Exhibit 10.5

 

TDS BONUS DEFERRAL AND

STOCK UNIT MATCH PROGRAM

[YEAR] BONUS YEAR

 

PURPOSE

 

The TDS Bonus Deferral and Stock Unit Match Program (the “Program”) is designed
to provide TDS Corporate executives with a significant incentive to acquire
additional shares of TDS stock.  This document sets forth the terms and
conditions of the Program as offered for the [YEAR] bonus year.

 

ELIGIBILITY

 

Executives who hold TDS Vice Presidential and above positions are eligible to
participate.

 

PROGRAM OVERVIEW

 

Eligible executives may defer up to 100% of their annual bonus up to a maximum
of $400,000 and receive Company Stock Unit Matches on the amount deferred. 
Company Stock Unit Match amounts will depend on the amount of annual bonus that
the executive deferred into stock units and the price of TDS Special Common
Stock on the date his/her bonus was determined by TDS.  Executives will receive
a 25% Company Stock Unit Match for amounts deferred up to 50% of their total
annual bonus and a 33% match for any amounts that they elect to defer that
exceed 50% of their total annual bonus award.  The Company Stock Unit Matches
will vest ratably over three years.

 

TDS will establish bookkeeping accounts that reflect the executive’s deferral
amount, Company Stock Unit Match and any earned dividends.  The value of the
executive’s accounts will change in direct proportion to the performance of TDS
Special Common Stock.  However, the amounts credited to an executive’s accounts
will not actually be invested in TDS Special Common Stock.  The amounts credited
to the executive’s accounts will be distributed in TDS Special Common Stock
during the earlier of (i) the seventh calendar month following the calendar
month during which the executive separates from service and (ii) the calendar
month and year elected by the executive that is at least three years following
the calendar year during which the executive makes the deferral election. 
Distribution will be in the form of a single lump sum payment.  If the executive
separates from service earlier than January 1st of the fourth calendar year
following the calendar year during which the bonus is earned (the “Performance
Year”), and such separation from service is for a reason other than death or
“Disability,” or if the executive elects a distribution date that is earlier
than January 1st of the fourth calendar year following the Performance Year, all
or a portion of the Company match will be forfeited upon such separation or
distribution.

 

For purposes hereof, “Disability” shall mean a total physical disability which,
in the TDS Compensation Committee’s judgment, prevents an executive from
performing substantially such executive’s employment duties and responsibilities
for a continuous period of at least six months.

 

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The executive is considered to be a general unsecured creditor of TDS with
regard to the deferred compensation amounts to which the Program pertains.

 

The Program is subject to the provisions of the Telephone and Data Systems, Inc.
2004 Long-Term Incentive Plan, as it may be amended from time to time (the
“LTIP”), and shall be interpreted in accordance therewith.  In the event of any
inconsistency between the terms of the Program and the terms of the LTIP, the
terms of the LTIP shall govern.  The TDS Compensation Committee shall have the
right to resolve all questions which may arise in connection with the Program. 
Any interpretation, determination or other action made or taken by the TDS
Compensation Committee regarding the Program shall be final, binding and
conclusive.  Amounts will be paid under the Program only if the TDS Compensation
Committee decides, in its sole discretion, that the executive or beneficiary is
entitled to them.

 

ADMINISTRATIVE OVERVIEW

 

In November or December of each year, the Corporate Vice President of Human
Resources will send a Bonus Deferral Form similar to Attachment I for the
upcoming Performance Year to all eligible TDS executives.  Executives wishing to
take advantage of this bonus deferral opportunity must fill out this Form and
return it (delivered or faxed with signature) to the Corporate Vice President of
Human Resources no later than the date specified by TDS (which in no event will
be later than December 31st) (see Administrative Ground Rules – Taxes).  Except
in the event that an executive experiences an “Unforeseeable Emergency” (as
defined below), the elections made by the executive on the Bonus Deferral
Form shall be irrevocable upon the commencement of the Performance Year.

 

Before the first of each year, the Corporate Vice President of Human Resources
will confirm all election deferral decisions with the executives making them, as
well as advise the administrative personnel who need to be aware of the
specifics of these bonus deferral election decisions.

 

After a participating executive’s bonus award has been determined and the amount
he/she has deferred is known, two separate accounts will be established for each
participating executive:  (i) the “Deferred Compensation Stock Account”, which
will be credited with the bonus monies that the executive has deferred under the
Program, and (ii) the “Stock Unit Match Account”, which will be credited with
the Company Stock Unit Match awards.

 

The value of an executive’s accounts for the [YEAR] Performance Year will rise
or fall in direct proportion to the price of TDS Special Common Stock.*  All
participating executives will receive statements of the number of vested and
unvested share units they have in their accounts as of each December 31st (see
Attachment II for the information that will be included in each account
statement).  These statements will be sent out annually as early in the first
quarter as possible.

 

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*              Please note that if an executive participated in the Program for
Performance Years prior to the 2005 Performance Year, the value of the
executive’s accounts for such years will rise or fall in direct proportion to
the price of TDS Special Common Stock and TDS Common Stock.  Accounts for
Performance Years prior to the 2005 Performance Year are deemed to be invested
in an equal number of shares of TDS Special Common Stock and TDS Common Stock. 
Accounts for the 2005 Performance Year and any Performance Year thereafter are
deemed to be invested solely in shares of TDS Special Common Stock.

 

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ADMINISTRATIVE GROUND RULES

 

This [YEAR] Program will be administered in accordance with the following ground
rules:

 

·      Vesting:

 

The executive is always 100% vested in all bonus amounts that have been deferred
under the Program and any dividends credited under the Program.  Provided that
the executive does not separate from service or receive a distribution of
his/her accounts for the [YEAR] Performance Year prior to the vesting date, the
Company Stock Unit Matches will vest ratably over three years in accordance with
the following schedule:

 

·      33% on December 31st of the year following the Performance Year,

 

·      an additional 33% on December 31st of the second year following the
Performance Year, and

 

·      the remaining 34% on December 31st of the third year following the
Performance Year.

 

·      Taxes:

 

Since all bonus deferral decisions under the Program will be made in accordance
with IRS requirements, income taxes on all Bonus Deferrals and Company Stock
Unit Match awards will be deferred until the proceeds from the executive’s
Deferred Compensation Stock Account and Stock Unit Match Account are
distributed.  The IRS has taken the position that the executive must make
his/her deferral election prior to the beginning of the Performance Year in
order that the deferred monies not be considered immediately taxable and to
avoid other adverse tax consequences.

 

Please note, however, that Bonus Deferrals and Company Stock Unit Match awards
will be subject to social security and unemployment tax prior to the date they
are distributed.  Bonus Deferrals will be subject to social security and
unemployment tax at the time of the deferral and Company Stock Unit Match awards
will be subject to social security and unemployment tax at the time they become
vested.

 

Appropriate amounts shall be withheld from any distributions under the Program
or from an executive’s compensation as may be required for purposes of complying
with federal, state, local or other tax withholding requirements applicable to
the Program.

 

·      Separation from Service:

 

If the executive separates from service prior to the completion of the vesting
schedule, as previously described, all unvested share units credited to the
executive’s Stock Unit Match Account will be forfeited, except if the executive
separates from service as a result of his/her Disability or death.  If the
executive separates from service as a result of his/her Disability or death, the
executive or his/her beneficiary/beneficiaries, as applicable, will be 100%
vested in all share units credited at such time to the executive’s Stock Unit
Match Account.

 

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Notwithstanding the foregoing, if the executive separates from service as a
result of his/her negligence, willful misconduct, competition with TDS or an
affiliate thereof or misappropriation of confidential information of TDS or an
affiliate thereof, as determined by TDS in its sole discretion, then the
executive’s Stock Unit Match Account, whether vested or nonvested (including any
dividend share units credited thereto), automatically will be forfeited as of
the date of such separation.

 

·      Beneficiaries:

 

An executive who defers any portion of his/her annual bonus under the Program
should complete a “Bonus Deferral and Stock Unit Match Program Beneficiary
Designation Form” (see Attachment III) and return it to the Corporate Vice
President of Human Resources as soon as possible.  In the event of the
executive’s death, this Form will govern distribution of the executive’s unpaid
vested accounts for the [YEAR] Performance Year and all other Performance Years
with respect to which the executive participated in the Program.  The Form does
not have to be completed again unless the executive wishes to make some change
to the previous Beneficiary Designation Form.  If an executive is married and
names someone other than his/her spouse as a primary beneficiary, the
designation is invalid unless the spouse consents by signing the Beneficiary
Designation Form in the presence of a Notary Public.  If an executive fails to
complete such a form, the executive’s spouse, if any, will be the beneficiary. 
Otherwise, the executive’s beneficiary will be determined by the terms of the
LTIP document.

 

Notwithstanding any provision within the Program to the contrary, in the event
of the executive’s death, his/her unpaid vested accounts will be distributed in
their entirety at the time determined by TDS within 60 days following the
executive’s death.

 

·      Initial Value of the Executive’s Deferred Compensation Stock and Stock
Unit Match Accounts:

 

After verification of the executive’s bonus, and the amount that was deferred,
the amount credited to the executive’s accounts for the [YEAR] Performance Year
will be determined as follows:

 

·      The initial value of the bonus deferral amount will be determined by
dividing the bonus deferral by the closing price of TDS Special Common Stock on
the date that the bonus was determined.  Share units will be calculated to three
decimal places and fractional share units will accumulate.

 

For example, if the executive elected to defer 75% of his/her bonus for a year
and his/her bonus was $40,000 for that year, the executive would have deferred
$30,000.  If the closing price of a share of TDS Special Common Stock on the day
this bonus was approved was $100, then 300 share units will be credited to the
executive’s Deferred Compensation Stock Account.

 

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·      The initial value of the Stock Unit Match Account will be determined the
same way.  Using the above example, the initial dollar value of share units
credited to his/her Stock Unit Match Account is $8,300, calculated as follows:

 

·      25% of $20,000 (50% of the executive’s total bonus) = $5,000

 

·      33% of $10,000 (the deferral amount over 50% of the executive’s total
bonus) = $3,300

 

·      Total = $8,300

 

Since the closing price of TDS Special Common Stock on the date the bonus award
was approved was assumed to be $100, the executive’s Stock Unit Match Account
would be credited 83.00 share units, which would vest in accordance with the
following schedule:

 

·      27.39(1) share units – vests on December 31st of the year following the
Performance Year.

·      27.39(1) share units – vests on December 31st two years after the
Performance Year.

·      28.22(2) share units – vests on December 31st three years after the
Performance Year.

·      83.00   share units – Total Stock Unit Match

 

·      Value of an Executive’s Deferred Compensation Stock Account and Stock
Unit Match Account:

 

The value of an executive’s accounts for the [YEAR] Performance Year will
increase or decrease in an amount equal to the gains or losses that would have
been realized if assets in an amount equal to the balance in the executive’s
accounts were actually invested in TDS Special Common Stock.  Hence, if the
price of TDS Special Common Stock rises by $1, each share unit credited in the
executive’s accounts will be worth an additional $1.

 

·      Dividends:

 

The executive’s Deferred Compensation Stock Account and Stock Unit Match Account
will be credited with dividend share units as follows:

 

·      On Bonus Deferral Share Units: Dividend share units on the executive’s
share units in his/her Deferred Compensation Stock Account will be credited on
an annual basis and based on the number of share units credited to the
executive’s Deferred Compensation Stock Account as of the record date for each
quarter of the year.

 

This will be done by totaling up the quarterly dividend dollar amounts as per
the above (as if the share units actually were outstanding shares of TDS), and
dividing this sum by the closing price of TDS Special Common Stock on
December 31st of that year.  The result is the number of dividend share units
that will be credited as of December 31st to the executive’s account for that
year.  No dividend share units will be credited to the executive’s account for a
year if as of December 31st of such year the executive’s account has been
distributed.

 

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(1) 33% of the total Company Stock Unit Match.

(2) 34% of the total Company Stock Unit Match.

 

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·      On Match Share Units:  For all vested share units credited in the
executive’s Stock Unit Match Account, the procedure for determining the dividend
share units to be credited to this account is the same as for the Deferred
Compensation Stock Account.  Unvested share units credited to a Stock Unit Match
Account will not be credited with dividend share units.

 

·      Unforeseeable Emergency Withdrawals:

 

In the event that an executive experiences an Unforeseeable Emergency, the
executive may request in writing a payment of all or a portion of the share
units credited to his/her Deferred Compensation Stock Account and the vested
share units credited to his/her Stock Unit Match Account.  Withdrawals will
first come from the vested Stock Unit Match Account.  For this purpose,
“Unforeseeable Emergency” shall mean a severe financial hardship to an executive
resulting from (i) an illness or accident of the executive, the executive’s
spouse or the executive’s dependent; (ii) the loss of the executive’s property
due to casualty; or (iii) other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
executive.  Payment may not exceed an amount reasonably necessary to satisfy
such emergency plus amounts necessary to pay taxes and penalties reasonably
anticipated as a result of such payment after taking into account the extent to
which the hardship may be relieved (a) through reimbursement or compensation by
insurance or otherwise, (b) by liquidation of the executive’s assets (to the
extent the liquidation of such assets would not itself cause severe financial
hardship) or (c) by cancellation of any deferral election hereunder or under any
other nonqualified deferral program for the year of the hardship. College
expenses and expenses incurred in purchasing a residence generally do not
qualify as Unforeseeable Emergencies.  The following may be considered
Unforeseeable Emergencies:  (i) the imminent foreclosure of or eviction from the
executive’s primary residence, (ii) the need to pay for medical expenses,
including non-refundable deductibles and the cost of prescription drug
medication and (iii) the need to pay for funeral expenses of the executive’s
spouse or dependent.  In the event an executive’s Unforeseeable Emergency
withdrawal request is approved, such payment shall be made to the executive in a
lump sum as soon as practicable following such approval, but in no event later
than 60 days after the occurrence of the Unforeseeable Emergency.  No
Unforeseeable Emergency withdrawal request will be approved with respect to an
employee who has separated from service.

 

In addition, in the event that an executive receives an Unforeseeable Emergency
withdrawal, whether under this Program or any other nonqualified deferred
compensation plan maintained by TDS or its affiliates, then any deferral
election made by the executive under this Program or such other plan with
respect to the calendar year during which the withdrawal occurs shall be
cancelled for the remainder of such year.

 

·      Distributions:

 

Except in the event of the executive’s death, the executive will receive the
distributable balance credited to his/her accounts for the [YEAR] Performance
Year at the earlier of (i) the seventh calendar month following the calendar
month during which he or she separates from service, or (ii) the distribution
date that he/she selected on the [YEAR] Bonus Deferral Form (which must be a
month and calendar year at least three years following the calendar year during
which the executive makes the deferral election).  In the event of the
executive’s death, the executive’s

 

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designated beneficiary will receive such balance at the time determined by TDS
within 60 days following the executive’s death.  All distributions for the
[YEAR] Performance Year will be made in TDS Special Common Stock, except that
the value of any partial share unit credited to an executive’s accounts will be
paid in cash.

 

The total distributable balance in an executive’s accounts will be determined by
adding:

 

·      The sum of all share units credited to his/her Deferred Compensation
Stock Account (including any credited dividend share units) reduced by any
Unforeseeable Emergency or other withdrawals made prior to the distribution
date, and

 

·      The sum of vested share units credited to his/her Stock Unit Match
Account (including any credited dividend share units) reduced by any
Unforeseeable Emergency or other withdrawals made prior to the distribution
date.

 

If, for example, the total vested share units credited to the executive’s
accounts is 500 share units on the distribution date, the executive will receive
500 shares of TDS Special Common Stock less any taxes TDS is required to
withhold (taxes may be withheld in the form of shares).  In this example, the
dollar value, which is taxable income, would be calculated by multiplying the
closing price of TDS Special Common Stock on the distribution date by 500.

 

Compliance with Law

 

This [YEAR] Program is intended to comply with Section 409A of the Internal
Revenue Code and the regulations promulgated thereunder and shall be interpreted
and construed accordingly.  TDS shall have sole discretion and authority to
amend this Program, unilaterally, at any time in the future to satisfy any
requirements of Section 409A (irrespective of whether such amendment has
retroactive or prospective effect).  Notwithstanding the foregoing, under no
circumstance shall TDS be responsible for any taxes, penalties, interest or
other losses or expenses incurred by an executive or other person due to any
failure to comply with Section 409A.

 

QUESTIONS

 

Questions on the Program should be directed to the Corporate Vice President of
Human Resources.

 

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Attachment I

 

TELEPHONE AND DATA SYSTEMS, INC.

[YEAR] BONUS DEFERRAL FORM

 

NAME

 

 

SOCIAL SECURITY NUMBER

 

 

 

 

 

DATE OF BIRTH

 

 

 

Deferral election with respect to my annual Bonus earned in [YEAR]:

 

o            I hereby elect to defer, under the terms and conditions of the TDS
Bonus Deferral and Stock Unit Match Program for the [YEAR] Bonus Year  (the
“[YEAR] Program”) and the Telephone and Data Systems, Inc. 2004 Long-Term
Incentive Plan (the “LTIP”), as each may be amended from time to time, the
following whole percentage of my [YEAR] Bonus that would otherwise be paid to me
in [YEAR +1] (deferral not to exceed $400,000).

 

 

 

%

 

 

DISTRIBUTION DATE ELECTION:  I understand that my deferred [YEAR] Bonus and the
stock unit matches thereon will be paid upon the earlier of (i) the seventh
calendar month following the calendar month during which I separate from service
and (ii) the date that I elect herein.  I elect that such deferrals and match be
paid as follows (select one):

 

              I elect to receive my deferred [YEAR] Bonus and the stock unit
matches thereon in a single lump sum payment in the seventh calendar month
following the calendar month during which I separate from service.

- OR -

              I elect to receive my deferred [YEAR] Bonus and the stock unit
matches thereon in a single lump sum payment in the following month and year
(which year may not be earlier than three years after the year this election is
made).  If such date is earlier than January, [YEAR + 4], I recognize that a
portion of the company match will be lost.

 

Month and Year: 

 

 

 

 

·      I understand that my elections set forth herein are irrevocable.

 

·      I understand that my deferred [YEAR] Bonus and the stock unit matches
thereon will be recorded in accounts established in my name on TDS’s books and
records and that these accounts will be governed by the terms of the [YEAR]
Program and the LTIP, as each may be amended from time to time.

 

·      I acknowledge that my accounts under the [YEAR] Program will rise or
decline in value equal to the earnings or losses that would have been realized
if assets in an amount equal to the balances in my accounts were actually
invested in TDS Special Common Stock.

 

·      I acknowledge that the [YEAR] Program is intended to comply with
provisions of Section 409A of the Internal Revenue Code and shall be interpreted
and construed accordingly.  I agree that TDS shall have sole discretion and
authority to amend such program or this [YEAR] Bonus Deferral Form,
unilaterally, at any time to satisfy any requirements of Section 409A of the
Internal Revenue Code or applicable guidance provided by the Treasury.

 

 

 

 

SIGNATURE

 

DATE

 

Note:  This Form must be returned to the Corporate Vice President of Human
Resources on or before [December     , [YEAR – 1]].

 

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