SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
---------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_________________________to______________________
Commission File Number 1-9712
- --------------------------------------------------------------------------------
UNITED STATES CELLULAR CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 62-1147325
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8410 West Bryn Mawr, Suite 700, Chicago, Illinois 60631
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 399-8900
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1996
Common Shares, $1 par value 53,083,674 Shares
Series A Common Shares, $1 par value 33,005,877 Shares
- --------------------------------------------------------------------------------
<PAGE>
UNITED STATES CELLULAR CORPORATION
2ND QUARTER REPORT ON FORM 10-Q
INDEX
Page
No. ----
- ---
Part I. Financial Information:
Management's Discussion and Analysis of
Results of Operations and Financial Condition 2-9
Consolidated Statements of Operations -
Three Months and Six Months Ended June 30, 1996
and 1995 10
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1995 11
Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995 12-13
Notes to Consolidated Financial Statements 14-17
Part II. Other Information 18-19
Signatures 20
<PAGE>
PART I. FINANCIAL INFORMATION
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Six Months Ended 6/30/96 Compared to Six Months Ended 6/30/95
United States Cellular Corporation (the "Company" - AMEX: USM) owns, operates
and invests in cellular markets throughout the United States. USM owns or
expects to own, pursuant to agreements in place as of June 30, 1996, cellular
interests representing 24,669,000 population equivalents ("pops"). USM included
the operations of 130 majority-owned and managed cellular markets, representing
19.9 million pops, in consolidated operations ("consolidated markets") at June
30, 1996. Noncontrolling interests in 29 markets, representing 3.4 million pops,
were accounted for using the equity method and were included in investment
income at that date. Noncontrolling interests held for sale or trade in 46 other
markets, representing 1.4 million pops, were accounted for using the cost
method. Following is a table of summarized operating data for USM's consolidated
operations.
Six Months Ended or at June 30,
-------------------------------
1996 1995
---- ----
Total market population (in thousands) (1) 21,483 22,430
Customers 860,000 550,000
Market penetration 4.00% 2.45%
Markets in operation 130 137
Cell sites in service 1,185 940
Average monthly revenue per customer $ 67 $ 73
Churn rate per month 1.9% 2.0%
Marketing cost per net customer addition $564 $589
(1) Calculated using the respective Donnelley Marketing Service estimates for
each year.
The Company's consolidated revenues and expenses include 100% of the revenues
and expenses of the systems serving majority-owned and managed markets plus its
corporate office operations. Investment income includes the Company's share of
the net income or loss of each of the noncontrolling interests for which the
Company follows the equity method of accounting.
Operating results for the first six months of 1996 primarily reflect improvement
in the Company's established markets (those markets included in consolidated
operations at June 30, 1995) plus the net effect of the six markets acquired and
13 markets divested since June 30, 1995. Operating revenues, driven primarily by
increases in customers served, rose $105.8 million, or 49%. Operating expenses
rose $82.9 million, or 42%. Operating cash flow increased $34.0 million, or 57%.
Investment and other income increased $95.6 million to $149.8 million, due
primarily to the increase of $89.6 million on gains on the sales of cellular and
other investments. Interest expense
-1-
<PAGE>
decreased $3.3 million, or 22%, in 1996, primarily due to lower effective
interest rates. Income tax expense increased $75.5 million to $82.0 million, due
both to increased gains on the sale of cellular and other investments as well as
improved operating results in 1996. Net income totaled $92.4 million in 1996
compared to $47.7 million in 1995. In both years, net income included
significant gains on sales of cellular and other investments. A summary of the
net-of-tax effect of these gains is shown below.
Six Months Ended June 30,
-------------------------
1996 1995
---- -----
(Dollars in thousands,
except per share amounts)
Net income as reported $ 92,442 $ 47,687
Less: Effects of gains (64,201) (32,447)
--------- ---------
As adjusted $ 28,241 $ 15,240
========= =========
Earnings per share as reported $ 1.08 $ .57
Less: Effects of gains (.75) (.39)
--------- ---------
As adjusted $ .33 $ .18
========= =========
Operating Revenues
Operating revenues totaled $322.7 million in 1996, up $105.8 million, or 49%,
over 1995. The net effect of acquisitions and divestitures ("net acquisitions")
increased operating revenues $15.9 million, or 7%, in 1996.
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 ("local retail"); (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 totaled $314.2 million in 1996, up $104.3
million, or 50%, over 1995. The increase was primarily due to the growing number
of local retail customers and the growth in inbound roaming revenue. Average
monthly revenue per customer declined 8% to $67 in 1996 from $73 in 1995. This
decrease was primarily a result of a decrease in average revenue per minute of
use from both inbound roamers and local retail customers. Net acquisitions
increased service revenues $15.3 million, or 7%, in 1996.
Local retail revenue increased $73.2 million, or 57%, in 1996. Growth in the
number of customers was the primary reason for the increase in local revenue.
The number of customers increased 56% to 860,000 at June 30, 1996 from 550,000
at June 30, 1995. The Company's consolidated markets added 152,000 customers
through its marketing channels in 1996 compared to 103,000 in 1995. While the
percentage increase in customer additions is expected to be lower in the future,
management anticipates that the total number of net customer additions will
continue to increase in the next few years. Net acquisitions increased local
retail revenue $14.8 million, or 12%, in 1996.
Average monthly local retail revenue per customer decreased to $43 in 1996 from
$45 in 1995. Monthly local retail minutes of use per customer increased 12% to
102 in 1996 from 91 in 1995. While there was an increase in average local retail
minutes of use from 1995 to 1996, the Company's use of incentive programs in
1996 that encourage weekend and off-peak usage, in order to stimulate overall
usage, resulted in a decrease in average revenue per minute of use during the
year. The decrease in average monthly local retail revenue is part of an
industry-wide trend and is believed to be related to the tendency of the early
customers in a market to be the
-2-
<PAGE>
heaviest users during peak business hours. It also reflects the Company's and
the industry's continued penetration of the consumer market, which tends to
include fewer peak business hour- usage customers. Local retail revenues
increased 64%, or $81.4 million, in 1996 due to customer growth and declined 6%,
or $8.2 million, due to decreases in average monthly local retail revenue per
customer.
Inbound roaming revenue increased $22.8 million, or 35%, in 1996. This increase
was attributable to the rise in the number of minutes used by customers from
other systems when roaming in the Company's systems. Also contributing were the
increased number of cell sites within the Company's systems. This effect was
offset somewhat by the decrease in average revenue per minute, related to the
ongoing trend toward reduced per minute prices for roaming negotiated between
the Company and other cellular operators. Monthly inbound roaming revenue per
customer averaged $19 in 1996 and $23 in 1995. Inbound roaming revenue has been
increasing at a slower rate than the Company's own customer base (35% compared
to 56%), which is growing faster than that of the rest of the industry. Net
acquisitions increased inbound roaming revenue $897,000, or 1%, in 1996.
Long-distance revenue increased $10.0 million, or 69%, in 1996 as the volume of
long-distance calls billed by the Company increased. Monthly long-distance
revenue per customer averaged $5 in both 1996 and 1995. Net acquisitions
increased long-distance revenue $1.3 million, or 9%, in 1996.
Equipment sales revenues totaled $8.5 million in 1996, up $1.5 million, or 21%,
over 1995. Equipment sales reflect the sale of 177,000 and 122,000 cellular
telephone units in 1996 and 1995, respectively, plus installation and
accessories revenue. The average revenue per unit was $48 in 1996 compared to
$57 in 1995. The average revenue per unit decline partially reflects the
Company's decision to reduce sales prices on cellular telephones to stimulate
growth in the number of customers, to maintain its market position and to meet
competitive prices as well as to pass through reduced manufacturers' prices to
customers. Also, the Company uses promotions which are 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. Net
acquisitions increased equipment sales revenues $618,000, or 9%, in 1996.
Operating Expenses
Operating expenses totaled $280.8 million in 1996, up $82.9 million, or 42%,
over 1995. Net acquisitions increased expenses $17.1 million, or 9%, in 1996.
System operations expenses increased $21.9 million, or 72%, in 1996 as a result
of increases in customer usage expenses and costs associated with the growing
number of cell sites within the Company's systems. Also contributing to the
increase was a $5.4 million increase in costs related to fraudulent use of the
Company's customers' cellular telephone numbers. The Company is implementing
procedures in certain markets to combat this fraud, which is primarily related
to roaming usage. In total, system operations costs are expected to continue to
increase as the number of cell sites within and the number of customers using
the Company's systems grows. Net acquisitions increased system operations
expenses $3.2 million, or 11%, in 1996.
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
-3-
<PAGE>
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 $31.3 million in 1996 compared to $13.2 million in
1995, and represented 10% of service revenues in 1996 and 6% in 1995. These
increases primarily resulted from the effect of increased roaming fraud costs in
1996.
Maintenance, utility and cell site expenses totaled $21.0 million in 1996
compared to $17.2 million in 1995. This increase primarily reflects an increase
in the number of cell sites in the systems serving all majority-owned and
managed markets, which totaled 1,185 in 1996 and 940 in 1995.
Marketing and selling expenses increased $19.2 million, or 44%, in 1996.
Marketing and selling expenses primarily consist of salaries, commissions and
expenses of field sales and retail personnel and offices; agent expenses;
promotional expenses; local advertising and public relations expenses. The
increase was primarily due to a 49% rise in the number of gross customer
activations (excluding acquisitions and divestitures), to 240,000 in 1996 from
161,000 in 1995. Cost per gross customer addition, including losses on equipment
sales, decreased to $357 in 1996 from $377 in 1995. Net acquisitions increased
marketing and selling expenses $5.6 million, or 13%, in 1996.
Cost of equipment sold increased $7.4 million, or 31%, in 1996. The increases
reflect the growth in unit sales related to the rise in gross customer
activations made through the Company's direct and retail distribution channels,
offset somewhat by falling manufacturer prices per unit. The average cost to the
Company of a telephone unit sold, including accessories and installation, was
$177 in 1996 compared to $197 in 1995. Net acquisitions increased cost of goods
sold $3.1 million, or 13%, in 1996.
General and administrative expenses increased $23.4 million, or 39%, in 1996.
These expenses include the costs of operating the Company's local business
offices and its corporate expenses. The increase includes the effects of
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. 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.
The increase also includes the effect of a higher amount of bad debt, primarily
related to the Company's increased rate of customer growth, and the effect of
increased nonincome taxes levied by state and local taxing authorities. Net
acquisitions increased direct field-related general and administrative expenses
$4.2 million, or 7%, in 1996.
Operating cash flow (operating income before minority share plus depreciation
and amortization expense) increased $34.0 million, or 57%, to $93.6 million in
1996. The improvement was primarily due to substantial growth in service
revenues and the effects of improved operational efficiencies on operating
expenses. Operating cash flow margins were 30% in 1996 and 28% in 1995.
Depreciation expense increased $9.6 million, or 38%, in 1996. The increase
reflects rising average fixed asset balances, which increased 33% in 1996.
Increased fixed asset balances primarily result from the increase in cell sites
built to improve coverage in the Company's markets. Net acquisitions increased
depreciation expense $972,000, or 4%, in 1996.
Amortization of intangibles increased $1.4 million, or 9%, in 1996. The increase
is primarily due to increases in deferred information system costs, which are
amortized over the estimated useful life
-4-
<PAGE>
of the associated improvements. Net acquisitions increased amortization of
intangibles $131,000, or 1%, in 1996.
Operating Income before Minority Share
Operating income before minority share totaled $41.8 million in 1996, an
increase of $22.9 million, or 121%, over 1995. The operating income margin (as a
percent of service revenues) was 13% in 1996 and 9% in 1995. The improvement in
operating income and operating income margin reflects improved results in the
more established markets and increased revenues resulting from growth in the
number of customers served by the Company's systems. This was partially offset
by costs associated with the growth of the Company's operations, increased
losses on equipment sales and the effect of roaming fraud, bad debt and
nonincome taxes. Net acquisitions decreased operating income before minority
share $1.2 million, or 6%, in 1996.
The Company expects service revenues to continue to grow significantly during
the remainder of 1996 as it adds customers to its existing systems and realizes
a full year of revenues from customers added in 1995. However, management
anticipates that average monthly revenue per customer will continue to decrease
as local retail and inbound roaming revenue per minute of use declines and as
the growth rate of the Company's customer base exceeds the growth rate of
inbound roaming revenue, diluting the roaming contribution per customer. The
Company also expects expenses to increase significantly during 1996 as it incurs
costs for cell sites added in 1995 and incurs costs associated with customer
growth.
Management believes there exists a seasonality in both service revenues, which
tend to increase more slowly in the first and fourth quarters, and operating
expenses, which tend to be higher in the fourth quarter due to increased
marketing activities and customer growth, which may cause operating income to
vary from quarter to quarter.
Investment and Other Income
Investment and other income totaled $149.8 million in 1996, an increase of $95.6
million over 1995. Investment income was $22.3 million in 1996 compared to $18.4
million in 1995, a 21% increase. Investment income primarily represents the
Company's share of net income from the markets managed by others that are
accounted for by the equity method. Gain on sale of cellular interests totaled
$125.0 million in 1996, an increase of $89.6 million over 1995. The 1996 amount
primarily reflects gains recorded on the sales of the Company's majority
interests in eight markets and a minority interest in another market, on cash
received in an exchange of markets with another cellular operator and on cash
received from the settlement of two separate legal matters. The 1995 amount
reflects gains recorded on the sales of the Company's majority interests in
three markets and minority interests in three markets.
Interest and Income Taxes
Total interest expense decreased $3.3 million, or 22%, in 1996. Interest expense
in 1996 is primarily related to Liquid Yield Option Notes ("LYONs") ($7.1
million) and borrowings under vendor financing agreements ($4.1 million).
Interest expense in 1995 is primarily related to borrowings under the Revolving
Credit Agreement with Telephone and Data Systems, Inc. ("TDS"), the Company's
parent organization, ($10.3 million) and borrowings under the vendor financing
agreements ($4.7 million).
-5-
<PAGE>
The LYONs are zero coupon convertible debentures which do not require current
cash payments of interest. No LYONs were outstanding until mid-June 1995. The
average amount of debt under the vendor financing agreements was $116.8 million
in the first six months of 1996 and $104.4 million in 1995. The average interest
rate on such debt was 8.0% in 1996 and 9.0% in 1995. The average amount of debt
outstanding under the Revolving Credit Agreement was $185.7 million during the
first half of 1995; no borrowings were outstanding during the first half of
1996. The average interest rate on such debt was 11.1% in 1995.
Income tax expense was $82.0 million in 1996 and $6.5 million in 1995. In 1996,
$60.8 million of income tax expense related to the gains on sales of cellular
interests; this amount was only $2.9 million in 1995. An increase in pretax
income generated by improved operating results in 1996 provided the remainder of
the increase in income tax expense. State income tax expense in both years was
primarily related to subsidiaries generating taxable income after utilization of
state net operating losses.
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 $74 million at December 31, 1995, and
expires between 2002 and 2010. The amount of the state net operating loss
carryforward available to offset future taxable income aggregated approximately
$212 million at December 31, 1995, and expires between 1996 and 2010. Both the
federal and state loss carryforwards have been significantly reduced by the
gains on the sales of cellular and other investments during 1996.
Net Income
Net income totaled $92.4 million in 1996, an increase of $44.8 million, or 94%,
over 1995. Net income per share was $1.08 in 1996 and $.57 in 1995. The
improvement resulted from gains on the sales of cellular and other investments,
improved operating results in the established markets and reduced interest
expense, partially offset by increased income tax expense. On a comparable basis
(net of tax), excluding gains on the sales of cellular and other investments,
net income totaled $28.2 million in 1996, an increase of $13.0 million, or 85%,
over 1995. On this basis, net income per share was $.33 in 1996 and $.18 in
1995. The improvement in net income per share primarily reflects the improvement
in net income partially 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 1996 increased 4%, primarily due to the
issuance of Common Shares in connection with acquisitions.
Three Months Ended 6/30/96 Compared to Three Months Ended 6/30/95
Operating revenues totaled $174.7 million in the second quarter of 1996, up
$57.6 million, or 49%, over 1995. Average monthly service revenue per customer
decreased 7% to $70 in the second quarter of 1996 compared to $75 in 1995 for
reasons generally the same as the first half of 1996. Revenues from local
customers' usage of USM's systems increased $38.6 million, or 56%, in 1996
primarily due to the increased number of customers served. Average monthly local
retail minutes of use per customer totaled 107 in the second quarter of 1996
compared to 95 in 1995. However, as the number of customers and amount of
revenue earned continued to grow, average revenue per minute of use continued to
decline. As a result, average monthly local retail revenue per
-6-
<PAGE>
customer declined 4% to $44 in the second quarter of 1996 compared to $46 in
1995. Inbound roaming revenue increased $13.5 million, or 38%, in 1996 due to
the increased number of other carriers' customers using the Company's systems
and the growth in the number of cell sites in those systems. Monthly inbound
roaming revenue per customer averaged $20 in 1996 compared to $23 in 1995.
Long-distance revenue increased $5.5 million, or 68%, in 1996 as the volume of
long-distance calls billed by the Company increased. Monthly long-distance
revenue per customer averaged $6 in 1996 and $5 in 1995. Equipment sales revenue
reflects sales of 87,000 cellular telephones in 1996 compared to 68,000 in 1995.
The average revenue per unit sold was $48 in 1996 and $53 in 1995.
Operating expenses totaled $144.7 million in the second quarter of 1996, up
$38.4 million, or 36%, over 1995 for reasons generally the same as the first
half of 1996.
Operating income before minority share totaled $30.0 million in 1996 compared to
$10.9 million in 1995. The operating income margin improved to 18% in 1996 from
10% in 1995. The improvement in operating income and operating income margin was
primarily the result of increased revenues and cost efficiencies, partially
offset by the costs associated with the growth of the Company's operations and
additional costs related to fraud and bad debt.
Investment income increased $3.3 million, or 38%, in 1996 due to improved
results in markets managed by others accounted for by the equity method. Gain on
sale of cellular and other investments totaled $86.3 million in 1996, resulting
from the sale of the Company's majority interests in four markets, its
investment interest in one other market and cash received from the settlement of
two separate legal matters during the quarter. Gain on the sale of cellular and
other investments totaled $16.8 million in 1995.
Net income totaled $63.1 million in 1996 compared to $24.1 million in 1995. In
both years, net income included significant gains on sales of cellular and other
investments. A summary of the net-of-tax effect of these gains is shown below.
Three Months Ended June 30,
---------------------------
1996 1995
---- ----
(Dollars in thousands,
except per share amounts)
Net income as reported $ 63,055 $ 24,089
Less: Effects of gains (43,361) (15,236)
---------- -----------
As adjusted $ 19,694 $ 8,853
========== ===========
Earnings per share as reported $ .73 $ .29
Less: Effects of gains (.50) (.18)
---------- -----------
As adjusted $ .23 $ .11
========== ===========
FINANCIAL RESOURCES AND LIQUIDITY
The Company operates a capital- and marketing-intensive business. Rapid growth
in markets operated by the Company, capital expenditures and customers served
has caused financing requirements for acquisitions, construction and operations
to exceed internally generated cash flow until recent years. In recent years,
the Company has generated operating cash flow and received cash proceeds from
divestitures to fund most of its construction and operating expenses. The
Company anticipates further substantial increases in cellular units in service,
revenues and cell
-7-
<PAGE>
sites as it continues its rapid growth strategy. As the Company's customer and
revenue base grows, the rate of increase in operating cash flow and operating
income may be reduced over the next several quarters.
Cash flows from operating activities provided $44.4 million in 1996 and $53.0
million in 1995. Operating cash flow provided cash totaling $93.6 million in
1996 and $59.6 million in 1995. Cash flows from other operating activities
(investment and other income, interest expense, changes in working capital and
changes in other assets and liabilities) required cash investments totaling
$49.2 million in 1996 and $6.6 million in 1995. The increase in cash required
for other activities in 1996 is primarily due to the effects of the Company's
conversion to a new accounting system software and associated changes in
accounts payable procedures.
Cash flows from financing activities provided $1.2 million in 1996 and $18.1
million in 1995. In 1996, issuance of USM Common Shares, primarily to TDS,
provided $9.6 million while repayments of debt under the vendor financing
agreements required $10.0 million. In 1995, the sale of LYONs provided cash
totaling $221.5 million and vendor financing transactions provided $58.7
million. Repayments of amounts owed under the Revolving Credit Agreement with
TDS and amounts owed under the vendor financing agreement totaled $249.9 million
and $7.6 million, respectively, in 1995.
Cash flows from investing activities provided $73.6 million in 1996 and required
$50.1 million in 1995. The Company received net cash proceeds totaling $178.0
million in 1996 and $82.5 million in 1995 related to the sales and exchanges of
cellular and other investments. Cash required for property, plant and equipment
expenditures totaled $103.0 million in 1996, for the construction of 72 cell
sites and other plant additions; these cash requirements totaled $95.6 million
in 1995, for the construction of 119 cell sites and other plant additions.
Anticipated capital requirements for 1996 primarily reflect the Company's
construction and system expansion program. The Company's construction and system
expansion budget for 1996 is approximately $240 million, primarily for new cell
sites to expand and enhance the Company's coverage in its service areas and for
the enhancement of the Company's office systems.
Acquisitions and Divestitures
The Company is continuing to assess its cellular holdings in order to maximize
the benefits derived from clustering its markets. As the number of opportunities
for outright acquisitions has decreased in recent years, and as the Company's
clusters have grown, the Company's focus has shifted toward exchanges and
divestitures of managed and investment interests. Recently, the Company has
completed exchanges of controlling interests in its less strategic markets for
controlling interests in markets which better complement its clusters. The
Company has also completed outright sales of other less strategic markets. The
proceeds from these sales have been used to further the Company's growth.
The Company has gradually slowed its pace of acquisitions. In the first half of
1996, the Company purchased a controlling interest in one market and several
minority interests, representing 308,000 pops, and received a controlling
interest in another market through an exchange with another cellular operator.
The total consideration paid in these transactions, primarily in the form of USM
Common Shares issued to TDS to reimburse TDS for the value of TDS Common Shares
issued to third parties, totaled $43.6 million. In the first half of 1995, the
Company purchased controlling interests in ten markets and several minority
interests, representing 1.4 million pops. The total consideration paid for these
purchases, primarily in the form of USM Common Shares issued to
-8-
<PAGE>
TDS to reimburse TDS for the value of TDS Common Shares issued to third parties,
totaled $135.9 million. Some of the controlling interests acquired in these
transactions were subject to acquisition or exchange agreements which were
entered into prior to the year in which the acquisitions were completed.
In the first six months of 1996, the Company sold controlling interests in eight
markets and one market partition, plus a minority interest in another market,
representing 1.1 million pops, and divested a controlling interest in another
market through an exchange. The Company received consideration totaling $181.0
million both from these sales and from the exchange. The company also settled
two separate legal matters during the first six months of 1996, receiving $30.3
million from those transactions. In total, sales, exchanges and litigation
settlements provided the Company with cash and receivables totaling $211.3
million in the first half of 1996. In the first six months of 1995, the Company
sold controlling interests in three markets and minority interests in three
markets, representing 599,000 pops. The Company received consideration of cash
and receivables totaling $64.5 million from these sales.
The Company and TDS have reached an agreement, pursuant to which TDS will
transfer its minority ownership interests in certain cellular markets acquired
in conjunction with prior acquisitions of telephone companies to the Company.
The minority interests subject to the proposal represent approximately 614,000
population equivalents. The purchase price is approximately $110 million in
cash. At June 30, 1996, the Company had an agreement pending to divest a
minority interest in one market, representing 61,000 pops, for $7 million in
cash. The pending acquisition and divestiture agreements discussed above are
expected to be completed during 1996.
Liquidity
The Company anticipates that the aggregate resources required for the remainder
of 1996 will include approximately $137 million for capital spending, $110
million for the purchase of cellular interests from TDS and $11 million of
scheduled debt repayments. Not included in the above amounts are those related
to any acquisition agreements that the Company may enter into during the
remainder of 1996. While it is not known what effect these potential
acquisitions may have on the Company's liquidity during the second half of 1996,
the funding needs for potential acquisitions may be substantial.
The Company had $158 million of cash and cash equivalents at June 30, 1996 and
anticipates generating over $100 million of operating cash flow during the
remainder of 1996. The Company also has $100 million available under the
Revolving Credit Agreement with TDS.
Management believes that the Company has sufficient financial resources to help
meet its short-term financing needs. Additionally, the Company has access to
public and private capital markets to help meet its long-term financing needs
and anticipates issuing debt and equity securities when capital requirements
(including acquisitions), financial market conditions and other factors warrant.
-9-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -----------------------
1996 1995 1996 1995
---- ---- ---- ----
(dollars in thousands, except per share amounts)
OPERATING REVENUES
Service $ 170,529 $ 113,500 $ 314,221 $ 209,900
Equipment sales 4,191 3,624 8,465 6,972
--------- ---------- --------- ----------
Total Operating Revenues 174,720 117,124 322,686 216,872
--------- ---------- --------- ----------
OPERATING EXPENSES
System operations 28,811 17,239 52,389 30,441
Marketing and selling 31,918 23,711 62,821 43,633
Cost of equipment sold 15,917 12,838 31,390 24,037
General and administrative 41,439 31,473 82,492 59,140
Depreciation 18,125 13,188 35,060 25,452
Amortization of intangibles 8,489 7,823 16,691 15,253
--------- --------- --------- ----------
Total Operating Expenses 144,699 106,272 280,843 197,956
--------- --------- --------- ----------
OPERATING INCOME BEFORE
MINORITY SHARE 30,021 10,852 41,843 18,916
Minority share of operating
income (3,309) (1,875) (5,421) (3,763)
--------- --------- --------- ----------
OPERATING INCOME 26,712 8,977 36,422 15,153
--------- --------- --------- ----------
INVESTMENT AND OTHER INCOME
Investment income 12,025 8,728 22,328 18,445
Amortization of licenses
and deferred costs
related to investments (288) (261) (574) (493)
Interest income 3,118 1,060 4,270 2,052
Other (expense), net (934) (560) (1,267) (1,230)
Gain on sale of cellular
interests 86,305 16,842 124,996 35,359
--------- --------- --------- ----------
Total Investment and
Other Income 100,226 25,809 149,753 54,133
--------- --------- --------- ----------
INCOME BEFORE INTEREST
AND INCOME TAXES 126,938 34,786 186,175 69,286
Interest expense - affiliate -- 4,237 -- 10,327
Interest expense - other 5,949 3,154 11,755 4,769
--------- --------- --------- ----------
INCOME BEFORE INCOME TAXES 120,989 27,395 174,420 54,190
Income tax expense 57,934 3,306 81,978 6,503
--------- --------- --------- ----------
NET INCOME $ 63,055 $ 24,089 $ 92,442 $ 47,687
========= ========= ========= ==========
WEIGHTED AVERAGE COMMON
AND SERIES A COMMON SHARES
(000s) 86,166 83,937 85,926 82,979
EARNINGS PER COMMON AND
SERIES A COMMON SHARE $ .73 $ .29 $ 1.08 $ .57
========= ========= ========= ==========
WEIGHTED AVERAGE COMMON AND
SERIES A COMMON SHARES
ASSUMING FULL DILUTION
(000s) 93,225 85,115 92,987 83,570
EARNINGS PER COMMON AND
SERIES A COMMON SHARE
ASSUMING FULL DILUTION $ .70 $ .29 $ 1.03 $ .57
========= ========= ========= ==========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
-10-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Six Months Ended
June 30,
--------------------------
1996 1995
---- ----
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 92,442 $ 47,687
Add (Deduct) adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 52,325 41,198
Investment income (22,328) (18,445)
Gain on sale of cellular and other investments (124,996) (35,359)
Minority share of operating income 5,421 3,763
Other noncash expense 8,535 6,660
Change in accounts receivable (18,647) (12,981)
Change in accounts payable (21,269) (146)
Change in accrued interest 113 10,235
Change in accrued taxes 37,014 3,168
Change in deferred taxes 31,812 1,051
Change in other assets and liabilities 4,000 6,126
---------- -----------
44,422 52,957
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt borrowings 3,922 58,698
Change in Convertible Debentures -- 221,466
Repayment of long-term debt (9,986) (7,642)
Change in Revolving Credit Agreement -- (249,916)
Common Shares issued 9,618 513
Minority partner capital distributions (2,317) (5,035)
---------- -----------
1,237 18,084
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (103,025) (95,612)
Investments in and advances to minority
partnerships (7,764) (10,929)
Distributions from partnerships 10,004 4,552
Proceeds from sale of investments 77,954 82,478
Acquisitions, excluding cash acquired (872) (26,841)
Other investments (2,744) (3,738)
---------- -----------
73,553 (50,090)
---------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 119,212 20,951
CASH AND CASH EQUIVALENTS-
Beginning of period 38,404 5,800
---------- -----------
End of period $ 157,616 $ 26,751
========== ===========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
-11-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
June 30, 1996 December 31, 1995
------------- -----------------
(Dollars in thousands)
CURRENT ASSETS
Cash and cash equivalents
General funds $ 1,643 $ 8,462
Affiliated cash investments 155,973 29,942
------------ ------------
157,616 38,404
------------ ------------
Accounts receivable
Customers 57,134 42,934
Roaming 31,296 26,316
Affiliates 14 2,166
Other 16,367 5,761
Inventory 4,676 9,198
Prepaid and other current assets 6,657 5,007
------------ ------------
273,760 129,786
------------ ------------
PROPERTY, PLANT AND EQUIPMENT
In service 749,306 674,450
Less accumulated depreciation 169,994 144,423
------------ ------------
579,312 530,027
------------ ------------
INVESTMENTS
Cellular partnerships 149,095 134,421
Licenses, net of amortization 1,006,165 1,035,846
Notes and interest receivable 36,232 16,376
------------ ------------
1,191,492 1,186,643
------------ ------------
DEFERRED CHARGES
Deferred start-up costs,
net of amortization 875 1,728
Other deferred charges,
net of amortization 34,341 31,960
------------ ------------
35,216 33,688
------------ ------------
Total Assets $ 2,079,780 $ 1,880,144
============ ============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
-12-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(Unaudited)
June 30, 1996 December 31, 1995
--------------- -----------------
(Dollars in thousands)
CURRENT LIABILITIES
Current portion of long-term debt and
preferred stock $ 20,827 $ 30,939
Notes payable 1,375 1,375
Accounts payable
Affiliates 2,366 11,636
Other 43,367 62,046
Accrued taxes 57,253 20,753
Customer deposits and deferred revenues 12,981 11,332
Other current liabilities 18,892 17,028
------------- -------------
157,061 155,109
------------- -------------
LONG-TERM DEBT, excluding current portion 94,218 98,656
------------- -------------
6% ZERO COUPON CONVERTIBLE DEBENTURES 242,822 235,750
------------- -------------
DEFERRED LIABILITIES AND CREDITS
Net deferred income tax liability 53,839 14,331
Other 1,930 1,541
------------- -------------
55,769 15,872
------------- -------------
MINORITY INTEREST 46,300 45,303
------------- -------------
COMMON SHAREHOLDERS' EQUITY
Common Shares, par value $1 per share 53,084 49,966
Series A Common Shares, par value $1
per share 33,006 33,006
Additional paid-in capital 1,289,993 1,206,614
Common Shares issuable,
928,009 shares in 1995 -- 24,784
Retained earnings 107,527 15,084
------------- -------------
1,483,610 1,329,454
------------- -------------
Total Liabilities
and Shareholders' Equity $ 2,079,780 $ 1,880,144
============= =============
The accompanying notes to consolidated
financial statements are an integral part
of these statements.
-13-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these consolidated
financial statements be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's
latest annual report on Form 10-K.
The accompanying unaudited consolidated financial statements contain all
adjustments (consisting of only normal recurring items) necessary to
present fairly the financial position as of June 30, 1996 and December 31,
1995, and the results of operations and cash flows for the six months
ended June 30, 1996 and 1995. The results of operations for the six months
ended June 30, 1996 and 1995, are not necessarily indicative of the
results to be expected for the full year.
2. Earnings per Common and Series A Common Share for the six months ended
June 30, 1996 and 1995, 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 period. Dilutive
common stock equivalents at June 30, 1996 and 1995, consist primarily of
dilutive Common Shares issuable and Redeemable Preferred Stock.
Earnings per Common and Series A Common Share Assuming Full Dilution for
the six months ended June 30, 1996 and 1995, was computed by dividing Net
Income, as adjusted for the interest expense eliminated as a result of the
pro forma conversion of Convertible Debentures, by the weighted average
number of Common Shares, Series A Common Shares and dilutive common
equivalent shares outstanding during the period. Dilutive common stock
equivalents at June 30, 1996 and 1995, consist primarily of dilutive
Convertible Debentures (assuming conversion into Common Shares), Common
Shares issuable and Redeemable Preferred Stock.
3. Assuming that acquisitions accounted for as purchases during the period
January 1, 1995, to June 30, 1996, had taken place on January 1, 1995, pro
forma results of operations would have been as follows:
Six Months Ended
June 30,
-------------------------
1996 1995
---- ----
(Dollars in thousands,
except per share amounts)
Service Revenues $ 314,825 $ 218,152
Equipment Sales 8,472 7,763
Interest Expense (including cost to
finance acquisitions) 11,756 14,916
Net Income 92,223 39,760
Earnings per Common and Series A Common Share $ 1.07 $ .45
-14-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. The following summarized unaudited income statements are the combined
summarized income statements of the cellular system partnerships listed
below which are accounted for by the Company following the equity method.
The combined summarized income statements were compiled from financial
statements and other information obtained by the Company as a limited
partner of the cellular limited partnerships as set forth below. The
cellular system partnerships included in the combined summarized income
statements and the Company's ownership percentage of each cellular system
partnership at June 30, 1996, are set forth in the following table.
The
Company's
Limited
Partnership
Cellular System Partnership Interest
-------------------------------------------- ------------
Los Angeles SMSA Limited Partnership 5.5%
Nashville/Clarksville MSA Limited Partnership 49.0%
Baton Rouge MSA Limited Partnership 49.99%
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -----------------------
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in thousands)
REVENUES $ 224,556 $ 197,943 $ 430,897 $ 382,768
EXPENSES
Selling, general and
administrative 118,358 103,983 228,522 191,647
Depreciation and
amortization 23,582 16,611 46,546 31,833
---------- ---------- ---------- ----------
141,940 120,594 275,068 223,480
---------- ---------- ---------- ----------
OPERATING INCOME 82,616 77,349 155,829 159,288
OTHER INCOME, NET 1,017 1,380 3,435 3,121
---------- ---------- ---------- ----------
NET INCOME $ 83,633 $ 78,729 $ 159,264 $ 162,409
========== ========== ========== ==========
-15-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Supplemental Cash Flow Information
The Company acquired certain cellular licenses and interests during the
first six months of 1996 and 1995. In conjunction with these
acquisitions, the following assets were acquired, liabilities assumed and
Common Shares issued.
Six Months Ended
June 30,
------------------------
1996 1995
---- ----
(Dollars in thousands)
Property, plant and equipment $ 7,069 $ 25,837
Cellular licenses 39,063 113,316
Decrease in equity-method investment
in cellular interests (2,733) (1,233)
Accounts receivable 1,332 3,922
Revolving Credit Agreement - TDS -- (15,493)
Accounts payable (938) (1,879)
Other assets and liabilities,
excluding cash acquired (422) 814
Common Shares issued and issuable (42,499) (98,443)
----------- ----------
Decrease in cash due to acquisitions $ 872 $ 26,841
=========== ==========
The following summarizes certain noncash transactions, and interest and
income taxes paid.
Six Months Ended
June 30,
-------------------------
1996 1995
---- ----
(Dollars in thousands)
Interest paid $ 3,145 $ 2,144
Income taxes paid 17,310 1,998
Accrued interest converted into debt
under the Revolving Credit Agreement -- 14,432
Common Shares issued by USM for conversion
of USM Preferred Stock and TDS Preferred
Shares $ 18,450 $ 22,236
-16-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Contingencies
The Company's material contingencies as of June 30, 1996, include the
collectibility of a $5.5 million note receivable under a long-term
financing agreement with a cellular company and a $10.0 million standby
letter of credit in support of a bank loan to an entity minority-owned
by the Company. For further discussion of these contingencies, see Note
13 of Notes to Consolidated Financial Statements included in the
Company's 1995 Report on Form 10-K for the year ended December 31, 1995.
7. Convertible Debentures
The Company sold $745 million principal amount at maturity of zero
coupon convertible debt in June 1995. This convertible debt, in the form
of Liquid Yield Option Notes ("LYONS"), is subordinated to all senior
indebtedness of the Company. At June 30, 1996, the Company's senior
indebtedness totaled $124.0 million.
-17-
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders.
At the Annual Meeting of Shareholders of USM, held on May 15, 1996, the
following numbers of votes were cast for the matters indicated:
1.a. Election of two Class III Directors of the Company by the holder of
Series A Common Shares:
Broker
Nominee For Withhold Non-Vote
------- ----- -------- --------
LeRoy T. Carlson, Jr. 330,058,770 -- --
Walter C.D. Carlson 330,058,770 -- --
1.b. Election of one Class III Director of the Company by the holders of
Common Shares:
Broker
Nominee For Withhold Non-Vote
------- ----- -------- --------
Allan Z. Loren 50,665,716 343,550 --
2. Proposal to Ratify the Selection of Arthur Andersen LLP as Independent
Public Accountants for 1996:
Broker
For Against Abstain Non-Vote
---- ------- ------- --------
381,060,390 6,302 1,344 --
-18-
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 10 - Cellular Interest Transfer Agreement by and
between TDS and USM.
Exhibit 11 - Computation of earnings per common share.
Exhibit 12 - Statement regarding computation of ratios.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K filed during the quarter ended June 30, 1996:
The Company filed a report on Form 8-K dated June 21, 1996, which
included a press release which announced that Telephone and Data
Systems, Inc. ("TDS") agreed to transfer its minority ownership
interests in certain cellular markets to the Company for
approximately $110.2 million in cash. The minority interests
subject to be transferred represent approximately 614,000
population equivalents.
No other reports on Form 8-K were filed during the quarter ended
June 30, 1996.
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements 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
(Registrant)
Date August 13, 1996 /s/ H. DONALD NELSON
--------------------------
H. Donald Nelson
President
(Chief Executive Officer)
Date August 13, 1996 /s/ KENNETH R. MEYERS
--------------------------
Kenneth R. Meyers
Vice President-Finance and Treasurer
(Chief Financial Officer)
Date August 13, 1996 /s/ PHILLIP A. LORENZINI
--------------------------
Phillip A. Lorenzini
Controller
(Principal Accounting Officer)
-20-
<PAGE>
Exhibit 11
United States Cellular Corporation
Computation of Earnings Per Common Share
(in thousands, except per share amounts)
Three Months Ended June 30, 1996 1995
- -----------------------------------------------------------------------------
Primary Earnings
Net Income Available to Common $ 63,055 $ 24,089
========= =========
Primary Shares
Weighted average number of Common and Series A
Common Shares Outstanding 86,085 82,722
Additional shares assuming issuance of:
Options and Stock Appreciation Rights 81 61
Redeemable Preferred Stock -- 622
Common Shares Issuable -- 532
--------- ---------
Primary Shares 86,166 83,937
========= =========
Primary Earnings per Common Share
Net Income $ .73 $ .29
========= =========
Fully Diluted Earnings
Net Income Available to Common, as reported $ 63,055 $ 24,089
Interest expense eliminated as a result of the
pro forma conversion of Convertible Debentures 1,870 390
--------- ---------
Net Income Available to Common, as adjusted $ 64,925 $ 24,479
========= =========
Fully Diluted Shares
Weighted average number of Common and Series A
Common Shares Outstanding 86,085 82,722
Additional shares assuming issuance of:
Options and Stock Appreciation Rights 81 63
Redeemable Preferred Stock -- 622
Common Shares Issuable -- 532
Conversion of Convertible Debentures 7,059 1,176
--------- ---------
Fully Diluted Shares 93,225 85,115
========= =========
Fully Diluted Earnings per Common Share
Net Income $ .70 $ .29
========= =========
<PAGE>
Exhibit 11
United States Cellular Corporation
Computation of Earnings Per Common Share
(in thousands, except per share amounts)
Six Months Ended June 30, 1996 1995
- -----------------------------------------------------------------------------
Primary Earnings
Net Income Available to Common $ 92,442 $ 47,687
========= ==========
Primary Shares
Weighted average number of Common and Series A
Common Shares Outstanding 85,498 81,701
Additional shares assuming issuance of:
Options and Stock Appreciation Rights 95 64
Convertible Preferred Shares 102 700
Common Shares Issuable 231 514
--------- ---------
Primary Shares 85,926 82,979
========= =========
Primary Earnings per Common Share
Net Income $ 1.08 $ .57
========= =========
Fully Diluted Earnings
Net Income Available to Common, as reported $ 92,442 $ 47,687
Interest expense eliminated as a result of the
pro forma conversion of Convertible Debentures 3,739 390
--------- ---------
Net Income Available to Common, as adjusted $ 96,181 $ 48,077
========= =========
Fully Diluted Shares
Weighted average number of Common and Series A
Common Shares Outstanding 85,498 81,701
Additional shares assuming issuance of:
Options and Stock Appreciation Rights 96 67
Convertible Preferred Shares 103 700
Common Shares Issuable 231 514
Conversion of Convertible Debentures 7,059 588
--------- ---------
Fully Diluted Shares 92,987 83,570
========= =========
Fully Diluted Earnings per Common Share
Net Income $ 1.03 $ .57
========= =========
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of United States Cellular Corporation as of
June 30, 1996, and for the six months then ended, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 157,616
<SECURITIES> 0
<RECEIVABLES> 60,900
<ALLOWANCES> 3,766
<INVENTORY> 4,676
<CURRENT-ASSETS> 273,760
<PP&E> 749,306
<DEPRECIATION> 169,994
<TOTAL-ASSETS> 2,079,780
<CURRENT-LIABILITIES> 157,061
<BONDS> 337,040
<COMMON> 86,090
0
0
<OTHER-SE> 1,397,520
<TOTAL-LIABILITY-AND-EQUITY> 2,079,780
<SALES> 8,465
<TOTAL-REVENUES> 322,686
<CGS> 31,390
<TOTAL-COSTS> 280,843
<OTHER-EXPENSES> (149,753)
<LOSS-PROVISION> 7,509
<INTEREST-EXPENSE> 11,755
<INCOME-PRETAX> 174,420
<INCOME-TAX> 81,978
<INCOME-CONTINUING> 92,442
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92,442
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.03
</TABLE>
Exhibit 12
UNITED STATES CELLULAR CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
Six Months
Ended
June 30, 1996
----------------------
(Dollars in thousands)
EARNINGS
Income from Continuing Operations before
income taxes $ 174,420
Add (Deduct):
Minority Share of Cellular Losses (218)
Earnings on Equity Method (22,328)
Distributions from Minority Subsidiaries 10,208
Amortization of Capitalized Interest --
Minority interest in income of majority-owned --
subsidiaries that have fixed charges ------------
$ 162,082
------------
Add fixed charges:
Consolidated interest expense 11,755
Interest Portion (1/3) of Consolidated 1,627
Rent Expense ------------
$ 175,464
------------
FIXED CHARGES
Consolidated interest expense 11,755
Interest Portion (1/3) of Consolidated 1,627
Rent Expense -------------
$ 13,382
-------------
RATIO OF EARNINGS TO FIXED CHARGES 13.11
=============
Tax-Effected Preferred Dividends $ --
Fixed Charges 13,382
-------------
Fixed Charges and Preferred Dividends $ 13,382
-------------
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS 13.11
=============
<PAGE>
CELLULAR INTEREST TRANSFER AGREEMENT
By and Between
TELEPHONE AND DATA SYSTEMS, INC.
and
UNITED STATES CELLULAR CORPORATION
Dated as of June 20, 1996
<PAGE>
Page
----
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS......................................................2
ARTICLE II
TRANSFER.........................................................6
2.1 Transfer of Cellular Interests............................6
2.2 Payment of Assigned Values................................6
2.3 Further Assurances........................................7
ARTICLE III
CLOSING..........................................................7
3.1 Closing...................................................7
3.2 Partial Closings .........................................7
3.3 Delivery of Assigned Values...............................8
ARTICLE IV
CONDITIONAL PAYMENT BY TDS.......................................8
4.1 Determination of Aggregate Realized Value. ...............8
4.2 Conditional Payment.......................................9
ARTICLE V
REPRESENTATIONS AND WARRANTIES...................................10
5.1 Representations and Warranties of TDS.....................10
5.2 Representations and Warranties of USCC....................15
ARTICLE VI
COVENANTS AND AGREEMENTS.........................................16
6.1 Covenants of TDS..........................................16
6.2 Covenants of USCC.........................................19
6.3 Mutual Covenants..........................................20
6.4 Assumption of Liabilities and Obligations.................20
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF TDS...................21
7.1 Representations and Warranties True.......................21
7.2 Performance of Obligations and Agreements;
No Breach of Covenants....................................21
7.3 Resolutions...............................................21
7.4 Officers' Certificate.....................................22
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF USCC..................22
i
<PAGE>
Page
----
8.1 Representations and Warranties True.......................22
8.2 Performance of Obligations and Agreements.................22
8.3 Resolutions...............................................23
8.4 Officers' Certificate.....................................23
8.5 Legal Opinions............................................23
ARTICLE IX
RECIPROCAL CONDITIONS PRECEDENT..................................23
9.1 Governmental and Other Approvals..........................24
9.2 No Injunctions or Restraints..............................24
ARTICLE X
TERMINATION AND INDEMNIFICATION..................................24
10.1 Termination...............................................24
10.2 Written Notice............................................25
10.3 Effect of Termination.....................................26
10.4 Damages...................................................26
10.5 Termination Ineffective as to Prior Transfers.............26
10.6 Indemnification...........................................26
ARTICLE XI
MISCELLANEOUS....................................................27
11.1 Non-survival of Representations, Warranties and
Covenants; Liability of the Parties.......................27
11.2 Expenses..................................................28
11.3 Notices...................................................29
11.4 Parties in Interest.......................................30
11.5 Governing Law.............................................30
11.6 Counterparts..............................................30
11.7 Brokers; Investment Banking Fees..........................30
11.8 Headings..................................................30
11.9 Modifications, Amendments and Waivers.....................30
11.10 Prior Agreement...........................................31
11.11 Assignability.............................................31
Additional Documents:
Schedule 2.2
Schedule 4.2
Schedule 5.1(g)
Schedule 5.1(h)
Schedule 5.1(j)
Schedule 6.4
Schedule 8.5(a-1)
Schedule 8.5(a-2)
Schedule 8.5(b)
ii
<PAGE>
CELLULAR INTEREST TRANSFER AGREEMENT
THIS CELLULAR INTEREST TRANSFER AGREEMENT (the "Agreement"), dated as
of June 20, 1996, is between TELEPHONE AND DATA SYSTEMS, INC., an Iowa
corporation ("TDS"), and UNITED STATES CELLULAR CORPORATION, a Delaware
corporation ("USCC").
RECITALS:
WHEREAS, TDS and USCC are parties to the Exchange Agreement;
WHEREAS, pursuant to Article V of the Exchange Agreement, USCC has the
first right to negotiate for the purchase of TDS's right, title and interest to
cellular interests in certain MSAs and RSAs;
WHEREAS, TDS is the owner, directly or indirectly, of certain Cellular
Interests in Licensees which hold Licenses awarded by the FCC to construct and
operate Cellular Systems in certain MSAs and RSAs, specifically, (i) the General
Partnership Interests, (ii) the Limited Partnership Interests and (iii) the
Cellular Subsidiary Stock as described in Exhibit A attached hereto ("Exhibit
A");
WHEREAS, USCC is the owner of 85.714% of the issued and outstanding
shares of WCC, which owns a 51% general partnership interest in WCCCLP, which
owns a 36.500% limited partnership interest in the CO3 Partnership;
WHEREAS, Delta, a second-tier subsidiary of TDS, is the
owner of 14.286% of the issued and outstanding shares of WCC;
WHEREAS, TDS has offered USCC the opportunity to negotiate the purchase
of all of TDS's Cellular Interests described in Exhibit A in a single
transaction;
WHEREAS, the Board of Directors of USCC appointed the USCC Special
Committee to, among other things, consider TDS's offer and report to the Board
of Directors as a whole;
WHEREAS, the USCC Special Committee has recommended that the Board of
Directors of USCC approve this Agreement, and the Board of Directors of USCC
deems it advisable and for the benefit of the shareholders of USCC that USCC
acquire all of such Cellular Interests under the terms and conditions set forth
herein; and
WHEREAS, the Board of Directors of TDS has approved this Agreement and
deems it advisable and for the benefit of the shareholders of TDS that TDS
transfer all of such Cellular Interests to USCC under the terms and conditions
set forth herein;
-1-
<PAGE>
NOW, THEREFORE, in consideration of the respective representations,
warranties and covenants herein set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms shall have
the meanings set forth below:
"Accreted Value" means the Assigned Value of a Cellular
Interest adjusted, in the case of a Sold Category B Interest, from its
Transfer Date to the Date of Sale of such Interest or, in the case of a
Retained Category B Interest, from its Transfer Date to the Fifth
Anniversary, (i) to reflect changes in the Consumer Price Index
determined in accordance with Section 4.2 hereof, (ii) by adding the
amount of any capital contribution made, directly or indirectly, by
USCC with respect to such Interest from its Transfer Date to its Date
of Sale or the Fifth Anniversary, as applicable, and (iii) by
subtracting the amount of any distribution received, directly or
indirectly, by USCC with respect to such Interest from its Transfer
Date to its Date of Sale or the Fifth Anniversary, as applicable.
"Additional Cellular Interest" shall have the meaning
specified in Section 6.1(d)(ii) hereof.
"Aggregate Accreted Value" means the sum of the Accreted
Values of all Sold Category B Interests and all Retained Category B
Interests.
"Aggregate Realized Value" means the sum of the Realized
Values of all Sold Category B Interests and all Retained Category B
Interests.
"AMEX" means the American Stock Exchange.
"Assigned Value" means the value of each Cellular Interest as
set forth in Schedule 4.2.
"Category A Interest" means a Cellular Interest listed
in Exhibit A as a "Category A Interest."
"Category B Interest" means a Cellular Interest listed
in Exhibit A as a "Category B Interest."
-2-
<PAGE>
"Cellular Company" means a corporation listed in Exhibit A
that owns a General Partnership Interest and/or a Limited Partnership
Interest in a Licensee.
"Cellular Interest" means a General Partnership Interest, a
Limited Partnership Interest or Cellular Subsidiary Stock that is to be
transferred directly by TDS to USCC or its designee pursuant to the
terms of this Agreement.
"Cellular Partnership" means a General Partnership or Limited
Partnership listed in Exhibit A that is a Licensee or that owns a
General Partnership Interest or a Limited Partnership Interest in
another partnership that is a Licensee.
"Cellular Subsidiary Stock" means shares of stock in a
Cellular Company.
"Cellular System" means the cellular telephone service
operations conducted by a Cellular Partnership.
"Closing" and "Closing Date" have the meanings
specified in Section 3.1 hereof.
"Closing Conditions" has the meaning specified in
Section 3.1 hereof.
"CO3 Partnership" means Colorado RSA No. 3 Limited
Partnership, a Colorado limited partnership.
"Consumer Price Index" means the index compiled by the United
States Department of Labor's Bureau of Labor Statistics, Consumer Price
Index for All Urban consumers having a base of 100 in 1982-84, using
that portion of the index which appears under the caption "Other Goods
and Services."
"Controlled RSA Entity" means an entity listed in
Exhibit A as a "Controlled RSA Entity."
"Date of Sale" means the date upon which USCC closes the sale
of a Sold Category B Interest.
"Delta" means Delta County Tele-Comm., Inc., a Colorado
corporation.
"Exchange" means a transaction intended to qualify in
whole or in part as an exchange of like-kind property under
-3-
<PAGE>
Section 1031 of the Internal Revenue Code of 1986, as amended, in which
cellular interests owned, directly or indirectly, by USCC will be
transferred, separately or in conjunction with other consideration,
including the transfer of other cellular interests owned by TDS, to a
third party, in exchange for cellular interests of such third party,
separately or in conjunction with other consideration from such third
party, and in which the number of population equivalents represented by
the cellular interests to be transferred by such third party to USCC
and/or TDS, directly or indirectly, is not less than fifty percent
(50%) of the number of population equivalents represented by the
cellular interests to be transferred to such third party by USCC and/or
TDS, directly or indirectly.
"Exchange Agreement" means the Exchange Agreement by and
between TDS and USCC dated as of July 1, 1987, and as amended as of
April 7, 1988.
"Fifth Anniversary" means the earlier of the fifth anniversary
of the Final Closing Date or September 30, 2001.
"Final Closing" has the meaning specified in Section
3.2 hereof.
"Final Closing Date" means the date as of which all of the
Cellular Interests have been transferred by TDS to USCC pursuant to
this Agreement.
"General Partnership" means a general partnership
listed in Exhibit A.
"General Partnership Interest" means an interest of a general
partner in a General Partnership or a Limited Partnership.
"License" means, with respect to a Cellular System, the
license, certificate, consent, authorization and approval from the FCC,
public utility commissions, public service commissions and any other
governmental or regulatory agencies, if any, issued to the owner of
such System solely in connection with such System or employed by such
System on or before the Closing Date.
"Licensee" means an entity which holds a License or Licenses
to own, construct and operate a Cellular System.
"Limited Partnership" means a limited partnership
listed in Exhibit A.
-4-
<PAGE>
"Limited Partnership Interest" means an interest of a
limited partner in a Limited Partnership.
"MSA" means Metropolitan Statistical Area.
"Minority MSA Entity" means an entity listed in Exhibit
A as a "Minority MSA Entity."
"Minority RSA Entity" means an entity listed in Exhibit
A as "Minority RSA Entity."
"Other TDS Consideration" has the meaning specified in
Section 6.1(d) hereof.
"Partnership" means a General Partnership or a Limited
Partnership.
"Partnership Interest" means a General Partnership
Interest or a Limited Partnership Interest.
"RSA" means Rural Service Area.
"Realized Value" means (A) in the case of a Sold Category B
Interest, the aggregate amount of cash or other consideration (other
than ownership interests in other cellular markets received in an
Exchange) received by USCC and/or a subsidiary of USCC for such
interest, reduced by one-half of any out-of-pocket expenses incurred by
TDS and USCC in connection with any third-party transaction involving
the sale of such interest (of which TDS shall be responsible for
payment of the remaining one-half of such expenses), or (B) in the case
of a Retained Category B Interest, the fair market value thereof on the
Fifth Anniversary determined in accordance with Sections 4.1 and 4.2.
"Retained Category B Interest" means a Category B Interest
that is owned by USCC, directly or indirectly, on the Fifth
Anniversary.
"SEC" means the Securities and Exchange Commission.
"Seventy-Five Percent Closing" has the meaning
specified in Section 3.2 hereof.
"Sold Category B Interest" means a Category B Interest that is
sold by USCC or a subsidiary of USCC prior to the Fifth Anniversary in
a transaction other than an Exchange.
-5-
<PAGE>
"Termination Date" has the meaning specified in Section
6.1 hereof.
"Third Party Consideration" has the meaning specified
in Section 6.1(d) hereof.
"Third Party Negotiations" has the meaning specified in
Section 6.1(d) hereof.
"Third Party Transaction" has the meaning specified in
Section 6.1(d) hereof.
"Transfer" means the assignment by TDS of a Cellular Interest
to USCC or its designated subsidiary in accordance with the terms and
conditions of this Agreement.
"Transfer Date" means the Closing Date upon which a Cellular
Interest is transferred by TDS to USCC or its designated subsidiary.
"Transferable Interest" has the meaning specified in
Section 6.1(d) hereof.
"USCC Special Committee" means the special committee appointed
by the Board of Directors of USCC with respect to the transactions
described in this Agreement.
"WCC" means Western Colorado Cellular, Inc., a Colorado
corporation.
"WCCCLP" means Western Colorado Cellular of Colorado
Limited Partnership, a Colorado limited partnership.
ARTICLE II
TRANSFER
2.1 Transfer of Cellular Interests. Upon the satisfaction or waiver of
the conditions set forth herein to the obligations of the parties hereto, TDS
agrees to sell, assign, transfer and deliver all of its right, title and
interest in and to each Cellular Interest listed in Exhibit A, and all of the
tangible and intangible assets owned by TDS relating to such interest, to USCC,
or to such subsidiary of USCC as shall be designated by USCC.
2.2 Payment of Assigned Value. Upon the satisfaction or
waiver of the conditions set forth herein to the obligations of
-6-
<PAGE>
the parties hereto and the transfer of each Cellular Interest to USCC or its
designated subsidiary, USCC agrees to pay to TDS, or its designee, the assigned
value for such Cellular Interest set forth in Schedule 2.2 hereof, and to assume
all of TDS's rights, liabilities and obligations in and to each Cellular
Interest in the manner and to the extent provided for herein.
2.3 Further Assurances. From time to time, as and when requested by
USCC, or by its successors or assigns, the officers and directors of TDS then in
office shall execute and deliver such assignments and other instruments of
transfer and shall take or cause to be taken any such further or other actions
as shall be necessary or advisable in order to vest or perfect in USCC, or its
successors or assigns, or to confirm of record or otherwise to USCC, or its
successors or assigns, title to and possession of all of the Cellular Interests.
ARTICLE III
CLOSING
3.1 Closing. The closing of the transactions contemplated hereby shall
take place as promptly as practicable following the date on which the last of
all of the conditions set forth in Articles VII , VIII and IX hereof (the
"Closing Conditions") is satisfied or waived. The Closing may be consummated by
a single closing or by two partial closings, as provided for in Section 3.2
hereof. Unless otherwise agreed by TDS and USCC, each such closing shall take
place at the offices of Sidley & Austin, One First National Plaza, Chicago,
Illinois. The date on which each such closing takes place is herein referred to
as a "Closing Date."
3.2 Partial Closings. (a) Seventy-Five Percent Closing. At such time as
all of the Closing Conditions have been satisfied or waived with respect to
those Cellular Interests to which USCC is obligated hereunder to deliver at
least seventy-five percent (75%) of the aggregate assigned values to be paid for
all Cellular Interests, TDS shall notify USCC that TDS is prepared to consummate
the Transfer with respect to all of the Cellular Interests as to which all of
the Closing Conditions have been satisfied as of the date of such notice. The
parties shall conduct a partial closing with respect to such Cellular Interests
not less than 30 days after the date of such notice (the "Seventy-five Percent
Closing").
(b) Final Closing. At such time as all of the Closing
Conditions have been satisfied or waived with respect to the
remaining Cellular Interests not closed in accordance with
-7-
<PAGE>
Section 3.2(a) hereof, TDS shall notify USCC that TDS is prepared to consummate
the Transfer with respect to such remaining Cellular Interests. The parties
shall conduct a final closing with respect to such Cellular Interests not less
than 30 days after the date of such notice (the "Final Closing").
3.3 Delivery of Assigned Values. On each Closing Date, USCC shall
deliver to TDS or its designee the agreed upon assigned value as reflected in
Schedule 2.2 hereof in consideration for each Cellular Interest transferred on
such Closing Date.
ARTICLE IV
CONDITIONAL PAYMENT BY TDS
4.1 Determination of Aggregate Realized Value. (a) Selection of
Appraiser. Promptly after the Fifth Anniversary, TDS and the independent
directors of USCC shall choose an independent appraiser to determine the
Realized Value of the Retained Category B Interests. If TDS and USCC are unable
to reach agreement as to the identity of an appraiser within thirty (30) days of
the Fifth Anniversary, each party shall designate an appraiser within ten (10)
days thereafter. The agreed-upon appraiser, or each of the two appraisers, as
the case may be, shall submit its determination of the Realized Value of the
Retained Category B Interests to TDS and USCC within sixty (60) days of the date
of its selection (or the selection of the second appraiser to be designated, as
the case may be).
(b) Final Determination. If there are two appraisers and their
respective determinations of the Realized Value of the Retained Category B
Interests vary by an amount equal to ten percent (10%) of the higher
determination or less, then the Realized Value of the Retained Category B
Interests shall be the average of the two determinations. If such determinations
vary by an amount equal to more than ten percent (10%) of the higher
determination, then the two appraisers shall promptly designate a third,
independent appraiser. Neither party shall provide, and the two appraisers first
designated shall be instructed not to provide, any information to the third
appraiser as to the determinations of the first two appraisers, or otherwise to
influence such third appraiser's determination in any way. The third appraiser
shall submit its determination of the Realized Value of the Retained Category B
Interests to TDS and USCC within sixty (60) days of the date of its selection.
The Realized Value of the Retained Category B Interests shall be equal to the
average of the two closest of the three determinations, provided that, if the
difference between the highest and middle
-8-
<PAGE>
determinations is no more than one hundred and five percent (105%) and no less
than ninety-five percent (95%) of the difference between the middle and lowest
determinations, then the Realized Value of the Retained Category B Interests
shall be equal to the middle determination. The determination of the Realized
Value of the Retained Category B Interests in accordance with this Section 4.1
shall be final and binding on each of the parties hereto. If any appraiser is
only able to provide a range in which the Realized Value of the Retained
Category B Interests would exist, the average of the highest and lowest value in
such range shall be deemed to be such appraiser's determination of such Realized
Value. Each appraiser selected pursuant to the provisions of this Section 4.1
shall be an investment banking firm or other qualified person or entity with
prior experience in appraising assets comparable to the Retained Category B
Interests and unaffiliated with any party to this Agreement.
4.2 Conditional Payment. Promptly after the final determination of the
Realized Value of the Retained Category B Interests pursuant to Section 4.1
hereof, USCC shall certify by written notice to TDS the amount of the excess, if
any, of (a) the Aggregate Accreted Value over (b) the Aggregate Realized Value.
For purposes of calculating adjustments to the Aggregate Accreted Value of a
Cellular Interest based on changes in the Consumer Price Index, such adjustment
shall be computed by applying to the Assigned Value an adjustment amount,
expressed as a percentage, which shall be equal to the percentage by which the
Consumer Price Index for the most recent calendar month ending at least 90 days
prior to the Fifth Anniversary exceeds the Consumer Price Index for the most
recent calendar month ending at least 90 days prior to the Final Closing Date.
Within five (5) business days of its receipt of such notice, TDS shall (i) pay
to USCC the amount of such excess in cash, by wire transfer or by certified
check, or (ii) deliver to USCC that number of Common Shares, par value $1.00 per
share, of USCC having an aggregate fair market value (as hereinafter defined)
equal to the amount of such excess, or (iii) pay a portion of such amount in
cash and a portion by delivering Common Shares of USCC. The fair market value of
any USCC Common Shares delivered by TDS in accordance with the preceding
sentence shall be the average of the closing prices for such shares on the AMEX
(or the principal exchange on which such shares trade) for the twenty (20)
trading days preceding the date on which such shares are delivered.
-9-
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of TDS. TDS represents
and warrants to USCC as follows:
(a) Due Organization. TDS is a corporation duly organized, validly
existing and in good standing under the laws of the State of Iowa, has full
corporate power and authority to own its properties and to carry on its business
as it is now being conducted, is duly qualified to do business and is in good
standing in all jurisdictions in which it is required to be so qualified, except
where the failure to so qualify would not be material, and has received all
necessary authorizations, consents and approvals of governmental authorities
material to the ownership of its properties and to the conduct of its business
other than such which, if not received, would not be material.
(b) Power and Authority; Conflict. TDS has full corporate power and
authority to enter into and carry out the terms of this Agreement. The execution
and delivery of this Agreement do not and, subject to any requisite governmental
or other consents or approvals, the consummation of the transactions
contemplated hereby will not, violate any provision of the articles of
incorporation or by-laws of TDS, in each case as amended, and will not violate
any provision of, result in the breach or acceleration of or default under, or
require any consent or approval of a third party under any material mortgage,
indenture, security agreement, lease, contract, instrument, order, arbitration
award, judgment or decree to which TDS is a party or by which TDS is bound.
Except as provided in Exhibit A, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
conflict with or result in any violation of or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation, or to the loss of a material
benefit under (i) any provision of any organizational or governing agreement of
any Licensee, (ii) any mortgage, indenture, lease or other agreement or
instrument to which TDS, a Controlled RSA Entity or a Cellular Company is a
party, (iii) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to TDS, a Controlled RSA Entity or a Cellular Company or
its property other than any such conflict, violation, default, right of
termination, cancellation, acceleration or loss that would not have a material
adverse effect on such entity, (iv) to the best of TDS's knowledge, having made
no inquiry, (A) any mortgage, indenture, lease, or other agreement or instrument
to which any of the Minority MSA Entities or the Minority RSA Entities is a
party, or (B) any
-10-
<PAGE>
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to any of the Minority MSA Entities and the Minority RSA Entities or its
property, other than any such conflict, violation, default, right of
termination, cancellation, acceleration or loss that would not have a material
adverse effect on the Minority MSA Entities and the Minority RSA Entities taken
as a whole.
(c) Complete and Correct Documentation. TDS has made and will make
available to USCC and its counsel, accountants and other representatives,
complete and correct copies of all documentation in TDS' possession relating to
the Cellular Interests, including, but not limited to, complete and correct
copies of any books, records, contracts, organizational or governing agreements
and other documents of each Controlled RSA Entity, Cellular Company, Minority
MSA Entity and Minority RSA Entity.
(d) Required Consents; Fairness Opinion. There have been or will be
timely filed, given, obtained or taken, all applications, notices, consents,
approvals, orders, registrations, qualifications, waivers or other actions of
any kind required by virtue of the execution and delivery of this Agreement by
TDS or by virtue of the consummation by TDS of any of the transactions
contemplated hereby to enable USCC or its designated subsidiary to continue in
all material respects to hold the Cellular Interests and, as applicable to each
of the respective Cellular Interests, to operate the businesses of the Cellular
Partnerships and the Cellular Companies as conducted prior to and as of the
Closing Date that each such Cellular Interest is transferred in accordance with
this Agreement. TDS has received from Duff & Phelps Capital Markets Co., an
opinion stating that the assigned values to be paid to TDS in the Transfer is
fair to TDS.
(e) Cellular Interests. Exhibit A contains complete and correct
descriptions which set forth the name and jurisdiction of each entity in which
TDS, directly or indirectly, owns a General Partnership Interest, a Limited
Partnership Interest or Cellular Subsidiary Stock and the ownership interests of
TDS (expressed as percentages) in each entity. Except as otherwise set forth
therein: (i) TDS owns each Partnership Interest and the Cellular Subsidiary
Stock free and clear of any lien, security interest, charge, option or
encumbrance; (ii) each Controlled RSA Entity and Cellular Company and, to the
best of TDS's knowledge, having made no inquiry, each Partnership that is a
Minority MSA Entity or a Minority RSA Entity, is duly established under the laws
of the jurisdiction of its establishment and is duly qualified to do business in
all jurisdictions in which the failure to so qualify would be material, has full
partnership power and authority to
-11-
<PAGE>
own its properties and carry on its business as it is now being conducted, and
has received all necessary authorizations, consents and approvals of
governmental authorities to own its properties and to conduct the business which
it now owns and conducts other than any such authorization, consent or approval
which, if not received, would not have a material adverse effect on such
Controlled RSA Entity or Cellular Company, or such Minority MSA Entities and
Minority RSA Entities taken as a whole; and (iii) there is no outstanding
option, convertible security or other right providing for the issuance or
delivery of any Partnership Interest or other security in any Controlled RSA
Entity, Cellular Company or, to the best of TDS's knowledge, having made no
inquiry, in any Minority MSA Entity or Minority RSA Entity.
(f) Due Authorization. The Board of Directors of TDS has duly
authorized this Agreement and the transactions contemplated hereby. This
Agreement has been duly executed and delivered by TDS and constitutes the valid
and binding obligation of TDS, enforceable against TDS in accordance with its
terms, except to the extent that its enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other laws affecting the enforcement
of creditors' rights generally or by general equitable principles.
(g) Contingent Liabilities. Except as disclosed on Schedule 5.1(g)
hereto and in the most recent financial statements of each Licensee as referred
to in Section 5.1(j) hereof, (i) TDS has no contingent liabilities (A) arising
out of its ownership in any Controlled RSA Entity or Cellular Company that would
be material to that entity, or (B) to the best of TDS's knowledge, having made
no inquiry, arising out of its ownership in any Minority MSA Entities or
Minority RSA Entities that would be material to such entities taken as a whole,
(ii) no Controlled RSA Entity or Cellular Company has any indebtedness or
contingent liabilities that would be material to it; and (iii) to the best of
TDS's knowledge, having made no inquiry, no Minority MSA Entity or Minority RSA
Entity has any indebtedness or contingent liabilities that would be material to
such entity, except in each case for liabilities incurred in connection with the
development, construction and operation of a Cellular System related to such
entity.
(h) Investigation or Litigation. Except as disclosed on Schedule 5.1(h)
hereto, (i) there is no material investigation or review by any governmental
entity pending or, to the best of TDS's knowledge, threatened, with respect to
any Controlled RSA Entity or Cellular Company or, to the best of TDS's
knowledge, having made no inquiry, with respect to any Minority MSA Entity or
Minority RSA Entity, including without limitation, any
-12-
<PAGE>
investigation or review relating to hazardous substances, pollution or the
environment, nor, with respect to any Controlled RSA Entity or Cellular Company
or, to the best of TDS's knowledge having made no inquiry, with respect to any
Minority MSA Entity or Minority RSA Entity, has any governmental entity
indicated in writing to TDS or any such entity an intention to conduct any such
investigation or review; and (ii) there is no action, suit or proceeding pending
or, to the best of TDS's knowledge, threatened against or affecting any
Controlled RSA Entity or Cellular Company or, to the best of TDS's knowledge,
having made no inquiry, with respect to or affecting any Minority MSA Entity or
Minority RSA Entity, at law or in equity, or before any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, including without limitation, actions, suits or proceedings
relating to hazardous substances, pollution or the environment which, if
adversely determined, would have a material adverse effect on any Controlled RSA
Entity or Cellular Company, or on the Minority MSA Entities and Minority RSA
Entities taken as a whole.
(i) Tax Matters. Each Controlled RSA Entity and Cellular Company and,
to the best of TDS's knowledge, having made no inquiry, each Minority MSA Entity
and Minority RSA Entity, has duly filed all federal tax returns, and has duly
filed all state, county, local and foreign income, excise, sales, customs,
property, withholding, social security and other tax and information returns and
reports reasonably believed to be required to have been filed by it on or prior
to the date hereof, or, in the alternative, has obtained extensions for filing
in accordance with established procedures, and has paid or made provision for
payment of all taxes (including interest and penalties) shown as due on the
returns and reports, with respect to all periods ending on or prior to December
31, 1995. No Controlled RSA Entity or Cellular Company and, to the best of TDS's
knowledge, having made no inquiry, no Minority MSA Entity or Minority RSA
Entity, has any material liability for any taxes of any nature whatsoever for
the period ended December 31, 1995, or any year or period prior thereto.
(j) Absence of Certain Changes. Since the date of the most recent
financial statements of each Licensee, copies of which have been provided by TDS
to USCC and are identified in Schedule 5.1(j), (i) with respect to each
Controlled RSA Entity and Cellular Company, TDS has conducted its business only
in, and has not engaged in any material transaction other than according to, the
ordinary and usual course of such business, and there has not been any material
adverse change in the financial condition, earnings or business of any such
entity, or any development or combination of developments of which management of
TDS has knowledge that is reasonably likely to result in any such change,
-13-
<PAGE>
other than any such change resulting from changes in general economic or
business conditions; and (ii) to the best of TDS's knowledge, having made no
inquiry, each Minority MSA Entity and Minority RSA Entity has conducted its
business only in the ordinary and usual course of such business, and there has
not been any change in the financial condition, earnings or business of any such
entity that is materially adverse to such entities taken as a whole, or any
development or combination of developments that is reasonably likely to result
in any such change, other than any such change resulting from changes in general
economic or business conditions.
(k) Absence of Material Change in Business. Except as disclosed to USCC
in writing, and other than in the ordinary course of business and in a manner
consistent with past practices, no Controlled RSA Entity or Cellular Company
and, to the best of TDS's knowledge, having made no inquiry, no Minority MSA
Entity or Minority RSA Entity, has: (i) authorized the creation or issuance of
or issued, sold or disposed of or created any obligation to issue, sell or
dispose of any capital stock, equity interest, note, bond or other security, or
obligation convertible into or exchangeable for any stock, equity interest,
note, bond or other security, or any option to purchase any of the foregoing;
(ii) declared, set aside or made any dividend payment or other distribution on
its capital stock or equity interests, or directly or indirectly redeemed,
purchased or otherwise acquired any shares or portion thereof or entered into
any agreement in respect of the foregoing or effected any stock split or other
reclassification; (iii) amended its articles or certificate of incorporation,
by-laws or partnership agreement; (iv) merged or consolidated with or into any
entity or enterprise or sold, leased, abandoned or otherwise disposed of all or
substantially all of its assets or acquired the stock, equity interest or assets
of any entity or enterprise; or (v) entered into any commitment, written or
oral, to do any of the things described in this subsection (k).
(l) Legal Compliance. Each Controlled RSA Entity and Cellular Company
and, to the best of TDS's knowledge, having made no inquiry, each Minority MSA
Entity and Minority RSA Entity, has complied in all respects with all applicable
laws, rules, regulations and ordinances, including, without limitation, the
rules and regulations of the FCC, commissions or agencies of applicable states
and municipalities and any government or governmental agency having
jurisdiction, other than such which, if not complied with, would not have a
material adverse effect on any Controlled RSA Entity or Cellular Company, or on
the Minority MSA Entities and Minority RSA Entities taken as a whole. No
Controlled RSA Entity or Cellular Company and, to the best of TDS's knowledge,
having made no inquiry, no Minority MSA Entity
-14-
<PAGE>
or Minority RSA Entity, is in violation of, or in default under, any term or
provision of any mortgage, indenture, security agreement, lease, license,
contract, agreement, instrument, order, arbitration award, judgment or decree
other than such violations or defaults which are not material to any Controlled
RSA Entity or Cellular Company, or to the Minority MSA Entities and Minority RSA
Entities taken as a whole.
(m) Representations and Warranties True as of the Final Closing Date.
All the representations and warranties of TDS contained herein with respect to
any Cellular Interest will be true in all material respects on and as of the
Final Closing Date.
(n) Sufficiency of Conveyances. On each Closing Date, TDS will execute
and deliver to USCC instruments of assignment, transfer and conveyance that will
be sufficient to transfer all of TDS's right, title and interest in and to the
Cellular Interests transferred on such date to USCC or its designee, all free
and clear of any lien, security interest, charge, option or encumbrance not
described in Exhibit A.
5.2 Representations and Warranties of USCC. USCC
represents and warrants to TDS as follows:
(a) Due Organization. USCC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, has full
corporate power and authority to own its properties and carry on its business as
it is now being conducted, is duly qualified to do business and is in good
standing in all jurisdictions in which it is required to be so qualified, except
where the failure to so qualify would not be material, and has received all
necessary authorizations, consents and approvals of governmental authorities
material to the ownership of its properties and to the conduct of its business
other than such which, if not received, would not be material.
(b) Power and Authority; Conflict. USCC has full corporate power and
authority to enter into and carry out the terms of this Agreement. The execution
and delivery of this Agreement do not and, subject to obtaining any requisite
governmental or other consents, the consummation of the transactions
contemplated hereby will not, violate any provision of the certificate of
incorporation or the by-laws of USCC, in each case as amended, and will not
violate any provision of, result in the breach or acceleration of or default
under, or require any consent or approval of a third party, under any material
mortgage, indenture, security agreement, lease, contract, instrument, order,
arbitration award, judgment or decree to which USCC is a party or by which USCC
is bound.
-15-
<PAGE>
(c) Required Consents; Fairness Opinion. There have been or will be
timely filed, given, obtained or taken, all applications, notices, consents,
approvals, orders, registrations, qualifications, waivers or other actions of
any kind required to be obtained by USCC by virtue of the execution and delivery
of this Agreement by USCC or by virtue of the consummation by USCC of any
transactions contemplated hereby to enable USCC or its designated subsidiary to
continue in all material respects to hold the Cellular Interests and to operate
the businesses of each Controlled RSA Entity and Cellular Company as conducted
prior to and as of the Closing Date each such Cellular Interest is transferred
in accordance with this Agreement. The Board of Directors of USCC has received
from Lazard Freres & Co., LLC, an opinion dated as of the date hereof stating
that the assigned values to be paid to TDS by USCC in connection with the
Transfer is fair from a financial point of view to USCC.
(d) Due Authorization. The Board of Directors of USCC has duly
authorized this Agreement and the transactions contemplated hereby. This
Agreement has been duly executed and delivered by USCC and constitutes the valid
and binding obligation of USCC, enforceable against USCC in accordance with its
terms, except to the extent that its enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other laws affecting the enforcement
of creditors' rights generally or by general equitable principles.
ARTICLE VI
COVENANTS AND AGREEMENTS
6.1 Covenants of TDS. From the date of this Agreement until the Final
Closing Date or the date on which this Agreement is terminated in accordance
with Section 10.1 or 10.2 hereof (the "Termination Date"), except with the prior
written consent of USCC (which shall not be unreasonably withheld), TDS agrees
that:
(a) Access. Subject to Section 6.3 hereof, USCC and its counsel,
accountants and other representatives shall have full access during normal
business hours to all information in TDS's possession relating to the Cellular
Interests, including, but not limited to, complete and correct copies of any
books, records, contracts, organizational or governing agreements and other
documents of each Controlled RSA Entity, Cellular Company, Minority MSA Entity
and Minority RSA Entity.
(b) Conduct of Business. TDS will conduct its business,
insofar as it relates to or involves the Cellular Interests, in
-16-
<PAGE>
the ordinary course and consistent with past practices, use its reasonable best
efforts to preserve the Cellular Interests, and use its reasonable best efforts
to cause each Controlled RSA Entity and Cellular Company to perform all of its
obligations under its License and all contracts relating to or affecting the
Cellular Interest owned by such entity.
(c) Negative Covenants. Without limiting the generality of the
foregoing and to the extent that TDS has the power and/or authority, TDS will
not take any action to sell or otherwise dispose of any Cellular Interest and
will not take any action to:
(i) cause or permit any Controlled RSA Entity, Cellular
Company, Minority MSA Entity or Minority RSA Entity (A) to sell or
otherwise dispose or transfer control of its License, (B) except as
provided for herein, to issue, redeem, sell or dispose of, dilute, or
create any obligation to issue, redeem, dilute, sell or dispose of, any
Partnership Interests, (C) except as provided for herein, to effect any
merger or other combination or (D) to withdraw from any Partnership or
other entity, or create an obligation to withdraw from any Partnership
or other entity; or
(ii) cause or permit any Controlled RSA Entity, Cellular
Company, Minority MSA Entity or Minority RSA Entity, (A) to incur,
assume, guarantee or otherwise become obligated or liable for any
indebtedness other than in the ordinary course of business to finance
the operations and capital expenditures of its cellular system in a
manner consistent with past practices, or to pledge, hypothecate or
otherwise encumber any of its assets or, except as provided for herein,
enter into any material transaction or contract, or make any material
commitment relating to its assets or business, other than in the
ordinary course of business and in a manner consistent with past
practices, or (B) to take or omit any action that, in TDS's reasonable
business judgment, could be anticipated to have a material adverse
effect upon the business, operations, financial condition, operating
results or assets of such entity.
(d) Third Party Transactions. (i) Notwithstanding subsection (c), USCC
acknowledges that certain negotiations with third parties (the "Third Party
Negotiations") are being carried on in its behalf by representatives of TDS and
USCC, which contemplate that certain of TDS's other cellular interests will be
transferred to such third parties, separately or in conjunction with the
transfer of other cellular interests owned by TDS or USCC, in settlement of
pending litigation or in exchange for interests in other MSAs and/or RSAs (which
may
-17-
<PAGE>
include interests in MSAs and/or RSAs in which TDS or USCC already owns an
interest) or other consideration. TDS and USCC hereby agree that, in the event
they agree to enter into any transaction (a "Third Party Transaction") pursuant
to which any Cellular Interest (a "Transferable Interest") is to be transferred
to a third party in exchange for the transfer by such third party of any
consideration ("Third Party Consideration"):
(A) TDS shall assign the Transferable Interest to USCC
subject to the terms of this Agreement;
(B) if any Third Party Transaction contemplates that TDS would
transfer to any third party any other property (collectively "Other TDS
Consideration"), TDS shall transfer such Other TDS Consideration to
USCC and shall be entitled to receive additional consideration from
USCC in return therefor, in an amount equal to the fair market value of
such Other TDS Consideration (plus reasonable carrying costs from the
date such Other TDS Consideration is transferred by TDS to USCC in
furtherance of such Third Party Transaction until TDS receives payment
therefor), such amount to be determined by agreement of the parties;
(C) USCC shall transfer the Transferable Interest and any
Other TDS Consideration to such third party, together with any cash or
other consideration which may be required of USCC; and
(D) all consideration, including any Third Party
Consideration, delivered in connection with such Third Party
Transaction shall be transferred directly to and retained by USCC.
TDS agrees that any Third Party Transaction shall be subject
to the consent of the Special Committee consistent with its fiduciary duty,
which consent shall not be unreasonably withheld.
(ii) In the event that an opportunity arises before a
particular Cellular Interest is transferred pursuant to this Agreement for TDS,
directly or through one of its subsidiaries, to acquire an additional
partnership or other ownership interest in the Controlled RSA Entity, Minority
MSA Entity or Minority RSA Entity with respect to such Cellular Interest and TDS
does acquire such additional partnership or other ownership interest (an
"Additional Cellular Interest"), USCC agrees to acquire such Additional Cellular
Interest from TDS, and TDS agrees to sell such Additional Cellular Interest to
USCC, pursuant to this Agreement provided the purchase price of any such
Additional Cellular Interest shall be the lesser of (i) the Assigned Value
-18-
<PAGE>
(consistently applied on a unit of population basis) for such Cellular Interest
as set forth in Schedule 2.2 hereto, and (ii) such price paid by TDS for such
Additional Cellular Interest, it being understood that (x) TDS shall not be
obligated to sell to USCC any such Additional Cellular Interest, and USCC shall
not be obligated to purchase any such Additional Cellular Interest, if the
purchase price for such Additional Cellular Interest is greater than the
Assigned Value (consistently applied on a unit of population basis) for such
Cellular Interest as set forth in Schedule 2.2 hereto and (y) such Additional
Cellular Interest which neither party is obligated to purchase shall be subject
to the right of first negotiation under the terms of the Exchange Agreement. In
the event of any such acquisition by TDS, the term "Cellular Interest" with
respect to such Controlled RSA Entity, Minority MSA Entity or Minority RSA
Entity shall be deemed to refer to such Additional Cellular Interest.
(e) Section 754 Undertaking. TDS agrees to cause each Controlled RSA
Entity to make an election pursuant to Section 754 of the Internal Revenue Code
of 1986, as amended, with respect to the adjustment of the tax bases in the
respective assets of such Controlled RSA Entity, and to request of, and to use
its reasonable best efforts to cause, each Minority MSA Entity and Minority RSA
Entity and each intermediary Partnership to make a similar election, if
advantageous to USCC.
6.2 Covenants of USCC. From the date of this Agreement until the
earlier of the Final Closing Date or the Termination Date, except with the prior
written consent of TDS (which shall not be unreasonably withheld), USCC agrees
that:
(a) Conduct of Business. USCC will conduct its business in the ordinary
course and consistent with past practices, use its reasonable best efforts to
preserve intact its business organization and goodwill, keep available the
services of its present officers and perform all of its obligations under all
contracts relating to or affecting its assets or its business where the failure
to comply with this provision would have a material adverse effect on its
ability to consummate the transactions hereunder.
(b) Receipt of Distributions. If the CO3 Partnership declares and makes
a distribution to its partners prior to the Transfer of the shares of WCC by TDS
to USCC pursuant to this Agreement, then USCC agrees, on behalf of itself and
any of its affiliates, to cause WCCCLP to declare and make a distribution to its
partners in the full amount of the distribution received from the CO3
Partnership, and, thereafter to cause WCC to declare and pay a dividend to its
shareholders in the full amount of the distribution received from WCCCLP.
-19-
<PAGE>
6.3 Mutual Covenants. From the date of this Agreement
until the earlier of the Final Closing Date or the Termination
Date:
(a) Confidentiality. TDS and USCC each shall provide the other with
such information as the other may from time to time reasonably request;
provided, however, that all such information shall be treated as and kept
confidential unless it is available from public sources or required by law to be
disclosed. If the transactions contemplated by this Agreement are not
consummated, all documents received by TDS and USCC shall be returned to the
party furnishing them upon the written request of the furnishing party.
(b) Best Efforts. TDS and USCC each shall take all necessary corporate
and other actions and each shall use its reasonable best efforts to obtain all
necessary consents, authorizations and approvals and to make all necessary
filings required to carry out the transactions contemplated by this Agreement,
to satisfy the conditions specified in Articles VII, VIII and IX hereof at the
earliest practicable date and otherwise to perform its obligations under this
Agreement.
(c) Payment of Certain Out-of-Pocket Expenses. TDS and USCC each will
pay one-half of any out-of-pocket expenses incurred collectively by TDS and USCC
in connection with any third party transaction involving the sale of a Category
B Interest.
(d) Publicity. TDS and USCC shall consult with each other prior to
issuing any press releases or otherwise making public statements with respect to
the transactions contemplated hereby and prior to making any filings with any
federal or state governmental or regulatory agency or with any securities
exchange with respect thereto.
(e) USCC Common Shares. TDS and USCC agree not to take any action the
principal purpose of which is to affect a change in the price of such USCC
Common Shares during the period described in the last sentence of Section 4.2.
6.4 Assumption of Liabilities and Obligations. To the extent disclosed
to USCC on Schedule 6.4, USCC agrees to assume any and all of TDS's liabilities
and obligations with regard to the Cellular Interests to the extent that such
liabilities and obligations were incurred in connection with the development,
construction and operation of the respective Cellular Systems and would not be
discharged by TDS prior to the respective Transfer Date in the ordinary course
of business consistent with past practices, such assumption to be effective with
respect to each
-20-
<PAGE>
Cellular Interest as of its respective Transfer Date. In the event any such
liability or obligation cannot be assumed, USCC further agrees (a) to assume
such commitment to the extent legally possible, (b) to indemnify, hold harmless
and defend TDS from and against any and all costs, including, without
limitation, TDS's reasonable carrying costs and attorney's fees, if any,
incurred in connection therewith from and after the Closing Date on which the
Cellular Interest relating to any such liability or obligation is transferred in
accordance with this Agreement, and (c) to continue to use its reasonable best
efforts to effectuate such assumption as promptly as practicable after the date
of such transfer.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF TDS
The obligations of TDS under this Agreement are subject to and shall be
conditioned upon the satisfaction or waiver (in whole or in part in writing by
TDS), of each of the following conditions:
7.1 Representations and Warranties True. The representations and
warranties of USCC contained in Section 5.2 hereof shall have been true and
correct in all material respects on and as of the date of this Agreement, and
shall be true and correct in all material respects on and as of each Closing
Date as though those representations and warranties were made on and as of such
date, except for changes permitted by the terms of this Agreement or to the
extent affected by the transactions contemplated hereby and except insofar as
any of those representations and warranties related solely to a particular date
or period. In the latter case, the representations and warranties of USCC shall
be true and correct in all material respects on and as of each Closing Date with
respect to such date or period.
7.2 Performance of Obligations and Agreements; No Breach of Covenants.
USCC shall have performed in all material respects all of its obligations and
agreements and fulfilled in all material respects all conditions contained in
this Agreement to be performed or complied with by it on or before each Closing
Date. USCC shall not be in breach in any material respect of any covenant
contained in this Agreement.
7.3 Resolutions. USCC shall have delivered to TDS copies
of the resolutions of its Board of Directors authorizing and
approving the execution of this Agreement and the consummation of
the transactions contemplated hereby, certified as true and
-21-
<PAGE>
correct on each Closing Date by its Secretary or an Assistant
Secretary.
7.4 Officers' Certificate. USCC shall have delivered to TDS a
certificate dated on and as of each Closing Date and signed by its Chief
Executive Officer to the effect that (a) USCC has performed, in all material
respects, all of its obligations and agreements and fulfilled, in all material
respects, all of the conditions to TDS's obligations contained in this Agreement
to be performed or complied with on or before such Closing Date; (b) USCC is not
in breach, in any material respect, of any covenant contained in this Agreement;
and (c) the representations and warranties of USCC contained in this Agreement
were true and correct in all material respects on and as of the date of this
Agreement and are true and correct in all material respects on and as of such
Closing Date, with the same force and effect as though made on and as of such
Closing Date.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF USCC
The obligations of USCC under this Agreement are subject to and shall
be conditioned upon the satisfaction or waiver (in whole or in part in writing
by USCC), of each of the following conditions:
8.1 Representations and Warranties True. The representations and
warranties of TDS contained in Section 5.1 hereof shall have been true and
correct in all material respects on and as of the date of this Agreement, and
shall be true and correct in all material respects on and as of each Closing
Date as though those representations and warranties were made on and as of such
date, except for changes permitted by the terms of this Agreement or to the
extent affected by the transactions contemplated hereby and except insofar as
any of those representations and warranties relate solely to a particular date
or period. In the latter case, the representations and warranties of TDS shall
be true and correct in all material respects on and as of each Closing Date with
respect to such date or period.
8.2 Performance of Obligations and Agreements; No Breach of Covenants.
TDS shall have performed in all material respects all of its obligations and
agreements and fulfilled in all material respects all conditions contained in
this Agreement to be performed or complied with by it on or before each Closing
Date, to the extent that the performance of such obligations and agreements and
the fulfillment of such conditions relate to a
-22-
<PAGE>
Cellular Interest to be transferred on such Closing Date. TDS shall not be in
breach, in any material respect, of any of its covenants contained in this
Agreement, to the extent that the compliance with such covenants relate to a
Cellular Interest to be transferred on such Closing Date.
8.3 Resolutions. TDS shall have delivered to USCC copies of the
resolutions of its Board of Directors, authorizing and approving the execution
of this Agreement and the consummation of the transactions contemplated hereby,
certified as true and correct on each Closing Date by its Secretary or an
Assistant Secretary.
8.4 Officers' Certificate. TDS shall have delivered to USCC a
certificate dated on and as of each Closing Date and signed by its Chief
Executive Officer to the effect that (a) TDS has performed, in all material
respects, all of its obligations and agreements and fulfilled in all material
respects all of the conditions to USCC's obligations contained in this Agreement
to be performed or complied with on or before such Closing Date, to the extent
that the performance of such obligations and agreements and the fulfillment of
such conditions relate to the Cellular Interests to be transferred on such
Closing Date; (b) TDS is not in breach, in any material respect, of any of its
covenants contained in this Agreement, to the extent that the compliance with
such covenants relate to the Cellular Interests to be transferred on such
Closing Date; and (c) the representations and warranties of TDS contained in
this Agreement were true and correct in all material respects on and as of the
date of this Agreement and are true and correct in all material respects as of
such Closing Date, with the same force and effect as though made on and as of
such Closing Date.
8.5 Legal Opinions. TDS shall have delivered to USCC an opinion of its
counsel dated on and as of each Closing Date substantially in the form attached
hereto as Schedule 8.5(a-1), with the related opinion from Nyemaster, Goode,
McLaughlin, Voigts, West, Hansell & O'Brien, in the form attached hereto as
Schedule 8.5 (a-2). Koteen & Naftalin, FCC counsel to TDS and USCC, shall have
delivered to TDS and USCC an opinion dated on and as of each Closing Date
substantially in the form attached hereto as Schedule 8.5(b).
ARTICLE IX
RECIPROCAL CONDITIONS PRECEDENT
The obligations of each of TDS and USCC under this Agreement are
subject to and shall be conditioned upon the satisfaction, or
-23-
<PAGE>
waiver (in whole or in part) in writing by each, of each of the following
conditions prior to each Closing Date.
9.1 Governmental and Other Approvals. TDS, each Controlled RSA Entity,
each Cellular Company, each TDS subsidiary which owns an interest in any
Minority MSA Entity or Minority RSA Entity, and USCC and its subsidiaries shall
have made all filings with, given all notices to and obtained all necessary
consents, authorizations and approvals from all governmental and regulatory
bodies and agencies and from its partners which are required to consummate the
portion of the Transfer to be consummated on such Closing Date and all time for
appeal, rehearing or reconsideration thereof shall have expired.
9.2 No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order of any court of competent
jurisdiction preventing the consummation of the portion of the Transfer to be
consummated on such Closing Date shall have been entered and not set aside or
lifted (each party agreeing to use its reasonable best efforts, including
appeals to higher courts, to have any such order or injunction set aside or
lifted), and no action shall have been taken and no statute, rule or regulation
shall have been enacted, by any state or federal government or governmental
agency or regulatory body that would prevent the consummation of the portion of
the Transfer to be consummated on such Closing Date.
ARTICLE X
TERMINATION AND INDEMNIFICATION
10.1 Termination. Notwithstanding anything herein to the contrary, this
Agreement may be terminated and the Transfer abandoned with respect to any
Cellular Interest as to which no Closing has occurred:
(a) by mutual consent of the Board of Directors of TDS
and of the Board of Directors of USCC upon the
direction of the Special Committee;
(b) (i) on or after June 30, 1997, by the Board of
Directors of USCC upon the direction of the
Special Committee with respect to any Cellular
Interest not previously transferred in accordance
with this Agreement, (ii) on or after June 30,
1997, by the Board of Directors of TDS with
respect to any Cellular Interest not previously
transferred in accordance with this Agreement, or
(iii) by the Board of Directors of USCC upon the
-24-
<PAGE>
direction of the Special Committee or by the Board of
Directors of TDS with respect to any Cellular Interest not
previously transferred in accordance with this Agreement, if
any court of competent jurisdiction in the United States or
other United States governmental body shall have issued an
order, decree or ruling, or taken any other action
restraining, enjoining or otherwise prohibiting the Transfer,
but only with respect to that portion of the Transfer
restrained, enjoined or prohibited, and such order, decree,
ruling or other action shall have become final and
nonappealable; provided, that, in each of (i) and (ii), the
right to terminate this Agreement shall not be available to
any party whose failure to fulfill any obligation under this
Agreement has been the cause of the failure of any Cellular
Interest to be transferred in accordance with this Agreement
on or before such date;
(c) by the Board of Directors of TDS if:
(i) a material condition to the performance of TDS under this
Agreement or a material covenant of USCC contained in this
Agreement shall not be fulfilled on or before June 30, 1997,
or on such earlier date specified for the fulfillment of such
covenant or condition; or
(ii) a material default or breach of this Agreement shall be
made by USCC; provided, that TDS has not caused USCC to fail
to fulfill such covenant or condition or to make such default
or breach; or
(d) by the Board of Directors of USCC upon the
direction of the Special Committee if:
(i) a material condition to the performance of USCC under this
Agreement or a material covenant of TDS contained in this
Agreement shall not be fulfilled on or before June 30, 1997,
or on such earlier date specified for the fulfillment of such
covenant or condition; or
(ii) a material default or breach of this
Agreement shall be made by TDS.
10.2 Written Notice. In order to terminate this Agreement
in accordance with Section 10.1 hereof, the terminating party
-25-
<PAGE>
shall give written notice thereof to the other party hereto, specifying the
grounds therefor.
10.3 Effect of Termination. In the event of termination of this
Agreement in accordance with Sections 10.1 and 10.2, this Agreement shall become
void and have no further force or effect, and there shall be no liability on the
part of either TDS or USCC (or their respective officers, directors,
shareholders, agents or representatives), except to the extent set forth in
Section 10.4.
10.4 Damages. In the event this Agreement is terminated in accordance
with Subsection 10.1(c) or 10.1(d), then TDS or USCC, as the case may be, shall
be entitled to seek any and all legal and equitable rights and remedies
available to them as a result of such failure of performance, default or breach
without limitation by this Article X or otherwise.
10.5 Termination Ineffective as to Prior Transfers. Notwithstanding
anything in this Article X to the contrary, in the event the parties have
elected to effect the Transfer with respect to some but not all of the Cellular
Interests, then any termination of this Agreement pursuant to the provisions of
this Article X shall be effective only with respect to any Cellular Interest
that has not been transferred to USCC.
10.6 Indemnification. (a) Subject to the provisions of Section 11.1
hereof, TDS agrees to indemnify and defend USCC, and any person who is or was an
officer, director, employee, or agent of USCC, from and against any loss, cost,
liability, or expense (including, but not limited to, costs and expenses of
litigation and, to the extent permitted by law, attorneys' fees) incurred by
USCC or such other person by reason of the incorrectness or breach of any of the
representations, warranties, covenants, or agreements of TDS contained in this
Agreement or given on any Closing Date.
(b) Subject to the provisions of Section 11.1 hereof, USCC agrees to
indemnify and defend TDS, and any person who is or was an officer, director,
employee, or agent of TDS, from and against any loss, cost, liability, or
expense (including but not limited to costs and expenses of litigation and, to
the extent permitted by law, attorneys' fees) incurred by TDS or such other
person by reason of the incorrectness or breach of any of the representations,
warranties, covenants, or agreements of USCC contained in this Agreement or
given on any Closing Date.
(c) Each party indemnified under Subsection (a) or (b) above shall,
promptly after receipt of notice of the commencement of any action against such
indemnified party in respect of which indemnity may be sought, notify the
indemnifying party in writing
-26-
<PAGE>
of the commencement thereof. The omission of any indemnified party so to notify
an indemnifying party of any such action shall not relieve the indemnifying
party from any liability in respect of such action which it may have to such
indemnified party on account of the indemnity agreement contained in such
subsections, unless the indemnifying party was prejudiced by such omission, and
in no event shall relieve the indemnifying party from any other liability which
it may have to such indemnified party. In case any such action shall be brought
against any indemnified party and it shall notify an indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it may wish, to assume the defense thereof. If
the indemnifying party so assumes the defense thereof, it may not agree to any
settlement of such action as the result of which any remedy or relief, other
than monetary damages for which the indemnifying party shall be responsible
hereunder, shall be applied to or against the indemnified party, without the
prior written consent of the indemnified party. If the indemnifying party does
not assume the defense thereof, it shall be bound by any settlement to which the
indemnified party agrees, irrespective of whether the indemnifying party
consents thereto. If any settlement of any claim is effected by the indemnified
party prior to the commencement of any action relating thereto, the indemnifying
party shall be bound thereby only if it has consented in writing thereto. In any
action hereunder, the indemnified party shall continue to be entitled to
participate in the defense thereof even if the indemnifying party has assumed
the defense thereof, but the indemnifying party shall not be required to
reimburse the indemnified party for the costs of such participation.
(d) Subject to the provisions of Section 11.1, TDS shall indemnify USCC
for and against any tax liability incurred by USCC in connection with the
disposition of the partnership interests owned by Metroplex Olympia Cellular
Corp., in the Olympia Cellular Limited Partnership, and the 14.286% partnership
interest owned by WCC in the CO3 Partnership.
ARTICLE XI
MISCELLANEOUS
11.1 Non-survival of Representations and Warranties. (a) The
representations and warranties of the parties, insofar as they apply to each
Cellular Interest transferred pursuant to the provisions of this Agreement,
shall survive for a period of two years from the Closing Date on which such
interest is transferred, and the parties hereto shall thereafter have no
continuing obligations or liabilities with respect thereto,
-27-
<PAGE>
except that TDS's representations contained in Subsections 5.1(b), 5.1(e)(i) and
5.1(n) and USCC's representations contained in Subsection 5.2(b) shall survive
and shall not terminate. The provisions of this Subsection shall apply
notwithstanding any investigation made by either party with respect to this
Agreement or the Transfer.
(b) Upon termination of this Agreement pursuant to the provisions of
Subsection 10.1(a) or 10.1(b), the representations, warranties, covenants and
agreements of the parties shall terminate as to the portion of the Transfer not
closed prior to such termination (except for the agreement as to confidentiality
contained in Section 6.3, and the agreement as to expenses contained in Section
11.2, both of which shall survive), and the parties hereto shall have no
continuing obligations or liabilities with respect thereto as to that portion of
the Transfer not closed prior to such termination.
(c) If either TDS or USCC shall have the right to terminate this
Agreement pursuant to the provisions of Subsection 10.1(c) or 10.1(d), then the
party which does not have the right to terminate this Agreement will use its
reasonable best efforts to cure the condition giving rise to such right. If such
party is unable to cure within 30 days after written notice of the condition
giving rise to such right was given by the other party, the party giving such
notice (i) may exercise its right under Subsection 10.1(c) or 10.1(d) to
terminate this Agreement, (ii) may waive such right and proceed to consummate
this Agreement and the transactions contemplated hereby, or (iii) may terminate
this Agreement and take such action as is otherwise permitted by law. In the
event this Agreement is so terminated and abandoned, in whole or in part, the
representations, warranties, covenants and agreements of the parties shall
terminate with respect to that portion of the Agreement not yet closed (except
for the agreement as to confidentiality described in Section 6.3, the agreement
as to damages described in Section 10.4 and the agreement as to expenses
described in Section 11.2, all of which shall survive), and the parties hereto
shall have no continuing obligations or liabilities with respect thereto, except
as set forth in this Subsection 11.1(c) and except to the extent that such
termination results from the willful breach by any party hereto of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
11.2 Expenses. Each party shall be responsible for the payment of all
of the expenses incurred by it in connection with the negotiation of this
Agreement and the consummation of the transactions contemplated hereby.
-28-
<PAGE>
11.3 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly delivered
when delivered personally or mailed by certified or registered mail, postage
prepaid, addressed as follows:
If to USCC, to:
United States Cellular Corporation
8410 West Bryn Mawr Avenue
Suite 700
Chicago, Illinois 60631-3486
Attention: Mr. H. Donald Nelson
President
with copies to:
Mr. Paul-Henri Denuit
Special Committee of Board of Directors of
United States Cellular Corporation
Coditel Brabant S.A.
Rue des Deux Eglises 26
1040 Brussels, Belgium
and
Mr. Allan Z. Loren
Special Committee of Board of Directors of
United States Cellular Corporation
c/o American Express Travel Related
Service Company, Inc.
World Wide Communications
American Express Tower
Three World Financial Center
200 Vesey Street
New York, New York 10285-3130
and
Squire, Sanders & Dempsey
520 Madison Avenue
32nd Floor
New York, New York 10022
Attention: Alan N. Waxman, Esq.
-29-
<PAGE>
If to TDS, to:
Telephone and Data Systems, Inc.
30 North LaSalle Street
Suite 4000
Chicago, Illinois 60602-3415
Attention: Mr. LeRoy T. Carlson, Jr.
President
with a copy to:
Sidley & Austin
One First National Plaza
Suite 4200
Chicago, Illinois 60603
Attention: Michael G. Hron, Esq.
11.4 Parties in Interest. This Agreement shall inure to the benefit of,
and be binding upon, the parties hereto and their respective successors. Nothing
in this Agreement is intended to confer any right or remedy, expressly or by
implication, upon any person who is not a party hereto.
11.5 Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Illinois.
11.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one document.
11.7 Brokers; Investment Banking Fees. Each of TDS and USCC hereby
represents that no broker or finder is entitled to any commission or finder's
fee in connection with any transaction contemplated hereby. USCC has agreed to
pay a fee to Lazard Freres & Co., LLC, and TDS has agreed to pay a fee to Duff &
Phelps Capital Markets Co., for services rendered in connection with the
negotiation of this Agreement and the transactions contemplated hereby.
11.8 Headings. Each of the Article and Section headings
herein are provided for convenience of reference only and do not
constitute a part of this Agreement.
11.9 Modifications, Amendments and Waivers. At any time
prior to each Closing Date, the parties hereto may, by written
agreement, (a) extend the time for the performance of any of the
obligations of the parties hereto, (b) waive any inaccuracies in
the representations and warranties contained in this Agreement or
-30-
<PAGE>
in any document delivered pursuant hereto, or (c) waive compliance with any of
the covenants or agreements contained in this Agreement; provided, however, that
any such action may be taken by USCC only at the direction of the Special
Committee. At any time prior to each Closing Date, if authorized by their
respective boards of directors, the parties hereto may, by written agreement,
amend or supplement any of the provisions of this Agreement; provided, however,
that any such action may be taken by USCC only at the direction of the Special
Committee. Any written instrument or agreement referred to in this Section shall
be validly and sufficiently authorized for the purposes of this Agreement if
signed on behalf of each of the parties hereto by a person authorized to sign
this Agreement.
11.10 Prior Agreement. This Agreement sets forth the entire
understanding of the parties with respect to the Cellular Interests, and
supersedes all prior negotiations with respect thereto. In the event this
Agreement is terminated, pursuant to Section 10.1, other than by TDS pursuant to
Subsection 10.1(c), USCC's right of first negotiation with respect to any
Cellular Interests not transferred pursuant to the provisions hereof shall
continue to be subject to all applicable provisions of the Exchange Agreement.
Any cellular interest which TDS proposed to transfer to USCC in its letter dated
January 9, 1996, but which is not included in this Agreement is intended to be
and shall remain subject to USCC's right of first negotiation under the terms of
the Exchange Agreement.
11.11 Assignability. This Agreement shall not be assignable by either
of the parties hereto without the prior written consent of the other party.
* * * * *
-31-
<PAGE>
IN WITNESS WHEREOF, TDS and USCC have caused this Agreement to be
executed by their duly authorized officers, respectively, as of the date first
above written.
TELEPHONE AND DATA SYSTEMS, INC.
By: /s/ LeRoy T. Carlson
Name: LeRoy T. Carlson
Title: Chairman
UNITED STATES CELLULAR CORPORATION
By: /s/ H. Donald Nelson
Name: H. Donald Nelson
Title: President
Signature Page of Cellular Interest Transfer Agreement
dated as of June 20, 1996.
-32-
<PAGE>
Schedule 2.2
CATEGORY A MARKETS
I. MINORITY MSA ENTITIES
TDS's Ownership Assigned
Market Percentage Value
- ---------------- --------------- -------------
Olympia, WA, MSA 4.2648% L.P. $1,411,263.00
II. CONTROLLED RSA ENTITIES
TDS's Ownership Assigned
Market Percentage Value
- ---------------- --------------- --------------
Indiana RSA No. 4 1.0000% G.P.
27.5700% L.P. $7,776,802.00
III. MINORITY RSA ENTITIES
TDS's Ownership Assigned
Market Percentage Value
- ----------------- ---------------- ---------------
Colorado RSA No. 3 2.6000% L.P. $1,378,792.00
Oregon RSA No. 2 14.7790% L.P. 812,350.00
Washington RSA No. 7 14.7790% L.P. 310,387.00
CATEGORY B MARKETS
I. CONTROLLED RSA ENTITIES
TDS's Ownership Assigned
Market Percentage Value
- ------------------ --------------- --------------
Arizona RSA No. 4 33.3400% G.P. $7,502,880.00
II. MINORITY MSA ENTITIES
TDS's Ownership Assigned
Market Percentage Value
- ------------------ ---------------- --------------
Duluth, MN, MSA 19.8750% L.P. $6,862,856.00
Redding, CA, MSA 2.9000% L.P. 731,808.00
St. Cloud, MN, MSA 14.2857% L.P. 5,322,768.00
Tucson, AZ, MSA 29.3600% L.P. 50,496,600.00
III. MINORITY RSA ENTITIES
TDS's Ownership Assigned
Market Percentage Value
- ------------------- ---------------- ---------------
Arizona RSA No. 2 19.4500% G.P.
1.8500% L.P. $9,700,064.00
Arizona RSA No. 5 22.2525% G.P. 7,502,682.00
Minnesota RSA No. 7 24.9999% G.P. 3,756,808.00
Ohio RSA No. 2-B1 10.8430% L.P. 3,898,638.00
Ohio RSA No. 5 8.7500% L.P. 2,717,880.00
TOTAL: $110,182,578.00
<PAGE>
Schedule 4.2
ASSIGNED VALUES OF CELLULAR INTERESTS
IN
CATEGORY B MARKETS
1995 TDS's Value
Donnelley Ownership Equivalent Per Assigned
Market Pops Percentage Pops Pop Value
- ------ --------- ---------- ---------- ----- -------
Duluth, MN, MSA 241,467 19.8750% 47,992 $143 $6,862,856
Redding, CA, MSA 163,845 2.9000% 4,752 154 731,808
St. Cloud, MN, MSA 211,700 14.2857% 30,243 176 5,322,768
Tucson, AZ, MSA 744,550 29.3600% 218,600 231 50,496,600
Arizona RSA No. 2 243,529 21.3000% 51,872 187 9,700,064
Arizona RSA No. 4 146,130 33.3400% 48,720 154 7,502,880
Arizona RSA No. 5 174,694 22.2525% 38,874 193 7,502,682
Minnesota RSA No. 7 170,763 24.9999% 42,691 88 3,756,808
Ohio RSA No. 2-B1 260,547 10.8430% 28,251 138 3,898,638
Ohio RSA No. 5 235,310 8.7500% 20,590 132 2,717,880
-----------
TOTAL: $94,815,464
<PAGE>
Schedule 5.1(g)
CONTINGENT LIABILITIES AS DESCRIBED IN
SECTION 5.1(g)
Short-term note payable by Western Colorado Cellular, Inc., in
favor of United States Cellular Corporation, the outstanding
balance of which is $1,069,342.00 as of May 1, 1996.
<PAGE>
Schedule 5.1(h)
INVESTIGATION AND LITIGATION AS
DESCRIBED IN
SECTION 5.1(h)
The manager of the Cellular Systems for the Licensees of
Olympia, Washington, MSA, Colorado RSA No. 3, Arizona RSA No.
4, Duluth, Minnesota, MSA, Tucson, Arizona, MSA, Arizona RSA
No. 2 and Arizona RSA No. 5 has received a notice from the
Internal Revenue Service (the "IRS") to the effect that
commissions paid to agents for enrolling new customers for
cellular telephone service are required to be capitalized. A
copy of such notice has been provided by TDS to USCC. Such
notice indicates that the Cellular Telephone Industry has
requested an IRS Revenue Ruling clarifying the deductibility
of certain sales commission expenses and that the Revenue
Ruling is under consideration by the IRS. Other of the
Licensees may be similarly affected.
<PAGE>
Schedule 5.1(j)
IDENTIFICATION OF
FINANCIAL STATEMENTS OF
EACH LICENSEE
Lazard, Freres & Co., LLC, has reviewed the Balance Sheet, the
Income Statement and Cash Flow Statement as of December 31, 1995, for the
licensees of each of the following markets:
Duluth, MN, MSA
Olympia, WA, MSA
St. Cloud, MN, MSA
Tucson, AZ, MSA
Arizona RSA No. 2
Arizona RSA No. 4
Arizona RSA No. 5
Colorado RSA No. 3
Indiana RSA No. 4
Minnesota RSA No. 7
Ohio RSA No. 2-B1
Ohio RSA No. 5
Oregon RSA No. 2
Washington RSA No. 7
Lazard, Freres & Co., LLC, has reviewed the Balance Sheet, the
Income Statement and Cash Flow Statement as of December 31, 1994, for the
licensee of the following market:
Redding, CA, MSA
<PAGE>
Schedule 6.4
LIABILITIES OF TDS AS DESCRIBED IN
SECTION 6.4
Contingent liabilities associated with the ownership of a
general partnership interest by Camden Cellular Telephone
Company, Inc., in Indiana RSA No. 4 Limited Partnership.
Contingent liabilities associated with the ownership of a
general partnership interest by Arvig Telecom, Inc., in
Cellular Mobile Systems of St. Cloud.
Contingent liabilities associated with the ownership of the
respective general partnership interests by Aztel, Inc., in
Coconino, Arizona RSA Limited Partnership (Arizona RSA No.
2), Yuma, Arizona RSA Limited Partnership (Arizona RSA No.
4), and Gila River Cellular General Partnership (Arizona RSA
No. 5).
Contingent liabilities associated with the ownership of the
respective general partnership interests by Mid-State
Telephone Company, Danube Communications, Inc., and Winsted
Telephone Company in Cellular 7 Partnership (Minnesota RSA
No. 7).
<PAGE>
Schedule 8.5(a-1)
FORM OF OPINION OF SIDLEY & AUSTIN PURSUANT
TO SECTION 8.5 OF THE
CELLULAR INTEREST TRANSFER AGREEMENT
__________, 1996
United States Cellular Corporation
8410 West Bryn Mawr Avenue
Suite 700
Chicago, Illinois 60631
and
Telephone and Data Systems, Inc.
30 North LaSalle St., Suite 4000
Chicago, Illinois 60602
Gentlemen:
We are counsel to Telephone and Data Systems, Inc. ("TDS"), an Iowa
corporation. We have been requested by TDS to render this opinion in connection
with that certain Cellular Interest Transfer Agreement dated as of ________ __,
1996 (the "Agreement"), by and between TDS and United States Cellular
Corporation, a Delaware corporation ("USCC"), relating to the assignment,
transfer and delivery by TDS of all of its right, title and interest in and to
the Cellular Interests referred to in the Agreement to USCC in accordance with
the terms and conditions of the Agreement. Unless the context otherwise
requires, all terms used herein shall have the same meaning as defined in the
Agreement.
In our capacity as counsel to TDS, we have examined originals or
copies, certified or otherwise identified to our satisfaction by public
officials or officers of TDS as authentic copies of originals, of the Agreement
and such other documents as in our judgment were necessary to enable us to
render the opinion expressed below.
In our review and examination of all such documents, we have assumed
the genuineness of all signatures, the authenticity of all documents and records
submitted to us as originals, the legal capacity of all natural persons, and the
conformity with the originals of any documents and records submitted to us as
copies. To the extent we deemed appropriate, we have relied upon certificates of
public officials and corporate officers of TDS as to certain factual matters.
Based upon the foregoing and our investigation of such matters of law as
we have considered advisable, subject to the
<PAGE>
exceptions, qualifications and limitations set forth hereafter,
we are of the opinion that:
1. TDS is a corporation duly organized, validly existing
and in good standing under the laws of the State of Iowa.
2. TDS has full corporate power and authority to own its properties and
to carry on its business as it is now being conducted, is duly qualified to do
business and is in good standing in all jurisdictions in which it is required to
be so qualified, except where the failure to so qualify would not be material,
and has received all necessary authorizations, consents and approvals of
governmental authorities material to the ownership of its properties and to the
conduct of its business other than such which, if not received, would not be
material.
3. TDS has full corporate power and authority to enter
into and carry out the terms of the Agreement.
4. The execution and delivery of the Agreement do not and, subject to
any requisite governmental orders, consents or approvals, the consummation of
the transactions contemplated thereby will not, violate any provision of the
articles of incorporation or by-laws of TDS, in each case as amended, and will
not violate any provision of, result in the breach or acceleration of or default
under, or require any consent or approval of a third party under any material
mortgage, indenture, security agreement, lease, contract, instrument, order,
arbitration award, judgment or decree to which TDS is a party or by which TDS is
bound.
5. Neither the execution and delivery of the Agreement nor the
consummation of the transactions contemplated thereby will, subject to any
requisite governmental orders, consents or approvals, conflict with or result in
any violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation, or to the loss of a material benefit under (i) any provision of
any License, (ii) any agreement establishing any Partnership, or the charter or
by-laws of any Cellular Company, (iii) any mortgage, indenture, lease or other
agreement or instrument to which TDS or any Controlled RSA Entity is a party, or
(iv) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to TDS or to any Controlled RSA Entity or its property other than any
such conflict, violation, default, right of termination, cancellation,
acceleration or loss that would not have a material adverse effect on such
Controlled RSA Entity.
-2-
<PAGE>
6. With respect to each Cellular Interest, which is also a General
Partnership Interest, being transferred to USCC, as of the date hereof, (A) TDS
owns each such General Partnership Interest free and clear of any lien, security
interest, charge, option or encumbrance other than restrictions on transfers to
non-affiliates pursuant to the terms of the respective Partnership Agreements;
(B) each such Partnership, which is also a Controlled RSA Entity, is duly
established under the laws of the jurisdiction of its establishment and is duly
qualified to do business in all jurisdictions in which the failure to so qualify
would be material, and has full partnership power and authority to own its
properties and carry on its business as it is now being conducted; and (C) to
the best of our knowledge, having made no inquiry other than of responsible
officers of TDS, there is no outstanding option, convertible security or other
right providing for the issuance or delivery of any Partnership Interest or
other security or equity interest of any such partnership.
7. With respect to each Cellular Interest, which is also a Limited
Partnership Interest, being transferred to USCC, as of the date hereof, (A) TDS
owns each such Limited Partnership Interest free and clear of any lien, security
interest, charge, option or encumbrance; (B) to the best of our knowledge, each
partnership is duly established under the laws of the jurisdiction of its
establishment and is duly qualified to do business in all jurisdictions in which
the failure to so qualify would be material, and has full partnership power and
authority to own its properties and carry on its business as it is now being
conducted; and (C) to the best of our knowledge, having made no inquiry other
than of responsible officers of TDS, there is no outstanding option, convertible
security or other right providing for the issuance or delivery of any
Partnership Interest or other security or equity interest of any such
Partnership.
8. With respect to each Cellular Interest, which involves shares of
Cellular Subsidiary Stock, as of the date hereof, (A) TDS owns such shares free
and clear of any lien, security interest, charge, option or encumbrance; (B)
with respect to each of the Cellular Companies, (i) all of the issued and
outstanding shares of capital stock of each such Company are duly authorized,
validly issued, fully paid and nonassessable, (ii) each such Company is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, is duly qualified to do business and is in
good standing in all jurisdictions in which the failure to so qualify would be
material, and has full corporate power and authority to own its properties and
to carry on its business as it is now being conducted, and (C) to the best of
our knowledge, having made no inquiry other than of responsible officers of TDS,
there is no
-3-
<PAGE>
outstanding option, warrant, convertible security, subscription or other right
providing for the issuance or delivery of any shares of capital stock or other
security or equity interest of any such Company.
9. The Board of Directors of TDS has duly authorized the Agreement and
the transactions contemplated thereby. The Agreement has been duly executed and
delivered by TDS and constitutes the valid and binding obligation of TDS,
enforceable against TDS in accordance with its terms, except to the extent that
its enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally or by general equitable principles.
10. With respect to each Controlled RSA Entity being transferred to
USCC as of the date hereof, to the best of our knowledge, having made no inquiry
other than of responsible officers of TDS (i) there is no material investigation
or review by any governmental entity pending or threatened, with respect to any
Controlled RSA Entity, including without limitation, any investigation or review
relating to hazardous substances, pollution or the environment, nor has any
governmental entity indicated in writing to TDS or any such entity an intention
to conduct any such investigation or review; and (ii) there is no action, suit
or proceeding pending or threatened against or affecting any Controlled RSA
Entity at law or in equity, or before any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
including without limitation, actions, suits or proceedings relating to
hazardous substances, pollution or the environment which, if adversely
determined, would have a material adverse effect on any such Controlled RSA
Entity.
11. The instruments of assignment, transfer and conveyance executed and
delivered by TDS to USCC in connection with the Cellular Interests being
transferred to USCC as of the date hereof are sufficient to transfer all of
TDS's right, title and interest in and to such interests to USCC or its
designee, all free and clear of any lien, security interest, charge, option or
encumbrance.
Any opinion or statement herein which is expressed to be "to
our knowledge" or is otherwise qualified by words of like import means that the
lawyers currently practicing law with this Firm who have had an active
involvement in representing TDS or USCC have no current conscious awareness of
any facts or information contrary to such opinion or statement. Except as
otherwise expressly stated in this letter, no independent investigation with
respect to such facts or information has been undertaken by or on behalf of such
lawyers. Moreover, such facts
-4-
<PAGE>
and information do not include matters which may have come to the attention of
one or more of the partners of this Firm identified in the second paragraph
below as a result of their acting in the capacities therein described but in
which they did not provide legal services on behalf of this Firm.
Except as expressly stated in the next sentence, this opinion
is limited to the laws of the State of Illinois, the General Corporation Law of
the State of Delaware, the Uniform Partnership Act, the Uniform Limited
Partnership Act, and the federal securities laws of the United States of
America. Insofar as the opinions expressed in paragraphs 1, 2, 3 and 4 above
relate to matters governed by the laws of the State of Iowa, we have not made an
independent examination of such laws, but have relied exclusively, with your
consent, as to such laws, upon the attached opinion of Nyemaster, Goode,
McLaughlin, Voigts, West, Hansell & O'Brien, P.C., of Des Moines, Iowa, subject
to all the qualifications, exceptions and limitations stated therein.
TDS is controlled by a voting trust. Walter C.D. Carlson, a
trustee and a beneficiary of such voting trust and a director of TDS and United
States Cellular Corporation, a Delaware corporation and an affiliate of TDS
("USCC"), Michael G. Hron, the Secretary of TDS and certain of its subsidiaries,
William S. DeCarlo, the Assistant Secretary of TDS and certain of its
subsidiaries, Stephen P. Fitzell, the Secretary of USCC and certain of its
subsidiaries, and Sherry S. Treston, the Assistant Secretary of USCC and certain
of its subsidiaries, are partners of this Firm.
This opinion is being delivered solely for your benefit in
connection with the above-described transaction; accordingly, it may not be
quoted, filed with any governmental authority or other regulatory agency or
otherwise circulated or utilized for any other purpose without our prior
consent. We assume no obligation to update or supplement this opinion to reflect
any facts or circumstances which may hereafter come to our attention with
respect to the opinions expressed above, including any changes in applicable law
which may hereafter occur.
Very truly yours,
Re: Cellular Interest
Transfer
Agreement dated
June ___, 1996.
-5-
<PAGE>
Schedule 8.5(a-2)
FORM OF OPINION OF NYEMASTER, GOODE, McLAUGHLIN,
VOIGTS, WEST, HANSELL & O'BRIEN
PURSUANT TO SECTION 8.5(a-2) OF THE
CELLULAR INTEREST TRANSFER AGREEMENT
_______, 1996
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Re: Telephone and Data Systems, Inc.
USCC Cellular Interest Transfer Agreement
Ladies and Gentlemen:
We have acted as special Iowa counsel to Telephone and Data
Systems, Inc., an Iowa corporation ("TDS"), in connection with the Cellular
Interest Transfer Agreement dated as of June __, 1996 (the "Agreement") by and
between TDS and United States Cellular Corporation ("USCC") providing for the
transfer by TDS to USCC of certain interests in entities holding licenses to
construct and operate cellular systems in designated areas.
We have examined originals or copies, certified or otherwise
identified to our satisfaction by public officials or officers of TDS as
authentic copies of originals, of the Agreement and such other records and
documents as in our judgment were necessary to enable us to render the opinions
expressed below. In our review and examination of all such records and
documents, we have assumed with your agreement (i) the genuineness of all
signatures, (ii) the authenticity of all records and documents submitted to us
as originals, (iii) the conformity with the originals of all records and
documents submitted to us as copies, (iv) the Agreement has been duly authorized
by the parties thereto other than TDS, (v) the Agreement has been duly executed
and delivered by the parties thereto, and (vi) the Agreement constitutes the
binding and enforceable obligations of the parties thereto (except to the extent
that the binding effect on and enforceability against TDS is dependent upon
matters specifically stated in the numbered paragraphs below).
Based on the foregoing and our investigation of such matters
of law as we have considered advisable, and subject to the exceptions,
qualifications and limitations set forth hereinafter, we are of the opinion
that:
1. TDS is a corporation duly organized and validly
existing under the laws of the State of Iowa, and has
corporate power and authority to: (i) own its
properties and carry on its business as it is now being
<PAGE>
conducted; and (ii) enter into and perform the terms of
the Agreement.
2. The Board of Directors of TDS has duly authorized the
Agreement and the transactions contemplated thereby.
3. The execution and delivery of the Agreement do not and,
subject to any requisite governmental orders, consents or
approvals, the consummation of the transactions contemplated
thereby will not, violate any provision of the Articles of
Incorporation or Bylaws of TDS, in each case as amended.
For purposes of rendering the foregoing opinions, with your
agreement we have relied, as to various questions of fact material to such
opinions, upon the representations made in the Agreement and upon certificates
of officers of TDS. In rendering our opinion in paragraph 1 above as to the
valid existence of TDS, we have relied solely upon a Certificate of Existence
issued by the Iowa Secretary of State on _____ _, 1996, a copy of which is
attached hereto. In rendering our opinion in paragraph 1 above as to the due
organization of TDS, we have assumed, with your agreement, that the Bylaws
referred to in the resolutions adopted by the Board of Directors of TDS as of
January 1, 1969, were in fact filed with the Secretary of TDS as stated therein
and were in conformance with Iowa law. In rendering our opinion in paragraph 2
above as to the due authorization of the Agreement, we have assumed, with your
agreement, that no director of TDS, who is not also a director or officer of
USCC, has a "material financial interest" in USCC for purposes of Section
831(2)(a) of the Iowa Business Corporation Act.
We are admitted to the Bar of the State of Iowa, and express
no opinion herein as to the laws of any other jurisdiction, including the laws
of the United States of America. Except as expressly set forth herein, we
express no opinion in connection with the transactions contemplated by the
Agreement.
This opinion is being delivered solely for the benefit of the
persons to whom it is addressed; accordingly, it may not be quoted, filed with
any governmental authority or other regulatory agency or otherwise circulated or
utilized for any other purpose without our prior written consent. Sidley &
Austin
- 2 -
<PAGE>
may quote from this opinion in its discretion or delivery a copy hereof in
connection with opinions that it may be requested or required to give on behalf
of TDS in connection with the Agreement.
Very truly yours,
NYEMASTER, GOODE, McLAUGHLIN,
VOIGTS, WEST, HANSELL & O'BRIEN,
P.C.
By:________________________________
Mark C. Dickinson
-3-
<PAGE>
Schedule 8.5(b)
FORM OF OPINION OF KOTEEN & NAFTALIN
PURSUANT TO SECTION 8.5 OF THE
CELLULAR INTEREST TRANSFER AGREEMENT
____________, 1996
United States Cellular Corporation
8410 West Bryn Mawr, Suite 700
Chicago, Illinois 60631
and
Telephone and Data Systems, Inc.
30 North LaSalle Street, Suite 4000
Chicago, Illinois 60602
Gentlemen:
We have acted as Federal Communications Commission ("FCC") counsel to
Telephone and Data Systems, Inc. ("TDS") and United States Cellular Corporation
("USCC"), in connection with that certain Cellular Interest Transfer Agreement
dated as of ________ __, 1996 (the "Agreement"), by and between TDS and USCC
relating to the assignment, transfer and delivery by TDS of all of its right,
title and interest in and to the Cellular Interests referred to in the Agreement
to USCC in accordance with the terms and conditions of the Agreement. Unless the
context otherwise requires, all terms used herein shall have the same meaning as
defined in the Agreement.
In our capacity as FCC counsel to TDS and USCC, we have examined
originals or copies, certified or otherwise identified to our satisfaction by
public officials or officers of TDS and USCC as authentic copies of originals,
of the Agreement and such other documents as in our judgment were necessary to
enable us to render the opinion expressed below.
Based upon the foregoing and our investigation of such matters of law
as we have considered advisable, subject to the exceptions, qualifications and
limitations set forth hereafter, we are of the opinion that:
With respect to the Cellular Interests being transferred to USCC as of
the date hereof, no consent, approval, authorization or order of the FCC not
obtained and in effect as of the date hereof is required with respect to such
transfer.
-1-
<PAGE>
In rendering the foregoing opinion, we have, with your approval,
assumed that the signatures on all documents reviewed by us and not executed in
our presence are genuine, that all documents submitted to us as originals are
authentic, that all documents submitted to us as reproduced or certified copies
conform to the original documents, that statements made to us by TDS and USCC
are true, complete and correct, that any reviews and searches of public records
obtained by us are true, complete and correct, and that the Agreement is a valid
and binding obligation of TDS and USCC, enforceable against TDS and USCC in
accordance with its terms. We have assumed the legal capacity of individuals and
that all corporate records of TDS and USCC provided to us by TDS and USCC are
accurate and complete. We have also assumed that the representations and
warranties and recitals of fact set forth in the documents referred to in this
letter are true, complete and correct on the date hereof. We have not
independently investigated or verified the accuracy or reasonableness of any
assumption made by us in this letter.
This letter is rendered solely for your benefit and may not be relied
upon by any other party.
Very truly yours,
-2-
<PAGE>
EXHIBIT A
DESCRIPTION OF CELLULAR INTERESTS
OWNED BY
TELEPHONE AND DATA SYSTEMS, INC.
TO BE SOLD TO
UNITED STATES CELLULAR CORPORATION
The following is a description of the Cellular Interests
proposed to be transferred by Telephone and Data Systems, Inc. ("TDS"), to
United States Cellular Corporation or its designated subsidiary ("USCC"), in
accordance with the terms and conditions set forth in that certain Cellular
Interest Transfer Agreement by and between TDS and USCC, dated as of June 20,
1996. Certain of these transfers will require the approval, consent or order of
the Federal Communications Commission ("FCC") and/or the appropriate state
regulatory authority or public utilities commission ("PUC"). Unless otherwise
specified herein, the shares of operating telephone companies are owned through
TDS's wholly-owned subsidiary, TDS Telecommunications Corporation ("TDS
Telecom").
CATEGORY A INTERESTS
I. MINORITY MSA ENTITIES
A. Olympia, Washington, MSA
------------------------
(See also Oregon RSA No. 2 and Washington RSA No. 7 discussion
herein.)
1. Description of Ownership Interest
- Metroplex Communications Corporation ("MCC") owns 100% of
Metroplex Olympia Cellular Corp. ("MOCC").
- MOCC owns a 9.2500% limited partnership interest in I-5 WN
Mobilnet Limited Partnership ("I-5 Partnership"), a Washington
limited partnership.
- MOCC also owns 11.0800% of I-5 Cellular, Inc. ("I-5, Inc.")
, which owns a 15.4150% general partnership interest in I-5
Partnership.
- I-5 Partnership owns a 38.9200% limited partnership interest
in Olympia Cellular Limited Partnership ("OCLP"), a Delaware
limited partnership and the licensee for the Olympia,
Washington, MSA FCC cellular wireline authorization.
In the aggregate, TDS indirectly owns a 4.2648% interest in
OCLP.
2. Form of Transfer to USCC
In order to effectuate the transfer of these interests to
USCC: (i) MCC shall transfer its shares of MOCC to TDS
Telecom, via a dividend, (ii) TDS Telecom shall transfer such
shares to TDS, via a dividend, and (iii) TDS shall thereafter
transfer such shares to USCC. As a result, MOCC shall become a
wholly-owned subsidiary of USCC.
<PAGE>
3. Transfer Restrictions
None.
4. Notice Obligations
None.
5. Regulatory Consents
None.
II. CONTROLLED RSA ENTITIES
B. Indiana RSA No. 4
-----------------
1. Description of Ownership Interest
- TDS owns 100% of Camden Telephone Company, Inc. ("CTC") and
49% of Camden Cellular Telephone Company ("CCTC").
- TDS directly owns 13.7950% limited partnership interest in
Indiana RSA No. 4 Limited Partnership ("IN4 LP"), an Indiana
limited partnership and the licensee for the Indiana RSA
No. 4 FCC cellular wireline authorization
- CTC directly owns a 13.7750% limited partnership interest
in IN4 LP, and 51% of CCTC.
- CCTC owns a 1% general partnership interest in IN4 LP.
In the aggregate, TDS indirectly and directly owns a 28.5700%
interest in IN4 LP.
2. Form of Transfer to USCC
In order to effectuate the transfer of these interests to
USCC, (i) CTC shall transfer its 13.7750% limited partnership
interest to TDS, via a dividend, (ii) CTC shall transfer its
51% interest in CCTC to TDS, via a dividend, (iii) CCTC shall
transfer its general partnership interest to TDS, via a
dividend, and (iv) TDS shall thereafter transfer such general
and all of its limited partnership interests to USCC.
3. Transfer Restrictions
None.
4. Notice Obligations
Section 12.1 of the partnership agreement of IN4 LP requires
that a copy of the assignment transferring a general or
limited partnership interest be delivered to the general
partner by the transferring partner. Section 20.8 provides for
the notice to be sent in writing, by registered or certified
mail, postage prepaid.
5. Regulatory Consents
FCC consent is required.
- 2 -
<PAGE>
III. MINORITY RSA ENTITIES
A. Colorado RSA No. 3
------------------
1. Description of Ownership Interest
- Delta County Tele-Comm., Inc. ("Delta") owns 14.2860% of
Western Colorado Cellular, Inc. ("WCC").
- WCC owns a 51% general partnership interest in Western
Colorado Cellular of Colorado Limited Partnership ("WCCCLP"),
a Colorado limited partnership.
- WCCCLP owns a 36.5000% limited partnership interest in
Colorado RSA No. 3 Limited Partnership ("CO3 LP"), a Delaware
limited partnership and the licensee for the Colorado RSA No.
3 FCC cellular wireline authorization.
TDS indirectly owns a 2.6000% interest in CO3 LP.
2. Form of Transfer to USCC
In order to effectuate the transfer of this interest to USCC,
(i) Delta shall transfer its shares of WCC to TDS Telecom, via
a dividend, (ii) TDS Telecom shall transfer such shares to
TDS, via a dividend, and (iii) TDS shall thereafter transfer
such shares to USCC. As a result, WCC will become a
wholly-owned subsidiary of USCC.
3. Transfer Restrictions
None.
4. Notice Obligations
None, except in the case of affiliate transfers, which
requires notice.
5. Regulatory Consents
None.
B. Oregon RSA No. 2 and Washington RSA No. 7
-----------------------------------------
(See also Olympia, Washington, MSA discussion herein.)
1. Description of Ownership Interest
- MCC owns 100% of Metroplex RSA-7 Cellular Communications
Corp. ("MC-7").
- MC-7 owns a 14.7790% limited partnership interest in Oregon
RSA No. 2 Limited Partnership ("OR2 LP"), an Oregon limited
partnership and the licensee for the Oregon RSA No. 2 and
Washington RSA No. 7 FCC cellular wireline authorizations.
2. Form of Transfer to USCC
In order to effectuate the transfer of this interest to USCC,
(i) MC-7 will transfer its limited partnership interest to
MCC, via a dividend, (ii) MCC shall transfer such interest to
TDS
- 3 -
<PAGE>
Telecom, via a dividend, (ii) TDS Telecom shall transfer such
interest to TDS, via a dividend, and (iii) TDS shall
thereafter transfer such interest to USCC.
3. Transfer Restrictions
None.
4. Notice Obligations
Section 12.1 of the partnership agreement of OR2 LP requires
that a copy of the assignment be delivered to general partner
as well as an agreement by the acquiring partner adopting and
agreeing to be bound by the provisions of the partnership
agreement. Section 20.8 requires that notices be sent in
writing, by registered or certified mail, postage prepaid.
5. Regulatory Consents
None.
CATEGORY B INTERESTS
I. CONTROLLED RSA ENTITIES
A. Arizona RSA No. 4
-----------------
(See also Tucson, MSA and Arizona RSAs No. 2 and No. 5
discussions herein.)
1. Description of Ownership Interest
- Arizona Telephone Company ("Arizona - Tel") owns 100% of
Aztel, Inc. ("Aztel").
- Aztel owns a 33.3400% general partnership interest in Yuma,
Arizona RSA Limited Partnership ("YARLP"), an Arizona limited
partnership and the licensee for the Arizona RSA No. 4 FCC
cellular wireline authorization.
2. Form of Transfer to USCC
In order to effectuate the transfer of these interests to
USCC, (i) Aztel shall transfer its limited partnership
interest to Arizona-Tel, via a dividend, (ii) Arizona-Tel
shall transfer such interest to TDS Telecom, via a dividend,
(iii) TDS Telecom shall transfer such interest to TDS, via a
dividend, and (iv) TDS shall thereafter transfer such interest
to USCC.
3. Transfer Restrictions
None.
4. Notice Obligations
Section 20.8 of this partnership agreement of YARLP requires
that notices be made in writing, registered or certified mail,
postage prepaid.
- 4 -
<PAGE>
5. Regulatory Consents
FCC and Arizona PUC consent are required.
II. MINORITY MSA ENTITIES
A. Duluth, Minnesota, MSA
----------------------
(See also St. Cloud, MSA discussion herein.)
1. Description of Ownership Interest
- Arvig Telecom, Inc. ("ATI") owns 100% of Arvig Telephone
Company ("Arvig-Tel").
- Arvig-Tel owns a 19.8750% limited partnership interest in
Duluth MSA Limited Partnership ("DMLP"), a Delaware limited
partnership and the licensee for the Duluth, Minnesota, MSA
FCC cellular wireline authorization.
2. Form of Transfer to USCC
In order to effectuate the transfer of this interest to USCC,
(i) Arvig-Tel shall transfer its limited partnership interest
to ATI, via a dividend, (ii) ATI shall transfer such interest
to TDS Telecom, via a dividend, (iii) TDS Telecom shall
thereafter transfer such interest to TDS, via a dividend, and
(iv) TDS shall transfer such interest to USCC.
3. Transfer Restrictions
None.
4. Notice Obligations
Section 11.2 of the partnership agreement of DMLP requires
that a copy of the assignment transferring a limited
partnership interest be delivered to the general partner by
the transferring partner. Section 19.7 requires notices to be
sent in writing, by registered or certified mail, postage
prepaid.
5. Regulatory Consents
None.
B. Redding, California, MSA
------------------------
1. Description of Ownership Interest
- Happy Valley Telephone Company ("HVTC") owns a 2.9000%
limited partnership interest in Redding MSA Limited
Partnership ("RMLP"), a California limited partnership and the
licensee for the Redding, California, MSA FCC cellular
wireline authorization.
2. Form of Transfer to USCC
In order to effectuate the transfer of this interest to USCC,
(i) HVTC shall transfer its limited partnership interest to
TDS Telecom, via a dividend, (ii) TDS Telecom shall transfer
such interest to TDS, via a dividend, and (iii) TDS shall
thereafter transfer such interest to USCC.
- 5 -
<PAGE>
3. Transfer Restrictions
None.
4. Notice Obligations
Section 11.8 of the partnership agreement of RMLP requires
that a copy of the assignment transferring a limited
partnership interest be delivered to the general partner by
the transferring partner. Section 19.8 provides for the notice
to be sent in writing, by registered or certified mail,
postage prepaid.
5. Regulatory Consents
None.
C. St. Cloud, Minnesota, MSA
--------------------------
(See also Duluth, MSA discussion herein.)
1. Description of Ownership Interest
- ATI owns a 14.2857% general partnership interest in Cellular
Mobile Systems of St. Cloud ("CMS - St. Cloud"), a Minnesota
general partnership and the licensee for the St. Cloud,
Minnesota, MSA FCC cellular wireline authorization.
2. Form of Transfer to USCC
In order to effectuate the transfer of this interest to USCC,
(i) ATI shall transfer its general partnership interest to TDS
Telecom, via a dividend, (ii) TDS Telecom shall transfer such
interest to TDS, via a dividend, and (iii) TDS shall
thereafter transfer such interest to USCC.
3. Transfer Restrictions
None.
4. Notice Obligations
Section 10.1 of the partnership agreement of CMS - St. Cloud
requires that notices be sent in writing, by certified mail,
return receipt requested, and postage prepaid.
5. Regulatory Consents
None.
D. Tucson, Arizona, MSA
--------------------
(See also Arizona RSA No. 2, No. 4 and No. 5 discussions
herein.)
1. Description of Ownership Interest
- Arizona-Tel owns 100% of Aztel.
- 6 -
<PAGE>
- Aztel owns a 29.3600% limited partnership interest in Tucell
Limited Partnership ("TLP"), a Delaware limited partnership
and the licensee for the Tucson, Arizona, MSA FCC cellular
wireline authorization.
2. Form of Transfer to USCC
In order to effectuate the transfer of this interest to USCC,
(i) Aztel shall transfer its limited partnership interest to
Arizona-Tel, via a dividend, (ii) Arizona-Tel shall transfer
such interest to TDS, via a dividend, (ii) TDS Telecom shall
transfer such interest to TDS, via a dividend, and (iii) TDS
shall thereafter transfer such interest to USCC.
3. Transfer Restrictions
None.
4. Notice Obligations
Section 11.2 of the partnership agreement of TLP requires that
a copy of the assignment transferring a limited partnership
interest be delivered to the general partner by the
transferring partner. Section 19.7 requires that notices be
sent in writing, by registered or certified mail, postage
prepaid.
5. Regulatory Consents
Arizona PUC consent is required.
III. MINORITY RSA ENTITIES
A. Arizona RSA No. 2
-----------------
(See also Tucson, MSA and Arizona RSAs No. 4 and No. 5
discussions herein.)
1. Description of Ownership Interest
- Arizona-Tel owns 100% of Aztel.
- Aztel owns a 1.8500% limited partnership interest and a
19.4500% general partnership interest in Coconino, Arizona RSA
Limited Partnership ("CARLP"), an Arizona limited partnership
and the licensee for the Arizona RSA No. 2 FCC cellular
wireline authorization.
In the aggregate, TDS indirectly owns a 21.3000% interest in
CARLP.
2. Form of Transfer to USCC
In order to effectuate the transfer of these interests to
USCC, (i) Aztel will transfer its partnership interests to
Arizona-Tel, via a dividend, (ii) Arizona-Tel shall transfer
such interests to TDS, via a dividend, (iii) TDS Telecom shall
transfer such interests to TDS, via a dividend, and (iii) TDS
shall thereafter transfer such interests to USCC.
3. Transfer Restrictions
None.
- 7 -
<PAGE>
4. Notice Obligations
Section 12.2 of the partnership agreement of CARLP requires
that a copy of the assignment transferring a limited
partnership interest be delivered to the general partner and
that the person acquiring such interest adopts and agrees to
be bound by the terms of the partnership agreement. Section
20.8 requires that notices be in writing, sent registered or
certified mail, postage prepaid.
5. Regulatory Consents
FCC and Arizona PUC consent are required.
B. Arizona RSA No. 5
-----------------
(See also Tucson, MSA and Arizona RSAs No. 2 and No. 4
discussions herein.)
1. Description of Ownership Interest
- Arizona-Tel owns 100% of Aztel.
- Aztel owns a 22.2525% general partnership interest in Gila
River Cellular General Partnership ("GRCGP"), an Arizona
general partnership and the licensee for the Arizona RSA No. 5
FCC cellular wireline authorization.
2. Form of Transfer to USCC
In order to effectuate the transfer of this interest to USCC,
(i) Aztel shall transfer its general partnership interest to
Arizona-Tel, via a dividend, (ii) Arizona-Tel shall transfer
such interest to TDS, via a dividend, (ii) TDS Telecom shall
transfer such interest to TDS, via a dividend, and (iii) TDS
shall thereafter transfer such interest to USCC.
3. Transfer Restrictions
None.
4. Notice Obligations
Section 15.7 of the partnership agreement of GRGCP requires
that notices be sent in writing, by registered or certified
mail, postage prepaid, or via a nationally recognized express
courier service providing proof of receipt and delivery, and
"same day" or "next day" delivery, or by facsimile.
5. Regulatory Consents
Arizona PUC consent is required.
C. Minnesota RSA No. 7
-------------------
1. Description of Ownership Interest
- Danube Telephone Company Inc. ("DTC"), owns 100% of Danube
Communications, Inc.("DCI").
- 8 -
<PAGE>
- Each of DCI, Mid-State Telephone Company ("MTC") and Winsted
Telephone Company ("WTC") owns an 8.3333% general partnership
interest in Cellular 7 Partnership ("C7"), a Minnesota general
partnership and the licensee for the Minnesota RSA No. 7 FCC
cellular wireline authorization.
2. Form of Transfer to USCC
In order to effectuate the transfer of these interests to
USCC, (i) DCI shall transfer its general partnership interest
to DTC, via a dividend, (ii) each of DTC, MTC and WTC shall
transfer its respective interest to TDS Telecom, via a
dividend, (iii) TDS Telecom shall transfer each of these
interests to TDS, via a dividend, and (iv) TDS shall
thereafter transfer such interests to USCC.
3. Transfer Restrictions
None.
4. Notice Obligations
Section 10.3 of the partnership agreement of C7 requires that
notices be sent in writing via certified mail and return
receipt requested, postage prepaid.
5. Regulatory Consents
None.
D. Ohio RSA No. 2-B1
-----------------
(See also Ohio RSA No. 5 discussion herein.)
1. Description of Ownership Interest
- Vanlue Telephone Company ("Vanlue") owns a 10.8430% limited
partnership interest in Ohio RSA 2 Limited Partnership ("OH2
LP"), a Delaware limited partnership and the licensee for the
Ohio RSA No. 2-B1 FCC cellular wireline authorization.
2. Form of Transfer to USCC
In order to effectuate the transfer of this interest to USCC,
(i) Vanlue shall transfer its limited partnership interest to
TDS Telecom, via a dividend, (ii) TDS Telecom shall transfer
such interest to TDS, via a dividend, and (iii) TDS shall
thereafter transfer such interest to USCC.
3. Transfer Restrictions
None.
4. Notice Obligations
Section 11.2 of the partnership agreement of OH2 LP requires
the transferring limited partner to deliver a copy of the
assignment to the general partner, and the transferee to agree
in writing to be bound by the provisions of the partnership
agreement. Section 19.8 requires all notices to be in writing,
sent via registered or certified mail, postage prepaid.
- 9 -
<PAGE>
5. Regulatory Consents
None.
E. Ohio RSA No. 5
--------------
(See also Ohio RSA No. 2-B1 discussion herein.)
1. Description of Ownership Interest
- Vanlue owns an 8.7500% limited partnership interest in Ohio
RSA 5 Limited Partnership ("OH5 LP"), a Delaware limited
partnership and the licensee for the Ohio RSA No. 5 FCC
cellular wireline authorization.
2. Form of Transfer to USCC
In order to effectuate the transfer of this interest to USCC,
(i) Vanlue shall transfer its limited partnership interest to
TDS Telecom, via a dividend, (ii) TDS Telecom shall transfer
such interest to TDS, via a dividend and (iii) TDS shall
thereafter transfer such interest to USCC.
3. Transfer Restrictions
None.
4. Notice Obligations
Section 11.2 of the partnership agreement of OH5 LP requires
the transferring limited partner to deliver a copy of the
assignment to the general partner and the transferee to agree
in writing to be bound by the provisions of the partnership
agreement. Section 19.8 requires all notices to be in writing
sent via registered or certified mail, postage prepaid.
5. Regulatory Consents
None.
- 10 -
<PAGE>
