As filed with the Securities and Exchange Commission on September 26, 1995
Registration No. 33-
----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
Telephone and Data Systems, Inc.
(Exact Name of Registrant as Specified in its Charter)
Iowa 6749 36-2669023
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification
Number)
30 North LaSalle Street Suite 4000
Chicago, Illinois 60602
(312) 630-1900
(Address, Including Zip Code, a Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
------------------
with copies to
LeRoy T. Carlson, Chairman Stephen P. Fitzell, Esq.
Telephone and Data Systems, Inc. Sidley & Austin
30 North LaSalle Street, Suite 4000 One First National Plaza
Chicago, Illinois 60602 Chicago, Illinois 60603
(312) 630-1900 (312) 853-7000
(Names, Addresses, Including Zip Code and Telephone Numbers,
Including Area Codes, of Agents for Service)
------------------
Approximate date of commencement of proposed sale to the public:
Upon the Effective Date of the Merger of DTC Acquisition Corp. with and
into Deposit Telephone Company, Inc., as set forth in Section 1.01 of the
Acquisition Agreement and Plan of Merger included as Annex A to the Proxy
Statement-Prospectus forming a part of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: o
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CALCULATION OF REGISTRATION FEE
Title of Each Proposed Proposed
Class of Amount Maximum Maximum Amount of
Securities to be Offering Price Aggregate Registration
to be Registered Registered Per Unit Offering Price Fee
- ---------------- ---------- -------------- -------------- ------------
Common Shares, 658,400
par value $1.00 Shares (1) N/A $10,937,033 (2) $3,771.39
(1) Maximum number of shares which will be issued in connection with the
Merger in exchange for 29,450 Common Shares, no par value, of Deposit
Telephone Company, Inc. and in connection with the Stock Bonus.
(2) Because there is no market for the 29,450 shares of Deposit Telephone
Company, Inc. which are to be received by the Registrant in the Merger,
pursuant to Rule 457(f)(2), the fee is to be calculated based on the
aggregate book value of such shares, which is $10,937,033 as of June 30,
1995.
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
TELEPHONE AND DATA SYSTEMS, INC.
CROSS-REFERENCE SHEET
Item Number and Caption Location in Prospectus
A. Information About the Transaction
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus......................... Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus............... Available Information;
Documents Incorporated by
Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other
Information....................... Summary; General Information
4. Terms of the Transaction............. Summary; General Information;
The Merger; Description of
Deposit Shares; Description
of TDS Securities; Comparative
Rights of TDS Shareholders and
Deposit Shareholders
5. Pro Forma Financial
Information........................ *
6. Material Contacts with the Company
Being Acquired...................... The Merger
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters........... *
8. Interests of Named Experts and
Counsel............................. Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities......................... *
B. Information About the Registrant
10. Information with Respect to S-3
Registrants......................... Business of TDS
11. Incorporation of Certain Information
by Reference........................ Documents Incorporated by
Reference
12. Information with Respect to S-2 or S-3
Registrants......................... *
13. Incorporation of Certain Information
by Reference........................ *
14. Information with Respect to
Registrants Other than S-3 or S-2
Registrants......................... *
C. Information About the Company Being
Acquired
15. Information with Respect to S-3
Companies........................... *
16. Information with Respect to S-2 or S-3
Companies........................... *
17. Information with Respect to Companies
Other Than S-2 or S-3
Companies........................... Summary -- Selected Financial
Information; Information with
Respect to Deposit;
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations; Deposit Financial
Statements
<PAGE>
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations Are to be
Solicited........................... General Information; The
Merger -- Rights of Dissenting
Shareholders; The Merger --
Interests of Certain Persons
in the Merger; Information
with Respect to Deposit --
Principal Shareholders of
Deposit, -- Share Ownership of
Directors and Officers, --
Directors and Executive
Officers, -- Compensation of
Officers, and -- Compensation
of Directors
19. Information if Proxies, Consents or
Authorizations Are Not to be
Solicited or in an Exchange
Offer............................. *
- -----------------------------------
* Not applicable or answer negative
<PAGE>
Deposit Telephone Company, Inc.
87 Front Street
Deposit, New York 13754
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders of
Deposit Telephone Company, Inc. ("Deposit") to be held at __:_ _.m. on _______
__, 1995 at ___________, ___________, Deposit, New York 13754.
At the special meeting, shareholders of Deposit will be asked to consider
and approve an Acquisition Agreement and Plan of Merger, dated as of March 30,
1995 (the "Merger Agreement"), by and among Telephone and Data Systems, Inc.
("TDS"), DTC Acquisition Corp. ("Sub"), Deposit and certain owners of
outstanding shares of common stock of Deposit (the "Major Shareholders"), and
the merger of Sub with and into Deposit (the "Merger"). If approved, the Merger
is expected to occur within thirty days after all regulatory approvals have been
received. As a result of the Merger, Deposit will become a wholly-owned
subsidiary of TDS and Deposit shares held by its shareholders will be converted
into Common Shares of TDS as described in the accompanying Proxy
Statement-Prospectus.
Your Board of Directors believes that the Merger is in the best interests of
Deposit shareholders and unanimously recommends that you vote your shares for
the Merger. The terms of the Merger, as well as other important information, are
contained in the enclosed Proxy Statement-Prospectus. Also being delivered
herewith in connection with the offer by TDS is the TDS Annual Report to the
Securities and Exchange Commission (the "Commission") on Form 10-K for the year
ended December 31, 1994, the TDS Annual Report to shareholders for the year
ended December 31, 1994, the TDS Notice of Annual Meeting and Proxy Statement
dated April 14, 1995 for the 1995 annual meeting of shareholders of TDS and the
TDS Quarterly Reports to the Commission on Form 10-Q for the quarters ended
March 31, 1995 and June 30, 1995. You are urged to read the Proxy
Statement-Prospectus and the accompanying documents carefully.
Approval of the Merger requires an affirmative vote of the holders of at
least two-thirds of the outstanding Deposit shares entitled to vote on the
proposal. CONSEQUENTLY, THE EFFECT OF FAILING TO VOTE ANY DEPOSIT SHARES AT OUR
SPECIAL MEETING OF SHAREHOLDERS WILL BE THE SAME AS A NEGATIVE VOTE WITH RESPECT
TO THE MERGER. ACCORDINGLY, WHETHER OR NOT YOU PLAN TO ATTEND OUR SPECIAL
SHAREHOLDERS' MEETING, WE REQUEST THAT YOU PLEASE COMPLETE, SIGN, DATE, AND
RETURN THE ENCLOSED PROXY AS SOON AS POSSIBLE IN THE ENCLOSED PREPAID ENVELOPE
TO DEPOSIT TELEPHONE COMPANY, INC., 87 FRONT STREET, P.O. BOX 87, DEPOSIT, NEW
YORK 13754. PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
If, after voting your shares through the mail, you decide you would rather vote
them in person, you may do so at the special meeting. We thank you for your
prompt attention to this matter and appreciate your support.
Very truly yours,
Peter H. Feehan
President and Chief
Executive Officer
_____ __, 1995
<PAGE>
DEPOSIT TELEPHONE COMPANY, INC.
Notice of Special Meeting of Shareholders to be Held on ____________ ___, 1995
To the Shareholders of
Deposit Telephone Company, Inc.:
A special meeting of the shareholders of Deposit Telephone Company,
Inc., a New York corporation ("Deposit"), will be held on _____________ __, 1995
at __:__ __.m. at ___________, _____________, Deposit, New York 13754 for the
following purposes:
1. To consider and vote upon a proposal to approve an Acquisition
Agreement and Plan of Merger, dated as of March 30, 1995 (the "Merger
Agreement"), by and among Telephone and Data Systems, Inc. ("TDS"), DTC
Acquisition Corp. ("Sub"), Deposit and certain owners of outstanding shares of
common stock of Deposit (the "Major Shareholders"), providing for the merger
(the "Merger") of Sub with and into Deposit pursuant to which Deposit will
become a wholly-owned subsidiary of TDS. In the Merger, all of the issued and
outstanding shares of Deposit common stock will be converted into Common Shares
of TDS, as further described in the accompanying Proxy Statement-Prospectus.
2. To adjourn the meeting if a quorum is not obtained or if the Board
of Directors of Deposit determines that there is insufficient representation of
shareholders, in person and represented by proxy, to approve the Merger
Agreement.
3. To transact such other business as may properly come before the
special meeting and any adjournment or adjournments thereof.
The Board of Directors of Deposit has fixed the close of business on
___________ ___, 1995 as the record date for the special meeting. Only
shareholders of record at such date will be entitled to notice of and to vote at
the special meeting and any adjournment or adjournments thereof.
Approval of the Merger Agreement will require the affirmative vote of
the holders of at least two-thirds of the outstanding shares of Deposit common
stock. On ___________ ___, 1995, there were 29,450 shares of Deposit common
stock outstanding.
Action taken at the meeting may entitle shareholders fulfilling the
requirements of Section 623 of the New York Business Corporation Law ("BCL") to
receive payment of the fair value of their shares as determined by a court. A
copy of the provisions of Sections 623 and 910 of the BCL is included in the
accompanying Proxy Statement -- Prospectus in Annex B.
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT
PROMPTLY BUT NOT LATER THAN ______________ ____, 1995 IN THE ENCLOSED PREPAID
ENVELOPE TO DEPOSIT TELEPHONE COMPANY, INC., 87 FRONT STREET, P.O. BOX 87,
DEPOSIT, NEW YORK 13754 WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
IF, AFTER VOTING YOUR SHARES THROUGH THE MAIL, YOU DECIDE YOU WOULD RATHER VOTE
THEM IN PERSON, YOU MAY DO SO AT THE MEETING.
By order of the Board of Directors
June B. Nolan
Secretary
_____________ ___, 1995
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 26, 1995
DEPOSIT TELEPHONE TELEPHONE AND DATA
COMPANY, INC. SYSTEMS, INC.
87 Front Street 30 North LaSalle, Suite 4000
Deposit, New York 12754 Chicago, Illinois 60602
PROXY STATEMENT-PROSPECTUS
For the Special Meeting to be held ____________ __, 1995
----------------------
Telephone and Data Systems, Inc. ("TDS") has filed a Registration
Statement on Form S-4 under the Securities Act of 1933, as amended, covering
658,400 of its Common Shares, par value $1.00 per share (the "TDS Common
Shares"), to be issued in connection with the proposed acquisition described in
this Prospectus of TDS. Also being delivered herewith are the TDS Annual Report
to the Securities and Exchange Commission (the "Commission") on Form 10-K for
the year ended December 31, 1994, the TDS Annual Report to Shareholders for the
year ended December 31, 1994, the TDS Notice of Annual Meeting and Proxy
Statement dated April 14, 1995 for the 1995 annual meeting of shareholders of
TDS and the TDS Quarterly Reports to the Commission on Form 10- Q for the
quarters ended March 31, 1995 and June 30, 1995. This Prospectus of TDS also
constitutes the Proxy Statement of Deposit Telephone Company, Inc. ("Deposit")
to be used in soliciting proxies of Deposit shareholders at a Special Meeting of
Shareholders to be held on _____________ __, 1995, including any adjournments
thereof, to consider and vote upon the merger of a wholly-owned subsidiary of
TDS with and into Deposit pursuant to which Deposit will become a wholly-owned
subsidiary of TDS.
The Proxy Statement-Prospectus is first being sent to shareholders of
Deposit on or about _____________ ___, 1995.
--------------------
THE TELEPHONE AND DATA SYSTEMS, INC. COMMON SHARES TO BE ISSUED IN THE
MERGER 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 PROXY STATEMENT-PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
No person has been authorized to give any information or to make any
representations, other than those contained in this Proxy Statement-Prospectus,
in connection with the offer contained herein, and if given or made, such
information or representations must not be relied upon as having been authorized
by TDS or Deposit. This Proxy Statement-Prospectus, does not constitute an offer
of any securities, other than the securities to which it relates, to any person
to whom it is unlawful to make such offer or solicitation in any state or other
jurisdiction. Neither the delivery of this Proxy Statement-Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication that
the information contained herein is correct as of any time subsequent to the
date hereof.
The date of this Proxy Statement-Prospectus is
____________ ___, 1995.
<PAGE>
AVAILABLE INFORMATION
TDS 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
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., 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, Suite 1400, 500 West Madison
Street, 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. TDS's Common Shares are listed on
the American Stock Exchange, and reports, proxy statements and other information
concerning TDS may be inspected at the office of the American Stock Exchange,
Inc., 86 Trinity Place, New York, New York 10006. This Proxy
Statement-Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. The Registration Statement and any
amendments thereto, including exhibits filed as a part thereof, are available
for inspection and copying as set forth above.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents heretofore filed by TDS with the Commission
under the Exchange Act are incorporated herein by reference: (a) Annual Report
on Form 10-K for the year ended December 31, 1994; (b) Notice of Annual Meeting
of Shareholders and Proxy Statement dated April 14, 1995; (c) Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1995 and June 30, 1995; (d)
Current Reports on Form 8-K dated March 15, 1995 and May 19, 1995; and (e) Form
8-A/A-2, dated December 20, 1994, which includes a description of TDS's Common
Shares.
All documents filed by TDS pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Proxy Statement-Prospectus and
prior to the date of the Special Meeting of Shareholders of Deposit, and any and
all adjournments thereof, shall be deemed to be incorporated by reference in
this Proxy Statement-Prospectus and to be a part hereof from the date of filing
of such documents. Any statements contained in a document incorporated by
reference herein shall be deemed to be modified or superseded for purposes
hereof to the extent that a statement contained herein (or in any other
subsequently filed document which also is incorporated by reference herein)
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed to constitute a part hereof except as so modified or
superseded. All information appearing in this Proxy Statement-Prospectus is
qualified in its entirety by the information and financial statements (including
notes thereto) appearing in the documents incorporated herein by reference.
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFER ENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCU MENTS (OTHER
THAN EXHIBITS THERETO) ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL
REQUEST BY ANY PERSON TO WHOM THIS PROXY STATEMENT- PROSPECTUS HAS BEEN
DELIVERED, FROM INVESTOR RELATIONS, TELEPHONE AND DATA SYSTEMS, INC., 30 NORTH
LASALLE STREET, SUITE 4000, CHICAGO ILLINOIS 60602 (TELEPHONE 312-630-1900). IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY
________________ ___, 1995.
2
<PAGE>
TABLE OF CONTENTS
Available Information.........................................................2
Documents Incorporated by Reference...........................................2
Summary.......................................................................4
Summary Selected Financial Information........................................7
General Information...........................................................9
The Merger...................................................................11
Background of the Merger...................................................11
Deposit's Reasons for the Merger; Recommendation of Deposit's
Board of Directors.......................................................12
TDS's Reasons for the Merger...............................................13
Effective Date of the Merger...............................................13
Vote Required..............................................................13
Conversion of Shares in the Merger.........................................13
Exchange of Certificates...................................................13
Effects of Changes in Deposit's Capitalization.............................14
Fractional Shares..........................................................14
Representations and Warranties.............................................14
Business of Deposit Pending Completion of the Merger.......................14
Fees and Expenses..........................................................15
Agreement to Vote in Favor of the Merger...................................15
Indemnification............................................................16
Conditions.................................................................16
Amendment; Termination.....................................................17
Interests of Certain Persons in the Merger.................................17
Registration and Listing...................................................18
Certain Federal Income Tax Consequences....................................18
Accounting Treatment.......................................................20
Regulatory Approvals.......................................................20
Rights of Dissenting Shareholders..........................................20
Business of TDS..............................................................22
Information with Respect to Deposit..........................................22
Business of Deposit........................................................22
Property of Deposit........................................................24
Legal Proceedings of Deposit...............................................24
Changes in and Disagreements with Accountants of Deposit...................24
Authorized and Outstanding Securities of Deposit...........................24
Market for Shares and Dividends............................................24
Principal Shareholders of Deposit .........................................25
Share Ownership of Directors and Officers..................................25
Directors and Executive Officers...........................................26
Compensation of Officers...................................................27
Compensation of Directors..................................................28
Certain Relationships and Related Transactions.............................28
Employment Contracts, Termination of Employment, and Change-Of-Control
Agreements ..............................................................28
Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................29
Description of Deposit Shares................................................32
Description of TDS Securities................................................33
Comparative Rights of TDS Shareholders and Deposit Shareholders..............36
Legal Matters................................................................37
Experts......................................................................37
Index to Deposit Financial Statements.......................................F-1
Annex A -- Acquisition Agreement and Plan of Merger
Annex B -- The New York Business Corporation Law -- Sections 623 and 910
3
<PAGE>
SUMMARY
The following is a summary of certain information contained
elsewhere in this Proxy Statement-Prospectus or in documents delivered herewith.
Certain capitalized terms are defined elsewhere in this Proxy
Statement-Prospectus. Reference is made to, and this Summary is qualified in its
entirety by, the more detailed information contained in this Proxy Statement-
Prospectus, the Annexes hereto and the documents delivered herewith.
Telephone and Data Systems, Inc.
Telephone and Data Systems, Inc., an Iowa corporation ("TDS"),
is a diversified telecommunications service company with cellular telephone,
local telephone and radio paging operations. The principal executive office of
TDS is located at 30 North LaSalle Street, Suite 4000, Chicago, Illinois 60602,
and its telephone number is: (312) 630-1900. See "Business of TDS."
Deposit Telephone Company, Inc.
Deposit Telephone Company, Inc., a New York corporation
("Deposit"), is engaged in the business of providing local exchange telephone
service to customers in Broome, Chenango and Delaware counties in the State of
New York and Wayne County in the State of Pennsylvania. The principal executive
office of Deposit is located at 87 Front Street, Deposit, New York 13754 and its
telephone number is: (607) 467-2111. See "Information with Respect to Deposit --
Business of Deposit."
DTC Acquisition Corp.
DTC Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of TDS ("Sub"), is a corporation recently organized by TDS for the
purpose of effecting the acquisition of Deposit. Sub has no material assets and
has not engaged in any activities except in connection with the proposed
acquisition. Sub's executive offices are located at 30 North LaSalle Street,
Suite 4000, Chicago, Illinois 60602, and its telephone number is: (312) 630-
1900.
Merger Agreement
On March 30, 1995, TDS, Sub, Deposit and certain owners of
outstanding shares of common stock of Deposit (the "Major Shareholders") entered
into an Acquisition Agreement and Plan of Merger (the "Merger Agreement")
providing for the merger of Sub with and into Deposit pursuant to which Deposit
would become a wholly-owned subsidiary of TDS (the "Merger").
Date, Time and Place of Deposit Shareholders' Meeting
Deposit's Special Meeting of Shareholders to consider and vote
on approval of the Merger Agreement is to be held on _______________ ___, 1995
at __:__ __.m., at ________,________, Deposit, New York 13754 (the "Deposit
Meeting").
Record Date
Only holders of record of shares of capital stock of Deposit,
no par value ("Deposit Shares"), at the close of business on ____________ ___,
1995 (the "Deposit Record Date"), are entitled to vote at the Deposit Meeting.
At the close of business on the Deposit Record Date, 29,450 Deposit Shares were
outstanding.
4
<PAGE>
Purpose of the Deposit Meeting
1. To consider and vote upon a proposal to approve the Merger
Agreement and the transactions contemplated thereby;
2. To adjourn the meeting if a quorum is not obtained or if the
Board of Directors of Deposit determines that there is insufficient
representation of shareholders, in person and represented by proxy, to approve
the Merger Agreement; and
3. To transact any other business that may properly come before
the Deposit Meeting.
Vote Required
The affirmative vote of holders of at least two-thirds of the
outstanding Deposit Shares entitled to vote at the Deposit Meeting is required
to approve the Merger Agreement. The Major Shareholders and one additional
shareholder of Deposit, who collectively own approximately 83.84% of the
outstanding Deposit Shares, have agreed that, as long as the Merger Agreement
has not been terminated, they will vote their shares in favor of approval of the
Merger Agreement. Therefore, assuming that such shareholders vote as agreed, the
Merger will be approved at the Special Meeting. Directors and officers of
Deposit and their spouses and relatives residing with such directors and
officers are the beneficial owners of 10,847 Deposit Shares (approximately 37%
of the shares of Deposit outstanding). See "General Information" and "The Merger
- -- Vote Required" and " -- Agreement to Vote in Favor of the Merger."
PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY USING THE
ENCLOSED ENVELOPE TO MAKE SURE YOUR VOTE IS REPRESENTED AT THE DEPOSIT MEETING.
The Merger
Upon consummation of the Merger, Sub will be merged with and
into Deposit and Deposit will become a wholly-owned subsidiary of TDS. As a
result of the Merger, the Deposit Shares issued and outstanding immediately
prior to the Merger (subject to the rights of any shareholder who shall have
perfected his or her right to dissent under the New York Business Corporation
Law) will be converted into the right to receive an aggregate of 648,400 Common
Shares, par value $1.00 per share, of TDS ("TDS Common Shares"), with each
Deposit Share being converted into the right to receive 22.01697792869 TDS
Common Shares, rounded up or down to the nearest ten-thousandth of a share. The
aggregate number of TDS Common Shares into which the Deposit Shares are
convertible is hereinafter referred to as the "Exchange Consideration" and the
number of TDS Common Shares into which each Deposit Share is convertible is
hereinafter referred to as the "Per Share Consideration."
Each holder of Deposit Shares who otherwise would be entitled
to receive a fractional TDS Common Share will receive in lieu thereof an amount
of cash (without interest) equal to the product obtained by multiplying such
fraction by the average closing price of TDS Common Shares as reported in the
American Stock Exchange Composite Transactions section of The Wall Street
Journal for the five trading days ending on the third trading day immediately
preceding the Effective Date (as defined in "Summary -- Effective Date of the
Merger").
Recommendation of Deposit's Board of Directors
The Board of Directors of Deposit believes that the Merger is
in the best interests of Deposit and its shareholders. The Board of Deposit
unanimously recommends that
5
<PAGE>
the shareholders of Deposit approve the Merger Agreement. The Board's
recommendation is based upon factors discussed in this Proxy
Statement-Prospectus. See "The Merger -- Deposit Reasons for the Merger;
Recommendation of Deposit's Board of Directors."
Effective Date of the Merger
If the Merger Agreement is approved, the Merger is expected to
become effective within thirty days after all required regulatory approvals have
been received (such date being the "Effective Date").
Exchange of Certificates
At or before the Deposit Meeting, Deposit shareholders will
receive instructions for exchanging certificates representing Deposit Shares for
certificates representing TDS Common Shares. Deposit shareholders should not
surrender their certificates prior to approval of the Merger Agreement at the
Deposit Meeting.
Conditions to the Merger; Termination
The consummation of the Merger is conditioned upon the
fulfillment of certain conditions set forth in the Merger Agreement, including
the regulatory approvals discussed below. The Merger Agreement may be terminated
by mutual consent of the Boards of Directors of TDS and Deposit or by either TDS
or Deposit if certain conditions have not been satisfied. See "The Merger --
Conditions" and " -- Amendment; Termination."
Regulatory Approvals
The Merger is subject to approval by the Public Service
Commission of New York and the Public Utilities Commission of Pennsylvania.
Applications seeking such approvals currently are pending before these
regulatory agencies. The Merger is also subject to review by the Federal Trade
Commission and the Antitrust Division of the United States Department of Justice
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. See
"The Merger -- Regulatory Approvals."
Federal Income Tax Consequences
The Merger is intended by Deposit to qualify as a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended. Whether the transaction does qualify for tax-free treatment
by Deposit shareholders will depend, in part, upon circumstances occurring after
the Merger. For a discussion of the possible federal income tax consequences of
the Merger, see "The Merger -- Certain Federal Income Tax Consequences." Deposit
shareholders are urged to consult their own tax advisors.
Rights of Dissenting Shareholders
Under New York law, Deposit shareholders will be entitled to
dissent from the Merger and receive payment in cash of the "fair value" of their
Deposit Shares as determined by a court, which may be more or less than the
amount to be received under the Merger. Specific procedures are required to be
followed in order to exercise such rights and failure to follow such procedures
may result in the termination of such rights. See "The Merger -- Rights of
Dissenting Shareholders."
6
<PAGE>
SUMMARY SELECTED FINANCIAL INFORMATION
The following tables present summary historical financial
information for TDS and Deposit. This information is based upon the consolidated
financial statements of TDS and the financial statements of Deposit incorporated
by reference or appearing elsewhere in this Proxy Statement-Prospectus and
should be read in conjunction therewith and the notes thereto.
<TABLE>
<CAPTION>
Six Months Ended
June 30, (Unaudited) Year Ended December 31,
---------------------- ---------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---------- --------- ---------- ---------- ---------- --------- ----------
(Numbers represent thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
TDS Historical:
Operating Revenues $ 442,066 $ 332,387 $ 730,810 $ 557,795 $ 432,740 $ 340,160 $ 286,743
Net income from continuing operations
(before extraordinary items and
cumulative effect of change
in accounting principle) 45,773 24,544 60,544 33,896 38,520 21,113 27,208
Extraordinary item ..................... -- -- -- -- (769) -- --
Cumulative effect of a change in
accounting principle(1) -- (723) (723) -- (6,866) (5,035) --
Net income available to TDS Common Shares 44,800 22,684 58,012 31,510 28,648 14,390 26,047
Earnings per TDS Common Share:
Net income from continuing operations
(before extraordinary items and
cumulative effect of change in
accounting principle) .77 .44 1.07 .67 .91 .59 .86
Extraordinary item -- -- -- -- (.02) -- --
Cumulative effect of a change in
accounting principle.................. -- (.01) (.01) -- (.17) (.15) --
Net Income .77 .43 1.06 .67 .72 .44 .86
Cash dividends per TDS Common Share .19 .18 .36 .34 .32 .30 .28
Total assets 3,346,110 2,456,499 2,790,127 2,259,182 1,696,486 1,368,145 940,289
Long-term debt and redeemable
preferred stock 907,565 554,236 587,165 564,933 454,852 424,739 277,031
Book value per TDS Common Share $ 28.10 $ 26.00 $ 26.85 $ 24.15 $ 21.27 $ 18.42 $ 14.17
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30, (Unaudited) Year Ended December 31,
---------------------- ----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
(Numbers represent thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deposit Historical:
Operating Revenues...................... $2,808 $3,194 $6,439 $6,494 $5,994 $5,062 $4,482
Net income ............................. 2,457 614 1,109 1,239 876 741 102
Net income per Deposit Share ........... 83.43 20.84 37.67 42.07 29.75 25.18 3.45
Cash dividends per Deposit Share........ 3.50 3.35 6.85 6.40 6.30 6.20 6.05
Total assets............................ 17,209 15,444 14,903 15,100 13,721 13,074 12,025
Long-term debt.......................... 240 818 320 922 1,044 1,166 1,288
Book value per Deposit Share............ $371.38 $278.12 $291.45 $260.63 $224.96 $201.51 $182.53
</TABLE>
Six Months Ended Year Ended
TDS and Deposit June 30, 1995 December 31, 1994
PRO FORMA COMBINED(2): (Unaudited) (3) (Unaudited) (3)
- ---------------------- -------------------- -----------------
Net income before cumulative effect
of change in accounting principle
per TDS Common Share: $ .81 $ 1.07
Pro Forma
Deposit Share equivalent: 17.83 23.56
Net income per TDS Common Share: .81 1.07
Pro Forma
Deposit Share equivalent: 17.83 23.56
Cash dividends per TDS Common Share: .19 .36
Pro Forma
Deposit Share equivalent: 4.18 7.93
Book value per TDS Common Share: 28.23 27.00
Pro Forma
Deposit Share equivalent: $ 621.54 $ 594.46
- ---------------
(1) Effective January 1, 1994, TDS adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits"
("SFAS 112"). The cumulative effect of the change on years prior to 1994
has been reflected in 1994 net income. Prior years' financial information
has not been restated.
7
<PAGE>
Effective January 1, 1993, TDS adopted SFAS 109, "Accounting for Income
Taxes." The cumulative effect of the change on years prior to 1993 did not
have a material effect on net income or earnings per share. Prior years'
financial information has not been restated.
Effective January 1, 1992, TDS adopted SFAS 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The cumulative effect of the
change on years prior to 1992 has been reflected in 1992 net income. Prior
years' financial information has not been restated.
Effective January 1, 1991, TDS changed its method of accounting for sales
commission from capitalizing and amortizing these costs to expensing as
incurred. In addition, two of TDS's equity-method investees made a similar
change. The cumulative effect of TDS's and the Investees' change on all prior
years has been reflected in 1991 results of operations. Prior years'
financial information has not been restated.
(2) The pro forma combined financial information for TDS and Deposit has been
prepared based on the purchase method of accounting assuming 22.01697792869
TDS Common Shares are issued for each Deposit Share, rounded up or down to
the nearest ten-thousandth of a share. The pro forma combined information
reflects TDS's acquisition of 100% of the Deposit Common Shares, the
elimination of the Deposit equity based on the purchase method of
accounting and the allocation of the purchase price to excess cost over the
book value. Excess cost is assumed to be amortized over 40 years.
(3) Pro forma financial information for the six months ended June 30, 1995
represents the combined results of TDS and Deposit for the six months ended
June 30, 1995. Pro forma financial information for the year ended December
31, 1994 represents the combined results of TDS and Deposit for the twelve
months ended December 31, 1994.
8
<PAGE>
GENERAL INFORMATION
This Proxy Statement-Prospectus is furnished in connection with the
solicitation by the Board of Directors of Deposit Telephone Company, Inc., a New
York corporation ("Deposit"), of proxies to be voted at a special meeting of the
shareholders of Deposit (the "Deposit Meeting") which will be held on
_____________ ___, 1995.
The purpose of the Deposit Meeting is to consider and vote upon a
proposal to approve the Acquisition Agreement and Plan of Merger, dated as of
March 30, 1995 (the "Merger Agreement"), by and among Telephone and Data
Systems, Inc., an Iowa corporation ("TDS"), DTC Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of TDS ("Sub"), Deposit and certain
owners of outstanding shares of common stock of Deposit (the "Major
Shareholders"), providing for the merger (the "Merger") of Sub with and into
Deposit pursuant to which Deposit will become a wholly-owned subsidiary of TDS.
The Board of Directors of Deposit has unanimously approved the Merger
Agreement. The Board of Directors of TDS has approved the Merger Agreement and
the issuance of Common Shares, $1.00 par value per share, of TDS ("TDS Common
Shares") in connection with the Merger and the Stock Bonus, and TDS, the sole
shareholder of Sub, has approved the Merger and the Merger Agreement. A copy of
the Merger Agreement is attached as Annex A to this Proxy Statement-Prospectus
and is incorporated herein by reference.
The close of business on _____________ ___, 1995 (the "Deposit Record
Date") has been fixed as the record date for determination of the holders of
shares of common stock, no par value, of Deposit ("Deposit Shares") entitled to
notice of, and to vote at, the Deposit Meeting. As of the Deposit Record Date,
there were 29,450 Deposit Shares outstanding. Each holder of record on the
Deposit Record Date of Deposit Shares is entitled to one vote per share held by
such holder on each matter submitted to a vote at the Deposit Meeting. The
affirmative vote of the holders of at least two-thirds of the outstanding
Deposit Shares is required for approval of the Merger Agreement.
All properly executed proxies not revoked will be voted at the
Deposit Meeting in accordance with the instructions contained therein. Proxies
containing no instructions regarding proposals specified in the form of proxy
will be voted in favor of the proposal. If any other matters are brought before
the Deposit Meeting and submitted to a vote, all proxies will be voted in
accordance with the judgment of the persons voting the proxies. A shareholder
who has executed and returned a proxy may revoke it at any time before it is
voted, but only by executing and returning a proxy bearing a later date, by
giving written notice of revocation to the Secretary of Deposit or by attending
the Deposit Meeting and voting in person.
If a quorum is not obtained, or if the Board of Directors of Deposit
determines that there is insufficient representation of shareholders, in person
and represented by proxy, to approve the Merger Agreement, the Deposit Meeting
may be adjourned by the affirmative vote of a majority of the shareholders
present, represented in person and by proxy, for the purpose of obtaining
additional proxies or votes in favor of the proposal. At any subsequent
reconvening of the Deposit Meeting, all proxies will be voted in the same manner
as such proxies would have been voted at the original meeting (except for any
proxies which have theretofore effectively been revoked or withdrawn).
Representatives of Bush & German, P.C., Deposit's independent
certified public accountants, are expected to be present at the Deposit Meeting,
will have the opportunity to make a statement if they desire to do so, and will
be available to respond to appropriate questions.
This solicitation is being made on behalf of the Board of Directors
of Deposit. The cost of solicitation of proxies from shareholders of Deposit
will be paid by Deposit. In addition to the solicitation of proxies by use of
mail, the directors, officers or other agents of Deposit may solicit proxies
personally or by telephone or other telecommunications media.
9
<PAGE>
TDS's principal executive office is located at 30 North LaSalle
Street, Suite 4000, Chicago, Illinois 60602, and its telephone number is: (312)
630-1900. Deposit's principal executive office is located at 87 Front Street,
Deposit, New York 13754, and its telephone number is (607) 467-2111.
All information contained herein relating to TDS and to Deposit has
been furnished by their respective managements. TDS has no present affiliation
with Deposit.
The mailing of this Proxy Statement-Prospectus to shareholders of
Deposit is expected to commence on or about _______________ ___, 1995.
10
<PAGE>
THE MERGER
Set forth below is a brief description of the material features of
the Merger. Such description does not purport to be complete and is qualified in
its entirety by reference to the Merger Agreement which is attached as Annex A
to this Proxy Statement-Prospectus and is incorporated by reference herein.
TDS, Sub, Deposit and the Major Shareholders have entered into the
Merger Agreement, which contemplates that Sub will be merged with and into
Deposit, with Deposit surviving the Merger as a New York corporation and
becoming a wholly-owned subsidiary of TDS, and that the outstanding Deposit
Shares (subject to the rights of dissenting shares as described herein) will be
converted at the time the Merger becomes effective (such time being called the
"Effective Date") into the right to receive an aggregate of 648,400 Common
Shares, par value $1.00 per share, of TDS ("TDS Common Shares"), with each
Deposit Share being converted into the right to receive 22.01697792869 TDS
Common Shares, rounded up or down to the nearest ten-thousandth of a share. The
aggregate number of TDS Common Shares into which the Deposit Shares are
convertible is hereinafter referred to as the "Exchange Consideration" and the
number of TDS Common Shares into which each Deposit Share is convertible is
hereinafter referred to as the "Per Share Consideration." See "The Merger --
Conversion of Shares in the Merger." The Merger is subject to the satisfaction
of a number of conditions, including the approval by the shareholders of
Deposit, as set forth under "The Merger -- Vote Required" and "-- Conditions."
Background of the Merger
On September 16, 1993, the Board of Directors of Deposit
authorized management to explore the possibility, and then to negotiate the
terms of, a sale or merger of the ownership of the corporation. Management
determined that the best approach to maximize shareholder value would be to
attempt to interest as many potential purchasers as possible and to conduct a
controlled bidding process among interested parties. Company legal counsel then
contacted over 30 potential purchasers identified by management to see if they
would be interested in considering a potential acquisition of Deposit.
Approximately 15 entities expressed an interest and they were subsequently
furnished with a Confidential Information Memorandum dated November 5, 1993
containing financial and business information relating to Deposit.
Potential purchasers were invited to complete their initial
evaluation of Deposit by January, 1994, and to submit non-binding Expressions of
Interest containing their anticipated offer to acquire ownership of Deposit.
Eight potential purchasers, including TDS, submitted non-binding Expressions of
Interest.
After evaluating the Expressions of Interest, Deposit
management decided to continue the bidding process and to provide each
prospective purchaser with the opportunity to perform its due diligence
investigation with respect to Deposit and to meet with Deposit management.
Potential purchasers were then asked to submit their final "bids" by August 15,
1994. TDS was one of the parties that submitted a bid and this bid was
subsequently amended on August 30, 1994. On September 6, 1994, Deposit advised
TDS and the other bidders that Deposit had elected to accept a competing bid
from another entity and had entered into a letter of intent with such bidder.
Extensive negotiations followed, but the parties were never able to finalize a
definitive agreement and the letter of intent expired.
On December 22, 1994, Deposit advised TDS that it had been
unable to negotiate a definitive agreement with the other bidder and invited TDS
to submit a new bid to acquire Deposit. TDS did submit a new bid that provided
for a larger number of shares than its previous bids and on December 23, 1994,
TDS and Deposit entered into a non-binding letter of intent setting forth the
material terms pursuant to which TDS offered to acquire Deposit.
On January 23, 1995, the Board of Directors of Deposit adopted
the Plan of Merger embodied in the Merger Agreement and authorized management to
finalize and execute the Merger Agreement with TDS. The Board further voted to
recommend to the shareholders of Deposit that the Merger Agreement and the
transactions contemplated thereby be approved. On March 30, 1995, TDS, Sub,
Deposit and the Major
11
<PAGE>
Shareholders executed the Merger Agreement. The Merger Agreement as executed was
further ratified by the Board of Directors at its meeting held May 5, 1995. The
Merger Agreement provides that the Deposit Shares issued and outstanding
immediately prior to the Merger (subject to the rights of dissenting
shareholders as described herein) will be converted into the right to receive
the Exchange Consideration.
Deposit's Reasons for the Merger; Recommendation of Deposit's Board of Directors
THE BOARD OF DIRECTORS OF DEPOSIT BELIEVES THAT THE MERGER IS IN THE
BEST INTERESTS OF DEPOSIT AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS TO ITS
SHAREHOLDERS THAT THEY VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
In reaching such determination, the Deposit Board of Directors
considered, among other things, the following factors:
Experience in Telecommunications and Commitment to the
Industry. The telephone industry is experiencing many changes, including both
technological and regulatory changes, and the Directors believe that as a result
the Deposit shareholders are subject to greater risks than has been the case in
the past. TDS owns 100 rural telephone companies across the United States and
over 80% of United States Cellular Corporation ("USM"). After reviewing
financial and operational information concerning TDS, the Deposit Board believes
that the best interests of Deposit shareholders as well as Deposit's employees
and customers would be served by a company with substantial experience in the
industry that can address and adapt to such changes and that TDS has such
experience.
Price. The Deposit Board of Directors and management sought to
obtain the best possible offer for the purchase of Deposit. While another offer
was initially believed to be more favorable than the offer of TDS, Deposit was
unable to negotiate a definitive agreement with the other party, and TDS
subsequently increased the number of shares included in its offer. See "The
Merger--Background of the Merger." The Deposit Board therefore believes that the
TDS offer represents the best available price and offer obtainable under the
given market and regulatory conditions.
Diversification and Liquidity. The Deposit Shares are
relatively closely held and there is no market for the Shares. One of the
primary objectives of the Deposit Board has been to obtain liquidity for the
Deposit shareholders with respect to their Deposit Shares, and to enable them to
reduce their risks by diversifying their investment. The TDS Common Shares to be
received in exchange for the Deposit Shares are to be registered under the
Securities Act and listed for trading on the American Stock Exchange and, thus,
are expected to be marketable securities. Therefore, the Board views the Merger
to be a means by which Deposit shareholders will be able to acquire an equity
interest in a larger diversified company whose shares are publicly traded.
Commitment to Local Operations and Economy. In investigating
TDS, the Board determined that TDS has historically continued to operate rural
telephone companies as local enterprises, retaining the local identity and, in
some cases, management of such businesses. The Board believes that this manner
of expansion is in the best interest of the shareholders of Deposit and of its
employees and customers, and of the communities served by Deposit.
Financial Strength. The Deposit Board considered the financial
condition and prospects of TDS, based on publicly available information
concerning TDS. The Deposit Board determined that TDS has the requisite
financial capabilities to consummate the transaction. The Deposit Board also
concluded that the Merger will provide Deposit shareholders, as holders of TDS
Common Shares, with the opportunity to participate in a larger, more diversified
company.
Tax Structure. The transaction contemplated by the Merger
Agreement is intended to qualify as a tax-free exchange of stock under the
provisions of the Internal Revenue Code. While the Deposit Board
12
<PAGE>
recognizes that this result cannot be guaranteed, it believes that such a
tax-free exchange, if possible, is in the best interests of the Deposit
shareholders.
For the foregoing reasons, the Deposit Board believes that the
Merger is in both the short-term and long-term interests of Deposit and its
shareholders, and that it will enhance the prospects for the future growth,
development, productivity, and profitability of Deposit.
The directors of Deposit and their spouses and relatives residing
with such directors beneficially own 10,847 Deposit Shares. See "Information
with Respect to Deposit -- Share Ownership of Directors and Officers." For a
discussion of the interests of certain members of the Deposit Board in the
Merger, see "The Merger -- Interests of Certain Persons in the Merger."
TDS's Reasons for the Merger
TDS is acquiring Deposit as part of its overall strategy of acquiring
independent telephone companies. TDS believes that the Merger will enable TDS to
expand its capabilities, provide it with the opportunity to serve a larger base
of customers in New York, and position it to meet emerging trends within the
telephone industry.
Effective Date of the Merger
If the Merger Agreement is approved by the requisite vote of Deposit
Shares, and the other conditions to the Merger are satisfied or waived, the
Merger will become effective upon the filing of a certificate of merger with the
Secretaries of State of the States of New York and Delaware. If the Merger
Agreement is approved, the Merger Agreement provides that the Effective Date
will occur within thirty days after all required regulatory approvals are
received.
Vote Required
Approval of the Merger Agreement requires the affirmative vote of the
holders of at least two-thirds (2/3) of the outstanding Deposit Shares (i.e.
19,634 Deposit Shares). Each holder of Deposit Shares as of the Deposit Record
Date is entitled to one vote per share held by such shareholder. On the Deposit
Record Date, there were 29,450 Deposit Shares outstanding. The Major
Shareholders and one additional shareholder, who collectively hold 24,691
Deposit Shares, have agreed to vote their shares in favor of approval of the
Merger Agreement. See "The Merger -- Agreement to Vote in Favor of the Merger."
Assuming that such shareholders vote as agreed, the Merger will be approved at
the Deposit Meeting.
Approval of the Merger Agreement by TDS's shareholders is not
required. The Board of Directors of Sub and TDS, and TDS as the sole shareholder
of Sub, have approved the Merger and the Merger Agreement.
Conversion of Shares in the Merger
On the Effective Date, the Deposit Shares issued and outstanding
immediately prior thereto (subject to the rights of any shareholder who shall
have perfected his or her right to dissent under the New York Business
Corporation Law) will be converted automatically into the right to receive the
Exchange Consideration, with each such Deposit Share being converted into the
right to receive the Per Share Consideration, as further described in "The
Merger."
Exchange of Certificates
On the Effective Date, the Deposit shareholders will surrender and
exchange their certificates representing Deposit Shares for certificates
representing the number of TDS Common Shares into which their Deposit Shares
were converted in the Merger and cash in lieu of fractional shares to which such
holders
13
<PAGE>
otherwise would be entitled. Until such surrender, certificates representing
Deposit Shares will be deemed to represent the right to the number of TDS Common
Shares and cash in lieu of fractional shares into which such Deposit Shares were
converted in the Merger, except that the holders of Deposit certificates will
not be entitled to receive dividends or any other distributions from TDS until
such certificates are so surrendered. When such certificates are surrendered,
the holders of TDS certificates issued in the Merger also will be paid, without
interest, any dividends or other distributions which may have become payable
with respect to such TDS Common Shares since the Effective Date. In lieu of such
exchange consideration, any Deposit shareholder who exercises his dissenter's
rights will be entitled to receive a cash payment of the "fair value" of his
Deposit Shares as further set forth herein. See "Rights of Dissenting
Shareholders" below.
Effects of Changes in Deposit's Capitalization
No changes in the capitalization of Deposit are permitted under the
Merger Agreement.
Fractional Shares
No certificates representing fractional TDS Common Shares will be
issued by TDS and no TDS dividend, stock split or interest will relate to any
such fractional share. No fractional share interests will entitle the owner
thereof to vote or to any rights of a shareholder of TDS. In lieu of any such
fractional shares, each holder of Deposit Shares who otherwise would be entitled
to received fractional TDS Common Shares in the Merger will receive an amount of
cash (without interest) equal to the product obtained by multiplying (i) the
fractional share interest to which such holder would otherwise be entitled by
(ii) the average closing price of TDS Common Shares as reported in the American
Stock Exchange Composite Transactions section of The Wall Street Journal for the
five trading days ending on the third trading day immediately preceding the
Effective Date.
Representations and Warranties
The Merger Agreement contains various representations and warranties
of the parties thereto. These include representations and warranties: (a) by
Deposit and the Major Shareholders as to (i) Deposit's organization, good
standing and capital structure including the number of issued and outstanding
Deposit Shares, (ii) Deposit's subsidiaries and investments, (iii) Deposit's
authority to conduct its business, (iv) their authority to execute and perform
the Merger Agreement and the enforceability thereof, (v) the lack of conflicts
and defaults in connection with any other obligation of Deposit, (vi) Deposit's
financial statements, (vii) the absence of certain changes or events since
December 31, 1993, (viii) Deposit's Annual Report to the New York State Public
Service Commission for the year ended December 31, 1993, (ix) Deposit's accounts
receivable, (x) Deposit's assets, including real property, the condition
thereof, title thereto and lack of encumbrances with respect thereto, (xi)
copyrights, trademarks, patents and other rights, (xii) taxes, (xiii) no broker
or finder, (xiv) material contracts, (xv) litigation, (xvi) compliance with
laws, (xvii) environmental matters, (xviii) insurance, (xix) employees and
employee benefits, (xx) regulatory approvals, (xxi) title and right to Deposit
Shares, (xxii) receipt of certain filings by TDS with the Commission and (xxiii)
the lack of omissions in any disclosures to TDS or Sub; and (b) by TDS and Sub
as to (i) their organization and good standing, (ii) their authority to conduct
their businesses and to execute and perform the Merger Agreement and the
enforceability thereof, (iii) no broker or finder, (iv) certain filings by TDS
with the Commission, (v) regulatory approvals and (vi) the lack of omissions in
any disclosures to Deposit.
Business of Deposit Pending Completion of the Merger
Deposit has agreed that, among other things, prior to consummation of
the Merger, unless TDS agrees otherwise, it will (i) continue to own its assets
and properties and operate its business in the customary and ordinary course of
business, (ii) not incur any new or additional indebtedness outside the ordinary
course of business, (iii) not sell, mortgage, lease or otherwise encumber any of
its assets or properties except in the ordinary course of business, (iv)
maintain, repair and replace its assets and properties in accordance with its
normal practices, (v) not enter into any contracts, agreements or commitments
except as permitted by the
14
<PAGE>
Merger Agreement, (vi) not enter into or amend any employment, consulting or
change of control agreement, and not grant any salary or pay increases or make
any bonus payments except as permitted by the Merger Agreement, (vii) maintain
in full force and effect the existence of, and the rights and franchises owned
by, Deposit in New York and Pennsylvania, promptly and timely prepare and file
all annual reports and franchise tax returns and pay all franchise taxes and
other taxes and assessments with respect thereto, (viii) keep true records and
books of account in accordance with generally accepted accounting principles and
past practices applied on a consistent basis, (ix) duly observe the requirements
of governmental authorities unless contested in good faith by appropriate
proceedings, (x) promptly pay and discharge, when due and payable, all taxes,
assessments and governmental charges or levies unless contested in good faith by
appropriate proceedings, (xi) pay when due or in conformity with customary trade
terms all indebtedness of Deposit incurred as an incident to the operation of
its business unless contested in good faith by appropriate proceedings, (xii)
comply in all material respects with all contracts and leases unless contested
in good faith by appropriate proceedings, (xiii) not cause or permit the merger,
consolidation or other reorganization or recapitalization of Deposit, (xiv) not
cause or permit the declaration of any dividends on or any distributions with
respect to, or the redemption or retirement of, any capital stock of Deposit,
except that Deposit may continue to pay its regular quarterly dividend of $1.75
per share, but only from current earnings or profits, (xv) not cause the
termination of any employment agreements or other contracts with any of its
executive employees, (xvi) not enter into or give any guaranty of any third
party obligation for the payment of money or performance of any contract, (xvii)
not cause or permit the liquidation or dissolution of Deposit or institute or
permit to be instituted against Deposit any proceeding to adjudicate it as a
bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition of Deposit or any of
its debts under any law relating to bankruptcy, insolvency, reorganization or
relief of debtors, or seeking the entry of any order of relief or the
appointment of a receiver, trustee or other similar official for Deposit or for
any part of its property, or make a general assignment for the benefit of
Deposit's creditors, (xviii) not amend or repeal its Certificate of
Incorporation or bylaws, (xix) not create or permit to be created, nor issue or
permit to be issued, any class or series of capital stock or other security of
Deposit or any right to receive such capital stock or security, (xx) not amend
any employee benefit plan to increase the benefit thereunder except as permitted
by the Merger Agreement, establish any new employee benefit plan, commence
making any contributions to any employee benefit plans to which Deposit was not
contributing previously or make any contributions to any employee benefit plans
except as permitted by the Merger Agreement and (xxi) not take any action that,
or refrain from taking any action when the failure so to act, would materially
adversely affect the ability of Deposit to consummate the transactions
contemplated by the Merger Agreement.
Deposit has also agreed to provide TDS, Sub and their
representatives, on reasonable notice, access to the books, records, executive
officers and properties of Deposit for the purpose of further confirming and
verifying the accuracy of the representations and warranties set forth in the
Merger Agreement, provided that any such investigation shall not unreasonably
interfere with the normal business operations of Deposit.
Fees and Expenses
All costs and expenses incurred in connection with the Merger will be
paid by the party incurring such expenses, except that (i) fees and
disbursements of the counsel, consultants and accountants of the Deposit
shareholders as a group will be paid by Deposit and (ii) filing fees and
out-of-pocket expenses incurred by any party in connection with securing
regulatory approvals of the transactions contemplated by the Merger Agreement
will be paid by TDS or Sub.
Agreement to Vote in Favor of the Merger
Pursuant to a Firm Commitment to Sell Agreement, dated as of March
30, 1995, the Major Shareholders and one additional shareholder of Deposit have
agreed, among other things, that, as long as the Merger Agreement has not been
terminated, they will vote all of their Deposit Shares in favor of approval of
the Merger Agreement. The Major Shareholders and such additional shareholder of
Deposit collectively own approximately 83.84% of the outstanding Deposit Shares.
Therefore, assuming that the Major Shareholders and such shareholder vote as
agreed, the Merger will be approved.
15
<PAGE>
Indemnification
The Merger Agreement provides for indemnification obligations of
Deposit, the Major Shareholders, TDS and Sub in certain circumstances. These
obligations expire on the first anniversary of the Effective Date of the Merger,
except for (i) claims in writing delivered prior to the close of business on the
first anniversary of the Effective Date and (ii) indemnification obligations of
the Major Shareholders relating to title to their Deposit Shares.
Deposit and the Major Shareholders, jointly and severally, have
agreed to indemnify and hold TDS and Sub harmless against any loss or damages
(including expenses) suffered by TDS or Sub resulting from or arising out of (i)
any material breach by Deposit or such Major Shareholder in the performance of
any of their respective obligations or covenants under the Merger Agreement or
in any agreement delivered in connection with the transactions contemplated
thereby, (ii) any breach of any of the representations or warranties made by
Deposit or such Major Shareholder in the Merger Agreement or in any agreement,
document, certificate or exhibit delivered in accordance with the provisions of
the Merger Agreement and (iii) all actions, suits, proceedings, claims, demands,
assessments or judgments incident to any of the foregoing. Notwithstanding the
foregoing, the maximum aggregate amount of all losses, damages, and expenses
(including attorneys' fees) for which Deposit and the Major Shareholders,
collectively, will be obligated to indemnify TDS and Sub, collectively, is
limited to $500,000.
TDS and Sub, jointly and severally, have agreed to indemnify and hold
Deposit and the shareholders of Deposit harmless against any loss or damages
(including expenses) suffered by Deposit or the shareholders of Deposit
resulting from or arising out of (i) any material breach by TDS or Sub in the
performance of any of their respective obligations or covenants under the Merger
Agreement or in any agreement delivered in connection with the transactions
contemplated thereby, (ii) any breach of any of the representations or
warranties made by TDS or Sub in the Merger Agreement and (iii) all actions,
suits, proceedings, claims, demands, assessments or judgments incident to any of
the foregoing. Notwithstanding the foregoing, the maximum aggregate amount of
all losses, damages, and expenses (including attorneys' fees) for which TDS and
Sub, collectively, will be obligated to indemnify Deposit and the shareholders
of Deposit, collectively, is limited to $500,000.
For purposes of the Merger Agreement, an event, or an event together
with other events, will be deemed "material" only if such event or events are
capable of being quantified and such event, or such events in the aggregate,
result in a liability, claim, fine, loss or obligation in an amount equal to or
greater than $100,000.
Conditions
The respective obligations of TDS, Sub and Deposit to effect the
Merger are subject to the satisfaction of certain conditions, including, among
others, (i) the Merger shall have been approved by holders of at least
two-thirds (2/3) of the outstanding Deposit Shares, (ii) all governmental and
regulatory approvals and actions necessary to consummate the transactions
contemplated by the Merger Agreement shall have been received and no judgment,
injunction, ruling or order of any court or governmental authority outstanding
against TDS, Sub or Deposit which prohibits, restricts or delays consummation of
the Merger shall be in effect, (iii) no stop order suspending the effectiveness
of the Registration Statement of which this Proxy Statement- Prospectus is a
part shall have been entered by the Commission; and (iv) the TDS Common Shares
to be issued pursuant to the Merger Agreement shall have been approved for
listing upon notice of issuance by the American Stock Exchange.
In addition, the obligations of TDS and Sub to effect the Merger are
subject to the conditions that (i) there shall have been no material breach by
Deposit in the performance of any of its covenants and agreements in the Merger
Agreement and there shall have been delivered to TDS and Sub a certificate to
such effect, dated the Effective Date, signed on behalf of Deposit by its
President, (ii) each of the representations and warranties of Deposit and the
Major Shareholders contained in the Merger Agreement shall be true and correct
in all
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material respects on the Effective Date as though made on the Effective Date
except as permitted by the Merger Agreement and there shall have been delivered
to TDS and Sub certificates to such effect, dated the Effective Date, signed on
behalf of Deposit by its President and by each Major Shareholder and (iii) TDS
and Sub shall have received from counsel for Deposit an opinion, dated the
Effective Date, in form and substance satisfactory to TDS and its counsel, to
the effect set forth as Exhibit 9.01(f) to the Merger Agreement.
The obligations of Deposit to effect the Merger are subject to the
conditions that (i) there shall have been no material breach by TDS or Sub in
their performance of any of their respective covenants and agreements in the
Merger Agreement and there shall have been delivered to Deposit certificates to
such effect, dated the Effective Date, signed on behalf of TDS and Sub by their
respective Presidents, (ii) each of the representations and warranties of TDS
and Sub contained or referred to in the Merger Agreement shall be true and
correct in all material respects on the Effective Date as though made on the
Effective Date and there shall have been delivered to Deposit certificates to
such effect, dated the Effective Date, signed on behalf of TDS and Sub by their
respective Presidents and (iii) Deposit shall have received from counsel for TDS
and Sub an opinion, dated the Effective Date, in form and substance satisfactory
to Deposit and its counsel to the effect set forth as Exhibit 10.01(e) to the
Merger Agreement.
Amendment; Termination
The Merger Agreement may not be amended or modified except by a
written agreement specifically referring to the Merger Agreement and signed by
TDS, Sub, Deposit and the Major Shareholders. The Merger Agreement may be
terminated at any time prior to the Effective Date, whether before or after
approval of the Merger Agreement, (i) by mutual consent of the Boards of
Directors of Sub and Deposit, (ii) by Sub or Deposit if any of the closing
conditions to their respective obligations to close shall not be satisfied,
unless the noncompliance therewith has been remedied as permitted by the Merger
Agreement or (iii) by either Sub or Deposit if the Public Service Commission of
New York ("PSC"), the Public Utilities Commission of Pennsylvania ("PUC") or any
other applicable regulatory authority has declined to approve the transactions
contemplated by the Merger Agreement and all applicable periods of appeal have
expired. The Merger Agreement shall terminate automatically on July 31, 1996 if
the Merger has not been consummated, unless extended by the mutual written
consent of TDS, Sub and Deposit.
In the event of such termination, all further obligations of the
parties under the Merger Agreement shall terminate without any liability on the
part of any party, except with respect to the treatment of all confidential
information furnished by each party and the payment of certain expenses and
except that if the Merger Agreement is terminated because of a material breach
thereof by a party, the non-defaulting party shall be entitled to all available
equitable remedies, including the remedy of specific performance, and to
indemnification under the provisions previously described.
Interests of Certain Persons in the Merger
The directors of Deposit and their spouses and family members
residing with such directors are the beneficial owners of an aggregate of 10,847
Deposit Shares. The directors will receive no extra or special benefit from the
Merger not shared on a pro-rata basis with all other holders of Deposit Shares
except as set forth below.
Employee Stock Bonus. As additional compensation for services to be
rendered after the Effective Date, TDS will pay or cause Deposit to pay, on the
Stock Bonus Payment Date (as defined below), a stock bonus of an aggregate of
10,000 TDS Common Shares, subject to any adjustment for fractional shares as
provided below (the "Stock Bonus"). The Stock Bonus will be allocated among the
Eligible Employees (as defined below) pursuant to a formula, to be developed by
Peter Feehan and Stephen Feehan, that takes into account prior and anticipated
future years of service and earnings with Deposit. Each Eligible Employee who
would otherwise receive a fractional TDS Common Share in connection with the
Stock Bonus will receive in lieu thereof an amount of cash determined by
multiplying such fraction by the average closing price of TDS Common Shares as
reported in the American Stock Exchange Composite Transactions section of The
Wall
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Street Journal for the five trading days ending on the third trading day
immediately preceding the Stock Bonus Payment Date. An employee of Deposit will
be an "Eligible Employee" if such employee (i) is an employee of Deposit as of
March 15, 1995 and (ii) remains an employee of Deposit on the first anniversary
of the Effective Date (the "Eligibility Determination Date"). The "Stock Bonus
Payment Date" is the fifteenth business day after the Eligibility Determinate
Date. The Merger Agreement specifically provides that neither Fenton Busfield
nor Peter Feehan, each a director of Deposit, will be deemed to be an Eligible
Employee. However, Stephen Feehan, a director of Deposit, will be an Eligible
Employee, and, therefore, be entitled to receive a portion of the Stock Bonus,
if he remains employed by Deposit on the Eligibility Determination Date in
either his current capacity as Vice President and General Manager or in another
capacity.
Change of Control Agreements. Peter Feehan and Stephen Feehan, both
directors and officers of Deposit, are parties to agreements with Deposit, which
were in existence prior to the execution of the Merger Agreement, containing
change of control provisions. Pursuant to these agreements, in the event that
either (i) such officer's employment terminates for any reason other than death
or disability within 24 months following a change of control transaction or (ii)
such officer's employment is terminated or the terms and conditions of such
officer's employment are modified to such officer's detriment within 12 months
prior to a change of control transaction, then Deposit (or its successor) will
be required to make a cash payment to such officer equal to 2.99 times the
greater of such officer's Annual Compensation (as defined in such officer's
respective employment agreement) in effect at the time of termination or in
effect at the time the change of control transaction occurs. In addition,
Deposit will be required to indemnify such officer for any income or excise
taxes (other than ordinary income taxes), including penalties and interest,
assessed against such officer resulting from such payment. The Merger would
constitute a change of control transaction under such agreements.
Directors to Continue. The Merger Agreement provides that the
directors will continue to serve in their current capacities after the Effective
Date.
Registration and Listing
TDS has registered the TDS Common Shares issuable upon conversion of
the Deposit Shares in the Merger pursuant to a filing with the Commission of a
Registration Statement on Form S-4 with respect to, and will take any actions
necessary under the state blue sky or securities laws in connection with, the
issuance of such shares. TDS will use its best efforts to cause such shares to
be approved for listing on the American Stock Exchange, upon official notice of
issuance, at or prior to the Effective Date.
Certain Federal Income Tax Consequences
The Merger is intended by Deposit to qualify as a tax-free
reorganization; however, whether it will be so treated will depend, in part, on
circumstances occurring after the Merger, some of which are beyond the control
of Deposit or TDS. If the Merger does not constitute a tax-free reorganization,
it will be a taxable exchange of shares. Certain federal income tax consequences
of a tax-free reorganization and a taxable exchange of shares are explained
below.
Tax-Free Reorganization. If the Merger qualifies as a tax-free
reorganization, no gain or loss will be recognized by a holder of Deposit Shares
upon the exchange of Deposit Shares for TDS Common Shares, except to the extent
such holder receives cash in lieu of a fractional TDS Common Share. The
aggregate basis of the TDS Common Shares received in the Merger by a holder of
Deposit Shares will be the same as the aggregate basis of Deposit Shares
surrendered in exchange therefor, reduced by any amount allocable to a
fractional TDS Common Share for which cash is received. The holding period of
the TDS Common Shares received in the Merger by a holder of Deposit Shares will
include the holding period of Deposit Shares surrendered in exchange therefor,
provided that the holder held Deposit Shares as capital assets as of the
Effective Date. A holder of Deposit Shares who receives cash in lieu of a
fractional TDS Common Share will be treated as if the holder received the
fractional TDS Common Share and then received cash from TDS in redemption
thereof. The holder will recognize gain or loss equal to the difference between
the amount of cash
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received and the tax basis of the holder's Deposit Shares allocable to the
fractional TDS Common Share. This gain or loss will be a capital gain or loss,
provided that the holder held his Deposit Shares as capital assets as of the
Effective Date, and will be long-term capital gain or loss if such shares were
held for more than one year as of the Effective Date.
A holder of Deposit Shares who dissents from the Merger and exercises
such shareholder's dissenter's rights, see "The Merger -- Rights of Dissenting
Shareholders," will recognize gain or loss based on the difference between the
deemed "fair value" and the basis of such holder's Deposit Shares. Such gain or
loss will be a capital gain or loss, assuming the holder held his Deposit Shares
as a capital asset as of the Effective Date, and will be a long-term capital
gain or loss if such shares were held for more than one year as of the Effective
Date.
Although there are a number of requirements that must be satisfied in
order for the Merger to qualify as a tax-free reorganization, whether the Merger
qualifies as tax-free depends, in part, on whether the continuity of interest
test is satisfied following the Merger. This test is satisfied if, after the
Merger, the former holders of Deposit Shares retain a sufficient continuing
ownership of TDS Common Shares. Under the interpretation of the continuity of
interest test used by the Internal Revenue Service for the purpose of issuing
advance rulings, the test generally will be satisfied if the Deposit
shareholders as a group retain, in the aggregate, at least 50 percent of the TDS
shares they receive as a result of the Merger for at least two years after the
Effective Date. If the sales or other dispositions of TDS Common Shares
following the Merger are sufficient to prevent the continuity of interest test
from being satisfied, the Merger will constitute a taxable transaction, with the
results described below.
By a separate agreement, the Major Shareholders and certain
other Deposit shareholders have agreed not to dispose of 329,876 of the TDS
Shares that they will receive in the Merger for a period of two years from the
Effective Date of the Merger. Assuming compliance with such agreement, it is
expected that the continuity of interest test will be satisfied.
Taxable Exchange of Shares. If the Merger constitutes a taxable
exchange of shares, each non-dissenting holder of Deposit Shares will be
required to recognize gain or loss equal to the difference between the fair
market value of the TDS Common Shares and cash, if any, received in the Merger
and the basis of Deposit Shares surrendered in exchange therefor. A holder of
Deposit Shares who exercises such shareholder's dissenter's rights will
recognize gain or loss based on the difference between the deemed "fair value"
and the basis for such shareholder's Deposit Shares. See "Rights of Dissenting
Shareholders" below. Any gain or loss recognized by a non-dissenting or
dissenting shareholder will be capital gain or loss, provided that the holder
held his Deposit Shares as capital assets as of the Effective Date, and will be
long-term capital gain or loss if the holding period of Deposit Shares, as of
the Effective Date, is more than one year.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN
FOR INFORMATIONAL PURPOSES ONLY AND IS BASED UPON CURRENT LAW AND
INTERPRETATIONS THEREOF, ALL OF WHICH ARE SUBJECT TO CHANGE. ANY CHANGE COULD
AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. THIS DISCUSSION DOES NOT
ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE MERGER. MOREOVER, THIS
DISCUSSION DOES NOT ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES TO ANY EMPLOYEE
WHO WILL RECEIVE TDS COMMON SHARES IN THE COURSE OF EMPLOYMENT. SEE "INTERESTS
OF CERTAIN PERSONS IN THE MERGER -- EMPLOYEE STOCK BONUS". BECAUSE THE TAX
CIRCUMSTANCES OF EACH HOLDER OF DEPOSIT SHARES MAY DIFFER, EACH HOLDER IS URGED
TO CONSULT HIS OR HER OWN TAX ADVISOR CONCERNING THE SPECIFIC TAX CONSEQUENCES
OF THE MERGER TO THE HOLDER, INCLUDING THE APPLICABILITY AND EFFECT OF STATE,
LOCAL AND OTHER TAX LAWS.
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Accounting Treatment
The Merger will be accounted for under the purchase method for
accounting and financial reporting purposes.
Regulatory Approvals
The Merger must be approved by the PSC and the PUC which regulate
providers of telephone service in New York and Pennsylvania, respectively.
Applications seeking such approvals were jointly filed by Deposit and TDS with
the PSC on May 26, 1995 and with the PUC on May 26, 1995.
Transactions such as the Merger are reviewed by the Federal Trade
Commission ("FTC") and the Antitrust Division of the United States Department of
Justice ("DOJ") to determine whether they comply with applicable antitrust laws
under the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"). The Merger may not be consummated until such
time as certain information has been furnished to the FTC and the DOJ and the
specified waiting period requirements of the HSR Act have been satisfied.
Premerger Notification and Report Forms have been filed with the FTC and the
DOJ under the HSR Act.
TDS and Deposit are aware of no other governmental or regulatory
approvals required for consummation of the Merger, other than compliance with
applicable securities and "blue sky" laws of various states.
Rights of Dissenting Shareholders
Any Deposit shareholder who objects to the Merger ("dissenting
shareholder") will have the right to receive cash payment of the fair value of
his or her shares, provided the shareholder acts in strict compliance with the
provisions of New York Business Corporation Law ("N.Y. BCL") Sections 623 and
910. The dissenting shareholder's right to receive cash payment is in lieu of
the consideration that the shareholder would otherwise be entitled to receive
pursuant to the Merger Agreement. The following summarizes the statutory
procedures required under the N.Y. BCL to perfect a dissenting shareholder's
rights. This summary is qualified in its entirety by reference to N.Y. BCL
Sections 623 and 910, attached to this Proxy Statement Prospectus as Annex B.
A dissenting shareholder shall file with Deposit written
objection to the Merger before the meeting of the shareholders at which the
Merger is submitted to a vote, or at such meeting but before the vote. The
objection shall include a notice of the shareholder's election to dissent
("Notice"), the shareholder's name and residence address, the number and class
of shares held, and a demand for payment of the fair value of the shares if the
Merger is consummated. A shareholder, nominee or fiduciary may not dissent as to
less than all of the shares he or she holds as of record, either beneficially or
as nominee or fiduciary. All Notices shall be addressed to June B. Nolan,
Secretary, Deposit Telephone Company, Inc., 87 Front Street, P.O. Box 87,
Deposit, New York 13754.
The dissenting shareholder shall not vote in favor of or
consent in writing to approve the Merger Agreement. A dissenting shareholder's
vote in favor of or consent in writing to approve the Merger Agreement will be
deemed to forfeit the shareholder's right to receive payment for his or her
shares. The dissenting shareholder's vote against the Merger is not sufficient
to satisfy the requirement of filing a written Notice in order to preserve his
or her appraisal rights.
At the time of filing the Notice or within one month
thereafter, the dissenting shareholder shall submit to Deposit the certificates
representing his or her shares. Deposit shall indicate on the certificates that
a Notice has been filed and shall then return the certificates to the
shareholder or other person who submitted them on his or her behalf.
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Within 10 days after the Merger is approved by the
shareholders, Deposit will give written notice of such approval by registered
mail to each dissenting shareholder who filed Notice.
Within 15 days after the expiration of the period for filing
Notice or within 15 days after the Merger takes place, whichever is later, but
no later than 90 days after the Merger is approved by the shareholders, Deposit
shall make a written offer by registered mail to each dissenting shareholder who
filed Notice. This written offer will specify a price that Deposit considers to
be the fair value, which may be conditioned upon consummation of the Merger if
the Merger has not yet taken place.
Upon consummation of the Merger the dissenting shareholder
shall no longer have any of the rights of a shareholder except the right to be
paid the fair value of his or her shares and other rights defined under N.Y. BCL
Section 623. Specifically, a Notice may be withdrawn by the shareholder at any
time prior to his or her written acceptance of an offer made by Deposit, but no
later than 60 days after the Merger is consummated. If Deposit fails to make a
timely offer, the time for withdrawing a Notice shall be extended 60 days from
the date such an offer is made.
If Deposit and any shareholder agree upon the price to be paid
for the dissenting shares within 30 days of the making of such an offer, payment
shall be made within 60 days after such offer is made or the Merger is
consummated. Payment is dependent upon the shareholder's surrender of all
certificates representing dissenting shares.
If Deposit fails to make an offer within 15 days after the
Merger takes place, or if Deposit makes the offer and dissenting shareholders
fail to agree within 30 days following the offer, Deposit shall institute a
special proceeding within 20 days after the expiration of whichever of these two
deadlines is applicable in the Supreme Court of the Sixth Judicial District,
Broome County, to determine the rights of dissenting shareholders and to fix the
fair value of their shares.
If Deposit fails to institute the special proceeding within 20
days after the expiration of such applicable deadline described above, any
dissenting shareholder may institute the proceeding within 30 days after the
expiration of such 20-day period. If a dissenting shareholder does not institute
the proceeding within this period, the dissenting shareholder's rights are lost
unless the court, for good cause shown, otherwise directs.
During the special proceeding, the court shall determine
whether each dissenting shareholder is entitle to receive payment for his or her
shares. The court shall fix the value of shares held by entitled dissenting
shareholders as of the close of business on the day before the shareholders'
meeting approving the Merger. The court will take into consideration the nature
of the Merger transaction and its effect on Deposit and its shareholders, the
customary valuation concepts and methods utilized in the relevant securities and
financial markets, and all other relevant factors. The court shall determine the
fair value of the shares without a jury and without referral to an appraiser or
referee. The court's determination of fair value may be greater, equal to, or
less than the consideration that the shareholder would otherwise receive
pursuant to the Merger Agreement.
The final order in the special proceeding shall be entered
against Deposit in favor of each entitled dissenting shareholder who is a party
to the proceeding and shall include an allowance for interest at such rate as
the Court finds equitable, from the date the Merger took place to the date of
payment. Each party to the proceeding shall bear its own costs and expenses,
including the fees and expenses of its counsel and of any experts employed by
it. If the court finds that a dissenting shareholder's refusal to accept
Deposit's offer was arbitrary, vexatious, or otherwise not in good faith, the
court may, in its discretion, apportion and assess all or any part of the costs,
expenses and fees incurred by Deposit against any or all of the dissenting
shareholders who are a party to the proceeding. Similarly, the court may, in its
discretion, apportion and assess all or any part of the costs, expenses and fees
incurred by any or all such dissenting shareholders who are a party to the
proceeding against Deposit under certain circumstances specified in N.Y. BCL
Section 623.
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Within 60 days following the final determination of the
proceeding, Deposit shall pay to each dissenting shareholder the amount found to
be due him or her, upon the shareholder's surrender of all certificates
representing dissenting shares.
The statutory procedures outlined above are complex and
technical and any shareholder who wishes to exercise his or her rights under
these provisions is urged to consult an attorney.
BUSINESS OF TDS
TDS is a diversified telecommunications service company with
cellular telephone, local telephone and radio paging operations. At June 30,
1995, TDS served approximately 1.7 million customer units in 37 states,
including 550,000 cellular telephones, 416,000 telephone access lines and
738,600 pagers. For the twelve months ended June 30, 1995, cellular operations
provided 48% of TDS' consolidated revenues; telephone operations provided 40%;
and paging operations provided 12%. TDS' business development strategy is to
expand its existing operations through internal growth and acquisitions and to
explore and develop other telecommunications businesses that management believes
will utilize TDS' expertise in customer-based telecommunications services.
TDS conducts substantially all of its cellular operations
through its more than 80%-owned subsidiary, United States Cellular Corporation
(American Stock Exchange symbol "USM"), which is engaged through subsidiaries
and joint ventures primarily in the development and operation of the acquisition
of interests in cellular markets. As of June 30, 1995 USM owns, operates,
invests in and has the right to acquire interests in cellular telephone systems
representing approximately 24.8 million population equivalents in 208 markets in
36 states. USM owns a controlling interest in and manages cellular systems
serving 137 markets ("consolidated markets").
TDS conducts substantially all of its telephone operations
through its wholly-owned subsidiary, TDS Telecommunications Corporation ("TDS
Telecom"). As of June 30, 1995 TDS Telecom operates 100 telephone companies
serving 416,000 access lines in 29 states. TDS Telecom is expanding through the
selective acquisition of local exchange telephone companies serving rural and
suburban areas and by offering additional lines of telecommunications products
and services to existing customers.
TDS conducts substantially all of its radio paging operations
through its more than 80%- owned subsidiary, American Paging, Inc. (American
Stock Exchange symbol "APP"). APP offers radio paging and related services
through its subsidiaries. As of June 30, 1995 APP provides service to 738,600
paging units through 37 sales and service operating centers in 14 states and the
District of Columbia. APP's service areas cover a total population of
approximately 75 million.
TDS was the successful bidder, through its wholly-owned
subsidiary American Portable Telecommunications, Inc., for eight broadband
licenses issued by the Federal Communications Commission to provide personal
communications services in geographic areas representing approximately 27.9
million population equivalents.
TDS was incorporated in Iowa in 1968. TDS' executive offices
are located at 30 North LaSalle Street, Suite 4000, Chicago, Illinois 60602. Its
telephone number is (312) 630-1900.
INFORMATION WITH RESPECT TO DEPOSIT
Business of Deposit
Deposit is an independent local telephone company that was
incorporated in the State of New York in 1923 to provide telephone services to
subscribers within its prescribed service area. Its service area
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presently covers an area of approximately 400 square miles located southeast of
Binghamton, New York in the counties of Broome, Chenango, and Delaware. Deposit
also serves customers located in a portion of Scott Township, Wayne County,
Pennsylvania.
Deposit's main office is located at 87 Front Street in the
Village of Deposit, New York.
As of December 31, 1994, Deposit had 8,145 access lines in
service, 8,022 of which were located in New York State and 123 of which were
located in Pennsylvania. Subscribers are serviced through exchanges located in
Deposit, Windsor, Harpursville, and Afton, New York.
Deposit is regulated by the PSC and by the PUC. The PSC issued
a Certificate of Public Convenience and Necessity to authorize Deposit to
provide telephone service in designated areas of the State of New York on May 7,
1924. The PUC issued a comparable Certificate with respect to Deposit's service
area in Pennsylvania in 1966.
Rates for local telephone services are regulated by the PSC
and the PUC. During the year ended December 31, 1994, operating revenues for
local network services were $2,608,461 as compared with $1,683,580 during the
prior year.
Long distance telephone services for customers of Deposit are
provided by long distance carriers. Deposit charges its customers tolls set by
the long distance carriers and remits the entire payment to the carriers. The
long distance carriers then compensate Deposit for usage by Deposit customers
through payment of access charges and other settlements. The rates for access
charges are determined by the PSC and the PUC for intrastate calls, and by the
Federal Communications Commission for interstate calls. During the year ended
December 31, 1994, Deposit's operating revenues from long distance network
services were $3,073,310, a decrease from the prior year when operating revenues
were $4,007,644.
Deposit also receives revenue from various miscellaneous
activities such as the leasing of telephone systems and other equipment to
customers and directory advertising. During calendar year 1994, Deposit's
miscellaneous revenues were $768,749 as compared with miscellaneous revenues of
$819,496 in 1993.
Deposit does not provide cellular telephone services to its
customers. However, Deposit is a limited partner in two partnerships that are
licensed to provide cellular services in areas that include Deposit's service
area. Thus, Deposit owns a 15% limited partnership interest in Binghamton MSA
Limited Partnership, a New York limited partnership which is licensed to provide
cellular services in the Binghamton, New York Metropolitan Statistical Area
("MSA"). The general partner of this partnership is NYNEX Corporation. The
Binghamton MSA has approximately 309,000 population equivalents.
Deposit is also a limited partner in a New York limited
partnership known as Catskills RSA Limited Partnership. This partnership
provides cellular services in the rural service area ("RSA") designated by the
Federal Communications Commission as New York RSA No. 5. This service area has
approximately 389,000 population equivalents. The general partner of this
partnership is New York Cellular Geographic Service Area, Inc., an affiliate of
NYNEX Corporation. Deposit has a 1/9th (11.11%) interest as a limited partner in
this partnership.
Future growth and attendant increased revenues of Deposit
depend principally on the future development of the geographic area which it
serves and the additional telecommunications needs of existing customers. Future
growth and increase indebtedness may also result from upgrades in service and
additional services made possible by advances in technology.
Deposit's policy is to upgrade its plant and equipment as
required and to furnish its customer's technological advances which are
economical. In the past five years, Deposit has invested approximately
$6,400,000 in additional telephone plant and equipment.
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Deposit management believes that its current telephone plant
and equipment are adequate and within accepted telephone industry standards.
With the current plant and equipment capacity, Deposit can reasonably expect to
meet its needs for future customer growth.
Deposit currently has 32 full-time employees.
No material changes in the business or financial position of
Deposit are expected from the date of the financial statements of Deposit
included in this Proxy-Statement Prospectus.
Property of Deposit
Deposit operates one telephone exchange at its headquarters in
Deposit, New York. Other exchanges are operated at Windsor, Harpursville and
Afton, New York.
In addition to the foregoing, the property of Deposit consists
principally of tangible property including telephone lines, office equipment,
telephone instruments, land and buildings related to telephone operations, and
motor vehicles and equipment. Telephone lines include buried cable, aerial
cable, poles and wire. Real property includes Deposit's central office
facility-headquarters in Deposit, New York, and offices for the exchanges
located in Windsor, Harpursville, and Afton.
Legal Proceedings of Deposit
Deposit does not have any material pending or threatened
litigation.
Changes in and Disagreements with Accountants of Deposit
There have been no changes in or disagreements with the
independent accountants of Deposit during the two most recent fiscal years or
any subsequent interim period.
Authorized and Outstanding Securities of Deposit
The authorized capital stock of Deposit consists of 30,000
shares of one class of common stock, without par value, and 3,000 shares of
preferred stock, $100 par value. Deposit shareholders have pre-emptive rights to
purchase additional securities, but they do not have the right to vote their
shares cumulatively for the election of directors or for other purposes. On the
Deposit Record Date, 29,450 common shares were issued and outstanding and no
preferred shares were outstanding.
Market for Shares and Dividends
There is no established public trading market for Deposit
shares. As of the Deposit Record Date, there were 52 shareholders of record.
Dividends on Deposit Shares are declared quarterly by the
Deposit Board of Directors and paid to shareholders on or about the first day of
January, April, July, and October. During 1993 and for the first two quarters of
1994, quarterly dividends were paid at the rate of $1.60 per share. Quarterly
dividends at the rate of $1.75 per share were paid to Deposit Shareholders on or
about July 1 and October 1, 1994, and January 1, April 1, and July 1, 1995. The
Merger Agreement permits Deposit to continue paying a quarterly dividend of
$1.75 until the Merger, but only from current earnings and profits. Further,
future dividends are subject to the discretion of the Board and will depend,
among other things, on future earnings, operating and financial conditions,
capital requirements, and general business conditions.
24
<PAGE>
Principal Shareholders of Deposit
The following table sets forth the beneficial owners of more
than five percent of the outstanding Deposit Shares:
Name and Address Number of Shares
of Shareholder Beneficially Owned Percentage of Class
- ------------------ ------------------ -------------------
S. Fenton Busfield 4,139 14.0543%
15 Center Street
Deposit, New York 13543
Margaret B. Rees 3,305 1 11.2224%
421 Wagner Avenue
Mamaroneck, New York 10543
Robert E. Genant 2,364 8.0272%
Bidwell Road
Parish, New York 13131
June B. Nolan 1,775 2 6.0272%
30 Main Street
P.O. Box 135
Deposit, New York 13754
Peter H. Feehan 1,727 5.8642%
115 Nelson Frank Road
P.O. Box 87
Deposit, New York 13754
Suzanne B. Feehan 1,636 5.5552%
319 N. Tioga Street
Ithaca, New York 14850
- ---------------------------
1. Includes 60 shares beneficially owned by Mrs. Rees' husband
and 1,418 shares beneficially owned by her son, Andrew Rees,
who resides with Mrs. Rees.
2. Includes 61 shares beneficially owned by Mrs. Nolan's
husband and 28 shares owned jointly by Mrs. Nolan and her
husband.
Share Ownership of Directors and Officers
The following table sets forth as of the Deposit Record Date the
beneficial ownership of the Directors and Officers of Deposit:
Name of Director Number of Shares
and/or Officer Beneficially Owned Percentage of Class
- ---------------- ------------------ -------------------
S. Fenton Busfield 4,139 14.0543%
June B. Nolan 1,775 6.0272%
25
<PAGE>
Peter H. Feehan 1,727 5.8642%
Suzanne B. Feehan 1,636 5.5552%
Stephen P. Feehan 1,460 4.9576%
Myrlin L. Page 60 0.2037%
Everett A. Gilmour 50 0.1698%
David O. Martin 0 0.0000%
Robert H. Griswold 0 0.0000%
------ -------
All directors and officers 10,847 36.8319%
as a group (a total of 9)
Directors and Executive Officers
The Merger Agreement provides that the Directors and Officers
of Deposit as of the Effective Date of the Merger shall remain in those
positions following the Merger until their successors are elected and qualified.
The identities of the current Directors and Officers of Deposit, their ages and
terms of office as of the Deposit Record Date are set forth below:
Date
Date First Current Date First
Name Position(s) Age Elected as Term Appointed as
Director Expires Officer
---------------- ------------ ----- ---------- ------- -----------
S. Fenton Busfield Chairman of the 91 1931 May 1996 1933
Board, Treasurer,
Director
Suzanne B. Feehan Vice President, 54 1964 May 1996 1964
Director
Everett A. Gilmour Director 74 1972 May 1996 ----
David O. Martin Director 54 1981 May 1996 ----
Peter H. Feehan President, Chief 57 1984 May 1996 1964
Executive Officer,
Assistant Treasurer,
Director
Myrlin L. Page Director 75 1984 May 1996 ----
Robert H. Director 65 1986 May 1996 ----
Griswold
June B. Nolan Secretary,
Director 57 1990 May 1996 1990
Stephen P. Feehan Vice President of 30 1990 May 1996 1992
Operations,
General Manager,
Director
26
<PAGE>
S. Fenton Busfield- S. Fenton Busfield currently serves as Chairman of the Board
of Directors and as Treasurer and is a member of the Executive and Salary
Committee of the Board of Directors. Mr. Busfield's father, Suydam S. Busfield
founded Deposit in 1923 and Mr. Busfield has been involved with the company
almost since its inception. He has been a Director since 1931 and for many years
served as President and Chief Executive Officer of the company. Mr. Busfield is
a graduate of Cornell University (B.S.). He is the father of Suzanne B. Feehan
and June B. Nolan and the grandfather of Stephen P. Feehan.
Suzanne B. Feehan - Suzanne B. Feehan is a Vice President and has been a member
of the Board of Directors since 1964. She is a graduate of Binghamton University
(B.S.) and of Syracuse University (M.S.W.) and is currently self-employed as a
counselor in Ithaca, New York. Mrs. Feehan is the daughter of S. Fenton
Busfield, sister of June B. Nolan, and mother of Stephen P. Feehan.
Everett A. Gilmour - Everett Gilmour is Chairman of the Board and a Director of
NBT Bank headquartered in Norwich, New York, and formerly served as the
President and Chief Executive Officer of NBT. He has been a Director of Deposit
since 1972 and he is a member of the Executive, Auditing and Salary committees
of the Board. Mr. Gilmour is a graduate of the Stonier School of Banking,
Rutgers University.
David O. Martin - David Martin is President and owner of Hinman Mills, a feed
mill business located in Deposit, New York. He has been a Director of Deposit
since 1981 and is a member of the Auditing Committee.
Peter H. Feehan - Peter Feehan is President, Chief Executive Officer, Assistant
Treasurer and a Director of Deposit. Mr. Feehan became President of Deposit in
1984 and has served as a Director since that year. He was first employed by
Deposit in 1958 and has been involved with all phases of the operations of the
company. Mr. Feehan is a member of the Executive Committee of the Board. Mr.
Feehan is a graduate of Broome Community College (A.A.S.) and of Binghamton
University (B.S.). Mr. Feehan is the father of Stephen P. Feehan.
Myrlin L. Page - Myrlin Page graduated from Alfred University (B.S.) and has
been a Director of Deposit since 1984. He was formerly Vice President of
Operations of Deposit and retired in 1991 after more than 40 years of service to
the company.
Robert H. Griswold - Robert Griswold is Chairman of the Ontario Telephone
Company and the Trumansburg Telephone Company and has been involved with the
telephone industry for many years. He has served as a Director of Deposit since
1986 and is a member of the Executive, Auditing, and Salary Committees of the
Board. Mr. Griswold is a graduate of Dartmouth College (B.S.).
June B. Nolan - June Nolan is Secretary and a Director of Deposit and has served
in those positions since 1990. She is the daughter of S. Fenton Busfield and is
a retired assistant branch manager of Barclay's Bank. Mrs. Nolan has an A.A.S.
degree in Accounting.
Stephen P. Feehan - Stephen Feehan is Vice President of Operations and General
Manager and a Director of Deposit. He is a graduate of the State University of
New York - Albany (B.S.) and Binghamton University (M.B.A.) and has been
employed by Deposit since 1987. Mr. Feehan is the grandson of S. Fenton Busfield
and the son of Peter H. Feehan and Suzanne B. Feehan.
Compensation of Officers
The following table summarizes the compensation paid by
Deposit during its last fiscal year to its Chief Executive Officer and each
other Executive Officer whose annual salary and bonus exceeds $100,000.
27
<PAGE>
Name and Principal Position Year Salary Bonus Other
Compensation
- ------------------------------ ---- ----------- ---------- ------------
Peter H. Feehan, President and 1994 $139,747.00 $70,081.00 $980.00
Chief Executive Officer
S. Fenton Busfield, Chairman of 1994 $121,625.00 $ 0.00 $980.00
the Board and Treasurer
Compensation of Directors
Effective with the May 1994 meeting, the fee paid to each
Director for each meeting attended was increased from $230 to $250. During 1994,
each Director was paid total Directors' fees of $980.
Certain Relationships and Related Transactions
Everett A. Gilmour, a Director of Deposit, is Chairman of the
Board of NBT Bank, Norwich, New York. NBT Bank is a successor trustee for
Deposit's first mortgage bonds referred to in Deposit's financial statements
appended hereto. NBT is also a lender to Deposit on a non-revolving line of
credit. As of June 30, 1995, there were no outstanding obligations under this
line of credit. Management believes that these extensions of credit by NBT Bank
are on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other banks and in
the opinion of management the terms are favorable to Deposit.
Employment Contracts, Termination of Employment,
And Change-Of-Control Agreements
Deposit and Peter H. Feehan are parties to an Employment Agreement
dated September 1, 1987, which provides for Mr. Feehan's employment as
President. Under this agreement, Mr. Feehan's "Annual Compensation" (as defined
in Mr. Feehan's Employment Agreement) is to be determined annually by the Board
of Directors in light of Deposit's financial performance, market conditions
pertinent to executive compensation, and adjustments provided generally to other
senior officers of Deposit. Any reductions in Annual Compensation are to be in
proportion to reductions generally applicable to other senior officers. In
addition, Mr. Feehan is entitled to participate in all group benefit plans and
to be reimbursed for all reasonable expenses incurred in furtherance of or in
connection with the business of Deposit.
Mr. Feehan's employment may be terminated without cause by Deposit on
ninety days' written notice given prior to September 1st in any year or for
"Reasonable Cause" (as defined in Mr. Feehan's Employment Agreement) on thirty
days' prior written notice. If Mr. Feehan's employment is terminated for any
reason other than his death or total disability, his Employment Agreement
provides for payment of a severance benefit to Mr. Feehan on termination of his
employment equal to two times his annual compensation at the time of
termination. This severance benefit is payable in 24 equal monthly installments.
Mr. Feehan's Employment Agreement also provides for an additional annual
severance benefit if Deposit terminates Mr. Feehan's employment for any reason
other than Reasonable Cause, which benefit is payable monthly for his lifetime
and is equal to 55% of his annual compensation at the time of termination,
reduced by payments of the 24 month severance benefit previously referred to as
well as by amounts paid to Mr. Feehan under the Company's retirement plan for
employees.
Peter H. Feehan is also party to a Change-of-Control Agreement with
Deposit dated May 6, 1994 and amended September 16, 1994. Under this agreement,
as amended, in the event that either (i) Mr. Feehan's employment terminates for
any reason other than death or disability within 24 months following a
change-of- control transaction or (ii) his employment is terminated or the terms
and conditions of his employment are
28
<PAGE>
modified to his detriment within 12 months prior to a change-of-control
transaction, then Deposit (or its successor) will be required to make a cash
payment to Mr. Feehan equal to 2.99 times the greater of Mr. Feehan's Annual
Compensation in effect at the time of termination or in effect at the time the
change-of- control transaction occurs. In addition, Deposit will be required to
indemnify Mr. Feehan for any income or excise taxes (other than ordinary income
taxes), including penalties and interest, assessed against Mr. Feehan resulting
from such payment. The Merger would constitute a change-of-control transaction
under this Change- of-Control Agreement. Deposit and Stephen P Feehan are also
parties to an Employment Agreement which contains comparable provisions to those
contained in the previously described agreements with Peter H. Feehan. See "The
Merger -- Interests of Certain Persons in the Merger."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is presented to assist in assessing the
changes in financial condition and performance of Deposit over the three most
recent fiscal years and the six month periods ended June 30, 1995 and 1994. The
following information should be read in conjunction with the financial
statements and related notes and other detailed information regarding Deposit
included elsewhere in this Proxy Statement-Prospectus.
Deposit is a supplier of telephone services to subscribers within its
prescribed service area. Its income is derived from subscriber fees charged to
its customers and from access charges imposed pursuant to contracts with
long-distance ("interexchange") telephone carriers. Both the fees charged to
Deposit's customers for its services and the access charges to interexchange
carriers are based upon rates approved by the Public Service Commission of New
York ("PSC") and the Public Utilities Commission of Pennsylvania ("PUC") with
respect to customers in New York and Pennsylvania, respectively, for intrastate
services and the Federal Communications Commission ("FCC") for interstate
services. Generally, these fees are a function of a prescribed return on
Deposit's investment in plant and equipment and its cost of services provided to
its subscribers.
The audited financial statements for the years ended December 31, 1994,
1993, and 1992, and the unaudited financial statements for the periods ended
June 30, 1995 and 1994, included in the Proxy Statement- Prospectus are stated
to comply with the financial reporting requirements mandated by generally
accepted accounting principles reflecting practices appropriate to the telephone
industry. Deposit uses a fiscal year ending December 31.
Net income totaled $1,109,258, $1,238,981 and $876,241 for the three
fiscal years ended 1994, 1993 and 1992, respectively, reflecting a decrease of
10.5% in 1994 and an increase of 41.4% in 1993. Net income totaled $2,457,036
and $613,879 for the six month periods ended June 30, 1995 and 1994. See the
analysis set forth in "Operating Revenues," "Operating Expenses" and "Other
Items" listed below.
Earnings per share were $37.67 in 1994, $42.07 in 1993 and $29.75 in
1992 based upon 29,450 shares outstanding in each year. Earnings per share for
the six month periods ended June 30, 1995 and 1994 were $83.43 and $20.84,
respectively, based upon 29,450 shares outstanding in each period.
OPERATING REVENUES
In the years ended December 31, 1994, 1993, and 1992, operating
revenues totaled $6,438,520, $6,493,720 and $5,993,548, respectively. This
equates to a decrease of 0.9% in 1994 and an increase of 8.4% in 1993. Operating
revenues for the six month periods ended June 30, 1995 and 1994 totaled
$2,808,299 and $3,194,308, respectively, reflecting a decrease of 12.1%
Local Network Service Revenues are derived from providing local
telephone exchange service within Deposit's franchise area and from Universal
Service Fund ("USF") payments. Local Network Service Revenues increased $924,881
(54.9%) and $202,959 (13.7%) in 1994 and 1993, respectively. The increase in
29
<PAGE>
1994 was primarily due to USF revenues having been reclassified as Local Network
Service Revenues from Network Access Revenues in the previous year, an increase
of approximately $440,000 in USF revenues, and an increase in Basic Area Revenue
of approximately $106,000 while the increase in 1993 was due primarily to an
increase in Basic Area Revenue of $81,000 and the inclusion of Customer Premises
Revenues of approximately $106,000 which had previously been reported as
deregulated revenue.
Network Access and Long Distance Network Service Revenues result from
charges assessed to interexchange carriers and customers for their use of the
interexchange network to transmit long-distance communications ("toll calls").
Such revenues are based upon the allocation of operating expenses and telephone
plant investment to interstate and intrastate jurisdictions under cost
separation procedures established by the FCC. Revenues are designed to cover
expenses and provide a rate of return on plant investment. Charges to
interexchange carriers for interstate network usage are based on tariffs filed
with the FCC by the National Exchange Carriers Association ("NECA"), a service
organization formed after the AT&T divestiture for the purpose of administering
collection and distribution of revenues between its member local exchange
carriers and the interexchange carriers. Charges to interexchange carriers for
intrastate network usage are based on tariffs established by state regulatory
agencies. The interstate portion of these revenues is initially received based
on estimates of expenses, plant investment and rates of return for the
settlement period (usually a calendar year). The intrastate portion of these
revenues is received based on approved tariffs and is influenced by changes in
traffic levels as measured by minutes of use.
Network Access and Long Distance Network Service Revenues decreased
$934,334 (23.3%) in 1994 and increased $184,868 (4.8%) in 1993. The decrease in
1994 resulted primarily from a decrease of approximately $550,000 in access pool
settlements and an accounting reclassification change of approximately $362,000
for USF revenues. The increase in 1993 was due mainly to increased access pool
settlements.
Miscellaneous revenues consisting primarily of directory revenue,
billing and collection revenue and deregulated revenues decreased $50,747 (6.2%)
in 1994 and increased $81,345 (11.0%) in 1993. The decrease in 1994 primarily
relates to a decrease in deregulated revenues. The increase in 1993 was due
primarily to an increase in billing and collection revenues.
Local Network Services Revenues decreased $139,287 (10.7%) in the six
months ended June 30, 1995 over 1994 due to an annual rate reduction agreed to
with the PSC of $150,000. Network Access and Long Distance Network Service
Revenues decreased $231,475 (15.2%) due to an unfavorable change in settlements
with the New York State Access Pool. The unfavorable change in settlements
resulted in part from an order of the PSC in Case No. 28425 which is applicable
generally to telephone companies that participate in the New York State Access
Pool. The revenue effects of the rate reduction and of the change in settlements
are continuing.
Miscellaneous revenues decreased $14,347 (3.8%) for the six months
ended June 30, 1995 over 1994.
The operating revenue of Deposit will not be impacted if the pending
merger with Sub is not consummated.
OPERATING EXPENSES
Operating expenses totaled $4,052,699, $3,870,771 and $3,832,204 for
the years ended 1994, 1993 and 1992, respectively. This equates to an increase
of 4.7% in 1994 and a 1.0% increase in 1993. Operating expenses for the six
month periods ended June 30, 1995 and 1994 totaled $1,847,564 and $1,808,805,
respectively, an increase of 2.1%.
Plant specific operations expenses decreased $211,763 (22.6%) in 1994
and increased $34,702 (3.8%) in 1993. The decrease in 1994 was due primarily to
a reduction in trimming expenditures and in personnel expense. For the six month
periods ended June 30, 1995 and 1994, plant specific operations expenses
decreased $41,267 (12.1%) primarily due to reductions in personnel.
30
<PAGE>
Plant nonspecific operations expenses increased $85,289 (23.1%) in 1994
and $54,950 (17.5%) in 1993. The increases in 1994 and 1993 were due primarily
to increases in testing expenses. For the six month periods ended June 30, 1995
and 1994, plant nonspecific operations expense decreased $25,686 (11.5%) due
primarily to reductions in personnel.
Depreciation and amortization increased $72,111 (8.2%) in 1994 and
increased $40,333 (4.8%) in 1993. The increases were primarily due to a change
in depreciation rates in 1994 and substantial additions to telephone plant and
equipment in late 1992.
Customer operations expense increased $77,733 (11.6%) in 1994 and
$50,374 (8.1%) in 1993. These increases were due primarily to increases in
personnel costs, outside data processing and installation of a new service order
and trouble ticket system.
Corporate operations expense increased $158,558 (15.6%) in 1994 and
decreased $141,792 (12.3%) in 1993. The increase in 1994 was primarily due to
increases in legal expenses relating to the sale of the company and the Merger.
The decrease in 1993 was primarily due to a non-recurring audit expense in the
previous year relating to continuing property records. For the six month period
ended June 30, 1995, corporate operations expense increased $95,493 (21.2%) due
primarily to increased legal expenses relating to the Merger.
Operating taxes consist of federal and state income taxes as well as
property taxes. Total operating taxes decreased $220,219 (18.2%) in 1994
compared to an increase of $209,059 (20.8%) in 1993. These changes were due
primarily to changes in federal income tax provisions. Operating taxes for the
six month periods ended June 30, 1995 and 1994 decreased $195,338 (27.6%) due to
changes in federal income tax provisions.
The operating expenses of Deposit will not be impacted if the pending
merger with Sub is not consummated.
OTHER ITEMS
Nonoperating income and expense, net, consisting of interest and
dividend income, loss on investments, nonoperating federal income taxes and sale
of assets, decreased $134,886 (269.4%) in 1994 and increased $71,819 (330.2%) in
1993. These changes resulted from a non-recurring sale of an asset in 1993. For
the six month periods ended June 30, 1995 and 1994, nonoperating income and
expense, net, increased $2,021,884 due mainly to the closing of the sale by
Deposit of an interest in a partnership formed to provide cellular service to
New York Rural Service Area No. 4 for a selling price of $3,067,200 which was
paid in cash to Deposit. It is expected that the state and federal income taxes
with respect to this transaction will be approximately $1,054,355.
Interest expense totaled $194,745, $216,817 and $255,192 in 1994, 1993
and 1992, respectively, a decrease of 10.2% in 1994 and 15.0% in 1993. The
reduction in interest expense relates primarily to reductions in current and
long-term debt.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $1,084,554, $1,330,526 and $782,998 as
of December 31, 1994, 1993 and 1992, respectively. This represents a 38.5%
increase from December 31, 1992 to December 31, 1994.
Cash flows from operating activities were $2,253,650 in 1994, $2,418,
573 in 1993 and $1,941,105 in 1992. Cash flows from operating activities
decreased 6.8% in 1994 over 1993 primarily due to reductions in net income and
the inclusion of a non-recurring gain in 1993 from the sale of an interest in a
cellular partnership. The increase of 24.6% in 1993 over 1992 was primarily due
to an increase in net income and the inclusion of the non-recurring gain in 1993
from the sale of the cellular partnership interest.
31
<PAGE>
Cash flows used in investing activities were $915,344, $1,212,446 and
$1,291,822 in 1994, 1993 and 1992, respectively. The decrease in 1994 was due
primarily to reductions in capital expenditures and in temporary cash
investments. The decrease in 1993 reflects a reduction in capital expenditures.
Cash flows used in financing activities were $1,584,278 in 1994,
$658,599 in 1993 and $599,256 in 1992. The primary reasons for the changes in
each year relate to the changes in principal payments on long-term and
short-term debt and dividend payments.
In 1995, capital expenditures are expected to be approximately
$1,400,000. The money is to be used for construction of a fiber ring, a
synchronous optical network, switching upgrades, a distance learning network,
voice mail additions, and normal cable and pole line construction. It is
expected that internally generated funds will be used to finance these
improvements.
It is expected that internally generated funds will be adequate to meet
current and future operating needs of Deposit. However, while cash flows
generated from operations are expected to be sufficient to meet the future
operating needs of Deposit, future capital expenditures may require additional
borrowing. The specific means of obtaining the financing and its resulting
impact on the financial position and earnings capacity of Deposit have not been
determined.
Inflation and changing prices did not have a material effect on
Deposit's financial position or earnings during the three years ended December
31, 1994.
Management of Deposit believes that its liquidity and capital operating
resources are presently adequate for its anticipated needs and will not be
materially impacted if the pending merger with Sub is not consummated.
Material Changes in Financial Condition from December 31, 1994 to June 30, 1995
Except for certain changes previously described herein, there have been
no material changes in the financial condition of Deposit from December 31, 1994
to June 30, 1995 nor are any anticipated for the remainder of 1995.
DESCRIPTION OF DEPOSIT SHARES
The capital stock of Deposit authorized by the Articles of
Incorporation of Deposit, as amended, consists of two classes: the Deposit
Shares and the Deposit Preferred Shares (as defined below). The Articles of
Incorporation of Deposit authorize 30,000 Deposit Shares, no par value per
share, and 3,000 shares of Preferred Stock, par value $100 per share (the
"Deposit Preferred Shares"). There were 29,450 Deposit Shares and no Deposit
Preferred Shares issued and outstanding on the Deposit Record Date.
Each holder of a Deposit Share is entitled to one vote per share held
by such holder on all matters submitted to a vote of shareholders. Holders of
Deposit Preferred Shares are not entitled to vote on any matter submitted to a
vote of shareholders except as set forth in the next sentence, in which case
each holder of a Deposit Preferred Share is entitled to one vote per share held
by such holder. In the event that either (i) dividends payable on the Deposit
Preferred Shares are in arrears in an aggregate amount equal to six quarterly
dividends or (ii) there is a default in an amount equal to one annual payment
with respect to any sinking fund and such default continues for ninety days,
then the holders of the Deposit Preferred Shares, voting separately as a class,
will have the right to elect the smallest number of directors necessary to
constitute a majority of the Board of Directors and the holders of the Deposit
Shares, voting separately as a class, will have the right to elect the remaining
directors. Such voting rights shall continue until all dividends in arrears on
the Deposit Preferred Shares have been paid or declared and set apart and such
sinking fund default shall have been cured. Pursuant to the Certificate of
Incorporation of Deposit, shareholders are not permitted to cumulate their
votes. All issued and outstanding Deposit Shares are fully paid and
non-assessable.
32
<PAGE>
Pursuant to the New York Business Corporation Law, the Board of
Directors of a corporation may declare and cause the corporation to pay
dividends or make other distributions in cash or its bonds or property as long
as (i) the corporation is not insolvent or would not be rendered insolvent by
the payment of such dividends; (ii) payment is not contrary to the Certificate
of Incorporation; and (iii) the dividends are paid out of surplus so that the
corporation's net assets remaining after such payment are at least equal to the
amount of its stated capital. In addition, if a distribution of the
corporation's shares is made, the amount of stated capital represented by such
shares will be no less than the aggregate par value thereof (or if no par value
shares, then the amount of stated capital will be fixed by the board of
directors) and such amount must be transferred from the corporation's surplus to
its stated capital at the time of such distribution.
With respect to Deposit, there are no special dividend rights of the
holders of Deposit Shares other than as provided by the New York Business
Corporation Law. There are no provisions in the Certificate of Incorporation of
Deposit restricting the payment of dividends except as set forth below. Holders
of Deposit Preferred Shares are entitle to receive, as and when declared by the
Board of Directors out of funds legally available therefore, cumulative
preferential dividends at the annual rate fixed for such series of Deposit
Preferred Shares, payable quarterly on the first day of January, April, July and
October of each year. Unless full dividends on all Deposit Preferred Shares have
been paid or declared and set apart, no dividends (other than dividends in
Deposit Shares) can be declared or paid or other distribution made on the
Deposit Shares and no Deposit Shares can be acquired for value by Deposit. The
Deposit Preferred Shares are redeemable in whole or in part by Deposit upon
payment of the applicable redemption price, unpaid accumulated dividends, if
any, and dividends accrued to the date of redemption.
Upon liquidation of Deposit, (i) the holders of Deposit Preferred
Shares are entitled to be paid the par value thereof plus the accrued and unpaid
dividends thereon or, if the assets available are insufficient for such payment,
to share ratably in the distribution of all assets remaining after provision for
the creditors of Deposit and (ii) the holders of Deposit Shares are entitled to
share ratably in the distribution of all assets remaining after provision for
the holders of Deposit Preferred Shares.
DESCRIPTION OF TDS SECURITIES
The authorized capital stock of TDS consists of 100,000,000 TDS Common
Shares, $1.00 par value, 25,000,000 Series A Common Shares, $1.00 par value, and
5,000,000 Preferred Shares, without par value. As of June 30, 1995, 50,898,032
TDS Common Shares (excluding 484,012 Common Shares held by a subsidiary of TDS),
6,879,661 TDS Series A Common Shares and 453,452 TDS Preferred Shares were
outstanding and 31,431 TDS Common Shares were issuable in connection with
acquisitions.
Voting Trust
A substantial majority of TDS's outstanding Series A Common Shares are
held in a voting trust which expires on June 30, 2009. The voting trust was
created to facilitate the long-standing relationships among the trustees'
certificate holders. By virtue of the number of shares held by them, the voting
trustees have the power to elect 75% of the Directors and control a majority of
the voting power of TDS in matters other than the election of directors. The
trustees of the voting trust are LeRoy T. Carlson, Jr., a director and the
President and Chief Executive Officer of TDS, Walter C.D. Carlson, a director of
TDS, Letitia G. Carlson, Donald C.
Nebergall, a director of TDS, and Melanie J. Heald.
Preferred Shares
The Board of Directors of TDS is authorized by the Articles of
Incorporation of TDS to issue Preferred Shares from time to time in series and
to establish as to each series the designation and number of shares to be
issued, the dividend rate, the redemption price and terms, if any, the amount
payable upon voluntary or involuntary dissolution of TDS, sinking fund
provisions, if any, voting rights, if any, and the terms of conversion into TDS
Common Shares, if provided for. As of June 30, 1995, an aggregate of 453,452
Preferred Shares of TDS were outstanding, all of which were issued in connection
with acquisitions.
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<PAGE>
Voting Rights
With respect to the election of directors, the holders of TDS Common
Shares, and the holders of Preferred Shares issued before October 31, 1981 (an
aggregate of 11,476 shares), voting as a group, are entitled to elect 25% of the
Board of Directors of TDS, rounded up to the nearest whole number. The holders
of Series A Common Shares, and the holders of Preferred Shares issued after
October 31, 1981 (an aggregate of 441,976 shares), voting as a group, are
entitled to elect the remaining members of the Board of Directors of TDS.
Furthermore, the Articles of Incorporation provide for the Board of Directors to
be divided into three classes. Each class is elected for a three-year term. The
Board of Directors currently consists of eleven directors. Accordingly, the
holders of TDS Common Shares, and the holders of Preferred Shares issued before
October 31, 1981, are entitled to elect three directors.
The holders of TDS Common Shares are entitled to one vote per share and
the holders of Series A Common Shares are entitled to ten votes per share. The
holders of each series of Preferred Shares are entitled to such votes as may be
specified in the certificate of designation for such series. The holders of TDS
Common Shares, Series A Common Shares and Preferred Shares vote as a single
group, except with respect to the election of directors as discussed above and
with respect to certain amendments to the Articles of Incorporation (e.g.,
amendments prejudicial to the holders of a class), as to which the Iowa Business
Corporation Act grants class voting rights.
If the number of Series A Common Shares issued and outstanding at any
time falls below 500,000 (because of the conversion of Series A Common Shares or
otherwise), the holders of Series A Common Shares would lose the right to vote
as a separate group (with the holders of Preferred Shares issued after October
31, 1981) in the election of approximately 75% of the directors, and thereafter
the holders of Series A Common Shares (with ten votes per share) would vote with
the holders of TDS Common Shares and Preferred Shares as a single group in the
election of directors. Management of TDS believes it is unlikely that the number
of outstanding Series A Common Shares will fall below 500,000, because more than
6,000,000 Series A Common Shares are held in the voting trust described above,
and the trustees of the voting trust have indicated that they have no present
intention of converting Series A Common Shares into TDS Common Shares. However,
if the number of outstanding Series A Common Shares falls below 500,000, then
the TDS Common Shares listed on the American Stock Exchange may be delisted
because the holders of such shares would not have the right, voting as a
separate class, to elect approximately 25% of the Board of Directors.
Dividend Rights and Restrictions
Subject to the satisfaction of all Preferred Share dividend preference
and redemption provisions, holders of TDS 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 the TDS Common Shares, no dividends may be declared or
paid on the Series A Common Shares. As of June 30, 1995, the annual preferred
dividend requirements on all outstanding Preferred Shares aggregated $2,536,000.
In the case of stock dividends, the Articles of Incorporation provide
that TDS Common Shares may be paid to holders of TDS Common Shares and
proportionately to holders of Series A Common Shares; Series A Common Shares may
be paid to holders of TDS Common Shares and proportionately to holders of Series
A Common Shares; and TDS Common Shares may be paid to holders of TDS Common
Shares and Series A Common Shares may be paid proportionately to holders of TDS
Series A Common Shares. The Board of Directors is authorized to permit both the
holders of TDS Common Shares and Series A Common Shares to elect to receive cash
in lieu of stock.
Under TDS's loan agreements, at December 31, 1994, all of TDS's
consolidated retained earnings ($127,765,000) were available for the payment of
dividends on TDS Common Shares and Series A Common Shares.
34
<PAGE>
Conversion Rights
The TDS Common Shares have no conversion rights. The Series A Common
Shares are convertible, on a share-for-share basis, into TDS Common Shares.
Certain series of Preferred Shares are convertible into TDS Common Shares or
other securities. An aggregate of 287,886 Preferred Shares were convertible into
992,257 TDS Common Shares as of June 30, 1995.
Other Rights
The TDS Common Shares and Series A Common Shares have no redemption or
sinking fund provisions. As of June 30, 1995, an aggregate of 158,086 Preferred
Shares had mandatory redemption features or were redeemable at the option of the
holder and an aggregate of 295,366 Preferred Shares were redeemable at the
option of TDS.
Upon liquidation, holders of TDS Common Shares and Series A Common
Shares are entitled to receive a pro rata share of all assets available to
shareholders after payment to holders of the Preferred Shares of $100 per share
(or, in the aggregate, $45,355,660 as of June 30, 1995), plus a sum equal to the
amount of all accumulated and unpaid dividends thereon at the dividend rate
fixed for each series of cumulative Preferred Shares by the Board of Directors.
At June 30, 1995, there were no unpaid or accumulated dividends payable on the
Preferred Shares.
The Articles of Incorporation provide that if a TDS subsidiary has
classes of capital stock with relative rights, preferences and limitations
vis-a-vis each other that, in the judgment of the Board of Directors, are
similar in all material respects to the relative rights, preferences and
limitations of the TDS Common Shares vis-a-vis the Series A Common Shares,
except for certain limited matters, then the Board of Directors will distribute
the subsidiary shares in a dividend or upon liquidation to the extent
practicable by distributing the subsidiary shares which correspond to the TDS
Common Shares to the holders of TDS Common Shares, and the subsidiary shares
which correspond to the Series A Common Shares to the holders of Series A Common
Shares, provided that the same number of shares of subsidiary common stock on a
combined basis must be distributed per Series A Common Share and TDS Common
Share.
The holders of Series A Common Shares have a preemptive right to
purchase any additional Series A Common Shares sold for cash, including treasury
shares. Holders of TDS Common Shares and Preferred Shares have no preemptive
rights.
Provisions of Articles of Incorporation Concerning Takeover Proposals
As discussed above, the voting trust has the power to elect
75% of the directors and controls a majority of the voting power of TDS. The
Articles of Incorporation of TDS provide for the Board of Directors to be
divided into three classes. Each class is elected for a three-year term. The
Articles of Incorporation of TDS also explicitly permit the Board of Directors
to consider a variety of factors in exercising its business judgment in
determining what action is in the best interests of TDS and its shareholders in
responding to any tender offer for any equity security of TDS and certain other
proposed transactions. The existence of the voting trust and such provisions of
the Articles of Incorporation may tend to deter any potential unsolicited or
hostile takeover attempts or other efforts to effect a change in control of TDS
and may make it more difficult for some shareholders to sell shares of TDS at
higher than market prices.
General
All issued and outstanding TDS Common Shares, Series A Common Shares
and Preferred Shares are fully paid and nonassessable, and all TDS Common Shares
offered hereby will be fully paid and nonassessable when issued.
35
<PAGE>
The Transfer Agent and Registrar for the TDS Common Shares, Series A
Common Shares and Preferred Shares is Harris Trust and Savings Bank, Chicago,
Illinois.
TDS has and will continue to distribute annual reports to its
shareholders which will contain its audited financial statements.
COMPARATIVE RIGHTS OF TDS SHAREHOLDERS AND DEPOSIT SHAREHOLDERS
If the Merger is consummated, shareholders of Deposit, a New York
corporation, will become shareholders of TDS, an Iowa corporation, and their
rights will be governed by the Iowa Business Corporation Act instead of the New
York Business Corporation Law, and by the Articles of Incorporation of TDS
instead of the Certificate of Incorporation of Deposit, which differ in many
respects. In addition to the matters described above under "Description of
Deposit Shares" and "Description of TDS Securities," there are other differences
between the rights of shareholders in TDS and those of shareholders in Deposit,
certain of which are described in the following:
Voting
Under the Iowa Business Corporation Act, amendments to the Articles of
Incorporation require approval of a majority of the votes entitled to be cast by
any voting group to which the amendment would create dissenters' rights and a
majority of the votes present for purposes of a quorum of every other voting
group entitled to vote on the amendment. Under the Iowa Business Corporation
Act, a plan of merger or share exchange or a sale of assets other than in the
regular course of business requires approval by each voting group entitled to
vote separately on the plan by a majority of all votes entitled to be cast on
the plan by that voting group. Under the New York Business Corporation Law (i)
an amendment to the Deposit Certificate of Incorporation requires the
affirmative vote of the holders of shares of Deposit entitling them to exercise
the vote of a majority of the outstanding Deposit Shares entitled to vote
thereon and (ii) a plan of merger, consolidation or share exchange or sale of
assets other than in the regular course of business requires the affirmative
vote of holders of shares of Deposit entitling them to exercise the vote of at
least two-thirds of the outstanding Deposit Shares entitled to vote thereon.
Preferred Shares
No dividends may be paid on the TDS Common Shares until all dividends
due on the Preferred Shares have been paid. In addition, the rights of holders
of TDS Common Shares upon liquidation of TDS are subordinate to the rights of
preferred shareholders. Although Deposit's Certificate of Incorporation
authorizes the issuance of capital stock with dividend, liquidation and other
preferences (referred to above as Deposit Preferred Shares), no such capital
stock of Deposit currently is issued and outstanding.
Limitation of Director Liability
As permitted by Iowa law, the Articles of Incorporation of TDS includes
a provision limiting or eliminating under certain circumstances directors'
liability for monetary damages for breach of the duty of care.
There is no similar provision in the Certificate of Incorporation of Deposit.
The above does not present an exhaustive listing of all such
differences and certain differences may exist which may be of significance to
particular shareholders. Any such shareholder should refer to the respective
Certificate of Incorporation and Articles of Incorporation and state corporation
statutes, which are available in the offices of Deposit.
36
<PAGE>
LEGAL MATTERS
The validity of the TDS Common Shares offered hereby will be passed
upon for TDS by Sidley & Austin, Chicago, Illinois. Walter C.D. Carlson, Michael
G. Hron and William S. DeCarlo, a Director, Secretary and Assistant Secretary,
respectively, of TDS, are members of that law firm. Mr. Carlson is also a
trustee of the voting trust which controls TDS.
EXPERTS
TDS
The audited consolidated financial statements and schedules of TDS
incorporated by reference in this Proxy Statement-Prospectus have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports incorporated by reference herein. The combined financial statements of
the Los Angeles SMSA Limited Partnership, the Nashville/Clarksville MSA Limited
Partnership and the Baton Rouge MSA Limited Partnership incorporated by
reference in this Proxy Statement-Prospectus have been reviewed for compilation
by Arthur Andersen LLP, as indicated in their report incorporated by reference
herein. Reference is made to the above said report which includes explanatory
paragraphs with respect to uncertainties discussed in Note 7 of the Notes to
Unaudited Combined Financial Statements. The reports of other independent
accountants on the underlying financial statements which have been combined are
incorporated by reference herein. The financial statements and schedules
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.
Deposit
The balance sheets of Deposit as of December 31, 1994 and 1993 and the
statements of income, changes in stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1994 have been audited by
Bush & Germain, P.C., independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of such firm as experts in accounting and auditing in giving said
report.
37
<PAGE>
INDEX TO DEPOSIT FINANCIAL STATEMENTS
Interim Unaudited Statements:
Balance Sheets as of June 30, 1995 and December 31, 1994................. F-2
Statements of Income for the six-month periods
ended June 30, 1995 and 1994.......................................... F-4
Statements of Changes in Stockholders' Equity for the six-month
periods ended June 30, 1995 and 1994....................................F-5
Statements of Cash Flows for the six-month periods
ended June 30, 1995 and 1994............................................F-6
Notes to Financial Statements.............................................F-7
Annual Audited Statements:
Independent Auditor's Report..............................................F-8
Balance Sheets as of December 31, 1994 and 1993...........................F-9
Statements of Income for the years ended December 31,
1994, 1993 and 1992....................................................F-11
Statements of Changes in Stockholders' Equity for the years
ended December 31, 1994, 1993 and 1992.................................F-12
Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992.......................................F-13
Notes to Financial Statements............................................F-15
F-1
<PAGE>
DEPOSIT TELEPHONE COMPANY, INC.
BALANCE SHEET
JUNE 30, 1995 AND DECEMBER 31, 1994
06/30/95 12/31/94
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,767,779 $ 1,301,307
Telecommunications accounts receivable - net
of reserve for uncollectibles 419,644 431,117
Other accounts receivable 1,000,793 1,055,095
Materials and supplies 262,781 244,103
Materials for resale 40,405 34,848
Prepaid expenses 320,367 236,073
------------ ------------
5,811,769 3,302,543
---------- -----------
NONCURRENT ASSETS:
Other investments - at cost 855,595 855,595
Unamortized debt issuance expense 8,304 10,361
--------- --------
863,899 865,956
------- -------
TELEPHONE PLANT - AT COST:
Telephone plant in service 14,739,999 14,597,646
Telephone plant under construction 387,955 317,190
------------ ------------
15,127,954 14,914,836
Less: Depreciation reserve 4,595,020 4,180,472
----------- -----------
10,532,934 10,734,364
TOTAL ASSETS $17,208,602 $14,902,863
=========== ===========
F-2
<PAGE>
06/30/95 12/31/94
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities - long-term debt $ 80,000 $ 80,000
Notes payable and line of credit -- 1,082,905
Accounts payable 796,443 819,238
Advance billings and customers' deposits 103,310 89,460
Accrued interest 7,575 10,100
Accrued dividends 51,537 51,537
Other current liabilities 147,835 82,175
Accrued Federal income taxes 1,019,495 --
--------- ---------
2,206,195 2,215,415
--------- ---------
LONG-TERM DEBT 160,000 240,000
---------- ----------
OTHER LIABILITIES AND DEFERRED CREDITS
Other long-term liabilities 1,170,922 1,170,922
Deferred federal income tax 1,580,730 1,390,364
Unamortized investment tax credit 179,937 179,937
Other deferred credits 973,785 1,123,152
----------- ---------
3,905,374 3,864,375
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock - no par value;
Authorized 30,000 shares;
Issued and outstanding 29,450 shares 322,250 322,250
Retained earnings 10,614,783 8,260,823
---------- ---------
10,937,033 8,583,073
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $17,208,602 $14,902,863
========== ==========
F-3
<PAGE>
DEPOSIT TELEPHONE COMPANY, INC.
STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
1995 1994
---------------- -------------
OPERATING REVENUES:
Local network service $ 1,161,347 $ 1,300,634
Network access and long distance
network service 1,289,940 1,521,415
Miscellaneous 363,912 378,259
Less: Provision for uncollectibles (6,900) (6,000)
------------- --------------
Net operating revenues 2,808,299 3,194,308
----------- -----------
OPERATING EXPENSES:
Plant specific 301,259 342,526
Plant nonspecific:
Depreciation 480,995 471,022
Other 197,343 223,029
Customer operations 322,983 322,737
Corporate operations 544,984 449,491
----------- ---------
Total operating expenses 1,847,564 1,808,805
--------- ---------
OPERATING TAXES:
Other operating taxes 272,255 266,238
Federal income taxes 240,645 442,000
---------- -------
Total operating taxes 512,900 708,238
--------- -------
Net operating income 447,835 677,265
NONOPERATING INCOME AND (EXPENSE) - NET 2,051,384 29,500
--------- --------
Income available for fixed charges 2,499,219 706,765
--------- -------
FIXED CHARGES:
Interest on funded debt 17,675 39,237
Other interest charges 22,451 51,531
Amortization 2,057 2,118
----------- --------
Total fixed charges 42,183 92,886
---------- -------
Net Income $ 2,457,036 $ 613,879
========= =======
F-4
<PAGE>
<TABLE>
<CAPTION>
DEPOSIT TELEPHONE COMPANY, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
Common Stock
----------------------- Retained
Shares Amount Earnings Total
------ --------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 29,450 $ 322,250 $ 7,353,298 $ 7,675,548
Net Earnings, six months ended June 30, 1994 -- -- 613,879 613,879
Cash dividends during period -- -- (98,658) (98,658)
------- --------- ----------- -----------
Balance, June 30, 1994 29,450 $ 322,250 $ 7,868,519 $ 8,190,769
======= ========= =========== ===========
Balance, December 31, 1994 29,450 $ 322,250 $ 8,260,823 $ 8,583,073
Net Earnings, six months ended June 30, 1995 -- -- 2,457,036 2,457,036
Cash dividends during period -- -- (103,076) (103,076)
------- --------- ----------- -----------
Balance, June 30, 1995 29,450 $ 322,250 $10,614,783 $10,937,033
======= ========= =========== ===========
</TABLE>
F-5
<PAGE>
DEPOSIT TELEPHONE COMPANY INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
1995 1994
---- ----
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $2,457,036 $ 613,879
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation & amortization 483,052 473,140
Deferred income tax & investment tax credit 41,000 135,728
Change in assets and liabilities:
(Increase) Decrease in accounts receivable 65,775 8,586
(Increase) Decrease in materials for resale (5,557) (3,062)
(Increase) Decrease in prepaid expenses (84,294) (1,162)
Increase (Decrease) in accrued income tax 1,019,495 (61,984)
Increase (Decrease) in accounts payable (22,795) (23,392)
Increase (Decrease) in advance billings and
customers' deposits 13,850 21,347
Increase (Decrease) in accrued expenses (2,525) (18,215)
Increase (Decrease) in other liabilities 65,660 (182,217)
--------- ---------
Net cash provided by operating
activities 4,030,697 962,648
--------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (279,565) (425,273)
(Increase) in other investments -- (53,437)
(Increase) Decrease in materials and supplies (18,678) (3,909)
-------- -----------
Net cash used in investing activities (298,243) (482,619)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Repayment of short-term debt (1,082,906) (44,424)
Repayment of long-term debt (80,000) (104,000)
Dividends (103,076) (98,658)
--------- --------
Net cash provided by (used in)
financing activities (1,265,982) (247,082)
----------- ---------
Increase (Decrease) in cash
and cash equivalents 2,466,472 232,947
--------- -------
Cash and cash equivalents at
beginning of period 1,301,307 1,484,384
--------- ---------
Cash and cash equivalents at
end of period $3,767,779 $1,717,331
========= =========
F-6
<PAGE>
DEPOSIT TELEPHONE COMPANY, INC.
SELECTED INFORMATION - SUBSTANTIALLY ALL
DISCLOSURES REQUIRED BY GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ARE NOT INCLUDED
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of the management of Deposit
Telephone Company, Inc. (the "Company"), all adjustments considered necessary
for a fair presentation have been included. Operating results for the six month
period ended June 30, 1995, are not necessarily indicative of the results that
may be expected for the year ended December 31, 1995. For further information,
refer to the annual December 31, 1994, financial statements and notes thereto.
NOTE 2 - PROPOSED MERGER
On January 23, 1995, the Board of Directors of Deposit met and approved an
Acquisition Agreement and Plan of Merger (the "Merger Agreement") with Telephone
and Data Systems, Inc. ("TDS") and DTC Acquisition Corp., a wholly owned
subsidiary of TDS ("Sub"). The Merger Agreement was executed between the parties
effective as of March 30, 1995 and further ratified by the Deposit Board of
Directors at its meeting held May 5, 1995. An affirmative vote of the holders of
at least two-thirds of the outstanding shares of the Company's stock is required
to approve the proposed Merger. In addition, the merger is subject to approval
by the Public Service Commission of New York and the Public Utilities Commission
of Pennsylvania. The Merger Agreement includes certain other closing conditions
precedent to consummation of the transaction.
NOTE 3 - GAIN ON SALE OF CELLULAR INTEREST
During the second quarter of 1995, Deposit closed the sale of its interest in
the entity formed to construct and/or operate a wireline cellular telephone
system in New York RSA 4. The sale proceeds of $3,067,200 resulted in a net
gain of $2,013,000 after provision for income taxes.
F-7
<PAGE>
BUSH & GERMAIN, PC
CERTIFIED PUBLIC ACCOUNTANTS
90l LODI STREET
SYRACUSE, NEW YORK 13203
PHONE: (315) 424-1145
February 16, 1995
To The Board of Directors
Deposit Telephone Company, Inc.
87 Front Street
Deposit, NY 13754
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Deposit Telephone
Company, Inc. as of December 31, 1994 and 1993 and the related statements of
income, stockholders' equity and cash flows for each of the three years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Deposit Telephone
Company, Inc. as of December 31, 1994 and 1993 and the results of its operations
and its cash flows for each of the three years then ended, in conformity with
generally accepted accounting principles.
Bush & Germain, P.C.
F-8
<PAGE>
DEPOSIT TELEPHONE COMPANY, INC.
BALANCE SHEET
DECEMBER 31, 1994 AND 1993
1994 1993
----------- -----------
ASSETS
CURRENT ASSETS:
Cash $ 1,084,554 $ 1,330,526
Temporary cash investments 216,753 153,858
Telecommunications accounts receivable - net
of reserve for uncollectibles 431,117 418,773
Other accounts receivable 1,055,095 1,018,892
Materials and supplies 244,103 244,706
Materials for resale 34,848 31,979
Prepaid expenses 236,073 107,839
----------- -----------
3,302,543 3,306,573
----------- -----------
NONCURRENT ASSETS:
Other investments - at cost (Note 7) 855,595 856,648
Unamortized debt issuance expense 10,361 14,597
----------- -----------
865,956 871,245
----------- -----------
TELEPHONE PLANT - AT COST: (Notes 1 and 2)
Telephone plant in service 14,597,646 14,201,151
Telephone plant under construction 317,190 363,437
----------- -----------
14,914,836 14,564,588
Less: Depreciation reserve 4,180,472 3,642,180
----------- -----------
10,734,364 10,922,408
----------- -----------
TOTAL ASSETS $14,902,863 $15,100,226
=========== ===========
The accompanying notes are an integral part of the
financial statements.
F-9
<PAGE>
Exhibit A
1994 1993
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities - long-term debt $ 80,000 $ 272,000
Notes payable and line of credit (Note 3) 1,082,905 1,809,329
Accounts payable 819,238 489,750
Advance billings and customers' deposits 89,460 118,608
Accrued interest 10,100 18,215
Accrued dividends 51,537 --
Other current liabilities 82,175 397,075
----------- -----------
2,215,415 3,104,977
----------- -----------
LONG-TERM DEBT (Notes 2 and 4) 240,000 650,000
----------- -----------
OTHER LIABILIATIES AND DEFERRED CREDITS (Notes 1, 6 and 7):
Other long-term liabilites (Note 7) 1,170,922 1,225,043
Deferred federal income tax 1,390,364 1,172,870
Unamortized investment tax credit 179,937 210,145
Other deferred credits 1,123,152 1,061,643
----------- -----------
3,864,375 3,669,701
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock - no par value;
Authorized 30,000 shares;
Issued and outstanding 29,450 shares 322,250 322,250
Retained earnings (Note 4) 8,260,823 7,353,298
----------- -----------
8,583,073 7,675,548
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $14,902,863 $15,100,226
=========== ===========
The accompanying notes are an integral part of the
financial statements.
F-10
<PAGE>
Exhibit B
DEPOSIT TELEPHONE COMPANY, INC.
STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
----------- ----------- -----------
OPERATING REVENUES:
Local network service $ 2,608,461 $ 1,683,580 $ 1,480,621
Network access and long distance
network service (Note 1) 3,073,310 4,007,644 3,822,776
Miscellaneous 768,749 819,496 738,151
Less: Provision for uncollectibles (12,000) (17,000) (48,000)
----------- ----------- -----------
Net operating revenues 6,438,520 6,493,720 5,993,548
----------- ----------- -----------
OPERATING EXPENSES:
Plant specific 727,310 939,073 904,371
Plant nonspecific:
Depreciation 947,274 875,163 834,830
Other 454,578 369,289 314,339
Customer operations 749,155 671,422 621,048
Corporate operations 1,174,382 1,015,824 1,157,616
----------- ----------- -----------
Total operating expenses 4,052,699 3,870,771 3,832,204
----------- ----------- -----------
OPERATING TAXES:
Other operating taxes 499,423 518,097 494,722
Federal income taxes (Notes 1 and 5) 493,343 694,888 509,204
----------- ----------- -----------
Total operating taxes 992,766 1,212,985 1,003,926
----------- ----------- -----------
Net operating income 1,393,055 1,409,964 1,157,418
NONOPERATING INCOME AND
(EXPENSE) - NET (Note 8) (84,816) 50,070 (21,749)
----------- ----------- -----------
Income available for fixed charges 1,308,239 1,460,034 1,135,669
----------- ----------- -----------
FIXED CHARGES:
Interest on funded debt 71,647 88,546 102,501
Other interest charges 123,098 128,271 152,691
Amortization 4,236 4,236 4,236
----------- ----------- -----------
Total fixed charges 198,981 221,053 259,428
----------- ----------- -----------
Net Income $ 1,109,258 $ 1,238,981 $ 876,241
=========== =========== ===========
The accompanying notes are an integral part of the
financial statements.
F-11
<PAGE>
<TABLE>
<CAPTION>
Exhibit C
DEPOSIT TELEPHONE COMPANY, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Common Stock
------------------------- Retained
Shares Amount Earnings Total
------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1991 29,450 $ 322,250 $ 5,612,091 $ 5,934,341
Net Earnings, year ended
December 31, 1992 -- -- 876,241 876,241
$6.30 cash dividends during 1992 -- -- (185,535) (185,535)
------- ---------- ----------- -----------
Balance, December 31, 1992 29,450 322,250 6,302,797 6,625,047
Net earnings, year ended
December 31, 1993 -- -- 1,238,981 1,238,981
$6.40 cash dividends during 1993 -- -- (188,480) (188,480)
------- ---------- ----------- -----------
Balance, December 31, 1993 29,450 322,250 7,353,298 7,675,548
Net earnings, year ended
December 31, 1994 -- -- 1,109,258 1,109,258
$6.85 cash dividends during 1994 -- -- (201,733) (201,733)
------- ---------- ----------- -----------
Balance, December 31, 1994 29,450 $ 322,250 $ 8,260,823 $ 8,583,073
======= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F-12
<PAGE>
Exhibit D
DEPOSIT TELEPHONE COMPANY, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
---- ---- ----
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 1,109,258 $ 1,238,981 $ 876,241
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation & amortization 951,510 879,399 839,066
Deferred income tax & investment
tax credit 109,941 259,732 138,796
Loss from partnership 94,875 191,291 329,158
Gain on sale of assets -- (214,307) (173,768)
Change in assets and liabilities:
(Increase) Decrease in accounts receivable (48,547) (179,399) (214,479)
(Increase) Decrease in materials for resale (2,869) (2,572) 16
(Increase) Decrease in prepaid expenses (128,234) (6,725) 21
(Increase) Decrease in refundable inc. tax -- 53,054 37,441
Increase (Decrease) in accounts payable 329,487 42,538 61,961
Increase (Decrease) in advance billings and
customers' deposits (29,148) 24,370 7,261
Increase (Decrease) in accrued expenses 43,423 (53,589) (1,621)
Increase (Decrease) in other liabilities (176,046) 185,800 41,012
-------- ------- -------
Net cash provided by operating activities 2,253,650 2,418,573 1,941,105
--------- --------- ---------
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE>
1994 1993 1992
---- ---- ----
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant and
equipment (759,230) (974,250) (1,222,833)
(Increase) in other investments (93,822) (90,823) --
(Increase) Decrease in materials
and supplies 603 6,485 (68,989)
(Increase) Decrease in temp.
cash investments (62,895) (153,858) --
---------- ---------- ----------
Net cash used in investing activities (915,344) (1,212,446) (1,291,822)
---------- ---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from short-term debt -- 54,000 269,698
Repayment of short-term debt (726,424) (305,424) (454,662)
Repayment of long-term debt (602,000) (122,000) (122,000)
(Decrease) in other long-term liabilities (54,121) (96,695) (106,757)
Dividends (201,733) (188,480) (185,535)
---------- ---------- ----------
Net cash provided by (used in)
financing activities (1,584,278) (658,599) (599,256)
---------- ---------- ----------
Increase (Decrease) in cash
and cash equivalents (245,972) 547,528 50,027
---------- ---------- ----------
Cash and cash equivalents at
beginning of year 1,330,526 782,998 732,971
---------- ---------- ----------
Cash and cash equivalents at
end of year $ 1,084,554 $ 1,330,526 $ 782,998
========== ========== ==========
The accompanying notes are an integral part of the
financial statements.
F-14
<PAGE>
DEPOSIT TELEPHONE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The Company maintains its accounts in accordance with the
Uniform System of Accounts prescribed for telephone companies by the New
York State Public Service Commission (PSC). The accounting policies
conform to generally accepted accounting principles as applied to New
York State public utilities, giving effect to the rate making and
accounting practices and policies of the PSC in accordance with the
Statement of Financial Accounting Standards (SFAS) 71. The rate actions
can provide reasonable assurance of the existence of an asset, reduce or
eliminate the value of an asset and impose or eliminate a liability
previously imposed. The most significant impact from the rate actions is
on depreciation because regulatory recovery periods used for telephone
plant are longer than the useful lives that might otherwise be used. A
summary of significant accounting policies is described in this note.
Reclassifications of prior year data have been made in the
accompanying financial statements where appropriate to conform to the
1994 presentation.
Property, Plant and Equipment
Property, plant and equipment is stated at original cost.
Maintenance and repairs are charged to expense as incurred; expenditures
that extend an asset's life are capitalized. Upon retirement of
telephone plant, the cost is removed from the asset account and the
accumulated depreciation account. Cost of removal of telephone plant,
net of salvage, is charged to the accumulated depreciation reserve.
Depreciation
Depreciation is computed for financial statement purposes using
the straight-line method over the estimated useful lives of the assets.
Total depreciation charged to operations for the years ended December
31, 1994, 1993 and 1992 amounted to $947,274, $875,163 and $834,830,
respectively.
Capitalization of Certain Expenses
The Company has consistently followed the practice of
capitalizing certain costs related to construction, including pension,
payroll, payroll related costs and significant costs of capital incurred
during construction.
Reserve For Uncollectibles
The Company uses the reserve method to record the write-off of
uncollectibles. The reserve balance is determined principally by an
analysis of prior years net write-offs. The balances as of December 31,
1994 and 1993 were $9,454 and $11,955, respectively.
F-15
<PAGE>
DEPOSIT TELEPHONE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Materials and Supplies Inventory
Inventories are stated at the lower of cost or market. Cost is
determined using the moving weighted average method.
Revenue Recognition
Certain revenues of the Company (principally network access and
billing and collection revenues) are subject to a settlement process,
whereby similar revenues from other telephone companies are pooled on a
national and a state wide basis and are then apportioned back to the
companies based upon their cost to provide services.
These computations are very complex and on a routine basis,
these settlements are adjusted for previous quarters and years. When
calculations are changed the companies are notified of a "retroactive"
settlement (plus or minus) which applies to previously reported periods.
Retroactive settlements may have a material effect on current net
income.
It is industry practice to record retroactive settlements in
the year discovered rather than restating previous year's net income.
There are no known material unrecorded retroactive settlements as of the
balance sheet date.
Federal Income Taxes
The Company has adopted Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("SFAS 109") as of
January 1, 1993. Under SFAS 109 deferred income taxes arise from
temporary differences resulting from differences between the financial
statement and tax basis of assets and liabilities. Deferred taxes are
classified as current or non-current, depending on the classification of
the assets and liabilities to which they relate. Deferred taxes arising
from temporary differences that are not related to an asset or liability
are classified as current or non-current depending on the periods in
which the temporary differences are expected to reverse. The Company's
deferred taxes result principally from differences in depreciation
methods for financial reporting and tax reporting.
Investment tax credits have been normalized and are being
amortized to income over the average life of the related telephone plant
and other equipment.
F-16
<PAGE>
DEPOSIT TELEPHONE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
2. LONG-TERM DEBT
Long-term debt consisted of the following as of December 31,
1994 and 1993:
1994 1993
--------- ---------
First mortgage bonds:
8.25% Series D Due 10/1/96 $ -- $ 204,000
9.875% Series E Due 6/1/95 -- 168,000
12.625% Series F Due 4/1/98 320,000 400,000
--------- ---------
320,000 772,000
9% Debentures Due 7/1/94 -- 150,000
--------- ---------
320,000 922,000
Less: Current maturities (80,000) (272,000)
--------- ---------
Total long-term debt $ 240,000 $ 650,000
========= =========
All the telephone plant is held as collateral for these
mortgage notes. Annual sinking fund requirements on the mortgage bonds
are $80,000 and are due to the trustee pursuant to terms of the
mortgage indenture.
Maturities and sinking fund requirements for the five years
subsequent to 1994 for long-term debt outstanding as of December 31,
1994, are as follows:
1995 $80,000 1998 $80,000
1996 80,000 1999 -0-
1997 80,000
3. NOTES PAYABLE AND LINE OF CREDIT
Notes payable and line of credit consisted of the following at
December 31, 1994 and 1993:
1994 1993
---------- ----------
A. Nonrevolving line of credit with a
bank at prime rate (8.5% and 6% at
December 31, 1994
and 1993, respectively) $1,027,482 $1,527,482
B. Demand note payable to the S. Fenton
and Ethel S. Busfield Irrevocable
Trust I, at prime rate
(6% at December 31, 1993) -- 171,000
C. Demand note payable to Northern
Telecom at 4% per annum 55,423 110,847
---------- ----------
$1,082,905 $1,809,329
========== ==========
F-17
<PAGE>
DEPOSIT TELEPHONE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
3. NOTES PAYABLE AND LINE OF CREDIT (Continued)
The Company has entered into a nonrevolving line of credit of
$2,000,000 with the National Bank and Trust Company of Norwich.
Interest is payable monthly at prime. The Bank may demand payment in
full, provided it gives the company a 360 day notice. The line of
credit is collateralized by first assignment of the Company's accounts
receivable, inventory and equipment. As of December 31, 1994, the
borrowings against the line of credit were $1,027,482 at an interest
rate of 8.5%.
The note payable to Northern Telecom is a demand note
requiring 180 day notice. Interest accrues at an annual rate of 4%.
4. RETAINED EARNINGS
Retained earnings are restricted as to payment of dividends on
common stock in accordance with the terms of the Fourth Supplemental
Indenture of Mortgage dated April 1, 1983. Retained earnings available
for common stock dividends amounted to $6,748,678 at December 31, 1994.
5. FEDERAL INCOME TAXES
The provision for federal income taxes and a reconciliation
between this provision and federal income taxes computed by applying
the statutory tax rate to pre-tax income for the years ended December
31, 1994, 1993 and 1992 are as follows:
1994 1993 1992
--------- --------- ---------
Currently payable $ 473,107 $ 493,850 $ 378,450
Deferred - net of reversals:
Depreciation-excess of tax over book (56,585) 54,753 114,680
Investment tax credit (29,062) (29,695) (30,781)
Cost of removal 2,594 (6,390) 10,894
Deferral of tax savings due to TRA-86 77,528 182,370 35,961
Pension SFAS 87/SFAS 71 25,761 -- --
--------- --------- ---------
Total Operating FIT Expense 493,343 694,888 509,204
Plus: Nonoperating FIT Expense 84,220 21,751 (102,524)
--------- --------- ---------
TOTAL FEDERAL INCOME TAX EXPENSE $ 577,563 $ 716,639 $ 406,680
========= ========= =========
Amortization of investment tax credits 29,062 29,695 30,781
Deferral of tax savings from TRA-86 (77,528) (182,370) (35,961)
Reversal of deferred taxes 37,108 45,797 33,871
Other differences, net 7,314 55,150 822
--------- --------- ---------
FEDERAL INCOME TAX AT STATUTORY
RATE $ 573,519 $ 664,911 $ 436,193
========= ========= =========
F-18
<PAGE>
DEPOSIT TELEPHONE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
5. FEDERAL INCOME TAXES (Continued)
The following components comprise the net deferred tax
liability reported as of December 31, 1994 and 1993:
1994 1993
---------- ----------
Deferred tax liabilities $1,481,447 $1,278,925
Deferred tax assets 91,083 106,055
---------- ----------
Net deferred tax liability $1,390,364 $1,172,870
========== ==========
The deferred tax liability consists principally of temporary
differences due to differences in depreciation methods for financial
reporting and tax reporting. The deferred tax assets consist of
unamortized investment tax credits being deemed a temporary difference
in the basis of the related assets.
The adoption of SFAS 109, Accounting for Income Taxes, has
required certain reclassifications of deferred tax balances and the
establishment of regulatory assets and liabilities. This is due to the
ratemaking treatment of deferred taxes and unamortized investment tax
credits, whereby future reversals can be expected to be recovered or
returned to customers through future rates. Any existing excess
deferrals, generated from a change in tax rates, which will be passed
on to customers of the Company's regulated operations in the future,
have been reclassed as regulatory liabilities. The balance of
unamortized investment tax credits is a temporary difference and a
deferred tax asset has been established for this. The offsetting
regulatory liability associated with this reflects the future amounts
due to customers as reversals of these balances occur. These regulatory
liabilities are included in other deferred credits and amounted to
$190,367 as of December 31, 1994. As reversals of the deferred tax
balances occur in the future, these regulatory liabilities will also
decrease.
6. PENSION PLAN
Defined Benefit Plan
The Company has a defined benefit pension plan covering all
employees who are at least 20.5 years of age and have completed six
months of service. Benefits are based on years of service and the
average of the employee's five highest consecutive years' compensation.
The Company's policy is to fully fund the actuarial cost of the plan to
the extent deductible. Contributions to the plan for both 1994, 1993
and 1992 were $117,112, $145,550 and $-0-, respectively.
F-19
<PAGE>
DEPOSIT TELEPHONE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
6. PENSION PLAN (Continued)
The following table sets forth the plan's funded status and
amounts recognized in the Company's statement of financial position at
December 31, 1994:
1994 1993
----------- -----------
Actuarial present value of benefit obligations:
Accumulated benefit obligation:
vested benefit $ 654,490 $ 1,355,683
non-vested benefit 2,542 3,443
----------- -----------
$ 657,032 $ 1,359,126
=========== ===========
Projected benefit obligation for service
rendered to date $ 851,160 $ 1,436,831
Plan assets at fair value 882,746 1,528,873
----------- -----------
Plan assets in excess of projected
benefit obligation 31,586 92,042
Unrecognized net loss from past experience
different from that assumed and effect of
changes in assumptions 238,966 136,240
Prior service cost not yet recognized in net
periodic pension cost -- --
Unrecognized net excess of assets over obligation at
January 1, 1993 being recognized over 15
years- net of amortization (139,288) (150,002)
----------- -----------
Prepaid pension $ 131,264 $ 78,280
=========== ===========
Net pension cost includes the following components:
Service cost-benefits earned during the period $ 37,719 $ 32,061
Interest cost on projected benefit obligation 100,438 83,140
Actual return on plan assets (12,804) (93,973)
Net amortization and deferral (108,191) (14,532)
----------- -----------
Net periodic pension cost per SFAS 87 17,162 6,696
Pension costs capitalized (824) (790)
----------- -----------
PSC adjusted SFAS 87 pension expense 16,338 5,906
Pension expense allowed in last rate
proceeding (38,870) (38,870)
----------- -----------
Recognition of regulatory liability
per PSC order $ (22,532) $ (32,964)
=========== ===========
Regulatory liabilities of $22,532 and $32,964 have been recorded
to reflect the difference between the PSC adjusted SFAS 87 pension
expense and the pension expense allowed in the Company's last rate case
for the years 1994 and 1993, respectively. The regulatory liability's
disposition will be determined by the PSC.
A discount rate of 7.0% and a 5.0% rate of increase in future
compensation levels were used in determining the actuarial present
value of the projected benefit obligations for 1994. The expected
long-term rate of return on assets was 7.0%.
F-20
<PAGE>
DEPOSIT TELEPHONE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
7. INVESTMENTS
Investments consisted of the following at December 31, 1994 and
1993:
1994 1993
-------- --------
NYNET $ 5,000 $ --
Securities available for sale 195,738 195,738
Investment in cellular partnership 653,537 659,590
Other investments 1,320 1,320
-------- --------
$855,595 $856,648
======== ========
These investments are stated at cost, which approximates market
value, except for the cellular partnership which is recorded using the
equity method. There were no realized or unrealized gains or losses
recorded in 1994 for the securities available for sale.
The investment in the cellular partnership represents a 15%
interest in a MSA cellular telephone business. During 1994, 1993 and
1992, this investment was written down $94,875, $191,291 and $329,158,
respectively, to reflect the Company's share of losses from this
activity. These amounts are included in nonoperating income and
expenses.
The Company's investment in the partnership is being financed by
another partner in exchange for a portion of the Company's partnership
interest. Per this agreement, debt is to be repaid by Deposit Telephone
Company Inc.'s share of profits from the partnership or directly by the
Company if this business venture does not succeed. As of December 31,
1994 and 1993, there is $119,656 and $65,535 of this debt in other
current liabilities and $1,170,922 and $1,225,043 classified as other
long-term liabilities, respectively. The current portion reflects the
income tax benefit of the loss for the year, which must be paid
currently to the other partner per the terms of the agreement.
8. NONOPERATING INCOME AND (EXPENSES)
Nonoperating income and expenses consisted of the following for
the years ended December 31, 1994, 1993 and 1992:
1994 1993 1992
--------- --------- ---------
Interest and dividend income $ 67,870 $ 47,110 $ 31,558
Loss on investments (94,875) (191,291) (329,158)
Nonoperating federal income taxes (84,220) (21,751) 102,524
Sale of assets 26,409 216,002 173,327
--------- --------- ---------
$ (84,816) $ 50,070 $ (21,749)
========= ========= =========
F-21
<PAGE>
DEPOSIT TELEPHONE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
9. CASH FLOW STATEMENT
Cash consists principally of demand deposits which are insured by
the Federal Deposit Insurance Corporation (F.D.I.C.) up to $100,000 and
cash equivalents of daily repurchase U.S. Treasury notes. The following
is a list of interest and federal income tax payments for the years
ending December 31, 1994, 1993 and 1992:
1994 1993 1992
-------- -------- --------
Interest $202,860 $223,286 $258,285
Federal Income Taxes $713,076 $161,000 $230,000
Noncash investing and financing transactions consisted of the
acquisition of Rochester Telephone Corporation common stock in exchange
for the stock of New York Independent Cellular Systems, Inc. during
1993. The acquired stock was recorded at a value of $195,738. In
addition, as described in Note 7, the Company's investment in a
partnership is being financed by another partner. The following
summarizes the noncash investing and financing activities of the
Company as it related to this partnership:
1994 1993 1992
---- -------- --------
Noncash investing activities:
Increase in investments $ -0- $371,961 $ 63,872
Noncash financing activities:
Increase in other long term liablties $ -0- $371,961 $ 63,872
10. RELATED PARTY TRANSACTIONS
The Company has unsecured notes payable to related parties,
having an aggregate amount of $ -0- and $171,000 at December 31, 1994
and 1993, respectively. These related party notes are described fully
in Footnote 3 and interest paid on the notes for the years ended
December 31, 1994 and 1993 was $7,984 and $14,745, respectively.
The Company has employment contracts with its President and Vice
President of Operations, both shareholders, with terms through December
1998 and October 1996, respectively. The contracts provide for, among
other things, one (1) year renewals and severance and compensation for
termination within 24 months of a "change of control" of the Company as
defined.
A Board member is also on the Board of Directors of the National
Bank and Trust Company of Norwich which is the principal bank utilized
by Deposit Telephone Company for both borrowing and for cash on deposit
as explained in Notes 3 and 9.
F-22
<PAGE>
DEPOSIT TELEPHONE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
11. SALE OF COMPANY
In September 1993, the Board of Directors approved a resolution
for management to explore the possibilities of the sale and/or merger
of Deposit Telephone Company. Management has entered into a letter of
intent with a potential buyer. A sales contract is expected to be
executed in the near future and final closing will occur after PSC
approval is obtained.
12. SALE OF CELLULAR INTEREST PENDING REGULATORY APPROVALS
During March 1994, the Company entered into an agreement with
Rochester Telephone Mobile Communications, Inc. to sell Deposit
Telephone Company's interest in applications to construct and/or
operate a wireline cellular telephone system in New York RSA 4. The
agreement provides for consideration of $3,067,200 and is contingent
upon certain other third party transactions and Federal Communications
Commission (FCC) and New York State Public Service Commission (PSC)
approvals. Approval is being delayed due to a dispute at the FCC. The
dispute, regardless of outcome, is not expected to materially affect
Deposit's cellular sale.
F-23
<PAGE>
ANNEX A
<PAGE>
ACQUISITION AGREEMENT AND PLAN OF MERGER
THIS ACQUISITION AGREEMENT AND PLAN OF MERGER is made as of
March 30, 1995, by and among DEPOSIT TELEPHONE COMPANY, INC. ("DTC"), a
telephone corporation organized and existing under the Transportation
Corporations Law of the State of New York, each shareholder of DTC who owns more
than 1,000 shares of DTC common stock, designated on Schedule 1 hereto (each a
"Major Shareholder" and collectively, the "Major Shareholders"), DTC ACQUISITION
CORP. ("Subsidiary"), a corporation organized and existing under the General
Corporation Law of the State of Delaware and TELEPHONE AND DATA SYSTEMS, INC.
("Parent"), an Iowa corporation which is the sole shareholder of Subsidiary.
RECITALS
A. The Boards of Directors of DTC, Subsidiary, and Parent deem
the merger of Subsidiary into DTC on the terms set forth in this instrument to
be desirable and in the best interests of their respective shareholders, and
have approved this Acquisition Agreement and Plan of Merger (the "Agreement").
B. The Boards of Directors of DTC and Subsidiary have directed
that the Agreement and the merger described in this Agreement (the "Merger") be
submitted to their respective shareholders for their approval. Parent, as the
sole shareholder of Subsidiary, has approved the Merger as required by law.
C. Upon the consummation and effectiveness of the Merger, all
of the issued and outstanding shares of DTC common stock shall be converted into
and exchangeable for Common Shares of Parent as provided in Article III of this
Agreement. DTC currently has 29,450 shares outstanding.
D. DTC, Subsidiary, and Parent desire to accomplish the Merger
of Subsidiary into DTC as a tax-free reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended, and that the
exchange of DTC common stock for Common Shares of Parent not give rise to gain
or loss to the shareholders of DTC.
E. The Merger is conditioned upon:
A-1
<PAGE>
(a) approval of the Plan of Merger by the
shareholders of DTC and Subsidiary as required by law;
(b) obtaining all required regulatory approvals as
set forth in Article II of this Agreement; and
(c) the satisfaction of certain other conditions
precedent as set forth in Articles IX and X of this Agreement.
AGREEMENT
NOW, THEREFORE, in accordance with the applicable provisions
of the Transportation Corporations Law and the Business Corporation Law of the
State of New York, the Business Corporation Act of the State of Iowa, and the
General Corporation Law of the State of Delaware, and in consideration of the
mutual representations, warranties, and covenants contained in this Agreement,
DTC, Subsidiary, and Parent agree that Subsidiary shall be merged into DTC,
which shall be the surviving corporation, and that the plan, terms, and
conditions of the Merger shall be as follows:
ARTICLE I. MERGER
Section 1.01. Merger of Subsidiary into DTC. Subsidiary
shall be merged with and into DTC on the Effective Date of the Merger as defined
in Article IV of this Agreement and the separate corporate existence of
Subsidiary shall thereupon cease. DTC shall be the surviving corporation and its
separate corporate existence with all of its purposes, objects, rights and
privileges, powers and franchises shall continue unaffected and unimpaired by
the Merger.
Section 1.02. Effect of Merger. On the Effective Date of the
Merger, all assets of every description and all of the estates, properties,
rights, privileges, powers and franchises of each of DTC and Subsidiary, and all
of their property (real, personal and mixed, including shares of all
subsidiaries) and choses in action shall be vested in DTC by virtue of the
Merger, without further act or deed, and DTC shall hold and enjoy all such
estates, properties, rights, privileges, powers and franchises to the same
extent as they were held or enjoyed by DTC and Subsidiary prior to the Effective
Date. At the Effective Date, DTC shall be
A-2
<PAGE>
liable for all of the debts, accounts, and liabilities of each of DTC and
Subsidiary and shall be subject to all of the obligations and contracts of each
of DTC and Subsidiary.
Section 1.03. Certificate of Incorporation and By-Laws. The
Certificate of Incorporation of DTC as it exists immediately prior to the
Effective Date shall be the Certificate of Incorporation of DTC on and after the
Effective Date. The By-Laws of Subsidiary as they exist immediately prior to the
Effective Date shall be the By-Laws of DTC on and after the Effective Date.
Section 1.04. Directors and Officers. The directors of DTC
in office immediately prior to the Effective Date shall remain the directors of
DTC on and after the Effective Date until their successors shall have been duly
elected and qualified. The officers of DTC in office immediately prior to the
Effective Date shall remain the officers of DTC on and after the Effective Date
until their successors shall have been duly elected and qualified.
Section 1.05. Conversion of DTC Shares. As further provided
in Article III, each share of DTC common stock ("DTC Shares") issued and
outstanding as of the Effective Date of the Merger shall be converted into
voting common stock of Parent ("Parent Common Shares").
Section 1.06. Shareholders' Approval.
(a) Subsidiary. Prior to the execution of this Agreement,
the Plan of Merger set forth in this Agreement, has been submitted by the
directors of Subsidiary to Parent, as the sole shareholder of Subsidiary, and
Parent has approved and adopted the Plan of Merger pursuant to the Delaware
General Corporation Law.
(b) DTC. The Plan of Merger set forth in this Agreement has
been approved and adopted by the Board of Directors of DTC and it shall be
submitted by the Directors of DTC, to the shareholders of DTC (the "DTC
Shareholders"), pursuant to the proxy statement - prospectus referenced in
Section 2.03 hereof, for their authorization and approval as required under
Section 903 of the New York Business Corporation Law at a meeting to be called
and held as soon as practicable. The Plan of Merger shall be authorized and
approved by the vote of the holders of at least two-thirds of all outstanding
DTC Shares entitled to vote thereon. Any DTC Shareholder who objects to the
Merger and who complies with the
A-3
<PAGE>
provisions of Sections 623 and 910 of the New York Business Corporation Law
shall be entitled to receive payment for his or her shares as provided in these
sections with such payment to be made by Subsidiary.
ARTICLE II. REGULATORY APPROVALS
Section 2.01. Hart-Scott-Rodino. DTC, Parent, and Subsidiary
shall cooperate in complying with the requirements of the Antitrust Improvements
Act of 1976 (the "HSR Act") and all regulations thereunder. DTC and Subsidiary
shall each promptly file within 60 days of the date hereof with the Federal
Trade Commission and the Antitrust Division of the United States Department of
Justice the notifications and reports required under the HSR Act and shall
undertake in good faith to file any supplemental information which may be
requested in connection therewith. These notifications and reports shall comply
in all material respects with the requirements of the HSR Act. DTC, on the one
hand, and Subsidiary and Parent, on the other hand, shall each furnish to the
other such information as either may reasonably request to make such filings.
Section 2.02. Public Service Commission. All parties shall
proceed promptly to petition within 60 days of the date hereof for approval of
the Merger and all transactions contemplated by this Agreement by the New York
State Public Service Commission (the "PSC") and the Pennsylvania Public
Utilities Commission, and shall cooperate and use their best efforts in good
faith to obtain all required approvals as promptly as possible.
Section 2.03. Securities and Exchange Commission. DTC,
Parent and Subsidiary shall cooperate in complying with all applicable state and
federal securities laws and regulations, including the preparation and filing
with the Securities and Exchange Commission ("SEC") of a proxy statement -
prospectus meeting all applicable securities law requirements, including those
related to a Registration Statement on Form S-4. Parent and Subsidiary shall
take the lead responsibility for the preparation of the proxy statement -
prospectus and DTC shall cooperate with Parent and Subsidiary in such
preparation and filing and in taking such other lawful actions as may be
necessary or advisable to obtain an effective order from the SEC with respect
thereto. Nothing herein shall be construed as relieving DTC of any
responsibility with respect to the
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proxy statement - prospectus or creating any attorney - client or agent -
principal relationship between Parent or Subsidiary and DTC.
ARTICLE III. CONVERSION OF SHARES
Section 3.01. Conversion of Shares. The manner of converting
the shares of DTC and Subsidiary, shall be as follows:
(a) Each common share of Subsidiary ("Subsidiary Common
Shares") issued and outstanding on the Effective Date of the Merger shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into and become one common share of DTC. Such converted Subsidiary
Common Shares shall then constitute all of the issued and outstanding shares of
capital stock of DTC.
(b) There are 29,450 DTC Shares issued and outstanding. All
outstanding DTC Shares on the Effective Date of the Merger shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into Parent Common Shares and the aggregate number of Parent Common
Shares to be issued to the DTC Shareholders shall be 648,400, allocated among
the individual DTC Shareholders as set forth on Schedule 3.01(b) hereto. All of
the DTC Common Shares held in treasury immediately prior to the Effective Date,
if any, shall thereupon be canceled.
Section 3.02. Parent Common Shares. The Parent Common Shares
to be delivered to the DTC Shareholders as provided in Article III of this
Agreement shall be duly and validly authorized, issued, and fully paid and
nonassessable, and shall be registered with the SEC under the Securities Act of
1933, as amended, and approved for listing on the American Stock Exchange. Such
shares shall also be free and clear of all liens, claims, and encumbrances of
any kind. The Parent Common Shares to be delivered to the DTC Shareholders shall
not constitute "restricted stock" and shall be registered under all applicable
federal and state securities laws so as to be freely tradeable by the holders
thereof.
Section 3.03. Exchange of Stock Certificates. On the
Effective Date, the certificates representing the converted DTC Shares shall be
surrendered and exchanged for certificates representing the Parent Common
Shares. Dividends payable after the Effective Date to holders of record in
respect of Parent
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Common Shares into which DTC Shares shall have been converted shall not be paid
to holders of certificates representing converted DTC Shares until such
certificates are surrendered for exchange as aforesaid.
Section 3.04. Fractional Shares. Each DTC Shareholder who
would otherwise receive a fractional Parent Common Share shall receive in lieu
thereof an amount of cash determined by multiplying (i) such fraction by (ii)
the average closing price of Parent Common Shares as reported in the American
Stock Exchange Composite Transactions section of The Wall Street Journal for the
five trading days ending on the third trading day immediately preceding the
Closing Date.
Section 3.05. Lost or Destroyed Share Certificates. With
respect to any certificate for DTC Shares which shall have been lost or
destroyed, Parent shall issue to the registered owner of such certificate, upon
receipt of satisfactory evidence of ownership and of appropriate
indemnification, the amount of Parent Common Shares into which the DTC Shares
represented by the lost or destroyed certificate would have been converted.
Section 3.06. Adjustment of Shares. If between the date of
this Agreement and the Effective Date of the Merger the outstanding shares of
Parent shall be changed into a different number of shares or a different class
of shares by reason of any reclassification, recapitalization, split,
combination or stock dividend, the number of shares to be issued in exchange for
the DTC Shares upon the Merger shall be appropriately adjusted.
ARTICLE IV. CLOSING; EFFECTIVE DATE OF MERGER
Section 4.01. Closing.
(a) As soon as practical and in any event within thirty days
after all regulatory approvals required under Article II and Sections 9.01(c)
and 10.01(c) have been obtained and have become final and non-appealable, the
parties shall execute and deliver all of the certificates, opinions, and other
documents required by this Agreement to be executed and delivered among them,
and shall perform all acts necessary or appropriate in order to consummate the
transactions described in this Agreement, such execution, delivery, and
performance to constitute the "Closing."
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(b) The Closing shall take place at the offices of Bond,
Schoeneck & King, LLP, One Lincoln Center, Syracuse, New York at 10:00 a.m. on a
date (the "Closing Date") mutually agreeable to the parties within the thirty
day period following confirmation of the receipt of the required regulatory
approvals.
(c) Failure to close the transactions contemplated by this
Agreement within the thirty day period specified in subsection (a) shall not in
and of itself cause a termination of this Agreement. Termination is governed by
Article XI hereof and so long as this Agreement is not terminated as provided in
Article XI, the parties shall continue their efforts to cause the Closing to
occur as soon as practicable.
Section 4.02. Effective Date. Prior to the Closing, the
parties shall execute appropriate Certificates of Merger for filing with the
Secretaries of State of New York and Delaware. The Certificate of Merger shall
then be delivered to CT Corporation System, or such similar filing service as
may be agreed to by the parties, to be held in escrow until completion of the
Closing as set forth in Section 4.01. Upon receipt of confirmation from the
parties that the Closing has been satisfactorily completed, the filing service
company shall cause the filing of the Certificate of Merger with the New York
Department of State and the Delaware Secretary of State as required by law. The
Merger shall become effective upon these filings and the date of such filings
with both the New York Department of State and the Delaware Secretary of State
is hereafter referred to in this Agreement as the "Effective Date of the
Merger."
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF DTC
AND MAJOR SHAREHOLDERS
DTC and each Major Shareholder hereby make the following
representations and warranties to Parent and Subsidiary. Each Major Shareholder
makes such representations and warranties jointly and severally as they relate
to DTC and severally but not jointly as they relate to such Major Shareholder.
Except as otherwise provided in Section 9.01(b), these representations and
warranties shall be true in all material respects at and as of the date of this
Agreement and as of the Closing Date as though each such representation and
warranty were made and delivered at and as of such date, and the consummation of
the Closing by DTC and the Major Shareholders shall constitute a certification
by DTC and the Major Shareholders to such effect.
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Section 5.01. Organization, Good Standing, and
Capitalization.
DTC is a telephone corporation duly organized, validly
existing and in good standing under the laws of the State of New York. DTC is
duly qualified to conduct business and in good standing under the laws of the
Commonwealth of Pennsylvania. There are no other states or jurisdictions in
which DTC is legally required to qualify to do business. The authorized capital
stock of DTC consists of 30,000 shares of one class of common stock, without par
value (defined above as DTC Shares), of which 29,450 DTC Shares are issued and
outstanding, and 3,000 shares of series preferred stock, $100 par value, of
which no shares are issued and outstanding. No shares of capital stock are held
in treasury. All of the outstanding DTC Shares are duly authorized, validly
issued, fully paid and nonassessable, and there are no other equity securities
of any class of DTC issued or outstanding. There are no outstanding options,
warrants, agreements, or rights to subscribe for or to purchase, or commitments
to issue, any equity securities of DTC.
Section 5.02. Subsidiaries. Except as described in Schedule
5.02 of this Agreement, DTC has no subsidiary corporation and it does not have
ownership interests in any other firm, corporation, partnership, joint venture
or other entity.
Section 5.03. Power and Authority for Business. DTC has all
requisite power and authority to own, lease and operate its properties and to
conduct its business as it has been and is now conducted. Schedule 5.03 lists
all governmental authorizations and permits held by DTC. All such authorizations
are valid and in force.
Section 5.04. Power and Authority for Agreement. DTC has all
requisite corporate power and authority, and such Major Shareholder has all
requisite capacity, power and authority, to enter into this Agreement and all
agreements, documents and instruments to be executed and delivered by DTC or
such Major Shareholder hereunder and in connection herewith, and to perform its
obligations hereunder. This Agreement constitutes the legal, valid, binding and
enforceable obligation of DTC and such Major Shareholder, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting creditors' rights generally and by general principles
of equity. The execution and delivery of this Agreement by DTC and the
consummation of the transactions described herein have been duly
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authorized by the Board of Directors of DTC, and will be duly approved by the
requisite vote of the DTC Shareholders prior to the Closing.
Section 5.05. No Violation to Result. Assuming all requisite
consents and approvals referenced in Article II of this Agreement are obtained
prior to the Closing, the execution and delivery of this Agreement by DTC and
such Major Shareholder, and the performance of their respective obligations
hereunder will not: (A) conflict with or violate DTC's Certificate of
Incorporation or By-Laws; (B) constitute a default under any note, debt
instrument, security agreement, mortgage or any other contract, license, permit
or other authorization to which DTC or such Major Shareholder is a party or by
which any of DTC's properties or assets or the DTC Shares are bound; (C) be an
event which will result in violation of any law, statute, ordinance, judgment,
decree, order, rule or regulation of any governmental authority or court or
arbitrator applicable to DTC or such Major Shareholder or to any of DTC's
properties or assets or to the DTC Shares; (D) result in the creation or
imposition of any liens, charges, encumbrances, claims, restrictions or equities
in favor of any third person upon any of the properties or assets of DTC or upon
the DTC Shares; and (E) will not constitute an act of bankruptcy, preference,
insolvency or fraudulent conveyance under any bankruptcy act or other law for
the protection of debtors or creditors.
Section 5.06. No Existing Defaults. DTC is not in default in
the payment of any of its monetary obligations or debts nor is DTC in default in
the performance or observance of any obligations under any promissory notes,
indentures, agreements or other contractual obligations to which DTC is a party
or by which DTC or any of its properties or assets is bound.
Section 5.07. Financial Statements. The balance sheet of DTC
as of December 31, 1993 (the "1993 Balance Sheet") and the related statements of
income, retained earnings, and cash flows for the year then ended, together with
the accompanying notes, all as certified by Bush & Germain, P.C., independent
certified public accountants, copies of which have been furnished to Parent and
Subsidiary, and the unaudited interim balance sheet of DTC as of December 31,
1994 (the "Interim Balance Sheet") and the related profit and loss statement for
that period, copies of which have been furnished to Parent and Subsidiary,
present fairly in all material respects the financial position, results of
operations, and changes in financial position of DTC as of the respective dates
and for the periods indicated therein and have been prepared in accordance with
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generally accepted accounting principles applied on a consistent basis. Since
December 31, 1991, except as otherwise disclosed to Parent and Subsidiary in
writing, DTC has not made any material change in its method of accounting for
financial reporting purposes, except as required to conform to generally
accepted accounting principles. As of the dates of the 1993 Balance Sheet and
the Interim Balance Sheet, DTC has no liabilities or obligations which are
material in the aggregate (whether fixed, absolute, contingent, known, unknown,
direct, indirect or otherwise) that are not reflected on the 1993 Balance Sheet
or the Interim Balance Sheet. Notwithstanding the foregoing, it is understood
that the Interim Balance Sheet is subject to normal year-end adjustments on
audit.
Section 5.08. Absence of Change. Except as set forth in the
attached Schedule 5.08, since December 31, 1993 (the "Balance Sheet Date"),
there has not been any material change in the financial condition, assets,
liabilities, business or operations of DTC which has been materially adverse
either individually or in the aggregate. Further, since the Balance Sheet Date,
except as set forth in the attached Schedule 5.08, DTC has conducted its
business in the ordinary course and has not:
(i) incurred any obligation or liability except current
liabilities for business obligations incurred in the ordinary course of
business and consistent with its prior practice;
(ii) declared or paid any dividends or other distributions to the
DTC Shareholders or upon or in respect of any shares of its capital
stock, or purchased, retired or redeemed, or obligated itself to
purchase, retire or redeem, any of its shares of capital stock or other
securities;
(iii) mortgaged, pledged or subjected to lien, security interest or
other encumbrance, any of its property, business or assets;
(iv) sold, transferred, leased or otherwise disposed of any of its
assets except in the ordinary course of business, or canceled, waived
or released any right of substantial value;
(v) received any notice of termination of any contract, lease or
other agreement or suffered any damage, destruction or loss (whether or
not covered by insurance) which, in any case or in the aggregate, has
had a materially adverse effect on the assets, operations or prospects
of DTC;
(vi) encountered any labor union organizing activity, had any
actual or threatened employee strikes, work stoppages, slow-downs or
lock-outs or, except for normal customer churn, had any material
adverse change in its relations with its employees, agents, customers
or suppliers; or
(vii) entered into any activity or transaction or experienced any
occurrence or circumstance that at the present time could reasonably be
expected to cause the regulatory authorities referenced in Article II
hereof to decline to approve the Merger.
Section 5.09. Public Service Commission Report. DTC has
furnished Subsidiary with a copy of its Annual Report to the New York State
Public Service Commission for the year ended December 31,
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1993 (the "PSC Annual Report"). Except as set forth in Schedule 5.09, the PSC
Annual Report was true and correct in all material respects as of December 31,
1993.
Section 5.10. Accounts Receivable. The accounts receivable
reflected in the 1993 Balance Sheet and the Interim Balance Sheet arose from
bona fide transactions and in the ordinary course of business of DTC. All
accounts receivable were properly booked in accordance with generally accepted
accounting principles, and reserves for uncollectibles were established pursuant
to the reserve method as indicated in footnote 1 to the 1993 Balance Sheet. The
foregoing notwithstanding, DTC makes no warranty as to the collectibility of its
accounts receivable or as to the adequacy of any reserves for uncollectibles.
Section 5.11. Cellular Interests.
(a) DTC has a fifteen percent (15%) limited partnership
interest in Binghamton MSA Limited Partnership, a New York limited partnership
which is licensed to provide cellular services to the Binghamton, New York
Metropolitan Statistical Area. The General Partner of this partnership is Contel
Cellular of New York, Inc., an affiliate of Contel Corporation; however, a
transfer of the entire interest of the general partner to NYNEX Corporation is
in process.
(b) DTC is also a limited partner in Catskills RSA Limited
Partnership, a New York limited partnership licensed to provide cellular service
in the rural service area designated by the FCC as New York RSA No. 5 (Market
Number 563). The General Partner of this partnership is New York Cellular
Geographic Service Area, Inc., an affiliate of NYNEX Corporation. DTC has a
one-ninth (11.11%) interest as limited partner in this partnership.
(c) DTC has executed a Settlement And Release Agreement
dated as of March 21, 1994, with Rochester Telephone Mobile Communications and
other parties interested in the FCC applications to construct and operate a
wireless cellular telephone system in New York Rural Service Area No. 4 - Yates,
and DTC has executed an Agreement For Sale Of Interest effective March 21, 1994,
with Rochester Telephone Mobile Communications for the sale of DTC's ten and
eight tenths percent (10.8%) interest in the aforementioned applications, at a
purchase price of $3,067,200 payable in cash at the closing of the sale. A
motion for approval of the proposed settlement is pending before the Federal
Communications Commission.
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Section 5.12. Telephone Plant and Service Equipment. A
summary of DTC's telephone plant and service equipment as of December 31, 1993
is attached as Schedule 5.12. (DTC agrees to amend Schedule 5.12 to substitute
the December 31, 1994 summary of its telephone plant and service equipment when
this summary is available.) Such plant and equipment has been maintained in good
operating condition and state of repair, is free from any material hidden defect
known to DTC and to the best of their knowledge, meets the technical
requirements of applicable federal and state regulatory authorities. All of
DTC's buildings and improvements are in a state of good repair and maintenance,
and free from any material hidden defect known to DTC.
Section 5.13. Real Property. Schedule 5.13 contains a list
of all real property owned by DTC (the "Real Property") and any real property
leased by DTC. DTC has good and marketable title to the Real Property and the
Real Property is not subject to any written or oral leases or tenancies of any
kind. The Real Property is free and clear of all mortgages, liens, charges, and
encumbrances, whether absolute, contingent or otherwise, except (a) as otherwise
set forth on Schedule 5.13 hereto, (b) liens for real estate taxes, assessments,
and governmental charges and liens not yet due and payable, (c) liens imposed by
law, such as materialmen's, mechanics', carriers', vendors', warehousemen's, and
similar liens arising in the ordinary course of business in respect of
obligations that are not yet due and payable and that do not, individually or in
the aggregate, materially detract from the value of the Real Property, and (d)
restrictions, covenants, interests, easements and liens of record which do not,
individually or in the aggregate, materially diminish the value or usefulness of
such Real Property.
Section 5.14. Patents and Trademarks. DTC owns, or has
licenses to use, all copyrights, trademarks, service marks, service names, trade
names, patents, trade secrets and other proprietary rights necessary to conduct
its business as it is presently operated. To the best of its knowledge, DTC is
not infringing upon or otherwise acting adversely to any copyrights, trademarks,
service marks, service names, trade names, patents, licenses, trade secrets or
other proprietary rights owned by any third party. DTC has not received any
notice alleging that it has infringed any patent, trademark or other proprietary
right of any third party and has no reason to believe that any such infringement
or misappropriation has occurred.
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Section 5.15. Taxes. DTC has prepared and filed all federal,
state and local tax returns and reports required to be filed by it, and has paid
or accrued in full all taxes due to, or claimed to be due by, any governmental
authority. The 1993 Balance Sheet includes provisions for all taxes for the
periods indicated thereon. DTC has not executed or filed with any governmental
authority any agreement extending the period for assessment or collection of any
taxes. DTC is not a party to any pending action or proceeding, nor to the
knowledge of DTC or such Major Shareholder is any such action or proceeding
threatened, by any government authority for the assessment or collection of
taxes, and no claim for assessment or collection of taxes has been asserted
against DTC.
Section 5.16. Brokers. Neither the DTC Shareholders, DTC nor
any party acting on their behalf has engaged any broker, finder or agent with
respect to this Agreement or any transaction described herein.
Section 5.17. Material Contracts. Schedule 5.17 lists every
contract, agreement, lease, or commitment, including all amendments thereto, to
which DTC is a party (collectively, the "Contracts") except for: (a) customer
service contracts; (b) purchase and sales orders and commitments made in the
ordinary course of business and not involving payments by DTC of more than
$10,000 in any single instance; (c) other contracts and commitments entered into
in the ordinary course of business and not involving expenditures by DTC of more
than $5,000 in any single instance or $25,000 in the aggregate; or (d)
contracts, agreements, leases and commitments which are subject to cancellation
by DTC without penalty and on thirty days or less notice. Each of the Contracts
listed in such Schedule 5.17 is in full force and effect and is a legal, valid,
binding and enforceable obligation by or against DTC. No event has occurred
which constitutes or, with the giving of notice or passage of time or both,
would constitute, a material default under any such Contract, except as
disclosed in Schedule 5.17.
Section 5.18. Litigation. Schedule 5.18 lists every
litigation, suit, proceeding, action, claim or investigation, pending or, to the
best of DTC's or such Major Shareholder's knowledge, threatened against DTC or
involving any of DTC's rights or property or the DTC Shares.
Section 5.19. Compliance with Laws. Except as may be
otherwise set forth in the August 19, 1994 Phase I Environmental Liability
Assessment of DTC's properties prepared by O'Brien & Gere
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Engineers, Inc. (the "Environmental Audit") to the best knowledge of DTC or such
Major Shareholder, DTC is in compliance in all material respects with all laws,
regulations, rules, orders, judgments, decrees and other governmental
requirements applicable to DTC, its properties or the operation of its business.
DTC has received no notice that DTC is not in noncompliance with any
governmental law, ordinance or regulation.
Section 5.20. Environmental Matters.
(a) DTC and each Major Shareholder makes the following
representations concerning environmental matters:
(i) except as may be set forth in the Environmental
Audit, to the best of its knowledge, DTC is and has at all times been
in compliance with all applicable federal, state and local laws,
regulations, ordinances, and rules (including, but not limited to,
permit requirements) relating to the protection of health or the
environment in connection with the ownership, operation and condition
of its properties and business;
(ii) to the best of its knowledge, except as set forth
in Schedule 5.20, there are no Contaminants (as that term is hereafter
defined in subsection 5.20(b)) which have at any time been generated,
transported, stored, recycled or otherwise handled in any way by DTC,
by others at the Real Property during DTC's ownership or operation
thereof or, by any prior owner or operator at the Real Property;
(iii) to the best of its knowledge, except as set forth
in Schedule 5.20, the Real Property does not contain any locations
where wastes, petroleum, crude oil, or hazardous substances from the
operation of DTC's properties or business have been stored, treated,
recycled or disposed of;
(iv) to the best of its knowledge, except as set forth
in Schedule 5.20, there are no polychlorinated biphenyls, friable
asbestos-containing material or underground storage tanks at the Real
Property;
(v) to the best of its knowledge, except as set forth in
Schedule 5.20, there are no past or continuing releases of Contaminants
from the Real Property or from other locations, if any, where wastes
from the operation of DTC's properties or business have been or are
located;
(vi) Except as set forth in Schedule 5.20, DTC has not
treated, stored for more than 90 days or disposed of any hazardous
wastes (within the meaning of such terms under the federal Resource
Conservation and Recovery Act, as amended, and any implementing
regulations, or any similar state or local laws, regulations,
ordinances, and rules.
(b) "Contaminants" Defined The term "Contaminants" means (i)
any pollutant, contaminant, petroleum, crude oil or any fraction thereof or
hazardous substance (within the meaning of such terms under the federal
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended (and any implementing regulations) or any similar state or local
laws, regulations, ordinances, and rules; or (ii) any hazardous or toxic
substance or material within the meaning of any federal, state or local law
applicable to DTC.
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Section 5.21. Insurance. DTC has maintained policies of
fire, casualty, liability, and other forms of insurance commonly carried by
telephone companies of its type. Schedule 5.21 lists all policies of insurance
currently maintained by DTC.
Section 5.22. Employees.
(a) Schedule 5.22 is a true and complete list of all
employees of DTC (the "Employees") as of the date of this Agreement, including
their titles or job descriptions and salaries or rates of pay.
(b) DTC employs fewer than 50 Employees. DTC is not required
to take any action under the Worker Adjustment and Retraining Notification Act
in connection with the transactions described in this Agreement.
(c) Except as set forth in Schedule 5.22, no Employees are
covered by any collective bargaining, employment, consulting, advisory, service
or change of control agreement, deferred compensation agreement, confidentiality
agreement or covenant not to compete. To the best knowledge of DTC or such Major
Shareholder, none of its employees are engaged in any unionizing activity or
organization or election efforts.
Section 5.23. Employee Benefits. Schedule 5.23 includes a
complete list of all "employee benefit plans," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
maintained by DTC or with respect to which DTC is required to make payments,
transfers or contributions (collectively, the "Employee Plans"). Except for the
Employee Plans disclosed on Schedule 5.23, DTC does not maintain, contribute to
or have any other liability or obligation to any employee benefit plan, and
neither DTC nor any officer or director of DTC has taken any action directly or
indirectly to obligate DTC to institute any such employee benefit plan. Except
as disclosed on Schedule 5.23, DTC has no obligation under any of the Employee
Plans or otherwise to provide post-employment health or life insurance benefits
to any current or former employees of DTC, including any beneficiaries thereof,
except as specifically required by Part 6 of Title I of ERISA. DTC has furnished
to Subsidiary true, correct and complete copies of each Employee Plan (or, in
the case of an unwritten Employee Plan, a written description thereof),
including any related trust agreement, insurance contract or other funding
vehicle relating to such Employee Plan. With respect to each Employee Plan, DTC
has furnished to Subsidiary a true, correct and complete copy of each of
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the following, to the extent that same is required to be prepared under ERISA:
(i) the current summary plan description and the latest description of material
modifications, (ii) the most recent annual report from the 5500 series and
accompanying schedules, as filed, (iii) the most recent annual periodic
accounting of plan assets, and (iv) the most recent annual actuarial valuation
report. Except as otherwise disclosed on such Schedule 5.23, DTC represents and
warrants to Subsidiary that:
(a) No Employee Plan is, or has been since the enactment of
ERISA, subject to Section 302 of ERISA;
(b) Of the Employee Plans listed on Schedule 5.23, the
Defined Benefit Plan and the Profit Sharing Plan are "pension plans," within the
meaning of ERISA Section 3(2) ("Pension Plan"). Except for (i) any amendments
for which the "TRA '86 remedial amendment period," as defined in Revenue
Procedure 95-12, ended on December 31, 1994 or has not expired, (ii) any
amendments for which the "OBRA '93 remedial amendment period," as defined in
Revenue Procedure 95-12, has not expired , or (iii) any amendments required or
permitted under Revenue Procedure 95-12 or any other applicable Internal Revenue
Service Procedures in connection with an application to the Internal Revenue
Service for a determination letter, each Pension Plan is a qualified plan under
Section 401(a) of the Internal Revenue Code of 1986 ("Code") and the trust
forming a part of such Pension Plan is exempt from tax under Section 501(a) of
the Code. To the best knowledge of DTC and the Major Shareholders, no event has
occurred that would cause either Pension Plan to cease being so qualified. DTC
shall file a request for a determination letter, on or before March 31, 1995 for
the Defined Benefit Plan and on or before April 30, 1995 for the Profit Sharing
Plan, that takes into account all of the requirements of the Code and shall
timely make all amendments required by the Internal Revenue Service to secure a
favorable determination letter for each of the Pension Plans. Parent and
Subsidiary acknowledge that as of the date of this Agreement it appears that
neither Pension Plan has a determination letter issued by the IRS to the effect
that such Pension Plan is a qualified plan under Section 401(a) of the Code for
the remedial amendment period of each such Pension Plan that has expired, and
that the lack of such determination letter shall not constitute, per se, a
breach of the representations under this Section 5.23(b).
(c) With respect to each Pension Plan , (i) no steps have
been taken to terminate any Pension Plan nor has any liability under Title IV of
ERISA been incurred by DTC which has not been satisfied
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in full; (ii) no proceeding has been initiated by the Pension Benefit Guaranty
Corporation ("PBGC") to terminate any Pension Plan; (iii) each Pension Plan
which is subject to Part 3 of Subtitle B of Title I of ERISA or Section 412 of
the Code has been maintained in compliance with the minimum funding standards of
ERISA and the Code, and no such Pension Plan has incurred any "accumulated
funding deficiency" within the meaning of Section 412 of the Code and Section
302 of ERISA, whether or not waived; (iv) no reportable event (within the
meaning of Section 4043(b)(1) through (9) of ERISA) exists or has occurred; and
(v) DTC has not failed to make a required installment of any payment required
under Section 412 of the Code with respect to any Pension Plan.
(d) With respect to each Pension Plan, the present value of
all accrued benefits, as determined on an ongoing basis, does not exceed the
aggregate fair market value of the assets of such Pension Plan, and assuming
that each of the Pension Plans which is subject to Title IV of ERISA were
terminated as of the date of this Agreement and distributions to all
participants and beneficiaries were made on such date, the present value of all
such plans' liabilities on such date, determined using the rate or rates
permitted under the Uruguay Round Agreements Act for a trusteed single employer
plan to value participants' and beneficiaries' vested benefits upon termination
of an insufficient trusteed single employer plan, does not materially exceed the
fair market value of the assets of all such plans;
(e) Contributions, premiums, benefits or other payments
required to be made by DTC to or with respect to any Employee Plan for all
periods preceding the Effective Date of the Merger have, or prior to the
Effective Date of the Merger will have, been made, reserved for, or otherwise
disclosed in DTC's financial statements;
(f) Each Employee Plan has been established and maintained
in substantial compliance with (i) all applicable laws, including ERISA and the
Code, and all rulings and opinions of any governmental authority or other entity
interpreting or applying such laws, (ii) any applicable collective bargaining
agreement, and (iii) the terms and conditions of the Employee Plan;
(g) There have not occurred nor are there continuing any
nonexempt "prohibited transactions" within the meaning of Section 406 of ERISA
or Section 4975 of the Code which may subject
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DTC, directly or indirectly, to any material liability, and any exempt
prohibited transactions are described on Schedule 5.23;
(h) Neither DTC, any director, officer or employee of DTC
nor any administrator or fiduciary of any Employee Plan (or any agent of the
foregoing) has breached or is in breach of any of the obligations imposed upon
fiduciaries under Title I of ERISA, such that DTC could, directly or indirectly,
be subject to any material liability;
(i) The execution and performance of this Agreement will not
ipso facto result in any (i) payment (whether of severance pay, unemployment
compensation or otherwise) becoming due from DTC, (ii) increase in benefits
otherwise payable under any of the Employee Plans or (iii) acceleration of the
time of payment or vesting of any such benefits;
(j) Except as set forth in Schedule 5.18, there is no
pending or to the best of DTC's or such Major Shareholder's knowledge,
threatened assessment, complaint, proceeding or investigation of any kind in any
court or government agency with respect to any Employee Plan;
(k) DTC has complied with the continuation coverage
provisions of Section 4980B of the Code and Part 6 of Title I of ERISA with
respect to each group health plan that is subject thereto;
(l) There are no leased employees within the meaning of
Section 414(n) of the Code, who perform services for DTC; and
(m) No entity exists, and no entity has ever existed, which
is or was an "ERISA Affiliate," as defined in the following sentence, with
respect to DTC. For purposes of the preceding sentence, "ERISA Affiliate" means:
(i) any corporation which at any time on or before the Closing Date is or was a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as DTC; (ii) any partnership, trade or business
(whether or not incorporated) which at any time on or before the Closing Date is
or was under common control (within the meaning of Section 414(c) of the Code)
with DTC; or (iii) any entity which at any time on or before the Closing Date is
or was a member of the same affiliated service group (within the meaning of
Section 414(m) of the Code) as DTC, any corporation described in clause (i) or
any partnership, trade or business described in clause (ii).
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Section 5.24. Regulatory Approvals. All material consents,
authorizations, orders or approvals of, and filings or registrations with, any
court or administrative or governmental authority and any other person or entity
required to be obtained by DTC or the Major Shareholders for or in connection
with the execution, delivery or performance of this Agreement and the
consummation of the transactions contemplated hereby have been obtained, except
for (i) the filings and governmental approvals as referenced in Article II of
this Agreement and (ii) the filing of the Certificate of Merger with the New
York Department of State and the Delaware Secretary of State as referenced in
Section 4.02 hereof.
Section 5.25. Liens - Personal Property. Except as set forth
on Schedule 5.25 hereto, DTC holds good and marketable title to all of DTC's
personal property, free and clear of any agreement, instrument, mortgage, lease,
or lien.
Section 5.26. Title and Right to DTC Shares. Each Major
Shareholder has good and marketable title to the number of DTC Shares set forth
opposite his name on Schedule 1 hereto, free and clear of any judgment, decree,
order, agreement, indenture, instrument, note, mortgage, lease, license,
franchise, permit, lien, pledge, charge, claim, encumbrance, title defect or
other authorization, right, restriction or obligation which is not disclosed on
Schedule 1.
Section 5.27. Receipt of SEC Filings. DTC hereby
acknowledges receipt of the "Parent SEC Reports" as defined in Section 7.05
hereof.
Section 5.28. Full Disclosure. No representation, warranty
or covenant made by DTC or such Major Shareholder in this Agreement or any other
agreement, document or instrument contemplated hereby contains or will contain
any untrue statement of a material fact, or omits or will omit to state a
material fact necessary to make the statements contained in this Agreement or
any such agreement, document or instrument, in light of the circumstances under
which they were made, not misleading. In the opinion and to the knowledge of
DTC's officers and the Major Shareholders, there is no fact or circumstance
which materially and adversely (i) has affected or (ii) is so affecting, or
(iii) may reasonably be expected in the future to so affect the financial
condition, results of operations, customer relationships, business or prospects
of DTC, which has not been disclosed to Parent and Subsidiary, including
disclosures made in the Letter of Intent dated December 23, 1994 between DTC and
Parent.
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ARTICLE VI. FURTHER AGREEMENTS AND ASSURANCES OF DTC
Section 6.01. Conduct of Business. From the date of this
Agreement to the Closing, except with the prior consent of Subsidiary and
Parent, DTC shall:
(a) continue to own its assets and properties and operate
its business in the customary and ordinary course of business, consistent with
its current business practices;
(b) not incur any new or additional indebtedness outside the
ordinary course of business;
(c) not sell, mortgage, lease, or otherwise encumber any of
its assets or properties, except in the ordinary course of business;
(d) maintain, repair, and replace its assets and properties
in accordance with its normal practices;
(e) not enter into any contracts, agreements or commitments
except for those of the type which would not be required to be listed under
section 5.17 of this Agreement, with the exception of contracts, agreements, and
commitments necessary or appropriate to perform the intentions set forth in, and
within the monetary constraints of, DTC's 1994-95 capital budget, a copy of
which has been furnished to Parent and Subsidiary.
(f) not enter into or amend any employment, consulting or
change of control agreement, and shall not grant any salary or pay increases or
make any bonus payments to Employees except for customary annual wage and salary
adjustments and annual bonus payments consistent with past practices as
reflected on Schedule 6.01(f), provided that in the case of (i) any employees
whose annual salaries are $25,000 or more, such annual salary increases shall
not exceed 4% per annum, (ii) any employees whose annual salaries are less than
$25,000, such annual salary increases shall not exceed 10% per annum, and (iii)
in the case of the President and Vice President of Operations, such annual
bonuses shall not exceed $10,000 each;
(g) not create or permit to be created any mortgage, lien,
security interest, or other encumbrances on its assets and properties, other
than encumbrances listed on Schedule 5.25 and liens for taxes not yet due and
payable;
(h) maintain in full force and effect the existence of, and
the rights and franchises owned or possessed by, DTC in the State of New York
and the Commonwealth of Pennsylvania, promptly and timely
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prepare and file all annual reports and franchise tax returns, and pay all
franchise taxes and other taxes and assessments, if any, required to maintain
the existence and all other rights and franchises of DTC;
(i) keep true records and books of account in which true and
correct entries will be made of all dealings or transactions by or with DTC, in
accordance with generally accepted accounting principles and past practices
applied on a consistent basis;
(j) duly observe the requirements of governmental
authorities unless contested in good faith by appropriate proceedings;
(k) promptly pay and discharge, when due and payable, all
taxes, assessments and governmental charges or levies, unless contested in good
faith by appropriate proceedings;
(l) pay when due or in conformity with customary trade
terms, all indebtedness of DTC incurred as an incident to the operation of its
business, if such indebtedness is not being contested in good faith by
appropriate proceedings;
(m) comply in all material respects with the provisions of
all contracts and leases to which DTC is a party, unless contested in good faith
by appropriate proceedings;
(n) not cause or permit the merger, consolidation, or other
reorganization or recapitalization of DTC;
(o) not cause or permit the liquidation or dissolution of
DTC;
(p) not cause or permit the declaration of any dividends or
any distributions, including the redemption or retirement of any capital stock
of DTC, except that DTC may continue to pay its regular quarterly dividend of
$1.75 per share, but only from current earnings and profits;
(q) not cause the termination of any employment agreements
or other contracts with any of its executive employees;
(r) not enter into or give any guaranty of any third party
obligation for the payment of money or performance of any contract;
(s) not institute or permit to be instituted against DTC any
proceeding to adjudicate it as bankrupt or insolvent, or seeking liquidation,
winding-up, reorganization, arrangement, adjustment, protection, relief, or
composition of DTC or any of its debts under any law relating to bankruptcy,
insolvency,
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reorganization, or relief of debtors, or seeking the entry of any order or
relief or the appointment of receiver, trustee, or other similar official for
DTC or for any part of its property;
(t) not make a general assignment for the benefit of DTC's
creditors;
(u) not amend or repeal the Certificate of Incorporation or
By-Laws of DTC;
(v) not create or permit to be created, nor issue or permit
to be issued, any class or series of capital stock or other security of DTC or
any right to receive such capital stock or security;
(w) not take any action that, or refrain from taking any
action when the failure to so act, would materially adversely affect the ability
of DTC to consummate the transactions contemplated by this Agreement;
(x) not amend any Employee Plan to increase any benefit
under such Plan (except at the discretion of DTC, in connection with the
termination of the Defined Benefit Plan identified on Schedule 5.23, but then
only to the extent there are assets already held by the trust for the Defined
Benefit Plan to cover the cost of such increase), or establish any new "employee
benefit plan," as defined in Section 3(3) of ERISA, or commence making
contributions to any such plan to which DTC was not contributing previously; and
(y) not make any contribution to either of the Pension Plans
except for (i) the minimum required contribution to satisfy the minimum funding
requirement under Section 412 of the Code or Section 302 of ERISA and (ii) any
contribution to the Profit Sharing Plan that DTC, in its discretion, determines
provided, however, that any such contribution shall not exceed in the aggregate
(A) $60,000 for the plan year commencing on September 1, 1994 and ending on
August 31, 1995 and (B) $5,000 for each full month occurring between September
1, 1995 and the Effective Date of the Merger.
Section 6.02. Satisfaction of Conditions by DTC. DTC shall
not voluntarily undertake any course of action inconsistent with the
satisfaction of the covenants and conditions applicable to it as set forth in
this Agreement. DTC shall promptly do all such acts and take all such measures
as may be reasonably appropriate to enable it to perform as early as is
practicable the obligations to be performed by it under this Agreement. DTC
shall use all commercially reasonable efforts to (and shall cooperate with
Parent and Subsidiary in all commercially reasonable respects to) cause the
merger of DTC into Subsidiary to occur as described herein at the earliest
practicable date.
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Section 6.03. DTC's Cooperation. DTC shall fully cooperate
with Parent and Subsidiary and shall provide all information necessary or
appropriate in connection with securing the approvals of the PSC and the Public
Utility Commission of Pennsylvania for Parent to acquire control of the
telephone business of DTC, securing clearance, if required, for the Merger under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and securing any and
all other governmental licenses, permits, approvals, consents, qualifications,
or authorizations for the Merger and for the consummation of the transactions
described in this Agreement. DTC shall make such filings with the New York State
Department of Taxation and Finance as may be necessary to comply with the
requirements of Articles 31 and 31-B of the New York Tax Law.
Section 6.04. Further Due Diligence; Reports. DTC has
provided representatives of Subsidiary and Parent with access to its properties
and executive officers, and with various financial reports and other information
(excluding the requested information set forth on Schedule 6.04 hereto)
concerning its business and its assets and liabilities, to enable Parent and
Subsidiary to make the decision to enter into this Agreement. From the date of
this Agreement to the Closing, DTC shall, on reasonable notice, provide
Subsidiary, Parent and their representatives with reasonable access to the
books, records, executive officers and properties of DTC for the purpose of
further confirming and verifying the accuracy of the representations and
warranties of DTC as set forth in this Agreement, provided that any such
investigation shall not unreasonably interfere with the normal business
operations of DTC. DTC shall also provide Subsidiary and Parent with copies of
its internally prepared financial and operating statements, its annual audited
financial statement, any reports it is required to file with the PSC, and its
press releases. DTC or the Major Shareholders shall provide Parent and
Subsidiary with copies of the S. Fenton Busfield Irrevocable Trust Agreement and
reasonable access to the Major Shareholders to discuss questions or matters
related thereto.
Section 6.05 Termination of Pension Plans.
(a) DTC shall have the right to terminate the Profit Sharing
Plan and the Defined Benefit Plan listed on Schedule 5.23 at any time prior to
the Effective Date of the Merger but agrees to provide to the Parent, prior to
any filing or distribution thereof, copies of all documents relating to such
terminations. In the event that DTC elects to terminate either of such Plans and
all actions have not been taken prior to the Effective Date of the Merger to
complete the termination, DTC and Parent shall complete the termination
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under the supervision of, and in accordance with the directions of, the
President or Vice President of Operations of DTC and the Director of Employee
Benefits of the Parent.
(b) In the event that prior to the Effective Date of the
Merger, DTC (i) either terminates the Profit Sharing Plan or amends the Profit
Sharing Plan to prohibit any contributions thereunder after the Effective Date
of the Merger and (ii) terminates the Defined Benefit Plan, then DTC shall adopt
the Telephone and Data Systems, Inc. Tax Deferred Savings Plan ("Savings Plan")
as of the first day of the calendar quarter immediately following the forty-five
day anniversary of the Effective Date of the Merger. The Savings Plan shall
provide that (a) all years of service with DTC shall be credited for purposes of
determining an employee's eligibility to participate in the Savings Plan and (b)
all years of an employee's vesting service under the Profit Sharing Plan shall
be credited to the employee for purposes of determining an employee's vesting
service under the Savings Plan, provided however, that the prior number of
"years of service" for eligibility and vesting shall be determined in accordance
with the provisions of the Savings Plan, which expressly excludes for vesting
service the period of time commencing on the effective date of the termination
of the Profit Sharing Plan and ending on the Effective Date of the Merger.
(c) In the event that prior to the Effective Date of the
Merger, (i) DTC terminates the Defined Benefit Plan and (ii) either terminates
the Profit Sharing Plan or amends the Profit Sharing Plan to prohibit any
contributions thereunder after the Effective Date of the Merger, then DTC shall
adopt the Telephone and Data Systems, Inc. Employees Pension Trust I ("Target
Pension Plan"), as of the first day of the calendar month immediately following
the Effective Date of the Merger. The Target Pension Plan shall provide that (a)
all years of service with DTC shall be credited for purposes of determining an
employee's eligibility to participate in the Target Pension Plan and (b) all
years of an employee's vesting service and benefit accrual service credited
under the Defined Benefit Plan shall be credited to the employee for purposes of
determining an employee's vesting and benefit accrual service under the Target
Pension Plan, but such employee's accrued benefit under the Target Pension Plan
shall be reduced by an offset equal to the aggregate of the employee's accrued
benefit under the Defined Benefit Plan and the actuarial equivalent of the
employee's account balance in the Profit Sharing Plan, provided however, that
the prior number of "years of service" for eligibility, vesting and benefit
accrual and actuarial assumptions shall be determined in accordance
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with the Target Pension Plan, which expressly excludes for vesting service the
period of time commencing on the effective date of the termination of the
Defined Benefit Plan and ending on the Effective Date of the Merger and excludes
for benefit accrual service the period of time commencing on the effective date
of the termination of the Defined Benefit Plan and ending on the date DTC adopts
the Target Pension Plan and provided further that Peter Feehan hereby waives
participation in the Target Pension Plan, but will remain eligible to
participate in any other employee benefit plans and programs provided to the
employees of DTC in accordance with the terms of these plans.
(d) In the event that, prior to the Effective Date of the
Merger, DTC has not (i) terminated the Profit Sharing Plan or amended the Profit
Sharing Plan to prohibit any contributions thereunder after the Effective Date
of the Merger and (ii) terminated the Defined Benefit Plan, then DTC shall
terminate the Profit Sharing Plan and the Defined Benefit Plan after the
Effective Date of the Merger. Upon such termination of both the Profit Sharing
Plan and the Defined Benefit Plan, DTC shall adopt the Savings Plan as of the
first day of the calendar quarter immediately following the forty-five day
anniversary of the date of termination of the Profit Sharing Plan and shall
adopt the Target Pension Plan as of the first day of the calendar month
immediately following the date of termination of the Defined Benefit Plan.
Notwithstanding the foregoing, the provisions set forth in paragraphs (b) and
(c) hereof (other than the first sentence of each such paragraph) shall continue
to apply, except that, pursuant to the provisions of the Savings Plan and the
Target Pension Plan, there shall be no exclusion of any period of time
commencing on the date of termination of the Profit Sharing Plan or the Defined
Benefit Plan when calculating vesting service under the Savings Plan and the
Target Pension Plan, respectively.
ARTICLE VII. REPRESENTATIONS AND WARRANTIES
OF SUBSIDIARY AND PARENT
Subsidiary and Parent represent and warrant to DTC as
follows:
Section 7.01. Organization and Good Standing.
Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Parent is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Iowa. All of Subsidiary's issued and
outstanding common stock is held by Parent. Parent and Subsidiary are
qualified and in good
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standing in all states and jurisdictions where the nature of the business
transacted or of the property owned, leased or operated makes qualification
necessary, except where the failure to be qualified would not have a material
adverse effect on the financial condition, assets, business, prospects or
results of operations of Parent or Subsidiary or the transactions contemplated
by this Agreement.
Section 7.02. Power and Authority for Business. Subsidiary
and Parent have all requisite power and authority to own, lease, and operate
their respective properties and to conduct their respective businesses as they
have been and are now conducted.
Section 7.03. Power and Authority for Agreement. Subsidiary
and Parent have all requisite corporate power and authority to enter into this
Agreement and all agreements, documents and instruments to be executed and
delivered by Parent or Subsidiary, respectively, hereunder and in connection
herewith, and to perform their respective obligations to be performed hereunder.
The execution and delivery of this Agreement by Subsidiary and Parent and the
consummation of the transactions described herein have been duly authorized by
the duly constituted Boards of Directors of Subsidiary and Parent, and by Parent
as the sole shareholder of Subsidiary, and will not violate any agreement,
covenant, law or regulation by which either Subsidiary or Parent is bound. This
Agreement constitutes the legal, valid, binding and enforceable obligation of
both Subsidiary and Parent, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting creditors'
rights generally and by general principles of equity. All of the obligations of
Parent and Subsidiary under this Agreement are expressly agreed to be joint and
several.
Section 7.04. Brokers. Neither Parent nor Subsidiary has
engaged any broker or finder with respect to this Agreement or any transaction
described herein, and neither is obligated to pay any broker's or finder's fee
or commission in connection with the transactions contemplated by this
Agreement.
Section 7.05. SEC Reports and Financial Statements of
Parent. Parent has delivered to DTC true and correct copies of (a) its most
recent Annual Report to the Shareholders for the year December 31, 1993; (b) its
most recent Proxy Statement and Notice of Annual Meeting for its shareholders
dated April 12, 1994; (c) its most recent Annual Report on Form 10-K for the
year ended December 31, 1993; and (d) its most recent Quarterly Report on Form
10-Q, as filed with the SEC, for the quarter ended September 30, 1994. Parent
will also deliver to DTC any reports, including any reports on Forms 8-K, 10-K,
and 10-Q, which are
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filed with the SEC after the date hereof and other reports sent generally to its
shareholders after the date hereof and on or before the Effective Date of the
Merger. (Such reports are collectively referred to hereinafter as "Parent SEC
Reports," and the financial statements, including the notes thereto, contained
in such reports are collectively referred to hereinafter as "Parent Financial
Statements"). Parent has duly filed all reports required to be filed by it with
the SEC under the Securities Act of 1933 and the Securities and Exchange Act of
1934, and no such report, as of the respective date thereof, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements in such
report, in light of the circumstances under which they were made, not
misleading. In the opinion and to the knowledge of Parent's officers, there is
no fact or circumstance which materially and adversely (i) has affected or (ii)
is so affecting or (iii) may reasonably be expected in the future to so affect,
the financial condition, results of operations, customer relationships, business
or prospects of Parent and its subsidiaries taken as a whole, which has not been
disclosed to DTC. The Parent Financial Statements included in the Parent SEC
Reports were and will be prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved and present fairly or will present fairly the consolidated financial
position, results of operations, and changes in financial position of Parent as
of the date and for the periods indicated therein, subject, in the case of
unaudited interim statements, to normal year-end audited adjustments. Since
December 31, 1991, except as otherwise disclosed to DTC in writing, Parent has
not made any material change in its method of accounting for financial reporting
purposes, except as required to conform to generally accepted accounting
principles.
Section 7.06. Regulatory Approvals. Parent and Subsidiary
know of no reason why they will not be approved by the PSC and other applicable
regulatory authorities for the acquisition of DTC through the Merger.
Section 7.07. Full Disclosure. No representation, warranty
or covenant made by Parent or Subsidiary in this Agreement or any other
agreement, document or instrument contemplated hereby contains or will contain
any untrue statement of a material fact, or omits or will omit to state a
material fact necessary to make the statements contained in this Agreement or
any such agreement, document or instrument, in light of the circumstances under
which they were made, not misleading.
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ARTICLE VIII. FURTHER AGREEMENTS AND ASSURANCES
OF SUBSIDIARY AND PARENT
Section 8.01. Satisfaction of Conditions by Subsidiary and
Parent. Subsidiary and Parent shall not voluntarily undertake any course of
action inconsistent with the satisfaction of the covenants and conditions
applicable to either as set forth in this Agreement. Subsidiary and Parent shall
each promptly do all such acts and take all such measures as may be reasonably
appropriate to enable it to perform as early as is reasonably practicable the
obligations to be performed by it under this Agreement. Subsidiary and Parent
shall use all commercially reasonable efforts to (and shall cooperate with DTC
in all commercially reasonable respects to) cause the Merger to occur as
described herein at the earliest practicable date.
Section 8.02. Cooperation. Subsidiary and Parent shall fully
cooperate with DTC and shall provide all information necessary or appropriate in
connection with securing the approvals of the PSC and the Public Utility
Commission of Pennsylvania for Parent to acquire control of the telephone
business of DTC, securing clearance, if required, for the Merger under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, and securing any and all
other governmental licenses, permits, approvals, consents, qualifications, or
authorizations for the Merger and for the consummation of the transactions
described in this Agreement. Parent and Subsidiary shall cooperate with DTC in
making such filings as are necessary to comply with the requirements of Articles
31 and 31-B of the New York Tax Law.
Section 8.03. Guaranty. Parent hereby absolutely,
unconditionally, and irrevocably guarantees full payment and performance by
Subsidiary of all obligations to be paid or performed by Subsidiary pursuant to
this Agreement.
Section 8.04. Parent Common Share Stock Bonus.
(a) As additional compensation for services to be rendered
after the Effective Date of the Merger, Parent hereby covenants and agrees to
pay or cause DTC to pay a stock bonus of 10,000 Parent Common Shares in the
aggregate, subject to any adjustment for fractional shares as provided in
subparagraph (c) hereof (the "Stock Bonus"), to be allocated, as provided in
paragraph (b) hereof, among the employees of DTC (each an "Eligible Employee")
who (i) are employees of DTC as of March 15, 1995 and (ii) remain employees of
DTC on the first anniversary of the Effective Date of the Merger (the
"Eligibility Determination
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Date"); provided, however, that neither S. Fenton Busfield nor Peter H. Feehan
shall be deemed to be an "Eligible Employee." The Stock Bonus shall be paid by
Parent or DTC to the Eligible Employees on the fifteenth business day after the
Eligibility Determination Date (the "Stock Bonus Payment Date").
(b) The Stock Bonus shall be allocated among the individual
Eligible Employees pursuant to a formula, to be developed by Peter Feehan and
Stephen Feehan, that takes into account prior and anticipated future years of
service and earnings with DTC.
(c) Each Eligible Employee who would otherwise receive a
fractional Parent Common Share in connection with the Stock Bonus shall receive
in lieu thereof an amount of cash determined by multiplying such fraction by the
average closing price of Parent Common Shares as reported on the American Stock
Exchange Composite Transactions section of The Wall Street Journal for the five
trading days ending on the third trading day immediately preceding the Stock
Bonus Payment Date.
ARTICLE IX. CONDITIONS TO SUBSIDIARY'S AND PARENT'S
OBLIGATION TO CLOSE
Section 9.01. Subsidiary and Parent Closing Conditions. The
obligations of Subsidiary and Parent to consummate the Merger are subject to the
satisfaction on the Closing Date of the following conditions:
(a) Each of the acts, undertakings and covenants, including
covenants to refrain from taking certain actions, of DTC to be performed or
complied with at or before the Closing of the Merger pursuant to the terms of
this Agreement shall have been duly performed or complied with in all material
respects, and Subsidiary and Parent shall have received at the Closing a
certificate to that effect dated the Closing Date and executed on behalf of DTC
by the President of DTC.
(b) The representations and warranties of DTC and the Major
Shareholders contained in this Agreement shall be true on and as of the Closing
in all material respects and with the same effect as though such representations
and warranties had been made on and as of the Closing (other than any
representation or warranty which specifically relates to an earlier date),
except to the extent that such representations and warranties shall be untrue on
and as of the Closing because of (i) changes caused by transactions approved in
writing by Parent or Subsidiary; (ii) events or changes occurring or arising
after the
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date of this Agreement which shall not, in the aggregate, have materially and
adversely affected the business prospects, assets, or financial condition of DTC
taken as a whole; (iii) events or changes which occur in the ordinary course of
business or which result from general economic, labor, or market conditions or
which are otherwise beyond DTC's control; (iv) legal and regulatory changes
applicable generally to telephone companies operating in New York State; or (v)
pool reimbursement changes or adjustments based on increases or decreases in the
operating costs of DTC; and Subsidiary and Parent shall have received at the
Closing a certificate to that effect dated the Closing Date and executed on
behalf of DTC by the President of DTC and by each Major Shareholder.
(c) This Agreement and the transactions described in this
Agreement shall have been approved (or not objected to, as appropriate) by all
governmental agencies having jurisdiction, and all applicable waiting periods
shall have expired or shall have been terminated.
(d) At least two-thirds of the total number of the DTC
Shares shall have been voted for the approval of this Agreement and the
transactions described in this Agreement at the DTC shareholders' meeting.
(e) There shall be no judgment, injunction, ruling or order
of any court or governmental authority outstanding against DTC, Parent or
Subsidiary which prohibits, restricts or delays consummation of the Merger.
(f) Parent and Subsidiary shall have received a legal
opinion dated the Closing Date from Bond, Schoeneck & King, LLP, counsel to DTC,
in substantially the form of the attached Exhibit 9.01(f).
Section 9.02. Opportunity to Cure. Notwithstanding anything
to the contrary contained in Section 9.01 or elsewhere in this Agreement, Parent
and Subsidiary shall not have the right to elect not to close under this
Agreement by reason of any misrepresentation or breach of a warranty, or
covenant contained in this Agreement or elsewhere if (a) DTC and/or the Major
Shareholders would not have any liability therefore under Article XII of this
Agreement, or (b) the DTC Shareholders and/or the Major Shareholders undertake,
at their sole cost and expense (but subject to the limitations contained in
Article XII or elsewhere
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in this Agreement), to promptly cure such misrepresentation or breach or to
otherwise hold Parent and Subsidiary harmless from the consequences of such
misrepresentation or breach.
ARTICLE X. CONDITIONS TO DTC'S OBLIGATION TO CLOSE
Section 10.01. DTC Closing Conditions. The obligations of
DTC to consummate the Merger are subject to the satisfaction on the Closing Date
of the following conditions:
(a) Each of the acts, undertakings, and covenants, including
covenants to refrain from taking certain actions, of Subsidiary and Parent to be
performed or complied with at or before the Closing of the Merger pursuant to
the terms of this Agreement shall have been duly performed or complied with in
all material respects, and DTC shall have received at the Closing a certificate
to that effect, dated the Closing Date and executed on behalf of Subsidiary and
Parent by their respective Presidents. Without limiting the foregoing, the
requirements set forth in Section 3.02 concerning the Parent Common Shares to be
delivered to the DTC Shareholders shall be satisfied in all respects.
(b) The representations and warranties of Parent and
Subsidiary contained in this Agreement shall be true on and as of the Closing in
all material respects and with the same effect as though such representations
and warranties had been made on and as of the Closing (other than any
representation or warranty which specifically relates to an earlier date), and
DTC shall have received at the Closing a certificate to that effect dated the
Closing Date and executed on behalf of Parent and Subsidiary by their respective
Presidents.
(c) This Agreement and the transactions described in this
Agreement shall have been approved (or not objected to, as appropriate) by all
governmental agencies having jurisdiction, and all applicable waiting periods
shall have expired or shall have been terminated.
(d) At least two-thirds of the total number of the DTC
Shares shall have been voted for the approval of this Agreement and the
transactions described in this Agreement at the DTC shareholders' meeting.
(e) DTC shall have received a legal opinion dated the
Closing Date from Sidley & Austin, counsel to Parent and Subsidiary, in
substantially the form of the attached Exhibit 10.01(e).
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(f) There shall be no judgment, injunction, ruling or order
of any court or governmental authority outstanding against DTC, Parent or
Subsidiary which prohibits, restricts or delays consummation of the Merger.
Section 10.02. Opportunity to Cure. Notwithstanding anything
to the contrary contained in Section 10.01 or elsewhere in this Agreement, DTC
shall not have the right to elect not to close under this Agreement by reason of
any misrepresentation or breach of a warranty, or covenant contained in this
Agreement or elsewhere if (a) Parent or Subsidiary would not have any liability
therefore under Article XII of this Agreement, or (b) Parent and/or Subsidiary
undertake, at their sole cost and expense (but subject to the limitations
contained in Article XII or elsewhere in this Agreement), to promptly cure such
misrepresentation or breach or to otherwise hold DTC and/or the DTC Shareholders
harmless from the consequences of such misrepresentation or breach.
ARTICLE XI. TERMINATION
Section 11.01. Optional Termination. This Agreement may be
terminated and the Merger abandoned at any time prior to the Effective Date of
the Merger, whether before or after action thereon by the shareholders of DTC,
as follows:
(a) By the mutual written consent of DTC and Subsidiary upon
the approval of their respective Boards of Directors;
(b) Subject to the limitations contained in Section 10.02 of
this Agreement, by action of the Board of Directors of DTC if any of the Closing
conditions contained in Section 10.01 remain unfulfilled in any material respect
as of thirty days after receipt of confirmation that all regulatory approvals
required under this Agreement have been obtained (i.e., as of the Closing Date
under Section 4.01), and DTC shall not have waived such conditions; provided,
however, that if the noncompliance or nonperformance can be cured or eliminated,
DTC shall not terminate this Agreement unless and until (i) it has given Parent
and Subsidiary written notice that noncompliance or nonperformance has occurred,
specifying the nature thereof and the action required to cure, and (ii) such
noncompliance and nonperformance shall not have been cured or eliminated, or
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the DTC Shareholders shall not have otherwise been held harmless from the
consequences of same, within thirty days of receipt of such notice.
(c) Subject to the limitations contained in Section 9.02 of
this Agreement, by action of the Board of Directors of Parent and Subsidiary if
any of the Closing conditions contained in Section 9.01 remain unfulfilled in
any material respect as of thirty days after receipt of confirmation that all
regulatory approvals required under this Agreement have been obtained (i.e., as
of the Closing Date under Section 4.01), and Parent and/or Subsidiary shall not
have waived such conditions, provided, however, that if the non-compliance or
nonperformance can be cured or eliminated, Parent and Subsidiary shall not
terminate this Agreement unless and until (i) Parent and Subsidiary shall have
given DTC and the Major Shareholders written notice that nonperformance or
noncompliance has occurred, specifying the nature thereof and the action
required to cure, and (ii) such noncompliance or nonperformance shall not have
been cured or eliminated, or Parent and Subsidiary shall not have otherwise been
held harmless from the consequences of same, within thirty days of the receipt
of such notice.
(d) By either DTC or Subsidiary, if the PSC, the Public
Utility Commission of Pennsylvania, or any other applicable regulatory authority
shall have declined to approve the transactions described in this Agreement and
all applicable periods of appeal have expired.
Section 11.02. Automatic Termination. This Agreement shall
automatically terminate on July 31, 1996, if the Merger shall not have become
effective on or before such date unless Parent, Subsidiary, and DTC shall
otherwise agree in writing to extend such date.
Section 11.03. Effect of Termination.
(a) In the event that this Agreement shall be terminated
pursuant to Section 11.01(d) because the required regulatory approvals cannot be
obtained or because any other condition of closing is not fulfilled for any
reason other than a breach by a party, all further obligations of DTC,
Subsidiary, and Parent under this Agreement shall terminate without further
liability of Subsidiary or Parent to DTC or of DTC to Subsidiary or Parent,
except for the obligations of Subsidiary and Parent under the Confidentiality
Agreement referenced in section 13.07 of this Agreement.
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(b) If, on the other hand, this Agreement is terminated
because of the nonfulfillment of a condition of Closing caused by or arising
from a material breach or nonfulfillment of a representation, warranty, covenant
or agreement hereunder by a party, the other party shall be entitled, to all
available equitable remedies, including but not limited to, the remedy of
specific performance and to indemnification under Article XII of this Agreement.
These shall be the sole and exclusive remedies for any causes of action or other
claims arising under or relating to this Agreement and the transactions
contemplated hereunder.
Section 11.04. Waiver of Conditions. Anything in this
Agreement to the contrary notwithstanding, if any of the conditions specified in
Article IX hereof have not been satisfied, Subsidiary and Parent, in addition to
any other rights which may be available to them, shall have the right to waive
such condition and to proceed with the Closing (except with respect to
conditions which they may not legally waive such as approval by regulatory
authorities); and if any of the conditions specified in Article X hereof have
not been satisfied, DTC in addition to any other rights which may be available
to it, shall have the right to waive such condition and proceed with the Closing
(except with respect to conditions which DTC may not legally waive such as
approval by regulatory authorities).
ARTICLE XII. INDEMNIFICATION
Section 12.01. By DTC and the Major Shareholders to Parent
and Subsidiary.
Subject to the limitations contained in Articles XII and
XIII, DTC and each of the Major Shareholders agree, jointly and severally, to
indemnify and hold Parent and Subsidiary harmless against any cost, loss or
damage (including expenses) suffered by Parent or Subsidiary resulting from or
arising out of (a) any material breach by DTC or such Major Shareholder in the
performance of any of their respective obligations or covenants under this
Agreement or in any agreement delivered in connection with the transactions
contemplated hereby, (b) any breach of any of the representations or warranties
made by DTC or such Major Shareholder in this Agreement or in any agreement,
document, certificate or exhibit delivered in accordance with the provisions of
this Agreement and (c) all actions, suits, proceedings, claims, demands,
assessments or judgments incident to any of the foregoing. Notwithstanding the
foregoing, neither DTC nor any DTC Shareholder (whether or not a Major
Shareholder) shall have any indemnification obligation with
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respect to breaches or misrepresentations previously waived in writing by Parent
or Subsidiary. Further, the maximum aggregate amount of all losses, damages, and
expenses (including attorneys' fees) for which DTC and the Major Shareholders,
collectively, shall be obligated to indemnify Parent and Subsidiary,
collectively, shall be limited to $500,000.
Section 12.02. By Parent and Subsidiary to DTC and the DTC
Shareholders. Subject to the limitations contained in Articles XII and XIII,
Parent and Subsidiary agree, jointly and severally, to indemnify and hold DTC
and the DTC Shareholders harmless against any loss or damage (including
expenses) suffered by DTC or the DTC Shareholders resulting from or arising out
of (a) any material breach by Parent or Subsidiary in the performance of any of
their respective obligations or covenants under this Agreement or in any
agreement delivered in connection with the transactions contemplated hereby, (b)
any breach of any of the representations or warranties made by Parent or
Subsidiary in this Agreement and (c) all actions, suits, proceedings, claims,
demands, assessments or judgments incident to any of the foregoing.
Notwithstanding the foregoing, neither Parent nor Subsidiary shall have any
indemnification obligation with respect to any breaches or misrepresentations
waived in writing by DTC prior to the Closing. Further, the maximum aggregate
amount of all losses, damages, and expenses (including attorneys' fees) for
which Parent and Subsidiary, collectively, shall be obligated to indemnify DTC
and the DTC shareholders, collectively, shall be limited to $500,000.
Section 12.03. Minimization of Damages and Notice of Claims.
The party seeking indemnification under this Article XII (an "Indemnified
Party") shall use reasonable efforts to minimize any loss or damage for which
indemnification may be sought under this Article XII and shall give prompt
written notice to the other party (the "Indemnifying Party") of any matter with
respect to which it seeks to be indemnified. Such notice shall state the nature
of the claim and, if known, the amount of the loss or damage. All
indemnification obligations under this Article XII shall expire one year from
the Closing Date except for (i) claims set forth in a written notice to the
Indemnifying Party delivered prior to 5:00 p.m. E.S.T. on the first anniversary
of the Closing Date, and (ii) indemnification obligations of the Major
Shareholders relating to their title to their DTC Shares under Section 5.26.
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Section 12.04. Procedural Provisions. If any third person
asserts any claim against any Indemnified Party for which indemnification is
sought pursuant to the provisions of this Article XII, such Indemnified Party
shall afford the Indemnifying Party a reasonable opportunity to participate in
the defense against such claim; and the Indemnifying Party may assume the
defense against such claim, in the name of the Indemnifying Party or the
Indemnified Party, at the Indemnifying Party's expense and with counsel selected
by the Indemnifying Party. The Indemnified Party shall have the right, if it
elects, to participate in the defense against any such claim through counsel of
its own choice and at its own expense; provided, however, that the Indemnifying
Party shall bear the expense of counsel for the Indemnified Party if the
Indemnifying Party shall not have assumed the defense against such claim. In the
event of any litigation with a third person in connection with any such claim,
the Indemnified Party agrees to cooperate with the Indemnifying Party and to
make all books, records and documents in its possession available to the
Indemnifying Party, or its counsel, upon request, for inspection and copying.
Nothing contained in this Section 12.04 shall be construed to limit the rights
of any parties to discovery in any proceeding under the procedural rules
relevant to such proceeding.
Section 12.05. Exclusive Remedies. The provisions of this
Article XII, as well as all available equitable remedies shall be the sole and
exclusive remedies for any alleged misrepresentation, breach of warranty, or
failure to fulfill a covenant or agreement on the part of DTC and/or the Major
Shareholders. Except for the indemnification obligations of the Major
Shareholders under this Article XII, no director, officer, employee, agent or
shareholder of DTC shall have any personal liability whatsoever under this
Agreement or in connection with the transactions contemplated hereunder, or
otherwise.
ARTICLE XIII. MISCELLANEOUS
Section 13.01. Survival of Representations and Warranties.
The representations and warranties of DTC, the Major Shareholders, Parent and
Subsidiary contained in this Agreement or in any instrument of transfer or other
document delivered pursuant to this Agreement shall survive for a period of one
year from the Closing Date, except that the representations and warranties of
each Major Shareholder set forth in Section 5.26 shall survive the Closing and
shall not terminate.
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Section 13.02. No Individual Representations. Except with
respect to representations and warranties made by the Major Shareholders, no
representations or warranties in this Agreement are made by, or shall be
attributed to, any director, officer, employee or shareholder of DTC, Parent or
subsidiary of DTC, Parent or Subsidiary. Further, upon the Closing of the
Merger, DTC shall be deemed to have released and waived any and all claims
against all of DTC's shareholders, directors, officers, employees, and agents
except for claims arising from any fraudulent or criminal activity by any DTC
Shareholder, director, officer, employee or agent.
Section 13.03. Expenses. Except as provided in this Section
13.03, or as expressly provided elsewhere in this Agreement, each party shall
pay its own expenses incurred in connection with the transactions described in
this Agreement. The parties agree that the proper allocation of the fees and
out-of-pocket expenses listed below is as indicated, such fees to be paid as
allocated regardless of whether the transaction described in this Agreement is
consummated or not:
(a) All fees and disbursements of Subsidiary and Parent's
counsel, consultants, and accountants shall be paid by Subsidiary or Parent.
(b) All fees and disbursements of the counsel, consultants,
and accountants of DTC and the DTC Shareholders as a group shall be paid by DTC;
(c) Filing fees and out-of-pocket expenses incurred by any
party in connection with securing regulatory approvals of the transactions
contemplated in this Agreement shall be paid by Subsidiary or Parent.
Section 13.04. Notices. Any notices, requests, or other
communications required or permitted hereunder shall be sufficiently given if
delivered personally or by a recognized overnight courier service, or sent by
facsimile machine promptly confirmed by telephone, or by registered or certified
mail, postage prepaid, addressed as follows:
To Subsidiary or Parent Telephone and Data Systems, Inc.
30 N. LaSalle Street
Suite 4000
Chicago, Illinois 60602
Attn: LeRoy T. Carlson
Chairman
Telephone: (312) 630-1900
Facsimile No.: (312) 630-1908
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<PAGE>
With a copy to: Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attn: Stephen P. Fitzell, Esq.
Telephone: (312) 853-7379
Facsimile No.: (312) 853-7036
To DTC: Deposit Telephone Co., Inc.
87 Front Street, P.O. Box 87
Deposit, New York 13754
Attn: Peter H. Feehan
President
Facsimile No.: (607) 467-3232
With a copy to: Bond, Schoeneck & King, LLP
One Lincoln Center
Syracuse, New York 13202-1355
Attn: Wallace J. McDonald, Esq.
Facsimile No.: (315) 422-3598
To the Major Shareholders c/o Peter H. Feehan
87 Front Street, P.O. Box 87
Deposit, New York 13754
Facsimile No.: (607) 467-3232
With a copy to: Bond, Schoeneck & King, LLP
One Lincoln Center
Syracuse, New York 13202-1355
Attn: Wallace J. McDonald, Esq.
Facsimile No.: (315) 422-3598
or to such other addresses or telecopy numbers as shall be furnished in writing
by a party, and any such notice or communication shall be deemed to have been
given as of the date so delivered, telecopied or mailed.
Section 13.05. Binding Effect. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns, provided that this Agreement may not be
assigned by any party without the prior written consent of the other parties.
Section 13.06. Press Releases. No press release or public
statement will be issued relating to the transactions described in this
Agreement without prior approval of DTC and Subsidiary. However, DTC, Parent or
Subsidiary may issue at any time any press release or other public statement it
believes, on the advice of counsel, it is obligated to issue to avoid liability
under the law relating to disclosures, but the party issuing such a press
release or public statement shall make every reasonable effort to give the other
party prior notice and an opportunity to participate in such release or
statement.
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Section 13.07. Confidential Information. The provisions of a
Confidentiality Agreement dated November 18, 1993, between DTC and Parent are
expressly incorporated into this Agreement by reference and made applicable to
the delivery of information by DTC to Subsidiary or Parent.
Section 13.08. Consents. Whenever the consent of any party
is required under the terms of this Agreement, such consent shall not be
unreasonably withheld.
Section 13.09. Materiality. For purposes of this Agreement,
an event, or an event together with other events, shall be deemed "material"
with respect to DTC, Parent, or Subsidiary only if such event or events shall be
capable of being quantified and such event, or such events in the aggregate,
shall result in a liability, claim, fine, loss or obligation in an amount equal
to or greater than one hundred thousand dollars ($100,000).
Section 13.10. Specific Performance. In the event that any
party fails to perform any of its respective obligations hereunder, the other
parties shall have the right, in addition to all of their other rights and
remedies, to seek specific performance of this Agreement.
Section 13.11. Governing Law, Jurisdiction and Venue. This
Agreement is made and shall be governed by and construed in accordance with the
laws of the State of New York. Any disputes, causes of action or claims arising
under or relating to this Agreement shall be brought in Federal or State Court
sitting in either Broome or Onondaga County, New York, and all parties consent
to the jurisdiction of these courts.
Section 13.12. Entire Agreement This Agreement constitutes
the entire agreement among the parties hereto with respect to the matters
contained herein, and supersedes all prior agreements and understandings between
the parties with respect thereto.
Section 13.13. Amendment. This Agreement may not be amended
or modified except by a written agreement specifically referring to this
Agreement and signed by all of the parties.
Section 13.14. Attorneys' Fees. If any party defaults in its
obligations under this Agreement (the "Defaulting Party") and, as a result
thereof, the other party (the "Nondefaulting Party") seeks to legally enforce
its rights under this Agreement, then, in addition to all of the damages and
remedies to which the Nondefaulting Party is entitled by reason of the default,
the Defaulting Party shall promptly pay
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<PAGE>
the Nondefaulting Party an amount equal to its costs and expenses, including
reasonable attorneys' fees, paid or incurred by the Nondefaulting Party in
connection with such enforcement.
Section 13.15. Information Provided in Schedules.
Information provided in any schedule hereto shall be deemed provided in all
without the necessity of replication.
Section 13.16. Counterparts. This Agreement may be executed
in counterparts, each of which shall be deemed an original, but all of which
together shall constitute one agreement.
The foregoing Agreement is established by the attached
signatures of the parties as of the date first above written.
[The remainder of this page is intentionally left blank.]
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<PAGE>
DEPOSIT TELEPHONE COMPANY, INC. THE MAJOR SHAREHOLDERS
By: /s/ PETER H. FEEHAN
--------------------------
Peter H. Feehan, President /s/ S. FENTON BUSFIELD
---------------------------
S. Fenton Busfield
TELEPHONE AND DATA SYSTEMS, INC.
/s/ MARGARET B. REES
---------------------------
Margaret B. Rees
By: /s/ LEROY T. CARLSON
--------------------------
LeRoy T. Carlson, Chairman /s/ JUNE B. NOLAN
---------------------------
June B. Nolan
DTC ACQUISITION CORP.
/s/ SUZANNE B. FEEHAN
--------------------------
Suzanne B. Feehan
By: /s/ LEROY T. CARLSON
---------------------------
LeRoy T. Carlson, President
/s/ PETER H. FEEHAN
--------------------------
Peter H. Feehan
THE S. FENTON and ETHEL S. BUSFIELD
IRREVOCABLE TRUST I
/s/ ROBERT E. GENANT
--------------------------
Robert E. Genant
By /s/ SUZANNE B. FEEHAN
-----------------------------
Suzanne B. Feehan, Trustee
By /s/ JUNE B. NOLAN
-----------------------------
June B. Nolan, Trustee
By /s/ MARGARET JOAN REES
-----------------------------
Margaret Joan Rees, Trustee
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<PAGE>
Schedules
1. Major Shareholders
3.01(b) - DTC Shareholders and number of TDS shares to be received.
5.02 - Subsidiaries
5.03 - Government Authorizations and Permits.
5.08 - Material Changes since 1993 Balance Sheet Date.
5.09 - Amendments to 1993 PSC Report.
5.12 - Telephone Plant and Equipment Summary.
5.13 - Real Property.
5.17 - Material Contracts.
5.18 - Litigation / Proceedings.
5.20 - Environmental Matters.
5.21 - Insurance.
5.22 - Employees.
5.23 - Employee Benefits.
5.25 - Liens - Personal Property.
6.01(f) - Prior Annual Wage and Salary Increases and Bonus Payments
6.04 - Additional Information to be Furnished.
Exhibits
9.01(f) - Form of Opinion of Counsel to DTC
10.01(e) - Form of Opinion of Counsel to Parent and Subsidiary
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<PAGE>
ANNEX B
<PAGE>
SECTIONS 623 AND 910
OF THE
NEW YORK BUSINESS CORPORATION LAW
SECTION 623 PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT
TO RECEIVE PAYMENT FOR SHARES. (a) A shareholder intending to enforce his right
under a section of this chapter to receive payment for his shares if the
proposed corporate action referred to therein is taken shall file with the
corporation, before the meeting of shareholders at which the action is submitted
to a vote, or at such meeting but before the vote, written objection to the
action. The objection shall include a notice of his election to dissent, his
name and residence address, the number and classes of shares as to which he
dissents and a demand for payment of the fair value of his shares if the action
is taken. Such objection is not required from any shareholder to whom the
corporation did not give notice of such meeting in accordance with this chapter
or where the proposed action is authorized by written consent of shareholders
without a meeting.
(b) Within ten days after the shareholders'
authorization date, which term as used in this section means the date on which
the shareholders' vote authorizing such action was taken, or the date on which
such consent without a meeting was obtained from the requisite shareholders, the
corporation shall give written notice of such authorization or consent by
registered mail to each shareholder who filed written objection or from whom
written objection was not required, excepting any shareholder who voted for or
consented in writing to the proposed action and who thereby is deemed to have
elected not to enforce his right to receive payment for his shares.
(c) Within twenty days after the giving of notice to
him, any shareholder from whom written objection was not required and who elects
to dissent shall file with the corporation a written notice of such election,
stating his name and residence address, the number and classes of shares as to
which he dissents and a demand for payment of the fair value of his shares. Any
shareholder who elects to dissent from a merger under section 905 (Merger of
subsidiary corporation) or paragraph (c) of section 907 (Merger or consolidation
of domestic and foreign corporations) or from a share exchange under paragraph
(g) of section 913 (Share exchanges) shall file a written notice of such
election to dissent within twenty days after the giving to him of a copy of the
plan of merger or exchange or an outline of the material features thereof under
section 905 or 913.
(d) A shareholder may not dissent as to less than all
of the shares, as to which he has a right to dissent, held by him of record,
that he owns beneficially. A nominee or fiduciary may not dissent on behalf of
any beneficial owner as to less than all of the shares of such owner, as to
which such nominee or fiduciary has a right to dissent, held of record by such
nominee or fiduciary.
(e) Upon consummation of the corporate action, the
shareholder shall cease to have any of the rights of a shareholder except the
right to be paid the fair value of his shares and any other rights under this
section. A notice of election may be withdrawn by the shareholder at any time
prior to his acceptance in writing of an offer made by the corporation, as
provided in paragraph (g), but in no case later than sixty days from the date of
consummation of the corporate action except that if the corporation fails to
make a timely offer, as provided in paragraph (g), the time for withdrawing a
notice of election shall be extended until sixty days from the date an offer is
made. Upon expiration of such time, withdrawal of a notice of election shall
require the written consent of the corporation. In order to be effective,
withdrawal of a notice of election must be accompanied by the return to the
corporation of any advance payment made to the shareholder as provided in
paragraph (g). If a notice of election is withdrawn, or the corporate action is
rescinded, or a court shall determine that the shareholder is not entitled to
receive payment for his shares, or the shareholder shall otherwise lose his
dissenter's rights, he shall not have the right to receive payment for his
shares and he shall be reinstated to all his rights as a shareholder as of the
consummation of the corporate action, including any intervening preemptive
rights and the right to payment of any intervening dividend or other
distribution or, if any such rights have expired or any such dividend or
distribution other than in cash has been completed, in lieu thereof, at the
election of the corporation, the fair value thereof in cash as determined by the
board as of the
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time of such expiration or completion, but without prejudice otherwise to any
corporate proceedings that may have been taken in the interim.
(f) At the time of filing the notice of election to
dissent or within one month thereafter the shareholder of shares represented by
certificates shall submit the certificates representing his shares to the
corporation, or to its transfer agent, which shall forthwith note conspicuously
thereon that a notice of election has been filed and shall return the
certificates to the shareholder or other person who submitted them on his
behalf. Any shareholder of shares represented by certificates who fails to
submit his certificates for such notation as herein specified shall, at the
option of the corporation exercised by written notice to him within forty-five
days from the date of filing of such notice of election to dissent, lose his
dissenter's rights unless a court, for good cause shown, shall otherwise direct.
Upon transfer of a certificate bearing such notation, each new certificate
issued therefor shall bear a similar notation together with the name of the
original dissenting holder of the shares and a transferee shall acquire no
rights in the corporation except those which the original dissenting shareholder
had at the time of the transfer.
(g) Within fifteen days after the expiration of the
period within which shareholders may file their notices of election to dissent,
or within fifteen days after the proposed corporate action is consummated,
whichever is later (but in no case later than ninety days from the shareholder's
authorization date), the corporation or, in the case of a merger or
consolidation, the surviving or new corporation, shall make a written offer by
registered mail to each shareholder who has filed such notice of election to pay
for his shares at a specified price which the corporation considers to be their
fair value. Such offer shall be accompanied by a statement setting forth the
aggregate number of shares with respect to which notices of election to dissent
have been received and the aggregate number of holders of such shares. If the
corporate action has been consummated, such offer shall also be accompanied by
(1) advance payment to each such shareholder who has submitted the certificates
representing his shares to the corporation, as provided in paragraph (f), of an
amount equal to eighty percent of the amount of such offer, or (2) as to each
shareholder who has not yet submitted his certificates a statement that advance
payment to him of an amount equal to eighty percent of the amount of such offer
will be made by the corporation promptly upon submission of his certificates. If
the corporate action has not been consummated at the time of the making of the
offer, such advance payment or statement as to advance payment shall be sent to
each shareholder entitled thereto forthwith upon consummation of the corporate
action. Every advance payment or statement as to advance payment shall include
advice to the shareholder to the effect that acceptance of such payment does not
constitute a waiver of any dissenters' rights. If the corporate action has not
been consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the making
of such offer, and a profit and loss statement or statements for not less than a
twelve month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such twelve month period, for the
portion thereof during which it was in existence. Notwithstanding the foregoing,
the corporation shall not be required to furnish a balance sheet or profit and
loss statement or statements to any shareholder to whom such balance sheet or
profit and loss statement or statements were previously furnished, nor if in
connection with obtaining the shareholders' authorization for or consent to the
proposed corporate action the shareholders were furnished with a proxy or
information statement, which included financial statements, pursuant to
Regulation 14A or Regulation 14C of the United States Securities and Exchange
Commission. If within thirty days after the making of such offer, the
corporation making the offer and any shareholder agree upon the price to be paid
for his shares, payment therefor shall be made within sixty days after the
making of such offer or the consummation of the proposed corporate action,
whichever is later, upon the surrender of the certificates for any such shares
represented by certificates.
(h) The following procedure shall apply if the
corporation fails to make such offer within such period of fifteen days, or if
it makes the offer and any dissenting shareholder or shareholders fail to agree
with it within the period of thirty days thereafter upon the price to be paid
for their shares:
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<PAGE>
(1) The corporation shall, within twenty days after
the expiration of whichever is applicable of the two periods last mentioned,
institute a special proceeding in the supreme court in the judicial district in
which the office of the corporation is located to determine the rights of
dissenting shareholders and to fix the fair value of their shares. If, in the
case of merger or consolidation, the surviving or new corporation is a foreign
corporation without an office in this state, such proceeding shall be brought in
the county where the office of the domestic corporation, whose shares are to be
valued, was located.
(2) If the corporation fails to institute such
proceeding within such period of twenty days, any dissenting shareholder may
institute such proceeding for the same purpose not later than thirty days after
the expiration of such twenty day period. If such proceeding is not instituted
within such thirty day period, all dissenter's rights shall be lost unless the
supreme court, for good cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who,
as provided in paragraph (g), have agreed with the corporation upon the price to
be paid for their shares, shall be made parties to such proceeding, which shall
have the effect of an action quasi in rem against their shares. The corporation
shall serve a copy of the petition in such proceeding upon each dissenting
shareholder who is a resident of this state in a manner provided by law for the
service of a summons, and upon each nonresident dissenting shareholder either by
registered mail and publication, or in such other manner as is permitted by law.
The jurisdiction of the court shall be plenary and exclusive.
(4) The court shall determine whether each dissenting
shareholder, as to whom the corporation requests the court to make such
determination, is entitled to receive payment for his shares. If the corporation
does not request any such determination or if the court finds that any
dissenting shareholder is so entitled, it shall proceed to fix the value of the
shares, which, for the purposes of this section, shall be the fair value as of
the close of business on the day prior to the shareholders' authorization date.
In fixing the fair value of the shares, the court shall consider the nature of
the transaction giving rise to the shareholder's right to receive payment for
shares and its effects on the corporation and its shareholders, the concepts and
methods then customary in the relevant securities and financial markets for
determining fair value of shares of a corporation engaging in a similar
transaction under comparable circumstances and all other relevant factors. The
court shall determine the fair value of the shares without a jury and without
referral to an appraiser or referee. Upon application by the corporation or by
any shareholder who is a party to the proceeding, the court may, in its
discretion, permit pretrial disclosure, including, but not limited to,
disclosure of any expert's reports relating to the fair value of the shares
whether or not intended for use at the trial in the proceeding and
notwithstanding subdivision (d) of section 3101 of the civil practice law and
rules.
(5) The final order in the proceeding shall be
entered against the corporation in favor of each dissenting shareholder who is a
party to the proceeding and is entitled thereto for the value of his shares so
determined.
(6) The final order shall include an allowance for
interest at such rate as the court finds to be equitable, from the date the
corporate action was consummated to the date of payment. In determining the rate
of interest, the court shall consider all relevant factors, including the rate
of interest which the corporation would have had to pay to borrow money during
the pendency of the proceeding. If the court finds that the refusal of any
shareholder to accept the corporate offer of payment for his shares was
arbitrary, vexatious or otherwise not in good faith, no interest shall be
allowed to him.
(7) Each party to such proceeding shall bear its own
costs and expenses, including the fees and expenses of its counsel and of any
experts employed by it. Notwithstanding the foregoing, the court may, in its
discretion, apportion and assess all or any part of the costs, expenses and fees
incurred by the corporation against any or all of the dissenting shareholders
who are parties to the proceeding, including any who have withdrawn their
notices of election as provided in paragraph (e), if the court finds that their
refusal to accept the corporate offer was arbitrary, vexatious or otherwise not
in good faith. The court may, in its discretion, apportion and assess all or any
part of the costs, expenses and fees incurred by any or all of the dissenting
shareholders who are parties to the proceeding against the corporation if the
court finds any of the
B-3
<PAGE>
following: (A) that the fair value of the shares as determined materially
exceeds the amount which the corporation offered to pay; (B) that no offer or
required advance payment was made by the corporation; (C) that the corporation
failed to institute the special proceeding within the period specified therefor;
(D) that the action of the corporation in complying with its obligations as
provided in this section was arbitrary, vexatious or otherwise not in good
faith. In making any determination as provided in clause (A), the court may
consider the dollar amount or the percentage, or both, by which the fair value
of the shares as determined exceeds the corporate offer.
(8) Within sixty days after final determination of
the proceeding, the corporation shall pay to each dissenting shareholder the
amount found to be due him, upon surrender of the certificate for any such
shares represented by certificates.
(i) Shares acquired by the corporation upon the
payment of the agreed value therefor or of the amount due under the final order,
as provided in this section, shall become treasury shares or be canceled as
provided in section 515 (Reacquired shares), except that, in the case of a
merger or consolidation, they may be held and disposed of as the plan of merger
or consolidation may otherwise provide.
(j) No payment shall be made to a dissenting
shareholder under this section at a time when the corporation is insolvent or
when such payment would make it insolvent. In such event, the dissenting
shareholder shall, at his option:
(1) Withdraw his notice of election, which shall in
such event be deemed withdrawn with the written consent of the corporations; or
(2) Retain his status as a claimant against the
corporation and, if it is liquidated, be subordinated to the rights of creditors
of the corporation, but have rights superior to the non-dissenting shareholders,
and if it is not liquidated, retain his right to be paid for his shares, which
right the corporation shall be obligated to satisfy when the restrictions of
this paragraph do not apply.
(3) The dissenting shareholder shall exercise such
option under subparagraph (1) or (2) by written notice filed with the
corporation within thirty days after the corporation has given him written
notice that payment for this shares cannot be made because of the restrictions
of this paragraph. If the dissenting shareholder fails to exercise such option
as provided, the corporation shall exercise the option by written notice given
to him within twenty days after the expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to
receive payment for his shares in the manner provided herein shall exclude the
enforcement by such shareholder of any other right to which he might otherwise
be entitled by virtue of share ownership, except as provided in paragraph (e),
and except that this section shall not exclude the right of such shareholder to
bring or maintain an appropriate action to obtain relief on the ground that such
corporate action will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this
section, any notice to be given by a corporation to a shareholder under this
section shall be given in a manner provided in section 605 (Notice of meetings
of shareholders).
(m) This section shall not apply to foreign
corporations except as provided in subparagraph (e)(2) of section 907 (Merger or
consolidation of domestic and foreign corporations). (Last amended by Ch. 117,
L. '86, eff. 9-1-86.)
SECTION 910 RIGHT OF SHAREHOLDER TO RECEIVE PAYMENT
FOR SHARES UPON MERGER OR CONSOLIDATION, OR SALE, LEASE, EXCHANGE OR OTHER
DISPOSITION OF ASSETS, OR SHARE EXCHANGE. (a) A shareholder of a domestic
corporation shall, subject to and by complying with section 623 (Procedure to
enforce shareholder's right to receive payment for shares), have the
B-4
<PAGE>
right to receive payment of the fair value of his shares and the other rights
and benefits provided by such section, in the following cases:
(1) Any shareholder entitled to vote who does not
assent to the taking of an action specified in subparagraphs (A), (B) and (C).
(A) Any plan of merger or consolidation to which the
corporation is a party; except that the right to receive payment of the fair
value of his shares shall not be available:
(i) To a shareholder of the parent corporation in a
merger authorized by section 905 (Merger of parent and subsidiary corporations),
or paragraph (c) of section 907 (Merger or consolidation of domestic and foreign
corporations); and
(ii) To a shareholder of the surviving corporation in
a merger authorized by this article, other than a merger specified in
subparagraph (i), unless such merger effects one or more of the changes
specified in subparagraph (b)(6) of section 806 (Provisions as to certain
proceedings) in the rights of the shares held by such shareholder.
(B) Any sale, lease, exchange or other disposition of
all of substantially all of the assets of a corporation which requires
shareholder approval under section 909 (Sale, lease, exchange or other
disposition of assets) other than a transaction wholly for cash where the
shareholders' approval thereof is conditioned upon the dissolution of the
corporation and the distribution of substantially all its net assets to the
shareholders in accordance with their respective interests within one year after
the date of such transaction.
(C) Any share exchange authorized by section 913 in
which the corporation is participating as a subject corporation; except that the
right to receive payment of the fair value of his shares shall not be available
to a shareholder whose shares have not been acquired in the exchange.
(2) Any shareholder of the subsidiary corporation in
a merger authorized by section 905 or paragraph (c) of section 907, or in a
share exchange authorized by paragraph (g) of section 913, who files with the
corporation a written notice of election to dissent as provided in paragraph (c)
of section 623. (Last amended by Ch. 390, L. '91, eff. 7-15-91.)
B-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Iowa Business Corporation Act, as amended, provides for
indemnification of directors and officers in a variety of
circumstances, which may include liabilities under the Securities Act
of 1933. The Registrant's By-laws provide for indemnification of the
Registrant's directors and officers (and those serving in such capacity
with a consolidated subsidiary or other entity at the request of the
Board of Directors of the Registrant) in the circumstances, and to the
extent, permitted by the Iowa Business Corporation Act, as amended.
The Registrant has directors' and officers' liability
insurance which provides, subject to certain policy limits, deductible
amounts and exclusions, coverage for all persons who have been, are or
may in the future be, directors or officers of the Registrant, against
amounts which such persons must pay resulting from claims against them
by reason of their being such directors or officers during the policy
period for certain breaches of duty, omissions or other acts done or
wrongfully attempted or alleged.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
No. Description of Document
2 Acquisition Agreement and Plan of Merger, dated as of
March 30, 1995, by and among the Registrant, DTC
Acquisition Corp., Deposit Telephone Company, Inc.,
and certain shareholders of Deposit (included as
Annex A to the Proxy Statement-Prospectus, except for
exhibits and schedules which will be supplied
supplementally to the Commission upon request).
3(i) Articles of incorporation, as amended.(1)
3(ii) By-laws, as amended.(1)
4(i) Specimen copy of certificate representing TDS Common
Shares.(1)
4(ii) The Indenture and Supplemental Indentures for the
Registrant's Series A, B, C, D, E and F Subordinated
Debentures are not being filed as exhibits because
the total authorized subordinated debentures do not
exceed 10% of the total assets of the registrant and
its subsidiaries. The Registrant agrees to furnish a
copy of such Indentures and Supplemental Indentures
if so requested by the Commission.
4(iii) Indenture between the Registrant and Harris Trust and
Savings Bank, Trustee, dated February 1, 1991, under
which the Registrant's Medium-Term Notes are
issuable. (2)
5 Opinion of Sidley & Austin.
23(i) Consent of independent public accountants.
23(ii) Consent of independent accountants.
II-1
<PAGE>
23(iii) Consent of Bush & Germain, P.C.
23(iv) Consent of Sidley & Austin (included in Exhibit 5).
99 Form of Proxy.
----------------------------------
(1) Incorporated herein by reference to the Registrant's
Report on Form 8-A/A-2 dated December 20, 1994.
(2) Incorporated herein by reference to Exhibit 4.1 to
the Registrant's Current Report on Form 8- K filed
with the SEC on February 19, 1991.
(b) Schedules
Report of Independent Public Accountants on Financial Statement Schedules*
Schedule I Condensed Financial Information of Registrant -
Balance Sheets as of December 31, 1994 and 1993, and
Statements of Income and Statements of Cash Flows for
each of the Three Years in the Period Ended December
31, 1994.*
Schedule II Valuation and Qualifying Accounts for each of the
Three Years in the Period Ended December 31, 1994.*
All other schedules are omitted because they are not
applicable or not required or because the required information is shown in the
financial statements or notes thereto.
- ---------------------
*Incorporated herein by reference to the Registrant's
Annual Report on Form 10-K for the Year Ended December 31, 1994.
Item 22. Undertakings
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) The undersigned Registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(c) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to the immediately preceding paragraph, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-2
<PAGE>
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(e) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Registration Statement or Amendment
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Chicago, State of Illinois on the 26th day of September, 1995.
TELEPHONE AND DATA SYSTEMS, INC.
By: /s/ LeROY T. CARLSON
-------------------------
LeRoy T. Carlson, Chairman
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement or Amendment has been signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
/s/ LeROY T. CARLSON
- ---------------------
LeRoy T. Carlson Chairman and Director September 26, 1995
/s/ LEROY T CARLSON, JR.
- --------------------
LeRoy T. Carlson, Jr. President and Director September 26, 1995
(chief executive officer)
/s/ MURRAY L. SWANSON
- -------------------
Murray L. Swanson Executive Vice President September 26, 1995
- Finance and Director
(chief financial officer)
/s/ RUDOLPH E. HORNACEK
- -------------------
Rudolph E. Hornacek Director September 26, 1995
/s/ JAMES BARR III
- ------------------
James Barr III Director September 26, 1995
/s/ LESTER O. JOHNSON
- ------------------
Lester O. Johnson Director September 26, 1995
/s/ DONALD C. NEBERGALL
- ------------------
Donald C. Nebergall Director September 26, 1995
/s/ HERBERT S. WANDER
- ------------------
Herbert S. Wander Director September 26, 1995
/s/ WALTER C.D. CARLSON
- ------------------
Walter C.D. Carlson Director September 26, 1995
/s/ DONALD R. BROWN
- -----------------
Donald R. Brown Director September 26, 1995
/s/ ROBERT J. COLLINS
- -----------------
Robert J. Collins Director September 26, 1995
/s/ GREGORY J. WILKINSON
- -----------------
Gregory J. Wilkinson Vice President and September 26, 1995
Controller (principal
accounting officer)
II-4
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description of Document Page
2 Acquisition Agreement and Plan of
Merger, dated as of March 30, 1995, by
and among the Registrant, DTC
Acquisition Corp., Deposit Telephone
Company, Inc., and certain
shareholders of Deposit (included as
Annex A to the Proxy Statement-
Prospectus, except for exhibits and
schedules which will be supplied
supplementally to the Commission upon
request).
3(i) Articles of incorporation, as
amended.(1)
3(ii) By-laws, as amended.(1)
4(i) Specimen copy of certificate
representing TDS Common Shares.(1)
4(ii) The Indenture and Supplemental
Indentures for the registrant's Series
A, B, C, D, E and F Subordinated
Debentures are not being filed as
exhibits because the total authorized
subordinated debentures do not exceed
10% of the total assets of the
Registrant and its subsidiaries. The
registrant agrees to furnish a copy of
such Indentures and Supplemental
Indentures if so requested by the
Commission.
4(iii) Indenture between the Registrant and
Harris Trust and Savings Bank,
Trustee, dated February 1, 1991, under
which the Registrant's Medium-Term
Notes are issuable. (2)
5 Opinion of Sidley & Austin.
23(i) Consent of independent public accountants.
23(ii) Consent of indenpendent accountants.
23(iii) Consent of Bush & Germain, P.C.
23(iv) Consent of Sidley & Austin (included in Exhibit 5).
99 Form of Proxy.
- -------------------------
(1) Incorporated herein by reference to the Registrant's
Report on Form 8-A/A-2 dated Deceomber 20, 1994.
(2) Incorporated by reference to Exhibit 4.1 to the
Registrant's Current Report on Form 8-K filed with the SEC
on February 19, 1991.
<PAGE>
EXHIBIT 5
SIDLEY & AUSTIN
ONE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60603
September 26, 1995
Telephone and Data Systems, Inc.
30 North LaSalle Street
40th Floor
Chicago, Illinois 60602
Re: 658,400 TDS Common Shares, $1.00 par value
Ladies and Gentlemen:
We are counsel to Telephone and Data Systems, Inc., an Iowa
corporation (the "Company"), and have represented the Company with respect to
the Registration Statement on Form S-4 (the "Registration Statement") being
filed by the Company with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
registration of 658,400 Common Shares, $1.00 par value (the "Shares"), of the
Company.
In rendering this opinion, we have examined and relied upon a
copy of the Registration Statement. We have also examined originals, or copies
of originals certified to our satisfaction, of such agreements, documents,
certificates and other statements of governmental officials and other
instruments, and have examined such questions of law and have satisfied
ourselves as to such matters of fact, as we have considered relevant and
necessary as a basis for this opinion. We have assumed the authenticity of all
documents submitted to us as originals, the genuineness of all signatures, the
legal capacity of all natural persons and the conformity with the original
documents of any copies thereof submitted to us for our examination.
Based on the foregoing, we are of the opinion that:
1. The Company is duly incorporated and validly existing under
the laws of the State of Iowa.
<PAGE>
Telephone and Data Systems, Inc.
September 26, 1995
Page 2
2. The Shares will be legally issued, fully paid and
non-assessable when (i) the Registration Statement as finally amended, shall
have become effective under the Securities Act, (ii) the Shares have been duly
issued and exchanged in the manner contemplated by the Registration Statement
and the resolutions of the Board of Directors authorizing the issuance and
exchange of the Shares and (iii) certificates representing the Shares shall
have been duly executed, countersigned and registered and duly delivered to
the purchasers thereof against payment of the agreed consideration therefor.
We do not find it necessary for the purposes of this opinion
to cover, and accordingly we express no opinion as to, the application of the
securities or blue sky laws of the various states to the sale of the Shares.
Except as expressly stated in the next sentence, this opinion
is limited to the laws of the State of Illinois and the laws of the United
States of America (excluding the Federal Communications Act, as amended, and the
rules and regulations thereunder) to the extent applicable. Insofar as the
opinions expressed above relate to the laws of the State of Iowa, we have not
made an independent examination of such laws, but have relied as to such laws
upon the opinion of Nyemaster, Goode, McLaughlin, Voigts, West, Hansell &
O'Brien, P.C. of Des Moines, Iowa, which is attached hereto.
TDS is controlled by a voting trust. Walter C.D. Carlson, a
trustee and beneficiary of the voting trust which controls TDS and a director of
TDS and certain subsidiaries of TDS, Michael G. Hron, the Secretary of TDS and
certain subsidiaries of TDS, William S. DeCarlo, the Assistant Secretary of TDS
and certain subsidiaries of TDS, Stephen P. Fitzell, the Secretary of certain
subsidiaries of TDS, and Sherry S. Treston, the Assistant Secretary of certain
subsidiaries of TDS, are partners of this Firm.
We hereby consent to the filing of this opinion as an Exhibit
to the Registration Statement and to all references to our Firm included in or
made a part of the Registration Statement.
Very truly yours,
SIDLEY & AUSTIN
<PAGE>
NYEMASTER, GOODE, MCLAUGHLIN, VOIGHTS,
WEST, HANSELL & O'BRIEN
1900 HUB TOWER
699 WALNUT STREET
DES MOINES, IOWA 50309-3956
September 26, 1995
Sidley & Austin
One First National Plaza
2 South Dearborn Street, Suite 2576
Chicago, Illinois 60603
Re: Telephone and Data Systems, Inc.
S-4 Registration Statement
Ladies and Gentlemen:
We have acted as your Iowa counsel with respect to the
Registration Statement on Form S-4 (the "Registration Statement") being filed by
Telephone and Data Systems, Inc. (the "Company") with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the registration of 658,400 Common Shares, $1.00
par value (the "Shares"), of the Company to be issued in connection with the
Acquisition Agreement and Plan of Merger, dated as of March 30, 1995, by and
among the Company, DTC Acquisition Corp., Deposit Telephone Company, Inc. and
the Major Shareholders (as defined therein).
We have examined such records, documents and questions of law
as we have considered relevant and necessary as a basis for this opinion. As to
matters of fact material to our opinions, we have with your agreement relied
upon certificates of officers of the Company. We have assumed with your
agreement the authenticity of all documents submitted to us as originals, the
conformity with the original documents of any copies submitted to us for our
examination and the authenticity of the original of any such copies.
Based on the foregoing, it is our opinion that:
<PAGE>
Sidley & Austin
September 26, 1995
Page 2
1. The Company is duly incorporated and validly existing under
the laws of the State of Iowa.
2. The Shares will be legally issued, fully paid and
non-assessable when: (i) the Registration Statement, as finally amended, shall
have become effective under the Securities Act; (ii) the Shares shall have been
duly issued and exchanged in the manner contemplated by the Registration
Statement and the resolutions of the Board of Directors authorizing the issuance
and exchange of the Shares and determining the adequacy of the consideration to
be received in exchange for the Shares; and (iii) certificates representing the
Shares shall have been duly executed, countersigned and registered and duly
delivered to the purchasers thereof against payment of the agreed consideration
therefor.
We are admitted to the Bar of the State of Iowa, and express
no opinion herein as to the laws of any other jurisdiction, including the laws
of the United States of America.
Except as expressly set forth herein, we express no opinion,
and no opinion is implied or may be inferred, in connection with the
Registration Statement or the issuance of the Shares. Without limiting the
generality of the foregoing, we express no opinion with respect to the
securities or blue sky laws of the various states.
This opinion is being delivered solely for the benefit of the
persons to whom it is addressed; accordingly, it may not be quoted, filed with
any governmental authority or other regulatory agency or otherwise circulated or
utilized for any other purposes without our prior written consent. Sidley &
Austin may refer to or quote from this opinion in its discretion in connection
with opinions it may be requested or required to give in connection with the
Registration Statement.
The undersigned law firm also hereby consents to the filing of
this opinion as an Exhibit to the Registration Statement and to the use of its
name in the Registration Statement.
Very truly yours,
NYEMASTER, GOODE, McLAUGHLIN,
VOIGTS, WEST, HANSELL &
O'BRIEN, P.C.
By /s/ G. R. Neumann
------------------------
G. R. Neumann
<PAGE>
EXHIBIT 23(i)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this Form S-4 Registration Statement of Telephone
and Data Systems, Inc. of our report dated February 7, 1995 (except with respect
to the matters discussed in Note 12 and Note 14, as to which the date is March
14, 1995), on the consolidated financial statements of Telephone and Data
Systems, Inc. and Subsidiaries, incorporated by reference in the Telephone and
Data Systems, Inc. Form 10-K for the year ended December 31, 1994, to the
incorporation by reference in this Form S-4 Registration Statement of our report
dated February 7, 1995 (except with respect to the matters discussed in Note 12
and Note 14, as to which the date is March 14, 1995), on the financial statement
schedules of Telephone and Data Systems, Inc., included in the Telephone and
Data Systems, Inc. Form 10-K for the year ended December 31, 1994, and to the
incorporation by reference in this Form S-4 Registration Statement of our
compilation report dated February 17, 1995, on the combined financial statements
of the Los Angeles SMSA Limited Partnership, the Nashville/Clarksville MSA
Limited Partnership and the Baton Rouge MSA Limited Partnership, included in the
Telephone and Data Systems, Inc. Form 10-K for the year ended December 31, 1994.
We also consent to all references to our Firm included in this Form S-4
Registration Statement.
ARTHUR ANDERSEN LLP
Chicago, Illinois
September 21, 1995
<PAGE>
EXHIBIT 23(iii)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in the Proxy Statement of
Deposit Telephone Company, Inc. and Prospectus of Telephone and Data Systems,
Inc. included in this Form S-4 Registration Statement of Telephone and Data
Systems, Inc. of our report dated February 16, 1995, on our audits of the
financial statements of Deposit Telephone Company, Inc. as of December 31, 1994
and 1993 and for the years ended December 31, 1994, 1993 and 1992. We also
consent to all references to our Firm included in this Form S-4 Registration
Statement.
BUSH & GERMAIN, PC
Syracuse, New York
September 21, 1995
<PAGE>
EXHIBIT 23(ii)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this
Form S-4 Registration Statement of Telephone and Data Systems, Inc. of our
report, which includes explanatory paragraphs relating to contingencies, dated
February 17, 1995, on our audits of the financial statements of the Los Angeles
SMSA Limited Partnership as of December 31, 1994 and 1993 and for each of the
three years in the period ended December 31, 1994, included in the Telephone and
Data Systems, Inc. Annual Report on Form 10-K for the year ended December 31,
1994; such financial statements were not included separately in such Form 10-K.
COOPERS & LYBRAND L.L.P.
Newport Beach, California
September 21, 1995
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this
Form S-4 Registration Statement of Telephone and Data Systems, Inc. of our
reports dated February 10, 1995, February 11, 1994 and February 11, 1993, on our
audits of the financial statements of the Nashville/Clarksville MSA Limited
Partnership as of December 31, 1994, 1993 and 1992 and for the years ended
December 31, 1994, 1993 and 1992, included in the Telephone and Data Systems,
Inc. Annual Report on Form 10-K for the year ended December 31, 1994; such
financial statements were not included separately in such Form 10-K.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
September 21, 1995
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this
Form S-4 Registration Statement of Telephone and Data Systems, Inc. of our
reports dated February 10, 1995, February 11, 1994 and February 11, 1993 on our
audits of the financial statements of the Baton Rouge MSA Limited Partnership as
of December 31, 1994, 1993 and 1992 and for the years ended December 31, 1994,
1993 and 1992, included in the Telephone and Data Systems, Inc. Annual Report on
Form 10-K for the year ended December 31, 1994; such financial statements were
not included separately in such Form 10-K.
COOPERS & LYBRAND, L.L.P.
Atlanta, Georgia
September 21, 1995
<PAGE>
EXHIBIT 99
PROXY
DEPOSIT TELEPHONE COMPANY, INC.
87 Front Street
Deposit, New York 13754
This Proxy is Solicited on Behalf of the Board of Directors.
PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY USING THE ENCLOSED ENVELOPE.
The undersigned hereby appoints S. Fenton Busfield, Peter H.
Feehan and Stephen P. Feehan and any of them as Proxies, each with the power
to appoint his or her substitute, and hereby authorizes them or any of them
to represent and to vote all the shares of capital stock, Common, no par value,
of Deposit Telephone Company, Inc., held on record by the undersigned on
___________, 1995, at the special meeting of shareholders to be held on
___________, 1995, and any adjournment or adjournments thereof, as described
below on the following Proposals and also, as such proxies may in their
discretion determine, upon all other matters of business as may properly come
before such meeting and any adjournment or adjournments thereof.
PROPOSAL 1. The approval and adoption of the Acquisition
Agreement and Plan of Merger dated as of March 30, 1995, by and among Telephone
and Data Systems, Inc. ("TDS"), DTC Acquisition Corp. ("Sub"), Deposit Telephone
Company, Inc. ("Deposit") and the Major Shareholders (as defined therein),
providing for the merger of Sub with and into Deposit, as set forth in the
accompanying Proxy Statement-Prospectus.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 2. The adjournment or adjournments of the special
meeting of shareholders if a quorum is not obtained.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
This proxy, when properly executed, will be voted in the
manner directed herein by the undersigned. If no direction is made, this proxy
will be voted FOR Proposal 1 and Proposal 2. The Board of Directors recommends
that the shareholders vote "FOR" Proposals 1 and 2.
Please sign exactly as your name appears on your Deposit stock certificate(s).
When shares are held by joint tenants, both should sign. When signing as
attorney, as executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate name by President
or other authorized officer. If a partnership, please sign the partnership name
by authorized person.
Date: __________________, 1995 ___________________________________
Signature
-----------------------------------
Signature(s), if held jointly
<PAGE>
