VANGUARD CELLULAR SYSTEMS INC, 10-K405, 1996-03-20

VANGUARD CELLULAR SYSTEMS INC
10-K405, 1996-03-20
RADIOTELEPHONE COMMUNICATIONS

Previous: LORD ABBETT CALIFORNIA TAX FREE INCOME FUND INC, 497, 1996-03-20

Next: VANGUARD CELLULAR SYSTEMS INC, 424B3, 1996-03-20

<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

[X] 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, 1995

[ ] 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)

<TABLE>
<S> <C>
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)
</TABLE>

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 X NO

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X

The aggregate market value of the registrant's Common Stock held by those
other than executive officers and directors at March 15, 1996, based on the
NASDAQ closing sale price for the Registrant's Common Stock as of such date, was
approximately $693,065,000.

The number of shares outstanding of the issuer's common stock as of March
15, 1996 was 41,313,443.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive proxy statement relating to its
1996 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, 1995.
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
<S> <C>
Item 1 Business........................................................................................................ 1
Item 2 Properties...................................................................................................... 16
Item 3 Legal Proceedings............................................................................................... 16
Item 4 Submission of Matters to a Vote of Security Holders............................................................. 16
Item 4(a) Executive Officers of the Registrant......................................................................... 16

PART II
<S> <C>
Item 5 Market for the Registrant's Common Stock and Related Stockholder Matters........................................ 18
Item 6 Selected Consolidated Financial Data............................................................................ 19
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 21
Item 8 Financial Statements and Supplementary Data..................................................................... 26
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................ 26
<CAPTION>

PART III
<S> <C>
Item 10 Directors and Executive Officers of the Registrant............................................................. 27
Item 11 Executive Compensation......................................................................................... 27
Item 12 Security Ownership of Certain Beneficial Owners and Management................................................. 27
Item 13 Certain Relationships and Related Transactions................................................................. 27
<CAPTION>

PART IV
<S> <C>
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................................... 28
Signatures............................................................................................................. 29
Index to Consolidated Financial Statements and Schedule................................................................ F-1
Exhibit Index
</TABLE>
<PAGE>
<PAGE>
ITEM 1. BUSINESS

OVERVIEW

Vanguard Cellular Systems, Inc. ("the Company") is one of the largest
independent operators of cellular telephone systems in the United States based
on its 7.5 million aggregate POPs as of December 31, 1995. The Company serves
over 380,000 subscribers located in five "metro-clusters," or contiguous groups
of cellular markets, comprised of 28 markets in the Eastern United States,
including the Mid-Atlantic SuperSystem and the Florida, Carolinas, New England,
and West Virginia metro-clusters. The Mid-Atlantic SuperSystem, which is
contiguous to the New York, Philadelphia and Baltimore/Washington MSAs and the
New England metro-cluster, which is contiguous to the Boston MSA, (four of the
nation's seven largest MSAs) collectively represent approximately 80% of the
Company's operating POPs. The Company's wireless products and services are
distributed under the CellularONE(Register mark) brand name, one of the most
recognized brand names in the wireless industry. For the year ended December 31,
1995, the Company had consolidated service revenues of $217 million and EBITDA
of $68 million.

The Company's markets are located in predominantly suburban and rural areas
proximate to major urban areas, which the Company believes affords it several
advantages over traditional urban wireless operations, including (i) greater
network capacity, (ii) greater roaming revenue opportunities, (iii) lower
distribution costs and (iv) higher barriers to entry. Because there are limits
to the number of signals that can be transmitted simultaneously in a given area,
the Company's less densely populated suburban and rural locations allow for
greater frequency reuse, resulting in greater overall network capacity than in
high density urban markets. The Company is able to provide high quality voice
transmission with reduced instances of blocked or dropped calls. In addition to
these network advantages, the Company's metro-clusters enjoy greater roaming
revenue opportunities by virtue of their proximity to large urban centers. This
benefit is best exemplified in the Mid-Atlantic SuperSystem, which is located in
the heavily traveled corridor between New York, Philadelphia and
Baltimore/Washington D.C. Roaming revenue requires minimal incremental
administrative and marketing expenditures, and the Company believes that it is
well positioned to benefit from both cellular roaming and eventual roaming by
users of personal communication services ("PCS"). The Company also believes that
it experiences lower distribution costs due to its internal distribution
channels such as direct sales, retail stores and kiosks, which are more
economical outside of urban areas. Finally, the Company believes that the lower
population density and greater geographic coverage of its suburban and rural
metro-clusters act as barriers to entry given the relatively higher
per-subscriber costs of building competing wireless systems.

The Company's annual service revenue and subscriber growth over the last
three years has outpaced average industry growth over the three year period
ending June 30, 1995 according to the most recently published data by the
Cellular Telephone Industry Association. The number of subscribers in the
Company's majority-owned markets grew from 92,300 to 381,000 over the last three
years, a compound annual growth rate of approximately 60%, compared to an
industry growth rate of 47%. Service revenue grew from $73 million in 1992 to
$217 million in 1995, a compound annual growth rate of 44%, compared to an
industry growth rate of 35%. In addition, the Company's EBITDA grew from $14
million in 1992 to $68 million in 1995. See "Item 6 -- Selected Consolidated
Financial Data" and "Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations."

BUSINESS STRATEGY

The Company's overall goal is to continue to pursue strong growth of
subscribers, revenues and EBITDA. The Company intends to achieve this goal
through its operating strategy of providing a broad range of high quality
integrated wireless communications products and services. Key elements of the
Company's strategy include:

(Bullet) DEVELOPMENT OF THE METRO-CLUSTER SERVICE AREAS. The Company has
pursued a strategy of developing and supplementing its regional
metro-clusters to enable it to better serve its customers and to
achieve cost efficiencies through economies of scale. By operating
in contiguous markets, the Company can provide broad areas of
seamless service and achieve economies of scale in marketing and
operations as well as cost efficiencies in deploying its network
infrastructure. The Company continually evaluates opportunities
for acquisitions of new cellular properties in proximate suburban
and rural markets that will expand its metro-clusters.

(Bullet) CONTINUOUS CELLULAR NETWORK BUILDOUT. The Company continuously
improves its systems. In 1994, the Company began a cellular
network expansion and upgrade program in order to increase
geographic coverage and provide for additional portable usage in
the Company's cellular markets. In 1995, the Company added 110 new
cell sites and replaced or upgraded 65 others, bringing its total
number of cell sites to 270 as of December 31, 1995. The Company
plans to add 80 cell sites in 1996 as it continues to enhance its
network.

1
<PAGE>
<PAGE>
The Company believes that its networks have sufficient capacity in
its spectrum to serve the Company's growing subscriber base in the
near future but plans to implement a gradual transition to digital
technology before analog capacity constraints become a significant
concern. The Company's networks are currently digital-ready, with
dual mode analog/Time Division Multiple Access ("TDMA") digital
radio technology already built-in such that individual
transmitters may be converted to digital mode with minimal
additional investment. See " -- Expansion of Product Offerings."

(Bullet) INVESTMENT IN BRAND IDENTITY. The Company's wireless products and
services are distributed under the CellularONE(Register mark)
brand name, one of the most recognized brand names in the wireless
industry. The CellularONE(Register mark) brand name currently is
used by cellular systems covering more than 11,000 cities and
towns, representing total POPs of over 129 million. The Company
has a minority ownership interest in the partnership that owns the
CellularONE(Register mark) brand name and that controls the
promotion and management of the brand. In addition to benefitting
from local advertising by licensees, the
CellularONE(Register mark) brand name is advertised on a national
basis by the partnership that owns the brand with funding provided
by licensing fees.

(Bullet) EMPHASIS ON CUSTOMER SERVICE AND ADVANCED BILLING SYSTEMS. The
Company provides on-line customer support, 24 hours a day, seven
days a week. The Company's internally developed, proprietary
Flexcell(Register mark) billing and management information system
enables the Company to provide quality services to its expanding
customer base and affords it access to customer data, which it
uses to facilitate its marketing efforts. One such service is
Rapid Activation, which enables the Company to execute credit
checks, order entry, and subscriber activation within five
minutes. See " -- Customer Service."

(Bullet) GROWTH OF INTERNAL DISTRIBUTION CHANNELS. The Company distributes
its products and services through both its internal distribution
network (direct salesforce, sales and service centers, and retail
stores) and external distribution channels (national retailers,
local agents and automotive dealers). The Company is continuing
its long-term emphasis on internal distribution channels,
particularly its own retail outlets, which the Company believes
offer substantial benefits. These benefits include lower cost,
higher effectiveness in selling to high margin customers, and a
consistent point of customer contact, resulting in greater ongoing
satisfaction for both internally and externally generated
customers. The Company is therefore building additional retail
outlets, as well as upgrading existing outlets. See " -- Marketing
and Distribution."

(Bullet) EXPANSION OF PRODUCT OFFERINGS. The Company continues to offer new
and innovative products and services in order to increase the
value of the basic voice product to the customer and to increase
airtime revenues. In addition to enhanced cellular voice service
packages, the Company has begun to offer digital data
transmission, and field trials are underway for Cellular Digital
Packet Data protocol ("CDPD"). With the integration of digital
technology, the Company will be able to offer a variety of
additional services such as caller identification, short messaging
and call encryption.

2
<PAGE>
<PAGE>
MARKETS AND CLUSTERS

The following table sets forth as of December 31, 1995, (i) the markets in
which the Company owns an interest in a cellular system by region and by
cluster, (ii) the Company's ownership percentage of the system, the total
population of the market (as derived from 1995 population estimates) and (iii)
the Company's POPs based on its ownership percentage.

<TABLE>
<CAPTION>
COMPANY 1995 NET
OWNERSHIP POPULATION POPS
<S> <C> <C> <C>
Mid-Atlantic SuperSystem:
Allentown, PA/NJ................................................................ 100.00% 712,049 712,049
Wilkes-Barre/Scranton, PA....................................................... 100.00 660,089 660,089
Harrisburg, PA.................................................................. 100.00 496,511 496,511
Lancaster, PA................................................................... 100.00 447,498 447,498
York, PA........................................................................ 100.00 446,753 446,753
Reading, PA..................................................................... 100.00 349,909 349,909
Williamsport, PA................................................................ 93.32 121,194 113,094
State College, PA............................................................... 96.99 129,835 125,927
Orange County, NY............................................................... 100.00 324,343 324,343
Wayne, PA (PA-5 RSA)............................................................ 100.00 81,417 81,417
Chambersburg, PA (PA-10 East RSA)............................................... 92.09 141,778 130,566
Mifflin, PA (PA-11 RSA)......................................................... 100.00 113,542 113,542
Lebanon, PA (PA-12 RSA)......................................................... 100.00 117,169 117,169
Union, PA (PA-8 RSA)............................................................ 100.00 406,665 406,665
Altoona, PA..................................................................... 100.00 132,385 132,385
Binghamton, NY/PA............................................................... 100.00 303,426 303,426
Elmira, NY...................................................................... 100.00 94,642 94,642
Poughkeepsie, NY................................................................ 11.14 262,663 29,249
Subtotal..................................................................... 5,085,234
West Virginia Metro-cluster:
Huntington, WV/KY/OH............................................................ 100.00 317,193 317,193
Charleston, WV.................................................................. 100.00 255,548 255,548
Ripley, WV (WV-1 East RSA)...................................................... 100.00 50,055 50,055
Other........................................................................... 1,150
Subtotal..................................................................... 623,946
Florida Metro-cluster:
Pensacola, FL................................................................... 100.00 379,069 379,069
Fort Walton Beach, FL........................................................... 100.00 165,277 165,277
Panama City, FL................................................................. 18.28 143,194 26,169
Columbus, GA.................................................................... 13.69 257,521 35,264
Albany, GA...................................................................... 10.29 118,201 12,160
Pascagoula, MS.................................................................. 6.55 126,963 8,322
Other........................................................................... 17,761
Subtotal..................................................................... 644,022
Carolinas Metro-cluster:
Myrtle Beach, SC (SC-5 RSA)..................................................... 100.00 241,941 241,941
+Wilmington, NC.................................................................. 47.97 198,532 95,231
+Jacksonville, NC................................................................ 47.79 147,695 70,585
Petersburg, VA.................................................................. 17.58 129,405 22,747
Subtotal..................................................................... 430,504
New England Metro-cluster:
Portland, ME.................................................................... 100.00 283,033 283,033
Portsmouth, NH/ME............................................................... 100.00 276,749 276,749
Bar Harbor, ME (ME-4 RSA)....................................................... 100.00 85,481 85,481
Bangor, ME...................................................................... 5.31 147,766 7,840
Other........................................................................... 15,512
Subtotal..................................................................... 668,615
Other Minority Interests.......................................................... 70,445
TOTAL POPs........................................................................ 7,522,766
</TABLE>

+ Jointly controlled through the Company's 50% ownership of a joint venture with
a subsidiary of GTE Mobilnet.

3
<PAGE>
<PAGE>
SUBSCRIBERS

Management believes that the Company's subscribers are primarily business
users who utilize cellular telephone service 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 of cellular communications 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 revenue 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 revenue for the foreseeable future.

The following table sets forth the aggregate number of subscribers in the
Company's majority-owned markets at the end of the periods indicated.

<TABLE>
<CAPTION>
QUARTER 1993 1994 1995
<S> <C> <C> <C>
First................................................................ 99,500 150,000 280,000
Second............................................................... 107,500 169,000 314,000
Third................................................................ 116,200 190,000 340,000
Fourth............................................................... 132,300 245,000 381,000
</TABLE>

The incremental subscriber growth and the rate of incremental subscriber
growth in the Company's majority-owned markets is set forth in the following
table for the periods indicated.

<TABLE>
<CAPTION>
1993 1994 1995
<S> <C> <C> <C>
Incremental Subscriber Growth........................................ 40,000 112,700 136,000
Rate of Incremental Subscriber Growth................................ 43% 85% 56%
</TABLE>

The following table sets forth the number of subscribers and the
penetration percentages in majority-owned markets as of the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1994 1995
SUBSCRIBERS PENETRATION* SUBSCRIBERS PENETRATION* SUBSCRIBERS
<S> <C> <C> <C> <C> <C>
Mid-Atlantic SuperSystem..................... 88,500 2.15% 163,600 3.50% 254,500
New England.................................. 13,000 2.37 23,500 3.71 35,500
Florida...................................... 12,100 2.32 18,900 3.54 29,000
West Virginia................................ 11,900 2.09 26,400 4.24 45,500
Carolinas.................................... 6,800 2.82 12,600 5.17 16,500
Total...................................... 132,300 2.21 245,000 3.65 381,000

<CAPTION>
PENETRATION*
<S> <C>
Mid-Atlantic SuperSystem..................... 5.01%
New England.................................. 5.50
Florida...................................... 5.33
West Virginia................................ 7.31
Carolinas.................................... 6.82
Total...................................... 5.34
</TABLE>

* Penetration represents total year-end subscribers divided by year-end total
POPs in the Company's majority-owned markets.

The Company believes subscriber growth and increased penetration in 1993,
1994 and 1995 were a product of the growing acceptance of cellular
communications and the Company's efforts to capitalize on this increasing
acceptance through a more highly trained salesforce and an expanded distribution
network. In addition, 1994 and 1995 subscriber growth was augmented by
approximately 14,000 and 9,000 subscribers, respectively, associated with the
acquisition of certain cellular markets.

PRODUCTS AND SERVICES

The Company's primary line of business is the provision of cellular
telephone services. Customers are offered several pricing options combining
different monthly access and usage charges and charges for related services.

The Company provides regional service among its contiguous markets, such as
those within the Mid-Atlantic SuperSystem. A customer in these regions can place
and receive calls throughout the network without any additional daily fee and
often at the same incremental rate per minute as in the customer's home market.
In certain adjacent cellular markets not owned by the Company, the Company
offers similar regional pricing options to its subscribers. 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. These agreements allow the Company's subscribers to be preregistered in
cellular systems

4
<PAGE>
<PAGE>
outside the Company's operating regions and to receive service while they are
outside their home systems, typically for a usage charge and an additional daily
fee.

In certain markets, the Company charges its customers who roam into
adjacent markets only the rates it charges in its own markets rather than
passing through higher roaming rates customarily charged by many cellular
carriers. This billing practice creates a marketing advantage by providing the
customer with an apparently broader service area, but it results in increased
costs for the Company. The Company has been reducing these costs through the
continued negotiation of more favorable roaming agreements with both wireline
and nonwireline cellular service providers in relevant areas. In addition to
lowering its costs for delivering these services, the Company also has been able
to reduce the costs associated with certain other markets which traditionally it
had passed through to its customers at cost without a commensurate reduction in
the rates it charges its customers. See "Item 7 -- Management's Discussion and
Analysis of Financial Condition and Results of Operations."

The Company has offered and will continue to offer new and innovative
products and services in order to increase the value of the basic voice product
to the customer and to increase airtime revenues. Recent service additions
include enhanced voice mail, which alerts the customer when a message has been
left, and single number service, which allows a customer to use the same phone
number in several locations. Other recent service additions include call
management, which directs incoming calls to a succession of locations until the
customer is reached, and voice dialing, which lets the customer make calls by
spoken command without having to touch the keypad.

The Company now offers digital data transmission over its existing cellular
network, which allows the rapid transfer of data to and from personal computers,
personal digital assistants ("PDAs"), and other devices. Trials are underway for
use of the Cellular Digital Packet Data protocol ("CDPD"), an advanced data
transmission method which the Company expects to offer in 1996. The Company also
is field testing the TDMA digital protocol. Digital technology will allow the
Company to offer Integrated Services Digital Network ("ISDN") standard services
such as caller identification, short messaging, and call encryption. See
" -- Cellular Technology."

In 1995, the Company began marketing and installing cellular mini-networks,
which allow mobile communications across a business complex, building, or
facility. These mini-networks connect seamlessly into conventional cellular
networks. The Company is one of the first vendors to offer the mini-network
systems, which are profitable both in terms of service and equipment sales.

During 1996 and 1997, other new product offerings are expected to include
extensive voice-mail and call-tracking options. The Company is also exploring
the possibility of offering paging and long distance telephone service on a
reselling basis.

MARKETING AND DISTRIBUTION

The Company markets its services under the CellularONE(Register mark) brand
name, one of the most recognized brand names in the wireless communications
industry. In addition to benefitting from local advertising by licensees, the
CellularONE(Register mark) brand name is advertised on a national basis by the
partnership that owns the brand using the proceeds of licensing fees. The
CellularONE(Register mark) brand name currently is used by cellular systems
covering more than 11,000 cities and towns with total POPs of more than 129
million. The Company is one of three owners of the CellularONE(Register mark)
brand name. During the first half of 1996, the Company expects to exercise an
option to increase its ownership interest in the partnership that owns the brand
name, at a cost of approximately $6.1 million, to one-third from the 2.5%
interest it currently owns. As an owner of the CellularONE(Register mark) name,
the Company exercises influence over the promotion and future services offered
under the brand. As part of an ongoing strategy to enhance the value of the
CellularONE(Register mark) brand, the owners of the brand currently plan to
continue to license new carriers to operate under the CellularONE(Register mark)
name, both for cellular, as well as for paging, PCS, long distance and for
resellers of these services. Where CellularONE(Register mark) is licensed,
existing licensees currently have the exclusive right to use the brand name for
cellular and other services.

The Company uses multiple distribution channels in each of its service
areas to provide effective and extensive marketing of its products and services
and to reduce its reliance on any single distribution source. These distribution
channels fall into two broad categories: internally developed and controlled
channels, and external channels.

The Company is continuing its long-term focus on internal distribution
channels as a means to reduce the cost and improve the quality of new
subscribers. The Company's retail stores have been a historically low-cost
distribution channel, a benefit that is enhanced for the Company as a result of
relatively low facilities and other costs in the Company's suburban and rural
markets as compared to urban areas. Also, Company sales representatives are most
effective in selling to the high-

5
<PAGE>
<PAGE>
end customers and businesses, which tend to provide the Company with the highest
profit margins. The Company believes that cellular customers prefer to deal
directly with sales representatives employed by the Company. In addition,
Company stores provide an ongoing point of contact for service to subscribers
regardless of whether the point of purchase was internal or external. The
Company plans to expand its base of retail stores and kiosks and upgrade its
existing retail outlets. The Company had a total of 60 retail locations as of
December 31, 1995 and intends to add 26 locations in 1996.

The Company's direct sales force consists of approximately 400 sales and
administrative employees, who target small-to-medium sized companies, a
high-margin area of business. In order to maintain a knowledgeable,
customer-oriented sales force, the Company developed and administers its own
sales training program designed to educate sales representatives for its
markets. The program offers a curriculum that highlights mobile technologies,
cellular equipment prospecting, sales techniques, and the customer service
process, and the Company believes that, following the program, sales
representatives are better able to address existing and potential customers'
needs in a professional, knowledgeable and productive manner.

The Company sells and rents cellular telephone equipment to its customers
in order to encourage use of its services. The Company continues its practice,
typical in the industry, of selling telephones at or below cost in response to
competitive pressures, and the magnitude of the losses experienced in connection
with providing cellular telephone equipment reflects the Company's increased
subscriber growth. The Company also offers an 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, 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.

The Company is extending its control of the distribution process into
certain external channels by offering the prepackaged MIO phone, a cellular
telephone sold "off the shelf" at retail establishments. Company retail stores
and kiosks also offer the MIO phone. MIO offers consumers attractive service
options such as free weekend usage and remote activation, and delivers
substantially higher profit margins to the Company than do phones activated by
retailers through more conventional methods because of the lower associated
commission costs.

The Company also utilizes a telemarketing program as part of its sales and
customer service efforts. This program is intended to aid the customer by
providing sales follow-up and support, and helps the Company in securing
additional and better sales referrals, upgrading existing subscribers to higher
rate plans and promoting new custom-calling features.

External distribution channels include national retailers such as WalMart,
automobile dealers, and local agents and resellers. The Company enters into
exclusive short-term contracts with each of its external distribution channels.
Rapid growth in the wireless communications business, especially from customers
contracted through external channels, reduced the percentage of
internally-generated customers from 70% in 1992 to 52% in 1995. While the
Company has benefitted from the increased success of external distribution
channels, the Company continues to emphasize internal distribution channels,
which it believes result in higher long-term profit margins.

CUSTOMER SERVICE

The Company places a high priority on providing consistently high quality
customer service. The central customer service department located in Greensboro,
North Carolina, is open 24 hours daily, including weekends and holidays, and
handles all customer service inquiries. Recently, the Company opened a regional
call center in one of its markets and, depending on the success of this center,
may open additional regional centers in the future. Potential benefits of
regional call centers include having service delivery as close to the customer
as possible to cover specific regional circumstances, being a more significant
local employer and reducing the risk of encountering a lack of experienced
customer service employees in the Greensboro, North Carolina area. All customer
service personnel are trained in certain key areas such as general mobile
telephone technology, available cellular equipment, cellular billing and
roaming. The Company believes that this training provides these employees with
the requisite knowledge to handle customer inquiries quickly and competently,
resulting in greater customer satisfaction. The Company's training program,
which was developed and is administered internally, requires employees to
demonstrate competency through testing.

The Company has developed a proprietary billing and management information
system, Flexcell(Register mark), which it believes provides several service
advantages to its customers. Using Flexcell(Register mark), customer service
representatives are able to access current billing information quickly in order
to respond promptly to customer inquiries. In addition, this system has the
ability to integrate customer-related data from various operations within the
Company into a single database. Using this database,

6
<PAGE>
<PAGE>
service calls are systematically analyzed each month to highlight key customer
issues. The customer database also provides the basis for customer satisfaction
information. The Company has entered into a contract to provide
Flexcell(Register mark) software and support to American Mobile Satellite
Corporation, but is not currently marketing Flexcell(Register mark) to third
parties in order to assure that it can meet the needs of the Company and
American Mobile Satellite Corporation.

To supplement the Company's customer service operations, Company
telemarketers contact customers periodically to determine their satisfaction
with the Company's service and to identify problems that can lead to subscriber
cancellations. The Company also recently developed an integrated feature called
"Rapid Activation," designed to reduce the time required 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 required approximately one hour.

To ensure quality installation for automotive customers and overall
customer satisfaction, the Company has established its own installation and
repair centers in most of its markets. These CellularONE(Register mark)
installation and repair centers provide one-stop shopping for the Company's
customers and enable the Company to control installation quality and scheduling
and inventory levels. These centers are also authorized to perform warranty
repair work for certain cellular telephone manufacturers.

CELLULAR TELEPHONE TECHNOLOGY

Cellular telephone service is a form of telecommunications capable of
delivering 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
mobile telephone switching office ("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 unit moves away from the
base station. When the signal strength of a call declines to a predetermined
level, the MTSO 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 technical interface has been established with an 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 significant 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. 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 known as "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. Digital transmission technologies
are expected to provide cellular licensees with additional capacity to handle
calls on cellular frequencies.

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 as is
required in higher density MSAs. Therefore, the Company's systems are expected
to have more capacity with which to pursue data applications and other

7
<PAGE>
<PAGE>
expanded cellular services, which the Company believes may enhance its revenue
potential 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 roamers
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 and such roaming charges are billed to the roamer's local
service provider.

The cellular mobile telephone services available to customers and the
sources of revenue available to a system operator are similar to those available
with standard home and office telephones. For example, cellular systems can
offer a variety of features, including call forwarding, call waiting, conference
calling, voice message and retrieval, and data transmission. Because cellular
systems are fully interconnected with the landline telephone network,
subscribers can receive and originate both local and long distance calls from
their cellular telephones. The subscribers generally are charged separately for
monthly access, air time, toll calls and custom calling features.

Cellular telephone systems operate under interconnection agreements with
various local exchange carriers ("LECs") and interexchange (long distance)
carriers ("IXCs"). The interconnection agreements establish the manner in which
the cellular telephone system integrates with other telecommunications systems.
The cellular operator and the local landline telephone company must cooperate in
the interconnection between the cellular and landline telephone systems to
permit cellular subscribers to call landline subscribers and vice versa. The
technical and financial details of such interconnection arrangements are subject
to negotiation and vary from system to system.

There are a number of recent technical developments in the cellular
industry. Currently, while most of the MTSOs process information digitally, the
radio transmission of cellular telephone calls is done predominantly on an
analog basis. Digital technology is expected to offer 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. There are two digital technologies that currently are being considered by
cellular companies: TDMA, presently in commercial service, and CDMA, which
remains untested on a commercial basis. In addition, at least one cellular
company offers an enhanced analog technology as an intermediate step which is
designed to increase capacity and thereby enable such company to delay
implementing digital technology.

The Company has chosen TDMA as its digital technology. Rather than
immediately converting to digital technology, however, the Company has adopted a
strategy of deferring implementation until its capacity needs require it, or
there is a demonstrable demand for services that can only be provided with
digital technology, and the use of the requisite technology becomes more
widespread. The substantial majority of the cellular equipment currently
employed by the Company in its systems is "TDMA 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, one or more of the
technologies currently utilized by the Company or implemented in the future may
not be preferred by its customers or may become obsolete. If either event
occurs, it could result in the Company undergoing a conversion which could
involve significant expense. Pending such a conversion, the Company could be at
a competitive disadvantage.

COMPETITION

OTHER CELLULAR COMPETITION. The cellular telephone business is a regulated
duopoly. Until 1994, the FCC provided for 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 its affiliate. Each licensee has the
exclusive grant of a defined frequency band within each market. The Company
holds exclusively nonwireline licenses. The primary competition, therefore, for
the Company's cellular service in any market has traditionally come from the
wireline licensee in that market. Competition is principally on the basis of
services and enhancements offered (including the provision of cellular equipment
at or below cost), the technical quality of the system, price and the quality
and responsiveness of customer service.

8
<PAGE>
<PAGE>
In the Company's control markets, its competitors are affiliates of the
following companies:

<TABLE>
<CAPTION>
MARKET COMPETITOR
<S> <C>
Allentown, PA/NJ Bell Atlantic/NYNEX Mobile
Wilkes Barre/Scranton, PA Independent Cellular Network, Inc.
Harrisburg, PA 360(degree) Communications Company (2)
Lancaster, PA 360(degree) Communications Company (2)
York, PA 360(degree) Communications Company (2)
Reading, PA Bell Atlantic/NYNEX Mobile
Williamsport, PA Independent Cellular Network, Inc.
State College, PA Independent Cellular Network, Inc.
Wayne, PA (PA-5 RSA) Independent Cellular Network, Inc.
Mifflin, PA (PA-11 RSA) Bell Atlantic/NYNEX Mobile
Lebanon, PA (PA-12 RSA) 360(degree) Communications Company (2)
Chambersburg, PA (PA-10 East RSA) 360(degree) Communications Company (2)
Union, PA (PA-8 RSA) Independent Cellular Network, Inc.
Altoona, PA Independent Cellular Network, Inc.
Orange County, NY Bell Atlantic/NYNEX Mobile
Binghamton, NY/PA Frontier/Bell Atlantic/NYNEX Mobile
Elmira, NY Frontier/Bell Atlantic/NYNEX Mobile
Huntington, WV/OH/KY Independent Cellular Network, Inc.
Charleston, WV Independent Cellular Network, Inc.
Jackson, WV (WV-l East RSA) Bell Atlantic/NYNEX Mobile
Pensacola, FL GTE Mobilnet
Fort Walton Beach, FL 360(degree) Communications Company (2)
Myrtle Beach, SC (SC-5 RSA) ALLTEL/Palmetto MobileNet (3)
Wilmington, NC (1) 360(degree) Communications Company (2)
Jacksonville, NC (1) 360(degree) Communications Company (2)
Portland, ME Bell Atlantic/NYNEX Mobile
Portsmouth, NH/ME Saco River Cellular, Inc./U.S. Cellular Corp.
Washington, ME (ME-4 RSA) U.S. Cellular Corp.
</TABLE>

(1) Jointly controlled through the Company's 50% ownership of a joint venture
with a subsidiary of GTE Mobilnet.
(2) Formerly Sprint Cellular Company.
(3) 360(degree) Communications Company has agreed to acquire Palmetto
MobileNet's interest.

Many of the Company's wireline company competitors are affiliates of large
telecommunications corporations and may have access to greater capital resources
than the Company. In addition, many of the Company's competitors may have
greater marketing and technical resources than the Company.

COMPETITION FROM OTHER TECHNOLOGIES. In addition to competition from the
other cellular carrier in each of its markets, the Company faces or will face
competition from Enhanced Specialized Mobile Radio ("ESMR") system operators,
PCS and resellers of cellular and other facilities-based services.

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. Several such operators have initiated service. At
this time, the Company is unable to predict the extent to which and when, if
ever, ESMR system operators will offer competitive services to cellular, either
in the Company's markets or in adjacent areas.

Licensing for broadband PCS has been divided by the FCC into 51 Major
Trading Areas ("MTAs") and 493 Basic Trading Areas ("BTAs") based upon
geographic boundaries described in the 1992 Rand McNally COMMERCIAL ATLAS &
MARKETING GUIDE. There may be a minimum of two and as many as six broadband PCS
providers in each area once the FCC completes its licensing. Two licensees each
will hold 30 MHz of PCS spectrum in each MTA, one licensee will hold 30 MHz of
PCS spectrum in each BTA and three licensees will hold 10 MHz of PCS spectrum in
each BTA.

The FCC has awarded licenses for the two 30 MHz bands of PCS spectrum in
each MTA and many of these systems are under construction. Two such systems are
operating on a commercial basis. The FCC is in the process of auctioning 30 MHz
of PCS spectrum in each BTA and it is anticipated that the auctions will
conclude in early spring 1996. The FCC has

9
<PAGE>
<PAGE>
announced plans to hold auctions for the three 10 MHz bands of PCS spectrum in
each BTA as soon as is feasible after completion of the current auction (and in
any event in 1996). No specific date has been set for the next auction to begin.

The FCC's rules limit a cellular licensee until the year 2000 to one 10 MHz
PCS license in an area in which the cellular licensee provides cellular services
to 10% or more of the population. At present, cellular licensees may hold a
maximum of 25 MHz of spectrum in the cellular 800 MHz band. The FCC's imposed 35
MHz cap for combined PCS/cellular spectrum means that cellular carriers may
acquire a 10 MHz PCS license now, and after January 1, 2000, an additional five
MHz of PCS spectrum. Cellular licensees are not limited to the 10 MHz/15 MHz PCS
license limitations outside of the areas in which they operate cellular systems.

The Company is currently evaluating the opportunities that PCS might
provide in its markets that could not be presently pursued through existing
spectrum allocated to the Company through its cellular licenses, as well as PCS
opportunities outside of its markets. Based upon the results of these studies,
the Company may choose to participate in the upcoming auction process for some
of the remaining PCS licenses.

PCS services are anticipated to include wireless two-way telecommunications
for voice, data and other transmissions employing digital micro-cellular
technology. PCS will operate in the 1850 to 1990 MHz band. The Company
anticipates that PCS will involve a network of small, low-powered transceivers
placed throughout a neighborhood, business office or office complex, city or
metropolitan area. PCS customers will communicate using digital devices similar
to portable cellular telephones. The Company is studying currently-available
technology to offer similar services on the 800 MHz cellular frequencies. There
is no assurance that the Company will be able to implement such technology, or
if it decides to do so, that it can implement these service features profitably
and in a timely manner.

Many PCS license winners who will compete with the Company have access to
greater capital resources than the Company. Many of these companies or their
affiliates also own and operate cellular telephone networks of substantial size
and bring significant wireless communications experience to their PCS
operations.

The Company is preparing for the more competitive environment represented
by the introduction of PCS and other digitally-based communications technologies
by building out and enhancing its cellular telephone networks, increasing the
quality of coverage in its service areas, expanding its service areas by
selected acquisitions of adjacent and nearby cellular systems and by offering
new features, products and services to its customers that the Company believes
will be competitive with future communications providers that may utilize
digital technology. See " -- Products and Services." The Company believes that
it can effectively compete by utilizing its experience in developing and
operating cellular networks and by virtue of the barriers imposed by its
extensive existing system footprint. The Company believes that it has developed
strong distribution channels and customer service capabilities overseen by an
experienced management team. The Company's cellular systems are primarily
located in suburban and rural markets into which management believes new PCS
licensees are likely to enter only after initiation of PCS operations in higher
density markets which may be more economically attractive. The Company
anticipates that it may offer roaming services to PCS customers.

Cellular system licensees are required by FCC policy to provide wholesale
cellular service to resellers. A reseller provides cellular service to customers
but is not itself an FCC cellular license holder. A reseller typically buys
capacity on a cellular telephone network and is assigned a block of cellular
telephone numbers from a cellular carrier. The reseller markets the wireless
telephone service through its own distribution channels to the public. In this
way, a reseller is not only a customer of the cellular telephone licensee's
service, but also competes with the licensee for customers.

The Company intends to explore mutually advantageous relationships with
resellers to supplement its existing distribution channels. Recently, MCI
Communications, Inc. and other large communications companies have begun
negotiating resale agreements in certain larger markets throughout the country.
The Company believes that it will receive increasing interest from persons
interested in reselling the Company's cellular service but there can be no
assurance that this will occur or that pursuing any such opportunities will be
profitable.

REGULATION OF CELLULAR SYSTEMS

FEDERAL REGULATION. The Company is subject to extensive regulation by the
Federal government as a provider of cellular communications services. Pursuant
to the Communications Act, the licensing, construction, operation, acquisition
and transfer of cellular communications systems in the United States are
regulated by the FCC. The FCC has promulgated rules governing the construction
and operation of cellular communications systems and licensing and technical
standards for the provision of cellular telephone service ("FCC Rules"). For
licensing purposes, the United States is divided into 734 discrete
geographically defined market areas comprised of 306 MSAs and 428 RSAs.

10
<PAGE>
<PAGE>
In each market, the frequencies allocated for cellular telephone use are
divided into two equal 25 MHz blocks and designated as Block A and Block B.
Block A licenses were initially reserved for nonwireline entities, such as the
Company. Block B licensees were initially reserved for entities affiliated with
a wireline telephone company. Under current FCC Rules, a Block A or Block B
license may be transferred with FCC approval without restriction as to wireline
affiliation, but generally, no entity may own a substantial interest in both
Block A and Block B in any one MSA or RSA. The FCC may prohibit or impose
conditions on sales or transfers of licenses.

Cellular service providers must satisfy a variety of FCC requirements
relating to technical and reporting matters. One such requirement is the
coordination of proposed frequency usage with adjacent cellular users, permitees
and licensees in order to avoid interference between adjacent systems. In
addition, the height and power of base station transmitting facilities and the
type of signals they emit must fall within specified parameters. The FCC also
regulates cellular service resale practices and the terms under which certain
ancillary services may be provided through cellular facilities.

The Company also regularly applies for FCC authority to use additional
frequencies, to modify the technical parameters of existing licenses, to expand
its service territory and to provide new services. The Communications Act
requires prior FCC approval for transfers to or from the Company of a
controlling interest in any license or construction permit, or any rights
thereunder. Although there can be no assurance that any future requests for
approval of applications filed will be approved or acted upon in a timely manner
by the FCC, the Company has no reason to believe such requests or applications
would not be approved or granted in due course.

Initial operating licenses are generally granted for terms of up to 10
years, beginning on the dates of the grant of the initial operating authority
and are renewable upon application to the FCC. Licenses may be revoked and
license renewal applications denied for cause after appropriate notice and
hearing. The FCC generally grants current licensees a license renewal if they
have complied with their obligations under the Communications Act during their
license terms. A potential challenger would bear a heavy burden to demonstrate
that a license should not be renewed if the licensee's performance merits a
renewal expectancy.

Near the conclusion of the license term, licensees must file applications
for renewal of licenses to obtain authority to operate for up to an additional
10-year term. Applications for license renewal may be denied if the FCC
determines that the grant of an application would not serve the public interest.
In addition, at license renewal time, other parties may file competing
applications for authorization. In the event that qualified competitors file,
the FCC may be required to hold a hearing to determine whether the incumbent or
the competitor will receive the license. In 1993, the FCC adopted specific
standards to apply to cellular renewals, concluding that it will award a renewal
expectancy to a cellular licensee that meets certain standards of past
performance. If the existing licensee receives a renewal expectancy, it is
likely that the existing licensee's cellular license will be renewed without a
full comparative hearing. To receive a renewal expectancy, a licensee must show
that it (i) has provided "substantial" service during its past license term, and
(ii) has substantially complied with applicable FCC Rules and policies and the
Communications Act. "Substantial" service is defined as service which is sound,
favorable and substantially above a level of mediocre service that might only
minimally warrant renewal.

In 1994, the Company filed for renewal of one expiring license (for the
Allentown-Bethlehem-Easton, PA/NJ MSA) which was originally granted by the FCC
in 1985. In 1995, the Company filed for renewal of two expiring licenses (for
the Northeast Pennsylvania, PA and Harrisburg, PA MSAs) which were originally
granted by the FCC in 1986. All three license renewals were granted without
challenge. The Company believes that it has met and will continue to meet all
requirements necessary to secure renewal of its remaining cellular licenses
which are scheduled to expire between 1997 and 2003. However, there can be no
assurances that any such licenses will be renewed.

In July 1994, the FCC issued a notice proposing a requirement whereby all
cellular carriers would have to provide interexchange carriers with equal
access. Currently, only AT&T-affiliated cellular carriers and the cellular
affiliates of the Regional Bell Operating Companies ("RBOCs") are required to
provide equal access. The FCC also proposed requiring all commercial mobile
radio service providers to provide interconnection to other mobile service
providers. In April 1995, however, the FCC tentatively concluded that it would
be premature to adopt such a requirement. The Telecommunications Act of 1996
(the "Telecom Act") provides that a cellular carrier need not provide equal
access unless the cellular carrier denies equal access, and such denial is
contrary to the public interest, in which case the FCC may require the cellular
carrier to unblock equal access by "dial around" or some other method. The
Company currently provides "dial around" equal access to all of its customers.

11
<PAGE>
<PAGE>
THE TELECOM ACT. The Telecom Act makes changes to the Communications Act
and the antitrust consent decree applicable to the RBOCs affect the cellular
industry. This legislation, among other things, affects competition for local
telecommunications services, interconnection arrangements for carriers,
universal service funding and the provision of interexchange services by the
RBOCs' wireless systems.

The Telecom Act requires state public utilities commissions and/or the FCC
to implement policies that mandate cost-based reciprocal compensation between
cellular carriers and local exchange carriers for interconnection services. The
Company believes that implementation of these policies may result in a
substantial decrease in interconnection expenses incurred by the Company.

The Telecom Act requires the FCC to adopt rules to require communications
companies, including cellular carriers, to contribute to a universal fund that
reimburses communications carriers that provide basic communications services to
marginal users who need such services.

The Telecom Act also eases the restrictions on provision of interexchange
telephone services by wireless carriers affiliated with RBOCs. RBOC-related
wireless carriers have interpreted the legislation to permit immediate provision
of long distance call delivery for their cellular customers.

STATE AND LOCAL APPROVALS. Congress amended the Communications Act to
preempt, as of August 10, 1994, state or local regulation of the entry of, and
the rates charged by, any commercial mobile service or any private mobile
service, which includes cellular telephone service. Notwithstanding such
preemption, a state had until August 10, 1994 to petition the FCC for authority
to continue regulating the rates for any commercial mobile service. Eight states
filed petitions to continue their rate regulation authority: Arizona,
California, Connecticut, Hawaii, Louisiana, New York, Ohio and Wyoming. In May
1995, the FCC denied all eight petitions and precluded those states from
regulating the rates for commercial mobile service providers, including cellular
operators. The FCC's actions on those petitions remain subject to
reconsideration and judicial review. As a practical matter, the Company is free
to establish rates and offer new products and services with a minimum of
regulatory requirements. Several of the seven states in which the Company
operates still maintain nominal oversight jurisdiction, primarily focusing upon
resolution of customer complaints.

The location and construction of cellular transmitter towers and antennas
are subject to Federal Aviation Administration ("FAA") regulations and may be
subject to Federal, state and local environmental regulation as well as state or
local zoning, land use and other regulation. Before a system can be put into
commercial operation, the grantee of a construction permit must obtain all
necessary zoning and building permit approvals for the cell sites and MTSO
locations and must secure state certification and tariff approvals, if required.
The time needed to obtain zoning approvals and requisite site permits varies
from market to market and state to state. Similarly, variations exist in local
zoning processes. There can be no assurance that any state or local regulatory
requirements currently applicable to the systems in which the Company's
affiliates have an interest will not be changed in the future or that regulatory
requirements will not be adopted in those states and localities which currently
have none.

Zoning and planning regulation may become more restrictive in the future
with the addition of PCS carriers which are expected to seek sites for network
construction as well. The industry is seeking relief from local laws which
arbitrarily restrict the expansion of cellular networks. The Telecom Act
provides potential limited relief by permitting the FCC to preempt states and
localities from applying regulations in a manner which has the effect of
prohibiting construction and operation of new cell sites.

The Communications Act prohibits the issuance of a license to, or the
holding of a license by, any corporation 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
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.
The FCC does however have the power to waive these restrictions in appropriate
circumstances. 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.

OTHER INVESTMENTS

GEOTEK COMMUNICATIONS, INC. 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

12
<PAGE>
<PAGE>
a telecommunications company that is developing a wireless communications
network in certain metropolitan markets in the United States based on its FHMA
digital technology. The original agreement was amended in May 1995 to reduce the
number of options available for exercise and to lengthen substantially the time
during which the Company may exercise its remaining options. In addition,
pursuant to the May 1995 agreement, the Company agreed to purchase for $5
million in cash 531,463 shares of convertible preferred stock of Geotek with a
stated value of $9.408 per share. Geotek's common stock is traded on the Nasdaq
National Market System.

INTERNATIONAL WIRELESS COMMUNICATIONS, INC. The Company believes that
foreign markets offer significant opportunities for wireless communications
providers 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 IWC. As of December 31, 1995, the Company had invested
approximately $13.5 million and owned a 35% equity interest in IWC. While
several wireless communications license applications are pending and certain
licenses have been 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 international operations. There is no assurance that the Company's
international activities will prove successful.

INTER(BULLET)ACT SYSTEMS, INCORPORATED. The Company has invested
approximately $10 million in Inter(Bullet)Act Systems, Incorporated
("Inter(Bullet)Act") for an aggregate ownership interest of approximately 26%.
Inter(Bullet)Act is a development stage company that provides targeted
promotions to retail customers at the point of entry at a retail outlet,
primarily supermarkets, through a computer-equipped kiosk. Certain officers and
directors of the Company, as well as entities affiliated with certain directors
of the Company, have made investments in Inter(Bullet)Act. As a group, these
persons and entities had an ownership interest of approximately 19% as of March
19, 1996.

EMPLOYEES

As of December 31, 1995, the Company had approximately 1,400 full-time
employees, including approximately 400 employees associated with its direct
salesforce. None of those employees are represented by a labor organization.
Management considers its employee relations to be good.

13
<PAGE>
<PAGE>
CERTAIN DEFINITIONS

Certain terms used in this Annual Report are defined with particular
meanings as used herein.

ANALOG: Transmission method employing a continuous (rather than pulsed or
digital) electrical signal that varies in amplitude or frequency in response to
changes in sound, light or position.

BANDWIDTH: (1) Difference between the top and bottom limiting frequencies
of a continuous frequency band. (2) Indicates the information-carrying capacity
of a channel. FCC-licensed cellular operators have been allocated a continuous
25 MHz bandwidth in the 850-900 MHz band.

BROADBAND: The type of FCC license that has been or will be awarded in the
PCS auctions in the 1850 to 1990 MHz band.

BTA: One of the 493 Basic Trading Areas, which are smaller than MTAs, into
which the licensing for broadband PCS has been divided based on the geographic
divisions in the 1992 Rand McNally COMMERCIAL ATLAS & MARKETING GUIDE.

CDMA: Code Division Multiple Access digital technology. Technique that
spreads a signal over a frequency band that is larger than the signal to enable
the use of a common band by many users and to achieve signal security and
privacy.

CDPD: Cellular Digital Packet Data, a new packet data network protocol
which offers fast and reliable data transmission without using large amounts of
network capacity.

CELL SITE: The entire infrastructure and radio equipment associated with a
cellular transmitting and receiving station, including the land, building,
tower, antennas and electrical equipment.

CLUSTERS: A group of contiguous markets, the provision of which facilitates
wide areas of uninterrupted cellular service, reduced airtime rates, automatic
delivery of inbound calls and simplified dialing patterns.

COMMUNICATIONS ACT: The Communications Act of 1934, as amended.

CONTROLLED MARKETS: Markets in which the Company's ownership interest is
greater than 50% as well as the Wilmington and Jacksonville, North Carolina
markets which are jointly controlled by the Company and a subsidiary of GTE
Corporation.

CONTROLLED POPS: The Net POPs in a controlled market.

CTIA: The Cellular Telecommunications Industry Association.

DIGITAL: Transmission system in which information is transmitted in a
series of pulses.

ESMR: Enhanced Specialized Mobile Radio communications services, supplied
by converting analog SMR services into an integrated, digital transmission
system providing for call hand-off, frequency reuse and wide-call delivery
networks.

FAA: The United States Federal Aviation Administration.

FCC: The United States Federal Communications Commission.

FCC RULES: The rules promulgated by the FCC governing the construction and
operation of cellular communications systems and licensing and technical
standards for the provision of cellular communications service.

IXC: Usually referred to as long-distance providers. There are many
facilities-based IXCs including AT&T, MCI, WorldCom, Sprint and Frontier, as
well as a select few competitive access providers that are authorized for IXC
services.

LEC: A company providing local telephone services.

MARKET: An MSA or RSA.

METRO-CLUSTER: A group of contiguous markets, the provision of which
facilitates wide areas of uninterrupted cellular service, reduced airtime rates,
automatic delivery of inbound calls and simplified dialing patterns.

MSA: One of the Metropolitan Statistical Areas for which the FCC licensed
cellular communications systems.

MTA: One of the 51 Major Trading Areas into which the licensing for
broadband PCS has been divided based on the geographic divisions in the 1992
Rand McNally COMMERCIAL ATLAS & MARKETING GUIDE.

14
<PAGE>
<PAGE>
MTSO: A mobile telephone switching office, through which cell sites are
connected to the local landline telephone network.

NET POPS: The estimated population with respect to a given service area
multiplied by the percentage interest that the Company owns in the entity
licensed by the FCC to operate a cellular communications system within that
service area.

NONWIRELINE LICENSE: The license for a market initially awarded to a
company or group that was not affiliated with a local landline telephone carrier
in such market.

PCS: Personal Communications Services. Emerging technologies providing
wireless access to the local and long distance telephone system. Most PCS plans
call for low-powered, light weight pocket phones with individual, personal
telephone numbers that can be accessed without geographic restriction.

PDA: Personal Digital Assistant, a wireless hand-held device that transmits
data.

PENETRATION: Customers divided by POPs in a given area.

POPS: The estimate of the 1994 population of a MSA or RSA, as derived from
the 1994 population estimates prepared by Strategic Mapping, Inc.

RBOCS: The Regional Bell Operating Companies.

RESELLER: A company that provides cellular service to customers but does
not hold an FCC cellular license or own cellular facilities. A reseller buys
blocks of cellular telephone numbers from a licensed carrier and, in turn, sells
service through its own distribution network to the public.

RF: Radio frequency.

ROAMER: A cellular customer who makes or receives calls when traveling in
another cellular company's market using his/her home cellular phone.

ROAMING: The ability of cellular customers to make or receive calls when
traveling in another cellular company's market. Occurs when a cellular customer
leaves the cellular carrier's home area and uses his cellular phone.

ROAMING AGREEMENT: Agreement entered into with other domestic cellular
companies that allow the Company's customers to make or receive calls when
traveling in another cellular company's market.

RSA: One of the Rural Service Areas for which the FCC licensed cellular
communications systems.

SERVICE AREA: An MSA or RSA.

SMR: Specialized Mobile Radio communications services.

TDMA: Time Division Multiple Access digital technology, which designates a
time frame for cellular users to transmit within a frequency.

WIRELINE LICENSE: The license for a market initially awarded to a company
or group that was affiliated with a local landline telephone carrier in such
market.

15
<PAGE>
<PAGE>
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 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 300 cell site locations and eight
cellular switch locations.

ITEM 3. LEGAL PROCEEDINGS

The only 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 arising in the
ordinary course of business 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, 1995.

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 49 Chairman of the Board of Directors
Haynes G. Griffin 49 President, Chief Executive Officer, Director
L. Richardson Preyer, Jr. 48 Executive Vice President, Treasurer,
Vice Chairman of the Board of Directors
Stephen R. Leeolou 40 Executive Vice President, Chief Operating
Officer, Secretary, Director
Stephen L. Holcombe 39 Senior Vice President, Chief Financial Officer
Richard C. Rowlenson 46 Senior Vice President, General Counsel
Timothy G. Biltz 37 Senior Vice President -- Marketing and Customer
Service
S. Tony Gore, III 49 Senior Vice President -- Acquisitions and
Corporate Development
Dennis B. Francis 43 Senior Vice President -- Technical Services
</TABLE>

STUART S. RICHARDSON has been a director since 1985 and was elected
Chairman of the Board of Directors in 1986. Since 1995, Mr. Richardson has been
Chairman of the Board of Lexington Global Asset Managers, Inc., a diversified
financial services holding company. From 1985 to 1995, Mr. Richardson was an
executive of Piedmont Management Company, Inc., formerly the parent corporation
of Lexington Global Asset Managers, Inc., and served as its Vice Chairman from
1986 to 1995. Mr. Richardson also serves as a director of Chartwell Reinsurance
Co. and Inter(Bullet)Act Systems, Inc. and 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, Chief Executive Officer, a director and a
co-founder of the Company. Mr. Griffin is a member of the Boards of Directors of
Lexington Global Asset Managers, Inc., Inter(Bullet)Act Systems, Inc. and of
Geotek Communications, Inc. Mr. Griffin currently serves on the United States
Advisory Council on the National Information Infrastructure. He is a past
Chairman of the Cellular Telecommunications Industry Association.

L. RICHARDSON PREYER, JR. is Vice Chairman of the Board, Executive Vice
President, Treasurer and a co-founder of the Company. Mr. Preyer serves as
Administrative Trustee of Piedmont Associates and Southeastern Associates,
investment partnerships, and is a director of Inter(Bullet)Act Systems, Inc.

STEPHEN R. LEEOLOU is Executive Vice President, Chief Operating Officer,
Secretary, a director and a co-founder of the Company. Mr. Leeolou is the
Chairman of the Board of Inter(Bullet)Act Systems, Inc. and International
Wireless Communications,

16
<PAGE>
<PAGE>
Inc. 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 markets.

S. TONY GORE, III is 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.

17
<PAGE>
<PAGE>
PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

PRICE RANGE OF COMMON STOCK

<TABLE>
<CAPTION>
1995 1994
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First Quarter.................................................. $27.63 $22.50 $22.66 $18.16
Second Quarter................................................. 25.00 22.00 23.66 18.66
Third Quarter.................................................. 29.13 23.75 29.00 21.66
Fourth Quarter................................................. 25.69 20.25 29.13 23.50
</TABLE>

The high and low last sale prices are as reported by the NASDAQ National
Market System. On March 15, 1996, there were approximately 1,223 shareholders of
record.

As discussed in Note 4 to the Consolidated Financial Statements in Item 8
and Management's Discussion and Analysis of Financial Condition and Results of
Operations in Item 7, the agreements related to the Company's long-term 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.

18
<PAGE>
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue:
Service revenue (a)........................................... $217,440 $146,417 $ 98,960 $ 72,791 $ 56,347
Cellular telephone equipment revenue.......................... 15,647 18,529 9,929 5,999 4,837
Other......................................................... 2,984 3,055 175 -- --
236,071 168,001 109,064 78,790 61,184
Costs and expenses:
Cost of service............................................... 27,043 21,008 14,461 11,044 6,992
Cost of cellular telephone equipment.......................... 25,605 29,933 13,410 7,579 6,314
General and administrative.................................... 60,489 44,019 34,218 29,334 29,578
Marketing and selling......................................... 54,906 37,102 21,693 16,877 13,867
Depreciation and amortization (b)............................. 36,170 24,073 25,160 22,100 19,112
204,213 156,135 108,942 86,934 75,863
Income (loss) from operations.................................... 31,858 11,866 122 (8,144) (14,679)
Interest expense................................................. (38,293) (22,126) (15,389) (16,177) (19,292)
Other, net....................................................... (575) (3,532) 138 (2,642) 949
Minority interests............................................... (3) (153) (154) 304 309
Net loss before extraordinary item............................... (7,013) (13,945) (15,283) (26,659) (32,713)
Extraordinary charge (c)......................................... -- (8,402) (3,715) -- --
Net loss......................................................... $ (7,013) $(22,347) $(18,998) $(26,659) $(32,713)
Net losss per share before extraordinary item(d)................... $ (0.17) $ (0.36) $ (0.40) $ (0.72) $ (0.96)
Net loss per share (d)............................................. $ (0.17) $ (0.58) $ (0.50) $ (0.72) $ (0.96)
Weighted average number of common shares outstanding (d)........... 41,100 38,628 38,038 37,110 34,053
OTHER DATA:
Capital expenditures (e)......................................... $129,894 $ 62,632 $ 21,009 $ 18,243 $ 16,542
EBITDA (f)....................................................... $ 68,028 $ 35,939 $ 25,282 $ 13,956 $ 4,433
Total subscribers in majority owned markets
at year end................................................... 381.0 245.0 132.3 92.3 69.2

BALANCE SHEET DATA (end of period):
Working capital (deficiency)..................................... $ 4,997 $ (1,778) $ 4,696 $ (1,185) $ 7,854
Property and equipment, net...................................... 225,206 120,325 71,716 72,026 74,581
Total assets..................................................... 596,577 431,711 284,429 251,820 255,810
Long-term debt (including current portion)....................... 522,143 348,649 238,153 199,712 184,827
Shareholders' equity............................................. 29,048 39,207 21,898 30,265 51,669
</TABLE>

19
<PAGE>
<PAGE>
(a) 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.

(b) Effective January 1, 1994, the Company changed its depreciation expense
period for approximately 30% of its property and equipment from seven years
to a 10 to 20 year schedule. The effect of this change was to reduce
depreciation for the year ended December 31, 1994 by $4.5 million.

(c) The extraordinary charges for the years ended December 31, 1994 and 1993
of $8.4 million and $3.7 million, respectively, reflect the write-off of
deferred financing costs associated with the Company's credit facilities
that were replaced during 1994 and 1993.

(d) Adjusted to reflect the Company's three-for-two Class A common stock split
effected August 24, 1994.

(e) Capital expenditures excludes acquisitions.

(f) EBITDA consists of income (loss) from operations before depreciation and
amortization. Although EBITDA is not a measure of performance calculated
in accordance with GAAP, management believes that it is useful to a
prospective investor because it is a measure widely used in the cellular
industry to evaluate a company's operating performance. EBITDA, however,
should not be considered in isolation or as a substitute for net income,
cash flows from operating activities and other income or cash flow
statement data prepared in accordance with GAAP or as a measure of
liquidity or profitability.

20
<PAGE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following is a discussion and analysis of the historical financial
condition and results of operations of the Company and factors affecting the
Company's financial resources. This discussion should be read in conjunction
with the Company's consolidated financial statements, including the notes
thereto.

YEARS ENDED DECEMBER 31, 1995 AND 1994

Service revenue rose 49% to $217.4 million from $146.4 million in 1994
primarily as a result of a 56% increase in the number of subscribers in
majority-owned markets to approximately 381,000 as of December 31, 1995, as
compared to approximately 245,000 subscribers at the end of 1994. Approximately
88% of the increase in the number of subscribers was due to subscriber growth in
markets controlled by the Company at the end of both years, and the remainder
was due to the acquisition of new markets and subsequent subscriber additions in
those markets.

Total net subscribers in the Company's majority-owned markets increased by
136,000 during 1995 as compared to an increase of 112,700 in 1994. Of the total
1995 increase, 14,400 and 9,000 net activations were attributable to subscribers
in markets acquired by the Company during 1995 and 1994, respectively.
Penetration increased from 3.65% at December 31, 1994 to 5.34% at December 31,
1995. The increase in subscribers and incremental penetration is the result of
the growing acceptance of cellular communications and the Company's efforts to
capitalize on this increasing acceptance through a more highly-trained sales
force and an expanded distribution network.

Service revenue attributable to the Company's own subscribers (local
revenue) increased 60% during 1995 to $175.9 million as compared to $110.1
million in 1994. Average monthly local revenue per subscriber declined 11% to
$47 in 1995 compared to $53 in the prior year. This decline was primarily due to
increased incremental penetration into the segment of consumers who generally
use their cellular phones less frequently and, to a lesser extent, to the
acquisition of markets with subscribers who produce lower local revenue. Service
revenue generated by nonsubscribers roaming into the Company's markets increased
14% to $41.5 million as compared to $36.3 million in the prior year period. This
increase was the result of increased usage and was partially offset by
reductions in daily access and usage rates of approximately 30% initiated by the
Company and agreed to by certain other cellular providers in the mid-Atlantic
region in 1995. The reduced rates affect the Company both as a provider and
purchaser of roaming services. The revenue from the Company's customers combined
with roaming revenue resulted in overall average monthly revenue per subscriber
for the year of $58, a decline of 17% from $70 in the prior year period.

Cellular telephone equipment revenue decreased $2.9 million or 16% to $15.6
million for 1995 as compared to 1994. This decrease was primarily due to the
continuing decline in the retail price of cellular telephone equipment charged
to the Company's subscribers. Cost of cellular telephone equipment decreased 14%
to $25.6 million during 1995 due to increased activity in the Company's rental
phone program and a corresponding reduction in sales. Net loss on cellular
equipment was $10.0 million, a decrease of 12% from the $11.4 million net loss
on cellular equipment experienced in the prior year period. The Company
continues to sell telephones at or below cost for marketing purposes in response
to competitive pressures and also continues the availability of its rental
program.

Cost of service as a percentage of service revenue improved from 14% during
1994 to 12% during 1995, primarily as a result of the intercarrier roaming rate
reductions described above. The balance of the decrease was due to the continued
negotiation of more favorable long distance and interconnection agreements with
service providers and, to a lesser extent, the higher utilization of the
Company's cellular systems. Cost of service would have shown greater improvement
as a percentage of service revenues were it not for the effects of roaming fraud
experienced by the Company in the last three months of 1995. The Company
estimates the retail value of fraudulent usage to have been approximately $9.3
million in 1995, although the Company's actual costs with respect to fraudulent
usage to be significantly lower. The Company has responded by increasing its
fraud detection efforts through the use of computerized systems which trigger
alarms when cellular usage conflicts with subscriber profiles and by dedicating
additional resources to the effort. The costs of these efforts are expected to
be approximately $1.0 million in 1996. Cellular fraud is expected to be a
significant industry issue for the foreseeable future.

General and administrative expenses increased 37% or $16.5 million during
1995, but decreased as a percentage of service revenue to 28% from 30% in 1994.
These expenses declined as a percentage of service revenue primarily as a result
of limited increases in many overhead expenses resulting in higher utilization
of the Company's existing personnel and systems. General and administrative
expenses are expected to continue to decline as a percentage of service revenue
as the Company adds more subscribers without commensurate increases in general
and administrative overhead.

21
<PAGE>
<PAGE>
Marketing and selling expenses increased 48% to $54.9 million during 1995,
compared to $37.1 million in 1994. As a percentage of service revenue, these
expenses remained at 25%. During 1995, marketing and selling expenses, including
the net loss on subscriber equipment, increased to $64.9 million from $48.5
million in 1994. This increase was primarily attributable to sales commissions
associated with the growth in subscribers for the 1995 period as compared to the
1994 period and an increase in salesperson salaries. Marketing and selling
expenses, including the loss on cellular equipment but excluding the number of
subscribers in acquired markets at the time of acquisition, per net subscriber
addition increased 4% to $511 in 1995 from $493 in 1994. This increase was
primarily due to increases in the proportion of total subscriber activations
effected through independent agents and in subscriber churn.

Depreciation and amortization expenses increased $12.1 million or 50%
during 1995 as compared to 1994. Capital expenditures of approximately $129.9
million during 1995 accounted for substantially all of the $8.4 million increase
in depreciation expense. The balance of the increase is the result of the
amortization of licenses and customer base acquired through acquisitions during
the same period.

Interest expense increased $16.2 million or 73% during 1995. This increase
primarily resulted from an increase in average borrowings of approximately
$162.0 million.

The Company reported a net loss of $7.0 million or $0.17 per share as
compared to a net loss before extraordinary item of $13.9 million or $0.36 per
share for 1994. This reduction in net loss before extraordinary item is due to
the rate of revenue growth exceeding the rate of growth in related operating
expenses as discussed above.

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 roaming by the Company's subscribers into adjacent cellular
markets. Appropriate reclassifications have been made in each period presented
in the financial statements and other financial information included and
incorporated by reference elsewhere herein. These reclassifications were made to
conform the treatment in the Company's financial statements to the accounting
treatment common in the industry.

Service revenue 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 approximately
132,300 as of the end of 1993. Total 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 additional
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 attributable to the growing acceptance of cellular and the
Company's sales and marketing efforts. Service revenue attributable to the
Company's own subscribers increased 52% during 1994 to $110.1 million as
compared to $72.4 million in 1993, while service revenue from roaming increased
37% to $36.3 million. The combination of revenue from the Company's subscribers
with roaming revenue resulted in overall average monthly revenue per subscriber
of $70 for 1994, a decline of 8% from $76 in 1993.

Cellular telephone equipment revenue increased 87% to $18.5 million and the
cost of cellular telephone equipment increased 123% to $29.9 million, resulting
in a net loss on cellular telephone equipment of $11.4 million as compared to a
net loss of $3.5 million in 1993.

Cost of service expenses decreased as a percentage of service revenue to
14% in 1994 from 15% in 1993. In certain markets, during these periods, the
Company charged customers who roam into adjacent markets rates consistent with
its local rates rather than passing through higher roaming rates customarily
charged by many cellular carriers. The Company estimates that this billing
practice increased net costs related to the provision of these services by
approximately $7.5 million in 1994 as compared to an approximately $4.7 million
increase during 1993.

General and administrative expenses increased 29% or $9.8 million during
1994 from $34.2 million to $44.0 million but decreased as a percentage of
service revenue to 30% from 35% in 1993. Increases in the overall amount of
expenses were primarily attributable to the same factors resulting in the
increase for 1995.

Marketing and selling expenses increased 71% to $37.1 million during 1994
as compared to 1993 and as a percentage of service revenue these expenses
increased to 25% from 22%. The increase was primarily attributable to the
commissions associated with the growth in subscribers for 1994 as compared to
1993 and the resulting increase in salesperson salaries.

22
<PAGE>
<PAGE>
Marketing and selling expenses per net subscriber addition, including the loss
on cellular equipment but 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
changes in useful life affected assets representing approximately 30% of the
cost of the Company's depreciable assets. These changes reduced depreciation
expense and net loss for 1994 by approximately $4.5 million or $0.12 per share.
The effect of the depreciable life changes was offset in part by an increase in
depreciation expense attributable to approximately $62.6 million of capital
expenditures during 1994.

Interest expense increased $6.7 million or 44% during 1994 to $22.1 million
from $15.4 million as a result of increased average borrowings of approximately
$65.0 million and, to a lesser extent, an increase in average interest rates.

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 EBITDA.

In December 1994, the Company completed the closing of its $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.

LIQUIDITY AND CAPITAL RESOURCES

The Company requires capital to acquire, construct, operate and expand its
cellular systems. The Company also explores, on an ongoing basis, possible
acquisitions of cellular systems and properties as well as other investment
opportunities, some of which may involve significant expenditures or
commitments. In addition, although the initial 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 Company spent approximately $69.9 million and exchanged
certain cellular assets in connection with acquisitions in 1995 and spent $129.9
million on total capital expenditures in 1995. The Company spent approximately
$54.8 million, issued approximately 1.9 million shares of the Company's Class A
Common Stock and exchanged certain cellular assets in connection with
acquisitions in 1994 and spent approximately $62.6 million on total capital
expenditures in 1994.

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. EBITDA has been a growing source of internal
funding in recent years, but the Company does not expect EBITDA 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, private issuances
of its Class A Common Stock and internally generated funds and the Company
intends to continue to use these sources in the future.

EBITDA does not represent and should not be considered as an alternative to
net income or operating income as determined by generally accepted accounting
principles. It should not be considered in isolation from other measures of
performance according to such principles, including operating results and cash
flows. EBITDA increased to $68.0 million in 1995 from $35.9 million in 1994 and
net cash provided by operating activities as shown on the Statement of Cash
Flows increased to $30.0 million in 1995 from $2.3 million in 1994. Net cash
provided by operating activities in 1995 reflects a $16.2 million increase in
interest expense, attributable primarily to increased borrowings and a decrease
in working capital items of $1.4 million. Investing activities, primarily
purchases of property and equipment and acquisitions, used net cash of $204.6
million and $105.9 million in 1995 and 1994, respectively. Financing activities
provided net cash of $177.0 million in 1995, primarily by proceeds from
long-term debt of $173.5 million. In 1994, the proceeds from issuances of
long-term debt net of repayments represented substantially all of the cash
provided by financing activities.

THE CREDIT FACILITY. On December 23, 1994, the Company completed the
closing of its $675 million credit facility (the "Credit Facility"), pursuant to
an Amended and Restated Loan Agreement, with various lenders led by The
Toronto-Dominion Bank and The Bank of New York. The Credit Facility, which
refinanced the Company's $390 million 1993 Loan Agreement, consists of a $325
million term loan and a $350 million revolving loan. The revolving loan is
available for capital expenditures, acquisitions of and investments in cellular
and other wireless communication interests, and for other general corporate
purposes.

23
<PAGE>
<PAGE>
As security for borrowings under the Credit Facility, the Company and its
subsidiaries have pledged substantially all of their 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 incurrence of additional long-term indebtedness and requires the maintenance
of certain financial ratios. The requirements of the 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 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, 1995, $522.0 million had been borrowed under the Credit
Facility. Under the restrictive covenants of the Credit Facility, future
borrowing availability under the revolving loan generally increases as the
Company's operating performance improves. The Company does not expect these
covenants to curtail planned borrowings.

According to the terms of the Credit Facility, 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 maturity on
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%
of the principal amount at March 31, 2003, at which time the loan will be
repaid. The available borrowings under the revolving loan will also be reduced
on a quarterly basis 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% of the commitment
on March 31, 2003 at which time the loan will be repaid.

The term loan and the revolving loan bear interest at a rate equal to the
Company's choice of the Prime Rate (as defined) or Eurodollar Rate (as defined)
plus an applicable margin based upon a leverage ratio for the most recent fiscal
quarter. As of December 31, 1995, the applicable margins on the borrowings were
0.375% and 1.625% per annum for the Prime Rate and Eurodollar Rate,
respectively.

The Company is pursuing the issuance of approximately $200 million of
debentures that will be structurally subordinated to the Credit Facility. The
proposed debentures will mature in 2006 and will be redeemable at the Company's
option, in whole or in part, five years after the date of issuance. The net
proceeds will be used to reduce borrowings outstanding under the revolving loan
portion of the Credit Facility. The issuance of these debentures will require
amendment of the Credit Facility. There can be no assurance that the proposed
financing will be consumated.

ACQUISITIONS. The Company completed several acquisitions in 1994 and 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
an additional cellular market.

The Company purchased in October 1994, for $6.9 million in cash and
approximately 125,000 shares of 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 of approximately 1.8 million
shares of the Company's Class A Common Stock and $6.1 million in cash. These
markets are contiguous to the Company's Mid-Atlantic SuperSystem.

In January 1995, the Company purchased the Union, Pennsylvania (PA-8) RSA
for a cash price of $51.3 million. The PA-8 RSA lies in the center of the
Company's Mid-Atlantic SuperSystem. Condensed pro forma financial information
for the acquisition of PA-8 as of December 31, 1995 and 1994 is contained in
Note 3 to the consolidated financial statements.

On December 1, 1995, the Company completed the acquisition of an additional
ownership interest in the Harrisburg, PA MSA. In exchange for ownership
interests in certain minority owned cellular markets outside its regional
metro-clusters and $2.9 million in cash, the Company received the final 13.24%
ownership interest in the Harrisburg, PA MSA, and now is the sole owner of such
market, which is in the Mid-Atlantic SuperSystem.

All markets that were acquired during 1994 and 1995 were operational
cellular systems.

The Company explores, on an ongoing basis, possible acquisitions of
additional cellular systems and licenses. The Company currently has no
agreements in principle regarding any such acquisition. However, the Company is
currently negotiating the possible acquisition of an RSA cellular market
contiguous to one of its existing metro-clusters for a price of

24
<PAGE>
<PAGE>
approximately $15 million. There can be no assurance that an agreement will be
reached in connection with the possible acquisition or, even if an agreement is
reached, that the acquisition will be consummated.

GEOTEK COMMUNICATIONS, INC. In February 1994, the Company purchased from
Geotek Communications, Inc. ("Geotek") 2.5 million shares of Geotek common stock
for $30 million and received a series of options to purchase additional shares
in Geotek in three separately linked transactions. In addition, the Company
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. On September 1, 1995, the Company purchased for $5.0 million in cash
531,463 shares of convertible preferred stock of Geotek with a stated value of
$9.408 per share (the "Geotek Preferred Stock"). In connection with the purchase
of Geotek Preferred Stock, the stock options previously granted to the Company
by Geotek in 1994 were amended to extend their expiration dates and reduce the
number of shares subject to the options such that the Company will have the
right to purchase 1,000,000 shares of Geotek Common Stock at $15 per share
("Series A Option") and 1,714,200 additional shares at $16 per share ("Series B
Option") until September 1, 1996 and 2,571,400 additional shares at $17 per
share until 12 months from the expiration date of the Series B Option ("Series C
Option"). The Company may extend the Series B and Series C Options by six months
and the Series C Option by an additional six months and, if any portion of any
series of options expires, all unexercised options will expire immediately.

INTERNATIONAL WIRELESS COMMUNICATIONS, INC. As of December 31, 1995, the
Company had invested $13.5 million in International Wireless Communications,
Inc. ("IWC") and owns approximately 35% of the outstanding common and preferred
stock of IWC. During 1995, the Company invested $6.9 million in IWC, including
the merger of a subsidiary of the Company into IWC in exchange for shares of IWC
preferred stock. IWC is a development stage company specializing in securing,
building and operating wireless businesses generally other than cellular
telephone systems primarily in Latin America and Asia. The Company's investment
in IWC is recorded using the equity method of accounting.

INTER(BULLET)ACT SYSTEMS, INCORPORATED. As of December 31, 1995, the
Company had invested $3.8 million in Inter(Bullet)Act Systems, Incorporated
("Inter(Bullet)Act") for an ownership interest of approximately 10%.
Additionally, subsequent to year-end, the Company invested an additional $6.2
million to bring its total ownership interest to approximately 26% as of March
19, 1996. Inter(Bullet)Act is a development stage company that provides targeted
promotions to retail customers at the point of entry at a retail outlet,
primarily supermarkets, through a computer-equipped kiosk. The Company's
investment is recorded using the equity method of accounting.

CAPITAL EXPENDITURES. As of December 1995, the Company had $287.9 million
of property and equipment 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 $129.9 million during 1995.
During 1996, the Company plans to continue this accelerated buildout. Capital
expenditures for 1996 are estimated to be approximately $127 million and are
expected to be funded primarily through internally generated funds.
Approximately $100 million of those capital expenditures will be for cellular
network equipment, and the remainder will be primarily for rental telephones and
computer equipment.

Although no assurance can be given that such will be the case, the Company
believes that its internally generated funds and available borrowing capacity
under the Credit Facility will be sufficient during the next several years to
complete its planned network expansion, to fund debt service, to provide
flexibility to pursue acquisitions and other business opportunities that might
arise in the future and to meet working capital and general corporate needs. The
Company also may issue additional shares of Class A Common Stock.

INFLATION

The Company believes that inflation affects its business no more than it
generally affects other similar businesses.

25
<PAGE>
<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 Consolidated Financial Statements and Schedule.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

26
<PAGE>
<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 1, 1996, is incorporated herein by
reference. Other information with respect to executive officers is contained in
Part I -- Item 4 (a) 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 1, 1996, 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 1, 1996, is
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information with respect to certain transactions appearing under the
heading "Certain Transactions" in the Registrant's proxy statement for the
Annual Meeting of Shareholders to be held May 1, 1996, is incorporated herein by
reference.

27
<PAGE>
<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 schedule
listed in the accompanying Index to Consolidated Financial Statements and Schedule 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. There were no reports filed on Form 8-K during the fourth quarter of 1995.
</TABLE>

28
<PAGE>
<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: /s/ HAYNES G. GRIFFIN
HAYNES G. GRIFFIN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER

Date: March 20, 1996

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>
Chairman of the Board of Directors March , 1996
STUART S. RICHARDSON

/s/ HAYNES G. GRIFFIN President, Chief Executive Officer, Director March 20, 1996
HAYNES G. GRIFFIN

/s/ L. RICHARDSON PREYER, JR. Vice Chairman of the Board of Directors March 20, 1996
L. RICHARDSON PREYER, JR.

/s/ STEPHEN L. HOLCOMBE Chief Financial Officer (Principal accounting March 20, 1996
STEPHEN L. HOLCOMBE and principal financial officer)

/s/ F. COOPER BRANTLEY Director March 20, 1996
F. COOPER BRANTLEY

/s/ DORIS R. BRAY Director March 20, 1996
DORIS R. BRAY

/s/ ROBERT M. DEMICHELE Director March 20, 1996
ROBERT M. DEMICHELE

/s/ STEPHEN R. LEEOLOU Director March 20, 1996
STEPHEN R. LEEOLOU

/s/ L. RICHARDSON PREYER, SR. Director March 20, 1996
L. RICHARDSON PREYER, SR.

/s/ ROBERT A. SILVERBERG Director March 20, 1996
ROBERT A. SILVERBERG
</TABLE>

29
<PAGE>
<PAGE>
INDEX TO CONSOLIDATED 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, 1995 and 1994................................................................ F-2

Consolidated Statements of Operations for the Years ended December 31, 1995, 1994 and 1993............................. F-3

Consolidated Statements of Changes in Shareholders' Equity for the Years ended December 31, 1995, 1994 and 1993........ F-4

Consolidated Statements of Cash Flows for the Years ended December 31, 1995, 1994 and 1993............................. F-5

Notes to Consolidated Financial Statements............................................................................. F-6

Report of Independent Public Accountants Relating to Consolidated Financial Statements and Supplemental Schedule listed
below................................................................................................................ F-18

Schedule II -- 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>
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.............................................................................................. $ 8,085 $ 5,745
Accounts receivable, net of allowances for doubtful accounts of $5,823 and $2,761................. 31,270 22,664
Cellular telephone inventories.................................................................... 8,957 10,417
Prepaid expenses.................................................................................. 1,498 717
Total current assets........................................................................... 49,810 39,543
INVESTMENTS......................................................................................... 306,760 257,203
PROPERTY AND EQUIPMENT, at cost:
Land.............................................................................................. 1,997 1,666
Buildings......................................................................................... 536 1,027
Cellular telephones held for rental............................................................... 18,814 9,341
Cellular telephone systems........................................................................ 221,281 137,708
Office furniture and equipment.................................................................... 45,222 34,466
287,850 184,208
Less -- Accumulated depreciation.................................................................. 94,057 80,022
193,793 104,186
Construction in progress.......................................................................... 31,413 16,139
225,206 120,325
OTHER ASSETS, net of accumulated amortization of $3,390 and $635.................................... 14,801 14,640
Total assets................................................................................... $ 596,577 $ 431,711
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses............................................................. $ 43,147 $ 40,689
Customer deposits................................................................................. 1,666 632
Total current liabilities...................................................................... 44,813 41,321
LONG-TERM DEBT...................................................................................... 522,143 348,649
MINORITY INTERESTS.................................................................................. 573 2,534
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, 250,000,000 shares authorized, 41,312,053
and 40,529,334 shares issued and outstanding................................................... 413 405
Common stock, Class B -- $.01 par value, 30,000,000 shares authorized, no shares issued........... -- --
Additional capital in excess of par value......................................................... 238,662 234,731
Net unrealized holding losses..................................................................... (16,395) (9,310)
Accumulated deficit............................................................................... (193,632) (186,619)
Total shareholders' equity..................................................................... 29,048 39,207
Total liabilities and shareholders' equity..................................................... $ 596,577 $ 431,711
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.

F-2
<PAGE>
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
REVENUE:
Service revenue..................................................................... $217,440 $146,417 $ 98,960
Cellular telephone equipment revenue................................................ 15,647 18,529 9,929
Other............................................................................... 2,984 3,055 175
236,071 168,001 109,064
COSTS AND EXPENSES:
Cost of service..................................................................... 27,043 21,008 14,461
Cost of cellular telephone equipment................................................ 25,605 29,933 13,410
General and administrative.......................................................... 60,489 44,019 34,218
Marketing and selling............................................................... 54,906 37,102 21,693
Depreciation and amortization....................................................... 36,170 24,073 25,160
204,213 156,135 108,942
INCOME FROM OPERATIONS................................................................ 31,858 11,866 122
NET GAINS (LOSSES) ON DISPOSITIONS.................................................... 1,787 (339) (657)
INTEREST EXPENSE...................................................................... (38,293) (22,126) (15,389)
OTHER, net............................................................................ (2,362) (3,193) 795
LOSS BEFORE MINORITY INTERESTS........................................................ (7,010) (13,792) (15,129)
MINORITY INTERESTS.................................................................... (3) (153) (154)
NET LOSS BEFORE EXTRAORDINARY ITEM.................................................... (7,013) (13,945) (15,283)
EXTRAORDINARY LOSS ON EXTINGUISHMENT OF DEBT.......................................... -- (8,402) (3,715)
NET LOSS.............................................................................. $ (7,013) $(22,347) $(18,998)
NET LOSS PER SHARE BEFORE EXTRAORDINARY ITEM.......................................... $ (0.17) $ (0.36) $ (0.40)
PER SHARE EFFECT OF EXTRAORDINARY ITEM................................................ -- (0.22) (0.10)
NET LOSS PER SHARE.................................................................... $ (0.17) $ (0.58) $ (0.50)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING.................................. 41,100,062 38,628,140 38,038,240
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

F-3
<PAGE>
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
ADDITIONAL NET
COMMON STOCK CAPITAL IN UNREALIZED TOTAL
CLASS A EXCESS OF HOLDING ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT PAR VALUE LOSSES DEFICIT EQUITY
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1993........................... 37,817,275 $378 $ 175,161 $ -- $(145,274) $ 30,265
Shares issued upon exercise of stock options....... 90,150 1 615 -- -- 616
Shares issued for cash............................. 26,591 -- 335 -- -- 335
Shares issued in exchange for
cellular interests............................... 464,064 5 9,675 -- -- 9,680
Net loss........................................... -- -- -- -- (18,998) (18,998)
BALANCE, December 31, 1993......................... 38,398,080 384 185,786 -- (164,272) 21,898
Shares issued upon exercise of stock options....... 210,719 2 1,061 -- -- 1,063
Shares issued for cash............................. 28,576 -- 499 -- -- 499
Shares issued in exchange for
cellular interests............................... 1,891,959 19 47,385 -- -- 47,404
Net unrealized holding losses...................... -- -- -- (9,310) -- (9,310)
Net loss........................................... -- -- -- -- (22,347) (22,347)
BALANCE, December 31, 1994......................... 40,529,334 405 234,731 (9,310) (186,619) 39,207
Shares issued upon exercise of stock options....... 755,906 8 3,294 -- -- 3,302
Shares issued for cash............................. 26,813 -- 637 -- -- 637
Net unrealized holding losses...................... -- -- -- (7,085) -- (7,085)
Net loss........................................... -- -- -- -- (7,013) (7,013)
BALANCE, December 31, 1995......................... 41,312,053 $413 $ 238,662 $(16,395) $(193,632) $ 29,048
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

F-4
<PAGE>
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................................... $ (7,013) $ (22,347) $(18,998)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization................................................... 36,170 24,073 25,160
Amortization of deferred financing costs........................................ 1,322 1,334 953
Equity in losses (earnings) of unconsolidated investments....................... 2,261 (206) (500)
Minority interests.............................................................. 3 153 154
Net (gains) losses on dispositions.............................................. (1,787) 339 657
Extraordinary loss on extinguishment of debt.................................... -- 8,402 3,715
Stock received for management consulting services............................... (2,436) (2,496) --
Changes in current items:
Accounts receivable, net...................................................... (8,250) (8,974) (4,898)
Cellular telephone inventories................................................ 1,649 (5,744) (2,072)
Accounts payable and accrued expenses......................................... 8,363 7,223 4,844
Other, net.................................................................... (321) 494 (397)
Net cash provided by operating activities..................................... 29,961 2,251 8,618
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................................................ (136,149) (51,017) (21,009)
Proceeds from dispositions of property and equipment............................... 380 109 17
Payments for acquisition of investments............................................ (69,908) (54,813) (19,852)
Proceeds from dispositions of cellular interests................................... 1,413 446 1,204
Capital contributions to unconsolidated cellular entities.......................... (318) (651) (344)
Net cash used in investing activities......................................... (204,582) (105,926) (39,984)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt............................................... -- (334,006) (212,559)
Net proceeds from issuance of common stock......................................... 3,939 1,415 951
Proceeds of long-term debt......................................................... 173,494 444,500 251,000
Debt issuance costs................................................................ (124) (11,180) (8,112)
Other.............................................................................. (348) (407) (289)
Net cash provided by financing activities..................................... 176,961 100,322 30,991
NET INCREASE (DECREASE) IN CASH...................................................... 2,340 (3,353) (375)
CASH, beginning of year.............................................................. 5,745 9,098 9,473
CASH, end of year.................................................................... $ 8,085 $ 5,745 $ 9,098
SUPPLEMENTAL DISCLOSURE OF CASH PAID DURING THE YEAR FOR INTEREST, net of amounts
capitalized........................................................................ $ 32,597 $ 21,914 $ 14,862
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

F-5
<PAGE>
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 -- ORGANIZATION

Vanguard Cellular Systems, Inc. (Vanguard) (a North Carolina corporation)
is a provider of cellular telephone service to various markets in the eastern
United States. The majority of Vanguard's operations are conducted in the
Mid-Atlantic Supersystem covering areas of Pennsylvania and New York. The
primary 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 uniformity 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.

USE OF ESTIMATES

The preparation of these consolidated financial statements required the use
of certain estimates by management in determining the Company's financial
position and results of operations. Actual results could differ from those
estimates.

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

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
of accounting.

INVESTMENTS IN NONCELLULAR ENTITIES -- Investments in noncellular entities
consist of the Company's investments in International Wireless Communications,
Inc. (IWC), Inter(Bullet)Act Systems, Incorporated (Inter(Bullet)Act) and Geotek
Communications, Inc. (Geotek). The investments in IWC and Inter(Bullet)Act are
recorded using the equity method. The investment in Geotek is considered to be
"available for sale" under the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Accordingly, the Company's investment in marketable equity
securities of Geotek is recorded at its fair value and the investment in other
securities of Geotek is recorded at cost.

F-6
<PAGE>
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Note 2 -- SIGNIFICANT ACCOUNTING AND REPORTING POLICIES -- Continued
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>

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 $4.5 million.

At December 31, 1995 and 1994, 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 $1.3 million, $684,000 and $188,000 in 1995, 1994 and 1993,
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 which are being amortized
over the period of the related agreements. Amortization of $1.3 million, $1.3
million and $1.0 million has been included in interest expense in the
accompanying December 31, 1995, 1994 and 1993 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 $40,000,
$160,000 and $1.3 million has been included in the accompanying December 31,
1995, 1994 and 1993 Statements of Operations, respectively. Other assets also
include $6.9 million allocated to the acquired customer bases in connection with
the acquisitions of the Union, PA (PA-8) RSA in January 1995, and the
Binghamton, NY and Elmira, NY MSAs in December 1994. The customer bases are
being amortized over a four-year period and accordingly amortization of $1.7
million has been included in the accompanying December 31, 1995 Statement of
Operations.

REVENUE RECOGNITION

Service revenue is 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.

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.

F-7
<PAGE>
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Note 2 -- SIGNIFICANT ACCOUNTING AND REPORTING POLICIES -- Continued
STATEMENTS OF CASH FLOWS

Additional required disclosures of noncash investing and financing
activities for the years ended December 31, 1995, 1994 and 1993 are as follows:

The Company acquired ownership interests in certain cellular entities and
other investments for cash and noncash consideration, as follows (in thousands):

<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Fair value of investments acquired............................................. $ 78,297 $105,296 $35,266
Fair value of noncash consideration given up:
Cellular licenses and interests.............................................. 7,366 882 6,938
Issuance of common stock..................................................... -- 47,551 9,680
Stock received for management consulting services............................ 2,436 2,496 --
9,802 50,929 16,618
Net cash paid.................................................................. 68,495 54,367 18,648
Proceeds from dispositions of cellular interests............................... 1,413 446 1,204
Cash acquisitions of investments............................................... $ 69,908 $ 54,813 $19,852
</TABLE>

The Company acquired property and equipment for cash and noncash
consideration, as follows:

<TABLE>
<S> <C> <C> <C>
Cash........................................................................... $136,149 $ 51,017 $21,009
Increase (decrease) in accounts payable........................................ (6,255) 11,615 --
$129,894 $ 62,632 $21,009
</TABLE>

RECLASSIFICATION

Certain amounts in the 1993 financial statements have been reclassified to
conform to the 1995 and 1994 presentation. Beginning in 1994, 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.

Note 3 -- INVESTMENTS

Investments consist of the following as of December 31, 1995 and 1994 (in
thousands):

<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Investments in cellular entities:
Consolidated cellular entities:
License costs........................................................................ $273,111 $223,051
Accumulated amortization............................................................. (29,546) (23,119)
243,565 199,932
Cellular entities carried on the equity method.......................................... 10,370 10,087
Cellular entities carried on the cost method............................................ 13,853 16,885
267,788 226,904
Investments in noncellular entities....................................................... 38,972 30,299
$306,760 $257,203
</TABLE>

F-8
<PAGE>
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Note 3 -- INVESTMENTS -- Continued
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-12 RSA in August 1993 for a
purchase price of $9.7 million 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 $23.0 million, 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 $18.2 million 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 $4.4 million 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 $6.9 million in cash and $3.3
million in the Company's Class A common stock, the Washington, ME (ME-4) RSA and
three of the four counties of the Mason, WV (WV-1) RSA. The Maine RSA is
approximately 40 miles north of the Portland, ME MSA, which is already operated
by the Company. The West Virginia RSA is contiguous to the Company's Charleston,
WV MSA.

On December 14, 1994, the Company purchased the Binghamton, NY MSA and the
Elmira, NY MSA for a purchase price consisting of 1,766,674 shares of the
Company's Class A common stock and $6.1 million in cash. These markets are
contiguous to the Company's Mid-Atlantic SuperSystem.

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, NY MSA, and the
Elmira, NY MSA, had occurred January 1, 1993, are as follows (in thousands,
except per share data):

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1994 1993
<S> <C> <C>
Revenue................................................................................... $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, PA (PA-8) RSA for a cash
price of $51.3 million. The PA-8 RSA lies in the center of the Company's
Mid-Atlantic SuperSystem and is an operational cellular system. Pro forma
consolidated results of operations, as if the acquisition of the Union, PA RSA
had occurred January 1, 1994, are as follows (in thousands, except per share
data):

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1995 1994
<S> <C> <C>
Revenue................................................................................... $236,578 $173,735
Net loss before extraordinary item........................................................ (7,254) (18,155)
Net loss.................................................................................. (7,254) (26,557)
Net loss per share before extraordinary item.............................................. (0.18) (0.47)
Net loss per share........................................................................ (0.18) (0.69)
</TABLE>

In December 1995, the Company completed the acquisition of the remaining
13.24% ownership interests in the Harrisburg, PA MSA in exchange for ownership
interests in cellular markets outside its regional metro-clusters and $2.9
million in cash.

F-9
<PAGE>
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Note 3 -- INVESTMENTS -- Continued
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 MSA cellular markets.

CELLULAR ENTITIES ON THE COST METHOD

The investment balance of approximately $13.9 million at December 31, 1995
represents the Company's investment in approximately 40 cellular markets with
ownership interests ranging from 0.3% to 18.3%. The Company holds these
ownership interests for investment purposes.

NONCELLULAR INVESTMENTS

GEOTEK COMMUNICATIONS, INC.

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 certain
metropolitan markets in the United States based on its FHMA digital technology.
The original agreement was amended in May 1995 to reduce the amount of options
available for exercise and to lengthen substantially the time during which the
Company may exercise its remaining options. In addition, pursuant to the May
1995 agreement, the Company agreed to purchase for $5 million in cash 531,463
shares of convertible preferred stock of Geotek. Dividends on the preferred
shares are payable quarterly at a rate of 7 1/2% per annum, in cash or preferred
shares. The shares are convertible into common shares of Geotek at a conversion
price of $9.408 per share subject to certain adjustments. Geotek's common stock
is traded on the Nasdaq National Market System.

As amended by the May 1995 agreement, the options held by the Company at
December 31, 1995 are in three series as follows: (i) Series A options
exercisable for 1,000,000 shares at $15 per share, (ii) Series B options
exercisable for 1,714,200 shares at $16 per share and (iii) Series C options
exercisable for 2,571,400 shares at $17 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 without exercise, the management consulting agreement
terminates. Also, the Company's management consulting agreement with Geotek, as
amended, provides that, if the Series C options are exercised prior to the
fourth anniversary date of the management consulting agreement, the 300,000
shares issuable on the fifth anniversary date would be issuable on the fourth
anniversary date. Under the management agreement, the Company earned and
recorded as revenue approximately 300,000 shares with an aggregate value of $2.4
million in 1995 and approximately 250,000 shares with an aggregate value of $2.5
million in 1994. The Company currently owns less than 10% of Geotek's
outstanding common stock and, in the event the options were exercised would
continue to own less than 10% of such stock.

Under the provisions of Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities", the
Company's investment in Geotek common stock is classified as "available for
sale". As such, the investment is recorded at its market value, and a net
unrealized holding loss of $16.4 million has been recorded as a separate
component of shareholders' equity. The Company's investment in Geotek preferred
stock is recorded at cost.

INTERNATIONAL WIRELESS COMMUNICATIONS, INC.

During 1995, the Company invested $6.5 million and merged its 100% owned
subsidiary, Vanguard International Telecommunications, Inc., into IWC in
exchange for additional ownership interests. Through these transactions, the
Company increased its ownership interest in IWC from approximately 20% to
approximately 35%. As of December 31, 1995, the Company has invested an
aggregate of approximately $13.5 million. IWC is a development stage company
specializing in securing, building and operating wireless businesses generally
other than cellular telephone systems primarily in Latin

F-10
<PAGE>
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Note 3 -- INVESTMENTS -- Continued
America and Southeast Asia. The Company's investment is recorded in the
accompanying consolidated financial statements using the equity method of
accounting.

INTER(BULLET)ACT SYSTEMS, INCORPORATED

During 1995, the Company invested approximately $3.8 million in
Inter(Bullet)Act for ownership of approximately 10%. Additionally, the Company
has committed to invest an additional $6.2 million in Inter(Bullet)Act, subject
to Inter(Bullet)Act's ability to raise funds from additional outside investors.
Inter(Bullet)Act is a development stage company that provides targeted product
promotions to retail customers at the point of entry of a retail outlet,
primarily supermarkets, through a computer-equipped kiosk. The Company's
investment is recorded using the equity method in the accompanying financial
statements due to the fact that an additional 19% ownership interest of
Inter(Bullet)Act is held by certain officers and directors of the Company, as
well as entities affiliated with certain directors of the Company.

FINANCIAL INFORMATION OF EQUITY METHOD INVESTEES

Combined financial position and operating results measures of the Company's
equity method investees, Eastern North Carolina Cellular Joint Venture, IWC and
Inter(Bullet)Act, for the last three years are as follows (in thousands):

<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current assets.................................................................. $ 29,069 $14,367 $ 807
Non-current assets.............................................................. 121,369 52,530 46,203
Current liabilities............................................................. 15,063 6,462 2,190
Non-current liabilities......................................................... 2,561 353 339
Revenues........................................................................ 14,080 9,386 5,519
Gross profit.................................................................... 10,372 7,265 4,389
Loss from operations............................................................ (6,276) (2,773) (812)
Net loss........................................................................ (9,994) (3,327) (966)
</TABLE>

Information for each investee is presented only for the years in which the
Company maintained an investment.

Note 4 -- LONG-TERM DEBT

Long-term debt consisted of the following as of December 31, 1995 and 1994
(in thousands):

<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Borrowings under the 1994 Credit Facility:
Term loan............................................................................... $325,000 $325,000
Revolving loan.......................................................................... 197,000 23,500
Other long-term debt...................................................................... 143 149
$522,143 $348,649
</TABLE>

The future maturities of the principal amount outstanding at December
31,1995 were as follows (in thousands):

<TABLE>
<S> <C>
1996...................................................................................... $ --
1997...................................................................................... --
1998...................................................................................... 39,293
1999...................................................................................... 65,250
2000...................................................................................... 78,300
Thereafter................................................................................ 339,300
$522,143
</TABLE>

F-11
<PAGE>
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Note 4 -- LONG-TERM DEBT -- Continued
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 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 extraordinary losses of $8.4 million ($0.22
per share) in 1994 and $3.7 million ($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 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 of December 31, 1995, the terms of
these agreements limit available borrowing during the first quarter of 1996 to
$140 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 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, 1995 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, 1995, the Company's effective interest rate
on its outstanding borrowings was 7.5%.

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 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

F-12
<PAGE>
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Note 4 -- LONG-TERM DEBT -- Continued
improvement in the Company's operating performance such that its cash flow would
be sufficient to continue servicing the debt as repayments are required. The
Company is in compliance with all loan covenants.

PROPOSED DEBENTURE FINANCING

The Company is pursuing the issuance of approximately $200 million of
debentures that will be structurally subordinated to the 1994 Credit Facility.
The proposed debentures will mature in 2006 and will be redeemable at the
Company's option, in whole or in part, five years after the date of issuance.
The net proceeds will be used to reduce borrowings outstanding under the
revolving loan portion of the 1994 Credit Facility. The issuance of these
debentures will require amendment of the 1994 Credit Facility. There can be no
assurance that the proposed financing will be consummated.

INTEREST RATE PROTECTION AGREEMENTS

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 $150
million. The interest rate cap agreements provide protection to the extent that
LIBOR exceeds the strike level through the expiration date as follows (in
thousands):

<TABLE>
<CAPTION>
STRIKE LEVEL NOTIONAL AMOUNT EXPIRATION DATE
<S> <C> <C>
9.0% $ 50,000 December 1996
9.0% 50,000 December 1997
9.63%-9.75% 50,000 December 1997
$ 150,000
</TABLE>

The total cost of these interest rate cap agreements of $597,000 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 6.1% on a notional amount of $100 million through May
1996 and 5.5% on a notional amount of $100 million through November 1996. Under
these swap agreements, the Company benefits if LIBOR interest rates increase
above the fixed rates and incurs additional 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 effect of interest rate protection agreements on the operating results
of the Company was to increase interest expense by $82,000, $95,000 and $884,000
in 1995, 1994 and 1993, respectively. The Company does not hold or issue
financial instruments for trading purposes.

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,
1995, the future minimum rental payments under these lease agreements having an
initial or remaining term in excess of one year were as follows (in thousands):

<TABLE>
<S> <C>
1996....................................................................................... $ 7,149
1997....................................................................................... 6,585
1998....................................................................................... 5,169
1999....................................................................................... 4,671
2000....................................................................................... 4,304
Thereafter................................................................................. 54,901
$82,779
</TABLE>

F-13
<PAGE>
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Note 5 -- COMMITMENTS AND CONTINGENCIES -- Continued
Rent expense under operating leases was $6.6 million, $4.2 million and $3.5
million for the years ended December 31, 1995, 1994 and 1993, respectively.

CONSTRUCTION AND CAPITAL COMMITMENTS

Capital expenditures for 1996 are estimated to be approximately $127
million for the Company, and are expected to be funded primarily with internally
generated funds.

Note 6 -- INCOME TAXES

Deferred income taxes are provided for the temporary differences between
the financial reporting and tax basis of the Company's assets and liabilities.

The components of net deferred taxes as of December 31, 1995 and 1994 were
as follows (in thousands):

<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................................................ $126,684 $119,073
Property and equipment.................................................................. 13,157 7,052
Other liabilities and reserves.......................................................... 811 1,854
Valuation allowance..................................................................... (81,388) (61,432)
Total deferred tax assets............................................................... 59,264 66,547
Deferred tax liabilities -- Investments and other intangible assets....................... (59,264) (66,547)
Net deferred taxes........................................................................ $ -- $ --
</TABLE>

The valuation allowance of $61.4 million as of December 31, 1994 was
provided because, in the Company's assessment, it was uncertain whether the net
deferred tax assets would be realized. In addition, because of its continuing
assessment that it is uncertain whether the net deferred tax assets will be
realized, the Company increased the valuation allowance during 1995 by $20.0
million to offset the 1995 net deferred tax benefit.

For Federal income tax reporting purposes, the Company had net operating
loss carryforwards of approximately $335 million at December 31, 1995. These
losses may be used to reduce future taxable income, if any, and expire through
2010. 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 $91 million
relates to additional deductions arising from restricted stock bonuses, stock
options and stock purchase warrants. In addition, the Company has a net
unrealized holding loss on the investment in Geotek of $16.4 million. To the
extent the tax benefit of these amounts is realized in future years, the benefit
will be recorded as a direct addition to shareholders' equity.

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.

F-14
<PAGE>
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Note 7 -- CAPITAL STOCK -- Continued
Effective May 10, 1995, the number of shares of Class A Common Stock
authorized to be issued was increased from 60 million to 250 million.

ACQUISITION OF CELLULAR INTERESTS

The Company has 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, 1995, 2,707,957 of these registered shares of Class A common stock
have been issued in conjunction with the acquisition of cellular markets.

STOCK COMPENSATION PLANS

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. Options granted under the 1994 Plan may
not have a term greater than ten years from the date of grant and are not
transferable except upon death. As of December 31, 1995, 1,347,500 shares were
available for future grants.

Upon adoption of the 1994 Plan, the Company's previously adopted stock
option and stock compensation plans were terminated. Options granted and
outstanding under these previous plans are still exercisable, but no further
grants may be made under these plans.

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, 1995, all of the shares have vested.

STOCK OPTIONS

Under the terms of the Company's previous and current 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>
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED 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, 1993................................................... 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
Granted.................................................................... 907,500 24.75 to 25.13
Exercised.................................................................. (760,765) 2.22 to 24.00
Forfeited.................................................................. (20,750) 15.17 to 19.25
Balance, December 31, 1995................................................. 3,903,102 2.22 to 25.13
</TABLE>

These options expire at various dates through 2005. Options for 1,469,380
shares had vested at December 31, 1995 and were exercisable at prices ranging
from $2.22 to $25.13.

SHARES RESERVED FOR ISSUANCE

At December 31, 1995, 5,250,602 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, 1995 and 1994 (in thousands):

<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Accounts payable............................................................................ $23,979 $25,030
Accrued expenses:
Interest.................................................................................. 4,631 129
Payroll and commissions................................................................... 9,504 5,865
Other..................................................................................... 5,033 9,665
$43,147 $40,689
</TABLE>

F-16
<PAGE>
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Note 9 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value
of each category of financial instruments for which it is practicable to
estimate that value:

CELLULAR ENTITIES CARRIED ON THE COST METHOD -- The fair value of these
instruments is estimated based upon recent transactions from this portfolio.

INVESTMENT IN GEOTEK -- The fair value of publicly-traded securities is
based upon quoted market price. The fair value of the remaining securities
approximates the carrying value.

INTEREST RATE PROTECTION AGREEMENTS -- The fair value of interest rate cap
and swap agreements is based on quoted market prices as if the agreements were
entered into on the measurement date.

LONG-TERM DEBT -- The fair value of the long-term debt of the Company
approximates the carrying value.

The estimated fair values of the Company's financial assets (liabilities)
are summarized as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
<S> <C> <C> <C> <C>
Cellular entities carried on the cost method...................... $ 13,853 $ 24,300 $ 16,885 $ 27,100
Investment in Geotek.............................................. 24,253 24,253 23,719 23,719
Interest rate protection agreements............................... 380 (400) 80 1,800
Long-term debt.................................................... (522,143) (522,143) (348,649) (348,649)
</TABLE>

Note 10 -- QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1995 QUARTERS FIRST SECOND THIRD FOURTH TOTAL
<S> <C> <C> <C> <C> <C>
Revenue............................................................... $49,817 $58,754 $62,704 $64,796 $236,071
Income from operations................................................ 1,963 7,928 13,805 8,162 31,858
Net income (loss)..................................................... (7,157) (1,327) 3,291 (1,820) (7,013)
Net income (loss) per share........................................... (0.18) (0.03) 0.08 (0.04) (0.17)

1994 QUARTERS FIRST SECOND THIRD FOURTH TOTAL
<S> <C> <C> <C> <C> <C>
Revenue............................................................... $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)
</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.

F-17
<PAGE>
<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, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, 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
consolidated 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,
March 1, 1996.

F-18
<PAGE>
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE PROVISION
AT CHARGED TO
BEGINNING COSTS AND
OF PERIOD EXPENSES DEDUCTIONS(1) OTHER(2)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1993................................... $ 1,958 $1,794 $(1,981) $--
Year ended December 31, 1994................................... 1,771 3,059 (2,134) 65
Year ended December 31, 1995................................... 2,761 6,166 (3,154) 50

BALANCE AT
END OF
PERIOD
<S> <C>
Allowance for doubtful accounts:
Year ended December 31, 1993................................... $1,771
Year ended December 31, 1994................................... 2,761
Year ended December 31, 1995................................... 5,823
</TABLE>

(1) Accounts written off during the period.

(2) Represents allowance for doubtful accounts for entities acquired during the
period.
<TABLE>
<CAPTION>
BALANCE PROVISION
AT CHARGED TO
BEGINNING COSTS AND
OF PERIOD EXPENSES DEDUCTIONS OTHER(2)
<S> <C> <C> <C> <C>
Deferred tax valuation allowance:
Year ended December 31, 1993..................................... $51,511(1) $5,322 $ -- $ 1,047
Year ended December 31, 1994..................................... 57,880 6,715 -- (3,163)
Year ended December 31, 1995..................................... 61,432 2,560 -- 17,396

BALANCE AT
END OF
PERIOD
<S> <C>
Deferred tax valuation allowance:
Year ended December 31, 1993..................................... $ 57,880
Year ended December 31, 1994..................................... 61,432
Year ended December 31, 1995..................................... 81,388
</TABLE>

(1) Represents the valuation allowance recognized upon adoption of SFAS No. 109
on January 1, 1993.

(2) Represents valuation allowances provided in each year for additional
deferred tax assets arising from (i) restricted stock bonuses, stock options
and stock purchase warrants, (ii) the unrealized holding loss on the
Company's investment in Geotek, (iii) deferred tax assets arising from the
acquisitions of operating cellular entities and (iv) the effects of legal
organization and other changes. These provisions have been partially offset
by (i) the deferred tax liabilities arising from acquisitions of operating
cellular entities and (ii) the expiration of certain state operating loss
carryforwards.

F-19
<PAGE>
<PAGE>
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
EXHIBIT NO. DESCRIPTION NO.
<C> <S> <C>
* 3(a) Articles of Incorporation of Registrant as amended through July 25,
1995, filed as Exhibit 1 to the Registrant's Form 8-A/A dated July 25,
1995.
* 3(b) Bylaws of Registrant (compilation of July 25, 1995), filed as Exhibit 2
to the Registrant's Form 8-A/A dated July 25, 1995.
* 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(b)(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(b)(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(b)(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(a)(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(a)(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(a)(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(a)(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(1)(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.
* 10z(1)(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.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
EXHIBIT NO. DESCRIPTION NO.
<C> <S> <C>
* 10(a)(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(a)(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(a)(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(a)(10) Employment Agreement dated March 1, 1995 by and between the Registrant
and Haynes G. Griffin, filed as Exhibit 10(a)(10) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
* 10(a)(11) Employment Agreement dated March 1, 1995 by and between the Registrant
and L. Richardson Preyer, Jr., filed as Exhibit 10(a)(11) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
* 10(a)(12) Employment Agreement dated March 1, 1995 by and between the Registrant
and Stephen R. Leeolou, filed as Exhibit 10(a)(12) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
* 10(a)(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(a)(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(a)(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(a)(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(a)(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(a)(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, filed as Exhibit 10(a)(18) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
* 10(a)(19) Senior Management Severance Plan of the Registrant adopted March 8,
1995, filed as Exhibit 10(a)(19) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
EXHIBIT NO. DESCRIPTION NO.
<C> <S> <C>
* 10(a)(20) Form of Severance Agreement for Senior Management Employees of the
Registrant, filed as Exhibit 10(a)(20) to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994
10(a)(21) Form of Incentive Stock Agreement dated March 7, 1995 between the
Registrant and Haynes G. Griffin, Steven L. Holcombe, Richard C.
Rowlenson and Stuart S. Richardson filed as Exhibit 10(a)(21) to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1995.
10(a)(22) Form of Nonqualified Option Agreement dated March 7, 1995 between the
Registrant and Haynes G. Griffin, Stephen R. Leeolou, L. Richardson
Preyer, Jr., Stephen L. Holcombe, Richard C. Rowlenson and Stuart S.
Richardson, filed as Exhibit 10(a)(22) to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1995.
* 10(b)(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(b)(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(b)(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(c)(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(c)(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(d)(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(d)(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(d)(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(d)(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(d)(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.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
EXHIBIT NO. DESCRIPTION NO.
<C> <S> <C>
* 10(d)(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(d)(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 December 31, 1990.
* 10(e)(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).
* 10(e)(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(f)(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(f)(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(f)(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 respect
to the Common Stock of Geotek Communications, Inc.
* 10(f)(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(f)(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(f)(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,
11 Calculation of fully diluted net loss per share for the years ended
December 31, 1995, 1994, and 1993.
22 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
</TABLE>

* Incorporated by reference to the statement or report indicated.
<PAGE>

<PAGE>
EXHIBIT 11

VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES

CALCULATION OF FULLY DILUTED NET LOSS PER SHARE

FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Net Loss................................................................................... $(7,013) $(22,347) $(18,998)
Weighted average number of common shares outstanding....................................... 41,100 38,628 38,038
Adjustments necessary to reflect weighted average number of common shares outstanding on a
fully diluted basis...................................................................... 1,059 1,651 1,125
42,159 40,279 39,163
Fully diluted net loss per share........................................................... $ (0.17) $ (0.55) $ (0.49)
</TABLE>
<PAGE>

<PAGE>
EXHIBIT 22

VANGUARD CELLULAR SYTEMS, INC.

SUBSIDIARIES OF REGISTRANT

The following is a complete and correct list of all Subsidiaries as of February
1, 1996:

Altoona CellTelCo

Atlantic Cellular Telephone Corp.

Binghamton Cellular Telephone Corp.

Binghamton CellTelCo

Cellular Directory Corporation

Eastern North Carolina Cellular Joint Venture

Harrisburg Cellular Telephone Company

* Jacksonville Cellular Communications, Inc.

* Jacksonville Cellular Partnership

* Jacksonville Cellular Telephone Corp.

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 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 Communications, Inc.

Vanguard India, Inc.

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>

<PAGE>
EXHIBIT 23

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Vanguard Cellular Systems, Inc.:

As independent public accountants, we hereby consent to the incorporation
of our report dated March 1, 1996 included in this Form 10-K, into the Company's
previously filed Form S-4 Registration Statement No. 33-35054, Form S-3
Registration Statement No. 33-61295, 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 19, 1996.
<PAGE>

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 8,085
<SECURITIES> 0
<RECEIVABLES> 37,093
<ALLOWANCES> 5,823
<INVENTORY> 8,957
<CURRENT-ASSETS> 49,810
<PP&E> 319,263
<DEPRECIATION> 94,057
<TOTAL-ASSETS> 596,577
<CURRENT-LIABILITIES> 44,813
<BONDS> 0
<COMMON> 413
0
0
<OTHER-SE> 28,635
<TOTAL-LIABILITY-AND-EQUITY> 596,577
<SALES> 217,440
<TOTAL-REVENUES> 236,071
<CGS> 27,043
<TOTAL-COSTS> 204,213
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,293
<INCOME-PRETAX> 7,013
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,013
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,013
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> 0

</TABLE>