Registration No. 33-58911
Filed Pursuant to Rule 424(b)(3)
PROSPECTUS
[LOGO]
UNITED STATES CELLULAR CORPORATION
Common Shares, $1.00 par value
This Prospectus relates to Common Shares, par value $1.00 per share
("Common Shares"), of United States Cellular Corporation (the "Company"), which
are owned by Telephone and Data Systems, Inc. ("TDS"), and may be sold by
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), in
connection with ordinary trading or market-making activities by Merrill Lynch in
Common Shares or Liquid Yield Option(TM) Notes due 2015 of the Company
("LYONS"(TM)). In addition, at the request of the Company, the Standby Share
Deliverer, initially Merrill Lynch, may agree to deliver such Common Shares,
and/or other Common Shares, to which this Prospectus also relates, which it
acquires from other sources, to Holders of LYONs upon conversion thereof.
Merrill Lynch may obtain Common Shares from TDS pursuant to a
Securities Loan Agreement (the "Securities Loan Agreement") between Merrill
Lynch and TDS. Under the Securities Loan Agreement, subject to certain
restrictions, Merrill Lynch may, with the agreement of TDS, from time to time
borrow, return and reborrow Common Shares from TDS. The number of Common Shares
that may be borrowed under the Securities Loan Agreement at any time may not
exceed 750,000 shares, which number of Common Shares may be reduced from time to
time by TDS.
The Securities Loan Agreement was entered into in connection with the
public offering of the LYONs by the Company and is intended to facilitate
ordinary trading and market-making activity in the LYONs by Merrill Lynch. The
Securities Loan Agreement is also intended to enhance the ability of the Standby
Share Deliverer to deliver Common Shares to Holders of LYONs which are converted
into Common Shares. The availability of Common Shares under the Securities Loan
Agreement, if any, at any time is, as described above, not assured and any such
availability does not assure market-making activity in the LYONs by Merrill
Lynch.
Merrill Lynch may from time to time offer Common Shares directly to one
or more purchasers at negotiated prices, at market prices prevailing at the time
of sale or at prices related to such market prices. In addition, at the request
of the Company, the Standby Share Deliverer may agree to deliver Common Shares
to Holders of LYONs which are converted into Common Shares. LYONs acquired by
the Standby Share Deliverer in connection with such conversions or otherwise may
be resold by the Standby Share Deliverer. See "Arrangements with Merrill Lynch."
The Common Shares are currently listed on the American Stock Exchange
under the symbol USM.
See "Risk Factors" on page 7 for a discussion of certain factors that
should be considered by prospective investors in Common Shares.
"Liquid Yield Option" and "LYONs" are Trademarks of Merrill Lynch &
Co., Inc.
__________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is August 15, 1996.
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AVAILABLE INFORMATION
The Company and TDS each is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected at the public reference
facilities of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549; New York Regional Office, Public Reference Room, Seven
World Trade Center, 13th Floor, New York, New York 10048; and Chicago Regional
Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Company's Common Shares and the TDS Common Shares are listed on the
American Stock Exchange, and reports, proxy statements and other information
concerning the Company or TDS may be inspected at the office of the American
Stock Exchange, Inc., 86 Trinity Place, New York, New York 10006.
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the securities offered by this Prospectus. This Prospectus does
not contain all of the information set forth in such Registration Statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission. Reference is made to such Registration Statement
and to the exhibits thereto for further information with respect to the Company
and the securities offered hereby.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission are incorporated
herein by reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.
(2) The Company's Quarterly Report on Form 10-Q for the quarters
ended March 31, and June 30, 1996.
(3) The Company's Current Reports on Form 8-K dated January 10,
1996 and June 21, 1996.
(4) The description of the Company's Common Shares included in the
Company's Report on Form 8-A, as amended, dated December 28,
1992.
All reports and other documents filed by the Company with the
Commission pursuant to Section 13(a), 13(c), 14 and 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the termination of the
offerings made by this Prospectus shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated herein by reference modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will furnish without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon his written or oral
request, a copy of any and all of the documents described above, other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into such documents). Requests should be directed to:
United States Cellular Corporation
Suite 700
8410 West Bryn Mawr
Chicago, Illinois 60631
Attention: External Reporting
(312) 399-8900
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PROSPECTUS SUMMARY
The following summary is qualified by the detailed information and
financial statements included elsewhere or incorporated by reference into this
Prospectus.
The Company
United States Cellular Corporation owns, operates and invests in
cellular telephone systems throughout the United States. The Company is a
majority-owned subsidiary of TDS. As of the date of this Prospectus, TDS owned
over 80% of the combined total of the outstanding Common Shares and Series A
Common Shares of the Company and controlled approximately 95% of the combined
voting power of both classes of common stock. TDS also operates local exchange
telephone subsidiaries through its wholly-owned subsidiary, TDS
Telecommunications Corporation, provides paging services through its over 80%-
owned subsidiary, American Paging, Inc., and is developing broadband Personal
Communications Services ("PCS") through its over 80%-owned subsidiary, American
Portable Telecom, Inc. See the Company's most recent Annual Report on Form 10-K,
Quarterly Report on Form 10-Q or other periodic reports, which are incorporated
herein by reference, for additional information about the Company. See
"Incorporation of Certain Documents by Reference." See TDS's most recent Annual
Report on Form 10- K, Quarterly Report on Form 10-Q or other periodic reports
for additional information about TDS. See "Available Information."
Certain Definitions
Metropolitan Statistical Areas ("MSAs") and Rural Service Areas
("RSAs") in which the Company owns or has a right to acquire a license to
construct or operate a cellular telephone system are sometimes collectively
referred to herein as "markets" or "systems." As used in this Prospectus, unless
the context indicates otherwise, (i) references to the "Company" refer to United
States Cellular Corporation and its subsidiaries and (ii) references to "TDS"
refer to Telephone and Data Systems, Inc. and its subsidiaries.
Risk Factors
Prospective purchasers of the securities offered hereby should
carefully consider the factors discussed under "Risk Factors."
Description of LYONs
Original Offering of LYONs On June 13, 1995, the Company issued
$745,000,000 aggregate principal amount at
maturity of LYONs due June 15, 2015. There
are no periodic interest payments on the LYONs.
Each LYON was issued at an Issue Price of
$306.46 and a principal amount due at
maturity of $1,000.
Yield to Maturity of LYONs 6% per annum (computed on a semi-annual bond
equivalent basis) calculated from June 13,
1995.
Conversion Rights Each LYON is convertible, at the option of the
Holder, at any time on or prior to maturity.
Upon conversion of a LYON, the Company may
elect the delivery of Common Shares, at a
Conversion Rate of 9.475 shares per LYON, or
cash equal to the market value of the Common
Shares into which the LYONs are convertible. In
connection with the conversion of any LYON, the
Company may enter into a Common Share Delivery
Arrangement with a Standby Share
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Deliverer,
initially Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), whereby, upon
the agreement of the Standby Share Deliverer to
so act in connection with such conversion, it
will deliver the Common Shares (and any cash
payment in lieu of a fractional Common Share)
deliverable to the Holder upon such conversion.
As a result of such a Common Share Delivery
Arrangement, the converted LYON will not be
retired or cancelled, but shall remain
outstanding with the Standby Share Deliverer
becoming the Holder thereof. The Conversion
Rate will not be adjusted for accrued Original
Issue Discount, but will be subject to
adjustment upon the occurrence of certain
events affecting the Common Shares. Upon
conversion, the Holder will not receive any
cash payment representing accrued Original
Issue Discount; such accrued Original Issue
Discount will be deemed paid by the Common
Shares or cash received on conversion unless
such LYON remains outstanding pursuant to a
Common Share Delivery Arrangement. See
"Description of LYONs-Conversion Rights." The
Company's Common Shares have less voting power
than its Series A Common Shares. The LYONs are
not convertible into Series A Common Shares,
which have effective control of the Company.
As of June 30, 1996, TDS owned over 80% of the
combined total of the outstanding Common Shares
and Series A Common Shares of the Company and
controlled approximately 95% of their combined
voting power. As a result, TDS was effectively
able to elect all of the Company's seven
directors.
Subordination The LYONs are subordinated to all existing and
future Senior Indebtedness of the Company. The
LYONs are also effectively subordinated to all
liabilities, including trade payables, of
subsidiaries of the Company. See "Description
of LYONs- Subordination of LYONs; Effect of
Corporate Structure."
Original Issue Discount Each LYON was offered at an Original Issue
Discount for United States Federal income tax
purposes equal to the excess of the principal
amount at maturity of the LYON over the amount
of its Issue Price. Prospective purchasers of
LYONs upon resale hereby should be aware that,
although there will be no periodic payments of
interest on the LYONs, accrued Original Issue
Discount (or a portion thereof) will be
includable periodically in a Holder's gross
income for United States Federal income tax
purposes prior to conversion, redemption, other
disposition or maturity of such Holder's LYONs,
whether or not such LYONs are ultimately
converted, redeemed, sold (to the Company or
otherwise) or paid at maturity. See "Certain
Tax Aspects."
Sinking Fund None.
Optional Redemption The LYONs are not redeemable by the Company
prior to June 15, 2000. Beginning on June 15,
2000, the LYONs are redeemable for cash at any
time at the option of the Company, in whole or
in part, at Redemption Prices equal to the
Issue Price plus accrued Original Issue
Discount through the date of redemption. See
"Description of LYONs-Redemption of LYONs
at the Option of the Company."
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Purchase at the Option The Company will purchase LYONs, at the
of the Holder. option of the Holder, as of June 15, 2000 (the
"Purchase Date") for a Purchase Price per LYON
of $411.99 (Issue Price plus accrued
Original Issue Discount through such
Purchase Date). The Company may also elect
to offer to purchase LYONs, at the option of
the Holder, as of June 15, 2005 (the "Optional
Purchase Date") for a Purchase Price per LYON
of $553.68 (Issue Price plus accrued Original
Issue Discount through such Optional
Purchase Date). If the Company elects to also
offer to purchase LYONs as of the Optional
Purchase Date it will notify the Holders of
such election prior to the Purchase Date. The
Company, at its option, may elect to pay the
Purchase Price as of the Purchase Date or the
Optional Purchase Date, as applicable,
in cash, Common Shares or TDS Common Equity
Securities, or any combination thereof. TDS has
not waived any rights that it may have under an
agreement between TDS and the Company to
purchase Common Shares if the Company elects to
pay the Purchase Price (or a portion thereof)
in Common Shares (as of the Purchase Date or
Optional Purchase Date, as applicable). As a
result, in such event, TDS may notify the
Company that it intends to exercise any such
rights to acquire additional Common Shares up
to an amount equal to TDS's percentage
ownership of Common Shares at that time
(assuming that all outstanding securities that
are or may become convertible into Common
Shares, including LYONs, were converted into
Common Shares), at a price per share payable in
cash equal to the Market Price per Common
Share. Because the Market Price of any Common
Shares or TDS Common Equity Securities to be
delivered in payment, in whole or in part, of a
Purchase Price is determined as of the third
Business Day prior to the applicable Purchase
Date or Optional Purchase Date, Holders of
LYONs bear the market risk with respect to the
value of the Common Shares or TDS Common Equity
Securities to be received from the date such
Market Price is determined to the applicable
Purchase Date or Optional Purchase Date. See
"Description of LYONs-Purchase of LYONs at the
Option of the Holder" and "Description of
Capital Stock-Preemptive and Similar Rights."
In addition, as of 35 business days after the
occurrence of a Change in Control of the
Company occurring on or prior to June 15, 2000,
the Company will purchase LYONs, at the option
of the Holder, at a Change in Control Purchase
Price, in cash, equal to the Issue Price plus
accrued Original Issue Discount through the
date set for such purchase. The LYONs will not,
however, be subject to purchase by the Company
at the
option of the Holder in connection with (i)
certain transactions involving TDS, the Company
or LeRoy T. Carlson and certain members of his
family that would otherwise constitute a Change
in Control or (ii) the disposition of Common
Shares or Series A Common Shares by TDS in the
absence of a Rating Decline. The Change in
Control purchase feature of the LYONs may in
certain circumstances have an anti-takeover
effect. See "Description of LYONs-Change in
Control Permits Purchase of LYONs at the Option
of the Holder" for a summary of this provision
and the definition of "Change in Control" and
related terms.
Use of Proceeds The Company will not receive any of the cash
proceeds from any resale of LYONs by the
Standby Share Deliverer or from any sale by
Merrill Lynch of
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Common Shares acquired from TDS under the
Securities Loan Agreement. See "Use of
Proceeds."
Listing The LYONs are currently listed on the American
Stock Exchange under the symbol USM.A. The
Common Shares are currently listed on the
American Stock Exchange under the symbol USM.
TDS Common Shares are currently listed on the
American Stock Exchange under the symbol TDS.
Subsequent Sales of Securities
Resales of LYONs In connection with the conversion of any LYON,
the Company may enter into a Common Share
Delivery Arrangement with a third party Standby
Share Deliverer, initially Merrill Lynch,
whereby, upon the agreement of the Standby
Share Deliverer to so act in connection with
such conversion, it will deliver the Common
Shares (and any cash payment in lieu of a
fractional Common Share) deliverable to the
Holder upon such conversion, through the
Conversion Agent, in the same amounts and
within the same time periods as for conversions
in respect of which the Company were to
deliver the Common Shares. As a result of such
a Common Share Delivery Arrangement, the
converted LYON will not be retired or
cancelled, but shall remain outstanding with
the Standby Share Deliverer becoming the Holder
thereof. The Standby Share Deliverer may resell
such LYONs. This Prospectus covers the delivery
of Common Shares (acquired pursuant to the
Securities Loan Agreement described below, or
otherwise) by the Standby Share Deliverer in
connection with any Common Share Delivery
Arrangement and any resales of LYONs by the
Standby Share Deliverer.
Securities Loan Agreement TDS and Merrill Lynch have entered into a
Securities Loan Agreement (the "Securities Loan
Agreement"), which provides that, subject to
certain restrictions, Merrill Lynch may, with
the agreement of TDS, from time to time borrow,
return and reborrow from TDS up to 750,000
Common Shares, which number of Common Shares
may be reduced from time to time by TDS. The
Securities Loan Agreement is intended to
facilitate ordinary trading and market-making
activity in the LYONs by Merrill Lynch and may
also be used by Merrill Lynch, as Standby Share
Deliverer, to obtain Common Shares deliverable
by it in connection with any Common Share
Delivery Arrangement entered into with the
Company, as described
above. The availability of Common Shares
under the Securities Loan Agreement, if any,
at any time is, as described above, not assured
and any such availability does not
assure market-making activity in the LYONs by
Merrill Lynch. This Prospectus may be used
by Merrill Lynch in connection with the sale
of Common Shares borrowed by Merrill Lynch
from TDS under the Securities Loan Agreement.
Merrill Lynch is not under any obligation to
engage in market-making activity with respect
to the LYONs, or to agree to any Common Share
Delivery Arrangement, and any market-making, or
activity as a Standby Share Deliverer, actually
engaged in by Merrill Lynch may cease at any
time.
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RISK FACTORS
Prior to deciding to invest in the securities offered hereby, potential
investors should carefully consider the following factors, together with other
information contained or incorporated by reference in this Prospectus, in
evaluating the Company and its business.
Operating and Financial Performance
The Company is currently profitable but has previously incurred
significant start-up costs and operating losses. The Company anticipates
increasing growth in cellular units in service and revenues as market
penetration increases and as it continues its expansion and development
programs. Marketing and system operations expenses associated with expansion may
reduce the rate of growth in operating cash flow and operating income from what
would otherwise be reported. In addition, the Company anticipates that the
seasonality of revenue streams and operating expenses may affect the Company's
operating and net results from quarter to quarter.
While there are numerous cellular systems operating in the United
States and other countries, the industry has only a limited operating history.
While the Company is currently profitable, changes in any of several factors
could reduce the Company's growth in operating income and net income. These
factors include: (i) the growth rate in the Company's customer base; (ii) the
usage and pricing of cellular services; (iii) the churn rate; (iv) the cost of
providing cellular services, including the cost of attracting new customers; (v)
the introduction of competition from PCS and other emerging technologies; and
(vi) continuing technological advances which may provide additional competitive
alternatives to cellular service.
Competition and New Technologies
Currently, the Company's only competitor for cellular telephone service
in each market is the licensee of the second cellular system in that market.
Since each competitor operates its cellular system on a 25 megahertz ("MHz")
frequency block licensed by the FCC using comparable technology and facilities,
competition for customers between the two systems in each market is principally
on the basis of quality, price, size of area covered, services offered and
responsiveness of customer service. The competing entities in many of the
markets in which the Company has an interest have financial resources which are
substantially greater than those of the Company and its partners in such
markets.
In Addition the FCC has allocated three 30 MHz frequency blocks and
three 10 MHz frequency blocks to broadband PCS. PCS is being deployed throughout
the United States and may become a significant source of competition in the
Company's markets. PCS licensees have been authorized by the FCC to provide
digital, wireless communications services in markets served by the Company.
Similar technological advances or regulatory changes in the future may make
available other alternatives to cellular service, thereby creating additional
sources of competition.
In addition to competition from PCS and the other cellular licensee in
each market, there is also competition from, among other technologies,
conventional mobile telephone and Specialized Mobile Radio ("SMR") systems, both
of which are able to connect with the landline telephone network. The Company
believes that conventional mobile telephone systems and conventional SMR systems
are competitively disadvantaged because of technological limitations on the
capacity of such systems. The FCC has given approval, through waivers of its
rules, to Enhanced Specialized Mobile Radio ("ESMR"). ESMR systems may have
cells and frequency reuse like cellular, thereby potentially eliminating any
current technological limitation. The first ESMR systems were implemented
in 1993 in Los Angeles. Although less directly a
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substitute for cellular service, wireless data services
and one-way paging service (and, in the future, two-way paging services) may be
adequate for those who do not need full two-way voice service.
Continuing technological advances in the communications field make it
difficult to predict the extent of additional future competition for cellular
systems. For example, the FCC has allocated radio channels to a mobile satellite
system in which transmissions from mobile units to satellites would augment or
replace transmissions to cell sites, and several consortia have been formed to
provide such service. Such a system is designed primarily to serve the
communications needs of remote locations and a mobile satellite system could
provide viable competition for land-based cellular systems in such areas. It is
also possible that the FCC may in the future assign additional frequencies to
cellular telephone service to provide for more than two cellular telephone
systems per market.
Regulation
The licensing, construction, operation, acquisition and sale of
cellular systems are regulated by the FCC. In addition, certain aspects of
cellular system operations may be subject to public utility regulation in the
states in which service is provided. Changes in the regulation of cellular
operators or their activities and of other mobile service providers could have a
material adverse effect on the Company's operations. In addition, FCC licenses
to provide cellular service are subject to renewal. There may be competition for
licenses upon the expiration of their initial ten-year terms and there is no
assurance that any license will be renewed.
Value of FCC Licenses
The Company's assets consist principally of intangible assets in the
form of investments in licenses. In many cases the transfer of such interests is
restricted and subject to prior FCC or state regulatory approval. In some cases
the transfer of the Company's interests is subject to rights of first refusal.
In addition, the future value of all cellular interests will depend
significantly upon the success of the Company's business. While there is a
current market for cellular licenses, such a market may not exist in the future
or the values obtainable may be significantly lower than at present. In
addition, the value of licenses may be affected by the level of supply and
demand for such licenses and therefore awards of additional licenses for
competitive wireless technologies, such as those awarded by the auction for PCS
completed by the FCC, may adversely affect the value of cellular licenses.
Markets
Many of the Company's markets or market clusters are located in areas
which are not densely populated and may not benefit from operating efficiencies
available to systems operated in metropolitan areas and larger market clusters.
Typically, smaller and less densely populated markets take longer to reach
profitability and positive cash flow than larger individual markets or larger
market clusters. Due to the fact that the FCC issued cellular licenses for MSAs
in order of market size, most of the Company's MSAs were placed in service later
than larger MSAs served by other cellular operators. RSAs are several years
behind the typical MSA in their development and thus may be at least several
years behind typical MSAs in achieving comparable profitability and cash flow on
a relative basis.
Liquidity and Capital Resources
The construction of a cellular telephone system is capital-intensive
and requires substantial investment prior to operation. The initial operation of
a cellular system also requires additional investment to cover
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start-up, operating and marketing expenses.
The Company intends to continue to pursue
opportunities to acquire cellular interests, including additional interests in
cellular systems in which it owns or has rights to acquire an interest. The
Company may require additional funds to build and operate systems with respect
to any such acquired interests and to pursue the acquisition of new interests.
Although the Company has begun to generate positive operating income
and cash flows from operating activities, it has required and may continue to
require outside financing to provide the funds necessary for investment. The
timing and amount of the Company's funding requirements will depend on the
number of licensees acquired by the Company, the plans for the construction and
operation of individual cellular systems, and other relevant factors. The
Company may require external financing to fund acquisitions and to fund capital
requirements for markets which the Company currently owns or has the right to
acquire pursuant to definitive agreements. These requirements may be met through
additional borrowings from TDS, the issuance of equity or debt securities,
vendor financing, bank financing, the sale of assets, or a combination thereof.
There can be no assurance that sufficient funds will be available to
the Company on terms or at prices acceptable to the Company. If sufficient
funding is not available to the Company on terms and prices acceptable to the
Company, the Company would have to reduce its construction, development and
acquisition programs. In the long term, reduction of the Company's construction,
development and acquisition programs would have a negative impact on the ability
of the Company to increase its consolidated revenues and cash flows.
Radiofrequency Emission Concerns
Media reports have suggested that certain radio frequency ("RF")
emissions from portable cellular telephones might be linked to cancer. The
Company is not aware of any authoritative evidence linking the usage of portable
cellular telephones with cancer. The FCC currently has a rulemaking proceeding
pending to update the guidelines and methods it uses for evaluating RF emissions
in radio equipment, including cellular telephones. While the proposal would
impose more restrictive standards on RF emissions from low-power devices such as
portable cellular telephones, it is anticipated that all cellular telephones
currently marketed and in use will comply with those standards.
Control by Principal Shareholder; Anti-takeover Provisions
As of the date of this Prospectus, TDS owned over 80% of the combined
total of both classes of common stock of the Company, including a majority of
the outstanding Common Shares, and controlled approximately 95% of their
combined voting power. As a result, TDS was effectively able to elect all of the
Company's seven directors and otherwise control the management and operations of
the Company. See "Description of Capital Stock."
The control of the Company by TDS and various provisions of the
Company's Restated Certificate of Incorporation, as amended, may tend to deter
non-negotiated tender offers or other efforts to obtain control of the Company
and thereby deprive shareholders of opportunities to sell shares at prices
higher than those prevailing in the market. See "Description of Capital Stock."
Relationship with TDS; Conflicts of Interest
Directors and officers of TDS and its subsidiaries who are also
directors and officers of the Company, and TDS as the Company's controlling
shareholder, are in positions involving the possibility of conflicts of interest
with respect to certain transactions concerning the Company. When the interests
of TDS and the
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Company diverge, TDS may exercise its influence in its own best
interests. See "Description of Capital Stock-Corporate Opportunity
Arrangements."
The Company and TDS have entered into contractual arrangements
governing certain transactions and relationships between them. These agreements
were executed prior to the initial public offering of the Company's Common
Shares and were not the result of arm's-length negotiations. Accordingly, there
is no assurance that the terms and conditions of these agreements are as
favorable to the Company as it could have obtained from unaffiliated third
parties. See "Certain Relationships and Related Transactions" in the Company's
most recent Annual Report on Form 10-K, which is incorporated herein by
reference.
In the future, the Company expects to resolve any potential conflicts
of interest with TDS on a case by case basis, taking into consideration relevant
factors including its existing agreements with TDS, the requirements of the
American Stock Exchange and prevailing corporate practices.
USE OF PROCEEDS
The Company will not receive any of the cash proceeds from any resale
of LYONs by the Standby Share Deliverer or from any sale by Merrill Lynch of
Common Shares acquired from TDS under the Securities Loan Agreement.
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DESCRIPTION OF LYONS
The LYONs were issued under an indenture dated as of June 1, 1995 (the
"Indenture"), between the Company and Harris Trust and Savings Bank, as trustee
(the "Trustee"). A copy of the form of Indenture is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summaries of certain provisions of the LYONs and the Indenture do not purport to
be complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the LYONs and the Indenture, including the definitions
therein of certain terms which are not otherwise defined in this Prospectus.
Wherever particular provisions or defined terms of the Indenture (or of the Form
of LYON which is a part thereof) are referred to, such provisions or defined
terms are incorporated herein by reference. References herein are to sections in
the Indenture and paragraphs in the Form of LYON. As used in this "Description
of LYONs," the "Company" refers to United States Cellular Corporation and does
not include its subsidiaries, other affiliates, partners or entities in which it
holds an investment.
General
The LYONs are unsecured obligations of the Company limited to
$745,000,000 aggregate principal amount at maturity and will mature on June 15,
2015. The principal amount at maturity of each LYON is $1,000 and will be
payable at the office of the Paying Agent, initially the Trustee. (Section 2.03
and Form of LYON, paragraph 3.)
The LYONs were offered at a substantial discount from their principal
amount at maturity. See "Certain Tax Aspects-Original Issue Discount." The LYONs
have no periodic payments of interest. The calculation of the accrual of
Original Issue Discount (the difference between the Issue Price and the
principal amount at maturity of a LYON) in the period during which a LYON
remains outstanding is on a semi-annual bond equivalent basis using a 360-day
year composed of twelve 30-day months; such accrual commenced from the Issue
Date of the LYONs. (Form of LYON, paragraph 1.) Maturity, conversion (other than
pursuant to a Common Share Delivery Arrangement (as defined below)), purchase by
the Company at the option of a Holder, or redemption of a LYON will cause
Original Issue Discount and interest, if any, to cease to accrue on such LYON,
under the terms and subject to the conditions of the Indenture. (Section 2.08.)
The Company may not reissue a LYON that has matured or been converted, purchased
by the Company at the option of a Holder, redeemed or otherwise cancelled
(except for registration of transfer, exchange or replacement thereof), provided
that a LYON converted pursuant to a Common Share Delivery Arrangement shall
remain outstanding as described in "Conversion Rights" below. (Section 2.10.)
The LYONs were issued in fully registered form, without coupons, in
denominations of $1,000 of principal amount at maturity or an integral multiple
thereof. (Form of LYON, paragraph 11.) LYONs may be presented for conversion at
the office of the Conversion Agent and for exchange or registration of transfer
at the office of the Registrar, each such agent initially being the Trustee.
(Section 2.03.) The Company will not charge a service charge for any
registration of transfer or exchange of LYONs; however, the Company may require
payment by a Holder of a sum sufficient to cover any tax, assessment or other
governmental charge payable in connection therewith. (Section 2.06.)
The Company will maintain in the Borough of Manhattan, the City of New
York, an office or agency of the Trustee, Registrar, Paying Agent and Conversion
Agent where LYONs may be presented or surrendered for payment, where LYONs may
be surrendered for registration of transfer, exchange, purchase, redemption or
conversion and where notices and demands to or upon the Company in respect
of the LYONs and the Indenture may be served, which is currently the corporate
trust office of the Trustee in such Borough. (Section 4.05.)
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<PAGE>
Subordination of LYONs; Effect of Corporate Structure
Indebtedness evidenced by the LYONs is subordinated in the right of
payment, as set forth in the Indenture, to the prior payment in full of all
existing and future Senior Indebtedness of the Company. (Section 10.01 and Form
of LYON, paragraph 8.) Senior Indebtedness is defined in the Indenture as the
principal of (and premium, if any) and interest on (including interest accruing
after the filing of a petition initiating any proceeding pursuant to any
Bankruptcy Law (including, with respect to the Vendor Financing Agreement (and
any other Debt if the instrument creating or evidencing the same expressly
provides therefor), such interest whether or not allowed as a claim in such
proceeding, but, with respect to all other Debt, only to the extent allowed or
permitted to the holder of such Debt against the bankruptcy or any other
insolvency estate of the Company in such proceeding)) and other amounts due on
or in connection with any Debt incurred, assumed or guaranteed by the Company,
whether outstanding on the date of the Indenture or thereafter incurred, assumed
or guaranteed, and all deferrals, renewals, extensions and refundings of, or
amendments, modifications or supplements to, any such Debt. Excluded from the
definition of Senior Indebtedness are the following: (a) any Debt which
expressly provides (i) that such Debt shall not be senior in right of payment to
the LYONs, or (ii) that such Debt shall be subordinated to any other Debt of the
Company, unless such Debt expressly provides that such Debt shall be senior in
right of payment to the LYONs; and (b) any Debt of the Company in respect of the
LYONs. (Section 10.01.)
By reason of such subordination, in the event of dissolution,
insolvency, bankruptcy or other similar proceedings, upon any distribution of
assets, (i) the Holders of LYONs will be required to pay over their share of
such distribution to the trustee in bankruptcy, receiver or other person
distributing the assets of the Company for application to the payment of all
Senior Indebtedness remaining unpaid, to the extent necessary to pay all holders
of Senior Indebtedness in full (Section 10.02.); and (ii) unsecured creditors of
the Company who are not Holders of LYONs or holders of Senior Indebtedness may
recover less, ratably, than holders of Senior Indebtedness and may recover more,
ratably, than the Holders of LYONs.
In the event that the LYONs are declared due and payable prior to their
Stated Maturity by reason of the occurrence of an Event of Default, then the
Company is obligated to notify promptly holders of Senior Indebtedness of such
acceleration. The Company may not pay the LYONs until 120 days have passed after
such notice is given and may thereafter pay the LYONs if the terms of the
Indenture otherwise permit payment at that time. (Section 10.03.)
No payment of the principal amount at maturity, Issue Price plus
accrued Original Issue Discount, Redemption Price, Change in Control Purchase
Price or interest, if any, with respect to any LYONs may be made, nor may the
Company pay cash in respect of the Purchase Price (or any portion thereof) or
upon conversion of any LYON (other than for fractional interests in Common
Shares) or otherwise acquire any LYONs except as set forth in the Indenture, if
any default with respect to Senior Indebtedness occurs and is continuing that
permits the acceleration of the maturity thereof and either such default is the
subject of judicial proceedings or the Company receives notice of the default,
unless (a) in the case of defaults on Senior Indebtedness other than payment
defaults, 120 days pass after notice of the default is given and such default is
not then the subject of judicial proceedings or (b) the default with respect to
the Senior Indebtedness is cured or waived and, in each case, the terms of the
Indenture otherwise permit the payment or acquisition of the LYONs at that time.
(Section 10.04.)
The LYONs are obligations exclusively of the Company. Since the current
operations of the Company are primarily conducted through subsidiaries, the cash
flow and the consequent ability to service debt, including the LYONs, of the
Company are primarily dependent upon the earnings of its subsidiaries and the
distribution of those earnings to, or upon loans or other payments of funds by
those subsidiaries to, the
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<PAGE>
Company. The subsidiaries are separate and distinct
legal entities and have no obligation, contingent or otherwise, to pay any
amounts due pursuant to the LYONs or to make any funds available therefor,
whether by dividends, loans or other payments. In addition, the payment of
dividends and the making of loans and advances to the Company by its
subsidiaries may be subject to statutory or contractual restrictions, are
contingent upon the earnings of those subsidiaries and are subject to various
business considerations.
Any right of the Company to receive assets of any of its subsidiaries
upon their liquidation or reorganization (and the consequent right of the
Holders of the LYONs to participate in those assets) will be effectively
subordinated to the claims of that subsidiary's creditors (including trade
creditors), except to the extent that the Company is itself recognized as a
creditor of such subsidiary, in which case the claims of the Company would still
be subordinate to any security interest in the assets of such subsidiary and any
indebtedness of such subsidiary senior to that held by the Company.
There are no restrictions in the Indenture on the creation of
additional Senior Indebtedness (or any other indebtedness). See the Company's
most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q for the
amount of the Company's Senior Indebtedness.
Under a Vendor Financing Agreement (the "Vendor Financing Agreement")
between the Company and NTFC Capital Corporation ("NTFC"), which constitutes
Senior Indebtedness of the Company, the Company has agreed not to create, incur,
assume or suffer to exist any indebtedness (including capital lease obligations)
that would cause the sum of such indebtedness plus certain operating lease
obligations to exceed an amount equal to $40 per population equivalent for all
of the then existing cellular markets owned by the Company, excluding
indebtedness under the Vendor Financing Agreement and subordinated indebtedness
(as defined in such agreement). The Vendor Financing Agreement provides that
indebtedness evidenced by a LYON will be treated as subordinated indebtedness
for purposes of such agreement only to the extent such LYON has not been
accelerated, and that no cash payment is made, or required to be made, by the
Company thereunder (whether at maturity, upon a change in control, upon early
redemption or otherwise).
Conversion Rights
A Holder of a LYON may convert it at any time before the close of
business on June 15, 2015; provided, however, that if a LYON is called for
redemption, the Holder may convert it only until the close of business on the
Redemption Date. On conversion of a LYON, the Company may elect to deliver (or,
with respect to Common Shares, arrange for a Standby Share Deliverer (as defined
below) to deliver) Common Shares or an amount of cash determined as described
below. A LYON in respect of which a Holder has delivered a Purchase Notice or a
Change in Control Purchase Notice exercising the option of such Holder to
require the Company to purchase such LYON may be converted only if such notice
is withdrawn in accordance with the terms of the Indenture. (Form of LYON,
paragraph 9.) A Holder may convert a portion of such Holder's LYONs so long as
such portion is $1,000 principal amount at maturity or an integral multiple
thereof. (Section 11.01.)
The initial Conversion Rate is 9.475 Common Shares per LYON, subject to
adjustment upon the occurrence of certain events described below. (Form of LYON,
paragraph 9.) A Holder otherwise entitled to a fractional Common Share shall
receive cash equal to the then current market value of such fractional share.
(Section 11.03.)
On conversion of a LYON, a Holder must (i) complete and manually sign
the conversion notice on the back of the LYON (or complete and manually sign a
facsimile thereof) and deliver such notice to the Conversion Agent, (ii)
surrender the LYON to the Conversion Agent, (iii) if required, furnish
appropriate
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<PAGE>
endorsements and transfer documents, and (iv) if required, pay all
transfer or similar taxes. Pursuant to the Indenture, the date on which all of
the foregoing requirements have been satisfied is the Conversion Date. (Sections
11.02 and 11.04 and Form of LYON, paragraph 9.)
On conversion of a LYON, a Holder will not receive any cash payment
representing accrued Original Issue Discount. The Company's delivery, in
connection with conversions not involving a Common Share Delivery Arrangement
(as defined below), to the Holder of the fixed number of Common Shares (or cash
in the applicable amount as provided below) into which the LYON is convertible
(together with the cash payment, if any, in lieu of a fractional Common Share)
will be deemed to satisfy the Company's obligation to pay the principal amount
of such LYON including the accrued Original Issue Discount attributable to the
period from the Issue Date through the Conversion Date. Thus, the accrued
Original Issue Discount of such LYON is deemed to be paid in full rather than
cancelled, extinguished or forfeited. The Conversion Rate will not be adjusted
at any time during the term of the LYONs for such accrued Original Issue
Discount.
In lieu of the delivery of Common Shares upon notice of conversion of
any LYON, the Company may elect to pay the Holder surrendering a LYON an amount
in cash equal to the Sale Price of a Common Share on the Trading Day immediately
prior to the Conversion Date multiplied by the Conversion Rate in effect on such
Trading Day, as adjusted for certain events described below; provided, that if
such payment of cash is not permitted pursuant to the provisions of the
Indenture or otherwise, the Company will deliver (or, pursuant to a Common Share
Delivery Arrangement, arrange for the delivery of) Common Shares (and cash in
lieu of fractional Common Shares) as set forth below. Upon conversion of any
LYON, the Company shall inform the Holder through the Conversion Agent, no later
than two business days following the Conversion Date, (i) of its election of the
delivery of Common Shares or to pay cash in lieu of delivery of such shares and
(ii) whether or not any such delivery of Common Shares may be a taxable event to
such Holder as a result of such delivery being made by means of a Common Share
Delivery Arrangement. If the Company elects the delivery of Common Shares, such
shares (and cash in lieu of fractional Common Shares) will be delivered through
the Conversion Agent as soon as practicable following the Conversion Date. If
the Company elects to pay cash, such cash payment will be made to the Holder
surrendering such LYON no later than the fifth business day following such
Conversion Date. (Sections 11.01 and 11.02.) For a discussion of the tax
treatment of a Holder receiving cash or Common Shares, see "Certain Tax
Aspects-Dispositions."
The Company may not pay cash upon conversion of any LYON (other than
cash in lieu of fractional Common Shares) (i) if there has occurred and is
continuing an Event of Default described under "Events of Default; Notice and
Waiver" below (other than a default in such payment on such LYON) and (ii)
unless the Common Shares are listed or admitted to trading on a United States
national or regional securities exchange or reported on The Nasdaq Stock Market
("NASDAQ"). (Section 11.1.)
The "Sale Price" on any Trading Day means the closing sale price per
share for the Common Shares (or, if no closing price is reported, the average of
the bid and ask prices or, if more than one in either case, the average of the
average bid and the average ask prices) on such date as reported in the
composite transactions for the principal United States securities exchange on
which the Common Shares
are traded or, if the Common Shares are not listed on a United States national
or regional securities exchange, as reported by NASDAQ. A "Trading Day" means
each day on which the securities exchange or quotation system which is used to
determine the Sale Price is open for trading or quotation.
In connection with the conversion of any LYON, the Company may enter
into an arrangement (a "Common Share Delivery Arrangement") with a third party
(the "Standby Share Deliverer"), initially Merrill Lynch, whereby, upon the
agreement of the Standby Share Deliverer to so act in connection with such
conversion, it will deliver the Common Shares (and any cash payment in lieu of a
fractional Common Share)
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<PAGE>
deliverable to the Holder upon such conversion, through
the Conversion Agent, in the same amounts and within the same time periods set
forth above for conversions in respect of which the Company were to deliver the
Common Shares. As a result of such a Common Share Delivery Arrangement, the
converted LYON will not be retired or cancelled, but shall remain outstanding
with the Standby Share Deliverer becoming the Holder thereof. It is anticipated
that the Standby Share Deliverer will resell LYONs it obtains pursuant to a
Common Share Delivery Arrangement, although there can be no assurance in this
regard, and that this Prospectus will be available to be used by the Standby
Share Deliverer to meet any prospectus delivery requirements it then has under
the Securities Act in connection with (i) the delivery of Common Shares to the
converting Holder pursuant to any Common Share Delivery Arrangement and (ii) any
such resales of LYONs. The Standby Share Deliverer may (with the agreement of
TDS), but is not obligated to, obtain Common Shares to be so delivered by it in
connection with such a Common Share Delivery Arrangement from TDS pursuant to
the Securities Loan Agreement described in "Arrangements with Merrill Lynch."
For a discussion of the tax treatment of a Holder receiving Common Shares from
the Standby Share Deliverer, rather than the Company, upon conversion, see
"Certain Tax Aspects-Dispositions."
The Conversion Rate will be adjusted for dividends or distributions on
Common Shares payable in Common Shares or other Capital Stock; subdivisions,
combinations or certain reclassifications of Common Shares; distributions to all
Holders of Common Shares; distributions to all Holders of Common Shares of
certain rights to purchase Common Shares for a period expiring within 60 days at
less than the Quoted Price at the time; and distributions to such holders of
assets or debt securities of the Company or certain rights to purchase
securities of the Company (excluding cash dividends or other cash distributions
from current or retained earnings other than any Extraordinary Cash Dividend).
However, no adjustment need be made (i) if Holders may participate in the
transaction, (ii) for rights to purchase Common Shares pursuant to a Company
dividend or interest reinvestment plan, (iii) for changes in the par value of
the Common Shares or (iv) unless such adjustment, together with any other
adjustments similarly deferred, equals at least 1% of the then current
Conversion Rate. In cases where the fair market value (per Common Share) of the
assets, debt securities or certain rights, warrants or options to purchase
securities of the Company distributed to stockholders equals or exceeds the
Average Quoted Price of the Common Shares, or such Average Quoted Price exceeds
the fair market value (per Common Share) of such assets, debt securities or
rights, warrants or options so distributed by less than $1.00, rather than being
entitled to an adjustment in the Conversion Rate, the Holder of a LYON upon
conversion thereof will be entitled to receive, in addition to the Common Shares
(or cash in lieu thereof, as set forth above) into which such LYON is
convertible, the kind and amount of assets, debt securities or rights, warrants
or options comprising the distribution that such Holder would have received if
such Holder had converted such LYON immediately prior to the record date for
determining the stockholders entitled to receive the distribution. The Indenture
permits the Company to increase the Conversion Rate from time to time at its
discretion. (Sections 11.06, 11.07, 11.08, 11.10, 11.12, 11.14 and 11.17 and
Form of LYON, paragraph 9.)
If the Company is party to a consolidation, merger or binding share
exchange or a transfer of all or substantially all of its assets, the right to
convert a LYON into Common Shares may be changed into
a right to convert it into the kind and amount of securities, cash or other
assets of the Company or another person which the Holder would have received if
the Holder had converted such Holder's LYONs immediately prior to the
transaction. (Section 11.14.)
In the event of a taxable distribution to holders of Common Shares that
results in an adjustment of the Conversion Rate or in the event the Conversion
Rate is increased at the discretion of the Company, the Holders of the LYONs
may, in certain circumstances, be deemed to have received a distribution subject
to Federal income tax as a dividend. See "Certain Tax Aspects-Constructive
Dividend."
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<PAGE>
Redemption of LYONs at the Option of the Company
No sinking fund is provided for the LYONs. Prior to June 15, 2000, the
LYONs are not redeemable at the option of the Company. Beginning on June 15,
2000, the Company may redeem the LYONs for cash at any time as a whole, or from
time to time in part. (Sections 3.01 and 3.03 and Form of LYON, paragraph 5.)
Not less than 30 days' nor more than 60 days' notice of redemption shall be
given by mail to Holders of LYONs. (Section 3.03 and Form of LYON, paragraph 7.)
The table below shows Redemption Prices of a LYON on June 15, 2000, at
each June 15 thereafter prior to maturity and at maturity on June 15, 2015,
which prices reflect the accrued Original Issue Discount calculated through each
such date. The Redemption Price of a LYON redeemed between such dates would
include an additional amount reflecting the additional Original Issue Discount
accrued from the next preceding date in the table through the actual Redemption
Date. (Form of LYON, paragraph 5.)
(2)
(1) Accrued (3)
LYON Original Issue Redemption Price
Redemption Date Issue Price Discount at 6% (1) + (2)
- --------------- ----------- -------------- ---------
June 15, 2000........... $306.46 $105.53 $411.99
June 15, 2001........... 306.46 130.62 437.08
June 15, 2002........... 306.46 157.24 463.70
June 15, 2003........... 306.46 185.48 491.94
June 15, 2004........... 306.46 215.44 521.90
June 15, 2005........... 306.46 247.22 553.68
June 15, 2006........... 306.46 280.94 587.40
June 15, 2007........... 306.46 316.71 623.17
June 15, 2008........... 306.46 354.66 661.12
June 15, 2009........... 306.46 394.92 701.38
June 15, 2010........... 306.46 437.63 744.09
June 15, 2011........... 306.46 482.95 789.41
June 15, 2012........... 306.46 531.03 837.49
June 15, 2013........... 306.46 582.03 888.49
June 15, 2014........... 306.46 636.14 942.60
At maturity............. 306.46 693.54 1,000.00
If less than all of the outstanding LYONs are to be redeemed, the
Trustee shall select the LYONs to be redeemed in principal amounts at maturity
of $1,000 or integral multiples thereof by lot, pro rata or by another method
the Trustee considers fair and appropriate. If a portion of a Holder's LYONs is
selected for partial redemption and such Holder converts a portion of such LYONs
after such selection and prior
to such redemption, such converted portion shall be deemed to be of the portion
selected for redemption. (Section 3.02.)
Purchase of LYONs at the Option of the Holder
On June 15, 2000 (the "Purchase Date"), the Company will become
obligated, and the Company may also elect to become obligated on June 15, 2005
(the "Optional Purchase Date") to purchase, at the option of the Holder thereof,
any outstanding LYON for which a written Purchase Notice has been delivered by
the Holder to the Paying Agent at any time from the opening of business on the
date that is 20 Business Days prior to such Purchase Date or Optional Purchase
Date, as applicable, until the close of business on such Purchase
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<PAGE>
Date or Optional Purchase Date, and for
which such Purchase Notice has not been
withdrawn, subject to certain additional conditions. The Purchase Price payable
in respect of a LYON shall be equal to the Issue Price plus accrued Original
Issue Discount through the Purchase Date or Optional Purchase Date, as
applicable. The Company, at its option, may elect to pay the Purchase Price with
respect to the Purchase Date or the Optional Purchase Date, as applicable, in
cash, Common Shares or TDS Common Equity Securities, or any combination thereof.
TDS has not waived any rights that it may have under an agreement between TDS
and the Company to purchase Common Shares if the Company elects to pay the
Purchase Price (or a portion thereof) in Common Shares (as of the Purchase Date
or Optional Purchase Date, as applicable). As a result, in such event, TDS may
notify the Company that it intends to exercise any such rights to acquire
additional Common Shares up to an amount equal to TDS's percentage ownership of
Common Shares at that time (assuming that all outstanding securities that are or
may become convertible into Common Shares, including LYONs, were converted into
Common Shares), at a price per share payable in cash equal to the Market Price
per Common Share. See "Description of Capital Stock-Preemptive and Similar
Rights." (Section 3.08 and Form of LYON, paragraph 6.) For a discussion of the
tax treatment of a Holder receiving cash, Common Shares, TDS Common Equity
Securities or any combination thereof, see "Certain Tax Aspects-Dispositions."
The Company will be required to give notice (the "Company Notice") on a
date not less than 20 Business Days prior to the Purchase Date or the Optional
Purchase Date, as applicable, to all Holders at their addresses shown in the
register of the Registrar (and to beneficial owners as required by applicable
law) stating, among other things, (i) whether the Company will pay the Purchase
Price of LYONs in cash, Common Shares or TDS Common Equity Securities
(identifying such TDS Common Equity Securities) or any combination thereof
(specifying the percentages of each); (ii) if the Company elects to pay in
Common Shares or TDS Common Equity Securities, in whole or in part, the method
of calculating the Market Price of such Common Shares or TDS Common Equity
Securities; and (iii) the procedures that Holders must follow to require the
Company to purchase LYONs from such Holders. In addition, the Company Notice
with respect to the Purchase Date shall notify Holders of whether or not the
Company is electing to become obligated to purchase LYONs, at the option of the
Holders thereof, on the Optional Purchase Date. (Section 3.08.)
The Purchase Notice given by each Holder electing to require the
Company to purchase LYONs shall state (i) the certificate numbers of the LYONs
to be delivered by such Holder for purchase by the Company; (ii) the portion of
the principal amount at maturity of LYONs to be purchased, which portion must be
$1,000 or an integral multiple thereof; (iii) that such LYONs are to be
purchased by the Company pursuant to the applicable provisions of the LYONs; and
(iv) in the event the Company elects, pursuant to the Company Notice, to pay the
Purchase Price with respect to the Purchase Date or Optional Purchase Date, as
applicable, in Common Shares or specified TDS Common Equity Securities, in whole
or in part, but such Purchase Price (or portion(s) thereof) is ultimately to be
paid to such Holder entirely in cash because any of the conditions to payment of
the Purchase Price (or such portion(s) thereof) in Common
Shares or such specified TDS Common Equity Securities is not satisfied prior to
the close of business on such Purchase Date or Optional Purchase Date, as
described below, whether such Holder elects (a) to withdraw such Purchase Notice
as to some or all of the LYONs to which it relates (stating the principal amount
at maturity and certificate numbers of the LYONs as to which such withdrawal
shall relate), or (b) to receive cash in respect of the entire Purchase Price
(or such portion(s) thereof) for all LYONs subject to such Purchase Notice.
Unless the Holder indicates, in the Purchase Notice or in any written notice of
withdrawal, such Holder's choice with respect to the election described in
clause (iv) above as it relates to the applicable portion(s) of such Purchase
Price, such Holder shall be deemed to have elected to receive cash in respect of
the entire Purchase Price (or such applicable portion(s) thereof) for all LYONs
subject to such Purchase Notice in such circumstances. (Section 3.08.) For a
discussion of the tax treatment of a Holder receiving cash instead of Common
Shares or TDS Common Equity Securities, see "Certain Tax Aspects-Dispositions."
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<PAGE>
Any Purchase Notice may be withdrawn by the Holder by a written notice
of withdrawal delivered to the Paying Agent prior to the close of business on
the Purchase Date or Optional Purchase Date, as applicable. The notice of
withdrawal shall state the principal amount at maturity and the certificate
numbers of the LYONs as to which the withdrawal notice relates and the principal
amount at maturity, if any, which remains subject to the Purchase Notice.
(Section 3.10.)
The table below shows the Purchase Price of a LYON as of the Purchase
Date and the Optional Purchase Date, if applicable:
Purchase Date Purchase Price
------------- --------------
June 15, 2000 $411.99
Optional Purchase Date Purchase Price
---------------------- --------------
June 15, 2005 $553.68
If the Company elects to pay the Purchase Price, in whole or in part,
in Common Shares or TDS Common Equity Securities, the number of Common Shares or
shares of the specified TDS Common Equity Securities to be delivered in respect
of the portion of the Purchase Price to be paid in Common Shares or such
specified TDS Common Equity Securities shall be equal to such portion of the
Purchase Price divided by the Market Price (as defined below) of a Common Share
or a share of such specified TDS Common Equity Securities, as applicable. No
fractional Common Shares or fractional shares of TDS Common Equity Securities
will be delivered upon any purchase by the Company of LYONs through the delivery
of Common Shares or TDS Common Equity Securities in payment, in whole or in
part, of the Purchase Price. Instead, the Company will pay cash based on the
Market Price for all fractional Common Shares or TDS Common Equity Securities.
(Section 3.08.) See "Certain Tax Aspects-Dispositions."
The "Market Price" means the average of the Sale Prices of the Common
Shares or the specified TDS Common Equity Securities, as applicable, for the
five trading day period ending on (if the third Business Day prior to the
Purchase Date or Optional Purchase Date, as applicable, is a trading day or, if
not, then on the last trading day prior to) the third Business Day prior to the
Purchase Date or Optional Purchase Date, as applicable, appropriately adjusted
to take into account the occurrence, during the period commencing on the first
of such trading days during such five trading day period and ending on such
Purchase Date or Optional Purchase Date, of (i) certain events that would result
in an adjustment of the Conversion Rate with respect to the Common Shares or
(ii) certain similar events with respect to the specified TDS Common Equity
Securities, as applicable. The "Sale Price" of the Common Shares or the
specified TDS Common Equity Securities, as applicable, on any date means the
closing per share sale price
(or if no closing sale price is reported, the average of the bid and ask prices
or, if more than one in either case, the average of the average bid and the
average ask prices) on such date as reported in composite transactions for the
principal United States securities exchange on which the Common Shares or the
specified TDS Common Equity Securities, as applicable, are traded or, if the
Common Shares or the specified TDS Common Equity Securities, as applicable, are
not listed on a United States national or regional securities exchange, as
reported by NASDAQ. Because the Market Price of the Common Shares or the
specified TDS Common Equity Securities, as applicable, is determined prior to
the Purchase Date or Optional Purchase Date, as applicable, Holders of LYONs
bear the market risk with respect to the value of the Common Shares or the
specified TDS Common Equity Securities, as applicable, to be received from the
date such Market Price is determined to the Purchase Date or Optional Purchase
Date, as applicable. The Company may pay the Purchase Price (or any portion
thereof) in Common Shares or the specified TDS Common Equity Securities only if
the information necessary to calculate the applicable Market Price is published
in a daily newspaper of national circulation and only if the Common Shares or
the specified TDS Common Equity Securities, as applicable, are listed or
admitted to trading on a United States national or regional securities exchange
or reported by NASDAQ. (Section 3.08).
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<PAGE>
Upon determination of the actual number of Common Shares or of the
specified TDS Common Equity Securities in accordance with the foregoing
provisions, the Company will publish such determination in a daily newspaper of
national circulation. (Section 3.08.)
The Company's right to purchase LYONs, in whole or in part, with Common
Shares or with TDS Common Equity Securities is subject to the satisfaction of
various conditions, including; (i) the registration of the Common Shares or the
specified TDS Common Equity Securities, as applicable, under the Securities Act
and the Exchange Act, if required; and (ii) any necessary qualification or
registration under applicable state securities law or the availability of an
exemption from such qualification and registration. If such conditions are not
satisfied with respect to a Holder or Holders prior to the close of business on
the Purchase Date or Optional Purchase Date, as applicable, the Company will pay
the Purchase Price of the LYONs of such Holder or Holders entirely in cash.
(Section 3.08.) See "Certain Tax Aspects-Dispositions." The Company may not
change the form of consideration (or components or percentages of components
thereof) to be paid once the Company has given its Company Notice to Holders of
LYONs except as described in the second sentence of this paragraph. (Section
3.08).
The Company will comply with the provisions of Rule 13e-4, Rule 14e-1
and any other tender offer rules under the Exchange Act which may then be
applicable and will file Schedule 13E-4 or any other schedule required
thereunder in connection with any offer by the Company to purchase LYONs at the
option of Holders. (Section 3.13.)
Payment of the Purchase Price for a LYON for which a Purchase Notice
has been delivered and not validly withdrawn is conditioned upon delivery of
such LYON (together with necessary endorsements) to the Paying Agent at any time
(whether prior to, on or after the Purchase Date or Optional Purchase Date, as
applicable) after delivery of such Purchase Notice. (Section 3.08.) Payment of
the Purchase Price for such LYON will be made promptly following the later of
(i) the Purchase Date or Optional Purchase Date, as applicable, and (ii) the
time of delivery of such LYON. (Section 3.08.) If the Paying Agent holds, in
accordance with the terms of the Indenture, money or securities sufficient to
pay the Purchase Price of such LYON on the Business Day following the Purchase
Date or Optional Purchase Date, as applicable, then, immediately after such
Purchase Date or Optional Purchase Date, such LYON will cease to be outstanding
and Original Issue Discount on such LYON will cease to accrue, whether or not
such LYON is delivered to the Paying Agent, and all other rights of the Holder
shall terminate (other than the right to receive the Purchase Price upon
delivery of the LYON). (Section 2.08.)
The Company's ability to purchase LYONs with cash may be limited by the
terms of its then-existing borrowing agreements. No LYONs may be purchased at
the option of Holders for cash if there has occurred (prior to, on, or after the
giving, by the Holders of such LYONs, of the required Purchase Notice) and is
continuing an Event of Default with respect to the LYONs described under "Events
of Default; Notice and Waiver" below (other than a default in the payment of the
Purchase Price with respect to such LYONs). (Section 3.10.)
Change in Control Permits Purchase of LYONs at the Option of the Holder
In the event of any Change in Control (as defined below) of the Company
occurring on or prior to June 15, 2000, each Holder of LYONs will have the
right, at the Holder's option, subject to the terms and conditions of the
Indenture, to require the Company to purchase all or any portion (provided that
the principal amount at maturity must be $1,000 or an integral multiple thereof)
of the Holder's LYONs as of the date that is 35 Business Days after the
occurrence of such Change in Control (a "Change in Control Purchase Date")
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at a cash price equal to the Issue Price plus accrued Original Issue Discount
through the Change in Control Purchase Date (the "Change in Control Purchase
Price"). (Section 3.09 and Form of LYON, paragraph 6.)
Within 15 Business Days after the occurrence of a Change in Control,
the Company is obligated to mail to the Trustee and to all Holders of LYONs at
their addresses shown in the register of the Registrar (and to beneficial owners
as required by applicable law) a notice regarding the Change in Control, which
notice shall include a form of Change in Control Purchase Notice (a "Change in
Control Purchase Notice") to be completed by the Holder and shall state, among
other things: (i) the events causing a Change in Control and the date of such
Change in Control, (ii) the last date on which the purchase right may be
exercised, (iii) the Change in Control Purchase Price, (iv) the Change in
Control Purchase Date, (v) the name and address of the Paying Agent and the
Conversion Agent, (vi) the Conversion Rate and any adjustments thereto, (vii)
that LYONs with respect to which a Change in Control Purchase Notice is given by
the Holder may be converted only if the Change in Control Purchase Notice has
been withdrawn in accordance with the terms of the Indenture, and (viii) the
procedures that Holders must follow to exercise these rights. The Company will
cause a copy of such notice to be published in a daily newspaper of national
circulation. (Section 3.09.)
To exercise this right, the Holder must deliver the Change in Control
Purchase Notice to the Paying Agent (initially the Trustee) prior to the close
of business on the Change in Control Purchase Date. The Change in Control
Purchase Notice shall state (i) the certificate numbers of the LYONs to be
delivered by the Holder thereof for purchase by the Company; (ii) the portion of
the principal amount at maturity of LYONs to be purchased, which portion must be
$1,000 or any integral multiple thereof; and (iii) that such LYONs are to be
purchased by the Company pursuant to the applicable provisions of the LYONs.
(Section 3.09.)
Any Change in Control Purchase Notice may be withdrawn by the Holder by
a written notice of withdrawal delivered to the Paying Agent prior to the close
of business on the Change in Control Purchase Date. The notice of withdrawal
shall state the principal amount at maturity and the certificate numbers of the
LYONs as to which the withdrawal notice relates and the principal amount at
maturity, if any, which remains subject to a Change in Control Purchase Notice.
(Section 3.10.)
Payment of the Change in Control Purchase Price for a LYON for which a
Change in Control Purchase Notice has been delivered and not validly withdrawn
is conditioned upon delivery of such LYON (together with necessary endorsements)
to the Paying Agent at any time (whether prior to, on or after the
Change in Control Purchase Date) after the delivery of such Change in Control
Purchase Notice. (Section 3.09.) Payment of the Change in Control Purchase Price
for such LYON will be made promptly following the later of the Change in Control
Purchase Date or the time of delivery of such LYON. (Section 3.10.) If the
Paying Agent holds, in accordance with the terms of the Indenture, money
sufficient to pay the Change in Control Purchase Price of such LYON on the
Business Day following the Change in Control Purchase Date, then, immediately
after such Change in Control Purchase Date, Original Issue Discount on such LYON
will cease to accrue, whether or not such LYON is delivered to the Paying Agent,
and all other rights of the Holder shall terminate (other than the right to
receive the Change in Control Purchase Price upon delivery of the LYON).
(Section 2.08).
Under the Indenture, a "Change in Control" of the Company is deemed to
have occurred at such time as (i) any person, including its Affiliates and
Associates (other than TDS, the Company, their Subsidiaries, their employee
stock ownership plans or any of their other employee benefit plans, the Carlson
Family (meaning LeRoy T. Carlson, his family members (meaning his spouse,
siblings and lineal descendants), estate and heirs and any trust or other
investment vehicle for the primary benefit of any of such persons or their
respective family members or heirs (collectively, the "Carlson Family"))) files
a Schedule 13D or 14D-1 (or any successor schedule, form or report under the
Exchange Act) disclosing that such person has become the
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beneficial owner of 50%
or more of the combined voting power of all of the Company's then outstanding
equity securities (of all classes or series) or such other Capital Stock of the
Company into which such equity securities are reclassified or changed, with
certain exceptions, (ii) the number of outstanding Common Shares (or such other
class or series of Capital Stock of the Company into which the Common Shares are
reclassified or changed) the beneficial owners of which are not Affiliates of
the Company is at any time reduced to less than 10 million Common Shares
(appropriately adjusted to reflect the impact of any stock dividend, subdivision
or combination) as a result of acquisitions of Common Shares (or such other
Capital Stock) by, or in concert with, the Company, TDS, any of their
Subsidiaries, Affiliates, employee stock ownership plans or employee benefit
plans, or the Carlson Family, (iii) there shall be consummated any consolidation
or merger of the Company (a) in which the Company is not the continuing or
surviving corporation or (b) pursuant to which the Common Shares would be
converted into cash, securities or other property, in each case other than a
consolidation or merger of the Company in which the holders of the Common Shares
and Series A Common Shares immediately prior to the consolidation or merger
have, directly or indirectly, 50% or more of the combined voting power of the
common equity securities of the continuing or surviving corporation immediately
after such consolidation or merger; or (iv) TDS and its Subsidiaries cease to
collectively be beneficial owners of at least 50% of (x) the total of the Common
Shares and Series A Common Shares (or such other classes or series of Capital
Stock of the Company into which such Common Shares or Series A Common Shares are
reclassified or changed) then outstanding or (y) the combined voting power of
all of the Company's then outstanding equity securities (of all classes or
series) or such other Capital Stock of the Company into which such equity
securities are reclassified or changed (the event or transaction giving rise to
such circumstances described in (x) or (y) of item (iv) being referred to as the
"Designated Transaction") and, in either case (x) or (y) of item (iv), there
shall occur a Rating Decline (as defined below) within the time period described
below in the definition of Rating Decline and with a Reference Date (as defined
below) occurring on or prior to June 15, 2000. The Indenture does not permit the
Board of Directors of the Company to waive the Company's obligation to purchase
LYONs at the option of Holders in the event of a Change in Control of the
Company. (Section 3.09.)
Under the Indenture a "Rating Decline" will be deemed to have occurred
if, on any date within the period (the "Rating Period") beginning on the date
(the "Reference Date") of the earlier to occur of (a) the first public
announcement by TDS, the Company or any other person of an intention to effect
the Designated Transaction and (b) the occurrence of such Designated Transaction
and ending on the date that
is 60 days after the later to occur of (A) the occurrence of such Designated
Transaction and (B) the first public announcement by TDS, the Company or any
other person of the occurrence of such Designated Transaction, either of the
following events has occurred: (i) the LYONs shall be rated by any Rating Agency
at any time during the Rating Period at a rating which is lower than the rating
of the LYONs by such Rating Agency on the Rating Date by more than one gradation
(including gradations within Rating Categories as well as between Rating
Categories) or (ii) any Rating Agency shall have withdrawn its rating of the
LYONs during the Rating Period.
"Rating Agency" is defined in the Indenture as Standard & Poor's
Corporation and its successors ("S&P"), and Moody's Investors Service, Inc. and
its successors ("Moody's"), or, if S&P or Moody's, or both, shall not make a
rating of the LYONs publicly available, a nationally recognized United States
statistical rating agency or agencies, substituted by the Company, with written
notice to the Trustee, for S&P or Moody's, or both, as the case may be.
"Rating Category" is defined in the Indenture as each major rating
category symbolized by (x) in the case of S&P, AAA, AA, A, BBB, BB, B, CCC, CC
and C and each such Rating Category shall include pluses or minuses
("gradations") modifying such capital letters; (y) in the case of Moody's, Aaa,
Aa, A, Baa, Ba, B, Caa, Ca and C and each such Rating Category shall include
added numerals such as 1, 2 or 3 ("gradations")
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modifying such letters; and (z) with respect to any other Rating Agency,
comparable or equivalent symbols. "Rating Date" is defined as the date
that is 60 days prior to the Reference Date.
The Company will comply with the provisions of Rule 13e-4, Rule 14e-1
and any other tender offer rules under the Exchange Act which may then be
applicable and will file Schedule 13E-4 or any other schedule required
thereunder in connection with any offer by the Company to purchase LYONs at the
option of Holders upon a Change in Control. (Section 3.13.) The Change in
Control purchase feature of the LYONs may in certain circumstances make more
difficult or discourage a takeover of the Company. The Change in Control
purchase feature, however, was not the result of management's knowledge of any
specific effort to accumulate Common Shares or Series A Common Shares or to
obtain control of the Company by means of a merger, tender offer, solicitation
or otherwise, or part of a plan by management to adopt a series of anti-takeover
provisions. See "Description of Capital Stock." Instead, a change in control
purchase feature was a standard term contained in other LYONs offerings that
have been marketed by Merrill Lynch, as underwriter, and the terms of such
feature resulted from negotiations between the Company and Merrill Lynch, as the
underwriter of the LYONs.
The Company could, in the future, enter into certain transactions,
including certain recapitalizations of the Company, that would not constitute a
Change in Control with respect to the Change in Control purchase feature of the
LYONS, but that would increase the amount of Senior Indebtedness outstanding at
such time. No LYONs may be purchased at the option of Holders upon a Change in
Control of the Company if there has occurred (prior to, on or after the giving,
by the Holders of such LYONs, of the required Change in Control Purchase Notice)
and is continuing an Event of Default with respect to the LYONs described under
"Events of Default; Notice and Waiver" below (other than a default in the
payment of the Change in Control Purchase Price with respect to such LYONs).
(Sections 3.10 and 10.03.) Further, the LYONs are subordinated to the prior
payment of Senior Indebtedness as described under "Subordination of LYONs;
Effect of Corporate Structure" above.
The Vendor Financing Agreement does not include any provision
accelerating the debt incurred thereunder upon a change in control, but does
include covenants prohibiting the Company from entering into certain
transactions, including a merger, consolidation or sale of substantially all of
the Company's assets, unless the Company is the surviving entity or obtains the
consent of NTFC.
Mergers and Sales of Assets by the Company
The Company may not consolidate with or merge into any other person or
convey, transfer or lease all or substantially all of its properties and assets
to another person, unless, among other items, (i) the resulting, surviving or
transferee person (if other than the Company) is organized and existing under
the laws of the United States, any state thereof or the District of Columbia and
such person assumes all obligations of the Company under the LYONs and the
Indenture, and (ii) the Company or such successor person shall not immediately
thereafter be in default under the Indenture. Upon the assumption of the
Company's obligations by such a person in such circumstances, subject to certain
exceptions, the Company shall be discharged from all obligations under the LYONs
and the Indenture. (Section 5.01.) Although such transactions are permitted
under the Indenture, certain of the foregoing transactions occurring on or prior
to June 15, 2000 could constitute a Change in Control of the Company permitting
each Holder to require the Company to purchase the LYONs of such Holder as
described above. (Section 3.09.)
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Events of Default; Notice and Waiver
The Indenture provides that, if an Event of Default specified therein
shall have happened and be continuing, either the Trustee or the Holders of not
less than 25% in aggregate principal amount at maturity of the LYONs then
outstanding may declare the Issue Price of the LYONs plus the Original Issue
Discount on the LYONs accrued through the date of such declaration to be
immediately due and payable. In the case of certain events of bankruptcy or
insolvency, the Issue Price of the LYONs plus the Original Issue Discount
accrued thereon through the occurrence of such event shall automatically become
and be immediately due and payable. Upon acceleration, as described in either of
the preceding sentences, the subordination provisions of the Indenture preclude
any payment being made to Holders of LYONs for at least 120 days. (Section
10.03.) See "Subordination of LYONs; Effect of Corporate Structure." Under
certain circumstances, the Holders of a majority in aggregate principal amount
at maturity of the outstanding LYONs may rescind any such acceleration with
respect to the LYONs and its consequences. (Section 6.02.) Interest shall, to
the extent permitted by law, accrue and be payable on demand upon a default in
the payment of the principal amount at maturity, Issue Price plus accrued
Original Issue Discount, cash in respect of a conversion, or any Redemption
Price, Purchase Price or Change in Control Purchase Price with respect to any
LYON and such interest shall be compounded semi-annually. The accrual of such
interest on overdue amounts shall be in lieu of, and not in addition to, the
continued accrual of Original Issue Discount. (Form of LYON, paragraph 1.)
Under the Indenture, Events of Default are defined as: (i) default in
payment of the principal amount at maturity, Issue Price plus accrued Original
Issue Discount, Redemption Price, Purchase Price or Change in Control Purchase
Price with respect to any LYON when such becomes due and payable or default in
payment of cash upon conversion of any LYON (in each case whether or not payment
is prohibited by the provisions of the Indenture); (ii) failure by the Company
to deliver Common Shares (or cash in lieu of fractional Common Shares) when such
Common Shares (or cash in lieu of fractional Common Shares) are required to be
delivered following conversion of a LYON and the continuance of such default for
10 days; (iii) failure by the Company to comply with any of its other agreements
in the LYONs or the Indenture upon receipt by the Company of notice of such
default by the Trustee or by Holders of not less than 25% in aggregate principal
amount at maturity of the LYONs then outstanding and the Company's failure to
cure (or obtain a waiver of) such default within 60 days after receipt by the
Company of such notice; (iv) default under any bond, debenture, note or other
evidence of indebtedness for money borrowed by the Company having an aggregate
outstanding principal amount of in excess of $25,000,000, which default shall
have resulted in such indebtedness being accelerated, without such indebtedness
being discharged or such acceleration having been rescinded or annulled within
twenty days after receipt of notice
thereof by the Company from the Trustee or the Company and the Trustee from the
Holders of not less than 25% in aggregate principal amount at maturity of the
LYONs then outstanding (unless such default has been cured or waived); or (v)
certain events of bankruptcy or insolvency. (Section 6.01.)
The Trustee shall give notice to Holders of the LYONs of any continuing
default known to the Trustee within 90 days after the occurrence thereof;
provided, that the Trustee may withhold such notice, as to any default other
than a payment default, if it determines in good faith that withholding the
notice is in the interests of the Holders. (Section 7.05.)
The Holders of a majority in aggregate principal amount at maturity of
the outstanding LYONs may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee, provided that such direction shall not be in
conflict with any law or the Indenture and subject to certain other limitations.
(Section 6.05.) Before proceeding to exercise any right or power under the
Indenture at the direction of such Holders, the Trustee shall be entitled to
receive from such Holders reasonable security or indemnity satisfactory to it
against the costs, expenses and
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liabilities which might be incurred by it in
complying with any such direction. (Section 7.01.) No Holder of any LYON will
have any right to pursue any remedy with respect to the Indenture or the LYONs,
unless (i) such Holder shall have previously given the Trustee written notice of
a continuing Event of Default; (ii) the Holders of at least 25% in aggregate
principal amount at maturity of the outstanding LYONs shall have made a written
request to the Trustee to pursue such remedy; (iii) such Holder or Holders have
offered to the Trustee reasonable security or indemnity satisfactory to the
Trustee; (iv) the Holders of a majority in aggregate principal amount at
maturity of the outstanding LYONs have not given the Trustee a direction
inconsistent with such request within 60 days after receipt of such request; and
(v) the Trustee shall have failed to comply with the request within such 60-day
period. (Section 6.06.)
However, the right of any Holder (x) to receive payment of the
principal amount at maturity, Issue Price plus accrued Original Issue Discount,
cash in respect of a conversion, Redemption Price, Purchase Price or Change in
Control Purchase Price with respect to any LYON and any interest in respect of a
default in the payment of any such amounts on such LYON, on or after the due
date expressed in such LYON, (y) to convert LYONs or (z) to institute suit for
the enforcement of any such payments or conversion shall not be impaired or
adversely affected without such Holder's consent. (Section 6.07.) The Holders of
at least a majority in aggregate principal amount at maturity of the outstanding
LYONs may waive an existing default and its consequences, other than (i) any
default in any payment on the LYONs, (ii) any default which constitutes a
failure to convert any LYON in accordance with its terms or (iii) any default in
respect of certain covenants or provisions in the Indenture which may not be
modified without the consent of the Holder of each LYON as described in
"Modification" below. (Section 6.04.)
The Company is required to furnish to the Trustee annually a statement
as to any default by the Company in the performance and observance of its
obligations under the Indenture. (Section 4.03.)
Modification
Without the consent of any Holder of LYONs, the Company and the Trustee
may amend the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor person of the
obligations of the Company under the Indenture, to provide for uncertificated
LYONs in addition to certificated LYONs (so long as any uncertificated LYONs are
in registered form for purposes of the Internal Revenue Code), to eliminate the
Company's option to pay cash in lieu of delivering Common Shares upon conversion
of LYONs (other than cash in lieu of fractional Common Shares and
except with respect to such elections already made) or to eliminate the
Company's option to enter into Common Share Delivery Arrangements in respect of
conversions of LYONs (except for those already entered into), to make any change
that does not adversely affect the rights of any Holder of LYONs or to comply
with any requirement of the Commission in connection with the qualification of
the Indenture under the Trust Indenture Act of 1939. (Section 9.01.) No
amendment may be made to the subordination provisions of the Indenture that
adversely affects the rights of any holder of Senior Indebtedness then
outstanding, unless the holders of such Senior Indebtedness (as required
pursuant to the terms of such Senior Indebtedness) consent to such change.
(Section 9.02.)
Modification and amendment of the Indenture or the LYONs may be
effected by the Company and the Trustee with the consent of the Holders of not
less than a majority in aggregate principal amount at maturity of the LYONs then
outstanding. However, without the consent of each Holder affected thereby, no
amendment may, among other things: (i) reduce the principal amount at maturity,
Issue Price, amount of cash to be paid by the Company in respect of a conversion
of LYONs, Purchase Price, Change in Control Purchase Price or Redemption Price
with respect to any LYON, or extend the stated maturity of any LYON or alter the
manner or rate of accrual of Original Issue Discount or interest, or make any
LYON payable in money or
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securities other than that stated in the LYON; (ii)
make any reduction in the principal amount at maturity of LYONs whose Holders
must consent to an amendment or any waiver under the Indenture or modify the
Indenture provisions relating to such amendments or waivers; (iii) make any
change that adversely affects the right to convert any LYON or the right to
require the Company to purchase a LYON (including the right to receive cash in
lieu of Common Shares upon conversion or cash or TDS Common Equity Securities in
lieu of, or in combination with, Common Shares upon purchase by the Company at
the option of Holders of LYONs, other than elimination of the Company's option
to pay cash in lieu of delivering Common Shares upon conversion of LYONs as
described above); (iv) modify the provisions of the Indenture relating to the
subordination of the LYONs in a manner adverse to the Holders of the LYONs; or
(v) impair the right to institute suit for the enforcement of any payment with
respect to, or conversion of, the LYONs. (Section 9.02.)
Limitations of Claims in Bankruptcy
If a bankruptcy proceeding is commenced in respect of the Company, the
claim of the Holder of a LYON is, under Title 11 of the United States Code,
limited to the Issue Price of the LYON plus that portion of the Original Issue
Discount that has accrued from the date of issue to the commencement of the
proceeding. In addition, the Holders of the LYONs will be subordinated in right
of payment to Senior Indebtedness and effectively subordinated to the
indebtedness and other obligations of the Company's subsidiaries. See
"Subordination of LYONs; Effect of Corporate Structure."
Taxation of LYONs
See "Certain Tax Aspects" for a discussion of certain United States
Federal income tax aspects that will apply to Holders of LYONs.
Information Concerning the Trustee
Harris Trust and Savings Bank is currently the Trustee, Registrar,
Paying Agent and Conversion Agent under the Indenture and custodian in
connection with the Securities Loan Agreement. Harris Trust and Savings Bank is
also the transfer agent and registrar for the Company's Common Shares.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 140,000,000
Common Shares, $1.00 par value; 50,000,000 Series A Common Shares, $1.00 par
value; and 5,000,000 shares of Preferred Stock, $1.00 par value, issuable in
series. See the Company's most recent Annual Report on Form 10-K or Quarterly
Report on Form 10-Q for the number of shares of capital stock of the Company
which are outstanding.
Preferred Stock
Pursuant to the Company's Restated Certificate of Incorporation, as
amended, the Board of Directors is authorized to establish and designate one or
more series of Preferred Stock, without further authorization of the Company's
shareholders, and to fix the number of shares and the relative rights,
preferences and limitations of any such series, except that so long as not less
than 500,000 shares of Series A Common Shares are outstanding, no shares of any
series of Preferred Stock may have more than one vote per share, have the right
to vote as a separate class with respect to elections of directors or (subject
to any requirements of applicable law) any other matter, or be issued for
consideration of less than $100 per share. The shares of any series of Preferred
Stock need not be identical in any respect with the shares of any other series.
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Voting Rights
Each Series A Common Share is entitled to ten votes on all matters, and
each Common Share is entitled to one vote on all matters. The Company's Restated
Certificate of Incorporation, as amended, provides that the number of directors
shall be not less than three, and that the directors shall be divided into three
classes serving staggered three-year terms. The holders of Common Shares, voting
as a separate class, are entitled to elect 25% of the directors (rounded up to
the nearest whole number), and the holders of Series A Common Shares and
Preferred Stock, voting together, are entitled to elect the remaining directors.
However, if at the time of an election of directors the outstanding Series A
Common Shares represent less than 12.5% of the total outstanding shares of
common stock of the Company, then the holders of Series A Common Shares and the
Preferred Stock do not have class voting rights in the election of directors,
and the holders of Common Shares, Series A Common Shares, and Preferred Stock
vote together for the election of the remaining 75% of the directors (rounded
down to the nearest whole number). See "Risk Factors-Control by Principal
Shareholder; Antitakeover Provisions."
Except as mentioned above and except for matters where applicable law
requires the approval by one or more classes of stock voting as separate
classes, all classes of stock of the Company vote as a single class.
Dividend Rights
Subject to the payment of all dividends accumulated and unpaid on
outstanding shares of Preferred Stock, the holders of Common Shares are entitled
to receive such dividends as may be declared from time to time by the Board of
Directors. Unless the same or greater dividends, on a per share basis, are
declared and paid at the same time on Common Shares, no dividends may be
declared or paid on the Series A Common Shares.
In the case of stock dividends, the Board of Directors is authorized to
distribute shares of a particular class of the Company's capital stock only as
follows: (i) Common Shares may be paid to the
holders of Common Shares and proportionately to holders of Series A Common
Shares; (ii) Series A Common Shares may be paid to the holders of Common Shares
and proportionately to the holders of Series A Common Shares; or (iii) Common
Shares may be paid to the holders of Common Shares and Series A Common Shares
may be paid proportionately to the holders of Series A Common Shares. The Board
of Directors also is authorized to distribute to Common and Series A Common
Shareholders shares of any subsidiary that has two classes of common stock with
each class possessing respective rights, preferences and limitations similar to
the respective rights, preferences and limitations of the Common and Series A
Common Shares. Thus, although it has no present intention to do so, the Company
could recapitalize any of its subsidiaries and then spin the subsidiary off to
the Company's shareholders, with the holders of Series A Common Shares receiving
the subsidiary's Series A Common Shares and the holders of Common Shares
receiving the subsidiary's Common Shares.
The Company has not paid any cash dividends and, except for cash
dividends payable on any future series of Preferred Stock, intends to retain all
earnings for use in the Company's business. In addition, the Revolving Credit
Agreement with TDS prohibits the payment of dividends on the Company's Common
Shares and Series A Common Shares, except to the extent of one-half of the
cumulative consolidated net income, if any, of the Company for the period after
July 1, 1989, which currently prevents the Company from paying dividends. In
addition, the Vendor Financing Agreement imposes certain restrictions on the
payment of dividends if certain financial requirements under such agreement
would be violated.
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<PAGE>
Conversion Rights
The Common Shares have no conversion rights. The Series A Common Shares
are convertible, on a share-for-share basis, into Common Shares. The Series A
Common Shares which are converted may not be reissued.
Liquidation Rights
Upon liquidation, the holders of Common Shares and Series A Common
Shares are entitled to receive a pro rata share of all assets available to
shareholders after payment of the aggregate liquidation preference of any
Preferred Stock then outstanding.
Preemptive and Similar Rights
Under the Company's Restated Certificate of Incorporation, as amended,
TDS, as the holder of Series A Common Shares, has preemptive rights to purchase
any additional Series A Common Shares issued or sold by the Company, including
treasury shares other than Series A Common Shares not sold for cash.
In addition to the preemptive rights granted to TDS as a holder of
Series A Common Shares of the Company pursuant to the Restated Certificate of
Incorporation, as amended, of the Company, TDS has the right under an Exchange
Agreement between the Company and TDS to subscribe to any issuance of Common
Shares or any other voting securities of the Company, or of any securities
convertible into or exchangeable for, or carrying a right to subscribe to or
acquire, Common Shares or any other voting securities of the Company. To the
extent an issuance is made for consideration other than cash, the fair market
value of the non-cash consideration will be determined by resolution of the
Board of Directors of the Company. The proportion of each such issuance that TDS
has the right to subscribe to (which right may be exercisable in full or in
part) is equal to the proportion of the Common Shares that TDS would own
immediately before the issuance if all securities of the Company that are
convertible into Common Shares
(including securities convertible into another class that is convertible into
Common Shares and including securities that in the future will become
convertible) were converted (successively, if necessary) into Common Shares. The
rights of TDS to subscribe to Common Shares may be transferred to any one or
more transferees from TDS of any Common Shares, Series A Common Shares, or any
securities convertible into or exchangeable for, or carrying a right to
subscribe to or acquire, shares of either such class. In connection with the
initial offering of the LYONs by the Company, TDS waived its right under the
Exchange Agreement to purchase LYONs (which are convertible into Common Shares)
and any Common Shares deliverable upon conversion thereof. However, TDS has
expressly not waived any rights it might have under the Exchange Agreement to
acquire Common Shares in the event the Company determines to deliver Common
Shares in connection with the election of holders to cause the Company to
purchase LYONs on the Purchase Date or Optional Purchase Date. TDS has agreed,
in the event it has such rights, that the fair market value of the consideration
paid for the Common Shares for purposes of any such purchase right, will be
equal to the Market Price of the Common Shares as determined for such Purchase
Date or Optional Purchase Date under the Indenture. TDS has also waived any
rights it may have permitting it to transfer its rights to subscribe for and
purchase such Common Shares on the Purchase Date or Optional Purchase Date. See
"Description of LYONs-Purchase of LYONs at the Option of the Holder."
Pursuant to a Common Stock Purchase Agreement, dated April 24, 1987,
between the Company and S.A. Coditel, an affiliate of Coditel Brabant S.A. and
Codiservices S.A. (collectively, "Coditel"), as a result of the transfer of the
rights of S.A. Coditel to Coditel, for a period of 10 years after the closing
date of such agreement, Coditel has the right to subscribe to any issuance of
the Company's common stock or of securities
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<PAGE>
convertible into such common stock
except for issuance to employees and directors of the Company or its
subsidiaries or any issuance made in connection with the acquisition of an
interest in any other entity. To the extent an issuance is made for
consideration other than cash, the fair market value of the non-cash
consideration will be determined by resolution of the Board of Directors of the
Company. The amount of common stock of each of such issue to which Coditel may
subscribe shall not exceed such proportion of such issue as (i) the amount of
the Company's common stock held by Coditel immediately prior to the time of such
issuance bears to (ii) the sum of the amount of issued and outstanding common
stock of the Company and the amount of such common stock issuable upon
conversion of all of the Company's issued and outstanding securities, warrants
and options (regardless of whether such securities, warrants and options are
then convertible), immediately prior to the time of such issuance. In connection
with the initial offering of the LYONs by the Company, Coditel waived its right
to purchase LYONs (which are convertible into Common Shares) and any Common
Shares deliverable upon conversion thereof.
Redemption by Company
The Company may redeem stock (other than Series A Common Shares) from
any holder at the lesser of (i) fair market value, or (ii) such holder's
purchase price if purchased within a year of such redemption, to prevent the
loss, or permit the reinstatement of any license or franchise from any
governmental agency, where such loss is based upon such holder failing to
possess qualifications prescribed by such governmental agency. This right of
redemption could be applicable to a person receiving Common Shares upon the
conversion of LYONS by the Holder thereof or upon purchase by the Company of
LYONs at the option of the Holder thereof if such person falls within such
category of holders based on qualifications prescribed by any such governmental
agency at the time.
Corporate Opportunity Arrangements
The Company's Restated Certificate of Incorporation, as amended,
provides that, so long as at least 500,000 Series A Common Shares are
outstanding, the Company may not, without the written consent of
TDS, engage in any non-cellular activities. The Company has been informed that
TDS intends to give its consent to the acquisition of any non-cellular interest
that is incidental to the acquisition of a cellular interest. However, TDS could
impose conditions on any such consent, including a requirement that the Company
resell any non-cellular interest to TDS or that the Company give TDS the right
of first refusal with respect to such sale.
The Restated Certificate of Incorporation, as amended, also restricts
the circumstances under which the Company is entitled to claim that an
opportunity, transaction, agreement or other arrangement to which TDS, or any
person in which TDS has or acquires a financial interest, is or should be the
property of the Company or its subsidiaries. In general, so long as at least
500,000 Series A Common Shares are outstanding, the Company will not be entitled
to any such "corporate opportunity" unless it relates solely to the construction
of, the ownership of interests in, and/or the management of, cellular telephone
systems, and then only if such corporate opportunity did not arise in any way as
a result of the rights otherwise retained by TDS. The Restated Certificate of
Incorporation allows the Company to pursue future opportunities to provide
cellular service and design, consulting, engineering and construction management
services for cellular telecommunications systems located outside the United
States.
General
All issued and outstanding shares of Preferred Stock, Common Shares and
Series A Common Shares are fully paid and nonassessable, and all Common Shares
issued by the Company upon conversion of LYONs
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<PAGE>
or upon purchase of LYONs by the Company at the option of the Holders thereof
will be fully paid and nonassessable when issued.
The transfer agent and registrar for the Company's Common Shares is
Harris Trust and Savings Bank, Chicago, Illinois. The Company serves as transfer
agent and registrar for shares of Preferred Stock and Series A Common Shares.
The Company will distribute annual reports to its shareholders which
will contain its audited financial statements.
CERTAIN TAX ASPECTS
The following summary of material United States Federal income tax
considerations is for general information only. The summary is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), its legislative history,
existing and proposed regulations thereunder, administrative rulings and court
decisions, all as in effect and existing on the date hereof and all of which are
subject to change at any time. The tax treatment of a Holder of LYONs may vary
depending upon the Holder's particular situation. Certain Holders (including
insurance companies, tax-exempt organizations, individual retirement and other
tax-deferred accounts, financial institutions, broker-dealers, foreign
corporations, and individuals who are not citizens or residents of the United
States) may be subject to special rules not discussed below. This summary is
limited to investors who hold LYONs as capital assets. Accordingly, purchasers
of LYONs should consult their own tax advisors as to the particular tax
consequences to them of acquiring, holding, converting or otherwise disposing of
the LYONs, including the applicability and the effect of any state, local or
foreign tax laws and any changes in applicable tax laws.
The Company has been advised by its counsel, Sidley & Austin, that in
the opinion of such counsel the LYONs will be treated as indebtedness for United
States Federal income tax purposes. The following discussion of tax
considerations assumes that the LYONs will be so treated.
Original Issue Discount
The LYONs were issued at a substantial discount from their principal
amount at maturity. For Federal income tax purposes, the difference between the
issue price (the first price at which a substantial amount of the LYONs were
sold for money) and the principal amount at maturity of each LYON constitutes
Original Issue Discount. Holders of the LYONs will be required to include
Original Issue Discount in income periodically over the term of the LYONs before
the receipt of the cash, Common Shares, TDS Common Equity Securities or other
payments attributable to such income.
A Holder of a LYON must include in gross income for Federal income tax
purposes the sum of the daily portions of Original Issue Discount with respect
to the LYON for each day during the taxable year or portion of a taxable year on
which such Holder holds the LYON (for purposes of this tax discussion, "Accrued
Original Issue Discount"). The daily portion is determined by allocating to each
day of the accrual period a pro rata portion of an amount equal to the adjusted
issue price of the LYON at the beginning of the accrual period multiplied by the
yield to maturity of the LYON (determined by compounding at the close of each
accrual period and adjusted for the length of the accrual period). The accrual
period will generally be each six month period which ends on the day in each
calendar year corresponding to the maturity date of the LYON or the date six
months before such maturity date. The information returns provided to Holders
and the Internal Revenue Service (the "Service") by the Company regarding the
accrual of Original Issue Discount will be
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<PAGE>
based on these six month accrual periods.
Treasury regulations, however, permit a Holder to select an accrual
period of any length and to vary the length of the accrual period over the term
of the debt instrument, provided that each accrual period is no longer than one
year and each scheduled payment of principal or interest occurs on the final day
of an accrual period or on the first day of an accrual period. The adjusted
issue price of the LYON at the start of any accrual period will be the issue
price of the LYON increased by the Accrued Original Issue Discount for each
prior accrual period. Under these rules, Holders will have to include in gross
income increasingly greater amounts of Original Issue Discount in each
successive accrual period. The Company will be required to furnish annually to
the Service and to certain noncorporate Holders information regarding the amount
of Original Issue Discount attributable to that year.
A Holder who purchases a LYON at an "acquisition premium" will reduce
the amount of Original Issue Discount otherwise includible in gross income to
reflect the acquisition premium. A LYON is purchased at an acquisition premium
if, immediately after its purchase, its adjusted basis is greater than its
adjusted issue price (as defined above). If a LYON is purchased at an
acquisition premium, the Holder reduces the amount of Original Issue Discount
otherwise includible in income during an accrual period by a fraction. The
numerator of this fraction is the excess of the adjusted basis of the LYON
immediately after its acquisition by the purchaser over the adjusted issue price
of the LYON. The denominator of the fraction is the excess of the principal
amount at maturity of such LYON over the LYON's adjusted issue price. As an
alternative to reducing the amount of Original Issue Discount otherwise
includible in income by this fraction, the Holder may elect to compute Original
Issue Discount accruals by treating the purchase as a purchase at original
issuance and applying the constant-yield method described above.
Dispositions
General. A Holder's basis for determining gain or loss on the sale,
redemption, retirement, conversion, purchase by the Company or other disposition
of a LYON (any such event, a "Disposition") will be increased by any Accrued
Original Issue Discount includable in such Holder's gross income. Except as set
forth under "Market Discount" below, gain or loss recognized upon a Disposition
under the rules described below will generally be capital gain or loss, and will
be long-term capital gain or loss if the LYON has been held for more than one
year. A Holder's obligation to include in gross income the daily portions of
Original Issue Discount with respect to a LYON will prospectively terminate on
the date of a Disposition.
Sale, Redemption, Retirement or Purchase by the Company for Cash. Upon
the sale, redemption, retirement or purchase by the Company of a LYON for cash
(including pursuant to a Purchase Notice or a Change in Control Purchase
Notice), a Holder will recognize capital gain or loss equal to the difference
between the amount of cash received and such Holder's adjusted tax basis in the
LYON.
Conversion. The tax treatment of a Holder who elects to convert a LYON
will depend on whether the Company chooses (i) to deliver cash, (ii) to deliver
Common Shares (other than through a Standby Share Deliverer) or (iii) to arrange
for a Standby Share Deliverer to deliver Common Shares. In no event will a
combination of cash and Common Shares be delivered to a Holder with respect to
the conversion of any given LYON (except with respect to cash received in lieu
of a fractional Common Share).
If the Company delivers cash, a Holder will recognize capital gain or
loss equal to the difference between the amount of cash received and such
Holder's adjusted tax basis in the LYON.
If the Company delivers Common Shares (other than through a Standby
Share Deliverer), a Holder will not recognize gain or loss (except with respect
to cash received in lieu of a fractional Common Share), and the Holder's tax
basis in the Common Shares received will be the same as the Holder's tax basis
in the
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<PAGE>
LYON on the date of conversion (exclusive of any tax basis allocable to a
fractional Common Share). The holding period for the Common Shares received will
include the holding period for the LYON tendered to the Company in exchange
therefor, except that the holding period of Common Shares allocable to Accrued
Original Issue Discount may commence on the day following the date of
conversion.
If the Company arranges for a Standby Share Deliverer to deliver Common
Shares, a Holder will recognize capital gain or loss equal to the difference
between the fair market value of such Common Shares (plus any cash received in
lieu of a fractional Common Share) and such Holder's adjusted tax basis in the
LYON. The Holder's tax basis in the Common Shares received will be equal to
their fair market value at the time of conversion, and the holding period for
such Common Shares will begin on the day following the date of conversion.
As a result of these rules, a Holder's receipt of Common Shares upon
conversion of a LYON will either be taxable or tax-free, depending on the source
of the Common Shares. Because the source of the Common Shares will depend on
whether the Company, at its option (with the agreement of a Standby Share
Deliverer in the case of a Common Share Delivery Arrangement), chooses to
deliver the Common Shares or arranges for a Standby Share Deliverer to do so, a
Holder will have no control over whether its receipt of Common Shares upon
conversion is taxable or tax-free. The Company will notify each converting
Holder, through the Conversion Agent, of the source of the Common Shares on or
prior to the delivery thereof, at which time the Holder will be able to
determine whether its receipt of the Common Shares is taxable or tax-free.
Purchase at the Option of the Holder. The tax treatment of a Holder
that elects to have a LYON purchased by the Company with respect to the Purchase
Date or, if applicable, the Optional Purchase Date will depend on the type of
consideration the Company elects to deliver.
If the Company elects to pay the Purchase Price in cash, TDS Common
Equity Securities or any combination thereof, a Holder will recognize capital
gain or loss equal to (i) the sum of any cash received and the fair market value
of any TDS Common Equity Securities received, minus (ii) such Holder's adjusted
tax basis in the LYON. The Holder's tax basis in any TDS Common Equity
Securities received will be equal to their fair market value upon receipt
following the Purchase Date (or Optional Purchase Date), and the Holder's
holding period for the TDS Common Equity Securities will begin on the day
following such receipt.
If the Company elects to pay the Purchase Price in Common Shares, a
Holder will not recognize gain or loss (except with respect to cash received in
lieu of a fractional Common Share), and the Holder's tax basis in the Common
Shares received will be the same as the Holder's tax basis in the LYON exchanged
therefor (exclusive of any tax basis allocable to a fractional Common Share).
The holding period for the Common Shares received will include the holding
period for the LYON tendered to the Company in exchange therefor, except that
the holding period of Common Shares allocable to Accrued Original Issue Discount
may commence on the day following such exchange.
If the Company elects to pay the Purchase Price partly in cash and/or
TDS Common Equity Securities and partly in Common Shares, a Holder will
recognize capital gain (but not loss) equal to the lesser of (i) the sum of any
cash received and the fair market value of any TDS Common Equity Securities
received and (ii) such sum plus the fair market value of the Common Shares
received minus such Holder's adjusted tax basis in the LYON. The Holder's tax
basis in any TDS Common Equity Securities received will be equal to their fair
market value upon receipt following the Purchase Date (or Optional Purchase
Date), and the Holder's holding period for the TDS Common Equity Securities will
begin on the day following such receipt. The Holder's tax basis in the Common
Shares received will be the same as the Holder's tax basis in the LYON
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<PAGE>
exchanged
therefor, decreased by the sum of any cash received and the fair market value of
any TDS Common Equity Securities received and increased by the amount of gain
recognized. The holding period for the Common Shares received will include the
holding period for the LYON tendered to the Company in exchange therefor, except
that the holding period of Common Shares allocable to Accrued Original Issue
Discount may commence on the day following such exchange.
Cash in Lieu of Fractional Shares. Cash received in lieu of a
fractional Common Share upon a Disposition of a LYON should be treated as a
payment in exchange for the fractional interest in such Common Share.
Accordingly, the receipt of cash in lieu of a fractional Common Share should
generally result in capital gain or loss, if any (measured by the difference
between the cash received for the fractional Common Share and the Holder's tax
basis in the fractional Common Share).
Market Discount. If a Holder acquires a LYON and has a tax basis in the
LYON that is less than its adjusted issue price (as defined above), the amount
of such difference is treated as "market discount" for federal income tax
purposes, unless such difference is less than 1/4 of one percent of the
principal amount at maturity multiplied by the number of complete years to
maturity (from the date of acquisition).
Under the market discount rules of the Code, a Holder is required to
treat any gain on the sale, exchange, retirement or other disposition of a LYON
as ordinary income to the extent of the accrued market discount that has not
previously been included in income. If such LYON is disposed of by the
Holder in certain otherwise nontaxable transactions (e.g., gifts), accrued
market discount will be includible as ordinary income by the Holder as if such
Holder had sold the LYON at its then fair market value.
Notwithstanding the rules set forth in the preceding paragraph, if a
Holder disposes of a LYON having accrued market discount in a nonrecognition
transaction in which the Holder receives property the basis of which is
determined in whole or in part by reference to the basis of the LYON, the
accrued market discount is generally not includible in income at the time of
such transaction. Instead, the accrued market discount attaches to the property
received in the nonrecognition transaction and is recognized as ordinary income
upon the disposition of such property by the Holder. This rule would apply to
the receipt of Common Shares pursuant to the conversion of a LYON (other than
through a Standby Share Deliverer) and the receipt of Common Shares pursuant to
a purchase by the Company (to the extent the accrued market discount was
allocable thereto).
In general, the amount of market discount that has accrued is
determined on a ratable basis, by allocating an equal amount of market discount
to each day of every accrual period. A Holder may, however, elect to determine
the amount of accrued market discount allocable to any accrual period through a
constant-yield calculation. This election is made on a LYON-by-LYON basis and is
irrevocable.
A Holder may not be allowed to deduct immediately a portion of the
interest expense on any indebtedness incurred or continued to purchase or to
carry LYONs with market discount. A Holder may elect to include market discount
in income currently as it accrues (either on a ratable basis or, if the Holder
so elects, on a constant-yield basis) in which case the interest-deferral rule
set forth in the preceding sentence will not apply. Such an election to include
market discount in income currently applies to all debt instruments acquired by
the Holder on or after the first day of the first taxable year to which such
election applies and is irrevocable without the consent of the Service. A
Holder's tax basis in a LYON will be increased by the amount of market discount
included in such Holder's income under such an election.
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Constructive Dividend
If at any time the Company makes a distribution of property to
stockholders that would be taxable to such stockholders as a dividend for United
States Federal income tax purposes (for example, distributions of evidences of
indebtedness or assets of the Company, but generally not stock dividends or
rights to subscribe for Common Shares) and, pursuant to the antidilution
provisions of the LYONs, the Conversion Rate of the LYONs is increased, such
increase will likely result in taxable income for the Holders of the LYONs.
Similarly, if the Conversion Rate is increased at the discretion of the Company,
such increase will likely result in taxable income for the Holders of the LYONs.
TELEPHONE AND DATA SYSTEMS, INC.
TDS currently owns all of the Series A Common Shares which are
outstanding and all of the shares of Preferred Stock which are outstanding. TDS
also currently owns over 50% of the Common Shares which are outstanding. See the
Company's most recent Annual Report on Form 10-K or Quarterly Report on Form
10-Q for the number of shares of capital stock of the Company which are held by
TDS. This Prospectus covers 750,000 of such Common Shares owned by TDS in
connection with the transactions contemplated by the Securities Loan Agreement
described under "Arrangements with Merrill Lynch." Since TDS is only lending
such Common Shares to Merrill Lynch under the Securities Loan Agreement, Merrill
Lynch is obligated to return such borrowed Common Shares to TDS.
ARRANGEMENTS WITH MERRILL LYNCH
Merrill Lynch, as Standby Share Deliverer and at the request of the
Company, may agree to acquire, through the delivery of Common Shares, LYONs upon
conversion by the Holders thereof and Merrill Lynch may resell such LYONs. Any
such sales may be made directly to one or more purchasers at negotiated prices,
at market prices prevailing at the time of sale or at prices related to such
market prices. See "Description of LYONs-Conversion Rights." This Prospectus may
be used by the Standby Share Deliverer in connection with such transactions.
Merrill Lynch may from time to time offer Common Shares borrowed from
TDS under the Securities Loan Agreement directly to one or more purchasers at
negotiated prices, at market prices prevailing at the time of sale or at prices
related to such market prices. The Securities Loan Agreement provides that,
subject to certain restrictions and with the agreement of TDS, Merrill Lynch may
from time to time borrow, return and reborrow Common Shares from TDS; provided,
however, that the number of Common Shares borrowed under the Securities Loan
Agreement at any time may not exceed 750,000 (which number of Common Shares may
be reduced from time to time by TDS). Merrill Lynch shall be obligated generally
to return borrowed securities on three business days' notice from TDS. The
obligation of Merrill Lynch to return borrowed securities shall be secured by
cash, an irrevocable letter of credit or U.S. Government Obligations, in form
satisfactory to the custodian under the Securities Loan Agreement, in an amount
not less than 102% of the market value of the borrowed securities. If the market
value of the borrowed securities falls or rises over time, Merrill Lynch may be
required to provide additional collateral or may be entitled to the return of
collateral. The recalculation of the market value of the borrowed securities
will be done on a daily basis. Any fees payable by Merrill Lynch under the
Securities Loan Agreement will be paid directly to
the custodian. The Securities Loan Agreement is intended to facilitate
ordinary trading and market-making activity in the LYONs by Merrill Lynch and
may also be used by Merrill Lynch, as Standby Share Deliverer, to obtain Common
Shares deliverable by it in connection with any Common Share Delivery
Arrangement
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<PAGE>
entered into with the Company, as described in "Description of
LYONs-Conversion Rights." The availability of Common Shares under the Securities
Loan Agreement, if any, at any time is, as described above, not assured and any
such availability does not assure market-making activity in the LYONs by Merrill
Lynch. This Prospectus may be used by Merrill Lynch in connection with the sale
of Common Shares borrowed by Merrill Lynch from TDS under the Securities Loan
Agreement. Merrill Lynch is not under any obligation to engage in market-making
activity with respect to the LYONs, or to agree to any such Common Share
Delivery Arrangement, and any market-making, or activity as a Standby Share
Deliverer, actually engaged in by Merrill Lynch may cease at any time.
The Company has agreed to indemnify Merrill Lynch against certain civil
liabilities, including liabilities under the Securities Act, and to contribute
to payments Merrill Lynch may be required to make in respect thereof.
Merrill Lynch has previously marketed (and anticipates continuing to
market) securities of issuers under the trademark "LYONs." The LYONs offered
hereby contain certain terms and provisions which are different from such other
previously marketed LYONs, the terms and provisions of which also vary.
See "Description of LYONs."
From time to time Merrill Lynch and certain of its affiliates have
performed, and may in the future perform, investment banking or financial
advisory services for the Company and TDS.
LEGAL MATTERS
Certain legal matters with respect to the securities of the Company
offered hereunder have been passed upon by Sidley & Austin, Chicago, Illinois.
Stephen P. Fitzell and Sherry S. Treston, Secretary and Assistant Secretary,
respectively, of the Company, are partners of Sidley & Austin. Walter C.D.
Carlson, a director of the Company and TDS, and a trustee and beneficiary of the
voting trust which controls TDS and the Company, is a partner of Sidley &
Austin. Michael G. Hron, and William S. DeCarlo, the Secretary and Assistant
Secretary of TDS, respectively, are partners of Sidley & Austin. Mayer, Brown &
Platt, Chicago, Illinois, acted as counsel for Merrill Lynch in connection with
certain legal matters relating to the securities offered hereby. Mayer, Brown &
Platt from time to time acts as counsel in certain matters for the Company, TDS
and members of the Carlson family. Debora de Hoyos, the spouse of Walter C. D.
Carlson and a director of American Paging, Inc., a publicly traded subsidiary of
TDS, is a partner of Mayer, Brown & Platt.
EXPERTS
The audited consolidated financial statements and schedule of United
States Cellular Corporation incorporated by reference in this Prospectus have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports incorporated by reference herein. The combined
financial statements incorporated by reference in this Prospectus have been
reviewed for compilation by Arthur Andersen LLP, as indicated in their report
incorporated by reference herein. The reports of other independent accountants
on the underlying financial statements which have been combined are incorporated
by reference herein. The financial statements referred to above have been
incorporated by reference in reliance upon the authority of such firms as
experts in accounting and auditing in giving said reports.
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<PAGE>
No dealer, salesperson or other
person has been authorized to give
any information or to make any
representations not contained in this
Prospectus in connection with the [LOGO]
offering covered by this Prospectus.
If given or made, such information or
representations must not be relied upon UNITED STATES
as having been authorized by the Company, CELLULAR CORPORATION
TDS or Merrill Lynch. This Prospectus does
not constitute an offer to sell, or a
solicitation of an offer to buy, the
securities offered hereby in any jurisdiction
where, or to any person to whom, it is unlawful
to make such offer or solicitation. Neither
the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances,
create any implication that there has not been
any change in the facts set forthin this Prospectus
or the affairs of the Company or TDS since the
date hereof. Common Shares,
$1.00 Par Value
----------------------
TABLE OF CONTENTS
--------------
Page PROSPECTUS
--------------
Available Information................... 2
Incorporation of Certain Documents By
Reference............................... 2
Prospectus Summary...................... 3
Risk Factors............................ 7
Use of Proceeds......................... 10
Description of LYONs.................... 11
Description of Capital Stock............ 25 August 15, 1996
Certain Tax Aspects..................... 29
Telephone and Data Systems, Inc......... 33
Arrangements with Merrill Lynch......... 33
Legal Matters........................... 34
Experts................................. 34
<PAGE>
