As filed with the Securities and Exchange Commission on February 6, 1996
Registration No. 333-
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, and 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 Codes, and telephone numbers,
including area codes, of agents for service)
Approximate date of commencement of proposed sale to
the public: As soon as practicable following the effectiveness
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: ___
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Title of each maximum maximum Amount
class of Amount offering aggregate of
securities to to be price offering registration
be registered registered per unit price fee
---------------- ------------ ------------ ------------ ----------------
Common Shares,
par value
$1.00 per share 525,000(1) N/A $7,405,381(2) $2,554(2)
===============================================================================
(1) Estimated maximum number of shares which may be issued in the merger,
assuming a price of approximately $35.00 per Common Share.
(2) An undetermined number of Common Shares of the Registrant are to be
exchanged in a merger for 611 shares of Tipton Telephone Company, Inc.
Because there is no market for the 611 shares of Tipton Telephone
Company, Inc. which are to be received by the Registrant in the Merger
(the "Tipton Shares"), pursuant to Rule 457(f)(2), the fee is to be
calculated based on the aggregate book value of such Tipton Shares,
which is $7,405,381 as of November 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>
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
Tipton Shares; Description of
TDS Securities; Comparative
Rights of TDS Shareholders
and Tipton Shareholders
5. Pro Forma Financial Information..... Summary Selected 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..................... Information with Respect
to 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 Tipton; Tipton
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations; Financial
Statements of Tipton
D. Voting and Management Information
18. Information If Proxies,
Consents or Authorizations
Are to be Solicited................. General Information; The
Merger - Dissenter's Right;
The Merger - Interests of
Certain Persons in the Merger;
Information with Respect to
Tipton - Directors and
Executive Officers, and -
Compensation of Officers
and Directors
19. Information If Proxies, Consents
or Authorizations Are Not to be
Solicited or in an Exchange Offer... *
- ---------------
* Not applicable or answer negative
<PAGE>
TIPTON TELEPHONE COMPANY, INC.
117 East Washington Street
Tipton, Indiana 46072
Dear Shareholder:
You are invited to attend a special meeting of shareholders of
Tipton Telephone Company, Inc. ("Tipton") to be held at 1:00 p.m. on April 9,
1996 at St. Joseph Center, 1440 West Division, Tipton, Indiana 46072. At the
special meeting, shareholders of Tipton will be asked to consider and approve an
Amended and Restated Agreement and Plan of Merger by and among Telephone and
Data Systems, Inc. ("TDS"), TDS-Tipton Acquisition Corp. ("Sub") and
Tipton (the "Merger Agreement"), and the merger of Sub with and into Tipton
(the "Merger").
If approved, the Merger is expected to occur on or about April
26, 1996 if all regulatory approvals have been received by such date, or as soon
as practicable thereafter following the receipt of all required regulatory
approvals. In the Merger, Tipton will become a wholly owned subsidiary of TDS
and Tipton shares held by its shareholders (other than dissenting shares) will
be converted into Common Shares of TDS as described in the accompanying Proxy
Statement-Prospectus.
Your Board of Directors believes that the Merger Agreement and
Merger are in the best interests of all Tipton shareholders and recommends that
you vote your shares for the Merger Agreement and Merger. The terms of the
Merger Agreement and 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 Form 10-K for the period
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
for the 1995 annual meeting of shareholders and the TDS Form 10-Q for the
quarter ended September 30, 1995. You are urged to read the Proxy
Statement-Prospectus and the accompanying documents carefully.
Approval of the Merger requires the affirmative vote of the
holders of at least a majority of the outstanding Tipton shares entitled to vote
on the proposal. CONSEQUENTLY, THE EFFECT OF FAILING TO VOTE ANY TIPTON 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 TIPTON, 117 EAST WASHINGTON STREET, TIPTON, INDIANA 46072. PLEASE DO
NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
As more fully discussed in the accompanying Proxy
Statement-Prospectus, any holder of record of Tipton Shares who follows the
procedures specified in Sections 23-1-44-1 through 23-1-44-20 of the Indiana
Business Corporation Law (the "Appraisal Provisions") is entitled to receive the
"fair value" of such shares in lieu of the consideration that such shareholder
would otherwise be entitled to receive pursuant to the Merger Agreement.
Reference is made to the Appraisal Provisions, which are attached to the
accompanying Proxy Statement-Prospectus as Annex B, for a complete statement of
the appraisal rights of dissenting shareholders.
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,
Joe F. Watson
President
February 12, 1996
<PAGE>
TIPTON TELEPHONE COMPANY, INC.
Notice of Special Meeting of Shareholders to be Held on April 9, 1996
To the Shareholders of
Tipton Telephone Company:
A special meeting of the shareholders of Tipton Telephone
Company, Inc., an Indiana corporation ("Tipton"), will be held on April 9, 1996
at 1:00 p.m. at St. Joseph Center, 1440 West Division, Tipton, Indiana 46072,
for the following purposes:
1. To consider and vote upon approval of an Amended and
Restated Agreement and Plan of Merger by and among Telephone and Data Systems,
Inc. ("TDS"), TDS-Tipton Acquisition Corp. ("Sub") and Tipton (the "Merger
Agreement") providing for the merger (the "Merger") of Sub with and into Tipton
pursuant to which Tipton will become a wholly-owned subsidiary of TDS. In the
Merger, all of the issued and outstanding shares of common stock, par value
$50.00 per share, of Tipton (the "Tipton Shares"), other than dissenting shares,
will be converted into Common Shares of TDS, as further described in the
accompanying Proxy Statement-Prospectus.
2. To transact such other business as may properly come before
the special meeting and any adjournment or adjournments thereof.
The Board of Directors of Tipton has fixed February 10, 1996
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 a majority of the issued and outstanding Tipton Shares. Consequently,
the effect of failing to vote any Tipton Share at the Special Meeting will be
the same as a negative vote with respect to the Merger. On February 10, 1996,
there were 611 Tipton Shares outstanding.
As more fully discussed in the accompanying Proxy
Statement-Prospectus, any holder of record of Tipton Shares who follows the
procedures specified in Sections 23-1-44-1 through 23-1-44-20 of the Indiana
Business Corporation Law (the "Appraisal Provisions") is entitled to receive the
"fair value" of such shares in lieu of the consideration that such shareholder
would otherwise be entitled to receive pursuant to the Merger Agreement.
Reference is made to the Appraisal Provisions, which are attached to the
accompanying Proxy Statement-Prospectus as Annex B, for a complete statement of
the appraisal rights of dissenting shareholders.
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN
IT PROMPTLY BUT NOT LATER THAN APRIL 8, 1996 IN THE ENCLOSED PREPAID ENVELOPE TO
TIPTON, 117 EAST WASHINGTON STREET, TIPTON, INDIANA 46072, 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,
Doris Ann Gish
Treasurer/Secretary
February 12, 1996
<PAGE>
TIPTON TELEPHONE COMPANY, INC. TELEPHONE AND DATA SYSTEMS, INC.
117 East Washington Street 30 North LaSalle Street, Suite 4000
Tipton, Indiana 46072 Chicago, Illinois 60602
PROXY STATEMENT-PROSPECTUS
For the Special Meeting to be held on April 9, 1996
-----------
This Proxy Statement is being distributed by the Board of
Directors of Tipton Telephone Company, Inc. ("Tipton") in connection with the
solicitation of proxies from Tipton shareholders for use at a Special Meeting of
Shareholders to be held on April 9, 1996, including any adjournments thereof, to
consider and vote upon the merger (the "Merger") of TDS-Tipton Acquisition Corp.
("Sub") with and into Tipton pursuant to which Tipton will become a wholly-owned
subsidiary of Telephone and Data Systems, Inc. ("TDS"). This Proxy Statement
also represents the Prospectus of TDS relating to its Common Shares, par value
$1.00 per share (the "TDS Common Shares"), to be issued in connection with the
Merger. Also being delivered herewith are the TDS 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 for its
1995 annual meeting of shareholders and the TDS Form 10-Q for the quarter ended
September 30, 1995.
As more fully discussed below under "The Merger - Dissenting
Shares," any holder of record of Tipton Shares who follows the procedures
specified in Sections 23-1-44-1 through 23-1-44-20 of the Indiana Business
Corporation Law (the "Appraisal Provisions") is entitled to receive the "fair
value" of such shares in lieu of the consideration that such shareholder would
otherwise be entitled to receive pursuant to the Merger Agreement. Reference is
made to the Appraisal Provisions, copies of which are attached to this Proxy
Statement-Prospectus as Annex B, for a complete statement of the appraisal
rights of dissenting shareholders.
This Proxy Statement-Prospectus is first being sent to
shareholders of Tipton on or about February 12, 1996.
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 Tipton. This Proxy Statement-Prospectus does not
constitute an offer of any securities other than the securities to which it
relates or 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 February 12, 1996.
<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, Seven World Trade Center, New York, New York 10048; and Chicago Regional
Office, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained from the Pubic 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 SEC. 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, including
portions of the TDS 1994 Annual Report to Shareholders and Notice of Annual
Meeting of Shareholders and Proxy Statement dated April 14, 1995 which are
incorporated by reference therein; (b) Current Reports on Form 8-K dated March
15, 1995, May 19, 1995, September 28, 1995 and January 10, 1996; (c) Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1995, June 30, 1995 and
September 30, 1995 and (d) Report on Form 8-A/A-2, dated December 20, 1994,
which includes a description of the TDS 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 Tipton, 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
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
(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, 40TH FLOOR, CHICAGO, ILLINOIS 60602 (TELEPHONE 312-630-1900). IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE
BEFORE APRIL 2, 1996.
-2-
<PAGE>
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION........................................................2
DOCUMENTS INCORPORATED BY REFERENCE..........................................2
SUMMARY......................................................................4
SUMMARY SELECTED FINANCIAL INFORMATION.......................................7
GENERAL INFORMATION..........................................................9
THE MERGER..................................................................10
General .................................................................10
Amendment of Articles of Incorporation of Tipton..........................10
Background of the Merger..................................................10
Tipton's Reasons for the Merger; Recommendation of Tipton's Board
of Directors............................................................13
TDS's Reasons for the Merger..............................................14
Time of Merger............................................................15
Vote Required.............................................................15
Conversion of Shares in the Merger........................................15
Price Range of TDS Common Shares..........................................15
Exchange of Certificates..................................................16
Fractional Shares.........................................................16
Representations and Warranties............................................16
Operation of Tipton Pending Completion of the Merger......................17
Operation of Tipton Following the Merger..................................17
Conditions................................................................18
Indemnification...........................................................19
Amendment; Termination....................................................20
Interests of Certain Persons in the Merger................................20
Registration and Listing of TDS Common Shares; Sales by
Tipton Affiliates.......................................................20
Certain Federal Income Tax Consequences...................................20
Accounting Treatment......................................................22
Regulatory Approvals......................................................22
Dissenters' Rights........................................................22
INFORMATION WITH RESPECT TO TDS.............................................23
INFORMATION WITH RESPECT TO TIPTON..........................................24
Business of Tipton........................................................24
Property of Tipton........................................................25
Legal Proceedings of Tipton...............................................25
Authorized and Outstanding Securities of Tipton...........................25
Market for Tipton Shares and Dividends....................................25
Ownership of Tipton Shares................................................26
Directors and Executive Officers..........................................27
Key Employee..............................................................27
Compensation of Officers and Directors ...................................28
Tipton Benefit Plans......................................................28
Certain Relationships and Related Transactions............................28
TIPTON MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................29
DESCRIPTION OF TIPTON SHARES................................................32
DESCRIPTION OF TDS SECURITIES...............................................32
COMPARATIVE RIGHTS OF TDS SHAREHOLDERS AND TIPTON SHAREHOLDERS..............34
LEGAL MATTERS...............................................................37
EXPERTS.....................................................................37
INDEX TO TIPTON FINANCIAL STATEMENTS.......................................F-1
Annex A - Amended and Restated Agreement and Plan of Merger
Annex B - The Indiana Code Chapter 44: Dissenter's Rights
-3-
<PAGE>
SUMMARY
The following is a summary of certain information contained
elsewhere in this Proxy Statement-Prospectus or in documents incorporated by
reference herein. 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 incorporated by
reference herein.
Tipton Telephone Company, Inc.
Tipton Telephone Company, Inc., an Indiana corporation
("Tipton"), is engaged in the business of providing local exchange telephone
service to customers in portions of Tipton county in the State of Indiana. The
principal executive office of Tipton is located at 117 East Washington Street,
Tipton, Indiana 46072, and its telephone number is: (317) 675-2181. See
"Information with Respect to Tipton."
Telephone and Data Systems, Inc.
Telephone and Data Systems, Inc., an Iowa corporation ("TDS"),
is a diversified telecommunications service company with established cellular
telephone, local telephone and radio paging operations and developing personal
communications services. The principal executive office of TDS is located at 30
North LaSalle Street, 40th Floor, Chicago, Illinois 60602, and its telephone
number is: (312) 630-1900. See "Information with Respect to TDS."
Merger Agreement
On February 5, 1996, TDS, TDS-Tipton Acquisition Corp., an
Indiana corporation and wholly-owned subsidiary of TDS ("Sub"), and Tipton
entered into an Amended and Restated Agreement and Plan of Merger (the "Merger
Agreement") providing for the merger of Sub with and into Tipton pursuant to
which Tipton would become a wholly-owned subsidiary of TDS. See "The Merger".
Date, Time and Place of Tipton Shareholders' Meeting
A special meeting of shareholders of Tipton will be held on
April 9, 1996 at 1:00 p.m., at St. Joseph Center, 1440 West Division, Tipton,
Indiana 46072 (the "Tipton Meeting"). See "General Information."
Purpose of the Tipton Meeting
To consider and vote upon the following proposals:
1. To approve the Merger Agreement and the transaction
contemplated thereby; and
2. To transact any other business that may properly come
before the Tipton Meeting.
Record Date
Only holders of record of shares of common stock, par value
$50.00 per share, of Tipton ("Tipton Shares"), on February 10, 1996 (the "Tipton
Record Date"), are entitled to vote at the Tipton Meeting. On that date 611
Tipton Shares were outstanding and held by 27 holders of record (the "Tipton
Shareholders"). See "Information with Respect to Tipton - Ownership of Tipton
Shares."
-4-
<PAGE>
Vote Required
Approval of the Merger Agreement will require the affirmative
vote of the holders of a majority of the outstanding Tipton Shares. On February
10, 1996, there were 611 Tipton Shares
outstanding. As a result, approval of the Merger Agreement requires the
affirmative vote by holders of at least 306 Tipton Shares.
PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY USING
THE ENCLOSED ENVELOPE TO MAKE SURE YOUR VOTE IS REPRESENTED AT THE TIPTON
MEETING.
The Merger
Upon consummation of the Merger, Sub will be merged with and
into Tipton and Tipton will become a wholly owned subsidiary of TDS. In the
Merger, each Tipton Share issued and outstanding immediately prior to the Merger
(other than shares held by any shareholder who shall have perfected his or her
right to dissent under the Indiana Business Corporation Law) will be converted
into the right to receive Common Shares, par value $1.00 per share, of TDS ("TDS
Common Shares"). The number of whole TDS Common Shares into which each Tipton
Share will be converted will be determined by dividing the Purchase Price (as
defined below) by 611, the number of outstanding Tipton Shares. Each holder of
Tipton 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 Merger Price (as
defined below)(the aggregate of such TDS Common Shares and cash for fractional
shares is herein referred to as the "Merger Consideration"). The Purchase Price
means that number of TDS Common Shares equal to $18,330,000 divided by the
Merger Price. For purposes of the Merger Agreement, the Merger Price will be the
mean average per share closing price of the TDS Common Shares as reported on the
American Stock Exchange Composite Tape for the 20 successive trading days ending
with the trading day which is five trading days prior to the Closing Date. TDS
has the right to terminate the Merger Agreement if the Merger Price is less than
$38.00.
See "The Merger - Price Range of TDS Common Shares" for
historical information concerning the selling prices of the TDS Common Shares on
the American Stock Exchange. The closing price per TDS Common Share on January
31, 1996 was $40.625. Assuming a Merger Price of $40.625, if the Merger is
approved, each holder of Tipton Shares would become entitled to receive 738.4615
TDS Common Shares for each Tipton Share converted in the Merger, based on 611
outstanding Tipton Shares. Based on the Merger Price, the value of the Merger
Consideration will be $30,000 per Tipton Share.
The Merger Agreement also provides that Tipton shall be
entitled to pay a dividend equal to $250 per Tipton Share if the Merger is not
consummated prior to May 22, 1996.
Recommendation of Tipton's Board of Directors
The Board of Directors of Tipton believes that the Merger is
in the best interests of Tipton and its shareholders. The Board of Tipton
recommends that the Tipton Shareholders approve the Merger Agreement and the
Merger. In reaching such determination, the Tipton Board of Directors
considered, among other things, the Board's knowledge of the management,
business, operations, properties, assets, earnings and prospects of the business
of Tipton and of the environment in which it operates, the background of TDS and
its plans regarding the operation of Tipton, the lack of liquidity and
restrictions of the Tipton Shares, the liquidity and value of the TDS Common
Shares and the fact that the Merger would allow Tipton Shareholders to acquire
an equity interest in a larger, more diversified company whose shares are
publicly traded. In addition, the Tipton Board of Directors considered the price
offered to Tipton Shareholders by TDS and the fact that the offer of TDS Common
Shares permits the Tipton Shareholders to structure the Merger as a tax-free
reorganization under Section 368(a) of the Code to be of primary significance.
The Board also considered the fact that TDS agreed that a dividend of $250 per
share could be paid if the Merger does not take place by May 22, 1996. See "The
Merger - Tipton's Reasons for the Merger; Recommendation of Tipton's Board of
Directors."
-5-
<PAGE>
Time of Merger
If the Merger Agreement and the Merger are approved at the
Tipton Meeting, the Merger is expected to become effective on or about April 26,
1996 if all required regulatory approvals have been received by such date or as
soon as practicable thereafter following the receipt of all required regulatory
approvals (such date being the "Time of Merger").
Exchange of Certificates
Promptly after the Time of Merger, Tipton Shareholders will
receive instructions for exchanging certificates representing Tipton Shares for
certificates representing TDS Common Shares and cash in lieu of fractional
shares. Tipton Shareholders should not surrender their certificates prior to
receiving such instructions.
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. See "The Merger Conditions." The
Merger Agreement may be terminated by mutual consent of TDS, Sub and Tipton, by
TDS, Sub or Tipton if certain conditions have not been satisfied by August 31,
1996 or by TDS if the Merger Price is less than $38.00. See "The Merger -
Conditions" and "- Amendment; Termination."
Regulatory Approvals
The Merger is subject to approval by the Indiana Utility
Regulatory Commission ("IURC") and the transfer of certain radio licenses is
subject to the approval of the Federal Communications Commission ("FCC").
Filings seeking such approval have been made with IURC and FCC. In addition, if
certain financial tests are met prior to the closing, the Merger may also
require the filing of certain information and the expiration or termination of
the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976. See "The Merger - Regulatory Approvals."
Federal Income Tax Consequences
The Merger is intended by Tipton 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 so qualifies 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." Tipton shareholders are urged to consult their own tax
advisors.
Dissenters' Rights
Under the Indiana Business Corporation Law, Tipton
Shareholders will be entitled to dissent from the Merger and, if the Merger is
consummated, obtain cash in an amount equal to the fair value of their Tipton
Shares, 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. A copy of the provisions of Indiana law that establish the right of
Tipton Shareholders to dissent from approval of the Merger Agreement, and the
procedures required to exercise such rights, and obtain court determined
appraised value for the Tipton Shares is attached. See "The Merger - Dissenters'
Rights."
Unless waived, it is a condition to the obligations of TDS and
Sub to consummate the Merger that there be no more than 122 Dissenting Shares.
In addition, it is a condition to the obligations of Tipton to consummate the
Merger that, at the Time of Merger, the number of Dissenting Shares does not
exceed the maximum number of Tipton Shares which Tipton's counsel reasonably
concludes may dissent without causing the Merger to fail to satisfy the
requirements of Section 368(a)(2)(E) of the Code.
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<PAGE>
SUMMARY SELECTED FINANCIAL INFORMATION
The following tables present summary historical information
for TDS and Tipton. This Information is based upon the consolidated financial
statements of TDS and the financial statements of Tipton incorporated by
reference or appearing elsewhere in this Proxy Statement-Prospectus and should
be read in conjunction therewith and the notes thereto.
Historical Information
<TABLE>
<CAPTION>
Nine Months Ended
September 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................ $ 698,574 $ 525,492 $ 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 principal). 88,369 42,167 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.......................... 86,916 39,711 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 principal). 1.49 .75 1.07 .67 .91 .59 .86
Extraordinary Item................ --- --- --- --- (.02) --- ---
Cumulative effect of a change in
accounting principle)........... --- (.01) (.01) --- (.17) (.15) ---
Net Income........................ 1.49 .74 1.06 .67 .72 .44 .86
Cash dividends per TDS Common Share .285 .27 .36 .34 .32 .30 .28
Total assets........................ 3,400,626 2,634,940 2,790,127 2,259,182 1,696,182 1,368,145 940,289
Long-term debt and redeemable
preferred stock................... 910,227 573,012 587,165 564,933 454,852 424,739 277,031
Book value per TDS Common Share..... $28.80 $26.67 $26.85 $24.15 $21.27 $18.42 $14.17
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 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>
Tipton Historical:
Operating revenues................ $ 2,702 $ 2,428 $ 3,189 $ 3,024 $ 2,822 $ 2,621 $ 2,441
Net income........................ 700 715 962 956 871 950 805
Net income per Tipton Share....... 1,145 986 1,381 1,195 1,088 1,188 1,006
Cash dividends per Tipton Share... 250 250 500 500 375 225 200
Total assets...................... 10,017 9,632 9,751 10,183 9,193 8,995 7,941
Long-term debt.................... 434 543 405 517 618 709 793
Book value per Tipton Share....... $ 11,908 $ 10,745 $ 10,832 $ 9,910 $ 9,215 $ 8,501 $ 7,539
</TABLE>
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<PAGE>
Pro Forma Combined(2)
Nine Months Year
Ended Ended
September 30, December 31,
1995 1994
(Unaudited)(3) (Unaudited)(3)
---------------- ---------------
TDS and Tipton:
Net income before cumulative effect
of change in accounting principle per TDS
Common Share:
Pro Forma........................... $ 1.49 $ 1.07
Tipton Share equivalent............. 1,114.02 800.00
Net income per TDS Common Share:
Pro Forma........................... 1.49 1.07
Tipton Share equivalent............. 1,114.02 800.00
Cash dividends per TDS Common Share:
Pro Forma........................... .285 .36
Tipton Share equivalent............. 213.08 269.16
Book value per TDS Common Share:
Pro Forma........................... 28.89 26.96
Tipton Share equivalent............. $ 21,600.00 $ 20,157.01
(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.
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 Tipton has been
prepared based on the purchase method of accounting assuming 747.6636 TDS
Common Shares are issued for each Tipton Share (based on the closing price
of $40.125 per TDS Common Shares on January 8, 1996, the date of the Merger
Agreement). The pro forma combined information reflects TDS's acquisition
of 100% of the Tipton Common Shares, the elimination of the Tipton 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 nine months ended September 30,
1995 represents the combined results of TDS and Tipton for the nine months
ended September 30, 1995. Pro forma financial information for the year
ended December 31, 1994 represents the combined results of TDS and Tipton
for the twelve months ended December 31, 1994.
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<PAGE>
GENERAL INFORMATION
This Proxy Statement-Prospectus is being furnished in
connection with the solicitation by the Board of Directors of Tipton Telephone
Company, Inc., an Indiana corporation ("Tipton"), of proxies to be voted at a
special meeting of the shareholders of Tipton (the "Tipton Meeting") which will
be held on April 9, 1996.
The purpose of the Tipton Meeting is to consider and vote upon
a proposal to approve the Amended and Restated Agreement and Plan of Merger,
dated as of February 5, 1996 (the "Merger Agreement"), by and among Telephone
and Data Systems, Inc., an Iowa corporation ("TDS"), TDS-Tipton Acquisition
Corp., an Indiana corporation and a wholly-owned subsidiary of TDS ("Sub"), and
Tipton, providing for the merger (the "Merger") of Sub with and into Tipton
pursuant to which Tipton will become a wholly-owned subsidiary of TDS.
The Board of Directors of each of Tipton and Sub have adopted
and approved the Merger and Merger Agreement. The Board of Directors of TDS has
approved the issuance of Common Shares, $1.00 par value ("TDS Common Shares") in
the Merger, and TDS, as the sole shareholder of Sub, has approved the Merger and
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 February 10, 1996 (the "Tipton Record
Date") has been fixed as the record date for determination of the holders of
shares of common stock, par value $50.00 per share, of Tipton ("Tipton Shares")
entitled to notice of, and to vote at, the Tipton Meeting. As of the Tipton
Record Date, there were 611 Tipton Shares outstanding and held by 27 holders of
record (the "Tipton Shareholders"). Each holder of record on the Tipton Record
Date of Tipton Shares is entitled to one vote per share held by such holder on
each matter submitted to a vote at the Tipton Meeting. The affirmative vote of
the holders of a majority of the outstanding Tipton Shares is required for
approval of the Merger Agreement.
All properly executed proxies not revoked will be voted at the
Tipton 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 properly
brought before the Tipton Meeting and submitted to a vote, all proxies will be
voted in accordance with the judgment of the person or 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 Tipton
or by attending the Tipton Meeting and voting in person.
Representatives of Kehlenbrink, Lawrence & Pauckner, Tipton's
independent certified public accountants, are expected to be present at the
Tipton 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 Tipton. The cost of solicitation of proxies from shareholders of
Tipton will be paid by Tipton. In addition to the solicitation of proxies by use
of mail, the directors, officers or other agents of Tipton may solicit proxies
personally or by telephone or other telecommunications media.
All information contained herein relating to TDS has been
furnished by TDS. TDS has no present affiliation with Tipton.
-9-
<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.
General
TDS, Sub and Tipton have entered into the Merger Agreement,
which contemplates that Sub will be merged with and into Tipton, with Tipton
surviving the Merger as an Indiana corporation and becoming a wholly-owned
subsidiary of TDS. If the Merger is approved, each outstanding Tipton Share
(other than dissenting shares as described herein) will be converted at the time
the Merger becomes effective (such time being called the "Time of Merger") into
the right to receive the number of whole Common Shares, par value $1.00 per
share, of TDS ("TDS Common Shares") determined by dividing the Purchase Price by
611, the number of outstanding Tipton Shares. Each holder of Tipton 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 Merger Price (as defined
below) (the aggregate of such TDS Common Shares and cash for fractional shares
is herein referred to as the "Merger Consideration"). The Purchase Price means
that number of TDS Common Shares equal to $18,330,000 divided by the Merger
Price. For purposes of the Merger Agreement, the Merger Price will equal the
mean average per share closing price of the TDS Common Shares as reported on the
American Stock Exchange Composite Tape for the 20 successive trading days ending
with the trading day which is five trading days prior to the Closing Date. See
"The Merger - Conversion of Shares in the Merger." TDS has the right to
terminate the Merger Agreement if the Merger Price is less than $38.00. See "The
Merger - Amendment; Termination." The Merger is subject to the satisfaction of a
number of conditions, including the approval by the Tipton Shareholders, as set
forth under "The Merger - Conditions."
Amendment of Articles of Incorporation of Tipton
At the present time, Section 1 of Article IX of the Articles
of Incorporation of Tipton provides that the number of Directors of Tipton shall
be not less than three nor more than five. As part of the Merger, Section 1 of
Article IX of the Articles of Incorporation of Tipton will be amended to provide
that "The number of Directors shall consist of such number of members as shall
be resolved by the Board of Directors or the Shareholders, but shall not be less
than three (3) members." This change will permit TDS to add its representatives
to the Board of Directors of Tipton following the Merger. See "The Merger -
Operation of Tipton Following the Merger."
At the present time, Section 2 of Article IX of the Articles
of Incorporation of Tipton provides that "Directors shall be shareholders of the
Corporation." After the Time of Merger, TDS will be the only shareholder.
Therefore, the Merger Agreement provides that, at the Time of Merger, as part of
the Merger, Section 2 of Article IX of the Articles of Incorporation of Tipton
shall be amended to provide that "Directors need not be shareholders of the
Corporation."
Background of the Merger
A representative of TDS made the initial contact with Tipton
and arranged a meeting which was held on March 31, 1994. At the meeting the
representative of TDS expressed the desire of TDS to acquire Tipton and the
terms of a possible acquisition of Tipton by TDS were discussed.
On April 14, 1994, TDS delivered a letter to Tipton setting
forth the material terms pursuant to which TDS offered to acquire Tipton. This
letter offered that TDS would acquire Tipton in exchange for an aggregate of
336,050 TDS Common Shares, or 550 TDS Common Shares for each Tipton Share, based
on 611 Tipton Shares. The Tipton Board took no action on this letter. This offer
expired by
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<PAGE>
its terms on May 13, 1994 since it was not accepted by Tipton on or prior to
such date. Following this, TDS continued to discuss with the management of
Tipton the possible acquisition of Tipton by TDS.
On July 28, 1994, TDS delivered to Tipton a second letter
substantially repeating the terms of its April 14 letter, pursuant to which TDS
offered to acquire Tipton. Like the April 14 letter, this letter also offered
that TDS would acquire Tipton in exchange for an aggregate of 336,050 TDS Common
Shares, or 550 TDS Common Shares for each Tipton Share, based on 611 Tipton
Shares. The TDS letter provided that it would terminate if not accepted by
Tipton by midnight on August 19, 1994.
The President of Tipton presented the TDS offer to the Tipton
Board of Directors at its August 15, 1994 meeting. The Tipton Board determined
to defer action on the TDS offer. The Tipton Board authorized Tipton management
to contact Ernst & Young for the purpose of employing such firm to complete an
appraisal of the fair market value of Tipton as a going concern and to report
such findings to the Tipton Board for use in evaluating any purchase offers from
TDS or any other possible suitors.
Following this meeting, Ernst & Young was engaged by Tipton
management to conduct a market evaluation regarding the sale of Tipton.
Following this engagement, Ernst & Young visited and obtained various
information from Tipton and prepared a market evaluation regarding the sale of
Tipton.
At the October 17, 1994 Board of Directors meeting, the Tipton
Board discussed the evaluation of the Company completed by Ernst & Young. The
Board was further advised that Ernst & Young would agree to evaluate the TDS
offer, and the Board authorized Ernst & Young to proceed with an analysis of the
TDS offer. At the same meeting, another party was permitted to address the Board
concerning a plan to keep Tipton locally-owned and provide liquidity to Tipton
Shareholders who wished to sell their Tipton Shares. The Board agreed to
consider the proposal and asked such party to furnish additional clarification
on the income tax treatment of the debt proposed to be delivered to selling
Tipton Shareholders pursuant to such plan.
In December 1994, the Board of Directors distributed a
questionnaire to Tipton Shareholders to identify their level of interest in a
possible sale of Tipton. Holders of 385 Tipton Shares responded to the survey.
Of those who responded ("Respondents"), holders of 317 Tipton Shares (82.3% of
the Respondents' Tipton Shares) indicated a current desire to sell their Tipton
Shares at a competitive price. While Respondents holding 281 Tipton Shares
(73.0% of Respondents' Tipton Shares) indicated that Tipton should not be sold
to the highest bidder, Respondents holding 310 Tipton Shares (80.5% of
Respondents' Tipton Shares) indicated the Company should not remain locally
owned and continue to grow and expand.
At the April 14, 1995 meeting of the Board of Directors, a
representative of Ernst & Young presented the Tipton Board with a financial
capacity analysis for the possibility of repurchasing Tipton Shares from Tipton
Shareholders. The representative presented a way for Tipton to buy back Tipton
Shares and compared several possibilities using internal Tipton funds and
borrowings by Tipton. Following this, the representative outlined the services
which Ernst & Young would provide to Tipton in connection with the Board's
consideration of the possible sale of Tipton. These services included the
preparation of deal structure parameters, including tax strategies, preparing a
confidential offering memorandum ("COM") to be distributed to potential bidders,
meeting with the Board to evaluate potential buyers for distribution of the COM,
due diligence and profile of Tipton, assisting the Board in analyzing offers and
conducting independent research of potential buyers, assisting the Board in
developing strategies with potential buyers, acting as the Board's advisor, and
assisting the Board and legal counsel in developing strategies for regulatory
approval on both the federal and state levels. The Board instructed the
representative of Ernst & Young to proceed with the sale process.
Following the April 14 meeting, Ernst & Young prepared the COM
and distributed it, together with other materials regarding Tipton, to sixteen
potential bidders for Tipton in June and July 1995.
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<PAGE>
In October 1995, representatives of five potential bidders
visited Tipton and conducted an investigation of and received information
concerning Tipton.
At the August 28, 1995 Board of Directors meeting, the
President of Tipton advised the Board that bidders who had received the COM were
advised that bids or a notice of "no interest" were due to be received by Tipton
no later than 12:00 noon on August 28, 1995. The Tipton Board then proceeded to
declare the bidding closed at 1:25 p.m. on August 28, 1995. The President then
opened up the ten bids which had been received by Tipton and read each one to
the other members of the Board. Following this, the Board determined to request
Ernst & Young to analyze the top bids and to report back to the Tipton Board in
three weeks.
The TDS bid provided that TDS would acquire Tipton in exchange
for an aggregate of 380,042 TDS Common Shares, or 622 TDS Common Shares for each
Tipton Share, based on 611 Tipton Shares outstanding.
At the September 14, 1995 meeting of the Tipton Board of
Directors, Ernst & Young reported on its analysis of the top bids. Ernst &
Young's report evaluated the bids on the following criteria: (i) price and value
(including after-tax value) to the shareholders of Tipton; (ii) adherence to the
proposal guidelines set forth in the COM; (iii) the quality of management of the
bidder and the financial performance of the bidder; and (iv) the bidder's
willingness to provide job security for Tipton employees. The report contained a
further analysis and comparison of the financial condition of the three largest
bidders, including TDS. The Board took no action on the Ernst & Young report at
the September 14, 1995 meeting.
At the October 23, 1995 meeting, the Tipton Board of Directors
determined to ask the five top bidders to submit their final proposals for the
acquisition of Tipton.
Following this, on November 3, 1995, counsel to Tipton
prepared and distributed a draft form of acquisition agreement to the five top
bidders and a letter asking them, among other things, to provide comments on the
draft acquisition agreement and to submit their final proposals for the
acquisition of Tipton by November 10, 1995.
A total of five bidders responded with their final proposals
by November 10, 1995. At a meeting on November 13, 1995, the Tipton Board of
Directors considered the final proposals.
The TDS bid provided that TDS would acquire Tipton in exchange
for that number of TDS Common Shares determined by dividing $17,800,000 by the
average per share closing price of the TDS Common Shares for the 20 successive
trading days ending five trading days prior to the closing date; provided, that
in the event such average price was greater than $42.00, the purchase price
would be 423,810 TDS Common Shares, and in the event such average price was less
than $38.00, the purchase price would be 468,421 TDS Common Shares.
Only one bid involved a proposed aggregate purchase price in
excess of the TDS bid. This bid was an all cash offer for $18,513,300. On the
other hand, the TDS bid offered the opportunity for Tipton Shareholders to
receive TDS Common Shares in a "tax-free" merger. The Board considered the
aggregate value of the TDS offer on an after-tax basis and the other terms
proposed by TDS and determined that an acquisition by TDS would be more valuable
and more desirable than the all-cash offer. Consequently, the Board determined
to proceed to further negotiate the terms of an acquisition by TDS.
Following the November 13, 1995 Tipton Board meeting,
representatives of Tipton contacted representatives of TDS and asked whether TDS
would be willing to increase the offered purchase price and to change the terms
of its offer in certain respects. Subsequently, representatives of TDS advised
Tipton that TDS would increase the purchase price and discuss the other terms.
During the latter part of November and the early part of
December 1995, representatives of Tipton and TDS further negotiated the terms of
the Merger Agreement. During these negotiations, TDS
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<PAGE>
agreed to increase the purchase price to that number of TDS Common Shares
determined by dividing $18,330,000 by the average per share closing price of the
TDS Common Shares for the 20 successive trading days ending five trading days
prior to the Closing Date; provided, that in the event such average price was
greater than $42.00, the purchase price would be 436,429 TDS Common Shares, and
in the event such average price was less than $38.00, the purchase price would
be 482,368 TDS Common Shares. In addition, TDS agreed that Tipton could
terminate the agreement if the per share closing price of the TDS Common Shares
for any three successive trading days on or after the date on which the Tipton
Shareholders approve the Merger is less than $35.00.
The Tipton Board of Directors met on December 5, 1995 to
consider the Merger Agreement as negotiated between Tipton and TDS. At the
December 5, 1995 meeting, the Board of Directors of Tipton approved the
execution and delivery of Merger Agreement in substantially the form presented
to the Board.
During the early and middle part of December 1995, TDS Common
Shares traded at prices below $38.00. Since the value of the TDS Common Shares
to be delivered in the Merger would be less than $18,330,000 if the Merger Price
was less than $38.00, representatives of Tipton advised representatives of TDS
that Tipton would not execute the Merger Agreement in the form previously
negotiated. Following this, representatives of Tipton and TDS further negotiated
the terms of the Merger Agreement during December 1995 and the early part of
January 1996. During these negotiations, Tipton and TDS agreed to the revised
terms of the Merger Agreement. See "Conversion of Shares in the Merger."
The Tipton Board of Directors met on January 8, 1996 to
consider the revised terms of the Merger Agreement. At the January 8, 1996
meeting, a majority of the Board of Directors of Tipton approved the revised
Merger Agreement which was executed as of January 8, 1996.
Following this, pursuant to Section 7.10 of the Merger
Agreement, Tipton delivered additional due diligence material to TDS. Following
a review of such material, representatives of TDS and Tipton further negotiated
the terms of the Merger Agreement. Following these negotiations, TDS and Tipton
agreed to the final terms of the Merger Agreement as described below.
The Tipton Board of Directors met on February 5, 1996 to
consider the final terms of the Merger Agreement. At the February 5, 1996
meeting, a majority of the Board of Directors of Tipton approved the final,
amended and restated Merger Agreement, which was then executed and delivered as
of February 5, 1996.
Tipton's Reasons for the Merger; Recommendation of Tipton's Board of Directors
THE BOARD OF DIRECTORS OF TIPTON BELIEVES THAT THE MERGER IS
IN THE BEST INTERESTS OF TIPTON AND ITS SHAREHOLDERS AND RECOMMENDS TO ITS
SHAREHOLDERS THAT THEY VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
In reaching such determination, the Tipton Board of Directors
considered, among other things, the following factors:
Price. The Tipton Board of Directors and management sought to
obtain the best possible offer for the purchase of Tipton. While another bid was
higher than the TDS bid, this bid was a fully-taxable, all-cash offer. TDS
subsequently increased the value of its offer, and the TDS bid offers Tipton
Shareholders the opportunity to obtain TDS Common Shares in exchange for the
Tipton Shares in a tax-free merger. The Tipton Board therefore believes that the
TDS offer represents the best available price and offer obtainable under the
given market and regulatory conditions.
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<PAGE>
Experience in Telecommunications and Commitment to the
Industry. The Tipton Board considered Tipton's future as a small company in an
increasingly competitive and technologically changing telephone business. The
telephone industry is experiencing many changes, including both technological
and regulatory changes, and the Directors believe that as a result the Tipton
Shareholders are subject to greater risks than has been the case in the past.
The Tipton Board considered that TDS owns 100 rural telephone companies across
the United States and has interests in cellular telephone, paging and personal
communication services. After reviewing financial and operational information
concerning TDS, the Tipton Board believes that the best interests of Tipton
Shareholders as well as Tipton's employees and customers would be served by a
company with substantial experience in the industry that can address and adapt
to changes in the telephone industry and that TDS has such experience.
Diversification and Liquidity. The Tipton Shares are
relatively closely held and there is no market for the Tipton Shares. One of the
primary objectives of the Tipton Board has been to obtain liquidity for the
Tipton Shareholders with respect to their Tipton Shares, and to enable them to
reduce their risks by diversifying their investment. The TDS Common Shares to be
received in exchange for the Tipton Shares are to be registered under the
Securities Act and listed for trading on the American Stock Exchange and, thus,
will be marketable securities. Therefore, the Board views the Merger to be a
means by which Tipton Shareholders will be able to acquire an equity interest in
a larger, more 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
local telephone companies and local enterprises, retaining the local identity,
employees and management of such businesses. The Board believes that this manner
of expansion is in the best interest of the Tipton Shareholders and of its
employees and customers, and of the communities served by Tipton. Furthermore,
the Merger Agreement provides specific covenants by TDS to continue to operate
Tipton as an independent telephone company with local directors, management and
employees for a period of at least ten years after the Merger. See "The Merger -
Operation of Tipton Following the Merger."
Financial Strength. The Tipton Board considered the financial
condition and prospects of TDS, based on publicly available information
concerning TDS. The Tipton Board determined that TDS has the requisite financial
capabilities to consummate the transaction.
Tax Structure. The transaction contemplated by the Merger
Agreement is intended to qualify as a tax-free reorganization under the
provisions of the Internal Revenue Code. The Tipton Board believes that a
tax-free reorganization is in the best interests of the Tipton Shareholders.
For the foregoing reasons, the Tipton Board believes that the
Merger is in both the short-term and long-term interests of Tipton and the
Tipton Shareholders, and that it will enhance the prospects for the future
growth, development, productivity and profitability of Tipton.
The directors of Tipton and their spouses beneficially own 83
Tipton Shares. See "Information with Respect to Tipton - Ownership of Tipton
Shares." For a discussion of the interests of certain members of the Tipton
Board in the Merger, see "The Merger - Interests of Certain Persons in the
Merger."
TDS's Reasons for the Merger
TDS is acquiring Tipton 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
additional customers in Indiana, and position it to meet emerging trends within
the telephone industry.
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Time of Merger
If the Merger Agreement is approved by the requisite vote of
Tipton Shares, and the other conditions to the Merger are satisfied or waived,
the Merger will become effective upon the filing of a Articles of Merger
together with the Merger Agreement with the Secretary of State of the State of
Indiana. If the Merger Agreement is approved, it is presently contemplated that
the Time of Merger will occur on or about April 26, 1996 if all required
regulatory approvals are received by such date or as soon as practicable
thereafter following the receipt of all required regulatory approvals.
Vote Required
Approval of the Merger Agreement requires the affirmative vote
of holders of a majority of the outstanding Tipton Shares (i.e. 306 Tipton
Shares). Each holder of Tipton Shares as of the Tipton
Record Date is entitled to one vote per share held by such shareholder. On the
Tipton Record Date, there were 611 Tipton Shares outstanding.
Conversion of Shares in the Merger
At the Time of Merger, each Tipton Share issued and
outstanding immediately prior thereto (other than Tipton Shares held by any
shareholder who shall have perfected his or her right to dissent under the
Indiana Business Corporation Law) will be automatically converted into the right
to receive the Merger Consideration, consisting of whole TDS Common Shares and
cash in lieu of fractional TDS Common Shares. The number of whole TDS Common
Shares into which each Tipton Share will be converted will be determined by
dividing the Purchase Price (as defined below) by 611, the number of outstanding
Tipton Shares. Each holder of Tipton 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 Merger Price (as defined below) (the aggregate of such
TDS Common Shares and cash for fractional shares is herein referred to as the
"Merger Consideration"). The Purchase Price means that number of TDS Common
Shares equal to $18,330,000 divided by the Merger Price. For purposes of the
Merger Agreement, the Merger Price will be the mean average per share closing
price of the TDS Common Shares as reported on the American Stock Exchange
Composite Tape for the 20 successive trading days ending with the trading day
which is five trading days prior to the Closing Date. TDS has the right to
terminate the Merger Agreement if the Merger Price is less than $38.00.
The closing price per TDS Common Share on January 31, 1996 was
$40.625. Assuming a Merger Price of $40.625, if the Merger is approved, each
holder of Tipton Shares would become entitled to receive 738.4615 TDS Common
Shares for each Tipton Share converted in the Merger, based on 611 outstanding
Tipton Shares. Based on the Merger Price per TDS Common Share, the value of such
738.4615 TDS Common Shares would be $30,000.
See "The Merger - Price Range of TDS Common Shares" below for
historical information concerning the selling prices of the TDS Common Shares on
the American Stock Exchange.
Price Range of TDS Common Shares
The high and low sales prices of the TDS Common Shares on the
American Stock Exchange, as reported by the Dow Jones News Service, were as
follows:
TDS Common Shares
---------------------
Calendar Period High Low
1994
First Quarter............................ $51.50 $36.75
Second Quarter........................... 42.88 36.00
Third Quarter............................ 47.63 35.50
Fourth Quarter........................... 49.88 39.50
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1995
First Quarter............................ $46.38 $36.13
Second Quarter........................... 39.38 36.00
Third Quarter............................ 42.88 36.38
Fourth Quarter........................... 43.25 35.63
1996
First Quarter (to January 31, 1996)...... $ 41.00 $39.00
Exchange of Certificates
Harris Trust and Savings Bank, Chicago, Illinois, as paying agent
(the "Paying Agent") will provide transmittal forms to Tipton Shareholders to be
used in forwarding their certificates for Tipton Shares for surrender and
exchange for certificates representing the number of TDS Common Shares into
which their Tipton Shares were converted in the Merger and/or cash, if
applicable, to which such holders otherwise would be entitled. Until such
surrender, certificates representing Tipton Shares will be deemed to represent
the right to the number of TDS Common Shares and/or cash, if applicable, into
which such Tipton Shares were converted in the Merger, except that the holders
of Tipton 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 will be paid, without interest, any dividends or other distributions
which may have become payable with respect to such TDS Common Shares since the
Time of Merger.
Fractional Shares
No certificates representing fractional shares of 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 Tipton Shares who otherwise would be
entitled to receive 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 Merger Price.
Representations and Warranties
The Merger Agreement contains various representations and
warranties of the parties thereto. These include representations and warranties:
by Tipton as to (i) its organization and capital structure, including the number
of issued and outstanding Tipton Shares, (ii) its subsidiaries and investments,
(iii) the validity and binding nature of its obligations under the Merger
Agreement, (iv) the lack of any violation or conflict with any other obligation
of Tipton, (v) the consents and approvals required by Tipton to consummate the
Merger Agreement, (vi) its financial statements, (vii) the absence of certain
changes or events since December 31, 1994, (viii) its employee benefit plans,
(ix) the compliance by Tipton with applicable laws, (x) litigation and claims
against Tipton, (xi) contracts and commitments of Tipton, (xii) insurance,
(xiii) governmental authorizations of Tipton, (xiv) no obligation to any broker
or finder by Tipton, (xv) the accuracy of information provided by Tipton for
this Proxy Statement-Prospectus, (xvi) the title to Tipton's assets and the
legality of their use, (xvii) the real estate of Tipton, (xviii) undisclosed
liabilities, (xix) tax liabilities, (xx) environmental conditions and (xxi) the
lack of omissions in any disclosures by Tipton to TDS, subject to certain
disclaimers by Tipton; and by TDS and Sub as to (i) their organization, standing
and power, (ii) the valid and binding nature of their obligations under the
Merger Agreement, (iii) the lack of any violation or conflict with other
obligations of TDS or Sub, (iv) the consents and approvals required by TDS and
Sub to consummated the Merger Agreement, (v) no obligation to any broker or
finder by TDS or Sub, (vi) the financial ability of TDS and Sub to perform the
Merger Agreement, (vii) the absence of certain changes or events since December
31, 1994, (viii) the capitalization of TDS and Sub, (ix) the
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delivery and accuracy of documents filed with the SEC by TDS, (x) the accuracy
of information supplied by TDS and Sub for this Proxy Statement-Prospectus,
(xi) the compliance by TDS and Sub with applicable law, (xii) governmental
authorizations of TDS and Sub and (xiii) the lack of omissions in any
disclosures by TDS or Sub to Tipton.
Operation of Tipton Pending Completion of the Merger
Tipton has agreed that, among other things, prior to consummation
of the Merger, except as provided in the Merger Agreement or unless TDS agrees
otherwise, it will: conduct its business in the ordinary course and not make any
material change in the business or operations of Tipton; not declare or pay any
dividends (whether in cash, stock or otherwise) or make any distribution with
respect to its capital
stock, provided that if the Time of Merger is not prior to May 22, 1995, Tipton
shall have the right to declare and pay a cash dividend of $250 per Tipton
Share; not amend its Articles of Incorporation or Bylaws or purchase or redeem
any of its capital stock; not issue, sell or otherwise distribute any treasury
shares or any stock of Tipton to effect any stock split or reclassification of
any shares of its capital stock or grant or commit to grant any option, warrant
or other right to subscribe for or purchase or otherwise acquire any shares of
its capital stock or securities convertible or exchangeable for such shares; not
authorize any director, or authorize or permit any officer or employee or any
attorney, accountant or other representative retained by Tipton, to solicit or
encourage any inquiries or the making of any proposal which it reasonably
expects may lead to a takeover proposal; or enter into or amend any agreements
with or for the benefit of officers, directors or employees of Tipton, amend any
employee benefit plan or grant any increases in compensation except as permitted
by the Merger Agreement.
Tipton has also agreed to afford to TDS and its representatives
reasonable access to the properties, personnel, books, records and accounts of
Tipton. TDS is required to immediately notify Tipton of any discovery by TDS or
its representatives of any information that constitutes or would indicate a
breach by Tipton of any representation, warranty or covenant in the Merger
Agreement.
Operation of Tipton Following the Merger
Each of TDS and Sub has agreed to continue to operate Tipton as an
independent telephone company with local directors, management and employees for
a period of at least ten years after the Closing Date (the "Ten Year
Post-Closing Period"). TDS has agreed that, if a majority of the members of the
Tipton Board at any time during the Ten Year Post-Closing Period are not persons
who reside within 25 miles of Tipton's principal offices in Tipton, Indiana (a
"Tipton Local") and the termination of any employee of Tipton is being
considered, the Tipton Board will appoint a committee, composed of a majority of
persons who are then Tipton Locals, to make the determination of whether to
terminate such Tipton employee. For so long as he is willing and able to serve
during the Ten Year Post-Closing Period, Mr. Joe F. Watson will at all times be
a member of the Tipton Board and, if applicable, any such committee. Any person
who is an employee of TDS or its affiliates as of the date of the Merger
Agreement will not be considered a Tipton Local even if he or she subsequently
meets the residency test set forth above.
Each of TDS and Sub has agreed that the local Board of Tipton may
continue to employ, at its discretion, all present management and employees of
Tipton. While employed, all eligible employees will be covered by TDS's standard
employee plans for medical, hospital, dental, life insurance, TDS's 401(k)
tax-deferred savings plan and TDS's employee stock purchase plan, but not
including the TDS Employees' Pension Trust I Plan (the "TDS Plan").
Throughout the Ten Year Post-Closing Period, TDS has agreed to
cause Tipton to continue Tipton's existing defined benefit pension plan (the
"Tipton Pension Plan") in full force and effect without material amendment,
except for changes required to comply with the Internal Revenue Code, ERISA or
other applicable law, and to maintain and fund the Tipton Pension Plan in a
manner which complies with applicable law. Notwithstanding the foregoing, in the
event that applicable law should ever prevent Tipton or TDS from maintaining the
Tipton Pension Plan:
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(a) by reason of Tipton's employment of one or more "highly
compensated employees," as such term is defined under Section 414(g) of
the Internal Revenue Code, then TDS shall cause Tipton to (i) amend the
Tipton Pension Plan and exclude each such highly compensated employee from
future coverage thereunder and (ii) throughout the remainder of the Ten
Year Post-Closing Period pay additional current compensation or bonus, or
provide for a deferred compensation arrangement, to each such highly
compensated employee utilizing the full amount of savings realized by TDS
or Tipton as a result of the exclusion of such highly compensated employee
from future coverage under the Tipton Pension Plan; or
(b) for any reason other than that identified in (a) above, then
throughout the remainder of the Ten Year Post-Closing Period, Tipton will
(i) terminate the Tipton Pension Plan, (ii) become a
participant in the TDS Plan so that all of the Tipton employees who are
active participants in the Tipton Pension Plan immediately prior to its
termination will be covered under the TDS Plan and (iii) pay additional
current compensation or bonus, or provide for a deferred compensation
arrangement, to each Tipton employee utilizing the full amount of savings
realized by TDS and Tipton as the result of changing such employee's
coverage from the Tipton Pension Plan to the TDS Plan.
Notwithstanding the foregoing, neither TDS nor Tipton will be
obligated to provide any Tipton employee an aggregate benefit under all of the
arrangements referred to in (a) and (b) above for any year (including additional
current compensation or bonus, or any deferred compensation and contribution to
the TDS Plan) which is in excess of the benefit to which such employee would
have been entitled if he or she were a participant in the Tipton Pension Plan.
Each of TDS and Sub have further agreed that the Board of
Directors of Tipton may continue, at its discretion, to use the services of
local banks, accountants and attorneys presently retained by Tipton.
Each of TDS and Sub have further agreed to assign TDS regional
staff specialists to back up and support Tipton operations in all necessary
telephone functions, including technical, engineering, outside plant,
central office, switching and network software, financial, accounting,
marketing, computerization, billing, separations and settlements, employee
benefit programs and administration.
Immediately following the Merger, TDS intends to contribute all of
the capital stock of the surviving corporation to TDS Telecommunications
Corporation, TDS's wholly-owned subsidiary, which owns and controls local
telephone companies.
Conditions
The respective obligations of TDS, Sub and Tipton to effect the
Merger are subject to the satisfaction of certain conditions, including, among
others, (i) the approval of the Merger by the affirmative vote of holders of a
majority of the outstanding Tipton Shares; (ii) the parties shall have received
all necessary governmental consents or authorizations required in connection
with the transactions contemplated by the Merger Agreement, and if applicable,
all waiting periods under the Hart-Scott-Rodino Antitrust Improvement Act of
1976 shall have expired or been terminated; (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 SEC; (iv) the TDS
Common Shares to be issued pursuant to the Merger Agreement shall be approved
for trading upon notice of issuance by the American Stock Exchange; and (v) no
injunction, restraining order, judgment or decree of any court or governmental
authority shall be existing against any of the parties to the Merger Agreement,
or any of their officers, directors or representatives, which restrains,
prevents or materially alters the transactions contemplated by the Merger
Agreement.
In addition, the obligations of TDS and Sub to effect the Merger
are subject to the conditions that, (i) each of the representations and
warranties of Tipton contained in the Merger Agreement shall be true and correct
in all material respects on the Closing Date as though made on the Closing Date,
and there shall have been delivered to TDS and Sub a certificate to such effect,
dated the Closing Date, signed on
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behalf of Tipton by its President or a Vice
President; (ii) Tipton shall have performed and complied, in all material
respects, with all covenants, agreements and conditions contained in the Merger
Agreement required to be performed or complied with by it on or prior to the
Closing Date, and there shall have been delivered to TDS and Sub a certificate
to such effect, dated the Closing Date, signed on behalf of Tipton by its
President or a Vice President; (iii) between the date of the Merger Agreement
and the Closing Date, there shall not have been any (a) material adverse change
in the assets, liabilities, business, properties or profits of Tipton, or (b)
material damage to the properties and assets of Tipton regardless of insurance
coverage for such damage, other than, in each instance, changes in the ordinary
course of business and/or changes contemplated or authorized by the Merger
Agreement, and there shall have been delivered to TDS and Sub a certificate or
certificates to such effect, dated the Closing Date, signed on behalf of Tipton
by its President or a Vice President; (iv) TDS and Sub shall have received from
counsel for Tipton, an opinion or opinions, dated the Closing Date,
substantially to the effect set forth in the Merger Agreement; and (v) there
shall be no more than 122 Dissenting Shares, unless waived in writing by TDS and
Sub.
The obligations of Tipton to effect the Merger are subject to the
conditions that, (i) each of the representations and warranties of TDS and Sub
contained in the Merger Agreement shall be true and correct in all material
respects on the Closing Date as though made on the Closing Date, and there shall
have been delivered to Tipton a certificate to such effect, dated the Closing
Date, signed on behalf of each of TDS and Sub by its respective President or a
Vice President; (ii) TDS and Sub shall have performed and complied, in all
material respects, with all covenants, agreements and conditions contained in
the Merger Agreement required to be performed or complied with by them on or
prior to the Closing Date, and there shall have been delivered to Tipton a
certificate to such effect, dated the Closing Date, signed on behalf of each of
TDS and Sub by its respective President or a Vice President; (iii) between the
date of the Merger Agreement and the Closing Date, there shall not have been any
(a) material adverse change in the assets, liabilities, business, properties or
profits of TDS or Sub, or (b) material damage to the properties and assets of
TDS or Sub regardless of insurance coverage for such damage, other than, in each
instance, changes in the ordinary course of business and/or changes contemplated
or authorized by the Merger Agreement, and there shall have been delivered to
Tipton a certificate or certificates to such effect, dated the Closing Date,
signed on behalf of each of TDS and Sub by its respective President or a Vice
President; (iv) Tipton shall have received from counsel for TDS and Sub,
opinions, dated the Closing Date, substantially to the effect set forth in the
Merger Agreement; and (v) at the time of Closing, the number of Dissenting
Shares shall not exceed the maximum number of Tipton Shares which Tipton's
counsel reasonably concludes may dissent without causing the Merger to fail to
satisfy the requirements of Section 368(a)(2)(E) of the Code.
Indemnification
If the Merger Agreement is approved, all Tipton Shareholders (other
than those who properly exercise their dissenters' appraisal rights), by their
receipt of the Merger Consideration, will agree to indemnify TDS, Sub and
certain persons related to TDS and Sub ("TDS Indemnitees") for any loss incurred
by TDS Indemnitees due to a breach of the representations and warranties of
Tipton relating to the capitalization of Tipton and the number and ownership of
outstanding Tipton Shares. The indemnity of each Tipton Shareholder for any loss
suffered or incurred by TDS Indemnitees as the result of the inaccuracy of any
representation or breach of any warranty made pursuant to such representations
and warranties (other than representations and warranties as to the ownership of
specific Tipton Shares) will be limited to the amount of such loss multiplied by
the percentage of Merger Consideration received by any such Tipton Shareholder
pursuant to the Merger, and the liability of each Tipton Shareholder for any
loss suffered or incurred by TDS Indemnitees as the result of the inaccuracy of
any representation or the breach of any warranty made as to the ownership of
specific Tipton Shares will be limited to any loss which relates to the
inaccuracy of any representation or the breach of any warranty with respect to
such Tipton Shareholder's capital stock of Tipton; provided, however, that the
aggregate liability of each Tipton Shareholder for all losses by TDS Indemnitees
will in no event exceed the aggregate amount of the Merger Consideration
received by such Tipton Shareholder pursuant to the Merger Agreement.
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TDS and Sub have agreed to indemnify the Tipton Shareholders for
any loss incurred by the Tipton Shareholders due to a breach of the
representations and warranties of TDS and Sub relating to the TDS Common Shares.
Such indemnity is limited to the aggregate Merger Consideration.
Amendment; Termination
Any of the provisions of the Merger Agreement may be amended by or
pursuant to action of the Boards of Directors of the respective parties at any
time before or after the approval of the Merger Agreement by the Tipton
Shareholders to the extent permitted by applicable law.
The Merger Agreement may be terminated at any time prior to the
Closing Date by mutual consent of each of TDS, Sub and Tipton, by TDS, Sub or
Tipton if any condition to the obligation of such party is not satisfied by
August 31, 1996 or by TDS if the Merger Price is less than $38.00.
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 for such liabilities as any party may have under the
Merger Agreement or otherwise by reason of any breach or violation and for
obligations with respect to certain confidential information.
Interests of Certain Persons in the Merger
The directors of Tipton and their spouses beneficially own an
aggregate of 83 Tipton Shares. Except as discussed below, the directors will
receive no extra or special benefit from the Merger not shared on a pro-rata
basis with all other holders of Tipton Shares.
Joe F. Watson, the President and a Director of Tipton, is an
Attorney at Law, and has represented Tipton in connection with various matters.
Each of TDS and Sub has agreed that, for so long as he is willing and able to
serve, during the Ten-Year Post-Closing Period, Mr. Watson will at all times be
a member of the Tipton Board. See "The Merger - Operation of Tipton Following
the Merger."
Registration and Listing of TDS Common Shares; Sales by Tipton Affiliates
TDS has registered the TDS Common Shares issuable upon conversion
of the Tipton Shares in the Merger pursuant to a filing with the SEC of a
Registration Statement on Form S-4 and TDS has filed an application to have such
shares approved for listing on the American Stock Exchange.
Certain shareholders, officers and directors of Tipton may be
deemed to be "affiliates" of Tipton as that term is used in paragraphs (c) and
(d) of Rule 145 under the Securities Act of 1933, as amended (the "Affiliates").
Affiliates may not sell, pledge, transfer or otherwise dispose of any TDS Common
Shares issued to such Affiliates pursuant to the Merger, except pursuant to Rule
145. By their delivery of a letter of transmittal and in consideration of their
receipt of the Merger Consideration, the Tipton Shareholders that may be
Affiliates will be required to agree not to sell, pledge, transfer or otherwise
dispose of any TDS Common Shares issued to such Affiliates pursuant to the
Merger, except in compliance with such Rule 145.
Certain Federal Income Tax Consequences
The following discussion summarizes certain federal income tax
considerations involved in the exchange of Tipton Shares for TDS Common Shares
in the Merger. The Merger is intended by Tipton to constitute a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"). If the Merger does not constitute a tax-free
reorganization, it will be a taxable exchange of shares. Accordingly, the
following discussion addresses the tax consequences of the Merger in both
circumstances.
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Tax-Free Reorganization. If the Merger qualifies as a tax-free
reorganization within the meaning of section 368(a) of the Code, no gain or loss
will be recognized by a holder of Tipton Shares upon the exchange of Tipton
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 Tipton Shares will be the same as
the aggregate basis of Tipton 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 Tipton Shares will include the holding period of Tipton Shares
surrendered in exchange therefor, provided that the holder held Tipton Shares as
capital assets as of the Time of Merger. A holder of Tipton 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 received and the tax basis of the holder's
Tipton Shares allocable to the fractional TDS Common Share. This gain or loss
will be capital gain or loss, provided that the holder held his Tipton Shares as
capital assets as of the Time of Merger, and will be long-term capital gain or
loss if such shares were held for more than one year.
A holder of Tipton Shares who dissents from the Merger and
exercises such shareholder's dissenter's rights will recognize gain or loss
based on the difference between the deemed "fair value" and the basis of such
holder's Tipton Shares. See "The Merger - Dissenter's Rights." Such gain or loss
will be a capital gain or loss, assuming the holder held his Tipton Shares as a
capital asset as of the Time of Merger, and will be a long-term capital gain or
loss if such shares were held for more than one year as of the Time of Merger.
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 Tipton 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 Tipton
Shareholders, as a group, retain, in the aggregate, TDS Common Shares with a
value, as of the Time of Merger, equal to at least 50% of the value of all of
the Tipton Shares as of the same 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.
As discussed below under "Dissenters' Rights," it is a condition
to the obligations of Tipton to consummate the Closing (although such condition
may be waived) that, at the time of Closing, the number of Dissenting Shares
does not exceed the maximum number of Tipton Shares which Tipton's counsel
reasonably concludes may dissent without causing the Merger to fail to satisfy
the requirements of Section 368(a)(2)(E) of the Code.
Taxable Exchange of Shares. If the Merger constitutes a taxable
exchange of shares, each non-dissenting holder of Tipton 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
holder's basis in the Tipton Shares surrendered in exchange therefor. A holder
of Tipton Shares who dissents from the Merger and exercises such shareholder's
dissenter's rights will recognize gain or loss based on the difference between
the deemed "fair value" and the basis of such holder's Tipton Shares. See
"Dissenter's Rights" 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 Tipton Shares as capital assets as of the Time of Merger, and will be
long-term capital gain or loss if the holding period of Tipton Shares, as of the
Time of Merger, 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
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FOREIGN TAX ASPECTS OF THE MERGER. BECAUSE THE TAX
CIRCUMSTANCES OF EACH HOLDER OF TIPTON SHARES MAY DIFFER, EACH HOLDER OF TIPTON
SHARES 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.
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 IURC, which regulates providers
of telephone service in Indiana, and the FCC, which must approve the transfer of
control of certain radio licenses from the Tipton Shareholders to TDS. Filings
seeking such approval have been made with the IURC and FCC. In addition, if
certain financial tests are met prior to the closing, the Merger requires the
filing of information and the expiration or termination of the waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
Dissenters' Rights
Any holder of record of Tipton Shares who follows the procedures
specified in Sections 23-1-44-1 through 23-1-44-20 of the Indiana Business
Corporation Law (the "Appraisal Provisions") is entitled to receive the "fair
value" of such shares in lieu of the consideration that such shareholder would
otherwise be entitled to receive pursuant to the Merger Agreement. Reference is
made to the Appraisal Provisions, copies of which are attached to this Proxy
Statement-Prospectus as Annex B, for a complete statement of the appraisal
rights of dissenting shareholders.
Unless waived by TDS and Sub, it is a condition to the obligations
of TDS and Sub to consummate the Merger that there be no more than 122
Dissenting Shares. In addition, it is a condition to the obligations of Tipton
to consummate the Closing that, at the time of Closing, the number of Dissenting
Shares does not exceed the maximum number of Tipton Shares which Tipton's
counsel reasonably concludes may dissent without causing the Merger to fail to
satisfy the requirements of Section 368(a)(2)(E) of the Code.
The following information is qualified in its entirety by
reference to the Appraisal Provisions.
If a holder of record of Tipton Shares elects to exercise such
shareholder's right to an appraisal under the Appraisal Provisions, such
shareholder must satisfy ALL of the following conditions:
(a) such shareholder must deliver a written notice of intent to
demand payment of the fair value of such shareholder's Tipton Shares to
Tipton prior to the vote with respect to the Merger Agreement;
(b) such shareholder must not vote in favor of or consent in
writing to the proposal to approve the Merger Agreement. A failure to vote
will satisfy this condition, but voting in favor of or delivering a proxy
in favor of the proposal to approve the Merger Agreement or an unmarked
proxy voted by the proxy in favor of the Merger will constitute a waiver
of such shareholder's right to appraisal and will nullify any written
demand for appraisal; and
(c) not less than 30 nor more than 60 days after receipt of the
notice of procedure for dissenting shareholders from Tipton (which Tipton
must send to all dissenting shareholders who did not vote in favor of the
proposal to approve the Merger Agreement and who properly file notice of
intent to assert dissenters' rights), such shareholder must demand payment
of the fair value of his or her Tipton Shares (the "Initial
Demand"), certify whether he or she acquired their
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Tipton Shares before the date the Merger was first announced to the Tipton
Shareholders, and deposit his or her Tipton Shares with Tipton.
Under the Appraisal Provisions, record holders of Tipton Shares
are entitled to appraisal rights as described above, and the procedures to
perfect such rights must be carried out by and in the name of such holders of
record. Persons who are beneficial but not record owners of Tipton Shares and
who wish to exercise appraisal rights with respect to the Merger must (i) submit
to Tipton, at the time of or before the assertion of the right, a written
consent of the record holders of their shares and (ii) do so with respect to all
of the beneficial owner's shares or the shares over which he or she has voting
power.
After the Time of Merger, Tipton shall remit to each dissenting
shareholder who has complied with the conditions set forth above an amount which
Tipton estimates to be the fair value of the Tipton Shares held by each
dissenting shareholder. Along with the remittance, Tipton shall also send: (i) a
year end balance sheet and statements of income and changes in shareholders'
equity for any fiscal year of Tipton ending 16 months or less before the Time of
Merger, together with the latest available interim financial statements; (ii) an
estimate by Tipton of the fair value of Tipton Shares; and (iii) a statement of
the dissenting shareholder's right to object to Tipton's estimate and to demand
an additional payment, as described below. If a dissenting shareholder believes
that the fair value of Tipton Shares is greater than the amount remitted by
Tipton, then, within 30 days after Tipton mails or offers the remittance, the
dissenting shareholder may give written notice to Tipton of such shareholder's
own estimate of the fair value of Tipton Shares, and demand payment of the
difference (the "Supplemental Demand"). Within 60 days after receiving the
Supplemental Demand, Tipton shall either: (i) pay the dissenting shareholder the
amount demanded (or such other amount agreed to by such shareholder), or (ii)
file a petition requesting that the circuit or superior court of Tipton County,
Indiana (the "Court") determine the fair value of the Tipton Shares.
The Court may appoint one or more persons as appraisers to receive
evidence and recommend a decision on the question of fair value. Fair value
means the value of Tipton Shares immediately before the effectuation of the
Merger, excluding appreciation or depreciation in anticipation of the Merger,
unless such exclusion would be inequitable. Dissenters will be entitled to
judgment for the amount, if any, by which the fair value of their shares, plus
interest, is found to exceed the amount previously remitted by Tipton. Fair
value may be found by the Court to be more, less or the same as the amount
offered by Tipton or the amount the shareholder would have received had he or
she not dissented from the Merger.
INFORMATION WITH RESPECT TO TDS
TDS is a diversified telecommunications service company with
cellular telephone, local telephone and radio paging operations. At September
30, 1995, TDS served approximately 1.8 million customer units in 37 states,
including 618,000 cellular telephones, 422,000 telephone access lines and
776,900 pagers. For the nine months ended September 30, 1995, cellular
operations provided 51% of TDS' consolidated revenues; telephone operations
provided 38%; and paging operations provided 11%. 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 80.8%-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 and the acquisition of interests
in cellular markets. As of September 30, 1995 USM owns, operates, invests in and
has the right to acquire interests in cellular telephone systems representing
approximately 24.6 million population equivalents in 203 markets. USM owns a
controlling interest in and manages cellular systems serving 138 markets.
TDS conducts substantially all of its telephone operations through
its wholly owned subsidiary, TDS Telecommunications Corporation, Inc. ("TDS
Telecom"). As of September 30, 1995 TDS Telecom
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operates 100 telephone companies serving 422,000 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 82.4%-owned subsidiary, American Paging, Inc. (American Stock
Exchange symbol "APP"). APP offers radio paging and related services through its
subsidiaries. As of September 30, 1995 APP provides service to 776,900 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, Chicago, Illinois 60602. Its telephone
number is 312-630-1900.
INFORMATION WITH RESPECT TO TIPTON
Business of Tipton
Tipton is an Indiana corporation organized for the purpose of
constructing, maintaining and operating a telephone plant and equipment to
provide telephone service to subscribers within its prescribed service area in
Tipton County in the State of Indiana. Tipton currently has approximately 20
full-time employees. The principal office of Tipton is located at 117 East
Washington Street, Tipton, Indiana 46072, and its telephone number is (317)
675-2181.
Tipton provides telephone service to approximately 4,640 customers
in Tipton County, Indiana. Tipton's access lines have grown at an average annual
rate of less than 3% between 1990 through 1994. Approximately 75% of the access
lines are for residential service and approximately 25% are for business
service. Tipton's service territory encompasses approximately 120 square miles.
Digital switching, recording, equal access and custom-calling features are
provided to Tipton customers using a single AT&T 5ESS version 9.2 digital
central office switch. Tipton has 15 miles of fiber optic transport facilities
into Kokomo, Indiana, terminating at AT&T's Kokomo tandem switch.
Tipton currently has contracts with long-distance telephone
carriers for the transmission of long-distance service by Tipton to its
customers. Tipton does not share in the proceeds of toll charges for
long-distance service. Tipton charges the subscriber a toll set by the
long-distance carrier and remits all of the payment to the carrier. Tipton is
compensated for the toll services it provides through access charges to the
carriers based on rates established by the FCC for interstate calls and by the
IURC for Tipton's intrastate calls.
Tipton's contracts with its long-distance carriers generally
remain in effect unless cancelled upon short notice by either party. If any of
these contracts are cancelled, other long-distance carriers are available to
provide long-distance service. In the unlikely event of a cancellation of any
long-distance contract, no adverse impact upon Tipton is anticipated.
Future growth and attendant increased revenues of Tipton depend
principally on the future development of the area which it serves. Future growth
and increased indebtedness may also result from upgrades in service and
additional services made possible by advances in technology.
Tipton's policy is to upgrade its plant and equipment as required
and to furnish to its customers technological advancements which are economical.
In the past three fiscal years, Tipton has invested, or
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has committed to invest, an aggregate of approximately $1,000,000 in equipment
upgrades and improvements.
Management believes that the current plant and equipment in use by
Tipton are considered adequate by accepted telephone industry standards.
Tipton's current plant has the capacity to handle 5,120 access lines. As of
January 18, 1996, Tipton had 4,640 access lines in use, leaving a growth
potential of 480 access lines. With the current plant and equipment capacity,
Tipton can reasonably expect to meet its needs for customer growth for
approximately the next two years.
Tipton owns a 1.287% limited partnership interest in GTE Mobilnet
of Indiana Limited Partnership (the "Partnership") which is the licensee for the
FCC cellular wireline authorizations in each of the following Metropolitan
Statistical Areas in Indiana: Indianapolis, Lafayette, Anderson, Muncie,
Bloomington and Kokomo. These markets represent an aggregate of approximately
1.9 million population equivalents. As a result, Tipton's 1.287% interest
represents an interest in approximately 25,000 population equivalents.
Except as described above, no material changes in the operation of
the business of Tipton are expected from the date of the financial statements of
Tipton included in this Proxy Statement-Prospectus.
Property of Tipton
Tipton operates one telephone exchange in Tipton, Indiana. The
property of Tipton consists principally of tangible property, including
telephone lines, central 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. Central
office equipment consists of switching equipment, carrier equipment and related
facilities. Telephone instruments and related equipment are located on the
subscribers' premises and include private branch exchanges. Included in land and
buildings is a 16,000 square foot facility containing two buildings at 117 East
Washington Street in Tipton, Indiana owned by Tipton which houses its
headquarters. This facility also includes two garage buildings with an
additional 3,400 square feet. Tipton does not lease any significant real
property.
The plant and equipment of Tipton are maintained in good operating
condition and are suitable and adequate for Tipton's operations. Tipton does not
lease a significant amount of plant or equipment. Tipton telephone lines are
located either on private or public property by virtue of easements or other
arrangements.
Legal Proceedings of Tipton
Tipton does not have any material pending or threatened
litigation.
Authorized and Outstanding Securities of Tipton
The only class of securities of Tipton authorized by the Articles
of Incorporation of Tipton consists of 1,100 shares of Common Stock, par value
$50.00 per share. On the record date set for the special meeting there were 611
shares of Common Stock of Tipton outstanding held by 27 record holders. Tipton
Shareholders do not have the right to vote their shares cumulatively for the
election of directors or other purposes and do not have preemptive rights to
purchase additional securities.
Market for Tipton Shares and Dividends
There is no public or established private market for Tipton common
stock. In 1994, Tipton repurchased 189 Tipton Shares from the Estate of Norman
Martz for an aggregate price of $1,824,111, or a price of $9,651 per Tipton
Share, which represented the book value per Tipton Share on the date of death of
Norman Martz. Tipton paid dividends of $500 per Tipton Share in each of 1995,
1994 and 1993. The Merger Agreement provides that Tipton may declare and pay a
dividend of $250 per Tipton Share if
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the Merger does not take place by May 22, 1996. Future dividends will be
subject to the discretion of the Board of Directors of Tipton and will depend
on, among other things, future earnings, the operating and financial condition,
capital requirements and general business conditions.
Ownership of Tipton Shares
The following table sets forth, as of the Tipton Record Date,
certain information regarding the holders of record of the Tipton Shares,
including persons who beneficially own more than 5% of the Tipton Shares (being
the only class of voting securities of Tipton), and ownership of Tipton Shares
by directors and executive officers of Tipton. Except as otherwise noted, each
such person has sole voting and dispositive power with respect to the shares
listed.
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership Percentage of Class
------------------------ -------------------- -------------------
Neva W. Mount (1) 191(2) 31.3%
First National Bank of Kokomo(3) 169(4) 27.7
Forrest D. Colegrove (5) 76(6) 12.4
Catherine H. Shortle (7) 48 7.9
Howard E. Pottenger (8) 3 *
Joe F. Watson (9) 2 *
Doris Ann Gish (10) 1 *
William E. Collins (11) 1 *
-------------------- -------------------
All Directors and Executive Officers
as a group (5 persons) 83 13.6%
========================== ==================== ===================
- ---------------
* Less than 1%
(1) The business address of Neva W. Mount is 998 West Jefferson Street,
Tipton, Indiana 46072.
(2) Includes 92 shares held by First National Bank of Kokomo as trustee of
the C.W. Mount Trust, as to which Mrs. Mount has sole voting power.
(3) The business address of the First National Bank of Kokomo is 322 North
Main Street, Kokomo, Indiana 46901.
(4) Represents 93 shares held as trustee for Estella Grishaw Trust, 12
shares held as trustee for the Jean V. Carter Trust, 12 shares held as
trustee for the Barbara B. Carter Trust and 52 shares held as executor
for the estate of Nancy E. Urmston. Does not include 92 shares held as
trustee of the C.W. Mount Trust, which have been included above for
Neva W. Mount.
(5) The business address of Forrest D. Colegrove is c/o Tipton Telephone
Company, 117 East Washington Street, Tipton Indiana 46072. Mr.
Colegrove is a director of Tipton.
(6) Includes 75 shares owned by Mr. Colegrove's wife, Barbara B. Colegrove.
(7) The business address of Catherine H. Shortle is 112 Terrylyn Drive,
Tipton, Indiana 46072.
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(8) Howard E. Pottenger is Vice President and a director of Tipton. The
business address of Howard E. Pottenger is c/o Tipton Telephone
Company, 117 East Washington Street, Tipton, Indiana 46072.
(9) Joe F. Watson is President and a director of Tipton. The business
address of Joe F. Watson is c/o Tipton Telephone Company, 117 East
Washington Street, Tipton, Indiana 46072.
(10) Doris Ann Gish is Treasurer/Secretary and a director of Tipton. The
business address of Doris Ann Gish is c/o Tipton Telephone Company, 117
East Washington Street, Tipton, Indiana 46072.
(11) William E. Collins is a director of Tipton. The business address of
William E. Collins is c/o Tipton Telephone Company, 117 East Washington
Street, Tipton, Indiana 46072.
Directors and Executive Officers
The identities of the directors and executive officers of
Tipton are set forth below:
Name Age Position
---- --- --------
Joe F. Watson (1) 65 President and Chairman of the Board of Directors
Howard E. Pottenger (2) 66 Vice President and Director
Doris Ann Gish (3) 70 Treasurer/Secretary and Director
Forrest D. Colegrove (4) 66 Director
William E. Collins (5) 57 Director
(1) Mr. Watson has been the President since 1974 and a Director since 1958.
Mr. Watson has been a practicing attorney in Tipton, Indiana for over
37 years and has represented Tipton in connection with certain matters.
(2) Mr. Pottenger has been a Director since 1982 and has been Vice
President since March 20, 1995. He was the General Manager of Tipton
from 1974 to January 1995. Since January 1995, Mr. Pottenger has
provided management consulting services to Tipton.
(3) Ms. Gish has been the Secretary/Treasurer and a Director since March
20, 1995. Ms. Gish has been a homemaker for more than five years.
(4) Mr. Colegrove has been a Director since March 20, 1995. Mr. Colegrove
is a physicist and has been employed as a consultant by Polatomic,
Inc., a research firm, since August 1995. From 1991 to 1995, Mr.
Colegrove was a consultant to Texas Instruments, Inc., a manufacturer
of semiconductors and military equipment. Mr. Colegrove was employed by
Texas Instruments, Inc. as a physicist from 1959 to 1991. Mr. Colegrove
has a Ph.D. in physics.
(5) Mr. Collins has been a Director since February 1994. Mr. Collins has
been self-employed as an optometrist in Tipton, Indiana since 1964.
The terms of all officers and directors expire in March 1996.
Mr. Watson and Ms. Gish are brother and sister.
Key Employee
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Richard H. Timm, 49, has been the General Manager of Tipton since
January 1995 and has been employed by Tipton for 25 years. From 1987 to 1995,
Mr. Timm was Plant Operations Manager; from 1974 to 1987 he was Central Office
Supervisor; and from 1970 to 1974 he was Central Office Switchman.
Compensation of Officers and Directors
The total of the annual salary and bonus paid by Tipton during
its last fiscal year to its President and each other executive officer did not
exceed $100,000. In addition, officers of Tipton did not receive any grants of
options or stock appreciation rights or any other long-term incentive or similar
compensation. The following table shows the compensation paid to Tipton's
President in 1995.
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Principal Position Year Salary
- --------------------------- ---- -------------------
Joe F. Watson, President 1995 $27,024
The President is currently authorized a salary of $24,024 per
year. The President is also authorized additional compensation of $1,000 per
month, for services rendered in connection with the negotiations with bidders,
including TDS, and the negotiation of the Merger Agreement and Merger, to be
paid until the closing of the Merger. The Treasurer/Secretary is currently
authorized a salary of $4,224 per year. Each other director is currently
authorized to receive compensation of $5,554 per year for service on the Board
of Directors of Tipton.
Tipton Benefit Plans
The Tipton Pension Plan is a defined benefit plan designed to
provide retirement benefits for eligible employees of Tipton. The directors and
executive officers of Tipton do not participate in the Tipton Pension Plan.
Under the Tipton Pension Plan, Tipton makes annual contributions based upon
actuarial assumptions and a formula designed to fund a pension benefit for each
participant commencing generally upon the participant's attainment of retirement
age. TDS has agreed to maintain the Tipton Pension Plan for ten years following
the Closing Date, subject to certain conditions. See "The Merger - Operations of
Tipton Following the Merger."
Certain Relationships and Related Transactions
Mr. Howard E. Pottenger, the Vice President and a director of
Tipton, was paid $80,132 by Tipton for management consulting services.
Electrical work in connection with the construction of new
facilities and the remodeling of existing facilities for Tipton was awarded to a
company owned by a family member of Mr. Pottenger. Payments to such company were
$130,820, $22,205, $33,445 and $21,135 in 1992, 1993, 1994 and 1995,
respectively.
Mr. Joe F. Watson, the President and a Director of Tipton, is
an Attorney-at-Law and has represented Tipton in connection with certain
matters. Each of TDS and Sub has agreed that, for so long as he is willing and
able to serve, during the Ten-Year Post-Closing Period, Mr. Watson will at all
times be a member of the Tipton Board. See "The Merger - Operation of Tipton
Following the Merger."
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Except as described above, Tipton has no material business
relationships with, did not engage in any material transactions with and had no
material indebtedness due from, any of its directors and officers or any member
of their families or their affiliates at any time during Tipton's last fiscal
year.
TIPTON 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 Tipton Telephone Company,
Inc. ("Tipton") over the three most recent fiscal years and the nine month
periods ended September 30, 1995 and 1994. The following information should be
read in conjunction with the financial statements and related notes and other
detailed information regarding Tipton included elsewhere in this Proxy
Statement-Prospectus.
Tipton 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 Tipton's customers for its services and the access charges to interexchange
carriers are based upon rates established by the Indiana Utility Regulatory
Commission ("IURC") for intrastate services and the Federal Communications
Commission ("FCC") for interstate services. Generally, these fees are a function
of a prescribed return on Tipton'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 September 30, 1995 and 1994, included in this 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. Tipton uses a fiscal year ending December 31.
Net income totaled $961,854, $956,341 and $870,592 for the
three fiscal years ended 1994, 1993 and 1992, respectively, reflecting an
increase of .6% in 1994 and an increase of 9.8% in 1993. Net income totaled
$700,093 and $714,902 for the nine month periods ended September 30, 1995 and
1994, respectively. See the analysis set forth in "Operating Revenues,"
"Operating Expenses" and "Other Items" listed below.
Earnings per share were $1,381 in 1994, $1,195 in 1993 and
$1,088 in 1992 based upon weighted average shares outstanding of 696 shares in
1994 and 800 shares in 1993 and 1992. Earnings per share for the nine month
periods ended September 30, 1995 and 1994 were $1,145 and $986, respectively,
based upon weighted average shares outstanding of 611 shares in 1995 and 725
shares in 1994.
Operating Revenues
In the years ended December 31, 1994, 1993, and 1992,
operating revenues totaled $3,189,282, $3,024,250 and $2,822,471, respectively.
This equates to an increase of 5.5% in 1994 and 7.1% in 1993. Operating revenues
for the nine month periods ended September 30, 1995 and 1994 totaled $2,702,439
and $2,428,317, respectively, reflecting an increase of 11.3%.
Local network service revenues are derived from providing
local telephone exchange service within Tipton's franchise area. Local network
service revenues increased $17,721 (4.3%) and decreased $1,594 (.4%) in 1994 and
1993, respectively. Local network services revenues increased $8,304 (2.6%) in
the nine months ended September 30, 1995, over the same period in 1994.
Network access service revenues result from charges assessed
to interexchange network carriers to transmit long-distance communications
("toll calls"). Such revenues are based upon the
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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 service revenues increased $89,443 (4.0%) in
1994 and $206,787 (10.1%) in 1993. The increase in 1994 resulted primarily from
an increase in message volume. The
increase in 1993 was due mainly to a change in settlement procedures with
interexchange carriers. Network access revenues increased $263,167 (14.7%) in
the nine months ended September 30, 1995, over the same period in 1994,
primarily due to adjustments to prior years revenue settlements and an increase
in message volume.
Billing and collection revenues increased $13,209 (5.7%) in
1994 and decreased $31,997 (12.2%) in 1993. The increase in 1994 was due to an
increase in message volume. The decrease in 1993 was primarily due to a change
in classification of revenues. Billing and collection revenues increased by
$11,871 (6.7%) for the nine months ended September 30, 1995 over the same period
in 1994.
The operating revenue of Tipton will not be impacted if the
pending merger with Sub is not consummated.
Operating Expenses
Operating expenses totaled $1,773,917 $1,541,136 and
$1,434,645 for the years ended 1994, 1993 and 1992, respectively. This equates
to an increase of 15.1% in 1994 and a 7.4% increase in 1993. Operating expenses
for the nine month periods ended September 30, 1995 and 1994 totaled $1,518,928
and $1,329,865, respectively, an increase of 14.2%.
Plant specific operations expenses increased $12,656 (4.0%) in
1994 and decreased $11,255 (3.5%) in 1993.
Plant nonspecific operations expenses increased $39,387
(47.9%) in 1994 and decreased $385 (.5%) in 1993. The 1994 increase relates to
increased employee time spent in network administration.
Depreciation and amortization increased $66,270 (18.4%) in
1994 and increased $22,539 (6.7%) in 1993. The increase in 1994 was primarily
due to additional depreciation on new additions and increased depreciation on
aerial cable.
Customer operations expense decreased $18,458 (3.8%) in 1994
and increased $45,397 (10.2%) in 1993. The 10.2% increase in 1993 was mainly due
to an increase in labor costs to provide customer service.
Corporate operations expense increased $132,926 (45.0%) in
1994 and $50,195 (20.5%) in 1993. The increase in 1994 was primarily due to the
costs of outside consultants used to assist in corporate planning and an
increase in labor costs. The increased expense in 1993 was primarily due to the
cost of establishing continuing property records. Corporate operations expense
for the nine months ended September 30, 1995 increased $214,330 (70.3%)
primarily due to the costs of outside consultants used to assist in corporate
planning, including negotiations with TDS and other bidders.
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Operating taxes consist of federal and state income taxes as
well as property taxes. Total operating taxes decreased $46,915 (7.8%) in 1994
and increased $41,032 (7.3%) in 1993. Federal and state operating income taxes
generally reflect the changes in the level of pretax operating income.
The operating expenses of Tipton will not be impacted if the
pending merger with Sub is not consummated.
Other Items
Interest and dividend income totaled $85,849, $103,286 and
$81,933 in 1994, 1993 and 1992, respectively, reflecting a decrease of 16.9% in
1994 and an increase of 26.1% in 1993. Interest and dividend income changes
relate mainly to changes in the amount invested during the three years ended
December 31, 1994.
Partnership income was $181,022, $133,614 and $89,503 in 1994,
1993 and 1992, respectively, an increase of 35.5% in 1994 and an increase of
49.3% in 1993. Partnership income for the nine month periods ended September 30,
1995 and 1994 totaled $47,453 and $90,762, respectively, reflecting a decrease
of 47.7%. Partnership income is recognized when it is distributed by the
partnership. Partnership distributions vary according to the cash needs of the
partnership. These distributions do not necessarily correspond to income at the
partnership level.
Federal and state income taxes - nonoperating generally
reflect the changes in the level of pretax nonoperating income adjusted for
nontaxable interest and dividends.
Interest expense totaled $90,291, $65,679 and $74,400 in 1994,
1993 and 1992, respectively, resulting an increase of 37.5% in 1994 and a
decrease of 11.7% in 1993. The level of interest expense relates primarily to
the level of debt outstanding during each of the years.
Liquidity and Capital Resources
Cash and cash equivalents, temporary investments and
marketable securities were $1,208,591, $2,282,356 and $1,842,387 as of December
31, 1994, 1993 and 1992, respectively. The 47.0% decrease from December 31, 1993
to December 31, 1994 reflects the use of funds to repurchase the corporation's
capital stock.
Cash flows from operating activities were $1,449,233 in 1994,
$1,453,155 in 1993 and $968,217 in 1992. Cash flows from operating activities in
1993 increased primarily as a result of the increase in income of $85,749 and
the increase of $448,024 in payables and other current liabilities.
Cash flows used in investing activities were $867,655 in 1994
and $686,761 in 1993 and $816,911 in 1992. The primary use of funds in these
periods was for the purchase of plant and equipment.
Cash flows used in financing activities were $1,477,899 in
1994, $491,803 in 1993 and $383,414 in 1992. The primary reason for the
increased use of cash in 1994 was the repurchase of the Company's capital stock
offset somewhat by an increase in notes payable. The remaining use of cash in
1994 and the use in 1993 and in 1992 was a result of payments on long term debt
and dividend payments.
In 1995, total capital expenditures are expected to be
approximately $400,000. The money is to be used for an upgrade of central office
equipment and repair of outside plant cable. 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 Tipton. However, while
cash flows generated from operations are expected to be sufficient to meet the
future operating needs of Tipton, future capital expenditures may require
additional
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<PAGE>
borrowing. The specific means of obtaining the financing and its
resulting impact on the financial position and earnings capacity of Tipton have
not been determined.
Inflation and changing prices did not have a material effect
on Tipton's financial position or earnings during the three years ended December
31, 1994.
Management of Tipton 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.
DESCRIPTION OF TIPTON SHARES
The only class of capital stock of Tipton authorized by the
Articles of Incorporation of Tipton, as amended, consists of 1,100 Tipton
Shares, par value $50.00 per share. There were 611 Tipton Shares issued and
outstanding on the Tipton Record Date and 489 treasury shares held by Tipton.
Each holder of a Tipton Share is entitled to one vote per
share held by such holder on all matters submitted to a vote of shareholders.
Pursuant to the Articles of Incorporation of Tipton, in the election of
directors, shareholders are not permitted to cumulate their votes. All issued
and outstanding Tipton Shares are fully paid and non-assessable.
Pursuant to Section 23-1-28-3 of the Indiana Business
Corporation Law, the Board of Directors of Tipton may not make a distribution to
its shareholders if, after giving effect to such distribution (a) Tipton would
not be able to pay its debts as they become due in the ordinary course of
business or (b) its total assets would be less than its total liabilities.
Upon liquidation of Tipton, the holders of Tipton Shares are
entitled to share ratably in the distribution of all assets remaining after
provision for the creditors of Tipton.
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 ("Series A Common Shares"), and 5,000,000 shares of Preferred Stock,
without par value ("Preferred Shares"). As of September 30, 1995, 50,947,706 TDS
Common Shares (excluding 484,012 Common Shares held by a subsidiary of TDS),
6,888,480 TDS Series A Common Shares and 450,907 TDS Preferred Shares were
outstanding.
Voting Trust
Over 90% of TDS's outstanding Series A Common Shares are held
in a voting trust which expires on September 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. The trustees of the
voting trust are LeRoy T. Carlson, Jr., a director and the President of TDS,
Walter C.D. Carlson, a director of TDS, Letitia G. Carlson, Melanie J. Heald and
Donald C. Nebergall, a director of TDS.
Preferred Stock
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.
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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, 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,
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 and the outstanding Preferred
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 TDS Common Shares,
Series A Common Shares and Preferred Shares vote as a single class, 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 class (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 class in the election of all 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.
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 September 30, 1995, the
annual preferred dividend requirements on all outstanding Preferred Shares
aggregated $2,603,000.
In the case of stock dividends, 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 were available for the payment of dividends
on TDS Common Shares and Series A Common Shares.
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. An aggregate of 284,232 Preferred Shares were convertible into 977,049
TDS Common Shares as of September 30, 1995.
-33-
<PAGE>
Other Rights
The TDS Common Shares and Series A Common Shares have no
redemption or sinking fund provisions. An aggregate of 159,197 Preferred Shares
at September 30, 1995 had mandatory redemption features. An aggregate of 291,711
Preferred Shares were redeemable at the option of TDS as of September 30, 1995.
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, $45,101,286 as of September 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 September 30, 1995,
there were no unpaid or accumulated dividends payable on the Preferred Shares.
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.
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.
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 TIPTON SHAREHOLDERS
If the Merger is consummated, Tipton Shareholders, an Indiana
corporation, will become shareholders of TDS, an Iowa corporation, and their
rights will be governed by the Iowa Business Corporation Act instead of the
Indiana Business Corporation Law, and by the Articles of Incorporation and
Bylaws of TDS instead of the Articles of Incorporation and Bylaws of Tipton,
which differ in several respects. In addition to the matters described above
under "Description of Tipton Shares" and "Description of TDS Securities," there
are other differences between the rights of shareholders in TDS, and those of
shareholders in Tipton, certain of which are described below.
Preferred Shares. No dividends may be paid on the TDS Common
Shares until all dividends due on 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. Tipton has no shares of
capital stock with any dividend, liquidation or other preference.
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
Articles of Incorporation of Tipton. However, Indiana law provides for a
standard of care for director liability which makes it difficult to recover
monetary judgements against directors.
Preemptive Rights. Indiana law provides that no shareholder
has any preemptive right to subscribe to additional shares of stock except to
the extent that such right is granted in the articles of incorporation. The
Tipton Articles of Incorporation do not provide for preemptive rights. Under
Iowa law,
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<PAGE>
the shareholders of a corporation do not have a preemptive right to
acquire unissued shares of the corporation, except to the extent the articles of
incorporation so provide. The TDS Articles of Incorporation provide that the
holders of TDS Series A Common Shares have a preemptive right to acquire
additional TDS Series A Common Shares for cash. The holders of TDS Common Shares
and Preferred Shares have no preemptive rights under the TDS Articles of
Incorporation.
Bylaws. Indiana law provides that unless the articles of
incorporation provide otherwise, only a corporation's board of directors may
amend or repeal the corporation's bylaws. Since the Tipton Articles of
Incorporation do not permit the shareholders to amend or repeal the Tipton
Bylaws, only the Tipton Board of Directors may take such action. Under Iowa law,
a corporation's board of directors may generally adopt, amend or repeal the
corporation's bylaws unless the articles of incorporation reserve such
power exclusively to the shareholders. The TDS Articles of Incorporation do not
reserve such powers to the shareholders. As a result, TDS's Bylaws may be
amended or repealed by the Board of Directors. Nevertheless, Iowa law provides
further that a corporation's shareholders may amend or repeal the corporation's
bylaws even though the bylaws may also be amended or repealed its board of
directors.
Board of Directors. The Board of Directors of Tipton consists
of five members of one class, who are elected annually for terms of one year
each. The Board of Directors of TDS presently consists of eleven members divided
into three classes. Every year, one of the classes is elected for a term of
three years.
Election of Directors. The election of a director of Tipton
requires the affirmative vote of a plurality of the votes cast by holders of
Tipton Shares entitled to vote in the election of such director at a meeting at
which a quorum is present. Under Indiana law, shareholders do not have the right
to cumulate their votes in the election of directors unless so provided in the
articles of incorporation. The Tipton Articles of Incorporation do not provide
for cumulative voting. Each holder of Tipton Shares is entitled to one vote for
each share of stock in such holder's name in the election of each of the five
directors of Tipton. Under Iowa law, the election of a director of TDS requires
the affirmative vote of a majority of votes cast by holders of TDS shares
entitled to vote with respect to such matter. Iowa law provides that
shareholders do not have a right to cumulate their votes for directors unless
the articles of incorporation so provide. The TDS Articles of Incorporation do
not provide for cumulative voting in the election of directors. Based on the
current size of the TDS Board, the holders of TDS Common Shares and TDS
Preferred Shares issued prior to October 31, 1981 elect three directors, and the
holders of TDS Series A Common Shares and TDS Preferred Shares issued after
October 31, 1981 elect eight directors. The TDS Series A Common Shares have ten
votes per share, the TDS Common Shares have one vote per share and the TDS
Preferred Shares have such number of votes as are specified in the certificate
of designation in the election of such directors.
Meetings of Shareholders. Under Indiana law, a corporation
with 50 or fewer shareholders must hold a meeting of shareholders on call of its
board of directors or such other person or persons as may be authorized by the
articles of incorporation or the bylaws, or if requested by the holders of at
least 25% of the votes on any issue proposed to be considered at the meeting.
The Tipton Bylaws provide that the President or two or more directors may call a
special meeting of shareholders. Under Iowa law, special meetings of the
shareholders may be called by the board of directors, a person or persons so
authorized by the articles of incorporation or bylaws, or by holders of at least
ten percent of the votes entitled to be cast on any issue proposed to be
considered at the special meeting. The TDS Bylaws specify that the President may
call a special meeting of shareholders.
Shareholder Action by Written Consent. Under Indiana law,
unless otherwise provided in the articles of incorporation, any action required
or permitted to be taken at a shareholder's meeting may be taken without a
meeting or vote, if one or more written consents, describing the action taken,
are signed by the holders of all shares entitled to vote on the action. The
Tipton Articles of Incorporation do not modify this provision. Under Iowa law,
unless otherwise provided in the articles of incorporation, any action required
or permitted to be taken at a shareholder's meeting may be taken without a
meeting or vote, if one or more written consents, describing the action taken,
are signed by the holders of outstanding
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<PAGE>
shares having not less than 90% of the votes entitled to be cast at a meeting at
which all shares entitled to vote on the action were present and voted. The TDS
Articles of Incorporation do not modify this provision.
Voting Rights. Voting in the election of directors is
described above under "Election of Directors" above. With respect to all other
matters, each holder of Tipton Shares is entitled to one vote for each Tipton
Share in such holder's name. Each TDS Series A Common Share entitles the holder
thereof to ten votes per share and each TDS Common Share entitles the holder
thereof to one vote per share on all matters on which shareholders are entitled
to vote. Holders of TDS Preferred Shares have such voting rights as may be set
forth in the certificate of designation. Except as described above under
"Election of Directors," the TDS Articles of Incorporation provide that holders
of TDS shares generally vote as a group.
Amendments to Charter. Amendments to the Tipton Articles of
Incorporation generally require the approval of the holders of a majority of all
outstanding Tipton Shares if dissenters' rights are available or, if dissenters'
rights are not available, by a majority of the votes cast for or against the
amendment. Unless the Iowa Business Corporation Act or the articles of
incorporation require a greater vote or a vote by voting groups, an amendment to
the TDS Articles of Incorporation must be approved by the affirmative vote of a
majority of the votes entitled to be cast on the amendment by any voting group
with respect to which the amendment would create dissenters' rights and the
affirmative vote of a majority of the votes cast for or opposing the action by
every other voting group entitled to vote on the amendment. The TDS Articles of
Incorporation generally provide that, except in the election of directors as
discussed above, all shareholders vote as one group. However, under the Iowa
Business Corporation Act, shareholders are entitled to vote as separate voting
groups, if shareholder voting is otherwise required by the Iowa Business
Corporation Act, on a proposed amendment to the TDS Articles of Incorporation if
such amendment falls into any one of several specified categories of actions.
Such specified categories generally include any amendment which alters the
number of the authorized shares, designations, rights, preferences or
limitations of any class, directly or indirectly. As a result, in the case of an
amendment to the TDS Articles of Incorporation on any matter which falls into
one of such categories, and on all other matters where a separate class or group
vote is required by the TDS Articles of Incorporation, the holders of the TDS
Common Shares, TDS Series A Common Shares and TDS Preferred Shares, as the case
may be, are entitled to vote as a class or voting group. As a result, no such
amendment to the Articles of Incorporation of TDS may be effected without the
requisite vote of the holders of shares of each class or voting group entitled
to vote separately pursuant to the foregoing requirements, in addition to the
requisite vote of the total voting power of the TDS shares.
Mergers or Share Exchanges. In general, under Indiana law, a
merger or share exchange must be approved by a majority of the holders of Tipton
Shares. In general, under Iowa law, unless the articles of incorporation require
a greater vote or a vote by voting groups, a merger or share exchange must be
approved by each voting group entitled to vote separately on the plan by a
majority of all the votes entitled to be cast on the plan by the voting group.
The TDS Articles of Incorporation generally provide that, except in the election
of directors as discussed above, all shareholders vote as one group. However,
under Iowa law, separate voting by voting groups is required on a plan of merger
if the plan contains a provision that, if contained in a proposed amendment to
the articles of incorporation, would require action by one or more separate
voting groups on the proposed amendment and, on a plan of share exchange, by
each class or series of shares included in the exchange, with each class or
series constituting a separate voting group.
Sales of Assets. Under Indiana law, approval by the holders of
a majority of the outstanding Tipton Shares would generally be required to
authorize the sale of all or substantially all of the property or assets of
Tipton. Unless the articles of incorporation require a greater vote or a vote by
voting groups, under Iowa law a sale of substantially all assets of TDS would
need to be approved by a majority of all the votes entitled to be cast on the
transaction by holders of TDS shares. As discussed above, Iowa law may provide
for voting by groups in certain circumstances, depending on the terms of the
proposed transaction.
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<PAGE>
Dissolutions. Under Indiana law, approval by the holders of a
majority of the outstanding Tipton Shares would generally be required to
authorize a dissolution of Tipton. Under Iowa law, unless the articles of
incorporation require a greater vote or a vote by voting groups, a proposal to
dissolve TDS would need to be approved by a majority of all the votes entitled
to be cast on that proposal by holders of TDS shares. As discussed above, Iowa
law may provide for voting by groups in certain circumstances, depending on the
terms of the proposed transaction.
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
Articles of Incorporation and state corporation statutes, which will be provided
upon request.
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,
a director of TDS and a trustee of a voting trust which controls TDS, Michael G.
Hron, the Secretary of TDS and of certain TDS subsidiaries, William S. DeCarlo,
the Assistant Secretary of TDS and certain TDS subsidiaries, Stephen P. Fitzell,
the Secretary of Sub and certain other TDS subsidiaries, and Sherry S. Treston,
the Assistant Secretary of certain TDS subsidiaries, are members of that law
firm.
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 this report which
includes an explanatory paragraph 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.
Tipton
The balance sheets of Tipton Telephone Company, Inc. as of
December 31, 1994 and 1993 and the statements of income, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1994 have been audited by Kehlenbrink, Lawrence & Pauckner,
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.
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<PAGE>
INDEX TO TIPTON FINANCIAL STATEMENTS
Interim Unaudited Statements:
Balance Sheets as of September 30, 1995 and December 31, 1994..............F-2
Statements of Income for the nine month periods ended
September 30, 1995 and 1994.........................................F-4
Statements of Changes in Shareholders' Equity for the nine
month periods ended September 30, 1995 and 1994.....................F-5
Statements of Cash Flows for the nine month periods ended
September 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 Shareholders' 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-14
F-1
<PAGE>
TIPTON TELEPHONE COMPANY, INC
BALANCE SHEETS
(Unaudited)
ASSETS September 30, December 31,
1995 1994
CURRENT ASSETS ------------- ------------
Cash and cash equivalents $ 402,297 $ 163,130
Temporary cash investments 26,863 19,478
Telecommunications accounts receivable,
net of allowance for doubtful accounts
of $900 and $-0-, respectively 79,798 60,938
Other accounts receivable 416,027 549,035
Prepaid pension expense 101,155 66,035
Interest receivable 442 442
Material and supplies - At cost 155,830 109,264
Prepayments 12,170 6,236
Deferred income tax asset 12,663 12,663
------------ ------------
Total current assets $ 1,207,245 $ 987,221
------------ ------------
NONCURRENT ASSETS
Marketable securities - At fair value $ 1,176,603 $ 1,025,983
GTE Mobilnet of Indiana - At cost 783,057 783,057
Investment in nonregulated facilities,
net of accumulated depreciation of
$106,909 and $89,777 145,692 162,918
Other investments - At cost 90,439 92,998
Unamortized debt issuance expense 1,629 2,035
Deferred retirements 66,099 81,346
Other deferred assets 332,636 351,465
------------ ------------
$ 2,596,155 $ 2,499,802
------------ ------------
TELECOMMUNICATIONS PLANT
Telecommunications plant under
construction $ 207,210 $ 136,526
Telecommunications plant in service 8,646,210 8,488,675
Less - Accumulated depreciation (2,639,953) (2,361,579)
------------ ------------
$ 6,213,467 $ 6,263,622
------------ ------------
Total Assets $ 10,016,867 $ 9,750,645
============ ============
See selected information following these financial statements
F-2
<PAGE>
TIPTON TELEPHONE COMPANY, INC.
BALANCE SHEETS
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY September 30, December 31,
1995 1994
CURRENT LIABILITIES ------------ ------------
Accounts payable $ 162,053 $ 403,140
Current maturities of long-term debt 119,488 111,200
Note payable - Bank 700,000 800,000
Income taxes payable 35,783 31,043
Customer deposits 12,032 14,306
Other accrued taxes 114,013 90,697
Accrued wages 47,594 23,250
Accrued interest 16,210 17,410
------------ ------------
Total current liabilities $ 1,207,173 $ 1,491,046
------------ ------------
LONG-TERM DEBT $ 314,641 $ 405,322
------------ ------------
DEFERRED CREDITS
Unamortized investment tax credits $ 74,379 $ 83,792
Deferred income taxes 1,144,982 1,152,344
------------ ------------
$ 1,219,361 $ 1,236,136
------------ ------------
SHAREHOLDERS' EQUITY
Capital stock, common, par value $50.00
per share - 1,100 shares authorized
and issued $ 55,000 $ 55,000
Retained earnings 9,982,110 9,434,767
Net unrealized gain (loss) on
marketable securities 15,301 (94,907)
Less: Cost of 489 shares of treasury stock (2,776,719) (2,776,719)
------------ ------------
$ 7,275,692 $ 6,618,141
------------ ------------
Total Liabilities and
Stockholders' Equity $ 10,016,867 $ 9,750,645
============ ============
See selected information following these financial statements
F-3
<PAGE>
TIPTON TELEPHONE COMPANY, INC.
STATEMENTS OF INCOME
(UNAUDITED)
For The Nine Months Ended
September 30, September 30,
1995 1994
--------------- --------------
OPERATING REVENUES
Local network services $ 329,903 $ 321,599
Network access services 2,050,440 1,787,273
Billing and collection 187,998 176,127
Miscellaneous revenues 131,788 141,037
Uncollectible revenues 2,310 2,281
-------------- --------------
Total operating revenues $ 2,702,439 $ 2,428,317
-------------- --------------
OPERATING EXPENSES
Plant specific operations $ 210,450 $ 253,204
Plant nonspecific operations 115,015 93,970
Depreciation and amortization 316,326 309,583
Customer operations 358,035 368,336
Corporate operations 519,102 304,772
-------------- --------------
Total operating expenses $ 1,518,928 $ 1,329,865
-------------- --------------
OPERATING TAXES
Federal income tax $ 311,839 $ 293,523
State income taxes 86,346 84,887
Property taxes 67,989 64,305
-------------- --------------
Total operating taxes $ 466,174 $ 442,715
-------------- --------------
Net operating income $ 717,337 $ 655,737
NONOPERATING INCOME AND DEDUCTIONS
Interest and dividend income 55,424 57,173
Partnership income 47,453 90,762
Other nonregulated income - Net 12,958 34,855
Federal and state taxes - Nonoperating (45,797) (67,689)
--------------- --------------
Income before interest expense $ 787,375 $ 770,838
-------------- --------------
INTEREST AND RELATED ITEMS
Interest on long term debt $ 39,132 $ 42,147
Other interest 47,743 13,382
Amortization of debt issuance expense 407 407
-------------- --------------
Total interest and related items $ 87,282 $ 55,936
-------------- --------------
NET INCOME $ 700,093 $ 714,902
============== ==============
See selected information following these financial statements
F-4
<PAGE>
<TABLE>
<CAPTION>
TIPTON TELEPHONE COMPANY, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
Net Unrealized
Capital Retained Gain (Loss) On Treasury
Stock Earnings Marketable Secutities Stock
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 $ 55,000 $ 8,825,663 $ -- $ (952,608)
Net income 714,902
Dividends paid (200,000)
Purchase of 189 shares
of capital stock (1,824,111)
Cumulative effect of accounting
change, net unrealized loss
on marketable securities (53,471)
----------- ----------- ----------- -----------
Balance, September 30, 1994 $ 55,000 $ 9,340,565 $ (53,471) $(2,776,719)
=========== =========== =========== ===========
Balance, December 31, 1994 $ 55,000 $ 9,434,767 $ (94,907) $(2,776,719)
Net income 700,093
Dividends paid (152,750)
Change in value of marketable
securities 110,208
----------- ----------- ----------- -----------
Balance, September 30, 1995 $ 55,000 $ 9,982,110 $ 15,301 $(2,776,719)
=========== =========== =========== ===========
</TABLE>
See selected information following these financial statements
F-5
<PAGE>
TIPTON TELEPHONE COMPANY, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For The Nine Months Ended
September 30, September 30,
1995 1994
-----------------------------
OPERATING ACTIVITIES
Net income $ 700,093 $ 714,902
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 342,644 343,418
Deferred income taxes 11,467 11,467
Investment tax credits (9,413) (9,413)
Changes in operating assets and liabilities:
Accounts receivable 114,148 (271,298)
Other current assets (87,620) 136,685
Accounts payable (241,087) 114,093
Income tax payable 4,740 (40,325)
Other current liabilities 44,186 29,622
----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 879,158 $ 1,029,151
----------- -----------
INVESTING ACTIVITIES
Additions to plant and equipment, net
of salvage and cost of removal $ (259,610) $ (436,352)
Purchase of temporary cash investments (7,385) --
Maturity of temporary cash investments -- 142,900
Purchase of other investments (37,853) (45,355)
----------- -----------
NET CASH USED IN
INVESTING ACTIVITIES $ (304,848) $ (338,807)
----------- -----------
FINANCING ACTIVITIES
Bank loan $ (100,000) $ 800,000
Principal payments on long term debt (82,393) (74,864)
Dividends paid (152,750) (200,000)
Purchase of treasury stock -- (1,824,111)
----------- -----------
NET CASH USED IN
FINANCING ACTIVITIES $ (335,143) $(1,298,975)
----------- -----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 239,167 $ (608,631)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 163,130 1,059,451
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 402,297 $ 450,820
=============== ===========
See selected information following these financial statements
F-6
<PAGE>
TIPTON TELEPHONE COMPANY, INC.
SELECTED INFORMATION-SUBSTANTIALLY ALL
DISCLOSURES REQUIRED BY GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ARE NOT INCLUDED
FOR THE NINE MONTHS ENDED SEPTEMBER 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 Tipton
Telephone Company, Inc. (the Company), all adjustments considered necessary for
a fair presentation have been included. Operating results for the nine month
period ended September 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 February 5, 1996, the Board of Directors of Tipton Telephone Company, Inc.
met and approved a merger agreement ("Merger Agreement") with Telephone and Data
Systems, Inc. ("TDS") and TDS- Tipton Acquisition Corp., a wholly owned
subsidiary of TDS ("Sub"). An affirmative vote of the holders of a majority of
the outstanding shares of the Company's stock is required to approve the Merger
Agreement, as amended. In addition, the merger is subject to approval by the
Indiana Regulatory Commission and the Federal Communications Commission. The
Merger Agreement, as amended, includes certain other closing conditions
precedent to consummation of the transaction.
F-7
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Tipton Telephone Company, Inc.
We have audited the accompanying balance sheets of Tipton
Telephone Company, Inc. as of December 31, 1994 and 1993, and the related
statements of income, changes in shareholders' equity, and cash flows for the
three years in the period ended December 31, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Tipton Telephone
Company, Inc. as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for the three years in the period ended December
31, 1994, in conformity with generally accepted accounting principles.
Kehlenbrink, Lawrence & Pauckner
Indianapolis, Indiana
February 23, 1995
F-8
<PAGE>
TIPTON TELEPHONE COMPANY, INC.
BALANCE SHEETS
ASSETS December 31, December 31,
1994 1993
------------- -------------
CURRENT ASSETS
Cash and cash equivalents $ 163,130 $ 1,059,451
Temporary cash investments 19,478 168,246
Telecommunications accounts receivable,
net of allowance for doubtful accounts
of $0 and $20,575, respectively 60,938 28,501
Other accounts receivable 549,035 309,450
Prepaid pension expense 66,035 133,725
Interest receivable 442 --
Material and supplies - At cost 109,264 123,064
Prepayments 6,236 11,740
Deferred income tax 12,663 12,273
------------ ------------
Total current assets $ 987,221 $ 1,846,450
------------ ------------
NONCURRENT ASSETS
Marketable securities - At fair value
in 1994 and at cost in 1993 $ 1,025,983 $ 1,054,659
GTE Mobilnet of Indiana - At cost 783,057 783,057
Investment in nonregulated facilities,
net of accumulated depreciation of
$89,777 and $140,191 162,918 203,363
Other investments - At cost 92,998 70,266
Unamortized debt issuance expense 2,035 2,578
Deferred retirements 81,346 101,682
Other deferred assets 351,465 376,570
------------ ------------
$ 2,499,802 $ 2,592,175
------------ ------------
TELECOMMUNICATIONS PLANT
Telecommunications plant under
construction $ 136,526 $ 203,072
Telecommunications plant in service 8,488,675 7,640,411
Less - Accumulated depreciation (2,361,579) (2,099,582)
------------ ------------
$ 6,263,622 $ 5,743,901
------------ ------------
Total Assets $ 9,750,645 $ 10,182,526
============ ============
The accompanying notes are an integral part of these
financial statements.
F-9
<PAGE>
TIPTON TELEPHONE COMPANY, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY December 31, December 31,
1994 1993
----------- ------------
CURRENT LIABILITIES
Accounts payable $ 403,140 $ 142,445
Current maturities of long-term debt 111,200 101,038
Note payable - Bank 800,000 --
Income taxes payable 31,043 109,393
Customer deposits 14,306 14,121
Other accrued taxes 90,697 88,083
Accrued wages 23,250 24,852
Accrued interest 17,410 11,824
------------ ------------
Total current liabilities $ 1,491,046 $ 491,756
------------ ------------
LONG-TERM DEBT $ 405,322 $ 516,522
------------ ------------
DEFERRED CREDITS
Unamortized investment tax credits $ 83,792 $ 96,343
Deferred income taxes 1,152,344 1,149,850
------------ ------------
$ 1,236,136 $ 1,246,193
------------ ------------
SHAREHOLDERS' EQUITY
Capital stock, common, par value $50.00
per share - 1,100 shares authorized
and issued $ 55,000 $ 55,000
Retained earnings 9,434,767 8,825,663
Net unrealized loss on marketable securities (94,907) --
Less: Cost of 489 shares and 300 shares of
treasury stock in 1994 and 1993 respectively (2,776,719) (952,608)
------------ ------------
$ 6,618,141 $ 7,928,055
------------ ------------
Total Liabilities and
Shareholders' Equity $ 9,750,645 $ 10,182,526
============ ============
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
<TABLE>
<CAPTION>
TIPTON TELEPHONE COMPANY, INC.
STATEMENTS OF INCOME
For The Years Ended
December 31, December 31, December 31,
1994 1993 1992
----------- ----------- -------------
<S> <C> <C> <C>
OPERATING REVENUES
Local network services $ 429,674 $ 411,953 $ 413,547
Network access services 2,340,137 2,250,694 2,043,907
Billing and collection 243,536 230,327 262,324
Miscellaneous revenues 174,748 132,481 103,893
Uncollectible revenues (expense) 1,187 (1,205) (1,200)
----------- ----------- -----------
Total operating revenues $ 3,189,282 $ 3,024,250 $ 2,822,471
----------- ----------- -----------
OPERATING EXPENSES
Plant specific operations $ 326,315 $ 313,659 $ 324,914
Plant nonspecific operations 121,580 82,193 82,578
Depreciation and amortization 426,081 359,811 337,272
Customer operations 471,749 490,207 444,810
Corporate operations 428,192 295,266 245,071
----------- ----------- -----------
Total operating expenses $ 1,773,917 $ 1,541,136 $ 1,434,645
----------- ----------- -----------
OPERATING TAXES
Federal income tax $ 360,498 $ 420,342 $ 374,938
State income taxes 105,478 96,565 95,103
Property taxes 89,768 85,752 91,586
----------- ----------- -----------
Total operating taxes $ 555,744 $ 602,659 $ 561,627
----------- ----------- -----------
Net operating income $ 859,621 $ 880,455 $ 826,199
NONOPERATING INCOME AND DEDUCTIONS
Interest and dividend income 85,849 103,286 81,933
Partnership income 181,022 133,614 89,503
Other nonregulated income - Net 15,906 6,846 21,692
Federal and state income taxes - Nonoperating (90,253) (102,181) (74,335)
----------- ----------- -----------
Income before interest expense $ 1,052,145 $ 1,022,020 $ 944,992
----------- ----------- -----------
INTEREST AND RELATED ITEMS
Interest on long term debt $ 54,376 $ 64,382 $ 72,607
Other interest 35,372 754 1,250
Amortization of debt issuance expense 543 543 543
----------- ----------- -----------
Total interest and related items $ 90,291 $ 65,679 $ 74,400
----------- ----------- -----------
NET INCOME $ 961,854 $ 956,341 $ 870,592
=========== =========== ===========
EARNINGS PER SHARE $ 1,381.10 $ 1,195.43 $ 1,088.24
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
<TABLE>
<CAPTION>
TIPTON TELEPHONE COMPANY, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Net Unrealized
Loss On
Capital Retained Marketable Treasury
Stock Earnings Secutities Stock
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1991 $ 55,000 $ 7,698,730 $ -- $ (952,608)
Net income 870,592
Dividends paid - $375 per share (300,000)
----------- ----------- ------------ -----------
Balance, December 31, 1992 $ 55,000 $ 8,269,322 $ -- $ (952,608)
Net income 956,341
Dividends paid - $500 per share (400,000)
----------- ----------- ------------ -----------
Balance, December 31, 1993 $ 55,000 $ 8,825,663 $ -- $ (952,608)
Net income 961,854
Dividends paid - $500 per share (352,750)
Purchase of 189 shares
of capital stock (1,824,111)
Cumulative effect of accounting
change, net unrealized loss
on marketable securities (94,907)
----------- ----------- ------------ -----------
Balance, December 31, 1994 $ 55,000 $ 9,434,767 $ (94,907) $(2,776,719)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
<TABLE>
<CAPTION>
TIPTON TELEPHONE COMPANY, INC.
STATEMENTS OF CASH FLOWS
For The Years Ended
December 31, December 31, December 31,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 961,854 $ 956,341 $ 870,592
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 469,063 404,770 380,016
Deferred income taxes 27,209 61,172 60,410
Investment tax credits (12,551) (12,550) (12,551)
(Gain) on disposal of leased equipment -- -- (457)
Changes in operating assets and liabilities:
Accounts receivable (272,022) 8,322 28,211
Other current assets 86,552 (64,370) (9,450)
Accounts payable 260,695 33,414 (173,847)
Income tax payable (78,350) 69,932 (84,223)
Other current liabilities 6,783 (3,876) (90,484)
----------- ----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 1,449,233 $ 1,453,155 $ 968,217
----------- ----------- -----------
INVESTING ACTIVITIES
Additions to plant and equipment, net
of salvage and cost of removal $ (927,460) $ (505,171) $ (569,518)
Investment in GTE Limited Partnership -- -- (39,234)
Purchase of temporary cash investments (128) -- (605,508)
Maturity of temporary cash investments 143,959 124,185 1,183,065
Purchase of other investments (84,026) (305,775) (791,652)
Proceeds from sale of leased equipment -- -- 936
Proceeds from sale of investments -- -- 5,000
----------- ----------- -----------
NET CASH USED IN
INVESTING ACTIVITIES $ (867,655) $ (686,761) $ (816,911)
----------- ----------- -----------
FINANCING ACTIVITIES
Bank loan $ 800,000 $ -- $ --
Principal payments on long term debt (101,038) (91,803) (83,414)
Dividends paid (352,750) (400,000) (300,000)
Purchase of treasury stock (1,824,111) -- --
----------- ----------- -----------
NET CASH USED IN
FINANCING ACTIVITIES $(1,477,899) $ (491,803) $ (383,414)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ (896,321) $ 274,591 $ (232,108)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 1,059,451 784,860 1,016,968
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 163,130 $ 1,059,451 $ 784,860
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-13
<PAGE>
TIPTON TELEPHONE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of the Company conform to generally accepted accounting
principles and reflect practices appropriate to the telephone industry. The
accounting records of the Company are maintained in accordance with the uniform
system of accounts prescribed by the Federal Communications Commission.
CASH EQUIVALENTS:
For purposes of the statement of cash flows, the company considers all highly
liquid investments with a maturity of three months or less when purchased to be
cash equivalents. Income taxes and interest paid were $619,200 and $84,163 in
1994, $500,535 and $64,890 in 1993, and $574,700 and $73,992 in 1992,
respectively.
TELEPHONE PLANT:
Telephone plant is stated at original cost and includes expenditures for items
which substantially increase the useful lives of the property, building and
equipment. Renewals and betterments of units of property are charged to
telephone plant in service. The original cost of depreciable property retired,
together with removal cost less any salvage realized is charged to accumulated
depreciation. No gain or loss is recognized in connection with ordinary
retirements of depreciable property. Maintenance, repairs and minor renewals are
expensed as incurred.
Depreciation on telephone plant for financial statement purposes is computed by
the use of the straight-line method which is estimated to allocate the cost of
depreciable plant equally over its estimated service life. The annual composite
rate was 5.24 % in 1994, 4.63% in 1993 and 4.65% in 1992. For income tax
purposes, depreciation is computed by the use of accelerated methods. Deferred
taxes are provided on the difference between depreciation for financial
reporting purposes and income tax purposes. Investment tax credits resulting
from investments in telephone plant and equipment prior to January 1, 1986, have
been deferred and are being amortized to income over the service lives of the
related property.
TELEPHONE PLANT IN SERVICE:
The major classes of property are listed below:
1994 1993
---------- ----------
Land and buildings $1,871,372 $1,857,650
Central office equipment 2,708,862 2,078,000
Telephone distribution plant 3,196,651 3,048,225
Furniture and office equipment 119,350 117,935
General purpose computers 53,738 49,437
Vehicles and other work equipment 538,702 489,164
-------------- --------------
Total $ 8,488,675 $ 7,640,411
============== ==============
F-14
<PAGE>
REVENUES:
All local and access revenues are recognized in the period in which they are
earned regardless of the period in which they are billed.
INVESTMENTS:
Investments which are not readily marketable are valued at cost.
OTHER ASSETS:
Debt issuance expense is being amortized over the life of the respective debt
issue on a straight-line basis.
Materials and supplies are valued at average cost.
Retirements of telephone plant which have not reached their estimated service
life have been deferred for financial reporting purposes and are being amortized
over a ten year period. For income tax purposes, the plant was expensed in the
year retired.
EARNINGS PER SHARE
Earnings per share have been calculated by dividing net income by the weighted
average number of shares outstanding during each year. The weighted average
shares outstanding was 696.44 shares for 1994 and 800 shares for 1993 and 1992
NOTE 2 - OTHER ACCOUNTS RECEIVABLE
The Company's business acitivity consists of providing local telephone service
to customers residing in central Indiana and connecting various long distance
telephone carriers to said customers. Receivables from long distance carriers as
of December 31, 1994 and 1993 were unsecured and totaled $510,858 and $247,756,
respectively.
NOTE 3 - INVESTMENTS IN MARKETABLE SECURITIES
In 1994, the Company adopted the provisions of SFAS 115 - Accounting for Certain
Investments in Debt and Equity Securities. Under the provisions of SFAS 115, all
securities classified as available-for- sale are reported at fair value. The
unrealized gain or loss on these securities is reported as a separate component
of shareholders' equity. Investments which are expected to be held until
maturity are reported at cost. A summary of the investments follows:
F-15
<PAGE>
Fair Unrealized
Value Cost Gain(Loss)
------------ ------------ ----------
Investments available for sale - 1994
Mutual Funds $ 827,283 $ 890,890 $(63,607)
Preferred stocks 198,700 230,000 (31,300)
----------- ------------ ---------
Total $1,025,983 $1,120,890 $(94,907)
========== ========== =========
Investments available for sale - 1993
Mutual funds $ 826,972 $ 824,659 $ 2,313
Preferred stocks 231,150 230,000 1,150
------------ ------------ ---------
TOTAL $1,058,122 $1,054,659 $ 3,463
========== ========== ========
Shareholders' equity for 1994 includes an unrealized holding loss on
available-for-sale securities of $94,907.
NOTE 4 - PENSION PLAN
Substantially all employees of the Company are covered by a defined benefit
noncontributory pension plan. The plan calls for benefits to be paid to eligible
employees at retirement based primarily upon years of service with the Company
and compensation rates near retirement. Contributions to the plan reflect
benefits attributed to employees' service to date, as well as service expected
to be earned in the future. Plan assets are invested with Farmers Loan & Trust.
Pension expense for 1994, 1993 and 1992 include the following components:
1994 1993 1992
------------ ---------- ----------
Service cost of current period $ 74,238 $ 73,053 $ 52,635
Interest cost on projected
benefit obligation 111,932 108,575 98,157
Actual (return) loss on market value
of assets 34,200 (105,374) (171,128)
Net amortization and deferral (146,365) 16,825 90,998
--------- --------- ---------
Pension expense $ 74,005 $ 93,079 $ 70,662
========= ========= =========
F-16
<PAGE>
The following sets forth the funded status of the plan and the amount shown in
the accompanying balance sheets at December 31, 1994 and 1993:
1994 1993
----------- -----------
Actuarial present value of benefit obligations:
Vested benefits $ 788,231 $ 1,291,636
Nonvested benefits 36,210 39,288
----------- -----------
Accumulated benefit obligation $ 824,441 $ 1,330,924
Effect of anticipated future
compensation increases 209,960 291,635
----------- -----------
Projected benefit obligation $ 1,034,401 $ 1,622,559
Less plan assets at fair market value 929,290 1,571,888
----------- -----------
Unfunded excess of projected benefit
obligation over plan assets $ 105,111 $ 50,671
=========== ===========
The unfunded excess consists of the following:
Unrecognized net obligation at
12/31/88 transition $ 29,321 $ 32,579
Unrecognized net (gain) loss (11,536) (17,651)
Prepaid pension expense included
in the balance sheets (66,035) (133,725)
Unrecognized prior service cost 153,361 169,468
----------- -----------
$ 105,111 $ 50,671
=========== ===========
The weighted average discount rate used to measure the projected benefit
obligation is 8.75%, the rate of increase in future compensation levels is 3.50%
and the expected long-term rate of return on assets is 8%. The initial amount of
the unrecognized net obligation is being amortized on a straight-line basis over
a fifteen year period.
NOTE 5 - LONG TERM DEBT
Long term debt consists of a mortgage note payable to the Louisville Bank for
Cooperatives.
1994 1993
----------- ----------
9.75% Note payable, principal
payable in quarterly install-
ments with interest being paid
monthly. Secured by all
present and future switching
equipment hardware and software $516,522 $617,560
Less current maturities 111,200 101,038
-------- --------
$405,322 $516,522
======== ========
F-17
<PAGE>
Following are maturities of long-term debt for each of the next four years:
Year Amount
------ --------
1995 $ 111,200
1996 122,386
1997 134,695
1998 148,241
As of December 31, 1994, the Company had borrowed $800,000 on a $1,750,000 line
of credit with the National Bank for Cooperatives. The loan has an interest rate
of 8.5 % and matures on December 1, 1995. The loan agreement requires a long
term debt-to-equity ratio be maintained of not greater than .5 to 1 and
restricts the amount of certain types of loans and investments. The Corporation
is in compliance with these loan requirements.
NOTE 6 - GTE MOBILNET OF INDIANA LIMITED PARTNERSHIP
The Company has a 1.29% interest in the GTE Mobilnet of Indiana Limited
Partnership. The partnership provides cellular telephone service to Indianapolis
and other smaller cities in Indiana. For financial purposes, the partnership
investment is carried at cost and income is recognized equal to cash
distributions received which are not in excess of partnership earnings. Deferred
taxes are provided for differences between tax and book income. The fair market
value of the partnership interest may differ significantly from the carrying
value, however, a reasonable estimate of fair market value could not be made
without incurring excessive costs.
NOTE 7 - OTHER INVESTMENTS
A detail of other investments is as follows:
AT COST
1994 1993
--------------- -----------
Certificate of deposit, 4.65%,
matures 8-16-96 $ 5,868 $ --
National Bank for Cooperatives
Class A and B stock 87,130 70,266
-------------- ------------
$ 92,998 $ 70,266
============== ============
NOTE 8 - INCOME TAXES
During 1993, the Company adopted Statement of Financial Accounting Standard No.
109, "Accounting for Income Taxes", which changed the criteria for measuring the
provision for income taxes and recognizing deferred tax assets and liabilities
on the balance sheet. The adoption of SFAS 109 resulted in the establishment of
a regulatory asset and liability to recognize the future effects of ratemaking
activities. As a result of establishing the regulatory asset and liability, the
adoption of SFAS 109 had
F-18
<PAGE>
no material effect on the income statement. The regulatory asset and liability
had the following year end balances:
December 31, December 31,
1994 1993
--------------- ---------------
Regulatory asset $ 351,465 $ 376,570
--------------- ---------------
Regulatory liability (Deferred tax) $ 137,459 $ 147,277
--------------- ---------------
The regulatory asset and liability are being amortized over sixteen years.
The Company's net deferred tax asset and liability consists of the following:
December 31, December 31,
1994 1993
------------ ------------
Deferred tax asset:
Current
Property taxes $ 12,663 $ 12,273
=========== ===========
Deferred tax liability:
Noncurrent
Depreciation $ 942,494 $ 901,264
Partnership investment 14,746 5,655
Extraordinary retirement 31,817 39,771
Pension 25,828 55,883
Regulatory asset 137,459 147,277
Marketable securities (37,121) --
----------- -----------
$ 1,115,223 $ 1,149,850
Valuation Allowance 37,121 --
----------- -----------
Gross deferred tax liability $ 1,152,344 $ 1,149,850
=========== ===========
Components of income tax expense are as follows:
1994 1993 1992
----------------- ---------------- ----------------
Federal State Federal State Federal State
Current $ 427,147 $ 114,423 $ 452,546 $ 117,921 $ 391,613 $ 103,190
Deferred 17,840 9,369 43,297 17,875 53,057 7,353
Deferred ITC (12,550) -- (12,551) -- (10,837) --
--------- --------- --------- --------- --------- ---------
Total $ 432,437 $ 123,792 $ 483,292 $ 135,796 $ 433,833 $ 110,543
========= ========= ========= ========= ========= =========
The effective income tax rate differs from the federal statutory rate of 34% due
to the following factors:
F-19
<PAGE>
1994 1993 1992
------ ------ ------
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes net of federal tax 5.4 5.7 5.2
benefit
Nontaxable income (1.2) (1.0) (.6)
Amortization of investment credits (.8) (.8) (.8)
Other differences (.8) 1.4 .7
------ ------ ------
Effective tax rate 36.6% 39.3% 38.5%
====== ====== ======
NOTE 9 - RELATED PARTY TRANSACTION
Electrical work in connection with construction of new facilities and the
remodeling of existing facilities was awarded to a company owned by a family
member of the General Manager. Payments during 1994 totaled $33,445.
F-20
<PAGE>
ANNEX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TIPTON TELEPHONE COMPANY, INC.,
AN INDIANA CORPORATION,
TDS-TIPTON ACQUISITION CORP., AN INDIANA CORPORATION
AND
TELEPHONE AND DATA SYSTEMS, INC.,
AN IOWA CORPORATION
DATED FEBRUARY 5, 1996
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
THE MERGER
Section 1.1 The Merger.....................................................1
----------
Section 1.2 Terms of the Merger............................................2
-------------------
Section 1.3 Effective Date and Time of Merger..............................3
---------------------------------
Section 1.4 Articles of Incorporation; By-laws;
----------------------------------
Directors and Officers.........................................3
----------------------
ARTICLE II
CLOSING
Section 2.1 Closing........................................................4
-------
Section 2.2 Deliveries by Tipton...........................................4
--------------------
Section 2.3 Deliveries by Buyer and Sub....................................4
---------------------------
Section 2.4 Filing of Articles of Merger...................................5
----------------------------
Section 2.5 Amendment of Tipton Articles of
-------------------------------
Incorporation..................................................5
-------------
Section 2.6 Further Assurances.............................................5
------------------
ARTICLE III
MERGER PROVISIONS AND EXPENSES
Section 3.1 Merger Procedure...............................................5
----------------
Section 3.2 Dissenting Shares..............................................7
-----------------
Section 3.3 Expenses.......................................................7
--------
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TIPTON
Section 4.1 Organization and Capital Structure of
-------------------------------------
Tipton.........................................................8
------
Section 4.2 Subsidiaries and Investments...................................8
----------------------------
Section 4.3 Valid and Binding Agreement....................................8
---------------------------
Section 4.4 No Violation...................................................9
------------
Section 4.5 Consents and Approvals.........................................9
----------------------
Section 4.6 Financial Statements...........................................9
--------------------
Section 4.7 Absence of Certain Changes or Events..........................10
------------------------------------
Section 4.8 Employee Benefit Plans........................................10
----------------------
Section 4.9 Compliance with Law...........................................11
-------------------
Section 4.10 Litigation, Claims............................................11
------------------
Section 4.11 Contracts and Commitments.....................................11
-------------------------
Section 4.12 Insurance.....................................................12
---------
Section 4.13 Employee Relations............................................12
------------------
Section 4.14 Governmental Authorizations...................................12
---------------------------
Section 4.15 Broker's or Finder's Fees.....................................12
-------------------------
-i-
<PAGE>
Page
Section 4.16 Registration Statement and Prospectus.........................13
-------------------------------------
Section 4.17 Assets of Tipton..............................................13
----------------
Section 4.18 Real Estate...................................................13
-----------
Section 4.19 Undisclosed Liabilities.......................................13
-----------------------
Section 4.20 Taxes.........................................................14
-----
Section 4.21 Environmental Conditions......................................15
------------------------
Section 4.22 No Omissions..................................................15
------------
Section 4.23 Disclaimer of Other Representations and
---------------------------------------
Warranties; Schedules.........................................16
---------------------
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER AND SUB
Section 5.1 Organization, Standing and Power..............................17
--------------------------------
Section 5.2 Valid and Binding Agreements..................................17
----------------------------
Section 5.3 No Violation..................................................17
------------
Section 5.4 Consents and Approvals........................................17
----------------------
Section 5.5 Broker's or Finder's Fees.....................................17
-------------------------
Section 5.6 Financial Ability to Perform..................................18
----------------------------
Section 5.7 Absence of Certain Changes or Events..........................18
------------------------------------
Section 5.8 Capitalization of Each of Buyer and Sub.......................18
---------------------------------------
Section 5.9 Documents Filed with the SEC..................................19
----------------------------
Section 5.10 Registration Statement and Prospectus.........................19
-------------------------------------
Section 5.11 Compliance with Law...........................................20
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Section 5.12 Governmental Authorizations...................................20
---------------------------
Section 5.13 No Omissions..................................................20
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ARTICLE VI
COVENANTS
Section 6.1 Compliance with Law...........................................20
-------------------
Section 6.2 Operation of Business Prior to Closing........................21
--------------------------------------
Section 6.3 Access........................................................22
------
Section 6.4 Advice of Change..............................................22
----------------
Section 6.5 Employee Matters..............................................22
----------------
Section 6.6 Non-Solicitation..............................................24
----------------
Section 6.7 Announcements.................................................24
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Section 6.8 Tipton Shareholders' Meeting..................................24
----------------------------
Section 6.9 Best Efforts..................................................25
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Section 6.10 Registration Statement; Blue Sky..............................25
--------------------------------
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER AND SUB
Section 7.1 Representations and Warranties................................25
------------------------------
Section 7.2 Covenants, Agreements and Conditions..........................25
------------------------------------
Section 7.3 Certificate of Secretary of Tipton............................26
----------------------------------
Section 7.4 No Material Adverse Change....................................26
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Page
Section 7.5 Shareholder Approval..........................................26
--------------------
Section 7.6 No Injunction.................................................26
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Section 7.7 Governmental Approvals........................................26
----------------------
Section 7.8 Legal Opinions................................................27
--------------
Section 7.9 Registration Statement; Blue Sky Matters......................28
----------------------------------------
Section 7.10 Due Diligence.................................................28
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Section 7.11 Dissenting Shares.............................................28
-----------------
Section 7.12 Deliveries....................................................28
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ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF TIPTON
Section 8.1 Representations and Warranties................................28
------------------------------
Section 8.2 Covenants, Agreements and Conditions..........................28
------------------------------------
Section 8.3 Certificate of Secretary of Buyer and
-------------------------------------
Sub...........................................................29
---
Section 8.4 No Injunction.................................................29
-------------
Section 8.5 Shareholder Approval..........................................29
--------------------
Section 8.6 Governmental Approvals........................................29
----------------------
Section 8.7 Legal Opinions................................................29
--------------
Section 8.8 No Material Adverse Change....................................31
--------------------------
Section 8.9 Registration Statement; Blue Sky Matters......................31
----------------------------------------
Section 8.10 Dissenting Shares.............................................31
-----------------
Section 8.11 Deliveries....................................................31
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ARTICLE IX
ADDITIONAL MATTERS
Section 9.1 Limited Survival of Representations,
------------------------------------
Warranties and Agreements.....................................31
-------------------------
Section 9.2 Indemnification...............................................32
---------------
Section 9.3 Taxes.........................................................32
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ARTICLE X
TERMINATION
Section 10.1 Methods of Termination........................................33
----------------------
Section 10.2 Procedure Upon Termination....................................33
--------------------------
ARTICLE XI
MISCELLANEOUS
Section 11.1 Notices.......................................................33
-------
Section 11.2 Governing Law and Dispute Resolution..........................34
------------------------------------
Section 11.3 Modification; Waiver..........................................35
--------------------
Section 11.4 Entire Agreement..............................................35
----------------
Section 11.5 Assignment; Successors and Assigns............................35
----------------------------------
Section 11.6 Severability..................................................35
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<PAGE>
Page
Section 11.7 Third Party Beneficiaries.....................................35
-------------------------
Section 11.8 Execution in Counterparts.....................................36
-------------------------
Section 11.9 Headings; References..........................................36
--------------------
Section 11.10 Knowledge of Tipton...........................................36
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LIST OF SCHEDULES
Schedule 4.1 List of Tipton Shareholders
Schedule 4.2 Subsidiaries and Investments
Schedule 4.5 Consents and Approvals
Schedule 4.7 Certain Events or Changes
Schedule 4.8(a) Employee Benefit Plans
Schedule 4.8(b) Employees
Schedule 4.10 Litigation, Claims
Schedule 4.11 Contracts and Commitments
Schedule 4.12 Insurance
Schedule 4.17 Liens
Schedule 4.18 Real Estate
Schedule 4.20 Taxes
Schedule 4.21 Environmental Conditions
Schedule 5.4 Consents and Approvals
Schedule 5.7 Certain Events or Changes
Schedule 7.10 Due Diligence
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (the
"Agreement") is dated as of February 5, 1996 and is entered into by and among
Telephone and Data Systems, Inc., an Iowa corporation ("Buyer"), TDS-Tipton
Acquisition Corp., an Indiana corporation ("Sub"), and Tipton Telephone Company,
Inc., an Indiana corporation ("Tipton").
RECITALS:
A. The parties to this Agreement desire to consummate a merger
transaction (the "Merger") pursuant to which Buyer will acquire all of the
issued and outstanding shares of the capital stock of Tipton by the Merger of
Sub with and into Tipton (Sub and Tipton shall sometimes be referred to herein
as the "Constituent Corporations").
B. The board of directors of Tipton has authorized, adopted
and approved the Merger upon the terms and conditions contained herein and in
the form of this Agreement and has resolved to recommend to the shareholders of
Tipton that they approve this Agreement and the Merger.
C. The board of directors of Buyer and Sub have
authorized, adopted and approved this Agreement and the Merger.
D. For federal income tax purposes, the parties hereto intend
that the Merger qualify as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties and covenants which are made and to be performed by
the respective parties, it is hereby agreed as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Subject to the terms and conditions of
this Agreement, at the Time of Merger (as defined below), Sub shall be merged
with and into Tipton and the separate existence of Sub shall thereupon cease.
The name of Tipton, as the surviving corporation in the Merger (the "Surviving
Corporation"), shall by virtue of the Merger remain "Tipton Telephone Company,
Inc." The Merger shall have the effect set forth in Sections 23-1- 40-1 through
7 of the Indiana Business Corporation Law; the Surviving Corporation shall
possess all assets and property of every description, and every interest in the
assets and property,
<PAGE>
wherever located, and the rights, privileges, immunities, powers, franchises,
and authority, of a public as well as of a private nature, of each of the
Constituent Corporations, and all obligations belonging to or due to each of the
Constituent Corporations, all of which shall be vested in the Surviving
Corporation without further act or deed; title to any real estate or any
interest in the real estate vested in either Constituent Corporation shall not
revert or in any way be impaired by reason of the Merger; the Surviving
Corporation shall thenceforth be liable for all the pre-existing obligations of
each Constituent Corporation, including liability to dissenting shareholders.
The parties intend the Merger to qualify as a reorganization pursuant to
Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code.
Section 1.2 Terms of the Merger.
(a) At the Time of Merger (as defined in Section 1.3),
except as set forth below:
(i) all issued and outstanding shares of common stock, without
par value, of Sub, shall be converted into 100 validly issued, fully
paid and nonassessable shares of common stock, par value $50.00 per
share, of the Surviving Corporation;
(ii) each share of the common stock, par value $50.00 per
share, which is in the treasury of Tipton shall be cancelled;
and
(iii) each share of the common stock, par value $50.00 per share, of
Tipton which is issued and outstanding immediately prior to the Time of
Merger (collectively, the "Tipton Common Stock") shall be converted
into the right to receive the number of common shares, $1.00 par value
per share, of Buyer ("Buyer Stock") which is equal to the Exchange
Factor (as defined below), plus the right to receive a cash payment in
lieu of a fractional share, as provided below. For purposes of this
Agreement, the "Exchange Factor" shall be a number equal to the
Purchase Price divided by 611. The Purchase Price shall be that number
of shares of Buyer Stock equal to $18,330,000 divided by the Merger
Price (as defined below). For purposes of this Agreement, the Merger
Price shall equal the mean average per share closing price of Buyer
Stock as reported on the American Stock Exchange Composite Tape for the
20 successive trading days ending with the trading day which is five
trading days prior to the Closing Date (as defined in Section 2.1).
(b) If, after the date hereof and prior to the Time of Merger
(as defined in Section 1.3), Buyer shall have declared a stock split (including
a reverse split) of Buyer Stock or a dividend payable in Buyer Stock, or any
other distribution to
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<PAGE>
holders of Buyer Stock with respect to their Buyer Stock (including without
limitation such a distribution made in connection with a merger, consolidation,
reorganization or other business combination) other than regularly declared
quarterly cash dividends, then the number of shares of Buyer Stock to be issued
upon exchange of a share of Tipton Common Stock shall be appropriately adjusted
(pursuant to the appropriate adjustment of all relevant share amounts and all
relevant dollar amounts) to reflect such stock split, dividend or other
distribution.
(c) No fractional share of Buyer Stock shall be issued in the
Merger. If the aggregate number of shares of Buyer Stock a given exchanging
shareholder is entitled to receive pursuant to this Agreement is not a whole
number, such shareholder shall be entitled to receive a number of shares of
Buyer Stock equal to the next lower whole number and a cash payment in an amount
equal to the product of (i) the fractional interest of a share of Buyer Stock to
which such holder otherwise would have been entitled, and (ii) the Merger Price.
(d) For purposes of this Agreement, the shares of Buyer Stock
and the cash payments in lieu of fractional shares of Buyer Stock ("Fractional
Share Payments") to be received by the holders of Tipton Common Stock shall be
referred to as the "Merger Consideration."
Section 1.3 Effective Date and Time of Merger. The Merger
shall be consummated by filing duly and properly executed Articles of Merger
with the office of the Secretary of State of the State of Indiana, as provided
by Indiana law. The Merger shall be effective at the time and on the date the
Articles of Merger are filed with the office of the Secretary of State of the
State of Indiana (the "Time of Merger").
Section 1.4 Articles of Incorporation; By-laws; Directors and
Officers. The Articles of Incorporation of Tipton, as in effect at the Time of
Merger, shall be the Articles of Incorporation of the Surviving Corporation
after the Time of Merger, except as provided in Section 2.5. The By-laws of Sub
as in effect at the Time of Merger shall be the By-laws of the Surviving
Corporation unless and until amended in accordance with their terms or the
Articles of Incorporation of the Surviving Corporation and as provided by the
Indiana Business Corporation Law. The initial Board of Directors of the
Surviving Corporation shall consist of the directors of Tipton immediately prior
to the Time of Merger, who shall serve until their respective successors are
duly elected and qualified. The officers of Tipton immediately prior to the Time
of Merger shall be the initial officers of the Surviving Corporation until their
respective successors are duly elected and qualified.
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<PAGE>
ARTICLE II
CLOSING
Section 2.1 Closing. The closing of the transactions
contemplated by this Agreement (the "Closing") shall be held five business days
after all of the conditions precedent set forth in Article VII have been
fulfilled, or duly waived by Buyer and Sub, and all of the conditions precedent
set forth in Article VIII have been fulfilled, or duly waived by Tipton, or on
such other date as may be agreed upon in writing by the parties hereto. The
Closing shall be held at Sommer & Barnard, PC, 4000 Bank One Tower, 111 Monument
Circle, Indianapolis, Indiana, 46204, or at such other place as may be agreed
upon in writing by the parties hereto. The date of the Closing is sometimes
referred to herein as the "Closing Date."
Section 2.2 Deliveries by Tipton. At or prior to the Closing,
Tipton shall deliver the following items to Buyer and Sub:
(a) Articles of Merger duly executed by Tipton;
(b) a certificate of Tipton pursuant to Sections 7.1 and
7.2 hereof;
(c) a certificate of the Secretary or Assistant
Secretary of Tipton pursuant to Section 7.3 hereof;
(d) opinions of counsel for Tipton, dated the Closing
Date, pursuant to Section 7.8;
(e) a copy of the Articles of Incorporation, and all
amendments thereto, of Tipton, certified by the Secretary of State
of the State of Indiana;
(f) a Certificate of Existence of Tipton issued by the
Secretary of State of the State of Indiana; and
(g) all other previously undelivered items required to be
delivered by Tipton to Buyer and Sub at or prior to the Closing pursuant to this
Agreement, unless waived in writing by Buyer and Sub.
Section 2.3 Deliveries by Buyer and Sub. At or prior to the
Closing, Buyer and Sub shall deliver the Merger Consideration to the Paying
Agent (as defined in Section 3.1) and shall deliver the following to Tipton:
(a) Articles of Merger duly executed by Sub;
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<PAGE>
(b) a certificate of Buyer and Sub pursuant to Sections
8.1 and 8.2 hereof;
(c) a certificate of the Secretary or Assistant
Secretary of each of Buyer and Sub pursuant to Section 8.3 hereof;
(d) opinions of counsel for Buyer and Sub, dated the
Closing Date, pursuant to Section 8.7;
(e) Certificates of Existence or Good Standing of Buyer
and Sub issued by the Secretaries of State of the State of Iowa and
Indiana, respectively; and
(f) all other previously undelivered items required to be
delivered by Buyer and Sub at or prior to the Closing pursuant to this
Agreement, unless waived in writing by Tipton.
Section 2.4 Filing of Articles of Merger. At the Closing, the
parties shall cause the duly executed Articles of Merger, including a copy of
this Agreement, as required by, and executed in accordance with the Indiana
Business Corporation Law, to be filed with the office of the Secretary of State
of the State of Indiana.
Section 2.5 Amendment of Tipton Articles of Incorporation. In
connection with and as part of the Merger, Section 2 of Article IX of the Tipton
Articles of Incorporation shall be amended and restated in its entirety to read
as follows: "Directors need not be shareholders of the Corporation," and Section
1 of Article IX shall be amended and restated in its entirety to read as
follows: "The number of Directors shall consist of such number of members as
shall be resolved by the Board of Directors or the Shareholders, but shall not
be less than three (3) members."
Section 2.6 Further Assurances. From time to time after the
Closing, each party to this Agreement shall take such actions and shall execute
and deliver such other instruments of conveyance and transfer and such other
documents as may reasonably be requested or as may be necessary or appropriate
to consummate the transactions contemplated by this Agreement.
ARTICLE III
MERGER PROVISIONS AND EXPENSES
Section 3.1 Merger Procedure.
(a) Prior to the Time of Merger, Buyer shall designate a bank
or trust company acceptable to Tipton to act as paying agent
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<PAGE>
in the Merger (the "Paying Agent") for purposes of effecting the surrender and
exchange of certificates which, prior to the Time of Merger, represented shares
of Tipton Common Stock entitled to receive Merger Consideration pursuant to this
Agreement (the "Certificates"). The fees and expenses of the Paying Agent shall
be borne by Buyer. Upon the surrender of a Certificate by a holder of Tipton
Common Stock, the holder thereof shall receive, without interest thereon, the
Merger Consideration to which such holder is entitled, and such Certificate
shall forthwith be canceled. Until so surrendered and canceled, each Certificate
shall, after the Time of Merger, represent solely the right to receive the
Merger Consideration into which the shares of Tipton Common Stock it theretofore
represented shall have been converted pursuant to this Agreement. In case any
delivery pursuant to this Section 3.1 is made to a holder other than the
registered owner of a surrendered Certificate, it shall be a condition of such
delivery that the Certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
delivery shall pay to the Paying Agent any transfer or other taxes required by
reason of the delivery of such Merger Consideration to a person other than the
registered holder of the Certificate surrendered, or shall establish to the
satisfaction of the Paying Agent that such tax has been paid or is not
applicable.
(b) Immediately prior to the Time of Merger, Buyer shall
deposit in trust with the Paying Agent cash in the full amount of all Fractional
Share Payments and sufficient shares of Buyer Stock to deliver to each holder of
Tipton Common Stock the shares of Buyer Stock to which such holder is entitled
(collectively, the "Payment Fund"). The Paying Agent shall, pursuant to
irrevocable instructions, make the deliveries of Buyer Stock and the payment of
Fractional Share Payments out of the Payment Fund. The Payment Fund shall not be
used for any other purpose except as provided herein. Promptly following the
date which is six months after the Time of Merger, the Paying Agent shall return
to Buyer any remaining portions of the Payment Fund, and the Paying Agent's
duties shall terminate. Thereafter, each remaining holder of a Certificate may
surrender such Certificate to Buyer and (subject to applicable abandoned
property, escheat and similar laws) receive in exchange therefor the Merger
Consideration represented by such Certificate, without interest thereon, and
such Certificate shall be canceled.
(c) As soon as practicable after the Time of Merger, the
Paying Agent shall mail to each holder of record of a Certificate or
Certificates (i) a letter of transmittal (which shall be in such form and have
such provisions as Buyer and Tipton may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificate(s) in
exchange for the Merger Consideration represented by such Certificate(s).
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<PAGE>
(d) All Merger Consideration delivered upon the surrender of
Certificates representing shares of Tipton Common Stock, in accordance with the
terms hereof, shall be deemed to have been delivered in full satisfaction of all
rights pertaining to such shares of Tipton Common Stock.
Section 3.2 Dissenting Shares.
(a) Notwithstanding any other provision of this Agreement to
the contrary, any shares of Tipton Common Stock outstanding immediately prior to
the Time of Merger and held by a holder who has not voted in favor of the Merger
or consented thereto in writing and who has properly demanded, perfected and
retained his right to the appraisal of his shares of Tipton Common Stock in
accordance with Indiana law (the "Dissenting Shares") shall not be converted
into a right to receive the Merger Consideration. If after the Time of Merger
any such holder fails to perfect or withdraws or loses his right to appraisal,
such shares of Tipton Common Stock shall be treated as if they had been
converted, as of the Time of Merger, into the right to receive the Merger
Consideration due in respect of such shares pursuant to this Agreement, without
interest.
(b) Tipton shall give Buyer (i) prompt notice of any written
demands for appraisal of any shares of Tipton Common Stock, attempted
withdrawals of such demands, and any other instruments received by Tipton
relating to stockholders' rights of appraisal and (ii) the opportunity to direct
all negotiations and proceedings with respect to demands for appraisal under
Indiana law. Tipton shall not, except with the prior written consent of Buyer or
as otherwise required by law, voluntarily make any payment with respect to any
demands for appraisals of Tipton Common Stock, offer to settle or settle any
demands or approve any withdrawal of any such demands.
(c) Each holder of Dissenting Shares shall have only those
rights and remedies as are granted to such holder under Indiana law. Holders of
Dissenting Shares shall not, after the Time of Merger, be entitled to vote for
any purpose or be entitled to the payment of dividends or other distributions
(except dividends or other distributions payable to stockholders of record prior
to the Time of Merger).
Section 3.3 Expenses. Buyer, Sub, and Tipton will each pay its
own expenses incident to the preparation and carrying out of this Agreement and
the expenses and fees involved in the preparation and delivery of all documents,
reports and opinions required to be delivered by, or on behalf of, it hereunder.
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<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TIPTON
Tipton represents and warrants to Buyer and Sub that:
Section 4.1 Organization and Capital Structure of
Tipton.
(a) Tipton is a corporation duly organized and validly
existing under the laws of the State of Indiana.
(b) The authorized capital stock of Tipton consists of 1,100
shares of common stock, par value $50.00 per share, of which 611 shares have
been duly authorized and validly issued, are fully paid and non-assessable and
are outstanding, and 489 shares are held in the treasury. Attached hereto as
Schedule 4.1(b) is a true, correct and complete list of the holders of record
(the "Tipton Shareholders") of all 611 shares of Tipton common stock which are
issued and outstanding. There are no outstanding options, warrants, calls,
rights or commitments of any character relating to the issuance, sale, purchase
or redemption of any shares of capital stock of Tipton. There is no claim,
action, suit or proceeding pending or threatened ( or any basis for any
unasserted claim, action, suit or proceeding) involving Tipton and Tipton has
no liability (including, without limitation, liability for unasserted claims,
whether known or unknown), relating to, resulting from or arising out of any
transactions in any shares of capital stock of Tipton by Tipton.
Section 4.2 Subsidiaries and Investments. Except as set forth
on Schedule 4.2, Tipton does not own, directly or indirectly, any shares of
capital stock of, or equity interest in, any corporation, partnership, joint
venture, limited liability company, or other entity.
Section 4.3 Valid and Binding Agreement. Subject to the
approval of the Tipton Shareholders, Tipton has the requisite power, capacity
and authority to enter into and perform this Agreement, to consummate the
transactions contemplated hereby and to comply with the terms, conditions and
provisions hereof. Except for the approval of the Tipton Shareholders, all
necessary corporate action on the part of Tipton has been taken to authorize the
execution and delivery of this Agreement, the performance of its obligations
hereunder and the consummation of the transactions contemplated hereby. Subject
to the approval of the Tipton Shareholders, this Agreement has been duly and
validly executed and delivered by Tipton and constitutes a valid and binding
agreement of Tipton, enforceable against it in accordance with its terms,
subject to bankruptcy, insolvency, reorganization or similar laws relating to
creditors' rights generally and to general principles of equity.
-8-
<PAGE>
Section 4.4 No Violation. Subject to the exceptions set forth
in Section 4.5, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby nor compliance by Tipton
with any of the
provisions hereof will (i) violate or conflict with any provisions of the
Articles of Incorporation or By-Laws of Tipton, or any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to
Tipton, or (ii) violate, or conflict with, or result in a breach of any
provision of, or constitute a default (or an event that, with or without due
notice or lapse of time, or both, would constitute a default) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation of Tipton.
Section 4.5 Consents and Approvals. Except for the approval of
the Tipton Shareholders, the filing of the Articles of Merger with the office of
the Secretary of State of the State of Indiana, the approval of the Indiana
Utilities Regulatory Commission ("IURC"), the approval of the Federal
Communications Commission ("FCC"), any filing which may be required pursuant to
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act") and as set forth on Schedule 4.5, (a) no permit, consent, approval or
authorization of, or declaration, filing or registration with, any governmental
authority is necessary in connection with the execution and delivery by Tipton
of this Agreement or the consummation by it of the transactions contemplated
hereby, and (b) no material consent of any third party is required to consummate
any of the transactions contemplated hereby.
Section 4.6 Financial Statements. Tipton has furnished to
Buyer copies of the following financial statements of Tipton: (a) the audited
balance sheets of Tipton as at December 31, 1992, December 31, 1993 and December
31, 1994; and (b) the audited statements of income, statements of changes in
shareholders' equity and statements of changes in cash flows for each of the
years ended December 31, 1992, December 31, 1993 and December 31, 1994
(collectively, the "Financial Statements"). Except as noted therein, the
Financial Statements were prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods indicated and
present fairly the financial position of Tipton at such dates and its results of
operations and cash flows for the periods indicated.
-9-
<PAGE>
Section 4.7 Absence of Certain Changes or Events.
Except as set forth on Schedule 4.7, since December 31, 1994 there
has not been any:
(a) material increase in the indebtedness for borrowed money
incurred by Tipton or incurrence by Tipton of any other material obligation or
liability (fixed or contingent) except for obligations incurred in the ordinary
course of business consistent with past practice;
(b) material adverse change in the condition, operations,
business, assets, liabilities, properties, profits or prospects of Tipton;
(c) damage, destruction, loss, claim, condemnation or eminent
domain proceeding to or against any property or assets of Tipton, whether or not
covered by insurance, which materially adversely affects the assets,
liabilities, properties, business, profits, prospects or condition of Tipton;
(d) material sale, transfer or other disposition by Tipton or
mortgage or pledge of, or imposition of any lien, charge or encumbrance on, any
of its properties or assets, other than transactions (including the sale of
capital assets) in the ordinary course of business consistent with past
practice;
(e) contribution to the capital of Tipton, dividend or other
distribution in respect of, or payment in respect of, or subdivision,
consolidation or other recapitalization of, the capital stock of Tipton, or
direct or indirect redemption, purchase or other acquisition by Tipton of any of
its shares of capital stock, or any declaration or authorization of any of the
foregoing, except for: (i) a dividend of $250.00 per share paid to Tipton
Shareholders in June 1995; (ii) a dividend of $250.00 per share to be paid to
Tipton Shareholders in December 1995; and (iii) if the Time of Merger is not
prior to May 22, 1996, a dividend of $250.00 per share to be declared by the
Board of directors of Tipton and paid to the Tipton Shareholders thereafter (the
"Permitted Post 1994 Dividends"); and
(f) proceeding with respect to the merger,
consolidation, liquidation or reorganization of Tipton, except
pursuant to this Agreement.
Section 4.8 Employee Benefit Plans.
(a) Schedule 4.8(a) is a true and complete list of all
annuity, bonus, cafeteria, stock option, stock purchase, profit sharing,
savings, pension, retirement, incentive, group insurance, disability, employee
welfare, prepaid legal, non-qualified deferred compensation, non-qualified
annuity, non-qualified stock option, plan, agreement and arrangements, or other
similar fringe benefit plans, and all other "employee benefit plans" (within the
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<PAGE>
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended, "ERISA"), maintained or contributed to by Tipton (the "Plans").
Except as set forth on Schedule 4.8(a), Tipton is not a party to any employee
agreement, understanding, plan, policy, procedure or arrangement which provides
compensation, severance or fringe benefits to its employees and Tipton has no
direct or indirect, actual or contingent liability for any Plans, other than to
make payments for contributions, premiums or benefits when due, all of which
payments have been timely made. None of its assets is
subject to any lien or security interest under Section 302(f), 306(a), 307(a) or
4068 of ERISA or Section 401 (a)(29) or 412(n) of the Internal Revenue Code and,
except for the Employee's Retirement Plan, no Plan is a defined benefit plan, as
defined in Section 414(j) of the Internal Revenue Code.
(b) Schedule 4.8(b) lists (i) the names and positions of each
of the officers, directors and employees of Tipton, and (ii) the base salary
level of each such person as of the date hereof. From the date hereof, through
the Closing Date, there will be no increase in the compensation payable to any
of such officers, directors or employees, except for budgeted increases set
forth in such Schedule.
Section 4.9 Compliance with Law. The business of Tipton is
being conducted in compliance with all laws, ordinances and regulations
(including, without limitation, environmental laws, ordinances and regulations)
of any governmental entity applicable to Tipton, except where the failure to be
in compliance, singly or together with other such failures, does not have a
material adverse effect on the financial condition or business (a "Material
Adverse Effect") of Tipton. All governmental approvals, permits and licenses
required by Tipton in connection with the conduct of its business have been
obtained and are in full force and effect and are being complied with, except
where the failure to obtain such approvals, permits or licenses or to be in
compliance, singly or together with other such failures, does not have a
Material Adverse Effect on Tipton.
Section 4.10 Litigation, Claims. Except as set forth on
Schedule 4.10, as of the date of this Agreement there are no (a) claims,
actions, suits, proceedings or investigations pending or, to Tipton's knowledge,
threatened by or against Tipton, or (b) judgments, decrees, arbitration awards
or orders binding upon Tipton, except, in each instance, such matters as have
arisen in the ordinary course of business and/or would not have a Material
Adverse Effect on Tipton.
Section 4.11 Contracts and Commitments.
(a) Schedule 4.11 contains a complete and accurate list of all
contracts, leases, agreements and commitments (other than the agreements or
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arrangements referred to in other Schedules) to which Tipton is a party and
which involve commitments by Tipton in excess of $25,000, have a term of six
months or more, or are not in the ordinary course of business.
(b) Except as set forth in Schedule 4.11, (i) none of the
contracts, leases or agreements listed in Schedule 4.11 will expire or be
terminated or be subject to any modification of terms or conditions upon the
consummation of the transactions
contemplated hereby; (ii) Tipton is neither in default in any material respect
under the terms of any such contract, lease or agreement nor in default in the
payment of any principal of or interest on any indebtedness for borrowed money,
and no event has occurred which, with the passage of time or giving of notice,
or both, would constitute such a default by Tipton; and (iii) to Tipton's
knowledge, no other party to any such contract or agreement is in default in any
material respect thereunder, and no such event has occurred with respect to such
party.
Section 4.12 Insurance. All insurance policies and fidelity
bonds owned or maintained by Tipton are listed on Schedule 4.12. Tipton has
complied with each of such insurance policies and fidelity bonds and has not
failed to give any notice or present any claim thereunder in a due and timely
manner.
Section 4.13 Employee Relations. Tipton has not, at any time
during the past three years, had a strike or work stoppage by its employees.
Section 4.14 Governmental Authorizations. Tipton has all
licenses, permits and other authorizations from governmental, regulatory or
administrative agencies or authorities required for the conduct of its business,
each of which is in full force and effect on the date of this Agreement, except
where the failure to obtain or maintain such license, permit or authorization
would not have a Material Adverse Effect on Tipton. Tipton is not in default
under the terms of any such license, permit or authorization and has not
received notice of any default thereunder.
Section 4.15 Broker's or Finder's Fees. No agent, broker,
investment banker, person or firm acting on behalf of Tipton (a "Tipton Finder")
or under the authority of Tipton is or will be entitled to any broker's or
finder's fee or any other commission or similar fee directly or indirectly from
any of the parties hereto in connection with any of the transactions
contemplated hereby. Not in limitation of the foregoing, the Tipton Shareholders
shall be responsible for any payments to which any Tipton Finder may be
entitled. Notwithstanding the foregoing, all fees and expenses which Tipton paid
to Ernst & Young prior to
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the date of this Agreement shall not be considered fees and expenses of a
Tipton Finder.
Section 4.16 Registration Statement and Prospectus. None of
the information provided by Tipton for inclusion in the Registration Statement
or Prospectus (as such terms are defined in Section 6.10) will, at the effective
time of the Registration Statement or the Closing Date, be false or misleading
with respect to any material fact, or omit to state a material fact required to
be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are or were made, not
misleading.
Section 4.17 Assets of Tipton. Tipton has good and marketable
title to all of its assets reflected in the 1994 Financial Statements of Tipton
and all of the assets thereafter acquired by it, except to the extent that such
assets have been disposed of for fair value in the ordinary course of its
business consistent with past practice or as permitted by the express terms of
this Agreement, subject to no mortgage, lien, security interest or other
encumbrance or adverse interest of any kind except (a) as set forth in the
Financial Statements, (b) any lien for current Taxes which are not yet due and
payable, and (c) as set forth in Schedule 4.17. The assets owned or leased by
Tipton constitute all of the assets which are being used in the business of
Tipton; such assets constitute all of the assets necessary to continue the
operations of Tipton; and such assets and their use conform in all material
respects to all applicable building, zoning, fire, environmental, health, safety
and other laws or ordinances or regulations in effect on the date hereof
(including, without limitation, all laws and regulations in respect of the
protection of the environment and the regulation of the disposal of hazardous
waste and hazardous products), and no notice of any violation of any such law,
ordinance or regulation has been received by Tipton.
Section 4.18 Real Estate. Schedule 4.18 contains a list of
each parcel of real estate owned by Tipton and each contract or agreement for
the purchase, sale, or lease of real estate to which Tipton is a party. Except
as described in such Schedule, Tipton has the right to quiet enjoyment of all
such real property described in such Schedule and the interest of Tipton in such
real property is not subject or subordinate to any security interest, lien,
claim, pledge, mortgage, encumbrance or charge of any kind except for liens for
Taxes not yet due and payable and except for such easements, restrictions,
defects in title, covenants and similar charges as do not render title to the
property unmarketable or uninsurable or detract from or interfere in any
material respect with the existing use of the property subject thereto.
Section 4.19 Undisclosed Liabilities. Tipton is not subject to
any liability (including, without limitation, all asserted and unasserted claims
arising from events occurring on or prior to the date hereof, whether known or
unknown to Tipton),
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absolute or contingent, which is not shown or which is
materially in excess of amounts shown or reserved for in the balance sheet as of
December 31, 1994 or referred to in the notes thereto, or otherwise disclosed in
this Agreement and/or the Schedules, other than liabilities which are of the
same nature as those set forth in such balance sheet and notes and were
reasonably incurred after December 31, 1994 in the ordinary course of business
consistent with past practice and other liabilities expressly permitted by this
Agreement.
Section 4.20 Taxes.
(a) Except as set forth on Schedule 4.20 attached hereto, (i)
Tipton has filed on or before the date hereof (or will timely file) all Tax
Returns required to be filed on or before the Closing Date; (ii) all such Tax
Returns are complete and accurate and disclose all Taxes required to be paid by
Tipton for the periods covered thereby and all Taxes shown to be due on such Tax
Returns have been timely paid; (iii) all Taxes (whether or not shown on any Tax
Return) owed by Tipton and required to be paid on or before the Closing Date
have been (or will be) timely paid or, in the case of Taxes which Tipton is
presently contesting in good faith, Tipton has established an adequate reserve
for such Taxes on the Financial Statements described in Section 4.6; (iv) Tipton
has not waived or been requested to waive any statute of limitations in respect
of Taxes; (v) copies of the Tax Returns referred to in clause (i) have been
delivered to Buyer unless they have been examined by the Internal Revenue
Service or the appropriate state, local or foreign taxing authority or the
period for assessment of the Taxes in respect of which such Tax Returns were
required to be filed has expired; (vi) there is no action, suit, investigation,
audit, claim or assessment pending or, to Tipton's knowledge, proposed or
threatened with respect to Taxes of Tipton and, to the best of Tipton's
knowledge, no basis exists therefor; (vii) all deficiencies asserted or
assessments made as a result of any examination of the Tax Returns referred to
in clause (i) have been paid in full; (viii) there are no liens for Taxes upon
the assets of Tipton except liens relating to current Taxes not yet due; (ix)
all Tax Sharing Arrangements will terminate prior to the Closing Date, and
Tipton will not have any liability thereunder after the Closing Date; (x) Tipton
has never made an election under Section 1362 of the Code to be treated as an "S
corporation"; and (xi) Tipton has never been a member of an "affiliated group"
(as defined in Section 1504(a) of the Code without regard to the limitations
contained in Section 1504(b) of the Code) and has never filed Tax Returns on a
combined, consolidated or unitary basis with any entity.
(b) As used in this Agreement, the following terms shall
have the following meanings:
"Tax" (and, with correlative meaning, "Taxes" and "Taxable")
shall mean any federal, state, local or foreign income,
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gross receipts, windfall
profits, severance, property, production, sales, use, license, excise,
franchise, employment, payroll, withholding, alternative or add-on minimum, ad
valorem, transfer, excise, stamp, or environmental tax, or any other tax,
custom, duty, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or penalty, addition to tax or additional
amount imposed by any governmental authority.
"Tax Return" shall mean any return, report or similar
statement required to be filed with respect to any Tax (including
any attached schedules), including, without limitation, any information return,
claim for refund, amended return and declaration of estimated Tax.
"Tax Sharing Arrangement" shall mean any written or unwritten
agreement or arrangement for the allocation or payment of Tax liabilities or
payment for Tax benefits with respect to a combined, consolidated or unitary Tax
Return which Tax Return includes Tipton.
Section 4.21 Environmental Conditions. Except as set forth on
Schedule 4.21, Tipton has no liability under, and has not violated, any federal,
state and local environmental or health and safety-related laws, regulations,
rules and ordinances applicable to its facilities and operations, or of any
condition with respect to the environment, whether or not yet discovered, which
could or does result in any material liability, loss, cost, damages, fees or
expenses to or against Tipton or either Buyer or Sub. Tipton has not generated,
manufactured, refined, transported, treated, stored, handled, disposed,
transferred, produced or processed, and has no knowledge of the actual or
potential releasing, spilling, leaking or discharging of, at or in the vicinity
of the properties of Tipton, any pollutant, toxic substance, hazardous waste,
hazardous material, hazardous substance, solid waste or oil as defined in or
pursuant to the Resource Conservation and Recovery Act, as amended, the
Comprehensive Environmental Response, Compensation, and Liability Act, as
amended, the Federal Clean Water Act, as amended, or any other federal, state or
local environmental law, regulation, ordinance or rule.
Section 4.22 No Omissions. None of the representations or
warranties of Tipton contained herein, none of the information contained in the
Schedules referred to in this Article IV, and none of the other information or
documents required by this Agreement to be delivered by Tipton to Buyer at the
Closing is false or misleading in any material respect or omits to state a fact
herein or therein necessary to make the statements herein or therein not
misleading in any material respect.
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Section 4.23 Disclaimer of Other Representations and
Warranties; Schedules.
(a) Tipton does not make, and has not made, any
representations or warranties relating to Tipton, or the business, condition, or
prospects of Tipton or otherwise in connection with this Agreement and/or the
transactions contemplated hereby, other than those expressly set forth herein
which are made by Tipton. Without limiting the generality of the foregoing,
Tipton has not made, and shall not be deemed to have made, any representations
or warranties in the Confidential Offering Memorandum relating to the businesses
of Tipton prepared by or on behalf of Tipton and
supplied to Buyer prior to the date hereof (the "Confidential Offering
Memorandum") or in any presentation regarding the business of Tipton in
connection with the transactions contemplated hereby, and no statement contained
in the Confidential Offering Memorandum or made in any presentation shall be
deemed a representation or warranty hereunder or otherwise. It is understood
that any cost estimates, projections or other predictions, data, financial
information, memoranda, and offering materials or presentations (including but
not limited to the Confidential Offering Memorandum) are not and shall not be
deemed to be or to include representations or warranties of Tipton. No person
has been authorized by Tipton to make any representation or warranty relating to
Tipton, the business, condition, or prospects of Tipton or otherwise in
connection with this Agreement and/or the transactions contemplated hereby and,
if made, such representation or warranty was not authorized by Tipton and must
not be relied upon as having been authorized by Tipton.
(b) Notwithstanding anything to the contrary contained in this
Agreement or in any of the Schedules, any information disclosed in one Schedule
shall be deemed to be disclosed in all Schedules. Certain information set forth
in the Schedules may be included solely for informational purposes and may not
be required to be disclosed pursuant to this Agreement. The disclosure of any
such information shall not be deemed to constitute an acknowledgment that such
information is required to be disclosed in connection with the representations
and warranties made by Tipton in this Agreement or that it is material, nor
shall such information be deemed to establish a standard of materiality.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER AND SUB
Buyer and Sub jointly and severally represent and warrant to
Tipton that:
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Section 5.1 Organization, Standing and Power. Buyer and Sub
are corporations duly organized and validly existing under the laws of the State
of Iowa and Indiana, respectively, and each has the requisite power, capacity
and authority to enter into and perform this Agreement, to consummate the
transactions contemplated hereby and to comply with the terms, conditions and
provisions hereof.
Section 5.2 Valid and Binding Agreements. All necessary action
on the part of each of Buyer and Sub has been taken to authorize the execution
and delivery of this Agreement, the performance of its obligations hereunder and
the consummation of the transactions contemplated hereby. This Agreement has
been duly and validly executed and delivered by each of Buyer and Sub and
constitutes a valid and binding agreement of each of Buyer and Sub, enforceable
against it in accordance with its terms, subject to bankruptcy, insolvency,
reorganization or similar laws relating to creditors' rights generally and
to general principles of equity.
Section 5.3 No Violation. Subject to the exceptions set forth
in Section 5.4, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby nor compliance with any of
the provisions hereof will (i) violate or conflict with the Articles of
Incorporation or the By-Laws of Buyer or Sub or any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to
Buyer or Sub, or (ii) violate or conflict with, or result in a breach of any of
the provisions of, or constitute a default (or an event which, with or without
due notice or lapse of time, or both, would constitute a default) under any of
the terms, conditions or provisions of any note, bond, mortgage, indenture, deed
of trust, license, lease, agreement or other instrument or obligation of Buyer
or Sub.
Section 5.4 Consents and Approvals. Except for the filing of
the Articles of Merger with the office of the Secretary of State of the State of
Indiana, the approval of the IURC, the approval of the FCC, any filings which
may be required pursuant to the HSR Act, and as set forth on Schedule 5.4, (a)
no permit, consent, approval or authorization of, or declaration, filing or
registration with, any governmental authority is necessary in connection with
the execution and delivery by Buyer or Sub of this Agreement or the consummation
by Buyer or Sub of the transactions contemplated hereby, and (b) no consent of
any third party is required to consummate any of the transactions contemplated
hereby.
Section 5.5 Broker's or Finder's Fees. No agent, broker,
investment banker, person or firm acting on behalf of Buyer or Sub or under the
authority of Buyer or Sub is or will be entitled to any broker's or finder's fee
or any other commission or
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similar fee directly or indirectly from any of the
parties hereto in connection with any of the transactions contemplated hereby.
Section 5.6 Financial Ability to Perform. Sufficient funds and
other arrangements are available to Buyer and Sub and have been made as of the
date hereof, and will be so available at the Closing, to deliver in full the
Merger Consideration and to pay any other amounts payable by Buyer or Sub
hereunder at the Closing.
Section 5.7 Absence of Certain Changes or Events. Except as
set forth in the SEC Documents (as defined below) or on Schedule 5.7, since
December 31, 1994 there has not been any:
(a) material increase in the indebtedness for borrowed money
incurred by Buyer or Sub or incurrence by Buyer or Sub of any other material
obligation or liability (fixed or contingent) except for obligations incurred in
the ordinary course of business consistent with past practice;
(b) material adverse change in the condition, operations,
business, assets, liabilities, properties, profits or prospects of Buyer or Sub,
including, but not limited to, any bid for any license to provide personal
communication services ("PCS") being auctioned by the FCC;
(c) damage, destruction, loss, claim, condemnation or eminent
domain proceeding to or against any property or assets of Buyer or Sub, whether
or not covered by insurance, which materially adversely affects the assets,
liabilities, properties, business, profits, prospects or condition of Buyer or
Sub;
(d) material sale, transfer or other disposition by Buyer or
Sub or mortgage or pledge of, or imposition of any lien, charge or encumbrance
on, any of its properties or assets, other than transactions (including the sale
of capital assets) in the ordinary course of business consistent with past
practice; or
(e) proceeding with respect to the merger, consolidation,
liquidation or reorganization of Buyer or Sub, except pursuant to this
Agreement.
Section 5.8 Capitalization of Each of Buyer and Sub.
(a) Buyer has authorized capital consisting of 100,000,000
Common Shares, $1.00 par value per share; 25,000,000 Series A Common Shares,
$1.00 par value per share; and 5,000,000 shares of Preferred Stock, no par value
per share. As of November 30, 1995 a total of 51,095,533 Common Shares
(excluding 484,012 shares held by a subsidiary of TDS), 6,888,480 Series A
Common Shares and 451,770 shares of Preferred Stock were issued and
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outstanding. Sub has authorized capital consisting of 1,000 common shares
without par value, of which 100 shares are outstanding and owned by Buyer. All
outstanding shares of capital stock of each of Buyer and Sub have been duly
authorized, and are validly issued, fully paid and nonassessable.
(b) The shares of Buyer Stock to be issued in connection with
the Merger as provided in this Agreement will, upon issuance, be duly
authorized, validly issued, fully paid and non-assessable, free of preemptive
rights, and transferable without further registration under the Securities Act
as defined in Section 5.9.
Section 5.9 Documents Filed with the SEC. Buyer has furnished
Tipton with a true and complete copy of each report, schedule, registration
statement and definitive proxy statement (including all exhibits and schedules
thereto and documents incorporated by reference) filed by Buyer with the
Securities and Exchange Commission (the "SEC") since January 1, 1994 (the "SEC
Documents"), which are all the documents (other than preliminary material) that
Buyer was required to file with the SEC since such date. As of their respective
filing dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the SEC thereunder applicable to such SEC Documents and none of
the SEC Documents, as of their respective filing dates, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances in which they were made, not misleading. The financial
statements of Buyer included in the SEC Documents comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of the unaudited statements, as permitted by Form 10-Q
promulgated by the SEC) and fairly present (subject, in the case of the
unaudited statements, to normal, recurring audit adjustments) the consolidated
financial position of Buyer and its consolidated subsidiaries as at the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended.
Section 5.10 Registration Statement and Prospectus. None of
the information provided by Buyer or Sub for inclusion in the Registration
Statement or the Prospectus (as defined in Section 6.10) will, at the effective
time of the Registration Statement or at the Closing Date, be false or
misleading with respect to any material fact, or omit to state a material fact
required to be stated therein or necessary in order to make the statements
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therein, in light of the circumstances under which they are or were made, not
misleading.
Section 5.11 Compliance with Law. The business of each of
Buyer and Sub is being conducted in compliance with all laws, ordinances and
regulations (including, without limitation, environmental laws, ordinances and
regulations) of any governmental entity applicable to Buyer or Sub, except where
the failure to be in compliance, singly or together with other such failures,
does not have a Material Adverse Effect on Buyer or Sub. All governmental
approvals, permits and licenses required by each of Buyer or Sub in connection
with the conduct of its respective
business have been obtained and are in full force and effect and are being
complied with, except where the failure to obtain such approvals, permits or
licenses or to be in compliance, singly or together with other such failures,
does not have a Material Adverse Effect on Buyer or Sub.
Section 5.12 Governmental Authorizations. Each of Buyer and
Sub has all licenses, permits and other authorizations from governmental,
regulatory or administrative agencies or authorities required for the conduct of
its respective business, each of which is in full force and effect on the date
of this Agreement, except where the failure to obtain or maintain such license,
permit or authorization would not have a Material Adverse Effect on Buyer or
Sub. Neither Buyer nor Sub is in default under the terms of any such license,
permit or authorization nor has either of them received notice of any default
thereunder.
Section 5.13 No Omissions. None of the representations or
warranties of Buyer or Sub contained herein, none of the information contained
in the Schedules referred to in this Article V, and none of the other
information or documents required by this Agreement to be delivered by Buyer or
Sub to Tipton at the Closing is false or misleading in any material respect or
omits to state a fact herein or therein necessary to make the statements herein
or therein not misleading in any material respect.
ARTICLE VI
COVENANTS
Section 6.1 Compliance with Law. Each of the parties hereto
will furnish to the other party hereto such necessary information and reasonable
assistance as such other party may reasonably request in connection with the
preparation of necessary filings or submissions to any governmental agency.
Buyer, Sub and Tipton each agrees to file information required by the IURC, the
FCC and the HSR Act, if any, as soon as practicable following the execution of
this Agreement, and each agrees promptly to supplement
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such information. Each of
the parties shall use its best efforts to obtain any other regulatory approvals
or clearances necessary to effect the transactions contemplated herein. Each
party shall, promptly upon learning of same, notify the other parties of any
legal, administrative or other proceedings, investigations, inquiries,
complaints, or claims regarding this Agreement or the transactions contemplated
by this Agreement.
Section 6.2 Operation of Business Prior to Closing. Prior to
the Closing, and except as otherwise contemplated by this Agreement or with the
specific prior written consent of Buyer and Sub, Tipton covenants and agrees as
follows:
(a) Tipton shall conduct its business in the ordinary course
and shall not make any material change in the business or operations of Tipton,
including, but not limited to, the making of any bid for any license to provide
PCS services from the FCC;
(b) Tipton shall not declare or pay any dividend (whether in
cash, stock or otherwise) or make any distribution with respect to its capital
stock except for Permitted Post 1994 Dividends;
(c) Tipton shall not amend its Articles of Incorporation
or Bylaws, or purchase or redeem any of the capital stock of
Tipton;
(d) Tipton shall not issue, sell or otherwise distribute any
treasury shares or any stock of Tipton or effect any stock split or
reclassification of any shares of its capital stock or grant or commit to grant
any option, warrant or other right to subscribe for or purchase or otherwise
acquire any shares of its capital stock or security convertible or exchangeable
for such shares;
(e) Tipton shall not authorize any director, or authorize or
permit any officer or employee of, or any attorney, accountant or other
representative retained by, Tipton, to solicit or encourage any inquiries or the
making of any proposal which it reasonably expects may lead to any takeover
proposal. As used in this paragraph, "takeover proposal" shall mean any proposal
for a merger, tender offer or other business combination involving Tipton or for
the acquisition of a substantial equity interest in Tipton or a substantial
portion of the assets of Tipton other than as contemplated by this Agreement.
Tipton will promptly communicate to Buyer if it receives a takeover proposal or
an inquiry regarding same and will promptly communicate to Buyer and Sub the
terms of any such inquiry or proposal. Tipton will immediately cease and cause
to be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore in respect of any takeover proposals; and
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(f) Tipton shall not enter into or amend any agreements with
or for the benefit of any of the officers, directors or employees of Tipton,
amend any employee benefit plan or arrangement or grant any increases in the
compensation or benefits of the officers, directors and employees of Tipton,
except as permitted by Section 4.8(b) or as specifically contemplated in the
Schedules hereto.
Section 6.3 Access. At all times prior to the Closing, Tipton,
upon reasonable advance notice from Buyer, shall provide Buyer and its
representatives with reasonable access during normal business hours to all
properties, personnel, books, records and accounts of Tipton in order that Buyer
may have full opportunity to make such investigation of Tipton's business as it
shall desire.
Buyer shall utilize such access in such a manner that neither it nor its
representatives interfere with the business or operations of Tipton. All
information provided to or obtained by Buyer and/or its representatives pursuant
to this section shall be subject to the Confidentiality Agreement previously
entered into between Buyer and Tipton (the "Confidentiality Agreement"). Buyer
shall immediately notify Tipton of any discovery by Buyer or its representatives
of any information that constitutes or would indicate a breach by Tipton of any
representation, warranty or covenant set forth in this Agreement.
Section 6.4 Advice of Change. From the date hereof to the
Closing, each party will promptly advise the other parties, in writing, of any
event that occurs prior to the Closing Date that would have required disclosure
in a Schedule to this Agreement if it had occurred prior to the date hereof. No
supplement to any of the Schedules shall have any effect for the purposes of
determining satisfaction of the conditions set forth in Articles VII and VIII or
the accuracy of the representations made on the date of this Agreement.
Section 6.5 Employee Matters.
(a) Each of Buyer and Sub agrees to continue to operate Tipton
as an independent telephone company with local directors, management and
employees for a period of at least ten years after the Closing Date (the "Ten
Year Post-Closing Period"). If a majority of the members of the board of
directors of Tipton ("Tipton Board") at any time during the Ten Year
Post-Closing Period are not persons who reside within 25 miles of Tipton's
principal offices in Tipton, Indiana (a "Tipton Local"), and the termination of
any employee of Tipton is being considered, the Tipton Board shall appoint a
committee, composed of a majority of persons who are then Tipton Locals, to make
the determination of whether to terminate such Tipton employee. For so long as
he is willing and able to serve during the Ten Year Post-Closing Period, Joe
Watson shall at all times be a member of the Tipton Board and,
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if applicable,
any such committee. Any person who is an employee of TDS or its affiliates as of
the date of this Agreement shall not be considered a Tipton Local even if he or
she subsequently meets the residency test set forth above.
(b) Each of Buyer and Sub agrees that the Tipton Board may
continue to employ, at its discretion, all present management and employees of
Tipton. While employed, all eligible employees will be covered by the Buyer's
standard employee plans for medical, hospital, dental, life insurance, the
Buyer's 401(k) tax-deferred savings plan and the Buyer's employee stock purchase
plan, but not including the TDS Employees' Pension Trust I Plan (the "Buyer
Pension Plan").
(c) Throughout the Ten Year Post-Closing Period, Buyer shall
cause Tipton to continue Tipton's existing defined benefit pension plan (the
"Tipton Pension Plan") in full force and effect without material amendment,
except for changes required to comply with the Code, ERISA or other applicable
law, and shall maintain and fund the Tipton Pension Plan in a manner which
complies with applicable law. Notwithstanding the foregoing, in the event that
applicable law should ever prevent Tipton or Buyer (including, without
limitation, any circumstance which could have the effect of terminating the
tax-qualified status (under Section 401(a) of the Code) of the Tipton Pension
Plan or any employee benefit plan of Buyer or its affiliates) from maintaining
the Tipton Pension Plan (i) by reason of Tipton's employment of one or more
"highly compensated employees," as such term is defined under Section 414(q) of
the Code, then Buyer shall cause Tipton to (1) amend the Tipton Pension Plan and
exclude each such highly compensated employee from future coverage thereunder,
and (2) throughout the remainder of the Ten Year Post-Closing Period pay
additional current compensation or bonus, or provide for a deferred compensation
arrangement, to each such highly compensated employee utilizing the full amount
of savings realized by Buyer or Tipton as a result of the exclusion of such
highly compensated employee from future coverage under the Tipton Pension Plan;
or (ii) for any reason other than the employment of one or more "highly
compensated employees", then throughout the remainder of the Ten Year Post-
Closing Period, Buyer shall cause Tipton to (1) terminate the Tipton Pension
Plan, (2) become a participating employer in the Buyer Pension Plan so that all
of the Tipton employees who were active participants in the Tipton Pension Plan
immediately prior to its termination will be covered under the Buyer Pension
Plan, and (iii) pay additional current compensation or bonus, or provide for a
deferred compensation arrangement, to each Tipton employee utilizing the full
amount of savings realized by Buyer and Tipton as the result of changing such
employee's coverage from the Tipton Pension Plan to the Buyer Pension Plan;
provided, however, in no event shall Buyer or Tipton be obligated to provide any
Tipton
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employee an aggregate benefit under all of the foregoing arrangements for
any year (including additional current compensation or bonus, any deferred
compensation and contribution to the Buyer Pension Plan) which is in excess of
the benefit to which such employee would have been entitled if he or she were a
participant in the Tipton Pension Plan.
(d) Each of Buyer and Sub further agrees that the Tipton Board
may continue, at its discretion, to use the services of local banks, accountants
and attorneys presently retained by Tipton.
(e) Each of Buyer and Sub further agrees to assign Buyer
regional staff specialists to back-up and support Tipton operations in all
necessary telephone functions, including technical,
engineering, outside plant, central office, switching and network software,
financial, accounting, marketing, computerization, billing, separations and
settlements, employee benefit programs and administration.
Section 6.6 Non-Solicitation. If this Agreement is terminated
for any reason other than the default of Tipton, Buyer and Sub will not, for a
period of one year thereafter, directly or indirectly, solicit, encourage,
entice, or induce any person who is an officer or employee of Tipton on the date
hereof or at any time hereafter that precedes such termination, to terminate his
or her employment with Tipton. Each of Buyer and Sub agrees that money damages
will not be an adequate remedy for any breach of this section and that Tipton
shall be entitled to equitable relief, including, but not limited to, injunctive
relief, in the event of any breach by Buyer or Sub of this section in addition
to any other legal remedies available to Tipton.
Section 6.7 Announcements. Tipton and each of Buyer and Sub
agree not to issue any press release or otherwise make any public statement with
respect to this Agreement and the transactions contemplated hereby without the
prior written consent of the other (which consent shall not be unreasonably
withheld), except as may be required in connection with seeking the approval of
the Tipton Shareholders and by applicable law or stock exchange regulation.
Section 6.8 Tipton Shareholders' Meeting. Tipton shall call,
in accordance with Indiana law and its Articles of Incorporation and By-Laws, a
meeting of its shareholders for the purpose of voting upon the approval and
adoption of this Agreement. Such meeting shall be held as promptly as
practicable after the Registration Statement (as defined in Section 6.10) has
become effective but not earlier than 20 business days after the Prospectus is
sent to Tipton shareholders.
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Section 6.9 Best Efforts. Each of the parties hereto shall, in
good faith, use its best efforts to fulfill or obtain the fulfillment of the
conditions of the Closing, including, without limitation, the execution and
delivery of all agreements contemplated hereunder to be so executed and
delivered.
Section 6.10 Registration Statement; Blue Sky. Buyer shall
file with the SEC a registration statement on Form S-4, under the Securities Act
covering the issuance of shares of Buyer Stock in the Merger (the "Registration
Statement") within 25 days after the date upon which Tipton and/or its
accountants have provided to Buyer all of the information required to be
provided by Tipton pursuant to this Section and Section 7.10. Each of Buyer and
Sub and Tipton shall each take such reasonable steps as are deemed
necessary by Buyer for the prompt preparation and filing of the Registration
Statement, including but not limited to, (a) obtaining and furnishing the
information required to be included in the Registration Statement and the
combined proxy statement-prospectus included therein (the "Prospectus"), (b)
promptly responding to any comments made by the SEC with respect to the
Registration Statement, and (c) causing the Registration Statement to become
effective. Buyer shall use its best efforts to obtain all state securities laws
or "Blue Sky" permits and other authorizations necessary to effect the issuance
of shares of Buyer Stock in the Merger. Buyer will promptly use its best efforts
to list the shares of Buyer Stock to be issued in the Merger on the American
Stock Exchange.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER AND SUB
All obligations of Buyer or Sub that are to be discharged
under this Agreement at the Closing are subject to the fulfillment, at or prior
to Closing, of each of the following conditions (unless expressly waived in
writing by Buyer and Sub at any time at or prior to the Closing):
Section 7.1 Representations and Warranties. The
representations and warranties of Tipton set forth in Article IV of this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date as though such representations and
warranties had been made on and as of the Closing Date and Buyer and Sub shall
have received at the Closing a certificate, dated the Closing Date, signed by
the President or a Vice President of Tipton to such effect.
Section 7.2 Covenants, Agreements and Conditions. Tipton shall
have performed and complied, in all material respects, with all covenants,
agreements and conditions contained in this
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Agreement required to be performed
or complied with by it on or prior to the Closing Date, and Buyer and Sub shall
have received at the Closing a certificate, dated the Closing Date, signed by
the President or a Vice President of Tipton to such effect.
Section 7.3 Certificate of Secretary of Tipton. Buyer and Sub
shall have received at the Closing a certificate of the Secretary or Assistant
Secretary of Tipton, dated the Closing Date, which certifies that (a) the
resolutions of the board of directors and shareholders of Tipton approving and
authorizing the execution, delivery and performance of this Agreement and the
transactions contemplated hereby have been duly adopted and are attached to such
certificate; (b) such resolutions have not been rescinded or modified and remain
in full force and effect as of the Closing
Date; and (c) true and accurate copies of the By-Laws of Tipton, as amended to
the Closing Date, are attached to such certificate.
Section 7.4 No Material Adverse Change. During the period from
the date hereof to the Closing Date, there shall not have been any (a) material
adverse change in the condition, operations, assets, liabilities, business,
properties or profits of Tipton or (b) material adverse change to the properties
and assets of Tipton by fire, flood, casualty, condemnation, eminent domain
proceeding, act of God or public enemy or other cause, regardless of insurance
coverage for such damage, other than, in each instance, changes in the ordinary
course of business and/or changes contemplated or authorized by this Agreement;
and there shall have been delivered to Buyer and Sub a certificate or
certificates to such effect, dated the Closing Date, signed on behalf of Tipton
by its President or one of its Vice Presidents.
Section 7.5 Shareholder Approval. This Agreement and the
transactions contemplated hereby shall have been approved and adopted by the
affirmative vote of the holders of a majority of the outstanding shares of
Tipton Common Stock entitled to vote.
Section 7.6 No Injunction. No injunction, restraining order,
judgment or decree of any court or governmental authority shall be existing
against any of the parties to this Agreement, or any of their officers,
directors or representatives, which restrains, prevents or materially alters the
transactions contemplated hereby.
Section 7.7 Governmental Approvals. All necessary governmental
consents or authorizations required in connection with the transactions
contemplated hereby shall have been received and all waiting periods under the
HSR Act, if applicable, shall have expired or been terminated.
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Section 7.8 Legal Opinions. Buyer and Sub shall have received
a legal opinion from counsel(s) to Tipton, governed by the Legal Opinion Accord
of the ABA Section of Business Law (1991) (the "Accord"), substantially to the
effect that:
(a) Tipton is a corporation duly organized and validly
existing under the laws of the State of Indiana;
(b) Tipton has the corporate power and authority to execute
and deliver this Agreement, to consummate the transaction contemplated hereby
and to perform its obligations hereunder. All necessary corporate action on the
part of Tipton has been taken to authorize the execution and delivery of this
Agreement, the performance of its obligations hereunder and the consummation of
the transaction contemplated hereby. This Agreement has been duly
executed and delivered by Tipton and constitutes a valid and binding agreement,
enforceable against it in accordance with its terms, subject to the General
Qualifications (as defined in the Accord);
(c) Neither the execution and delivery of this Agreement, nor
the consummation of the transaction contemplated hereby, nor compliance by
Tipton with any of the provisions hereof will violate any provisions of the
Articles of Incorporation or ByLaws of Tipton, or to the knowledge of such
counsel, any Federal or Indiana statute, code, ordinance, rule, or regulation
applicable to Tipton;
(d) Upon filing of the duly executed Articles of Merger with
the office of the Secretary of State of the State of Indiana, the Merger will
become effective;
(e) The authorized capital stock of Tipton consists of 1,100
shares of common stock, $50.00 par value, of which 611 shares have been duly
authorized and validly issued, are fully paid and non-assessable and are
outstanding, and 489 shares are held in the treasury;
(f) Upon the effectiveness of the Merger, Buyer, as the holder
of 100% of the outstanding common stock of Sub immediately prior to the Time of
Merger, will obtain title to 100% of the issued and outstanding common stock of
the Surviving Corporation, free and clear of all voting trust arrangements,
liens, encumbrances, claims and community property rights, other than by, under
or through Buyer or Sub or any affiliate or representative of either of them or
any representative of any of the foregoing; and
(g) all necessary IURC consents or authorizations
required in connection with the transaction contemplated hereby
have been received.
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Section 7.9 Registration Statement; Blue Sky Matters. The
Registration Statement shall have become effective, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the SEC.
Buyer shall have received all state securities laws or "blue sky" permits and
other authorizations necessary to effect the issuance of shares of Buyer Stock
in the Merger. The shares of Buyer Stock to be issued in the Merger shall have
been approved for trading on the American Stock Exchange upon notice of
issuance.
Section 7.10 Due Diligence. Buyer and Sub shall be satisfied
with the additional due diligence investigation conducted by its attorneys,
accountants, agents and representatives relating
to the matters set forth on Schedule 7.10; provided, however, in the event that
Buyer and Sub shall have failed to provide written notice to Tipton, setting
forth any items with respect to which it is not satisfied ("Due Diligence
Notice") prior to the date by which Buyer is required to file a Form S-4 with
the SEC pursuant to Section 6.10, this condition shall be deemed to have been
irrevocably waived by Buyer and Sub. In the event Buyer provides a Due Diligence
Notice to Tipton by the date specified above, this Agreement shall automatically
terminate as of the end of the ten-day period commencing on the date of the Due
Diligence Notice unless otherwise agreed to by and among the parties hereto.
Section 7.11 Dissenting Shares. At the time of Closing, there
shall be no more than 122 Dissenting Shares unless waived in writing by Buyer
and Sub as provided herein.
Section 7.12 Deliveries. Tipton shall have delivered to Buyer
and Sub the items referred to in Section 2.2.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF TIPTON
All obligations of Tipton that are to be discharged under this
Agreement at the Closing are subject to the fulfillment by Buyer and Sub, at or
prior to the Closing, of each of the following conditions (unless expressly
waived in writing by Tipton at any time at or prior to the Closing):
Section 8.1 Representations and Warranties. The
representations and warranties of Buyer and Sub set forth in Article V of this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date as though such representations and
warranties had been made on and as of the Closing Date (except in the case of
the representations and warranties set forth in Section 5.8(a) which shall be
true and correct in all material respects as of the date
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of this Agreement and
the end of the most recent calendar month which ends on a date which is more
than 45 days prior to the Closing Date), and Tipton shall have received at the
Closing a certificate, dated the Closing Date, signed by the President or a Vice
President of each of Buyer and Sub to such effect.
Section 8.2 Covenants, Agreements and Conditions. Buyer and
Sub shall have performed and complied, in all material respects, with all
covenants, agreements and conditions contained in this Agreement required to be
performed by them on or prior to the Closing Date, and Tipton shall have
received at the Closing a certificate, dated the Closing Date, signed by the
President or a Vice President of each of Buyer and Sub to such effect.
Section 8.3 Certificate of Secretary of Buyer and Sub. Tipton
shall have received at the Closing, a certificate of the Secretary or Assistant
Secretary of each of Buyer and Sub, dated the Closing Date, which certifies that
(a) the resolutions of the board of directors of each of Buyer and Sub
authorizing and approving the execution, delivery and performance of this
Agreement and the transaction contemplated hereby have been duly adopted and are
attached to such certificate; (b) such resolutions have not been rescinded or
modified and remain in full force and effect as of the date of the Closing Date;
and (c) true and accurate copies of the By-Laws of each of Buyer and Sub,
respectively, as amended to the Closing Date, are attached to such certificate.
Section 8.4 No Injunction. No injunction, restraining order,
judgment or decree of any court or governmental authority shall be existing
against any of the parties to this Agreement, or any of their officers,
directors or representatives, which restrains, prevents or materially alters the
transactions contemplated hereby.
Section 8.5 Shareholder Approval. This Agreement and the
transactions contemplated hereby shall have been approved and adopted by the
affirmative vote of the holders of a majority of the outstanding shares of
Tipton Common Stock entitled to vote.
Section 8.6 Governmental Approvals. All necessary governmental
consents or authorizations required in connection with the transactions
contemplated hereby shall have been received and all waiting periods under the
HSR Act, if applicable, shall have expired or been terminated.
Section 8.7 Legal Opinions.
(a) Tipton shall have received a legal opinion from Sidley &
Austin, counsel to Buyer and Sub, substantially to the effect that:
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(i) Buyer is a corporation duly incorporated and validly
existing under the laws of the State of Iowa, and has corporate power
and authority to execute and deliver this Agreement, to consummate the
transaction contemplated hereby and to perform its obligations
hereunder;
(ii) The execution, delivery and performance of this Agreement by
Buyer have been duly authorized by all necessary corporate action on
the part of Buyer and this Agreement has been duly executed and
delivered by Buyer;
(iii) Neither the execution and delivery of this Agreement, nor the
consummation of the transaction
contemplated hereby nor compliance with any of the provisions hereof
will violate the Articles of Incorporation or the Bylaws of Buyer or,
to the knowledge of such counsel, any Federal or Iowa statute, code,
ordinance, rule or regulation applicable to either Buyer or Sub; and
(iv) The Buyer Stock to be issued on the Closing Date in connection
with this Agreement, when certificates therefor have been duly
executed, countersigned and registered and delivered against payment of
the agreed consideration therefor, will be duly authorized and validly
issued Common Shares of Buyer which are fully paid and nonassessable,
the issuance of the shares of Buyer Stock pursuant to this Agreement
has been registered with the SEC under the Securities Act and, subject
to notice of issuance, such shares of Buyer Stock have been listed for
trading on the American Stock Exchange.
(b) Tipton shall have received a legal opinion from Barnes &
Thornburg, special Indiana counsel to Buyer and Sub, substantially to the effect
that:
(i) Sub is a corporation duly incorporated and validly
existing under the laws of the State of Indiana, and has corporate
power and authority to execute and deliver this Agreement, to
consummate the transaction contemplated hereby and to perform its
obligations hereunder;
(ii) The execution, delivery and performance of this Agreement
by Sub have been duly authorized by all necessary corporate action on
the part of Sub and this Agreement has been duly executed and delivered
by Sub;
(iii) This Agreement constitutes a valid and binding agreement
of each of Buyer and Sub, enforceable against each in accordance with
its terms, subject to bankruptcy, insolvency, reorganization or similar
laws relating to
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creditors' rights generally and to general principles of equity;
(iv) Neither the execution and delivery of this Agreement, nor
the consummation of the transaction contemplated hereby, nor compliance
with any of the provisions hereof will violate the Articles of
Incorporation or Bylaws of Sub or, to the knowledge of such counsel,
any Indiana statute, code, ordinance, rule, or regulation applicable to
either Buyer or Sub;
(v) Upon filing of the Articles of Merger with the office of
the Secretary of State of the State of Indiana, the Merger will become
effective; and
(vi) all necessary IURC consents or authorizations required in
connection with the transaction contemplated hereby have been received.
Section 8.8 No Material Adverse Change. During the period from
the date hereof to the Closing Date, there shall not have been any (a) material
adverse change in the condition, operations, assets, liabilities, business,
properties or profits of Buyer or Sub, or (b) material adverse change to the
properties and assets of Buyer or Sub by fire, flood, casualty, condemnation,
eminent domain proceeding, act of God or public enemy or other cause, regardless
of insurance coverage for such damage; other than, in each instance, changes in
the ordinary course of business and/or changes contemplated or authorized by
this Agreement; and there shall have been delivered to Tipton a certificate or
certificates to such effect, dated the Closing Date, signed on behalf of each of
Buyer and Sub by its respective President or one of its respective Vice
Presidents.
Section 8.9 Registration Statement; Blue Sky Matters. The
Registration Statement shall have become effective, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the SEC.
Buyer shall have received all state securities laws or "blue sky" permits and
other authorizations necessary to effect the issuance of shares of Buyer Stock
in the Merger. The shares of Buyer Stock to be issued in the Merger shall have
been approved for trading on the American Stock Exchange upon notice of
issuance.
Section 8.10 Dissenting Shares. At the time of Closing, the
number of Dissenting Shares shall not exceed the maximum number of Tipton Shares
which Tipton's counsel reasonably concludes may dissent without causing the
Merger to fail to satisfy the requirements of Section 368(a)(2)(E) of the Code.
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Section 8.11 Deliveries. Buyer and Sub shall have
delivered to Tipton and the Paying Agent, as the case may be, the
items referred to in Section 2.3.
ARTICLE IX
ADDITIONAL MATTERS
Section 9.1 Limited Survival of Representations, Warranties
and Agreements. None of the representations or
warranties contained in this Agreement shall survive the Merger except for the
representations and warranties contained in Sections 4.1(b) and 5.8(b), which
shall survive the Closing Date and never expire.
Section 9.2 Indemnification.
(a) By the Tipton Shareholders to Buyer and Sub. By their
approval of this Agreement and their receipt of the Merger Consideration, the
Tipton Shareholders agree to indemnify, hold harmless and defend Buyer and Sub
and each of its officers, directors, employees, affiliates, subsidiaries,
successors and assigns (the "Buyer Indemnitees"), against any claim, demand,
loss, expense, obligation or liability, including interest, penalties and
reasonable attorneys' fees (collectively, "Losses") incurred by any Buyer
Indemnitee ("Buyer Losses") relating to, resulting from or arising out of the
inaccuracy of any of the representations or warranties made in Section 4.1(b)
(including Schedule 4.1(b)) by Tipton or any Tipton Shareholder. Notwithstanding
the foregoing, (i) the liability of each Tipton Shareholder for any Buyer Loss
suffered or incurred by any Buyer Indemnitee as the result of the inaccuracy of
any representation or breach of any warranty made pursuant to Section 4.1(b)
other than the second sentence thereof shall be limited to the amount of such
Loss multiplied by the percentage of Merger Consideration received by such
Tipton Shareholder pursuant to the Merger, and (ii) the liability of each Tipton
Shareholder for any Buyer Loss suffered or incurred by any Buyer Indemnitee as
the result of the inaccuracy of any representation or the breach of any warranty
made pursuant to the second sentence of Section 4.1(b) shall be limited to any
Buyer Loss which relates to the inaccuracy of any representation or the breach
of any warranty with respect to such Tipton Shareholder's capital stock of
Tipton; provided, however, that the aggregate liability of each Tipton
Shareholder for all Buyer Losses shall in no event exceed the aggregate amount
of Merger Consideration received by such Tipton Shareholder pursuant to the
Merger.
(b) By Buyer and Sub to the Tipton Shareholders. Each of Buyer
and Sub agrees to indemnify, hold harmless and defend the Tipton Shareholders,
and each of Tipton's officers, directors, employees, affiliates, subsidiaries,
successors and assigns (the "Tipton Indemnitees"), against all Losses incurred
by any of them ("Tipton Shareholder Losses") relating to, resulting from or
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arising out of the inaccuracy of any of the representations or the breach of any
of the warranties made by Buyer and Sub in Section 5.8(b) (including Schedule
5.8(b)) provided, however, that the indemnification provided by this Section
shall not exceed the aggregate Merger Consideration.
Section 9.3 Taxes. The Tipton Shareholders will pay, and will
indemnify Buyer and Sub and Tipton against, any income, capital gains, real
property transfer, stamp, stock transfer, or other similar Tax imposed on the
sale of the Tipton Common Stock
pursuant to this Agreement, together with any penalties or interest with respect
to such taxes.
ARTICLE X
TERMINATION
Section 10.1 Methods of Termination. This Agreement may be
terminated at any time prior to the Closing:
(a) by the mutual consent of each of Buyer, Sub and
Tipton;
(b) by Buyer and Sub at any time after August 31, 1996, if any
of the conditions set forth in Article VII of this Agreement shall not have been
fulfilled or waived prior to such date;
(c) by Tipton at any time after August 31, 1996, if any of the
conditions set forth in Article VIII of this Agreement shall not have been
fulfilled or waived prior to such date; or
(d) by TDS and Sub, if the Merger Price is less than
$38.00.
Section 10.2 Procedure Upon Termination. In the event of
termination by either Buyer and Sub or Tipton, or both, pursuant to this Article
X, written notice thereof shall promptly be given to the other parties and the
obligations of the parties hereto under this Agreement shall, except as set
forth below, terminate without further action. Upon any such termination:
(a) all information received by Buyer and Sub in connection
with this Agreement shall be handled in accordance with the provisions of the
Confidentiality Agreement; and
(b) no party shall have any liability or further obligation to
any other party, except for such liabilities as any party may have, under this
Agreement or otherwise, by reason of any breach or violation of this Agreement
and/or the Confidentiality Agreement by such party.
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ARTICLE XI
MISCELLANEOUS
Section 11.1 Notices. All notices, requests, consents and
other communications hereunder shall be in writing and shall be delivered
personally (including by courier) or by first-class registered or certified
mail, postage prepaid, addressed to the
following addresses or to other such addresses as may be furnished in writing by
one party to the others:
if to Buyer or Sub:
Telephone and Data Systems, Inc.
Suite 4000
30 North LaSalle Street
Chicago, Illinois 60602
Attention: LeRoy T. Carlson, Chairman
with a copy to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 606063
Attention: Stephen P. Fitzell, Esq.
if to Tipton:
Tipton Telephone Company, Inc.
117 East Washington Street
Tipton, Indiana 46072
Attention: Joe F. Watson, President
with a copy to:
Sommer & Barnard, P.C.
4000 Bank One Tower
111 Monument Circle
Indianapolis, Indiana 46204
Attention: James K. Sommer, Esq.
Service of any such notice or other communication so made by
mail shall be deemed complete on the day of actual delivery thereof as shown by
the addressee's registry or certification receipt.
Section 11.2 Governing Law and Dispute Resolution. This
Agreement shall be governed by, and construed in accordance with, the laws of
the State of Indiana without regard to such jurisdiction's conflicts of laws
principles. Any judicial proceeding brought with respect to this Agreement
and/or the
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Confidentiality Agreement must be brought and prosecuted in a trial
court of competent subject matter jurisdiction located in the State of Indiana.
Each party accepts and agrees to submit to the exclusive jurisdiction of such
trial courts and any related appellate courts and irrevocably waives any
objection (including, without limitation, objections based on the doctrine of
forum non conveniens) it may now or hereafter have with respect to the
jurisdiction or venue of any judicial proceeding brought in such a court.
Section 11.3 Modification; Waiver. This Agreement may not be
altered or amended except pursuant to an instrument in writing signed by Buyer
and Sub and Tipton. Any party may waive any misrepresentation by any other
party, or any breach of warranty by, or failure to perform any covenant,
obligation or agreement of, any other party, provided, that mere inaction or
failure to exercise any right, remedy or option under this Agreement, or delay
in exercising the same, will not operate as nor shall be construed as a waiver,
and no waiver will be effective unless set forth in a writing signed by the
waiving party, and then only to the extent specifically stated therein.
Section 11.4 Entire Agreement. This Agreement, the Schedules,
the Confidentiality Agreement and any other agreements or certificates delivered
pursuant hereto constitute the entire agreement of the parties hereto with
respect to the matters contemplated hereby and supersede all prior written or
oral negotiations, commitments, representations and agreements, including, but
not limited to, the Confidential Offering Memorandum and the Agreement and Plan
of Merger dated January 8, 1996.
Section 11.5 Assignment; Successors and Assigns. No party to
this Agreement may assign this Agreement or assign or delegate any of its
rights, remedies, obligations or liabilities under this Agreement without the
prior written consent of the other parties; provided, that Buyer shall have the
right to assign its rights to a direct or indirect wholly-owned subsidiary, but
any such assignment shall not change the obligations of Buyer as provided
herein. All covenants, representations, warranties and agreements of the parties
contained herein shall be binding upon and inure to the benefit of their
respective successors and assigns.
Section 11.6 Severability. The provisions of this Agreement
are severable, and in the event that any one or more provisions are deemed
illegal or unenforceable, the remaining provisions shall remain in full force
and effect.
Section 11.7 Third Party Beneficiaries. Except as contemplated
by Sections 6.5 and 6.10, this Agreement is intended
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and agreed to be solely for
the benefit of the parties hereto and no third party shall accrue any benefit,
claim or right of any kind whatsoever pursuant to, under, by or through this
Agreement. Notwithstanding the foregoing, the parties acknowledge and agree that
(a) Section 6.5 is intended for the benefit of the officers, directors and
employees of Tipton, (b) Section 6.10 is intended for the benefit of the
shareholders of Tipton, and (c) such persons are
entitled to enforce the provisions of Sections 6.5 and 6.10, respectively.
Section 11.8 Execution in Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original
but all of which shall constitute one and the same instrument.
Section 11.9 Headings; References. The article, section and
paragraph headings contained in this Agreement are for convenience of reference
only and shall not affect in any manner the meaning or interpretation of this
Agreement. All references in this Agreement to "Articles", "Sections", or
"Schedules" shall, unless otherwise indicated, be deemed to be references to the
specified Articles, Sections, or Schedules, as the case may be, of this
Agreement. When used in this Agreement, words denoting the singular include the
plural and vice versa, and words importing one gender include all genders.
Section 11.10 Knowledge of Tipton. Whenever this Agreement
references "Tipton's Knowledge", such term shall mean the actual knowledge of
Joseph Watson, Howard Pottenger and Richard Timm.
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
TIPTON TELEPHONE COMPANY, INC.
By: /s/ Joe F. Watson
----------------------------------
Joe F. Watson
President
TDS-TIPTON ACQUISITION CORP.
By: /s/ George L. Dienes
----------------------------------
George L. Dienes
President
TELEPHONE AND DATA SYSTEMS, INC.
By: /s/ George L. Dienes
---------------------------------
George L. Dienes
Vice President
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
BETWEEN TIPTON TELEPHONE COMPANY,
TDS-TIPTON ACQUISITION CORP. AND
TELEPHONE AND DATA SYSTEMS, INC.
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ANNEX B
INDIANA CODE ("IC")
CHAPTER 44: DISSENTERS' RIGHTS
Section 23-1-44-1. "Corporation" defined
As used in this chapter, "corporation" means the issuer of the
shares held by a dissenter before the corporate action, or the surviving or
acquiring corporation by merger or share exchange of that issuer.
Section 23-1-44-2. "Dissenter" defined
As used in this chapter, "dissenter" means a shareholder who
is entitled to dissent from corporation action under section 8 [IC 23-1-44-8] of
this chapter and who exercises that right when and in the manner required by
sections 10 through 18 [IC 23-1-44-10 -- 23-1-44-18] of this chapter.
Section 23-1-44-3. "Fair value" defined
As used in this chapter, "fair value," with respect to a
dissenter's shares, means the value of the shares immediately before the
effectuation of the corporate action to which the dissenter objects, excluding
any appreciation or depreciation in anticipation of the corporate action unless
exclusion would be inequitable.
Section 23-1-44-4. "Interest" defined
As used in this chapter, "interest" means interest from the
effective date of the corporate action until the date of payment, at the average
rate currently paid by the corporation on its principal bank loans or, if none,
at a rate that is fair and equitable under all the circumstances.
Section 23-1-44-5. "Record shareholder" defined
As used in this chapter, "record shareholder" means the person
in whose name shares are registered in the records of a corporation or the
beneficial owner of shares to the extent that treatment as a record shareholder
is provided under a recognition procedure or a disclosure procedure established
under IC 23-1-30-4.
Section 23-1-44-6. "Beneficial shareholder" defined
As used in this chapter, "beneficial shareholder" means the
person who is a beneficial owner of shares held by a nominee as the record
shareholder.
Section 23-1-44-7. "Shareholder" defined
As used in this chapter, "shareholder" means the record
shareholder or the beneficial shareholder.
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Section 23-1-44-8. Shareholder dissent
(a) A shareholder is entitled to dissent from, and obtain
payment of the fair value of the shareholder's shares in the event of, any of
the following corporate actions:
(1) Consummation of a plan of merger to which the corporation
is a party if:
(A) Shareholder approval is required for the merger
by IC 23-1-40-3 or the articles of incorporation; and
(B) The shareholder is entitled to vote on the
merger.
(2) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan.
(3) Consummation of a sale or exchange of all, or
substantially all, of the property of the corporation other than in the
usual and regular course of business, if the shareholder is entitled to
vote on the sale or exchange, including a sale in dissolution, but not
including a sale pursuant to court order or a sale for cash pursuant to
a plan by which all or substantially all of the net proceeds of the
sale will be distributed to the shareholders within one (1) year after
the date of sale.
(4) The approval of a control share acquisition under IC
23-1-42.
(5) Any corporate action taken pursuant to a shareholder vote
to the extent the articles of incorporation, bylaws, or a resolution of
the board of directors provides that voting or nonvoting shareholders
are entitled to dissent and obtain payment for their shares.
(b) This section does not apply to the holders of shares of
any class or series if, on the date fixed to determine the shareholders entitled
to receive notice of and vote at the meeting of shareholders at which the
merger, plan of share exchange, or sale or exchange of property is to be acted
on, the shares of that class or series were:
(1) Registered on a United States securities exchange
registered under the Exchange Act (as defined in IC 23-1-43-9); or
(2) Traded on the National Association of Securities Dealers,
Inc. Automated Quotations System Over-the-Counter Markets -- National
Market Issues or a similar market.
(c) A shareholder:
(1) Who is entitled to dissent and obtain payment for the
shareholder's shares under this chapter; or
(2) Who would be so entitled to dissent and obtain payment but
for the provisions of subsection (b);
may not challenge the corporate action creating (or that, but for the provisions
of subsection (b), would have created) the shareholder's entitlement.
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Section 23-1-44-9. Beneficial shareholder dissent
(a) A record shareholder may assert dissenters' rights as to
fewer than all the shares registered in the shareholder's name only if the
shareholder dissents with respect to all shares beneficially owned by any one
(1) person and notifies the corporation in writing of the name and address of
each person on whose behalf the shareholder asserts dissenters' rights. The
rights of a partial dissenter under this subsection are determined as if the
shares as to which the shareholder dissents and the shareholder's other shares
were registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as
to shares held on the shareholder's behalf only if:
(1) The beneficial shareholder submits to the corporation the
record shareholder's written consent to the dissent not later than the
time the beneficial shareholder asserts dissenters' rights; and
(2) The beneficial shareholder does so with respect to all the
beneficial shareholder's shares or those shares over which the
beneficial shareholder has power to direct the vote.
Section 23-1-44-10. Notice of dissenters' rights preceding shareholder
vote
(a) If proposed corporate action creating dissenters' rights
under section 8 [IC 23-1-44-8] of this chapter is submitted to a vote at a
shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this chapter.
(b) If corporate action creating dissenters' rights under
section 8 of this chapter is taken without a vote of shareholders, the
corporation shall notify in writing all shareholders entitled to assert
dissenters' rights that the action was taken and send them the dissenters'
notice described in section 12 [IC 23-1-44-12] of this chapter.
Section 23-1-44-11. Notice of intent to dissent
(a) If proposed corporate action creating dissenters' rights
under section 8 [IC 23-1-44-8] of this chapter is submitted to a vote at a
shareholders' meeting, a shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken
written notice of the shareholder's intent to demand payment for the
shareholder's shares if the proposed action is effectuated; and
(2) Must not vote the shareholder's shares in favor of the
proposed action.
(b) A shareholder who does not satisfy the requirements of
subsection (a) is not entitled to payment for the shareholder's shares under
this chapter.
Section 23-1-44-12. Notice of dissenters' rights following action
creating rights
(a) If proposed corporate action creating dissenters' rights
under section 8 [IC 23-1-44-8] of this chapter is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of section 11 [IC 23-1-44-11] of
this chapter.
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(b) The dissenters' notice must be sent no later than ten (10)
days after approval by the shareholders, or if corporate action is taken without
approval by the shareholders, then ten (10) days after the corporate action was
taken. The dissenters' notice must:
(1) State where the payment demand must be sent and where and
when certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is
received;
(3) Supply a form for demanding payment that includes the date
of the first announcement to news media or to shareholders of the terms
of the proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired
beneficial ownership of the shares before that date;
(4) Set a date by which the corporation must receive the
payment demand, which date may not be fewer than thirty (30) nor more
than sixty (60) days after the date the subsection (a) notice is
delivered; and
(5) Be accompanied by a copy of this chapter.
Section 23-1-44-13. Demand for payment by dissenter
(a) A shareholder sent a dissenters' notice described in IC
23-1-42-11 or in section 12 [IC 23-1-44-12] of this chapter must demand payment,
certify whether the shareholder acquired beneficial ownership of the shares
before the date required to be set forth in the dissenter's notice under section
12(b)(3) [IC 23-1-44-12(b)(3)] of this chapter, and deposit the shareholder's
certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits the
shareholder's shares under subsection (a) retains all other rights of a
shareholder until these rights are cancelled or modified by the taking of the
proposed corporate action.
(c) A shareholder who does not demand payment or deposit the
shareholder's share certificates where required, each by the date set in the
dissenters' notice, is not entitled to payment for the shareholder's shares
under this chapter and is considered, for purposes of this article, to have
voted the shareholder's shares in favor of the proposed corporate action.
Section 23-1-44-14. Transfer of shares restricted after demand for
payment
(a) The corporation may restrict the transfer of
uncertificated shares from the date the demand for their payment is received
until the proposed corporate action is taken or the restrictions released under
section 16 [IC 23-1-44-16] of this chapter.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.
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Section 23-1-44-15. Payment to dissenter
(a) Except as provided in section 17 [IC 23-1-44-17] of this
chapter, as soon as the proposed corporate action is taken, or, if the
transaction did not need shareholder approval and has been completed, upon
receipt of a payment demand, the corporation shall pay each dissenter who
complied with section 13 [IC 23-1-44-13] of this chapter the amount the
corporation estimates to be the fair value of the dissenter's shares.
(b) The payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal
year ending not more than sixteen (16) months before the date of
payment, an income statement for that year, a statement of changes in
shareholders' equity for that year, and the latest available interim
financial statements, if any;
(2) A statement of the corporation's estimate of the fair
value of the shares; and
(3) A statement of the dissenter's right to demand payment
under section 18 [IC 23-1-44- 18] of this chapter.
Section 23-1-44-16. Return of shares and release of restrictions
(a) If the corporation does not take the proposed action
within sixty (60) days after the date set for demanding payment and depositing
share certificates, the corporation shall return the deposited certificates and
release the transfer restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing
transfer restrictions, the corporation takes the proposed action, it must send a
new dissenters' notice under section 12 [IC 23-1-44-12] of this chapter and
repeat the payment demand procedure.
Section 23-1-44-17. Offer of fair value for shares obtained after
first announcement
(a) A corporation may elect to withhold payment required by
section 15 [IC 23-1-44-15] of this chapter from a dissenter unless the dissenter
was the beneficial owner of the shares before the date set forth in the
dissenters' notice as the date of the first announcement to news media or to
shareholders of the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment
under subsection (a), after taking the proposed corporate action, it shall
estimate the fair value of the shares and shall pay this amount to each
dissenter who agrees to accept it in full satisfaction of the dissenter's
demand. The corporation shall send with its offer a statement of its estimate of
the fair value of the shares and a statement of the dissenter's right to demand
payment under section 18 [IC 23-1-44-18] of this chapter.
Section 23-1-44-18. Dissenter demand for fair value under certain
conditions
(a) A dissenter may notify the corporation in writing of the
dissenter's own estimate of the fair value of the dissenter's shares and demand
payment of the dissenter's estimate (less any payment under section 15 [IC
23-1-44-15] of this chapter), or reject the corporation's offer under section 17
[IC 23-1-44-17] of this chapter and demand payment of the fair value of the
dissenter's shares, if:
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(1) The dissenter believes that the amount paid under section
15 of this chapter or offered under section 17 of this chapter is less
than the fair value of the dissenter's shares;
(2) The corporation fails to make payment under section 15 of
this chapter within sixty (60) days after the date set for demanding
payment; or
(3) The corporation, having failed to take the proposed
action, does not return the deposited certificates or release the
transfer restrictions imposed on uncertificated shares within sixty
(60) days after the date set for demanding payment.
(b) A dissenter waives the right to demand payment under this
section unless the dissenter notifies the corporation of the dissenter's demand
in writing under subsection (a) within thirty (30) days after the corporation
made or offered payment for the dissenter's shares.
Section 23-1-44-19. Effect of failure to pay demand -- Commencement
of judicial appraisal proceeding
(a) If a demand for payment under IC 23-1-42-11 or under
section 18 [IC 23-1-44-18] of this chapter remains unsettled, the corporation
shall commence a proceeding within sixty (60) days after receiving the payment
demand and petition the court to determine the fair value of the shares. If the
corporation does not commence the proceeding within the sixty (60) day period,
it shall pay each dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the
circuit or superior court of the county where a corporation's principal office
(or, if none in Indiana, its registered office) is located. If the corporation
is a foreign corporation without a registered office in Indiana, it shall
commence the proceeding in the county in Indiana where the registered office of
the domestic corporation merged with or whose shares were acquired by the
foreign corporation was located.
(c) The corporation shall make all dissenters (whether or not
residents of this state) whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties must be served
with a copy of the petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is
commenced under subsection (b) is plenary and exclusive. The court may appoint
one (1) or more persons as appraisers to receive evidence and recommend decision
on the question of fair value. The appraisers have the powers described in the
order appointing them or in any amendment to it. The dissenters are entitled to
the same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled
to judgment.
(1) For the amount, if any, by which the court finds the fair
value of the dissenter's shares, plus interest, exceeds the amount paid
by the corporation; or
(2) For the fair value, plus accrued interest, of the
dissenter's after-acquired shares for which the corporation elected to
withhold payment under section 17 [IC 23-1-44-17] of this chapter.
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Section 23-1-44-20. Judicial determination and assessment of costs
(a) The court in an appraisal proceeding commenced under
section 19 [IC 23-1-44-19] of this chapter shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against such parties
and in such amounts as the court finds equitable.
(b) The court may also assess the fees and expenses of counsel
and experts for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not substantially
comply with the requirements of sections 10 through 18 [IC 23-1-44- 10
-- 23-1-44-18] of this chapter; or
(2) Against either the corporation or a dissenter, in favor of
any other party, if the court finds that the party against whom the
fees and expenses are assessed acted arbitrarily, vexatiously, or not
in good faith with respect to the rights provided by this chapter.
(c) If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters similarly situated and
that the fees for those services should not be assessed against the corporation,
the court may award to these counsel reasonable fees to be paid out of the
amounts awarded the dissenters who were benefited.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 4 of 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.
Article VI-A of TDS's By-laws provides for indemnification of TDS's directors
and officers (and those serving in such capacity with another corporation at the
request of TDS) in the circumstances, and to the extent, covered by insurance.
TDS has directors' and officers' liability insurance which
provides, subject to certain policy limits, deductible amounts and exclusions,
coverage for all persons who have been, or may in the future be, directors and
officers of TDS, against amounts which such persons must pay resulting from the
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 Amended and Restated Agreement and Plan of Merger dated as
of February 5, 1996 by and among TDS, TDS- Tipton
Acquisition Corp. and Tipton Telephone Company, Inc.
(included as Annex A to the Proxy Statement - Prospectus,
except for schedules which will be supplied supplementally
to the Commission upon request).
3.1 Articles of Incorporation, as amended, are hereby
incorporated by reference to an exhibit to TDS's Report on
Form 8-A/A-2 dated December 20, 1994.
3.2 By-laws, as amended, are hereby incorporated by reference
to an exhibit to TDS's Report on Form 8-A/A-2 dated
December 20, 1994.
5 Opinion of Sidley and Austin.
23.1 Consent of independent public accountants.
23.2 Consent of independent accountants.
23.3 Consent of Kehlenbrink, Lawrence & Pauckner
23.4 Consent of Sidley & Austin (included in Exhibit 5).
99 Form of Proxy.
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(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 TDS's Annual Report on Form 10-K for
the Year Ended December 31, 1994.
Item 22. Undertakings
The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 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.
The undersigned registrant hereby undertakes as follows: prior
to any public offering 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.
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 the 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 bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the provisions described pursuant to Item 20
above, the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities 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 against the registrant by such director or
officer 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
Securities Act and will be governed by the final adjudication of such issue.
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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 Time of Merger of the registration statement
through the date of responding to the request.
The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company is being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
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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 5th day of February, 1996.
TELEPHONE AND DATA SYSTEMS, INC.
By: /s/ LeRoy T. Carlson, Chairman
----------------------------------
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 indicated on the 5th day of February, 1996.
Signature Title
/s/ LeRoy T. Carlson
- -----------------------------
LeRoy T. Carlson Chairman and Director
/s/ LeRoy T. Carlson, Jr.
- -----------------------------
LeRoy T. Carlson, Jr. President and Director
(chief executive officer)
/s/ Murray L. Swanson
- -----------------------------
Murray L. Swanson Executive Vice President -
Finance and Director
(chief financial officer)
/s/ James Barr III
- -----------------------------
James Barr III Director
/s/ Rudolph E. Hornacek
- -----------------------------
Rudolph E. Hornacek Director
/s/ Lester O. Johnson
- -----------------------------
Lester O. Johnson Director
/s/ Donald C. Nebergall
- -----------------------------
Donald C. Nebergall Director
/s/ Herbert S. Wander
- ----------------------------
Herbert S. Wander Director
/s/ Walter C.D. Carlson
- ----------------------------
Walter C.D. Carlson Director
/s/ Donald R. Brown
- ----------------------------
Donald R. Brown Director
/s/ Robert J. Collins
- ----------------------------
Robert J. Collins Director
/s/ Gregory J. Wilkinson
- ----------------------------
Gregory J. Wilkinson Vice President and Controller
(principal accounting officer)
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description of Document
2 Amended and Restated Agreement and Plan of Merger dated as of
February 5, 1996 by and among TDS, TDS-Tipton Acquisition
Corp. and Tipton Telephone Company, Inc. (included as Annex A
to the Proxy Statement-Prospectus, except for schedules which
will be supplied supplementally to the Commission upon
request).
3.1 Articles of Incorporation, as amended, are hereby incorporated
by reference to an exhibit to TDS's Report on Form 8-A/A-2
dated December 20, 1994.
3.2 By-laws, as amended, are hereby incorporated by reference to
an exhibit to TDS's Report on Form 8-A/A-2 dated December 20,
1994.
5 Opinion of Sidley and Austin.
23.1 Consent of independent public accountants.
23.2 Consent of independent accountants.
23.3 Consent of Kehlenbrink, Lawrence & Pauckner
23.4 Consent of Sidley & Austin (included in Exhibit 5).
99 Form of Proxy.
<PAGE>
EXHIBIT 5
SIDLEY & AUSTIN
One First National Plaza
Chicago, Illinois 60603
February 5, 1996
Telephone and Data Systems, Inc.
Suite 4000
30 North LaSalle Street
Chicago, Illinois 60602
Re: Telephone and Data Systems, Inc.
Registration Statement on Form S-4
Gentlemen:
We are counsel to Telephone and Data Systems, Inc., an Iowa
corporation (the "Company"), and have represented the Company in connection with
the Form S-4 Registration Statement (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"), with respect to the offer and
issuance of 525,000 shares, par value $1.00 per share (the "Shares"), of the
Company.
In rendering this opinion, we have examined and relied upon a
copy of the Registration Statement and the Prospectus included therein. We have
also examined and relied upon originals, or copies of originals certified to our
satisfaction, of such agreements, documents, certificates and other statements
of governmental officials and other instruments, 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.
2. The Shares will be legally issued, fully paid and
nonassessable when: (i) the Registration Statement, as finally amended, shall
have become effective under the Securities Act; (ii) such Shares shall have been
duly issued and delivered in the manner contemplated by the Registration
Statement and the resolutions of the Board of Directors of the Company
authorizing the issuance and delivery of the Shares; and (iii) certificates
representing such Shares shall have been duly executed, countersigned and
registered and duly delivered to the persons entitled thereto against receipt of
the agreed consideration therefor (not less than the par value thereof) in
accordance with the Registration Statement and such resolutions.
<PAGE>
Telephone and Data Systems, Inc.
February 5, 1996
Page 2
Except as expressly stated in the next sentence, this opinion
is limited to the Securities Act. Insofar as the opinions expressed herein
relate to matters governed by the laws of the State of Iowa, we have not made an
independent examination of such laws, but have relied exclusively as to such
laws, subject to the exceptions, qualifications and limitations therein
expressed, upon the attached opinion of Nyemaster, Goode, McLaughlin, Voigts,
West, Hansell & O'Brien, P.C. of Des Moines, Iowa.
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 Common
Shares.
The Company is controlled by a voting trust. Walter C.D.
Carlson, a trustee and beneficiary of the voting trust and a director of the
Company and certain subsidiaries of the Company, Michael G. Hron, the Secretary
of the Company and certain subsidiaries of the Company, William S. DeCarlo, the
Assistant Secretary of the Company and certain subsidiaries of the Company,
Stephen P. Fitzell, the Secretary of certain subsidiaries of the Company, and
Sherry S. Treston, the Assistant Secretary of certain subsidiaries of the
Company, 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 in or made a
part of the Registration Statement.
Very truly yours,
SIDLEY & AUSTIN
<PAGE>
NYEMASTER, GOODE, McLAUGHLIN, VOIGTS,
WEST, HANSELL & O'BRIEN
1900 Hub Tower
699 Walnut Street
Des Moines, Iowa 50309
(515) 283-3100
February 5, 1996
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Re: Telephone and Data Systems, Inc.
Tipton Telephone Company, Inc.
S-4 Registration Statement
Ladies and Gentlemen:
We have acted as special 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 525,000 Common Shares, $1.00
par value (the "Shares"), of the Company to be issued in connection with the
Amended and Restated Agreement and Plan of Merger dated as of February 5, 1996,
by and among the Company, TDS-Tipton Acquisition Corp. and Tipton Telephone
Company, Inc.
In rendering our opinion, we have examined and relied upon a
copy of the Registration Statement and the Prospectus included in the
Registration Statement. We have also 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:
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 sold in the manner contemplated by such resolutions and the
Registration Statement; 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.
<PAGE>
Sidley & Austin
February 5, 1996
Page 2
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 purpose 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/ Mark C. Dickinson
--------------------------------------
Mark C. Dickinson
<PAGE>
EXHIBIT 23.1
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
January 30, 1996
<PAGE>
EXHIBIT 23.2
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 audit 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
January 30, 1996
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
January 30, 1996
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
January 30, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in the Proxy Statement of
Tipton 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 23, 1995, on our audits of the
financial statements of Tipton 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.
KEHLENBRINK, LAWRENCE & PAUCKNER
Indianapolis, Indiana
January 30, 1996
<PAGE>
EXHIBIT 99
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Proxy Solicited on Behalf of the Board of Directors
for the Special Meeting of the Shareholders of
TIPTON TELEPHONE COMPANY, INC.
to be held on April 9, 1996
The undersigned hereby appoints Joe F. Watson and Doris Ann Gish, with
power of substitution, attorneys and proxies for and in the name and place of
the undersigned, to vote the number of shares of Tipton Common Stock that the
undersigned would be entitled to vote if then personally present at a Special
Meeting of the Shareholders of Tipton Telephone Company, Inc., to be held on
April 9, 1996, or at any adjournment or adjournments thereof, upon the Amended
and Restated Agreement and Plan of Merger as described in the Notice of Special
Meeting and Proxy Statement-Prospectus, in the manner set forth below, and upon
all other matters of business which may properly come before such meeting and
any adjournment or adjournments thereof, in such manner as such proxies may in
their discretion determine.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL
1.
1. AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
FOR ___ AGAINST ___ ABSTAIN ___
2. In accordance with their discretion, upon all other matters that may
properly come before said Special Meeting and any adjournment or adjournments
thereof.
Dated: __________________, 1996 Please Sign Here
------------------------
------------------------
Note: Please date this proxy and sign it exactly as your name or names
appear on your stock certificate(s). All joint owners of shares should sign.
State full title when signing as executor, administrator, trustee, guardian,
etc. Please return signed proxy in the enclosed envelope.
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<PAGE>
