<PAGE>
--------------------------------------------------------------------------------
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
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-9712
--------------------------------------------------------------------------------
UNITED STATES CELLULAR CORPORATION
(Exact name of Registrant as specified in its charter)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
DELAWARE 62-1147325
------------------------------ ------------------------------
(State or other jurisdiction (IRS Employer Identification
of incorporation or No.)
organization)
</TABLE>
8410 WEST BRYN MAWR, SUITE 700, CHICAGO, ILLINOIS 60631
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER: (312) 399-8900
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Name of each exchange
Title of each class on which registered
---------------------------- --------------------------
Common Shares, $1 par value American Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
-------------------
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_
As of February 28, 1995, the aggregate market value of registrant's Common
Shares held by nonaffiliates was approximately $513.0 million (based upon the
closing price of the Common Shares on February 28, 1995, of $33.375, as reported
by the American Stock Exchange).
The number of shares outstanding of each of the registrant's classes of
common stock, as of February 28, 1995, is 48,669,112 Common Shares, $1 par
value, and 33,005,877 Series A Common Shares, $1 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Those sections or portions of the registrant's 1994 Annual Report to
Shareholders and of the registrant's Notice of Annual Meeting of Shareholders
and Proxy Statement for its Annual Meeting of Shareholders to be held May 17,
1995, described in the cross reference sheet and table of contents attached
hereto are incorporated by reference into Parts II and III of this report.
--------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE NUMBER
OR REFERENCE(1)
------------
<S> <C> <C>
Item 1. Business................................................................................................. 3
Item 2. Properties............................................................................................... 22
Item 3. Legal Proceedings........................................................................................ 22
Item 4. Submission of Matters to a Vote of Security Holders...................................................... 23
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................................... 24(2)
Item 6. Selected Financial Data.................................................................................. 24(3)
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 24(4)
Item 8. Financial Statements and Supplementary Data.............................................................. 24(5)
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................... 24
Item 10. Directors and Executive Officers of the Registrant....................................................... 25(6)
Item 11. Executive Compensation................................................................................... 25(7)
Item 12. Security Ownership of Certain Beneficial Owners and Management........................................... 25(8)
Item 13. Certain Relationships and Related Transactions........................................................... 25(9)
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................... 26
<FN>
----------------------------------------------------------------------------
(1) Parenthetical references are to information incorporated by reference from
Exhibit 13, which includes portions of the registrant's Annual Report to
Shareholders for the year ended December 31, 1994 ("Annual Report") and
from the registrant's Notice of Annual Meeting of Shareholders and Proxy
Statement for its Annual Meeting of Shareholders to be held on May 17, 1995
(the "Proxy Statement").
(2) Annual Report section entitled "United States Cellular Stock and Dividend
Information."
(3) Annual Report section entitled "Selected Consolidated Financial Data."
(4) Annual Report section entitled "Management's Discussion and Analysis of
Results of Operations and Financial Condition."
(5) Annual Report sections entitled "Consolidated Statements of Operations,"
"Consolidated Balance Sheets," "Consolidated Statements of Cash Flows,"
"Consolidated Statements of Changes in Common Shareholders' Equity," "Notes
to Consolidated Financial Statements," "Report of Independent Public
Accountants" and "Consolidated Quarterly Income Information (Unaudited)."
(6) Proxy Statement sections entitled "Election of Directors" and "Executive
Officers."
(7) Proxy Statement section entitled "Executive Compensation," except for the
information specified in Item 402(a)(8) of Regulation S-K under the
Securities Exchange Act of 1934, as amended.
(8) Proxy Statement section entitled "Security Ownership of Certain Beneficial
Owners and Management."
(9) Proxy Statement section entitled "Certain Relationships and Related
Transactions."
</TABLE>
<PAGE>
--------------------------------------------------------------------------------
[LOGO]
UNITED STATES CELLULAR CORPORATION
8410 WEST BRYN MAWR - CHICAGO, ILLINOIS 60631
TELEPHONE (312) 399-8900
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PART I
--------------------------------------------------------------------------------
ITEM 1. BUSINESS
THE COMPANY
United States Cellular Corporation (the "Company") provides cellular
telephone service to 421,000 customers through 130 majority-owned and managed
("consolidated") cellular systems serving approximately 18% of the geography and
approximately 9% of the population of the United States. Since 1985, when the
Company began providing cellular service in Knoxville, Tennessee, the Company
has expanded its cellular networks and customer service operations to cover 145
markets in 33 states as of December 31, 1994. In total, the Company now operates
nine market clusters, of which four have a total population of more than two
million, plus other unclustered markets. Overall, 84% of the Company's 25.2
million population equivalents are in markets which are or will be consolidated,
2% are in managed but not consolidated markets and 14% are in markets in which
the Company holds an investment interest.
The Company is the seventh largest cellular telephone company in the United
States, based on the aggregate number of population equivalents it owns or has
the right to acquire. The Company's corporate development strategy is to acquire
controlling interests in MSA and RSA licensees in areas adjacent to or in
proximity to its other markets in order to build and expand market clusters. The
Company anticipates that clustering markets will expand its cellular service
areas and provide certain economies in its capital and operating costs.
The following table summarizes the status of the Company's interests in
cellular markets at December 31, 1994.
<TABLE>
<CAPTION>
MSA RSA TOTAL
--- --- -----
<S> <C> <C> <C>
Owns Majority Interest and Manages (all operational)............................................................. 34 96 130
--- --- -----
Right to Acquire Majority Interest and Manage (net of markets to be divested) (all operational) (1).............. 2 8 10
--- --- -----
Owns Minority Interest and Manages (all operational)............................................................. -- 10 10
--- --- -----
Total Markets Managed or to be Managed by the Company............................................................ 36 114 150
--- --- -----
Markets Managed by Others (all operational) (2).................................................................. 33 24 57
--- --- -----
Total Markets.................................................................................................... 69 138 207
--- --- -----
--- --- -----
<FN>
----------
(1) The Company expects to acquire controlling interests in 17 markets and
divest controlling interests in seven markets. Of the 17 markets to be
acquired, 12 markets are being operated by third parties until the Company
acquires a controlling interest in those markets.
(2) Represents markets in which the Company owns or has the right to acquire a
minority or other noncontrolling interest and which are managed by third
parties.
</TABLE>
3
<PAGE>
Cellular systems in the Company's 130 majority-owned and managed markets
served 421,000 customers at December 31, 1994, and contained 790 cell sites. The
average penetration rate in the Company's consolidated markets was 1.98% at
December 31, 1994, and the churn rate in all consolidated markets averaged 2.3%
per month for the twelve months ended December 31, 1994.
The Company, or TDS for the benefit of the Company, has entered into
agreements with third parties to acquire cellular interests which generally
require the issuance of the Company's or TDS's securities. In connection with
agreements that require the delivery of TDS securities, the Company reimburses
TDS for TDS securities issued to third parties as consideration for the
acquisitions.
The Company was incorporated in Delaware in 1983. The Company's executive
offices are located at 8410 West Bryn Mawr, Chicago, Illinois 60631. Its
telephone number is 312-399-8900. The Common Shares of the Company are listed on
the American Stock Exchange under the symbol "USM."
Unless the context indicates otherwise: (i) references to the "Company"
refer to United States Cellular Corporation and its subsidiaries; (ii)
references to "TDS" refer to Telephone and Data Systems, Inc. and its
subsidiaries; (iii) references to "MSA" or to a particular city refer to the
Metropolitan Statistical Area, as designated by the U.S. Office of Management
and Budget and used by the Federal Communications Commission ("FCC") in
designating metropolitan cellular market areas; (iv) references to "RSA" refer
to the Rural Service Area, as used by the FCC in designating non-MSA cellular
market areas; (v) references to cellular "markets" or "systems" refer to MSAs,
RSAs or both; (vi) references to "population equivalents" mean the population of
a market, based on 1994 Donnelley Marketing Service Estimates, multiplied by the
percentage interests that the Company owns or has the right to acquire in an
entity licensed, designated to receive a license or expected to receive a
construction permit ("licensee") from the FCC to construct or operate a cellular
system in such market.
CELLULAR TELEPHONE OPERATIONS
THE CELLULAR TELEPHONE INDUSTRY. Cellular telephone technology provides
high-quality, high-capacity communications services to in-vehicle and hand-held
portable cellular telephones. Cellular technology is a major improvement over
earlier mobile telephone technologies. Cellular telephone systems are designed
for maximum mobility of the customer. Access is provided through system
interconnections to local, regional, national and world-wide telecommunications
networks. Cellular telephone systems also offer a full range of ancillary
services such as conference calling, call-waiting, call-forwarding, voice mail,
facsimile and data transmission.
Cellular telephone systems divide each service area into smaller geographic
areas or "cells." Each cell is served by radio transmitters and receivers
operating on discrete radio frequencies licensed by the FCC. All of the cells in
a system are connected to a computer-controlled Mobile Telephone Switching
Office ("MTSO"). The MTSO is connected to the conventional ("landline")
telephone network and potentially other MTSOs. Each conversation on a cellular
phone involves a transmission over a specific set of radio frequencies from the
cellular phone to a transmitter/receiver at a cell site. The transmission is
forwarded from the cell site to the MTSO and from there may be forwarded to the
landline telephone network to complete the call. As the cellular telephone moves
from one cell to another, the MTSO determines radio signal strength and
transfers ("hands off") the call from one cell to the next. This hand-off is not
noticeable to either party on the phone call.
The Company provides cellular telephone service under licenses granted by
the FCC. The FCC grants only two licenses to provide cellular telephone service
in each market. However, competition for customers includes competing
communications technologies such as conventional landline and mobile telephone,
Special Mobile Radio ("SMR") systems and radio paging. In addition, emerging
technologies such as Enhanced Specialized Mobile Radio ("ESMR"), mobile
satellite communication systems and Personal Communications Services ("PCS") may
prove to be competitive with cellular service in the future in some or all of
the markets where the Company has operations.
The services available to cellular customers and the sources of revenue
available to cellular system operators are similar to those provided by
conventional landline telephone companies. Customers are charged a separate fee
for system access, airtime, long-distance calls, and ancillary services.
4
<PAGE>
Cellular system operators often provide service to customers of other
operators' cellular systems while the customers are temporarily located within
the operators' service areas. Customers using service away from their home
system are called "roamers." Roaming is available because technical standards
require that analog cellular telephones be compatible in all market areas in the
United States. The system that provides the service to these roamers will
generate usage revenue. Many operators, including the Company, charge premium
rates for this roaming service.
There are a number of recent technical developments in the cellular
industry. Currently, while most of the MTSOs process information digitally, most
of the radio transmission is done on an analog basis. Digital radio technology
offers advantages, including less transmission noise, greater system capacity,
and potentially lower incremental costs for additional customers. The conversion
from analog to digital radio technology is expected to be an industry-wide
process that will take a number of years.
During 1992, a new transmission technique was approved for implementation by
the cellular industry. Time Division Multiple Access ("TDMA") technology was
selected as one industry standard by the cellular industry and has been deployed
in several markets, including the Company's operations in Tulsa, Oklahoma.
Another digital technology, Code Division Multiple Access ("CDMA"), is expected
to be in a commercial trial by the end of 1995. The Company expects to deploy
some CDMA digital radio channels in other markets in the near future.
The cellular telephone industry is characterized by high initial fixed
costs. Accordingly, if and when revenues less variable costs exceed fixed costs,
incremental revenues should yield an operating profit. The amount of profit, if
any, under such circumstances is dependent on, among other things, prices and
variable marketing costs which in turn are affected by the amount and extent of
competition. Until technological limitations on total capacity are approached,
additional cellular system capacity can normally be added in increments that
closely match demand and at less than the proportionate cost of the initial
capacity.
THE COMPANY'S OPERATIONS. From its inception in 1983 until very recently,
the Company has principally been in a start-up phase. The Company's activities
have been concentrated significantly on the acquisition of interests in entities
licensed or designated to receive a license ("licensees") from the FCC to
provide cellular service and on the construction and initial operation of
cellular systems. The development of a cellular system is capital-intensive and
requires substantial investment prior to and subsequent to initial operation.
The Company has experienced operating losses and net losses from its inception
until the past few quarters. Management anticipates accelerating growth in
cellular units in service and revenues as the Company continues its vigorous
expansion and development programs. Marketing and system operations expenses
associated with this rapid expansion will most likely reduce the rate of growth
in operating cash flow and operating income over the next several quarters.
While there are numerous cellular systems operating in the United States and
other countries, the industry has only a limited operating history. While the
Company produced operating income and net income during 1994, changes in any of
several factors may reduce the Company's growth in operating income and net
income over the next few years. These factors include: (i) the growth rate in
the Company's customer base; (ii) the usage and pricing of cellular services;
(iii) the percentage of customers who terminate service each month (the "churn
rate"); (iv) the cost of providing cellular services, including the cost of
attracting new customers; and (v) continuing technological advances which may
provide competitive alternatives.
The Company is building a substantial presence in selected geographic areas
throughout the United States where it can efficiently integrate and manage
cellular telephone systems. Its cellular interests include operating clusters of
markets in the following areas: Iowa, Wisconsin/Illinois/ Minnesota, Missouri,
Eastern North Carolina/Virginia/South Carolina, West Virginia/Pennsylvania/
Maryland, Indiana/Kentucky, Oregon/California, Washington/Oregon,
Oklahoma/Missouri/Kansas, Texas/ Oklahoma, Maine/New Hampshire/Vermont, Eastern
Tennessee/Western North Carolina, Northern Florida/Georgia and Southwestern
Texas. See "The Company's Cellular Interests." The Company has acquired its
cellular interests through the wireline application process (22%), including
settlements and exchanges with other applicants, and through acquisitions (78%),
including acquisitions from TDS and third parties.
5
<PAGE>
Management plans to retain minority interests in certain cellular markets
which it believes will earn a favorable return on investment. Other minority
interests may be traded for interests in markets which enhance the Company's
market clusters or may be sold for cash or other consideration.
CELLULAR SYSTEMS DEVELOPMENT
ACQUISITIONS. During the last five years, the Company has expanded its
size, particularly in contiguous or adjacent markets through an ongoing
acquisition program aimed at strengthening the Company's position in the
cellular industry. This growth has resulted primarily from acquisitions of
interests in RSAs and has been based on obtaining interests with rights to
manage the underlying market.
Including transfers of RSA interests from TDS, the Company has more than
doubled its population equivalents from approximately 9.2 million at December
31, 1989, to approximately 25.2 million at December 31, 1994. However,
population equivalents grew at a compound annual rate of 10% over the last three
years and only 5% in 1994. Markets managed or to be managed by the Company have
increased from 50 markets at December 31, 1989, to 150 markets at December 31,
1994. As of December 31, 1994, almost 86% of the Company's population
equivalents represented interests in markets the Company manages or expects to
manage compared to 70% at December 31, 1989.
The Company plans to acquire additional cellular interests through
acquisitions or trades in markets that further strengthen its market clusters
and in other attractive markets. The Company also seeks to acquire minority
interests in markets where it already owns (or has the right to acquire) the
majority interest. The Company also continues to evaluate the disposition of
interests which are not essential to its corporate development strategy.
The Company, or TDS for the benefit of the Company, will ordinarily make
acquisitions using securities or cash or by exchanging cellular interests it
already owns. While management believes that it will be successful in making
additional acquisitions or trades, there can be no assurance that the Company,
or TDS for the benefit of the Company, will be able to negotiate additional
acquisitions or trades on terms acceptable to it or that regulatory approvals,
where required, will be received.
The Company, or TDS for the benefit of the Company, has negotiated
acquisitions of cellular interests from third parties primarily in consideration
for the Company's Common Shares or TDS's Common or Preferred Shares. Cellular
interests acquired by TDS are generally assigned to the Company. At that time,
the Company reimburses TDS for the value of TDS securities issued in such
transactions, generally by issuing Common Shares to TDS or by increasing the
balance due TDS under the Company's Revolving Credit Agreement in amounts equal
to the value of TDS securities delivered at the time the acquisitions are
closed. The fair market value of the Company's securities issued to TDS in
connection with these transactions is equal to the fair market value of the TDS
securities delivered in the transactions and is determined at the time the
transactions are closed.
COMPLETED ACQUISITIONS. During 1994, the Company completed the acquisition
of controlling interests in nine markets and several additional minority
interests representing approximately 1.3 million population equivalents for an
aggregate consideration of $140.3 million. The consideration consisted of 4.3
million of the Company's Common Shares, an increase of $309,000 in the debt to
TDS under the Revolving Credit Agreement, $6.7 million in cash and a $1.4
million cancellation of a note receivable. The debt under the Revolving Credit
Agreement and 4.2 million of the Company's Common Shares were issued to TDS to
reimburse TDS for TDS Common Shares issued and issuable and cash paid to third
parties in connection with these acquisitions.
PENDING ACQUISITIONS. At December 31, 1994, the Company, or TDS for the
benefit of the Company, had entered into agreements to acquire controlling
interests in seven markets and several minority interests representing
approximately 1.2 million population equivalents for an aggregate consideration
estimated to be approximately $101.5 million. If all of the pending acquisitions
are completed as planned, the Company will issue approximately 102,000 of its
Common Shares and TDS will pay approximately $98.3 million in TDS Common Shares
and cash. Any interests acquired by TDS in these transactions are expected to be
assigned to the Company and, at that time, the Company will reimburse TDS for
TDS's consideration delivered and costs incurred in such acquisitions in the
form of Common Shares of the Company or increases in the balance under the
Revolving Credit Agreement. Based on the estimated value of the consideration at
the time the agreements were entered into, the Company
6
<PAGE>
expects to reimburse TDS by issuing 2.7 million of the Company's Common Shares
to TDS and by increasing the balance due TDS under the Revolving Credit
Agreement by $11.2 million. The Company has also entered into agreements to
exchange markets with four other cellular operators. Pursuant to the exchange
agreements, the Company will receive majority interests in nine new markets in
exchange for majority interests in seven markets and three market partitions the
Company currently owns.
The Company maintains shelf registration of its Common Shares and Preferred
Stock under the Securities Act of 1933 for issuance specifically in connection
with acquisitions.
TDS owned an aggregate of 63,897,673 shares of common stock of the Company
at December 31, 1994, representing over 81% of the combined total of the
Company's outstanding Common and Series A Common Shares and over 96% of their
combined voting power. Assuming the Company's Common Shares are issued in all
instances in which the Company has the choice to issue its Common Shares or
other consideration and assuming all other issuances of the Company's common
stock to TDS and third parties for completed and pending acquisitions and
redemptions of the Company's Preferred Stock and TDS's Preferred Shares had been
completed at December 31, 1994, TDS would have owned over 80% of the total
outstanding common stock of the Company and controlled over 95% of the combined
voting power of both classes of its common stock. In the event TDS's ownership
of the Company falls below 80% of the total value of all of the outstanding
shares of the Company's stock, TDS and the Company would be deconsolidated for
federal income tax purposes. TDS and the Company have the ability to defer or
prevent deconsolidation, if deferring or preventing deconsolidation would be
advantageous, by delivering TDS Common Shares and/or cash, in lieu of the
Company's Common Shares in connection with certain acquisitions.
CELLULAR INTERESTS AND CLUSTERS
The Company operates clusters of adjacent cellular systems wherever
feasible, enabling its customers to benefit from larger service areas than
otherwise possible. Where the Company offers wide-area coverage, its customers
enjoy uninterrupted service within the designated area. Customers may also make
outgoing calls and receive incoming calls within this area without special
roaming arrangements. In addition to benefits to customers, clustering also has
provided to the Company certain economies in its capital and operating costs.
These economies are made possible through increased sharing of facilities,
personnel and other costs and have resulted in a reduction of the Company's per
customer cost of service. The extent to which the Company benefits from these
revenue enhancements and economies of operation is dependent on market
conditions, population sizes of each cluster and engineering considerations.
The Company's market clusters continue to grow rapidly. At December 31,
1994, the Company's service territory covered approximately 18% of the geography
and approximately 9% of the population of the United States. The Company
operated nine market clusters at that date, four of which have a population of
two million or more. The Company anticipates that it will continue to pursue
strategic acquisitions and trades which will complement its established market
clusters. From time to time, the Company may also consider trading or selling
its interests in markets which do not fit well with its long-term strategies.
7
<PAGE>
The Company owned or had the right to acquire interests in cellular
telephone systems in 207 markets at December 31, 1994, representing 25.2 million
population equivalents. The following table summarizes the growth in the
Company's population equivalents in recent years and the development status of
these population equivalents.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
(THOUSANDS OF POPULATION
EQUIVALENTS)(1)
<S> <C> <C> <C> <C> <C>
Operational Markets:
Majority-Owned and Managed................................................................ 18,204 18,464 14,475 10,572 5,172
Minority-Owned and Managed (2)............................................................ 1,191 1,157 2,039 1,783 1,310
Markets Under Construction and to be Managed: (3)
Majority-Owned............................................................................ 2,187 1,012 1,831 3,015 4,445
Minority-Owned (2)........................................................................ -- 6 5 124 451
------ ------ ------ ------ ------
Total Markets Managed and to be Managed................................................... 21,582 20,639 18,350 15,494 11,378
Minority Interests in Markets Managed by Others............................................. 3,619 3,429 3,517 3,274 3,480
------ ------ ------ ------ ------
Total..................................................................................... 25,201 24,068 21,867 18,768 14,858
------ ------ ------ ------ ------
------ ------ ------ ------ ------
<FN>
----------
(1) Based on 1994 Donnelley Marketing Services estimates for all years.
(2) Includes markets where the Company has the right to acquire an interest but
does not currently own an interest.
(3) Includes markets which are operational but which are currently managed by
third parties.
</TABLE>
The following section details the Company's cellular interests, including
those it owned or had the right to acquire as of December 31, 1994. The table
presented therein lists clusters of markets, including both MSAs and RSAs, that
the Company manages or anticipates managing. The Company's market clusters show
the areas in which the Company is currently focusing its development efforts.
These clusters have been devised with a long-term goal of allowing delivery of
cellular service to areas of economic interest and along corridors of economic
activity.
8
<PAGE>
THE COMPANY'S CELLULAR INTERESTS
The table below sets forth certain information with respect to the interests
in cellular markets which the Company owned or had the right to acquire pursuant
to definitive agreements as of December 31, 1994.
The number of population equivalents represented by the Company's cellular
interests may have no direct relationship to the number of potential cellular
customers or the revenues that may be realized from the operation of the related
cellular systems. The fair market value of the Company's cellular interests will
ultimately depend on the success of its operations. There is no assurance that
the value of cellular interests will not be significantly lower in the future
than at present.
<TABLE>
<CAPTION>
PERCENTAGE
ACQUIRABLE TOTAL CURRENT AND
CURRENT UNDER ACQUIRABLE
1994 PERCENTAGE DEFINITIVE POPULATION
CLUSTER/MARKET POPULATION INTEREST AGREEMENTS(1) TOTAL EQUIVALENTS
-------------------------------------------- ---------- ----------- -------------- -------- -----------------
<S> <C> <C> <C> <C> <C>
MARKETS MANAGED BY THE COMPANY:
MIDWEST REGIONAL MARKET CLUSTER:
IOWA:
Des Moines, IA.......................... 413,000 100.00% 100.00% 413,000
Davenport, IA-IL........................ 362,000 97.37 97.37 353,000
Humboldt (IA 10)........................ 183,000 100.00 100.00 183,000
Cedar Rapids, IA........................ 173,000 94.90 %.34 95.24 165,000
Muscatine (IA 4)#....................... 156,000 100.00 100.00 156,000
Iowa (IA 6)#............................ 153,000 100.00 100.00 153,000
Waterloo-Cedar Falls, IA................ 150,000 88.59 88.59 133,000
Hardin (IA 11)#......................... 109,000 100.00 100.00 109,000
Kossuth (IA 14)......................... 108,000 100.00 100.00 108,000
Iowa City, IA #......................... 98,000 1.95 98.05 100.00 98,000
Mitchell (IA 13)........................ 67,000 100.00 100.00 67,000
Dubuque, IA............................. 88,000 70.41 .40 70.81 62,000
Mills (IA 1)............................ 61,000 100.00 100.00 61,000
Audubon (IA 7).......................... 55,000 100.00 100.00 55,000
Union (IA 2)............................ 50,000 100.00 100.00 50,000
Monroe (IA 3)*(2)....................... 91,000 49.00 49.00 44,000
Winneshiek (IA 12)*..................... 115,000 24.50 24.50 28,000
Ida (IA 9)*............................. 63,000 16.67 16.67 11,000
---------- -----------------
2,495,000 2,249,000
---------- -----------------
WISCONSIN/ILLINOIS/MINNESOTA:
Peoria, IL.............................. 349,000 100.00 100.00 349,000
Jo Daviess (IL 1)....................... 316,000 100.00 100.00 316,000
Vernon (WI 8)(3)*....................... 228,000 100.00 100.00 228,000
Adams (IL 4)(4)*........................ 217,000 100.00 100.00 217,000
Mercer (IL 3)........................... 204,000 100.00 100.00 204,000
Rochester, MN*.......................... 115,000 100.00 100.00 115,000
Pierce (WI 5)........................... 92,000 100.00 100.00 92,000
Wausau, WI*............................. 119,000 71.76 71.76 86,000
Trempealeau (WI 6)(4)................... 82,000 100.00 100.00 82,000
LaCrosse, WI............................ 99,000 73.16 .71 73.87 73,000
---------- -----------------
1,821,000 1,762,000
---------- -----------------
MISSOURI:
Columbia, MO*........................... 122,000 100.00 100.00 122,000
Brown (KS 5)............................ 121,000 100.00 100.00 121,000
Callaway (MO 6)*........................ 85,000 100.00 100.00 85,000
DeKalb (MO 4)........................... 69,000 100.00 100.00 69,000
Linn (MO 5)............................. 68,000 100.00 100.00 68,000
Schuyler (MO 3)......................... 56,000 100.00 100.00 56,000
Atchison (MO 1)......................... 43,000 100.00 100.00 43,000
---------- -----------------
564,000 564,000
---------- -----------------
TOTAL MIDWEST REGIONAL MARKET
CLUSTER.............................. 4,880,000 4,575,000
---------- -----------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
ACQUIRABLE TOTAL CURRENT AND
CURRENT UNDER ACQUIRABLE
1994 PERCENTAGE DEFINITIVE POPULATION
CLUSTER/MARKET POPULATION INTEREST AGREEMENTS(1) TOTAL EQUIVALENTS
-------------------------------------------- ---------- ----------- -------------- -------- -----------------
<S> <C> <C> <C> <C> <C>
VIRGINIA/NORTH CAROLINA/SOUTH CAROLINA
REGIONAL MARKET CLUSTER:
EASTERN NORTH CAROLINA/VIRGINIA/SOUTH
CAROLINA:
Northampton (NC 8)...................... 286,000 100.00% 100.00% 286,000
Rockingham (NC 7)....................... 281,000 100.00 100.00 281,000
Harnett (NC 10)......................... 271,000 100.00 100.00 271,000
Greene (NC 13).......................... 238,000 100.00 100.00 238,000
Greenville (NC 14)...................... 236,000 100.00 100.00 236,000
Hoke (NC 11)............................ 215,000 100.00 100.00 215,000
Chesterfield (SC 4)..................... 209,000 100.00 100.00 209,000
Bedford (VA 4).......................... 175,000 100.00 100.00 175,000
Sampson (NC 12)......................... 123,000 100.00 100.00 123,000
Chatham (NC 6).......................... 149,000 81.16 81.16 121,000
Camden (NC 9)........................... 119,000 100.00 100.00 119,000
Buckingham (VA 7)....................... 89,000 100.00 100.00 89,000
Bath (VA 5)............................. 63,000 100.00 100.00 63,000
---------- -----------------
2,454,000 2,426,000
---------- -----------------
WEST VIRGINIA/PENNSYLVANIA/MARYLAND:
Monongalia (WV 3)*...................... 269,000 100.00 100.00 269,000
Raleigh (WV 7)#......................... 255,000 100.00% 100.00 255,000
Greene (PA 9)........................... 188,000 100.00 100.00 188,000
Grant (WV 4)*........................... 168,000 100.00 100.00 168,000
Tucker (WV 5)*.......................... 130,000 100.00 100.00 130,000
Hagerstown, MD*......................... 127,000 100.00 100.00 127,000
Cumberland, MD-WV*...................... 103,000 100.00 100.00 103,000
Wetzel (WV 2)........................... 79,000 100.00 100.00 79,000
Bedford (PA 10)(4)*..................... 49,000 100.00 100.00 49,000
Garrett (MD 1)*......................... 30,000 100.00 100.00 30,000
---------- -----------------
1,398,000 1,398,000
---------- -----------------
OTHER MARKETS:
Tuscarawas (OH 7)....................... 255,000 100.00 100.00 255,000
Williams (OH 1)(5)...................... 127,000 75.00 25.00 100.00 127,000
Ross (OH 9)*............................ 247,000 49.00 49.00 121,000
Union (PA 8)*........................... (6) 100.00 (100.00) --
Williamsport, PA*....................... (6) 100.00 (100.00) --
---------- -----------------
629,000 503,000
---------- -----------------
TOTAL VIRGINIA/NORTH CAROLINA/SOUTH
CAROLINA REGIONAL MARKET CLUSTER..... 4,481,000 4,327,000
---------- -----------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
ACQUIRABLE TOTAL CURRENT AND
CURRENT UNDER ACQUIRABLE
1994 PERCENTAGE DEFINITIVE POPULATION
CLUSTER/MARKET POPULATION INTEREST AGREEMENTS(1) TOTAL EQUIVALENTS
-------------------------------------------- ---------- ----------- -------------- -------- -----------------
<S> <C> <C> <C> <C> <C>
INDIANA/KENTUCKY REGIONAL MARKET CLUSTER:
INDIANA/KENTUCKY:
Meade (KY 3)............................ 304,000 100.00% 100.00% 304,000
Evansville, IN-KY....................... 318,000 78.13 78.13 249,000
Owen (IN 7)............................. 221,000 100.00 100.00 221,000
Fulton (KY 1)#.......................... 187,000 100.00% 100.00 187,000
Union (KY 2)............................ 128,000 100.00 100.00 128,000
Owensboro, KY........................... 90,000 79.11 .22 79.33 71,000
Warren (IN 5)*.......................... 120,000 33.33 33.33 40,000
Miami (IN 4)*........................... 184,000 14.29 14.29 26,000
---------- -----------------
1,552,000 1,226,000
---------- -----------------
OTHER MARKETS:
Newton (IN 1)........................... 212,000 60.50 39.50 100.00 212,000
Elliott (KY 9).......................... 206,000 100.00 100.00 206,000
Clay (KY 11)#........................... 170,000 100.00 100.00 170,000
Kosciusko (IN 2)........................ 164,000 100.00 100.00 164,000
Powell (KY 10).......................... 153,000 100.00 100.00 153,000
Cheboygan (MI 4)*....................... 129,000 100.00 100.00 129,000
---------- -----------------
1,034,000 1,034,000
---------- -----------------
TOTAL INDIANA/KENTUCKY REGIONAL MARKET
CLUSTER.............................. 2,586,000 2,260,000
---------- -----------------
NORTHWEST REGIONAL MARKET CLUSTER:
OREGON/CALIFORNIA:
Coos (OR 5)............................. 250,000 100.00 100.00 250,000
Del Norte (CA 1)........................ 212,000 100.00 100.00 212,000
Medford, OR*............................ 160,000 100.00 100.00 160,000
Mendocino (CA 9)........................ 141,000 100.00 100.00 141,000
Crook (OR 6)*........................... 182,000 37.50 37.50 68,000
Modoc (CA 2)............................ 60,000 100.00 100.00 60,000
---------- -----------------
1,005,000 891,000
---------- -----------------
WASHINGTON/OREGON:
Pacific (WA 6)*......................... 178,000 49.00 51.00 100.00 178,000
Richland-Kennewick-Pasco, WA*........... 168,000 100.00 100.00 168,000
Yakima, WA*............................. 206,000 54.55 54.55 113,000
Okanogan (WA 4)......................... 112,000 100.00 100.00 112,000
Umatilla (OR 3)*........................ 147,000 60.42 60.42 89,000
Kittitas (WA 5)(4)*..................... 68,000 83.50 83.50 57,000
Hood River (OR 2)*...................... 69,000 30.32 30.32 21,000
Skamania (WA 7)*........................ 26,000 30.32 30.32 8,000
---------- -----------------
974,000 746,000
---------- -----------------
OTHER MARKETS:
Clark (ID 6)............................ 288,000 100.00 100.00 288,000
Butte (ID 5)............................ 153,000 100.00 100.00 153,000
---------- -----------------
441,000 441,000
---------- -----------------
TOTAL NORTHWEST REGIONAL MARKET
CLUSTER.............................. 2,420,000 2,078,000
---------- -----------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
ACQUIRABLE TOTAL CURRENT AND
CURRENT UNDER ACQUIRABLE
1994 PERCENTAGE DEFINITIVE POPULATION
CLUSTER/MARKET POPULATION INTEREST AGREEMENTS(1) TOTAL EQUIVALENTS
-------------------------------------------- ---------- ----------- -------------- -------- -----------------
<S> <C> <C> <C> <C> <C>
TEXAS/OKLAHOMA/MISSOURI/KANSAS REGIONAL
MARKET CLUSTER:
OKLAHOMA/MISSOURI/KANSAS:
Tulsa, OK*.............................. 791,000 55.06% 55.06% 436,000
Elk (KS 15)*............................ 155,000 99.00% 99.00 154,000
Joplin, MO*............................. 140,000 100.00 100.00 140,000
Seminole (OK 6)......................... 215,000 55.06 55.06 119,000
Nowata (OK 4)(4)*#...................... 105,000 100.00 100.00 105,000
---------- -----------------
1,406,000 954,000
---------- -----------------
MISSOURI:
Stone (MO 15)........................... 105,000 100.00 100.00 105,000
Laclede (MO 16)......................... 93,000 100.00 100.00 93,000
Washington (MO 13)...................... 89,000 100.00 100.00 89,000
Shannon (MO 17)*........................ 54,000 100.00 100.00 54,000
Madison (AR 1).......................... (6) 100.00 (100.00) --
---------- -----------------
341,000 341,000
---------- -----------------
TEXAS/OKLAHOMA:
Garvin (OK 9)........................... 198,000 100.00 100.00 198,000
Haskell (OK 10)......................... 82,000 100.00 100.00 82,000
Wichita Falls, TX*...................... 135,000 51.65 51.65 70,000
Lawton, OK*............................. 112,000 51.65 51.65 58,000
Jackson (OK 8)*......................... 97,000 51.65 51.65 50,000
Hardeman (TX 5)(4)*..................... 40,000 51.65 51.65 21,000
Briscoe (TX 4)(4)*...................... 11,000 51.65 51.65 6,000
Beckham (OK 7)(4)*...................... 10,000 51.65 51.65 5,000
Cherokee (TX 11)........................ (6) 100.00 (100.00) --
Tyler, TX............................... (6) 100.00 (100.00) --
---------- -----------------
685,000 490,000
---------- -----------------
TOTAL TEXAS/OKLAHOMA/MISSOURI/KANSAS
REGIONAL MARKET CLUSTER.............. 2,432,000 1,785,000
---------- -----------------
NORTHEAST REGIONAL MARKET CLUSTER:
MAINE/NEW HAMPSHIRE/VERMONT:
Manchester-Nashua, NH................... 345,000 87.59 87.59 302,000
Coos (NH 1)*............................ 227,000 100.00 100.00 227,000
Kennebec (ME 3)......................... 222,000 100.00 100.00 222,000
Somerset (ME 2)......................... 159,000 100.00 100.00 159,000
Bangor, ME.............................. 147,000 89.58 .40 89.98 133,000
Addison (VT 2)(3)*...................... 104,000 100.00 100.00 104,000
Washington (ME 4)*...................... 85,000 100.00 100.00 85,000
Lewiston-Auburn, ME..................... 102,000 82.04 82.04 84,000
Oxford (ME 1)........................... 81,000 100.00 100.00 81,000
---------- -----------------
1,472,000 1,397,000
---------- -----------------
OTHER MARKETS:
Poughkeepsie, NY........................ 265,000 81.32 .79 82.11 217,000
Columbia (NY 6)......................... 110,000 100.00 100.00 110,000
Jefferson (NY 1)........................ (6) 100.00 (100.00) --
---------- -----------------
375,000 327,000
---------- -----------------
TOTAL NORTHEAST REGIONAL MARKET
CLUSTER.............................. 1,847,000 1,724,000
---------- -----------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
ACQUIRABLE TOTAL CURRENT AND
CURRENT UNDER ACQUIRABLE
1994 PERCENTAGE DEFINITIVE POPULATION
CLUSTER/MARKET POPULATION INTEREST AGREEMENTS(1) TOTAL EQUIVALENTS
-------------------------------------------- ---------- ----------- -------------- -------- -----------------
<S> <C> <C> <C> <C> <C>
EASTERN TENNESSEE/WESTERN NORTH CAROLINA
MARKET CLUSTER:
Knoxville, TN*.......................... 544,000 96.03% 96.03% 522,000
Whitfield (GA 1)........................ 212,000 100.00 100.00 212,000
Asheville, NC*.......................... 204,000 100.00 100.00 204,000
Henderson (NC 4)(4)(7)*................. 186,000 100.00 100.00 186,000
Bledsoe (TN 7)(4)*...................... 143,000 96.03 96.03 137,000
Hamblen (TN 4)(4)*...................... 127,000 100.00 100.00 127,000
Giles (TN 6)*........................... 157,000 80.00 80.00 126,000
Lake (TN 1)*............................ 78,000 16.33 83.67% 100.00 78,000
Macon (TN 3)*........................... 330,000 16.67 16.67 55,000
Yancey (NC 2)(4)*....................... 31,000 100.00 100.00 31,000
---------- -----------------
TOTAL EASTERN TENNESSEE/WESTERN NORTH
CAROLINA MARKET CLUSTER.............. 2,012,000 1,678,000
---------- -----------------
SOUTHEAST REGIONAL MARKET CLUSTER:
NORTHERN FLORIDA/GEORGIA:
Tallahassee, FL #....................... 272,000 100.00 100.00 272,000
Worth (GA 14)........................... 243,000 100.00 100.00 243,000
Gainesville, FL......................... 221,000 100.00 100.00 221,000
Toombs (GA 11).......................... 150,000 100.00 100.00 150,000
Walton (FL 10).......................... 108,000 100.00 100.00 108,000
Putnam (FL 5)(7)........................ 69,000 100.00 100.00 69,000
Jefferson (FL 8)........................ 53,000 100.00 100.00 53,000
Dixie (FL 6)............................ 51,000 100.00 100.00 51,000
Calhoun (FL 9).......................... 39,000 100.00 100.00 39,000
Early (GA 13)*.......................... (6) 100.00 (100.00) --
---------- -----------------
1,206,000 1,206,000
---------- -----------------
OTHER MARKETS:
Fort Pierce, FL (8)*.................... 279,000 49.00 49.00 137,000
Copiah (MS 9)........................... 118,000 100.00 100.00 118,000
Glades (FL 2)(7)........................ 83,000 100.00 100.00 83,000
---------- -----------------
480,000 338,000
---------- -----------------
TOTAL SOUTHEAST REGIONAL MARKET
CLUSTER.............................. 1,686,000 1,544,000
---------- -----------------
SOUTHWESTERN TEXAS MARKET CLUSTER:
Corpus Christi, TX #.................... 374,000 100.00 100.00 374,000
Atascosa (TX 19)........................ 218,000 100.00 100.00 218,000
Edwards (TX 18)......................... 207,000 100.00 100.00 207,000
Laredo, TX.............................. 154,000 92.76 92.76 143,000
Wilson (TX 20).......................... 139,000 100.00 100.00 139,000
Victoria, TX............................ 80,000 99.22 99.22 79,000
---------- -----------------
TOTAL SOUTHWESTERN TEXAS MARKET
CLUSTER.............................. 1,172,000 1,160,000
---------- -----------------
OTHER OPERATIONS:
Atlantic City, NJ#...................... 335,000 9.09 50.01 59.10 198,000
Hawaii (HI 3)........................... 140,000 100.00 100.00 140,000
Vineland-Millville-Bridgeton, NJ........ 142,000 78.73 .99 79.72 113,000
---------- -----------------
617,000 451,000
---------- -----------------
Total Managed Markets................. 24,133,000 21,582,000
---------- -----------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
ACQUIRABLE TOTAL CURRENT AND
CURRENT UNDER ACQUIRABLE
1994 PERCENTAGE DEFINITIVE POPULATION
CLUSTER/MARKET POPULATION INTEREST AGREEMENTS(1) TOTAL EQUIVALENTS
-------------------------------------------- ---------- ----------- -------------- -------- -----------------
<S> <C> <C> <C> <C> <C>
MARKETS MANAGED BY OTHERS:
Los Angeles/Oxnard, CA*................. 15,416,000 5.50% 5.50% 848,000
Nashville/Clarksville-Hopkinsville,
TN-KY*................................. 1,224,000 49.00 49.00 599,000
Baton Rouge, LA (9)*.................... 558,000 52.00 52.00 290,000
Seattle-Everett/Tacoma/Bremerton, WA*... 2,991,000 6.25 6.25 187,000
Biloxi/Pascagoula, MS*.................. 341,000 49.00 49.00 167,000
Oklahoma City, OK*...................... 973,000 14.60 14.60 142,000
Portland, ME*........................... 279,000 49.00 49.00 136,000
McAllen, TX............................. 431,000 26.20 26.20 113,000
Portsmouth-Dover-Rochester, NH-ME*...... 270,000 40.00 40.00 108,000
Others (Fewer than 100,000 population
equivalents each)...................... 1,029,000
-----------------
Total Population Equivalents of
Markets Managed by Others............ 3,619,000
-----------------
Total Population Equivalents.......... 25,201,000
-----------------
-----------------
<FN>
------------
* Designates wireline market.
# Designates operational market operated by third parties until the Company
acquires a controlling interest.
(1) Interests under these agreements are expected to be acquired at the various
times specified therein following the satisfaction of customary closing
conditions.
(2) The licensee in this market will exchange the wireline license for the
non-wireline license in the same market.
(3) The Company's interest in the license for this market has been set aside by
the FCC. The Company is currently operating the market under interim
operating authority granted by the FCC. See Item 3., "Legal Proceedings --
La Star and Wisconsin RSA 8 Applications."
(4) These markets have been or will be partitioned into more than one licensed
area. The 1994 population, percentage ownership and number of population
equivalents shown are for the licensed areas within the markets in which
the Company owns or has the right to acquire an interest.
(5) The Company currently owns a 75% interest in the wireline license in this
market and has an agreement to divest this interest. The Company also has
an agreement to acquire a 100% interest in the nonwireline license in this
market.
(6) The Company has agreements to divest its 100% ownership interests in these
markets. The 1994 populations of these markets are not included in the
related cluster or group totals.
(7) The Company has agreements to divest partitioned areas in these markets.
The 1994 population, percentage ownership and number of population
equivalents shown are for the licensed areas within the markets which the
Company will continue to own upon completion of each divestiture.
(8) The Company owns 80% of the entity which owns and operates this market but
has only a 49% interest in its earnings and profits.
(9) The Company owns a noncontrolling limited partnership interest in this
market.
</TABLE>
SYSTEM DESIGN AND CONSTRUCTION. The Company designs and constructs its
systems in a manner it believes will permit it to provide high-quality service
to mobile, transportable and portable cellular telephones, generally based on
market and engineering studies which relate to specific markets. Engineering
studies are performed by Company personnel or independent engineering firms. The
Company's switching equipment is digital, which reduces noise and crosstalk and
is capable of interconnecting in a manner which reduces costs of operation.
While digital microwave interconnections are typically made between the MTSO and
cell sites, primarily analog radio transmission is used between cell sites and
the cellular telephones themselves.
In accordance with its strategy of building and strengthening market
clusters, the Company has selected high capacity digital cellular switching
systems that are capable of serving multiple markets through a single MTSO. The
Company's cellular systems are designed to facilitate the installation of
equipment which will permit microwave interconnection between the MTSO and each
cell site. The Company has implemented such microwave interconnection in most of
the cellular systems it manages. In other systems in which the Company owns or
has an option to purchase a majority interest and where it is believed to be
cost-efficient, such microwave technology will also be implemented. Otherwise,
such
14
<PAGE>
systems will rely upon landline telephone connections or microwave links owned
by others to link cell sites with the MTSO. Although the installation of
microwave network interconnection equipment requires a greater initial capital
investment, a microwave network enables a system operator to avoid the current
and future charges associated with leasing telephone lines from the landline
telephone company, while generally improving system reliability. In addition,
microwave facilities can be used to connect separate cellular systems to allow
shared switching, which reduces the aggregate cost of the equipment necessary to
operate both systems.
The Company has continued to expand its internal network in 1994 to
encompass over 100 markets in the United States. This network provides automatic
call delivery for the Company's customers and handoff between adjacent markets.
The network has also been extended, using IS-41 technology, through links with
certain systems operated by several other carriers, including GTE, US West,
Ameritech, BellSouth, Centennial Cellular Corp., Southwestern Bell, McCaw
Cellular Communications, Vanguard Cellular Systems and others. Additionally, the
Company has implemented two Signal Transfer Points which will allow it to
interconnect efficiently with network providers such as Independent Telephone
Network and the North American Cellular Network.
During 1995, the Company intends to extend the network for its customers
through interconnection with one or more network providers as well as additional
"point to point" connections required for hand-off. This expanded network will
increase the area in which customers can automatically receive incoming calls,
and should also reduce the incidence of fraud due to the pre-call validation
feature of the IS-41 technology.
Management believes that currently available technologies will allow
sufficient capacity on the Company's networks to meet anticipated demand over
the next few years.
COSTS OF SYSTEM CONSTRUCTION AND FINANCING
Construction of cellular systems is capital-intensive, requiring substantial
investment for land and improvements, buildings, towers, MTSOs, cell site
equipment, microwave equipment, engineering and installation. The Company,
consistent with FCC control requirements, uses primarily its own personnel to
engineer and oversee construction of each cellular system where it owns or has
the right to acquire a controlling interest. In so doing, the Company expects to
improve the overall quality of its systems and to reduce the expense and time
required to make them operational.
The costs (exclusive of license costs) of the operational systems in which
the Company owns or has the right to acquire an interest are generally financed
through capital contributions or intercompany loans to the partnerships or
subsidiaries owning the systems, and through certain vendor financing.
MARKETING
The Company's marketing plan is designed to continue rapid penetration of
its market clusters and to increase customer awareness of cellular service. The
marketing plan stresses the quality of the Company's service offerings and
incorporates rate plans which are designed to meet the needs of a variety of
customer usage patterns. The Company's distribution channels include direct
sales personnel and agents and the Company has recently added retail service
centers in many of its markets. These Company-owned and managed locations are
designed to market cellular service to the consumer segment in a setting which
is familiar to these potential customers.
The Company manages each cluster of markets out of one administrative office
with a local staff, including marketing, customer service, engineering and in
some cases installation personnel. Direct sales consultants market cellular
service to potential customers throughout each cluster. Retail associates work
out of the retail locations and market cellular service to the consumer segment.
The Company maintains an ongoing training program to improve the effectiveness
of sales consultants and retail associates by focusing their efforts on
obtaining customers and maximizing the sale of high-user packages. These
packages commit customers to pay for a minimum amount of usage at discounted
rates per minute, even if usage falls below a defined monthly minimum amount.
The Company also relies on agents, dealers and non-Company retailers to
obtain customers. Agents and dealers are independent business people who obtain
customers for the Company on a commission basis. The Company's agents are
generally in the business of selling cellular telephones,
15
<PAGE>
cellular service packages and other related products. The Company's dealers
include car stereo companies and other companies whose customers are also
potential cellular customers. The non-Company retailers include car dealers,
major appliance dealers, office supply dealers and mass merchants.
The Company opened its own retail locations in late 1993, expanding to over
140 locations by the end of 1994. These Company-owned and operated businesses
utilize rental facilities located in high-traffic areas. The Company is working
toward a uniform appearance in these stores, with all having similar displays
and layouts. The retail centers' hours of business match those of the retail
trade in the local marketplace, often staying open on weekends and later in the
evening than a typical business supplier. Additionally, to fully serve customer
needs, these stores sell accessories to complement the phones and services the
Company has traditionally provided.
In addition to its own retail centers, the Company actively pursues national
retail accounts which may potentially yield new customer additions in multiple
markets. Agreements have been entered into with such national distributors as
Chrysler Corporation, Ford Motor Company, General Motors, AT&T, Radio Shack,
Best Buy and Sears, Roebuck & Co. in certain of the Company's markets. Upon the
sale of a cellular telephone by one of these national distributors, the Company
receives, often exclusively within the territories served, the resulting
cellular customer.
The Company uses a variety of direct mail, billboard, radio, television and
newspaper advertising to stimulate interest by prospective customers in cellular
service and to establish familiarity with the Company's name. Advertising is
directed at gaining customers, increasing usage by existing customers and
increasing the public awareness and understanding of the cellular services
offered by the Company. The Company attempts to select the advertising and
promotion media that are most appealing to the targeted groups of potential
customers in each local market. The Company utilizes local advertising media and
public relations activities and establishes programs to enhance public awareness
of the Company, such as providing telephones and service for public events and
emergency uses.
CUSTOMERS AND SYSTEM USAGE
Cellular customers come from a wide range of occupations. They typically
include a large proportion of individuals who work outside of their offices such
as people in the construction, real estate, wholesale and retail distribution
businesses and professionals. Most of the Company's customers use in-vehicle
cellular telephones. However, more customers are selecting portable cellular
telephones as these units become more compact and fully featured as well as more
attractively priced.
The Company's cellular systems are used most extensively during normal
business hours between 7:00 am and 6:00 pm. On average, the local retail
customers in the Company's majority-owned and managed systems used their
cellular systems approximately 95 minutes per unit each month and generated
retail revenue of approximately $47 per month during 1994, compared to 103
minutes and $49 per month in 1993. Revenue generated by roamers, together with
local, toll and other revenues, brought the Company's total average monthly
service revenue per customer unit in majority-owned and managed markets to $80
during 1994. Average monthly service revenue per customer unit decreased
approximately 6% during 1994, reflecting both the decline in average local
minutes per customer unit and slower growth in roaming revenues. The Company
anticipates that average monthly service revenue per customer unit will continue
to decline as its distribution channels provide additional customers who
generate fewer local minutes of use and as roaming revenues grow more slowly.
Roaming is a service offered by the Company which allows a customer to place
or receive a call in a cellular service area away from the customer's home
market area. The Company has entered into "roaming agreements" with operators of
other cellular systems covering virtually all systems in the United States and
Canada. These agreements offer customers the opportunity to roam in these
systems. These reciprocal agreements automatically pre-register the customers of
the Company's systems in the other carriers' systems. Also, a customer of a
participating system roaming (i.e. travelling) in a Company market where this
arrangement is in effect is able to make and receive calls on the Company's
system. The charge for this service is typically at premium rates and is billed
by the Company to the customer's home system, which then bills the customer. The
Company has entered into agreements with other
16
<PAGE>
cellular carriers to transfer roaming usage at agreed-upon rates. In some
instances, based on competitive factors, the Company may charge a lower amount
to its customers than the amount actually charged to the Company by another
cellular carrier for roaming.
The following table summarizes certain information about customers and
market penetration in the Company's managed operations.
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31,
--------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Majority-owned and managed markets:
Cellular markets in operation (1)........................................... 130 116 92 67 32
Total population of markets in service (000s)............................... 21,314 19,383 15,014 11,481 6,314
Customer Units:
at beginning of period (2)................................................ 261,000 150,800 97,000 57,300 36,100
additions during period (2)............................................... 250,000 165,300 88,600 59,800 31,800
disconnects during period (2)............................................. 90,000 55,100 34,800 20,100 10,600
at end of period (2)...................................................... 421,000 261,000 150,800 97,000 57,300
Market penetration at end of period (3)(4).................................. 1.98% 1.35% 1.00% 0.84% 0.91%
<FN>
----------
(1) Represents the number of markets in which the Company owned at least a 50%
interest and which it managed, including its reseller operation in
1990-1992. The revenues and expenses of these cellular markets are included
in the Company's consolidated revenues and expenses.
(2) Represents the approximate number of revenue-generating cellular telephones
served by the cellular markets referred to in footnote (1). The revenue
generated by such cellular telephones is included in consolidated revenues.
(3) Computed by dividing the number of customer units at the end of the period
by the total population of markets in service as estimated by Donnelley
Marketing Service for the respective years.
(4) The decrease from 1990 to 1991 is due to the addition of 32 majority-owned
and managed RSAs in 1991. Market penetration for majority-owned and managed
MSAs was 1.48% in 1991 and 1.07% in 1990.
</TABLE>
17
<PAGE>
The following table summarizes, by operating cluster, the total population,
the Company's customer units and penetration for the Company's majority-owned
and managed markets that were operational as of December 31, 1994.
<TABLE>
<CAPTION>
OPERATING CLUSTERS POPULATION CUSTOMERS PENETRATION
-------------------------------------------------------------------------------------------- ---------- --------- -----------
<S> <C> <C> <C>
Iowa........................................................................................ 1,710,000 43,000 2.51%
Wisconsin/Illinois/Minnesota................................................................ 1,821,000 29,600 1.63%
Missouri.................................................................................... 976,000 12,800 1.31%
Eastern North Carolina/Virginia/South Carolina.............................................. 2,454,000 36,600 1.49%
West Virginia/Pennsylvania/Maryland......................................................... 1,143,000 17,000 1.49%
Indiana/Kentucky............................................................................ 1,061,000 24,700 2.33%
Oregon/California........................................................................... 823,000 13,500 1.64%
Washington/Oregon........................................................................... 701,000 12,300 1.75%
Oklahoma/Missouri/Kansas.................................................................... 1,146,000 51,500 4.49%
Texas/Oklahoma.............................................................................. 1,126,000 25,700 2.28%
Maine/New Hampshire/Vermont................................................................. 1,472,000 29,200 1.98%
Eastern Tennessee/Western North Carolina.................................................... 1,693,000 41,500 2.45%
Northern Florida/Georgia.................................................................... 1,117,000 21,500 1.92%
Southwestern Texas.......................................................................... 798,000 11,800 1.48%
Other Operations............................................................................ 3,273,000 50,300 1.54%
---------- --------- ---
21,314,000 421,000 1.98%
---------- --------- ---
---------- --------- ---
</TABLE>
CELLULAR TELEPHONES AND INSTALLATION
There are a number of different types of cellular telephones, all of which
are currently compatible with cellular systems nationwide. The Company offers a
full range of vehicle-mounted, transportable and hand-held portable cellular
telephones. Features offered in some of the cellular telephones include
hands-free calling, repeat dialing, horn alert and others.
The Company has established service and/or installation facilities in many
of its local markets to ensure quality installation and service of the cellular
telephones it sells. These facilities allow the Company to improve its service
by promptly assisting customers who experience equipment problems.
The Company negotiates volume discounts from its cellular telephone
suppliers. The Company discounts cellular telephones in most markets to meet
competition or to stimulate sales by reducing the cost of becoming a cellular
customer. In these instances, where permitted by law, customers are generally
required to sign an extended service contract with the Company. The Company also
cooperates with cellular equipment manufacturers in local advertising and
promotion of cellular equipment.
PRODUCTS AND SERVICES
The Company's customers are able to choose from a variety of packaged
pricing plans which are designed to fit different calling patterns. The
Company's customer bills typically show separate charges for custom-calling
features, airtime in excess of the packaged amount, and toll calls.
Custom-calling features provided by the Company include wide-area call delivery,
call forwarding, call waiting, three-way calling and no-answer transfer. The
Company also offers a voice message service in many of its markets. This
service, which functions like a sophisticated answering machine, allows
customers to receive messages from callers when they are not available to take
calls.
REGULATION
The operations of the Company are subject to FCC and state regulation. The
licenses held by the Company are granted by the FCC for the use of radio
frequencies and are an important component of the overall value of the assets of
the Company. The construction, operation and transfer of cellular systems in the
United States are regulated to varying degrees by the FCC pursuant to the
Communications Act of 1934 ("Communications Act"). The FCC has promulgated
regulations governing construction and operation of cellular systems, and
licensing (including renewal of licenses) and technical standards for the
provision of cellular telephone service.
For licensing purposes, the FCC divided the United States into separate
geographic markets (MSAs and RSAs). In each market, the allocated cellular
frequencies are divided into two equal blocks. During
18
<PAGE>
the application process, the FCC reserved one block of frequencies for
nonwireline applicants and another block for wireline applicants. Subject to FCC
approval, a cellular system may be sold to either a wireline or nonwireline
entity, but no entity which controls a cellular system may own an interest in
another cellular system in the same MSA or RSA.
The completion of acquisitions involving the transfer of control of a
cellular system requires prior FCC approval. Acquisitions of minority interests
generally do not require FCC approval. Whenever FCC approval is required, any
interested party may file a petition to dismiss or deny the Company's
application for approval of the proposed transfer.
When the first cell of a cellular system has been constructed, the licensee
is required to notify the FCC that construction has been completed. Immediately
upon this notification, but not before, FCC rules authorize the licensee to
offer commercial service to the public. The licensee is then said to have
"operating authority." Initial operating licenses are granted for ten-year
periods. The FCC must be notified each time an additional cell is constructed
which enlarges the service area of a given market.
The FCC's rules also generally require persons or entities holding cellular
construction permits or licenses to coordinate their proposed frequency usage
with other cellular users and licensees in order to avoid electrical
interference between adjacent systems. The height and power of base stations in
the cellular system are regulated by FCC rules, as are the types of signals
emitted by these stations. In addition to regulation by the FCC, cellular
systems are subject to certain Federal Aviation Administration regulations with
respect to the siting and construction of cellular transmitter towers and
antennas.
In a series of actions, most recently on July 7, 1994, the FCC has
established standards for conducting comparative renewal proceedings between a
cellular licensee seeking renewal of its license and challengers filing
competing applications. The FCC: (i) established criteria for comparing the
renewal applicant to challengers, including the standards under which a "renewal
expectancy" will be granted to the applicant seeking license renewal; (ii)
established basic qualifications standards for challengers; and (iii) provided
procedures for preventing possible abuses in the comparative renewal process.
The FCC has concluded that it will award a renewal expectancy if the licensee
has (i) provided "substantial" performance, which is defined as "sound,
favorable and substantially above a level of mediocre service just minimally
justifying renewal," and (ii) complied with FCC rules, policies and the
Communications Act. If a renewal expectancy is awarded to an existing licensee,
its license is renewed and competing applications are not considered. The
Company's Tulsa and Knoxville renewal applications filed in 1994 were unopposed
and the Company expects its licenses in these markets to be renewed. The
Company's next renewal applications are due to be filed in 1996. See "Legal
Proceedings -- La Star and Wisconsin RSA 8 Applications" for a discussion of
certain FCC proceedings which have set aside TDS's licensing authority in a
Wisconsin market pending the outcome of an FCC hearing.
The Company conducts and plans to conduct its operations in accordance with
all relevant FCC rules and regulations and anticipates being able to qualify for
a renewal expectancy, if applicable. Accordingly, the Company believes that
current regulations will have no significant effect on its operations and
financial condition. However, changes in the regulation of cellular operators or
their activities and of other mobile service providers could have a material
adverse effect on the Company's operations.
The FCC has also provided that five years after the initial licenses are
granted, unserved areas within markets previously granted to licensees may be
applied for by both wireline and nonwireline entities and by third parties.
Accordingly, many unserved area applications have been filed by the Company and
others. The Company's strategy with respect to system construction in its
markets has been and will be to build cells covering areas within such markets
that the Company considers economically feasible to serve or might conceivably
wish to serve and to do so within the five-year period following issuance of the
license.
The Company is also subject to state and local regulation in some instances.
In 1981, the FCC pre-empted the states from exercising jurisdiction in the areas
of licensing, technical standards and market structure. However, certain states
require cellular system operators to go through a state certification process to
serve communities within their borders. All such certificates can be revoked for
cause. In addition, certain state authorities regulate several aspects of a
cellular operator's business, including the resale of intra-state long-distance
service to its customers, the technical arrangements and charges for
19
<PAGE>
interconnection with the landline network and the transfer of interests in
cellular systems. The siting and construction of the cellular facilities,
including transmitter towers, antennas and equipment shelters may also be
subject to state or local zoning, land use and other local regulations. Public
utility or public service commissions (or certain of the commissioners) in
several states have expressed an interest in examining whether the cellular
industry should be more closely regulated by such states.
Recent Congressional legislation, legislative proposals under consideration
and FCC regulatory proceedings may have significant impact on some or all of the
Company's operations by altering FCC and state regulatory responsibilities for
mobile service, the procedures for the award by the FCC of licenses to conduct
existing and new mobile services, the terms and conditions of business
relationships between mobile service providers and Local Exchange Carriers
("LECs") and the scope of the competitive opportunities available to mobile
service providers. In general, the trend of these developments is toward an
increase in the number of competitors and of competitive services. For the most
part, FCC regulations which implement changes in the law have not yet been
adopted, or are subject to requests for reconsideration, and the Company is
therefore not now able to predict the extent of such impact.
The Omnibus Reconciliation Act of 1993 (the "Budget Act") amended the
Communications Act by eliminating legislatively enacted distinctions affecting
FCC and state regulation of common carrier and private carrier mobile operations
and directed the FCC to classify all mobile services, including cellular,
paging, SMR and other services under two categories: Commercial Mobile Radio
Services ("CMRS"), subject to common carrier regulation; or Private Mobile Radio
Services ("PMRS"), not subject to common carrier regulation. In 1994 the FCC
released a decision classifying mobile service offerings as CMRS operations if
they include a service offering to the public, for a fee, which is
interconnected to the public switched network. Cellular, SMR and paging, among
other services, will be classified as CMRS if they fit this definition. In
addition, the FCC decision established a regulatory precedent for hybrid CMRS/
PMRS regulation of mobile operations which offer both CMRS and PMRS service. The
Company anticipates that most of its service offerings will be classified as
CMRS. The FCC decision also states that it would forebear from requiring that
CMRS providers comply with a number of statutory provisions, otherwise
applicable to common carriers, such as the filing of tariffs. It requires LECs
to provide reasonable and fair interconnection to all CMRS providers, subject to
mutual compensation, reasonable charges for interstate interconnection and
reasonable forms of interconnection. Numerous petitions for reconsideration of
this decision were filed and remain pending.
The Budget Act also amended the Communications Act to authorize the FCC to
use a system of competitive bidding to issue initial licenses for the use of
radio frequencies for which there are mutually exclusive applications and where
the principal use of the license will be to offer service in return for
compensation from customers. In response, the FCC adopted generic rules for
competitive bidding, defined eligibility criteria for small businesses,
minority- and female-owned businesses and rural telephone companies which
qualify for preferential bidding treatment, as required under the Budget Act,
and described the bidding mechanisms to be used by businesses qualifying for
preferential treatment in future spectrum auctions.
Under other amendments to the Communications Act included in the Budget Act,
states will generally be prohibited from regulating the entry of, or the rates
charged by, any CMRS provider. The new law does not, however, prohibit a state
from regulating other terms and conditions of CMRS offerings and permits states
to petition the FCC for authority to continue rate regulation. These new
statutory provisions took effect in August 1994, and eight states filed
petitions.
Media reports have suggested that certain radio frequency ("RF") emissions
from portable cellular telephones might be linked to cancer. The Company has
reviewed relevant scientific information and, based on such information, is not
aware of any credible evidence linking the usage of portable cellular telephones
with cancer. The FCC currently has a rulemaking proceeding pending to update the
guidelines and methods it uses for evaluating RF emissions in radio equipment,
including cellular telephones. While the proposal would impose more restrictive
standards on RF emissions from low-power devices such as portable cellular
telephones, it is anticipated that all cellular telephones currently marketed
and in use will comply with those standards.
20
<PAGE>
The FCC has allocated a total of 140 megahertz ("MHz") to broadband PCS, 20
MHz to unlicensed operations and 120 MHz to licensed operations, consisting of
two 30 MHz blocks in each of the 51 Rand McNally Major Trading Areas, and one 30
MHz block and three 10 MHz blocks in each of 493 Rand McNally Basic Trading
Areas. Cellular operators are permitted to participate in the award of these new
PCS licenses, except for licenses reserved for rural, small, minority- and
female-owned businesses and licenses for markets in which such cellular operator
owns a 20% or greater interest in a cellular licensee which holds a license
covering 10% or more of the population of the respective PCS licensed area. In
the latter case, the cellular licensee is limited to one 10 MHz PCS channel
block. Numerous requests for reconsideration of the FCC's decision have been
filed and remain pending before the FCC and at least one appeal was filed. On
March 15, 1995, the U.S. Court of Appeals for the District of Columbia issued an
order delaying the commencement of the auction of the 30 MHz block for Basic
Trading Areas pending a resolution of a challenge to the FCC's rules giving
bidding preferences to certain participants. A September 1995 hearing is
scheduled. The FCC has classified PCS as CMRS.
PCS technology is currently under development and is expected to be similar
in some respects to cellular technology. When it becomes commercially available,
this technology is expected to offer increased capacity for wireless two-way and
one-way voice, data and multimedia communications services and is expected to
result in increased competition in the Company's operations. The ability of
these future PCS licensees to complement or compete with existing cellular
licensees will be affected by future FCC rule-making. These and other future
technological developments in the wireless telecommunications industry and the
enhancement of current technologies will likely create new products and services
that are competitive with the services currently offered by the Company. There
can be no assurance that the Company will not be adversely affected by such
technological developments.
COMPETITION
The Company's only competitor for cellular telephone service in each market
is the licensee of the second cellular system in that market. Competition for
customers between the two systems in each market is principally on the basis of
quality of service, price, size of area covered, services offered, and
responsiveness of customer service. The competing entities in many of the
markets in which the Company has an interest have financial resources which are
substantially greater than those of the Company and its partners in such
markets.
The FCC's rules require all operational cellular systems to provide, on a
nondiscriminatory basis, cellular service to resellers which purchase blocks of
mobile telephone numbers from an operational system and then resell them to the
public.
In addition to competition from the other cellular licensee in each market,
there is also competition from, among other technologies, conventional mobile
telephone and SMR systems, both of which are able to connect with the landline
telephone network. The Company believes that conventional mobile telephone
systems and conventional SMR systems are competitively disadvantaged because of
technological limitations on the capacity of such systems. The FCC has recently
given approval, through waivers of its rules, to ESMR, an enhanced SMR system.
ESMR systems may have cells and frequency reuse like cellular, thereby
potentially eliminating any current technological limitation. The first ESMR
systems were implemented in 1993 in Los Angeles. Although less directly a
substitute for cellular service, wireless data services and one-way paging
service (and in the future, two-way paging services) may be adequate for those
who do not need full two-way voice service.
Continuing technological advances in the communications field make it
difficult to predict the extent of additional future competition for cellular
systems. For example, the FCC has allocated radio channels to a mobile satellite
system in which transmissions from mobile units to satellites would augment or
replace transmissions to cell sites, and several consortia to provide such
service have been formed. Such a system is designed primarily to serve the
communications needs of remote locations and a mobile satellite system could
provide viable competition for land-based cellular systems in such areas. It is
also possible that the FCC may in the future assign additional frequencies to
cellular telephone service to provide for more than two cellular telephone
systems per market.
PCS may prove to be competitive with cellular service in the future. PCS
providers are expected to offer digital, wireless communications services. PCS
trials are in process throughout the United States.
21
<PAGE>
PCS is not anticipated to be significant sources of competition in the Company's
markets in the near future, but may become a significant source of competition
in the Company's markets once PCS systems have been built and developed. Similar
technological advances or regulatory changes in the future may make available
other alternatives to cellular service, thereby creating additional sources of
competition.
EMPLOYEES
The Company had 2,250 employees as of December 31, 1994. Of these, 1,880
were based at the various cellular markets operated or managed by the Company
with only 370 based at its corporate office in Chicago, Illinois. None of the
Company's employees is represented by a labor organization. The Company
considers its relationship with its employees to be good.
--------------------------------------------------------------------------------
ITEM 2. PROPERTIES
The property for mobile telephone switching offices and cell sites are
either owned or leased under long-term leases by the Company, one of its
subsidiaries or the partnership or corporation which holds the construction
permit or license. The Company has not experienced major problems with obtaining
zoning approval for cell sites or operating facilities and does not anticipate
any such problems in the future which are or will be material to the Company and
its subsidiaries as a whole. The Company's investment in property is small
compared to its investment in licenses and cellular system equipment.
The Company leases approximately 84,000 square feet of office space for its
headquarters in Chicago, Illinois.
The Company considers the properties owned or leased by it and its
subsidiaries to be suitable and adequate for their respective business
operations.
--------------------------------------------------------------------------------
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in a number of legal proceedings before the FCC and
various state and federal courts. In some cases, the litigation involves
disputes regarding rights to certain cellular telephone systems. The more
significant proceedings affecting the Company are described in the following
paragraphs.
LA STAR AND WISCONSIN RSA 8 APPLICATIONS. USM indirectly owns 49% of La
Star Cellular Telephone Company ("La Star"), which was an applicant for a
construction permit for a cellular system in the New Orleans MSA. In June 1992,
the FCC affirmed an Administrative Law Judge's order which had granted the
application of another applicant and dismissed La Star's application. The basis
for the FCC's action was its finding that USM improperly controlled La Star. In
a footnote to its decision, the FCC stated that questions regarding the conduct
of USM in that proceeding may be revisited in future proceedings. As a result of
that footnote, FCC authorizations in uncontested FCC proceedings have been
granted to TDS and its subsidiaries subject to any subsequent action the FCC
might take concerning its findings and conclusions in the La Star decision.
La Star, TDS and USM appealed the FCC's decision in the La Star proceeding.
On March 29, 1994, the United States Court of Appeals for the District of
Columbia Circuit vacated the FCC's decision in the La Star proceeding and
remanded the matter to the FCC for further proceedings. On remand, the FCC
affirmed the dismissal of the La Star application but did not address the
subject matter of its footnote in the original La Star decision. As a result,
the Wisconsin RSA 8 case, discussed below, now constitutes the only FCC
expression calling for conditions on authorizations to TDS and its subsidiaries.
On February 1, 1994, in a proceeding involving a license originally issued
to TDS for Wisconsin RSA 8, the FCC instituted a hearing to determine whether in
the La Star case USM had misrepresented facts to, lacked candor in its dealings
with or attempted to mislead the FCC, and, if so, whether TDS possesses the
requisite character qualifications to hold that Wisconsin license. The FCC
stated in its
22
<PAGE>
decision that, pending resolution of the issues in the Wisconsin proceeding,
subsequent authorizations to TDS and its subsidiaries would be conditioned on
the outcome of that proceeding. TDS was granted interim authority to continue to
operate that Wisconsin system pending completion of the hearing.
Following extensive discovery by the FCC and other parties, TDS and USM have
reached preliminary and definitive settlement agreements with parties to the
proceeding contemplating a summary decision finding TDS and its affiliates fully
qualified to be FCC licensees. Pending the negotiation of a definitive
settlement agreement with a group of Wisconsin telephone companies who are
parties to the proceeding, the hearing has been postponed. Final settlement will
also be subject to the action of the judge presiding in the proceeding.
TOWNES TELECOMMUNICATIONS, INC., ET. AL. V. TDS, ET AL. Plaintiffs Townes
Telecommunications, Inc., Tatum Telephone Company and Tatum Cellular Telephone
Company filed a suit on September 4, 1991 in the District Court of Rusk County,
Texas, against both TDS and USM as defendants. Plaintiffs made a number of
allegations, including usurpation, breach of fiduciary duty, civil conspiracy,
breach of contract, tortious interference and other claims, and sought a variety
of remedies, including unspecified damages not to exceed $33 million and as much
as $200 million in punitive damages.
The case went to trial on April 25, 1994. On May 5, 1994, the jury returned
a verdict in favor of TDS and USM on all issues. The plaintiffs filed an appeal
of the case on September 12, 1994. The parties have executed an agreement which
settles all matters related to this litigation and this case has been dismissed
with prejudice on February 14, 1995. The settlement agreement requires
plaintiffs to purchase a minority cellular interest from the Company at a
negotiated purchase price which the Company believes approximates fair market
value, and does not require the payment of any money by the Company.
--------------------------------------------------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of securities holders during the fourth
quarter of 1994.
23
<PAGE>
--------------------------------------------------------------------------------
PART II
--------------------------------------------------------------------------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Incorporated by reference from Exhibit 13, Annual Report section entitled
"United States Cellular Stock and Dividend Information."
--------------------------------------------------------------------------------
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference from Exhibit 13, Annual Report section entitled
"Selected Consolidated Financial Data," except for ratios of earnings to fixed
charges, which are incorporated herein by reference from Exhibit 12 to this
Annual Report on Form 10-K.
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Incorporated by reference from Exhibit 13, Annual Report section entitled
"Management's Discussion and Analysis of Results of Operations and Financial
Condition."
--------------------------------------------------------------------------------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference from Exhibit 13, Annual Report sections entitled
"Consolidated Statements of Operations," "Consolidated Balance Sheets,"
"Consolidated Statements of Cash Flows," "Consolidated Statements of Changes in
Common Shareholders' Equity," "Notes to Consolidated Financial Statements,"
"Report of Independent Public Accountants," and "Consolidated Quarterly Income
Information (Unaudited)."
--------------------------------------------------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
24
<PAGE>
--------------------------------------------------------------------------------
PART III
--------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from Proxy Statement sections entitled "Election
of Directors" and "Executive Officers."
--------------------------------------------------------------------------------
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from Proxy Statement section entitled "Executive
Compensation," except for the information specified in Item 402(a)(8) of
Regulation S-K under the Securities Exchange Act of 1934, as amended.
--------------------------------------------------------------------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from Proxy Statement section entitled "Security
Ownership of Certain Beneficial Owners and Management."
--------------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from Proxy Statement section entitled "Certain
Relationships and Related Transactions."
25
<PAGE>
--------------------------------------------------------------------------------
PART IV
--------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as a part of this report:
(a)(1) Financial Statements
<TABLE>
<S> <C>
Consolidated Statements of Operations............................................................................. Annual Report*
Consolidated Balance Sheets....................................................................................... Annual Report*
Consolidated Statements of Cash Flows............................................................................. Annual Report*
Consolidated Statements of Changes in Common Shareholders' Equity................................................. Annual Report*
Notes to Consolidated Financial Statements........................................................................ Annual Report*
Report of Independent Public Accountants.......................................................................... Annual Report*
Consolidated Quarterly Income Information (Unaudited)............................................................. Annual Report*
<FN>
----------
* Incorporated by reference from Exhibit 13.
</TABLE>
<TABLE>
<CAPTION>
LOCATION
--------
<S> <C> <C>
(2) Schedules
Report of Independent Public Accountants on Financial Statement Schedule................................................ page 28
II. Valuation and Qualifying Accounts for each of the Three Years in the Period Ended December 31, 1994................ page 29
Los Angeles SMSA, Nashville/Clarksville MSA and Baton Rouge MSA Limited Partnership Combined Financial
Statements....................................................................................................... page 30
Compilation Report of Independent Public Accountants on Combined Financial Statements.............................. page 31
Reports of Other Independent Accountants........................................................................... page 32
Combined Statements of Operations (Unaudited)...................................................................... page 37
Combined Balance Sheets (Unaudited)................................................................................ page 38
Combined Statements of Cash Flows (Unaudited)...................................................................... page 39
Combined Statements of Changes in Partners' Capital (Unaudited).................................................... page 40
Notes to Unaudited Combined Financial Statements................................................................... page 41
</TABLE>
All other schedules have been omitted because they are not applicable or not
required or because the required information is shown in the financial
statements or notes thereto.
26
<PAGE>
(3) Exhibits
The exhibits set forth in the accompanying Index to Exhibits are filed as a
part of this Report. The following is a list of each management contract or
compensatory plan or arrangement required to be filed as an exhibit to this form
pursuant to Item 14(c) of this Report.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----------------------------------------------------------------------------------------------------------------------------------
<C> <S>
10.1 Supplemental Benefit Agreement between the Company and H. Donald Nelson is hereby incorporated by reference to an exhibit
to the Company's Registration Statement on Form S-1 (Registration No. 33-16975).
10.10 Stock Option and Stock Appreciation Rights Plan is hereby incorporated by reference to Exhibit B to the Company's
definitive Notice of Annual Meeting and Proxy Statement dated April 15, 1991, as filed with the Commission on April 16,
1991.
10.11 Summary of 1994 Bonus Program for Senior Corporate Staff of the Company.
10.12(a) United States Cellular Corporation 1994 Long-Term Incentive Plan is hereby incorporated by reference to exhibit 99.1 to
the Company's Registration Statement on Form S-8 (Registration No. 33-57255).
10.12(b) Form of 1994 Long-Term Stock Option Agreement (Transferable Form) is hereby incorporated by reference to Exhibit 99.2 to
the Company's Registration Statement on Form S-8 (Registration No. 33-57255).
10.12(c) Form of 1994 Long-Term Stock Option Agreement (Nontransferable Form) is hereby incorporated by reference to Exhibit 99.3
to the Company's Registration Statement on Form S-8 (Registration No. 33-57255).
10.12(d) Form of 1995 Performance Stock Option Agreement (Transferable Form) is hereby incorporated by reference to Exhibit 99.4 to
the Company's Registration Statement on Form S-8 (Registration No. 33-57255).
10.12(e) Form of 1995 Performance Stock Option Agreement (Nontransferable Form) is hereby incorporated by reference to Exhibit 99.5
to the Company's Registration Statement on Form S-8 (Registration No. 33-57255).
10.13 Supplemental Executive Retirement Plan of TDS.
</TABLE>
(b) Reports on Form 8-K filed during the quarter ended December 31, 1994.
No reports on Form 8-K were filed during the quarter ended December 31,
1994.
27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Shareholders and Board of Directors of
UNITED STATES CELLULAR CORPORATION:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in United States Cellular
Corporation and Subsidiaries Annual Report to Shareholders incorporated by
reference in this Form 10-K, and have issued our report thereon dated February
7, 1995 (except with respect to the matters discussed in Note 15, as to which
the date is March 14, 1995). Our report on the consolidated financial statements
includes explanatory paragraphs with respect to the change in the method of
accounting for income taxes as discussed in Note 9 of the Notes to Consolidated
Financial Statements and the uncertainties discussed in Note 14 of the Notes to
Consolidated Financial Statements.
Our audits were made for the purpose of forming an opinion on those
financial statements taken as a whole. The financial statement schedule listed
in Item 14(a)(2) is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
financial statement schedule has been subjected to the auditing procedures
applied in the audits 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
Chicago, Illinois
February 7, 1995
28
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C1 COLUMN C2 COLUMN D COLUMN E
---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, 1994
Deducted from deferred federal tax asset:
For unrealized net operating losses............................ $ (21,876) $ -- $(1,885) $ -- $ (23,761)
Deducted from deferred state tax asset:
For unrealized net operating losses............................ (8,441) 1,202 (6,964) -- (14,203)
Deducted from accounts receivable:
For doubtful accounts.......................................... (1,413) (7,314) -- 6,654 (2,073)
Deducted from marketable equity securities:
For unrealized loss............................................ (626) -- 626 -- --
FOR THE YEAR ENDED DECEMBER 31, 1993
Deducted from deferred federal tax asset:
For unrealized net operating losses (1)........................ (13,831) -- (8,045) -- (21,876)
Deducted from deferred state tax asset:
For unrealized net operating losses (1)........................ (5,985) -- (2,456) -- (8,441)
Deducted from accounts receivable:
For doubtful accounts.......................................... (1,276) (4,161) -- 4,024 (1,413)
Deducted from marketable equity securities:
For unrealized loss............................................ -- -- (626) -- (626)
FOR THE YEAR ENDED DECEMBER 31, 1992
Deducted from accounts receivable:
For doubtful accounts.......................................... (898) (3,894) -- 3,516 (1,276)
<FN>
----------
(1) The beginning balance represents the implementation of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" on
January 1, 1993.
</TABLE>
29
<PAGE>
LOS ANGELES SMSA LIMITED PARTNERSHIP
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP
BATON ROUGE MSA LIMITED PARTNERSHIP
COMBINED FINANCIAL STATEMENTS
The following financial statements are the combined financial statements of
the cellular system partnerships listed below which are accounted for by the
Company following the equity method. The combined financial statements were
compiled from financial statements and other information obtained by the Company
as a limited partner of the cellular limited partnerships listed below. The
cellular system partnerships included in the combined financial statements, the
periods each partnership is included, and the Company's ownership percentage of
each cellular system partnership at December 31, 1994 are set forth in the
following table.
<TABLE>
<CAPTION>
THE
PERIODS COMPANY'S
INCLUDED LIMITED
IN COMBINED PARTNERSHIP
CELLULAR SYSTEM PARTNERSHIP STATEMENTS INTEREST
--------------------------------------------------------------------------------------- ------------ -------------
<S> <C> <C>
Los Angeles SMSA Limited Partnership................................................... 1992-94 5.5%
Nashville/Clarksville MSA Limited Partnership.......................................... 1992-94 49.0%
Baton Rouge MSA Limited Partnership.................................................... 1992-94 52.0%
</TABLE>
30
<PAGE>
COMPILATION REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
UNITED STATES CELLULAR CORPORATION:
The accompanying combined balance sheets of the Los Angeles SMSA Limited
Partnership, the Nashville/Clarksville MSA Limited Partnership and the Baton
Rouge MSA Limited Partnership as of December 31, 1994 and 1993 and the related
combined statements of operations, changes in partners' capital, and cash flows
for each of the three years in the period ended December 31, 1994, have been
prepared from the separate financial statements, which are not presented
separately herein, of the Los Angeles SMSA, Nashville/Clarksville MSA and Baton
Rouge MSA limited partnerships, as described in Note 1. We have reviewed for
compilation only the accompanying combined financial statements, and, in our
opinion, those statements have been properly compiled from the amounts and notes
of the underlying separate financial statements of the Los Angeles SMSA,
Nashville/Clarksville MSA and Baton Rouge MSA limited partnerships, on the basis
described in Note 1.
The statements for the Los Angeles SMSA, Nashville/Clarksville MSA and Baton
Rouge MSA limited partnerships were audited by other auditors as set forth in
their reports included on pages 32 through 36. The report of the other auditors
of the Los Angeles SMSA Limited Partnership contains explanatory paragraphs with
respect to the uncertainties discussed in the second, third, fourth and fifth
paragraphs of Note 7. We have not been engaged to audit either the separate
financial statements of the aforementioned limited partnerships or the related
combined financial statements in accordance with generally accepted auditing
standards and to render an opinion as to the fair presentation of such financial
statements in accordance with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 17, 1995
31
<PAGE>
REPORTS OF OTHER INDEPENDENT ACCOUNTANTS
To The Partners of
LOS ANGELES SMSA LIMITED PARTNERSHIP:
We have audited the balance sheets of Los Angeles SMSA Limited Partnership
as of December 31, 1994 and 1993, and the related statements of operations,
partners' capital and cash flows for each of the three years in the period ended
December 31, 1994; such financial statements are not included separately herein.
These financial statements are the responsibility of the Partnership'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 an 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 Los Angeles SMSA Limited
Partnership as of December 31, 1994 and 1993, and results of its operations and
its cash flows for each of the three years in the period ended December 31,
1994, in conformity with generally accepted accounting principles.
As discussed in Note 9 to the financial statements, the Partnership has been
named in two separate actions, now consolidated, and a separate complaint served
by cellular agents. The outcome of these matters is uncertain and, accordingly,
no accrual for these matters has been made in the financial statements.
In addition, as discussed in Note 9, four class action suits were filed
against the Partnership alleging violations of state and federal antitrust laws.
The outcome of these matters is uncertain and, accordingly, no accrual for these
matters has been made in the financial statements.
COOPERS & LYBRAND L.L.P.
Newport Beach, California
February 17, 1995
32
<PAGE>
REPORT OF OTHER INDEPENDENT ACCOUNTANTS
To The Partners of
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP:
We have audited the balance sheet of Nashville/Clarksville MSA Limited
Partnership as of December 31, 1994, and the related statements of income,
changes in partners' capital and cash flows for the year then ended; such
financial statements are not included separately herein. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides 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 Nashville/Clarksville MSA
Limited Partnership as of December 31, 1994, and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
February 10, 1995
REPORTS OF OTHER INDEPENDENT ACCOUNTANTS
To The Partners of
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP:
We have audited the balance sheet of Nashville/Clarksville MSA Limited
Partnership as of December 31, 1993, and the related statements of income,
changes in partners' capital and cash flows for the year then ended; such
financial statements are not included separately herein. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides 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 Nashville/Clarksville MSA
Limited Partnership as of December 31, 1993, and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND
Atlanta, Georgia
February 11, 1994
33
<PAGE>
REPORTS OF OTHER INDEPENDENT ACCOUNTANTS
To The Partners of
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP:
We have audited the balance sheet of Nashville/Clarksville MSA Limited
Partnership as of December 31, 1992, and the related statements of income,
changes in partners' capital and cash flows for the year then ended; such
financial statements are not included separately herein. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides 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 Nashville/Clarksville MSA
Limited Partnership as of December 31, 1992, and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND
Atlanta, Georgia
February 11, 1993
34
<PAGE>
REPORTS OF OTHER INDEPENDENT ACCOUNTANTS
To The Partners of
BATON ROUGE MSA LIMITED PARTNERSHIP:
We have audited the balance sheet of Baton Rouge MSA Limited Partnership as
of December 31, 1994, and the related statements of income, changes in partners'
capital and cash flows for the year then ended; such financial statements are
not included separately herein. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides 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 Baton Rouge MSA Limited
Partnership as of December 31, 1994, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
February 10, 1995
To The Partners of
BATON ROUGE MSA LIMITED PARTNERSHIP:
We have audited the balance sheet of Baton Rouge MSA Limited Partnership as
of December 31, 1993, and the related statements of income, changes in partners'
capital and cash flows for the year then ended; such financial statements are
not included separately herein. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides 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 Baton Rouge MSA Limited
Partnership as of December 31, 1993, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND
Atlanta, Georgia
February 11, 1994
35
<PAGE>
REPORTS OF OTHER INDEPENDENT ACCOUNTANTS
To The Partners of
BATON ROUGE MSA LIMITED PARTNERSHIP:
We have audited the balance sheet of Baton Rouge MSA Limited Partnership as
of December 31, 1992, and the related statements of income, changes in partners'
capital and cash flows for the year then ended; such financial statements are
not included separately herein. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides 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 Baton Rouge MSA Limited
Partnership as of December 31, 1992, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND
Atlanta, Georgia
February 11, 1993
36
<PAGE>
LOS ANGELES SMSA LIMITED PARTNERSHIP
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP
BATON ROUGE MSA LIMITED PARTNERSHIP
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues................................................................... $ 640,798 $ 506,028 $ 400,738
Expenses
Selling, general and administrative...................................... 362,840 287,299 235,038
Depreciation and amortization............................................ 66,234 57,357 46,740
----------- ----------- -----------
Total expenses........................................................... 429,074 344,656 281,778
----------- ----------- -----------
Operating income........................................................... 211,724 161,372 118,960
Other income............................................................... 573 272 477
----------- ----------- -----------
Net Income................................................................. $ 212,297 $ 161,644 $ 119,437
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
37
<PAGE>
LOS ANGELES SMSA LIMITED PARTNERSHIP
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP
BATON ROUGE MSA LIMITED PARTNERSHIP
COMBINED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1993
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current Assets
Cash.................................................................................. $ 38 $ 27
Accounts receivable--customers, net................................................... 95,630 81,656
Accounts receivable--affiliates....................................................... 16,016 29,981
Notes receivable--affiliates.......................................................... 402 3,756
Other current assets.................................................................. 18,523 5,689
----------- -----------
130,609 121,109
Property, Plant and Equipment, net...................................................... 380,473 304,926
Other................................................................................... 1,640 1,631
----------- -----------
Total Assets............................................................................ $ 512,722 $ 427,666
----------- -----------
----------- -----------
LIABILITIES AND PARTNERS' CAPITAL
<CAPTION>
DECEMBER 31,
------------------------
1994 1993
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current Liabilities
Accounts payable--other............................................................... $ 58,210 $ 38,776
Accounts payable--affiliates.......................................................... 1,431 1,039
Notes payable......................................................................... 692 --
Customer deposits..................................................................... 4,060 2,996
Other current liabilities............................................................. 39,323 22,101
----------- -----------
103,716 64,912
----------- -----------
Deferred Rent........................................................................... 5,019 4,571
Capital Lease Obligation................................................................ 520 713
Partners' Capital....................................................................... 403,467 357,470
----------- -----------
Total Liabilities and Partners' Capital................................................. $ 512,722 $ 427,666
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
38
<PAGE>
LOS ANGELES SMSA LIMITED PARTNERSHIP
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP
BATON ROUGE MSA LIMITED PARTNERSHIP
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1994 1993 1992
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income............................................................ $ 212,297 $ 161,644 $ 119,437
Add (Deduct) adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization....................................... 66,234 57,357 46,740
Deferred revenue and other credits.................................. 1,387 497 (3)
Loss on asset dispositions.......................................... 3,542 3,838 4,294
Change in prepaid expenses.......................................... (105) (22) 4
Change in accounts receivable....................................... (9) (37,422) (3,417)
Change in accounts payable and accrued expenses..................... 25,919 6,097 17,307
Change in other assets and liabilities.............................. (1,556) 4,942 3,967
------------ ------------ ------------
307,709 196,931 188,329
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in notes payable............................................. 692 -- (2,305)
Change in notes receivable.......................................... 3,354 (5) (3,751)
Principal payments on capital lease obligations..................... (800) (612) (442)
Capital contribution................................................ -- -- 2,474
Capital distribution................................................ (166,300) (111,461) (114,876)
------------ ------------ ------------
(163,054) (112,078) (118,900)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment, net of retirements...... (143,807) (86,011) (68,595)
(Increases) decreases in other assets............................... (44) 1,335 (856)
Change in deferred charges.......................................... (827) (202) (36)
Proceeds from sale of assets........................................ 34 26 61
------------ ------------ ------------
(144,644) (84,852) (69,426)
------------ ------------ ------------
NET INCREASE IN CASH.................................................... 11 1 3
CASH
Beginning of period................................................. 27 26 23
------------ ------------ ------------
End of period....................................................... $ 38 $ 27 $ 26
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
39
<PAGE>
LOS ANGELES SMSA LIMITED PARTNERSHIP
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP
BATON ROUGE MSA LIMITED PARTNERSHIP
COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<S> <C>
(DOLLARS IN THOUSANDS)
Balance at January 1, 1992...................................................... $ 300,252
Contributions................................................................. 2,474
Distributions................................................................. (114,876)
Net Income for the year ended December 31, 1992............................... 119,437
---------
Balance at December 31, 1992.................................................... 307,287
Distributions................................................................. (111,461)
Net Income for the year ended December 31, 1993............................... 161,644
---------
Balance at December 31, 1993.................................................... 357,470
Distributions................................................................. (166,300)
Net Income for the year ended December 31, 1994............................... 212,297
---------
Balance at December 31, 1994.................................................... $ 403,467
---------
---------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
40
<PAGE>
LOS ANGELES SMSA LIMITED PARTNERSHIP
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP
BATON ROUGE MSA LIMITED PARTNERSHIP
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
1. BASIS OF COMBINATION:
The combined financial statements and notes thereto were compiled from the
individual financial statements of cellular limited partnerships listed below in
which United States Cellular Corporation (AMEX symbol "USM") has a
noncontrolling ownership interest and which it accounts for using the equity
method. The cellular partnerships, the period each partnership is included in
the combined financial statements and USM's ownership interest in each
partnership are set forth in the table below. The combined financial statements
and notes thereto present 100% of each partnership whereas USM's ownership
interest is shown in the table.
<TABLE>
<CAPTION>
PERIOD INCLUDED LIMITED
IN COMBINED PARTNERSHIP
STATEMENTS INTEREST
--------------- -------------
<S> <C> <C>
Los Angeles SMSA Limited Partnership................................................ 1992-94 5.5%
Nashville/Clarksville MSA Limited Partnership....................................... 1992-94 49.0%
Baton Rouge MSA Limited Partnership................................................. 1992-94 52.0%
</TABLE>
Profits, losses and distributable cash are allocated to the partners based
upon respective partnership interests. Distributions are made quarterly at the
discretion of the General Partner for one of the Partnerships.
Of the partnerships included in the combined financial statements, the Los
Angeles SMSA Limited Partnership is the most significant, accounting for
approximately 89% of the combined total assets at December 31, 1994, and
substantially all of the combined net income for the year then ended.
USM's investment in and advances to Los Angeles SMSA Limited Partnership
totalled $17,675,000 as of December 31, 1994, of which $19,402,000 represents
its proportionate share of net assets of the Partnership. USM's investment in
and advances to the Nashville/Clarksville MSA Limited Partnership totalled
$17,360,000 as of December 31, 1994, which represents its proportionate share of
net assets. USM's investment in and advances to the Baton Rouge MSA Limited
Partnership totalled $10,660,000 as of December 31, 1994, $7,932,000 of which
represents its proportionate share of net assets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR COMBINED ENTITIES:
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is computed
using the straight-line method over the following estimated lives:
<TABLE>
<S> <C>
Buildings.............................................. 10-15 years
Equipment.............................................. 3-10 years
Furniture and Fixtures................................. 5-10 years
Leasehold Improvements................................. 10 years
</TABLE>
41
<PAGE>
LOS ANGELES SMSA LIMITED PARTNERSHIP
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP
BATON ROUGE MSA LIMITED PARTNERSHIP
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Property, Plant and Equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1993
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Land.................................................................................... $ 2,987 $ 1,819
Buildings and Leasehold Improvements.................................................... 100,312 79,704
Equipment............................................................................... 432,949 355,376
Furniture and Fixtures.................................................................. 33,602 19,734
Under Construction...................................................................... 55,176 32,052
----------- -----------
625,026 488,685
Less Accumulated Depreciation........................................................... 244,553 183,759
----------- -----------
$ 380,473 $ 304,926
----------- -----------
----------- -----------
</TABLE>
Included in buildings are costs relating to the acquisition of cell site
leases; such as legal, consulting, and title fees. Lease acquisition costs are
capitalized when incurred and amortized over the period of the lease. Costs
related to unsuccessful negotiations are expensed in the period the negotiations
are terminated.
Gains and losses on disposals are included in income at amounts equal to the
difference between net book value and proceeds received upon disposal.
During 1994, 1993 and 1992, one of the Partnerships recorded capital lease
additions of $687,000, $827,000 and $514,000, respectively.
Commitments for future equipment acquisitions amounted to $55,187,000 at
December 31, 1994.
On January 10, 1994, one of the Partnerships entered into an agreement with
its major supplier to purchase $77 million in equipment. At December 31, 1994,
approximately $11 million in equipment had been purchased by the Partnership
under the agreement.
OTHER ASSETS
Other assets consist primarily of the costs of acquiring the right to serve
certain customers previously served by resellers and are being amortized over
three years using the straight-line method. Accumulated amortization was
$5,656,000 and $4,806,000 at December 31, 1994 and 1993, respectively.
OTHER CURRENT ASSETS
Other current assets includes inventory consisting primarily of cellular
phones and accessories held for resale stated at average cost. Consistent with
industry practice, losses on sales of cellular phones are recognized in the
period in which sales are made as a cost of acquiring subscribers.
REVENUE RECOGNITION
Revenues from operations primarily consist of charges to customers for
monthly access charges, cellular airtime usage, and roamer charges. Revenues are
recognized as services are rendered. Unbilled revenues, resulting from cellular
service provided from the billing cycle date to the end of each month and from
other cellular carriers' customers using the partnership's cellular systems for
the last half of each month, are estimated and recorded as receivables. Unearned
monthly access charges and bundled service packages relating to the periods
after month-end are deferred and netted against accounts receivable and
recognized the following month when services are provided.
42
<PAGE>
LOS ANGELES SMSA LIMITED PARTNERSHIP
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP
BATON ROUGE MSA LIMITED PARTNERSHIP
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INCOME TAXES
No provisions have been made for federal or state income taxes since such
taxes, if any, are the responsibility of the individual partners.
3. LEASE COMMITMENTS:
Future minimum rental payments required under operating leases for real
estate that have initial or remaining noncancellable lease terms in excess of
one year as of December 31, 1994, are as follows:
<TABLE>
<S> <C>
(DOLLARS IN THOUSANDS)
1995.............................................................. $ 14,366
1996.............................................................. 13,836
1997.............................................................. 12,800
1998.............................................................. 12,240
1999.............................................................. 10,930
Thereafter........................................................ 20,916
---------
$ 85,088
---------
---------
</TABLE>
The initial lease terms generally range from 5 to 25 years with the majority
of them having initial terms of 10 years and providing for one renewal option of
5 years and for rental escalation. Included in selling, general and
administrative expense are rental costs of $17,750,000, $15,119,000 and
$10,938,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
One of the Partnerships leases office facilities under a ten-year lease
agreement which provides for free rent incentives for six months and rent
escalation over the ten-year period. The Partnership recognizes rent expense on
a straight-line basis and recorded the related deferred rent as a noncurrent
liability to be amortized as an adjustment to rental costs over the life of the
lease.
4. CAPITAL LEASE OBLIGATION:
One of the Partnerships leases equipment under capital lease agreements. At
December 31, 1994 and 1993, respectively, the amount of such equipment included
in property, plant and equipment is $3,645,000 and $3,324,000 less accumulated
amortization of $2,356,000 and $1,914,000. Future minimum annual lease payments
on noncancellable capital leases are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
1995............................................................... $ 829
1996............................................................... 452
1997............................................................... 88
---------
Total future minimum lease payments................................ 1,369
Less amounts representing interest............................... 80
---------
Present value of net future minimum lease payments................. 1,289
Less current portion............................................. 769
---------
Lease obligation, noncurrent....................................... $ 520
---------
---------
</TABLE>
5. RELATED PARTY TRANSACTIONS:
Certain affiliates of these cellular limited partnerships provide services
for the system operations, legal, financial, management and administration of
these entities. These affiliates are reimbursed for both direct and allocated
costs (totaling $57.6 million in 1994, $57.1 million in 1993 and $52.2 million
in 1992) related to providing these services. In addition, certain affiliates
have established a credit facility with certain partnerships to provide working
capital to the partnership. One of the partnerships participates in a
centralized cash management arrangement with its general partner. At December
31, 1994
43
<PAGE>
LOS ANGELES SMSA LIMITED PARTNERSHIP
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP
BATON ROUGE MSA LIMITED PARTNERSHIP
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
and 1993, the interest-bearing balance amounted to $16,016,000 and $29,981,000,
respectively. Effective January 1, 1989, the general partner pays or charges the
Partnership monthly interest, computed using the general partner's average
borrowing rate, on the amounts due to or from the Partnership. Interest earned
in 1994, 1993 and 1992 was $1,480,000, $1,294,000 and $1,396,000, respectively.
6. REGULATORY INVESTIGATIONS:
On December 21, 1993, the California Public Utilities Commission ("CPUC")
adopted a new Order Instituting Investigation into the regulation of mobile
telephone service and wireless communications, Order Number I.93-12-007. The
investigation proposes a regulatory program which would encompass all forms of
mobile telephone service.
On August 22, 1994, the CPUC issued an interim Decision that imposes a
methodology in which existing cellular carriers be subject to rate cap
regulation and other regulations, and requiring carriers, upon request, to
permit resellers to operate reseller switches interconnected to the cellular
carrier's facilities, to unbundle cellular access charges to resellers on a
market basis and to subsidize resellers' roaming revenues. The Decision further
authorized the CPUC to file a petition with the Federal Communications
Commission ("FCC") to extend the CPUC's jurisdiction over cellular carriers for
at least 18 months. Application for Rehearing and Suspension has been filed by
various carriers and is pending with the CPUC. Currently, one of the
Partnerships is unable to quantify the precise impact of this Order on its
future operations, but that impact may be material to one of the Partnerships
under certain circumstances.
In 1993, Congress amended Section 332 of the Communications Act in order to,
among other things, mandate a general federal preemption of state regulation of
entry and rates for cellular service providers. Congress established a mechanism
for states to petition for permission to continue whatever state rate regulation
actually existed as of June 1, 1993 for a period of time. It also established a
mechanism for those states that wanted to petition for the right to establish
new or modified rate regulations. On August 8, 1994, the CPUC filed a petition
with the FCC seeking to retain regulatory authority over cellular service rates
in California. In September 1994, opposition to this petition was filed. This
matter is pending with the FCC.
In January 1992, the CPUC commenced a separate investigation of all cellular
companies operating in the State to determine their compliance with General
Order number 159 (G.O. 159). This investigation addresses whether cellular
utilities have complied with local, state or federal regulations governing the
approval and construction of cellular sites in the State. The CPUC may advise
other agencies of violations in their jurisdictions. Currently, certain carriers
have agreed to monetary settlements as a result of this investigation.
One of the Partnerships has prepared and filed the information requested by
the CPUC. The CPUC will review the information provided by one of the
Partnerships and, if violations of G.O. 159 are found, it may assess penalties
against one of the Partnerships. The outcome of this investigation is uncertain
and, accordingly, no accrual for this matter has been made.
7. CONTINGENCIES AND COMMITMENTS:
One of the Partnerships filed for its 10-year license renewal for the Los
Angeles market on August 30, 1993. The Partnership had been operating with FCC
authority while the renewal application was pending. In January 1995, the
Partnership's license was renewed for a 10-year period.
In two separate actions filed, on October 7, 1993, and February 15, 1994,
now consolidated, two agents of the competing carrier have named one of the
Partnerships as a defendant. The general allegations include violations of
California Unfair Practices Act and price fixing. At a recent mandatory
settlement conference, plaintiffs asked for $6 million from all defendants to
settle the above claims ($2.5 million from one of the defendants, including the
Partnership). The proposed settlement offer has
44
<PAGE>
LOS ANGELES SMSA LIMITED PARTNERSHIP
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP
BATON ROUGE MSA LIMITED PARTNERSHIP
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
not been accepted. The ultimate outcome of both of these actions is uncertain at
this time. Accordingly, no accrual for these contingencies has been made. The
Partnership intends to defend its position vigorously.
In May 1994, several former and current agents of the competing carrier have
named one of the Partnerships in only one cause of action. This cause of action
alleges a conspiracy with the competing carrier to fix the prices of cellular
service in violation of state antitrust laws. The plaintiffs are seeking damages
in excess of $100,000 for each of the plaintiff agents. The outcome of this
matter is uncertain and, accordingly, the Partnership has not recorded an
accrual. The Partnership intends to defend its position vigorously.
On November 24, 1993, October 17, 1994 and November 30, 1994, three separate
class action (not yet certified) suits were filed against one of the
Partnerships alleging conspiracy with a competing carrier to fix the price of
cellular service in violation of state and federal antitrust laws. The
plaintiffs are seeking injunctive relief and substantial monetary damages in
excess of $100 million before trebling. The outcome of this matter is uncertain
and, accordingly, the Partnership has not recorded an accrual. The Partnership
intends to defend its position vigorously.
On July 18, 1994, a partner in one of the Partnerships was served with a
class action (not yet certified) suit on behalf of the Partnership's authorized
agents. The complaint alleges "predatory practices" and seeks damages in excess
of $1.6 million per agent, plus statutory treble damages. The outcome of this
matter is uncertain and, accordingly, the Partnership has not recorded an
accrual. The Partnership intends to defend its position vigorously.
In January 1995, the United States Department of Justice asserted that one
of the partners' parent company, including the Partnership, is a "successor" to
a Bell Operating Company and bound by Section II of the Modification of Final
Judgment entered in 1984 in the AT&T divestiture case. Section II imposes
certain restrictions relating to interexchange telecommunications and
telecommunications equipment manufacturing, among other things. A Complaint in
Intervention has been filed and is still pending. A standstill agreement has
been entered into which enables one of the partners' parent company, including
the Partnership, to operate as is. In the event of an adverse order in the
Complaint in Intervention proceeding, management does not expect that the impact
would be material to the Partnership's current operations. The outcome of this
matter is uncertain and, accordingly, the Partnership has not recorded an
accrual. The Partnership intends to defend its position vigorously.
One of the Partnerships is a party to various other lawsuits arising in the
ordinary course of business. In the opinion of management, based on a review of
such litigation with legal counsel, any losses resulting from these actions are
not expected to materially impact the financial condition of the Partnership.
Two of the Partnerships provide cellular service and sell cellular
telephones to diversified groups of consumers within concentrated geographical
areas. The general partner performs credit evaluations of the Partnerships'
customers and generally does not require collateral. Receivables are generally
due within 30 days. Credit losses related to customers have been within
management's expectations.
One of the Partnerships purchases substantially all of its equipment from
one supplier.
The General Partner of two of the Partnerships entered into agreements with
an equipment vendor on behalf of the Partnerships to replace the Partnerships'
cellular equipment with new cellular technology which will support both analog
and digital voice transmissions. Prior to replacement the Partnerships are
renting certain cellular equipment in order to meet demands relating to current
market growth.
45
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UNITED STATES CELLULAR CORPORATION
By: /S/ H. DONALD NELSON
-----------------------------------
H. Donald Nelson
PRESIDENT (CHIEF EXECUTIVE OFFICER)
By: /S/ KENNETH R. MEYERS
-----------------------------------
Kenneth R. Meyers
VICE PRESIDENT--FINANCE AND TREASURER
(CHIEF FINANCIAL OFFICER)
By: /S/ PHILLIP A. LORENZINI
-----------------------------------
Phillip A. Lorenzini
CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
Dated March 24, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------------------------------------------------ --------- ------------------
<S> <C> <C>
/S/ H. DONALD NELSON DIRECTOR March 24, 1995
------------------------------------------
H. Donald Nelson
/S/ LEROY T. CARLSON, JR. DIRECTOR March 24, 1995
------------------------------------------
LeRoy T. Carlson, Jr.
/S/ LEROY T. CARLSON DIRECTOR March 24, 1995
------------------------------------------
LeRoy T. Carlson
/S/ WALTER C.D. CARLSON DIRECTOR March 24, 1995
------------------------------------------
Walter C. D. Carlson
/S/ MURRAY L. SWANSON DIRECTOR March 24, 1995
------------------------------------------
Murray L. Swanson
/S/ PAUL-HENRI DENUIT DIRECTOR March 24, 1995
------------------------------------------
Paul-Henri Denult
/S/ ALLAN Z. LOREN DIRECTOR March 24, 1995
------------------------------------------
Allan Z. Loren
</TABLE>
<PAGE>
--------------------------------------------------------------------------------
INDEX TO EXHIBITS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
-------- --------------------------------------------------------------------------------------------------------------------
<C> <S>
3.1 Restated Certificate of Incorporation, as amended, is hereby incorporated by reference to an exhibit to the
Company's Amendment No. 2 on Form 8 dated December 28, 1992, to the Company's Report on Form 8-A.
3.2 Restated Bylaws, as amended, are hereby incorporated by reference to an exhibit to the Company's Amendment No. 2 on
Form 8 dated December 28, 1992, to the Company's Report on Form 8-A.
4.1 Restated Certificate of Incorporation, as amended, is hereby incorporated by reference to an exhibit to the
Company's Amendment No. 2 on Form 8 dated December 28, 1992 to the Company's Report on Form 8-A.
4.2 Restated by-laws, as amended, are hereby incorporated by reference to an exhibit to the Company's Amendment No. 2 on
Form 8 dated December 28, 1992 to the Company's Report on Form 8-A.
4.3 Amended and restated Term Loan Agreement between NTFC Capital Corporation and the Company dated December 22, 1994.
9.1 Voting Trust Agreement, dated as of June 30, 1989, with respect to Series A Common Shares of TDS, is hereby
incorporated by reference to an exhibit to the Company's Registration Statement on Form S-1 (Registration No.
33-38644).
9.2 Amendment dated as of May 9, 1991, to the Voting Trust Agreement dated as of June 30, 1989, is hereby incorporated
by reference to Exhibit 9.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991.
9.3 Amendment dated as of November 20, 1992, to the Voting Trust Agreement dated as of June 30, 1989, as amended is
hereby incorporated by reference to Exhibit 9.3 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992.
10.1 Supplemental Benefit Agreement between the Company and H. Donald Nelson is hereby incorporated by reference to an
exhibit to the Company's Registration Statement on Form S-1 (Registration No. 33-16975).
10.2(a) Revolving Credit Agreement, between the Company and TDS, as amended, is hereby incorporated by reference to an
exhibit to Post-Effective Amendment No. 2 to the Company's Registration Statement on Form S-1 (Registration No.
33-23492).
10.2(b) Amendment dated as of November 30, 1994, to Revolving Credit Agreement between the Company and TDS.
10.3 Tax Allocation Agreement, between the Company and TDS, is hereby incorporated by reference to an exhibit to the
Company's Registration Statement on Form S-1 (Registration No. 33-16975).
10.4 Cash Management Agreement, between the Company and TDS, is hereby incorporated by reference to an exhibit to the
Company's Registration Statement on Form S-1 (Registration No. 33-16975).
10.5 Registration Rights Agreement, between the Company and TDS, is hereby incorporated by reference to an exhibit to the
Company's Registration Statement on Form S-1 (Registration No. 33-16975).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
-------- --------------------------------------------------------------------------------------------------------------------
<C> <S>
10.6 Exchange Agreement, between the Company and TDS, as amended, is hereby incorporated by reference to an exhibit to
the Company's Registration Statement on Form S-1 (Registration No. 33-16975).
10.7 Intercompany Agreement, between the Company and TDS, is hereby incorporated by reference to an exhibit to the
Company's Registration Statement on Form S-1 (Registration No. 33-16975).
10.8 Employee Benefit Plans Agreement, between the Company and TDS, is hereby incorporated by reference to an exhibit to
the Company's Registration Statement on Form S-1 (Registration No. 33-16975).
10.9 Insurance Cost Sharing Agreement, between the Company and TDS, is hereby incorporated by reference to an exhibit to
the Company's Registration Statement on Form S-1 (Registration No. 33-16975).
10.10 Stock Option and Stock Appreciation Rights Plan, is hereby incorporated by reference to Exhibit B to the Company's
definitive Notice of Annual Meeting and Proxy Statement dated April 15, 1991, as filed with the Commission on April
16, 1991.
10.11 Summary of 1994 Bonus Program for the Senior Corporate Staff of the Company.
10.12(a) United States Cellular Corporation 1994 Long-Term Incentive Plan is hereby incorporated by reference to exhibit 99.1
to the Company's Registration Statement on Form S-8 (Registration No. 33-57255).
10.12(b) Form of 1994 Long-Term Stock Option Agreement (Transferable Form) is hereby incorporated by reference to Exhibit
99.2 to the Company's Registration Statement on Form S-8 (Registration No. 33-57255).
10.12(c) Form of 1994 Long-Term Stock Option Agreement (Nontransferable Form) is hereby incorporated by reference to Exhibit
99.3 to the Company's Registration Statement on Form S-8 (Registration No. 33-57255).
10.12(d) Form of 1995 Performance Stock Option Agreement (Transferable Form) is hereby incorporated by reference to Exhibit
99.4 to the Company's Registration Statement on Form S-8 (Registration No. 33-57255).
10.12(e) Form of 1995 Performance Stock Option Agreement (Nontransferable Form) is hereby incorporated by reference to
Exhibit 99.5 to the Company's Registration Statement on Form S-8 (Registration No. 33-57255).
10.13 Supplemental Executive Retirement Plan of TDS.
11 Statement regarding computation of per share earnings.
12 Statement regarding computation of ratios.
13 Incorporated portions of 1994 Annual Report to Security Holders
21 Subsidiaries of the Registrant.
23.1 Consent of independent public accountants.
23.2 Consent of independent accountants.
27 Financial Data Schedules.
</TABLE>
<PAGE>
Exhibit 4.3
AMENDED AND RESTATED
TERM LOAN AGREEMENT
BETWEEN
NTFC CAPITAL CORPORATION
AND
UNITED STATES CELLULAR CORPORATION
DECEMBER 22, 1994
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.1 Defined Terms. . . . . . . . . . . . . . . . . . . . . . 3
Section 1.2 Other Definitional Provisions. . . . . . . . . . . . . . 15
Section 1.3 Terminology Relating to Market Entities. . . . . . . . . 16
ARTICLE 2. AMOUNT AND TERMS OF LOANS . . . . . . . . . . . . . . . . . . . . 16
Section 2.1 Commitment and Loans . . . . . . . . . . . . . . . . . . 16
Section 2.2 Notes and Payment Terms. . . . . . . . . . . . . . . . . 18
Section 2.3 Procedure for Borrowing. . . . . . . . . . . . . . . . . 22
Section 2.4 Prepayments. . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.5 Computation of Interest. . . . . . . . . . . . . . . . . 24
Section 2.6 Payments . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.7 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 3. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . 25
Section 3.1 Financial Condition. . . . . . . . . . . . . . . . . . . 25
Section 3.2 Existence; Compliance with Law . . . . . . . . . . . . . 25
Section 3.3 Power; Authorization . . . . . . . . . . . . . . . . . . 25
Section 3.4 Enforceable Obligations. . . . . . . . . . . . . . . . . 26
Section 3.5 No Legal Bar . . . . . . . . . . . . . . . . . . . . . . 26
Section 3.6 No Material Litigation . . . . . . . . . . . . . . . . . 26
Section 3.7 No Default . . . . . . . . . . . . . . . . . . . . . . . 26
Section 3.8 Ownership of Property. . . . . . . . . . . . . . . . . . 27
Section 3.9 No Burdensome Restrictions . . . . . . . . . . . . . . . 27
Section 3.10 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.11 Federal Regulations. . . . . . . . . . . . . . . . . . . 27
Section 3.12 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.13 Investment Company Act . . . . . . . . . . . . . . . . . 28
Section 3.14 Supply Agreement; Letter Agreement . . . . . . . . . . . 28
Section 3.15 Patents, Licenses and Franchises . . . . . . . . . . . . 28
Section 3.16 Accuracy and Completeness of Information; Projections. . 28
Section 3.17 Security Agreement . . . . . . . . . . . . . . . . . . . 29
Section 3.18 Environmental Warranties . . . . . . . . . . . . . . . . 29
Section 3.19 Market Entity Loans. . . . . . . . . . . . . . . . . . . 29
ARTICLE 4. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.1 Conditions to Initial Advances . . . . . . . . . . . . . 29
Section 4.2 Conditions to All Advances . . . . . . . . . . . . . . . 31
-i-
<PAGE>
ARTICLE 5. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . 32
Section 5.1 Financial Statements . . . . . . . . . . . . . . . . . . 32
Section 5.2 Certificates; Other Information. . . . . . . . . . . . . 33
Section 5.3 Payment of Obligations . . . . . . . . . . . . . . . . . 33
Section 5.4 Conduct of Business and Maintenance of Existence . . . . 34
Section 5.5 Compliance with Laws . . . . . . . . . . . . . . . . . . 34
Section 5.6 Maintenance of Property, Insurance . . . . . . . . . . . 34
Section 5.7 Inspection of Property; Books and Records; Discussions . 35
Section 5.8 Notices. . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 5.9 Debt Service Coverage Ratio. . . . . . . . . . . . . . . 35
Section 5.10 Debt to Equity Ratio . . . . . . . . . . . . . . . . . . 35
Section 5.11 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE 6. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . 36
Section 6.1 Indebtedness . . . . . . . . . . . . . . . . . . . . . . 36
Section 6.2 Limitation on Liens. . . . . . . . . . . . . . . . . . . 36
Section 6.3 Limitation on Contingent Obligations . . . . . . . . . . 37
Section 6.4 Prohibition of Fundamental Changes . . . . . . . . . . . 37
Section 6.5 Limitation on Investments, Loans and Advances. . . . . . 38
Section 6.6 Limitation on Distributions. . . . . . . . . . . . . . . 38
Section 6.7 Termination, Amendment, etc. of Agreements . . . . . . . 38
Section 6.8 Termination or Modification of Supply Agreement or
Letter Agreement . . . . . . . . . . . . . . . . . . . . 39
Section 6.9 Market Entity Loan Documents . . . . . . . . . . . . . . 39
Section 6.10 Regulation U . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 7. COLLATERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 7.1 Collateral . . . . . . . . . . . . . . . . . . . . . . . 39
Section 7.2 Replacement Collateral . . . . . . . . . . . . . . . . . 39
Section 7.3 Partial Release of Collateral. . . . . . . . . . . . . . 41
Section 7.4 Required Prepayment, Etc. Upon Market Entity Shortfall . 41
Section 7.5 Combination of Markets . . . . . . . . . . . . . . . . . 43
Section 7.6 Priority Issues. . . . . . . . . . . . . . . . . . . . . 44
Section 7.7 Problem Sites. . . . . . . . . . . . . . . . . . . . . . 45
Section 7.8 Collateral Value . . . . . . . . . . . . . . . . . . . . 45
ARTICLE 8. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.1 Events of Default. . . . . . . . . . . . . . . . . . . . 45
Section 8.2 Market Entity Defaults . . . . . . . . . . . . . . . . . 48
Section 8.3 Remedies . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 8.4 Additional Remedies. . . . . . . . . . . . . . . . . . . 48
Section 8.5 Cure of Defaults . . . . . . . . . . . . . . . . . . . . 49
-ii-
<PAGE>
ARTICLE 9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 9.1 Amendments and Waivers . . . . . . . . . . . . . . . . . 49
Section 9.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 9.3 No Waiver; Cumulative Remedies . . . . . . . . . . . . . 51
Section 9.4 Survival of Representations and Warranties . . . . . . . 51
Section 9.5 Payment of Expenses and Taxes. . . . . . . . . . . . . . 51
Section 9.6 Successors and Assigns . . . . . . . . . . . . . . . . . 52
Section 9.7 Participations . . . . . . . . . . . . . . . . . . . . . 53
Section 9.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . 54
Section 9.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . 54
Section 9.10 Integration. . . . . . . . . . . . . . . . . . . . . . . 54
Section 9.11 No Joint Venture . . . . . . . . . . . . . . . . . . . . 54
Section 9.12 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . 54
Section 9.13 Confidential Information . . . . . . . . . . . . . . . . 54
Section 9.14 Limitation on Liability. . . . . . . . . . . . . . . . . 57
Section 9.15 Effect of Amendment. . . . . . . . . . . . . . . . . . . 57
-iii-
<PAGE>
SCHEDULES TO AMENDED AND RESTATED TERM LOAN AGREEMENT
-----------------------------------------------------
Schedule 1 Existing Market Entities
Schedule 1.1 Interim Notes
Schedule 2 Direct Loan Transactions and Direct Loan Entities
Schedule 3.3 Required Consents
Schedule 3.6 Pending Litigation
EXHIBITS TO AMENDED AND RESTATED TERM LOAN AGREEMENT
----------------------------------------------------
Exhibit A-1 Form of 1994 Construction Note
Exhibit A-2 Form of 1994 Equipment Note
Exhibit A-3 Copy of Refinancing Note
Exhibit A-4 Form of Note Schedule
Exhibit A-5 Form of Note D
Exhibit A-6 Form of Note E
Exhibit B-1 Form of Borrowing Certificate (Equipment)
Exhibit B-2 Form of Borrowing Certificate (Construction)
Exhibit B-3 Form of Borrowing Certificate (New Notes)
Exhibit C Form of Amended and Restated Security Agreement
and Assignment of Contracts
Exhibit D Form of Collateral Assignment
Exhibit E Form of Collateral Release Request
Exhibit F Form of Opinion of Counsel for the Company
Exhibit G Form of Opinion of Regulatory Counsel for the
Company
Exhibit H Form of Acknowledgment, Consent and Release
Agreement
Exhibit I Form of Assumption Agreement for Combined Markets
-iv-
<PAGE>
AMENDED AND RESTATED TERM LOAN AGREEMENT
----------------------------------------
This AMENDED AND RESTATED TERM LOAN AGREEMENT ("AGREEMENT"), is dated as
of December 22, 1994, between UNITED STATES CELLULAR CORPORATION, a corporation
formed under the laws of the State of Delaware (the "COMPANY"), and NTFC CAPITAL
CORPORATION (formerly known as Northern Telecom Finance Corporation), a
corporation formed under the laws of the State of Delaware (the "LENDER").
RECITALS
--------
A. The Company and Lender entered into that certain Term Loan Agreement
dated as of October 1, 1991 (the "1991 LOAN AGREEMENT"), pursuant to which
Lender agreed to make certain loans (the "LOANS") to the Company, on the terms
and conditions provided therein, as evidenced by the three (3) promissory notes
issued by the Company pursuant thereto, each dated as of October 1, 1991,
described as follows (collectively, the "1991 NOTES"):
1. That certain Refinancing Note executed by the Company, payable to
the Lender, dated as of October 1, 1991, in the original principal amount
of Three Million Nine Hundred Fifty-Nine Thousand Nine Hundred Sixty-Five
and 59/100 Dollars ($3,959,965.59) (the "REFINANCING NOTE"); and
2. That certain Construction Note executed by the Company, payable
to the Lender, dated as of October 1, 1991, in the original principal
amount of Twenty-Six Million Dollars ($26,000,000), plus Capitalized
Interest (as defined therein), including Note Schedules No. 1 through 5
thereto (the "1991 CONSTRUCTION NOTE"); and
3. That certain Equipment Note executed by the Company, payable to
the Lender, dated as of October 1, 1991, in the original principal amount
of Twenty-Six Million Dollars ($26,000,000), plus Capitalized Interest (as
defined therein), including Note Schedules No. 1 through 6 thereto (the
"1991 EQUIPMENT NOTE").
B. Effective April 27, 1994, Lender changed its name from Northern
Telecom Finance Corporation to NTFC Capital Corporation.
C. The Company has or intends to have ownership interests, either
directly or indirectly through subsidiaries or affiliates of the Company, in
certain corporate or partnership entities, each of which has obtained or will
obtain authorization from the Federal Communications Commission to construct and
operate a cellular radio communication system in either a Rural Service Area or
a Metropolitan Statistical Area (collectively, the "GENERAL MARKET ENTITIES"),
and the Loans under the 1991 Loan Agreement were made to permit the Company to
make secured loans to certain of the General Market Entities for the
construction and operation of their respective cellular radio communications
systems.
<PAGE>
D. Pursuant to the 1991 Loan Agreement, the Lender and the Company
executed that certain Security Agreement and Assignment of Contracts dated as of
October 1, 1991 (the "1991 SECURITY AGREEMENT"), pursuant to which the Company
delivered to Lender thirty-seven (37) Market Entity Loan Packages (as defined in
the 1991 Security Agreement), for the Market Entities described on SCHEDULE 1
hereto (the "EXISTING MARKET ENTITIES").
E. Pursuant to the 1991 Loan Agreement, the Company and Lender also
executed and delivered various other Loan Documents, as defined therein.
F. Pursuant to the 1991 Loan Agreement, the Lender has advanced the
principal amount of Fifty-Five Million Nine Hundred Fifty-Nine Thousand Nine
Hundred Sixty-Five Dollars and Fifty-Nine Cents ($55,959,965.59) to the Company,
and Capitalized Interest (as defined in the 1991 Loan Agreement) in the amount
of Three Million Three Hundred Fifteen Thousand Six Hundred Fifty-Nine Dollars
and Twenty Cents ($3,315,659.20) has been added to such principal.
G. The Company has requested that Lender agree to extend to the Company
additional credit of up to Seventy-Five Million Dollars ($75,000,000) for the
purpose of allowing the Company to advance funds to the Existing Market Entities
and other subsidiaries and affiliates to be identified pursuant to this
Agreement (the "FUTURE MARKET ENTITIES"), to allow such Existing Market Entities
and Future Market Entities to acquire funds for the construction and operation
of their respective cellular radio communications systems.
H. The Lender entered into various financing transactions with certain of
the Company's affiliates, each involving the Company as a limited guarantor, all
as referenced on SCHEDULE 2 hereto (the "DIRECT LOAN TRANSACTIONS"). The Company
and the operating entities involved in such transactions, as listed on SCHEDULE
2 hereto (the "DIRECT LOAN ENTITIES") have notified Lender of the intended
prepayment by the Direct Loan Entities of all amounts outstanding under the
Direct Loan Transactions, and the Company has requested that Lender, upon such
payment, lend pursuant to this Agreement additional funds in an aggregate amount
equal to the principal amount so paid.
I. The Lender entered into that certain Term Loan Agreement dated as of
June 18, 1991 (as amended, the "CA-1 LOAN AGREEMENT") with Randolph Cellular
Corporation, a Delaware corporation, the former holder of a license issued by
the Federal Communications Commission to operate a cellular radio-telephone
system in the area designated as the California-1 Rural Service Area, which
license is now held by California Rural Service Area #1, Inc., a California
corporation and an affiliate of the Company ("CALIFORNIA-1"). As of January 4,
1993, California-1 assumed all obligations of Randolph Cellular under such Term
Loan Agreement and the promissory notes issued pursuant thereto. The Company and
California-1 have notified Lender of the intended prepayment by California-1 of
all amounts outstanding under the CA-1 Loan Agreement, and the Company has
requested that Lender, upon such payment, lend pursuant to
2
<PAGE>
this Agreement additional funds in an aggregate amount equal to the principal
amount so paid, to refinance the loans made to Randolph Cellular by Lender.
J. Lender is willing to extend additional credit to the Company for such
purposes, but only on the terms and conditions set forth in this Agreement.
K. The Company and Lender wish to amend and restate the 1991 Loan
Agreement, to evidence the existing Loans as well as the additional credit to be
extended to the Company by the Lender, and for the convenience of the parties.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree that the 1991 Loan Agreement is hereby
amended and restated in its entirety to read as follows:
ARTICLE I. DEFINITIONS
SECTION 1.1 DEFINED TERMS. As used in this Agreement, the terms defined
in the Recitals have the meanings set forth therein, and the following terms
have the following meanings:
"ADVANCE": any advance of funds made by Lender to the Company hereunder,
including advances made under the 1991 Loan Agreement and advances representing
Capitalized Interest pursuant to Section 2.2(e) hereof.
"AFFILIATE": as applied to any Person, any second Person directly or
indirectly controlling, controlled by, or under common control with that Person.
For this purpose, "control" (including with correlative meanings, the terms
"controlling", "controlled by" and under "common control with"), means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of, whether through the voting of
partnership interests or by contract or otherwise, such other Person.
"AGREEMENT": this Amended and Restated Term Loan Agreement, as amended,
supplemented or modified from time to time.
"AMENDMENT DATE": December 22, 1994.
"ASSIGNMENT": each Collateral Assignment agreement, substantially in the
form of Exhibit D hereto, executed by the Company in favor of Lender, assigning
to Lender as part of the Collateral all right, title and interest of the Company
in Market Entity Loan Documents and the Market Entity Collateral.
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"BASE RATE": the fluctuating rate of interest equal to (a) the 90-day
"Commercial Paper Rate" of high-grade unsecured notes sold through dealers by
major corporations in multiples of $1,000, as reported from time to time in THE
WALL STREET JOURNAL, PLUS (b) as applicable, (i) for all Advances made under any
of the 1991 Notes, 2.307% per annum, or (ii) for all Advances made under any of
the 1994 Notes, 2.25% per annum. The Base Rate in effect on the last Business
Day of each Calendar Quarter as reflected by the most recent WALL STREET JOURNAL
publication shall be the Base Rate for the following Calendar Quarter, effective
as of 12:01 a.m., New York time, on the first calendar day of that Calendar
Quarter ("DETERMINATION DATE"). The Base Rate shall be expressed as an annual
rate of interest, compounded monthly and calculated on the basis of a 360-day
year.
"BASIC AGREEMENTS": a collective reference to this Agreement, the Notes,
the Security Agreement and the Assignments.
"BORROWING CERTIFICATE": a Borrowing Certificate duly executed by the
Company (i) in the form of Exhibit B-1 for Advances (other than Advances for
Capitalized Interest) under the Equipment Note, (ii) in the form of Exhibit B-2
for Advances (other than Advances for Capitalized Interest) under the
Construction Note, and (iii) in the form of Exhibit B-3 for Advances under any
of the New Notes.
"BORROWING DATE": for any Advance made under the 1991 Loan Agreement, the
Business Day on which such Advance was made, and for any other Advance (other
than an Advance for Capitalized Interest), the Business Day specified in the
Borrowing Certificate as a date on which the Company requests the Lender to make
such Advance and on which such Advance is made. For each Advance under the
Construction Note, the Equipment Note, Note D or Note E, each Borrowing Date
(other than the First Borrowing Date) shall be the last Business Day of a
Calendar Quarter.
"BUSINESS DAY": a day other than a Saturday, Sunday or other day on which
commercial banks in Illinois and Tennessee are authorized or required by law to
be closed.
"CALENDAR QUARTER": each three (3) calendar month period beginning
January 1, April 1, July 1, and October 1, of each calendar year.
"CAPITALIZED INTEREST": any of the interest accruing on the Equipment Note
or the Construction Note that is paid by Advances pursuant to Section 2.2(e)
hereof, that is capitalized and added to the principal amount of such Note.
"CAPITALIZED INTEREST PERIOD": for each Advance (other than an Advance for
Capitalized Interest) under the Equipment Note and the Construction Note, the
first twelve (12) full months following the Borrowing Date for such Advance.
"CASH FLOW": during any fiscal year of the Company, the sum of
(i) Consolidated Net Income or Consolidated Net Loss (which shall be treated as
a negative number) for such year
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PLUS (ii) all non-cash items deducted in determining such Consolidated Net
Income (or Consolidated Net Loss), MINUS (iii) all non-cash items added in
determining such Consolidated Net Income (or Consolidated Net Loss) during such
year, PLUS (iv) the net proceeds to Company from any private placement or public
offerings of Company securities, cash contributions to capital or any other form
of cash equity infusion to Company, PLUS (v) all amounts available for the
Company to borrow under its revolving credit agreements, PLUS (vi) during the
1991 through 1994 fiscal years, all unencumbered cash and cash equivalents on
hand.
"CELLULAR LEASE OBLIGATIONS": the total obligations (discounted as
described below) consisting of all rental or lease payments payable during the
minimum lease term, discounted to present value at a rate of 8%, under each then
existing multi-year operating lease of the Company of equipment integral to the
operation of a cellular radio communications system, if such discounted present
value under such lease exceeds $500,000.
"CODE": the Internal Revenue Code of 1986, as amended from time to time.
"COLLATERAL": all the collateral securing the Notes, including all
collateral identified in the Security Agreement and/or the Assignments, but
excluding the Excluded Collateral.
"COLLATERAL RELEASE REQUEST": a certificate substantially in the form of
EXHIBIT E hereto, duly executed by the Company, requesting Lender to release its
liens in respect of any particular Market Entity, to be delivered pursuant to
Section 7.2, 7.3 or 7.4 hereof.
"COLLATERAL VALUE": at any time, for any Market Entity (or Market
Entities) an assumed value of the Collateral relating to such Market Entity, as
if unencumbered, calculated as an amount equal to the original cost of the fixed
assets (other than Excluded Collateral) constituting the System of the
applicable Market Entity (or Market Entities) at such time, as appearing on its
(or their respective) books.
"COMBINED MARKET ENTITY": as defined in Section 7.5 hereof.
"COMMITMENT": as defined in Section 2.1 hereof.
"COMMITMENT PERIOD": the time period from the Amendment Date to and
including the applicable Financing Termination Date.
"COMMONLY CONTROLLED ENTITY": an entity, whether or not incorporated,
which is under common control with the Company within the meaning of Section
414(b) or (c) of the Code.
"COMPETITOR": any direct competitor, or an Affiliate of a direct
competitor, of the Company, TDS or their respective Affiliates, excepting in any
event any Affiliate of Lender that operates primarily as a financing entity and
that has ownership interests in, or control of, any such direct competitor (or
such Affiliate of a direct competitor) in connection with or as a result
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of financing or credit arrangements entered into by such Affiliate in the
ordinary course of its business.
"CONSENT": a Consent and Acknowledgment, substantially in the form
included in EXHIBIT A to the Security Agreement, duly executed by a Market
Entity consenting to an Assignment.
"CONSOLIDATED INDEBTEDNESS": at any time, all Indebtedness of the Company
and its Consolidated Subsidiaries at such time consolidated in accordance with
GAAP.
"CONSOLIDATED NET INCOME (LOSS)": during any fiscal year of the Company,
the net income (loss) from continuing operations (after taxes) for such year of
the Company and its Consolidated Subsidiaries, consolidated in accordance with
GAAP.
"CONSOLIDATED SUBSIDIARIES": those Subsidiaries whose accounts are or
should be consolidated with those of the Company in accordance with GAAP.
"CONSOLIDATED TOTAL LIABILITIES": the Liabilities of the Company and its
Consolidated Subsidiaries, if any, which would in accordance with GAAP, be
classified as liabilities on the balance sheet of the Company and its
Consolidated Subsidiaries at such time, consolidated in accordance with GAAP.
"CONSTRUCTION NOTE": collectively, the 1994 Construction Note and the 1991
Construction Note.
"CONTINGENT OBLIGATION": as to any Person, any obligation of such Person
guaranteeing any Indebtedness, leases, dividends or other obligations ("primary
obligations") of any other Person (the "primary obligor") in any manner, whether
directly or indirectly, including, without limitation, any obligation of such
Person, whether or not contingent, (a) to purchase any such primary obligation
or any property constituting direct or indirect security therefor, (b) to
advance or supply funds (i) for the purchase or payment of any such primary
obligation or (ii) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency of the primary
obligor, (c) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation or (d) otherwise
to assure or hold harmless the owner of such primary obligation against loss in
respect thereof; provided, however, that the term Contingent Obligation shall
not include endorsements of instruments for deposit or collection in the
ordinary course of business.
"CONTRACTUAL OBLIGATION": as to any Person, any provision of any security
issued by such Person or of any agreement, instrument or undertaking to which
such Person is a party or by which it or any of its property is bound.
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"DEBT SERVICE": for any fiscal year of the Company, the sum of all cash
payments which the Company will be required to make during such year
representing principal of all of its Indebtedness including, without limitation,
the following: (a) amounts payable during such year on account of capitalized
leases (unless the assets subject to such capitalized leases have been subleased
or otherwise rented to a third party); (b) the then current portion of any
long-term Indebtedness; (c) amounts payable on short-term Indebtedness; and (d)
amounts payable under this Agreement and the Notes, but excluding amounts
outstanding under demand notes issued by the Company to TDS and the Company's
revolving credit agreements, to the extent that such amounts are not required to
be paid (on a scheduled due date or on maturity) during such fiscal year;
PROVIDED, HOWEVER, that the Debt Service shall be recalculated for the balance
of any fiscal year in which demand is made on any of such demand notes for
payment, or any of the LYONs are accelerated or are subject to cash payment of
any amount outstanding thereunder, effective from the date of such demand,
acceleration or obligation to make such cash payment, as applicable, to include
the amount of such required payments.
"DEBT SERVICE COVERAGE RATIO": at the end of any fiscal year, the ratio of
the Cash Flow for such fiscal year to Debt Service for the next fiscal year.
"DEFAULT": any of the events specified in Section 8.1 hereof, whether or
not any requirement for the giving of notice, the lapse of time, or both, or any
other condition, has been satisfied, or as specified in Section 8.2 hereof.
"EQUIPMENT NOTE": collectively, the 1994 Equipment Note and the 1991
Equipment Note.
"EQUITY": at any time, the sum of all amounts contributed prior to such
time to the Company as equity or capital contributions or paid to the Company in
respect of any issuance of stock or securities of the Company, increased or
decreased as necessary to reflect any additions to or subtractions from the
Company's retained earnings, and further decreased by any Restricted Payments
made to shareholders of the Company at any time after April 23, 1991 (whether or
not made as Eligible Distributions pursuant to Section 6.6 hereof).
"ERISA": the Employee Retirement Income Security Act of 1974, as amended
from time to time.
"EVENT OF DEFAULT": any of the events specified in Section 8.1 hereof,
provided that any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied, or as specified in Section 8.2
hereof.
"EXCLUDED COLLATERAL": all now owned or hereafter acquired (i) accounts
receivable arising from, and contracts for, the sale or lease of goods (other
than NTI Equipment) or rendition of services by the Company or a Market Entity,
as applicable, (ii) instruments or general intangibles representing or
evidencing ownership interests in any Market Entity or in any other entity
holding a license or permit from the FCC to construct or operate a cellular
radio communications system, (iii) rights to any FCC License or other
construction permits and operating licenses issued by the FCC or PUC regarding
any cellular radio communications system, and (iv) as to any Market
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Entity, chattel paper, rights to payment, instruments, contract rights,
inventory, equipment, software, software licenses, fixtures and general
intangibles used exclusively in, or arising solely from the operation by or for
such Market Entity of a cellular radio communications system in, an Excluded
Market.
"EXCLUDED MARKET": Any RSA or MSA (i) for which a Market Entity holds a
FCC License, and (ii) as to which, either (A) such RSA or MSA is designated as
an "Excluded Market" in the Market Entity Loan Documents for such Market Entity
or (B) such Market Entity is a Combined Market Entity and immediately prior to
the consummation of the Permitted Combination creating such Combined Market
Entity, the FCC License for such RSA or MSA was held by a General Market Entity
that was not a Market Entity.
"FCC": the Federal Communications Commission of the United States of
America, and any successor, in whole or in part, to its jurisdiction.
"FCC CONSTRUCTION PERMIT": each authorization (other than an interim
operating authorization) issued to a Market Entity by the FCC to permit the
Market Entity to construct a cellular radio communications system in the
applicable Market(s).
"FCC LICENSE": prior to the date of a Market Entity's receipt of the FCC
Operating License, the FCC Construction Permit, and thereafter, the FCC
Operating License.
"FCC OPERATING LICENSE": an authorization (other than an interim operating
authorization) issued or to be issued to a Market Entity by the FCC to permit
the Market Entity to operate a cellular radio communications system in the
applicable Market(s).
"FINAL MATURITY DATE": (i) for the 1991 Equipment Note or the 1991
Construction Note, December 1, 2002, and (ii) for the 1994 Equipment Note or the
1994 Construction Note, December 1, 2003.
"FINANCING TERMINATION DATE": (a) for the 1991 Notes and Advances made
under the 1991 Notes, January 1, 1993, and (b) for the 1994 Notes and Advances
under the 1994 Equipment Note or the 1994 Construction Note, the earlier of (i)
the second (2nd) anniversary of the Amendment Date, or (ii) the termination of
the Supply Agreement; PROVIDED, HOWEVER, that the Financing Termination Date for
Advances under the 1994 Equipment Note or the 1994 Construction Note may be
extended by the Company for up to an additional ninety (90) calendar days to
permit Advances to be made (x) under the 1994 Equipment Note for purchase orders
for NTI Equipment received by NTI prior to the applicable date set forth above,
or (y) under the 1994 Construction Note, to the extent, if any, that the
aggregate amount of Advances under the 1994 Construction Note is less than the
aggregate amount of Advances under the 1994 Equipment Note (including Advances
made during such 90 day period).
"FIRST BORROWING DATE": the date of the first borrowing by the Company
hereunder on or after the Amendment Date.
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"GAAP": generally accepted accounting principles in the United States of
America in effect from time to time.
"GENERAL MARKET ENTITIES": the General Market Entities described in the
Recitals of this Agreement, including both (i) the Existing Market Entities and
the Future Market Entities financed by the Company pursuant to this Agreement,
and (ii) other such entities that are not financed hereunder.
"GOVERNMENTAL AUTHORITY": any nation or government, any state or other
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"INDEBTEDNESS": as to any Person, at a particular time, (a) indebtedness
for borrowed money or for the deferred purchase price of property or services in
respect of which such Person is liable, contingently or otherwise, as obligor,
guarantor or otherwise, or in respect of which such Person otherwise assures a
creditor against loss, and (b) obligations under leases which shall have been or
should be, in accordance with GAAP, recorded as capital leases in respect of
which obligations such Person is liable, contingently or otherwise, as obligor,
guarantor or otherwise, or in respect of which obligations such Person assures a
creditor against loss, and (c) any other notes or debt instruments of such
Person.
"INITIAL PAYMENT DATE": (i) for each Advance (other than an Advance for
Capitalized Interest) under the Equipment Note or the Construction Note, the
first Business Day of the thirteenth (13th) month after the Borrowing Date for
such Advance, or (ii) for the Refinancing Note, February 1, 1992, or (iii) for
each of the New Notes, the first Business Day of the first calendar month after
the Advance therefor.
"INTERIM NOTES": the promissory notes identified on Schedule 1.1 hereto,
each of which was executed by the Company payable to the order of Lender, and
all of which have been refinanced by the Refinancing Loan.
"LETTER AGREEMENT": the letter agreement of even date herewith executed by
and among Lender, the Company, USCOC and NTI, relating to purchases of NTI
Equipment by USCOC, the Company and/or the General Market Entities on or after
August 1, 1994.
"LIABILITIES": at any date, the aggregate amount of obligations of the
Company including all Indebtedness of the Company at such date, that would be
classified as liabilities on its balance sheet at such date, as determined in
accordance with GAAP.
"LIEN": any mortgage, pledge, hypothecation, assignment, encumbrance, lien
(statutory or other), security interest or other security agreement or
arrangement (including, without limitation, any conditional sale or other title
retention agreement, any financing lease having the same economic effect as any
of the foregoing, and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction).
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"LOAN DOCUMENTS": all the Basic Agreements, all UCC-1 financing
statements, and all other documents, instruments, agreements or certificates
evidencing or securing the Loans, or executed and/or delivered in connection
with any of the foregoing, excluding the Market Entity Loan Documents, the
Supply Agreement and the Letter Agreement.
"LOANS": each of the loans described in Section 2.1 hereof.
"LYON(S)": any one or more LYON notes issued by the Company pursuant to
the Merrill Lynch Liquid Yield Option Note program, as long as such LYON notes
are substantially in the form of the sample LYON notes discussed by Lender and
the Company prior to the execution of the 1991 Loan Agreement, and do not result
in any more adverse effect on the Lender's rights and remedies than in such
sample forms.
"MARKET": any RSA or MSA.
"MARKET ENTITY": any of the partnership, corporate or other entities that
holds an FCC Construction Permit or FCC Operating License authorizing it to
construct or operate a cellular radio communications system in a particular RSA
or MSA, and in which the Company, or an Affiliate or Subsidiary of the Company,
has an ownership interest and which the Company has designated as being included
in this Agreement by delivering to Lender, pursuant to the Security Agreement,
the Market Entity Loan Package for such Market Entity (including, without
limitation, a Market Entity Loan Package for a Combined Market Entity) and
either (i) for which the Lender has advanced funds as contemplated in this
Agreement, or (ii) which the Lender has accepted, or is deemed to have accepted,
as a Replacement Market Entity or Supplemental Market Entity pursuant to Article
7 hereof.
"MARKET ENTITY COLLATERAL": the collateral securing a Market Entity Loan,
consisting of all the Market Entity's existing and after-acquired accounts,
chattel paper, rights to payment, instruments, software and software licenses
(to the extent permitted by the applicable licensor), contract rights,
inventory, equipment (including the NTI Equipment), fixtures, general
intangibles, and all accessions and additions to, substitutions for and
replacements, products and proceeds of the foregoing, excluding, in all cases,
the Excluded Collateral, all as more fully described in the Security Agreement
and the Assignments.
"MARKET ENTITY LOAN": any loan, line of credit, credit facility, extension
of credit or advance of funds made by the Company to any Market Entity at any
time (i) from or with proceeds of Loans made under this Agreement, or (ii) with
respect to any advance to a Market Entity under Section 7.4(a)(ii) or any
Supplemental Market Entity or Replacement Market Entity, from or with other
funds and evidenced by a Market Entity Note.
"MARKET ENTITY LOAN DOCUMENTS": the loan and security agreement, notes,
financing statements, and other agreements, documents and instruments
evidencing, securing, or executed in connection with any Market Entity Loan, all
as more particularly described in the Security Agreement.
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"MARKET ENTITY LOAN PACKAGE(S)": as defined in the Security Agreement.
"MARKET ENTITY NOTE(S)": as defined in the Security Agreement.
"MARKET ENTITY NOTE SHORTFALL": as of the last day of a Calendar Quarter,
the amount, if any, by which the outstanding aggregate principal amount of all
of the Notes (other than the Refinancing Note) exceeds the outstanding aggregate
principal amount of all of the Market Entity Notes.
"MATURITY DATE": (i) for any Advance (other than an Advance for
Capitalized Interest) under the 1991 Equipment Note or the 1991 Construction
Note, the first Business Day of the ninety-sixth (96th) month following the
Borrowing Date for such Advance; (ii) for the Refinancing Note, December 1,
1998; (iii) for any Advance under the 1994 Equipment Note or the 1994
Construction Note (other than an Advance for Capitalized Interest), the first
Business Day of the eighty-fourth (84th) month following the Borrowing Date for
such Advance; (iv) for Note D, February 1, 1996; and (v) for Note E, January 31,
1999.
"MSA": a Metropolitan Statistical Area, as designated by the FCC.
"1991 NOTES": collectively, the 1991 Construction Note, the 1991 Equipment
Note, and the Refinancing Note.
"1994 CONSTRUCTION NOTE": that certain Construction Note executed by the
Company in the form of EXHIBIT A-1 hereto, payable to the Lender, in the
original maximum principal amount of Thirty-Seven Million Five Hundred Thousand
Dollars ($37,500,000) plus Capitalized Interest (as defined therein), as
described in Section 2.2(b) hereof, including all Note Schedules executed in
connection therewith, and all extensions, renewals, modifications and
replacements thereof.
"1994 EQUIPMENT NOTE": that certain Equipment Note executed by the Company
in the form of EXHIBIT A-2 hereto, payable to the Lender, in the original
maximum principal amount of Thirty-Seven Million Five Hundred Thousand Dollars
($37,500,000) plus Capitalized Interest (as defined therein), as described in
Section 2.2(b) hereof, including all Note Schedules executed in connection
therewith, and all extensions, renewals, modifications and replacements thereof.
"1994 NOTES": collectively, the 1994 Construction Note, the 1994 Equipment
Note, Note D and Note E.
"NEW NOTE(S)": Note D and Note E, executed by the Company pursuant to
Section 2.2(c) and (d) hereof, and all extensions, renewals, modifications and
replacements thereof.
"NOTE(S)": the Equipment Note, the Construction Note, the Refinancing Note
and the New Notes, or any of them.
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"NOTE D": the promissory note described in Section 2.2(c) hereof, and all
extensions, renewals, modifications and replacements thereof.
"NOTE E": the promissory note described in Section 2.2(d) hereof, and all
extensions, renewals, modifications and replacements thereof.
"NOTE SCHEDULE": a schedule to the Equipment Note or Construction Note, as
applicable, each substantially in the form of EXHIBIT A-4 hereto, with
appropriate insertions, each of which shall further evidence an Advance (other
than an Advance for Capitalized Interest) under such Note and shall become a
part thereof.
"NTI": Northern Telecom Inc., a Delaware corporation.
"NTI EQUIPMENT": all of the hardware, equipment, equipment components,
Software and other products purchased or licensed from NTI by the Company,
USCOC, and/or any Market Entity pursuant to the Supply Agreement or otherwise
purchased or licensed from NTI by or on behalf of Market Entities.
"OBLIGATIONS": all Indebtedness, liabilities and obligations of the
Company to the Lender, whether now existing or hereafter incurred, direct or
indirect, absolute or contingent, secured or unsecured, matured or unmatured,
joint or several, whether for principal, interest, fees, expenses, indemnities
or otherwise, arising under, out of or in connection with the Loan Documents,
including, without limitation, all future advances and the unpaid principal
amount (including Capitalized Interest) of, and accrued interest on, the Notes.
"ORIGINAL CLOSING DATE": October 1, 1991.
"PARTIALLY FINANCED MARKET ENTITY": a Market Entity that holds an FCC
License for one or more Excluded Markets.
"PAYMENT DATE": the Initial Payment Date for each Note and the first
Business Day of each calendar month thereafter.
"PERMITTED COMBINATION": as defined in Section 7.5.
"PERMITTED LIENS": the Liens described in Section 6.2 hereof.
"PERSON": an individual, partnership, corporation, business trust, joint
stock company, trust, unincorporated association, joint venture, Governmental
Authority or other entity of whatever nature.
"PLAN": any pension plan which is covered by Title IV of ERISA and in
respect of which the Company or a Commonly Controlled Entity is an "employer" as
defined in Section 3(5) of ERISA.
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"PUC": the Public Utilities Commission or analogous governmental authority
in any state where an RSA or an MSA is located, or any successor agency, and any
successor, in whole or in part, to its jurisdiction.
"REFINANCING NOTE": as defined in A. 1. of the Recitals of this Agreement.
"REPLACED MARKET ENTITY": as defined in Section 7.2 hereof.
"REPLACEMENT MARKET ENTITY": as defined in Section 7.2 hereof.
"REPORTABLE EVENT": with respect to any Plan, (i) a reportable event
described in Section 4043 of ERISA and regulations thereunder, (ii) a withdrawal
by a substantial employer from a Plan to which more than one employer
contributes, as referred to in Section 4063(b) of ERISA, or (iii) a cessation of
operations at a facility causing more than twenty percent (20%) of Plan
participants to be separated from employment, as referred to in Section 4062(e)
of ERISA.
"REQUIRED CONSENTS": as defined in Section 3.3 hereof.
"REQUIRED PREPAYMENT": as defined in Section 2.4 hereof.
"REQUIREMENT OF LAW": as to any Person, the Articles of Incorporation,
by-laws, partnership agreement or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation, or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its properties or to which such Person
or any of its property is subject.
"RESPONSIBLE OFFICER": (i) for the Company, the Chairman or the Vice
President of Engineering, and (ii) for the Company or any other corporation, the
President, chief executive officer or chief operating officer, or, with respect
to financial matters, the Treasurer or the chief financial officer; and (iii)
for any general or limited partnership, the managing partner that is authorized
to act for the partnership or, with respect to financial matters, the chief
financial officer or tax matters partner.
"RESTRICTED PAYMENT": (i) any dividend or other distribution, in cash or
property, direct or indirect, on account of any shares of stock of any class or
series of the Company now or hereafter outstanding, or (ii) any redemption,
retirement, purchase or other acquisition, direct or indirect, of any shares of
stock of any class or series of the Company now or hereafter outstanding,
whether made in cash, property or in obligations of the Company.
"RSA": a Rural Service Area, as designated by the FCC.
"SECURITY AGREEMENT": the Amended and Restated Security Agreement and
Assignment of Contracts made by the Company in favor of the Lender,
substantially in the form of EXHIBIT C hereto, as amended, modified or
supplemented from time to time.
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"SOFTWARE": the proprietary computer programs (consisting of firmware and
logic instructions in machine-readable code residing in, or intended to be
loaded in system memories which provide basic logic, operating instructions and
user-related application instructions, but excluding customer data) which are
integral to any hardware, equipment or equipment components furnished to any
Market Entity pursuant to the Supply Agreement or otherwise provided by NTI to
any Market Entity, and all licenses and rights to use such software granted to
any Market Entity in connection therewith, and all accessories, replacements,
upgrades, improvements, substitutions and accessions thereto.
"SUBORDINATED INDEBTEDNESS": unsecured Indebtedness of the Company for
money borrowed from one or more Persons, that is fully subordinated in payment,
collection and liquidation to the final payment in full of all Obligations of
the Company to Lender, and to all rights of Lender, and that is evidenced by an
instrument duly reflecting such subordination, that (a) allows only the payment
of regularly scheduled installment payments thereunder (other than payments on
maturity, acceleration or other payment in full) prior to the occurrence of an
Event of Default, (b) requires any payments received by the holder thereafter to
be delivered to Lender, and (c) prohibits the holder thereof from accelerating
the Subordinated Indebtedness without giving Lender prior written notice.
Indebtedness evidenced by a LYON shall be treated as Subordinated Indebtedness
only to the extent that such LYON has not been accelerated and that no cash
payment is made, or required to be made, by the Company thereunder (whether at
maturity, upon a change in control, upon early redemption or otherwise). Upon
any such event, the Indebtedness evidenced by such LYON shall no longer qualify
as Subordinated Indebtedness. Lender reserves the right to determine, in the
exercise of its reasonable judgment, whether any such Indebtedness has been
properly subordinated pursuant to the above requirements, for purposes of
Section 6.1 hereof.
"SUBSIDIARY": as to any Person, (i) a corporation of which shares of stock
having ordinary voting power (other than stock having such power only by reason
of the happening of a contingency) to elect a majority of the board of directors
or other managers of such corporation are at the time owned, or the management
of which is otherwise controlled, directly, or indirectly through one or more
intermediaries, or both, by such Person, and (ii) any other non-corporation
Person which is directly or indirectly controlled by such Person. ("Controlled"
for this purpose shall mean that the controlling Person has the direct or
indirect power to direct or cause the direction of the management or policies of
the controlled Person whether through the ownership of voting securities or
partnership interests, by contract or otherwise.)
"SUPPLEMENTAL MARKET ENTITY": as defined in Section 7.4 hereof.
"SUPPLIER": any vendor, supplier, contractor, materialman, or
subcontractor (excluding NTI) providing direct construction and/or installation
services with respect to any System.
"SUPPLY AGREEMENT": the Supply Agreement dated as of August 27, 1987
between NTI, General Electric Company and USCOC as agent for the General Market
Entities, as amended, modified or supplemented from time to time.
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"SYSTEM": each complete cellular radio communications system that has
been, or is or is to be, purchased, leased, installed, and/or operated by or for
any Market Entity, including without limitation the NTI Equipment, all towers
and all other equipment , except for any of the foregoing that constitutes
Excluded Collateral.
"TDS": Telephone and Data Systems, Inc., an Iowa corporation.
"TOTAL DEBT": at any time the total outstanding liabilities of the
Company, including, without limitation, current liabilities, long term
Indebtedness, all lease obligations (other than under operating leases) under
finance leases and/or capital leases, all Contingent Obligations, and all
Obligations under this Agreement.
"USCOC": United States Cellular Operating Corporation, a Subsidiary of the
Company.
SECTION 1.2 OTHER DEFINITIONAL PROVISIONS.
(a) All terms defined in this Agreement shall have the defined
meanings when used in any Note or any other Loan Document.
(b) As used herein, in any Note, and in any other Loan Document,
accounting terms relating to the Company not defined in Section 1.1
hereof, and accounting terms partly defined in Section 1.1 hereof to the
extent not defined, shall have the respective meanings given to them under
GAAP (including consolidation principles, where applicable).
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Article,
Section, subsection, schedule and exhibit references are to this Agreement
unless otherwise specified.
(d) All definitions and other terms used in this Agreement or in any
other Loan Document shall be equally applicable to the singular and plural
forms thereof, and all references to any gender shall include all other
genders.
(e) The table of contents and captions in this Agreement and the
other Loan Documents are for convenience only, and in no way limit or
amplify the provisions hereof or thereof.
(f) All defined terms and references in this Agreement or the other
Loan Documents with respect to any agreements, notes, instruments,
certificates or other documents shall be deemed to refer to such documents
and to any amendments, modifications, renewals, extensions, replacements,
substitutions and supplements to such documents.
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SECTION 1.3 TERMINOLOGY RELATING TO MARKET ENTITIES. The various defined
terms in this Agreement or the other Loan Documents referring to one or more
"Market Entities" shall refer at any particular time to the Market Entities
(including Replacement Market Entities and Supplemental Entities) that, at such
time, have been designated by the Company for inclusion in the scope of this
Agreement by execution and delivery to Lender of an Assignment and a Market
Entity Loan Package, and (except for Replacement Market Entities and
Supplemental Market Entities) for which Advances have been made hereunder;
PROVIDED, HOWEVER, that any such Market Entity shall cease being a Market Entity
when and if (x) the Collateral relating to such Market Entity has been released
from the Collateral pursuant to Section 7.2, or (y) such Market Entity has been
removed from the scope of this Agreement pursuant to Section 7.3(a) or 7.3(b)
hereof.
ARTICLE 2. AMOUNT AND TERMS OF LOANS
SECTION 2.1 COMMITMENT AND LOANS. Subject to the terms and conditions
herein provided, and so long as no Event of Default has occurred and is
continuing hereunder, Lender agrees to lend to Company during the Commitment
Period, an aggregate principal amount not to exceed Seventy-Five Million Dollars
($75,000,000) plus Capitalized Interest (not to exceed $6,750,000 in the
aggregate after the Amendment Date), as set forth herein, to be allocated and
provided only as set forth in Sections 2.1 (b) and (c), together with the
amounts described in Section 2.1(d) and (e) below (the "COMMITMENT"). No amounts
may be borrowed under any Loan on or after the Financing Termination Date.
Lender has already made Advances to the Company in the aggregate principal
amount of $59,275,624.79 (including Capitalized Interest) pursuant to the 1991
Loan Agreement and the 1991 Notes, as described below.
(a) REFINANCING LOAN. Lender made one Advance in the principal amount
of $3,959,965.59, on January 1, 1992, to refinance the outstanding
principal amount of the Interim Notes (the "REFINANCING LOAN").
(b) EQUIPMENT LOAN. Lender shall make Advances to the Company from
time to time until the Financing Termination Date, in principal amounts
not to exceed Thirty-Seven Million Five Hundred Thousand Dollars
($37,500,000) in the aggregate under the 1994 Equipment Note, and has
advanced $27,627,486.72 in the aggregate (including Capitalized Interest)
under the 1991 Equipment Note, in both cases to be used solely for the
purchase of NTI Equipment (exclusive of sales tax) for the Market
Entities' Systems, pursuant to the Supply Agreement or otherwise from NTI
(or for reimbursement for payments made to NTI for such purchases between
January 1, 1993 and the Amendment Date) (collectively, the "EQUIPMENT
LOAN"). The Equipment Loan shall be evidenced by the 1991 Equipment Note
and the 1994 Equipment Note.
(c) CONSTRUCTION LOAN. Lender shall make Advances to the Company from
time to time until the Financing Termination Date in principal amounts not
to exceed Thirty-
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Seven Million Five Hundred Thousand Dollars ($37,500,000), in the
aggregate under the 1994 Construction Note, and has advanced
$27,688,172.48 in the aggregate (including Capitalized Interest) under the
1991 Construction Note, in both cases to be used solely for direct
construction costs incurred by the Company and/or the applicable Market
Entity in the construction of the Systems or for payment of sales tax on
any NTI Equipment (or for reimbursement for payments made for such
purposes between January 1, 1991 and the Amendment Date) (collectively,
the "CONSTRUCTION LOAN"). The Construction Loan shall be evidenced by the
1991 Construction Note and the 1994 Construction Note. Advances (other
than Advances for Capitalized Interest) under the 1994 Construction Note
shall be made only within the following limitations. (For these
calculations, Advances for Capitalized Interest shall not be included.)
(i) On and as of June 30, 1995, the aggregate amount of Advances
made under the 1994 Construction Note shall not exceed 150% of the
aggregate amount of Advances made under the 1994 Equipment Note.
(ii) During the time period from July 1, 1995 through June 30,
1996, the aggregate amount of Advances made during such time period
under the 1994 Construction Note shall not at any time exceed 125% of
the aggregate amount of Advances under the 1994 Equipment Note made
during such time period prior to, or on the same day as, the latest
Advance under the 1994 Construction Note.
(iii) On and as of the Financing Termination Date, the aggregate
amount of Advances made under the 1994 Construction Note shall not
exceed 100% of the aggregate amount of Advances made under the 1994
Equipment Note prior to, or on the same day as, the latest Advance
under the 1994 Construction Note.
(d) DIRECT LOAN TRANSACTIONS. Lender shall make one additional
Advance to the Company in a principal amount not to exceed $2,553,356.69,
to be advanced by the Company to a single Market Entity, to be used by
such Market Entity for general business purposes ("LOAN D"). The amount of
Loan D shall be equal to the sum of the aggregate principal amounts
outstanding in respect of all the Direct Loan Transactions on the
Borrowing Date for Loan D. The Collateral Value for the Market Entity Loan
made with the proceeds of Loan D shall be equal to or greater than the
outstanding principal amount of the related Market Entity Note.
Simultaneously with and as a condition of such Advance, the Company shall
cause all amounts then owing to Lender under the Direct Loan Transactions
(including without limitation all principal and accrued interest, and
including reasonable expenses payable by the Direct Loan Entities under
the documents evidencing the Direct Loan Transactions, to the extent that
invoices for such expenses have been delivered to the Company on or before
February 15, 1995) to be paid in full, in immediately available funds. The
Advance for Loan D shall be subject to all the other conditions of Article
4 hereof, including without limitation the Company's delivery to Lender of
a satisfactory Market Entity Loan Package with respect to the Market
Entity financed with the proceeds of Loan D. Within thirty (30) Business
Days following
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completion of such Advance, Lender shall deliver to each such Direct Loan
Entity (i) the original promissory notes evidencing the applicable Direct
Loan Transaction and any pledged stock certificates held by Lender, and
(ii) UCC-3 releases and mortgage releases in connection with the liens
created or evidenced by such Direct Loan Transactions.
(e) CALIFORNIA-1 LOAN. Lender shall make one additional Advance to
the Company in a principal amount not to exceed $4,373,614.19, to be
advanced by the Company to California-1, to refinance the obligations of
California-1 to the Lender pursuant to the CA-1 Loan Agreement ("LOAN E").
The amount of Loan E shall be equal to the principal amount outstanding in
respect of the CA-1 Loan Agreement on the Borrowing Date for Loan E.
Simultaneously with and as a condition of such Advance, the Company shall
cause all amounts then owing to Lender under the CA-1 Loan Agreement
(including without limitation all principal and accrued interest, and
including reasonable expenses payable by California-1 (or Randolph
Cellular Corporation) under the CA-1 Loan Agreement, to the extent that
invoices for such expenses have been delivered to the Company on or before
February 15, 1995) to be paid in full, in immediately available funds. The
Advance for Loan E shall be subject to all the other conditions in Article
4 hereof, including without limitation the Company's delivery to Lender of
a satisfactory Market Entity Loan Package with respect to California-1.
Within thirty (30) Business Days following completion of such Advance,
Lender shall deliver to California-1 (i) the original promissory notes
executed pursuant to the CA-1 Loan Agreement, and (ii) UCC-2 releases and
mortgage releases in connection with the liens created or evidenced
thereby.
SECTION 2.2 NOTES AND PAYMENT TERMS.
(a) REFINANCING NOTE. The Refinancing Loan is evidenced by the
Refinancing Note.
(b) CONSTRUCTION NOTE AND EQUIPMENT NOTE. The Equipment Loan and the
Construction Loan, respectively, shall be evidenced by the Equipment Note
and the Construction Note, respectively. Each such Note shall be executed
by the Company, payable to the order of Lender, and shall evidence the
obligation of the Company to repay all principal amounts advanced under or
pursuant to the Loan evidenced by such Note, together with interest and
all other amounts due thereunder. Each Advance (other than an Advance for
Capitalized Interest) under the Equipment Loan or the Construction Loan
shall also be evidenced by an appropriate Note Schedule, each
substantially in the form of EXHIBIT A-4 hereto, each of which will
evidence the applicable Advance. The 1994 Construction Note and the 1994
Equipment Note shall each (i) be dated the Amendment Date; (ii) have a
stated maturity that is the Final Maturity Date; and (iii) bear interest
at the Base Rate from the date of each Advance until the Note or any
amount thereunder is paid in full (whether on any Maturity Date, on the
Final Maturity Date, by acceleration, upon Required Prepayment, or
otherwise). Each Note Schedule shall be executed by the Company and shall
designate the applicable Borrowing Date for the applicable Advance, the
applicable Maturity Date for the applicable Advance and the principal
amount of such
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Advance. All Note Schedules, and all other schedules attached to any Note,
shall be deemed a part thereof. Any such Note Schedule or other schedule
may be amended by Lender from time to time to reflect changes in the
amounts that may be included thereon, but the failure to amend any Note
Schedule or other schedule shall not diminish the obligation of Company to
repay all amounts due hereunder or on any Note.
(c) LOAN D. The Advance under Loan D shall be evidenced by a separate
promissory note, substantially in the form of EXHIBIT A-5 hereto ("NOTE
D"), in the principal amount equal to the aggregate of all principal
amounts outstanding in respect of the Direct Loan Transactions on the
Borrowing Date for Loan D, and paid by the Direct Loan Entities on the
Borrowing Date for Loan D. The current amounts outstanding in respect of
the Direct Loan Transactions are set forth on SCHEDULE 2 hereto, and
adjustments will be made as necessary to reflect payments made thereon
before the applicable Borrowing Date. Note D shall (i) be dated the
Borrowing Date for Note D, (ii) have a stated maturity of February 1,
1996, (iii) bear interest at the Base Rate from the date thereof until
Note D or any amount thereunder is paid in full (whether on any maturity
date, by acceleration, on Required Prepayment or otherwise.)
(d) LOAN E. The Advance under Loan E shall be evidenced by a separate
promissory note, substantially in the form of EXHIBIT A-6 hereto ("NOTE
E"), in the principal amount equal to the aggregate of all principal
amounts outstanding in respect of the CA-1 Loan Agreement, and paid by
California-1 on the Borrowing Date for Loan E. The current amounts
outstanding in respect of the CA-1 Loan Agreement are set forth on
SCHEDULE 2 hereto, and adjustments will be made as necessary to reflect
payments made thereon before the applicable Borrowing Date. Note E shall
(i) be dated the Borrowing Date for Loan E, (ii) have a stated maturity
that is January 31, 1999, (iii) bear interest at the Base Rate from the
date thereof until Note E or any amount thereunder is paid in full
(whether on any maturity date, by acceleration, on Required Prepayment or
otherwise.)
(e) INTEREST PAYMENTS. Interest shall accrue on the principal amount
outstanding on each Note at the applicable Base Rate and shall be payable
as follows:
(i) For the Equipment Note and the Construction Note, interest
shall accrue on all Advances thereunder during the Capitalized
Interest Period, and the amount of accrued interest each month (up to
a maximum aggregate of $6,750,000 for the 1994 Equipment Note and the
1994 Construction Note) shall be capitalized by Lender and added to
the principal amount of the appropriate Note unless the Company elects
in writing by the fifteenth (15th) day of any month during the
Capitalized Interest Period to pay accrued interest with respect to
any Advance for such month on or before the first Business Day of the
following month. The capitalization of such accrued interest shall be
deemed to be an Advance hereunder, except that all Capitalized
Interest shall be added to the principal amount of the applicable
Advance, and shall not have a separate payment term.
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After an aggregate of $6,750,000 in Capitalized Interest has been
added to the 1994 Construction Note and the 1994 Equipment Note, the
Company shall thereafter pay accrued interest on both the 1994
Construction Note and the 1994 Equipment Note, in arrears, on the
first Business Day of each month, during the balance of the
Capitalized Interest Period.
(ii) Following the expiration of the Capitalized Interest
Period, accrued interest on each Advance (including Capitalized
Interest on such Advance) under the Equipment Note or the Construction
Note shall be paid on each Payment Date, along with the principal
payments described below.
(iii) Interest on the Refinancing Note and each of the New Notes
shall not be capitalized, but shall be payable on each Payment Date.
(f) PRINCIPAL PAYMENTS. The outstanding principal of each of the
Notes shall be paid as follows:
(i) Principal payments on the Refinancing Note shall be paid in
eighty-four (84) equal monthly installments of principal payable on
the Initial Payment Date and on each Payment Date thereafter until the
Maturity Date, when all principal, interest, charges and other amounts
outstanding under the Refinancing Note shall be due and payable.
(ii) Commencing on the Initial Payment Date for each Advance
under the 1991 Equipment Note or the 1991 Construction Note, and on
the first Business Day of each successive calendar month thereafter
until the Maturity Date for such Advance, subject to the provisions of
Section 2.4 hereof, all amounts due with respect to such Advance
(including any Capitalized Interest on such Advance), and all charges,
if any, shall be payable in eighty-four (84) equal consecutive monthly
installments of principal. In addition, the Company shall pay on each
Payment Date all accrued but unpaid interest, as set forth above. In
any event, the entire outstanding principal amount of each Advance
(including Capitalized Interest) under the 1991 Construction Note or
the 1991 Equipment Note and all accrued but unpaid interest and all
other amounts due thereunder shall be paid on the Maturity Date for
such Advance, and all amounts outstanding under the 1991 Construction
Note or the 1991 Equipment Note (including all Capitalized Interest)
shall be due and payable on the Final Maturity Date for such Note.
(iii) Commencing on the Initial Payment Date for each Advance
under the 1994 Equipment Note or the 1994 Construction Note, and on
the first Business Day of each successive calendar month thereafter
until the Maturity Date for such Advance, subject to the provisions of
Section 2.4 hereof, all amounts due with respect to such Advance
(including any Capitalized Interest on such Advance), and all charges,
if any, shall be payable in seventy-two (72) equal consecutive monthly
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installments of principal. In addition, the Company shall pay on each
Payment Date all accrued but unpaid interest, as set forth above. In
any event, the entire outstanding principal amount of each Advance
(including Capitalized Interest) under the 1994 Construction Note or
the 1994 Equipment Note and all accrued but unpaid interest and all
other amounts due thereunder shall be paid on the Maturity Date for
such Advance, and all amounts outstanding under the 1994 Construction
Note or the 1994 Equipment Note (including all Capitalized Interest)
shall be due and payable on the Final Maturity Date for such Note.
(iv) Principal payments on Note D shall be paid in equal
monthly payments, payable on the Initial Payment Date and on each
Payment Date thereafter until the Maturity Date for Note D, when all
principal, interest, charges and other amounts outstanding under Note
D shall be due and payable.
(v) Principal payments on Note E shall be paid in equal
monthly payments, payable on the Initial Payment Date and on each
Payment Date thereafter until the Maturity Date for Note E, when all
principal, interest, charges and other amounts outstanding under Note
E shall be due and payable.
(g) LATE PAYMENTS. Notwithstanding the foregoing, if the Company
shall fail to pay within ten (10) days after when due any principal amount
or interest or other amount payable under this Agreement or under any
Note, such amount shall bear interest at a rate per annum that is equal to
the lesser of (i) three percent (3%) higher than the then applicable Base
Rate or (ii) the maximum permissible rate under applicable law, from the
due date until such overdue principal amount, interest or other amount is
paid in full (both before and after judgment) whether or not any notice of
default in the payment thereof has been delivered under this Agreement.
Interest shall be computed in accordance with this Section 2.2 and Section
2.5 hereof.
(h) EXCESS INTEREST. Notwithstanding any provision of any Note, this
Agreement or any other Loan Document to the contrary, it is the intent of
Lender and Company, that Lender or any subsequent holder of any Note shall
never be entitled to receive, collect, reserve or apply, as interest, any
amount in excess of the maximum rate of interest permitted to be charged
by applicable law, as amended or enacted from time to time. In the event
Lender, or any subsequent holder of any Note, ever receives, collects,
reserves or applies, as interest, any such excess, such amount which would
be excessive interest shall be deemed a partial prepayment of principal
and treated as such, or, if the principal indebtedness and all other
amounts due are paid in full, any remaining excess funds shall immediately
be applied to any other outstanding indebtedness of Company due to Lender,
and if none is outstanding, shall be paid to Company. In determining
whether or not the interest paid or payable, under any specific
contingency, exceeds the highest lawful rate, Company and Lender shall, to
the maximum extent permitted under applicable law, (a) exclude voluntary
prepayments and the effects thereof as it may relate to any fees charged
by Lender, and (b) amortize, prorate, allocate, and spread, in equal
parts, the total amount
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of interest throughout the entire term of the indebtedness; PROVIDED that
if the indebtedness is paid and performed in full prior to the end of the
full contemplated term hereof, and if the interest received for the actual
period of existence hereof exceeds the maximum lawful rate, Lender or any
subsequent holder of any Note shall refund to Company the amount of such
excess or credit the amount of such excess against the principal portion
of the indebtedness, as of the date it was received, and, in such event,
Lender shall not be subject to any penalties provided by any laws for
contracting for, charging, reserving or receiving interest in excess of
the maximum lawful rate.
SECTION 2.3 PROCEDURE FOR BORROWING.
(a) REFINANCING LOAN. The one Advance under the Refinancing Loan was
made by Lender on January 1, 1992.
(b) EQUIPMENT LOAN AND CONSTRUCTION LOAN. For Advances (other than
Advances for Capitalized Interest) under the Equipment Loan or the
Construction Loan, the Company shall give the Lender at least seven
Business Days' written notice of its intention to borrow pursuant to the
Commitment by issuing and delivering to the Lender a Borrowing Certificate
substantially in the form of EXHIBIT B-1 OR B-2 hereto, as applicable,
specifying (i) the Business Day on which such Advance is to be made, (ii)
the account to which the funds are to be transmitted, and (iii) the amount
of the proposed Advance. Each Borrowing Certificate shall have attached
thereto copies of the applicable invoices or a transaction summary
reflecting payments made by the Company and such other supporting
documentation as Lender may reasonably require, including without
limitation, for Advances made on or after the Amendment Date, copies of
general ledger entries reflecting that the Collateral Value for a Market
Entity is equal to or greater than the outstanding principal amount of the
applicable Market Entity Note. Not later than 12:00 p.m., Nashville time,
on the Borrowing Date specified in the Borrowing Certificate, if all
conditions for the requested Advance are met, the Lender shall initiate
the transmission of the requested Advance by wire transfer of immediately
available funds to the account specified in such Borrowing Certificate.
Advances (other than Advances for Capitalized Interest) shall be made only
on the last Business Day of each Calendar Quarter, except for the first
Advance to be made under the Construction Loan or the Equipment Loan, and
each Advance other than the last Advance hereunder shall be in an
aggregate principal amount of not less than $100,000.
(c) LOAN D AND LOAN E. The one Advance in respect of each of Loan D
and Loan E shall be made by Lender on the first Borrowing Date on which
all conditions for such Advance have been met. (The parties anticipate
that the Advances for each of Note D and Note E will be made by March 31,
1995.) For the Advance under each of Note D and Note E, the Company shall
give the Lender at least seven Business Days' written notice of the
proposed Borrowing Date, by issuing and delivering to the Lender Borrowing
Certificates substantially in the form of EXHIBIT B-3 hereto, as
applicable, specifying (i) the Business Day on which such Advance is to be
made, (ii) the account
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to which the funds are to be transmitted, and (iii) the amount of the
proposed Advance. The Borrowing Certificate for Note D shall have attached
thereto copies of general ledger entries reflecting that the Collateral
Value for the Market Entity is equal to or greater than the outstanding
principal amount of the applicable Market Entity Note, and such other
supporting documentation as Lender may reasonably require. Not later than
12:00 p.m., Nashville time, on the Borrowing Date specified in the
Borrowing Certificate, if all conditions for the requested Advance are
met, the Lender shall initiate the transmission of the requested Advance
by wire transfer of immediately available funds to the account specified
in such Borrowing Certificate.
SECTION 2.4 PREPAYMENTS.
(a) VOLUNTARY PREPAYMENTS. The Company shall be permitted to prepay
the Loans, without premium or penalty, in whole or in part, at any time,
in any amount.
(b) REQUIRED PREPAYMENTS. The following prepayments shall be required
(the "REQUIRED PREPAYMENTS"):(i) if the Company or USCOC should terminate
the Supply Agreement or the Letter Agreement except for reasonable cause
pursuant to the terms thereof at any time prior to the earlier of (a) the
satisfaction of the obligations of the Company to purchase, or cause the
purchase of, NTI Equipment with an aggregate purchase price of at least
$37,500,000 under the Letter Agreement, or (b) the Financing Termination
Date (except as such Financing Termination Date might exist solely because
of such termination), the Company shall immediately prepay the outstanding
principal amount of all of the Loans evidenced by the 1994 Construction
Note and the 1994 Equipment Note, on demand, together with accrued and
unpaid interest thereon to the date of prepayment; and (ii) if the Company
has not otherwise complied with the requirements of Section 7.4 hereof,
the Company shall make prepayments to Lender in the amounts, if any,
required by Section 7.4 hereof.
(c) APPLICATION OF PREPAYMENTS. Principal amounts prepaid (i)
pursuant to Section 2.4(b)(i) hereof shall be applied to the outstanding
balance of each of the 1994 Construction Note and the 1994 Equipment Note
on a pro rata basis, (ii) pursuant to Section 2.4(b)(ii) or 7.3 hereof
shall be applied to the outstanding balance of each Note (other than the
Refinancing Note) on a pro rata basis, and (iii) pursuant to Section
2.4(a) hereof shall be applied to the outstanding balance of each Note on
a pro rata basis. After any prepayment hereunder, the remaining
installments of outstanding principal due under each applicable Note shall
be recalculated and any invoices delivered to the Company by the Lender
shall incorporate a revised repayment schedule to reflect such
recalculation.
SECTION 2.5 COMPUTATION OF INTEREST. Interest shall be calculated on the
basis of a 360-day year and the actual days elapsed.
SECTION 2.6 PAYMENTS. All payments (including prepayments) by the
Company on account of principal, interest and other charges shall be made
without setoff or counterclaim to
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the Lender at the office of the Lender referred to in Section 9.2 hereof in
lawful money of the United States of America and in immediately available funds.
If any payment hereunder or on any Note becomes due and payable on a day other
than a Business Day, the due date thereof shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension.
SECTION 2.7 USE OF PROCEEDS. The proceeds of the Loans evidenced by the
Equipment Note and the Construction Note shall be used by the Company to make
loans to the Market Entities, secured by the applicable Market Entity
Collateral, in the respective amounts described in Section 2.1 hereof, and to
pay Capitalized Interest pursuant to Section 2.2 hereof. Except as described
below in this Section 2.7, the Market Entity Loans made by the Company with the
proceeds of the Loans evidenced by the Construction Note shall be used to
finance or refinance the direct construction costs (including engineering,
purchase and installation) of the System of each Market Entity, and the Market
Entity Loans made by the Company with the proceeds of the Loans evidenced by the
Equipment Note shall be used to finance or refinance the acquisition of the NTI
Equipment for the System of each Market Entity pursuant to the Supply Agreement,
all as described in Section 2.1(b) and (c) hereof, respectively. The amount of
each Market Entity Loan made with the proceeds of the Loans evidenced by the
1994 Construction Note shall be limited to the amount of such direct
construction costs paid by or on behalf of such Market Entity, or for which such
Market Entity became liable, after January 1, 1991. The amount of each Market
Entity Loan made with the proceeds of the Loans evidenced by the 1994 Equipment
Note shall be limited to the amount of such NTI Equipment acquisition costs paid
by or on behalf of such Market Entity, or for which such Market Entity became
liable, after January 1, 1993. Each Market Entity Loan made with the proceeds of
the 1994 Equipment Note or the 1994 Construction Note may be used to finance or
refinance such costs, or, if the Collateral Value for a Market Entity is equal
to or greater than the outstanding principal amount of the applicable Market
Entity Note, for such Market Entity's general business purposes. The proceeds
of the Loans evidenced by the Refinancing Note have been used to repay and
retire the Interim Notes. The proceeds of Advances made in respect of Loan D
shall be used to provide funds to the applicable Market Entity for general
business purposes, by means of a Market Entity Loan, secured by the applicable
Market Entity Collateral. The proceeds of Loan E shall be used to refinance the
loans originally made by Lender to Randolph Cellular, and assumed by California-
1 under the CA-1 Loan Agreement, by means of a Market Entity Loan to California-
1, secured by the California-1 Market Entity Collateral.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement and to make the
Loans, the Company hereby covenants, represents and warrants to the Lender that:
SECTION 3.1 FINANCIAL CONDITION. The audited balance sheet of the
Company as at December 31, 1993, and the related statements of earnings and
shareholders' equity, copies of which have been furnished to the Lender,
certified by independent certified public accountants,
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present fairly the financial condition of the Company as at such date. Such
financial statements have been prepared in accordance with GAAP applied
consistently throughout the period involved (except as approved by such
accountants and as disclosed therein). The Company has no material Contingent
Obligation, contingent Liability or liability for taxes, long-term lease or
unusual forward or long-term commitment, that is not reflected in the foregoing
financial statements or disclosed in accompanying documentation.
SECTION 3.2 EXISTENCE; COMPLIANCE WITH LAW. The Company (a) is a
corporation duly formed and validly existing under the laws of the State of
Delaware; (b) has the power and authority and the legal right to own and operate
its property, to lease its leased property and to conduct the business in which
it is currently engaged and in which it proposes to engage; (c) is in compliance
with all Requirements of Law except to the extent that the failure to comply
therewith could not, in the aggregate, have a material adverse effect on the
business, operations, assets or financial condition of the Company (in each
case, taken as a whole), and could not materially adversely affect the ability
of the Company to perform its obligations under any Basic Agreement or the
Letter Agreement; and (d) is qualified to do business in all jurisdictions
where the Company's ownership, leasing or operation of property or the conduct
of its business requires such qualification, except where the failure to be so
qualified could not, in the aggregate, have a material adverse effect on the
business, operations, assets or financial condition of the Company (in each
case, taken as a whole), and could not materially adversely affect the ability
of the Company to perform its obligations under any Basic Agreement or the
Letter Agreement.
SECTION 3.3 POWER; AUTHORIZATION. The Company has the power and
authority and the legal right to make, deliver and perform the Basic Agreements
and to borrow hereunder and has taken all necessary action to authorize the
borrowings on the terms and conditions of this Agreement and the Notes, and to
authorize the execution, delivery and performance of the Basic Agreements and
the Letter Agreement, except for the necessity of obtaining such consents,
licenses and approvals as are specifically set forth on SCHEDULE 3.3 hereto (the
"REQUIRED CONSENTS"). Other than the Required Consents, no consent or
authorization of, filing with, or other act by or in respect of the FCC, the PUC
or any other Governmental Authority or any other Person is required in
connection with the borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of any Basic Agreement or the Letter
Agreement, except where the failure to meet such requirements could not, in the
aggregate, have a material adverse effect on the business, operations, assets or
financial condition of the Company (in each case, taken as a whole), and could
not materially adversely affect the ability of the Company to perform its
obligations under any Basic Agreement or the Letter Agreement.
SECTION 3.4 ENFORCEABLE OBLIGATIONS. Each Basic Agreement has been, or
on the First Borrowing Date or the applicable Borrowing Date will be, duly
executed and delivered on behalf of the Company, and each Basic Agreement
constitutes, or when executed and delivered will constitute, a legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and subject to (i) the effect of
general principles of equity (regardless of whether
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considered in a proceeding in equity or at law) and (ii) limitations on
enforceability under certain circumstances of provisions indemnifying a party
against liability for its own wrongful or negligent acts imposed by public
policy relating thereto.
SECTION 3.5 NO LEGAL BAR. The execution, delivery and performance of
the Basic Agreements and the Letter Agreement, the borrowings hereunder, and the
use of the proceeds thereof will not violate any Requirement of Law or any
Contractual Obligation of the Company, except to the extent such violations, in
the aggregate, could not have a material adverse effect on (i) the business,
operations, assets or financial condition of the Company (in each case, taken as
a whole), or (ii) the Company's ability to perform its obligations under any
Basic Agreement or the Letter Agreement, and will not result in, or require, the
creation or imposition of any material Lien on the Collateral pursuant to any
Requirement of Law or Contractual Obligation other than pursuant to the Security
Agreement or the Assignments, except as otherwise permitted by Section 6.2
hereof.
SECTION 3.6 NO MATERIAL LITIGATION. As of the Amendment Date, except as
set forth on SCHEDULE 3.6 hereto and after the Amendment Date, except as set
forth on SCHEDULE 3.6 hereto or in filings made with the Securities and
Exchange Commission, no litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the knowledge of any
Responsible Officer of the Company, threatened by or against the Company or
against any of its properties or revenues (i) with respect to any of the Basic
Agreements or the Letter Agreement or any of the transactions contemplated
thereby, or (ii) which, if adversely determined, could have a material adverse
effect on the business, operations, assets or financial condition of the Company
(in each case, taken as a whole).
SECTION 3.7 NO DEFAULT. The Company is not in default under or with
respect to any Contractual Obligation in any respect which could be materially
adverse to the business, operations, assets or financial condition of the
Company (in each case, taken as a whole), or which could materially and
adversely affect the ability of the Company to perform its obligations under any
Basic Agreement. No Default or Event of Default has occurred and is continuing.
SECTION 3.8 OWNERSHIP OF PROPERTY. The Company has good title to all its
property as reflected in its financial statements.
SECTION 3.9 NO BURDENSOME RESTRICTIONS. To the knowledge of the
Responsible Officers of the Company, after due inquiry, no Contractual
Obligation of the Company and no Requirement of Law materially adversely
affects, or insofar as the Responsible Officers of the Company may reasonably
foresee may so affect, the ability of the Company to perform its obligations
under any Basic Agreement.
SECTION 3.10 TAXES. The Company has filed or will cause to be filed all
tax returns which to the knowledge of the Responsible Officers of the Company
are required to be filed, and has paid all taxes shown to be due and payable on
said returns or on any assessments made against it or any of its property and
all other taxes, fees or other charges imposed on it or any of its
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property by any Governmental Authority (other than those the amount or validity
of which is currently being contested in good faith by appropriate proceedings
and with respect to which reserves in conformity with GAAP have been provided on
the books of the Company), except to the extent the failures to do so, in the
aggregate, could not have a material adverse effect on the business, operations,
assets or financial condition of the Company (in each case, taken as a whole);
and no tax lien in a material amount has been filed and, to the knowledge of the
Responsible Officers of the Company, no claims of a material amount are being
asserted with respect to any such taxes, fees or other charges other than
inchoate liens for taxes not yet due.
SECTION 3.11 FEDERAL REGULATIONS. No part of the proceeds of any Loan
will be used for "purchasing" or "carrying" "margin stock" as so defined or for
any purpose which violates, or which would be inconsistent with, the provisions
of the Regulations of the Board of Governors of the Federal Reserve System.
SECTION 3.12 ERISA. (i) There is no Reportable Event currently under
consideration by the PBGC which may reasonably result in any material liability
of the Company to the PBGC with respect to any Plan, (ii) no Plan has been
terminated by the PBGC or under a distress termination within the meaning of
Section 4041(c) of ERISA that has resulted or will result in any liability to
the Company or any Affiliate that is material to the Company, (iii) no trustee
has been appointed by any United States district court to administer any Plan in
a way that may reasonably result in any liability that is material to the
Company, (iv) the PBGC has not instituted proceedings to terminate any Plan or
to appoint a trustee to administer any such Plan, in either case, that may
reasonably result in liability that is material to the Company and (v) neither
the Company nor any Affiliate has withdrawn, completely or partially, from any
Plan that is a multiemployer plan within the meaning of Section 4001(a)(3) of
ERISA that has resulted in any material liability of the Company.
SECTION 3.13 INVESTMENT COMPANY ACT. The Company is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
SECTION 3.14 SUPPLY AGREEMENT; LETTER AGREEMENT. The Lender has received
a complete copy of the Supply Agreement (including all annexes, attachments and
amendments thereto) and the Letter Agreement. To the knowledge of the
Responsible Officers of the Company, there are no other side letters, waivers or
other agreements affecting the terms thereof. The Supply Agreement and the
Letter Agreement have each been duly executed and delivered and are in full
force and effect. The Letter Agreement obligates the Company to cause the
purchase of NTI Equipment having an aggregate price (excluding sales tax) of not
less than $37,500,000 in the three-year period from August 1, 1994 to August 1,
1997. The Letter Agreement has been duly executed and delivered on behalf of the
Company, and constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and subject to the effect of general principles of
equity (regardless of whether considered in a proceeding in equity or at law).
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SECTION 3.15 PATENTS, LICENSES AND FRANCHISES. Except for the necessity
of obtaining the Required Consents, the Company owns or has been granted all of
the patents, trademarks, permits (construction or otherwise), service marks,
trade names, copyrights, licenses and franchises, or rights with respect to the
foregoing, necessary for the conduct of its business as presently contemplated,
without any known conflict with the rights of others other than such patents,
trademarks, permits, service marks, trade names, copyrights, licenses and
franchises, or rights with respect thereto which, taken in the aggregate, could
not materially and adversely affect (a) the business, operations, assets or
financial condition of the Company (in each case, taken as a whole) or (b) the
ability of the Company to perform its obligations under any Basic Agreement or
the Letter Agreement.
SECTION 3.16 ACCURACY AND COMPLETENESS OF INFORMATION; PROJECTIONS. All
information, reports and other papers and data with respect to the Company
(other than projections or other information marked "preliminary") furnished to
the Lender by the Company at any time were or will be, at the time the same were
or will be so furnished, complete and correct in all respects which are
material, to the extent necessary to give the Lender knowledge of the subject
matter in all reasonable respects which are material; and all projections with
respect to the Company furnished by the Company were or will be prepared or
presented in good faith by the Company and in the opinion of the Company had a
reasonable basis. No fact is known to any Responsible Officer of the Company
which materially and adversely affects the business, operations, assets or
financial condition of the Company (in each case, taken as a whole) which has
not been set forth in the financial statements referred to in Section 3.1 hereof
or in such information, reports, papers and data or otherwise disclosed in
writing to the Lender prior to the First Borrowing Date or the applicable
Borrowing Date.
SECTION 3.17 SECURITY AGREEMENT. The provisions of the Security Agreement
are effective to create in favor of the Lender a legal, valid and enforceable
security interest in all right, title and interest of the Company in the
Collateral described therein; and when the Lender has given value, the financing
statements executed by the Company as debtor have been filed in the office of
the Secretary of State of Illinois and the Market Entity Loan Documents and
Assignment for any Market Entity have been delivered to Lender, the Security
Agreement shall constitute a fully perfected first-priority Lien on, and
security interest in, all right, title and interest of the Company in the
Collateral described therein, to the extent a security interest may be perfected
by possession or filing under applicable law, subject to no other Liens except
Permitted Liens.
SECTION 3.18 ENVIRONMENTAL WARRANTIES. To the knowledge of the
Responsible Officers of the Company, except as would not materially and
adversely affect the business, operations, assets or financial condition of the
Company (in each case, taken as a whole), the Company is in compliance with all
environmental laws, regulations, rules, ordinances, permits, orders, and other
requirements applicable to the Company, the operation of the Company or the real
or personal property owned, leased or operated by the Company, including without
limitation, all such laws governing occupational safety or the generation,
storage, disposal or transportation of toxic or hazardous substances or wastes,
and the Company has not received notice of, and is not
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aware of, any violations or alleged violations, or any liability or asserted
liability, under any such environmental laws, with respect to the Company or its
business or its properties.
SECTION 3.19 MARKET ENTITY LOANS. The Market Entities, as a part of the
ordinary conduct of their business and financial affairs, fund the acquisition,
construction and operation of their respective Systems through either capital
contributions from their shareholders or partners, as applicable, or through the
borrowing of funds from the Company, on a secured or unsecured basis. As a part
of the ordinary conduct of its business and financial affairs, the Company makes
secured and unsecured loans and/or capital contributions to the Market Entities
for the acquisition, construction and operation of their respective Systems.
ARTICLE 4. CONDITIONS PRECEDENT
SECTION 4.1 CONDITIONS TO INITIAL ADVANCES. The obligation of the Lender
to make Advances on the First Borrowing Date shall be subject to the fulfillment
prior to or contemporaneously with the making of such Advances of the following
conditions precedent:
(a) NOTES. The Lender shall have received each of the 1994
Construction Note and the 1994 Equipment Note, each conforming to the
requirements hereof and executed by a duly authorized officer of the
Company.
(b) SECURITY AGREEMENT. The Lender shall have received the Security
Agreement, duly executed by the Company.
(c) LEGAL OPINION. The Lender shall have received the opinion of
Sidley & Austin, counsel to the Company, dated the Amendment Date,
substantially in the form of EXHIBIT F hereto.
(d) REGULATORY LEGAL OPINION. The Lender shall have received the
opinion of Koteen & Naftalin, regulatory counsel to the Company, dated the
Amendment Date, substantially in the form of EXHIBIT G hereto.
(e) PROCEEDINGS OF THE COMPANY. The Lender shall have received
copies, certified by a Secretary or Assistant Secretary of the Company on
the Amendment Date, of evidence of all actions taken by the Company
authorizing the execution, delivery and performance by the Company of the
Basic Agreements and authorizing the borrowings provided for herein.
(f) INCUMBENCY CERTIFICATE OF THE COMPANY. The Lender shall have
received a certificate of a Secretary or Assistant Secretary of the
Company dated the Amendment Date, as to the incumbency and signature of
the officer or officers signing the Basic Agreements and any other
certificate or other document to be delivered pursuant thereto, together
with evidence of the incumbency of such Secretary or Assistant Secretary.
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(g) ORGANIZATIONAL MATTERS. Articles of Incorporation of the Company
shall have been duly recorded in Delaware and the Lender shall have
received a certified copy of such Articles of Incorporation and copies of
the bylaws of the Company, certified by a Responsible Officer of the
Company to be complete and correct.
(h) CERTIFICATE OF GOOD STANDING. Lender shall have received a
current certificate of good standing (or its equivalent) for the Company
from the State of Delaware.
(i) FILINGS, REGISTRATIONS AND RECORDINGS. Any documents (including,
without limitation, financing statements) required to be filed, registered
or recorded under the Security Agreement shall have been properly filed,
registered or recorded; the Lender shall have received acknowledgment
copies of all such filings, registrations and recordations stamped by the
appropriate filing, registration or recording officer (or, in lieu
thereof, other evidence satisfactory to the Lender that all such filings,
registrations and recordations have been made); and the Lender shall have
received evidence that all necessary filing, subscription and inscription
fees and all recording and other similar fees, and all taxes and other
expenses related to such filings, registrations and recordings have been
paid in full.
(j) EVIDENCE OF INSURANCE. The Lender shall have received evidence,
satisfactory to it, that the Company has obtained the policies of
insurance required by this Agreement or the Security Agreement.
(k) FURTHER ASSURANCES. The Company shall provide to Lender any
additional documents and complete any legal matters or procedures that may
be reasonably necessary to effectuate the consummation of the transactions
contemplated hereby, including any documents reasonably necessary to
perfect or continue any of Lender's liens in the Collateral, and all such
legal matters and documents shall be reasonably satisfactory in form and
substance to the Lender.
SECTION 4.2 CONDITIONS TO ALL ADVANCES. The obligation of the Lender to
make any Advance (including the initial Advance under any Loan) hereunder on any
Borrowing Date is subject to the satisfaction of the following conditions
precedent:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by the Company herein or in any other Basic Agreement or
which are contained in any certificate, document or financial or other
statement furnished at any time under or in connection therewith, shall be
accurate in all material respects on and as of such Borrowing Date as if
made on and as of such date.
(b) NO EVENT OF DEFAULT. No uncured or unwaived Default or Event of
Default shall have occurred and be continuing on such date or after giving
effect to the Advance to be made on such Borrowing Date.
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(c) NO MATERIAL ADVERSE CHANGE. No material adverse change in the
business, operations, assets or financial condition of the Company (in
each case, taken as a whole) shall have occurred since the date of the
financial statements described in Section 3.1 hereof.
(d) BORROWING CERTIFICATE. The Lender shall have received an
appropriate Borrowing Certificate, with appropriate insertions and all
applicable attachments, duly executed by a Responsible Officer of the
Company.
(e) NOTE SCHEDULES. For each Advance (other than an Advance for
Capitalized Interest) under the Equipment Note or the Construction Note,
the Lender shall have received an appropriate Note Schedule, duly executed
by a Responsible Officer of the Company.
(f) NEW NOTES. Prior to the Advances under each of Loan D and Loan E,
the Lender shall have received Note D and Note E, respectively, as
applicable, each conforming to the requirements hereof and executed by a
duly authorized officer of the Company.
(g) ASSIGNMENT AND MARKET ENTITY LOAN PACKAGE. For the first Advance
to be made under the Equipment Note or the Construction Note in respect of
any Market Entity, and for Advances under the New Notes, the Lender shall
have received an Assignment, duly executed by a Responsible Officer of the
Company, along with the applicable Market Entity Loan Package, with
enclosures all duly executed by the Company and such Market Entity, as
applicable.
(h) ADDITIONAL CONSENTS. Prior to the Advance under each of Note D
and Note E, respectively, the Company shall provide to Lender an
Acknowledgment, Consent and Release Agreement, in the form of EXHIBIT H
hereto, executed by each of the Direct Loan Entities and by California-1,
respectively, as applicable, acknowledging the outstanding amount of the
obligations owed by each such entity to the Lender, agreeing that such
obligations will be paid in full upon the applicable Borrowing Date
hereunder, and releasing the Lender from any liability or obligations
under or in respect of the applicable Direct Loan Transactions or CA-1
Loan Agreement.
(i) REQUIRED CONSENTS. The Lender shall have received a copy of each
of the Required Consents, all of which shall be in full force and effect,
as certified by a Responsible Officer of the Company.
(j) ADDITIONAL MATTERS. All proceedings and all other documents and
legal matters in connection with the transactions contemplated by the Loan
Documents shall be reasonably satisfactory in form and substance to the
Lender and its counsel.
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ARTICLE 5. AFFIRMATIVE COVENANTS
The Company hereby agrees that, so long as the Commitment remains in
effect, or any Note remains outstanding and unpaid or any other amount is owing
to the Lender hereunder, the Company shall:
SECTION 5.1 FINANCIAL STATEMENTS. Furnish to the Lender the following
financial statements, all of which shall be complete and correct in all material
respects and be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein (except as
approved by such accountants or officer, as the case may be, and disclosed
therein and except for normal year-end adjustments in the case of quarterly
financial statements):
(a) as soon as available, but in any event within 120 days after the
end of each fiscal year of the Company, a copy of the balance sheet of the
Company as at the end of such year and the related statements of earnings
and changes in financial position for such year, setting forth in each
case in comparative form the figures for the previous year, containing the
audit report of Arthur Andersen & Co. or other nationally recognized
independent public accountants reasonably satisfactory to Lender,
certified without qualification arising out of the scope of the audit by
such accountants; and
(b) as soon as available, but in any event not later than 60 days
after the end of each of the first three quarterly periods of each fiscal
year of the Company, the unaudited balance sheet of the Company as at the
end of each such quarter and the related unaudited statements of earnings
and shareholders' equity for such quarterly period and the portion of the
fiscal year through such date, setting forth in each case in comparative
form the figures for the previous year (subject to normal year-end audit
adjustments).
SECTION 5.2 CERTIFICATES; OTHER INFORMATION. Furnish to the Lender:
(a) concurrently with the delivery of the financial statements
referred to in Sections 5.1(a) and (b) hereof, a certificate of a
Responsible Officer of the Company (i) stating that, to the best of such
officer's knowledge, the Company during such period has observed or
performed all of its covenants and other agreements, and satisfied every
condition, contained in this Agreement and in any Note to be observed,
performed or satisfied by it, and that such officer has obtained no
knowledge of any Default or Event of Default except as specified in such
certificate, and (ii) stating that there has been no material adverse
change in the business, operations, assets or financial condition of the
Company (in each case, taken as a whole) since the date of the latest
financial statements delivered pursuant to Section 5.1 hereof, except as
stated in such certificate;
(b) within five Business Days after the same are sent, copies of all
financial statements, reports and notices which the Company sends to the
Securities and Exchange Commission or any successor;
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(c) with the financial statements required under Section 5.1(b) for
each Calendar Quarter, copies of the Company's internal records reflecting
the dates, terms and amounts of loans to and payments by any of the Market
Entities pursuant to the Market Entity Loan Documents during such Calendar
Quarter;
(d) within sixty (60) days after the end of each Calendar Quarter , a
certificate of a Responsible Officer of the Company stating the amount of
the Market Entity Note Shortfall, if any, as of the last day of such
Calendar Quarter;
(e) written notice of any material change in the name, corporate
structure or chief executive offices of any Market Entity, if such change
would require the filing of new or amended financing statements, within
ten (10) days after such change; and
(f) such other information concerning its business, records or
financial condition as the Lender may reasonably request, including,
without limitation, annual budgets of the Market Entities.
SECTION 5.3 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy
at or before maturity or before they become delinquent, as the case may be, all
its Indebtedness and other obligations of whatever nature (other than such
other obligations which do not exceed, in the aggregate, an amount equal to one
percent (1%) of the Company's Equity, as reflected in its most recent financial
statements delivered to Lender), except in the case of such other obligations
when the amount or validity thereof is currently being contested in good faith
by appropriate proceedings and as to which reserves in conformity with GAAP with
respect thereto have been provided on the books of the Company.
SECTION 5.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Except as
otherwise permitted in the Basic Agreements, continue to engage in business of
the same general type as now conducted by it and as presently contemplated to be
conducted by it, and preserve, renew and keep in full force and effect its
existence and acquire and maintain all material rights, privileges, franchises
and licenses necessary in the normal conduct of its business as then being
conducted (including without limitation authorizations other than interim
operating authorizations issued to General Market Entities by the FCC to permit
the General Market Entities to construct and/or operate cellular radio
communications systems) except where the failure to so acquire and maintain
would not materially and adversely affect (a) the business, operations, assets
or financial condition of the Company (in each case, taken as a whole) or (b)
the ability of the Company to perform its obligations under any Basic Agreement.
SECTION 5.5 COMPLIANCE WITH LAWS. Comply with all Contractual
Obligations and Requirements of Law except where the necessity of compliance is
being contested in good faith and as to which reserves in conformity with GAAP
have been provided on the books of the Company or except where the failure to so
comply would not materially and adversely affect the business, operations,
assets or financial condition of the Company (in each case, taken as a whole).
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SECTION 5.6 MAINTENANCE OF PROPERTY, INSURANCE. Keep all property useful
and necessary in its business in good working order and condition, reasonable
wear and tear excepted; maintain with financially sound and reputable insurance
companies insurance on all its property in at least such amounts and against at
least such risks (but including in any event public liability, but excluding
product liability and business interruption) as are usually insured against in
the same general area by companies engaged in the same or a similar business;
and furnish to the Lender, upon written request, full information as to the
insurance carried. Without limiting the generality of the foregoing, the Company
shall obtain and maintain in effect blanket casualty insurance with respect to
all of the Market Entity Collateral to the extent, if any, that such insurance
coverage (or self insurance) is not maintained by TDS or another Person for such
Market Entities. Lender shall be named as an "additional insured" under all such
policies (whether provided by the Company, TDS or other Person) with respect to
the Company and each Market Entity and, upon an Event of Default, shall be
entitled to be named as mortgagee loss payee thereunder. The Company hereby
specifically authorizes any insurance company naming Lender as an additional
insured on any policy to add the status of "mortgagee loss payee" upon such
insurance company's receipt of written notice from Lender that an Event of
Default has occurred. The Company hereby appoints Lender as the Company's
attorney-in-fact to take any action necessary to change such designation or
coverage pursuant to this Section 5.6. The Company shall deliver to Lender, upon
Lender's reasonable request from time to time, reasonably satisfactory evidence
with respect to such insurance.
SECTION 5.7 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. Keep
proper books of record and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities; and upon reasonable
notice, during normal business hours, without unreasonable interruption of
operations, permit representatives of the Lender to visit and inspect any of the
Collateral, and the Company's books and records relating to the Collateral, and
to discuss the business, operations, properties and financial and other
condition of the Company with officers, directors, and employees of the Company.
SECTION 5.8 NOTICES. Promptly give notice to the Lender:
(a) of the occurrence of any uncured Default or the occurrence of any
Event of Default;
(b) of a material adverse change in the business, operations, assets
or financial condition of the Company (in each case, taken as a whole) at
the same time such notice is given to the Securities and Exchange
Commission; and
(c) of any payment default under any of the Market Entity Loan
Documents that continues for thirty (30) calendar days.
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Each notice pursuant to this Section shall be accompanied by a statement
of a Responsible Officer of the Company setting forth details of the
occurrence referred to therein and stating what action the Company
proposes to take with respect thereto.
SECTION 5.9 DEBT SERVICE COVERAGE RATIO. Maintain at the end of each
fiscal year of the Company a Debt Service Coverage Ratio of not less than 1.25
to 1.00, calculated as of the end of each fiscal year of the Company.
SECTION 5.10 DEBT TO EQUITY RATIO. Maintain at the end of each fiscal
year of the Company a ratio of Total Debt to Equity of not more than 2.5 to 1.
SECTION 5.11 ERISA. Promptly furnish Lender with written notice upon the
receipt by the Company or the administrator of any Plan of any substantive
notice, correspondence or other communication from the PBGC, the IRS, the
Secretary of Treasury, the Department of Labor, or any other Governmental
Authority, as the case may be, relating to (i) any Reportable Event that may
reasonably result in any liability that is material to the Company, (ii) any
funding deficiency with respect to any Plan that may reasonably result in any
liability that is material to the Company, (iii) any liability, either primary
or secondary, with respect to complete or partial withdrawal from any Plan that
is a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA that
may reasonably result in liability that is material to the Company, (iv)
proceedings to terminate any Plan under Section 4041(c) or 4042 of ERISA that
could result in any liability of the Company or any Affiliate that may
reasonably be material to the Company or (v) the appointment of a trustee for
any Plan in any case that may reasonably result in liability that is material to
the Company. Such notice shall be accompanied by any pertinent documents
including, but not limited to, the relevant notice, correspondence or other
communication and a statement of a Responsible Officer of the Company describing
the event or the action taken and the reasons therefor.
ARTICLE 6. NEGATIVE COVENANTS
The Company hereby agrees that, so long as the Commitment remains in
effect or any Note remains outstanding and unpaid or any other amount is owing
to the Lender hereunder, the Company shall not:
SECTION 6.1 INDEBTEDNESS. Create, incur, assume or suffer to exist any
Indebtedness that would cause the sum of the Company's total Indebtedness plus
the Company's Cellular Lease Obligations to exceed an amount equal to the
aggregate amount of $40.00 per population equivalent ("POP") for all of the then
existing General Market Entities, except for the following:
(a) Indebtedness evidenced by the Notes;
(b) Subordinated Indebtedness.
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SECTION 6.2 LIMITATION ON LIENS. Create, incur, assume or suffer to
exist, any Lien upon any of the Collateral, or permit any Market Entity to
create, incur, assume or suffer to exist, any liens on the applicable Market
Entity Collateral, except for the following ("PERMITTED LIENS"):
(a) Liens for taxes not yet due or which are being contested in good
faith and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of the Company or its Subsidiaries, as
the case may be, in accordance with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business which are
not overdue for a period of more than 30 days or which are being contested
in good faith and by appropriate proceedings;
(c) pledges or deposits in connection with workmen's compensation,
unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(e) Liens on the Collateral in favor of the Lender;
(f) Liens on the Market Entity Collateral in favor of the Company, as
assigned to Lender;
(g) judgment Liens not being contested and which, in the aggregate,
do not exceed an amount equal to two percent (2%) of the Company's Equity,
as reflected in its most recent financial statements delivered to Lender;
and
(h) Purchase Money Liens (as defined in the Security Agreement) on
new capital equipment (other than the NTI Equipment) acquired by a Market
Entity, with Lender's having a junior security interest in such new
equipment.
SECTION 6.3 LIMITATION ON CONTINGENT OBLIGATIONS. Create, incur, assume
or suffer to exist any Contingent Obligation except agreements by the Company to
repurchase any accounts receivable or as otherwise permitted under Section 6.1
hereof.
SECTION 6.4 PROHIBITION OF FUNDAMENTAL CHANGES.
(a) Make any fundamental change in the nature of its business as
presently conducted; or
(b) Unless the Company is the surviving entity, enter into any
transaction of merger or consolidation or amalgamation or other
restructuring, or liquidate, wind up or
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dissolve itself (or suffer any liquidation or dissolution), or convey,
sell, lease, assign, transfer or otherwise dispose of, all or
substantially all of its property, business or assets whether now owned or
hereafter acquired, excluding the sale, pledge or other disposition of
Excluded Collateral, without the Lender's prior written consent; or
(c) Unless the Company, USCOC, or a Subsidiary of the Company or
USCOC is the surviving entity or transferee, as applicable, and unless the
Letter Agreement remains in effect with respect to such survivor or
transferee (if applicable), permit or suffer USCOC to enter into any
transaction of merger or consolidation or amalgamation or other
restructuring; or to liquidate, windup or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, lease, assign, transfer or
otherwise dispose of all or substantially all of its property, business or
assets, whether now owned or hereafter acquired, without the Lender's
prior written consent; or
(d) Except in a transaction permitted under Section 6.4(e) hereof or
a Permitted Combination under Section 7.5 hereof, or except with a
substitution of Collateral pursuant to Section 7.2 hereof or the removal
of a Market Entity pursuant to Section 7.3 hereof, permit or suffer any
one or more Market Entities to enter into any transaction of merger or
consolidation or amalgamation or restructuring, or to liquidate, windup or
dissolve itself (or suffer any liquidation or dissolution), or to convey,
sell, lease, assign, transfer or otherwise dispose of all or substantially
all of its property, business or assets whether now owned or hereafter
acquired, without the Lender's prior written consent, if any such action
or event would have a material adverse effect on the Collateral Value,
taken as a whole; or
(e) Sell, transfer, assign or convey to any Person other than a
Subsidiary of the Company any of the Company's or its Affiliates or
Subsidiaries' material rights, title or interest in and to any Market
Entity without the Lender's prior written consent, if, as a consequence
thereof, the Collateral Value, taken as a whole, would be materially and
adversely affected, except with a substitution of Collateral pursuant to
Section 7.2 hereof or the removal of a Market Entity pursuant to Section
7.3 hereof; PROVIDED, HOWEVER that the Company may pledge or encumber any
of the Excluded Collateral without such consent, substitution or removal.
SECTION 6.5 LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. Other than in
the ordinary course of business, make any advances or loans to, or investments
(by way of transfers of property, contributions to capital, acquisitions of
stock, securities or evidences of indebtedness, acquisitions of businesses or
acquisitions of assets or otherwise) in, any Person other than USCOC, any
Subsidiary of the Company or USCOC, United States Cellular Investment Company or
any of its Subsidiaries, or any General Market Entities (all such transactions
being herein called "investments") in excess of $15,000,000 in the aggregate
outstanding at any one time.
SECTION 6.6 LIMITATION ON DISTRIBUTIONS. Make any Restricted Payment to
any shareholder of the Company, except that, as long as no Default or Event of
Default has occurred
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and is then continuing, the Company may make distributions to its shareholders
in amounts that would not cause the Company to be in violation of any of
Sections 5.9 or 5.10 hereof and would not cause the Company's Equity to be less
than the sum of (i) all principal amounts outstanding under the Notes, and (ii)
the amounts of all Advances hereunder for which Borrowing Certificates have then
been submitted to Lender (each, an "ELIGIBLE DISTRIBUTION"). Before making any
Eligible Distribution at any time when the Company does not have positive
retained earnings, the Company shall deliver to the Lender a certificate of a
Responsible Officer of the Company (i) setting forth in detail the calculation
supporting the compliance by the Company with the applicable covenants, (both
before and after making such Restricted Payment); (ii) stating that no material
adverse change in the business, operations, assets or financial condition of the
Company (in each case, taken as a whole) has occurred, or will have occurred
following such Eligible Distribution, since the date of the financial statements
described in Section 3.1 hereof; and (iii) certifying that no Default or Event
of Default has occurred and is then continuing or will be caused by such
Eligible Distribution.
SECTION 6.7 TERMINATION, AMENDMENT, ETC. OF AGREEMENTS. Terminate,
amend, supplement or otherwise modify, or waive compliance with any of the
provisions of, the Articles of Incorporation or bylaws of the Company, or other
material agreements of the Company (other than the Supply Agreement), if such
amendment, supplement, modification or waiver would have a material adverse
effect on the business, operations, assets or financial condition of the Company
(in each case, taken as a whole) or would otherwise materially and adversely
affect its ability to perform its obligations under the Basic Agreements or the
Letter Agreement.
SECTION 6.8 TERMINATION OR MODIFICATION OF SUPPLY AGREEMENT OR LETTER
AGREEMENT. Prior to the earlier of (a) the satisfaction of the obligations of
the Company to purchase, or cause the purchase of, NTI Equipment with an
aggregate purchase price of at least $37,500,000 under the Letter Agreement, or
(b) the Financing Termination Date for the 1994 Notes (except as such Financing
Termination Date might exist solely because of such termination), terminate the
Supply Agreement or the Letter Agreement except for reasonable cause pursuant to
the terms thereof, or modify the Supply Agreement in any way that would cause a
material adverse effect on the ability of the Company to perform its obligations
under the Letter Agreement or the Basic Agreements.
SECTION 6.9 MARKET ENTITY LOAN DOCUMENTS. Except as necessary in a
Permitted Combination under Section 7.5 hereof, terminate, amend, supplement or
otherwise modify, or waive compliance with any of the provisions of any Market
Entity Loan Documents without the Lender's prior written consent or without
either substituting Collateral pursuant to Section 7.2 hereof or removing the
Market Entity pursuant to Section 7.3 hereof, if as a consequence thereof the
Collateral Value, taken as a whole, would be materially and adversely affected.
SECTION 6.10 REGULATION U. Make any borrowing hereunder for the purpose
of buying or carrying any "margin stock," as such term is used in Regulation U
of the Board of Governors of the Federal Reserve System, as amended from time to
time. The Company does not own any "margin stock." The Company is not engaged in
the business of extending credit to others for
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such purpose, and no part of the proceeds of any borrowing hereunder will be
used to purchase or carry any "margin stock" or to extend credit to others for
the purpose of purchasing or carrying any "margin stock."
ARTICLE 7. COLLATERAL
SECTION 7.1 COLLATERAL. The parties intend that the Company's
Obligations will be secured by (i) a valid, perfected, first-priority security
interest in all of the Company's rights, title and interest (but not its
obligations) arising under or out of the Market Entity Notes and the Market
Entity Loan Documents, all as more fully described in the Security Agreement and
Assignments, and (ii) an assignment of the Company's valid, perfected security
interest in the Market Entity Collateral of each Market Entity, as more fully
described in the Security Agreement and Assignments.
SECTION 7.2 REPLACEMENT COLLATERAL. The Company shall be permitted to
substitute collateral relating to a General Market Entity for collateral
relating to an existing Market Entity as part of the Collateral only on the
following terms and conditions:
(a) Upon the occurrence of a Default under Section 8.2 hereof, the
Company may elect to cure such Default by providing Lender with a properly
completed and executed Assignment (subject to Section 7.7 hereof, with all
correct and complete attachments) and the rest of the Market Entity Loan
Package with respect to one or more General Market Entities that are not
already included in the Collateral ("REPLACEMENT MARKET ENTITY"), if (i)
the Company has delivered to Lender within twenty (20) days following such
Default, a duly executed Collateral Release Request with respect thereto;
(ii) the Collateral Value for the Replacement Market Entity is equal to or
greater than the outstanding principal amount of the Market Entity Note
for such Replacement Market Entity; and (iii) the outstanding principal
amount of the Market Entity Note for such Replacement Market Entity is
equal to or greater than the outstanding principal amount of the Market
Entity Note for the Market Entity being replaced (the "REPLACED MARKET
ENTITY"). For purposes of comparing the respective outstanding principal
amounts of Market Entity Notes for a Replacement Market Entity and a
Replaced Market Entity, prepayment of the Market Entity Note for the
Replaced Market Entity shall be permitted only in amounts that are not
greater than corresponding prepayments made on account of the Notes,
notwithstanding Section 7.4 hereof.
(b) If no Default or Event of Default has occurred and is continuing,
the Company shall have the option at any time to substitute the collateral
relating to one or more Replacement Market Entities for the Collateral
relating to an existing Market Entity as part of the Collateral by
providing Lender with a properly completed and executed Assignment
(subject to Section 7.7 hereof, with all correct and complete attachments)
and the rest of the Market Entity Loan Package with respect to the
Replacement Market Entity, if (i) the Company delivers to Lender a duly
executed Collateral Release Request;
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(ii) the Collateral Value for the Replacement Market Entity is equal to or
greater than the outstanding principal amount of the Market Entity Note
for such Replacement Market Entity; and (iii) the outstanding principal
amount of the Market Entity Note for such Replacement Market Entity is
equal to or greater than the outstanding principal amount of the Market
Entity Note for the Replaced Market Entity. For purposes of comparing the
respective outstanding principal amounts of Market Entity Notes for a
Replacement Market Entity and a Replaced Market Entity, prepayment of the
Market Entity Note for the Replaced Market Entity shall be permitted only
in amounts that are not greater than corresponding prepayments made on
account of the Notes, notwithstanding Section 7.4 hereof.
(c) If the foregoing conditions are satisfied, then Lender shall
accept the Collateral relating to the Replacement Market Entity as part of
the Collateral and shall, within thirty (30) days after its acceptance of
the last item necessary for such substitution, deliver to the Company the
original Market Entity Note and Market Entity Loan Documents for the
Replaced Market Entity, along with a duly executed UCC-3 form reassigning
to the Company the Lender's security interest in the Market Entity Loan
Collateral of the Replaced Market Entity.
SECTION 7.3 PARTIAL RELEASE OF COLLATERAL. A Market Entity may be
removed from the scope of this Agreement and the Company may obtain a release of
Lender's liens on the portions of the Collateral relating to any particular
Market Entity on the following terms and conditions:
(a) A Market Entity shall be removed from the scope of this Agreement
if the Company delivers to the Lender (i) a certificate executed by a
Responsible Officer of the Company stating (A) that the Market Entity Note
of a particular Market Entity has been paid in full and the amount paid
thereon, and (B) the amount of the Market Entity Note Shortfall
immediately following such payment, and (ii) prepayment of the Obligations
in the amount, if any, necessary to reduce the Market Entity Note
Shortfall to $15,000,000 or less. The removal of the Market Entity from
the scope of this Agreement shall be effective on the later of (x) the
date such Market Entity Note is paid in full, or (y) the date of Lender's
receipt of any such necessary prepayment of the Obligations.
(b) A Market Entity shall be removed from the scope of this Agreement
if the Company delivers to the Lender (i) a certificate executed by a
Responsible Officer of the Company stating (A) that a particular Market
Entity is being removed from the scope of this Agreement, and (B) the
amount of the Market Entity Note Shortfall immediately following such
removal, and (ii) prepayment of the Obligations in the amount, if any,
necessary to reduce the Market Entity Note Shortfall to $15,000,000 or
less. The removal of the Market Entity from the scope of this Agreement
shall be effective on the later of (x) the date of Lender's receipt of
such certificate, or (y) the date of Lender's receipt of any such
necessary prepayment of the Obligations.
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(c) Within ten (10) days after the later of (i) the Lender's receipt
of the certificate and any prepayment amount required under Section 7.3(a)
or 7.3(b), as applicable, and (ii) the Company's delivery to Lender of a
duly executed Collateral Release Request in connection with such Market
Entity, and original UCC-3 forms prepared for Lender's signature, the
Lender shall deliver to the Company the original Market Entity Note and
Market Entity Loan Documents for such Market Entity, along with duly
executed UCC-3 forms either (at the Company's option) terminating or
reassigning to the Company the Lender's security interest in the Market
Entity Loan Collateral of such Market Entity.
SECTION 7.4 REQUIRED PREPAYMENT, ETC. UPON MARKET ENTITY SHORTFALL.
(a) ACTION REQUIRED UPON MARKET ENTITY NOTE SHORTFALL. If, as of
the last day of any Calendar Quarter, the Market Entity Note Shortfall is
greater than $15,000,000, the Company shall, on or before the last
Business Day of the next Calendar Quarter, take any one of, or any
combination of, the following actions as necessary to reduce the Market
Entity Note Shortfall to $15,000,000 or less: (i) pay to Lender a portion
of the Loans, for application to the Obligations in accordance with
Section 2.4(c) hereof, (ii) make advances to Market Entities, (iii)
substitute Collateral pursuant to Section 7.2(b) hereof, or (iv) provide
Lender with a properly completed and executed Assignment (with all correct
and complete attachments, subject to Section 7.7 hereof) and the rest of
the Market Entity Loan Package for a General Market Entity that is not
already included in the Collateral (a "SUPPLEMENTAL MARKET ENTITY").
(b) SUBMISSION OF SUPPLEMENTAL OR REPLACEMENT MARKET ENTITY. For
purposes of this Section 7.4, the Lender shall be deemed to have accepted
the Collateral relating to a Supplemental Market Entity or a Replacement
Market Entity as part of the Collateral as of the end of the tenth (10th)
Business Day after Lender's receipt of any such Assignment (with all
correct and complete attachments, subject to Section 7.7 hereof) and the
rest of the Market Entity Loan Package with respect to a Supplemental
Market Entity or Replacement Market Entity (with a Collateral Release
Request, in the case of a Replacement Market Entity) (the "REVIEW
PERIOD"), unless such Assignment and Market Entity Loan Package (and
Collateral Release Request, in the case of a Replacement Market Entity)
fail to satisfy the requirements of this Agreement and Lender delivers to
the Company, prior to the end of the Review Period, a written notice
identifying the particular requirements that are not satisfied. If Lender
has so notified the Company prior to the end of the Review Period, the
Company shall have thirty (30) days after its receipt of such notice (the
"EXTENSION PERIOD") to satisfy the particular requirements identified in
such notice or to otherwise satisfy the requirements of Section 7.4(a)
above (in each case, taking into account any reduction in the Market
Entity Note Shortfall resulting from Replacement Market Entities or
Supplemental Market Entities accepted by Lender) before the Company shall
be deemed to be in default with respect to its obligations under this
Section 7.4. The Extension Period shall be extended for an additional
thirty (30) days from the last day of the original Extension Period (the
"ADDITIONAL EXTENSION PERIOD"),
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before the Company shall be deemed to be in default with respect to its
obligations under this Section 7.4, if the Company delivers to the Lender
within the original Extension Period a written notice setting forth (i)
the reasons why the requirements identified in Lender's notice with
respect to a Supplemental Market Entity or Replacement Market Entity
cannot reasonably be met within the original Extension Period,
notwithstanding the Company's commencement within the original Extension
Period of action reasonably likely to meet such requirements, and (ii) the
course of action that the Company proposes to take to meet such
requirements. During such Additional Extension Period, the Company shall
diligently pursue fulfilling the requirements set forth in Lender's
original notice, and shall also be entitled to take any combination of the
actions set forth in Section 7.4(a) to reduce the Market Entity Note
Shortfall to $15,000,000 or less. During the Extension Period and the
Additional Extension Period, Lender will accept additional Replacement
Market Entities or Supplemental Market Entities on the same terms and
conditions set forth above, except that any combination of a Review
Period, Extension Period and/or Additional Extension Period for any such
additional entity shall, in any event, terminate no later than the
seventy-fourth (74th) day after the last Business Day of such next
Calendar Quarter referred to in Section 7.4(a).
(c) ADDITIONAL CONDITIONS REGARDING COLLATERAL VALUE. For each
Supplemental Market Entity or Replacement Market Entity submitted pursuant
to Section 7.4(a) hereof, the Collateral Value shall be at least equal to
the outstanding principal amount of the applicable Market Entity Note. For
additional advances made by the Company to a Market Entity pursuant to
Section 7.4(a)(ii), the Collateral Value for such Market Entity shall be
at least equal to the outstanding principal amount of the applicable
Market Entity Note after such advance.
(d) DEFAULT. Notwithstanding anything to the contrary in Section
8.1(d) hereof, the Company's failure to satisfy timely its obligations
under this Section 7.4 shall be deemed to be an Event of Default as of the
last Business Day of the next Calendar Quarter, as described in Section
7.4(a), or as of the end of the Extension Period (as it may be extended)
as described in Section 7.4(b).
SECTION 7.5 COMBINATION OF MARKETS.
(a) The Company may at any time, if no Event of Default has occurred
and is continuing, permit or suffer any one or more Market Entities (each,
a "PREDECESSOR MARKET ENTITY") to enter into any transaction of merger or
consolidation or amalgamation or restructuring, or to liquidate, windup or
dissolve itself (or suffer any liquidation or dissolution), or to convey,
sell, lease, assign, transfer or otherwise dispose of all or substantially
all of its property, business or assets whether now owned or hereafter
acquired, without the Lender's prior written consent, if, after giving
effect to any of the foregoing, (i) a General Market Entity is the
surviving entity or transferee, as applicable, (ii) such General Market
Entity owns the assets of such Predecessor Market Entity (subject to the
security interests granted by such Predecessor Market Entity to the
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Company and assigned to the Lender, but free of any other Liens except for
Permitted Liens) and holds each FCC License previously held by such
Predecessor Market Entity except for any such FCC License for an Excluded
Market, (iii) the Company has delivered to Lender the documents and items
described in Section 7.5(b) below, as required; PROVIDED, HOWEVER, that
any disposition of Collateral or Market Entity Collateral in connection
with any of the foregoing transactions shall not be deemed to have been
"authorized" within the meaning of Section 9-306(b) of the Code (as
defined in the Security Agreement). (Any such transaction consummated in
accordance with this Section 7.5 shall be referred to as a "PERMITTED
COMBINATION", and any such General Market Entity resulting from a
Permitted Combination shall be referred to as a "COMBINED MARKET ENTITY").
(b) The Company shall have delivered to Lender each of the following:
(i) a written summary of the proposed Permitted Combination, identifying
the various entities involved and the structure of the transaction(s) at
issue, including without limitation identification of any Excluded Markets
by FCC designation and by county location and identification of each of
the FCC Licenses, Predecessor Market Entities, Market Entities, General
Market Entities and other entities involved in, or to be created by, such
transaction(s); (ii) an Assumption Agreement substantially in the form of
EXHIBIT I hereto, executed by the Company and the Combined Market Entity
with respect to any Market Entity Loan Documents to which such Combined
Market Entity is not already a named party; (iii) acknowledgment copies of
UCC-3 amendments and UCC-1 financing statements (executed by such Combined
Market Entity and, if necessary, by Lender), in proper form, filed in all
offices necessary to perfect, or continue the perfection of, the security
interests in the related Market Entity Collateral granted to the Company
and assigned to the Lender, including without limitation any additional
fixture filings and new filings or amendments to evidence any change of
name or structure; (iv) current tax lien and judgment lien searches and
UCC-11 searches in all such offices, in the names of the Predecessor
Market Entity and in the name of the Combined Market Entity and other
entities involved; and (v) copies of the articles of incorporation, by-
laws, partnership agreement or other organizational documents of the
Combined Market Entity and appropriate resolutions or other evidence of
the approval or authorization by the Combined Market Entity of such
Assumption Agreement and the actions contemplated thereby.
(c) If such Combined Market Entity is a Partially Financed Market
Entity, Lender hereby consents to any amendments or modifications to the
Market Entity Loan Documents executed or assumed by such Combined Market
Entity that are necessary to conform the Market Entity Loan Package for
such Combined Market Entity to the form of Market Entity Loan Package for
a Partially Financed Market Entity. In addition, Lender shall execute such
UCC-3 amendments and UCC-3 releases as are necessary to conform the Market
Entity Loan Package for such Combined Market Entity to the form of Market
Entity Loan Package for a Partially Financed Market Entity, within thirty
(30) days after
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its receipt of such appropriate UCC-3's and a written request for
execution thereof from the Company.
SECTION 7.6 PRIORITY ISSUES. This Section 7.6 is intended to clarify the
Company's position with respect to the Collateral and the Market Entity
Collateral, and shall control in case of conflict with any other representations
and warranties made by the Company in any of the Loan Documents.
(a) COLLATERAL IN GENERAL. In various provisions of the Basic
Agreements, the Company makes representations, warranties and covenants to
Lender that the security interest granted by the Company in each Market
Entity Note and in the Company's accounts, general intangibles and rights
to payment, in each case arising from the Market Entity Loan Documents for
each Market Entity (excluding the Market Entity Loan Collateral), shall
be, at the time of the Company's execution and delivery to Lender of the
applicable Assignment and when the Lender has given "value," as defined in
Section 1-201 of the applicable Uniform Commercial Code, a valid,
perfected, first-priority security interest, subject to no other liens,
claims or encumbrances, except for Permitted Liens and as set forth in
Section 7.6(b) hereof. These representations, warranties and covenants,
after the first such representation or warranty with respect to the
Collateral described in this Section 7.6(a) relating to any particular
Market Entity, are deemed to exclude any non-consensual liens on such
Collateral.
(b) MARKET ENTITY COLLATERAL. With respect to the Market Entity
Collateral, in various provisions of the Basic Agreements, the Company
makes representations, warranties and covenants to Lender that, upon the
Company's execution and delivery to Lender of the applicable Assignment,
and when the Lender has given "value," as defined in Section 1-201 of the
applicable Uniform Commercial Code, the Company shall have, and shall have
validly assigned to Lender, a valid, perfected security interest in such
Market Entity Collateral. The Company is not making any representations or
warranties as to the priority of its security interest in the Market
Entity Collateral, but is providing to Lender instead only the searches
and other recordings reflected in each Assignment. To the extent, if any,
that the Company is unable to provide adequate fixture filings for a
particular site of a Market Entity under Section 5(b)(v) of the Security
Agreement, but complies with Section 7.7 hereof with respect to such
Market Entity, the Company's representations and warranties as to the
perfection of security interests shall be deemed to exclude the fixtures
of such Market Entity located at such site.
SECTION 7.7 PROBLEM SITES. If, with respect to a proposed Market Entity,
the Company is unable to satisfy the requirements of Section 5(b)(v) of the
Security Agreement for a Market Entity Loan Package with respect to Market
Entity Collateral located at one or more sites used by such proposed Market
Entity, Lender agrees not to reject the Market Entity Loan Package for such
proposed Market Entity solely for such reason, as long as the aggregate
Collateral Value for the Market Entity Collateral located at the other sites
used by such proposed Market Entity
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is at least equal to the outstanding principal amount of the Market Entity Note
of such proposed Market Entity.
SECTION 7.8 COLLATERAL VALUE. In any event, the Company agrees that the
aggregate amount of advances made to any Market Entity under a Market Entity
Loan (including any amounts repaid and reborrowed by such Market Entity) shall
not at any time exceed the Collateral Value for such Market Entity. The Company
further agrees not to, and not to permit any Market Entities to, designate or
treat a Market as an Excluded Market under this Agreement or any Market Entity
Loan Documents after the Amendment Date unless, immediately after the applicable
Market becomes an Excluded Market, the Collateral Value for the Market Entity
holding the FCC License for such Excluded Market is equal to or greater than the
outstanding principal amount of the Market Entity Note for such Market Entity.
ARTICLE 8. DEFAULT
SECTION 8.1 EVENTS OF DEFAULT. Subject to Section 8.2 hereof, each of
the following events or conditions shall constitute a "DEFAULT," and, following
the termination of any of the following expressly applicable cure periods, shall
constitute an "EVENT OF DEFAULT":
(a) The Company shall fail to pay any principal of or interest on any
Note, or any other amount payable hereunder, within five Business Days
after receipt by the Company of written or telephonic (to be promptly
confirmed in writing) notice from the Lender of such failure; or
(b) Any material representation or warranty made by the Company in
any Basic Agreement or which is contained in any certificate, document or
financial or other statement furnished by the Company at any time under or
in connection therewith shall prove to have been incorrect in any material
respect on or as of the date made and the fact or condition giving rise to
the misrepresentation or breach of warranty shall not have been cured
within thirty (30) days after a Responsible Officer of the Company
receives actual knowledge of such misrepresentation or breach of warranty;
or
(c) The Company shall substantially default in the observance or
performance of any agreement or covenant contained in Article 5 or Article
6 hereof and such default shall continue unremedied for a period of thirty
(30) days after receipt by the Company of written notice from the Lender
of such default; PROVIDED, HOWEVER, that if such default is of a character
which is subject to cure, but which cannot reasonably be cured within such
thirty-day period, no Event of Default shall be deemed to have occurred
for an additional thirty (30) days under this provision if the Company
shall have commenced, within the original thirty-day period, action
reasonably likely to cure such default and shall be diligently pursuing
the same; or
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(d) The Company shall substantially default in the observance or
performance of any other material agreement contained in this Agreement,
and such default shall continue unremedied for a period of 30 days after
receipt by the Company of written notice from the Lender of such default;
PROVIDED, HOWEVER, that if such default is of a character which is subject
to cure, but which cannot reasonably be cured within such thirty-day
period, no Event of Default shall be deemed to have occurred for an
additional thirty (30) days under this provision if the Company shall have
commenced, within the original thirty-day period, action reasonably likely
to cure such default, and shall be diligently pursuing the same; or
(e) The Company shall default in any payment or performance with
respect to any Indebtedness (other than the Obligations) or any Contingent
Obligation in excess, in the aggregate, of an amount equal to one percent
(1%) of the Company's Equity as shown on the most recent financial
statements delivered to Lender, and any grace or cure period with respect
thereto shall have expired and the Company shall have received notice that
the holder of such Indebtedness or the beneficiary of such Contingent
Obligation shall have caused the Indebtedness to become due before its
stated maturity or caused the Contingent Obligation to become immediately
payable; or
(f) (i) The Company shall commence any case, proceeding or other
action (A) under any existing or future law of any jurisdiction, domestic
or foreign, relating to bankruptcy, insolvency, reorganization or relief
of debtors, seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts,
or (B) seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or a substantial part of its assets, or
the Company shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against the Company any case,
proceeding or other action of a nature referred to in clause (i) above
which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged,
unstayed or unbonded for a period of 60 days; or (iii) there shall be
commenced against the Company any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar
process against all or a substantial part of its assets, which results in
the entry of an order for any such relief which shall not have been
vacated, discharged, or stayed or bonded pending appeal within 60 days
from the entry thereof; or (iv) the Company shall take any action in
furtherance of, or indicating its consent to, approval of, or acquiescence
in, any of the acts set forth in clause (i), (ii) or (iii) above; or (v)
the Company shall generally not, or shall be unable to, or shall admit in
writing its inability to, pay its debts as they become due; or
(g) With respect to any Plan, (i) there has occurred a Reportable
Event being considered by the PBGC which may reasonably result in any
material liability of the Company to the PBGC with respect to any Plan,
(ii) a Plan has been terminated by the PBGC or under a distress
termination within the meaning of Section 4041(c) of ERISA
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that could result in any liability to the Company or any Affiliate that is
material to the Company, (iii) a trustee has been appointed by a United
States district court to administer a Plan in any way that may reasonably
result in liability that is material to the Company, (iv) any Plan
sponsor, the PBGC or any other Governmental Authority has instituted
proceedings to terminate a Plan or to appoint a trustee to administer any
such Plan in any way that may reasonably result in liability that is
material to the Company, (v) either the Company or any Affiliate has
withdrawn, completely or partially, from any Plan that as a multiemployer
plan within the meaning of Section 4001(a)(3) of ERISA and such withdrawal
has resulted in material liability to the Company, (vi) either the Company
or any Affiliate has incurred withdrawal liability that is material to the
Company or (vii) a Plan has failed to meet the minimum funding standards
established under the Code or ERISA in a way that could result in material
liability of the Company; or
(h) Subject to Section 8.2 hereof, (i) any Basic Agreement or the
Letter Agreement shall cease to be in full force and effect in any
material respect (for any reason other than the Lender's action or failure
to act or, with respect to the Letter Agreement, NTI's action or failure
to act) or the Company shall so assert in writing, or (ii) the Security
Agreement shall cease to be effective to grant a perfected first priority
Lien on, or valid assignment of, as the case may be, the Collateral
described therein, or (iii) the Company shall default in any material
respect in the observance or performance of any of its material
obligations under any applicable Loan Document, in all cases, provided
that any requirement for the giving of notice, the lapse of time, or both,
or any other condition in such Loan Document has been satisfied; or
(i) One or more money judgments or decrees shall be entered against
the Company, or one or more writs of attachments, garnishments, or similar
proceedings shall be commenced, in either case involving in the aggregate
a liability in excess of an amount equal to two percent (2%) of the
Company's Equity, as reflected in the most recent financial statements
delivered to Lender, in excess of all amounts paid by the Company or
covered by insurance and all such judgments or decrees shall not have been
vacated, discharged, or stayed or bonded pending appeal within 30 days
from the entry thereof; or
(j) The Company shall fail to satisfy its obligations under Section
7.4 hereof.
SECTION 8.2 MARKET ENTITY DEFAULTS. Either (i) any Default under Section
8.1(b), 8.1(c), 8.1(d) or 8.1(h) hereof that is specifically related to any one
or more Market Entities or (ii) any material default, or event or condition that
with notice or the lapse of time or both would become a material default, under
the Market Entity Loan Documents for any one or more Market Entities, shall
constitute a Default hereunder only if, as a consequence thereof the Collateral
Value, taken as a whole, has been or will be materially and adversely affected.
Such Default shall then constitute an Event of Default, unless within thirty
(30) days following such Default, the Company either provides substitute
Collateral for the affected Market Entities pursuant to Section 7.2 hereof or
partially prepays the Obligations with respect to the affected Market Entities
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pursuant to Section 7.3 hereof or removes the affected Market Entities pursuant
to Section 7.3 hereof.
SECTION 8.3 REMEDIES. If an Event of Default has occurred, then (i) if
such event is an Event of Default specified in Section 8.1(f)(i) or 8.1(f)(ii)
hereof, the Commitment shall immediately and automatically terminate and the
Loans (with accrued interest thereon) and all other amounts owing under this
Agreement and any Note shall immediately become due and payable. If such event
is any other Event of Default, either or both of the following actions may be
taken: (i) the Lender may, by written notice to the Company, declare the
Commitment to be terminated forthwith, whereupon the Commitment shall
immediately terminate; and (ii) the Lender may, by written notice to the
Company, declare that an Event of Default has occurred and that the Loans (with
accrued interest thereon) and all other amounts owing under this Agreement and
any Note are due and payable forthwith, whereupon the same shall immediately
become due and payable. Except as expressly provided in Section 8.1, 8.2 or 8.3
hereof, presentment, demand, protest and all other notices of any kind are
hereby expressly waived.
SECTION 8.4 ADDITIONAL REMEDIES.
(a) Upon the occurrence and during the continuation of an Event of
Default, Lender shall be entitled to exercise any or all rights and
remedies available to it under this Agreement, any of the other Basic
Agreements, the Uniform Commercial Code, or otherwise available at law or
in equity.
(b) Upon the occurrence and during the continuance of any Event of
Default, without limiting the foregoing, the Lender shall have all the
rights and remedies of a secured party under the Uniform Commercial Code,
including without limitation the right to cause a public or private
foreclosure sale of any or all of the Collateral pursuant to the Security
Agreement and Section 9-504 of the Uniform Commercial Code.
(c) The exercise of any rights or remedies hereunder or under any
other Basic Agreement by the Lender that may require FCC or PUC approval
shall be subject to obtaining such approval. Pending such approval, if the
Company is not disputing in any other forum the Lender's entitlement to
exercise such rights or remedies, the Company shall not take any
affirmative action to delay, hinder, interfere with the obtaining of such
approval.
(d) In accordance with the requirements of 47 C.F.R. Section 22.917
(1984), or any successor provision, if applicable, the Lender agrees to
notify the Company, any affected Market Entity and the FCC in writing at
least ten (10) days prior to the repossession, in accordance with the
Basic Agreements or the Market Entity Loan Documents, of all or any part
of the System which is subject to said regulation.
SECTION 8.5 CURE OF DEFAULTS. It is further agreed and understood that
should an event or occurrence take place which would otherwise constitute a
Default, if such Default, if curable,
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is cured during the applicable period required for the giving of notice, or the
lapse of time, or both if necessary to satisfy the condition of converting the
Default to an Event of Default, or if such Default or Event of Default shall
have been waived in accordance with Section 9.1 hereof, before or after the end
of such applicable period, then such Default shall be retroactively deemed to
constitute neither a Default nor an Event of Default for any purpose of this
Agreement both as to the event itself or the continuance thereof.
ARTICLE 9. MISCELLANEOUS
SECTION 9.1 AMENDMENTS AND WAIVERS. The Lender and the Company may, from
time to time, enter into written amendments, supplements or modifications hereto
for the purpose of adding any provisions to the Basic Agreements or changing in
any manner the rights of the Lender or of the Company hereunder or thereunder
and the Lender may execute and deliver to the Company a written instrument
waiving, on such terms and conditions as the Lender may specify in such
instrument, any of the requirements of the Basic Agreements or any Default or
Event of Default and its consequences. In the case of any waiver, the Company
and the Lender shall be restored to their former position and rights hereunder
and under any Note, and any Default or Event of Default waived shall be deemed
to be cured and not continuing; but no such waiver shall extend to any
subsequent or other Default or Event of Default, or impair any right consequent
thereon.
SECTION 9.2 NOTICES. Except as otherwise provided herein, all notices,
requests and demands to or upon the respective parties hereto to be effective
shall be transmitted in writing by telecopy, by hand delivery, by first-class
mail, or by Federal Express, Express Mail or some other overnight courier
service, addressed to the Lender or the Company, as the case may be, at the
following address:
To the Company: United States Cellular Corporation
8410 West Bryn Mawr Avenue
Suite 700
Chicago, Illinois 60631
Attention: Kenneth R. Meyers,
Vice President - Finance
Telecopy: (312) 399-8959
And to: United States Cellular Corporation
30 North LaSalle Street
40th Floor
Chicago, Illinois 60603
Attention: Leroy T. Carlson, Jr.
Telecopy: (312) 630-1908
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with a copy to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Mike Hron, Esq.
Telecopy: (312) 853-7312
To Lender:
NTFC Capital Corporation
220 Athens Way
Nashville, Tennessee 37228
Attention: Legal Department
Telecopy: (615) 734-5283
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With a copy to:
NTFC Capital Corporation
220 Athens Way
Nashville, Tennessee 37228
Attention: Senior Vice President, Marketing
Telecopy: (615) 734-5283
or at such other address as may be subsequently submitted by written notice of
either party, or to an assignee of the Lender at the address designated by such
assignee from time to time. Notice given pursuant to this Section 9.2 shall be
deemed effective (a) upon receipt if sent via telecopy or hand delivery, (b)
upon the earlier of actual receipt or four (4) Business Days after mailing, if
sent via first class certified or registered mail, return receipt requested, or
(c) on the following Business Day, if sent via Federal Express, Express Mail or
any other overnight courier service.
SECTION 9.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and
no delay in exercising, on the part of the Lender, any right, remedy, power or
privilege under any Basic Agreement, shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power or privilege
under any Basic Agreement preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
SECTION 9.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made under any Basic Agreement and in any
document, certificate or statement delivered pursuant thereto or in connection
herewith shall survive the execution and delivery of this Agreement and the
Notes.
SECTION 9.5 PAYMENT OF EXPENSES AND TAXES. The Company agrees (a) to pay
or reimburse the Lender for the reasonable fees and disbursements and
out-of-pocket expenses of Lender's outside counsel incurred by the Lender in
connection with the development, preparation, negotiation, review and execution
of this Agreement, the other Loan Documents and the Market Entity Loan Documents
or Market Entity Loan Packages or of any amendment, supplement or modification
to any of the Loan Documents, the Market Entity Loan Documents and any other
documents prepared in connection therewith, and the consummation of the
transactions contemplated thereby, (b) to pay or reimburse the Lender for the
reasonable fees and out-of-pocket expenses of Lender's outside counsel
reasonably incurred in connection with the enforcement or protection of any of
its rights under the Basic Agreements, any other Loan Documents or the Market
Entity Loan Documents, or the release or substitution of any Collateral, and (c)
to pay, indemnify, and to hold the Lender harmless from, any and all recording
and filing fees and any and all liabilities with respect to, or resulting from
any delay in paying, stamp, excise, sales, use, real property, gross receipts,
capital stock and other taxes, levies, imposts, duties, penalties, charges or
withholdings, if any (other than any gross receipt tax that is in the
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nature of a net income tax, franchise taxes payable by the Lender and taxes
measured by the net income of the Lender), which may be payable or determined to
be payable in connection with the execution and delivery of, or consummation of
any of the transactions contemplated by, or any amendment, supplement or
modification of, or any waiver or consent under or in respect of, any Basic
Agreement or any such other Loan Documents, or (to the extent not paid by the
applicable Market Entity) any Market Entity Loan Documents.
SECTION 9.6 SUCCESSORS AND ASSIGNS. (a) Subject to the following
provisions of this Section 9.6, this Agreement shall be binding upon and inure
to the benefit of the Company, the Lender, all future holders of any Note, and
their respective successors and assigns.
(b) ASSIGNMENT AND DELEGATION BY THE COMPANY. Other than in
connection with a transaction permitted by Section 6.4 hereof, the Company
may not assign or transfer any of its rights nor delegate any of its
obligations under this Agreement or any other Basic Agreement without the
prior written consent of the Lender.
(c) ASSIGNMENT AND DELEGATION BY THE LENDER. Lender may assign its
rights and obligations as follows, PROVIDED, however, that Lender shall
not make assignments or delegations under subsection (i) or (ii) to a
Competitor without the prior written consent of the Company, which shall
not be unreasonably withheld.
(i) PRE-FINANCING TERMINATION DATE. Subject to subparagraph (iii)
below, on or before the Financing Termination Date, the Lender may not
delegate any of its duties under this Agreement or any other Basic
Agreement to any party other than (with notice to the Company) an
Affiliate of the Lender that is not a Competitor, without the prior
written consent of the Company, which shall not be unreasonably
withheld. During such period, the Lender may, however, without notice
to or consent of the Company, assign, transfer, grant a security
interest in, or pledge all or any part of its rights or title under
this Agreement and the other Basic Agreements, in whole or in part, to
any Affiliate of the Lender that is not a Competitor or any third
party other than a Competitor, for any reason, including, without
limitation, for the purpose of securing loans to Lender or otherwise.
(ii) POST-FINANCING TERMINATION DATE. Subject to subparagraph
(iii) below, at any time after the Financing Termination Date, the
Lender may, with notice to but not the consent of the Company,
delegate its duties and assign, transfer, grant a security interest
in, or pledge all or any part of its rights or title under this
Agreement and the other Basic Agreements, in whole or in part, to any
third party other than a Competitor, for any reason, including,
without limitation, for the purpose of securing loans to Lender or
otherwise.
(iii) EVENT OF DEFAULT. If an Event of Default has occurred and
is continuing, and the Lender has accelerated the Loans pursuant to
Section 8.3 hereof, the Lender may, without notice to or consent of
the Company, delegate its
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duties and assign, transfer, grant a security interest in, or pledge
all or any part of its rights or title under this Agreement and the
other Basic Agreements, in whole or in part, to any third party
(including Competitors), for any reason, including, without
limitation, for the purpose of securing loans to Lender or otherwise.
(d) EFFECT OF ASSIGNMENT. Upon receipt of written notice from Lender
of an assignment by the Lender pursuant to paragraph (c) of this Section
9.6, the Company shall, if requested, promptly acknowledge receipt thereof
in writing, the rights and privileges herein conferred upon the Lender
shall automatically extend to and be vested in the assignee, and the
Company shall perform all its obligations with respect to this Agreement
and the other Basic Agreements for the benefit of such assignee, and, if
so directed, shall pay all amounts due or to become due hereunder directly
to such assignee or to any other party designated by such assignee. The
Company shall also execute and deliver to Lender such documentation as any
such assignee may reasonably require in connection with such assignment,
including an acknowledgment of or consent to the assignment which may
require the Company to make certain representations or reaffirmations as
to some of the basic terms and covenants contained herein. Any such
assignee shall be entitled to rely on the Company's agreements as stated
herein, as applicable, and shall be considered a third party beneficiary
thereof.
(e) EFFECT OF DELEGATION. If Lender shall delegate its duties under
this Agreement or the other Basic Agreements pursuant to paragraph (c) of
this Section 9.6, Lender shall not be relieved of its obligations
hereunder as a result of any such delegation unless the delegate assumes
in writing Lender's future obligations hereunder, a copy of which writing
shall be delivered to the Company, in which event after the date of such
delegation, the Company's obligations to any such delegate shall be as set
forth herein with respect to the Lender, and the Company shall not look to
the Lender to perform any of such delegate's obligations hereunder which
arise after the date thereof.
SECTION 9.7 PARTICIPATIONS. The Lender shall be entitled to sell,
transfer or assign participation interests in this Agreement and the other Basic
Agreements to other financial institutions, each of which shall be entitled to
the benefits hereof and of all the Loan Documents to the extent of its
participation interest; PROVIDED, HOWEVER, that (i) no participant added before
the Financing Termination Date or before the occurrence of an Event of Default
shall be a Competitor and (ii) Lender shall retain not less than a majority
interest and shall retain all voting control as to material issues (including,
without limitation, releases of Collateral, extension of time for payment,
reduction of amounts payable, declaration or waiver of Defaults or Events of
Default, and amendment of any financial covenants) and (iii) the Company shall
remain entitled to deal only with Lender and not with such participants.
SECTION 9.8 COUNTERPARTS. This Agreement may be executed by one or more
of the parties to this Agreement on any number of separate counterparts and all
of said counterparts taken together shall be deemed to constitute one and the
same instrument.
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SECTION 9.9 GOVERNING LAW. This Agreement, each Note and the rights and
obligations of the parties under the Basic Agreements shall be governed by, and
construed and interpreted in accordance with, the internal laws of the State of
Illinois except to the extent, if any, that the location of the Collateral may
require the application of the law of another jurisdiction.
SECTION 9.10 INTEGRATION. This Agreement, the Letter Agreement and the
exhibits and schedules hereto constitute the entire understanding between the
Company and the Lender with respect to the subject matter hereof and thereof,
and supersede all negotiations, prior discussions, agreements (including
commitment letters), proposals and understandings, written or oral, relating to
the subject matter hereof. Neither of the parties hereto are entering into this
Agreement in reliance on any oral representations or agreements.
SECTION 9.11 NO JOINT VENTURE. Nothing contained herein or in any of the
Loan Documents shall be deemed to create a joint venture, partnership or
fiduciary relationship between Lender and the Company or their respective
Affiliates.
SECTION 9.12 INDEMNITY. The Company hereby indemnifies Lender against any
losses, claims, expenses, actions, suits, obligations, liabilities and liens
(and all costs and expenses, including reasonable attorneys' fees incurred in
connection therewith), which Lender has sustained or incurred or may sustain or
incur in connection with any of the Collateral or as a consequence of any
default by the Company in the performance or observance of any covenant or
condition contained in this Agreement or the Loan Documents, including without
limitation, the breach of any representation or warranty, any failure of the
Company to pay when due (by acceleration or otherwise) any principal, interest,
fee or any other amount due hereunder or under any Note, and any failure of the
Company to comply with all applicable Requirements of Law (collectively,
"Claims") except to the extent that any Claims are caused by Lender's gross
negligence or willful misconduct. The Company's obligations under this
Section 9.12 shall be part of the Obligations and shall be secured by the
Collateral. The Company agrees that upon written notice by Lender of the
assertion of any Claims, the Company shall, at Lender's option, either assume
full responsibility for, or reimburse Lender for the reasonable costs and
expenses of, the defense thereof. The provisions of this Section 9.12 shall
survive the term of this Agreement and payment of the Obligations.
SECTION 9.13 CONFIDENTIAL INFORMATION.
(a) CONFIDENTIAL INFORMATION. Lender acknowledges that information
that is not available to the public regarding TDS and the Company and
their Subsidiaries and Affiliates, including the General Market Entities,
has been, and in the future may be, provided to Lender pursuant to this
Agreement, and the other Basic Agreements or the Market Entity Loan
Documents. Any such information shall constitute "Confidential
Information" if it is written or tangible material conspicuously labeled
and identified as "confidential and proprietary" or, if oral, if it is
identified in writing delivered to Lender within fifteen Business Days
after disclosure as "Confidential."
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(b) NON-CONFIDENTIAL INFORMATION. The term "Confidential Information"
does not include information that:
(i) has been or becomes published or is now, or in the future,
in the public domain through: (x) no fault of the parties; (y)
any means other than unauthorized disclosure by Lender; or (z)
disclosure to third parties by the Company without similar
restriction;
(ii) prior to disclosure hereunder, is property within the
legitimate possession of Lender;
(iii) subsequent to disclosure hereunder, is lawfully
received from a third party having rights therein without
restriction of the third party's or Lender's rights to
disseminate the information and without notice of any restriction
against its further disclosure;
(iv) is independently developed by Lender through persons
who have not had, either directly or indirectly, access to or
knowledge of such Confidential Information;
(v) is disclosed with the written approval of the Company;
(vi) at any time, is delivered or disclosed by the Company
or any Affiliate to the Securities and Exchange Commission or
other public or regulatory agency;
(vii) subject to Section 9.13(d) hereof, is obligated to be
produced under order of a court of competent jurisdiction or a
valid administrative or congressional subpoena.
(c) NONDISCLOSURE AND USE. Lender will not make any public disclosure
concerning the subject matter of the Confidential Information and will not
convey any such Confidential Information to any third parties; PROVIDED,
HOWEVER, that Lender may disclose any Confidential Information (i) to
Lender's directors, officers, employees or agents, including legal counsel
and financial advisors, who need to know such information for the purpose
of evaluating, reviewing, monitoring, enforcing or administering the
transactions contemplated by the Basic Agreements and the Market Entity
Loan Documents for the benefit of the Lender or (ii) to appropriate third
parties in connection with a transaction permitted by Section 9.6 or 9.7
hereof ("Authorized Third Parties"). Lender agrees that it will not
deliver any such Confidential Information to such Authorized Third Parties
unless such Authorized Third Parties agree in writing to be bound by the
confidentiality agreement contained in this Section 9.13. Lender shall
provide the same general care to avoid disclosure or unauthorized use of
the Confidential Information as it generally provides to protect its own
similar confidential information.
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All Confidential Information, unless otherwise specified in writing, shall
remain the property of the Company, shall be used by Lender or its
Affiliates only for the purposes intended, and such Confidential
Information, including all copies thereof, shall be returned to the
Company after Lender's need for it has expired or upon the request of the
Company, and in any event, upon termination of this Agreement.
(d) DISCLOSURE IN LEGAL PROCEEDINGS. In the event that Lender is
requested in any legal, judicial or administrative proceeding to disclose
any Confidential Information, Lender will give the Company prompt notice
of such request. The Company may then seek an appropriate protective
order. If, in the absence of a protective order, Lender is compelled to
disclose Confidential Information, Lender may disclose such information
without liability hereunder if Lender gives the Company written notice of
the information to be disclosed as far in advance of its disclosure as is
reasonably practicable.
(e) INJUNCTION. Lender hereby acknowledges and agrees that the
Confidential Information is considered by the Company to be of a special,
unique and proprietary character. Upon a breach or threatened breach of
any provision of this Section 9.13, the Company shall be entitled to, in
addition to other remedies available to it, injunctive relief to prevent a
breach or continued breach of this Section 9.13, or any part of it, and to
secure the enforcement of this Section 9.13.
(f) TERM. The Lender's obligations under this Section 9.13 shall
survive for two (2) years following termination of this Agreement;
PROVIDED, HOWEVER, that, upon the occurrence of an Event of Default,
without obtaining any agreement from any Persons to be bound by this or
any other confidentiality agreement, Lender shall be entitled to disclose
Confidential Information to prospective brokers, purchasers, lessees,
assigns, auctioneers and their respective agents, and/or in judicial or
administrative proceedings, in each case as reasonably necessary in
connection with any sale or anticipated sale of any or all of the Loan
Documents or the Collateral or any other enforcement of Lender's rights or
remedies under this Agreement or the other Basic Agreements.
(g) LIMITATION OF LIABILITY. Lender shall have no monetary liability
under this Section 9.13 unless an unauthorized disclosure of Confidential
Information causes or results in a material adverse effect on the
business, operations, assets or financial condition of the Company (in
each case, taken as a whole), and even in such case, Lender shall only be
liable for actual, direct damages. Lender shall have no liability for any
indirect, special, consequential or incidental damages hereunder.
(h) PUBLICITY. The Company agrees that it will obtain Lender's
written consent before using or generating any press release,
advertisement or other similar publicity materials in which the name or
logo of Lender, General Electric or GE Capital Corporation is used or may
be reasonably inferred, and will not distribute any such materials in the
absence of such prior written approval.
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SECTION 9.14 LIMITATION ON LIABILITY. EXCEPT TO THE EXTENT PROHIBITED BY
LAW, EACH PARTY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
ACTION ANY SPECIAL, EXEMPLARY, PUNITIVE, INCIDENTAL, INDIRECT OR CONSEQUENTIAL
DAMAGES OF ANY SORT OTHER THAN ACTUAL DAMAGES.
SECTION 9.15 EFFECT OF AMENDMENT. This Agreement is an amendment and
restatement of that certain Term Loan Agreement dated as of October 1, 1991,
between the Company and Lender, is not intended to act as a novation or release
or discharge of any indebtedness incurred thereunder or evidenced thereby, and,
from the Amendment Date forward, supersedes any provisions thereof.
IN WITNESS WHEREOF, the parties have caused this Amended and Restated Term
Loan Agreement to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.
NTFC CAPITAL CORPORATION UNITED STATES CELLULAR
CORPORATION
By: /S/ WILLIAM F. WOOD, JR. By: /s/ Kenneth R. Meyers
--------------------------------- -------------------------------
Title: Senior Vice President Title: Vice President-Finance and CFO
------------------------------ -------------------------------
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AMENDED AND RESTATED TERM LOAN AGREEMENT
DATED DECEMBER 22, 1994, BETWEEN
NTFC CAPITAL CORPORATION AND
UNITED STATES CELLULAR CORPORATION
SCHEDULES AND EXHIBITS
----------------------
Schedule 1 Existing Market Entities
Schedule 1.1 Interim Notes
Schedule 2 Direct Loan Transactions
Schedule 3.3 Required Consents
Schedule 3.6 Pending or Threatened Litigation
Exhibit A-1 Form of 1994 Construction Note
Exhibit A-2 Form of 1994 Equipment Note
Exhibit A-3 Copy of Refinancing Note
Exhibit A-4 Form of Note Schedule
Exhibit A-5 Form of Note D
Exhibit A-6 Form of Note E
Exhibit B-1 Form of Borrowing Certificate (Equipment
Loan)
Exhibit B-2 Form of Borrowing Certificate (Construction Loan)
Exhibit B-3 Form of Borrowing Certificate (New Notes)
Exhibit C Form of Amended and Restated Security Agreement
and Assignment of Contracts
Exhibit D Form of Collateral Assignment
Exhibit E Form of Collateral Release Request Certificate
Exhibit H Form of Acknowledgment, Consent and Release
Agreement
Exhibit I Form of Assumption Agreement for Combined Markets
The Schedules and Exhibits are not being filed herewith. The Company
agrees to furnish a copy of such Schedules and Exhibits if so requested by the
Commission.
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Exhibit 10.2(b)
November 30, 1994
United States Cellular Corporation
8410 West Bryn Mawr Avenue
Suite 700
Chicago, Illinois 60631
Re: Revolving Credit Agreement dated as of July 1, 1987,
last amended as of November 15, 1993 (the "Revolving
Credit Agreement"), between United States Cellular
Corporation and Telephone and Data Systems, Inc. ("TDS")
--------------------------------------------------------
Gentlemen:
This letter will constitute TDS's agreement to amend the Revolving
Credit Agreement by changing all of the references to "$250,000,000" in the
Revolving Credit Agreement to "$300,000,000". All of the other terms and
conditions of the Revolving Credit Agreement shall remain in full force and
effect.
Please acknowledge your agreement to this amendment by executing the
copy of this letter and returning it to the undersigned.
Very truly yours,
TELEPHONE AND DATA SYSTEMS, INC.
By: /s/ Murray L. Swanson
-------------------------------------
Murray L. Swanson
Executive Vice President/Finance
Accepted and agreed to as of the date set forth above.
UNITED STATES CELLULAR CORPORATION
By: /s/ Kenneth R. Meyers
-------------------------------------
Kenneth R. Meyers
Executive Vice President/Finance
<PAGE>
EXHIBIT 10.11
SUMMARY OF 1994 BONUS PROGRAM FOR
SENIOR CORPORATE STAFF OF
UNITED STATES CELLULAR CORPORATION
The objectives of the 1994 Bonus Program for Senior Corporate Staff
(the "1994 Bonus Plan") of United States Cellular Corporation ("USM") are: (i)
to provide suitable incentives for the senior corporate management of USM to
extend their best efforts to achieve superior results in relation to key
performance targets, (ii) to suitably reward USM's senior corporate management
team in relation to their success in meeting and exceeding these performance
targets, and (iii) to help USM attract and retain talented management personnel
in positions of critical importance to the success of USM. A team performance
award and an individual performance award are available under the 1994 Bonus
Plan.
For target performance on the team and individual categories, the 1994
Bonus Plan was designed to generate a targeted 1994 bonus pool equal to the
total of 25% of the aggregate of the base salaries of the Company's executive
officers other than the President. Under the 1994 Bonus Plan, the size of the
target bonus pool is increased or decreased depending on USM's 1994 achievements
with respect to the performance categories. No bonus pool is paid under such
plan if minimum performance levels are not achieved in these categories. The
maximum bonus pool that could be generated, which would require exceptional
performance in all areas, would equal the total of 40% of the aggregate base
salaries of the Company's executive officers. At target performance, the bonus
pool would be equal to 25% of the aggregate salaries of the Company's executive
officers other than the President. Of this percentage, 7.5% represents a
targeted individual performance award and a total of 17.5% represents a targeted
team bonus award. The targeted team award includes a discretionary team award
of 3.5% and an objective award of 14% for a total targeted team bonus award of
17.5%. The objective performance categories include (i) the increase in net
revenue customers (3.5% of the targeted award), (ii) the increase in earnings
before interest and taxes (7.0% of the targeted award) and (iii) the increase in
net service revenue growth (3.5% of the targeted award).
The discretionary team performance category, representing 3.5% of the
targeted award of 25%, permits the participants to earn bonus dollars through
USM's performance and their individual performance in areas not measured or not
adequately measured by objective team performance categories. The President of
USM determines a bonus percentage to award for discretionary team performance
and presents his recommendation to the Chairman for his approval. This decision
is based primarily on an assessment of the team performance in general,
considering
<PAGE>
all facts and circumstances. This award may range from 40% of the targeted
award for adequate performance on a team level to 160% of the targeted award for
outstanding performance on a team level.
The 1994 Bonus Plan also provides a discretionary individual
performance category, representing 7.5% of the targeted percentage of 25%, to
permit the participants to earn bonus dollars through USM's performance and
their individual performance in areas not measured or not adequately measured by
team performance categories. The President of USM determines a bonus percentage
to award for discretionary individual performance and presents his
recommendation to the Chairman for his approval. This decision is based
primarily on an assessment of the executive's personal performance. This award
may range from 40% of the targeted award for adequate performance on an
individual basis to 160% of the targeted award for outstanding performance on an
individual basis.
<PAGE>
Exhibit 10.13
TELEPHONE AND DATA SYSTEMS, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
TELEPHONE AND DATA SYSTEMS, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
TABLE OF CONTENTS
Page
----
SECTION 1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Title and Purpose. . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Gender and Number. . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2 ELIGIBILITY AND BENEFITS . . . . . . . . . . . . . . . . . . . . . 4
2.1 Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Earnings and Other Adjustments . . . . . . . . . . . . . . . . . . 5
SECTION 3 PAYMENT OF BENEFITS. . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Vesting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Commencement of Payments . . . . . . . . . . . . . . . . . . . . . 7
3.3 Schedule of Payments . . . . . . . . . . . . . . . . . . . . . . . 7
3.4 Survivor Benefits. . . . . . . . . . . . . . . . . . . . . . . . . 9
3.5 Distributions to Minor and Disabled Persons. . . . . . . . . . . . 10
3.6 Small Benefits Paid in Lump Sum. . . . . . . . . . . . . . . . . . 10
SECTION 4 GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . 11
4.1 Employment Rights. . . . . . . . . . . . . . . . . . . . . . . . . 11
4.2 Rights Not Secured . . . . . . . . . . . . . . . . . . . . . . . . 11
4.3 Administration . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.4 Effect on Other Plans. . . . . . . . . . . . . . . . . . . . . . . 12
4.5 Interests Not Transferable . . . . . . . . . . . . . . . . . . . . 12
4.6 Adoption by Employers. . . . . . . . . . . . . . . . . . . . . . . 12
4.7 Tax Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.8 Controlling Law. . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5 CLAIMS PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 6 AMENDMENT AND TERMINATION. . . . . . . . . . . . . . . . . . . . . 15
6.1 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.2 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
TELEPHONE AND DATA SYSTEMS, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(EFFECTIVE JANUARY 1, 1994)
SECTION 1
INTRODUCTION
1.1 TITLE AND PURPOSE. The title of this Plan shall be the
"Telephone and Data Systems, Inc. Supplemental Executive Retirement Plan". This
Plan is established by Telephone and Data Systems, Inc. (the "Company") to
supplement the benefits under the Telephone and Data Systems, Inc. Employees'
Pension Trust I (the "TDS Plan") and the United States Cellular Corporation
Money Purchase Pension Plan (the "USCC Plan"), each of which is intended to
operate as a "qualified" plan as defined under Section 401 of the Internal
Revenue Code of 1986, as amended (the "Code"). Qualified plans must comply with
Section 401(a)(17) of the Code, which limits the annual compensation of each
employee which can be taken into account under a qualified plan. This Plan is
established to offset the Code mandated reduction of benefits caused by the
limitation on annual employee compensation to be considered under Section
401(a)(17) of the Code for eligible employees participating in the TDS Plan and
the USCC Plan. This Plan is intended to be unfunded and maintained primarily
for the purpose of providing deferred compensation for a select group of
management or highly compensated employees.
<PAGE>
1.2 DEFINITIONS. All capitalized terms used herein shall have the
meanings set forth below, except as otherwise provided in the preamble to or
text of this Plan:
(a) "BENEFICIARY" means the beneficiary designated by the Participant
or otherwise entitled to payment of benefits hereunder. If no separate
designation is made by a Participant under this Plan, the Beneficiary shall be
his beneficiary under the Company Pension Plan.
(b) "BENEFITS DEPARTMENT" means the employee benefits department of
the Company, located at 8401 Greenway Boulevard, Post Office Box 628010,
Middleton, Wisconsin 53562-8010.
(c) "CAUSE" means (i) the continued failure by a Participant to
substantially perform the Participant's duties with the Company or an Employer,
or (ii) the willful engaging by the Participant in conduct which is clearly
injurious to the Company or USCC or any of their respective affiliates,
monetarily or otherwise. For purposes of clause (ii) of this definition, no
act, or failure to act, on the Participant's part shall be deemed "willful"
unless done, or omitted to be done, by the Participant not in good faith or
without reasonable belief that such act, or failure to act, was in the best
interest of the Company or an Employer.
-2-
<PAGE>
(d) "COMMITTEE" means, unless otherwise appointed by the Board of
Directors of the Company, the Trustees of the TDS Plan, who shall administer the
Plan.
(e) "COMPANY PENSION PLAN" means the TDS Plan with respect to a
Participant who participates in the TDS Plan and the USCC Plan with respect to a
Participant who participates in the USCC Plan.
(f) "EMPLOYER" means the Company, USCC, and any other entity that
participates in the TDS Plan or the USCC Plan and adopts this Plan pursuant to
Section 4.6.
(g) "PARTICIPANT" means any employee who meets the eligibility for
participation requirements set forth in Section 2.1.
(h) "PLAN" means this Telephone and Data Systems, Inc. Supplemental
Executive Retirement Plan, as from time to time amended.
(i) "PLAN YEAR" means the calendar year.
(j) "USCC" means United States Cellular Corporation, a Delaware
corporation, and any corporation which shall succeed to the business of such
corporation and adopt this Plan pursuant to Section 4.6.
-3-
<PAGE>
(k) "YEAR OF SERVICE" means, with respect to a Participant who
participates in the TDS Plan, a Year of Vesting Service as defined in Article 2
of the TDS Plan, and with respect to a Participant who participates in the USCC
Plan, a Year of Service as defined in Article 2 of the USCC Plan.
1.3 GENDER AND NUMBER. Where the context permits, words in the
masculine shall include the feminine and neutral; words in the plural shall
include the singular and the singular shall include the plural.
SECTION 2
ELIGIBILITY AND BENEFITS
2.1 ELIGIBILITY. An employee who is a participant under the TDS Plan
or the USCC Plan shall commence participation under this Plan as a Participant
if his compensation (as defined in the Company Pension Plan) for the Plan Year
exceeds the limit set forth in Section 401(a)(17) of the Code for such Plan Year
(adjusted for changes in the cost of living pursuant to Section 401(a)(17)).
2.2 BENEFITS. If Employer contributions that would otherwise have
been made on behalf of the Participant under the provisions of the Company
Pension Plan are limited in a Plan Year because of Section 401(a)(17) of the
Code, such Employer shall credit to an account for the Participant as of the
last day of such Plan
-4-
<PAGE>
Year, for bookkeeping purposes only, an amount equal to the difference between
(i) the amount of Employer contributions that would have been allocated to the
Participant's account under the Company Pension Plan without regard to Section
401(a)(17) of the Code for such Plan Year and (ii) the amount of Employer
contributions actually allocated to the Participant's account under the Company
Pension Plan for that Plan Year. When calculating the amount described in part
(i) of the previous sentence with respect to TDS Plan benefits based on a
Participant's compensation in excess of the limitation under Section 401(a)(17)
of the Code, amounts credited to the account for such Participant for prior plan
years must be considered. For calculating benefits under this Section, the
actuarial assumptions and methods from the TDS Plan will be applied.
2.3 EARNINGS AND OTHER ADJUSTMENTS. For bookkeeping purposes only,
the account established for each Participant pursuant to Section 2.2 shall be
adjusted at the end of each Plan Year to reflect (i) an assumed rate of earnings
on all items other than the contributions for the current Plan Year equal to the
interest rate on ten year United States Treasury Bills on the first business day
of each Plan Year, as quoted in THE WALL STREET JOURNAL, plus 100 basis points
and (ii) any payments made pursuant to Section 3.
-5-
<PAGE>
SECTION 3
PAYMENT OF BENEFITS
3.1 VESTING. (a) TERMINATION OF EMPLOYMENT UNDER CIRCUMSTANCES
ENTITLING THE PARTICIPANT TO DISTRIBUTION OF HIS FULL ACCOUNT. A Participant
shall be entitled to distribution of his entire account balance under the Plan
if the Participant's employment is terminated, without Cause, after either of
the following events:
(i) his attainment of age 65; or
(ii) his completion of at least fifteen Years of Service, with Years
of Service being determined without regard to Years of Service
completed prior to the year in which he attained age 43.
(b) TERMINATION OF EMPLOYMENT UNDER CIRCUMSTANCES RESULTING IN
COMPLETE OR PARTIAL FORFEITURE OF THE PARTICIPANT'S ACCOUNT. If a Participant
terminates employment under circumstances other than those set forth in
paragraph (a) above, without Cause, the Participant shall be entitled to
distribution of the following percentage of his account balance, with Years of
Service described below being determined without regard to Years of Service
completed prior to the year in which the Participant attained age 43:
-6-
<PAGE>
Nonforfeitable
Years of Service Percentage
---------------- --------------
Less than 1 0%
At least 1, but less than 2 5%
At least 2, but less than 3 10%
At least 3, but less than 4 15%
At least 4, but less than 5 20%
At least 5, but less than 6 25%
At least 6, but less than 7 30%
At least 7, but less than 8 35%
At least 8, but less than 9 40%
At least 9, but less than 10 45%
At least 10, but less than 11 50%
At least 11, but less than 12 60%
At least 12, but less than 13 70%
At least 13, but less than 14 80%
At least 14, but less than 15 90%
15 years or more 100%
If a Participant's employment is terminated for Cause, such
Participant shall be entitled to no portion of his account balance under this
Plan.
3.2 COMMENCEMENT OF PAYMENTS. The nonforfeitable portion of the
Participant's account determined under Section 3.1, adjusted for the assumed
rate of earnings in the manner described in Section 2.3 (including periods after
the Participant's termination of employment), shall be payable to the
Participant, beginning on the first day of the month next following the later of
his termination of employment and his completion of all forms and applications
requested by the Committee.
3.3 SCHEDULE OF PAYMENTS. The nonforfeitable portion of the
Participant's account determined under Section 3.1,
-7-
<PAGE>
adjusted each Plan Year (including periods after any annual installment payments
begin) for the assumed rate of earnings in the manner described in Section 2.3
and reduced for annual installments previously paid under the Plan, shall be
payable in one of the forms described in the following sentence selected by the
Participant on the date he first becomes a Participant and shall commence being
paid on the date determined pursuant to Section 3.2. The forms available for
payment hereunder are the following: (a) a single lump sum payment; or (b)
annual installments over a period of 5, 10, 15, 20 or 25 years. Notwithstanding
the Participant's selection of the payment method on the date he becomes a
Participant, the Participant may make a one-time request that payments be made
in accordance with a different form provided under this Section, provided that
such form results in payments over a shorter period than the period formerly
selected by him. This request shall be irrevocable, must be made to the
Committee prior to the date of the first payment under Section 3.2 and shall be
subject to the approval of the Committee. The approval of the request shall be
at the sole discretion of the Committee. If a Participant fails to designate a
payment schedule in accordance with this Section, the nonforfeitable portion of
his account shall be paid in annual installments for a period of ten years.
Notwithstanding anything contained herein to the contrary, in the
event that the Participant owes any amount to an Employer (an "Obligation"), the
payments due hereunder shall be
-8-
<PAGE>
used to offset any Obligation in accordance with the payment schedule selected
by the Participant. Any amounts not used to offset an Obligation shall be paid
to the Participant or his Beneficiary.
3.4 SURVIVOR BENEFITS. If a Participant dies before payment of his
account balance commences, his Beneficiary shall receive the nonforfeitable
portion of his account balance determined under Section 3.1 (after offset of any
Obligation as provided in Section 3.3) in the form selected by the Participant
for payment of his account. If a Participant dies after payment of his account
balance commences, his Beneficiary shall receive the remaining portion of the
Participant's account balance to which the Participant would have been entitled
had he survived, payable in the same form as payments would have been made to
the Participant had he survived. Notwithstanding the preceding two sentences, a
Beneficiary entitled to payment under this Section may make a one-time request
that payments be made in accordance with a different form provided under Section
3.3, provided that such form results in payments over a shorter period than the
period formerly selected by the Participant. This request shall be irrevocable,
must be made to the Committee prior to the date of the first payment to the
Beneficiary and shall be subject to the approval of the Committee in the same
manner as provided in Section 3.3.
-9-
<PAGE>
3.5 DISTRIBUTIONS TO MINOR AND DISABLED PERSONS. If a distribution
is to be made to a minor or to a person who, in the opinion of the Committee, is
unable to manage his affairs by reason of illness or mental incompetency, such
distribution may be made to or for the benefit of any such person in such of the
following ways as the Committee shall direct: (a) directly to any such minor
person if, in the opinion of the Committee, he is able to manage his affairs,
(b) to the legal representative of any such person, (c) to a custodian under a
Uniform Gifts to Minors Act for any such minor person, or (d) to some near
relative of any such person to be used for the latter's benefit. Neither the
Committee nor the Employer shall be required to see to the application by any
third party of any distribution made to or for the benefit of a Participant or
Beneficiary pursuant to this Section.
3.6 SMALL BENEFITS PAID IN LUMP SUM. Notwithstanding any provision
in the Plan to the contrary, if the amount of a Participant's account balance to
be distributed under Article 3 is not more than $10,000, such amount shall be
distributed, as soon as administratively feasible on or after the date on which
such Participant's termination of service occurs, by payment in a lump sum.
-10-
<PAGE>
SECTION 4
GENERAL PROVISIONS
4.1 EMPLOYMENT RIGHTS. This Plan shall not be construed to give any
Participant the right to be retained in the employ of any Employer nor any right
to benefits not specifically provided for in this Plan.
4.2 RIGHTS NOT SECURED. All payments to be made pursuant to this
Plan shall be an obligation of the general assets of the Employers, and no
Employer shall be required to segregate any of its assets in order to provide
for the satisfaction of the obligations hereunder or to make any investment of
assets. Although the amounts credited to each Participant's account shall be
reflected in the Employers' accounting records, this Plan shall not be construed
to create a trust, custodial, or escrow account nor shall the Participant have
any right, title, or interest in any specific investment reserves, accounts,
funds or a trust that any Employer may accumulate or establish to aid it in
providing benefits under this Plan. Nothing contained in this Plan shall create
a trust or fiduciary relationship between any Employer and any Participant or
Beneficiary. Neither a Participant nor his Beneficiary shall acquire any
interest greater than that of an unsecured creditor.
-11-
<PAGE>
4.3 ADMINISTRATION. This Plan shall be administered by the
Committee. The Committee shall have the same rights and duties with respect to
this Plan as the plan administrator of the TDS Plan has with respect to the TDS
Plan. The Committee will apply uniform rules to all Participants similarly
situated. The determination of the Committee as to any question arising under
this Plan shall be final and binding upon all persons. The expenses of
administering the Plan shall be borne by the Employers.
4.4 EFFECT ON OTHER PLANS. Amounts credited or paid under this Plan
shall not be considered to be compensation for the purposes of any qualified
plan maintained by any Employer.
4.5 INTERESTS NOT TRANSFERABLE. Except as provided in Section 3.3
with respect to an Obligation, the interests of the Participants and their
Beneficiaries under the Plan are not subject to the claims of their creditors
and may not be voluntarily or involuntarily assigned or encumbered in any way,
including any assignment, division or awarding of property under state domestic
relations law (including community property law).
4.6 ADOPTION BY EMPLOYERS. Any corporation which is or becomes an
"Employer" under the Company Pension Plan may, with the consent of the Company,
become an Employer in this Plan by delivery to the Company of a resolution of
its board of directors or duly authorized committee to such effect, which
resolution shall specify the first Plan Year for which this Plan shall be
effective in respect of the employees of such corporation.
-12-
<PAGE>
4.7 TAX LIABILITY. An Employer may withhold from any payment under
this Plan any taxes required to be withheld plus such sums as such Employer may
reasonably estimate to be necessary to cover any taxes for which the Employer
may be liable and which may be assessed with regard to such payment.
4.8 CONTROLLING LAW. The law of Illinois and, where applicable, the
provisions of the Employee Retirement Income Security Act of 1974, as amended,
shall be controlling in all matters relating to the Plan.
SECTION 5
CLAIMS PROCEDURE
If any Participant or Beneficiary believes he is entitled to benefits
in an amount greater than those which he is receiving or has received, he may
file a claim with the Benefits Department. Such a claim shall be in writing and
state the nature of the claim, the facts supporting the claim, the amount
claimed and the address of the claimant. The Benefits Department shall review
the claim and, unless special circumstances require an extension of time, within
90 days after receipt of the claim, give written notice by registered or
certified mail to the claimant of its decision with respect to the claim. If
special
-13-
<PAGE>
circumstances require an extension of time, the claimant shall be so advised in
writing within the initial 90-day period and in no event shall such an extension
exceed 90 days. The notice sent by the Benefits Department shall be written in
a manner calculated to be understood by the claimant and, if the claim is wholly
or partially denied, set forth the specific reasons for the denial, specific
references to the pertinent Plan provisions on which the denial is based, a
description of any additional material or information necessary for the claimant
to perfect the claim and an explanation of why such material or information is
necessary, and an explanation of the claim review procedure under this Plan.
The Benefits Department shall also advise the claimant that he or his duly
authorized representative may request a review by the Committee of the denial by
filing with the Committee within 60 days after notice of the denial has been
received by the claimant, a written request for such review. The claimant shall
be informed that he may have reasonable access to pertinent documents and submit
comments in writing to the Committee within the same 60-day period. If a
request is so filed, review of the denial shall be made by the Committee and the
claimant shall be given written notice of the Committee's final decision within
sixty days after receipt of such request, unless special circumstances require
an extension of time. If special circumstances require an extension of time,
the claimant shall be so advised in writing within the initial 60-day period and
in no event shall such an extension exceed 60 days. The notice of the
Committee's final decision shall include specific reasons for the
-14-
<PAGE>
decision and specific references to the pertinent Plan provisions on which the
decision is based and shall be written in a manner calculated to be understood
by the claimant.
SECTION 6
AMENDMENT AND TERMINATION
6.1 AMENDMENT. The Company may amend this Plan at any time by
resolution duly adopted by its board of directors. No such amendment shall
reduce or otherwise adversely affect the rights of Participants or Beneficiaries
with respect to amounts accrued hereunder as of the date of such amendment.
6.2 TERMINATION. Although the Company expects to continue this Plan
indefinitely, it must necessarily reserve the right to terminate this Plan at
any time by a resolution duly adopted by its board of directors.
-15-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed on December 27, 1994, by its duly authorized officer to be effective as
of January 1, 1994.
TELEPHONE AND DATA SYSTEMS, INC.
By: /s/ LeRoy T. Carlson, Jr.
-------------------------
LeRoy T. Carlson, Jr.
ATTEST:
By: /s/ Michael G. Hron
-----------------------
Secretary
-16-
<PAGE>
EXHIBIT 11
UNITED STATES CELLULAR CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
-------------
<S> <C>
PRIMARY EARNINGS
Net Income (Loss) Available to Common............................................................ $ 16,393
-------------
-------------
PRIMARY SHARES
Weighted average number of Common and Series A Common
Shares Outstanding.............................................................................. 77,321
Additional shares assuming issuance of:
Options and Stock Appreciation Rights.......................................................... 66
Convertible Preferred Shares................................................................... 1,098
Common Shares Issuable......................................................................... 1,029
-------------
Primary Shares................................................................................... 79,514
-------------
-------------
PRIMARY EARNINGS PER COMMON SHARE
Net Income (Loss)................................................................................ $.21
-------------
-------------
FULLY DILUTED EARNINGS*
Net Income (Loss) Available to Common............................................................ $ 16,393
-------------
-------------
FULLY DILUTED SHARES
Weighted average number of Common and Series A Common
Shares Outstanding.............................................................................. 77,321
Additional shares assuming issuance of:
Options and Stock Appreciation Rights.......................................................... 81
Convertible Preferred Shares................................................................... 1,098
Common Shares Issuable......................................................................... 1,029
-------------
Fully Diluted Shares............................................................................. 79,529
-------------
-------------
FULLY DILUTED EARNINGS PER COMMON SHARE
Net Income (Loss)................................................................................ $.21
-------------
-------------
<FN>
----------
* This calculation is submitted in accordance with Securities Act of 1934
Release No. 9083 although not required by footnote 2 to paragraph 14 of APB
Opinion No. 16 because it results in dilution of less than 3%.
</TABLE>
<PAGE>
EXHIBIT 12
UNITED STATES CELLULAR CORPORATION
RATIOS OF EARNINGS TO FIXED CHARGES
FOR THE YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
EARNINGS:
Income from Continuing Operations before Income Taxes........................... $ 21,310
Add (Deduct):
Minority Share of Losses.................................................... (103)
Earnings on Equity Method................................................... (26,540)
Distributions from Minority Subsidiaries.................................... 16,395
Amortization of Non-Telephone Capitalized Interest.......................... 15
Minority share of income in majority-owned subsidiaries that have fixed
charges..................................................................... 648
---------
11,725
Add fixed charges:
Consolidated interest expense............................................... 21,883
Interest Portion (1/3) of Consolidated Rent Expense......................... 2,133
---------
$ 35,741
---------
---------
FIXED CHARGES:
Consolidated interest expense................................................... $ 21,883
Interest Portion (1/3) of Consolidated Rent Expense............................. 2,133
---------
$ 24,016
---------
---------
RATIO OF EARNINGS TO FIXED CHARGES................................................ 1.49
---------
---------
Tax-Effected Preferred Dividends................................................ $ --
Fixed Charges................................................................... 24,016
---------
Fixed Charges and Preferred Dividends......................................... $ 24,016
---------
---------
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS........................ 1.49
---------
---------
</TABLE>
<PAGE>
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
United States Cellular Corporation (the "Company" or "USM") owns, operates and
invests in cellular markets throughout the United States. USM owns or has the
right to acquire both majority and minority interests in 207 cellular markets at
December 31, 1994, representing 25,201,000 population equivalents ("pops"). USM
managed the operations of 145 cellular markets at December 31, 1994. The Company
expects to divest seven of these markets and manage the operations of 12
additional markets in the future. In total, USM expects to manage 150 markets
under agreements currently in place. Interests in the 57 remaining markets are
managed by others. All 57 of these markets were served by operational systems at
December 31, 1994. The following table is a summary of the Company's markets and
consolidated operations.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1994 1993 1992
-------------------------------------
<S> <C> <C> <C>
Majority-Owned, Managed
and Consolidated
Markets: (1)
Population equivalents
(in thousands) (2) 18,204 18,464 14,475
Customers 421,000 261,000 150,800
Market penetration 1.98% 1.35% 1.00%
Markets in operation 130 116 92
Cell sites in service 790 522 320
Average monthly revenue
per customer* $ 80 $ 85 $ 88
Churn rate per month 2.3% 2.3% 2.4%
Marketing cost per net
customer addition $ 667 $ 677 $ 765
Minority-Owned and
Managed Markets: (3)
Population equivalents
(in thousands) (2) 1,191 1,157 2,039
Markets in operation 15 20 24
Markets to be Managed,
Net of Markets to be Divested: (4)
Population equivalents
(in thousands) (2) 2,187 1,018 1,836
Markets 5 8 13
Total Markets Managed and to
be Managed by USM:
Population equivalents
(in thousands) (2) 21,582 20,639 18,350
Markets 150 144 129
Markets Managed by
Others: (5)
Population equivalents
(in thousands) (2) 3,619 3,429 3,517
Markets in operation 57 61 64
Total Markets:
Population equivalents
(in thousands) (2) 25,201 24,068 21,867
Markets 207 205 193
--------------------------------------
<FN>
*1993 AND 1992 AVERAGE MONTHLY REVENUE PER CUSTOMER HAS BEEN RESTATED TO CONFORM
TO CURRENT YEAR PRESENTATION.
(1) INCLUDES TWO MARKETS MANAGED BY THIRD PARTIES IN 1994 AND ONE IN 1993 AND
1992, AND ONE WHOLLY OWNED RESELLER OPERATION IN 1992.
(2) 1994 DONNELLEY MARKETING SERVICE ESTIMATES ARE USED FOR ALL YEARS. INCLUDES
POPULATION EQUIVALENTS RELATING TO INTERESTS WHICH ARE ACQUIRABLE IN THE FUTURE.
(3) INCLUDES MARKETS WHERE THE COMPANY HAS THE RIGHT TO ACQUIRE AN INTEREST BUT
DID NOT OWN AN INTEREST AT THE RESPECTIVE DATES (FOUR MARKETS IN 1994, TWO IN
1993 AND SIX IN 1992).
(4) REPRESENTS MARKETS WHICH ARE NOT YET OPERATIONAL OR WHICH ARE MANAGED BY
THIRD PARTIES UNTIL THE COMPANY ACQUIRES A MAJORITY INTEREST IN THE MARKETS. IN
1994, REPRESENTS THE NET OF 12 MARKETS TO BE MANAGED AND SEVEN MARKETS WHICH ARE
CURRENTLY MAJORITY-OWNED AND MANAGED AND WILL BE DIVESTED.
(5) REPRESENTS MARKETS IN WHICH THE COMPANY OWNS OR HAS THE RIGHT TO ACQUIRE A
MINORITY OR OTHER NONCONTROLLING INTEREST AND WHICH ARE MANAGED BY OTHERS.
</TABLE>
The Company's consolidated results of operations include 100% of the revenues
and expenses of the systems serving majority-owned and managed markets plus its
corporate office operations. The December 31, 1994 consolidated results of
operations include 130 markets with a total population of 21.3 million, compared
to 116 markets with a total population of 19.4 million in 1993, and 92 markets
with a total population of 15.0 million in 1992.
Investment income includes the Company's share of the net income or loss of each
of the minority-owned and managed markets and also includes the Company's share
of the net income or loss of each of those markets managed by others for which
the Company follows the equity method of accounting. USM follows the cost method
of accounting for its remaining interests in markets managed by others. This
information is shown in the table below.
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1994 1993 1992
-------------------------------------
<S> <C> <C> <C>
Minority-Owned and Managed 11 18 18
Managed by Others-
Equity Method 17 15 13
-------------------------------------
Total Markets Included
in Investment Income 28 33 31
-------------------------------------
Managed by Others-
Cost Method 40 46 51
-------------------------------------
</TABLE>
Operating results for 1994 primarily reflect improvement in the Company's more
established markets (those 92 markets consolidated at December 31, 1992), a full
year's operations from the 25 markets added to the consolidated group in 1993,
the acquisition of majority interests in 12 operational markets and the start-up
expenses associated with initiating operations in two additional majority-owned
and managed markets during
<PAGE>
18
1994. Operating revenues, driven primarily by increases in customers served,
rose $118.1 million, or 55%. Operating expenses rose $92.0 million, or 41%.
Operating cash flow increased $46.4 million, or 128%. The Company changed its
financial reporting presentation for outbound, or pass-through, roaming revenue
during 1994 to allow more comparability to other cellular companies.
Pass-through roaming revenue is now treated as an offset to the expense charged
by other cellular carriers, with the net amount included in system operations
expense. Prior years' pass-through roaming revenue and expense have been
reclassified to conform to the current year's presentation.
Investment and other income increased $8.4 million, or 37%, due primarily to
increases in investment income. Investment income increased $9.6 million mostly
due to improved results in markets managed by others. Interest expense decreased
$11.3 million primarily due to a reduction in the amount owed under a Revolving
Credit Agreement with USM's parent company, Telephone and Data Systems, Inc.
("TDS"), as a result of the Company's 1993 rights offering. Net income totaled
$16.4 million in 1994 compared to a net loss of $25.4 million in 1993,
reflecting improved operating results, increased investment income and decreased
interest expense.
The Company expects to add a net of nine markets to consolidated operations
during 1995, through the acquisition of majority interests in 16 operational
markets and the divestiture of seven markets currently majority-owned and
managed by the Company. Of the 16 majority interests to be acquired, the Company
currently owns a minority interest in and manages five of these markets. The
Company expects to acquire a majority interest in these five markets and 11
additional markets during 1995.
Management anticipates that operating losses from new markets and the
seasonality of revenue streams and operating expenses may significantly affect
the Company's operating and net results over the next several quarters.
OPERATING REVENUES
OPERATING REVENUES totaled $332.4 million in 1994, up $118.1 million, or 55%,
over 1993. Operating revenues totaled $214.3 million in 1993, up $74.4 million,
or 53%, over 1992. Market acquisitions and start-ups increased operating
revenues $25.5 million, or 12%, in 1994 and $23.2 million, or 17%, in 1993. This
"acquisitions and start-ups" effect is defined as: (i) the operations of markets
added to the consolidated group in 1994 since their respective dates of
acquisition, plus (ii) for any market added to the consolidated group in 1993,
the portion of 1994 operations which correspond to that portion of 1993 prior to
the market's addition to the consolidated group.
SERVICE REVENUES primarily consist of: (i) charges for access, airtime and
value-added services provided to the Company's local retail customers who use
the local systems operated by the Company; (ii) charges to customers of other
systems who use the Company's cellular systems when roaming ("inbound roaming");
and (iii) charges for long-distance calls made on the Company's systems. Service
revenues exclude pass-through roaming revenue as discussed previously. Service
revenues for 1993 and 1992 have been reclassified to conform to current year
presentation. Service revenues totaled $318.6 million in 1994, up $114.8
million, or 56%, over 1993. Service revenues totaled $203.8 million in 1993, up
$73.1 million, or 56%, over 1992. The increase was primarily due to the growing
number of local retail customers and the growth in inbound roaming revenue
offset by declining monthly average revenue per customer. Service revenues in
1994 increased 66%, or $135.2 million, due to customer growth and declined 10%,
or $20.4 million, due to decreases in average monthly service revenue per
customer. Acquisitions and start-ups increased service revenues $24.4 million,
or 12%, in 1994 and $22.1 million, or 17%, in 1993. Average monthly service
revenue per customer totaled $80 in 1994 compared to $85 in 1993 and $88 in
1992. The 6% decrease in average monthly service revenue per customer in 1994
was primarily a result of a decrease in per customer inbound roaming revenue and
the decline in average local minutes of use per retail customer. The 4% decrease
in average monthly service revenue per customer in 1993 was primarily a result
of the decline in average local minutes of use per retail customer. Management
anticipates that average monthly service revenue per customer will continue to
decrease as local minutes of use per customer decline and as the growth
<PAGE>
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
rate of the Company's customer base exceeds the growth rate of inbound roaming
revenue.
REVENUE FROM LOCAL CUSTOMERS' usage of USM's systems increased $70.4 million, or
60%, in 1994 and $40.5 million, or 53%, in 1993. Growth in the number of
customers in the systems serving the Company's consolidated markets was the
primary reason for the increase in local revenue. The number of customers
increased 61% to 421,000 at December 31, 1994 from 261,000 at December 31, 1993.
The number of customers increased 73% in 1993, up from 150,800 at December 31,
1992. Excluding the effect of acquisitions and dispositions, the Company's
consolidated markets added 142,000 customers in 1994 and 86,600 customers in
1993. Of the 1994 additions, 122,000 were in markets in service and consolidated
at December 31, 1993, representing a 47% increase over the 261,000 customers
served at that date. Of the 1993 additions, 72,400 were in markets in service
and consolidated at December 31, 1992, representing a 48% increase over the
150,800 customers served at that date. While the percentage increase is expected
to be lower in future periods, management anticipates that the total number of
net customer additions will continue to increase. Acquisitions and start-ups
increased local revenue $12.4 million, or 11%, in 1994 and $8.7 million, or 11%,
in 1993.
Average monthly retail revenue per customer declined to $47 in 1994 from $49 in
1993 and $52 in 1992. Monthly local minutes of use per customer averaged 95 in
1994 compared to 103 in 1993 and 121 in 1992. This decline in average local
minutes of use follows an industry-wide trend and is believed to be related to
the tendency of the early customers in a market to be the heaviest users. It
also reflects the Company's and the industry's continued penetration of the
consumer market, which tends to include more lower-usage customers.
INBOUND ROAMING REVENUE increased $33.9 million, or 48%, in 1994 and $28.1
million, or 67%, in 1993. This increase was attributable to the rise in the
number of customers from other systems using the Company's systems when roaming.
Also contributing were the increased number of Company-managed systems and cell
sites within those systems. Monthly inbound roaming revenue per customer
averaged $26 in 1994, $29 in 1993 and $28 in 1992. Acquisitions and start-ups
increased inbound roaming revenue $10.1 million, or 14%, in 1994 and $11.2
million, or 27%, in 1993.
LONG-DISTANCE REVENUE increased $8.8 million, or 63%, in 1994 and $4.4 million,
or 46%, in 1993 as the volume of long-distance calls billed by the Company
increased. Monthly long-distance revenue per customer averaged $6 in 1994, 1993
and 1992. Acquisitions and start-ups increased long-distance revenue $1.7
million, or 12%, in 1994 and $1.9 million, or 20%, in 1993.
EQUIPMENT SALES REVENUES totaled $13.8 million in 1994, up $3.3 million, or 31%,
over 1993. Equipment sales revenues totaled $10.5 million in 1993, up $1.2
million, or 13%, over 1992. Equipment sales reflect the sale of 153,000, 83,000
and 44,400 cellular telephone units in 1994, 1993 and 1992, respectively, plus
installation and accessories revenue. The average revenue per unit was $90 in
1994 compared to $127 in 1993 and $208 in 1992. The average revenue per unit
decline partially reflects the Company's decision to reduce sales prices on
cellular telephones to increase the number of customers, to maintain its market
position and to meet competitive prices as well as to reflect reduced
manufacturers' prices. Also, during 1994 and the second half of 1993, the
Company used promotions which were based on increased equipment discounting. The
success of these promotions led to both an increase in units sold and a decrease
in average equipment sales revenue per unit. Acquisitions and start-ups
increased equipment sales revenues $1.1 million, or 11%, in 1994 and $1.0
million, or 11%, in 1993.
OPERATING EXPENSES
OPERATING EXPENSES totaled $315.0 million in 1994, up $92.0 million, or 41%,
over 1993. Operating expenses totaled $223.0 million in 1993, up $70.3 million,
or 46%, over 1992. Market acquisitions and start-ups increased expenses $30.9
million, or 14%, in 1994 and $30.5 million, or 20%, in 1993.
SYSTEM OPERATIONS EXPENSES increased $12.6 million, or 37%, in 1994 and $10.1
million, or 42%, in 1993, as a result of increases in customer usage expenses
and costs associated with operating the Company's increased number of cellular
systems and the growing number of cell sites within those systems. System
<PAGE>
20
operations expense includes pass-through roaming revenue as an offset to the
expense charged by other carriers to the Company's markets for this roaming
service. System operations expense for 1993 and 1992 has been reclassified to
conform to current year presentation. Costs are expected to continue to increase
as the number of cell sites within the Company's systems grows. Customer usage
expenses represent charges from other telecommunications service providers for
USM's customers' use of their facilities as well as for the Company's inbound
roaming traffic on these facilities, offset somewhat by pass-through roaming
revenue. These expenses also include local interconnection to the landline
network, toll charges and roaming expenses from the Company's customers' use of
systems other than their local systems. Customer usage expenses were $21.6
million in 1994 compared to $18.0 million in 1993 and $13.3 million in 1992, and
represented 7% of service revenues in 1994 compared to 9% in 1993 and 10% in
1992. Maintenance, utility and cell site expenses totaled $25.3 million in 1994
compared to $16.3 million in 1993 and $10.9 million in 1992, primarily
reflecting an increase in the number of cell sites in the systems serving all
majority-owned and managed markets, to 790 in 1994 from 522 in 1993 and 320 in
1992. Acquisitions and start-ups increased system operations expenses $6.1
million, or 18%, in 1994 and $5.5 million, or 23%, in 1993.
MARKETING AND SELLING EXPENSES increased $25.6 million, or 59%, in 1994 and
$12.8 million, or 42%, in 1993. Marketing and selling expenses primarily consist
of salaries, commissions and expenses of field sales and retail personnel and
offices; agent commissions; promotional expenses; local advertising and public
relations expenses. The 1994 increase was primarily due to a 64% rise in the
number of gross customer activations (excluding acquisitions and divestitures),
from 141,700 in 1993 to 232,000 in 1994. The 1993 increase was primarily due to
a 66% rise in the number of gross customer activations (excluding acquisitions
and divestitures), from 85,400 in 1992 to 141,700 in 1993. Cost per gross
customer addition decreased from $453 in 1992 to $414 in 1993 to $408 in 1994.
Excluding acquisitions and divestitures, the Company added 142,000 net new
customers in 1994 compared to 86,600 in 1993 and 50,600 in 1992, increases of
64% and 71% in 1994 and 1993, respectively. The churn rate was 2.3% in 1994 and
1993 and was 2.4% in 1992. Acquisitions and start-ups increased marketing and
selling expenses $6.3 million, or 15%, in 1994 and $4.8 million, or 16%, in
1993.
COST OF EQUIPMENT SOLD increased $13.7 million, or 54%, in 1994 and $8.4
million, or 48%, in 1993. The increases reflect the growth in unit sales related
to both the rise in gross customer activations made through the Company's direct
and retail distribution channels and the 1994 and 1993 promotional sales which
were discussed previously, offset somewhat by falling manufacturer prices per
unit. The average cost to the Company of a telephone unit sold, including
accessories and installation, was $258 in 1994 compared to $309 in 1993 and
$390 in 1992. Acquisitions and start-ups increased cost of goods sold $3.4
million, or 13%, in 1994 and $2.6 million, or 15%, in 1993.
GENERAL AND ADMINISTRATIVE EXPENSES increased $19.7 million, or 26%, in 1994 and
$23.6 million, or 47%, in 1993. These expenses include the costs of operating
the Company's local business offices and its corporate expenses. This increase
includes the effects of an increase in the number of consolidated markets,
increases in expenses required to serve the growing customer base in existing
markets and an expansion of both local administrative office and corporate
staff, necessitated by growth in the Company's business and the start-up of and
acquisition of additional operations. The Company is using an ongoing clustering
strategy to combine local operations wherever feasible in order to gain
operational efficiencies and reduce its administrative expenses. Acquisitions
and start-ups increased direct field-related general and administrative expenses
$8.4 million, or 11%, in 1994 and $8.3 million, or 16%, in 1993. Operating cash
flow (operating income or loss before minority share plus depreciation and
amortization expense) increased $46.5 million, or 128%, to $82.8 million in 1994
and increased $19.5 million, or 115%, to $36.4 million in 1993. The improvement
in 1993 and 1994 was primarily due to customer growth, which drove an increase
in service revenues, and a slower rate of increase in operating expenses
resulting from improved operational efficiencies.
<PAGE>
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
DEPRECIATION EXPENSE increased $13.9 million, or 54%, in 1994 and $9.1 million,
or 55%, in 1993. These increases reflect rising average fixed asset balances,
which increased 54% in 1994 and 56% in 1993. Acquisitions and start-ups
increased depreciation expense $2.9 million, or 11%, in 1994 and $3.1 million,
or 19%, in 1993.
AMORTIZATION OF INTANGIBLES increased $6.6 million, or 34%, in 1994 and $6.3
million, or 49%, in 1993. These increases are primarily due to increases in
license costs as a result of the acquisition of or the commencement of service
in 14 markets in 1994 and 25 markets in 1993. License costs related to
consolidated markets increased $163.9 million, or 20%, in 1994 and $310.3
million, or 63%, in 1993. Acquisitions and start-ups increased amortization of
intangibles $3.8 million, or 20%, in 1994 and $6.0 million, or 46%, in 1993.
OPERATING INCOME (LOSS) BEFORE MINORITY SHARE
OPERATING INCOME BEFORE MINORITY SHARE totaled $17.4 million in 1994 compared to
losses of $8.7 million in 1993 and $12.7 million in 1992. The operating income
margin (as a percent of service revenues) improved to 5% in 1994 from operating
(loss) margins of (4%) in 1993 and (10%) in 1992. The 1994 operating income and
the improvement in the 1993 operating loss both reflect improved results in the
more established markets and increased revenues resulting from growth in the
number of customers served by the Company's systems, partially offset by costs
associated with the growth of the Company's operations and increased losses on
equipment sales. Acquisitions and start-ups decreased operating income before
minority share $5.4 million in 1994 and increased the operating loss before
minority share by $7.3 million in 1993.
The Company expects service revenues to continue to grow during 1995 as it adds
customers and cell sites to its existing systems, realizes a full year of
revenues from customers and cell sites added in 1994 and completes acquisitions
of operational systems. Additionally, the Company expects expenses to increase
significantly during 1995 as it incurs costs for markets and cell sites added in
1993 and 1994, incurs costs associated with customer and system growth and
acquires existing markets. At least nine markets are expected to be added to
consolidated operations during 1995, through the acquisition of majority
interests in 16 operational markets and the divestiture of seven majority-owned
and managed markets. The Company expects that the costs related to acquiring and
operating new markets may exceed their revenues over the next few quarters.
Additionally, management believes there exists a seasonality in both service
revenues and operating expenses, especially marketing expenses. As a result, the
rate of growth in operating income could be reduced over the next several
quarters.
INVESTMENT AND OTHER INCOME
INVESTMENT AND OTHER INCOME totaled $31.0 million in 1994, $22.6 million in 1993
and $43.6 million in 1992. INVESTMENT INCOME was $26.5 million in 1994 compared
to $16.9 million in 1993 and $12.5 million in 1992. The Company's share of the
income or loss from the markets managed by others that are accounted for by the
equity method totaled $26.0 million in 1994 compared to $16.8 million in 1993
and $13.0 million in 1992. There were 17 such markets in 1994, 15 in 1993 and 13
in 1992. The Company's share of income from minority-owned markets it manages
totaled $497,000 in 1994 compared to $143,000 in 1993 and a loss of $499,000 in
1992. There were 11 such markets in 1994 and 18 in both 1993 and 1992.
OTHER (EXPENSE), NET was $1.4 million in 1994 compared to $915,000 in 1993 and
$2.8 million in 1992. In 1994, the Company sold obsolete equipment obtained in
certain acquisitions, recognizing losses of $614,000. In 1993, the Company wrote
off equipment no longer used, for a loss of $677,000. Also in 1993, other
(expense), net was reduced by both the sale of the Company's customer base in
its reseller operation and income recognized related to the settlements of
disputes concerning two of the Company's markets. Income related to these
transactions totaled $495,000 and $925,000, respectively. In 1992, $1.3 million
of costs applicable to unsuccessful license applications and acquisitions were
charged to expense.
GAIN ON SALE OF CELLULAR INTERESTS totaled $3.3 million in 1994, $4.9 million in
1993 and $31.4 million in 1992. The 1994 amount reflects gains recorded on the
exchange of five of the Company's cost-basis cellular investment interests with
another cellular company for minority interests in seven markets in which the
Company owns a controlling interest. The 1993 amount reflects gains recorded on
the sales of two cellular investment interests. In 1992, a $17.1 million gain
was recorded on the completion of a sale to another cellular company of the
Company's 100% interest in a market it managed; an $11.4 million gain was
recorded on the exchange of cost-basis cellular interests with another cellular
company; and a $2.9 million gain was recorded on the sale of an additional
investment interest.
INTEREST AND INCOME TAXES
INTEREST EXPENSE decreased $11.3 million, or 34%, in 1994, on a 37% decrease in
the average amount of debt outstanding. Interest expense increased $13.1
million, or 65%, in 1993, on a 66% increase in the average amount
<PAGE>
22
of debt outstanding. Interest expense is primarily related to borrowings under
the Revolving Credit Agreement with TDS and borrowings under a series of
financing agreements with an equipment vendor. Borrowings under the Revolving
Credit Agreement bear interest at a floating rate equal to prime plus 1.5% (for
a rate of 10.0% at December 31, 1994) and are used to finance system
construction and working capital requirements, investments in and advances to
entities in which the Company has a minority interest, and acquisitions of
cellular interests. In the fourth quarter of 1993, the Company completed a
rights offering to its common shareholders, the proceeds of which were used to
repay approximately $378 million in debt outstanding under the Revolving Credit
Agreement. See "Financial Resources and Liquidity." Interest expense relating to
the Revolving Credit Agreement was $17.8 million in 1994, $29.1 million in 1993
and $16.8 million in 1992. The average amount of debt outstanding under the
Revolving Credit Agreement was $204.7 million in 1994, $372.8 million in 1993
and $216.0 million in 1992. The average interest rate on such debt was 8.6% in
1994, 7.5% in 1993 and 7.8% in 1992.
The Company has borrowings outstanding under three financing agreements with an
equipment vendor. Borrowings made under the initial agreement bear interest at a
rate approximating the prime rate (8.5% at December 31, 1994). Borrowings under
the second agreement bear interest at a rate of 2.3% over the 90-day Commercial
Paper Rate of high-grade, unsecured notes (for a rate of 8.6% at December 31,
1994). Borrowings under a third agreement bear interest at a rate of 2.25% over
the same 90-day Commercial Paper Rate (for a rate of 8.5% at December 31, 1994).
Borrowings under the all three vendor financing agreements were used to finance
certain of USM's equipment purchases and construction costs. Interest expense
related to the vendor financing agreements was $3.9 million in 1994, $4.0
million in 1993 and $3.1 million in 1992. The average amount of debt under the
vendor financing agreement was $58.1 million in 1994, $66.4 million in 1993 and
$48.8 million in 1992. The average interest rate on such debt was 7.1% in 1994,
5.7% in 1993 and 6.2% in 1992.
Continued capital expenditures, investments in and advances to entities in which
the Company has a minority interest, and the completion of pending acquisitions
will require additional funding over the next few years. These funding
requirements are anticipated to be at least partially met through additional
debt, which will likely result in increased interest expense as debt balances
increase. Additional borrowings also may be required to fund additional future
acquisitions and their construction and operations. See "Financial Resources and
Liquidity."
INCOME TAX EXPENSE was $4.9 million in 1994, $2.7 million in 1993 and $2.0
million in 1992. Income tax expense includes the federal income taxes of
consolidated subsidiaries not included in the TDS consolidated federal income
tax return. State income tax expense in 1994 and 1993 was primarily related to
subsidiaries generating taxable income after utilization of state net operating
losses. The 1992 income tax expense resulted primarily from state income taxes
generated by the gains on the sale and exchange of cellular interests completed
in 1992. No such taxes were generated by the 1994 or 1993 gains.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes," effective January 1, 1993. The cumulative
effect of the new principle on years prior to 1993 had an immaterial effect on
net loss and loss per share. Income tax expense for 1994 and 1993 reflects the
new accounting principle. Income tax expense amounts for 1992 have not been
restated.
USM is included in a consolidated federal income tax return with other members
of the TDS consolidated group. TDS and USM are parties to a Tax Allocation
Agreement under which USM is able to carry forward its losses and credits and
use them to offset any current or future income tax liabilities to TDS. The
amount of the federal net operating loss carryforward available to offset future
taxable income aggregated approximately $165 million at December 31, 1994, and
expires between 2002 and 2009. The amount of the state net operating loss
carryforward available to offset future taxable income aggregated approximately
$227 million at December 31, 1994, and expires between 1998 and 2009.
NET INCOME (LOSS)
NET INCOME totaled $16.4 million in 1994 compared to a net loss of $25.4 million
in 1993 and net income of $6.2 million in 1992. The improvement in 1994 over
1993 resulted from improved operating results in the established markets,
increased investment income and decreased interest expense, partially offset by
the effects of the addition of new markets. On a comparable basis (net of tax),
excluding nonrecurring and unusual items, net loss totaled $30.3 million in 1993
and $24.6 million in 1992. The increased loss in 1993 primarily reflects
increased interest expense offset by improvements in the operating loss. Net
income for 1992 primarily reflects $31.4 million in gains on the sale and
exchange of cellular interests. NET INCOME PER SHARE was $.21 in
<PAGE>
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
1994 compared to a net loss per share of $.45 in 1993 and net income per share
of $.11 in 1992. The improvement in 1994 over 1993 primarily reflects the
improvement in net income offset by the increase in weighted average Common and
Series A Common Shares outstanding. The weighted average number of Common and
Series A Common Shares outstanding for 1994 increased 39% over the shares
outstanding for 1993 primarily as a result of Common and Series A Common Shares
issued in connection with the 1993 rights offering, Common Shares issued in
connection with acquisitions, and the inclusion of dilutive common stock
equivalents in 1994 weighted average common shares outstanding as a result of
the 1994 net income. The weighted average number of common shares outstanding
was similar in 1993 and 1992.
TDS owned an aggregate of 63,879,673 shares of common stock of the Company at
December 31, 1994, representing over 81% of the combined total of the Company's
outstanding Common and Series A Common Shares and over 96% of their combined
voting power. Assuming the Company's Common Shares are issued in all instances
in which the Company has the choice to issue its Common Shares or other
consideration and assuming all issuances of the Company's common stock to TDS
and third parties for completed and pending acquisitions and redemptions of the
Company's Preferred Stock and TDS's Preferred Shares had been completed at
December 31, 1994, TDS would have owned approximately 80.3% of the total
outstanding common stock of the Company and controlled over 95% of the combined
voting power of both classes of its common stock. In the event TDS's ownership
of the Company falls below 80% of the total value of all of the outstanding
shares of the Company's stock, TDS and the Company would be deconsolidated for
federal income tax purposes. TDS and the Company have the ability to defer or
prevent deconsolidation, if deferring or preventing deconsolidation would be
advantageous, by delivering TDS Common Shares and/or cash in lieu of the
Company's Common Shares in connection with certain acquisitions.
INFLATION
Management believes that inflation affects the Company's business to no greater
extent than the general economy.
FINANCIAL RESOURCES AND LIQUIDITY
The Company operates a capital- and marketing-intensive business. Rapid growth
in markets operated by the Company and customers served has caused financing
requirements for acquisitions, construction and operations to exceed internally
generated cash flow. The Company requires capital to complete acquisitions in
process, to fund construction and operating expenses of the cellular systems it
operates, to fund investments in minority partnership interests in other
cellular markets and to pay principal and interest on its outstanding debt.
Management believes that the cellular markets the Company acquires may be
generating losses and that these losses may continue after the Company assumes
those markets' operations. The Company experienced operating losses and net
losses from its inception until the past few quarters. The Company has obtained
substantial funds from external sources during the past several years and
anticipates that it will require funds from external sources over the next few
years.
CASH FLOWS FROM OPERATING ACTIVITIES provided $84.3 million in 1994, $35.3
million in 1993 and $3.5 million in 1992. Operating cash flow (operating income
or loss before minority share plus depreciation and amortization expense)
provided cash totaling $82.8 million in 1994, $36.4 million in 1993 and $16.9
million in 1992. The 1994 and 1993 increases in operating cash flow primarily
reflect improvement in the Company's more mature markets. Acquisitions and
start-ups increased operating cash flow $1.3 million, or 4%, in 1994 and $1.8
million, or 11%, in 1993. Cash flows from other operating activities (investment
and other income, interest expense, changes in working capital and changes in
other assets and liabilities) provided cash totaling $1.5 million in 1994 and
required cash investments totaling $1.1 million in 1993 and $13.4 million in
1992.
CASH FLOWS FROM FINANCING ACTIVITIES provided $95.6 million in 1994, $65.4
million in 1993 and $57.5 million in 1992. Cash flows from financing activities
include cash flows from borrowings under the Revolving Credit Agreement with
TDS, vendor financing transactions and sales of Common Shares.
<PAGE>
24
Borrowings under the Revolving Credit Agreement with TDS totaling $75.4 million
and $45.4 million provided a majority of the Company's external financing
requirements in 1994 and 1993, respectively. Borrowings under one of the vendor
financing agreements provided an additional $18.0 million in 1994. The sale of
Common Shares to parties other than TDS in connection with the rights offering
provided an additional $36.8 million of the Company's external financing
requirements in 1993. In connection with the rights offering, debt to TDS under
the Revolving Credit Agreement was reduced by $340.7 million upon the issuance
to TDS of 4.8 million Common Shares and 5.5 million Series A Common Shares.
Borrowings of $36.6 million under one of the vendor financing agreements
provided a majority of the Company's external financing requirements in 1992.
CASH FLOWS FROM INVESTING ACTIVITIES required cash investments totaling $180.4
million in 1994, $98.6 million in 1993 and $69.6 million in 1992. Such cash
requirements primarily consisted of additions to property, plant, and equipment
and cash requirements for acquisitions and for investments in cellular markets.
Expenditures for property, plant and equipment totaled $158.2 million in 1994
(of which $9.8 million relates to 1993 additions), representing the construction
of 225 cell sites and other plant additions. Expenditures for property, plant
and equipment totaled $84.9 million in 1993 (excluding noncash expenditures of
$6.6 million), representing the construction of 138 cell sites and other plant
additions. Expenditures for property, plant and equipment totaled $53.3 million
in 1992 (excluding noncash expenditures of $2.8 million), representing the
construction of 107 cell sites and other plant additions.
Anticipated capital requirements for 1995 reflect the Company's construction and
system expansion program, funding of working capital needs, investments in
entities in which the Company has a minority interest, scheduled debt repayments
and pending acquisitions. The Company's consolidated construction budget for
1995 is approximately $180 million, consisting primarily of new cell sites to
expand and enhance the Company's coverage in its service areas.
The Company is expanding its operations through acquisitions. During 1994, the
Company completed the acquisition of controlling interests in nine markets and
several additional minority interests. Not included in these totals are the
acquisitions of five controlling interests which resulted from the formation of
a partnership the Company controls. This partnership consists of one previously
controlled market and five other markets in which the Company previously owned a
minority interest. No acquisition costs were incurred during 1994 related to the
formation of this partnership. During 1993, the Company completed the
acquisition of controlling interests in 25 markets and several additional
minority interests. During 1992, the Company completed the acquisition of
controlling interests in 16 markets and several additional minority interests.
Some of the markets acquired during 1994, 1993 and 1992 were subject to
acquisition agreements which were entered into prior to the year in which the
acquisitions were completed. The following table summarizes the consideration
issued for these acquisitions.
COMPLETED ACQUISITIONS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1994 1993 1992
------------------------------------
<S> <C> <C> <C>
(in millions)
Pops Acquired 1.3 3.8 3.0
Total Consideration $140.3 $284.6 $161.3
DETAILS OF TOTAL CONSIDERATION:
USM Common Shares
Shares Issued 4.3 5.7 3.3
Recorded Cost $131.9 $155.0 $ 58.3
USM Series A Common Shares
Shares Issued -- .1 .9
Recorded Cost $ -- $ .1 $ .3
USM Common Shares
to be issued in the future
(mostly in 1994)
Shares Issuable -- .1 .8
Recorded Cost $ -- $ 3.0 $ 16.7
Revolving Credit
Agreement - TDS .3 101.5 70.7
Subsidiary Preferred Stock -- 2.9 --
Cancellation of Notes Receivable 1.4 -- --
Equity Contribution from TDS $ -- $ 9.4 $ 6.9
Cash 6.7 12.7 8.4
------------------------------------
</TABLE>
Of the total 1994 consideration, the debt under the Revolving Credit Agreement
and most of the USM Common Shares were issued to TDS to reimburse TDS for TDS
Common Shares issued and issuable and cash paid to third parties in connection
with 1994 acquisitions. Of the total 1993 consideration, the debt under the
Revolving Credit Agreement and 5.5 million of the USM Common Shares were issued
to TDS to reimburse TDS for TDS Common Shares issued and cash paid to third
parties in connection with 1993 acquisitions. Of the total 1992 consideration,
the debt under the Revolving Credit Agreement and 2.8 million of the USM Common
Shares were issued to TDS to reimburse TDS for TDS Common and Series A Common
Shares issued and cash paid to third parties in connection with 1992
acquisitions. Additionally, the Company had commitments at December 31, 1994, to
issue 803,000
<PAGE>
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Common Shares in 1995 and 1996 related to certain completed acquisitions. The
Company and TDS have the option to deliver TDS Common Shares and/or cash in lieu
of the Company's Common Shares in connection with certain of these acquisitions.
In addition to the acquisitions in the table, in 1994 the Company completed the
exchange of its cost-basis investment interests in five markets for interests in
seven markets the Company controls. Also, in 1992, the Company completed the
exchange of its 100% interests in two markets, its cost-basis investment
interests in two markets and $2.9 million in cash for controlling interests in
two markets and the remaining minority interest in a market the Company
controls.
The Company has an ongoing acquisition program, the funding requirements of
which may be substantial. The Company maintains an ongoing acquisition program
to seek to maximize its future potential, including seeking opportunities to
combine operations and achieve increased economies of scale. These economies of
scale include the sharing of market personnel, equipment and office resources.
The Company plans to continue its acquisition program as long as it is feasible
to acquire cellular interests that fit into its business objectives.
At December 31, 1994, the Company, or TDS for the benefit of the Company, had
agreements pending to acquire controlling interests in seven markets and two
minority interests. The following table summarizes the consideration to be
issued by USM for these acquisitions if they are completed as planned.
<TABLE>
<CAPTION>
PENDING ACQUISITIONS
December 31, 1994
-----------------
(in millions)
<S> <C>
Pops to be Acquired 1.2
Estimated Consideration to be Paid $101.5
DETAILS OF CONSIDERATION:
USM Common Shares
Shares to be Issued 2.8
Estimated Cost at Agreement Date $ 89.6
Revolving Credit Agreement - TDS 11.2
Cash $ .7
</TABLE>
Cellular interests acquired by TDS in these transactions are expected to be
assigned to the Company and at the time this occurs the Company will reimburse
TDS for TDS's consideration delivered and costs incurred in such acquisitions.
Of the consideration for these pending acquisitions, the debt under the
Revolving Credit Agreement and 2.7 million of the USM Common Shares are to be
issued to TDS to reimburse TDS for TDS Common Shares to be issued and cash to be
paid to third parties in connection with these pending acquisitions. All of the
2.8 million Common Shares to be issued in connection with pending acquisitions
are expected to be issued in 1995.
Not included in these pending acquisitions are exchanges of cellular interests
pursuant to agreements with four cellular companies. In one agreement, USM will
exchange its controlling interest in one market for a controlling interest in
another market USM currently manages. Under a second agreement, USM will
exchange its 100% interests in one entire market and a partition of another
market plus cash for 100% interests in one entire market and a partition of
another market. In a separate agreement with the same company, USM will sell its
investment interest in one market for cash. In a third agreement, USM will
exchange its 100% interests in two markets for 100% interests in four markets.
Pursuant to a fourth agreement, USM will exchange its 100% interests in three
entire markets and partitions of two other markets for 100% interests in two
markets. Also, the agreement by which USM exchanged its investment interests in
five markets for minority interests in seven markets USM controls during 1994
includes USM's divestiture of another investment interest. This divestiture had
not been completed as of December 31, 1994. Finally, USM has entered into an
agreement to sell its 100% interest in one market for cash.
Management believes the acquisitions, exchanges and sales currently pending will
enhance USM's clustering strategy by divesting of markets which are less
strategic for cash or markets which add to its current clusters. All except one
of the pending acquisition, exchange and sale
<PAGE>
26
agreements are expected to be completed during 1995. Certain of the divestitures
and exchanges will generate substantial gains for book and tax purposes.
TDS and USM are parties to a legal proceeding before the Federal Communications
Commission ("FCC") involving a cellular license in a Wisconsin Rural Service
Area. In March 1995, a preliminary settlement was reached with a group of
Wisconsin telephone companies (the "Settlement Group") involved in that
proceeding, and a definitive agreement was executed with another party to the
same proceeding. The proposed settlements, which follow extensive discovery by
the FCC and other parties, contemplate a summary decision finding that TDS and
its affiliates are fully qualified to be FCC licensees. The final settlements
will be subject to the negotiation of a definitive agreement with the Settlement
Group and the action of the judge presiding in the FCC proceeding. See Note 15
of Notes to Consolidated Financial Statements, Legal Proceedings (La Star and
Wisconsin RSA 8 Applications), for further discussion of the proceeding
involving the Wisconsin RSA.
LIQUIDITY
The Company anticipates that the aggregate resources required for 1995 will
include approximately: (i) $180 million for capital spending and (ii) $12
million of scheduled debt repayments. Additionally, the Company anticipates it
will reimburse TDS, as each acquisition is completed, for TDS Common Shares
valued at approximately $85.6 million to be issued and $12.0 million in cash to
be paid by TDS to third parties in connection with acquisitions anticipated to
be completed by the end of 1995. The reimbursement to TDS is expected to be
in the form of 2.7 million Common Shares of the Company and borrowings under the
Revolving Credit Agreement totaling $11.2 million. Not included in the above
amounts are those related to any acquisition agreements that the Company may
enter into in 1995. These potential acquisitions may require substantial funding
for both their acquisition and operation during 1995.
At December 31, 1994, the Company had $6 million of cash and cash equivalents,
$67 million remaining under the $300 million Revolving Credit Agreement with TDS
as amended effective November 30, 1994 and $57 million remaining under the new
vendor financing agreement entered into in 1994. Additionally, the Company
anticipates generating an increasing amount of positive cash flows from
operating activities during 1995.
Pursuant to the Revolving Credit Agreement, the Company may borrow up to an
aggregate of $300 million from TDS, at an interest rate equal to 1.5% above the
prime rate. The advances made by TDS under the Revolving Credit Agreement are
unsecured. Interest on the balance due under the Revolving Credit Agreement is
payable quarterly and no principal is payable until March 31, 1996, subject to
acceleration under certain circumstances, at which time the entire principal
balance then outstanding is scheduled to become due and payable. The Company may
prepay the balance due under the Revolving Credit Agreement at any time,
in whole or in part, without premium.
The Company maintains shelf registration of its Common Shares and Preferred
Stock under the Securities Act of 1933 for issuance specifically in connection
with acquisitions.
The Company anticipates that it may require substantial funding to acquire
cellular markets and build and operate cellular systems during 1995. The timing
and amount of such funding requirements will depend on the timing of the
completion of pending acquisitions, the number of additional licenses acquired
by the Company, the construction and operational plans for the individual
cellular projects, and other relevant factors. The Company will need to raise
additional capital to meet these requirements. These additional requirements may
be met through internally generated funds, additional borrowings from TDS, the
issuance of equity or debt securities, vendor financing, bank financing, the
sale of assets or a combination of the above. There can be no assurance that
sufficient funds will be made available to the Company on terms or at prices
acceptable to the Company. If sufficient funding is not made available to the
Company on terms and prices acceptable to the Company, the Company would have to
reduce its construction, development and acquisition programs. In the long term,
reduction of the Company's construction, development and acquisition programs
would have a negative impact on the ability of the Company to increase its
consolidated revenues and cash flows.
<PAGE>
27
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1994 1993 1992
--------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
OPERATING REVENUES
Service $ 318,649 $ 203,800 $ 130,666
Equipment sales 13,755 10,510 9,263
--------------------------------------------------
Total Operating Revenues 332,404 214,310 139,929
--------------------------------------------------
OPERATING EXPENSES
System operations 46,869 34,301 24,218
Marketing and selling 69,072 43,478 30,643
Cost of equipment sold 39,431 25,688 17,311
General and administrative 94,193 74,472 50,823
Depreciation 39,520 25,665 16,606
Amortization of intangibles 25,934 19,362 13,033
--------------------------------------------------
Total Operating Expenses 315,019 222,966 152,634
--------------------------------------------------
OPERATING INCOME (LOSS) BEFORE
MINORITY SHARE 17,385 (8,656) (12,705)
Minority share of operating income (5,152) (3,496) (2,615)
--------------------------------------------------
OPERATING INCOME (LOSS) 12,233 (12,152) (15,320)
--------------------------------------------------
INVESTMENT AND OTHER INCOME
Investment income 26,540 16,922 12,456
Amortization of licenses and deferred
costs related to investments (913) (917) (597)
Interest income 3,380 2,652 3,181
Other (expense), net (1,368) (915) (2,840)
Gain on sale of cellular interests 3,321 4,851 31,396
--------------------------------------------------
Total Investment and Other Income 30,960 22,593 43,596
--------------------------------------------------
INCOME BEFORE INTEREST AND INCOME TAXES 43,193 10,441 28,276
Interest expense -- affiliate 17,812 29,068 16,793
Interest expense -- other 4,071 4,122 3,302
--------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 21,310 (22,749) 8,181
Income tax expense 4,917 2,692 1,987
--------------------------------------------------
NET INCOME (LOSS) $ 16,393 $ (25,441) $ 6,194
--------------------------------------------------
--------------------------------------------------
WEIGHTED AVERAGE COMMON AND
SERIES A COMMON SHARES (000s) 79,514 57,152 57,778
EARNINGS PER COMMON AND
SERIES A COMMON SHARE $ .21 $ (.45) $ .11
--------------------------------------------------
--------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
<PAGE>
28
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1993
------------------------------
(Dollars in thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 4,143 $ 5,971
Affiliated cash investments 1,657 303
Accounts receivable
Customers, less allowance of
$2,073 and $1,413, respectively 23,609 14,555
Roaming 18,881 13,484
Affiliates 3,549 2,880
Other 3,150 3,714
Inventory 5,435 2,529
Prepaid and other current assets 4,136 2,597
------------------------------
64,560 46,033
------------------------------
PROPERTY, PLANT AND EQUIPMENT
In service 464,132 306,118
Less accumulated depreciation 95,951 59,704
------------------------------
368,181 246,414
------------------------------
INVESTMENTS
Cellular partnerships -- equity 86,215 77,178
Cellular partnerships -- cost 13,280 12,926
Licenses, net of accumulated amortization of
$69,677 and $46,458, respectively 947,399 824,491
Marketable equity securities 20,145 17,584
Notes and interest receivable 14,535 7,701
------------------------------
1,081,574 939,880
------------------------------
DEFERRED CHARGES
Deferred start-up costs, net of accumulated amortization
of $6,306 and $6,034, respectively 3,685 5,000
Other deferred charges, net of accumulated amortization
of $2,782 and $1,018, respectively 16,787 8,069
------------------------------
20,472 13,069
------------------------------
TOTAL ASSETS $1,534,787 $1,245,396
------------------------------
------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
<PAGE>
29
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1993
------------------------------
(Dollars in thousands)
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt and preferred stock $ 20,804 $ 12,663
Notes payable 637 --
Accounts payable
Affiliates 3,662 4,454
Other 49,114 39,126
Accrued interest, primarily to affiliates 5,880 5,785
Accrued taxes 2,430 829
Customer deposits and deferred revenues 5,933 3,909
Other current liabilities 9,913 7,653
------------------------------
98,373 74,419
------------------------------
REVOLVING CREDIT AGREEMENT -- TDS 232,954 141,524
------------------------------
LONG-TERM DEBT, excluding current portion 57,691 51,130
------------------------------
DEFERRED LIABILITIES AND CREDITS
Income taxes 5,017 2,390
Other 3,636 1,378
------------------------------
8,653 3,768
------------------------------
REDEEMABLE PREFERRED STOCK, excluding current portion 9,597 18,828
------------------------------
MINORITY INTEREST 33,552 15,599
------------------------------
COMMON SHAREHOLDERS' EQUITY
Common Shares, par value $1 per share;
authorized 140,000,000 shares; issued and outstanding
45,584,028 and 36,960,450 shares, respectively 45,584 36,960
Series A Common Shares, par value $1 per share; authorized
50,000,000 shares; issued and outstanding 33,005,877 shares 33,006 33,006
Additional paid-in capital 1,083,698 867,947
Common Shares issuable, 802,802 and
4,966,719 shares, respectively 16,337 103,266
Retained (deficit) (84,658) (101,051)
------------------------------
1,093,967 940,128
------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,534,787 $1,245,396
------------------------------
------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
<PAGE>
30
CONSOLIDATED STATEMENTS
OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1994 1993 1992
----------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 16,393 $ (25,441) $ 6,194
Add (Deduct) adjustments to reconcile net income
(loss) to net cash provided by
operating activities
Depreciation and amortization 66,367 45,944 30,236
Investment income (26,540) (16,922) (12,456)
Gain on sale of cellular interests (3,321) (4,851) (31,396)
Minority share of operating income 5,152 3,496 2,615
Other noncash expense 429 499 4,214
Change in accounts receivable (12,538) (7,343) (3,213)
Change in accounts payable 13,882 5,836 537
Change in accrued interest 17,774 29,009 4,604
Change in accrued taxes 1,575 177 416
Change in other assets and liabilities 5,135 4,899 1,746
----------------------------------------
84,308 35,303 3,497
----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt borrowings 18,611 64 36,619
Repayment of long-term debt (12,091) (15,851) (3,202)
Change in Revolving Credit Agreement 75,414 45,446 22,227
Common Shares issued 1,135 36,813 407
Minority partner capital contributions (distributions) 12,504 (1,075) 1,443
----------------------------------------
95,573 65,397 57,494
----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant
and equipment (158,208) (84,889) (53,325)
Investments in and advances to
minority partnerships (21,553) (16,279) (21,408)
Distributions from partnerships 16,395 11,265 9,597
Proceeds from sale of investments -- 6,750 7,343
Acquisitions, excluding cash acquired (6,878) (9,964) (11,130)
Other investments (10,111) (5,439) (701)
----------------------------------------
(180,355) (98,556) (69,624)
----------------------------------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (474) 2,144 (8,633)
CASH AND CASH EQUIVALENTS--
Beginning of period 6,274 4,130 12,763
----------------------------------------
End of period $ 5,800 $ 6,274 $ 4,130
----------------------------------------
----------------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
<PAGE>
31
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CHANGES
IN COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1994 1993 1992
--------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
COMMON SHARES
Balance at beginning of period $ 36,960 $ 25,219 $ 21,046
Add
Acquisitions of cellular interests 8,493 5,718 3,751
Acquisition of RSA interests from TDS -- 31 385
Employee benefit plans 55 51 37
Conversion of Preferred Stock 76 -- --
Sales of Common Shares -- 1,119 --
Conversion of debt to TDS -- 4,822 --
--------------------------------------------------
Balance at end of period $ 45,584 $ 36,960 $ 25,219
--------------------------------------------------
--------------------------------------------------
SERIES A COMMON SHARES
Balance at beginning of period $ 33,006 $ 27,430 $ 26,506
Add
Acquisition of RSA interests from TDS -- 75 924
Conversion of debt to TDS -- 5,501 --
--------------------------------------------------
Balance at end of period $ 33,006 $ 33,006 $ 27,430
--------------------------------------------------
--------------------------------------------------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period $ 867,947 $ 342,204 $ 265,991
Add (Deduct)
Acquisitions of cellular interests 211,367 150,630 69,229
Acquisition of RSA interests from TDS -- (49) (901)
Employee benefit plans 1,131 1,089 587
Capital contributions by TDS -- 9,468 7,515
Conversion of Preferred Stock 1,420 -- --
Sales of Common Shares -- 35,818 --
Conversion of debt to TDS -- 330,328 --
Net unrealized gain (loss) on available-for-sale
marketable equity securities 1,884 (626) --
Capital stock expense (51) (915) (217)
--------------------------------------------------
Balance at end of period $1,083,698 $ 867,947 $ 342,204
--------------------------------------------------
--------------------------------------------------
COMMON AND SERIES A COMMON SHARES ISSUABLE
Balance at beginning of period $ 103,266 $ 131,741 $ 129,010
Add (Deduct)
Acquisitions of cellular interests -- 2,996 16,690
TDS Common Shares issued for acquisitions -- (30,649) --
Shares issued pursuant to acquisition agreements (86,929) (822) (13,959)
--------------------------------------------------
Balance at end of period $ 16,337 $ 103,266 $ 131,741
--------------------------------------------------
--------------------------------------------------
RETAINED (DEFICIT)
Balance at beginning of period $ (101,051) $ (75,610) $ (81,804)
Add net income (loss) 16,393 (25,441) 6,194
--------------------------------------------------
Balance at end of period $ (84,658) $(101,051) $ (75,610)
--------------------------------------------------
--------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
<PAGE>
32
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
United States Cellular Corporation (the "Company" or "USM"), is an 81.3%-owned
subsidiary of Telephone and Data Systems, Inc. ("TDS").
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of USM, its majority-
owned subsidiaries and partnerships in which USM has a controlling majority
partnership interest. There were 130 consolidated operating entities in 1994,
116 in 1993 and 92 in 1992. All material intercompany accounts and transactions
have been eliminated. Certain amounts reported in prior years have been
reclassified to conform to current period presentation.
REVENUES
Revenues from operations primarily consist of charges to customers for monthly
access, cellular airtime and data usage, roamer charges, toll charges and
vertical services. Revenues are recognized as services are rendered. Unbilled
revenues, resulting from cellular service provided from the billing cycle date
to the end of each month and from other cellular carriers' customers using USM's
cellular systems for the last half of each month, are estimated and recorded.
Equipment sales are recognized upon delivery to the customer and reflect charges
to customers for cellular telephone user equipment purchased.
PENSION PLAN
United States Cellular Corporation's Employees' Pension Trust I (the "Pension
Trust"), a qualified noncontributory defined contribution pension plan began
effective January 1, 1994. It provides pension benefits for the employees of
USM. Under this plan, pension benefits and costs are calculated separately for
each participant and are funded currently. Pension costs were $1.0 million in
1994.
EARNINGS PER SHARE
Earnings per Common and Series A Common Share for the years ended December 31,
1994 and 1992 was computed by dividing Net Income by the weighted average number
of Common Shares, Series A Common Shares and dilutive common equivalent shares
outstanding during the year. Dilutive common stock equivalents consist of Common
Shares issuable upon conversion of preferred stock, Common Shares issuable in
the future to third parties in connection with completed acquisitions and Common
Share options and stock appreciation rights.
Earnings per Common and Series A Common Share for the year ended December 31,
1993 was computed by dividing Net (Loss) by the weighted average number of
Common Shares and Series A Common Shares outstanding during the year.
Pro forma Net (Loss) for the year ended December 31, 1993 would have been
reduced by $25.1 million for the interest expense eliminated by the pro forma
retirement, as of January 1, 1993, of the amount outstanding under the Revolving
Credit Agreement-TDS through the conversion of 4.8 million Common Shares and
5.5 million Series A Common Shares purchased by TDS in connection with the
November 1993 rights offering ("Rights Offering") ($340.7 million) and the
application of the proceeds from the sale of 1.1 million Common Shares to
parties other than TDS in connection with the Rights Offering ($36.8 million).
Under the above circumstances, pro forma (Loss) per Common Share would have been
reduced by $.45 to zero for the year ended December 31, 1993.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the plant assets.
The provision for depreciation as a percentage of average depreciable property,
plant and equipment was 10.5% in 1994, 1993 and 1992.
Property, plant and equipment in service consists of:
<TABLE>
<CAPTION>
December 31,
-----------------------
1994 1993
-----------------------
(Dollars in thousands)
<S> <C> <C>
Land $ 31,573 $ 19,016
Operating plant
and equipment 347,710 234,310
Office furniture
and equipment 32,310 18,014
Vehicles 3,551 2,179
Buildings and leasehold
improvements 48,988 32,599
-----------------------
$464,132 $306,118
-----------------------
-----------------------
</TABLE>
See Note 12 Lease Commitments for a discussion of property leased by USM.
NOTES AND INTEREST RECEIVABLE
Notes and interest receivable reflect primarily loans to other partners for
capital calls paid on their behalf. The carrying amount reported in the balance
sheet for notes and interest receivable approximates their fair value.
<PAGE>
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and those short-term, highly-liquid
investments with original maturities of three months or less. The carrying
amount reported in the balance sheet for cash and cash equivalents approximates
its fair value.
ACCOUNTS RECEIVABLE
Accounts receivable consists of amounts owed by customers for both service
provided and equipment sales, by other cellular carriers whose customers
have used USM's cellular systems, by affiliated entities and by other partners
for capital contributions and distributions.
INVENTORY
Inventory is stated at the lower of cost or market with cost determined
on a specific identification basis.
DEFERRED CHARGES
Deferred start-up costs represent expenses incurred prior to the commencement of
service in each individual market. These costs are capitalized and, upon
commencement of operations, amortized over five years. Deferred start-up costs
include expenses related to constructing the systems and expenses incurred in
preparing to market cellular service.
Other deferred charges primarily represent costs incurred for the development of
new systems and legal and other charges incurred relating to the preparation of
vendor financing agreements. Capitalized costs of systems development are
amortized over a five year period starting when the new system is placed in
service. When vendor financing is finalized for an entity, deferred charges
recorded on that entity's books are amortized over the financing period.
SUPPLEMENTAL CASH FLOW DISCLOSURES
USM acquired certain cellular licenses and other cellular interests during 1994,
1993 and 1992. In conjunction with these acquisitions, the following assets were
acquired, liabilities assumed, Common Shares and shares of Redeemable Preferred
Stock issued and equity contributions made by TDS.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1994 1993 1992
----------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Property, plant
and equipment, net $ 13,638 $ 23,767 $ 14,154
Cellular licenses 139,332 284,736 159,308
(Decrease) in
equity-method
investment in
cellular interests (12,706) (13,069) (5,885)
Accounts receivable 1,910 2,689 2,127
Long-term debt (212) (12,094) --
Revolving Credit
Agreement-TDS (309) (101,507) (73,226)
Accounts payable (1,375) (3,005) (3,153)
Other assets and
liabilities, excluding
cash acquired (1,518) (4,069) 825
Common Shares
issued and
issuable (131,882) (158,059) (76,395)
Equity contributions
from TDS -- (9,425) (6,625)
----------------------------------
Decrease in cash due
to acquisitions $ 6,878 $ 9,964 $ 11,130
----------------------------------
----------------------------------
</TABLE>
Following are supplemental cash flow disclosures regarding interest and income
taxes paid and other noncash transactions.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1994 1993 1992
----------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Interest paid $ 4,021 $ 3,007 $ 901
Income taxes paid 1,968 2,237 1,406
Accrued interest
converted into debt
under the Revolving
Credit Agreement 17,579 28,154 15,887
Additions to Property,
Plant and Equipment
financed through
Accounts Payable-Other (9,761) 6,612 2,798
Common Shares issued
by USM for conversion
of USM Preferred Stock
and TDS Preferred
Shares $ 1,496 $ -- $ --
----------------------------------
Depreciation and
amortization expense:
Depreciation $ 39,520 $ 25,665 $ 16,606
Amortization
- License 23,119 18,189 11,445
- Deferred
start-up 1,907 1,817 1,980
- Other 1,821 273 205
----------------------------------
Total depreciation
and amortization
expense $ 66,367 $ 45,944 $ 30,236
----------------------------------
----------------------------------
</TABLE>
<PAGE>
34
During 1994 and 1992, USM recorded gains on the exchange of its minority
interests in five and two Metropolitan Statistical Areas ("MSAs"), respectively,
which are not included in the table above. See Note 11 Gain on Sale of Cellular
Interests for a discussion of the effects of the exchanges.
During 1993, USM converted $340.7 million of debt under the Revolving Credit
Agreement into equity through the issuance of approximately 4.8 million Common
Shares and 5.5 million Series A Common Shares to TDS in connection with the
Rights Offering.
During 1993, USM recorded $40.3 million of additional borrowings under the
Revolving Credit Agreement as reimbursement to TDS for TDS Common Shares issued
and issuable in lieu of 1.7 million USM Common Shares that were to
be issued in 1994 through 1996 in connection with completed acquisitions.
2. ACQUISITIONS
USM has acquired cellular interests for cash, promissory notes, USM and TDS
Common Shares, and shares of TDS Preferred Stock.
TDS made capital contributions totaling $9.4 million in 1993 and $7.5 million in
1992 pursuant to TDS's agreement to fund certain cellular license invest-
ments made by USM.
INFORMATION WITH RESPECT TO RSA TRANSFERS
USM entered into two agreements during 1990 to acquire from TDS certain rights,
held directly and indirectly by TDS, in construction permits, licenses and
licensees for 51 Rural Service Areas ("RSAs"). USM agreed to issue an aggregate
of 10.15 million shares of common stock to TDS, consisting of 3.05 million
Common Shares and 7.10 million Series A Common Shares.
In 1993, one RSA Interest was transferred to USM for which USM delivered 31,281
Common Shares and 75,002 Series A Common Shares to TDS. In 1992, four RSA
Interests were transferred to USM for which USM delivered 385,206 Common Shares
and 923,588 Series A Common Shares to TDS.
INFORMATION WITH RESPECT TO ACQUISITIONS
COMPLETED ACQUISITIONS. During 1994, USM completed the acquisition of
controlling interests in nine markets and several minority interests
representing approximately 1.3 million population equivalents for a total
consideration of $140.3 million as shown in the following table.
<TABLE>
<CAPTION>
Consideration
-------------
(millions)
<S> <C>
4.2 million Common Shares to TDS (1) $ 130.5
53,000 Common Shares issued to third parties 1.4
Increase in Revolving Credit Agreement (1) .3
Forgiveness of note receivable 1.4
Cash 6.7
-------------
Total $ 140.3
-------------
-------------
<FN>
(1) ISSUED TO REIMBURSE TDS FOR TDS SECURITIES AND CASH PAID TO THIRD PARTIES IN
CONNECTION WITH THE ACQUISITIONS.
</TABLE>
In addition to the RSA transferred from TDS during 1993, USM completed the
acquisition of controlling interests in 25 markets and several minority
interests representing approximately 3.8 million population equivalents for a
total consideration of $284.5 million as shown in the following table.
<TABLE>
<CAPTION>
Consideration
-------------
(millions)
<S> <C>
5.5 million Common Shares to TDS (1) $ 150.3
157,000 Common Shares issued to third parties 4.7
140,000 Common Shares Issuable to
third parties in the future 3.0
Increase in Revolving Credit Agreement (1) 101.5
Equity contribution from TDS 9.4
Subsidiary Preferred Stock 2.9
Cash 12.7
-------------
Total $ 284.5
-------------
-------------
<FN>
(1) ISSUED TO REIMBURSE TDS FOR TDS SECURITIES AND CASH PAID TO THIRD PARTIES IN
CONNECTION WITH THE ACQUISITIONS.
</TABLE>
Assuming that the 1994 and 1993 acquisitions discussed above, which were
accounted for as purchases, had taken place on January 1, 1993, unaudited pro
forma results of operations would have been
as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1994 1993
---------------------------------
(Dollars in thousands,
except per share amounts)
---------------------------------
<S> <C> <C>
Service Revenues $326,648 $229,253
Equipment Sales 14,018 11,844
Interest Expense
(including cost to
finance acquisitions) 21,891 34,053
Net Income (Loss) 16,122 (37,794)
Earnings per
Common Share $ .20 $ (.58)
---------------------------------
---------------------------------
</TABLE>
<PAGE>
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PENDING ACQUISITIONS. At December 31, 1994, the Company, or TDS for the benefit
of the Company, had entered into agreements to acquire controlling interests in
seven markets and two minority interests representing approximately 1.2 million
population equivalents for an aggregate consideration estimated to be
approximately $101.5 million. If all of the pending acquisitions are completed
as planned, the Company will issue approximately 102,000 of its Common Shares.
TDS will pay approximately $98.3 million in cash and TDS Common Shares. Any
cellular interests acquired by TDS in these transactions are expected to be
assigned to the Company and at the time this occurs the Company will reimburse
TDS for TDS's consideration delivered and costs incurred in such acquisitions in
the form of Common Shares of the Company and notes payable.
3. INVESTMENT IN LICENSES
Investment in licenses consists of the costs incurred in acquiring Federal
Communications Commission ("FCC") licenses or interests in entities which have
filed for or have been awarded FCC licenses to provide cellular service. These
costs include amounts paid to license applicants and owners of interests in
cellular entities awarded licenses; amounts paid for legal, engineering and
consulting services; amounts incurred by USM and its parent, TDS, in acquiring
these interests; and goodwill. These costs are being amortized over 40 years,
upon commencement of operations, or at the date of acquisition when USM acquires
an interest in an operating system. Costs applicable to unsuccessful license
applications and acquisitions are charged to expense. Cellular license costs
with an unamortized financial reporting basis of approximately $305.6 million
have no tax basis because the associated purchase transactions were structured
to be tax-free. This basis difference is goodwill and no deferred taxes have
been provided.
Investment in licenses consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1994 1993
-----------------------------------
(Dollars in thousands)
<S> <C> <C>
License acquisitions
and goodwill $ 999,071 $ 854,991
Professional services 14,196 12,144
USM and TDS costs 3,809 3,814
-----------------------------------
1,017,076 870,949
Less accumulated
amortization 69,677 46,458
-----------------------------------
$ 947,399 $ 824,491
-----------------------------------
-----------------------------------
</TABLE>
4. MARKETABLE EQUITY SECURITIES
The Company implemented Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
effective January 1, 1994. SFAS No. 115 addresses the accounting and reporting
for investments in equity securities that have readily determinable fair values
and for all investments in debt securities. Those investments are to be
classified in one of three categories: a) held-to-maturity securities, reported
at amortized cost; b) trading securities, reported at fair value; and c)
available-for-sale securities, reported at fair value with unrealized gains and
losses excluded from earnings and reported in a separate component of
shareholders' equity.
Information regarding the Company's available-for-sale securities is summarized
below.
<TABLE>
<CAPTION>
December 31,
------------------------
1994 1993
------------------------
(Dollars in thousands)
<S> <C> <C>
Cost Basis $ 18,210 $ 18,210
Gross Unrealized Holding Gains 1,935 --
Gross Unrealized Holding Losses -- (626)
------------------------
Aggregate Fair Value $ 20,145 $ 17,584
------------------------
------------------------
</TABLE>
The Company's net unrealized holding gain on available-for-sale securities was
$1.3 million (net of income taxes of $677,000) in 1994. The Company's net
unrealized holding loss was $626,000 in 1993. These unrealized gains and losses
have been included as an addition to and reduction of common shareholders'
equity, respectively. No sales or transfers of these securities have occurred
during 1994.
5. REVOLVING CREDIT AGREEMENT
USM has unsecured notes payable to TDS and Telecommunications Technologies Fund,
Inc. ("TTF"), a wholly owned subsidiary of TDS, pursuant to a Revolving Credit
Agreement. USM repaid approximately $377.5 million of debt under the Revolving
Credit Agreement with the proceeds of its 1993 Rights Offering.
The terms of the Revolving Credit Agreement provide for borrowings with
interest, at the prime rate plus 1.5% (for a rate of 10.0% at December 31,
1994), due quarterly. The Revolving Credit Agreement has been amended by TDS
from time to time to change the size of the borrowing facility. Most recently,
the facility was amended effective November 30, 1994, to provide for borrowings
up to a maximum of $300 million. Any borrowing under the Revolving Credit
Agreement may be
<PAGE>
36
prepaid in whole or in part, without premium, with any prepayment reinstating
credit in the amount of such prepayment. No principal under the Revolving Credit
Agreement is due until March 31, 1996, on which date the Revolving Credit
Agreement terminates and all unpaid principal and accrued interest thereon are
due and payable. The terms of the Revolving Credit Agreement also include, among
others, restrictions on incurring additional indebtedness and on paying
dividends. The carrying value of USM's borrowings under the Revolving Credit
Agreement approximates their fair value, as the Revolving Credit Agreement is
variable debt with the interest rate based on the prime rate.
6. LONG-TERM DEBT
USM has three arrangements for the financing of cellular system equipment and
construction costs with an equipment vendor. One is arranged through the
individual entities which USM manages and the other two are with USM directly.
The loans under the first arrangement bear interest at a rate approximating the
prime rate (8.5% at December 31, 1994) and have interest deferred during the
first year. Deferred interest and principal must be repaid over the succeeding
seven years. The loans are secured by all of the assets of these individual
entities and by some or all of the various owners' interests in the entities.
Amounts borrowed which relate to goods or services not provided by the vendor
are guaranteed by USM.
As of December 31, 1994, $22.2 million of financing had been completed under
this arrangement, all of which was for those subsidiaries and partnerships
included in the consolidated financial statements. The amount of financing
outstanding under this arrangement for all consolidated subsidiaries and
partnerships at December 31, 1994 was $2.3 million.
During 1991, USM entered into a second long-term financing agreement with the
same equipment vendor. The agreement provided for new borrowings of up to $52
million to finance USM's equipment purchases and construction costs, and for the
refinancing of previous borrowings of up to $4 million. The borrowings are
senior obligations of USM and are collateralized by a secured interest in the
tangible assets (excluding customer accounts receivable) and certain intangible
assets of certain of USM's operating subsidiaries, excluding any interest in
such operating subsidiaries' FCC licenses. Borrowings have terms of seven to
eight years at an interest rate of 2.3% over the 90-day Commercial Paper Rate
of high-grade, unsecured notes (for a rate of 8.6% at December 31, 1994). At
December 31, 1994, the amount of new borrowings outstanding was $42.1 million
and the amount of refinancing of previous borrowings outstanding was $2.3
million.
During 1994, USM entered into a third long-term financing agreement with the
same equipment vendor. The agreement provided for, among other things, new
borrowings of up to $75 million to finance USM's equipment purchases and
construction costs. The borrowings are collateralized by the same secured
interest as the 1991 arrangement. Terms of the borrowings are for seven years at
an interest rate of 2.25% over the 90-day Commercial Paper Rate of high-grade,
unsecured notes (for a rate of 8.5% at December 31, 1994). USM had completed
$18.0 million of new borrowings under the new agreement as of December 31, 1994.
The carrying value of USM's long-term debt, $69.3 million, is more than its fair
value, estimated to be $64.3 million. The fair value was estimated using
discounted cash flow analysis.
Long-term debt is as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1994 1993
---------------------------
(Dollars in thousands)
<S> <C> <C>
Vendor financing arrangement
(including deferred interest) $64,954 $57,433
Other long-term notes
issued in connection with
acquisitions, 8.0% to 10.0% 4,310 5,498
---------------------------
69,264 62,931
Less current portion 11,573 11,801
---------------------------
$57,691 $51,130
---------------------------
---------------------------
</TABLE>
Long-term debt principal payment requirements are $11.6 million, $13.0 million,
$13.0 million, $13.0 million and $11.2 million for the years 1995 through 1999,
respectively.
<PAGE>
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. COMMON STOCK
COMMON SHARES ISSUABLE
Certain of the cellular acquisition agreements closed during 1992, 1991 and 1990
require USM to deliver Common Shares in the future. USM is required to issue
Common Shares to third parties as follows:
<TABLE>
<CAPTION>
Common Shares
Issuable
-------------
<S> <C>
1995 623,979
1996 178,823
-------------
802,802
-------------
-------------
</TABLE>
EMPLOYEE BENEFIT PLANS
The following table summarizes Common Shares issued for the employee benefit
plans described below.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1994 1993 1992
------------------------------------
<S> <C> <C> <C>
Tax-Deferred Savings Plan 25,934 23,058 18,944
Employee Stock
Purchase Plan 20,244 21,584 16,716
Employee stock options and
stock appreciation rights 8,365 6,210 1,140
------------------------------------
54,543 50,852 36,800
------------------------------------
------------------------------------
</TABLE>
TAX-DEFERRED SAVINGS PLAN. USM has reserved 26,070 Common Shares for issue under
the TDS Tax-Deferred Savings Plan, a qualified profit-sharing plan pursuant to
Sections 401(a) and 401(k) of the Internal Revenue Code. Participating employees
have the option of investing their contributions in TDS Common Shares, USM
Common Shares or four other non-affiliated funds.
EMPLOYEE STOCK PURCHASE PLAN. USM sold 20,244 Common Shares to its employees at
$16.15 per share in connection with the 1992 Employee Stock Purchase Plan.
STOCK OPTION AND STOCK APPRECIATION RIGHTS PLAN. USM has reserved 1,010,000
Common Shares and 55,000 Series A Common Shares for options granted to key
employees. USM has established a Stock Option and Stock Appreciation Rights Plan
(as amended on February 1, 1991) that provides for the grant of stock options
and stock appreciation rights to officers and employees. The options are
exercisable one year from the date of the award through November 1, 1997, or
thirty days following the date of the employee's termination of employment, if
earlier. At December 31, 1994, 64,909 stock options were outstanding at a price
of $15.67 per share.
Stock Appreciation Rights ("SARs") allow the grantee to receive an amount in
Common Shares or cash, or a combination thereof, equivalent to the difference
between the exercise price and the fair market value of the Common Shares on the
exercise date. At December 31, 1994, 45,000 Common Share SARs and 36,000 Series
A Common Share SARs were outstanding at $15.00 per share. These rights expire
from 1998 to 2003 or the date of the person's termination of employment, if
earlier. During 1994, 1993 and 1992, 1,200, 1,800 and 600 Common Share SARs were
exercised, respectively. Compensation expense, measured on the difference
between the option prices and the year-end market price of the Common Shares,
aggregated $71,000 in 1994, $598,000 in 1993 and $67,000 in 1992.
RIGHTS OFFERING
In the fourth quarter of 1993, USM completed a rights offering to holders of its
common stock. Pursuant to the rights offering, common shareholders received one
right for every five shares owned on October 22, 1993. Each right enabled the
holder to purchase one additional share of common stock at the exercise price of
$33.00 per share, which was a 10% discount from the closing market price of
USM's Common Shares on October 22, 1993. USM issued approximately 5.9 million
Common Shares and 5.5 million Series A Common Shares in connection with the
rights offering. Approximately 4.8 million Common Shares and all of the Series A
Common Shares were purchased by TDS.
SERIES A COMMON SHARES
Series A Common Shares are convertible on a share-for-share basis into Common
Shares. As of December 31, 1994, all of USM's outstanding Series A Common Shares
were held by TDS.
8. REDEEMABLE PREFERRED STOCK
Redeemable Preferred Stock, authorized 5,000,000 shares, has a stated
liquidation value of $100 per share, is not entitled to any dividends and is
redeemable in 1995 through 1996. The Redeemable Preferred Stock is issuable in
series by the Board of Directors, who establish the terms of the issue. At
December 31, 1994, all shares of Redeemable Preferred Stock were held by TDS as
reimbursement for TDS Preferred Shares issued in connection with acquisitions.
The fair value of Redeemable Preferred Stock is estimated to be approximately
$30.9 million using the net present value of the Common Shares to
<PAGE>
38
be issued upon conversion, valued at the December 31, 1994 quoted market price.
At December 31, 1994 all of the Redeemable Preferred Stock is redeemable by USM
by the delivery of Common Shares as shown in the following table.
<TABLE>
<CAPTION>
Number of Amount
Common Shares Outstanding Outstanding
Deliverable Upon Year of Preferred December 31,
Series Redemption Redemption Shares 1994 1993
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
A -- 1994 -- $ -- $ 862
B 55,213 1995 8,282 828 828
C 354,565 1996 51,107 5,111 5,111
D 267,339 1996 44,865 4,486 4,486
E 416,011 1995 84,030 8,403 8,403
---------------------------------------------------------------------------------------------------------
1,093,128 188,284 18,828 19,690
Less current portion 9,231 862
----------------------
$ 9,597 $ 18,828
----------------------
----------------------
</TABLE>
All of the preferred shares outstanding at December 31, 1994 were issued in
1991. During 1994, 8,618 Series A Redeemable Preferred Shares were redeemed for
55,213 USM Common Shares.
9. INCOME TAXES
USM is included in a consolidated federal income tax return with other members
of the TDS consolidated group.
TDS and USM entered into a Tax Allocation Agreement (the "Agreement") effective
July 1, 1987. The Agreement provides that USM and its subsidiaries be included
in a consolidated federal income tax return and in state income or franchise tax
returns in certain situations with the TDS affiliated group unless TDS requests
otherwise. USM and its subsidiaries calculate their losses and credits as if
they comprised a separate affiliated group. Under the Agreement, USM is able to
carry forward its losses and credits and use them to offset any future income
tax liabilities to TDS. The amount of federal net operating loss carryforward
available to offset future taxable income aggregated approximately $165 million
at December 31, 1994 and expires between 2002 and 2009.
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes." SFAS No. 109 requires companies to record all deferred tax
liabilities or assets for the deferred tax consequences of all temporary
differences. Additionally, the statement requires that deferred tax balances be
adjusted to reflect new tax rates when they are enacted into law. The cumulative
effect of the implementation of SFAS No. 109 on years prior to 1993 had an
immaterial effect on the Consolidated Statement of Operations. Income tax
expense for 1994 and 1993 reflects the new method of accounting; income tax
expense for prior years has not been restated.
In August of 1993, the Revenue Reconciliation Act of 1993 increased the
statutory federal corporate income tax rate from 34 percent to 35 percent. 1993
federal income tax expense was not affected as a result of this change.
Federal income tax expense recorded in 1994, 1993 and 1992 primarily relates to
consolidated subsidiaries not included in the TDS consolidated federal income
tax return. State income tax expense recorded in 1994 and 1993 was primarily
related to subsidiaries generating taxable income after utilization of state net
operating losses. State income tax expense recorded in 1992 was primarily
generated by the gains on the sale and exchange of cellular interests completed
in 1992. The amount of state net operating loss carryforward available to offset
future taxable income aggregated approximately $227 million at December 31, 1994
and expires between 1998 and 2009. Income tax provisions charged to expense are
summarized below:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1994 1993 1992
----------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Federal income taxes
Current $ 1,054 $ 1,491 $ 805
Deferred 26 (109) 6
State income taxes
Current 2,252 840 1,130
Deferred 1,585 470 46
----------------------------
Income tax expense $ 4,917 $ 2,692 $1,987
----------------------------
----------------------------
</TABLE>
The components of the Company's deferred tax assets and liabilities were as
follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1994 1993
---------------------
(Dollars in thousands)
<S> <C> <C>
Deferred Tax Asset
Net operating loss carryforwards $ 73,407 $ 62,272
Stock appreciation rights 221 245
Other 139 723
---------------------
73,767 63,240
Less valuation allowance 37,964 30,317
---------------------
35,803 32,923
---------------------
Deferred Tax Liability
Property, plant and equipment 11,690 9,914
Marketable equity securities 7,606 6,797
Partnership investments 11,981 9,398
Licenses 9,543 9,204
---------------------
40,820 35,313
---------------------
Net Deferred Tax Liability $ 5,017 $ 2,390
---------------------
---------------------
</TABLE>
<PAGE>
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A valuation allowance has been provided when it is more likely than not that
some portion of the deferred tax asset will not be realized. During 1994, the
valuation allowance increased $7.6 million primarily due to USM's 1994 net
taxable loss. USM had current deferred tax assets totaling $926,000 at
December 31, 1994, resulting primarily from the allowance for customer
receivables.
The statutory federal income tax rate is reconciled to the Company's effective
income tax rate below.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1994 1993 1992
-----------------------------
<S> <C> <C> <C>
Statutory federal income
tax rate 35.0% 35.0% 34.0%
State income taxes,
net of federal benefit 11.1 (3.1) 8.4
Amortization of license costs 11.9 (6.8) 17.3
Effects of corporations not
included in consolidated
federal income tax return 3.7 (6.2) 11.5
Effects of valuation
allowance on
deferred tax asset (38.6) (30.7) --
Effects of the Tax
Allocation Agreement -- -- (46.9)
-----------------------------
Effective income tax rate 23.1% (11.8)% 24.3%
-----------------------------
-----------------------------
</TABLE>
10. RELATED PARTIES
USM is billed for all services it receives from TDS, consisting primarily of
information processing and general management services. Such billings are based
on expenses specifically identified to USM and on allocations of common
expenses. Such allocations are based on the relationship of USM's assets and
revenues to the total assets and revenues of TDS. Management believes the method
used to allocate common expenses is reasonable. Billings to USM from TDS
amounted to $22.1 million in 1994, $22.9 million in 1993 and $13.8 million in
1992. Management believes that all expenses and costs applicable to USM are
reflected in the accompanying financial statements on a basis which is
representative of what they would have been if USM operated on a stand-alone
basis.
All markets managed by USM are billed for services they receive from USM
consisting primarily of accounting, billing and engineering services. Such
billings are based on expenses specifically identified to each market and on
allocations of common expenses. Such allocations are based on the relationships
of each market's assets and revenues to the total assets and revenues of all the
markets managed by USM. Billings to nonconsolidated, managed markets amounted to
$5.6 million in 1994, $7.6 million in 1993 and $7.5 million in 1992. Management
believes that all expenses and costs applicable to each market are
representative of what they would have been if each managed
market operated on a stand-alone basis.
USM bills roaming charges to another market when that market's customers roam in
USM-managed markets. When the customer's home market is also a USM-managed
market, the transaction is intercompany in nature and a uniform per-minute
billing rate is used to bill substantially all USM-managed markets. This rate
generally differs from those rates USM uses to bill other non-USM-managed
markets.
Interest income primarily includes interest on loans to managed unconsolidated
markets used to fund these markets' ongoing construction and operating expenses.
Interest income from these markets amounted to $1.9 million in 1994 and
1993 and $2.1 million in 1992.
USM has a Cash Management Agreement with TDS under which USM may from time to
time deposit its excess cash with TDS for investment under TDS's cash management
program. Deposits made under the agreement are available to USM on demand and
bear interest each month at the 30-day Commercial Paper Rate as reported in The
Wall Street Journal, plus 1/4%, or such higher rate as TDS may at its discretion
offer on such deposits.
11. GAIN ON SALE OF CELLULAR INTERESTS
The gains in 1994 reflect the transfer of USM's cost-basis minority interests in
five MSAs in exchange for additional interests in seven MSAs controlled by USM.
The exchange of the minority interests in the five MSAs has been recorded at the
fair market value of approximately $4.3 million. A gain of $3.3 million,
representing the excess of the fair market value of the MSA interests traded
over the book value of such interests, was included in income for 1994.
The gains in 1993 reflect primarily the sale of two cellular minority interests.
USM received $6.8 million cash consideration on the sales.
The gains in 1992 reflect the sales and exchange of minority- and majority-owned
cellular interests as follows: (a) USM transferred its controlling interests in
two RSAs, its cost-basis minority interests in two MSAs and approximately $2.9
million in cash in exchange for controlling interests in two other MSAs
<PAGE>
40
and a minority interest in a combined MSA/RSA system. The exchange of the
controlling interests in the RSAs has been recorded using book values, with no
gain or loss recognized on the exchange. The exchange of the minority interests
in the two MSAs has been recorded at the fair market value of approximately
$15.7 million. A gain of $11.4 million, representing the excess of the fair
market value of the MSA interests traded over the book value of such interests,
was included in income for 1992. (b) USM sold a majority interest in an MSA in
exchange for certain marketable equity securities then valued at $18.2 million.
A gain of $17.1 million was recognized on the sale. (c) USM sold a minority
interest in an MSA for $3.8 million in cash. A gain of $2.9 million was
recognized on the sale.
12. LEASE COMMITMENTS
USM and certain of its majority-owned partnerships and subsidiaries lease
certain office and cell site locations under operating leases. Future minimum
rental payments required under operating leases that have noncancelable lease
terms in excess of one year as of December 31, 1994 are as follows:
<TABLE>
<CAPTION>
Minimum
Future Rentals
----------------------
(Dollars in thousands)
<S> <C>
1995 $ 6,756
1996 6,096
1997 4,669
1998 3,868
1999 3,352
----------------------
$ 24,741
----------------------
----------------------
</TABLE>
Rent expense totaled $6.4 million in 1994, $4.7 million in 1993 and $3.2 million
in 1992.
13. COMMITMENTS AND CONTINGENCIES
The partnerships and corporations in which USM is a partner or shareholder are
in various stages of development. USM expects to spend approximately $180
million during 1995 for both enhancements to existing systems and construction
of new systems. Under the terms of certain partnership and shareholder
agreements, USM may be committed to funding other partners' or shareholders'
portions of construction and other costs, if sufficient financing is not
available to the individual entities. USM does not expect such individual
financing shortfalls to be material.
USM has an ongoing acquisition program to maximize its growth. For a discussion
of pending acquisitions, see Note 2 Acquisitions.
Under USM's financing arrangement with an equipment vendor, amounts borrowed
which relate to goods or services not provided by that vendor are guaranteed by
USM. As of December 31, 1994, long-term debt in the amount of $1.0 million was
guaranteed by USM under this arrangement.
COLLECTIBILITY OF NOTE RECEIVABLE
As of December 31, 1994, USM loaned a total of $5.0 million to another cellular
company ("Cellular Co.") under a long-term financing agreement. Under the
agreement, USM will provide up to $6 million to finance Cellular Co.'s equipment
purchases and construction costs related to the operations in an RSA. Loans made
under the agreement bear interest at a rate approximating the prime rate plus
1.5%. Borrowings are secured by certain of Cellular Co.'s assets, primarily
those relating to the operations of the aforementioned RSA. All principal
amounts and any interest amounts outstanding as of June 30, 2000 become due and
payable at that time and the agreement terminates on that date. Provisions of
the agreement include Cellular Co. maintaining a minimum cellular subscriber
base, generating a minimum amount of cash flow and restrictions on Cellular Co.
incurring additional indebtedness or paying dividends to partners. USM has no
assurance that Cellular Co. will have sufficient assets at the time the
principal payment is due to repay the loans in full. No accrual has been made
for this possibility and the note is being carried on the balance sheet at the
full loan amount as of December 31, 1994.
STANDBY LETTER OF CREDIT
The Company has entered into a standby letter of credit agreement effective July
20, 1994 with a financial institution. This standby letter of credit, which will
not exceed $9.9 million, provides supplemental security in support of a bank
loan to an entity minority-owned by the Company. The bank loan, which is secured
primarily by a first mortgage on the tangible and intangible assets of a
cellular operating system constructed by the minority-owned entity, was arranged
to finance the construction of this cellular system, the acquisition of
customers and the initial operation of the system.
The cellular license for this system was originally awarded to a third party
which constructed its own cellular system. The third party's license application
was subsequently found to be flawed by the FCC, and the license was then awarded
to the entity
<PAGE>
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
minority-owned by the Company. The third party has sought reconsideration of the
license grant to the entity minority-owned by the Company and several appeals
have been filed concerning the FCC's decision, including one by the third party.
If any of these appeals are successful, the license may be removed from the
entity minority-owned by the Company. If the third party resumes providing
cellular service, it will not be obligated to purchase the minority-owned
entity's cellular system. Such removal of the license from the minority-owned
entity constitutes an event of default under its bank loan agreement, and the
bank may call upon the Company's standby letter of credit to satisfy any amounts
still due under this loan agreement.
14. INVESTMENTS IN CELLULAR PARTNERSHIPS
Investments in cellular partnerships consist of amounts invested in cellular
entities in which USM holds a minority or noncontrolling interest. Investments
in cellular partnerships consist of long-term investments and investments held
for sale or exchange, as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1993
------------------------------
(Dollars in thousands)
<S> <C> <C>
Long-term Investments:
Capital contributions,
loans and advances $ 61,628 $ 66,515
Cumulative share of
partnership income 81,824 52,296
Cumulative share of
partnership distributions (57,237) (41,633)
------------------------------
86,215 77,178
Investments Held for
Sale or Exchange:
Capital contributions, net
of partnership distributions 13,280 12,926
------------------------------
Total investment in
nonconsolidated partnerships $ 99,495 $ 90,104
------------------------------
------------------------------
</TABLE>
USM follows the equity method of accounting for its long-term investments which
recognizes, on a current basis, USM's proportionate share of the incomes and
losses accruing to it under the terms of its partnership and shareholder
agreements. The equity method is followed for minority interests in markets that
are managed by USM and for certain markets managed by others.
USM follows the cost method of accounting for its investments in markets held
for sale or exchange, and such investments are recorded at the lower of cost or
market value. It is not practicable to estimate the fair value of USM's
investments in cellular partnerships held for sale or exchange due to the lack
of quoted market prices and the inability to estimate fair values without
incurring excessive costs. The $13.3 million carrying amount at December 31,
1994, represents primarily the original amounts invested, which management
believes are not impaired.
The following summarizes the unaudited balance sheets and results of operations
of the cellular system partnerships in which USM's investments are accounted
for by the equity method.
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1993
------------------------------
(Dollars in thousands)
<S> <C> <C>
Assets
Current $ 168,444 $ 134,289
Due from affiliates 19,667 34,156
Property and other 566,707 453,150
------------------------------
$ 754,818 $ 621,595
------------------------------
------------------------------
Liabilities and
Partners' capital
Current liabilities $ 170,337 $ 110,960
Due to affiliates 30,377 34,363
Deferred credits 844 1,296
Long-term debt 16,067 4,462
Partners' capital 537,193 470,514
------------------------------
$ 754,818 $ 621,595
------------------------------
------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1994 1993 1992
--------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Results of Operations
Revenues $ 846,377 $ 703,601 $ 537,813
Costs and
expenses 613,235 518,142 399,409
Other income
(expense) 1,654 (14,246) (2,531)
--------------------------------------------------
Net income
before cumulative
effect of accounting
changes 234,796 171,213 135,873
Cumulative effect
of accounting
changes -- 110 (1,495)
--------------------------------------------------
Net income $ 234,796 $ 171,323 $ 134,378
--------------------------------------------------
--------------------------------------------------
</TABLE>
In two separate actions filed, on October 7, 1993, and February 15, 1994, now
consolidated, two agents of the competing carrier have named the Los Angeles
SMSA Limited Partnership (the "Partnership") as a defendant. The general
allegations include violations of California Unfair Practices Act and price
fixing. At a recent mandatory settlement conference, plaintiffs asked for $6
million from all defendants to settle
<PAGE>
42
the above claims ($2.5 million from AirTouch Cellular, including the
Partnership). The proposed settlement offer has not been accepted.
In May 1994, several former and current agents of the competing carrrier have
named the Partnership in only one cause of action. This cause of action alleges
a conspiracy with the competing carrier to fix the prices of cellular service in
violation of state antitrust laws. The plaintiffs are seeking damages in excess
of $100,000 for each of the plaintiff agents.
On November 24, 1993, October 17, 1994 and November 30, 1994, three separate
class action (not yet certified) suits were filed against the Partnership
alleging conspiracy with a competing carrier to fix the price of cellular
service in violation of state and federal antitrust laws. The plaintiffs are
seeking injunctive relief and substantial monetary damages in excess of $100
million before trebling.
On July 18, 1994, AirTouch Cellular was served with a class action (not yet
certified) suit on behalf of the Partnership's authorized agents. The complaint
alleges "predatory practices" and seeks damages in excess of $1.6 million per
agent, plus statutory treble damages.
15. LEGAL PROCEEDINGS
The Company is involved in a number of legal proceedings before the FCC and
various state and federal courts. In some cases, the litigation involves
disputes regarding rights to certain cellular telephone systems. The more
significant proceedings involving the Company are described in the following
paragraphs.
LA STAR AND WISCONSIN RSA 8 APPLICATIONS. USM indirectly owns 49% of La Star
Cellular Telephone Company ("La Star"), which was an applicant for a
construction permit for a cellular system in the New Orleans MSA. In June 1992,
the FCC affirmed an Administrative Law Judge's order which had granted the
application of another applicant and dismissed La Star's application. The basis
for the FCC's action was its finding that USM improperly controlled La Star. In
a footnote to its decision, the FCC stated questions regarding the conduct of
USM in that proceeding may be revisited in future proceedings. As a result of
that footnote, FCC authorizations in uncontested FCC proceedings have been
granted to TDS and its subsidiaries subject to any subsequent action the FCC
might take concerning its findings and conclusions in the La Star decision.
La Star, TDS and USM appealed the FCC's decision in the La Star proceeding. On
March 29, 1994, the United States Court of Appeals for the District of Columbia
Circuit vacated the FCC's decision in the La Star proceeding and remanded the
matter to the FCC for further proceedings. On remand, the FCC affirmed the
dismissal of the La Star application but did not address the subject matter of
its footnote in the original La Star decision. As a result, the Wisconsin RSA 8
case, discussed below, now constitutes the only FCC expression calling for
conditions on authorizations to TDS and its subsidiaries.
On February 1, 1994, in a proceeding involving a license originally issued to
TDS for Wisconsin RSA 8, the FCC instituted a hearing to determine whether in
the La Star case USM had misrepresented facts to, lacked candor in its dealings
with or attempted to mislead the FCC and, if so, whether TDS possesses the
requisite character qualifications to hold that Wisconsin license. The FCC
stated in its decision that, pending resolution of the issues in the Wisconsin
proceeding, subsequent authorizations to TDS and its subsidiaries would be
conditioned on the outcome of that proceeding. TDS was granted interim authority
to continue to operate that Wisconsin system pending completion of the hearing.
Following extensive discovery by the FCC and other parties, TDS and USM have
reached preliminary and definitive settlement agreements with parties to the
proceeding contemplating a summary decision finding TDS and its affiliates fully
qualified to be FCC licensees. Pending the negotiation of a definitive
settlement agreement with a group of Wisconsin telephone companies who are
parties to the proceeding, the hearing has been postponed. Final settlement will
also be subject to the action of the judge presiding in the proceeding.
TOWNES TELECOMMUNICATIONS, INC., ET. AL. V. TDS, ET. AL. Plaintiffs Townes
Telecommunications Inc., Tatum Telephone Company and Tatum Cellular Telephone
Company filed a suit on September 4, 1991 in the District Court of Rusk County,
Texas, against both TDS and USM as defendants. Plaintiffs made a number of
allegations, including usurpation, breach of fiduciary duty, civil conspiracy,
breach of contract, tortious interference and other claims, and sought a variety
of remedies, including unspecified damages not to exceed $33 million and as much
as $200 million in punitive damages.
<PAGE>
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The case went to trial on April 25, 1994. On May 5, 1994, the jury returned a
verdict in favor of TDS and USM on all issues. The plaintiffs filed an appeal of
the case on September 12, 1994. The parties have executed an agreement which
settles all matters related to this litigation and this case has been dismissed
with prejudice on February 14, 1995. The settlement agreement requires
plaintiffs to purchase a minority cellular interest from the Company at a
negotiated purchase price which the Company believes approximates fair market
value, and does not require the payment of any money by the Company.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF UNITED STATES CELLULAR
CORPORATION:
We have audited the accompanying consolidated balance sheets of United States
Cellular Corporation (a Delaware corporation and an 81.3%-owned subsidiary of
Telephone and Data Systems, Inc.) and Subsidiaries as of December 31, 1994 and
1993, and the related consolidated statements of operations, changes in common
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the financial statements of the Los Angeles SMSA, Baton Rouge MSA and
Nashville/Clarksville MSA limited partnerships. The Company's investment in
these partnerships is reflected in the accompanying financial statements using
the equity method of accounting. The investment in these limited partnerships
represented $45,694,000 and $38,447,000 (or 3.0% and 3.1%) of total consolidated
assets at December 31, 1994 and 1993, respectively, and the equity in their
income represents $21,189,000, $15,364,000 and $10,436,000 for the years ended
December 31, 1994, 1993 and 1992, respectively, and is included in the
consolidated net income (loss). The summarized financial information contained
in Note 14 of the Notes to Consolidated Financial Statements includes financial
information for the aforementioned partnerships. The financial statements of
those limited partnerships were audited by other auditors whose reports have
been furnished to us and our opinion, insofar as it relates to the amounts
included for those limited partnerships, is based solely on the reports of the
other auditors.
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 and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of United States Cellular Corporation and Subsidiaries as
of December 31, 1994 and 1993, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
As discussed in Note 9 of the Notes to Consolidated Financial Statements, the
method of accounting for income taxes was changed effective January 1, 1993.
The report of other auditors on the Los Angeles SMSA Limited Partnership
referred to above includes explanatory paragraphs relating to uncertainties as
discussed in Note 14 of the Notes to Consolidated Financial Statements. The
ultimate outcome of these actions is uncertain at this time. Accordingly, no
accrual for these matters has been made in the consolidated financial
statements.
/s/ Arthur Andersen LLP
Chicago, Illinois
February 7, 1995
(except with respect to the matters discussed in
Note 15, as to which the date is March 14, 1995)
<PAGE>
44
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended or at December 31,
----------------------------------------------------------------------
1994 1993 1992 1991 1990
----------------------------------------------------------------------
----------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Service Revenues $ 318,649 $ 203,800 $ 130,666 $ 77,456 $ 47,099
Equipment Sales 13,755 10,510 9,263 7,500 7,522
Operating Income (Loss) Before
Minority Share 17,385 (8,656) (12,705) (16,831) (9,141)
Minority share of operating income (5,152) (3,496) (2,615) (1,467) (155)
Operating Income (Loss) 12,233 (12,152) (15,320) (18,298) (9,296)
Investment income, net of related
amortization expense 25,627 16,005 11,859 6,871 6,153
Gain on sale of cellular interests 3,321 4,851 31,396 557 842
Income (Loss) Before Income Taxes 21,310 (22,749) 8,181 (24,357) (14,641)
Net Income (Loss) Before Cumulative Effect
of a Change in Accounting Principle 16,393 (25,441) 6,194 (24,373) (14,723)
Cumulative Effect of a Change
in Accounting Principle -- -- -- (10,269) --
Net Income (Loss) $ 16,393 $ (25,441) $ 6,194 $ (34,642) $ (14,723)
Weighted Average Common and
Series A Common Shares (000s) 79,514 57,152 57,778 38,715 28,644
Earnings Per Common and
Series A Common Share:
Before Cumulative Effect of a Change
in Accounting Principle $ .21 $ (.45) $ .11 $ (.63) $ (.51)
Cumulative Effect of a Change
in Accounting Principle -- -- -- (.26) --
Net Income (Loss) $ .21 $ (.45) $ .11 $ (.89) $ (.51)
BALANCE SHEET DATA
Working Capital $ (33,813) $ (28,386) $ (17,827) $ (614) $ (979)
Property, Plant and Equipment, net 368,181 246,414 158,948 109,305 44,334
Investments --
Cellular partnerships 99,495 90,104 86,406 75,089 56,489
Licenses, net of accumulated amortization 947,399 824,491 547,171 386,489 141,107
Marketable equity securities 20,145 17,584 18,210 -- --
Total Assets 1,534,787 1,245,396 855,579 616,786 279,844
Long-term Debt, excluding current portion 57,691 51,130 56,645 26,959 10,703
Revolving Credit Agreement--TDS 232,954 141,524 265,766 166,501 129,005
Redeemable Preferred Stock,
excluding current portion 9,597 18,828 19,690 19,690 --
Common Shareholders' Equity $1,093,967 $ 940,128 $ 450,984 $ 360,749 $ 112,380
</TABLE>
<PAGE>
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED QUARTERLY INCOME INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
------------------------------------------------------
------------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
1994
Service Revenues $ 63,361 $ 77,065 $ 86,675 $ 91,548
Equipment Sales 2,872 3,592 3,251 4,040
Operating (Loss) Income Before Minority Share (1,004) 5,523 11,095 1,771
Gain on Sale of Cellular Interests -- -- -- 3,321
Net (Loss) Income $ (1,830) $ 6,185 $ 10,796 $ 1,242
Weighted Average Common and
Series A Common Shares (000s) 75,140 79,587 80,294 80,529
Earnings Per Common and Series A Common Share $ (.02) $ .08 $ .13 $ .02
1993
Service Revenues $ 39,132 $ 47,918 $ 57,869 $ 58,881
Equipment Sales 2,336 2,634 2,081 3,459
Operating (Loss) Income Before Minority Share (3,380) 560 228 (6,064)
Gain on Sale of Cellular Interests -- -- 4,851 --
Net (Loss) $ (9,208) $ (4,195) $ (843) $ (11,195)
Weighted Average Common and
Series A Common Shares (000s) 53,991 54,836 56,296 63,483
Earnings Per Common and Series A Common Share $ (.17) $ (.08) $ (.01) $ (.18)
</TABLE>
SHAREOWNERS' INFORMATION
UNITED STATES CELLULAR STOCK AND
DIVIDEND INFORMATION
The Company's Common Shares are listed on the American Stock Exchange under the
symbol "USM" and in the newspapers as "US Cellu." As of February 28, 1995, the
Company's Common Shares were held by 463 record owners. All of the Series A
Common Shares were held by TDS. No public trading market exists for the Series A
Common Shares. The Series A Common Shares are convertible on a share-for-share
basis into Common Shares.
The high and low sales prices of the Common Shares as reported by the American
Stock Exchange were as follows:
<TABLE>
<CAPTION>
Calendar Period Common Shares
-------------------------------
High Low
-------------------------------
<S> <C> <C>
1994
First Quarter $ 35.25 $ 24.63
Second Quarter 29.63 24.50
Third Quarter 33.13 22.38
Fourth Quarter 34.00 30.00
-------------------------------
1993
First Quarter $ 24.63 $ 20.75
Second Quarter 28.50 23.00
Third Quarter 34.88 27.50
Fourth Quarter 39.25 30.13
-------------------------------
</TABLE>
The Company has not paid any cash dividends and currently intends to retain all
earnings for use in the Company's business. In addition, the Revolving Credit
Agreement with TDS prohibits the payment of dividends on the Company's Common
Shares and Series A Common Shares, except to the extent of one-half of the
cumulative consolidated net income, if any, of the Company for the period
after July 1, 1989.
<PAGE>
<PAGE>
EXHIBIT 21
UNITED STATES CELLULAR CORPORATION
List of Subsidiaries as of December 31, 1994
_________________________________________________________________________
USCOC of Arkansas RSA #1, Inc
Arkansas RSA #9, Inc
Block B Cellular Corporation
California Rural Service Area #1, Inc.
California RSA #2, Inc.
California RSA #9, Inc.
USCOC of Florida RSA #2, Inc.
Florida RSA #8, Inc.
USCOC of Florida RSA #9, Inc.
Florida RSA #10, Inc.
USCOC of Georgia RSA #1, Inc.
Georgia RSA #11, Inc.
Georgia RSA #13, Inc.
USCOC of Hawaii-3, Inc.
USCOC of Idaho RSA #5, Inc.
USCOC of Illinois RSA #1, Inc.
Illinois RSA #3, Inc.
USCOC of Illinois RSA #4, Inc.
Indiana RSA #1, Inc.
USCOC of Indiana RSA #2, Inc.
Indiana RSA #4, Inc.
Indiana RSA #5, Inc.
USCOC of Indiana RSA #7, Inc.
USCOC of Iowa RSA #1, Inc.
Iowa RSA #2, Inc.
Iowa RSA #3, Inc.
Iowa RSA #9, Inc.
Iowa RSA #12, Inc.
Iowa 13, Inc.
Kansas RSA #5, Inc.
Kentucky RSA #1, Inc.
Kentucky RSA #2, Inc.
Kentucky RSA #3, Inc.
Kentucky RSA #9-10, Inc.
Maine RSA #1, Inc.
Maine RSA #4, Inc.
Michigan RSA #4, Inc.
Mississippi RSA #9, Inc.
USCOC of Missouri RSA #1, Inc.
USCOC of Missouri RSA #4, Inc.
USCOC of Missouri RSA #5, Inc.
USCOC of Missouri RSA #13, Inc.
Missouri #15 Rural Cellular, Inc.
Missouri RSA #17, Inc.
NH #1 Rural Cellular, Inc.
USCOC of New York RSA #1, Inc.
USCOC of New York RSA #6, Inc.
North Carolina RSA #4, Inc.
North Carolina RSA #5, Inc.
North Carolina RSA No. 6, Inc.
<PAGE>
USCOC of North Carolina RSA #7, Inc.
North Carolina RSA #9, Inc.
North Carolina RSA #12, Inc.
USCOC of North Carolina RSA #13, Inc.
USCOC of North Carolina RSA #14, Inc.
North Carolina RSA #14, Inc.
Ohio 1 Acquisition Corp.
Ohio RSA #1, Inc.
USCOC of Ohio RSA #7, Inc.
Ohio RSA #9, Inc.
Oklahoma Opco of RSA #8, Inc.
Oklahoma #9 Rural Cellular, Inc.
USCOC of Oklahoma RSA #10, Inc.
Oregon RSA #2, Inc.
Oregon RSA #3, Inc.
USCOC of Oregon RSA #5, Inc.
Oregon RSA #6, Inc.
USCOC of Pennsylvania RSA #9, Inc.
USCOC of South Carolina RSA #4, Inc.
Tennessee RSA #3, Inc.
Tennessee RSA #4 Sub 2, Inc.
Tennessee RSA #6 B, Inc.
Texas RSA #4, Inc.
Texas RSA #5, Inc.
Texas RSA #11, Inc.
USCOC of Texas RSA #18, Inc.
Texas #20 Rural Cellular, Inc.
USCOC of Virginia RSA #4, Inc.
Virginia RSA #4, Inc.
Virginia RSA #7, Inc.
USCOC of Washington-4, Inc.
Washington RSA #5, Inc.
Washington RSA #6, Inc.
USCOC of West Virginia RSA #2, Inc.
West Virginia RSA #4, Inc.
West Virginia RSA #5, Inc.
USCOC of Wisconsin RSA #6, Inc.
Wisconsin RSA #8, Inc.
USCIC of Colorado RSA #3, Inc.
Western Colorado Cellular, Inc.
Idaho Invco of RSA #1, Inc.
Kentucky Invco of RSA #3, Inc.
MaryPennWest Invco of RSA #1, #10 and #3, Inc.
Minnesota Invco of RSA #5, Inc.
Minnesota Invco of RSA #7, Inc.
Minnesota Invco of RSA #8, Inc.
Minnesota Invco of RSA #9, Inc.
Minnesota Invco of RSA #10, Inc.
Minnesota Invco of RSA #11, Inc.
USCIC of North Carolina RSA #1, Inc.
Oregon Invco of RSA #2 West, Inc.
Pennsylvania Invco of RSA #5, Inc.
Pennsylvania Invco of RSA #6, Inc.
-2-
<PAGE>
Texas Invco of RSA #6, Inc.
Texas Invco of RSA #17, Inc.
TDS V2B Acquisition Corp.
Virginia Invco of RSA #2, Inc.
Wisconsin Invco of RSA #7, Inc.
Camden Cellular Telephone Company, Inc.
Community Cellular Telephone Company
Farmers Cellular Telephone Company, Inc.
Farmers Mutual Cellular Telephone Company, Inc.
Hancock Cellular Telephone Company, Inc.
Hardy Cellular Telephone Company
Hill City Cellular Telephone Company
Humphreys County Cellular, Inc.
Jefferson Cellular Telephone Company
Lake Livingston Cellular Telephone Company
Laurel Highland Cellular Telephone Company
McDaniel Cellular Telephone Company
Minford Cellular Telephone Company
Peace Valley Cellular Telephone Company
Pine Island Cellular Telephone Company
Randolph Cellular Telephone Company
Scott County Cellular Telephone Company
South Canaan Cellular Telephone Company
Venus Cellular Telephone Company, Inc.
Walnut Hill Cellular Telephone Company
West Side Cellular Telephone Company
United States Cellular Investment Company
United States Cellular Investment Co. of Allentown
USCIC of Amarillo, Inc.
USCIC of Arecibo, Inc.
United States Cellular Investment Company of Baton Rouge
United States Cellular Investment Company of Binghamton, Inc.
USCIC of Brownsville, Inc.
United States Cellular Investment Co. of Charleston, Inc.
United States Cellular Investment Company of Eau Claire, Inc.
Universal Cellular for Eau Claire MSA, Inc.
United States Cellular Investment Company of Fresno, Inc.
United States Cellular Investment Company of Ft. Myers
United States Cellular Investment Company of Ft. Smith
United States Cellular Investment Company of Galveston
United States Cellular Investment Company of Green Bay, Inc.
United States Cellular Investment Company of Huntsville
United States Cellular Investment Company of Iowa City
USCIC of Jackson, Inc.
United States Cellular Investment Company of Lafayette
United States Cellular Investment Corporation of Los Angeles
United States Cellular Investment Company of Madison, Inc.
USCIC of McAllen, Inc.
USCIC of Midland, Inc.
United States Cellular Investment Co. of Nashville
USCIC of New Orleans, Inc.
USCIC of Ocala, Inc.
-3-
<PAGE>
United States Cellular Investment Co. of Oklahoma City, Inc.
United States Cellular Investment Company of Portsmouth, Inc.
United States Cellular Investment Company of Raleigh-Durham
USCIC of Reno, Inc.
United States Cellular Investment Company of Rockford
United States Cellular Investment Company of Santa Cruz, Inc.
United States Cellular Investment Company of Sarasota
USCIC of Seattle, Inc.
United States Cellular Investment Company of South Bend, Inc.
United States Cellular Investment Company of St. Cloud
United States Cellular Investment Company of Wheeling
United States Cellular Operating Company
United States Cellular Operating Company of Atlantic City, Inc.
United States Cellular Operating Company of Bangor
United States Cellular Operating Company of Biloxi
United States Cellular Operating Company of Cedar Rapids
United States Cellular Operating Company of Columbia
USCOC of Cumberland, Inc.
United States Cellular Operating Company - Des Moines
United States Cellular Operating Company of Dubuque
United States Cellular Operating Company of Evansville, Inc.
United States Cellular Operating Company of Ft. Pierce
USCOC of Gainesville, Inc.
USCOC of Iowa City, Inc.
United States Cellular Operating Company of Joplin
United States Cellular Operating Company of Knoxville
United States Cellular Operating Company of LaCrosse, Inc.
United States Cellular Operating Company of Lewiston-Auburn
United States Cellular Operating Company of Manchester-Nashua,
Inc.
United States Cellular Operating Company of Medford
United States Cellular Operating Company of Montgomery, Inc.
United States Cellular Operating Company of Owensboro
United States Cellular Operating Company of Peoria
USCOC of Portland, Inc.
United States Cellular Operating Company of Poughkeepsie, Inc.
United States Cellular Operating Company - Quad Cities
United States Cellular Operating Company of Richland
United States Cellular Operating Company of Rochester
USCOC of Tallahassee, Inc.
USCOC of Texahoma, Inc.
United States Cellular Operating Company of Tulsa, Inc.
USCOC of Victoria, Inc.
United States Cellular Operating Company of Vineland, Inc.
United States Cellular Operating Company of Waterloo
United States Cellular Operating Company of Wausau, Inc.
United States Cellular Operating Company of Williamsport
United States Cellular Operating Company of Yakima
Canton Cellular Telephone Company
Capitol Cellular, Inc.
Carolina Cellular, Inc.
Cellular America Telephone Company
-4-
<PAGE>
Central Cellular Telephones, Ltd.
Central Florida Cellular Telephone Company, Inc.
Chibardun Cellular Telephone Corporation
CSII of Baton Rouge, Inc.
Davenport Cellular Telephone Company, Inc.
DRGP, Inc.
Dutchess County Cellular Telephone Company, Inc.
Four D Ltd.
Huntsville Cellular Telephone Corp., Inc.
ILP, Inc.
Joplin Cellular Telephone Company
LaCrosse Cellular Telephone Company, Inc.
Lar-Tex Cellular Telephone Company, Inc.
Lavaca Cellular Telephone Company
Leaf River Valley Cellular Telephone Company
Mississippi Cellular Telephone Company
Star Cellular Telephone Company, Inc.
Star Cellular Communications, Inc.
Texahoma Cellular Telephone Corporation
Tri-States Cellular Communications Inc.
Tulsa General Partner, Inc.
USCC Real Estate Corporation
Victoria Cellular Corporation
Vineland Cellular Telephone Company, Inc.
-5-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K of United States Cellular Corporation of our report
dated February 7, 1995 (except with respect to the matters discussed in Note 15,
as to which the date is March 14, 1995), on the consolidated financial
statements of United States Cellular Corporation and Subsidiaries (the
"Company") included in the Company's 1994 Annual Report to Shareholders, to the
inclusion in this Form 10-K of our report dated February 7, 1995, on the
financial statement schedules of the Company, and to the inclusion of our
compilation report dated February 17, 1995, on the combined financial statements
of the Los Angeles SMSA Limited Partnership, the Nashville/Clarksville MSA
Limited Partnership and the Baton Rouge MSA Limited Partnership, and to the
incorporation of such reports into the Company's previously filed S-4
Registration Statement, File No. 33-41826, and into the Company's previously
filed S-8 Registration Statements, File No. 33-42558, File No. 33-56361, and
File No. 33-57255.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 22, 1995
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in this Form 10-K of United States
Cellular Corporation of our report, which includes explanatory paragraphs
relating to contingencies, dated February 17, 1995, on our audits of the
financial statements of the Los Angeles SMSA Limited Partnership as of December
31, 1994 and 1993, and for each of the three years in the period ended December
31, 1994; such financial statements are not included separately in this Form
10-K.
COOPERS & LYBRAND L.L.P
Newport Beach, California
March 22, 1995
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in this Form 10-K of United States
Cellular Corporation of our reports dated February 10, 1995, February 11, 1994,
and February 11, 1993, on our audits of the financial statements of the
Nashville/Clarksville MSA Limited Partnership as of December 31, 1994, 1993 and
1992, and for the years ended December 31, 1994, 1993 and 1992; such financial
statements are not included separately in this Form 10-K.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
March 22, 1995
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in this Form 10-K of United States
Cellular Corporation of our reports dated February 10, 1995, February 11, 1994,
and February 11, 1993, on our audits of the financial statements of the Baton
Rouge MSA Limited Partnership as of December 31, 1994, 1993 and 1992, and for
the years ended December 31, 1994, 1993 and 1992; such financial statements are
not included separately in this Form 10-K.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
March 22, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
consolidated financial statements of United States Cellular Corporation as of
December 31, 1994, and for the year then ended, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 5,800
<SECURITIES> 20,145
<RECEIVABLES> 44,563
<ALLOWANCES> 2,073
<INVENTORY> 5,435
<CURRENT-ASSETS> 64,560
<PP&E> 464,132
<DEPRECIATION> 95,951
<TOTAL-ASSETS> 1,534,787
<CURRENT-LIABILITIES> 98,373
<BONDS> 290,645
<COMMON> 78,590
9,597
0
<OTHER-SE> 1,015,377
<TOTAL-LIABILITY-AND-EQUITY> 1,534,787
<SALES> 13,755
<TOTAL-REVENUES> 332,404
<CGS> 39,431
<TOTAL-COSTS> 315,019
<OTHER-EXPENSES> (30,960)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,883
<INCOME-PRETAX> 21,310
<INCOME-TAX> 4,917
<INCOME-CONTINUING> 16,393
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,393
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
