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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[(check mark)] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the Fiscal Year Ended December 31, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
COMMISSION FILE NUMBER 0-16560
VANGUARD CELLULAR SYSTEMS, INC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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North Carolina 56-1549590
(STATE OR OTHER JURISDICTION OF INCORPORATION OR
ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
2002 Pisgah Church Road, Suite 300,
Greensboro, North Carolina 27455-3314
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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Registrant's telephone number, including area code: (910) 282-3690
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $.01 per share
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES (Check Mark) NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (Check Mark)
The aggregate market value of the registrant's Common Stock held by those
other than executive officers and directors at March 15, 1995, based on the
NASDAQ closing sale price for the Registrant's Common Stock as of such date, was
approximately $881,341,000.
The number of shares outstanding of the issuer's common stock as of March
15, 1995 was 41,185,468.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement relating to its
1995 annual meeting of stockholders are incorporated by reference into Part III
as set forth herein. Such proxy statement will be filed with the Securities and
Exchange Commission not later than 120 days after the registrant's fiscal year
ended December 31, 1994.
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TABLE OF CONTENTS
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PART I
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Item 1 Business........................................................................................................ 1
Item 2 Properties...................................................................................................... 10
Item 3 Legal Proceedings............................................................................................... 11
Item 4 Submission of Matters to a Vote of Security Holders............................................................. 11
Item 4A Executive Officers of the Registrant........................................................................... 11
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PART II
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Item 5 Market for the Registrants Common Stock and Related Stockholder Matters......................................... 13
Item 6 Selected Consolidated Financial Data............................................................................ 14
Item 7 Management's Discussion and Analysis of Results of Operations and Financial Condition........................... 15
Item 8 Financial Statements and Supplementary Data..................................................................... 20
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................ 20
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PART III
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Item 10 Directors and Executive Officers of the Registrant............................................................. 21
Item 11 Executive Compensation......................................................................................... 21
Item 12 Security Ownership of Certain Beneficial Owners and Management................................................. 21
Item 13 Certain Relationships and Related Transactions................................................................. 21
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PART IV
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Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................................... 22
Signatures............................................................................................................. 23
Index to Financial Statements and Schedule............................................................................. F-1
Exhibit Index
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CERTAIN DEFINITIONS
As used in this Form 10-K "pops" means the Donnelly Marketing Service
estimate of the 1994 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 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 as an indicator of operating
performance.
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ITEM 1. BUSINESS
GENERAL
The Company owns and operates nonwireline cellular telephone systems in the
Eastern United States and has been in business since 1984. Based on its 7.5
million aggregate pops as of December 31, 1994, including 400,000 pops under
contract as of year-end and acquired in January 1995, the Company believes it is
the largest independent operator of solely nonwireline cellular telephone
systems in the United States. The Company's 28 control cellular markets 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 over 76% 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 1990 through 1994. During the five-year period
1990 to 1994, the number of subscribers in the Company's majority-owned markets
grew from 38,900 at the beginning of 1990, to 245,000 at year-end 1994, a
compounded annual growth rate of approximately 44%, while the Company's
subscriber penetration rate, based on 1994 "pops," increased from 2.34 to 3.56%.
Service revenues grew from $46.5 million in 1990 to $146.4 million in 1994, a
compounded annual growth rate of 33%. 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 $35.9 million in 1994, representing a compounded
annual growth rate of 101%. See "Item 6. Selected Consolidated Financial Data",
"Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition," and "Item 8. Financial Statements and Supplementary Notes
and 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 is used by the Company 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 has been
successful in increasing both the absolute number of subscribers and the annual
growth rate of subscribers in each of 1991, 1992, 1993 and 1994 through a
combination of an internal sales force targeting business customers and outside
distribution channels focused primarily on retail customers and through
acquisitions. See "Subscribers." Average monthly revenue per subscriber remained
relatively stable decreasing only 1% from 1991 to 1993 compared with an overall
industry decline of 24% during the same period. During the year ended December
31, 1994 the Company had a reduction of revenue per subscriber of approximately
8% compared to the same period in 1993 due primarily to the Company's subscriber
growth rate exceeding the rate of growth of roaming revenues. See "Item 7.
Management's Discussion and Analysis of Results of Operations and Financial
Condition." 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
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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, 1993 and 1994. Additionally, selling and marketing costs
per net new subscriber have declined in each of these 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 December 31, 1994, the Company had approximately $184.2
million of installed property and equipment and approximately $16.1 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 $62.6 million during the 1994 and
should approximate $130.0 million during 1995.
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.
In addition, the Company has begun to interconnect certain Company MTSOs
with switches 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 integrated its switches into, the North American
Cellular Network, which allows the Company's subscribers to place and receive
calls automatically in over 3,000 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. In December 1994, the
Company consummated the acquisition of the Binghamton, New York MSA and the
Elmira, New York MSA for an aggregate purchase price of $6.1 million in cash and
approximately 1.8 million shares of the Company's Class A Common Stock. In
addition, in January, 1995, the Company acquired the Union, Pennsylvania (PA-8)
RSA for an aggregate purchase price of $51.3 million in cash. See "Item 7.
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 Communications, Inc. ("Geotek"), a telecommunications
company that is developing a wireless communications network in the United
States based on its FHMA 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. The Company has
entered into its first contract for Flexcell with American Mobile Satellite
Corporation ("AMSC") but has ceased marketing Flexcell to third parties for the
remainder of 1995 in order to assure that it can meet the selling needs of the
Company and AMSC. See "New Opportunities -- Flexcell".
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., See "International Initiatives."
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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.
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DECEMBER 31,
QUARTER 1992 1993 1994
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First..................................................... 73,300 99,500 150,000
Second.................................................... 77,500 107,500 169,000
Third..................................................... 83,100 116,200 190,000
Fourth.................................................... 92,300 132,300 245,000
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The incremental subscriber growth and the rate of subscriber growth is set
forth in the following table for the periods indicated.
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1992 1993 1994
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Incremental Subscriber Growth........................................... 23,100 40,000 112,700
Rate of Incremental Subscriber Growth................................... 33% 43% 85%
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The following table sets forth the number of subscribers and the
penetration percentages in majority-owned markets as of the dates indicated.
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DECEMBER 31,
1992 1993 1994
NO. OF NO. OF NO. OF
SUBSCRIBERS % PENETRATION* SUBSCRIBERS % PENETRATION* SUBSCRIBERS
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Mid-Atlantic Supersystem............. 63,000 1.65% 88,400 2.18% 163,600
New England.......................... 8,700 1.56 13,000 2.37 23,500
Florida.............................. 8,700 1.71 12,100 2.32 18,900
West Virginia........................ 8,400 1.49 12,000 2.11 26,400
Carolinas............................ 3,300 1.38 6,800 2.82 12,600
92,300 1.62% 132,300 2.34% 245,000
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% PENETRATION*
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Mid-Atlantic Supersystem............. 3.50%
New England.......................... 3.71
Florida.............................. 3.54
West Virginia........................ 4.24
Carolinas............................ 5.17
3.65%
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* Based on year-end pops
Subscriber growth and increased penetration in 1992, 1993 and 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. In addition, 1994 subscriber growth was augmented by
approximately 14,000 subscribers associated with the acquisition of certain
cellular markets.
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
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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 "Item 7. 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 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 during 1996.
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 "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.
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As of December 31, 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 1992, 1993 and 1994 marketing and selling expenses per
net subscriber addition, including net loss on cellular equipment, was $799,
$629 and $493, respectively. See "Item 7. 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.
CUSTOMER SERVICE
The Company has devoted substantial resources to insuring consistently high
quality customer service. The Company spends approximately $3 million annually
for this purpose. Several customer service operations are centralized in the
Company's Greensboro headquarters. The central customer service department is
open 24 hours 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 competitively, 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
proactively address key customer issues. The customer database also provides the
basis for customer satisfaction information. The Company has entered into a
contract to provide billing software and support to American Mobile Satellite
Corporation, but has ceased marketing Flexcell to third parties for the
remainder of 1995 in order to assure that it can meet the selling needs of the
Company and 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 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.
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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 licenses 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 in 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.
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.
6
<PAGE>
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.
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
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
Union, PA (PA-8 RSA) (2) U.S. Cellular Corp.
Altoona, PA Independent Cellular Network, Inc.
Orange County, NY NYNEX Mobile Comunications (1)
Binghamton, NY Rochester Telephone/NYNEX (1)
Elmira, NY Rochester Telephone/NYNEX (1)
Huntington, WV Independent Cellular Network, Inc.
Charleston, WV Independent Cellular Network, Inc.
Jackson, WV (WV-l East RSA) 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) U.S. Cellular Corp.
</TABLE>
(1) Bell Atlantic Mobile Systems, Inc. and NYNEX Mobile Communications have
announced plans to combine their properties.
(2) Acquired in January 1995.
(3) Jointly controlled through the Company's 50% ownership of a joint venture
with GTE.
7
<PAGE>
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 ESMR system operators to construct digital mobile
communications systems on existing ESMR 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 numerous
metropolitan areas including Philadelphia, Washington, D.C. and Boston during
1995 and 1996. At this time, the Company is unable to predict the extent to
which NEXTEL or other ESMR 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, the A
and B blocks, 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.
The FCC is using competitive bidding procedures to award PCS licenses and
has adopted rules requiring simultaneous multiple round auctions for licenses.
Auctioning of both the A and B block 30 MHz MTA licenses has been completed,
although the FCC is not expected to issue licenses for several months. Dates
have not been set for the remaining blocks, but are expected to occur in the
second half of 1995, or in 1996, depending upon pending legal challenges to the
remaining 30 MHz designated entity block. The Company expects that certain PCS
services may be competitive with the Company's cellular service; however, the
exact nature of 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 for the remaining PCS licenses.
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. 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. Changes in a licensee's network 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.
The Company has obtained FCC 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 govern the
procedures for filing and granting such applications and has established
requirements for constructing and operating systems in such areas.
8
<PAGE>
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 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 changes to a system can be put into commercial
operation, a licensee must obtain all necessary zoning and building permit
approvals (zoning approvals) for cell sites and switching locations and secure
state certification if still applicable, 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. 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.
9
<PAGE>
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 245,000 cellular
subscribers as of December 31, 1994. The Company has entered into its first
contract with American Mobile Satellite Corporation (AMSC), an unrelated third
party, to provide billing software, custom development and support but the
Company does not intend to market Flexcell to additional third parties, for at
least the remainder of 1995. AMSC has an FCC license to provide satellite
telecommunications services. Flexcell 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.
GEOTEK. In February 1994, the Company purchased for $30 million from Geotek
2.5 million shares of Geotek common stock and options to invest up to $167
million for an aggregate of 10 million 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 million shares at $15 per share, (ii) Series B for 2
million shares at $16 per share and (iii) Series C for 3 million shares at $17
per share and 3 million 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 "Item 7. 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). The Company currently owns a 19.9% equity interest
in IWC and holds a right to purchase an additional 15%. While several wireless
communications license applications are pending and certain licenses are granted
in which the Company has an interest, through joint ventures or through IWC, the
Company currently does not have an ownership in any significant operations.
There is no assurance that the Company's international activities will prove
successful.
EMPLOYEES
As of December 31, 1994, the Company had approximately 1050 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.
ITEM 2. 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 66,000 square feet of office space. The rental payments at this
facility are fixed over five years except for escalations
10
<PAGE>
to cover certain related costs such as property taxes and maintenance. The
Company also currently owns or leases an aggregate of approximately 120,000
square feet of office and retail space in its operating cellular markets. In
addition, the Company either owns or leases under long-term contracts 200 cell
site locations and seven cellular switch locations.
ITEM 3. 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 alleged that two officers of the
Company, acting for the Company, were involved in the negotiation of the
aforementioned settlement. Plaintiffs asserted one claim for fraud and one for
breach of fiduciary duty, each against all three defendants. The plaintiffs
alleged 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 sought 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 has settled with all of the plaintiffs. The financial impact of
the settlements is not material to the Company. See "Item 7. Management's
Discussion and Analysis of Results of Operations and Financial Condition."
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters that were submitted to a vote of security holders of
the Company during the quarter ended December 31, 1994.
ITEM 4 A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information about each of the
Company's executive officers:
<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 39 Chief Operating Officer, Secretary, Director
Stephen L. Holcombe 38 Senior Vice President, Chief Financial Officer
Richard C. Rowlenson 45 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 Senior Vice President of Technical Services
</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
11
<PAGE>
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 and Senior Vice
President in 1995. 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.
12
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
<TABLE>
<CAPTION>
1994 1993
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First Quarter....................................................................... $22.66 $18.16 18.33 13.67
Second Quarter...................................................................... 23.66 18.66 18.17 14.00
Third Quarter....................................................................... 29.00 21.66 20.00 17.33
Fourth Quarter...................................................................... 29.13 23.50 23.33 18.75
</TABLE>
The high and low last sale prices are as reported by the NASDAQ National
Market System. On March 15, 1995, there were approximately 1,180 shareholders of
record.
As discussed in Note 4 to the Consolidated Financial Statements and
Management's Discussion and Analysis, the agreements related to the Company's
long-term revolving credit facility limit the payment of cash dividends on
common stock. The Company has not paid any cash dividends on its common stock
since its inception.
13
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Service fees (1)............................................ $146,417 $ 98,960 $ 72,791 $ 56,347 $ 46,483
Cellular telephone equipment revenues....................... 18,529 9,929 5,999 4,837 9,947
Other....................................................... 3,055 175 -- -- 858
168,001 109,064 78,790 61,184 57,288
Costs and expenses:
Cost of service............................................. 21,008 14,461 11,044 6,992 9,809
Cost of cellular telephone equipment........................ 29,933 13,410 7,579 6,314 11,136
General and administrative.................................. 44,019 34,218 29,334 29,578 32,053
Marketing and selling....................................... 37,102 21,693 16,877 13,867 14,332
Other....................................................... -- -- -- -- 2,198
Depreciation and amortization (2)........................... 24,073 25,160 22,100 19,112 14,449
156,135 108,942 86,934 75,863 83,977
Income (loss) from operations.................................. 11,866 122 (8,144) (14,679) (26,689)
Net gains (losses) on dispositions (3)......................... (339) (657) (2,655) 480 16,709
Interest expense............................................... (22,126) (15,389) (16,177) (19,292) (19,754)
Other, net..................................................... (3,193) 795 13 469 63
Loss before minority interests................................. (13,792) (15,129) (26,963) (33,022) (29,671)
Minority interests............................................. (153) (154) 304 309 359
Net loss before extraordinary item............................. (13,945) (15,283) (26,659) (32,713) (29,312)
Extraordinary loss on exstinguishment of debt (4).............. (8,402) (3,715) -- -- --
Net loss....................................................... $(22,347) $(18,998) $(26,659) $(32,713) $(29,312)
Net loss per share before extraordinary item (5)............... $ (0.36) $ (0.40) $ (0.72) $ (0.96) $ (0.95)
Net loss per share (5)......................................... (0.58) (0.50) (0.72) (0.96) (0.95)
Weighted average number of common shares
outstanding (5)............................................. 38,628 38,038 37,110 34,053 30,955
Other Data:
Capital expenditures........................................... $ 62,632 $ 21,009 $ 18,243 $ 16,542 $ 37,449
Operating Cash Flow (EBITDA) (6)............................... 35,939 25,282 13,956 4,433 (12,240)
Total subscribers in majority owned markets at
period end.................................................. 245.0 132.3 92.3 69.2 54.8
<CAPTION>
DECEMBER 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficiency)................................... $ (1,778) $ 4,696 $ (1,185) $ 7,854 $ 1,384
Property and equipment, net.................................... 120,325 71,716 72,026 74,581 75,767
Total assets................................................... 431,711 284,429 251,820 255,810 236,906
Long-term debt (including current portion)..................... 348,649 238,153 199,712 184,827 200,213
Shareholders' equity........................................... 39,207 21,898 30,265 51,669 9,295
</TABLE>
(1) In 1994, in order to conform to industry practice, the Company reclassified
certain pass-through items previously recognized as service revenue to
offset the related cost of service expenses. 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 January 1, 1994, the Company changed its depreciation period for
approximately 30% of its property and equipment from 7 years to 10 to 20
years. The effect of this change was to reduce depreciation for the year
ended December 31, 1994 by $4,500.
(3) The 1990 gain resulted primarily from the contribution of cellular interests
to the Company's 50% owned joint venture.
(4) The extraordinary loss for the years ended December 31, 1994 and 1993 of
$8,402 and $3,715, respectively, reflect the write-off of deferred financing
costs associated with the Company's credit facilities that were replaced
during 1994 and 1993.
(5) Adjusted to reflect the Company's three-for-two Class A Common Stock split
effected August 24, 1994.
(6) Income (loss) from operations before depreciation and amortization. Does not
represent and should not be considered as an alternative to net income or
operating income as determined by generally accepted accounting principles
as an indicator of operating performance.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 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. 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
in the accompanying financial statements. These reclassifications were made to
conform the treatment in the Company's financial statements to the accounting
treatment common in the industry.
Unless otherwise indicated all information in this report has been adjusted
for the Company's 3 for 2 stock split paid in the form of a stock dividend on
August 24, 1994.
Service revenues increased by $47.5 million or 48% primarily as a result of
an 85% increase in the number of subscribers in majority owned markets to
approximately 245,000 as of December 31, 1994 as compared to the end of 1993.
Total net subscribers in the Company's majority owned markets increased by
112,700 during 1994 as compared to an increase of 40,000 in 1993. Of the total
increase during 1994, 98,300 net activations occurred in markets operated by the
Company in both periods while 14,400 of the net subscribers were attributable to
markets acquired by the Company during the year. The 146% growth rate of net
subscriber additions in markets operated in both periods 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 number
of agents in the Company's indirect distribution channels combined with moderate
economic growth in the Company's operating regions. Service revenues
attributable to the Company's own subscribers increased 52% during 1994 to
$110.1 million as compared to 1993 while service revenues from customers from
other cellular markets roaming into the Company's markets increased 37% to $36.3
million. When combining revenue from the Company's customers with roaming
revenue, overall average monthly revenue per subscriber, which is based upon
service fees for the period and averages of subscribers computed on a quarterly
basis, declined 8% to $70 for the year from $76 a year ago. Substantially all of
this decline was the result of the Company's subscriber growth rate exceeding
the rate of growth for roaming revenues.
Cellular equipment revenues increased $8.6 million or 87% to $18.5 million
for 1994 as compared to $9.9 million for 1993. This increase was primarily due
to the 146% increase in 1994 of net subscriber additions in markets operated by
the Company in both periods. Cost of cellular equipment increased 123% to $29.9
million during 1994. The Company continued to sell telephones at or below cost
in response to competitive pressures and also continued the availability of its
rental program.
Cost of service expenses decreased as a percentage of service fees from 15%
for 1993 to 14% in 1994. In many instances in 1994, the Company's customers who
roam into adjacent cellular markets were 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 increased net costs related to the provision
of these services by approximately $7.5 million in 1994 as compared to
approximately $4.7 million during 1993. 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 in connection with this billing practice. The Company is
continuing its efforts to reduce these costs through the 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.
General and administrative expenses increased 29% or $9.8 million during
1994 but decreased as a percentage of service fees to 30% from 35% 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 percentage of service fees as the
Company continues to add more subscribers without commensurate increases in
general and administrative overhead.
Marketing and selling expenses increased 71% to $37.1 million during 1994
as compared to 1993 and as a percentage of service fees these expenses increased
to 25% from 22%. Marketing and selling expenses, including the net loss on
subscriber equipment, increased 93% to $48.5 million during 1994 as compared to
1993. The increase was primarily attributable to the higher rate of growth in
the net subscriber additions described above for 1994 as compared to 1993 and
the resulting increase
15
<PAGE>
in salaries and commissions. Marketing and selling expenses per net subscriber
addition, including the loss on cellular equipment, (excluding the number of
subscribers in acquired markets at the time of acquisition) declined 22% to $493
in 1994 from $629 during 1993.
Depreciation and amortization decreased $1.1 million or 4% during 1994. The
primary reason for this decrease was 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 1994 by approximately $4.5 million or $0.12 per share. This effect of
the depreciable life changes was offset in part by approximately $63.0 million
and $21.0 of new property and equipment placed in service during 1994 and 1993,
respectively.
Interest expense increased $6.7 million or 44% during 1994 as a result of
increased average borrowings of approximately $73.2 million and, to a lesser
extent, an increase in average interest rates charged.
Net loss before extraordinary item decreased from $15.3 million or $0.40
per share in 1993 to $13.9 million or $0.36 per share in 1994. The decrease in
net loss per share was primarily attributable to an increase in "Operating Cash
Flow -- EBITDA" (income from operations before depreciation and amortization )
of $10.7 million or 42% to $35.9 million.
In December 1994, the Company completed the closing of a $675 million
credit facility which refinanced its existing $390 million facility. In
connection with this refinancing, the Company recorded an extraordinary loss of
$8.4 million ($0.22 per share), which represented the write-off of all
unamortized deferred financing costs related to the refinanced facility. The
increase in net loss was primarily attributable to the extraordinary item and
increased interest expense described above as well as $3.5 million of other
expense in connection with accumulated legal fees and costs associated with the
resolution of pending litigation.
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 years. 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 1994 as described
above. Service fees attributable to the Company's own subscribers increased 38%
during 1993 to $72.4 million while service fees from customers from other
cellular markets roaming into the Company's markets increased 31% to $26.6
million. When combining revenue from the Company's customers with roaming
revenues, overall average monthly service revenue per subscriber 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.
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 1994.
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 combined with
an emphasis on shifting variable marketing costs to fixed 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.
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.
16
<PAGE>
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 was primarily due
to an increase in Operating Cash Flow-EBITDA.
In April 1993, the Company completed the closing of a $290 million credit
facility (the "1993 Loan Agreement") which refinanced its existing $275 million
credit facility. In connection with the refinancing of the $275 million credit
facility, the Company recorded an extraordinary loss of $3.7 million $(0.10) per
share which represented the write-off of all unamortized deferred financing
costs related to that facility.
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 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital to acquire, construct, and expand its cellular
systems. The Company intends to continue to pursue acquisitions of cellular
systems and properties as well as other investment opportunities. In addition,
although the primary buildout of its cellular system 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.
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 (or EBITDA) 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 two years. In recent years, the Company has
met its capital requirements primarily through bank financing and private
issuances of its Class A Common Stock.
1994 CREDIT FACILITY. On December 23, 1994, the Company completed the
closing of a $675 million credit facility, pursuant to an Amended and Restated
Loan Agreement (the "1994 Credit Facility"), with various lenders led by The
Toronto-Dominion Bank and The Bank of New York. The 1994 Credit Facility
provides the Company with additional financial and operating flexibility and
enables the Company to accelerate its cellular network buildout and pursue
business opportunities that may arise in the future. The 1994 Credit Facility
refinanced the 1993 Loan Agreement. The 1993 Loan Agreement closed in April 1993
and refinanced the Company's previously existing credit facility.
The 1994 Credit Facility consists of a "Term Loan" and a "Revolving Loan."
The Term Loan, in the amount of $325 million, was used to repay the Company's
borrowings under the 1993 Loan Agreement. The Revolving Loan, in the amount of
up to $350 million, is available for capital expenditures, to make acquisitions
of and investments in cellular and other wireless communication interests, and
for other general corporate purposes.
As security for borrowings under the 1994 Credit Facility, the Company has
pledged substantially all of its tangible and intangible assets and future cash
flows. Among other restrictions, the 1994 Credit Facility restricts the payment
of cash dividends, limits the use of borrowings, limits the creation of
additional long-term indebtedness and requires the maintenance of certain
financial ratios. The requirements of the 1994 Credit Facility were established
in relation to the Company's projected capital needs and projected results of
operations and cash flow. These requirements generally were designed to require
continued improvement in the Company's operating performance such that its
Operating Cash Flow -- EBITDA would be sufficient to continue servicing the debt
as repayments are required. The Company is in compliance with all loan
covenants.
As of December 31, 1994, $348.5 million had been borrowed under the 1994
Credit Facility. Under the restrictive covenants of the facility, future
borrowing availability generally increases as the Company's operating
performance improves. The Company does not expect these covenants to curtail
planned borrowings. As of December 31, 1994, the most restrictive of these
convenants would limit available borrowings during the first quarter of 1995 to
$210.3 million.
The outstanding amount of the Term Loan as of March 30, 1998 is to be
repaid in increasing quarterly installments commencing on March 31, 1998 and
terminating at its maturity date of December 31, 2003. The quarterly installment
payments begin at 1.875% of the outstanding principal amount at March 30, 1998
and gradually increase to 5.625% at March 31, 2003. The available borrowings
under the Revolving Loan shall be reduced on a quarterly basis also commencing
on March
17
<PAGE>
31, 1998 and terminating on December 31, 2003. The quarterly reduction begins at
1.875% of the Revolving Loan Commitment at March 30, 1998 and gradually
increases to 5.625% on March 31, 2003.
The Term Loan and the Revolving Loan bear interest at a rate equal to the
Company's choice of the Prime Rate or Eurodollar Rate plus an applicable margin
based upon a leverage ratio for the most recent fiscal quarter. As of December
31, 1994 the leverage ratio, which is computed as the ratio of Total Debt (as
defined) to Adjusted Cash Flow (as defined), was at such a level as to cause the
applicable margins on the borrowings to be 0.375% and 1.625% per annum for the
Prime Rate and Eurodollar Rate, respectively.
ACQUISITIONS. The Company completed several acquisitions in 1994 and early
1995. On April 26, 1994, the Company completed the acquisition of the Altoona,
PA MSA and the Chambersburg, PA (PA-10) RSA, which are 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.
The Company purchased in October 1994, for $6.9 million in cash and $3.3
million in the Company's Class A Common Stock, the Washington, Maine (ME-4) RSA
and three of the four counties of the Mason, West Virginia (WV-1) RSA. The Maine
RSA is approximately 40 miles north of the Portland, Maine MSA, which is already
operated by the Company. The West Virginia RSA is contiguous to the Company's
Charleston, West Virginia MSA.
On December 14, 1994, the Company purchased the Binghamton, New York MSA
and the Elmira, New York MSA ("Binghamton/Elmira Transaction") for a purchase
price of approximately 1.8 million shares of the Company's Class A Common Stock
and $6.1 million in cash borrowed under the 1993 Loan Agreement, subject to
post-closing adjustments. These markets are contiguous to the Company's
Mid-Atlantic Supersystem.
All markets that have been acquired as of December 31, 1994 are operational
cellular systems. Condensed pro forma financial information for these markets as
of December 31, 1994 is contained in Note 3 to the consolidated financial
statements.
In January 1995, the Company purchased the Union, Pennsylvania (PA-8) RSA
for a cash price of $51.3 million with borrowings under its 1994 Credit
Facility. The PA-8 RSA lies in the center of the Company's Mid-Atlantic
Supersystem.
GEOTEK COMMUNICATIONS, INC.. In February 1994, the Company purchased for
$30.0 million from Geotek Communications, Inc. (Geotek), 2.5 million shares of
Geotek common stock and received options to invest up to $167.0 million for an
aggregate of 10 million shares. Geotek is a telecommunications company that is
developing an Enhanced Specialized Mobile Radio (ESMR) wireless communications
network in the United States based on its proprietary Frequency Hopping Multiple
Access (FHMA) 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 million shares at $15 per share; (ii) Series B for 2 million
shares at $16 per share; and (iii) Series C for 3 million shares at $17 per
share and 3 million shares at $18 per share. All options are immediately
exercisable. The Series A options expire upon the commercial validation (as
defined) of Geotek's first ESMR system using FHMA (the Series A Expiration
Date). The series B and Series C options expire 1 year and 2 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 1994, approximately 250,000 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 the 1993 Loan Agreement. The 1994 Credit Facility permits
borrowings to fund the exercise of approximately $30.0 million of these options
but requires
18
<PAGE>
a waiver for borrowings to exercise additional amounts. If such a waiver was not
granted the Company would require other sources of financing to exercise the
remaining options.
CAPITAL EXPENDITURES. As of December 1994, the Company had approximately
$184.0 million of property and equipment placed in service. 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
approximately $63.0 million during 1994. During 1995, the Company plans to
accelerate this buildout further. Capital expenditures for 1995 are estimated to
be approximately $130 million and are expected to be funded primarily with
proceeds from the 1994 Credit Facility.
CASH FLOW GOALS. Operating Cash Flow improved $10.7 million to $35.9
million during 1994. The Company's primary goal over the next several years will
be to maximize operating cash flow. In order to do so the Company must minimize
decreases in monthly revenue per subscriber and continue to have rapid
subscriber growth with low incremental marketing and sales costs.
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.
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 network expansion and acquisitions, to fund
operating expenses and debt service described above and to provide flexibility
to pursue business opportunities that might arise in the future.
INFLATION
The Company believes that inflation affects its business no more than it
generally affects other similar businesses.
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and notes to consolidated financial
statements of the Registrant and its subsidiaries are included in this Form 10-K
following the Index to Financial Statements and Schedules.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
20
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to directors appearing under the heading,
"Election of Directors" in the Registrant's proxy statement for the Annual
Meeting of Shareholders to be held May 10, 1995, is incorporated herein by
reference. Other information with respect to executive officers is contained in
Part I -- Item 4 (a) under the caption Executive Officers of the Registrant.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation appearing under the
heading "Executive Compensation" in the Registrant's proxy statement for the
Annual Meeting of Shareholders to be held May 10, 1995, is incorporated herein
by reference.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to securities ownership of certain beneficial
owners and management appearing under the headings "Voting Securities
Outstanding" and "Security Ownership of Management" in the Registrant's proxy
statement for the Annual Meeting of Shareholders to be held May 10, 1995, is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NONE
21
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(a) (1) and (2) FINANCIAL STATEMENT AND FINANCIAL STATEMENT SCHEDULES. The financial statements and supplemental schedules
listed in the accompanying Index to Financial Statements and Schedules are filed as a part of this report.
(3) EXHIBITS. Exhibits to this report are listed in the accompanying Index to Exhibits.
(b) Reports on Form 8-K.
(1) On December 29, 1994, the Registrant filed a Current Report on Form 8-K, dated December 14, 1994, with
respect to the acquisition of all of the outstanding stock of Crowley Cellular Telecommunications
Binghamton, Inc. ("Crowley") and to update previously filed material with respect to the pending
acquisition of all of the assets of Sunshine Cellular ("Sunshine"). The Form 8-K included: (i) Crowley's
audited consolidated financial statements as of December 31, 1993 and for the year ended December 31,
1993, (ii) Crowley's unaudited consolidated financial statements as of September 30, 1994 and for the
nine months year ended September 30, 1994 and September 30, 1993, (iii) Sunshine's audited consolidated
financial statements as of December 31, 1993 and as of September 30, 1993 and (iv) pro forma
consolidated financial information as of September 30, 1994, for the year ended December 31, 1993 and
for the nine months ended September 30, 1994.
(2) On January 9, 1995, the Registrant filed a Current Report on Form 8-K, dated December 23, 1994. The Form
8-K reported the closing of the Registrant's $675 million credit facility and filed related exhibits.
(3) On February 13, 1995, the Registrant filed a Current Report on Form 8-K, dated January 27, 1995. The
Form 8-K reported the consummation of the acquisition of Sunshine and updated the financial and other
information included in the above-referenced Form 8-K dated December 14, 1994.
</TABLE>
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 and 15(d) of the Securities
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
VANGUARD CELLULAR SYSTEMS, INC.
By: HAYNES G. GRIFFIN
HAYNES G. GRIFFIN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Date: March 31, 1995
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
STUART S. RICHARDSON Chairman of the Board of Directors March 31, 1995
STUART S. RICHARDSON
HAYNES G. GRIFFIN President, Chief Executive Officer, Director March 31, 1995
HAYNES G. GRIFFIN
L. RICHARDSON PREYER, JR. Vice Chairman of the Board of Directors March 31, 1995
L. RICHARDSON PREYER, JR.
STEPHEN L. HOLCOMBE Chief Financial Officer (Principal accounting March 31, 1995
STEPHEN L. HOLCOMBE and principal financial officer)
DORIS R. BRAY Director March 31, 1995
DORIS R. BRAY
ROBERT M. DEMICHELE Director March 31, 1995
ROBERT M. DEMICHELE
STEPHEN R. LEEOLOU Director March 31, 1995
STEPHEN R. LEEOLOU
L. RICHARDSON PREYER, SR. Director March 31, 1995
L. RICHARDSON PREYER, SR.
ROBERT A. SILVERBERG Director March 31, 1995
ROBERT A. SILVERBERG
</TABLE>
23
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
The following consolidated financial statements and Supplemental Schedule
of Vanguard Cellular Systems, Inc. and Subsidiaries are filed as part of this
report.
<TABLE>
<CAPTION>
PAGE
<S> <C>
Consolidated Balance Sheets, December 31, 1994 and 1993................................................................ F-2
Consolidated Statements of Operations for the Years ended December 31, 1994, 1993 and 1992............................. F-3
Consolidated Statements of Changes in Shareholders' Equity for the Years ended December 31, 1994, 1993 and 1992........ F-4
Consolidated Statements of Cash Flows for the Years ended December 31, 1994, 1993 and 1992............................. F-5
Notes to Consolidated Financial Statements............................................................................. F-6
Report of Independent Public Accountants Relating to Financial Statements and Supplemental Schedule listed below....... F-18
Schedule VIII -- Valuation and Qualifying Accounts..................................................................... F-19
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
F-1
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
Assets 1994 1993
<S> <C> <C>
CURRENT ASSETS:
Cash.............................................................................................. $ 5,745 $ 9,098
Accounts receivable, net of allowances for doubtful accounts of $2,761 and $1,771................. 22,664 12,167
Cellular telephone inventories.................................................................... 10,417 4,464
Prepaid expenses.................................................................................. 717 918
Total current assets........................................................................... 39,543 26,647
INVESTMENTS 257,203 177,415
PROPERTY AND EQUIPMENT, at cost:
Land.............................................................................................. 1,666 1,606
Buildings......................................................................................... 1,027 536
Cellular telephones held for rental............................................................... 9,341 10,354
Cellular telephone systems........................................................................ 137,708 99,114
Office furniture and equipment.................................................................... 34,466 22,000
184,208 133,610
Less -- Accumulated depreciation.................................................................. 80,022 65,830
104,186 67,780
Construction in progress.......................................................................... 16,139 3,936
120,325 71,716
OTHER ASSETS, net of accumulated amortization of $635 and $4,459.................................... 14,640 8,651
Total assets................................................................................... $ 431,711 $ 284,429
Liabilities and Shareholders' Equity
CURRENT LIABILITIES:
Accounts payable and accrued expenses............................................................. $ 40,689 $ 21,470
Customer deposits and unearned revenues........................................................... 632 481
Total current liabilities...................................................................... 41,321 21,951
LONG-TERM DEBT...................................................................................... 348,649 238,153
MINORITY INTERESTS.................................................................................. 2,534 2,427
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' EQUITY:
Preferred stock -- $.01 par value, 1,000,000 shares authorized, no shares issued.................. -- --
Common stock, Class A -- $.01 par value, 60,000,000 shares authorized, 40,529,334 and 38,398,080
shares issued and outstanding.................................................................. 405 384
Common stock, Class B -- $.01 par value, 30,000,000 shares authorized, no shares issued........... -- --
Additional capital in excess of par value......................................................... 234,731 185,786
Net unrealized holding losses..................................................................... (9,310) --
Accumulated deficit............................................................................... (186,619) (164,272)
Total shareholders' equity..................................................................... 39,207 21,898
Total liabilities and shareholders' equity..................................................... $ 431,711 $ 284,429
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-2
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1994 1993 1992
<S> <C> <C> <C>
REVENUES:
Service fees.................................................................... $ 146,417 $ 98,960 $ 72,791
Cellular telephone equipment revenues........................................... 18,529 9,929 5,999
Other........................................................................... 3,055 175 --
168,001 109,064 78,790
COSTS AND EXPENSES:
Cost of service................................................................. 21,008 14,461 11,044
Cost of cellular telephone equipment............................................ 29,933 13,410 7,579
General and administrative...................................................... 44,019 34,218 29,334
Marketing and selling........................................................... 37,102 21,693 16,877
Depreciation and amortization................................................... 24,073 25,160 22,100
156,135 108,942 86,934
INCOME (LOSS) FROM OPERATIONS..................................................... 11,866 122 (8,144)
NET LOSSES ON DISPOSITIONS........................................................ (339) (657) (2,655)
INTEREST EXPENSE.................................................................. (22,126) (15,389) (16,177)
OTHER, net........................................................................ (3,193) 795 13
LOSS BEFORE MINORITY INTERESTS.................................................... (13,792) (15,129) (26,963)
MINORITY INTERESTS................................................................ (153) (154) 304
NET LOSS BEFORE EXTRAORDINARY ITEM................................................ (13,945) (15,283) (26,659)
EXTRAORDINARY LOSS ON EXTINGUISHMENT OF DEBT...................................... (8,402) (3,715) --
NET LOSS.......................................................................... $ (22,347) $ (18,998) $ (26,659)
NET LOSS PER SHARE BEFORE EXTRAORDINARY ITEM...................................... $ (0.36) $ (0.40) $ (0.72)
PER SHARE EFFECT OF EXTRAORDINARY ITEM............................................ (0.22) (0.10) --
NET LOSS PER SHARE................................................................ $ (0.58) $ (0.50) $ (0.72)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING.............................. 38,628,140 38,038,240 37,110,343
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-3
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
ADDITIONAL NET
CAPITAL IN UNREALIZED
COMMON STOCK CLASS A EXCESS OF HOLDING ACCUMULATED
SHARES AMOUNT PAR VALUE LOSSES DEFICIT
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1992..................... 36,813,576 $368 $ 169,916 $ -- $(118,615)
Shares issued upon exercise of stock
options.................................... 590,855 6 1,860 -- --
Shares issued upon exercise of stock purchase
warrants................................... 150,000 2 1,198 -- --
Shares issued for cash....................... 970 -- 16 -- --
Shares issued for conversion of notes........ 5,859 -- 47 -- --
Shares issued for employee bonuses........... 25,893 -- -- -- --
Shares issued in exchange for cellular
interests.................................. 230,122 2 2,124 -- --
Net loss..................................... -- -- -- -- (26,659)
BALANCE, December 31, 1992................... 37,817,275 378 175,161 -- (145,274)
Shares issued upon exercise of stock
options.................................... 90,150 1 615 -- --
Shares issued for cash....................... 26,591 -- 335 -- --
Shares issued in exchange for cellular
interests.................................. 464,064 5 9,675 -- --
Net loss..................................... -- -- -- -- (18,998)
BALANCE, December 31, 1993................... 38,398,080 384 185,786 -- (164,272)
Shares issued upon exercise of stock
options.................................... 210,719 2 1,061 -- --
Shares issued for cash....................... 28,576 -- 499 -- --
Shares issued in exchange for cellular
interests.................................. 1,891,959 19 47,385 -- --
Unrealized holding losses.................... -- -- -- (9,310) --
Net loss..................................... -- -- -- -- (22,347)
BALANCE, December 31, 1994................... 40,529,334 $405 $ 234,731 $ (9,310) $(186,619)
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
<S> <C>
BALANCE, January 1, 1992..................... $ 51,669
Shares issued upon exercise of stock
options.................................... 1,866
Shares issued upon exercise of stock purchase
warrants................................... 1,200
Shares issued for cash....................... 16
Shares issued for conversion of notes........ 47
Shares issued for employee bonuses........... --
Shares issued in exchange for cellular
interests.................................. 2,126
Net loss..................................... (26,659)
BALANCE, December 31, 1992................... 30,265
Shares issued upon exercise of stock
options.................................... 616
Shares issued for cash....................... 335
Shares issued in exchange for cellular
interests.................................. 9,680
Net loss..................................... (18,998)
BALANCE, December 31, 1993................... 21,898
Shares issued upon exercise of stock
options.................................... 1,063
Shares issued for cash....................... 499
Shares issued in exchange for cellular
interests.................................. 47,404
Unrealized holding losses.................... (9,310)
Net loss..................................... (22,347)
BALANCE, December 31, 1994................... $ 39,207
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................................................. $ (22,347) $ (18,998) $(26,659)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization...................................................... 24,073 25,160 22,100
Amortization of deferred debt issuance costs....................................... 1,334 953 709
Equity in losses (earnings) of unconsolidated cellular entities.................... (206) (500) 329
Minority interests................................................................. 153 154 (304)
Net losses on dispositions......................................................... 339 657 2,655
Extraordinary loss on extinguishment of debt....................................... 8,402 3,715 --
Stock received for management consulting services.................................. (2,496) -- --
Changes in current items:
Accounts receivable, net......................................................... (8,974) (4,898) 625
Cellular telephone inventories................................................... (5,744) (2,072) 197
Accounts payable and accrued expenses............................................ 7,223 4,844 2,929
Other, net 494 (397) 168
Net cash provided by operating activities........................................ 2,251 8,618 2,749
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................................................... (51,017) (21,009) (18,243)
Proceeds from dispositions of property and equipment.................................. 109 17 303
Payments for acquisition of investments............................................... (54,813) (19,852) (3,142)
Proceeds from dispositions of cellular interests...................................... 446 1,204 --
Capital contributions to unconsolidated cellular entities............................. (651) (344) (1,242)
Net cash used in investing activities............................................ (105,926) (39,984) (22,324)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt.................................................. (334,006) (212,559) (6,067)
Net proceeds from issuance of common stock............................................ 1,415 951 3,082
Proceeds of long-term debt............................................................ 444,500 251,000 21,000
Debt issuance costs................................................................... (11,180) (8,112) --
Other................................................................................. (407) (289) --
Net cash provided by financing activities........................................ 100,322 30,991 18,015
NET DECREASE IN CASH.................................................................... (3,353) (375) (1,560)
CASH, beginning of year 9,098 9,473 11,033
CASH, end of year....................................................................... $ 5,745 $ 9,098 $ 9,473
SUPPLEMENTAL DISCLOSURE OF CASH PAID DURING THE YEAR FOR INTEREST, net of amounts
capitalized........................................................................... $ 21,914 $ 14,862 $ 15,871
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1: ORGANIZATION
Vanguard Cellular Systems, Inc. (Vanguard) (a North Carolina corporation)
is a provider of cellular telephone service to various markets throughout the
eastern United States. The activities of Vanguard, its wholly owned subsidiaries
and its majority owned cellular entities (collectively referred to as the
Company) include acquiring interests in entities which have been granted
nonwireline Federal Communications Commission (FCC) permits to construct or
authorizations to operate cellular telephone systems, and constructing and
operating cellular telephone systems.
All of the Company's cellular entities operate under the trade name of
CELLULARONE(Register mark), which is the trade name many nonwireline carriers
have adopted to provide conformity throughout the industry. The trade name is
owned by a partnership in which the Company holds a minority ownership interest.
NOTE 2: SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Vanguard, its
wholly owned subsidiaries and the entities in which it has a majority ownership
interest. Investments in which the Company exercises significant influence but
does not exercise control through majority ownership have been accounted for
using the equity method of accounting. Investments in which the Company does not
exercise significant influence or control through majority ownership have been
accounted for using the cost method of accounting. All significant intercompany
accounts and transactions have been eliminated.
CELLULAR TELEPHONE INVENTORIES
Inventories, consisting primarily of cellular telephones held for resale,
are valued at the lower of first-in, first-out (FIFO) cost or market.
INVESTMENTS
INVESTMENTS IN CELLULAR ENTITIES -- Investments in cellular entities
consist of the costs incurred to acquire FCC licenses or interests in entities
that have been awarded FCC licenses to provide cellular service, and capital
contributions to unconsolidated cellular entities. Acquisition costs, referred
to as deferred cellular license acquisition costs, consist primarily of amounts
paid for the acquisition of ownership interests and payments of other
acquisition related expenses, net of the Company's share of the fair value of
the net assets acquired. Exchanges of minority ownership interests in cellular
entities are recorded based on the fair value of the ownership interests
acquired.
The Company recognizes its pro rata share of the net income or losses
generated by the unconsolidated cellular entities carried on the equity method.
OTHER INVESTMENTS -- Other investments consist of the market value of the
Company's investment in Geotek Communications, Inc. and the cost of the
Company's investment in International Wireless Communications, Inc.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is calculated on
a straight-line basis for financial reporting purposes over the following
estimated useful lives:
<TABLE>
<S> <C>
Buildings................................................................................ 20 years
Cellular telephones held for rental...................................................... 3 years
Cellular telephone systems............................................................... 7-20 years
Office furniture and equipment........................................................... 3-10 years
</TABLE>
F-6
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 2: SIGNIFICANT ACCOUNTING AND REPORTING POLICIES -- CONTINUED
Effective January 1, 1994, the Company changed the depreciable lives of
certain of its property and equipment to more closely approximate its historical
experience and the 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 1994 by
approximately $4,500.
At December 31, 1994 and 1993, construction in progress was composed
primarily of the cost of uncompleted additions to the Company's cellular
telephone systems in majority owned cellular markets. The Company capitalized
interest costs of $684, $188 and $188 in 1994, 1993 and 1992, respectively, as
part of the cost of cellular telephone systems.
Maintenance, repairs and minor renewals are charged to operations as
incurred. Gains or losses at the time of disposition of property and equipment
are reflected in the statements of operations currently.
Cellular telephones are rented to certain customers generally with a
contract for a minimum stipulated length of service. Such customers have the
option to purchase the cellular telephone at any time during the term of the
agreement.
OTHER ASSETS
Other assets include deferred financing costs (Note 4) which are being
amortized over the period of the related agreements. Amortization of $1,196,
$953 and $709 has been included in interest expense in the accompanying December
31, 1994, 1993 and 1992 Statements of Operations, respectively. In addition,
payments related to agreements not to compete in certain cellular markets are
being amortized over the period of the related agreements. Amortization expense
relating to these agreements of $160, $1,325 and $1,316 has been included in the
accompanying December 31, 1994, 1993 and 1992 Statements of Operations,
respectively. Other assets also include $4,200 allocated to the acquired
customer bases in connection with the acquisitions of the Binghamton and Elmira
MSAs which occured in December 1994.
REVENUE RECOGNITION
Service fees are recognized at the time cellular services are provided and
service fees related to prebilled services are not recognized until earned.
Cellular telephone equipment revenues consist primarily of sales of cellular
telephones to subscribers and are recognized at the time equipment is delivered
to the subscriber.
INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The
Company adopted this Statement effective January 1, 1993. The effect of the
change in accounting on the Company's financial position and results of
operations is immaterial.
NET LOSS PER SHARE
Net loss per share is computed based upon the weighted average number of
common shares outstanding during the year. Stock options have not been included
in the calculation of net loss per share as their effect would be antidilutive.
STATEMENTS OF CASH FLOWS
Additional required disclosures of noncash investing and financing
activities for the years ended December 31, 1994, 1993 and 1992 are as follows:
F-7
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 2: SIGNIFICANT ACCOUNTING AND REPORTING POLICIES -- CONTINUED
The Company acquired ownership interests in certain cellular entities and
other investments for cash and noncash consideration, as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Fair value of investments acquired.......................................................... $105,296 $35,266 $ 5,482
Fair value of noncash consideration:
Cellular licenses and interests........................................................... 882 6,938 215
Issuance of common stock.................................................................. 47,551 9,680 2,125
Stock received for management consulting services......................................... 2,496 -- --
50,929 16,618 2,340
Net cash paid............................................................................... 54,367 18,648 3,142
Proceeds from dispositions of cellular interests............................................ 446 1,204 --
Cash acquisitions of investments............................................................ $ 54,813 $19,852 $ 3,142
</TABLE>
The Company acquired property and equipment for cash and noncash
consideration, as follows:
<TABLE>
<S> <C> <C> <C>
Cash......................................................................................... $51,017 $21,009 $18,243
Increase in accounts payable................................................................. 11,615 -- --
$62,632 $21,009 $18,243
</TABLE>
RECLASSIFICATION
Certain amounts in the 1993 and 1992 financial statements have been
reclassified to conform to the 1994 presentation. The Company reclassified
certain direct pass through items previously recognized as service revenue in
its Statements of Operations to 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. The
reclassification has had no effect on the Company's net loss or net loss per
share.
F-8
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 3: INVESTMENTS
Investments consist of the following as of December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Investments in Cellular Entities:
Consolidated cellular entities:
Deferred cellular license acquisition costs...................................................... $223,051 $168,498
Accumulated amortization......................................................................... (23,119) (18,812)
199,932 149,686
Cellular entities carried on the equity method:
Capital contributions............................................................................... 10,193 10,193
Accumulated share of losses......................................................................... (106) (313)
10,087 9,880
Cellular entities carried on the cost method:
Deferred cellular license acquisition costs......................................................... 12,473 13,661
Capital contributions............................................................................... 4,412 4,188
16,885 17,849
226,904 177,415
Other Investments..................................................................................... 30,299 --
$257,203 $177,415
</TABLE>
Investments in Cellular Entities
The Company continues to expand its ownership of cellular markets through
strategic acquisitions. The Company's significant activity relating to its
cellular investments is as follows:
CONSOLIDATED CELLULAR ENTITIES
The Company completed the acquisition of the PA-11 RSA in March 1992, for a
purchase price of $2,615 including a covenant not to compete of $480. The
purchase price consisted of cash, 101,674 shares of the Company's Class A common
stock and the exchange of certain minority interests. In August 1992, the
Company purchased an additional 5.88% ownership interest in the Harrisburg, PA
MSA in exchange for $2,517 in cash.
In August 1993, the Company completed the acquisition of the PA-12 RSA for
a purchase price of $9,735 which consisted of cash and the issuance of 464,064
shares of the Company's Class A common stock.
In October 1993, the Company completed the acquisition, valued at
approximately $23,000, of additional ownership interests in four majority owned
markets in the Mid-Atlantic Supersystem in exchange for ownership interests in
certain minority owned cellular markets outside its regional metro-clusters and
$18,200 in cash.
In April 1994, the Company completed the acquisition of the Altoona, PA MSA
and the Chambersburg, PA (PA-10) RSA, which are contiguous to its Mid-Atlantic
Supersystem in exchange for $4,400 in cash, the exchange of Hagerstown, MD
cellular market and the Company's minority ownership interest in one cellular
market.
The Company purchased in October 1994, for $6,900 in cash and $3,300 in the
Company's Class A common stock, the Washington, Maine (ME-4) RSA and three of
the four counties of the Mason, West Virginia (WV-1) RSA. The Maine RSA is
approximately 40 miles north of the Portland, Maine MSA, which is already
operated by the Company. The West Virginia RSA is contiguous to the Company's
Charleston, West Virginia MSA.
On December 14, 1994, the Company purchased the Binghamton, New York MSA
and the Elmira, New York MSA for a purchase price consisting of 1,766,674 shares
of the Company's Class A common stock and $6,100 in cash. These markets are
contiguous to the Company's Mid-Atlantic Supersystem.
F-9
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 3: INVESTMENTS -- CONTINUED
Pro forma consolidated results of operations, as if the acquisitions of the
Altoona, PA MSA, the ME-4 RSA, the WV-1 RSA, the Binghamton, New York MSA and
the Elmira, New York MSA had occurred January 1, 1993, are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1994 1993
<S> <C> <C>
Revenues.............................................................................................. $176,277 $116,180
Net loss before extraordinary item.................................................................... (15,159) (17,844)
Net loss.............................................................................................. (23,561) (21,559)
Net loss per share before extraordinary item.......................................................... (0.37) (0.45)
Net loss per share.................................................................................... (0.58) (0.54)
</TABLE>
In January 1995, the Company purchased the Union, Pennsylvania (PA-8) RSA
for a cash purchase price of $51,300 with borrowings under its credit facility.
The PA-8 RSA lies in the center of the Company's Mid-Atlantic Supersystem.
CELLULAR ENTITIES ON THE EQUITY METHOD
The Company holds an investment in a joint venture, owned 50% by the
Company, created to acquire, own and operate various cellular markets located
primarily in eastern North Carolina. The underlying net assets of the joint
venture consist principally of its investment in the FCC licenses in the
Wilmington, NC and Jacksonville, NC cellular markets.
CELLULAR ENTITIES ON THE COST METHOD
The investment balance of $16,885, at December 31, 1994 represents the
Company's investment in approximately 50 cellular markets with ownership
interests ranging from 0.3% to 18.3%. The Company holds these ownership
interests for investment purposes.
Other Investments
GEOTEK COMMUNICATIONS, INC.
In February 1994, the Company purchased for $30,000 from Geotek
Communications, Inc. (Geotek) 2,500,000 shares of Geotek common stock and
options to invest up to $167,000 for an aggregate of 10,000,000 additional
shares. Geotek is a telecommunications company that is developing an Enhanced
Specialized Mobile Radio (ESMR) wireless communications network in the United
States based on its Frequency Hopping Multiple Access digital technology (FHMA).
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. The Series A options expire upon the commercial validation (as
defined) of Geotek's first SMR system using FHMA (the Series A Expiration Date).
The Series B and Series C options expire 1 year and 2 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 5-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.
The Company recognized revenues of $2,496 related to the provision of management
consulting services to Geotek during 1994.
As of December 31, 1994, the Company has purchased or earned under the
management consulting agreement approximately 2,750,000 shares of Geotek common
stock representing approximately 5.5% of Geotek's outstanding shares. 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.
F-10
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 3: INVESTMENTS -- CONTINUED
Under the provisions of Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities", this
investment is classified as "available for sale". As such, the investment is
recorded at its market value, and a net unrealized holding loss of $9,310 has
been recognized as a separate component of shareholders' equity.
The Company funded its initial $30,000 investment in Geotek using
borrowings under its credit facility. Under the terms of its credit facility,
the Company is permitted to fund the exercise of the Series A options for
$30,000. In order to exercise any of the Series B or C options, the Company will
be required to seek lender approval for borrowings under the credit facility or
other financing alternatives.
INTERNATIONAL WIRELESS COMMUNICATIONS, INC.
The Company owns 19.9% of the outstanding stock of International Wireless
Communications, Inc. ("IWC") representing an aggregate investment of $6,600. IWC
is a development stage company specializing in securing, building and operating
wireless businesses other than cellular telephone systems primarily in Latin
America and Southeast Asia. The Company's investment in IWC is carried at cost
in the accompanying financial statements.
NOTE 4: LONG-TERM DEBT
Long-term debt consisted of the following as of December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Borrowings under the 1994 Credit
Facility:
Term Loan........................................................................................... $325,000 $ --
Revolving Loan...................................................................................... 23,500 --
Borrowings under the 1993 Loan Agreement:
Facility A Loan..................................................................................... -- 120,000
Facility B Loan..................................................................................... -- 68,000
Facility C Loan..................................................................................... -- 50,000
Other long-term debt.................................................................................. 149 153
$348,649 $238,153
</TABLE>
The future maturities of the principal amount outstanding at December 31,
1994 were as follows:
<TABLE>
<S> <C>
1995...................................................................................... $ --
1996...................................................................................... --
1997...................................................................................... --
1998...................................................................................... 26,287
1999...................................................................................... 43,563
Thereafter................................................................................ 278,799
Total..................................................................................... $348,649
</TABLE>
On December 23, 1994, the Company completed the closing of a $675 million
credit facility, pursuant to an Amended and Restated Loan Agreement (the "1994
Credit Facility"), with various lenders led by The Toronto-Dominion Bank and The
Bank of New York.
The 1994 Credit Facility is available to provide the Company with
additional financial and operating flexibility and enable it to pursue business
opportunities that may arise in the future. The 1994 Credit Facility refinanced
the Company's then existing $390 million credit facility (the "1993 Loan
Agreement"). The 1993 Loan Agreement closed in April 1993 and refinanced the
Company's previously existing credit facility. In connection with the
refinancings, the Company recorded
F-11
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 4: LONG-TERM DEBT -- CONTINUED
extraordinary losses of $8,402 ($0.22 per share) in 1994 and $3,715 ($0.10 per
share) in 1993, which represented the write-offs of all unamortized deferred
financing costs related to the refinanced facilities.
The 1994 Credit Facility consists of a "Term Loan" and a "Revolving Loan."
The Term Loan, in the amount of $325,000, was used to repay the Company's
borrowings under the 1993 Loan Agreement. The Revolving Loan, in the amount of
up to $350,000, is available for capital expenditures, to make acquisitions of
and investments in cellular and other wireless communication interests, and for
other general corporate purposes. As of December 31, 1994, $326,500 was
available for future expenditures under the Revolving Loan, as amended.
The outstanding amount of the Term Loan as of March 30, 1998 is to be
repaid in increasing quarterly installments commencing on March 31, 1998 and
terminating at the maturity date of December 31, 2003. The quarterly installment
payments begin at 1.875% of the outstanding principal amount at March 30, 1998
and gradually increase to 5.625% at March 31, 2003. The available borrowings
under the Revolving Loan shall be reduced on a quarterly basis also commencing
on March 31, 1998 and terminating on December 31, 2003. The quarterly reduction
begins at 1.875% of the Revolving Loan commitment at March 30, 1998 and
gradually increases to 5.625% on March 31, 2003. The outstanding borrowings
under the Term Loan are due and the Revolving Loan commitment is reduced
quarterly as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING LOANS
<S> <C>
1996............................................................................... -- %
1997............................................................................... --
1998............................................................................... 7.5
1999............................................................................... 12.5
2000............................................................................... 15.0
2001............................................................................... 20.0
2002............................................................................... 22.5
2003............................................................................... 22.5
100.0%
</TABLE>
The Term Loan and the Revolving Loan bear interest at a rate equal to the
Company's choice of the Prime Rate or Eurodollar Rate plus an applicable margin
based upon a leverage ratio for the most recent fiscal quarter. The ranges for
this applicable margin are 0.0% to 1.375% for the Prime Rate and 1.125% to
2.625% for the Eurodollar Rate. As of December 31, 1994 the leverage ratio,
which is computed as the ratio of Total Debt (as defined) to Adjusted Cash Flow
(as defined), was at such a level as to cause the applicable margins on the
borrowings to be 0.375% and 1.625% per annum for the Prime Rate and Eurodollar
Rate, respectively. At December 31, 1994, the Company's effective interest rate
on its outstanding borrowings was 8.875%.
As security for borrowings under the 1994 Credit Facility, the Company has
pledged substantially all of its tangible and intangible assets and future cash
flows. Among other restrictions, the credit facility restricts the payment of
cash dividends, limits the use of borrowings, limits the creation of additional
long-term indebtedness and requires the maintenance of certain financial ratios.
The Company is in compliance with all loan covenants.
The Company maintains interest rate swaps and interest rate caps which
provide protection against interest rate risk. At year-end the Company had
interest rate cap agreements in place covering a notional amount of $270,000.
The interest rate cap agreements provide protection to the extent that LIBOR
exceeds 5.5% through July 1995 or 9.0% through December 1997. The total cost of
these interest rate cap agreements of $687 has been recorded in other assets in
the consolidated balance sheets and is being amortized over the lives of the
agreements as a component of interest expense.
Additionally, the Company maintains interest rate swap agreements that fix
the LIBOR interest rate at 6.9% on a notional amount of $100,000 through June
1995 and 6.1% on a notional amount of $210,000 through March 1995. Under these
swap agreements, the Company benefits if LIBOR interest rates increase above the
fixed rates and incurs additional
F-12
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 4: LONG-TERM DEBT -- CONTINUED
interest expense if rates remain below the fixed rates. Any amounts received or
paid under these agreements are reflected as interest expense over the period
covered.
The fair value of these interest rate protection agreements is estimated to
be $1,800 and reflects the quoted market value of these contracts at December
31, 1994. The effect of interest rate protection agreements on the operating
results of the Company was to increase interest expense by $95, $884 and $2,510
in 1994, 1993 and 1992, respectively.
NOTE 5: COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space, furniture, equipment, vehicles and land
under noncancelable operating leases expiring through 2019. As of December 31,
1994, the future minimum rental payments under these lease agreements having an
initial or remaining term in excess of one year were as follows:
<TABLE>
<S> <C>
1995....................................................................................... $ 4,454
1996....................................................................................... 3,899
1997....................................................................................... 3,583
1998....................................................................................... 2,277
1999....................................................................................... 2,079
Thereafter................................................................................. 28,841
$45,133
</TABLE>
Rent expense under operating leases was $4,178, $3,461 and $3,242, for the
years ended December 31, 1994, 1993 and 1992, respectively.
CONSTRUCTION AND CAPITAL COMMITMENTS
Capital expenditures for 1995 are estimated to be approximately $130,000
for the Company, and are expected to be funded primarily with proceeds from the
1994 Credit Facility (Note 4).
LITIGATION
In June 1989, a suit was filed by a group of former partners in the San
Juan Cellular Settlement Partnership which alleged that the Company and two of
its officers breached fiduciary duties and acted fraudulently in connection with
settlement of licensing proceedings concerning the San Juan, PR market and
certain other markets. The Company settled this litigation with all plaintiffs
and such amounts are included in the accompanying financial statements.
Additionally, the Company is involved in various other legal proceedings
arising in the normal course of business. In the opinion of management, the
outcome of the above legal proceedings will not have a material adverse effect
on the consolidated financial position or results of operations of the Company.
NOTE 6: INCOME TAXES
As of January 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires recognition of future tax benefits, to the extent that
realization of such benefits is more likely than not, attributable to deductible
temporary differences between the financial statement and income tax basis of
assets and liabilities and to tax net operating loss carryforwards. The adoption
of SFAS 109 did not impact the Company's financial position or results of
operations.
F-13
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 6: INCOME TAXES -- CONTINUED
The components of net deferred taxes as of December 31, 1994 and 1993 were
as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................................................................... $119,073 $100,723
Property and equipment.............................................................................. 7,052 --
Other liabilities and reserves...................................................................... 1,854 1,792
Valuation allowance................................................................................. (61,432) (57,880)
Total deferred tax assets........................................................................... 66,547 44,635
Deferred tax liabilities:
Investments and other intangible assets............................................................. 66,547 43,909
Property and equipment.............................................................................. -- 726
Total deferred tax liabilities...................................................................... 66,547 44,635
Net deferred taxes.................................................................................... $ -- $ --
</TABLE>
The valuation allowance of $57,880 as of December 31, 1993 was provided
because, in the Company's assessment, it was uncertain whether the net deferred
tax assets would be realized. In addition, the Company provided an additional
valuation allowance to offset the 1994 net deferred tax benefit of $3,552
because of its continuing assessment that it is uncertain whether the net
deferred tax assets will be realized.
For Federal income tax reporting purposes, the Company had net operating
loss carryforwards of approximately $315,000 at December 31, 1994. These losses
may be used to reduce future taxable income, if any, and expire through 2009.
These carryforwards may be subject to annual limitation in the future in
accordance with the Tax Reform Act of 1986. The primary differences between the
accumulated deficit for financial reporting purposes and the income tax loss
carryforwards relate to the differences in the treatment of certain deferred
cellular license acquisition costs, certain gains on dispositions of cellular
interests, partnership losses, depreciation methods, estimated useful lives and
compensation earned under the stock compensation plan.
Of the total net operating loss carryforwards, approximately $79,000
relates to additional deductions arising from restricted stock bonuses, stock
options and stock purchase warrants. To the extent that the benefit of these
carryforwards is realized in future years, the tax benefit will be recorded
directly to additional capital in excess of par.
NOTE 7: CAPITAL STOCK
COMMON STOCK
In July 1994, the Board of Directors declared a 3 for 2 stock split of the
Company's Class A common stock which was effected in the form of a dividend paid
to shareholders on August 24, 1994 with cash paid for resultant fractional
shares. The effect of the split has been retroactively applied to all Class A
common stock and per share amounts disclosed in the accompanying financial
statements and footnotes.
ACQUISITION OF CELLULAR INTERESTS
During 1990, the Company registered 4,500,000 shares of its Class A common
stock and 3,000,000 shares of its Class B common stock. The shares may be
offered in connection with the acquisition of entities which have received or
may receive an authorization or license from the FCC to provide cellular
service. Through December 31, 1994, 2,707,957 shares of Class A common stock
have been issued in conjunction with the acquisitions of the PA-12, PA-11, PA-5,
WV-1, and ME-4 RSAs, and the Binghamton and Elmira MSAs.
STOCK COMPENSATION PLANS
Under the provisions of the Stock Compensation Plan (the Plan), the Company
may grant up to 5,850,000 shares of the Company's Class A common stock to
officers, directors and key employees in the form of nonqualified stock options,
F-14
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 7: CAPITAL STOCK -- CONTINUED
restricted stock bonuses or incentive stock options. Nonqualified stock options
must require exercise prices of not less than 85% of the fair market value of
the Company's Class A common stock on the date of the grant, except where
nonqualified stock options are issued for the conversion of stock purchase
warrants. As of December 31, 1994, 24,213 shares were available for future
grants.
During 1989, the Board adopted the 1989 Stock Option Plan (the 1989 Plan).
Under the provisions of the 1989 Plan, the Company may grant up to 3,000,000
shares of the Company's Class A common stock to officers and key employees in
the form of nonqualified or incentive stock options. Nonqualified stock options
must require exercise prices of not less than the fair market value of the
Company's Class A common stock on the date of the grant. As of December 31,
1994, 586,417 shares were available for future grants.
During 1994, the Board adopted the 1994 Long-Term Incentive Plan (the 1994
Plan). Under the provisions of the 1994 Plan, the Company may grant up to
3,000,000 shares of the Company's Class A common stock to officers, directors
and key employees in the form of nonqualified stock options, incentive stock
options, stock appreciation rights, unrestricted stock, restricted stock and
performance shares. All stock options must require exercise prices of not less
than the fair market value of the Company's Class A common stock on the date of
the grant, except that certain incentive stock options must require exercise
prices of not less than 110% of fair market value of the Company's Class A
common stock on the date of the grant. As of December 31, 1994, 2,250,000 shares
were available for future grants.
Options granted under the Plans may not have a term greater than ten years
from the date of grant and are not transferable except upon death.
RESTRICTED STOCK BONUSES
During 1987, the Board granted restricted stock bonuses for a total of
3,469,554 shares of Class A common stock (i) to three key officers for 1,077,768
shares each and (ii) to a director and a key employee for an aggregate of
236,250 shares. In the event of a change in control of the Company prior to
December 31, 1998, the participants will be reimbursed for certain individual
income tax payments, as defined, on the shares vesting after February 1991. As
of December 31, 1994, all of the shares have vested.
STOCK PURCHASE WARRANTS
Stock purchase warrants for 150,000 shares at a price of $8.00 per share
were exercised in 1992, and as of December 31, 1994, the Company has no
outstanding stock purchase warrants.
STOCK OPTIONS
Under the terms of the Company's Stock Compensation Plans, the Board has
granted incentive stock options and nonqualified stock options requiring
exercise prices approximating the fair market value of the Company's Class A
common stock on the date of the grant.
F-15
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 7: CAPITAL STOCK -- CONTINUED
Stock option activity under the Plans was as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICE
UNDER OPTION PER SHARE
<S> <C> <C>
Balance, January 1, 1992............................................................ 2,554,734 $2.22 to $24.00
Granted............................................................................. 15,000 $14.25
Exercised........................................................................... (591,904) $2.22 to $17.17
Forfeited........................................................................... (57,600) $13.17 to $17.17
Balance, December 31, 1992.......................................................... 1,920,230 $2.22 to $24.00
Granted............................................................................. 1,043,550 $15.17 to $15.75
Exercised........................................................................... (90,150) $2.22 to $13.92
Forfeited........................................................................... (11,205) $13.92 to $17.17
Balance, December 31, 1993.......................................................... 2,862,425 $2.22 to $24.00
Granted............................................................................. 1,140,743 $19.25 to $21.50
Exercised........................................................................... (210,719) $2.22 to $17.17
Forfeited........................................................................... (15,332) $13.92 to $15.58
Balance, December 31, 1994.......................................................... 3,777,117 $2.22 to $24.00
</TABLE>
These options expire at various dates through 2004. Options for 1,692,125
shares had vested at December 31, 1994 and were exercisable at prices ranging
from $2.22 to $24.00.
SHARES RESERVED FOR ISSUANCE
At December 31, 1994, 6,637,747 shares of the Company's Class A common
stock are reserved primarily for exercise and grant under the Company's stock
compensation plans. In addition, 1,792,043 shares of Class A common stock and
3,000,000 shares of Class B common stock are reserved for issuance in
conjunction with the acquisition of cellular interests discussed above.
NOTE 8: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses were composed of the following at
December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Accounts payable........................................................................................ $25,030 $10,704
Accrued expenses:
Interest.............................................................................................. 129 1,190
Payroll and commissions............................................................................... 5,865 3,176
Other................................................................................................. 9,665 6,400
$40,689 $21,470
</TABLE>
F-16
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 9: QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1994 QUARTERS FIRST SECOND THIRD FOURTH TOTAL
<S> <C> <C> <C> <C> <C>
Revenues.............................................................. $33,091 $40,755 $44,717 $49,438 $168,001
Income from operations................................................ 1,442 3,430 5,989 1,005 11,866
Net loss before extraordinary item.................................... (3,055) (1,243) (263) (9,384) (13,945)
Net loss (1).......................................................... (3,055) (1,243) (263) (17,786) (22,347)
Net loss per share before extraordinary item.......................... (0.08) (0.03) (0.01) (0.24) (0.36)
Net loss per share (1)................................................ (0.08) (0.03) (0.01) (0.46) (0.58)
<CAPTION>
1993 QUARTERS FIRST SECOND THIRD FOURTH TOTAL
<S> <C> <C> <C> <C> <C>
Revenues.............................................................. $21,682 $26,451 $30,161 $30,770 $109,064
Income (loss) from operations......................................... (1,653) 3 1,750 22 122
Net loss before extraordinary item.................................... (5,436) (3,999) (1,826) (4,022) (15,283)
Net loss (2).......................................................... (5,436) (7,714) (1,826) (4,022) (18,998)
Net loss per share before extraordinary item.......................... (0.14) (0.11) (0.05) (0.10) (0.40)
Net loss per share (2)................................................ (0.14) (0.20) (0.05) (0.10) (0.50)
</TABLE>
(1) The fourth quarter of 1994 includes an extraordinary item of $8,402 ($0.22
per share) relating to the write-off of deferred financing costs associated
with the Company's 1993 Loan Agreement that was refinanced in December 1994.
(2) The second quarter of 1993 includes an extraordinary item of $3,715 ($0.09
per share) relating to the write-off of deferred financing costs associated
with the Company's 1989 credit facility that was refinanced in April, 1993.
F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Vanguard Cellular Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Vanguard
Cellular Systems, Inc. (a North Carolina corporation) and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Vanguard Cellular Systems,
Inc. and subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements and schedule is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. The schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Greensboro, North Carolina,
February 20, 1995.
F-18
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE PROVISION
AT CHARGED TO
BEGINNING COSTS AND
OF PERIOD EXPENSES DEDUCTIONS(1) ACQUISITIONS(2)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended December 31, 1992................................ $ 2,652 $ 991 $(1,685) $ --
Year ended December 31, 1993................................ $ 1,958 $1,794 $(1,981) $ --
Year ended December 31, 1994................................ $ 1,771 $3,059 $(2,134) $ 65
<CAPTION>
BALANCE AT
END OF
PERIOD
<S> <C>
Allowance for doubtful accounts
Year ended December 31, 1992................................ $1,958
Year ended December 31, 1993................................ $1,771
Year ended December 31, 1994................................ $2,761
</TABLE>
(1) Accounts written off during the period.
(2) Represents allowance for doubtful accounts for entities acquired during the
period.
F-19
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
<C> <S> <C>
* 3 (a) Charter of the Registrant, filed as Exhibit 3(a) to the Registrant's
Registration Statement on Form S-1 (File No. 33-18067).
* 3 (b) 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).
* 3 )(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.
* 3 )(2) Amendment to the Bylaws adopted September 11, 1991, filed as Exhibit
4(c)(2) to the Registrant's Form 8 Amendment to Registrant's Form 10-Q
for the quarter ended June 30, 1991.
* 4 (a) Specimen Common Stock Certificate, filed as Exhibit 4(a) to the
Registrant's Registration Statement on Form S-1 (File No. 33-18067).
* 4 )(1) Amended and Restated 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 December 23, 1994, filed as Exhibit 2(a) to the
Registrant's Current Report on Form 8-K dated as of December 23, 1994.
* 4 )(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 December 23, 1994, filed as Exhibit 2(b) to the Registrant's
Current Report on Form 8-K dated as of December 23, 1994.
* 4 )(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 December 23, 1994,
filed as Exhibit 2(c) to the Registrant's Current Report on Form 8-K
dated as of December 23, 1994.
* 10 )(1) Amended and Restated Stock Compensation Plan of the Registrant approved
April 22, 1987 by the Shareholders of the Registrant, with forms of
stock bonus and stock option agreements attached, filed as Exhibit 10
(a) to the Registrant's Registration Statement, on Form
S-1 (File No. 33-18067).
* 10 )(2) Amendment to Amended and Restated Stock Compensation Plan of the
Registrant approved May 2, 1989 by the Shareholders of the Registrant,
filed as Exhibit 4(h)(2) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1989.
* 10 )(3) Form of Restricted Stock Bonus Agreements dated March 23, 1987 between
the Registrant and Stuart S. Richardson, Haynes G. Griffin, L.
Richardson Preyer, Jr., Stephen R. Leeolou and Stephen L. Holcombe, and
form of amendments dated October 12, 1987 to agreements with Messrs.
Richardson, Griffin, Preyer and Leeolou, filed as Exhibit 10(a)(3) to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988.
* 10 )(4) Form of Restricted Stock Bonus Agreements dated October 12, 1987 between
the Registrant and Haynes G. Griffin, Stephen R. Leeolou and L.
Richardson Preyer, Jr., filed as Exhibit 10(a)(4) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1988.
* 10 )(5) Form of Amendment to Restricted Stock Bonus Plan Agreements dated as of
March 1, 1990 by and between Haynes G. Griffin, L. Richardson Preyer,
Jr., Stephen R. Leeolou, and Stephen L. Holcombe and the Registrant,
amending the Restricted Stock Bonus Plan Agreements dated as March 23,
1987, filed as Exhibit 10(a)(5) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
<C> <S> <C>
* 10 )(6) Form of Amendment to Restricted Stock Bonus Plan Agreements dated as of
March 1, 1990 by and between Haynes G. Griffin, L. Richardson Preyer,
Jr. and Stephen R. Leeolou and the Registrant, amending the Restricted
Stock Bonus Plan Agreements dated as October 12, 1987, filed as Exhibit
10(a)(6) to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990.
* 10 )(7) Form of Second Amendment to Restricted Stock Bonus Plan Agreements dated
February 22, 1991 between the Registrant and Haynes G. Griffin, Stephen
R. Leeolou, and L. Richardson Preyer, Jr., amending the Restricted Stock
Bonus Agreements dated October 12, 1987, filed as Exhibit 10(a)(7) to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990.
* 10 )(8) Form of Third Amendment to Restricted Stock Bonus Plan Agreements dated
February 22, 1991 between the Registrant and Haynes G. Griffin, Stephen
R. Leeolou, L. Richardson Preyer, Jr., and Stephen L. Holcombe, amending
the Restricted Stock Bonus Agreements dated March 23, 1987, filed as
Exhibit 10(a)(8) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990.
* 10 )(9) Form of Third Amendment to Restricted Stock Bonus Plan Agreement dated
February 22, 1991 between the Registrant and Stuart S. Richardson,
amending the Restricted Stock Bonus Plan Agreement dated March 23, 1987,
filed as Exhibit 10(a)(9) to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990.
10 (10) Employment Agreement dated March 1, 1995 by and between the Registrant
and Haynes G. Griffin.
10 (11) Employment Agreement dated March 1, 1995 by and between the Registrant
and L. Richardson Preyer, Jr.
10 (12) Employment Agreement dated March 1, 1995 by and between the Registrant
and Stephen R. Leeolou.
* 10 (13) Executive Officer Long-Term Incentive Compensation Plan adopted October
1, 1990 by the Registrant, filed as Exhibit 10(a)(13) to the
Registrant's Annual Report on Form 10-K to the fiscal year ended
December 31, 1990.
* 10 (14) Form on Nonqualified Option Agreements dated October 12, 1987 between
the Registrant and Stephen L. Holcombe, Ralph E. Hiskey, John F. Dille,
Jr., Charles T. Hagel, L. Richardson Preyer, Sr. and Robert A.
Silverberg, filed as Exhibit 10(a)(5) to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1988.
* 10 (15) Nonqualified Option Agreements dated October 12, 1987 between the
Registrant and Robert M. DeMichele, John F. Dille, Jr., L. Richardson
Preyer, Sr., Robert A. Silverberg and Thomas I. Storrs, filed as Exhibit
10(a)(8) to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1988.
* 10 (16) Form of Incentive Stock Option Agreements dated March 3, 1988 between
the Registrant and Stephen L. Holcombe and Richard C. Rowlenson, filed
as Exhibit 10(a)(9) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988.
* 10 (17) Form of Incentive Stock Option Agreements dated June 23, 1988 between
the Registrant and Charles T. Hagel, Haynes G. Griffin, L. Richardson
Preyer, Jr., and Stephen R. Leeolou, filed as Exhibit 10(a)(10) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988.
10 (18) 1994 Long-Term Incentive Plan of the Registrant approved May 4, 1994 by
the Shareholders of the Registrant, as amended by the Registrant's Board
of Directors on July 20, 1994.
10 (19) Senior Management Severance Plan of the Registrant adopted March 8,
1995.
10 (20) Form of Severance Agreement for Senior Management Employees of the
Registrant.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
<C> <S> <C>
* 10 )(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
December 23, 1994, filed as Exhibit 2(a) to the Registrant's Current
Report on Form 8-K dated as of December 23, 1994.
* 10 )(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 December 23, 1994, filed as Exhibit 2(b) to the Registrant's
Current Report on Form 8-K dated as of December 23, 1994.
* 10 )(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 December 23, 1994
filed as Exhibit 2(c) to the Registrant's Current Report on Form 8-K
dated as of December 23, 1994.
* 10 )(1) 1993 Employee Stock Purchase Plan of the Registrant approved May 5, 1993
by the Shareholders of the Registrant, filed as Exhibit 28(a) to the
Registrant, filed as Exhibit 28 (a) to the Registrant's Registration
Statement on Form S-8, (File No. 33-69824).
* 10 )(2) Form of Option Letter and Subscription Agreement, filed as Exhibit 28(b)
to the Registrant's Registration Statement in Form S-8 (File No.
33-69824).
* 10 )(1) 1989 Stock Option Plan of the Registrant approved by the Board of
Directors of the Registrant on December 21, 1989, and approved by
Shareholders at a meeting held on May 10, 1990, filed as Exhibit
10(h)(1) to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1989.
* 10 )(2) Form of Nonqualified Stock Option Agreements dated March 1, 1990 between
the Registrant and Haynes G. Griffin, L. Richardson Preyer, Jr., Stephen
R. Leeolou, Stephen L. Holcombe, and Stuart S. Richardson, filed as
Exhibit 10(h)(2) to the Registrant's annual Report on Form 10-K for the
fiscal year ended December 31, 1989.
* 10 )(3) Form of Incentive Stock Option Agreement dated March 1, 1990 between the
Registrant and Richard C. Rowlenson, filed as Exhibit 10(h)(2) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989.
* 10 )(4) Form of Incentive Stock Option Agreement dated July 30, 1990 between the
Registrant and Stephen L. Holcombe, Richard C. Rowlenson, Sunir Kochhar
and Timothy G. Biltz, filed as Exhibit 10(f)(4) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1990.
* 10 )(5) Stock Option Agreement dated November 28, 1990 between the Registrant
and Stuart Smith Richardson, filed as Exhibit 10(f)(5) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990.
* 10 )(6) Form of Stock Option Agreements dated November 28, 1990 between the
Registrant and Haynes G. Griffin, Stephen R. Leeolou, L. Richardson
Preyer, Jr. and Stephen L. Holcombe, filed as Exhibit 10(f)(6) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990.
* 10 )(7) Incentive Stock Option Agreements dated November 28, 1990 between the
Registrant and Richard C. Rowlenson, filed as Exhibit 10(f)(7) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990.
* 10 )(1) Joint Venture Agreement by and among W&J Metronet, Inc., Vanguard
Cellular Systems of Coastal Carolina, Inc., Providence Journal
Telecommunications and the Registrant dated as of January 19, 1990,
filed as Exhibit 10(j) to the Registrant's Registration Statement on
Form S-4 (File No. 33-35054).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
<C> <S> <C>
* 10 )(2) First Amendment and Assumption Agreement dated as of the 28th day of
December, 1990 to Joint Venture Agreement by and among W&J Metronet,
Inc., Vanguard Cellular Systems of Coastal Carolina, Inc., Providence
Journal Telecommunications and the Registrant dated as of January 19,
1990, filed as Exhibit 10(g)(2) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990.
* 10 )(1) Stock Purchase Agreement by and between Geotek Industries, Inc. and
Vanguard Cellular Systems, Inc., dated as of December 29, 1993, filed as
Exhibit 1 to Schedule 13D dated December 29, 1993 with respect to the
Common Stock of Geotek Industries, Inc.
* 10 )(2) Option Agreement by and between Geotek Communications, Inc. and Vanguard
Cellular Systems, Inc. dated as of February 23, 1994, filed as Exhibit 3
to Amendment 1 of Schedule 13D dated February 23, 1994 with respect to
the Common Stock of Geotek Communications, Inc.
* 10 )(3) Management Agreement by and between Geotek Communications, Inc. and
Vanguard Cellular Systems, Inc. dated as of February 23, 1994, filed as
Exhibit 4 to Amendment 1 of Schedule 13D dated February 23, 1994 with
respect to the Common Stock of Geotek Communications, Inc.
* 10 )(4) Registration Rights Agreement by and between Geotek Communications, Inc.
and Vanguard Cellular Systems, Inc. dated as of February 23, 1994 filed
as Exhibit 5 to Amendment 1 of Schedule 13D dated February 23, 1994 with
respect to the Common Stock of Geotek Communications, Inc.
* 10 )(5) System Access Agreement by and between Geotek Communications, Inc. and
Vanguard Cellular Systems, Inc. dated as of February 23, 1994, filed as
Exhibit 6 to Amendment 1 of Schedule 13D dated February 23, 1994 with
respect to the Common Stock of Geotek Communications, Inc.
* 10 )(6) Stockholders Voting Agreement dated as of February 23, 1994, filed as
Exhibit 7 to Amendment 1 of Schedule 13D dated February 23, 1994 with
respect to the Common Stock of Geotek Communications, Inc.
11 Calculation of fully diluted net loss per share for the years ended
December 31, 1994, 1993, and 1992.
22 Subsidiaries of the Registrant.
24 Consent of Arthur Andersen LLP to incorporation by reference to the
Registrant's Form S-4 Registration Statement No. 33-35054, Form
S-8 Registration Statement No. 33-22866, Form S-8 Registration Statement
No. 33-36986, and Form S-8 Registration Statement No. 33-53559, and Form
S-8 Registration Statement No. 33-69824.
27 Financial Data Schedule.
</TABLE>
* Incorporated by reference to the statement or report indicated.
Exhibit 10(a)(10)
EMPLOYMENT AGREEMENT
Agreement, made and entered into as of the 1st day of March,
1995, by and between Vanguard Cellular Systems, Inc., a North
Carolina corporation (the "Company"), and HAYNES G. GRIFFIN (the
"Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to assure the continuing services
of the Employee, the Employee desires to continue employment with
the Company, and each desires to enter into an agreement embodying
the terms of such employment;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein, the parties agree as follows:
1. Employment. The Company hereby employs the Employee, and
the Employee hereby accepts employment with the Company, for the
term set forth in paragraph 2 below, in the position and with the
duties and responsibilities set forth in paragraph 3 below, and
upon the other terms and conditions hereinafter stated.
2. Term. The term of this Agreement shall commence as
of the date hereof, and unless otherwise terminated as hereinafter
provided, shall continue for an initial term of three years and
from year to year thereafter until terminated by either party. The
Agreement may be terminated at the end of the initial term or at
the end of any subsequent year (a "Termination Date") by written
notice by either party to the other, given not less than one year
nor more than 15 months prior to the Termination Date reflected in
such notice.
3. Duties; Position. The Employee is engaged as President
and Chief Executive Officer of the Company. The Employee shall be
responsible for such duties as are commensurate with his office
that may from time to time be assigned to the Employee by the
Company's Board of Directors.
4. Compensation. In consideration of the services to be
rendered by the Employee to the Company and in consideration of the
Employee's other covenants hereunder, the Employee will receive an
initial base salary at the rate of $378,000 (such salary as it may
be increased from time to time being hereafter referred to as "Base
Salary"), payable at such intervals as may be established by the
Company from time to time for salary payments to its senior
management employees. The Employee shall receive such increases in
his Base Salary as the Board of Directors of the Company may from
time to time approve in its discretion, provided, however, that the
Employee's Base Salary will be reviewed not less often than
annually. No decreases in Base Salary may be effected without the
written consent of the Employee. The Employee shall also be
eligible to receive such bonuses as the Board of Directors may, in
its discretion, deem appropriate, from time to time.
5. Long-Term Incentive Compensation. The Company has
established the Executive Officer Long-Term Incentive Compensation
Plan, which, by its terms, is binding on the Company and continues
until 1998. The Employee is a participant in that Plan.
6. Employee Benefits. The Employee will be entitled to
participate, in accordance with the provisions thereof, in any
employee benefit plans and programs made available by the Company
to its executive management employees generally and the Company
agrees to continue, in a form no less favorable to the Employee,
those benefits currently in effect.
7. Business Expense Reimbursements. During the period of
his employment under this Agreement, the Employee will be entitled
to reimbursement for all reasonable out-of-pocket expenses incurred
by him in performing his duties hereunder upon presentation by the
Employee, from time to time, of an itemized account of such
expenses and appropriate documentation therefor.
8. Termination of Employment.
(a) Death. In the event of the death of the Employee during
his employment under this Agreement, the following payments shall
be made to the Employee's designated beneficiary, or, in the
absence of such designation, to the estate or other legal
representative of the Employee: (i) the Employee's Base Salary
shall be continued for a period of one year following the date of
his death, and (ii) such bonuses and incentive compensation as
shall have been earned by the Employee and not paid to him at the
time of his death. Any other rights and benefits the Employee's
estate or any other person may have under employee benefit plans
and programs of the Company in the event of the Employee's death
shall be determined in accordance with the terms of such plans and
programs.
(b) Disability. In the event of the disability of the
Employee during his employment under this Agreement (a
"Disability"), the Employee's Base Salary will be continued for a
period of one year following occurrence of the Disability or until
commencement of payments to the Employee equal to not less than 60%
of the Employee's Base Salary under the terms of disability
insurance provided by the Company for the benefit of the Employee,
whichever first occurs. For purposes of this Agreement,
"Disability" shall mean the inability, by reason of bodily injury
or physical or mental disease, or any combination thereof, of the
Employee to perform his customary or other comparable duties with
the Company. In the event the parties are unable to agree as to
whether the Employee is suffering a Disability, the Employee and
the Company shall each select a physician and the two physicians so
chosen shall make the determination or, if they are unable to
agree, they shall select a third physician, and the determination
as to whether the Employee is suffering a Disability shall be based
upon the determination of a majority of the three physicians. Any
other rights and benefits the Employee may have under employee
benefit plans and programs of the Company generally in the event of
the Employee's disability shall be determined in accordance with
the terms of such plans and programs.
(c) Termination for Cause. Nothing herein shall prevent the
Company from terminating the Employee's employment at any time for
Cause (as hereinafter defined). Upon termination for Cause, the
Employee shall receive his Base Salary only through the date of
termination, and neither the Employee nor any other person shall be
entitled to any further payments from the Company, for salary,
unpaid bonuses or any other amounts. Any rights and benefits the
Employee may have under employee benefit plans and programs of the
Company generally following a termination of the Employee's
employment for Cause shall be determined in accordance with the
terms of such plans and programs. For purposes of this Agreement,
termination for Cause shall mean termination due to (i) continued
willful or gross neglect of duties for 30 days following receipt by
the Employee of one or more written warnings from the Board of
Directors of the Company specifying in detail the duties neglected,
(ii) incapacity due to continuing alcohol or drug addiction, (iii)
continued intentional refusal to perform the duties for which
employed 30 days following receipt by the Employee of one or more
written warnings from the Board of Directors of the Company
specifying in detail the Employee's misconduct, (iv) fraud or
embezzlement committed against the Company, or (v) the Employee's
conviction for a felony.
(d) Termination Other Than For Cause. The Company may
terminate the Employee's employment under this Agreement at any
time upon written notice to the Employee for whatever reason it
deems appropriate, or for no reason. In the event such
termination by the Company occurs prior to a "change in control"
(as hereafter defined) and is not due to disability as provided in
paragraph 8(b) above or for Cause as provided in paragraph 8(c)
above, the Employee shall be entitled to the continuation of
payment of his Base Salary, at the rate in effect at the time of
such termination, and to all other benefits to which he is then
entitled hereunder or as an employee of the Company, including,
without limitation, the Executive Officer Long-Term Incentive
Compensation Plan. If such termination occurs following a "change
in control," the provisions of paragraph 8(e) shall govern in lieu
of this paragraph with respect to the amounts payable to the
Employee. In the event of a termination under this paragraph 8(d)
or under paragraph 8(e), the Employee shall be under no obligation
to attempt to mitigate the obligations of the Employee hereunder by
seeking other employment, nor will any income from any other source
be offset against any amounts due hereunder, and the Employee shall
be deemed to have earned the maximum amount payable to him under
the Executive Officer Long-Term Incentive Compensation Plan to the
extent such amounts relate to periods within the term of this
Agreement with all performance goals thereunder having been deemed
to have been satisfied, which amounts shall be paid to him under
that Plan as if his employment had continued.
(e) Change in Position or Employment Conditions; Termination
Other Than for Cause Following a Change in Control. The Employee
may terminate his employment immediately upon written notice to
the Company upon the occurrence, following a "change in control" of
the Company, of any one of the following events: (i) his authority
and/or responsibility are substantially reduced, without his
consent, below that described in paragraph 3, (ii) the Employee is
required to change his residence or principal place of business
from Greensboro, North Carolina, or (iii) the travel obligations
of the Employee are, without his consent, increased materially
above those in effect on the date of this Agreement. If the
Employee's employment is terminated pursuant to this paragraph 8(e)
or if the Employee's employment is terminated pursuant to paragraph
8(d) following a change in control, the Employee shall be entitled
to receive an amount equal a severance payment in an amount equal
to his average annual total cash compensation for the immediately
preceding five fiscal years of the Company, multiplied by 2.99 (the
"Severance Payment"). Upon entitlement, the Severance Payment will
be payable in cash or by certified check within thirty (30) days
following termination of the Employee's employment.
Notwithstanding anything to the contrary contained herein, in the
event that any portion of the Severance Payment received or to be
received by the Employee, together with any other payments received
by him, whether paid or payable pursuant to the terms of this Plan
or any other plan, arrangement or agreement with the Company or any
other person or entity, would not be deductible in whole or in part
by the Company in the calculation of its federal income tax by
reason of Section 280G of the Internal Revenue Code or would
cause, either directly or indirectly, an "excess parachute payment"
to exist within the meaning of said Section 280G, the Severance
Payment payable shall be reduced until no portion of the Severance
Payment would fail to be deductible by reason of being an "excess
parachute payment." In the event that any dispute arises as to
whether an "excess parachute payment" exists, the appropriate
calculations shall be made by the Company's regularly employed
independent public auditors and delivered to the Employee in
writing within 30 days following the date for payment of the
Severance Payment, and the Company will warrant to the Employee the
accuracy of the calculations and the information on which they are
based.
For purposes of this paragraph 8(e), a "change of control"
shall be deemed to have occurred upon the occurrence of any of the
following events:
(i) Any "person" (as such term is used in Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") but excluding any employee
benefit plan of the Company) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the
Company's outstanding securities then entitled ordinarily (and
apart from rights accruing under special circumstances) to
vote for the election of directors; or
(ii) Individuals who are "Continuing Directors" (as
hereinafter defined) cease for any reason to constitute at
least a majority of the Board of Directors; or
(iii) The Board of Directors shall approve a sale of all
or substantially all of the assets of the Company; or
(iv) The Board of Directors shall approve any merger,
consolidation, or like business combination or reorganization
of the Company the consummation of which would result in the
occurrence of any event described in clause (i) or (ii) above.
For purposes of the foregoing, "Continuing Directors" shall
mean (i) the directors of the Company in office on the date hereof
and (ii) any successor to any such director (and any additional
director) who after the date hereof (y) was nominated or selected
by a majority of the Continuing Directors in office at the time of
his nomination or selection and (z) who is not an "affiliate" or
"associate" (as defined in Regulation 12B under the Exchange Act)
of any person who is the beneficial owner, directly or indirectly,
of securities representing 50% or more of the combined voting power
of the Company's outstanding securities then entitled ordinarily to
vote for the election of directors.
9. Covenants Not To Compete.
(a) The Employee hereby promises and agrees that during the
term of this Agreement or for a period of one year following the
termination of his employment with the Company, whichever later
occurs:
(i) He will not, directly or indirectly, own any interest in,
manage, operate, control, be employed by, render consulting or
advisory services to, or participate in or be connected with the
management or control of any business that is then engaged in the
operation of a cellular telephone system (or any competitive
communication system then operated by the Company) in competition
with the Company in the Territory;
(ii) He will not, directly or indirectly, influence or
attempt to influence any customer of the Company to discontinue its
use of the Company's services or to divert such business to any
other person, firm or corporation;
(iii) He will not, directly or indirectly, interfere with,
disrupt or attempt to disrupt the relationship, contractual or
otherwise, between the Company and any of its respective suppliers,
principals, distributors, lessors or licensors; and
(iv) He will not, directly or indirectly, solicit any
employee of the Company, whose base annual salary at the time of
the Employee's termination was $30,000 or more, to work for any
person, firm or corporation.
(b) It is the desire and intent of the parties that the
provisions of paragraph 9(a) shall be enforced to the fullest extent
permitted under the laws and public policies of each jurisdiction in
which enforcement is sought. Accordingly, if any particular portion
of paragraph 9(a) shall be adjudicated to be invalid or
unenforceable, such adjudication shall apply only with respect to the
operation of that portion in the particular jurisdiction in which
such adjudication is made, and all other portions shall continue in
full force and effect.
(c) It is expressly agreed that the provisions and covenants in
this paragraph 9 shall not apply and shall be of no force or effect
in the event that the Company fails to honor its obligations
hereunder.
(d) For purposes of this Section 9, the "Territory" shall mean
any geographic area in which the Company or any subsidiary of the
Company is operating a cellular telephone system immediately prior
to a "change in control" as defined in paragraph 8(e) of this
Agreement.
10. Injunctive Relief. The Employee acknowledges and agrees
that the Company would suffer irreparable injury in the event of a
breach by him of any of the provisions of paragraph 8 of this
Agreement and that the Company shall be entitled to an injunction
restraining him from any breach or threatened breach thereof.
Nothing herein shall be construed, however, as prohibiting the
Company from pursuing any other remedies at law or in equity which
it may have for any such breach or threatened breach of any provision
of paragraph 8 hereof, including the recovery of damages from the
Employee.
11. Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the Employee and his personal
representatives, estate and heirs and to the Company and its
successors and assigns, including without limitation any corporation
or other entity to which the Company may transfer all or
substantially all of its assets and business (by operation of law or
otherwise) and to which the Company may assign this Agreement. The
Employee may not assign this Agreement or any part hereof without the
prior written consent of the Company, which consent may be withheld
by the Company for any reason it deems appropriate.
12. Entire Agreement. This Agreement, together with any
agreements and similar documents entered into between the Company and
the Employee under any stock option, stock compensation or similar
employee benefit plans maintained by the Company, contains the entire
agreement of the parties with respect to the employment of the
Employee by the Company and supersedes and replaces all other
understandings and agreements, whether oral or in writing, if any,
previously entered into by the parties with respect to such
employment.
13. Amendment; Waiver. No provision of this Agreement may be
amended, modified or waived unless such amendment, modification or
waiver is agreed to in writing and signed by the Employee and by a
duly authorized officer of the Company. No waiver by either party
of any breach by the other party of any provision of this Agreement
shall be deemed a waiver of any other breach.
14. Notices. All notices or other communications given pursuant
to this Agreement shall be in writing and either delivered personally
or by prepaid registered or certified mail, return receipt requested.
Notices and other communications mailed to the Employee shall be
addressed to his last address as shown on the personnel records of
the Company, and notices and other communications to the Company
shall be addressed to Vanguard Cellular Systems, Inc., 2002 Pisgah
Church Road, Suite 300, Greensboro, North Carolina 27408, Attn:
Chairman. Either party may change the address to which notices are
to be mailed pursuant to this paragraph 13, by written notice given
in accordance herewith. Any notice pursuant to this paragraph 13
shall be effective for all purposes on the date delivered or mailed
as herein provided.
15. Severability. If any one or more of the provisions
contained in this Agreement shall be invalid, illegal, or
unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provision shall not in
any way be affected or impaired thereby.
16. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws and judicial decisions of the
State of North Carolina.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year first above written.
VANGUARD CELLULAR SYSTEMS, INC.
By:
(SEAL)
Haynes G. Griffin
[Exhibit 10(a)(11)]
EMPLOYMENT AGREEMENT
Agreement, made and entered into as of the 1st day of March,
1995, by and between Vanguard Cellular Systems, Inc., a North
Carolina corporation (the "Company"), and L. RICHARDSON
PREYER, JR. (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to assure the continuing services
of the Employee, the Employee desires to continue employment with the
Company, and each desires to enter into an agreement embodying the
terms of such employment;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:
1. Employment. The Company hereby employs the Employee, and the
Employee hereby accepts employment with the Company, for the term set
forth in paragraph 2 below, in the position and with the duties and
responsibilities set forth in paragraph 3 below, and upon the other
terms and conditions hereinafter stated.
2. Term. The term of this Agreement shall commence as
of the date hereof, and unless otherwise terminated as hereinafter
provided, shall continue for an initial term of three years and from
year to year thereafter until terminated by either party. The
Agreement may be terminated at the end of the initial term or at the
end of any subsequent year (a "Termination Date") by written notice
by either party to the other, given not less than one year nor more
than 15 months prior to the Termination Date reflected in such
notice.
3. Duties; Position. The Employee is engaged as Executive Vice
President and Treasurer of the Company. The Employee shall be
responsible for such duties as are commensurate with his office that
may from time to time be assigned to the Employee by the Company's
Board of Directors.
4. Compensation. In consideration of the services to be
rendered by the Employee to the Company and in consideration of the
Employee's other covenants hereunder, the Employee will receive an
initial base salary at the rate of $329,400 (such salary as it may
be increased from time to time being hereafter referred to as "Base
Salary"), payable at such intervals as may be established by the
Company from time to time for salary payments to its senior
management employees. The Employee shall receive such increases in
his Base Salary as the Board of Directors of the Company may from
time to time approve in its discretion, provided, however, that the
Employee's Base Salary will be reviewed not less often than annually.
No decreases in Base Salary may be effected without the written
consent of the Employee. The Employee shall also be eligible to
receive such bonuses as the Board of Directors may, in its
discretion, deem appropriate, from time to time.
5. Long-Term Incentive Compensation. The Company has
established the Executive Officer Long-Term Incentive Compensation
Plan, which, by its terms, is binding on the Company and continues
until 1998. The Employee is a participant in that Plan.
6. Employee Benefits. The Employee will be entitled to
participate, in accordance with the provisions thereof, in any
employee benefit plans and programs made available by the Company to
its executive management employees generally and the Company agrees
to continue, in a form no less favorable to the Employee, those
benefits currently in effect.
7. Business Expense Reimbursements. During the period of his
employment under this Agreement, the Employee will be entitled to
reimbursement for all reasonable out-of-pocket expenses incurred by
him in performing his duties hereunder upon presentation by the
Employee, from time to time, of an itemized account of such expenses
and appropriate documentation therefor.
8. Termination of Employment.
(a) Death. In the event of the death of the Employee during his
employment under this Agreement, the following payments shall be made
to the Employee's designated beneficiary, or, in the absence of such
designation, to the estate or other legal representative of the
Employee: (i) the Employee's Base Salary shall be continued for a
period of one year following the date of his death, and (ii) such
bonuses and incentive compensation as shall have been earned by the
Employee and not paid to him at the time of his death. Any other
rights and benefits the Employee's estate or any other person may
have under employee benefit plans and programs of the Company in the
event of the Employee's death shall be determined in accordance with
the terms of such plans and programs.
(b) Disability. In the event of the disability of the Employee
during his employment under this Agreement (a "Disability"), the
Employee's Base Salary will be continued for a period of one year
following occurrence of the Disability or until commencement of
payments to the Employee equal to not less than 60% of the Employee's
Base Salary under the terms of disability insurance provided by the
Company for the benefit of the Employee, whichever first occurs. For
purposes of this Agreement, "Disability" shall mean the inability, by
reason of bodily injury or physical or mental disease, or any
combination thereof, of the Employee to perform his customary or
other comparable duties with the Company. In the event the parties
are unable to agree as to whether the Employee is suffering a
Disability, the Employee and the Company shall each select a
physician and the two physicians so chosen shall make the
determination or, if they are unable to agree, they shall select a
third physician, and the determination as to whether the Employee is
suffering a Disability shall be based upon the determination of a
majority of the three physicians. Any other rights and benefits the
Employee may have under employee benefit plans and programs of the
Company generally in the event of the Employee's disability shall be
determined in accordance with the terms of such plans and programs.
(c) Termination for Cause. Nothing herein shall prevent the
Company from terminating the Employee's employment at any time for
Cause (as hereinafter defined). Upon termination for Cause, the
Employee shall receive his Base Salary only through the date of
termination, and neither the Employee nor any other person shall be
entitled to any further payments from the Company, for salary, unpaid
bonuses or any other amounts. Any rights and benefits the Employee
may have under employee benefit plans and programs of the Company
generally following a termination of the Employee's employment for
Cause shall be determined in accordance with the terms of such plans
and programs. For purposes of this Agreement, termination for Cause
shall mean termination due to (i) continued willful or gross neglect
of duties for 30 days following receipt by the Employee of one or
more written warnings from the Board of Directors of the Company
specifying in detail the duties neglected, (ii) incapacity due to
continuing alcohol or drug addiction, (iii) continued intentional
refusal to perform the duties for which employed 30 days following
receipt by the Employee of one or more written warnings from the
Board of Directors of the Company specifying in detail the Employee's
misconduct, (iv) fraud or embezzlement committed against the
Company, or (v) the Employee's conviction for a felony.
(d) Termination Other Than For Cause. The Company may terminate
the Employee's employment under this Agreement at any time upon
written notice to the Employee for whatever reason it deems
appropriate, or for no reason. In the event such termination by the
Company occurs prior to a "change in control" (as hereafter defined)
and is not due to disability as provided in paragraph 8(b) above or
for Cause as provided in paragraph 8(c) above, the Employee shall be
entitled to the continuation of payment of his Base Salary, at the
rate in effect at the time of such termination, and to all other
benefits to which he is then entitled hereunder or as an employee of
the Company, including, without limitation, the Executive Officer
Long-Term Incentive Compensation Plan. If such termination occurs
following a "change in control," the provisions of paragraph 8(e)
shall govern in lieu of this paragraph with respect to the amounts
payable to the Employee. In the event of a termination under this
paragraph 8(d) or under paragraph 8(e), the Employee shall be under
no obligation to attempt to mitigate the obligations of the Employee
hereunder by seeking other employment, nor will any income from any
other source be offset against any amounts due hereunder, and the
Employee shall be deemed to have earned the maximum amount payable to
him under the Executive Officer Long-Term Incentive Compensation Plan
to the extent such amounts relate to periods within the term of this
Agreement with all performance goals thereunder having been deemed
to have been satisfied, which amounts shall be paid to him under that
Plan as if his employment had continued.
(e) Change in Position or Employment Conditions; Termination
Other Than for Cause Following a Change in Control. The Employee may
terminate his employment immediately upon written notice to the
Company upon the occurrence, following a "change in control" of the
Company, of any one of the following events: (i) his authority and/or
responsibility are substantially reduced, without his consent, below
that described in paragraph 3, (ii) the Employee is required to
change his residence or principal place of business from Greensboro,
North Carolina, or (iii) the travel obligations of the Employee are,
without his consent, increased materially above those in effect on
the date of this Agreement. If the Employee's employment is
terminated pursuant to this paragraph 8(e) or if the Employee's
employment is terminated pursuant to paragraph 8(d) following a
change in control, the Employee shall be entitled to receive an
amount equal a severance payment in an amount equal to his average
annual total cash compensation for the immediately preceding five
fiscal years of the Company, multiplied by 2.99 (the "Severance
Payment"). Upon entitlement, the Severance Payment will be payable
in cash or by certified check within thirty (30) days following
termination of the Employee's employment. Notwithstanding anything
to the contrary contained herein, in the event that any portion of
the Severance Payment received or to be received by the Employee,
together with any other payments received by him, whether paid or
payable pursuant to the terms of this Plan or any other plan,
arrangement or agreement with the Company or any other person or
entity, would not be deductible in whole or in part by the Company in
the calculation of its federal income tax by reason of Section 280G
of the Internal Revenue Code or would cause, either directly or
indirectly, an "excess parachute payment" to exist within the meaning
of said Section 280G, the Severance Payment payable shall be reduced
until no portion of the Severance Payment would fail to be deductible
by reason of being an "excess parachute payment." In the event that
any dispute arises as to whether an "excess parachute payment"
exists, the appropriate calculations shall be made by the Company's
regularly employed independent public auditors and delivered to the
Employee in writing within 30 days following the date for payment of
the Severance Payment, and the Company will warrant to the Employee
the accuracy of the calculations and the information on which they
are based.
For purposes of this paragraph 8(e), a "change of control" shall
be deemed to have occurred upon the occurrence of any of the
following events:
(i) Any "person" (as such term is used in Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") but excluding any employee benefit plan of
the Company) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of the
combined voting power of the Company's outstanding securities
then entitled ordinarily (and apart from rights accruing under
special circumstances) to vote for the election of directors; or
(ii) Individuals who are "Continuing Directors" (as
hereinafter defined) cease for any reason to constitute at least
a majority of the Board of Directors; or
(iii) The Board of Directors shall approve a sale of all
or substantially all of the assets of the Company; or
(iv) The Board of Directors shall approve any merger,
consolidation, or like business combination or reorganization of
the Company the consummation of which would result in the
occurrence of any event described in clause (i) or (ii) above.
For purposes of the foregoing, "Continuing Directors" shall mean
(i) the directors of the Company in office on the date hereof and
(ii) any successor to any such director (and any additional director)
who after the date hereof (y) was nominated or selected by a majority
of the Continuing Directors in office at the time of his nomination
or selection and (z) who is not an "affiliate" or "associate" (as
defined in Regulation 12B under the Exchange Act) of any person who
is the beneficial owner, directly or indirectly, of securities
representing 50% or more of the combined voting power of the
Company's outstanding securities then entitled ordinarily to vote for
the election of directors.
9. Covenants Not To Compete.
(a) The Employee hereby promises and agrees that during the term
of this Agreement or for a period of one year following the
termination of his employment with the Company, whichever later
occurs:
(i) He will not, directly or indirectly, own any
interest in, manage, operate, control, be employed by,
render consulting or advisory services to, or
participate in or be connected with the management or
control of any business that is then engaged in the
operation of a cellular telephone system (or any competitive
communication system then operated by the Company) in
competition with the Company in the Territory;
(ii) He will not, directly or indirectly, influence
or attempt to influence any customer of the Company to
discontinue its use of the Company's services or to divert
such business to any other person, firm or corporation;
(iii) He will not, directly or indirectly, interfere
with, disrupt or attempt to disrupt the relationship,
contractual or otherwise, between the Company and any of its
respective suppliers, principals, distributors, lessors or
licensors; and
(iv) He will not, directly or indirectly, solicit any
employee of the Company, whose base annual salary at the
time of the Employee's termination was $30,000 or more, to
work for any person, firm or corporation.
(b) It is the desire and intent of the parties that the
provisions of paragraph 9(a) shall be enforced to the fullest extent
permitted under the laws and public policies of each jurisdiction in
which enforcement is sought. Accordingly, if any particular portion
of paragraph 9(a) shall be adjudicated to be invalid or
unenforceable, such adjudication shall apply only with respect to the
operation of that portion in the particular jurisdiction in which
such adjudication is made, and all other portions shall continue in
full force and effect.
(c) It is expressly agreed that the provisions and covenants in
this paragraph 9 shall not apply and shall be of no force or effect
in the event that the Company fails to honor its obligations
hereunder.
(d) For purposes of this Section 9, the "Territory" shall mean
any geographic area in which the Company or any subsidiary of the
Company is operating a cellular telephone system immediately prior
to a "change in control" as defined in paragraph 8(e) of this
Agreement.
10. Injunctive Relief. The Employee acknowledges and agrees
that the Company would suffer irreparable injury in the event of a
breach by him of any of the provisions of paragraph 8 of this
Agreement and that the Company shall be entitled to an injunction
restraining him from any breach or threatened breach thereof.
Nothing herein shall be construed, however, as prohibiting the
Company from pursuing any other remedies at law or in equity which
it may have for any such breach or threatened breach of any provision
of paragraph 8 hereof, including the recovery of damages from the
Employee.
11. Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the Employee and his personal
representatives, estate and heirs and to the Company and its
successors and assigns, including without limitation any corporation
or other entity to which the Company may transfer all or
substantially all of its assets and business (by operation of law or
otherwise) and to which the Company may assign this Agreement. The
Employee may not assign this Agreement or any part hereof without the
prior written consent of the Company, which consent may be withheld
by the Company for any reason it deems appropriate.
12. Entire Agreement. This Agreement, together with any
agreements and similar documents entered into between the Company and
the Employee under any stock option, stock compensation or similar
employee benefit plans maintained by the Company, contains the entire
agreement of the parties with respect to the employment of the
Employee by the Company and supersedes and replaces all other
understandings and agreements, whether oral or in writing, if any,
previously entered into by the parties with respect to such
employment.
13. Amendment; Waiver. No provision of this Agreement may be
amended, modified or waived unless such amendment, modification or
waiver is agreed to in writing and signed by the Employee and by a
duly authorized officer of the Company. No waiver by either party
of any breach by the other party of any provision of this Agreement
shall be deemed a waiver of any other breach.
14. Notices. All notices or other communications given pursuant
to this Agreement shall be in writing and either delivered personally
or by prepaid registered or certified mail, return receipt requested.
Notices and other communications mailed to the Employee shall be
addressed to his last address as shown on the personnel records of
the Company, and notices and other communications to the Company
shall be addressed to Vanguard Cellular Systems, Inc., 2002 Pisgah
Church Road, Suite 300, Greensboro, North Carolina 27408, Attn:
Chairman. Either party may change the address to which notices are
to be mailed pursuant to this paragraph 13, by written notice given
in accordance herewith. Any notice pursuant to this paragraph 13
shall be effective for all purposes on the date delivered or mailed
as herein provided.
15. Severability. If any one or more of the provisions
contained in this Agreement shall be invalid, illegal, or
unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provision shall not in
any way be affected or impaired thereby.
16. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws and judicial decisions of the
State of North Carolina.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year first above written.
VANGUARD CELLULAR SYSTEMS, INC.
By:
(SEAL)
L. RICHARDSON PREYER, JR.
[Exhibit 10(a)(12)]
EMPLOYMENT AGREEMENT
Agreement, made and entered into as of the 1st day of March,
1995, by and between Vanguard Cellular Systems, Inc., a North
Carolina corporation (the "Company"), and STEPHEN R. LEEOLOU (the
"Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to assure the continuing services
of the Employee, the Employee desires to continue employment with the
Company, and each desires to enter into an agreement embodying the
terms of such employment;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:
1. Employment. The Company hereby employs the Employee, and the
Employee hereby accepts employment with the Company, for the term set
forth in paragraph 2 below, in the position and with the duties and
responsibilities set forth in paragraph 3 below, and upon the other
terms and conditions hereinafter stated.
2. Term. The term of this Agreement shall commence as
of the date hereof, and unless otherwise terminated as hereinafter
provided, shall continue for an initial term of three years and from
year to year thereafter until terminated by either party. The
Agreement may be terminated at the end of the initial term or at the
end of any subsequent year (a "Termination Date") by written notice
by either party to the other, given not less than one year nor more
than 15 months prior to the Termination Date reflected in such
notice.
3. Duties; Position. The Employee is engaged as Executive Vice
President, and Chief Operating Officer and Secretary of the Company.
The Employee shall be responsible for such duties as are commensurate
with his office that may from time to time be assigned to the
Employee by the Company's Board of Directors.
4. Compensation. In consideration of the services to be
rendered by the Employee to the Company and in consideration of the
Employee's other covenants hereunder, the Employee will receive an
initial base salary at the rate of $340,200 (such salary as it may
be increased from time to time being hereafter referred to as "Base
Salary"), payable at such intervals as may be established by the
Company from time to time for salary payments to its senior
management employees. The Employee shall receive such increases in
his Base Salary as the Board of Directors of the Company may from
time to time approve in its discretion, provided, however, that the
Employee's Base Salary will be reviewed not less often than annually.
No decreases in Base Salary may be effected without the written
consent of the Employee. The Employee shall also be eligible to
receive such bonuses as the Board of Directors may, in its
discretion, deem appropriate, from time to time.
5. Long-Term Incentive Compensation. The Company has
established the Executive Officer Long-Term Incentive Compensation
Plan, which, by its terms, is binding on the Company and continues
until 1998. The Employee is a participant in that Plan.
6. Employee Benefits. The Employee will be entitled to
participate, in accordance with the provisions thereof, in any
employee benefit plans and programs made available by the Company to
its executive management employees generally and the Company agrees
to continue, in a form no less favorable to the Employee, those
benefits currently in effect.
7. Business Expense Reimbursements. During the period of his
employment under this Agreement, the Employee will be entitled to
reimbursement for all reasonable out-of-pocket expenses incurred by
him in performing his duties hereunder upon presentation by the
Employee, from time to time, of an itemized account of such expenses
and appropriate documentation therefor.
8. Termination of Employment.
(a) Death. In the event of the death of the Employee during his
employment under this Agreement, the following payments shall be made
to the Employee's designated beneficiary, or, in the absence of such
designation, to the estate or other legal representative of the
Employee: (i) the Employee's Base Salary shall be continued for a
period of one year following the date of his death, and (ii) such
bonuses and incentive compensation as shall have been earned by the
Employee and not paid to him at the time of his death. Any other
rights and benefits the Employee's estate or any other person may
have under employee benefit plans and programs of the Company in the
event of the Employee's death shall be determined in accordance with
the terms of such plans and programs.
(b) Disability. In the event of the disability of the Employee
during his employment under this Agreement (a "Disability"), the
Employee's Base Salary will be continued for a period of one year
following occurrence of the Disability or until commencement of
payments to the Employee equal to not less than 60% of the Employee's
Base Salary under the terms of disability insurance provided by the
Company for the benefit of the Employee, whichever first occurs. For
purposes of this Agreement, "Disability" shall mean the inability, by
reason of bodily injury or physical or mental disease, or any
combination thereof, of the Employee to perform his customary or
other comparable duties with the Company. In the event the parties
are unable to agree as to whether the Employee is suffering a
Disability, the Employee and the Company shall each select a
physician and the two physicians so chosen shall make the
determination or, if they are unable to agree, they shall select a
third physician, and the determination as to whether the Employee is
suffering a Disability shall be based upon the determination of a
majority of the three physicians. Any other rights and benefits the
Employee may have under employee benefit plans and programs of the
Company generally in the event of the Employee's disability shall be
determined in accordance with the terms of such plans and programs.
(c) Termination for Cause. Nothing herein shall prevent the
Company from terminating the Employee's employment at any time for
Cause (as hereinafter defined). Upon termination for Cause, the
Employee shall receive his Base Salary only through the date of
termination, and neither the Employee nor any other person shall be
entitled to any further payments from the Company, for salary, unpaid
bonuses or any other amounts. Any rights and benefits the Employee
may have under employee benefit plans and programs of the Company
generally following a termination of the Employee's employment for
Cause shall be determined in accordance with the terms of such plans
and programs. For purposes of this Agreement, termination for Cause
shall mean termination due to (i) continued willful or gross neglect
of duties for 30 days following receipt by the Employee of one or
more written warnings from the Board of Directors of the Company
specifying in detail the duties neglected, (ii) incapacity due to
continuing alcohol or drug addiction, (iii) continued intentional
refusal to perform the duties for which employed 30 days following
receipt by the Employee of one or more written warnings from the
Board of Directors of the Company specifying in detail the Employee's
misconduct, (iv) fraud or embezzlement committed against the
Company, or (v) the Employee's conviction for a felony.
(d) Termination Other Than For Cause. The Company may terminate
the Employee's employment under this Agreement at any time upon
written notice to the Employee for whatever reason it deems
appropriate, or for no reason. In the event such termination by the
Company occurs prior to a "change in control" (as hereafter defined)
and is not due to disability as provided in paragraph 8(b) above or
for Cause as provided in paragraph 8(c) above, the Employee shall be
entitled to the continuation of payment of his Base Salary, at the
rate in effect at the time of such termination, and to all other
benefits to which he is then entitled hereunder or as an employee of
the Company, including, without limitation, the Executive Officer
Long-Term Incentive Compensation Plan. If such termination occurs
following a "change in control," the provisions of paragraph 8(e)
shall govern in lieu of this paragraph with respect to the amounts
payable to the Employee. In the event of a termination under this
paragraph 8(d) or under paragraph 8(e), the Employee shall be under
no obligation to attempt to mitigate the obligations of the Employee
hereunder by seeking other employment, nor will any income from any
other source be offset against any amounts due hereunder, and the
Employee shall be deemed to have earned the maximum amount payable to
him under the Executive Officer Long-Term Incentive Compensation Plan
to the extent such amounts relate to periods within the term of this
Agreement with all performance goals thereunder having been deemed
to have been satisfied, which amounts shall be paid to him under that
Plan as if his employment had continued.
(e) Change in Position or Employment Conditions; Termination
Other Than for Cause Following a Change in Control. The Employee may
terminate his employment immediately upon written notice to the
Company upon the occurrence, following a "change in control" of the
Company, of any one of the following events: (i) his authority and/or
responsibility are substantially reduced, without his consent, below
that described in paragraph 3, (ii) the Employee is required to
change his residence or principal place of business from Greensboro,
North Carolina, or (iii) the travel obligations of the Employee are,
without his consent, increased materially above those in effect on
the date of this Agreement. If the Employee's employment is
terminated pursuant to this paragraph 8(e) or if the Employee's
employment is terminated pursuant to paragraph 8(d) following a
change in control, the Employee shall be entitled to receive an
amount equal a severance payment in an amount equal to his average
annual total cash compensation for the immediately preceding five
fiscal years of the Company, multiplied by 2.99 (the "Severance
Payment"). Upon entitlement, the Severance Payment will be payable
in cash or by certified check within thirty (30) days following
termination of the Employee's employment. Notwithstanding anything
to the contrary contained herein, in the event that any portion of
the Severance Payment received or to be received by the Employee,
together with any other payments received by him, whether paid or
payable pursuant to the terms of this Plan or any other plan,
arrangement or agreement with the Company or any other person or
entity, would not be deductible in whole or in part by the Company in
the calculation of its federal income tax by reason of Section 280G
of the Internal Revenue Code or would cause, either directly or
indirectly, an "excess parachute payment" to exist within the meaning
of said Section 280G, the Severance Payment payable shall be reduced
until no portion of the Severance Payment would fail to be deductible
by reason of being an "excess parachute payment." In the event that
any dispute arises as to whether an "excess parachute payment"
exists, the appropriate calculations shall be made by the Company's
regularly employed independent public auditors and delivered to the
Employee in writing within 30 days following the date for payment of
the Severance Payment, and the Company will warrant to the Employee
the accuracy of the calculations and the information on which they
are based.
For purposes of this paragraph 8(e), a "change of control" shall
be deemed to have occurred upon the occurrence of any of the
following events:
(i) Any "person" (as such term is used in Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") but excluding any employee benefit plan of
the Company) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of the
combined voting power of the Company's outstanding securities
then entitled ordinarily (and apart from rights accruing under
special circumstances) to vote for the election of directors; or
(ii) Individuals who are "Continuing Directors" (as
hereinafter defined) cease for any reason to constitute at least
a majority of the Board of Directors; or
(iii) The Board of Directors shall approve a sale of all
or substantially all of the assets of the Company; or
(iv) The Board of Directors shall approve any merger,
consolidation, or like business combination or reorganization of
the Company the consummation of which would result in the
occurrence of any event described in clause (i) or (ii) above.
For purposes of the foregoing, "Continuing Directors" shall mean
(i) the directors of the Company in office on the date hereof and
(ii) any successor to any such director (and any additional director)
who after the date hereof (y) was nominated or selected by a majority
of the Continuing Directors in office at the time of his nomination
or selection and (z) who is not an "affiliate" or "associate" (as
defined in Regulation 12B under the Exchange Act) of any person who
is the beneficial owner, directly or indirectly, of securities
representing 50% or more of the combined voting power of the
Company's outstanding securities then entitled ordinarily to vote for
the election of directors.
9. Covenants Not To Compete.
(a) The Employee hereby promises and agrees that during the term
of this Agreement or for a period of one year following the
termination of his employment with the Company, whichever later
occurs:
(i) He will not, directly or indirectly, own any
interest in, manage, operate, control, be employed by,
render consulting or advisory services to, or
participate in or be connected with the management or
control of any business that is then engaged in the
operation of a cellular telephone system (or any competitive
communication system then operated by the Company) in
competition with the Company in the Territory;
(ii) He will not, directly or indirectly, influence
or attempt to influence any customer of the Company to
discontinue its use of the Company's services or to divert
such business to any other person, firm or corporation;
(iii) He will not, directly or indirectly, interfere
with, disrupt or attempt to disrupt the relationship,
contractual or otherwise, between the Company and any of its
respective suppliers, principals, distributors, lessors or
licensors; and
(iv) He will not, directly or indirectly, solicit any
employee of the Company, whose base annual salary at the
time of the Employee's termination was $30,000 or more, to
work for any person, firm or corporation.
(b) It is the desire and intent of the parties that the
provisions of paragraph 9(a) shall be enforced to the fullest extent
permitted under the laws and public policies of each jurisdiction in
which enforcement is sought. Accordingly, if any particular portion
of paragraph 9(a) shall be adjudicated to be invalid or
unenforceable, such adjudication shall apply only with respect to the
operation of that portion in the particular jurisdiction in which
such adjudication is made, and all other portions shall continue in
full force and effect.
(c) It is expressly agreed that the provisions and covenants in
this paragraph 9 shall not apply and shall be of no force or effect
in the event that the Company fails to honor its obligations
hereunder.
(d) For purposes of this Section 9, the "Territory" shall mean
any geographic area in which the Company or any subsidiary of the
Company is operating a cellular telephone system immediately prior
to a "change in control" as defined in paragraph 8(e) of this
Agreement.
10. Injunctive Relief. The Employee acknowledges and agrees
that the Company would suffer irreparable injury in the event of a
breach by him of any of the provisions of paragraph 8 of this
Agreement and that the Company shall be entitled to an injunction
restraining him from any breach or threatened breach thereof.
Nothing herein shall be construed, however, as prohibiting the
Company from pursuing any other remedies at law or in equity which
it may have for any such breach or threatened breach of any provision
of paragraph 8 hereof, including the recovery of damages from the
Employee.
11. Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the Employee and his personal
representatives, estate and heirs and to the Company and its
successors and assigns, including without limitation any corporation
or other entity to which the Company may transfer all or
substantially all of its assets and business (by operation of law or
otherwise) and to which the Company may assign this Agreement. The
Employee may not assign this Agreement or any part hereof without the
prior written consent of the Company, which consent may be withheld
by the Company for any reason it deems appropriate.
12. Entire Agreement. This Agreement, together with any
agreements and similar documents entered into between the Company and
the Employee under any stock option, stock compensation or similar
employee benefit plans maintained by the Company, contains the entire
agreement of the parties with respect to the employment of the
Employee by the Company and supersedes and replaces all other
understandings and agreements, whether oral or in writing, if any,
previously entered into by the parties with respect to such
employment.
13. Amendment; Waiver. No provision of this Agreement may be
amended, modified or waived unless such amendment, modification or
waiver is agreed to in writing and signed by the Employee and by a
duly authorized officer of the Company. No waiver by either party
of any breach by the other party of any provision of this Agreement
shall be deemed a waiver of any other breach.
14. Notices. All notices or other communications given pursuant
to this Agreement shall be in writing and either delivered personally
or by prepaid registered or certified mail, return receipt requested.
Notices and other communications mailed to the Employee shall be
addressed to his last address as shown on the personnel records of
the Company, and notices and other communications to the Company
shall be addressed to Vanguard Cellular Systems, Inc., 2002 Pisgah
Church Road, Suite 300, Greensboro, North Carolina 27408, Attn:
Chairman. Either party may change the address to which notices are
to be mailed pursuant to this paragraph 13, by written notice given
in accordance herewith. Any notice pursuant to this paragraph 13
shall be effective for all purposes on the date delivered or mailed
as herein provided.
15. Severability. If any one or more of the provisions
contained in this Agreement shall be invalid, illegal, or
unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provision shall not in
any way be affected or impaired thereby.
16. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws and judicial decisions of the
State of North Carolina.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year first above written.
VANGUARD CELLULAR SYSTEMS, INC.
By:
(SEAL)
Stephen R. Leeolou
[Exhibit 10(a)(18)]
COMPOSITE COPY
AS OF 11/15/94
VANGUARD CELLULAR SYSTEMS, INC.
1994 Long-Term Incentive Plan
VANGUARD CELLULAR SYSTEMS, INC.
1994 Long-Term Incentive Plan
Table of Contents
Page
ARTICLE 1. PURPOSE
1.1 Purpose 1
1.2 Grant of Awards 1
ARTICLE 2. DEFINITIONS
2.1 Award 1
2.2 Board 1
2.3 Code 1
2.4 Committee 1
2.5 Disinterested Person 1
2.6 Fair Market Value 1
2.7 Grantee 2
2.8 Incentive Stock Option 2
2.9 Nontandem Stock Appreciation Right 2
2.10 Nonqualified Stock Option 2
2.11 Performance-based Compensation Award 2
2.12 Performance Shares 2
2.13 Restricted Stock 2
2.14 Stock 2
2.15 Stock Appreciation Right 2
2.16 Stock Option 2
2.17 Subsidiary 3
2.18 Tandem Stock Appreciation Right 3
2.19 Unrestricted Stock 3
ARTICLE 3. ADMINISTRATION
3.1 Committee 3
3.2 Authority of Committee 3
3.3 Liability; Indemnification 3
ARTICLE 4. STOCK SUBJECT TO PLAN
4.1 Maximum Number of Shares Subject to Plan 4
4.2 Maximum Number of Shares For Any Individual 4
4.3 Reservation of Shares of Common Stock 4
ARTICLE 5 ELIGIBILITY 5
ARTICLE 6 STOCK OPTIONS
6.1 Grant of Stock Options 5
6.2 Stock Option Terms and Conditions 5
6.3 Purchase Price 5
6.4 Duration of Stock Options 6
6.5 Exercise of Stock Options 6
6.6 Written Notice Required 6
6.7 Maximum Amount of Incentive Stock Options
In Any Calendar Year 7
6.8 Cancellation of Stock Appreciation Rights 7
ARTICLE 7 STOCK APPRECIATION RIGHTS
7.1 Grant of Stock Appreciation Rights 7
7.2 Stock Appreciation Rights Terms and Conditions 7
7.3 Tandem Stock Appreciation Rights 7
7.3.1 Award of Tandem Stock Appreciation Rights 7
7.3.2 Limitations on Exercise of Tandem Stock
Appreciation Rights 7
7.3.3 Surrender or Exchange of Tandem Stock
Appreciation Rights 8
7.4 Nontandem Stock Appreciation Rights 8
7.4.1 Award of Nontandem Stock Appreciation Rights 8
7.4.2 Exercise of Nontandem Stock Appreciation Rights 8
7.5 Settlement of Stock Appreciation Rights 9
7.6 Cash Settlement 9
7.7 Written Notice Required 9
ARTICLE 8 UNRESTRICTED STOCK
8.1 Grant of Unrestricted Stock 9
8.2 Delivery of Unrestricted Stock 9
ARTICLE 9 RESTRICTED STOCK
9.1 Grant of Restricted Stock 9
9.2 Restrictions and Conditions 9
9.3 Duration of Awards 10
9.4 Restricted Stock Certificates 10
9.5 Rights of Holders of Restricted Stock 10
9.6 Delivery of Restricted Stock 11
ARTICLE 10 PERFORMANCE SHARES
10.1 Grant of Performance Shares 11
10.2 Terms and Conditions 11
10.3 Cash in Lieu of Stock 11
10.4 Performance Objective Period 12
ARTICLE 11 PERFORMANCE-BASED COMPENSATION AWARDS
11.1 Awards 12
11.2 Performance Goals 12
11.3 Limitations of Shares 12
ARTICLE 12 TERMINATION OF EMPLOYMENT
12.1 Termination of Employment 12
12.2 Disability 13
12.3 Death of Grantee 13
12.4 Termination as Nonemployee Director of
The Company 13
ARTICLE 13 TRANSFER RESTRICTIONS 13
ARTICLE 14 ADJUSTMENTS 14
ARTICLE 15 MISCELLANEOUS PROVISIONS
15.1 Tax Withholding 14
15.2 Termination, Amendment of Plan 14
15.3 Prior Rights and Obligations 15
15.4 Employment 15
15.5 Securities Laws 15
15.6 Compliance with Section 16(b) 15
15.7 Reorganization 16
15.8 Effective Date and Term of Plan 16
VANGUARD CELLULAR SYSTEMS, INC.
1994 LONG-TERM INCENTIVE PLAN
ARTICLE 1
PURPOSE
1.1 Purpose. This Vanguard Cellular Systems, Inc. 1994
Long-Term Incentive Plan (the "Plan") is intended to induce those
persons who are in a position to contribute materially to the success
of Vanguard Cellular Systems, Inc. (the "Company") to remain with the
Company, to offer them rewards in recognition of their contributions
to the Company's progress and to offer them incentives to continue to
promote the best interests of the Company.
1.2 Grant of Awards. In order to maintain flexibility in the
grant of incentive benefits, the Plan allows for the grant of Stock
Options (both Incentive Stock Options and Nonqualified Stock
Options), Stock Appreciation Rights, Unrestricted Stock, Restricted
Stock and Performance Shares.
ARTICLE 2
DEFINITIONS
2.1 "Award" means any grant of Stock Options, Stock Appreciation
Rights, Unrestricted Stock, Restricted Stock or Performance Shares
authorized by the Committee under this Plan.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Code" means the Internal Revenue Code of 1986, as amended.
2.4 "Committee" means the Committee appointed by the Board
pursuant to Article 3 of the Plan for the purpose of administering
the Plan.
2.5 "Disinterested Person" means a person who is both a
"disinterested person" within the meaning of Rule 16b-3 as
promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934 and an "outside director" within the
meaning of Section 162(m) of the Code and the regulations promulgated
thereunder.
2.6 "Fair Market Value" means, as of a given date, the closing
sales price per share of the Company's Stock, as reported on the
national securities exchange on which the Stock is principally traded
on the day preceding the day (or the most recent trading day
preceding the day) on which the stock is to be valued. For purposes
of this section, the term "national securities exchange" shall
include the National Association of Securities Dealers Automated
Quotation System. If at the time the determination of Fair Market
Value is made the Stock is not admitted to trading on a national
securities exchange for which sales prices are regularly reported,
Fair Market Value shall be determined by the Committee on the basis
of such factors as it deems appropriate; provided, however, that Fair
Market Value shall be determined without regard to any restriction
other than a restriction which, by its terms, shall never lapse.
2.7 "Grantee" means a person who receives an Award pursuant to
the Plan.
2.8 "Incentive Stock Option" means any Stock Option designated
as an Incentive Stock Option within the meaning of Section 422 of
Code. Any Stock Option so designated shall be construed to comply
in every respect with Section 422 of the Code.
2.9 "Nontandem Stock Appreciation Right" means any Stock
Appreciation Right granted pursuant to Article 7 of the Plan in a
manner not related to a grant of a Stock Option.
2.10 "Nonqualified Stock Option" means any Stock Option granted
pursuant to the Plan that is not designated as being an Incentive
Stock Option under Section 422 of the Code. Any Stock Option so
designated shall not be subject to Section 422 of the Code.
2.11 "Performance-based Compensation Award" means an Award
described in Article 11 of the Plan.
2.12 "Performance Shares" means shares of Stock that are subject
to an Award pursuant to Article 10 of the Plan.
2.13 "Restricted Stock" means shares of Stock that are issued
to a Grantee subject to restrictions under Article 9 of the Plan.
2.14 "Stock" means the Class A Common Stock, par value $.01 per
share, of the Company or any successor class of stock.
2.15 "Stock Appreciation Right" means the right to receive,
pursuant to an Award granted pursuant to Article 7 of the Plan,
shares of Stock equal in value to the excess, at the time the right
is exercised, of the Fair Market Value of the number of shares
subject to the Award over the Fair Market Value of such shares at the
time the Award was granted. A Stock Appreciation Right may be a
Tandem Stock Appreciation Right or a Nontandem Stock Appreciation
Right.
2.16 "Stock Option" means any Incentive Stock Option or
Nonqualified Stock Option to purchase shares of Stock granted to any
Grantee pursuant to Article 6 of the Plan.
2.17 "Subsidiary" means any person, firm, partnership, limited
liability company or corporation at least 50% of the total combined
voting power of which is owned directly or indirectly by the Company.
2.18 "Tandem Stock Appreciation Right" means any Stock
Appreciation Right granted pursuant to Article 7 of the Plan in
conjunction with all or part of any Stock Option granted under the
Plan pursuant to a Stock Option agreement which states that the
Grantee may, in lieu of exercising the Stock Option, surrender the
Stock Option and receive shares of Stock equal in value to the Stock
Appreciation Right.
2.19 "Unrestricted Stock" means an Award of shares of Stock
pursuant to Article 8 of the Plan.
ARTICLE 3
ADMINISTRATION
3.1 Committee. The Plan shall be administered by a Committee
appointed by the Board consisting of not less than two members, all
of whom must be Disinterested Persons. Any action of the Committee
shall be taken by majority vote at a meeting called in accordance
with procedures adopted by the Committee or by the unanimous written
consent of the Committee.
3.2 Authority of Committee. Subject to the other provisions of
this Plan, and with a view to effecting its purpose, the Committee
shall have sole authority in its absolute discretion: (i) to grant
Awards under the Plan; (ii) to determine the officers, employees and
directors to whom Awards shall be granted under the Plan; (iii) to
determine the number of shares of Stock subject to any Award under
the Plan; (iv) to establish the price, duration, performance measures
and any other term, restriction or condition of an Award under the
Plan; (v) to accelerate the time at which any outstanding Stock
Option or Stock Appreciation Right may be exercised or the time when
restrictions or conditions on any other Awards will lapse; (vi) to
construe and interpret the Plan; (vii) to prescribe, amend, and
rescind rules and regulations relating to the Plan; and (viii) to
make any other determinations necessary or advisable for the
administration of the Plan and to do everything necessary or
appropriate to administer the Plan.
3.3 Liability; Indemnification. No member of the Committee or
the Board shall be liable for any action or determination made in
good faith with respect to the Plan or to any Award granted
thereunder. In addition, directors and members of the Committee
shall be eligible for indemnification from the Company, pursuant to
the Company's Bylaws, with respect to any matter arising under the
Plan.
ARTICLE 4
STOCK SUBJECT TO PLAN
4.1 Maximum Number of Shares Subject to the Plan. The maximum
aggregate number of shares of Stock available pursuant to the Plan,
subject to adjustment as provided in Article 14 hereof, shall be
2,000,000 shares (3,000,000 shares after giving effect to the 50%
stock dividend paid August 24, l994) of the Stock. If any Stock
Option granted pursuant to the Plan expires or terminates for any
reason before it shall have been exercised in full, the unpurchased
shares subject to such expired or terminated Stock Option shall again
be available for the purposes of the Plan, except that any
unpurchased shares that have been subject to a Stock Option in
connection with which a Tandem Stock Appreciation Right has also been
granted shall be reduced by the number of shares issued in connection
with the Tandem Stock Appreciation Right. If any Nontandem Stock
Appreciation Right granted pursuant to the Plan expires or terminates
for any reason before all shares subject thereto have been issued,
the unissued shares associated with such Nontandem Stock Appreciation
Rights shall again be available for the purposes of the Plan. If any
shares issued pursuant to a Restricted Stock Award shall be
forfeited, such shares shall again be available for the purposes of
the Plan. If a Performance Share Award terminates for any reason
before all of the shares associated with such Performance Shares
Award shall have been issued pursuant thereto, such unissued shares
shall again be available for the purposes of the Plan. If any Stock
Appreciation Right or Performance Shares are paid in cash rather than
in shares, in whole or in part, the number of shares of Stock
available under the Plan will be reduced by the number of shares to
which the cash payment relates.
4.2 Maximum Number of Shares For Any Individual.
Notwithstanding any other term or provision of the Plan, the
aggregate number of shares of Stock with respect to which Awards
under the Plan may be granted to any individual shall not exceed
350,000 (525,000 shares after giving effect to the 50% stock dividend
paid August 24, 1994) shares of Stock of the Company. If a Stock
Option is cancelled, terminated or repriced, the cancelled,
terminated or repriced Stock Option shall be counted against the
maximum number of shares for which Awards may be granted to such
Grantee. If cash is paid to a Grantee in settlement of any Stock
Appreciation Right or Performance Shares Award, the number of shares
to which the cash payment relates shall be counted against the
maximum number of shares for which Awards may be granted to such
Grantee.
4.3 Reservation of Shares of Common Stock. The Company, during
the term of this Plan, will at all times reserve and keep available
such number of shares of the Stock as shall be sufficient to satisfy
the requirements of the Plan. In addition, the Company will from
time to time, as is necessary to accomplish the purposes of this
Plan, seek to obtain from any regulatory agency having jurisdiction
any requisite authority in order to issue and sell shares of Stock
hereunder. The inability of the Company to obtain from any
regulatory agency having jurisdiction the authority deemed by the
Company's counsel to be necessary to the lawful issuance and sale of
any shares of the Stock hereunder shall relieve the Company of any
liability in respect of the nonissuance or sale of the Stock as to
which the requisite authority shall not have been obtained.
ARTICLE 5
ELIGIBILITY
Awards under the Plan may be granted to persons identified by the
Committee who are executive or supervisory employees, officers or
directors of the Company or any Subsidiary. Notwithstanding the
foregoing, Incentive Stock Options to purchase shares of Stock may
be granted pursuant to the Plan only to executive or supervisory
employees of the Company or a Subsidiary that is a corporation,
including directors and officers who are also employees of the
Company or a Subsidiary that is a corporation.
ARTICLE 6
STOCK OPTIONS
6.1 Grant of Stock Options. The Committee may cause the Company
to grant Stock Options for the purchase of shares of Stock to
Grantees under the Plan in such amounts as the Committee, in its sole
discretion, shall determine. Such Stock Options may be granted
either alone or in addition to other Awards granted under the Plan.
The Stock Options granted under the Plan shall be designated as
either: (i) Incentive Stock Options or (ii) Nonqualified Stock
Options.
6.2 Stock Option Terms and Conditions. Stock Options granted
under the Plan shall be evidenced by written agreements in such form
as the Committee may from time to time approve. The terms and
conditions of Stock Options granted under the Plan, including the
satisfaction of corporate or individual performance objectives and
other vesting standards, may differ one from another as the Committee
shall, in its discretion, determine, as long as all Stock Options
granted under the Plan satisfy the requirements of the Plan.
6.3 Purchase Price. The purchase price for shares acquired
pursuant to the exercise, in whole or in part, of any Stock Option
shall be determined by the Committee at the time of grant, subject
to the limitations set forth in this Section 6.3. In no event shall
the purchase price of any Stock Option be less than the Fair Market
Value of the shares at the time of the grant of the Stock Option;
except that for any Grantee who owns more than 10% of the combined
voting power of all classes of stock of the Company, the purchase
price of any Incentive Stock Option shall not be less than 110% of
Fair Market Value. The applicable Stock Option agreement may provide
for adjustments to the purchase price, as the Committee shall
determine, provided that the purchase price shall never be less than
the initial purchase (except to the extent such adjustments are
pursuant to Article 14). The purchase price so determined shall also
be applicable in connection with the exercise of any Tandem Stock
Appreciation Right granted with respect to such Stock Option.
6.4 Duration of Stock Options. Each Stock Option and all rights
thereunder granted pursuant to the terms of the Plan shall expire on
the date in the applicable Stock Option agreement, but in no event
shall any Stock Option granted under the Plan expire later than 10
years from the date on which the Stock Option is granted; provided,
however, that any Incentive Stock Option granted to an employee who
owns more than 10% of the combined voting power of all classes of
stock of the Company, may not be exercisable after the date five
years from the date of the Award.
6.5 Exercise of Stock Options. Each Stock Option shall be
exercisable in one or more installments during its term, and the
right to exercise may be cumulative. No Stock Option may be
exercised for a fraction of a share of Stock. Unless otherwise
provided by the applicable Stock Option agreement, the purchase price
of any shares purchased shall be paid in full in cash or by certified
or cashier's check payable to the order of the Company or by shares
of Stock, or by a combination of cash, check, or shares of Stock. If
any portion of the purchase price is paid in shares of Stock, those
shares shall be valued at their Fair Market Value as of the day of
delivery. No Grantee, or Grantee's executor, administrator, legatee,
or distributee, shall be deemed to be a holder of any shares subject
to a Stock Option unless and until a stock certificate or
certificates for such are issued to such Grantee under the terms of
the Plan. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to
the date such stock certificate is issued, except as provided in
Article 14. The exercise of Stock Options under the Plan shall be
subject to the withholding requirements as set forth in Section 15.1.
6.6 Written Notice Required. A Stock Option shall be exercised
when written notice of that exercise, stating the number of shares
of Stock with respect to which the Stock Option is being exercised,
has been given to the Company at its principal office, to the
attention of the General Counsel, by the Grantee and full payment for
the shares with respect to which the Stock Option is exercised has
been received by the Company.
6.7. Maximum Amount of Incentive Stock Options in Any Calendar
Year. The aggregate Fair Market Value (determined as of the time the
option is granted) of the Stock with respect to which Incentive Stock
Options are first exercisable by any Grantee during any calendar year
under the terms of this Plan and all other such plans of the Company
and any parent and Subsidiary shall not exceed $100,000. Any Stock
Option in excess of the foregoing limitation shall be deemed a
Nonqualified Stock Option to the extent of such excess.
6.8 Cancellation of Stock Appreciation Rights. Upon exercise
of all or a portion of a Stock Option, any related Tandem Stock
Appreciation Rights shall be cancelled with respect to an equal
number of shares of Stock.
ARTICLE 7
STOCK APPRECIATION RIGHTS
7.1 Grant of Stock Appreciation Rights. The Committee may cause
the Company to grant Stock Appreciation Rights to Grantees under the
Plan in such amounts as the Committee, in its sole discretion, shall
determine. Such Stock Appreciation Rights may be granted either
alone or in addition to other Awards granted under the Plan. The
Stock Appreciation Rights granted under the Plan shall be designated
as either: (i) Tandem Stock Appreciation Rights or (ii) Nontandem
Stock Appreciation Rights.
7.2 Stock Appreciation Rights Terms and Conditions. Stock
Appreciation Rights granted under the Plan shall be evidenced by
written agreements in such form as the Committee may from time to
time approve. The terms and conditions of Stock Appreciation Rights
granted under the Plan, including the satisfaction of corporate or
individual performance objectives and other vesting standards, may
differ one from another as the Committee shall, in its discretion,
determine, as long as all Stock Appreciation Rights granted under the
Plan satisfy the requirements of the Plan.
7.3 Tandem Stock Appreciation Rights.
7.3.1 Award of Tandem Stock Appreciation Rights. Tandem
Stock Appreciation Rights may be granted by the Committee in
connection with any Stock Option granted under the Plan, either
at the time the Stock Option is granted or thereafter at any time
prior to the exercise, termination or expiration of the Stock
Option, except that in the case of an Incentive Stock Option,
such rights may be granted only at the time of the grant of such
Incentive Stock Option.
7.3.2 Limitations on Exercise of Tandem Stock Appreciation
Rights. A Tandem Stock Appreciation Right shall be exercisable
only to the extent that the related Stock Option is exercisable
and shall be exercisable only for such period as the Committee
may determine (which period may expire prior to the expiration
date of the related Stock Option). Upon the exercise of all or
a portion of Tandem Stock Appreciation Rights, the related Stock
Option shall be cancelled with respect to the shares of Stock to
which the exercised portion of the Tandem Stock Appreciation
Rights relates.
7.3.3 Surrender or Exchange of Tandem Stock Appreciation
Rights. A Tandem Stock Appreciation Right shall entitle the
Grantee to surrender to the Company unexercised the related Stock
Option, or any portion thereof, and to receive from the Company
in exchange therefor that number of shares of Stock having an
aggregate Fair Market Value equal to (i) the excess of (A) the
Fair Market Value of one (1) share of Common Stock at the time
the Tandem Stock Appreciation Right is exercised over (B) the
purchase price per share specified in such Stock Option,
multiplied by (ii) the number of shares of Stock subject to the
Stock Option, or portion thereof, which is surrendered. Cash
shall be delivered in lieu of any fractional shares.
7.4 Nontandem Stock Appreciation Rights.
7.4.1 Award of Nontandem Stock Appreciation Rights.
Nontandem Stock Appreciation Rights may be granted by the
Committee in a manner not related to a grant of a Stock Option.
At the time of grant of a Nontandem Stock Appreciation Right, the
Committee shall specify the number of shares of Stock covered by
such right and the base price of shares of Stock to be used in
connection with the calculation described in Section 7.4.2 below.
The base price of a Nontandem Stock Appreciation Right shall be
not less than 100% of the Fair Market Value of a share of Common
Stock on the date of grant. A Nontandem Stock Appreciation Right
shall be exercisable during such period as the Committee shall
determine.
7.4.2 Exercise of Nontandem Stock Appreciation Rights. The
exercise of a Nontandem Stock Appreciation Right shall entitle
the Grantee to receive from the Company that number of shares of
Stock having an aggregate Fair Market Value equal to (i) the
excess of (A) the Fair Market Value of one (1) share of Stock at
the time at which the Nontandem Stock Appreciation Right is
exercised over (B) the base price of the shares covered by the
Nontandem Stock Appreciation Right, multiplied by (ii) the number
of shares of Stock covered by the Nontandem Stock Appreciation
Right, or the portion thereof being exercised. Cash shall be
delivered in lieu of any fractional shares.
7.5 Settlement of Stock Appreciation Rights. As soon as is
reasonably practicable after the exercise of a Stock Appreciation
Right, the Company shall (i) issue, in the name of the Grantee, stock
certificates representing the total number of full shares of Stock to
which the Grantee is entitled pursuant to Section 7.3.3 or Section
7.4.2 hereof and cash in an amount equal to the Fair Market Value, as
of the date of exercise, of any resulting fractional shares, and (ii)
if the Committee causes the Company to elect to settle all or part of
its obligations arising out of the exercise of the Stock Appreciation
Right in cash pursuant to Section 7.6, deliver to the Grantee an
amount in cash equal to the Fair Market Value, as of the date of
exercise, of the shares of Stock it would otherwise be obligated to
deliver. The settlement of any Stock Appreciation Right under the
Plan shall be subject to the withholding requirements as set forth in
Section 15.1.
7.6 Cash Settlement. The Committee, in its discretion, may
cause the Company to settle all or any part of its obligation arising
out of the exercise of a Stock Appreciation Right by the payment of
cash in lieu of all or part of the shares of Stock it would otherwise
be obligated to deliver in an amount equal to the Fair Market Value
of such shares on the date of exercise.
7.7 Written Notice Required. A Stock Appreciation Right shall
be exercised when written notice of that exercise, stating the number
of shares of Stock with respect to which the Stock Appreciation Right
is being exercised, has been given to the Company at its principal
office, to the attention of the General Counsel, by the Grantee.
ARTICLE 8
UNRESTRICTED STOCK
8.1 Grant of Unrestricted Stock. The Committee may cause the
Company to award Unrestricted Stock to persons eligible under the
Plan in such amounts as the Committee, in its sole discretion, shall
determine. Such shares of Stock may be issued either alone or in
addition to other Awards granted under the Plan.
8.2 Delivery of Unrestricted Stock. The Company shall issue,
in the name of each Grantee to whom Unrestricted Stock has been
granted, stock certificates representing the total number shares of
Unrestricted Stock granted to the Grantee and shall deliver such
certificates to the Grantee as soon as reasonably practicable after
the date of the Award. The delivery of Unrestricted Stock under the
Plan shall be subject to the withholding requirements as set forth
in Section 15.1.
ARTICLE 9
RESTRICTED STOCK
9.1 Grant of Restricted Stock. The Committee may cause the
Company to grant Restricted Stock to Grantees under the Plan in such
amounts as the Committee, in its sole discretion, shall determine.
Such shares of Restricted Stock may be issued either alone or in
addition to other Awards granted under the Plan.
9.2 Restrictions and Conditions. Restricted Stock granted
under the Plan shall be evidenced by written agreements in such form
as the Committee may from time to time approve. The restrictions and
conditions imposed on Restricted Stock granted under the Plan,
including the satisfaction of corporate or individual performance
objectives, may differ from one Award to another as the Committee
shall, in its discretion, determine as long as all Awards satisfy the
requirements of the Plan; provided, however, that no grant shall
require any payment of cash consideration by the recipient. Each
Award of Restricted Stock shall be effective as of the date so stated
in the resolution of the Committee making the Award.
9.3 Duration of Awards. The restrictions and conditions imposed
upon any Restricted Stock shall lapse, in whole or in part, as
provided in the agreement pursuant to which the Award is made, but in
no event later than 10 years from the date of the Award.
9.4. Restricted Stock Certificates. Each certificate issued for
shares of Restricted Stock shall be registered in the name of the
Grantee and shall be deposited by him or her with the Company, to the
attention of the General Counsel, together with a stock power
endorsed in blank. The shares shall be subject to restrictions as
to transferability as provided in Article 13 and to such other
restrictions and conditions as may be imposed by the Committee at the
time of making the Award (the "restrictions and conditions"), which
shall be referenced by a conspicuous legend on the reverse side of
the stock certificate representing the shares.
9.5 Rights of Holders of Restricted Stock. Subject to the
restrictions and conditions, the Grantee shall be the owner of the
Restricted Stock and shall have all of the rights of a shareholder,
including, but not limited to, the right to receive all dividends
paid on the Restricted Stock and the right to vote the shares. In
the event there is a change in the Stock as described in Article 14,
any shares or other securities issued with respect to shares subject
to restrictions and conditions under the Plan shall be subject to the
same restrictions and conditions, and the certificates therefor,
together with a stock power endorsed in blank, shall be delivered to
the Company, to the attention of the General Counsel.
9.6 Delivery of Restricted Stock. Following the lapse of the
restrictions and conditions imposed on any Restricted Stock, the
certificate or certificates evidencing such shares shall be reissued
by the Company in the name of the Grantee without legend (except to
the extent that a legend may be necessary for compliance with
applicable securities laws) and shall be delivered to the Grantee.
The delivery of Restricted Stock under the Plan shall be subject to
the withholding requirements as set forth in Section 15.1.
ARTICLE 10
PERFORMANCE SHARES
10.1 Grant of Performance Shares. The Committee may cause the
Company to grant Performance Shares to Grantees under the Plan in
such amounts as the Committee, in its sole discretion, shall
determine. Such Performance Shares may be issued either alone or in
addition to other Awards under the Plan. Each Performance Share
grant shall confer upon the Grantee the right to receive a specified
number of shares of Stock contingent upon the achievement of
specified corporate or individual performance objectives within a
specified period.
10.2 Terms and Conditions. Performance Shares granted under
the Plan shall be evidenced by written agreements in such form as the
Committee may from time to time approve. The Committee shall specify
the performance objectives and the period of duration of the
Performance Shares Award at the time that such Award is granted. Any
Performance Share Award granted under this Plan shall constitute an
unfunded promise to issue shares of Stock to the Grantee in the
future upon the completion of specified conditions. No Grantee shall
be deemed to be a holder of any Shares subject to a Performance
Shares Award unless and until a stock certificate or certificates for
such are issued to such Grantee under the terms of the Plan. No
adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or
other rights for which the record date is prior to the date stock
certificates are issued pursuant to any Performance Shares Award,
except as provided in Article 14. The settlement of any Performance
Shares Award shall be subject to the withholding requirements as set
forth in Section 15.1.
10.3 Cash in Lieu of Stock. In lieu of some or all of the
shares earned by achievement of the specified performance objectives
within the specified period, the Committee may distribute cash in an
amount equal to the Fair Market Value of the Stock at the time that
the performance objective is achieved within the specified period
multiplied by the number of Performance Shares.
10.4 Performance Objective Period. The duration of the period
within which to achieve the performance objectives is to be
determined by the Committee, but in no event shall the duration be
later than ten years from the date of the Award.
ARTICLE 11
PERFORMANCE-BASED COMPENSATION AWARDS
11.1 Awards. All Stock Options and Stock Appreciation Rights
granted to key executive and supervisory employees under the Plan are
Performance-based Compensation Awards because they are required by
the terms of the Plan to have an exercise price that is not less than
Fair Market Value at the time of the Award. Restricted Stock and
Performance Shares awarded to key executive and supervisory employees
are also Performance-based Compensation Awards under this Article if
granted subject to a written agreement between the Company and the
Grantee setting forth one or more objective performance goals based
on the criteria set forth in Section 11.2 that are required to be met
in order for an Award to vest in the Grantee. The performance goals
must be established in writing by the Committee prior to the
employee's performance of the relevant services and while the outcome
under the goal or goals is substantially uncertain.
11.2 Performance Goals. The performance goals established
by the Committee with respect to a specific Performance-based
Compensation Award must be based on one or more of the following
criteria: net gains in the number of Company subscribers; achieving
targeted revenues per subscriber; achieving targeted marketing costs
per net new subscriber; increases in service revenue; control of
operating expenses; increases in operating cash flow; increases in
operating income; reduction in net loss; and achieving and increasing
net income.
11.3 Limitations of Shares. The maximum number of shares
that may be subject to Awards under the Plan contained in Section 4.1
and the maximum number of shares for any individual contained in
Section 4.2 include Performance-based Compensation Awards.
ARTICLE 12
TERMINATION OF EMPLOYMENT
12.1 Termination of Employment. If a Grantee ceases to be
employed by the Company or a Subsidiary for any reason other than
death or disability, any Award granted to such Grantee that is
unexercised or still subject to any restrictions or conditions shall
be terminated or forfeited, unless otherwise provided in the
applicable Award agreement.
12.2 Disability. If a Grantee becomes disabled within the
meaning of Section 22(e)(3) of the Code while employed by the
Company, or a Subsidiary, any Stock Option or Stock Appreciation
Right granted to such Grantee shall expire one year after the date
of termination of employment due to disability, unless a longer or
shorter period of exercise is provided in the applicable Award
agreement. Any Restricted Stock or Performance Shares granted to
such Grantee shall be terminated or forfeited, unless otherwise
provided in the applicable Award agreement.
12.3 Death of Grantee. If a Grantee dies while employed by the
Company, or a Subsidiary, any Stock Option or Stock Appreciation
Right granted to such Grantee shall expire one year after the date
of death, unless a longer or shorter period of exercise is provided
in the applicable Award agreement. During the exercise period after
death, the Stock Option or Stock Appreciation Right may be exercised,
to the extent provided in the applicable Award agreement, by the
person or persons to whom the Grantee's rights under the Award Right
shall pass by will or by the laws of descent and distribution but in
no event may the Stock Option or Stock Appreciation Right be
exercisable more than ten years from the date of grant. Any
Restricted Stock or Performance Shares granted to such Grantee shall
be terminated or forfeited, unless otherwise provided in the
applicable Award agreement.
12.4 Termination as Nonemployee Director of the Company. If a
nonemployee director ceases to serve the Company in that capacity,
the Grantee's rights upon such termination shall be governed in the
manner of an Grantee's rights upon termination of employment as set
forth above.
ARTICLE 13
TRANSFER RESTRICTIONS
Stock Options and Stock Appreciation Rights that have not been
exercised by the Grantee and Restricted Stock and Performance Shares
that are subject to restrictions and conditions shall not be subject
in any manner to alienation, sale, transfer, assignment, pledge,
attachment or encumbrance of any kind. Any attempt to alienate,
sell, transfer, assign, pledge or otherwise encumber any such Awards
shall be void, except for a transfer by will or by the laws of
descent and distribution. Notwithstanding the foregoing, the
Committee may grant Nonqualified Stock Options that are transferable,
without payment of consideration, to immediate family members of the
Grantee or to trusts or partnerships of such family members, or, to
the extent such transfers may be made in compliance with Rule 16b-3
and applicable tax laws, limited liability companies of such family
members. For purposes of this Article 13, the phrase "immediate
family member" shall mean spouse, children or grandchildren of the
Grantee.
ARTICLE 14
ADJUSTMENTS
If the shares of Stock of the Company are increased, decreased,
changed into, or exchanged for a different number or kind of shares
or securities through merger, consolidation, combination, exchange
of shares, other reorganization, recapitalization, reclassification,
stock dividend, stock split or reverse stock split in which the
Company is the surviving entity, an appropriate and proportionate
adjustment shall be made in the maximum number and kind of shares as
to which Awards may be granted under this Plan. A corresponding
adjustment changing the number or kind of shares allocated to
unexercised or unvested Awards, or portions thereof, which shall have
been granted prior to any such change, shall likewise be made. Any
such adjustment in outstanding Awards shall be made without change in
the aggregate purchase price applicable to the unexercised portion of
any such Award, but with a corresponding adjustment in the price for
each share or other unit of any security covered by the Award. In
making any adjustment pursuant to this Article 14, any fractional
shares shall be disregarded.
ARTICLE 15
MISCELLANEOUS PROVISIONS
15.1 Tax Withholding. With respect to any Award under the Plan,
the Company shall have the right to require Grantees or their
beneficiaries or legal representatives to remit to the
Company an amount sufficient to satisfy federal, state and local
withholding requirements, or to deduct from all payments under the
Plan amounts sufficient to satisfy all withholding tax requirements.
Within the discretion of the Committee, the Company may withhold the
tax required to be withheld from any other cash compensation then or
thereafter payable to the Grantee, or, if deemed necessary by the
Company, the Company may sell or withhold a portion of shares of Stock
to be delivered to the Grantee pursuant to the Plan to provide
sufficient funds for withholding tax and delivery of the proceeds to
the Company.
15.2 Termination, Amendment of Plan. The Board may at any time
terminate, amend or revise the terms of the Plan; provided that no
amendment or revision shall, without the approval of the Company's
shareholders, (i) increase the maximum aggregate number of shares that
may be sold or distributed pursuant to Awards granted under this Plan,
except as permitted under Article 13; (ii) change the minimum purchase
price for shares of Stock that may be received by exercise of Stock
Option or Stock Appreciation Right under the Plan; (iii) increase the
maximum duration established under the Plan for any Award; or
(iv) permit the granting of an Award to anyone other than specified in
Article 5.
15.3 Prior Rights and Obligations. No amendment, suspension, or
termination of the Plan shall, without the consent of the Grantee or
other person who has received an Award, alter or impair any of that
Grantee's rights or obligations under any Award granted under the Plan
prior to such amendment, suspension, or termination.
15.4 Employment. Nothing in the Plan or in any Award shall
confer upon any eligible employee any right to continued employment
by the Company, or a Subsidiary, or limit in any way the right of the
Company or a Subsidiary at any time to terminate or alter the terms
of that employment.
15.5 Securities Laws. Shares of Stock issuable pursuant to this
Plan may, at the option of the Company, be registered under applicable
federal and state securities laws, but the Company shall have no
obligation to undertake such registrations and may, in lieu thereof,
issue shares hereunder only pursuant to applicable exemptions from
such registrations. In the event that no such registrations are
undertaken, the shares shall be issued only to persons who qualify to
receive such shares in accordance with the exemption from registration
on which the Company relies. In connection with any Award of shares
or the reissuance of certificates under the Plan, the Committee may
require appropriate representations from the recipient of such shares
and take such other action as the Committee may deem necessary,
including but not limited to placing restrictive legends on
certificates evidencing such shares and placing stop transfer
instructions in the Company's stock transfer records, or delivering
such instructions to the Company's transfer agent, in order to assure
compliance with any such exemptions. Notwithstanding any other
provision of the Plan, no shares will be issued pursuant to the Plan
unless such shares have been registered under all applicable federal
and state securities laws or unless, in the opinion of counsel
satisfactory to the Company, exemptions from such registrations are
available.
15.6 Compliance with Section 16(b). In the case of Grantees who
are or may be subject to Section 16 of the Securities Exchange Act of
1934, it is the intent of the Company that the Plan and any Award
granted hereunder satisfy and be interpreted in a manner that
satisfies the applicable requirements of Rule 16b-3, so that such
Grantees will be entitled to the benefits of Rule 16b-3 or other
exemptive rules under Section 16 and will not be subjected to
liability thereunder. Accordingly, any Awards to such Grantee shall
be subject to the following conditions: (i) Stock or Stock
Appreciation Rights acquired pursuant to the Plan must be held at
least six months from the date the Award is granted, and (ii) an
election to receive cash in full or partial settlement of a Stock
Appreciation Right must be made during the period beginning on the
third business day following the Company's release of its quarterly
or annual summary statements of earnings to the public and ending on
the twelfth business day following such date (provided however, this
condition shall not apply to any exercise of a Stock Appreciation
Right for cash where the date of exercise is automatic or fixed in
advance under the Plan and is outside the control of the Grantee). If
any provision of the Plan or any Award would otherwise conflict with
the intent expressed herein, that provision, to the extent possible,
shall be interpreted and deemed amended so as to avoid such conflict.
To the extent of any remaining irreconcilable conflict with such
intent, such provision shall be deemed void as applicable to Grantees
who are or may be subject to Section 16.
15.7 Reorganization. Except as otherwise provided in the
applicable Award agreement, in the event of a consolidation or a
merger in which the Company is not the surviving corporation, or any
other merger in which the shareholders of the Company exchange their
shares of Stock in the Company for stock of another corporation, or
in the event of complete liquidation of the Company, or in the case
of a tender offer approved, all Awards that are unexercised or still
subject to any restrictions and conditions shall thereupon be
terminated or forfeited, provided that the Board may, prior to the
effective date of any such transaction, either (i) make all such Award
immediately vested or exercisable or (ii) arrange to have the
surviving corporation grant to the Grantees replacement Award on terms
which the Board shall determine to be fair and reasonable.
15.8 Effective Date and Term of Plan. The effective date of this
Plan is March 25, 1994; provided, however, that no Award granted
hereunder may be exercised or become vested unless and until the Plan
is approved by the shareholders of the Company. No Awards may be
granted under the Plan after March 24, 2004.
[Exhibit_10(a)(19)]
Adopted March 8, 1995
VANGUARD CELLULAR SYSTEMS, INC.
SENIOR MANAGEMENT SEVERANCE PLAN
WHEREAS, the Board of Directors of Vanguard Cellular Systems, Inc.
(the "Company") considers its senior management employees to be
valuable assets of the Company and essential to its growth and
prosperity; and
WHEREAS, the Board of Directors believes that adoption of a
reasonable severance plan would have the effect of giving to such
officers a sense of security that would have a positive effect on
their performances on behalf of the Company; and
WHEREAS, this Board believes that a reasonable severance plan
would improve the ability of the Company to attract and maintain
qualified senior management; now, therefore, it is
RESOLVED, that this Board of Directors hereby adopts the following
Senior Management Severance Plan (the "Plan"):
1. PURPOSE. The purpose of the Plan is to attract and retain
competent senior management employees for the Company.
2. ELIGIBILITY. Any senior management employee of the Company
who is identified by the Board of Directors or its Compensation
Committee as a participant in the Plan and who enters into a Severance
Agreement substantially in the form attached to this Plan shall be a
participant in the Plan (a "Participant").
3. ENTITLEMENT. Any Participant who is terminated from his or
her employ by the Company "without cause" (as defined in Section 4)
following a "change in control" of the Company, or who shall have
terminated his or her employment because of a "change in position or
employment conditions" (as defined in Section 5) following a "change
in control," shall be entitled to receive a severance payment in an
amount equal to his or her average annual total cash compensation for
the immediately preceding five fiscal years of the Company (or such
lesser number of whole fiscal years as he or she shall have been in
the employ of the Company), multiplied by 2.99 (the "Severance
Payment"). Upon entitlement, the Severance Payment will be payable in
cash or by certified check within thirty (30) days following
termination of the Participant's employment. For purposes of this
Agreement, a "change of control" shall be deemed to have occurred upon
the occurrence of any of the following events:
(i) Any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") but excluding any employee benefit plan of the
Company) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of the combined
voting power of the Company's outstanding securities then entitled
ordinarily (and apart from rights accruing under special
circumstances) to vote for the election of directors; or
(ii) Individuals who are "Continuing Directors" (as
hereinafter defined) cease for any reason to constitute at least
a majority of the Board of Directors; or
(iii) The Board of Directors shall approve a sale of all or
substantially all of the assets of the Company; or
(iv) The Board of Directors shall approve any merger,
consolidation, or like business combination or reorganization of
the Company the consummation of which would result in the
occurrence of any event described in clause (a) or (b) above.
For purposes of the foregoing, "Continuing Directors" shall mean
(a) the directors of the Company in office on the date of the
Severance Agreement between the Company and the Participant and (b)
any successor to any such director (and any additional director) who
after the date of the relevant Severance Agreement (y) was nominated
or selected by a majority of the Continuing Directors in office at the
time of his or her nomination or selection and (z) who is not an
"affiliate" or "associate" (as defined in Regulation 12B under the
Exchange Act) of any person who is the beneficial owner, directly or
indirectly, of securities representing 50% or more of the combined
voting power of the Company's outstanding securities then entitled
ordinarily to vote for the election of directors.
Notwithstanding anything to the contrary contained herein, in the
event that any portion of the Severance Payment received or to be
received by a Participant, together with any other payments received
by him or her, whether paid or payable pursuant to the terms of this
Plan or any other plan, arrangement or agreement with the Company or
any other person or entity, would not be deductible in whole or in
part by the Company in the calculation of its federal income tax by
reason of Section 280G of the Internal Revenue Code or would cause,
either directly or indirectly, an "excess parachute payment" to exist
within the meaning of said Section 280G, the Severance Payment payable
shall be reduced until no portion of the Severance Payment would fail
to be deductible by reason of being an "excess parachute payment." In
the event that any dispute arises as to whether an "excess parachute
payment" exists, the appropriate calculations shall be made by the
Company's regularly employed independent public auditors and delivered
to the Participant in writing within 30 days following the date for
payment of the Severance Payment, and the Company will warrant to the
Participant the accuracy of the calculations and the information on
which they are based.
4. DEFINITION OF "WITHOUT CAUSE." Termination of the
Participant's employ by the Company following a "change in control"
for any reason other than one of the following shall be deemed to be
termination "without cause": (i) continued neglect of duties for
which he or she was employed after receipt of written notice thereof
from the Board of Directors or its Compensation Committee or from the
President of the Company, (ii) continued insubordination after receipt
of a written warning with respect thereto, (iii) misconduct involving
moral turpitude in the performance of duties for which employed,
including, without limitation, the commission of fraud,
misappropriation or embezzlement by the Participant, (iv) the
Participant's being accused of committing any felony for which he or
she is indicted, or (v) disability of the Participant, whether mental
or physical, which renders him or her substantially unable to render
the services for which he or she is employed for more than 90 days (in
which event the Participant shall be entitled to the benefits of any
applicable employee benefit plan).
5. CHANGE IN POSITION OR EMPLOYMENT CONDITIONS. The Participant
shall be deemed to have had a "change in position or employment
conditions" upon the occurrence, following a "change in control" of
the Company, of any one of the following events: (a) his or her
authority and/or responsibility are substantially reduced, without his
or her consent, below that in existence immediately prior to the
"change in control," (b) the Participant is required to change his or
her residence or principal place of business from Greensboro, North
Carolina, or such other location as shall be his or her residence or
principal place of business immediately prior to the "change in
control," or (c) the travel obligations of the Participant on behalf
of the Company are, without his or her consent, increased materially
above those in effect immediately prior to the "change in control."
6. COVENANTS NOT TO COMPETE. Participation in the Plan is
conditioned upon the Participant's agreement, which agreement shall be
confirmed by his or her entering into the Severance Agreement that
during the term of his or her employment with the Company and for a
period of one year following the termination of such employment:
(a) He or she will not, directly or indirectly, own any
interest in, manage, operate, control, be employed by, render
consulting or advisory services to, or participate in or be
connected with the management or control of any business that
is then engaged in the operation of a cellular telephone system
(or any competitive communication system then operated by the
Company) in competition with the Company in the Territory;
(b) He or she will not, directly or indirectly, influence or
attempt to influence any customer of the Company to discontinue
its use of the Company's services or to divert such business to
any other person, firm or corporation;
(c) He or she will not, directly or indirectly, interfere
with, disrupt or attempt to disrupt the relationship, contractual
or otherwise, between the Company and any of its respective
suppliers, principals, distributors, lessors or licensors; and
(d) He or she will not, directly or indirectly, solicit any
employee of the Company, whose base annual salary at the time of
the Participant's termination was $30,000 or more, to work for any
person, firm or corporation.
The purposes of this Section 6, the "Territory" shall mean any
geographic area in which the Company is operating a cellular telephone
system immediately prior to a "change in control".
7. DEFINITION OF "COMPANY." For purposes of this Plan, the term
"Company" shall be deemed to include Vanguard Cellular Systems, Inc.
and all of its wholly owned subsidiaries and their respective
successors and assigns.
8. EMPLOYMENT RIGHTS. Neither the adoption of this Plan nor the
execution by the Company of a Severance Agreement shall be deemed to
confer upon any Participant the right to continued employment with the
Company or to interfere in any way with the right of the Company to
terminate the employment of any employee at any time.
9. BINDING EFFECT. This Plan shall be binding upon and enure to
the benefit of the Company and its successors and assigns, including
any company with which the Company shall merge or to which the Company
shall transfer all or substantially all of its assets.
10. AMENDMENT OR TERMINATION. This Plan may be amended or
terminated at any time by the Board of Directors of the Company,
provided, however, that no amendment or termination shall adversely
affect the rights of any Participant who shall have entered into a
Severance Agreement prior to the time of such amendment or termination
without his or her written consent.
[Exhibit 10(a)(20)]
VANGUARD CELLULAR SYSTEMS, INC.
SEVERANCE AGREEMENT FOR SENIOR MANAGEMENT EMPLOYEES
THIS AGREEMENT, dated as of by and between VANGUARD
CELLULAR SYSTEMS, INC., a North Carolina corporation (the "Company"),
and , a senior management employee of the
Company (the "Employee").
WHEREAS, the Company maintains a Senior Management Severance Plan
(the "Plan"); and
WHEREAS, the Company has offered to the Employee the opportunity
of participating in the Plan on the terms and conditions of the Plan
and of this Agreement and the Employee desires to participate on such
terms and conditions;
NOW, THEREFORE, in consideration of the premises and other good
and valuable consideration receipt of which is hereby acknowledged, it
is agreed:
1. PLAN PARTICIPATION. The Company hereby designates the
Employee a Participant under the Plan (a copy of which is attached to
and made a part of this Agreement) and shall be entitled to all
rights and subject to all the terms of the Plan.
2. COVENANTS NOT TO COMPETE; OTHER PROVISIONS. The Employee
hereby acknowledges and agrees that, by entering into this Agreement,
he is subject to and bound by all provisions of the Plan, including
without limitation the provisions of Section 6 thereof, entitled
"Covenants Not To Compete" to which he specifically agrees.
3. INJUNCTIVE RELIEF. The Employee acknowledges and agrees that
the Company would suffer irreparable injury in the event of a breach
by him of any of the provisions of Section 6 of the Plan and that the
Company shall be entitled to an injunction restraining him from any
breach or threatened breach thereof. Nothing herein shall be
construed, however, as prohibiting the Company from pursuing any other
remedies at law or in equity that it may have for any such breach or
threatened breach of any provision of said Section 6 or otherwise,
including the recovery of damages from the Employee.
4. EMPLOYMENT RIGHTS. The Employee acknowledges that this
Agreement does not confer upon him any right to continued employment
with the Company or any of its subsidiaries.
5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of the Employee and his personal
representatives, estate and heirs and to the Company and its
successors and assigns, including without limitation any corporation
or other entity with which the Comany may merge or to which it may
transfer all or substantially all of its assets and business (by
operation of law or otherwise). The Employee may not assign this
Agreement or any part hereof without the prior written consent of the
Company, which consent may be withheld by the Company for any reason
it deems appropriate.
6. AMENDMENT; WAIVER. No provision of this Agreement or the
Plan may be amended or modified in any manner that adversely affects
the rights of the Employee hereunder except in writing signed by the
Employee. No waiver by either party of any breach by the other party
of any provision of this Agreement shall be deemed a waiver of any
other breach.
7. NOTICES. All notices or other communications given pursuant
to this Agreement shall be in writing and either delivered personally,
by confirmed facsimile, by confirmed overnight delivery or by prepaid
registered or certified mail, return receipt requested. Notices and
other communications mailed to the Employee shall be addressed to his
last address as shown on the personnel records of the Company, and
notices and other communications to the Company shall be addressed to
Vanguard Cellular Systems, Inc., 2002 Pisgah Church Road, Suite 300,
Greensboro, North Carolina 27408, Attn: President. Either party may
change the address to which notices are to be mailed pursuant to this
Section 7, by written notice given in accordance herewith.
8. SEVERABILITY. If any one or more of the provisions contained
in this Agreement shall be invalid, illegal, or unenforceable in any
respect under any applicable law, the validity, legality and
enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
9. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws and judicial decisions of the
State of North Carolina.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year first above written.
VANGUARD CELLULAR SYSTEMS, INC.
By:
(SEAL)
Employee
<PAGE>
EXHIBIT 11
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES
CALCULATION OF FULLY DILUTED NET LOSS PER SHARE
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Net Loss........................................................................ $ (22,347) $ (18,998) $ (26,659)
Weighted average number of common shares outstanding............................ 38,628,140 38,038,240 37,110,343
Adjustments necessary to reflect weighted average number of common shares
outstanding on a fully diluted basis............................................ 1,649,474 1,124,789 1,472,354
40,278,682 39,163,029 38,582,697
Fully diluted net loss per share................................................ $ (0.55) $ (0.49) $ (0.69)
</TABLE>
<PAGE>
EXHIBIT 22
VANGUARD CELLULAR SYTEMS, INC.
SUBSIDIARIES OF REGISTRANT
The following is a complete and correct list of all Subsidiaries as of March 1,
1995:
Altoona CellTelco
Atlantic Cellular Telephone Corp.
Binghamton Cellular Telephone Corp.
Binghamton CellTelCo
Cellular Directory Corporation
Eastern North Carolina Cellular Joint Venture
Hagerstown Cellular Telephone Corp.
Harrisburg Cellular Telephone Company
* Jacksonville Cellular Communications, Inc.
* Jacksonville Cellular Partnership
* Jacksonville Cellular Telephone Corp.
Long Distance One, Inc.
Orange County Cellular Telephone Corp.
PA-10 East Partnership
Pennsylvania Cellular Telephone Corp.
Piscataqua Cellular Telephone Corp.
PLMRS Narrowband Corp.
State College CellTelCo
Teleflex Information Systems, Inc.
Vanguard Acquisition Corp.
Vanguard Binghamton, Inc.
Vanguard Cellular Corp.
Vanguard Cellular Holding Corp.
Vanguard Cellular Operating Corp.
Vanguard Cellular Services, Inc.
Vanguard Cellular Systems of South Carolina, Inc.
Vanguard India, Inc.
Vanguard International Telecommunications, Inc.
Vanguard Israel, Inc.
Vanguard Uruguay Corp.
Warren & Lewis, Ltd.
West Virginia Cellular Telephone Corp.
Western Florida Cellular Telephone Corp.
Williamsport Cellular Telephone Company
* Wilmington Cellular Communications, Inc.
* Wilmington Cellular Partnership
* Wilmington Cellular Telephone Corp.
* Direct or indirect 50% ownership or control through a joint venture.
<PAGE>
EXHIBIT 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Vanguard Cellular Systems, Inc.:
As independent public accountants, we hereby consent to the incorporation
of our report dated February 20, 1995 included in this Form 10-K, into the
Company's previously filed Form S-4 Registration Statement No. 33-35054, Form
S-8 Registration Statement No. 33-22866, Form S-8 Registration Statement No.
33-36986, Form S-8 Registration Statement No. 33-53559 and Form S-8 Registration
Statement No. 33-69824.
ARTHUR ANDERSEN LLP
Greensboro, North Carolina,
March 30, 1995.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from
financial statements in the Registrant's Form 10-K and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 5,745,000
<SECURITIES> 0
<RECEIVABLES> 25,425,000
<ALLOWANCES> 2,761,000
<INVENTORY> 10,417,000
<CURRENT-ASSETS> 39,543,000
<PP&E> 200,347,000
<DEPRECIATION> 80,022,000
<TOTAL-ASSETS> 431,711,000
<CURRENT-LIABILITIES> 41,321,000
<BONDS> 0
<COMMON> 405,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 431,711,000
<SALES> 146,417,000
<TOTAL-REVENUES> 168,001,000
<CGS> 21,008,000
<TOTAL-COSTS> 50,941,000
<OTHER-EXPENSES> 105,194,000
<LOSS-PROVISION> 339,000
<INTEREST-EXPENSE> 22,126,000
<INCOME-PRETAX> (13,945,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,945,000)
<DISCONTINUED> 0
<EXTRAORDINARY> (8,402,000)
<CHANGES> 0
<NET-INCOME> (22,347,000)
<EPS-PRIMARY> (0.58)
<EPS-DILUTED> (0.55)
</TABLE>
