US Cellular 2008 Annual Report Download - page 87

acquisition of the additional cellular interests that we had a right to acquire at the time of the initial public
offering. Through December 31, 2008, TDS had funded costs totaling approximately $67.2 million. TDS is
obligated under the exchange agreement to make additional capital contributions to us under certain
circumstances. Currently, TDS has no obligations with respect to additional capital contributions.
RSA Rights. Under the exchange agreement: (a) TDS retained all its rights to file applications for
and obtain the wireline licenses to operate cellular systems in Rural Service Areas (‘‘RSAs’’); (b) TDS
retained the right to exchange these RSA rights for additional interests in cellular systems in which we
have an interest or interests in cellular systems within the same or other Metropolitan Statistical Areas
(‘‘MSAs’’) or in RSAs; (c) TDS retained the right to acquire telephone, paging or other non-cellular
companies with interests in cellular systems; (d) TDS retained the right to acquire interests in RSAs in
which we indicated we did not desire to participate; and (e) the rights referred to in (a), (b), (c) and
(d) above were to remain the property of TDS unless transferred to us for appropriate consideration.
Right of Negotiation. For certain interests, if TDS desires to sell its interest in any RSA, TDS is
required to give us the opportunity to negotiate for such interest, subject to TDS being legally able to
transfer the interest free of any restrictions on its sale or transfer. If we desire to purchase any interest so
offered, TDS is required to negotiate with us concerning the terms and conditions of the transaction,
including the price and the method of payment. If we are unable to agree with TDS on the terms and
conditions of the transaction during a 60-day negotiation period, TDS would thereafter be under no
obligation to offer the interest to us, except if TDS proposed to sell the interest within a year after the
end of the negotiation period at a price equal to or lower than our highest written offer during the
negotiation period. In such case, we would have the right to purchase the interest at that price.
Corporate Opportunity Arrangements. Our restated certificate of incorporation, as amended,
provides that, so long as at least 500,000 U.S. Cellular Series A Common Shares are outstanding, we
may not, without the written consent of TDS, engage in any non-cellular activities. We have been
informed that TDS intends to give its consent to the acquisition of any non-cellular interest that is
incidental to the acquisition of a cellular interest. However, TDS could impose conditions on any such
consent, including a requirement that we resell any non-cellular interest to TDS or that we give TDS the
right of first refusal with respect to such sale.
Our restated certificate of incorporation, as amended, also restricts the circumstances under which
we are entitled to claim that an opportunity, transaction, agreement or other arrangement to which TDS,
or any person in which TDS has or acquires a financial interest, is or should be our property. In general,
so long as at least 500,000 U.S. Cellular Series A Common Shares are outstanding, we will not be
entitled to any such ‘‘corporate opportunity’’ unless it relates solely to the construction of, the ownership
of interests in, and/or the management of, cellular telephone systems, and then only if such corporate
opportunity did not arise in any way as a result of the rights otherwise retained by TDS. Our restated
certificate of incorporation allows us to pursue future opportunities to provide cellular service and design,
consulting, engineering and construction management services for cellular telecommunications systems
located outside the United States. The foregoing provisions are also included in the Exchange
Agreement.
Tax Allocation Agreement
We have entered into a tax allocation agreement with TDS under which we have agreed to join in
filing consolidated Federal income tax returns with the TDS affiliated group unless TDS requests
otherwise. Pursuant to such agreement, TDS files Federal income tax returns and pays Federal income
taxes for all members of the TDS consolidated group, including U.S. Cellular and its subsidiaries. U.S.
Cellular and its subsidiaries pay TDS for Federal taxes based on the amount they would pay if they were
filing a separate return as their own affiliated group and were not included in the TDS affiliated group.
These payments are based on the average tax rate (excluding the effect of tax credits) of the TDS
affiliated group. Any deficiency in tax thereafter proposed by the IRS for any consolidated return year that
involves income, deductions or credits of U.S. Cellular or its subsidiaries, and any claim for refund of tax
for any consolidated return year that involves such items, will be contested or prosecuted at the sole
discretion of TDS and at our expense. To the extent that any deficiency in tax or refund of tax is finally
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