UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1 to Annual Report on Form 10-K Dated March 31, 1995
(Mark One)
[(Check Mark)] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the Fiscal Year Ended December 31, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
COMMISSION FILE NUMBER 0-16560
VANGUARD CELLULAR SYSTEMS, INC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
North Carolina 56-1549590
(STATE OR OTHER JURISDICTION OF INCORPORATION OR
ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
2002 Pisgah Church Road, Suite 300,
Greensboro, North Carolina 27455-3314
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (910) 282-3690
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $.01 per share
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES (Check Mark) NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (Check Mark)
The aggregate market value of the registrant's Common Stock held by those
other than executive officers and directors at March 15, 1995, based on the
NASDAQ closing sale price for the Registrant's Common Stock as of such date, was
approximately $881,341,000.
The number of shares outstanding of the issuer's common stock as of March
15, 1995 was 41,185,468.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement relating to its
1995 annual meeting of stockholders are incorporated by reference into Part III
as set forth herein. Such proxy statement will be filed with the Securities and
Exchange Commission not later than 120 days after the registrant's fiscal year
ended December 31, 1994.
TABLE OF CONTENTS
PART II
Item 7 Management's Discussion and Analysis of Results of Operations and Financial Condition........................... 1
Item 8 Financial Statements and Supplementary Data..................................................................... 6
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................................... 6
Signatures............................................................................................................. 7
Index to Financial Statements and Schedule............................................................................. F-1
Exhibit Index
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994 AND 1993
In 1994, the Company reclassified certain pass-through items previously
recognized as service revenue in its Statements of Operations to offset the
related cost of service expenses. These reclassified items relate to charges
associated with the Company's subscribers roaming into adjacent cellular
markets. Appropriate reclassifications have been made in each period presented
in the accompanying financial statements. These reclassifications were made to
conform the treatment in the Company's financial statements to the accounting
treatment common in the industry.
Unless otherwise indicated all information in this report has been adjusted
for the Company's 3 for 2 stock split paid in the form of a stock dividend on
August 24, 1994.
Service revenues increased by $47.5 million or 48% primarily as a result of
an 85% increase in the number of subscribers in majority owned markets to
approximately 245,000 as of December 31, 1994 as compared to the end of 1993.
Total net subscribers in the Company's majority owned markets increased by
112,700 during 1994 as compared to an increase of 40,000 in 1993. Of the total
increase during 1994, 98,300 net activations occurred in markets operated by the
Company in both periods while 14,400 of the net subscribers were attributable to
markets acquired by the Company during the year. The 146% growth rate of net
subscriber additions in markets operated in both periods is the result of an
increase in productivity by sales personnel which the Company believes has been
augmented by increased sales training, and the growing acceptance of cellular
communications. The growth in net subscriber additions also reflects the number
of agents in the Company's indirect distribution channels combined with moderate
economic growth in the Company's operating regions. Service revenues
attributable to the Company's own subscribers increased 52% during 1994 to
$110.1 million as compared to 1993 while service revenues from customers from
other cellular markets roaming into the Company's markets increased 37% to $36.3
million. When combining revenue from the Company's customers with roaming
revenue, overall average monthly revenue per subscriber, which is based upon
service fees for the period and averages of subscribers computed on a quarterly
basis, declined 8% to $70 for the year from $76 a year ago. Substantially all of
this decline was the result of the Company's subscriber growth rate exceeding
the rate of growth for roaming revenues.
Cellular equipment revenues increased $8.6 million or 87% to $18.5 million
for 1994 as compared to $9.9 million for 1993. This increase was primarily due
to the 146% increase in 1994 of net subscriber additions in markets operated by
the Company in both periods. Cost of cellular equipment increased 123% to $29.9
million during 1994. The Company continued to sell telephones at or below cost
in response to competitive pressures and also continued the availability of its
rental program.
Cost of service expenses decreased as a percentage of service fees from 15%
for 1993 to 14% in 1994. In many instances in 1994, the Company's customers who
roam into adjacent cellular markets were charged at rates consistent with those
rates the Company charges in its own markets rather than passing through higher
roaming rates customarily charged by many cellular carriers. This billing
practice, while creating a marketing advantage by providing the customer with a
broader virtual service area, has increased net costs related to the provision
of these services by approximately $7.5 million in 1994 as compared to
approximately $4.7 million during 1993. The rapid subscriber growth that has
occurred in the past year has made this larger virtual service area available to
significantly more customers which has caused greater net costs to be incurred
by the Company in connection with this billing practice. The Company is
continuing its efforts to reduce these costs through the negotiation of more
favorable roaming agreements with both wireline and non-wireline cellular
service providers. In addition, the continued negotiation of more favorable
interconnection agreements with local exchange carriers should contribute to
stability in cost of service as a percentage of service fees.
General and administrative expenses increased 29% or $9.8 million during
1994 but decreased as a percentage of service fees to 30% from 35% in 1993.
These expenses declined as a percentage of service fees primarily as a result of
controlled increases of many overhead expenses resulting in higher utilization
of the Company's existing personnel and systems. General and administrative
expenses should continue to decline as a percentage of service fees as the
Company continues to add more subscribers without commensurate increases in
general and administrative overhead.
Marketing and selling expenses increased 71% to $37.1 million during 1994
as compared to 1993 and as a percentage of service fees these expenses increased
to 25% from 22%. Marketing and selling expenses, including the net loss on
subscriber equipment, increased 93% to $48.5 million during 1994 as compared to
1993. The increase was primarily attributable to the higher rate of growth in
the net subscriber additions described above for 1994 as compared to 1993 and
the resulting increase
in salaries and commissions. Marketing and selling expenses per net subscriber
addition, including the loss on cellular equipment, (excluding the number of
subscribers in acquired markets at the time of acquisition) declined 22% to $493
in 1994 from $629 during 1993.
Depreciation and amortization decreased $1.1 million or 4% during 1994. The
primary reason for this decrease was that the Company changed the depreciable
lives of certain of its property and equipment to more closely approximate its
historical experience and the estimated useful lives of these assets. These life
changes affected assets representing approximately 30% of the cost of the
Company's depreciable assets. This change reduced depreciation expense and net
loss for 1994 by approximately $4.5 million or $0.12 per share. This effect of
the depreciable life changes was offset in part by approximately $63.0 million
and $21.0 of new property and equipment placed in service during 1994 and 1993,
respectively.
Interest expense increased $6.7 million or 44% during 1994 as a result of
increased average borrowings of approximately $73.2 million and, to a lesser
extent, an increase in average interest rates charged.
Net loss before extraordinary item decreased from $15.3 million or $0.40
per share in 1993 to $13.9 million or $0.36 per share in 1994. The decrease in
net loss per share was primarily attributable to an increase in "Operating Cash
Flow -- EBITDA" (income from operations before depreciation and amortization )
of $10.7 million or 42% to $35.9 million.
In December 1994, the Company completed the closing of a $675 million
credit facility which refinanced its existing $390 million facility. In
connection with this refinancing, the Company recorded an extraordinary loss of
$8.4 million ($0.22 per share), which represented the write-off of all
unamortized deferred financing costs related to the refinanced facility. The
increase in net loss was primarily attributable to the extraordinary item and
increased interest expense described above as well as $3.5 million of other
expense in connection with accumulated legal fees and costs associated with the
resolution of pending litigation.
YEARS ENDED DECEMBER 31, 1993 AND 1992
Service fee revenues increased by $26.2 million or 36% primarily as a
result of a 43% increase in the number of subscribers in majority owned markets
to approximately 132,300 as of December 31, 1993. All of the increase in the
number of subscribers was due to subscriber growth in markets controlled by the
Company in both years. Total net subscribers in the Company's majority owned
markets increased by 40,000 during 1993 as compared to 23,100 during 1992. This
73% increase in the number of net subscriber additions was primarily
attributable to the same factors resulting in the increase for 1994 as described
above. Service fees attributable to the Company's own subscribers increased 38%
during 1993 to $72.4 million while service fees from customers from other
cellular markets roaming into the Company's markets increased 31% to $26.6
million. When combining revenue from the Company's customers with roaming
revenues, overall average monthly service revenue per subscriber decreased 1% to
$76 in 1993 from $77 in 1992.
Cellular equipment revenues increased 66% to $9.9 million and cost of
cellular telephone equipment increased 77% to $13.4 million resulting in a net
loss on cellular equipment of $3.5 million.
Cost of service expenses as a percentage of service fee revenues remained
constant at 15% for the years ended December 31, 1993 and 1992. The Company
estimates that its billing practice with respect to customers roaming into
adjacent markets increased cost of service by $4.7 million and $2.4 million in
1993 and 1992, respectively.
General and administrative expenses increased 17% or $4.9 million but
decreased as a percentage of service fees to 35% from 40% in 1992. Increases in
the overall amount of expenses were primarily attributable to the same factors
resulting in the increase for 1994.
Marketing and selling expenses increased 29% to $21.7 million during 1993,
but as a percentage of service fees, these expenses declined during 1993 to 22%
from 23% in 1992. The higher rate of growth in net subscriber additions
described above during 1993 and the resulting increase in salaries and
commissions contributed to the overall increase in marketing and selling
expenses. This increased growth rate in net subscriber additions combined with
an emphasis on shifting variable marketing costs to fixed also caused marketing
and selling expenses per net subscriber addition, including the net loss on
cellular equipment, to decline 21% to $629 from $799 in 1992.
Depreciation and amortization increased $3.1 million or 14% during 1993 as
a result of approximately $39.2 million in new capital equipment being placed in
service during 1993 and 1992. As a percentage of service fees, depreciation and
amortization declined to 25% during 1993 from 30% during 1992.
2
Interest expense decreased $788,000 or 5% during 1993 as the result of
declines in interest rates charged on borrowings partially offset by an increase
in average borrowings of approximately $20.0 million.
Net loss before extraordinary item decreased from $26.7 million or $0.72
per share for the year ended December 31, 1992 to $15.3 million or $0.40 per
share in the 1993 period. The decrease in net loss per share was primarily due
to an increase in Operating Cash Flow-EBITDA.
In April 1993, the Company completed the closing of a $290 million credit
facility (the "1993 Loan Agreement") which refinanced its existing $275 million
credit facility. In connection with the refinancing of the $275 million credit
facility, the Company recorded an extraordinary loss of $3.7 million $(0.10) per
share which represented the write-off of all unamortized deferred financing
costs related to that facility.
Net loss decreased from $26.7 million or $0.72 per share for the year ended
December 31, 1992 to $19.0 million or $0.50 per share in 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital to acquire, construct, and expand its cellular
systems. The Company intends to continue to pursue acquisitions of cellular
systems and properties as well as other investment opportunities. In addition,
although the primary buildout of its cellular system is complete, the Company
will continue to construct additional cell sites and purchase cellular equipment
to increase capacity as subscribers are added and usage increases, to expand
geographic coverage and to provide for increased portable usage.
The specific capital requirements of the Company will depend primarily on
the timing and size of any additional acquisitions and other investments as well
as property and equipment needs associated with the rate of subscriber growth.
Operating Cash Flow (or EBITDA) has been a significant source of internal
funding in recent years, but the Company does not expect Operating Cash Flow to
grow sufficiently to meet both its property and equipment and debt service
requirements for at least the next two years. In recent years, the Company has
met its capital requirements primarily through bank financing and private
issuances of its Class A Common Stock.
Operating Cash Flow does not represent and should not be considered as an
alternative to net income or operating income as determined by generally
accepted accounting principles. It should not be considered in isolation from
other measures of performance according to such principles, including operating
results and cash flows. Operating Cash Flow increased from $25.3 million in 1993
to $35.9 million in 1994 whereas net cash provided by operating activities as
shown on the Statement of Cash Flows decreased from $8.6 million in 1993 to $2.3
million in 1994. Net cash provided by operating activities in 1994 reflects a
$6.7 million increase in interest expense, attributable primarily to increased
borrowings, as well as increases in working capital items. Financing activities,
primarily proceeds from long-term debt less principal repayments related to
refinancings, of $100.3 million in 1994 and $31.0 million in 1993 provided
substantially all of the net cash used in investing activities. Investing
activities, primarily purchases of property and equipment and payments for
acquisitions, used net cash of $105.9 million in 1994 and $40.0 million in 1993.
1994 CREDIT FACILITY. On December 23, 1994, the Company completed the
closing of a $675 million credit facility, pursuant to an Amended and Restated
Loan Agreement (the "1994 Credit Facility"), with various lenders led by The
Toronto-Dominion Bank and The Bank of New York. The 1994 Credit Facility
provides the Company with additional financial and operating flexibility and
enables the Company to accelerate its cellular network buildout and pursue
business opportunities that may arise in the future. The 1994 Credit Facility
refinanced the 1993 Loan Agreement. The 1993 Loan Agreement closed in April 1993
and refinanced the Company's previously existing credit facility.
The 1994 Credit Facility consists of a "Term Loan" and a "Revolving Loan."
The Term Loan, in the amount of $325 million, was used to repay the Company's
borrowings under the 1993 Loan Agreement. The Revolving Loan, in the amount of
up to $350 million, is available for capital expenditures, to make acquisitions
of and investments in cellular and other wireless communication interests, and
for other general corporate purposes.
As security for borrowings under the 1994 Credit Facility, the Company has
pledged substantially all of its tangible and intangible assets and future cash
flows. Among other restrictions, the 1994 Credit Facility restricts the payment
of cash dividends, limits the use of borrowings, limits the creation of
additional long-term indebtedness and requires the maintenance of certain
financial ratios. The requirements of the 1994 Credit Facility were established
in relation to the Company's projected capital needs and projected results of
operations and cash flow. These requirements generally were designed to require
3
continued improvement in the Company's operating performance such that its
Operating Cash Flow -- EBITDA would be sufficient to continue servicing the debt
as repayments are required. The Company is in compliance with all loan
covenants.
As of December 31, 1994, $348.5 million had been borrowed under the 1994
Credit Facility. Under the restrictive covenants of the facility, future
borrowing availability generally increases as the Company's operating
performance improves. The Company does not expect these covenants to curtail
planned borrowings. As of December 31, 1994, the most restrictive of these
convenants would limit available borrowings during the first quarter of 1995 to
$210.3 million.
The outstanding amount of the Term Loan as of March 30, 1998 is to be
repaid in increasing quarterly installments commencing on March 31, 1998 and
terminating at its maturity date of December 31, 2003. The quarterly installment
payments begin at 1.875% of the outstanding principal amount at March 30, 1998
and gradually increase to 5.625% at March 31, 2003. The available borrowings
under the Revolving Loan shall be reduced on a quarterly basis also commencing
on March 31, 1998 and terminating on December 31, 2003. The quarterly reduction
begins at 1.875% of the Revolving Loan Commitment at March 30, 1998 and
gradually increases to 5.625% on March 31, 2003.
The Term Loan and the Revolving Loan bear interest at a rate equal to the
Company's choice of the Prime Rate or Eurodollar Rate plus an applicable margin
based upon a leverage ratio for the most recent fiscal quarter. As of December
31, 1994 the leverage ratio, which is computed as the ratio of Total Debt (as
defined) to Adjusted Cash Flow (as defined), was at such a level as to cause the
applicable margins on the borrowings to be 0.375% and 1.625% per annum for the
Prime Rate and Eurodollar Rate, respectively.
ACQUISITIONS. The Company completed several acquisitions in 1994 and early
1995. On April 26, 1994, the Company completed the acquisition of the Altoona,
PA MSA and the Chambersburg, PA (PA-10) RSA, which are contiguous to its
Mid-Atlantic Supersystem in exchange for $4.4 million in cash, the exchange of
the Hagerstown, MD cellular market and the Company's minority ownership interest
in one cellular market.
The Company purchased in October 1994, for $6.9 million in cash and $3.3
million in the Company's Class A Common Stock, the Washington, Maine (ME-4) RSA
and three of the four counties of the Mason, West Virginia (WV-1) RSA. The Maine
RSA is approximately 40 miles north of the Portland, Maine MSA, which is already
operated by the Company. The West Virginia RSA is contiguous to the Company's
Charleston, West Virginia MSA.
On December 14, 1994, the Company purchased the Binghamton, New York MSA
and the Elmira, New York MSA ("Binghamton/Elmira Transaction") for a purchase
price of approximately 1.8 million shares of the Company's Class A Common Stock
and $6.1 million in cash borrowed under the 1993 Loan Agreement, subject to
post-closing adjustments. These markets are contiguous to the Company's
Mid-Atlantic Supersystem.
All markets that have been acquired as of December 31, 1994 are operational
cellular systems. Condensed pro forma financial information for these markets as
of December 31, 1994 is contained in Note 3 to the consolidated financial
statements.
In January 1995, the Company purchased the Union, Pennsylvania (PA-8) RSA
for a cash price of $51.3 million with borrowings under its 1994 Credit
Facility. The PA-8 RSA lies in the center of the Company's Mid-Atlantic
Supersystem.
GEOTEK COMMUNICATIONS, INC.. In February 1994, the Company purchased for
$30.0 million from Geotek Communications, Inc. (Geotek), 2.5 million shares of
Geotek common stock and received options to invest up to $167.0 million for an
aggregate of 10 million shares. Geotek is a telecommunications company that is
developing an Enhanced Specialized Mobile Radio (ESMR) wireless communications
network in the United States based on its proprietary Frequency Hopping Multiple
Access (FHMA) digital technology. Geotek's common stock is traded on the NASDAQ
National Market System.
The options received by the Company were issued in three series as follows:
(i) Series A for 2 million shares at $15 per share; (ii) Series B for 2 million
shares at $16 per share; and (iii) Series C for 3 million shares at $17 per
share and 3 million shares at $18 per share. All options are immediately
exercisable. The Series A options expire upon the commercial validation (as
defined) of Geotek's first ESMR system using FHMA (the Series A Expiration
Date). The series B and Series C options expire 1 year and 2 years,
respectively, after the Series A Expiration Date. However, the Company may
extend the Series B and Series C options by six months and the Series C options
by an additional six months and, if any portion of any series of options
expires, all unexercised options expire immediately.
The Company has also entered into a five-year management consulting
agreement to provide operational and marketing support in exchange for 300,000
shares of Geotek common stock per year. However, should any portion of the
Series A, B or
4
C options expire, the management consulting agreement is immediately terminated.
During 1994, approximately 250,000 shares were earned under this management
agreement.
If all options are exercised and all shares are earned and received under
the management consulting agreement, the Company would own an aggregate of
approximately 20% of Geotek's common stock on a fully diluted basis. Under the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities", which are effective for
1994, this investment is classified as "available for sale". As such, the
investment is recorded at its market value and any unrealized gains or losses
are recognized as a separate component of shareholders' equity, but do not
affect results of operations.
The Company funded its initial $30.0 million investment in Geotek using
borrowings under the 1993 Loan Agreement. The 1994 Credit Facility permits
borrowings to fund the exercise of approximately $30.0 million of these options
but requires a waiver for borrowings to exercise additional amounts. If such a
waiver was not granted the Company would require other sources of financing to
exercise the remaining options.
CAPITAL EXPENDITURES. As of December 1994, the Company had approximately
$184.0 million of property and equipment placed in service. The Company
historically has incurred capital expenditures primarily based upon capacity
needs in its existing markets resulting from continued subscriber growth. During
1994, the Company initiated a plan to double the number of cell sites in order
to increase geographic coverage and provide for additional portable usage in the
Company's cellular markets. As a result of this accelerated network buildout and
the continued growth of the Company's subscriber base, capital expenditures were
approximately $63.0 million during 1994. During 1995, the Company plans to
accelerate this buildout further. Capital expenditures for 1995 are estimated to
be approximately $130 million and are expected to be funded primarily with
proceeds from the 1994 Credit Facility. Approximately $100 million of these
planned capital expenditures will be for cellular telephone systems and the
remainder primarily for cellular phones held for rental and office equipment and
furniture and other similar assets.
CASH FLOW GOALS. Operating Cash Flow improved $10.7 million to $35.9
million during 1994. The Company's primary goal over the next several years will
be to maximize operating cash flow. In order to do so the Company must minimize
decreases in monthly revenue per subscriber and continue to have rapid
subscriber growth with low incremental marketing and sales costs.
The Company believes its business strategy and sales force will generate
continued net subscriber growth and that its focus on higher revenue customers,
principally business users, will assist in supporting revenue per subscriber.
The Company has substantially completed the development of its managerial,
administrative and marketing functions, as well as the primary buildout of the
cellular networks in its existing markets, and believes that the rate of service
fee growth will exceed the rate of growth of operating expenses.
Although there can be no assurance that any of the foregoing growth goals
will be achieved, the Company believes that its internally generated funds and
its available bank lines of credit will be sufficient during the next several
years to complete its planned network expansion and acquisitions, to fund
operating expenses and debt service described above and to provide flexibility
to pursue business opportunities that might arise in the future.
INFLATION
The Company believes that inflation affects its business no more than it
generally affects other similar businesses.
5
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and notes to consolidated financial
statements of the Registrant and its subsidiaries are included in this Form
10-K/A following the Index to Financial Statements and Schedules.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) and (2) FINANCIAL STATEMENT AND FINANCIAL STATEMENT SCHEDULES. The financial statements and supplemental schedules
listed in the accompanying Index to Financial Statements and Schedules are filed as a part of this report.
(3) EXHIBITS. Exhibits to this report are listed in the accompanying Index to Exhibits.
(b) Reports on Form 8-K.
(1) On December 29, 1994, the Registrant filed a Current Report on Form 8-K, dated December 14, 1994, with
respect to the acquisition of all of the outstanding stock of Crowley Cellular Telecommunications
Binghamton, Inc. ("Crowley") and to update previously filed material with respect to the pending
acquisition of all of the assets of Sunshine Cellular ("Sunshine"). The Form 8-K included: (i) Crowley's
audited consolidated financial statements as of December 31, 1993 and for the year ended December 31,
1993, (ii) Crowley's unaudited consolidated financial statements as of September 30, 1994 and for the
nine months year ended September 30, 1994 and September 30, 1993, (iii) Sunshine's audited consolidated
financial statements as of December 31, 1993 and as of September 30, 1993 and (iv) pro forma
consolidated financial information as of September 30, 1994, for the year ended December 31, 1993 and
for the nine months ended September 30, 1994.
(2) On January 9, 1995, the Registrant filed a Current Report on Form 8-K, dated December 23, 1994. The Form
8-K reported the closing of the Registrant's $675 million credit facility and filed related exhibits.
(3) On February 13, 1995, the Registrant filed a Current Report on Form 8-K, dated January 27, 1995. The
Form 8-K reported the consummation of the acquisition of Sunshine and updated the financial and other
information included in the above-referenced Form 8-K dated December 14, 1994.
6
SIGNATURES
Pursuant to the requirements of the Section 13 and 15(d) of the Securities
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
VANGUARD CELLULAR SYSTEMS, INC.
By: /s/ HAYNES G. GRIFFIN
HAYNES G. GRIFFIN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Date: September 22, 1995
7
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
The following consolidated financial statements and Supplemental Schedule
of Vanguard Cellular Systems, Inc. and Subsidiaries are filed as part of this
report.
PAGE
Consolidated Balance Sheets, December 31, 1994 and 1993................................................................ F-2
Consolidated Statements of Operations for the Years ended December 31, 1994, 1993 and 1992............................. F-3
Consolidated Statements of Changes in Shareholders' Equity for the Years ended December 31, 1994, 1993 and 1992........ F-4
Consolidated Statements of Cash Flows for the Years ended December 31, 1994, 1993 and 1992............................. F-5
Notes to Consolidated Financial Statements............................................................................. F-6
Report of Independent Public Accountants Relating to Financial Statements and Supplemental Schedule listed below....... F-18
Schedule VIII -- Valuation and Qualifying Accounts..................................................................... F-19
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
F-1
VANGUARD CELLULAR SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
DECEMBER 31,
Assets 1994 1993
CURRENT ASSETS:
Cash.............................................................................................. $ 5,745 $ 9,098
Accounts receivable, net of allowances for doubtful accounts of $2,761 and $1,771................. 22,664 12,167
Cellular telephone inventories.................................................................... 10,417 4,464
Prepaid expenses.................................................................................. 717 918
Total current assets........................................................................... 39,543 26,647
INVESTMENTS 257,203 177,415
PROPERTY AND EQUIPMENT, at cost:
Land.............................................................................................. 1,666 1,606
Buildings......................................................................................... 1,027 536
Cellular telephones held for rental............................................................... 9,341 10,354
Cellular telephone systems........................................................................ 137,708 99,114
Office furniture and equipment.................................................................... 34,466 22,000
184,208 133,610
Less -- Accumulated depreciation.................................................................. 80,022 65,830
104,186 67,780
Construction in progress.......................................................................... 16,139 3,936
120,325 71,716
OTHER ASSETS, net of accumulated amortization of $635 and $4,459.................................... 14,640 8,651
Total assets................................................................................... $ 431,711 $ 284,429
Liabilities and Shareholders' Equity
CURRENT LIABILITIES:
Accounts payable and accrued expenses............................................................. $ 40,689 $ 21,470
Customer deposits and unearned revenues........................................................... 632 481
Total current liabilities...................................................................... 41,321 21,951
LONG-TERM DEBT...................................................................................... 348,649 238,153
MINORITY INTERESTS.................................................................................. 2,534 2,427
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' EQUITY:
Preferred stock -- $.01 par value, 1,000,000 shares authorized, no shares issued.................. -- --
Common stock, Class A -- $.01 par value, 60,000,000 shares authorized, 40,529,334 and 38,398,080
shares issued and outstanding.................................................................. 405 384
Common stock, Class B -- $.01 par value, 30,000,000 shares authorized, no shares issued........... -- --
Additional capital in excess of par value......................................................... 234,731 185,786
Net unrealized holding losses..................................................................... (9,310) --
Accumulated deficit............................................................................... (186,619) (164,272)
Total shareholders' equity..................................................................... 39,207 21,898
Total liabilities and shareholders' equity..................................................... $ 431,711 $ 284,429
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-2
VANGUARD CELLULAR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31,
1994 1993 1992
REVENUES:
Service fees.................................................................... $ 146,417 $ 98,960 $ 72,791
Cellular telephone equipment revenues........................................... 18,529 9,929 5,999
Other........................................................................... 3,055 175 --
168,001 109,064 78,790
COSTS AND EXPENSES:
Cost of service................................................................. 21,008 14,461 11,044
Cost of cellular telephone equipment............................................ 29,933 13,410 7,579
General and administrative...................................................... 44,019 34,218 29,334
Marketing and selling........................................................... 37,102 21,693 16,877
Depreciation and amortization................................................... 24,073 25,160 22,100
156,135 108,942 86,934
INCOME (LOSS) FROM OPERATIONS..................................................... 11,866 122 (8,144)
NET LOSSES ON DISPOSITIONS........................................................ (339) (657) (2,655)
INTEREST EXPENSE.................................................................. (22,126) (15,389) (16,177)
OTHER, net........................................................................ (3,193) 795 13
LOSS BEFORE MINORITY INTERESTS.................................................... (13,792) (15,129) (26,963)
MINORITY INTERESTS................................................................ (153) (154) 304
NET LOSS BEFORE EXTRAORDINARY ITEM................................................ (13,945) (15,283) (26,659)
EXTRAORDINARY LOSS ON EXTINGUISHMENT OF DEBT...................................... (8,402) (3,715) --
NET LOSS.......................................................................... $ (22,347) $ (18,998) $ (26,659)
NET LOSS PER SHARE BEFORE EXTRAORDINARY ITEM...................................... $ (0.36) $ (0.40) $ (0.72)
PER SHARE EFFECT OF EXTRAORDINARY ITEM............................................ (0.22) (0.10) --
NET LOSS PER SHARE................................................................ $ (0.58) $ (0.50) $ (0.72)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING.............................. 38,628,140 38,038,240 37,110,343
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-3
VANGUARD CELLULAR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
ADDITIONAL NET
CAPITAL IN UNREALIZED
COMMON STOCK CLASS A EXCESS OF HOLDING ACCUMULATED
SHARES AMOUNT PAR VALUE LOSSES DEFICIT
BALANCE, January 1, 1992..................... 36,813,576 $368 $ 169,916 $ -- $(118,615)
Shares issued upon exercise of stock
options.................................... 590,855 6 1,860 -- --
Shares issued upon exercise of stock purchase
warrants................................... 150,000 2 1,198 -- --
Shares issued for cash....................... 970 -- 16 -- --
Shares issued for conversion of notes........ 5,859 -- 47 -- --
Shares issued for employee bonuses........... 25,893 -- -- -- --
Shares issued in exchange for cellular
interests.................................. 230,122 2 2,124 -- --
Net loss..................................... -- -- -- -- (26,659)
BALANCE, December 31, 1992................... 37,817,275 378 175,161 -- (145,274)
Shares issued upon exercise of stock
options.................................... 90,150 1 615 -- --
Shares issued for cash....................... 26,591 -- 335 -- --
Shares issued in exchange for cellular
interests.................................. 464,064 5 9,675 -- --
Net loss..................................... -- -- -- -- (18,998)
BALANCE, December 31, 1993................... 38,398,080 384 185,786 -- (164,272)
Shares issued upon exercise of stock
options.................................... 210,719 2 1,061 -- --
Shares issued for cash....................... 28,576 -- 499 -- --
Shares issued in exchange for cellular
interests.................................. 1,891,959 19 47,385 -- --
Unrealized holding losses.................... -- -- -- (9,310) --
Net loss..................................... -- -- -- -- (22,347)
BALANCE, December 31, 1994................... 40,529,334 $405 $ 234,731 $ (9,310) $(186,619)
TOTAL
SHAREHOLDERS'
EQUITY
BALANCE, January 1, 1992..................... $ 51,669
Shares issued upon exercise of stock
options.................................... 1,866
Shares issued upon exercise of stock purchase
warrants................................... 1,200
Shares issued for cash....................... 16
Shares issued for conversion of notes........ 47
Shares issued for employee bonuses........... --
Shares issued in exchange for cellular
interests.................................. 2,126
Net loss..................................... (26,659)
BALANCE, December 31, 1992................... 30,265
Shares issued upon exercise of stock
options.................................... 616
Shares issued for cash....................... 335
Shares issued in exchange for cellular
interests.................................. 9,680
Net loss..................................... (18,998)
BALANCE, December 31, 1993................... 21,898
Shares issued upon exercise of stock
options.................................... 1,063
Shares issued for cash....................... 499
Shares issued in exchange for cellular
interests.................................. 47,404
Unrealized holding losses.................... (9,310)
Net loss..................................... (22,347)
BALANCE, December 31, 1994................... $ 39,207
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
VANGUARD CELLULAR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................................................. $ (22,347) $ (18,998) $(26,659)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization...................................................... 24,073 25,160 22,100
Amortization of deferred debt issuance costs....................................... 1,334 953 709
Equity in losses (earnings) of unconsolidated cellular entities.................... (206) (500) 329
Minority interests................................................................. 153 154 (304)
Net losses on dispositions......................................................... 339 657 2,655
Extraordinary loss on extinguishment of debt....................................... 8,402 3,715 --
Stock received for management consulting services.................................. (2,496) -- --
Changes in current items:
Accounts receivable, net......................................................... (8,974) (4,898) 625
Cellular telephone inventories................................................... (5,744) (2,072) 197
Accounts payable and accrued expenses............................................ 7,223 4,844 2,929
Other, net 494 (397) 168
Net cash provided by operating activities........................................ 2,251 8,618 2,749
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................................................... (51,017) (21,009) (18,243)
Proceeds from dispositions of property and equipment.................................. 109 17 303
Payments for acquisition of investments............................................... (54,813) (19,852) (3,142)
Proceeds from dispositions of cellular interests...................................... 446 1,204 --
Capital contributions to unconsolidated cellular entities............................. (651) (344) (1,242)
Net cash used in investing activities............................................ (105,926) (39,984) (22,324)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt.................................................. (334,006) (212,559) (6,067)
Net proceeds from issuance of common stock............................................ 1,415 951 3,082
Proceeds of long-term debt............................................................ 444,500 251,000 21,000
Debt issuance costs................................................................... (11,180) (8,112) --
Other................................................................................. (407) (289) --
Net cash provided by financing activities........................................ 100,322 30,991 18,015
NET DECREASE IN CASH.................................................................... (3,353) (375) (1,560)
CASH, beginning of year 9,098 9,473 11,033
CASH, end of year....................................................................... $ 5,745 $ 9,098 $ 9,473
SUPPLEMENTAL DISCLOSURE OF CASH PAID DURING THE YEAR FOR INTEREST, net of amounts
capitalized........................................................................... $ 21,914 $ 14,862 $ 15,871
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
VANGUARD CELLULAR SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1: ORGANIZATION
Vanguard Cellular Systems, Inc. (Vanguard) (a North Carolina corporation)
is a provider of cellular telephone service to various markets throughout the
eastern United States. The activities of Vanguard, its wholly owned subsidiaries
and its majority owned cellular entities (collectively referred to as the
Company) include acquiring interests in entities which have been granted
nonwireline Federal Communications Commission (FCC) permits to construct or
authorizations to operate cellular telephone systems, and constructing and
operating cellular telephone systems.
All of the Company's cellular entities operate under the trade name of
CELLULARONE(Register mark), which is the trade name many nonwireline carriers
have adopted to provide conformity throughout the industry. The trade name is
owned by a partnership in which the Company holds a minority ownership interest.
NOTE 2: SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Vanguard, its
wholly owned subsidiaries and the entities in which it has a majority ownership
interest. Investments in which the Company exercises significant influence but
does not exercise control through majority ownership have been accounted for
using the equity method of accounting. Investments in which the Company does not
exercise significant influence or control through majority ownership have been
accounted for using the cost method of accounting. All significant intercompany
accounts and transactions have been eliminated.
CELLULAR TELEPHONE INVENTORIES
Inventories, consisting primarily of cellular telephones held for resale,
are valued at the lower of first-in, first-out (FIFO) cost or market.
INVESTMENTS
INVESTMENTS IN CELLULAR ENTITIES -- Investments in cellular entities
consist of the costs incurred to acquire FCC licenses or interests in entities
that have been awarded FCC licenses to provide cellular service, and capital
contributions to unconsolidated cellular entities. Acquisition costs, referred
to as deferred cellular license acquisition costs, consist primarily of amounts
paid for the acquisition of ownership interests and payments of other
acquisition related expenses, net of the Company's share of the fair value of
the net assets acquired. Exchanges of minority ownership interests in cellular
entities are recorded based on the fair value of the ownership interests
acquired.
The Company recognizes its pro rata share of the net income or losses
generated by the unconsolidated cellular entities carried on the equity method.
OTHER INVESTMENTS -- Other investments consist of the market value of the
Company's investment in Geotek Communications, Inc. and the cost of the
Company's investment in International Wireless Communications, Inc.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is calculated on
a straight-line basis for financial reporting purposes over the following
estimated useful lives:
Buildings................................................................................ 20 years
Cellular telephones held for rental...................................................... 3 years
Cellular telephone systems............................................................... 7-20 years
Office furniture and equipment........................................................... 3-10 years
F-6
VANGUARD CELLULAR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 2: SIGNIFICANT ACCOUNTING AND REPORTING POLICIES -- CONTINUED
Effective January 1, 1994, the Company changed the depreciable lives of
certain of its property and equipment to more closely approximate its historical
experience and the useful lives of these assets. These life changes affected
assets representing approximately 30% of the cost of the Company's depreciable
assets. This change reduced depreciation expense and net loss for 1994 by
approximately $4,500.
At December 31, 1994 and 1993, construction in progress was composed
primarily of the cost of uncompleted additions to the Company's cellular
telephone systems in majority owned cellular markets. The Company capitalized
interest costs of $684, $188 and $188 in 1994, 1993 and 1992, respectively, as
part of the cost of cellular telephone systems.
Maintenance, repairs and minor renewals are charged to operations as
incurred. Gains or losses at the time of disposition of property and equipment
are reflected in the statements of operations currently.
Cellular telephones are rented to certain customers generally with a
contract for a minimum stipulated length of service. Such customers have the
option to purchase the cellular telephone at any time during the term of the
agreement.
OTHER ASSETS
Other assets include deferred financing costs (Note 4) which are being
amortized over the period of the related agreements. Amortization of $1,196,
$953 and $709 has been included in interest expense in the accompanying December
31, 1994, 1993 and 1992 Statements of Operations, respectively. In addition,
payments related to agreements not to compete in certain cellular markets are
being amortized over the period of the related agreements. Amortization expense
relating to these agreements of $160, $1,325 and $1,316 has been included in the
accompanying December 31, 1994, 1993 and 1992 Statements of Operations,
respectively. Other assets also include $4,200 allocated to the acquired
customer bases in connection with the acquisitions of the Binghamton and Elmira
MSAs which occured in December 1994.
REVENUE RECOGNITION
Service fees are recognized at the time cellular services are provided and
service fees related to prebilled services are not recognized until earned.
Cellular telephone equipment revenues consist primarily of sales of cellular
telephones to subscribers and are recognized at the time equipment is delivered
to the subscriber.
INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The
Company adopted this Statement effective January 1, 1993. The effect of the
change in accounting on the Company's financial position and results of
operations is immaterial.
NET LOSS PER SHARE
Net loss per share is computed based upon the weighted average number of
common shares outstanding during the year. Stock options have not been included
in the calculation of net loss per share as their effect would be antidilutive.
STATEMENTS OF CASH FLOWS
Additional required disclosures of noncash investing and financing
activities for the years ended December 31, 1994, 1993 and 1992 are as follows:
F-7
VANGUARD CELLULAR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 2: SIGNIFICANT ACCOUNTING AND REPORTING POLICIES -- CONTINUED
The Company acquired ownership interests in certain cellular entities and
other investments for cash and noncash consideration, as follows:
1994 1993 1992
Fair value of investments acquired.......................................................... $105,296 $35,266 $ 5,482
Fair value of noncash consideration:
Cellular licenses and interests........................................................... 882 6,938 215
Issuance of common stock.................................................................. 47,551 9,680 2,125
Stock received for management consulting services......................................... 2,496 -- --
50,929 16,618 2,340
Net cash paid............................................................................... 54,367 18,648 3,142
Proceeds from dispositions of cellular interests............................................ 446 1,204 --
Cash acquisitions of investments............................................................ $ 54,813 $19,852 $ 3,142
The Company acquired property and equipment for cash and noncash
consideration, as follows:
Cash......................................................................................... $51,017 $21,009 $18,243
Increase in accounts payable................................................................. 11,615 -- --
$62,632 $21,009 $18,243
RECLASSIFICATION
Certain amounts in the 1993 and 1992 financial statements have been
reclassified to conform to the 1994 presentation. The Company reclassified
certain direct pass through items previously recognized as service revenue in
its Statements of Operations to cost of service expenses to conform with
industry practice. These reclassified items relate to charges associated with
the Company's subscribers roaming into adjacent cellular markets. The
reclassification has had no effect on the Company's net loss or net loss per
share.
F-8
VANGUARD CELLULAR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 3: INVESTMENTS
Investments consist of the following as of December 31, 1994 and 1993:
1994 1993
Investments in Cellular Entities:
Consolidated cellular entities:
Deferred cellular license acquisition costs...................................................... $223,051 $168,498
Accumulated amortization......................................................................... (23,119) (18,812)
199,932 149,686
Cellular entities carried on the equity method:
Capital contributions............................................................................... 10,193 10,193
Accumulated share of losses......................................................................... (106) (313)
10,087 9,880
Cellular entities carried on the cost method:
Deferred cellular license acquisition costs......................................................... 12,473 13,661
Capital contributions............................................................................... 4,412 4,188
16,885 17,849
226,904 177,415
Other Investments..................................................................................... 30,299 --
$257,203 $177,415
Investments in Cellular Entities
The Company continues to expand its ownership of cellular markets through
strategic acquisitions. The Company's significant activity relating to its
cellular investments is as follows:
CONSOLIDATED CELLULAR ENTITIES
The Company completed the acquisition of the PA-11 RSA in March 1992, for a
purchase price of $2,615 including a covenant not to compete of $480. The
purchase price consisted of cash, 101,674 shares of the Company's Class A common
stock and the exchange of certain minority interests. In August 1992, the
Company purchased an additional 5.88% ownership interest in the Harrisburg, PA
MSA in exchange for $2,517 in cash.
In August 1993, the Company completed the acquisition of the PA-12 RSA for
a purchase price of $9,735 which consisted of cash and the issuance of 464,064
shares of the Company's Class A common stock.
In October 1993, the Company completed the acquisition, valued at
approximately $23,000, of additional ownership interests in four majority owned
markets in the Mid-Atlantic Supersystem in exchange for ownership interests in
certain minority owned cellular markets outside its regional metro-clusters and
$18,200 in cash.
In April 1994, the Company completed the acquisition of the Altoona, PA MSA
and the Chambersburg, PA (PA-10) RSA, which are contiguous to its Mid-Atlantic
Supersystem in exchange for $4,400 in cash, the exchange of Hagerstown, MD
cellular market and the Company's minority ownership interest in one cellular
market.
The Company purchased in October 1994, for $6,900 in cash and $3,300 in the
Company's Class A common stock, the Washington, Maine (ME-4) RSA and three of
the four counties of the Mason, West Virginia (WV-1) RSA. The Maine RSA is
approximately 40 miles north of the Portland, Maine MSA, which is already
operated by the Company. The West Virginia RSA is contiguous to the Company's
Charleston, West Virginia MSA.
On December 14, 1994, the Company purchased the Binghamton, New York MSA
and the Elmira, New York MSA for a purchase price consisting of 1,766,674 shares
of the Company's Class A common stock and $6,100 in cash. These markets are
contiguous to the Company's Mid-Atlantic Supersystem.
F-9
VANGUARD CELLULAR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 3: INVESTMENTS -- CONTINUED
Pro forma consolidated results of operations, as if the acquisitions of the
Altoona, PA MSA, the ME-4 RSA, the WV-1 RSA, the Binghamton, New York MSA and
the Elmira, New York MSA had occurred January 1, 1993, are as follows:
YEARS ENDED
DECEMBER 31,
1994 1993
Revenues.............................................................................................. $176,277 $116,180
Net loss before extraordinary item.................................................................... (15,159) (17,844)
Net loss.............................................................................................. (23,561) (21,559)
Net loss per share before extraordinary item.......................................................... (0.37) (0.45)
Net loss per share.................................................................................... (0.58) (0.54)
In January 1995, the Company purchased the Union, Pennsylvania (PA-8) RSA
for a cash purchase price of $51,300 with borrowings under its credit facility.
The PA-8 RSA lies in the center of the Company's Mid-Atlantic Supersystem.
CELLULAR ENTITIES ON THE EQUITY METHOD
The Company holds an investment in a joint venture, owned 50% by the
Company, created to acquire, own and operate various cellular markets located
primarily in eastern North Carolina. The underlying net assets of the joint
venture consist principally of its investment in the FCC licenses in the
Wilmington, NC and Jacksonville, NC cellular markets.
CELLULAR ENTITIES ON THE COST METHOD
The investment balance of $16,885, at December 31, 1994 represents the
Company's investment in approximately 50 cellular markets with ownership
interests ranging from 0.3% to 18.3%. The Company holds these ownership
interests for investment purposes.
Other Investments
GEOTEK COMMUNICATIONS, INC.
In February 1994, the Company purchased for $30,000 from Geotek
Communications, Inc. (Geotek) 2,500,000 shares of Geotek common stock and
options to invest up to $167,000 for an aggregate of 10,000,000 additional
shares. Geotek is a telecommunications company that is developing an Enhanced
Specialized Mobile Radio (ESMR) wireless communications network in the United
States based on its Frequency Hopping Multiple Access digital technology (FHMA).
Geotek's common stock is traded on the NASDAQ National Market System.
The options purchased by the Company were issued in three series as
follows: (i) Series A for 2,000,000 shares at $15 per share; (ii) Series B for
2,000,000 shares at $16 per share; and (iii) Series C for 3,000,000 shares at
$17 per share and 3,000,000 shares at $18 per share. All options are exercisable
immediately. The Series A options expire upon the commercial validation (as
defined) of Geotek's first SMR system using FHMA (the Series A Expiration Date).
The Series B and Series C options expire 1 year and 2 years, respectively, after
the Series A Expiration Date. However, the Company may extend the Series B and
Series C options by six months and the Series C options by an additional six
months and, if any portion of any series of options expires, all unexercised
options expire immediately.
The Company has also entered into a 5-year management consulting agreement
to provide operational and marketing support in exchange for 300,000 shares of
Geotek common stock per year. However, should any portion of the Series A, B or
C options expire, the management consulting agreement is immediately terminated.
The Company recognized revenues of $2,496 related to the provision of management
consulting services to Geotek during 1994.
As of December 31, 1994, the Company has purchased or earned under the
management consulting agreement approximately 2,750,000 shares of Geotek common
stock representing approximately 5.5% of Geotek's outstanding shares. If all
options are exercised and all shares are earned and received under the
management consulting agreement, the Company would own an aggregate of
approximately 20% of Geotek's common stock on a fully diluted basis.
F-10
VANGUARD CELLULAR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 3: INVESTMENTS -- CONTINUED
Under the provisions of Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities", this
investment is classified as "available for sale". As such, the investment is
recorded at its market value, and a net unrealized holding loss of $9,310 has
been recognized as a separate component of shareholders' equity.
The Company funded its initial $30,000 investment in Geotek using
borrowings under its credit facility. Under the terms of its credit facility,
the Company is permitted to fund the exercise of the Series A options for
$30,000. In order to exercise any of the Series B or C options, the Company will
be required to seek lender approval for borrowings under the credit facility or
other financing alternatives.
INTERNATIONAL WIRELESS COMMUNICATIONS, INC.
The Company owns 19.9% of the outstanding stock of International Wireless
Communications, Inc. ("IWC") representing an aggregate investment of $6,600. IWC
is a development stage company specializing in securing, building and operating
wireless businesses other than cellular telephone systems primarily in Latin
America and Southeast Asia. The Company's investment in IWC is carried at cost
in the accompanying financial statements.
NOTE 4: LONG-TERM DEBT
Long-term debt consisted of the following as of December 31, 1994 and 1993:
1994 1993
Borrowings under the 1994 Credit
Facility:
Term Loan........................................................................................... $325,000 $ --
Revolving Loan...................................................................................... 23,500 --
Borrowings under the 1993 Loan Agreement:
Facility A Loan..................................................................................... -- 120,000
Facility B Loan..................................................................................... -- 68,000
Facility C Loan..................................................................................... -- 50,000
Other long-term debt.................................................................................. 149 153
$348,649 $238,153
The future maturities of the principal amount outstanding at December 31,
1994 were as follows:
1995...................................................................................... $ --
1996...................................................................................... --
1997...................................................................................... --
1998...................................................................................... 26,287
1999...................................................................................... 43,563
Thereafter................................................................................ 278,799
Total..................................................................................... $348,649
On December 23, 1994, the Company completed the closing of a $675 million
credit facility, pursuant to an Amended and Restated Loan Agreement (the "1994
Credit Facility"), with various lenders led by The Toronto-Dominion Bank and The
Bank of New York.
The 1994 Credit Facility is available to provide the Company with
additional financial and operating flexibility and enable it to pursue business
opportunities that may arise in the future. The 1994 Credit Facility refinanced
the Company's then existing $390 million credit facility (the "1993 Loan
Agreement"). The 1993 Loan Agreement closed in April 1993 and refinanced the
Company's previously existing credit facility. In connection with the
refinancings, the Company recorded
F-11
VANGUARD CELLULAR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 4: LONG-TERM DEBT -- CONTINUED
extraordinary losses of $8,402 ($0.22 per share) in 1994 and $3,715 ($0.10 per
share) in 1993, which represented the write-offs of all unamortized deferred
financing costs related to the refinanced facilities.
The 1994 Credit Facility consists of a "Term Loan" and a "Revolving Loan."
The Term Loan, in the amount of $325,000, was used to repay the Company's
borrowings under the 1993 Loan Agreement. The Revolving Loan, in the amount of
up to $350,000, is available for capital expenditures, to make acquisitions of
and investments in cellular and other wireless communication interests, and for
other general corporate purposes. As of December 31, 1994, $326,500 was
available for future expenditures under the Revolving Loan, as amended.
The outstanding amount of the Term Loan as of March 30, 1998 is to be
repaid in increasing quarterly installments commencing on March 31, 1998 and
terminating at the maturity date of December 31, 2003. The quarterly installment
payments begin at 1.875% of the outstanding principal amount at March 30, 1998
and gradually increase to 5.625% at March 31, 2003. The available borrowings
under the Revolving Loan shall be reduced on a quarterly basis also commencing
on March 31, 1998 and terminating on December 31, 2003. The quarterly reduction
begins at 1.875% of the Revolving Loan commitment at March 30, 1998 and
gradually increases to 5.625% on March 31, 2003. The outstanding borrowings
under the Term Loan are due and the Revolving Loan commitment is reduced
quarterly as follows:
PERCENTAGE OF
OUTSTANDING LOANS
1996............................................................................... -- %
1997............................................................................... --
1998............................................................................... 7.5
1999............................................................................... 12.5
2000............................................................................... 15.0
2001............................................................................... 20.0
2002............................................................................... 22.5
2003............................................................................... 22.5
100.0%
The Term Loan and the Revolving Loan bear interest at a rate equal to the
Company's choice of the Prime Rate or Eurodollar Rate plus an applicable margin
based upon a leverage ratio for the most recent fiscal quarter. The ranges for
this applicable margin are 0.0% to 1.375% for the Prime Rate and 1.125% to
2.625% for the Eurodollar Rate. As of December 31, 1994 the leverage ratio,
which is computed as the ratio of Total Debt (as defined) to Adjusted Cash Flow
(as defined), was at such a level as to cause the applicable margins on the
borrowings to be 0.375% and 1.625% per annum for the Prime Rate and Eurodollar
Rate, respectively. At December 31, 1994, the Company's effective interest rate
on its outstanding borrowings was 8.875%.
As security for borrowings under the 1994 Credit Facility, the Company has
pledged substantially all of its tangible and intangible assets and future cash
flows. Among other restrictions, the credit facility restricts the payment of
cash dividends, limits the use of borrowings, limits the creation of additional
long-term indebtedness and requires the maintenance of certain financial ratios.
The Company is in compliance with all loan covenants.
The Company maintains interest rate swaps and interest rate caps which
provide protection against interest rate risk. At year-end the Company had
interest rate cap agreements in place covering a notional amount of $270,000.
The interest rate cap agreements provide protection to the extent that LIBOR
exceeds 5.5% through July 1995 or 9.0% through December 1997. The total cost of
these interest rate cap agreements of $687 has been recorded in other assets in
the consolidated balance sheets and is being amortized over the lives of the
agreements as a component of interest expense.
Additionally, the Company maintains interest rate swap agreements that fix
the LIBOR interest rate at 6.9% on a notional amount of $100,000 through June
1995 and 6.1% on a notional amount of $210,000 through March 1995. Under these
swap agreements, the Company benefits if LIBOR interest rates increase above the
fixed rates and incurs additional
F-12
VANGUARD CELLULAR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 4: LONG-TERM DEBT -- CONTINUED
interest expense if rates remain below the fixed rates. Any amounts received or
paid under these agreements are reflected as interest expense over the period
covered.
The fair value of these interest rate protection agreements is estimated to
be $1,800 and reflects the quoted market value of these contracts at December
31, 1994. The effect of interest rate protection agreements on the operating
results of the Company was to increase interest expense by $95, $884 and $2,510
in 1994, 1993 and 1992, respectively.
NOTE 5: COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space, furniture, equipment, vehicles and land
under noncancelable operating leases expiring through 2019. As of December 31,
1994, the future minimum rental payments under these lease agreements having an
initial or remaining term in excess of one year were as follows:
1995....................................................................................... $ 4,454
1996....................................................................................... 3,899
1997....................................................................................... 3,583
1998....................................................................................... 2,277
1999....................................................................................... 2,079
Thereafter................................................................................. 28,841
$45,133
Rent expense under operating leases was $4,178, $3,461 and $3,242, for the
years ended December 31, 1994, 1993 and 1992, respectively.
CONSTRUCTION AND CAPITAL COMMITMENTS
Capital expenditures for 1995 are estimated to be approximately $130,000
for the Company, and are expected to be funded primarily with proceeds from the
1994 Credit Facility (Note 4).
LITIGATION
In June 1989, a suit was filed by a group of former partners in the San
Juan Cellular Settlement Partnership which alleged that the Company and two of
its officers breached fiduciary duties and acted fraudulently in connection with
settlement of licensing proceedings concerning the San Juan, PR market and
certain other markets. The Company settled this litigation with all plaintiffs
and such amounts are included in the accompanying financial statements.
Additionally, the Company is involved in various other legal proceedings
arising in the normal course of business. In the opinion of management, the
outcome of the above legal proceedings will not have a material adverse effect
on the consolidated financial position or results of operations of the Company.
NOTE 6: INCOME TAXES
As of January 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires recognition of future tax benefits, to the extent that
realization of such benefits is more likely than not, attributable to deductible
temporary differences between the financial statement and income tax basis of
assets and liabilities and to tax net operating loss carryforwards. The adoption
of SFAS 109 did not impact the Company's financial position or results of
operations.
F-13
VANGUARD CELLULAR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 6: INCOME TAXES -- CONTINUED
The components of net deferred taxes as of December 31, 1994 and 1993 were
as follows:
1994 1993
Deferred tax assets:
Net operating loss carryforwards.................................................................... $119,073 $100,723
Property and equipment.............................................................................. 7,052 --
Other liabilities and reserves...................................................................... 1,854 1,792
Valuation allowance................................................................................. (61,432) (57,880)
Total deferred tax assets........................................................................... 66,547 44,635
Deferred tax liabilities:
Investments and other intangible assets............................................................. 66,547 43,909
Property and equipment.............................................................................. -- 726
Total deferred tax liabilities...................................................................... 66,547 44,635
Net deferred taxes.................................................................................... $ -- $ --
The valuation allowance of $57,880 as of December 31, 1993 was provided
because, in the Company's assessment, it was uncertain whether the net deferred
tax assets would be realized. In addition, because of its continuing assessment
that it is uncertain whether the net deferred tax assets will be realized, the
Company increased the valuation allowance during 1994 by $3,552 to offset the
1994 net deferred tax benefit.
For Federal income tax reporting purposes, the Company had net operating
loss carryforwards of approximately $315,000 at December 31, 1994. These losses
may be used to reduce future taxable income, if any, and expire through 2009.
These carryforwards may be subject to annual limitation in the future in
accordance with the Tax Reform Act of 1986. The primary differences between the
accumulated deficit for financial reporting purposes and the income tax loss
carryforwards relate to the differences in the treatment of certain deferred
cellular license acquisition costs, certain gains on dispositions of cellular
interests, partnership losses, depreciation methods, estimated useful lives and
compensation earned under the stock compensation plan.
Of the total net operating loss carryforwards, approximately $79,000
relates to additional deductions arising from restricted stock bonuses, stock
options and stock purchase warrants. To the extent that the benefit of these
carryforwards is realized in future years, the tax benefit will be recorded
directly to additional capital in excess of par.
NOTE 7: CAPITAL STOCK
COMMON STOCK
In July 1994, the Board of Directors declared a 3 for 2 stock split of the
Company's Class A common stock which was effected in the form of a dividend paid
to shareholders on August 24, 1994 with cash paid for resultant fractional
shares. The effect of the split has been retroactively applied to all Class A
common stock and per share amounts disclosed in the accompanying financial
statements and footnotes.
ACQUISITION OF CELLULAR INTERESTS
During 1990, the Company registered 4,500,000 shares of its Class A common
stock and 3,000,000 shares of its Class B common stock. The shares may be
offered in connection with the acquisition of entities which have received or
may receive an authorization or license from the FCC to provide cellular
service. Through December 31, 1994, 2,707,957 shares of Class A common stock
have been issued in conjunction with the acquisitions of the PA-12, PA-11, PA-5,
WV-1, and ME-4 RSAs, and the Binghamton and Elmira MSAs.
STOCK COMPENSATION PLANS
Under the provisions of the Stock Compensation Plan (the Plan), the Company
may grant up to 5,850,000 shares of the Company's Class A common stock to
officers, directors and key employees in the form of nonqualified stock options,
F-14
VANGUARD CELLULAR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 7: CAPITAL STOCK -- CONTINUED
restricted stock bonuses or incentive stock options. Nonqualified stock options
must require exercise prices of not less than 85% of the fair market value of
the Company's Class A common stock on the date of the grant, except where
nonqualified stock options are issued for the conversion of stock purchase
warrants. As of December 31, 1994, 24,213 shares were available for future
grants.
During 1989, the Board adopted the 1989 Stock Option Plan (the 1989 Plan).
Under the provisions of the 1989 Plan, the Company may grant up to 3,000,000
shares of the Company's Class A common stock to officers and key employees in
the form of nonqualified or incentive stock options. Nonqualified stock options
must require exercise prices of not less than the fair market value of the
Company's Class A common stock on the date of the grant. As of December 31,
1994, 586,417 shares were available for future grants.
During 1994, the Board adopted the 1994 Long-Term Incentive Plan (the 1994
Plan). Under the provisions of the 1994 Plan, the Company may grant up to
3,000,000 shares of the Company's Class A common stock to officers, directors
and key employees in the form of nonqualified stock options, incentive stock
options, stock appreciation rights, unrestricted stock, restricted stock and
performance shares. All stock options must require exercise prices of not less
than the fair market value of the Company's Class A common stock on the date of
the grant, except that certain incentive stock options must require exercise
prices of not less than 110% of fair market value of the Company's Class A
common stock on the date of the grant. As of December 31, 1994, 2,250,000 shares
were available for future grants.
Options granted under the Plans may not have a term greater than ten years
from the date of grant and are not transferable except upon death.
RESTRICTED STOCK BONUSES
During 1987, the Board granted restricted stock bonuses for a total of
3,469,554 shares of Class A common stock (i) to three key officers for 1,077,768
shares each and (ii) to a director and a key employee for an aggregate of
236,250 shares. In the event of a change in control of the Company prior to
December 31, 1998, the participants will be reimbursed for certain individual
income tax payments, as defined, on the shares vesting after February 1991. As
of December 31, 1994, all of the shares have vested.
STOCK PURCHASE WARRANTS
Stock purchase warrants for 150,000 shares at a price of $8.00 per share
were exercised in 1992, and as of December 31, 1994, the Company has no
outstanding stock purchase warrants.
STOCK OPTIONS
Under the terms of the Company's Stock Compensation Plans, the Board has
granted incentive stock options and nonqualified stock options requiring
exercise prices approximating the fair market value of the Company's Class A
common stock on the date of the grant.
F-15
VANGUARD CELLULAR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 7: CAPITAL STOCK -- CONTINUED
Stock option activity under the Plans was as follows:
NUMBER OF SHARES EXERCISE PRICE
UNDER OPTION PER SHARE
Balance, January 1, 1992............................................................ 2,554,734 $2.22 to $24.00
Granted............................................................................. 15,000 $14.25
Exercised........................................................................... (591,904) $2.22 to $17.17
Forfeited........................................................................... (57,600) $13.17 to $17.17
Balance, December 31, 1992.......................................................... 1,920,230 $2.22 to $24.00
Granted............................................................................. 1,043,550 $15.17 to $15.75
Exercised........................................................................... (90,150) $2.22 to $13.92
Forfeited........................................................................... (11,205) $13.92 to $17.17
Balance, December 31, 1993.......................................................... 2,862,425 $2.22 to $24.00
Granted............................................................................. 1,140,743 $19.25 to $21.50
Exercised........................................................................... (210,719) $2.22 to $17.17
Forfeited........................................................................... (15,332) $13.92 to $15.58
Balance, December 31, 1994.......................................................... 3,777,117 $2.22 to $24.00
These options expire at various dates through 2004. Options for 1,692,125
shares had vested at December 31, 1994 and were exercisable at prices ranging
from $2.22 to $24.00.
SHARES RESERVED FOR ISSUANCE
At December 31, 1994, 6,637,747 shares of the Company's Class A common
stock are reserved primarily for exercise and grant under the Company's stock
compensation plans. In addition, 1,792,043 shares of Class A common stock and
3,000,000 shares of Class B common stock are reserved for issuance in
conjunction with the acquisition of cellular interests discussed above.
NOTE 8: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses were composed of the following at
December 31, 1994 and 1993:
1994 1993
Accounts payable........................................................................................ $25,030 $10,704
Accrued expenses:
Interest.............................................................................................. 129 1,190
Payroll and commissions............................................................................... 5,865 3,176
Other................................................................................................. 9,665 6,400
$40,689 $21,470
F-16
VANGUARD CELLULAR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 9: QUARTERLY INFORMATION (UNAUDITED)
1994 QUARTERS FIRST SECOND THIRD FOURTH TOTAL
Revenues.............................................................. $33,091 $40,755 $44,717 $49,438 $168,001
Income from operations................................................ 1,442 3,430 5,989 1,005 11,866
Net loss before extraordinary item.................................... (3,055) (1,243) (263) (9,384) (13,945)
Net loss (1).......................................................... (3,055) (1,243) (263) (17,786) (22,347)
Net loss per share before extraordinary item.......................... (0.08) (0.03) (0.01) (0.24) (0.36)
Net loss per share (1)................................................ (0.08) (0.03) (0.01) (0.46) (0.58)
1993 QUARTERS FIRST SECOND THIRD FOURTH TOTAL
Revenues.............................................................. $21,682 $26,451 $30,161 $30,770 $109,064
Income (loss) from operations......................................... (1,653) 3 1,750 22 122
Net loss before extraordinary item.................................... (5,436) (3,999) (1,826) (4,022) (15,283)
Net loss (2).......................................................... (5,436) (7,714) (1,826) (4,022) (18,998)
Net loss per share before extraordinary item.......................... (0.14) (0.11) (0.05) (0.10) (0.40)
Net loss per share (2)................................................ (0.14) (0.20) (0.05) (0.10) (0.50)
(1) The fourth quarter of 1994 includes an extraordinary item of $8,402 ($0.22
per share) relating to the write-off of deferred financing costs associated
with the Company's 1993 Loan Agreement that was refinanced in December 1994.
(2) The second quarter of 1993 includes an extraordinary item of $3,715 ($0.09
per share) relating to the write-off of deferred financing costs associated
with the Company's 1989 credit facility that was refinanced in April, 1993.
F-17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Vanguard Cellular Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Vanguard
Cellular Systems, Inc. (a North Carolina corporation) and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Vanguard Cellular Systems,
Inc. and subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements and schedule is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. The schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Greensboro, North Carolina,
February 20, 1995.
F-18
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
BALANCE PROVISION
AT CHARGED TO
BEGINNING COSTS AND
OF PERIOD EXPENSES DEDUCTIONS(1) ACQUISITIONS(2)
Allowance for doubtful accounts
Year ended December 31, 1992................................ $ 2,652 $ 991 $(1,685) $ --
Year ended December 31, 1993................................ $ 1,958 $1,794 $(1,981) $ --
Year ended December 31, 1994................................ $ 1,771 $3,059 $(2,134) $ 65
BALANCE AT
END OF
PERIOD
Allowance for doubtful accounts
Year ended December 31, 1992................................ $1,958
Year ended December 31, 1993................................ $1,771
Year ended December 31, 1994................................ $2,761
(1) Accounts written off during the period.
(2) Represents allowance for doubtful accounts for entities acquired during the
period.
F-19
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
* 3(a) Charter of the Registrant, filed as Exhibit 3(a) to the Registrant's
Registration Statement on Form S-1 (File No. 33-18067).
* 3(b) Articles of Amendment to Charter of the Registrant dated May 12, 1989,
filed as Exhibit 3(b) to the Registrant's Registration Statement on Form
S-4 (File No. 33-35054).
* 3(c)(1) Amended and Restated Bylaws of the Registrant, filed as Exhibit 4(b) to
the Registrant's Form 10-Q for the quarter ended September 30, 1990.
* 3(c)(2) Amendment to the Bylaws adopted September 11, 1991, filed as Exhibit
4(c)(2) to the Registrant's Form 8 Amendment to Registrant's Form 10-Q
for the quarter ended June 30, 1991.
* 4(a) Specimen Common Stock Certificate, filed as Exhibit 4(a) to the
Registrant's Registration Statement on Form S-1 (File No. 33-18067).
* 4(b)(1) Amended and Restated Loan Agreement between the Registrant and various
lenders led by The Bank of New York and The Toronto-Dominion Bank as
agents, dated as of December 23, 1994, filed as Exhibit 2(a) to the
Registrant's Current Report on Form 8-K dated as of December 23, 1994.
* 4(b)(2) Security Agreement between the Registrant and various lenders led by The
Bank of New York and The Toronto-Dominion Bank, as Secured Party, dated
as of December 23, 1994, filed as Exhibit 2(b) to the Registrant's
Current Report on Form 8-K dated as of December 23, 1994.
* 4(b)(3) Master Subsidiary Security Agreement between the Registrant, certain of
its subsidiaries and various lenders led by The Bank of New York and The
Toronto- Dominion Bank, as Secured Party, dated as of December 23, 1994,
filed as Exhibit 2(c) to the Registrant's Current Report on Form 8-K
dated as of December 23, 1994.
* 10(a)(1) Amended and Restated Stock Compensation Plan of the Registrant approved
April 22, 1987 by the Shareholders of the Registrant, with forms of
stock bonus and stock option agreements attached, filed as Exhibit 10
(a) to the Registrant's Registration Statement, on Form
S-1 (File No. 33-18067).
* 10(a)(2) Amendment to Amended and Restated Stock Compensation Plan of the
Registrant approved May 2, 1989 by the Shareholders of the Registrant,
filed as Exhibit 4(h)(2) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1989.
* 10(a)(3) Form of Restricted Stock Bonus Agreements dated March 23, 1987 between
the Registrant and Stuart S. Richardson, Haynes G. Griffin, L.
Richardson Preyer, Jr., Stephen R. Leeolou and Stephen L. Holcombe, and
form of amendments dated October 12, 1987 to agreements with Messrs.
Richardson, Griffin, Preyer and Leeolou, filed as Exhibit 10(a)(3) to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988.
* 10(a)(4) Form of Restricted Stock Bonus Agreements dated October 12, 1987 between
the Registrant and Haynes G. Griffin, Stephen R. Leeolou and L.
Richardson Preyer, Jr., filed as Exhibit 10(a)(4) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1988.
* 10(a)(5) Form of Amendment to Restricted Stock Bonus Plan Agreements dated as of
March 1, 1990 by and between Haynes G. Griffin, L. Richardson Preyer,
Jr., Stephen R. Leeolou, and Stephen L. Holcombe and the Registrant,
amending the Restricted Stock Bonus Plan Agreements dated as March 23,
1987, filed as Exhibit 10(a)(5) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990.
EXHIBIT NO. DESCRIPTION
* 10(a)(6) Form of Amendment to Restricted Stock Bonus Plan Agreements dated as of
March 1, 1990 by and between Haynes G. Griffin, L. Richardson Preyer,
Jr. and Stephen R. Leeolou and the Registrant, amending the Restricted
Stock Bonus Plan Agreements dated as October 12, 1987, filed as Exhibit
10(a)(6) to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990.
* 10(a)(7) Form of Second Amendment to Restricted Stock Bonus Plan Agreements dated
February 22, 1991 between the Registrant and Haynes G. Griffin, Stephen
R. Leeolou, and L. Richardson Preyer, Jr., amending the Restricted Stock
Bonus Agreements dated October 12, 1987, filed as Exhibit 10(a)(7) to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990.
* 10(a)(8) Form of Third Amendment to Restricted Stock Bonus Plan Agreements dated
February 22, 1991 between the Registrant and Haynes G. Griffin, Stephen
R. Leeolou, L. Richardson Preyer, Jr., and Stephen L. Holcombe, amending
the Restricted Stock Bonus Agreements dated March 23, 1987, filed as
Exhibit 10(a)(8) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990.
* 10(a)(9) Form of Third Amendment to Restricted Stock Bonus Plan Agreement dated
February 22, 1991 between the Registrant and Stuart S. Richardson,
amending the Restricted Stock Bonus Plan Agreement dated March 23, 1987,
filed as Exhibit 10(a)(9) to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990.
* *10(a)(10) Employment Agreement dated March 1, 1995 by and between the Registrant
and Haynes G. Griffin.
* *10(a)(11) Employment Agreement dated March 1, 1995 by and between the Registrant
and L. Richardson Preyer, Jr.
* *10(a)(12) Employment Agreement dated March 1, 1995 by and between the Registrant
and Stephen R. Leeolou.
* 10(a)(13) Executive Officer Long-Term Incentive Compensation Plan adopted October
1, 1990 by the Registrant, filed as Exhibit 10(a)(13) to the
Registrant's Annual Report on Form 10-K to the fiscal year ended
December 31, 1990.
* 10(a)(14) Form on Nonqualified Option Agreements dated October 12, 1987 between
the Registrant and Stephen L. Holcombe, Ralph E. Hiskey, John F. Dille,
Jr., Charles T. Hagel, L. Richardson Preyer, Sr. and Robert A.
Silverberg, filed as Exhibit 10(a)(5) to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1988.
* 10(a)(15) Nonqualified Option Agreements dated October 12, 1987 between the
Registrant and Robert M. DeMichele, John F. Dille, Jr., L. Richardson
Preyer, Sr., Robert A. Silverberg and Thomas I. Storrs, filed as Exhibit
10(a)(8) to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1988.
* 10(a)(16) Form of Incentive Stock Option Agreements dated March 3, 1988 between
the Registrant and Stephen L. Holcombe and Richard C. Rowlenson, filed
as Exhibit 10(a)(9) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988.
* 10(a)(17) Form of Incentive Stock Option Agreements dated June 23, 1988 between
the Registrant and Charles T. Hagel, Haynes G. Griffin, L. Richardson
Preyer, Jr., and Stephen R. Leeolou, filed as Exhibit 10(a)(10) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988.
* *10(a)(18) 1994 Long-Term Incentive Plan of the Registrant approved May 4, 1994 by
the Shareholders of the Registrant, as amended by the Registrant's Board
of Directors on July 20, 1994.
* *10(a)(19) Senior Management Severance Plan of the Registrant adopted March 8,
1995.
* *10(a)(20) Form of Severance Agreement for Senior Management Employees of the
Registrant.
EXHIBIT NO. DESCRIPTION
* 10(b)(1) Loan Agreement between the Registrant and various lenders led by The
Bank of New York and The Toronto-Dominion Bank as agents, dated as of
December 23, 1994, filed as Exhibit 2(a) to the Registrant's Current
Report on Form 8-K dated as of December 23, 1994.
* 10(b)(2) Security Agreement between the Registrant and various lenders led by The
Bank of New York and The Toronto-Dominion Bank, as Secured Party, dated
as of December 23, 1994, filed as Exhibit 2(b) to the Registrant's
Current Report on Form 8-K dated as of December 23, 1994.
* 10(b)(3) Master Subsidiary Security Agreement between the Registrant, certain of
its subsidiaries and various lenders led by The Bank of New York and The
Toronto-Dominion Bank, as Secured Party, dated as of December 23, 1994
filed as Exhibit 2(c) to the Registrant's Current Report on Form 8-K
dated as of December 23, 1994.
* 10(c)(1) 1993 Employee Stock Purchase Plan of the Registrant approved May 5, 1993
by the Shareholders of the Registrant, filed as Exhibit 28(a) to the
Registrant, filed as Exhibit 28 (a) to the Registrant's Registration
Statement on Form S-8, (File No. 33-69824).
* 10(c)(2) Form of Option Letter and Subscription Agreement, filed as Exhibit 28(b)
to the Registrant's Registration Statement in Form S-8 (File No.
33-69824).
* 10(d)(1) 1989 Stock Option Plan of the Registrant approved by the Board of
Directors of the Registrant on December 21, 1989, and approved by
Shareholders at a meeting held on May 10, 1990, filed as Exhibit
10(h)(1) to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1989.
* 10(d)(2) Form of Nonqualified Stock Option Agreements dated March 1, 1990 between
the Registrant and Haynes G. Griffin, L. Richardson Preyer, Jr., Stephen
R. Leeolou, Stephen L. Holcombe, and Stuart S. Richardson, filed as
Exhibit 10(h)(2) to the Registrant's annual Report on Form 10-K for the
fiscal year ended December 31, 1989.
* 10(d)(3) Form of Incentive Stock Option Agreement dated March 1, 1990 between the
Registrant and Richard C. Rowlenson, filed as Exhibit 10(h)(2) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989.
* 10(d)(4) Form of Incentive Stock Option Agreement dated July 30, 1990 between the
Registrant and Stephen L. Holcombe, Richard C. Rowlenson, Sunir Kochhar
and Timothy G. Biltz, filed as Exhibit 10(f)(4) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1990.
* 10(d)(5) Stock Option Agreement dated November 28, 1990 between the Registrant
and Stuart Smith Richardson, filed as Exhibit 10(f)(5) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990.
* 10(d)(6) Form of Stock Option Agreements dated November 28, 1990 between the
Registrant and Haynes G. Griffin, Stephen R. Leeolou, L. Richardson
Preyer, Jr. and Stephen L. Holcombe, filed as Exhibit 10(f)(6) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990.
* 10(d)(7) Incentive Stock Option Agreements dated November 28, 1990 between the
Registrant and Richard C. Rowlenson, filed as Exhibit 10(f)(7) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990.
* 10(e)(1) Joint Venture Agreement by and among W&J Metronet, Inc., Vanguard
Cellular Systems of Coastal Carolina, Inc., Providence Journal
Telecommunications and the Registrant dated as of January 19, 1990,
filed as Exhibit 10(j) to the Registrant's Registration Statement on
Form S-4 (File No. 33-35054).
EXHIBIT NO. DESCRIPTION
* 10(e)(2) First Amendment and Assumption Agreement dated as of the 28th day of
December, 1990 to Joint Venture Agreement by and among W&J Metronet,
Inc., Vanguard Cellular Systems of Coastal Carolina, Inc., Providence
Journal Telecommunications and the Registrant dated as of January 19,
1990, filed as Exhibit 10(g)(2) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990.
* 10(f)(1) Stock Purchase Agreement by and between Geotek Industries, Inc. and
Vanguard Cellular Systems, Inc., dated as of December 29, 1993, filed as
Exhibit 1 to Schedule 13D dated December 29, 1993 with respect to the
Common Stock of Geotek Industries, Inc.
* 10(f)(2) Option Agreement by and between Geotek Communications, Inc. and Vanguard
Cellular Systems, Inc. dated as of February 23, 1994, filed as Exhibit 3
to Amendment 1 of Schedule 13D dated February 23, 1994 with respect to
the Common Stock of Geotek Communications, Inc.
* 10(f)(3) Management Agreement by and between Geotek Communications, Inc. and
Vanguard Cellular Systems, Inc. dated as of February 23, 1994, filed as
Exhibit 4 to Amendment 1 of Schedule 13D dated February 23, 1994 with
respect to the Common Stock of Geotek Communications, Inc.
* 10(f)(4) Registration Rights Agreement by and between Geotek Communications, Inc.
and Vanguard Cellular Systems, Inc. dated as of February 23, 1994 filed
as Exhibit 5 to Amendment 1 of Schedule 13D dated February 23, 1994 with
respect to the Common Stock of Geotek Communications, Inc.
* 10(f)(5) System Access Agreement by and between Geotek Communications, Inc. and
Vanguard Cellular Systems, Inc. dated as of February 23, 1994, filed as
Exhibit 6 to Amendment 1 of Schedule 13D dated February 23, 1994 with
respect to the Common Stock of Geotek Communications, Inc.
* 10(f)(6) Stockholders Voting Agreement dated as of February 23, 1994, filed as
Exhibit 7 to Amendment 1 of Schedule 13D dated February 23, 1994 with
respect to the Common Stock of Geotek Communications, Inc.
* *11 Calculation of fully diluted net loss per share for the years ended
December 31, 1994, 1993, and 1992.
* *22 Subsidiaries of the Registrant.
***24 Consent of Arthur Andersen LLP to incorporation by reference to the
Registrant's Form S-4 Registration Statement No. 33-35054, Form
S-8 Registration Statement No. 33-22866, Form S-8 Registration Statement
No. 33-36986, and Form S-8 Registration Statement No. 33-53559, and Form
S-8 Registration Statement No. 33-69824.
* *27 Financial Data Schedule.
* Incorporated by reference to the statement or report indicated.
** Previously filed.
*** Previousliy filed and filed herewith.