effect, the applicable number of basis points
(expressed as a percentage) based upon the Consolidated Debt to Cash Flow
Ratio of Borrower for the four immediately preceding consecutive Fiscal
Quarters, as set forth below:
Consolidated Debt to Facility Fee
Cash Flow Ratio (in basis points)
less than or equal to 1.4 to 1.0 8.0
greater than 1.4 to 1.0, but 10.0
less than or equal to 1.8 to 1.0
greater than 1.8 to 1.0, but 12.5
less than or equal to 2.2 to 1.0
greater than 2.2 to 1.0, but 15.0
less than or equal to 2.7 to 1.0
greater than 2.7 to 1.0, but 17.5
less than or equal to 3.4 to 1.0
greater than 3.4 to 1.0, but 20.0
less than or equal to 4.0 to 1.0
greater than 4.0 to 1.0 35.0
For purposes of the foregoing, the Facility Fee at any time shall be
determined by reference to the Borrower's Consolidated Debt to Cash Flow
Ratio as of the last day of the Borrower's most recently ended Fiscal
Quarter and any change in the Facility Fee shall become effective for all
purposes on and after the first day of the next succeeding Fiscal Quarter.
Notwithstanding the foregoing, at any time during which the Borrower has
failed to deliver the certificate and applicable financial statements
described in Sections 5.4(a)-(c) with respect to a Fiscal Quarter in
accordance with the provisions thereof, for more than five Business Days
after such certificate and the applicable financial statements are due, the
Consolidated Debt to Cash Flow Ratio of Borrower shall be deemed, solely
for purposes of this definition, to be greater than 4.0 to 1.0 until such
certificate and the applicable financial statements are delivered.
"Financial Covenant Based Margin" shall mean for any date, based
upon the Consolidated Debt to Cash Flow Ratio of the Borrower for the four
immediately preceding consecutive Fiscal Quarters
(a) with respect to Revolving Loans, the applicable margin
set forth below under the column entitled "Applicable Revolving
Loan Margin"; and
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(b) with respect to Term Loans, the applicable margin set
forth below under the column entitled "Applicable Term Loan
Margin":
Applicable Revolving Applicable Term
Consolidated Debt to Loan Margin Loan Margin
Cash Flow Ration (in basis points) (in basis points)
less than or equal
to 1.4 to 1.0 19.5 30.0
greater than 1.4 to 1.0, but
less than or equal to 1.8 to 1.0 20.0 32.5
greater than 1.8 to 1.0, but
less than or equal to 2.2 to 1.0 20.0 35.0
greater than 2.2 to 1.0, but
less than or equal to 2.7 to 1.0 22.5 40.0
greater than 2.7 to 1.0, but
less than or equal to 3.4 to 1.0 30.0 50.0
greater than 3.4 to 1.0, but
less than or equal to 4.0 to 1.0 40.0 62.5
greater than 4.0 to 1.0 65.0 100.0
For purposes of the foregoing, the Alternative Margin at any time
shall be determined by reference to the Borrower's Consolidated Debt to
Cash Flow Ratio as of the last day of the Borrower's most recently ended
Fiscal Quarter and any change in the Alternative Margin shall become
effective for all purposes on and after the first day of the next
succeeding Fiscal Quarter. Notwithstanding the foregoing, at any time
during which the Borrower has failed to deliver the certificate and
applicable financial statements described in Sections 5.4(a)-(c) with
respect to a Fiscal Quarter in accordance with the provisions thereof, for
more than five Business Days after such certificate and the applicable
financial statements are due, the Consolidated Debt to Cash Flow Ratio of
Borrower shall be deemed, solely for purposes of this definition, to be
greater than 4.0 to 1.0 until such certificate and the applicable financial
statements are delivered.
"Financial Officer" of any corporation shall mean the chief
financial officer, principal accounting officer, treasurer or controller of
such corporation.
"Fiscal Year" shall mean the twelve month period that ends on
December 31.
"Funded Debt" shall mean at any date of determination thereof,
the total of (a) all Indebtedness, that has a final maturity, or that is
extendible or renewable at the option of the obligor to a date, one year or
more after the date on which such Indebtedness is incurred, excluding all
principal payments in respect thereof (other than principal payments in
respect of the Lincoln Telephone Bonds) required to be made within one year
from the date as of which Funded Debt is being determined, (b) all
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Guarantees of such Indebtedness of others, and (c) in the case of the
Borrower, the aggregate outstanding principal amount of all Revolving Loan
Borrowings and the aggregate principal amount of Term Loans to the extent
not included in clause (a) above.
"GAAP" shall mean generally accepted accounting principles,
applied on a consistent basis.
"Governmental Authority" shall mean any Federal, state, local or
foreign court or governmental agency, authority, instrumentality or
regulatory body.
"Guarantee" when used with respect to any Person shall mean the
incurrence of any obligation, contingent or otherwise, of such Person
guaranteeing or having the economic effect of guaranteeing any Indebtedness
of any other Person (the "primary obligor") in any manner, whether directly
or indirectly, and including any obligation of such Person, direct or
indirect, (a) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or to purchase (or to advance or
supply funds for the purchase of) any security for the payment of such
Indebtedness, (b) to purchase property, securities or services for the
purpose of assuring the owner of such Indebtedness of the payment of such
Indebtedness or (c) to maintain working capital, equity capital or other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Indebtedness; provided, however,
that the term "Guarantee" shall not include endorsements of items by any
Person for collection or deposit in the ordinary course of business.
"Indebtedness" as applied to any Person shall mean (without
duplication) (a) any indebtedness for borrowed money which such Person has
directly or indirectly created, incurred or assumed, including, without
limitation, Capital Lease Obligations of such Person, (b) any indebtedness
incurred other than in the ordinary course of business, whether or not for
borrowed money, secured by any Lien in respect of property owned by such
Person, whether or not such Person has assumed or become liable for the
payment of such indebtedness, (c) any indebtedness, whether or not for
borrowed money, with respect to which such Person has become directly or
indirectly liable and which represents or has been incurred to finance the
purchase price (or a portion thereof) of any property or services or
business acquired by such Person, whether by purchase, consolidation,
merger or otherwise, (d) any indebtedness of the character referred to in
clauses (a), (b) or (c) of this definition deemed to be extinguished under
generally accepted accounting principles but for which such Person remains
legally liable and (e) any indebtedness of any other Person of the
character referred to in subdivision (a), (b), (c) or (d) of this
definition with respect to which the Person whose Indebtedness is being
determined has become liable by way of a Guarantee, including, without
limitation, any such indebtedness of any partnership in which such Person
is a general partner.
"Indemnitee" shall have the meaning given such term in
Section 9.5(b).
"Information" shall have the meaning given such term in
Section 9.10(a).
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<PAGE>
"Intangible Assets" shall mean goodwill (including any amounts,
however designated, representing the excess of the purchase price paid for
assets or stock acquired subsequent to the Documentation Completion Date
over the value assigned thereto on the books of Borrower and its
Subsidiaries), patents, trademarks, trade names, copyrights and other
intangible assets of Borrower and its Subsidiaries.
"Interest Payment Date" shall mean, with respect to any Loan, the
last day of the Interest Period applicable to such Loan and, in the case of
a Eurodollar Loan with an Interest Period of more than three month's
duration, each day that would have been an Interest Payment Date had
successive Interest Periods of three months' duration been applicable to
such Eurodollar Loan.
"Interest Period" shall mean (a) as to any Eurodollar Loan, the
period commencing on the date of such Eurodollar Loan or on the last day of
the immediately preceding Interest Period applicable to such Eurodollar
Loan, as the case may be, and ending on the numerically corresponding day
(or, if there is no numerically corresponding day, on the last day) in the
calendar month that is 1, 2, 3 or 6 months thereafter, as the Borrower may
elect (or as the Borrower may be deemed to elect) and (b) as to any ABR
Loan, the period commencing on the date of such ABR Loan or on the last day
of the immediately preceding Interest Period applicable to such ABR Loan,
as the case may be, and ending on the earliest of (i) the next succeeding
March 31, June 30, September 30 or December 31, (ii) the date of conversion
to a Eurodollar Loan, and (iii) the Term Loan Maturity Date or the
Revolving Loan Maturity Date, as the case may be; provided, however, that
if any Interest Period would end on a day other than a Business Day, such
Interest Period shall be extended to the next succeeding Business Day
unless, in the case of a Eurodollar Loan only, such next succeeding
Business Day would fall in the next calendar month, in which case such
Interest Period shall end on the next preceding Business Day. Interest
shall accrue from and including the first day of an Interest Period to but
excluding the last day of such Interest Period.
"Investments" shall have the meaning given such term in
Section 6.3.
"Lender" shall mean, at any time, a financial institution that is
either set forth on the signature pages hereof or that has become a lender
pursuant to Section 9.4 and that, as of such time, remains a party hereto.
"LIBO Rate" shall mean, with respect to any Eurodollar Loan for
any Interest Period, an interest rate per annum determined by Agent and
equal to the arithmetic average (rounded upwards, if necessary, to the next
1/16 of 1%) of (a) the rates that appear on the Reuters Screen LIBO Page
or, (b) if the Reuters Screen LIBO Page ceases to be available, the rate at
which United States dollar deposits in immediately available funds are
offered to Agent's LIBOR Office in the London, England interbank market, in
either case as of 11:00 a.m. (London time), two Business Days prior to the
commencement of such Interest Period for dollar deposits approximately
equal in principal amount (i) in the case of a Revolving Loan, to
Mitsubishi's Revolver Pro Rata Share of the Eurodollar Borrowing or (ii) in
the case of the Term Loans, Mitsubishi's Term Pro Rata Share of the
Eurodollar Loan, in either case for such Interest Period and for a maturity
comparable to such Interest Period. "Reuters Screen LIBO Page" shall mean
the display designated as page "LIBO" on the Reuters Monitor Money Rates
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Service (or such other page as may replace the LIBO page on that service
for the purpose of displaying London interbank offered rates of major
banks).
"Lien" shall mean (a) with respect to any asset, any mortgage,
deed of trust, lien, pledge, encumbrance, charge or security interest in or
on such asset, (b) with respect to any asset, the interest of a vendor or a
lessor under any conditional sale agreement or title retention agreement
relating to such asset and (c) with respect to securities, any purchase
option, call or similar right of a third party with respect to such
securities.
"Lincoln Telephone" shall mean The Lincoln Telephone and
Telegraph Company, a Delaware corporation and wholly-owned subsidiary of
the Borrower.
"Lincoln Telephone Bonds" shall mean the $44,000,000 First
Mortgage 9.91% Bonds Series K, due June 1, 2000 issued by Lincoln Telephone
(as replaced, refinanced, renewed, extended or refunded) pursuant to and
secured by the Indenture of Mortgage, dated as of January 1, 1946, from
Lincoln Telephone to Harris Trust and Savings Bank, as supplemented and
amended.
"Lincoln Telephone Preferred Stock" shall mean the 44,991 shares
of 5% cumulative, non-voting, non-convertible, redeemable preferred stock,
$100 par value per share, of Lincoln Telephone issued and outstanding on
the Documentation Completion Date.
"Loan Documents" shall mean this Agreement, the Notes and the
Agent Fee Letter.
"Loans" shall mean Term Loans and Revolving Loans.
"Long-Term Debt Rating" shall mean, with respect to any Person,
the rating published by a national rating agency with respect to the
unsecured Indebtedness without third party credit support of such Person
having a maturity date of not less than five years from the date of
issuance.
"Margin Stock" shall have the meaning given such term under
Regulation U.
"Material Adverse Effect" shall mean (a) a materially adverse
effect on the business, assets, operations or financial condition of the
Borrower and the Subsidiaries taken as a whole, or of Lincoln Telephone
individually, or (b) material impairment of the ability of the Borrower to
pay any amount due, or to perform any other material obligation, under any
Loan Document.
"Merger Agreement" shall mean the Agreement and Plan of
Reorganization by and among Borrower, Capital Acquisition Corp. and
Nebraska Cellular Telephone Corporation.
"Mitsubishi's Revolver Pro Rata Share" shall mean the aggregate
Revolver Pro Rata Share of Mitsubishi and its assignees.
"Mitsubishi's Term Pro Rata Share" shall mean the aggregate Term
Pro Rata Share of Mitsubishi and its assignees.
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"Multiemployer Plan" shall mean a multiemployer plan as defined
in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate
(other than one considered an ERISA Affiliate only pursuant to subsection
(m) or (o) of Section 414 of the Code) is making or accruing an obligation
to make contributions, or has within any of the preceding five plan years
made or accrued an obligation to make contributions.
"NCTC" shall mean Nebraska Cellular Telephone Corporation, a
Nebraska corporation, formerly known as Capital Acquisition Corp.
"Net Proceeds" shall mean, with respect to any asset disposition,
(a) the gross amount of cash proceeds (including the amount of insurance
settlements received but not applied to the repair or replacement of the
asset in respect thereof within six months of the receipt of such
settlement) and condemnation awards paid to or received by the Borrower or
any Subsidiary in respect of such asset disposition (including cash
proceeds subsequently received in respect of such asset disposition in
respect of non-cash consideration initially received or otherwise), less
(b) the amount, if any, of all taxes and customary fees, commissions,
brokerage fees, costs and other expenses (excluding fees, commissions,
costs or other expenses payable to the Borrower or any Subsidiary) that are
incurred in connection with such asset disposition and are payable by the
seller or transferor of the assets disposed of, less (c) the amount, if
any, used to repay Indebtedness secured by a Lien on any asset disposed of
in such asset disposition or which is required to be repaid in connection
with such asset disposition (including payments made to obtain or avoid the
need for obtaining consent of any holder of such Indebtedness), less (d)
amounts reserved by Borrower or any Subsidiary (in accordance with GAAP)
against liabilities associated with the assets disposed of in such asset
disposition and retained by Borrower or any Subsidiary after such asset
disposition (including, without limitation, pension and other post-
employment benefit liabilities, liabilities for environmental matters and
liabilities for indemnification obligations associated with the assets
disposed of); provided, however, that the following shall not be deemed to
be asset dispositions (i) the sale of inventory in the ordinary course of
business, (ii) any disposition of assets from the Borrower or a Subsidiary
to the Borrower or any Subsidiary, and (iii) the dispositions of obsolete
or worn-out assets or of assets that are replaced within a reasonable time
with assets of a similar type and of substantially equal or greater value.
"Note" shall mean a Revolving Loan Note or a Term Loan Note.
"Obligations" shall mean the principal of and all interest on all
Loans, all fees, expense reimbursements, taxes, compensation and
indemnities payable by the Borrower to the Agent or any Lender pursuant to
this Agreement and all other present and future Indebtedness and other
liabilities of the Borrower owing to the Agent, any Lender or any Person
en-titled to indemnification pursuant to Section 9.5(b), or any of their
respective successors, transferees or assigns, of every type and
description, whether or not evidenced by any note, letter of credit,
guaranty or other instrument, arising under or in connection with this
Agreement, any Note or any other Loan Document, whether or not for the
payment of money, whether direct or indirect (including those acquired by
assignment), absolute or contingent, due or to become due, now existing or
hereafter arising and however arising.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
referred to and defined in ERISA.
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"Permitted Investments" shall mean Investments complying with the
terms of the Borrower's Policy for Short-Term Investments set forth on
Schedule 1.1B.
"Person" shall mean any natural person, corporation, business
trust, joint venture, association, company, partnership or government, or
any agency or political subdivision thereof.
"Plan" shall mean any pension plan (other than a Multiemployer
Plan) subject to the provisions of Title IV of ERISA or Section 412 of the
Code which is maintained for employees of the Borrower, or any ERISA
Affiliate.
"Potential Event of Default" shall mean any event or condition
which upon notice, lapse of time or both would constitute an Event of
Default.
"Prime Rate" shall have the meaning given to such term in the
definition of Alternate Base Rate.
"Pro Rata Share" shall mean, at any particular time and with
respect to any Lender, a fraction (expressed as a percentage), the
numerator of which shall be the sum of (i) the then outstanding principal
balance of such Lender's Term Loan and (ii) such Lender's Revolving Credit
Commitment and the denominator of which shall be the sum of (x) the
aggregate outstanding principal balance of all Term Loans and (y) the
Aggregate Revolving Credit Commitments, as adjusted from time to time
pursuant to the terms of this Agreement; provided, that if all of the
Revolving Credit Commitments are terminated or reduced to zero hereunder,
"Pro Rata Share" shall mean, at any particular time and with respect to any
Lender, a fraction (expressed as a percentage), the numerator of which
shall be the then amount of such Lender's outstanding Term Loans and
Revolving Loans and the denominator of which shall be the then aggregate
amount of all Term Loans and Revolving Loans outstanding hereunder;
provided, further, that prior to the Closing Date, "Pro Rata Share" shall
mean, at any particular time and with respect to any Lender, a fraction
(expressed as a percentage), the numerator of which shall be the sum of (i)
such Lender's Term Loan Commitment and (ii) such Lender's Revolving Credit
Commitment and the denominator of which shall be the sum of (x) the
Aggregate Term Loan Commitments and (y) the Aggregate Revolving Credit
Commitments, as adjusted from time to time pursuant to the terms of this
Agreement.
"Purchase Agreement" shall mean the Stock Purchase Agreement
dated as of April 28, 1995 by and among the Borrower, Capital Acquisition
Corp. and the Seller, a copy of which has been delivered to the Agent and
the Lenders.
"Qualified Affiliate" shall mean an Affiliate of a Lender which
Affiliate is a bank or other financial institution with combined capital
and surplus and undivided profits of not less than $50,000,000.
"Rating Based Fee" shall mean for any date that the Alternative
Margin is not in effect the applicable number of basis points (expressed as
a percentage) based upon Lincoln Telephone's Long-Term Debt Rating by
Standard & Poor's set forth below:
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Long Term Debt Rating Facility Fee
(in basis points)
AAA/AA+/AA 8.0
AA- 10.0
A+/A 12.5
A-/BBB+ 15.0
BBB 17.5
BBB- 20.0
BB+ or less 35.0
For purposes of the foregoing, the Facility Fee at any time shall
be determined by reference to Lincoln Telephone's Long-Term Debt Rating as
published by Standard & Poor's and the applicable Facility Fee shall change
the date of any change in such Long-Term Debt Rating.
"Rating Based Margin" shall mean for any date, based upon Lincoln
Telephone's Long-Term Debt Rating by Standard & Poor's
(a) with respect to Revolving Loans, the applicable margin
set forth below under the column entitled "Applicable Revolving
Loan Margin"; and
(b) with respect to Term Loans, the applicable margin set
forth below under the column entitled "Applicable Term Loan
Margin":
Applicable Revolving Applicable Term
Long Term Loan Margin Loan Margin
Debt Rating (in basis points) (in basis points)
AAA/AA+/AA 19.5 30.0
AA- 20.0 32.5
A+/A 20.0 35.0
A-/BBB+ 22.5 40.0
BBB 30.0 50.0
BBB- 40.0 62.5
BB+ or less 65.0 100.0
For purposes of the foregoing, the Revolving Loan Margin and the
term Loan Margin at any time shall be determined by reference to Lincoln
Telephone's Long-Term Debt Rating as published by Standard & Poor's and the
applicable Revolving Loan Margin and Term Loan Margin shall change on the
date of any change in such Long-Term Debt rating.
"Register" shall have the meaning given such term in
Section 9.4(d).
"Regulation D" shall mean Regulation D of the Board as from time
to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulation G" shall mean Regulation G of the Board as from time
to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulation U" shall mean Regulation U of the Board as from time
to time in effect and all official rulings and interpretations thereunder
or thereof.
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"Regulation X" shall mean Regulation X of the Board as from time
to time in effect and all official rulings and interpretations thereunder
or thereof.
"Reportable Event" shall mean any reportable event as that term
is defined in Section 4043(b) of ERISA or the regulations issued thereunder
with respect to a Plan (other than a Plan maintained by an ERISA Affiliate
which is considered an ERISA Affiliate only pursuant to subsection (m) or
(o) of Section 414 of the Code).
"Required Lenders" shall mean, except as otherwise provided in
Section 9.17(v), Lenders whose Pro Rata Shares, in the aggregate, are
greater than fifty-one percent (51%).
"Required Revolving Credit Lenders" shall mean, at any time,
except as otherwise provided in Section 9.17(v), Revolving Credit Lenders
whose Revolver Pro Rata Shares, in the aggregate, are greater than fifty-
one percent (51%) at such time; provided, however, that for purposes of
this definition only, the term "Revolving Loans" that appears twice in the
proviso to the definition of the term "Revolver Pro Rata Share" shall be
replaced with the term "Revolving Credit Facility Loans".
"Required Term Lenders" shall mean, at any time, except as
otherwise provided in Section 9.17(v), Term Lenders whose Term Pro Rata
Shares, in the aggregate, are greater than fifty-one percent (51%) at such
time.
"Responsible Officer" of any corporation shall mean any executive
officer or Financial Officer of such corporation, and any other officer or
similar official thereof responsible for the administration of the
obligations of such corporation in respect of this Agreement.
"Restricted Payments" shall have the meaning given such term in
Section 6.5.
"Revolver Pro Rata Share" shall mean, at any particular time and
with respect to any Revolving Credit Lender, a fraction (expressed as a
percentage), the numerator of which shall be the then aggregate amount of
such Lender's Revolving Credit Commitment and the denominator of which
shall be the Aggregate Revolving Credit Commitments, as adjusted from time
to time pursuant to the terms of this Agreement; provided, that if all of
the Revolving Credit Commitments are terminated or reduced to zero
hereunder, "Revolver Pro Rata Share" shall mean, at any particular time and
with respect to any Revolving Credit Lender, a fraction (expressed as a
percentage), the numerator of which shall be the then amount of such
Lender's outstanding Revolving Loans and the denominator of which shall be
the then aggregate amount of all Revolving Loans outstanding hereunder.
"Revolving Credit Availability" shall mean, as of any particular
date of determination, the amount by which Aggregate Revolving Credit
Commitments exceed Outstandings. For purposes of calculating Revolving
Credit Availability as at any date, all Revolving Loans requested but not
yet advanced will be treated as advanced in calculating Outstandings unless
the Borrower has directed that the requested advance be disbursed to repay
the Revolving Loans. "Outstandings" shall mean, at any given time the
aggregate outstanding principal balance of Revolving Loans.
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"Revolving Credit Commitment" shall mean, with respect to each
Revolving Credit Lender, the commitment of such Lender to make Revolving
Loans, which Revolving Credit Commitments as of the Documentation
Completion Date are set forth in Schedule 2.4, as the same may be reduced
from time to time pursuant to Section 2.13.
"Revolving Credit Facility" shall mean the revolving credit
facility established for Revolving Loans pursuant to Section 2.4.
"Revolving Credit Lender" shall mean a Lender that has a
Revolving Credit Commitment or to which Revolving Loans are owing.
"Revolving Loan Borrowing" shall mean a group of Revolving Loans
of the same Type made by the Revolving Credit Lenders on a single date and
as to which a single Interest Period is in effect.
"Revolving Loan Commitment Termination Date" shall mean the
earlier of (a) the Revolving Loan Maturity Date, and (b) the date of
termination of the Revolving Credit Commitments pursuant to Article 7 or
Section 2.13.
"Revolving Loan Maturity Date" shall mean July 6, 1998 or such
later date (which is an anniversary date thereof), if any, as may be agreed
to by Agent and each of the Revolving Credit Lenders in their sole
discretion following the written request of Borrower for a one-year
extension thereof received not less than 60 days prior to any anniversary
date of the Closing Date and otherwise designated as the Revolving Loan
Maturity Date.
"Revolving Loan Note" shall have the meaning given such term in
Section 2.7 of this Agreement.
"Revolving Loans" shall mean the revolving loans made by the
Revolving Credit Lenders to the Borrower pursuant to Section 2.5.
"Sale and Lease-Back Transaction" shall have the meaning given
such term in Section 6.2.
"Seller" shall mean collectively, Nebwest Cellular, Inc. a
Nebraska corporation and its shareholders listed as parties to the Purchase
Agreement.
"Standard & Poor's" shall mean Standard & Poor's Ratings Group, a
division of McGraw-Hill Companies, Inc., or its successors.
"Subsidiary" shall mean, with respect to any Person (herein
referred to as the "parent"), any corporation, partnership, association or
other business entity (a) of which securities or other ownership interests
representing more than 50% of the equity or more than 50% of the ordinary
voting power or more than 50% of the general partnership interests are, at
the time any determination is being made, owned, controlled or held, or (b)
which is, at the time any determination is made, otherwise Controlled, by
the parent or one or more subsidiaries of the parent or by the parent and
one or more subsidiaries of the parent.
"Subsidiary" shall mean any subsidiary of the Borrower which is
consolidated with the Borrower pursuant to GAAP or for federal income tax
purposes.
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"Term Lender" shall mean a Lender that has a Term Loan Commitment
or to which a Term Loan is owing.
"Term Loan" and "Term Loans" shall have the respective meanings
given to such terms in Section 2.1.
"Term Loan Facility" shall mean the term loan facility
established for Term Loans pursuant to Section 2.1.
"Term Loan Maturity Date" shall mean July 6, 2000.
"Term Loan Note" shall have the meaning given such term in
Section 2.7 of this Agreement.
"Term Loan Commitment" shall mean, with respect to each Term
Lender, the commitment of such Lender to make a Term Loan on the Closing
Date as set forth in Schedule 2.1. The Term Loan Commitment of each Term
Lender shall terminate upon the Borrower's receipt of the proceeds of such
Lender's Term Loan or as otherwise set forth in this Agreement.
"Term Pro Rata Share" shall mean, with respect to any Term
Lender, at any particular time, a fraction (expressed as a percentage), the
numerator of which shall be the then outstanding principal balance of such
Lender's Term Loan and the denominator of which shall be the aggregate
outstanding balance of all Term Loans; provided, that at any particular
time prior to the Closing Date, "Term Pro Rata Share" shall mean a fraction
(expressed as a percentage), the numerator of which shall be the then
aggregate amount of such Lender's Term Loan Commitment and the denominator
of which shall be the Aggregate Term Loan Commitments.
"Termination Date" shall mean the earlier of (a)the Revolving
Loan Maturity Date and (b) the date of termination of the Commitments
pursuant to Article 7 or Section 2.14.
"Third Party Claim" shall have the meaning given such term in
Section 9.5(b).
"Total Operating Revenues" shall mean for any Fiscal Year the
total consolidated operating revenues of Borrower and the Subsidiaries as
reported on Borrower's consolidated statement of earnings for such Fiscal
Year.
"Transferee" shall have the meaning given such term in
Section 2.25(a).
"Type" when used in respect of any Revolving Loan or Borrowing,
shall refer to the interest rate (i.e. the LIBO Rate or the Alternative
Base Rate) by reference to which interest on such Revolving Loan or portion
thereof or on the Revolving Credit Facility Loans comprising such Borrowing
is determined.
"Voting Stock" shall mean, with respect to any Person, capital
stock of any class or kind ordinarily having the power to vote for the
election of directors, managers or other voting members of the governing
body of such Person.
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"Withdrawal Liability" shall mean liability to a Multiemployer
Plan as a result of a complete or partial withdrawal from such
Multiemployer Plan, as such terms are defined in Part I of Subtitle E of
Title IV of ERISA.
1.2 Terms Generally. The definitions in Section 1.1 shall apply
equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase
"without limitation". All references herein to Articles, Sections,
Exhibits and Schedules shall be deemed references to Articles and Sections
of, and Exhibits and Schedules to, this Agreement unless the context shall
otherwise require. Except as otherwise expressly provided herein, all
terms of an accounting or financial nature shall be construed in accordance
with GAAP, as in effect from time to time; provided, however, that, for
purposes of determining compliance with any covenant set forth in Article
6, such terms shall be construed in accordance with GAAP as in effect on
the date of this Agreement applied on a basis consistent with the
application used in preparing the Borrower's audited financial statements
referred to in Section 3.5; provided, further, that in making any
calculation required by this Agreement, for the purpose of determining the
net income or deficit or item of expense of or for any Subsidiary,
notwithstanding any reference herein to any period, the income, deficit or
expense included in such calculation with respect to such Subsidiary shall
be included only from the date such Subsidiary became a Subsidiary.
ARTICLE 2
THE CREDITS
2.1 The Term Loan Facility. Subject to the terms and conditions set
forth in this Agreement, each Term Lender hereby severally and not jointly
agrees to make a term loan, in dollars, to the Borrower on the Closing
Date, in an amount equal to such Lender's Term Loan Commitment (each such
term loan a "Term Loan", and collectively, the "Term Loans"). The Term
Loan Commitments of each Term Lender as of the Documentation Completion
Date are set forth on Schedule 2.1 attached hereto.
2.2 Term Loans.
(a) Subject to fulfillment of the conditions precedent set
forth in Section 4.2, on the Closing Date, each Term Lender shall deposit
an amount equal to its Term Loan Commitment at the Agent's office in
Chicago, Illinois, no later than 12:00 noon Chicago time, in immediately
available funds. The Agent shall make the proceeds of such amounts
received by it available to the Borrower at the Agent's office in Chicago,
Illinois not later than 2:00 p.m. Chicago time on the Closing Date, and
shall disburse such proceeds in accordance with the Borrower's disbursement
instructions. The Term Loans shall be made by the Term Lenders
simultaneously, it being understood that no Lender shall be responsible for
any failure by any other Term Lender to perform its obligation to make its
Term Loan hereunder nor shall any Term Lender's Term Loan Commitment be
increased or decreased as a result of such failure. The failure of any
Term Lender to make available to the Agent an amount equal to its Term Loan
Commitment on the Closing Date shall not relieve any other Term Lender of
its obligation hereunder to make available such other Term Lender's Term
Loan on the Closing Date pursuant to the terms of this Agreement.
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(b) Subject to conversion pursuant to Section 2.15 below, the
Term Loans initially shall be either an ABR Loan or a Eurodollar Loan, as
the Borrower may designate in its notice of the Closing Date described in
Section 4.2(d). The Borrower shall give the Agent written or telecopy
notice (or telephone notice promptly confirmed in writing or by telecopy)
no later than 5:00 p.m Chicago time at least four Business Days prior to
the Closing Date. Such notice shall be irrevocable, shall refer to this
Agreement and shall specify (i) whether the Term Loans initially will be
made as a Eurodollar Loan or an ABR Loan; (ii) the date of the Closing Date
(which shall be a Business Day); (iii) if the Term Loans initially will be
made as a Eurodollar Loan, the Interest Period with respect thereto. If
such notice does not specify whether the Term Loans are to be made as a
Eurodollar Loan or an ABR Loan, then the Term Loans initially shall be made
as an ABR Loan. If the Borrower specifies that the Term Loans initially
will be made as a Eurodollar Loan, but the notice in respect thereof does
not specify the Interest Period for such Eurodollar Loan, then the Borrower
shall be deemed to have selected an Interest Period of one month's
duration. The Agent shall promptly advise the Term Lenders of the notice
given pursuant to this Section 2.2.
2.3 Repayment of the Term Loans.
(a) The Term Loans shall be repaid in thirteen (13) consecutive
quarterly installments commencing on September 15, 1997 and continuing
thereafter until the Term Loan Maturity Date. The installments shall be
paid on the dates and shall be in the aggregate amounts set forth below:
Installment
Installment Date Amount
September 15, 1997 $2,000,000
December 15, 1997 $2,000,000
March 15, 1998 $2,000,000
June 15, 1998 $2,000,000
September 15, 1998 $2,000,000
December 15, 1998 $2,000,000
March 15, 1999 $2,000,000
June 15, 1999 $2,000,000
September 15, 1999 $3,000,000
December 15, 1999 $3,000,000
March 15, 2000 $3,000,000
June 15, 2000 $3,000,000
July 6, 2000 $2,000,000
(b) In addition to the scheduled installments of the Term
Loans, the Borrower may make voluntary prepayments described in Section
2.16 and shall make the mandatory prepayments prescribed in Section 2.18,
for credit against such scheduled installments on the Term Loans in
accordance with such sections.
(c) Notwithstanding the foregoing clause (a), the final
installment shall be in the amount of the outstanding principal balance of
the Term Loans. Any amount repaid or prepaid in connection with the Term
Loans may not be reborrowed.
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2.4 The Revolving Credit Facility. Subject to the terms and
conditions set forth in this Agreement, each Revolving Credit Lender hereby
severally and not jointly agrees to make Revolving Loans, in dollars to the
Borrower from time to time during the period from the Closing Date to the
Business Day immediately preceding the Revolving Loan Commitment
Termination Date, in an amount which shall not exceed the product of such
Lender's Revolver Pro Rata Share and the Revolving Credit Availability at
such time. The Revolving Credit Commitments of each Revolving Credit
Lender as of the Documentation Completion Date are set forth on Schedule
2.4 attached hereto.
2.5 Revolving Loans.
(a) All Revolving Loans comprising the same Borrowing under
this Agreement shall be made by the Revolving Credit Lenders simultaneously
and proportionately to their respective Revolver Pro Rata Shares, it being
understood that no Lender shall be responsible for any failure by any other
Revolving Credit Lender to perform its obligation to make a Revolving Loan
hereunder and that the Revolving Credit Commitment of any Lender shall not
be increased or decreased without the prior written consent of such Lender
as a result of the failure by any other Revolving Credit Lender to perform
its obligation to make a Revolving Loan. The failure of any Revolving
Credit Lender to make available to the Agent its Revolver Pro Rata Share of
any Borrowing shall not relieve any other Lender of its obligation
hereunder to make available to the Agent such other Lender's Revolver Pro
Rata Share of any Borrowing of the Aggregate Revolving Credit Commitments
on the date such funds are to be made available pursuant to the terms of
this Agreement.
(b) Each Borrowing shall be in a minimum principal amount of
$1,000,000 and in multiples of $500,000 in excess thereof or an aggregate
principal amount equal to the Revolving Credit Availability. Each
Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans, as
the Borrower may request pursuant to Section 2.6. Each Revolving Credit
Lender may at its option fulfill its commitment with respect to any
Eurodollar Loan by causing any domestic or foreign branch or Affiliate of
such Lender to make such Eurodollar Loan; provided that any exercise of
such option shall not affect the obligation of the Borrower to repay such
Eurodollar Loan in accordance with the terms of this Agreement. Borrowings
of more than one Type may be outstanding at the same time; provided,
however, that the Borrower shall not be entitled to request any Borrowing
which, if made, would result in an aggregate of more than five separate
Borrowings which are Eurodollar Loans being outstanding hereunder at any
one time. For purposes of the foregoing, Borrowings having different
Interest Periods, regardless of whether they commence on the same date,
shall be considered separate Borrowings.
(c) Subject to paragraph (e) below, each Revolving Credit
Lender shall make a Revolving Loan in the amount of its Revolver Pro Rata
Share of the amount of each Borrowing hereunder on the proposed date
thereof by wire transfer of immediately available funds to the Agent in
Chicago, Illinois, not later than 12:00 noon, Chicago time, and the Agent
shall, promptly upon receipt of such amounts but in any event not later
than 2:00 p.m. on the same Business Day, Chicago time, credit the amounts
so received to the general deposit account of the Borrower with the Agent
or, if a Borrowing shall not occur on such date because any condition
precedent herein specified shall not have been met, return the amounts so
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received to the respective Lenders. Unless the Agent shall have received
notice from a Revolving Credit Lender prior to the date of any Borrowing
that such Lender will not make available to the Agent such Lender's portion
of such Borrowing, the Agent may assume that such Lender has made such
portion available to the Agent on the date of such Borrowing in accordance
with this paragraph(c) and the Agent may, in reliance upon such assumption,
make available to the Borrower on such date a corresponding amount. If and
to the extent that such Lender shall not have made such portion available
to the Agent, such Lender and the Borrower severally agree to repay to the
Agent forthwith on demand such corresponding amount together with interest
thereon, for each day, from the date such amount is made available to the
Borrower until the date such amount is repaid to the Agent at (i) in the
case of the Borrower, the interest rate applicable at the time to the
Revolving Loans comprising such Borrowing and (ii) in the case of such
Lender, the Federal Funds Effective Rate. If such Lender shall repay to
the Agent such corresponding amount, such amount shall constitute such
Lender's Revolving Loan as part of such Borrowing for purposes of this
Agreement.
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request any Eurodollar Borrowing if the
Interest Period requested with respect thereto would end after the
Revolving Loan Maturity Date.
(e) The Borrower may refinance all or any part of any Borrowing
with a Borrowing of the same or a different Type, subject to the conditions
and limitations set forth in this Agreement. Any Borrowing or part thereof
so refinanced shall be deemed to be repaid or prepaid in accordance with
Section 2.8 or 2.16, as applicable, with the proceeds of a new Borrowing,
and the proceeds of the new Borrowing, to the extent they do not exceed the
principal amount of the Borrowing being refinanced, shall not be paid by
the Revolving Credit Lenders to the Agent or by the Agent to the Borrower
pursuant to paragraph (c) above.
2.6 Notice of Borrowings of Revolving Loans. The Borrower shall
give the Agent written or telecopy notice (or telephone notice promptly
confirmed in writing or by telecopy) (a) in the case of a Eurodollar
Borrowing, not later than 12:00 (noon) Chicago time, three Business Days
before a proposed Borrowing and (b) in the case of an ABR Borrowing, not
later than 12:00 (noon) Chicago time, one Business Day before a proposed
Borrowing. Each such notice shall be in substantially the form of Exhibit
C. Such notice shall be irrevocable and shall in each case refer to this
Agreement and specify (i) whether the Borrowing then being requested is to
be a Eurodollar Borrowing or an ABR Borrowing; (ii) the date of such
Borrowing (which shall be a Business Day) and the amount thereof; and (iii)
if such Borrowing is to be a Eurodollar Borrowing, the Interest Period with
respect thereto. If no Interest Period with respect to any Eurodollar
Borrowing is specified in any such notice, then the Borrower shall be
deemed to have selected an Interest Period of one month's duration. If the
Borrower shall not have given notice in accordance with this Section 2.6 of
its election to refinance a Eurodollar Borrowing prior to the end of the
Interest Period in effect for such Eurodollar Borrowing, then the Borrower
shall (unless such Eurodollar Borrowing is repaid at the end of such
Interest Period) be deemed to have given notice of an election to refinance
such Eurodollar Borrowing with an ABR Borrowing. The Agent shall promptly
advise the Revolving Credit Lenders of any notice given pursuant to this
Section 2.6 and of each such Lender's portion of the requested Borrowing.
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2.7 Notes.
(a) The Borrower shall execute and deliver to each Term Lender
(or to the Agent on behalf of each Term Lender) on or before the Closing
Date a promissory note substantially in the form of Exhibit D-1 hereto
(each a "Term Loan Note" and collectively, the "Term Loan Notes") to
evidence the amount of that Lender's Term Loan. Each Term Loan Note shall
be dated the Closing Date and shall be stated to mature on the Term Loan
Maturity Date. The Term Loan Note executed in favor of any Term Lender
shall be in a principal amount equal to such Lender's Term Loan Commitment.
(b) The Borrower shall execute and deliver to each Revolving
Credit Lender (or to the Agent on behalf of each Revolving Credit Lender)
on or before the Closing Date a promissory note substantially in the form
of Exhibit D-2 hereto (each a "Revolving Loan Note" and collectively, the
"Revolving Loan Notes") to evidence the aggregate amount of that Lender's
Revolving Loans and with other appropriate insertions. Each Revolving Loan
Note shall be dated the Closing Date and shall be stated to mature on the
Revolving Loan Maturity Date. The Revolving Loan Note executed in favor of
any Revolving Credit Lender shall be in a principal amount equal to the
Lender's Revolving Credit Commitment.
(c) Each Lender is hereby authorized to, and prior to any
transfer of any Note issued to it, each Lender shall, endorse the date and
amount of each Loan made by such Lender and each payment or prepayment of
principal of the Loans evidenced thereby on the schedule annexed to and
constituting a part of such Note, which endorsement shall constitute prima
facie evidence, absent manifest error, of the accuracy of the information
so endorsed, provided that failure by any such Lender to make such
endorsement shall not affect the obligations of the Borrower hereunder or
under such Note. In lieu of endorsing such schedule as hereinabove
provided, prior to any transfer of such Note, each Lender is hereby
authorized, at its option, to record such Loans and such payments or
prepayments in its books and records, such books and records constituting
prima facie evidence, absent manifest error, of the accuracy of the
information contained therein.
2.8 Repayment of Revolving Loans.
(a) The Borrower agrees to pay the outstanding principal
balance of each Revolving Loan on the Revolving Loan Maturity Date. Each
Revolving Loan shall bear interest from the date of the Borrowing of which
such Revolving Loan is a part on the outstanding principal balance thereof
as set forth in Section 2.10.
(b) Each Revolving Credit Lender shall, and is hereby
authorized by the Borrower to, maintain in accordance with its usual
practice records evidencing the indebtedness of the Borrower to such Lender
hereunder from time to time, including the amounts and Types of and
Interest Periods applicable to the Revolving Loans made by such Lender from
time to time and the amounts of principal and interest paid to such Lender
from time to time in respect of such Revolving Loans.
(c) The entries made in the records maintained pursuant to
paragraph (b) of this Section 2.8 and in the Register maintained by the
Agent pursuant to Section 9.4 shall be prima facie evidence of the
existence and amounts of the obligations of the Borrower to which such
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entries relate; provided, however, that the failure of any Lender or the
Agent to maintain or to make any entry in such records or the Register, as
applicable, or any error therein shall not in any manner affect the
obligation of the Borrower to repay the Loans in accordance with the terms
of this Agreement.
2.9 Fees.
(a) The Borrower agrees to pay to the Revolving Credit Lenders,
through the Agent, on the last day of March, June, September and December
in each year and on the Termination Date, a facility fee (a "Facility Fee")
in an amount equal to the Applicable Facility Fee multiplied by the
Aggregate Revolving Credit Commitments, regardless of utilization, payable
to the Revolving Credit Lenders pro rata quarterly in arrears (or other
period commencing on the Closing Date or ending with the Termination Date).
All Facility Fees shall be computed on the basis of the actual number of
days elapsed in a year of 360 days. The Facility Fee due to each Revolving
Credit Lender shall commence to accrue on the Closing Date and shall cease
to accrue on the date on which the last of the Revolving Credit Commitments
of such Lender shall expire or be terminated as provided herein.
(b) The Borrower agrees to pay all fees set forth in the Agent
Fee Letter on the Closing Date.
(c) All fees shall be paid on the dates due, in immediately
available funds, to the Agent for distribution, if and as appropriate,
among the Lenders. Once paid, none of the fees shall be refundable under
any circumstances.
2.10 Interest on Loans.
(a) Subject to the provisions of Section 2.11, the Revolving
Loans comprising each ABR Borrowing shall bear interest (computed on the
basis of the actual number of days elapsed over a year of 360 days) at a
rate per annum equal to the Alternate Base Rate.
(b) Subject to the provisions of Section 2.11, the Revolving
Loans comprising each Eurodollar Borrowing shall bear interest (computed on
the basis of the actual number of days elapsed over a year of 360 days) at
a rate per annum equal to the LIBO Rate in effect for such Borrowing plus
the Applicable Revolving Loan Margin.
(c) Subject to the provisions of Section 2.11, the portion of
the Term Loans constituting Eurodollar Loans shall bear interest (computed
on the basis of the actual number of days elapsed over a year of 360 days)
at the LIBO Rate in effect for such Borrowing plus the Applicable Term Loan
Margin.
(d) Subject to the provisions of Section 2.11, the portion of
the Term Loans comprising an ABR Loan shall bear interest (computed on the
basis of the actual number of days elapsed over a year of 360 days at all
other times) at a rate per annum equal to the Alternate Base Rate.
(e) Interest on each Loan shall be payable on the Interest
Payment Dates applicable to such Loan except as otherwise provided in this
Agreement. The applicable Alternate Base Rate from time to time or LIBO
Rate for each Interest Period, as the case may be, shall be determined by
the Agent, and such determination shall be conclusive absent manifest
error.
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2.11 Default Interest. If the Borrower shall default in the payment
of the principal of or interest on any Loan or any other amount becoming
due hereunder, by acceleration or otherwise, the Borrower shall on written
demand by the Agent from time to time pay interest, to the extent permitted
by law, on such defaulted amount up to (but not including) the date of
actual payment (after as well as before judgment) at a rate per annum
(computed on the basis of the actual number of days elapsed over a year of
360 days) equal to the Prime Rate plus 2% per annum.
2.12 Alternate Rate of Interest. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of
any Interest Period for any Eurodollar Borrowing, or any portion of the
Term Loan constituting Eurodollar Loans, that the Agent shall have
determined that dollar deposits in the principal amounts of Loans
constituting Eurodollar Loans are not generally available in the London
interbank market, or that the rates at which such dollar deposits are being
offered will not adequately and fairly reflect the cost to the Lenders of
making or maintaining their Eurodollar Loans during such Interest Period,
or that reasonable means do not exist for ascertaining the LIBO Rate, the
Agent shall, as soon as practicable thereafter, give written or telecopy
notice of such determination to the Borrower and the Term Lenders or
Revolving Lenders, as the case may be. In the event of any such
determination, any request by the Borrower for Eurodollar Loans pursuant to
Section 2.6, 2.14 or 2.15 shall, until the Agent shall have advised the
Borrower and the Term Lenders or Revolving Credit Lenders, as applicable,
that the circumstances giving rise to such notice to longer exist, be
deemed to be a request for ABR Loans. Each determination by the Agent
hereunder shall be conclusive absent manifest error.
2.13 Reduction or Cancellation of Commitments.
(a) The Revolving Credit Commitments shall be automatically
terminated on the Revolving Loan Commitment Termination Date.
(b) On or after July 6, 1996, upon at least five Business Days'
prior irrevocable written or telecopy notice to the Agent, which shall
promptly notify the Revolving Credit Lenders, the Borrower may at any time
and from time to time either (i) permanently reduce a portion of the
Aggregate Revolving Credit Commitments, in minimum amounts of $5,000,000
and in multiples of $5,000,000, or (ii) permanently reduce the Aggregate
Revolving Credit Commitments to zero.
(c) On or before October 5, 1995, upon at least five Business
Days' prior irrevocable written or telecopy notice to the Agent, which
shall promptly notify the Revolving Credit Lenders, the Borrower may
permanently reduce the Aggregate Revolving Credit Commitments by an amount
of up to $7,000,000 in multiples of $1,000,000.
(d) Upon any mandatory prepayment of the Revolving Loans
pursuant to Section 2.18, the Revolving Credit Commitments shall
automatically be reduced by the amount of such prepayment. Any amounts
payable under Section 2.21 as a result of such reduction shall be due on
the effective date of such reduction.
(e) Each reduction in the Revolving Credit Commitments
hereunder shall be made ratably among the Revolving Credit Lenders in
accordance with their respective Revolver Pro Rata Shares.
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(f) The Term Loan Commitment of each Term Lender shall
terminate upon the Borrower's receipt of the proceeds of such Lender's Term
Loan or as otherwise set forth in this Agreement.
2.14 Conversion and Continuation of Borrowings of Revolving Loans.
The Borrower shall have the right, with respect to any Borrowing of
Revolving Loans, at any time upon prior irrevocable notice to the Agent (i)
not later than 12:00 (noon) Chicago time, one Business Day prior to
conversion, to convert any Eurodollar Borrowing into an ABR Borrowing, (ii)
not later than 10:00 a.m., Chicago time, three Business Days prior to
conversion or continuation, to convert any ABR Borrowing into a Eurodollar
Borrowing or to continue any Eurodollar Borrowing as a Eurodollar Borrowing
for an additional Interest Period, and (iii) not later than 10:00 a.m.,
Chicago time, three Business Days prior to conversion, to convert the
Interest Period with respect to any Eurodollar Borrowing to another
permissible Interest Period, subject in each case to the following:
(a) each conversion or continuation shall be made pro rata
among the Lenders in accordance with the respective principal amounts of
the Loans comprising the converted or continued Borrowing;
(b) if less than all the outstanding principal amount of any
Borrowing shall be converted or continued, the aggregate principal amount
of such Borrowing converted or continued shall be an integral multiple of
$500,000 (and not less than $2,000,000 in the case of a Eurodollar
Borrowing);
(c) each conversion shall be effected by each Lender by
applying the proceeds of the new Revolving Loan of such Lender resulting
from such conversion to the Revolving Loan (or portion thereof) of such
Lender being converted; accrued interest on a Loan (or portion thereof)
being converted shall be paid by the Borrower at the time of conversion;
(d) if any Eurodollar Borrowing is converted at a time other
than the end of the Interest Period applicable thereto, the Borrower shall
pay, upon demand, any amounts due to the Revolving Credit Lenders pursuant
to Section 2.21;
(e) any portion of a Borrowing maturing or required to be
repaid in less than one month may not be converted into or continued as a
Eurodollar Borrowing;
(f) any portion of a Eurodollar Borrowing which cannot be
continued by reason of clause (e) above shall be automatically converted at
the end of the Interest Period in effect for such Borrowing into an ABR
Borrowing.
Each notice pursuant to this Section 2.14 shall be in substantially
the form of Exhibit E 1. Such notice shall be irrevocable and shall refer
to this Agreement and specify (i) the identity and amount of the Borrowing
of Revolving Loans that the Borrower requests be converted or continued,
(ii) whether such Borrowing is to be converted to or continued as a
Eurodollar Borrowing or an ABR Borrowing, (iii) if such notice requests a
conversion, the date of such conversion (which shall be a Business Day),
and (iv) if such Borrowing is to be converted to or continued as a
Eurodollar Borrowing, the Interest Period with respect thereto. If no
Interest Period is specified in any such notice with respect to any
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conversion to or continuation as a Eurodollar Borrowing, the Borrower shall
be deemed to have selected an Interest Period of one month's duration. The
Agent shall advise the other Revolving Credit Lenders of any notice given
pursuant to this Section 2.14 and of each such Lender's portion of any
converted or continued Borrowing. If the Borrower shall not have given
notice in accordance with this Section 2.14 to continue any Eurodollar
Borrowing into a subsequent Interest Period (and shall not otherwise have
given notice in accordance with this Section 2.14 to convert such
Borrowing), such Eurodollar Borrowing shall, at the end of the Interest
Period applicable thereto (unless repaid pursuant to the terms hereof),
automatically be continued into a new Interest Period as an ABR Borrowing.
2.15 Conversion and Continuation of Term Loans. The Borrower
shall have the right, with respect to any portion of the Term Loans, at any
time upon prior irrevocable notice to the Agent (i) not later than 12:00
(noon) Chicago time, one Business Day prior to conversion, to convert any
portion of the Term Loans that constitute a Eurodollar Loan into an ABR
Loan, (ii) not later than 10:00 a.m., Chicago time, three Business Days
prior to conversion or continuation, convert any portion of the Term Loans
that constitute an ABR Loan into a Eurodollar Loan or to continue any
portion of the Term Loans constituting a Eurodollar Loan as a Eurodollar
Loan for an additional Interest Period, and (iii) not later than 10:00
a.m., Chicago time, three Business Days prior to conversion, to convert the
Interest Period with respect to any portion of the Term Loans constituting
a Eurodollar Loan to another permissible Interest Period, subject in each
case to the following:
(a) each conversion or continuation shall be made pro rata
among the Term Lenders in accordance with the respective Term Pro Rata
Shares;
(b) the aggregate principal amount of portion of the Term Loans
converted or continued shall be an integral multiple of $500,000 (and not
less than $2,000,000 in the case of the conversion into or continuation of
Eurodollar Loans);
(c) accrued interest on a Loan (or portion thereof) being
converted shall be paid by the Borrower at the time of conversion;
(d) if any Eurodollar Loans are converted at a time other than
the end of the Interest Period applicable thereto, the Borrower shall pay,
upon demand, any amounts due to the Lenders pursuant to Section 2.21;
(e) any portion of the Term Loans maturing or required to be
repaid in less than one month may not be converted into or continued as
Eurodollar Loans;
(f) any portion of the Term Loans which cannot be continued by
reason of clause (e) above shall be automatically converted at the end of
the Interest Period in effect for such portion of the Term Loans into ABR
Loans.
Each notice pursuant to this Section 2.15 shall be in substantially
the form of Exhibit E-2. Such notice shall be irrevocable and shall refer
to this Agreement and specify (i) the identity and portion of the Term
Loans that the Borrower requests be converted or continued, (ii) whether
such portion of the Term Loans is to be converted or continued as
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Eurodollar Loans or ABR Loans, (iii) if such notice requests a conversion,
the date of such conversion (which shall be a Business Day) and (iv) if
such portion of the Term Loans is to be converted to or continued as
Eurodollar Loans, the Interest Period with respect thereto. If no Interest
Period is specified in any such notice with respect to any conversion to or
continuation as Eurodollar Loans, the Borrower shall be deemed to have
selected an Interest Period of one month's duration. The Agent shall
advise the other Term Lenders of any notice given pursuant to this Section
2.15 and of each such Lender's portion of any converted or continued
portion of Term Loans. If the Borrower shall not have given notice in
accordance with this Section 2.15 to continue any portion of Term Loans
into a subsequent Interest Period (and shall not otherwise have given
notice in accordance with this Section 2.15 to convert such portion of the
Term Loans), such portion of the Term Loans shall, at the end of the
Interest Period applicable thereto (unless repaid pursuant to the terms
hereof), automatically be continued into an Interest Period as ABR Loans.
2.16 Voluntary Prepayments.
(a) The Borrower shall have the right at any time and from time
to time to prepay Revolving Loans and/or Term Loans, in whole or in part,
upon prior written or telecopy notice (or telephone notice promptly
confirmed by written or telecopy notice) to the Agent before 10:00 a.m.,
Chicago time, (i) three Business Days prior to prepayment in the case of
Eurodollar Loans; and (ii) one Business Day prior to prepayment, in the
case of ABR Loans; provided, however, that each partial prepayment of the
Term Loans shall be in an amount which is an integral multiple of
$1,000,000 (and not less than $2,000,000). Prepayments of the Term Loans
shall be applied pro rata to the unpaid scheduled installments thereof.
(b) Each notice of an optional prepayment shall specify the
prepayment date and the principal amount of Term Loans or Revolving Loans
to be prepaid, shall be irrevocable and shall commit the Borrower to prepay
such Term Loans or Revolving Loans by the amount stated therein on the date
stated therein. All optional prepayments under this Section 2.16 shall be
without premium or penalty, except that prepayments of Eurodollar Loans
shall be subject to Section 2.21. All prepayments under this Section 2.16
shall be accompanied by accrued interest on the principal amount being
prepaid to the date of payment.
2.17 Mandatory Prepayments of Revolving Loans. On the date of any
termination or reduction of the Revolving Credit Commitments pursuant to
Section 2.13, the Borrower shall pay or prepay so much of the Revolving
Loans as shall be necessary in order that the aggregate principal amount of
the Revolving Loans outstanding will not exceed the aggregate Revolving
Credit Commitments after giving effect to such termination or reduction.
All mandatory prepayments under this Section 2.17 shall be without premium
or penalty, except that prepayments of Eurodollar Borrowings shall be
subject to Section 2.21.
2.18 Mandatory Prepayments Upon NCTC Sale. In the event that
Borrower shall sell substantially all of the assets of NCTC or more than
50% of the Voting Stock of NCTC on a fully diluted basis in any single
transaction or series of transactions, the Borrower shall make a mandatory
prepayment of the Term Loan (to the extent any Term Loans are outstanding
at such time) and to the extent that the amount of the mandatory prepayment
exceeds the outstanding Term Loans, of the Revolving Loans in an amount
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equal to (i) the Net Proceeds from such sale to the extent the purchase
price was paid in cash or property other than securities, and (ii) the Net
Proceeds from the disposition of any securities received from such sale in
payment of the purchase price. Any such mandatory prepayment shall be
applied pro rata to reduce the unpaid scheduled principal installments of
the Term Loans and shall otherwise be applied as provided in Section 2.13.
All mandatory prepayments under this Section 2.18 shall be without premium
or penalty, except that prepayments of Eurodollar Loans shall be subject to
Section 2.21.
2.19 Additional Interest on Eurodollar Loans; Reserve Requirements;
Change in Circumstances.
(a) The Borrower shall pay to the Agent for the account of each
Lender, so long as such Lender shall be required under regulations of the
Board to maintain reserves with respect to liabilities or assets consisting
of or including "Eurocurrency Liabilities", as such term is defined in
Regulation D, additional interest on the unpaid principal amount of each
Eurodollar Loan of such Lender, from the date of such Loan until such Loan
ceases to be a Eurodollar Loan, at an interest rate per annum equal to all
times to the remainder obtained by subtracting (i) the LIBO Rate for the
Interest Period for such Loan from (ii) the rate obtained by dividing such
LIBO Rate by a percentage equal to 100% minus the Eurodollar Rate Reserve
Percentage of such Lender for such Interest Period, payable on each date on
which interest is payable on such Loan. Such additional interest shall be
determined by such Lender and notified to the Borrower through the Agent.
For purposes of this Section, "Eurodollar Rate Reserve Percentage" of any
Lender for the Interest Period for any Eurodollar Loan means the reserve
percentage applicable during such Interest Period and actually required to
be maintained by such Lender as a result of the funding of Eurodollar Loans
made by such Lender to the Borrower hereunder (or if more than one such
percentage shall be so applicable, the daily
average of such percentages for those days in such Interest Period during
which any such percentage shall be so applicable) under regulations issued
from time to time by the Board (or any successor) for determining the
maximum reserve requirement (including, without limitation, any emergency,
supplemental or other marginal reserve requirement) for such Lender with
respect to liabilities or assets consisting of or including Eurocurrency
Liabilities having a term equal to such Interest Period.
(b) Notwithstanding any other provision herein, if after the
date of this Agreement any change in applicable law or regulation or in the
interpretation or administration thereof by any governmental authority
charged with the interpretation or administration thereof (whether or not
having the force of law) shall change the basis of taxation of payments to
any Lender of the principal of or interest on any Eurodollar Loan made by
such Lender, Facility Fees or other amounts payable hereunder (other than
changes in respect of taxes imposed on the overall net income of such
Lender by the jurisdiction in which such Lender has its principal office or
lending office or by any political subdivision or taxing authority
therein), and the result of any of the foregoing shall be to increase the
cost to such Lender of making or maintaining any Eurodollar Loan or to
reduce the amount of any sum received or receivable by such Lender
hereunder (whether of principal, interest or otherwise) by an amount deemed
by such Lender to be material, then the Borrower will pay to such Lender
upon demand such additional amount or amounts as will compensate such
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Lender on an after-tax basis for such additional costs incurred or
reduction suffered.
(c) If any Lender shall have determined that the applicability
of any law, rule, regulation, agreement or guideline adopted pursuant to or
arising out of the July 1988 report of the Basle Committee on Banking
Regulations and Supervisory Practices entitled "International Convergence
of Capital Measurement and Capital Standards", or the adoption after the
date hereof of any other law, rule, regulation, agreement or guideline
regarding capital adequacy, or any change in any of the foregoing or in the
interpretation or administration of any of the foregoing by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or
any lending office of such Lender) or any Lender's holding company with any
request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency, has
had the effect of reducing the rate of return on such Lender's capital or
on the capital of such Lender's holding company, if any, as a consequence
of this Agreement or the Loans made by such Lender (or the participations
of the Lenders therein) to a level below that which such Lender or such
Lender's holding company could have achieved but for such applicability,
adoption, change or compliance (taking into consideration such Lender's
policies and the policies of such Lender's holding company with respect to
capital adequacy) by an amount deemed by such Lender to be material, then
from time to time the Borrower shall pay to such Lender upon demand such
additional amount or amounts as will compensate such Lender or such
Lender's holding company on an after-tax basis for any such reduction
suffered.
(d) A certificate of each Lender setting forth such amount or
amounts as shall be necessary to compensate such Lender or its holding
company as specified in paragraph (a), (b) or (c) above, as the case may
be, shall be delivered to the Borrower and shall be conclusive absent
manifest error. The Borrower shall pay each Lender the amount shown as due
on any such certificate delivered by it within 30 days after its receipt of
the same.
(e) Except as otherwise expressly provided in this paragraph,
failure on the part of any Lender to demand compensation for any increased
costs or reduction in amounts received or receivable or reduction in return
on capital with respect to any period shall not constitute a waiver of such
Lender's right to demand compensation with respect to such period or any
other period. The protection of this Section 2.19 shall be available to
each Lender regardless of any possible contention of the invalidity or
inapplicability of the law, rule, regulation, guideline or other change or
condition which shall have occurred or been imposed. No Lender (or any
assignee or participant of any Lender) shall be entitled to compensation
under this Section 2.19 for any costs incurred or reductions suffered with
respect to any date unless it shall have notified the Borrower that it will
demand compensation for such costs or reductions under paragraph (c) above
not more than six months after the later of (i) such date and (ii) the date
on which it shall have become aware of such costs or reductions.
2.20 Change in Legality.
(a) Notwithstanding any other provision herein, if any change
in any law or regulation or in the interpretation thereof by any
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governmental authority charged with the administration or interpretation
thereof shall make it unlawful for any Lender to make or maintain any
Eurodollar Loan or to give effect to its obligations as contemplated hereby
with respect to any Eurodollar Loan, then, by written notice to the
Borrower and to the Agent, such Lender may:
(i) declare that Eurodollar Loans will not thereafter be
made by such Lender hereunder, whereupon any subsequent
request by the Borrower for a Eurodollar Borrowing shall,as to
such Lender only, be deemed a request for an ABR Loan unless
such declaration shall be subsequently withdrawn; and
(ii) require that all outstanding Eurodollar Loans made by
it be converted to ABR Loans, in which event all such
Eurodollar Loans shall be automatically converted to ABR Loans
as of the effective date of such notice as provided in
paragraph(b) below.
In the event any Lender shall exercise its rights under (i) or (ii)
above, all payments and prepayments of principal which would otherwise
have been applied to repay the Eurodollar Loans that would have been
made by such Lender or the converted Eurodollar Loans of such Lender
shall instead be applied to repay the ABR Loans made by such Lender in
lieu of, or resulting from the conversion of, such Eurodollar Loans.
(b) For purposes of this Section 2.20, a notice to the Borrower
by any Lender shall be effective as to each Eurodollar Loan, if lawful, on
the last day of the Interest Period currently applicable to such Eurodollar
Loan; in all other cases such notice shall be effective on the date of
receipt by the Borrower.
2.21 Indemnity. The Borrower shall indemnify each Lender against
any loss or expense which such Lender may sustain or incur, as a
consequence of (a) any failure by the Borrower to fulfill on the date of
the making of the Term Loans or any Borrowing hereunder the applicable
conditions set forth in Article 4, (b)any failure by the Borrower to borrow
or to refinance, convert or continue any Loan hereunder after irrevocable
notice of such borrowing, refinancing, conversion or continuation has been
given pursuant to Section 2.6, 2.14 or 2.15, (c) any payment, prepayment or
conversion of a Eurodollar Loan required by any other provision of this
Agreement or otherwise made or deemed made on a date other than the last
day of the Interest Period applicable thereto (other than payments,
prepayments or conversions made or deemed made pursuant to Section 2.20),
(d) any default in payment or default in prepayment of the principal amount
of any Loan or any part thereof or interest accrued thereon, as and when
due and payable (at the due date thereof, whether by scheduled maturity,
acceleration, irrevocable notice of prepayment or otherwise) or (e) the
occurrence of any Event of Default, including, in each such case, any loss
or reasonable expense sustained or incurred or to be sustained or incurred
in liquidating or employing deposits from third parties acquired to effect
or maintain such Loan or any part thereof as a Eurodollar Loan. Such loss
or expense shall be an amount equal to the excess, if any, as reasonably
determined by such Lender, of (i) its cost of obtaining the funds for the
Loan being paid, prepaid, converted or not borrowed, converted or continued
(assumed to be the LIBO Rate applicable thereto) for the period from the
date of such payment, prepayment, conversion or failure to borrow, convert
or continue to the last day of the Interest Period for such Loan (or, in
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the case of a failure to borrow, convert or continue, the Interest Period
for such Loan which would have commenced on the date of such failure) over
(ii) the amount of interest (as reasonably determined by such Lender) that
would be realized by such Lender in reemploying the funds so paid, prepaid,
converted or not borrowed, converted or continued for such period or
Interest Period, as the case may be. A certificate of any Lender setting
forth any amount or amounts which such Lender is entitled to receive
pursuant to this Section shall be delivered to the Borrower and shall be
conclusive absent manifest error.
2.22 Pro Rata Treatment.
(a) Except as required under Section 2.20, each payment or
prepayment of principal of the Term Loans, each payment of interest on the
Term Loans, and each conversion of any portion of the Term Loans to or
continuation of any portion of the Term Loans as ABR Loans or Eurodollar
Loans shall be allocated among the Term Lenders in accordance with their
respective Term Pro Rata Shares. Each Term Lender agrees that in computing
such Lender's Term Pro Rata Share of the portion of the Term Loans
comprising Eurodollar Loans or ABR Loans, the Agent may, in its discretion,
round each Term Lender's percentage of each portion to the next-higher or
lower whole dollar amount.
(b) Except as required under Section 2.20, each Borrowing of
Revolving Loans, each payment or prepayment of principal of any Revolving
Loans, each payment of interest on the Revolving Loans, each payment of the
Facility Fees, each reduction of the Revolving Credit Commitments, and each
refinancing of any Borrowing of Revolving Loans with, conversion of any
Borrowing of Revolving Loans to or continuation of any Borrowing of
Revolving Loans as a Borrowing of any Type shall be allocated among the
Revolving Credit Lenders in accordance with their respective Revolver Pro
Rata Shares. Each Revolving Credit Lender agrees that in computing such
Lender's portion of any Borrowing to be made hereunder, the Agent may, in
its discretion, round each Revolving Credit Lender's percentage of such
Borrowing, computed in accordance with Section 2.4, to the next higher or
lower whole dollar amount.
2.23 Sharing of Setoffs. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim
against the Borrower, or pursuant to a secured claim under Section 506 of
Title 11 of the United States Code or other security or interest arising
from, or in lieu of, such secured claim, received by such Lender under any
applicable bankruptcy, insolvency or other similar law or otherwise, or by
any other means, obtain payment (voluntary or involuntary) in respect of
any Loan or Loans as a result of which the unpaid principal portion of its
Loans shall be proportionately less than the unpaid principal portion of
the Loans of any other Lender, it shall be deemed simultaneously to have
purchased from such other Lender at face value, and shall promptly pay to
such other Lender the purchase price for, a participation in the Loans of
such other Lender, so that the aggregate unpaid principal amount of the
Loans and participations in Loans held by each Lender shall be in the same
proportion to the aggregate unpaid principal amount of all Loans then
outstanding as the principal amount of its Loans prior to such exercise of
banker's lien, setoff or counterclaim or other event was to the principal
amount of all Loans outstanding prior to such exercise of banker's lien,
setoff or counterclaim or other event; provided, however, that, if any such
purchase or purchases or adjustments shall be made pursuant to this Section
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and the payment giving rise thereto shall thereafter be recovered, such
purchase or purchases or adjustments shall be rescinded to the extent of
such recovery and the purchase price or prices or adjustment restored
without interest. The Borrower expressly consents to the foregoing
arrangements and agrees that any Lender holding a participation in a Loan
deemed to have been so purchased may exercise any and all rights of
banker's lien, setoff or counterclaim with respect to any and all moneys
owing by the Borrower to such Lender by reason thereof as fully as if such
Lender had made a Loan directly to the Borrower in the amount of such
participation.
2.24 Payments.
(a) The Borrower shall make each payment (including principal
of or interest on the Loans or any Facility Fees or other amounts)
hereunder and under any other Loan Document not later than 12:00 (noon),
Chicago time, on the date when due in dollars to the Agent at its offices
at 115 South LaSalle Street, Chicago, Illinois, in immediately available
funds. Any payment received after 12:00 (noon), Chicago time, on any date
shall be deemed to have been received on the next succeeding Business Day.
(b) Whenever any payment (including principal of or interest on
the Term Loans or any Revolving Loan Borrowing or any Facility Fees or
other amounts) hereunder or under any other Loan Document shall become due,
or otherwise would occur, on a day that is not a Business Day, such payment
may be made on the next succeeding Business Day, and such extension of time
shall in such case be included in the computation of interest or Facility
Fees, if applicable, unless, in the case of a Eurodollar Loan only, such
next succeeding Business Day would fall in the next calendar month, in
which case such payment shall be made on the next preceding Business Day.
2.25 Taxes.
(a) Any and all payments by the Borrower hereunder shall be
made, in accordance with Section 2.24, free and clear of and without
deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect
thereto, excluding taxes imposed on the net income of the Agent or any
Lender (or any transferee or assignee thereof, including a participation
holder (any such entity being called a "Transferee")) and franchise or
similar taxes imposed on the Agent or any Lender (or Transferee) by the
United States or any jurisdiction under the laws of which the Agent or any
such Lender (or Transferee) is organized or subject to such tax other than
solely as a result of the transactions provided for herein or any political
subdivision thereof (all such nonexcluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter
referred to as "Taxes"). If the Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder to the
Lenders (or any Transferee) or the Agent, (i) the sum payable shall be
increased by the amount necessary so that after making all required
deductions (including deductions applicable to additional sums payable
under this Section 2.25) such Lender (or Transferee) or the Agent (as the
case may be) shall receive an amount equal to the sum it would have
received had no such deductions been required, (ii) the Borrower shall make
such deductions and (iii) the Borrower shall pay the full amount deducted
to the relevant taxing authority or other Governmental Authority in
accordance with applicable law; provided, however, that no Transferee of
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any Lender shall be entitled to receive any greater payment under this
paragraph(a) than such Lender would have been entitled to receive with
respect to the rights assigned, participated or otherwise transferred if
such rights had not been assigned, participated or otherwise transferred.
(b) In addition, the Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies which arise from any payment made hereunder or
from the execution, delivery or registration of, or otherwise with respect
to, this Agreement or any other Loan Document (hereinafter referred to as
"Other Taxes").
(c) The Borrower will indemnify each Lender (or Transferee) and
the Agent for the full amount of Taxes and Other Taxes paid by such Lender
(or Transferee) or the Agent, as the case may be, and any liability
(including penalties, interest and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted by the relevant taxing authority or other Governmental
Authority. Such indemnification shall be made within 30 days after the
date any Lender (or Transferee) or the Agent, as the case may be, makes
written demand therefor. If a Lender (or Transferee) or the Agent shall
become aware that it is entitled to receive a refund in respect of Taxes or
Other Taxes as to which it has been indemnified by the Borrower pursuant to
this Section 2.25, it shall promptly notify the Borrower of the
availability of such refund and shall, within 30 days after receipt of a
request by the Borrower, apply for such refund at the Borrower's expense.
If any Lender (or Transferee) or the Agent receives a refund in respect of
any Taxes or Other Taxes as to which it has been indemnified by the
Borrower pursuant to this Section 2.25, it shall promptly notify the
Borrower of such refund and shall, within 30 days after receipt of a
request by the Borrower (or promptly upon receipt, if the Borrower has
requested application for such refund pursuant hereto), repay such refund
to the Borrower (to the extent of amounts that have been paid by the
Borrower under this Section 2.25 with respect to such refund), net of all
out-of-pocket expenses of such Lender or the Agent and without interest;
provided that the Borrower, upon the request of such Lender (or Transferee)
or the Agent agrees to return such repaid refund (plus penalties, interest
or other charges) to such Lender (or Transferee) or the Agent in the event
such Lender (or Transferee) or the Agent is required to repay such refund.
Nothing contained in this paragraph (c) shall require any Lender (or
Transferee) or the Agent to make available any of its tax returns (or any
other information relating to its taxes which it deems to be confidential).
(d) Within 30 days after the date of any payment of Taxes or
Other Taxes withheld by the Borrower in respect of any payment to any
Lender (or Transferee) or the Agent, the Borrower will furnish to the
Agent, at its address referred to in Section 9.1, the original or a
certified copy of a receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section
2.25 shall survive the payment in full of the Obligations hereunder.
(f) Upon the written request of the Borrower, each Lender (or
Transferee) or the Agent that is organized under the laws of a jurisdiction
outside the United States shall, if legally able to do so, prior to the
immediately following due date of any payment by the Borrower hereunder,
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deliver to the Borrower such certificates, documents or other evidence, as
required by the Code or Treasury Regulations issued pursuant thereto,
including Internal Revenue Service Form 1001 or Form 4224 and any other
certificate or statement of exemption required by Treasury Regulation
Section 1.1441-1, 1.1441-4 or 1.1441-6(c) or any subsequent version thereof
or successors thereto, properly completed and duly executed by such Lender
(or Transferee) or the Agent establishing that such payment is (i) not
subject to United States Federal withholding tax under the Code because
such payment is effectively connected with the conduct by such Lender (or
Transferee) or the Agent of a trade or business in the United States or
(ii) totally exempt from United States Federal withholding tax, or subject
to a reduced rate of such tax under a provision of an applicable tax
treaty. Unless the Borrower and the Agent have received forms or other
documents satisfactory to them indicating that such payments hereunder are
not subject to United States Federal withholding tax or are subject to such
tax at a rate reduced by an applicable tax treaty, the Borrower or the
Agent shall withhold taxes from such payments at the applicable statutory
rate.
(g) The Borrower shall not be required to pay any additional
amounts to any Lender (or Transferee) or the Agent in respect of United
States Federal withholding tax pursuant to paragraph (a) above if the
obligation to pay such additional amounts would not have arisen but for a
failure by the Lender (or Transferee) or the Agent to comply with the
provisions of paragraph (f) above; provided, however, that the Borrower
shall be required to pay those amounts to any Lender (or Transferee) or the
Agent that it was required to pay hereunder prior to the failure of such
Lender (or Transferee) or the Agent to comply with the provisions of
paragraph (f).
(h) No Lender or assignee (or participant of any Lender) shall
be entitled to compensation under this Section 2.25 for any Taxes or Other
Taxes with respect to any date unless it shall have notified Borrower that
it will demand compensation for such Taxes and Other Taxes not more than
six months after the later of (i) such date and (ii) the date on which it
shall become aware of the liability for such Taxes or Other Taxes.
2.26 Duty to Mitigate Additional Costs, Reductions in Rate of Return
and Taxes. Each Lender (or Transferee) or Agent claiming any amounts
pursuant to Section 2.19 or 2.25 shall use reasonable efforts (consistent
with legal and regulatory restrictions) to avoid any costs, reductions in
rates of return or Taxes in respect of which such amounts are claimed,
including the filing of any certificate or document reasonably requested by
the Borrower or the changing of the jurisdiction of its applicable lending
office if such efforts would avoid the need for or reduce the amount of any
such amounts which would thereafter accrue and would not, in the sole
determination of such Lender (or Transferee) or the Agent, be otherwise
disadvantageous to the Lender (or Transferee) or the Agent.
2.27 Termination or Assignment of Commitments Under Certain
Circumstances. In the event that any Lender shall have delivered a notice
or certificate pursuant to Section 2.19, or the Borrower shall be required
to make additional payments to any Lender under Section 2.25 or any Lender
has delivered a notice or otherwise exercised its rights under Section
2.20, the Borrower shall have the right, at its own expense, upon notice to
such Lender and the Agent, to require such Lender to transfer and assign
without recourse (in accordance with and subject to the restrictions
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contained in Section 9.4) all its interests, rights and obligations under
this Agreement to another financial institution which shall assume such
obligations; provided that (i) no such assignment shall conflict with any
law, rule or regulation or order of any Governmental Authority and (ii) the
assignee shall pay to the affected Lender in immediately available funds on
the date of such termination or assignment the principal of and interest
accrued to the date of payment on the Loans made by it hereunder and all
other amounts accrued for its account or owed to it hereunder.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Agent and each of the
Lenders that:
2.1 Organization; Powers. The Borrower and each of the Subsidiaries
(a) is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, (b) has all
requisite corporate power and authority to own its property and assets and
to carry on its business as now conducted and as proposed to be conducted
by the Borrower and the Subsidiaries following the Acquisition, (c) is
qualified to do business in every jurisdiction where such qualification is
required, except where the failure so to qualify would not result in a
Material Adverse Effect, and (d) in the case of the Borrower, has the
corporate power and authority to execute, deliver and perform its
obligations under each of the Loan Documents, the Acquisition Documents and
each other agreement or instrument provided for herein to which it is or
will be a party and to borrow hereunder.
2.2 Authorization. The execution, delivery and performance by the
Borrower of each of the Loan Documents and the borrowings hereunder, (a)
have been duly authorized by all requisite corporate and, if required,
stockholder action and (b) will not (i) violate (A) any provision of law,
statute, rule or regulation to which the Borrower or any of its Affiliates
shall be subject, or of the certificate or articles of incorporation or
other constitutive documents or by-laws of the Borrower or any Subsidiary,
(B) any order of any Governmental Authority or (C)any provision of any
indenture or other material agreement or instrument to which the Borrower
or any Subsidiary is a party or by which any of them or any of their
property is or may be bound, (ii) be in conflict with, result in a breach
of or constitute (alone or with notice or lapse of time or both) a default
under any such indenture, agreement or other instrument or (iii) result in
the creation or imposition of any Lien (other than Liens permitted under
this Agreement) upon or with respect to any property or assets now owned or
hereafter acquired by the Borrower or any Subsidiary.
2.3 Enforceability. This Agreement has been duly executed and
delivered by the Borrower and constitutes, and each other Loan Document
when executed and delivered by the Borrower will constitute, a legal, valid
and binding obligation of the Borrower enforceable against the Borrower in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, including but
not limited to principles governing the availability of the remedies of
specific performance and injunctive relief.
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2.4 Governmental Approvals. Except as set forth in Schedule 3.4,
the Borrower and the Borrower's Affiliates are not required to obtain any
consent or approval of, registration or filing with or any other action by
any Governmental Authority in connection with the execution, delivery and
performance of the Loan Documents, except such as have been made or
obtained and are in full force and effect.
2.5 Financial Statements. The Borrower has heretofore furnished to
the Lenders the Borrower's and Lincoln Telephone's consolidated balance
sheets and statements of operations, stockholders, equity and cash flows
(i)as of and for the fiscal year ended December 31, 1994, audited by and
accompanied by the opinion of KPMG Peat Marwick LLP, independent public
accountants, and (ii) as of and for the fiscal quarter and the portion of
the fiscal year ended March 31, 1995, certified by a Financial Officer of
the Borrower. Such financial statements present fairly in all material
respects the financial condition and results of operations of the Borrower
and its consolidated subsidiaries as of such dates and for such periods.
Such balance sheets and the notes thereto disclose all material
liabilities, direct or contingent, of the Borrower and its consolidated
subsidiaries as of the dates thereof that are required to be disclosed
under GAAP. Such financial statements were prepared in accordance with
GAAP applied on a consistent basis, except as set forth in the notes to
such financial statements. There has been no material adverse change in
the business, assets, operations or financial condition of the Borrower and
the Subsidiaries, taken as a whole, since March 31, 1995.
2.6 Title to Properties; Possession Under Leases.
(a) Each of the Borrower and the Subsidiaries has good and
valid title to, or valid leasehold interests in, all its material
properties and assets, except for minor defects in title that do not
interfere with its ability to conduct its business as currently conducted
or to utilize such properties and assets for their intended purposes. All
such material properties and assets are free and clear of Liens, other than
Liens referred to in paragraphs (A) through (J) of Section 6.1.
(b) Each of the Borrower and the Subsidiaries has complied with
all material obligations under all material leases to which it is a party
and all such leases are in full force and effect. Each of the Borrower and
the Subsidiaries enjoys peaceful and undisturbed possession under all such
material leases.
2.7 Subsidiaries. Schedule 3.7 sets forth as of the Documentation
Completion Date a list of all Subsidiaries of the Borrower as well as a
summary description of the operations of each such Subsidiary, the issued
and outstanding capital stock of such Subsidiary and the shares of such
capital stock owned by the Borrower or any other Subsidiary. The assets
and operations of the Borrower and the Subsidiaries account for
substantially all the consolidated operating assets and operations of the
Borrower and its direct and indirect subsidiaries as of the date hereof.
2.8 Litigation; Compliance with Laws.
(a) Except as set forth in Schedule 3.8, there are not any
actions, suits or proceedings at law or in equity or by or before any
Governmental Authority now pending or, to the actual knowledge of the
Borrower, threatened against or affecting the Borrower, any Subsidiary or
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any business, property or rights of any such Person (i) which involve any
Loan Document or (ii) as to which there is a likelihood of an adverse
determination and which, if adversely determined, would be likely,
individually or in the aggregate, to result in a Material Adverse Effect.
(b) Neither the Borrower nor any of the Subsidiaries is in
violation of any law, rule or regulation, or in default with respect to any
judgment, writ, injunction or decree of any Governmental Authority, where
such violation or default would be likely to result in a Material Adverse
Effect.
2.9 Agreements. Neither the Borrower nor any of the Subsidiaries is
in default in any manner under any provision of any indenture or other
agreement or instrument evidencing Indebtedness, or any other material
agreement or instrument to which it is a party or by which it or any of its
properties or assets are or may be bound, where such default would be
likely to result in a Material Adverse Effect.
2.10 Federal Reserve Regulations.
(a) Neither the Borrower nor any of the Subsidiaries is engaged
principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying Margin Stock.
(b) No part of the proceeds of any Loan will be used, whether
directly or indirectly, and whether immediately, incidentally or
ultimately, (i) to extend credit to others for the purpose of purchasing
Margin Stock, or to extend credit to others for the purpose of carrying
stock which will be Margin Stock after giving effect to the Loans, provided
that the Borrower shall provide such notice to the Agent of all purchases
and carryings of Margin Stock as the Agent may require or (ii) for any
purpose which entails a violation of the provisions of the Regulations of
the Board, including Regulation G, U and X. At the time of and after
giving effect to the making of the Term Loans and each Borrowing and the
application of the proceeds thereof, not more than 25% of the value (as
determined in accordance with Regulation U of the Board) of the assets
which are subject to the negative pledge provisions of Section 6.1 will
consist of Margin Stock (unless such limitation shall not be required for
compliance with Regulation U as from time to time in effect).
2.11 Investment Company Act; Public Utility Holding Company Act.
Neither the Borrower nor any Subsidiary is (a) an "investment company" as
defined in, or subject to regulation under, the Investment Company Act of
1940 or (b) a "holding company" as defined in, or subject to regulation
under, the Public Utility Holding Company Act of 1935.
2.12 Tax Returns. The Borrower and each of the Subsidiaries has
filed or caused to be filed all Federal, state and local tax returns
required to have been filed by it and has paid or caused to be paid all
taxes shown to be due and payable on such returns or on any assessments
received by it, except taxes that are being contested in good faith by
appropriate proceedings and for which the Borrower or such Subsidiary, as
the case may be, shall have set aside on its books adequate reserves.
2.13 No Material Misstatements. No information, report, financial
statement, exhibit or schedule furnished by or on behalf of the Borrower to
the Agent or any Lender in written form in connection with the negotiation
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of any Loan Document or included in any Loan Document or delivered pursuant
thereto contained, contains or will contain any material misstatement of
fact or omitted, omits or will omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which
they were, are or will be made, not misleading at the time any such
information, report, financial statement, exhibit or schedule was, is or
will be so furnished.
2.14 Employee Benefit Plans. Each of the Borrower and each ERISA
Affiliate is in compliance in all material respects with the applicable
provisions of ERISA and the regulations and published interpretations
thereunder. No Reportable Event has occurred as to which the Borrower or
any ERISA Affiliate was required to file a report with the PBGC, and the
present value of all benefit liabilities under each Plan (based on those
assumptions used to fund such Plan) did not, as of the last annual
valuation date applicable thereto, exceed by more than $1,000,000 the value
of the assets of such Plan. Neither the Borrower nor any ERISA Affiliate
has incurred any Withdrawal Liability that could result in a Material
Adverse Effect. Neither the Borrower nor any ERISA Affiliate has received
any notification that any Multiemployer Plan is in reorganization or has
been terminated within the meaning of Title IV of ERISA, and no
Multiemployer Plan is reasonably expected to be in reorganization or to be
terminated where such reorganization or termination has resulted or could
reasonably be expected to result, through increases in the contributions
required to be made to such Multiemployer Plan or otherwise, in a Material
Adverse Effect.
2.15 Environmental and Safety Matters. Except as set forth in
Schedule 3.15, each of the Borrower and the Subsidiaries has complied with
all Federal, state, local and other statutes, ordinances, orders,
judgments, rulings and regulations relating to environmental pollution or
to environmental regulation or control or to employee health or safety,
except for instances of non-compliance that, individually or in the
aggregate, are not reasonably likely to result in a Material Adverse
Effect. Except as set forth in Schedule 3.15, neither the Borrower nor any
Subsidiary has received notices of any material failure so to comply,
which, if adversely determined, individually or in the aggregate, would be
reasonably likely to result in a Material Adverse Effect. Except as set
forth in Schedule 3.15, the Borrower and the Subsidiaries do not generate,
treat, store, transport, dispose of or release at any facility owned or
operated by any of them any hazardous wastes, hazardous substances,
hazardous materials, toxic substances, toxic pollutants or substances
similarly denominated, as those terms or similar terms are used in the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response Compensation and Liability Act, the Hazardous Materials
Transportation Act, the Toxic Substance Control Act, the Clean Air Act, the
Clean Water Act or any other applicable law relating to environmental
pollution in violation of any law or any regulations promulgated pursuant
thereto, except for violations that, individually or in the aggregate,
would not be reasonably likely to result in a Material Adverse Effect.
Except as set forth in Schedule 3.15, the Borrower is aware of no events,
conditions or circumstances involving environmental pollution or
contamination or employee health or safety that could reasonably be
expected to result in liability on the part of the Borrower or any
Subsidiary, except for such events, conditions or circumstances that,
individually or in the aggregate, would not be reasonably likely to result
in a Material Adverse Effect.
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ARTICLE 4
CONDITIONS PRECEDENT
The obligations of the Lenders to make Loans (each of such events
being called a "Credit Event") from and after the Closing Date, are subject
to the satisfaction of all of the applicable conditions set forth below:
4.1 All Credit Events. On the date of each Credit Event (other than
(i) a continuation of a Loan as either an ABR Loan or a Eurodollar Loan,
(ii) a conversion of ABR Loans into Eurodollar Loans or Eurodollar Loans
into ABR Loans or (ii) a refinancing of any Borrowing that does not
increase the aggregate principal amount of Revolving Loans of any Lender
outstanding):
(a) The Agent shall have received a notice of such Credit Event
as required by Section 2.2(b) or Section 2.6.
(b) The representations and warranties set forth in Article 3
hereof shall be true and correct in all material respects on and as of the
date of such Credit Event with the same effect as though made on and as of
such date, except to the extent such representations and warranties
expressly relate to an earlier date.
(c) The Borrower shall be in compliance with all the terms and
provisions set forth herein and in each other Loan Document on its part to
be observed or performed, and at the time of and immediately after such
Credit Event no Potential Event of Default or Event of Default shall have
occurred and be continuing.
Each Credit Event shall be deemed to constitute a representation and
warranty by the Borrower on the date of such Credit Event as to the matters
specified in paragraphs (b) and (c) of this Section 4.1.
4.2 First Credit Event. On the Closing Date:
(a) The Agent shall have received a certificate, dated the
Closing Date and signed by a Financial Officer of the Borrower, confirming
compliance with the conditions precedent set forth in paragraphs (b) and
(c) of Section 4.1.
(b) The Agent and the Lenders shall have received all fees and
other amounts due and payable hereunder or under the other Loan Documents
on or prior to the Closing Date.
(c) The Existing Credit Arrangement shall have been or shall
simultaneously with the Credit Events occurring on the Closing Date be
terminated, all loans outstanding and other amounts owed to the lenders
thereunder shall have been or shall simultaneously with such Credit Events
be paid in full.
(d) The Agent shall have received from the Borrower at least
four (4) Business Days' prior written notice of the date designated by the
Borrower to be the Closing Date; the Agent shall have promptly notified
each of the Lenders of the date designated as the Closing Date; and the
Agent shall not have received prior to the Closing Date written notice from
any Lender that one or more of the conditions precedent to the initial
funding of the Loans on the Closing Date have not been satisfied.
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(e) The Lenders, or the Agent on behalf of the Lenders, shall
have received from the Borrower the Notes and such other documents as the
Agent, the Lenders or their counsel may request, including, without
limitation, those documents listed on the List of Closing Documents
substantially in the form attached hereto as Exhibit F, each of which
documents shall be in form and substance satisfactory to the Lenders and
the Agent.
(f) There shall be no litigation or administrative proceeding
or other legal or regulatory developments, actual or threatened (including
any proposed statute, rule or regulation), that, in the judgment of the
Lenders, involve a reasonable possibility of a Material Adverse Effect or a
material adverse effect on the Acquisition.
(g) The Agent shall have received the favorable written
opinions of counsel of Borrower and Seller that are required to be
delivered pursuant to the Purchase Agreement and of Borrower and Nebraska
Cellular Telephone Corporation that are required to be delivered pursuant
to the Merger Agreement, which opinions shall state that the Agent and the
Lenders may rely thereon.
(h) There shall not have occurred, since the Documentation
Completion Date, any change that could reasonably be expected to result in
a Material Adverse Effect or a material adverse effect on the Acquisition.
4.3 Execution of the Agreement. On the Documentation Completion
Date:
(a) The Agent shall have received the favorable written opinion
of Foley & Lardner, counsel for the Borrower, dated the Documentation
Completion Date and addressed to the Agent and the Lenders, to the effect
set forth in Exhibit G hereto, and the Borrower hereby instructs such
counsel to deliver such opinion to the Agent.
(b) The Agent shall have received (i) a copy of the certificate
or articles of incorporation, including all amendments thereto, of the
Borrower, certified as of a recent date by the Secretary of State of the
State of Nebraska, and a certificate as to the good standing of the
Borrower as of a recent date, from such Secretary of State; (ii) a
certificate of the Secretary or an Assistant Secretary of the Borrower
dated the Documentation Completion Date and certifying (a) that attached
thereto is a true and complete copy of the by-laws of the Borrower as in
effect on the Documentation Completion Date and at all times since a date
prior to the date of the resolutions described in clause (b) below, (b)
that attached thereto is a true and complete copy of resolutions duly
adopted by the Board of Directors of the Borrower authorizing the
execution, delivery and performance of the Loan Documents and the
borrowings hereunder, and that such resolutions have not been modified,
rescinded or amended and are in full force and effect, (c) that the
certificate or articles of incorporation of the Borrower have not been
amended since the date of the last amendment thereto shown on the
certificate of good standing furnished pursuant to clause (i) above, and
(d) as to the incumbency and specimen signature of each officer executing
any Loan Document or any other document delivered in connection herewith on
behalf of the Borrower; (iii) a certificate of another officer as to the
incumbency and specimen signature of the Secretary or Assistant Secretary
executing the certificate pursuant to (ii) above; and (iv) such other
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documents as the Lenders or their counsel or the Agent or its counsel may
reasonably request.
4.4 Termination of the Agreement. Unless otherwise agreed by each
of the parties to this Agreement, if the first Credit Event hereunder shall
not have occurred by August 31, 1995, all Commitments under this Agreement
shall automatically terminate at such time without notice to the Borrower.
ARTICLE 5
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees with the Agent and each Lender that
so long as this Agreement shall remain in effect or the principal of or
interest on any Loan, any Facility Fees or any other expenses or amounts
payable by Borrower under any Loan Document shall be unpaid, unless the
Required Lenders shall otherwise consent in writing, the Borrower will, and
will cause each of the Subsidiaries to:
5.1 Existence: Businesses and Properties.
(a) Keep in full force and effect its legal existence, except
as otherwise expressly permitted under Section 6.4.
(b) Do or cause to be done all things necessary to obtain,
preserve, renew, extend and keep in full force and effect the rights,
licenses, permits, franchises, authorizations, patents, copyrights,
trademarks and trade names material to the conduct of its business;
maintain and operate substantially similar lines of business as those it is
presently conducting and operating; comply in all material respects with
all applicable laws, rules, regulations and orders of any Governmental
Authority, whether now in effect or hereafter enacted; and at all times
maintain and preserve all property material to the conduct of such business
and keep such property in good repair, working order and condition and from
time to time make, or cause to be made, all needful and proper repairs,
renewals, additions, improvements And replacements thereto necessary in
order that the business carried on in connection therewith may be properly
conducted at all times, except in each case where the failure to do so
would not result in a Material Adverse Effect.
5.2 Insurance. Keep its material insurable real properties
adequately insured at all times by financially sound and reputable
insurers; maintain such other insurance, to such extent and against such
risks, including fire and other risks insured against by extended coverage
and public liability insurance against claims for personal injury or death
or property damage occurring upon, in, about or in connection with the use
of any properties owned, occupied or controlled by it as is customary with
companies in the same or similar businesses; and maintain such other
insurance as may be required by law.
5.3 Obligations and Taxes. Pay its material Indebtedness and other
obligations in accordance with their terms and pay and discharge promptly
when due all taxes, assessments and governmental charges or levies imposed
upon it or upon its income or profits or in respect of its property, before
the same shall become delinquent or in default, as well as all lawful
claims for labor, materials and supplies or otherwise which, if unpaid,
might give rise to a Lien (other than a Lien permitted under this
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Agreement) upon such properties or any part thereof; provided, however,
that such payment and discharge shall not be required with respect to any
such Indebtedness, tax, assessment, charge, levy or claim so long as the
validity or amount thereof shall be contested in good faith by appropriate
proceedings and the Borrower or the Subsidiary, as the case may be, shall
have set aside on its books adequate reserves with respect thereto.
5.4 Financial Statements, Reports, etc. Furnish to the Agent and
each Lender:
(a) within 90 days after the end of each Fiscal Year, the
consolidated and consolidating balance sheets and statements of operations,
stockholders' equity and cash flows, showing the, financial condition of
the Borrower and its consolidated subsidiaries as of the close of such
Fiscal Year and the results of its operations and the operations of such
subsidiaries during such year, all (except for the consolidating balance
sheets for Subsidiaries other than Lincoln Telephone) audited by KPMG Peat
Marwick LLP or other independent public accountants of recognized national
standing and accompanied by an opinion of such accountants (which shall not
be qualified in any material respect) to the effect that such consolidated
financial statements fairly present the financial condition and results of
operations of the Borrower on a consolidated basis in accordance with GAAP
consistently applied;
(b) within 60 days after the end of each of the first three
fiscal quarters of each Fiscal Year, the consolidated and consolidating
balance sheets and statements of operations, stockholders, equity and cash
flows, showing the financial condition of the Borrower and its consolidated
subsidiaries as of the close of such fiscal quarter and the results of its
operations and the operations of such subsidiaries during such fiscal
quarter and the then elapsed portion of the Fiscal Year, all certified by
one of its Financial Officers as fairly presenting the financial condition
and results of operations of the Borrower on a consolidated basis in
accordance with GAAP consistently applied, subject to normal year-end audit
adjustments;
(c) concurrently with any delivery of financial statements
under paragraph (a) above an opinion or certificate of the accounting firm
(which opinion or certificate may be limited to accounting matters and
disclaim responsibility for legal interpretations) certifying that to the
actual knowledge of such accounting firm no Event of Default or Potential
Event of Default has occurred; and concurrently with the delivery of
financial statements under paragraphs (a) and (b) above, a certificate of a
Financial Officer of the Borrower (a) certifying that to the actual
knowledge of such Financial Officer no Event of Default or Potential Event
of Default has occurred or, if such an Event of Default or Potential Event
of Default has occurred, specifying the nature and extent thereof and any
corrective action taken or proposed to be taken with respect thereto, (b)
setting forth computations and/or statements in reasonable detail
satisfactory to the Agent calculating the Consolidated Debt to Cash Flow
Ratio and demonstrating compliance with the covenants contained in Sections
6.1 through 6.5, 6.7, 6.8 and 6.9;
(d) promptly after the same become publicly available, copies
of all periodic and other reports, proxy statements and other materials
filed by the Borrower with the Securities and Exchange Commission, or any
governmental authority succeeding to any of or all the functions of said
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Commission, or with any national securities exchange, or distributed to its
shareholders, as the case may be;
(e) promptly following the creation or acquisition thereof,
notice of any new Subsidiary of the Borrower;
(f) promptly following the publication thereof, notice of any
change in the Long-Term Debt Rating of Lincoln Telephone by Standard &
Poors and notice of any cessation of the publication of such rating; and
(g) promptly, from time to time, such other information
regarding the operations, business affairs and financial condition of the
Borrower or any Subsidiary, or compliance with the terms of any Loan
Document, as the Agent or any Lender may reasonably request.
5.5 Litigation and Other Notices. Furnish to the Agent and each
Lender prompt written notice of the following:
(a) any Event of Default or Potential Event of Default,
specifying the nature and extent thereof and the corrective action (if any)
proposed to be taken with respect thereto;
(b) the filing or commencement of any action, suit or
proceeding, whether at law or in equity or by or before any Governmental
Authority, against the Borrower or any Affiliate of the Borrower which
could reasonably be anticipated to result in a Material Adverse Effect; and
(c) any other development that has resulted in, or could
reasonably be anticipated to result in, a Material Adverse Effect.
5.6 ERISA.
(a) Comply in all material respects with the applicable
provisions of ERISA and (b) furnish to the Agent and each Lender (i) as
soon as possible, and in any event within 30 days after any Responsible
Officer of the Borrower or any ERISA Affiliate either knows or has reason
to know that any Reportable Event has occurred that alone or together with
any other Reportable Event could reasonably be expected to result in
liability of the Borrower to the PBGC in an aggregate amount exceeding
$2,500,000, a statement of a Financial Officer setting forth details as to
such Reportable Event and the action proposed to be taken with respect
thereto, together with a copy of the notice, if any, of such Reportable
Event given to the PBGC, (ii) promptly after receipt thereof, a copy of any
notice the Borrower or any ERISA Affiliate may receive from the PBGC
relating to the intention of the PBGC to terminate any Plan or Plans (other
than a Plan maintained by an ERISA Affiliate which is considered an ERISA
Affiliate only pursuant to subsection (m) or (o) of Section 414 of the
Code) or to appoint a trustee to administer any Plan or Plans, (iii) within
10 days after the due date for filing with the PBGC pursuant to Section
412(n) of the Code of a notice of failure to make a required installment or
other payment with respect to a Plan, a statement of a Financial Officer
setting forth details as to such failure and the action proposed to be
taken with respect thereto, together with a copy of such notice given to
the PBGC and (iv) promptly and in any event within 30 days after receipt
thereof by the Borrower or any ERISA Affiliate from the sponsor of a
Multiemployer Plan, a copy of each notice received by the Borrower or any
ERISA Affiliate concerning (a) the imposition of Withdrawal Liability or
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(b) a determination that a Multiemployer Plan is, or is expected to be,
terminated or in reorganization, in each case within the meaning of Title
IV of ERISA.
5.7 Maintaining Records; Access to Properties and Inspections.
Maintain all financial records in accordance with GAAP and permit any
representatives designated by any Lender to visit and inspect the financial
records and the properties of the Borrower or any Subsidiary at reasonable
times and as often as requested and to make extracts from and copies of
such financial records, and permit any representatives designated by any
Lender to discuss the affairs, finances and condition of the Borrower or
any Subsidiary with the senior officers thereof and the independent
accountants therefor with prior notice to and, if requested by Borrower,
participation of a Financial Officer of the Borrower.
5.8 Use of Proceeds. The proceeds of the Loans hereunder shall be
used by the Borrower (i) to finance the Acquisition, (ii) to refinance
certain existing indebtedness of the Borrower and (iii) for general
corporate purposes.
ARTICLE 6
NEGATIVE COVENANTS
The Borrower covenants and agrees with the Agent and each Lender that,
so long as this Agreement shall remain in effect or the principal of or
interest on any Loan, any Facility Fees or any other expenses or amounts
payable under any Loan Document shall be unpaid, unless the Required
Lenders shall otherwise consent in writing, the Borrower will not, and will
not cause or permit any of the Subsidiaries to:
6.1 Liens. Create, incur, assume or permit to exist any Lien on or
with respect to any property or assets (including stock or other securities
of any Person) now owned or hereafter acquired by it or on any income or
revenues or rights in respect of any thereof, except (i) Liens set forth in
paragraphs (A) through (J) below:
(A) Liens on property or assets of the Borrower and its
Subsidiaries existing on the Documentation Completion Date and set forth in
Schedule 6.1; provided that such Liens shall secure only those obligations
which they secure on the Documentation Completion Date, or any extension,
refinancing, renewal, replacement or refunding of such obligations in an
aggregate principal amount not greater than the aggregate principal amount
of such obligations immediately prior thereto;
(B) any Lien existing on any property or asset (i) prior to the
acquisition thereof by the Borrower or any Subsidiary; provided that (1)
such Lien is not created in contemplation of or in connection with such
acquisition and (2) such Lien does not apply to any other property or
assets of the Borrower or any Subsidiary, or (ii) belonging to any Person
prior to such Person becoming a Subsidiary pursuant to an acquisition
permitted by the terms of this Agreement; provided that (1) such Lien is
not created in contemplation of or in connection with such acquisition and
(2) such Lien does not apply to any other property or assets of the
Borrower or any other Subsidiary;
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(C) Liens for taxes not yet due or that are being contested in
compliance with Section 5.3;
(D) carriers', warehousemen's, mechanic's, materialmen's,
supplier's, repairmen's or other like Liens arising in the ordinary course
of business and securing obligations that are not due or that are being
contested in compliance with Section 5.3;
(E) pledges and deposits made in the ordinary course of
business in compliance with workmen's compensation, unemployment insurance
and other social security laws or regulations;
(F) deposits to secure the performance of bids, trade contracts
(other than for Indebtedness), leases (other than Capital Lease
Obligations), statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature incurred in the ordinary
course of business;
(G) zoning restrictions, easements, rights-of-way, restrictions
on use of real property and other similar encumbrances incurred in the
ordinary course of business which, in the aggregate, are not substantial in
amount and do not materially detract from the value of the property subject
thereto or interfere with the ordinary conduct of the business of the
Borrower or any of its Subsidiaries;
(H) purchase money security interests (including Liens
comprising the interest of any lessor in respect of any Capital Lease) in
real property, improvements thereto or equipment hereafter acquired (or, in
the case of improvements, constructed) by the Borrower or any Subsidiary;
provided that (1) such security interests are incurred, and the
Indebtedness secured thereby is created, within 90 days after such
acquisition (or construction), (2) the Indebtedness secured thereby does
not exceed the lesser of the cost or the fair market value of such real
property, improvements or equipment at the time of such acquisition (or
construction) and (3) such security interests do not apply to any other
property or assets of the Borrower or any Subsidiary other than the
immediate proceeds of such real property, improvements or equipment;
(I) any attachment or judgment Lien, unless the judgment it
secures shall, individually or together with other judgments, at the time
cause an Event of Default under paragraph (j) of Article 7; and
(J) renewals, replacements or extensions of Liens set forth in
paragraphs (A), (B) or (H) above; provided that the principal amount of
Indebtedness secured by such Lien immediately prior thereto is not
increased (except by the amount of interest accrued and unpaid on such
Indebtedness and secured by such Lien at such time) and such Lien is not
extended to other property;and (ii) notwithstanding the foregoing, but
subject to Sections 6.7 and 6.8, the Borrower may directly create, incur,
assume or permit to exist any Lien securing Indebtedness of the Borrower or
any Subsidiary otherwise prohibited by clause (i) of this Section 6.1(a) so
long as no Event of Default or Potential Event of Default shall have
occurred or be continuing at the time such Indebtedness permitted under
this clause (ii) is incurred and such Lien is created, incurred or assumed.
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6.2 Sale and Lease-Back Transactions. Enter into any arrangement,
directly or indirectly, with any Person whereby Borrower or any Subsidiary
shall sell or transfer any property, real or personal, whether now owned or
hereafter acquired, and thereafter rent or lease such property or other
property which it intends to use for substantially the same purpose or
purposes as the property being sold or transferred (a "Sale and Lease-Back
Transaction"); provided that, subject to Sections 6.7 and 6.8, the Borrower
or a Subsidiary may enter into any Sale and Lease-Back Transaction if (a)
at the time of such Sale and Lease-Back Transaction no Event of Default or
Potential Event of Default shall have occurred and be continuing and (b)
the proceeds from the sale of the subject property shall be at least equal
to 80% of its fair market value.
6.3 Investments, Loans and Advances. Purchase, hold or acquire any
capital stock, evidences of indebtedness or other securities of, make or
permit to exist any loans or advances to, or make or permit to exist any
investment or any other interest in (all the foregoing being collectively
called "Investments"), any other Person, except:
(a) Investments existing on the date hereof and set forth on
Schedule 6.3;
(b) Permitted Investments;
(c) intercompany Investments in any Subsidiary; provided that
no Investment pursuant to this clause (c) shall consist of the transfer of
any asset other than cash;
(d) travel advances, relocation advances and other loans or
advances by the Borrower or any Subsidiary to employees in the ordinary
course of business;
(e) loans to employees not to exceed $500,000 in the aggregate
outstanding at any time to finance purchases from the Borrower of equity
securities;
(f) accounts receivable arising and trade credit granted in the
ordinary course of business and any securities received in satisfaction or
partial satisfaction thereof from financially troubled account debtors to
the extent necessary in the judgment of the Borrower in order to prevent or
limit loss;
(g) other loans and investments not to exceed $500,000 in the
aggregate outstanding at any time;
(h) acquisitions permitted by Section 6.4(c);
(i) Investments resulting from sales or transfers of assets
permitted under this Agreement; and
(j) contributions to and payments of benefits under any
employee benefit plan.
6.4 Mergers, Consolidations, Sales of Assets and Acquisitions.
(a) In the case of the Borrower, merge into or consolidate with
any other Person, or permit any other Person to merge into or consolidate
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with it, or sell, transfer, lease or otherwise dispose of (in one
transaction or in a series of transactions) all or substantially all of its
assets (whether now owned or hereafter acquired) unless: (i) the Borrower
shall be the surviving corporation, and (ii) after giving effect to such
merger, consolidation, sale, lease or conveyance, no Potential Event of
Default or Event of Default shall have occurred; provided, however, that
notwithstanding the foregoing, at any time a Subsidiary may merge with and
into the Borrower, or merge with and into or consolidate with another
Subsidiary.
(b) Sell, transfer, lease or otherwise dispose of any asset
other than (i) dispositions in the ordinary course of business, (ii) sales
(other than sales of any interest in Lincoln Telephone or any material
portion of the assets of Lincoln Telephone) for cash in an amount, or other
property having a value, not less than the fair market value of such asset,
provided, that such property received by the Borrower does not consist of
equity or debt instruments of the buyer (other than debt instruments which,
in the aggregate for all such sales, do not have an outstanding principal
balance in excess of $1,000,000) or (iii) dispositions pursuant to
requirements of law or orders or directives of Governmental Authorities.
(c) Purchase, lease or otherwise acquire (in one transaction or
a series of transactions) any capital stock or all or any substantial part
of the assets (other than inventory or real property purchased in the
ordinary course of business) of any Person unless (i) no Potential Event of
Default or Event of Default shall have occurred and be continuing, and (ii)
(A) such Person shall be engaged, or such assets shall be used or intended
by the Borrower for use, in one or more lines of business substantially
similar to those in which the Borrower is engaged on the date hereof, or
(B) the consolidated book value of the assets of such Person whose capital
stock is acquired or the book value of the assets that are acquired does
not exceed ten percent of the consolidated book value of the Borrower and
the Subsidiaries immediately prior to such acquisition.
6.5 Dividends and Distributions. Declare or pay, directly or
indirectly, any dividend or make any other distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a
combination thereof, with respect to any shares of its capital stock or the
purchase of shares of its capital stock (the foregoing transactions being
collectively called "Restricted Payments"); provided that (a) the Borrower
may declare and pay dividends payable solely in shares of its common stock,
(b) any Subsidiary may make Restricted Payments to the Borrower or another
Subsidiary (c) Lincoln Telephone may declare and pay dividends on the
Lincoln Telephone Preferred Stock in accordance with the terms thereof as
in effect on the Documentation Completion Date and (d) so long as
immediately after giving effect to any such proposed action no Event of
Default shall have occurred and be continuing, the Borrower may make
additional Restricted Payments of cash and securities of the Borrower if
the aggregate amount or fair market value of all such Restricted Payments
made pursuant to this subsection (c) (including such additional Restricted
Payments) made during the period (taken as a single accounting period)
beginning at the end of the fiscal quarter during which the Closing Date
occurs and ending on the last day of the most recent fiscal quarter for
which financial statements shall have been delivered pursuant to Section
5.4 shall not exceed the sum of (i) $15,000,000 and (ii) 65% of
Consolidated Net Income for such period.
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6.6 Transactions with Affiliates. Sell or transfer any property or
assets to, or purchase or acquire any property or assets from, or otherwise
engage in any other transactions with, any of its Affiliates, except that
as long as no Event of Default or Potential Event of Default shall have
occurred and be continuing, the Borrower or any Affiliate may engage in any
of the foregoing transactions in the ordinary course of business at prices
and on terms and conditions not less favorable to the Borrower or such
Affiliate than could be obtained on an arm's-length basis from unrelated
third parties.
6.7 Consolidated Total Indebtedness to Capital. Permit the
Consolidated Total Indebtedness to Capital Ratio to exceed 0.55 to 1.0.
6.8 Consolidated Tangible Net Worth. Permit Consolidated Tangible
Net Worth as of the end of any fiscal quarter to be less than $105,000,000.
6.9 Interest Coverage Ratio. Permit EBITDA/Interest Coverage for
any period of four consecutive fiscal quarters to be less than 4.0 to 1.0.
6.10 Fiscal Year. Change its Fiscal Year without the consent of the
Required Lenders.
6.11 Subsidiary Stock and Indebtedness. The Borrower will not:
(a) directly or indirectly sell, assign, pledge or otherwise
dispose of any Indebtedness of or any shares of stock of (or warrants,
rights or options to acquire stock of) any Subsidiary except to a wholly-
owned Subsidiary and except directors, qualifying shares if required by
applicable law and except that, subject to Section 6.4, shares of stock of
a Subsidiary may be sold for a cash consideration at least equal to the
fair value thereof (as determined in good faith by the Board of Directors
of the Borrower) at the time of such sale if such Subsidiary would not
thereby cease to be a Subsidiary;
(b) permit any Subsidiary directly or indirectly to sell,
assign, pledge or otherwise dispose of any Indebtedness of the Borrower or
any other Subsidiary, or any shares of stock of (or warrants, rights or
options to acquire stock of) any other Subsidiary, except to the Borrower
or a wholly-owned Subsidiary or as directors' qualifying shares if required
by applicable law and except that, subject to Section 6.4, shares of stock
of a Subsidiary (other than Lincoln Telephone) may be sold for a cash
consideration at least equal to the fair value thereof (as determined in
good faith by the Board of Directors of the Borrower) at the time of such
sale if such Subsidiary would not thereby cease to be a Subsidiary;
(c) permit any Subsidiary to have outstanding any shares of
preferred stock other than shares of preferred stock which are owned by the
Borrower or a wholly-owned Subsidiary or which are outstanding on the date
of this Agreement and are reflected in Schedule 6.11; or
(d) permit any Subsidiary directly or indirectly to issue or
sell (including, without limitation, in connection with a merger or
consolidation of a Subsidiary otherwise permitted by Section 6.4) any
shares of its stock (or warrants, rights or options to acquire its stock)
(except directors, qualifying shares if required by applicable law) if as a
result of the transaction such Subsidiary would thereby cease to be a
Subsidiary; provided that, subject to compliance with Section 6.4, all
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Indebtedness and shares of stock of any Subsidiary (other than Lincoln
Telephone) owned by the Borrower and the other Subsidiaries may be
simultaneously sold as an entirety for a cash consideration at least equal
to the fair value thereof (as determined in good faith by the Board of
Directors of the Borrower) at the time of such sale if such Subsidiary does
not at the time own any stock of any other Subsidiary which is not also
being simultaneously sold as an entirety in compliance with this provision
and Section 6.4 if such Subsidiary does not own any Indebtedness of the
Borrower or any other Subsidiary; provided further that shares of stock of
Subsidiaries owned by the Borrower and the other Subsidiaries may be
disposed of in connection with a sale or other disposition by the Borrower
of all or substantially all of its assets in compliance with Section 6.4.
ARTICLE 7
EVENTS OF DEFAULT
7.1 Events of Default. The happening of any of the following events
shall be an "Event of Default" hereunder:
(a) any representation or warranty made or deemed made in or in
connection with any Loan Document or the borrowings hereunder, or any
representation, warranty, statement or information contained in any report,
certificate, financial statement or other instrument furnished in
connection with or pursuant to any Loan Document by the Borrower, shall
prove to have been false or misleading in any material respect when so
made, deemed made or furnished;
(b) default shall be made in the payment of any principal of
any Loan when and as the same shall become due and payable, whether at the
due date thereof or at a date fixed for prepayment thereof or by
acceleration thereof or otherwise;
(c) default shall be made in the payment of any interest on any
Loan or any Facility Fee or any other amount (other than an amount referred
to in (b) above) due under any Loan Document when and as the same shall
become due and payable, and such default shall continue unremedied for a
period of five days;
(d) default shall be made in the due observance or performance
by the Borrower or any Subsidiary of any covenant, condition or agreement
contained in Section 5.1(a), 5.5(a), 5.8, 6.2, 6.4, 6.5, 6.7, 6.8, 6.9,
6.10 or 6.11;
(e) default shall be made in the due observance or performance
by the Borrower or any Subsidiary of any covenant, condition or agreement
contained in Section 5.5(b) or (c) or in Sections 6.1 (but only if the
default involves an amount of impermissible Indebtedness in excess of
$500,000), 6.3 (but only if the default involves impermissible Investments
in an amount in excess of $500,000) or 6.6 and such default shall continue
unremedied for a period of 30 days;
(f) default shall be made in the due observance or performance
by the Borrower or any Subsidiary of any covenant, condition or agreement
contained in any Loan Document (other than defaults specified in (b), (c),
(d) or (e) above) and such default shall continue unremedied for a period
of 30 days after notice thereof from the Agent or any Lender to the
Borrower;
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(g) the Borrower or any Subsidiary shall (i) fail to pay any
principal or interest, regardless of amount, due in respect of any
Indebtedness in a principal amount in excess of $5,000,000, when and as the
same shall become due and payable (after expiration of any applicable grace
period), or (ii) fail to observe or perform any other term, covenant,
condition or agreement contained in any agreement or instrument evidencing
or governing any such Indebtedness if the effect of any failure referred to
in this clause (ii) is to cause, or to permit the holder or holders of such
Indebtedness or a trustee on its or their behalf to cause, such
Indebtedness to become due prior to its stated maturity;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction
seeking (i) relief in respect of the Borrower or any Subsidiary, or of a
substantial part of the property or assets of the Borrower or a Subsidiary,
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other Federal or state bankruptcy, insolvency, receivership
or similar law, (ii) the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Borrower or any
Subsidiary or for a substantial part of the property or assets of the
Borrower or a Subsidiary or (iii) the winding-up or liquidation of the
Borrower or any Subsidiary; and such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or ordering any of
the foregoing shall be entered;
(i) the Borrower or any Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking relief under Title 11
of the United States Code, as now constituted or hereafter amended, or any
other Federal or state bankruptcy, insolvency, receivership or similar law,
(ii) consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or the filing of any petition described
in (h) above, (iii) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for the
Borrower or any Subsidiary or for a substantial part of the property or
assets of the Borrower or any Subsidiary, (iv) file an answer admitting the
material allegations of a petition filed against it in any such proceeding,
(v) make a general assignment for the benefit of creditors, (vi) become
unable, admit in writing its inability or fail generally to pay its debts
as they become due or (vii) take any action for the purpose of effecting
any of the foregoing;
(j) one or more judgments for the payment of money in an
aggregate amount in excess of $1,000,000 shall be rendered against the
Borrower, any Subsidiary or any combination thereof and the same shall
remain undischarged and unvacated for a period of 45 consecutive days
during which execution shall not be effectively bonded over or stayed, or
any judgment creditor shall levy upon assets or properties of the Borrower
or any Subsidiary to enforce any such judgment;
(k) a Reportable Event or Reportable Events, or a failure to
make a required installment or other payment (within the meaning of Section
412(n)(1) of the Code), shall have occurred with respect to any Plan or
Plans that reasonably could be expected to result in liability of the
Borrower to the PBGC or to a Plan in an aggregate amount exceeding
$2,500,000 and, within 30 days after the reporting of any such Reportable
Event to the Agent or after the receipt by the Agent of the statement
required pursuant to Section 5.6, the Agent shall have notified the
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Borrower in writing that (i) the Required Lenders have made a determination
that, on the basis of such Reportable Event or Reportable Events or the
failure to make a required payment, there are reasonable grounds (a) for
the termination of such Plan or Plans by the PBGC, (b) for the appointment
by the appropriate United States District Court of a trustee to administer
such Plan or Plans or (c) for the imposition of a lien in favor of a Plan
and (ii) as a result thereof an Event of Default exists hereunder; or a
trustee shall be appointed by a United States District Court to administer
any such Plan or Plans; or the PBGC shall institute proceedings to
terminate any Plan or Plans;
(l) (i) the Borrower or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred
Withdrawal Liability to such Multiemployer Plan, (ii) the Borrower or such
ERISA Affiliate does not have reasonable grounds for contesting such
Withdrawal Liability or is not in fact contesting such Withdrawal Liability
in a timely and appropriate manner and (iii) the amount of the Withdrawal
Liability specified in such notice, when aggregated with all other amounts
required to be paid to Multiemployer Plans in connection with Withdrawal
Liabilities (determined as of the date or dates of such notification),
exceeds $2,500,000;
(m) the Borrower or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that such Multiemployer
Plan is in reorganization or is being terminated, within the meaning of
Title IV of ERISA, if solely as a result of such reorganization or
termination the aggregate annual contributions of the Borrower and the
Borrower's ERISA Affiliates to all Multiemployer Plans that are then in
reorganization or have been or are being terminated have been or will be
increased over the amounts required to be contributed to such Multiemployer
Plans for their most recently completed plan years by an amount exceeding
$500,000; or
(n) there shall have occurred a Change in Control with respect
to the Borrower.
7.2 Remedies.
(a) Upon the occurrence of an Event of Default described in
paragraph (h) or (i) of Section 7.1, (x) the Commitments shall
automatically terminate, and (y) the principal of the Loans then
outstanding, together with accrued interest thereon and any unpaid accrued
Facility Fees and all other liabilities of the Borrower accrued hereunder
and under any other Loan Document, shall automatically become due and
payable, without presentment, demand, protest or any other notice of any
kind, all of which are hereby expressly waived by the Borrower, anything
contained herein or in any other Loan Document to the contrary
notwithstanding.
(b) Upon the occurrence of an Event of Default other than an Event
of Default with respect to the Borrower described in paragraph (h) or (i)
of Section 7.1, and at any time thereafter during the continuance of such
Event of Default, by notice to the Borrower, the Agent, upon the
appropriate request described below, shall take any or all of the following
actions, at the same or different times:
(i) at the request of the Required Revolving Credit Lenders,
shall terminate forthwith the Revolving Credit Commitments;
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(ii) at the request of the Required Term Lenders, shall
terminate forthwith the Term Loan Commitments (if at the time of such Event
of Default the Closing Date has not yet occurred); and
(iii) at the request of the Required Lenders, declare the Loans
then outstanding to be forthwith due and payable in whole or in part,
whereupon the principal of the Loans so declared to be due and payable,
together with accrued interest thereon and any unpaid accrued Facility Fees
and all other liabilities of the Borrower accrued hereunder and under any
other Loan Document shall become forthwith due and payable, without
presentment, demand, protest or any other notice of any kind, all of which
are hereby expressly waived by the Borrower, anything contained herein or
in any other Loan Document to the contrary notwithstanding.
ARTICLE 8
THE AGENT
8.1 Appointment. In order to expedite the transactions contemplated
by this Agreement, Mitsubishi Bank is hereby appointed to act as Agent, on
behalf of the Lenders. Each of the Lenders hereby irrevocably authorizes
the Agent to take such actions on its behalf and to exercise such powers as
are specifically delegated to the Agent by the terms and provisions hereof
and of the other Loan Documents, together with such actions and powers as
are reasonably incidental thereto. The Agent is hereby expressly
authorized by the Lenders, without hereby limiting any implied authority,
(a) to receive on behalf of the Lenders all payments of principal of and
interest on the Loans and all other amounts due to the Lenders hereunder,
and promptly to distribute to each Lender its proper share of each payment
so received; (b) to give notice on behalf of each of the Lenders to the
Borrower of any Event of Default specified in this Agreement of which the
Agent has actual knowledge acquired in connection with its agency
hereunder; and (c) to distribute to each Lender copies of all notices,
financial statements and other materials delivered by the Borrower pursuant
to this Agreement as received by the Agent.
8.2 Nature of Duties. The Agent shall not have any duties or
responsibilities except those expressly set forth in this Agreement or in
the other Loan Documents. The Agent's duties shall be mechanical and
administrative in nature. The Agent shall not have by reason of this
Agreement a fiduciary relationship in respect of any Lender. Nothing in
this Agreement or any of the other Loan Documents, expressed or implied, is
intended to or shall be construed to impose upon the Agent any obligations
in respect of this Agreement or any of the other Loan Documents except as
expressly set forth herein or therein. With respect to the taking or
refraining from taking any action hereunder, if the Agent seeks the consent
or approval of (i) the Required Lenders, the Agent shall send notice
thereof to each Lender; (ii) the Required Term Lenders, the Agent shall
send notice thereof to each Term Lender; and (iii) the Required Revolving
Credit Lenders, the Agent shall send notice thereof to each Revolving
Credit Lender. The Agent shall promptly notify each Lender at any time
that the Required Lenders, the Required Term Lenders, the Required
Revolving Credit Lenders or, where expressly required, all of the Lenders,
have instructed the Agent to act or refrain from acting pursuant hereto.
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8.3 Rights, Exculpation, Etc. Neither the Agent nor any of its
directors, officers, employees or agents shall be liable as such for any
action taken or omitted by any of them except for its or his own gross
negligence or wilful misconduct, or be responsible for any statement,
warranty or representation herein or the contents of any document delivered
in connection herewith, or be required to ascertain or to make any inquiry
concerning the performance or observance by the Borrower of any of the
terms, conditions, covenants or agreements contained in any Loan Document.
The Agent shall not be responsible to the Lenders for the due execution,
genuineness, validity, enforceability or effectiveness of this Agreement or
any other Loan Documents or other instruments or agreements. The Agent
shall in all cases be fully protected in acting, or refraining from acting,
in accordance with written instructions signed by the Required Lenders, the
Required Term Lenders, the Required Revolving Credit Lenders or all of the
Lenders, as appropriate, and, except as otherwise specifically provided
herein, such instructions and any action or inaction pursuant thereto shall
be binding on all the Lenders. The Agent shall, in the absence of
knowledge to the contrary, be entitled to rely on any instrument or
document believed by it in good faith to be genuine and correct and to have
been signed or sent by the proper Person or Persons. Neither the Agent nor
any of its directors, officers, employees or agents shall have any
responsibility to the Borrower on account of the failure of or delay in
performance or breach by any other Lender of any of its obligations
hereunder or to any Lender on account of the failure of or delay in
performance or breach by any other Lender or the Borrower of any of their
respective obligations hereunder or under any other Loan Document or in
connection herewith or therewith. The Agent may execute any and all duties
hereunder by or through agents or employees and shall be entitled to rely
upon the advice of legal counsel selected by it with respect to all matters
arising hereunder and shall not be liable for any action taken or suffered
in good faith by it in accordance with the advice of such counsel.
The Lenders hereby acknowledge that the Agent shall be under no duty
to take any discretionary action permitted to be taken by it pursuant to
the provisions of this Agreement unless it shall be requested in writing to
do so by the Required Lenders.
8.4 Successor Agent; Resignation of the Agent. Subject to the
appointment and acceptance of a successor Agent as provided below, the
Agent may resign at any time by notifying the Lenders and the Borrower.
Upon any such resignation, the Required Lenders shall have the right to
appoint a successor acceptable to the Borrower. If no successor shall have
been so appointed by the Required Lenders and shall have accepted such
appointment within 30 days after the retiring Agent gives notice of its
resignation, then the retiring Agent may, on behalf of the Lenders, appoint
a successor Agent which shall be a bank with an office in Chicago, Illinois
or New York, New York, having a combined capital and surplus of at least
$500,000,000 or an Affiliate of any such bank, and which shall be
acceptable to the Borrower. Upon the acceptance of any appointment as
Agent hereunder by a successor bank, such successor shall succeed to and
become vested with all the rights, powers, privileges and duties of the
retiring Agent and the retiring Agent shall be discharged from its duties
and obligations as Agent hereunder. After the Agent's resignation
hereunder, the provisions of this Article 8 and Section 9.5 shall continue
in effect for its benefit in respect of any actions taken or omitted to be
taken by it while it was acting as Agent.
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8.5 The Agent Individually. With respect to the Loans made by it
hereunder, Mitsubishi Bank, in its individual capacity and not as an Agent,
shall have the same rights and powers as any other Lender and may exercise
the same as though it was not the Agent, and Mitsubishi Bank and its
Affiliates may accept deposits from, lend money to and generally engage in
any kind of business with the Borrower, any Subsidiary or other Affiliate
thereof as if it was not the Agent.
8.6 Indemnification. Each Lender agrees (i) to reimburse the Agent,
on demand, in the amount of its Pro Rata Share of any expenses incurred for
the benefit of the Lenders by the Agent, including counsel fees and
compensation of agents and employees paid for services rendered on behalf
of the Lenders, which shall not have been reimbursed by the Borrower and
(ii) to indemnify and hold harmless the Agent and any of its directors,
officers, employees or agents, on demand, in the amount of such Pro Rata
Share, from and against any and all liabilities, taxes, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on,
incurred by or asserted against it in its capacity as the Agent or any of
them in any way relating to or arising out of this Agreement or any other
Loan Document or any action taken or omitted by it or any of them under
this Agreement or any other Loan Document, to the extent the same shall not
have been reimbursed by the Borrower; provided that no Lender shall be
liable to the Agent under clause (i) or (ii) above for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the gross negligence
or wilful misconduct of the Agent or any of its directors, officers,
employees or agents.
8.7 Independent Credit Analysis. Each Lender acknowledges that it
has, independently and without reliance upon the Agent or any other Lender
and based on such documents and information as it has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement.
Each Lender also acknowledges that it will, independently and without
reliance upon the Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, make its own
credit analysis and decision to make Loans hereunder from and after the
Closing Date and continue to make its own decisions in taking or not taking
action under or based upon this Agreement or any other Loan Document, any
related agreement or any document furnished hereunder or thereunder.
ARTICLE 9
MISCELLANEOUS
9.1 Notices. Notices and other communications provided for herein
shall be in writing and shall be delivered by hand or overnight courier
service, mailed or sent by telecopy, as follows:
(a) if to the Borrower, to it at 1440 M Street, Lincoln,
Nebraska 68501, Attention of Mr. Michael J. Tavlin, Vice President -
Treasurer and Corporate Secretary, Telecopy No. (402) 475-9195, with a copy
to Foley & Lardner, 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202,
Attention Benjamin F. Garmer, III, Telecopy No. (414) 297-4900;
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(b) if to Mitsubishi Bank, to it at 115 South LaSalle Street,
Suite 2100, Chicago, Illinois 60603, Attention of Curtis A. Spillers,
Telecopy No. (312) 263-2555;
(c) if to a Lender, to it at its address (or telecopy number)
set forth in Schedule 2.1 or in the Assignment and Acceptance pursuant to
which such Lender shall have become a party hereto. All notices and other
communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt
if delivered by hand or overnight courier service or sent by telecopy, or
on the date five Business Days after dispatch by certified or registered
mail if mailed, in each case delivered, sent or mailed (properly addressed)
to such party as provided in this Section 9.1 or in accordance with the
latest unrevoked direction from such party given in accordance with this
Section 9.1.
9.2 Survival of Agreement. All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement shall be considered to have been relied upon
by the Lenders and shall survive the making by the Lenders of the Loans,
regardless of any investigation made by the Lenders or on their behalf, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any Facility Fee or any other amount
payable under this Agreement or any other Loan Document is outstanding and
unpaid and so long as the Commitments have not been terminated.
9.3 Binding Effect. This Agreement shall become effective when it
shall have been executed by the Borrower and the Agent and when the Agent
shall have received copies hereof which, when taken together, bear the
signatures of each Lender, and thereafter shall be binding upon and inure
to the benefit of the Borrower, the Agent, each Lender and their respective
successors and assigns, except that the Borrower shall not have the right
to assign its rights hereunder or any interest herein without the prior
consent of all the Lenders.
9.4 Successors and Assigns.
(a) Whenever in this Agreement any of the parties hereto is
referred to, such reference shall be deemed to include the successors and
assigns of such party, except as otherwise provided in Section 9.4(b); and
all covenants, promises and agreements by or on behalf of the Borrower, the
Agent or the Lenders that are contained in this Agreement shall bind and
inure to the benefit of their respective successors and assigns.
(b) Each Lender may assign to one or more Eligible Assignees
all or a percentage of that Lender's interests, rights and obligations
under this Agreement (including all or a portion of the Loans owing to it,
the Notes held by it and its Commitments); provided, however, that (i)
except in the case of an assignment to a Lender or a Qualified Affiliate of
a Lender, the Agent and the Borrower must give their prior written consent
to such assignment (which consent of the Agent and the Borrower shall not
be unreasonably withheld), (ii) the aggregate amount of the Commitments and
Loans of the assigning Lender subject to each such assignment (determined
as of the date the Assignment and Acceptance with respect to such
assignment is delivered to the Agent) shall not be less than $5,000,000
(or, if less, the entire remaining amount of such Lender's Loans and
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Commitments), (iii) the parties to each such assignment shall execute and
deliver to the Agent an Assignment and Acceptance, and, except for
assignments made pursuant to Section 2.27, such Eligible Assignee shall
deliver to the Agent a processing and recordation fee of $2,500 and (iv)
such Eligible Assignee, if it shall not be a Lender, shall deliver to the
Agent an Administrative Questionnaire. Upon acceptance and recording
pursuant to paragraph (e) of this Section 9.4, from and after the effective
date specified in each Assignment and Acceptance, which effective date
shall be at least five Business Days (except as otherwise agreed by the
assignor, the assignee and the Agent) after the execution thereof, (a) the
assignee thereunder shall be a party hereto and, to the extent of the
interest assigned by such Assignment and Acceptance, have the rights and
obligations of a Revolving Credit Lender and/or a Term Lender, as the case
may be, under this Agreement and (b) the assigning Lender thereunder shall,
to the extent of the interest assigned by such Assignment and Acceptance,
be released from its obligations under this Agreement (and, in the case of
an Assignment and Acceptance covering all or the remaining portion of an
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto but shall continue to be entitled to the
benefits of Sections 2.19, 2.21, 2.25 and 9.5 with respect to time periods
during which it was a party hereto, as well as to any interest and Facility
Fees accrued for its account and not yet paid).
(c) By executing and delivering an Assignment and Acceptance,
the assigning Lender thereunder and the assignee thereunder shall be deemed
to confirm to and agree with each other and the other parties hereto as
follows: (i) such assigning Lender warrants that it is the legal and
beneficial owner of the interest being assigned thereby free and clear of
any adverse claim and that its Commitments and/or the outstanding balances
of its Loans, in each case without giving effect to assignments thereof
which have not become effective, are as set forth in such Assignment and
Acceptance, (ii) except as set forth in (i) above, such assigning Lender
makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with this Agreement, or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement, any
other Loan Document or any other instrument or document furnished pursuant
hereto, or the financial condition of the Borrower or any Subsidiary or the
performance or observance by the Borrower or any Subsidiary of any of its
obligations under this Agreement, any other Loan Document or any other
instrument or document furnished pursuant hereto; (iii) such assignee
represents and warrants that it is legally authorized to enter into such
Assignment and Acceptance; (iv) such assignee confirms that it has received
a copy of this Agreement, together with copies of the most recent financial
statements delivered pursuant to Section 5.4 and such other documents and
information as it has deemed appropriate to make its own credit analysis
and decision to enter into such Assignment and Acceptance; (v) such
assignee will independently and without reliance upon the Agent, such
assigning Lender or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking action under this Agreement;
(vi) such assignee appoints and authorizes the Agent to take such action as
Agent on its behalf, and to exercise such powers under this Agreement, as
are delegated to the Agent by the terms hereof, together with such powers
as are reasonably incidental thereto; and (vii) such assignee agrees that
it will perform in accordance with their terms all the obligations which by
the terms of this Agreement are required to be performed by it as a Lender.
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(d) The Agent shall maintain at one of its offices in the City
of Chicago a copy of each Assignment and Acceptance delivered to it and a
register for the recordation of the names and addresses of the Lenders, and
the Commitments of, and principal amount of the Loans owing to, each Lender
pursuant to the terms hereof from time to time (the "Register"). The
entries in the Register shall be conclusive in the absence of manifest
error and the Borrower, the Agent and the Lenders may treat each Person
whose name is recorded in the Register pursuant to the terms hereof as a
Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower and any Lender at any reasonable
time and from time to time upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee, an
Administrative Questionnaire completed in respect of the assignee (unless
the assignee shall already be a Lender hereunder), the processing and
recordation fee referred to in paragraph (b) above and, if required, the
written consent of the Borrower and the Agent to such assignment, the Agent
shall (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the Borrower and the Lenders.
(f) Upon the Acceptance by the Agent of any Assignment and
Acceptance, the parties to such Assignment and Acceptance may at any time
request that a new Term Loan Note and/or a new Revolving Loan Note be
issued to the Lender assignee by (i) providing written notice of such
request to the Agent and the Borrower and (ii) delivering to the Borrower
such assigning Lender's Term Loan Note and/or Revolving Loan Note for
cancellation and substitution. With respect to each such Note so
delivered, promptly following receipt by the Borrower of any such notice
and such Note, and verification from the Agent that the applicable
Assignment and Acceptance shall have been accepted by the Agent, the
Borrower forthwith shall cause to be executed, and shall deliver to the
Lender assignee, a new Note to the order of the assignee and, if
applicable, a replacement Note to the order of the Lender assignor, and
such Note or Notes shall equal to the aggregate principal amount of the
assigning Lender's Note issued by the Borrower immediately prior to the
acceptance by the Agent of the applicable Assignment and Acceptance. The
Borrower shall immediately upon delivery of such new Note(s), cancel the
original Note delivered by the Lender assignor to the Borrower.
(g) Each Lender may without the consent of the Borrower or the
Agent sell participations to one or more banks or other entities in all or
a portion of its rights and obligations under this Agreement (including all
or a portion of its Commitments and the Loans owing to it); provided,
however, that (i) such Lender's obligations under this Agreement shall
remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, (iii) the
participating banks or other entities shall be entitled to the benefit of
the cost protection and indemnity provisions contained in Sections 2.19,
2.21, 2.25 and 9.5 to the same extent as if they were Lenders (except that
no participant or participants shall be entitled to claim any aggregate
amount greater than that which could have been claimed by the Lender from
which it or they acquired its or their participations) and (iv) the
Borrower, the Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement, and such Lender shall retain the sole
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right to enforce the obligations of the Borrower relating to the Loans and
to approve any amendment, modification or waiver of any provision of this
Agreement (other than amendments, modifications or waivers decreasing any
fees payable hereunder or the amount of principal of or the rate at which
interest is payable on the Loans, extending the final maturity of the Loans
or any date fixed for the payment of interest on the Loans or any Facility
Fees or extending the Commitments).
(h) Any Lender or participant may, in connection with any
assignment or participation or proposed assignment or participation
pursuant to this Section 9.4, disclose to the assignee or participant or
proposed assignee or participant any information relating to the Borrower
and the Subsidiaries furnished to such Lender by or on behalf of the
Borrower; provided that, prior to any such disclosure of information
designated by the Borrower as confidential, each such assignee or
participant or proposed assignee or participant shall execute an agreement
whereby such assignee or participant shall agree (subject to customary
exceptions) to preserve the confidentiality of such confidential
information.
(i) Any Lender may at any time pledge or assign all or any
portion of its rights under this Agreement and the Notes issued to it to a
Federal Reserve Bank; provided that no such assignment shall release a
Lender from any of its obligations hereunder.
(j) The Borrower shall not assign or delegate any of its rights
or duties hereunder without the consent of each Lender.
9.5 Expenses; Indemnity.
(a) The Borrower agrees to pay all reasonable out-of-pocket
expenses incurred by the Agent in connection with the preparation of this
Agreement and the other Loan Documents or in connection with any
amendments, modifications or waivers of the provisions hereof or thereof
(whether or not the transactions hereby contemplated shall be consummated)
or incurred by the Agent or any Lender in connection with the enforcement
or protection of their rights in connection with this Agreement and the
other Loan Documents or in connection with the Loans made hereunder,
including in each case all of the reasonable fees, charges and
disbursements of counsel for the Agent, and, in connection with any such
enforcement or protection, the reasonable fees, charges and disbursements
of any other counsel for the Agent or any Lender. The Agent shall provide
the Borrower with a statement in reasonable detail setting forth all
reimbursements requested under this Section 9.5(a).
(b) The Borrower agrees to indemnify the Agent, each Lender and
each of their respective directors, officers, employees, attorneys and
agents (each such Person being called an "Indemnitee") against, and to hold
each Indemnitee harmless from, any and all liabilities, damages,
obligations, losses, penalties, actions, judgments, suits, costs and
expenses, including reasonable counsel fees, charges and disbursements,
incurred by or asserted against any Indemnitee arising out of any third
party claim, litigation, investigation or proceeding (whether or not any
Indemnitee shall be party thereto) relating to, in any way connected with,
or as a result of (i) the execution or delivery of this Agreement or any
other Loan Document or any agreement or instrument contemplated thereby, or
(ii) the use of the proceeds of the Loans (a "Third Party Claim"); provided
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that such indemnity shall not, as to any Indemnitee, be available to the
extent that such liabilities, damages, obligations, losses, penalties,
actions, judgments, suits, costs and expenses which (if such liabilities,
damages, obligations, losses, penalties, actions, judgments, suits, costs
and expenses arise in a judicial forum) are found in a final judgment by a
court of competent jurisdiction have resulted from the gross negligence or
wilful misconduct of such Indemnitee; provided further that (a) each
Indemnitee shall promptly notify the Borrower in writing upon becoming
aware of the initiation of any Third Party Claim against it, (b) the
Borrower shall be entitled to participate in the defense of any such Third
Party Claim and, if the Borrower so chooses, to assume the defense, at the
Borrower's expense, of any such Third Party Claim with counsel selected by
the Borrower (it being understood that any Indemnitee shall have the right
to participate in such defense and employ counsel separate from the counsel
employed by the Borrower, and that such counsel shall be at the expense of
such Indemnitee unless such Indemnitee shall have been advised by counsel
that there may be legal defenses available to it that are inconsistent with
or in addition to those available to the Borrower, in which case such
counsel shall be at the expense of the Borrower) and (c) no Indemnitee
shall settle any Third Party Claim without the prior written consent of the
Borrower (which consent shall not be unreasonably withheld).
(c) None of the Agent, any Lender, the Borrower or any of their
respective directors, officers, employees, attorneys and agents shall be
responsible or liable to any other party hereto or any other Person or
entity for consequential damages which may be alleged as a result of the
transactions contemplated hereby, except to the extent consequential
damages are specifically provided for in this Agreement.
(d) The provisions of this Section 9.5 shall remain operative
and in full force and effect regardless of the expiration of the term of
this Agreement, the consummation of the transactions contemplated hereby,
the repayment of any of the Loans, the invalidity or unenforceability of
any term or provision of this Agreement or any other Loan Document, or any
investigation made by or on behalf of the Agent or any Lender. All amounts
due under this Section 9.5 shall be payable on written demand therefor.
9.6 Right of Setoff. If an Event of Default shall have occurred and
be continuing, each Lender is hereby authorized at any time and from time
to time, to the fullest extent permitted by law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to
or for the credit or the account of the Borrower against any of and all the
obligations of the Borrower now or hereafter existing under this Agreement
and other Loan Documents held by such Lender, irrespective of whether or
not such Lender shall have made any demand under this Agreement or such
other Loan Document and although such obligations may be unmatured. the
rights of each Lender under this Section 9.6 are in addition to other
rights and remedies (including other rights of setoff) which such Lender
may have.
9.7 Applicable Law. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF
THE STATE OF ILLINOIS, WITHOUT GIVING EFFECT TO CHOICE OF LAW PRINCIPLES.
9.8 Waivers; Amendment.
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(a) No failure or delay of the Agent or any Lender in
exercising any power or right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Agent and the Lenders
hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies which they would otherwise have. No
waiver of any provision of this Agreement or any other Loan Document or
consent to any departure by the Borrower therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) below, and
then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice or demand on the
Borrower in any case shall entitle the Borrower to any other or further
notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements
in writing entered into by the Borrower and the Required Lenders; provided,
however, that no such agreement shall (i) decrease the principal amount of,
or extend the maturity of or any scheduled principal payment date or date
for the payment of any interest on any Loan, or waive or excuse any such
payment or any part thereof, or decrease the rate of interest on any Loan,
without the prior written consent of each Lender affected thereby, (ii)
change or extend any Commitment or decrease the Facility Fees of any Lender
without the prior written consent of such Lender, or (iii) amend or modify
the provisions of Section 2.22, the provisions of this Section 9.8 or the
definitions of "Required Lenders", "Required Term Lenders" or "Required
Revolving Credit Lenders", without the prior written consent of each
Lender; provided further that no such agreement shall amend, modify or
otherwise affect the rights or duties of the Agent hereunder without the
prior written consent of the Agent.
(c) No waiver by the Required Lenders of any Event of Default
hereunder shall impair (i) the right of the Required Revolving Credit
Lenders to terminate the Revolving Credit Commitments at any time on or
after the occurrence of such Event of Default pursuant to Section
7.2(b)(i), or (ii) the right of the Required Term Lenders to terminate the
Term Loan Commitments at any time prior to the Closing Date on or after the
occurrence of such Event of Default pursuant to Section 7.2(b)(ii).
9.9 Interest Rate Limitation. Notwithstanding anything herein to
the contrary, if at any time the applicable interest rate, together with
all fees and charges which are treated as interest under applicable law
(collectively the "Charges"), as provided for herein or in any other
document executed in connection herewith, or otherwise contracted for,
charged, received, taken or reserved by any Lender, shall exceed the
maximum lawful rate (the "Maximum Rate") which may be contracted for,
charged, taken, received or reserved by such Lender in accordance with
applicable law, the rate of interest payable on the Loans of such Lender,
together with all Charges payable to such Lender, shall be limited to the
Maximum Rate.
9.10 Confidentiality.
(a) Each Lender agrees to keep confidential, and to not
publish, disclose or otherwise divulge to any Person, the Information (as
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defined below), and to cause its respective officers, directors, employees,
agents and representatives to keep confidential, and to not publish,
disclose or otherwise divulge to any Person, the Information, except that
any Lender shall be permitted to disclose Information (i) to such of its
officers, directors, employees, agents and representatives as need to know
such Information in connection with the servicing and protection of its
interests in respect of its Loans and Commitments, the Loan Documents and
the transactions contemplated thereby; (ii) to the extent required by
applicable laws and regulations or by any subpoena or similar legal
process, or requested by any bank regulatory authority; (iii) to the extent
such Information (a) becomes publicly available other than as a result of a
breach of this Agreement, (b) becomes available to such Lender on a non-
confidential basis from a source other than the Borrower or its Affiliates
or (c) was available to such Lender on a non-confidential basis prior to
its disclosure to such Lender by the Borrower or its Affiliates; (iv) to
any actual or prospective assignee of or purchaser of a participation in
the rights of such Lender hereunder, subject to paragraph (c) below; or (v)
to the extent the Borrower shall have consented to such disclosure in
writing. As used in this Section, as to any Lender, the "Information"
shall mean any materials, documents and information which the Borrower or
any of its Affiliates may have furnished or may hereafter furnish to the
Agent or any Lender in connection with this Agreement.
(b) Each Lender agrees that it will use the Information only
for purposes related to the transactions contemplated hereby; provided that
(i) if the conditions referred to in any of subclauses (a) through (c) of
clause (iii) of paragraph (a) above are met, such Lender may otherwise use
the Information and (ii) if such Lender is otherwise a creditor of the
Borrower, such Lender may use the Information in connection with its other
credits to the Borrower.
(c) Each Lender agrees that it will not disclose any of the
Information to any actual or prospective assignee of or participant in any
rights of such Lender under this Agreement unless such actual or
prospective assignee or participant first executes and delivers to such
Lender a confidentiality letter containing substantially the undertakings
set forth in this Section 9.10.
9.11 Entire Agreement. This Agreement, including the exhibits and
schedules thereto, and the other Loan Documents constitute the entire
contract between the parties relative to the subject matter hereof. Any
previous agreement among the parties with respect to the subject matter
hereof is superseded by this Agreement and the other Loan Documents.
Nothing in this Agreement or in the other Loan Documents, expressed or
implied, is intended to confer upon any party other than the parties hereto
and thereto any rights, remedies, obligations or liabilities under or by
reason of this Agreement or the other Loan Documents.
9.12 Waiver of Jury Trial. Each party hereto hereby waives, to the
fullest extent permitted by applicable law, any right it may have to a
trial by jury in respect of any litigation directly or indirectly arising
out of, under or in connection with this Agreement or any of the other Loan
Documents. Each party hereto (a) certifies that no representative, agent
or attorney of any other party has represented, expressly or otherwise,
that such other party would not, in the event of litigation, seek to
enforce the foregoing waiver and (b) acknowledges that it and the other
parties hereto have been induced to enter into this Agreement and the other
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Loan Documents, as applicable, by, among other things, the mutual waivers
and certifications in this Section 9.12.
9.13 Severability. In the event any one or more of the provisions
contained in this Agreement or in any other Loan Document should be held
invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein and therein
shall not in any way be affected or impaired thereby. The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
9.14 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract, and shall become
effective as provided in Section 9.3.
9.15 Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of
this Agreement and are not to affect the construction of, or to be taken
into consideration in interpreting, this Agreement.
9.16 Jurisdiction; Consent to Service of Process.
(a) THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY
SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF
ANY ILLINOIS STATE COURT OR FEDERAL COURT OF THE UNITED STATES OF AMERICA
SITTING IN THE CITY OF CHICAGO, AND ANY APPELLATE COURT FROM ANY THEREOF,
IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE OTHER LOAN DOCUMENTS, OR FOR RECOGNITION OR ENFORCEMENT OF ANY
JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH ILLINOIS STATE OR, TO THE
EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO
AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT
SHALL AFFECT ANY RIGHT THAT ANY PARTY MAY OTHERWISE HAVE TO BRING ANY
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS
IN THE COURTS OF ANY JURISDICTION.
(b) THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES,
TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT,
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS IN ANY ILLINOIS STATE OR FEDERAL COURT. EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH
ACTION OR PROCEEDING IN ANY SUCH COURT.
9.17 Defaulting Lender. In the event that any Lender fails to fund
its Term Loan or its Commitments of any Revolving Loan Borrowing requested
or deemed requested by the Borrower which such Lender is obligated to fund
under the terms of this Agreement (the funded portion of such Borrowing
being hereinafter referred to as a "Non Pro Rata Loan"), until the earlier
of such Lender's cure of such failure or the termination of the
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Commitments, upon the Borrower's request, the proceeds of all amounts
thereafter repaid to the Agent by the Borrower and otherwise required to be
applied to such Lender's share of all other Obligations pursuant to the
terms of this Agreement shall be advanced to the Borrower by the Agent on
behalf of such Lender to cure, in full or in part, such failure by such
Lender, but shall nevertheless be deemed to have been paid to such Lender
in satisfaction of such other Obligations. Notwithstanding anything in
this Agreement to the contrary:
(i) the foregoing provisions of this Section 9.17 shall apply
only with respect to the proceeds of payments of Obligations and shall not
affect the conversion or continuation of Loans pursuant to Section 2.15;
(ii) any such Lender shall be deemed to have cured its failure
to fund its Term Loan or its Revolver Pro Rata Share of any Revolving Loan
Borrowing at such time as an amount equal to such Lender's Term Commitment
or original Revolver Pro Rata Share of the requested principal portion of
such Borrowing is fully funded to the Borrower, whether made by such Lender
itself or by operation of the terms of this Section 9.17 and whether or not
the Non Pro Rata Loan with respect thereto has been, converted or
continued;
(iii) amounts advanced to the Borrower to cure, in full or in
part, any such Lender's failure to fund its Term Loan or its Revolver Pro
Rata Share of any Borrowing ("Cure Loans") shall bear interest at the rate
applicable to ABR Borrowings under Section 2.10 in effect from time to
time, and for all other purposes of this Agreement shall be treated as if
they were ABR Loans;
(iv) regardless of whether or not an Event of Default has
occurred or is continuing, and notwithstanding the instructions of the
Borrower as to its desired application, all repayments of principal which
would be applied to the outstanding ABR Loans shall be applied first,
ratably to all ABR Loans constituting Non Pro Rata Loans, second, ratably
to ABR Loans other than those constituting Non Pro Rata Loans or Cure Loans
and, third, ratably to ABR Loans constituting Cure Loans;
(v) for so long as and until the earlier of any such Lender's
cure of the failure to fund its Term Loan or its Revolver Pro Rata Share of
any Revolving Loan Borrowing and the termination of the Commitments, the
terms "Required Lenders", "Required Term Lenders" and "Required Revolving
Credit Lenders" for all purposes of this Agreement shall exclude all
Lenders whose failure to fund their respective Term Loans or Revolver Pro
Rata Shares of such Revolving Loan Borrowing have not been so cured; and
(vi) for so long as and until any such Lender's failure to fund
its Term Loan or its Pro Rata Share of any Revolving Loan Borrowing is
cured in accordance with this Section 9.17, such Lender shall not be
entitled to any Facility Fees with respect to its Revolving Credit
Commitment.
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<PAGE>
IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders have
caused this Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
LINCOLN TELECOMMUNICATIONS
COMPANY
By: /s/ Frank H. Hilsabeck
Name: Frank Hilsabeck
Title: President and CEO
THE MITSUBISHI BANK, LIMITED,
individually and as Agent
By: /s/ Noboru Kobayashi
Name: Noboru Kobayashi
Title: Joint General Manager
THE FIRST NATIONAL BANK OF
CHICAGO
By: /s/ William N. Banks
Name: William N. Banks
Title: Authorized Agent
FIRST NATIONAL BANK OF OMAHA
By: /s/ David S. Erker
Name: David S. Erker
Title: Vice President
THE FUJI BANK, LIMITED
By: /s/ Peter L. Chinnici
Name: Peter L. Chinnici
Title: Joint General Manager
NORWEST BANK NEBRASKA,
NATIONAL ASSOCIATION
By: /s/ Bill Weber
Name: Bill Weber
Title: Vice President
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<PAGE>
THE TOYO TRUST AND BANKING
COMPANY, LTD.
By: /s/ Watan Nishino
Name: W. Nishino
Title: General Manager
4-65
<PAGE>
EXHIBIT 13
ALIANT COMMUNICATIONS
1997 ANNUAL REPORT
THE TRIANGLE This shape gives direction and provides balance. It offers
support and gives strength. Highly indispensable and quite versatile, it's
a shape that's part of our corporate identity - an eye-catching element in
our new name and statewide brand.
At Aliant Communications we bring much to the world of telecommunications.
We offer our customers the means to make their lives better and their
businesses more productive. As we make it easier to communicate, good
things happen for our customers, our company and our shareholders. In the
annual report for this year, we rely on the strengths of the triangle to
tell our story.
ABOUT THE COMPANY
Aliant Communications, headquartered in Lincoln, Nebraska, is a diversified
communications company. We provide retail services and products to
consumers, businesses, educational institutions and government agencies.
We also offer wholesale network services to other communications companies.
The company employs more than 1,500 people in its landline and wireless
operations.
TABLE OF CONTENTS
Page 5 Direction: Reports from our President and Chief Executive
Officer and our Chairman of the Board.
Page 9 Balance: Our business operations focus on four key areas: local
exchange service, cellular, competitive local exchange service and
wholesale.
Page 13 Support: Technology, organization and regulation provide the
foundation for our strategic objectives.
Page 16 Strength: Financial performance measures our value and worth.
OPERATIONS AND EARNINGS HIGHLIGHTS
December 31
($ in thousands, except per share data) 1997 1996 % Change
OPERATING DATA
Operating Revenues $ 286,328 $ 264,225 8.4%
Net Income $ 53,039 $ 44,954 18.0%
PER SHARE DATA
Earnings $ 1.46 $ 1.22 19.7%
Dividends $ 0.66 $ 0.61 8.2%
Book Value $ 8.37 $ 7.65 9.4%
KEY RATIOS
Return on Common Equity 17.5% 16.1% 8.7%
Debt Ratio 24.5% 27.9% -12.2%
OTHER DATA
Total Assets $ 547,642 $ 521,402 5.0%
Shareholders' Equity $ 302,998 $ 278,567 8.8%
Capital Expenditures $ 50,067 $ 42,704 17.2%
Telephone Access Lines in Service 273,008 263,208 3.7%
Proportionate Cellular Customers 205,915 165,233 24.6%
1
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[CHARTS]
Revenues Net Income*
(In Millions) (In Millions) Earnings Per Share
1993 $ 184 1993 $ 33 1993 $ 1.01
1994 $ 197 Net $ 10 Net $ .30
1995 $ 226 One-time charge $ 23 One-time charge $ .71
1996 $ 264 1994 $ 37 1994 $ 1.14
1997 $ 286 Net $ 34 Net $ 1.03
One-time charge $ 3 One-time charge $ .11
1995 $ 42 1995 $ 1.22
Net $ 12 Net $ .36
One-time charge $ 30 One-time charge $ .86
1996 $ 45 1996 $ 1.22
1997 $ 53 1997 $ 1.46
* Before one-time accounting charge in 1993; one-time depreciation charge
in 1994; and a one-time charge in 1995 that relates to work force
restructuring as well as an extraordinary charge for the discontinuance
of FAS 71.
LANDLINE OPERATIONS
Landline operations provide the largest contribution to Aliant's total
revenues. Originally confined to 22 contiguous counties in southeast
Nebraska, passage of the Telecommunications Act of 1996 enabled the company
to enter markets through its Competitive Local Exchange Carrier (CLEC).
Landline operations serve both retail customers (consumers, businesses,
government and education) and wholesale customers (communications companies
that may be competitors at the retail level).
Aliant's retail operations are unique. Unlike the Regional Bell Operating
Companies, Aliant has no line of business restrictions and offers
integrated solutions - local, long distance, data, equipment, directory
publishing and Internet access. The company's landline operations are
state-of-the-art with all-digital switching, more than 1,500 miles of fiber
optics and SS7 available on 74 percent of our network. Out-of-region
facilities are being expanded as well.
Key 1997 Accomplishments
- ------------------------
Access line growth of 3.7 percent in 1997, with business line growth at 7.3
percent.
Traditional Custom Calling penetration rate reached 26.4 percent in
consumer market.
Enhanced Custom Calling penetration rate reached 20.2 percent in consumer
market.
Subscribers to Navix, the company's Internet access service, grew 107
percent.
CLEC operations established in Omaha, the state's largest city; and Grand
Island, Nebraska.
Wholesale business unit created to offer network services to other
communications companies.
Fiber optic network completed between Lincoln, Omaha and Kansas City,
Missouri.
Wholesale business unit joined a seven-company consortium to provide fiber
service in 18 states.
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Outlook and Goals
- -----------------
Business process reengineering allowed for significant reduction in
employees and a flattened organizational structure.
CLEC operations will continue to expand, initially using company's business
equipment and cellular customers as a platform for offering integrated
landline and wireless products.
In-region landline operations may face new competitors for local service,
although only one interconnection request has been received.
In-region marketing efforts will focus on customer loyalty, service
packaging and increasing penetration of services.
In-region network to be converted to a single vendor switching platform for
ease of service delivery, new service deployment and greater efficiency.
[CHARTS]
Landline Revenues Landline EBITDA
(In Millions) (In Millions)
1993 $ 185 1993 $ 102
1994 $ 194 1994 $ 105
1995 $ 199 1995 $ 103
1996 $ 208 1996 $ 103
1997 $ 219 1997 $ 110
Caption: Landline EBITDA represents landline earnings before interest,
income taxes, depreciation and amortization. Landline revenues include
telephone revenues and telephone equipment sales and services.
WIRELESS OPERATIONS
Cellular operations have been a key driver in the company's revenue growth.
In addition, Aliant's cellular statewide customer base provide an excellent
foundation for extending the reach of the company's integrated landline
services. Wireless services accounted for 26.8 percent of total revenues in
1997.
Aliant entered the cellular market in 1987, offering cellular service in
the Lincoln MSA. In 1991, the company became the managing partner of the
Omaha cellular operation. Nebraska Cellular, acquired in 1995, provided a
statewide, seamless cellular network and access to approximately 1.8
million POPS.
When the company changed its name in 1996, all cellular properties were
brought under the Aliant umbrella. This statewide brand, strong local
presence and excellent network, service and prices, as well as dedicated
employees, have made Aliant's cellular operations among the best in the
nation.
Key 1997 Accomplishments
- ------------------------
Proportionate subscriber growth of 24.6 percent in spite of PCS competitors
in Lincoln and Omaha markets.
Proportionate revenues increased to $85.2 million.
Penetration rate increased to16.3 percent.
Average monthly churn rate below one percent, substantially below the
national average.
Average monthly revenue per subscriber: $39.00.
Introduced new reduced-rate calling plans.
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Announced plans to increase ownership position in Omaha operation.
Strengthened distribution channels, which now include 15 Aliant retail
stores and agreements with more than 100 agents.
Network evolution plan developed to migrate to digital network, allowing
even more enhanced features and greater capacity.
Outlook and Goals
- -----------------
Demand expected to remain strong; more competitive pressures.
Implement conversion to digital platform for Lincoln market by late 1998
and the Omaha market by 1999.
Increase use of customer segmentation and customized marketing programs.
Strengthen customer retention programs.
Package cellular service with landline services.
[MAP]
Map caption: Our ILEC in southeastern Nebraska is a full-service provider
of communications. Our cellular operations extend across Nebraska,
providing a solid platform for entering new markets as a CLEC. The Aliant
brand is well-respected across the entire state and beyond.
[CHARTS]
Cellular Revenues Cellular EBITDA Cellular Subscribers
(In Millions) (In Millions) (In Thousands)
1994
Proportionate $ 15 $ 6 30
Managed $ 28 $ 10 55
1995
Proportionate $ 39 $ 16 123
Managed $ 56 $ 21 159
1996
Proportionate $ 71 $ 30 165
Managed $ 93 $ 40 216
1997
Proportionate $ 85 $ 40 206
Managed $ 111 $ 53 267
Caption: Proportionate results reflect our ownership percentage in Omaha
and southwest Iowa.
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DIRECTION Increasing shareholder value demands creative leadership and a
clear plan. It also demands corporate ability and agility. We are
executing a multi-faceted strategy to position Aliant in the 21st century
as a dynamic, independent player in a competitive marketplace.
REPORT TO SHAREHOLDERS
1997 was a banner year of transition and positioning for Aliant. A number
of significant accomplishments will solidify our foundation for continued
growth. Among the most significant:
Continuing growth in cellular. Our cellular operations not only add to
earnings, they provide a statewide platform for marketing a full range of
competitive services. Our agreement to purchase 360 Communications'
interest in the Omaha Cellular General Partnership expands our position in
this major market. Customer growth for the year was 24.6 percent
Transitioning to a single identity with the Aliant brand. Within a few
months of the change, more than 75 percent of Nebraskans could identify our
new name and the percentage continues to increase. A single statewide
brand is critical to our growth strategy.
Launching a Competitive Local Exchange Carrier (CLEC) in Omaha, the state's
largest metropolitan area. Our strong cellular and business systems
operations in Omaha provided an excellent foundation for growth. We now
offer Omaha customers competitive local service combined with a complete
range of long distance, data, systems and wireless products. At the end of
1997, we entered Grand Island, Nebraska's third largest city.
Creating a business unit to serve our wholesale customers. The construction
of a state-of-the-art fiber optic network between Omaha and Kansas City,
Missouri, was a key accomplishment. We now offer fiber optic services in
18 states as part of an eight-company consortium. While this new business
unit will see revenue pressures from access reductions, we anticipate
revenue growth from both resale and, eventually, the sale of unbundled
network elements.
Filing a major rate rebalancing plan with the Nebraska Public Service
Commission. We expect action on this plan in the first quarter of 1998. We
have proposed adjusting business, residential and intraLATA toll rates.
Although the overall plan is revenue-neutral, it represents a key first
step in reducing subsidies in our pricing structures by moving service
prices closer to service costs.
Completing our Voluntary Early Retirement Program that started in 1996.
This allowed us to significantly flatten our organizational structure and
reduce costs.
These key operational highlights contributed to exceptionally strong
financial results.
FINANCIAL RESULTS
Total revenues were $286 million, an 8.4 percent increase over 1996.
Earnings per share were $1.46, a 19.7 percent increase over EPS for the
prior year. Other financial measures remained strong. For example,
operating cash flow was $78 million. As a vibrant company with a healthy
cash flow, we can make investment decisions allowing us to continue our
growth.
5
<PAGE>
Our stock price registered substantial improvement in 1997. In November,
Aliant Communications stock attained a market capitalization of $1 billion.
At the end of the year, our stock closed at $31.375 per share, compared
with $17.00 per share on December 31, 1996, resulting in a NASDAQ market
capitalization rank of 194 out of 3,809 companies.
THE YEAR AHEAD
In 1998, we plan to take further advantage of our capabilities and
competitive opportunities for our future growth. We have identified five
key strategic objectives.
Growth: Our first priority is the growth of revenues and earnings per
share. Regulatory changes and increased competition will likely reduce our
core revenues. To offset these losses, we will work to increase our share
of the long distance market and to increase penetration of vertical
services in our traditional telephone operations and our growing cellular
operations. We also plan to expand our CLEC and to continue to look for new
opportunities to meet long-term financial growth objectives. Our wholesale
business unit will focus on meeting the needs of customers (who are also
our retail competitors), as well as providing high quality fiber facilities
and other network components to maximize the efficient use of our network.
Customer Service: It is vital we maintain high service levels. We will
continue to make sure the Aliant brand stands for quality, value and
"making it easier to communicate." Many companies have focused so much
effort on cost savings that service levels slipped. We working to see that
our new, flattened organization remains focused on providing high quality
customer service.
Organization and Culture: We have placed significant emphasis on
developing a coaching and teaming environment, flattening the organization,
empowering employees to make decisions and developing core values to help
employees work without detailed rules. This new corporate culture is a key
to our efforts to increase productivity. We have also organized our company
into wholesale and retail business units. These units are supported by
corporate centers of excellence. We will continue to refine this new
structure to maximize synergies and to understand better the tradeoffs
between retail and wholesale services.
Public Policy: We will continue our efforts at both the state and federal
levels to obtain rules and regulations appropriate to our size and scale.
We believe "one-size regulation" will not work in an industry undergoing
massive restructuring and consolidation. We are optimistic the new FCC
commissioners will consider the implementation of the Telecommunications
Act of 1996 with a more balanced approach than we witnessed over the past
year. Other key policy objectives include continuing to rebalance our
service rates and gaining access to Universal Service funding.
Technology: Providing the right network and information systems at the
right time and at the lowest reasonable cost is very important. We are
scrutinizing our capital budgets to make sure the investments we make
create the optimal network to support our business objectives. Our 1998
capital budget is nearly $80 million, an amount we believe is required to
meet those objectives.
6
<PAGE>
These strategic objectives require hard work. Our success, as always, will
depend on external factors as well as our employees. We will work to retain
customers, to look for new market opportunities, to expand our Aliant brand
in traditional and innovative ways and to foster customer loyalty.
Thank you for your support. We look forward to continuing to increase the
value of your investment with us.
/s/ Frank Hilsabeck
Frank H. Hilsabeck
President and Chief Executive Officer
[CHARTS]
Consolidated EBITDA Market Capitalization
(In Millions) (In Millions)
1993 $ 104 1993 $ 603
1994 $ 110 1994 $ 550
1995 $ 117 1995 $ 774
1996 $ 130 1996 $ 619
1997 $ 146 1997 $ 1,135
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MESSAGE FROM THE CHAIRMAN
In a time of dynamic industry transition, we are proud to have built an
outstanding record of independent accomplishment. Aliant's strong
performance in 1997 was the result of the disciplined execution of our
strategic plan and its focused growth objectives.
During 1997, the board of directors approved a variety of business
proposals dealing with strategy, organization, marketing and technology.
Those decisions were consistent with our plan to manage change and build
long-term value for our shareholders, our overriding mission at Aliant. I
am pleased the equity markets rewarded our accomplishments.
While we profit from our success in managing change, we also benefit from
the consistent, stable management team, our historically strong financial
position, our commitment to excellence in customer service, and a heritage
that rewards hard work and high performance. Our organizational stability,
especially in a new competitive environment, will be as important to our
lasting success as the decisions made by the board of directors.
We also are proud to maintain an environment in which dedicated, committed
people thrive. Each employee contributes to our success by initiating
ideas, executing plans and meeting customer needs. Employee contributions
also extend into the communities we serve. We are a leader in corporate
giving as well as volunteerism and have been recognized for the
contributions of our employees and our company to downtowns, rural
development, minorities, youth, education and countless other endeavors.
Committed, consistent, dedicated, resourceful and energetic - these
attributes describe our employees. They enable us to thrive in this ever-
changing world of telecommunications. With our employees as our foundation,
we look forward to the year ahead as we continue to build on our success.
/s/ Thomas C. Woods III
Thomas C. Woods III
Chairman of the Board
[CHARTS]
Return on Common Equity Dividends Declared Per Share
1993 17.9% 1993 $0.49
1994 18.8% 1994 $0.53
1995 16.2% 1995 $0.57
1996 16.1% 1996 $0.61
1997 17.5% 1997 $0.66
Caption: 1993 Return on Common Equity is shown before one-time accounting
charge; 1994 is before one-time depreciation charge; and 1995 is before
charges for restructuring and the discontinuance of FAS 71.
8
<PAGE>
BALANCE Just as a well-placed fulcrum ensures perfect balance, the success
of an organization rests on harmonizing strategic growth with a strong core
business. In the face of increased competition and sweeping industry
change, we remain a dynamic, yet stable, proven performer.
Our foundation is in southeast Nebraska. We built our business and
reputation here. Now we're extending our reach. Our single brand and
statewide cellular network are proving to be a highly effective combination
for entering new markets. Growth is our most important strategy for the
future - one we are pursuing with a balanced approach.
INCUMBENT LOCAL EXCHANGE CARRIER
Aliant's full array of communications services - local, long distance,
Internet access and data services - serve a diverse customer base that
includes government, education, business and residential customers. High
quality products and services, customer care and customer loyalty are key
contributors to growth in our traditional market.
Nebraska's healthy economy translates into growth in access lines and
revenues. The total number of access lines increased 3.7 percent in 997.
Business and Centrex lines grew by 7.3 percent. Demand for Aliant's call
management services showed substantial improvement in 1997. Today, one in
every five customers has Caller ID, while one in four uses Call Waiting.
New, affordable Custom Calling Packages are attracting more customers,
along with new products like the Aliant Screen Phone. Revenues from
traditional Custom Calling services, such as Call Waiting, increased by
33.9 percent in 1997, while the next generation of call management
services, such as Caller ID, rose 19.7 percent.
In 1997, the number of second lines rose by 23.3 percent. The Internet has
been a key growth factor. Navix, our own Internet access service, doubled
its number of subscribers in 1997, while revenues rose 127.1 percent. We
introduced ISDN service to support the serious Internet user, as well as
home offices and small businesses seeking an economical, high-speed
connection. ISDN can simultaneously carry voice and data, graphics or
video over a single line.
Full-service packages are also critical to growth. In 1997, we introduced
Custom Calling packages to strengthen our partnership with customers and
increase brand awareness. In 1998, we will promote our long distance
service -- bundling it with our local service for convenience and added
savings. Our ability to offer local, long distance and Internet access on
a single bill gives us a strong competitive advantage.
[CHARTS]
Access Lines Access Minutes of Use
(In Thousands) (In Millions)
1993 238 1993 789
1994 247 1994 840
1995 254 1995 900
1996 263 1996 968
1997 273 1997 1,025
CELLULAR
Cellular operations make important contribution to Aliant's overall growth
strategy. Proportionate cellular revenues increased 20.1 percent in 1997,
9
<PAGE>
while the number of proportionate subscribers reached 205,915. We see a
bright future for cellular. Two years ago we acquired Nebraska Cellular,
expanding our operations statewide. At the end of 1997, we announced plans
to increase our stake in the Omaha market. A new $22 million digital
platform will expand our capacity in early 1998 and bring state-of-the-art
digital technology to customers in late 1998. In addition, we continue to
add cell sites to develop and expand our network.
Demand remains strong for cellular service in both rural and metropolitan
markets. One out of every eight Nebraskans use Aliant's cellular service.
Our customer care program, highly reliable network and competitive pricing
plans attract and retain customers. Our churn rate, a measure of the
turnover in customers, is one of the lowest in the nation at 0.9 percent.
Excellent results in our cellular operations over the past 10 years have
been key to our near-term growth. More important is the potential this
growing statewide customer base holds for the company's long-term growth.
In coming years, we expect to use our cellular customer base as a platform
to market a full array of services: local landline and enhanced services,
Internet access and long distance. With a single brand and a statewide
cellular footprint, we are concentrating on building market share and
customer loyalty.
[CHARTS]
Cellular Average Monthly Revenue per Cellular Subscriber
Penetration Rate Cellular Churn (Monthly Average)
1994 7.5% 1994 1.4% 1994 $ 52
1995 10.0% 1995 1.2% 1995 $ 46
1996 13.2% 1996 0.8% 1996 $ 42
1997 16.3% 1997 0.9% 1997 $ 39
NAVIX (In Thousands)
1995
Subscribers 2
Revenue $ 96
1996
Subscribers 8
Revenue $ 946
1997
Subscribers 16
Revenue $ 2,148
COMPETITIVE LOCAL EXCHANGE CARRIER
In 1997, Aliant Communications created a CLEC (Competitive Local Exchange
Carrier), pursuing one of the opportunities brought about by the
Telecommunications Act of 1996. CLECs open local markets to competition
and give customers a choice for local telephone service. Aliant recognized
the CLEC's potential to deliver a full range of services to business and
cellular customers already familiar with the Aliant brand, yet outside our
traditional telephone markets.
On July 1, 1997, we began offering selected business and residential
customers in the Omaha market a competitive choice for local exchange
services. We chose Omaha because of an existing base of cellular and
business equipment customers already familiar with the Aliant brand.
10
<PAGE>
Efforts are now underway to bring Aliant's competitive local exchange
services to other Nebraska and Midwest markets.
WHOLESALE
Our all-digital, fiber-based network is a valuable resource we are using to
generate new revenues by selling network services to other communications
companies.
In 1997, we established a wholesale marketing group to facilitate
competition by selling network capacity and services. Our goal is to
negotiate reasonable contracts and avoid court battles that destroy the
spirit of the Telecommunications Act. Interconnection agreements with
potential retail competitors can generate important revenues for Aliant. In
January 1998, we received our first request for interconnection from U S
West.
Wholesale operations growth was achieved in 1997 by investing in network
facilities outside our traditional operating territory. We expanded our
fiber network to Omaha and extended it between Omaha and Kansas City,
Missouri, to interconnect with other fiber networks serving major cities in
18 states.
The burgeoning communications industry is filled with change and
challenges, yet brimming with possibilities for growth. At Aliant, our
strong core business and greater brand awareness is the springboard for
growing revenues and customers, and growing strong.
[PHOTOS]
Photo captions:
Market Growth
- -------------
Aliant will dramatically increase its share of cellular customers in
Nebraska's largest metropolitan market in 1998. At the end of 1997, Aliant
Communications announced an agreement to acquire 360 Communications
Company's 50 percent interest in the Omaha Cellular General Partnership.
That brings Aliant's Omaha market ownership to approximately 56 percent,
doubles our number of proportionate subscribers there and increases the
proportionate number of POPs (potential customers) to more than 354,000 in
Omaha.
Getting Into New Markets
- ------------------------
Selected business and residential customers in the Omaha metropolitan area
now have a competitive choice for their local exchange service. Since July
1, 1997 we have been promoting the advantages a competitive, single-source,
full-service provider can bring to our greater Omaha business customers who
now use our business equipment and long distance service. Our integrated
solutions, incorporating customized packages of services and products as
well as maintenance agreements, make business communication easier and more
affordable. Our list of CLEC business customers is growing, along with
residential customers who are being introduced to Aliant Communications'
competitive local service.
11
<PAGE>
Expanding the Network
- ---------------------
In 1997, we extended our Nebraska-based network to Kansas City and joined
with seven other companies to form the Midwest Carrier Consortium. This
new alliance offers an extensive fiber optic network reaching into 18
states and serving such cities as Seattle, Dallas, Denver, Albuquerque,
Chicago, Minneapolis and Milwaukee. The network is being marketed to long
distance companies, the regional Bell companies, competitive local exchange
carriers and wireless companies.
[CHARTS]
Cellular Capital Landline Capital
Expenditures (In Millions) Expenditures (In Millions)
1994 $ 2 1994 $ 29
1995 $ 16 1995 $ 27
1996 $ 10 1996 $ 31
1997 $ 8 1997 $ 29
12
<PAGE>
SUPPORT Placed at the top of an arch, the keystone is a piece upon which
all others depend. At Aliant, our strong organization, combined with out
high technology and enlightened regulatory environment, provides the
support that makes us strong.
ORGANIZATION
The Aliant brand, introduced in 1996, has galvanized our organization. Our
single identity has given Aliant a stronger presence and greater
recognition throughout Nebraska.
In 1997, we reorganized the company around key customer segments to place
greater emphasis on growth, high-performance goals and customer care. New
business units have been created for wholesale, consumers, business and
government customers, and out-of-region consumers. Each business unit has a
revenue and expense budget to manage.
These business units are supported by corporate centers of excellence in
finance, technology, communications and human resources. Another component
of the reorganization program involves developing a new planning and
budgeting system.
As we flatten the organization, we are also creating a coaching and teaming
environment to empower employees. Our core values, created with the help
of all employees, set our standard for serving customers, respecting one
another and being good corporate citizens.
REGULATION
While 1996 was a year of speculation and unrest regarding the impact of the
Telecommunications Act, 1997 provided some degree of clarity. Portions of
the Interconnection Order issued by the Federal Communications Commission
in August 1996 were invalidated by the Eighth Circuit Court of Appeals.
This decision shifted much of the regulatory focus to the state level.
Nebraska has one of the most enlightened regulatory climates in the nation.
Local exchange rates were removed from rate-of-return regulation in 1986
and placed under an annual statutory rate cap. This progressive legislation
served Aliant well for 11 years. With the advent of local competition, the
need to rebalance rates closer to the actual cost of service requires some
rates to be changed beyond the statutory cap. The 1997 Nebraska Legislature
recognized this need and passed legislation that provides rate rebalancing
flexibility. Aliant has submitted a rate rebalancing plan to the Nebraska
Public Service Commission (NPSC). An order on this application is expected
in the first quarter of 1998. This application will not increase Aliant's
revenue in the short term, but will make our rate structures more efficient
and viable in a competitive environment.
The NPSC is also examining the issues of local competition, intrastate
access charges and universal service in one comprehensive "super docket."
Aliant considers this a positive and appropriate regulatory approach. A
unified study of these major telecommunications issues will ensure that
none of these individual issues moves forward without full consideration of
their impact on the industry and customers.
While competition has not yet meant full deregulation, we continue to work
in and for a regulatory climate that supports fair competition, with fair
rules for all providers.
13
<PAGE>
[CHARTS]
Consolidated Operating
Income Per Employee Telephone Employees Per
(In Thousands) 10,000 Access Lines
1993 $ 35 1993 60
1994 $ 36 1994 56
1995 $ 44 1995 50
1996 $ 46 1996 46
1997 $ 58 1997 38
TECHNOLOGY
Technology allows us to expand our capabilities, improve reliability and
lower our cost structure. Our networks deliver the services customers count
on - from dependable dial-tone sophisticated data services, helpful
features like Caller ID and easy access to the Internet.
The investments we are making are designed for an optimum network to
support business objectives. Major improvements announced in 1997 include:
A five-year, $20.9 million program to upgrade our landline network to a
single switching platform throughout southeast Nebraska.
Installation of a dedicated switch in Omaha to serve the business and
residential customers of our growing CLEC operation.
A $22 million cellular system for the Omaha and Lincoln markets that will
improve capacity and coverage, while delivering the same enhanced digital
quality offered by PCS.
Extension of our fiber optic network to Omaha and Kansas City to become
part a consortium selling network capacity throughout 18 states.
Installation of fiber optic cable in Grand Island, Nebraska, to offer
facilities-based, competitive local service as a CLEC.
Our landline network has more than 1,500 miles of fiber optic cable. Fiber
optics' abundant capacity and ability to support higher bandwidth services
positions us well to meet the demand for advanced services. Three of our
five fiber "rings" use SONET (Synchronous Optical Network), the next
generation of digital transmission technology for delivering cost-effective
broadband services. The combination of fiber optics with fast-packet
services, like Frame Relay, enables businesses to expand their data
communications capabilities.
More than 74 percent of our lines use a digital signaling network called
Signaling System 7 (SS7) to provide services such as Caller ID. In 1997, we
introduced ISDN (Integrated Services Digital Network), an affordable, high-
speed Internet connection capable of providing simultaneous delivery of
voice and data over a single line.
[PHOTOS]
Photo Captions:
Investing in Technology
- -----------------------
Aliant is investing approximately $20.9 million to upgrade its landline
switching equipment over the next five years. Northern Telecom, Inc. was
awarded the contract to create a uniform switching platform that will make
it easier for Aliant to offer customers full-service packages in all of our
markets. Having a single switch vendor will also facilitate employee
support of our network and increase operational effectiveness. Two DMS-100
switches and numerous remotes will replace the multi-vendor platform
currently in place.
14
<PAGE>
Thank You Aliant
- ----------------
A severe October snowstorm toppled thousands of trees and brought down
telephone and power lines in many areas of southeast Nebraska. The city of
Lincoln was among the hardest hit. Employees throughout the company
assisted repair crews in the week-long effort to restore service to
approximately 16,000 customers. Our "storm teams" put in long days and
ignored the cleanup at their own homes in order to get customers' phones
working. Customers expressed their thanks with cards and notes - even
coffee and food. The storm reinforced one of Aliant's corporate values:
"Our People Make Us Strong."
[CHARTS]
Revenues from
Enhanced Services
Miles of Fiber Optic Cable (In Thousands)
1993 1,265 1993 $ 2,498
1994 1,363 1994 $ 3,265
1995 1,388 1995 $ 3,991
1996 1,402 1996 $ 4,478
1997 1,566 1997 $ 5,573
15
<PAGE>
STRENGTH Our financial management philosophy is as simple as the triangle
found in our wordmark. And, like a truss bridge, it is just as strong.
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Aliant Communications Inc.:
We have audited the accompanying consolidated balance sheets of Aliant
Communications Inc. and subsidiaries as of December 31, 1997 and 1996, 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, 1997. 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 Aliant
Communications Inc. and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1997, in conformity with
generally accepted accounting principles.
As discussed in note 2 to the consolidated financial statements, the
Company discontinued applying the provisions of Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation," in 1995.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Lincoln, NE
February 6, 1998
16
<PAGE>
<TABLE>
ALIANT COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<CAPTION>
Assets 1997 1996
- ----------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 27,867 25,290
Temporary investments, at cost 3,693 6,687
Receivables, net of allowance for doubtful receivables
of $627,000 in 1997 and $1,014,000 in 1996 50,374 39,927
Materials, supplies and other assets 10,661 9,314
------- -------
Total current assets 92,595 81,218
------- -------
Property and equipment 589,314 547,499
Less accumulated depreciation and amortization 330,359 292,479
------- -------
Net property and equipment 258,955 255,020
------- -------
Investments and other assets 57,765 50,057
Deferred charges 20,040 13,480
Goodwill, net of amortization 118,287 121,627
------- -------
Total assets $ 547,642 521,402
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 11,000 -
Current installments of long-term debt 8,000 7,282
Accounts payable and accrued expenses 48,829 48,087
Income taxes payable 89 3,522
Dividends payable 6,208 5,883
Advance billings and customer deposits 10,656 8,820
------- -------
Total current liabilities 84,782 73,594
------- -------
Deferred credits:
Unamortized investment tax credits 1,209 1,929
Deferred income taxes 6,110 7,056
Other 54,044 52,677
------- -------
Total deferred credits 61,363 61,662
------- -------
Long-term debt 94,000 103,080
Preferred stock, 5%, redeemable 4,499 4,499
Stockholders' equity 302,998 278,567
------- -------
Total liabilities and stockholders' equity $ 547,642 521,402
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
17
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended December 31, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------
(Dollars in thousands except per share data)
<S> <C> <C> <C>
Operating revenues:
Telephone:
Local network services $ 80,918 74,878 71,491
Access services 57,621 56,746 53,653
Long distance services 31,375 32,241 31,086
Other wireline communications services 29,959 25,561 23,686
------- ------- -------
Total telephone 199,873 189,426 179,916
Wireless communications services 76,710 63,696 34,121
Equipment sales and services 19,176 18,930 18,768
Intercompany (9,431) (7,827) (7,113)
------- ------- -------
Total operating revenues 286,328 264,225 225,692
------- ------- -------
Operating expenses:
Depreciation and amortization 49,525 46,404 37,422
Other operating 152,580 143,646 120,627
Restructuring charges - - 21,611
Taxes, other than payroll and income 4,282 4,200 3,184
Intercompany (9,431) (7,827) (7,113)
------- ------- -------
Total operating expenses 196,956 186,423 175,731
------- ------- -------
Operating income 89,372 77,802 49,961
------- ------- -------
Nonoperating income and expense:
Income from interest and other investments 8,297 6,428 8,033
Interest expense and other deductions 10,313 9,776 10,518
------- ------- -------
Net nonoperating expense 2,016 3,348 2,485
------- ------- -------
Income before income taxes and
extraordinary item 87,356 74,454 47,476
Income taxes 34,317 29,500 18,447
------- ------- -------
Income before extraordinary item 53,039 44,954 29,029
Extraordinary item - - (16,516)
------- ------- -------
Net income 53,039 44,954 12,513
Preferred dividends 225 225 225
------- ------- -------
Earnings available for common shares $ 52,814 44,729 12,288
======= ======= =======
(Continued)
18
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS (CONTINUED)
Years ended December 31, 1997, 1996 and 1995
1996 1995 1994
- -----------------------------------------------------------------------------
(Dollars in thousands except per share data)
Basic and diluted earnings per common share:
Income before extraordinary item $ 1.46 1.22 .84
Extraordinary item - - (.48)
---- --- ----
Basic and diluted earnings
per common share $ 1.46 1.22 .36
==== ==== ====
Weighted average common shares outstanding
(in thousands) 36,260 36,602 34,360
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Stockholders' equity:
Common stock of $.25 par value per share.
Authorized 100,000,000 shares:
Beginning of year, issued 36,958,122
shares in 1997; 37,247,522 shares in
1996; and 32,980,376 shares in 1995 $ 9,240 9,312 8,245
Issuance of 4,267,146 shares in 1995 - - 1,067
Purchase of 383,155 shares in 1997 and
289,400 shares in 1996 (96) (72) -
------- ------- -------
End of year, issued 36,574,967 shares in
1997, 36,958,122 shares in 1996; and
37,247,522 shares in 1995 9,144 9,240 9,312
------- ------- -------
Premium on common stock:
Beginning of year 102,257 106,822 37,481
Issuance of common stock - - 69,341
Purchase of common stock (6,509) (4,565) -
------- ------- -------
End of year 95,748 102,257 106,822
------- ------- -------
Retained earnings:
Beginning of year 174,172 151,754 159,143
Net income 53,039 44,954 12,513
Dividends declared:
5% cumulative preferred - $5.00 per share (225) (225) (225)
Common - $.66 per share in 1997; $.61 per
share in 1996; and $.57 per share in 1995 (23,922) (22,311) (19,677)
------- ------- -------
End of year 203,064 174,172 151,754
------- ------- -------
Treasury stock, at cost:
Beginning of year, 543,382 shares in 1997;
625,088 shares in 1996; and 631,636 shares
in 1995 (7,102) (8,343) (8,434)
Sales of 154,995 shares in 1997; 81,706 shares
in 1996; and 61,548 shares in 1995 2,144 1,241 948
Purchase of 55,000 shares in 1995 - - (857)
------- ------- -------
End of year, 388,387 shares in 1997; 543,382
shares in 1996; and 625,088 shares in 1995 (4,958) (7,102) (8,343)
------- ------- -------
Preferred stock, $.50 par value per share.
Authorized 20,000,000 shares; none issued - - -
------- ------- -------
Total stockholders' equity $ 302,998 278,567 259,545
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 53,039 44,954 12,513
------ ------ ------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 49,860 46,435 37,454
Extraordinary item - - 16,516
Restructuring charges - - 21,611
Net change in investments and other assets (5,352) (3,638) (1,641)
Deferred income taxes (946) (1,056) (5,028)
Changes in assets and liabilities resulting
from operating activities:
Receivables (10,447) (2,498) (5,826)
Other assets (7,935) (672) (6,815)
Accounts payable and accrued expenses 742 (547) (1,283)
Other liabilities (951) 3,517 (716)
------ ------ ------
Total adjustments 24,971 41,541 54,272
------ ------ ------
Net cash provided by operating
activities 78,010 86,495 66,785
------ ------ ------
Cash flows from investing activities:
Expenditures for property and equipment (49,733) (43,692) (45,163)
Net salvage on retirements (334) 988 2,141
------ ------ ------
Net capital additions (50,067) (42,704) (43,022)
Proceeds from sale of investments and other
assets 344 646 390
Purchases of investments and other assets (3,059) (906) (3,110)
Acquisition of Aliant Cellular, net - - (297)
Purchases of temporary investments (1,331) (10,469) (4,515)
Maturities and sales of temporary investments 4,325 16,863 16,069
------ ------ ------
Net cash used for investing activities (49,788) (36,570) (34,485)
------ ------ ------
Cash flows from financing activities:
Dividends to stockholders (23,822) (22,203) (18,937)
Proceeds from issuance of note payable 11,000 - 3,350
Proceeds from long-term debt 11,000 - -
Retirement of notes payable - (10,000) (16,350)
Net purchases and sales of common and
treasury stock (4,461) (3,396) 91
Payments of long-term debt (19,362) (10,187) (1,341)
------ ------ ------
Net cash used in financing activities (25,645) (45,786) (33,187)
------ ------ ------
(Continued)
21
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
- -----------------------------------------------------------------------------
(Dollars in thousands)
Net increase (decrease) in cash and cash
equivalents 2,577 4,139 (887)
Cash and cash equivalents at beginning of year 25,290 21,151 22,038
------ ------ ------
Cash and cash equivalents at end of year $ 27,867 25,290 21,151
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------------------------------
Principles of Consolidation and Organization
The consolidated financial statements reflect the accounts of Aliant
Communications Inc. (the Company), a holding company, and its wholly-owned
subsidiaries: Aliant Communications Co. (Telco), Aliant Cellular Inc.
(Aliant Cellular), Aliant Systems Inc. (Aliant Systems), Prairie
Communications, Inc. (Prairie), Aliant Midwest Inc. (Aliant Midwest) and
Aliant Network Services Inc. (Aliant Network).
Telco, 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
Statistical Area (MSA). Aliant Cellular provides cellular
telecommunications services in 89 of the 93 counties in Nebraska (see note
3). Aliant Systems sells nonregulated telecommunications products and
services, long distance telephone services in and beyond Telco's local
service territory and provides telephone answering services. Prairie has a
50% investment in a general partnership which manages a limited partnership
providing cellular telecommunications services in the Omaha, Nebraska MSA.
The limited partnership is conducting business as Aliant Cellular - Omaha.
The investment in the partnership is accounted for using the equity method
of accounting (see note 6). Aliant Midwest operates as a competitive local
exchange carrier (CLEC). Aliant Midwest began limited operations outside
Telco's traditional service area in June 1997 and is providing service to
certain residential and business customers in the Omaha metropolitan area
and in Grand Island, Nebraska. Aliant Network was incorporated in February
1997 to build and operate fiber optic transmission facilities outside of
Telco's traditional service area whereby capacity on the network will be
leased to long distance and wireless carriers.
Net earnings applicable to intercompany transactions between companies
have been eliminated.
Effective December 31, 1995, Telco discontinued accounting for its
operations under the provisions of Statement of Financial Accounting
Standards (FAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation" (see note 2).
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
23
<PAGE>
the cost of removal, less salvage, is charged to accumulated depreciation.
When other property and equipment is sold or otherwise disposed of, the
gain or loss is recognized in operations. Telco capitalizes estimated
costs of debt and equity funds used for construction purposes. No
significant costs were capitalized during the three years ended December
31, 1997. Depreciation on property and equipment is determined by using
the straight-line method based on estimated service and remaining lives.
Income Taxes
The Company files a consolidated income tax return with its
subsidiaries. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using the enacted tax
rates expected to apply to taxable income in the years in which temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Investment tax credits related to telephone property and equipment
were deferred and are being taken into income over the estimated useful
lives of such property and equipment.
Retirement Benefits
Telco has a noncontributory qualified defined benefit pension plan
which covers substantially all employees of the Company. The Company also
has a qualified defined contribution profit-sharing plan which covers
substantially all employees. Costs of the pension and profit-sharing plans
are funded as accrued.
Revenue Recognition
Telephone and wireless revenues are recognized when earned and are
primarily derived from usage of the Company's network and facilities. For
all other operations, revenue is recognized when products are delivered or
services are rendered to customers.
Earnings Per Common Share
The Company adopted FAS No. 128, "Earnings Per Share," effective
December 31, 1997, which specifies the computation, presentation, and
disclosure requirements for earnings per share. Basic earnings per common
share are computed by dividing the net income less preferred dividends by
the weighted average common shares outstanding during the periods. The
dilutive effect of the Company's potential common shares outstanding, which
are shares issuable under the Company's stock option program, is
insignificant. Therefore, the diluted earnings per common share are the
same as the basic earnings per common share in 1997, 1996 and 1995.
24
<PAGE>
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 $23.5 million and $17.5 million at December 31, 1997 and
1996, respectively, consist of short-term fixed income securities.
Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
(2) EXTRAORDINARY ITEM - DISCONTINUANCE OF REGULATORY ACCOUNTING
PRINCIPLES
- ---------------------------------------------------------------------------
FAS No. 71 generally applies to regulated companies that meet certain
requirements, including a requirement that a company be able to recover its
costs by charging its customers rates prescribed by regulators and that
competition will not threaten the recovery of those costs. Having achieved
price regulation and recognizing potential increased competition, the
Company concluded, in the fourth quarter of 1995, that the principles
prescribed by FAS No. 71 were no longer applicable.
As a result of the Company's conclusion, a noncash, extraordinary
charge of approximately $16.5 million, net of an income tax benefit of
approximately $9.4 million, was recorded by Telco in December 1995. The
following table summarizes the extraordinary charge.
Pre-tax After-tax
-------------------------------------------------------------------
(Dollars in thousands)
Increase to accumulated depreciation $22,069 13,305
Elimination of net regulatory assets 3,799 3,211
------ ------
Total extraordinary charge $25,868 16,516
====== ======
The increase to accumulated depreciation of approximately $13.3
million after tax was necessary as the estimated useful lives prescribed by
regulators were not appropriate considering the rapid rate of technological
change in the telecommunications industry. The increase to accumulated
depreciation was determined by performing a study which identified
inadequate accumulated depreciation levels by individual asset categories.
The estimated useful lives of these individual asset categories were
shortened to more closely reflect economically realistic lives.
25
<PAGE>
On adoption of FAS No. 109, "Accounting for Income Taxes," in 1993,
adjustments were required to adjust excess deferred tax levels to the
currently enacted statutory rates as regulatory liabilities and regulatory
assets were recognized on the cumulative amount of tax benefits previously
flowed through to ratepayers. These tax-related regulatory assets and
liabilities were grossed up for the tax effect anticipated when collected
at future rates. At the time the application of FAS No. 71 was
discontinued, the tax-related regulatory assets and regulatory liabilities
were eliminated and the related deferred taxes were adjusted to reflect
application of FAS No. 109 consistent with unregulated entities.
(3) ACQUISITION OF ALIANT CELLULAR
- ---------------------------------------------------------------------------
In 1995, the Company consummated a merger with Aliant Cellular,
formerly known as Nebraska Cellular Telephone Corporation. The Company
issued a total of 4,267,146 shares of its common stock and paid cash of
approximately $61.6 million to acquire the remaining approximately 84% of
Aliant Cellular's common stock not previously owned by the Company. The
value of the common stock issued was approximately $70.4 million at date of
acquisition. Aliant Cellular provides cellular telecommunications services
outside the Lincoln and Omaha metropolitan areas in Nebraska.
The acquisition was accounted for as a purchase and, accordingly, the
results of operations of Aliant Cellular have been included in the
Company's consolidated financial statements from July 1, 1995. The excess
of the purchase price over the fair value of the net identifiable assets
acquired, of approximately $125 million, has been recorded as goodwill and
is being amortized on a straight-line basis over forty years. Acquisition
costs were approximately $983,000 and are being amortized on a straight-
line basis over ten years. The Company recognized approximately $3.3
million, $3.2 million and $1.6 million of goodwill amortization in 1997,
1996 and 1995, respectively.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and Aliant Cellular as if the
acquisition had occurred on January 1, 1995, after giving effect to certain
adjustments, including amortization of goodwill, increased interest expense
on debt related to the acquisition, and related income tax effects. The
pro forma financial information does not necessarily reflect the results of
operations that would have occurred had the Company and Aliant Cellular
constituted a single entity during such period.
Year ended
December 31, 1995
- -------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Total operating revenues $ 248,602
=======
Income before extraordinary item $ 29,814
=======
Net income $ 13,298
=======
Basic and diluted earnings per common share $ .36
=======
26
<PAGE>
(4) PROPERTY AND EQUIPMENT
- ---------------------------------------------------------------------------
The following table summarizes the property and equipment at December
31, 1997 and 1996.
1997 1996
---------------------- ---------------------
Accumulated Accumulated
depreciation and depreciation and
Classifications Cost amortization Cost amortization
----------------------------------------------------------------------
(Dollars in thousands)
Land $ 3,050 - 2,968 -
Buildings 37,831 15,064 36,435 13,610
Equipment 524,050 309,129 489,386 273,514
Motor vehicles and
other work equipment 13,531 6,166 12,431 5,355
------- ------- ------- -------
Total in service 578,462 330,359 541,220 292,479
Under construction 10,852 - 6,279 -
------- ------- ------- -------
Total property
and equipment $ 589,314 330,359 547,499 292,479
======= ======= ======= =======
The composite depreciation rate for property and equipment was 8.0% in
1997, 8.3% in 1996 and 7.5% in 1995. The rate does not include the
extraordinary charge recognized in 1995.
Construction expenditures for 1998 are expected to approximate $80
million. The Company anticipates funding construction from operating
activities, existing temporary investments, and debt financings.
Substantially all telephone property and equipment, with the exception
of motor vehicles, is mortgaged or pledged to secure Telco's first mortgage
bonds. Under certain circumstances, as defined in the bond indenture, all
assets become subject to the lien of the indenture.
(5) TEMPORARY INVESTMENTS
- ---------------------------------------------------------------------------
All of the Company's investments in debt and equity securities are
classified as available for sale. The Company does not invest in
securities classified as held to maturity or trading securities. The
following sets forth certain fair value information.
27
<PAGE>
Gross unrealized Estimated
Amortized ---------------- market
1997 cost Gains Losses value
--------------------------------------------------------------------
(Dollars in thousands)
U. S. government obligations $ 800 13 - 813
U. S. government agency
obligations 2,467 36 (31) 2,472
Corporate debt securities 426 2 (19) 409
----- -- --- -----
$ 3,693 51 (50) 3,694
===== == === =====
1996
-------------------------------------------------------------------
U. S. government obligations 2,663 14 (12) 2,665
U. S. government agency
obligations 3,400 32 (60) 3,372
Corporate debt securities 624 15 (32) 607
------ --- --- ------
$ 6,687 61 (104) 6,644
====== === === ======
The net unrealized gain (loss) on investments available for sale is
not reported separately as a component of stockholders' equity due to its
insignificance to the consolidated balance sheets at December 31, 1997 and
1996.
The amortized cost and estimated market value of debt securities at
December 31, 1997 and 1996, 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.
1997 1996
-------------------- -------------------
Estimated Estimated
Amortized market Amortized market
cost value cost value
----------------------------------------------------------------------
(Dollars in thousands)
Due after three months
through five years $ 1,356 1,379 1,182 1,192
Due after five years
through ten years 1,827 1,792 3,801 3,725
Thereafter 510 523 1,704 1,727
----- ----- ------ ------
$ 3,693 3,694 6,687 6,644
===== ===== ====== ======
The gross realized gains and losses on the sale of securities were
insignificant to the consolidated financial statements for the years ended
December 31, 1997, 1996 and 1995.
28
<PAGE>
(6) EQUITY INVESTMENTS
- ---------------------------------------------------------------------------
Prairie owns a 50% interest in Omaha Cellular General Partnership
(OCGP). The remaining 50% interest in OCGP is owned by 360 Communications
Company of Nebraska, Inc. (360 Nebraska). OCGP is the general partner of
and holds approximately 56% 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
Aliant Cellular - Omaha. Prairie is the managing partner of OCGP.
Prairie purchased its 50% interest in OCGP from 360 Communications
Company (360) f/k/a Centel Cellular Company in 1991 for $11.9 million.
The carrying value of the investment was approximately $1.8 million at
December 31, 1997. 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 $47.7 million at December 31, 1997. This note has an
effective interest rate of 11.94% and is due December 31, 1998.
On December 17, 1997, the Company obtained board approval for Prairie
to assign and transfer to Aliant Cellular its option to purchase from 360
Nebraska the remaining 50% interest in OCGP and the discounted note
receivable from OCGP. Aliant Cellular subsequently entered into a
definitive agreement with 360 to acquire its 50% interest in OCGP for
approximately $15 million and released 360 from its obligation pursuant to
the discounted note receivable from OCGP. The acquisition is expected to
be consummated in March 1998.
(7) REDEEMABLE PREFERRED STOCK
- ---------------------------------------------------------------------------
Telco has 5% preferred stock with $100 par value per share. The
preferred stock is cumulative, nonvoting, nonconvertible and redeemable
solely at Telco'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, 1997, 1996 and 1995.
(8) 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 5-day trading period preceding and including the
dividend payment date. Employee purchases are at 95% of such price while
purchases by nonemployee 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.
29
<PAGE>
Shares purchased in the open market for the Plan aggregated 86,250
shares, 100,494 shares and 115,385 shares during 1997, 1996 and 1995,
respectively. Expenses incurred related to the Plan were approximately
$28,100, $32,300 and $31,600 in 1997, 1996 and 1995, respectively. There
are no shares reserved for issuance under the Plan.
(9) LONG-TERM DEBT AND NOTE PAYABLE
- ---------------------------------------------------------------------------
Long-term debt consists of the following at December 31:
1997 1996
------------------------------------------------------------------------
(Dollars in thousands)
9.91% First Mortgage Bonds due June 1, 2000
with interest payable semiannually $ 44,000 44,000
Variable rate term loan due in quarterly
installments until July 6, 2000. Interest
accrues on a LIBOR-based pricing formula
(6.41% at December 31, 1997) and is paid
periodically, but at least semiannually 26,000 30,000
Variable rate revolving loan with principal due
July 6, 1999 and interest due monthly. Interest
accrues on a LIBOR-based pricing formula (6.30% at
December 31, 1997) and is paid periodically, but
at least semiannually. The maximum borrowing limit
is $40,000,000 32,000 23,000
Variable rate Rural Telephone Finance
Cooperative (RTFC) loan agreements paid in 1997 - 13,362
------- -------
Total long-term debt 102,000 110,362
Less current installments of long-term debt 8,000 7,282
------- -------
Long-term debt, excluding current
installments $ 94,000 103,080
======= =======
The approximate annual aggregate debt maturities for the three years
subsequent to December 31, 1997 are as follows: 1998, $8,000,000; 1999,
$42,000,000; and 2000, $52,000,000.
The Company uses interest rate swap agreements and an interest rate
collar arrangement to manage the potential impact of changes in interest
rates on a portion of its variable rate long-term debt.
As to the $26 million variable rate five-year amortizing term loan,
the Company has used an interest rate swap agreement, with a notional
amount of $26 million, to effectively convert its variable interest rate
exposure to a fixed rate of 6.37%. At December 31, 1997, the current
interest rate payable to the Company was 6.24% under the swap agreement.
The swap agreement expires at the time the loan matures.
30
<PAGE>
As to the $40 million variable rate three-year nonamortizing revolving
credit facility, against which $32 million was drawn as of December 31,
1997, the Company has used a combination of an interest rate swap
agreement, with a notional amount of $15 million, and an interest rate
collar arrangement, with a notional amount of $15 million, to effectively
convert a portion of its variable interest rate exposure to a fixed rate of
6.24%. At December 31, 1997, the current interest rate payable to the
Company under the swap agreement was 6.21%. The interest rate collar
arrangement enables the Company to establish a predetermined interest rate
range for a portion of the loan. This range is contractually established
with a floor rate of 4.67% and a ceiling rate of 8.50%. The arrangement
enables the Company to receive from the counterparty (a major bank), on a
monthly basis, the amounts, if any, by which the Company's interest rate on
the loan exceeds 8.50%. Conversely, the arrangement requires the Company
to pay to the counterparty the amounts, if any, by which the Company's
interest rate on the loan falls below 4.67%. For the years ended
December 31, 1997 and 1996, no amounts were received or paid by the Company
related to this interest rate collar arrangement. The interest rate swap
agreement and the interest rate collar arrangement both expire on July 6,
1998. No net fees were paid or incurred by the Company for the swap
agreements or the collar arrangement.
The Company is exposed to credit losses in the event of nonperformance
by the counterparties to its interest rate swap agreements and its interest
rate collar arrangement. The Company anticipates, however, that the
counterparties will be able to fully satisfy their obligations under the
contracts.
During 1997, the Company negotiated two revolving credit agreements
providing for unrestricted and unsecured borrowings aggregating up to $75
million expiring July 6, 1998. Borrowings bear interest computed on a
LIBOR-based pricing formula. The Company has $64 million of unused
borrowings at December 31, 1997. Aliant Cellular has a variable rate line
of credit agreement with the RTFC for up to $2.5 million.
The First Mortgage Bonds contain various restrictions, including those
relating to payment of dividends by Telco to the Company. In management's
opinion, Telco has complied with all such requirements. At December 31,
1997, approximately $34.4 million of Telco's retained earnings were
available for payment of cash dividends under the most restrictive
provisions of such bond agreement.
The term and revolving loans also contain various restrictions,
including those relating to payment of dividends by the Company. In
management's opinion, the Company has complied with all such requirements.
Quarterly dividends are limited to $15 million plus 65% of consolidated net
income for each respective quarter.
31
<PAGE>
(10) INCOME TAXES
- ---------------------------------------------------------------------------
The components of income taxes from operations before the
extraordinary item follow:
1997 1996 1995
-------------------------------------------------------------------
(Dollars in thousands)
Current:
Federal $ 30,395 26,425 23,128
State 5,588 4,898 2,496
------ ------ ------
Total current income tax expense 35,983 31,323 25,624
------ ------ ------
Investment tax credits (720) (767) (1,136)
------ ------ ------
Deferred:
Federal (774) (895) (5,529)
State (172) (161) (512)
------ ------ ------
Total deferred income tax expense
(benefit) (946) (1,056) (6,041)
------ ------ ------
Total income tax expense $ 34,317 29,500 18,447
====== ====== ======
Below is a reconciliation between the statutory federal income tax
rate and the Company's effective tax rate for each of the years in the
three-year period ended December 31, 1997:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
% of % of % of
pretax pretax pretax
Amount income Amount income Amount income
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Computed "expected"
income tax expense $ 30,575 35.0% $ 26,061 35.0% $ 16,617 35.0%
State income tax expense,
net of Federal income
tax benefit 3,521 4.0 3,079 4.1 2,329 4.9
Amortization of goodwill 1,085 1.2 1,109 1.5 549 1.2
Non-taxable interest income (146) (.2) (65) (.1) (110) (.2)
Amortization of regulatory
deferred charges - - - - 1,914 4.0
Amortization of regulatory
deferred liabilities - - - - (1,790) (3.8)
Amortization of investment
tax credits (720) (.8) (767) (1.0) (1,136) (2.4)
Other 2 - 83 .1 74 .2
------ ---- ------ ---- ------ ----
Actual income tax
expense $ 34,317 39.2% $ 29,500 39.6% $ 18,447 38.9%
====== ==== ====== ==== ====== ====
</TABLE>
32
<PAGE>
The significant components of deferred income tax benefit attributable
to income from operations for the years ended December 31, 1997, 1996 and
1995 are shown on the following page.
1997 1996 1995
-------------------------------------------------------------------
(Dollars in thousands)
Deferred tax expense (benefit)
(exclusive of the effects of
amortization below) $ (946) (1,056) (6,165)
Amortization of regulatory deferred
charges - - 1,914
Amortization of regulatory deferred
liabilities - - (1,790)
----- ----- -----
$ (946) (1,056) (6,041)
=== ===== =====
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1997 and 1996 are presented below:
1997 1996
----------------------------------------------------------------
(Dollars in thousands)
Deferred tax assets:
Accumulated postretirement benefit cost $ 18,802 18,251
Voluntary early retirement liability 5,928 6,337
Other 2,308 3,071
------ ------
Total gross deferred tax assets 27,038 27,659
Less valuation allowance - -
------ ------
Net deferred tax assets 27,038 27,659
------ ------
Deferred tax liabilities:
Property and equipment, principally due to
depreciation differences 29,649 32,007
Other 3,499 2,708
------ ------
Total gross deferred tax liabilities 33,148 34,715
------ ------
Net deferred tax liabilities $ 6,110 7,056
====== ======
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, 1997 and 1996 was necessary.
33
<PAGE>
(11) BENEFIT PLANS
- ---------------------------------------------------------------------------
Telco has a noncontributory defined benefit pension plan covering
substantially all employees of the Company 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.
The net periodic pension credit for 1997, 1996 and 1995 amounted to
$1,029,000, $608,000 and $1,389,000, respectively. The net periodic
pension credit is comprised of the following components as shown on the
following page.
1997 1996 1995
-------------------------------------------------------------------
(Dollars in thousands)
Service cost - benefits earned during
the period $ 3,758 3,538 3,628
Interest cost on projected benefit
obligations 11,729 11,338 9,286
Actual return on plan assets (36,657) (19,287) (37,696)
Amortization and deferrals, net 20,141 3,803 23,393
------ ------ ------
Net periodic pension credit $ (1,029) (608) (1,389)
====== ====== ======
The table below summarizes the funded status of the pension plan at
December 31, 1997 and 1996.
1997 1996
-----------------------------------------------------------------
(Dollars in thousands)
Actuarial present value of pension benefit
obligation:
Vested $ 136,571 134,110
Non-vested 17,674 18,357
------- -------
Accumulated pension benefit obligation $ 154,245 152,467
======= =======
Projected pension benefit obligation $ 174,077 169,759
Less, plan assets at market value 243,685 218,507
------- -------
Excess of plan assets over projected
pension benefit obligation 69,608 48,748
Unrecognized prior service cost 6,486 7,065
Unrecognized net gain (84,233) (63,548)
Unrecognized net asset being recognized
over 15.74 years (6,790) (8,223)
------- -------
Accrued pension cost $ (14,929) (15,958)
======= =======
34
<PAGE>
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 were as follows:
1997 and
1996 1995
----------------------------------------------------------------
Discount rate 7.1% 7.1%
Rate of salary progression 5.5 6.0
Expected long-term rate of return on assets 8.0 8.0
The Company has a defined contribution profit-sharing plan which
covers its employees who have completed one year of service. Union-
eligible employees became eligible to participate in the plan beginning
January 1, 1997. Through December 31, 1996, Aliant Cellular also had a
separate defined contribution plan for its eligible employees, however, the
board of directors approved the participation of eligible employees of
Aliant Cellular to become participants of the Company's plan effective
January 1, 1997. The assets and liabilities of Aliant Cellular's plan were
merged into the Company's plan in 1997. Under the Company plan,
participants may elect to deposit a maximum of 15% of their wages up to
certain limits. The Company matches 25% of the nonunion-eligible
participants' contributions up to 5% of their wages. The Company's 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 nonunion-
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 combined contributions to these plans totaled
$931,000, $851,000 and $745,000 for 1997, 1996 and 1995, respectively.
In July 1995, the Company announced its decision to reduce its
operator services work force from 140 to approximately 50 employees by the
end of 1995. The remaining work force handles the Company's long distance
operator service needs. The Company offered retirement and separation
incentives along with out-placement services to those employees affected by
the work force adjustment. As a result, the Company recognized a
restructuring charge of $1.5 million in 1995. The charge reduced the
Company's pension asset by $1.1 million for pension enhancements. The
charge included severance payments of approximately $400,000.
In addition, in November 1995, the Company announced its plans to
reduce its existing work force by offering a voluntary early retirement
program to eligible employees. The eligible employees were both management
and nonmanagement employees who were employed by the Company, Telco and
Aliant Systems. The Company implemented an enhancement to Telco's pension
plan by adding five years to both the age and net credited service for
eligible employees. The program also provided for the employees to receive
35
<PAGE>
a lump-sum payment and a supplemental monthly income payment in addition to
their normal pension. As a result of 330 employees accepting this
voluntary early retirement offer, a reduction to Telco's pension asset was
recorded and the Company recognized a restructuring charge of $20.1 million
at December 31, 1995. The charge included pension enhancements of $23.4
million and curtailment gains of $3.3 million.
(12) 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
fifteen years of service with normal or early retirement. The Company
accounts for these benefits during the active employment of the
participants.
The table on the following page presents the plan's status reconciled
with amounts recognized in the Company's consolidated balance sheet at
December 31, 1997 and 1996.
1997 1996
----------------------------------------------------------------
(Dollars in thousands)
Accumulated postretirement benefit obligation:
Retirees $ 40,903 33,212
Fully eligible active plan participants 14,626 12,227
Other active plan participants 6,783 7,026
------ ------
62,312 52,465
Unrecognized prior service cost (1,628) (1,597)
Unrecognized net loss (13,334) (4,919)
------ ------
Accrued postretirement benefit cost $ 47,350 45,949
====== ======
Net periodic postretirement benefit costs for the years ended December
31, 1997, 1996 and 1995 include the following components:
1997 1996 1995
-------------------------------------------------------------------
(Dollars in thousands)
Service cost $ 553 497 386
Interest cost 4,069 4,038 3,929
Net deferral and amortization 98 145 206
----- ----- -----
Net periodic postretirement benefit
costs $ 4,720 4,680 4,521
===== ===== =====
36
<PAGE>
For purposes of measuring the benefit obligation, the following
assumptions were used:
1997 1996
-----------------------------------------------------------------
Discount rate 8.0% 8.0%
Health care cost trend rate 10.3 10.8
For purposes of measuring the benefit cost, the following assumptions
were used:
1997 1996 1995
-------------------------------------------------------------------
Discount rate 8.0% 8.0% 8.0%
Health care cost trend rate 10.7 11.3 11.7
The health care cost trend rate of increase is 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 $177,000 and increase the accumulated postretirement benefit
obligation by approximately $2.2 million.
(13) STOCK AND INCENTIVE PLAN
- ---------------------------------------------------------------------------
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 1990
options, $12.75 for the 1992 options, $16.50 for the 1995 options, $16.75
for the 1996 options and $19.75 for the 1997 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:
1997 1996 1995
-------------------------------------------------------------------
Outstanding at January 1 195,337 146,412 100,150
Granted 46,750 58,400 53,450
Exercised (90,237) (9,475) (3,100)
Canceled (3,763) - (4,088)
------- ------- -------
Outstanding at December 31 148,087 195,337 146,412
======= ======= =======
Exercisable at December 31 12,682 92,237 98,412
======= ======= =======
37
<PAGE>
Prior to January 1, 1996, the Company accounted for the stock options
in accordance with the provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock
exceeded the exercise price. On January 1, 1996, the Company adopted FAS
No. 123, "Accounting for Stock-Based Compensation," which permits entities
to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, FAS No. 123 also
allows entities to continue to apply the provisions of APB Opinion No. 25
and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years
as if the fair-value-based method defined in FAS No. 123 had been applied.
The Company has elected to continue to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosure provisions of FAS No. 123.
The per share weighted-average fair value of stock options granted
during 1997, 1996 and 1995 was $14.24, $4.44 and $7.45, respectively, on
the date of grant using the Black Scholes option-pricing model with the
following weighted-average assumptions:
1997 1996 1995
------------------------------------------------------------------
Expected dividend yield 2.17% 3.59 2.70
Risk-free interest rate 5.70% 6.41 5.36
Expected volatility factor 28.30% 27.00 27.50
Expected life in years 4.90 5.75 5.45
Since the Company applies APB Opinion No. 25 in accounting for its
plan, no compensation cost has been recognized for its stock options in the
financial statements. Had the Company recorded compensation cost based on
the fair value at the grant date for its stock options under FAS No. 123,
the Company's net income for 1997, 1996 and 1995 would have been reduced by
approximately $145,000, $72,000 and $40,000, respectively.
Pro forma net income reflects only options granted in 1997, 1996 and
1995. Therefore, the full impact of calculating compensation cost for
stock options under FAS No. 123 is not reflected in the pro forma net
income amounts presented above because compensation cost is reflected over
the options' vesting period of 4 years for the 1997, 1996 and 1995 options.
Compensation cost for options granted prior to January 1, 1995 is not
considered.
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.
38
<PAGE>
In addition, 7,974 shares, 8,867 shares and 10,836 shares of
restricted stock were awarded by the Company during 1997, 1996 and 1995,
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 1997, 1996 and 1995 net income for cash and
restricted stock awards were approximately $431,900, $277,100 and $392,700,
respectively. Pursuant to the plan, 2,000,000 shares of common stock are
reserved for issuance under this plan.
(14) TELEPHONE REVENUES
- ---------------------------------------------------------------------------
Telephone revenues include revenues received by Telco for billing and
access services provided to Aliant Systems, which were approximately
$4,393,000 for 1997, $4,209,000 for 1996 and $4,342,000 for 1995, and are
deducted as intercompany revenues and expenses.
(15) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- ---------------------------------------------------------------------------
First Second Third Fourth
1997 quarter quarter quarter quarter Total
- -------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Operating revenues:
Telephone $ 48,855 49,072 50,935 51,011 199,873
Wireless communications 16,746 19,631 19,969 20,364 76,710
Equipment sales and
services 4,540 4,193 4,985 5,458 19,176
Intercompany (1,953) (2,260) (2,323) (2,895) (9,431)
------ ------ ------ ------ ------
Total operating
revenues $ 68,188 70,636 73,566 73,938 286,328
====== ====== ====== ====== =======
Net income $ 11,978 13,188 13,995 13,878 53,039
====== ====== ====== ====== =======
Basic and diluted earnings
per common share $ .33 .36 .39 .38 1.46
====== ====== ====== ====== =======
39
<PAGE>
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter Total
- -------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Operating revenues:
Telephone $ 47,184 47,319 46,676 48,247 189,426
Wireless communications 13,158 15,850 17,387 17,301 63,696
Equipment sales and
services 4,998 4,496 4,426 5,010 18,930
Intercompany (2,057) (2,071) (1,914) (1,785) (7,827)
------ ------ ------ ------ -------
Total operating
revenues $ 63,283 65,594 66,575 68,773 264,225
====== ====== ====== ====== =======
Net income $ 9,818 11,617 12,165 11,354 44,954
====== ====== ====== ====== =======
Basic and diluted earnings
per common share $ .27 .32 .33 .31 1.22
====== ====== ====== ====== =======
(16) COMMON 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, 1997,
38,574,967 shares of common stock were reserved for issuance in connection
with these stock purchase rights.
(17) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
- ---------------------------------------------------------------------------
Cash and Cash Equivalents, Receivables, Accounts Payable and Note
Payable
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 5 for the estimated fair value of
temporary investments.
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<PAGE>
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 the Company's long-term debt instruments are based
on the amount of future cash flows associated with the instruments
discounted using the Company's current borrowing rate on similar debt
instruments of comparable maturity.
Interest Rate Swap and Collar Agreements
The fair values are the estimated amounts the Company would have to
pay or receive to terminate the swap and collar agreements as of December
31, 1997 and 1996, respectively, taking into account current interest rates
and the credit worthiness of the counterparty.
Estimated Fair Value
The estimated fair value of the Company's financial instruments are
summarized as follows:
At December 31, 1997 At December 31, 1996
-------------------- --------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
--------------------------------------------------------------------
(Dollars in thousands)
Note receivable from OCGP $ 47,728 50,463 42,502 47,550
======= ======= ======= =======
Long-term debt $ 102,000 106,127 110,362 114,986
======= ======= ======= =======
Interest rate swap and
collar agreements
gain (loss) $ - (82) - (90)
======= ======= ======= =======
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.
41
<PAGE>
(18) SUPPLEMENTAL CASH FLOW DISCLOSURES
- ---------------------------------------------------------------------------
The Company paid interest of $8.8 million, $9.1 million and $8.2
million during 1997, 1996 and 1995, respectively. Income taxes paid were
$39.4 million in 1997, $25.3 million in 1996 and $27.0 million in 1995.
The Company consummated the acquisition of Aliant Cellular during 1995. In
connection with the acquisition, the following assets were acquired,
liabilities assumed and long-term debt and common stock issued.
(Dollars in thousands)
----------------------------------------------------------
Property and equipment $ 28,101
Excess cost of net assets acquired 124,609
Long-term debt assumed (17,890)
Other assets and liabilities, excluding cash
and cash equivalents 2,167
Prior investment in Aliant Cellular (6,282)
Issuance of long-term debt (60,000)
Common stock issued (70,408)
-------
Decrease in cash $ 297
=======
(19) COMMITMENTS
- ---------------------------------------------------------------------------
The Company has entered into two separate agreements during 1997 for
the purchase of new landline and cellular equipment over the next five
years commencing the first quarter of 1998. The aggregate cash payments
for each of the five years subsequent to December 31, 1997 approximate
$18.4 million; $7.7 million; $2 million; $3.9 million; and $3 million,
respectively. The Company anticipates funding these purchase commitments
from operations and debt financings.
42
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------------------------------------
Aliant Communications Inc. (the Company) is a holding company with
subsidiaries operating primarily in the telecommunications industry. The
Company's wholly-owned subsidiaries include Aliant Communications Co.
(Telco); Aliant Cellular Inc. (Aliant Cellular); Aliant Systems Inc.
(Aliant Systems); Prairie Communications, Inc. (Prairie); Aliant Midwest
Inc. (Aliant Midwest) and Aliant Network Services Inc. (Aliant Network).
Effective September 3, 1996, the Company changed its name to Aliant
Communications Inc. from Lincoln Telecommunications Company. The name
change allowed the Company to offer services under the single brand, Aliant
Communications, and replaced eight different names previously used.
RESULTS OF OPERATIONS
- ---------------------------------------------------------------------------
Net Earnings.
Net income was $53,039,000 in 1997, compared to $44,954,000 in 1996 and
$12,513,000 after non-recurring charges in 1995. Excluding non-recurring
charges for strategic initiatives relating to the discontinuance of the
application of FAS 71 and two work force restructuring programs, net income
in 1995 was $42,059,000.
Earnings per common share were $1.46 in 1997, $1.22 in 1996 and $.36 in
1995. Before the one-time charges, earnings per common share were $1.22 in
1995.
Operating Revenues
Total operating revenues grew by $22,103,000 in 1997, an increase of 8.4%
over 1996, to a total of $286,328,000. In 1995, total operating revenues
were $225,692,000. Leading the growth in both 1997 and 1996 was revenues
from wireless communications services.
Telephone Revenues
Telephone operating revenues increased by $10,447,000 or 5.5% over 1996, to
a total of $199,873,000. Growth in 1996 was $9,510,000 or 5.3% over 1995,
to a total of $189,426,000.
Local network service revenues in 1997 were $80,918,000, an increase of
$6,040,000 or 8.1% over the 1996 total of $74,878,000. In 1996, local
network service revenues increased $3,387,000 or 4.7% over the 1995 total
of $71,491,000. These revenues reflect amounts billed to customers for
local exchange services, including enhanced services such as Call Waiting
and Caller ID. The 1997 increase was due, in part, to a 10% increase to
residential basic local exchange rates which became effective near the end
of the first quarter. The balance of the 1997 increase along with the 1996
increase resulted primarily from growth in telephone access lines and
continued demand for enhanced services. There were 273,008 telephone
access lines in service on December 31, 1997, an increase of 3.7% over the
prior year. The 1996 growth in access lines was 3.6%. In each year,
business and Centrex line growth led the increase.
Access service revenues received primarily from interexchange carriers for
their use of local exchange facilities in providing long distance services
were $57,621,000 in 1997, an increase of $875,000 or 1.5% over the 1996
total of $56,746,000. In 1996, access service revenues increased
43
<PAGE>
$3,093,000 or 5.8% from the 1995 total of $53,653,000. These increases
were due primarily to increased volume of access minutes reaching a total
of 1,024.8 million minutes in 1997. Minutes of use increased by 5.8% in
1997 and by 7.6% in 1996. In each of these two years, increased volumes
were offset in part by reduced incremental access rates.
Long distance service revenues in 1997 were $31,375,000, a decrease of
$866,000 or 2.7% from the 1996 total of $32,241,000. In 1996, long
distance revenues increased $1,155,000 or 3.7% from the 1995 total of
$31,086,000. Long distance revenues are received from providing services
both within and beyond Telco's traditional service area, and are primarily
message toll, private line services, and operator services. The 1997
decrease was due, in part, to a first quarter reduction in long distance
rates of 8% to 10% for calls within the Company's service area in southeast
Nebraska. The 1996 increase was primarily due to customer growth which
resulted from increased marketing of long distance services.
On November 18, 1997, the Company filed a rate rebalancing application with
the Nebraska Public Service Commission (NPSC) in order to bring rates
closer to the costs of providing various services. This action is further
described under "Competition and Regulatory Environment," and is intended
to be revenue-neutral.
Other wireline communications service revenues, which includes directory
advertising and sales, carrier billing and collection service revenues,
data communications revenues, public paystations and miscellaneous items,
were $29,959,000 in 1997, an increase of $4,398,000 or 17.2% from the 1996
total of $25,561,000. The increase was attributable to greater directory
advertising and sales revenues of $1,073,000, greater data communications
revenue mainly due to the growth of Navix, the Company's Internet access
service, of $1,191,000, as well as increased public paystation revenue of
$1,740,000. The paystation revenue increase was due, in part, to a rate
increase with the remainder resulting from the FCC's deregulation of
paystation business. In 1996, other wireline communications services
increased $1,875,000 or 7.9% from the 1995 total of $23,686,000. The 1996
growth was attributable to greater directory advertising and sales revenues
as well as increased data communications revenues.
Wireless Communications Services
Wireless communications service revenues in 1997 were $76,710,000, an
increase of $13,014,000 from the 1996 total of $63,696,000. The 1997
increase was primarily due to the steady addition of subscribers and
resulting revenue generated from the larger subscriber base. This increase
was offset by a June 1, 1997 reduction in service rates offered to a
majority of our subscribers, approximating $2,500,000. In 1996, wireless
communications service revenues increased $29,575,000 from the 1995 total
of $34,121,000. The 1996 increase was primarily due to the inclusion of a
full year's revenue from Aliant Cellular compared to six months of revenue
following the acquisition of Aliant Cellular in July 1995. Cellular
subscriber lines in the Company's wholly-owned markets grew by 36,285, or
24.7%, to a total of 182,987 at December 31, 1997. In May 1997, Aliant
Cellular acquired approximately 10,000 customer service agreements from
Telebeep, Inc. These customers had previously received Aliant Cellular
services on a resold basis. See "Acquisition and Investment." In 1996,
subscriber lines grew by nearly 37,000. Further information on this
subject is provided under the heading of "Managed Cellular Markets."
44
<PAGE>
Telephone Equipment Sales and Services
Telephone equipment sales and service revenues in 1997 were $19,176,000, an
increase of $246,000 or 1.3% from the $18,930,000 recorded in 1996. The
1996 amount of such revenues reflected an increase of $162,000 or 0.9% from
the $18,768,000 recorded in 1995.
Operating Expenses
Total operating expenses were $196,956,000 in 1997, an increase of
$10,533,000 or 5.7% from 1996. Total operating expenses increased
$10,692,000 in 1996 to a total of $186,423,000.
Depreciation and amortization expense was $49,525,000 in 1997, a 6.7%
increase over the $46,404,000 recorded in 1996. Both of these years
reflect depreciation rates effective after discontinuance of FAS 71 as
described later under the heading "Extraordinary Item (net of income tax)-
FAS 71." The 1997 increase over 1996 is attributable to gross additions
to depreciable plant resulting from the Company's strategic objective to
remain a forerunner in the implementation of new technology. The 1995
depreciation and amortization amount of $37,422,000 was recorded following
the FAS 71 guidelines. Using Generally Accepted Accounting Principles,
(GAAP), depreciation rates for Telco represents approximately $2.7 million
of the increase in 1996. The 1995 depreciation and amortization amount
reflects only six months of amortization of goodwill related to the July
1995 acquisition of Aliant Cellular while 1996 and 1997 reflect full year
amounts.
Other operating expenses, which include the cost of telephone equipment
sales and services and the net loss on sales of cellular equipment along
with other operating expenses, were $152,580,000 in 1997, $143,646,000 in
1996 and $120,627,000 in 1995. The increases amounted to 6.2% in 1997 and
19.1% in 1996. The 1997 increase was due in part to expenses incurred,
approximately $1,600,000, for repairing the damages resulting from a severe
October snowstorm. Expenses for 1996 include 12 months of Aliant Cellular
operating expenses while the 1995 amount contained only six months of such
expenses. Costs of goods and services sold increased in both 1997 and 1996
resulting from increased product sales and discounts. Sales commissions
and other costs of acquiring wireless customers, including the net loss on
equipment sales, also increased each year.
The Company continues to streamline operations and manage its work force
requirements to improve productivity. Consistent with this objective, the
Company recorded the results of two separate work force reduction programs
in 1995. In 1995, Telco reduced its operator services work force from 140
employees to approximately 50 employees. Directory assistance operations
were outsourced and operator service contracts with AT&T were terminated.
The remaining operator work force handles the Company's long distance
operator service needs. Retirement and separation incentives along with
out-placement services were offered to those employees affected by the
force adjustment. These actions resulted in a pre-tax non-recurring charge
of $1,555,000 ($937,000 net of tax) in 1995, reducing earnings per share by
$0.03.
Separately, in an effort to position the Company for the long-term, in late
1995 the Company determined that it could maintain productivity while
reducing its work force by nearly 200 employees. Accordingly, it offered
45
<PAGE>
an opportunity to approximately 750 eligible employees to enroll in the
Voluntary Enhanced Retirement Program. Of those receiving the offer, 330
employees accepted. The cost of this retirement program, recorded in 1995,
was approximately $20.1 million (an after-tax earnings impact of $12.1
million) reducing earnings per share by $0.35. This program was funded
from the Company's pension fund, requiring no additional funding from
operations. At December 31, 1997 all of the employees who elected early
retirement had left the Company's employ, with a large portion leaving in
the fourth quarter 1997. The Company has begun to recapture the cost of
this retirement program and will continue to benefit in the future from the
streamlined work processes which facilitated this work force reduction.
Due to the greater than anticipated number of employees opting for early
retirement, the Company has, and will continue to hire new employees in
order to continue its ability to provide high-quality service and maintain
its aggressiveness in the marketplace. At the end of the year, there were
1,537 employees compared to 1,686 at the end of 1996. The number of
employees in the Company's wireless operations is continuing to expand to
meet the needs of additional subscribers. There is also employment growth
in the Company's data communications area where Navix requires support.
Non-Operating Income and Expenses
Non-operating income includes interest and net results from the Company's
ownership interest in the Omaha cellular market. The increase in income of
$1,869,000 in 1997 to $8,297,000 is partially the result of greater
interest income. Investments were reduced in 1996 due to using those funds
to reduce outstanding debt, primarily related to the acquisition of Aliant
Cellular. The remainder of the increase resulted from greater profits in
the Omaha cellular market. The Company anticipates acquisition of an
additional interest in the partnership operating in the Omaha Cellular
market in first quarter 1998. After the acquisition, the Company's share
of net results from the Omaha market will no longer be recognized as non-
operating income. The related interest income will also no longer be
recognized. In 1997, non-operating income from these two items
approximated $5 million.
Interest expense and other deductions were $10,313,000 in 1997 compared to
$9,776,000 in 1996 and $10,518,000 in 1995. The 1997 increase was
primarily the result of an increase in average outstanding debt. The 1996
decline was the result of lower debt compared to 1995, during which the
debt level was higher as a result of using outside sources of capital to
fund the acquisition of Aliant Cellular, thus causing additional long-term
and short-term debt and related interest expense.
Income Taxes
Income tax expenses in 1997 were $34,317,000 compared to $29,500,000 in
1996 and $18,447,000 in 1995. The federal income tax rate has remained at
35% since 1993. Income tax expense has remained proportionate to taxable
income over the three-year period.
Extraordinary Item (net of income tax)-FAS 71
As described in Note 2 to the consolidated financial statements, the
Company discontinued applying Statement of Financial Accounting Standards
No. 71 (FAS 71), "Accounting for the Effects of Certain Types of
Regulation" in the fourth quarter of 1995. The Company determined that
Telco no longer met the criteria for following FAS 71 due to changes in the
46
<PAGE>
manner in which the Company is regulated and increased competition in the
telecommunications industry. The accounting impact to the Company was an
extraordinary non-cash after-tax charge of $16,516,000. The following
table is a summary of the extraordinary charge.
Dollars (in thousands) Pre-tax After-tax
- ---------------------------------------------------------------------------
Increase to the accumulated depreciation balance $ 22,069 13,305
Elimination of regulatory assets and liabilities 3,799 3,211
------ ------
Total extraordinary charge $ 25,868 16,516
- ---------------------------------------------------------------------------
The pre-tax adjustment of $22,069,000 to net telecommunications plant was
necessary since estimated useful lives and depreciation methods
historically prescribed by regulators did not reflect the rapid pace of
technological changes in the industry and differed significantly from
methods used by nonregulated companies. Net plant balances were adjusted
by increasing the accumulated depreciation balance. A study was performed
that identified inadequate accumulated depreciation levels by individual
asset categories. When adjusting its net plant, the Company gave effect to
shorter, more economically realistic lives.
The discontinuance of FAS 71 also required the Company to eliminate from
its consolidated balance sheet the effects of any actions of regulators
that had been recognized as assets and liabilities pursuant to FAS 71, but
would not have been recognized as assets and liabilities by nonregulated
companies. The regulatory assets and liabilities eliminated were related
to the consequences of regulation on deferred income taxes.
The Company believes that the discontinuation of accounting rules
prescribed in FAS 71 will not have an impact on the Company's customers,
nor its ability to pay dividends.
Inflation
Management believes that inflation affects the Company's business to no
greater extent than the general economy.
LIQUIDITY AND CAPITAL RESOURCES
- ---------------------------------------------------------------------------
Capitalization
At December 31, 1997, the Company had consolidated long-term debt of
$102,000,000 compared to $110,362,000 at December 31, 1996, including
current installments due. In 1995, the Company incurred $60,000,000 of
long-term debt to finance the acquisition of Aliant Cellular and assumed
Aliant Cellular's outstanding long-term debt at acquisition. The Company
currently has an $11,000,000 note payable outstanding.
Construction
The Company is continuing to invest in new technology. Net cash
expenditures for capital additions to property and equipment were
$50,067,000 in 1997, $42,704,000 in 1996 and $43,022,000 in 1995. 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 $80,000,000 in 1998. The increase in
47
<PAGE>
1998 is due in part to the expansion of the Company's fiber network, adding
and upgrading cellular equipment, expansion of Aliant Midwest's operations
and additions to electronic switching equipment. The Company anticipates
funding this construction from operating activities, existing temporary
investments and debt.
The Company entered into a contract with Northern Telecom Inc. to upgrade
Telco's electronic switching equipment over the next five years requiring a
cash outlay of $20.9 million over the five year period. Among its many
benefits, the contract will provide the capability to offer the same
services throughout Telco's entire service area. Software will only be
needed in three host switches which will be a significant reduction from
the fifteen switches operating at the present time.
Cash and Cash Equivalents
The Company had cash, cash equivalents, and temporary investments of
$31,560,000 and $31,977,000 at December 31, 1997 and 1996, respectively.
Dividends
Quarterly dividends on the Company's common stock were increased from 13
cents per share to 14 cents per share commencing January 10, 1995, to 15
cents per share commencing January 10, 1996, to 16 cents per share
commencing January 10, 1997 and to 17 cents per share commencing October
10,1997. The total cash dividend declared was 66 cents per share in 1997,
61 cents per share in 1996 and 57 cents per share in 1995.
ACQUISITION AND INVESTMENT
- ---------------------------------------------------------------------------
During 1995, the Company purchased the remaining issued and outstanding
shares of Aliant Cellular (then Nebraska Cellular Telephone Corporation)
common stock. At December 31, 1994, the Company owned approximately 16% of
the outstanding shares of Nebraska Cellular and used the cost method of
accounting to account for its interest. As consideration for the remaining
84%, the Company issued to the shareholders of Nebraska Cellular an
aggregate of 4,267,146 shares of Company common stock and paid
approximately $61.6 million in cash. The acquisition was accounted for as
a purchase. Aliant Cellular provides cellular communications services in
non-metropolitan areas of Nebraska including approximately 848,000 POPs
(potential customers). Its network serves cellular users with transparent
interconnection along the Interstate 80 corridor and other major highway
systems across Nebraska.
On December 31, 1991, Prairie entered into a general partnership that holds
an ownership interest of approximately 56% in the Omaha Cellular Limited
Partnership, now doing business as Aliant Cellular - Omaha, which provides
cellular communications services in the Omaha Metropolitan Statistical Area
(MSA). Prairie is an equal partner with 360 Communications Company of
Nebraska, Inc. (360) in the general partnership and has the option to
purchase 360's remaining 50% interest during the two-year period ending
December 31, 1998. On December 17, 1997 the Company announced that it had
entered into a Purchase Agreement with 360 to acquire 360's ownership
interest for approximately $15,000,000, and the release of 360 from its
obligation pursuant to the discounted note receivable from the general
partnership with a carrying value of approximately $47.7 million at
December 31, 1997. As a result, upon closing, which is anticipated to be
near the end of first quarter 1998, the Company will own 100% of the
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<PAGE>
general partnership and approximately 56% of Aliant Cellular - Omaha. The
acquisition will be accounted for as a purchase and, accordingly, the
results of the partnership will be included in the operating revenues and
expenses of the Company. Goodwill of approximately $30 million will result
and will be amortized over approximately 34 years. The Company assumed
management of Aliant Cellular-Omaha on January 1, 1992.
Effective May 15, 1997, Aliant Cellular acquired from Telebeep, Inc.
approximately 10,000 customer service agreements and customers who had
previously received cellular telecommunications services provided by Aliant
Cellular on a resold basis. These customers are located principally in
northeastern Nebraska. As a result of the acquisition of this additional
customer base, Aliant Cellular provides its cellular telecommunications
services directly to these customers on a retail basis rather than on a
wholesale basis. This acquisition is expected to result in increased
annual revenue of approximately $1,300,000.
MANAGED CELLULAR MARKETS
- ---------------------------------------------------------------------------
The Company manages all four cellular entities in which it has an ownership
interest. The Lincoln MSA and Aliant Cellular (serving ten Nebraska Rural
Service Areas (RSA)) are wholly-owned markets containing approximately
231,000 and 848,000 POPs, respectively. All properties are managed under
the Aliant brand. Through its general partnership with 360, the Company
holds a 27.9% interest (27.6% prior to October, 1997) in Aliant Cellular -
Omaha which operates the Omaha MSA market, comprised of approximately
634,000 POPs. As stated in the "Acquisition and Investment" section
above, the option to purchase 360's ownership interest in that limited
partnership is expected to be completed by the end of March 1998. In
addition, the Company has an 11.8% interest in Iowa 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 1997,
penetration rates (subscribers compared to POPs) achieved in these markets
by the entities in which the Company holds interests were 22.1% in the
Lincoln MSA, 15.6% in the Aliant Cellular area, 12.7% in the Omaha MSA, and
6.6% in RSA 1.
In these markets, the composite cost to acquire new customer lines,
including a negative margin on equipment sales, was $303 per gross addition
and $455 per net addition in 1997. The churn (the percentage of customers
who are disconnected each month) averaged 0.9% in 1997.
The Company's market indices of penetration, cost to acquire new customers
and churn in its 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.
49
<PAGE>
Supplemental Proportionate Data For Managed Cellular Markets (1)
Total Total Not Total
Consolidated Consolidated Proportionate
(2) (3) Data
- -------------------------------------------------------------------------
(Dollars in thousands)
Customer Lines 1997 182,987 22,928 205,915
1996 146,702 18,531 165,233
1995 109,708 13,144 122,852
Service Revenues 1997 $ 75,889 9,296 85,185
1996 62,984 7,940 70,924
1995 32,910 6,019 38,929
Operating Expenses 1997 $ 40,485 4,640 45,125
(before depreciation) 1996 35,768 4,675 40,443
1995 19,147 4,034 23,181
Net Operating Income 1997 $ 26,720 3,352 30,072
(after depreciation) 1996 20,049 2,171 22,220
1995 10,059 1,043 11,102
EBITDA (4) 1997 $ 35,404 4,656 40,060
1996 27,216 3,265 30,481
1995 13,763 1,985 15,748
(1) The Company's interest in Nebraska Cellular prior to acquisition in
July 1995 is not included in the proportionate data.
(2) Financial activities of the Lincoln MSA and Aliant Cellular since
acquisition 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
(27.91% currently and 27.6% prior to October 1997) and the Iowa RSA 1
(11.8%) are not included in the operating portions of the Company's
Consolidated Statements of Earnings.
(4) Earnings before interest, income taxes, depreciation and amortization
is commonly used in the cellular communications industry to analyze
cellular providers on the bases of operating performance, and
liquidity. EBITDA should not be considered an alternate to (i)
operating income (as determined in accordance with generally accepted
accounting principles) as an indicator of the Company's operating
performance or (ii) cash flows from operating activities (as determined
in accordance with generally accepted accounting principles) as a
measure of liquidity.
At December 31, 1997, the Company had 205,915 proportionate customer lines
in all of its managed markets. This compares with a 1996 year-end managed
operations total of 165,233 customer lines.
Total service revenues in the managed cellular markets increased to
$85,185,000 in 1997 compared to $70,924,000 in 1996 and $38,929,000 in
1995. The acquisition of Aliant Cellular in July 1995 contributed
50
<PAGE>
approximately 80% of the 1996 increase in service revenues. Service
revenues include the net results of outbound roaming. Inbound roaming
contributed 15.8%, 14.9% and 14.6% of service revenues in 1997, 1996 and
1995, respectively. The Company has negotiated roaming agreements with
other cellular providers which include preferred roaming rates for
customers.
Net operating income before interest, depreciation and income taxes
(EBITDA) increased to $40,060,000 in 1997 compared to $30,481,000 in 1996.
The EBITDA margin (EBITDA compared to service revenues) was 47.0% and 43.0%
for the years 1997 and 1996, respectively. In 1995, EBITDA was $15,748,000
margin on sales of equipment, grew to $45,125,000 in 1997, compared to
$40,443,000 in 1996 and $23,181,000 in 1995.
Due to changes in technology, customer growth and usage demand, Aliant
Cellular recently entered into a contract with Motorola to replace the
existing analog cellular equipment in the Lincoln and Omaha MSAs requiring
a $22,000,000 cash outlay. The new digital switching platforms will
increase network capacity and make additional services, such as Caller ID,
available to customers. The network will be upgraded in two phases. By
early spring 1998, Narrowband Advanced Mobile Phone Service (NAMPS) will be
in place which will nearly double the capacity on the network. By early
1999, Code Division Multiple Access (CDMA) will be deployed which will
further improve capacity, coverage and voice quality.
COMPETITION AND REGULATORY ENVIRONMENT
- ---------------------------------------------------------------------------
The Telecommunications Act of 1996 (the Act) has now been in effect two
full years. While some uncertainty regarding implementation of the Act
still exists, some of the regulatory concerns and questions raised by the
Act are being clarified.
The Act was designed to facilitate entry of new competitors into the local
exchange market. Competitors were allowed to resell Incumbent Local
Exchange Carrier (ILEC) services by purchasing elements of an ILEC's
network which are necessary to provide competitive services, or by
constructing their own network facilities in an ILEC's traditional service
territory. In order to create rules implementing this aspect of the Act,
the Federal Communications Commission (FCC) released a comprehensive
interconnection order in August 1996 (the Interconnection Order).
The Interconnection Order received immediate criticism from ILECs for
establishing network element prices and resale discounts which gave unfair
advantages to competitors, and for allowing a competitor to "pick and
choose" favorable provisions of interconnection agreements made between
ILECs and competitors. ILECs also contended that the Interconnection Order
improperly precluded state regulatory commissions from performing a
meaningful role in the implementation of the Act.
Several ILECs, including Telco, filed appeals for judicial review of the
Interconnection Order. These petitions were consolidated and assigned to
the Eighth Circuit Court of Appeals. In October 1996, the Eighth Circuit
entered an Order Granting Stay Pending Judicial Review which did stay the
effectiveness of the pricing and the so-called "pick and choose"
provisions of the Interconnection Order. The FCC and several other
51
<PAGE>
telecommunications companies petitioned to review the Eighth Circuit's
decision. On January 23, 1998, the Supreme Court agreed to hear the
appeal. The decision by the Supreme Court is expected in late 1998 or
early 1999.
The Telco received a bona fide request on January 9, 1998 from US West
Communications, Inc. to negotiate an interconnection agreement. Telco does
have interconnection agreements in place with two commercial mobile radio
service providers. As a midsize, non-Bell Company, the Telco may apply to
the Nebraska Public Service Commission (NPSC) for relief or waiver of
certain interconnection obligations imposed under the Act. Telco has
agreed with the NPSC not to use such a waiver provision for resale or
transport and termination elements.
The Company is exploring new business opportunities made possible by the
Act. Through Aliant Midwest, the Company was granted a certificate from
the NPSC to provide competitive local exchange service in areas of Nebraska
served by US West, GTE Midwest and Sprint/United. Aliant Midwest also has
been certified by the Iowa Utilities Board to provide service in
Pottawattamie County, Iowa, which is part of the Omaha, Nebraska
metropolitan area. In 1997, Aliant Midwest, doing business as Aliant
Communications, began offering facilities-based service in Omaha, Nebraska
and Grand Island, Nebraska. The Company will continue to evaluate further
entry into other markets.
Telco is also taking measures to prepare for competition in its traditional
service territory. Upon passage of the Act, it became clear that ILECs
would need to adjust local exchange service rates to better reflect the
actual cost of providing service. Traditionally, residential local
exchange service has been priced below cost, and has been subsidized
through rates charged to businesses, rates charged on toll calls and rates
charged on other enhanced services. Competition will largely eliminate the
ability to cross-subsidize customers and services in this manner.
Since 1986, Nebraska law has provided that ILECs may raise basic local
exchange service rates by as much as 10% per year without regulatory review
unless a sufficient number of subscriber petitions are filed with the NPSC.
The Telco invoked this statute in 1997, raising residential local exchange
service rates by 10%. However, competition creates the need for even
greater rate flexibility than was allowed under Nebraska law. In 1997,
legislation was passed which allowed ILECs to raise residential service
rates more than 10% in a twelve month period. In conjunction with such a
rate increase, rates for other services must be lowered so that the rate
changes do not increase total company revenues by more than 1%. Telco was
active in developing and advocating this legislation, in order to obtain
the rate flexibility to compete effectively in the newly competitive
telecommunications environment.
Telco has filed an application with the NPSC to rebalance service rates
under the new Nebraska law. If approved, Telco will significantly reduce
its basic business service rates and some of its toll and access rates,
while raising basic residential service rates closer to actual cost. The
result may be a small decline in total revenue, but the Telco's rate
structure will be more efficient and much more viable in a competitive
environment. Hearings on this application were held on February 4 and 5,
1998, and a decision is anticipated within sixty (60) days after the close
52
<PAGE>
of the hearings. The proposed rates become effective upon entry of the
order.
Other regulatory issues continue to take shape at the state and federal
levels. Universal service funding, which compensates companies for
providing service to high-cost (usually rural) customers, will take an
entirely new shape in the competitive environment. Implicit subsidies can
no longer be built into the rates charged to low-cost customers. Instead,
such subsidies must be made explicit and competitively neutral. The FCC
has further complicated this issue by ruling that 75% of the responsibility
for funding universal service shall be borne by the states. This creates a
difficult situation for sparsely-populated, rural states with a high
percentage of high-cost customers. Telco, other ILECs, and many public
officials have expressed concern about this policy decision to the FCC and
to members of Congress.
Access reform is a major policy initiative affecting Telco. Access rates
are the fees that ILECs charge long distance carriers for use of their
network. The FCC issued an order in May 1997 that reduces access rates
over a period of time on interstate calls by basing such rates on forward-
looking incremental costs. For some time, a movement has been underway to
enable the NPSC to establish a similar rate structure for access charges on
intrastate calls. The NPSC has determined that the issues of access reform
and universal service should be handled concurrently in a single docket.
Telco supports their decision, since decisions regarding access reform
could place tremendous pressure on consumers for support of universal
service. Telco will actively participate in the NPSC docket.
Wireless telecommunications service continues to be an increasingly
important sector of the Company's business. The FCC has taken steps to
increase the number of wireless competitors by auctioning radio spectrum
for Personal Communications Services (PCS). As many as seven new wireless
competitors are allowed in each market.
The FCC has also imposed new requirements for the Company to separate
wireless operations from the Telco. Currently, the cellular license for
the Lincoln MSA is held by Telco.
YEAR 2000
- ---------------------------------------------------------------------------
The Company utilizes software and related technologies throughout its
business that will be affected by the date change in the year 2000. An
internal study is currently underway to determine the full scope and
related costs to ensure that the Company's systems continue to meet its
internal needs and those of its customers. The Company has begun to incur
expenses for this change, by utilizing internal resources to identify,
correct or reprogram and test the systems for the year 2000 compliance. It
is anticipated that all reprogramming efforts will be complete by mid 1999,
allowing time for testing. Management has not yet assessed the year 2000
compliance expense and related potential effect on the Company's earnings,
however, the expenses may be significant.
53
<PAGE>
ACCOUNTING PRONOUNCEMENTS
- ---------------------------------------------------------------------------
FAS 130, "Reporting Comprehensive Income", and FAS 131, "Disclosures
about Segments of an Enterprise and Related Information", were issued in
June 1997. FAS 130 established standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. FAS 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also established standards for related disclosures about
products and services, geographic areas, and major customers. Both FAS 130
and FAS 131 are effective for periods beginning after December 15, 1997.
The Company anticipates providing additional segment reporting information
in 1998, without a significant effect on its consolidated financial
statements.
LABOR CONTRACTS
- ---------------------------------------------------------------------------
Three-year agreements between Telco and Local 7470 of the Communications
Workers of America (CWA) will expire on October 14, 1998. Similarly, a
three-year agreement between Aliant Systems and the CWA will expire on May
19, 1998. Each contract concerns wages, benefits and general working
conditions.
54
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA (NOT COVERED BY INDEPENDENT AUDITORS' REPORT)
(Dollars in thousands, except per share data)
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Selected Consolidated Earnings Statement Items
1. Telephone operating revenues $ 199,873 189,426 179,916
2. Wireless communications services 76,710 63,696 34,121
3. Telephone equipment sales and services 19,176 18,930 18,768
4. Intercompany revenues (9,431) (7,827) (7,113)
5. Total revenues and sales (Note 1) 286,328 264,225 225,692
6. Income before special and non-recurring
charges (Note 2) 53,039 44,954 42,059
7. Special and non-recurring charges (Note 3) - - 29,546
8. Net income (Note 2) 53,039 44,954 12,513
9. Earnings available for common shares
(Note 2) 52,814 44,729 12,288
10. Earnings per share before special and
non-recurring charges 1.46 1.22 1.22
11. Special and non-recurring charges per share - - (0.86)
12. Basic and diluted earnings per common
share (Note 2) 1.46 1.22 .36
Selected Consolidated Balance Sheet Items
13. Total assets $ 547,642 521,402 520,321
14. Property and equipment 589,314 547,499 521,259
15. Accumulated depreciation and amortization 330,359 292,479 265,997
16. Accumulated depreciation to depreciable
plant 56.1% 54.3% 52.4%
17. Current ratio 1.1:1 1.1:1 1.1:1
18. Long-term debt and redeemable preferred
stock (Note 4) $ 98,499 107,579 122,207
19. Long-term debt and redeemable preferred
stock as a percent of total capitalization 24.5% 27.9% 32.0%
20. Common stock, premium and common stock
subscribed less treasury stock $ 99,934 104,395 107,791
21. Retained earnings 203,064 174,172 151,754
22. Total long-term debt, redeemable preferred
stock, and stockholders' equity 401,497 386,145 381,752
Statistics
23. Proportionate cellular subscribers 205,915 165,233 122,852
24. Telephone access lines 273,008 263,208 254,173
25. Total number of employees 1,537 1,686 1,642
Selected Common Stock Items
26. Dividends declared per common share $ 0.660 0.610 0.570
27. Shares of common stock outstanding at
end of year 36,186,580 36,414,740 36,622,434
28. Market value common stock-high/low $33.19/15.00 22.38/15.25 21.50/14.50
29. Price-earnings ratio-high/low (Note 5) 22.7x/10.3x 18.3x/12.5x 17.7x/11.9x
30. Book value per common share $ 8.37 7.65 7.09
55
<PAGE>
1994 1993 1992
Selected Consolidated Earnings Statement Items
1. Telephone operating revenues $ 175,417 169,317 163,698
2. Wireless communications services 10,740 7,006 4,760
3. Telephone equipment sales and services 18,100 15,270 15,019
4. Intercompany revenues (7,611) (7,618) (8,143)
5. Total revenues and sales (Note 1) 196,646 183,975 175,334
6. Income before special and non-recurring
charges (Note 2) 37,186 33,191 29,609
7. Special and non-recurring charges (Note 3) 3,581 23,166 -
8. Net income (Note 2) 33,605 10,025 29,609
9. Earnings available for common shares
(Note 2) 33,380 9,800 29,271
10. Earnings per share before special and
non-recurring charges 1.14 1.01 0.90
11. Special and non-recurring charges per share (0.11) (0.71) -
12. Basic and diluted earnings per common
share (Note 2) 1.03 0.30 0.90
Selected Consolidated Balance Sheet Items
13. Total assets $ 393,184 395,279 369,116
14. Property and equipment 458,953 449,540 435,226
15. Accumulated depreciation and amortization 217,183 203,436 185,661
16. Accumulated depreciation to depreciable
plant 48.2% 45.7% 43.4%
17. Current ratio 1.3:1 1.1:1 1.3:1
18. Long-term debt and redeemable preferred
stock (Note 4) $ 48,499 48,499 78,049
19. Long-term debt and redeemable preferred
stock as a percent of total capitalization 19.8% 20.9% 29.2%
20. Common stock, premium and common stock
subscribed less treasury stock $ 37,292 41,173 40,427
21. Retained earnings 159,143 142,859 149,008
22. Total long-term debt, redeemable preferred
stock, and stockholders' equity 244,934 232,531 267,484
Statistics
23. Proportionate cellular subscribers 29,989 19,245 11,308
24. Telephone access lines 246,963 238,142 232,148
25. Total number of employees 1,612 1,618 1,620
Selected Common Stock Items
26. Dividends declared per common share $ 0.530 0.490 0.430
27. Shares of common stock outstanding at
end of year 32,348,740 32,595,350 32,534,376
28. Market value common stock-high/low $20.00/13.75 20.50/12.00 14.25/10.63
29. Price-earnings ratio-high/low (Note 5) 19.4x/13.3x 20.3x/11.9x 15.8x/11.8x
30. Book value per common share $ 6.07 5.65 5.82
56
<PAGE>
1991 1990 1989
Selected Consolidated Earnings Statement Items
1. Telephone operating revenues $ 157,181 155,908 153,093
2. Wireless communications services 3,182 2,218 1,367
3. Telephone equipment sales and services 15,383 14,503 14,345
4. Intercompany revenues (8,121) (7,296) (6,724)
5. Total revenues and sales (Note 1) 167,625 165,333 162,081
6. Income before special and non-recurring
charges (Note 2) 27,820 24,696 25,046
7. Special and non-recurring charges (Note 3) - - -
8. Net income (Note 2) 27,820 24,696 25,046
9. Earnings available for common shares
(Note 2) 27,351 24,190 24,503
10. Earnings per share before special and
non-recurring charges 0.83 0.74 0.75
11. Special and non-recurring charges per share - - -
12. Basic and diluted earnings per common
share (Note 2) 0.83 0.74 0.75
Selected Consolidated Balance Sheet Items
13. Total assets $ 360,976 348,434 304,908
14. Property and equipment 436,496 417,844 397,630
15. Accumulated depreciation and amortization 183,128 167,569 152,867
16. Accumulated depreciation to depreciable
plant 42.9% 41.0% 39.2%
17. Current ratio 1.3:1 2.2:1 1.3:1
18. Long-term debt and redeemable preferred
stock (Note 4) $ 87,544 93,493 63,254
19. Long-term debt and redeemable preferred
stock as a percent of total capitalization 33.0% 36.2% 29.2%
20. Common stock, premium and common stock
subscribed less treasury stock $ 44,033 45,134 45,726
21. Retained earnings 133,878 119,681 107,694
22. Total long-term debt, redeemable preferred
stock, and stockholders' equity 265,455 258,308 216,674
Statistics
23. Proportionate cellular subscribers 4,852 2,742 1,185
24. Telephone access lines 226,077 221,706 216,109
25. Total number of employees 1,606 1,602 1,631
Selected Common Stock Items
26. Dividends declared per common share $ 0.400 0.370 0.370
27. Shares of common stock outstanding at
end of year 32,844,376 32,934,376 32,980,376
28. Market value common stock-high/low $14.63/10.50 16.75/9.75 17.31/8.56
29. Price-earnings ratio-high/low (Note 5) 17.6x/12.7x 22.6x/13.2x 23.1x/11.4x
30. Book value per common share $ 5.42 5.00 4.65
57
<PAGE>
1988 1987
Selected Consolidated Earnings Statement Items
1. Telephone operating revenues $ 149,953 144,213
2. Wireless communications services 819 461
3. Telephone equipment sales and services 14,023 9,907
4. Intercompany revenues (6,458) (5,692)
5. Total revenues and sales (Note 1) 158,337 148,889
6. Income before special and non-recurring
charges (Note 2) 25,478 21,692
7. Special and non-recurring charges (Note 3) - -
8. Net income (Note 2) 25,478 21,692
9. Earnings available for common shares
(Note 2) 24,899 21,076
10. Earnings per share before special and
non-recurring charges 0.75 0.61
11. Special and non-recurring charges per share - -
12. Basic and diluted earnings per common
share (Note 2) 0.75 0.61
Selected Consolidated Balance Sheet Items
13. Total assets $ 289,806 289,426
14. Property and equipment 386,421 398,605
15. Accumulated depreciation and amortization 147,794 157,373
16. Accumulated depreciation to depreciable
plant 38.9% 40.2%
17. Current ratio 1.7:1 1.6:1
18. Long-term debt and redeemable preferred
stock (Note 4) $ 69,743 71,714
19. Long-term debt and redeemable preferred
stock as a percent of total capitalization 33.0% 33.8%
20. Common stock, premium and common stock
subscribed less treasury stock $ 45,726 41,816
21. Retained earnings 95,805 98,935
22. Total long-term debt, redeemable preferred
stock, and stockholders' equity 211,265 212,465
Statistics
23. Proportionate cellular subscribers 545 181
24. Telephone access lines 210,343 204,561
25. Total number of employees 1,649 1,674
Selected Common Stock Items
26. Dividends declared per common share $ 0.333 0.291
27. Shares of common stock outstanding at
end of year 32,980,376 34,673,576
28. Market value common stock-high/low $ 9.13/6.57 7.25/5.07
29. Price-earnings ratio-high/low (Note 5) 12.2x/8.8x 11.9x/8.3x
30. Book value per common share $ 4.29 4.06
</TABLE>
58
<PAGE>
All shares and share data have been adjusted to reflect stock splits.
Note 1: 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.
Note 3: Special and non-recurring items represent extraordinary charges
and cumulative effect of change in accounting principle. 1995 amount
represents the after-tax effect of discontinuance of FAS 71 and work
force restructuring. 1994 represents a non-recurring depreciation
charge on cellular equipment while 1993 is a change in accounting
principles for FAS 106.
Note 4: Excludes current installments and redemptions due in subsequent
years.
Note 5: Price-earnings ratio is before cumulative effect of change in
accounting principle.
59
<PAGE>
CORPORATE OFFICERS
Thomas C. Woods III, Chairman of the Board
Frank H. Hilsabeck, President and Chief Executive Officer
James W. Strand, President-Diversified Operations
Robert L. Tyler, Senior Vice President-Chief Financial Officer
Bryan C. Rickertsen, Vice President-Technology
Michael J. Tavlin, Vice President-Treasurer and Secretary
CORPORATE INFORMATION
Corporate Headquarters
1440 M Street, Lincoln, NE 68508
800-829-5832
Mailing Address:
P. O. Box 81309
Lincoln, NE 68501-1309
STOCK LISTED
NASDAQ National Market
Symbol: ALNT
The preferred stock of Aliant Communications Co. is traded over the
counter.
DIRECTORS
Duane W. Acklie, Chairman, Crete Carrier Corporation
William W. Cook Jr., Chairman of the Board and CEO, The Beatrice National
Bank and Trust Company
Terry L. Fairfield, President and Chief Executive Officer, University of
Nebraska Foundation
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, Aliant
Communications Inc.
Paul C. Schorr III, President and Chief Executive Officer, ComCor Holding
Inc.
William C. Smith, Retired Chairman, FirsTier Financial, Inc.
James W. Strand, President-Diversified Operations, Aliant Communications
Inc.
Charles N. Wheatley, President and Chief Executive Officer, Sahara
Enterprises, Inc.
Thomas C. Woods III, Chairman of the Board, Aliant Communications Inc.
Lyn Wallin Ziegenbein, Executive Director, Peter Kiewit Foundation
60
<PAGE>
COMMITTEES
Executive
Frank H. Hilsabeck, Chairman
William W. Cook Jr.
Paul C. Schorr
William C. Smith
Audit
Charles R. Hermes, Chairman
Terry L. Fairfield
John Haessler
Executive Compensation
Duane W. Acklie, Chairman
Paul C. Schorr III
Charles N. Wheatley
Lyn Wallin Ziegenbein
AUDITORS
KPMG Peat Marwick LLP
233 South 13th Street
Suite 1600
Lincoln, NE 68508
MARKET AND DIVIDEND DATA
Market Price Dividend Declared
- --------------------------------------------- ---------------------
Calendar 1997 1996
Quarter High Low High Low 1997 1996
- ---------------------------------------------- ---------------------
1st $19.50 $16.00 $23.38 $18.50 $ .16 $ .15
2nd 20.50 15.00 20.00 15.88 .16 .15
3rd 24.88 18.25 17.13 15.25 .17 .15
4th 33.19 23.75 17.00 15.25 .17 .16
12 Mos. 33.19 15.00 22.38 15.25 .66 .61
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.
STOCKHOLDER INFORMATION
Investor Relations Center
The Forms 10-K and 10-Q, annual report, a prospectus, and other stock
information may be obtained without charge by calling 800-550-ALNT (2568).
Requests may also be directed to:
Lincoln area: 402-436-5277
From anywhere in the continental U.S.: 800-829-5832
E-mail: [email protected]
61
<PAGE>
Annual Meeting of Stockholders
April 22, 1998
10:30 a.m.
The Cornhusker Hotel
333 South 13th Street
Lincoln, Nebraska
Stock Transfer Agent and Registrar
ChaseMellon Shareholder Services 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:
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre, 85 Challenger Road
Ridgefield Park, NJ 07660
800-642-7236
800-231-5469 (TDD)
SECURITY ANALYSTS AND PORTFOLIO MANAGERS
Direct inquiries to:
Michael J. Tavlin
Vice President-Treasurer
P. O. Box 81309
Lincoln, NE 68501-1309
402-436-5289
E-mail: [email protected]
DIVIDEND REINVESTMENT AND 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 costs.
62
<PAGE>
EXHIBIT 23
KPMG Peat Marwick LLP
233 South 13th Street, Suite 1600
Lincoln, NE 68508-2041
Two Central Park Plaza
Suite 1501
Omaha, NE 68102
ACCOUNTANTS' CONSENT
The Board of Directors
Aliant Communications Inc.:
We consent to the incorporation by reference in the registration statements
on Forms S-3 and S-8 of Aliant Communications Inc. of our report dated
February 6, 1998, relating to the consolidated balance sheets of Aliant
Communications Inc. and subsidiaries as of December 31, 1997 and 1996, 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, 1997, and all related schedules, which report appears in the December
31, 1997, annual report on Form 10-K of Aliant Communications Inc.
/s/ KPMG Peat Marwick LLP
Lincoln, Nebraska
March 24, 1998
<PAGE>
Exhibit 24
POWER OF ATTORNEY
WHEREAS, ALIANT COMMUNICATIONS INC., a Nebraska corporation
(hereinafter referred to as the "Corporation") and ALIANT COMMUNICATIONS
CO., a Delaware corporation (hereinafter referred to as the "Company"),
will each file with the Securities and Exchange Commission, under the
provisions of the Securities Exchange act of 1934, on or before the due
date of March 30, 1998, an annual report on Form 10-K; and
WHEREAS, the undersigned is the Director of the Corporation and of the
Company.
NOW, THEREFORE, the undersigned hereby constitutes and appoints Frank
H. Hilsabeck, Robert L. Tyler and Michael J. Tavlin or any one of them, as
attorney-in-fact, with full power to act for the undersigned and in the
name, place and stead of the undersigned, to sign the name of the
undersigned as Director to the annual report on Form 10-K for the
Corporation and to the annual report on Form 10-K for the Company and any
and all amendments to each such annual report, hereby ratifying and
confirming all that said attorney-in-fact may or shall lawfully do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
27th day of March, 1998.
/s/ Angela M. Hiatt /s/ Duane W. Acklie
------------------ -------------------
Witness Director
<PAGE>
POWER OF ATTORNEY
WHEREAS, ALIANT COMMUNICATIONS INC., a Nebraska corporation
(hereinafter referred to as the "Corporation") and ALIANT COMMUNICATIONS
CO., a Delaware corporation (hereinafter referred to as the "Company"),
will each file with the Securities and Exchange Commission, under the
provisions of the Securities Exchange act of 1934, on or before the due
date of March 30, 1998, an annual report on Form 10-K; and
WHEREAS, the undersigned is the Director of the Corporation and of the
Company.
NOW, THEREFORE, the undersigned hereby constitutes and appoints Frank
H. Hilsabeck, Robert L. Tyler and Michael J. Tavlin or any one of them, as
attorney-in-fact, with full power to act for the undersigned and in the
name, place and stead of the undersigned, to sign the name of the
undersigned as Director to the annual report on Form 10-K for the
Corporation and to the annual report on Form 10-K for the Company and any
and all amendments to each such annual report, hereby ratifying and
confirming all that said attorney-in-fact may or shall lawfully do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
10th day of February, 1998.
/s/ Susan Hartley /s/ William W. Cook, Jr.
------------------ --------------------
Witness Director
<PAGE>
POWER OF ATTORNEY
WHEREAS, ALIANT COMMUNICATIONS INC., a Nebraska corporation
(hereinafter referred to as the "Corporation") and ALIANT COMMUNICATIONS
CO., a Delaware corporation (hereinafter referred to as the "Company"),
will each file with the Securities and Exchange Commission, under the
provisions of the Securities Exchange act of 1934, on or before the due
date of March 30, 1998, an annual report on Form 10-K; and
WHEREAS, the undersigned is the Director of the Corporation and of the
Company.
NOW, THEREFORE, the undersigned hereby constitutes and appoints Frank
H. Hilsabeck, Robert L. Tyler and Michael J. Tavlin or any one of them, as
attorney-in-fact, with full power to act for the undersigned and in the
name, place and stead of the undersigned, to sign the name of the
undersigned as Director to the annual report on Form 10-K for the
Corporation and to the annual report on Form 10-K for the Company and any
and all amendments to each such annual report, hereby ratifying and
confirming all that said attorney-in-fact may or shall lawfully do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
17th day of February, 1998.
/s/ Linda M. Daiker /s/ Terry L. Fairfield
------------------ -------------------
Witness Director
<PAGE>
POWER OF ATTORNEY
WHEREAS, ALIANT COMMUNICATIONS INC., a Nebraska corporation
(hereinafter referred to as the "Corporation") and ALIANT COMMUNICATIONS
CO., a Delaware corporation (hereinafter referred to as the "Company"),
will each file with the Securities and Exchange Commission, under the
provisions of the Securities Exchange act of 1934, on or before the due
date of March 30, 1998, an annual report on Form 10-K; and
WHEREAS, the undersigned is the Director of the Corporation and of the
Company.
NOW, THEREFORE, the undersigned hereby constitutes and appoints Frank
H. Hilsabeck, Robert L. Tyler and Michael J. Tavlin or any one of them, as
attorney-in-fact, with full power to act for the undersigned and in the
name, place and stead of the undersigned, to sign the name of the
undersigned as Director to the annual report on Form 10-K for the
Corporation and to the annual report on Form 10-K for the Company and any
and all amendments to each such annual report, hereby ratifying and
confirming all that said attorney-in-fact may or shall lawfully do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
26th day of March, 1998.
/s/ Jeannine Zier /s/ John Haessler
------------------ -------------------
Witness Director
<PAGE>
POWER OF ATTORNEY
WHEREAS, ALIANT COMMUNICATIONS INC., a Nebraska corporation
(hereinafter referred to as the "Corporation") and ALIANT COMMUNICATIONS
CO., a Delaware corporation (hereinafter referred to as the "Company"),
will each file with the Securities and Exchange Commission, under the
provisions of the Securities Exchange act of 1934, on or before the due
date of March 30, 1998, an annual report on Form 10-K; and
WHEREAS, the undersigned is the Director of the Corporation and of the
Company.
NOW, THEREFORE, the undersigned hereby constitutes and appoints Frank
H. Hilsabeck, Robert L. Tyler and Michael J. Tavlin or any one of them, as
attorney-in-fact, with full power to act for the undersigned and in the
name, place and stead of the undersigned, to sign the name of the
undersigned as Director to the annual report on Form 10-K for the
Corporation and to the annual report on Form 10-K for the Company and any
and all amendments to each such annual report, hereby ratifying and
confirming all that said attorney-in-fact may or shall lawfully do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
10th day of February, 1998.
/s/ Susan K. Abraham /s/ Charles R. Hermes
------------------ -------------------
Witness Director
<PAGE>
POWER OF ATTORNEY
WHEREAS, ALIANT COMMUNICATIONS INC., a Nebraska corporation
(hereinafter referred to as the "Corporation") and ALIANT COMMUNICATIONS
CO., a Delaware corporation (hereinafter referred to as the "Company"),
will each file with the Securities and Exchange Commission, under the
provisions of the Securities Exchange act of 1934, on or before the due
date of March 30, 1998, an annual report on Form 10-K; and
WHEREAS, the undersigned is the Director of the Corporation and of the
Company.
NOW, THEREFORE, the undersigned hereby constitutes and appoints Frank
H. Hilsabeck, Robert L. Tyler and Michael J. Tavlin or any one of them, as
attorney-in-fact, with full power to act for the undersigned and in the
name, place and stead of the undersigned, to sign the name of the
undersigned as Director to the annual report on Form 10-K for the
Corporation and to the annual report on Form 10-K for the Company and any
and all amendments to each such annual report, hereby ratifying and
confirming all that said attorney-in-fact may or shall lawfully do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
20th day of March, 1998.
/s/ Kathy Dvorak /s/ Frank Hilsabeck
------------------ -------------------
Witness Director
<PAGE>
POWER OF ATTORNEY
WHEREAS, ALIANT COMMUNICATIONS INC., a Nebraska corporation
(hereinafter referred to as the "Corporation") and ALIANT COMMUNICATIONS
CO., a Delaware corporation (hereinafter referred to as the "Company"),
will each file with the Securities and Exchange Commission, under the
provisions of the Securities Exchange act of 1934, on or before the due
date of March 30, 1998, an annual report on Form 10-K; and
WHEREAS, the undersigned is the Director of the Corporation and of the
Company.
NOW, THEREFORE, the undersigned hereby constitutes and appoints Frank
H. Hilsabeck, Robert L. Tyler and Michael J. Tavlin or any one of them, as
attorney-in-fact, with full power to act for the undersigned and in the
name, place and stead of the undersigned, to sign the name of the
undersigned as Director to the annual report on Form 10-K for the
Corporation and to the annual report on Form 10-K for the Company and any
and all amendments to each such annual report, hereby ratifying and
confirming all that said attorney-in-fact may or shall lawfully do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
7th day of February, 1998.
/s/ Karolynn S. Mizell /s/ Paul C. Schorr, III
------------------ -------------------
Witness Director
<PAGE>
POWER OF ATTORNEY
WHEREAS, ALIANT COMMUNICATIONS INC., a Nebraska corporation
(hereinafter referred to as the "Corporation") and ALIANT COMMUNICATIONS
CO., a Delaware corporation (hereinafter referred to as the "Company"),
will each file with the Securities and Exchange Commission, under the
provisions of the Securities Exchange act of 1934, on or before the due
date of March 30, 1998, an annual report on Form 10-K; and
WHEREAS, the undersigned is the Director of the Corporation and of the
Company.
NOW, THEREFORE, the undersigned hereby constitutes and appoints Frank
H. Hilsabeck, Robert L. Tyler and Michael J. Tavlin or any one of them, as
attorney-in-fact, with full power to act for the undersigned and in the
name, place and stead of the undersigned, to sign the name of the
undersigned as Director to the annual report on Form 10-K for the
Corporation and to the annual report on Form 10-K for the Company and any
and all amendments to each such annual report, hereby ratifying and
confirming all that said attorney-in-fact may or shall lawfully do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
26th day of March, 1998.
/s/ Christine L. Thompson /s/ William C. Smith
--------------------- -------------------
Witness Director
<PAGE>
POWER OF ATTORNEY
WHEREAS, ALIANT COMMUNICATIONS INC., a Nebraska corporation
(hereinafter referred to as the "Corporation") and ALIANT COMMUNICATIONS
CO., a Delaware corporation (hereinafter referred to as the "Company"),
will each file with the Securities and Exchange Commission, under the
provisions of the Securities Exchange act of 1934, on or before the due
date of March 30, 1998, an annual report on Form 10-K; and
WHEREAS, the undersigned is the Director of the Corporation and of the
Company.
NOW, THEREFORE, the undersigned hereby constitutes and appoints Frank
H. Hilsabeck, Robert L. Tyler and Michael J. Tavlin or any one of them, as
attorney-in-fact, with full power to act for the undersigned and in the
name, place and stead of the undersigned, to sign the name of the
undersigned as Director to the annual report on Form 10-K for the
Corporation and to the annual report on Form 10-K for the Company and any
and all amendments to each such annual report, hereby ratifying and
confirming all that said attorney-in-fact may or shall lawfully do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
9th day of February, 1998.
/s/ Diane M. Dermann /s/ James W. Strand
------------------ -------------------
Witness Director
<PAGE>
POWER OF ATTORNEY
WHEREAS, ALIANT COMMUNICATIONS INC., a Nebraska corporation
(hereinafter referred to as the "Corporation") and ALIANT COMMUNICATIONS
CO., a Delaware corporation (hereinafter referred to as the "Company"),
will each file with the Securities and Exchange Commission, under the
provisions of the Securities Exchange act of 1934, on or before the due
date of March 30, 1998, an annual report on Form 10-K; and
WHEREAS, the undersigned is the Director of the Corporation and of the
Company.
NOW, THEREFORE, the undersigned hereby constitutes and appoints Frank
H. Hilsabeck, Robert L. Tyler and Michael J. Tavlin or any one of them, as
attorney-in-fact, with full power to act for the undersigned and in the
name, place and stead of the undersigned, to sign the name of the
undersigned as Director to the annual report on Form 10-K for the
Corporation and to the annual report on Form 10-K for the Company and any
and all amendments to each such annual report, hereby ratifying and
confirming all that said attorney-in-fact may or shall lawfully do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
20th day of February, 1998.
/s/ Diane M. Dermann /s/ C. N. Wheatley
------------------ -------------------
Witness Director
<PAGE>
POWER OF ATTORNEY
WHEREAS, ALIANT COMMUNICATIONS INC., a Nebraska corporation
(hereinafter referred to as the "Corporation") and ALIANT COMMUNICATIONS
CO., a Delaware corporation (hereinafter referred to as the "Company"),
will each file with the Securities and Exchange Commission, under the
provisions of the Securities Exchange act of 1934, on or before the due
date of March 30, 1998, an annual report on Form 10-K; and
WHEREAS, the undersigned is the Director of the Corporation and of the
Company.
NOW, THEREFORE, the undersigned hereby constitutes and appoints Frank
H. Hilsabeck, Robert L. Tyler and Michael J. Tavlin or any one of them, as
attorney-in-fact, with full power to act for the undersigned and in the
name, place and stead of the undersigned, to sign the name of the
undersigned as Director to the annual report on Form 10-K for the
Corporation and to the annual report on Form 10-K for the Company and any
and all amendments to each such annual report, hereby ratifying and
confirming all that said attorney-in-fact may or shall lawfully do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
10th day of February, 1998.
/s/ Diane M. Dermann /s/ Thomas C. Woods, III
------------------ --------------------
Witness Director
<PAGE>
POWER OF ATTORNEY
WHEREAS, ALIANT COMMUNICATIONS INC., a Nebraska corporation
(hereinafter referred to as the "Corporation") and ALIANT COMMUNICATIONS
CO., a Delaware corporation (hereinafter referred to as the "Company"),
will each file with the Securities and Exchange Commission, under the
provisions of the Securities Exchange act of 1934, on or before the due
date of March 30, 1998, an annual report on Form 10-K; and
WHEREAS, the undersigned is the Director of the Corporation and of the
Company.
NOW, THEREFORE, the undersigned hereby constitutes and appoints Frank
H. Hilsabeck, Robert L. Tyler and Michael J. Tavlin or any one of them, as
attorney-in-fact, with full power to act for the undersigned and in the
name, place and stead of the undersigned, to sign the name of the
undersigned as Director to the annual report on Form 10-K for the
Corporation and to the annual report on Form 10-K for the Company and any
and all amendments to each such annual report, hereby ratifying and
confirming all that said attorney-in-fact may or shall lawfully do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
13th day of February, 1998.
/s/ Patricia A. Thraen /s/ Lyn Wallin Ziegenbein
------------------ ---------------------
Witness Director
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