-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, jL7uCD8JfTVvjulnuNFrrIjqBYSIiHubpk62poLOYMsLvp78mFThgww0lLY9tRD6 2R9OFjhnSV2CVxgq4TDdGg== 0000096966-95-000028.txt : 19950612 0000096966-95-000028.hdr.sgml : 19950612 ACCESSION NUMBER: 0000096966-95-000028 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19950609 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELEPHONE & DATA SYSTEMS INC CENTRAL INDEX KEY: 0000096966 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 362669023 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-08857 FILM NUMBER: 95546239 BUSINESS ADDRESS: STREET 1: P O BOX 628010********** CITY: MIDDLETON STATE: WI ZIP: 53562-8010 BUSINESS PHONE: 6088288324 MAIL ADDRESS: STREET 1: P O BOX 628010***** CITY: MIDDLETON STATE: WI ZIP: 53562-8010 FORMER COMPANY: FORMER CONFORMED NAME: TELEPHONE SYSTEMS INC STOCK OPTION PLANS DATE OF NAME CHANGE: 19741118 FORMER COMPANY: FORMER CONFORMED NAME: TELEPHONE SYSTEMS INC DATE OF NAME CHANGE: 19740509 424B3 1 SERIES A PROSPECTUS PROSPECTUS Filed Pursuant to Rule 424(b)(3) Registration No. 33-8857 TELEPHONE AND DATA SYSTEMS, INC. SERIES A COMMON SHARE AUTOMATIC DIVIDEND REINVESTMENT PLAN Series A Common Shares ($1.00 Par Value) The Series A Common Share Automatic Dividend Reinvestment Plan, as amended (the "Plan"), of Telephone and Data Systems, Inc. (the "Company" or "TDS") provides holders of the Company's Series A Common Shares with a systematic, economic and convenient method of investing cash dividends from such shares in newly issued Series A Common Shares without payment of any brokerage commission or service charge and at a 5% discount from market value (as determined below). The Company's Common Shares have less voting power than its Series A Common Shares. The Series A Common Shares, which have effective control of the Company, are being offered by this Plan only to the holders of the Company's Series A Common Shares. The holders of the Company's Common Shares and Preferred Shares have their own Automatic Dividend Reinvestment and Stock Purchase Plan. Participants in the Plan may: (1) have cash dividends on all of the Series A Common Shares automatically reinvested, or (2) have cash dividends on less than all of their Series A Common Shares automatically invested while continuing to receive the remainder of their cash dividends. The price for the Series A Common Shares purchased with reinvested dividends will be 95% of the average daily high and low sales prices for the Company's Common Shares on the American Stock Exchange, as reported in The Wall Street Journal, for a period of ten (10) consecutive trading days ending on the trading day immediately preceding the day on which the purchase is made (the "Investment Date"). The Investment Dates for reinvested dividends will be the dividend payment dates. This Prospectus relates to 337,500 Series A Common Shares (as adjusted for stock-splits), of which 232,139 shares remain unissued as of the date of this Prospectus, registered under Registration Statement No. 33-8857. It is suggested that this Prospectus be retained for future reference. Shareholders who do not wish to participate in the Plan will continue to receive cash dividends, as declared, in the usual manner. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is June 9, 1995 ADDITIONAL INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities Exchange Commission (the "Commission"). Such reports, proxy statements and other information can be inspected and copied at the offices of the Commission, at 450 Fifth Street, N.W., Judiciary Plaza, Washington D.C. 20549; Chicago Regional Office, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661; and New York Regional Office, Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such materials can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company's Common Shares are listed on the American Stock Exchange, and reports, proxy materials and other information concerning the Company may be inspected at the office of the American Stock Exchange, 86 Trinity Place, New York, New York 10006. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed with the Commission by the Company are incorporated as of their respective dates in this Prospectus by reference: (a) The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. (b) The Company's Current Report on Form 8-K, dated March 15, 1995. (c) The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995. (d) The description of the Company's Capital Stock included in the Company's Report on Form 8-A/A-2, dated December 20, 1994. All documents filed by TDS pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the offering made by this Prospectus shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. Any statements contained in a document incorporated by reference herein shall be deemed to be modified or superseded for purposes hereof to the extent that a statement contained herein (or in any other subsequently filed document which also is incorporated by reference herein) modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed to constitute a part hereof except as so modified or superseded. All information appearing in this Prospectus is qualified in its entirety by the information and financial statements (including notes thereto) appearing in the documents incorporated herein by reference. THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON TO WHOM THE PROSPECTUS IS DELIVERED, UPON HIS OR HER WRITTEN OR ORAL REQUEST, A COPY OF ANY OR ALL OF THE DOCUMENTS DESCRIBED ABOVE UNDER "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," OTHER THAN EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS). REQUESTS SHOULD BE DIRECTED TO: Telephone and Data Systems, Inc. 30 N. LaSalle, Suite 4000 Chicago, Illinois 60602 Attention: Investor Relations Coordinator (telephone: 312/630-1900) NO PERSON HAS BEEN AUTHORIZED BY THE COMPANY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND ANY INFORMATION, DATA, OR REPRESENTATIONS NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, SECURITIES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. -2- THE COMPANY TDS is a diversified telecommunications service company with cellular telephone, local telephone and radio paging operations. The Company's business development strategy is to expand its existing operations through internal growth and acquisitions and to explore and develop other telecommunications businesses that management believes will utilize the Company's expertise in customer-based telecommunications services. The Company was incorporated in 1968 under the laws of the State of Iowa. Its corporate headquarters are located at 30 N. LaSalle, Suite 4000, Chicago, Illinois 60602, and its telephone number is (312) 630-1900. Except where the context otherwise indicates, the term "Company" and "TDS" include Telephone and Data Systems, Inc., an Iowa corporation, and its subsidiaries. USE OF PROCEEDS The number of Series A Common Shares that will be sold under the Plan and the prices at which such shares will be sold cannot now be determined. The net proceeds from the sale of such shares will be used by the Company for general corporate purposes. Until the proceeds are used for these purposes, the Company may deposit them in interest-bearing accounts or invest them in certificates of deposit, United States Government securities or prime commercial paper. SERIES A COMMON SHARE AUTOMATIC DIVIDEND REINVESTMENT PLAN (the "Plan") The following is a question and answer statement of the provisions of the Company's Series A Common Share Automatic Dividend Reinvestment Plan. Questions and Answers 1 through 31 both explain and constitute the Plan. PURPOSE 1. What Is The Purpose Of The Plan? The purpose of the Plan is to provide holders of the Company's Series A Common Shares with a systematic, economic and convenient method of investing cash dividends from such shares in newly issued Series A Common Shares of the Company without payment of any brokerage commission or service charge, and at a 5% discount from market value (as determined below). Since the additional Series A Common Shares will be purchased directly from the Company, the Plan will provide the Company with additional capital funds. ADVANTAGES 2. What Are The Advantages Of The Plan? Participants may purchase Series A Common Shares of the Company with cash dividends on all or less than all of the Company's Series A Common Shares registered in their names. The price of Series A Common Shares purchased with cash dividends will be 95% of market value as set forth in the Answer to Question 13. -3- No commission or service charge is paid by participants in connection with purchases under the Plan. Full investment of funds is possible under the Plan because the Plan permits fractions of shares, as well as full shares, to be credited to participants' accounts. In addition, dividends in respect of such fractions, as well as in respect of full shares, will be credited to participants' accounts and reinvested in the Company's Series A Common Shares under the Plan. The safekeeping of Series A Common Shares credited to a participant's account is assured since certificates for such shares are not issued unless requested by the participant. Regular statements of account will provide simplified record keeping. ADMINISTRATION 3. Who Administers The Plan? Harris Trust and Savings Bank (the "Agent") acts as an agent for participants in the Plan. The Agent keeps a continuing record of each participant's account, sends periodic statements of account to each participant with respect to each month in which a transaction takes place and performs other duties relating to the Plan. Series A Common Shares of the Company purchased under the Plan will be registered in the name of the Agent or its nominee, as Agent for each participant in the Plan, and will be credited to the accounts of the respective participants. Should Harris Trust and Savings Bank resign, another bank will be asked to serve as the Agent. All communications regarding the Plan should be sent to the Agent addressed as follows: Telephone and Data Systems, Inc. Series A Common Share Automatic Dividend Reinvestment Plan c/o Harris Trust and Savings Bank P.O. Box 755 Chicago, Illinois 60690 (telephone: 312/461-3310) Harris Trust and Savings Bank also acts as dividend disbursing and transfer agent for the Company's Series A Common Shares. PARTICIPATION 4. Who Is Eligible To Participate? All holders of record of at least one whole Series A Common Share are eligible to participate in the Plan. Beneficial owners of Series A Common Shares which currently are registered in names other than their own (for example, in the name of a broker or bank nominee) who wish to participate in the Plan must either make appropriate arrangements for their nominee to do so or must become security owners of record of Series A Common Shares. All holders of record of at least one whole Series A Common Share are eligible to participate in the Plan, unless they are citizens of a state or foreign jurisdiction in which it would be unlawful for the Company to allow such participation. The Company is not aware of any jurisdiction in which the making of the offer is not in compliance with valid applicable law. If the Company becomes aware of any jurisdiction in which the making of the offer would not be in compliance with valid applicable law, the Company will make a good faith effort to comply with any such law. If, after such good faith effort, the Company cannot comply with any such law, the offer will not be made to holders of shares residing in any such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall not be deemed to be -4- made unless it is made on behalf of the Company by one or more registered brokers or dealers which are licensed under the laws of such jurisdiction, as may be designated by the Company. 5. How Does A Series A Common Shareholder Participate? A holder of Series A Common Shares may join the Plan at any time by signing an "Authorization Form" and returning it to the Agent. An Authorization Form and postage paid envelope may be obtained by written request addressed to the Agent at the above address or by writing or calling the Company as follows: Telephone and Data Systems, Inc. Series A Common Shares Automatic Dividend Reinvestment Plan Suite 4000 30 North LaSalle Street Chicago, Illinois 60602 Attn: Investor Relations Coordinator (telephone: 312/630-1900) 6. When Does A Series A Common Shareholder's Participation Start? Series A Common Shareholders If an Authorization Form directing dividend reinvestment is received from a Series A Common Shareholder by the Agent on or before the last business day of the month preceding the next dividend payment, that dividend will be applied to the purchase of Series A Common Shares under the Plan. If the Authorization Form directing dividend reinvestment is received after that date, dividend reinvestment will begin with the next succeeding payment. Cash dividends on the Series A Common Shares are ordinarily paid in March, June, September and December. For example, if the Company's Board of Directors establishes June 30 as the payment date for a Series A Common Share cash dividend, then in order to reinvest the dividends payable on June 30 in new Common Shares under the Plan, a Series A Common Shareholder's Authorization Form must be received by the Agent no later than the last business day in May. If the Authorization Form is received after the last business day in May, the dividends payable on June 30 will be paid in cash and the Common Shareholder's participation in the Plan will commence with the next Series A Common Share cash dividend payment date. 7. Will a Series A Common Shareholder Presently Enrolled In The Series A Common Share Automatic Dividend Reinvestment Plan, as originally adopted ("Original Plan"), Continue to be Enrolled In the Plan, as amended? Yes. A Series A Common Shareholder enrolled in the Original Plan will continue to be enrolled in the Plan in accordance with the participation option chosen under the Original Plan, provided he or she is a holder of record of at least one whole Series A Common Share. If a holder of Series A Common Shares enrolled in the Original Plan does not wish to participate in the Plan, he or she should withdraw from the Plan in the manner described in the Answers to Questions 20 and 21. If a holder of Series A Common Shares wishes to change the nature of his or her participation from that in the Original Plan, he or she should return an Authorization Form as described herein. If a holder of Series A Common Shares enrolled in the Original Plan does not wish to withdraw or change the nature of his or her participation, he or she will be continued in the Plan and the cash dividends on those Series A Common Shares owned of record by that shareholder and designated for reinvestment under the Original Plan will be used to purchase Series A Common Shares under the Plan at the 5% discount. 8. What Does The Authorization Form Provide? The Authorization Form provides for the purchase of new Series A Common Shares through the following investment options offered under the Plan: Full Reinvestment - Cash dividends Series A Common Shares held of record by a holder of Series A Common Shares will be invested at 95% of market value (see the Answer to Question 13). Partial Reinvestment - Cash dividends on less than all of the shares held of record by a holder of Series A Common Shares will be invested at 95% of market value (see the Answer to Question 13) and the shareholder will continue to receive cash dividends on the other shares. Cash dividends on Series A Common Shares credited to the participant's account under the Plan (including fractional shares) are automatically reinvested to purchase additional Series A Common Shares no matter which option is chosen. The Authorization Form also serves to appoint Harris Trust and Savings Bank as Agent for the participant. If a holder of Series A Common Shares has more than one stock account pursuant to which he or she is eligible to participate in the Plan, a separate Authorization Form is required for each account that he or she wishes included in the Plan. 9. Is Partial Participation Possible Under The Plan? Yes. An eligible shareholder who desires the dividends on only some of his or her full Series A Common Shares to be invested under the Plan may indicate such number of shares upon the applicable Authorization Form(s) under "Partial Dividend Reinvestment." 10. May A Participant Change His Or Her Method Of Participation After Enrollment? Yes. If a shareholder elects to participate through the reinvestment of dividends but later decides to change the number Series A Common Shares for which dividends are being reinvested, a new Authorization Form may be executed and returned to the Agent. COSTS 11. Are There Any Expenses To Participants In Connection With Purchases Under The Plan? No. Participants will incur no costs. There are no brokerage fees because Series A Common Shares are purchased directly from the Company. All costs of administration of the Plan will be paid by the Company. -6- PURCHASES 12. When Are The Investment Dates? The Investment Dates for Series A Common Shares purchased under the Plan with cash dividends on Series A Common Shares are the cash dividend payment dates. The Company usually pays cash dividends on its Series A Common Shares in March, June, September and December. 13. How Will The Purchase Price Of Series A Common Shares Be Determined? No market exists for the Series A Common Shares. Therefore, the Company is assuming for purposes hereof that each Series A Common Share has a fair market value equal to one of the Company's Common Shares because the Series A Common Shares were initially issued by the Company in exchange for its Common Shares on a one-for-one basis and are presently convertible into Common Shares on a one-for-one basis. Accordingly, the price of Series A Common Shares purchased with reinvested cash dividends will be 95% of the average daily high and low sales prices for the Company's Common Shares on the American Stock Exchange, as reported in The Wall Street Journal, for a period of ten (10) consecutive trading days ending on the trading day immediately preceding the Investment Date. If there is no trading in the Common Shares reported on the American Stock Exchange for a substantial amount of time during any such trading period, the purchase price per share shall be determined by the Company on the basis of such market quotations as it shall deem appropriate. No Series A Common Shares will be sold by the Company at less than the par value of such shares. 14. How Many Series A Common Shares Will Be Purchased For Participants? The number of Series A Common Shares to be purchased on an Investment Date will be determined by the amount of each participant's dividends (including dividends on Series A Common Shares purchased under the Plan) and the applicable price of the Company's Common Shares. Each participant's account in the Plan will be credited with the number of Series A Common Shares, including fractional shares computed to four decimal places, equal to the amount of the dividends being invested divided by 95% of the applicable purchase price. REPORTS TO PARTICIPANTS 15. What Reports Will Be Sent To Participants In The Plan? Each participant in the Plan will receive a statement of his or her account with respect to each month in which a transaction takes place. These statements are a participant's continuing record of the cost of his or her purchases. Participants should retain these statements for income tax purposes. Each statement will set forth the following information when applicable: (1) The total number of Series A Common Shares registered in the name of the participant which is participating in the Plan. (2) The total number of Series A Common Shares which have been accumulated under the Plan by the Participant but for which certificates have not been issued (See Answer to Question 17). -7- (3) The following information for each transaction during the month and all transactions to date during the current year: (a) the amount of dividends invested; (b) the price per share for each transaction; (c) the number of shares purchased; and (d) certain tax information. In addition, each participant will receive copies of communications sent to every other holder of the Company's Series A Common Shares, including the Annual Report to Shareholders, Notice of Annual Meeting of Shareholders and Proxy Statement, and Internal Revenue Service ("IRS") information on Form 1099 for reporting dividend income. DIVIDENDS 16. Will Participants Be Credited With Dividends On Fractions Of Shares? Yes. Participants will be credited with the amount of dividends attributable to fractions of shares in their accounts under the Plan and such dividends will be reinvested. CERTIFICATES FOR SHARES 17. Will Certificates Be Issued For Shares Of Series A Common Shares Purchased Under The Plan? Normally, certificates for the Company's Series A Common Shares purchased under the Plan will not be issued to participants. The number of Series A Common Shares credited to a participant's account under the Plan will be shown on each statement of account mailed to the participant. This convenience protects against loss, theft, or destruction of stock certificates. Certificates for any number of whole Series A Common Shares credited to an account under the Plan will be issued upon the written request of the participant to the Agent and issuance of such certificates will not terminate participation in the Plan. Any remaining full shares and fraction of a share will continue to be credited to the participant's Plan account. Dividends on Plan Series A Common Shares for which a participant requests and receives a certificate will be reinvested in the Company's Series A Common Shares at the 5% discount under the Plan and the Series A Common Shares purchased therewith will be credited to the Participant's Plan if the participant continues to own these Series A Common Shares and has elected full dividend reinvestment of Series A Common Shares on his or her current Series A Common Share Authorization Form. A participant who continues to own the Series A Common Shares in question and desires to have the dividends on these shares reinvested in the Company's Series A Common Shares but who does not have an existing Authorization Form for Series A Common Shares or has elected only partial reinvestment of his or her Series A Common Share dividends on the current Authorization Form will have to execute a new Authorization Form and return it to the Agent as set forth in the Answer to Question 10. Otherwise, dividends on these Series A Common Shares will not be reinvested in the Company's Series A Common Shares at the 5% discount as they were when they were held for the participant in the Plan. Rather, the dividends on the Series A Common Shares in question will be paid to the Shareholder in cash. -8- Series A Common Shares credited to the account of a participant under the Plan may not be pledged as collateral otherwise transferred. A participant who wishes to pledge or transfer such shares must request that certificates for such shares be issued in his or her name. Certificates for fractional Series A Common Shares will not be issued under any circumstances. An institution that is required by law to maintain physical possession of certificates may request a special arrangement regarding the issuance of certificates for Series A Common Shares purchased under the Plan. This request should be sent to the Agent (see Answer to Question 3). 18. In Whose Name Will Certificates Be Issued? Accounts under the Plan are maintained in the names in which certificates of the participants were registered at the time they entered the Plan. Consequently, certificates for whole shares issued upon the request of participants will be similarly registered. SAFEKEEPING OF SHARES 19. May participants transfer Series A Common Shares which are designated for participation in the Plan to the Agent for safekeeping? Yes. Participants may transfer to the Agent for safekeeping certificates representing Series A Common Shares registered in their name. These shares will be credited to the participants' accounts under the Plan along with shares purchased for them under the Plan. There is no charge for this service. The stock certificates should be sent by registered mail, return receipt requested and properly insured, to the Agent. Certificates should not be endorsed. Dividends will be reinvested in shares represented by the certificates transferred to the Agent. WITHDRAWAL 20. When May A Participant Withdraw From The Plan? A participant may withdraw from the Plan at any time by notifying the Agent in writing. If the notice of termination is received by the Agent prior to the record date for the next Series A Common Share cash dividend, the amount of that dividend will be paid to the withdrawing participant. If the notice of termination is received by the Agent on or after the record date for the next Series A Common Share cash dividend, the next dividend will be reinvested and subsequent dividends will be paid in cash. Dividends paid after withdrawal from the Plan will be paid in cash directly to the shareholder unless he or she elects to rejoin the Plan, which the shareholder may do as set forth in the Answer to Question 22. 21. What Happens When A Participant Withdraws From The Plan Or The Plan Is Terminated? When a participant withdraws from the Plan, or ceases to be a shareholder of record, or ceases to be an eligible shareholder, or upon termination of the Plan by the Company, a certificate for the whole Series A Common Shares credited to his or her account under the Plan will be issued and -9- a cash payment will be made for any fractional share. This cash payment will be based on the closing price of the Company's Common Shares on the American Stock Exchange as of the date the written request for withdrawal is received, or the participant ceases to be a shareholder of record, or the participant ceases to be an eligible shareholder, or the Plan is terminated, whichever is applicable, or if no trading occurs on such date, the next day on which the Common Shares are traded. OTHER INFORMATION 22. When May A Shareholder Rejoin The Plan? Generally, a shareholder may rejoin the Plan at any time, provided he or she is an eligible shareholder, by submitting a new Authorization Form. However, the Company reserves the right to reject any Authorization Form from a previous participant on the grounds of repeated joinings and withdrawals from Plan participation. Such reservation is intended to minimize administrative expenses and to encourage use of the Plan as a long-term investment service. 23. What Happens If A Participant Sells Or Transfers All Of His Or Her Series A Common Shares? If a participant ceases to be a shareholder of record holding at least one whole Series A Common Share, a cash payment will be made for any fractional share remaining in the Plan. Thereafter, the shareholder may rejoin the Plan as set forth in the Answer to Question 22 if he or she is or becomes a holder of at least one whole Series A Common Share. 24. What Happens When A Participant Who Is Reinvesting Dividends On All Or Less Than All Of The Shares Registered In His Or Her Name Sells Or Transfers A Portion Of Such Shares? If a participant who is reinvesting dividends on all or only a portion of Series A Common Shares registered in his or her name disposes of a portion of such shares, the Company will continue to reinvest dividends on the remainder of the Series A Common Shares registered in the participant's name up to the number indicated on the participant's Authorization Form as the number of Series A Common Shares for which dividends are to be reinvested, provided the participant continues to hold at least one whole Series A Common Share. For example, if a participant authorized the Company to reinvest dividends on 50 Series A Common Shares of a total of 100 Series A Common Shares registered in his or her name, and then disposes of 25 Series A Common Shares, the Company would continue to reinvest dividends on 50 of the remaining 75 shares. 25. Does Participation In The Plan Involve Risk? The Plan itself creates no risk. The risk to participants is the same as with any other investment in the Company's Series A Common Shares. It should be recognized that since investment prices are determined as an average of the daily high and low sales prices for a period of ten (10) consecutive trading dates on which the Company's Common Shares are traded (see Answer to Question 13), a participant loses any advantage otherwise available from being able to select the timing of his or her investment. PARTICIPANTS MUST RECOGNIZE THAT NEITHER THE COMPANY NOR THE AGENT CAN ASSURE A PROFIT OR PROTECT AGAINST A LOSS ON THE SHARES PURCHASED UNDER THE PLAN. 26. What Happens If The Company Issues A Stock Dividend, Declares A Stock Split Or Has A Rights Offering? Any Series A Common Shares distributed by the Company as a stock dividend on shares credited to a participant's Plan account, or upon any split of such shares, will be credited to the -10- participant's Plan account. Stock dividends distributed on Series A Common Shares in shares of any other class of capital stock will be mailed directly to the shareholder in the same manner as to shareholders not participating in the Plan. However, if a dividend reinvestment plan is established for the shares of such other capital stock distributed as a dividend, the participant will automatically become a participant of such dividend reinvestment plan and the shares distributed to such participant will instead be credited to the participant's plan account. In a rights offering, a participant's entitlement will be based upon his or her total holdings, including shares credited to the participant's account under the Plan. Rights certificates will be issued for the number of whole Series A Common Shares only, however, and rights based on a fraction of a Series A Common Share held in a participant's Plan account will be sold for the participant's account and the net proceeds will be forwarded to the participant. 27. How Will A Participant's Shares Be Voted At Shareholders' Meetings? All Series A Common Shares held in the Plan for a participant will be voted as the participant directs on a proxy or voting instruction form which will be furnished to the participant. If the participant does not return the proxy or form to the Agent, the Agent will not vote the participant's Plan shares. 28. What Are The Federal Income Tax Consequences Of Participation In The Plan? The following discussion sets forth the general Federal income tax consequences for participants in the Plan. However, the discussion is not intended to be an exhaustive treatment of such tax consequences. For example, the discussion does not address the treatment of stock dividends, stock splits or a rights offering to participants in the Plan. It also does not address differences in tax treatment with respect to participants who do not hold the Series A Common Shares as capital assets. Because the tax laws are complex and constantly changing, participants are urged to consult their own tax advisors regarding the tax consequences of participating in the Plan (including the effects of any applicable state, local or foreign tax laws) and for rules regarding the tax basis in special cases such as the death of a participant or a gift of Series A Common Shares held under the Plan and for other tax consequences. Future legislative changes or changes in administrative or judicial interpretation, some or all of which may be retroactive, could significantly alter the Federal income tax treatment discussed herein. In general, participants in the Plan who elect to reinvest cash dividends will be treated, for Federal income tax purposes, as having received, on the dividend payment date, a distribution in an amount equal to the fair market value on the dividend payment date of the Series A Common Shares purchased with reinvested dividends (rather than a distribution in the amount of cash otherwise payable to the participant). It should be noted that the fair market value of the Series A Common Shares on the dividend payment date is likely to differ from the price paid for the Series A Common Shares under the Plan because the price paid for such shares will be only 95% of the market value described in Question 13. Moreover, as described in Question 13, such market value is based on the average of the high and low sales prices for the Company's Common Shares over a ten-day period preceding the dividend payment date, rather than the reported sales prices on the dividend payment date itself. Furthermore, such market value is based on the assumption that each Series A Common Share has a fair market value equal to one of the Company's Common Shares, and there can be no assurance that the Internal Revenue Service ("IRS") will agree with that assumption. Participants should not be treated as receiving an additional distribution based upon their pro rata share of the Plan -11- administration costs paid by the Company; however, there can be no assurance that the IRS will agree with this position. The Company has no present plans to seek formal advice from the IRS on this issue. Generally, the distribution described above (the fair market value, on the dividend payment date, of the Series A Common Shares purchased with reinvested dividends) will be taxable to participants as ordinary dividend income to the extent of the Company's current or accumulated earnings and profits for Federal income tax purposes. The amount of the distribution in excess of such earnings and profits will reduce a participant's tax basis in the Series A Common Shares with respect to which such distribution was received, and, to the extent in excess of such basis, result in capital gain. Certain corporate participants may be entitled to a dividends received deduction with respect to amounts treated as ordinary dividend income. Corporate participants should consult their own tax advisors regarding their eligibility for and the extent of such deduction. Tax information will be shown on the statements of account sent to participants which participants should retain for tax purposes. These statements are important for computing the tax basis of Series A Common Shares acquired under the Plan. The Form 1099 which each participant will receive annually will include the income which (based on the Company's determination of the fair market value of the Series A Common Shares on the dividend payment date, assuming each Series A Common Share has a fair market value on the dividend payment date equal to one of the Company's Common Shares on that date) is deemed to result from the receipt of the Series A Common Shares under the Plan. As a general rule, the tax basis of shares (or any fraction of a share) purchased with reinvested dividends will equal the fair market value of such shares (or fractional share) on the dividend payment date. The holding period for Series A Common Shares (or a fraction thereof) received as a result of reinvestment of dividends under the Plan will begin on the day following the purchase date. Participants will generally not realize any taxable income when they receive certificates for whole Series A Common Shares credited to their accounts under the Plan, either upon their request for certificates for certain of those shares, upon ceasing to be a shareholder of record, upon ceasing to be an eligible shareholder, or upon withdrawal from or termination of the Plan. However, a participant may realize a gain or loss when Series A Common Shares acquired under the Plan are subsequently sold. In addition, participants may realize gain or loss when they receive a cash adjustment for fractional shares credited to their accounts upon withdrawal from or termination of the Plan. The amount of such gain or loss will be the difference between the amount which the participant receives for his or her shares or fractional share, and his or her tax basis therefor (with special rules applying to determine the basis allocable to shares that are not specifically identified when the Participant sells less than all of his or her shares). Such gain or loss will generally be capital gain or loss, and will be long-term capital gain or loss if the holding period for such shares or fractional shares exceeds one year. The excess of net long-term capital gains over net short-term capital losses is taxed at a lower rate than ordinary income for certain taxpayers. The distinction between capital gain or loss and ordinary income and loss is also relevant for purposes of, among other things, limitations on the deductibility of capital losses. Any loss may be disallowed under the "wash sale" rules to the extent the shares disposed of are replaced (through the Plan or otherwise) during the 61- day period beginning 30 days before and ending 30 days after the date of disposition. -12- I. What Provision Is Made For Shareholders (Foreign And Domestic) Whose Dividends Are Subject To Income Tax Withholding? In the case of foreign shareholders who elect to have their dividends reinvested and whose dividends are subject to United States income tax withholding, the Agent will invest in the Company's Series A Common Shares an amount equal to the dividends of such foreign participants less the amount of tax required to be withheld. Under certain circumstances, the Company may be required to backup-withhold income tax on the dividends of participating domestic shareholders, including those domestic shareholders who do not accurately report their dividend income, fail to provide the Company with their taxpayer identification number, provide the Company with an incorrect taxpayer identification number or fail to provide the Company with a certificate setting forth that they are not subject to backup withholding. If this should occur, thirty-one percent (31%) of the dividend income, or such other percentage as may be required from time to time, will be withheld. The statements of account sent to participants will indicate the amount of any income tax withheld. The Company cannot refund amounts withheld. Participants subject to withholding should contact their tax advisors or the IRS for additional information. 30. What Are The Responsibilities Of The Shareholders' Agent And The Company Under The Plan? In performing their duties under the Plan, the Agent and the Company will at all times act in the best interests of the participants. However, they will not be liable for any act performed in good faith, or for any good faith omission to act, including, without limitation, any claims of liability arising out of failure to terminate a participant's account upon such participant's death prior to receipt of notice in writing of such death. Although the Plan contemplates the continuation of quarterly Series A Common Share dividend payments, the payment of future Series A Common Share dividends will depend upon future earnings, the financial condition of the Company and other factors. TERMINATION BY COMPANY 31. May The Plan Be Changed Or Discontinued? The Company reserves the right to suspend, modify or terminate the Plan at any time. All participants will receive notice of such suspension, modification or termination. DESCRIPTION OF CAPITAL STOCK The authorized capital stock of Telephone and Data Systems, Inc. ("TDS") consists of 100,000,000 Common Shares, $1.00 par value ("Common Shares"), 25,000,000 Series A Common Shares, $1.00 par value ("Series A Common Shares"), and 5,000,000 Preferred Shares, without par value ("Preferred Shares"). Only the Series A Common Shares are being offered by this Prospectus. However, considering the relationships and interdependence of all classes of stock, this description discusses the rights of all classes. -13- Voting Trust A substantial majority of TDS's outstanding Series A Common Shares are held in a voting trust which expires on June 30, 2009. The voting trust was created to facilitate the long standing relationships among the trustees' certificate holders. By virtue of the number of shares held by them, the voting trustees have the power to elect 75% of the Directors and control a majority of the voting power of TDS in matters other than the election of directors. The trustees of the voting trust are LeRoy T. Carlson, Jr., a director and the President of TDS, Walter C.D. Carlson, a director of TDS, Letitia G. Carlson, Melanie J. Heald and Donald C. Nebergall, a director of TDS. Preferred Shares The Board of Directors of TDS is authorized by the Articles of Incorporation of TDS to issue Preferred Shares from time to time in series and to establish as to each series the designation and number of shares to be issued, the dividend rate, the redemption price and terms, if any, the amount payable upon voluntary or involuntary dissolution of TDS, sinking fund provisions, if any, voting rights, if any, and the terms of conversion into Common Shares, if provided for. Voting Rights With respect to the election of directors, the holders of Common Shares, and the holders of Preferred Shares issued before October 31, 1981, voting as a group, are entitled to elect 25% of the Board of Directors of TDS, rounded up to the nearest whole number. The holders of Series A Common Shares, and the holders of Preferred Shares issued after October 31, 1981, voting as a group, are entitled to elect the remaining members of the Board of Directors of TDS. The Board of Directors currently consists of eleven directors. Accordingly, the holders of Common Shares and the holders of Preferred Shares issued before October 31, 1981, are entitled to elect three directors, and the holders of Series A Common Shares and the holders of Preferred Shares issued after October 31, 1981, are entitled to elect eight directors. The holders of Common Shares are entitled to one vote per share and the holders of Series A Common Shares are entitled to ten votes per share. The holders of each series of Preferred Shares are entitled to such votes as may be specified in the certificate of designation for such series. The holders of Common Shares, Series A Common Shares and Preferred Shares vote as a single group, except with respect to the election of directors as discussed above and with respect to certain amendments to the Articles of Incorporation (e.g., amendments which are adverse to the holders of a class), as to which the Iowa Business Corporation Act grants class voting rights. If the number of Series A Common Shares issued and outstanding at any time falls below 500,000 (because of the conversion of Series A Common Shares or otherwise), the holders of Series A Common Shares would lose the right to vote as a separate group (with the holders of Preferred Shares issued after October 31, 1981) in the election of approximately 75% of the directors, and thereafter the holders of Series A Common Shares (with ten votes per share) would vote with the holders of Common Shares (with one vote per share) and all holders of Preferred Shares which have voting rights as a single group in the election of all directors. Management of TDS believes it is unlikely that the number of outstanding Series A Common Shares will fall below 500,000, because more than 6,000,000 Series A Common Shares are held in the voting trust described above, and the trustees of the voting trust have indicated that they have no present intention of converting Series A Common Shares into Common Shares. -14- Dividends and Other Distributions Subject to the satisfaction of all Preferred Share dividend preference and redemption provisions, holders of Common Shares are entitled to receive such dividends as may be declared from time to time by the Board of Directors. Unless the same, or greater, dividends, on a per share basis, are declared and paid at the same time on the Common Shares, no dividends may be declared or paid on the Series A Common Shares. In the case of stock dividends, the Articles of Incorporation provide that Common Shares may be paid to holders of Common Shares and proportionately to holders of Series A Common Shares; Series A Common Shares may be paid to holders of Common Shares and proportionately to holders of Series A Common Shares; and Common Shares may be paid to holders of Common Shares and Series A Common Shares may be paid proportionately to holders of Series A Common Shares. The Board of Directors is authorized to permit both the holders of Common Shares and Series A Common Shares to elect to receive cash in lieu of stock. Upon liquidation, holders of Common Shares and Series A Common Shares are entitled to receive a pro rata share of all assets available to shareholders after payment to holders of the Preferred Shares of the liquidation value thereof, plus a sum equal to the amount of all accumulated and unpaid dividends thereon at the dividend rate fixed for each series of cumulative Preferred Shares by the Board of Directors. The Articles of Incorporation provide that if a TDS subsidiary has classes of capital stock with relative rights, preferences and limitations vis-a-vis each other that, in the judgment of the Board of Directors, are similar in all material respects to the relative rights, preferences and limitations of the Common Shares vis-a-vis the Series A Common Shares, except for certain limited matters, then the Board of Directors will distribute the subsidiary shares in a dividend or upon liquidation to the extent practicable by distributing the subsidiary shares which correspond to the Common Shares, to the holders of Common Shares, and the subsidiary shares which correspond to the Series A Common Shares, to the holders of Series A Common Shares, provided that the same number of shares of subsidiary common stock on a combined basis must be distributed per Series A Common Share and Common Share. Preemptive Rights The holders of Series A Common Shares have a preemptive right to purchase any additional Series A Common Shares sold for cash, including treasury shares. Holders of Common Shares and Preferred Shares have no preemptive rights under the Articles of Incorporation. Conversion Rights The Common Shares have no conversion rights. The Series A Common Shares are convertible, on a share for share basis, into Common Shares. Certain series of Preferred Shares are convertible into Common Shares or other securities. Other Rights The Common Shares and Series A Common Shares have no redemption or sinking fund provisions. Certain series of Preferred Shares have mandatory redemption features and certain series of Preferred Shares are redeemable at the option of TDS. -15- Provisions of Articles of Incorporation Having a Potential Anti-Takeover Effect As discussed above, the voting trust has the power to elect 75% of the directors and controls a majority of the voting power of TDS. The Articles of Incorporation of TDS provide for the Board of Directors to be divided into three classes. Each class is elected for a three year term. The Articles of Incorporation of TDS also explicitly permit the Board of Directors to consider a variety of factors in exercising its business judgment in determining what action is in the best interests of TDS and its shareholders in responding to any tender offer for any equity security of TDS and certain other proposed transactions. The existence of the voting trust and the provisions of the Articles of Incorporation summarized above may tend to deter any potential unsolicited or hostile takeover attempts or other efforts to effect a change in control of TDS and may make it more difficult for some shareholders to sell shares of TDS at higher than market prices. General The Common Shares are listed for trading on the American Stock Exchange. There is no market for the Series A Common Shares. However, Series A Common Shares are convertible on a share-for-share basis into Common Shares. All issued and outstanding Common Shares, Series A Common Shares and Preferred Shares are fully paid and nonassessable. The Transfer Agent and Registrar for the Common Shares, Series A Common Shares and Preferred Shares is Harris Trust and Savings Bank, Chicago, Illinois. LEGAL MATTERS Certain legal matters relating to the securities offered hereby will be passed upon for the Company by Sidley & Austin, Chicago, Illinois. The Company is controlled by a voting trust. Walter C.D. Carlson, a trustee and beneficiary of such voting trust and a director of the Company and certain subsidiaries of the Company, Michael G. Hron, Secretary of the Company and certain subsidiaries of the Company, William S. DeCarlo, the Assistant Secretary of the Company, Stephen P. Fitzell, the Secretary of certain subsidiaries of the Company, and Sherry S. Treston, the Assistant Secretary of certain subsidiaries of the Company, are partners of Sidley & Austin. EXPERTS The audited consolidated financial statements of Telephone and Data Systems, Inc. and Subsidiaries incorporated by reference in this Prospectus have been audited by Arthur Andersen LLP independent public accountants, as indicated in their reports with respect thereto, and have been so incorporated by reference herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. Future consolidated financial statements of Telephone and Data Systems, Inc. and Subsidiaries and the reports thereon of Arthur Andersen LLP also will be incorporated by reference in this Prospectus in reliance upon the authority of that firm as experts in giving those reports to the -16- extent that such firm has examined those financial statements and consented to the use of their reports thereon. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Iowa Business Corporation Act, as amended, provides for indemnification of directors and officers in a variety of circumstances, which may include liabilities under the Securities Act of 1933, as amended (the "1933 Act"). The Company's Bylaws provide for indemnification of the Company's directors and officers (and those serving in such capacity with a consolidated subsidiary or other entity at the request of the Board of Directors of the Company) in the circumstances and to the extent permitted by the Iowa Business Corporation Act, as amended. The Company has directors' and officers' liability insurance which provides, subject to certain policy limits, deductible amounts and exclusions, coverage for all persons who have been, are or may in the future be, directors or officers of the Company, against amounts which such persons must pay resulting from claims against them by reason of their being such directors or officers during the policy period for certain breaches of duty, omissions or other acts done or wrongfully attempted or alleged. Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue. -17- -----END PRIVACY-ENHANCED MESSAGE-----