<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 7, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE PROSPECTUS TO WHICH IT
RELATES SHALL CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION.
<PAGE>
PROSPECTUS SUPPLEMENT
Filed pursuant to Rule 424(b)(2)
File No. 333-38355
(TO PROSPECTUS DATED OCTOBER 30, 1997)
6,000,000 PREFERRED SECURITIES
TDS CAPITAL I
% TRUST ORIGINATED PREFERRED SECURITIES-SM- ("TOPRS-SM-")
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED BY
[LOGO]
TELEPHONE AND DATA SYSTEMS, INC.
------------------------
The % Trust Originated Preferred Securities (the "Preferred Securities")
offered hereby represent undivided preferred beneficial interests in the assets
of TDS Capital I, a statutory business trust formed under the laws of the State
of Delaware (the "Trust"). Telephone and Data Systems, Inc., an Iowa corporation
("TDS"), will own all of the trust originated common securities (the "Common
Securities", and together with the Preferred Securities, the "Trust Securities")
representing undivided beneficial interests in the assets of the Trust. The
Trust exists for the sole purpose of issuing the Trust Securities and investing
the proceeds thereof in an equivalent amount of % Junior
(CONTINUED ON NEXT PAGE)
SEE "RISK FACTORS" BEGINNING ON PAGE S-9 OF THIS PROSPECTUS SUPPLEMENT FOR
CERTAIN INFORMATION RELEVANT TO AN INVESTMENT IN THE PREFERRED SECURITIES,
INCLUDING THE PERIOD AND CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS OF
DISTRIBUTIONS ON THE PREFERRED SECURITIES MAY BE DEFERRED AND THE RELATED UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES OF SUCH DEFERRAL.
The Preferred Securities have been approved for listing, subject to notice
of issuance, on the American Stock Exchange, Inc. (the "AMEX"). Trading of the
Preferred Securities on the AMEX is expected to commence within a 30-day period
after the initial delivery of the Preferred Securities. See "Underwriting."
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) COMMISSION(2) TRUST(3)(4)
<S> <C> <C> <C>
Per Preferred Security............................. $25.00 (3) $25.00
Total.............................................. $150,000,000 (3) $150,000,000
</TABLE>
(1) Plus accrued distributions, if any, from , 1997.
(2) The Trust and TDS have agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(3) In view of the fact that the entire proceeds of the sale of the Preferred
Securities will be invested in the Subordinated Debentures, TDS has agreed
to pay to the Underwriters as compensation (the "Underwriters'
Compensation") for their arranging the investment therein of such proceeds
$. per Preferred Security (or $ in the aggregate); provided, that
such compensation for sales of 10,000 or more Preferred Securities to a
single purchaser will be $. per Preferred Security. Therefore, to the
extent of such sales, the actual amount of Underwriters' Compensation will
be less than the aggregate amount specified in the preceding sentence. See
"Underwriting."
(4) Before deducting expenses of the offering which are payable by TDS estimated
at $ .
--------------------------
The Preferred Securities offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that delivery of the Preferred Securities will be made only in book-entry form
through the facilities of The Depository Trust Company, on or about ,
1997.
--------------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
----------------
The date of this Prospectus Supplement is , 1997.
<PAGE>
-SM- "Trust Originated Preferred Securities" and "TOPrS" are service marks of
Merrill Lynch & Co., Inc.
<PAGE>
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
Subordinated Deferrable Interest Debentures due , 2037 (the
"Subordinated Debentures") of TDS. The Subordinated Debentures will mature on
, 2037, or such date to which the maturity of the Subordinated
Debentures may be extended as described under "Description of the Subordinated
Debentures -- General" (such date, the "Stated Maturity"), in each case subject
to satisfying certain conditions. The Subordinated Debentures when issued will
be unsecured obligations of TDS and will be subordinate and junior in right of
payment to certain other indebtedness of TDS, as described herein. Upon an event
of default under the Declaration (as defined below), the holders of Preferred
Securities will have a preference over the holders of the Common Securities with
respect to payments of distributions and payments upon redemption, liquidation
and otherwise.
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of % of the liquidation amount of $25 per
Preferred Security, accruing from the date of original issuance and payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year, commencing December 31, 1997 ("distributions"). The payment of
distributions out of moneys held by the Trust and payments on liquidation of the
Trust or the redemption of Preferred Securities, as set forth below, are
guaranteed by TDS (the "Preferred Securities Guarantee") to the extent described
herein and under "Description of Preferred Securities Guarantees" in the
accompanying Prospectus. The Preferred Securities Guarantee covers payments of
distributions and other payments on the Preferred Securities if and to the
extent that the Trust has funds available therefor, which will not be the case
unless TDS has made payments of interest or principal or other payments on the
Subordinated Debentures held by the Trust as its sole asset. The Preferred
Securities Guarantee, when taken together with TDS's obligations under the
Subordinated Debentures and the Indenture (as defined below) and its obligations
under the Declaration, including its obligations to pay costs, expenses, debts
and obligations of the Trust (other than with respect to the Trust Securities),
provide a full and unconditional guarantee of amounts due on the Preferred
Securities. See "Risk Factors -- Rights Under the Preferred Securities
Guarantee" herein. The obligations of TDS under the Preferred Securities
Guarantee are subordinate and junior in right of payment to all other
liabilities of TDS and rank PARI PASSU with the most senior preferred stock
issued from time to time by TDS. The obligations of TDS under the Subordinated
Debentures are subordinate and junior in right of payment to all present and
future Senior Indebtedness (as defined herein) of TDS, which aggregated
approximately $970 million at September 30, 1997. In addition, since TDS is a
holding company, the right of TDS, and hence the right of the creditors of TDS
(including any holder of Subordinated Debentures), to participate in any
distribution of the assets of any subsidiary upon its liquidation or
reorganization or otherwise is necessarily subject to the prior claims of
creditors of such subsidiary, except to the extent that claims of TDS as a
creditor of such subsidiary may be recognized. There is no restriction in the
Indenture (as defined herein) against subsidiaries of TDS incurring secured or
unsecured indebtedness or issuing secured or unsecured securities. The ability
of TDS to make payments of principal and interest on the Subordinated Debentures
will be dependent upon the payment to it by its subsidiaries of dividends, loans
or advances. As more fully set forth in the notes to the Company's financial
statements, such payments by TDS's regulated telephone company subsidiaries are
subject to legal and contractual restrictions, primarily contained in the
mortgages granted by certain such subsidiaries to the Rural Utilities Service.
The Subordinated Debentures purchased by the Trust may be subsequently
distributed PRO RATA to holders of the Preferred Securities and Common
Securities in connection with the dissolution, winding up or termination of the
Trust. See "United States Federal Income Taxation -- Receipt of Subordinated
Debentures or Cash Upon Liquidation of the Trust."
The distribution rate and the distribution payment date and other payment
dates for the Preferred Securities will correspond to the interest rate and
interest payment date and other payment dates on the Subordinated Debentures,
which will be the sole assets of the Trust. As a result, if principal or
interest is not paid on the Subordinated Debentures, no amounts will be paid on
the Preferred Securities. If TDS does not make principal or interest payments on
the Subordinated Debentures, the Trust will not have
S-2
<PAGE>
sufficient funds to make distributions on the Preferred Securities. In such
event, the Preferred Securities Guarantee will not apply to such distributions
until the Trust has funds available therefor.
So long as TDS is not in default in the payment of interest on the
Subordinated Debentures, TDS has the right to defer payments of interest on the
Subordinated Debentures by extending the interest payment period on the
Subordinated Debentures at any time for up to 20 consecutive quarters (each, an
"Extension Period"), provided that an Extension Period may not extend beyond the
Stated Maturity of the Subordinated Debentures. If interest payments are so
deferred, distributions on the Preferred Securities will also be deferred.
During such Extension Period, distributions will continue to accrue with
interest thereon (to the extent permitted by applicable law) at an annual rate
of % per annum compounded quarterly, and during any Extension Period holders
of Preferred Securities will be required to include deferred interest income in
their gross income for United States federal income tax purposes in advance of
receipt of the cash distributions with respect to such deferred interest
payments. There could be multiple Extension Periods of varying lengths
throughout the term of the Subordinated Debentures. See "Description of the
Subordinated Debentures -- Option to Extend Interest Payment Period," "Risk
Factors -- Option to Extend Interest Payment Period" and "United States Federal
Income Taxation -- Original Issue Discount."
The Subordinated Debentures are redeemable by TDS, in whole or in part, from
time to time, on or after , 2002, or, in whole but not in part, at
any time upon the occurrence of a Tax Event (as defined herein). If TDS redeems
Subordinated Debentures, the Trust must redeem Trust Securities on a PRO RATA
basis having an aggregate liquidation amount equal to the aggregate principal
amount of the Subordinated Debentures so redeemed of $25 per Preferred Security
plus accrued and unpaid distributions thereon (the "Redemption Price") to the
date fixed for redemption. See "Description of the Preferred Securities -- Tax
Event Redemption." The Preferred Securities will be redeemed upon maturity of
the Subordinated Debentures.
TDS will have the right at any time to dissolve the Trust and, after payment
(or provision for payment) of all liabilities to creditors, cause the
Subordinated Debentures to be distributed to the holders of the Trust
Securities. If the Subordinated Debentures are distributed to the holders of the
Preferred Securities, TDS will use its best efforts to have the Subordinated
Debentures listed on the AMEX or on such other exchange on which the Preferred
Securities are then listed. See "Description of the Preferred Securities --
Dissolution; Distribution of Subordinated Debentures" and "Description of the
Subordinated Debentures."
In the event of the involuntary or voluntary dissolution, winding-up or
termination of the Trust, the holders of the Trust Securities will be entitled
to receive for each Trust Security, solely out of the assets of the Trust
available for distribution to such holders, after payment (or provision for
payment) of all liabilities to creditors, a liquidation amount of $25 plus
accrued and unpaid distributions thereon (including interest thereon) to the
date of payment, unless, in connection with such dissolution, winding up or
termination, the Subordinated Debentures are distributed to the holders of the
Trust Securities. See "Description of the Preferred Securities -- Dissolution;
Distribution of Subordinated Debentures."
The Preferred Securities will be represented by global Preferred Securities
registered in the name of The Depository Trust Company ("DTC") or its nominee.
Beneficial interests in the global Preferred Securities will be shown on, and
transfers thereof will be effected only through, records maintained by
participants in DTC. Except as provided herein, Preferred Securities in
definitive form will not be issued. See "Description of the Preferred Securities
- -- Book-Entry Only Issuance -- The Depository Trust Company."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED
SECURITIES. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF PREFERRED
SECURITIES TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-3
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS.
THE COMPANY
Telephone and Data Systems, Inc. ("TDS" or the "Company") is a diversified
telecommunications service company with established cellular telephone, local
telephone and radio paging operations and developing personal communications
services ("PCS") operations. At September 30, 1997, the Company, through its
subsidiaries, served approximately 2.7 million customer units in 37 states,
including 1,357,000 cellular telephones, 506,600 telephone access lines, 65,000
PCS telephones, and 792,800 pagers.
THE TRUST
The Trust is a statutory business trust formed under Delaware law pursuant
to the filing of a certificate of trust with the Delaware Secretary of State on
October 15, 1997. The Trust exists for the exclusive purposes of (i) issuing the
Trust Securities representing undivided beneficial interests in the assets of
the Trust, (ii) investing the gross proceeds of the Trust Securities in the
Subordinated Debentures, and (iii) engaging in only those other activities
necessary or incidental thereto.
THE OFFERING
<TABLE>
<S> <C>
Preferred Securities Offered...... % Trust Originated Preferred Securities evidencing undi-
vided preferred beneficial interests in the assets of
the Trust are offered hereby. Holders of the Preferred
Securities are entitled to receive cumulative cash
distributions at an annual rate of % of the
liquidation amount of $25 per Preferred Security,
accruing from the date of original issuance and payable
quarterly in arrears on March 31, June 30, September 30
and December 31 of each year commencing on December 31,
1997. The distribution rate and the distribution and
other payment dates for the Preferred Securities will
correspond to the interest rate and interest and other
payment dates on the Subordinated Debentures, which will
be the sole assets of the Trust. As a result, if
principal or interest is not paid on the Subordinated
Debentures, no amounts will be paid on the Preferred
Securities. See "Description of the Preferred
Securities."
Subordinated Debentures........... The Trust will invest the proceeds from the issuance of
the Preferred Securities and Common Securities in an
equivalent amount of the Subordinated Debentures. The
Subordinated Debentures will be subordinate and junior
in right of payment to all Senior Indebtedness of TDS.
See "Description of the Subordinated Debentures --
Subordination."
Preferred Securities Guarantee.... Payment of distributions out of moneys held by the
Trust, and payments on liquidation of the Trust or the
redemption of Preferred Securities are guaranteed by TDS
to the extent the Trust has funds available therefor. If
TDS does not make principal or interest payments on the
Subordinated Debentures, the Trust will not have
sufficient funds to make distributions on the Preferred
Securities, in which event the Preferred Securities
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
Guarantee will not apply to such distributions until the
Trust has sufficient funds available therefor. See
"Description of the Preferred Securities Guarantee" and
"Effect of Obligations under the Subordinated Debentures
and the Preferred Securities Guarantee" herein. The
obligations of TDS under the Preferred Securities
Guarantee are subordinate and junior in right of payment
to all other liabilities of TDS and will rank PARI PASSU
with the most senior preferred stock issued by TDS. See
"Risk Factors -- Ranking of Preferred Securities
Guarantee and Subordinated Debentures" and "Description
of the Preferred Securities Guarantee."
Interest Deferral................. TDS has the right to defer payments of interest on the
Subordinated Debentures by extending the interest
payment period on the Subordinated Debentures at any
time, for up to 20 consecutive quarters. If interest
payments on the Subordinated Debentures are so deferred,
distributions on the Preferred Securities will also be
deferred. During any deferral, distributions will
continue to accrue with interest thereon (to the extent
permitted by law) as described herein. There could be
multiple Extension Periods of varying lengths throughout
the term of the Subordinated Debentures. During an
Extension Period, holders of Preferred Securities will
be required to include deferred interest income in their
gross income in advance of receipt of the cash interest
payments attributable thereto. See "Description of the
Subordinated Debentures -- Option to Extend Interest
Payment Period" and "Certain United States Federal
Income Tax Consequences -- Original Issue Discount."
Redemption........................ The Subordinated Debentures are redeemable by TDS (in
whole or in part) from time to time, on or after
, 2002, or at any time (in whole but not in
part) in certain circumstances upon the occurrence of a
Tax Event. If the Subordinated Debentures are redeemed,
the Trust must redeem Trust Securities on a PRO RATA
basis having an aggregate liquidation amount equal to
the aggregate principal amount of Subordinated
Debentures so redeemed. The Preferred Securities will be
redeemed upon maturity of the Subordinated Debentures.
See "Description of the Preferred Securities --
Redemption."
Dissolution....................... TDS will have the right at any time to dissolve the
Trust and, after satisfaction of claims of creditors as
provided by applicable law, to cause the Subordinated
Debentures to be distributed to the holders of Trust
Securities. If the Subordinated Debentures are
distributed to holders of Preferred Securities, TDS will
use its best efforts to have the Subordinated Debentures
listed on the AMEX or such other exchange on which the
Preferred Securities are then listed. The Trust will
also dissolve upon certain bankruptcy or other events
and, upon such dissolution, the holders of Preferred
Securities at that time will be entitled to receive out
of assets of the Trust available therefor an amount
equal to the stated liquidation amount of $25 per
Preferred Security plus accrued and unpaid distributions
thereon to the
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
distribution date (unless the Subordinated Debentures
have been distributed to such holders of Preferred
Securities). If, upon any such dissolution, the Trust
has insufficient assets available to pay in full such
amounts, then the amounts payable by the Trust on the
Preferred Securities will be paid on a PRO RATA basis
and, except in certain circumstances, the holder of the
Common Securities will be entitled to receive
distributions PRO RATA with the holders of the Preferred
Securities. See "Description of Preferred Securities --
Dissolution; Distribution of Subordinated Debentures"
and "United States Federal Income Taxation -- Receipt of
Subordinated Debentures or Cash Upon Liquidation of the
Trust."
Use of Proceeds................... The Trust will use the proceeds from the sale of the
Trust Securities to purchase Subordinated Debentures
from TDS. TDS intends to use the net proceeds from such
sale of Subordinated Debentures to repay certain
short-term indebtedness. Thereafter, TDS may incur
additional short-term indebtedness, the proceeds of
which would be used for general corporate purposes,
which may include working capital, capital expendi-
tures, repayment or repurchases of outstanding
indebtedness and investments in subsidiaries. See "Use
of Proceeds."
Listing........................... The Preferred Securities have been approved for listing,
subject to notice of issuance, on the AMEX. Trading of
the Preferred Securities on the AMEX is expected to
commence within a 30-day period after the initial
delivery of the Preferred Securities. See
"Underwriting."
</TABLE>
S-6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth selected consolidated financial information
for the Company for each of the fiscal years in the five-year period ended
December 31, 1996 and for the six-month periods ended June 30, 1996 and 1997.
The information for each of the five years ended December 31, 1996 has been
derived from the audited Consolidated Financial Statements and other financial
information contained in TDS's Annual Reports on Form 10-K for such years (the
"TDS 10-Ks"). See "Available Information" and "Documents Incorporated by
Reference" in the accompanying prospectus. Information for the six-month periods
ended June 30, 1996 and 1997 has been derived from the unaudited financial
statements of the Company that have been prepared on the same basis as the
audited financial statements of the Company, and, in the opinion of management,
contain all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of operations for such period.
Operating results for the six-month period ended June 30, 1997 are not
necessarily indicative of the results of operations that may be expected for the
year ending December 31, 1997.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating Revenues (1).................. $ 678,174 $ 552,764 $1,186,884 $ 942,307 $ 726,036 $ 553,829 $ 432,740
Operating Income........................ 49,732 80,038 154,098 131,998 108,822 69,733 54,065
Other Income............................ 24,325 124,060 140,540 103,857 33,686 28,126 46,832
Interest Expense........................ 33,694 20,997 42,853 50,848 41,251 37,466 32,610
Net Income Before Extraordinary Item and
Cumulative Effect of Accounting
Changes............................... 16,438 93,381 128,139 103,978 60,544 33,896 38,520
Net Income.............................. 16,438 93,381 128,139 103,978 59,821 33,896 30,885
Net Income Available to Common.......... $ 15,487 $ 92,889 $ 126,293 $ 102,044 $ 58,012 $ 31,510 $ 28,648
OTHER DATA:
Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends (2)......... 1.26x 5.27x 3.50x 3.01x 2.75x 1.96x 2.50x
EBITDA (3).............................. $ 181,537 $ 187,357 $ 385,681 $ 323,502 $ 260,333 $ 187,714 $ 146,062
Construction Expenditures............... $ 393,232 $ 211,845 $ 550,204 $ 359,996 $ 319,701 $ 200,984 $ 146,963
BALANCE SHEET DATA:
Cash and Cash Equivalents and Temporary
Investments........................... $ 67,822 $ 121,244 $ 119,297 $ 80,851 $ 44,566 $ 73,385 $ 58,145
Property, Plant and Equipment (Net)..... 2,088,096 1,429,943 1,828,889 1,293,410 1,063,656 846,089 695,623
Total Assets............................ 4,506,128 3,767,142 4,200,969 3,469,082 2,790,127 2,259,182 1,696,486
Notes Payable........................... 505,206 22,727 160,537 184,320 98,608 6,309 46,816
Long-term Debt (including current
portion) (4).......................... 1,020,411 916,639 1,018,851 894,584 562,165 537,566 426,885
Redeemable Preferred Shares (including
current portion)...................... 1,578 1,937 1,858 15,093 25,001 27,367 27,967
Common Stockholders' Equity............. $1,964,746 $1,998,982 $2,032,941 $1,684,365 $1,473,038 $1,224,285 $ 877,419
</TABLE>
- ------------------------------
(1) Effective January 1, 1997, USM (as defined herein), a subsidiary of TDS,
changed its financial reporting presentation for certain credits given to
cellular customers on their monthly bills. Amounts for the years 1993-1996
have been reclassified to conform to the 1997 presentation.
(2) The reduction in the ratio of earnings to fixed charges and preferred stock
dividends from the six-month period ended June 30, 1996 to the six-month
period ended June 30, 1997 is primarily due to the decrease in gains on
sales of cellular interests and other investments from $128.3 million in the
first half of 1996 to $10.6 million in the first half of 1997. For the
computation of the ratio of earnings to fixed charges and preferred stock
dividends: (i) earnings consist of net income from continuing operations
plus income taxes from continuing operations, fixed charges (less
capitalized interest), distributions from minority subsidiaries and minority
share in income of subsidiaries that have fixed charges, less equity in
undistributed earnings of unconsolidated investments and minority share of
losses; and (ii) fixed charges and preferred stock dividends consist of
interest expense, capitalized interest, estimated interest portion of
rentals and preferred stock dividend requirements increased to an amount
representing the pretax earnings required to cover such dividend
requirements.
(3) EBITDA represents Operating Income plus depreciation and amortization.
EBITDA is a measure commonly used by the financial community but is not
prepared in accordance with United States generally accepted accounting
principles and should not be considered as a measurement of net cash flows
from operating activities.
(4) Long-term Debt does not reflect (i) the issuance in August 1997 by USM (as
defined herein) of $250 million of its senior notes or the use of
substantially all of the net proceeds thereof to repay Notes Payable and
Long-term Debt, or (ii) borrowings of $100 million contemplated by Aerial
(as defined herein) pursuant to a pending private placement in connection
with a refinancing arrangement relating to its existing vendor financing.
See "Consolidated Capitalization."
S-7
<PAGE>
RECENT FINANCIAL RESULTS
TDS's operating revenues for the three- and nine-month periods ended
September 30, 1997 increased 27% and 24% to $392.2 million and $1,070.4 million,
respectively, as compared to the same periods in 1996. The increases in 1997
were attributable primarily to the growth in customer units. TDS's operating
(loss) income for the three- and nine-month periods ended September 30, 1997 was
($3.5) million and $46.2 million, respectively, compared to $41.3 million and
$121.3 million for the same periods in 1996. The decreases in 1997 were
attributable primarily to start-up losses incurred by Aerial Communications,
Inc. ("Aerial"), TDS's majority-owned PCS subsidiary, of $64.5 million and
$116.2 million for the three- and nine-month periods, respectively, offset
somewhat by increases in cellular operating income of $11.8 million and $35.6
million for the three- and nine-month periods, respectively. TDS's net income
available to common for the three- and nine-month periods ended September 30,
1997 was $8.5 million and $24.0 million, respectively, compared to $22.2 million
and $115.3 million for the same periods in 1996. After-tax gains from asset
sales contributed $8.4 million and $12.5 million for the three- and nine-month
periods ended September 30, 1997, respectively, as compared to $2.9 million and
$63.7 million for the same periods in 1996.
United States Cellular Corporation ("USM"), TDS's majority-owned subsidiary,
reported a 29% increase in operating revenues for each of the three- and
nine-month periods ended September 30, 1997 to $232.0 million and $634.1
million, respectively, as compared to the same periods in 1996. The revenue
increases were primarily related to increases in cellular customer units, which
grew by 44% during the twelve month period ended September 30, 1997. USM's
operating income increased 36% and 47% for the three- and nine-month periods
ended September 30, 1997 to $44.9 million and $110.5 million, respectively, as
compared to the same periods in 1996.
TDS Telecommunications Corporation ("TDS Telecom"), TDS's wholly-owned
subsidiary, reported a 17% increase in operating revenues for each of the three-
and nine-month periods ended September 30, 1997 to $118.7 million and $338.7
million as compared to the same periods in 1996. Access lines grew by 6% in the
twelve months ended September 30, 1997. TDS Telecom's operating income increased
2% and 4% for the three- and nine-month periods ended September 30, 1997 to
$25.4 million and $76.7 million, respectively, as compared to the same periods
in 1996.
Aerial reported operating revenues of $18.6 million and $25.8 million for
the three- and nine-month periods ended September 30, 1997, respectively. All of
Aerial's markets have now been in service for a full quarter. The Company
anticipates that start-up and development of high-quality networks and the
marketing of systems in Aerial's markets will reduce the rate of growth in TDS's
operating and net income from levels which would otherwise be achieved during
the next few years.
American Paging, Inc. ("APP"), TDS's majority-owned subsidiary, reported
declines of 14% and 9% in operating revenues for the three- and nine-month
periods ended September 30, 1997 to $22.9 million and $71.8 million,
respectively, as compared to the same periods in 1996. Revenues at APP declined
during such periods primarily due to competitive price pressures in the direct
distribution channel. APP's operating loss declined 44% and 9% for the three-and
nine-month periods ended September 30, 1997 to ($9.3) million and ($24.8)
million, respectively, as compared to the same periods in 1996. The Company
expects that APP will continue to incur operating losses in the fourth quarter
of 1997 and in 1998.
S-8
<PAGE>
RISK FACTORS
Prospective purchasers of Preferred Securities should carefully review the
information contained elsewhere in this Prospectus Supplement and in the
accompanying Prospectus and should particularly consider the following matters.
RANKING OF PREFERRED SECURITIES GUARANTEE AND SUBORDINATED DEBENTURES
TDS's obligations under the Preferred Securities Guarantee are subordinate
and junior in right of payment to all other liabilities of TDS, including the
Subordinated Debentures, and rank PARI PASSU with the most senior preferred
stock issued from time to time by TDS. The obligations of TDS under the
Subordinated Debentures are subordinate and junior in right of payment to all
present and future Senior Indebtedness of TDS. No payment may be made of the
principal of, premium, if any, or interest on the Subordinated Debentures, or in
respect of any redemption, retirement, purchase or other acquisition of any of
the Subordinated Debentures, at any time when (i) there is a default in the
payment of amounts due on any Senior Indebtedness, or (ii) the maturity of any
Senior Indebtedness has been accelerated because of a default. As of September
30, 1997, Senior Indebtedness of TDS aggregated approximately $970 million. In
addition, since TDS is a holding company, the right of TDS, and hence the right
of the creditors of TDS (including any holder of Subordinated Debentures), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of such subsidiary, except to the extent that claims of TDS
as a creditor of such subsidiary may be recognized. There is no restriction in
the Indenture (as defined herein) against subsidiaries of TDS incurring secured
or unsecured indebtedness or issuing secured or unsecured securities. The
ability of TDS to make payments of principal and interest on the Subordinated
Debentures will be dependent upon the payment to it by its subsidiaries of
dividends, loans or advances. As more fully set forth in the notes to the
Company's financial statements, such payments by TDS's regulated telephone
company subsidiaries are subject to legal and contractual restrictions,
primarily contained in the mortgages granted by certain such subsidiaries to the
Rural Utilities Service. There are no terms in the Preferred Securities, the
Subordinated Debentures or the Preferred Securities Guarantee that limit TDS's
ability to incur additional indebtedness, including indebtedness which ranks
senior to the Subordinated Debentures and the Preferred Securities Guarantee.
See "Description of the Preferred Securities Guarantees -- Status of the
Preferred Securities Guarantees" and "Description of the Subordinated
Debentures" in the accompanying Prospectus, and "Description of the Subordinated
Debentures -- Subordination" herein.
RIGHTS UNDER THE PREFERRED SECURITIES GUARANTEE
The Preferred Securities Guarantee will be qualified as an indenture under
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
First National Bank of Chicago will act as indenture trustee under the Preferred
Securities Guarantee for the purposes of compliance with the provisions of the
Trust Indenture Act (the "Guarantee Trustee"). The Guarantee Trustee will hold
the Preferred Securities Guarantee for the benefit of the holders of the
Preferred Securities.
The Preferred Securities Guarantee guarantees to the holders of the
Preferred Securities the payment of (i) any accrued and unpaid distributions
that are required to be paid on the Preferred Securities, to the extent the
Trust has funds available therefor, (ii) the Redemption Price, including all
accrued and unpaid distributions with respect to Preferred Securities called for
redemption by the Trust, to the extent the Trust has funds available therefor,
and (iii) upon a voluntary or involuntary dissolution, winding-up or termination
of the Trust (other than in connection with the distribution of Subordinated
Debentures to the holders of Preferred Securities), the lesser of (a) the
aggregate of the liquidation amount and all accrued and unpaid distributions on
the Preferred Securities to the date of the payment of such liquidation amount,
to the extent the Trust has funds available therefor or (b) the amount of assets
of the Trust remaining available for distribution to holders of the Preferred
Securities in liquidation of the Trust.
S-9
<PAGE>
The holders of a majority in liquidation amount of the Preferred Securities
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Guarantee Trustee or to direct the exercise of
any trust or power conferred upon the Guarantee Trustee under the Preferred
Securities Guarantee. Notwithstanding the foregoing, any holder of Preferred
Securities may institute a legal proceeding directly against TDS to enforce such
holder's rights under the Preferred Securities Guarantee without first
instituting a legal proceeding against the Trust, the Guarantee Trustee or any
other person or entity. If TDS were to default on its obligation to pay amounts
payable on the Subordinated Debentures or otherwise, the Trust would lack
available funds for the payment of distributions or amounts payable on
redemption of the Preferred Securities or otherwise, and, in such event, holders
of the Preferred Securities would not be able to rely upon the Preferred
Securities Guarantee for payment of such amounts. Instead, holders of the
Preferred Securities would rely on the enforcement (1) by the Property Trustee
(as defined herein) of its rights as registered holder of the Subordinated
Debentures against TDS pursuant to the terms of the Subordinated Debentures or
(2) by such holders of their right against TDS to enforce payments on the
Subordinated Debentures. See "Description of the Preferred Securities
Guarantees" and "Description of the Subordinated Debentures" in the accompanying
Prospectus. The Declaration provides that each holder of Preferred Securities,
by acceptance thereof, agrees to the provisions of the Preferred Securities
Guarantee, including the subordination provisions thereof, and the Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Declaration Event of Default (as defined herein) occurs and is
continuing, then the holders of Preferred Securities would rely on the
enforcement by the Property Trustee of its rights as a holder of the
Subordinated Debentures against TDS. In addition, the holders of a majority in
liquidation amount of the Preferred Securities will have the right to direct the
time, method, and place of conducting any proceeding for any remedy available to
the Property Trustee or to direct the exercise of any trust or power conferred
upon the Property Trustee under the Declaration, including the right to direct
the Property Trustee to exercise the remedies available to it as a holder of the
Subordinated Debentures. If the Property Trustee fails to enforce its rights
under the Subordinated Debentures, a holder of Preferred Securities may, to the
fullest extent permitted by law, institute a legal proceeding directly against
TDS to enforce the Property Trustee's rights under the Subordinated Debentures
without first instituting any legal proceeding against the Property Trustee or
any other person or entity. Notwithstanding the foregoing, if a Declaration
Event of Default has occurred and is continuing, and such event is attributable
to the failure of TDS to pay interest or principal on the Subordinated
Debentures on the date such interest or principal is otherwise payable (or in
the case of redemption, on the redemption date), then a holder of Preferred
Securities may directly institute a proceeding for enforcement of payment to
such holder of the principal of or interest on the Subordinated Debentures
having a principal amount equal to the aggregate liquidation amount of the
Preferred Securities of such holder (a "Direct Action") on or after the
respective due date specified in the Subordinated Debentures. In connection with
such Direct Action, TDS will be subrogated to the rights of such holder of
Preferred Securities under the Declaration to the extent of any payment made by
TDS to such holder of Preferred Securities in such Direct Action. The holders of
Preferred Securities will not be able to exercise directly any other remedy
available to the holders of the Subordinated Debentures. See "Description of the
Preferred Securities -- Declaration Events of Default."
OPTION TO EXTEND INTEREST PAYMENT PERIOD
TDS has the right under the Indenture to defer payments of interest on the
Subordinated Debentures by extending the interest payment period at any time,
and from time to time, on the Subordinated Debentures. As a consequence of such
an extension, quarterly distributions on the Preferred Securities would be
deferred (but would continue to accrue, despite such deferral, with interest
thereon compounded quarterly) by the Trust during any such Extension Period.
Such right to extend the interest payment period for the Subordinated Debentures
is limited to a period not exceeding 20 consecutive quarters, but no such
S-10
<PAGE>
Extension Period may extend beyond the Stated Maturity of the Subordinated
Debentures. During any Extension Period, (a) TDS may not declare or pay
dividends on, or make a distribution with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of its capital stock
(other than (i) purchases or acquisitions of shares of TDS common stock in
connection with the satisfaction by TDS of its obligations under any employee
benefit plans or any other contractual obligation of TDS (other than a
contractual obligation ranking PARI PASSU with or junior to the Subordinated
Debentures), (ii) as a result of a reclassification of TDS capital stock or the
exchange or conversion of one class or series of TDS capital stock for another
class or series of TDS capital stock or (iii) the purchase of fractional
interests in shares of TDS capital stock pursuant to the conversion or exchange
provisions of such TDS capital stock or the security being converted or
exchanged), (b) TDS may not make any payment of interest, principal or premium,
if any, on or repay, repurchase or redeem any debt securities (including
guarantees) issued by TDS that rank PARI PASSU with or junior to the
Subordinated Debentures, and (c) TDS may not make any guarantee payments with
respect to the foregoing (other than pursuant to the Preferred Securities
Guarantee). Prior to the termination of any such Extension Period, TDS may
further extend the interest payment period; provided, that such Extension
Period, together with all such previous and further extensions thereof, may not
exceed 20 consecutive quarters or extend beyond the Stated Maturity of the
Subordinated Debentures. Upon the termination of any Extension Period and the
payment of all accrued and unpaid interest then due, TDS may commence a new
Extension Period, subject to the above requirements. See "Description of the
Preferred Securities -- Distributions" and "Description of the Subordinated
Debentures -- Option to Extend Interest Payment Period."
Should TDS exercise its right to defer payments of interest by extending the
interest payment period, each holder of Preferred Securities would be required
to continue to accrue income (as original issue discount ("OID")) in respect of
the interest payable thereafter allocable to its Preferred Securities for United
States federal income tax purposes, which would be allocated but not distributed
to holders of Preferred Securities. As a result, each such holder of Preferred
Securities would recognize income for United States federal income tax purposes
in advance of the receipt of cash and would not receive the cash from the Trust
related to such income if such holder disposed of its Preferred Securities prior
to the record date for the date on which distributions of such amounts were
made. See "United States Federal Income Taxation -- Original Issue Discount."
TDS has no current intention of exercising its right to defer payments of
interest by extending the interest payment period on the Subordinated
Debentures.
Should TDS exercise its right to defer payments of interest by extending the
interest payment period, the market price of the Preferred Securities is likely
to be affected. A holder that disposes of its Preferred Securities during an
Extension Period, therefore, might not receive the same return on its investment
as a holder that continues to hold its Preferred Securities. In addition, as a
result of the existence of TDS's right to defer interest payments, the market
price of the Preferred Securities (which represent an undivided beneficial
interest in the Subordinated Debentures) may be more volatile than other
securities that do not have such rights. See "United States Federal Income
Taxation -- Sales of Preferred Securities."
POSSIBLE TAX LAW CHANGES
The Clinton Administration's budget proposals for fiscal year 1997 and
fiscal year 1998 contained provisions which, if applicable to the Subordinated
Debentures, would have prevented TDS from deducting interest thereon for United
States federal income tax purposes. Congress has not enacted these provisions,
which, unlike several other Clinton Administration proposals, were not included
in the Taxpayer Relief Act of 1997. There can be no assurance that future
legislative proposals, future regulations or official administrative
pronouncements, or future judicial decisions will not affect the ability of TDS
to deduct interest on the Subordinated Debentures. Such a change could give rise
to a Tax Event, which may permit TDS to cause a redemption of the Preferred
Securities. See "Description of the Preferred Securities -- Tax Event
Redemption" and "United States Federal Income Taxation -- Possible Tax Law
Changes."
S-11
<PAGE>
REDEMPTION OR DISTRIBUTION OF THE SUBORDINATED DEBENTURES
TDS will have the right at any time to dissolve the Trust and, after
satisfaction of claims of creditors as provided by applicable law, to cause the
Subordinated Debentures to be distributed to the holders of the Trust
Securities. In certain circumstances, TDS will have the right to redeem the
Subordinated Debentures, in whole or in part, in which event the Trust will
redeem the Trust Securities on a PRO RATA basis to the same extent as the
Subordinated Debentures are redeemed by TDS. See "Description of the Preferred
Securities -- Tax Event Redemption" and "United States Federal Income Taxation."
Under current United States federal income tax law, a distribution of
Subordinated Debentures upon the dissolution of the Trust would not be a taxable
event to holders of the Preferred Securities. If, however, the Trust is
characterized for United States federal income tax purposes as an association
taxable as a corporation at the time of dissolution of the Trust, the
distribution of the Subordinated Debentures would be a taxable event to holders
of Preferred Securities. Moreover, the redemption of the Subordinated Debentures
upon occurrence of a Tax Event, or a dissolution of the Trust in which holders
of the Preferred Securities receive cash, would be a taxable event to such
holders. See "United States Federal Income Taxation -- Receipt of Subordinated
Debentures or Cash Upon Liquidation of the Trust."
There can be no assurance as to the market prices for the Preferred
Securities or the Subordinated Debentures that may be distributed in exchange
for Preferred Securities if a dissolution or liquidation of the Trust were to
occur. Accordingly, the Preferred Securities or the Subordinated Debentures may
trade at a discount to the price that the investor paid to purchase the
Preferred Securities offered hereby. Because holders of Preferred Securities may
receive Subordinated Debentures, prospective purchasers of Preferred Securities
are also making an investment decision with regard to the Subordinated
Debentures and should carefully review all the information regarding the
Subordinated Debentures and TDS contained herein and in the accompanying
Prospectus. See "Description of the Preferred Securities -- Tax Event
Redemption" and "Description of the Subordinated Debentures."
LIMITED VOTING RIGHTS
Holders of Preferred Securities will have limited voting rights primarily in
connection with directing the activities of the Property Trustee as the holder
of the Subordinated Debentures and will not be entitled to vote to appoint,
remove or replace, or to increase or decrease the number of Trustees (as defined
herein), which voting rights are vested exclusively in the holder of the Common
Securities. See "Description of Preferred Securities -- Voting Rights."
ABSENCE OF PRIOR PUBLIC MARKET
Prior to this offering, there has been no public market for the Preferred
Securities. Although the Preferred Securities have been approved for listing,
subject to notice of issuance, on the AMEX, there can be no assurance that, once
listed, an active trading market will develop for the Preferred Securities or
that, if such market develops, the market price will equal or exceed the public
offering price set forth on the cover page of this Prospectus Supplement.
TRADING PRICE OF PREFERRED SECURITIES
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying
Subordinated Debentures. A holder of Preferred Securities who disposes of such
Preferred Securities between record dates for payments of distributions thereon
will be required to include in gross income the OID on the Subordinated
Debentures through the date of disposition, and to add such amount to the
adjusted tax basis in its PRO RATA share of the underlying Subordinated
Debentures deemed disposed of. To the extent the selling price is less than the
holder's adjusted tax basis (so determined), a holder will recognize a capital
loss. Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax
S-12
<PAGE>
purposes. See "United States Federal Income Taxation -- Original Issue Discount"
and "-- Sales of Preferred Securities."
CONSEQUENCES OF HIGHLY LEVERAGED TRANSACTION
The Indenture does not contain provisions that afford holders of the
Subordinated Debentures protection in the event of a highly leveraged
transaction, including a change of control, or other similar transactions
involving TDS that may adversely affect such holders. See "Description of the
Subordinated Debentures."
THE COMPANY
TDS is a diversified telecommunications service company with established
cellular telephone, local telephone and radio paging operations and developing
personal communications services ("PCS") operations. At September 30, 1997, the
Company, through its subsidiaries, served approximately 2.7 million customer
units in 37 states, including 1,357,000 cellular telephones, 506,600 telephone
access lines, 65,000 PCS telephones, and 792,800 pagers. For the nine months
ended September 30, 1997, cellular operations provided 59% of the Company's
consolidated revenues; telephone operations provided 32%; PCS operations
provided 2%; and paging operations provided 7% of such revenues. The Company's
long-term 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 the
Company's expertise in customer-based telecommunications services. The Company
conducts substantially all of its cellular operations through its majority-owned
subsidiary United States Cellular Corporation (AMEX symbol "USM"), which is the
eighth largest cellular telephone company in the United States, based on the
aggregate number of population equivalents it owns. The Company conducts
substantially all of its telephone operations through its wholly-owned
subsidiary TDS Telecommunications Corporation. The Company conducts
substantially all of its PCS business through its majority-owned subsidiary
Aerial Communications, Inc. (NASDAQ symbol "AERL"), which launched commercial
service in the first half of 1997 and expects to complete initial construction
of its PCS networks by the end of 1997. American Paging, Inc. (AMEX symbol
"APP"), is a majority-owned subsidiary of TDS through which substantially all of
the Company's radio paging operations are conducted.
S-13
<PAGE>
THE TRUST
The Trust is a statutory business trust formed under Delaware law pursuant
to the filing of a certificate of trust with the Delaware Secretary of State on
October 15, 1997. The business of the Trust is defined in a declaration of trust
executed by TDS, as sponsor (the "Sponsor"), and the Trustees (as defined
herein). Such declaration will be amended and restated in its entirety (as so
amended and restated, the "Declaration") substantially in the form filed as an
exhibit to the Registration Statement of which this Prospectus Supplement and
the accompanying Prospectus form a part. The Declaration will be qualified as an
indenture under the Trust Indenture Act. Upon issuance of the Preferred
Securities, the purchasers thereof will own all of the Preferred Securities. TDS
will acquire Common Securities in an aggregate liquidation amount equal to
approximately 3% of the total capital of the Trust. The Trust exists for the
exclusive purposes of (i) issuing the Trust Securities representing undivided
beneficial interests in the assets of the Trust, (ii) investing the gross
proceeds of the Trust Securities in the Subordinated Debentures and (iii)
engaging in only those other activities necessary or incidental thereto. The
Trust has a term of 50 years, but may terminate earlier as provided in the
Declaration.
Pursuant to the Declaration, the number of Trustees (as defined herein) of
the Trust will initially be five. Three of the Trustees (the "Regular Trustees")
will be persons who are employees or officers of, or who are affiliated with,
TDS. The fourth trustee will be a financial institution that is unaffiliated
with TDS, which trustee will serve as property trustee under the Declaration and
as indenture trustee for the purposes of compliance with the provisions of the
Trust Indenture Act (the "Property Trustee"). The fifth Trustee will either be a
legal entity with its principal place of business or an individual resident in
Delaware, which will serve for the limited purpose of satisfying certain
Delaware laws (the "Delaware Trustee"). Initially, The First National Bank of
Chicago will be the Property Trustee and First Chicago Delaware Inc. will be the
Delaware Trustee until removed or replaced by the holder of the Common
Securities. For purposes of compliance with the provisions of the Trust
Indenture Act, The First National Bank of Chicago will act as trustee (the
"Guarantee Trustee") under the Preferred Securities Guarantee. The First
National Bank of Chicago will act as Debt Trustee (as defined herein) under the
Indenture. See "Description of the Preferred Securities Guarantees" in the
accompanying Prospectus and "Description of the Preferred Securities -- Voting
Rights" herein.
The Trust's business and affairs will be conducted by the Trustees (the
"Trustees") appointed by TDS, as holder of the Common Securities. The Property
Trustee, acting in such capacity, will hold title to the Subordinated Debentures
for the benefit of the holders of the Trust Securities and will have the power
to exercise all rights, powers and privileges under the Indenture as the holder
of the Subordinated Debentures. In addition, the Property Trustee will maintain
exclusive control of a segregated non-interest bearing bank account (the
"Property Account") to hold all payments made in respect of the Subordinated
Debentures for the benefit of the holders of the Trust Securities. The Property
Trustee will make payments of distributions and payments on liquidation,
redemption and otherwise to the holders of the Trust Securities out of funds
from the Property Account. The Guarantee Trustee will hold the Preferred
Securities Guarantee for the benefit of the holders of the Preferred Securities.
TDS, as the direct or indirect holder of all the Common Securities, will have
the right to appoint, remove or replace any Trustee and to increase or decrease
the number of Trustees provided that the number of Trustees will be at least
three, two of which will be Regular Trustees. TDS will pay all fees and expenses
related to the Trust and the offering of the Trust Securities. See "Description
of the Subordinated Debentures -- Miscellaneous."
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are set forth in the
Declaration, the Delaware Business Trust Act (the "Trust Act") and the Trust
Indenture Act. See "Description of the Preferred Securities."
S-14
<PAGE>
USE OF PROCEEDS
The Trust will use the proceeds from the sale of the Trust Securities to
purchase Subordinated Debentures from TDS. TDS intends to use the net proceeds
from such sale of Subordinated Debentures to repay certain short-term
indebtedness. Thereafter, TDS may incur additional short-term indebtedness, the
proceeds of which would be used for general corporate purposes, which may
include working capital, capital expenditures, repayment or repurchases of
outstanding indebtedness and investments in subsidiaries. Pending any such use,
the net proceeds may be invested in marketable securities and short-term
investments. The indebtedness to be repaid was incurred within the last year,
primarily for the purpose of funding capital expenditures and working capital
requirements of its majority-owned subsidiary, Aerial. At September 30, 1997,
amounts outstanding under such indebtedness bore interest at a weighted average
rate of 5.94% per annum and had a weighted average original maturity of 28 days
from the date of incurrence of such indebtedness.
CONSOLIDATED CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at June 30, 1997 as adjusted to reflect (i) the issuance of $250 million
of senior notes in August 1997 by USM, substantially all of the net proceeds of
which were used to repay Notes Payable and Long-term Debt; and (ii) the issuance
and sale of the Preferred Securities offered hereby and the application of the
estimated net proceeds therefrom as described in "Use of Proceeds". The table is
unaudited and should be read in conjunction with the TDS 10-K for the year ended
December 31, 1996 and TDS's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997, each of which is incorporated by reference herein. See "Documents
Incorporated by Reference" in the accompanying Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(1)
------------ --------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Notes Payable....................................................................... $ 505,206 $ 197,291
------------ --------------
------------ --------------
Long-term Debt...................................................................... 1,020,411 1,178,326
------------ --------------
Redeemable Preferred Shares......................................................... 1,578 1,578
------------ --------------
Minority Interest in Subsidiaries................................................... 430,169 430,169
------------ --------------
Company-obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust,
holding solely Company Subordinated Debentures offered hereby(2).................. -- 150,000
------------ --------------
Nonredeemable Preferred Shares...................................................... 28,640 28,640
------------ --------------
Common Shareholders' Equity
Common Shares, par value $1 per share; authorized 100,000,000 shares; issued and
outstanding 54,366,793 shares................................................... 54,367 54,367
Series A Common Shares, par value $1 per share; authorized 25,000,000 shares;
issued and outstanding 6,922,265 shares......................................... 6,922 6,922
Common Shares Issuable, 10,480 shares............................................. 499 499
Capital in Excess of Par Value.................................................... 1,660,797 1,660,797
Treasury Shares, at cost, 1,796,070 shares........................................ (69,867) (69,867)
Retained Earnings................................................................. 312,028 312,028
------------ --------------
Total Common Shareholders' Equity............................................... 1,964,746 1,964,746
------------ --------------
Total Capitalization............................................................ $ 3,445,544 $ 3,753,459
------------ --------------
------------ --------------
</TABLE>
- ------------------------
(1) Does not reflect borrowings of $100 million contemplated by Aerial pursuant
to a pending private placement in connection with a refinancing arrangement
relating to its existing vendor financing.
(2) The sole assets of the Trust will be $154.6 million of % Subordinated
Debentures due 2037 of TDS, including $150 million of such Subordinated
Debentures attributable to such Preferred Securities and $4.6 million of
such Subordinated Debentures attributable to the Common Securities of the
Trust; TDS will own all of such Common Securities.
S-15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth selected consolidated financial information
for the Company for each of the fiscal years in the five-year period ended
December 31, 1996 and for the six-month periods ended June 30, 1996 and 1997.
The information for each of the five years ended December 31, 1996 has been
derived from the audited Consolidated Financial Statements and other financial
information contained in the TDS 10-Ks. See "Available Information" and
"Documents Incorporated by Reference" in the accompanying Prospectus.
Information for the six-month periods ended June 30, 1996 and 1997 has been
derived from the unaudited financial statements of the Company that have been
prepared on the same basis as the audited financial statements of the Company,
and, in the opinion of management, contain all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
of operations for such period. Operating results for the six-month period ended
June 30, 1997 are not necessarily indicative of the results of operations that
may be expected for the year ending December 31, 1997.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA:
Operating Revenues (1)................. $ 678,174 $ 552,764 $1,186,884 $ 942,307 $ 726,036 $ 553,829 $ 432,740
Operating Income....................... 49,732 80,038 154,098 131,998 108,822 69,733 54,065
Other Income........................... 24,325 124,060 140,540 103,857 33,686 28,126 46,832
Interest Expense....................... 33,694 20,997 42,853 50,848 41,251 37,466 32,610
Income Taxes........................... 23,925 89,720 123,646 81,029 40,713 26,497 29,767
Net Income Before Extraordinary Item
and Cumulative Effect of Accounting
Changes.............................. 16,438 93,381 128,139 103,978 60,544 33,896 38,520
Extraordinary Item..................... -- -- -- -- -- -- (769)
Cumulative Effect of Accounting Changes
(2).................................. -- -- -- -- (723) -- (6,866)
Net Income............................. 16,438 93,381 128,139 103,978 59,821 33,896 30,885
Net Income Available to Common......... $ 15,487 $ 92,889 $ 126,293 $ 102,044 $ 58,012 $ 31,510 $ 28,648
Weighted Average Common Shares (000s).. 60,757 60,465 60,732 58,356 54,197 47,266 39,074
Earnings Per Common Share:
Before Extraordinary Item and
Cumulative Effect of Accounting
Changes............................ $ 0.25 $ 1.54 $ 2.08 $ 1.74 $ 1.07 $ 0.67 $ 0.91
Net Income........................... $ 0.25 $ 1.54 $ 2.08 $ 1.74 $ 1.06 $ 0.67 $ 0.72
OTHER DATA:
Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends (3)........ 1.26x 5.27x 3.50x 3.01x 2.75x 1.96x 2.50x
EBITDA (4)............................. $ 181,537 $ 187,357 $ 385,681 $ 323,502 $ 260,333 $ 187,714 $ 146,062
Construction Expenditures.............. $ 393,232 $ 211,845 $ 550,204 $ 359,996 $ 319,701 $ 200,984 $ 146,963
BALANCE SHEET DATA:
Cash and Cash Equivalents and Temporary
Investments.......................... $ 67,822 $ 121,244 $ 119,297 $ 80,851 $ 44,566 $ 73,385 $ 58,145
Property, Plant and Equipment (Net).... 2,088,096 1,429,943 1,828,889 1,293,410 1,063,656 846,089 695,623
Total Assets........................... 4,506,128 3,767,142 4,200,969 3,469,082 2,790,127 2,259,182 1,696,486
Notes Payable.......................... 505,206 22,727 160,537 184,320 98,608 6,309 46,816
Long-term Debt (including current
portion)(5).......................... 1,020,411 916,639 1,018,851 894,584 562,165 537,566 426,885
Redeemable Preferred Shares (including
current portion)..................... 1,578 1,937 1,858 15,093 25,001 27,367 27,967
Common Stockholders' Equity............ $1,964,746 $1,998,982 $2,032,941 $1,684,365 $1,473,038 $1,224,285 $ 877,419
</TABLE>
- ------------------------------
(1) Effective January 1, 1997, USM, a subsidiary of TDS, changed its financial
reporting presentation for certain credits given to cellular customers on
their monthly bills. Amounts for the years 1993-1996 have been reclassified
to conform to the 1997 presentation.
(2) Effective January 1, 1994, TDS adopted Statement of Financial Accounting
Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment
Benefits." 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.
S-16
<PAGE>
Effective January 1, 1993, TDS adopted SFAS 109, "Accounting for Income
Taxes." The cumulative effect of the change on years prior to 1993 did not
have a material effect on net income or earnings per share. Prior years'
financial information has not been restated.
Effective January 1, 1992, TDS adopted SFAS 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The cumulative effect of the
change on years prior to 1992 has been reflected in 1992 net income. Prior
years' financial information has not been restated.
(3) The reduction in the ratio of earnings to fixed charges and preferred stock
dividends from the six-month period ended June 30, 1996 to the six-month
period ended June 30, 1997 is primarily due to the decrease in gains on
sales of cellular interests and other investments from $128.3 million in the
first half of 1996 to $10.6 million in the first half of 1997. For the
computation of the ratio of earnings to fixed charges and preferred stock
dividends: (i) earnings consist of net income from continuing operations
plus income taxes from continuing operations, fixed charges (less
capitalized interest), distributions from minority subsidiaries and minority
share in income of subsidiaries that have fixed charges, less equity in
undistributed earnings of unconsolidated investments and minority share of
losses; and (ii) fixed charges and preferred stock dividends consist of
interest expense, capitalized interest, estimated interest portion of
rentals and preferred stock dividend requirements increased to an amount
representing the pretax earnings required to cover such dividend
requirements.
(4) EBITDA represents Operating Income plus depreciation and amortization.
EBITDA is a measure commonly used by the financial community but is not
prepared in accordance with United States generally accepted accounting
principles and should not be considered as a measurement of net cash flows
from operating activities.
(5) Long-term Debt does not reflect (i) the issuance in August 1997 by USM of
$250 million of its senior notes or the use of substantially all of the net
proceeds thereof to repay Notes Payable and Long-term Debt, or (ii)
borrowings of $100 million contemplated by Aerial pursuant to a pending
private placement in connection with a refinancing arrangement relating to
its existing vendor financing. See "Consolidated Capitalization."
S-17
<PAGE>
ACCOUNTING TREATMENT
The financial statements of the Trust will be consolidated into TDS's
consolidated financial statements, with the Preferred Securities treated as
minority interest and shown in TDS's balance sheet as "Company-obligated
Mandatorily Redeemable Preferred Securities of Subsidiary Trust, holding solely
Company Subordinated Debentures." The financial statement footnotes of TDS will
reflect that the sole asset of the Trust will be the Subordinated Debentures.
See "Consolidated Capitalization."
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the
Declaration. The Declaration will be qualified as an indenture under the Trust
Indenture Act. The Property Trustee will act as the indenture trustee for
purposes of compliance with the provisions of the Trust Indenture Act. The terms
of the Preferred Securities will include those stated in the Declaration and
those made part of the Declaration by the Trust Act and the Trust Indenture Act.
The following summary of the principal terms and provisions of the Preferred
Securities, which supplements and, to the extent inconsistent, replaces, the
description set forth under the caption "Description of the Preferred
Securities" in the accompanying Prospectus, does not purport to be complete and
is subject to, and qualified in its entirety by reference to, the Declaration, a
copy of the form of which is filed as an exhibit to the Registration Statement
of which this Prospectus Supplement and the accompanying Prospectus form a part,
the Trust Act and the Trust Indenture Act.
GENERAL
The Declaration authorizes the Regular Trustees, on behalf of the Trust, to
issue the Preferred Securities, which represent preferred undivided beneficial
interests in the assets of the Trust, and the Common Securities, which represent
common undivided beneficial interests in the assets of the Trust. All of the
Common Securities will be owned by TDS. The Common Securities rank PARI PASSU,
and payments will be made thereon on a PRO RATA basis, with the Preferred
Securities, except that upon the occurrence and
during the continuation of a Declaration Event of Default (as defined below),
the rights of the holders of the Common Securities to receive payment of
periodic distributions and payments upon liquidation, redemption and otherwise
will be subordinated to the rights to payment of the holders of the Preferred
Securities. The Declaration does not permit the issuance by the Trust of any
securities other than the Trust Securities or the incurrence of any indebtedness
by the Trust. Pursuant to the Declaration, the Property Trustee, acting in such
capacity, will own and hold the Subordinated Debentures for the benefit of the
holders of the Trust Securities. The payment of distributions out of money held
by the Trust and payments upon redemption of the Preferred Securities or
liquidation of the Trust are guaranteed by TDS to the extent described under
"Description of the Preferred Securities Guarantees" in the accompanying
Prospectus and "Description of the Preferred Securities Guarantee" herein. The
Guarantee Trustee will hold the Preferred Securities Guarantee for the benefit
of the holders of the Preferred Securities. The Preferred Securities Guarantee
does not cover payment of distributions on the Preferred Securities when the
Trust does not have sufficient available funds in the Property Account to make
such distributions. In such event, the remedy of a holder of Preferred
Securities would be to vote to direct the Property Trustee to enforce the
Property Trustee's rights under the Subordinated Debentures except in the
limited circumstances in which the holder may take Direct Action. See "-- Voting
Rights" and "-- Declaration Events of Default."
DISTRIBUTIONS
Distributions on the Preferred Securities will be fixed at a rate per annum
of % of the stated liquidation amount of $25 per Preferred Security.
Distributions in arrears will bear interest compounded quarterly at the same per
annum rate (to the extent permitted by applicable law) (the "Compound
Interest"). The term "distributions" as used herein includes any such interest
payable unless otherwise stated. Distributions on the Preferred Securities will
be cumulative, will accrue from the date of the initial issuance of the
Preferred Securities and will be payable quarterly in arrears on March 31, June
30,
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September 30 and December 31 of each year commencing December 31, 1997, except
as otherwise described below. The first distribution will be $. per
Preferred Security and will be payable on December 31, 1997. The amount of
distributions payable for any full quarterly period will be computed on the
basis of a 360-day year of twelve 30-day months.
TDS has the right under the Indenture to defer payments of interest on the
Subordinated Debentures by extending the interest payment period from time to
time on the Subordinated Debentures issued thereunder for up to 20 consecutive
quarters which, if exercised, would defer quarterly distributions on the
Preferred Securities (although such distributions would continue to accrue
interest) during any such Extension Period. During any Extension Period, (a) TDS
may not declare or pay any dividend on, make any distributions with respect to,
or redeem, purchase, acquire, or make a liquidation payment with respect to, any
of its capital stock (other than (i) purchases or acquisitions of shares of TDS
common stock in connection with the satisfaction by TDS of its obligations under
any employee benefit plans or any other contractual obligation of TDS (other
than a contractual obligation ranking PARI PASSU with or junior to the
Subordinated Debentures), (ii) as a result of a reclassification of TDS capital
stock or the exchange or conversion of one class or series of TDS capital stock
for another class or series of TDS capital stock or (iii) the purchase of
fractional interests in shares of TDS capital stock pursuant to the conversion
or exchange provisions of such TDS capital stock or the security being converted
or exchanged), (b) TDS may not make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by TDS which rank PARI PASSU with or junior to the
Subordinated Debentures, and (c) TDS may not make any guarantee payments with
respect to the foregoing (other than pursuant to the Preferred Securities
Guarantee). This prohibition effectively requires that any Extension Period with
respect to any series of Subordinated Debentures will also apply to each other
series of subordinated debentures issued under the Indenture to other trusts
similar to the Trust. Prior to the termination of any such Extension Period, TDS
may further extend the interest payment period, provided that such Extension
Period, together with all such previous and further extensions thereof, may not
exceed 20 consecutive quarters or extend beyond the maturity of the Subordinated
Debentures. Upon the termination of any Extension Period and the payment of all
amounts then due, TDS may select a new Extension Period as if no Extension
Period had previously been declared, subject to the above requirements. See "--
Voting Rights" and "Description of the Subordinated Debentures -- Interest" and
"-- Option to Extend Interest Payment Period." If distributions are deferred,
the deferred distributions and accrued interest thereon shall be paid to holders
of record of the Preferred Securities, if funds are available therefor, as they
appear on the books and records of the Trust on the record date next following
the termination of such Extension Period.
Distributions on the Preferred Securities must be paid on the dates payable
to the extent that the Trust has funds available for the payment of such
distributions in the Property Account. The Trust's funds available for
distribution to the holders of the Preferred Securities will be limited to
payments received under the Subordinated Debentures. See "Description of the
Subordinated Debentures." The payment of distributions out of moneys held by the
Trust is guaranteed by TDS to the extent set forth under "Description of the
Preferred Securities Guarantee."
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the books and records of the Trust on the relevant
record dates, which, as long as the Preferred Securities remain in book-entry
only form, will be one Business Day (as defined herein) prior to the relevant
payment dates, which payment dates correspond to the interest payment dates on
the Subordinated Debentures. Such distributions will be paid through the
Property Trustee, which will hold amounts received in respect of the
Subordinated Debentures in the Property Account for the benefit of the holders
of the Trust Securities. Subject to any applicable laws and regulations and the
provisions of the Declaration, each such payment will be made as described under
"-- Book-Entry Only Issuance -- The Depository Trust Company" below. In the
event the Preferred Securities do not continue to remain in book-entry only
form, the Regular Trustees will have the right to select relevant record dates
which will be, subject to the requirements of any
S-19
<PAGE>
applicable exchange, at least one Business Day, but less than 60 Business Days,
prior to the relevant payment dates. In the event that any date on which
distributions are to be made on the Preferred Securities is not a Business Day,
then payment of the distributions payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay) except that, if such Business Day is in
the next succeeding calendar year, such payment will be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date. A "Business Day" means any day other than a day on which banking
institutions in Chicago, Illinois or New York, New York are authorized or
required by law to close.
REDEMPTION
The Subordinated Debentures will mature on , 2037 or such other
date to which the maturity of the Subordinated Debentures may be extended, as
described under "Description of the Subordinated Debentures -- General," and may
be redeemed, in whole or in part, at any time on or after , 2002, or
in whole but not in part at any time in certain circumstances upon the
occurrence of a Tax Event. Upon the repayment of the Subordinated Debentures,
whether at maturity or upon acceleration, redemption or otherwise, the proceeds
from such repayment or payment will simultaneously be applied to redeem Trust
Securities on a PRO RATA basis having an aggregate liquidation amount equal to
the aggregate principal amount of the Subordinated Debentures so repaid or
redeemed at the Redemption Price; provided that, except in the case of payments
upon maturity, holders of Trust Securities will be given not less than 30 nor
more than 60 days notice of such redemption. See "Description of the
Subordinated Debentures." In the event that fewer than all of the outstanding
Preferred Securities are to be redeemed, the Preferred Securities will be
redeemed PRO RATA as described under "-- Book-Entry Only Issuance -- The
Depository Trust Company" below.
TAX EVENT REDEMPTION
"Tax Event" means that the Regular Trustees shall have received an opinion
from independent tax counsel experienced in such matters (a "Redemption Tax
Opinion") to the effect that, on or after the date of this Prospectus
Supplement, as a result of (a) any amendment to, or change (including any
announced prospective change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision or taxing authority thereof or
therein or (b) any amendment to, or change in, an interpretation or application
of any such laws or regulations by any legislative body, court, governmental
agency or regulatory authority, which amendment or change is enacted,
promulgated, issued or announced or which interpretation or pronouncement is
issued or announced or which action is taken, in each case on or after the date
of this Prospectus Supplement, there is more than an insubstantial risk that
interest payable by TDS to the Trust on the Subordinated Debentures is not, or
within 90 days of the date thereof will not be, deductible, in whole or in part
by TDS for United States federal income tax purposes.
If at any time a Tax Event has occurred and is continuing, TDS may, upon not
less than 30 nor more than 60 days notice, redeem the Subordinated Debentures in
whole but not in part for cash within 90 days following the occurrence of such
Tax Event; provided, however, that, if at the time there is available to TDS or
the Trust the opportunity to eliminate, within such 90-day period, the Tax Event
by taking some ministerial action, such as filing a form or making an election,
or pursuing some other similar reasonable measure which has no adverse effect on
the Trust, TDS or the holders of the Trust Securities, TDS or the Trust will
pursue such measure in lieu of redemption. Upon such redemption of the
Subordinated Debentures, the proceeds of such redemption will simultaneously be
applied to redeem Trust Securities on a PRO RATA basis having an aggregate
liquidation amount equal to the aggregate principal amount so redeemed at the
Redemption Price. See "United States Federal Income Taxation."
S-20
<PAGE>
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all of the outstanding Preferred
Securities unless all accrued and unpaid distributions have been paid on all
Trust Securities for all quarterly distribution periods terminating on or prior
to the date of redemption.
If the Trust gives a notice of redemption in respect of Preferred Securities
(which notice will be irrevocable), then by 12:00 noon, New York City time, on
the redemption date, provided that TDS has paid to the Property Trustee a
sufficient amount of cash in connection with the related redemption or maturity
of the Subordinated Debentures, the Trust will irrevocably deposit with the
depositary funds sufficient to pay the applicable Redemption Price and will give
the depositary irrevocable instructions and authority to pay the Redemption
Price to the holders of the Preferred Securities. See "-- Book-Entry Only
Issuance -- The Depository Trust Company." If notice of redemption has been
given and funds deposited as required, then immediately prior to the close of
business on the date of such deposit, distributions will cease to accrue and all
rights of holders of such Preferred Securities so called for redemption will
cease, except the right of the holders of such Preferred Securities to receive
the Redemption Price, but without interest on such Redemption Price. In the
event that any date fixed for redemption of Preferred Securities is not a
Business Day, then payment of the Redemption Price payable on such date will be
made on the next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay), except that, if such
Business Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day. In the event that payment of the Redemption
Price in respect of Preferred Securities is improperly withheld or refused and
not paid either by the Trust or by TDS pursuant to the Preferred Securities
Guarantee, distributions on such Preferred Securities will continue to accrue,
from the original redemption date to the actual date of payment, in which case
the actual payment date will be considered the date fixed for redemption for
purposes of calculating the Redemption Price.
In the event that fewer than all of the outstanding Preferred Securities are
to be redeemed, the Preferred Securities will be redeemed PRO RATA as described
under "-- Book-Entry Only Issuance -- The Depository Trust Company" below.
Subject to the foregoing and to applicable law (including, without
limitation, United States federal securities laws), TDS or its affiliates may,
at any time and from time to time, purchase outstanding Preferred Securities by
tender, in the open market or by private agreement.
DISSOLUTION; DISTRIBUTION OF SUBORDINATED DEBENTURES
TDS will have the right at any time to dissolve the Trust and, after
satisfaction of claims of creditors as provided by applicable law, to cause the
Subordinated Debentures to be distributed to the holders of the Trust
Securities. In the event of any dissolution of the Trust, the holders of the
Preferred Securities at that time will be entitled to receive out of the assets
of the Trust, after satisfaction of liabilities to creditors of the Trust, an
amount equal to the aggregate of the stated liquidation amount of $25 per
Preferred Security plus accrued and unpaid distributions thereon to the date of
payment (the "Liquidation Distribution"), unless, in connection with such
dissolution, Subordinated Debentures in an aggregate principal amount equal to
the aggregate stated liquidation amount of, with an interest rate identical to
the distribution rate of, and accrued and unpaid interest equal to accrued and
unpaid distributions on, the Preferred Securities have been distributed on a PRO
RATA basis to the holders of Preferred Securities in exchange for such Preferred
Securities.
If upon any such dissolution the Liquidation Distribution can be paid only
in part because the Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Preferred Securities will be paid on a PRO RATA basis. The holders
of the Common Securities will be entitled to receive distributions upon any such
dissolution PRO RATA with the holders of the Preferred Securities, except that
if a Declaration Event of Default has occurred and is continuing, the Preferred
Securities will have a preference over the Common Securities.
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<PAGE>
Pursuant to the Declaration, the Trust will dissolve upon the earliest of
(i) the expiration of the term of the Trust, (ii) the bankruptcy of TDS, (iii)
the filing of a certificate of dissolution or its equivalent with respect to
TDS, the filing of a certificate of cancellation with respect to the Trust, or
the revocation of the charter of TDS and the expiration of 90 days after the
date of revocation without a reinstatement thereof, (iv) the entry of a decree
of judicial dissolution of TDS or the Trust, (v) the redemption of all of the
Trust Securities, (vi) the dissolution of the Trust in accordance with the terms
of the Trust Securities pursuant to which all Subordinated Debentures shall have
been distributed to the holders of the Trust Securities, or (vii) at any such
time, at the option of TDS upon its written direction to the Property Trustee,
as TDS shall dissolve the Trust and distribute the Subordinated Debentures to
the holders of the Trust Securities.
If Subordinated Debentures are distributed to the holders of the Preferred
Securities, TDS will use its best efforts to have the Subordinated Debentures
listed on the AMEX or on such other exchange on which the Preferred Securities
are then listed.
After the date for any distribution of Subordinated Debentures upon
dissolution of the Trust, (i) the Preferred Securities and Preferred Securities
Guarantees will no longer be deemed to be outstanding, (ii) the depositary or
its nominee, as the record holder of the Preferred Securities, will receive a
registered global certificate or certificates representing the Subordinated
Debentures to be delivered upon such distribution and (iii) any certificates
representing Preferred Securities and Preferred Securities Guarantees not held
by the depositary or its nominee will be deemed to represent Subordinated
Debentures having an aggregate principal amount equal to the aggregate stated
liquidation amount of, with an interest rate identical to the distribution rate
of, and accrued and unpaid interest equal to accrued and unpaid distributions
on, such Preferred Securities, until such certificates are presented to TDS or
its agent for transfer or reissuance.
There can be no assurance as to the market prices for the Preferred
Securities or the Subordinated Debentures that may be distributed in exchange
for the Preferred Securities if a dissolution and liquidation of the Trust were
to occur. Accordingly, the Preferred Securities that an investor may purchase,
or the Subordinated Debentures that the investor may receive on dissolution and
liquidation of the Trust, may trade at a discount to the price that the investor
paid to purchase the Preferred Securities offered hereby.
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture (an "Indenture Event of Default")
(see "Description of the Subordinated Debentures -- Indenture Events of
Default") constitutes an event of default under the Declaration (a "Declaration
Event of Default"), provided that pursuant to the Declaration, the holder of the
Common Securities will be deemed to have waived any Declaration Event of Default
with respect to the Common Securities or its consequences until all Declaration
Events of Default with respect to the Preferred Securities have been cured,
waived or otherwise eliminated. Until such Declaration Events of Default with
respect to the Preferred Securities have been so cured, waived or otherwise
eliminated, the Property Trustee will be deemed to be acting solely on behalf of
the holders of the Preferred Securities and only the holders of the Preferred
Securities will have the right to direct the Property Trustee with respect to
certain matters under the Declaration, and therefore under the Indenture.
If the Property Trustee fails to enforce its rights under the Subordinated
Debentures after a holder of Preferred Securities has made a written request,
such holder may, to the fullest extent permitted by law, institute a legal
proceeding against TDS to enforce the Property Trustee's rights under the
Subordinated Debentures without first instituting any legal proceeding against
the Property Trustee or any other person or entity. Notwithstanding the
foregoing, if a Declaration Event of Default has occurred and is continuing and
such event is attributable to the failure of TDS to pay interest or principal on
the Subordinated Debentures on the date such interest or principal is otherwise
payable (or in the case of redemption, the redemption date), then a holder of
Preferred Securities may institute a Direct Action for enforcement of payment to
such holder directly of the principal of, or interest on, Subordinated
Debentures having a principal amount equal to the aggregate liquidation amount
of the Preferred Securities of such holder on
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<PAGE>
or after the respective due date specified in the Subordinated Debentures. In
connection with such Direct Action, TDS will be subrogated to the rights of such
holder of Preferred Securities under the Declaration to the extent of any
payment made by TDS to such holder of Preferred Securities in such Direct
Action. The holders of Preferred Securities will not be able to exercise
directly any other remedy available to the holders of the Subordinated
Debentures.
Upon the occurrence of a Declaration Event of Default, the Property Trustee,
as the sole holder of the Subordinated Debentures, will have the right under the
Indenture to declare the principal of, and interest on, the Subordinated
Debentures to be immediately due and payable. The principal amount of the
Subordinated Debentures will become immediately due and payable, without any
declaration or other action by the Property Trustee or any other person, upon
the occurrence of certain Events of Default relating to the bankruptcy of TDS.
TDS and the Trust are each required to file annually with the Property Trustee
an officers' certificate as to its compliance with all conditions and covenants
under the Declaration.
VOTING RIGHTS
Except as provided below, under the Trust Act, the Trust Indenture Act and
under "Description of the Preferred Securities Guarantee -- Amendments and
Assignment" in the accompanying Prospectus and as otherwise required by law and
the Declaration, the holders of the Preferred Securities will have no voting
rights. In the event that TDS elects to defer payments of interest on the
Subordinated Debentures as described above under "-- Distributions," the holders
of the Preferred Securities do not have the right to appoint a special
representative or trustee or otherwise act to protect their interests.
Subject to the requirement of the Property Trustee obtaining a tax opinion
in certain circumstances set forth in the last sentence of this paragraph, the
holders of a majority in aggregate liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee, or to direct the
exercise of any trust or power conferred upon the Property Trustee under the
Declaration, including the right to direct the Property Trustee, as the holder
of the Subordinated Debentures, to (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debt Trustee under the
Indenture with respect to the Subordinated Debentures, (ii) waive any past
default (and its consequences) which is waivable under the Indenture, (iii)
exercise any right to rescind or annul a declaration that the principal of all
the Subordinated Debentures shall be due and payable, or (iv) consent to any
amendment, modification or termination of the Indenture or the Subordinated
Debentures, where such consent shall be required; provided, however, that where
a consent under the Indenture would require the consent of the holders of more
than a majority in principal amount of Subordinated Debentures affected thereby
(a "Super-Majority"), only the holders of at least the proportion in liquidation
amount of the Preferred Securities which the relevant Super-Majority represents
of the aggregate principal amount of the Subordinated Debentures may direct the
Property Trustee to give such consent. If the Property Trustee fails to enforce
its rights under the Declaration, a holder of Preferred Securities may, to the
fullest extent permitted by law, institute a legal proceeding directly against
any person to enforce the Property Trustee's rights under the Declaration
without first instituting any legal proceeding against the Property Trustee or
any other person or entity. The Regular Trustees will notify all holders of the
Preferred Securities of any notice of default received from the Debt Trustee
with respect to the Subordinated Debentures. The Property Trustee will not take
any action described in clauses (i), (ii), (iii) or (iv) above unless the
Property Trustee has obtained an opinion of independent tax counsel to the
effect that, as a result of such action, the Trust will not be classified as
other than a grantor trust for United States federal income tax purposes.
In the event the consent of the Property Trustee, as the holder of the
Subordinated Debentures, is required under the Indenture for any amendment,
modification or termination of the Indenture, the Property Trustee will request,
and act only in accordance with, the direction of the holders of a majority in
liquidation amount of the Preferred Securities and, if no Declaration Event of
Default has occurred and is continuing, the holders of a majority in liquidation
amount of the Common Securities, voting together as
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<PAGE>
separate classes, provided that where a consent under the Indenture would
require the consent of a Super-Majority, the Property Trustee may only give such
consent at the direction of the holders of at least the proportion in
liquidation amount of the Preferred Securities and Common Securities,
respectively, which the relevant Super-Majority represents of the aggregate
principal amount of the Subordinated Debentures outstanding. The Property
Trustee will not take any such action in accordance with the directions of the
holders of the Trust Securities unless the Property Trustee has obtained an
opinion of independent tax counsel to the effect that, as a result of such
action, the Trust will not be classified as other than a grantor trust for
United States federal income tax purposes.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Preferred Securities may be
given at a separate meeting of holders of Preferred Securities convened for such
purpose, at a meeting of all of the holders of the Trust Securities or pursuant
to written consent. The Regular Trustees will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be
mailed to each holder of record of Preferred Securities. Each such notice will
include a statement setting forth (i) the date of such meeting or the date by
which such action is to be taken, (ii) a description of any resolution proposed
for adoption at such meeting on which such holders are entitled to vote or of
such matter upon which written consent is sought and (iii) instructions for the
delivery of proxies or consents. No vote or consent of the holder of Preferred
Securities will be required for the Trust to redeem and cancel Preferred
Securities or distribute Subordinated Debentures in accordance with the
Declaration.
Notwithstanding that holders of Preferred Securities are entitled to vote or
consent under any of the circumstances described above, neither TDS nor any
entity directly or indirectly controlling or controlled by, or under direct or
indirect common control with, TDS, will be entitled to vote or consent with
respect to any Preferred Securities which at such time are owned by TDS or any
such entity, and such Preferred Securities will, for purposes of such vote or
consent, be treated as if they were not outstanding.
The procedures by which holders of Preferred Securities may exercise their
voting rights are described below. See "-- Book-Entry Only Issuance -- The
Depository Trust Company."
Holders of the Preferred Securities will have no rights to appoint or remove
the Trustees, who may be appointed, removed or replaced solely by TDS, as the
direct or indirect holder of all the Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be amended or modified if approved and executed by a
majority of the Regular Trustees, provided that if any proposed amendment
provides for, or the Regular Trustees otherwise propose to effect, (i) any
action that would adversely affect the powers, preferences or special rights of
the Trust Securities, whether by way of amendment to the Declaration or
otherwise or (ii) the dissolution, winding up or termination of the Trust other
than pursuant to the terms of the Declaration, then the holders of the Trust
Securities as a single class will be entitled to vote on such amendment or
proposal and such amendment or proposal will not be effective except with the
approval of the holders of at least 66 2/3% in liquidation amount of the Trust
Securities affected thereby, provided that if any amendment or proposal referred
to in clause (i) above would adversely affect only the Preferred Securities or
the Common Securities, then only the affected class will be entitled to vote on
such amendment or proposal and such amendment or proposal will not be effective
except with the approval of the holders of 66 2/3% in liquidation amount of such
class of Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified as other than a grantor trust, for purposes of United States
federal income tax purposes, (ii) reduce or otherwise adversely affect the
powers
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of the Property Trustee or (iii) cause the Trust to be deemed to be an
"investment company" which is required to be registered under the Investment
Company Act of 1940, as amended (the "1940 Act").
CONSOLIDATION, MERGER AND SALE
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other body, except as
described below or as otherwise described in "--Dissolution; Distribution of
Subordinated Debentures" above. The Trust may, with the consent of a majority of
the Regular Trustees and without the consent of the holders of the Trust
Securities, the Delaware Trustee or the Property Trustee, consolidate,
amalgamate, merge with or into, or be replaced by a trust organized as such
under the laws of any State of the United States; provided, that (i) such
successor entity either (x) expressly assumes all of the obligations of the
Trust with respect to the Trust Securities or (y) substitutes for the Trust
Securities other securities having substantially the same terms as the Trust
Securities (the "Successor Securities") so long as the Successor Securities rank
the same as the Trust Securities rank with respect to distributions and payments
upon liquidation, redemption, maturity and otherwise, (ii) TDS expressly
acknowledges a trustee of such successor entity which possesses the same powers
and duties as the Property Trustee as the holder of the Subordinated Debentures,
(iii) the Preferred Securities or any Successor Securities are listed, or any
Successor Securities will be listed upon notification of issuance, on any
national securities exchange or other organization on which the Preferred
Securities are then listed, (iv) such merger, consolidation, amalgamation or
replacement does not cause the Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical rating
organization, (v) such merger, consolidation, amalgamation or replacement does
not adversely affect the rights, preferences and privileges of the holders of
the Trust Securities (including any Successor Securities) in any material
respect (other than with respect to any dilution of the holders' interest in the
new entity), (vi) such successor entity has a purpose identical to that of the
Trust, (vii) prior to such merger, consolidation, amalgamation or replacement,
TDS has received an opinion from independent counsel to the Trust experienced in
such matters to the effect that (A) such merger, consolidation, amalgamation or
replacement does not adversely affect the rights, preferences and privileges of
the holders of the Trust Securities (including any Successor Securities) in any
material respect (other than with respect to any dilution of the holders'
interest in the new entity), and (B) following such merger, consolidation,
amalgamation or replacement, neither the Trust nor such successor entity will be
required to register as an investment company under the 1940 Act and (viii) TDS
guarantees the obligations of such successor entity under the Successor
Securities at least to the extent provided by the Preferred Securities
Guarantee. Notwithstanding the foregoing, the Trust will not, except with the
consent of the holders of 100% in liquidation amount of the Trust Securities,
consolidate, amalgamate, merge with or into, or be replaced by any other entity
or permit any other entity to consolidate, amalgamate, merge with or into, or
replace it if such consolidation, amalgamation, merger or replacement would
cause the Trust or the successor entity to be classified for United States
federal income tax purposes as other than a grantor trust and each holder of
Trust Securities not to be treated as owning an undivided beneficial interest in
the Subordinated Debentures.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depositary for
the Preferred Securities. The Preferred Securities will be issued only as fully
registered securities registered in the name of Cede & Co. (DTC's nominee). One
or more fully registered global Preferred Securities certificates will be
issued, representing in the aggregate the total number of Preferred Securities,
and will be deposited with DTC ("Global Certificates").
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in a global Preferred Security.
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DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "Clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock Exchange,
the AMEX and the National Association of Securities Dealers, Inc. Access to the
DTC system is also available to others such as securities brokers and dealers,
banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to DTC and its Participants are on file
with the Commission.
Purchases of Preferred Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser of
Preferred Securities ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the transactions,
as well as periodic statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased Preferred Securities.
Transfers of ownership interests in the Preferred Securities are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in Preferred Securities, except in the event that use
of the book-entry system for the Preferred Securities is discontinued.
To facilitate subsequent transfers, all the Preferred Securities deposited
by Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of Preferred Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Preferred Securities. DTC's records reflect
only the identity of the Direct Participants to whose accounts such Preferred
Securities are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Certificate, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the Preferred Securities represented thereby for all
purposes under the Declaration and the Preferred Securities. No beneficial owner
of an interest in a Global Certificate will be able to transfer that interest
except in accordance with DTC's applicable procedures, in addition to those
provided for under the Declaration.
DTC has advised TDS that it will take any action permitted to be taken by a
holder of Preferred Securities (including the presentation of Preferred
Securities for exchange as described below) only at the direction of one or more
Participants to whose account the DTC interests in the Global Certificates are
credited and only in respect of such portion of the aggregate liquidation amount
of Preferred Securities as to which such Participant or Participants has or have
given such direction. However, if there is a Declaration Event of Default under
the Preferred Securities, DTC will exchange the Global Certificates for
certificated Preferred Securities, which it will distribute to its Participants.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
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Redemption notices will be sent to Cede & Co. If less than all of the
Preferred Securities are being redeemed, DTC will reduce PRO RATA the amount of
the interest of each Direct Participant in the Preferred Securities to be
redeemed; provided that if, as a result of such PRO RATA redemption, Direct
Participants would hold fractional interests in the Preferred Securities, DTC
will adjust the amount of the interest of each Direct Participant to be redeemed
to avoid such fractional interests.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required neither DTC nor Cede & Co. will itself
consent or vote with respect to Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to the Trust as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Direct Participants to whose accounts the Preferred
Securities are credited on the record date (identified in a listing attached to
the Omnibus Proxy).
Distribution payments on the Preferred Securities will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the relevant payment date
in accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payments on such payment date.
Payments by participants to Beneficial Owners will be governed by standing
instructions and customary practices, as in the case with securities held for
the account of customers in bearer form or registered in "street name," and will
be the responsibility of such Participant and not of DTC, the Trust, any trustee
or TDS, subject to any statutory or regulatory requirements as may be in effect
from time to time. Payment of distributions to DTC is the responsibility of the
Trust, disbursement of such payments to Direct Participants is the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners is the responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Preferred Security
will not be entitled to receive physical delivery of Preferred Securities.
Accordingly, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the Preferred Securities.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Certificates among Participants of DTC, DTC
is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither TDS, the Trust nor any
Trustee will have any responsibility for the performance by DTC or its Direct
Participants or Indirect Participants under the rules and procedures governing
DTC. DTC may discontinue providing its services as securities depositary with
respect to the Preferred Securities at any time by giving reasonable notice to
the Trust. Under such circumstances, in the event that a successor securities
depositary is not obtained, Preferred Securities certificates are required to be
printed and delivered. Additionally, the Regular Trustees (with the consent of
TDS) may decide to discontinue use of the system of book-entry transfers through
DTC (or a successor depositary) with respect to the Preferred Securities. In
that event, certificates for the Preferred Securities of such Trust will be
printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that TDS and the Trust believe to be reliable,
but TDS and the Trust assume no responsibility for the accuracy thereof.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to the occurrence of a default with respect to
the Preferred Securities and after the curing of all such defaults that may have
occurred, undertakes to perform only such duties as are specifically set forth
in the Declaration and, after default, shall exercise the same degree of care as
a prudent individual would exercise in the conduct of his or her own affairs.
Subject to such provisions, the Property Trustee is under no obligation to
exercise any of the powers vested in it by the Declaration at the request of any
holder of Preferred Securities unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities which might be incurred
thereby; but the foregoing shall not relieve the Property Trustee, upon the
occurrence of a Declaration Event of Default, from exercising the rights and
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powers vested in it by the Declaration. The Property Trustee also serves as
trustee under the Preferred Securities Guarantee. TDS and its officers and
directors have no material relationship with the initial Property Trustee except
that TDS and certain of its subsidiaries maintain normal banking relations and
other financial service relations with The First National Bank of Chicago.
REGISTRAR AND TRANSFER AGENT
In the event that the Preferred Securities do not remain in book-entry only
form, the Property Trustee will act as paying agent and may designate an
additional or substitute paying agent at any time. Registration of transfers of
Preferred Securities will be effected without charge by or on behalf of the
Trust, but upon payment (with the giving of such indemnity as the Regular
Trustees may require) in respect of any tax or other governmental charges which
may be imposed in relation to it. The Trust will not be required to register or
cause to be registered the transfer of Preferred Securities after such Preferred
Securities have been called for redemption.
GOVERNING LAW
The Declaration and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate the Trust in
such a way so that the Trust will not be deemed to be an "investment company"
required to be registered under the 1940 Act or characterized for United States
federal income tax purposes as other than a grantor trust. TDS is authorized and
directed to conduct its affairs so that the Subordinated Debentures will be
treated as indebtedness of TDS for United States federal income tax purposes. In
this connection, the Regular Trustees and TDS are authorized to take any action,
not inconsistent with applicable law, or the corporate charter of TDS, that each
of the Regular Trustees and TDS determines in their discretion to be necessary
or desirable for such purposes, as long as such action does not materially and
adversely affect the interests of the holders of the Preferred Securities.
Holders of Preferred Securities will have no preemptive or similar rights.
DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEE
Pursuant to the Preferred Securities Guarantee, TDS will irrevocably and
unconditionally agree, to the extent set forth therein, to pay in full to the
holders of the Preferred Securities issued by the Trust, the Guarantee Payments
(as defined in the accompanying Prospectus) except to the extent paid by the
Trust, as and when due, regardless of any defense, right of setoff or
counterclaim which the Trust may have or assert. TDS's obligation to make a
Guarantee Payment may be satisfied by direct payment of the required amounts by
TDS to the holders of Preferred Securities or by causing the Trust to pay such
amounts to such holders. The Preferred Securities Guarantee will be qualified as
an indenture under the Trust Indenture Act. The First National Bank of Chicago
will act as Guarantee Trustee. The terms of the Preferred Securities Guarantee
will be those set forth in such Guarantee and those made part of such Preferred
Securities Guarantee by the Trust Indenture Act. The Preferred Securities
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Preferred Securities. A summary description of the Preferred Securities
Guarantee appears in the accompanying Prospectus under the caption "Description
of the Preferred Securities Guarantees."
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DESCRIPTION OF THE SUBORDINATED DEBENTURES
Set forth below is a description of the specific terms of the Subordinated
Debentures in which the Trust will invest the proceeds from the issuance and
sale of the Trust Securities. This description supplements the description of
the general terms and provisions of the Subordinated Debentures set forth in the
accompanying Prospectus under the caption "Description of the Subordinated
Debentures". The following description does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the description in
the accompanying Prospectus and the Subordinated Indenture, dated as of October
15, 1997, between TDS and The First National Bank of Chicago, as Trustee (the
"Debt Trustee"), as supplemented by a Supplemental Indenture dated as of
, 1997, (said Subordinated Indenture, as so supplemented, is
hereinafter referred to as the "Indenture"), the forms of which are filed as
Exhibits to the Registration Statement of which this Prospectus Supplement and
the accompanying Prospectus form a part. Certain capitalized terms used herein
are defined in the Indenture.
TDS will have the right at any time to liquidate the Trust and cause the
Subordinated Debentures to be distributed to the holders of the Trust
Securities. If the Subordinated Debentures are distributed to the holders of the
Preferred Securities, TDS will use its best efforts to have the Subordinated
Debentures listed on the AMEX or on such other national securities exchange or
similar organization on which the Preferred Securities are then listed or
quoted.
GENERAL
The Subordinated Debentures will be issued as unsecured indebtedness of TDS
under the Indenture. The Subordinated Debentures will be limited in aggregate
principal amount to approximately $154.6 million, such amount being the sum of
the aggregate stated liquidation amount of the Trust Securities.
The Subordinated Debentures are not subject to a sinking fund provision. The
entire principal amount of the Subordinated Debentures will mature and become
due and payable, together with any accrued and unpaid interest thereon including
Compound Interest and Additional Interest (as defined herein), if any, on
, 2037. The stated maturity date may be extended at any time by the
Company to any date not later than , 2046; provided, that at the time
such election is made and at the time of extension (i) the Company is not in
bankruptcy, otherwise insolvent or in liquidation, (ii) the Company is not in
default in the payment of any interest or principal on the Subordinated
Debentures, and (iii) in the case of Subordinated Debentures held by the Trust,
the Trust is not in arrears on payments of distributions on the Preferred
Securities and no deferred distributions are accumulated. In the event the
Company elects to extend the stated maturity of the Subordinated Debentures, it
shall give notice to the Debt Trustee, and the Debt Trustee shall give notice of
such extension to the holders of the Subordinated Debentures not more than 90
and not less than 30 days prior to the effectiveness thereof.
If Subordinated Debentures are distributed to holders of Preferred
Securities in liquidation of such holders' interests in the Trust, such
Subordinated Debentures will initially be issued as a Global Security (as
defined herein). As described herein, Subordinated Debentures may be issued in
certificated form in exchange for a Global Security. See "Book-Entry and
Settlement" and "The Depositary" below. In the event that Subordinated
Debentures are issued in certificated form, such Subordinated Debentures will be
in denominations of $25 and integral multiples thereof and may be transferred or
exchanged at the offices described below. Payments on Subordinated Debentures
issued as a Global Security will be made to DTC, a successor depositary or, in
the event that no depositary is used, to a Paying Agent for the Subordinated
Debentures. In the event Subordinated Debentures are issued in certificated
form, principal and interest will be payable, the transfer of the Subordinated
Debentures will be registrable and Subordinated Debentures will be exchangeable
for Subordinated Debentures of other denominations of a like aggregate principal
amount, at the corporate trust office of the Debt Trustee in New York, New York;
provided, that payment of interest may be made at the option of TDS by check
mailed to the address of the holder entitled thereto or by wire transfer to an
account appropriately designated by the holder entitled thereto.
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Notwithstanding the foregoing, so long as the holder of any Subordinated
Debentures is the Property Trustee, the payment of principal and interest on the
Subordinated Debentures held by the Property Trustee will be made at such place
and to such account as may be designated by the Property Trustee.
The Indenture does not contain provisions that afford holders of the
Subordinated Debentures protection in the event of a highly leveraged
transaction or other similar transaction involving TDS that may adversely affect
such holders.
SUBORDINATION
The Indenture provides that the Subordinated Debentures are subordinated and
junior in right of payment to all Senior Indebtedness of TDS, whether now
existing or hereafter incurred. Senior Indebtedness may include indebtedness of
TDS which is subordinated to other indebtedness of TDS but nevertheless senior
to the Subordinated Debentures. No payment of principal of (including redemption
payments, if any), premium, if any, or interest on, the Subordinated Debentures
may be made if (a) there is a default in the payment of principal, premium,
interest or any other payment due on any Senior Indebtedness, or (b) the
maturity of any Senior Indebtedness has been accelerated because of a default.
Upon any payment by TDS or distribution of assets of TDS to creditors upon any
dissolution, winding-up, liquidation or reorganization of TDS, whether voluntary
or involuntary or in bankruptcy, insolvency, receivership or other proceedings,
all amounts due on all Senior Indebtedness must be paid in full before the
holders of the Subordinated Debentures are entitled to receive or retain any
payment. Upon payment in full of all amounts due on the Senior Indebtedness then
outstanding, the rights of the holders of the Subordinated Debentures will be
subrogated to the rights of the holders of Senior Indebtedness to receive
payments or distributions applicable to such Senior Indebtedness until all
amounts owing on the Subordinated Debentures are paid in full.
The term "Senior Indebtedness" means (i) any payment in respect of (a)
indebtedness of TDS for money borrowed and (b) indebtedness evidenced by
securities, debentures, bonds, notes or other similar instruments issued by TDS;
(ii) all capital lease obligations of TDS; (iii) all obligations of TDS issued
or assumed as the deferred purchase price of property, all conditional sale
obligations of TDS and all of its obligations under any title retention
agreement (but excluding trade accounts payable arising in the ordinary course
of business); (iv) all obligations of TDS for the reimbursement on any letter of
credit, banker's acceptance, security purchase facility or similar credit
transaction; (v) all obligations of the type referred to in clauses (i) through
(iv) above of other Persons for the payment of which TDS is responsible or
liable as obligor, guarantor or otherwise; and (vi) all obligations of the type
referred to in clauses (i) through (v) above of other Persons secured by any
lien on any property or asset of TDS (whether or not such obligation is assumed
by TDS), except for (1) the Subordinated Debentures and any other indebtedness
that is by its terms subordinated to or PARI PASSU with the Subordinated
Debentures, as the case may be, including all other debt securities and
guarantees in respect of those debt securities, issued to any other trusts,
partnerships or any other entity affiliated with TDS which is a financing
vehicle of TDS in connection with the issuance of preferred securities by such
entity or other securities which rank PARI PASSU with, or junior to, the
Preferred Securities, and (2) any indebtedness between or among TDS and its
affiliates. Such Senior Indebtedness will continue to be Senior Indebtedness and
be entitled to the benefits of the subordination provisions irrespective of any
amendment, modification or waiver of any term of such Senior Indebtedness.
The Indenture does not limit the aggregate amount of Senior Indebtedness
which may be issued by TDS. As of September 30, 1997, Senior Indebtedness of TDS
aggregated approximately $970 million. In addition, since TDS is a holding
company, the right of TDS, and hence the right of the creditors of TDS
(including any holder of Subordinated Debentures), to participate in any
distribution of the assets of any subsidiary upon its liquidation or
reorganization or otherwise is necessarily subject to the prior claims of
creditors of such subsidiary, except to the extent that claims of TDS as a
creditor of such subsidiary may be recognized. There is no restriction in the
Indenture against subsidiaries of TDS incurring secured or
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unsecured indebtedness or issuing secured or unsecured securities. The ability
of TDS to make payments of principal and interest on the Subordinated Debentures
will be dependent upon the payment to it by its subsidiaries of dividends, loans
or advances. As more fully set forth in the notes to the Company's financial
statements, such payments by TDS's regulated telephone company subsidiaries are
subject to legal and contractual restrictions, primarily contained in the
mortgages granted by certain such subsidiaries to the Rural Utilities Service.
OPTIONAL REDEMPTION
TDS will have the right to redeem the Subordinated Debentures, in whole or
in part, from time to time, on or after , 2002, or at any time in
whole but not in part in certain circumstances upon the occurrence of a Tax
Event as described under "Description of the Preferred Securities -- Tax Event
Redemption" herein, upon not less than 30 nor more than 60 days' notice, at a
redemption price equal to 100% of the principal amount to be redeemed plus any
accrued and unpaid interest, including Additional Interest, if any, to the
redemption date. If a partial redemption of the Preferred Securities resulting
from a partial redemption of the Subordinated Debentures would result in the
delisting of the Preferred Securities, TDS may only redeem the Subordinated
Debentures in whole.
INTEREST
Each Subordinated Debenture will bear interest at the rate of % per annum
from the original date of issuance, payable quarterly in arrears on March 31,
June 30, September 30 and December 31 of each year (each, an "Interest Payment
Date"), commencing December 31, 1997, to the person in whose name such
Subordinated Debenture is registered, subject to certain exceptions, at the
close of business on the Business Day next preceding such Interest Payment Date.
If the Subordinated Debentures do not continue to remain in book-entry only
form, TDS will have the right to select record dates which may not be less than
fifteen days prior to each Interest Payment Date.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. In the event that any date on which
interest is payable on the Subordinated Debentures is not a Business Day, then
payment of the interest payable on such date will be made on the next succeeding
day which is a Business Day (and without any interest or other payment in
respect of any such delay), except that, if such Business Day is in the next
succeeding calendar year, such payment will be made on the immediately preceding
Business Day, in each case with the same force and effect as if made on such
date.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
TDS will have the right at any time, and from time to time, during the term
of the Subordinated Debentures, to defer payments of interest by extending the
interest payment period for a period not exceeding 20 consecutive quarters, at
the end of which Extension Period TDS will pay all interest then accrued and
unpaid (including any Additional Interest, together with the interest thereon
compounded quarterly at the rate specified for the Subordinated Debentures to
the extent permitted by applicable law); provided, that, during any such
Extension Period, (a) TDS may not declare or pay any dividend on, make any
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of shares of TDS common stock in connection with the
satisfaction by TDS of its obligations under any employee benefit plans or any
other contractual obligation of TDS (other than a contractual obligation ranking
PARI PASSU with or junior to the Subordinated Debentures), (ii) as a result of a
reclassification of TDS capital stock or the exchange or conversion of one class
or series of TDS capital stock for another class or series of TDS capital stock
or (iii) the purchase of fractional interests in shares of TDS capital stock
pursuant to the conversion or exchange provisions of such TDS capital stock or
the security being converted or exchanged), (b) TDS may not make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
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debt securities (including guarantees) issued by TDS which rank PARI PASSU with
or junior to the Subordinated Debentures and (c) TDS may not make any guarantee
payments with respect to the foregoing (other than pursuant to the Preferred
Securities Guarantee).
This covenant effectively requires that any Extension Period with respect to
payment of interest on any series of Subordinated Debentures will also apply to
each other series of subordinated debentures issued under the Indenture to other
trusts similar to the Trust.
Prior to the termination of any such Extension Period, TDS may further defer
payments of interest by extending the interest payment period, provided that
such Extension Period together with all such previous and further extensions
thereof may not exceed 20 consecutive quarters or extend beyond the maturity of
the Subordinated Debentures. Upon the termination of any Extension Period and
the payment of all accrued and unpaid interest on the Subordinated Debentures
then due, TDS may select a new Extension Period, as if no Extension Period had
previously been declared, subject to the above requirements. No interest during
an Extension Period, except at the end thereof, will be due and payable. TDS has
no present intention of exercising its rights to defer payments of interest by
extending the interest payment period on the Subordinated Debentures.
If the Property Trustee is the sole holder of the Subordinated Debentures,
TDS will give the Regular Trustees and the Property Trustee notice of its
selection of such Extension Period one Business Day prior to the earlier of (i)
the next succeeding date on which distributions on the Preferred Securities are
payable or (ii) the date the Trust is required to give notice to the AMEX or
other applicable self-regulatory organization or to holders of the Trust
Securities on the record date or the date such distribution is payable, but in
any event not less than one Business Day prior to such record date. The Regular
Trustees will give notice of TDS's selection of such Extension Period to the
holders of the Preferred Securities. If the Property Trustee is not the sole
holder of the Subordinated Debentures, TDS will give the holders of the
Subordinated Debentures notice of its selection of such Extension Period ten
Business Days prior to the earlier of (i) the next Interest Payment Date or (ii)
the date TDS is required to give notice to the AMEX or other applicable
self-regulatory organization or to holders of the Subordinated Debentures, but
in any event at least two Business Days before such record date.
ADDITIONAL INTEREST
If at any time the Trust is required to pay any taxes, duties, assessments
or governmental charges of whatever nature (other than withholding taxes)
imposed by the United States, or any other taxing authority, then, in any such
case, TDS will pay as additional interest ("Additional Interest") such
additional amounts as shall be required so that the net amounts received and
retained by the Trust after paying any such taxes, duties, assessments or other
governmental charges will be equal to the amounts the Trust would have received
had no such taxes, duties, assessments or other governmental charges been
imposed.
POSSIBLE TAX LAW CHANGES
The Clinton Administration's budget proposals for fiscal year 1997 and
fiscal year 1998 contained provisions which, if applicable to the Subordinated
Debentures, would have prevented TDS from deducting interest thereon for United
States federal income tax purposes. Congress has not enacted these provisions,
which, unlike several other Clinton Administration proposals, were not included
in the Taxpayer Relief Act of 1997. There can be no assurance that future
legislative proposals, future regulations or official administrative
pronouncements, or future judicial decisions will not affect the ability of TDS
to deduct interest on the Subordinated Debentures. Such a change could give rise
to a Tax Event, which may permit TDS to cause a redemption of the Preferred
Securities. See "Description of the Preferred Securities -- Tax Event
Redemption" and "United States Federal Income Taxation -- Possible Tax Law
Changes."
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INDENTURE EVENTS OF DEFAULT
If any Indenture Event of Default has occurred and is continuing, the
Property Trustee, as the holder of the Subordinated Debentures, will have the
right to declare the principal of and the interest on the Subordinated
Debentures (including any Compound Interest and Additional Interest, if any) and
any other amounts payable under the Indenture to be forthwith due and payable
and to enforce its other rights as a creditor with respect to the Subordinated
Debentures. The principal amount of the Subordinated Debentures will become
immediately due and payable, without any declaration or other action by the
Property Trustee or any other person, upon the occurrence of certain Events of
Default relating to the bankruptcy of TDS. See "Description of Subordinated
Debentures -- Indenture Events of Default" in the accompanying Prospectus for a
description of Indenture Events of Default. An Indenture Event of Default also
constitutes a Declaration Event of Default. The holders of Preferred Securities
in certain circumstances have the right to direct the Property Trustee to
exercise its rights as a holder of Subordinated Debentures. See "Description of
the Preferred Securities -- Declaration Events of Default" and "-- Voting
Rights." Notwithstanding the foregoing, if an Indenture Event of Default has
occurred and is continuing and is attributable to the failure of TDS to pay
interest on or principal of the Subordinated Debentures on the date such
interest or principal is otherwise payable, TDS acknowledges that a holder of
Preferred Securities may then institute a Direct Action for payment on or after
the respective due date specified in the Subordinated Debentures.
Notwithstanding any payments made to such holder of Preferred Securities by TDS
in connection with a Direct Action, TDS will remain obligated to pay the
principal of or interest on the Subordinated Debentures held by the Trust or the
Property Trustee, and TDS will be subrogated to the rights of the holder of such
Preferred Securities with respect to payments on the Preferred Securities to the
extent of any payments made by TDS to such holder in any Direct Action. The
holders of Preferred Securities will not be able to exercise directly any other
remedy available to the holders of Subordinated Debentures.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Preferred Securities in connection with the
involuntary or voluntary dissolution, winding-up or liquidation of the Trust,
the Subordinated Debentures will be issued in the form of one or more global
certificates (each a "Global Security") registered in the name of the Depositary
or its nominee. Except under the limited circumstances described below,
Subordinated Debentures represented by the Global Security will not be
exchangeable for, and will not otherwise be issuable as, Subordinated Debentures
in definitive form. The Global Securities described above may not be transferred
except by the Depositary to a nominee of the Depositary or by a nominee of the
Depositary to the depositary or another nominee of the Depositary or to a
successor Depositary or its nominee.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such laws may
impair the ability to transfer beneficial interests in such a Global Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Subordinated
Debentures in definitive form and will not be considered the holders (as defined
in the Indenture) thereof for any purpose under the Indenture, and no Global
Security representing Subordinated Debentures will be exchangeable, except for
another Global Security of like denomination and tenor to be registered in the
name of the Depositary or its nominee or to a successor Depositary or its
nominee. Accordingly, each beneficial owner must rely on the procedures of the
Depositary or, if such person is not a Participant, on the procedures of the
Participant through which such person owns its interest, to exercise any rights
of a holder of Subordinated Debentures under the Indenture.
THE DEPOSITARY
If Subordinated Debentures are distributed to holders of Preferred
Securities in liquidation of such holders' interests in the Trust, DTC will act
as securities Depositary for the Subordinated Debentures. For
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a description of DTC and the specific terms of the depositary arrangements, see
"Description of the Preferred Securities -- Book-Entry Only Issuance -- The
Depository Trust Company." As of the date of this Prospectus Supplement, the
description therein of DTC's book-entry system and DTC's practices as they
relate to purchases, transfers, notices and payments with respect to the
Preferred Securities apply in all material respects to any Subordinated
Debentures represented by one or more Global Securities. TDS may appoint a
successor to DTC or any successor Depositary in the event DTC or such successor
Depositary is unable or unwilling to continue as a Depositary for the Global
Securities.
None of TDS, the Trust, the Property Trustee, any paying agent or any other
agent of TDS or the Debt Trustee will have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in a Global Security for Subordinated Debentures or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
A Global Security will be exchangeable for Subordinated Debentures
registered in the names of persons other than the Depositary or its nominee only
if (i) the Depositary notifies TDS that it is unwilling or unable to continue as
a depositary for such Global Security and no successor Depositary shall have
been appointed, (ii) the Depositary, at any time, ceases to be a clearing agency
registered under the Exchange Act at which time the Depositary is required to be
so registered to act as such Depositary and no successor Depositary shall have
been appointed, (iii) TDS, in its sole discretion, determines that such Global
Security will be so exchangeable or (iv) there has occurred an Indenture Event
of Default with respect to such Subordinated Debentures. Any Global Security
that is exchangeable pursuant to the preceding sentence will be exchangeable for
Subordinated Debentures registered in such names as the Depositary shall direct.
It is expected that such instructions will be based upon directions received by
the Depositary from its Participants with respect to ownership of beneficial
interests in such Global Security.
If the Subordinated Debentures are not represented by one or more Global
Securities, certificates evidencing the Subordinated Debentures may be presented
for registration of transfer (with the form of transfer endorsed thereon duly
executed) or exchange, at the office of the Debenture Registrar or at the office
of any transfer agent designated by TDS for such purpose with respect to the
Subordinated Debentures, without service charge and upon payment of any taxes
and other governmental charges as described in the Indenture. Such transfer or
exchange will be effected upon the Debenture Registrar or such transfer agent,
as the case may be, being satisfied with the documents of title and identity of
the person making the request. TDS has appointed the Debt Trustee as Debenture
Registrar with respect to the Subordinated Debentures. TDS may at any time
rescind the designation of any such transfer agent or approve a change in the
location through which any such transfer agent acts, except that TDS will be
required to maintain a transfer agent at the place of payment. TDS may at any
time designate additional transfer agents with respect to the Subordinated
Debentures.
In the event of any redemption of only a part of the Subordinated
Debentures, TDS will not be required to (i) issue, exchange or register the
transfer of Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of less
than all of the Subordinated Debentures and ending at the close of business on
the date of such mailing and (ii) register the transfer of or exchange any
Subordinated Debentures so selected for redemption, in whole or in part, except
the unredeemed portion of any Subordinated Debentures being redeemed in part.
GOVERNING LAW
The Indenture and the Subordinated Debentures will be governed by, and
construed in accordance with, the internal laws of the State of New York.
MISCELLANEOUS
The Indenture will provide that TDS will pay all fees and expenses related
to (i) the offering of the Preferred Securities and the Subordinated Debentures,
(ii) the organization, maintenance and dissolution
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of the Trust, (iii) the retention of the Trustees and (iv) the enforcement by
the Property Trustee of the rights of the holders of the Preferred Securities.
TDS will have the right at all times to assign any of its respective rights
or obligations under the Indenture to a direct or indirect wholly-owned
subsidiary of TDS; provided that, in the event of any such assignment, TDS will
remain liable for all of such obligations. Subject to the foregoing, the
Indenture will be binding upon and inure to the benefit of the parties thereto
and their respective successors and assigns. The Indenture provides that it may
not otherwise be assigned by the parties thereto.
EFFECT OF OBLIGATIONS UNDER THE SUBORDINATED DEBENTURES
AND THE PREFERRED SECURITIES GUARANTEE
As set forth in the Declaration, the sole purposes of the Trust are to (i)
issue Trust Securities, (ii) invest the proceeds thereof in the Subordinated
Debentures and (iii) engage in only those other activities necessary or
incidental thereto.
As long as payments of interest and other payments are made when due on the
Subordinated Debentures, such payments will be sufficient to cover distributions
and payments due on the Trust Securities primarily because (i) the aggregate
principal amount of Subordinated Debentures will be equal to the sum of the
aggregate stated liquidation amount of the Trust Securities; (ii) the interest
rate and interest and other payment dates on the Subordinated Debentures will
match the distribution rate and distribution and other payment dates for the
Preferred Securities; (iii) TDS will pay for all costs and expenses of the
Trust; and (iv) the Declaration provides that the Trustees may not cause or
permit the Trust to, among other things, engage in any activity that is not
consistent with the purposes of the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Preferred Securities (to the extent funds therefor are
available) are guaranteed by TDS as and to the extent set forth under
"Description of the Preferred Securities Guarantees" in the accompanying
Prospectus. If TDS does not make interest payments on the Subordinated
Debentures purchased by the Trust, it is expected that the Trust will not have
sufficient funds to pay distributions on the Preferred Securities. The Preferred
Securities Guarantee is a full and unconditional guarantee from the time of its
issuance, but does not apply to any payment of distributions unless and until
the Trust has sufficient funds for the payment of such distributions.
If TDS fails to make interest or other payments on the Subordinated
Debentures when due (taking into account any Extension Period), the Declaration
provides a mechanism whereby the holders of the Preferred Securities, using the
procedures described in "Description of the Preferred Securities -- Voting
Rights" in this Prospectus Supplement, may direct the Property Trustee to
enforce its rights under the Subordinated Debentures, including proceeding
directly against TDS to enforce the Subordinated Debentures. If the Property
Trustee fails to enforce its rights under the Subordinated Debentures, a holder
of Preferred Securities may, to the fullest extent permitted by law, institute a
legal proceeding directly against TDS to enforce the Property Trustee's rights
under the Subordinated Debentures without first instituting any legal proceeding
against the Property Trustee or any other person or entity, including the Trust.
If TDS fails to make payments under the Preferred Securities Guarantee, the
Preferred Securities Guarantee provides a mechanism whereby the holders of the
Preferred Securities may direct the Guarantee Trustee to enforce its rights
thereunder. If the Guarantee Trustee fails to enforce the Preferred Securities
Guarantee, any holder of Preferred Securities affected thereby may institute a
legal proceeding directly against TDS to enforce the Guarantee Trustee's rights
under the Preferred Securities Guarantee, without first instituting a legal
proceeding against the Trust, the Guarantee Trustee or any other person or
entity.
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The above mechanisms and obligations, taken together, are equivalent to a
full and unconditional guarantee by TDS of payments due on the Preferred
Securities. See "Description of the Preferred Securities Guarantees -- General"
in the accompanying Prospectus.
UNITED STATES FEDERAL INCOME TAXATION
The following is a summary of certain of the material United States federal
income tax consequences of the purchase, ownership and disposition of Preferred
Securities. Unless otherwise stated, this summary deals only with Preferred
Securities held as capital assets by holders that purchase the Preferred
Securities upon original issuance. This summary does not address all the tax
consequences that may be relevant to holders that may be subject to special tax
treatment such as, for example, banks, real estate investment trusts, regulated
investment companies, insurance companies, dealers in securities or currencies,
tax-exempt investors, persons whose functional currency is other than the United
States dollar, persons who hold Preferred Securities as part of a straddle,
hedging or conversion transaction or, except as specifically described herein,
foreign taxpayers. In addition, this summary does not address any aspects of
state, local, or foreign laws. This summary is based on the Internal Revenue
Code of 1986, as amended (the "Code"), Treasury regulations promulgated
thereunder and administrative and judicial interpretations thereof, as of the
date hereof, all of which are subject to change, possibly on a retroactive
basis. Each holder should consult its tax advisor as to its particular tax
consequences of acquiring, holding, and disposing of the Preferred Securities,
including the tax consequences under state, local, and foreign laws.
CLASSIFICATION OF THE SUBORDINATED DEBENTURES
It is a condition to the issuance of the Preferred Securities that Sidley &
Austin, counsel to the Company, render its opinion that under current United
States federal income tax law and assuming full compliance with the terms of the
Indenture (and certain other documents), and based on certain facts and
assumptions contained in such opinion, the Subordinated Debentures held by the
Trust will be classified for United States federal income tax purposes as
indebtedness of TDS. Accordingly, corporate holders of Preferred Securities will
not be entitled to a dividends-received deduction with respect to any income
recognized with respect to the Preferred Securities.
CLASSIFICATION OF THE TRUST
It is a condition to the issuance of the Preferred Securities that Sidley &
Austin render its opinion that under current United States federal income tax
law and assuming full compliance with the terms of the Declaration and the
Indenture (and certain other documents), and based on certain facts and
assumptions contained in such opinion, the Trust will be classified for United
States federal income tax purposes as a grantor trust and not as an association
taxable as a corporation. Accordingly, for United States federal income tax
purposes, each holder of Preferred Securities will generally be considered the
owner of an undivided interest in the Subordinated Debentures, and each holder
will be required to include in its gross income any original issue discount
("OID") accrued with respect to its allocable share of those Subordinated
Debentures. Investors should be aware that the foregoing opinions of Sidley &
Austin have not been confirmed by the Internal Revenue Service (the "Service"),
by private ruling or otherwise, and are not binding on the Service or the
courts.
TDS, the Trust, and, by its acceptance of a Preferred Security or a
beneficial interest therein, the holder of, and any person that acquires a
beneficial interest in, such Preferred Security agree to treat such Preferred
Security and the Subordinated Debentures consistently with the foregoing
opinions.
ORIGINAL ISSUE DISCOUNT
Because TDS has the option, under the terms of the Subordinated Debentures,
to defer payments of interest by extending interest payment periods for up to 20
consecutive quarters, all of the stated interest payments on the Subordinated
Debentures will be treated as OID. Holders of debt instruments issued with OID
must include that OID in income on an economic accrual basis as ordinary income,
regardless of their
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method of tax accounting or when the cash is actually received. Actual
distributions of stated interest will not be separately reported as taxable
income. The amount of OID that accrues in any quarter will approximately equal
the amount of the interest that accrues on the Subordinated Debentures in that
quarter at the stated interest rate. In the event that the interest payment
period is extended, holders will continue to accrue OID approximately equal to
the amount of the interest payment due at the end of the extended interest
payment period on an economic accrual basis over the length of the extended
interest period.
MARKET DISCOUNT AND PREMIUM
Holders of Preferred Securities other than holders that purchased the
Preferred Securities upon original issuance may be considered to have acquired
their undivided interest in the Subordinated Debentures with market discount,
amortizable bond premium or acquisition premium as such terms are defined for
United States federal income tax purposes. Such holders are advised to consult
their tax advisors as to the income tax consequences of the acquisition,
ownership and disposition of the Preferred Securities.
RECEIPT OF SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described under the caption "Description of
the Preferred Securities -- Dissolution; Distribution of Subordinated
Debentures," Subordinated Debentures may be distributed to holders in exchange
for Preferred Securities in liquidation of the Trust. Under current United
States federal income tax law, such a redemption would be treated as a
non-taxable event to each holder, and each holder would have an aggregate tax
basis in the Subordinated Debentures equal to such holder's aggregate tax basis
in its Preferred Securities. A holder's holding period in the Subordinated
Debentures so received in liquidation of the Trust would include the period
during which the Preferred Securities were held by such holder.
Under certain circumstances, as described under the captions "Description of
the Preferred Securities -- Redemption," "Description of the Preferred
Securities -- Tax Event Redemption," and "Description of the Subordinated
Debentures -- Optional Redemption," the Subordinated Debentures may be redeemed
for cash and the proceeds of such redemption distributed to holders in
redemption of their Preferred Securities. Under current United States federal
income tax law, such a redemption would be a taxable event, and a holder would
recognize gain or loss as if such holder sold such redeemed Preferred Securities
for cash. See "Sales of Preferred Securities" below.
SALES OF PREFERRED SECURITIES
A holder that sells Preferred Securities will recognize gain or loss equal
to the difference between such holder's adjusted tax basis in the Preferred
Securities and the amount realized on the sale of such Preferred Securities. A
holder's adjusted tax basis in the Preferred Securities will generally be the
initial purchase price increased by the OID previously includible in such
holder's gross income to the date of disposition and decreased by payments
received on the Preferred Securities. Any gain or loss upon a sale or other
disposition of Preferred Securities by a holder generally will be capital gain
or loss. The recently enacted Taxpayer Relief Act of 1997 made certain changes
to the Code with respect to the taxation of capital gains of taxpayers other
than corporations. Under the Taxpayer Relief Act of 1997, capital gain realized
on the disposition of an asset held for more than one year but not more than 18
months is taxed at a maximum rate of 28% and capital gain realized on the
disposition of an asset held for more than 18 months is taxed at a maximum rate
of 20%. Capital gain on the disposition of assets held for not more than one
year continues to be taxed at the rates applicable to ordinary income (i.e., up
to 39.6%).
The Preferred Securities may trade at prices that do not accurately reflect
the value of accrued but unpaid interest with respect to the underlying
Subordinated Debentures. A holder that disposes of Preferred Securities between
record dates for payments of distributions thereon will be required to include
in gross income the OID on the Subordinated Debentures through the date of
disposition and to add such
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amount to such holder's adjusted tax basis in the PRO RATA share of the
underlying Subordinated Debentures deemed disposed of. To the extent that the
selling price is less than the holder's adjusted tax basis (so determined) a
holder will recognize a capital loss. Subject to certain limited exceptions,
capital losses cannot be applied to offset ordinary income for United States
federal income tax purposes.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that for United States
federal income tax purposes is a foreign corporation, a nonresident alien
individual, a foreign partnership, or a foreign estate or trust. This discussion
assumes that income with respect to the Preferred Securities is not effectively
connected with a trade or business in the United States in which the United
States Alien Holder is engaged.
Under current United States federal income tax law, and subject to the
discussion of backup withholding in the following section, payments with respect
to principal and interest (including OID) by the Trust or any of its paying
agents to any holder of a Preferred Security that is a United States Alien
Holder will not be subject to withholding of United States federal income tax,
provided that, in the case of interest (including OID), (i) the beneficial owner
of the Preferred Security does not actually or constructively own 10% or more of
the total combined voting power of all classes of stock of TDS entitled to vote,
(ii) the beneficial owner of the Preferred Security is not a controlled foreign
corporation that is related, directly or indirectly, to TDS through stock
ownership, and (iii) either (A) the beneficial owner of the Preferred Security
certifies to the Trust or its agent, under penalties of perjury, that it is a
United States Alien Holder and provides its name and address or (B) a securities
clearing organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "Financial
Institution"), and holds the Preferred Securities in such capacity, certifies to
the Trust or its agent, under penalties of perjury, that such statement has been
received from the beneficial owner by it or by a Financial Institution between
it and the beneficial owner and furnishes the Trust or its agent with a copy
thereof. The foregoing certification may be provided by the beneficial owner of
the Preferred Security on Internal Revenue Service Form W-8 and such certificate
is effective with respect to payments of interest (including OID) made after the
issuance of the certificate in the calendar year of its issuance and the two
immediately succeeding calendar years.
On October 14, 1997, the Service published in the Federal Register final
regulations (the "1997 Final Regulations") which affect the United States
taxation of United States Alien Holders. The 1997 Final Regulations are
effective for payments after December 31, 1998, regardless of the issue date of
the instrument with respect to which such payments are made, subject to certain
transition rules (see below). The discussion under this heading and under
"Backup Withholding Tax and Information Reporting," below, is not intended to be
a complete discussion of the provisions of the 1997 Final Regulations, and
prospective holders of a Preferred Security are urged to consult their tax
advisors concerning the tax consequences of their investment in light of the
1997 Final Regulations.
The 1997 Final Regulations provide documentation procedures designed to
simplify compliance by withholding agents. The 1997 Final Regulations generally
do not affect the documentation rules described above, but add other
certification options. Under one such option, a withholding agent will be
allowed to rely on an intermediary withholding certificate furnished by a
"qualified intermediary" (as defined below) on behalf of one or more beneficial
owners (or other intermediaries) without having to obtain the beneficial owner
certificate described above. "Qualified intermediaries" include: (i) foreign
financial institutions or foreign clearing organizations (other than a United
States branch or United States office of such institution or organization) or
(ii) foreign branches or offices of United States financial institutions or
foreign branches or offices of United States clearing organizations, which, as
to both (i) and (ii), have entered into withholding agreements with the Service.
In addition to certain other requirements, qualified intermediaries must obtain
withholding certificates, such as revised Internal Revenue Service Form W-8 (see
below), from each beneficial owner. Under another option, an authorized foreign
agent of a United
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States withholding agent will be permitted to act on behalf of the United States
withholding agent, provided certain conditions are met.
For purposes of the certification requirements, the 1997 Final Regulations
generally treat as the beneficial owners of payments on a Preferred Security
those persons that, under United States tax principles, are the taxpayers with
respect to such payments, rather than persons such as nominees or agents legally
entitled to such payments. In the case of payments to an entity classified as a
foreign partnership under United States tax principles, the partners, rather
than the partnership, generally will be required to provide the required
certifications to qualify for the withholding exemption described above. A
payment to a United States partnership, however, is treated for these purposes
as payment to a United States payee, even if the partnership has one or more
foreign partners. The 1997 Final Regulations provide certain presumptions with
respect to withholding for holders not furnishing the required certifications to
qualify for the withholding exemption described above. In addition, the 1997
Final Regulations will replace a number of current tax certification forms
(including Internal Revenue Service Form W-8) with a single, revised Internal
Revenue Service Form W-8 (which, in certain circumstances, requires information
in addition to that previously required). Under the 1997 Final Regulations, this
Form W-8 will remain valid until the last day of the third calendar year
following the year in which the certificate is signed.
Under the 1997 Final Regulations, withholding of United States federal
income tax may apply to payments on a taxable sale or other disposition of a
Preferred Security by a United States Alien Holder who does not provide
appropriate certification to the withholding agent with respect to such
transaction.
The 1997 Final Regulations provide transition rules concerning existing
certificates, such as Internal Revenue Service Form W-8. Valid withholding
certificates that are held on December 31, 1998 will generally remain valid
until the earlier of December 31, 1999 or the date of expiration of the
certificate under the law in effect prior to January 1, 1999. Further,
certificates dated prior to January 1, 1998 will generally remain valid until
the end of 1998, irrespective of the fact that their validity expires during
1998.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
Under current United States federal income tax law, information reporting
requirements apply to interest (including OID) and principal payments made to,
and to the proceeds of sales before maturity by, certain non-corporate persons.
In addition, a 31% backup withholding tax applies if a non-corporate person (i)
fails to furnish such person's Taxpayer Identification Number ("TIN") (which,
for an individual, is his or her Social Security Number) to the payor in the
manner required, (ii) furnishes an incorrect TIN and the payor is so notified by
the Service, (iii) is notified by the Service that such person has failed
properly to report payments of interest and dividends or (iv) in certain
circumstances, fails to certify, under penalties of perjury, that such person
has not been notified by the Service that such person is subject to backup
withholding for failure properly to report interest and dividend payments.
Backup withholding does not apply with respect to payments made to certain
exempt recipients, such as corporations and tax-exempt organizations.
In the case of a United States Alien Holder, under current United States
federal income tax law, backup withholding and information reporting do not
apply to payments of principal and interest (including OID) with respect to a
Preferred Security, or to payments on the sale, exchange, redemption or
retirement of a Preferred Security, if such Holder has provided the required
certification under penalties of perjury that such Holder is a United States
Alien Holder or has otherwise established an exemption.
Under current United States federal income tax law, (i) principal or
interest payments (including OID) with respect to a Preferred Security collected
outside the United States by a foreign office of a custodian, nominee or broker
acting on behalf of a beneficial owner of a Preferred Security and (ii) payments
on the sale, exchange, redemption or retirement of a Preferred Security to or
through a foreign office of a broker are not generally subject to backup
withholding or information reporting. However, if such custodian, nominee or
broker is a United States person, a controlled foreign corporation for United
States tax purposes, or a foreign person 50% of more of whose gross income is
effectively
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connected with the conduct of a United States trade or business for a specified
three-year period, such custodian, nominee or broker may be subject to certain
information reporting (but not backup withholding) requirements with respect to
such payments, unless such custodian, nominee or broker has in its records
documentary evidence that the beneficial owner is not a United States person and
certain conditions are met or the beneficial owner otherwise establishes an
exemption.
In the case of a United States Alien Holder, under the 1997 Final
Regulations, backup withholding and information reporting will not apply to
payments of principal and interest (including OID) with respect to a Preferred
Security if such Holder provides the required certification to establish an
exemption from the withholding of the United States federal income tax or
otherwise establishes an exemption.
Under the 1997 Final Regulations, payments of principal and interest
(including OID) with respect to a Preferred Security made to a custodian,
nominee or broker will not be subject to backup withholding or information
reporting, irrespective of the place of payment or the location of the office of
the custodian, nominee or broker, although payments of interest (including OID)
with respect to a Preferred Security paid to a foreign intermediary (whether or
not a qualified intermediary) will be subject to withholding of United States
federal income tax at the rate of 30% unless the beneficial owner (whether or
not a United States person) establishes an exemption by furnishing a withholding
certificate or other appropriate documentation. Unless the beneficial owner
establishes an exemption, a payment by a custodian, nominee or broker may be
subject to information reporting and, unless (i) the payment has been subject to
withholding of United States federal income tax at the rate of 30% or (ii) the
payment is made outside the United States to an offshore account in a financial
institution that maintains certain procedures related to account documentation,
to backup withholding as well.
Under the 1997 Final Regulations, payments on the sale, exchange, redemption
or retirement of a Preferred Security to or through a broker may be subject to
information reporting and backup withholding unless (i) the transaction is
effected outside the United States and the broker is not a United States person,
a controlled foreign corporation for United States tax purposes, a United States
branch of a foreign bank or foreign insurance company, a foreign partnership
controlled by United States persons or engaged in a United States trade or
business or a foreign person 50% or more of whose gross income is effectively
connected with the conduct of a United States trade or business for a specified
three-year period or (ii) the beneficial owner otherwise establishes an
exemption.
Backup withholding tax is not an additional tax. Rather, any amounts
withheld from a payment to a person under the backup withholding rules are
allowed as a refund or a credit against such person's United States federal
income tax, provided that the required information is furnished to the Service.
POSSIBLE TAX LAW CHANGES
The Clinton Administration's budget proposals for fiscal year 1997 and
fiscal year 1998 contained provisions which, if applicable to the Subordinated
Debentures, would have prevented TDS from deducting interest thereon for United
States federal income tax purposes. Congress has not enacted these provisions,
which, unlike several other Clinton Administration proposals, were not included
in the Taxpayer Relief Act of 1997. There can be no assurance that future
legislative proposals, future regulations or official administrative
pronouncements, or future judicial decisions will not affect the ability of TDS
to deduct interest on the Subordinated Debentures.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
S-40
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Trust has agreed to sell to each of the
Underwriters named below, and each of the Underwriters, for whom Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation, Goldman, Sachs & Co., PaineWebber Incorporated and Prudential
Securities Incorporated are acting as representatives (the "Representatives"),
has severally agreed to purchase the number of Preferred Securities set forth
opposite its name below. In the Underwriting Agreement, the several Underwriters
have agreed, subject to the terms and conditions set forth therein, to purchase
all the Preferred Securities offered hereby if any of the Preferred Securities
are purchased. In the event of default by an Underwriter, the Underwriting
Agreement provides that, in certain circumstances, the purchase commitments of
the non-defaulting Underwriters may be increased or the Underwriting Agreement
may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER PREFERRED
----------------------- SECURITIES
----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...............................................................................
Donaldson, Lufkin & Jenrette Securities Corporation..................................................
Goldman, Sachs & Co..................................................................................
PaineWebber Incorporated.............................................................................
Prudential Securities Incorporated...................................................................
----------
Total...................................................................................... 6,000,000
----------
----------
</TABLE>
The Underwriters propose to offer the Preferred Securities, in part,
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus Supplement, and, in part, to certain securities
dealers at such price less a concession of $ per Preferred Security. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per Preferred Security to certain brokers and dealers. After the
Preferred Securities are released for sale to the public, the offering price and
other selling terms may from time to time be varied by the Representatives.
In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Subordinated Debentures of TDS, the
Underwriting Agreement provides that TDS will pay as compensation
("Underwriters' Compensation") to the Underwriters arranging the investment
therein of such proceeds, an amount in immediately available funds of $ per
Preferred Security (or $ in the aggregate) for the accounts of the
several Underwriters; provided that, such compensation for sales of 10,000 or
more Preferred Securities to any single purchaser will be $ per Preferred
Security. Therefore, to the extent of such sales, the actual amount of
Underwriters' Compensation will be less than the aggregate amount specified in
the preceding sentence.
During a period of 30 days from the date of this Prospectus Supplement,
neither the Trust nor TDS will, without the prior written consent of the
Representatives, directly or indirectly, sell, offer to sell, grant any option
for the sale of, or otherwise dispose of, any Preferred Securities, any security
convertible into or exchangeable into or exercisable for Preferred Securities or
Subordinated Debentures or any debt securities substantially similar to the
Subordinated Debentures or equity securities substantially similar to the
Preferred Securities (except for the Subordinated Debentures and the Preferred
Securities offered hereby).
The Preferred Securities have been approved for listing, subject to notice
of issuance, on the AMEX. Trading of the Preferred Securities on the AMEX is
expected to commence within a 30-day period after the initial delivery of the
Preferred Securities. The Representatives have advised the Trust that they
intend to make a market in the Preferred Securities prior to the commencement of
trading on the AMEX. The
S-41
<PAGE>
Representatives will have no obligation to make a market in the Preferred
Securities, however, and may cease market making activities, if commenced, at
any time.
Prior to this offering there has been no public market for the Preferred
Securities. In order to meet one of the requirements for listing the Preferred
Securities on the AMEX, the Underwriters will undertake to sell lots of 100 or
more Preferred Securities to a minimum of 400 beneficial holders.
In connection with this offering and in compliance with applicable law and
industry practice, the Underwriters may overallot or effect transactions which
stabilize, maintain or otherwise affect the market price of the Preferred
Securities at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids. A stabilizing bid means the
placing of any bid, or the effecting of any purchase, for the purpose of
pegging, fixing or maintaining the price of a security.
In general, purchases of a security for the purpose of stabilization could
cause the price of the security to be higher than it might be in the absence of
such purchases.
Neither the Company, the Trust, nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Preferred
Securities. In addition, neither the Company, the Trust, nor any of the
Underwriters makes any representation that the Underwriters will engage in such
transactions or that such transactions once commenced, will not be discontinued
without notice.
The Trust and TDS have agreed to indemnify the Underwriters against, or
contribute to payments that the Underwriters may be required to make in respect
of, certain liabilities, including liabilities under the Securities Act of 1933,
as amended.
Certain of the Underwriters engage in transactions with and, from time to
time, have performed services for TDS and its subsidiaries in the ordinary
course of business.
LEGAL MATTERS
Certain matters of Delaware law relating to the legality of the Preferred
Securities, the validity of the Declaration, the formation of the Trust and the
legality under state law of the Trust Securities will be passed upon by
Richards, Layton & Finger, P.A., special Delaware counsel to the Trust and the
Company. The legality under state law of the Preferred Securities Guarantee and
the Subordinated Debentures will be passed upon on behalf of the Trust and the
Company by Sidley & Austin, Chicago. Certain matters of Iowa law will be passed
upon on behalf of the Company by Nyemaster, Goode, Voigts, West, Hansell &
O'Brien, special Iowa counsel. Certain legal matters will be passed upon for the
Underwriters by Mayer, Brown & Platt, Chicago, Illinois. Walter C.D. Carlson, a
director of TDS and a beneficiary and trustee of the voting trust which controls
TDS, is a partner at Sidley & Austin. Michael G. Hron and William S. DeCarlo,
the Secretary and Assistant Secretary of TDS and certain TDS subsidiaries,
respectively, and Stephen P. Fitzell and Sherry S. Treston, the Secretary and
Assistant Secretary of certain TDS subsidiaries, respectively, are partners of
Sidley & Austin. Mayer, Brown & Platt from time to time acts as counsel in
certain matters for TDS, certain of its subsidiaries, and certain members of the
Carlson family. Debora De Hoyos, the spouse of Walter C.D. Carlson and a
director of American Paging, Inc., a publicly traded subsidiary of TDS, is a
partner of Mayer, Brown & Platt.
S-42
<PAGE>
PROSPECTUS
$400,000,000
TDS CAPITAL I
TDS CAPITAL II
TDS CAPITAL III
PREFERRED SECURITIES
(LIQUIDATION PREFERENCE $25 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
TELEPHONE AND DATA SYSTEMS, INC.
---------------
TDS Capital I, TDS Capital II, and TDS Capital III, each a statutory
business trust formed under the laws of the State of Delaware (each, a "Trust"
and, collectively, the "Trusts") may severally offer, from time to time, their
respective preferred securities (the "Preferred Securities") representing
preferred undivided beneficial interests in the assets of each Trust. Telephone
and Data Systems, Inc., an Iowa corporation ("TDS"), will be the sole owner of
the undivided common beneficial interests in such assets represented by trust
originated common securities (the "Common Securities" and, together with the
Preferred Securities, the "Trust Securities") of each Trust. The payment of
periodic cash distributions ("distributions") with respect to the Preferred
Securities and payments on liquidation or redemption with respect to such
Preferred Securities will be each guaranteed by TDS in the case of each Trust (a
"Preferred Securities Guarantee"), in each case only out of funds held by such
Trust. TDS's obligations under the Preferred Securities Guarantee will be
subordinate and junior in right of payment to all other liabilities of TDS and
will rank PARI PASSU with the most senior preferred stock issued by TDS.
Concurrently with the issuance by a Trust of its Preferred Securities, such
Trust will invest the proceeds thereof in TDS's junior subordinated deferrable
interest debentures (the "Subordinated Debentures") having terms corresponding
to such Trust's Preferred Securities. The Subordinated Debentures will be
unsecured and subordinated indebtedness of TDS issued under a Subordinated
Indenture dated as of October 15, 1997 between the Company and The First
National Bank of Chicago, as Trustee (such indenture, as the same may be
supplemented or amended from time to time, herein referred to as the
"Indenture"). The Subordinated Debentures held by each Trust will be its sole
assets, and the payments of principal of and interest on such Subordinated
Debentures will be its only revenues. The Subordinated Debentures purchased by a
Trust may be subsequently distributed PRO RATA to holders of Preferred
Securities and Common Securities in connection with the dissolution of such
Trust. In addition, upon the occurrence of certain events, TDS may redeem the
Subordinated Debentures and cause the redemption of the Preferred Securities.
The Preferred Securities may be offered in amounts, at prices and on terms
to be determined at the time of offering, provided, however, that the aggregate
initial public offering price of all Preferred Securities issued pursuant to the
Registration Statement of which this Prospectus forms a part will not exceed
$400,000,000. Certain specific terms of each Trust's Preferred Securities in
respect of which this Prospectus is being delivered will be set forth in an
accompanying Prospectus Supplement, including, where applicable and to the
extent not set forth herein, the identity of the Trust, the specific title, the
aggregate amount, the distribution rate (or the method for determining such
rate), the stated liquidation amount, redemption provisions, other rights, the
initial public offering price and any other special terms, as well as any
planned listing on a securities exchange, of such Preferred Securities.
The Preferred Securities may be sold in a public offering to or through
underwriters or dealers designated from time to time. See "Plan of
Distribution." The names of any of the underwriters or dealers involved in the
sale of the Preferred Securities in respect of which this Prospectus is being
delivered, the number of Preferred Securities to be purchased by any such
underwriters or dealers, any applicable commissions or discounts and the net
proceeds to each Trust will be set forth in the applicable Prospectus
Supplement.
Each Prospectus Supplement will also contain information concerning certain
United States federal income tax considerations applicable to the Preferred
Securities offered thereby.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
--------------------------
THE DATE OF THIS PROSPECTUS IS OCTOBER 30, 1997.
<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 Securities and Exchange
Commission (the "Commission"). TDS and the Trusts have filed with the Commission
a registration statement on Form S-3 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Preferred Securities offered hereby and certain related securities. This
Prospectus does not contain all of the information set forth in the Registration
Statement and reference is hereby made to the Registration Statement and the
exhibits thereto for further information with respect to TDS and the Preferred
Securities offered hereby. Such reports and other information may be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 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 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material also can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission maintains a web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. Such reports, proxy and
information statements and other information may be found on the Commission's
web site address, http:\\www.sec.gov. In addition, certain securities of TDS are
listed on the American Stock Exchange. Material filed by the Company may be
inspected at the office of the American Stock Exchange, Inc. at 86 Trinity
Place, New York, NY 10006-1881.
No separate financial statements of the Trusts are included herein. TDS
considers that such financial statements would not be material to holders of the
Preferred Securities because: (i) all of the Common Securities of the Trusts are
owned by TDS, a reporting company under the Exchange Act; (ii) the Trusts have
no independent operations; but exist for the sole purpose of issuing the Trust
Securities and holding the Subordinated Debentures as trust assets; and (iii)
the obligations of the Trusts under the Preferred Securities, to the extent
funds are available therefor, are fully and unconditionally guaranteed to the
extent set forth herein by TDS.
The Trusts are not currently subject to the information reporting
requirements of the Exchange Act. The Trusts will become subject to such
requirements upon the effectiveness of the Registration Statement, although they
intend to seek and expect to receive exemptions therefrom.
This Prospectus contains and each Prospectus Supplement and each document
incorporated by reference herein may contain "forward-looking" statements, as
defined in the Private Securities Litigation Reform Act of 1995, that are based
on current expectations, estimates and projections. Statements that are not
historical facts, including statements about the Company's beliefs and
expectations are forward-looking statements. These statements contain potential
risks and uncertainties and, therefore, actual results may differ materially.
The Company undertakes no obligation to update publicly any forward-looking
statements whether as a result of new information, future events or otherwise.
Important factors that may affect these projections or expectations include,
but are not limited to: changes in the overall economy; changes in competition
in markets in which the Company operates; advances in telecommunications
technology; changes in the telecommunications regulatory environment; pending
and future litigation; availability of future financing; start-up of PCS
operations; and unanticipated changes in growth in cellular customers,
penetration rates, churn rates and the mix of products and services offered in
the Company's markets. Readers should evaluate any statements in light of these
important factors.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents which have been filed with the Commission by TDS
pursuant to the Exchange Act (File No. 1-8251) are hereby incorporated by
reference:
2
<PAGE>
(i) Annual Report of TDS on Form 10-K for the year ended December 31,
1996;
(ii) Quarterly Report of TDS on Form 10-Q for the three months ended
March 31, 1997; and
(iii) Quarterly Report of TDS on Form 10-Q for the three months ended
June 30, 1997.
All documents filed by TDS pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act (i) after the date of the initial registration statement and
prior to effectiveness of the registration statement shall be deemed to be
incorporated by reference into the prospectus, and (ii) from and after the date
of such effectiveness and prior to the termination of the offering of the
securities shall be deemed to be incorporated by reference herein and to be a
part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus and the accompanying Prospectus Supplement to
the extent that a statement contained herein or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus or the accompanying Prospectus Supplement.
The Company will furnish without charge to each person, including any
beneficial owner, to whom this Prospectus and the accompanying Prospectus
Supplement is delivered, upon written or oral request of such person, a copy of
any and all documents incorporated herein by reference (not including exhibits
to such documents, unless such exhibits are specifically incorporated by
reference into such documents). Requests should be directed to Telephone and
Data Systems, Inc., 30 North LaSalle Street, Chicago, Illinois 60602, Attention:
Shareholder Services (telephone number: (312) 630-1900).
THE COMPANY
Telephone and Data Systems, Inc. ("TDS" or the "Company") (AMEX symbol
"TDS"), is a diversified telecommunications service company with established
cellular telephone, local telephone and radio paging operations and developing
personal communications services ("PCS") operations. The Company's long-term
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 the
Company's expertise in customer-based telecommunications services. The Company
conducts substantially all of its cellular operations through its majority-owned
subsidiary United States Cellular Corporation (AMEX symbol "USM"). The Company
conducts substantially all of its telephone operations through its wholly-owned
subsidiary TDS Telecommunications Corporation. The Company conducts
substantially all of its PCS business through its majority-owned subsidiary
Aerial Communications, Inc. (NASDAQ symbol "AERL"), which launched commercial
service in the first half of 1997 and expects to complete initial construction
of its PCS networks by the end of 1997. American Paging, Inc. (AMEX symbol
"APP"), is a majority-owned subsidiary of TDS through which substantially all of
the Company's radio paging operations are conducted.
TDS was incorporated in Iowa in 1968. TDS's executive offices are located at
30 North LaSalle Street, Chicago, Illinois 60602. Its telephone number is (312)
630-1900.
THE TRUSTS
Each of the Trusts is a statutory business trust formed under Delaware law
pursuant to the filing of a certificate of trust with the Delaware Secretary of
State on October 15, 1997. The business of each Trust is defined in a
Declaration of Trust, executed by TDS, as sponsor (the "Sponsor"), and the
Trustees (as defined herein). The Declaration of Trust of each Trust will be
amended and restated in its entirety (as so amended and restated, the
"Declaration") substantially in the form filed as an exhibit to the Registration
3
<PAGE>
Statement of which this Prospectus forms a part. The Declaration will be
qualified as an indenture under the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). Upon issuance of the Preferred Securities, the
purchasers thereof will own all of the Preferred Securities. TDS will acquire
all of the Common Securities in an aggregate liquidation amount equal to
approximately 3% of the total capital of each Trust. Each Trust exists for the
exclusive purposes of (i) issuing the Trust Securities representing undivided
beneficial interests in the assets of the Trust, (ii) investing the gross
proceeds of the Trust Securities in the Subordinated Debentures and (iii)
engaging in only those other activities necessary or incidental thereto. Each
Trust has a term of 50 years, but may terminate earlier as provided in the
applicable Declaration.
Each Trust's business and affairs will be conducted by the trustees (the
"Trustees") appointed by TDS, as holder of the Common Securities. The duties and
obligations of the Trustees will be governed by the Declaration. Pursuant to the
Declaration, the number of Trustees will initially be five. Three of the
Trustees (the "Regular Trustees") will be persons who are employees or officers
of or affiliated with, TDS. The fourth Trustee will be a corporation which
maintains a principal place of business in the State of Delaware that will serve
for the sole purpose of complying with certain Delaware laws (the "Delaware
Trustee"). The fifth Trustee will be a financial institution unaffiliated with
TDS which will serve as property trustee under the Declaration and as indenture
trustee for purposes of the Trust Indenture Act (the "Property Trustee"). First
Chicago Delaware Inc. ("First Delaware") will act as the Delaware Trustee and
The First National Bank of Chicago as the Property Trustee, in each case until
removed or replaced by the holder of the Common Securities. The First National
Bank of Chicago will also act as indenture trustee under the Preferred
Securities Guarantee (the "Guarantee Trustee"). See "Description of the
Preferred Securities Guarantees."
The Property Trustee, acting in such capacity, will hold title to the
Subordinated Debentures held by each Trust for the benefit of the holders of the
Trust Securities issued by such Trust and will have the power to exercise all
rights, powers and privileges under the Indenture (as defined herein) as the
holder of such Subordinated Debentures. In addition, the Property Trustee will
maintain exclusive control of a segregated non-interest bearing bank account for
each Trust (the "Property Account") to hold all payments made in respect of the
Subordinated Debentures held by such Trust for the benefit of the holders of the
Trust Securities issued by such Trust. The Property Trustee will make payments
of distributions and payments on liquidation, redemption and otherwise to the
holders of the Trust Securities issued by each Trust out of funds from the
Property Account of such Trust. The Guarantee Trustee will hold each Preferred
Securities Guarantee for the benefit of the holders of the Preferred Securities.
TDS, as the direct or indirect holder of all the Common Securities, will have
the right to appoint, remove or replace any Trustee and to increase the number
of Trustees, provided that the number of Trustees will be at least three, two of
which will be Regular Trustees. TDS will pay all fees and expenses related to
the Trust, the offering of the Preferred Securities and the issuance of the
Subordinated Debentures. See "Description of the Subordinated Debentures --
Miscellaneous."
The rights of the holders of the Preferred Securities of each Trust,
including economic rights, rights to information and voting rights, are as set
forth in the Declaration for such Trust, the Delaware Business Trust Act, as
amended (the "Trust Act"), and the Trust Indenture Act. See "Description of the
Preferred Securities."
The Property Trustee for each Trust is The First National Bank of Chicago.
The principal place of business of each Trust shall be c/o Telephone and Data
Systems, Inc., 30 N. LaSalle Street, Chicago, Illinois 60602 (telephone number
312/630-1900).
4
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth the unaudited consolidated ratio of earnings
to fixed charges and preferred stock dividends for the Company for each of the
following periods:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30 YEAR ENDED DECEMBER 31
-------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges and
preferred stock dividends.................. 1.26x 5.27x 3.50x 3.01x 2.75x 1.96x 2.50x
</TABLE>
The reduction in the ratio of earnings to fixed charges and preferred stock
dividends from the six-month period ended June 30, 1996 to the six-month period
ended June 30, 1997 is primarily due to the decrease in gains on sales of
cellular interests and other investments from $128.3 million in the first half
of 1996 to $10.6 million in the first half of 1997. For the computation of the
ratio of earnings to fixed charges and preferred stock dividends: (i) earnings
consist of net income from continuing operations plus income taxes from
continuing operations, fixed charges (less capitalized interest), distributions
from minority subsidiaries and minority share in income of subsidiaries that
have fixed charges, less equity in undistributed earnings of unconsolidated
investments and minority share of losses; and (ii) fixed charges and preferred
stock dividends consist of interest expense, capitalized interest, estimated
interest portion of rentals and preferred stock dividend requirements increased
to an amount representing the pretax earnings required to cover such dividend
requirements.
USE OF PROCEEDS
Each Trust will use the proceeds of the sale of the Trust Securities to
purchase Subordinated Debentures from TDS. Unless otherwise indicated in the
applicable Prospectus Supplement, TDS intends to use the net proceeds from the
sale of the Subordinated Debentures to repay certain short-term indebtedness and
for general corporate purposes, which may include capital expenditures,
repayment or repurchases of outstanding indebtedness, investments in
subsidiaries and working capital.
DESCRIPTION OF THE PREFERRED SECURITIES
The Declaration of each Trust authorizes the Regular Trustees of such Trust
to issue on behalf of such Trust only one series of Preferred Securities having
terms described in the Prospectus Supplement relating thereto. The Declaration
will be qualified as an indenture under the Trust Indenture Act. The Property
Trustee will act as Indenture Trustee for purposes of the Trust Indenture Act.
The Preferred Securities will have such terms, including distributions,
redemption, voting, liquidation rights and such other preferred, deferred or
other special rights or such restrictions as will be set forth in the
Declaration or made part of the Declaration by the Trust Indenture Act and which
will correspond to the terms of the Subordinated Debentures held by the Trust
and described in the Prospectus Supplement relating thereto. Reference is made
to the Prospectus Supplement relating to the Preferred Securities of each Trust
for specific terms, including (i) the distinctive designation of such Preferred
Securities; (ii) the number of Preferred Securities issuable by such Trust;
(iii) the annual distribution rate (or method of determining such rate) for
Preferred Securities issued by such Trust and the date or dates upon which such
distributions will be payable; (iv) whether distributions on Preferred
Securities issued by such Trust will be cumulative, and, in the case of
Preferred Securities having such cumulative distribution rights, the date or
dates or method of determining the date or dates from which distributions on
Preferred Securities issued by such Trust will be cumulative; (v) the amount or
amounts which will be paid out of the assets of such Trust to the holders of
Preferred Securities of such Trust upon voluntary or involuntary dissolution,
winding-up or termination of such Trust; (vi) the obligation, if any, of such
Trust to purchase or redeem Preferred Securities issued by such Trust and the
price or prices at which, the period or periods within which, and the terms and
5
<PAGE>
conditions upon which Preferred Securities issued by such Trust will be
purchased or redeemed, in whole or in part, pursuant to such obligation; (vii)
the voting rights, if any, of holders of Preferred Securities issued by such
Trust in addition to those required by law, including the number of votes per
Preferred Security and any requirement for approval by the holders of such
Preferred Securities, or of Preferred Securities issued by one or more Trusts,
or of both, as a condition to specified action or amendments to the Declaration
of such Trust; (viii) the terms and conditions, if any, upon which the
Subordinated Debentures owned by such Trust may be distributed to holders of
Preferred Securities of such Trust; (ix) if applicable, any securities exchange
upon which the Preferred Securities of such Trust will be listed; and (x) any
other relevant rights, preferences, privileges, limitations or restrictions of
Preferred Securities issued by such Trust not inconsistent with the Declaration
of such Trust or with applicable law. All Preferred Securities offered hereby
will be guaranteed by TDS to the extent set forth below under "Description of
the Preferred Securities Guarantees." Certain United States federal income tax
considerations applicable to any offering of Preferred Securities will be
described in the Prospectus Supplement relating thereto.
Each Trust will issue one series of Common Securities in connection with the
issuance of Preferred Securities. The Declaration of each Trust authorizes the
Regular Trustees of such Trust to issue on behalf of such Trust one series of
Common Securities having such terms including distributions, redemption, voting,
liquidation rights or such restrictions as will be set forth therein. Except for
voting rights, the terms of the Common Securities issued by a Trust will be
substantially identical to the terms of the Preferred Securities issued by such
Trust and such Common Securities will rank PARI PASSU, and payments will be made
thereon PRO RATA, with such Preferred Securities except that, upon an event of
default under the Declaration, the rights of the holders of such Common
Securities to payment in respect of distributions and payments upon liquidation,
redemption and otherwise will be subordinated to the rights of the holders of
the Preferred Securities. The Common Securities of a Trust will also carry the
right to vote to appoint, remove or replace any of the Trustees of such Trust.
All of the Common Securities of each Trust will be directly or indirectly owned
by TDS.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If an Event of Default under a Declaration of a Trust occurs and is
continuing, then the holders of Preferred Securities of such Trust would rely on
the enforcement by the Property Trustee of its rights as a holder of the
applicable series of Subordinated Debentures against TDS. In addition, the
holders of a majority in liquidation amount of Preferred Securities of such
Trust will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee or to direct the
exercise of any trust or power conferred upon the Property Trustee under the
applicable Declaration, including the right to direct such Property Trustee to
exercise the remedies available to it as a holder of Subordinated Debentures. If
the Property Trustee fails to enforce its rights under the Subordinated
Debentures held by a Trust, a holder of Preferred Securities of such Trust may,
to the fullest extent permitted by law, institute a legal proceeding directly
against TDS to enforce the Property Trustee's rights under the Subordinated
Debentures without first instituting any legal proceeding against the Property
Trustee or any other person or entity. Notwithstanding the foregoing, if an
Event of Default under the Declaration of a Trust has occurred and is continuing
and such event is attributable to the failure of TDS to pay interest or
principal on the applicable series of Subordinated Debentures on the date such
interest or principal is otherwise payable (or in the case of redemption, on the
redemption date), then a holder of Preferred Securities of such Trust may
directly institute a proceeding for enforcement of payment to such holder of the
principal of or interest on such Subordinated Debentures having a principal
amount equal to the aggregate liquidation amount of the Preferred Securities of
such holder (a "Direct Action") on or after the respective due date specified in
such Subordinated Debentures. In connection with such Direct Action, TDS will be
subrogated to the rights of such holder of Preferred Securities under the
applicable Declaration to the extent of any payment made by TDS to such holder
of Preferred Securities in such Direct Action.
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DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEES
Set forth below is a summary of information concerning the Preferred
Securities Guarantees which will be executed and delivered by TDS for the
benefit of the holders from time to time of the Preferred Securities under each
Trust. Each Preferred Securities Guarantee will be qualified as an indenture
under the Trust Indenture Act. The Guarantee Trustee will act as the trustee
under the Preferred Securities Guarantees. The terms of each Preferred
Securities Guarantee will be those set forth therein and those made a part
thereof by the Trust Indenture Act. The following summary of the material terms
of the Preferred Securities Guarantees does not purport to be complete and is
subject in all respects to the provisions of, and is qualified in its entirety
by reference to, the form of the Preferred Securities Guarantees, which is filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part, and the Trust Indenture Act. Each Preferred Securities Guarantee will be
held by the Guarantee Trustee for the benefit of the holders of the Preferred
Securities of the applicable Trust.
GENERAL
Pursuant to each Preferred Securities Guarantee with respect to a Trust, TDS
will irrevocably and unconditionally agree, to the extent set forth therein, to
pay in full, to the holders of the Preferred Securities issued by such Trust,
the Guarantee Payments (as defined herein) (without duplication of amounts
theretofore paid by such Trust), as and when due regardless of any defense,
right of set-off or counterclaim which such Trust may have or assert. The
following payments or distributions with respect to the Preferred Securities of
a Trust, to the extent not paid or made by such Trust (the "Guarantee
Payments"), will be subject to the Preferred Securities Guarantee with respect
to such Trust (without duplication): (i) any accrued and unpaid distributions
which are required to be paid on the Preferred Securities, to the extent such
Trust has funds available therefor, (ii) the redemption price, including all
accrued and unpaid distributions to the date of the redemption (the "Redemption
Price"), to the extent such Trust has funds available therefor, with respect to
any Preferred Securities called for redemption by such Trust and (iii) upon a
voluntary or involuntary dissolution, winding-up or termination of such Trust
(other than in connection with the distribution of Subordinated Debentures held
by such Trust to the holders of Preferred Securities issued by such Trust in
exchange for such Preferred Securities), the lesser of (a) the aggregate of the
liquidation amount and all accrued and unpaid distributions on such Preferred
Securities to the date of payment, to the extent such Trust has funds available
therefor and (b) the amount of assets of such Trust remaining available for
distribution to holders of such Preferred Securities in liquidation of such
Trust. The redemption price and liquidation amount will be fixed at the time the
Preferred Securities are issued. TDS's obligation to make a Guarantee Payment
may be satisfied by direct payment of the required amounts by TDS to the holders
of Preferred Securities issued by a Trust or by causing such Trust to pay such
amounts to such holders.
The Preferred Securities Guarantee for a Trust will not apply to any payment
of distributions except to the extent such Trust has funds available therefor.
If TDS does not make interest payments on the Subordinated Debentures purchased
by a Trust, such Trust will not pay distributions on the Preferred Securities
issued by such Trust and will not have funds available therefor.
The Preferred Securities Guarantee for a Trust, when taken together with
TDS's obligations under the applicable Subordinated Debentures, the Indenture
and the applicable Declaration, including its obligation to pay costs, expenses,
debt, and liabilities of such Trust (other than with respect to its Trust
Securities), will be a full and unconditional guarantee, on a subordinated
basis, by TDS of payments due on the Preferred Securities issued by such Trust
from the time of issuance of such Preferred Securities, but will not apply to
the payment of distributions and other payments on such Preferred Securities
when the Property Trustee does not have sufficient funds in the Property Account
of such Trust to make such distributions or other payments. If TDS does not make
interest payments on the Subordinated Debentures held by the Property Trustee
for a Trust, such Trust will not make distributions on the Preferred Securities
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issued by such Trust and will not have funds available therefor. See
"Description of the Subordinated Debentures -- Certain Covenants."
CERTAIN COVENANTS OF TDS
In the Preferred Securities Guarantee for a Trust, TDS will covenant that,
so long as any Preferred Securities issued by such Trust remain outstanding, if
there shall have occurred and be continuing any event that would constitute an
event of default under such Preferred Securities Guarantee or the Declaration of
such Trust, then (a) TDS may not declare or pay any dividend on, or make any
distribution of such Trust with respect to, or redeem, purchase, acquire or make
a liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of shares of TDS common stock in connection with the
satisfaction by TDS of its obligations under any employee benefit plans or any
other contractual obligation of TDS (other than a contractual obligation ranking
PARI PASSU with or junior to the Subordinated Debentures), (ii) as a result of a
reclassification of TDS capital stock or the exchange or conversion of one class
or series of TDS capital stock for another class or series of TDS capital stock
or (iii) the purchase of fractional interests in shares of TDS capital stock
pursuant to the conversion or exchange provisions of such TDS capital stock or
the security being converted or exchanged), (b) TDS may not make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities (including guarantees) issued by TDS which rank PARI PASSU with
or junior to the Subordinated Debentures and (c) TDS may not make any guarantee
payments with respect to the foregoing (other than pursuant to the Preferred
Securities Guarantees).
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of Preferred Securities issued by a Trust (in which case
no approval will be required), the Preferred Securities Guarantee for such Trust
may be amended only with the prior approval of the holders of not less than
66 2/3% in liquidation amount of the outstanding Preferred Securities issued by
such Trust. The manner of obtaining any such approval of holders of Preferred
Securities will be set forth in the applicable Prospectus Supplement. All
guarantees and agreements contained in each Preferred Securities Guarantee will
bind the successors, assigns, receivers, trustees and representatives of TDS and
will inure to the benefit of the Guarantee Trustee and the holders of the
Preferred Securities of the applicable Trust then outstanding.
TERMINATION OF THE PREFERRED SECURITIES GUARANTEES
Each Preferred Securities Guarantee for a Trust will terminate as to the
Preferred Securities issued by such Trust upon full payment of the Redemption
Price of all such Preferred Securities, upon distribution of the Subordinated
Debentures held by such Trust to the holders of the Trust Securities of such
Trust, or upon full payment of the amounts payable upon liquidation of such
Trust. See "Status of the Preferred Securities Guarantees" and "Description of
the Subordinated Debentures -- Indenture Events of Default" for a description of
the events of default and enforcement rights of the holders of Subordinated
Debentures. Each Preferred Securities Guarantee for a Trust will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of Preferred Securities issued by such Trust must repay any sums paid to them
under such Preferred Securities or Preferred Securities Guarantee.
EVENTS OF DEFAULT
An event of default under each Preferred Securities Guarantee will occur
upon the failure of TDS to perform any of its payment or other obligations
thereunder.
The holders of a majority in liquidation amount of the Preferred Securities
issued by a Trust will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Preferred Securities Guarantee for such Trust or to direct the
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exercise of any trust or power conferred upon the Guarantee Trustee under such
Preferred Securities Guarantee. If the Guarantee Trustee fails to enforce the
Preferred Securities Guarantee for a Trust, any holder of related Preferred
Securities may institute a legal proceeding directly against TDS to enforce the
Guarantee Trustee's rights under such Preferred Securities Guarantee, without
first instituting a legal proceeding against such Trust, the Guarantee Trustee
or any other person or entity.
STATUS OF THE PREFERRED SECURITIES GUARANTEES
TDS's obligations under each Preferred Securities Guarantee to make the
Guarantee Payments will constitute unsecured obligations of TDS and will rank
(i) subordinate and junior in right of payment to all other liabilities of TDS,
including the Subordinated Debentures, except those liabilities of TDS made PARI
PASSU or subordinate by their terms, (ii) PARI PASSU with the most senior
preferred stock now or hereafter issued by TDS and with any guarantee now or
hereafter entered into by TDS in respect of any preferred securities of any
affiliate of TDS, and (iii) senior to TDS common stock. The terms of the
Preferred Securities provide that each holder of Preferred Securities issued by
a Trust, by acceptance thereof, agrees to the subordination provisions and other
terms of the Preferred Securities Guarantee relating thereto.
Each Preferred Securities Guarantee will constitute guarantee of payment and
not of collection (i.e., the guaranteed party may institute a legal proceeding
directly against the guarantor to enforce its rights under such Preferred
Securities Guarantee without instituting a legal proceeding against any other
person or entity). Each Preferred Securities Guarantee will be deposited with
the Guarantee Trustee to be held for the benefit of the holders of the related
Preferred Securities. Except as otherwise noted herein, the Guarantee Trustee
has the right to enforce each Preferred Securities Guarantee on behalf of the
holders of the related Preferred Securities. Except as described under
"Termination of the Preferred Securities Guarantees" above, the Preferred
Securities Guarantee for a Trust will not be discharged except by payment of the
Guarantee Payments in full (without duplication of amounts theretofore paid by
such Trust).
CONSOLIDATION, MERGER AND SALE
TDS may consolidate with or merge into any other Person in a transaction in
which TDS is not the surviving entity, or sell, convey, transfer or otherwise
dispose of its properties as an entirety, or substantially as an entirety to,
any Person if (i) the Person formed in such consolidation or into which TDS is
merged or to which TDS has sold, conveyed, transferred or otherwise disposed of
its properties as an entirety, or substantially as an entirety, is an entity
validly existing under the laws of the jurisdiction of its organization and such
Person assumes TDS's obligations under the Preferred Securities Guarantees and
the Indenture, (ii) immediately after giving effect to the transaction no Event
of Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have occurred and be continuing, and (iii) any
such Person not organized and validly existing under the laws of the United
States, any state thereof or the District of Columbia, shall expressly agree in
a supplemental indenture (a) to pay to the holders of Trust Securities any
additional amounts as may be necessary in order that every net payment or other
amount due on the Trust Securities, after withholding for or on account of any
present or future tax, assessment or governmental charge imposed upon such
holder of Trust Securities (except for a tax, assessment or charge imposed
solely as a result of a connection between the recipient and the jurisdiction
imposing such tax, assessment or charge) by reason of or as a result of such
payment or other amount being paid by an entity which is not an entity existing
under the laws of the United States or any state thereof or the District of
Columbia, will not be less than the amount provided for in the Trust Securities,
the Indenture or the Preferred Securities Guarantees, as the case may be, to be
then due and payable and (b) to the selection and jurisdiction of courts of the
State of Illinois or the U.S. District Court for the Northern District of
Illinois for any litigation arising out of, under or in connection with the
Indenture or the Preferred Securities Guarantees. The phrase "substantially as
an entirety" is not defined in the Indenture or the Preferred Securities
Guarantees, and TDS is unaware of an established meaning or
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qualification of the phrase under New York law, which is the law governing
construction of the Indenture and the Preferred Securities Guarantees. A holder
of Preferred Securities may bear the burden of establishing the meaning of the
phrase "substantially as an entirety".
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default with respect to
a Preferred Securities Guarantee and after the curing of all such defaults that
may have occurred, undertakes to perform only such duties as are specifically
set forth in each Preferred Securities Guarantee and, during the continuance of
any default, will exercise the same degree of care as a prudent individual would
exercise in the conduct of his or her own affairs. Subject to such provisions,
the Guarantee Trustee is under no obligation to exercise any of the powers
vested in it by the Preferred Securities Guarantee for a Trust at the request of
any holder of Preferred Securities issued by such Trust, unless offered
reasonable indemnity against the costs, expenses and liabilities which might be
incurred thereby; but the foregoing shall not relieve the Guarantee Trustee,
upon the occurrence of an event of default under such Preferred Securities
Guarantee, from exercising the rights and powers vested in it by such Preferred
Securities Guarantee. The Guarantee Trustee also serves as Property Trustee.
TDS and its officers and directors have no material relationship with the
initial Guarantee Trustee except that TDS and certain of its subsidiaries
maintain normal banking relations and other financial service relations with The
First National Bank of Chicago.
GOVERNING LAW
The Preferred Securities Guarantees will be governed by, and construed in
accordance with, the internal laws of the State of New York.
DESCRIPTION OF THE SUBORDINATED DEBENTURES
Set forth below is a description of the terms of the Subordinated Debentures
which each of the Trusts will hold as trust assets. The following description
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the Subordinated Indenture ("Indenture"), dated as of
October 15, 1997, between TDS and The First National Bank of Chicago, as Trustee
(the "Debt Trustee"), as supplemented by the Supplemental Indenture creating
each series of Subordinated Debentures. The Indenture and the form of
Supplemental Indenture are filed as exhibits to the Registration Statement of
which this Prospectus forms a part. The terms of each series of Subordinated
Debentures will include those stated in the Indenture and the related
Supplemental Indenture and those made a part of the Indenture by reference to
the Trust Indenture Act. Certain capitalized terms used herein are defined in
the Indenture and the related Supplemental Indenture.
Upon the dissolution of a Trust, Subordinated Debentures held by a Trust may
be distributed to the holders of Trust Securities issued by such Trust in
liquidation of such Trust. See "Description of the Preferred Securities --
Dissolution; Distribution of Subordinated Debentures" in the applicable
Prospectus Supplement.
If any Subordinated Debentures are distributed to the holders of Trust
Securities, TDS will use its best efforts to have such Subordinated Debentures
listed on the American Stock Exchange or on such other exchange as the related
Preferred Securities are then listed.
GENERAL
The Indenture provides for the issuance of Subordinated Debentures in an
unlimited amount from time to time. Each series of Subordinated Debentures will
constitute a separate series under the Indenture, will be in a principal amount
equal to the aggregate stated Liquidation Amount of the Preferred Securities
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issued by the Trust which will hold such Subordinated Debentures plus TDS's
concurrent investment in the Common Securities of such Trust and will rank PARI
PASSU with all other series of Subordinated Debentures.
The entire principal amount of the Subordinated Debentures held by a Trust
will mature and become due and payable, together with any accrued and unpaid
interest thereon, including Additional Interest (as defined herein), if any, on
the date set forth in the applicable Prospectus Supplement.
Reference is made to the Prospectus Supplement relating to the particular
Subordinated Debentures being offered thereby for the following terms: (1) the
designation and terms of such Subordinated Debentures; (2) the aggregate
principal amount of such Subordinated Debentures; (3) the date or dates on which
such Subordinated Debentures will mature and the right, if any, to extend or
shorten such date or dates; (4) the rate or rates, if any, per annum, at which
such Subordinated Debentures will bear interest, or the method of determination
of such rate or rates; (5) the date or dates from which such interest will
accrue, the interest payment dates on which such interest will be payable or the
manner of determination of such interest payment dates and the record dates for
the determination of holders to whom interest is payable on any such interest
payment dates; (6) the right, if any, to extend the interest payment periods and
the duration of such extensions; (7) provisions for a sinking, purchase or other
analogous fund; (8) the period or periods, if any, within which, the price or
prices of which, and the terms and conditions upon which such Subordinated
Debentures may be redeemed, in whole or in part, at the option of TDS or the
holder; (9) the form of such Subordinated Debentures; and (10) any other
specific terms of such Subordinated Debentures. Principal, premium, if any, and
interest, if any, will be payable, and the Subordinated Debentures offered
hereby will be transferable, at the corporate trust office of the Debt Trustee
in New York pursuant to the Indenture.
If a Prospectus Supplement specifies that a series of Subordinated
Debentures is denominated in a currency or currency unit other than United
States dollars, such Prospectus Supplement will also specify the denomination in
which such Subordinated Debentures will be issued and the coin or currency in
which the principal, premium, if any, and interest, if any, on such Subordinated
Debentures will be payable, which may be United States dollars based upon the
exchange rate for such other currency or currency unit existing on or about the
time a payment is due.
The covenants contained in the Indenture would not necessarily afford
protection to holders of the Subordinated Debentures in the event of a decline
in credit quality resulting from takeovers, recapitalizations or similar
restructurings of TDS.
If Subordinated Debentures held by a Trust are distributed to holders of its
Preferred Securities in liquidation of such holders' interests in such Trust,
such Subordinated Debentures will initially be issued as a Global Security. To
the extent described under "Description of the Subordinated Debentures -- Book-
Entry and Settlement" in the applicable Prospectus Supplement, under certain
limited circumstances, Subordinated Debentures may be issued in certificated
form in exchange for a Global Security. In the event Subordinated Debentures are
issued in certificated form, such Subordinated Debentures will be in
denominations as specified in the applicable Prospectus Supplement and integral
multiples thereof and may be transferred or exchanged at the offices described
therein. Payments on Subordinated Debentures issued as a Global Security will be
made to the Depositary for the Subordinated Debentures. In the event
Subordinated Debentures are issued in certificated form, principal and interest
will be payable, the transfer of the Subordinated Debentures will be registrable
and Subordinated Debentures will be exchangeable for Subordinated Debentures of
other denominations of a like aggregate principal amount at the corporate trust
office of the Debt Trustee in New York, New York; provided, that payment of
interest may be made at the option of TDS by check mailed to the address of the
persons entitled thereto.
The Indenture does not contain provisions that afford holders of the
Subordinated Debentures protection in the event of a highly leveraged
transaction involving TDS.
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SUBORDINATION
The Indenture provides that the Subordinated Debentures are subordinated and
junior in right of payment to all Senior Indebtedness of TDS, whether now
existing or hereafter incurred. Senior Indebtedness may include indebtedness of
TDS which is subordinated to other indebtedness of TDS but nevertheless senior
to the Subordinated Debentures. No payment of principal of (including redemption
and sinking fund payments, if any), premium, if any, or interest on, the
Subordinated Debentures may be made if (a) there is any default in the payment
of principal, premium, interest or any other payment due on any Senior
Indebtedness, or (b) the maturity of any Senior Indebtedness has been
accelerated because of a default. Upon any distribution of assets of TDS to
creditors upon any dissolution, winding-up, liquidation or reorganization of
TDS, whether voluntary or involuntary or in bankruptcy, insolvency, receivership
or other proceedings, all amounts due on all Senior Indebtedness must be paid in
full before the holders of the Subordinated Debentures are entitled to receive
or retain any payment. Upon payment in full of all amounts due on the Senior
Indebtedness then outstanding, the rights of the holders of the Subordinated
Debentures will be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions applicable to such Senior
Indebtedness until all amounts owing on the Subordinated Debentures are paid in
full.
The term "Senior Indebtedness" means: (i) any payment in respect of (a)
indebtedness of TDS for money borrowed and (b) indebtedness evidenced by
securities, debentures, bonds, notes or other similar instruments issued by TDS;
(ii) all capital lease obligations of TDS; (iii) all obligations of TDS issued
or assumed as the deferred purchase price of property, all conditional sale
obligations of TDS and all of its obligations under any title retention
agreement (but excluding trade accounts payable arising in the ordinary course
of business); (iv) all obligations of TDS for reimbursement on any letter of
credit, banker's acceptance, security purchase facility or similar credit
transaction; (v) all obligations of the type referred to in clauses (i) through
(iv) above of other Persons for the payment of which TDS is responsible or
liable as obligor, guarantor or otherwise; and (vi) all obligations of the type
referred to in clauses (i) through (v) above of other Persons secured by any
lien on any property or asset of TDS (whether or not such obligation is assumed
by TDS), except for (1) the Subordinated Debentures and any other indebtedness
that is by its terms subordinated to or PARI PASSU with the Subordinated
Debentures, as the case may be, including all other debt securities and
guarantees in respect of those debt securities, issued to any other trusts,
partnerships or any other entity affiliated with TDS which is a financing
vehicle of TDS in connection with the issuance of preferred securities by such
entity or other securities which rank PARI PASSU with, or junior to, the
Preferred Securities, and (2) any indebtedness between or among TDS and its
affiliates. Such Senior Indebtedness will continue to be Senior Indebtedness and
be entitled to the benefits of the subordination provisions irrespective of any
amendment, modification or waiver of any term of such Senior Indebtedness.
The Indenture does not limit the aggregate amount of Senior Indebtedness
which may be issued by TDS. In addition, since TDS is a holding company, the
right of TDS, and hence the right of the creditors of TDS (including any holder
of Subordinated Debentures), to participate in any distribution of the assets of
any subsidiary upon its liquidation or reorganization or otherwise is
necessarily subject to the prior claims of creditors of such subsidiary, except
to the extent that claims of TDS as a creditor of such subsidiary may be
recognized. There is no restriction in the Indenture against subsidiaries of TDS
incurring secured or unsecured indebtedness or issuing secured or unsecured
securities. The ability of TDS to make payments of principal and interest on the
Subordinated Debentures will be dependent upon the payment to it by its
subsidiaries of dividends, loans or advances. As more fully set forth in the
notes to the Company's financial statements, such payments by TDS's regulated
telephone company subsidiaries are subject to legal and contractual
restrictions, primarily contained in the mortgages granted by certain such
subsidiaries to the Rural Utilities Service.
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CERTAIN COVENANTS
If (i) there has occurred any event that would constitute an Indenture Event
of Default or (ii) TDS is in default with respect to its payment of any
obligations under any Preferred Securities Guarantee, then (a) TDS may not
declare or pay any dividend on, make any distributions with respect to, or
redeem, purchase or make a liquidation payment with respect to, any of its
capital stock (other than (i) purchases or acquisitions of shares of TDS common
stock in connection with the satisfaction by TDS of its obligations under any
employee benefit plans or any other contractual obligation of TDS (other than a
contractual obligation ranking PARI PASSU with or junior to the Subordinated
Debentures), (ii) as a result of a reclassification of TDS capital stock or the
exchange or conversion of one class or series of TDS capital stock for another
class or series of TDS capital stock, or (iii) the purchase of fractional
interests in shares of TDS capital stock pursuant to the conversion or exchange
provisions of such TDS capital stock or the security being converted or
exchanged), (b) TDS may not make any payment of interest, principal or premium,
if any, on or repay, repurchase or redeem any debt securities (including
guarantees) issued by TDS which rank PARI PASSU with or junior to the
Subordinated Debentures, and (c) TDS may not make any guarantee payments with
respect to the foregoing (other than pursuant to the Preferred Securities
Guarantees).
For so long as the Trust Securities under a Trust remain outstanding, TDS
will covenant (i) to maintain 100% direct or indirect ownership of the Common
Securities of such Trust; provided, however, that any permitted successor of TDS
under the Indenture may succeed to TDS's ownership of such Common Securities,
(ii) not to cause, as sponsor of such Trust, or to permit, as holder of such
Common Securities, the dissolution, winding-up, or termination of such Trust,
except in connection with a distribution of the Subordinated Debentures held by
such Trust as provided in the Declaration for such Trust and in connection with
certain mergers, consolidations or amalgamations, and (iii) to use its
reasonable efforts to cause such Trust (a) to remain a statutory business trust,
except in connection with the distribution of Subordinated Debentures to the
holders of Trust Securities of such Trust in liquidation of such Trust, the
redemption of all such Trust Securities, or certain mergers, consolidations or
amalgamations, each as permitted by such Declaration, and (b) to otherwise
continue to be classified as a grantor trust for United States federal income
tax purposes.
OPTIONAL REDEMPTION
TDS will have the right to redeem the Subordinated Debentures of each
series, in whole or in part, from time to time, on or after the date set forth
in the applicable Prospectus Supplement or in whole but not in part at any time
in certain circumstances upon the occurrence of a Tax Event as described under
"Description of the Preferred Securities-Tax Event Redemption" in the applicable
Prospectus Supplement, upon not less than 30 nor more than 60 days' notice, at a
redemption price equal to 100% of the principal amount to be redeemed plus any
accrued and unpaid interest, including Additional Interest (as defined herein),
if any, to the redemption date. If a partial redemption of the Preferred
Securities of a Trust resulting from a partial redemption of the Subordinated
Debentures held by such Trust would result in the delisting of such Preferred
Securities, TDS may only redeem such Subordinated Debentures in whole.
INTEREST
Each Subordinated Debenture will bear interest at the rate set forth in the
applicable Prospectus Supplement from the original date of issuance, payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year (each, an "Interest Payment Date"), to the person in whose name such
Subordinated Debenture is registered, subject to certain exceptions, at the
close of business on the Business Day next preceding such Interest Payment Date.
In the event the Subordinated Debentures do not continue to remain in book-entry
only form, TDS will have the right to select record dates which may be not less
than fifteen days prior to each Interest Payment Date.
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The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. The amount of interest payable for
any period shorter than a full quarterly period will be computed on the basis of
the actual number of days elapsed in such 90-day quarter. In the event that any
date on which interest is payable on the Subordinated Debentures is not a
Business Day, then payment of the interest payable on such date will be made on
the next succeeding day which is a Business Day (and without any interest or
other payment in respect of any such delay), except that, if such Business Day
is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
Except to the extent set forth in the applicable Prospectus Supplement, TDS
will have the right at any time, and from time to time, during the term of any
series of Subordinated Debentures, to defer payments of interest by extending
the interest payment period for a period not exceeding 20 consecutive quarters,
at the end of which Extension Period, TDS will pay all interest then accrued and
unpaid (including any Additional Interest, together with interest thereon at the
rate specified for such Subordinated Debentures to the extent permitted by
applicable law); provided, that, during any such Extension Period, (a) TDS may
not declare or pay any dividend on, make any distributions with respect to, or
redeem, purchase or acquire, or make a liquidation payment with respect to, any
of its capital stock (other than (i) purchases or acquisitions of shares of TDS
common stock in connection with the satisfaction by TDS of its obligations under
any employee benefit plans or any other contractual obligation of TDS (other
than a contractual obligation ranking PARI PASSU with or junior to the
Subordinated Debentures), (ii) as a result of a reclassification of TDS capital
stock or the exchange or conversion of one class or series of TDS capital stock
for another class or series of TDS capital stock, or (iii) the purchase of
fractional interests in shares of TDS capital stock pursuant to the conversion
or exchange provisions of such TDS capital stock or the security being converted
or exchanged), (b) TDS may not make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by TDS which rank PARI PASSU with or junior to the
Subordinated Debentures to which such Extension Period applies and (c) TDS will
not make any guarantee payments with respect to the foregoing (other than
pursuant to the Preferred Securities Guarantees). This covenant effectively
requires that any Extension Period with respect to payment of interest on a
series of Subordinated Debentures will also apply to each other series of
Subordinated Debentures issued under the Indenture to other trusts similar to
the Trust. Prior to the termination of any such Extension Period for a series of
Subordinated Debentures, TDS may further defer payments of interest on such
Subordinated Debentures, by extending the interest payment period, provided that
such Extension Period together with all such previous and further extensions
thereof for such series of Subordinated Debentures may not exceed 20 consecutive
quarters or extend beyond the maturity of such series of Subordinated
Debentures.
Upon the termination of any Extension Period for a series of Subordinated
Debentures, and the payment of all accrued and unpaid interest on the
Subordinated Debentures then due, TDS may select a new Extension Period for such
series of Subordinated Debentures, as if no Extension Period had previously been
declared, subject to the above requirements. No interest on a series of
Subordinated Debentures during an Extension Period, except at the end thereof,
will be due and payable on such series of Subordinated Debentures.
TDS has no present intention of exercising its rights to defer payments of
interest by extending the interest payment period on any Subordinated
Debentures.
If the Property Trustee is the sole holder of a series of Subordinated
Debentures, TDS will give the Regular Trustees and the Property Trustee notice
of its selection of such Extension Period for such series of Subordinated
Debentures one Business Day prior to the earlier of (i) the next succeeding date
on which distributions on the related Preferred Securities are payable or (ii)
the date the applicable Trust is required to give notice to the AMEX or other
applicable self-regulatory organization or to holders of such
14
<PAGE>
Preferred Securities on the record date or the date such distribution is
payable, but in any event not less than one Business Day prior to such record
date. The Regular Trustees shall give notice of TDS's selection of such
Extension Period to the holders of such Preferred Securities. If the Property
Trustee is not the sole holder of a series of Subordinated Debentures, TDS will
give the holders of such Subordinated Debentures notice of its selection of such
Extension Period ten Business Days prior to the earlier of (i) the Interest
Payment Date or (ii) the date TDS is required to give notice to the AMEX or
other applicable self-regulatory organization or to holders of such Subordinated
Debentures, but in any event at least two Business Days before such record date.
ADDITIONAL INTEREST
If at any time a Trust is required to pay any taxes, duties, assessments or
governmental charges of whatever nature (other than withholding taxes) imposed
by the United States, or any other taxing authority, then, in any such case, TDS
will pay as additional interest ("Additional Interest") such additional amounts
as shall be required so that the net amounts received and retained by such Trust
after paying any such taxes, duties, assessments or other governmental charges
will be equal to the amounts such Trust would have received had no such taxes,
duties, assessments or other governmental charges been imposed.
INDENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events, which has occurred and is continuing, constitutes an "Event of Default"
with respect to any series of the Subordinated Debentures:
(a) failure for 30 days to pay interest on the Subordinated Debentures
of such series, including any Additional Interest in respect thereof, when
due; provided, however, that a valid extension of the interest payment
period by TDS will not constitute a default in the payment of interest for
this purpose; or
(b) failure to pay principal of or premium, if any, on the Subordinated
Debentures of such series when due whether at maturity, upon redemption, by
declaration, or otherwise; or
(c) failure to observe or perform any other covenant or agreement (other
than those specifically relating solely to one or more other series of
Subordinated Debentures) contained in the Indenture for 90 days after
written notice to TDS from the Debt Trustee or the holders of at least 25%
in principal amount of the outstanding Subordinated Debentures; or
(d) certain events of bankruptcy, insolvency or reorganization of TDS;
or
(e) the voluntary or involuntary dissolution, winding-up or termination
of the applicable Trust, except in connection with the distribution of
Subordinated Debentures to the holders of Trust Securities of such Trust in
liquidation of such Trust, the redemption of all outstanding Trust
Securities of such Trust and certain mergers, consolidations or
amalgamations permitted by the Declaration.
Upon the occurrence of an Event of Default set forth in (a),(b), or (c)
above, the Debt Trustee, or the holders of at least 25% in principal amount of
the outstanding Subordinated Debentures will have the right under the Indenture
to declare the principal of, and interest (including Additional Interest, if
any) on, the Subordinated Debentures to be immediately due and payable. The
principal amount of the Subordinated Debentures will become immediately due and
payable, without any declaration or other action by the Debt Trustee or any
other person, upon the occurrence of an Event of Default set forth in (d) or (e)
above.
The holders of a majority in aggregate outstanding principal amount of the
Subordinated Debentures of such series have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Debt
Trustee. Either the Debt Trustee or the holders of at least 25% in aggregate
outstanding principal amount of the Subordinated Debentures of such series may
declare the principal of
15
<PAGE>
such series due and payable immediately on default, but the holders of a
majority in aggregate outstanding principal amount of such series may annul such
declaration and waive such default if such default has been cured and a sum
sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration and any applicable premium has been deposited
with the Debt Trustee.
The holders of a majority in aggregate outstanding principal amount of a
series of Subordinated Debentures affected thereby may, on behalf of the holders
of all such Subordinated Debentures, waive any past default, except (i) a
default in the payment of principal, premium, if any, or interest (unless such
default has been cured and a sum sufficient to pay all matured installments of
interest and principal due otherwise than by acceleration and any applicable
premium has been deposited with the Debt Trustee) or (ii) a default in the
covenant of TDS not to declare or pay dividends on, or make distributions with
respect to, or redeem, purchase or acquire any of its capital stock during an
Extension Period. An Indenture Event of Default also constitutes a Declaration
Event of Default. The holders of Preferred Securities in certain circumstances
described in the applicable Prospectus Supplement may have the right to direct
the Property Trustee to exercise its rights as the holder of the Subordinated
Debentures.
PAYMENT AND PAYING AGENTS
Payment of principal of and premium (if any) on Subordinated Debentures will
be made only against surrender to the Paying Agent of the Subordinated
Debentures. Principal of and any premium and interest, if any, on Subordinated
Debentures will be payable, subject to any applicable laws and regulations, at
the office of such Paying Agent or Paying Agents as TDS may designate from time
to time pursuant to the Indenture. Payment of interest on the Subordinated
Debentures on any Interest Payment Date will be made to the person in whose name
the Subordinated Debenture (or predecessor security) is registered at the close
of business on the Regular Record Date for such interest payment.
The Debt Trustee will act as Paying Agent with respect to the Subordinated
Debentures. TDS may at any time designate additional Paying Agents or rescind
the designation of any Paying Agent or approve a change in the office through
which any Paying Agent acts, except that TDS will be required to maintain a
Paying Agent at the place of payment.
All moneys paid by TDS to a Paying Agent for the payment of the principal of
or premium or interest, if any, on any Subordinated Debentures which remain
unclaimed at the end of two years after such principal, premium, if any, or
interest shall have become due and payable will be repaid to TDS and the holder
of such Subordinated Debentures will thereafter look only to TDS for payment
thereof.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting TDS and the Debt Trustee, with
the consent of the holders of not less than a majority in principal amount of
the Subordinated Debentures, to modify the Indenture or the rights of the
holders of the Subordinated Debentures, and the holders of not less than a
majority in principal amount of the Subordinated Debentures of a particular
series to modify the supplemental indenture affecting that series; provided that
no such modification may, without the consent of the holder of each outstanding
Subordinated Debenture affected thereby, (i) except as provided with respect to
any particular series, extend the fixed maturity of such Subordinated
Debentures, or reduce the principal amount thereof, or reduce the rate or extend
the time of payment of interest thereon, or reduce any premium payable upon the
redemption thereof, without the consent of the holder of the Subordinated
Debentures so affected or (ii) reduce the percentage of Subordinated Debentures,
the holders of which are required for such consent, without the consent of the
holder of each Subordinated Debenture then outstanding and affected thereby.
In addition, TDS and the Debt Trustee may execute, without the consent of
holders of the Subordinated Debentures, any supplemental indenture for certain
other usual purposes including the creation of any new series of Subordinated
Debentures.
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CONSOLIDATION, MERGER AND SALE
TDS may consolidate with or merge into any other Person in a transaction in
which TDS is not the surviving entity, or sell, convey, transfer or otherwise
dispose of its properties as an entirety, or substantially as an entirety to,
any Person if (i) the Person formed in such consolidation or into which TDS is
merged or to which TDS has sold, conveyed, transferred or otherwise disposed of
its properties as an entirety, or substantially as an entirety, is an entity
validly existing under the laws of the jurisdiction of its organization and such
Person assumes TDS's obligations under the Preferred Securities Guarantees and
the Indenture, (ii) immediately after giving effect to the transaction no Event
of Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have occurred and be continuing, and (iii) any
such Person not organized and validly existing under the laws of the United
States, any state thereof or the District of Columbia, shall expressly agree in
a supplemental indenture (a) to pay to the holders of Trust Securities any
additional amounts as may be necessary in order that every net payment or other
amount due on the Trust Securities, after withholding for or on account of any
present or future tax, assessment or governmental charge imposed upon such
holder of Trust Securities (except for a tax, assessment or charge imposed
solely as a result of a connection between the recipient and the jurisdiction
imposing such tax, assessment or charge) by reason of or as a result of such
payment or other amount being paid by an entity which is not an entity existing
under the laws of the United States or any state thereof or the District of
Columbia, will not be less than the amount provided for in the Trust Securities,
the Indenture or the Preferred Securities Guarantees, as the case may be, to be
then due and payable and (b) to the selection and jurisdiction of courts of the
State of Illinois or the U.S. District Court for the Northern District of
Illinois for any litigation arising out of, under or in connection with the
Indenture or the Preferred Securities Guarantees. The phrase "substantially as
an entirety" is not defined in the Indenture or the Preferred Securities
Guarantees, and TDS is unaware of an established meaning or qualification of the
phrase under New York law, which is the law governing construction of the
Indenture and the Preferred Securities Guarantees. A holder of Preferred
Securities may bear the burden of establishing the meaning of the phrase
"substantially as an entirety".
Under the terms of the Indenture, TDS will be discharged from any and all
obligations in respect of any series of Subordinated Debentures (except in each
case for certain obligations with respect to denominations and provisions for
payment of such Subordinated Debentures and obligations to register the transfer
or exchange of such Subordinated Debentures, replace stolen, lost or mutilated
Subordinated Debentures, maintain paying agencies and hold moneys for payment in
trust) if TDS (i) deposits with the Debt Trustee, in trust, moneys or
Governmental Obligations, in an amount sufficient to pay all the principal of,
and interest on, such Subordinated Debentures on the dates such payments are due
in accordance with the terms of such Subordinated Debentures and (ii) delivers
to the Debt Trustee an opinion of counsel to the effect that, based upon TDS's
receipt from, or the publication by, the Internal Revenue Service of a ruling,
or a change in law, the holders of the Subordinated Debentures of such series
will not recognize income, gain or loss for United States federal income tax
purposes as a result of the deposit, defeasance and discharge and will be
subject to United States federal income tax on the same amount and in the same
manner and at the same times as would have been the case if such deposit,
defeasance or discharge had not occurred.
GOVERNING LAW
The Indenture and the Subordinated Debentures will be governed by, and
construed in accordance with, the internal laws of the State of New York.
INFORMATION CONCERNING THE DEBT TRUSTEE
The Debt Trustee, prior to default and after the curing of all defaults, if
any, undertakes to perform only such duties as are specifically set forth in the
Indenture and, after a default (that has not been cured or waived), will
exercise the same degree of care as a prudent individual would exercise in the
conduct of
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his or her own affairs. Subject to such provision, the Debt Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of Subordinated Debentures, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities which might
be incurred thereby; but the foregoing will not relieve the Debt Trustee, upon
the occurrence of an Indenture Event of Default, from exercising the rights and
powers vested in it by the Indenture. The Debt Trustee is not required to expend
or risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Debt Trustee reasonably believes that repayment
or adequate indemnity is not reasonably assured to it.
MISCELLANEOUS
TDS will have the right at all times to assign any of its rights or
obligations under the Indenture to a direct or indirect wholly-owned subsidiary
of TDS; provided that, in the event of any such assignment, TDS will remain
liable for all of such obligations. Subject to the foregoing, the Indenture will
be binding upon and inure to the benefit of the parties thereto and their
respective successors and assigns. The Indenture provides that it may not
otherwise be assigned by the parties thereto.
The Indenture will provide that TDS will pay all fees and expenses related
to (i) the offering and sale of the Trust Securities and the Subordinated
Debentures, (ii) the organization, maintenance and dissolution of each Trust,
(iii) the retention of the Trustees and (iv) the enforcement by the Property
Trustee of the rights of holders of Preferred Securities.
EFFECT OF OBLIGATIONS UNDER THE SUBORDINATED DEBENTURES
AND THE PREFERRED SECURITIES GUARANTEES
As set forth in the Declaration for each Trust, the sole purposes of each
Trust are to (i) issue Trust Securities, (ii) invest the proceeds thereof in the
Subordinated Debentures and (iii) engage in only those other activities
necessary or incidental thereto.
As long as payments of interest and other payments are made when due on a
series of Subordinated Debentures, such payments will be sufficient to cover
distributions and payments due on the related Trust Securities primarily because
(i) the aggregate principal amount of such Subordinated Debentures will be equal
to the sum of the aggregate stated liquidation amount of such Trust Securities;
(ii) the interest rate and interest and other payment dates on such Subordinated
Debentures will match the distribution rate and distribution and other payment
dates for the Trust Securities; (iii) TDS will pay for all costs and expenses of
each Trust; and (iv) the Declaration provides that the Trustees may not cause or
permit a Trust to, among other things, engage in any activity that is not
consistent with the purposes of such Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Preferred Securities (to the extent funds therefor are
available) are guaranteed by TDS as and to the extent set forth under
"Description of the Preferred Securities Guarantees". If TDS does not make
interest payments on the Subordinated Debentures purchased by a Trust, it is
expected that such Trust will not have sufficient funds to pay distributions on
its Preferred Securities. The Preferred Securities Guarantee for a Trust is a
full and unconditional guarantee from the time of its issuance, but does not
apply to any payment of distributions unless and until such Trust has sufficient
funds for the payment of such distributions.
If TDS fails to make interest or other payments on the Subordinated
Debentures held by a Trust when due (taking into account any Extension Period),
the Declaration for such Trust provides a mechanism whereby the holders of the
Preferred Securities of such Trust, using the procedures described in
"Description of the Preferred Securities -- Voting Rights" in the applicable
Prospectus Supplement may direct the Property Trustee to enforce its rights
under such Subordinated Debentures, including proceeding directly against TDS to
enforce the Subordinated Debentures. If the Property Trustee fails to enforce
its rights under such Subordinated Debentures, a holder of such Preferred
Securities may, to the fullest extent
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<PAGE>
permitted by law, institute a legal proceeding directly against TDS to enforce
the Property Trustee's rights under such Subordinated Debentures without first
instituting any legal proceeding against the Property Trustee or any other
person or entity, including such Trust.
If TDS fails to make payments under a Preferred Securities Guarantee for a
Trust, such Preferred Securities Guarantee provides a mechanism whereby the
holders of the Preferred Securities of such Trust may direct the Guarantee
Trustee to enforce its rights thereunder. If the Guarantee Trustee fails to
enforce such Preferred Securities Guarantee, any holder of such Preferred
Securities may institute a legal proceeding directly against TDS to enforce the
Guarantee Trustee's rights under such Preferred Securities Guarantee, without
first instituting a legal proceeding against such Trust, the Guarantee Trustee
or any other person or entity.
The above mechanisms and obligations, taken together, are equivalent to a
full and unconditional guarantee by TDS of payments due on the Preferred
Securities. See "Description of the Preferred Securities Guarantees -- General."
PLAN OF DISTRIBUTION
TDS and the Trusts may offer and sell the Preferred Securities in any of
three ways: (i) through agents; (ii) through underwriters or dealers; or (iii)
directly to one or more purchasers. The Prospectus Supplement with respect to
any of the Preferred Securities will set forth the terms of the offering of such
Preferred Securities, including the name or names of any underwriters or agents,
the purchase price of such Preferred Securities, the proceeds to the applicable
Trust from such sale, any underwriting discounts or agency fees and other items
constituting underwriters' or agents' compensation, the initial public offering
price, any discounts or concessions allowed or reallowed or paid to dealers, and
any securities exchanges on which such Preferred Securities may be listed.
The distribution of the Preferred Securities may be effected from time to
time in one or more transactions at a fixed price or prices, which may be
changed, at a market price prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices.
Underwriters, dealers and agents may be entitled, under agreements entered
into with TDS to indemnification by TDS against certain civil liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments which the underwriters, dealers or agents may be required to make in
respect thereof. Such underwriters, dealers and agents, and affiliates thereof,
may be customers of, engage in transactions with, or perform services for TDS
and its affiliates in the ordinary course of business.
All Preferred Securities will be new issues of securities with no
established trading market. Any underwriters to whom Preferred Securities are
sold by a Trust for public offering and sale may make a market in such Preferred
Securities, but such underwriters will not be obligated to do so and may
discontinue any market making at any time without notice. No assurance can be
given concerning the liquidity of the trading market for any Preferred
Securities.
EXPERTS
The audited consolidated financial statements and schedules of TDS
incorporated by reference in this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports
incorporated by reference herein. The financial statements and schedules
referred to above have been incorporated by reference in reliance upon the
authority of such firm as an expert in accounting and auditing in giving said
reports.
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LEGAL MATTERS
Certain matters of Delaware law relating to the legality of the Preferred
Securities, the validity of the Declaration, the formation of the Trusts and the
legality under state law of the Preferred Securities will be passed upon by
Richards, Layton & Finger, P.A., special Delaware counsel to the Trusts and the
Company. The legality under state law of the Preferred Securities Guarantees and
the Subordinated Debentures will be passed upon on behalf of the Trust and the
Company by Sidley and Austin, Chicago. Certain matters of Iowa law will be
passed upon on behalf of the Company by Nyemaster, Goode, Voigts, West, Hansell
& O'Brien, special Iowa counsel. Certain United States federal income taxation
matters will be passed upon by Sidley & Austin, Chicago. Walter C.D. Carlson, a
director of TDS and a beneficiary and trustee of the voting trust which controls
TDS, is a partner of Sidley & Austin. Michael G. Hron and William S. DeCarlo,
the Secretary and Assistant Secretary of TDS and certain TDS subsidiaries,
respectively, and Stephen P. Fitzell and Sherry S. Treston, the Secretary and
Assistant Secretary of certain TDS subsidiaries, respectively, are partners of
Sidley & Austin.
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS,
OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THE PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED HEREIN,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE TRUST OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF THE PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THE PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT
<S> <C>
PAGE
----
Summary........................................... S-4
Summary Consolidated Financial Information........ S-7
Recent Financial Results.......................... S-8
Risk Factors...................................... S-9
The Company....................................... S-13
The Trust......................................... S-14
Use of Proceeds................................... S-15
Consolidated Capitalization....................... S-15
Selected Consolidated Financial Information....... S-16
Accounting Treatment.............................. S-18
Description of the Preferred Securities........... S-18
Description of the Preferred Securities
Guarantee....................................... S-28
Description of the Subordinated Debentures........ S-29
Effect of Obligations under the Subordinated
Debentures and the Preferred Securities
Guarantee....................................... S-35
United States Federal Income Taxation............. S-36
Underwriting...................................... S-41
Legal Matters..................................... S-42
PROSPECTUS
Available Information............................. 2
Documents Incorporated by Reference............... 2
The Company....................................... 3
The Trusts........................................ 3
Ratio of Earnings to Fixed Charges and Preferred
Stock Dividends................................. 5
Use of Proceeds................................... 5
Description of the Preferred Securities........... 5
Description of the Preferred Securities
Guarantees...................................... 7
Description of the Subordinated Debentures........ 10
Effect of Obligations Under the Subordinated
Debentures and the Preferred Securities
Guarantees...................................... 18
Plan of Distribution.............................. 19
Experts........................................... 19
Legal Matters..................................... 20
</TABLE>
6,000,000
PREFERRED SECURITIES
TDS CAPITAL I
% TRUST ORIGINATED
PREFERRED SECURITIES-SM-
("TOPRS-SM-")
FULLY AND UNCONDITIONALLY
GUARANTEED BY
[LOGO]
TELEPHONE AND DATA
SYSTEMS, INC.
------------------------
PROSPECTUS SUPPLEMENT
------------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
, 1997.
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