VANGUARD CELLULAR SYSTEMS INC, S-4 POS, 1994-09-30

VANGUARD CELLULAR SYSTEMS INC
S-4 POS, 1994-09-30
RADIOTELEPHONE COMMUNICATIONS

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REGISTRATION NO. 33-35054
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
VANGUARD CELLULAR SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
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NORTH CAROLINA 4811 56-1549590
(State or other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
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2002 PISGAH CHURCH ROAD
SUITE 300
GREENSBORO, NORTH CAROLINA 27455
(910) 282-3690
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
HAYNES G. GRIFFIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VANGUARD CELLULAR SYSTEMS, INC.
2002 PISGAH CHURCH ROAD
SUITE 300
GREENSBORO, NORTH CAROLINA 27455
(910) 282-3690
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
COPIES OF COMMUNICATIONS TO:
DORIS R. BRAY, ESQ.
SCHELL BRAY AYCOCK ABEL & LIVINGSTON L.L.P.
POST OFFICE BOX 21847
GREENSBORO, NORTH CAROLINA 27420
(910) 370-8802
This Post-Effective Amendment to the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(c) of the
Securities Act of 1933, may determine.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. ( )

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VANGUARD CELLULAR SYSTEMS, INC.
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
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ITEM CAPTION IN FORM S-4 HEADING IN PROSPECTUS
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1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.......... Forepart of the Registration Statement and Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus...................................... Inside Front and Outside Back Cover Pages of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information........................... The Company; Risk Factors; Selected Consolidated Financial Information
4. Terms of the Transaction........................ Description of Capital Stock*
5. Pro Forma Financial Information................. *
6. Material Contacts with the Company Being
Acquired........................................ *
7. Additional Information Required for Reoffering
by Persons and Parties Deemed to be
Underwriters.................................... **
8. Interests of Named Experts and Counsel.......... Legal Opinions; Experts
9. Disclosure of Commission Position on
Indemnification for Securities
Act Liabilities................................. ***
10. Information with Respect to S-3 Registrants..... Information Incorporated by Reference
11. Incorporation of Certain Information by
Reference....................................... Information Incorporated by Reference
12. Information with Respect to S-2 or S-3
Registrants..................................... ***
13. Incorporation of Certain Information by
Reference....................................... ***
14. Information with Respect to the Registrants
Other than S-3 or S-2 Registrants............... ***
15. Information with Respect to S-3 Companies....... ***
16. Information with Respect to S-2 or S-3
Companies....................................... ***
17. Information with Respect to Companies Other than
S-3 or S-2 Companies............................ *
18. Information if Proxies, Consents or
Authorizations are to be Solicited.............. Information Incorporated by Reference*
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in an
Exchange Offer.................................. Information Incorporated by Reference*
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* The Registration Statement is an "acquisition shelf" and information
regarding specific acquisitions will be provided by prospectus supplement or
post-effective amendment as required.
** The Prospectus may be amended or supplemented for reoffering of shares by
persons who receive shares thereunder and may be deemed underwriters.
*** Omitted since the answer is negative or the item is inapplicable.

<PAGE>
PROSPECTUS

(VANGUARD LOGO APPEARS HERE)

4,500,000 SHARES CLASS A COMMON STOCK
3,000,000 SHARES CLASS B COMMON STOCK
Vanguard Cellular Systems, Inc. (the "Company") has registered 4,500,000 of
its Class A Common Shares, par value $.01 per share (the "Class A Common
Stock"), as adjusted to reflect the Company's three-for-two Class A Common Stock
Split effected August 24, 1994 as a 50% stock dividend, and 3,000,000 shares of
its Class B Common Stock, par value $.01 per share (the "Class B Common Stock"),
which may from time to time be offered by this Prospectus principally in
connection with the formation, or the acquisition, of all or a portion of the
capital stock or assets of, or other interests in, entities which have received
or may receive an authorization or license from the Federal Communications
Commission ("FCC") to provide cellular service. The terms of such acquisitions
will generally be determined by direct negotiations between the Company and the
owners of the interests to be acquired, and any such acquisitions will generally
be made without the payment of underwriting commissions or discounts or finders'
fees.
This Prospectus, as appropriately amended or supplemented, has also been
prepared for use by persons who have or will receive shares hereunder as a
result of the transactions described in the preceding paragraph and who propose
to offer and sell any of such shares on terms then obtainable.
When a material acquisition or a series of acquisitions constituting in the
aggregate a material acquisition occurs, the Company will update this Prospectus
before any Class A Common Stock or Class B Common Stock is sold or issued
thereafter. The Prospectus will be updated by filing with the Securities and
Exchange Commission ("SEC") a Post-Effective Amendment to the Registration
Statement, of which this Prospectus is a part, or by including appropriate
disclosures in a report filed with the SEC that will be incorporated by
reference herein.
Shares of the Company's Class A Common Stock have one vote per share.
Shares of its Class B Common Stock have one-tenth of one vote per share. Class A
Common Stock and Class B Common Stock are sometimes collectively referred to
herein as the "Common Stock."
FOR A DISCUSSION OF SIGNIFICANT RISKS CONCERNING AN INVESTMENT IN THE CLASS
A COMMON STOCK AND CLASS B COMMON STOCK, SEE "RISK FACTORS."
The Company's Class A Common Stock is quoted on the NASDAQ National Market
System under the symbol VCELA. As of the date of this Prospectus, no shares of
Class B Common Stock are outstanding. If any shares of Class B Common Stock are
issued, the Company cannot predict whether a trading market will develop for its
Class B Common Stock or the prices at which the Company's Class B Common Stock
would trade if a trading market does develop for such stock.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER , 1994.

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THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
THE ASSISTANT TREASURER OF THE COMPANY AT VANGUARD CELLULAR SYSTEMS, INC., 2002
PISGAH CHURCH ROAD, SUITE 300, GREENSBORO, NORTH CAROLINA 27455, TELEPHONE
NUMBER (910) 282-3690. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE AT LEAST FIVE BUSINESS DAYS PRIOR TO THE DATE ON WHICH
THE FINAL INVESTMENT DECISION MUST BE MADE.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended, a Registration
Statement with respect to the Common Stock offered hereby. This Prospectus does
not contain all the information set forth in the Registration Statement and in
the exhibits and schedules thereto. For further information with respect to the
Company and the Common Stock, reference is made to the Registration Statement
and to the exhibits and schedules filed therewith. All of these documents may be
inspected without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, DC 20549, and copies of such
material can be obtained from the public reference section of the Commission,
Washington, DC 20549, at prescribed rates.
The Company furnishes to its shareholders annual reports containing
consolidated financial statements audited by an independent public accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing unaudited financial information.
2

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TABLE OF CONTENTS
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PAGE
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Information Incorporated by Reference..................................................................................
Certain Definitions....................................................................................................
Prospectus Summary.....................................................................................................
Offered Securities.....................................................................................................
Risk Factors...........................................................................................................
The Company............................................................................................................
Overview of the Company's Cellular License Interests...................................................................
Price Ranges of Class A Common Stock and Dividend Policy...............................................................
Summary Pro Forma Consolidated Financial Information...................................................................
Selected Consolidated Financial Data...................................................................................
Management's Discussion and Analysis of Results of Operations and Financial Condition..................................
Business...............................................................................................................
Management.............................................................................................................
Description of Capital Stock...........................................................................................
Legal Opinions.........................................................................................................
Experts................................................................................................................
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INFORMATION INCORPORATED BY REFERENCE
The following documents have been previously filed by the Company with the
Securities and Exchange Commission (the "Commission") and are hereby
incorporated by reference in this Prospectus as of their respective dates: (a)
Annual Report on Form 10-K for the year ended December 31, 1993, (b) Quarterly
Report on Form 10-Q for the quarter ended March 31, 1994, (c) Quarterly Report
on Form 10-Q for the quarter ended June 30, 1994 (d) Current Report on Form 8-K
dated September 30, 1994 and (e) description of the Company's Class A Common
Stock contained in a Registration Statement of the Company on Form 8-A dated
February 29, 1988, as amended by a Form 8-A/A dated September 30, 1994.
Additionally, all reports and any definitive proxy or information
statements filed by the Company with the Commission pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), subsequent to the date of this Prospectus and prior to the
termination of the offering hereby shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statements contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
CERTAIN DEFINITIONS
As used in this Prospectus, "pops" means the Donnelly Marketing Service
estimate of the 1993 population of a Metropolitan Statistical Area ("MSA") or
Rural Service Area ("RSA") multiplied by a percentage ownership interest in an
entity licensed or designated to receive a license by the Federal Communications
Commission (the "FCC") to construct or operate a cellular telephone system in
that MSA or RSA. An MSA or RSA is referred to herein as a "market." The number
of pops should not be confused with the current number of users of cellular
service and is not necessarily indicative of the number of users of cellular
services in the future. "Nonwireline" refers to a company that is not owned by
or primarily affiliated with a landline telephone company. A nonwireline license
is one of two licenses granted in each cellular market area. "Control markets"
refer to all markets in which the Company's current ownership interest is in
excess of 50.0% as well as the Wilmington and Jacksonville, North Carolina
markets which are jointly controlled by the Company and a subsidiary of GTE
Corporation. "Operating Cash Flow" or "EBITDA" refers to the Company's income
(loss) from operations before depreciation and amortization. Operating Cash Flow
has been used by the Company, in conjunction with external financing, to satisfy
debt service obligations and to fund capital expenditures and other operational
needs. In addition, certain covenants in the long-term credit facility are based
upon calculations using Operating Cash Flow. Operating Cash Flow does not
represent and should not be considered as an alternative to net income or
operating income as determined by generally accepted accounting principles.
3

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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
THE COMPANY
The Company owns and operates nonwireline cellular telephone systems in the
Eastern United States and has been in business since 1984. Based on its 7.0
million aggregate pops, including 530,000 pops under contract as of August 31,
1994, the Company believes it is the largest independent operator of solely
nonwireline cellular telephone systems in the United States. The Company's 27
control cellular markets, including four markets under contract as of August 31,
1994, are grouped into five operating metro-clusters consisting of the
Mid-Atlantic Supersystem and the Florida, Carolinas, New England and West
Virginia metro-clusters. The Mid-Atlantic Supersystem, together with the New
England metro-cluster, represent 75% of the Company's pops and are contiguous to
four of the nation's seven largest MSAs -- New York, Philadelphia,
Baltimore/Washington and Boston.
The Company has pursued a strategy of forming regional metro-clusters in an
effort to provide better service to customers and to achieve marketing and
operating efficiencies through economies of scale. This strategy has permitted
it to provide a larger area of uninterrupted service as the subscriber travels
throughout the region and to expand geographic coverage within a subscriber's
home market, which reduces the subscriber's need to use roamer access codes when
traveling outside of the home market and, in some cases, eliminates the payment
of higher roaming fees. In addition, the Company believes clustering reduces
capital and operating costs through technical integration and the sharing of
common marketing and sales management. Among other things, this clustering
strategy enabled the Company to reduce the number of telephone switching offices
that otherwise would be required to operate its markets and to decrease the
number of technical and management personnel required to staff its operations.
The Company's total number of subscribers and operating results have
improved in each of the years 1989 through 1993 and in the current year. During
the five-year period 1989 to 1993, the number of subscribers in the Company's
majority-owned markets grew from 18,600 at the beginning of 1989 to 132,300 at
year-end 1993, a compounded annual rate of approximately 48%, while the
Company's subscriber penetration rate, based on 1993 "pops," increased from .35%
to 2.34%. Service revenues grew from $30.5 million in 1989 to $99.0 million in
1993, a compounded annual growth rate of 34%. The Company began generating
positive Operating Cash Flow in the second quarter of 1991 and Operating Cash
Flow grew from $4.4 million in 1991 to $25.3 million in 1993, representing a
compounded annual growth rate of 139%. These general growth trends for
subscribers, service revenues and Operating Cash Flow continued during the first
half of 1994. See "Summary of Cellular Operating Data," "Summary Consolidated
Financial Information," "Selected Consolidated Financial Data," "Management's
Discussion and Analysis of Results of Operations and Financial Condition," and
"Business -- Subscribers."
The Company's primary objective over the next several years will be to
maximize long-term Operating Cash Flow and operating income through a threefold
strategy of (i) increasing operating cash flow margins through balanced
subscriber and revenue growth and control of selling, general and administrative
expenses, (ii) accelerating its cellular network buildout, and (iii) expanding
metro-cluster service areas through strategic acquisitions and by maximizing the
level of "seamless" coverage available to current and future subscribers.
Operating Cash Flow reflects the Company's ability to satisfy its debt service
obligations, capital expenditure and other operational needs as well as provide
funds for strategic acquisitions and investments. In addition, Operating Cash
Flow historically has been used by lenders and the investment community to
determine the current borrowing capacity and long-term value of companies in the
telecommunications/media industry. See "The Company."
The Company is also pursuing new opportunities that complement its core
cellular business. In early 1994, the Company entered into a strategic alliance
with Geotek Communications, Inc. ("Geotek"), a telecommunications company that
is developing its Enhanced Specialized Mobile Radio ("ESMR") wireless
communications network in the United States based on its proprietary Frequency
Hopping Multiple Access digital technology ("FHMA(tm)"). This alliance primarily
consists of a $30 million investment in Geotek common stock with options to
purchase additional stock and a five-year management consulting agreement. The
Company also has developed a billing and management information system, called
Flexcell(tm), that is being actively marketed to third parties as well as being
used in the Company's own operations. In 1994, the Company entered into its
first contract for Flexcell(tm) with American Mobile Satellite Corporation. The
Company is also pursuing opportunities internationally, both directly and
through its investment in International Wireless Communications, Inc., an
international licensing firm. See "Business -- New Opportunities."
4

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SUMMARY OF CELLULAR OPERATING DATA
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SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1994 1993 1993 1992 1991 1990 1989
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Subscriber Base Data:
Subscriber base......................................... 169.0 107.5 132.3 92.3 69.2 54.8 38.9
Year to year growth rate................................ 57% 39% 43% 33% 26% 41.0% 108%
Penetration............................................. 2.8% 1.8% 2.3% 1.6% 1.2% 1.0% 0.7%
Service Revenues (1):
Total service revenue................................... $64.0 $44.6 $99.0 $72.8 $ 56.3 $ 46.5 $ 30.5
Year to year growth rate................................ 44% 33% 36% 29% 21% 52% 127%
Average monthly revenue per subscriber.................. $ 71 $ 74 $ 73 $ 75 $ 76 $ 83 $ 88
Operating Cash Flow (EBITDA) Before Sales and Marketing
(2):
Amount.................................................. $35.3 $21.8 $50.5 $32.5 $ 19.7 $ 3.3 $ (4.6)
Margin on service revenues.............................. 55% 49% 51% 45% 35% 7% -15%
Sales and Marketing Cost Per Net Activation:
Amount.................................................. $ 521 $ 698 $ 629 $ 799 $1,066 $ 976 $ 834
Change from previous year............................... -25% -30% -21% -25% 9% 17% -35%
Operating Cash Flow (EBITDA) (2):
Amount.................................................. $16.2 $11.2 $25.3 $14.0 $ 4.4 $(12.2) $(21.5)
Margin on service revenues.............................. 25% 25% 26% 19% 8% -26% -70%
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SUMMARY OF THE COMPANY'S CELLULAR LICENSE INTERESTS
AS OF AUGUST 31, 1994 (3)
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POPS
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METRO-CLUSTER:
Mid-Atlantic Supersystem............................................................................... 4,597,123 65.6 %
Florida................................................................................................ 618,458 8.8
New England............................................................................................ 656,240 9.4
West Virginia.......................................................................................... 619,664 8.9
Carolinas.............................................................................................. 423,428 6.0
Other.................................................................................................. 88,187 1.3
7,003,100 100.0 %
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SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION
The following table presents summary financial data of the Company and
should be read in conjunction with "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and the consolidated historical
financial information and pro forma consolidated information of the Company and
related notes thereto included elsewhere or incorporated by reference in this
Prospectus. The summary historical consolidated financial data for fiscal years
1989 through 1993 are derived from the consolidated financial statements of the
Company, which have been audited by Arthur Andersen LLP. The summary historical
consolidated financial data for the first six months of fiscal 1993 and 1994 are
derived from the unaudited interim consolidated financial statements of the
Company. The results for the first six months of 1994 are not necessarily
indicative of the results to be expected for the full year. The summary pro
forma data have been derived from the pro forma consolidated information
included elsewhere or incorporated by reference herein.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1994 1993 1993 1992 1991 1990 1989
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Statement of Operations Data:
Revenues (1)............................. $ 73,846 $ 48,133 $109,064 $ 78,790 $ 61,178 $ 57,289 $ 42,040
Expenses................................. 57,655 36,973 83,782 64,834 56,745 69,529 63,525
Depreciation and amortization (2)........ 11,319 12,809 25,160 22,100 19,112 14,449 13,651
Income (loss) from operations............ 4,872 (1,649) 122 (8,144) (14,679) (26,689) (35,136)
Interest expense, net.................... (9,121) (7,584) (15,389) (16,177) (19,292) (19,754) (15,696)
Other net (3)............................ (49) (202) (16) (2,338) 1,258 17,131 44,425
Net loss before extraordinary item....... (4,298) (9,435) (15,283) (26,659) (32,713) (29,312) (6,407)
Extraordinary item (4)................... -- (3,715) (3,715) -- -- -- --
Net loss................................. $ (4,298) $(13,150) $(18,998) $(26,659) $(32,713) $(29,312) $ (6,407)
Net loss per share before extraordinary
item (5).............................. $ (0.11) $ (0.25) $ (0.40) $ (0.72) $ (0.96) $ (0.95) $ (0.21)
Net loss per share (5)................... (0.11) (0.35) (0.50) (0.72) (0.96) (0.95) (0.21)
Weighted average number of common shares
outstanding (5)....................... 38,424 37,839 38,038 37,110 34,053 30,955 30,691
Other Data:
Capital expenditures..................... $ 28,677 $ 10,710 $ 21,009 $ 18,243 $ 16,542 $ 37,449 $ 19,376
Operating Cash Flow
(EBITDA) (6).......................... 16,191 11,160 25,282 13,956 4,433 (12,240) (21,485)
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JUNE 30, 1994
PRO
FORMA DECEMBER 31,
(7) ACTUAL 1993 1992 1991 1990 1989
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Balance Sheet Data:
Working capital (deficiency)............. $ (5,952) $ (6,779) $ 4,696 $ (1,185) $ 7,854 $ 1,384 $ 12,981
Property and equipment, net.............. 95,615 91,328 71,716 72,026 74,581 75,767 49,025
Total assets............................. 378,111 328,566 284,429 251,820 255,810 236,906 200,589
Long-term debt (including current
portion).............................. 288,884 286,655 238,153 199,712 184,827 200,213 148,362
Shareholders' equity..................... 52,119 5,808 21,898 30,265 51,669 9,295 35,599
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(1) In 1994, the Company reclassified certain pass-through items previously
recognized as service revenue to offset the related cost of service expenses
to conform with industry practice. These reclassified items relate to
charges associated with the Company's subscribers roaming into adjacent
cellular markets. Appropriate reclassifications have been made in each
period presented.
(2) Effective April 1, 1990, the Company changed its amortization period for
deferred cellular license acquisition costs from 20 to 40 years. The effect
of this change was to reduce amortization for the years ended December 31,
1993, 1992, 1991 and 1990 by $4.0 million, $4.4 million, $4.1 million and
$3.1 million, respectively. Effective January 1, 1994, the Company also
changed the depreciable lives of certain of its property and equipment on a
prospective basis. The effect of this change was to reduce depreciation
expense for the six months ended June 30, 1994 by $1.8 million.
(3) The 1989 gain resulted from the exchange transaction in which the Company
acquired the Portsmouth NH/ME cellular market. The 1990 gain resulted
primarily from the contribution of cellular interests to the Company's 50%
owned joint venture.
(4) The extraordinary item of $3.7 million in 1993 reflects the write-off of
deferred financing costs associated with the credit facility that was
replaced during 1993.
(5) Adjusted to reflect the Company's three-for-two Class A Common Stock split
effected August 24, 1994 as a 50% stock dividend.
(6) Income (loss) from operations before depreciation and amortization.
(7) See "Pro Forma Consolidated Financial Information."
6

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OFFERED SECURITIES
The securities of the Company which may be offered from time to time by
this Prospectus consist of up to 4,500,000 shares of Class A Common Stock and up
to 3,000,000 shares of Class B Common Stock which the Company proposes to issue
principally in connection with the formation, or the acquisition, of all or a
portion of the capital stock or assets of, or other interests in, entities which
have received or may receive an authorization or license ("license") from the
FCC to provide cellular service. The terms of any such transaction will
generally be determined by direct negotiations between the Company and the
owners of the interests to be acquired, and the consideration therefor may
consist of cash, notes or other evidences of debt, assumptions of liabilities,
equity securities or a combination thereof. It is not expected that any
underwriting discounts or commissions or finders' fees will be paid by the
Company in connection with such transactions.
This Prospectus has also been prepared for use by persons who receive Class
A Common Stock and Class B Common Stock covered by this Prospectus and who
propose to offer and sell any of such shares under circumstances requiring the
use of this Prospectus.
The rights of holders of Class A Common Stock and Class B Common Stock are
identical except that holders of Class A Common Stock have one vote per share
and holders of Class B Common Stock have one-tenth of one vote per share. See
"Description of Capital Stock."
RISK FACTORS
Before purchasing any Securities offered hereby a prospective investor
should consider, among other things, the following factors:
NET LOSSES. The Company's activities have concentrated on the investment in
and development of its cellular systems to improve service and expand geographic
coverage. As a result, in each year of its operations the Company has incurred a
net loss. There can be no assurance that the Company will become and/or remain
profitable in the future. See "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition."
EXISTING INDEBTEDNESS; ADDITIONAL FINANCING. The Company has relied
primarily upon borrowings under its bank credit facilities to finance
operations, capital expenditures and acquisitions. Total outstanding borrowings
under its existing loan agreement (the "Loan Agreement") were $286.5 million at
June 30, 1994 and the Company expects to continue to borrow funds under this
agreement, which permits borrowings of up to $390 million at any time
outstanding, at least through 1995. The Company is currently required to pay
only interest under this agreement at rates which vary with specified indices.
Beginning June 30, 1996, the Company will be required to begin repaying
principal under the Loan Agreement with all amounts due by 2001. As of June 30,
1994, the Company had $103.5 million available for future borrowings under this
agreement; however, any available borrowings will be reduced on a quarterly
basis after June 30, 1996 until maturity. Although the Company has generated
positive Operating Cash Flow since 1991, the Company's cash flow must continue
to improve for it to meet the financial covenants of the Loan Agreement and to
service its debt and meet its other cash requirements without additional
financing. There can be no assurance that such improvements will be achieved or,
if not achieved, that additional financing will be available, or that any
available financing will be on terms that are attractive to the Company. If cash
flows do not continue to improve sufficiently or if such financing is not
available to the Company, the Company may be materially limited in its ability
to make acquisitions and capital expenditures to improve its operations or may
fail to meet the financial covenants and debt service requirements of the Loan
Agreement which would result in outstanding borrowings under the agreement
becoming immediately due and payable. See "Selected Consolidated Financial Data"
and "Management's Discussion and Analysis of Results of Operations and Capital
Resources."
COMPETITION FROM WIRELINE TELEPHONE COMPANIES AND NEW TECHNOLOGIES.
Although current policies of the FCC authorize only two licensees to operate
cellular systems in each market, there is, and the Company expects there will
continue to be, significant competition from the other licensee authorized to
serve each cellular market in which the Company operates. Competition for
subscribers between cellular licensees is based principally upon the services
and enhancements offered, the technical quality of the cellular system, customer
service, system coverage and capacity, and price. The Company competes with a
wireline licensee in each of its cellular markets, some of which are larger and
have access to more substantial capital resources than the Company.
As a result of recent regulatory and legislative initiatives, the Company's
cellular operations are also expected to face increased competition from
entities providing other communications technologies and services. While some of
these technologies and services are currently operational, others are being
developed or may be developed in the future. For example, the
7

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FCC has licensed SMR system operators to construct digital mobile communications
systems on existing SMR frequencies, referred to as enhanced specialized mobile
radio ("ESMR"), in many cities throughout the United States, including each of
the major cities in which the Company operates. When constructed, ESMR systems
could be competitive with the Company's cellular service. The Company's cellular
operations are also likely to face additional competition from new market
entrants upon the anticipated introduction of broadband personal communication
services ("PCS") licenses for which the FCC plans to begin auctions in December
1994. The Company may face competition from other technologies developed in the
future. Accordingly, there can be no assurance that one or more of the
technologies currently utilized by the Company in its business will not become
obsolete at some time in the future. See "Business -- Competition."
REGULATION. The licensing, construction, operation and sale of controlling
interests in cellular systems are regulated by the FCC. In addition, certain
aspects of cellular system operations, including but not limited to rates and
the resale of cellular service, may be subject to public utility regulation in
the state in which service is provided. Changes in the regulation of the
Company's activities, such as increased price regulation or deregulation of
interconnection arrangements or a decision by the FCC to permit more than two
licensees in each cellular market, could adversely affect the Company's results
of operations. In addition, all cellular licenses in the United States were
granted for an initial 10-year term and are subject to renewal. The majority of
the Company's cellular licenses expire within the next three years. While the
Company believes that each of these licenses will be renewed based upon FCC
rules establishing a presumption in favor of licensees that have complied with
their regulatory obligations during the initial license period, there can be no
assurance that all of the Company's licenses will be renewed. See
"Business -- Regulation."
CHALLENGES OF GROWTH BY ACQUISITIONS. The Company will continue to pursue
opportunities to acquire additional interests in cellular systems proximate to
its existing metro-clusters as well as additional interests in licensees in
which it currently owns less than a 100% interest. If the Company is successful
in pursuing such acquisitions, the Company may require substantial additional
financing to acquire and develop additional systems. There can be no assurance
that the Company will be able to obtain such additional financing. Furthermore,
in acquiring additional cellular systems, the Company will be subject to the
risks that new systems will not perform as expected and that the returns from
such systems will not support the indebtedness incurred to acquire, or the
capital expenditures incurred to develop, such systems. In addition, in seeking
to acquire additional cellular systems or licenses in its primary markets, the
Company competes with other communications companies, many of which are larger
and have access to more substantial capital resources than the Company.
Competition among bidders for acquisition targets is based upon a variety of
factors, including price, terms and conditions, size and access to capital,
ability to offer cash, stock or other forms of consideration, and similar
matters.
OPTIONS TO MAKE ADDITIONAL INVESTMENT IN GEOTEK. The Company holds options
to invest up to $167 million for an aggregate of 10 million shares of common
stock of Geotek. The options are exercisable in series over a three-year period,
subject to certain extensions and qualifications. Should the Company exercise
all or any portion of these options, the exercise would require funds that might
otherwise be available for cellular system acquisitions, capital expenditures or
other corporate purposes. Although the Company's Loan Agreement permits
borrowings for the exercise of a series of these options for up to two million
shares, any other exercise would likely require lender approval or other
financing alternatives. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
DIVIDEND AND OTHER RESTRICTIONS UNDER THE CREDIT AGREEMENT. The terms of
the Company's loan agreement prohibit the payment of dividends or other
distributions on any shares of the Company's capital stock (other than dividends
payable in shares of the Company's capital stock). The Company does not
anticipate paying any cash dividend or other distribution on its Common Stock in
the foreseeable future.
CONTROL OF THE COMPANY; CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION
AND BYLAWS. Existing management of the Company and members and affiliates of the
"Richardson Family" own approximately 30% of the Company's outstanding Class A
Common Stock as of June 30, 1994, and consequently, if they act in concert, are
probably in a position to control the management and the affairs of the Company.
The articles of incorporation and bylaws of the Company contain certain
provisions that may render more difficult a hostile takeover, make it more
difficult to remove or change the composition of the Company's incumbent Board
of Directors and its officers, adversely affect shareholders who desire to
participate in a tender offer and deprive shareholders of possible opportunities
to sell their shares at prices higher than prevailing market prices. See
"Description of Capital Stock."
VALUE OF FCC LICENSES. The underlying value of the Company's assets relates
primarily to its intangible assets, principally interests in entities holding
FCC construction permits and licenses, the value of which depend significantly
upon the success of the Company's business and the growth of the industry in
general. While the Company believes that there is presently a market for such
assets, such market may not exist in the future or the values obtainable may be
lower than at
8

<PAGE>
present. As a consequence, in the event of default on indebtedness of the
Company or any other event which would result in the liquidation of the
Company's assets, there can be no assurance that the proceeds would be
sufficient to pay its obligations, including any obligations pursuant to the
Securities offered hereby.
RADIOFREQUENCY EMISSION CONCERNS. Media reports have suggested that certain
radiofrequency ("RF") emissions from portable cellular telephones may be linked
to cancer. The FCC has a rulemaking proceeding pending to update the guidelines
and methods it uses for evaluating RF emissions from radio equipment, including
cellular telephones. While the proposal would impose more restrictive standards
on RF emissions from low power devices such as portable cellular telephones, it
is anticipated that all cellular telephones currently marketed and in use
already comply with the new proposed standards.
LEGAL PROCEEDINGS. An action was commenced in June 1989 by 17 plaintiffs in
the United States District Court for the District of Columbia alleging that they
were partners in the San Juan Cellular Settlement Partnership ("SJCSP") and
asserting claims against the Company and two of its officers. SJCSP was the
tentative selectee for a construction permit for the San Juan, Puerto Rico
market but ultimately dismissed its application as part of the settlement of a
challenge to the award of the construction permit. Plaintiffs assert one claim
for fraud and one for breach of fiduciary duty, each against all three
defendants. Their basic allegation is that the defendants bargained away the
SJCSP interest in the San Juan market for less than its full value in order to
obtain for the Company the rights to certain other cellular systems. Plaintiffs
seek judgment against the defendants, jointly and severally, in the amount of
$49 million for compensatory damages, $50 million for punitive damages and the
imposition of a constructive trust for the benefit of the plaintiffs on the
Company's interests in the nonwireline cellular systems serving Reading, York
and Lancaster, Pennsylvania, as well as costs and other relief as the court may
deem proper.
Management believes that the suit is without merit. The Company intends to
defend the matter vigorously and has asserted counterclaims against certain of
the plaintiffs. Discovery has essentially been completed and motions for summary
judgment and responsive pleadings have been filed by the parties and oral
arguments have been completed. No trial date has been set and management is
unaware of when a trial date will be set. Based on its knowledge of the
plaintiff's evidence and the facts of the case and although it has not received
an opinion of counsel, management believes that the plaintiffs can neither
support their allegations nor prevail in the suit. Even if plaintiffs prevail,
management believes that there is no basis for the recovery of damages of the
magnitude claimed. In the opinion of management, the outcome of this proceeding
will not have a materially adverse effect on the consolidated financial position
of the Company. See "Business -- Legal Proceedings."
RESTRICTIONS ON RESALE BY CERTAIN PERSONS. Any party to a transaction
pursuant to this Prospectus (other than the Company) and any person who is an
"affiliate" of such party may resell Common Stock received in such transaction
only upon (a) further registration under the 1933 Act, (b) compliance with the
exemption provided by Rule 145(d) promulgated by the SEC under the Securities
Act of 1933, as amended (the "1933 Act") or (c) availability of another
exemption from the registration requirements of the 1933 Act. An "affiliate" of
a person or entity, as defined by rules of the SEC under the 1933 Act, is a
person who directly, or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with, such person or
entity.
THE COMPANY
The Company owns and operates nonwireline cellular telephone systems in the
Eastern United States and has been in business since 1984. Based on its 7.0
million aggregate pops, including 530,000 pops under contract as of August 31,
1994, the Company believes it is the largest independent operator of solely
nonwireline cellular telephone systems in the United States. The Company's 27
control cellular markets, including four markets under contract as of August 31,
1994, are grouped into five operating metro-clusters consisting of the
Mid-Atlantic Supersystem and the Florida, Carolinas, New England and West
Virginia metro-clusters. The Mid-Atlantic Supersystem, together with the New
England metro-cluster, represent 75% of the Company's pops and are contiguous to
four of the nation's seven largest MSAs -- New York, Philadelphia,
Baltimore/Washington and Boston.
The Company has pursued a strategy of forming regional metro-clusters in an
effort to provide better service to customers and to achieve marketing and
operating efficiencies through economies of scale. This strategy has permitted
it to provide a larger area of uninterrupted service as the subscriber travels
throughout the region and to expand geographic coverage within a subscriber's
home market, which reduces the subscriber's need to use roamer access codes when
traveling outside of the home market and, in some cases, eliminates the payment
of higher roaming fees. In addition, the Company believes clustering reduces
capital and operating costs through technical integration and the sharing of
common marketing and sales
9

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management. Among other things, this clustering strategy enabled the Company to
reduce the number of telephone switching offices that otherwise would be
required to operate its markets and to decrease the number of technical and
management personnel required to staff its operations.
The Company's total number of subscribers and operating results have
improved in each of the years 1989 through 1993 and in the current year. During
the five-year period 1989 to 1993, the number of subscribers in the Company's
majority-owned markets grew from 18,600 at the beginning of 1989 to 132,300 at
year-end 1993, a compounded annual rate of approximately 48%, while the
Company's subscriber penetration rate, based on 1993 "pops," increased from .35%
to 2.34%. Service revenues grew from $30.5 million in 1989 to $99.0 million in
1993, a compounded annual growth rate of 34%. The Company began generating
positive Operating Cash Flow in the second quarter of 1991 and Operating Cash
Flow grew from $4.4 million in 1991 to $25.3 million in 1993, representing a
compounded annual growth rate of 139%. These general growth trends for
subscribers, service revenues and Operating Cash Flow continued during the first
half of 1994. See "Summary of Cellular Operating Data," "Summary Consolidated
Financial Information," "Selected Consolidated Financial Data," "Management's
Discussion and Analysis of Results of Operations and Financial Condition," and
"Business -- Subscribers."
The Company's primary objective over the next several years will be to
maximize long-term Operating Cash Flow and operating income through a threefold
strategy of (i) increasing operating cash flow margins through balanced
subscriber and revenue growth and control of selling, general and administrative
expenses, (ii) accelerating its cellular network buildout, and (iii) expanding
metro-cluster service areas through strategic acquisitions and by maximizing the
level of "seamless" coverage available to current and future subscribers.
Operating Cash Flow reflects the Company's ability to satisfy its debt service
obligations, capital expenditure and other operational needs as well as provide
funds for strategic acquisitions and investments. In addition, Operating Cash
Flow historically has been used by lenders and the investment community to
determine the current borrowing capacity and long-term value of companies in the
telecommunications/media industry.
INCREASING OPERATING CASH FLOW MARGINS. The Company's goal is to continue
to improve annual operating cash flow margins by increasing incremental
year-to-year subscriber growth, while maintaining stable levels of average
monthly revenue per subscriber and controlling the growth of related marketing
and selling, general and administrative expenses. The Company was successful in
increasing both the absolute number of subscribers and the annual growth rate of
subscribers in each of 1991, 1992 and 1993 through a combination of an internal
sales force targeting business customers and outside distribution channels
focused primarily on retail customers. See "Business -- Subscribers. " Over the
same three-year period average monthly revenue per subscriber has remained
relatively stable decreasing only 1% from 1991 to 1993 compared with an overall
industry decline of 24% during the same period. The Company attributes its
success in stabilizing revenue per subscriber to the design of its monthly rate
plans, which offer prepaid minutes at higher fixed monthly charges, and its
sales commission structures, which are linked to monthly access fee revenues
generated.
The Company also strives to control the level of selling, general and
administrative expenses associated with its increased subscriber and revenue
growth. The continuing automation of such high volume processes as billing,
credit and collections, and rapid subscriber activations as well as the
centralization of back office accounting, engineering and financial service
operations resulted in reduced general and administrative expenses as a
percentage of service revenues in each of 1991, 1992 and 1993. Additionally,
selling and marketing costs per net new subscriber have declined in each of
these three years and the Company will work to continue this trend through a
highly productive internal sales organization, cost-effective outside
distribution channels and sales commissions based upon rate plans and customer
retention.
CELLULAR NETWORK BUILDOUT. Cellular systems are capital intensive,
requiring significant levels of investment for equipment, construction and cell
site acquisition. As of June 30, 1994, the Company had approximately $157.3
million of installed property and equipment and $7.6 million of construction in
progress. Company engineers manage the initial construction and subsequent
expansion and modification of each cellular system for which the Company owns a
majority interest. The Company believes that this procedure improves its overall
system engineering and construction quality and reduces the expense and time
required to make and keep a system operational.
The Company historically has incurred capital expenditures primarily based
upon capacity needs in its existing markets resulting from continued subscriber
growth. During 1994, the Company initiated a plan to double the number of cell
sites in order to increase geographic coverage and provide for additional
portable usage in the Company's cellular markets. As a result of this
accelerated network buildout and the continued growth of the Company's
subscriber base, capital expenditures were $29.0 million during the first half
of 1994 and should approximate $40.0 million during the remainder of 1994. The
Company intends to purchase a commensurate amount of capital equipment in 1995,
depending upon the anticipated rate of future subscriber growth. Under the terms
of the 1993 Loan Agreement, the Company would require lender approval to the
extent that capital expenditures exceeded $50.0 million and $37.5 million,
respectively, in 1994 and 1995.
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INCREASING METRO-CLUSTER SERVICE AREAS. The Company intends to increase its
metro-cluster service areas through strategic acquisitions and by maximizing the
level of "seamless" coverage available to current and future customers. Seamless
coverage permits subscribers, as they travel through the network, to receive
calls and otherwise to use their cellular telephones as if they were in their
home markets. Through the use of a mobile telephone switching office (MTSO)
serving multiple markets, the Company already has been able to implement such
seamless coverage throughout most of its Mid-Atlantic Supersystem. The Company
will continue to broaden the area of seamless coverage within its networks by
implementing switch interconnection plans for MTSOs located in adjoining markets
owned by other carriers. Most of the Company's equipment is built by Northern
Telecom, Inc. ("NTI") and interconnection between MTSOs has been achieved using
NTI's internal software and hardware.
In addition, the Company has begun to interconnect certain Company MTSOs
with switches manufactured by equipment suppliers in large cities like
Philadelphia and Boston using "IS-41" technical interfaces. This technical
interface, developed by the cellular industry, allows carriers that have a
variety of types of equipment to integrate their systems towards the eventual
goal of establishing a national seamless network. The Company has begun to
integrate its switches into one such seamless network, the North American
Cellular Network, which will allow the Company's subscribers to place and
receive calls automatically in over 2,000 cities throughout the United States.
The Company also continues to evaluate further consolidation of its
ownership in existing cellular markets and acquisitions of new cellular
properties in markets that will further expand its metro-clusters. In evaluating
acquisition targets, the Company considers, among other things, demographic
factors, including population size and density, traffic patterns, cell site
coverage and required capital expenditures, including the ability of the target
market to utilize existing switching capacity. In pursuing such acquisitions,
the Company may exchange interests in nonconsolidated markets for interests in
existing or new markets that serve to expand its networks. On August 5, 1994,
the Company entered into an agreement to acquire the Binghamton, New York MSA
and the Elmira, New York MSA for an aggregate purchase price of approximately
$48.5 million. In addition, on July 5, 1994, the Company entered into an
agreement to acquire the West Virginia 1-Mason RSA and the Maine 4-Washington
RSA for an aggregate purchase price of approximately $10.0 million. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition."
NEW OPPORTUNITIES. The Company is also pursuing new opportunities that
complement its core cellular business. The Company has entered into a strategic
alliance with Geotek, a telecommunications company that is developing its ESMR
wireless communications network in the United States based on its FHMA(tm)
digital technology. This alliance primarily consists of a $30 million investment
in Geotek common stock with options to purchase additional stock and a five-year
agreement pursuant to which the Company will provide management consulting
services to Geotek. The Company also has developed a billing and management
information system, called Flexcell(tm), that is being actively marketed to
third parties as well as being used in its own operations. The Company has
entered into its first contract for Flexcell(tm) with American Mobile Satellite
Corporation. See "Business -- New Opportunities."
INTERNATIONAL INITIATIVES. The Company is actively pursuing opportunities
in the development of cellular and other communications systems throughout the
world, both directly, through joint ventures with local entities and others, and
indirectly through its minority ownership interest in International Wireless
Communications, Inc., an international licensing firm. See
"Business -- International Initiatives."
GENERAL INFORMATION. The Company was founded as a Delaware corporation in
July 1984 and reincorporated under North Carolina law in February 1987. As used
in this Prospectus, the term "Company" refers to Vanguard Cellular Systems, Inc.
and its subsidiaries, as well as the partnerships or corporations holding
cellular licenses for markets not 100% owned by the Company or its subsidiaries,
to the extent of their interests therein. The principal executive offices of the
Company are located at 2002 Pisgah Church Road, Suite 300, Greensboro, North
Carolina 27455, telephone (910) 282-3690.
11

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OVERVIEW OF THE COMPANY'S CELLULAR
LICENSE INTERESTS
AS OF AUGUST 31, 1994
<TABLE>
<CAPTION>
CURRENT NET 1993 COMPANY
OWNERSHIP POPULATION POPS
<S> <C> <C> <C>
Mid-Atlantic Supersystem:
Allentown, PA/NJ........................................................................ 100.00% 705,345 705,345
Wilkes-Barre/Scranton, PA............................................................... 100.00% 660,011 660,011
Harrisburg, PA.......................................................................... 86.76% 487,763 423,183
Lancaster, PA........................................................................... 100.00% 440,537 440,537
York, PA................................................................................ 100.00% 437,295 437,295
Reading, PA............................................................................. 100.00% 346,533 346,533
Williamsport, PA........................................................................ 90.54% 121,136 109,675
State College, PA....................................................................... 96.99% 127,051 123,227
Orange County, NY....................................................................... 100.00% 317,747 317,747
*Binghamton, NY......................................................................... 97.97% 307,386 301,131
*Elmira, NY............................................................................. 100.00% 95,116 95,116
Wayne, PA (PA-5 RSA).................................................................... 100.00% 77,634 77,634
Chambersburg, PA (PA-10 East RSA)....................................................... 91.11% 140,687 128,180
Mifflin, PA (PA-11 RSA)................................................................. 100.00% 112,444 112,444
Lebanon, PA (PA-12 RSA)................................................................. 100.00% 117,089 117,089
Altoona, PA............................................................................. 99.96% 132,899 132,846
Poughkeepsie, NY........................................................................ 11.14% 262,443 29,224
Trenton, NJ............................................................................. 5.41% 326,735 17,666
Vineland, NJ............................................................................ 13.96% 139,327 19,447
Other:................................................................................ 2,793
Subtotal:............................................................................... 4,597,123
Florida Metro-cluster:
Pensacola, FL........................................................................... 100.00% 367,503 367,503
Fort Walton Beach, FL................................................................... 100.00% 155,096 155,096
Panama City, FL......................................................................... 18.28% 135,690 24,798
Columbus, GA............................................................................ 13.69% 251,422 34,429
Albany, GA.............................................................................. 10.29% 115,407 11,873
Biloxi, MS.............................................................................. 3.67% 213,986 7,857
Pascagoula, MS.......................................................................... 6.55% 120,464 7,896
Other:................................................................................ 9,006
Subtotal:............................................................................... 618,458
New England Metro-cluster:
Portland, ME............................................................................ 100.00% 279,360 279,360
Portsmouth, ME/NH....................................................................... 100.00% 268,694 268,694
*Washington, ME (ME-4 RSA).............................................................. 100.00% 84,811 84,811
Lewiston-Auburn, ME..................................................................... 4.83% 103,417 4,995
Bangor, ME.............................................................................. 5.24% 147,815 7,746
Manchester, NH.......................................................................... 2.63% 336,295 8,820
Other:................................................................................ 1,814
Subtotal:............................................................................... 656,240
West Virginia Metro-cluster:
Huntington, WV/KY/OH.................................................................... 100.00% 316,010 316,010
*Jackson, WV (WV-1 East RSA)............................................................ 100.00% 49,125 49,125
Charleston, WV.......................................................................... 100.00% 253,375 253,375
Other:.............................................................................. 1,154
Subtotal:............................................................................... 619,664
Carolinas Metro-cluster:
Myrtle Beach, SC (SC-5 RSA)............................................................. 100.00% 240,798 240,798
+ Wilmington, NC........................................................................ 47.67% 186,418 88,865
+ Jacksonville, NC...................................................................... 47.34% 138,997 65,801
Anderson, SC............................................................................ 4.00% 147,443 5,897
Petersburg, VA.......................................................................... 17.19% 128,356 22,067
Subtotal:................................................................................. 423,428
Other Minority Interests.................................................................. 88,187
TOTAL POPS................................................................................ 7,003,100
</TABLE>

* Market which the Company had a contractual obligation to purchase as of
August 31, 1994.
+ Joint Venture Markets
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PRICE RANGES OF CLASS A COMMON STOCK AND
DIVIDEND POLICY
The Class A Common Stock is traded through NASDAQ's National Market System
under the symbol VCELA. The following table indicates high and low last sale
prices as reported by the NASDAQ National Market System for the periods
indicated. The prices have been restated where applicable to reflect a
three-for-two stock split effected in the form of a stock dividend paid on
August 24, 1994.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
1992
First Quarter.............................................................................................. $21.67 $17.17
Second Quarter............................................................................................. 20.17 15.83
Third Quarter.............................................................................................. 17.33 13.67
Fourth Quarter............................................................................................. 18.67 13.00
1993
First Quarter.............................................................................................. $18.33 $13.67
Second Quarter............................................................................................. 18.17 14.00
Third Quarter.............................................................................................. 23.00 17.33
Fourth Quarter............................................................................................. 23.33 18.75
1994
First Quarter.............................................................................................. $22.67 $18.17
Second Quarter............................................................................................. 23.67 18.67
Third Quarter (through September 28, 1994)................................................................. 29.00 22.17
</TABLE>

The terms of the Company's bank credit facility prohibit the payment of
dividends or other distributions on any shares of the Company's capital stock
(other than dividends payable in shares of the Company's capital stock). The
Company does not anticipate paying any such dividend or other distribution on
Class A Common Stock in the foreseeable future.
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SUMMARY PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following table presents unaudited summary pro forma consolidated
financial information that is derived from, and should be read in conjuction
with, the pro forma consolidated financial information contained in the
Company's Form 8-K dated September 30, 1994 which is incorporated by reference
in this registration statement. The following unaudited summary pro forma
information gives effect to the Company's pending acquisition of all outstanding
stock of Crowley Cellular Telecommunications Binghamton, Inc. (CCTB) (the
"Crowley Transaction"). The unaudited pro forma consolidated statements of
operations data give effect to the Crowley Transaction as if it had occurred on
January 1, 1993, and the unaudited pro forma balance sheet data give effect to
the Crowley Transaction as if it had occurred on June 30, 1994. The unaudited
pro forma consolidated financial information does not reflect the Company's
exchange of the Hagerstown, MD MSA for the PA-10 East RSA or the acquisition of
the Altoona, PA MSA prior to the consummation of these transactions in April
1994. The pending acquisitions of the ME-4 RSA and WV-1 East RSA are also
excluded. This unaudited pro forma financial information may not be indicative
of the results that actually would have occurred if the transaction had been
completed on the dates indicated or of the results which may be obtained in the
future.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1994 DECEMBER 31, 1993
<S> <C> <C>
Statement of Operations Data (1):
Revenues.................................................................................. $ 77,005 $ 114,493
Expenses.................................................................................. (59,945) (88,227)
Depreciation and amortization (2)......................................................... (12,698) (28,010)
Income (loss) from operations............................................................. 4,362 (1,744)
Net gains (losses) on dispositions........................................................ 7 (657)
Interest expense (3)...................................................................... (9,550) (16,147)
Other, net................................................................................ 185 1,251
Net loss before extraordinary item........................................................ $ (4,996) $ (17,297)
Net loss per share before extraordinary item (4).......................................... $ (.12) $ (.43)
Weighted average number of common shares outstanding (4).................................. 40,415 39,878
Other Data (1):
Operating Cash Flow (EBITDA) (5).......................................................... $ 17,060 $ 26,266
<CAPTION>
JUNE 30, 1994
<S> <C> <C>
Balance Sheet Data (1):
Working capital........................................................................... $ (5,952)
Investments............................................................................... 238,973
Property and equipment, net............................................................... 95,615
Total assets.............................................................................. 378,111
Long-term debt (6)........................................................................ 288,884
Shareholders' equity (7).................................................................. 52,119
</TABLE>

(1) This unaudited pro forma information reflects the consummation of the
pending Crowley Transaction. CCTB owns and operates the cellular system
serving the Elmira, New York MSA and also owns a 97% interest in Binghamton
CellTelCo, an operating cellular partnership serving the Binghamton, New
York MSA. The purchase price for this acquisition is $48.5 million. The
following financial information assumes that the acquisition is financed
with the issuance of the Company's Class A Common Stock, subject to a
limitation specified in the purchase agreement that the amount of Class A
Common Stock issued cannot equal or exceed 5% of the Company's outstanding
stock after giving effect to the issuance thereof. The Company has the
option to fund all or a portion of the purchases with cash which it would
intend to borrow under its credit facility.
(2) Includes additional amortization of deferred cellular license acquisition
costs and acquired customer base and additional depreciation on fixed assets
arising from the Crowley Transaction.
(3) Reflects adjustments for additional interest expense attributable to the
$14.2 million of borrowings that would have been necessary to consummate the
transaction on January 1, 1993. Borrowings would have been necessary because
of the limitation on the issuance of stock described in Note 4. The
adjustment assumes the borrowings would be funded from
14

<PAGE>
the Facility B Loan of the Company's credit agreement and would bear
interest at the Eurodollar Rate plus 2.5%. For the year ended December 31,
1993 and for the six months ended June 30, 1994, the average Eurodollar Rate
was 3.32% and 4.02%, respectively. The additional interest expense is offset
by a reduction in the commitment fee equal to .5% of the borrowings. If the
assumed rate varied by 1/8%, in each period interest expense for the year
ended December 31, 1993 and the six months ended June 30, 1994, would have
varied by $289,000 and $177,000, respectively.
(4) The pro forma net loss per share is computed based on the weighted average
shares outstanding adjusted for the additional shares issued to fund the
Crowley Transaction. The number of shares issued is based on the purchase
price of the transaction divided by the average closing prices of the
Company's Class A Common Stock on the five trading days ending on the
trading day immediately preceding the assumed closing date of January 1,
1993. However, the shares to be issued are limited to 5% of the total
outstanding shares after consummation of the transaction. Accordingly, at
January 1, 1993, 1,990,000 shares of Class A Common Stock are assumed to be
issued with the remaining $14.2 million to be funded with borrowings from
the Company's facility.
(5) Income (loss) from operations before depreciation and amortization.
(6) Includes additional borrowings of $2.2 million under the Company's credit
facility assumed to be incurred at June 30, 1994 to partially fund the
Crowley Transaction. Excluded is $10.0 million of CCTB long-term debt
(including current portion) which will be retired prior to the consummation
of the Crowley Transaction.
(7) Reflects the issuance of the Company's Class A Common Stock to partially
fund the Crowley Transaction. The number of shares issued is based on the
purchase price of the transaction divided by the average closing prices of
the Company's Class A Common Stock on the five trading days ending on the
trading day immediately preceding the assumed closing date of June 30, 1994.
However, the shares to be issued are limited to 5% of the total outstanding
shares after consummation of the transaction. Accordingly, at June 30, 1994,
2,029,000 shares of Class A Common Stock are assumed to be issued with the
remaining $2.2 million to be funded with borrowings from the Company's
credit facility.
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SELECTED CONSOLIDATED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated financial data as of the dates and for
the periods indicated have been derived from the financial statements of the
Company which statements, except for the six months ended June 30, 1994 and
1993, have been audited by Arthur Andersen LLP, independent public accountants.
The financial data should be read in conjunction with the Company's consolidated
financial statements, related notes and other financial information incorporated
by reference in this Prospectus. Certain amounts have been reclassified to be
consistent with the presentation of the condensed financial statements for the
six months ended June 30, 1994.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1994 1993 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Service fees (1)............................... $63,975 $ 44,648 $ 98,960 $ 72,791 $ 56,341 $ 46,484 $ 30,507
Cellular telephone equipment revenues.......... 8,395 3,485 9,929 5,999 4,837 9,947 11,292
Other.......................................... 1,476 -- 175 -- -- 858 241
73,846 48,133 109,064 78,790 61,178 57,289 42,040
Costs and expenses:
Cost of service................................ 9,978 6,525 14,461 11,044 6,986 9,810 8,374
Cost of cellular telephone equipment........... 12,539 4,677 13,410 7,579 6,314 11,136 14,149
Marketing and selling.......................... 14,966 9,423 21,693 16,877 13,867 14,332 14,071
General and administrative..................... 20,172 16,348 34,218 29,334 29,578 32,053 25,673
Other.......................................... -- -- -- -- -- 2,198 1,258
Depreciation and amortization (2).............. 11,319 12,809 25,160 22,100 19,112 14,449 13,651
68,974 49,782 108,942 86,934 75,857 83,978 77,176
Income (loss) from operations..................... 4,872 (1,649) 122 (8,144) (14,679) (26,689) (35,136)
Net gains (losses) on dispositions (3)............ 7 (390) (657) (2,655) 480 16,709 42,444
Interest expense.................................. (9,121) (7,584) (15,389) (16,177) (19,292) (19,754) (15,696)
Other, net........................................ (14) 139 795 13 469 63 747
Loss before minority interests.................... (4,256) (9,484) (15,129) (26,963) (33,022) (29,671) (7,641)
Minority interests................................ (42) 49 (154) 304 309 359 1,234
Net loss before extraordinary item................ (4,298) (9,435) (15,283) (26,659) (32,713) (29,312) (6,407)
Extraordinary item (4)............................ -- (3,715) (3,715) -- -- -- --
Net loss.......................................... $(4,298) $(13,150) $(18,998) $(26,659) $(32,713) $(29,312) $ (6,407)
Net loss per share before extraordinary
item (5)....................................... $ (0.11) $ (0.25) $ (0.40) $ (0.72) $ (0.96) $ (0.95) $ (0.21)
Net loss per share (5)............................ (0.11) (0.35) (0.50) (0.72) (0.96) (0.95) (0.21)
Weighted average number of common shares
outstanding (5)................................ 38,424 37,839 38,038 37,110 34,053 30,955 30,691
Other Data:
Capital expenditures.............................. $28,677 $ 10,710 $ 21,009 $ 18,243 $ 16,542 $ 37,449 $ 19,376
Operating Cash Flow (EBITDA) (6).................. 16,191 11,160 25,282 13,956 4,433 (12,240) (21,485)
Total subscribers in majority owned markets at
period end..................................... 169.0 107.5 132.3 92.3 69.2 54.8 38.9
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficiency)............................... $ (6,779) $ 4,696 $ (1,185) $ 7,854 $ 1,384 $ 12,981
Property and equipment, net................................ 91,328 71,716 72,026 74,581 75,767 49,025
Total assets............................................... 328,566 284,429 251,820 255,810 236,906 200,589
Long-term debt (including current portion)................. 286,655 238,153 199,712 184,827 200,213 148,362
Shareholders' equity....................................... 5,808 21,898 30,265 51,669 9,295 35,599
</TABLE>

<PAGE>
(1) In 1994, the Company reclassified certain pass-through items previously
recognized as service revenue to offset the related cost of service expenses
to conform with industry practice. These reclassified items relate to
charges associated with the Company's subscribers roaming into adjacent
cellular markets. Appropriate reclassifications have been made in each
period presented.
(2) Effective April 1, 1990, the Company changed its amortization period for
deferred cellular license acquisition costs from 20 to 40 years. The effect
of this change was to reduce amortization for the years ended December 31,
1993, 1992, 1991 and 1990 by $4.0 million, $4.4 million, $4.1 million and
$3.1 million, respectively. Effective January 1, 1994, the Company also
changed the depreciable lives of certain of its property and equipment on a
prospective basis. The effect of this change was to reduce depreciation
expense for the six months ended June 30, 1994 by $1.8 million.
(3) The 1989 gain resulted from the exchange transaction in which the Company
acquired the Portsmouth NH/ME cellular market. The 1990 gain resulted
primarily from the contribution of cellular interests to the Company's 50%
owned joint venture.
(4) The extraordinary item of $3.7 million in 1993 reflects the write-off of
deferred financing costs associated with the credit facility that was
replaced during 1993.
(5) Adjusted to reflect the Company's three-for-two Class A Common Stock split
effected August 24, 1994 as a 50% stock dividend.
(6) Income (loss) from operations before depreciation and amortization.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1994 AND 1993
In 1994, the Company reclassified certain pass-through items previously
recognized as service revenue in its Statements of Operations to offset the
related cost of service expenses to conform with industry practice. These
reclassified items relate to charges associated with the Company's subscribers
roaming into adjacent cellular markets. Appropriate reclassifications have been
made in all prior periods.
Unless otherwise indicated, all information has been adjusted to reflect
the Company's three-for-two Class A Common Stock split effected August 24, 1994
as a 50% stock dividend.
Service fee revenues increased by $19.3 million or 43% primarily as a
result of a 57% increase in the number of subscribers in majority owned markets
to approximately 169,000 as of June 30, 1994 as compared to June 30, 1993.
Substantially all of the increase in the number of subscribers was due to
subscriber growth in markets controlled by the Company in both periods. Total
net subscribers in the Company's majority owned markets increased by 36,700
during the first six months of 1994 as compared to 15,200 in the same period in
1993. This 141% increase in the growth rate of net subscriber additions is the
result of an increase in productivity by sales personnel which the Company
believes has been augmented by increased sales training and the growing
acceptance of cellular communications. The growth in net subscriber additions
also reflects the increase in the number of agents in the Company's indirect
distribution channels combined with moderate economic recovery in the Company's
operating regions. In addition to subscriber growth, increased roamer revenues
from customers in adjacent cellular markets contributed to the rise in service
fees. Average monthly service revenue per subscriber decreased 4% to $71 for the
six months ended June 30, 1994 from $74 during the same period in 1993.
Cellular equipment revenues increased 141% to $8.4 million and cost of
cellular telephone equipment increased 168% to $12.5 million, resulting in a net
loss on cellular equipment of $4.1 million. Overall increases in equipment
revenues and costs were caused primarily by increased subscriber additions
during the year. Losses on cellular equipment reflect the Company's continued
practice of selling telephones at or below cost in response to competitive
pressures and to increased subscriber growth. Many new cellular subscribers
continue to find the Company's subscriber equipment rental program to be an
economical means of acquiring the use of cellular equipment and the Company
intends to continue its availability.
Cost of service expenses increased as a percentage of service fees to 16%
for the six months ended June 30, 1994 as compared to 15% for the same period in
1993. In many instances in 1994, the Company's customers who roam into adjacent
cellular markets are charged at rates consistent with those rates the Company
charges in its own markets rather than passing through higher roaming rates
customarily charged by many cellular carriers. This billing practice, while
creating a marketing advantage by providing the customer with a broader virtual
service area, has caused the Company to incur increased net costs related to the
provision of these services. The Company estimates that this billing practice
increased cost of service by $3.8 million and $2.0 million for the six months
ended June 30, 1994 and June 30, 1993, respectively. The rapid subscriber growth
which has occurred in the past year has made this larger virtual service area
available to significantly more customers which has caused greater net costs to
be incurred by the Company. The Company is continuing its efforts to reduce
these costs through the continued negotiation of more favorable roaming
agreements with both wireline and non-wireline cellular service providers. In
addition, the continued negotiation of more favorable interconnection agreements
with local exchange carriers should contribute to stability in cost of service
as a percentage of service fees.
Marketing and selling expenses increased 59% to $15.0 million during the
six months ended June 30, 1994, as compared to the same period in 1993 and as a
percentage of service fees these expenses increased to 23% from 21%. Marketing
and selling expenses, including the net loss on subscriber equipment, increased
to $19.1 million from $10.6 million during the six months ended June 30, 1994
and 1993, respectively. The higher rate of growth in net subscriber additions
described above for the 1994 period as compared to the 1993 period and the
resulting increase in salaries and commissions contributed to the increase in
marketing and selling expenses. However, marketing and selling expenses per net
subscriber addition, including the loss on cellular equipment, declined 25% to
$521 in 1994 from $698 during the six months ended June 30, 1993.
General and administrative expenses increased 23% or $3.8 million during
the six months ended June 30, 1994 but decreased as a percentage of service fees
to 32% from 37% in the same period in 1993. These expenses declined as a
percentage of service fees primarily as a result of controlled increases of many
overhead expenses resulting in higher utilization of the Company's existing
personnel and systems. General and administrative expenses should continue to
decline as a
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<PAGE>
percentage of service fees as the Company continues to add more subscribers
without commensurate increases in general and administrative overhead.
Depreciation and amortization decreased $1.5 million or 12% during the six
months ended June 30, 1994. The primary reason for this decrease is that the
Company changed the depreciable lives of certain of its property and equipment
to more closely approximate its historical experience and the estimated useful
lives of these assets. These life changes affected assets representing
approximately 30% of the cost of the Company's depreciable assets. This change
reduced depreciation expense and net loss for the six months ended June 30, 1994
by approximately $1.8 million or $0.05 per share. The remainder of the decrease
is the result of a portion of the Company's property and equipment becoming
fully depreciated during 1993 and, as such, these assets do not have a
continuing effect on depreciation and amortization or net loss.
Interest expense increased $1.5 million or 20% during the six months ended
June 30, 1994, as a result of increased average borrowings of approximately
$60.0 million and an increase in interest rates.
Net loss before extraordinary item decreased from $9.4 million or $0.25 per
share for the six months ended June 30, 1993 to $4.3 million or $0.11 per share
in the 1994 period. The decrease in net loss per share is primarily attributable
to an increase in Operating Cash Flow of $5.0 million or 45% to $16.2 million.
YEARS ENDED DECEMBER 31, 1993 AND 1992
Service fee revenues increased by $26.2 million or 36% primarily as a
result of a 43% increase in the number of subscribers in majority owned markets
to approximately 132,300 as of December 31, 1993. All of the increase in the
number of subscribers was due to subscriber growth in markets controlled by the
Company in both periods. Total net subscribers in the Company's majority owned
markets increased by 40,000 during 1993 as compared to 23,100 during 1992. This
73% increase in the number of net subscriber additions was primarily
attributable to the same factors resulting in the increase for the first half of
1994 as described above. Average monthly service revenue per subscriber, which
is based upon annual service fees and averages of subscribers computed on a
quarterly basis, decreased 1% to $76 in 1993 from $77 in 1992.
Cellular equipment revenues increased 66% to $9.9 million and cost of
cellular telephone equipment increased 77% to $13.4 million resulting in a net
loss on cellular equipment of $3.5 million.
Cost of service expenses as a percentage of service fee revenues remained
constant at 15% for the years ended December 31, 1993 and 1992. The Company
estimates that its billing practice with respect to customers roaming into
adjacent markets increased cost of service by $4.7 million and $2.4 million in
1993 and 1992, respectively.
Marketing and selling expenses increased 29% to $21.7 million during 1993,
but as a percentage of service fees, these expenses declined during 1993 to 22%
from 23% in 1992. The higher rate of growth in net subscriber additions
described above during 1993 and the resulting increase in salaries and
commissions contributed to the overall increase in marketing and selling
expenses. This increased growth rate in net subscriber additions also caused
marketing and selling expenses per net subscriber addition, including the net
loss on cellular equipment, to decline 21% to $629 from $799 in 1992.
General and administrative expenses increased 17% or $4.9 million but
decreased as a percentage of service fees to 35% from 40% in 1992. Increases in
the overall amount of expenses were primarily attributable to the same factors
resulting in the increase for the first half of 1994.
Depreciation and amortization increased $3.1 million or 14% during 1993 as
a result of approximately $39.2 million in new capital equipment being placed in
service during 1993 and 1992. As a percentage of service fees, depreciation and
amortization declined to 25% during 1993 from 30% during 1992.
Interest expense decreased $788,000 or 5% during 1993 as the result of
declines in interest rates charged on borrowings partially offset by an increase
in average borrowings of approximately $20.0 million.
Net loss before extraordinary item decreased from $26.7 million or $0.72
per share for the year ended December 31, 1992 to $15.3 million or $0.40 per
share in the 1993 period. The decrease in net loss per share is primarily due to
an increase in Operating Cash Flow.
In April 1993, the Company completed the closing of a $290 million credit
facility and repaid its existing $275 million credit facility. In connection
with the repayment of the $275 million credit facility, the Company recorded an
extraordinary loss of $3.7 million $(0.15) per share which represents the
write-off of all unamortized deferred financing costs related to that facility.
19

<PAGE>
Net loss decreased from $26.7 million or $0.72 per share for the year ended
December 31, 1992 to $19.0 million or $0.50 per share in the 1993 period.
YEARS ENDED DECEMBER 31, 1992 AND 1991
Cellular service fees increased by $19.0 million or 30% in 1992 as compared
to 1991. This increase was primarily attributable to the growth in the Company's
subscriber base which grew by 23,100 to 92,300 subscribers during the year ended
December 31, 1992 as well as increased roamer revenues from customers in
adjacent cellular markets. The level of average revenue per subscriber remained
constant at $77 in 1992 and 1991.
Cellular equipment revenues increased 24% to $6.0 million and cost of
cellular telephone equipment increased 20% to $7.6 million. Overall increases in
equipment revenues and costs were caused primarily by increased subscriber
additions during the period.
Cost of service expenses increased as a percentage of service fees to 15%
for the year ended December 31, 1992 as compared to 12% in 1991. This increase
in the relationship was primarily due to an increase in the proportion of the
Company's service fees attributable to the Company's cellular subscribers
roaming into adjacent cellular markets on which it often incurs a negative
margin as described above. The Company estimates this billing practice increased
cost of service by $791,000 in 1991 as compared to the $2.4 million estimated
impact in 1992 set forth above. In addition, during 1991 the Company received a
one-time payment from a wireline cellular carrier regarding a reselling
arrangement. This payment lowered costs of service expenses as a percentage of
service fees in 1991 by 1%. The Company has not conducted reselling operations
since 1992 and does not expect to conduct reselling operations in the future.
In 1992, the Company reclassified certain expenses in its Statements of
Operations from sales and marketing expenses to general and administrative
expenses to conform with industry practice. These reclassified expenses relate
to personnel and overhead costs associated with its installation and field
office facilities.
Marketing and selling expenses increased 22% to $16.9 million during 1992
as compared to 1991 but as a percentage of service fees these expenses declined
to 23% from 25%. The increased expenditures were primarily due to the resumption
of normal advertising and promotional spending patterns in 1992 after curtailing
them in early 1991 because of the uncertainty of their impact due to the effects
of the Persian Gulf War and the uncertain economic climate. The higher rate of
growth in net subscriber additions described above for the 1992 period as
compared to the 1991 period contributed to the increase in marketing and selling
expenses through increased salaries and commissions. Marketing and selling
expenses per net subscriber addition, including the net loss on cellular
equipment, declined to $799 or 25% from $1,066 in 1991.
General and administrative expenses decreased 1% or $244 million and
decreased as a percentage of service fees to 40% from 52% in 1991. These
expenses declined primarily as a result of increased success in the collection
of delinquent subscriber accounts. In addition, control of many overhead
expenses and the decrease in compensation earned under the Company's stock
compensation plan contributed favorably to the decline.
Depreciation and amortization increased $3.0 million or 16% during 1992 as
a result of approximately $34.0 million in new capital equipment being placed in
service during 1993 and 1992 and the acquisition of the PA-5 and PA-11 RSA
markets. As a percentage of service fees, depreciation and amortization declined
to 30% in 1992 from 34% in 1991.
The 1992 net loss on dispositions of $2.7 million was composed primarily of
adjustments to the carrying value of certain cellular switching equipment to net
realizable value. These assets were taken out of service and are not expected to
be placed back into service in the future.
Interest expense decreased $3.1 million or 16% during 1992, as the result
of a significant decline in interest rates charged and decreased average
borrowings of approximately $3.6 million.
Net loss decreased from $32.7 million or $0.96 per share in 1991 to $26.7
million or $0.72 per share in the 1992 period. The decline in net loss was
attributable to increases in Operating Cash Flow and lower interest expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital to acquire, construct, operate and expand its
cellular systems, to fund start-up operating losses for new markets and to
service its debt. The Company intends to continue to pursue acquisitions of
cellular markets and properties as well as other investment opportunities. In
addition, although the primary buildout of its cellular systems is complete, the
Company will continue to construct additional cell sites and purchase cellular
equipment to increase capacity as subscribers are added and usage increases, to
expand geographic coverage and to provide for increased portable usage.
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The specific capital requirements of the Company will depend primarily on
the timing and size of any additional acquisitions and other investments as well
as property and equipment needs associated with the rate of subscriber growth.
Operating Cash Flow has been a significant source of internal funding in recent
years, but the Company does not expect Operating Cash Flow to grow sufficiently
to meet both its property and equipment and debt service requirements for at
least the next few years. In the past, the Company has met its capital
requirements primarily through private and public sales of its Class A Common
Stock, seller financing and bank financing. There can be no assurance that the
Company will be able to obtain additional financing or that any such financing
obtained will be on terms favorable to the Company.
On April 21, 1993, the Company completed the closing of a $290 million
credit facility, pursuant to a Loan Agreement (the "1993 Loan Agreement") with
various lenders led by the Bank of New York and the Toronto-Dominion Bank. This
agreement was subsequently expanded to $390 million in February 1994. The 1993
Loan Agreement was used to repay and terminate the Company's previously existing
$275 million credit facility closed April 1989 (the "1989 Credit Facility"). As
security for borrowings under the 1993 Loan Agreement, the Company has pledged
substantially all of the tangible and intangible assets of the Company and its
subsidiaries. The purpose of this refinancing was to provide the Company with
additional financial and operating flexibility and enable it to pursue business
opportunities as they arose.
The 1993 Loan Agreement consists of a "Facility A Loan," a "Facility B
Loan," and a "Facility C Loan." The Facility A Loan and the Facility C Loan, in
the amounts of $120 million and $50 million, respectively, were to refinance the
Company's borrowings under the 1989 Credit Facility. The Facility B Loan is
available for capital expenditures up to $50 million and $37.5 million in 1994
and 1995 respectively, to acquire cellular franchise interests up to $20.0
million which are contiguous to or within 50 miles of any boundary of the
Company's Mid-Atlantic Supersystem, to make permitted investments, and for
general corporate purposes. In February 1994, the 1993 Loan Agreement was
amended to increase the size of the Facility B Loan to $220.0 million. As of
June 30, 1994, $103.5 million was available for future expenditures under the
amended Facility B Loan, subject to the specific limitations noted above which
can be exceeded only upon lender approval.
The Facility A Loan and the Facility B Loan bear interest at a rate equal
to the Company's choice of the Prime Rate, CD Rate or Eurodollar Rate plus an
applicable margin based upon a leverage ratio for the most recent fiscal
quarter. The leverage ratio, which is computed as the ratio of Total Debt (as
defined) to Adjusted Cash Flow (as defined), currently is at such a level as to
cause the applicable margins on the borrowings to be 1.5%, 2.6% and 2.5% per
annum for the Prime Rate, CD Rate and Eurodollar Rate, respectively. Under the
Facility C Loan, the prescribed rate is the Eurodollar Rate plus a margin of
3.0% per annum. At a cost of $275,000, the Company has entered into agreements
which limit its interest rate exposure until July 1995 for $120 million of
borrowings under the 1993 Loan Agreement to the extent that the 90-day LIBOR
rate exceeds 5.5%.
The outstanding amount of the Facility A Loan as of March 31, 1996 is to be
repaid in quarterly installments commencing on June 30, 1996 and terminating at
the Facility's maturity date of March 31, 2001. The Facility B Loan operates as
a revolving credit facility with available borrowings reduced on a quarterly
basis commencing on June 30, 1996 and terminating on March 31, 2001. At the time
of each quarterly reduction, the outstanding borrowings must be repaid to the
extent that they exceed the then available commitment. Outstanding borrowings
under the Facility C Loan as of March 31, 2001 shall be repaid in two equal
installments on June 30, 2001 and September 30, 2001, the Facility C Loan
maturity dates.
The 1993 Loan Agreement requires maintenance of certain covenants including
but not limited to maintenance of certain financial ratios and prescribed
amounts of interest rate protection. Additionally, the 1993 Loan Agreement
restricts, among other things, the creation of certain additional indebtedness,
disposition of certain assets, payment of cash dividends, capital expenditures
and acquisitions and other uses of proceeds. The requirements of the 1993 Loan
Agreement were established in relation to the Company's projected capital and
projected results of operations. These requirements generally were designed to
require continued improvement in the Company's operating performance such that
its Operating Cash Flow would be sufficient to begin servicing the debt as
repayments are required. The Company is in compliance with all requirements of
the 1993 Loan Agreement and expects to remain in compliance through December 31,
1994 and beyond. The Company will seek lender approval to exceed the capital
expenditure and acquisition limits described above.
The Company's operating strategy has been to acquire controlling ownership
interests and build and operate networked cellular telephone systems in its five
regional metro-clusters. On April 26, 1994, the Company completed the
acquisition of two cellular markets contiguous to its Mid-Atlantic Supersystem
in exchange for $4.4 million in cash, the exchange of the Hagerstown, MD
cellular market and the Company's minority ownership interest in one cellular
market. Subsequent to June 30, 1994, the Company entered into agreements to
acquire four cellular markets for consideration of approximately $58 million.
The Company will purchase a 97.0% ownership interest in the Binghamton, NY MSA
and a 100% ownership interest in the Elmira, NY MSA for an aggregate purchase
price of approximately $48.5 million payable, at the Company's
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option, in Class A Common Stock or cash or a combination thereof. The Company
would require approval of its lenders to the extent it finances these
acquisitions with borrowings under the 1993 Loan Agreement in excess of $8.9
million. In a separate transaction, the Company will purchase, for $6.7 million
in cash and $3.3 million in Class A Common Stock, 100% of the Washington, Maine
(ME-4) RSA and 100% of three of the four counties of the Mason, West Virginia
(WV-1) RSA. All four markets to be acquired are operational. See "Selected
Condensed Pro Forma Financial Data." These acquisitions are expected to close by
the end of 1994.
As of June 30, 1994, the Company placed in service approximately $165.0
million of property and equipment. The Company historically has incurred capital
expenditures primarily based upon capacity needs in its existing markets
resulting from continued subscriber growth. During 1994, the Company initiated a
plan to double the number of cell sites in order to increase geographic coverage
and provide for additional portable usage in the Company's cellular markets. As
a result of this accelerated network buildout and the continued growth of the
Company's subscriber base, capital expenditures were $29.0 million during the
first half of 1994 and should approximate $40.0 million during the remainder of
1994. The Company intends to purchase a commensurate amount of capital equipment
in 1995, depending upon the anticipated rate of future subscriber growth. Under
the terms of the 1993 Loan Agreement, the Company would require lender approval
to the extent that capital expenditures exceeded $50.0 million and $37.5
million, respectively, in 1994 and 1995.
In February 1994, the Company purchased for $30.0 million from Geotek
2,500,000 shares of Geotek common stock and received options to invest up to
$167.0 million for an aggregate of 10,000,000 additional shares. Geotek is a
telecommunications company that is developing an ESMR wireless communications
network in the United States based on its proprietary FHMA(tm) digital
technology. Geotek's common stock is traded on the NASDAQ National Market
System.
The options received by the Company were issued in three series as follows:
(i) Series A for 2,000,000 shares at $15 per share; (ii) Series B for 2,000,000
shares at $16 per share; and (iii) Series C for 3,000,000 shares at $17 per
share and 3,000,000 shares at $18 per share. All options are immediately
exercisable. The Series A options expire on the later of February 23, 1995 or
the Commercial Validation (as defined) of Geotek's first SMR system using
FHMA(tm) (the "Series A Expiration Date"). The Series B and Series C options
expire one year and two years, respectively, after the Series A Expiration Date.
However, the Company may extend the Series B and Series C options by six months
and the Series C options by an additional six months and, if any portion of any
series of options expires, all unexercised options expire immediately.
The Company has also entered into a five-year management consulting
agreement to provide operational and marketing support in exchange for 300,000
shares of Geotek common stock per year. However, should any portion of the
Series A, B or C options expire, the management consulting agreement is
immediately terminated. During the first six months of 1994, approximately
105,000 shares were earned under this management agreement.
If all options are exercised and all shares are earned and received under
the management consulting agreement, the Company would own an aggregate of
approximately 20% of Geotek's common stock on a fully diluted basis. Under the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," which are effective for
1994, this investment is classified as "available for sale." As such, the
investment is recorded at its market value and any unrealized gains or losses
are recognized as a separate component of shareholders' equity, but do not
affect results of operations.
The Company funded its initial $30.0 million investment in Geotek using
borrowings under its Facility B Loan, which also permits borrowings to fund the
exercise of the Series A options. In order to exercise any of the Series B or C
options, the Company will be required to seek additional lender approval for
borrowings under the Facility B Loan or, if funding is not then available under
the facility, other financing alternatives.
Operating Cash Flow improved $5.0 million to $16.2 million during the six
months ended June 30, 1994. The Company's primary goal over the next several
years will be to generate sufficient Operating Cash Flow to fund its capital
expenditures and interest and debt repayment requirements. In order to continue
to improve Operating Cash Flow, the Company's service fees must continue to
increase at a faster rate than operating expenses. Increases in service fees
will be dependent upon continuing growth in the number of net subscribers and
minimizing declines in revenue per subscriber. The Company believes its business
strategy and sales force will generate continued net subscriber growth and that
its focus on higher revenue customers, principally business users, will assist
in supporting revenue per subscriber. The Company has substantially completed
the development of its managerial, administrative and marketing functions, as
well as the primary buildout of the cellular networks in its existing markets,
and believes that the rate of service fee growth will exceed the rate of growth
of operating expenses in the future.
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Although there can be no assurance that any of the foregoing growth goals
will be achieved, the Company believes that its internally generated funds and
its available bank lines of credit will be sufficient during the next several
years to complete its planned capital equipment expansion and acquisitions and
to fund operating expenses and debt service described above. To the extent the
Company is successful in negotiating and consummating additional acquisitions
and investments or if increased capital expenditures are necessary as a result
of any acceleration of subscriber growth, the Company will require additional
sources of funding.
INFLATION
The Company believes that inflation affects its business no more that it
generally affects other similar businesses.
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BUSINESS
GENERAL
The Company has been active in the cellular industry through its
predecessor partnerships since 1982. Based on its 7.0 million aggregate pops as
of August 31, 1994, including 530,000 pops under contract as of August 31,
1994, the Company believes it is the largest independent operator of solely
nonwireline cellular telephone systems in the United States. The Company's
cellular systems are located in MSA and RSA markets in the Eastern United
States. The Company owns controlling interests in 23 markets, 12 of which are
in the top 160 MSAs. In addition, as of August 31, 1994, the Company had
contracts to acquire four additional markets.
The Company's control markets are grouped into and operated as five
metro-clusters consisting of the Mid-Atlantic Supersystem and the Florida,
Carolinas, New England and West Virginia metro-clusters. Cellular telephone
systems in a metro-cluster generally are technically integrated and share common
marketing and sales management. As a result, the Company believes that
clustering has enabled it to achieve operating cost efficiencies as well as
advertising and other marketing benefits. Among other things, this clustering
strategy enabled the Company to reduce the number of telephone switching offices
that otherwise would be required to operate its markets and to minimize the
number of technical and management personnel required to staff its operations.
Clustering also allows the Company to offer subscribers more areas of service as
they travel through a region or state.
The Company's primary objective over the next several years will be to
maximize long-term Operating Cash Flow and operating income through a threefold
strategy of (i) increasing operating cash flow margins through balanced
subscriber and revenue growth and control of selling, general and administrative
expenses, (ii) accelerating its cellular network buildout, and (iii) expanding
metro-cluster service areas through strategic acquisitions and by maximizing the
level of "seamless" coverage available to current and future subscribers.
Operating Cash Flow reflects the Company's ability to satisfy its debt service
obligations, capital expenditure and other operational needs as well as
provide funds for strategic acquisitions and investments. In addition,
Operating Cash Flow historically has been used by lenders and the investment
community to determine the current borrowing capacity and long-term value of
companies in the telecommunications/media industry. See "The Company."

SUBSCRIBERS
The Company's customers are primarily business users who utilize the
cellular telephone to improve productivity. Historically, the Company's business
users were individuals who worked extensively from their cars, in such
professions as construction and real estate. As a result of the growing
acceptance and the declining cost of portable and transportable phones, as well
as the Company's marketing efforts, the Company's business users now are drawn
from a wider range of occupations. Business users normally generate more
revenues than nonbusiness consumers. While the Company anticipates increasing
nonbusiness consumer acceptance of cellular telephone service, business users
are expected to generate the majority of the Company's revenues for the
foreseeable future.
The following table sets forth the aggregate number of subscribers in the
Company's majority owned markets at the end of the periods indicated.
<TABLE>
<CAPTION>
JUNE
DECEMBER 31, 30,
QUARTER 1991 1992 1993 1994
<S> <C> <C> <C> <C>
First............................................................................... 57,500 73,300 99,500 150,000
Second.............................................................................. 60,600 77,500 107,500 169,000
Third............................................................................... 64,600 83,100 116,200
Fourth.............................................................................. 69,200 92,300 132,300
</TABLE>

The incremental subscriber growth and the rate of subscriber growth is set
forth in the following table for the periods indicated.
<TABLE>
<CAPTION>
1994
1991 1992 1993 (THROUGH JUNE 30)
<S> <C> <C> <C> <C>
Incremental Subscriber Growth................................................. 14,400 23,100 40,000 36,700
Rate of Incremental Subscriber Growth......................................... 26% 33% 43% 57%*
</TABLE>

* annualized
24

<PAGE>
The following table sets forth the number of subscribers and the
penetration percentages in majority-owned markets as of the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1991 1992 1993 1994
NO. OF NO. OF NO. OF NO. OF
SUBSCRIBERS % PENETRATION* SUBSCRIBERS % PENETRATION* SUBSCRIBERS % PENETRATION* SUBSCRIBERS
<S> <C> <C> <C> <C> <C> <C> <C>
Mid-Atlantic
Supersystem...... 46,700 1.25% 63,200 1.65% 88,400 2.34% 110,300
New England........ 7,800 1.42 8,700 1.56 13,000 2.37 17,200
Florida............ 7,000 1.42 8,700 1.71 12,100 2.32 14,700
West Virginia...... 6,200 1.11 8,400 1.49 12,000 2.11 17,400
Carolinas.......... 1,500 0.66 3,300 1.38 6,800 2.82 9,400
69,200 1.24% 92,300 1.62% 132,300 2.34% 169,000
<CAPTION>
% PENETRATION*
<S> <C>
Mid-Atlantic
Supersystem...... 2.61%
New England........ 3.14
Florida............ 2.81
West Virginia...... 3.06
Carolinas.......... 3.90
2.77%
</TABLE>

* Based on 1993 pops
Subscriber growth and increased penetration in 1992, 1993 and the first
half of 1994 was a product of moderate economic recovery in the Company's
operating regions, an increase of marketing efforts and productivity by the
Company and increasing product awareness.
PRODUCTS AND SERVICES
The Company's primary line of business is the sale of cellular telephone
service. Customers are offered several pricing options combining different
monthly access and usage charges and charges for related services. The Company
initiated new rate plans in 1991 with higher monthly access charges and greater
numbers of prepaid minutes of usage. For example, in several of the Company's
markets, the lowest rate plan offered has increased from a $7.50 per month
access charge with no prepaid minutes of usage to a $24.95 per month charge,
which includes 30 prepaid minutes of usage.
This pricing strategy was designed to stabilize the Company's revenues by
increasing the portion of revenues from monthly access charges. Business usage
typically drops in the winter months of December, January and February when
people spend less time in their cars and in months with holidays and fewer
business days. The Company believes that the rate structure has reduced this
seasonality and has stabilized revenue per subscriber by encouraging increased
usage through offering a higher number of prepaid minutes at an overall lower
cost per minute.
The Company has entered into agreements with other cellular companies that
allow its subscribers to roam in all 306 MSAs and a large majority of the 428
RSAs throughout the country. Roaming allows the Company's subscribers to be pre-
registered in cellular systems outside the Company's operating regions and to
receive service while they are outside their home systems for a usage charge and
an additional daily fee in most cases. The Company provides regional service
among its own contiguous markets, such as those within the Mid-Atlantic
Supersystem. Utilizing this regional service a customer can conveniently place
and receive calls throughout the network without any additional daily fee and
often at the same incremental rate per minute as in his or her home market. In
certain adjacent cellular markets not owned by the Company, similar regional
pricing has been made available through the Company to its subscribers. In many
instances, the Company charges its customers who roam into adjacent cellular
markets at rates consistent with those rates it charges in its own markets
rather than passing through higher roaming rates customarily charged by many
cellular carriers. This billing practice, while creating a marketing advantage
by providing the customer with a broader virtual service area, has caused the
Company to incur increased net costs related to providing these services. The
rapid subscriber growth that has occurred in the past year has made this larger
virtual service area available to significantly more customers, which has caused
greater net costs to be incurred by the Company. The Company is continuing its
efforts to reduce these costs through the continued negotiation of more
favorable roaming agreements with both wireline and nonwireline cellular service
providers. See "Management's Discussion and Analysis of Results of Operations
and Financial Condition."
The Company sells and rents cellular equipment to its customers in order to
encourage use of its services. Losses on cellular equipment reflect the
Company's continued practice of selling telephones at or below cost in response
to competitive pressures as well as the Company's increased subscriber growth.
The Company offers a subscriber equipment rental program that many subscribers
have found to be an economical means of acquiring the use of cellular equipment.
Under the terms of the rental program, subscribers obtain the use of a cellular
telephone for a monthly charge. Although the Company retains ownership of this
equipment, the subscribers have the option to purchase their cellular telephones
at any time during the
25

<PAGE>
rental period. The Company often utilizes a promotion under which the first
year's rental charge is waived when the subscriber agrees to a one-year service
contract.
WIRELESS DATA SERVICES. The Company is exploring additional revenue sources
such as wireless data services for delivery over its existing cellular networks.
During 1993, the Company and other cellular carriers participated in the United
States' first nationwide cellular data service for United Parcel Service
("UPS"). This service allows UPS drivers, who record package tracing information
on an electronic clipboard, to send the information over the networks of
cellular carriers through the country, including the Company's networks, to
UPS's private network and ultimately to UPS's mainframe computers.
Currently certain cellular operators have formed a consortium to test
packet-switching technology, which may create significant new opportunities in
the wireless data market. Packet-switching technology is designed to allow data
to be transmitted much more efficiently than the current circuit-switching
technology. Packet-switching uses the intervals between voice traffic on
cellular channels to send packets of data, instead of tying up dedicated
cellular channels. The packets of information, which may be transmitted using
several different channels, are reassembled and directed to the correct party at
the receiving end. It is expected that the development of this technology will
make it possible for cellular carriers to offer a broad range of cost-effective
wireless data services, including fax and electronic mail transmissions and
communications between laptop units and local area networks or other computer
databases. The Company anticipates that it may begin offering data transmission
services using packet-switching technology in its larger markets by the end of
1995.
MARKETING
The Company coordinates the marketing strategy for each cellular system in
which it owns a majority interest. In marketing its service, the Company
stresses that cellular telephones are affordable, easy to use and produce
immediate and direct benefits to subscribers, including increased productivity
and convenience. The Company also emphasizes its customer service orientation.
See "Business -- Customer Service." Like the nonwireline licensees in many other
markets, the cellular systems controlled by the Company conduct business under
the service mark Cellular One(Register mark), which is licensed by the Cellular
One Group at reasonable cost to nonwireline cellular licensees in an effort to
reinforce consumer identification. The Company owns a minority interest in the
Cellular One Group and therefore has input into business decisions regarding the
use of this service mark.
As of June 30, 1994, the Company's sales force consisted of approximately
300 sales and administrative employees and approximately 500 independent agents.
Each sales employee and independent agent solicits cellular customers
exclusively for the Company. The Company's direct sales force focuses on
business users. Since 1991, these sales employees have been compensated on a
base salary plus commission basis. The Company believes that this compensation
structure has provided a more stable and efficient sales force and reduces
incremental marketing costs per new subscriber. Marketing and selling costs per
net subscriber addition decline substantially under this compensation structure,
particularly when the volume of activations is high. In 1991, 1992 and 1993,
marketing and selling expenses per net subscriber addition, including net loss
on cellular equipment, was $1,066, $799 and $629, respectively. During the first
six months of 1993 and 1994 the marketing and selling expenses per net addition
were $698 and $521, respectively. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition."
In order to maintain a knowledgeable, customer-oriented sales force, the
Company developed and administers its own sales training program designed to
educate the sales representatives for its markets. The Company believes that by
offering a core curriculum of mobile technologies, cellular equipment
prospecting, sales techniques, and the customer service process, its sales
representatives are able to address existing and potential customer needs in a
professional, knowledgeable and productive manner. As a result, it is believed
that this sales training contributes to building a subscriber base more quickly
and attracting subscribers who will produce high service revenues.
The Company also maintains a telemarketing program. This program is
intended to aid the Company by providing sales follow-up and support, securing
additional and better qualified sales referrals, upgrading existing subscribers
to higher access rate plans and promoting new custom-calling features.
The Company's agents are independent contractors, either in the business of
selling or servicing cellular telephones exclusively or engaged in businesses
whose customers are likely to become cellular subscribers. Examples of the
latter are new car dealers, electronics stores and car stereo companies.
26

<PAGE>
CUSTOMER SERVICE
The Company has devoted substantial resources to insuring consistently high
quality customer service. The Company spends approximately $2 million annually
for this purpose. Several customer service operations are centralized in the
Company's Greensboro headquarters. The central customer service department is
open from 7:00 a.m. to 9:00 p.m. daily, including weekends and holidays, and
handles all customer service inquiries. Customer service personnel are trained
in certain core competencies such as general mobile technology, available
cellular equipment, roaming and cellular billing. The Company believes that this
training provides these employees with the requisite knowledge to handle
customer inquiries quickly and competively, resulting in greater customer
satisfaction. This training, which was developed and is administered by the
Company, requires employees to demonstrate competency through testing.
The Company has developed a billing and management information system,
Flexcell(tm), which it believes provides several service advantages to its
customers. Customer service representatives are able to access current billing
information quickly in order to handle customer inquiries promptly. In addition,
this computerized system collects and integrates customer related data from
various Company operations such as sales and marketing into a single database.
Using this database, service calls are systematically analyzed each month to
address proactively key customer issues. The customer database also provides the
basis for customer satisfaction information. The Company actively markets
Flexcell(tm) to third parties and has entered into a contract to provide billing
software and support to American Mobile Satellite Corporation. See "New
Opportunities -- Flexcell(tm)".
To supplement the Company's customer service operation, the Company's
telemarketing group contacts customers on a regular basis to determine customer
satisfaction with the Company's service in order to identify problems that can
lead to subscriber cancellations. The Company also recently developed an
integrated feature, called "Rapid Activation," designed to reduce dramatically
the time to activate service for a new customer. Rapid Activation now allows the
Company to perform a credit check, complete order entry and activate a cellular
subscriber in approximately five minutes. Previously, this process consumed
approximately one hour.
To ensure quality installation and customer satisfaction, the Company has
established its own installation repair centers in most of its markets. These
Cellular One(Register mark)installation/repair centers provide one-stop shopping
for the Company's customers and better enable the Company to control
installation quality and scheduling and inventory levels. These centers are also
authorized to perform warranty repair work for mobile-telephone manufacturers.
CELLULAR TELEPHONE INDUSTRY
Cellular telephone service is a form of telecommunications capable of high
quality, high capacity mobile and portable telephone services. Cellular systems
are engineered so that a service area is divided into multiple cells
approximately four to 10 miles in radius. Each cell contains a relatively low
power transmitter, a receiver and signaling equipment (the base station). The
base station in each cell is connected by microwave or telephone line to the
MTSO. The MTSO controls the automatic transfer of calls from cell to cell as a
subscriber travels, coordinates calls to and from a mobile unit, allocates calls
among the cells within the system, and connects calls to the local landline
telephone system or to a long-distance telephone network. Each conversation in a
cellular system involves a radio transmission between a subscriber unit and a
base station and the transmission of the call between the base station and the
MTSO.
The MTSO and base stations periodically monitor the signal strength of
calls in progress. The signal strength of the transmission between a subscriber
unit and the base station in any cell declines as the mobile unit moves away
from the base station. When the signal strength of a call declines to a
predetermined level, the switching station hands off the call in a fraction of a
second to the base station of another cell where the transmission strength is
greater. If the subscriber unit leaves the service area of the cellular system,
the call is disconnected unless an appropriate IS-41 technical interface has
been established with the adjacent system.
The FCC has allocated the cellular telephone systems frequencies in the 800
MHz band of the radio spectrum. Each of the two licensees in a cellular market
is assigned 416 frequency pairs. Each conversation on a cellular system occurs
on a pair of radio talking paths, thus providing full duplex (i.e., simultaneous
two-way) service. Two distinguishing features of cellular telephone systems are:
(i) frequency reuse, enabling the simultaneous use of the same frequency in two
adequately separated cells, and (ii) call hand-off. A cellular telephone
system's frequency reuse and call hand-off features result highly efficient use
of available frequencies and enable cellular telephone systems to process more
simultaneous calls and service more users over a greater area than conventional
mobile telephone systems.
27

<PAGE>
A cellular telephone system's capacity can be increased in various ways.
Within certain limitations, increasing demand may be met by simply adding
available frequency capacity to cells as required or, by using directional
antennas, dividing a cell into discrete multiple sectors or coverage areas,
thereby facilitating frequency reuse in other cells. Furthermore, an area within
a system may be served by more than one cell through procedures that utilize
available channels in adjacent cells. When all possible channels are in use,
further growth can be accomplished through a process called "cell splitting."
Cell splitting entails dividing a single cell into a number of smaller cells
serviced by lower-power transmitters, thereby increasing the reuse factor and
the number of calls that can be handled in a given area. Expected digital
transmission technologies will provide cellular licensees with additional
capacity to handle calls on cellular frequencies.
Because of the present state of technology and assigned spectrum, there are
limits to the number of signals that can be transmitted simultaneously in a
given area. In highly populated MSAs, the level of demand for mobile and
portable service is often large in relation to the existing capacity of most
systems. Based on the demographics of its markets, the Company does not
anticipate that the provision of mobile and portable service within its networks
will require as large a proportion of the systems' capacities. Therefore, the
Company's systems will have more capacity with which to pursue data applications
and other expanded cellular services, which may enhance revenue and limit market
opportunities for competitive mobile data systems.
All cellular telephones are designed to be compatible with cellular systems
in all market areas within the United States so that a cellular telephone may be
used wherever a subscriber is located. Changes of cellular telephone numbers or
other technical adjustments to mobile units by the manufacturer or local
cellular telephone service businesses are generally required to enable the
subscriber to change from one cellular service provider to another within a
service area. Cellular system operators may provide service to subscribers from
other cellular systems temporarily located in, or traveling through, their
service area. The cellular system providing service to the roamer generally
receives 100% of the revenues from such service.
The cellular mobile telephone services available to customers and the
sources of revenue available to a system operator are similar to those available
with standard home and office telephones. For example, cellular systems can
offer a variety of features, including call forwarding, call waiting, conference
calling, voice message and retrieval, and data transmission. Because cellular
systems are fully interconnected with the landline telephone network,
subscribers can receive and originate both local and long distance calls from
their cellular telephones. The subscribers generally are charged separately for
monthly access, air time, toll calls and custom calling features.
Cellular telephone systems operate under interconnection agreements with
various local exchange carriers ("LECs") and interexchange (long distance)
carriers ("IXCs"). The interconnection agreements establish the manner in which
the cellular telephone system integrates with other telecommunications systems.
The cellular operator and the local landline telephone company must cooperate in
the interconnection between the cellular and landline telephone systems to
permit cellular subscribers to call landline subscribers and vice versa. The
technical and financial details of such interconnection arrangements are subject
to negotiation and vary from system to system.
There are a number of recent technical developments in the cellular
industry. Currently, while most of the MTSOs process information digitally, the
radio transmission of cellular telephone calls is done predominantly on an
analog basis. Digital technology offers advantages, including improved voice
quality, larger system capacity, and perhaps lower incremental costs for
additional subscribers. The conversion from analog to digital radio technology
is expected to be an industry-wide process that will take a number of years. The
cellular equipment currently employed by the Company in its systems is "digital
ready" and can work in either an analog or digital mode. As a result, the
Company should be able to transition from analog to digital mode with minimal
expense. However, the specific timing and costs of such a conversion are yet
unknown.
COMPETITION
WIRELINE COMPETITION. The cellular telephone business is a regulated
duopoly. The FCC awards only two licenses in each market (although certain
markets have been subdivided as a result of voluntary settlements), one to a
nonwireline company and one to a wireline company, which is usually the local
telephone company or affiliate. Each licensee has the exclusive grant of a
defined frequency band within each market. The primary competition, therefore,
for the Company's cellular service in any market will come from the wireline
licensee in that market. Competition is principally on the basis of services and
enhancements offered, the technical quality of the system, the quality and
responsiveness of customer service and price.
28

<PAGE>
In the Company's control markets, its competitors are affiliates of the
following companies:
<TABLE>
<CAPTION>
MARKET COMPETITOR
<S> <C>
Allentown, PA Bell Atlantic Mobile Systems, Inc. (1)
Wilkes Barre/Scranton, PA Independent Cellular Network, Inc.
Harrisburg, PA Sprint Cellular
Lancaster, PA Sprint Cellular
York, PA Sprint Cellular
Reading, PA Bell Atlantic Mobile Systems, Inc. (1)
Williamsport, PA U.S. Cellular Corp.
State College, PA Independent Cellular Network, Inc.
Wayne, PA (PA-5 RSA) Independent Cellular Network, Inc.
Mifflin, PA (PA-11 RSA) Bell Atlantic Mobile Systems, Inc. (1)
Lebanon, PA (PA-12 RSA) Sprint Cellular
Chambersburg, PA (PA-10 East RSA) Sprint Cellular
Altoona, PA Independent Cellular Network, Inc.
Orange County, NY NYNEX Mobile Communications (1)
Binghamton, NY (2) Rochester Telephone/NYNEX (1)
Elmira, NY (2) Rochester Telephone/NYNEX (1)
Huntington, WV Independent Cellular Network, Inc.
Charleston, WV Independent Cellular Network, Inc.
Jackson, WV (WV-1 East RSA) (2) Bell Atlantic Mobile Systems, Inc. (1)
Pensacola, FL GTE/Contel Cellular, Inc.
Fort Walton Beach, FL Sprint Cellular
Myrtle Beach, SC (SC-5 RSA) BellSouth Mobility, Inc.
Wilmington, NC (3) Sprint Cellular
Jacksonville, NC (3) Sprint Cellular
Portland, ME NYNEX Mobile Communications (1)
Portsmouth, NH Saco River Cellular, Inc.
Washington, ME (ME-4 RSA) (2) U.S. Cellular Corp.
</TABLE>

(1) Bell Atlantic Mobile Systems, Inc. and NYNEX Mobile Communications have
announced tentative plans to combine their properties.
(2) Market which the Company had a contractual obligation to acquire as of
August 31, 1994.
(3) Jointly controlled through the Company's 50% ownership of a joint venture
with GTE.
COMPETITION FROM OTHER TECHNOLOGIES. Several recent FCC initiatives
indicate that the Company is likely to face greater competition in the future.
The FCC has licensed SMR system operators to construct digital mobile
communications systems on existing SMR frequencies in many metropolitan areas
throughout the United States. When constructed, these multi-site configuration
systems will offer interconnected mobile telephone service and are expected to
compete with the Company's cellular service. One such operator, NEXTEL
Communications, Inc., initiated services in the Los Angeles metropolitan area in
the spring of 1994 and has announced plans to initiate service in several
metropolitan areas including Philadelphia, Washington, D.C. and Boston during
1994 and 1995. At this time, the Company is unable to predict the extent to
which NEXTEL or other SMR system operators will offer competitive services to
cellular either in the Company's markets or in adjacent metropolitan cities.
In June 1994, the FCC allocated radio frequency spectrum for broadband PCS.
Pursuant to the FCC's decision, six new licenses will be granted: three 30 MHz
blocks and three 10 MHz blocks. By comparison, the two cellular carriers in each
market currently have 25 MHz of spectrum each. Two of the 30 MHz licenses will
authorize the holders to provide service in one of 51 geographic market areas
covering the United States referred to as Major Trading Areas (MTAs). The
remaining 30 MHz license and each of the three 10 MHz licenses will cover one of
492 Basic Trading Areas, which represent smaller areas within the MTAs. The
rules adopted by the FCC permit a licensee to acquire up to 40 MHz in a single
service area. The rules do not restrict cellular licensees from participating in
PCS in areas outside of their cellular service areas, although cellular
licensees (defined as entities owning more than 20% of a cellular system) are
only permitted to obtain 10 MHz PCS blocks in their cellular service areas in
which they cover 10% of the population.
29

<PAGE>
PCS licenses will be awarded primarily through an auction process.
Concurrent with its decision regarding PCS spectrum allocation, the FCC will use
competitive bidding procedures to award PCS licenses. The FCC has adopted rules
requiring simultaneous multiple round auctions for licenses. Auctioning of both
the A and B block 30 MHz MTA licenses will begin on December 31, 1994. Dates
have not been set for the the remaining blocks, but are expected to occur in the
first half of 1995. The Company expects that certain PCS services may be
competitive with the Company's cellular service; however, the exact nature of
those services, the entities delivering those services, and the timing of when
those services might be offered are not presently known by the Company at this
time.
The Company is currently evaluating the opportunities that PCS might
provide in its markets that could not be presently provided through existing
spectrum allocated to the Company through its cellular licenses. Based upon the
results of these studies, the Company may choose to participate in the upcoming
auction process.
Continuing technological advances in the communications field make it
difficult to predict the extent of future competition to cellular systems.
REGULATION OF CELLULAR SYSTEMS
FEDERAL REGULATION. The construction and operation of cellular systems in
the United States are regulated by the FCC pursuant to the Communications Act of
1934, as amended (the Communications Act). The FCC has promulgated regulations
governing the construction and operation of cellular systems, the licensing and
administrative appeals process, purchase and sale of interests, and the
technical standards for the provision of cellular telephone service. The FCC
also regulates coordination of proposed frequency usage, height and power of
base station transmitting facilities and types of signals emitted by such
stations. In addition, the FCC has the authority to regulate certain aspects of
the business operations of cellular systems. The FCC has declined to regulate
the price and terms of offerings to the public. The FCC currently has
proceedings pending that address the obligation of cellular system operators to
offer their capacity in bulk to entities that will resell it to the public and
the ability of cellular operators to bundle the provision of service with
hardware. These rules and regulations, together with other applicable rules and
regulations promulgated by the FCC, are referred to herein as the FCC rules.
The FCC established 734 discrete geographically defined market areas
comprising 306 MSAs and 428 RSAs for initial licensing. In each market the FCC
awarded up to two licenses authorizing the use of radio frequencies for cellular
telephone service. Once the FCC awards a construction permit for a cellular
system in a particular MSA, the holder of the construction permit must construct
the system and provide reliable service to 75% of the proposed service area for
such market within the next three years. The FCC has shortened the three-year
construction period to 18 months in markets smaller than the 120 largest
markets. The requirements for RSAs are different. The holder of a construction
permit in an RSA may propose multiple service areas, but need only show that it
will provide reliable service to 75% of each such service area. Changes in a
permittee's construction plan considered by the FCC to be major (generally,
changes in the proposed service area) must be approved in advance by the FCC.
Changes not considered to be major, such as changes in cell site locations that
do not result in any enlargement of the service area, are authorized by
notification to the FCC.
When the system has been constructed, the permittee is required to notify
the FCC that construction has been completed in accordance with the
authorization it received. Immediately upon this notification, but not before,
the FCC rules authorize the permittee to offer commercial service to the public.
The permittee is then said to have operating authority. The Company has obtained
operating authority for each of its systems. Upon commencement of operation, an
initial operating license is granted for a period of ten years from the date of
grant of the construction permit and is renewable upon application to the FCC
for additional periods of ten years.
Five years after the initial licenses are granted, unserved areas within
markets previously granted to licensees may be applied for by both wireline and
nonwireline entities and by third parties. The FCC has rules that will govern
the procedures for filing and granting such applications and has established
requirements for constructing and operating systems in such areas. In addition
to regulation by the FCC, cellular systems are subject to certain Federal
Aviation Administration tower height regulations respecting the siting and
construction of cellular transmitter towers and antennas.
The Communications Act prohibits the issuance of a license to, or the
holding of a license by, any corporation of which any officer or director is a
non-U.S. citizen or of which more than 20% of the capital stock is owned of
record or voted by non-U.S. citizens or their representatives or by a foreign
government or a representative thereof, or by any corporation organized under
the laws of a foreign country. The Communications Act also prohibits the
issuance of a license to, or the holding of a license by, any corporation
directly or indirectly controlled by any other corporation of which any officer
or more than 25% of the directors are non-U.S. citizens or of which more than
25% of the capital stock is owned of record or
30

<PAGE>
voted by non-U.S. citizens or their representatives or by a foreign government
or representative thereof, or by any corporation organized under the laws of a
foreign country, although the FCC has the power in appropriate circumstances to
waive these restrictions. The FCC has interpreted these restrictions to apply to
partnerships and other business entities as well as corporations, subject to
certain modifications. Failure to comply with these requirements may result in
denial or revocation of licenses.
STATE REGULATION AND LOCAL APPROVALS. Following the grant of an FCC
construction permit to an applicant, and prior to the commencement of commercial
service (prior to construction in certain states), the permittee must also
obtain any necessary approvals from the appropriate regulatory bodies in certain
of the states in which it will offer cellular service. In 1981, the FCC
preempted the states from exercising jurisdiction in the areas of licensing,
technical standards and market structure. More recently, the FCC ordered states
to cease regulating cellular rates on August 10, 1994, unless the state (i) has
regulated such rates and applies to the FCC to continue doing so, and the FCC
agrees, or (ii) determines that cellular carriers are not engaged in meaningful
competition, applies to the FCC and the FCC agrees. Currently, six states have
applied to the FCC seeking continued rate regulation authority, including New
York in which the Company will operate three markets after consummation of
pending acquisitions. While such regulation affects the manner in which the
Company conducts its business, it should not place it at a competitive
disadvantage with other cellular providers.
The siting and construction of the cellular transmitter towers, antennas
and equipment shelters may be subject to state or local zoning, land use and
other local regulation. Before a system can be put into commercial operation, a
permittee must obtain all necessary zoning and building permit approvals (zoning
approvals) for the base station sites and switching office locations and secure
state certification and, if needed, tariff approvals. The time needed to obtain
zoning approvals and the requisite state permits varies from market to market
and state to state. If all state and local approvals have been obtained in a
market, it is expected that a system can be constructed and made ready for
operation in a three-to six-month period. There can be no assurance that any
state or local regulatory requirements currently applicable to the Company's
systems may not be changed in the future or that applicable regulatory
requirements will not be adopted in those states and localities that currently
have none.
LICENSE RENEWAL. The FCC has established rules and procedures to process
cellular renewal applications filed by existing carriers and the competing
applications filed by renewal challengers. Subject to one exception discussed
below, the renewal proceeding is a two-step hearing process. The first step of
the hearing process is to determine whether the existing cellular licensee is
entitled to a renewal expectancy, and otherwise remains basically qualified to
hold a cellular license. Two criteria are evaluated to determine whether the
existing licensee will receive a renewal expectancy. The first criterion is
whether the licensee has provided "substantial" service during its past license
term, defined as service which is sound, favorable and substantially above a
level of mediocre service which minimally might justify renewal. The second
criterion requires that the licensee must have substantially complied with
applicable FCC rules and policies and the Communications Act. Under this second
criterion, the FCC determines whether the licensee has demonstrated a pattern of
compliance. The second criterion does not require a perfect record of
compliance, but if a licensee has demonstrated a pattern of noncompliance it
will not receive a renewal expectancy. If the FCC grants the licensee a renewal
expectancy during the first step of the hearing process and the licensee is
basically qualified, its license renewal application will be automatically
granted and any competing applications will be denied. If however, the FCC
denies the licensee's request for renewal expectancy, the licensee's application
will be comparatively evaluated under specifically enumerated criteria with the
applications filed by competing applicants.
The exception to the two-step renewal hearing process allows a competing
applicant proposing to provide service that far exceeds the service presently
being provided by the incumbent licensee to request a waiver of the two-step
process. If the waiver request is granted, the FCC will hold only a comparative
hearing, i.e., it will not make a threshold determination in the first instance
as to whether the incumbent licensee is entitled to a renewal expectancy.
The Company filed its first renewal application in August 1994, with
renewal filings for its remaining markets ranging from 1995 to 2003. The Company
has no reason to believe that a renewal expectancy will not be granted for each
of its control markets.
NEW OPPORTUNITIES
FLEXCELL(TM). The Company has developed a billing and management
information system, Flexcell(tm), which the Company believes provides greater
speed, capacity and flexibility than most similar generally available systems.
Flexcell(tm) is currently being used to bill the Company's 169,000 cellular
subscribers as of June 30, 1994 and is being actively marketed to third parties.
The Company has entered into its first contract with American Mobile Satellite
Corporation (AMSC), an unrelated
31

<PAGE>
third party, to provide billing software, custom development and support. AMSC
has an FCC license to provide satellite telecommunications services.
Flexcell(tm) will be used by AMSC in all aspects of its customer service and
billing functions. The total value of the transaction is approximately $7
million, to be recognized during the seven-year term of the contract. The
contract obligates the Company to provide its core software product together
with certain custom enhancements and maintenance to the product during the
contract period.
Currently the target market for Flexcell(tm) is the domestic wireless
segment of the telecommunications industry, which includes cellular, paging and
satellite communications. As the Company expands this area of its business, it
may also consider marketing the product to international providers of wireless
communications services and to communication companies outside of wireless. The
Company continues to negotiate actively with potential customers of
Flexcell(tm). There can be no assurance that these potential customers will
eventually become licensees of the product.
GEOTEK. In February 1994, the Company purchased for $30 million from Geotek
2,500,000 shares of Geotek common stock and options to invest up to $167 million
for an aggregate of 10,000,000 additional shares. Geotek is a telecommunications
company that is developing a wireless communications network in the United
States based on its FHMA(tm) digital technology. Geotek's common stock is traded
on the NASDAQ National Market System.
The options purchased by the Company were issued in three series as
follows: (i) Series A for 2,000,000 shares at $15 per share, (ii) Series B for
2,000,000 shares at $16 per share and (iii) Series C for 3,000,000 shares at $17
per share and 3,000,000 shares at $18 per share. All options are exercisable
immediately and expire at various dates over the next several years. The Company
has also entered into a five-year management consulting agreement to provide
operational and marketing support to Geotek in exchange for 300,000 shares of
Geotek common stock per year. However, should any portion of the Series A, B or
C options expire, the management consulting agreement is immediately terminated.
See "Management's Discussion and Analysis of Results of Operations and Financial
Condition."
The objectives of the Company's investment include assisting Geotek to
exploit the commercial application of its FHMA(tm) technology by providing
support in the areas of network engineering and buildout, customer care,
marketing and many of the administrative functions required of a wireless
communications service provider. In addition, the Company believes that its
investment in and strategic alliance with Geotek will allow it to realize
administrative and technical synergies which will serve the customers of both
companies, gain access to potential wireless subscribers in the major population
centers of the Northeast where the Company does not currently provide wireless
service, and gain access to technologies developed by Geotek that may offer
future wireless applications. The Company also believes that having an
investment interest in Geotek at predetermined prices over the next several
years provides a significant potential return as Geotek completes the buildout
of its systems and begins commercial operation. The investment also allows the
Company and Geotek to work together to explore international wireless
opportunities.
INTERNATIONAL INITIATIVES
The Company believes that foreign markets offer significant opportunities
for wireless communications suppliers because of the limited availability of
traditional landline telephone systems in many countries and the increasing
demand for communications services. The Company's strategy is to pursue
opportunities in the international arena as they arise without diverting the
Company's financial and personnel resources from its primary business.
Accordingly, the Company has pursued such opportunities through joint ventures
with local entities and others and its investment in International Wireless
Communications, Inc. (IWC), an international licensing firm. The Company
currently owns a 19.9% equity interest in IWC and holds a right to purchase an
additional 15%. While several applications for wireless communications licenses
are pending in which the Company has an interest, through joint ventures or
through IWC, the Company currently owns no interests in such licenses. There is
no assurance that the Company's international activities will prove successful.
EMPLOYEES
As of June 30, 1994, the Company had approximately 880 full-time employees,
including approximately 300 employees associated with its direct sales force.
None of those employees are represented by a labor organization. Management
considers its employee relations to be good.
PROPERTIES
The Company owns or leases certain properties in addition to the interests
in cellular licenses presently owned by the Company. The Company leases its
principal executive offices located in Greensboro, North Carolina, consisting of
approximately 63,000 square feet of office space. The rental payments at this
facility are fixed over five years except for escalations
32

<PAGE>
to cover certain related costs such as property taxes and maintenance. The
Company also currently owns or leases an aggregate of approximately 115,000
square feet of office and retail space in its operating cellular markets. In
addition, the Company either owns or leases under long-term contracts 175 cell
site locations and seven cellular switch locations.
LEGAL PROCEEDINGS
In June, 1989, an action was commenced by 17 plaintiffs in the United
States District Court for the District of Columbia alleging that they were
partners in the San Juan Cellular Settlement Partnership (SJCSP) and asserting
claims against the Company and two of its officers. SJCSP was a partnership that
was the tentative selectee for a construction permit for a nonwireline cellular
telephone system in San Juan, Puerto Rico. Ultimately, SJCSP dismissed its
application as part of the settlement of a challenge to the award of the San
Juan construction permit to SJCSP. Plaintiffs allege that two officers of the
Company, acting for the Company, were involved in the negotiation of the
aforementioned settlement. Plaintiffs assert one claim for fraud and one for
breach of fiduciary duty, each against all three defendants. The plaintiffs
allege that the defendants bargained away the SJCSP interest in the San Juan
market for less than its full value in order to obtain for the Company the
rights to certain other cellular systems. The plaintiffs allege that the San
Juan market is presently worth $135 million, and further allege that in exchange
for its rights in the San Juan market, SJCSP received $2.1 million while the
Company received, for its sole benefit, interests in other markets estimated to
be worth more than the San Juan market. Plaintiffs seek judgment against the
defendants, jointly and severally, in the amount of $49 million for compensatory
damages, $50 million for punitive damages and the imposition of a constructive
trust for the benefit of the plaintiffs on the Company's interests in the
nonwireline cellular systems serving Reading, York and Lancaster, Pennsylvania,
as well as costs and other relief as the court may deem proper.
The Company believes that the suit is without merit and intends to oppose
it vigorously and has asserted counterclaims against certain of the plaintiffs.
Discovery is essentially complete. Motions for summary judgment have been filed
and oral arguments held in respect to the claims and counterclaims. The court
has not acted on these motions. No trial date has been set and management is
unaware of when a trial date will be set. In the opinion of management, the
outcome of this proceeding will not have a materially adverse effect on the
consolidated financial position of the Company. Based on its knowledge of the
plaintiff's evidence and the facts of the case and although it has not received
an opinion of counsel, management believes that the plaintiffs can neither
support their allegations nor prevail in the suit. Even if the plaintiffs
prevail, management believes that there is no basis for the recovery of damages
of the magnitude claimed.
The only other legal proceedings pending against the Company or any of its
subsidiaries are routine filings with the FCC and state regulatory authorities
and customary regulatory proceedings pending in connection with acquisitions and
interconnection rates and practices, proceedings concerning the
telecommunications industry generally and other proceedings which management
believes, even if resolved unfavorably to the Company, would not have a
materially adverse effect on the Company's business.
33

<PAGE>
MANAGEMENT
The following table sets forth certain information about each of the
Company's executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Stuart S. Richardson 47 Chairman of the Board of Directors
Haynes G. Griffin 47 President, Chief Executive Officer, Director
L. Richardson Preyer, Jr. 46 Executive Vice President, Treasurer, Vice Chairman of the Board of Directors
Stephen R. Leeolou 38 Executive Vice President, Chief Operating Officer, Secretary, Director
Stephen L. Holcombe 38 Senior Vice President, Chief Financial Officer
Richard C. Rowlenson 44 Senior Vice President, General Counsel
Timothy G. Biltz 36 Senior Vice President -- Marketing and Customer Service
S. Tony Gore, III 47 Senior Vice President -- Acquisitions and Corporate Development
Dennis B. Francis 42 Vice President of Technical Services
Doris R. Bray 56 Director
Robert M. DeMichele 49 Director
John F. Dille, Jr. 80 Director
L. Richardson Preyer, Sr. 75 Director
Robert A. Silverberg 59 Director
</TABLE>

STUART S. RICHARDSON has been a director since 1985 and was elected
Chairman of the Board of Directors in 1986. Since 1985, Mr. Richardson has been
an executive, presently Vice Chairman of the Board, of Piedmont Management
Company, Inc., a public holding company that owns the Reinsurance Company of New
York and Lexington Management Corporation, a diversified financial services
company. Mr. Richardson is the former Chairman of the Board of Richardson-Vicks,
Inc. Mr. Richardson's second cousin, L. Richardson Preyer, Jr., and Mr. Preyer's
father, L. Richardson Preyer, Sr. are also directors.
HAYNES G. GRIFFIN is President and Chief Executive Officer, a director and
a co-founder of the Company. Mr. Griffin is a member of the Boards of Directors
of Piedmont Management Company, Inc., a public holding company and of Geotek
Communications, Inc. Mr. Griffin currently serves on the United States Advisory
Council on the National Information Infrastructure. He is the past Chairman of
the Cellular Telecommunications Industry Association.
L. RICHARDSON PREYER, JR. is Vice Chairman of the Board, Executive Vice
President, Treasurer and co-founder of the Company. Mr. Preyer serves as
Administrative Trustee of Piedmont Associates and Southeastern Associates,
investment partnerships.
STEPHEN R. LEEOLOU is Executive Vice President, Chief Operating Officer,
Secretary, a director and co-founder of the Company. Prior to joining the
Company, from 1983 to 1984, Mr. Leeolou was President and Secretary of Caro-Cell
Communications, Inc., and from 1978 to 1983 was a television news anchorman with
three successive network-affiliated stations.
STEPHEN L. HOLCOMBE is Senior Vice President and Chief Financial Officer of
the Company. From 1978 to 1985, Mr. Holcombe served in various positions with
KPMG Peat Marwick and was a senior audit manager when he left to join the
Company in 1985. Mr. Holcombe is a member of the North Carolina Association of
Certified Public Accountants.
RICHARD C. ROWLENSON is Senior Vice President and General Counsel of the
Company. From 1975 until joining the Company in 1987, Mr. Rowlenson was engaged
in the practice of communications law in Washington, D.C. Mr. Rowlenson is a
member of the Federal Communications Bar Association.
TIMOTHY G. BILTZ joined the Company as Vice President -- Marketing and
Customer Service in August 1989 and was promoted to Senior Vice President in
November 1990. Prior to joining the Company, Mr. Biltz was Regional Manager for
Providence Journal Cellular Management Services, Inc. in Raleigh, N.C. from 1987
to 1989, and was responsible for the development of regional marketing and
operations programs for several operating markets.
S. TONY GORE, III is a Senior Vice President of Acquisitions and Corporate
Development. He is presently a task force member of the North Carolina
International Commission on Economic Development. Prior to joining the Company
in 1985, Mr. Gore was Chief Executive Officer of Atlantic Coast Entertainment
Systems, Inc.
DENNIS B. FRANCIS joined the Company as Director of Technical Services in
September 1992 and was promoted to Vice President in 1993. Prior to joining the
Company, Mr. Francis was with Southwestern Bell Mobile Systems for nine years,
most recently as Vice President of Network Operations for the
Washington/Baltimore cellular system.
34

<PAGE>
DORIS R. BRAY was elected a director in 1994. Mrs. Bray has been a partner
in the Greensboro, N.C. law firm of Schell Bray Aycock Abel & Livingston L.L.P.
since 1987. Mrs. Bray also serves as a director of Cone Mills Corporation.
ROBERT M. DEMICHELE was elected a director of the Company in 1987. Mr.
DeMichele has been President, Chief Executive Officer and a director of Piedmont
Management Company, Inc. since 1981. He is Chairman and Chief Executive Officer
of Lexington Management Corporation and President and Chief Executive Officer of
the Reinsurance Company of New York. Piedmont Management, Inc. is a
publicly-traded holding company that owns Lexington Management Corporation and
the Reinsurance Company of New York, and is 60% owned by the families of Stuart
S. Richardson, L. Richardson Preyer, Sr. and L. Richardson Preyer, Jr. He is a
director of the Navigators Group, Inc.
JOHN F. DILLE, JR. was elected a director of the company in 1985. Mr. Dille
is Chairman of the Board of Truth Publishing Company and Pathfinder
Communications of Elkhart, Indiana, which owns and operates three private
companies, two of which operate television, radio and newspaper facilities in
the Midwest.
L. RICHARDSON PREYER, SR., a former federal judge and member of the U.S.
Congress, was elected a director of the Company in 1985. Mr. Preyer is a
distinguished Fellow in Public Policy at the University of North Carolina at
Greensboro.
ROBERT A. SILVERBERG was elected a director of the Company in 1985. Mr.
Silverberg is Chairman of the Board and President of First Denver Corporation of
Colorado, and Chairman of the Board of its subsidiary, First National Bank of
Denver. Since 1968, Mr. Silverberg has been President and Chairman of the Board
of 181 Realty Company, Inc., a Colorado commercial real estate holding company.
DESCRIPTION OF CAPITAL STOCK
The statements made under this caption include summaries of certain
provisions contained in the Company's Articles of Incorporation and bylaws.
These statements do not purport to be complete and are qualified in their
entirety by reference to such Articles of Incorporation and bylaws.
The authorized capital stock of the Company consists of 60,000,000 shares
of Class A Common Stock par value $.01 per share, 30,000,000 shares of Class B
Common Stock, par value $.01 per share, and 1,000,000 shares of Preferred Stock
par value $.01 per share. As of June 30, 1994, 38,559,675 shares of Class A
Common Stock were issued and outstanding (as adjusted by a three-for-two stock
split effected by means of a stock dividend paid August 24, 1994) in the names
of approximately 1,200 holders of record, and no shares of Class B Common
Stock or Preferred Stock were issued and outstanding.
CLASS A COMMON STOCK
Holders of the Company's Class A Common Stock are entitled ratably, share
for share, to such dividends as may be declared upon the Class A Common Stock by
the Board of Directors and, upon any liquidation of the Company, to participate
ratably in the distribution of any corporate assets remaining after payment of
all debts and the liquidation preferences, if any, of Preferred Stock that then
may be issued and outstanding. However, the Company entered into a Loan
Agreement as of April 21, 1993, with a group of banks led by The Bank of New
York and the Toronto-Dominion Bank which substantially prohibits the payment of
dividends or other distributions with respect to the Class A Common Stock. See
"Risk Factors -- Highly Leveraged Financial Position; Dividend and Other
Restrictions under the Credit Agreement."
Holders of the Company's Class A Common Stock are entitled to one vote per
share on all matters submitted to a vote of holders of Class A Common Stock. No
holder of Class A Common Stock of the Company is entitled as a matter of right
to subscribe for or to purchase any shares of stock or any security convertible
into shares of stock of any class of the Company. Each outstanding share of
Class A Common Stock is validly issued, fully paid and nonassessable.
CLASS B COMMON STOCK AND PREFERRED STOCK
The Board of Directors has the authority, without any vote or action by the
shareholders, to issue Class B Common Stock and/or Preferred Stock. The
Company's articles of incorporation provide that the Class B Common Stock would
have the same characteristics as the Class A Common Stock, except that the
holders of Class B Common Stock would be entitled to one-tenth of one vote per
share, voted as a single class with the Class A Common Stock, except as required
by law. Under North Carolina law, the holders of Class B Common Stock generally
would have the right to vote as a class on amendments to the articles of
incorporation that would increase or decrease the authorized number of shares
of the class, effect an exchange or reclassification of their
shares for shares of another class, or change the designation, rights,
preferences or limitations of the class on a plan of merger if the plan
contains a provision that, if contained in a proposed amendment to articles of
incorporation, would give rise to the right to vote, except where the
consideration to be received in exchange for the shares consists solely of cash,
and on a plan of share exchange if the shares are to be acquired in the
exchange. Issuance of Class B
35

<PAGE>
Common Stock could have the effect of acting as an anti-takeover device to delay
or prevent a change of control of the Company.
The Board of Directors has authority to issue preferred stock with such
designations, preferences, qualifications, privileges, limitations,
restrictions, options conversion or exchange rights and other special or
relative rights as the Board of Directors shall from time to time fix by
resolution, which could adversely affect the voting powers of the holders of
Common Stock. Issuance of the Preferred Stock could have the effect of acting as
an anti-takeover device to delay or prevent a change of control of the Company.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS
A provision of the Company's articles of incorporation requires the holders
of at least 66 2/3% of the outstanding shares of stock of the Company then
entitled to vote in elections of directors or a majority of the "disinterested"
members of the Board of Directors to approve certain major corporate
transactions involving the Company and a holder of 10% or more of any class of
equity security of the Company ("Interested Shareholder") or the affiliate of an
Interested Shareholder, including a merger or consolidation with the
Interested Shareholder or the sale, lease or exchange of substantially all
of the assets of the Company or of the Interested Shareholder to the other,
or any dissolution of the Company. "Disinterested" directors
are directors who are neither Interested Shareholders nor affiliated with any
Interested Shareholder. In addition, the Company's bylaws permit (i) directors
to be removed only upon the affirmative vote of the holders of at least 66 2/3%
of the outstanding shares of the Company's capital stock entitled to vote
generally in the election of directors and (ii) newly created directorships
and vacancies caused by any reason to be filled only by the vote of the majority
of directors then in office or by the shareholders. Both the Articles of
Incorporation and the bylaws require the affirmative vote of the holders of at
least 66 2/3% of the outstanding shares of capital stock of the Company
entitled to vote generally in the election of directors to amend
these provisions. These provisions could make it more difficult for a third
party to acquire control of the Company.
The Board of Directors of the Company is divided into three classes, with
one class elected annually by the shareholders to a three-year term. The effect
of the staggered Board of Directors is to negate substantially the possibility
of minority shareholders' obtaining representation on the Board of Directors.
The holders of common stock of the Company do not have the right to vote
cumulatively in the election of directors.
FCC RESTRICTIONS
The transfer of shares of Class A and Class B Common Stock may, in certain
circumstances, be subject to provisions of the Communications Act of 1934, as
amended, and rules and policies requiring prior FCC approval of the transfer of
control of cellular licenses, restricting the percentage of alien ownership of
such licensees, limiting the ownership of interests in cellular systems serving
the same area, and establishing other licensee qualifications.
TRANSFER AGENT AND REGISTRAR
First Union National Bank, Charlotte, North Carolina, is the transfer agent
and registrar for the Class A Common Stock.
LEGAL OPINIONS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Schell Bray Aycock Abel & Livingston L.L.P., Greensboro, North
Carolina.
EXPERTS
The financial statements and schedules incorporated by reference in this
Prospectus and elsewhere in the Registration Statement, to the extent and for
the periods indicated in their reports, have been audited by Arthur Andersen
LLP, independent public accountants, and are incorporated by reference herein in
reliance upon the reports of said firm and upon the authority of said firm as
experts in accounting and auditing.
36

<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
ITEM 21(A) -- EXHIBITS
The following Exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
* 2(a) Stock Purchase Agreement by and among Crowley Cellular Telecommunications Limited Partnership, Crowley
Cellular Telecommunications Binghamton, Inc. and Vanguard Cellular Systems, Inc., dated as of August 5,
1994 filed as Exhibit 2(a) to the Registrant's Form 10-Q for the quarter ended June 30, 1994.
* 2(b) Asset Purchase Agreement dated September 26, 1994 by and between Vanguard Cellular Systems, Inc. and
Sunshine Cellular filed as Exhibit 2(b) to the Registrant's Current Report on Form 8-K dated as of
September 30, 1994.
* 4(a)(1) Charter of the Registrant, filed as Exhibit 3(a) to the Registrant's Registration Statement on Form S-1
(File No. 33-18067).
* 4(a)(2) Articles of Amendment to Charter of the Registrant dated May 12, 1989, filed as Exhibit 3(b) to the
Registrant's Registration Statement on Form S-4 (File No. 33-35054).
* 4(b)(1) Amended and Restated Bylaws of the Registrant, filed as Exhibit 4(b) to the Registrant's Form 10-Q for the
quarter ended September 30, 1990.
* 4(b)(2) Amendment to the Bylaws adopted September 11, 1991, filed as Exhibit 4(c)(2) to the Registrants Form 8
Amendment to Registrant's Form 10-Q for the quarter ended June 30, 1991.
* 4(c) Specimen Common Stock Certificate, filed as Exhibit 4(a) to the Registrant's Registration Statement on
Form S-1 (File No. 33-18067).
* 4(d)(1) Loan Agreement between the Registrant and various lenders led by The Bank of New York and The
Toronto-Dominion Bank as agents, dated as of April 21, 1993, filed as Exhibit 2(a) to the Registrant's
Current Report on Form 8-K dated as of April 21, 1993.
* 4(d)(2) Security Agreement between the Registrant and various lenders led by The Bank of New York and The
Toronto-Dominion Bank, as Secured Party, dated as of April 21, 1993, filed as Exhibit 2(b) to the
Registrant's Current Report on Form 8-K dated as of April 21, 1993.
* 4(d)(3) Master Subsidiary Security Agreement between the Registrant, certain of its subsidiaries and various
lenders led by The Bank of New York and The Toronto-Dominion Bank, as Secured Party, dated as of April 21,
1993 filed as Exhibit 2(c) to the Registrant's Current Report on Form 8-K dated as of April 21, 1993.
* 4(d)(4) Amendment No. 1 dated as of January 31, 1994 to the Loan Agreement among Registrant and various lenders
led by The Bank of New York and The Toronto-Dominion Bank, as managing agents, filed as Exhibit 8 to
Amendment 1 of Schedule 13D dated February 23, 1994 with respect to the common stock of Geotek
Communications, Inc.
* 4(d)(5) Amendment No. 2 dated as of June 30, 1994 among Registrant and various lenders led by The Bank of New York
and The Toronto-Dominion Bank, as managing agents, filed as Exhibit 4(e)(5) to the Registrant's Form 10-Q
for the quarter ended June 30, 1994.
* *5 Opinion of Schell Bray Aycock Abel & Livingston L.L.P.
* 11 Calculation of fully diluted net loss per share for the years ended December 31, 1993, 1992 and 1991 filed
as Exhibit 11 to the Registrant's Form 10-K for the year ended December 31, 1993.
24 Consent of Arthur Andersen LLP
</TABLE>

* Incorporated by reference to the statement or report indicated.
** Previously filed.
II-1

<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Greensboro, State of North Carolina, on September 30, 1994.
VANGUARD CELLULAR SYSTEMS, INC.
By: /s/ HAYNES G. GRIFFIN
HAYNES G. GRIFFIN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this amendment
to this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
/s/ STUART S. RICHARDSON* Chairman of the Board of Directors , 1994
STUART S. RICHARDSON
/s/ HAYNES G. GRIFFIN President, Chief Executive Officer and September 30, 1994
Director
HAYNES G. GRIFFIN
/s/ L. RICHARDSON PREYER, JR.* Vice Chairman of the Board of Directors , 1994
L. RICHARDSON PREYER, JR.
/s/ STEPHEN L. HOLCOMBE Chief Financial Officer (principal
accounting September 30, 1994
and principal financial officer)
STEPHEN L. HOLCOMBE
/s/ DORIS R. BRAY Director September 30, 1994
DORIS R. BRAY
/s/ ROBERT M. DEMICHELE* Director , 1994
ROBERT M. DEMICHELE
/s/ JOHN F. DILLE, JR.* Director , 1994
JOHN F. DILLE, JR.
/s/ STEPHEN R. LEEOLOU* Director , 1994
STEPHEN R. LEEOLOU
/s/ L. RICHARDSON PREYER, SR.* Director , 1994
L. RICHARDSON PREYER, SR.
/s/ ROBERT A. SILVERBERG* Director , 1994
ROBERT A. SILVERBERG
</TABLE>

* Haynes G. Griffin, by signing his name hereto, does sign this document on
behalf of the person indicated above pursuant to a Power of Attorney duly
executed by such person and filed with the Securities and Exchange Commission.
By: /s/ HAYNES G. GRIFFIN
HAYNES G. GRIFFIN
(ATTORNEY-IN-FACT)
II-2
<PAGE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
<C> <S> <C>
24 Consent of Arthur Andersen LLP
</TABLE>
<PAGE>
<PAGE>
PROSPECTUS SUPPLEMENT DATED SEPTEMBER , 1994
(TO PROSPECTUS DATED SEPTEMBER , 1994)

(VANGUARD LOGO APPEARS HERE)

1,840,000 SHARES OF CLASS A COMMON STOCK ($.01 PAR VALUE)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus Supplement relates to up to 1,840,000 shares (the
"Shares") of Class A Common Stock, $.01 par value (the "Class A Common Stock"),
of Vanguard Cellular Systems, Inc. (the "Company"), which may be sold from time
to time by Crowley Cellular Telecommunications Limited Partnership ("Crowley")
and certain related parties that have a direct or indirect interest in Crowley
(the "Partners" and together with Crowley collectively referred to herein as the
"Selling Shareholders"). The Selling Shareholders received the Shares pursuant
to an acquisition transaction described in this Prospectus Supplement. See
"Transaction Pursuant to which Securities were Acquired." The Company will
receive no part of the proceeds of sales made hereunder. All expenses of
registration incurred in connection with the offering are being borne by the
Company. Selling and other expenses incurred by the Selling Shareholders will be
borne by the Selling Shareholders. See "Transaction Pursuant to which Securities
were Acquired."
The Selling Shareholders and any broker executing selling orders on behalf
of the Selling Shareholders may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended (the "Securities Act"), in
which event commissions received by such broker may be deemed to be underwriting
commissions under the Securities Act. See "Plan of Distribution."
The Common Stock of the Company is quoted on the National Association of
Securities Dealers, Inc. Automated Quotation System National Market System
("NASDAQ") under the symbol VCELA. On September 27, 1994, the closing price of
the Company's Common Stock, as reported by NASDAQ, was $26.375.

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SELLING SHAREHOLDERS
The following sets forth the identity of the Selling Shareholders, the
number of the Shares owned by each Selling Shareholder and the percentage of
Class A Common Stock owned by each Selling Shareholder (if the percentage is one
percent or more).
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES PERCENT
<S> <C> <C>
TA Investors
Milk Street Partners, Inc.
Chestnut Street Partners, Inc.
Advent Atlantic and Pacific Limited Partnership
Advent Industrial Capital Company Limited Partnership
Media/Communications Partners Limited Partnership
Brian McTernan Family Trust (dated 12/29/89)
Terry Wayne Johnson Family Trust No. 2
Daryl E. Harms
Masada Cellular Management, Inc.
Crowley Cellular Development Corporation
John D. Fujii
Brian McTernan
Larry Harris
Crowley Cellular Telecommunications, Inc.
Crowley Cellular Telecommunications, Limited Partnership
</TABLE>
None of the Selling Shareholders have a relationship or affiliation with
the Company other than as holders of the Shares. The Shares are the entire
holding of the Company's Common Stock by the Selling Shareholders. The Selling
Shareholders may sell all or any portion of the Shares from time to time. See
"Plan of Distribution."
The Shares were acquired pursuant to the acquisition transaction described
below. See "Transaction Pursuant to which Securities were Acquired." The Company
agreed to prepare this Prospectus Supplement to the Prospectus dated
September , 1994, which may be used in connection with
possible resale from time to time by the Selling Shareholders.

TRANSACTION PURSUANT TO WHICH SECURITIES WERE ACQUIRED

The Selling Shareholders acquired the Shares on , 1994
pursuant to the Stock Purchase Agreement by and among Crowley and Crowley
Cellular Telecommunications Binghamton, Inc. ("Crowley Inc.") and the Company
dated August 5, 1994 (the "Agreement"). The number of Shares was based
on the purchase price of the transaction divided by the average closing prices
of the Company's Class A Common Stock on the five trading days ending on the
trading day immediately preceding the closing date of the transaction.
Crowley Inc. was the Federal Communications Commission license holder
for the nonwireline cellular telephone system in the Elmira, New York
metropolitan statistical area and was the general partner and 97% owner of the
partnership that is the FCC license holder for the nonwireline cellular
telephone system in the Binghamton, New York metropolitan statistical area.
PLAN OF DISTRIBUTION
The Selling Shareholders may sell the Shares in several ways, including
without limitation: (i) through broker-dealers; (ii) through agents;
(iii) directly to one or more purchasers; or (iv) if appropriate, under Rule
145 of the Securities Act of 1993. The distribution of the Shares may be
effected from time to time in one or more transactions (which may involve
crosses or block transactions) (A) in the over-the-counter market, (B) in
transactions otherwise than in the over-the-counter market or (C) through the
writing of options on the Shares (whether such options are listed on an
options exchange or otherwise). Any of such transactions may be effected at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, at negotiated prices or at fixed prices. Sellers may
effect such transactions by selling Shares to or through Broker-dealers,
and such broker-dealers may receive compensation in the
2

<PAGE>
form of discounts, concessions or commissions from the Sellers and/or
commissions from purchasers of Shares for whom they may act as agent (which
discounts, concessions or commissions as to a particular broker-dealer might be
in excess of those customary in the types of transactions involved).
In connection with any sales, Selling Shareholders and any broker-dealer
participating in such sales may be deemed to be underwriters within the meaning
of the Securities Act of 1933. Any commissions paid or any discounts or
concessions allowed to any such broker-dealers, and, if any such broker-dealers
purchase shares as principal, any profits received on the resale of such shares,
may be deemed to be underwriting discounts and commissions under the Securities
Act of 1933. The Sellers may indemnify any broker-dealer that participates in
transactions involving the sale of the Shares against certain liabilities,
including liabilities arising under the Securities Act of 1933.
OTHER INFORMATION
The Prospectus dated September , 1994, which is supplemented hereby,
incorporates certain reports and definitive proxy materials filed by the Company
with the Securities and Exchange Commission after the date of such Prospectus.
The Prospectus has been updated by means of incorporation by reference of these
documents rather than by filing post-effective amendments to the Registration
Statement of which the Prospectus is a part. These documents are available upon
request from the Assistant Treasurer of the Company at Vanguard Cellular
Systems, Inc., 2002 Pisgah Church Road, Suite 300, Greensboro, North Carolina
27455, telephone number (910) 282-3690. The Company has undertaken to respond to
such requests within one business day of receipt of the request and to send the
incorporated documents by first class mail or other equally prompt means. In
order to ensure timely delivery of the documents, any request should be made at
least five business days prior to the date on which a final investment decision
must be made.
3

<PAGE>
EXHIBIT 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Vanguard Cellular Systems, Inc.:
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated February 23,
1994 included in Vanguard Cellular Systems, Inc.'s Form 10-K for the year ended
December 31, 1993, to the incorporation by reference in this registration
statement of our report dated March 8, 1994 included in Vanguard Cellular
Systems, Inc.'s Form 8-K dated September 30, 1994 and to all references to our
Firm included in this registration statement.
ARTHUR ANDERSEN LLP
Greensboro, North Carolina,
September 30, 1994.